[Federal Register Volume 62, Number 167 (Thursday, August 28, 1997)]
[Rules and Regulations]
[Pages 45579-45587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22734]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 51
[CC Docket No. 96-98; FCC 97-295]
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Third Order on Reconsideration (Order) released August 18,
1997 addresses the obligation of incumbent local exchange carriers
(LECs) to provide unbundled access to interoffice transport facilities
on a shared basis. The Order clarifies the definition of shared
transport as a network element which includes the same transport links
and routing table as used by the incumbent local exchange carrier. The
effect of this rule will be to allow competitive carriers to share in
the scale and scope benefits of the incumbent LEC's network, thus
increasing competition opportunities in the local exchange and exchange
access market.
EFFECTIVE DATE: The stay of 47 CFR 51.501 through 51.515, 51.601
through 51.611, 51.705 through 51.715, and 51.809 effective October 15,
1996 (62 FR 662, Jan. 6, 1997) was lifted by the United States Court of
Appeals for the Eighth Circuit effective July 18, 1997.
The amendments to 47 CFR part 51 made in this final rule are
effective September 29, 1997.
FOR FURTHER INFORMATION CONTACT: Kalpak Gude, Attorney, Common Carrier
Bureau, Policy and Program Planning Division, (202) 418-1580. For
additional information concerning the information collections contained
in this Order contact Judy Boley at (202) 418-0214, or via the Internet
at jboley@fcc.gov.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order
adopted and released August 18, 1997. The full text of this Order is
available for inspection and copying during normal business hours in
the FCC Reference Center, 1919 M St., N.W., Room 239, Washington, D.C.
The complete text also may be obtained through the World Wide Web, at
http://www.fcc.gov/Bureaus/Common Carrier/Orders/fcc97-295.wp, or may
be purchased from the Commission's copy contractor, International
Transcription Service, Inc., (202) 857-3800, 1231 20th St., N.W.,
Washington, D.C. 20036.
Regulatory Flexibility Analysis
The changes adopted in this Order do not affect our analysis in the
First Report and Order (61 FR 45476 (August 29, 1996)).
Synopsis of Third Order on Reconsideration
I. Introduction
1. In this Order, we address two petitions for reconsideration or
clarification of the Local Competition and Order regarding the
obligation of incumbent local exchange carriers (LECs) to provide
unbundled access to interoffice transport facilities on a shared basis.
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, Report and Order, (61 FR 45476 (August
29, 1996)) (Local Competition Order), Order on Reconsideration, (61 FR
52706 (October 8, 1996)), Second Order on Reconsideration, 61 FR 66931
(December 19, 1996)), further recon. pending, aff'd in part and vacated
in part sub. nom. CompTel. v. FCC, 11 F.3d 1068 (8th Cir. 1997)
(CompTel), aff'd in part and vacated in part sub nom. Iowa Utilities
Bd. v. FCC and consolidated cases, No. 96-3321 et al., 1997 WL 403401
(8th. Cir., Jul. 18, 1997) (Iowa Utilities Bd.). We intend to address
petitions for reconsideration of other aspects of the Local Competition
Order in the future.
2. In the Local Competition Order, which established rules to
implement sections 251 and 252 of the Communications Act of 1934 (the
Act), as amended by the Telecommunications Act of 1996, the Commission
required incumbent LECs ``to provide unbundled access to shared
transmission facilities between end offices and the tandem switch.'' In
this reconsideration order, we first explain that the Local Competition
Order required incumbent LECs to provide requesting carriers with
access to the same transport facilities, between the end office switch
and the tandem switch, that incumbent LECs use to carry their own
traffic. We further explain that, when a requesting carrier takes
unbundled local switching, it gains access to the incumbent LEC's
routing table, resident in the switch. Second, we reconsider the
requirement that incumbent LECs only provide ``shared transport''
between the end office and tandem. Section 51.319(d) of the
Commission's rules requires that incumbent LECs provide access on an
unbundled basis to interoffice transmission facilities shared by more
than one customer or carrier. 47 CFR Sec. 51.319(d). In this
reconsideration order, we refer to such shared interoffice transmission
facilities as ``shared transport.'' For the reasons discussed below, we
conclude that incumbent LECs should be required to provide requesting
carriers with access to shared transport for all transmission
facilities connecting incumbent LECs' switches--that is, between end
office switches, between an end office switch and a tandem switch, and
between tandem switches. Third, we conclude that incumbent LECs must
permit requesting carriers that purchase unbundled shared transport and
unbundled switching to use the same routing table and transport links
that the incumbent LEC uses to route and carry its own traffic. By
requiring incumbent LECs to provide requesting carriers with access to
the incumbent LEC's routing table and to all its interoffice
transmission facilities on an unbundled basis, requesting carriers can
route calls in the same manner that an incumbent routes its own calls
and thus take advantage of the incumbent LEC's economies of scale,
scope, and
[[Page 45580]]
density. Finally, incumbent LECs must permit requesting carriers to use
shared transport as an unbundled element to carry originating access
traffic from, and terminating access traffic to, customers to whom the
requesting carrier is also providing local exchange service.
3. We also issue a further notice of proposed rulemaking seeking
comment on whether requesting carriers may use shared transport
facilities in conjunction with unbundled switching, to originate or
terminate interexchange traffic to customers to whom the requesting
carrier does not provide local exchange service. Moreover, we seek
comment on whether requesting carriers may use dedicated transport
facilities to originate or terminate interexchange traffic to customers
to whom the requesting carrier does not provide local exchange service.
II. Background
Local Competition Order
4. Sections 251(c)(3) and 251(d)(2) of the Act set forth standards
for identifying unbundled network elements that incumbent LECs must
make available to requesting telecommunications carriers. Section
251(c)(3) requires incumbent LECs to provide requesting carriers with
``nondiscriminatory access to network elements on an unbundled basis at
any technically feasible point.'' Section 251(d)(2) provides that, in
identifying unbundled elements, the ``Commission shall consider, at a
minimum, whether--
(A) Access to such network elements as are proprietary in nature
is necessary; and
(B) The failure to provide access to such network elements would
impair the ability of the telecommunications carrier seeking access
to provide the services that it seeks to offer.''
5. In the Local Competition Order, the Commission, pursuant to
sections 251(c)(3) and 251(d)(2), identified a minimum list of seven
network elements to which incumbent LECs must provide access on an
unbundled basis. These network elements included local switches, tandem
switches, and interoffice transmission facilities. With respect to
interoffice transmission facilities, the Commission required incumbent
LECs to provide requesting telecommunications carriers access to both
dedicated and ``shared'' interoffice transmission facilities. The
Commission defined ``interoffice transmission facilities'' as:
Incumbent LEC transmission facilities dedicated to a particular
customer or carrier, or shared by more than one customer or carrier,
that provide telecommunications between wire centers owned by
incumbent LECs or requesting telecommunications carriers, or between
switches owned by incumbent LECs or requesting telecommunications
carriers.
The Commission stated that ``[f]or some elements, especially the loop,
the requesting carrier will purchase exclusive access to the element
for a specific period, [and for] other elements, especially shared
facilities such as common transport, [carriers] are essentially
purchasing access to a functionality of the incumbent's facilities on a
minute-by-minute basis.'' In defining the network elements to which
incumbent LECs must provide access on an unbundled basis, the
Commission adopted the statutory definition of unbundled elements as
physical facilities of the network, together with the features,
functions, and capabilities associated with those facilities. The
Commission concluded that ``the definition of the term network element
includes physical facilities, such as a loop, switch, or other node, as
well as logical features, functions, and capabilities that are provided
by, for example, software located in a physical facility such as a
switch.'' The Commission found that:
The embedded features and functions within a network element are
part of the characteristics of that element and may not be removed
from it. Accordingly, incumbent LECs must provide network elements
along with all of their features and functions, so that new entrants
may offer services that compete with those offered by incumbents as
well as new services.
The Commission also determined that ``we should not identify elements
in rigid terms, but rather by function.''
6. On July 18, 1997, the United States Court of Appeals for the
Eighth Circuit issued a decision affirming certain of the Commission's
rules adopted in the Local Competition Order, and vacating other rules.
Iowa Utilities Bd. v. FCC, 1997 WL 403401 (8th Cir. July 18, 1997).
With respect to issues relevant to this reconsideration decision, the
court affirmed the Commission's authority to identify unbundled network
elements pursuant to section 251(d)(2), and generally upheld the
Commission's decision regarding incumbent LECs' obligations to provide
access to network elements on an unbundled basis. The order we issue
today is consistent with the court's decision.
III. Discussion
7. On July 18, 1997, the United States Court of Appeals for the
Eighth Circuit affirmed in part and vacated in part the Commission's
Local Competition Order. We note, as a predicate to our discussion
below, that the court affirmed the Commission's rulemaking authority to
identify unbundled network elements. The court held that section
251(d)(2) of the Act expressly gave the Commission jurisdiction in this
area. We thus conclude that the Commission has authority to address, in
this reconsideration order, the issues raised by petitioners concerning
the extent to which ``shared transport'' should be provided as an
unbundled element.
8. WorldCom filed a petition for clarification, and LECC filed a
petition for reconsideration of the Local Competition Order; both
petitions concerned the definition of shared transport as an unbundled
network element. WorldCom filed a petition for clarification pursuant
to 47 U.S.C. Sec. 405 and 47 CFR Sec. 1.429, which set forth rules
regarding petitions for reconsideration. In its petition WorldCom also
stated that, ``[s]hould the Commission not regard this petition as a
request for clarification of the Local Competition Order, WorldCom
requests that it be regarded as a petition for reconsideration.'' We
believe WorldCom's filing is more properly addressed as a petition for
reconsideration, and treat it as such in this decision.
9. Parties disagree about what we required in the Local Competition
Order with respect to shared transport. In addition, parties ask us to
clarify or reconsider our decision regarding the provision of shared
transport under section 251(c)(3). We first restate what we required in
the Local Competition Order, and then reconsider certain aspects that
may have been unclear or that were not addressed in the Local
Competition Order. We then respond to arguments raised by parties that
advocate a different approach to the provision of shared transport than
our rules require.
10. We believe that the petitions for reconsideration have raised
reasonable questions about the scope and nature of an incumbent LEC's
obligation to offer shared transport as an unbundled network element,
pursuant to section 251(c)(3) and our implementing regulations. We
address these issues below. We also believe, however, some parties have
argued that certain aspects of the rules adopted last August were
ambiguous which, in our view, were clear. Specifically, in the Local
Competition Order, we expressly required incumbent LECs to provide
access to transport facilities ``shared by more than one customer or
carrier.'' The term ``carrier'' includes both an incumbent LEC as well
as a requesting telecommunications carrier. We,
[[Page 45581]]
therefore, conclude that ``shared transport,'' as required by the Local
Competition Order encompasses a facility that is shared by multiple
carriers, including the incumbent LEC. We recognize that the Local
Competition Order did not explicitly state that an incumbent LEC must
provide shared transport in a way that enables the traffic of
requesting carriers to be carried on the same facilities that an
incumbent LEC uses for its traffic. We find, however, that a fair
reading of our order and rules does not support the claim advanced by
Ameritech that a shared network element necessarily is shared only
among competitive carriers and is separate from the facility used by
the incumbent LEC for its own traffic. Indeed, only Ameritech and US
West suggest that the Local Competition Order could be interpreted to
require sharing only between multiple competitive carriers. Moreover,
the fact that we required incumbent LECs to provide access to other
network elements, such as signalling, databases, and the local switch,
which are shared among requesting carriers and incumbent LECs is
consistent with our view that transport facilities ``shared by more
than one customer or carrier'' must be shared between the incumbent
LECs and requesting carriers. Furthermore, with respect to local
switching, we expressly rejected, in the Local Competition Order, a
proposal that incumbent LECs could, or were required to, partition
local switches before providing requesting carriers access to incumbent
LEC switches under section 251(c)(3). We stated that ``[t]he
requirements we establish for local switch unbundling do not entail
physical division of the switch, and consequently do not impose the
inefficiency or technical difficulties identified by some
commentators.'' We thus required that shared portions of incumbent LEC
switches would be shared by all carriers, including the incumbent LEC.
Although we do not believe that the Local Competition Order was unclear
as to this aspect of an incumbent LEC's obligation to provide shared
transport, we take this opportunity to state explicitly that the Local
Competition Order requires incumbent LECs to offer requesting carriers
access, on a shared basis, to the same interoffice transport facilities
that the incumbent uses for its own traffic.
11. We also conclude that the Local Competition Order was not
ambiguous as to an incumbent LEC's obligation to offer access to the
routing table resident in the local switch to requesting carriers that
purchase access to the unbundled local switch. The Local Competition
Order made clear that requesting carriers that purchase access to the
unbundled local switch may obtain customized routing, unless it is not
technically feasible to provide customized routing from that switch. In
those instances, a requesting carrier is limited to using the routing
instructions in the incumbent LEC's routing table. In so holding, we
necessarily accepted the view that requesting carriers that take
unbundled local switching have access to the incumbent LEC's routing
table, resident in the switch. We find nothing in the Local Competition
Order that supports the contention that requesting carriers that obtain
access to unbundled local switching, pursuant to section 251(c)(3), do
not obtain access to the routing table in the unbundled local switch.
12. The Local Competition Order did not clearly define certain
aspects of incumbent LECs' obligation to provide access to shared
transport under section 251(c)(3). In particular, we did not clearly
and unambiguously (1) identify all portions of the network to which
incumbent LEC must provide interoffice transport facilities on a shared
basis; and (2) address whether requesting carriers may use shared
transport facilities to provide exchange access service to IXCs for
access to customers to whom they also provide local exchange service.
We do so here on reconsideration.
A. Incumbent LECs' Obligation Regarding Shared Transport
13. We conclude that the obligation of incumbent LECs to provide
requesting carriers with access to shared transport extends to all
incumbent LEC interoffice transport facilities, and not just to
interoffice facilities between an end office and tandem. Thus,
incumbent LECs are required to provide shared transport (between end
offices, between tandems, and between tandems and end offices).
14. The Local Competition Order expressly required ``incumbent LECs
to provide unbundled access to shared transmission facilities between
end offices and the tandem switch.'' Parties disagree, however, about
whether incumbent LECs are required to provide shared transport between
end offices. As noted above, there is a discrepancy between the rule
that establishes the general obligation to provide shared transport as
a network element, and the rule vacated by the court that purports to
establish the pricing standard for shared transport. 47 CFR
Secs. 51.319(d) and 51.509(d). We note that the Eighth Circuit has held
that the Commission lacked jurisdiction to adopt the pricing standard
set forth in Sec. 51.509(d), and accordingly vacated that section of
the Commission's rules. To the extent that incumbent LECs already have
transport facilities between end offices, and between tandems, the
routing table contained in the switch most likely would route calls
between such switches. We therefore conclude that there is no basis for
limiting the use of shared transport facilities to links between end
office switches and tandem switches. Limiting the definition of shared
transport in this manner would not permit requesting carriers to
utilize the routing tables in the incumbent LECs' switches. To the
contrary, such a limitation effectively would require a requesting
carrier to design its own customized routing table, in order to avoid
having its traffic transported over the same interoffice facilities,
connecting end offices, that the incumbent LEC use to transport its own
interoffice traffic. Moreover, in the Local Competition Order, we held
that it is technically feasible to provide access to interoffice
transport facilities between end offices and between end offices and
tandem switches. No new evidence has been presented in this proceeding
to convince us that our earlier conclusion regarding technical
feasibility was incorrect.
15. We further clarify in this order that incumbent LECs are only
required to offer dedicated transport between their switches, or
serving wire centers, and requesting carriers' switches. Our Local
Competition Order was not absolutely clear as to whether incumbent LECs
must provide dedicated or shared interoffice transport between
incumbent LEC switches, or serving wire centers, and switches owned by
requesting carriers. In the Local Competition Order, we required
incumbent LECs to ``provide access to dedicated transmission facilities
between LEC central offices or between end offices and those of
competing carriers.'' This could be read to suggest that incumbent LECs
are only required to provide dedicated (but not shared) interoffice
transport facilities between their end offices, or serving wire
centers, and points in the requesting carrier's network. The rule that
defines interoffice transmission facilities, however, is less clear,
and could be read to require incumbent LECs to provide shared transport
between incumbent LECs' switches, or serving wire centers, and
requesting carriers' switches.
16. We therefore clarify here that incumbent LECs must offer only
dedicated transport, and not shared transport, between their switches,
or
[[Page 45582]]
serving wire centers, and requesting carriers' switches, as set forth
in the Local Competition Order. We also note that the Local Competition
Order expressly limited the requirement to provide unbundled
interoffice transport facilities to existing incumbent LEC facilities.
17. On reconsideration, we further clarify that incumbent LECs are
not required to provide shared transport between incumbent LEC switches
and serving wire centers. We stated above that shared transport must be
provided between incumbent LEC switches. Serving wire centers are
merely points of demarcation in the incumbent LEC's network, and are
not points at which traffic is switched. Traffic routed to a serving
wire center is traffic dedicated to a particular carrier. We thus
conclude that unbundled access to the transport links between incumbent
LEC switches and serving wire centers must only be provided by
incumbent LECs on a dedicated basis.
18. Finally, we note that, traditionally, shared facilities are
priced on a usage-sensitive basis, and dedicated facilities are priced
on a flat-rated basis. We believe that this usage-sensitive pricing
mechanism provides a reasonable and fair allocation of cost between the
users of shared transport facilities. For example, in the Access Charge
Reform Order (62 FR 40460 (July 29, 1997)), specifically the sections
dealing with rate structure issues for interstate access charges, we
required that the cost of switching, a shared facility, be recovered on
a per minute of use basis, while the cost of entrance facilities, which
are dedicated to a single interexchange carrier, be recovered on a
flat-rated basis. We note that several state commissions, in
proceedings conducted pursuant to section 252 of the Act, have required
incumbent LECs to offer shared transport priced on a usage-sensitive
basis. We acknowledge that, under the Eighth Circuit's decision, we may
not establish pricing rules for shared transport. However, in
situations where the Commission is required to arbitrate
interconnection agreements pursuant to subsection 252(e)(5), we intend
to establish usage-sensitive rates for recovery of shared transport
costs unless parties demonstrate otherwise.
B. Application of the Requirements of Section 251(d)(2) To Shared
Transport
19. Shared transport, as defined in this order, satisfies the two-
prong test set forth in section 251(d)(2) of the Act. Section 251(d)(2)
requires the Commission, in determining what network elements should be
made available under section 251(c)(3), to consider ``at a minimum,
whether (A) access to such network elements as are proprietary in
nature is necessary; and (B) the failure to provide access to such
network elements would impair the ability of the telecommunications
carrier seeking access to provide the services that it seeks to
offer.'' In the Local Competition Order, we held that an incumbent
could refuse to provide access to a network element pursuant to section
251(d)(2) only if the incumbent LEC demonstrated that ``the element is
proprietary and that gaining access to that element is not necessary
because the competing provider can use other, nonproprietary elements
in the incumbent LEC's network to provide service.'' We further held
that, under section 251(d)(2)(B), we must consider ``whether the
failure of an incumbent to provide access to a network element would
decrease the quality, or increase the financial or administrative cost
of the service a requesting carrier seeks to offer, compared with
providing that service over other unbundled elements in the incumbent
LEC's network.'' The Eighth Circuit affirmed the Commission's
interpretation of section 251(d)(2).
20. In the Local Competition Order, we concluded that, with respect
to transport facilities, ``the record provides no basis for withholding
these facilities from competitors based on proprietary
considerations.'' We also concluded that section 251(d)(2)(B) requires
incumbent LECs to provide access to shared interoffice facilities and
dedicated interoffice facilities. With respect to the unbundled local
switch, we held that, even assuming that switching may be proprietary,
at least in some respects, ``access to unbundled local switching is
clearly `necessary' under our interpretation of section 251(d)(2)(A).''
We also concluded that a requesting carrier's ability to offer local
exchange service would be ``impaired, if not thwarted,'' without access
to the unbundled local switch, and therefore, that section 251(d)(2)(B)
requires incumbent LECs to provide access to the unbundled local
switch.
21. Upon reconsideration, we herein affirm that incumbent LECs are
obligated under section 251(d)(2) to provide access to shared
transport, as we here define it, as an unbundled network element.
Parties in the record have not contended that interoffice transport
facilities are proprietary, and we have no basis for modifying our
prior conclusion that interoffice transport facilities are not
proprietary. Thus, there is no basis under section 251(d)(2)(A) for
incumbent LECs to refuse to provide interoffice transport facilities on
a shared as well as a dedicated basis.
22. We also note that the failure of an incumbent LEC to provide
access to all of its interoffice transport facilities on a shared basis
would significantly increase the requesting carriers' costs of
providing local exchange service and thus reduce competitive entry into
the local exchange market. In the Local Competition Order, we observed
that:
By unbundling various dedicated and shared interoffice
facilities, a new entrant can purchase all interoffice facilities on
an unbundled basis as part of a competing local network, or it can
combine its own interoffice facilities with those of the incumbent
LEC. The opportunity to purchase unbundled interoffice facilities
will decrease the cost of entry compared to the much higher cost
that would be incurred by an entrant that had to construct all of
its own facilities. An efficient new entrant might not be able to
compete if it were required to build interoffice facilities where it
would be more efficient to use the incumbent LEC's facilities.
We continue to find the foregoing statements to be true with respect to
shared as well as dedicated transport facilities. Requesting carriers
should have the opportunity to use all of the incumbent LEC's
interoffice transport facilities. Moreover, the opportunity to purchase
transport facilities on a shared basis, rather than exclusively on a
dedicated basis, will decrease the costs of entry.
23. We believe that access to transport facilities on a shared
basis is particularly important for stimulating initial competitive
entry into the local exchange market, because new entrants have not yet
had an opportunity to determine traffic volumes and routing patterns.
Moreover, requiring competitive carriers to use dedicated transport
facilities during the initial stages of competition would create a
significant barrier to entry because dedicated transport is not
economically feasible at low penetration rates. In addition, new
entrants would be hindered by significant transaction costs if they
were required to continually reconfigure the unbundled transport
elements as they acquired customers. We note that incumbent LECs have
significant economies of scope, scale, and density in providing
transport facilities. Requiring transport facilities to be made
available on a shared basis will assure that such economies are passed
on to competitive carriers. Further, if new entrants were forced to
rely on dedicated transport facilities, even at the earliest stages of
competitive entry, they would almost inevitably miscalculate the
capacity or routing
[[Page 45583]]
patterns. We recognize, however, that the need for access to all of the
incumbent LEC's interoffice facilities on a shared basis may decrease
as competitive carriers expand their customer base and have an
opportunity to identify traffic volumes and call routing patterns. We
therefore may revisit at a later date whether incumbent LECs continue
to have an obligation, under section 251(d)(2), to provide access to
all of their interoffice transmission facilities on a shared, usage
sensitive basis. We note that, if, in the future, competitive carriers
gain sufficient market penetration to justify obtaining dedicated
transport facilities, either through the use of unbundled elements or
through building their facilities, shared transport may no longer meet
the section 251(d)(2) requirements. In that event, the Commission can
evaluate at that time whether incumbent LECs must continue to provide
access to shared transport as a network element.
24. As noted above, although interoffice transport, as we define
the element pursuant to section 251(c)(3), refers to the transport
links in the incumbent LEC's network, access to those links on a shared
basis effectively requires a requesting carrier to utilize the routing
table contained in the incumbent LEC's switch. Ameritech contends that
the routing table contained in the switch, which is used in conjunction
with shared transport, is proprietary. Ameritech and other incumbent
LECs further allege that requesting carriers may obtain the functional
equivalent of shared transport either by purchasing transport as an
access service, or by purchasing dedicated transport facilities. These
parties thus contend that, under section 251(d)(2)(A), incumbent LECs
are not required to provide shared transport (including use of the
routing table contained in the switch) as a network element.
25. Issues regarding intellectual property rights associated with
network elements are before us in a separate proceeding. For purposes
of this Order only, we therefore assume without deciding that the
routing table is proprietary. We nevertheless conclude that section
251(d)(2) requires an incumbent LEC to provide access to both its
interoffice transmission facilities and to the routing tables contained
in the incumbent LEC's switches. We affirm our finding in the Local
Competition Order that transport provided as part of access service, or
as a wholesale usage service, is not a viable substitute for shared
transport as a network element. All incumbent LECs are not required to
offer transport as an access service on a stand alone basis.
Only Class A carriers are required, under our Expanded Interconnection
rules, to unbundle interstate transport service. Moreover, transport
service that incumbents offer under the Expanded Interconnection
tariffs may include only interstate transport facilities (transport
provided either via a tandem switch or direct trunked between a local
switch and the serving wire center), not interoffice transport
facilities directly connecting two local switches. In the Local
Competition Order, moreover, we expressly rejected the suggestion that
requesting carriers ``are not impaired in their ability to provide a
service * * * if they can provide the proposed service by purchasing
the service at wholesale rates from a LEC.''
C. Use of Shared Transport Facilities To Provide Exchange Access
Service
26. In this order on reconsideration, we clarify that requesting
carriers that take shared or dedicated transport as an unbundled
network element may use such transport to provide interstate exchange
access services to customers to whom it provides local exchange
service. We further clarify that, where a requesting carrier provides
interstate exchange access services to customers, to whom it also
provides local exchange service, the requesting carrier is entitled to
assess originating and terminating access charges to interexchange
carriers, and it is not obligated to pay access charges to the
incumbent LEC.
27. In the Local Competition Order, we held that, if a requesting
carrier purchases access to a network element in order to provide local
exchange service, the carrier may also use that element to provide
exchange access and interexchange services. We did not impose any
restrictions on the types of telecommunications services that could be
provided over network elements. We did not specifically consider in the
Local Competition Order, however, whether a requesting carrier may use
interoffice transport to provide exchange access service. We conclude
here that a requesting carrier may use the shared transport unbundled
element to provide exchange access service to customers for whom the
carrier provides local exchange service. We find that this is
consistent with our initial decision.
D. Response to Specific Arguments Raised by Parties
28. As discussed above, we define the unbundled network element of
shared transport under section 251(c)(3) as interoffice transmission
facilities, shared between the incumbent LEC and one or more requesting
carriers or customers, that connect end office switches, end office
switches and tandem switches, or tandem switches, in the incumbent
LEC's network. We exclude from this definition interoffice transmission
facilities that connect an incumbent LEC's switch and a requesting
carrier's switch, and those connecting an incumbent LEC's end office
switch, or tandem switch, and a serving wire center. This definition of
shared transport assumes the interconnection point between the two
carriers' networks, pursuant to section 251(c)(2), is at the incumbent
LEC's switch. This definition is consistent with the statutory
definition of network elements, which defines a network element as a
facility or equipment used in the provision of a telecommunications
service, including the features, functions, and capabilities provided
by means of such facility or equipment.
29. As an initial matter, we reject Ameritech's contention that, by
definition, network elements must be partly or wholly dedicated to a
customer. To the contrary, we held in the Local Competition Order that
some network elements, such as loops, are provided exclusively to one
requesting carrier, and some network elements, such as interoffice
transport provided on a shared basis, are provided on a minute-of-use
basis and are shared with other carriers. In the Local Competition
Order, we also identified signalling, call-related databases, and the
switch, as network elements that necessarily must be shared among the
incumbent and multiple competing carriers.
30. We also reject Ameritech's and BellSouth's contention that,
because WorldCom and other requesting carriers seek access to an
element--shared transport--that cannot be effectively disassociated
from another element--local switching, the requesting carriers are in
fact seeking access to a bundled service rather than to transport as a
network element unbundled from switching. As previously discussed,
several of the network elements we identified in the Local Competition
Order depend, at least in part, on other network elements. In
particular, although we identified the signalling network as a network
element, the information necessary to utilize signalling networks
resides in the switch, which we identified as a separate network
element. In addition, we required incumbent LECs, upon request, to
provide access to unbundled loops conditioned to provide, among other
things, digital services such as ISDN, even though the equipment used
[[Page 45584]]
to provide ISDN service typically resides in the local switch, rather
than in the loop. We thus find no basis for concluding that each
network element must be functionally independent of other network
elements.
31. We reject as well Ameritech's contention that a network element
must be identifiable as a limited or pre-identified portion of the
network. We find nothing in the statutory definition of network
elements that prohibits requesting telecommunications carriers from
seeking access to every transport facility within the incumbent's
network. Our definition of signalling as a network element does not
require requesting carriers to identify in advance a particular portion
of the incumbent LEC's signalling facilities, but instead permits
requesting carriers to obtain access to multiple signalling links and
signalling transfer points in the incumbent LEC's network on an as-
needed basis. We also reject Ameritech's assertion that shared
transport cannot be physically separated from switching. Both dedicated
and shared transport facilities are transport links between switches.
These links are physically distinct from the end office and tandem
switches themselves.
32. Although we conclude that shared transport is physically
severable from switching, incumbent LECs may not unbundle switching and
transport facilities that are already combined, except upon request by
a requesting carrier. Although, the Eighth Circuit struck down the
Commission's rule that required incumbent LECs to rebundle separate
network elements, the court nevertheless stated that it: ``upheld the
remaining unbundling rules as reasonable constructions of the Act,
because, as we have shown, the Act itself calls for the rapid
introduction of competition into the local phone markets by requiring
incumbent LECs to make their networks available to * * * competing
carriers.'' Among other things, the court left in effect Sec. 51.315(b)
of the Commission's rules, which provides that, ``[e]xcept upon
request, an incumbent LEC shall not separate requested network elements
that the incumbent LEC currently combines.'' Therefore, although
incumbent LECs are not required to combine transport and switching
facilities to the extent that those elements are not already combined,
incumbent LECs may not separate such facilities that are currently
combined, absent an affirmative request. In addition to violating
section 51.315(b) of our rules, such dismantling of network elements,
absent an affirmative request, would increase the costs of requesting
carriers and delay their entry into the local exchange market, without
serving any apparent public benefit. We believe that such actions by an
incumbent LEC would impose costs on competitive carriers that incumbent
LECs would not incur, and thus would violate the requirement under
section 251(c)(3) that incumbent LECs provide nondiscriminatory access
to unbundled elements. Moreover, an incumbent LEC that separates shared
transport facilities that are already connected to a switch would
likely disrupt service to its own customers served by the switch
because, by definition, the shared transport links are also used by the
incumbent LEC to serve its customers. Thus, incumbent LECs would seem
to have no network-related reason to separate network elements that it
already combines absent a request.
33. We likewise reject Ameritech's contention that purchasing
access to the switch as a network element does not entitle a carrier to
use the routing table located in that switch. According to Ameritech,
vendors provide switches that are capable of acting on routing
instructions, but the switch itself does not include routing
instructions; those instructions are added by the carrier after it
purchases the switch from the vendor and are contained in a routing
table resident in the switch. Ameritech asserts that its routing tables
are proprietary products, and ``are not a feature of the switch.'' In
the Local Competition Order, we determined that ``we should not
identify elements in rigid terms, but rather by function.'' Routing is
a critical and inseverable function of the local switch. One of the
most essential features a switch performs is to provide routing
information that sends a call to the appropriate destination. We find
no support in the statute, the Local Competition Order, or our rules
for Ameritech's assertion that the switch, as a network element, does
not include access to the functionality provided by an incumbent LEC's
routing table. In fact, the only question addressed in the Local
Competition Order was whether requesting carriers could obtain
customized routing, that is, routing different from the incumbent LEC's
existing routing arrangements.
34. We further find that access to unbundled switching is not
necessarily limited to the product the incumbent LEC originally
purchased from a vendor. As we noted in the Local Competition Order,
incumbent LECs may in some instances be required to modify or condition
a network element to accommodate a request under section 251(c)(3).
Moreover, we held that unbundled local switching includes access to the
vertical features of the switch, regardless of whether the vertical
features were included in the switch when it was purchased, or whether
the vertical features were purchased separately from the vendor or
developed by the incumbent. We held that network elements include
physical facilities ``as well as logical features, functions, and
capabilities that are provided by, for example, software located in a
physical facility such as a switch.'' We also note that the Eighth
Circuit affirmed the Commission's interpretation of the Act's
definition of ``network elements.'' The court stated that ``the Act's
definition of network elements is not limited to only the physical
components of a network that are directly used to transmit a phone call
from point A to point B'' and that the Act's definition explicitly made
reference to ``databases, signaling systems, and information sufficient
for billing and collection.'' Thus, just as databases and signaling
systems may include software created by the incumbent LEC, which must
be made available to competitive carriers purchasing those elements on
an unbundled basis, we believe that the routing table created by the
incumbent LEC that is resident in the switch must be made available to
requesting carriers purchasing unbundled switching. Finally, we note
that Ameritech is the only incumbent LEC that has argued in this record
that the routing table is not included in the unbundled local switching
element. Other incumbent LECs have stated that they offer shared
transport in conjunction with unbundled local switching. This suggests
that other incumbent LECs recognize that the routing table is a
feature, function, or capability of the switch.
35. We also disagree with Ameritech's and BellSouth's argument that
defining the unbundled network element shared transport as all
transport links between any two incumbent LEC switches would be
inconsistent with Congress's intention to distinguish between resale
services and unbundled network elements. Section 251(c)(3) requires
incumbent LECs to make available unbundled network elements at cost-
based rates; sections 251(c)(4) and 252(d)(3) require incumbent LECs to
make available for resale, at retail price less avoided costs, services
the incumbent LEC offers to retail users. In the Local Competition
Order, we held that a key distinction between section 251(c)(3) and
section 251(c)(4) is that a requesting carrier that obtains access to
[[Page 45585]]
unbundled network elements faces greater risks than a requesting
carrier that only offers services for resale. A requesting carrier that
takes a network element dedicated to that carrier, and recovered on a
flat-rated basis, must pay for the cost of the entire element,
regardless of whether the carrier has sufficient demand for the
services that the element is able to provide. The carrier thus is not
guaranteed that it will recoup the costs of the element. By contrast, a
carrier that uses the resale provision will not bear the risk of paying
for services for which it does not have customers. In particular, a
requesting carrier that takes an unbundled local switch must pay for
all of the vertical features included in the switch, even if it is
unable to sell those vertical features to end user customers.
Requesting carriers that purchase shared transport as a network element
to provide local exchange service must also take local switching, for
the practical reasons set forth herein, and consequently will be forced
to assume the risk associated with switching. A requesting carrier that
uses its own self-provisioned local switches, rather than unbundled
local switches obtained from an incumbent LEC, to provide local
exchange and exchange access service would use dedicated transport
facilities to carry traffic between its network and the incumbent LEC's
network. Thus, the only carrier that would need shared transport
facilities would be one that was using an unbundled local switch.
36. BellSouth's argument, that assessing a usage-sensitive rate for
shared transport would be inconsistent with the 1996 Act because it
would not reflect the manner in which costs are incurred, is similarly
unpersuasive. BellSouth's argument is premised on the assumption that
incumbent LECs would be required to provide shared transport over
facilities between the tandem switch and the serving wire center. In
this order, however, we make clear that incumbent LECs are required to
provide transport on a dedicated, but not on a shared basis, over
transport facilities between the incumbent LEC's tandem and the serving
wire center. Thus, BellSouth's concern is misplaced.
37. We also find that there is no element in the incumbent LEC's
network that is an equivalent substitute for the routing table. We
agree with Ameritech that requesting carriers could duplicate the
shared transport network by purchasing dedicated facilities. But in
that instance, requesting carriers would be forced to develop their own
routing instructions, and would not be utilizing a portion of the
incumbent LEC's network to substitute for the routing table. In the
Local Competition Order, we specifically rejected the suggestion that
an incumbent LEC is not required to provide a network element if a
requesting carrier could obtain the element from a source other than
the incumbent LEC. The Eighth Circuit affirmed the Commission's
conclusion.
38. Furthermore, we find that, at this stage of competitive entry,
limiting shared transport to dedicated transport facilities, as
Ameritech suggests, would impose unnecessary costs on new entrants
without any corresponding, direct benefits. AT&T and Ameritech have
both presented evidence regarding the costs of dedicated transport
facilities linking every end office and tandem in an incumbent LEC's
network as significant relative to the cost of ``shared transport.''.
For example, AT&T contends that the cost is $.041767 per minute for
dedicated transport plus associated non-recurring charges (NRCs). AT&T
claims that Ameritech would charge a total of $5008.58 per DS1
(including administrative charges and connection charges) and
$58,552.87 per switch (including customized routing and billing
development). AT&T argues that this compares with $.000776 per minute
for unbundled shared transport. Ameritech, on the other hand, contends
the use of tandem routed dedicated facilities cost is $.0031148 per
minute plus associated NRCs. Ameritech claims that the nonrecurring
charges per DS1 are $2769.27 (including administrative charges per
order). Ameritech states that other NRCs include two trunk port
connection charges ($770.29 initial, $29.16 subsequent), service
ordering charge per occasion ($398.72 initial, $17.37 subsequent),
billing development charge per switch ($35,328.87), custom routing
charge, per line class code per switch ($232.24), and a service order
charge ($398.73). Nevertheless, under either AT&T's or Ameritech's cost
calculations for dedicated transport, we conclude that the relative
costs of dedicated transport, including the associated NRCs, is an
unnecessary barrier to entry for competing carriers.
39. We also find that limiting shared transport to dedicated
facilities, as defined by Ameritech, would be unduly burdensome for new
entrants. First, we agree with MCI, AT&T, et al., that a new entrant
may not have sufficient traffic volumes to justify the cost of
dedicated transport facilities. Second, a new entrant entering the
local market with smaller traffic volumes would have to maintain
greater excess capacity relative to the incumbent LEC in order to
provide the same level of service quality (i.e., same level of
successful call attempts) as the incumbent LEC. See William W. Sharkey,
The Theory of Natural Monopoly 184-85, (1982) (``that for a given
number of circuits the economies [of scale] are more pronounced at
higher grades of service (lower blocking probability). The economics of
scale, however, decline substantially as the number of circuits
increases. Therefore for small demands a fragmentation of the network
could result in a significant cost penalty, because more circuits would
be required to maintain the same grade of service. At larger demands
the costs of fragmentation are less pronounced.'') (emphasis added). As
a new entrant gains market share and increased traffic volumes for
local service, however, the relative amount of excess capacity
necessary to prevent blocking should decrease. We do not rule out the
possibility, therefore, that, once new entrants have had a fair
opportunity to enter the market and compete, we might reconsider
incumbent LECs' obligations to provide access to the routing table.
40. As discussed above, requesting carriers may use shared
transport to provide exchange access service to customers for whom they
also provide local exchange service. Several competing carriers contend
that an interexchange carrier (IXC) has the right to select a
requesting carrier that has purchased unbundled shared transport to
provide exchange access service. The carriers further contend that, if
the IXC selects a requesting carrier, rather than the incumbent LEC, as
the exchange access provider, the competing carrier is entitled to bill
the IXC for the access services associated with shared transport. We
find that a requesting carrier may use shared transport facilities to
provide exchange access service to originate or terminate traffic to
its local exchange customers, regardless of whether the requesting
carrier or another carrier is the IXC for that traffic. We further
conclude that a requesting carrier that provides exchange access
service to another carrier is entitled to assess access charges
associated with the shared transport facilities used to transport the
traffic. We believe that this necessarily follows from our decision in
the Local Competition Order where we stated that:
[W]here new entrants purchase access to unbundled network
elements to provide exchange access services, whether or not they
are also offering toll services through such elements, the new
entrants may assess exchange access charges to IXCs originating or
terminating toll calls on those elements. In these circumstances,
incumbent LECs may not assess exchange access charges to IXCs
because the new entrants, rather than the
[[Page 45586]]
incumbents, will be providing exchange access services. * * *
We therefore find that requesting carriers that provide exchange access
using shared transport facilities to originate and terminate local
exchange calls may also use those same facilities to provide exchange
access service to the same customers to whom the requesting carrier is
providing local exchange service. Requesting carriers are then entitled
to assess access charges to interexchange carriers that use the shared
transport facilities to originate and terminate traffic to the
requesting carrier's customers.
E. Final Regulatory Flexibility Analysis
41. As required by the Regulatory Flexibility Act (RFA), the
Commission issued a Final Regulatory Flexibility Analysis (FRFA) in its
Local Competition Order in this proceeding. None of the petitions for
reconsideration filed in Docket No. 96-98 specifically address, or seek
reconsideration of, that FRFA. This present Supplemental Final
Regulatory Flexibility Analysis addresses the potential effect on small
entities of the rules adopted pursuant to the Third Order on
Reconsideration in this proceeding, supra. This Supplemental FRFA
incorporates and adds to our FRFA.
42. Need for and Objectives of this Third Order on Reconsideration
and the Rules Adopted Herein. The need for and objectives of the rules
adopted in this Third Order on Reconsideration are the same as those
discussed in the Local Competition Order's FRFA ``Summary Analysis of
Section V Access to Unbundled Network Elements.'' In general, our rules
adopted in Section V were intended to facilitate the statutory
requirement that incumbent local exchange carriers (LECs) are required
to provide nondiscriminatory access to unbundled network elements. In
this Third Order on Reconsideration, we grant in part and deny in part
the petitions filed for reconsideration and/or clarification of the
Local Competition Order, in order to further the same needs and
objectives. We conclude that the duty of incumbent LECs to provide
access to unbundled network elements also includes the provision of
``shared transport'' as an unbundled network element between end
offices, even if tandem switching is not used to route the traffic. We
also hold that the term ``shared transport'' refers to all transmission
facilities connecting an incumbent LEC's switches--that is, between end
office switches, between an end office switch and a tandem switch, and
between tandem switches. We conclude that incumbent LECs are obligated
under Section 251(d)(2) of the Communications Act of 1934, as amended,
47 U.S.C. Sec. 251(d)(2), to provide access to both their interoffice
transmission facilities and their routing tables contained in the
incumbent LEC's switches. Finally, we conclude that a requesting
carrier may use the shared transport unbundled element to provide
exchange access service to customers for whom the carrier provides
local exchange service.
43. Description and Estimate of the Number of Small Entities To
Which the Rules Will Apply. In determining the small entities affected
by our Third Order on Reconsideration for purposes of this Supplemental
FRFA, we adopt the analysis and definitions set forth in the FRFA in
our Local Competition Order. The RFA directs the Commission to provide
a description of and, where feasible, an estimate of the number of
small entities that might be affected by the rules we have adopted. The
RFA defines the term ``small entity'' as having the same meaning as the
terms ``small business,'' ``small organization,'' and ``small business
concern'' under Section 3 of the Small Business Act. A small business
concern is one which: (1) Is independently owned and operated; (2) is
not dominant in its field of operation; and (3) satisfies any
additional criteria established by the Small Business Administration
(SBA). The SBA has defined a small business for Standard Industrial
Classification (SIC) categories 4812 (Radiotelephone Communications)
and 4813 (Telephone Communications, Except Radiotelephone) to be an
entity with no more than 1,500 employees. Consistent with our FRFA and
prior practice, we here exclude small incumbent local exchange carriers
(LECs) from the definition of ``small entity'' and ``small business
concern.'' While such a company may have 1500 or fewer employees and
thus fall within the SBA's definition of a small telecommunications
entity, such companies are either dominant in their field of operations
or are not independently owned and operated. Out of an abundance of
caution, however, for regulatory flexibility analysis purposes, we will
consider small incumbent LECs within this present analysis and use the
term ``small incumbent LECs'' to refer to any incumbent LEC that
arguably might be defined by SBA as a small business concern.
44. In addition, for purposes of this Supplemental FRFA, we adopt
the FRFA estimates of the numbers of telephone companies, incumbent
LECs, and competitive access providers (CAPs) that might be affected by
the Local Competition Order. In the FRFA, we determined that it was
reasonable to conclude that fewer than 3,497 telephone service firms
are small entity telephone service firms or small incumbent LECs that
might be affected. We further estimated that there are fewer than 1,347
small incumbent LECs that might be affected. Finally, we estimated that
there were fewer than 30 small entity CAPs that would qualify as small
business concerns.
45. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. As a result of the rules adopted in the Third
Order on Reconsideration, we require incumbent LECs to provide
requesting carriers with access to the same shared transport for all
transmission facilities connecting incumbent LECs' switches. No party
to this proceeding has suggested that changes in the rules relating to
access to unbundled network elements would affect small entities or
small incumbent LECs. We determine that complying with this rule may
require use of engineering, technical, operational, accounting,
billing, and legal skills. For example, a new entrant may be required
to combine its own interoffice facilities with those of the incumbent
LEC, or be required to combine purchased unbundled network elements
into a package unique to its own needs.
46. Steps Taken To Minimize Significant Economic Impact on Small
Entities, and Alternatives Considered. As stated in our FRFA, we
determined that our decision to establish minimum national requirements
for unbundled elements should facilitate negotiations and reduce
regulatory burdens and uncertainty for all parties, including small
entities and small incumbent LECs. National requirements for unbundling
may allow new entrants, including small entities, to take advantage of
economies of scale in network design, which may minimize the economic
impact of our decision in the Local Competition Order. As stated above,
no petitioner has challenged this finding. We further find that our new
rules, which clarify the definition of ``shared transport,'' will
likely ensure that small entities obtain the unbundled elements that
they request.
47. Report to Congress: The Commission will send a copy of the
Third Order on Reconsideration, including this Supplemental FRFA, in a
report to be sent to Congress pursuant to the Small Business Regulatory
Enforcement Fairness Act of 1996, see 5 U.S.C. 801(a)(1)(A). A copy of
the Third Order on Reconsideration and this supplemental FRFA (or
summary
[[Page 45587]]
thereof) will also be published in the Federal Register, see 5 U.S.C.
604(b), and will be sent to the Chief Counsel for Advocacy of the Small
Business Administration.
IV. Ordering Clauses
48. Accordingly, it is ordered that, pursuant to sections 1-4, 201-
205, 214, 251, 252, and 303(r) of the Communications Act of 1934, as
amended, 47 U.S.C. 151-154, 201-205, 214, 251, 252, and 303(r), the
Third Order on Reconsideration is adopted.
49. It is further ordered that changes adopted on reconsideration
and the rule amendments will be effective September 29, 1997.
50. It is further ordered, pursuant to section 405 of the
Communications Act of 1934, as amended, 47 U.S.C. 405, and Sec. 1.106
of the Commission's rules, 47 CFR 1.106 (1995), that the petitions for
reconsideration filed by WorldCom, Inc. and the Local Exchange Carriers
Coalition are denied in part and granted in part to the extent
indicated above.
51. It is further ordered, that the Commission shall send a copy of
this Third Order on Reconsideration and Further Notice of Proposed
Rulemaking, including the associated Supplemental Final Regulatory
Flexibility Analysis and Initial Regulatory Flexibility Analysis, to
the Chief Counsel for Advocacy of the Small Business Administration.
List of Subjects in 47 CFR Part 51
Communications common carriers, Network elements, Transport and
termination.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
Part 51 of title 47 of the Code of Federal Regulations is amended
as follows:
PART 51--INTERCONNECTION
1. The authority citation for part 51 continues to read as follows:
Authority: Sections 1-5, 7, 201-05, 207-09, 218, 225-27, 251-54,
271, 48 Stat. 1070, as amended, 1077; 47 U.S.C. 151-55, 157, 201-05,
218, 225-27, 251-54, 271, unless otherwise noted.
2. Section 51.319 is amended by revising paragraph (d)(1) to read
as follows:
Sec. 51.319 Specific unbundling requirements.
* * * * *
(d) * * *
(1) Interoffice transmission facilities include:
(i) Dedicated transport, defined as incumbent LEC transmission
facilities dedicated to a particular customer or carrier that provide
telecommunications between wire centers owned by incumbent LECs or
requesting telecommunications carriers, or between switches owned by
incumbent LECs or requesting telecommunications carriers;
(ii) Shared transport, defined as transmission facilities shared by
more than one carrier, including the incumbent LEC, between end office
switches, between end office switches and tandem switches, and between
tandem switches, in the incumbent LEC's network;
* * * * *
3. Section 51.515 is amended by adding paragraph (d) to read as
follows:
Sec. 51.515 Application of access charges.
* * * * *
(d) Interstate access charges described in part 69 shall not be
assessed by incumbent LECs on each element purchased by requesting
carriers providing both telephone exchange and exchange access services
to such requesting carriers' end users.
[FR Doc. 97-22734 Filed 8-27-97; 8:45 am]
BILLING CODE 6712-01-P
