[Federal Register Volume 61, Number 81 (Thursday, April 25, 1996)]
[Proposed Rules]
[Pages 18311-18354]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10300]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[CC Docket No. 96-98, FCC 96-182]


Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In enacting the Telecommunications Act of 1996 (1996 Act) 
Congress sought to establish a pro-competitive, deregulatory national 
policy framework for the telecommunications industry. In adding new 
sections 251, 252, and 253 to the Communications Act of 1934, Congress 
set forth a blueprint for ending monopolies in local telecommunications 
markets. Section 251(d)(1) of the Act directs the Commission to 
establish rules to implement the requirements of Section 251. In this 
Notice of Proposed Rulemaking (``NPRM'') the Commission seeks to 
implement the local competition provisions of the 1996 Act. The 
Commission's rules that arise from this rulemaking proceeding will 
serve to promote the procompetitive provisions of the statute. These 
rules will assist incumbent LECs, telecommunications carriers, state 
commissions, the Commission, and the courts in defining rights and 
responsibilities regarding

[[Page 18312]]

interconnection, unbundling, resale, and many other issues under the 
1996 Act. The rules will relate to such issues as: the negotiation 
process between incumbent LECs and telecommunications carriers; state 
commission approval of arbitrated agreements; the Commission's review 
of arbitrated agreements when a state commission fails to act; judicial 
review of state commission and this Commission's actions; statements of 
generally available terms and conditions by Bell Operating Companies; 
removal of barriers to entry; and BOC entry into interLATA services.

DATES: Comments on all sections other than Dialing Parity, Number 
Administration, Public Notice of Technical Changes, and Access to 
Rights of Way, must be submitted on or before May 16, 1996. Reply 
comments must be filed on or before May 30, 1996. Comments on the 
remaining sections must be submitted on or before May 20, 1996. Reply 
comments for these sections must be submitted on or before June 3, 
1996. Written comments on the Initial Regulatory Flexibility Analysis 
must be filed in accordance with the same filing deadlines set for 
comments on the issues other than Dialing Parity, Number 
Administration, Public Notice of Technical Changes, and Access to 
Rights of Way, 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 May 16, 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 24, 1996.

ADDRESSES: Comments and reply comments should be sent to Office of the 
Secretary, Federal Communications Commission, 1919 M Street, NW., Room 
222, Washington, DC 20554, with a copy to Janice Myles of the Common 
Carrier Bureau, 1919 M Street, NW., Room 544, Washington, DC 20554. A 
copy of Comments and Reply Comments on Dialing Parity, Number 
Administration, Public Notice of Technical Changes, and Access to 
Rights of Way should be submitted to Gloria Shambley of the Network 
Services Division, Common Carrier Bureau, 2000 M Street, NW., 
Washington, DC 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, NW., Suite 
140, Washington, DC 20037. Comments and reply comments will be 
available for public inspection during regular business hours in the 
FCC Reference Center, 1919 M Street, NW., Room 239, Washington, DC 
20554. 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, NW., Room 544, Washington, DC 20554. In 
addition to filing comments with the Secretary, a copy of any comments 
on the information collections contained herein should be remitted to 
Dorothy Conway, Federal Communications Commission, Room 234, 1919 M 
Street, NW., Washington, DC 20554 or via the Internet to 
[email protected], and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 
725--17th Street, NW., Washington, DC 20503 or via the Internet to 
[email protected].

FOR FURTHER INFORMATION CONTACT: Donald Stockdale or Kalpak Gude at 
(202) 418-1580, Common Carrier Bureau, Policy and Program Planning 
Division. For information concerning Dialing Parity, Number 
Administration, and Public Notice of Technical Changes, contact Lisa 
Boehley at (202) 418-2320. For Access to Rights of Way contact Tom 
Power at (202) 416-1188. For additional information concerning the 
information collections contained in the NPRM, contact Dorothy Conway 
at (202) 418-0217, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: 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. This is a 
synopsis of the Commission's Notice of Proposed Rulemaking (FCC 96-182) 
adopted on April 19, 1996 and released on April 19, 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 Street, NW., Washington, DC. The complete text also may be 
purchased from the Commission's copy contractor, International 
Transcription Service, Inc., (202) 857-3800, 2100 M Street, NW., Suite 
140, Washington, DC 20037.
    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 the other issues 
(other than Dialing Parity, Number Administration, Public Notice of 
Technical Changes, and Access to Rights of Way) in the NPRM; OMB 
notification of action is due June 24, 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: Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, CC Docket No. 96-98.
    Form No.: N/A.
    Type of Review: New Collection.
    Respondents: Business or other for-profit, including small 
businesses.

------------------------------------------------------------------------
                                                                 Annual 
                                                                  hour  
               Proposed requirement                 Number of    burden 
                                                   respondents     per  
                                                                response
------------------------------------------------------------------------
Public notice of technical changes...............         500         24
Network disclosure reference.....................         500          3
Consumer notification requirement................         500         20
Burdens of proof regarding interconnection,                             
 unbundling, and collocation.....................          75         36
Submission of agreements to state commission.....          75          5
Notification that state commission failed to act.          75          1
Proposed burden regarding access to rights-of-way                       
 requirement.....................................          20          5

[[Page 18313]]

                                                                        
Notice of modification of rights-of-way                                 
 requirement.....................................      10,000          3
------------------------------------------------------------------------


    Total Annual Burden: 56,750.
    Estimated Costs per Respondent: 0.
    Needs and Uses: The information collections proposed in the NPRM 
would be to ensure that affected telecommunications carriers fulfill 
their obligations under the Commnications Act, as amended.

Synopsis of Notice of Proposed Rulemaking

    Adopted: April 19, 1996.
    Released: April 19, 1996.
    Comment Date: May 16, 1996.
    Reply Date: May 30, 1996.

(Separate Dates for Dialing Parity/Number Administration/Notice of 
Technical Changes/Access to Rights of Way)

    Comment Date: May 20, 1996.
    Reply Date: June 3, 1996.

    By the Commission:

Table of Contents

                                                                        
                                                               Paragraph
                                                                  No.   
                                                                        
I. Introduction and Overview.................................          1
  A. Background..............................................          4
  B. Overview of Sections 251, 252 and 253...................         14
II. Provisions of Section 251................................         25
  A. Scope of the Commission's Regulations...................         25
  B. Obligations Imposed by Section 251(c) on ``Incumbent               
   LECs''....................................................         42
    1. Duty to Negotiate in Good Faith.......................         46
    2. Interconnection, Collocation, and Unbundled Elements..         49
    3. Resale Obligations of Incumbent LECs [251(c)(4)]......        172
    4. Duty to Provide Public Notice of Technical Changes....        189
  C. Obligations Imposed on ``Local Exchange Carriers'' by              
   Section 251(b)............................................        195
    1. Resale................................................        196
    2. Number Portability....................................        198
    3. Dialing Parity........................................        202
    4. Access to Rights-of-Way...............................        220
    5. Reciprocal Compensation for Transport and Termination            
     of Traffic..............................................        226
  D. Duties Imposed on ``Telecommunications Carriers'' by               
   Section 251(a)............................................        245
  E. Number Administration [251(e)]..........................        250
  F. Exemptions, Suspensions, and Modifications [251(f)].....        260
  G. Continued Enforcement of Exchange Access and                       
   Interconnection Regulations...............................        262
  H. Advanced Telecommunications Capabilities................        263
III. Provisions of Section 252...............................        264
  A. Arbitration Process.....................................        264
  B. Section 252(i)..........................................        269
IV. Procedural Issues........................................        273
  A. Ex Parte Presentations..................................        273
  B. Regulatory Flexibility Analysis.........................        274
  C. Initial Paperwork Reduction Act of 1995 Analysis........        288
  D. Comment Filing Procedures...............................        289
  E. Ordering Clauses........................................        294
                                                                        

I. Introduction and Overview

    1. In enacting the Telecommunications Act of 1996, Pub. L. No. 104-
104, 110 Stat. 56 (1996 Act), Congress sought to establish ``a pro-
competitive, de-regulatory national policy framework'' for the United 
States telecommunications industry. S. Conf. Rep. No. 104-230, 104th 
Cong., 2d Sess. 1 (1996) [hereinafter Joint Explanatory Statement]. The 
statute imposes obligations and responsibilities on telecommunications 
carriers, particularly incumbent local exchange carriers (LECs), that 
are designed to open monopoly telecommunications markets to competitive 
entry. The 1996 Act also includes provisions that are intended to 
promote competition in markets that already are open to new 
competitors. The 1996 Act seeks to develop robust competition, in lieu 
of economic regulation, in telecommunications markets. The Act 
envisions that removing legal and regulatory barriers to entry and 
reducing economic impediments to entry will enable competitors to enter 
markets freely, encourage technological developments, and ensure that a 
firm's prowess in satisfying consumer demand will determine its success 
or failure in the marketplace.
    2. Congress entrusted to this Agency the responsibility for 
establishing the rules that will implement most quickly and effectively 
the national telecommunications policy embodied in the 1996 Act. Those 
rules should promote the competitive markets envisioned by Congress. As 
Senator Pressler has observed, ``Progress is being stymied by a morass 
of regulatory barriers which balkanize the telecommunications industry 
into protective enclaves. We need to devise a new national policy 
framework--a new regulatory paradigm for telecommunications--which 
accommodates and accelerates technological change and innovation.'' The 
purpose of this proceeding is to adopt rules to implement the local 
competition provisions of the Communications Act of 1934, as amended by 
the 1996 Act, particularly Section 251. These rules will establish the 
``new regulatory paradigm'' that is essential to achieving Congress' 
policy goals.
    3. This rulemaking is one of a number of interrelated proceedings 
designed to advance competition, to reduce regulation in 
telecommunications markets and at the same time to advance and preserve 
universal service to all Americans. We are especially cognizant of the 
interrelationship between this proceeding, our recently initiated 
proceeding to implement the comprehensive universal service provisions 
of the 1996 Act and our upcoming proceeding to reform our Part 69 
access charge rules. Federal-State Joint Board on Universal Service, CC 
Docket No. 96-45, Notice of Proposed Rulemaking and Order Establishing 
Joint Board, FCC 96-93, 61 FR 10499 (Mar. 14, 1996) (Universal Service 
NPRM) (proposing rules to implement Section 254 of the 1996 Act). This 
proceeding also is relevant to our price cap regulations and our 
regulation of the interstate, interexchange marketplace. Price Cap 
Performance Review for Local Exchange Carriers, CC Docket No. 94-1, 
Second Further Notice of Proposed Rulemaking, FCC 95-393, 60 FR 49539 
(Sept. 26, 1996) (Price Caps Second Further Notice) (soliciting 
comments on proposed and other possible changes to the price cap plan 
to reflect emerging competition in telecommunications services); Price 
Cap Performance Review for Local Exchange Carriers, CC Docket No. 94-1, 
Fourth Further Notice of Proposed Rulemaking, FCC 95-406, 60 FR 52362 
(Oct. 6, 1995) (Price Caps Fourth Further Notice) (seeking comment on 
issues relating to revisions of the long-term price cap plan); Policy 
and Rules Concerning the Interstate, Interexchange Marketplace, CC 
Docket No. 96-91, Notice of Proposed Rulemaking, FCC 96-123, 61 FR 
14717 (Apr. 3, 1996) (proposing to forbear from requiring tariffs for 
nondominant interexchange carriers). We also plan to initiate a 
proceeding that will review our existing jurisdictional separations 
rules in the context of the new statute. Although these proceedings 
will be conducted in separate dockets, and the 1996 Act prescribes 
different completion dates for two of the proceedings, we intend to 
conduct and

[[Page 18314]]

conclude all of these proceedings in a comprehensive, consistent, and 
expedited fashion. We ask commenters in this proceeding to bear in mind 
the relationship between these parallel proceedings and to frame their 
proposals within the pro-competitive, deregulatory context of the 1996 
Act as a whole.

A. Background

    4. In contrast to the 1996 Act, the common carrier provisions of 
the Communications Act of 1934 were grounded in the notion that 
interstate telecommunications services would be offered and regulated 
on a monopoly basis. For decades, state legislatures also followed this 
traditional approach in regulating LECs' intrastate services. Local and 
long distance telephone monopolies were created and maintained on the 
grounds that the provision of telecommunications services was a natural 
monopoly and, consequently, service could be provided at the lowest 
cost to the maximum number of consumers through a single regulated 
telecommunications network. The monopoly paradigm was thought to 
further goals of universal service, service quality, and reliability. 
The Modification of Final Judgment (MFJ) that required AT&T to divest 
the Bell Operating Companies (BOCs) in 1984 was not so much a 
repudiation as a reduction in the scope of this paradigm. United States 
v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom. Maryland v. 
United States, 460 U.S. 1001 (1983), vacated sub nom. United States v. 
Western Elect. Co., slip op. CA 82-0192 (D.D.C. April 11, 1996). It 
reflected the judgment that the markets for interexchange services, 
telecommunications equipment and information services could become 
competitive. At the same time, the local exchange continued to be 
treated as a natural monopoly that required rigorous regulatory 
oversight by state and federal authorities.
    5. Even as the MFJ was implemented, academic criticism of the 
natural monopoly model for the local network was developing. During the 
past 12 years, many commenters and businesses have asserted that 
technological innovation has eroded any arguable natural monopoly in 
the local exchange, and that government should eliminate any legal 
impediments to entry. This view is now embodied in the 1996 Act. The 
extent to which it can be proved in the marketplace depends on the 
capabilities of inventors, entrepreneurs, and financiers, as well as 
this Commission and its state counterparts. At the time the 1996 Act 
was signed, 19 states had in place some rules opening local exchange 
markets to competition, including seven states in which competing firms 
had already begun to offer switched local service. Even these 19 
states, however, vary widely in their efforts to promote competitive 
entry into local markets. Moreover, as of 1996, more than 30 states had 
not adopted laws or regulations providing for local competition. Many 
of those states that had not adopted laws or regulations permitting 
local competition had provisions that specifically limited competitive 
entry into local telecommunications markets. Section 253(a) of the 1996 
Act prohibits these affirmative legal barriers to entry, and authorizes 
the Commission to preempt enforcement of such entry barriers.
    6. We believe that, in enacting the 1996 Act, Congress recognized 
that although removing legal barriers to entry is necessary, it is 
still not sufficient to enable competition to replace monopoly in the 
local exchange. Congress acknowledged that incumbent LECs have 
constructed and put in place high quality, reliable, redundant local 
networks that can provide virtually ubiquitous service, and that they 
possess an approximate 99.7 percent share of the local market as 
measured by revenues. Because of this existing infrastructure, an 
incumbent LEC typically can serve a new customer at a much lower 
incremental cost than could a new entrant that is denied access to the 
incumbent LEC's facilities, and thereby is denied access to as many 
central office switches and as much trunking and subscriber loops as 
the incumbent LEC operates. Moreover, because virtually all existing 
customers subscribe to the incumbent LEC, a consumer of local switched 
service would not subscribe to a new entrant's network if the customer 
could not complete calls to the incumbent LEC's end users. As Congress 
appeared to recognize in enacting section 251, if the incumbent LEC has 
no obligation to interconnect and to arrange for mutual transport and 
termination of calls, it could effectively block or greatly retard 
entry into switched local service by using its economies of scale and 
network externalities as impediments to entry.
    7. Congress expressly recognized that ``it is unlikely that 
competitors will have a fully redundant network in place when they 
initially offer local service, because the investment necessary is so 
significant.'' AT&T, for example, in filings before the Commission has 
estimated that it would have to invest approximately $29 billion to 
construct new facilities in local markets in order to be able to 
provide full facilities to reach 20 percent of the 117 million access 
lines served by the BOCs. Similarly, cable and wireless systems will 
require substantial investment before either is capable of providing a 
widespread substitute for wireline telephony services.
    8. In the 1996 Act, Congress boldly moved to restructure the local 
telecommunications market so as to remove economic impediments to 
efficient entry that existed under the monopoly paradigm. In order to 
offset the economies of scale and network externalities that would 
inhibit efficient entry of competitors into markets currently 
monopolized by incumbent LECs, the 1996 Act requires those LECs to 
offer interconnection and network elements on an unbundled basis, and 
imposes a duty to establish reciprocal compensation arrangements for 
the transport and termination of calls. As the 1996 Act further 
recognizes, these duties of incumbent LECs are only meaningful in 
conjunction with the Act's limitations on the rates that can be 
charged; otherwise, an incumbent LEC could offer interconnection, 
unbundling, and transport and termination, but at prices that 
perpetuate its market power. To constrain the incumbent LEC's ability 
to perpetuate its market power through the pricing of interconnection 
and unbundled elements, Congress specified that the prices for such 
transactions should be cost-based and just and reasonable. By freeing 
new entrants from having to build facilities that totally duplicate the 
LECs' networks, the 1996 Act has dramatically increased the 
opportunities for competitive entry and minimized the otherwise 
overwhelming competitive advantages of large established carriers. We 
also note that the new law provides for exemption, suspension, or 
modification of certain requirements, under certain conditions, with 
respect to small and rural LECs.
    9. Different entrants may be expected to pursue different 
strategies that reflect their competitive advantages in the markets 
they seek to target. For example, interexchange carriers and 
competitive access providers may combine their own facilities with 
unbundled loops and other LEC elements and perhaps augment their own 
loop facilities over time. Cable systems may choose to develop more 
extensive networks within their service areas, and thus require fewer 
unbundled elements from LECs; but, like all entrants, they will require 
termination arrangements with incumbent LECs. Outside their franchise 
areas, or in areas not passed by their existing systems,

[[Page 18315]]

cable companies will need to find some other technique for offering 
telecommunications services, such as resale of incumbent LEC services 
or purchase of unbundled LEC elements. Because of local franchising, a 
given cable operator may not have cable facilities in all parts of the 
geographic market in which it intends to offer telecommunications 
service.
    10. In addition to imposing interconnection, termination, and 
unbundling requirements in the 1996 Act, Congress also provided for 
entrants to be able to resell a LEC's retail services. Even if an 
entrant planned to construct its own facilities, it may still face 
marketing disadvantages, because of the time it takes to construct a 
new network. Resale enables new entrants to offer at the outset a 
conventional service to all customers currently served by an incumbent 
LEC. Some entrants also may choose to rely on resale as part of a 
longer term strategy as well.
    11. At the same time, Congress plainly intended for LECs in the 
future to be vigorous competitors, to continue to offer high quality 
service, and to play a vital role in delivering universal service to 
all Americans. Nothing in the 1996 Act suggests that Congress intended 
to divest incumbent LECs of all or part of their local networks, even 
if some portions continue to be natural monopolies. Indeed, the Act 
expressly confirms that incumbent LECs may earn a reasonable profit for 
the interconnection services and network elements they provide.
    12. Consistent with this perspective on competition, we also note 
that the purpose and, given proper implementation, the likely effect of 
the unbundling and other provisions of the 1996 Act is not to ensure 
that entry shall take place irrespective of costs, but to remove both 
the statutory and regulatory barriers and economic impediments that 
inefficiently retard entry, and to allow entry to take place where it 
can occur efficiently. This entry policy is competitively neutral; it 
is pro-competition, not pro-competitor. Our discussion of the 1996 Act 
in this and other proceedings, therefore, is phrased in terms of 
removing statutory and regulatory barriers and economic impediments, in 
permitting efficient competition to occur wherever possible, and 
replicating competitive outcomes where competition is infeasible or not 
yet in place.
    13. This foregoing discussion has focused on obligations created by 
the 1996 Act for incumbent LECs in order to reduce economic impediments 
to efficient market entry by new competitors. The statute, however, 
also creates general duties for all telecommunications carriers, and 
obligations for all local exchange carriers, whether classified as 
``incumbent'' LECs or not. These provisions are also important to 
facilitating competitive local telecommunications markets. We discuss 
those provisions below.

B. Overview of Sections 251, 252 and 253

    14. In adding new sections 251, 252 and 253 to the Communications 
Act of 1934, Congress set forth a blueprint for ending monopolies in 
local telecommunications markets. As discussed above, sections 251 (b) 
and (c) impose specific obligations on incumbent LECs to open their 
networks to competitors. Section 251(b)(5), in particular, requires all 
LECs, including incumbent LECs, to ``establish reciprocal compensation 
arrangements for the transport and termination of telecommunications.''
    15. Section 251(c) imposes on incumbent LECs three key and separate 
duties. They must make available to new entrants and existing 
competitors in local telecommunications markets interconnection 
services and unbundled network elements, and offer for resale at 
wholesale rates any telecommunications service that the incumbent LEC 
provides at retail to subscribers. Specifically, section 251(c)(2) 
requires an incumbent LEC to interconnect with any requesting 
telecommunications carrier at any technically feasible point in the 
LEC's network for the transmission and routing of telephone exchange 
service and exchange access.
    Section 251(c)(3) requires incumbent LECs to unbundle their network 
facilities and features so that an entrant can choose among them, 
combine them with any of its own facilities, and offer services that 
will compete with the incumbent's offerings. In addition, section 
251(c)(4) directs an incumbent LEC to offer for resale, at a wholesale 
rate, any telecommunications service the incumbent LEC offers to end 
users at retail. Viewed as a whole, the statutory scheme of section 251 
(b) and (c) enables entrants to use interconnection, unbundled 
elements, and/or resale in the manner that the entrant determines will 
advance its entry strategy most effectively.
    16. Section 251(d)(1) directs the Commission to establish rules to 
implement the requirements of section 251, including the core 
interconnection, unbundling, and resale provisions of section 251(c). 
These rules, however, have much broader implications than merely 
implementing the requirements of section 251. In fact, these rules are 
central to a number of functions contemplated by the 1996 Act. As 
discussed below, these rules in varying ways relate to such issues as: 
(1) the voluntary negotiation process between incumbent LECs and 
telecommunications carriers; (2) the arbitration process; (3) state 
commission approval of arbitrated agreements; (4) the FCC's review of 
arbitrated agreements when a state commission fails to act; (5) 
judicial review of state commissions' and this Commission's actions; 
(6) statements of generally available terms and conditions by BOCs; (7) 
removal of barriers to entry; and (8) BOC entry into interLATA 
services.
    17. Section 251(f)(1) provides that the obligations under section 
251(c) shall not apply to a rural telephone company, as defined in the 
1996 Act, ``until (i) such company has received a bona fide request for 
interconnection, services, or network elements, and (ii) the State 
commission determines * * * that such request is not unduly 
economically burdensome, is technically feasible, and is consistent 
with section 254 (other than sections (b)(7) and (c)(1)(D) thereof.'' 
Section 251(f)(2) provides that a LEC ``with fewer than 2 percent of 
the Nation's subscriber lines'' may petition the state commission for a 
suspension or modification of the requirements set forth in sections 
251 (b) and (c).
    18. Section 252 sets forth the procedures that incumbent LECs and 
new entrants must follow to transform the requirements of section 251 
into binding contractual obligations. Under section 252, incumbent LECs 
and new entrants initially must seek to agree on the terms and 
conditions under which LEC facilities and services are made available 
to the new entrant. To the extent that the resulting agreements are 
based on voluntary negotiations rather than state arbitration, those 
agreements are not required to satisfy the provisions of sections 251 
and our regulations issued thereunder, but such agreements must not 
discriminate against a telecommunications carrier not a party to the 
agreement, and all portions must be consistent with the public 
interest, convenience, and necessity.
    19. If an incumbent LEC and requesting carrier are unable to reach 
a negotiated agreement, section 252(c) authorizes a state commission to 
resolve disputed issues by arbitration, and requires the state 
commission to ``ensure that such resolution and conditions meet the 
requirements of section 251, including the regulations prescribed by 
the Commission pursuant to section 251.'' The Commission's section 251 
rules also guide states in

[[Page 18316]]

their subsequent review of arbitrated arrangements. A state commission 
may reject an arbitrated agreement (or any portion thereof) pursuant to 
section 252(e)(2)(B) ``if it finds that the agreement does not meet the 
requirements of section 251, including the regulations prescribed by 
the Commission pursuant to section 251.'' The rules adopted in this 
proceeding also will guide the Commission in a similar context. In the 
event that the Commission must assume the responsibility of a state 
commission under section 252(e)(5), the section 251 rules will provide 
the substantive standards the Commission will apply to arbitrate and 
approve agreements pursuant to section 252.
    20. Thus, the statutory scheme of sections 251 and 252 contemplates 
that the obligations imposed by section 251 and our regulations will 
establish the relevant provisions that will frame the negotiation 
process and will govern the resolution of disputes in the arbitration 
process. We recognize that the section 251 rules will tend to influence 
negotiations, pursuant to section 252(a) (1) and (2), between incumbent 
LECs and requesting carriers seeking interconnection, access to 
unbundled network elements, and resale of LEC services. As a practical 
matter, it seems reasonable to expect that requesting carriers will 
seek to negotiate terms and conditions that are, overall, at least as 
advantageous as those available pursuant to the Commission's rules. At 
least in some cases, the implementing Section 251 rules may serve as a 
de facto floor or set of minimum standards that guide the parties in 
the voluntary negotiation process.
    21. Sections 271 and 273 create incentives for the BOCs to 
implement promptly the mandates of sections 251 and 252. Pursuant to 
section 271, a BOC may not offer interLATA services within its service 
area (``in region'') until it is approved to do so (on a state-by-state 
basis) by the Commission, and section 273 allows a BOC to enter 
manufacturing at the same time the BOC is approved to offer in-region 
interLATA services. Under the terms of the MFJ, the BOCs were barred 
from manufacturing telecommunications equipment. Section 273 of the 
1996 Act repealed that judicial prohibition and allows BOCS to 
manufacture such equipment subject to certain conditions. One of the 
requirements for obtaining approval for in-region interLATA services 
under section 271 is that the BOC must produce either an 
interconnection agreement that, among other things, has been approved 
under section 252 or, under certain circumstances, a statement of 
generally available interconnection terms and conditions. Under section 
252 interconnection agreements that are arbitrated have to comply with 
section 251's mandates, as do all statements of generally available 
terms. In addition, all agreements and statements must comply with a 
``competitive checklist'' set out in section 271, several requirements 
of which expressly reference the mandates of section 251. In these 
respects, compliance with section 251 and our regulations thereunder is 
a prerequisite to BOC entry into in-region interLATA services. But 
compliance may also facilitate BOC entry under section 271 in less 
obvious ways. For example, in reviewing a BOC application, the 
Commission must also consult with the Department of Justice and the 
relevant state commission, and it must decide whether granting the 
application serves the public interest. Each of these consultations and 
determinations could, in theory, be affected by considerations of the 
extent to which the BOC is regarded as complying with section 251 and 
our rules. Thus, the Commission's section 251 rules will play a central 
role regarding BOC entry into in-region interLATA services under 
section 271.
    22. Section 253 bars state and local regulations that prohibit or 
have the effect of prohibiting entities from offering 
telecommunications services. It also authorizes the Commission to 
preempt any law or regulation that is violative of this section. The 
section 251 rules should help to give content and meaning to what state 
or local requirements the Commission ``shall preempt'' as barriers to 
entry pursuant to section 253.
    23. Moreover, the section 251 rules will assist the judiciary in 
reviewing actions of state commissions and the Commission in this area. 
Subsection 252(e)(6) provides that any party aggrieved by a state 
determination regarding a negotiated or arbitrated agreement or a 
statement of generally available terms, may bring an action in federal 
district court ``to determine whether the agreement or statement meets 
the requirements of section 251,'' presumably including our rules 
thereunder. The federal district court will thus have to refer to our 
implementing regulations in determining whether a state commission 
acted properly in approving or rejecting an arbitrated agreement. 
Similarly, Commission action in this area will be subject to review by 
federal circuit courts of appeal. This might include, for example, 
review of Commission decisions regarding BOC petitions to provide 
interLATA services pursuant to section 271 or review of Commission 
action preempting state or local regulations pursuant to section 253. 
In all of these cases, the court will look to the Commission's section 
251 rules to guide its review of the Commission's action.
    24. These statutory provisions and the Commission's rules 
implementing the requirements of section 251 are designed to end the 
era of monopoly regulation for American telecommunications markets. By 
dismantling entry barriers and reducing the inherent advantages of 
incumbent LECs, they establish a national process for enhancing 
competition, increasing consumer choice, lowering rates, and reducing 
regulation. The Commission's rules implementing section 251 will have a 
pervasive and substantial impact in a variety of contexts under the 
1996 Act and will serve as the cornerstone of the pro-competitive 
provisions of the statute. These rules will assist incumbent LECs, 
telecommunications carriers, state commissions, the FCC, and the courts 
in defining rights and responsibilities regarding interconnection, 
unbundling, resale, and many other issues under the 1996 Act.

II. Provisions of Section 251

A. Scope of the Commission's Regulations

    25. Section 251(d)(1) instructs the Commission, within six months 
after the enactment of the 1996 Act (that is, August 8, 1996), to 
``establish regulations to implement the requirements of [section 
251].'' The Commission's implementing rules should be designed ``to 
accelerate rapidly private sector deployment of advanced 
telecommunications and information technologies and services to all 
Americans by opening all telecommunications markets to competition.'' 
In addition to directing the Commission to establish rules to implement 
section 251, section 253 further requires the Commission to preempt the 
enforcement of any state or local statute, regulation or legal 
requirement that ``prohibit[s] or [has] the effect of prohibiting the 
ability of any entity to provide any interstate or intrastate 
telecommunications service.''
    26. These specific statutory directives make clear that Congress 
intended the Commission to implement a pro-competitive, de-regulatory, 
national policy framework envisioned by the 1996 Act. Given the 
forward-looking focus of the 1996 Act, the nationwide character of 
development and

[[Page 18317]]

deployment of underlying telecommunications technology, and the 
nationwide nature of competitive markets and entry strategies in the 
dynamic telecommunications industry, we believe we should take a 
proactive role in implementing Congress's objectives. Thus, we intend 
in this proceeding to adopt national rules that are designed to secure 
the full benefits of competition for consumers, with due regard to work 
already done by the states that is compatible with the terms and the 
pro-competitive intent of the 1996 Act.
    27. In accomplishing this objective, we need to determine the 
extent to which our rules should elaborate on the meaning of the 
statutory requirements set forth in sections 251 and 252. For example, 
we could adopt explicit rules to address those issues that are most 
critical to the successful development of competition, and with respect 
to which significant variations would undermine competition. This 
approach would further a uniform, pro-competitive national policy 
framework, as envisioned by the statute, and yet still preserve broad 
discretion for states to resolve, consistent with the 1996 Act, the 
panoply of other individual issues that may be raised in arbitration 
proceedings. This approach also would facilitate rapid private sector 
deployment of advanced telecommunications and information technologies 
and services by swiftly opening all telecommunications markets to 
competition. We seek comment on such an approach and whether it would 
accomplish Congress' goal of promoting efficient competition in local 
telecommunications markets throughout the country.
    28. We see many benefits in adopting such rules to implement 
section 251. Such rules should minimize variations among states in 
implementing Congress' national telecommunications policy and guide 
states that have not yet adopted the competitive paradigm of the 1996 
Act. Such rules also could expedite the transition to competition, 
particularly in those states that have not adopted rules allowing local 
competition, and thereby promote economic growth in state, regional, 
and national markets. More than 30 states do not have rules governing 
local competition in place today; most of those states have not 
commenced proceedings to adopt the necessary rules.
    29. The adoption of explicit national rules to implement section 
251 would not necessarily undermine the initiatives undertaken by 
various states prior to the enactment of the 1996 Act, and in fact, we 
anticipate that we will build upon actions some states have taken to 
address interconnection and other issues related to opening local 
markets to competition. Some states have been in the forefront of the 
pro-competitive effort to open local markets to competition, and these 
approaches may comport with the 1996 Act despite the fact that many of 
them pre-date it. Building on the progress made by these states, 
explicit national rules could be modelled on existing state statutes or 
regulations to the extent that they comply with the terms of the 1996 
Act. For example, the Commission could conclude that a particular 
state's approach to unbundling of network elements is consistent with 
the 1996 Act and that it therefore may serve as a useful model for a 
national rule on unbundling. The Commission might also conclude that a 
range of different approaches used by several states to interconnection 
arrangements comply with the Act and therefore would be acceptable 
under a national rule. Throughout this item, we seek comment on the 
extent to which existing state initiatives are consistent with the new 
federal statute and, to the extent they are, the wisdom of using 
existing state approaches as guideposts or benchmarks for our national 
rules.
    30. Explicit national rules implementing section 251 can be 
expected to reduce the capital costs of, and attract investment in, new 
entrants by enhancing the ability of the investment community to assess 
an entrant's business plan. Such rules would also permit firms to 
configure their networks in the same manner in every market they seek 
to enter. Uniform network configurations could achieve significant cost 
efficiencies for new entrants; if new competitors were required to 
modify their networks in different markets solely to be compatible with 
a patchwork of different regulations, they would likely incur 
additional expense, thereby increasing the cost of entry that is 
inconsistent with the pro-competitive goals of the statute. A uniform 
network design can be expected to reduce start-up costs, accelerate 
innovation, enhance interoperability of networks and equipment, and 
reduce the administrative burdens for both incumbent LECs and entrants.
    31. Explicit national rules under section 251 also could expedite 
the implementation of other provisions of the 1996 Act that require 
incumbent LECs, new entrants, the states, federal courts, and the 
Commission to apply the requirements of section 251 in other contexts. 
Section 252 provides that incumbent LECs and entrants initially will 
seek to arrive at interconnection and unbundling arrangements through 
voluntary negotiations. By narrowing the range of permissible results, 
concrete national standards would limit the effect of the incumbent's 
bargaining position on the outcome of the negotiations. In addition, 
the application of explicit national rules under section 251 could 
provide important guidance to federal district courts that are charged 
with reviewing state determinations of whether particular arbitration 
agreements are consistent with section 251 (presumably including our 
rules thereunder). Moreover, the absence of such rules could lead to 
varying or inconsistent decisions by individual district and circuit 
courts concerning the core requirements of the 1996 Act. We believe 
that such a result would be inconsistent with the intent of Congress in 
passing comprehensive telecommunications legislation.
    32. Further, rules that elaborate on the statutory requirements of 
section 251 would establish clear guidelines that we will need to carry 
out our responsibilities under the 1996 Act. We will need explicit 
rules to guide our arbitration of disputes between incumbent LECs and 
new entrants if we are required, under section 252(e), to assume those 
responsibilities. In addition, BOCs must satisfy the checklist set 
forth in section 271(c)(2)(B) before they may offer in-region, 
interLATA services. The checklist requires BOCs to comply with specific 
provisions of section 251. Thus, the Commission needs to articulate 
clear rules that clarify what constitutes compliance with section 251 
for purposes of our review under section 271.
    33. On the other hand, there may be countervailing concerns that 
could weigh against rules that significantly explicate in some detail 
the statutory requirements of sections 251 and 252. Adopting explicit 
national rules, in certain circumstances, might unduly constrain the 
ability of states to address unique policy concerns that might exist 
within their jurisdictions. The case for permitting material 
variability among the states could be strengthened if there are 
substantial state-specific variations in technological, geographic, or 
demographic conditions in particular local markets that call for 
fundamentally different regulatory approaches. We seek comment on the 
nature of such variations, and on whether there are such variations 
that require fundamentally different regulatory approaches. States may 
also seek, to the extent permitted by sections 251, 252,

[[Page 18318]]

253, and 254, to ensure the uninterrupted delivery of certain services 
by the incumbent where competition might arguably threaten those 
services. It might also be argued that there is value to permitting 
states to experiment with different pro-competitive regimes to the 
extent that there is not a sufficient body of evidence upon which to 
choose the optimal pro-competitive policy. If we were to decline to 
adopt explicit rules at all, in effect we would be permitting states to 
set different priorities and timetables for requiring incumbent LECs to 
offer interconnection and unbundled network elements. Such an approach 
means that we would balance the need to swiftly introduce 
telecommunications competition against other policy priorities. We seek 
comment on these issues.
    34. We also note that, under section 252, states must implement any 
rules we establish under section 251. Section 252 assigns to the states 
the responsibility for arbitrating disputes between the parties, 
including resolving factual disputes. We seek comment on how our 
national rules can best be crafted to assist the states in carrying out 
this responsibility.
    35. In the succeeding sections of this NPRM, we invite parties to 
comment, with respect to each of the obligations imposed by section 
251, on the extent to which adoption of explicit national rules would 
be the most constructive approach to furthering Congress' pro-
competitive, deregulatory goals of making local telecommunications 
markets effectively competitive. We seek comment on the relative costs 
and benefits of constraining or encouraging variations among the states 
in carrying out their responsibilities under section 252. We also 
invite parties to comment on whether our rules implementing section 251 
can be crafted to allow states to implement policies reflecting unique 
concerns present in the respective states, without vitiating the 
intended effects of a scheme of overarching national rules. We further 
ask parties to comment on the consequences of fostering or constraining 
variability among the states.
    36. As a separate matter, we note that section 251 and our 
implementing regulations govern the states' review of BOC statements of 
generally available terms and conditions, as well as arrangements 
arrived at through compulsory arbitration pursuant to section 252(b). 
We tentatively conclude that we should adopt a single set of standards 
with which both arbitrated agreements and BOC statements of generally 
available terms must comply. We believe that this is consistent with 
both the language and the purpose of the 1996 Act. We seek comment on 
this tentative conclusion.
    37. On a separate jurisdictional issue, we tentatively conclude 
that Congress intended sections 251 and 252 to apply to both interstate 
and intrastate aspects of interconnection, service, and network 
elements, and thus that our regulations implementing these provisions 
apply to both aspects as well. It would make little sense, in terms of 
economics, technology, or jurisdiction, to distinguish between 
interstate and intrastate components for purposes of sections 251 and 
252. Indeed, if the requirements of sections 251 and 252 regarding 
interconnection, and our regulations thereunder, applied only to 
interstate interconnection, as might be argued in light of the lack of 
a specific reference to intrastate service in those sections, states 
would be free, for example, to establish disparate guidelines for 
intrastate interconnection with no guidance from the 1996 Act. We 
believe that such a result would be inconsistent with Congress' desire 
to establish a national policy framework for interconnection and other 
issues critical to achieving local competition. As Senator Lott 
observed, ``In addressing local and long distance issues, creating an 
open access and sound interconnection policy was the key objective * * 
*.'' Representative Markey noted that, ``[W]e take down the barriers of 
local and long distance and cable company, satellite, computer, 
software entry into any business they want to get in.''
    38. We also tentatively conclude that it would be inconsistent with 
the 1996 Act to read into sections 251 and 252 an unexpressed 
distinction by assuming that the FCC's role is to establish rules for 
interstate aspects of interconnection and the states' role is to 
arbitrate and approve intrastate aspects of interconnection agreements. 
Because the statute explicitly contemplates that the states are to 
follow the Commission's rules, and because the Commission is required 
to assume the state commission's responsibilities if the state 
commission fails to act to carry out its section 252 responsibilities, 
we believe that the jurisdictional role of each must be parallel. We 
seek comment on our tentative conclusion. The argument has also been 
raised that sections 251 and 252 apply only with respect to intrastate 
aspects of interconnection, service, and network elements. We seek 
comment on this argument as well.
    39. Section 2(b) of the 1934 Act does not require a contrary 
tentative conclusion. Section 2(b) provides that, except as provided in 
certain enumerated sections not including sections 251 and 252, 
``nothing in [the 1934] Act shall be construed to apply or to give to 
the Commission jurisdiction with respect to * * * charges, 
classifications, practices, services, facilities, or regulations for or 
in connection with intrastate communication service by wire or radio of 
any carrier * * *.'' As stated above, however, we tentatively conclude 
that section 251 applies to certain ``charges, classifications, 
practices, services, facilities, or regulations for or in connection 
with intrastate communication service.'' In enacting section 251 after 
section 2(b) and squarely addressing therein the issues before us, we 
believe Congress intended for section 251 to take precedence over any 
contrary implications based on section 2(b). We seek comment on this 
tentative conclusion.
    40. We note that sections 251 and 252 do not alter the 
jurisdictional division of authority with respect to matters falling 
outside the scope of these provisions. For example, rates charged to 
end users for local exchange service, which have traditionally been 
subject to state authority, continue to be subject to state authority. 
Indeed, that section 251 does not disturb state authority over local 
end user rates may explain why Congress saw no need to amend section 
2(b) expressly, whereas it did see such a need in its 1993 legislation 
establishing commercial mobile radio service (CMRS). In the 1993 
legislation, Congress eliminated the authority of states to regulate 
the rates charged for CMRS and so may have felt that an express 
amendment to section 2(b) would be especially helpful. We seek comment 
on these issues as well.
    41. We also seek comment on the relationship between sections 251 
and 252 and the Commission's existing enforcement authority under 
section 208. Section 208 of the Act gives the Commission general 
authority over complaints regarding acts by ``any common carrier 
subject to this Act, in contravention of the provisions thereof.'' Does 
this mean that the Commission has authority over complaints alleging 
violations of requirements set forth in sections 251 or 252? If not, in 
what forum would such complaints be reviewed? In state commissions? In 
courts? Is there a relevant distinction here between complaints 
concerning the formation of interconnection agreements and complaints 
regarding implementation of

[[Page 18319]]

such agreements? We also seek comment on the relationship between 
sections 251 and 252 and any other source of Commission enforcement 
authority that may be applicable. We further seek comment on how we 
might increase the effectiveness of the enforcement mechanisms 
available under the 1934 Act, as amended. We seek comment on how 
private rights of action might be used under sections 206-208 of the 
1934 Act, as amended, and the different roles the Commission might 
play, for example, as an expert agency, to speed resolution of disputes 
in other forms used by private parties.

B. Obligations Imposed by Section 251(c) on ``Incumbent LECs''

    42. We now turn to the particular provisions of section 251 that 
the Commission is obligated to implement under section 251(d)(1). We 
begin with section 251(c) because we believe that provision is the 
cornerstone of Congress's plan for opening local telecommunication 
markets to competitive entry.
    43. Section 251(c) establishes obligations for ``incumbent local 
exchange carriers.'' An ``incumbent local exchange carrier'' for a 
particular area is defined in section 251(h)(1) as a LEC that: (1) as 
of the enactment date of the 1996 Act, both ``provided telephone 
exchange service in such area'' and ``was deemed to be a member of the 
exchange carrier association pursuant to Section 69.601 of the 
Commission's regulations'', or (2) ``is a person or entity'' that, on 
or after the enactment date of the 1996 Act, ``became a successor or 
assign of such member'' of the exchange carrier association.
    44. In addition, under Section 251(h)(2), the Commission may, by 
rule, treat another LEC or class of LECs as an incumbent LEC if (1) 
``such carrier occupies a position in the market for telephone exchange 
service within an area that is comparable'' to that of an incumbent 
LEC, (2) ``such carrier has substantially replaced'' an incumbent LEC, 
and (3) ``such treatment is consistent with the public interest, 
convenience, and necessity and the purposes'' of Section 251. We seek 
comment on whether we should establish at this time standards and 
procedures by which carriers or other interested parties could seek to 
demonstrate that a particular LEC should be treated as an incumbent LEC 
pursuant to Section 251(h)(2).
    45. We further seek comment on whether state commissions are 
permitted to impose on carriers that have not been designated as 
incumbent LECs any of the obligations the statute imposes on incumbent 
LECs. We understand that some states have found that the negotiation 
process between incumbent LECs and their potential competitors may move 
more smoothly if the arrangements offered by an incumbent LEC are made 
reciprocal. Under this approach, for example, a potential competitor 
would be required to make available to an incumbent LEC directory 
assistance information on the same basis that the LEC agreed to furnish 
the information. Some parties have alleged, however, that imposing on 
new entrants the obligations imposed on incumbent LECs would undermine 
the competitive goals of the 1996 Act. We seek comment on whether 
imposing on new entrants requirements the 1996 Act imposes on incumbent 
LECs would be consistent with the Act's distinction between the 
obligations of all telecommunications carriers, all LECs and the 
additional obligations of all incumbent LECs.
1. Duty To Negotiate in Good Faith
    46. As noted in section I.B., above, if the parties fail to 
negotiate an agreement voluntarily, they must submit to arbitration. 
Section 251(c)(1) states that ``each incumbent local exchange carrier 
has the * * * duty to negotiate in good faith in accordance with 
section 252 the particular terms and conditions of agreements to 
fulfill the duties'' described in section 251(b) for LECs and section 
251(c) for incumbent LECs. In addition, section 252(b)(5) provides 
that, pursuant to the arbitration process, the refusal of a party to 
``participate further in the negotiations, to cooperate with the State 
commission in carrying out its function as an arbitrator, or to 
continue to negotiate in good faith in the presence of, or with the 
assistance of, the State commission shall be considered a failure to 
negotiate in good faith.'' The state commission is required to resolve, 
within 9 months after the incumbent LEC receives a request under 
section 252, any issues that were submitted for arbitration.
    47. We seek comment on the extent to which the Commission should 
establish national guidelines regarding good faith negotiation under 
section 251(c)(1), and on what the content of those rules should be. We 
note that carriers have submitted some information alleging that LECs 
already have employed certain tactics that the Commission should 
determine violate the duty to negotiate in good faith. For example, 
carriers have alleged that incumbent LECs have refused to begin to 
negotiate until the requesting telecommunications carrier satisfies 
certain conditions, such as signing a nondisclosure agreement, or 
agreeing to limit its legal remedies in the event that negotiations 
fail. We believe that such tactics might impede the development of 
local competition, and may be inconsistent with provisions of the 1996 
Act. We seek comment on the extent to which these or other practices 
should be deemed to violate the duty to negotiate in good faith. We 
note that courts and the Commission previously have addressed issues 
regarding good faith negotiation. We seek comment on specific legal 
precedent regarding the duty to negotiate in good faith that we should 
rely on in establishing national guidelines regarding section 
251(c)(1).
    48. A related issue is what effect section 252 has on agreements 
regarding service, interconnection, or unbundled network elements that 
predate the 1996 Act. Section 252(e)(1) states: ``Any interconnection 
agreement adopted by negotiation or arbitration shall be submitted for 
approval to the State commission.'' Section 252(a)(1) states that an 
agreement for interconnection, service, or network element, ``including 
any interconnection agreement negotiated before the date of the 
enactment of the Telecommunications Act of 1996, shall be submitted to 
the State commission under subsection (e) of this section.'' We seek 
comment on whether these provisions require parties that have existing 
agreements to submit those agreements to state commissions for 
approval. We also seek comment on whether one party to an existing 
agreement may compel renegotiation (and arbitration) in accordance with 
the procedures set forth in section 252.
2. Interconnection, Collocation, and Unbundled Elements
    a. Interconnection. 49. Section 251(c)(2) imposes upon incumbent 
LECs ``the duty to provide, for the facilities and equipment of any 
requesting telecommunications carrier, interconnection with the local 
exchange carrier's network * * * for the transmission and routing of 
telephone exchange service and exchange access.'' Such interconnection 
must be: (1) provided by the incumbent LEC at ``any technically 
feasible point within [its] network;'' (2) ``at least equal in quality 
to that provided by the local exchange carrier to itself or * * * [to] 
any other party to which the carrier provides interconnection;'' and 
(3) provided on rates, terms, and conditions that are ``just, 
reasonable, and nondiscriminatory, in accordance with the terms and 
conditions of the agreement and the requirements of this section and 
section 252.'' The interconnection obligation plays a vital

[[Page 18320]]

role in promoting competition by ensuring that a requesting carrier can 
on reasonable rates, terms and conditions transmit telecommunications 
traffic between its network and the incumbent's network in a reliable 
and efficient manner.
    50. We believe that uniform national rules for evaluating 
interconnection arrangements would likely offer several advantages in 
advancing Congress' desire to create a pro-competitive national policy 
framework regarding local telephone service. For example, national 
standards would likely speed the negotiation process by eliminating 
potential areas of dispute. We note that, in the past, disputes before 
the FCC between LECs and interconnectors have arisen most often where 
our rules lacked specificity, or where no standards had been adopted. 
Lingering disputes over the terms and conditions of interconnection due 
to confusion or ambiguity create the potential for incumbent LECs to 
delay entry. For these reasons we tentatively conclude that uniform 
interconnection rules would facilitate entry by competitors in multiple 
states by removing the need to comply with a multiplicity of state 
variations in technical and procedural requirements.
    51. We also, however, seek comment on the consequences of not 
establishing such specific rules for interconnection. We seek comment 
on whether there are instances wherein the aims of the 1996 Act would 
be better achieved by permitting states to experiment with different 
approaches. Would permitting substantial variation make it easier for 
states to respond more appropriately to technical, demographic, or 
geographic issues specific to that state or region without detracting 
from the overall purposes of the 1996 Act? For example, might technical 
differences, such as a lack of digital switching capability in a 
particular network, affect the technically feasible interconnection 
points on the network? Would variations in technical requirements among 
states affect the ability of new entrants to plan and configure 
regional or national networks? For example, how would variations in the 
definition of ``technical feasibility,'' the number of required points 
of interconnection, and methods of interconnection, affect the ability 
of new entrants to plan and configure regional or national networks? 
How would such variations affect the entrant's ability to deploy 
alternative network architectures, such as synchronous optical network 
(SONET) rings, which may deliver telephone service more efficiently? 
Would a lack of explicit national standards reduce predictability and 
certainty, and thereby slow down the development of competition? Would 
a lack of explicit guidelines impair the state's ability to complete 
arbitration within 9 months of the date that the interconnection 
request was made, or our ability to evaluate BOC compliance under 
section 271 within 90 days? Would a lack of clear national standards 
impair our ability under section 252(e) to assume a state commission's 
responsibilities if the state commission fails to act to carry out its 
responsibilities under section 252?
    52. We also encourage parties to submit information regarding the 
approaches taken by those states that have allowed interconnection. A 
number of states already have adopted a variety of approaches to 
interconnection. For example, New York sets basic ``expectations'' that 
constitute default provisions if the parties fail to agree. These 
provisions include the availability of two-way trunking facilities and 
combined trunking arrangements. California has adopted what it calls a 
``preferred outcomes'' approach. Under this approach, parties are 
encouraged to use 13 broad criteria regarding interconnection 
arrangements (the ``preferred outcomes'') that were established by the 
State commission to guide the negotiation and arbitration process. 
Although parties may develop different outcomes, preferred outcomes 
receive expedited review and approval. Arbitration judges may also use 
the preferred outcomes as guidelines in cases where the negotiations 
fail, and they have the discretion to mandate interconnection 
provisions that go beyond the preferred outcomes. With respect to each 
of the issues discussed below, we invite commenters to analyze the 
advantages and the disadvantages of the approaches states have adopted 
with respect to interconnection arrangements. We also seek comment on 
whether any elements of these state approaches would be suitable for 
incorporation into national standards implementing the 1996 Act. 
Finally, we ask commenting parties to identify state approaches to 
interconnection that they believe are inconsistent with or preempted by 
the 1996 Act, or that are inadvisable from a policy perspective.
    53. We further seek comment on the relationship between the 
obligation of incumbent LECs to provide ``interconnection'' under 
251(c)(2) and the obligation of the incumbent LEC, and all LECs, to 
establish reciprocal compensation arrangements for the ``transport and 
termination'' of telecommunications pursuant to 251(b)(5). The issue is 
significant mainly because, in section 252(d)(2), there is one pricing 
standard for ``interconnection'' under section 251(c)(2) and a separate 
one for ``transport and termination'' under 251(b)(5).
    54. On the one hand, the term ``interconnection,'' as used in 
section 251(c)(2), might refer only to the facilities and equipment 
physically linking two networks and not to transport and termination 
services provided by such linking--in which case there is no overlap in 
the coverage of the two sections. On the other hand, the term 
``interconnection'' as used in section 251(c)(2) might refer to both 
the physical linking of the two networks and to transport and 
termination services--in which case there is considerable overlap. We 
seek comment on how to ``interpret'' the term ``interconnection'' in 
section 251(c)(2). Parties that advocate the broader meaning should 
also comment on the overlap in the coverage of the sections and how the 
overlap affects which section 252(d) pricing standards apply.
    55. In the following paragraphs, we discuss the requirements of the 
1996 Act concerning interconnection in more detail. More specifically, 
we address issues of technically feasible points of interconnection, 
just, reasonable, and nondiscriminatory terms and conditions, and 
quality and methods of interconnection.
    (1) Technically Feasible Points of Interconnection. 56. Subsection 
(c)(2)(B) requires that incumbent LECs provide interconnection ``at any 
technically feasible point within the [incumbent LEC's] network.'' We 
seek comment on what constitutes a ``technically feasible point'' 
within the incumbent LEC's network for purposes of this section. In 
this regard, we note that network technology continues to advance and 
emphasize that we seek to avoid a static definition that may 
artificially limit future interconnection. Is there a definition of 
``technically feasible'' that will provide the necessary flexibility in 
determining interconnection points as network technology evolves? 
Further, to what extent, if any, should a risk to network reliability 
or other potential harm to the network be considered in determining 
whether interconnection at a particular point is technically feasible? 
We tentatively conclude that, if risks to network reliability are 
considered in determining whether interconnection at a certain point is 
technically feasible, the party alleging harm to the network will be 
required to present detailed information to support such a claim. We 
seek comment on these issues and our

[[Page 18321]]

tentative conclusion concerning claims of network harm.
    57. We also tentatively conclude that the minimum federal standard 
should provide that interconnection at a particular point will be 
considered technically feasible within the meaning of section 251(c)(2) 
if an incumbent LEC currently provides, or has provided in the past, 
interconnection to any other carrier at that point, and that all 
incumbent LECs that employ similar network technology should be 
required to make interconnection at such points available to requesting 
carriers. For example, many LECs already provide interconnection at the 
trunk- and loop-side of the local switch, transport facilities, tandem 
facilities, and signal transfer points. We thus tentatively conclude 
that interconnection at those points should be technically feasible for 
all incumbent LECs that use technology similar to that used by LECs 
currently offering interconnection at those points. We believe that as 
technology advances, the number of points at which interconnection is 
feasible may change and acknowledge that the federal standard for 
minimum interconnection points should change accordingly.
    58. Alternatively, we could allow states to determine whether 
interconnection at a greater number of points would also be technically 
feasible. We seek comment on whether allowing states to designate 
additional technically feasible interconnection points would make it 
more difficult for a carrier to develop a regional or national network. 
In this regard, commenters should address additional points at which 
LECs currently provide interconnection and on other possible points of 
interconnection that may be technically feasible. Because the statute 
imposes an affirmative obligation on incumbent LECs to provide 
interconnection at any technically feasible points in their networks, 
we further tentatively conclude that, where a dispute arises, the 
incumbent LEC has the burden of demonstrating that interconnection at a 
particular point is technically infeasible. We seek comment on this 
tentative conclusion.
    59. We also invite parties to submit information concerning 
interconnection obligations and policies that state commissions have 
adopted for incumbent LECs to help us determine what points of 
interconnection states have found to be technically feasible. We note, 
for example, that the New York Public Service Commission (NYPSC) has 
established options for interconnection points that range from the 
incumbent LEC's premises to the requesting carrier's premises, and 
include any point in between. These options are deemed reasonable by 
the NYPSC, although they are not requirements (in contrast to other 
interconnection requirements, which New York sets up as default 
provisions). The parties are to negotiate the actual interconnection 
points, however. We also seek comment on approaches that other states 
have adopted for determining the technical feasibility of 
interconnection at particular points. We also seek comment on which 
state policies are either inconsistent with the language of the 1996 
Act or unwarranted from a policy perspective.
    (2) Just, Reasonable, and Nondiscriminatory Interconnection. 60. 
Section 251(c)(2)(D) requires that the interconnection provided by the 
incumbent LEC be ``on rates, terms, and conditions that are just, 
reasonable, and nondiscriminatory.'' We address the pricing of 
interconnection, collocation, and unbundled elements in section 
II.B.2.d below.
    61. We seek comment on how to determine whether the terms and 
conditions for interconnection arrangements are just, reasonable, and 
nondiscriminatory. For example, should we adopt explicit national 
standards for the terms and conditions for interconnection? In 
particular, we seek comment on whether we should adopt uniform national 
guidelines governing installation, maintenance and repair of the 
incumbent LEC's portion of interconnection facilities. We also seek 
comment on whether we should adopt standards for the terms and 
conditions concerning the payment of the non-recurring costs associated 
with installation. We seek comment on whether the Commission should 
establish incentives to encourage incumbent LECs to provide just, 
reasonable, and nondiscriminatory interconnection and, if so, what 
those incentives should be. For example, should LECs be required to 
meet agreed upon performance standards for installing or repairing 
interconnection facilities and pay liquidated damages for any failure 
to satisfy the agreement? Are there means of accomplishing this result 
that do not require the propagation of rules detailing specific 
performance standards?
    62. If we were to establish national guidelines on this issue, we 
seek comment on state policies regarding the terms and conditions for 
interconnection that might serve as models. For example, with respect 
to meet point interconnection arrangements, the state of Washington 
requires that each company pay for and be responsible for building and 
maintaining its own facilities up to the meet point, as is typical in 
this type of interconnection arrangement. We note that New York permits 
earnest fees on interconnection arrangements to ensure the good faith 
nature of interconnection requests before the incumbent LEC begins 
construction or other necessary arrangements for interconnection. That 
fee is then applied to the requesting party's costs for 
interconnection. We recognize, however, that LECs potentially could use 
such fees and other terms and conditions to delay and deter entry. We 
invite parties to comment on this approach as well as on other states' 
policies. We specifically seek comment on whether such policies are 
consistent with the pro-competitive and deregulatory tenor of the Act. 
We seek comment on whether any state substantive rules regarding the 
terms and conditions for interconnection might be adopted as a national 
standard, as well as comment on which state rules might be inconsistent 
with the 1996 Act.
    (3) Interconnection that is Equal in Quality. 63. Section 
251(c)(2)(C) requires that the interconnection provided by the 
incumbent LEC be ``at least equal in quality to that provided by the 
[incumbent LEC] to itself or to any subsidiary, affiliate, or any other 
party to which the carrier provides interconnection.'' We seek comment 
on what criteria may be appropriate in determining whether 
interconnection is ``equal in quality.'' We seek comment on whether 
these criteria should be adopted as a national standard, or whether 
competitive objectives would be achievable by allowing variations and 
experimentation among states. We also seek comment on relevant state 
requirements, such as those in Iowa, which prohibit a rate-regulated 
incumbent from providing inferior interconnection to another provider. 
We invite parties to comment on this and other provisions that might 
guide our efforts in implementing the ``equal in quality'' requirement 
of the 1996 Act.
    (4) Relationship Between Interconnection and Other Obligations 
Under the 1996 Act. 64. Section 251(c)(2) further requires incumbent 
LECs to provide interconnection with the LEC's network ``for the 
facilities and equipment of any requesting telecommunications 
carrier.'' In comparison, section 251(c)(6) imposes upon incumbent LECs 
``the duty to provide * * * for physical collocation of equipment 
necessary for interconnection.'' We note that section 251(c)(6) 
regarding physical collocation does not expressly limit the 
Commission's authority under section 251(c)(2) to establish rules 
requiring

[[Page 18322]]

incumbent LECs to make available a variety of technically feasible 
methods for interconnection. These methods may, for example, include 
meet point arrangement as well as physical and virtual collocation. We 
tentatively conclude that the Commission has the authority to require, 
in addition to physical collocation, virtual collocation and meet point 
interconnection arrangements, as well as any other reasonable method of 
interconnection. We seek comment on this tentative conclusion.
    65. We seek comment on the various state requirements concerning 
methods for interconnection. For example, in the state of Washington, 
the commission has ordered that companies establish mutually agreed 
upon meet points for purposes of exchanging local traffic. Incumbent 
LECs may establish, through negotiations, separate meet points for each 
company, or a common hub by which multiple companies can come together 
efficiently. Oregon requires that requesting carriers be permitted to 
interconnect with incumbent LECs by negotiating mutually acceptable 
arrangements, including meet points. Maryland allows the incumbent LEC 
the option of using virtual or physical collocation, subject to 
commission review. We seek information on these and other similar state 
requirements. We seek comment on whether any state requirements 
concerning methods for interconnection might be appropriately adopted 
as a national standard. We also seek comment concerning those state 
requirements that may be inconsistent with the 1996 Act or 
inappropriate from a policy standpoint.
    b. Collocation. 66. Section 251(c)(6) of the Act requires incumbent 
LECs to provide ``for the physical collocation of equipment necessary 
for interconnection or access to unbundled network elements at the 
premises of the local exchange carrier, except that the carrier may 
provide for virtual collocation if the local exchange carrier 
demonstrates to the State commission that physical collocation is not 
practical for technical reasons or because of space limitations.'' 
Section 251(c)(6) fosters competition by ensuring that a competitor may 
install equipment necessary for interconnection or access to unbundled 
network elements on LEC premises and gives competitors access to the 
LEC central office to install, maintain, and repair this equipment.
    67. The establishment of national rules with respect to at least 
some issues regarding collocation would appear to offer several 
important benefits. For example, we believe that national standards 
would speed the negotiation process by eliminating potential areas of 
dispute. Lingering disputes or ambiguity regarding the parties' 
obligations may delay competitive entry. In addition, uniform standards 
would probably facilitate entry by competitors in multiple states by 
removing the need to comply with a patchwork of state variations in 
technical and procedural requirements. Finally, clear uniform rules 
could add speed, fairness, and simplicity to the arbitration process, 
and reduce uncertainty. We also note that beginning in 1992, the 
Commission adopted both physical and virtual collocation rules and that 
these rules were then used by several states to develop their own 
approaches to collocation. We therefore tentatively conclude that we 
should adopt national standards where appropriate to implement the 
collocation requirements of the 1996 Act.
    68. We also seek comment on the extent to which we should establish 
national rules for collocation that allow for some variation among 
states, and on the advantages and disadvantages of permitting such 
variation. Would permitting material variation foster competition and 
make it easier for states to respond more appropriately to issues 
specific to that state or region? Would variations in technical 
requirements among states affect the ability of new entrants to plan 
and configure regional or national networks? Would a lack of specific 
national standards reduce predictability and certainty, and thereby 
slow down the development of competition? Would a lack of explicit 
guidelines impair the state's ability to complete arbitration within 9 
months of the date that the interconnection request was made, or our 
ability to evaluate BOC compliance under section 271 within the 
statutory time-frame? Would a lack of specific national standards 
impair our ability under section 252(e) to assume a state commission's 
responsibilities if the state commission fails to act to carry out its 
responsibilities under section 252?
    69. We also encourage parties to submit information concerning 
specific state approaches regarding collocation that might provide 
useful models for national guidelines. In several states, including 
California and New York, incumbent LECs currently provide physical 
collocation. Under California's ``preferred outcomes'' approach, the 
``preferred outcome'' concerning physical collocation is similar to 
rules the FCC previously established for physical collocation. 
California presently allows LECs to offer virtual or physical 
collocation. New York applies a comparably efficient interconnection 
(CEI) standard to both new entrants and incumbent LECs, that requires 
that interconnection be technically and economically comparable to 
actual physical collocation. New York does not have detailed physical 
collocation requirements under the CEI standard, but rather leaves such 
matters to negotiation between the parties. Currently in New York, 
Rochester Telephone and NYNEX both offer physical collocation to 
satisfy the CEI standard. In other states, incumbent LECs currently 
provide only virtual collocation. Illinois, which had originally 
mandated physical collocation, recently adopted rules regarding virtual 
collocation. The state of Washington also permits virtual collocation 
and has stated that such charges for virtual collocation should be no 
higher than charges for physical collocation. The Washington Commission 
also concluded that, if meet point interconnection arrangements are 
established by mutual agreement, decisions about where equipment is 
placed will be resolved as part of that negotiation, and therefore a 
virtual collocation tariff probably would not be necessary. Finally, 
Florida permits LECs to offer both virtual and physical collocation, 
but has left the details of such arrangements to negotiation between 
the parties.
    70. We seek comment on whether one or more of these state 
collocation policies would be suitable for use as a national standard. 
We also seek comment on state policies that commenters believe are 
inconsistent with the goals of the 1996 Act, or that are inadvisable 
from a policy perspective. In this regard, parties are specifically 
asked to comment on the possible consequences of requiring new entrants 
with regional or national business plans to comply with divergent state 
requirements.
    71. In light of our tentative conclusion that we should adopt 
national guidelines concerning physical and virtual collocation, we 
seek comment on what specific regulations would foster opportunities 
for local competition. For example, section 251(c)(6) mandates physical 
collocation at the ``premises'' of an incumbent LEC. Consistent with 
the ordinary meaning of the term ``premises,'' we tentatively conclude 
that ``premises'' includes, in addition to incumbent LEC central 
offices or tandem offices, all buildings or similar structures owned or 
leased by the incumbent LEC that house LEC network facilities. We seek 
comment on this tentative conclusion. We also seek comment on whether 
structures housing LEC network facilities on public rights

[[Page 18323]]

of way, such as vaults containing loop concentrators, or similar 
structures should be deemed to be LEC premises. We note that 
collocation of facilities inside such structures would still be subject 
to the technical feasibility and space availability limitations of 
section 251(c)(6).
    72. Section 251(c)(6) requires the incumbent LEC to provide for the 
physical collocation of equipment necessary for interconnection or 
access to unbundled network elements. We seek comment on what types of 
equipment competitors should be permitted to collocate on LEC premises. 
Section 251(c)(6) also allows the incumbent LEC to provide virtual 
collocation instead of physical collocation in specific locations if 
``the local exchange carrier demonstrates to the state commission that 
physical collocation is not practical for technical reasons or because 
of space limitations.'' We seek comment on whether we should establish 
guidelines for states to apply when determining whether physical 
collocation is not practical for ``technical reasons or because of 
space limitations,'' and, if so, what those guidelines might be. For 
example, to what extent, if any, should the risk of reduced reliability 
or other harm to the network be considered as a technical reason 
justifying a refusal to offer physical collocation, and what type of 
evidence must the LEC offer to prove its claim? We also seek comment on 
whether national guidelines may be necessary to prevent anticompetitive 
behavior by the manipulation or unreasonable allocation of space by 
either the incumbent LEC or new entrants.
    73. Finally, we seek comment on whether we should adopt 
comprehensive national standards for collocation by readopting our 
prior standards governing physical and virtual collocation that we 
established in the Expanded Interconnection proceeding. Special Access 
Expanded Interconnection Order, 57 FR 54323 (11/18/92); Virtual 
Collocation Expanded Interconnection Order, 59 FR 38922 (8/1/94). In 
that proceeding, we addressed standards governing, among other things, 
the following: space exhaustion and allocation; types of equipment that 
could be placed, or designated for placement, in incumbent LEC offices; 
points of entry; insurance; and exemptions from physical collocation 
requirements based on space limitations. We also seek comment regarding 
whether we should modify those standards, in light of: (1) the new 
statutory requirements; (2) disputes that have arisen in the subsequent 
investigations regarding the LECs' physical and virtual collocation 
tariffs; (Tariffs for both virtual and physical collocation offerings, 
filed by the LECs pursuant to the Virtual Collocation Expanded 
Interconnection Order, 59 FR 38922 (8/1/94), are currently under 
investigation. In these designation orders, we addressed disputes that 
arose over various standards issues, for example: space size, space 
warehousing, termination notice and reasons, cage inspections, and 
insurance.) or (3) additional policy considerations. We also 
tentatively conclude, in light of the court decision in Pacific Bell v. 
FCC, (Pacific Bell v. FCC, No. 94-1547 (D.C. Cir. Mar. 22, 1996). The 
court remanded for reconsideration the Commission's virtual collocation 
order, 59 FR 38922 (8/1/94), concluding that the Commission's 
regulations implementing the 1996 Act would render moot the questions 
about the future effect of the order. The petitioners had argued that 
the Commission lacked statutory authority to order incumbent LECs to 
provide virtual collocation.) that our existing policies on expanded 
interconnection for interstate special access and switched transport 
services should continue to apply pursuant to our authority under 
sections 201 and 251(g). We seek comment on this tentative conclusion.
    c. Unbundled Network Elements. 74. Section 251(c)(3) imposes a duty 
upon incumbent LECs ``to provide, to any requesting telecommunications 
carrier for the provision of a telecommunications service, 
nondiscriminatory access to network elements on an unbundled basis at 
any technically feasible point on rates, terms, and conditions that are 
just, reasonable, and nondiscriminatory in accordance with the terms 
and conditions of the agreement and the requirements of this section 
and section 252.'' Incumbent LECs are required to provide these network 
elements ``in a manner that allows requesting carriers to combine such 
elements in order to provide such telecommunications service.'' In 
addition, section 251(d)(2) provides that the Commission, in 
determining which network elements incumbent LECs should unbundle, 
``shall consider, at a minimum, whether (A) access to such network 
elements as are proprietary in nature is necessary; and (B) the failure 
to provide access to such network elements would impair the ability of 
the telecommunications carrier seeking access to provide the services 
that it seeks to offer.''
    75. Together, sections 251(c)(3) and 251(d)(2) foster competition 
by ensuring that new entrants wishing to compete with incumbent LECs 
can purchase access to those network elements that they do not possess, 
without paying for elements that they do not require. The ability to 
purchase, at reasonable, cost-based prices, access only to those 
network elements a carrier needs allows new entrants to enter the LEC's 
market gradually, building their own networks over time, and purchasing 
fewer unbundled elements as their own networks develop. Further, new 
entrants can purchase access to those elements incumbent LECs can 
provide most efficiently, and at the same time build their own 
facilities only where it would be efficient.
    76. In addition, the requirement that rates, terms, and conditions 
be just, reasonable, and nondiscriminatory: (1) prevents the incumbent 
LEC from offering unbundled elements on rates, terms, and conditions so 
overpriced or burdensome as to discourage competition; (2) enables new 
entrants to discipline the incumbent's pricing; and (3) allows entrants 
to take market share from the incumbent if the new entrant is more 
efficient or if the incumbent attempts to charge prices above 
competitive levels.
    77. Section 251(d)(2) provides that the Commission will 
``determin[e] what network elements should be made available for 
purposes of subsection (c)(3).'' As a result of this provision, and the 
obligation created by section 251(d)(1), we tentatively conclude that 
section 251 obligates the Commission to identify network elements that 
incumbent LECs should unbundle and make available to requesting 
carriers under subsection (c)(3). Rather than itemize an exhaustive 
list of network elements, however, some of which competing carriers may 
not desire, we further tentatively conclude that the Commission should 
identify a minimum set of network elements that incumbent LECs must 
unbundle for any requesting telecommunications carrier, and, to the 
extent necessary, establish additional or different unbundling 
requirements in the future as services, technology, and the needs of 
competing carriers evolve. We seek comment on these tentative 
conclusions.
    78. Carriers may, of course, voluntarily negotiate agreements for 
unbundling elements that differ from those addressed by the Commission 
under section 251(c)(3). In addition, section 252(e)(3) preserves a 
state's authority to impose other requirements of state law in its 
review of arbitrated agreements. 1996 Act, sec. 101, Sec. 252(e)(3). 
Such requirements could include intrastate telecommunications service 
quality standards. Section

[[Page 18324]]

251(d)(3) also preserves the right of states to enforce consistent 
access and interconnection regulations. 1996 Act, sec. 101, 
Sec. 251(d)(3). Thus, to the extent such requirements are consistent 
with the provisions of section 251(c)(3) and our rules, we tentatively 
conclude that states may require additional unbundling of LEC networks.
    79. In light of our obligations under sections 251(d)(1) and 
251(d)(2), we also seek comment on whether and to what extent, beyond 
merely identifying network elements that incumbent LECs must provide on 
an unbundled basis pursuant to subsection (c)(3), the Commission should 
establish minimum requirements governing such unbundling. These 
requirements could include, for example, provisioning and service 
intervals, nondiscrimination safeguards, and technical standards. We 
believe that minimum national requirements governing the unbundling of 
network elements would likely offer several advantages. Such 
requirements would provide uniform technical requirements, and would 
enhance the ability of new entrants to take advantage of economies of 
scale and to plan and deploy networks stretching across state and LEC 
boundaries. We note that telecommunications equipment has heretofore 
been provided by national manufacturers selling to a nation-wide 
market, without substantial regional or state-to-state variation in 
equipment design. Minimum national requirements also may ensure some 
level of network and equipment interoperability between both competing 
and noncompeting carriers. Further, Commission minimums would reduce or 
eliminate the need for certain duplicative decision-making by the 
states, provide a ready framework for the many states that have not 
acted to unbundle LEC networks, and speed the negotiation and 
arbitration processes by reducing any ambiguity in the parties' 
obligations. Thus, states could rely on a set of generally applicable 
minimum requirements, while prescribing additional rules of unbundling 
tailored to their particular circumstance.
    80. We also seek comment on whether and to what extent we should 
establish national rules for unbundled network elements that allow for 
some variation among states. For example, we seek comment on the extent 
to which such rules should permit states to impose different 
obligations to address state-specific concerns and to experiment with 
alternative approaches, and whether permitting such variation would 
better achieve the goals of the 1996 Act. Would variations in technical 
requirements among states affect the ability of new entrants to plan 
and configure regional or national networks? Would a lack of explicit 
requirements impair a state's ability to complete arbitrations within 
the prescribed time-frame, or our ability to evaluate BOC compliance 
under section 271 within 90 days? Would a lack of clear national rules 
impair our ability under section 252(e) to assume a state commission's 
responsibilities if the state commission fails to act to carry out its 
responsibilities under section 252?
    81. We also encourage parties to provide us with information 
regarding the policies that states have adopted to address network 
unbundling. While many states have not acted at all to unbundle LEC 
networks, several states have ordered some amount of LEC network 
unbundling. States such as Illinois, New York, California, and Maryland 
require, or plan to require, LECs to unbundle at least local loops. New 
York, for example, has implemented a request-based approach that 
requires unbundling only for requested elements (to date local loops 
and ports), and then only if essential facilities are involved. Other 
states, such as Maryland and Florida, require LECs to unbundle all 
network elements to the extent technically feasible and ``reasonable'' 
or ``economically feasible,'' and address unbundling requirements for a 
specific element when that element is requested. In contrast to these 
request-based approaches, some states, such as Colorado, Hawaii, and 
California, determine an essential or ``key'' set of LEC network 
elements that LECs must unbundle. We seek comment on the policies that 
other states have adopted.
    82. Finally, with respect to each of the issues discussed below, we 
request comment on whether any existing state approaches, alone or in 
combination, would be suitable for incorporation into national rules 
implementing section 251(c)(3). We also ask commenting parties to 
identify state approaches that they believe are either inconsistent 
with the 1996 Act or that are inadvisable from a policy perspective.
    (1) Network Elements. 83. Section 3(29) defines a ``network 
element'' as both ``a facility or equipment used in the provision of a 
telecommunications service'' as well as ``features, functions, and 
capabilities that are provided by means of such facility or 
equipment.'' According to the Joint Explanatory Statement, ``[t]he term 
`network element' was included to describe the facilities, such as 
local loops, equipment, such as switching, and the features, functions, 
and capabilities that a [LEC] must provide for certain purposes under 
other sections of the conference agreement.'' We believe that under 
this broad definition, an entire local loop, for example, could 
constitute a single network element, or comprise several network 
elements. An alternative interpretation, albeit one that would provide 
competitors less flexibility, is that a network element, once defined, 
cannot be subdivided. We seek comment on our more flexible 
interpretation of ``network element,'' and how to apply the definition 
in accordance with the unbundling proposals discussed below.
    84. We also seek comment on the apparent distinction, drawn in the 
definition of ``network element'' in the 1996 Act, between the 
``facility or equipment used in the provision of a telecommunications 
service,'' and the service itself. We request comment on the meaning 
and significance of such a distinction in general and with respect to 
particular elements. For example, because the nature of a network 
element, under the definition in the 1996 Act, is a facility or 
function, and is not dependent upon the particular services offered by 
means of such facility or function, does the purchase of access to such 
an element entitle, or indeed obligate the requesting carrier to 
provide the customer with all services, intrastate and interstate, that 
use the element? Under this reading of the statute, a 
telecommunications carrier that purchased local switching as a network 
element would use that element to provide whatever intrastate and 
interstate switching services the customer desired. As discussed more 
fully below in section II.B.2.e., such an entitlement or obligation to 
provide all of the services that a particular network element currently 
is used to furnish may distinguish network elements from existing 
access services.
    85. In addition, we request comment on the relationship between 
section 251(c)(3), concerning unbundling, and section 251(c)(4), which 
addresses resale of incumbent LEC services. Specifically, may 
requesting carriers order and combine network elements to offer the 
same services an incumbent LEC offers for resale under subsection 
(c)(4)? Does subsection (c)(3) in effect provide new entrants with an 
alternative way to ``resell'' the services of incumbent LECs in 
addition to the specific resale provision in subsection (c)(4)? In this 
regard, we note that section 252(d) provides different pricing 
standards for these two subsections, and we ask commenters to address 
the implications of this difference. Some parties have asserted, for 
example, that allowing interexchange carriers to offer

[[Page 18325]]

the same services over combined LEC network elements that the LEC 
already offers would enable such carriers to circumvent the section 
271(e)(1) joint marketing restriction. To the extent that section 
251(c)(3) contemplates the purchase of unseparated facilities (i.e. 
facilities used to provide both intra- and interstate services), as 
discussed above, we note that a telecommunications carrier would not 
necessarily be purchasing the same service(s) it would under section 
251(c)(4). Does the difference, if any, between network elements and 
the services provided by means of such elements play a meaningful role 
in distinguishing these two subsections? For example, under the 
Illinois Local Switching Platform concept, discussed in detail below, 
requesting carriers may offer services by means of the unbundled 
platform that the incumbent LEC does not offer. We invite parties to 
comment on these and any other issues raised by the interplay of 
subsections (c)(3) and (c)(4). Parties should base their comments on 
specific statutory language.
    (2) Access to Network Elements. 86. Section 251(c)(3) requires 
incumbent LECs to provide ``access'' to network elements ``on an 
unbundled basis.'' We interpret these terms as requiring incumbent LECs 
for a fee to provide requesting carriers with the ability to obtain a 
particular element's functionality, such as a local loop's function of 
transmitting signals from a LEC central office to a customer premises, 
separate from that of other functionalities or network elements, such 
as the local switch. Further, the term ``unbundled'' suggests that 
there must be a separate charge for each purchased network element. We 
seek comment on this and any alternative interpretations of section 
251(c)(3).
    87. Section 251(c)(3) further mandates that incumbent LECs provide 
access to network elements on an unbundled basis ``at any technically 
feasible point.'' Parties are asked to identify and describe, in brief, 
each network element for which they believe access on an unbundled 
basis is technically feasible at this time. Further, we seek comment on 
whether a dynamic definition of ``technically feasible'' is practical 
for identifying elements beyond those discussed here, and, if so, what 
such a definition should be. We also ask whether the states, rather 
than the Commission, may apply the definition during the arbitration 
process. We further request that parties comment on experiences with 
providing or purchasing access to elements currently unbundled by the 
states, and any state approaches to determining the technical 
feasibility of unbundling elements that the Commission could use in a 
national model. We also seek comment on whether the technical 
feasibility of interconnection at a particular point affects, at least 
in part, the technical feasibility of providing access to a network 
element on an unbundled basis at that point. Finally, because 
subsection (c)(3) imposes an affirmative obligation on incumbent LECs 
to provide unbundled elements, we tentatively conclude that LECs have 
the burden of proving that it is technically infeasible to provide 
access to a particular network element. We also tentatively conclude 
that the unbundling of a particular network element by one LEC (for any 
carrier) evidences the technical feasibility of providing the same or a 
similar element on an unbundled basis in another, similarly structured 
LEC network. We seek comment on these tentative conclusions.
    88. In addition to technical feasibility, section 251(d)(2) 
requires that the Commission ``consider, at a minimum, whether * * * 
access to such network elements as are proprietary is necessary, and 
[whether] the failure to provide access to such network elements would 
impair the ability of the telecommunications carrier seeking access to 
provide the services that it seeks to offer.'' We seek comment on the 
extent to which the Commission must ``consider'' these standards, how 
these standards should be interpreted, and on any additional 
considerations, such as possible risks to network reliability or other 
harm. We note that the 1996 Act uses the terms ``technically feasible'' 
and ``economically reasonable'' together in other sections of the Act, 
and we seek comment on what effect the absence of the term 
``economically reasonable'' in section 251(c)(3) has on economic 
considerations. See, e.g., 1996 Act, sec. 101, Sec. 254(h)(2). The 
House Committee, in considering H.R. 1555, dropped the term 
``economically reasonable'' from its unbundling provision, reporting 
that ``this requirement could result in certain unbundled * * * 
elements * * * not being made available.'' H. Rep. 104-204, 71 (1995). 
Further, we request comment on whether this omission could be construed 
to imply that Congress intended for carriers requesting unbundling to 
pay its cost, and on whether that construction is consistent with the 
intent of the 1996 Act. In any event, access to network elements must 
be available at rates, terms, and conditions that are just, reasonable, 
and nondiscriminatory. 1996 Act, sec. 101, Sec. 251(c)(3).
    89. We also request comment on whether the Commission should 
establish minimum requirements governing the ``terms'' and 
``conditions'' that would apply to the provision of all network 
elements. For example, should the Commission require incumbent LECs to 
provide network elements using the appropriate installation, service, 
and maintenance intervals that apply to LEC customers and services? 
Alternatively, should the Commission require LECs to comply with 
national or industry-based standards? Would minimum national 
requirements for electronic ordering interfaces reduce the time and 
resources required for new entrants to compete in regional markets? 
What standard unbundling terms and conditions, if any, should the 
Commission use in evaluating applications under section 271(b)? Would 
national rules aid the states in arbitrating agreements within the 
statutory period? If parties believe that the Commission should specify 
minimum terms and conditions, we seek comment on what those terms and 
conditions should be, and how those terms and conditions might be 
enforced. Parties are encouraged to cite specific examples from the 
states that could be incorporated into minimum national requirements.
    90. In addition, we request comment on the meaning of the 
requirement in section 251(c)(3) that LECs provide unbundled network 
elements ``in a manner that allows requesting carriers to combine such 
elements in order to provide * * * telecommunications service.'' For 
example, should the required facilities or services associated with a 
particular network element vary depending on the services the 
requesting carrier wishes to provide or on the types of facilities the 
requesting carrier will use in combination with the requested elements? 
We also seek comment on the relationship between this provision and 
section 251(d)(2)(B), discussed above, which requires the Commission to 
consider whether the failure to provide access to an element would 
impair the ability of a requesting carrier to provide a desired 
service.
    91. Section 251(c)(3) further requires incumbent LECs to provide 
requesting carriers with ``nondiscriminatory'' access to unbundled 
network elements. That section also requires LECs to provide access on 
``terms, and conditions that are * * * nondiscriminatory.'' We seek 
comment on what minimum requirements, if any, we should adopt to ensure 
that LECs do not discriminate among requesting carriers. For example, 
one criterion might be whether an end user could perceive any 
differences in the quality

[[Page 18326]]

of service provided by one carrier as compared with another. Another 
criterion might be to require LECs to make it as easy to switch local 
service providers as it is for customers to switch interexchange 
providers. Further, unlike subsection (c)(2), which requires that 
interconnection offered requesting carriers be ``at least equal in 
quality to that provided'' by the LEC itself, subsection (c)(3) does 
not contain such a requirement. Nevertheless, we request comment on 
whether we can and should prohibit an incumbent LEC from providing 
requesting carriers with access inferior to that which it provides 
itself.
    (3) Specific Unbundling Proposals. 92. We now consider particular 
network elements to which incumbent LECs must provide access on an 
unbundled basis under section 251(c)(3). As discussed above, we propose 
to identify a minimum number of elements that incumbent LECs must 
unbundle, and we seek comment on what minimum requirements of 
unbundling, if any, the Commission should adopt for each element. AT&T, 
for example, has publicly advocated that the Commission should require 
the unbundling of eleven network elements: loop distribution, 
concentration, and feeder plant; local and access tandem switches; 
dedicated and common transport; SS7 signalling links, signal transfer 
points, and signal control points; and operator services. MCI 
advocates, in addition, the unbundling of loop and trunk ports from 
local switching. Some LECs favor the unbundling of significantly fewer 
elements.
    93. We address below four categories of elements: loops, switches, 
transport facilities, and signaling and databases. For each of the 
proposed network elements discussed in these categories, we request 
that parties comment on the following issues:
    (1) the technical feasibility of providing access to that or an 
equivalent element on an unbundled basis, how such access should be 
provided, and any demonstrable network reliability concerns;
    (2) whether and to what extent LECs currently allow other carriers 
to access such elements;
    (3) whether the Commission should establish a standard for defining 
the element, and if so, what level of technical detail is required in 
the definition, and what facilities or functionalities should be 
included or excluded from the definition;
    (4) whether the Commission should establish minimum requirements 
for the terms and conditions of provisioning the element, and if so, 
what they should be;
    (5) whether the failure to unbundle the element would impair a 
requesting carrier's ability to provide the services that it seeks to 
offer;
    (6) whether proprietary interfaces or technology are involved in 
providing the element, and if so, whether unbundled access to the 
element is necessary; and
    (7) any other issues presented by the unbundling of this element 
that are important to effectuating the goals of section 251(c)(3) and 
the 1996 Act.
    (a) Local Loops. 94. We propose to require incumbent LECs to 
provide local loops as unbundled network elements. The Joint 
Explanatory Statement accompanying the 1996 Act expressly cites the 
local loop as an example of a network element. In addition, the 
competitive checklist of section 271(c)(2)(B) specifies the unbundling 
of local loops from local switching or other services as a precondition 
to BOC provision of in-region interLATA services. Further, several 
states have ordered, and LECs currently offer, loops unbundled from 
local switching, and thus we tentatively conclude that the unbundling 
of local loops is technically feasible.
    95. We first seek comment on whether and the extent to which the 
Commission should prescribe a set of minimum requirements for 
unbundling and provisioning loops. For example, we could require only 
that incumbent LECs must, upon request, provide at central offices 
individual transmission links to customer premises regardless of the 
technology involved. It appears, however, that in states that already 
have ordered loop unbundling, the general requirement to unbundle is 
merely the first step in a process of providing new entrants with 
meaningful facilities with which to compete.
    96. The New York Commission, for example, having anticipated and 
addressed many of the problems associated with unbundling loops and 
ports, is still grappling with issues such as operational interfaces 
between carriers, the timing of loop provisioning relative to number 
porting, and underlying delivery systems supporting loop-provisioning. 
In view of such complex and resource-intensive issues, we seek comment 
on whether there are minimum requirements that would build upon the 
progress of preexisting state initiatives and facilitate the 
provisioning of unbundled loops. What requirements, for example, would 
avoid the need for duplicative decision-making by states and variations 
among states in the effectiveness of loop unbundling, while better 
enabling new entrants to plan and fund regional networks? To what 
extent is the avoidance of interstate duplication and variation 
necessary to achieving the goals of the 1996 Act? How should the 
Commission structure national requirements to provide sufficient 
flexibility to carriers and the states for use of different or new 
``loop'' technologies or services?
    97. In addition, we tentatively conclude that we should require 
further unbundling of the local loop. We seek comment on which subloop 
elements are technically feasible to unbundle. For example, the 
Commission could require incumbent LECs to provide access to loop 
feeder and distribution plant on an unbundled basis at remote switching 
or concentration sites, in addition to access to the switching or 
concentration equipment itself. Hawaii, for example, divides local loop 
functions into these three categories. Illinois also recently required 
LECs to provide subloop elements in response to a bona fide request. 
Such requests may come from carriers deploying cable or fiber feeder 
facilities that lack distribution plant. We thus seek comment on 
whether requiring access to loops prior to their concentration or 
multiplexing would allow requesting carriers to provide services they 
could not provide at LEC central offices, and whether such access would 
involve proprietary equipment. Finally, we request comment on what 
minimum requirements for subloop unbundling, at this early stage where 
few if any states have addressed the issue, would pave the way for 
rapid adoption and provision of subloop elements.
    (b) Local Switching Capability. 98. In addition to the local loop, 
we tentatively conclude that incumbent LECs should provide unbundled 
local switching capability as a network element. The Joint Explanatory 
Statement expressly cites switching equipment as an example of a 
network element. In addition, the competitive checklist of section 
271(c)(2)(B) specifies the unbundling of local switching from 
transport, local loop transmission, or other services as a precondition 
to BOC provision of in-region interLATA services. Finally, we believe 
unbundling of local switching capability is critical to the 
implementation of section 251(c)(3) and the provision of competing 
telecommunications services.
    99. Unlike a local loop, local switching equipment is often shared 
by thousands of customers. As a result, it may be difficult to identify 
or define the use of such equipment for a particular customer. One 
possible way to identify

[[Page 18327]]

a switching element is to define the element in terms of the capacity 
of a local switch to switch traffic from line to line, line to trunk, 
trunk to line, or trunk to trunk. This is both the most essential and 
rudimentary capacity of a local switch. Today's modern switches, 
however, are capable of significantly more advanced functions, such as 
call waiting, conference calling, signaling, and centrex. Under the 
1996 Act's definition of network element, these functions could 
constitute individual network elements separate from the basic 
switching functionality, or could be grouped in part or whole with the 
basic functionality, which would allow requesting carriers, in turn, to 
offer the functions they desire.
    100. Illinois, for example, is investigating a ``local switching 
platform'' approach to unbundling the local switch. The platform is 
described in terms of ``virtual'' switch capacity, including all the 
services and functions performed by the switch on a per line basis, 
such as dialtone, telephone number provision, all CLASS and CCF 
features, originating and terminating usage, and 911 services. 
According to its advocates, unlike merely reselling a single switching 
service, under the platform structure requesting carriers incur added 
risk because the cost of the platform includes the cost of all 
functionalities provided by the switch on a per line basis, regardless 
of the functionalities ultimately purchased by an end user. This added 
risk translates into added profits if the requesting carrier is able to 
sell a combination of these switching functionalities at a higher 
profit than would have been possible under a simple resale arrangement. 
Moreover, because requesting carriers are not tied to the incumbent 
LEC's retail price structure, concerns about possible price squeezes 
are reduced.
    101. Other states have defined a switching ``port,'' which usually 
includes all the capabilities of the local network provided at the main 
distribution frame of a LEC central office. For example, New York 
treats a port essentially as an interconnection point into the rest of 
the NYNEX network. Thus a port defined in this way is not in the nature 
of an unbundled element that a competing carrier could combine with its 
own transport and other loop facilities to provide a competing 
telecommunications service. Rather, such a port is effectively 
equivalent to the LEC's bundled retail local service offering minus the 
loop. We seek comment on whether such a definition of ``port'' is 
consistent with the requirements of section 251(c)(3), especially the 
requirement that incumbent LECs provide elements in a manner that 
allows carriers to combine them to provide telecommunications services. 
Further, we seek comment on alternative definitions of ``port,'' and on 
whether the port should be a separate unbundled element from the 
switch. For example, MCI defines a port as the link from the LEC main 
distribution frame to the switch.
    102. We also request comment on these and alternative approaches to 
unbundling the local switch, and on the technical feasibility of such 
approaches. Under the switching platform approach, for example, what 
control, if any, can and should requesting carriers have over the 
operations of a LEC local switch, and is access to proprietary 
functions or equipment necessary? Further, should the Commission 
identify several permissible approaches to switch unbundling, and what 
minimum requirements, if any, should apply? What requirements of switch 
unbundling would help the Commission in evaluating applications under 
section 271(b), and the states and the courts in arbitrating and 
evaluating agreements between carriers?
    103. Finally, in conjunction with the next section addressing 
transport facilities, we request comment on whether requirements 
governing a local switching element could be tailored to apply to a 
tandem switching element. Parties should address the issues discussed 
above in the context of tandem switches.
    (c) Local Transport and Special Access. 104. We also propose to 
require incumbent LECs to provide access to unbundled transport 
facilities as network elements. We note that the competitive checklist 
of section 271(c)(2)(B) requires the provision of local transport from 
the trunk side of a LEC switch unbundled from switching or other 
services as a precondition to BOC provision of in-region interLATA 
services. We tentatively conclude that the unbundling of local 
transport and special access facilities is technically feasible. We 
note that the Commission's action in the Expanded Interconnection 
proceeding effectively required substantial unbundling of these 
facilities.
    105. We propose to require unbundling of LEC facilities that 
correspond to the current interstate transport and special access rate 
elements. For direct-trunked transport networks, transport trunks would 
be unbundled from local switches, and the link from the serving wire 
center (SWC) to the IXC point of presence (POP) would be unbundled from 
the link between the central office and the SWC. For tandem-switched 
transport networks, the elements could include, among other options, 
unbundled trunks from the end office to the tandem office, trunks from 
the tandem office to the SWC, trunks from the SWC to the IXC POP, and 
the tandem switch itself. Finally, for special access we propose to 
require the unbundling of channel termination facilities from 
interoffice facilities.
    106. We seek comment on the technical feasibility of unbundling 
direct-trunked and tandem-switched transport and special access 
facilities in this or in any alternative manner, and on how LECs should 
unbundle any other network facilities used to transport traffic from 
LEC central offices to IXC POPs or to other LEC central offices. As 
discussed above, we ask parties to address the unbundling of tandem 
switches in accordance with the issues raised in the local switching 
section, and comment on any issues pertaining exclusively to tandem 
switching.
    (d) Databases and Signaling Systems. 107. The 1996 Act contemplates 
the unbundling of incumbent LECs' signaling systems and databases. 
Congress specifically included ``databases'' and ``signaling systems'' 
in the definition of network elements. The 1996 Act also requires BOCs 
to provide access to ``databases and associated signaling necessary for 
call routing and completion'' as a precondition for entry into in-
region interLATA services. Therefore, we tentatively conclude that 
requiring incumbent LECs to unbundle their signaling systems and 
databases is consistent with the intent of the 1996 Act.
    108. Many incumbent LECs have Signaling System 7 (SS7) networks 
that are separate from, but interconnected with, the telecommunications 
networks that carry voice and data communications between end users. 
SS7 networks perform three primary functions: (1) call set up, which 
establishes transmission paths for calls; (2) access to remote 
databases, which provides specialized call routing information to 
switches; and (3) custom local area signaling service (CLASS) features, 
such as caller ID, which require the transmission of certain 
information between the calling and called parties. We request that 
commenters identify the points at which carriers interconnect with LEC 
SS7 networks today and the signaling and database functions currently 
provided by incumbent LECs on an unbundled basis. Commenters should 
also discuss

[[Page 18328]]

the technical feasibility of establishing other points of 
interconnection and other unbundled signaling and database functions 
not currently offered by incumbent LECs.
    109. An example of unbundling particular signaling and database 
elements is Colorado's requirement that incumbent LECs provide 
unbundled access to signaling links, signal transfer points, and 
service control points as well as access to non-proprietary signaling 
protocols used in the routing of local and interexchange traffic, 800 
service, alternative billing service, and line information database 
(LIDB) service. Colorado has not specified whether access to signaling 
and databases is limited to those particular services. Hawaii has taken 
a similar approach by requiring incumbent LECs to unbundle signaling 
links, signal transfer points, and service control points, and has not 
specified which services provided by these network elements must be 
made available to competitors. By contrast, Louisiana has ordered 
unbundled access to incumbent LEC databases for all services that the 
incumbent LEC provides itself, including 800 service, LIDB, and 
advanced intelligent network (AIN) services. Does the variation among 
the Colorado, Hawaii, and Louisiana regulations governing unbundled 
signaling and databases reflect differing circumstances that should be 
accommodated in our rules? Would such variation among states be 
consistent with the goals of the 1996 Act? Would new entrants be better 
served by uniform federal rules concerning unbundled access to 
signaling systems and databases? If so, would any of the regulations 
adopted by the states be useful to incorporate into national rules?
    110. We also seek comment on the relative importance to potential 
entrants of the various functions performed by incumbent LECs' 
signaling systems and databases. For example, call set up plays an 
important role in the transmission of calls that are routed through 
more than one switch. Thus, it would appear that such functionality 
will be needed by entrants to provide competing local exchange service. 
However, we are aware that there are alternative suppliers of call set 
up services other than incumbent LECs. What bearing, if any, should 
this have on our adoption of unbundling rules for call set up? Are 
there existing suppliers for other functions performed by incumbent 
LECs' signaling systems and databases?
    111. In addition, a competitor may seek to provide certain call 
processing features to its customers by reselling the incumbent LEC's 
call processing services. We seek comment on the importance of 
unbundled access to the incumbent LEC's advanced call processing 
features, such as single number service, in the market entry decisions 
of potential competitors. We also seek comment on whether the software 
``building blocks'' used by incumbent LECs to create call processing 
services are network elements to be unbundled. Given the array of 
existing and potential call processing services that could be provided 
by incumbent LECs' signaling systems and databases, we seek comment on 
whether the establishment of uniform national guidelines governing all 
call processing services provided via remote databases would facilitate 
the state arbitration process, judicial review, and/or Commission 
activities under section 253. We also seek comment on whether it would 
be consistent with the 1996 Act to permit variation among states with 
regard to unbundling call processing services provided via remote 
databases.
    112. Under another scenario, a competitor that is providing resold 
local exchange service might seek to distinguish its offerings by 
connecting its own call processing database to the incumbent LEC's 
network, which would allow the competitor to provide call processing 
features not offered by the incumbent LEC. Enabling new entrants to 
offer their own call processing services in this way would likely 
stimulate local exchange competition. We seek comment on whether this 
type of interconnection is technically feasible without jeopardizing 
network reliability.
    113. We also note that in our Intelligent Networks (IN) proceeding, 
we are considering unbundling advanced intelligent network (AIN) 
elements, which include signaling systems and databases. Intelligent 
Networks, Notice of Inquiry, 56 FR 65721 (12/18/91); Intelligent 
Networks, Notice of Proposed Rulemaking, 58 FR 48623 (9/17/93). In the 
IN NPRM, we tentatively proposed ordering Tier 1 LECs to provide access 
to several specific AIN elements in order to promote competition in the 
provision of AIN services. Subsequently, a group of Tier 1 LECs filed a 
joint proposal calling for a two-year testing plan to explore methods 
of third-party interconnection to LEC AINs. We seek comment on what 
role, if any, the LEC proposal for a testing program should play with 
regard to access to signaling and database elements that we address in 
this proceeding. We incorporate the record compiled in the IN 
proceeding into this proceeding by reference.
    114. We further note that our IN proceeding has focused on 
providing all interested third parties with access to Tier 1 LECs' AIN 
elements, primarily for the purpose of providing competing AIN 
services. Section 251 of the 1996 Act provides any requesting 
telecommunications carrier unbundled access to incumbent LECs' network 
elements ``for the provision of a telecommunications service.'' We seek 
comment on whether mandating the unbundling of signaling systems and 
databases pursuant to section 251 would be sufficient to meet the 
objectives of the IN proceeding. To the extent that section 251 does 
not require incumbent LECs to provide certain third parties with access 
to unbundled AIN elements, we seek comment on whether we should use our 
section 201 authority to require such access. We also seek comment on 
how the unbundling of signaling systems and databases in this 
proceeding should affect our actions in the IN proceeding.
    115. Requiring incumbent LECs to provide unbundled access to their 
signaling and database networks could also potentially permit competing 
carriers to gain access to competitively sensitive data. Louisiana has 
addressed this potential problem by specifically prohibiting incumbent 
providers from accessing the customer proprietary network information 
(CPNI) of an interconnecting carrier in order to market services to the 
interconnecting carrier's customers. We seek comment on whether such a 
restriction should be implemented in federal standards. We plan to 
initiate a proceeding in the near future to implement the provisions of 
the 1996 Act that address CPNI. Are there other state regulations 
concerning access to competitor's CPNI that would prevent this type of 
anticompetitive conduct while allowing us to establish interconnection 
and unbundling rules for signaling and database facilities?
    116. Finally, we request comment on other network elements to which 
the Commission should require access on an unbundled basis, and 
specific standards that should govern their unbundling. For example, 
the statutory definition of network element includes ``subscriber 
numbers'' and ``information sufficient for billing and collection or 
used in the transmission, routing, or other provision of a 
telecommunications service.'' We tentatively conclude that these 
elements should be unbundled and we request comment on the standards we 
should set for such unbundling. In addition, section 271 of the 1996 
Act requires incumbent LECs

[[Page 18329]]

to unbundle ``operator call completion services'' as a precondition for 
providing in-region, interLATA services. In light of this, we 
tentatively conclude that incumbent LECs should be required to unbundle 
operator call completion services as a network element pursuant to 
section 251(c) of the Act. We seek comment on this tentative 
conclusion.
    d. Pricing of Interconnection, Collocation, and Unbundled Network 
Elements. (1) Commission's Authority to Set Pricing Principles. 117. 
Section 251, in some instances, explicitly sets forth requirements 
regarding rates for service, interconnection and unbundled elements. 
For example, sections 251(c)(2), (c)(3), and (c)(6) require that 
incumbent LECs' ``rates, terms and conditions'' for interconnection, 
unbundled network elements, and collocation be ``just, reasonable, and 
nondiscriminatory,'' and, with respect to interconnection and unbundled 
elements, in accordance with section 252. Section 251(c)(4) requires 
that incumbent LECs offer ``for resale at wholesale rates any 
telecommunications service that the carrier provides at retail to 
subscribers who are not telecommunications carriers,'' without 
unreasonable conditions or limitations. Section 251(b)(5) requires that 
all LECs ``establish reciprocal compensation arrangements for the 
transport and termination of telecommunications.'' We tentatively 
conclude that this statutory language establishes our authority under 
section 251(d) to adopt pricing rules to ensure that rates for 
interconnection, unbundled network elements, and collocation are just, 
reasonable, and nondiscriminatory. We tentatively conclude that we have 
statutory authority to define what are ``wholesale rates'' for purposes 
of resale, and what is meant by ``reciprocal compensation 
arrangements'' for transport and termination of telecommunications. We 
seek comment on this tentative conclusion.
    118. We note that, under the statutory framework established by 
Congress, states have the critical role under section 252 of 
establishing rates pursuant to arbitration and of reviewing rates under 
BOC statements of generally available terms. Rates for both arbitrated 
agreements and BOC statements of generally available terms must be in 
accordance with section 252(d), which sets forth specific ``pricing 
standards'' for interconnection and unbundled elements, wholesale 
services, and transport and termination of traffic under reciprocal 
compensation arrangements. The 1996 Act appears to give a role to both 
the states and the Commission regarding rates for interconnection, 
unbundled network elements, wholesale services, and reciprocal 
compensation arrangements. We believe that the statute, and in 
particular our statutory duty to implement the pricing requirements of 
section 251, as elaborated in section 252, is reasonably read to 
require that we establish pricing principles interpreting and further 
explaining the provisions of section 252(d) for the states to apply in 
establishing rates in arbitrations and in reviewing BOC statements of 
generally available terms and conditions. Such an approach appears to 
be consistent with both the language and the goals of the statute.
    119. Establishing national pricing principles would be likely to 
improve opportunities for local competition by reducing or eliminating 
inconsistent state regulatory requirements, thereby easing 
recordkeeping and other administrative burdens. In addition, national 
pricing principles would be likely to increase the predictability of 
rates, and facilitate negotiation, arbitration, and review of 
agreements between incumbent LECs and competitive providers. We seek 
comment on these tentative conclusions. We also seek comment on the 
potential consequences if the Commission does not set specific pricing 
principles. For example, would the lack of consistent rates, even in 
contiguous geographic areas, create a barrier to entry or to deployment 
of facilities throughout a multistate market? In addition, if the 
Commission is required to assume the responsibility of the state 
commission, pursuant to section 252(e)(5), would an absence of federal 
pricing principles impede the Commission's ability to arbitrate or 
review an agreement in a timely fashion?
    120. Finally, consistent with our earlier discussion that sections 
251 and 252 do not make jurisdictional distinctions between interstate 
and intrastate services and facilities, we tentatively conclude that 
the pricing principles we establish pursuant to section 251(d) would 
not recognize any jurisdictional distinctions, but would be based on 
some measure of unseparated costs. We do not believe section 2(b) 
requires a different conclusion. We seek comment on this tentative 
conclusion. We also seek comment on whether we need to revise our cost 
allocation rules in Part 64, or whether we need to adopt a similar set 
of cost allocation rules to remove the costs and revenues of services 
provided pursuant to sections 251 and 252 before the separations 
process is applied.
    (2) Statutory Language. 121. Section 251(c)(2)(D) requires that 
incumbent LECs provide interconnection ``on rates, terms, and 
conditions that are just, reasonable, and nondiscriminatory, in 
accordance with * * * the requirements of this section and section 
252.'' Section 251(c)(3) similarly requires incumbent LECs to provide 
``nondiscriminatory access to network elements on an unbundled basis * 
* * on rates, terms and conditions that are just, reasonable, and 
nondiscriminatory in accordance with * * * the requirements of this 
section and section 252.'' Likewise, section 251(c)(6) requires 
incumbent LECs to provide ``on rates, terms, and conditions that are 
just, reasonable, and nondiscriminatory, for physical collocation of 
equipment.'' Section 252(d)(1) provides that state determinations of 
the just and reasonable rate for the interconnection of facilities and 
equipment for purposes of subsection (c)(2) of section 251, and the 
just and reasonable rate for network elements for purposes of 
subsection (c)(3) of such section--
    (A) shall be (i) based on the cost (determined without reference to 
a rate of return or other rate-based proceeding) of providing the 
interconnection or network element * * *, and (ii) nondiscriminatory, 
and
    (B) may include a reasonable profit.
    We seek comment on the proper interpretation of each of these 
statutory provisions. We also seek comment on any specific principles 
that parties believe the Commission should promulgate to ensure that 
the rates established or approved by states are just, reasonable, and 
nondiscriminatory. We seek comment below on the national pricing 
principles that states might apply in setting and reviewing rates for 
interconnection, collocation, and access to unbundled network elements. 
We also seek comment on what enforcement or monitoring mechanism, if 
any, the Commission or the industry should adopt to ensure that all 
carriers comply with any pricing principles that the Commission 
establishes.
    122. Further, we believe that any pricing principles we adopt 
should be the same for interconnection and unbundled network elements, 
because sections 251 (c)(2) and (c)(3) and 252(d)(1) use the same 
standard for both types of services. We invite parties to comment on 
whether there are any reasons to make a distinction. In addition, we 
believe that the same pricing rules that apply to interconnection and 
unbundled network elements should apply to collocation as required 
under section 251(c)(6). We seek comment on this issue. In

[[Page 18330]]

particular, we seek comment on whether the absence of any pricing rule 
for collocation in section 252 has any legal significance with regard 
to our authority to specify rules for pricing of collocation services. 
Alternatively, should collocation be considered a subset of 
interconnection services, pursuant to sections 251(c)(2) and 252(d)(1) 
for purposes of the statutory pricing principle?
    (3) Rate Levels. 123. As previously set forth, section 252(d)(1) 
provides that state determinations of just and reasonable rates for 
interconnection and providing network elements shall be ``based on the 
cost (determined without reference to a rate-of-return or other rate-
based proceeding),'' ``nondiscriminatory,'' and ``may include a 
reasonable profit.'' We tentatively conclude that this language 
precludes states from setting rates by use of traditional cost-of-
service regulation, with its detailed examination of historical carrier 
costs and rate bases. Instead, the statute appears to contemplate the 
use of other forms of cost-based price regulation, such as price cap 
regulation that is indirectly based on costs, or the setting of prices 
based on a forward-looking cost methodology that does not involve the 
use of an embedded rate base, such as long-run incremental cost (LRIC). 
We seek comment on this view of the meaning of section 252(d)(1).
    124. Economists generally agree that rates based on LRIC give 
appropriate signals to producers and consumers and ensure efficient 
entry and utilization of the telecommunications infrastructure. They 
further agree that competitive markets, over the long run, tend to 
force prices toward LRIC. A broad range of parties appears to agree 
that rates for interconnection and unbundled elements should be based 
on some type of LRIC methodology, such as, for example, using what some 
parties refer to as a ``total service long-run incremental cost'' 
(TSLRIC) approach. In the following section, we consider whether we 
should adopt, a LRIC-based pricing methodology for states to use to set 
interconnection and unbundled element rates under the 1996 Act. Under 
such an approach, if voluntary negotiations between parties were 
unsuccessful, the state commissions would conduct arbitration 
proceedings under section 252 in order to develop the specific factual 
information required to specify the actual rates in accordance with the 
national policy. As discussed at greater length below, however, there 
appear to be considerable differences of opinion as to the precise form 
of the LRIC methodology that should be used. See, e.g., Ameritech's 
March 25, 1996 submission at 9-10 (TSLRIC, joint and common costs, and 
residual costs to the extent they reflect forward-looking costs should 
be used to determine the pricing standard for interconnection and 
unbundled network elements); AT&T Submission at 47 (TSLRIC of a network 
element includes both the fixed equipment costs associated with the 
element and the normal competitive return to the capital that must be 
invested in order to supply that element). For a discussion of the 
precise definitions of the terms LRIC and TSLRIC, see infra 
Paras. [123-130]. The term ``long-run service incremental cost'' 
(LRSIC), used by some states and parties, appears to be synonymous with 
the term TSLRIC. Further, while pricing based on LRIC may be the 
theoretical ideal, significant practical and administrative problems 
are likely to arise in determining the LRIC of specific services and 
facilities for particular incumbent LECs, especially in the short term, 
given the contentious and often time-consuming proceedings that may be 
necessary to resolve the complex issues raised by incremental cost 
studies. We explore these and other issues concerning the use of a 
LRIC-based pricing methodology in the following section.
    125. As an alternative to our specifying a methodology for states 
to follow in setting prices under section 252(d)(1), we could establish 
outer boundaries for rates for interconnection and unbundled network 
elements, within which states would have a range of flexibility to 
select a cost-based method of determining interconnection and unbundled 
element rates. In particular, we could establish an administratively 
simple methodology that is relatively easy to apply, potentially using 
proxies for cost-based rates, to set rate ceilings or upper bounds on 
the range of state ratemaking flexibility. The use of a proxy to set 
the ceiling would reduce the administrative burden that is inherent in 
the application of a LRIC-based methodology, and thus may be especially 
attractive in the near term. We discuss this proxy-based ceiling 
approach in detail below. We also discuss below the extent to which 
embedded (or historical) costs are relevant to the pricing rule for 
interconnection and unbundled network elements in the 1996 Act, the 
relationships between this pricing rule and policies on universal 
service and access charge reform, and whether certain methodologies are 
so fundamentally inconsistent with the 1996 Act that the statute 
precludes states from using such methodologies.
    (a) LRIC-Based Pricing Methodology. 126. As noted above, most 
economists--and a broad range of parties that have submitted materials 
related to this proceeding--appear to agree that rates for 
interconnection and unbundled elements ideally should be based on a 
LRIC-type methodology. The economists and parties, however, do not 
appear to agree on the specifics of a LRIC or TSLRIC methodology. 
Parties sometimes assign different meanings to the same terms. We 
therefore ask commenters advocating this approach to define with 
specificity the costing methodology that they support. In particular, 
we seek comment on precise definitions for the following terms: LRIC, 
TSLRIC, forward-looking costs, joint costs, common costs, shared costs, 
and stand-alone costs. We also seek comment on the definition of the 
following related terms: embedded costs, fully distributed costs (FDC), 
overheads, contribution, and residual costs. For example, many years 
ago the Commission defined LRIC as including ``the full amount of 
incremental investment and expenses which would be incurred by reason 
of furnishing additional quantities of service, whether in a new or an 
existing service category,'' and added that, in estimating LRIC, one 
``determine[s] prospectively the effect on total costs, including the 
effect on common costs, * * * of adding units of service.'' Does this 
continue to be an appropriate definition of LRIC? In what respects, if 
at all, does a TSLRIC analysis differ from a LRIC analysis? Commenters 
should explain how any methodology they support should be calculated, 
and how such an approach differs from other possible costing 
methodologies.
    127. We note that some states already have adopted LRIC-based 
pricing methodologies to set rates for interconnection services and 
unbundled network elements that new entrants purchase from incumbent 
LECs. For example, the Illinois Commerce Commission has promulgated 
detailed rules regarding the use of TSLRIC studies to derive the rates 
for specified services offered by incumbent LECs. Michigan law provides 
that incumbent LECs' rates for interconnection will be set at TSLRIC 
levels until January 1, 1997. The California Public Utilities 
Commission has set prices for unbundled elements based on a forward-
looking calculation of TSLRIC, which excludes shared and common costs. 
The New York Public Service Commission has allowed incumbent LECs to 
establish tariffed rates for interconnection offerings with rates

[[Page 18331]]

based on incremental cost plus, where appropriate, offsets to account 
for contribution loss and the impacts of ``stranded plant.'' Finally, 
the Local Competition Work Group of the NARUC Staff Subcommittee on 
Communications has recommended that network component prices should 
recover at least TSLRIC and, subject to state commission oversight and 
review, may include ``a markup over TSLRIC to reflect a reasonable 
allocation of joint and common costs.''
    128. We invite parties to comment on the costing methodologies used 
by these and other states, and on the extent to which these approaches 
are consistent with the pricing principles and goals of the 1996 Act. 
We also seek comment on whether the approach taken by any state 
regarding pricing interconnection, collocation, and unbundled network 
elements can be used as a model for a federal policy for these services 
and facilities. Are the existing state standards substantially the same 
or materially different? If there are significant differences, what are 
the costs and benefits of such variation to economic efficiency and a 
national, pro-competitive communications policy? We note that, while 
several states have identified specific costing methodologies and have 
ordered incumbent LECs to offer unbundled network elements at rates 
based on LRIC, most states have not yet acted in this area.
    129. We can consider a number of different approaches if we were to 
require a LRIC-based methodology for states to follow. For example, we 
could require that prices be set based on a narrowly defined LRIC of 
interconnection service and unbundled network elements, with no 
allowance for joint or common costs, overheads, or any other added 
increment. There may, however, be a problem with basing rates on LRIC 
alone if there are significant joint and common costs among network 
elements, even if such costs are determined on a forward-looking basis. 
As a second option, we could require prices to be based on the LRIC of 
the applicable service or unbundled element plus a reasonable 
allocation of forward-looking joint and common costs. Even then, 
however, under some LRIC methodologies, the sum of all LRIC-based 
service and element pricing may not cover all of the firm's forward-
looking costs. Finally, Ameritech has suggested a LRIC-based 
methodology that includes, in addition to TSLRIC, an allocation of 
joint (or shared) costs, common costs (or overhead), and residual 
costs. We seek comment on these alternative approaches, or variations, 
in terms of their compliance with the statute, including the statutory 
provision that rates ``may include a reasonable profit,'' and their 
respective advantages and disadvantages.
    130. We also seek comment on how, if rates are to be set above 
LRIC, to deal with the problems inherent in allocating common costs and 
any other overheads. First, it may be possible to minimize the costs to 
be allocated as joint and common by identifying a substantial portion 
of costs as incremental to a particular service or element. The 
feasibility of minimizing the costs to be allocated as joint and common 
may depend, in part, on the degree to which unbundled elements are 
disaggregated. Alternatively, joint and common costs could be minimized 
by establishing a pricing standard at a higher level of aggregation 
than individually unbundled subelements. For instance, the pricing 
standard could apply to loops, even though there may be sub-loop 
unbundling. A second approach would be to allocate common costs and 
overhead among services in an inverse relationship to the sensitivity 
of demand for each of the services. This ``Ramsey'' approach, in 
theory, minimizes reductions in consumer welfare due to prices above 
LRIC. On the other hand, Ramsey pricing principles were developed in 
the context of regulated monopolies, and may not be desirable for 
markets in which competition is developing. A third approach would be 
to allocate common costs and overheads among all services based on some 
specified allocator. For example, shared costs and overheads could be 
allocated among services in proportion to each service's LRIC or direct 
costs, or could be apportioned based on some measure of usage. We seek 
comment on these approaches, and on the expected magnitude of forward-
looking costs under each approach that cannot be attributed to specific 
services or elements. We also seek comment on whether, regardless of 
the method of allocating common costs, we should limit rates to levels 
that do not exceed stand-alone costs.
    131. Parties should specify their reasons for supporting or 
objecting to a particular costing model, and on what types of LRIC-
based pricing methodology would be consistent with the 1996 Act. 
Parties that favor a particular methodology should explain how their 
proposals satisfy the statutory requirement that cost-based rates be 
determined ``without reference to a rate-of-return or other rate-based 
proceeding.'' They should also address how their methodologies would 
comply with the statutory requirement that rates for interconnection 
and unbundled elements ``may include a reasonable profit.'' We also 
seek comment on whether the ``reasonable profit'' provision should be 
interpreted to mean that rates should yield reasonable levels of return 
on capital (including assessment of risk). Parties are encouraged to 
provide examples of states that have used the particular methodology 
that they support, or other illustrative evidence to indicate how such 
a standard would be applied. Should the LRIC-based methodology that any 
particular state has used be adopted as a national policy for 
interconnection and unbundled elements, or should a number of existing 
state approaches be identified as acceptable options? We invite parties 
to propose other approaches, to delineate with particularity how their 
proposal differs from the approaches described above. Parties should 
also address the practicality of such approaches in a state arbitration 
setting, including the extent to which they would be clear and 
relatively easy to derive with a minimum of controversy and delay, and 
the administrative burdens associated with such approaches.
    132. We also seek comment on a transitional pricing mechanism 
during an interim time period. Should we adopt an easily implementable 
interim approach that would address concerns about unequal bargaining 
power in negotiations, followed by some sort of transition mechanism to 
a more permanent set of pricing principles? One possible approach would 
be to require that during an interim period, rates be set at short-run 
marginal cost. Such an approach might give incumbent LECs an incentive 
to reach a rapid agreement.
    133. We seek comment on whether interconnection and unbundled 
element rates should be set on a geographically- and class-of-service-
averaged basis for each incumbent LEC, or whether some form of 
disaggregation would be desirable. Unlike with respect to interexchange 
telephone services, Congress did not address the question of whether 
interconnection and unbundled element rates should be geographically 
averaged. On the one hand, averaged rates would be simpler to derive 
and administer, and would minimize the possibility of unreasonable or 
unlawfully discriminatory rate differences. On the other hand, averaged 
rates might be above the cost of service in relatively dense areas, and 
below cost in less dense areas. This could create uneconomic incentives 
for competitive entrants to use incumbent LECs'

[[Page 18332]]

unbundled network elements rather than deploying their own facilities 
in high cost areas, even if their costs are lower than those of the 
incumbent LEC. Conversely, it might create incentives for competitive 
entrants to deploy their own more costly facilities, rather than using 
unbundled network elements provided by incumbent LECs, in low cost 
areas. This problem may be exacerbated if the incumbent LECs' local 
exchange or exchange access services are priced on a geographically 
averaged basis. If interconnection and unbundled element rates should 
be disaggregated, what level of disaggregation would be appropriate--by 
density pricing zone, LATA, exchange, or some other unit? What types of 
class-of-service disaggregation are appropriate? For example, should 
incumbent LECs be permitted to charge different rates for unbundled 
business and residential loops, or for unbundled loops using different 
technologies? What rate differentials would be reasonable? We further 
seek comment on whether some cost index or price cap system would be 
appropriate to ensure that rates reflect expected changes in unit costs 
over time.
    (b) Proxy-Based Outer Bounds for Reasonable Rates. 134. We also 
seek comment on the benefits, if any, of adopting a national policy of 
outer boundaries for reasonable rates instead of specifying a 
particular pricing methodology. For example, rate ceilings could define 
the maximum end of the reasonable range within which state commissions 
could establish rates for interconnection and unbundled elements in the 
arbitration process pursuant to sections 252 (b) through (e). Properly 
set rate ceilings would prevent incumbent LECs from setting rates at 
levels so high as to prevent efficient competitive entry or to allow 
them to extract monopoly rents, and would ensure that rate levels bear 
some relationship to costs. If rates are too high, use of unbundled 
elements will be deterred and therefore competitive entry will take 
place only if competitors either resell incumbent LECs' existing 
offerings (using few or none of their own facilities) or use their own 
facilities to bypass the incumbent LEC network completely. 
Consequently, setting rates too high would contravene Congress' desire 
to allow new entrants to compete by purchasing, at cost-based rates, 
unbundled elements or services of the incumbent LEC network. We 
therefore seek comment on whether a ceiling to protect against 
excessive rates for unbundled elements and services would be the best 
means of furthering the pro-competitive goals of the 1996 Act.
    135. We believe that, to be consistent with the pricing principles 
of the 1996 Act, any mechanism used to set rate ceilings for 
interconnection services and unbundled elements should: (1) make it 
possible for competitors efficiently to enter the local exchange 
market, even if all elements are priced at the rate ceiling; (2) 
constrain incumbent LECs' ability to preclude efficient entry, for 
example, by manipulating overheads and the allocation of common costs 
between services; and (3) be as simple to administer as possible. We 
seek comment on this approach, and request parties that favor a 
particular approach to explain how that approach is consistent with 
these principles.
    136. Rate ceilings could be derived using a proxy or surrogate for 
cost-based rates that does not require use of a cost study. Such a 
proxy could approximate a rate derived through a detailed cost study, 
and could establish a level above which rates set by states would be 
too high to allow efficient entry by competitors. Such an approach 
might well be simpler and speedier to implement than a LRIC-based 
methodology. A proxy also might reduce or eliminate the need for 
recordkeeping and examinations of carrier rate bases, consistent with 
the deregulatory thrust of the 1996 Act. A proxy also would address the 
concern that incumbents, which have the best information about their 
own costs, might withhold or otherwise restrict access to those data. 
Finally, carriers may have an incentive to manipulate their costs and 
thus their rates. Using a methodology not directly related to costs 
could remove this incentive. We seek comment on the use of a proxy for 
a cost-based rate ceiling. Would setting a ceiling based on a proxy 
fulfill the statutory mandate of section 252(d)(1) and the obligation 
under section 251 to ensure that rates are just and reasonable? We also 
seek comment on other possible approaches that would satisfy the 
requirements of the statute.
    137. One method for establishing proxies as a ceiling would be to 
use generic or averaged cost data. For example, some measure of 
nationally-averaged costs could be used in lieu of the actual costs of 
each incumbent LEC. Alternatively, a generic cost study could be used. 
For example, we could use the Benchmark Cost Model submitted by MCI, 
Sprint, NYNEX and US WEST in the record of CC Docket No. 80-286, or the 
Hatfield study submitted by MCI. We seek comment on whether this or 
other cost studies would serve as an appropriate proxy for constraining 
rates that states may set for interconnection and unbundled network 
elements. We also seek comment on the extent to which any study we rely 
on in establishing proxies should reflect geographically divergent 
factors such as population density.
    138. A second method for establishing proxies would be to use rates 
in existing interconnection and unbundling arrangements between 
incumbent LECs and other providers of local service, such as 
neighboring incumbent LECs, CMRS providers, or other new entrants in 
the same service area. Possible disadvantages of using existing 
interconnection arrangements, however, are that they may reflect 
various historical public policy influences that resulted in prices 
that do not reflect underlying costs, and that they may reflect 
arrangements between parties with unequal bargaining power. In 
addition, these arrangements may not include rates for interconnection 
services or network elements that are comparable with the services and 
elements to be used by competitive entrants.
    139. A third possible method for establishing a ceiling for the 
pricing of certain unbundled network elements could be a subset of the 
incumbent LECs' existing interstate access rates, charged for 
interconnection with IXCs and other access customers, or an intrastate 
equivalent. This method would have the advantage of setting ceilings 
that could be relatively easier to derive than ceilings based on cost 
studies. We would, however, want to be sure that any such ceilings 
would not effectively become the price targets for interconnection. 
These tariffs (and intrastate tariffs in many states), first, include 
flat rates for special access and dedicated transport that we have 
concluded, in general, are reasonably cost based. These rates could 
serve as the upper limit for rates for unbundled network elements 
consisting of transmission facilities between networks or between 
central offices in the incumbent LEC's network. Second, for the 
unbundled network elements corresponding to local switching, a ceiling 
could be the lower of interstate or intrastate local switching access 
charges--excluding part or all of the transport interconnection charge 
(TIC) and the carrier common line charge (CCLC), or their intrastate 
equivalents. Exclusion of the TIC and CCLC would reduce the effective 
per-minute local switching charges substantially, and intrastate 
charges could be lower. The use of access charges as a proxy for cost-
based rates to derive price ceilings may be reasonable, because 
interstate access

[[Page 18333]]

charges were initially derived based on the accounting costs of 
incumbent LEC networks after various regulatory allocations, and, for 
the larger incumbent LECs, these charges have been subject to price cap 
regulation for five years. Thus, although access charges were not 
derived based on forward-looking costs, a subset of these charges might 
provide an appropriate and easily-implemented ceiling. We seek comment 
on this analysis. We also seek comment on whether this subset of access 
charges, or some other proxy, could be used on an interim basis, with 
some transition mechanism to move towards rate ceilings based on 
economic costs.
    140. We seek comment on whether all or part of the CCLC and TIC 
should be excluded from the ceilings applicable to unbundled local 
switching or transport elements. The TIC was originally set at a 
residual level to recover costs not accounted for in our interim 
restructuring of local transport rates. To the extent that the costs in 
the TIC may be unrelated to the provision of local switching, a ceiling 
that included the entire TIC would exceed the incremental cost of those 
network elements. The CCLC arguably should be excluded from the ceiling 
because it recovers local loop costs, rather than switching and 
transport costs. In the ONA proceeding, certain interstate prices were 
established for unbundled features and functions of the local switch. 
We seek comment on the possible use of these prices as ceilings for the 
same unbundled elements under section 251.
    141. Deriving an appropriate ceiling for unbundled local loops 
using a method not requiring cost studies clearly raises its own set of 
difficulties. Using existing interstate access charges is problematic 
because interstate access charges were designed to recover only 25% of 
incumbent LECs' unseparated local loop costs, because the interstate 
access charge regime currently includes two different types of rate 
elements to recover loop costs--the CCLC and the subscriber line charge 
(SLC)--that are assessed in different ways to different categories of 
customers, and because the CCLC is a per-minute charge recovering costs 
that do not vary with usage. To address the first issue, we seek 
comment on whether a ceiling for unbundled loop rates could be based on 
the sum of the following: (1) the existing SLC, (2) an imputed flat-
rate charge based on the CCLC paid by a customer with average usage, 
such as that we permitted Rochester Telephone to implement last year, 
and (3) some subset of intrastate local exchange rates. We solicit 
comment on how such a ceiling could be implemented. We recognize that, 
while using some subset of existing prices as a ceiling may be 
administratively simple, that ceiling may not tightly correlate with a 
TSLRIC definition of costs, and thus we seek comment more broadly on 
other possible administratively simple methods for setting a ceiling 
for the price of an unbundled loop to be applied by the states in an 
arbitration under sections 251 and 252. We note that we have referred 
to a Federal-State Joint Board established under section 254 the 
question of whether and how the existing subsidy to reduce the level of 
the SLC should be changed, and we seek comment on how the current 
system for separating and recovering common line costs, as well as 
various pending proposals before the Joint Board, should affect our 
analysis.
    142. Using any of the above proxy methodologies, the proxy rate may 
be usage-sensitive, while a service or element is sold on a flat-rated 
basis, or vice versa. In those situations the applicable ceiling could 
be derived through a conversion factor, such as average usage. By usage 
sensitive, we mean that costs vary by some measure of usage, such as 
the number of messages or minutes of use. By flat-rated, we mean costs 
that vary by capacity rather than usage. To convert a per-minute 
interstate local switching rate to a ceiling for a flat-rate ``switch 
platform'' charge, the rate could be multiplied by the average total 
number of minutes through a local switch per month. We seek comment on 
whether such an average usage factor, a geographically disaggregated 
usage factor, or some alternative methodology, would be appropriate for 
converting per-minute rates to flat rates, or vice versa. We also seek 
comment on how such a proxy-based ceiling could be applied on a 
service-by-service or element-by-element basis if services are 
unbundled in different configurations from the methods set forth in the 
proxy.
    143. As the counterpart to ceilings, we seek comment on whether it 
is necessary or appropriate for us to establish floors for 
interconnection and unbundled element prices, i.e., the lower end of a 
reasonable range within which state commissions could establish rate 
levels. What would be the potential competitive benefits or detriments 
of setting a floor for interconnection, collocation, and unbundled 
element rates? Are they needed to protect incumbent LECs from 
confiscatory regulatory action? If they are needed, how should they be 
calculated? Below, we discuss a possible pricing rule under which the 
sum of the prices of unbundled services cannot exceed the retail price 
for those services if sold on a bundled basis. Under such a rule, if 
retail rates are below cost-based levels due to universal service or 
other implicit subsidies, it may be necessary to price some or all of 
the unbundled services below LRIC in order for their sum not to exceed 
the subsidized retail rate. How would this affect the implementation of 
price floors, or the desirability of such floors?
    (c) Other Issues. 144. We seek comment on the extent to which 
embedded or historical costs should be relevant, if at all, to the 
determination of cost-based rates under section 252(d)(1). Setting 
rates based on a detailed rate base examination of the incumbent LEC's 
book costs, with an allocation of residual costs among elements and 
services, would violate the requirement of section 252(d)(1)(A)(i) that 
rates for interconnection and network elements be ``based on cost 
(determined without reference to a rate-of-return or other rate-based 
proceeding.).'' In economic terms, prices in competitive markets are 
based on firms' forward-looking costs rather than historic (sunk) 
costs. We note however, since the statutory language precludes only use 
of costs determined on the basis of a ``rate-based proceeding,'' it may 
be permissible to take some account of an incumbent LEC's embedded 
costs. Given that incumbent LECs provide services over shared 
facilities and that technological developments are consistently 
reducing the costs of providing service, setting the price of discrete 
services and elements equal to the forward-looking LRIC of each service 
or element is not likely to recover the historical costs of incumbent 
LECs' networks. We seek comment on the empirical magnitude of the 
differences between the historical costs incurred by incumbent LECs (or 
historical revenue streams) and the forward-looking LRIC of the 
services and facilities they will be providing pursuant to section 251. 
How much of this differential can be attributed to universal service 
support flows? To what extent can incumbent LECs reasonably claim an 
entitlement to recover a portion of such cost differences? According to 
the Local Competition Work Group of the NARUC Staff Subcommittee on 
Communications, a competitive local market would make the issue of 
recovery of ``stranded'' embedded costs moot, at least from a purely 
economic perspective. It notes, that, in limited circumstances, other 
considerations

[[Page 18334]]

could result in a regulatory decision that some recovery of past 
investment decisions by incumbents is appropriate. Should we establish 
LRIC as a long-run standard, but permit some interim recognition of 
embedded costs in the short run? We seek specific comment on mechanisms 
for any such transition, including how to determine what costs should 
be recovered during the transition and, most importantly, how and when 
any such transition would end.
    145. We also solicit comment on whether it would be consistent with 
sections 251(d)(1) and 254 for states to include any universal service 
costs or subsidies in the rates they set for interconnection, 
collocation, and unbundled network elements. For instance, New York has 
adopted a ``play or pay'' model in which interconnectors who agree to 
serve all customers in their self-defined service areas (``players'') 
potentially pay a substantially lower interconnection rate than those 
who serve only selected customers (``payers''), who are liable to pay 
additional contribution charges. In the long term, section 254 requires 
the Commission and the Joint Board established under section 254 to 
take actions to implement the following statutory principles: ``All 
providers of telecommunications service should make an equitable and 
nondiscriminatory contribution to the preservation and advancement of 
universal service. * * * There should be specific, predictable, and 
sufficient Federal and State mechanisms to preserve and advance 
universal service.'' Arguably, these principles can be interpreted as 
requiring competitively-neutral mechanisms for recovering universal 
service support, rather than recovering such support through rates for 
interconnection or unbundled network elements. On the other hand, the 
statutory schedule for completion of the universal service reform 
proceeding (15 months from enactment of the 1996 Act) is different from 
that for this proceeding (6 months from the date of enactment of the 
1996 Act). Also, intrastate universal service mechanisms will not be 
affected directly by the section 254 Joint Board proceeding. We also 
seek comment on whether the ability of states to take universal service 
support into account differs pending completion of the section 254 
Joint Board proceeding or state universal service proceedings pursuant 
to section 254(f), during any transition period that may be established 
in the Joint Board proceeding, or thereafter.
    146. We recognize that even though, as noted below, the provision 
of interconnection and unbundled elements pursuant to sections 251 and 
252 may not legally displace our interstate access charge regime, the 
two types of services have clear similarities. Radically different 
pricing rules for interconnection and unbundled elements, on the one 
hand, and levels of interstate access charges, on the other, may create 
economic inefficiencies and other anomalies. Indeed, under a long-term 
competitive paradigm, it is not clear that there can be a sustainable 
distinction between access for the provision of local service and 
access for the provision of long distance service. Thus, we are 
cognizant of the need to consider these issues in a coordinated manner, 
and believe it is critically important to reform our interstate access 
charge rules in the near future.
    147. Finally, we note that certain incumbent LECs have advocated 
that interconnection rates be set based on the ``efficient component 
pricing rule'' (ECPR) proposed by economist William Baumol and others. 
Under this approach, an incumbent carrier that sells an essential input 
service, such as interconnection, to a competing network would set the 
price of that input service equal to ``the input's direct per-unit 
incremental costs plus the opportunity cost to the input supplier of 
the sale of a unit of input.'' Under the ECPR, competitive entry will 
not place at greater risk the incumbent's recovery of its overhead 
costs or any profits that it otherwise would forgo due to the entry of 
the competitor. In other words, the incumbent's profitability would not 
be diminished by providing interconnection or unbundled elements or 
both. Proponents of ECPR argue that the ECPR creates an incentive for 
services to be provided by the lowest-cost provider and that it makes 
the incumbent indifferent to whether it sells an input service to a 
competitor or a final service to an end user. Critics, however, have 
argued that these properties only hold in special circumstances. The 
ECPR presupposes that the incumbent is the sole provider of a 
bottleneck service, and seeks to define efficient incentives for 
incremental entry based on that assumption. Under the ECPR, competitive 
entry does not drive prices toward competitive levels, because it 
permits the incumbent carrier to recover its full opportunity costs, 
including any monopoly profits. In general, the ECPR framework 
precludes the opportunity to obtain the advantages of a dynamically 
competitive marketplace. These arguments cast significant doubts on the 
claims that the rule will yield efficient outcomes over time. Finally, 
as an administrative matter, it would be difficult for a regulatory 
agency to determine a carrier's actual opportunity cost.
    148. We tentatively conclude that use of the ECPR or equivalent 
methodologies to set prices for interconnection and unbundled network 
elements would be inconsistent with the section 252(d)(1) requirement 
that be based on ``cost.'' We propose that states be precluded from 
using this methodology to set prices for interconnection and access to 
unbundled elements. Moreover, we seek comment on whether such a pricing 
methodology, if used by a state, would constitute a barrier to entry as 
under section 253 of the 1996 Act.
    (4) Rate Structure. 149. The structure of incumbent LEC rates for 
interconnection and unbundled network elements will influence the 
incentives for interconnectors to purchase and use these services, 
independent of the level at which rates are set. For example, a usage-
sensitive rate will create incentives for the purchaser to minimize 
usage, or to seek out end users with low usage, while a flat rate for 
an element will create incentives to utilize the maximum capacity 
available. Some possible rate structures for interconnection and access 
to unbundled network elements under the 1996 Act might produce rates 
that are not just, reasonable, and nondiscriminatory (as required under 
Section 251), might conflict with the pricing standard in section 
252(d)(1), or might be at odds with the pro-competitive goals of the 
1996 Act. Establishing clear federal rules and principles concerning 
rate structures may assist states and the parties in arbitrating rates 
for interconnection and unbundled network elements. We therefore seek 
comment on some possible principles for analyzing rate structure 
questions, and some possible principles to guide state (and ultimately 
judicial) decisions in structuring rates for interconnection and 
unbundled network elements.
    150. In general, we believe that costs should be recovered in a 
manner that reflects the way they are incurred. This approach is 
consistent with the 1996 Act's pricing standard for interconnection and 
unbundled network elements, which indicates that prices should be based 
on cost. Network providers incur costs in providing two broad 
categories of facilities, dedicated and shared. Dedicated facilities 
are those that are used by a single party--

[[Page 18335]]

either an end user or an interconnecting network. Shared facilities are 
those that are used by multiple parties. The cost of a dedicated 
facility can be attributed directly to the party ordering the service 
that uses that facility, and it is therefore efficient for that party 
to pay charges that recover the full cost of the facility. A non-
traffic sensitive (NTS) or ``flat-rated'' charge is most efficient for 
dedicated facilities, because it ensures that a customer will pay the 
full cost of the facility, and no more. It ensures that the customer 
will, for example, add additional lines only if the customer believes 
that the benefits of the additional lines will exceed their cost. It 
also ensures that the customer will not face an additional (and non-
cost-based) usage charge.
    151. We believe the costs of shared facilities should be recovered 
in a manner that efficiently apportions costs among users that share 
the facility. We seek comment on whether a capacity-based NTS rate or a 
traffic-sensitive (TS) rate may be efficient for recovering the cost of 
shared facilities in any given circumstance. For shared facilities 
whose cost varies with capacity, such as network switching, it may be 
efficient to set prices using any of the following: a usage-sensitive 
charge; a usage-sensitive charge for peak-time usage and a lower charge 
for off-peak usage; or a flat charge for the peak capacity that an 
interconnector wishes to pay for and use as though that portion of the 
facility were dedicated to the interconnector.
    152. We seek comment on whether, pursuant to section 251(c)(2), 
(3), (6), and 251(d)(1), we should adopt rate structure principles for 
states to apply in meeting the pricing responsibilities under section 
252(d)(1). We also seek comment on how such requirements might further 
our goal of having clear and administratively simple rules. More 
specifically, we seek comment on whether we should require states to 
adopt rate structures that are cost-causative and, in particular, 
whether we should require states to provide for recovery of dedicated 
facility costs on a flat-rated basis or, at a minimum, make LECs offer 
a flat-rate option. In the absence of such a standard, could usage 
sensitive rates for dedicated facilities cause serious inefficiencies, 
harm competition, or be contrary to the requirements of the 1996 Act? 
For example, a usage-based charge could cause parties with high traffic 
volumes to overpay (i.e., pay more than the fixed cost of the 
facility), and parties with low traffic volumes to underpay (i.e., pay 
less than the fixed cost of the facility). In addition, a usage-based 
charge could give all parties an uneconomic incentive to reduce their 
traffic volumes or to avoid connecting with networks that impose such 
charges. It also could give parties with low volumes of traffic, who 
face below-cost prices, an incentive to add lines that they valued less 
than their cost. The Washington Utilities Commission, for example, has 
concluded that measured use interconnection rates are not cost-based 
and could harm local consumers, and therefore rejected a measured use 
compensation structure as an exclusive compensation mechanism.
    153. We also seek comment on whether we should adopt any rules for 
pricing of shared facilities. Parties should address the circumstances 
under which TS rates or flat capacity-based rates would produce 
efficient results for shared facilities. Several parties have argued 
that, in the context of interconnection and access to unbundled 
incumbent LEC networks, interconnectors should have the option of 
paying for and using a portion of the capacity of incumbent LEC 
switches. As proposed by some, interconnectors would pay a flat rate 
for the use of a certain amount of incumbent LEC's switching capacity, 
and this rate would be discounted based on volume and term commitments. 
The interconnector would be able to use this platform to provide both 
basic local switching service as well as vertical switching features--
such as caller ID and call forwarding--to its end users without paying 
the incumbent LEC a separate charge for these services. The 
interconnector would assume the risk of generating sufficient traffic 
to justify the capacity it purchased from the incumbent LEC. We seek 
comment on the ``switch platform'' concept, on whether the 1996 Act 
requires that switching capacity be made available to new entrants on 
this basis, and on the competitive implications of such a rate 
structure. We also seek comment on whether, in the context of these 
bottleneck facilities offered by incumbent LECs to their competitors, 
any measures are necessary to prevent incumbent LECs from recovering 
more than the total cost of a shared facility from users of that 
facility. Finally, we seek comment on whether concerns about pricing of 
shared facilities could be alleviated if, as discussed below, sellers 
of facilities are not allowed to preclude purchasers from further 
reselling such facilities on a shared basis, which would create 
alternative sources of shared capacity.
    154. Additionally, we seek comment on whether under the 1996 Act we 
should require or permit volume and term discounts for unbundled 
elements or services. Commenters are also invited to suggest 
alternative rate structure principles. Parties should explain how their 
proposals are consistent with economic cost-causation principles, and 
with the language and intent of the 1996 Act.
    (5) Discrimination. 155. Sections 251 and 252 require that 
interconnection and unbundled element rates be ``nondiscriminatory.'' 
In addition, section 251(c)(4) requires that, in making resale 
available, carriers not impose ``discriminatory conditions or 
limitations on resale''. Finally, section 252(e) provides that states 
may reject a negotiated agreement or a portion of the agreement if it 
``discriminates'' against a carrier not a party to the agreement and 
section 252(i) requires incumbent LECs to ``make available any 
interconnection, service, or network element provided under an 
agreement * * * to which it is a party to any requesting 
telecommunications carrier upon the same terms and conditions.'' By 
comparison, section 202(a) of the 1934 Act provides that ``(i)t shall 
be unlawful for any common carrier to make any unjust or unreasonable 
discrimination in charges * * * for * * * like communication service.''
    156. We seek comment on the meaning of the term 
``nondiscriminatory'' in the 1996 Act compared with the phrase 
``unreasonable discrimination'' in the 1934 Act. More specifically, in 
choosing the word ``nondiscriminatory,'' did Congress intend to 
prohibit all price discrimination, including measures (such as density 
zone pricing or volume and term discounts) that are considered lawful 
under section 202(a)? We note that the legislative history of the new 
provisions prohibiting discrimination offers no explicit guidance on 
this question. We seek comment on whether sections 251 and 252 can be 
interpreted to prohibit only unjust or unreasonable discrimination. For 
example, may carriers charge different rates to parties that are not 
similarly situated, such as when a carrier incurs different costs to 
provide service to such parties? We also seek comment as to whether we 
should allow such pricing as a policy matter.
    (6) Relationship to Existing State Regulation and Agreements. 157. 
Section 251(d)(3) of the 1996 Act expressly bars the Commission, when 
prescribing and enforcing regulations to implement section 251, from 
precluding enforcement of certain existing state regulations. 
Specifically, section 251(d)(3) prohibits us from ``[precluding] the 
enforcement of any regulation, order, or policy of a State commission 
that--

[[Page 18336]]

    (A) establishes access and interconnection obligations of local 
exchange carriers;
    (B) is consistent with the requirements of this section; and
    (C) does not substantially prevent implementation of the 
requirements of this section and the purposes of [the portion of the 
1996 Act dealing with development of competitive markets] .''
    We ask parties to address the meaning of the specific terms of 
section 251(d)(3). What types of state policies would, or would not, be 
consistent with the requirements of section 251 and the purposes of 
Part II or Title II of the Act? We also seek comment on how the 
particular principles discussed above would affect existing state rules 
and policies, as well as existing negotiated agreements between 
carriers.
    e. Interexchange Services, Commercial Mobile Radio Services, and 
Non-Competing Neighboring LECs. 158. In this section, we address 
whether the terms of section 251(c) cover interconnection arrangements 
between incumbent LECs and providers of interexchange services, CMRS 
providers, and non-competing neighboring LECs.
    (1) Interexchange Services. 159. Sections 251(c)(2) and 251(c)(3) 
impose duties upon incumbent LECs to provide interconnection and 
nondiscriminatory access to unbundled network elements, respectively, 
to ``any requesting telecommunications carrier.'' In relevant part, 
``telecommunications carrier'' is defined in section 3(44) of the 1934 
Act, as amended, as ``any provider of telecommunications services.'' 
Because interexchange services are a type of ``telecommunications 
services,'' which are defined in section 3(46) as ``the offering of 
telecommunications for a fee directly to the public . . . regardless of 
the facilities used,'' we conclude that carriers providing 
interexchange services are ``telecommunications carriers.'' Thus, we 
believe that interexchange carriers may seek interconnection and 
unbundled elements under subsections (c)(2) and (c)(3), respectively.
    160. With respect to section 251(c)(2), however, we believe the 
statute imposes limits on the purposes for which any telecommunications 
carrier, including interexchange carriers, may request interconnection 
pursuant to that section. Section 251(c)(2) imposes an obligation upon 
incumbent LECs to provide requesting carriers with interconnection 
where the request is for the ``transmission and routing of telephone 
exchange service and exchange access.'' ``Telephone exchange service'' 
is defined in section 3(47) of the 1934 Act, as amended, as ``service 
within a telephone exchange, or within a connected system of telephone 
exchanges within the same exchange area operated to furnish to 
subscribers intercommunicating service of the character ordinarily 
furnished by a single exchange,'' or ``comparable service[s].'' 
According to this definition, interexchange service does not appear to 
constitute a ``telephone exchange service.'' We seek comment on this 
interpretation.
    161. Interexchange service would not appear to qualify as 
``exchange access'' either. ``Exchange access'' is defined in section 
3(16) of the 1934 Act, as amended, as ``the offering of access to 
telephone exchange services or facilities for the purpose of the 
origination or termination of telephone toll services.'' This 
definition would appear to require a telecommunications carrier to 
request interconnection for purposes of ``offering'' access to exchange 
services. An interexchange carrier that requests interconnection to 
originate or terminate an interexchange toll call would not appear to 
be ``offering'' access services, but rather to be ``receiving'' access 
services. Thus, it would appear that the obligation to provide 
interconnection pursuant to section 251(c)(2) does not apply to 
telecommunications carriers requesting such interconnection for the 
purpose of originating or terminating interexchange traffic. This 
tentative conclusion seems consistent with section 251(i), which 
provides that ``[n]othing in this section shall be construed to limit 
or otherwise affect the Commission's authority under section 201.'' 
Section 201 is the statutory basis on which interexchange carriers have 
long been entitled to interconnect for the purposes of originating and 
terminating interexchange traffic. Some have argued that our 
interpretation is also consistent with other provisions of section 251, 
such as section 251(g), and with Congress' focus on the local exchange 
market. We seek comment on our tentative conclusion.
    162. It follows from the above definition of ``exchange access'' 
that a telecommunications carrier may request cost-based 
interconnection under section 251(c)(2) for the purpose of offering 
access services in competition with the incumbent LEC. We seek comment, 
however, on whether a carrier may request cost-based interconnection 
under section 251(c)(2) solely for this purpose. The language in 
section 251(c)(2) indicating that interconnecting carriers must offer 
``telephone exchange service and exchange access'' may mean that 
carriers must offer both ``telephone exchange service and exchange 
access,'' or it may mean that telecommunications carriers may obtain 
interconnection from an incumbent LEC to provide one or the other 
service, or both. We believe that if we were to interpret this section 
to require requesting parties to offer both telephone exchange and 
exchange access services, such a requirement would exclude competitive 
access providers that currently interconnect with incumbent LECs in 
order to offer competing exchange access transport services, not 
telephone exchange service. On the other hand, if we interpret section 
251(c)(2) to permit cost-based interconnection for the purpose of 
offering either telephone exchange or exchange access, that 
interpretation might permit an interexchange carrier to form an 
affiliate to obtain interconnection from an incumbent LEC for the 
purpose of offering a competing exchange access service. The affiliate 
then might offer its competing service exclusively to its interexchange 
affiliate, thereby enabling the latter to accomplish indirectly--
obtaining interconnection for the purpose of receiving exchange access 
service--what the statute appears to prohibit it from doing directly 
under section 251(c)(2). This concern is real, of course, only if an 
exclusive relationship of this sort is otherwise lawful under the 1934 
Act, as amended, which it may not be. We seek comment on this analysis. 
We also seek comment on the impact that any conclusion here would have 
on the Commission's Expanded Interconnection rules, which address the 
competitive provision of interstate access.
    163. Section 251(c)(3) appears to limit the purposes for which 
telecommunications carriers may request access to unbundled network 
elements only in the sense that such carriers must seek to provide a 
``telecommunications service'' by means of such elements. As discussed 
above, interexchange service is a ``telecommunications service.'' Thus, 
we tentatively conclude that carriers may request unbundled elements 
for purposes of originating and terminating interexchange toll traffic, 
in addition to whatever other services the carrier wishes to provide 
over those facilities.
    164. Some interested persons have suggested that this 
interpretation of section 251(c)(3) would allow interexchange carriers, 
in effect, to obtain network elements in order to avoid the 
Commission's Part 69 access charges, but would not require such 
carriers to use such elements to compete with the incumbent LEC to 
provide telephone exchange service to

[[Page 18337]]

subscribers. In opposition, others may argue that incumbent LECs are 
not obliged under section 251(c)(3) to provide access to unbundled 
elements, such as a local loop, solely for the purpose of originating 
and terminating interexchange toll traffic. Rather, the argument might 
go, the incumbent LEC's statutory obligation to provide network 
elements extends only to providing exclusive access to an entire loop, 
in which case an interexchange carrier could not, as a practical 
matter, purchase such access without having won over the local customer 
associated with the loop and providing that telephone exchange service 
to that customer (or arranging for others to provide it). This latter 
reading of the statute is consistent with our earlier discussion 
concerning the meaning of the term ``network element.'' There we noted 
that a network element appears to refer to a facility or function, 
rather than a jurisdictionally distinct service, such as switching for 
intrastate exchange access. We also note that viewing a network element 
as a jurisdictionally distinct service might be inconsistent with the 
pricing standards set forth in section 252(d)(1), which suggest that 
prices for these elements should be set on the basis of some measure of 
economic costs, not jurisdictionally separated costs. Moreover, as with 
section 251(c)(2), allowing interexchange carriers to circumvent Part 
69 access charges by subscribing under section 251(c)(3) to network 
elements solely for the purpose of obtaining exchange access may be 
viewed as inconsistent with other provisions in section 251, such as 
sections 251(i) and 251(g), and contrary to Congress' focus in these 
sections on promoting local competition. Lastly, such a reading of the 
statute may effect a fundamental jurisdictional shift by placing 
interstate access charges under the administration of state 
commissions. We seek comment on these issues.
    165. If a carrier that provides interexchange toll services 
purchases access to unbundled network elements in order to provide such 
toll services--either alone if the statute permits it, or in 
conjunction with local exchange services--we tentatively conclude that 
the incumbent LEC may not assess Part 69 access charges in addition to 
the charges assessed for the network elements determined under sections 
251 and 252. Section 252, we note, requires that charges for elements 
shall be based on cost. Thus, the additional imposition of Part 69 
access charges would result in total charges not based on cost and thus 
would seem inconsistent with the statutory scheme. We seek comment on 
this conclusion. In commenting, parties may want to discuss the 
relevance of section 272(e)(3). That section requires BOCs, after 
entering the in-region interexchange business, to impose on their 
affiliates--or impute to themselves--access charges no lower than what 
they charge to unaffiliated interexchange carriers. In light of the 
above discussion and its possible implications for our Part 69 access 
charge regime, we repeat here our intention of taking up access charge 
reform in the very near future.
    (2) Commercial Mobile Radio Services. 166. We next seek comment on 
whether interconnection arrangements between incumbent LECs and 
commercial mobile radio service (CMRS) providers fall within the scope 
of section 251(c)(2). As indicated below in the discussion of section 
251(b)(5), we also seek comment on the separate but related question of 
whether LEC-CMRS transport and termination arrangements fall within the 
scope of section 251(b)(5).
    167. With respect to section 251(c)(2), because the obligations of 
that section, and of section 251(c) generally, apply only to incumbent 
LECs, we tentatively conclude that CMRS providers are not obliged to 
provide interconnection to requesting telecommunications carriers under 
the provision of section 251(c)(2). CMRS providers are not encompassed 
by the 1996 Act's definition of ``incumbent local exchange carrier'' 
discussed above.
    168. LEC-CMRS interconnection arrangements may nonetheless fall 
within the scope of section 251(c)(2) if CMRS providers are 
``requesting telecommunications carrier[s]'' that seek interconnection 
for the purpose of providing ``telephone exchange service and exchange 
access.'' CMRS are within the definition of ``telecommunications 
services'' in section 3(46) of the 1934 Act, as amended, because they 
are offered ``for a fee directly to the public.'' Similarly, CMRS 
providers are within the definition of ``telecommunications 
carrier[s]'' in section 3(44) because they are ``provider[s] of 
telecommunications services.'' The phrase ``telephone exchange 
service'' is arguably broad enough to encompass at least some CMRS. 
``[T]elephone exchange service'' is defined as either ``(A) service 
within a telephone exchange, or within a connected system of telephone 
exchanges within the same exchange area operated to furnish to 
subscribers intercommunicating service of the character ordinarily 
furnished by a single exchange, and which is covered by the exchange 
service charge, or (B) comparable service[s].'' We seek comment on 
which if any CMRS, including voice-grade services, such as cellular, 
PCS, and SMR, and non-voice-grade services, such as paging, fit this 
definition. In commenting, parties should address any past Commission 
statements that bear on the matter.
    169. If CMRS providers seeking interconnection from incumbent LECs 
fall within the purview of section 251(c)(2), or of section 251(b)(5), 
there arises the question of the relationship between section 251 and 
another recent addition to the 1934 Act that also addresses 
interconnection between CMRS providers and other common carriers, 
section 332(c). Although we seek comment on the relationship of the two 
provisions in this proceeding, we note that LEC-CMRS interconnection 
pursuant to section 332(c) is the subject of its own ongoing proceeding 
in CC Docket No. 95-185, which the Commission initiated prior to the 
enactment of the 1996 Act. We also note that we sought comment in that 
proceeding generally on the issue of the interplay of section 251 and 
section 332(c) and have received extensive comments. We intend that CC 
Docket No. 95-185 remain open and we do not want to ask interested 
parties to repeat their arguments on issues they have already addressed 
in that docket. Therefore, in this proceeding, we ask parties to 
address any specific issues presented in this NPRM that are not already 
addressed in CC Docket No. 95-185. In submitting additional comments, 
parties may want to address the possibility that if both sections 251 
and 332(c) apply, the requesting carrier would have to choose the 
provision under which to proceed. Parties may also want to address 
whether it would be sound policy for the Commission to distinguish 
between telecommunications carriers on the basis of the technology they 
use. The Commission retains the prerogative of incorporating by 
reference comments filed in the section 332(c) proceeding into the 
record of this proceeding, and of acting on these pending rulemakings 
in a manner that best serves the interests of reasoned decisionmaking.
    (3) Non-Competing Neighboring LECs. 170. We turn next to whether 
interconnection agreements between incumbent LECs and non-competing 
neighboring LECs are subject to section 251(c)(2). If they are, section 
252 would appear to require that such arrangements be made public and 
the terms and conditions of the agreements made available to other 
carriers. Whether this is true of existing arrangements between 
incumbent LECs

[[Page 18338]]

and non-competing neighboring LECs depends on the resolution of the 
issue, discussed above, of existing agreements generally.
    171. The language of section 251(c)(2), which encompasses 
interconnection requested for the purposes of providing ``telephone 
exchange service and exchange access,'' appears to encompass the 
services provided by non-competing neighboring LECs. By definition, 
such LECs provide ``telephone exchange service and exchange access.'' 
Nevertheless, a reading of section 251(c)(2) in context shows that it 
is part of a provision designed to promote competition against the 
incumbent LEC, and on this basis, the requirements set forth therein 
could arguably be understood to apply only to arrangements between 
competing carriers. We note, however, that in deciding this issue, we 
do not seek to create any disincentives that might hamper competition 
between neighboring carriers. We seek comment on which of the above 
interpretations is correct. To the extent a party advocates the latter 
interpretation, we also seek comment on the implications, if any, for 
the CMRS discussion.
3. Resale Obligations of Incumbent LECs
    a. Statutory Language. 172. Section 251(c)(4) imposes a duty upon 
incumbent LECs to offer certain services for resale at wholesale rates. 
Specifically, section 251(c)(4) requires incumbent LECs: (A) to offer 
for resale at wholesale rates any telecommunications service that the 
carrier provides at retail to subscribers who are not 
telecommunications carriers; and (B) not to prohibit, and not to impose 
unreasonable or discriminatory conditions or limitations on, the resale 
of such telecommunications service, except that a State commission may, 
consistent with regulations prescribed by the Commission under this 
section, prohibit a reseller that obtains at wholesale rates a 
telecommunications service that is available at retail only to a 
category of subscribers from offering such service to a different 
category of subscribers.
    173. We seek comment generally on the application of this section, 
as set forth in some detail below. We will first discuss the services 
subject to resale and conditions on such resale and then turn to the 
pricing issues concerning resale. We also seek comment generally on the 
relationship of this section to section 251(b)(1), which imposes 
certain resale duties on all LECs.
    b. Resale Services and Conditions. 174. Section 251(c)(4)(A) 
provides that incumbent LECs must offer for resale at wholesale rates 
``any telecommunications service that the carrier provides at retail to 
subscribers who are not telecommunications carriers.'' Section 
251(b)(1) imposes on all LECs ``the duty not to prohibit, and not to 
impose unreasonable or discriminatory conditions or limitations on, the 
resale of its telecommunications services.'' One view of the 
relationship between section 251(b)(1) and section 251(c)(4) is that 
all LECs are prohibited from imposing unreasonable restrictions on 
resale, but that only incumbent LECs that provide retail services to 
subscribers that are not telecommunications carriers are required to 
make such services available at wholesale rates to requesting 
telecommunications carriers. We seek comment on this view.
    175. We also seek comment on what limitations, if any, incumbent 
LECs should be allowed to impose with respect to services offered for 
resale under section 251(c)(4). Should the incumbent LEC have the 
burden of proving that a restriction it imposes is reasonable and 
nondiscriminatory? Given the pro-competitive thrust of the 1996 Act and 
the belief that restrictions and conditions are likely to be evidence 
of an exercise of market power, we believe that the range of 
permissible restrictions should be quite narrow. We seek comment on 
this view. We also seek comment on whether, and if so how, the resale 
obligation under section 251(c)(4) extends to incumbent LEC's 
discounted and promotional offerings. Did Congress intend for such 
offerings to be provided at wholesale rates, based on the promotional 
rate minus avoided costs, or does the obligation to provide for resale 
at wholesale rates only apply to the incumbent LEC's standard retail 
offerings? If the obligation extends only to the standard offering, 
what effect would that have on the use of resale as a means of entering 
the local market? If the obligation applies to promotional and 
discounted offerings, must the entrant's customer take service pursuant 
to the same restrictions that apply to the incumbent LECs' retail 
customers? Moreover, how would such restrictions be enforced without 
impeding competition (e.g., through disclosure of competitively 
sensitive information)? We also seek comment on whether a LEC can avoid 
making a service available at wholesale rates by withdrawing the 
service from its retail offerings, or whether it should be required to 
make a showing that withdrawing the offering is in the public interest 
or that competitors will continue to have an alternative way of 
providing service. We also seek comment on whether access to unbundled 
elements addresses this concern.
    176. We seek comment on the meaning of the language that ``a State 
commission may, consistent with regulations prescribed by the 
Commission under this section, prohibit a reseller that obtains at 
wholesale rates a telecommunications service that is available at 
retail only to a category of subscribers from offering such service to 
a different category of subscribers.'' The provision suggests that 
Congress did not intend to allow competing telecommunications carriers 
to purchase a service that, pursuant to state or federal policy, is 
offered at subsidized prices to a specified category of subscribers 
(e.g., residential subscribers), and then resell such service to 
customers that are not eligible for such subsidized service (e.g., 
business subscribers). For example, it might be reasonable for a state 
to restrict the resale of a residential exchange service that is 
limited to low-income consumers, such as the existing Lifeline program. 
At the same time, we have generally not allowed carriers to prevent 
other carriers from purchasing high volume, low price offerings to 
resell to a broad pool of lower volume customers. We seek comment on 
this analysis.
    177. We note that states have adopted various policies regarding 
resale of telecommunications services. For example, some states 
prohibit the resale of flat-rated services and residential service. 
Other states require or permit the resale of residential services, but 
place restrictions, or permit the LECs to place restrictions, on the 
resale of such service. For example, Illinois prohibits the resale of 
residential services to customers other than residential users, while 
Washington and Ohio permit carriers to prohibit or to place reasonable 
restrictions on the resale of residential services to business 
customers. Finally, some states have imposed nondiscrimination 
requirements similar to those contained in section 251(c)(4). Colorado 
has enacted rules governing the authorization of local exchange service 
providers, and has prohibited facilities-based telecommunications 
providers from imposing unreasonable or discriminatory limitations on 
the resale of the regulated telecommunications service. Pennsylvania 
also prohibits a LEC from maintaining or imposing resale or sharing 
restrictions on any service that the state commission finds to be 
competitive. We seek comment on whether it would be consistent with the

[[Page 18339]]

1996 Act to use any state policies concerning restrictions on resale in 
our federal policies. We also seek comment on state policies that are 
inconsistent with the goals of the 1996 Act or that are inadvisable 
from a policy perspective. Parties are also invited to comment on 
whether requiring new entrants to cope with resale policies that are 
inconsistent from one state to another would disadvantage them 
competitively in a manner inconsistent with the 1996 Act.
    c. Pricing of Wholesale Services. (1) Statutory Language. 178. The 
requirement in section 251(c)(4) that incumbent LECs offer services at 
``wholesale rates'' is elaborated in section 252(d)(3), which sets 
forth the standards that states must use in arbitrating agreements and 
reviewing rates under BOC statements of generally available terms and 
conditions. Section 252(d)(3) provides that wholesale rates shall be 
set ``on the basis of retail rates charged to subscribers for the 
telecommunications service requested, excluding the portion thereof 
attributable to any marketing, billing, collection, and other costs 
that will be avoided by the local exchange carrier.'' As previously 
discussed in Section II.B.2.d.1., we believe that the Commission is 
authorized to promulgate rules for the states in applying section 
252(d).
    (2) Discussion. 179. We seek comment generally about the meaning of 
the term ``wholesale rates'' in section 251(c)(4). To ensure that 
incumbent LECs fulfill their duty under section 251(c)(4) regarding 
resale services, can and should we establish principles for the states 
to apply in order to determine wholesale prices in an expeditious and 
consistent manner?
    180. We also seek comment on whether we should issue rules for 
states to apply in determining avoided costs. We could, for example, 
determine that states are permitted, under the Act, to direct incumbent 
LECs to quantify their costs for any marketing, billing, collection, 
and similar activities that are associated with offering retail, but 
not wholesale services. We seek comment on whether avoided costs should 
also include a share of general overhead or ``mark-up'' assigned to 
such costs. LECs would then reduce retail rates by this amount, offset 
by any portion of those expenses that they incur in the provision of 
wholesale services. This approach appears to be consistent with the 
statute, but would create certain administrative difficulties because 
all of the information regarding such costs is under the control of the 
incumbent LECs. We seek comment on how this approach could be adopted 
without creating unnecessary burdens on the LECs.
    181. Alternatively, we could establish a uniform set of 
presumptions that states could adopt and that would apply in the 
absence of quantifications of such costs by incumbent LECs. For 
example, the Commission could identify a significant number of expenses 
that the states would presume to be retail expenses, absent a contrary 
showing by the incumbent LEC. Such presumptions recognize that it may 
be difficult to obtain cost data from incumbent LECs. They also appear 
to be consistent with section 252(b)(4)(B), which provides that, ``[i]f 
any party refuses or fails unreasonably to respond on a timely basis to 
any reasonable request from the state Commission, then the State 
commission may proceed on the basis of the best information available 
to it from whatever source derived.'' In addition, we could identify 
specific accounts or portions of accounts in the Commission's Uniform 
System of Accounts (USOA) that the states should include as ``avoided 
costs.'' Another issue on which we seek comment is whether states 
should be permitted or required to allocate some common costs to 
``avoided cost'' activities. We seek comment on these options, and 
invite parties to propose other options. We also seek comment on how 
any approach would further our goals of clarity and administrative 
simplicity.
    182. We also seek comment on whether we should establish rules that 
allocate avoided costs across services. Should incumbent LECs be 
allowed, or required, to vary the percentage wholesale discounts across 
different services based on the degree the avoided costs relate to 
those services? For example, if incumbent LECs spend more money 
marketing vertical features than they spend marketing basic local 
exchange service, the wholesale rate for vertical features could be 
reduced by a proportionally greater amount from the retail rate than 
would be the case for basic local exchange service. The benefit of any 
such approach is that it is likely to result in wholesale rates which 
are more cost-based than a uniform allocation across services, and that 
should facilitate efficient entry. However, the administrative 
complexity of this approach may outweigh the benefits. We seek comment 
on this approach and on other options, such as requiring that avoided 
costs be allocated proportionately across all services so that there 
would be a uniform discount percentage off of the retail rate of each 
service.
    183. While most states have taken no action in this area, a few 
states have considered these issues. California recently established 
interim wholesale rates based on identified costs attributable to 
retailing functions. Based on the costs, California required Pacific 
Bell to offer a 17 percent discount below retail business rates and a 
10 percent discount below its retail residential rates. It also 
required GTE to set wholesale rates 12 percent below its retail 
business rates and 7 percent below its residential rates. In Illinois, 
Ameritech has filed wholesale tariffs with rates that are approximately 
6 percent below undiscounted residential retail rates and 10 percent 
below undiscounted business retail rates. These tariffs are in effect, 
but are subject to revision in a tariff proceeding pending before the 
Illinois Commerce Commission. Illinois commission staff have 
recommended that wholesale prices be set on the basis of retail rates 
less a measure of net avoided costs. The measure of avoided costs would 
include the net total assigned costs (TSLRIC plus an allocation of 
joint costs) of the avoided functions and a pro rata share of the 
contribution in existing retail rates. We seek comment on whether any 
of these approaches by the states are consistent with the fundamental 
objectives of the 1996 Act, and which, if any, might be useful in 
setting national policy. We also invite comments discussing the effect 
of any regulations we adopt on agreements that have already been 
negotiated or decisions that have already been made by the states.
    (3) Relationship to Other Pricing Standards. 184. We seek comment 
on the relationship between rates for unbundled network elements and 
rates for wholesale or retail service offerings. Some states have 
adopted rules requiring that the sum of the rates for unbundled network 
elements be no greater than the retail service rate. The Illinois 
Commerce Commission calls this the ``imputation rule.'' Proponents of 
an imputation rule argue that it prevents anticompetitive price 
squeezes by incumbent LECs, which may set unbundled element prices too 
high in order to discourage new entrants from purchasing unbundled 
elements instead of purchasing and reselling the bundled service. A 
price squeeze occurs when a vertically-integrated service provider 
increases the price of the inputs it sells to its non-integrated 
competitors and/or decreases the price of the products in which it 
competes with the non-integrated competitors.
    185. It may be difficult to comply with an imputation rule, 
however, if

[[Page 18340]]

rates for retail services are below cost, due to implicit, non-
competitively neutral, intrastate subsidy flows. For example, assume 
the cost of basic residential local exchange service is $25, including 
a $20 cost for the loop element and a $5 cost for the ``port'' element, 
and the retail rate for such service (including the federal SLC) is 
$10. In such a case, application of the imputation rule would require 
either that the incumbent LEC offer unbundled network elements to its 
competitors at prices less than cost, or that the retail rate be 
increased to at least $25.
    186. Certain states, including the New York Public Service 
Commission, have not found it necessary to adopt an imputation rule. 
When the incumbent LEC sells retail services at prices that are less 
than cost, it may be that it recovers the difference in other state 
retail service rates and in interexchange access charges. For example, 
in the example cited above, the customer may pay 12 cents per minute 
for intrastate toll traffic that costs only 2 cents per minute to 
provide, and may generate long-distance traffic for which the incumbent 
LEC receives access charges of 3 cents per minute even though it costs 
only 1 cent per minute to provide such access. Under these 
circumstances, it could be argued that no imputation rule is needed to 
protect new entrants because, as a matter of market economics or legal 
obligations, new entrants purchasing unbundled elements priced at cost 
would be providing all of these services, and thus could collect the 
same relatively over-priced revenues for toll service, interstate 
access, vertical features, and other offerings to make up for the 
underpricing of basic residential local exchange service. By contrast, 
an entrant that merely resells a bundled retail service purchased at 
wholesale rates, would not receive the access revenues. There are at 
least two possible additional objections to an imputation rule, when it 
requires that unbundled elements be priced below cost. First, the 
unbundled elements could be used to provide services that compete with 
LEC retail services that are the source of the subsidy. Second, if 
unbundled elements were priced at less than cost, then efficient 
facility-based entry would be deterred, as new entrants purchase 
unbundled network elements at below cost rather than constructing their 
own facilities. We seek comment on whether it would advance the pro-
competitive goals of the 1996 Act for all states to follow an 
imputation rule, and on the potential pitfalls of such a rule.
    187. One action a state could take to address any problems created 
by adopting an imputation rule when retail rates are below cost would 
be to restructure its retail rates to eliminate non-competitively-
neutral, implicit subsidy flows. This restructure could involve either 
making subsidy flows explicit and competitively neutral, reducing the 
level of such flows, or a combination. For example, the Illinois 
Commerce Commission, before enacting an imputation rule, divided the 
state into three access areas with separate rates in each area. It then 
restructured rates, so that retail rates in each access area are, on 
average, above TSLRIC. Are such changes required pursuant to section 
254(f)? Section 254(f) provides that a state ``may adopt regulations 
not inconsistent with the Commission's rules to preserve and advance 
universal service'' and ``may adopt regulations to provide for 
additional definitions and standards to preserve and advance universal 
service within that State only to the extent that such regulations 
adopt additional specific, predictable, and sufficient mechanisms to 
support such definitions or standards that do not rely on or burden 
Federal universal service support mechanisms.'' We seek comment on the 
relative advantages and detriments of this and other alternatives as 
either federal policies or policies that individual states could adopt.
    188. We note that, to the extent federal implicit universal service 
subsidies contribute to any problems created by adopting an imputation 
rule when retail rates are below cost, they will be addressed in the 
federal-state joint board review of universal service requirements 
being conducted pursuant to section 254. We further note that at least 
one incumbent LEC has suggested in another proceeding that the 
Commission consider commencing a proceeding to determine whether it 
would be appropriate to enter a preemption order requiring that rates 
for local service exceed the cost of providing that service. We seek 
comment on these issues. We also invite comment on whether some interim 
rules might be appropriate to address this problem before the federal-
state joint board established pursuant to section 254 acts, which could 
be up to nine months after we issue an order in this proceeding. We 
also solicit comment on any other rules that should be adopted 
concerning the relationship between services or elements that are 
necessary to promote the goals of the Act.
4. Duty to Provide Public Notice of Technical Changes
    189. Section 251(c)(5) of the 1996 Act requires incumbent LECs to 
``provide reasonable public notice of changes in the information 
necessary for the transmission and routing of services using that local 
exchange carrier's facilities or networks, as well as of any other 
changes that would affect the interoperability of those facilities and 
networks.'' We tentatively conclude that (1) ``information necessary 
for transmission and routing'' should be defined as any information in 
the LEC's possession that affects interconnectors' performance or 
ability to provide services; (2) ``services'' should include both 
telecommunications services and information services as defined in 
sections 3(46) and 3(20), respectively, of the 1934 Act, as amended; 
and (3) ``interoperability'' should be defined as the ability of two or 
more facilities, or networks, to be connected, to exchange information, 
and to use the information that has been exchanged. We request comment 
on what changes should trigger the public notice requirement and on the 
above tentative conclusions.
    190. We note that public notice is critical to the uniform 
implementation of network disclosure, particularly for entities 
operating networks in numerous locations across a variety of states. We 
tentatively conclude that incumbent LECs should be required to disclose 
all information relating to network design and technical standards, and 
information concerning changes to the network that affect 
interconnection. We further tentatively conclude that the incumbent 
LEC, at a minimum, must provide the following specific information: (1) 
date changes are to occur; (2) location at which changes are to occur; 
(3) type of changes; and (4) potential impact of changes. We believe 
that these proposed categories represent the minimum information that a 
potential competitor would need in order to achieve and maintain 
efficient interconnection.
    191. In addition, we request comment on how public notice should be 
provided. We tentatively conclude that full disclosure of the required 
technical information should be provided through industry forums (e.g., 
the Network Operations Forum (NOF) or Interconnection Carrier 
Compatibility Forum (ICCF)) or in industry publications. This approach 
would build on a voluntary practice that now exists in the industry and 
would result in broad availability of the information. We seek comment 
on this tentative conclusion. We further seek comment as to whether 
incumbent LECs should be required to file with the Commission a 
reference to this technical information and where it can be located 
(e.g., an Internet address).

[[Page 18341]]

    192. We also tentatively conclude that incumbent LECs should be 
required to: (1) publicly disclose the information within a 
``reasonable'' time in advance of implementation; and (2) make the 
information available within a ``reasonable'' time if responding to an 
individual request. We seek comment on what constitutes a reasonable 
time in each of these situations, and on whether the Commission should 
adopt a timetable for disclosing technical information comparable to 
the disclosure timetable that we adopted in the Computer III 
proceeding. In Phase II of that proceeding, the Commission required 
AT&T and the BOCs to disclose information about network changes or new 
network services that affect the interconnection of enhanced services 
with the network at two points in time. First, carriers were required 
to disclose such information at the ``make/buy'' point--that is, when 
the carrier decides to make itself, or to procure from an unaffiliated 
entity, any product the design of which affects or relies on the 
network interface. Second, carriers were required to release publicly 
all technical information at least twelve months prior to the 
introduction of a new service or network change that would affect 
enhanced service interconnection with the network. If a carrier is able 
to introduce a new service between six and twelve months of the make/
buy point, public disclosure was permitted at the make/buy point, but, 
in no event, could the carrier introduce the service earlier than six 
months after the public disclosure. We seek comment as to whether the 
Commission should adopt a comparable timetable for the Section 
251(c)(5) network disclosure requirements and how the timetable should 
be implemented in this context.
    193. We seek comment on the relationship between sections 273 
(c)(1) and (c)(4), which detail BOCs' disclosure requirements ``to 
interconnecting carriers * * * on the planned deployment of 
telecommunications equipment,'' and section 251(c)(5), which addresses 
disclosure requirements for all incumbent LECs. In addition, we seek 
comment on what enforcement mechanism, if any, should be employed to 
ensure compliance with the section 251(c)(5) public notice requirement 
and how we might reconcile the related obligations under sections 
251(a), 251(c)(5) and 256 to make them simple to administer.
    194. We seek comment on the extent to which safeguards may be 
necessary to ensure that information regarding network security, 
national security and proprietary interests of LECs, manufacturers and 
others are not compromised, and what those safeguards should be.

C. Obligations Imposed on ``Local Exchange Carriers'' by Section 251(b)

    195. Section 251(b) imposes certain specified obligations on all 
``local exchange carriers.'' ``Local exchange carrier'' is defined in 
section 3(26) as ``any person that is engaged in the provision of 
telephone exchange service or exchange access.'' Section 3(26) excludes 
from the definition persons ``engaged in the provision of a commercial 
mobile service under section 332(c), except to the extent that the 
Commission finds that such service should be included in the definition 
of such term.'' We seek comment on whether, and to what extent, CMRS 
providers should be classified as LECs and the criteria, such as 
wireless local loop competition in the LEC's service area by the CMRS 
provider, that we should use to make such a determination. We note that 
we might have authority under section 332 or other provisions of the 
Act to impose on CMRS providers obligations comparable to the ones set 
forth in section 251(b). We seek comment on whether and how a 
Commission determination that CMRS providers be granted flexibility to 
provide fixed wireless local loop service should affect the 
determination of whether CMRS providers should be included in the 
definition of local exchange carrier. We also seek comment on whether 
we may classify a CMRS provider as a LEC for certain purposes but not 
for others. For example, could we treat a CMRS provider as a LEC for 
purposes of providing resale but not for providing number portability? 
We also request that commenters discuss whether we may classify some 
classes of CMRS providers as LECs, but not others, such as those that 
are not competing with LECs. For example, in considering whether to 
classify certain CMRS providers as a LECs, should we distinguish 
between CMRS providers that offer cellular service from those that 
offer only paging services?
1. Resale
    196. Section 251(b)(1) imposes a duty on all LECs ``not to 
prohibit, and not to impose unreasonable or discriminatory conditions 
or limitations on, the resale of its telecommunications services.'' New 
carriers can use resale of other LECs' services to provide service in a 
geographic area and such resale opportunities facilitate beneficial 
forms of competition.
    197. We seek comment on what types of restrictions on resale of 
telecommunications services would be ``unreasonable'' under this 
provision. We believe that few, if any, conditions or limitations 
should be permitted because such restrictions generally are 
inconsistent with the pro-competitive thrust of the Act and would 
likely be evidence of the exercise of market power. We seek comment on 
this position. We also seek comment on what standards we should adopt, 
if any, to determine whether a resale restriction should be permitted. 
Further, we seek comment on whether any restriction on resale should be 
presumed to be unreasonable absent an affirmative showing that the 
restriction is reasonable, and if so, how could such a showing be made. 
Finally, commenters should address whether any of the issues discussed 
above with respect to resale by incumbent LECs as required under 
section 251(c)(4) should be applied to other LECs pursuant to section 
251(b)(1).
2. Number Portability
    198. Section 251(b)(2) imposes a duty on all LECs ``to provide, to 
the extent technically feasible, number portability in accordance with 
the requirements prescribed by the Commission.'' This provision 
reflects Congress' recognition that pro-competitive policies must 
necessarily address the consumer's preferences and circumstances in the 
new competitive environment. By requiring that customers be able to 
switch local service providers without changing their telephone number, 
Congress seeks to lower barriers to entry and promote competition in 
the local exchange market. Section 3(30) of the 1996 Act defines number 
portability as ``the ability of users of telecommunications services to 
retain, at the same location, existing telecommunications numbers 
without impairment of quality, reliability, or convenience when 
switching from one telecommunications carrier to another.'' Section 
251(e)(2) of the 1996 Act mandates that the cost of number portability 
``be borne by all telecommunications carriers on a competitively 
neutral basis as determined by the Commission.'' This requirement helps 
to ensure that no single category of telecommunications carriers will 
be disadvantaged competitively by bearing all or substantially all of 
the costs of number portability, and will help enhance fair and 
efficient local exchange competition.
    199. On July 13, 1995, the Commission adopted a Notice of Proposed 
Rulemaking in CC Docket No. 95-116 seeking comment on a wide

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variety of technical and policy issues concerning number portability. 
Telephone Number Portability, CC Docket No. 95-116, 60 FR 39136 (Aug. 
1, 1995) (Number Portability NPRM). On March 14, 1996, the Common 
Carrier Bureau issued a Public Notice in that docket seeking comment on 
how passage of the 1996 Act may affect the issues raised in the Number 
Portability NPRM. Accordingly, in an effort to adopt number portability 
rules expeditiously, we will address number portability issues raised 
by the 1996 Act in our ongoing proceeding on number portability. That 
proceeding will specifically address, inter alia, the deployment 
schedule that incumbent LECs must follow for providing number 
portability, the manner in which it can be provided, and the recovery 
of number portability costs.
    200. Since our July NPRM, a number of states have taken significant 
steps to implement service provider number portability. Washington 
state completed a number portability trial using the Local Area Number 
Portability (LANP) method in December, 1995, and New York is currently 
conducting a number portability trial in Manhattan using the Carrier 
Portability Code (CPC) method. Several states have established task 
forces with industry participants to investigate the development and 
implementation of long-term number portability methods. In addition, 
the State commissions of Illinois, Colorado, New York, and Georgia have 
adopted the recommendations of their staff and task forces to implement 
AT&T's Location Routing Number (LRN). Other states, such as Indiana, 
Michigan, Ohio, and Wisconsin, have selected, or are about to select, 
LRN without first establishing task forces. Switch vendors have 
indicated that the software required to support LRN generally will be 
available in the second quarter of 1997. Consequently, Illinois plans 
to deploy LRN in the Chicago LATA in the third quarter of 1997, and 
Georgia has ordered implementation of LRN as soon as it becomes fully 
available. Ohio plans to have implemented a database number portability 
method by October, 1997.
    201. We note that while several states have taken action toward 
implementation of service provider portability, no long-term number 
portability solutions are in use today, and approximately 27 states 
have yet to address issues related to long-term number portability. By 
enacting section 251(b)(2) of the 1996 Act, Congress has stated that 
consumers should be able to change local telephone companies without 
changing their phone numbers, and that this capability is critical to 
the development of local exchange competition. Although there are 
methods of providing number portability today, these mechanisms 
generally are considered less efficient and less procompetitive than 
the long-term solutions now being developed. For example, existing 
methods rely on the incumbent LEC network, generally do not support all 
current vertical services, and are wasteful of numbering resources. 
Accordingly, we intend to take expeditious action on number portability 
issues.
3. Dialing Parity
    202. Section 251(b)(3) of the 1996 Act requires LECs ``to provide 
dialing parity to competing providers of telephone exchange service and 
telephone toll service.'' Under section 3(15) of the 1934 Act, as 
amended, ``dialing parity'' means:

that a person that is not an affiliate of a local exchange carrier 
is able to provide telecommunications services in such a manner that 
customers have the ability to route automatically, without the use 
of any access code, their telecommunications to the 
telecommunications services provider of the customer's designation 
from among 2 or more telecommunications services providers 
(including such local exchange carrier).

This dialing parity requirement will foster local exchange, long 
distance, and international competition by ensuring that each customer 
has the freedom to choose among different carriers for different 
services without the burden of dialing additional access codes or 
personal identification numbers.
    203. It is our understanding that some form of intraLATA toll 
dialing parity is available or has been ordered in eighteen states. In 
the thirty-two states where dialing parity has not been required, 
competition in the intraLATA toll market generally has been permitted 
only with the use of access codes, which require customers to dial a 
five- or seven-digit prefix before dialing the called party's telephone 
number. Under the 1996 Act, LECs are precluded from relying upon access 
codes as a means of providing dialing parity to competitive 
telecommunications providers. Thus, when the 1996 Act became law, 
``dialing parity'' did not exist in most states and, where some form of 
dialing parity had been required, implementation requirements and 
methodologies varied across the states.
    204. On April 4, 1994, the Commission adopted a Notice of Proposed 
Rulemaking that sought comment on a variety of issues related to the 
administration of the North American Numbering Plan (NANP), including 
whether to impose dialing parity requirements on LECs for interstate, 
intraLATA toll traffic. In a subsequent Order, adopted July 13, 1995, 
the Commission deferred consideration of the dialing parity issue. 
Administration of the North American Numbering Plan, Report and Order, 
CC Docket No. 92-237, FCC 95-283, 60 FR 38737 (July 28, 1995), para. 7 
(recon. pending).
    205. Comments in response to the NANP NPRM as to whether LECs 
should be required to implement dialing parity have become moot in 
light of the mandatory dialing parity provisions in section 251(b)(3) 
of the 1996 Act. In addition, because the NANP NPRM proposed requiring 
dialing parity solely for interstate, intraLATA toll traffic, comments 
received in response to that notice do not address all of the section 
251(b)(3) dialing parity requirements that apply to all interstate and 
intrastate telephone exchange local calling, and telephone toll 
services. We address the dialing parity issue anew in this NPRM in 
light of the broader dialing parity directives contained in the 1996 
Act. We ask parties to file in this docket those portions of any 
comments filed in response to the NANP NPRM that address particular 
methodologies for implementing intraLATA toll dialing parity and that 
are relevant to our consideration of the dialing parity requirements in 
the 1996 Act.
    206. Section 251(b)(3) makes no distinction among international, 
interstate and intrastate traffic for purposes of the dialing parity 
provisions. Based on the absence of any such distinctions in defining 
the scope of the dialing parity requirements, we tentatively conclude 
that section 251(b)(3) creates a duty to provide dialing parity with 
respect to all telecommunications services that require dialing to 
route a call, and encompasses international as well as interstate and 
intrastate, local and toll services. We believe that this 
interpretation is consistent with the statutory definition of dialing 
parity and would open the local and long distance markets to the 
greatest number of competitive telecommunications services providers. 
We seek comment on this tentative conclusion.
    207. The statutory definition of dialing parity provides that the 
customer must have the ability to choose ``from among 2 or more 
telecommunications services providers (including such local exchange 
carrier).'' LECs are precluded from relying on access codes as a means 
of providing dialing parity to competitive service providers. The Act, 
however, does not specify what methods should

[[Page 18343]]

be used to implement dialing parity. We believe that presubscription 
represents the most feasible method of achieving dialing parity in long 
distance markets consistent with the definition of dialing parity in 
section 3(15) of the 1996 Act. Although we anticipate that 
presubscription represents the most feasible method for achieving long 
distance dialing parity (see, e.g., discussion of PIC presubscription 
methodology below), we note that presubscription does not represent the 
method by which carriers would accomplish local dialing parity. Rather, 
the customer's ability to select a telephone exchange service provider 
and make local telephone calls without dialing extra digits will be 
accomplished through the unbundling, number portability and 
interconnection requirements of Section 251. In this context, 
``presubscription'' refers to the process by which a customer 
preselects a carrier, to which all of a particular category or 
categories of calls on the customer's line will be routed 
automatically.
    208. Presubscription to a carrier other than the customer's local 
exchange carrier has not been available for interstate, intraLATA toll 
calls nor has it been available in most states for intrastate, 
intraLATA toll calls. Instead, BOCs automatically carry these calls 
rather than routing them to a presubscribed carrier of the customer's 
choice. If the state from which the customer is calling has authorized 
competition, but has not ordered presubscription in the intraLATA toll 
market, a customer wishing to route an intraLATA call to an alternative 
carrier typically must dial the carrier access code of the alternative 
carrier.
    209. We seek comment on specific alternative methods for 
implementing local and toll dialing parity, including various forms of 
presubscription, in the interstate and intrastate long distance and 
international markets, that are consistent with the statutory 
requirements set forth in the 1996 Act. Specifically, we seek 
information and comment on the standards, if any, that have been 
developed to address or define local or toll dialing parity, the 
consistency of those standards with the statutory definition of dialing 
parity set forth in the 1996 Act, and the extent to which there is a 
need for the development of further standards.
    210. We note that there is substantial variation in the intraLATA 
toll dialing parity requirements and implementation methodologies that 
individual states have adopted. For example, some states have adopted a 
presubscription methodology that allows a customer to choose between 
the incumbent LEC and any interexchange carrier that is authorized in 
that state to carry the customer's intrastate, intraLATA toll calls. 
Other states have adopted a presubscription methodology that allows the 
customer a choice only between the incumbent LEC and the same 
interexchange carrier that the customer is currently presubscribed to 
for interLATA long-distance calling. A ``multi-PIC'' or ``smart-PIC'' 
presubscription methodology, which would enable customers to 
presubscribe to multiple carriers for various categories of long-
distance calling, also is being considered in some states. We seek 
comment on whether any of the presubscription methods adopted by the 
states could be implemented in national dialing parity standards 
consistent with the requirements of the 1996 Act. We also seek comment 
as to the categories of long distance traffic (e.g., intrastate, 
interstate, and international traffic) for which a customer should be 
entitled to choose presubscribed carriers, and whether a uniform, 
nationwide methodology is necessary. In the absence of uniform, federal 
rules, we ask commenters, and state commissions in particular, to 
address the difficulties state commissions might experience in 
implementing the dialing parity requirements of the 1996 Act. Finally, 
we seek comment on what Commission action, if any, is necessary to 
implement dialing parity for international calls.
    211. We tentatively conclude that, pursuant to section 251(b)(3), a 
LEC is required to permit telephone exchange service customers within a 
defined local calling area to dial the same number of digits to make a 
local telephone call, notwithstanding the identity of a customer's or 
the called party's local telephone service provider. We believe that 
this interpretation of the dialing parity requirement as applied to the 
provision of telephone exchange service would best facilitate the 
introduction of competition in local markets by ensuring that customers 
of competitive service providers are not required to dial additional 
access codes or personal identification numbers in order to make local 
telephone calls. We seek comment on this tentative conclusion and seek 
information as to how this local dialing parity requirement should be 
implemented.
    212. For most LECs, the 1996 Act provides no timetable for 
implementing dialing parity. Section 271(e)(2)(A) requires BOCs, 
however, to provide intraLATA toll dialing parity in a state 
``coincident with'' its exercise of authority to provide interLATA 
services in that state, or three years from the date of enactment of 
the 1996 Act, whichever is earlier. Section 271(e)(2)(B) limits the 
ability of states to impose dialing parity requirements on a BOC prior 
to the earlier of those two dates. We seek comment on what 
implementation schedule should be adopted for dialing parity 
obligations for all LECs.
    213. The 1996 Act does not require that procedures be established 
to permit consumers to choose among competitive telecommunications 
providers (e.g., through balloting). We seek comment as to whether the 
Commission should require LECs to notify consumers about carrier 
selection procedures or impose any additional consumer education 
requirements. Finally, we seek comment on an alternative proposal that 
would make competitive telecommunications providers responsible for 
notifying customers about carrier choices and selection procedures 
through their own marketing efforts.
    214. In addition to the duty to provide dialing parity, Section 
251(b)(3) also imposes the duty on all LECs to provide competing 
telecommunications services providers with ``nondiscriminatory access 
to telephone numbers, operator services, directory assistance, and 
directory listing, with no unreasonable dialing delays.'' As a general 
matter, we tentatively conclude that ``nondiscriminatory access'' means 
the same access that the LEC receives with respect to such services. We 
seek comment on this tentative conclusion. We also seek comment as to 
how the Commission should implement the nondiscriminatory access 
provisions that are contained in section 251(b)(3) as is discussed in 
more detail below.
    215. More specifically, we interpret ``nondiscriminatory access to 
telephone numbers'' to mean that competing telecommunications providers 
must be provided access to telephone numbers in the same manner that 
such numbers are provided to incumbent LECs. Currently, the largest 
local exchange carrier in each area code serves as the central office 
(CO) code administrator, the entity that is responsible for the 
assignment and administration of telephone numbers. In 1995, the 
Commission ordered that the functions associated with the assignment 
and administration of local telephone numbers be centralized and 
transferred from the largest LECs to a newly created NANP 
Administrator. New section 251(e)(1) directs the Commission to create 
or designate one or more impartial entities to administer 
telecommunications numbering and to make such numbers available on an 
equitable basis. In light of the directives contained in the NANP Order 
and

[[Page 18344]]

section 251(e)(1), we seek comment as to what, if any, additional 
Commission action is necessary or desirable to ensure nondiscriminatory 
access to telephone numbers consistent with the requirements of section 
251(b)(3).
    216. We interpret ``nondiscriminatory access to * * * operator 
services'' by LECs to mean, at least in part, that a telephone service 
customer, regardless of the identity of his local telephone service 
provider, must be able to connect to a local operator by dialing ``0'' 
or ``0'' plus the desired telephone number. For purposes of this 
provision, we tentatively define ``operator services'' as any automatic 
or live assistance to a consumer to arrange for billing or completion 
or both of a telephone call through a method other than: (1) Automatic 
completion with billing to the telephone from which the call 
originated, or (2) completion through an access code by the consumer, 
with billing of an account previously established with the 
telecommunications service provider by the consumer. This proposed 
definition is based on the definition of ``operator services'' that is 
set forth at 47 U.S.C. Sec. 226(a)(7) and, for purposes of this 
proceeding, has been modified to address the 1996 Act. We seek comment 
on this proposed definition and on what, if any, Commission action is 
necessary to implement the nondiscriminatory access requirements for 
operator services under section 251(b)(3). We ask commenters to address 
whether the duty imposed on LECs to provide nondiscriminatory access to 
operator services includes the duty to resell operator services to non-
facilities-based competing providers or facilities-based competing 
providers.
    217. We further interpret ``nondiscriminatory access to * * * 
directory assistance and directory listing'' by LECs to mean that all 
telecommunications services providers' customers must be able to access 
each LEC's directory assistance service and obtain a directory listing 
in the same manner, notwithstanding (1) the identity of a requesting 
customer's local telephone service provider, or (2) the identity of the 
telephone service provider for a customer whose directory listing is 
requested through directory assistance. We seek comment on this 
interpretation and on what, if any, Commission action is necessary or 
desirable to implement nondiscriminatory access to directory assistance 
and directory listing as required by section 251(b)(3). We also seek 
comment on whether customers of competing telecommunications providers 
can access directory assistance by dialing 411 or 555-1212, or whether 
an alternative dialing arrangement is needed in order to make directory 
assistance databases accessible to all providers. We ask commenters to 
address whether the duty imposed on LECs to provide nondiscriminatory 
access to directory assistance includes the duty to resell 411 or local 
555-1212 directory assistance services to non-facilities-based 
competing providers or to facilities-based competing providers.
    218. Section 251(b)(3) prohibits ``unreasonable dialing delays.'' 
We seek comment on the appropriate definition of the term ``dialing 
delay'' and on appropriate methods for measuring and recording that 
delay. For example, the term ``dialing delay'' might refer to the 
period that begins when the caller completes dialing a call and ends 
when a ringing tone or busy signal is heard on the line. Alternatively, 
``dialing delay'' might refer to the period beginning when the caller 
completes dialing a call and ending when the call is delivered by the 
incumbent LEC to a competing service provider. Another relevant measure 
might include the period beginning when a customer goes off hook and 
ending when a dialtone is heard on the line. We recognize the confusion 
that has centered around the context-specific use of the terms post-
dial delay, access time, call set-up time, and dialtone delay. 
Accordingly, we ask interested parties to define clearly the time being 
measured rather than rely upon a definition of a term that may have 
been used in particular proceedings. Finally, we ask commenters to 
identify a specific period that would constitute an ``unreasonable'' 
dialing delay.
    219. The 1996 Act does not specify how LECs would recover costs 
associated with providing dialing parity to competing providers. We 
seek comment on what, if any, standard should be used for arbitration 
to determine the dialing parity implementation costs that LECs should 
be permitted to recover, and how those costs should be recovered.
4. Access to Rights-of-Way
    220. Section 251(b)(4) imposes upon LECs the ``duty to afford 
access to the poles, ducts, conduits, and rights-of-way of such carrier 
to competing providers of telecommunications services on rates, terms, 
and conditions that are consistent with section 224.'' Section 224, 
which predates the enactment of the 1996 Act, states that the 
Commission ``shall regulate the rates, terms, and conditions for pole 
attachments to provide that such rates, terms, and conditions are just 
and reasonable, and shall adopt procedures necessary and appropriate to 
hear and resolve complaints concerning such rates, terms, and 
conditions.'' Thus, under section 224, if an entity provided access to 
poles, ducts, conduits, and rights-of-way, it had to do so on rates, 
terms, and conditions that were just and reasonable, but there was no 
specific requirement to provide access to poles, ducts, conduits and 
rights-of-way. Section 251(b)(4) establishes an additional requirement 
for LECs to provide access to poles, ducts, conduits, and rights-of-
way, consistent with the requirements in section 224. Moreover, 
amendments to section 224(a)(1) state expressly that LECs are subject 
to the requirements of section 224. Thus, section 251(a)(4), in 
conjunction with section 224, requires LECs to provide access to poles, 
ducts, conduits, and rights-of-way on just and reasonable rates, terms, 
and conditions. This requirement is vital to the development of local 
competition, because it ensures that competitive providers can obtain 
access to facilities necessary to offer service.
    221. Section 703 of the 1996 Act added and amended several 
provisions of section 224 of the 1934 Act. Specifically, section 703 
amended sections 224(a)(1), (a)(4), (c)(1) and (c)(2)(B), and added 
sections 224(a)(5), (d)(3), (e), (f), (g), (h) and (i). We will adopt 
rules implementing several of these provisions in one or more separate 
proceedings. In this proceeding, however, we believe that we should 
address issues raised by new sections 224 (f) and (h), to ensure that 
we have an opportunity to seek comment and establish any rules 
necessary to implement section 251(b)(4) within the six month period 
established by the statute.
    222. Section 224(f) provides:
    (1) A utility shall provide a cable television system or any 
telecommunications carrier with nondiscriminatory access to any pole, 
duct, conduit, or right-of-way owned or controlled by it.
    (2) Notwithstanding paragraph (1), a utility providing electric 
service may deny a cable television system or any telecommunications 
carrier access to its poles, ducts, conduits, or rights-of-way, on a 
non-discriminatory basis where there is insufficient capacity and for 
reasons of safety, reliability and generally applicable engineering 
purposes.
    We seek comment as to the meaning of ``nondiscriminatory access'' 
with respect to this provision. For example, to what extent must a LEC 
provide access to poles, ducts, conduits, and rights-of-way on similar 
terms to all

[[Page 18345]]

requesting telecommunications carriers? Must those terms be the same as 
the carrier applies to itself or an affiliate for similar uses? Are 
there any legitimate bases for distinguishing conditions of access? We 
seek comment on specific reasons of safety, reliability, and 
engineering purposes, if any, upon which access could be denied 
consistent with sections 224(f)(1) and 251(b)(4).
    223. We seek comment on specific standards under section 224(f)(2) 
for determining when a utility has ``insufficient capacity'' to permit 
access. Likewise, we seek comment as to the conditions under which 
access may be denied for ``reasons of safety, reliability and generally 
applicable engineering purposes.'' For example, should we establish 
regulations that require a certain minimum or quantifiable threat to 
reliability before a utility may deny access under section 224(f)(2)? 
Should we establish regulations that expressly impose on utilities the 
burden of proving that they are justified in denying access pursuant to 
section 224(f)(2)? May we, and should we, establish regulations to 
ensure that a utility fairly and reasonably allocates capacity?
    224. Section 224(h) provides that whenever ``the owner of a pole, 
duct, conduit, or right-of-way intends to modify or alter such pole, 
duct, conduit, or right-of-way,'' the owner must provide written 
notification of such action ``to any entity that has obtained an 
attachment to such conduit or right-of-way so that such entity may have 
a reasonable opportunity to add to or modify its existing attachment. 
An entity that adds to or modifies its existing attachment after 
receiving such notification shall bear a proportionate share of the 
costs incurred by the owner in making such pole, duct, conduit, or 
right-of-way accessible.''
    225. We seek comment on whether we should establish requirements 
regarding the manner and timing of the notice that must be given under 
this provision to ensure that the recipient has a ``reasonable 
opportunity'' to add to or modify its attachment. In addition, we seek 
comment on whether to establish rules to determine the ``proportionate 
share'' of the costs to be borne by each entity, and if so, how such 
determination should be made. We also seek comment on whether any 
payment of costs should be offset by the potential increase in revenues 
to the owner. For example, if the owner of a pole modifies the pole so 
as to permit additional attachments, for which it can collect 
additional revenues, should such potential revenues offset the costs 
borne by the entities that already have access to the pole? We also 
seek comment on whether we should impose any limitations on an owner's 
right to modify a facility and then collect a proportionate share of 
the costs of such modification. For example, should we establish rules 
that limit owners from making unnecessary or unduly burdensome 
modifications or specifications?
5. Reciprocal Compensation for Transport and Termination of Traffic
    a. Statutory Language. 226. Section 251(b)(5) provides that each 
LEC has the duty to ``establish reciprocal compensation arrangements 
for the transport and termination of telecommunications.'' Section 
252(d)(2) states that, for the purpose of an incumbent LEC's compliance 
with section 251(b)(5), a state commission shall not consider the terms 
and conditions for reciprocal compensation to be just and reasonable 
unless such terms and conditions both: (1) provide for the ``mutual and 
reciprocal recovery by each carrier of costs associated with the 
transport and termination on each carrier's network facilities of calls 
that originate on the network facilities of the other carrier,'' and 
(2) ``determine such costs on the basis of a reasonable approximation 
of the additional costs of terminating such calls.'' That subsection 
further provides that the foregoing language shall not be construed 
``to preclude arrangements that afford the mutual recovery of costs 
through the offsetting of reciprocal obligations, including 
arrangements that waive mutual recovery (such as bill-and-keep 
arrangements),'' or to authorize the Commission or any state to 
``engage in any rate regulation proceeding to establish with 
particularity the additional costs of transporting or terminating 
calls, or to require carriers to maintain records with respect to the 
additional costs of such calls.'' The legislative history notes that 
``mutual and reciprocal recovery of costs * * * may include a range of 
compensation schemes, such as in-kind exchange of traffic without cash 
payment (known as bill-and-keep arrangements).'' The statutory duty to 
establish reciprocal compensation arrangements for transport and 
termination furthers the pro-competitive goals of the 1996 Act by 
ensuring that all LECs receive reasonable compensation for transporting 
and terminating the traffic of competing local networks with which they 
are interconnected. It also furthers competition by ensuring that 
incumbent LECs, in particular, do not charge excessive rates for such 
transport and termination. As previously discussed in Section 
II.B.2.d.(1), we believe that the Commission is authorized to 
promulgate rules to guide the states in applying section 252(d).
    b. State Activity. 227. While most states have not addressed 
pricing for transport and termination of traffic among local 
competitors, a number of states have taken such actions to foster 
reciprocal compensation arrangements between incumbent LECs and 
wireline and wireless competitors. In the states that allow competition 
for local exchange services, there are at least three different systems 
in place to allow for reciprocal compensation between competing local 
networks, although many of these arrangements are interim pending the 
establishment of permanent rules. Some states have adopted mutual 
compensation policies with rates for termination of traffic subject to 
tariff regulation by the state commission. Other states have required 
bill and keep arrangements, at least on an interim basis, such as, the 
Washington Utilities and Transportation Commission. We discuss bill and 
keep arrangements in more detail below, at section II.C.5.f. Third, a 
number of states have directed incumbent LECs and prospective competing 
carriers to negotiate arrangements, but have not imposed detailed 
regulatory requirements with respect to those arrangements.
    228. The Pennsylvania Public Utilities Commission has created an 
interim escrow arrangement to govern mutual compensation for 
termination of local calls to allow for the start-up of local exchange 
competition until a permanent rate can be developed. Each party makes 
an initial payment and then continuing monthly payments into an escrow 
account. After the Pennsylvania commission determines the appropriate 
rates for termination of local traffic, the parties will calculate the 
amounts owed to each party and the escrow funds will be distributed 
accordingly. This mechanism allows local competition to commence 
immediately, and gives all parties incentives to conclude the 
development of a permanent rate, either through negotiation or by the 
Pennsylvania commission.
    229. Illinois, Maryland and New York have established different 
rates for termination of a competitor's traffic, depending upon whether 
the traffic is terminated at the incumbent LEC's end office or at a 
tandem switch. California and Michigan, however, have established only 
one rate that applies to termination of a competitor's traffic without 
regard to whether the call is terminated at an end office or at a 
tandem switch.

[[Page 18346]]

    c. Definition of Transport and Termination of Telecommunications. 
230. We seek comment on whether ``transport and termination of 
telecommunications'' under section 251(b)(5) is limited to certain 
types of traffic. The statutory provision appears at least to encompass 
telecommunications traffic that originates on the network of one LEC 
and terminates on the network of a competing LEC in the same local 
service area as well as traffic passing between LECs and CMRS 
providers. We seek comment on whether it also encompasses 
telecommunications traffic passing between neighboring LECs that do not 
compete with one another. While the issues here overlap with those in 
our discussion, supra, of section 251(c)(2), the text of the two 
sections are different and thus commenters should note that the issues 
are not necessarily identical.
    231. Because section 252(d)(2) is entitled ``Charges for Transport 
and Termination of Traffic,'' it could be interpreted to permit 
separate charges for these two components of reciprocal compensation. 
As discussed in the section on pricing of interconnection and unbundled 
network elements, economic theory dictates that dedicated facilities 
should be priced on a flat-rated basis. We seek comment on whether we 
should require that states price facilities dedicated to an 
interconnecting carrier, such as the transport links from one carrier's 
switch to the meet point with an interconnecting carrier, on a flat-
rated basis. We invite comment on other possible interpretations of the 
statutory distinction between ``transport'' and ``termination'' of 
traffic.
    d. Rate Levels. 232. In considering the pricing policies for 
transport and termination of traffic, we seek comment on whether the 
pricing provisions in Section 252(d) should be viewed independently, or 
whether they should be considered together. This question arises 
particularly with respect to section 252(d)(1), relating to 
interconnection and unbundled elements, and section 252(d)(2), relating 
to the transport and termination of traffic. Because the statute uses 
different language for interconnection and unbundled elements and 
transport and termination of traffic, each standard could be 
interpreted in a different way based on the different language used in 
each section. This would require that each incumbent LEC offering be 
identified as falling within one particular category. For example, if a 
carrier terminates a call to one of its customers using unbundled 
facilities purchased from an incumbent LEC, the unbundled standard 
would apply. If a carrier delivers a call to the incumbent LEC for 
termination to a customer on the incumbent LEC's network, then the 
termination standard would apply.
    233. In certain instances, however, transport and termination under 
reciprocal compensation may be difficult or impossible to distinguish 
from unbundled elements. For example, transport between an incumbent 
LEC's central office and an interconnector's network could be 
considered either of the foregoing. In such a case, the use of 
different pricing rules for the different categories may create 
inconsistencies in the pricing of similar services. This could create 
economic inefficiencies. We seek comment on whether the statute permits 
states to use identical pricing rules for each category and, if 
different rules are used for each, whether it will be possible to 
distinguish transport and termination from the other categories of 
service. We also seek comment on whether, if two different pricing 
rules could apply to a particular situation, we should require that the 
new entrant be able to choose between them.
    234. We seek comment on whether we should establish a generic 
pricing methodology or impose a ceiling to guide the states in setting 
the charge for the transport and termination of traffic, and whether 
any such generic pricing methodology or ceiling should be established 
using the same principles that might be used to establish any ceiling 
for interconnection and unbundled elements. We invite parties to 
suggest any other rules we might establish to assist states. We also 
seek comment on whether we should mandate a floor for state pricing of 
reciprocal compensation. The question of whether any floors should be 
imposed on the charge for transport and termination of traffic is 
complicated by the additional questions, discussed below, of whether 
competing LECs should be required to charge symmetrical rates, and to 
what extent bill and keep arrangements may or should be used. We seek 
comment on these issues. We also seek comment on the meaning of section 
252(d)(2)(B)(ii), which prohibits ``any rate regulation proceeding to 
establish with particularity the additional costs of transporting or 
terminating calls'' and any requirement that carriers ``maintain 
records with respect to the additional costs of such calls.'' We seek 
comment on whether one or more of the state policies for mutual 
compensation for transport and termination of traffic could serve as a 
model for national policies. We also seek comment on state policies 
that the commenter believes are inconsistent with the goals of the 1996 
Act or that are inadvisable from a policy perspective. Parties are also 
invited to comment on the possible consequences of requiring new 
entrants to negotiate reciprocal compensation arrangements with 
incumbents under ground rules that may vary widely from state to state. 
We also seek comment on whether provisions to maintain existing 
arrangements are necessary under section 251(d)(3).
    e. Symmetry. 235. Symmetrical compensation arrangements are those 
in which the rate paid by an incumbent LEC to a competitor for 
transport and termination of traffic is the same as the rate the 
incumbent LEC charges the competitor for the same service. We note that 
incumbent LECs are not likely to need to purchase significant amounts 
of interconnection or unbundled elements from competitors, except for 
transport and termination of traffic. We therefore consider symmetrical 
compensation arrangements as a possible additional requirement only for 
transport and termination of traffic. We seek comment on whether a rate 
symmetry requirement is consistent with the statutory requirement that 
rates set by states for transport and termination of traffic be based 
on ``costs associated with the transport and termination on each 
carrier's network facilities of calls that originate on the network 
facilities of the other carrier,'' and ``a reasonable approximation of 
the additional costs of terminating such calls.''
    236. Symmetrical compensation rates based on the incumbent LEC's 
rate are administratively easier to derive and manage than asymmetrical 
rates based on the costs of each of the respective networks. Setting 
asymmetric, cost-based rates might require evaluating the cost 
structure of nondominant carriers, which would be complex and 
intrusive. Symmetrical rates also could satisfy the requirement of 
section 252(d)(2) that costs be determined ``on the basis of a 
reasonable approximation of the additional costs of terminating such 
calls,'' by using the incumbent LEC's costs and rates for transport and 
termination of traffic as a proxy for the costs incurred by new 
entrants. Moreover, symmetrical rates could reduce an incumbent LEC's 
ability to use its bargaining strength to negotiate an excessively high 
termination charge that competitors would pay the incumbent and an 
excessively low termination rate that the incumbent would pay 
competitors. Further complicating this issue is that a competitor may 
possess a degree of market power over the incumbent LEC

[[Page 18347]]

that needs to terminate a call on the competitor's network because the 
decision to place the call lies with the incumbent's customer (who may 
or may not be aware that the call's intended recipient is on a 
different network). The competitor, therefore, may have an incentive 
and the ability to charge high rates to the incumbent for transport and 
termination of traffic on its network. Finally, symmetrical rates may 
give carriers a greater incentive to reduce their costs, because the 
rates they can charge for transport and termination of traffic may not 
be based directly on their own costs.
    237. On the other hand, symmetrical interconnection rates have 
certain disadvantages. Different networks, even those that use similar 
technologies, may have different cost characteristics. If 
interconnection rates were fully cost-based, then instead of setting 
symmetric rates, one LEC might pay a competitor different 
interconnection rates for transport and termination than it receives 
from its competitor. Further, rate symmetry in some circumstances may 
not resolve existing bargaining power imbalances. For instance, a LEC 
might be able to use its bargaining power to extract a symmetrical rate 
higher than relevant costs, or to require that new entrants incur a 
disproportionate share of the costs of transporting traffic between the 
two carriers' central offices.
    238. In establishing principles to govern state arbitration of 
rates for transport and termination of traffic, as well as state review 
of BOC statements of generally available terms and conditions, there 
are a number of possible options we could follow with regard to rate 
symmetry. First, we could allow the states to decide whether to require 
rate symmetry. Second, we could require the states to impose 
symmetrical rates. Third, we could permit states to allow new entrants 
to charge termination rates higher than the incumbent LEC in particular 
circumstances. For example, it might be appropriate to permit a new 
entrant that offers a premium service with higher costs to charge a 
higher rate to the LEC of the customer originating the call if the 
originating LEC can pass on the additional cost to the caller, who 
could be informed that the call carries an additional charge. We seek 
comment on these options.
    f. Bill and Keep Arrangements. 239. Under bill and keep 
arrangements, broadly construed, neither of the interconnecting 
networks charges the other network for terminating the traffic that 
originated on the other network, and hence the terminating marginal 
compensation rate on a usage basis is zero. Instead, each network 
recovers from its own end-users the cost of both originating traffic 
delivered to the other network and terminating traffic received from 
the other network. A bill and keep approach does not, however, preclude 
a positive flat-rated charge for transport of traffic between carriers' 
networks.
    240. As noted earlier, many states have established bill and keep 
arrangements on an interim basis until a tariffed rate can be 
established. In other states, such as Maryland, Michigan and New York, 
bill and keep has not been employed and tariffed rates for the 
transport and termination of traffic are already in effect. Michigan, 
however, allows carriers to waive mutual recovery and use bill and keep 
if traffic from one network to the other is not more than five percent 
greater than traffic flowing in the opposite direction. In Florida, 
after negotiations between the incumbent and two new entrants failed, 
the Florida Public Service Commission determined that, for the 
termination of local traffic, competing LECs will compensate each other 
by mutual traffic exchange. Any party that believes that traffic is 
imbalanced to the point that it is not receiving benefits equivalent to 
those it is providing through this form of bill and keep arrangement 
may request that the compensation mechanism be changed. Other states 
are considering approaches similar to that of Florida. The Texas Public 
Utilities Commission has proposed a rule that would require competitive 
LECs to negotiate mutual compensation rates. If negotiations fail, 
there would be a nine-month bill and keep period to allow the Texas 
commission time to establish interconnection rates, terms and 
conditions. The Public Utilities Commission of Ohio staff has proposed 
using bill and keep on an interim basis for one year. While that 
proposal is under consideration, Ameritech and Time Warner are using 
bill and keep in their interim interconnection arrangement until the 
end of December 1997.
    241. Proponents of bill and keep arrangements argue that such 
arrangements are advantageous in many circumstances. Because no 
calculation of costs, nor any metering of usage, is necessary under a 
bill and keep regime, such arrangements may be more quickly established 
and easily administered. Further, some networks may lack the ability to 
measure the volume of exchange traffic, and adding that ability would 
be very costly if done outside of normal network upgrades. Bill and 
keep arrangements are efficient if the incremental cost to each network 
of terminating traffic originated on the other network is zero. When 
the incremental costs of termination for each carrier are near zero (as 
may be the case for off-peak usage), bill and keep arrangements yield 
results similar to those of arrangements in which mutual compensation 
rates are set based on the incremental costs of shared network 
facilities. Finally, even if incremental termination costs are not 
zero, bill and keep may impose a small loss in economic efficiency if 
the demand for calls is inelastic with respect to termination charges. 
Demand might be inelastic either because termination charges are not 
passed through to customers, or, as is the case with CMRS, the 
termination charges are a small part of the cost of service. Bill and 
keep may be efficient when the efficiency loss is small and the 
administrative cost of termination charges is large.
    242. If at least one carrier has a non-zero incremental termination 
cost and the elasticity of demand is significant, then bill and keep 
may create significant efficiency losses by not giving carriers (and 
their customers) the correct price signals to use network resources 
efficiently. If there is a positive cost to terminating a call on a 
competitor's network, but the originating carrier is not charged for 
sending the call, the originating carrier will have inefficient 
incentives to compete for customers that initiate large volumes of 
traffic but receive few calls. Similarly, if there is no charge to the 
consumer for placing a call that imposes a positive cost on the network 
of the party called, consumers are likely to initiate an excessive 
number of calls.
    243. As noted earlier, section 252(d)(2)(B)(i) provides that the 
standards in section 252(d)(2)(A) restricting what may be considered 
``just and reasonable'' terms and conditions for reciprocal 
compensation ``shall not be construed to preclude arrangements that 
afford the mutual recovery of costs through the offsetting of 
reciprocal obligations, including arrangements that waive mutual 
recovery (such as bill and keep arrangements).'' Some parties contend 
that this section merely authorizes bill and keep arrangements in 
voluntary negotiated arrangements, but that the Commission and the 
states are prohibited from imposing bill and keep. The grounds on which 
a state may reject a negotiated arrangement, however, are limited in 
Section 252(e)(2) to those that discriminate against a non-party 
telecommunications carrier or are inconsistent with the public 
interest, convenience, and necessity. Therefore, the language in

[[Page 18348]]

252(d)(2)(B)(i) arguably is not necessary to authorize the states to 
approve bill and keep in negotiated arrangements, and may be intended 
to authorize the states to impose bill and keep arrangements in 
arbitration. We seek comment on whether section 252(d)(2)(B)(i) 
authorizes states or the Commission to impose bill and keep 
arrangements. If it does, we also seek comment on whether we must or 
should limit the circumstances in which states may adopt bill and keep 
arrangements. For example, one approach would find that section 
252(d)(2)(B)(i) allows states to establish bill and keep arrangements 
only when either of two conditions are met: (1) the transport and 
termination costs of both carriers are roughly symmetrical and traffic 
is roughly balanced in each direction during peak periods; or (2) 
actual transport and termination costs are so low that there is little 
difference between a cost-based rate and a zero rate (for example, 
during off-peak periods). When neither of these conditions are met, 
bill and keep arrangements arguably would not provide for ``the mutual 
and reciprocal recovery by each carrier of costs associated with the 
transport and termination on each carrier's network facilities of calls 
that originate on the network facilities of the other carrier,'' which 
would violate the requirement of section 252(d)(2)(A)(i). Another 
possible approach would be to permit or require states to adopt a 
variant of bill and keep, such as that used by Michigan. In addition, 
we seek comment on the meaning of the statutory description of bill and 
keep arrangements as ``arrangements that waive mutual recovery.'' We 
seek comment on the policies that the states have adopted with respect 
to bill and keep arrangements. We also seek comment on the historical 
interconnection arrangements between neighboring incumbent LECs, which, 
in many cases, used a bill and keep approach with respect to 
compensation for transport and termination of telecommunications 
traffic. We also seek comment on whether one or more of these state 
policies could be incorporated as models for federal policy. We also 
seek comment on state policies that the commenter believes are 
inconsistent with the goals of the 1996 Act or that are inadvisable 
from a policy perspective.
    g. Other Possible Standards. 244. There are other ways to establish 
rate levels or ceilings for reciprocal compensation for transport and 
termination of traffic, including, inter alia, basing them on existing 
arrangements between neighboring incumbent LECs or measured local 
service rates (which provides a quick method for determining an 
appropriate ceiling), or establishing a presumptive uniform per-minute 
interconnection rate. We solicit comment on whether any of these or 
other alternatives should be used as the principle for pricing 
transport and termination of traffic between LECs, and how they would 
be applied. See CMRS Notice at Paras.  58-80. We also seek comment on 
whether it might be desirable to establish an interim rule (such as 
bill and keep) to apply during a limited initial period while 
negotiations or arbitration proceedings are ongoing, and a different 
rule for states to use if called upon to establish long-term arbitrated 
rates. This could permit new competitors to enter the market more 
quickly, equalize bargaining power between new entrants and incumbent 
LECs, and reduce the incumbent's incentive to stall negotiations.
D. Duties Imposed on ``Telecommunications Carriers'' by Section 251(a)
    245. We first need to identify the entities that qualify as 
``telecommunications carriers'' under section 251. A 
``telecommunications carrier'' is defined in section 3(44) as ``any 
provider of telecommunications services, except that such term does not 
include aggregators of telecommunications services (as defined in 
section 226).'' Section 3(44) further provides that ``[a] 
telecommunications carrier shall be treated as a common carrier under 
this Act only to the extent that it is engaged in providing 
telecommunications services, except that the Commission shall determine 
whether the provision of fixed and mobile satellite service shall be 
treated as common carriage.''
    246. We believe this definition, by itself, generally includes 
local, interexchange, and international services. We therefore 
tentatively conclude that, to the extent that a carrier is engaged in 
providing for a fee local, interexchange, or international basic 
services, directly to the public or to such classes of users as to be 
effectively available directly to the public, that carrier falls within 
the definition of ``telecommunications carrier.'' We seek comment on 
which carriers are included under this definition, and on whether a 
provider may qualify as a telecommunications carrier for some purposes 
but not others. We note that our decision regarding which service 
providers are deemed ``telecommunications carriers'' may determine 
whether that provider is obligated to contribute to universal service 
support mechanisms, in accordance with section 254. See Universal 
Service Notice of Proposed Rulemaking, para. 119 (seeking comment on 
which service providers are ``telecommunications carriers''). For 
example, how does the provision of a information service, as defined by 
section 3(a)(41), in addition to an unrelated telecommunications 
service, affect the status of a carrier as a ``telecommunications 
carrier'' for purposes of section 251? We note that under the Computer 
III and Open Network Architecture proceedings, the Commission imposed a 
regulatory structure on the BOCs, GTE, and AT&T for their provision of 
enhanced services that requires unbundling of basic service features, 
comparably efficient interconnection, and other nonstructural 
safeguards. See, e.g., Computer III Remand Proceedings: Bell Operating 
Company Safeguards and Tier 1 Local Exchange Company Safeguards, 57 FR 
4373 (Feb. 5, 1992), BOC Safeguards Order vacated in part and remanded, 
California v. FCC, 39 F.3d 919 (9th Cir. 1994), cert. denied, 115 S. 
Ct. 1427 (1995) Filing and Review of Open Network Architecture Plans, 
54 FR 3453 (Jan. 24, 1989), recon., 55 FR 27467 (July 3, 1990); 55 FR 
27468 (July 3, 1990) , California v. FCC, 4 F.3d 1505 (9th Cir. 1993), 
recon., 58 FR 11195 (Feb. 24, 1993); 57 FR 2842 (Jan. 24, 1992); 6 FCC 
Rcd 7646 (1991), pet. for review denied, California v. FCC, 4 F.3d 1505 
(9th Cir. 1993).
    247. With respect to the regulatory classification of the provision 
of fixed or mobile satellite service, we already have determined that 
earth station and space station licensees providing domestic and 
international fixed-satellite telecommunications services may offer 
service on a non-common carrier basis, if they choose. We have 
determined that earth station operators could elect whether to operate 
as common carriers or private carriers. More recently, we extended this 
policy to domestic fixed-satellite (domsat) space station licensees. 
Previously, we required domsat licensees to operate as common carriers 
unless the licensee applied for, and was granted, authority to sell 
transponders on a non-common carrier basis. Domestic Fixed-Satellite 
Transponder Sales, 90 F.C.C.2d 1238 (1982), aff'd sub nom. Wold 
Communications, Inc. v. FCC, 735 F.2d 1465 (D.C. Cir. 1984). In 
amending this policy, we noted that no transponder sales request has 
been opposed in the last decade. We also noted that despite

[[Page 18349]]

the routine approval of these sales requests, several operators have 
chosen to continue to offer space segment capacity on a common carrier 
basis. This suggests that market forces are sufficient to provide 
enough common carrier capacity for domestic satellite 
telecommunications services. We also stated that separate satellite 
systems providing international fixed-satellite services were 
established to operate on a non-common carrier basis, and, thus, were 
never regulated as common carriers. Separate Satellite Systems, 101 
F.C.C.2d 1046, 1103 (1985). This policy gives fixed-satellite service 
operators flexibility to meet their customers' changing needs without 
unnecessary regulatory delay and allows them to remain competitive in 
the marketplace. With respect to fixed-satellite capacity offered to 
CMRS providers, we stated that we will examine an array of public 
interest factors in deciding whether such an offering should be treated 
as common carriage consistent with section 332(c)(5). CMRS Second 
Report and Order, paras. 106-108. With respect to the mobile-satellite 
service, we already have determined that we would allow space station 
licensees operating in certain services to choose whether to offer 
space segment capacity on a common carrier or non-common carrier basis. 
See Amendment of the Commission's Rules to Establish Rules and Policies 
Pertaining to a Mobile Satellite Service in the 1610-1626.5/2483.5-2500 
MHz Frequency Bands, Report and Order, 59 FR 53294 (Oct. 21, 1994) (Big 
LEO Order). We tentatively conclude that we should continue to 
determine whether the provision of mobile satellite services is CMRS 
(and therefore common carriage) or Private Mobile Radio Service based 
on the factors set forth in the CMRS Second Report and Order. CMRS 
Second Report and Order, para. 108. We also seek comment on whether, 
and in what respects, this definition of ``telecommunications carrier'' 
differs from the definition of ``common carrier.''
    248. Section 251(a)(1) imposes a duty to ``interconnect directly or 
indirectly with the facilities and equipment of other 
telecommunications carriers.'' We seek comment on the meaning of 
``directly or indirectly'' in the context of section 251(a)(1), as well 
as any other issues raised by this subsection. In this context, we ask 
commenters to address whether section 251(a) is correctly interpreted 
to allow non-incumbent LECs receiving an interconnection request from 
another carrier to connect directly or indirectly at its discretion. 
Section 251(a)(2) of the 1996 Act imposes a duty on each 
telecommunications carrier ``not to install network features, functions 
or capabilities that do not comply with the guidelines or standards 
established pursuant to section 255 or 256.'' We ask commenters to 
address how this provision should be applied to incumbent and non-
incumbent LECs.
    249. Section 255 requires the development of guidelines to ensure 
that telecommunications equipment and customer premises equipment is 
accessible by persons with disabilities. Section 256 requires the 
Commission to coordinate ``network planning among telecommunications 
carriers and other providers of telecommunications services for the 
efficient interconnection of public telecommunications networks.'' 
While the specific guidelines or standards to be adopted pursuant to 
section 255 and 256 will be addressed in one or more separate 
proceedings, we request comment here on what action, if any, the 
Commission should take to ensure compliance with the obligations 
established in section 251(a)(2), which directs telecommunications 
carriers ``not to install network features, functions, or capabilities 
that do not comply with the guidelines or standards established 
pursuant to section 255 or 256.'' What steps, if any, should the 
Commission take to make carriers aware of the standards adopted 
pursuant to sections 255 and 256, and of the periodic revisions to 
these standards? How should the phrase ``network features, functions or 
capabilities'' be defined, and what is meant by ``installing'' such 
network features?

E. Number Administration

1. Selection of a Neutral Number Administrator
    250. Section 251(e)(1) of the Act requires the Commission to 
``create or designate one or more impartial entities to administer 
telecommunications numbering and to make such numbers available on an 
equitable basis.'' It further gives the Commission ``exclusive 
jurisdiction over those portions of the North American Numbering Plan 
that pertain to the United States,'' but states that ``[n]othing in 
this paragraph shall preclude the Commission from delegating to state 
commissions or other entities all or any portion of such 
jurisdiction.''
    251. Additionally, pursuant to the competitive checklist contained 
in Section 271(c)(2)(B), BOCs desiring to provide in-region interLATA 
telecommunications services must afford, ``[u]ntil the date by which 
telecommunications numbering administration guidelines, plans or rules 
are established, non-discriminatory access to telephone numbers for 
assignment to the other carrier's telephone exchange service customers 
* * * [and] [a]fter that date, [must] compl[y] with such guidelines, 
plan or rules.'' These measures foster competition by ensuring 
telecommunications numbering resources are administered in a fair, 
efficient, and orderly manner.
    252. The Commission has already taken action to designate an 
impartial number administrator in its North American Numbering Plan 
(NANP) decision. See Administration of the North American Numbering 
Plan, CC Docket No. 92-237, Report and Order, FCC 95-283 (released July 
13, 1995) (NANP Order) (recon. pending). The NANP Order was initiated 
in response to Bellcore's stated desire to relinquish its role as NANP 
administrator. See Letter from G. Heilmeier, President and CEO, 
Bellcore to the Commission (Aug. 19. 1993). Bellcore, however, will 
continue performing its NANP Administration functions until those 
functions are transferred to a new NANP administrator pursuant to the 
NANP Order. In the NANP Order, the Commission concluded that the 
functions associated with NANP administration would be transferred to a 
new administrator of the NANP, unaligned with any particular segment of 
the telecommunications industry. We tentatively conclude that the NANP 
Order satisfies the requirement of Section 251(e)(1) that the 
Commission designate an impartial number administrator. We seek comment 
on this tentative conclusion.
    253. Toll free telephone numbers are not administered by the North 
American Numbering Plan administrator. Database Service Management, 
Inc. (DSMI), which is a subsidiary of Bellcore, administers toll free 
numbers. In its proceeding addressing toll free telephone numbers, the 
Commission sought comment on whether DSMI should continue to administer 
toll free numbers, or whether the NANP administrator or another neutral 
entity should administer toll free numbers. See Toll Free Service 
Access Codes, CC Docket 95-155, Notice of Proposed Rulemaking, FCC 95-
419 (released Oct. 5, 1995) (Toll-Free NPRM), para. 49. We will address 
the issue of toll free number administration in the Commission's Toll 
Free proceeding.

[[Page 18350]]

2. State Role in Numbering Administration
    254. Section 251(e)(1) allows the Commission to delegate any 
portion of its jurisdiction over numbering administration to the 
states. We tentatively conclude that the Commission should retain its 
authority to set policy with respect to all facets of numbering 
administration, including area code relief issues in order to ensure 
the creation of a nationwide, uniform system of numbering that is 
essential to the efficient delivery of interstate and international 
telecommunications services and to the development of the robustly 
competitive telecommunications services market. Prior to the enactment 
of the Act state commissions implemented new area codes by adopting 
area code relief plans, subject to the guidelines enumerated by the 
Commission in its Ameritech Order. See Proposed 708 Relief Plan and 630 
Numbering Plan Area Code by Ameritech--Illinois, Declaratory Ruling and 
Order, 60 FR 19255 (Apr. 17, 1995) (Ameritech Order) (recon. pending).
    255. Area code relief traditionally has come in the form of an area 
code split, but can also take the form of an area code overlay. In the 
Ameritech Order, the Commission concluded that Ameritech's proposed 
wireless-only overlay plan would be unreasonably discriminatory and 
anticompetitive and that administration of numbers: (1) must seek to 
facilitate entry into the communications marketplace by making 
numbering resources available on an efficient, timely basis to 
communications services providers; (2) should not unduly favor or 
disadvantage any particular industry segment or group of consumers; and 
(3) should not unduly favor one technology over another.
    256. In that decision, the Commission also sought to clarify the 
authority of the Commission and the states respectively with respect to 
numbering administration. While the Commission held that it had broad 
authority over telephone numbering issues, the Commission overturned as 
dicta prior statements it had made suggesting that we retained plenary 
jurisdiction over numbering issues. The Commission acknowledged that 
state commissions have legitimate interests in the administration of 
numbering; it also noted that the state commissions are uniquely 
positioned to understand, judge and determine how new area codes can 
best be implemented in view of local circumstances. We believe this 
continues to be the case. We thus tentatively conclude that the 
Commission should delegate matters involving the implementation of new 
area codes, such as the determination of area code boundaries, to the 
state commissions so long as they act consistently with our numbering 
administration guidelines. We also tentatively conclude that the 
Ameritech Order should continue to provide guidance to the states 
regarding how new area codes can be lawfully implemented. We seek 
comment on these tentative conclusions.
    257. Nevertheless, we emphasize that any uncertainty about the 
Commission's and the states' jurisdiction over numbering administration 
that may have existed prior to the enactment of the 1996 Act has now 
been eliminated. Section 251(e)(1) of the Act vests in the Commission 
exclusive jurisdiction over numbering matters in the United States and 
authorizes the Commission to delegate some or all of that power to 
state commissions. As indicated above, we propose leaving to the states 
decisions related to the implementation of new area codes subject to 
the guidelines enumerated in the Ameritech Order. We are concerned, 
however, that situations may arise where a state commission in 
implementing area code relief appears to be acting in violation of 
those guidelines. We therefore seek comment on whether the Commission 
should, in light of this concern and the enactment of Section 
251(e)(1), reassess the jurisdictional balance between the Commission 
and the states that was crafted in the Ameritech Order. We also seek 
comment on what action this Commission should take when a state appears 
to be acting inconsistently with our numbering administration 
guidelines. In this regard, we note that issues related to area code 
relief plans often require prompt resolution due to the imminent 
exhaustion of central office codes in the area code at issue.
    258. Prior to enactment of the 1996 Act, Bellcore, as the NANP 
Administrator, the LECs, as central office code administrators, and the 
states performed the majority of functions related to the 
administration of numbers. We tentatively conclude that the Commission 
should delegate to Bellcore, the LECs and the states the authority to 
continue performing each of their functions related to the 
administration of numbers as they existed prior to enactment of the 
1996 Act until such functions are transferred to the new NANP 
administrator pursuant to the NANP Order. We seek comment on this 
tentative conclusion. We also seek comment on whether the Commission 
should delegate any additional number administration functions to the 
states or to other entities.
3. Cost Related to Number Administration
    259. In Section 251(e)(2) of the 1996 Act, Congress mandates that 
``[t]he cost of establishing telecommunications numbering 
administration arrangements and number portability shall be borne by 
all telecommunications carriers on a competitively neutral basis as 
determined by the Commission.'' In the NANP Order, the Commission: (1) 
directed that the costs of the new impartial numbering administrator be 
recovered through contributions by all communications providers; (2) 
concluded that the gross revenues of each communications provider will 
be used to compute each provider's contribution to the new numbering 
administrator; and (3) concluded that the NANC will address the details 
concerning recovery of the NANP administrator costs. We find that we 
need take no further action in this NPRM because the Commission has 
already determined that cost recovery for numbering administration 
arrangements must be borne by all telecommunications carriers on a 
competitively neutral basis.

F. Exemptions, Suspensions, and Modifications

    260. Section 251(f)(1)(A) provides that the obligations imposed on 
incumbent LECs pursuant to section 251(c) ``shall not apply to a rural 
telephone company until (i) such company has received a bona fide 
request for interconnection, services, or network elements, and (ii) 
the State commission determines (under subparagraph (B)) that such 
request is not unduly economically burdensome, is technically feasible, 
and is consistent with section 254 (other than subsections (b)(7) and 
(c)(1)(D) thereof).'' This exemption does not apply with respect to a 
request under Section 252(c) from a cable company seeking to provide 
telephone service in an area in which the rural telephone company 
provides video service, unless the rural telephone company was 
providing video service as of the date of enactment of the 1996 Act. 
Section 251(f)(1)(B) sets forth procedures for the State commission to 
terminate the rural telephone company exemption. Section 251(f)(2) 
provides that a LEC ``with fewer than 2 percent of the Nation's 
subscriber lines installed in the aggregate nationwide may petition a 
State commission for a suspension or modification of the application of 
a requirement or requirements of subsection (b) or (c) to telephone 
exchange service facilities

[[Page 18351]]

specified in such petition.'' The State must grant the petition to the 
extent that, and for such duration as, the State commission determines 
that such suspension or modification is necessary and is consistent 
with the public interest, convenience and necessity. The state must 
determine that such modification or suspension is necessary to avoid 
(1) a significant adverse economic impact on users of 
telecommunications services generally; (2) imposing a burden that is 
unduly economically burdensome; or (3) imposing a requirement that is 
technically infeasible. Section 251(f)(2) provides for relief from the 
requirements of both Section 251(b) and (c), whereas section 
251(f)(1)(A) provides for relief only from the requirements of section 
251(c).
    261. We seek comment on whether the Commission can and should 
establish some standards that would assist the States in satisfying 
their obligations under this section. For example, should the 
Commission establish standards regarding what would constitute a ``bona 
fide'' request? We tentatively conclude that the states alone have 
authority to make determinations under section 271(f).

G. Continued Enforcement of Exchange Access and Interconnection 
Regulations

    262. Section 251(g) provides that each LEC, ``to the extent that it 
provides wireline services, shall provide exchange access, information 
access, and exchange services for such access * * * in accordance with 
the same equal access and nondiscriminatory interconnection 
restrictions and obligations (including receipt of compensation)'' that 
applied to such carrier immediately preceding the date of enactment of 
the 1996 Act, ``until such restrictions and obligations are explicitly 
superseded by regulations prescribed by the Commission. * * *'' Those 
obligations and restrictions are enforceable until they are superseded. 
Section 251(i) states that nothing in Section 251 ``shall be construed 
to limit or otherwise affect the Commission's authority under section 
201.'' We seek comment on any issues that these provisions may create. 
In particular, we seek comment on any aspect of this NPRM that may 
affect existing ``equal access and nondiscriminatory interconnection 
restrictions and obligations (including receipt of compensation).''

H. Advanced Telecommunications Capabilities

    263. Finally, we note that pursuant to subsection 706(a) of the 
1996 Act the Commission ``shall encourage the deployment on a 
reasonable and timely basis of advanced telecommunications capability 
to all Americans (including, in particular, elementary and secondary 
schools and classrooms) by utilizing, in a manner consistent with the 
public interest, convenience, and necessity, price cap regulation, 
regulatory forbearance, measures to promote competition in the local 
telecommunications market, or other regulating methods that remove 
barriers to infrastructure investment.'' We sought comment on 
subsection 706(a) in our section 254 Universal Service NPRM, in our 
Open Video Systems NPRM, and in our Cable Reform NPRM. Because section 
251 and this NPRM comprehensively address ``measures to promote 
competition in the local telecommunications market,'' we believe it 
relevant to also seek comment herein on how we can advance Congress' 
subsection 706(a) goal within the context of our implementation of 
sections 251 and 252 of the 1996 Act.

III. Provisions of Section 252

A. Arbitration Process

    264. Section 252(a) states that, ``[u]pon receiving a request for 
interconnection, services, or network elements pursuant to section 251, 
an incumbent local exchange carrier may negotiate and enter into a 
binding agreement with the requesting telecommunications carrier or 
carriers without regard to the standards set forth in subsections (b) 
and (c) of section 251.'' Any party negotiating an agreement under 
section 252(a) ``may, at any point in the negotiation, ask a State 
commission to participate in the negotiation and to mediate any 
differences arising in the course of the negotiation.'' Section 252(b) 
states that, ``[d]uring the period from the 135th to the 160th day 
(inclusive) after the date on which an incumbent local exchange carrier 
receives a request for negotiation under this section, the carrier or 
any other party to the negotiation may petition the State commission to 
arbitrate any open issues.'' In addition, under section 252(e), the 
parties must submit for approval any negotiated or arbitrated agreement 
to the state commission.
    265. Section 252(e)(5) directs the Commission to assume 
responsibility for any proceeding or matter in which the State 
commission ``fails to act to carry out its responsibility'' under that 
section. We note that, unlike section 251(d)(1), there is no specified 
time within which the Commission must establish regulations pursuant to 
section 252(e)(5). Thus, we seek comment on whether in this proceeding 
we should establish regulations necessary and appropriate to carry out 
our obligations under section 252(e)(5). We also seek comment on what 
constitutes notice of failure to act, and what procedures, if any, we 
should establish for interested parties to notify the FCC that a state 
commission has failed to act.
    266. We seek comment on the circumstances under which a state 
commission should be deemed to have ``fail[ed] to act'' under section 
252(e)(5). We note that section 252(e)(4) states that if the State 
commission does not approve or reject (1) a negotiated agreement within 
90 days, or (2) an arbitrated agreement within 30 days, from the time 
the agreement is submitted by the parties, the agreement shall be 
``deemed approved.'' We seek comment on the relationship between this 
provision and our obligation to assume responsibility under section 
252(e)(5). Other questions raised by section 252(e)(5) include: (1) if 
the Commission assumes the responsibility of the state commission, is 
the Commission bound by all of the laws and standards that would have 
applied to the State commission; and (2) is the Commission authorized 
to determine whether an agreement is consistent with applicable state 
law as the state commission would have been under section 252(e)(3)? 
One possible interpretation is that, if an agreement is deemed approved 
pursuant to section 252(e)(4), it will be deemed to comply with state 
law, and the Commission will have no authority to review that 
determination.
    267. Once the Commission assumes such responsibility under section 
252(e)(5), there is no specific provision by which authority reverts 
back to the State commission. For example, if the Commission arbitrates 
an agreement pursuant to section 252(e)(5), the 1996 Act does not 
provide that the arbitrated agreement is referred back to the state 
commission for any further purpose. We seek comment on whether, once 
the Commission assumes responsibility under section 252(e)(5), it 
retains jurisdiction over that matter or proceeding.
    268. We also seek comment on whether we should adopt in this 
proceeding some standards or methods for arbitrating disputes in the 
event we must conduct an arbitration under section 252(e)(5). One 
method we could adopt is ``final offer'' arbitration, whereby each 
party to the negotiation proposes its best and final offer, and the 
arbitrator determines which of the two proposals becomes binding. Under 
final

[[Page 18352]]

offer arbitration, each party has incentives to propose an arrangement 
that the arbitrator could determine to be fair and equitable. In 
addition, parties are more likely to present terms and conditions that 
approximate the economically efficient outcome, because proposing 
extreme terms and conditions may result in an unfavorable finding by 
the arbitrator. While final offer arbitration is a simple and speedy 
option, it is possible that the proposals submitted by the parties may 
not be consistent with the public interest and policies of sections 251 
and 252. Alternatively, we could adopt an open-ended arbitration 
method, which would culminate in a final decision that would be 
consistent with the public interest and policies of sections 251 and 
252. Open-ended arbitration, however, is more administratively 
difficult and likely to be slower than final offer arbitration.

B. Section 252(i)

    269. Section 251 requires that interconnection, unbundled element, 
and collocation rates be ``nondiscriminatory'' and prohibits the 
imposition of ``discriminatory conditions'' on the resale of 
telecommunications services. Section 252(i) appears to be a primary 
tool of the 1996 Act for preventing discrimination under section 251. 
Section 252(i) of the 1996 Act provides that a ``local exchange carrier 
shall make available any interconnection, service, or network element 
provided under an agreement approved under [section 252] to which it is 
a party to any other requesting telecommunications carrier upon the 
same terms and conditions as those provided in the agreement.'' We note 
that in its March 23, 1995 Report on S. 652, the Senate Committee on 
Commerce, Science and Transportation discusses an earlier version of 
section 252(i) and states that the Committee ``intends this requirement 
to help prevent discrimination among carriers.'' The Senate originally 
drafted the section entitled ``Availability to Other Telecommunications 
Carriers,'' which was to become section 252(i), to read: ``A local 
exchange carrier shall make available any service, facility, or 
function provided under an interconnection agreement to which it is a 
party to any other telecommunications carrier that requests such 
interconnection upon the same terms and conditions as those provided in 
the agreement.'' See S. 652, 104th Cong., 1st Sess. Sec. 251(g) (1995).
    270. We seek comment on whether in this proceeding we should adopt 
standards for resolving disputes under section 252(i) in the event that 
we must assume the state's responsibilities pursuant to section 
252(e)(5). Because the Commission may need to interpret section 252(i) 
if it assumes the state commission's responsibilities, we seek comment 
on the meaning of that provision. Must interconnection, services, or 
network elements provided under a state-approved section 252 agreement 
be made available to any requesting telecommunications carrier, or 
would it be consistent with the language and intent of the law to limit 
this requirement to similarly situated carriers? If the obligation were 
construed to extend only to similarly situated carriers, how should 
similarly situated carriers be defined? For example, does the section 
require that the same rates for interconnection must be offered to all 
requesting carriers regardless of the cost of serving that carrier, or 
would it be consistent with the statute to permit different rates if 
the costs of serving carriers are different? In addition, can section 
252(i) be interpreted to allow LECs to make available interconnection, 
services, or network elements only to requesting carriers serving a 
comparable class of subscribers or providing the same service (i.e., 
local, access, or interexchange) as the original party to the 
agreement? We tentatively conclude that the language of the statute 
appears to preclude such differential treatment among carriers. We seek 
comment on this tentative conclusion.
    271. We note that negotiated agreements under section 252(a) are 
the product of compromise between incumbent LECs and requesting 
carriers, and may therefore contain provisions to which a party agreed 
as specific consideration for some other provision. We seek comment on 
whether section 252(i) requires requesting carriers to take service 
subject to all of the same terms and conditions contained in the entire 
state-approved agreement. Ameritech suggests that LECs should only be 
obligated to make available such interconnection, service, or network 
element provided under a state-approved agreement subject to all 
applicable terms and conditions contained in the entire agreement. 
Ameritech ``Proposed Interpretation of Section 252 Pricing Standards'' 
(submitted with its March 25, 1996, letter to Regina M. Keeney, Chief, 
Common Carrier Bureau, Federal Communications Commission) at 13-14. 
Alternatively, does section 252(i) permit the separation of section 
251(b) and (c) agreements down to the level of the individual 
provisions of subsections (b) and (c) and the individual paragraphs of 
section 251? We recognize that allowing requesting carriers to unbundle 
too extensively the provisions of a voluntarily negotiated agreement 
might affect the negotiation process by intensifying the importance 
each individual term of the agreement. We note that in its March 23, 
1995, Report on S. 652 the Senate Committee on Commerce, Science and 
Transportation stated that it intended the requirement codified in 
section 252(i) to ``make interconnection more efficient by making 
available to other carriers the individual elements of agreements that 
have been previously negotiated,'' and seek comment on its meaning.
    272. Section 252(i) requires that incumbent LECs must make 
available the interconnection, service, or network element provided 
under the agreement after state approval of the agreement. The statute 
is silent, however, as to how long such an agreement must be made 
available. We seek comment on whether the agreement should be made 
available for an unlimited period, or whether the statute would permit 
the terms of the agreement to be available for a limited period of 
time. In particular, we ask commenters to cite any statutory language 
that would require the resubmission of these pre-existing 
interconnection agreements to state agencies.

IV. Procedural Issues

A. Ex Parte Presentations

    273. 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. Written submissions, however, will be limited as discussed 
below.

B. Regulatory Flexibility Analysis

    274. Section 251 of the Communications Act establishes a variety of 
interconnection obligations. Some of these requirements apply to all 
telecommunications carriers (which include incumbent LECs, new LEC 
entrants, and interexchange carriers). Other requirements apply to 
LECs--both incumbents and new entrants. Section 252 also places certain 
obligations on state regulatory commissions.
    275. We believe that the Regulatory Flexibility Act applies 
differently to these groups. In particular, we believe that the 
Regulatory Flexibility Act is inapplicable to this proceeding insofar 
as it pertains to incumbent LECs. The proposal in this proceeding, 
however,

[[Page 18353]]

may have a significant economic impact on a substantial number of small 
businesses as defined by section 601(3) of the Regulatory Flexibility 
Act insofar as they apply to telecommunications carriers other than 
incumbent LECs.
    276. Accordingly, we certify that the Regulatory Flexibility Act of 
1980 does not apply to this rulemaking proceeding insofar as it 
pertains to incumbent LECs and state utility commissions because the 
relevant proposals, if promulgated, would not have a significant 
economic impact on a substantial number of small entities, as defined 
by section 601(3) of the Regulatory Flexibility Act. Incumbent LECs 
directly subject to the proposed rule amendments do not qualify as 
small businesses since they are dominant in their field of operation. 
The Commission will, however, take appropriate steps to ensure that the 
special circumstances of the smaller incumbent LECs are carefully 
considered in resolving those issues. To the extent that this NPRM may 
apply to state utility commissions, they do not qualify as small 
entities under section 601 of the Regulatory Flexibility Act.
    277. Insofar as the proposals in this NPRM apply to 
telecommunications carriers other than incumbent LECs (generally 
interexchange carriers and new LEC entrants), they may have a 
significant economic effect on a substantial number of small entities. 
Accordingly, we are preparing an Initial Regulatory Flexibility 
analysis with respect to the provisions applicable to 
telecommunications carriers other than incumbent LECs. 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:
    278. Reason for Action: The Commission is issuing this Notice of 
Proposed Rulemaking to implement the local exchange competition 
provisions of the 1996 Act discussed above, most importantly section 
251.
    279. 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 addressed in the NPRM.
    280. Legal basis: The Notice of Proposed Rulemaking is adopted 
pursuant to Sections 1, 4, 201-205, 222, 224, 225, 251, 252, 253, 254, 
255, 256, 271, and 273 of the Communications Act of 1934, as amended, 
47 U.S.C. Secs. 153, 154, 201-205, 222, 224, 251, 252, 253, 254, 255, 
256, 271, and 273.
    281. Description of small entities affected: Certain of the 
proposals in this NPRM would apply to telecommunications carriers, 
other than incumbent LECs. These carriers would include small 
interexchange carriers and small, new LEC entrants. Some of these 
carriers clearly qualify as small business entities.
    282. Potential Impact: Some of the proposals in this NPRM may 
impose requirements that will have a significant economic effect on 
certain small business entities. 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.
    283. Reporting, recordkeeping and other compliance requirement: The 
proposed rules, adopted pursuant to the Telecommunications Act of 1996, 
would require dominant incumbent local exchange carriers, in certain 
cases, to submit documentation requested by state commissions for 
arbitration concerning the rates, terms, and conditions for 
interconnection and network element unbundling.
    284. Federal rules that may overlap, duplicate or conflict with the 
Commission's proposal: Our existing Expanded Interconnection rules may 
overlap with the requirements of section 251 addressed in this NPRM. We 
have also sought comment on the relationship between our Part 69 Access 
Charge rules and the requirements of sections 251 and 252 of the 1996 
Act.
    285. Any significant alternatives minimizing impact on small 
entities and consistent with stated objectives: The Notice of Proposed 
Rulemaking solicits comments on alternatives.
    286. 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 in this Notice of Proposed Rulemaking but they must have a 
separate and distinct heading designating them as responses to the 
Regulatory Flexibility Analysis.
    287. The Secretary shall send a copy of this Notice of Proposed 
Rulemaking, including the certification set out above, 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).

C. Initial Paperwork Reduction Act of 1995 Analysis

    288. This NPRM 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 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 other comments on this NPRM; OMB comments 
are due June 24, 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 collection of information on the respondents, 
including the use of automated collection techniques or other forms of 
information technology.

D. Comment Filing Procedures

    289. General. Pursuant to applicable procedures set forth in 
Sections 1.415 and 1.419 of the Commission's rules, 47 CFR Secs. 1.415, 
1.419, interested parties may file comments on or before May 16, 1996, 
and reply comments on or before May 30, 1996. To file formally in this 
proceeding, you must file an original and twelve copies of all 
comments, reply comments, and supporting comments. If you want each 
Commissioner to receive a personal copy of your comments, you must file 
an original and 16 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.
    290. Separate Comment Filing Procedures for Dialing Parity, Number 
Administration, Public Notice of Technical Changes, and Access to 
Rights of Way. Interested parties are instructed to file separate 
comments with respect to (1) dialing parity, (2) access to rights-of-
way, (3) number administration, and (4) public notice of technical 
changes requirements and regulatory changes proposed or discussed 
above. Comments on these

[[Page 18354]]

issues are to be filed on or before May 20, 1996; and reply comments 
on, or before, June 3, 1996. These filings will not be considered in 
applying the page limits for filings in this proceeding. To file formal 
comments addressing these issues, parties are required to comply with 
all of the remaining comment filing procedures contained in part VI(D) 
of this NPRM. Comments and reply comments should be sent to the Office 
of the Secretary, Federal Communications Commission, 1919 M Street, 
N.W., Room 222, Washington, D.C. 20554, with 3 copies to Gloria 
Shambley of the Network Services Division, Common Carrier Bureau, 2000 
M Street, N.W., Suite 210, Washington, D.C. 20554.
    291. Other requirements. In order to facilitate review of comments 
and reply comments, both by parties and by Commission staff, we require 
that comments be no longer than seventy-five (75) pages and reply 
comments be no longer than thirty-five (35) pages, including exhibits, 
appendices, and affidavits of expert witnesses. Empirical economic 
studies and copies of relevant state orders will not be counted against 
these page limits. These page limits will not be waived and will be 
strictly enforced. Comments and reply comments 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. However, we require 
here that a summary be included with all comments and reply comments, 
although a summary that does not exceed three pages will not count 
towards the 75 page limit for comments or the 35 page limit for reply 
comments. The summary may be paginated separately from the rest of the 
pleading (e.g., as ``i, ii''). See 47 CFR Sec. 1.49. We also direct all 
interested parties to include the name of the filing party and the date 
of the filing on each page of their comments and reply comments. 
Comments and reply comments also must clearly identify the specific 
portion of this Notice of Proposed Rulemaking to which a particular 
comment or set of comments is responsive. If a portion of a party's 
comments does not fall under a particular topic listed in the outline 
of this NPRM, such comments must be included in a clearly labelled 
section at the beginning or end of the filing. Parties may not file 
more than a total of ten (10) pages of ex parte submissions, excluding 
cover letters. This 10 page limit does not include: (1) written ex 
parte filings made solely to disclose an oral ex parte contact; (2) 
written material submitted at the time of an oral presentation to 
Commission staff that provides a brief outline of the presentation; or 
(3) written material filed in response to direct requests from 
Commission staff. Ex parte filings in excess of this limit will not be 
considered as part of the record in this proceeding.
    292. 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.
    293. Written comments by the public on the proposed and/or modified 
information collections are due 25 days after public release of this 
NPRM, and reply comments must be submitted not later than 14 days after 
the comments. 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, D.C. 20554, or 
via the Internet to [email protected] and to Timothy Fain, OMB Desk 
Officer, 10236 NEOB, 725 17th Street, N.W., Washington, D.C. 20503 or 
via the Internet to [email protected].

E. Ordering Clauses

    294. Accordingly, It is Ordered that pursuant to Sections 1, 4, 
201-205, 222, 224, 225, 251, 252, 254, 255, 256, and 271 of the 
Communications Act of 1934, as amended, 47 U.S.C. Secs. 153, 154, 201-
205, 222, 224, 251, 252, 254, 255, 256, and 271, a Notice of proposed 
rulemaking is hereby adopted.
    295. 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).
    296. The Administration of the North American Numbering Plan, 
Notice of Proposed Rulemaking, CC Docket No. 92-237, 59 FR 24103 (5/10/
94), to the extent that it addressed the issue of dialing parity, is 
hereby dismissed as moot solely with respect to that issue.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-10300 Filed 4-24-96; 8:45 am]
BILLING CODE 6712-01-P