[Federal Register Volume 61, Number 195 (Monday, October 7, 1996)]
[Rules and Regulations]
[Pages 52307-52325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25188]


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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 64 and 68

[CC Docket 96-128; FCC 96-388]


Pay Telephone Reclassification and Compensation Provisions of the 
Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Federal Communications Commission (``Commission'') adopts 
a Report and Order implementing Section 276 of the Communications Act 
of 1934, as amended by the Telecommunications Act of 1996 (``1996 
Act''). In the Report and Order, the Commission adopts new rules and 
policies governing the payphone industry that: establish a plan to 
ensure fair compensation for ``each and every completed intrastate and 
interstate call using [a] payphone[,]'' discontinue intrastate and 
interstate carrier access charge payphone service elements and payments 
and intrastate and interstate payphone subsidies from basic exchange 
services, prescribe nonstructural safeguards for Bell Operating Company 
(``BOC'') payphones, permit the BOCs to negotiate with payphone 
location providers on the interLATA carrier presubscribed to their 
payphones, permit all payphone service providers to negotiate with 
location providers on the intraLATA carrier presubscribed to their 
payphones, and adopt guidelines for use by the states in establishing 
public interest payphones to be located ``where there would otherwise 
not be a payphone[.]'' As set forth in the Report and Order and 
explained below, the Commission is issuing the Report and Order to 
comply with the statutory mandate of Section 276 of the 1996 Act of 
``promot[ing] competition among payphone service providers and 
promot[ing] the widespread deployment of payphone services to the 
benefit of the general public * * *.''

EFFECTIVE DATES: The revision of the heading of subpart M and the 
authority citation of part 64 and the amendment to Sec. 64.1301 and new 
Sec. 64.1340 become effective November 6, 1996. The amendments to 
Sec. 64.703 and new Sec. 64.1330 become effective December 16, 1996. 
Section 64.1301 is removed and Secs. 64.1300, 64.1310 and 64.1320 
become effective October 7, 1997. Sections 68.2 and 68.3 become 
effective April 15, 1997.

FOR FURTHER INFORMATION CONTACT: Michael Carowitz, 202-418-0960, 
Enforcement Division, Common Carrier Bureau.


[[Page 52308]]


SUPPLEMENTARY INFORMATION: On June 4, 1996, the Commission adopted a 
Notice of Proposed Rulemaking (``NPRM'') [61 FR 33074] to implement 
Section 276 of the Telecommunications Act of 1996. This is a summary of 
the Commission's Report and Order in CC Docket No. 96-128, adopted and 
released on September 20, 1996. The full text of the Report and Order 
is available for inspection and copying during normal business hours in 
the FCC Reference Center, Room 239, 1919 M Street, N.W., Washington, 
D.C. The complete text of the Report and Order may also be purchased 
from the Commission's duplicating contractor, International 
Transcription Services, 2100 M Street, N.W., Suite 140, Washington, 
D.C. 20037, (202) 857-3800. The Report and Order contains new 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 new or modified 
information collections contained in this proceeding.
    Parties must file any petitions for reconsideration of the Report 
and Order within 30 days from release of that document. The Commission 
waives the requirements of Section 1.4 of its rules to establish this 
new date of public notice in light of the deadline established in the 
1996 Act to complete this proceeding. Parties may file oppositions to 
the petitions for reconsideration pursuant to Section 1.106(g) of the 
rules, except that oppositions to the petitions must be filed within 
seven (7) days after the date for filing the petitions for 
reconsideration. The Commission will not issue a separate notice of any 
petitions for reconsideration; the Report and Order serves as notice to 
all interested parties of the due dates for petitions and oppositions. 
In addition, the Commission waives Section 1.106(h) of the rules and 
will not accept reply comments in response to oppositions. The 
Commission concludes that these actions are necessary to complete all 
Commission action in this proceeding, which involves issues concerning 
the expedited implementation of the 1996 Act, by the statutory deadline 
of November 8, 1996. The Commission will consider all relevant and 
timely petitions and oppositions before final action is taken in this 
proceeding.
    Petitions for reconsideration must comply with Sections 1.106 and 
1.49 and all other applicable sections of the Commission's rules. 
Petitions also must clearly identify the specific portion of the Report 
and Order for which relief is sought. If a portion of a party's 
arguments does not fall under a particular topic listed in the outline 
of the Report and Order, such arguments should be included in a clearly 
labeled 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.
    To file a petition for reconsideration in this proceeding parties 
must file an original and ten copies of all petitions and oppositions. 
Petitions and oppositions should be sent to the Office of the 
Secretary, Federal Communications Commission, Washington, DC 20554. If 
parties want each Commissioner to have a personal copy of their 
documents, an original plus fourteen copies must be filed. In addition, 
participants should submit two additional copies directly to the Common 
Carrier Bureau, Enforcement Division, Room 6008, 2025 M Street NW, 
Washington, D.C. 20554. The petitions and oppositions will be available 
for public inspection during regular business hours in the Dockets 
Reference Room (Room 230) of the Federal Communications Commission, 
1919 M Street, NW., Washington, DC 20554. Copies of the petition and 
any subsequently filed documents in this matter may be obtained from 
ITS, Inc., 2100 M Street, NW., Suite 140, Washington, DC 20037, (202) 
857-3800.

Paperwork Reduction Act

    The Report and Order contains a new 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 following information 
collections contained in the Report and Order as required by the 
Paperwork Reduction Act of 1995, Public Law No. 104-13. OMB 
notification of action is due 60 days from the date of publication of 
the Report and Order in the Federal Register. Comments should address: 
(a) whether the proposed or modified information collection 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 Control Number: None.
    Title: Implementation of the Payphone Reclassification and 
Compensation Provisions of the Telecommunications Act of 1996, CC 
Docket No. 96-128.
    Form No.: N/A.
    Type of Review: New collections.
    Respondents: State, local or tribal government; business or other 
for-profit, including small businesses.

------------------------------------------------------------------------
                                                 Estimated      Total   
                                    Number of     time per      Annual  
          Section/title            respondents    response      burden  
                                                  (hours)      (hours)  
------------------------------------------------------------------------
a. State Review/Removal of State                                        
 Regulations Concerning Adequacy                                        
 of Local Coin Rate Disclosure...           50           50        2,500
b. State Review/Removal of Market                                       
 Entry or Exit Requirements......           50           50        2,500
c. State Showing of Proof of                                            
 Market Failure for Exception to                                        
 Market-Rate Local Coin Call                                            
 Requirement.....................           50           50        2,500
d. State Review/Removal of                                              
 Adequacy of Provision of Public                                        
 Interest Payphones..............           50           50        2,500
e. Payphone Providers'                                                  
 Transmission of Specific                                               
 Payphone Coding Digits..........        1 197           20        3,940
f. Interexchange Carriers'                                              
 Provision of Tracking of All                                           
 Compensable Calls...............          275          100       27,500
g. Interexchange Carriers'                                              
 Initiation of Annual                                                   
 Verification of Per Call                                               
 Tracking Functions..............          275           20        5,500
h. LEC Verification of Disputed                                         
 ANIs and Maintaining and Making                                        
 Available the Verification Data.          400           .5          800
i. LEC Provision of Timely                                              
 Notification of Payphone                                               
 Disconnection...................          400           .5          200
j. LEC Indication on the                                                
 Payphone's Monthly Bill That the                                       
 Amount Due is for Payphone                                             
 Services........................          400           10        4,000

[[Page 52309]]

                                                                        
k. LEC Tariff Filings............          400          100       40,000
l. Reclassification of LEC-Owned                                        
 Payphones.......................          400          100       40,000
m. Reclassification of AT&T                                             
 Payphones.......................            1          100          100
n. Payphone Provider's                                                  
 Verification of its Status to                                          
 IXC Paying Compensation.........        1 197            1          197
o. Payphone Provider's Posting of                                       
 Local Coin Call Rate on Each                                           
 Payphone Placard................          197           20       3,940 
------------------------------------------------------------------------
1 This estimate was obtained by reference to the Regulatory Flexibility 
  Analysis in the Implementation of the Local Competition Provisions of 
  the Telecommunications Act of 1996, Report and Order, CC Docket No. 96-
  98, FCC 96-325 (rel. August 8, 1996).2 Id.                            

    Total Annual Burden: 136,177 hours.
    Estimated Costs per Respondent: $0.
    Needs and Uses: The new and modified collections in this Report and 
Order are necessary to implement the provisions of Section 276 of the 
Telecommunications Act of 1996.
    OMB Approval Number: 3060-0721.
    Title: Report of Local Exchange Companies (``LECs'') of Cost 
Accounting Studies.
    Form No.: N/A.
    Type of Review: Revised Collection.
    Respondents: Business or other for-profit, including small 
businesses.
    Number of Respondents: 400.
    Estimated Time per Response: 50 hours.
    Total Annual Burden: 20,000 hours.
    Estimated Cost per Respondent: $0.
    Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to 
``establish a per call compensation plan to ensure that all payphone 
service providers are fairly compensated for each and every completed 
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A), 
incumbent LECs are required to offer individual central office coin 
transmission services to payphone service providers (``PSPs'') under a 
nondiscriminatory, public tariffed offering if the LECs provide those 
services for their own operations. Because the incumbent LECs may have 
an incentive to charge their competitors unreasonably high prices for 
these services, the Commission requires them to submit cost support for 
their central office coin services, on a one-time basis. The report 
would contain engineering studies, time and wage studies, and other 
cost accounting studies to identify the direct cost of central office 
coin services. This will ensure that the services are reasonably priced 
and do not include subsidies.
    OMB Approval Number: 3060-0719.
    Title: Quarterly Report of IntraLATA Carriers Listing Payphone 
Automatic Number Identification (ANIs).
    Form No.: N/A.
    Type of Review: Revised collection.
    Respondents: Business or other for-profit, including small 
businesses.
    Number of Respondents: 400.
    Estimated Time per Response: 3.5 hours.
    Total Annual Burden: 5,600 hours.
    Estimated Cost per Respondent: $0.
    Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to 
``establish a per call compensation plan to ensure that all payphone 
service providers are fairly compensated for each and every completed 
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A), 
intraLATA carriers are required to provide to interexchange carriers 
(``IXCs'') a quarterly report listing payphone automatic payphone 
identifications (``ANIs''). Without provision of this report, 
resolution of disputed ANIs would be rendered very difficult. IXCs 
would not be able to discern which ANIs pertain to payphones and 
therefore would not be able to ascertain which dial-around calls were 
originated by payphones for compensation purposes. There would be no 
way to guard against possible fraud. Without this collection, lengthy 
investigations would be necessary to verify claims. The report allows 
IXCs to determine which dial-around calls are made from payphones. The 
data, which must be maintained for at least 18 months after the close 
of a compensation period, will facilitate verification of disputed 
ANIs. The Order does not specify the manner in which IntraLATA carriers 
must provide carrier-payors with the list of payphone ANIs. IntraLATA 
carriers are free to use any technologies at their disposal to 
distribute the necessary information, including innovative approaches 
such as posting the information on the Internet or distributing the 
information via electronic mail.
    OMB Approval Number: 3060-0723.
    Title: Public Disclosure of Network Information by Bell Operating 
Companies (``BOCs'').
    Form No.: N/A.
    Type of Review: Revised collections.
    Respondents: Business or other for-profit, including small 
businesses.
    Number of Respondents: 7.
    Estimated Time per Response: 50 hours.
    Total Annual Burden: 350 hours.
    Estimated Cost per Respondent: $0.
    Needs and Uses: Pursuant to Section 276(b)(1)(C) provisions that 
prescribe a set of nonstructural safeguards for BOC payphone services, 
to foster development of competition in the provision of local 
telephone service, 47 U.S.C. Sec. 276(B)(1)(C), the BOCs are required 
to publicly disclose changes in their networks or new network services 
at two different points in time. First, disclosure would occur at the 
``make/buy'' point: when a BOC decides to make for itself, or procure 
from an unaffiliated entity, any product whose design affects or relies 
on the network interface. Second, a BOC would publicly disclose 
technical information about a new service 12 months before it is 
introduced. If the BOC could introduce the service within 12 months of 
the make/buy point, it would make a public disclosure at the make/buy 
point. In no event, however, would the public disclosure occur less 
than six months before the introduction of the service. Without 
provision of these reports, the industry would be unable to ascertain 
whether the BOCs designing new network services or changing network 
technical specifications are to the advantage of their own payphones, 
or might disadvantage BOC payphone competitors. The requirement for a 
minimum 6-month period of public disclosure prior to the introduction 
of a new service is vital to ensure that BOCs do not design new network 
services or change network technical specifications to the advantage of 
their own payphones.
    OMB Approval Number: 3060-0724.
    Title: Annual Report of IXCs Listing the Compensation Amount Paid 
to Payphone Providers and the Number of Payees.
    Form No.: N/A.
    Type of Review: Revised collection.
    Respondents: Business or other for-profit, including small 
businesses.
    Number of Respondents: 275.
    Estimated Time per Response: 2 hours.
    Total Annual Burden: 550 hours.
    Estimated Cost per Respondent: $0.

[[Page 52310]]

    Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to 
``establish a per call compensation plan to ensure that all payphone 
service providers are fairly compensated for each and every completed 
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A), IXCs, 
who are responsible for paying per-call compensation to payphone 
providers, are required to provide annual reports to the Common Carrier 
Bureau listing the amount of compensation paid to payphone providers 
and the number of payees. Without provision of this report, the 
Commission would be unable to ensure that all the IXCs are paying their 
respective compensation obligations. The report is intended to be very 
brief, and the reporting requirement will be terminated after the 
carriers have filed their reports for the 1999 calendar year. In 
addition, for further flexibility, the Chief, Common Carrier Bureau, is 
delegated the authority to establish the details, as necessary, of this 
annual report, including the authority to extend or limit the scope of 
this report.
    OMB Approval Number: 3060-0726.
    Title: Quarterly Report of IXCs Listing the Number of Dial Around 
Calls for Which Compensation is Being Paid to Payphone Owners.
    Form No.: N/A.
    Type of Review: Revised collections.
    Respondents: Business or other for-profit, including small 
businesses.
    Number of Respondents: 275.
    Estimated Time per Response: 2 hours.
    Total Annual Burden: 550 hours.
    Estimated Cost per Respondent: $0.
    Needs and Uses: Pursuant to the mandate in Section 276(b)(1)(A) to 
``establish a per call compensation plan to ensure that all payphone 
service providers are fairly compensated for each and every completed 
intrastate and interstate call'', 47 U.S.C. Sec. 276(b)(1)(A), IXCs, 
who are responsible for paying per-call compensation to payphone 
providers are required to provide to payphone providers a quarterly 
report listing the dial-around calls made from each payphone provider's 
payphones. Without provision of this report, payphone providers would 
be unable to ascertain the compensation amount to be paid by the IXCs. 
The report allows each payphone provider to determine how many dial-
around calls to the IXC generating the report were originated by each 
of the payphone provider's payphones. The Commission weighed several 
alternatives to achieve optimum efficiency and the least burdensome 
approach, before imposing this requirement. This requirement is imposed 
on the IXCs because they have the greatest ability and incentive to 
establish the most efficient means of administering the payment of 
compensation.

SUMMARY OF REPORT AND ORDER

I. Background

    1. Section 276(b)(1)(A) of the 1996 Act directs the Commission to 
establish a compensation plan to ensure ``that all payphone service 
providers are fairly compensated for each and every completed 
intrastate and interstate call'' from their payphones. Section 
276(b)(1)(B) mandates that the Commission ``discontinue the intrastate 
and interstate carrier access charge payphone service elements and 
payments * * * and all intrastate and interstate subsidies from basic 
exchange and exchange access revenues.'' In addition, Section 
276(b)(1)(D) directs the Commission to consider whether BOCs should be 
granted certain rights already available to all other payphone service 
providers (``PSPs'') to participate in the location provider's 
selection of presubscribed interLATA carrier, while Section 
276(b)(1)(E) grants certain rights to all PSPs to participate in the 
selection of presubscribed intraLATA carriers. Together with the other 
subsections of Section 276, these three provisions help to establish 
regulatory parity for all PSPs, whether independent payphone providers 
or incumbent LECs (both independent LECs and BOCs).

II. Discussion

    2. In the Report and Order, the Commission adopts new rules and 
policies governing the payphone industry that: (1) establish a plan to 
ensure fair compensation for ``each and every completed intrastate and 
interstate call using [a] payphone[;]'' (2) discontinue intrastate and 
interstate carrier access charge payphone service elements and payments 
and intrastate and interstate payphone subsidies from basic exchange 
services; (3) prescribe nonstructural safeguards for Bell Operating 
Company (``BOC'') payphones; (4) permit the BOCs to negotiate with 
payphone location providers on the interLATA carrier presubscribed to 
their payphones; (5) permit all payphone service providers to negotiate 
with location providers on the intraLATA carrier presubscribed to their 
payphones; and (6) adopt guidelines for use by the states in 
establishing public interest payphones to be located ``where there 
would otherwise not be a payphone[.]''
    3. The Telecommunications Act of 1996 fundamentally changes 
telecommunications regulation. The 1996 Act erects a ``pro-competitive 
deregulatory national framework designed to accelerate rapid private 
sector deployment of advanced telecommunications and information 
technologies and services to all Americans by opening all 
telecommunications markets to competition.'' In this proceeding the 
Commission advances the twin goals of Section 276 of the Act of 
``promot[ing] competition among payphone service providers and 
promot[ing] the widespread deployment of payphone services to the 
benefit of the general public * * *.'' To this end, the Commission 
seeks to eliminate those regulatory constraints that inhibit the 
ability both to enter and exit the payphone marketplace, and to compete 
for the right to provide services to customers through payphones. At 
the same time, the Commission recognizes that a transition period is 
necessary to eliminate the effects of some long-standing barriers to 
full competition in the payphone market. For this reason, the 
Commission will continue for a limited time to regulate certain aspects 
of the payphone market, but only until such time as the market evolves 
to erase these sources of market distortions.

A. Compensation for Each and Every Completed Intrastate and Interstate 
Call Originated by Payphones

    4. In the Report and Order, consistent with Section 276, the 
Commission establishes a plan to ensure fair compensation for all 
calls. The Commission concludes that fair compensation can be ensured 
best when the PSP can track the calls made from the payphone on a call-
by-call basis and be assured efficient payment for those calls; when 
the market can set a fair rate for the call; and when the caller has 
the information necessary to make an informed choice as to whether to 
make the call and incur the compensation charge.
1. Payphone Calls Subject to this Rulemaking and Compensation Amount
    5. The Commission concludes that, once competitive market 
conditions exist, the most appropriate way to ensure that PSPs receive 
fair compensation for each call is to let the market set the price for 
individual calls originated on payphones. It is only in cases where the 
market does not or cannot function properly that the Commission needs 
to take affirmative steps to ensure fair compensation, such as in the 
following situations. First, because the Telephone Operator Consumer 
Services Improvement Act (TOCSIA) requires all payphones to

[[Page 52311]]

unblock access to alternative operator service providers (OSPs) through 
the use of access codes (including 800 access numbers), PSPs cannot 
block access to toll free numbers generally. However, TOCSIA does not 
prohibit an interexchange carrier (IXC) from blocking subscriber 800 
numbers from payphones, particularly if the IXC wants to avoid paying 
the per-call compensation charge on these calls. This uneven bargaining 
between parties necessitates the Commission's involvement. Second, the 
Commission concludes that each state should, in light of the instant 
proceeding, examine and modify its regulations applicable to payphones 
and PSPs, particularly those rules that impose market entry or exit 
requirements, and others that are not competitively neutral and 
consistent with the requirements of Section 276 of the Act. The 
Commission concludes that, for purposes of ensuring fair compensation 
through a competitive marketplace, states need only remove those 
regulations that restrict competition, and they need not address those 
regulations that, on a competitively neutral basis, provide consumers 
with information and price disclosure. Third, the Commission concludes 
that callers should have information in every instance about the price 
of the calls they make from payphones. To this end, the Commission 
requires that each payphone clearly indicate the local coin rate within 
the informational placard on each payphone.
    6. While the most appropriate way to ensure fair compensation is to 
let the market set the price for individual payphone calls, the 
Commission concludes that this transition to market-based rates should 
occur in two phases. Because local exchange carriers (LECs) will 
terminate, pursuant to Section 276(b)(1)(b), subsidies for their 
payphones within one year of the effective date of the rules adopted in 
this proceeding, LECs will not be eligible to receive compensation 
under Section 276(b)(1)(a) until that termination date. This one-year 
period before per-call compensation is effective, as discussed below, 
will be the first phase of implementing the rules adopted in this 
proceeding. During this first phase, states may continue to set the 
local coin rate in the same manner as they currently do. States may, 
however, move to market-based local coin rates anytime during this one-
year period. In addition, the states must conduct its examination of 
payphone regulations during this one-year period to review and remove, 
if necessary, those regulations that affect competition, such as entry 
and exit restrictions. IXCs will pay compensation for access code calls 
and subscriber 800 calls on a flat-rate basis. In addition, all 
payphones must provide free access to dialtone, emergency calls, and 
telecommunications relay service calls for the hearing disabled.
    7. In the second phase, which will begin one year after the 
effective date of rules adopted in this proceeding, LECs will have 
already terminated the subsidies prohibited by Section 276(b)(1)(B), 
and per-call tracking capabilities will be in place. The carriers to 
whom payphone calls are routed will be responsible for tracking each 
compensable call and remitting per-call compensation to the PSP. During 
this second year, which is the first year of per-call compensation (as 
opposed to flat-rate compensation), the market will be allowed to set 
the rate for local coin calls, unless the state can show that there are 
market failures within the state that would not allow market-based 
rates. In addition, during the second phase, which will be the first 
year of per-call compensation (after the initial year of flat-rate 
compensation), to allow the Commission to ascertain the status of 
competition in the payphone marketplace, the Commission concludes that 
IXCs must pay PSPs a default rate of $.35 for each compensable call, 
which may be changed by mutual agreement. PSPs will be required to post 
the local coin rate they choose to charge at each payphone. During the 
second phase, the Commission may review, at the Commission's option, 
the deregulation of local coin rates nationwide and determine whether 
marketplace disfunctions exist, such as locational monopolies caused by 
the size of the location with an exclusive PSP contract or the caller's 
lack of time to identify potential substitute payphones, and should be 
addressed by the Commission. If the Commission finds that the 
deregulation of local coin rates warrants a modification of its 
approach due to market failures, the Commission may choose to set a cap 
on the number of calls subject to compensation from particular 
payphones to limit the exercise of locational market power. Absent such 
a finding, at the conclusion of the second phase, the market-based 
local coin rate at these payphones will be the default compensation 
rate for all compensable calls in absence of an agreement between the 
PSP and the carrier-payor.
    8. Ensuring Fair Compensation. To ensure fair compensation, the 
Commission concludes that it must provide for compensation for access 
code calls and subscriber 800 and other toll-free number calls, whether 
they are intrastate or interstate in destination.
    9. The Commission concludes that it must ensure fair compensation 
for 0+ calls that use BOC payphones. The Commission concludes that once 
the BOCs reclassify their payphones and terminate all subsidies, 
pursuant to Section 276(b)(1)(B), they may receive the per-call 
compensation established by the Report and Order, so long as they do 
not otherwise receive compensation for use of their payphones in 
originating 0+ calls. The Commission concludes further that, in the 
absence of a contract providing compensation to the PSP for intraLATA 
0+ calls, the PSP shall be eligible to collect per-call compensation 
from the carrier to whom the call is routed. The Commission also 
concludes that when a caller dials ``0'' and the payphone subsequently 
translates this digit, unbeknownst to the caller, into an 800 access 
number (i.e., as a way of presubscribing the payphone to a particular 
IXC), such a call is not compensable as an access code call, because it 
does not put the caller into contact with an alternative carrier.
    10. The Commission concludes that PSPs should receive compensation 
for international calls. The Commission concludes that it has authority 
under Sections 4(i) and 201(b) of the Communications Act of 1934, as 
amended, to ensure that PSPs are fairly compensated for international 
as well as interstate and intrastate calls using their payphones in the 
United States.
    11. Local Coin Calls. The Commission concludes that full and 
unfettered competition is the best way of achieving Congress' dual 
objectives to promote ``competition among payphone service providers 
and promote the widespread deployment of payphone services to the 
benefit of the general public.'' Once competitive conditions exist, the 
Commission believes that the market should set the compensation amount 
for all payphone calls, including local coin calls. Because the 
Commission has an obligation under Section 276 to ensure that the 
compensation for all local coin calls is fair, it concludes that the 
market should be allowed to set the price for all compensable calls, 
including a local coin call.
    12. Section 276(b)(1)(A) gives the Commission both the jurisdiction 
to ensure fair compensation for local coin calls and the mandate to 
establish a plan to compensate PSPs on a per-call basis. Based on the 
record in this proceeding, the Commission concludes that a 
deregulatory, market-based approach to setting local coin rates is 
appropriate, because existing local coin rates are not

[[Page 52312]]

necessarily fairly compensatory. The Commission recognizes, however, 
that the competitive conditions, which are a prerequisite to a 
deregulatory, market-based approach, do not currently exist and cannot 
be achieved immediately. Many states impose regulations on PSPs, 
including certain requirements that must be fulfilled before a PSP can 
enter or exit the payphone marketplace. In addition, in some locations, 
because of the size of the location with an exclusive PSP contract or 
the caller's lack of time to identify potential substitute payphones, 
the PSP may be able to charge an inflated rate for local calls based on 
its monopoly, pursuant to an exclusive contract with the location 
provider, on all payphones at the location. The Commission concludes 
that such monopoly arrangements, in the absence of regulatory 
oversight, could impair competition.
    13. Based on these concerns, the Commission concludes that the 
overall transition to market-based local coin rates should not occur 
immediately. As discussed below, LECs will not be required to 
terminate, pursuant to Section 276(b)(1)(b), certain subsidies 
associated with their payphones until April 15, 1997. LECs will not be 
eligible to receive per-call compensation under Section 276(b)(1)(a) 
for one year, when all such subsidies are terminated. For this one-year 
period, the states will be responsible for both ensuring that PSPs are 
fairly compensated for local coin calls and protecting consumers from 
excessive rates. Eventually, when fully competitive conditions exist, 
the marketplace will address both concerns. The Commission concludes 
that, during this one-year period before per-call, as opposed to flat-
rate, compensation becomes effective, states may continue to set the 
local coin rate in the same manner as they currently do. States may, 
however, move to market-based local coin rates anytime during this one-
year period, and are encouraged to do so. In addition, the Commission 
concludes that during the same period, the states should take 
additional action to ensure that payphone competition is promoted. The 
Commission believes that ease of entry and exit in this market will 
foster competition and allow the market, rather than regulation, to 
dictate the behavior of the various parties in the payphone industry. 
To this end, each state should examine and modify its regulations 
applicable to payphones and PSPs, removing, in particular, those rules 
that impose market entry or exit requirements. The Commission concludes 
that, for purposes of ensuring fair compensation through a competitive 
marketplace, the states should remove only those regulations that 
affect payphone competition; the states remain free at all times to 
impose regulations, on a competitively neutral basis, to provide 
consumers with information and price disclosure. In addition, the 
states at all times must ensure that access to dialtone, emergency 
calls, and telecommunications relay service calls for the hearing 
disabled is available from all payphones at no charge to the caller.
    14. At the conclusion of this first one-year period, the market 
will be allowed to set the price for a local coin call, as discussed 
more fully above. However, the Commission concludes that it should make 
an exception to the market-based approach for states that are able to 
demonstrate to the Commission that there are market failures within the 
state that would not allow market-based rates. Such a detailed showing 
could consist of, for example, a detailed summary of the record of a 
state proceeding that examines the costs of providing payphone service 
within that state and the reasons why the public interest is served by 
having the state set rates within that market. In addition, under the 
Commission's deregulatory, market-based approach, when states have 
concerns about possible market failures, such as that of payphone 
locations that charge monopoly rates, they are empowered to act by, for 
example, mandating that additional PSPs be allowed to provide 
payphones, or requiring that the PSP secure its contract through a 
competitive bidding process that ensures the lowest possible rate for 
callers. If a market failure persists after such action, the state 
should recommend the matter to the Commission for possible 
investigation. In addition, during the second phase, after the initial 
year of flat-rate compensation, the Commission may review, at its 
option, the deregulation of local coin rates nationwide and determine 
whether marketplace disfunctions, such as locational monopolies where 
the size of the location or the caller's lack of time to identify 
potential substitute payphones, exist and should be addressed by the 
Commission. At this point, if the Commission finds that the 
deregulation of local coin rates warrants a modification of its 
approach due to market failures, the Commission may choose, for 
example, to set a cap on the number of calls subject to compensation 
from particular payphones to limit the exercise of locational market 
power. Absent such a finding, at the conclusion of the second phase, 
the market-based local coin rate at these payphones will be the default 
compensation rate for all compensable calls in absence of an agreement 
between the PSP and the carrier-payor.
    15. With regard to ``411'' directory-assistance calls, the 
Commission noted that, while incumbent LECs in many jurisdictions 
currently do not charge the payphone caller for ``411'' calls made from 
their own phones, the LECs charge independent payphone providers for 
directory-assistance calls made from their payphones, and are not 
always allowed by the state to pass those charges on to callers. The 
Commission concludes that it must ensure fair compensation for ``411'' 
and other directory assistance calls from payphones by permitting the 
PSP to charge a market-based rate for this service, although a PSP may 
decline to charge for this service if it chooses. In addition, to help 
ensure that a LEC does not discriminate in favor of its own payphones, 
the Commission concludes that if the incumbent LEC imposes a fee on 
independent payphone providers for ``411'' calls, then the LEC must 
impute the same fee to its own payphones for this service.
    16. Completed Calls. The Commission concludes that a ``completed 
call'' is a call that is answered by the called party. The Commission 
has previously found that, where an 800 calling card call is routed 
through an IXC's platform, it should not be viewed as two distinct 
calls--one to the platform and one to the called party. In addition, in 
Florida Public Telecommunications Ass'n v. FCC, the United States Court 
of Appeals for the District of Columbia Circuit emphasized the one-call 
nature of a subscriber 800 call from the caller's point of view. To 
comply with this the mandate of Section 276, the Commission concludes 
that multiple sequential calls made through the use of a payphone's 
``#'' button should be counted as separate calls for compensation 
purposes.
    17. The Commission concludes that Section 276(b)(1)(A) was not 
intended to apply to both incoming and outgoing calls. Because PSPs may 
block incoming calls, they are able to restrict use of their payphones 
if they are concerned about a lack of compensation. For this reason, 
the Commission concludes that incoming calls are not within the purview 
of Section 276, and it is not required, as a result, to address them in 
the order.
    18. Payphone Fraud. The Commission has recognized, since it first 
addressed the issue of compensation for subscriber

[[Page 52313]]

800 calls in 1991, that a PSP ``could attach an autodialer to a 
payphone and have it place repeated 800 calls * * * to increase the 
amount of compensation [it] receives.'' Section 227(b)(1) of the Act 
states that it is unlawful for any person to use an autodialer to call 
``any service for which the called party is charged for the call[.]'' 
The Commission concludes that this provision bars the use of 
autodialers to generate payphone compensation by calling toll-free 800 
numbers, which are billed to the called party. The Commission will 
aggressively take action against those involved in such fraud. The 
Commission has the authority under the 1996 Act and its rules to take 
civil enforcement action against a payphone provider who deliberately 
violates the Commission's compensation rules by placing toll-free calls 
simply to obtain compensation from the carriers. More importantly, such 
activity may be fraud by wire and subject to criminal penalties.
    19. The Commission has previously adopted a definition of 
``payphone'' in the access code call compensation proceeding, although 
the definition is used only for purposes of the billing and collection 
of the compensation in that proceeding. It concluded that payphones 
appearing on the LEC-provided customer-owned, coin-operated telephone 
(``COCOT'') lists were payphones that are eligible for compensation. If 
a payphone provider does not subscribe to an identifiable payphone 
service, or if its payphone is omitted from the COCOT list in error, 
the provider is required to provide alternative verification 
information to the IXC paying compensation. The Commission concludes 
that this definition of ``payphone,'' regardless if the payphone in 
question is independently- or LEC-provided, will be sufficient for the 
payment of compensation as mandated by Section 276 and the instant 
proceeding. In addition, as discussed below, all payphones will be 
required to transmit specific payphone coding digits as a part of their 
automatic number identification (``ANI''), which will assist in 
identifying them to compensation payors. Beyond the immediate purposes 
of paying compensation, the Commission concludes that a payphone is any 
telephone made available to the public on a fee-per-call basis, 
independent of any other commercial transaction, for the purpose of 
making telephone calls, whether the telephone is coin-operated or is 
activated either by calling collect or using a calling card.
    20. Compensation Amount. Because the Commission has established 
that the payphone marketplace has low entry and exit barriers and will 
likely become increasingly competitive, it concludes that the market 
(or the states, where there are special circumstances) is best able to 
set the appropriate price for payphone calls in the long term. The 
Commission concludes further that the appropriate per-call compensation 
amount ultimately is the amount the particular payphone charges for a 
local coin call, because the market will determine the fair 
compensation rate for those calls. For example, if the rate at a 
particular payphone is $.35, absent an agreement between the PSP and 
the carrier-payor for a different amount, then the PSP should receive 
$.35 for each compensable call (access code, subscriber 800, and 
directory assistance). If a rate is compensatory for local coin calls, 
then it is an appropriate compensation amount for other calls as well, 
because the cost of originating the various types of payphone calls are 
similar. Although the Commission tentatively concluded in the NPRM that 
PSPs should be compensated for their costs in originating calls, as 
these costs are measured by appropriate cost-based surrogates, the 
Commission now concludes that deregulated local coin rates are the best 
available surrogates for payphone costs and are superior to the cost 
surrogate data provided by the commenters.
    21. The Commission concludes that the per-call compensation amount 
equal to the local coin rate is a default rate that will apply only in 
the absence of a negotiated agreement between the parties. PSPs, IXCs, 
subscriber 800 carriers, and intraLATA carriers may agree on an amount 
for some or all compensable calls that is either higher or lower than 
the local coin rate at a given payphone. In absence of an agreement, 
the PSP shall be entitled to receive compensation for compensable calls 
at a per-call rate equal to its local coin rate, which represents the 
market-based rate for a call at the payphone in question.
    22. To allow the Commission to ascertain the status of competition 
in the payphone marketplace, it concludes that it should establish the 
default per-call rate for two years before leaving it to the market to 
set rate, absent any changes in the Commission's rules. More 
specifically, for the first year after the effective date of the rules 
adopted in this proceeding, IXCs will pay flat-rate compensation to 
PSPs. After the initial year, when per-call tracking capabilities will 
be in place, the Commission concludes that IXCs will be required to pay 
a default rate of $.35 per call, which is the local coin rate in four 
of the five states that have deregulated their local calling rates. The 
Commission concludes that the market-based rate in these states is the 
best evidence of a per-call compensation amount that will fairly 
compensate PSPs. Therefore, for the limited purpose of calculating 
compensation for PSPs for the first two years of compensation (one year 
of flat-rate and one year of per-call compensation), the Commission 
will use a default rate of $.35 per call, which is the rate in the 
majority of states that have allowed the market to determine the 
appropriate local coin rate. The carrier-payor and the PSP may agree to 
a compensation rate that is different, and, therefore, the default rate 
would not apply. For coinless payphones, which by definition do not 
have a local coin rate, the default rate will remain $.35 per call for 
as long as this rate is fairly compensable under Section 276(b)(1)(A).
    23. Section 276(d) states that ``in this section, the term 
`payphone service' means the provision of public or semi-public pay 
telephones * * *.'' Pursuant to this definition, all subsidies for 
semi-public payphones are terminated under Section 276(b)(1)(B), just 
as they are for public payphones, ``in favor of a compensation plan as 
specified in subparagraph (A)[.]'' Therefore, the Commission concludes 
that semi-public payphones are entitled to receive per-call 
compensation in the same manner as public payphones.
    24. The Commission rejects the argument by four states that Section 
276 applies only to payphones provided by the BOCs. While Section 
276(a), which the states cite as support for their argument, applies 
only to the BOCs, as do Sections 276(b)(1)(C) and Section 276(b)(1)(D), 
the remainder of Section 276 applies to all payphones, regardless of 
their provider. Therefore, based on the plain language of the statute, 
the Commission concludes that Section 276 grants us the requisite 
authority to adopt rules that apply to all payphones, regardless of 
their provider, except where the language clearly applies only to the 
BOCs.
2. Entities Required To Pay Compensation
    25. The Commission concludes that the primary economic beneficiary 
of payphone calls should compensate the PSPs. It concludes that the 
``carrier-pays'' system for per-call compensation places the payment 
obligation on the primary economic beneficiary in the least burdensome, 
most cost effective manner. The Commission has previously adopted such 
an approach in the access code compensation proceeding, and the 
compensation

[[Page 52314]]

participants have created a payment system that is an appropriate model 
for this proceeding. In addition, under the carrier-pays system, 
individual carriers, while obligated to pay a specified per-call rate 
to PSPs, have the option of recovering a different amount from their 
customers, including no amount at all. The Commission concludes further 
that all IXCs that carry calls from payphones are required to pay per-
call compensation.
    26. The Commission concludes that it is the underlying, facilities-
based carrier that should be required to pay compensation to the PSP in 
lieu of a non-facilities-based carrier that resells services, for 
example, to specific subscribers or to debit card users. Although the 
Commission has concluded that the primary economic beneficiary of 
payphone calls should bear the burden of paying compensation for these 
calls, it concludes that, in the interests of administrative efficiency 
and lower costs, facilities-based carriers should pay the per-call 
compensation for the calls received by their reseller customers. The 
Commission concludes further that the facilities-based carriers may 
recover the expense of payphone per-call compensation from their 
reseller customers as they deem appropriate, including negotiating 
future contract provisions that would require the reseller to reimburse 
the facilities-based carrier for the actual payphone compensation 
amounts associated with that particular reseller. While the Commission 
has not placed the burden of paying per-call compensation directly on 
resellers or debit card providers, it concludes that the underlying 
carrier must begin paying compensation on all compensable calls 
facilitated by its reseller and debit card customers and it is, in 
turn, permitted to impose the payphone compensation amounts on these 
customers.
3. Ability of Carriers To Track Calls From Payphones
    27. Based on the information in the record, the Commission 
concludes that the requisite technology exists for IXCs to track calls 
from payphones. The Commission recognizes, however, that tracking 
capabilities vary from carrier to carrier, and that it may be 
appropriate, for an interim period, for some carriers to pay 
compensation for ``each and every completed intrastate and interstate 
call'' on a flat-rate basis until per-call tracking capabilities are 
put into place.
    28. The Commission concludes further that, as stated in the NPRM, 
it is the responsibility of the carrier, whether it provides intraLATA 
or interLATA services, as the primary economic beneficiary of the 
payphone calls, to track the calls it receives from payphones, although 
the carrier has the option of performing the tracking itself or 
contracting out these functions to another party, such as a LEC or 
clearinghouse. In other words, while the Commission assigns the burden 
of tracking on the carrier receiving the call from a payphone, parties 
to a contract may find it economically advantageous to place this 
tracking responsibility on another party. The Commission declines to 
require LECs or PSPs to perform per-call tracking themselves. Neither 
LECs nor PSPs are the primary economic beneficiaries of payphone calls. 
The Commission concludes, however, that LECs, PSPs, and the carriers 
receiving payphone calls should be able to take advantage of each 
other's technological capabilities through the contracting process. To 
this end, the Commission concludes that no standardized technology for 
tracking calls is necessary, and that IXCs may use the technology of 
their choice to meet their tracking obligations.
    29. The Commission concludes that each payphone should be required 
to generate 07 or 27 coding digits within the ANI for the carrier to 
track calls. Currently under the Commission's rules, LECs are required 
to tariff federally originating line screening (``OLS'') services that 
provide a discrete code to identify payphones that are maintained by 
non-LEC providers. The Commission concludes that LECs should be 
required to provide similar coding digits for their own payphones.
    30. In view of the current difficulties in tracking such calls, the 
Commission concludes that a transition is warranted for requiring 
carriers to track compensable calls. Therefore, the Commission requires 
carriers to provide for tracking of all compensable calls they receive 
from payphones, through any arrangement they choose, as soon as 
possible, but no later than one year from the effective date of the 
rules adopted in this proceeding. Until that date, carriers must pay 
flat-rate compensation, as specified below.
    31. The Commission recognizes that implementing a per-call tracking 
capability will require new investments for some carriers, particularly 
small carriers, but it concludes that the mandate of Section 276 that 
the Commission ensure a fair ``per call compensation plan'' for ``each 
and every completed intrastate and interstate call'' requires these 
carriers to provide tracking for calls for which they receive revenue, 
even though they previously did not have to compensate the PSP for many 
of these calls. The Commission concludes further that, by permitting 
carriers to contract out their per-call tracking responsibility, and by 
allowing a transition for tracking subscriber 800 calls, it will have 
taken the appropriate steps to minimize the per-call tracking burden on 
small carriers. In addition, the Commission concludes that, to parallel 
the obligation of the facilities-based carrier to pay compensation, the 
underlying facilities-based carrier has the burden of tracking calls to 
its reseller customers, and it may recover that cost from the reseller, 
if it chooses.
    32. The Commission concludes that carriers should be required to 
initiate an annual verification of their per-call tracking functions to 
be made available for FCC inspection upon request, to ensure that they 
are tracking all of the calls for which they are obligated to pay 
compensation. The Commission requires this verification for a one-year 
period, the 1998 calendar year, and delegates to the Chief, Common 
Carrier Bureau, the authority to establish the form and content, if 
necessary, of the verification documentation of these per-call tracking 
capabilities. The Commission concludes that requiring carriers to 
maintain the appropriate records and certify as to the accuracy of both 
the data and the tracking methodology would facilitate the prompt and 
accurate payment of per-call compensation. The Commission also 
concludes that PSPs should be allowed to inspect this certification, 
apart from any proprietary network data. In addition, the Commission 
expects that the PSPs and carriers performing the tracking will work 
together to reconcile or explain any PSP data that are inconsistent 
with the annual certification.
4. Administration of Per-Call Compensation
    33. The Commission concludes that it should adopt a direct-billing 
arrangement between IXCs and PSPs, once tracking capabilities are in 
place, that would build on the arrangement established in the access 
code call compensation proceeding, with the addition of the requirement 
that these carriers must send back to each PSP a statement indicating 
the number of toll-free and access code calls that each carrier has 
received from each of that PSP's payphones. This arrangement places the 
burden of billing and collecting compensation on the parties who 
benefit the most from calls from payphones--carriers and PSPs. As with 
the tracking of calls, carrier-payors are free to use clearinghouses, 
similar to

[[Page 52315]]

those that exist for access code call compensation, or to contract out 
the direct-billing arrangement associated with the payment of 
compensation.
    34. The Commission requires that the carrier responsible for paying 
compensation file each year a brief report with the Common Carrier 
Bureau listing the total compensation paid to PSPs for intrastate, 
interstate, and international calls; the number of compensable calls 
carried by the carrier; and the number of payees. This requirement will 
apply to calendar year 1998, when tracking capabilities are in place 
and compensation is being paid on a per-call basis. The Commission 
concludes further that, once per-call compensation is routinely paid by 
IXCs, this reporting requirement will be terminated after the carriers 
have filed their reports for the 1998 calendar year. Carrier-payors 
should file their reports as soon as possible after the end of the 
calendar year, but no later than the end of the first quarter of the 
following year. To implement the reporting requirement, the Commission 
delegates to the Chief, Common Carrier Bureau, the authority to 
establish the form and content, if necessary, of the annual report 
listing the total amount of compensation paid to PSPs, including the 
authority to extend or limit the scope of this report.
    35. The Commission concludes that it must establish minimal 
regulatory guidelines for the payphone industry regarding resolution of 
disputed ANIs to give LECs a greater incentive to provide accurate and 
timely verification of ANIs for independently provided payphones. While 
any party may file a complaint with the Commission about disputed ANIs, 
the Commission concludes that the better practice is for LECs who 
maintain the list of ANIs to work with both carrier-payors and PSPs to 
resolve disputes more efficiently and quickly before lodging a 
complaint with the Commission. The Commission also concludes that it 
should require that each LEC must submit to each carrier-payor on a 
quarterly basis a list of ANIs of all payphones in the LEC's service 
area (called the ``COCOT list'' in the access code call compensation 
proceeding).
    36. The Commission concludes that the following guidelines will 
facilitate the proper verification of payphone ANIs by LECs. First, 
LECs must provide a list of payphone ANIs to carrier-payors within 30 
days of the close of each compensation period (i.e., each quarter). 
Second, LECs must provide verification of disputed ANIs on request, in 
a timely fashion. Such verification data must be maintained and 
available for at least 18 months after the close of a compensation 
period. Third, once a LEC makes a positive identification of an 
installed payphone, the carrier-payor must accept claims for that 
payphone's ANI until the LEC provides information, on a timely basis, 
that the payphone has been disconnected. Fourth, a LEC must respond to 
all requests for ANI verification, even if the verification is a 
negative response. Carrier-payors are not required to pay compensation 
once the LEC verifies that the particular ANI is not associated with a 
COCOT line for which compensation must be paid. Fifth, carrier-payors 
should be able to refuse payment for compensation claims that are 
submitted long after they were due. Carriers should not refuse payment 
on timeliness grounds, however, for ANIs submitted by a PSP up to one 
year after the end of the period in question. Further, the period for a 
PSP to bring a complaint to the Commission based on an ANI disputed by 
the carrier-payor will not begin to accrue until the carrier-payor 
issues a final denial of the claim. The Commission concludes that the 
guidelines, as outlined above, will facilitate the proper verification 
of payphones without imposing undue burdens on LECs, PSPs, or carrier-
payors.
    37. Because a carrier-payor's administrative expenses are 
presumably reduced through the payment of compensation on a quarterly, 
as opposed to monthly, basis, the Commission concludes that the 
reasonable trade-off is that the carrier remains liable, as discussed 
above, for compensation claims that are submitted within one year of 
the end of the compensation period in question. The parties may 
themselves revisit this issue if they elect a shorter compensation 
period. Sprint argues that a carrier should be allowed to defer 
payments to individual PSPs until the amount due aggregates to $10 from 
that carrier to the particular PSP for all of its payphones. The 
Commission agrees and concludes that such a requirement would reduce 
the administrative expenses associated with the payment of 
compensation. If PSPs would like to charge interest on overdue payments 
from IXCs, as suggested by APCC, they should negotiate such a provision 
in their compensation agreement with the particular carrier.
    38. The Commission concludes that the payment of compensation would 
be facilitated and some disputes avoided if LECs were required to state 
affirmatively on their bills to PSPs that the bills are for payphone 
service. The Commission concludes that LECs, who have knowledge that a 
particular phone line is used for a payphone, must indicate on that 
payphone's monthly bill that the amount due is for payphone service. 
The Commission also agrees with CompTel's suggestion that the 
registration of all payphones with a central resource or clearinghouse 
would reduce administrative costs for all parties and would avoid 
duplication of efforts. The Commission declines, however, to mandate 
the creation of a central resource or clearinghouse for compensation 
purposes, and believes that the parties themselves are better able to 
establish such a resource that would be directly connected to the 
payment of compensation.
5. Interim Compensation Mechanism
    39. Because the IXCs required to pay compensation to PSPs are not 
required to track individual compensable calls until one year from the 
effective date of the rules adopted in this proceeding, the Commission 
concludes that PSPs should be paid monthly compensation on a flat rate 
by IXCs with annual toll revenues in excess of $100 million, beginning 
on the effective date of the rules adopted in this proceeding. Unlike 
the per-call compensation mechanism adopted in the Report and Order, 
the interim flat-rate compensation obligation applies to both 
facilities-based IXCs and resellers that have respective toll revenues 
of $100 million per year. This flat-rate monthly compensation will 
apply proportionally to individual IXCs, based on their respective 
annual toll revenues. For reasons of administrative convenience of the 
parties, the Commission concludes that it should model the interim 
mechanism adopted in the Report and Order on that set forth in the 
access code call compensation proceeding. In the access code 
compensation proceeding, CC Docket No. 91-35, the Commission excused 
several carriers from the obligation to pay flat-rate compensation for 
originating access code calls, because they certified that they were 
not providers of ``operator services,'' as defined by TOCSIA. The 
Commission notes that Section 276's requirement that it ensure fair 
compensation for ``each and every completed intrastate and interstate 
call,'' including access code calls, supersedes the compensation 
obligations established in CC Docket No. 91-35, including the waivers 
granted to AT&T and Sprint. Because Section 276 is the statutory 
authority for mandating per-call compensation for all compensable 
calls, including access code calls, the statutory exclusion in TOCSIA 
for those carriers that are not providers of ``operator services'' is 
no

[[Page 52316]]

longer a basis for being excused from the obligation to pay either the 
total flat-rate compensation amount established in the instant 
proceeding, or a portion thereof.
    40. When the Commission adopted a compensation mechanism for 
interstate access code calls, it concluded that, because they did not 
involve use of a ``carrier-specific access code'' and were routed 
directly to an end user, subscriber 800 calls were not within the class 
of calls for which TOCSIA directed the Commission to consider 
compensation. The Commission, therefore, limited compensation to 
interstate ``access code calls.'' In the Florida Payphone decision, the 
United States Court of Appeals for the District of Columbia Circuit 
found no reason to distinguish between the routing of access code calls 
and subscriber 800 calls. Therefore, it reversed and remanded the case 
to the Commission to ``consider the need to prescribe compensation for 
subscriber 800 calls `routed to providers of operator services that are 
other than the presubscribed provider of operator services.' '' For the 
limited purpose of calculating compensation for PSPs on a flat-rate 
basis until per-call compensation becomes mandatory the Commission will 
use a rate of $.35 per call, which is the rate in the majority of 
states that have allowed the market to determine the appropriate local 
coin rate.
    41. The Commission next re-examines the average number of access 
code calls originated by a payphone per month. In 1992, the Commission 
found that the average was 15 calls. As summarized below, data on the 
record in the instant proceeding indicate that the average number of 
access code calls per month is now considerably higher. In addition, 
similar data show the volume of subscriber 800 calls generated by the 
average payphone.
    42. Based on the call volume data provided by the PSPs, the 
Commission concludes that, for purposes of calculating flat-rate 
compensation, that the average payphone originates a combined total of 
131 access code calls and subscriber 800 calls per month. When 131 
calls per month is multiplied by the $.35 compensation amount, the 
monthly flat-rate compensation amount is $45.85. The Commission 
concludes that this $45.85 flat-rate amount must be paid by carriers, 
proportionally to their annual toll revenues, to PSPs. This flat-rate 
obligation applies to access code calls and subscriber 800 calls 
originated on or after the effective date of the rules adopted in this 
proceeding. PSPs that are affiliated with LECs will not be eligible for 
this interim compensation until the first day following their 
reclassification and transfer of payment equipment along with the 
termination of subsidies, as discussed below.

B. Reclassification of Incumbent LEC-Owned Payphones

    43. In the foregoing Part, the Commission establishes rules and 
guidelines to ensure that PSPs are fairly compensated for calls 
originating at their payphones. For certain PSPs--those who are LECs--
the new compensation arrangement can be implemented only upon the 
discontinuance of the regulatory system under which they now recover 
their costs of providing payphone service. In this Part, the Commission 
describes the necessary steps for the LECs' transition to the new 
compensation framework, and sets a schedule for the LECs' implementing 
actions.
    44. Section 276(b)(1)(B) directs the Commission to ``discontinue 
the intrastate and interstate carrier access charge payphone service 
elements and payments in effect on such date of enactment, and all 
intrastate and interstate payphone subsidies from basic exchange and 
exchange access revenues, in favor of a [per-call] compensation 
plan[.]'' Currently, incumbent LEC payphones, classified as part of the 
network, recover their costs from Carrier Common Line (CCL) charges 
assessed on those carriers that connect with the incumbent LEC. In 
order to comply with Section 276(b)(1)(B) by removing payphone costs 
from the CCL charge and all intrastate and interstate payphone 
subsidies from basic exchange and exchange access revenues, the 
Commission adopts requirements on: (1) the prospective classification 
of incumbent LEC payphones as Customer Premises Equipment (CPE); (2) 
the transfer of incumbent LEC payphone equipment assets from regulated 
to nonregulated status; (3) the termination of access charge 
compensation and all other subsidies for incumbent LEC payphones; and 
(4) the classification of AT&T payphones.
1. Classification of LEC Payphones as CPE
i. CPE Deregulation
    45. The Commission concludes that to best effectuate the 1996 Act's 
mandate that access charge payphone service elements and payphone 
subsidies from basic exchange and exchange access revenues be 
discontinued, incumbent LEC payphones should be treated as deregulated 
and detariffed CPE. The Commission determined in Computer II that CPE 
should be deregulated and detariffed to ensure that the costs 
associated with regulated services are separated from the competitive 
provision of the equipment used in conjunction with those services. The 
Commission concluded that CPE should be unbundled from its underlying 
transmission service in order to prevent improper cross-subsidization. 
Consistent with this prior finding, it concludes that LEC payphones 
must be treated as unregulated, detariffed CPE in order to ensure that 
no subsidies are provided from basic exchange and exchange access 
revenues or access charge payphone service elements as required by the 
Act.
ii. Unbundling of Payphone Services
    46. The Commission concludes, pursuant to Computer II, Section 201, 
202, and 276 of the Act, and previous CPE decisions, that incumbent 
LECs must offer individual central office coin transmission services to 
PSPs under nondiscriminatory, public, tariffed offerings if the LECs 
provide those services for their own operations. Under Computer II, all 
carriers must unbundle basic transmission services from CPE. Moreover, 
Section 202 of the Act prohibits a carrier from discriminating 
unreasonably in its provision of basic service. The Commission 
concludes that incumbent LECs must provide coin service so competitive 
payphone providers can offer payphone services using either instrument-
implemented ``smart payphones'' or ``dumb'' payphones that utilize 
central office coin services, or some combination of the two in a 
manner similar to the LECs. Because the incumbent LECs have used 
central office coin services in the past, but have not made these 
services available to independent payphone providers for use in their 
provision of payphone services, the Commission requires that incumbent 
LEC provision of coin transmission services on an unbundled basis be 
treated as a new service under the Commission's price cap rules. 
Because incumbent LECs may have an incentive to charge their 
competitors unreasonably high prices for these services, the Commission 
concludes that the new services test is necessary to ensure that 
central office coin services are priced reasonably. Incumbent LECs not 
currently subject to price cap regulation must submit cost support for 
their central office coin services, pursuant to Sections 61.38, 61.39, 
or 61.50(i) of the Commission's rules. Incumbent LECs must file tariffs 
with the Commission for these services no later than January 15, 1997. 
To the extent that this requirement precludes

[[Page 52317]]

the BOCs from complying with the Computer II, Computer III, and ONA 
network information disclosure requirements, the Commission waives the 
notice period in order to ensure that these services are provided on a 
timely basis consistent with the other deregulatory requirements of 
this order. Pursuant to this waiver, network information disclosure on 
the basic network payphone services must be made by the BOCs by January 
15, 1997.
    47. The Commission concludes that tariffs for payphone services 
must be filed with the Commission as part of the LECs' access services 
to ensure that the services are reasonably priced and do not include 
subsidies. This requirement is consistent with the Section 276 
prescription that all subsidies be removed from payphone operations. 
Accordingly, the Commission concludes that Computer III tariff 
procedures and pricing are more appropriate for basic payphone services 
provided by LECs to other payphone providers. Pursuant to Section 
276(c), any inconsistent state requirements with regard to this matter 
are preempted.
iii. Other LEC Payphone Services
    48. The Commission concludes that incumbent LECs should provide 
certain other services to other payphone providers if they provide 
those services to their own payphone operations. These services must be 
made available by the LEC or its affiliate to other payphone providers 
on a comparable basis in order to ensure that other payphone providers 
do not receive discriminatory service from the LECs once LEC payphones 
are deregulated, and to ensure that other payphone providers can 
compete with LEC payphone operations. The Commission concludes that 
fraud protection, special numbering assignments, and installation and 
maintenance of basic payphone services should be available to other 
providers of payphone services on a nondiscriminatory basis. Validation 
services are required by another proceeding. Regarding billing and 
collection services, the Commission concludes that if a LEC provides 
basic, tariffed payphone services that will only function in 
conjunction with billing and collection services from the LEC, the LEC 
must provide the billing and collection services it provides to its own 
payphone operations for these services to independent payphone 
providers on a nondiscriminatory basis. The Commission expects this 
requirement to apply, for example, in situations where coin services 
require the LEC to monitor coin deposits and such information is not 
otherwise available to third parties for billing and collection. It 
adopts this requirement to ensure that when a LEC has structured its 
payphone services in a way that they could not operate without the LECs 
billing and collection services, those services will be available to 
other payphone providers on the same basis they are available to the 
LEC.
iv. Registration and Demarcation Point for Payphones
    49. The Commission amends its Part 68 rules to provide for the 
registration of central-office-implemented coin payphones to enable 
independent payphone providers as well as the LECs to utilize ``dumb'' 
payphones. Under the Coin Registration Order, 49 FR 27763 (July 6, 
1984), and current Part 68 rules, only instrument-implemented payphones 
can be registered for connection to the network. Amending the 
Commission's rules enables independent payphone providers to have the 
same choices as LECs in providing payphone services. Accordingly, the 
Commission adopts amendments to Section 68.2(a)(1) and Section 68.3 of 
the Commission's rules to facilitate registration of both instrument-
implemented and central-office-implemented payphones. The Commission 
grandfathers existing LEC payphones from the Commission's revised Part 
68 requirements, unless the basic functionality in the payphones is 
changed. The Commission requires incumbent LECs to submit proposed 
interconnection requirements to effectuate such interconnection within 
90 days of the effective date of this order. The California Payphone 
Association (CPA) filed before the Commission a Petition for Rule 
Making requesting that Section 68.2(a)(1) of the rules be amended to 
allow for the registration of all coin-operated telephones and that the 
Commission re-examine and clarify its interpretation of Section 
68.2(a)(1). The Commission notes that its decision in the Report and 
Order addresses the relief requested in the CPA petition. The Report 
and Order also effectively grants a petition filed by the Public 
Telephone Council to treat payphones as CPE, and resolves the issues 
raised in RM 8723 regarding exclusion of public payphones from end user 
access charges.
    50. Consistent with the Commission's objective of treating 
incumbent LEC and independent payphone providers' payphones in a 
similar manner, the Commission concludes that the demarcation point 
must be the same as incumbent LECs use for independent payphone 
providers today. Accordingly, the demarcation for all new LEC payphones 
must be consistent with the minimum point of entry, demarcation point 
standards for other wireline services. The Commission grandfathers the 
location of all existing LEC payphones in place on the effective date 
of this order because of the difficulty and cost of moving these 
payphones to meet the Commission's new demarcation point requirements. 
Similarly, the Commission does not require that network interfaces be 
placed for existing LEC payphones unless these payphones are 
substantially refurbished, for example, upgraded from dumb to smart 
payphones or replaced.
2. Reclassification or Transfer of Payphone Equipment to Nonregulated 
Status
    51. The Commission's nonstructural safeguards include the cost 
allocation rules and affiliate transactions rules adopted in the Joint 
Cost Order. Under those rules, the BOCs and other incumbent LECs must 
classify each of their activities as regulated or nonregulated in 
accordance with the Commission's requirements. The Commission now 
requires that the BOCs and other incumbent LECs, subject to the 
Commission's joint cost rules, classify their payphone operations as 
nonregulated for Part 32 accounting purposes. The Commission notes, 
however, that the BOCs or other incumbent LECs are free to provide 
these services using structurally separate affiliates if they choose to 
do so. Therefore, the discussion below will address two possible 
approaches a carrier may take in reclassifying its payphone activities 
as nonregulated: (1) A carrier may maintain its payphone assets on the 
carrier's books but treat the assets as nonregulated, or (2) a carrier 
may transfer its payphone assets to a separate affiliate engaged in 
nonregulated activities.
i. Specific Assets Reclassified or Transferred
    52. The payphone assets to be reclassified or transferred include 
all facilities related to payphone service, including associated 
accumulated depreciation and deferred income tax liabilities. The 
Commission, however, does not include as payphone assets to be 
reclassified or transferred the loops connecting the payphones to the 
network, the central office ``coin-service,'' or operator service 
facilities supporting incumbent LEC payphones because these are part of 
network equipment necessary to support basic telephone services.

[[Page 52318]]

ii. Accounting Treatment for Assets Reclassified or Transferred
    53. Whether a carrier should account for the transfer or 
reclassification of the payphone assets from regulated to nonregulated 
status at ``fair market value'' or the net book value of the assets is 
determined on whether a carrier maintains the assets in its regulated 
Part 32 accounts or instead transfers the payphone assets to a separate 
affiliate or an operating division within the carrier that is treated 
as an affiliate.
    54. Carriers that do not transfer the payphone assets to a separate 
affiliate make no reclassification accounting entries to their Part 32 
regulated accounts. The reclassification of these assets to 
nonregulated status is accomplished instead through the operation of 
Part 64 cost allocation rules. Accordingly, the Commission concludes 
that payphone investment in Account 32.2351, Public telephone terminal 
equipment, and any other assets used in the provision of payphone 
service, along with the associated accumulated depreciation and 
deferred income tax liabilities should be directly assigned or 
allocated to nonregulated activities pursuant to cost allocation rules. 
LECs should establish whatever Part 64 cost pools are needed and should 
file revisions to their cost allocations manuals within sixty (60) days 
prior to the effective date of the change.
    55. Carriers that transfer their payphone assets to either a 
separate affiliate or an operating division that has no joint and 
common use of assets or resources with the LEC and maintains a separate 
set of books in accordance with Section 32.23(b) of the Commission's 
rules must account for the transfer according to the affiliate 
transactions rules of Section 32.27(c) which require that the transfer 
be recorded at the higher of fair market value or cost less all 
applicable valuation reserves (net book cost). Fair market value has 
been defined as ``the price at which the property would change hands 
between a willing buyer and a willing seller, neither being under any 
compulsion to buy or sell and both having reasonable knowledge of 
relevant facts.'' The Commission concludes, that in instances when the 
transfer of payphone assets is governed by Section 32.27(c), it is 
appropriate that the going concern value associated with the payphone 
business be taken into consideration in determining fair market value. 
Such going concern value should include intangible assets such as 
location contracts that add value to the payphone business. These 
intangible assets would be considered in the theoretical purchase price 
negotiated by a willing buyer and seller. The Commission does not 
believe, however, that the intangible asset value of BOC or LEC brand 
names should be included in the determination of going concern or fair 
market value because a BOC or a LEC would not transfer the right to use 
its brand name to a third party willing buyer.
    56. The difference in accounting treatment for payphone assets 
either reclassified as nonregulated pursuant to the Commission's Part 
64 cost allocation rules or transferred to a separate affiliate and 
accounted for in accordance with the Commission's Part 32 affiliate 
transactions rules stems primarily from the fact that in one instance 
there is no transfer, only a reallocation of assets to nonregulated 
status, and in the other instance, there has been an actual transfer. 
In addition, in the first instance the Commission's rules are designed 
to promote fair cost allocation between regulated and nonregulated 
activities; in the second instance, the Commission's rules are designed 
to protect against cross-subsidies between separate companies by 
capturing any appreciated value of assets transferred on the books of 
the carrier.
iii. Other Matters
    57. The Commission requires the LECs to reclassify any pay 
telephone investments recorded in Account 32.2351, Public telephone 
terminal equipment, and other assets used in the provision of payphone 
service, along with the associated accumulated depreciation and 
deferred income tax liabilities, from regulated to nonregulated status 
pursuant to the Commission's Part 64 and Part 32 rules by April 15, 
1997 when the associated revised tariffs are effective. The Commission 
thus agrees with Ameritech that it should adopt its tentative 
conclusion that a phase-in period is unnecessary.
3. Termination of Access Charge Compensation and Other Subsidies
    58. In the telephone network, payphones, as well as all other 
telephones, are connected to the local switch by means of a subscriber 
line. The costs of the subscriber line that are allocated to the 
interstate jurisdiction are recovered through two separate charges: a 
flat-rate SLC assessed upon the end-user customer who subscribes to 
local service; and a per-minute CCL charge assessed upon IXCs that 
recovers the balance of the interstate subscriber line costs not 
recovered through the SLC. LEC payphone costs are also included in the 
CCL charge. The CCL charge, however, applies to interstate switched 
access service that is unrelated to payphone service costs. While 
independent payphone providers are required to pay the SLC for the loop 
used by each of their payphones, LECs have not been required to pay 
this charge because the subscriber lines connected to LEC payphones 
have been recovered entirely through the CCL charge.
    59. The Commission concludes that to implement Section 276 
(b)(1)(B) of the 1996 Act, incumbent LECs must reduce their interstate 
CCL charges by an amount equal to the interstate allocation of payphone 
costs currently recovered through those charges. LECs subject to the 
price cap rules would treat this as an exogenous cost change to the 
Common Line basket pursuant to Section 61.45(d) of the Commission's 
rules. The incumbent LECs' residential SLC is limited to $3.50 per 
month and their multi-line business SLC is currently subject to a $6.00 
per month cap. Those LECs with interstate subscriber line costs that 
exceed this amount recover a portion of the interstate costs of 
subscriber lines through the CCL charge. The issue of the appropriate 
interstate SLC has been referred to a Federal-State Joint Board.
    60. Incumbent LECs today generally recover payphone costs allocated 
to the interstate jurisdiction through the per-minute carrier CCL 
charge they assess on IXCs and other interstate access customers for 
originating and terminating interstate calls. The incumbent LEC 
assesses the independent payphone provider a SLC (at the multi-line 
business rate) to recover the payphone common line costs associated 
with that phone. In the case of competitive payphones, an independent 
payphone provider recovers its payphone costs out of the revenue it 
receives from end users, premises owners, and OSPs to whom its 
payphones are presubscribed. The 1996 Act mandates that the Commission 
``discontinue the intrastate and interstate carrier access charge 
payphone service elements and payments * * * and all intrastate and 
interstate subsidies from basic exchange and exchange access 
revenues[.]''
    61. Accordingly, the Commission adopts rules that provide for the 
removal from regulated intrastate and interstate rate structures of all 
charges that recover the costs of payphones (i.e., the costs of 
payphone sets, not including the costs of the lines connecting those 
sets to the public switched network, which, like the lines

[[Page 52319]]

connecting competitive payphones to the network, will continue to be 
treated as regulated). Therefore, the Commission concludes that 
incumbent LECs must file revised CCL tariffs with the Common Carrier 
Bureau no later than January 15, 1997 to reduce their interstate CCL 
charges by an amount equal to the interstate allocation of payphone 
costs currently recovered through those charges, scheduled to take 
effect April 15, 1997. LECs subject to the price cap rules must treat 
this as an exogenous cost change to the Common Line basket pursuant to 
Section 61.45(d)(1)(v) of the Commission's rules. Incumbent LECs must 
identify and report accounts that contain costs attributable to their 
payphone operations. Incumbent LECs must identify specific cost pools 
and allocators that are required to capture the nonregulated investment 
and expenses associated with their payphone operations. LECs must file 
this information with the Common Carrier Bureau by January 15, 1997.
    62. LECs that file tariffs pursuant to Section 61.38 or Section 
61.39, rate-of-return regulation, or Section 61.50, optional incentive 
regulation, must file tariffs to revise interstate CCL rates to remove 
the payphone investment and any other assets used in the provision of 
payphone service along with the accumulated depreciation and deferred 
income tax liabilities from the common line costs recovered through 
those rates. As stated previously, these LECs must reclassify payphone 
assets from regulated to nonregulated activity pursuant to Part 64 
rules. Expenses incurred after payphones are deregulated should be 
classified as nonregulated expenses. The CCL rate reduction must 
account for overhead costs assigned to common line costs as a result of 
payphone investment and expenses. The Commission requires these LECs to 
recalculate their CCL rates, using the same data and methods they used 
to develop their current CCL rates, except those calculations should 
exclude payphone costs.
    63. Price cap LECs are also required to revise their CCL rates, 
using the following method to remove payphone costs from their CCL 
rates. First, price cap LECs should develop a common line revenue 
requirement using ARMIS costs for calendar year 1995. Second, price cap 
LECs are required to develop a payphone cost allocator equal to the 
payphone costs in Section 69.501(d) divided by total common line costs, 
based on 1995 ARMIS data. Each LEC is required to reduce its PCI in the 
common line basket by this payphone cost allocator minus one.
    64. The Commission requires, pursuant to the mandate of Section 
276(b)(1)(B), incumbent LECs to remove from their intrastate rates any 
charges that recover the costs of payphones. Revised intrastate rates 
must be effective no later than April 15, 1997. Parties did not submit 
state-specific information regarding the intrastate rate elements that 
recover payphone costs. States must determine the intrastate rates 
elements that must be removed to eliminate any intrastate subsidies 
within this time frame.
    65. Finally, the Commission concludes that, to avoid discrimination 
among payphone providers, the multiline business SLC must apply to 
subscriber lines that terminate at both LEC and competitive payphones. 
It concludes that the removal of payphone costs from the CCL and the 
payment or imputation of a SLC to the subscriber line that terminates 
at a LEC nonregulated payphone will result in the recovery of LEC 
payphone costs on a more cost-causative basis consistent with the 
requirements of the 1996 Act. No action the Commission takes in the 
Report and Order affects the authority of states to address the state 
ratemaking implications of reclassification or transfer of payphone 
assets.
4. Deregulation of AT&T Payphones
    66. The Commission concludes that AT&T payphones must be 
deregulated, detariffed and treated as CPE. The Commission concluded 
that there is a competitive market for payphones, and, pursuant to 
Section 276, subsidies must be removed from payphone service. AT&T 
payphones have been treated like BOC payphones for regulatory purposes. 
It would be incongruous to deregulate payphone equipment owned by all 
other carriers except AT&T. The Commission concludes, therefore, that 
AT&T payphones must be removed from regulation and treated as 
independent PSPs' payphones. Accordingly, the Commission requires that 
AT&T follow the same procedures discussed above for valuing LEC 
payphone assets and transferring them to nonregulated status. After 
deregulation, AT&T payphones will be subject to the same requirements 
as independent payphone provider payphones.
    67. With regard to the issue of bundling of transmission capacity 
and payphone CPE, the Commission does not have a sufficient record to 
revise, with regard to payphone CPE, the Commission's conclusion in the 
Computer II proceeding that there are public interest benefits in 
unbundling CPE from the underlying transmission service. The issue of 
IXC CPE bundling will be addressed in the Interstate, Interexchange 
Marketplace proceeding.

C. Nonstructural Safeguards for BOC Provision of Payphone Service

    68. The foregoing parts establish a compensation arrangement that 
applies equally to the payphone operations of the BOCs, other LECs, 
AT&T and PSPs not affiliated with LECs. In this part, the Commission 
addresses certain operating requirements that are imposed only on the 
BOCs' payphone operations.
    69. Section 276(b)(1)(C) directs the Commission to ``prescribe a 
set of nonstructural safeguards for Bell operating company payphone 
service to implement the provisions of paragraphs (1) and (2) of 
subsection (a), which safeguards shall, at a minimum, include the 
nonstructural safeguards equal to those adopted in the Computer 
Inquiry--III (CC Docket No. 90-623) proceeding[.]'' As referred to in 
Section 276(b)(1)(C), Section 276(a) provides that a BOC ``(1) shall 
not subsidize its payphone service directly or indirectly from its 
telephone exchange service operations or its exchange access 
operations; and (2) shall not prefer or discriminate in favor of its 
payphone service.''
a. Nonstructural Safeguards
    70. In addition to the accounting safeguards that the Commission 
will adopt with respect to payphone services in the accounting 
safeguards proceeding, it concludes that the Computer III and ONA 
nonstructural safeguards will provide an appropriate regulatory 
framework to ensure that BOCs do not discriminate or cross-subsidize in 
their provision of payphone service. The Commission and the BOCs have 
substantial experience in the application of these safeguards that will 
facilitate their use in the context of BOC payphone services. Pursuant 
to these requirements, the Commission notes that any basic services 
provided by a BOC to its payphone affiliate must be available on a 
nondiscriminatory basis to other payphone providers and that payphone 
providers may request additional unbundled payphone services through 
the 120 day ONA service request process. To ensure that the BOCs comply 
with the Computer III and ONA nonstructural separation requirements for 
the provision of payphone services, the Commission requires that, 
within 90 days following publication of a summary of the Report and 
Order in the Federal Register, BOCs must file CEI plans describing how 
they will comply with the Computer III unbundling, CEI parameters, 
accounting requirements, CPNI requirements as

[[Page 52320]]

modified by Section 222 of the 1996 Act, network disclosure 
requirements, and installation, maintenance, and quality 
nondiscrimination requirements. Except for the Commission's Part 64 
cost allocation rules and Part 32 affiliate transaction rules, the 
Commission declines to apply the Computer III nonstructural safeguards 
to other LECs.
b. BOC CEI Plans
    71. The Commission requires that each BOC file, within 90 days 
following publication of a summary of the Report and Order in the 
Federal Register, an initial CEI plan describing how it intends to 
comply with the CEI equal access parameters and nonstructural 
safeguards for the provision of payphone services. In Computer III, CEI 
plans have been an integral part of ensuring that BOCs do not 
discriminate in providing basic underlying services to enhanced 
services providers. The Commission likewise requires the filing of CEI 
plans for payphone services, even though the Commission has 
traditionally only required such plans for the BOC provision of 
enhanced services, to ensure that the BOCs provide payphone services in 
a nondiscriminatory manner and consistent with other Computer III and 
ONA requirements. Finally, the Commission concludes that this 
requirement is consistent with the requirement in Section 276 that the 
Commission establish safeguards, at a minimum, ``equal to those adopted 
in the Computer III Inquiry.''
    72. In a CEI plan, a BOC must describe how it intends to comply 
with the CEI ``equal access'' parameters for the specific payphone 
service it intends to offer. The CEI equal access parameters include: 
interface functionality; unbundling of basic services; resale; 
technical characteristics; installation, maintenance, and repair; end 
user access; CEI availability; minimization of transport costs; and 
availability to all interested customers or enhanced service providers.
    73. In its CEI plan, a BOC must explain how it will unbundle basic 
payphone services. Thus, a BOC must indicate how it plans to unbundle, 
and associate with a specific rate element in a tariff, the basic 
services and basic service functions that underlie its provision of 
payphone service. Nonproprietary information used by the BOC in 
providing the unbundled basic services will be made available as part 
of CEI. In addition, any options available to the BOC in the provision 
of such basic services or functions would be included in the unbundled 
offerings.
    74. A BOC also must explain in its CEI plan how it will comply with 
the CPNI requirements. The Commission has continued to require 
compliance with the Computer III and ONA CPNI requirements that are not 
inconsistent with Section 222 of the 1996 Act, which was immediately 
effective. In the CPNI NPRM, the Commission is currently examining a 
carrier's obligations under the CPNI provisions of the 1996 Act.
    75. BOCs must comply with the Computer III and ONA network 
information disclosure requirements. The BOCs cannot design new network 
services or change network technical specifications to the advantage of 
their own payphones. Pursuant to these rules, the BOCs must disclose 
information about changes in their networks or new network services at 
two different points in time. First, disclosure must occur at the 
``make/buy'' point: when a BOC decides to make for itself, or procure 
from an unaffiliated entity, any product whose design affects or relies 
on the network interface. Second, a BOC must publicly disclose 
technical information about a new service 12 months before it is 
introduced. If the BOC can introduce the service within 12 months of 
the make/buy point, it would make a public disclosure at the make/buy 
point. The public disclosure, however, must not occur less than six 
months before the introduction of the service.
    76. In addition, BOCs must comply with the Computer III and ONA 
requirements regarding nondiscrimination in the quality of service, 
installation, and maintenance. BOCs must indicate in their CEI plans 
how they will comply with these requirements. The Commission does not 
impose any new continuing reporting requirement because BOCs are 
already subject to reporting requirements pursuant to Computer III and 
ONA. BOCs must report on payphone services as they do for other basic 
services.

D. Ability of BOCs to Negotiate With Location Providers on the 
Presubscribed Interlata Carrier

    77. Section 276(b)(1)(D) of the 1996 Act directs the Commission to 
eliminate the court-ordered competitive barrier prohibiting the BOCs 
from participating in the selection of presubscribed interLATA carriers 
to their payphones, unless the Commission finds such activity to be 
contrary to the public interest.
    78. Payphone providers, both PSPs and independent LECs, compete in 
the market for payphone services by offering location providers a 
commission on coin and 0+ traffic originating from the payphones 
located on the location providers' premises. In turn, these payphone 
service providers earn revenues by contracting for the presubscription 
of 0+ traffic originating from their payphones. The 1996 Act directs 
the Commission to provide similar rights to the BOCs, unless the 
Commission determines it is not in the public interest. The Commission 
concludes that it would not be contrary to the public interest to allow 
the BOCs to negotiate with location providers with respect to the 
selecting and contracting for the interLATA carriers presubscribed to 
their payphones. The Commission first finds that the payphone industry 
is competitive and characterized by low barriers to entry which would 
act to prevent the BOCs from exercising market power in the provision 
of payphone services. The Commission explains that, although the BOCs 
currently have a large share of the payphone services market, there are 
also thousands of competitors. These competitors range in size from 
very small entities with only a handful of payphones, to the major long 
distance companies. The Commission finds that the existence of these 
many small competitors demonstrates that entry is relatively easy and 
does not require investment or scale levels that would deter many 
potential competitors. The Commission also concludes that any ability 
that the BOCs might have to raise prices to end users above competitive 
levels is severely restricted by the ability of end users to dial 
around the presubscribed interLATA carrier. The Commission explains 
that a sustained effort by the BOCs to pass on monopoly price levels to 
consumers would induce more end users to take advantage of this 
alternative.
    79. The Commission also determines that the nonstructural and 
accounting safeguards required with respect to the BOCs' payphone 
operations are sufficient to deter the BOCs from improperly subsidizing 
those operations from their local access services or discriminating in 
the provision of local access services to the detriment of their 
payphone competitors. As discussed previously, the Commission is 
applying all Computer III and ONA nonstructural and accounting 
safeguards to the BOCs' provision of payphone services, and requiring 
that any basic services provided by a BOC to its own payphone 
operations to be available on a nondiscriminatory basis to other 
payphone providers. The Commission concludes that these safeguards 
provide an appropriate regulatory framework to ensure that BOCs do not 
engage in improper subsidization or discriminate

[[Page 52321]]

in the provision of services required by their payphone competitors. 
For these reasons, and because it finds that the statutory language 
reflects a Congressional determination that structural separation of 
the BOCs' payphone operations from their core business is neither 
necessary nor appropriate, the Commission declines to impose such 
structural separation on the BOCs' payphone business. The Commission 
does require that the nonstructural and accounting safeguards 
established pursuant to Section 276(b)(1)(C) of the 1996 Act be in 
place before the BOCs are allowed to participate in the interLATA 
presubscription process for their payphones. Specifically, the Report 
and Order requires a BOC to submit and receive approval of an initial 
CEI plan filed pursuant to Section 276(b)(1)(C) as a precondition to 
being authorized to engage in the conduct authorized by Section 
276(b)(1)(D).
    80. The Report and Order recognizes that location providers are to 
retain the ultimate decision-making authority in determining interLATA 
services in connection with the choice of payphone providers. The 
Commission finds that if strong competition is established in the 
payphone industry, location providers will be assured of the ultimate 
choice of the interLATA carrier serving payphones on their premises 
through the selection of PSPs. The Commission concludes that 
competition in the payphone industry is sufficiently strong to ensure 
that location providers have freedom of choice concerning the interLATA 
carrier for payphones on their premises. The Commission emphasizes, 
however, that a location provider's ability to choose should be 
protected from unjust and unreasonable practices which seek to 
foreclose meaningful choice. Such practices as unreasonable 
interference with pre-existing agreements between location providers 
and PSPs or carriers, or conduct which is unduly coercive of the 
location provider's right to choose the carrier for payphones on its 
premises, may constitute violations of Section 201 of the 
Communications Act.
    81. The Commission rejects the argument that the presubscription 
rights specified in Section 276(b)(1)(D) constitute the provision of 
interLATA service subject to the restrictions of Sections 271 and 272 
of the 1996 Act. The Commission finds that the statutory language 
authorizing the BOCs to ``select and contract with, the carriers that 
carry interLATA calls from their payphones,'' grants the BOCs no more 
than the right to participate as a contractual intermediary between a 
location provider and a third-party interLATA carrier. Such conduct 
does not amount to the provision of interLATA telecommunications 
service addressed under Sections 271 and 272. The Commission does find, 
however, that, for purposes of Section 276, resale by a BOC of 
interLATA service for its in-region presubscribed payphones lies 
outside of the specific rights granted by Section 276(b)(1)(D) of the 
1996 Act, and is subject to the requirements set forth in Section 
271(b).
    82. The Commission affirms its tentative conclusion in the NPRM 
that the 1996 Act grandfathers all contracts in force between location 
providers and PSPs or interLATA or intraLATA carriers which were in 
force and effect as of February 8, 1996.

E. Ability of Payphone Service Providers to Negotiate With Location 
Providers on the Presubscribed Intralata Carrier

    83. The Commission affirms its tentative conclusion in the NPRM 
that all PSPs should have the right to negotiate with location 
providers concerning the intraLATA carriers presubscribed to their 
payphones. The Commission also concludes that state regulations which 
require the routing of intraLATA calls to the incumbent LEC are 
inconsistent with this provision of the 1996 Act. Pursuant to the 
specific authority in Section 276(c), the Commission concludes that all 
such state requirements are therefore preempted by the Commission's 
regulations.
    84. The Commission also affirms its tentative conclusion in the 
NPRM that intraLATA carriers presubscribed to payphones should be 
required to meet the Commission's minimum standards for routing and 
handling emergency calls. By mandating the application of minimum 
standards to intraLATA carriers presubscribed to payphones, the 
Commission seeks to ensure that individuals receive timely and proper 
assistance when they rely on payphones for 0- and 911 emergency calls.

F. Establishment of Public Interest Payphones

    85. Section 276(b)(2) of the 1996 Act directs the Commission to 
``determine whether public interest payphones, which are provided in 
the interest of public health, safety, and welfare, in locations where 
there would otherwise not be a payphone, should be maintained, and if 
so, ensure that such public interest payphones are supported fairly and 
equitably.'' The Commission concludes that there is a need to ensure 
the maintenance of public interest payphones that serve public policy 
interests in health, safety, and welfare, in locations where there 
might not otherwise be a payphone as a result of the operation of the 
market. The Commission explains that all payphones serve the public 
interest by providing access to basic communications services. The 
Commission expresses particular concern about the role served by 
payphones in providing access to emergency services, especially in 
isolated locations and areas with low levels of residential phone 
penetration. The Commission recognizes, however, the potential that a 
freely competitive marketplace may not provide for payphones in 
locations where they serve important public policy objectives, but 
which, for various reasons, may not be economically self-supporting. 
With the elimination of subsidies which have helped to support such 
payphones in the past, as directed by the 1996 Act, it is possible that 
many of these payphones could disappear absent the availability of 
alternative methods to ensure their existence.
    86. The Commission concludes that primary responsibility for 
administering and funding public interest payphone programs should be 
left to the states, subject to guidelines adopted by the Commission. 
The Commission finds that the states are better equipped than the 
Commission to respond to geographic and socio-economic factors 
affecting the need for such payphones that are too diverse to be 
effectively addressed on a national basis.
    87. While leaving broad discretion to the states with respect to 
the implementation of public interest payphone programs, the Commission 
finds that the adoption of certain minimum guidelines is necessary to 
meet its statutory obligation to ensure that public interest payphones 
are funded fairly and equitably. The Commission adopts as a definition 
of ``public interest payphone,'' a payphone which (1) fulfills a public 
policy objective in health, safety, or public welfare, (2) is not 
provided for a location provider with an existing contract for the 
provision of a payphone, and (3) would not otherwise exist as a result 
of the operation of the competitive marketplace. The Commission 
concludes that reliance on the public interest payphone provisions of 
the 1996 Act should be limited to instances where a payphone location 
serves a strong public interest that would not be fulfilled by the 
normal operation of the market. The Commission also concludes that the 
statutory language requires a national guideline that companies 
providing public interest payphones be fairly

[[Page 52322]]

compensated for the cost of such services. The states have discretion 
with respect to funding their respective public interest payphone 
programs, so long as the funding mechanism, (1) ``fairly and 
equitably'' distributes the cost of such a program, and (2) does not 
involve the use of subsidies prohibited by Section 276(b)(1)(B) of the 
1996 Act. State programs supporting public interest payphones are also 
subject to the provision of Section 253(b) of the 1996 Act which 
requires that such a program be implemented on a ``competitively 
neutral basis.'' The Commission specifically recognizes that states may 
address the need for public interest payphones by adopting appropriate 
rules in conjunction with their state universal service plans pursuant 
to Section 254(f) of the 1996 Act. The Commission finds that the 
implementation of a public interest payphone program is consistent with 
the goals of universal service.
    88. Also in furtherance of its statutory responsibility under 
Section 276(b)(2), the Commission directs each state to review whether 
it has adequately provided for public interest payphones in a manner 
consistent with the Report and Order. Each state is required, within 
two years of the date of issuance of the Report and Order, to evaluate 
whether it needs to take any measures to ensure that payphones serving 
important public interests will continue to exist in light of the 
elimination of subsidies and other competitive provisions established 
pursuant to Section 276 of the 1996 Act, and that any existing programs 
are administered and funded consistent with the Commission's rules. The 
Commission also provides that interested parties may file petitions 
with the Commission challenging state requirements that are believed to 
be inconsistent with Section 276(b)(2) or guidelines adopted by the 
Commission implementing the provisions of that Section.

G. Other Issues

1. Dialing Parity
    89. The Commission affirms its tentative conclusion in the NPRM 
that the benefits of dialing parity adopted pursuant to Section 
251(b)(3) of the 1996 Act should extend to all payphone location 
providers. The Commission finds that dialing parity is an important 
element in fostering vigorous competition in the payphone industry, as 
in the local exchange and long distance industry, by ensuring that each 
customer has the freedom and the flexibility to choose among different 
carriers for different services without the burden of dialing access 
codes. The Commission concludes that the technical and timing 
requirements established pursuant to Section 251(b)(3), and Section 
271(c)(2)(B), should apply equally to payphones.
    90. The Commission also concludes that the unblocking of carrier 
access codes mandated by the Telephone Operator Consumer Services 
Improvement Act of 1990 (``TOCSIA''), Section 226 of the Act, and the 
Commission's rules for interstate calls, should also apply to 
intrastate (including local) access code calls. Given the existence of 
compensation and the pro-competitive purpose of Section 276 of the 1996 
Act, and the absence of any technical limitations, the Commission finds 
that unblocked access for all access code calls from payphones is 
required.
2. Letterless Keypads
    91. The Commission affirms its tentative conclusion in the NPRM 
that the use of letterless keypads on payphones violates both TOCSIA 
and the 1996 Act. The Commission finds that an exclusively numeric 
payphone keypad defeats a caller's attempt to reach its OSP of choice 
through the use of commonly-used ``vanity'' access sequences such as 
AT&T's ``1-800-CALL-ATT'' and MCI's ``1-800-COLLECT.'' Such access 
sequences, which can be easily remembered by consumers, require the 
presence of both alphabetic and numeric characters on payphone keypads. 
The Commission finds no plausible purpose for letterless keypads other 
than to restrict access to a non-presubscribed carrier. The Commission 
determines that it has authority to take enforcement action, including 
forfeitures, if such devices are used, and orders that OSPs may not pay 
commissions to PSPs utilizing such devices.
3. Oncor Petition
    92. The Commission denies the petition of Oncor Communications, 
Inc., filed August 7, 1995, requesting that the Commission prescribe 
compensation for public payphone premises owners and presubscribed 
OSPs. The Commission invited comment on Oncor's petition by Public 
Notice released September 12, 1995. The Commission finds that the 
presubscribed OSP incurs no costs when a consumer makes an access code 
call from a payphone, and it would be inequitable to require any party 
to compensate the presubscribed OSP because the caller chose not to use 
it. The Commission also notes that the rules adopted in the Report and 
Order will ensure that PSPs are fairly compensated for calls that 
originate from their payphones, and market forces will ensure that the 
PSPs fairly compensate premises owners.

III. Conclusion

    93. In the Report and Order, the Commission establishes procedures 
that will ensure that all payphone service providers are fairly 
compensated for every completed intrastate, interstate and 
international call, except for those calls excepted by statute, and 
adopts interim compensation until the new compensation procedures are 
effective. The Commission also establishes procedures that ensure that 
all subsidies from basic exchange and exchange access revenues are 
removed simultaneous with the LECs' receipt of compensation for calls 
from LEC payphones. The Commission requires the BOCs to comply with 
certain nonstructural safeguards for their provision of payphone 
service, and allows them to negotiate with location providers for 
selecting and contracting with the carriers that provide interLATA 
service from their payphones. The Report and Order also sets forth 
guidelines for public interest payphones, and establishes guidelines 
for states to use in their proceedings for funding of such payphones.

IV. Ordering Clauses

    94. Accordingly, pursuant to authority contained in Sections 1, 4, 
201-205, 215, 218, 219, 220, 226, and 276 of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 154, 201-205, 215, 218, 219, 220, 226, 
and 276, it is ordered that the policies, rules, and requirements set 
forth herein are adopted.
    95. It is further ordered, that 47 CFR Part 64, Sections 64.1301 
and 64.1340, are amended as set forth below, effective November 6, 
1996, and that 47 CFR Part 64, Sections 64.1330 and 64.703 are amended 
as set forth below, effective December 16, 1996.
    96. It is further ordered, that 47 CFR Part 64, Section 64.1301 is 
removed and Sections 64.1300, 64.1310 and 64.1320, are amended as set 
forth below, effective October 7, 1997.
    97. It is further ordered, that 47 CFR Part 68, is amended as set 
forth below, effective April 15, 1997.
    98. It is further ordered, that local exchange carriers shall 
reclassify their payphone assets and related expenses to nonregulated 
status on April 15, 1997.
    99. It is further ordered, that carriers required to file a cost 
allocation manual pursuant to 47 CFR Section 64.903 or by Commission 
order shall file revisions to their manuals implementing the

[[Page 52323]]

reclassification required herein no later than February 14, 1997.
    100. It is further ordered, that local exchange carriers shall file 
tariff revisions required by paras. 180 to 187 of the Report and Order 
on January 15, 1997, to be effective April 15, 1997.
    101. It is further ordered, the Bell Operating Companies are 
granted waivers of the time requirements of the Computer II and the 
Computer III network disclosure requirements in order to provide basic 
network payphone services by April 15, 1997. Pursuant to this waiver, 
network disclosure notification for these basic network payphone 
services must be filed no later than January 15, 1997.
    102. It is further ordered, that the Bell Operating Companies shall 
file CEI plans for the provision of payphone service not later than 
Janaury 6, 1997.
    103. It is further ordered, that the waivers of Section 64.1301 of 
the Commission's Rules granted to AT&T and Sprint in the proceedings 
referenced in para. 119 of the Report and Order are revoked, effective 
30 days after publication of a summary of this Report and Order in the 
Federal Register.
    104. It is further ordered, that the proceedings initiated by our 
Memorandum Opinion and Order on Further Reconsideration and Second 
Further Notice of Proposed Rulemaking in CC Docket 91-35, 60 FR 48957 
(September 21, 1995), Policies and Rules Concerning Operator Service 
Access and Pay Telephone Compensation, 10 FCC Rcd 11457 (1995), are 
terminated.
    105. It is further ordered, that the July 18, 1988 Petition of the 
Public Telephone Council for a declaratory ruling that BOC Payphones 
should be treated as CPE is dismissed as moot.
    106. It is further ordered, that the August 7, 1995 Petition of 
Oncor Communications, Inc. Requesting Compensation for Competitive 
Payphone Premises Owners and Presubscribed Operator Services Providers 
is denied.
    107. It is further ordered, that the proceedings entitled Amendment 
of Section 69.2 (m) and (ee) of the Commission's Rules to Include 
Independent Public Payphones Within the ``Public Telephone'' Exemption 
from End User Common Line Access Charges, RM 8723, are terminated.
    108. It is further ordered, that the December 28, 1989 Petition of 
the California Payphone Association is dismissed as moot.
    109. It is further ordered, that the provisions set forth in 
Section 1.4 of the Commission's rules establishing the date of public 
notice for this Report and Order are waived, and petitions for 
reconsideration shall be filed within 30 days of release of this 
document, and oppositions to the petitions must be filed within seven 
(7) days after the date for filing the petitions for reconsideration. 
For purposes of this proceeding, Section 1.106(h) of the Commission's 
Rules is waived, and the Commission will not accept replies to 
oppositions.

List of Subjects

47 CFR Part 64

    Communications common carriers, Payphone compensation, Operator 
service access, Telephone.

47 CFR Part 68

    Administrative practice and procedure, Communications common 
carrier, Communications equipment, Labeling, Reporting and record 
keeping requirements, Telephone.

Federal Communications Commission.
Shirley S. Suggs,
Chief, Publications Branch.

Rule Changes

    Parts 64 and 68 of Title 47 of the Code of Federal Regulations are 
amended as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

    1. Effective November 6, 1996, the authority citation for Part 64 
is revised to read as follows:

    Authority: 47 U.S.C. 154, unless otherwise noted. Interpret or 
apply 47 U.S.C. 201, 218, 226, 228, 276 unless otherwise noted.

    2. Effective December 16, 1996, Sec. 64.703(b) is amended by 
removing the word ``and'' at the end of paragraph (b)(2), and by 
redesignating paragraph (b)(3) as paragraph (b)(4); and adding a new 
paragraph (b)(3) to read as follows:


Sec. 67.703  Consumer information.

* * * * *
    (b) * * *
    (3) In the case of a pay telephone, the local coin rate for the pay 
telephone location; and
* * * * *
    3. Effective November 6, 1996, the heading of Subpart M of Part 64 
is revised to read as follows:

Subpart M--Payphone Compensation

    4. Effective November 6, 1996, Sec. 64.1301 is amended by revising 
the first sentence of paragraph (a) and paragraph (b) to read as 
follows:


Sec. 64.1301  Competitive payphone compensation.

    (a) Each payphone service provider eligible to receive compensation 
shall be paid $45.85 per payphone per month for originating access code 
and toll-free calls. * * *
    (b) This compensation shall be paid by interexchange carriers 
(IXCs) that earn annual toll revenues in excess of $100 million, as 
reported in the FCC staff report entitled ``Long Distance Market 
Shares.'' Each individual IXC's compensation obligation shall be set in 
accordance with its relative share of toll revenues among IXCs required 
to pay compensation. For example, if total toll revenues of IXCs 
required to pay compensation is $50 billion, and one of these IXCs had 
$5 billion of total toll revenues, the IXC must pay $4.585 per payphone 
per month.
* * * * *
    5. Effective December 16, 1996, Sec. 64.1330 is added to subpart M 
to read as follows:


Sec. 64.1330  State review of payphone entry and exit regulations and 
public interest payphones.

    (a) Each state must review and remove any of its regulations 
applicable to payphones and payphone service providers that impose 
market entry or exit requirements.
    (b) Each state must ensure that access to dialtone, emergency 
calls, and telecommunications relay service calls for the hearing 
disabled is available from all payphones at no charge to the caller.
    (c) Each state must review its rules and policies to determine 
whether it has provided for public interest payphones consistent with 
applicable Commission guidelines, evaluate whether it needs to take 
measures to ensure that such payphones will continue to exist in light 
of the Commission's implementation of Section 276 of the Communications 
Act, and administer and fund such programs so that such payphones are 
supported fairly and equitably. This review must be completed by 
September 20, 1998.
    6. Effective November 6, 1996, Sec. 64.1340 is added to read as 
follows:


Sec. 64.1340  Right to negotiate.

    Unless prohibited by Commission order, payphone service providers 
have the right to negotiate with the location provider on the location 
provider's selecting and contracting with, and, subject to the terms of 
any agreement with the location provider, to select and contract with, 
the carriers that carry interLATA and intraLATA calls from their 
payphones.

[[Page 52324]]

    7. Effective October 7, 1997, Sec. 64.1300 is added to subpart M to 
read as follows:


Sec. 64.1300  Payphone compensation obligation.

    (a) Except as provided herein, every carrier to whom a completed 
call from a payphone is routed shall compensate the payphone service 
provider for the call at a rate agreed upon by the parties by contract.
    (b) The compensation obligation set forth herein shall not apply to 
calls to emergency numbers, calls by hearing disabled persons to a 
telecommunications relay service or local calls for which the caller 
has made the required coin deposit.
    (c) In the absence of an agreement as required by paragraph (a) of 
this section, the carrier obligated to compensate the payphone service 
provider shall do so at a per-call rate equal to its local coin rate at 
the payphone in question.
    (d) For the initial one-year period during which carriers are 
required to pay per-call compensation, in the absence of an agreement 
as required by paragraph (a) of this section, the carrier is obligated 
to compensate the payphone service provider at a per-call rate of $.35 
per call. After this initial one-year period of per-call compensation, 
paragraph (c) of this section will apply.


Sec. 64.1301  [Removed]

    8. Effective October 7, 1997, Sec. 64.1301 is removed.
    9. Effective October 7, 1997, section 64.1310 is added to read as 
follows:


Sec. 64.1310  Payphone compensation payment procedures.

    (a) It is the responsibility of each carrier to whom a compensable 
call from a payphone is routed to track, or arrange for the tracking 
of, each such call so that it may accurately compute the compensation 
required by Section 64.1300(a).
    (b) Carriers and payphone service providers shall establish 
arrangements for the billing and collection of compensation for calls 
subject to Section 64.1300(a).
    (c) Local Exchange Carriers must provide to carriers required to 
pay compensation pursuant to Section 64.1300(a) a list of payphone 
numbers in their service areas. The list must be provided on a 
quarterly basis. Local Exchange Carriers must verify disputed numbers 
in a timely manner, and must maintain verification data for 18 months 
after close of the compensation period.
    (d) Local Exchange Carriers must respond to all carrier requests 
for payphone number verification in connection with the compensation 
requirements herein, even if such verification is a negative response.
    (e) A payphone service provider that seeks compensation for 
payphones that are not included on the Local Exchange Carrier's list 
satisfies its obligation to provide alternative reasonable verification 
to a payor carrier if it provides to that carrier:
    (1) A notarized affidavit attesting that each of the payphones for 
which the payphone service provider seeks compensation is a payphone 
that was in working order as of the last day of the compensation 
period; and
    (2) Corroborating evidence that each such payphone is owned by the 
payphone service provider seeking compensation and was in working order 
on the last day of the compensation period. Corroborating evidence 
shall include, at a minimum, the telephone bill for the last month of 
the billing quarter indicating use of a line screening service.
    10. Effective October 7, 1997, Sec. 64.1320 is added subpart M to 
read as follows:


Sec. 64.1320   Payphone compensation verification and reports.

    (a) Carriers subject to payment of compensation pursuant to Section 
64.1300(a) shall conduct an annual verification of calls routed to them 
that are subject to such compensation and file a report with the Chief, 
Common Carrier Bureau within 90 days of the end of the calendar year, 
provided, however, that such verification and report shall not be 
required for calls received after December 31, 1998.
    (b) The annual verification required in this section shall list the 
total amount of compensation paid to payphone service providers for 
intrastate, interstate and international calls, the number of 
compensable calls received by the carrier and the number of payees.

PART 68--CONNECTION OF TERMINAL EQUIPMENT TO THE TELEPHONE NETWORK

    11. The authority citation for Part 68 is revised to read as 
follows:

    Authority: 47 U.S.C. 151, 154, 155, 201-5, 208, 215, 218, 226, 
227, 303, 313, 314, 403, 404, 410, 602.

    12. Effective April 15, 1997, Sec. 68.2(a)(1) is revised to read as 
follows:


Sec. 68.2  Scope.

    (a) * * *
    (1) Of all terminal equipment to the public switched telephone 
network, for use in conjunction with all services other than party line 
service;
* * * * *
    13. Effective April 15, 1997, Sec. 68.3 is amended by adding the 
definitions of ``central-office implemented telephone'' and 
``instrument implemented telephone'' in alphabetical order and removing 
the definitions of ``coin-implemented telephone'' and ``coin service'' 
to read as follows:


Sec. 68.3  Definitions.

* * * * *
    Central-office implemented telephone: A telephone executing coin 
acceptance requiring coin service signaling from the central office.
* * * * *
    Instrument-implemented telephone: A telephone containing all 
circuitry required to execute coin acceptance and related functions 
within the instrument itself and not requiring coin service signaling 
from the central office.
* * * * *
    This Attachment will not be published in the Code of Federal 
Regulations.

                                  Attachment--Interim Compensation Obligations                                  
----------------------------------------------------------------------------------------------------------------
                                                                    1995 Total                                  
                                                                   toll services    Percent of      Amount per  
                             Company                                 revenues       total toll       phone per  
                                                                    (dollar in       revenues          month    
                                                                     millions)                                  
----------------------------------------------------------------------------------------------------------------
AT&T Companies:                                                                                                 
    AT&T Communications, Inc....................................         $38,069           56.69     $25.9923406
    Alascom, Inc................................................             325            0.48       0.2219000
    MCI Telecommunciations Corp.................................          12,924           19.25       8.8241091
    Sprint Communications Co....................................           7,277           10.84       4.9685115
    LDDS Worldcom...............................................           3,640            5.42       2.4852799

[[Page 52325]]

                                                                                                                
Frontier Companies:                                                                                             
    Allnet Comm. Svcs. dba Frontier Comm. Svcs..................             827            1.23       0.5646501
    Frontier Communications Intl, Inc...........................             309            0.46       0.2109757
    Frontier Comm. of the North Central Region..................             133            0.20       0.0908083
    Frontier Communications of the West, Inc....................             127            0.19       0.0867117
    Cable & Wireless Communications, Inc........................             700            1.04       0.4779384
    LCI International Telecom Corp..............................             671            1.00       0.4581381
    Excel Telecommunications, Inc...............................             363            0.54       0.2478452
    Telco Communications Group, Inc.............................             215            0.32       0.1467954
    Midcom Communications, Inc..................................             204            0.30       0.1392849
    Tel Save, Inc \9\...........................................             180            0.27       0.1228985
    U.S. Long Distance, Inc.....................................             155            0.23       0.1058292
    Vartex Telecom, Inc.........................................             125            0.19       0.0853461
    General Communication, Inc..................................             120            0.18       0.0819323
    Business Telecom, Inc.......................................             115            0.17       0.0785185
    Oncor Communications, Inc...................................             111            0.17       0.0757874
    The Furst Group, Inc........................................             109            0.16       0.0744218
    American Network Exchange, Inc..............................             101            0.15       0.0689597
                                                                 -----------------------------------------------
      Total.....................................................          67,153          100.00           45.85
----------------------------------------------------------------------------------------------------------------

[FR Doc. 96-25188 Filed 10-4-96; 8:45 am]
BILLING CODE 6712-01-P