03-13722. Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996

AGENCY:

Federal Communications Commission.

ACTION:

Proposed rule.

SUMMARY:

This document seeks comment on whether the Commission needs to amend its payphone compensation rules, which are designed to provide fair per-call compensation, pursuant to section 276 of the Act, to payphone service providers (PSPs). On a petition for review, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit), on January 21, 2003, remanded the Second Order on Reconsideration, 66 FR 21105-01 (2001) in this proceeding. The Second Order on Reconsideration had amended the Commission's payphone compensation rules. The D.C. Circuit, however, held that the Commission violated the Administrative Procedure Act (APA) when it modified its rules pursuant to a Common Carrier Bureau—issued notice that was not published in the Federal Register. The D.C. Circuit held that the Commission should have issued a Notice of Proposed Rulemaking (NPRM). The D.C. Circuit vacated the Commission's order, but stayed its mandate and its vacatur of the Second Order on Reconsideration through September 30, 2003. As a result, the rules promulgated in the Second Order on Reconsideration remain in effect through September 30, 2003. Accordingly, the Commission adopts this Further Notice of Proposed Rulemaking seeking comment on whether to retain the rules or to adopt alternative ones by this deadline.

DATES:

Comments are due June 23, 2003, and Reply Comments are due July 3, 2003.

ADDRESSES:

Federal Communications Commission, 445 12th Street, SW., Washington, DC 20554. See Supplementary Information for further filing instructions.

FOR FURTHER INFORMATION CONTACT:

Darryl Cooper, Attorney-Advisor, Competition Policy Division, Wireline Competition Bureau, at [phone], or via the Internet at [e-mail].

SUPPLEMENTARY INFORMATION:

This is a summary of the Commission's Further Notice of Proposed Rulemaking (FNPRM) in CC Docket No. 96-128, FCC 03-119, adopted May 23, 2003, and released May 28, 2003. The complete text of this FNPRM is available for inspection and copying during normal business hours in the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC, 20554. This document may also be purchased from the Commission's duplicating contractor, Qualex International, Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone [phone], facsimile 202-863-2898, or via e-mail [e-mail]. It is also available on the Commission's Web site at http://www.fcc.gov.

Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies. All filings should refer to CC Docket No. 96-128. Comments filed through ECFS can be sent as an electronic file via the Internet to http://www.fcc.gov/​e-file/​ecfs.html. Only one copy of an electronic submission must be filed. In completing the transmittal screen, commenters should include their full name, postal service mailing address, and the applicable docket number, which in this instance is CC Docket No. 96-128. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions for e-mail comments, commenters should send an e-mail to [e-mail], and should include the following words in the regarding line of the message: “get form<your e-mail address>.” A sample form and directions will be sent in reply.

Parties who choose to file by paper must file an original and four copies of each filing. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S. Postal Service mail).

For hand deliveries, the Commission's contractor, Vistronix, Inc., will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue, NE., Suite 110, Washington, D.C. 20002. The filing hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building.

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service first-class mail, Express Mail, and Priority Mail should be addressed to 445 12th Street, SW, Washington, DC 20554.

All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

Comments and reply comments must include a short and concise summary of the substantive arguments raised in the pleading. Comments and reply comments must also comply with 47 CFR 1.48 and all other applicable sections of the Commission's rules. The Commission directs all interested parties to include the name of the filing party and the date of the filing on each page of their comments and reply comments. All parties are encouraged to utilize a table of contents, regardless of the length of their submission. The Commission also strongly encourages that parties track the organization set forth in this FNRPM in order to facilitate our internal review process.

Synopsis of the Further Notice of Proposed Rulemaking

1. Background. In the Second Order on Reconsideration, 66 FR 21105-01 (2001), in this proceeding, the Commission found that payphone service providers (PSPs) were not receiving fair compensation when a switch-based long distance reseller completed a payphone-originated call. The Commission found that, prior to the adoption of the order, there was confusion in the marketplace as to which facilities-based carrier—the interexchange carrier (IXC) or the switch-based reseller—was responsible for tracking payphone-originated calls to completion and compensating the PSP (switchless resellers are not required to track calls or compensate the PSP). The Commission also found that, because of the way telephone calls are switched, PSPs do not have the ability to track calls to completion. Thus, the Commission, in the Second Order on Reconsideration in this proceeding, amended its rules to specify that the first IXC to receive a payphone call from a local exchange carrier (LEC) was responsible for tracking the call to completion and for compensating the PSP for the call. The first IXC was also required to prepare reports of completed payphone calls so that the PSPs could verify that they were being adequately compensated. The Commission permitted the IXC to then seek reimbursement from its switch-based reseller customer for both the payment to the PSP and its expenses in tracking and preparing tracking reports.

2. Discussion. The Commission tentatively concludes that, prior to the adoption of our current rules, PSPs were not receiving fair per call compensation. The Commission bases this conclusion on the record amassed prior to the release of the Second Order on Reconsideration, which shows that payphone service providers are not fairly compensated and that they face myriad difficulties in identifying resellers that complete calls. The item discusses how the very structure of the PSP industry may exacerbate this problem and solicits further comment on this issue. The Commission invites comment on this tentative conclusion and its bases, and on what rules, if any, the Commission should adopt to ensure that PSPs are fairly compensated. Specifically, to assist the Commission in its analysis of the PSP marketplace and whether to retain or amend the payphone compensation rules, this FNRPM requests comment on whether the Commission should retain the rules adopted in the Second Order on Reconsideration or whether it should adopt alternative rules to ensure that PSPs receive fair compensation. To assist the Commission in its analysis of whether to maintain or alter the current payphone compensation rules, it invites comments on four questions: (1) Whether PSPs are not receiving fair compensation when a switch-based reseller is involved in the routing of a payphone originated call; (2) which facilities-based carrier in the call path is best able to track a completed call made from a payphone; (3) which facilities-based carrier is best situated both to compensate the PSP and seek reimbursement from other carriers that derive an economic benefit from the call; and (4) what types of contractual relationships for tracking and payment of payphone calls should the Commission permit as exceptions to its payphone compensation rules. The item then poses a series of detailed questions to flesh out each of these four over-riding questions.

Initial Paperwork Reduction Act Analysis

3. This FNRPM contains a proposed information collection requirement. As part of its continuing effort to reduce paperwork burdens, the Commission invites the general public and the Office of Management and Budget (OMB) to take this opportunity to comment on the information collections contained in this FNPRM, as required by the Paperwork Reduction Act of 1995, Public Law No. 104-13. Public and agency comments are due June 23, 2003, and Reply Comments are due July 3, 2003. OMB comments are due August 1, 2003. Comments should address: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology.

4. In addition to filing comments with the Secretary, a copy of any comments on the information collection(s) contained herein should be submitted to Judith Boley Herman, Federal Communications Commission, Room 1-C804, 445 12th Street, SW, Washington, DC 20554, or via the Internet to [e-mail] and to Kim A. Johnson, OMB Desk Officer, Room 10236 NEOB, 725 17th Street, NW., Washington, DC 20503, or via the Internet to [e-mail].

Initial Regulatory Flexibility Analysis

5. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Commission has prepared the present Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on a substantial number of small entities by the policies and rules proposed in this FNPRM. Written public comments are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the deadlines for comments on the FNPRM provided above. The Commission will send a copy of the FNPRM including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration. In addition, the FNPRM and IRFA (or summaries thereof) will be published in the Federal Register.

Need for, and Objectives of, the Proposed Rules

6. On a petition for review, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit), on January 21, 2003, remanded the Second Order on Reconsideration in this proceeding. The Second Order on Reconsideration had amended the Commission's payphone compensation rules. The D.C. Circuit did not address the merits of these rules, but instead found that the Commission had violated the Administrative Procedure Act (APA) in adopting them.

7. In the Second Order on Reconsideration in this proceeding, the Commission found that payphone service providers (PSPs) were not receiving fair compensation when a switch-based long distance reseller completed a payphone-originated call. The Commission found that, prior to the adoption of the order, there was confusion in the marketplace as to which facilities-based carrier—the interexchange carrier (IXC) or the switch-based reseller—was responsible for tracking payphone-originated calls to completion and compensating the PSP (switchless resellers are not required to track calls or compensate the PSP). The Commission also found that, because of the way telephone calls are switched, PSPs do not have the ability to track calls to completion. Thus, the Commission, in the Second Order on Reconsideration in this proceeding, amended its rules to specify that the first IXC to receive a payphone call from a local exchange carrier (LEC) was responsible for tracking the call to completion and for compensating the PSP for the call. The first IXC was also required to prepare reports of completed payphone calls so that the PSPs could verify that they were being adequately compensated. The Commission permitted the IXC to then seek reimbursement from its switch-based reseller customer for both the payment to the PSP and its expenses in tracking and preparing tracking reports.

8. The overall objective of this FNPRM is to ensure that PSPs receive fair per-call compensation pursuant to section 276 of the Act. In this regard, the FNPRM asks whether the Commission should retain the PSP compensation rules adopted in the Second Order on Reconsideration or whether any alternative rules should be adopted to address PSP problems in receiving fair compensation.

Legal Basis

9. The legal basis for any action that may be taken pursuant to the FNPRM is contained in sections 1, 4(i), 4(j), and 276 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), and 276, and §§ 1.1, 1.48, 1.411, 1.412, 1.415, 1.419, and 1.1200-1.1216, of the Commission's rules, 47 CFR 1.1, 1.48, 1.411, 1.412, 1.415, 1.419, and 1.1200-1.1216.

Description and Estimate of the Number of Small Entities to Which the Proposed Rules Will Apply

10. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that will be affected by the proposed rules. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under 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).

11. Incumbent Local Exchange Carriers. Neither the Commission nor the SBA has developed a specific definition of small providers of incumbent local exchange services. The closest applicable definition under the SBA rules is for Wired Telecommunications Carriers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the most recent Telephone Trends Report data, 1,335 incumbent local exchange carriers reported that they were engaged in the provision of local exchange services. Of these 1,335 carriers, 1,037 reported that they have 1,500 or fewer employees and 298 reported that, alone or in combination with affiliates, they have more than 1,500 employees. The Commission does not have data specifying the number of these carriers that are either dominant in their field of operations or are not independently owned and operated, and thus are unable at this time to estimate with greater precision the number of incumbent local exchange carriers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that 1,037 or fewer providers of local exchange service are small entitles that may be affected by the rules and policies adopted herein.

12. Competitive Local Exchange Carriers. Neither the Commission nor the SBA has developed a specific definition for small providers of competitive local exchange services. The closest applicable definition under the SBA rules is for Wired Telecommunications Carriers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the Commission's Telephone Trends Report data, 349 companies reported that they were engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 349 companies, 297 reported that they have 1,500 or fewer employees and 52 reported that, alone or in combination with affiliates, they have more than 1,500 employees. The Commission does not have data specifying the number of these carriers that are either dominant in their field of operations or are not independently owned and operated, and thus is unable at this time to estimate with greater precision the number of competitive local exchange carriers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that fewer than 297 providers of competitive local exchange service are small entities that may be affected by the rules.

13. Competitive Access Providers. Neither the Commission nor the SBA has developed a definition of small entities specifically applicable to competitive access providers (CAPS). The closest applicable definition under the SBA rules is for Wired Telecommunications Carriers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the Commission's most recent Telephone Trends Report data, 349 CAPs or competitive local exchange carriers and 60 other local exchange carriers reported that they were engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 349 competitive access providers and competitive local exchange carriers, 297 reported that they have 1,500 or fewer employees and 52 reported that, alone or in combination with affiliates, they have more than 1,500 employees. Of the 60 other local exchange carriers, 56 reported that they have 1,500 or fewer employees and 4 reported that, alone or in combination with affiliates, they have more than 1,500 employees. The Commission does not have data specifying the number of these carriers that are not independently owned and operated, and thus is unable at this time to estimate with greater precision the number of CAPS or other local exchange carriers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are 297 or fewer small entity CAPS and 56 or fewer other local exchange carriers that may be affected by the rules.

14. Local Resellers. SBA has developed a definition for small businesses within the category of Telecommunications Resellers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the Commission's most recent Telephone Trends Report data, 87 companies reported that they were engaged in the provision of local resale services. Of these 87 companies, 86 reported that they have 1,500 or fewer employees and one reported that, alone or in combination with affiliates, it had more than 1,500 employees. The Commission does not have data specifying the number of these local resellers that are not independently owned and operated, and thus is unable at this time to estimate with greater precision the number of local resellers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are 86 or fewer local resellers that may be affected by the rules.

15. Toll Resellers. The SBA has developed a definition for small businesses within the category of Telecommunications Resellers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the Commission's most recent Telephone Trends Report data, 454 companies reported that they were engaged in the provision of toll resale services. Of these 454 companies, 423 reported that they have 1,500 or fewer employees and 31 reported that, alone or in combination with affiliates, they have more than 1,500 employees. The Commission does not have data specifying the number of these toll resellers that are not independently owned and operated, and thus is unable at this time to estimate with greater precision the number of toll resellers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are 423 or fewer toll resellers that may be affected by the rules.

16. Payphone Service Providers. Neither the Commission nor the SBA has developed a definition of small entities specifically applicable to payphone service providers (PSPs). The closest applicable definition under the SBA rules is for Wired Telecommunications Carriers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the Commission's most recent Trends in Telephone Service data, 758 PSPs reported that they were engaged in the provision of payphone services. Of these 758 payphone service providers, 755 reported that they have 1,500 or fewer employees and 3 reported that, alone or in combination with affiliates, they have more than 1,500 employees. The Commission does not have data specifying the number of these payphone service providers that are not independently owned and operated, and thus is unable at this time to estimate with greater precision the number of PSPs that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are 755 or fewer PSPs that may be affected by the rules.

17. Interexchange Carriers. Neither the Commission nor the SBA has developed a definition of small entities specifically applicable to providers of interexchange services. The closest applicable definition under the SBA rules is for Wired Telecommunications Carriers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the most recent Telephone Trends Report data, 204 carriers reported that their primary telecommunications service activity was the provision of interexchange services. Of these 204 carriers, 163 reported that they have 1,500 or fewer employees and 41 reported that, alone or in combination with affiliates, they have more than 1,500 employees. The Commission does not have data specifying the number of these carriers that are not independently owned and operated, and thus are unable at this time to estimate with greater precision the number of IXCs that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are 163 or fewer small entity IXCs that may be affected by the rules.

18. Operator Service Providers. Neither the Commission nor the SBA has developed a definition of small entities specifically applicable to operator service providers. The closest applicable definition under the SBA rules is for Wired Telecommunications Carriers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the Commission's most recent Telephone Trends Report data, 21 companies reported that they were engaged in the provision of operator services. Of these 21 companies, 20 reported that they have 1,500 or fewer employees and one reported that, alone or in combination with affiliates, it had more than 1,500 employees. The Commission does not have data specifying the number of these operator service providers that are not independently owned and operated, and thus is unable at this time to estimate with greater precision the number of operator service providers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are 20 or fewer local resellers that may be affected by the rules.

19. Prepaid Calling Card Providers. The SBA has developed a definition for small businesses within the category of Telecommunications Resellers. Under that SBA definition, such a business is small if it has 1,500 or fewer employees. According to the Commission's most recent Telephone Trends Report data, 21 companies reported that they were engaged in the provision of prepaid calling cards. Of these 21 companies, 20 reported that they have 1,500 or fewer employees and one reported that, alone or in combination with affiliates, it had more than 1,500 employees. The Commission does not have data specifying the number of these local resellers that are not independently owned and operated, and thus is unable at this time to estimate with greater precision the number of prepaid calling card providers that would qualify as small business concerns under the SBA's definition. Consequently, the Commission estimates that there are 20 or fewer local resellers that may be affected by the rules.

Description of Projected Reporting, Recordkeeping and Other Compliance Requirements

20. The rules adopted in the Second Order on Reconsideration, which are subject to review in the item, require IXCs to produce and provide reports to PSPs detailing which payphone-originated calls were completed over a IXC's or a switch-based reseller's network so that the PSPs may verify whether they are being fairly compensated pursuant to section 276 of the Act. The FRNRM asks whether these rules should be retained or whether other reporting requirements should be adopted.

Steps Taken To Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered

21. The RFA requires an agency to describe any significant, specifically small business, alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.

22. The current rules requiring an IXC to track and report payphone calls completed on an IXC's or switch-based reseller's network impose a minimal burden on the IXC or switch-based reseller. This is because IXCs and switch-based resellers already keep track of such data for their own billing and collection purposes. In addition, the Commission allows IXCs to diminish their expenses by (1) recovering their reporting costs from other carriers in the call path and (2) outsourcing their reporting obligations to clearinghouses. In this FNRPM, the Commission seeks comment on the burdens of these reporting requirements and asks whether alternative requirements should be adopted.

Federal Rules That May Duplicate, Overlap, or Conflict With the Proposed Rules

23. None.

Ordering Clauses

24. Accordingly, it is ordered that, pursuant to the authority contained in sections 1, 4(i), 4(j), and 276 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), and 276, this Further Notice of Proposed Rulemaking is adopted.

25. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Further Notice of Proposed Rulemaking, including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration, in accordance with the Regulatory Flexibility Act.

Federal Communications Commission.

Marlene H. Dortch,

Secretary.