[Federal Register Volume 60, Number 194 (Friday, October 6, 1995)]
[Proposed Rules]
[Pages 52362-52363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24882]



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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 61

[CC Docket No. 94-1; FCC 95-406]


Price Cap Performance Review for Local Exchange Carriers

AGENCY: Federal Communications Commission.

ACTION: Further notice of proposed rulemaking.

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SUMMARY: On March 30, 1995, the Federal Communications Commission 
adopted a First Report and Order in this docket, revising its price cap 
regulations applicable to local exchange carriers (LECs). In that 
Order, the Commission also stated that it would consider adopting 
further rule revisions in the near future.
    In this Further Notice, the Commission seeks comment on revising 
its rules governing calculation of the ``X-Factor'' in the price cap 
index (PCI) formula, and revising the rules governing sharing 
obligations. The Commission also seeks comment on revising the rules 
governing the price cap common line formula, and the rules governing 
treatment of exogenous costs. In a previous further notice of proposed 
rulemaking, the Commission sought comment on how the price cap rules 
should be adjusted as the competition faced by local exchange carriers 
(LECs) develops in the future. The intended effect of this action is to 
revise the price cap rules to strengthen the existing incentives for 
LECs to become efficient and innovative.

DATES: Comments must be submitted on or before November 27, 1995. Reply 
Comments must be submitted on or before December 27, 1995.

ADDRESSES: Tariff Division, Common Carrier Bureau, Room 518, 1919 M 
Street, NW., Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT:
Steven Spaeth or C. Anthony Bush, Tariff Division, Common Carrier 
Bureau, (202) 418-1530.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Fourth 
Further Notice adopted September 27, 1995, and released September 27, 
1995. The full text of this Commission decision is available for 
inspection and copying during normal business hours 

[[Page 52363]]
in the FCC Public Reference Room (Room 230), 1919 M St., N.W., 
Washington, DC. The complete text of this decision may also be 
purchased from the Commission's copy contractor, International 
Transcription Service, Suite 140, 2100 M Street, N.W., Washington, D.C. 
20037.

Regulatory Flexibility Analysis

    We have determined that section 605(b) of the Regulatory 
Flexibility Act of 1980, 5 U.S.C. 605(b), does not apply to these rules 
because they do not have a significant economic impact on a substantial 
number of small entities. The definition of a ``small entity'' in 
section 3 of the Small Business Act excludes any business that is 
dominant in its field of operation. Local exchange carriers do not 
qualify as small entities because they have a nationwide monopoly on 
ubiquitous access to the subscribers in their service area. The 
Commission also has found all exchange carriers to be dominant in its 
competitive carrier proceeding. See 85 FCC 2d 1, 23-24 (1980). To the 
extent that small telephone companies will be affected by these rules, 
we hereby certify that these rules will not have a significant effect 
on a substantial number of ``small entities.''

Summary of Report and Order

    In this Further Notice, we seek comment on a number of possible 
rule revisions. The first set of rules we consider revising is related 
to the calculation of the ``X-Factor.'' The productivity factor, or X-
Factor, was included in the LEC price cap plan adopted in 1990 to 
reflect the fact that productivity growth in the telecommunications 
industry historically was greater than productivity growth in the 
economy as a whole. This Further Notice invites comments on three 
alternative X-Factor calculation methods. The first is Total Factor 
Productivity (TFP). A TFP method would base the X-Factor on the ratio 
of an index of total outputs to an index of total inputs. The output 
index would represent the quantities of goods or services produced, and 
the input index would represent the quantities of goods or services 
consumed. The second X-Factor calculation method under consideration is 
the Historical Revenue Method, which would set the X-Factor at the 
level necessary to reprice cap LECs' access services so that those LECs 
would earn a rate of return of 11.25 percent. The third X-Factor 
calculation method under consideration is the Historical Price Method. 
This is basically the method used by the Commission to set the X-Factor 
when it adopted LEC price cap regulation originally in 1990. It would 
set the X-Factor so that the historical difference between 
telecommunications price trends and economy-wide price trends will 
continue in the future.
    The Commission invites comment on a number of other X-Factor 
issues, such as whether the X-Factor should include a consumer 
productivity dividend. The Commission also seeks comment on the number 
of X-Factors that should be established in the price cap plan, to 
reflect the fact that each LEC serves regions with different economic 
conditions and population densities, and so cannot be reasonably 
expected to achieve the same level of productivity growth. In addition, 
this Further Notice solicits comment on whether the Commission should 
adopt X-Factors that would remain fixed until the next scheduled 
performance review, as the Commission did in the initial price cap 
plan. Alternatively, the Commission could adopt X-Factors based on a 
moving average of past productivity measures, which would be updated on 
a periodic basis, such as in the annual access tariff filings.
    The Commission also seeks comment on whether the sharing mechanism 
can be eliminated. In the First Report and Order in this Docket, 60 FR 
19526, Apr. 19, 1995, the Commission found that the sharing requirement 
blunts the efficiency incentives otherwise created by the price cap 
plan. Therefore, the Commission tentatively concluded that one of the 
X-Factors in the long-term price cap plan should have no sharing 
obligations, and established a goal in the First Report and Order to 
eliminate sharing eventually. Sharing serves three beneficial 
functions, however: (1) A ``backstop'' mechanism, in case the X-Factor 
was substantially in error, or in case a particular LEC's productivity 
varied substantially from the average; (2) a ``flow-through'' 
mechanism, to flow through to customers gains made by carriers in 
reducing their unit costs in excess of specified levels, as measured by 
interstate earnings; and (3) a ``matching'' mechanism, to encourage 
LECs to choose the X-Factor that most closely matches their actual rate 
of productivity growth. This Further Notice seeks comment on the extent 
to which the Commission can establish other mechanisms to replace the 
functions served by sharing. Specifically, the Commission seeks comment 
on whether a moving average X-Factor, together with multiple X-Factors, 
could replace the backstop function and the flow-through function of 
sharing. To replace the matching function, the Commission could develop 
a mechanism to assign an appropriate X-Factor to each LEC. 
Alternatively, the Commission could permit additional pricing 
flexibility to LECs electing higher X-Factors.
    Finally, the Commission seeks comment on a number of related 
issues. First, based on the method of calculation of the X-Factor, can 
the Commission eliminate the separate price cap formula for the common 
line basket? Second, based on the method of calculation of the X-
Factor, would it still be necessary for the Commission to treat some 
costs as exogenous?

Ordering Clauses

    Accordingly, it is ordered that notice is hereby given of the 
rulemaking described above and that comment is sought on these issues.
    It is further ordered that pursuant to applicable procedures set 
forth in Sec. 1.399 and 1.411 et seq. of the Commission's rules, 47 CFR 
1.399, 1.411 et seq., comments shall be filed with the Secretary, 
Federal Communications Commission, Washington, D.C. 20554 no later than 
November 27, 1995. Reply comments shall be filed no later than December 
27, 1995. To file formally in this proceeding, participants must file 
an original and four copies of all comments, reply comments, and 
supporting comments. If participants want each Commissioner to receive 
a personal copy of their comments, an original plus nine copies must be 
filed. In addition, parties should file two copies of any such pleading 
with the Tariff Division, Common Carrier Bureau, Room 518, 1919 M 
Street, NW., Washington, DC 20554, and one copy of any pleadings should 
be submitted on computer disk to the Industry Analysis Division, Common 
Carrier Bureau, Room 534, 1919 M Street, NW., Washington, DC 20554. 
Comments and reply comments will be available for public inspection 
during regular business hours in the FCC Reference Center, Room 239, 
1919 M Street, NW., Washington, DC 20554.

List of Subjects in 47 CFR Part 61

    Communications common carriers, Tariffs.

    Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-24882 Filed 10-5-95; 8:45 am]
BILLING CODE 6712-01-M