[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