[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Proposed Rules]
[Pages 69064-69065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32934]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 61
[CC Docket Nos. 87-313 and 93-197, FCC 96-454]
Policy and Rules Concerning Rates for Dominant Carriers;
Revisions to Price Cap Rules for AT&T
AGENCY: Federal Communications Commission.
ACTION: Proposed Rules; termination.
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SUMMARY: This Order terminates as moot proceedings concerning the
treatment of AT&T Corp.'s (AT&T) offerings of promotions and optional
calling plans (OCPs) under price cap regulation in light of the
Commission's determination that AT&T is non-dominant and the resultant
removal of AT&T's services from price cap regulation.
DATES: Proceedings were terminated November 26, 1996.
FOR FURTHER INFORMATION CONTACT: Joel Taubenblatt, 202-418-1513.
SUPPLEMENTARY INFORMATION: The text of the Commission's Order in CC
Dockets Nos. 87-313 and 93-197, FCC 96-454, adopted November 21, 1996,
and released November 26, 1996, appears below:
I. Introduction
1. In this Order, we terminate as moot proceedings concerning the
treatment of AT&T Corp.'s (AT&T) offerings of promotions and optional
calling plans (OCPs) under price cap regulation 1 in light of our
determination that AT&T is non-dominant and the resultant removal of
AT&T's services from price cap regulation.2
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\1\ Policy and Rules Concerning Rates for Dominant Carriers, CC
Docket No. 87-313, Order and Notice of Proposed Rulemaking, 8 FCC
Rcd 3715 (1993), 58 FR 31936, June 7, 1993 (Promotions NPRM);
Revisions to Price Cap Rules for AT&T, CC Docket No. 93-197, Notice
of Proposed Rulemaking, 8 FCC Rcd 5205 (1993), 58 FR 44157, August
19, 1993 (OCP NPRM); Policy and Rules Concerning Rates for Dominant
Carriers, CC Docket No. 87-313, and Revisions to Price Cap Rules for
AT&T, CC Docket No. 93-197, Further Notice of Proposed Rulemaking,
10 FCC Rcd 7854 (1995), 60 FR 28774, June 2, 1995 (Further NPRM).
\2\ Motion of AT&T Corp. to be Reclassified as a Non-Dominant
Carrier, 11 FCC Rcd 3271 (1995) (AT&T Reclassification Order),
recon. pending. In a subsequent order, the Commission removed AT&T's
remaining price cap services, international services, from price cap
regulation. Motion of AT&T Corp. to be Declared Non-Dominant for
International Service, Order, FCC 96-209 (rel. May 14, 1996).
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II. Background
2. In 1989, the Commission replaced traditional rate of return
regulation with an incentive-based system of regulation, called price
caps, for most of AT&T's services.3 To implement the price cap
system, the Commission defined three categories of AT&T services, or
baskets, and defined a price cap index (PCI) for each basket.4 The
basket structure was designed so that AT&T would not be able to raise
prices for services in one basket in order to lower prices for
dissimilar services in another basket. Therefore, a change in rates in
one basket or in services outside of price caps would not affect either
the PCI or the actual price index (API) 5 for the other baskets.
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\3\ Policy and Rules Concerning Rates for Dominant Carriers, CC
Docket No. 87-313, Notice of Proposed Rulemaking, 2 FCC Rcd 5208
(1987), 52 FR 33962, September 9, 1987; Further Notice of Proposed
Rulemaking, 3 FCC Rcd 3195 (1988), 53 FR 22356, June 15, 1988;
Report and Order and Second Further Notice of Proposed Rulemaking, 4
FCC Rcd 2873 (1989), 54 FR 19836, May 8, 1989 (AT&T Price Cap
Order); Erratum, 4 FCC Rcd 3379 (1989); Memorandum Opinion and Order
on Reconsideration, 6 FCC Rcd 665 (1991), 56 FR 5952, February 14,
1991 (AT&T Price Cap Reconsideration Order), remanded sub nom. AT&T
v. FCC, 974 F.2d 1351 (D.C.Cir. 1992) (Remand Order). Those services
that are not under price cap regulation are subject to streamlined
regulation, which reduces their regulatory obligations under Part 61
of the Commission's rules, 47 CFR Part 61.
\4\ See Further NPRM, 10 FCC Rcd at 7855-56, for an explanation
of how the price cap index is calculated.
\5\ The API represents a weighted average of actual prices of
the services within the basket. Id.
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3. The Commission was silent in the AT&T Price Cap Order as to the
treatment of promotional rates under price caps.6 After the
Commission adopted the price cap rules, AT&T filed tariffs for a
significant number of promotions in which it treated the rates
associated with these offerings as rate reductions for purposes of API
calculations. MCI Telecommunications Corporation (MCI) and Sprint
Communications Company LP (Sprint) sought reconsideration of the AT&T
Price Cap Order, requesting clarification of the price cap treatment of
promotions. In the AT&T Price Cap Reconsideration Order, the Commission
decided to exclude promotions from the price cap index prospectively.
It reasoned that including promotional rates in price caps would give
AT&T a greater degree of flexibility than warranted to offset the
discounted promotional rates with increases in residential and small
business rates within Basket 1.7
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\6\ Id. at 7857.
\7\ AT&T Price Cap Reconsideration Order at 671.
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4. AT&T sought judicial review of the AT&T Price Cap
Reconsideration Order. The United States Court of Appeals for the
District of Columbia Circuit found that the Commission's decision to
exclude promotional tariffs from the price cap index was not a reasoned
decision supported by the record. The court remanded the AT&T Price Cap
Reconsideration Order to the Commission with instructions either to
show that its action was a clarification of the original AT&T Price Cap
Order, or to ``offer a reasoned explanation of why promotional rates
should be treated differently from other rates.'' 8
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\8\ Remand Order, 974 F.2d at 1355.
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5. In response, the Commission vacated its prior decision on this
issue and issued the Promotions NPRM in Docket 87-313.9 In the
Promotions NPRM, the Commission tentatively concluded that promotions
should be excluded from price cap regulation prospectively. The
Commission found that AT&T was able to insulate itself from revenue
losses created by promotional discounts by raising its rates for other
residential services in Basket 1.10 The Commission relied upon
evidence that AT&T had taken advantage of any downward price
flexibility generated by promotions to raise other rates in Basket 1,
thereby keeping aggregate rates at the price cap maximum. According to
the Commission, ``[p]ermitting promotional offerings to be used as a
basis for raising basic schedule rates, without limitation, would
strongly encourage the proliferation of excessive promotional offerings
and undercut the efficiency incentives of the price cap program.''
11 As an alternative, the Commission sought comment on whether to
treat promotions as either new or restructured services.12
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\9\ Promotions NPRM, 8 FCC Rcd 3715.
\10\ Id. at 3716.
\11\ Id.
\12\ Id. at 3717. Under price cap regulation, a service is
classified as new if it provides an additional option to a service,
but does not replace the existing service. A service is classified
as a restructured offering if it replaces an existing service. See
Sections 61.44(g), 61.46(b), and 61.47(b) of the Commission's rules,
47 CFR Secs. 61.44(g), 61.46(b), and 61.47(b).
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[[Page 69065]]
6. In the OCP NPRM, the Commission tentatively concluded that the
ReachOut category of services (i.e., most domestic MTS OCPs) should be
removed from Basket 1 because there is substantial competition among
providers of discounted residential services.13 The Commission
sought comment on whether the treatment of OCPs under the AT&T price
cap plan should be changed, and, if so, in what manner. Specifically,
the Commission sought comment on whether it should adjust the API or
the PCI for Basket 1 to reflect the removal of OCPs from Basket 1. As
an alternative to removal of OCPs from price cap regulation, it asked
for comment on whether OCPs should remain subject to price cap
regulation, but be placed in a separate basket.14
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\13\ OCP NPRM, 8 FCC Rcd at 5205-6. The price cap system's
treatment of OCPs differs from that accorded promotions. OCPs are
included in a separate service category (the ReachOut service
category) from the basic MTS service categories within Basket 1,
whereas promotions are included in the applicable MTS service
categories. Changes in OCP rates, therefore, are not subject to the
same limitations on rate changes as the basic schedule service
categories. Further NPRM, 10 FCC Rcd at 7859.
\14\ The Commission also proposed a number of other changes to
the price cap rules in the OCP NPRM, including whether to remove
commercial, 800 Directory Assistance, and analog private line
services from price caps. In the Report and Order in CC Docket No.
93-197, 10 FCC Rcd 3009 (1995), 60 FR 4569, January 24, 1995
(Commercial Services Price Cap Order), the Commission resolved these
issues, removed commercial services from price cap regulation, and
deferred the question of the regulatory treatment of OCPs to this
proceeding.
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7. Because the issues presented in determining the regulatory
treatment of promotions and OCPs were closely related, we consolidated
these issues in a Further Notice of Proposed Rulemaking.15 In the
Further NPRM, we made several tentative conclusions. We determined that
Basket 1 domestic MTS promotions, domestic MTS OCPs, and basic schedule
MTS offerings exhibit significant cross-elasticities of demand and are
generally offered to the same class of customers, i.e., residential
customers, following the removal of AT&T's domestic commercial services
from price cap regulation.16 If we removed domestic MTS OCPs and
promotions from price caps, the result would be that some of AT&T's
offerings of domestic MTS for residential customers would be
streamlined while retaining price cap regulation for similar offerings
to the same class of customers. We declined to take this step and
determined that the issue of further streamlining of OCPs and
promotions might be better considered together with AT&T's motion for
non-dominant status in a separate proceeding. We did propose, however,
a number of related modifications to AT&T's price cap plan.
Specifically, we recommended that, because promotions and OCPs are
simply different ways of pricing the same service, they should be
redefined as alternative pricing plans (APPs) for domestic, residential
MTS, which co-exist with the basic domestic MTS rate schedule.17
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\15\ Further NPRM, 10 FCC Rcd 7854.
\16\ Id. at 7861.
\17\ Id. at 7862.
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8. On October 23, 1995, we released an order granting AT&T's motion
to be reclassified as a non-dominant carrier.18 The Commission
defined the relevant product and geographic market for AT&T, under the
Competitive Carrier paradigm,19 as the interstate, domestic,
interexchange market.20 We then decided that the appropriate
standard to evaluate AT&T's reclassification request was whether AT&T
possessed market power in the overall relevant market, even if AT&T has
the ability to control the prices of one or more services. Applying
this standard to the record, the Commission concluded that the market
structure characteristics and the indicia of market conduct and
performance all indicate that AT&T lacks market power in the
interstate, domestic, interexchange market.21
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\18\ AT&T Reclassification Order, 11 FCC Rcd 3271.
\19\ Policy and Rules Concerning Rates for Competitive Common
Carrier Services and Facilities Authorizations Therefor, CC Docket
No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308
(1979), 44 FR 67445, November 26, 1979; First Report and Order, 85
FCC 2d 1 (1980), 45 FR 76148, November 18, 1980; Further Notice of
Proposed Rulemaking, 84 FCC 2d 445 (1981), 46 FR 10924, February 5,
1981; Second Further Notice of Proposed Rulemaking, FCC 82-187, 47
FR 17308 (1982); Second Report and Order, 91 FCC 2d 59 (1982), 47 FR
37889, August 27, 1982; Order on Reconsideration, 93 FCC 2d 54
(1983); Third Further Notice of Proposed Rulemaking, 48 FR 28292
(1983); Third Report and Order, 48 FR 46791 (1983); Fourth Report
and Order, 95 FCC 2d 554 (1983), 48 FR 52452, November 18, 1983,
vacated, AT&T v. FCC, 978 F.2d 727 (D.C.Cir. 1992), cert. denied,
MCI Telecommunications Corp. v. AT&T, 113 S.Ct. 3020 (1993); Fourth
Further Notice of Proposed Rulemaking, 96 FCC 2d 922 (1984), 49 FR
11856, March 28, 1984; Fifth Report and Order, 98 FCC 2d 1191
(1984), 49 FR 34824, September 4, 1984; Sixth Report and Order, 99
FCC 2d 1020 (1985), 50 FR 1215, January 10, 1985, vacated, MCI
Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C.Cir. 1985)
(collectively referred to as the Competitive Carrier proceeding).
\20\ AT&T Reclassification Order, 11 FCC Rcd at 3292.
\21\ Id. at 3347.
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9. The Commission noted that the reclassification of AT&T as a non-
dominant carrier would free AT&T from price cap regulation for its
residential, operator, 800 directory assistance, and analog private
line services.22 By subsequent order, we removed AT&T's
international services from price cap regulation as well, thus
completing the process of ending price cap regulation of AT&T.23
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\22\ Id. at 3281.
\23\ Motion of AT&T Corp. to be Declared Non-Dominant for
International Service, Order, FCC 96-209 (rel. May 14, 1996).
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III. Discussion
10. In the AT&T Reclassification Order, we granted AT&T's motion to
be reclassified as a non-dominant carrier.24 The reclassification
of AT&T as a non-dominant carrier resulted in the end of price cap
regulation for AT&T's residential, operator, 800 directory assistance,
and analog private line services. Since AT&T's domestic MTS, including
promotions and OCPs, is no longer subject to price caps, the issues
raised in our tentative conclusions and proposals in the Further NPRM
concerning whether to remove promotions and OCPs from price cap
regulation are now moot. Similarly, the issues raised by the D.C.
Circuit in the Remand Order in CC Docket No. 87-313 are moot.
Accordingly, we will terminate as moot CC Docket Nos. 87-313 and 93-
197.
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\24\ AT&T Reclassification Order, 11 FCC Rcd 3271.
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IV. Ordering Clause
11. Accordingly, it is ordered that CC Docket Nos. 87-313 and 93-
197 are terminated as moot.
List of Subjects in 47 CFR Part 61
Communications common carriers.
Federal Communications Commission
Shirley S. Suggs,
Chief, Publications Branch.
[FR Doc. 96-32934 Filed 12-30-96; 8:45 am]
BILLING CODE 6712-01-P
