[Federal Register Volume 61, Number 22 (Thursday, February 1, 1996)]
[Proposed Rules]
[Pages 3644-3657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1974]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 20, 61, and 69
[CC Docket Nos. 95-185 and 94-54, FCC 95-505]
Interconnection Between Local Exchange Carriers and Commercial
Mobile Radio Service Providers; Equal Access and Interconnection
Obligations Pertaining to Commercial Mobile Radio Service Providers
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commission is issuing this Notice of Proposed Rulemaking
seeking comment on possible changes in the regulatory treatment of
interconnection compensation arrangements between LECs and CMRS
providers and related issues. The Notice tentatively concludes that in
order to ensure the continued development of wireless services as a
potential competitor to LEC services, the Commission should move
expeditiously to adopt interim policies governing the rates charged for
LEC-CMRS interconnection. The Notice further tentatively concludes
that, at least for an interim period, interconnection rates for local
switching facilities and connections to end users should be priced on a
``bill and keep'' basis (i.e., both the LEC and the CMRS provider
charge a rate of zero for the termination of traffic), and that rates
for dedicated transmission facilities connecting LEC and CMRS networks
should be set based on existing access charges for similar transmission
facilities. The Notice seeks comment on these tentative conclusions and
on a number of alternative pricing options for LEC-CMRS interconnection
arrangements. The Notice tentatively concludes that information about
interconnection compensation arrangements should be made publicly
available, and seeks comment on what method to use to achieve this
objective, such as tariffing, public disclosure, or some other
approach. The Notice seeks comment on how to implement both interim and
permanent interconnection policies (i.e., a non-binding model, or
mandatory general or specific federal requirements), and tentatively
concludes that the Commission has authority to adopt these approaches.
[[Page 3645]]
The Notice also proposes compensation arrangements that should apply to
interstate, interexchange traffic traversing interconnections between
LECs and CMRS providers, which typically involve an interexchange
carrier (IXC).
DATES: Comments are due on or before February 26, 1996 and Reply
comments are due on or before March 12, 1996.
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., 2100 M Street, NW, Suite 140, Washington, DC 20037.
Comments and reply comments will be available for public inspection
during regular business hours in the FCC Reference Center, 1919 M
Street, NW, Room 239, Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT: David Sieradzki at (202) 418-1576 or
Kathleen Franco at (202) 418-1932, Common Carrier Bureau, Policy and
Program Planning Division.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rulemaking adopted December 15, 1995 and released January
11, 1996 (FCC-95-505). The full text of this Notice of Proposed
Rulemaking is available for inspection and copying during normal
business hours in the FCC Reference Center (Room 239), 1919 M St., NW,
Washington, DC. The complete text also may be obtained through the
World Wide Web, at http: //www.fcc.gov/Bureaus/Common Carrier/Notices/
fcc95505.wp, or may be purchased from the Commission's copy contractor,
International Transcription Service, Inc., (202) 857-3800, 2100 M St.,
NW, Suite 140, Washington, DC 20037.
Synopsis of Notice of Proposed Rulemaking
I. Introduction
A. Summary
1. In this Notice, the Commission continues its examination of
whether our policies related to interconnection between commercial
mobile radio service (CMRS) providers and local exchange carriers
(LECs) are sufficient to advance the public interest. We currently
require LECs to offer interconnection to CMRS providers on reasonable
terms and conditions, and to do so under the principle of mutual
compensation. We have not, however, set specific limits on the price of
such interconnection, nor have we required that interconnection
agreements be filed with regulatory authorities or that interconnection
be provided pursuant to tariff.
2. We are concerned that existing general interconnection policies
may not do enough to encourage the development of CMRS, especially in
competition with LEC-provided wireline service. LECs unquestionably
still possess substantial market power in the provision of local
telecommunications services. If commercial mobile radio services, such
as broadband personal communications services (PCS), cellular telephone
services, satellite telephony, and interconnected specialized mobile
radio (SMR) services, are to begin to compete directly against LEC
wireline services, it is important that the prices, terms, and
conditions of interconnection arrangements not serve to buttress LEC
market power against erosion by competition.
3. This Notice therefore considers the policy issues involved in
establishing compensation arrangements for LEC-CMRS interconnection. We
tentatively conclude that in order to ensure the continued development
of wireless services as a potential competitor to LEC services, we
should move expeditiously to adopt interim policies governing the rates
charged for LEC-CMRS interconnection. We further tentatively conclude
that, at least for an interim period, interconnection rates for local
switching facilities and connections to end users should be priced on a
``bill and keep'' basis (i.e., both the LEC and the CMRS provider
charge a rate of zero for the termination of traffic), and that rates
for dedicated transmission facilities connecting LEC and CMRS networks
should be set based on existing access charges for similar transmission
facilities. We seek comment on these tentative conclusions and on a
number of alternative pricing options for LEC-CMRS interconnection
arrangements. We also tentatively conclude that information about
interconnection compensation arrangements should be made publicly
available, and seek comment on what method to use to achieve this
objective, such as tariffing, public disclosure, or some other
approach. We also seek comment on how we should implement both interim
and permanent interconnection policies (i.e., a non-binding model, or
mandatory general or specific federal requirements), and we tentatively
conclude that we have authority to adopt these approaches. In addition,
we propose compensation arrangements that should apply to interstate,
interexchange traffic traversing interconnections between LECs and CMRS
providers, which typically involve an interexchange carrier (IXC).
B. Overview
1. Goals. 4. In developing policies regarding LEC-CMRS
interconnection, our overriding goal is to maximize the benefits of
telecommunications for the American consumer and for American society
as a whole. As with other areas of common carrier policy, we adopt
policies that are intended to create or replicate market-based
incentives and prices for both suppliers and consumers. By relying on
market-based incentives and prices, where possible, and replicating
them, where necessary, our policies have sought to ensure the
availability to consumers of goods and services at the lowest overall
cost. With the most efficient firms producing goods and services at the
lowest cost, consumers benefit from lower prices. With consumers
receiving cost-based pricing signals, they purchase communications
goods and services only when they receive value greater than or equal
to the cost of producing them. In general, reasonable and non-
discriminatory rates should give consumers incentives to purchase the
combination of services that they most value. As a matter of long-term
policy, functionally equivalent services--including services related to
network interconnection--should be available to all classes of
consumers at the same prices, unless there are cost differences or
policy considerations that justify different rates. In addition, these
policies, over time, should ensure an efficient level of innovation in
terms of the development of new services and the deployment of new
technology, as well as the efficient entry of new firms. Service
providers should make optimal levels of investments in developing new
technologies and new services, and consumers should receive the maximum
benefit from their purchases of telecommunications services.
5. Our policies also have sought to ensure and advance universal
basic telephone service. For individual households, being connected to
telecommunications networks--whether wireline LEC networks or wireless
CMRS networks--facilitates access to emergency services, employment and
educational opportunities, and social interaction. We recognize that
not all the societal benefits accrue to the
[[Page 3646]]
individual being connected with the network. Thus, we have pursued our
mandate under the Communications Act by adopting specific programs
designed to advance universal service in areas and for individuals
where special needs exist.
6. Our primary means for achieving these public interest goals has
been competition. Competition drives prices toward cost: In a
competitive market, rival service providers will have strong incentives
to reduce their prices to attract customers until prices approach their
costs. The cost-based prices achieved in competitive markets ensure
optimal utilization of the network by consumers and give service
providers accurate information regarding the benefits and costs of
introducing new services and incentives for investing in technological
innovations. In addition, competition gives producers strong incentives
to stimulate demand and reduce costs. By forcing producers to minimize
the per-unit costs of providing service, competition generally
advances, rather than hinders, universal service. It increases the
number of consumers willing and able to connect to the nation's
telecommunications networks.
7. Of course, full competition does not exist in many areas of
telecommunications, and, because of the general benefits society
derives from universal service, even full competition by itself may not
be sufficient to further our public interest goals. In those
circumstances, policymakers may need to intervene. Regulatory policies
should be capable of implementation in a timely manner, cost-effective
to both regulators and industry, and enforceable.
2. Need for Reform. 8. The Communications Act provides that
carriers shall offer interconnection when it is determined to be in the
public interest. The ability to interconnect has become more important
because today telecommunications is increasingly provided by a system
of independent, interconnected networks, often referred to as a
``network of networks.'' In this environment, the ability of
communications to move seamlessly from one network to another is
becoming increasingly vital. Uneconomic and unnecessary barriers to the
flow of communications between the increasing number of diverse
networks would seriously undermine the benefits of telecommunications
to consumers and the American economy and would impede the development
of competition between network providers.
9. Efficient interconnection with LEC networks, which reach, on a
nationwide basis, 93.8% of all households, benefits both subscribers
and providers of services. First, interconnection enables new providers
to compete with incumbent LECs on the basis of the services they offer
the public and the prices, quality, and features of those services. In
the complete absence of interconnection, prospective new entrants would
have to attract enough capital to build and provide origination,
transport, and termination services for an entire geographic area, such
as a metropolitan area. Second, interconnection allows subscribers of
one network to obtain access to subscribers of all other interconnected
networks. In a market with multiple and possibly competing networks, it
is unlikely that all people would subscribe to all networks. Thus,
without interconnection, subscribers to one network may be unable to
reach people who subscribe only to some other network.
10. The availability of interconnection cannot, however, be
divorced from its price. Interconnection that is priced too high can be
the marketplace equivalent of no interconnection. An interconnection
obligation is undermined if the charges imposed for interconnection are
excessive, and society will not enjoy the benefits described above. On
the other hand, if interconnection is available at an unreasonably low
price, service providers that otherwise may have built their own
facilities to serve part of a LEC's service territory in competition
with the LEC may decline to do so. Facilities-based competition can
confer benefits on customers such as lower prices, accelerated
innovation, and deployment of new technologies. Interconnection at
efficient prices should lead to the highest and best use of the
existing telecommunications infrastructure, as well as the expansion of
this infrastructure, because proper pricing will send economically
efficient signals to firms to decide whether the costs of
interconnection in a particular case are less than or greater than the
benefits of interconnection.
11. In the absence of market power or other distortions, efficient
forms of interconnection may develop through private negotiation. For
example, small interexchange carriers interconnect with one another,
and purchase and resell one another's services, with little or no
outside involvement. Similarly, Internet service providers have
developed interconnection arrangements without intervention by outside
parties.
12. LECs, however, unquestionably still possess substantial market
power in the provision of local telecommunications services. Thus, a
LEC may have the incentive and the ability to prevent or reduce the
demand for interconnection with a prospective local competitor, such as
a CMRS provider, below the efficient level by denying interconnection
or setting interconnection rates at excessive levels. Such abuse of
market power could lead to at least two problems. First, a LEC may
extract monopoly rents for interconnection. Excessive prices for
termination of CMRS-originated traffic would lead to retail prices
(charged to CMRS customers) that are above the efficient level and thus
discourage CMRS customers from placing calls to wireline customers that
would be made if LEC interconnection rates were set at efficient
levels. Second, a LEC may attempt to restrict the entry of potential
competitors. To the extent that certain CMRS providers are potential
competitors to a LEC's local telephone service, or to the extent that a
LEC may wish to provide certain wireless services, a LEC may have an
incentive to withhold interconnection from some CMRS providers. Even
where interconnection is mandated, a LEC still could potentially
restrict entry either by setting the interconnection rates
prohibitively high or by specifying technical requirements for
interconnection that are disadvantageous for the connecting network.
13. Another potential problem is that a LEC and an interconnecting
CMRS provider may have the incentive and the ability to engage in
collusive behavior. If the CMRS provider constitutes a substitute for
the LEC network, the two networks could negotiate a high per minute
charge to terminate each other's traffic as a means of giving each
incentives to charge customers supra-competitive rates for local
exchange service. It may be particularly likely that such collusive
behavior could occur in cases where the CMRS provider is an affiliate
of the LEC. Negotiation of interconnection arrangements could be used
as a vehicle to keep the retail price of their respective retail
services uneconomically high at the expense of customers. Depending on
market structure developments, intervention may be necessary to prevent
such outcomes.
14. As set forth below, we have recognized LEC market power by
requiring that LECs interconnect with CMRS providers. Under our rules,
LECs must negotiate in good faith to provide the type of
interconnection arrangement desired by CMRS providers under the
principle of mutual compensation, and to furnish interconnection for
interstate
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traffic at reasonable and non-discriminatory rates. In response to an
earlier Notice relating to CMRS interconnection issues, many commenters
strongly argued, however, that our current policy can be and is being
used by LECs to reduce competition. LECs typically terminate many more
calls that originate from the cellular network than an interconnecting
cellular network terminates LEC-originated calls. This is due, in part,
to cellular customers' reluctance to give out their wireless telephone
numbers (since they generally are charged for incoming calls), charges
for cellular air time, or technical limitations on cellular telephones
(e.g., limited battery life). Because of this imbalance, LECs clearly
would benefit competitively from maintaining high, even if symmetrical,
interconnection charges. With the growing significance of
interconnection and competition in today's telecommunications
environment, we believe that a reexamination of our policies addressing
compensation arrangements for LEC-CMRS interconnection is essential.
II. Compensation for Interconnected Traffic Between LECS and CMRS
Providers' Networks
A. Compensation Arrangements
1. Existing Compensation Arrangements. 15. According to the
comments received in this proceeding, at present, cellular carriers
typically pay LECs three types of usage-sensitive charges for local
calls from cellular subscribers to LEC subscribers, regardless of the
physical interconnection facility used: (1) Per-call charges for call
set-up; (2) per-minute charges for usage; and (3) per-minute, per-mile
charges for transport between the cellular carrier's mobile telephone
switching office (MTSO) and the LEC's tandem or end-office switch. Some
cellular carriers contend that, notwithstanding our mutual compensation
requirement, they typically are forced to pay LECs these charges for
calls originating from cellular customers and terminating to LEC
wireline customers, as well as for calls originating from LEC customers
and terminating to cellular customers. Commenters also submit that,
typically, substantially more traffic flows from cellular carriers to
LECs than vice versa. This may be due to cellular customers' reluctance
to give out their wireless telephone numbers, because of charges for
cellular air time, technical limitations on cellular telephones (e.g.,
limited battery life), or other factors. On the other hand, for
services such as paging, most (or all) of the interconnected traffic
flows from LECs to CMRS providers, rather than vice versa, because most
pager devices are incapable of originating calls.
16. We invite commenting parties to provide more detailed
information about existing LEC-CMRS interconnection arrangements.
Specifically, we are interested in data regarding the rate structures
and price levels in those arrangements. We also request comment on what
facilities and technical arrangements are used in providing LEC-CMRS
interconnection, what rate elements are applicable to providing the
services, and the functions that are associated with each rate element.
To what extent are these arrangements filed in tariffs before state
commissions, or are otherwise publicly disclosed? To what extent do
these arrangements make use of provisions in FCC tariffs? We also seek
comment on the extent of, and reasons for, the imbalance of traffic
flowing between LECs and CMRS providers. Are traffic flows likely to be
more balanced in the future for existing commercial mobile radio
services or new services such as PCS? Do LECs' current charges/tariffs
differ depending on the flow of traffic? We also invite parties to
submit data on the extent to which existing LEC-CMRS interconnection
arrangements involve both interstate and intrastate traffic. In
particular, we seek empirical data and analysis on the extent to which
significant levels of interstate wireless traffic are being carried
under such arrangements. We also seek comment on the extent to which
our mutual compensation requirement is not being observed in the
marketplace.
2. General Pricing Principles. a. Rate Structure. 17. In general,
we believe that costs should be recovered in a manner that reflects the
way they are incurred. Network providers incur costs in providing two
broad categories of facilities, dedicated and shared. Dedicated
facilities are those that are used by a single party--either an end
user or an interconnecting network. Shared facilities are those that
are used by multiple parties. Shared facilities can be further divided
into two sub-categories, those that need to be augmented to increase
the network's capacity and those that need not. In the first such sub-
category are facilities, such as switches and multiplexing electronics,
for which incremental investments can increase the volume of traffic
that the network can handle during peak periods. In the second such
sub-category are facilities, such as telephone poles and buildings that
house equipment, whose capacity will not restrict the volume of traffic
that the network can handle during peak periods.
18. The cost of a dedicated facility can be attributed directly to
the party ordering the service that uses that facility. To the extent
that the benefits of a dedicated facility accrue to the party to whom
it is dedicated, it is efficient for that party to pay charges that
recover the full cost of the facility. To ensure that the party pays
the full fixed cost of the facility, the cost should be recovered on a
non-traffic sensitive (NTS) basis (i.e., without regard to actual
usage). Charging a flat, cost-based rate ensures that a customer will
pay the full fixed cost of the facility, and no more; this ensures that
the customer will, for example, add additional lines if and only if the
customer believes that the benefits of the additional lines will exceed
their cost. An additional advantage of a flat fee is that it does not
distort usage. The alternative, a usage-based charge, would cause
parties with high traffic volumes to overpay (i.e., pay more than the
fixed cost of the facility), while parties with low traffic volumes
would underpay (i.e., pay less than the fixed cost of the facility). In
addition, a usage-based charge would give all parties an uneconomic
incentive to reduce their traffic volumes or to avoid connecting with
networks that impose such charges. It would also give parties with low
volumes of traffic, who face below-cost prices, an incentive to add
lines that they valued below their cost.
19. The costs of shared facilities whose cost varies with capacity,
such as network switching, should be recovered in a manner that
efficiently apportions costs among users. Since the cost of capacity is
a function of the volume of traffic the facilities are able to handle
during peak load periods, we believe, as a matter of economic theory,
that network capacity costs should primarily be recovered through
traffic-sensitive (TS) rates charged for peak period traffic, with
lower rates for non-peak usage. The peak load price should be designed
to recover at least the cost of the incremental network capacity added
to carry peak period traffic. Pricing traffic during peak periods based
on the cost of the incremental capacity needed to handle additional
traffic is economically efficient because additional traffic will be
placed on the network if and only if the user or interconnecting
network is willing to pay the cost of the incremental network capacity
required to handle this additional traffic. Such pricing also ensures
that a call made during the peak period generates enough revenue to
[[Page 3648]]
cover the cost of the facilities expansion it requires, and it thus
gives carriers an incentive to expand and develop the network
efficiently. In contrast, off-peak traffic imposes relatively little
additional cost because it does not require any incremental capacity to
be added, and consequently, the price for carrying off-peak traffic
should be lower.
20. We recognize that there may be practical problems in
implementing a peak sensitive pricing system. For example, different
parts of a given provider's network may experience peak traffic volumes
at different times (e.g., in LEC networks, business districts may
experience their peak period between 10 and 11 a.m., while suburban
areas may have their peak periods between 7 and 8 p.m.). Moreover, peak
periods may change over time. For instance, charging different prices
for calls made during different parts of the day may cause some
customers to shift their calling to the less expensive time periods,
which could potentially shift the peak or create new peaks. We seek
comment on whether a system with a long peak period (e.g., 8 a.m. to 9
p.m.) and with peak and off-peak rates that reflect both the difference
in costs across these periods and customers' propensity to substitute
across time periods would improve the utilization rates of the network
and would be administratively simple. We seek comment on this analysis,
and on possible methods for implementing peak-load pricing or other
schemes to recover shared network capacity costs. We also seek comment
on possible administrative costs associated with peak-load pricing or
other schemes to recover shared network capacity costs.
21.There are also certain shared facilities, such as land,
buildings, and telephone poles, whose costs do not vary with capacity
(or peak period traffic volumes). As we discuss in the following
section on rate levels, there are theoretical and practical problems
associated with recovering these shared costs and overheads. We seek
comment on how these costs should be recovered and, in particular, on
whether they should be recovered entirely through peak rate charges, or
through off-peak rates as well. Finally, we note that a carrier may
incur varying costs to provide a given service in different geographic
areas. We seek comment on how this should be taken into account.
b. Rate Levels. (1) Long Run Incremental Costs. 22. The long run
incremental cost (LRIC) of a service is the theoretical foundation for
efficient pricing of interconnection and other network services.
Economists generally agree that prices based on LRIC reflect the true
economic cost of a service and give appropriate signals to producers
and consumers and ensure efficient entry and utilization of the
telecommunications infrastructure. Since customers will buy a good only
if the benefit to the customer exceeds the price, prices based on LRIC
ensure that customers purchase a good only when the benefit exceeds the
cost. Similarly, since firms will offer a service when the revenue
exceeds the cost, prices based on LRIC ensure a firm has an incentive
to offer a service when customers' willingness to pay for the service
exceeds the cost of providing it.
23. Pricing at LRIC raises some difficulties, however. First,
attempting to determine the LRIC of a specific service for a particular
LEC is likely to raise significant practical and administrative
problems. In addition, given that services are provided over shared
facilities and there are economies of scale and scope, setting the
price of each discrete service based on the LRIC of that service will
not recover the total costs of the network. Similarly, where
technological developments are reducing the costs of providing service,
setting the price of discrete services equal to the forward-looking
LRIC of each service is not likely to recover the historical, embedded
costs of the network (or the interstate share of such costs assigned by
our Part 36 separations rules). We seek comment on the empirical
magnitude of these cost differentials.
(2) Recovering Costs in Excess of Long Run Incremental Costs. 24.
The fact that pricing based on the LRIC of specific services may not
cover all common costs raises difficult issues for pricing
interconnection. In particular, this problem means that, if all costs
are to be recovered, some services must be priced above LRIC, which
will cause some distortions. It is therefore necessary to consider
whether terminating carriers should be allowed to recover such costs in
excess of LRIC, and if so, to address the method of recovering such
costs that would minimize economic distortions and best advance our
goals. We seek comment on how best to deal with this recovery issue
and, in particular, on the following approaches.
25. One approach would be to allow carriers to set LEC-CMRS
interconnection rates equal to the LRIC of the individual services
associated with interconnection, and to recover common costs by having
the rates for other services, such as vertical calling features (e.g.,
call waiting, call forwarding, or caller ID), exceed LRIC. This would
clearly benefit those CMRS and LEC networks that seek to interconnect
with one another's network. We seek comment on whether, and on what
basis, LEC-CMRS interconnection offerings should be treated differently
from a carrier's other service offerings, which generally are priced to
recover some portion of shared costs and overheads.
26. Another approach would be to allocate shared costs and overhead
among services in an inverse relationship to the sensitivity of demand
for each of the services. Under this ``Ramsey rule,'' a higher
percentage of shared costs and overheads would be allocated to services
for which the quantity demanded declines less as the price increases,
than to services for which demand is more sensitive to changes in
price. In theory, this approach has the advantage that it efficiently
minimizes reductions in the quantities of services demanded due to
prices above LRIC. While demand sensitivity is clearly relevant to
setting efficient prices, there is some concern about how Ramsey
principles should be applied to markets subject to actual or potential
competition. We recognize that Ramsey pricing principles were developed
in the context of a regulated monopoly and not for markets subject to
existing or potential competition. We seek comment on whether such an
approach is desirable for markets in which competition is developing.
We also seek comment on whether such a pricing rule is in the public
interest, given that it may result in imposing the greatest burdens on
those customers who have the fewest alternatives.
27. A third commonly employed alternative would be to allocate
shared costs and overheads among all services based on some specified
allocator. For example, shared costs and overheads could be allocated
among services uniformly in proportion to each service's LRIC or direct
costs, or could be apportioned based on some measure of usage. The
advantages of these allocators are that they are relatively simple to
administer and result in full recovery of all shared and overhead
costs. A principal drawback of this approach, however, is that it may
have undesirable effects on demand for particular services. More
specifically, such allocators do not minimize the distortions in demand
caused by divergences between price and LRIC, and may induce
inefficient investment by incumbents and entrants. In addition, or in
the alternative, we could limit the permissible overhead loading factor
a LEC could collect from an interconnecting CMRS provider to the
overhead loading factor that the LEC
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uses for some comparable service or services that compete with CMRS
offerings.
28. A fourth approach would be to allow incumbent carriers such as
LECs to employ the ``efficient component pricing rule'' (ECPR) proposed
by economist William Baumol and others. Under this approach, an
incumbent carrier that sells an essential input service, such as
interconnection, to a competing network would set the price of that
input service equal to ``the input's direct per-unit incremental cost
plus the opportunity cost to the input supplier of the sale of a unit
of input.'' The ECPR essentially guarantees that the incumbent will
recover not only all of its overheads, but also any profits that it
would otherwise forego due to the entry of the competitor. Proponents
of the ECPR argue that the ECPR creates an incentive for services to be
provided by the least-cost provider and that it makes the incumbent
indifferent between selling an input service to a competitor or a final
service to an end user. Critics, however, have shown that these
properties only hold in special circumstances. On the other hand, some
express concern that the ECPR may inhibit beneficial entry. In
addition, because the ECPR would permit an incumbent carrier to recover
its opportunity costs, including any monopoly profits in the sale of
the final service, the use of this rule may prevent competitive entry
from driving prices towards competitive levels. These arguments cast
significant doubts on claims that the rule will yield efficient
outcomes. Finally, as an administrative matter, it would be difficult
for a regulatory agency to determine the actual level of a carrier's
opportunity cost.
29. Finally, we might adopt an approach that permits a range of
permissible rates (and implicitly of overhead allocations). We note,
for example, that the Commission has repeatedly expressed concern about
preventing cross-subsidies. Some economists have defined the following
alternative tests for cross-subsidy: (1) The price of each individual
service, and of any group of services, must be less than the stand-
alone cost of that service (i.e., the cost of providing that service
alone but no other services); or (2) the revenue from each service and
from all subsets of services must exceed the incremental cost of the
service or the subset of services. According to these definitions, if
either of the two tests is satisfied, there is no cross-subsidy. This
test effectively requires that the revenues generated by any group of
services that share a common facility recover at least the incremental
cost of that facility. We seek comment on this theory, and on whether
it reduces the range of acceptable prices, and hence, implicitly, the
range of acceptable allocation schemes.
30. We seek comment on the foregoing approaches to determining rate
levels, how they might apply in the context of LEC-CMRS
interconnection, the extent to which they are administratively
feasible, and how they will affect rates for other services including
intrastate services. We also seek comment on how these LEC-CMRS
interconnection rate levels could affect telecommunications network
subscribership and universal service. We also ask parties to address
the extent to which these approaches could be implemented in the
context of the specific pricing options discussed in the following
section.
c. Practical Considerations Regarding Cost-Based Pricing. 31. LEC-
CMRS interconnection rates could be based on a specific demonstration
of the costs of providing service, much as we do for establishing rates
for new services under our price cap rules. The new services test
requires price cap LECs to demonstrate that the rates for a new service
recover the direct costs of that service plus a reasonable share of
overhead loadings. We seek comment on whether we should provide
guidance with respect to such a cost showing similar to our
interpretation of the new services test in Telephone Company-Cable
Television Cross Ownership Rules, Memorandum Opinion and Order on
Reconsideration, 59 FR 63909 (December 12, 1994) (Video Dialtone
Reconsideration Order). In addition, we seek comment on how we should
deal with overhead loadings and whether we should employ any of the
alternative approaches discussed in the previous section. We also note
that similar cost justification requirements could be enforced by state
commissions.
32. The approaches described in the preceding paragraph have a
number of advantages, in that they result, at least in theory, in cost-
based rates for particular services. On the other hand, these
approaches have the disadvantage, typically, of requiring contentious,
and time-consuming administrative proceedings to resolve the complex
issues raised by cost studies.
3. Pricing Options. a. Interim Approach. 33. Any significant delays
in the resolution of issues related to LEC-CMRS interconnection
compensation arrangements, combined with the possibility that LECs
could use their market power to stymie the ability of CMRS providers to
interconnect (and may have incentives to do so), could adversely affect
the public interest. We tentatively conclude that it will better serve
the public interest to give providers some degree of certainty, within
a short time, that reasonable interconnection arrangements will be
available. Some of the alternatives described below may approximate the
results of cost studies, and thus provide most of the advantages of the
theoretical model described above, but avoid the main disadvantages--
administrative costs and delays.
34. Accordingly, we tentatively conclude that an interim pricing
approach should be adopted that could be implemented relatively quickly
and with minimal administrative burdens on CMRS providers, LECs, and
regulators. We plan to move forward expeditiously so as to have an
interim pricing approach in place in the near term. Below, we discuss
our tentative conclusion that a bill and keep approach (zero rate for
termination of traffic) should apply with respect to local switching
facilities and connections to end users, with the exception of
dedicated transmission facilities linking the two networks. We also set
out a number of alternative approaches. Our preferred approach or the
alternative options could be adopted as interim solutions for some
limited period of time. We seek comment on whether such an approach
should apply for a prescribed time period, whether months or years, or
until the occurrence of a specific triggering event. With respect to
our preferred approach and each of the alternative options discussed
below, we ask parties to address whether some combination of these
options should be made available, and on the implementation costs for
carriers, as well as the speed with which such options could be
implemented. In particular, we seek comment on the extent to which
modifications would be required in the network to implement such
options (e.g., to collect information necessary for billing and
collection), the cost of such modifications, and who should bear such
costs. We also solicit parties' analysis of the relevant administrative
burdens on the Commission caused by the various options, and the ease
with which these options can be enforced. Finally, we seek comment on
any changes to our approaches that would be necessary or advisable if
LECs and CMRS providers were to change current arrangements for
recovering costs from end users.
(1) Tentative Conclusions. 35. Bill and Keep. We tentatively
conclude that a ``bill and keep'' arrangement represents the best
interim solution with respect to
[[Page 3650]]
terminating access from LEC end offices to LEC end-user subscribers,
and with respect to terminating access from equivalent CMRS facilities
to CMRS subscribers. Under bill and keep arrangements, neither of the
interconnecting networks charges the other network for terminating the
traffic that originated on the other network, and hence the terminating
compensation rate on a usage basis is zero. Instead, each network
recovers from its own end-users the cost of both originating traffic
delivered to the other network and terminating traffic received from
the other network. Bill and keep arrangements yield results that are
equivalent to the networks charging one another incremental cost-based
rates for shared network facilities if the incremental cost of using
such facilities is equal to (or approximates) zero for both networks.
We note that several states, including California, Connecticut, Texas
and Pennsylvania, have implemented bill and keep arrangements, at least
on an interim basis. We tentatively conclude that, as an interim
solution, such bill and keep arrangements should cover both peak and
off-peak time periods.
36. Bill and keep arrangements appear to have a number of
advantages, especially as an interim solution. First, such arrangements
are administratively simple and would require the development of no new
billing or accounting systems. Second, the bill and keep approach
prevents incumbent LECs that possess market power from charging
excessively high interconnection rates. Third, according to proponents,
a bill and keep approach is economically efficient if either of two
conditions are met: (1) Traffic is balanced in each direction, or (2)
actual interconnection costs are so low that there is little difference
between a cost-based rate and a zero rate. Proponents of bill and keep
submit that condition (2) is satisfied in the case of LEC-CMRS
interconnection because they allege that the average incremental cost
of local termination on LEC networks is approximately 0.2 cents per
minute.
37. In view of these advantages, we tentatively conclude that, for
terminating access between the end office (or equivalent CMRS
facilities) and the end-user subscriber, a bill and keep arrangement
applied to both peak and off-peak periods represents the best interim
solution. We also tentatively conclude that a requirement that LECs and
CMRS providers not charge one another for terminating traffic from the
other network would not violate any party's legal rights. Specifically,
we believe that a bill and keep requirement would not deprive either
LECs or CMRS providers of a reasonable opportunity to recover costs
they incurred to terminate traffic from the other's network, because
these costs could be recovered from their own subscribers. We seek
comment on these tentative conclusions. We also seek comment on the
effect that a bill and keep approach is likely to have on traffic flows
between LEC and CMRS networks: is this approach likely to lead to more
balanced traffic flows, or will it create incentives to perpetuate or
exacerbate existing traffic imbalances between LEC and CMRS networks?
38. Transport Costs between the CMRS and LEC Networks. The analysis
of bill and keep presented in comments by Dr. Gerald W. Brock, Director
of the Graduate Telecommunications Program, George Washington
University, appears not to consider the costs associated with the
physical transmission circuits connecting CMRS MTSOs with LEC end
offices. Transmitting calls between CMRS and LEC networks can be
accomplished through the use of dedicated facilities between CMRS MTSOs
and LEC end offices, or through dedicated facilities between CMRS MTSOs
and LEC tandem switches. When tandem switches are used, additional
tandem-switched transport, consisting of tandem switching and
transmission over common transport facilities, is used to transmit
traffic between LEC tandem switches and LEC end offices. These
facilities are generally provided by LECs. With respect to dedicated
transport facilities, cost-causation principles suggest that the costs
of such facilities be recovered from the cost-causer through flat
rates. With respect to shared facilities used to provide tandem-
switched transport, cost-causation principles suggest traffic-sensitive
cost recovery, at least during peak periods.
39. LECs' existing interstate access tariffs include flat rates for
dedicated transport (entrance facilities and direct-trunked transport)
that we have concluded, in general, are reasonably cost-based. Similar
charges are included in many LEC intrastate access tariffs. These
tariffed charges could be applied to CMRS providers relatively rapidly,
with virtually no additional administrative proceedings. Moreover, we
believe that the dedicated transport facilities used to connect LEC and
IXC networks are similar or identical to the facilities connecting LEC
and CMRS networks. Accordingly, we tentatively conclude that, when LECs
provide the dedicated transmission facilities between CMRS MTSOs and
LEC networks, they should be able to recover the costs of those
facilities from CMRS providers through appropriate dedicated transport
rates found in their existing access tariffs. We seek comment on this
tentative conclusion.
40. We also seek comment on whether and how LECs should recover
from CMRS providers the costs of tandem switching and common transport
between tandem switches and end offices, in cases where such LEC-
provided facilities are used. The LECs' interstate access tariffs
include usage-sensitive charges for tandem-switched transport, as do
many state tariffs. Should these tandem-switched transport charges be
applied to CMRS providers? Should such charges apply to all minutes, or
only to traffic during peak periods?
(2) Other Options. 41. While we tentatively conclude that the
proposals outlined above would lead to LEC-CMRS interconnection
arrangements that best serve our public interest objectives during an
interim period, we also seek comment on a number of alternative
approaches. We seek comment on the relative costs and benefits of our
proposals and these options. We also invite parties to suggest other
alternatives or combinations of these options that would advance our
public interest objectives and that could be implemented rapidly and
with minimal administrative costs.
42. Bill and Keep for Off-Peak Usage Only. Brock acknowledges that
``[i]f interconnection charges are imposed, they should be assessed at
the long run incremental cost of adding capacity.'' He also
acknowledges that ``the true cost for peak period usage is much greater
than the cost for off peak usage * * * (which) may be near zero,'' and
that the cost for peak period usage is much higher than the average
incremental cost of local usage, which he estimates to be 0.2 cents
($0.002) per minute. In light of Brock's comments, we seek comment on
whether a bill and keep approach should be limited to off-peak traffic,
with charges assessed for peak-period traffic. We seek comment on what
charges should apply for peak period traffic under this approach. For
instance, we seek comment on whether some subset of existing access
charges should apply, or whether an incremental capacity cost for peak-
period traffic should be developed. We also seek comment on the peak
periods for both LEC and CMRS networks, and the appropriate period for
a peak capacity charge. In addition, we seek comment on whether
charging different prices for peak and off-peak traffic has any
disadvantages and whether it is
[[Page 3651]]
likely to result in a shift in the peak period. In addition, we seek
comment on the potential administrative costs and complexity involved
in this approach.
43. Subset of Access Charges. To the extent that LEC-CMRS
interconnection arrangements are similar to the interconnection
arrangements between LECs and IXCs or other access customers, the rates
for LEC-CMRS interconnection could be based on a subset of the LECs'
existing interstate access charges (or comparable rates from their
intrastate access tariffs). As noted above, LECs could charge existing
local transport rates for the transmission facilities that they provide
to link LEC and CMRS networks. Similarly, LECs could charge CMRS
providers existing local switching rates for minutes of use originating
on CMRS networks and terminating on LEC networks. We do not envision
that the LECs would charge CMRS providers the carrier common line (CCL)
charge. The CCL charge, in essence, represents a subsidy from LECs'
interstate access customers to reduce the subscriber line charges (SLC)
paid by end-user subscribers for loop facilities that are dedicated to
their use. We do not believe that such a subsidy should be imposed on
CMRS providers. Under this alternative, we are also inclined not to
permit LECs to charge CMRS providers the transport interconnection
charge (TIC), given that the extent to which the TIC recovers
transport-related costs is unclear. We seek comment on what subset of
access charges should apply if we select this option as an interim
compensation mechanism. We also seek comment on whether per-minute
access charges should be converted into peak-sensitive capacity charges
(either per-peak minute or flat-rate) in the context of LEC-CMRS
interconnection, and, if so, on how to do so. In addition, we seek
comment on whether the LECs' access charges would be an appropriate
framework for LEC-CMRS interconnection once our Access Reform
proceeding is completed.
44. Existing Interconnection Arrangements Between Neighboring LECs.
In the alternative, LEC-CMRS interconnection arrangements could be
based on existing arrangements between neighboring LECs. We seek
comment on whether LECs should be required to disclose publicly the
terms of their interconnection arrangements with neighboring LECs and
to offer CMRS providers comparable arrangements. This option could help
ensure that CMRS providers receive interconnection on terms and
conditions that are at least as favorable as neighboring LECs.
Neighboring LECs generally are larger and more established than CMRS
providers and thus more likely to have been able to negotiate
reasonable interconnection arrangements. We ask parties for comment on
this option. In particular, we ask parties to describe existing
arrangements between neighboring LECs and to comment on whether these
arrangements would be workable in the context of other forms of LEC-
CMRS interconnection.
45. Existing Interconnection Arrangements Between LECs and Cellular
Carriers. Another possibility would be to apply the same rates, terms,
and conditions in existing LEC-cellular interconnection arrangements to
broadband PCS providers, or to other categories of CMRS providers. Like
the previous option, this option could help ensure that CMRS providers
would receive interconnection on terms and conditions that are at least
as favorable as cellular carriers. We seek comment on whether cellular
carriers, like neighboring LECs, are better established than broadband
PCS providers and thus are more likely to have negotiated reasonable
interconnection arrangements. We ask the parties to describe existing
interconnection arrangements between LECs and cellular carriers and to
comment on whether these arrangements could be extended to other forms
of LEC-CMRS interconnection.
46. Intrastate Interconnection Arrangements Between LECs and New
Entrants. In a few states, LECs have filed tariffs providing for
interconnection arrangements with competing wireline providers of local
exchange service. We invite parties to comment on the various state
approaches, such as those in Illinois, Michigan, Maryland, and
California, in particular on whether CMRS providers should be eligible
for these offerings or whether there is any technical or economic basis
for distinguishing CMRS from wireline interconnection. We also ask
parties to provide us with other relevant information about state
regulations in this area, and to comment on the extent to which state
actions in wireline-wireless interconnection may serve as a model for
LEC-CMRS interconnection. We note that, as part of broader initiatives
to remove the statutory or regulatory barriers to entry into the local
telephone market, several states have initiated proceedings, and in
some cases adopted interim or permanent rules, governing
interconnection arrangements between LECs and competing local carriers.
We ask parties to comment on these state regulations and on the
relative costs and benefits of various approaches states have taken in
this area.
47. Measured Local Service Rates. With respect to rates that
recover the costs of shared facilities whose costs vary in proportion
to capacity, we seek comment on whether interconnection rates should be
set at some fixed percentage of the measured local service rates that
LECs currently charge their local customers. For example, if a LEC
currently charges its own measured local service customers 5 cents per
minute, it could charge an interconnecting CMRS provider half that
amount--2.5 cents per minute. This option essentially would assume that
the existing measured service rates are cost-based, and that the LEC's
cost in terminating a call placed by a CMRS customer is one-half (or
some other percentage) of the cost of both originating and terminating
a call placed by a LEC customer to another LEC customer. Under a
variant of this option, if a LEC does not offer measured local service,
or if few LEC customers select such service, an imputed per-minute rate
could be derived by dividing the LEC's monthly local service rate by
the average customer's number of local minutes originated per month.
Both the basic option and the variant discussed here have the appeal of
facilitating competition between CMRS providers and LECs, by ensuring
that CMRS providers never pay more for interconnection than LECs charge
for a complete call. A disadvantage of these options is that they would
not necessarily result in cost-based interconnection rates.
48. Uniform Rate. We also seek comment on whether a presumptive
uniform per-minute interconnection rate should be established for all
LECs and CMRS providers. Such a rate could be developed from generic,
forward-looking studies of LEC network costs. We invite parties to
submit any such studies into the record of this proceeding. A second
option would be to develop such a rate based on one or more (or an
average) of the state policy decisions cited in the preceding
paragraph. Interconnection rates that have been ordered or accepted by
state commissions range between 0.5 cents to 2.4 cents per minute, with
a median of around one cent per minute. A third possibility would be to
set such a uniform rate based on the average level of LECs' interstate
access charges. For example, the per minute rate for terminating
traffic interconnected at an end-office (exclusive of flat-rate charges
for circuits connecting LEC and CMRS networks and per-minute charges
for tandem switched transport) could be set
[[Page 3652]]
based on the average level of LECs' interstate local switching charges,
but not transport interconnection charges or carrier common line
charges. We seek comment on the advantages and disadvantages of
establishing a uniform interconnection rate level, whether establishing
such a uniform rate would be lawful, the basis on which such a rate
might be set, and the practical problems of implementing such a rate
scheme. We also seek comment on whether such a rate, instead of being a
presumptively lawful rate, should be a prescription, and on what
showing a carrier would need to make to charge a different rate. In the
alternative, we seek comment on whether carriers should apply different
interconnection rate levels in different geographic areas that they
serve.
49. Bill and Keep Until a Satisfactory Rate Is Developed. Finally,
we seek comment on whether a bill and keep arrangement should be
imposed on a LEC pending the negotiation of a satisfactory
interconnection arrangement between the LEC and a CMRS provider or the
approval of other cost based charges. If the negotiations were to break
down, a reasonable basis for resolving the dispute might be the
imposition of a rate equal to the lowest of: (1) Existing
interconnection arrangements between the LEC and neighboring LECs; (2)
intrastate interconnection arrangements between the LEC and new
entrants; or (3) a subset of LEC interstate access charges for
terminating traffic. A LEC would be allowed, however, to demonstrate
that the lowest of the charges described above does not provide the LEC
with a reasonable opportunity to recover all the costs incurred in
terminating CMRS traffic on the local landline network, and some
overhead costs. This approach would preserve the primary role of
negotiations between the parties in reaching interconnection
arrangements, but would limit the LEC's ability to exercise its market
power, while simultaneously creating an incentive for it to negotiate a
satisfactory rate expeditiously. We also seek comment on whether CMRS
providers would have an incentive to negotiate under this approach.
b. Long Term Approach. 50. We seek comment on what the long-term
approach to interconnection pricing should be, whether one of the
interim options outlined above should be the permanent methodology, or
whether interconnection rates should be based on a specific
demonstration of the cost of providing service, much as we require for
establishing rates for new services under our price cap rules. We
believe that, in the long term, pro-competitive LEC-CMRS
interconnection arrangements should be developed that advance our
public interest objectives. First, these arrangements should give
efficient incentives regarding both consumption and investment in
telecommunications services. To this end, prices should be reasonably
cost-based. Cost-based prices could be derived through cost studies, or
could be based on potentially reasonable proxies in lieu of developing
rates based on complete cost justifications, possibly including one or
more of the interim approaches described above. Moreover, over time, we
believe that price cap regulation and increasing competition will force
interconnection rates toward cost. Ultimately, markets may become
sufficiently competitive that cost-based interconnection prices should
result without any regulatory intervention.
51. Second, functionally equivalent forms of network
interconnection arguably should be available to all types of networks
at the same prices, unless there are cost differences or other policy
considerations that justify different rates. Thus, in the long run, if
LECs provide essentially similar interconnection services to CMRS
providers and to IXCs, then it may well be in the public interest for
the rates in LEC-CMRS interconnection arrangements not to differ from
the rates for LEC-IXC interconnection--i.e., access charges. We
acknowledge, however, that there may be significant reasons, including
our interest in facilitating the competitive development of CMRS and
considerations relating to the Part 36 jurisdictional separations
rules, that may necessitate differences in regulatory regimes. We also
recognize that current interstate access charges are problematic, and
in the near future we intend to initiate a comprehensive proceeding to
reform the access charge regime. We also seek comment on the impact of
each of the pricing options on universal service considerations.
Finally, we note that substantially different prices for similar forms
of interconnection raise the possibility that parties could seek to
deflect traffic from a more costly form of interconnection to a less
costly form. We invite comment on the implications of this possibility,
including methods to prevent such traffic deflection.
c. Symmetrical Compensation Arrangements. 52. We tentatively
conclude that LEC-CMRS interconnection rates should be symmetrical--
that is, LECs should pay CMRS providers the same rates as CMRS
providers pay LECs. Most existing interconnection arrangements between
LECs and competing wireline providers of local exchange service require
that interconnection rates be symmetrical.
53. We recognize that symmetrical interconnection rates have
certain disadvantages. Asymmetrical, cost-based rates have the benefit
of providing each of the carriers (and, if passed through to them,
their customers) incentives to use resources such as interconnection
commensurate with the actual cost of those resources. LEC networks and
CMRS networks use different technologies that may have different costs.
If interconnection rates were fully cost-based, then a LEC might pay a
CMRS provider different interconnection rates than the CMRS provider
would pay the LEC.
54. On the other hand, symmetrical compensation rates would be
administratively easier to derive and manage than asymmetrical rates
based on the costs of each of the respective networks. Moreover,
symmetrical rates could reduce LECs' ability to use their bargaining
strength to negotiate an excessively high termination charge that CMRS
providers would pay LECs and an excessively low termination rate that
LECs pay CMRS providers. Setting asymmetric, cost-based rates might
require evaluating the cost structure of non-dominant carriers, which
would be complex and intrusive. Accordingly, we tentatively conclude
that interconnection arrangements should include symmetrical
compensation rates, at least during an interim period. We seek comments
on the foregoing analysis. Commenters should discuss any other reasons
why symmetrical or asymmetrical compensation rates would be in the
public interest and the relative merits of these approaches. We also
seek comment on whether we should revisit our existing policy of
forbearing from regulating CMRS providers' rates in order to enforce
our interim policies with respect to the rates CMRS providers charge to
LECs.
55. In addition, we note that, according to a number of parties,
many LECs do not now pay any compensation to CMRS providers for LEC-
originated traffic that terminates on their networks, and that some
LECs even impose charges on CMRS providers for such traffic. Such
conduct would appear to violate our existing mutual compensation
requirement. We seek comment on whether such violations are occurring
and what methods could and should be used to enforce this requirement.
In Implementation of Sections 3(n) and 332 of the Communications Act,
Regulatory Treatment of Mobile Services, Second Report and Order, 59 FR
18493 (April
[[Page 3653]]
19, 1994), we stated that CMRS providers may file complaints, under
section 208 of the Act, if a LEC violates the requirement that they
charge the same rates to CMRS providers for interstate interconnection
as they charge other mobile service providers. Is this avenue for
obtaining remedies sufficient, or should we institute some other
procedure or other mechanism to ensure that LECs comply with our
existing rules? For example, should we require LECs to report to us on
the amounts of compensation they are paying to CMRS providers for
traffic that originates on LEC networks and terminates on CMRS
networks? Are alternative dispute resolution procedures necessary?
C. Implementation of Compensation Arrangements
1. Negotiations and Tariffing. 56. As discussed above, we believe
that some involvement in the formation and administration of
interconnection arrangements between LECs and CMRS providers would help
to counter possible abuses of market power and would help ensure that
these arrangements are efficient and advance the public interest. We
also have addressed the types of compensation arrangements that we
believe would best serve the public interest. We seek more detailed
comment on the type of involvement that would be optimal in light of
our views on the compensation arrangements. In particular, we ask
parties to comment on the interrelationship of the procedural issues
addressed in this section to the substantive policy options regarding
compensation arrangements discussed above. Some of the substantive
options discussed above might make some procedural approaches
infeasible, or could make certain protections unnecessary.
57. In considering how to implement our policies regarding
interconnection arrangements, we seek to promote arrangements that
foster competition and advance economic efficiency and our other goals.
We also desire to enable LECs and CMRS carriers to respond rapidly and
flexibly to changing interconnection needs. We seek comment on whether
an open process in which a LEC and a CMRS provider freely discuss and
negotiate a wide variety of interconnection options is preferable to a
process whereby the LEC presents the CMRS provider with a limited
choice of preset interconnection options. There may be a useful purpose
in some level of intervention to prevent abuse of market power or
unreasonable discrimination. This may be particularly critical in cases
in which the parties are unable to negotiate a satisfactory agreement,
but may also be valuable as a ``backstop'' measure even when parties
can reach agreement, to prevent unreasonable discrimination against
other parties or anticompetitive collusion that might disadvantage
consumers.
58. If LECs and CMRS providers were to negotiate interconnection
arrangements consistent with the compensation framework discussed
above, the public interest would be served while avoiding the need for
intervention. As discussed above, however, we believe that optimal
compensation arrangements are unlikely to result from purely private
negotiations. At least for the near future, there is likely to be an
imbalance in negotiating power between the incumbent LECs, which
currently possess monopoly power in local exchange markets, and new
CMRS providers seeking to enter such markets. The LECs may seek to
impose unduly high interconnection rates or other unreasonable
conditions that could reduce CMRS entry. Moreover, there is a
significant risk that LECs may not offer new CMRS carriers
interconnection agreements that are as financially advantageous as
those that large and incumbent CMRS providers have already secured.
Finally, in cases where LECs and CMRS providers compete directly
against one another, there is a significant risk that LECs and CMRS
providers could engage in collusive behavior and voluntarily agree to
arrangements that would not advance the public interest. Thus,
participation in the process by regulators may be warranted for some
period of time.
59. An alternative would be a requirement that voluntarily-
negotiated interconnection contracts be filed publicly. Such public
filing--either at the Commission (pursuant to section 211) or at state
commissions--could reduce the LECs' ability to engage in unreasonable
discrimination among CMRS providers, although we recognize that such a
procedure would not necessarily ensure that arrangements will comply
with the substantive standards discussed above. We also seek further
comment on possible ways to minimize the burden of such disclosure and
protect the confidentiality of LECs' and CMRS providers' proprietary
data, while still obtaining disclosure of enough information to advise
new entrants about rates, terms, and conditions. Finally, we seek
comment on whether filing at a regulatory agency is necessary if the
carriers themselves were required to make publicly available relevant,
specified information about the agreement upon request.
60. As noted above, even public disclosure of negotiated agreements
may not be sufficient to prevent anticompetitive behavior by LECs
possessing market power and to ensure that interconnection compensation
arrangements are structured in an optimal manner. A more forceful
approach would be to require that interconnection arrangements be filed
as tariffs. The tariff process is a well-established mechanism for
regulatory commissions to protect the public interest by rejecting
unreasonable provisions in carriers' offerings. On the other hand,
tariffing requirements could entail administrative costs. We
tentatively disagree with the position taken by some of the commenting
parties that any tariffing requirement would automatically preclude
flexible interconnection arrangements. We note that, even in a
contractual environment, one party might inflexibly present a limited
number of options and refuse to negotiate alternatives; by contrast,
even under a tariffing requirement, parties can cooperatively negotiate
provisions in a flexible manner. Such provisions can later be
incorporated as tariffed options. Thus, tariffed interconnection
arrangements need not be ``one size fits all.''
61. The major difference we see between non-tariffed arrangements
and arrangements subject to a contract tariff process is that, in the
latter case, the regulator has additional mechanisms to protect against
terms that may be unreasonable or unreasonably discriminatory, such as
issuing an order for investigation pursuant to section 205 of the Act.
We seek comment on the costs and benefits of amending our rules to
permit the use of contract tariffs to implement LEC-CMRS
interconnection arrangements. We also seek comment on whether a
different form of contract tariffing for LEC-CMRS interconnection would
better serve the public interest. For instance, should a special notice
period apply to LEC-CMRS interconnection contracts? Should some level
of cost showing be required for LEC-CMRS interconnection contracts,
unlike contract tariffs generally?
62. In sum, we tentatively conclude that information about
interconnection compensation arrangements should be made publicly
available in order to foster competition and to advance the public
interest. As to what form this information should take--tariff, public
disclosure or other approach--we seek comment from parties as to the
costs and benefits of each option, keeping in mind the goals of
promoting economic
[[Page 3654]]
efficiency through competition and negotiating flexibility.
2. Jurisdictional Issues. 63. We seek comment on three alternative
approaches to implementing the interconnection policies discussed
above. We recognize that states share our goals of stimulating economic
growth by promoting the development of CMRS, which would upgrade the
nation's telecommunications infrastructure and would help make
available broader access to communications networks. We also recognize
that, as detailed above, some state public utility commissions have
begun to develop their own policies governing interconnection
arrangements. We intend to continue to work cooperatively with state
regulators to formulate interconnection policies that advance our
common public interest goals.
64. One approach to implementing these goals would be to adopt a
federal interconnection policy framework that would directly govern
LEC-CMRS two-carrier interconnection with respect to interstate
services and that would serve as a model for state commissions
considering these issues with respect to intrastate services.
Essentially, we would recommend that states voluntarily follow our
guidelines, rather than making them mandatory requirements. Under this
informal model, we would give guidance to the states while not
directing state regulators in interconnection matters. For example, if
we were to affirm our tentative conclusions discussed above regarding
bill and keep compensation, we could require LECs and CMRS providers to
use that approach with respect to terminating interstate traffic
originating on the other's network, and encourage states to adopt the
same approach with respect to intrastate traffic. On the other hand,
there would be no guarantee that states would adopt our proposed model.
We seek comment on this option and whether there might be some way to
supplement it to better achieve the goals discussed above. For example,
would it be beneficial to have an industry group develop specific
standards to govern the terms and conditions for interconnection
arrangements, based on our informal model? If so, should we set a date
certain by which such an industry group should develop these standards?
65. A second approach would be to adopt a mandatory federal policy
framework or set of general parameters to govern interconnection
arrangements between LECs and CMRS providers with respect to interstate
and intrastate services, but allow state commissions a wide range of
choices with respect to implementing specific elements of these
arrangements. Thus, although compliance with these policy parameters
would be mandatory, state commissions would have substantial latitude
in developing specific arrangements that would comply with these
parameters. One example of a general policy parameter is our existing
mutual compensation requirement--which generally requires that there be
mutual compensation between LECs and CMRS providers for the reasonable
costs of terminating each other's traffic--without precluding the
states from setting the actual interconnection rates that LECs and CMRS
providers charge. We could also adopt more specific policy parameters,
while still preserving a degree of discretion for state commissions.
For example, we could require the use of bill and keep compensation, as
discussed above, for all off-peak traffic, but allow states to decide
whether to use bill and keep or some alternative option with respect to
compensation for intrastate traffic during peak periods. The possible
benefit of this approach is that it would provide some greater national
uniformity, while still preserving the state commissions' flexibility
to develop specific arrangements that meet their needs. We seek comment
on this option and on whether it would most effectively achieve our
goals. If parties do support the use of mandatory federal policy
parameters, we ask that they comment on what level of detail we should
adopt in such parameters--that is, whether we should adopt broad,
general parameters on what the appropriate interconnection rates should
be or whether we should adopt a more detailed set of parameters.
66. As a third alternative, we seek comment on our promulgating
specific federal requirements for interstate and intrastate LEC-CMRS
interconnection arrangements. This approach would place more specific
parameters on state action regarding interconnection rates. For
example, if we were to affirm our tentative conclusions discussed above
regarding bill and keep compensation, we could require LECs and CMRS
providers to adopt such an approach with respect to all traffic.
67. We tentatively conclude that the Commission has sufficient
authority to implement these options, including our proposal that
interconnection compensation on a bill and keep basis be adopted on an
interim basis. As a preliminary matter, 47 U.S.C. 332 explicitly
preempts state regulation in this area to the extent that such
regulation precludes (or effectively precludes) entry of CMRS
providers. In addition, to the extent state regulation in this area
precludes reasonable interconnection, it would be inconsistent with the
federal right to interconnection established by Section 332 and our
prior decision to preempt state regulation that prevents the physical
interconnection of LEC and CMRS networks. We also believe, contrary to
our conclusion in earlier orders, that preemption under Louisiana
Public Service Commission v. FCC, 476 U.S. 355 (1986), may well be
warranted here on the basis of inseverability, particularly in light of
the strong federal policy underlying Section 332 favoring a nationwide
wireless network. Indeed, in this regard, we note that several entities
have argued that section 332 itself gives the Commission exclusive
jurisdiction in this area.
68. We seek comment on this analysis and also ask parties to submit
relevant factual information on this issue. We seek comment, first, on
the inseverability of interconnection rate regulation. We note that
much of the LEC-CMRS traffic that may appear to be intrastate may
actually be interstate, because CMRS service areas often cross state
lines, and CMRS customers are mobile. For example, if a cellular
customer from Richmond travels to Baltimore and then places a call to
Alexandria, the call might appear to be an intrastate call, placed from
a Virginia telephone number to another Virginia number, but would in
fact be interstate because the call originates in Maryland and
terminates in Virginia. Service areas defined as ``local'' in wireless
providers' rate structure do not coincide with LEC ``exchanges''
defined by section 221(b) as subject to state authority, and often
cross state lines. This is true of many existing cellular providers,
and is even more likely to be true with respect to PCS licensees in
major trading areas (MTAs). We request that commenting parties submit
empirical data and analysis on the extent to which existing LEC-CMRS
interconnection arrangements involve both interstate and intrastate
traffic, the extent to which significant levels of interstate wireless
traffic are being carried under such arrangements, and, most
importantly, the extent to which interstate and intrastate traffic can
be severed for regulatory pricing purposes. We seek comment on whether
either the CMRS or the LEC networks have the technical capability to
distinguish whether a wireless call interconnecting with its network is
an interstate or intrastate call. We also seek comment on whether we
should reconsider our
[[Page 3655]]
recent conclusion, cited by BellSouth, that section 332 does not
circumscribe state regulation of the interconnection rates that LECs
charge CMRS providers.
69. We also ask parties to identify what types of state rate
regulation, if any, preclude (or effectively preclude) entry of CMRS
providers. We seek specific information on the types of regulations
that are either in effect or have been proposed by state regulators in
the area of LEC-CMRS interconnection, and seek comment on what impact
such state action has had on interconnection arrangements and on the
ability of CMRS providers to compete in the market. We also request
comment on the meaning and relevance of section 332(c)(1)(B) to our
jurisdictional analysis.
70. In determining what the Commission's role should be with
respect to implementation of LEC-CMRS interconnection policies, we
again emphasize our recognition of the states' legitimate interest in
interconnection issues and our intention to work in coordination with
state regulators in this regard. In addition, although we have
identified three possible options to implement our interconnection
compensation proposals, and we seek comment on these options, we also
encourage parties to suggest other options, or variations of our
options, regarding implementation. Our goal is to achieve
implementation of our interconnection proposals in the most efficient
and effective manner to the collective benefit of all the parties
involved.
III. Interconnection for the Origination and Termination of Interstate
Interexchange Traffic
71. We held in 1984 that radio common carriers and cellular
carriers are not IXCs and therefore are not required to pay LECs
interstate access charges. We have never addressed, however, whether
LECs or IXCs should remit any interstate access charges to CMRS
providers when the LEC and the CMRS provider jointly provide access
service. For example, when a cellular customer places a long-distance
call, the cellular carrier typically transmits the call to the LEC,
which connects the call to the IXC. Similarly, when long-distance calls
are placed to cellular customers, the IXC handling the call typically
transmits the call to a LEC, which, in turn, hands it to the cellular
carrier for termination to the called party. We have not previously
established specific rules or guidelines applicable to the joint
provision of interstate access service by a LEC and a CMRS provider.
Until CMRS providers generate sufficient traffic to warrant direct
connections to IXC points of presence, we believe that most CMRS
providers are likely to depend on LECs for interconnection of
interexchange traffic to IXCs. Thus, we tentatively conclude that it
will be necessary to apply certain protections to such interconnection
arrangements, at least in the foreseeable future. We seek comment on
this analysis and on our tentative conclusion. We also invite CMRS
providers and LECs to describe existing arrangements under which CMRS
providers are compensated for originating and terminating interstate
interexchange traffic that transits a LEC's network.
72. In the context of the existing access charge regime, we
tentatively conclude that CMRS providers should be entitled to recover
access charges from IXCs, as the LECs do when interstate interexchange
traffic passes from CMRS customers to IXCs (or vice versa) via LEC
networks. We propose to require that CMRS providers be treated no less
favorably than neighboring LECs or CAPs with respect to recovery of
access charges from IXCs and LECs for interstate interexchange traffic.
We tentatively conclude that any less favorable treatment of CMRS
providers would be unreasonably discriminatory, and would interfere
with our statutory objective and ongoing commitment to foster the
development of new wireless services such as CMRS. We seek comment on
how to implement this non-discrimination requirement. For example,
should we require that contracts between neighboring LECs establishing
joint arrangements for providing interstate access, as well as
comparable contracts between LECs and CMRS providers, be publicly filed
pursuant to section 211 of the Act in order to protect against such
discrimination? Should such arrangements be included in LEC interstate
access tariffs?
73. We also seek comment on the basis for CMRS providers' access
charges, which under our proposal would be collected directly or
indirectly from IXCs. Should CMRS providers impose interstate access
charges that mirror those of the LECs with which they connect? Or
should they impose their own access charges, as do many independent
LECs? If the latter, should we retain our existing policy of forbearing
from regulating CMRS providers' interstate access charges? In the
alternative, should we find that, even though CMRS providers may lack
market power with respect to end users, they may have some market power
over IXCs that need to terminate calls to a particular CMRS provider's
customer, or to originate calls (in an equal access context) from such
a customer? If we were to adopt such a conclusion, should we adopt
guidelines or some other form of pricing regulation to govern CMRS
providers' interstate access charges? Should we address the billing
arrangements that would apply in this context? Parties are invited to
comment on the issues and proposals discussed herein, and to address
the costs and benefits of these and possible alternative approaches.
IV. Application of These Proposals
74. We invite comment on whether the proposals and options
considered in this Notice of Proposed Rulemaking should apply to
interconnection arrangements between LECs and: (1) Broadband PCS
providers only; (2) broadband PCS, cellular telephone, SMR, satellite
telephony, and other CMRS providers that offer two-way, point-to-point
voice communications, which could compete with LEC landline
telecommunications services; or (3) all CMRS providers. We solicit
comments and analysis on the relative costs and benefits of broader and
narrower approaches, and on any technical or economic similarities or
differences among CMRS services that would warrant similar or different
treatment. (We note that, as a matter of convenience, we refer
elsewhere in this notice generically to ``CMRS providers;'' this usage
is not intended to exclude the possibility of applying our policies
more narrowly.)
75. There may be benefits to focusing primarily on broadband PCS or
some other limited group of CMRS services. First, it might be desirable
to limit our focus to broadband PCS because it is a new service. We
have assigned the initial broadband PCS licenses relatively recently
and will soon assign more. Fewer issues arise in applying policy
changes to a new service, such as broadband PCS, than to existing
services: For example, it is less likely that we would need to consider
problems of displacement, interference with existing contracts, or
transitions from existing interconnection arrangements to new
arrangements.
76. Second, we could consider addressing interconnection between
LECs and all types of commercial mobile radio services that support
voice telecommunications and could compete with the local telephone
services provided by the LECs. The interconnection arrangements between
this group of CMRS providers and LECs could have a critical effect on
whether these carriers can develop into effective
[[Page 3656]]
competitors for providing the local links required for interstate
communications. Focusing narrowly either on broadband PCS alone or on
this subset of CMRS would allow us to tailor our policies more
carefully to the particular subset of carriers or services involved.
77. Third, there are arguments for applying our proposals more
broadly to interconnection between LECs and all CMRS providers because
this would enable us to make improvements in as large a part of the
local telephone and CMRS markets as possible. Moreover, pursuant to
Congressional intent, we have taken a number of actions to apply
similar regulatory treatment to different types of CMRS providers.
Differential treatment among CMRS providers in the critical area of
interconnection could be interpreted as inconsistent with our overall
policies with respect to CMRS. On the other hand, some of the proposals
in this Notice might not be in the public interest if applied to CMRS
providers that do not compete with LEC services.
V. Procedural Issues
A. Ex Parte Presentations
78. This is a non-restricted notice-and-comment rulemaking
proceeding. Ex parte presentations are permitted, except during the
Sunshine Agenda period, provided that they are disclosed as provided in
the Commission's rules. See generally 47 CFR 1.1202, 1.1203, 1.1206.
B. Initial Regulatory Flexibility Analysis
79. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.
601-612, the Commission's Initial Regulatory Flexibility Analysis with
respect to the Notice of Proposed Rulemaking is as follows:
80. Reason for Action: The Commission is issuing this Notice of
Proposed Rulemaking seeking comment on possible changes in the
regulatory treatment of interconnection compensation arrangements
between LECs and CMRS providers and related issues.
81. Objectives: The objective of the Notice of Proposed Rulemaking
is to provide an opportunity for public comment and to provide a record
for a Commission decision on the issues stated above.
82. Legal basis: The Notice of Proposed Rulemaking is adopted
pursuant to sections 1, 2, 4, 201-205, 215, 218, 220, 303(r) and 332 of
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154,
201-205, 215, 218, 220, 303(r) and 332;
83. Description, potential impact, and number of small entities
affected: Any rule changes that might occur as a result of this
proceeding could impact entities which are small business entities, as
defined in section 601(3) of the Regulatory Flexibility Act. After
evaluating the comments in this proceeding, the Commission will further
examine the impact of any rule changes on small entities and set forth
findings in the Final Regulatory Flexibility Analysis. The Secretary
shall send a copy of this Notice of Proposed Rulemaking to the Chief
Counsel for Advocacy of the Small Business Administration in accordance
with section 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-
354, 94 Stat. 1164, 5 U.S.C. 601, et seq. (1981).
84. Reporting, recordkeeping and other compliance requirement:
None.
85. Federal rules which overlap, duplicate or conflict with the
Commission's proposal: None.
86. Any significant alternatives minimizing impact on small
entities and consistent with stated objectives: The Notice of Proposed
Rulemaking solicits comments on a variety of alternatives.
87. Comments are solicited: Written comments are requested on this
Initial Regulatory Flexibility Analysis. These comments must be filed
in accordance with the same filing deadlines set for comments on the
other issues in this Notice of Proposed Rulemaking but they must have a
separate and distinct heading designating them as responses to the
Regulatory Flexibility Analysis. The Secretary shall send a copy of the
Notice to the Chief Counsel for Advocacy of the Small Business
Administration in accordance with section 603(a) of the Regulatory
Flexibility Act, 5 U.S.C. 601, et seq.
C. Comment Filing Procedures
88. Comments and reply comments should be captioned in CC Docket
No. 95-185 only. 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 February 26, 1996,
and reply comments on or before March 12, 1996. To file formally in
this proceeding, you must file an original and four copies of all
comments, reply comments, and supporting comments. If you want each
Commissioner to receive a personal copy of your comments, you must file
an original and nine copies. 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., 2100 M Street, NW., Suite
140, Washington, DC 20037. Comments and reply comments will be
available for public inspection during regular business hours in the
FCC Reference Center, 1919 M Street, NW., Room 239, Washington, DC
20554.
89. In order to facilitate review of comments and reply comments,
both by parties and by Commission staff, we request that such comments
be organized in a uniform format. Specifically, we ask the parties to
organize their comments and reply comments according to the following
outline:
I. General Comments
II. Compensation for Interconnected Traffic between LECs and CMRS
Providers' Networks
A. Compensation Arrangements
1. Existing Compensation Arrangements
2. General Pricing Principles
3. Pricing Proposals (Interim, Long Term, Symmetrical)
B. Implementation of Compensation Arrangements
1. Negotiations and Tariffing
2. Jurisdictional Issues
III. Interconnection for the Origination and Termination of
Interstate Interexchange Traffic
IV. Application of These Proposals
V. Responses to Initial Regulatory Flexibility Analysis
VI. Other
Each new section should begin on a new page, and should be labeled with
the name of the filing party, identification of whether the document is
an initial comment or a reply comment, the docket number, filing date,
and number and name of the outline section addressed (although formal
legal headers are unnecessary for section headings). No pages need be
submitted for issues that a party chooses not to address. Arguments
that conceptualize issues in a manner that does not fit into the
segments listed above may be included in the ``Other'' section.
D. Ordering Clauses
90. Accordingly, it is ordered that, pursuant to sections 1, 4,
201-205, 215, 218, 220, 303(r) and 332 of the Communications Act of
1934, as amended, 47 U.S.C. 151, 154, 201-205, 215, 218, 220, 303(r)
and 332, a notice of proposed rulemaking is hereby adopted.
91. It is further ordered that, the Secretary shall send a copy of
this
[[Page 3657]]
notice of proposed rulemaking, including the regulatory flexibility
certification, to the Chief Counsel for Advocacy of the Small Business
Administration, in accordance with paragraph 603(a) of the Regulatory
Flexibility Act, 5 U.S.C. 601 et seq. (1981).
List of Subjects
47 CFR Part 20
Radio.
47 CFR Part 61
Communications common carriers, Reporting and recordkeeping
requirements, Telephone.
47 CFR Part 69
Communications common carriers, Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-1974 Filed 1-31-96; 8:45 am]
BILLING CODE 6712-01-U
