[Federal Register Volume 61, Number 160 (Friday, August 16, 1996)]
[Rules and Regulations]
[Pages 42558-42564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20859]


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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64

[CC Docket No. 96-61; FCC 96-331]


Implementation of Section 254(g) of the Communications Act of 
1934, as Amended

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: Pursuant to Section 254(g) of the Communications Act of 1934, 
which was added by Section 101(a) of the 1996 Telecommunications Act, 
the Commission adopts a geographic rate averaging rule ``to require 
that the rates charged by providers of interexchange telecommunications 
services to subscribers in rural and high cost areas shall be no higher 
than the rates charged by each such provider to its subscribers in 
urban areas'' and a rate integration rule to require ``that a provider 
of interstate interexchange services shall provide such services to its 
subscribers in each State at rates no higher than the rates charged to 
its subscribers in any other State.'' These rules will ensure that 
subscribers in rural and high-cost areas will not be charged higher 
rates for interexchange services than subscribers in urban areas, and 
that interexchange carriers will offer services to all their service 
areas--whether rural, high-cost or urban--on the same terms.

EFFECTIVE DATE: September 16, 1996.

FOR FURTHER INFORMATION CONTACT: Sherille Ismail or Neil Fried, 
Competitive Pricing Division, Common Carrier Bureau, (202) 418-1530.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order adopted and released August 7, 1996. The full text of this 
Commission decision is available for inspection and copying during 
normal business hours in the FCC Public Reference Room (Room 239), 1919 
M St., N.W., Washington, D.C. The complete text of this decision may 
also be purchased from the Commission's copy contractor, International 
Transcription Service, Suite 140, 2100 M Street, N.W., Washington, D.C. 
20037.

Regulatory Flexibility Analysis

    The Commission promulgates the rules in the Report and Order to 
implement Section 254(g) of the Communication Act of 1934, as amended 
by the Telecommunications Act of 1996. The objective of these rules is 
``to incorporate the policies of geographic rate averaging and rate 
integration of interexchange services in order to ensure that 
subscribers in rural and high cost areas throughout the Nation are able 
to continue to receive both intrastate and interstate interexchange 
services at rates no higher than those paid by urban subscribers.''
    The Regulatory Flexibility Act defines ``small entity'' to include 
the definition of ``small business concern'' under the Small Business 
Act, 15 U.S.C. 632. Under the Small Business Act, a ``small business 
concern'' is one that (1) is independently owned and operated, (2) is 
not dominant in its field of operation, and (3) meets any additional 
criteria established by the Small Business Administration (SBA). Our 
geographic averaging and rate integration rules will apply to all 
providers of interexchange service. The SBA has not developed a 
definition of small entities specifically applicable to providers of 
interexchange service. The closest applicable definition under SBA 
rules is for telephone communications companies other than 
radiotelephone (wireless) companies. According to SBA regulations, a 
telephone communications company other than a radiotelephone company is 
a small business concern if it has fewer than 1,500 employees.
    The most relevant employee data available from the SBA does not 
enable us to make a meaningful estimate of the number of providers of 
interexchange service that are small entities because it is based upon 
a 1992 Census of Transportation, Communications, and Utilities survey 
from which we can only

[[Page 42559]]

calculate the average number of people employed by various-sized 
telephone entities other than radiotelephone companies. Based on a 
Commission staff report entitled Long Distant Market Shares: Fourth 
Quarter, 1995, however, we estimate that approximately 500 carriers 
provide interexchange service. Some of these carriers are not 
independently owned and operated, or have more than 1,500 employees. 
Consequently, we estimate that our geographic averaging and rate 
integration rules will apply to less than 500 ``small entities.'' We 
are unable on the present record to estimate with more particularity 
how many of these entities would be considered small for the purposes 
of the Regulatory Flexibility Act.
    No comments specifically addressed the Commission's initial 
regulatory flexibility analysis. However, a number of associations that 
represent, at least to some extent, the interests of small 
telecommunications providers, generally supported the Commission's 
proposed rules to implement geographic averaging and rate integration. 
Other commenters asserted that these rules would harm small regional 
providers of interexchange service in high-cost areas, arguing that 
such providers would be unable to compete with nationwide carriers that 
can charge lower rates by spreading their costs over a larger customer 
base. A few suggested that subsidies or other support mechanisms might 
alleviate their concerns. The record in this proceeding does not show 
that small interexchange service providers will be disproportionately 
harmed by implementation of rate integration. The practical impact of 
our rules will be to require all providers of interexchange service, 
including those that are small entities, to set rates on a 
geographically averaged and rate-integrated basis.
    To comply with our Report and Order, carriers must charge rural and 
high-cost area customers for interexchange service no more than they 
charge urban customers, and must charge customers for such services in 
one state no more than they charge customers in any other state. The 
Notice of Proposed Rulemaking (NPRM), 61 FR 14717, April 3, 1996, 
proposed requiring providers of interexchange telecommunications 
services to file certifications that they were complying with these 
requirements in the event the Commission decides to mandate permissive 
detariffing of interexchange services. We will consider later in this 
proceeding what enforcement mechanisms may be necessary to support 
geographic averaging and rate integration when the Commission addresses 
the detariffing issue. We have proposed a requirement that AT&T, 
Sprint, MCI, IT&E, GTE, and PCI submit preliminary plans no later than 
February 1, 1997, to achieve rate integration for services provided to 
Guam, the Northern Marianas, American Samoa, and other offshore points, 
and final plans no later than June 1, 1997. The preliminary plans need 
not include rates, but at a minimum should resolve service and rate-
band issues. Final plans shall include a rate schedule. Carriers 
already have in place their own individualized rate schedules, which 
they have presumably tailored to the areas they provide service. 
Consequently, carriers' staff preparing the preliminary and final plans 
will likely need no special skills other than general familiarity with 
the new rate schedules that these entities are planning, or have 
chosen, to adopt to comply with the rate averaging and rate integration 
requirements.
    Section 254(g) reflects a congressional determination that the 
country's higher-cost, lower-volume markets should share in the 
technological advances and increased competition characteristic of the 
nation's telecommunications industry as a whole, and that interexchange 
rates should be provided throughout the nation on a geographically 
averaged and rate- integrated basis. As noted above, we have decided 
that the statutory objectives of Section 254(g) require us to apply our 
rules to all providers of interexchange service, including small ones. 
We have chosen, however, to allow carriers to offer private line 
service and temporary promotions on a deaveraged basis. In so doing, we 
have minimized the impact our rules might otherwise have had, and 
enable carriers to use such devices to enter new markets.
    The Commission considered and rejected several significant 
alternatives. We could have reduced burdens on small carriers by 
exempting them from compliance through forbearance. However, we do not 
believe that forbearing at this time would be consistent with the 
congressional goals that underlie Section 254(g). We could also have 
reduced burdens on small carriers by establishing cost-support 
mechanisms. However, the present record does not justify any such cost-
support mechanisms. Accordingly, we decline to adopt these alternative 
measures for small carriers.

Paperwork Reduction Analysis

    We have decided to require AT&T, Sprint, MCI, IT&E, GTE, and PCI to 
submit preliminary and final plans to achieve rate integration of Guam, 
the Northern Marianas, and American Samoa by August 1, 1997. These one-
time plan requirements constitute new ``collections of information,'' 
within the meaning of the Paperwork Reduction Act of 1995, 44 U.S.C. 
3501-3520. The public burden for these one-time collections of 
information is estimated as follows:

------------------------------------------------------------------------
                                                                 Burden 
                 Title                   Hours per    Annual      per   
                                          response  responses   carrier 
------------------------------------------------------------------------
Preliminary rate integration plan......         30          1    30 hrs.
Final rate integration plan............         40          1    40 hrs.
                                        --------------------------------
Total One-Time Annual Burden: 70 hrs.                                   
 x  6 carriers = 420 hrs.                                               
------------------------------------------------------------------------

    The foregoing estimate includes the time the carriers will need to 
spend: (1) Reviewing the portions of our Report & Order relevant to the 
one-time plan requirements; (2) reviewing their current rate schedules; 
(3) determining what rate adjustments they will need to make to their 
rate schedules to comply with our rate integration rule; (4) revising 
their rates in the case of the final plans; and (5) completing and 
reviewing the collections of information. Send comments regarding this 
burden estimate or any other aspect of the collection of information, 
including suggestions for reducing the burden, to the Federal 
Communications Commission, Records Management Branch, Paperwork 
Reduction Project, Washington, D.C. 20554 and to the Office of 
Management and Budget, Paperwork Reduction Project, Washington, D.C. 
20503.

Summary of Report and Order

    1. On February 8, 1996, the ``Telecommunications Act of 1996'' 
(1996 Act), Public Law No. 104-104, 110 Stat. 56 (1996), became law. 
Section 101(a) of the 1996 Act adds Section 254(g) of the 
Communications Act of 1934. Section 254(g) provides that within six 
months of enactment of the 1996 Act the Commission shall adopt a 
geographic rate averaging rule ``to require that the rates charged by 
providers of interexchange telecommunications services to subscribers 
in rural and high cost areas shall be no higher than the rates charged 
by each such provider to its subscribers

[[Page 42560]]

in urban areas'' and a rate integration rule to require ``that a 
provider of interstate interexchange services shall provide such 
services to its subscribers in each State at rates no higher than the 
rates charged to its subscribers in any other State.'' In our March 25, 
1996, NPRM, we proposed rules to implement Section 254(g). In our 
Report and Order we establish those rules.

I. Rate Averaging

A. General Rule
    2. Although we have consistently endorsed a policy of geographic 
rate averaging, we have not formally issued a rule requiring carriers 
to geographically average rates. We adopt the rate averaging rule we 
proposed in the NPRM that ``the rates charged by all providers of 
interexchange telecommunications services to subscribers in rural and 
high cost areas shall be no higher than the rates charged by each such 
provider to its subscribers in urban areas.'' As required under the 
1934 Act, as amended, our rule will apply to all providers of 
interexchange telecommunications services and to all interexchange 
``telecommunications services,'' as defined in the 1934 Act. This 
definition does not create any exception for nonresidential services.
B. Contract Tariffs, Tariff 12 Offerings, Optional Calling Plans, 
Discounts, Promotions, and Private Line Services
    3. Section 254(g) and our geographic rate averaging rule will 
require carriers to charge subscribers in rural and high-cost areas 
rates for telecommunications services that are no higher than rates 
offered to urban subscribers. The Commission's current policy as 
reflected in AT&T tariffs, however, has permitted AT&T to offer 
contract tariffs, Tariff 12 offerings, optional calling plans, and 
temporary promotions, subject to some limitations. Contract tariffs and 
Tariff 12 offerings generally involve discounts from basic rate 
schedules. Optional calling plans offer customers discounts from basic 
rate schedules, subject to terms and conditions specified in the 
optional calling plan. Temporary promotions involve discounts from 
basic rate schedules as well as limited sign-up periods for the 
promotional discount rates. As noted, we have also permitted AT&T to 
offer private line services at geographically deaveraged rates. AT&T 
rates for private line services vary from LATA (Local Access and 
Transport Area) to LATA, continuing pricing practices that AT&T has 
historically used in setting rates for private line services.
    4. The legislative history of Section 254(g) states that Congress 
intended that section to ``incorporate'' our existing policy concerning 
geographic rate averaging, and ``that the Commission, where 
appropriate, could continue to authorize limited exceptions to the 
general geographic rate averaging policy using the [forbearance] 
authority provided by new section 10 of the Communications Act.'' 
Therefore, we will conduct a forbearance analysis to determine whether 
we should permit IXCs to depart from geographic rate averaging where we 
have permitted them to do so under current policy.
    5. We do not believe that our current policy of allowing carriers 
to offer contract tariffs and Tariff 12 options conflicts with 
geographic averaging because we require that these offerings be 
available to similarly situated customers throughout the carrier's 
service area. The legislative history to Section 254(g), however, 
indicates that the conferees viewed contract tariffs and Tariff 12 
offerings, at least to some extent, as permissible exceptions to 
geographic rate averaging that could be authorized through forbearance. 
Accordingly, our forbearance analysis will encompass contract tariffs 
and Tariff 12 offerings to ensure that our requirements implementing 
Section 254(g) are consistent with congressional intent.
    6. Section 10 requires the Commission to forbear from applying any 
provision of the Act if we find that (1) enforcement of such provision 
unnecessary to ensure that practices in connection with the relevant 
telecommunications service are just and reasonable and are not unjustly 
or unreasonably discriminatory; (2) enforcement of such provision is 
unnecessary to protect consumers; and (3) forbearance from applying 
such provision is consistent with the public interest. In addition, the 
Commission, in making its public interest determination, must 
``consider whether forbearance from enforcing the provision * * * will 
promote competitive market conditions, including the extent to which 
such forbearance will enhance competition among providers of 
telecommunications services.''
    7. We do not believe that permitting carriers to depart from 
geographic rate averaging to the extent necessary to offer contract 
tariffs, Tariff 12 offerings, optional calling plans, temporary 
promotions, and private line services in accordance with our current 
policy will subject rural and high-cost area customers to unjust or 
unreasonable, or unjustly or unreasonably discriminatory, rates 
because: (1) We will continue to require carriers to make these 
services generally available under our current rules (e.g., contract 
tariffs and Tariff 12 offerings must be available to similarly situated 
customers) regardless of their geographic location, and (2) the only 
``geographically-specific'' discounts that carriers may offer are 
temporary promotions. Thus, except for temporary promotions and private 
line services, interexchange telecommunications service offerings will 
be available on the same terms throughout a carrier's service area. In 
addition, we do not believe based on the record that allowing 
geographically deaveraged private line rates will produce unjust or 
unreasonable or unjustly or unreasonably discriminatory rates, as it is 
our current practice and has not raised such concerns. Thus, we find 
that enforcement of the geographic rate-averaging requirement for 
contract tariffs, Tariff 12 offerings, optional calling plans, 
temporary promotions, and private line services is not necessary to 
ensure that charges, practices, and classifications are just and 
reasonable and not unjustly and unreasonably discriminatory.
    8. Enforcement of the geographic rate-averaging requirement for 
these services is also not necessary to protect consumers because these 
service offerings are generally beneficial to consumers. For example, 
promotions, optional calling plans, and discounts facilitate 
introduction of new and beneficial services to consumers. Indeed, we 
are particularly concerned that carriers will cease to offer such 
service offerings, to the clear detriment of all consumers, unless 
carriers are permitted to offer them for a limited time on a narrower 
scale than throughout their entire service areas. We believe that the 
limited scope and nature of promotions offered on a geographically 
specific basis will protect consumers and that, to the extent that 
these service offerings promote new services, consumers will benefit, 
including rural customers. We also believe that it is not necessary to 
apply geographic averaging to private line services, contract tariffs, 
and Tariff 12 offerings to protect residential consumers because these 
services are normally provided to businesses. Business consumers 
benefit from these services because in many cases the services are 
provided at discounted rates. Thus, we conclude that enforcement of the 
geographic rate-averaging requirement for contract tariffs, Tariff 12 
options, optional calling plans, temporary promotions, and

[[Page 42561]]

private line services is not necessary to protect consumers.
    9. Finally, we believe that forbearance from applying the 
geographic rate averaging requirement to the extent permitted under our 
rules is consistent with the public interest. We come to this 
conclusion because we believe that allowing deaveraged rates, such as 
for temporary promotions, will ultimately benefit consumers by 
encouraging widespread offerings of new services. Moreover, it has been 
our practice to allow these exceptions to our existing policy, and we 
have no reason to believe this current practice is contrary to the 
public interest. In addition, excepting these specific types of service 
offerings from the geographic rate averaging requirement will continue 
to stimulate competition for customers among interexchange carriers. 
Limited departures from geographic rate averaging, such as for private 
line services and temporary promotions available only in some areas, 
are often designed to spur, or respond to, competition. For example, 
interexchange carriers often offer promotional discounts as a response 
to competition within the interexchange market. For these reasons, we 
conclude that limited forbearance from applying the geographic rate 
averaging requirement to contract tariffs, Tariff 12 offerings, 
temporary promotions, and private line services is consistent with the 
public interest.
    10. Accordingly, we forbear from applying Section 254(g), 
consistent with the intent of Congress, to the extent necessary to 
permit carriers to depart from geographic rate averaging to offer 
contract tariffs, Tariff 12 offerings, optional calling plans, 
temporary promotions, and private line services in accordance with our 
policy as previously applied to AT&T. As with current policy, we will 
require carriers to offer the same basic service package to all 
customers in their service areas, and permit carriers to offer contract 
tariffs, Tariff 12 offerings, and optional calling plans provided they 
are available to all similarly situated customers, regardless of their 
geographic location. We will permit carriers to offer promotions that 
may be ``geographically limited,'' provided that the promotions are 
temporary, as discussed further below.
    11. These requirements are fully consistent with the Commission's 
past practices. Contrary to the claims of some IXCs, we have not in the 
past exempted from our geographic rate averaging policy entire groups 
of services, such as contract tariffs, negotiated arrangements, or 
optional calling plans, where carriers offer discounted rates on a 
permanent or long-term basis. The record is clear, in fact, that we 
have required optional calling plans to be generally available 
throughout a carrier's service area and prohibited geographic 
restrictions in contract tariffs because a service package that is 
available to only one customer ``unreasonably discriminates among 
similarly situated customers,'' and is therefore unlawful. The only 
type of geographic restriction in a contract tariff that we have 
permitted is one that is necessary because of technical limitations 
imposed by a LEC's switching equipment or billing capabilities, or 
where the underlying basic service is limited.
    12. As stated, we believe that temporary promotions benefit 
consumers because they facilitate the introduction of new services. We 
have permitted temporary promotions in the past for these reasons, and 
believe that Congress intended us to continue to do so. We conclude, 
however, that ``temporary'' promotions should, in fact, be temporary 
and not the basis for repeated offerings by carriers. Before AT&T was 
found nondominant for purposes of interexchange service, we proposed to 
keep promotional rates outside of price caps as long as they were 
offered for no longer than 90 days. Further, we find that a 90-day 
period in which customers may receive discounted rates as part of a 
promotion is sufficient time for a targeted promotional offering to 
attract interest in new or revised services, but not so long as to 
undermine our geographic rate averaging requirement. Accordingly, even 
though AT&T has tariffed longer promotions in the past, we believe this 
length of time for temporary promotions not available throughout a 
carrier's service area best implements the statutory mandate for 
geographic averaging. Further, rather than specifying a range of 
permissible combinations of sign-up and discount periods, we believe 
that specifying a single time period for promotional discounts will 
facilitate administration of Section 254(g) and our implementing rules.
    13. We will therefore permit carriers, as part of temporary 
promotions not available throughout a carrier's service area, to offer 
discounted promotional rates for no more than 90 days. We will not at 
this time establish limits on the duration of sign-up periods for 
promotions, but we expect them to be relatively brief. We can review at 
a later time specific carriers' practices in this regard if necessary. 
We also expect that carriers' temporary promotions will not, when 
viewed over a number of years, reflect a pattern of undue 
discrimination against rural or high-cost areas. Thus, we expect that, 
viewed over time, temporary promotions will be offered in rural and 
high-cost areas, as well as to urban customers. We find it unnecessary 
to adopt advertising requirements concerning discounts and promotions. 
We believe that consumers will be protected as long as long-term 
discounts and promotions are available to all similarly situated 
customers throughout a carrier's service area.
C. Forbearance in Competitive Conditions
    14. We are not persuaded that we should establish an exception to 
our general rate averaging rule based on the existence of competing 
regional carriers that may be able to offer lower rates for 
interexchange services because of lower access charges or other costs. 
To establish such an exception we would need to forbear under Section 
10 of the 1934 Act. As noted previously, we must forbear from applying 
any provision of the 1934 Act, as amended, when (1) enforcement of that 
provision is unnecessary to ensure that the relevant charges and 
practices are just and reasonable and not unjustly or unreasonably 
discriminatory; (2) enforcement of that provision is unnecessary to 
protect consumers; and (3) forbearance from applying the provision is 
consistent with the public interest.
    15. Commenters have failed to justify this exception under Section 
10 because they have based their claims entirely on generalized 
assertions of the alleged need for a competitive exception to 
geographic averaging requirements. With respect to the first prong of 
the forbearance test, we believe that establishing a broad exception to 
Section 254(g) for low-cost regions entails a substantial risk that 
many subscribers in rural and high cost areas may be charged more than 
subscribers in other areas. Accordingly, we cannot conclude that 
enforcing our rate averaging requirements is unnecessary to ensure just 
and reasonable and nondiscriminatory charges for subscribers. We also 
see no basis in the record to conclude that it is unnecessary to 
enforce Section 254(g) to ensure protection of consumers. We are 
concerned that widespread deaveraged rates for interexchange services 
could produce unreasonably high rates for some subscribers. Further, 
commenters have not made a persuasive case that our geographic rate 
averaging requirement may compel them to abandon service in some areas. 
Finally,

[[Page 42562]]

we believe that, as part of our initial implementation of Section 
254(g), it is not in the public interest to create the broad exception 
urged by commenters. Accordingly, we conclude that commenters have not 
justified forbearance to create a competitive exception to geographic 
rate averaging. We also will not forbear from enforcing our rate 
averaging policy against nondominant carriers. We note that Congress 
knew at the time the 1996 Act was passed that all IXCs were nondominant 
and we find that Congress would not have required us to adopt rules to 
implement geographic rate averaging if it had intended us to abandon 
this policy with respect to all IXCs so soon after enactment.
    16. We are also not persuaded that we should forbear for smaller 
carriers serving high-cost areas on the grounds that they might have 
difficulty competing against nationwide carriers. These carriers have 
provided only conclusory allegations of harm and have not shown that 
they will be unable to compete with larger carriers in a rate-averaged 
environment, much less that they have satisfied all three of the 
requirements set forth in Section 10 for exercise of our forbearance 
authority. Thus, these carriers, like the nationwide carriers, have 
failed to justify forbearance on this record.
    17. We also reject AT&T's suggestion that we delay implementing 
Section 254(g) until access charges are lower and more cost based. We 
believe that Congress was fully aware of geographic differences in 
access charges when it adopted Section 254(g), and intended us to 
require geographic rate averaging even under these conditions. 
Moreover, nothing in the text or legislative history of Section 254(g) 
suggests that the Congress intended to delay implementation of the 
geographic rate averaging requirement.

II. State Authority

    18. We conclude that Congress intended the states to play an active 
role in enforcing Section 254(g) with respect to intrastate geographic 
rate averaging. The Senate Report states that ``States shall continue 
to be responsible for enforcing [intrastate geographic rate averaging], 
so long as the State rules are not inconsistent with'' the regulations 
the Commission adopts. We believe that intrastate rate structures that 
are based on reasonable mileage bands will meet this requirement 
because that is the method traditionally used by carriers to offer 
geographically averaged rates. We will not, however, permit states to 
establish special rate zones within states absent forbearance by the 
Commission because we believe that would result in geographically 
deaveraged rates in violation of Section 254(g). Section 254(g) 
requires that rates be no higher in any rural or high-cost area than 
they are in any urban area. To the extent that AT&T proposes to 
associate some, but not all, rural areas with certain urban areas, we 
presume that some rural areas will experience higher rates than some 
urban areas, in violation of the statute.

III. Rate Integration

A. General Rule
    19. Section 254(g) also requires the Commission to promulgate a 
rate integration rule requiring that ``a provider of interstate 
interexchange services shall provide such services to its subscribers 
in each State at rates no higher than the rates charged to its 
subscribers in any other State.'' The Commission has a well-established 
policy of rate integration. Since 1972, the Commission has required any 
carrier that provides domestic interstate interexchange service between 
the contiguous forty-eight states and various offshore points to 
integrate its rates pursuant to a plan to integrate the carrier's rates 
and services for offshore points with its rates for similar services on 
the mainland. In 1976, the Commission required carriers that offered 
message toll, private line, and specialized services to or from Alaska, 
Hawaii, Puerto Rico, and the Virgin Islands to integrate their rates 
for those services into the rate structures and uniform mileage rate 
patterns applicable to the mainland. This policy required IXCs to lower 
their rates in the newly integrated areas to levels comparable to those 
prevailing in the mainland for interexchange calls of similar distance, 
duration, and time of day. To implement the statutory requirements of 
Section 254(g), we will adopt the rate integration rule we proposed in 
the NPRM that ``a provider of interstate interexchange 
telecommunications services shall provide such services to its 
subscribers in each State at rates no higher than the rates charged to 
its subscribers in any other State.'' As with geographic rate 
averaging, this rule will incorporate our existing policies. This rule 
will apply to all domestic interstate interexchange telecommunications 
services as defined in the 1996 Act, and all providers of such 
services. As with our geographic rate averaging policy, carriers may 
comply with this rule by establishing reasonable mileage bands for 
calls.
    20. We are not persuaded that we must forbear from requiring 
carriers to comply with rate integration, either generally or in 
competitive conditions, for the same reasons discussed with respect to 
geographic rate averaging. Our rate integration policy has integrated 
offshore points into the domestic interstate interexchange rate 
structure so that the benefits of growing competition for interstate 
interexchange telecommunications services, as well as regulatory and 
other developments concerning interstate services, are available 
throughout our nation. Furthermore, absent forbearance, the statute 
requires us to incorporate our 1976 Integration of Rates and Services 
Order requiring geographic rate integration.
    21. We are also not persuaded that we should forbear from applying 
rate integration to smaller carriers serving high-cost areas on the 
grounds that they might have difficulty competing against nationwide 
carriers. These carriers have provided only conclusory allegations of 
harm and have not shown that they will be unable to compete with larger 
carriers in a rate-integrated environment, much less that they have 
satisfied all three of the requirements for exercise of our forbearance 
authority. Thus, these carriers have failed to make a showing on this 
record justifying forbearance.
    22. We believe that AMSC, despite its arguments to the contrary, is 
required by the plain terms of the 1996 Act to integrate the rates 
charged for its offshore service into the rate structure for its 
mainland rates. Further, as with rate averaging, we interpret Section 
254(g) to extend to all providers of interexchange service the rate 
integration policy that previously was applied only to AT&T. AMSC's 
services would appear to fall within the definition of interstate 
interexchange telecommunications services subject to Section 254(g). A 
Bureau decision referred to by AMSC permitted an AMSC tariff to take 
effect without any finding of lawfulness; it did not establish any 
policy of excluding AMSC services from rate integration. Accordingly, 
we reject AMSC's arguments on this issue.
B. U.S. Territories and Possessions
    23. In the NPRM, we noted that ``State'' is defined in the 
Communications Act to include U.S. territories and possessions. Thus, 
in making the Section 254(g) rate integration provision applicable to 
interstate interexchange services provided between ``states,'' as 
defined in the Communications Act, 47 U.S.C. 153(40), Congress made 
rate integration applicable to interexchange services provided to all 
U.S. possessions and

[[Page 42563]]

territories, including Guam, the Northern Marianas, and American Samoa. 
Further, rate integration applies to all interstate interexchange 
telecommunications services as defined in the Communications Act, 47 
U.S.C. 153(22), 153(46). Accordingly, under our rate integration rule 
implementing 254(g), providers of interexchange service to these points 
must do so on an integrated basis with services they provide to other 
states.
    24. We believe that the resolutions the Guam/Northern Marianas 
Working Group adopted July 9, 1996, regarding rate integration for Guam 
and the Northern Marianas provide a reasonable framework to guide 
carriers towards implementing rate integration. Thus, a carrier should 
establish rates for services provided to Guam and the Northern Marianas 
consistent with the rate methodology it employs for services it 
provides to other states. Similarly, to the extent that a provider of 
interexchange service offers optional calling plans, contract tariffs, 
discounts, promotions, and private line services to its subscribers on 
the mainland, it should use the same ratemaking methodology and rate 
structure when offering those services to its subscribers in Guam or 
the Northern Marianas.
    25. We also agree with the Working Group that cost support and 
universal service issues should be addressed in the first instance by 
the Universal Service Joint Board. Guam has specifically raised these 
issues in CC Docket No. 96-45. Accordingly, we will address those 
issues in the context of any Joint Board recommendation. For purposes 
of our decision, however, we do not view establishment of cost-support 
mechanisms as a precondition of rate integration. Nor have they been 
justified on the present record. Thus, we reject requests that we 
establish, or further consider, any cost-support mechanisms in this 
docket.
    26. The Working Group resolutions urge that rate integration for 
services provided to Guam and the Northern Marianas should take place 
concurrently with, or shortly after, the inclusion of Guam and the 
Northern Marianas into the North American Numbering Plan, the 
implementation of Feature Group D service, and the Guam Telephone 
Authority's (GTA's) revision to its access charge structure. All three 
events are expected to occur by July 1, 1997. We do not view these 
developments as preconditions for rate integration of services provided 
to these points. Rather, the statute requires rate integration 
regardless of whether these developments occur. However, we believe 
that these developments will facilitate rate integration. Inclusion of 
Guam and the Northern Marianas in the North American Numbering Plan 
(NANP) will help carriers integrate them into their nationwide service 
plans. Implementation of Feature Group D will provide subscribers with 
high-quality equal access to providers of interexchange service serving 
Guam. Revision of access charges by GTA will help providers of 
interexchange service set final rate schedules for service to and from 
Guam. Accordingly, we require providers of interexchange service to 
integrate services offered to subscribers in Guam and the Northern 
Marianas with services offered in other states no later than August 1, 
1997.
    27. We additionally require that carriers submit preliminary plans 
to achieve rate integration no later than February 1, 1997, and final 
plans no later than June 1, 1997. These plans will permit the 
Commission to review progress toward achieving rate integration, as 
required by the 1996 Act. The preliminary plans need not include rates, 
but at a minimum should resolve service and rate-band issues. Final 
plans shall include a rate schedule. Carriers may integrate these 
points by expanding mileage bands, adding mileage bands, offering 
postalized rates, or other means that achieve rate integration. We also 
require that any rate changes between the adoption date of this Report 
and Order and August 1, 1997, must be consistent with achieving rate 
integration by August 1, 1997. We also believe that it would facilitate 
resolution of any further regulatory issues concerning rate integration 
for these points if the Common Carrier Bureau addresses them in the 
first instance. Accordingly, we will delegate to the Chief, Common 
Carrier Bureau, authority to resolve any issues concerning carriers' 
plans for rate integration for these offshore points.
    28. We reject GTE's view that Section 254(g) does not require its 
Micronesian Telecommunications Corp. subsidiary to integrate rates with 
other GTE affiliates. The statute mandates that the Commission require 
rate integration among all states, territories, and possessions, and 
this goal is best achieved by interpreting ``provider'' to include 
parent companies that, through affiliates, provide service in more than 
one state. Moreover, nothing in the record supports a finding that 
Congress intended to allow providers of interexchange service to avoid 
rate integration by establishing or using their existing subsidiaries 
to provide service in limited areas. Thus, we determine that GTE, for 
the purposes of Section 254(g), constitutes a ``provider'' of 
interexchange services within the meaning of that section, and that it 
must integrate rates across affiliates. Accordingly, we require GTE to 
comply with the same timetable and requirements as the other carriers 
serving the Northern Marianas and Guam.
    29. We reject the contentions of PCI and IT&E that they are not 
subject to the rate-integration obligation. As noted, Section 254 
applies to all providers of interexchange service. Therefore, PCI & 
IT&E must provide Guam and the Northern Marianas service on a rate-
integrated basis. Based on the present record, however, there is 
insufficient evidence to evaluate whether PCI's and IT&E's rates for 
service originating in Guam and the Northern Marianas comply with 
Section 254(g). Consequently, we will also require PCI and IT&E to 
abide by the same timetable and requirements as the other carriers 
serving the Northern Marianas and Guam. They may demonstrate with more 
particularity that their current rates comply with rate integration 
when they submit their plans.
    30. Although carriers serving American Samoa are required to 
provide service on a rate-integrated basis, American Samoa has stated 
that it believes that rates for services provided to American Samoa are 
already rate integrated. Nevertheless, we will also direct providers of 
interexchange service serving American Samoa to submit plans for 
American Samoa in order to ensure that they will comply with the 
statute. To the extent services are provided to other U.S. possessions 
and territories by carriers subject to Section 254(g), the record does 
not reflect what carriers serve some of these points, such as Wake 
Island and Midway Island, or whether service is provided in special 
ways, such as in cooperation with military authorities, that might 
affect provision of service on a rate-integrated basis to these points. 
Accordingly, we are directing the Common Carrier Bureau to investigate 
service arrangements for these points and to take such steps as are 
necessary to assure compliance with Section 254(g) by August 1, 1997.
    31. We also believe that AT&T's concerns about termination of 
foreign traffic in Guam, the Northern Marianas, and American Samoa do 
not justify delaying rate integration. Our decision to extend rate 
integration to Guam is intended to benefit U.S. consumers. We do not by 
this decision, however, affect the classification or treatment of the 
underlying costs of facilities between these offshore points and other 
U.S.

[[Page 42564]]

points for purposes of interconnection arrangements with foreign 
carriers.
    32. Our requirement that carriers implement rate integration by 
August 1, 1997, complies with Section 254(g). That section requires us 
to adopt rules requiring rate integration for Guam, the Northern 
Marianas and American Samoa by August 8, 1996. We do not read this 
provision as mandating rate integration for all points by that date. 
Instead, we interpret the statute to permit a reasonable transition 
period for the offshore points to which our rate integration policy is 
being applied for the first time.

IV. AT&T's Commitments

    33. The rules we adopt in this proceeding will require AT&T to 
provide interexchange service at geographically averaged and integrated 
rates. We believe these requirements incorporate the Commission's 
existing rate averaging and rate integration policies and, thus, should 
supersede the commitments AT&T made in the AT&T Reclassification 
proceeding concerning rate averaging and rate integration. Accordingly, 
we release AT&T from its commitments to continue to comply with the 
Commission's orders regarding rate integration and to file any tariff 
containing a geographically deaveraged rate on five business days' 
notice. We do not release AT&T from its more specific commitments 
concerning Hawaii and Alaska. AT&T is still affirmatively bound by the 
rules we establish in this Report and Order, and by our prior opinions, 
rules, and orders on geographic rate averaging and rate integration, 
which the rules incorporate.

Ordering Clauses

    Accordingly, it is ordered That pursuant to authority contained in 
sections 1, 4(i), 10, 201-205, 214(e), 215 and 254(g) of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 160, 
201-205, 214(e) and 254(g), Part 64 of the Commission's rules are 
amended as set forth below.
    It is further ordered That the policies, rules and requirements set 
forth herein are adopted.
    It is further ordered That the policies, rules and requirements 
adopted herein shall be effective September 16, 1996.
    It is further ordered That with respect to interexchange services 
provided between any U.S. state, territory or, possession and Guam, the 
Northern Marianas, or American Samoa, AT&T, GTE, MCI, Sprint, PCI, and 
IT&E shall: (1) Submit to the Commission no later than February 1, 
1997, preliminary plans to achieve rate integration by August 1, 1997, 
with respect to those points; and (2) submit to the Commission no later 
than June 1, 1997, final plans to achieve rate integration by August 1, 
1997, with respect to those points.
    It is further ordered That AT&T is released from the commitments it 
made in the AT&T Reclassification proceeding concerning rate averaging 
and rate integration, as described herein.
    It is further ordered That the Chief, Common Carrier Bureau, is 
delegated authority to resolve any regulatory issues concerning 
implementation of rate integration for offshore points consistent with 
this Report and Order. The Common Carrier Bureau is directed to 
investigate service arrangements for offshore points and to take such 
steps as are necessary to ensure compliance with Section 254(g), by 
August 1, 1997, for such offshore points.

List of Subjects in 47 CFR Part 64

    Communications common carriers, Telephone.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Part 64 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

    1. The authority citation for Part 64 continues to read as follows:

    Authority: Sec. 4, 48 Stat. 1066, as amended; 47 U.S.C. 154, 
unless otherwise noted. Interpret or apply secs. 201, 218, 226, 228, 
48 Stat. 1070, as amended, 1077; 47 U.S.C. 201, 218, 226, 228, 
unless otherwise noted.

    2. Subpart R is added to Part 64 to read as follows:

Subpart R--Geographic Rate Averaging and Rate Integration


Sec. 64.1801   Geographic rate averaging and rate integration.

    Authority: 47 U.S.C. Secs. 151, 154(i), 201-205, 214(e), 215 and 
254(g).

Subpart R--Geographic Rate Averaging and Rate Integration


Sec. 64.1801   Geographic rate averaging and rate integration.

    (a) The rates charged by providers of interexchange 
telecommunications services to subscribers in rural and high-cost areas 
shall be no higher than the rates charged by each such provider to its 
subscribers in urban areas.
    (b) A provider of interstate interexchange telecommunications 
services shall provide such services to its subscribers in each U.S. 
state at rates no higher than the rates charged to its subscribers in 
any other state.

[FR Doc. 96-20859 Filed 8-15-96; 8:45 am]
BILLING CODE 6712-01-P