[Federal Register Volume 61, Number 35 (Wednesday, February 21, 1996)]
[Proposed Rules]
[Pages 6607-6610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-3917]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Chapter I
[CC Docket No. 96-21, FCC 96-59]
Bell Operating Company Provision of Out-of-Region Interstate,
Interexchange Services
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In this Notice of Proposed Rulemaking, the Commission proposes
a regulatory regime to govern the Bell operating companies (BOCs)
provision of all ``out-of-region'' interstate, interexchange services
(including interLATA and intraLATA services). Specifically, we consider
whether the BOCs should be regulated as dominant or non-dominant
carriers with respect to the provision of such out-of-region services.
We tentatively conclude that, if a BOC provides out-of-region
interstate, interexchange services through an affiliate that satisfies
the separation requirements established in the Competitive Carrier
proceeding, the BOC affiliate should be regulated as a non-dominant
carrier. This Notice does not address BOC provision of in-region,
interexchange services. These proposed rules will permit the rapid
entry by the BOCs into the provision of out-of-region interstate,
interexchange services while providing protection against
anticompetitive conduct.
DATES: Comments must be submitted on or before March 13, 1996. Reply
comments must be filed on or before March 25, 1996.
ADDRESSES: Comments and reply comments should be sent to Office of the
Secretary, Federal Communications Commission, 1919 M Street, N.W., Room
222, Washington, D.C. 20554, with a copy to Janice Myles of the Common
Carrier Bureau, 1919 M Street, N.W., Room 544, Washington, D.C.
[[Page 6608]]
20554. Parties should also file one copy of any documents filed in this
docket with the Commission's copy contractor, International
Transcription Services, Inc., 2100 M Street, N.W., Suite 140,
Washington, D.C. 20037.
FOR FURTHER INFORMATION CONTACT: Melissa Waksman (202) 418-0913 or
Michael Pryor (202) 418-0495, Common Carrier Bureau, Policy and Program
Planning Division.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Notice of Proposed Rulemaking released and adopted on February 14,
1996. (FCC 96-59). The full text of this Notice of Proposed Rulemaking
is available for inspection and copying during normal business hours in
the FCC Reference Center (Room 239), 1919 M St., NW., Washington, DC.
The complete text also may be purchased from the Commission's copy
contractor, International Transcription Service, Inc., (202) 857-3800,
2100 M St., NW., Suite 140, Washington, DC 20037.
Synopsis of Notice of Proposed Rulemaking
I. Introduction
1. The Telecommunications Act of 1996 (``1996 Act'') has just
authorized the Bell Operating Companies (``BOCs'') to provide interLATA
services originating outside their in-region states. Prior to enactment
of the 1996 Act, the BOCs were prohibited from providing interLATA
services by the terms of the Modification of Final Judgment (``MFJ'').
In this Notice of Proposed Rulemaking, we propose a regulatory regime
to govern the BOCs' provision of all ``out-of-region'' interstate,
interexchange services (including interLATA and intraLATA services).
Specifically, we consider whether the BOCs should be regulated as
dominant or non-dominant carriers with respect to the provision of such
out-of-region services. We tentatively conclude that, if a BOC provides
out-of-region interstate, interexchange services through an affiliate
that satisfies the separation requirements established in the
Competitive Carrier proceeding, the BOC affiliate should be regulated
as a non-dominant carrier. Under the terms of the 1996 Act, a BOC's
provision of 800 service, private line service, or their equivalents
that terminate in an in-region state of that BOC are considered in-
region services even if such service originates out-of-region. This
Notice does not address BOC provision of in-region, interexchange
services. We further note that BOC provision to commercial mobil radio
services customers, of interstate, interLATA services originating
outside any of the BOC's in-region states, is included in the out-of-
region services addressed in this proceeding.
II. Background
2. Between 1979 and 1985, the Commission conducted the Competitive
Carrier proceeding, in which it examined how its regulations should be
adapted to reflect and facilitate the increasing competition in
telecommunications markets. In a series of orders, the Commission
distinguished between carriers with market power (dominant carriers)
and those without market power (non-dominant carriers). The Commission
gradually relaxed its regulation of non-dominant carriers because it
concluded that non-dominant carriers could not engage in conduct that
may be anticompetitive or otherwise inconsistent with the public
interest.
3. In its First Report and Order, 45 FR 76148, November 18, 1980,
the Commission classified local exchange carriers (``LECs'') and AT&T
as dominant carriers and concluded that these dominant carriers should
be subject to the ``full panoply'' of then-existing Title II
regulation. Recently, in light of increasing competition in the
interstate, domestic, interexchange telecommunications market, and
evidence that AT&T no longer possesses the ability to control price
unilaterally, the Commission reclassified AT&T as a non-dominant
carrier in that market.
4. In its Fourth Report and Order, 48 FR 52452, November 18, 1983,
the Commission considered how it should regulate the provision of
interstate, interexchange services by independent LECs. By
``independent LECs'' we refer to exchange telephone companies other
than the BOCs. The Commission determined that interexchange carriers
affiliated with independent LECs would be regulated as non-dominant
carriers. In the Fifth Report and Order, 49 FR 34824, September 4,
1984, the Commission clarified that an ``affiliate'' of an independent
LEC for purposes of qualifying for regulation as a non-dominant carrier
is ``a carrier that is owned (in whole or part) or controlled by, or
under common ownership (in whole or part) or control with, an exchange
telephone company.'' The Commission went on to explain that in order to
qualify for non-dominant status, the affiliate must: (1) maintain
separate books of account; (2) not jointly own transmission or
switching facilities with the exchange telephone company; and (3)
obtain any exchange telephone company services at tariffed rates and
conditions. The Commission noted that these requirements would avoid
imposing excessive burdens on independent LECs. The Commission further
concluded that, if an independent LEC provided interstate,
interexchange services directly, rather than through an affiliate,
those services would be subject to dominant carrier regulation.
5. In the Fifth Report and Order, the Commission also addressed the
possible entry of the BOCs into interstate, interexchange services in
the future:
The BOCs currently are barred by the [Modification of Final
Judgment] from providing interLATA services. * * * If this bar is
lifted in the future, we would regulate the BOCs' interstate,
interLATA services as dominant until we determined what degree of
separation, if any, would be necessary for the BOCs or their
affiliates to qualify for nondominant regulation.
6. The 1996 Act authorizes the BOCs to provide out-of-region
interstate and intrastate interLATA services upon enactment. More
specifically, Section 271(b)(2) of the Communications Act provides that
a BOC of BOC affiliate may provide interLATA services originating
outside its in-region States after the date of enactment of the 1996
Act, subject to the provisions of section 271(j). The 1996 Act does not
require a BOC to obtain Commission authorization in order to begin
offering out-of-region, interstate, interLATA services.
II. Analysis
7. In order to permit efficient and rapid entry by the BOCs into
out-of-region interstate, interexchange services, as contemplated by
the 1996 Act, we seek in this proceeding to establish promptly the
regulatory framework that will govern the BOCs' provision of such
services. At the same time, we also seek to ensure that sufficient
regulatory safeguards are in place to prevent a BOC from gaining any
unfair competitive advantage, either through unreasonably
discriminatory practices or cross-subsidization, that could arise
because of its ownership and control of local exchange facilities.
8. Since divestiture, the MFJ has prohibited the BOCs from entering
the domestic, interstate, interLATA market. Therefore, they will enter
this market in out-of-region states with little or no market share.
Additionally, we have found that significant segments of the domestic,
interstate, interexchange market are characterized by substantial
competition. In our recent AT&T Order we found that there is
significant excess capacity in this market and that there are a large
number of long-distance carriers, including four nationwide,
[[Page 6609]]
facilities-based competitors, AT&T, MCI, Sprint, and WorldCom; dozens
of regional facilities-based carriers; and several hundred smaller
resale carriers. We further concluded that AT&T lacked individual
market power in the overall interstate, domestic, interexchange market.
These facts suggest that, upon entry into the provision of out-of-
region interstate, interexchange services, BOC affiliates would not be
likely to possess market power.
9. The BOCs, however, continue to control bottleneck local exchange
facilities in their in-region states. The Commission has expressed
concern about possible problems arising from an interexchange carrier's
control over local exchange facilities. In its First Report and Order
in the Competitive Carrier proceeding, the Commission stated that
predivestiture AT&T's control of bottleneck facilities was ``prima
facie evidence of market power requiring detailed regulatory
scrutiny.'' The Commission reiterated its concern over potential cost-
shifting and anticompetitive conduct by exchange telephone companies in
its Fifth Report and Order. Because of such concerns, the Commission
determined that interstate, interexchange services provided directly by
independent LECs, rather than through an affiliate, should be regulated
as dominant.
10. The Commission further concluded, however, that an affiliate of
an independent LEC providing interstate, interexchange services would
qualify as a non-dominant carrier if the affiliate were sufficiently
separated from the local exchange company. The Commission specified the
separation requirements that would provide some ``protection against
cost-shifting and anticompetitive conduct'' by an independent LEC that
could result from using its control of bottleneck facilities. The
Commission concluded that the specific separation requirements would
not impose excessive burdens on independent LECs and noted that those
requirements were less stringent than those established in the Second
Computer Inquiry.
11. In seeking to facilitate timely entry by the BOCs into the
provision of out-of-region interstate, interexchange services,
consistent with the 1996 Act, we tentatively conclude that the
separation requirements applied to independent LECs provide a useful
model upon which to base, on an interim basis, oversight of BOC
provision of out-of-region interstate, interexchange services. We
intend to consider in our upcoming interexchange proceeding, however,
whether it may be appropriate to modify or eliminate the separation
requirements in order for some or all LECs to qualify for non-dominant
treatment in the provision of out-of-region interstate, interexchange
services.
12. While we address here the BOCs' provision of interexchange
services originating outside the regions where the BOCs control local
bottleneck facilities, some of this traffic will terminate in the
regions where the BOCs retain control of local bottleneck facilities.
We tentatively conclude that the separation requirements found adequate
to permit non-dominant regulation of independent LEC provision of
interstate, interexchange services originating and often terminating in
their regions should be sufficient to allow similar treatment of BOC
provision of interexchange services that originate out of their in-
region states.
13. Thus, we tentatively conclude that, for now, if a BOC creates a
separate affiliate to provide out-of-region interstate, interexchange
services (including interLATA and intraLATA services), and if the
affiliate satisfies the conditions set forth in the Fifth Report and
Order, then the affiliate will be classified as a non-dominant carrier.
As previously noted, these conditions are that the affiliate must: (1)
maintain separate books of account; (2) not jointly own transmission or
switching facilities with the BOC local exchange company; and (3)
obtain any BOC exchange telephone company services at tariffed rates
and conditions. We note that independent local exchange carriers
providing interexchange services through affiliates pursuant to the
Fifth Report and Order treat those affiliates as nonregulated
affiliates under the Commission's joint cost rules and affiliate
transaction rules for exchange carrier accounting purposes. We seek
comment on whether a BOC affiliate providing out-of-region, interstate,
interexchange services should be treated as a nonregulated affiliate
for BOC accounting purposes. Finally, we tentatively conclude, at least
for the present time, that if a BOC directly, or through an affiliate
that fails to comply with these separation requirements, provides out-
of-region interstate, interexchange services, those services will be
regulated as dominant carrier offerings.
14. We invite comment on our tentative conclusions regarding BOC
provision of out-of-region interLATA and intraLATA services. Any party
disagreeing with these tentative conclusions should explain with
specificity its position and suggestions for alternative regulatory
policies. As noted, we believe that applying the well-established Fifth
Report and Order requirements will facilitate rapid entry by the BOCs
into the provision of out-of-region services, consistent with the
intent of the 1996 Act, without imposing onerous burdens on them.
IV. Procedural Issues
A. Ex Parte Presentations
This is a non-restricted notice-and-comment rulemaking proceeding.
Ex parte presentations are permitted, except during the Sunshine Agenda
period, provided that they are disclosed as provided in the
Commission's rules. See generally 47 CFR Secs. 1.1202, 1.1203, 1.1206.
B. Regulatory Flexibility Analysis
16. We certify that the Regulatory Flexibility Act is not
applicable to the rule changes we are proposing in this proceeding. If
the proposed rule changes are promulgated, 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. Entities directly subject to the rule changes, and proposed rule
changes, are large corporations engaged in the provision of local
exchange and exchange access telecommunications services. We are
nevertheless committed to reducing the regulatory burdens on small
communications services companies whenever possible, consistent with
our other public interest responsibilities. The Secretary shall send a
copy of this Notice of Proposed Rulemaking to the Chief Counsel for
Advocacy of the Small Business Administration in accordance with
Section 603(a) of the Regulatory Flexibility Act, 5 U.S.C. Secs. 601,
et seq. (1981).
C. Comment Filing Procedures
17. Pursuant to applicable procedures set forth in Sections 1.415
and 1.419 of the Commission's rules, 47 CFR Secs. 1.415, 1.419,
interested parties may file comments on or before 21 days after
publication in the Federal Register, and reply comments on or before 10
days after the comment due date. To file formally in this proceeding,
you must file an original and four copies of all comments, reply
comments, and supporting comments. If you want each Commissioner to
receive a personal copy of your comments, you must file an original and
nine copies. Comments and reply comments should be sent to Office of
the Secretary, Federal Communications Commission, 1919 M Street, N.W.,
Room 222, Washington, D.C. 20554, with a copy to Janice Myles
[[Page 6610]]
of the Common Carrier Bureau, 1919 M Street, N.W., Room 544,
Washington, D.C. 20554. Parties should also file one copy of any
documents filed in this docket with the Commission's copy contractor,
International Transcription Services, Inc., 2100 M Street, N.W., Suite
140, Washington, D.C. 20037. Comments and reply comments will be
available for public inspection during regular business hours in the
FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C.
20554.
18. In order to facilitate review of comments and reply comments,
both by parties and by Commission staff, we require that comments be no
longer than twenty-five (25) pages and reply comments be no longer than
fifteen (15) pages. Comments and reply comments must include a short
and concise summary of the substantive arguments raised in the
pleading.
19. Parties are also asked to submit comments and reply comments on
diskette. Such diskette submissions would be in addition to and not a
substitute for the formal filing requirements addressed above. Parties
submitting diskettes should submit them to Janice Myles of the Common
Carrier Bureau, 1919 M Street, N.W., Room 544, Washington, D.C. 20554.
Such a submission should be on a 3.5 inch diskette formatted in an IBM
compatible form using MS DOS 5.0 and WordPerfect 5.1 software. The
diskette should be submitted in ``read only'' mode. The diskette should
be clearly labelled with the party's name, proceeding, type of pleading
(comment or reply comments) and date of submission. The diskette should
be accompanied by a cover letter.
D. Ordering Clauses
20. Accordingly, it is ordered that pursuant to Sections 1, 4, 201-
205, 215, 218, 220 of the Communications Act of 1934, as amended, 47
U.S.C. Secs. 151, 154, 201-205, 215, 218 and 220, a notice of Proposed
Rulemaking is hereby adopted.
21. It is Further Ordered that, the Secretary shall send a copy of
this notice of Proposed Rulemaking, including the regulatory
flexibility certification, to the Chief Counsel for Advocacy of the
Small Business Administration, in accordance with paragraph 603(a) of
the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (1981).
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-3917 Filed 2-20-96; 8:45 am]
BILLING CODE 6712-01-P