[Federal Register Volume 60, Number 75 (Wednesday, April 19, 1995)]
[Rules and Regulations]
[Pages 19528-19531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9575]



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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 69

[CC Docket No. 93-6; FCC 95-94]


Safeguards To Improve Administration of the Interstate Access 
Tariff and Revenue Distribution Processes

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Federal Communications Commission (``FCC'' or 
``Commission'') has adopted a Report and Order and Order to Show Cause 
(``Order'') adopting new rules to reform the interstate access tariff 
and revenue distribution processes administered by the National 
Exchange Carrier Association, Inc. (``NECA''). The Order amends the 
rules to include five directors from outside the local exchange carrier 
(``LEC'') industry on NECA's Board of Directors. The Order adopts 
additional measures to increase NECA and LEC accountability to the FCC, 
and strengthen NECA's internal operations. In addition, the Order 
directs NECA to show cause why it should not be required to amend its 
incentive compensation plan to eliminate any incentive based upon 
common line or traffic sensitive pool earnings, or that might otherwise 
induce NECA officers or employees to violate Commission requirements. 
The FCC adopted this Order to assure that NECA 
[[Page 19529]] administers the interstate access tariff and revenue 
distribution processes in accordance with FCC rules.

EFFECTIVE DATE: May 19, 1995. NECA shall submit its response to the 
Commission's order to show cause on or before June 19, 1995.

FOR FURTHER INFORMATION CONTACT:
William A. Kehoe III, telephone number 202-418-0850, or John Hays, 
telephone number 202-418-0875.

SUPPLEMENTARY INFORMATION: This is a summary of the FCC's Report and 
Order and Order to Show Cause (``Order'') in Safeguards to Improve the 
Administration of the Interstate Access Tariff and Revenue Distribution 
Processes, FCC 95-94, CC Docket No. 93-6, adopted March 3, 1995 and 
released March 8, 1995. The full text of the Order is available for 
inspection and copying during normal business hours in the FCC 
Reference Center, room 239, 1919 M St., NW., Washington, DC. The full 
text will be published in the FCC Record and may also be purchased from 
the Commission's copy contractor, the International Transcription 
Service, at 2100 M Street, NW., suite 140, Washington, DC 20037, 
telephone number 202-857-3800.

Regulatory Flexibility Analysis

    In the Notice of Proposed Rulemaking\1\ in this proceeding, the 
Commission certified that the Regulatory Flexibility Act of 1980 does 
not apply to this rulemaking proceeding because if the proposals in 
this proceeding were adopted, there will not be a significant economic 
impact on a substantial number of small business entities, as defined 
by section 601(3) of the Regulatory Flexibility Act.\2\ Those proposals 
addressed by the administration of the interstate access tariff and 
revenue distribution processes by NECA, which is an association of 
LECs. Because of the nature of local exchange and access service, the 
Commission has concluded that LECs, including small LECs, are dominant 
in their fields of operation and therefore are not ``small entities'' 
as defined by that act.\3\ The Secretary has sent a copy of this Notice 
of Proposed Rulemaking, including the certification, to the Chief 
Counsel for Advocacy of the Small Business Administration in accordance 
with section 603(a) of that act.\4\

    \1\Safeguards to Improve the Administration of the Interstate 
Access Tariff and Revenue Distribution Processes, Notice of Proposed 
Rulemaking, 8 FCC Rcd 1503, 1510, 58 FR 11203, 11204 (1993) 
(Notice).
    \2\5 U.S.C. 601(3).
    \3\See MTS and WATS Market Structure, 93 FCC 2d 241, 338-39 
(1983).
    \4\5 U.S.C. 603(a).
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Synopsis of the Report and Order and Order to Show Cause

    The NECA is an association of LECs established in 1984, at the 
direction of the Federal Communications Commission, to administer 
important Commission programs. These programs now include the common 
line (``CL'') and traffic sensitive pools, the universal service fund, 
the lifeline assistance program, and the long term support program. The 
Commission's rules require LECs to report revenue, cost, and demand 
data to NECA so that NECA can administer these programs in accordance 
with Commission requirements.\5\

    \5\47 CFR 69.116(c), 69.117(c), 69.605(a).
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    In 1989 and 1990, the Common Carrier Bureau (``Bureau'') audited 
certain data that the Bell Operating Companies (``BOCs'') had reported 
to NECA's CL pool during late 1988 and early 1989. That audit disclosed 
that several NECA directors appeared to have participated in an attempt 
to influence improperly the CL pool earnings for 1988 by inducing 
certain large LECs to report data to NECA that were inconsistent with 
our accounting, separations, and access charge rules. In a November 9, 
1990 letter to NECA,\6\ the Commission expressed concern regarding the 
directors' apparent misconduct. The Commission required NECA to hire an 
independent auditor to recommend safeguards to prevent manipulation of 
NECA's processes. NECA hired Ernst & Young, which filed its report on 
this audit with the Commission on December 9, 1991.\7\ This report 
acknowledged NECA's improvement since the Bureau audit and recommended 
additional measures to improve the interstate access tariff and revenue 
distribution processes further.\8\ NECA has implemented many of the 
recommendations that required no Commission action and has asked the 
Commission to act when such action was required.\9\

    \6\Letter from Donna R. Searcy, Secretary, FCC, to Lawrence C. 
Ware, Chairman of the Board of Directors, NECA, 5 FCC Rcd 7183 
(1990) (November 9 Letter).
    \7\Ernst & Young, Review and Recommended Pool Safeguards, AAD 
91-24 (filed Dec. 9, 1991) (Safeguards Report).
    \8\The improvements included a new emphasis on rule compliance, 
changes to NECA's bylaws that make NECA's Board deliberations more 
systematic, and better methods for ensuring that the data LECs 
submit to NECA comply with Commission requirements. We discuss these 
improvements in subsequent portions of this Order.
    \9\For instance, after the independent auditor recommended that 
the NECA Board include directors from outside the LEC industry, NECA 
petitioned the Commission for a rule change to add two outside 
director positions to its Board.
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    In the Notice in this Docket, the Commission proposed to adopt 
those recommendations of the independent auditor that it found 
warranted Commission action. The Commission's proposals focused on the 
composition and operation of NECA's Board, on the relationship between 
NECA and the Commission, and on methods for strengthening NECA's 
internal operations. Sixteen parties filed comments on the Notice, and 
five parties replied.
    In this Order, the Commission adopts many of its proposals. To 
bring independent views to NECA's deliberations and to help ensure that 
NECA complies with Commission requirements, the Commission changes the 
composition of NECA's Board. Effective January 1, 1996, NECA's Board 
will consist of five directors from outside the LEC industry, two 
directors representing the BOCs, two directors representing other LECs 
having annual operating revenues in excess of $40 million, and six 
directors representing LECs having annual operating revenues of less 
than $40 million. These directors will serve one-year terms, but, if 
they seek reelection, must face contested elections at least every 
three years. The Commission requires that each NECA Board committee 
include at least one outside director, and eliminates restrictions on 
the membership of NECA's CL and traffic sensitive committees.
    In the Order, the Commission reiterates that, in preparing 
interstate access tariff filings and distributing interstate revenue, 
NECA must correct any data that it reasonably believes do not comply 
with our rules. To help ensure that NECA receives complete and accurate 
data from LECs, the Commission requires that responsible LEC officers 
or employees certify data submissions to NECA. The Commission also 
requires NECA to report annually to the Commission on the results of 
its cost study review process. In addition, the Commission orders NECA 
to show cause why it should not be required to amend its incentive 
compensation plan for its officers and employees to eliminate any 
incentives that may reward rule violations. The Commission, however, 
declines to require LECs that do not participate in NECA's pools to 
obtain independent audits of their costs studies. It also declines to 
require NECA to provide it with on-line access to NECA data bases at 
this time.
    In taking these actions, the Commission emphasized that it has no 
wish to superintend NECA's day-to-day operations, and that it does not 
believe [[Page 19530]] that its actions intrude upon NECA's managerial 
discretion. NECA, however, is an organization established at the 
Commission's direction, whose structure and principal functions are 
specified by Commission rules.\10\ The Commission believes that, to 
discharge its own responsibility to ensure the reasonableness of 
interstate telephone rates, it must ensure that NECA is discharging its 
responsibilities under the Commission's rules.

    \10\See 47 CFR 69.601-69.612.
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Ordering Clauses

    Accordingly, It Is Ordered, pursuant to Sections 1, 4(i), 201-205, 
218-220, and 403 of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 154(i), 201-05, 218-20, and 403, that Part 69 of the 
Commission's rules, 47 CFR Part 69, IS AMENDED, as specified below.
    It Is Further Ordered, pursuant to Sections 1, 4(i), 201-205, 218-
220, and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 
151, 154(i), 201-05, 218-20, and 403, that NECA shall file an annual 
report as specified in paragraphs 64 and 65 of the Report and Order.
    It Is Further Ordered, pursuant to Sections 1, 4(i), 201-205, 218-
220, and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 
151, 154(i), 201-05, 218-20, and 403, that NECA shall show cause why it 
should not be required to amend its incentive compensation plan to 
eliminate any incentive based upon common line or traffic sensitive 
pool earnings or that might otherwise induce NECA officers or employees 
to violate Commission requirements.
    It Is Further Ordered, pursuant to Sections 1, 4(i), 201-205, 218-
220, and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 
151, 154(i), 201-05, 218-20, and 403, that, pending further Commission 
order, NECA shall not make any incentive payments based on the rates of 
return earned by the common line or traffic sensitive pools.

List of Subjects in 47 CFR Part 69

    Access charges, Telephone.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Amendments

    Part 69 of Title 47 of the CFR is amended as follows:

PART 69--ACCESS CHARGES

    1. The authority citation for part 69 continues to read as follows:

    Authority: Secs. 4, 201, 202, 203, 205, 218, 403, 48 Stat. 1066, 
1070, 1072, 1077, 1094, as amended, 47 U.S.C. 154, 201, 202, 203, 
205, 218, 403.

    2. Section 69.601 is amended by adding a new paragraph (c) to read 
as follows:


Sec. 69.601  Exchange carrier association.

* * * * *
    (c) All data submissions to the association required by this Title 
shall be accompanied by the following certification statement signed by 
the officer or employee responsible for the overall preparation for the 
data submission:

Certification

    I am (title of certifying officer or employee). I hereby certify 
that I have overall responsibility for the preparation of all data 
in the attached data submission for (name of carrier) and that I am 
authorized to execute this certification. Based on information known 
to me or provided to me by employees responsible for the preparation 
of the data in this submission, I hereby certify that the data have 
been examined and reviewed and are complete, accurate, and 
consistent with the rules of the Federal Communications Commission.
Date:------------------------------------------------------------------

Name:------------------------------------------------------------------

Title:-----------------------------------------------------------------

(Persons making willful false statements in this data submission can 
be punished by fine or imprisonment under the provisions of the U.S. 
Code, Title 18, Section 1001).

    3. Section 69.602 is revised to read as follows:


Sec. 69.602  Board of directors.

    (a) For purposes of this section, the association membership shall 
be divided into three subsets:
    (1) The first subset shall consist of the telephone companies owned 
and operated by the seven Regional Bell Holding Companies;
    (2) The second subset shall consist of all other telephone 
companies with annual operating revenues in excess of forty million 
dollars;
    (3) The third subset shall consist of all other telephone 
companies. All commonly controlled companies shall be deemed to be one 
company for purposes of this section.
    (b) There shall be fifteen directors of the association.
    (c) Until 1996, three directors shall represent the first subset, 
three directors shall represent the second subset, and nine directors 
shall represent the third subset. In 1996 and thereafter, two directors 
shall represent the first subset, two directors shall represent the 
second subset, six directors shall represent the third subset, and five 
directors shall represent all three subsets.
    (d) No director who represents all three subsets shall be a current 
or former officer or employee of the association or of any association 
member, or have a business relationship or other interest that could 
interfere with his or her exercise of independent judgment.
    (e) Each subset shall select the directors who will represent it 
individually through an annual election in which each member of the 
subset shall be entitled to vote for the number of directors that will 
represent such members' subset.
    (f) The association membership shall select the directors for the 
following calendar year who will represent all three subsets through an 
annual election in which each member of the association shall be 
entitled to one vote for each director position. There shall be at 
least two candidates meeting the qualifications in paragraph (d) of 
this section for each such director position:
    (1) In any election in which the most recently elected director for 
such position is not a qualified candidate;
    (2) If there has been no election for such position having more 
than one qualified candidate during the present and the two preceding 
calendar years; and
    (3) In any election for which the ballot lists two or more 
qualified candidates.
    (g) At least one director representing all three subsets shall be a 
member of each committee of association directors.
    (h) For each access element or group of access elements for which 
voluntary pooling is permitted, there shall be a committee that is 
responsible for the preparation of charges for the associated access 
elements that comply with all applicable sections in this part.
    (i) Directors shall serve for a term of one year commencing January 
1 and concluding on December 31 of each year.
    4. Section 69.605 is amended by adding a new paragraph (e) to read 
as follows:


Sec. 69.605  Reporting and distribution of pool access revenues.

* * * * *
    (e) The association shall submit a report on or before February 1 
of each calendar year describing the association's cost study review 
process for the preceding calendar year as well as the results of that 
process. For any revisions to cost study results made or recommended by 
the association that would change the respective carrier's calculated 
annual common line or traffic sensitive revenue requirement by ten 
percent or more, the report shall include the following 
information: [[Page 19531]] 
    (1) The name of the carrier;
    (2) A detailed description of the revisions;
    (3) The amount of the revisions;
    (4) The impact of the revisions on the carrier's calculated common 
line and traffic sensitive revenue requirements; and
    (5) The carrier's total annual common line and traffic sensitive 
revenue requirement.

[FR Doc. 95-9575 Filed 4-18-95; 8:45 am]
BILLING CODE 6712-01-M