[Federal Register Volume 62, Number 112 (Wednesday, June 11, 1997)]
[Rules and Regulations]
[Pages 31939-31941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14746]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 61
[CC Docket Nos. 94-1 and 96-262; FCC 97-159]
Price Cap Performance Review for Local Exchange Carriers; Access
Charge Reform
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: On May 7, 1997, the Federal Communications Commission adopted
the Fourth Report and Order in CC Docket No. 94-1, Second Report and
Order in CC Docket No. 96-262, revising its price cap regulations
applicable to incumbent local exchange carriers (incumbent LECs).
Specifically, the Commission replaced the choice of three X-Factors in
the current price cap plan with a single X-Factor of 6.5 percent. The
Commission also eliminated sharing obligations, but retained the low-
end adjustment mechanism. The Commission adopts a fixed X-Factor to
remain in effect until the next performance review, rather than
updating the X-Factor annually on the basis of a five-year industry-
wide moving average. In the Fourth Further Notice in CC Docket No. 94-
1, the Commission sought comment on revising the common line PCI
formula and the price cap exogenous cost rules. The Commission adopted
revisions to the common line PCI formula in its Access Reform First
Report and Order adopted concurrently with this Order, and so does not
need to adopt any further revisions here. Also, as a result of its
decision to adopt a fixed X-Factor, the Commission does not need to
address issues regarding the price cap exogenous cost rules. The
Commission requires price cap LECs to reset their price cap indices as
of July 1, 1997, to be at the levels that would have been in effect had
the 6.5 percent X-Factor taken effect concurrently with the 1996 annual
access tariffs.
EFFECTIVE DATE: June 16, 1997.
FOR FURTHER INFORMATION CONTACT: Steven Spaeth, Competitive Pricing
Division, Common Carrier Bureau, (202) 418-1530.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order
adopted May 7, 1997, and released May 21, 1997. The full text of this
Commission decision is available for inspection and copying during
normal business hours in the FCC Public Reference Room 230, 1919 M St.,
N.W., Washington, D.C. The complete text of this decision may also be
purchased from the Commission's copy contractor, International
Transcription Service, Suite 140, 2100 M Street, N.W., Washington, D.C.
20037.
Regulatory Flexibility Analysis
In the Fourth Further Notice in CC Docket No. 94-1, 60 FR 52362
(October 6, 1995), we certified that the Regulatory Flexibility Act
(RFA), 5 U.S.C. 601 et seq., did not apply to this rulemaking
proceeding because none of the rule amendments under consideration
would have a significant economic impact on a substantial number of
small entities. (The RFA was amended by the Contract With America
Advancement Act of 1996, Public Law 104-121, 110 Stat. 847 (1996)
(CWAAA).) Title II of the CWAAA is the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA). Carriers subject to price
cap regulation for local exchange access affected by the rule
amendments
[[Page 31940]]
adopted in this Order are generally large corporations or the
affiliates of such corporations. No party commented specifically in
response to the analysis in our certification.
In passing the Telecommunications Act of 1996 (1996 Act), Congress
sought to establish ``a pro-competitive, deregulatory national policy
framework'' for the United States telecommunications industry. See
Telecommunications Act of 1996, Public Law 104-104, 110 Stat. 56
(1996). These fundamental changes in the structure and dynamics of the
telecommunications industry wrought by the 1996 Act now necessitate
that the Commission review its existing access charge regulations to
ensure that they are consistent and compatible with the 1996 Act's far-
reaching changes. The rule revisions we adopt based on the record
developed in the Fourth Further Notice in CC Docket No. 94-1, and the
Notice in CC Docket No. 96-262, will facilitate the deregulatory policy
established in the 1996 Act. In particular, our elimination of sharing
obligations removes a major impediment to deregulating individual
interstate access services at the time competitive conditions for a
particular service warrant deregulation.
The rules we adopt in this Order are applicable only to LECs
subject to price cap regulation. Currently, 13 incumbent LECs are
subject to price cap regulation. We tentatively concluded in the Fourth
Further Notice in CC Docket No. 94-1 that the price cap LECs are not
``small business concerns'' because they are generally large
corporations or affiliates of such corporations. We hereby affirm this
analysis.
The Commission will send a copy of this final certification, along
with this Order, in a report to Congress pursuant to the Small Business
Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A), and
to the Chief Counsel for Advocacy of the Small Business Administration,
5 U.S.C. 605(b).
Summary of Report and Order
In conjunction with the Access Reform First Report and Order and
the Universal Service Order, adopted concurrently with this Order, the
Commission adopts reforms needed to set the stage for the progressive
deregulation of incumbent LECs with the development of competition.
Under price cap regulation, LEC interstate access services have
been placed in one of four groups of access services, called baskets. A
price cap index (PCI) limits the weighted average of rate increases for
each basket to the rate of inflation, the Gross Domestic Product Price
Deflator (GDP-PI), minus an ``X-Factor.'' The X-Factor is intended to
measure the amount by which LECs are more productive than the economy
as a whole.
Under our prior price cap rules, the baseline X-Factor was based on
the average of the short-term and long-term trends in rate reductions
prior to our adoption of the original price cap plan in 1990, plus a
consumer productivity dividend (CPD) of 0.5 percent. We designed the X-
Factor and the consumer productivity dividend so that, at minimum,
rates would decline more quickly than they had declined before 1990,
and so would assure that the first benefits of price cap regulation
would flow to access customers in the form of lower rates. In the First
Report and Order in CC Docket No. 94-1, 60 FR 19526 (April 19, 1995),
we tentatively concluded that an analysis that directly measured the
growth of LEC productivity and input prices would provide a better
basis for prescribing an X-Factor than the methodology the Commission
used in previous Orders. In the Fourth Further Notice in CC Docket No.
94-1, 60 FR 52362 (October 6, 1995), the Commission invited comment on
the total factor productivity (TFP) methodology and other alternatives
for calculating the X-Factor. The Commission invited parties to
supplement the record in the Notice of Proposed Rulemaking in CC Docket
No. 96-262, 62 FR 4670 (January 31, 1997). We find that the record
supports prescribing a single X-Factor of 6.5 percent, based on our
conclusions regarding a reasonable method of calculating LEC TFP and
input prices, and our decision to retain the 0.5 percent CPD. This X-
Factor is reasonable and challenging, and falls within a range of
reasonable X-Factors.
Under our current price cap rules, incumbent price cap LECs are
permitted to choose among three X-Factors, two of which include
obligations to share certain earnings. Sharing requires incumbent LECs
to ``share'' half or all earnings above specified rates of return with
their access customers in the form of lower access rates during the
next year. We adopt a system of pure price caps, without sharing,
because sharing tends to blunt the efficiency incentives that we sought
to create with price cap regulation. We conclude that, under the price
cap rules we adopt today, any benefits of retaining sharing are
outweighed by the benefits of eliminating sharing. We consider the X-
Factor we adopt today to be a much more reliable measure of incumbent
LEC potential productivity gains. Therefore, we have substantially more
confidence that this X-Factor will flow through a reasonable portion of
LEC productivity gains to access customers. We also find that, because
we establish a price cap plan with only one X-Factor, a matching
mechanism is no longer necessary. To guard against our new X-Factor
requiring individual LECs to charge unreasonably low rates, we will
retain our current low-end adjustment mechanism, which permits LECs,
after earning less than 10.25 percent in a calendar year, to make a one
time upward adjustment their rates in the next tariff year, equal to
the amount that would have allowed them to earn 10.25 percent in the
calendar year.
This Order adopts a single X-Factor. The Commission adopted
multiple X-Factor options in prior orders because of concerns that
differences in LEC service areas might affect their abilities to
increase their productivity growth. The Order observes that most of the
price cap companies have selected the highest, no-sharing X-Factor
option in our current rules, and concludes that the heterogeneity among
LECs subject to price cap regulation does not affect their productivity
growth as much as the Commission thought previously.
We sought comment on whether to keep the X-Factor up to date by
basing it on an industry-wide moving average of TFP, or to continue to
update the X-Factor in occasional performance reviews. We decide, in
light of the fundamental changes to the marketplace resulting from the
new competitive paradigm of the 1996 Act, that the better course is to
select a new generally applicable X-Factor, based on the current
record, that will remain in place until we change it in a new
performance review.
We also sought comment on whether it is necessary to eliminate the
``g/2'' term from the common line PCI formula to conform to a TFP-based
X-Factor. In the Access Reform First Report and Order adopted
concurrently with this Order, we decide to eliminate the ``g/2'' term
after a short transition period. In this Order, we conclude that no
further revisions to the common line PCI formula are warranted.
The Commission sought comment on fashioning an X-Factor that would
routinely incorporate cost changes currently considered exogenous into
the PCI formula, which would eliminate the need for separate exogenous
cost rules. Because the Commission adopts a fixed X-Factor in this
Order, the X-Factor will not routinely incorporate exogenous cost
changes into the PCI formula, and so no changes to the exogenous cost
rules are warranted at this time.
[[Page 31941]]
The Order directs LECs to recalculate their price cap ceilings for
July 1, 1997, to be at the levels they would have been had the 6.5
percent X-Factor had taken effect concurrently with their 1996 annual
access filings. The Order finds that this adjustment is necessary
because the interim price cap plan was intended to remain for a short
time, and that the local companies should not be permitted to benefit
indefinitely because the more accurate 6.5 percent X-Factor was not
adopted sooner. The Commission's repeated emphasis that the X-Factor
adopted in the LEC Price Cap Performance Review was ``interim'' should
reasonably have put carriers on notice that another adjustment of the
type we had adopted in that order would be possible--perhaps beginning
with the 1995 tariff year, the first year under the interim X-Factor.
This adjustment affects only future rate levels; it does not have any
retroactive effect on past prices or earnings.
In the Third Further Notice of Proposed Rulemaking in CC Docket No.
94-1, 60 FR 52345 (September 26, 1995), the Commission sought comment
on establishing rules governing the price cap treatment of video
dialtone services. The Order concludes that one of the provisions of
the 1996 Act makes those issues moot.
Finally, the Order directs price cap LECs to file tariffs making
adjustments to their rates to reflect these revisions to the price cap
rules no later than June 25, 1997, to take effect July 1, 1997. Those
LECs wishing to raise any rates in these filings must file no later
than June 16, 1997. We also direct price cap LECs to file revised
tariff review plans (TRPs) containing adjustments to their PCIs, APIs,
and SBIs no later than June 2, 1997.
Ordering Clauses
Accordingly, it is ordered, pursuant to authority contained in
Secs. 4(i), 4(j), 201-205, 303(r), and 403 of the Communications Act of
1934, as amended, 47 U.S.C. 154(i), 154(j), 201-205, 303(r), 403, and
Sec. 553 of Title 5, United States Code, that Part 61 of the
Commission's Rules, 47 CFR Part 61, is amended as set forth below.
It is further ordered that the provisions in this Order will be
effective June 16, 1997. We find good cause under 5 U.S.C.
Sec. 553(d)(3) to make the rules effective less than thirty days after
publication, because the local exchange carriers subject to price cap
regulation must file tariffs by June 16, in order for them to be
effective on July 1, 1997, as required by Sec. 69.3 of the Commission's
rules, 47 CFR 69.3. In addition, to ensure that the local exchange
carriers subject to price cap regulation have actual notice of these
rules immediately following their release, we are serving those
entities by certified, first class mail.
It is further ordered that local exchange carriers subject to price
cap regulation shall file tariffs and revised tariff review plans in
accordance with the requirements set forth above. These requirements
are subject to review by the Office of Management and Budget, and will
be effective upon that approval.
It is further ordered that the motion filed by Ad Hoc
Telecommunications Users Committee on February 23, 1996, is dismissed.
List of Subjects in 47 CFR Part 61
Communications Common Carriers, Tariffs.
Federal Communications Commission.
Shirley S. Suggs,
Chief, Publications Branch.
Rule Changes
Part 61 of title 47 of the Code of Federal Regulations is amended
as follows:
PART 61--TARIFFS
1. The authority citation continues to read as follows:
Authority: Secs. 1, 4(i), 4(j), 201-205, and 403 of the
Communications Act of 1934, as amended; 47 U.S.C. 151, 154(i),
154(j), 201-205, and 403, unless otherwise noted.
2. Section 61.45 is amended by revising paragraphs (b)(1), (b)(2),
revising the definition for X in (c)(1), revising the last sentence of
paragraph (c)(2), redesignating paragraph (d)(2) as (d)(2)(i), adding
new paragraph (d)(2)(ii), and removing and reserving paragraph (h) to
read as follows:
Sec. 61.45 Adjustments to the PCI for Local Exchange Carriers
* * * * *
(b) * * *
(1) Notwithstanding the value of X defined in Sec. 61.44(b), the X
value applicable to the baskets specified in Sec. 61.42(d)(2), (3), and
(6) shall be 6.5%.
(2) For the basket specified in Sec. 61.42(d)(4), the value of X,
for all local exchange carriers subject to price cap regulation, shall
be 3.0%.
* * * * *
(c)(1) * * *
X=productivity factor of 6.5%,
* * * * *
(c)(2) * * * For the purposes of this paragraph, and
notwithstanding the value of X defined in Sec. 61.44(b), the X value
applicable to the basket specified in Sec. 61.42(d)(1), shall be 6.5%.
* * * * *
(d) * * *
(2) (i) * * *
(ii) Local exchange carriers specified in Sec. 61.41(a)(2) or
(a)(3) shall not be subject to the sharing mechanism set forth in the
Commission's Second Report and Order in Common Carrier Docket No. 87-
313, FCC 90-314, adopted September 19, 1990, with respect to earnings
accruing on or after July 1, 1997. This paragraph has no effect on any
sharing obligation of any local exchange carrier relating to earnings
accrued before July 1, 1997.
* * * * *
[FR Doc. 97-14746 Filed 6-10-97; 8:45 am]
BILLING CODE 6712-01-P
