[Federal Register Volume 60, Number 13 (Friday, January 20, 1995)]
[Rules and Regulations]
[Pages 4107-4110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1358]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 61 and 69

[CC Docket No. 91-213; FCC 94-325]


Transport Rate Structure and Pricing

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission affirmed the interim transport rate structure, 
the method used to establish initial transport rates under the interim 
rate structure, and the price cap rules adopted to regulate future 
changes in transport rates. The Commission also clarified certain 
implementation procedures with respect to the interim transport rate 
structure and pricing rules. In doing so, the Commission resolved all 
the remaining issues raised on reconsideration in this proceeding.

EFFECTIVE DATE: February 21, 1995.

[[Page 4108]] FOR FURTHER INFORMATION CONTACT:
Matthew J. Harthun, (202) 418-1590 or David L. Sieradzki, (202) 418-
1576, Policy and Program Planning Division, Common Carrier Bureau.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Third 
Memorandum Opinion and Order on Reconsideration in CC Docket No. 91-
213, adopted December 15, 1994, and released December 22, 1994. The 
complete text of this Third Memorandum Opinion and Order on 
Reconsideration is available for inspection and copying during normal 
business hours in the FCC Reference Center, 1919 M Street, N.W., Room 
239, Washington, D.C. 20554.

Synopsis of Memorandum Opinion and Order

A. The Interim Rate Structure

    1. The interim rate structure is a significant improvement over the 
``equal charge'' rate structure. We believe that the interim rate 
structure is consistent with all three of our goals in this proceeding: 
(1) Encouraging efficient use of transport facilities by allowing 
pricing that reflects the way costs are incurred; (2) facilitating full 
and fair interexchange competition; and (3) avoiding interference with 
the development of interstate access competition. Having weighed the 
costs associated with an interim approach--namely, the effect on tandem 
competition and the delay in implementing a full cost-based rate 
structure--against the benefits associated with its balancing of our 
three public interest goals, we conclude that our cautious approach of 
adopting an interim rate structure and seeking comment on a long-term 
rate structure was a reasonable step towards a more cost-based 
transport rate structure.
    2. We decline to hold open this proceeding, as suggested in the 
record. We conclude that we have had sufficient time to evaluate the 
interim restructure. We conclude, however, that continued monitoring of 
the effects of the interim transport rate structure would be in the 
public interest, and we delegate authority to the Chief, Common Carrier 
Bureau, to continue and refine the Bureau's transport monitoring 
program. With our affirmation of the interim transport rate structure, 
we retain our conclusions that: (1) non-Tier 1 local exchange carriers 
(LECs) are exempt from implementing the interim transport rate 
structure; (2) if such LECs provide entrance facilities, they must 
provide them on a flat-rated basis; and (3) such LECs must offer flat-
rated direct-trunked transport upon receipt of a bona fide request.

B. Initial Benchmark Level and Permanent Rate Relationships

    3. We affirm the benchmark used in setting the initial transport 
rates and our use of price cap rules to govern subsequent changes in 
the price cap LECs' transport rates.
    4. Adjusting the Benchmark or Applying It to Subsequent Rate 
Changes. We decline to revise the benchmark used to establish initial 
transport rates or establish rigid rate relationships based on such a 
benchmark. We conclude that the small and medium interexchange 
carriers' (IXCs') suggested level of the benchmark lacks adequate cost 
justification. We continue to believe that special access rates provide 
a rational framework for establishing the initial transport rates.
    5. Further, fixed rate relationships are not consistent with LEC 
price cap regulation. We believe that requiring permanent rate 
relationships between DS3, DS1, and tandem-switched transport rates 
would interfere with the efficient functioning of the market, and could 
retard long-distance price reductions, depress telecommunications 
usage, and inhibit economic growth. We reject the related 
recommendation to require the LECs to reset their tandem-switched 
transport rates annually based on DS3 and DS1 direct-trunked transport 
rates, weighted based on updated fiber/copper ratios. We continue to 
believe that price cap rules, rather than required annual adjustments 
guided by cost factors, are the most appropriate means, in an 
increasingly competitive access market, to govern ongoing changes in 
rates for LEC services, including tandem-switched transport.
    6. We also decline to require the LECs to place uniform overhead 
loadings on their transport rates as a means of constraining changes to 
the price relationships between DS3 and DS1 rates. We conclude that 
even if it were demonstrated that different transport services are 
``like services,'' differences between the levels of overhead loadings 
recovered in those rates would not necessarily constitute unreasonable 
discrimination. (We note that allegations that specific rates of 
individual carriers are discriminatory are not before us in this 
proceeding.)
    7. While we continue to believe that a certain level of pricing 
flexibility is needed to enable the LECs to meet increasing competition 
in the local access market, we also recognize that without sufficient 
regulatory constraints the LECs could price their transport services 
anti-competitively. We have addressed this concern through special 
safeguards in the price cap system: placing DS3 flat-rated transport, 
DS1 flat-rated transport, and tandem-switched transport in separate 
service categories and subcategories, and retaining the +2% upper 
pricing band for tandem-switched transport services. We continue to 
believe that this approach best balances our concerns about potential 
anti-competitive LEC pricing and the LECs' need for some pricing 
flexibility in the face of increased competition, and thus, best 
promotes our public interest goals. We note, however, that this 
decision does not limit our discretion in addressing the separate 
record developed in our pending LEC Price Cap Review proceeding (Price 
Cap Performance Review for Local Exchange Carriers, Notice of Proposed 
Rulemaking, 59 FR 12888 (March 18, 1994)).
    8. Applying the Benchmark Separately to Different Transport 
Segments. The method we used to create the benchmark was based on a 
typical configuration of LEC transport offerings, using rates from 
analogous special access offerings--one IXCs would likely use to 
purchase transport services, and competitive access providers would 
likely use to offer services that could be substituted for both 
entrance facilities and interoffice facilities. We decline to require 
the LECs to satisfy separate benchmark requirements for entrance 
facilities and for direct-trunked transport.
    9. Methodology for LECs with Rate Ratios Below the Benchmark. We 
decline to revise the method by which those LECs with September 1992 
special access rates below the 9.6 to 1 benchmark established initial 
transport rates.

C. Price Cap Service Categories and Price Bands

1. Tandem Switching
    10. We decline to place tandem switching and local switching into 
the same price cap basket, whether that basket is the traffic sensitive 
basket or a new ``switching'' basket. We note also that this decision 
does not limit our discretion in addressing the separate record 
developed in the LEC Price Cap Review proceeding. We see no reason to 
treat tandem switching differently from tandem-switched transport 
transmission elements, and we retain the tandem switch element in the 
tandem-switched transport service category.
    11. We also reject SW Bell's proposal to place the interconnection 
charge into a separate ``public policy'' basket. Until [[Page 4109]] we 
have completed our evaluation of what underlying costs are recovered in 
the interconnection charge and how the interconnection charge revenues 
should be reallocated or otherwise disposed of, we conclude that the 
interconnection charge service category should be included in the 
trunking basket.
    12. Finally, we decline to price the tandem switching element 
incrementally, or to eliminate that element. We conclude that such 
measures would not be in the public interest.
2. Price Cap Service Categories and Pricing Bands
    13. In our 1994 Second Transport Order (Transport Rate Structure 
and Pricing, Second Report and Order, 59 FR 10300 (March 4, 1994)), we 
specifically placed tandem-switched transport, DS1, and DS3 flat-rated 
services into separate service categories and service subcategories in 
order to prevent the LECs from offsetting lower rates for services 
subject to more competition with higher rates for less competitive 
services. We concluded in that order, and continue to believe, that 
separate price cap service categories and pricing bands are sufficient 
to protect against potential anti-competitive behavior. Accordingly, we 
decline to eliminate the separate service categories and subcategories 
that apply to transport services.
    14. We also decline to put entrance facilities and interoffice 
facilities into separate service categories. No sufficient reason 
exists to place entrance facilities and interoffice facilities in 
separate service categories and to restrict the LECs' pricing 
flexibility between these services. We decline to eliminate the limited 
upward pricing flexibility permitted for tandem-switched transport.

D. The Interconnection Charge

1. Mid-Course Adjustment to the Interconnection Charge
    15. We clarify that the period to be used in calculating the amount 
of any mid-course adjustment to the interconnection charge is from the 
effective date of the initial transport tariffs (December 30, 1993) 
through December 31, 1994. This calculation will define the amount that 
will prospectively establish the appropriate level for the 
interconnection charge. We further clarify that the mid-course 
adjustment to the interconnection charge permits recoupment of under-
recovered interconnection charge revenues from December 30, 1993 to the 
effective date of the tariff implementing the mid-course adjustment. We 
intended that the interconnection charge yield only an initial rate 
restructure that was revenue-neutral. We interpret ``initial'' to apply 
to the first year after the implementation of the new rates. Subsequent 
changes to the interconnection charge will be governed by the price cap 
rules. LECs must file requests for mid-course adjustments to the 
interconnection charge no later than March 31, 1995. We delegate 
authority to the Chief, Common Carrier Bureau, to specify the format 
and content of such filings.
    16. The mid-course adjustment to the interconnection charge, should 
any LEC choose to avail itself of the adjustment, does not constitute 
retroactive ratemaking. The adjustment will affect only rates in effect 
after the date of the adjustment. It will not retroactively change the 
interconnection charge rates that customers already paid before the 
adjustment date. Nor will the adjustment require recoupment of revenues 
from customers or refunds to customers without suspension and an 
accounting order pursuant to Section 204(a) of the Communications Act, 
47 U.S.C. 204(a).
    17. That the mid-course adjustment will take into account revenues 
the LECs under-recovered before the date of the adjustment does not 
convert the adjustment into retroactive ratemaking. All interested 
parties were on notice prior to the effective date of the transport 
tariffs that the interconnection charge was subject to adjustment and 
that the purpose of that adjustment was to achieve more fully our 
objective of revenue neutrality during the transition from the old to 
the new rate structure. Therefore, any adjustment at a later date 
merely constitutes the implementation of a prospectively established 
obligation affecting the LECs and all access customers. The prior 
notice that the interconnection charge would be subject to adjustment, 
and the unique nature of the interconnection charge mid-course 
adjustment in the context of the major, Commission-required transport 
rate restructure, distinguish this case from cases in which a carrier 
generally seeks to adjust its rates prospectively to recoup costs from 
an earlier period. We do not address whether or not such cases would 
constitute retroactive ratemaking.
2. Burden of Proof for the Mid-Course Adjustment
    18. We decline to modify the burden of proof associated with the 
mid-course adjustment. The LECs have the burden of demonstrating a 
significant under-recovery of revenues that justifies an adjustment to 
the interconnection charge. We affirm our determination that the LECs 
must prove the extent to which they have not been able to reuse 
facilities no longer needed after IXC reconfigurations.
    19. We clarify, however, that the burden of proving that facilities 
could not be reused does not apply to facilities that are reused as a 
result of the transport restructure itself. For example, if a customer 
reconfigures its LEC entrance facility from 25 DS1 circuits to a lower-
priced DS3 circuit running over the same physical facility, the 
``reuse'' of that facility in providing DS3 service instead of DS1 
service is not excluded from the computation of the interconnection 
charge. In such a case, the interconnection charge may reasonably 
include recovery of the difference between the price of the 25 DS1 
circuits and the price of the DS3 circuit. The requirement that LECs 
show that they have been unable to reuse facilities applies to 
situations in which facilities are no longer used for interstate 
switched transport, and the LECs have not been able to put the 
facilities to any alternative uses. For example, if the customer 
terminates its use of the 25 DS1 circuits because, due to the transport 
restructure, it has decided to consolidate its points of presence, and 
the LEC is unable to put the entrance facility to any alternative uses 
in its network, then the LEC may reasonably include recovery of the 
lost DS1 revenues in the interconnection charge.
    20. We also affirm our determination that the LECs should have the 
burden of proving that demand losses result from the transport rate 
restructure rather than competition. While we intend that the transport 
rate restructure be revenue-neutral to the LECs, competition in the 
provision of switched transport is likely to result in revenue losses 
to the LECs. The interconnection charge should not be used to shield 
LECs from the risks of revenue loss associated with growing 
competition.
3. Waiver of Non-Recurring Charges
    21. We decline to modify the scope of the NRC waiver. As a general 
matter, we conclude that to broaden the scope of the NRC waiver to 
include network reconfigurations not related to the rate restructure 
would be unfair to the LECs and beyond the scope of this proceeding. 
Specifically, we conclude that six months was ample time for the 
mandated waiver to be held open, especially since IXCs had more than 
one year to plan any network reconfigurations before the new rate 
structure became effective. We reject [[Page 4110]] CompTel's 
recommendation that we require waiver of termination penalties in 
contracts for entrance facilities because we conclude that such a 
waiver would deny the LECs recovery of capital expenditures made 
specifically for a particular IXC. We also decline to adopt AT&T's 
proposal to require LECs to waive NRCs for all IXC consolidations 
because it is moot and beyond the scope of this proceeding. Moreover, 
we decline to restrict the NRC waiver to once per trunk, as USTA 
suggests, because, in light of the limited time period for which the 
waiver was available, we have no reason to believe that the significant 
churn envisioned by USTA occurred.
    22. Finally, we conclude that, in their mid-course adjustment of 
the interconnection charge, the LECs are entitled, upon a proper 
showing, to take into account NRCs waived pursuant to the Commission's 
requirement. Therefore, if a LEC can demonstrate that, as a result of 
the Commission-mandated waiver of NRCs, the transport restructure 
yielded revenues significantly less than the amount it realized 
previously, in part, because the number of NRCs charged during the year 
fell short of the demand level used in calculating the initial 
interconnection charge, the LEC may seek a mid-course adjustment on 
this basis. We conclude that the Commission has statutory authority to 
allow this type of recovery through the interconnection charge because 
it is necessary to maintain revenue neutrality and because carrying out 
such an adjustment does not constitute retroactive ratemaking.

E. Miscellaneous

1. Pricing Flexibility
    23. We reaffirm that the LECs may offer term and volume discounts 
for switched transport services and may implement density zone pricing 
of switched transport, as set forth in the Switched Transport Expanded 
Interconnection Order (Expanded Interconnection with Local Telephone 
Company Facilities, Second Report and Order and Third Notice of 
Proposed Rulemaking, 58 FR 48756 (September 17, 1993)), and as 
reaffirmed and slightly modified by the Expanded Interconnection Remand 
Order, (Expanded Interconnection with Local Telephone Company 
Facilities, Memorandum Opinion and Order, 59 FR 38922 (August 1, 
1994)). We decided these issues in the expanded interconnection 
proceeding, based on a separate and complete record. The present 
record, however, does not refute the need for this additional pricing 
flexibility in an increasingly competitive access market.
    24. With respect to volume and term discounts, we clarify that the 
rules we adopted in the expanded interconnection proceeding regarding 
discounted transport offerings (47 U.S.C. 69.110(f)-(h), 69.111(i)-(k), 
and 69.112(f)-(h)) contemplate only volume discounts (reduced per-unit 
prices for a particular number of units of service) and term discounts 
(reduced per-unit prices for a specified service for a particular 
period of time). These rules do not provide for percentage or growth 
discounts--reduced per-unit prices for customers that commit to 
purchase a certain percentage of their past usage from a LEC, or 
reduced prices based on growth in traffic placed over a LEC's network. 
With respect to density zone pricing, we reaffirm our requirement that 
the price subindexes (i.e., the upper and lower pricing bands--not the 
rate levels) be the same in each zone when a LEC introduces density 
zone pricing in a study area.
2. Intermediate Hubbing and Tandem-Switched Transport
    25. We decline to adopt Sprint's proposal to modify the definition 
of ``tandem-switched transport'' to include service between any 
customer-designated telephone company office and an end office, thus 
permitting IXCs to purchase (1) dedicated facilities to an intermediate 
hub that is not collocated at the serving wire center or at the tandem 
office; and (2) tandem-switched transport from that intermediate hub to 
an end office, rated based on the distance between the hub and the end 
offices without regard for the actual location of the intervening 
tandem office. We have already adopted rules that enable tandem-
switched transport users to obtain efficiencies through intermediate 
hubbing. Sprint's proposal would substantially change the transport 
rate structure, and would lead to the pricing of more services in a 
manner that does not reflect the way facilities are deployed. Given our 
doubts about the efficiency benefits of Sprint's request and the fact 
that the existing rules already provide reasonable opportunities for 
tandem-switched transport users to compete with direct-trunked 
transport users, we decline to amend our prior decisions.
3. Meet Point Billing
    26. We conclude that specific methods for assessing, and avoiding 
double billing for, the tandem charge and the interconnection charge 
under meet point billing arrangements are better left to the individual 
parties involved, given the wide variety and diversity of such 
arrangements. If such issues cannot be settled among the parties, we 
can address them in the future in the tariff process or pursuant to 
specific complaints filed with the Commission.
4. Prohibition on Ratcheting
    27. We continue to believe that ratcheting by interconnectors 
benefits access customers and competition, and therefore, decline to 
modify our rules with respect to ratcheting.

Ordering Clauses

    28. Accordingly, it is ordered, pursuant to Sections 1, 4(i) and 
(j), 201-205, 218, 220, 403, and 405 of the Communications Act of 1934, 
as amended, 47 U.S.C. 151, 154(i) and (j), 201-205, 218, 220, 403, and 
405, that the petitions for reconsideration and clarification 
concerning the rate structure and pricing of local transport are 
denied, except to the extent indicated herein.
    29. It is further ordered that the decisions and policies adopted 
herein shall be effective thirty days after the date of publication in 
the Federal Register.
    30. It is further ordered that WilTel's Motion for Acceptance of 
Late-Filed Opposition to Petition for Reconsideration is granted.
    31. It is further ordered that authority is delegated to the Chief, 
Common Carrier Bureau, as set forth herein.

List of Subjects in 47 CFR Part 61 and 69

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-1358 Filed 1-19-95; 8:45 am]
BILLING CODE 6712-01-M