[Federal Register Volume 61, Number 65 (Wednesday, April 3, 1996)]
[Proposed Rules]
[Pages 14717-14733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8116]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[CC Docket No. 96-61, FCC 96-123]


Interstate, Interexchange Marketplace; and Implementation of 
Section 254(g) of the Communications Act of 1934, as Amended

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In the light of the passage of the 1996 Act, changes in the 
interexchange market over the past decade, and the recent 
reclassification of AT&T as a non-dominant carrier, the Commission is 
issuing this Notice of Proposed Rulemaking (``Notice'' or ``NPRM'') 
seeking comment on possible changes in the regulatory treatment of 
interstate, interexchange telecommunications service providers. 
Specifically, the Notice tentatively concludes that, as required by the 
forbearance provision in Section 10 of the Communications Act, as 
amended, the Commission must forbear from applying Section 203 tariff 
filing requirements to non-dominant interexchange carriers for domestic 
services. The Notice tentatively concludes that the Commission's 
proposed detariffing policy should be implemented on a mandatory basis. 
The Notice seeks comment on whether the Commission should forbear, with 
respect to non-dominant carriers that file bundled domestic and 
international tariffs, from requiring such carriers to file tariffs for 
the international portions of their service offerings as well.

DATES: Comments on Section IV of the NPRM (related to market 
definition), Section V (related to separation requirements) and Section 
VI (related to the implementation of Section 254(g) of the 
Communications Act of 1934, as amended) must be submitted on or before 
April 19, 1996. Reply comments for these sections must be filed on or 
before May 3, 1996. Comments on all other sections of the NPRM must be 
submitted on or before April 25, 1996. Reply comments for these 
sections must be submitted on or before May 24, 1996. Written comments 
on the Initial Regulatory Flexibility Analysis must be filed in 
accordance with the same filing deadlines set for comments on the other 
issues (other than Sections IV, V, and VI) in the NPRM, but they must 
have a separate and distinct heading designating them as responses to 
the Regulatory Flexibility Analysis. Written comments by the public on 
the proposed and/or modified information collections are due on or 
before April 19, 1996. Written comments must be submitted by the Office 
of Management and Budget (OMB) on the proposed and/or modified 
information collections on or before June 3, 1996.

ADDRESSES: Comments and reply comments should be sent to Office of

[[Page 14718]]
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. 
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. In order to facilitate review of comments and reply comments, 
both by parties and by Commission staff, we require that comments on 
Section IV of the NPRM (related to market definition), Section V 
(related to separation requirements), and Section VI (related to 
Implementation of Section 254(g) of the Communications Act, as amended) 
be no longer than forty-five (45) pages and reply comments be no longer 
than twenty-five (25) pages. We require that comments on the remaining 
sections of the NPRM be no longer than forty-five (45) pages and reply 
comments on the remaining sections be no longer than twenty-five (25) 
pages. Comments and reply comments must include a short and concise 
summary of the substantive arguments raised in the pleading. 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. In addition to filing comments with 
the Secretary, a copy of any comments on the information collections 
contained herein should be submitted to Dorothy Conway, Federal 
Communications Commission, Room 234, 1919 M Street, N.W., Washington, 
DC 20554 or via the Internet to [email protected], and to Timothy Fain, 
OMB Desk Officer, 10236 NEOB, 725 - 17th Street, N.W., Washington, DC 
20503 or via the Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: Melissa Waksman or Donald Stockdale at 
(202) 418-1580, Common Carrier Bureau, Policy and Program Planning 
Division. For additional information concerning the information 
collections contained in this NPRM, contact Dorothy Conway at 202-418-
0217, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Notice of Proposed Rulemaking (FCC 96-123) adopted on March 21, 1996 
and released on March 25, 1996. 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., N.W., 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.

Background

    The Notice reserves for another day, in a separate proceeding, the 
broader question of whether the Commission should consider generally 
forbearing from requiring tariffs for international service provided by 
a non-dominant carrier, given the current market conditions in the 
international market. The Notice also invites parties to comment on 
whether, with respect to existing regulations examined in this Notice, 
the Commission should forbear from applying such regulations to some or 
all interexchange carriers or services, in particular areas or regions. 
The Notice also considers whether the Commission should reexamine the 
geographic and product market definitions that the Commission adopted 
in the Competitive Carrier proceeding. The Notice tentatively concludes 
that the Commission should follow the approach taken in the U.S. 
Department of Justice/Federal Trade Commission 1992 Merger Guidelines 
for defining relevant markets. The Notice interprets the Guidelines' 
approach as suggesting that the Commission should define as a relevant 
product market an interstate, interexchange service for which there are 
no close substitutes or group of services that are close substitutes 
for each other but for which there are no other close substitutes. The 
Notice tentatively concludes, however, that the Commission need not 
address the issue of delineating the boundaries of specific product 
markets, except where there is credible evidence suggesting that there 
is or could be a lack of competitive performance with respect to a 
particular service or group of services. The Notice also tentatively 
concludes that the Commission should define a relevant geographic 
market for interstate, interexchange services as all calls between two 
particular points. The Notice states, however, that geographic rate 
averaging and other factors imply that a carrier or group of carriers 
cannot change interexchange rates for calls between two particular 
points without changing rates nationwide for calls of that distance. 
The Notice, therefore, tentatively concludes that the Commission should 
treat interstate, interexchange calling as generally one national 
market. Where, however, there is credible evidence suggesting that 
there is or could be a lack of competition in a particular point-to-
point market or group of markets, and that geographic rate averaging 
will not sufficiently mitigate the exercise of market power, the Notice 
proposes that the Commission will examine individually that market (or 
group of markets) for the presence of market power. In the BOC Out-of-
Region NPRM, 60 FR 6607 (February 21, 1996) the Commission stated its 
intent to consider whether it may be appropriate to modify or eliminate 
separation requirements that are currently imposed upon independent 
LECs, and that we tentatively concluded in the BOC Out-of-Region NPRM 
should be imposed on BOCs, in order to qualify for non-dominant 
treatment in the provision of out-of-region interstate, interexchange 
services. The Notice thus seeks comment on whether the Commission 
should modify or eliminate the separation requirements independent LECs 
must satisfy if they are to be treated as non-dominant carriers in the 
provision of interstate, interexchange services outside their local 
exchange areas. The Notice seeks comment on whether, if the Commission 
modifies or eliminates these requirements for independent LECs, it 
should apply the same requirements to BOCs that provide out-of-region 
interstate, interexchange services. Section 254(g) of the 
Communications Act of 1934, as amended by the 1996 Act, requires the 
Commission to adopt rules to implement the requirements that rates for 
interexchange services be geographically averaged and be integrated. 
The Notice proposes to adopt a rule requiring that the rates charged by 
all providers of interexchange telecommunications services to 
subscribers in rural and high cost areas shall be no higher than the 
rates charged by each such provider to subscribers in

[[Page 14719]]
urban areas. The Notice states that Section 254(g) requires the 
Commission to adopt rules to require geographic averaging for 
intrastate and interstate telecommunications services. The Notice 
states the Commission believes that Section 254(g) preempts state laws 
or regulations requiring geographic rate averaging only to the extent 
such laws or regulations are inconsistent with the Commission's rules 
and policies. The Notice also proposes to adopt a rule to require rate 
integration for services between the contiguous forty-eight states and 
Alaska, Hawaii, U.S. territories and possessions. The Notice 
tentatively concludes that providers of interexchange services must 
file certifications stating they are in compliance with their statutory 
geographic rate averaging obligations and that providers of interstate, 
interexchange services must file certifications stating that they are 
in compliance with their statutory rate integration obligations. The 
Notice also seeks comment on: (1) the extent to which interexchange 
carriers do not offer discount plans throughout their service areas, 
and whether such carriers' failure to do so constitutes geographic 
deaveraging; (2) the appropriate mechanism for implementing rate 
integration for U.S. territories and possessions that are not currently 
subject to the Commission's domestic rate integration policy; and (3) 
whether there may be competitive conditions or other circumstances that 
could justify Commission forbearance from enforcing the proposed 
geographic rate averaging requirement with respect to particular 
interexchange telecommunications carries or services. Changes in the 
structure of the interexchange marketplace over the past decade have 
raised certain issues relating to the pricing of interexchange 
telecommunications services. The Notice seeks comment on certain of 
these issues. Based on the Commission's prior findings regarding 
competition in both the customer premises equipment (CPE) and 
interstate, interexchange markets, the Notice tentatively concludes 
that the Commission should amend Section 64.702(e) of the Commission's 
rules to allow non-dominant interexchange carriers to bundle CPE with 
interstate, interexchange services. The Notice notes that the 
Commission intends to initiate a comprehensive proceeding to address 
payphone issues, and therefore any amendment to Section 64.702(e) of 
the Commission's rules adopted in this proceeding will not apply to 
payphone bundling. Concerns about the application of the substantial 
cause test and other issues related to contract tariffs raised in the 
AT&T Reclassification proceeding by resellers and large business 
subscribers remain relevant if the Commission decides not to adopt a 
mandatory detariffing policy or implements permissive detariffing. 
Accordingly, the Notice seeks comment on such tariff-related issues. 
This NPRM contains proposed or modified information collections subject 
to the Paperwork Reduction Act of 1995 (PRA). It has been submitted to 
the Office of Management and Budget (OMB) for review under the PRA. 
OMB, the general public, and other Federal agencies are invited to 
comment on the proposed or modified information collections contained 
in this proceeding.
    Paperwork Reduction Act: This NPRM contains either a proposed or 
modified information collection. The Commission, as part of its 
continuing effort to reduce paperwork burdens, invites the general 
public and the Office of Management and Budget (OMB) to comment on the 
information collections contained in this NPRM, as required by the 
Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency 
comments are due at the same time as comments on Section IV of the NPRM 
(related to market definition), Section V (related to separation 
requirements), and Section VI (related to Implementation of Section 
254(g) of the Communications Act, as amended); OMB notification of 
action is due June 3, 1996. Comments should address: (a) whether the 
proposed collection of information is necessary for the proper 
performance of the functions of the Commission, including whether the 
information shall have practical utility; (b) the accuracy of the 
Commission's burden estimates; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) ways to 
minimize the burden of the collection of information on the 
respondents, including the use of automated collection techniques or 
other forms of information technology.

    OMB Approval Number: None.

    Title: Policy and Rules Concerning the Interstate, Interexchange 
Marketplace; and Implementation of Section 254(g) of the Communications 
Act of 1934, as amended, CC Docket No. 96-61.

    Form No.: N/A.

    Type of Review: New Collection.
    Respondents: Businesses or other for-profit, including small 
businesses.

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                                                               Estimated
              Proposed requirement                   No. of     time per
                                                  respondents   response
------------------------------------------------------------------------
Detariffing*....................................          0           0 
Recordkeeping...................................        519           1 
Certification...................................        519           2 
Advertising.....................................        519          2  
------------------------------------------------------------------------
* The Commission proposes to eliminate the tariffing requirement now    
  imposed on non-dominant interexchange carriers for domestic services. 

    Total Annual Burden: 2595.
    Estimated Costs Per Respondent: $0.
    Needs and Uses: The information collected under the proposed 
recordkeeping and certification requirements would be used by the 
Common Carrier Bureau of the Commission to ensure that affected 
interexchange carriers fulfill their obligations under the 
Communications Act, as amended. The information collected under the 
advertising requirement, if adopted, would be used to ensure that 
consumers have information regarding carriers' rate plans.

Synopsis of Notice of Proposed Rulemaking

I. Introduction

    1. On February 8, 1996, the Telecommunications Act of 1996 (1996 
Act) became law. The 1996 Act seeks ``to provide for a pro-competitive, 
de-regulatory national policy framework'' designed to make available to 
all Americans advanced telecommunications and information technologies 
and services ``by opening all telecommunications markets to 
competition.'' Integral to achieving this goal, the 1996 Act requires 
the Commission to forbear from applying any provision of the 
Communications Act of 1934, as amended (Communications Act), or our 
regulations, to a telecommunications carrier or telecommunications 
service, or class thereof, if the Commission makes certain specified 
findings with respect to such provisions or regulations. In addition, 
the 1996 Act provides for the entry of the Bell Operating Companies 
(BOCs) and their affiliates into the interstate, interexchange market, 
after certain preconditions are satisfied. 1996 Act at Sec. 151 (adding 
Sec. 271). This entry can be expected to intensify competition in the 
interstate, domestic, interexchange market. For purposes of this 
proceeding, we generally use the term ``BOCs'' as that term is defined 
in Section 3(a)(35) of the Communications Act of 1934, as amended. In a 
few instances, however,

[[Page 14720]]
we use the term ``BOCs'' also to encompass BOC affiliates, such as are 
contemplated by Section 272 of the Communications Act of 1934, as 
amended. The preconditions specified in the 1996 Act apply to a BOC's 
provision of interLATA services originating in any of its in-region 
states. 1996 Act at Sec. 151 (adding Sec. 271).
    2. Consistent with the thrust of the 1996 Act, the Commission has 
long pursued policies designed to facilitate the growth of competition 
in the domestic long-distance market. In 1979, the Commission commenced 
the Competitive Carrier proceeding in which it considered how its 
regulations should be modified to reflect and promote competition in 
this market. In succeeding years, in part as a result of reforms 
adopted in the Competitive Carrier proceeding, the interstate, 
domestic, interexchange market has evolved from a market of fledgling 
competitors overshadowed by a single, dominant service provider to a 
market characterized by substantial competition. The Commission 
explicitly acknowledged these dramatic changes when, in October 1995, 
we concluded that AT&T Corporation (AT&T) no longer possessed 
individual market power in the domestic long-distance market taken as a 
whole and, accordingly, reclassified AT&T as a non-dominant carrier for 
interstate, domestic, interexchange services.
    3. The 1996 Act builds upon the progress made to date in 
facilitating competition in the domestic long-distance market, and 
provides a framework for raising competition to a higher plane. In 
light of the passage of the 1996 Act, changes in the interexchange 
market over the past decade, and our recent reclassification of AT&T as 
a non-dominant carrier, we believe it is timely to review our 
regulatory regime for interstate, domestic, interexchange 
telecommunications services. In this proceeding, we therefore examine 
whether and how our policies and rules should be changed, consistent 
with the intent of the 1996 Act.
    4. Specifically, we propose, pursuant to the forbearance authority 
provided in the 1996 Act, to adopt a mandatory detariffing policy for 
domestic services of non-dominant, interexchange carriers. We also 
propose to eliminate the prohibition against bundling customer premises 
equipment with the provision of interstate, interexchange services by 
non-dominant interexchange carriers. In addition, we consider whether 
to reduce or eliminate the separation requirements for non-dominant 
treatment of local exchange carriers in their provision of certain 
interstate, interexchange services. By these proposals, we seek to 
promote competition by reducing or eliminating existing regulations 
that may no longer be in the public interest in the increasingly 
competitive interexchange marketplace.
    5. We also reexamine other aspects of our oversight of the 
interstate, interexchange market. In this respect, we consider whether 
we should more narrowly focus our definitions of relevant product and 
geographic markets for interexchange services to reflect current and 
future market conditions. We also address issues related to residential 
services pricing, including allegations of tacit price coordination in 
the interexchange market, and inquire how additional facilities-based 
competition pursuant to the 1996 Act affects this issue. We also 
consider other issues, including tariff-related issues that would 
remain relevant if we determine not to forbear from requiring non-
dominant interexchange carriers to file tariffs, or if we decide to 
adopt a permissive detariffing policy. Finally, as required by the 1996 
Act, we propose rules to implement the 1996 Act's provisions relating 
to geographic rate averaging and rate integration.

II. Background

A. The Telecommunications Act of 1996

    6. The 1996 Act significantly alters the legal framework governing 
the interstate, interexchange market. The new statutory provisions 
should generally promote facilities-based competition in the 
interexchange market and open the door for new entrants to compete with 
existing service providers. For example, the 1996 Act, inter alia, 
permits the BOCs immediately to provide interLATA telecommunications 
services originating outside their in-region states, as well as 
``incidental'' interLATA services. More significantly, after fulfilling 
specified preconditions, BOCs may provide interLATA telecommunications 
services originating inside their in-region states. In addition, the 
1996 Act provides regulatory flexibility by requiring the Commission to 
forbear from applying any regulation or any provision of the 
Communications Act to telecommunications carriers or telecommunications 
services, or classes thereof, if the Commission determines that certain 
specified conditions are satisfied. The forbearance authority applies 
to all provisions of the Communications Act, except the provisions 
added by the 1996 Act relating to interconnection and BOC entry into 
long-distance services.

B. The Competitive Carrier Proceeding

    7. The Commission, since 1979, has pursued, in the Competitive 
Carrier proceeding, pro-competitive and deregulatory goals similar to 
those now underlying the 1996 Act. The Commission there examined how 
its regulations should be adapted to reflect and promote increasing 
competition in interexchange telecommunications markets, and sought to 
reduce or eliminate the application of economic regulation to new 
competitive entrants. In these efforts, the Commission pursued a 
forbearance policy, encompassing both permissive and mandatory 
detariffing. Upon judicial review, however, the Court found that the 
Communications Act, at that time, did not provide the Commission with 
the requisite authority to do so.
    8. In its Competitive Carrier orders, the Commission distinguished 
two kinds of carriers--those with market power (dominant carriers) and 
those without market power (non-dominant carriers). In determining 
whether a firm possessed market power, the Commission focused on 
certain ``clearly identifiable market features,'' including the number 
and size distribution of competing firms, the nature of barriers to 
entry, the availability of reasonably substitutable services, and 
whether the firm controlled bottleneck facilities. The Commission 
relaxed its tariff filing and facilities authorization requirements for 
non-dominant carriers, and focused its regulatory efforts on 
constraining the ability of dominant firms to act contrary to consumer 
welfare.

C. The Interexchange Competition Proceeding

    9. In 1990, the Commission commenced the Interexchange Competition 
proceeding to examine the state of competition in the interstate, long-
distance marketplace, and to assess the efficacy of existing regulation 
in light of this competition. In the First Interexchange Competition 
Order, 56 FR 66602 (December 24, 1991), the Commission found that 
business services (except analog private line services) had become 
``substantially competitive.'' The Commission accordingly streamlined 
its regulation of those AT&T services. For services subject to 
``streamlined'' regulation, AT&T was allowed to file tariffs on 14 
days' notice, without cost support, and such tariffs were presumed 
lawful. In addition, price cap ceilings, bands and rate floors did not 
apply to streamlined services. Later, the Commission, after

[[Page 14721]]
ordering 800 number portability, found that 800 services (except 800 
directory assistance services) were also subject to substantial 
competition, and streamlined regulation of those AT&T services as well.
    10. In the First Interexchange Competition Order, 56 FR 55235 
(October 25, 1991) the Commission also authorized all interexchange 
carriers to offer services pursuant to individually negotiated, 
contract-based tariffs, provided they make such rates generally 
available to similarly situated customers. The Commission found such 
arrangements would allow customers to negotiate service arrangements 
that best addressed their particular needs and would unleash 
competition by allowing AT&T to offer the same type of contract 
arrangements its competitors were already offering.

D. The AT&T Reclassification Order

    11. On October 23, 1995, we issued an order granting AT&T's motion 
to be reclassified as a non-dominant carrier, based upon our finding 
that AT&T no longer possessed individual market power in the 
interstate, domestic, interexchange market taken as a whole. As a 
result, AT&T is now generally subject to the same regulations as its 
long-distance competitors. Like other non-dominant carriers, AT&T is 
still subject to regulation under Title II of the Communications Act. 
Thus, it is required to do the following: offer interstate services 
under rates, terms and conditions that are just, reasonable and not 
unduly discriminatory; file tariffs; and give notice prior to any 
discontinuance, reduction or impairment of service. Moreover, like 
other non-dominant carriers, AT&T continues to be subject to the 
Commission's complaint process.
    12. In the AT&T Reclassification proceeding, AT&T made certain 
voluntary commitments, which AT&T stated were intended to serve as 
transitional arrangements to address concerns expressed by parties 
about possible adverse effects of reclassifying AT&T. These commitments 
concerned: service to low-income and other customers; analog private 
line and 800 directory assistance services; service to and from the 
State of Alaska and other regions subject to our rate integration 
policy; geographic rate averaging; changes to contract tariffs that 
adversely affect existing customers; and dispute resolution procedures 
for reseller customers. In the AT&T Reclassification Order, we accepted 
AT&T's commitments and ordered AT&T to comply with those commitments.
    13. In the AT&T Reclassification Order, we stated that we would 
consider the following issues relevant to the interstate, domestic, 
interexchange market as a whole in this proceeding: (1) whether there 
is tacit price coordination in the interexchange market; (2) how 
changes in the interexchange market affect our rate integration and 
geographic averaging policies; (3) reseller and large user concerns 
regarding contract tariffs; and (4) the application of the filed rate 
doctrine to contract tariff arrangements.

E. Need for Review of Commission Regulation of the Interexchange Market

    14. The Commission's obligation to be responsive to the dynamic 
nature of the communications industry has long been recognized. The 
passage of the 1996 Act, the dramatic changes in the interstate, 
domestic, interexchange telecommunications services market since the 
Interexchange Competition proceeding, and our reclassification of AT&T 
as a non-dominant carrier in the overall interstate, domestic, 
interexchange market, make it timely for us to reexamine our policies 
and rules in light of the goals of the 1996 Act. In pursuing the pro-
competitive policy established by the 1996 Act, we intend to examine 
existing regulations to see whether they can be reduced or eliminated 
consistent with our public interest responsibilities.

III. Regulatory Forbearance

A. Introduction

    15. The 1996 Act amends the Communications Act to require the 
Commission to:
    [F]orbear from applying any regulation or any provision of this Act 
to a telecommunications carrier or telecommunications service, or class 
of telecommunications carriers or telecommunications services, in any 
or some of its or their geographic markets, if the Commission 
determines that--
    (1) enforcement of such regulation or provision is not necessary to 
ensure that the charges, practices, classifications or regulations by, 
for, or in connection with that telecommunications carrier or 
telecommunications service are just and reasonable, and are not 
unjustly or unreasonably discriminatory;
    (2) enforcement of such regulation or provision is not necessary 
for the protection of consumers; and
    (3) forbearance from applying such provision or regulation is 
consistent with the public interest.
    In addition, in determining whether forbearance from enforcing a 
particular provision or regulation is in the public interest, the 
Commission is specifically required to consider whether forbearance 
will promote competitive market conditions, including the extent to 
which forbearance will enhance competition among providers of 
telecommunications services. New Section 10(b) also provides that, 
``[i]f the Commission determines that such forbearance will promote 
competition among providers of telecommunications services, that 
determination may be the basis for a Commission finding that 
forbearance is in the public interest.'' Section 401 of 1996 Act also 
provides that the Commission may not forbear from applying the 
requirements of the provisions of new Section 251 related to 
interconnection (except as provided in Section 251(f)) and of new 
Section 271 related to BOC provision of interLATA services until the 
Commission determines that those requirements have been fully 
implemented.
    16. Accordingly, with respect to each of the existing regulations 
examined in this proceeding, we invite parties to comment on whether we 
should forbear from applying such regulations to some or all 
interexchange carriers or services, in particular geographic areas or 
regions. With respect to each issue, parties should specify the bases 
on which they believe we can make the findings required to meet the 
statutory criteria for forbearance.
    17. We address below whether, given the current domestic, 
interstate, interexchange market, the 1996 Act requires the Commission 
to forbear from requiring non-dominant interexchange carriers to file 
tariffs for domestic services. Based on the Commission's analyses and 
findings in prior proceedings, we tentatively conclude that we are 
required by the 1996 Act to forbear from applying the Section 203 
tariff filing requirements to non-dominant interexchange carriers for 
domestic interexchange services.
    18. We note that we do not address here the issue of forbearance 
from applying Section 226 of the Act, which requires operator service 
providers to file informational tariffs. That issue will be addressed 
in a separate upcoming proceeding.

B. Forbearance From Tariff Filing Requirements for Non-Dominant 
Interexchange Carriers

1. Background
    19. In the Competitive Carrier proceeding, the Commission explored 
the cost of imposing Title II regulation on entities lacking market 
power. In the Competitive Carrier Further NPRM, 46 FR 10924 (February 
5, 1981), the

[[Page 14722]]
Commission suggested that tariff filing requirements for non-dominant 
carriers could harm consumers by slowing ``the introduction of new 
services, dampening competitive responses and ultimately encouraging 
price collusion through the forced publication of charges.'' The 
Commission accordingly, in a series of orders, established a permissive 
tariff forbearance policy for non-dominant carriers. In the Sixth 
Report and Order, 50 FR 1215 (January 10, 1985), the Commission 
established a mandatory detariffing policy for non-dominant carriers. 
The Commission concluded that tariff filings were not essential to its 
ability to ensure that non-dominant carriers do not unjustly 
discriminate in their rates, and that other means were available to 
ensure that the Commission fulfilled its mandate under the 
Communications Act.
    20. The Sixth Report and Order subsequently was vacated and 
remanded by the U.S. Court of Appeals for the D.C. Circuit. The court 
held that the Commission lacked statutory authority to prohibit 
carriers from filing tariffs. The court, however, did not reach the 
issue of whether the Commission's earlier permissive detariffing orders 
were valid. The Commission, accordingly, continued to apply permissive 
detariffing for non-dominant carriers. The Commission's permissive 
detariffing regime subsequently was invalidated by the U.S. Court of 
Appeals for the D.C. Circuit in 1992. The court, in reviewing and 
disposing of a complaint filed by AT&T against MCI, vacated the 
Commission's Fourth Report and Order, 48 FR 52452 (November 18, 1983), 
thereby invalidating the Commission's tariff filing forbearance policy 
for non-dominant carriers. While stating that it had no ``quarrel with 
the Commission's policy objectives,'' the court found that the 
Communications Act did not give the Commission authority to adopt such 
a policy.
    21. Prior to the U.S. Court of Appeals' vacation of the Fourth 
Report and Order, the Commission adopted a Report and Order in a 
rulemaking proceeding commenced in response to AT&T's complaint. The 
Commission again determined that permissive detariffing was within its 
authority under the Communications Act. The U.S. Court of Appeals for 
the D.C. Circuit granted summary reversal of the Commission's order 
based on the court's earlier ruling. In affirming the U.S. Court of 
Appeal's ruling, the Supreme Court found that Section 203(b)(2) of the 
Communications Act gave the Commission authority to modify the Act's 
tariff filing requirement, but not to eliminate it entirely. The 
Commission thereafter established a one-day tariff notice period for 
all non-dominant carriers after again concluding that traditional 
tariff regulation of non-dominant carriers is not necessary to ensure 
just and reasonable rates.
    22. Against this background, Congress enacted Section 401 of the 
1996 Act, adding Section 10(a) to the Communications Act, to grant the 
Commission authority to forbear from applying the provisions of Title 
II, subject to certain, limited exceptions.
2. Discussion
    23. As noted above, the 1996 Act requires the Commission to forbear 
from applying to a telecommunications carrier or telecommunications 
service any regulation or any provision of the Communications Act, if 
the Commission makes the three specified determinations.
    24. We believe, based on the Commission's prior analyses and 
findings, that we can make the determinations necessary in order to 
forbear from enforcing Section 203's tariffing requirements with 
respect to the domestic services offered by non-dominant, interexchange 
carriers. Specifically, we tentatively find that enforcement of the 
Section 203 tariffing requirements with respect to non-dominant 
interexchange carriers: (1) is not necessary to ensure that non-
dominant interexchange carriers' charges, practices, or classifications 
are just and reasonable, and are not unjustly or unreasonably 
discriminatory; and (2) is not necessary for the protection of 
consumers. We also tentatively find that forbearing from enforcing 
Section 203 tariffing requirements with respect to non-dominant 
interexchange carriers is consistent with the public interest. 
Accordingly, we tentatively conclude that we must forbear from applying 
Section 203 tariff filing requirements to non-dominant interexchange 
carriers for domestic services. Each of these tentative determinations 
is discussed below.
    25. We tentatively conclude that tariff filings for non-dominant 
interexchange carriers are not necessary to ensure that the charges, 
and practices of a telecommunications carrier or telecommunications 
service are just and reasonable and are not unjustly or unreasonably 
discriminatory. As the Commission stated in the First Report and Order, 
45 FR 76148 (November 18, 1980):

    The economic underpinning of our proposal to streamline the 
regulatory procedures for non-dominant carriers flows from the fact 
that firms lacking market power simply cannot rationally price their 
services in ways which, or impose terms and conditions which, 
contravene Sections 201(b) and 202(a) of the Act.

Two years ago, in adopting a mandatory detariffing policy for providers 
of domestic commercial mobile radio service (CMRS), the Commission 
reiterated its conclusion that ``non-dominant carriers are unlikely to 
behave anticompetitively, in violation of Sections 201(b) and 202(a) of 
the Act, because they recognize that such behavior would result in a 
loss of customers.'' Based on the Commission's experience under its 
prior tariff forbearance policy for non-dominant interexchange 
carriers, as well as the Commission's findings in the Regulatory 
Treatment of Mobile Services proceeding, we continue to believe that 
non-dominant carriers are unlikely to price their services in ways 
which, or to impose terms and conditions which, violate Section 201(b) 
and Section 202(a) of the Act. Similarly, we continue to believe that 
the Communications Act's objectives of just, reasonable, and not 
unjustly or unreasonably discriminatory rates can be achieved 
effectively through market forces and the administration of the 
complaint process.
    26. We also tentatively conclude that requiring non-dominant 
interexchange carriers to file tariffs for domestic offerings is not 
necessary for the protection of consumers of interexchange services. To 
the contrary, we believe a tariff filing requirement harms consumers by 
undermining the development of vigorous competition. The Commission 
previously has found, in the Second Report and Order, 47 FR 37899 
(August 27, 1982), that applying tariff requirements to competitive 
entities is superfluous as a consumer protection device, since 
competition circumscribes the prices and practices of these companies. 
Moreover, beginning with the Second Report and Order, and as recently 
as the 1994 Regulatory Treatment of Mobile Services Order, 59 FR 18493 
(April 19, 1994), the Commission has consistently found that the 
imposition of tariff obligations in these circumstances stifles price 
competition and service and marketing innovations. We tentatively find 
that these conclusions remain valid in today's more competitive 
domestic, interexchange market.
    27. Finally, we tentatively conclude that forbearing from imposing 
tariff filing requirements on non-dominant interexchange carriers is 
consistent with the public interest. As part of the determination of 
whether forbearance is

[[Page 14723]]
consistent with public interest, the 1996 Act requires the Commission 
to consider ``whether forbearance from enforcing the provision or 
regulation will promote competitive market conditions, including the 
extent to which forbearance will enhance competition among providers of 
telecommunications services.'' We believe that forbearance from 
requiring tariff filings for non-dominant carriers will promote 
competition and deter price coordination. In the Sixth Report and 
Order, the Commission found that requiring non-dominant carriers to 
file tariffs can: (1) take away carriers' ability to make rapid, 
efficient responses to changes in demand and cost; (2) impede and 
remove incentives for competitive price discounting; and (3) impose 
costs on carriers that attempt to make new offerings. The Commission 
also concluded that continuing to require non-dominant carriers to file 
tariffs presents an opportunity for collusive pricing by competing 
carriers because carriers can ascertain their competitors' existing 
rates and keep track of any changes by reviewing filed tariffs. The 
Commission indicated that this may encourage carriers to maintain rates 
at artificially high levels.
    28. The Commission recently reiterated, in the Regulatory Treatment 
of Mobile Services Order, its findings in the Sixth Report and Order. 
We believe that forbearance from tariff filing requirements will 
promote competition by enabling non-dominant carriers to respond 
quickly to changes in the market, and reducing administrative costs on 
carriers making new offerings. We also believe that, without pricing 
and other material information available from the public tariffs of 
their rivals, non-dominant interexchange carriers are more likely to 
initiate price reductions and other competitive programs. Accordingly, 
we tentatively conclude that forbearing from requiring non-dominant 
carriers to file tariffs for interexchange services promotes 
competitive market conditions, and therefore is in the public interest.
    29. Based on the foregoing tentative determinations, we tentatively 
conclude that we are required by Section 10 of the Communications Act, 
as amended, to forbear from requiring non-dominant interexchange 
carriers to file tariffs for domestic services. We invite comment on 
all of these tentative conclusions.
    30. We note that many carriers currently file bundled tariffs that 
include both domestic and international services. We therefore seek 
comment as to whether the Commission should forbear from requiring 
these non-dominant firms to file tariffs for the international portions 
of their offerings as well. We reserve for another day, in a separate 
proceeding, the broader question of whether the Commission should 
consider generally forbearing from requiring tariffs for international 
service provided by a non-dominant carrier, given current market 
conditions in the international market. As stated in an order adopted 
earlier this month, we ``anticipate review of our international Section 
214 authorization and tariffing procedures to identify new areas where 
additional streamlining may be appropriate. . . . [S]uch steps should 
be taken in the context of a new proceeding where we can make 
additional determinations about the state of competition in the 
international market and receive more public input.'' Streamlining the 
International Section 214 Authorization Process and Tariff 
Requirements, IB Docket No. 95-118, Report and Order, at para. 86 (rel. 
Mar. 13, 1996).
    31. We also tentatively conclude that forbearance from tariff 
filing requirements for domestic services of non-dominant interexchange 
carriers should be implemented on a mandatory basis. Permitting non-
dominant interexchange carriers to file tariffs in this context does 
not appear to be in the public interest. We believe that a regime 
without non-dominant interexchange carrier tariffs is the most pro-
competitive, deregulatory regime. The risk of anticompetitive conduct 
inherent in, and the costs associated with, tariff filings by non-
dominant interexchange carriers, discussed above, would persist if 
carriers were permitted to file tariffs voluntarily. In addition, the 
absence of tariffs would eliminate possible invocation by carriers of 
the filed rate doctrine, which allows carriers certain rights 
unilaterally to change rates, terms, and conditions of contract tariffs 
and other long-term service arrangements, and to limit their liability 
for damages. Absent filed tariffs, the legal relationship between 
carriers and customers will much more closely resemble the legal 
relationship between service providers and customers in an unregulated 
environment. Therefore, to establish a more market-based environment 
that will help prevent these possible anti-competitive practices and 
better protect consumers, we tentatively conclude that it would be in 
the public interest to prohibit non-dominant interexchange carriers 
from filing tariffs with respect to domestic interstate, interexchange 
services.
    32. Our proposal to adopt a mandatory tariff forbearance policy for 
non-dominant interexchange carriers is supported by the Commission's 
adoption of a mandatory tariff forbearance policy for domestic CMRS, in 
response to a similar grant of forbearance authority with respect to 
CMRS providers and services in Section 6002(b) of the Omnibus Budget 
Reconciliation Act of 1993 (OBRA). In Regulatory Treatment of Mobile 
Services, the Commission concluded that, in a competitive environment, 
voluntary tariff filings would create a risk that competitors would use 
tariff filings ``merely to send price signals and thereby manipulate 
prices.'' It also found that forbearance would promote competition by 
enabling providers of CMRS to respond quickly to competitors' price 
packages and reducing administrative costs. To prevent collusive 
pricing practices, and to protect consumers and the public interest, 
the Commission determined that it would ``forbear from requiring or 
permitting tariffs for interstate service offered directly by CMRS 
providers to their customers.''
    33. We seek comment on our tentative conclusion that we should 
adopt a mandatory detariffing policy for the domestic services offered 
by non-dominant interexchange carriers. We also seek comment on whether 
the Commission has the authority pursuant to the Communications Act, as 
amended, to prohibit carriers from filing tariffs. We tentatively 
conclude that, if we adopt a mandatory or a permissive detariffing 
policy, non-dominant carriers should be required to maintain at their 
premises price and service information regarding all of their 
interstate, interexchange offerings, that they can submit to the 
Commission upon request. We seek comment on this tentative conclusion.
    34. We recognize that the Commission gradually relaxed its 
regulation of non-dominant carriers in the Competitive Carrier 
proceeding in part because it concluded that the availability of 
service from a nationwide dominant carrier subject to close regulation 
would effectively constrain the rates that could be charged by non-
dominant carriers. Given the recent reclassification of AT&T, there 
currently are no nationwide dominant interstate, domestic, 
interexchange carriers. While we still believe that non-dominant 
carriers lacking market power cannot rationally price services 
anticompetitively, we seek comment on whether the absence of a 
nationwide dominant carrier should affect our tentative conclusion to 
forbear from requiring non-dominant interexchange carriers to file 
tariffs, and if so, how.
    35. We note that market conditions or other circumstances may 
change in the

[[Page 14724]]
future. In the event of changed circumstances, such that the statutory 
prerequisites for forbearance are no longer present, the Commission can 
revisit tariff forbearance to consider whether it continues to meet the 
statutory criteria.
    36. Finally, in the AT&T Reclassification proceeding, AT&T made 
certain voluntary commitments regarding its provision of interstate 
analog private line and 800 directory assistance services. 
Specifically, AT&T committed, for a period of three years, to limit any 
price increases for these services to a maximum increase in any year of 
no more than the increase in the consumer price index. AT&T also 
committed, for a period of three years, to file tariff changes 
increasing the prices of these services on not less than five business 
days' notice, and to identify clearly such tariff transmittals as 
affecting the provisions of this commitment. We believe that it would 
be consistent with AT&T's intent that its commitments act as a 
transitional mechanism for AT&T to continue to tariff these services in 
accordance with its commitments. Accordingly, we tentatively conclude 
that, even if we decide to forbear from requiring non-dominant 
interexchange carriers to file tariffs, AT&T should remain subject to 
its prior commitments, and our corresponding order, that AT&T file 
tariffs with respect to these services for the specified term of the 
commitments. We seek comment on these tentative conclusions.

IV. Definition of Relevant Product and Geographic Markets

    37. In the Competitive Carrier proceeding, the Commission found, 
for purposes of assessing the market power of interexchange carriers 
covered by that proceeding, that: ``(1) interstate, domestic, 
interexchange telecommunications services comprise the relevant product 
market, and (2) the United States (including Alaska, Hawaii, Puerto 
Rico, U.S. Virgin Islands, and other U.S. offshore points) comprises 
the relevant geographic market for this product, with no relevant 
submarkets.'' In this section, we consider whether we should reexamine 
the geographic and product market definitions that the Commission 
adopted in the Competitive Carrier proceeding. We believe more sharply 
focused market definitions will aid us in evaluating whether the BOCs 
possess market power with respect to the provision of interLATA 
services in areas where they provide local access service. Moreover, 
evidence in the recent AT&T Reclassification proceeding suggests that 
the market definitions adopted in the Competitive Carrier proceeding 
might be more narrowly drawn to provide us with a more refined 
analytical tool for evaluating whether a carrier or group of carriers 
has market power. For example, there was evidence that suggested that 
AT&T might possess the ability to raise and sustain prices for 800 
directory assistance and analog private line services above competitive 
levels without making the price increase unprofitable, which may imply 
that these services might constitute separate relevant product markets.
    38. We invite comment on whether we should retain the relevant 
product and geographic market definitions adopted in the Competitive 
Carrier proceeding. We tentatively conclude that we should follow the 
approach taken in the U.S. Department of Justice/Federal Trade 
Commission 1992 Merger Guidelines (the ``Guidelines'') for defining 
relevant markets. 1992 U.S. Department of Justice/Federal Trade 
Commission Merger Guidelines, 4 Trade Reg. Rep. (CCH) para. 13,104, at 
p. 20,569. ``In many respects the . . . Guidelines and the scholarship 
on which they are based offer important insights and substantially 
improved formulations of relevant market issues.'' Moreover, courts 
have increasingly relied on the Guidelines' approach in defining 
relevant markets. We believe the Guidelines' approach suggests that we 
should define as a relevant product market an interstate, interexchange 
service for which there are no close substitutes or a group of services 
that are close substitutes for each other but for which there are no 
other close substitutes. We tentatively conclude, however, that we need 
not address the issue of delineating the boundaries of specific product 
markets, except where there is credible evidence suggesting that there 
is or could be a lack of competitive performance with respect to a 
particular service or group of services.
    39. With respect to the relevant geographic market, we tentatively 
conclude that we should define a relevant geographic market for 
interstate, interexchange services as all calls (in the relevant 
product market) between two particular points. However, geographic rate 
averaging and other factors imply that a carrier or group of carriers 
cannot change interexchange rates for calls between two particular 
points without changing rates nationwide for calls of that distance. 
For purposes of market power analysis, we tentatively conclude to treat 
interstate, interexchange calling generally as one national market, as 
the Commission did in the Competitive Carrier proceeding. If there is 
credible evidence suggesting that there is or could be a lack of 
competition in a particular point-to-point market (or group of 
markets), and there is a showing that geographic rate averaging will 
not sufficiently mitigate the exercise of market power (if it exists); 
however, we propose to examine individually that market (or group of 
markets) for the presence of market power.
    40. We note that comments and reply comments on this section are 
due April 19, 1996; reply comments are due May 3, 1996.

A. Relevant Product Market

    41. For the reasons discussed above, we tentatively conclude that 
we should follow the Guidelines' approach for defining the relevant 
product market. In the Competitive Carrier proceeding, the Commission 
defined the relevant product market as ``all interstate, domestic, 
interexchange telecommunications services'' and concluded that there 
were no relevant submarkets. Although we recently used this product 
market definition to reclassify AT&T as non-dominant, we question 
whether a narrower product market definition might provide us with a 
more refined analytical tool for evaluating whether a carrier or group 
of carriers together are exerting market power. For example, our 
finding that the prices of 800 directory assistance and analog private 
line services could profitably be raised above competitive levels may 
imply these services constitute distinct relevant product markets.
    42. The Guidelines define the relevant product market as ``the 
product or group of products such that a hypothetical profit maximizing 
firm that was the only present and future seller of those products 
(`monopolist') would impose at least a `small but significant and 
nontransitory' increase in price.'' Accordingly, in defining the 
relevant product market, one must examine whether a ``small but 
significant and nontransitory'' increase in the price of the relevant 
product would cause enough buyers to shift their purchases to a second 
product, so as to make the price increase unprofitable. If so, the two 
products should be considered to be in the same product market.
    43. Under the Guidelines, ``[m]arket definition focuses solely on 
demand substitution factors--i.e., possible consumer responses.'' 
Consideration of substitutability of demand supports the use of 
narrower relevant product markets than the ``all services'' product 
market defined in the Competitive

[[Page 14725]]
Carrier proceeding. It appears unlikely, for example, that a 
substantial number of residential customers would switch from 
residential service to 800 service in response to a small but 
significant nontransitory increase in the price of residential service. 
Thus, these two services may fall in different product markets. On the 
other hand, it appears that defining each interexchange service as a 
separate relevant product market would result in relevant markets that 
are too narrow. Business customers, in particular, may view certain 
interexchange services as sufficiently close substitutes that, if an 
interexchange carrier raised the price of one of the services, 
customers would switch to one of the substitute services. Based on this 
analysis, we believe that we should define as a relevant product market 
an interstate, interexchange service for which there are no close 
substitutes or a group of services that are close substitutes for each 
other, but for which there are no other close substitutes.
    44. We believe that it would be administratively burdensome to 
delineate all relevant product markets for interstate, interexchange 
services. The fact that we have previously found that there is 
substantial competition with respect to most interstate, domestic, 
interexchange service offerings suggests that we do not need to do so 
at this time. Accordingly, we tentatively conclude that we should 
address the question whether a specific interstate, interexchange 
service (or group of services) constitutes a separate product market 
only if there is credible evidence suggesting that there is or could be 
a lack of competitive performance with respect to that service (or 
group of services). We seek comment on this approach and invite parties 
to suggest other approaches. Interested parties should provide support 
for the position they advocate. Parties recommending that services be 
grouped in relevant product markets should identify the services that 
should be grouped together, as well as providing evidence that there is 
or could be a lack of competitive performance with respect to those 
services. We also seek comment on what factors we should consider in 
defining relevant product markets, as well as what obstacles, problems, 
or administrative burdens we are likely to face in adopting narrower 
market definitions.

B. Relevant Geographic Market

    45. The Merger Guidelines define the relevant geographic market as 
the ``region such that a hypothetical monopolist that was the only 
present or future producer of the relevant product at locations in that 
region would profitably impose at least a `small but significant and 
nontransitory' increase in price, holding constant the terms of sale 
for all products produced elsewhere.'' This definition focuses on 
whether products in one region are good substitutes for products in 
other regions. Accordingly, in defining the relevant geographic market, 
one must examine whether a ``small but significant and nontransitory'' 
increase in the price of the relevant product at a particular location 
would cause a buyer to shift his purchase to a second location, so as 
to make the price increase unprofitable. If so, the two locations 
should be considered to be in the same geographic market.
    46. In applying the principles in the Guidelines, we note that, at 
its most fundamental level, interexchange calling involves a customer 
making a connection from a specific location to another specific 
location. We believe that most telephone customers do not view 
interexchange calls originating in different locations to be close 
substitutes for each other. For example, it is unlikely that a person 
living in Chicago who wishes to make a telephone call to San Francisco 
will be willing to travel to another location to make the call for a 
lower price. Similarly, a customer will not view a call that terminates 
in a place other than the location of the person to whom he or she is 
calling to be a good substitute for a call to that person. Thus, 
applying the Merger Guidelines principles, we tentatively conclude that 
the relevant geographic market for interstate, interexchange services 
should be defined as all calls from one particular location to another 
particular location. We note that defining a relevant geographic market 
as transport between two specific points is well established in other 
contexts. For example, the Department of Justice has used city pairs as 
the relevant geographic market for evaluating mergers in the airline 
industry. Similarly, in the International Competitive Carrier 
proceeding, the Commission found that each country pair constitutes a 
separate geographic market. See International Competitive Carrier 
Policies, 50 FR 48191 (November 22, 1985). Thus, one geographic market 
consists of calls between the U.S. and France, and another consists of 
calls between the U.S. and Great Britain.
    47. We recognize that it would be impracticable to conduct a market 
power analysis in each individual market implied by a point-to-point 
market definition for interstate, interexchange services. We believe 
that, in the majority of cases, economic factors and the realities of 
the marketplace will cause these markets to behave in a sufficiently 
similar manner to allow us to aggregate them into broader, more 
manageable groups of markets for purposes of market power analysis. For 
example, residential interexchange service can be thought of as a 
bundle of all possible interexchange calls originating from a single 
point and terminating anywhere, and 800 service as a bundle of 
interstate, interexchange calls originating from a certain geographic 
region and terminating at a specific point. Similarly, the ``single 
nationwide geographic market'' the Commission adopted in the 
Competitive Carrier proceeding can be viewed as an aggregate of the 
point-to-point markets encompassing all points in the United States.
    48. We tentatively conclude for the following reasons that, in most 
cases, we should continue to treat interstate, interexchange services 
as a single national market when examining whether a carrier or group 
of carriers acting together has market power. First, geographic rate 
averaging reduces the likelihood that a carrier could exercise market 
power in a single point-to-point market. Because the prices a carrier 
can charge in a particular market are linked to the prices it charges 
in all other markets, it generally would not be profitable for a 
carrier to raise its prices throughout the nation (with a resulting 
loss of market share in some areas) to take advantage of market power 
between two particular cities. Second, customers typically purchase 
ubiquitous calling that enables them to make calls to all domestic 
locations. Thus, because of geographic rate averaging, a price change 
in one point-to-point market would require such price changes to be 
extended to all residential customers.
    49. Another reason we can treat the relevant geographic market as a 
national market is that price regulation of access services and excess 
capacity in interstate transport further reduce the likelihood that an 
interexchange carrier could exercise market power in most point-to-
point markets. In making this determination, we recognize that an 
interstate, interexchange call from point A to point B requires three 
separate inputs, each of which is sold in a separate input market: (1) 
originating access from point A; (2) interstate transport from point A 
to point B; and (3) terminating access to point B. The ability to raise 
the price for any of the inputs above the competitive level or to 
prevent competitors from assembling inputs to provide retail service 
would enable a firm unilaterally to raise the

[[Page 14726]]
retail price of and thereby exercise market power with respect to 
interexchange calls between points A and B. We note, however, that all 
originating and terminating access services are currently subject to 
some form of price regulation, which constrains a LEC's ability to 
raise access prices to monopoly levels. We also note that there are 
ways in which a LEC could exercise market power without raising the 
price of interstate, interexchange services. For example, a LEC could 
raise its interexchange rivals' costs by providing poorer 
interconnection to the LEC's network facilities than the LEC provides 
to itself or its affiliate, or by delaying fulfillment of its rivals' 
requests to connect to the LEC's network. We will be addressing these 
issues in upcoming proceedings that address implementation of new 
Sections 251 and 272 of the Communications Act, as amended. While 
interstate transport service is not subject to price regulation, we 
concluded in the AT&T Reclassification Order that, between most points, 
excess transport capacity undermines the ability of any carrier to 
raise and maintain the price of interstate transport above the 
competitive level. Thus, because the prices of access and transport 
services are similarly constrained in all point-to-point markets, we 
believe we can generally examine simply whether a carrier has market 
power in the group of point-to-point markets that comprise the 
``nationwide geographic market.''
    50. Nevertheless, we believe there may be special circumstances in 
which treating interexchange services as a national market will not be 
sufficient for purposes of market power analysis. For example, the 
BOCs' control of access facilities in their local service regions may 
require us to examine those regions individually in determining whether 
the BOCs have market power with respect to in-region interexchange 
services. If market power were found to exist in such a large region, 
there is no guarantee that geographic rate averaging would provide a 
credible check on the exercise of such power. For instance, if a BOC's 
interexchange customers and traffic are concentrated in one region, the 
BOC might find it profitable to raise prices above competitive levels, 
even if geographic rate averaging might cause it to lose market share 
outside that region. We therefore propose to examine a particular 
point-to-point market (or group of markets) for the presence of market 
power if there is credible evidence suggesting that there is or could 
be a lack of competition in that market (or group of markets) and there 
is a showing that geographic rate averaging will not sufficiently 
mitigate the exercise of market power (if it exists) in that market (or 
group of markets). We are not addressing in this proceeding the 
circumstances, if any, in which a BOC or independent LEC should be 
classified as a dominant carrier with respect to the provision of 
interstate, interexchange services in areas where it provides local 
access services. We intend to address these questions in an upcoming 
proceeding.
    51. We seek comment on the proposed approach. We also seek comment 
on how narrowly we would need to define points of origination and 
termination if we adopt this approach. Because it would be 
administratively infeasible to conduct a market power analysis that 
defines separate geographic markets between each pair of individual 
locations (such as homes), we need to adopt somewhat broader 
definitions for this situation. One possibility is to define geographic 
markets between two local exchange areas. An alternative approach might 
be to use geographic areas currently used by the Commission, such as 
Major Trading Areas (MTAs), Basic Trading Areas (BTAs), or Metropolitan 
Statistical Areas (MSAs). Commenters should explain why the geographic 
market definition they recommend is appropriate and should address the 
administrative benefits or burdens of their proposed definition. We 
note that Rand McNally & Company is the copyright owner of the Basic 
Trading Area and Major Trading Area Listings, which list the counties 
contained in each BTA, as embodied in Rand McNally's Trading Area 
System Diskette and Atlas & Marketing Guide. Rand McNally has licensed 
the use of its copyrighted MTA/BTA listings and maps for certain 
wireless telecommunications services.
    52. We also invite parties to suggest alternative approaches they 
believe better characterize the relevant geographic market for 
interstate, interexchange services, than the point-to-point market 
definition we have proposed. Parties should explain how the market 
definition they recommend reflects the market for interexchange 
services and should describe the likely administrative benefits or 
burdens of their proposal. Finally, parties should discuss the factors 
that we should consider in defining the relevant geographic market for 
interstate, domestic, interexchange services.

V. Separation Requirements for Independent Local Exchange Carrier and 
Bell Operating Company Provision of ``Out-of-Region'' Interstate, 
Interexchange Services

    53. The 1996 Act authorizes the BOCs, upon enactment, to provide 
interLATA services originating outside their in-region states. In a 
recent Notice of Proposed Rulemaking, we considered what regulatory 
regime we should apply to BOC provision of such ``out-of-region'' 
interstate, interexchange services. Specifically, we considered whether 
such services should be subject to dominant carrier or non-dominant 
carrier regulation. The BOC Out-of-Region NPRM, 60 FR 6607 (February 
21, 1996) addresses only BOC provision of out-of-region interstate, 
interexchange services; BOC provision of in-region interstate, 
interexchange services will be considered in a separate proceeding. In 
that Notice, we tentatively concluded that the separation requirements 
imposed for non-dominant treatment of independent LEC provision of 
interexchange services, presented a useful model upon which to base, on 
an interim basis, oversight of BOC provision of out-of-region 
interstate, interexchange services.
    54. The separation requirements imposed on independent LECs were 
established by the Commission in the Competitive Carrier proceeding. 
The Commission there 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 specified that an ``affiliate'' of an independent LEC was 
``a carrier that is owned (in whole or in part) or controlled by, or 
under common ownership (in whole or in part) or control with, an 
exchange telephone company.'' The Commission further clarified that, to 
qualify for non-dominant treatment, the affiliate providing interstate, 
interexchange services must: (1) maintain separate books of account; 
(2) not jointly own transmission or switching facilities with its 
affiliated exchange telephone company; and (3) acquire any services 
from its affiliated exchange telephone company at tariffed rates, terms 
and conditions. The Commission also stated that any interstate service 
offered directly by an independent LEC, rather than through a separate 
affiliate, would be regulated as dominant.
    55. The Commission observed that the separation requirements would 
provide some ``protection against cost-shifting and anticompetitive 
conduct'' by an

[[Page 14727]]
independent LEC that could result from using its control of local 
bottleneck facilities. Noting that the requirements it had specified 
were less stringent than those established in the Second Computer 
Inquiry, the Commission concluded that the separation requirements 
would not impose excessive burdens on independent LECs.
    56. The Commission stated in the Fifth Report and Order that the 
non-dominant treatment accorded to interexchange carriers affiliated 
with independent LECs did not apply to the BOCs, which, the Commission 
noted, were then prohibited from offering interLATA services. The 
Commission added that, ``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.''
    57. As noted, in the BOC Out-of-Region NPRM we tentatively 
concluded that the separation requirements imposed upon independent 
LECs providing interexchange services, presented a useful model upon 
which to base, on an interim basis, oversight of BOC provision of out-
of-region interstate, interexchange services. Accordingly, we 
tentatively concluded that, if a BOC provides out-of-region interstate, 
interexchange services through an affiliate that satisfies the 
separation requirements established in the Competitive Carrier Fifth 
Report and Order, the BOC affiliate should be regulated as a non-
dominant carrier. We also tentatively concluded that, if a BOC provides 
out-of-region interstate, interexchange services directly, or through 
an affiliate that does not meet the separation requirements, those 
services should be regulated as dominant carrier offerings.
    58. We stated in that Notice, however, our intent to consider in 
this proceeding whether it may be appropriate at some future date to 
modify or eliminate the separation requirements that are currently 
imposed upon independent LECs, and that we tentatively concluded should 
be imposed on BOCs, in order to qualify for non-dominant treatment in 
the provision of out-of-region interstate, interexchange services. 
Accordingly, we now seek comment on whether we should modify or 
eliminate these separation requirements as a condition for non-dominant 
treatment of independent LEC provision of interstate, interexchange 
services outside their local exchange areas. We also seek comment on 
whether, if we modify or eliminate these separation requirements for 
non-dominant treatment of independent LEC provision of interstate, 
interexchange services outside their local exchange areas, we should 
apply the same requirements to BOC provision of out-of-region 
interstate, interexchange services. We defer to another proceeding 
consideration of the appropriate regulatory treatment of BOCs that 
provide in-region interstate, interexchange services and independent 
LECs that provide interstate, interexchange services within the area in 
which they also provide local exchange service.
    59. Parties should identify the requirement or requirements that 
they believe should be modified or eliminated, and offer support for 
their positions. Parties should comment on whether complying with the 
separation requirements would create an unnecessary burden for LECs 
subject to those requirements. Parties should also comment on whether 
there is a possibility of cost-shifting or other anti-competitive 
conduct that could result if the separation requirements are modified 
or eliminated, and if so, how we can or should address such conduct.
    60. We note that comments and reply comments on this section are 
due April 19, 1996; reply comments are due May 3, 1996. See also 
Section X.D. infra regarding requirements for all pleadings.

VI. Rate Averaging and Integration Requirements of 1996 Act

    61. Section 254(g) of the Communications Act, as amended by the 
1996 Act, provides that the Commission, within six months after the 
date of enactment, must:

    [A]dopt rules to require that the rates charged by providers of 
interexchange telecommunications services to subscribers in rural 
and high cost areas shall be no higher than the rates charged by 
each such provider to its subscribers in urban areas. Such rules 
shall also require that a provider of interstate interexchange 
telecommunications services shall provide such services to its 
subscribers in each State at rates no higher than the rates charged 
to subscribers in any other State.

Accordingly, we propose and address here the rules necessary to 
implement these requirements.
    62. We note that comments and reply comments on this section 
implementing Section 254(g) of the Communications Act, as amended, are 
due April 19, 1996; reply comments are due May 3, 1996. See also 
Section X.C. infra regarding requirements for all pleadings.

A. Geographic Rate Averaging

    63. We first address the statutory requirement that the rates 
charged by providers of interexchange telecommunications services to 
subscribers in rural and high cost areas not be higher than the rates 
charged to subscribers in the interexchange carrier's urban areas 
(i.e., that rates be geographically averaged). The Commission has long 
supported a policy of geographic rate averaging for interstate, 
domestic, interexchange services. As the Commission stated in 1989:

    This Commission has repeatedly voiced our support for rate 
averaging. . . . Geographic rate averaging redounds to the benefit 
of rural ratepayers, and customers of high cost local exchange 
carriers. First, geographic rate averaging ensures that 
interexchange rates for rural areas, or areas served by high cost 
companies, will not reflect the disproportionate burdens that may be 
associated with common line cost recovery in these areas. Thus, 
geographic rate averaging furthers our goal of providing a universal 
nationwide telecommunications network. Second, geographic rate 
averaging ensures that ratepayers share in the benefits of 
nationwide interexchange competition. If prices are falling due to 
competition in the corridors carrying the most traffic, prices will 
also fall for rural Americans. An additional benefit of rate 
averaging has been its contribution to the simplicity of [message 
toll service] rates. Customers seeking to compare rates charged by 
various interexchange carriers have been substantially benefited by 
the relative simplicity of the existing rate structure.

As recently as the AT&T Reclassification Order, we reaffirmed our 
commitment to maintain our geographic rate averaging policy.
    64. While the Commission has consistently endorsed a policy of 
geographic rate averaging, the Commission has not formally promulgated 
a requirement that rates be geographically averaged. As required by the 
1996 Act, we propose to adopt a rule requiring that the rates charged 
by all providers of interexchange telecommunications services to 
subscribers in rural and high cost areas shall be no higher than the 
rates charged by each such provider to its subscribers in urban areas. 
As established by the 1996 Act, this requirement would apply to all 
providers of interexchange telecommunications services. We seek comment 
generally on this proposed rule.
    65. Section 254(g) of the Communications Act, as amended by the 
1996 Act, states in part:

the Commission shall adopt rules to require that the rates charged 
by providers of interexchange telecommunications services to 
subscribers in rural and high cost areas shall be no higher than the 
rates charged by each such provider to its subscribers in urban 
areas.


[[Page 14728]]

Thus, the statute requires the Commission to adopt rules to require 
geographic rate averaging for intrastate and interstate, interexchange 
telecommunications services. We note that the legislative history 
states:

[n]ew section 254(g) is intended to incorporate the policies of 
geographic rate averaging . . . of interexchange services in order 
to ensure that subscribers in rural and high cost areas throughout 
the Nation are able to continue to receive both intrastate and 
interstate interexchange services at rates no higher than those paid 
by urban subscribers.

We also believe, however, that Section 254(g) preempts state laws or 
regulations requiring intrastate geographic rate averaging only to the 
extent such laws or regulations are inconsistent with the rules we 
adopt with respect to geographic rate averaging. Preemption may occur 
even when Congress has not fully foreclosed state regulation in a 
specific area if state law conflicts with federal law. See Florida Lime 
& Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143 (1963) (conflict 
when ``compliance with both federal and state regulations is a physical 
impossibility''); Hines v. Davidowitz, 312 U.S. 52, 67 (1941) (conflict 
when state law ``stands as an obstacle to the accomplishment and 
execution of the full purposes and objectives of Congress''). Although 
the statute makes clear that the Commission is to establish the rules 
requiring geographic averaging, it does not appear to foreclose 
consistent state action in this area. Indeed, the Senate Report 
statement included in the Joint Explanatory Statement provides:

    States shall continue to be responsible for enforcing this 
[geographic averaging provision] with respect to intrastate 
interexchange services, so long as the State rules are not 
inconsistent with Commission rules and policies on rate averaging.

The Joint Explanatory Statement indicates that the House receded to the 
Senate with modifications with respect to new Communications Act 
Section 254. We note that the geographic rate averaging provision of 
Section 254(g) contains only minor modifications from the Senate Bill 
geographic rate averaging provision, Section 253(h). See S. 652 104th 
Cong., 1st Sess. Sec. 253(h) (1995). Thus, we invite comment on these 
views.
    66. In addition to seeking comment on preemption, we seek comment 
on whether there may be competitive conditions or other circumstances 
that could justify Commission forbearance from enforcing the proposed 
geographic rate averaging requirement with respect to particular 
interexchange telecommunications carriers or services.
    67. In light of our proposal in this Notice to forbear from 
requiring non-dominant interexchange carriers to file tariffs, we 
tentatively conclude that it would not be in the public interest to 
attempt to enforce geographic rate averaging through the tariff 
process. Rather, we believe that we can ensure compliance with the 
proposed rate averaging requirements by requiring providers of 
interexchange telecommunications services to file certifications 
stating that they are in compliance with their statutory geographic 
rate averaging obligations. Such a requirement would not impose a 
significant burden on such providers. Accordingly, we tentatively 
conclude that we should require providers of interexchange 
telecommunications services to file such certifications. We also 
tentatively conclude that we should rely on the complaint process under 
Section 208 to bring violations to our attention. We seek comment on 
these tentative conclusions. Parties challenging these tentative 
conclusions should suggest possible alternative enforcement mechanisms.
    68. Enforcement issues similarly arise in the absence of tariff 
forbearance. Because non-dominant carriers currently are permitted to 
file tariffs on one day's notice, we seek comment on whether, in the 
absence of tariff forbearance, we should adopt any requirements in 
order to facilitate enforcement of the proposed rule that requires, 
inter alia, that the rates of non-dominant providers of interexchange 
telecommunications services be geographically averaged. Parties 
supporting such requirements should propose specific examples of 
regulatory mechanisms that could be adopted.
    69. Parties in the AT&T Reclassification proceeding asserted that 
carriers often do not offer discount rate plans ubiquitously, and that, 
as a result, interexchange customers in some rural and high cost areas 
are forced to pay the carriers' higher basic rates, while customers in 
other geographic areas can take advantage of the carriers' discount 
plans. These parties further asserted that this disparity amounts to 
geographic rate deaveraging. We seek comment on the extent to which 
providers of interexchange telecommunications services do not offer 
optional discount plans to subscribers in rural and high cost areas 
and, if so, the reasons for this practice. We also seek comment on 
whether an interexchange carrier's failure to make a promotional plan 
available in the entirety of its service area constitutes geographic 
deaveraging, and if so, whether we should require that discount rate 
plans be made available and advertised in the entirety of an 
interexchange telecommunications service provider's service area.
    70. Finally, as noted above, in the AT&T Reclassification 
proceeding, AT&T made voluntary commitments related to geographic rate 
averaging. Specifically, AT&T committed to file any new geographically 
specific tariffs that depart from its traditional approach to 
geographic averaging for interstate residential direct dial services on 
five business days' notice. AT&T committed that such tariff 
transmittals will be clearly identified as affecting the provisions of 
the commitment. AT&T committed that ``[t]his will continue for three 
years unless the Commission adopts rules addressing this issue for all 
carriers or there is a change in federal law addressing this issue.'' 
We tentatively conclude that, given the specific limitation of AT&T's 
commitment on this issue, upon adoption of the foregoing proposed rules 
relating to geographic rate averaging, AT&T would be subject to those 
adopted rules, and would not be bound to the specific commitments it 
made with respect to geographic rate averaging. We seek comment on this 
tentative conclusion.

B. Rate Integration

    71. As noted above, the 1996 Act also requires that the Commission 
adopt rules to require that providers of interstate, interexchange 
telecommunications services provide such services to their subscribers 
in each State at rates no higher than the rates charged to their 
subscribers in any other State (i.e., that rates be integrated). As 
with geographic rate averaging, the Commission has long maintained a 
rate integration policy for interexchange rates between the forty-eight 
contiguous states and various non-contiguous United States regions, 
including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands.
    72. As required by the 1996 Act, and guided by the Conference 
Committee's statement to incorporate the policies contained in our 1976 
Integration of Rates and Services Order, we propose to adopt a rule 
requiring that ``a provider of interstate interexchange 
telecommunications services shall provide such services to its 
subscribers in each State at rates no higher than the rates charged to 
its subscribers in any other State.'' The Joint Explanatory Statement 
provides: ``[t]he conferees intend the Commission's rules to require 
geographic rate averaging and rate integration, and to incorporate the 
policies contained in the Commission's

[[Page 14729]]
proceeding entitled `Integration of Rates and Services for the 
Provision of Communications by Authorized Common Carriers between the 
United States Mainland and the Offshore Points of Hawaii, Alaska and 
Puerto Rico/Virgin Islands' (61 FCC 2d 380 (1976)).'' We seek comment 
on this proposed rule.
    73. We note that the Communications Act, as amended, defines the 
term ``State'' as including ``the District of Columbia and the 
Territories and possessions.'' Accordingly, the 1996 Act extends rate 
integration to U.S. Territories and possessions, such as Guam and the 
Northern Mariana Islands, that currently are not subject to the 
Commission's domestic rate integration policy. The U.S. Virgin Islands 
and Puerto Rico are the only territories or possessions subject to the 
Commission's domestic rate integration policy at the present time. We 
seek comment on appropriate mechanisms to implement rate integration 
for U.S. territories and possessions that currently are not subject to 
the Commission's domestic rate integration policies. We note that 
currently pending before the Commission are three petitions to 
establish rulemakings to implement domestic rate integration policies 
for the Territory of Guam and the Commonwealth of the Northern Mariana 
Islands. See Governor's Office of the Territory of Guam Petition for 
Rulemaking to Integrate Rates, filed May 12, 1995, Public Notice, AAD 
95-84 (rel. June 16, 1995); JAMA Corporation Petition for Rulemaking to 
Implement Domestic Rate Integration Policies for Guam, filed May 1, 
1995, Public Notice, AAD 95-85 (rel. June 16, 1995); Commonwealth of 
the Northern Mariana Islands Petition for Rulemaking to Implement 
Domestic Rate Integration for the Commonwealth of the Northern Mariana 
Islands, filed June 7, 1995, Public Notice, AAD 95-86 (rel. June 16, 
1995). We believe these petitions would become moot when we adopt the 
rules implementing new Section 254(g).
    74. We tentatively conclude, in light of our proposal in this 
Notice to forbear from requiring non-dominant interexchange carriers to 
file tariffs, that it would not be in the public interest to attempt to 
enforce rate integration through the tariff process. Rather, we believe 
that we can ensure compliance with the proposed rate integration 
requirements by requiring providers of interstate, interexchange 
telecommunications services to file certifications stating that they 
are in compliance with their statutory rate integration obligations. 
Such a requirement would not impose a significant burden on such 
providers. Accordingly, we tentatively conclude that we should require 
providers of interstate, interexchange telecommunications services to 
file such certifications. We also tentatively conclude that we should 
rely on the complaint process under Section 208 to bring violations to 
our attention. We seek comment on these tentative conclusions. Parties 
challenging these tentative conclusions should suggest possible 
alternative enforcement mechanisms.
    75. Finally, in the AT&T Reclassification proceeding, AT&T made 
voluntary commitments relating to service to and from the State of 
Alaska and other regions subject to our rate integration policy. 
Specifically, AT&T committed that it ``will continue to comply with all 
conditions and obligations contained in the various Commission orders 
regarding rate integration between the contiguous forty-eight states 
and the states of Alaska, Hawaii, Puerto Rico and the Virgin Islands, 
until or unless those orders are superseded by Congressional or 
Commission action.'' We tentatively conclude that, given the specific 
limitation of AT&T's commitment on this issue, upon adoption of the 
foregoing proposed rule relating to rate integration, AT&T would be 
subject to that rule, and would not be bound to the specific commitment 
it made with respect to rate integration. We seek comment on this 
tentative conclusion. We note that this tentative conclusion does not 
apply to AT&T's separate commitment to ``comply with all the conditions 
and obligations contained in the Commission orders associated with 
AT&T's purchase of Alascom, Inc.'' as that commitment is not limited in 
duration.

VII. Pricing Issues

    76. Changes in the structure of the interexchange marketplace over 
the past decade have raised certain issues relating to the pricing of 
interexchange telecommunications services. In the AT&T Reclassification 
proceeding, a number of parties alleged that the interexchange market 
is characterized by oligopolistic price coordination, and that the 
reclassification of AT&T would lead to an increase in basic rates for 
domestic residential service. We address these issues in this section.

A. Allegations of Tacit Price Coordination

    77. In the AT&T Reclassification Order, we found inconclusive and 
conflicting evidence in the record regarding the existence of alleged 
tacit price coordination among interexchange carriers for basic 
residential services, or residential services generally. We concluded 
that, if there were tacit price coordination in the interexchange 
market, the problem was generic to the industry and would be better 
addressed by removing regulatory requirements that may have facilitated 
such conduct. Our reclassification of AT&T as non-dominant removed one 
such regulatory requirement--the longer advance notice period 
applicable only to AT&T tariff filings. In addition, we believe that 
the 1996 Act provides the best solution to any problem of tacit price 
coordination, to the extent that it exists currently, by allowing for 
competitive entry in the interstate interexchange market by the 
facilities-based BOCs and others. Increasing the number of facilities-
based carriers should make tacit price coordination more difficult. 
Moreover, we believe that the mandatory detariffing regime we propose 
in this Notice similarly will discourage price coordination by 
eliminating carriers' ability to ascertain their competitors' 
interstate rates and service offerings from publicly available tariffs 
filed with the Commission. We seek comment on these issues.

B. Residential Services Rate Plans

    78. In order to alleviate concerns expressed in the AT&T 
Reclassification proceeding that rates for residential services would 
increase if AT&T were reclassified as non-dominant, AT&T voluntarily 
committed, for a period of three years, to offer two optional calling 
plans designed to mitigate the impact of future increases in basic 
schedule or residential rates. The first plan is targeted to low-income 
customers, and the second is targeted to low-volume consumers, but is 
generally available to all residential customers.
    79. With respect to low-income customers, in our recent Notice of 
Proposed Rulemaking regarding implementation of the 1996 Act's 
universal service directives, we solicited comment ``on whether and how 
we should encourage domestic interstate interexchange carriers to 
provide optional calling plans for low-income consumers to promote the 
statutory [universal service] principles enumerated [in the 1996 
Act].'' We anticipate resolving this issue in the Universal Service 
proceeding, but because the service is interstate in nature, we retain 
concurrent jurisdiction.

[[Page 14730]]


VIII. Bundling of Customer Premises Equipment

    80. In 1980, the Commission adopted a rule prohibiting common 
carriers from bundling the provision of customer premises equipment 
(CPE) with the provision of common carrier telecommunications services. 
Carriers previously offered CPE as part of a package of services to 
subscribers. Changes in the industry, in particular the advent of 
competitive CPE vendors, led the Commission to conclude that carriers' 
continued bundling of telecommunications services with CPE could force 
customers to purchase unwanted CPE in order to obtain necessary 
transmission services, thus restricting customer choice and retarding 
the development of a competitive CPE market. It therefore required 
carriers to separate the provision of CPE from the provision of 
transmission services. Section 64.702(e) of our rules provides: 
``Except as otherwise ordered by the Commission, after March 1, 1982, 
the carrier provision of customer-premises equipment used in 
conjunction with the interstate telecommunications network shall be 
separate and distinct from provision of common carrier communications 
services and not offered on a tariffed basis.''
    81. The Commission recognized, however, that ``[i]f the markets for 
components of [a] commodity bundle are workably competitive, bundling 
may present no major societal problems so long as the consumer is not 
deceived concerning the content and quality of the bundle.'' It further 
acknowledged that some consumers may believe that bundled offerings can 
reduce transaction costs to customers. Bundling can also enable market 
participants to compete more effectively by offering attractive sales 
packages.
    82. Since the adoption of the rule prohibiting CPE bundling in 
1980, significant changes have occurred in the markets for CPE and 
interstate long-distance services. The CPE market is now widely 
recognized to be fully competitive. In the AT&T Reclassification Order, 
we found that AT&T no longer possesses market power in the overall 
interstate, domestic, interexchange market. Moreover, in the 
Interexchange Competition Proceeding, we concluded that the business 
services market was ``substantially competitive.''
    83. The Supreme Court has stated that the essential characteristic 
of an illegal tying or bundling arrangement ``lies in the seller's 
exploitation of its control over [one] product to force the buyer into 
the purchase of a [second] product that the buyer either did not want 
at all or might have preferred to purchase elsewhere on different 
terms.'' Under the ``leverage theory'' of tying, ``tying provides a 
mechanism whereby a firm with monopoly power in one market can use the 
leverage provided by this power to foreclose sales in, and thereby 
monopolize, a second market.''
    84. Based on our earlier findings regarding competition in both the 
CPE and interstate, interexchange services markets, we tentatively 
conclude that it is unlikely that non-dominant interexchange carriers 
can engage in the type of anticompetitive conduct that led the 
Commission to prohibit the bundling of CPE with the provision, inter 
alia, of interstate, interexchange services. We also tentatively 
conclude that allowing non-dominant interexchange carriers to bundle 
CPE with interstate, interexchange services would promote competition 
by allowing such carriers to create attractive service/equipment 
packages for customers. Accordingly, we tentatively conclude that we 
should amend Section 64.702(e) of the Commission's rules to allow non-
dominant interexchange carriers to bundle CPE with interstate, 
interexchange services. We seek comment on these tentative conclusions.
    85. Parties that believe we should amend Section 64.702(e) should 
also comment on whether we should require interexchange carriers 
offering bundled packages of CPE and interstate, interexchange services 
to continue to offer separately, unbundled interstate, interexchange 
services on a nondiscriminatory basis. We note that the U.S. Government 
has committed in the Uruguay Round Agreements of the General Agreement 
on Tariffs and Trade, to ensure, among other things, that ``service 
suppliers'' are permitted ``to purchase or lease and attach terminal or 
other equipment which interfaces with the [public telecommun-ications 
transport] network and which is necessary to supply a supplier's 
service. . . .'' See Uruguay Round Agreements Act of 1994, Pub. L. No. 
103-465, Section 801, 108 Stat. 4809 (1994) (to be codified at 47 
U.S.C. Sec. 309(j)(13)). ``Service supplier'' is defined to mean a 
supplier of any service in any sector except services supplied in the 
exercise of governmental authority. We seek comment on whether this 
commitment implies that interexchange carriers should be required to 
offer separately, unbundled interstate, interexchange services on a 
nondiscriminatory basis if they are permitted to bundle CPE with the 
provision of interstate, interexchange services.
    86. Parties that believe that we should not amend Section 64.702(e) 
as proposed should set forth specific reasons in support of their 
position. We also seek comment on the effect that the proposed 
amendment of Section 64.702(e) would have on our other policies or 
rules. We believe that our tentative conclusions regarding CPE bundling 
are consistent with our nation's foreign trade policy that seeks to 
promote, in trade negotiations with other countries, the unbundling of 
telecommunications services and CPE in certain international markets 
where monopoly providers may exist in either the services or CPE 
market. As described above, our domestic CPE and interstate, domestic, 
interexchange markets are both subject to competition, thus we believe 
that the potential for anticompetitive bundling behavior is highly 
unlikely in the U.S. market. Finally, we seek comment on whether and 
how the anticipated entry of local exchange carriers, in particular the 
BOCs, into the market for interstate, interexchange services should 
affect our analysis.
    87. We note that we intend to initiate a comprehensive proceeding 
to address payphone issues, and to implement the sections of the 1996 
Act relating to the provision of payphone service. In that proceeding, 
we intend to consider the issue of bundling of pay telephone equipment 
with underlying transmission capacity. Accordingly, any amendment to 
Section 64.702(e) of our rules adopted in this proceeding will not 
apply to payphone bundling.

IX. Other Issues

    88. For reasons set forth above, we have tentatively concluded that 
we are required to forbear from requiring non-dominant interexchange 
carriers to file tariffs, and that such detariffing should be 
mandatory. In the AT&T Reclassification proceeding, commenters raised 
certain issues regarding contract tariffs. We deferred consideration of 
those issues to this proceeding because we found those issues were 
unrelated to the determination of whether AT&T possessed market power. 
We note that these issues will largely be mooted if, as proposed above, 
we adopt a mandatory detariffing policy. We examine those and other 
tariff-related issues here, however, because such issues will remain 
relevant if we determine not to forbear from requiring non-dominant 
interexchange carriers to file tariffs. In addition, if we determine to 
adopt a policy of permissive detariffing, it is possible that some 
carriers will choose

[[Page 14731]]
to continue to file tariffs, including contract tariffs.
    89. In the First Interexchange Competition Order, the Commission 
established its contract carriage regime under which interexchange 
carriers are permitted to offer services pursuant to individually 
negotiated contracts. The Commission further found that, as long as all 
contracts were made generally available to similarly situated customers 
under substantially similar circumstances, the offering of 
individually-negotiated contracts for interexchange services under the 
contract carriage regime would comply with the nondiscrimination 
provisions of the Communications Act. The Commission later found that 
the ``contract carriage policy serves the public interest by enabling 
users to purchase services that match their needs in particular ways 
and by facilitating user and interexchange carrier planning by 
increasing the availability of long-term commitments and price 
protection.''
    90. The Title II statutory scheme permits carriers to make changes 
to their tariffs. Moreover, it is well established that, pursuant to 
the ``filed rate doctrine,'' in a situation where a filed tariff rate 
differs from a rate set in a non-tariffed carrier-customer contract, 
the carrier is required to assess the tariff rate. Consequently, if a 
carrier unilaterally changes a rate by filing a tariff revision, the 
newly filed rate becomes the applicable rate unless the revised rate is 
found to be unjust, unreasonable, or unlawful under the Communications 
Act.
    91. In the RCA Americom Decisions, the Commission recognized that a 
dominant carrier's proposal ``to modify extensively a long term service 
tariff may present significant issues of reasonableness under Section 
201(b) that are not ordinarily raised in other tariff filings.'' 
Accordingly, the Commission held that a dominant carrier's unilateral 
tariff revisions that alter material terms and conditions of a long-
term service tariff will be considered reasonable only if the carrier 
can make a showing of ``substantial cause'' for the revision. The 
Commission has stated that the substantial cause test would apply to 
unilateral changes by dominant carriers to long-term contract tariffs. 
In the February 1995 Interexchange Reconsideration Order, 60 FR 13637 
(March 14, 1995), the Commission indicated that the substantial cause 
test would also apply to unilateral tariff modifications made by non-
dominant carriers.
    92. In the February 1995 Interexchange Reconsideration Order, we 
indicated that commercial contract law was highly relevant in assessing 
the reasonableness of a unilateral tariff revision, but we declined to 
declare that contract law principles constituted the sole and 
dispositive basis for a substantial cause showing. We seek comment on 
whether commercial contract law principles should be the sole criterion 
in applying the substantial cause test. If not, parties should suggest 
other factors that the Commission should consider in evaluating whether 
a carrier has shown substantial cause for unilaterally changing a 
contract tariff. We also seek comment on whether the substantial cause 
test should apply only to the carrier and the customer with whom it 
negotiated the original contract, or whether it also should apply to 
subsequent customers who take service under the contract tariff. We 
note that, in the February 1995 Interexchange Reconsideration Order, we 
stated that in applying the substantial cause test, we would consider 
whether the original tariff terms were the product of negotiation and 
mutual agreement. Commenters arguing that the substantial cause test 
should apply only to the initial customer, should explain how this 
position is consistent with the nondiscrimination requirements of 
Section 202 of the Communications Act. In addition, in cases in which 
the Commission determines that a carrier has established substantial 
cause for a unilateral change to a contract tariff, we seek comment on 
whether the modified contract tariff should be treated as a new 
contract tariff and should be made available to other similarly 
situated customers.
    93. The Mobile-Sierra doctrine established a strict ``public 
interest'' standard that a carrier must meet before a regulatory agency 
can accept a superseding tariff that modifies the terms of a negotiated 
carrier-to-carrier contract. See United Gas Pipe Line Co. v. Mobile Gas 
Service Corp., 350 U.S. 332 (1956) (Mobile); FPC v. Sierra Pacific 
Power Co., 350 U.S. 348 (1956) (Sierra). In Bell Telephone Company of 
Pennsylvania v. FCC, 503 F.2d 1250 (3rd Cir. 1974), cert. denied, 422 
U.S. 1026 (1975), rehearing denied, 423 U.S. 886 (1975), the U.S. Court 
of Appeals for the Third Circuit, applying the Mobile-Sierra doctrine, 
held that a common carrier could not abrogate a contract with another 
carrier simply by filing superseding tariffs. We seek comment on the 
relationship between the substantial cause test and the Mobile-Sierra 
doctrine in cases where a carrier attempts through a tariff revision to 
abrogate an underlying carrier-to-carrier contract.
    94. In the AT&T Reclassification proceeding, resellers raised 
various issues concerning contract tariffs. Several commenters argued 
that resellers and other large customers need protection from the 
ability of carriers to revise unilaterally contract-based service 
arrangements. AT&T made certain transitional voluntary commitments, for 
a period of twelve months, in order to alleviate those concerns on an 
interim basis. Commenters proposed, among other things, that the 
Commission require carriers to: give customers advance notice of any 
tariff filing that materially alters negotiated agreements; obtain the 
consent of all affected customers before making such a filing; treat 
the lack of consent to a proposed tariff change as prima facie evidence 
of its unlawfulness; allow any non-consenting customer either to 
terminate its service arrangement without liability or to enforce the 
unchanged term; and provide a reasonable period of rate stability to 
permit service migration if the customer chooses to terminate its 
service agreement. We seek comment on the above proposals. In addition, 
we tentatively conclude that AT&T should remain subject to its 
voluntary commitments concerning unilateral changes to contract 
tariffs, regardless of what action we take in this proceeding with 
respect to the foregoing proposals. We seek comment on this tentative 
conclusion.
    95. Parties in the AT&T Reclassification proceeding also argued 
that the ability of non-dominant carriers to file unilateral tariff 
modifications on one day's notice effectively precludes customers from 
challenging such revisions before they become effective. We seek 
comment on whether we should require a longer notice period for tariff 
filings that materially revise long-term service or contract tariffs, 
and if so, what notice period should be established. We also seek 
comment on whether a carrier should be required to identify clearly 
tariff filings that unilaterally alter existing long-term service or 
contract tariffs.
    96. Resellers have also complained that ordering procedures are 
used to prevent them from subscribing to contract tariffs. Accordingly, 
we seek comment on whether specific ordering procedures should be 
allowed to be incorporated in contract tariffs (i.e., when is an order 
placed, what documents must a customer file, when must a customer 
identify locations that

[[Page 14732]]
it will include in the plan). Resellers also complain that carriers use 
narrowly circumscribed customer descriptions in order to prevent 
resellers from taking service under contract-based tariffs. We seek 
comment on what is an appropriate level of specificity for customer 
descriptions that are used by carriers to determine eligibility under a 
contract tariff. We also seek comment on whether there are certain 
terms that should be prohibited as unreasonable (e.g., extremely large 
upfront deposits from the customer).
    97. Finally, in the AT&T Reclassification proceeding, we indicated 
that we would in the future ``initiate a new proceeding to identify 
specific areas of the interstate, domestic, interexchange market that 
may raise policy concerns, and if there are any, to seek comment on 
possible remedies.'' Further, we noted that we would monitor closely 
the areas in which AT&T had made voluntary commitments in order to 
protect consumers. Should parties wish to raise issues in this 
proceeding with regard to these issues, we encourage parties to 
comment.

X. Procedural Issues

A. Ex Parte Presentations

    98. 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. Initial Regulatory Flexibility Analysis

    99. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 
Secs. 601-612, the Commission's Initial Regulatory Flexibility Analysis 
with respect to the Notice of Proposed Rulemaking is as follows:
    100. Reason for Action: The Commission is issuing this Notice of 
Proposed Rulemaking to review our regulatory regime for interstate, 
domestic, interexchange telecommunications services, and to implement 
certain provisions of the 1996 Act.
    101. Objectives: The objective of the Notice of Proposed Rulemaking 
is to provide an opportunity for public comment and to provide a record 
for a Commission decision on the issues stated above.
    102. Legal basis: The Notice of Proposed Rulemaking is adopted 
pursuant to Sections 1, 2, 4, 201-205, 215, 218 and 220 of the 
Communications Act of 1934, as amended, 47 U.S.C. Secs. 151, 152, 154, 
201-205, 215, 218 and 220.
    103. Description, potential impact, and number of small entities 
affected: Any rule changes that might occur as a result of this 
proceeding could impact entities which are small business entities, as 
defined in Section 601(3) of the Regulatory Flexibility Act. After 
evaluating the comments in this proceeding, the Commission will further 
examine the impact of any rule changes on small entities and set forth 
findings in the Final Regulatory Flexibility Analysis. 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, Pub. L. No. 96-
354, 94 Stat. 1164, 5 U.S.C. Sec. 601, et seq. (1981).
    014. Reporting, recordkeeping and other compliance requirement: The 
proposed rules would require non-dominant interexchange carriers to 
retain business records containing price and service information 
regarding their interstate, domestic, interexchange offerings. The 
proposed rules also would require providers of interexchange services 
to certify their compliance with their statutory geographic rate 
averaging obligations, and providers of interstate, interexchange 
services to certify their compliance with their statutory rate 
integration obligations.
    105. Federal rules which overlap, duplicate or conflict with the 
Commission's proposal: None.
    106. Any significant alternatives minimizing impact on small 
entities and consistent with stated objectives: The Notice of Proposed 
Rulemaking solicits comments on alternatives.
    107. Comments are solicited: Written comments are requested on this 
Initial Regulatory Flexibility Analysis. These comments must be filed 
in accordance with the same filing deadlines set for comments on the 
other issues (other than those in Sections IV, V, and VI) in this 
Notice of Proposed Rulemaking but they must have a separate and 
distinct heading designating them as responses to the Regulatory 
Flexibility Analysis. The Secretary shall send a copy of the Notice 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. Sec. 601, et seq.

C. Initial Paperwork Reduction Act of 1995 Analysis

    108. This Notice contains either a proposed or modified information 
collection. As part of its continuing effort to reduce paperwork 
burdens, we invite the general public and the Office of Management and 
Budget (OMB) to take this opportunity to comment on the information 
collections contained in this Notice, as required by the Paperwork 
Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments 
are due April 19, 1996; OMB comments are due June 3, 1996. Comments 
should address: (a) whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.

D. Comment Filing Procedures

    109. 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 Sections IV, V, and VI, on or 
before April 19, 1996, and reply comments on Sections IV, V, and VI on 
or before May 3, 1996. Interested parties may file comments on all 
other sections of this Notice on or before April 25, 1996, and reply 
comments on or before May 24, 1996.
    110. To file formally in this proceeding, parties must file an 
original and six copies of all comments, reply comments, and supporting 
comments. Parties wanting each Commissioner to receive a personal copy 
of their comments, must file an original and eleven 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 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.
    111. In order to facilitate review of comments and reply comments, 
both by parties and by Commission staff, we require that comments 
submitted on Sections IV, V, and VI, be no longer than

[[Page 14733]]
45 pages and reply comments on those sections be no longer than 25 
pages. We require that comments on the remaining sections of this 
Notice be no longer than 45 pages and reply comments on the remaining 
sections be no longer than 25 pages.
    112. Comments and reply comments on all sections of this Notice 
must include a short and concise summary of the substantive arguments 
raised in the pleading. Comments and reply comments must also comply 
with Section 1.49 and all other applicable sections of the Commissions 
Rules. See 47 CFR Sec. 1.49. However, we require here that a summary be 
included with all comments and reply comments, regardless of length. 
The summary may be paginated separately from the rest of the pleading 
(e.g., as ``i, ii''). See 47 CFR Sec. 1.49.
    113. 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.
    114. Written comments by the public on the proposed and/or modified 
information collections are due April 19, 1996. Written comments must 
be submitted by the Office of Management and Budget (OMB) on the 
proposed and/or modified information collections on or before 60 days 
after date of publication in the Federal Register. In addition to 
filing comments with the Secretary, a copy of any comments on the 
information collections contained herein should be submitted to Dorothy 
Conway, Federal Communications Commission, Room 234, 1919 M Street, 
N.W., Washington, DC 20554, or via the Internet to [email protected] and 
to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, N.W., 
Washington, DC 20503 or via the Internet to [email protected].

E. Ordering Clauses

    115. Accordingly, it is ordered that pursuant to Sections 1, 4, 10, 
201-205, 214(e), 215, 218, 220 and 254 of the Communications Act of 
1934, as amended, 47 U.S.C. Secs. 151, 154, 201-205, 214(e), 215, 218 
and 220 a notice of proposed rulemaking is hereby adopted.

    116. 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. Secs. 601 et seq. (1981).

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96-8116 Filed 4-2-96; 8:45 am]

BILLING CODE 6712-01-P