[Federal Register Volume 61, Number 240 (Thursday, December 12, 1996)]
[Rules and Regulations]
[Pages 65341-65364]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30908]



[[Page 65341]]

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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 64, 68 and 69

[CC Docket 96-128; FCC No. 96-439]


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

AGENCY: Federal Communications Commission.

ACTION: Final rule: order on reconsideration.

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SUMMARY: On September 20, 1996, Federal Communications Commission 
(``Commission'') adopted a Report and Order in CC Docket No. 96-128, 
FCC 96-388 (61 FR 52307, October 7, 1996) implementing section 276 of 
the Communications Act of 1934, as amended by the Telecommunications 
Act of 1996 (``1996 Act''). In its Order on Reconsideration in this 
proceeding, the Commission affirms the essential features of the 
policies established in the Report and Order. Additionally, the 
Commission modifies: The requirements for LEC tariffing of payphone 
services and unbundled network functionalities; and the requirements 
for LECs to remove unregulated payphone costs from the carrier common 
line charge and to reflect the application of multiline subscriber line 
charges to payphone lines. The Commission also clarifies various issues 
addressed in the Report and Order. The Order on Reconsideration is 
issued to implement the provisions of section 276 of the 1996 Act.

EFFECTIVE DATES: January 13, 1997.

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

SUPPLEMENTARY INFORMATION: On June 4, 1996, the Commission adopted a 
Notice of Proposed Rulemaking (``NPRM'') [61 FR 33074, June 4, 1996] to 
implement section 276 of the Telecommunications Act of 1996. On 
September 20, 1996, the Commission adopted and released a Report and 
Order in CC Docket No. 96-128, FCC 96-388 [61 FR 52307, October 7, 
1996]. The Commission subsequently released an Errata, making certain 
technical corrections to the Report and Order [61 FR 54344; October 18, 
1996]. The Commission received 28 Motions requesting reconsideration 
and/or clarification of the Report and Order. This is a summary of the 
Commission's Order on Reconsideration in CC Docket No. 96-128, adopted 
and released on November 8, 1996. The full text of the Order on 
Reconsideration 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 Order on 
Reconsideration 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.

Paperwork Reduction Act

    The Order on Reconsideration contains new or modified information 
collections. It has been submitted to the Office of Management and 
Budget (OMB) for review under the Paperwork Reduction Act of 1995 
(PRA). The Commission has updated its September 1996 paperwork 
submission made for the collections contained in the Report and Order 
in this proceeding to OMB to reflect the new and/or modified 
collections in the Order on Reconsideration. OMB is asked to approve 
the following changes in addition to any requirements in the original 
submission under the rules promulgated in the Report and Order, LECs 
had to file tariffs with both the Commission and the state. Under the 
Order on Reconsideration, LECs only have to file these tariffs with the 
state, except for tariffs for unbundled features, which must be filed 
with both the Commission and the state. The Report and Order specified 
a certain method for calculating CCL charges. The Order on 
Reconsideration modifies that method. The Order on Reconsideration also 
requires that LECs supply to carrier-payors, on demand, a list of 
emergency numbers.
    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 Order on Reconsideration as required by 
the Paperwork Reduction Act of 1995, Public Law No. 104-13. Written 
comments by the public on the proposed and/or modified information 
collections are due 20 days after date of publication in the Federal 
Register. OMB notification of action is due on December 19, 1996. 
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: Revised collections.
    Respondents: State, local or tribal government; business or other 
for-profit, including small businesses.

------------------------------------------------------------------------
                                                         Est.     Total 
                                             No. of    time per   annual
              Section/title               respondents  response   burden
                                                        (hours)  (hours)
------------------------------------------------------------------------
a. LEC Tariff Filings...................        400         100   40,000
b. Reclassification of LEC-Owned                                        
 Payphones..............................        400         100   40,000
c. LEC Provision of List of Emergency                                   
 Numbers................................        400           1      400
------------------------------------------------------------------------

    Total Annual Burden: 80,400 hours. No change is anticipated for the 
burden estimates reported in our September 1996 filing for the LEC 
Tariff Flings and Reclassification of LEC-Owned Payphone collections.
    Estimated Costs per Respondent: $0.
    Needs and Uses: The rules adopted in CC Docket 96-128: (1) 
Establish a plan to ensure fair competition 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 payphones; (4) permit the BOCs to 
negotiate with the payphone location provider about a payphone's 
presubscribed interLATA carrier; (5) permit all payphone providers to 
negotiate with the location provider abut a payphone's presubscribed 
intraLATA carrier; 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. The new and modified collections in this 
Order on Reconsideration are necessary to implement the provisions of 
section 276 of the Telecommunications Act of 1996.

Final Regulatory Flexibility Analysis

    As required by section 603 of the Regulatory Flexibility Act (RFA), 
5 U.S.C. 603, an Initial Regulatory

[[Page 65342]]

Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed 
Rulemaking (NPRM) in the Implementation of the Pay Telephone 
Reclassification and Compensation Provisions of the Telecommunications 
Act of 1996 (CC Docket No. 96-128) [61 FR 33074]. The Commission sought 
written public comment on the proposals in the NPRM including on the 
IRFA. The Commission's Final Regulatory Flexibility Analysis (FRFA) in 
the Report and Order conforms to the RFA, as amended by the Contract 
With America Advancement Act of 1996 (CWAAA), Public Law 104-121, 110 
Stat. 847 (1996).\1\ The discussion below constitutes the FRFA for both 
the Report and Order and the Order on Reconsideration in this 
proceeding.
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    \1\ Subtitle II of the CWAAA is ``The Small Business Regulatory 
Enforcement Fairness Act of 1996'' (``SBREFA''), codified at 5 
U.S.C. 601 et seq.
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Report and Order

A. Need for and Objectives of the Report and Order and the Rules 
Adopted

    The Commission, in compliance with section 276 of the 
Communications Act of 1934, as amended by the Telecommunications Act of 
1996 (the 1996 Act), promulgates the rules in the Report and Order to 
promptly implement section 276 of the 1996 Act, which directs the 
Commission, among other things, to adopt rules 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 the payphone location providers to negotiate with the 
location provider about a payphone's presubscribed intraLATA carrier; 
(5) permit all payphone providers to negotiate with the location 
provider about a payphone's presubscribed intraLATA carrier; 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[.]''
    The objective of the rules adopted in the Report and Order is ``to 
promote competition among payphone service providers and promote the 
widespread deployment of payphone services to the benefit of the 
general public.''

B. Analysis of Significant Issues Raised in Response to the IRFA

    Summary of the Initial Regulatory Flexibility Analysis (IRFA). In 
the IRFA, the Commission found that the rules it proposed to adopt in 
this proceeding may have a significant impact on a substantial number 
of small business as defined by section 601(3) of the RFA. The IRFA 
solicited comment on alternatives to the proposed rules that would 
minimize the impact on small entities consistent with the objectives of 
this proceeding. The Commission received one comment on the potential 
impact on small business entities, which the Commission considered in 
promulgating the rules in the Report and Order. Frontier commented 
generally that the compensation scheme advanced in the NPRM was 
``unnecessarily onerous and inefficient'' and ``in conflict with the 
goals of the * * * Regulatory Flexibility Act.'' Frontier did not 
comment specifically on what aspect of the compensation scheme would 
have economic impact on small business entities. The Commission 
disagrees with Frontier's general assertion that the compensation 
scheme is in conflict with the Regulatory Flexibility Act. The 
Commission's rules are designed to facilitate the development of 
competition, which benefits many small business entities. The rules 
will ensure that payphone services providers (PSPs), many of whom may 
be small business entities, receive fair compensation. The Commission's 
rules provide significant flexibility to permit the affected parties, 
including small business entities, to structure procedures that would 
minimize their burdens. For example, the rules require IXCs and 
intraLATA carriers, as primary economic beneficiary of payphone calls, 
to track the calls it receives from payphones. The carrier has the 
option of performing the function itself or contracting out these 
functions to another party, such as a LEC or clearinghouse. The 
Commission also provides a transition period. The Commission believes 
that its rules are designed to effectively optimize the efficiency and 
minimize the burdens of the compensation scheme on all parties, 
including small entities.

C. Description and Estimates of the Number of Small Entities Affected 
by the Report and Order

    For the purposes of the Report and Order, the RFA defines a ``small 
business'' to be the same as a ``small business concern'' under the 
Small Business Act, 15 U.S.C. 632, unless the Commission has developed 
one or more definitions that are appropriate to its activities. Under 
the Small Business Act, a ``small business concern'' is one that: (1) 
Is independently owned and operated; (2) is not dominant in its field 
of operation; and (3) meets any additional criteria established by the 
Small Business Administration (SBA). SBA has defined a small business 
for Standard Industrial Classification (SIC) category 4813 (Telephone 
Communications, Except Radiotelephone) to be a small entity when it has 
fewer than 1,500 employees.
    The Commission has found incumbent LECs to be ``dominant in their 
field of operation'' since the early 1980's, and consistently has 
certified under the RFA that incumbent LECs are not subject to 
regulatory flexibility analyses because they are not small businesses. 
The Commission has made similar determinations in other areas. However, 
in the Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, Report and Order, several parties, 
including the SBA, commented that the Commission should have included 
small incumbent LECs in the IRFA pertaining to that order. The 
Commission recognizes SBA's special role and expertise with regard to 
the RFA, and intends to continue to consult with SBA outside the 
context of this proceeding to ensure that the Commission is fully 
implementing the RFA. Although it is not fully persuaded that its prior 
practice has been incorrect, the Commission will, nevertheless, include 
small incumbent LECs in this FRFA to remove any possible issue of RFA 
compliance. Consistent with the Commission's prior practice, it shall 
continue to exclude small incumbent LECs from the definition of a small 
entity for the purpose of this FRFA. Nevertheless, as mentioned above, 
it includes small incumbent LECs in the FRFA. Accordingly, use of the 
terms ``small entities'' and ``small businesses'' does not encompass 
``small incumbent LECs.'' The term ``small incumbent LECs'' refers to 
any incumbent LECs that arguably might be defined by SBA as ``small 
business concerns.''
Telephone Companies (SIC 4813)
    Total Number of Telephone Companies Affected. Many of the decisions 
and rules adopted in the Report and Order may have a significant effect 
on a substantial number of the small telephone companies identified by 
the SBA. The United States Bureau of the Census (the Census Bureau) 
reports that, at the end of 1992, there

[[Page 65343]]

were 3,497 firms engaged in providing telephone services, as defined 
therein, for at least one year. This number encompasses a broad 
category which contains a variety of different subsets of carriers, 
including local exchange carriers, interexchange carriers, competitive 
access providers, cellular carriers, mobile service carriers, operator 
service providers, pay telephone operators, PCS providers, covered SMR 
providers, and resellers. It seems certain that some of those 3,497 
telephone service firms may not qualify as small entities or small 
incumbent LECs because they are not ``independently owned and 
operated.'' For example, a PCS provider that is affiliated with an 
interexchange carrier having more than 1,500 employees would not meet 
the definition of a small business. It seems reasonable to conclude, 
therefore, that fewer than 3,497 telephone service firms are small 
entity telephone service firms or small incumbent LECs that may be 
affected by the Report and Order. The Commission estimates below the 
potential small entity telephone service firms or small incumbent LECs 
that may be affected by the Report and Order by service category.
    Wireline Carriers and Service Providers. The SBA's definition of 
small entities for telephone communications companies, other than 
radiotelephone (wireless) companies, is one employing fewer than 1,500 
persons. The Census Bureau reports that, there were 2,321 such 
telephone companies in operation for at least one year at the end of 
1992. All but 26 of the 2,321 non-radiotelephone companies listed by 
the Census Bureau were reported to have fewer than 1,000 employees. 
Thus, even if all 26 of those companies had more than 1,500 employees, 
there would still be 2,295 non-radiotelephone companies that might 
qualify as small entities or small incumbent LECs. Although it seems 
certain that some of these carriers are not independently owned and 
operated, the Commission is unable at this time to estimate with 
greater precision the number of wireline carriers and service providers 
that would qualify as small business concerns under SBA's definition. 
Consequently, it estimates that there are fewer than 2,295 small entity 
telephone communications companies other than radiotelephone companies 
that may be affected by the decisions and rules adopted in the Report 
and Order.
    Local Exchange Carriers. Neither the Commission nor SBA has 
developed a definition of small providers of local exchange services 
(LECs). The closest applicable definition under SBA rules is for 
telephone communications companies other than radiotelephone (wireless) 
companies (SIC 4813). The most reliable source of information regarding 
the number of LECs nationwide appears to be the data the Commission 
collects annually in connection with the Telecommunications Relay 
Service (TRS). According to the most recent data, 1,347 companies 
reported that they were engaged in the provision of local exchange 
services. Although it seems certain that some of these carriers are not 
independently owned and operated, or have more than 1,500 employees, 
the Commission is unable at this time to estimate with greater 
precision the number of LECs that would qualify as small business 
concerns under SBA's definition. Consequently, it estimates that there 
are fewer than 1,347 small incumbent LECs that may be affected by the 
decisions and rules adopted in the Report and Order.
    Interexchange Carriers. Neither the Commission nor the SBA has 
developed a definition of small entities specifically applicable to 
providers of interexchange services (IXCs). The closest applicable 
definition under SBA rules is for telephone communications companies 
other than radiotelephone (wireless) companies (SIC 4813). The most 
reliable source of information regarding the number of IXCs nationwide 
appears to be the data collected annually in connection with TRS. 
According to the most recent data, 97 companies reported that they were 
engaged in the provision of interexchange services. Although it seems 
certain that some of these carriers are not independently owned and 
operated, or have more than 1,500 employees, the Commission is unable 
at this time to estimate with greater precision the number of IXCs that 
would qualify as small business concerns under SBA's definition. 
Consequently, it estimates that there are fewer than 97 small entity 
IXCs that may be affected by the decisions and rules adopted in the 
Report and Order.
    Competitive Access Providers. Neither the Commission nor SBA has 
developed a definition of small entities specifically applicable to 
providers of competitive access services (CAPs). The closest applicable 
definition under SBA rules is for telephone communications companies 
other than radiotelephone (wireless) companies (SIC 4813). The most 
reliable source of information regarding the number of CAPs nationwide 
appears to be the data collected annually in connection with the TRS. 
According to the most recent data, 30 companies reported that they were 
engaged in the provision of competitive access services. Although it 
seems certain that some of these carriers are not independently owned 
and operated, or have more than 1,500 employees, the Commission is 
unable at this time to estimate with greater precision the number of 
CAPs that would qualify as small business concerns under SBA's 
definition. Consequently, it estimates that there are fewer than 30 
small entity CAPs that may be affected by the decisions and rules 
adopted in the Report and Order.
    Operator Service Providers. Neither the Commission nor SBA has 
developed a definition of small entities specifically applicable to 
providers of operator services (OSPs). The closest applicable 
definition under SBA rules is for telephone communications companies 
other than radiotelephone (wireless) companies (SIC 4813). The most 
reliable source of information regarding the number of operator service 
providers nationwide appears to be the data collected annually in 
connection with the TRS. According to the most recent data, 29 
companies reported that they were engaged in the provision of operator 
services. Although it seems certain that some of these companies are 
not independently owned and operated, or have more than 1,500 
employees, the Commission is unable at this time to estimate with 
greater precision the number of operator service providers that would 
qualify as small business concerns under SBA's definition. 
Consequently, it estimates that there are fewer than 29 small entity 
operator service providers that may be affected by the decisions and 
rules adopted in the Report and Order.
    Pay Telephone Operators. Neither the Commission nor SBA has 
developed a definition of small entities specifically applicable to pay 
telephone operators. The closest applicable definition under SBA rules 
is for telephone communications companies other than radiotelephone 
(wireless) companies. The most reliable source of information regarding 
the number of pay telephone operators nationwide appears to be the data 
collected annually in connection with the TRS. According to the most 
recent data, 197 companies reported that they were engaged in the 
provision of pay telephone services. Although it seems certain that 
some of these carriers are not independently owned and operated, or 
have more than 1,500 employees, the Commission is unable at this time 
to estimate with greater precision the number of pay telephone 
operators that would qualify as small business concerns under SBA's 
definition. Consequently, it estimates

[[Page 65344]]

that there are fewer than 197 small entity pay telephone operators that 
may be affected by the decisions and rules adopted in the Report and 
Order.
    Resellers (including debit card providers). Neither the Commission 
nor SBA has developed a definition of small entities specifically 
applicable to resellers. The closest applicable definition under SBA 
rules is for all telephone communications companies (SIC 4812 and 
4813). The most reliable source of information regarding the number of 
resellers nationwide appears to be the data collected annually in 
connection with the TRS. According to the most recent data, 206 
companies reported that they were engaged in the resale of telephone 
services. Although it seems certain that some of these carriers are not 
independently owned and operated, or have more than 1,500 employees, 
the Commission is unable at this time to estimate with greater 
precision the number of resellers that would qualify as small business 
concerns under SBA's definition. Consequently, it estimates that there 
are fewer than 206 small entity resellers that may be affected by the 
decisions and rules adopted in the Report and Order.
    800-Subscribers. Neither the Commission nor SBA has developed a 
definition of small entities specifically applicable to 800-
subscribers. The most reliable source of information regarding the 
number of 800-subscribers appears to be the data collected on the 
number of 800-numbers in use. According to the most recent data, at the 
end of 1995, the number of 800-numbers in use was 6,987,063. Although 
it seems certain that some of these subscribers are not independently 
owned and operated businesses, or have more than 1,500 employees, the 
Commission is unable at this time to estimate with greater precision 
the number of 800-subscribers that would qualify as small business 
concerns under SBA's definition. Consequently, it estimates that there 
are fewer than 6,987,063 small entity 800-subscribers that may be 
affected by the decisions and rules adopted in the Report and Order.
    Location Providers. Neither the Commission nor SBA has developed a 
definition of small entities specifically applicable to location 
providers. A location provider is the entity that is responsible for 
maintaining the premises upon which the payphone is physically located. 
Due to the fact that location providers do not fall into any specific 
category of business entity, it is impossible to estimate with any 
accuracy the number of location providers. Using several sources, 
however, the Commission derived a figure of 1,850,000 payphones in 
existence. Although it seems certain that some of these payphones are 
not located on property owned by location providers that are small 
business entities, nor does the figure take into account the 
possibility of multiple payphones at a single location, the Commission 
is unable at this time to estimate with greater precision the number of 
location providers that would qualify as small business concerns under 
SBA's definition. Consequently, it estimates that there are fewer than 
1,850,000 small entity location providers that may be affected by the 
decisions and rules adopted in the Report and Order.
    Wireless (Radiotelephone) Carriers (including paging services). The 
SBA's definition of a small business radiotelephone company is one 
employing fewer than 1,500 persons. The Census Bureau reports that 
there were 1,176 such companies in operation for at least one year at 
the end of 1992. The Census Bureau also reported that 1,164 of those 
radiotelephone companies had fewer than 1,000 employees. Thus, even if 
all of the remaining 12 companies had more than 1,500 employees, there 
would still be 1,164 radiotelephone companies that might qualify as 
small entities if they are independently owned and operated. Although 
it seems certain that some of these carriers are not independently 
owned and operated, the Commission is unable at this time to estimate 
with greater precision the number of radiotelephone carriers and 
service providers that would qualify as small business concerns under 
SBA's definition. Consequently, it estimates that there are fewer than 
1,164 small entity radiotelephone companies that may be affected by the 
decisions and rules adopted in the Report and Order.
    Cellular Service Carriers (including paging services). Neither the 
Commission nor SBA has developed a definition of small entities 
specifically applicable to providers of cellular services. The closest 
applicable definition under SBA rules is for telephone communications 
companies other than radiotelephone (wireless) companies (SIC 4813). 
The most reliable source of information regarding the number of 
cellular service carriers nationwide appears to be the data collected 
annually in connection with the TRS. According to the most recent data, 
789 companies reported that they were engaged in the provision of 
cellular services. Although it seems certain that some of these 
carriers are not independently owned and operated, or have more than 
1,500 employees, the Commission is unable at this time to estimate with 
greater precision the number of cellular service carriers that would 
qualify as small business concerns under SBA's definition. 
Consequently, it estimates that there are fewer than 789 small entity 
cellular service carriers that may be affected by the decisions and 
rules adopted in the Report and Order.
    Mobile Service Carriers (including paging services). Neither the 
Commission nor SBA has developed a definition of small entities 
specifically applicable to mobile service carriers, such as paging 
companies. The closest applicable definition under SBA rules is for 
telephone communications companies other than radiotelephone (wireless) 
companies. The most reliable source of information regarding the number 
of mobile service carriers nationwide appears to be the data collected 
annually in connection with the TRS. According to the most recent data, 
117 companies reported that they were engaged in the provision of 
mobile services. Although it seems certain that some of these carriers 
are not independently owned and operated, or have more than 1,500 
employees, the Commission is unable at this time to estimate with 
greater precision the number of mobile service carriers that would 
qualify under SBA's definition. Consequently, it estimates that there 
are fewer than 117 small entity mobile service carriers that may be 
affected by the decisions and rules adopted in the Report and Order.
    Broadband PCS Licensees (including paging services). The broadband 
PCS spectrum is divided into six frequency blocks designated A through 
F. As set forth in 47 CFR 24.720(b), the Commission has defined ``small 
entity'' in the auctions for Blocks C and F as a firm that had average 
gross revenues of less than $40 million in the three previous calendar 
years. Its definition of a ``small entity'' in the context of broadband 
PCS auctions has been approved by SBA. The Commission has auctioned 
broadband PCS licenses in Blocks A, B, and C. It does not have 
sufficient data to determine how many small businesses bid successfully 
for licenses in Blocks A and B. There were 90 winning bidders that 
qualified as small entities in the Block C auctions. Based on this 
information, the Commission concludes that the number of broadband PCS 
licensees affected by the decisions in the Report and Order includes, 
at a minimum, the 90 winning bidders that qualified as small entities 
in the Block C broadband PCS auction.

[[Page 65345]]

    At present, no licenses have been awarded for Blocks D, E, and F of 
broadband PCS spectrum. Therefore, there are no small businesses 
currently providing these services. However, a total of 1,479 licenses 
were to be awarded in the D, E, and F Block broadband PCS auctions, 
which was scheduled to begin on August 26, 1996. Of the 153 qualified 
bidders for the D, E, and F Block PCS auctions, 105 were small 
businesses. Eligibility for the 493 F Block licenses is limited to 
entrepreneurs with average gross revenues of less than $125 million. 
There were 114 eligible bidders for the F Block. The Commission cannot 
estimate, however, the number of these licenses that will be won by 
small entities under its definition, nor how many small entities will 
win D or E Block licenses. Given that nearly all radiotelephone 
companies have fewer than 1,000 employees and that no reliable estimate 
of the number of prospective D, E, and F Block licensees can be made, 
it assumes for purposes of this FRFA, that all of the licenses in the 
D, E, and F Block Broadband PCS auctions may be awarded to small 
entities under its rules, which may be affected by the decisions and 
rules adopted in the Report and Order.
    SMR Licensees (including paging services). Pursuant to 47 CFR 
90.814(b)(1), the Commission has defined ``small entity'' in auctions 
for geographic area 800 MHz and 900 MHz SMR licenses as a firm that had 
average annual gross revenues of less than $15 million in the three 
previous calendar years. This definition of a ``small entity'' in the 
context of 800 MHz and 900 MHz SMR has been approved by the SBA. The 
rules adopted in the Report and Order may apply to SMR providers in the 
800 MHz and 900 MHz bands that either hold geographic area licenses or 
have obtained extended implementation authorizations. The Commission 
does not know how many firms provide 800 MHz or 900 MHz geographic area 
SMR service pursuant to extended implementation authorizations, nor how 
many of these providers have annual revenues of less than $15 million. 
It assumes, for purposes of this IRFA, that all of the extended 
implementation authorizations may be held by small entities, which may 
be affected by the decisions and rules adopted in the Report and Order.
    The Commission recently held auctions for geographic area licenses 
in the 900 MHz SMR band. There were 60 winning bidders who qualified as 
small entities in the 900 MHz auction. Based on this information, the 
Commission concludes that the number of geographic area SMR licensees 
affected by the rule adopted in the Report and Order includes these 60 
small entities. No auctions have been held for 800 MHz geographic area 
SMR licenses. Therefore, no small entities currently hold these 
licenses. A total of 525 licenses will be awarded for the upper 200 
channels in the 800 MHz geographic area SMR auction. However, the 
Commission has not yet determined how many licenses will be awarded for 
the lower 230 channels in the 800 MHz geographic area SMR auction. 
There is no basis, moreover, on which to estimate how many small 
entities will win these licenses. Given that nearly all radiotelephone 
companies have fewer than 1,000 employees and that no reliable estimate 
of the number of prospective 800 MHz licensees can be made, the 
Commission assumes, for purposes of this FRFA, that all of the licenses 
may be awarded to small entities who, thus, may be affected by the 
decisions in the Report and Order.

D. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements, and Steps Taken by Agency To Minimize 
Significant Economic Impact on Small Entities and Small Incumbent LECs, 
Consistent With Stated Objectives

    Structure of the Analysis. In this section of the FRFA, the 
Commission analyzes the projected reporting, recordkeeping, and other 
compliance requirements that may apply to small entities and small 
incumbent LECs as a result of the Report and Order. As a part of this 
discussion, it mentions some of the types of skills that will be needed 
to meet the new requirements. It also describes the steps taken to 
minimize the economic impact of decisions on small entities and small 
incumbent LECs, including the significant alternatives considered and 
rejected.

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

Summary of Projected Reporting, Recordkeeping and Other Compliance 
Requirements

    Section 276(b)(1)(A) directs the Commission 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 using their payphone * * *.'' To implement section 
276(b)(1)(A), the Report and Order requires: (i) That the market set 
the price for local coin calls originated by payphones; (ii) the 
appropriate per-call compensation amount for the service provided by 
independent payphone providers (PSPs) when they originate an interstate 
call should be the same amount the particular payphone provider charges 
for a local coin call; (iii) the adoption of the ``carrier pays'' 
compensation system, which essentially places the payment obligation of 
per-call compensation on the primary economic beneficiary of payphone 
calls; (iv) that the carrier, as the primary economic beneficiary of 
payphone calls, perform the tracking of calls it receives from 
payphones; (v) that carriers initiate an annual independent 
verification of their per-call tracking functions for a period of two 
years, to ensure that they are tracking all of the calls for which they 
are obligated to pay compensation; (vi) a direct billing arrangement 
between IXCs and intraLATA carriers and PSPs; (vii) that LECs, who 
maintain the list of ANIs, have the burden of resolving disputed ANIs; 
and (viii) that an interim compensation mechanism be set up under which 
PSPs are paid compensation at a flat monthly rate. Compliance with 
these requirements may require the use of engineering, technical, 
operational, accounting, billing, and legal skills.
    The payphone industry appears to have the potential of being a very 
competitive industry once the significant subsidies and entry/exit 
restrictions which are presently distorting the competition are 
removed. However, the Commission perceives five potential areas that 
could have significant economic impact on small businesses and small 
incumbent LECs: (1) the amount of compensation paid to PSPs; (2) the 
``carrier pays'' compensation system; (3) the administration of per-
call compensation; (4) the direct billing arrangement between carriers 
and PSPs; and (5) the interim compensation mechanism.

Steps Taken To Minimize Significant Economic Impact on Small Entities 
and Small Incumbent LECs, and Alternatives Considered

    Amount of compensation: By requiring that the market set the price 
for individual coin calls originated by payphones the Report and Order 
ensures that PSPs, many of whom may be small business entities, receive 
fair compensation. The Commission considered different options in 
deciding upon this alternative. It rejected proposals for adopting a 
national uniform rate of compensation for all calls using a payphone 
because a single, nationwide rate could jeopardize the financial 
viability of a majority of

[[Page 65346]]

payphones. Rejection of this option allows for accounting for the 
significant variation in payphones in order to ensure the incentives to 
place and maintain phones in a variety of geographic areas. It also 
rejected proposals that certain types of calls should receive a 
different per-call compensation amount than others. It declined to 
interfere in marketplace transactions by providing for different 
compensation amounts for different types of calls, in instances where 
marketplace failures are limited or would have minimal impact on 
consumer welfare. It does not perceive the need to intervene in an 
apparently structurally competitive industry.
    Many commentators, notably the IXCs, contend that marginal cost of 
originating a payphone call should be used as the basis for 
compensating PSPs. The Commission concluded that use of a marginal cost 
standard or any closely related TSLRIC standard would leave PSPs under 
compensated, because such cost standards do not permit the recovery of 
any of a PSPs' fixed costs, which make up the bulk of a PSP's costs. It 
also rejected, for similar reasons, suggestions that current local coin 
rates be used as a surrogate for per-call compensation. Local coin 
rates are not necessarily fairly compensatory. Local coin rates in some 
jurisdictions may not cover the marginal cost of service and therefore, 
would not fairly compensate the PSPs.
    This ``market sets the price'' approach provides flexibility. Some 
PSPs may find it advantageous to set coin rates as low as $.10 per call 
in select locations, perhaps as promotions to enhance their brand 
names. PSPs in other locations may choose to set the coin rate higher, 
e.g. $.35 or $.40 per call. The Commission expects its action to 
minimize regulatory burdens, expedite and simplify negotiations, and 
minimize economic impacts through lower transaction costs.
    The Commission rejected the proposal of RBOCs and some independent 
payphone providers to use AT&T O+ commissions as a measure of fair 
value of the service provided by independent payphone providers when 
they originate an interstate call. These commissions may include 
compensation for factors other than the use of the payphone, such as a 
PSP's promotion of the OSP through placards on the payphone. In the 
absence of reliable data, the appropriate per-call compensation amount 
is whatever amount the particular payphone charges for a local coin 
call. PSPs, IXCs, subscriber 800 carriers, and intraLATA carriers, many 
of whom may be small business entities, may find it advantageous to 
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 because it 
will grant parties in the payphone industry some flexibility and allow 
them to take advantage of technological advances.
    Payment of compensation. Various commenters, including small IXCs 
and paging services proposed that the Commission should adopt the 
``carrier pays'' system. The Commission rejected proposals to adopt 
``caller pays'' and ``set use fee'' systems, because it believe that 
they would involve greater transaction costs which can pose particular 
burdens for small businesses. It considered various alternatives to 
adopt the ``carrier pays'' system for per-call compensation because it 
places the payment obligation on the primary economic beneficiary in 
the least burdensome, most cost-effective manner. All carriers that 
receive calls from payphones are required to pay per-call compensation, 
whether they are IXCs or intraLATA carriers. The ``carrier pays'' 
system gives the carriers the broadest latitude on how to recover the 
costs of payphone compensation, whether through increased rates to all 
or particular customers, through direct charges to access code call or 
subscriber 800 customers, or through contractual agreements with 
individual customers, thereby involving fewer transaction costs. In 
addition, under the carrier pays system, individual carriers have the 
option of recovering either a different amount from their customers or 
no amount at all.
    However, in the interests of administrative efficiency and lower 
costs, the Commission requires that facilities based carriers should 
pay the per-call compensation for calls received by their reseller 
customers. This would permit competitive facilities based carriers to 
negotiate contract provisions that would require the reseller to 
reimburse the carrier. The Commission believes its actions will 
expedite and simplify negotiations, minimize regulatory burdens and the 
impact of its decisions for all parties, including small entities.
    Administration of per-call compensation. The Commission considered 
various proposals to determine who should provide call tracking. The 
Report and Order requires IXCs and intraLATA carriers, as primary 
economic beneficiary of payphone calls, to track the calls it receives 
from payphones. The carrier has the option of performing the function 
itself or contracting out these functions to another party, such a LEC 
or clearinghouse. The Commission recognizes that tracking capabilities 
vary from carrier to carrier and it may be appropriate for some 
carriers to pay compensation at a flat rate basis until per-call 
tracking capabilities are put into place. Neither LECs nor PSPs are 
primary economic beneficiaries of payphone calls and PSPs do not 
universally have call-tracking capabilities. However, LECs, PSPs, and 
carriers receiving payphone calls should be able to take advantage of 
each others' technological capabilities through the contracting 
process.
    In view of current difficulties in tracking such calls, the 
Commission concluded that a transition period is warranted. By 
permitting carriers to contract out their per-call tracking 
responsibility, and by allowing a transition period for tracking 
subscriber 800 calls, it has taken appropriate steps to minimize the 
per-call tracking burden on small carriers. In addition, to parallel 
the obligation 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.
    The Commission concluded that carriers should be required to 
initiate an annual independent verification of their per-call tracking 
functions for a period of two years, to ensure that they are tracking 
all of the calls for which they are obligated to pay compensation. This 
would facilitate the prompt and accurate payment of all per-call 
compensation. It believes these actions will foster opportunities for 
small entities to gain access to such information without requiring 
investigation or discovery proceedings, and reduce delay and 
transaction costs.
    To establish minimal regulatory guidelines for the payphone 
industry regarding resolution of disputed ANIs, the Commission 
concluded that LECs who maintain the list of ANIs must work with both 
carrier-payors and PSPs to resolve disputes more efficiently and 
quickly for all parties concerned. This provides LECs with the 
incentive, which they do not currently have, to provide accurate and 
timely verification of ANIs for independently provided payphones. 
Additionally, no other party has the information more readily 
available. The Commission expects this action to assist all parties, 
including small entities, expedite and simplify negotiations, and help 
equalize bargaining power.
    Each time a caller dials a subscriber 800 number, the PSP will also 
levy a charge which may be paid directly by the IXC, but will 
eventually be passed through to the 800 subscriber, either on

[[Page 65347]]

a per-call basis or in the form of higher per minute rates. 
Establishment of the requirement that PSPs inform these subscribers of 
the price of the call they are deciding to accept, provide subscribers 
with the opportunity to accept or decline to accept the call based on 
the cost. Without the requirement, the PSP would have the ability to 
charge a high amount in the face of the subscriber's lack of 
information. The Commission expects its action to facilitate good faith 
negotiations, and minimize regulatory burdens and the impact of its 
decisions for all parties, including small entities.
    While incumbent LECs in many jurisdictions currently do not charge 
payphone callers for ``411'' calls made from their own payphones, the 
LECs charge independent PSPs for directory assistance calls made from 
their phones. The PSPs are not always allowed by the state to pass 
those charges on to callers, which can pose particular burdens for 
them. In the Report and Order, the Commission concluded that, to ensure 
fair compensation for ``411'' and other directory assistance calls from 
payphones, a PSP should be permitted to charge its local coin rate for 
the service, although the PSP may decline to charge for this service if 
it chooses. In addition, it concluded 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. The 
Commission believes its action will facilitate the development of 
competition.
    The direct billing arrangement between IXCs and intraLATA carriers 
and PSPs adopted in the Report and Order places the burden of billing 
and collecting information on the parties who benefit the most from 
calls from payphones: carriers and PSPs. Carriers must send to each PSP 
a statement indicating the number of toll-free and access code calls 
received from that PSP's payphones. The carrier-payor has the option of 
using clearinghouses, similar to those that exist for access code call 
compensation, or to contract out the direct-billing arrangement 
associated with the payment of compensation. The Commission expects its 
action will foster opportunities for small entities to gain access to 
such information without requiring investigation or discovery 
proceedings.
    Interim compensation mechanism. The Commission considered various 
proposals regarding the feasibility of implementing an interim 
compensation mechanism before final rules go into effect. Because IXCs 
and intraLATA carriers are not required to track individual calls until 
October 1, 1997, it concluded that PSPs should be paid monthly 
compensation on a flat monthly rate. It expects that the flat rate 
obligation will be of administrative convenience for all parties 
involved, including small businesses.

Reclassification of LEC-Owned Payphones

Summary of Projected Reporting, Recordkeeping and Other Compliance 
Requirements

     Section 276(b)(1)(B) directs the Commission to ``discontinue the 
intrastate and interstate carrier access charge payphone service 
elements and payments * * * 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. The Report and Order requires incumbent LECs to (1) 
classify their payphones as detariffed and deregulated CPE; (2) provide 
to PSPs nondiscriminatory access to unbundled central office coin 
transmission services and certain other services the LECs provide to 
their own payphones, and must file tariffs for central office coin 
services and those incumbent LECs that are not subject to price cap 
regulation must submit cost support for their central office coin 
service; (3) transfer their payphone assets to unregulated accounts or 
affiliates at the market value of the ``payphone going concern,'' by 
April 15, 1997, and obtain independent appraisal of the fair market 
value to submit to the Common Carrier Bureau within 180 days of the 
effective date of the Report and Order; and (4) reduce their interstate 
CCL charges by an amount equal to the interstate allocation of payphone 
costs currently recovered through those charges, and file revised CCL 
tariffs reflecting the changed rate structures. Compliance with these 
requirements may necessitate the use of engineering, technical, 
operational, accounting, billing, and legal skills.
    Some of the smaller incumbent LECs may find difficult the 
administrative burdens of reclassifying payphones as CPE, transferring 
payphone assets to unregulated accounts, and filing new tariffs. 
Therefore, if a requesting carrier, which may be a small entity, seeks 
access to an incumbent LEC's unbundled elements, the requesting carrier 
is required to compensate the incumbent LEC for any costs incurred to 
provide such access.

Steps Taken To Minimize Significant Economic Impact on Small Entities 
and Small Incumbent LECs, and Alternatives Considered

    The deregulation of LEC payphones is essential to promoting 
competition in the payphone industry. The Commission rejected several 
alternatives in making this determination, including proposals 
suggesting that the Commission (1) should allow smaller LECs to choose 
whether or not to deregulate their payphones; and (2) should impose a 
structural separation requirement for incumbent LEC payphones. The 
establishment of minimum national requirements for discontinuation of 
payphone subsidies from basic exchange and exchange access revenues 
should facilitate negotiations and reduce regulatory burdens and 
uncertainty for all parties, including small entities and small 
incumbent LECs. National requirements may also allow new entrants, 
including small entities, to take advantage of economies of scale.
    By requiring the incumbent LECs to offer individual central office 
coin transmission services to PSPs on a nondiscriminatory, public, 
tariffed offering, new entrants, which may include small entities, 
should have access to the same technologies and economies of scale and 
scope that are available to incumbent LECs. This will permit 
competitive payphone providers, some of whom are small business 
entities, to offer payphone services using either instrument 
implemented ``smart payphones'' or ``dumb'' payphones that utilize 
central office coin services. The Commission rejected the proposal 
suggesting that the Commission require incumbent LECs to provide on a 
nondiscriminatory basis all the services that they provide to their own 
payphone operations or require incumbent LECs to perform joint 
marketing of the payphone operations of other providers. Instead, it 
requires only that the incumbent LEC offer the following services on a 
nondiscriminatory basis if it provides such services to its own 
payphone operations: fraud protection, special numbering assignments, 
and installation and maintenance of basic payphone services. Rejection 
of this alternative will allow small incumbent LECs to distinguish 
certain services from services offered by other payphone providers. The 
Commission's actions in this area could decrease entry barriers for 
small business entities and provide

[[Page 65348]]

reasonable opportunities for all payphone service providers to provide 
service.

Ability of Payphone Service Providers To Negotiate With Location 
Providers on the Presubscribed Intralata Carrier

Summary of Projected Reporting, Recordkeeping and Other Compliance 
Requirements

    Section 276(b)(1)(E) directs the Commission to ``provide for all 
payphone service providers to 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 
intraLATA calls from their payphones.'' The Report and Order grants to 
all payphone service providers, including incumbent LECs, the right to 
negotiate with location providers concerning the intraLATA carriers 
presubscribed to their payphones. It also preempts any state 
regulations mandating the routing of intraLATA calls to the incumbent 
LEC. Compliance with these requirements should not necessitate the use 
of additional skills, since such skills are already used in 
negotiations concerning the interLATA carriers presubscribed to 
payphones.
    Allowing all payphone service providers to negotiate with location 
providers concerning the intraLATA carriers presubscribed to their 
payphones could have a positive economic impact on payphone providers 
who are small business entities by allowing them flexibility to create 
favorable contract terms. Small incumbent LECs may suffer some negative 
economic impact because intraLATA calls will no longer be routinely 
routed to them.

Steps Taken To Minimize Significant Economic Impact on Small Entities 
and Small Incumbent LECs, and Alternatives Considered

    State regulations that require routing of intraLATA calls to the 
incumbent LEC are preempted by the Report and Order, thereby creating a 
national rule allowing all payphone service providers to negotiate with 
location providers concerning the intraLATA carriers presubscribed to 
their payphones. A national rule should facilitate negotiations and 
reduce regulatory burdens and uncertainty for all parties, including 
small entities and small incumbent LECs. The Commission's actions in 
granting to all payphone providers the same ability to negotiate with 
location providers on the selection of the intraLATA carrier 
presubscribed to the payphone will facilitate the development of 
competition.

Requiring LECS To Provide Dialing Parity for Payphones

Summary of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The Report and Order concludes that the dialing parity requirements 
of section 251(b)(3) should extend to all payphone location providers 
and that the interLATA carrier unblocking requirements established in 
TOCSIA should be extended to all local and long-distance calls. The 
Report and Order requires that the technical and timing requirements 
established pursuant to section 251(b)(3) and section 271(c)(2)(B) 
should apply equally to payphones. Compliance with these requirements 
may require the use of engineering, technical, and operational skills.
    Requiring the LECs to extend dialing parity to payphone location 
providers may burden some small LECs.
    Steps Taken to Minimize Significant Economic Impact on Small 
Entities and Small Incumbent LECs, and Alternatives Considered
    While this requirement may burden some small LECs, such burdens are 
far outweighed by the benefits gained from competition among local 
exchange and long distance carriers, many of whom are small business 
entities. The Commission rejected several alternatives in making this 
determination, including: (1) A proposal suggesting that the states be 
given discretion to determine when and how dialing parity for intraLATA 
calls should be applied to payphones; (2) a proposal requiring LECs to 
provide dialing parity for payphones prior to all other phones; and (3) 
not altering the existing anti-blocking rules under TOCSIA. Rejection 
of these alternatives helps to ensure that small LECs will not be 
unnecessarily burdened. Furthermore, establishing a national rule 
should facilitate negotiations and reduce regulatory burdens and 
uncertainty for all parties, including small entities and small 
incumbent LECs.

E. Commission's Outreach Efforts to Learn of and Respond to the Views 
of Small Entities Pursuant to 5 U.S.C. 609

    The Commission staff conducted several ex parte meetings with 
numerous outside parties and their counsel, several of whom may qualify 
as small business entities, during the pendency of the rulemaking to 
identify and discuss various aspects of the implementation of section 
276. For example, the Commission received ex parte suggestions and 
comments from the American Public Communications Council, a trade 
association that represents independent payphone providers, many of 
whom qualify as small business entities. It has attempted, to the 
furthest possible extent, to take into account as many of these 
concerns as possible in promulgating the rules contained in the Report 
and Order.

F. Report to Congress

    The Commission shall send a copy of this FRFA, along with the 
Report and Order, in a report to Congress pursuant to the Small 
Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 
801(a)(1)(A).

Order on Reconsideration

    The following Final Regulatory Flexibility Analysis on 
Reconsideration (FRFA on Reconsideration) addresses only those issues 
that the Commission modified in the Order on Reconsideration in the 
Implementation of the Pay Telephone Reclassification and Compensation 
Provisions of the Telecommunications Act of 1996 (1996 Act). 
Specifically, this FRFA on Reconsideration addresses modification of 
tariffing requirements for payphone services, calculating carrier 
common line (CCL) charges, and amendments to Part 69 of the 
Commission's rules. The Commission also incorporates by reference the 
Report and Order released on September 20, 1996, CC Docket No. 96-128, 
91-35, FCC 96-388 (61 FR 52307, October 7, 1996), and the Final 
Regulatory Flexibility Analysis (FRFA).

1. Need for and Objectives of the Order on Reconsideration and the 
Rules Adopted

    The Order on Reconsideration requires no changes to the FRFA in the 
original Report and Order.
    The objective of the rules adopted in the Order on Reconsideration 
is ``to promote competition among payphone service providers and 
promote the widespread deployment of payphone services to the benefit 
of the general public.'' In doing so, the Commission is mindful of the 
balance that Congress struck between this goal of bringing the benefits 
of competition to consumers and its concern for the impact of the 1996 
Act on small businesses.

2. Summary of Petitions for Reconsideration and/or Comments Relating to 
Small Entities

    No party sought reconsideration of the FRFA in this proceeding. The 
National

[[Page 65349]]

Telephone Cooperative Association (NTCA), however, requested a 
clarification of the requirement that LECs file coin transmission 
services in their access service tariffs may be satisfied by small LECs 
through participation in a national tariff filed by National Exchange 
Carrier Association (NECA) and recover its costs through a NECA 
administered pool. If not, NTCA asked for reconsideration of the 
decision to require federal tariffing. Moreover, NTCA also requested 
the Commission to clarify that the tariff provisions to be filed be 
limited to services added to enable payphone services, such as counting 
and control of coins and fraud protection, but do not include loops and 
switching functions, and to clarify the costing methodology to be used.

3. Description and Estimate of the Number of Small Entities Affected by 
the Order on Reconsideration

    The modifications in the Order on Reconsideration apply only to 
incumbent LECs. The estimates of the number of small entities affected 
by the Order on Reconsideration remain the same as the estimates 
detailed in the FRFA in the Report and Order.

4. Tariffing Requirements for Unbundling of Payphone Services

i. Summary of Projected Reporting, Recordkeeping and Other Compliance 
Requirements on Reconsideration
    The Order on Reconsideration modifies the federal tariffing 
provisions to require that LECs must file tariffs with the states 
regarding the provision of nondiscriminatory basic payphone services 
that enable LECs and independent providers to provide payphone service 
using either ``dumb'' or ``smart'' payphones. Any basic network 
services or unbundled features used by a LECs operations to provide 
payphone services must be similarly available to independent payphone 
providers on a nondiscriminatory, tariffed basis and must be tariffed 
in the state and federal jurisdiction. The tariffs for basic payphone 
services and any unbundled features that LECs provide to their own 
payphone services must be: (1) Cost based; (2) consistent with the 
requirements of section 276 with regard, for example, to the removal of 
subsidies from exchange and exchange access services; and (3) 
nondiscriminatory. States unable to review these tariffs for compliance 
with section 276 and other requirements set forth in the Order may 
require the LECs operating in their state to file these tariffs with 
the Commission. Compliance with these requirements may necessitate the 
use of engineering, technical, operational, accounting, billing, and 
legal skills.
ii. Steps Taken to Minimize Significant Economic Impact on Small 
Entities and Small Incumbent and Independent LECs, and Alternatives 
Considered
    This tariff filing requirement is not unduly burdensome on small 
entities in that LECs are now required to file their payphone service 
tariffs with the states in the same manner as they have been filing 
tariffs for other telephone services with the states. Additionally, to 
provide maximum flexibility and the least burdensome approach, the 
Order on Reconsideration delegates to the Common Carrier Bureau the 
authority to determine the least burdensome method for small carriers 
to comply with the requirements for filing of tariffs with the 
Commission, such as those suggested by the NTCA.

5. Amendments to Part 69

i. Summary of Projected Reporting, Recordkeeping and Other Compliance 
Requirements on Reconsideration
    The Order on Reconsideration clarifies and modifies the method for 
calculating the carrier common line charge to remove payphone costs and 
to adjust for additional subscriber line revenues. The Order clarifies 
and revises the exogenous cost adjustment mechanism adopted in the 
Report and Order and requires LECs to subtract the payphone costs 
described in Sec. 69.501(d) of the Commission Rules associated with 
payphone lines, prior to developing the payphone cost allocator. LECs 
proposing to subtract payphone line costs or inmate payphone costs for 
the purpose of their PCI adjustment are required to provide complete 
details to demonstrate that their line cost calculations are 
reasonable. LECs can achieve application of multiline subscriber line 
charges (SLCs) to payphone lines through recalculating and revising 
carrier CCL charges pursuant to the CCL formula in Sec. 61.46(d). 
Compliance with these requirements may necessitate the use of 
engineering, technical, operational, accounting, billing, and legal 
skills.
ii. Steps Taken to Minimize Significant Economic Impact on Small 
Entities and Small Incumbent and Independent LECs, and Alternatives 
Considered
    The requirement that LECs proposing to subtract payphone line costs 
or inmate payphone costs for the purpose of their PCI adjustment must 
provide complete details to demonstrate that their line cost 
calculations are reasonable, averts discrimination, facilitates the 
growth of competition, and ensures that there is no unnecessary burden 
for all parties, including small entities and small incumbent LECs.

6. Report to Congress

    The Commission shall send a copy of this FRFA on Reconsideration, 
along with the Order on Reconsideration, in a report to Congress 
pursuant to the Small Business Regulatory Enforcement Fairness Act of 
1996, 5 U.S.C. 801(a)(1)(A).

Summary of Order on Reconsideration

I. Background

    1. On September 20, 1996, the Commission adopted 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 adopted 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[.]''
    2. In the Report and Order, the Commission noted that the 1996 Act 
fundamentally changes telecommunications regulation. The Commission 
stated that 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.'' To this end, the Commission advanced the twin goals 
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

[[Page 65350]]

the general public * * *''. The Commission sought 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 recognized 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 
concluded that it would 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.
    3. On October 21, 1996, a number of parties filed petitions 
requesting that the Commission reconsider or clarify the rules adopted 
in the Report and Order. These petitions focused on the Commission's 
conclusions regarding the following: the status of competition in the 
payphone marketplace; the use of market-based compensation for payphone 
calls; the appropriate per-call compensation amount for various types 
of calls; the Commission's authority to let the market set local coin 
rates; state entry and exit regulations; who should pay the per-call 
compensation; how calls should be tracked; how per-call compensation 
payments should be administered; the amount and appropriate payors of 
the interim flat-rate compensation; the valuation of local exchange 
carriers (``LECs'') payphone assets; federal tariffing for payphone-
related services; and various other requirements relating to payphones. 
In the Order on Reconsideration, the Commission addresses each of these 
issues and concludes that the petitions for reconsideration should be 
denied, with two limited exceptions, because it finds that the 
petitions contain no new evidence or arguments not contemplated by the 
conclusions in the Report and Order. On two issues, the Commission 
grants requests for reconsideration and modifies: (1) The requirements 
for LEC tariffing of payphone services and unbundled network 
functionalities; and (2) the requirements for LECs to remove 
unregulated payphone costs from the carrier common line charge and to 
reflect the application of multiline subscriber line charges to 
payphone lines. The Commission also clarifies several issues addressed 
in the Report and Order.

II. Issues

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

i. Payphone Calls Subject to This Rulemaking and Compensation Amount
    4. Defining Fair Compensation. The Commission denies requests that 
it reconsider its conclusions in the Report and Order about the 
existence of a competitive payphone marketplace. The Commission 
concludes that the policies it adopted in the Report and Order will 
promote competition in a way that will benefit the general public. 
Because robust competition will take some time to develop, it provided 
in the Report and Order for a transition period before market-based 
pricing becomes effective. During this transition period, ``states may 
continue to set the local coin rate in the same manner as they 
currently do.'' After this transition period, the Commission may, at 
its option, ``ascertain the status of competition in the payphone 
marketplace,'' and states may recommend possible market failures to the 
Commission for investigation. The Commission concludes that, while the 
payphone marketplace may not be currently fully competitive, the rules 
adopted in the Report and Order will bring about competition, and the 
phased-in approach to market-based pricing will allow all parties to 
make the appropriate adjustments over time. In addition, it concludes 
that by monitoring the status of competition in the payphone 
marketplace, and by allowing states to refer potential market failures 
to it, it has ensured that market failures, particularly those arising 
from so-called locational monopolies, will be addressed. Because 
payphone callers in most cases are free to seek out alternative 
payphones in nearby locations or able to make calls from portable 
phones, it rejects arguments by some petitioners that all payphones 
will become individual unregulated monopolies with monopoly-level 
pricing.
    5. Ensuring Fair Compensation. The Commission disagrees with MCI 
that its conclusion in the Report and Order concerning the ability of 
the BOCs to receive per-call compensation for certain 0+ calls 
interferes with pre-existing contracts, as prohibited by section 
276(b)(3). First, it found in the Report and Order that section 276 
mandates that the Commission provide for fair compensation for all 
calls originated by payphones, including 0+ calls for which there is no 
contract that compensates the payphone service provider (``PSP''). 
Second, it finds that because pre-existing contracts are grandfathered 
by section 276(b)(3), the BOCs ``would not otherwise receive any 
compensation for 0+ calls[,]'' because the contracts for such calls are 
between the location provider and the payphone's presubscribed operator 
service provider (``OSP''). Third, it concludes that, without 
disturbing existing contracts that cover 0+ calls, the BOCs should be 
able to receive the per-call compensation established by the Report and 
Order, ``so long as they do not otherwise receive compensation for * * 
* originating 0+ calls.'' Finally, it notes that, as the RBOCs point 
out, MCI does not argue that the pre-existing contracts between the 
location providers and the OSPs for BOC payphones are nullified or 
void. In sum, the Commission concludes that its determination in the 
Report and Order concerning compensation for 0+ calls originated by BOC 
payphones is required by the plain language of section 276(b)(1)(A), 
which directs it provide fair compensation for ``each and every 
completed intrastate and interstate call[,]'' and this determination 
does not interfere with existing contracts in a manner that is 
prohibited by section 276(b)(3). Accordingly, it denies MCI's request 
for reconsideration of this requirement.
    6. In response to the RBOCs' request that it clarify that the BOCs 
are able to collect per-call compensation for 0+ calls originated from 
BOC inmate payphones, the Commission concludes that such per-call 
compensation is warranted when the BOCs do not otherwise receive 
compensation pursuant to a contract. This clarification is consistent 
with the conclusion that BOCs should receive per-call compensation on 
0+ calls from their payphones in the absence of receiving compensation 
under a contract. In addition, the clarification is consistent with its 
conclusion in the Report and Order that inmate payphones are to receive 
the same compensation amount as other payphones, in the absence of a 
contract that prescribes a compensation methodology. The Commission 
also clarifies that inmate payphones, whether or not they are 
maintained by the BOCs, are not eligible for interim flat-rate 
compensation, because such payphones are not capable of originating 
either access code or subscriber 800 calls, and the interim 
compensation is provided only for those two types of calls. Because the 
level of 0+ commissions paid pursuant to contract on operator service 
calls is beyond the scope of both section 276 and this

[[Page 65351]]

proceeding, the Commission declines to require that LECs make 
available, on a nondiscriminatory basis, any commission payments 
provided to their own payphone divisions in return for the 
presubscription of operator service traffic to the LEC.
    7. The Commission concluded in the Report and Order that it has the 
requisite 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 calls. The Commission notes that it has 
relied upon its authority under these two sections of the Act, because 
it had concluded that there was ``no evidence of congressional intent 
to leave these calls uncompensated under Section 276.'' In addition, it 
found that a payphone performs similar functions in originating a call, 
regardless of the call's destination. Therefore, it concludes that its 
determination in the Report and Order, pursuant to sections 4(i) and 
201(b) of the Act, is in the interest of equity and is necessary to 
enact a comprehensive regulatory framework to compensate all payphone 
calls that are not otherwise compensated pursuant to contract. While 
MCI argues that it may be difficult for carriers to recover the costs 
of per-call compensation on international calls, the Commission 
concludes that carriers and PSPs may negotiate differing compensation 
amounts, which take into account varying costs, for different types of 
calls.
    8. Completed Calls. Because it would be an interpretation 
inconsistent with its responsibility under section 276, the Commission 
denies the request by Cable & Wireless that the Commission allow 
carriers to treat calls re-originated within the carrier's platform as 
a single compensable call. It had concluded in the Report and Order 
that, to comply with its statutory mandate that ``each and every 
completed intrastate and interstate call'' be compensated, ``multiple 
sequential calls made through the use of a payphone's '#' button should 
be counted as separate calls for compensation purposes.'' Although 
Cable & Wireless states that this approach is technically difficult, 
the Commission notes that the requirement that carriers track 
individual calls does not become effective for one year. Carriers will 
be able to use this period to address these types of technical 
difficulties with respect to their tracking obligations.
    9. The Commission declines to require carriers, if they choose to 
block calls from particular payphones, to provide an announcement to 
payphone callers indicating that it is not the payphone equipment that 
is blocking the call. Although APCC and Peoples suggest that callers 
may become confused and could possibly damage the payphone equipment, 
the Commission concludes that PSPs are better equipped to take the 
necessary steps, including posting notices, to educate callers at their 
payphones and protect their equipment. The Commission also declines to 
reconsider its conclusion, as urged by AirTouch, that carriers are 
permitted to block calls originated by payphones. It concludes that 800 
subscribers that are concerned that callers will not be able to reach 
them from payphones should contact their carriers and negotiate 
contract terms that will ensure that the 800 subscribers are able to 
receive such calls. The Commission declines to require the PSP to 
provide a coin-deposit mechanism for calls that are blocked by 
carriers.
    10. The Commission disagrees with MCI's argument that PSPs should 
not be compensated for subscriber 800 calls because, according to MCI, 
they have the option of blocking these calls if they are concerned 
about a lack of compensation. MCI argues further that this approach 
would be inconsistent with the Commission's conclusion in the Report 
and Order that incoming calls need not be compensated because they can 
be blocked. First, the Commission concluded in the Report and Order 
that the average payphone originates a substantial number of subscriber 
800 calls, in excess of 85 such calls per month. In contrast, there was 
no showing that the average payphone necessarily receives any incoming 
calls in a typical month. Second, while the Commission recognized in 
the Report and Order that carriers are permitted to block subscriber 
800 calls, it did not address blocking of subscriber 800 calls by PSPs. 
It notes, however, that, if a PSP blocks access code calls (including 
1-800 access numbers), it is in violation of its rules under Telephone 
Operator Consumer Services Improvement Act (``TOCSIA''). Third, the 
Commission concluded in the Report and Order that section 276's mandate 
that it provide fair compensation for ``each and every completed 
intrastate and interstate call'' requires it to provide such 
compensation for subscriber 800 calls. For these reasons, the 
Commission rejects MCI's request that it reconsider its decision to 
compensate subscriber 800 calls.
    11. Local Coin Calls. The Commission finds that section 276 gives 
the Commission significant authority to ``take all actions necessary'' 
to ``promote the widespread deployment of payphone services to the 
benefit of the general public'' and, more specifically, to ensure fair 
compensation for ``each and every completed intrastate and interstate 
call.'' In enacting section 276 after section 2(b), and squarely 
addressing the issue of interstate and intrastate jurisdiction, 
Congress intended for section 276 to take precedence over any contrary 
implications based on section 2(b). While section 2(b) of the Act 
reserves to the states jurisdiction over intrastate communications, 
Congress can make an exception to that statutory rule whenever it 
chooses, and the exception in section 276 is broad. As stated in the 
Conference Report: ``In crafting implementing rules, the Commission is 
not bound to adhere to existing mechanisms or procedures established 
for general regulatory purposes in other provisions of the 
Communications Act.'' Congress gave the Commission the requisite 
authority in section 276 and directed us to adopt a comprehensive 
compensation plan for payphones, and it did so in the Report and Order. 
Congress also provided that ``[t]o the extent that any State 
requirements are inconsistent with the Commission's regulations, the 
Commission's regulations on such matters shall preempt such State 
requirements.'' Contrary to an argument by Maine, the Commission 
concludes that section 276(c) eliminates any question about its 
authority to adopt a particular compensation plan, even if it 
contradicts existing state regulations. It finds that Congress's use of 
the term ``compensation'' instead of ``rates'', as argued by Maine, did 
not limit its authority to address local coin rates. It concludes that, 
because Congress gave it broad authority to enact a comprehensive 
payphone compensation plan, the term ``compensation'' in section 276 
encompasses the authority to address local coin ``rates,'' because the 
local coin rate is the only manner in which a PSP is compensated for 
local coin calls. Accordingly, the Commission denies all petitions for 
reconsideration that have as their basis arguments that the Commission 
lacks jurisdiction to deregulate local coin rates, or that the 
Commission's action constitutes unwarranted preemption.
    12. The Commission also rejects arguments that because the 
Commission chose to let the market set local coin rates in lieu of 
itself prescribing a nationwide rate or rate guidelines, that section 
10 of the 1996 Act concerning forbearance applies. It concludes that 
Congress required the Commission to adopt regulations ensuring fair

[[Page 65352]]

compensation for all payphone calls and left it to the Commission to 
determine the appropriate approach to take. Therefore, because the 
Commission adopted a comprehensive regulatory framework to ensure fair 
compensation for PSPs and will continue to have oversight over the 
payphone industry, it concludes that it did not forebear from imposing 
regulation and are not required to conduct the forbearance analysis 
required by section 10.
    13. Because section 276 gives the Commission jurisdiction to ensure 
fair compensation for ``each and every completed call'' originated by 
payphones, the Commission concludes that it has jurisdiction to impose 
a market-based rate for intrastate directory assistance calls from 
payphones. It also clarifies that PSPs are entitled to require 
consumers to deposit coins into the payphone for these calls, as they 
would any other local call. In response to the request that the 
Commission clarify that PSPs may be compensated for 0- general 
assistance calls where the caller asks for call rates or dialing 
instructions, it concludes that such a clarification is not 
appropriate, because such operator inquiries, which are distinct from 
directory assistance calls, merely seek information on how or whether 
to complete a future call and, thus, are not ``completed'' calls that 
are compensable under section 276.
    14. The Commission concludes that, contrary to arguments by certain 
states, it gave adequate notice to interested parties, in accordance 
with the Administrative Procedures Act, that it was contemplating 
action concerning local coin rates. It concludes further that this 
notice was broad enough to encompass the option it ultimately adopted: 
the determination that the market should set the per-call rate for 
local coin calls at each payphone. In the Notice, the Commission 
stated: ``We seek comment * * * on how we should exercise our 
jurisdiction under section 276. We have a range of options for ensuring 
fair compensation for these calls, and we seek comment on which option 
will ensure fair compensation for PSPs with respect to coin sent-paid 
calls.'' The Commission then discussed a number of possible options 
within that range, including setting a nationwide local coin rate. The 
use of the term ``range'' was an indication that its articulation of 
possible options in the Notice was not an exhaustive list, but merely 
defined various points within the range. The Commission was under no 
obligation to adopt the precise proposals contained in the Notice. It 
concludes that letting the market set local coin rates was within the 
range of options on which it sought comment and a logical outgrowth 
from soliciting comment on ``how we should exercise our jurisdiction 
under Section 276'' with regard to local coin rates. It notes that 
various parties responding to the Notice addressed the issue of 
Commission jurisdiction over local coin rates in their comments.
    15. In the Report and Order, the Commission stated that ``the 
market * * * is best able to set the appropriate price for payphone 
calls in the long term.'' It concludes that the record contained 
significant evidence, particularly in the comments of the RBOCs and the 
independent payphone providers, that the costs associated with each 
call from a payphone often exceed the local coin rate in a particular 
state. Therefore, it denies requests that it reconsider its conclusions 
about local coin rates because of arguments by petitioners that there 
is no evidence that local coin rates are not fairly compensatory. It 
also rejects suggestions by certain petitioners that the deregulation 
of local coin rates is not in the public interest and will be met with 
consumer antagonism. While some disruption or confusion among payphone 
callers is inevitable with any new policy, the Commission concludes 
that market-based pricing will result in a greater availability of 
payphones at more economically efficient prices, which will ultimately 
benefit callers.
    16. A number of states argue that market-based rates will not 
always lead to reasonably priced payphone services, particularly in 
situations where the PSP is a monopoly provider. Ohio PUC and Oklahoma 
CC both request approval for local coin call rate ceilings, while 
Oklahoma CC individually seeks permission to identify market failures 
to the Commission immediately. The Commission declines both to 
reconsider its conclusions and to make the modifications suggested by 
the states. It concludes that the Report and Order adequately addresses 
the possibility of market failures that would lead to local coin rates 
that are not reasonable. It made an exception to the market-based 
approach for local coin rates in those situations in which the state 
makes a showing that market-based rates are not possible due to a 
market failure. Because the Commission intended the exception to be a 
limited one, however, it concludes that a state's showing would have to 
be detailed and likely the result of a state proceeding that itself 
examined the market failure.
    17. Payphone Fraud. A number of petitioners request that the 
Commission reconsider its conclusions about payphone fraud and take 
steps to reduce the risk of fraud. In the Report and Order, the 
Commission stated that ``[w]e will aggressively take action against 
those involved in such fraud'' and detailed how we would proceed to 
address fraudulent practices.'' Without any specific factual 
circumstances before it, the Commission declines to take further steps 
that could be both costly and burdensome to all parties involved in 
payphone compensation. It states that it will continue, however, to 
monitor developments in this area and respond to specific requests for 
intervention from carriers or PSPs.
    18. In response to requests that it reconsider its conclusions 
about the definition of ``payphone,'' the Commission clarifies that for 
the first year of the payphone compensation mechanism, when 
compensation is paid on a flat-rate basis, the definition of 
``payphone,'' for compensation purposes, will be the one established in 
CC Docket No. 91-35, along with the alternative verification 
procedures. Once per-call compensation becomes effective, the 
Commission clarifies that, to be eligible for such compensation, 
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. Each payphone 
must transmit coding digits that specifically identify it as a 
payphone, and not merely as a restricted line. It also clarifies that 
LECs must make available to PSPs, on a tariffed basis, such coding 
digits as a part of the ANI for each payphone. The Commission declines 
to require PSPs to use customer-owned, coin-operated telephone 
(``COCOT'') lines, as suggested by the RBOCs, because it previously 
found that COCOT service is not available in all jurisdictions.
    19. More generally, as it stated in the Report and Order, ``a 
payphone is any telephone made available to the public on a fee-per-
call basis, independent of any 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.'' It 
clarifies that this definition of ``payphone'' excludes from the 
compensation mechanism phones in hotel rooms, dormitory rooms, or 
hospital rooms. It also concludes that, once per-call compensation 
becomes effective, LECs should provide to carrier-payors a list of 
emergency numbers, as such calls are statutorily exempt from 
compensation.
    20. Compensation Amount. The Commission denies all requests for 
reconsideration of the per-call compensation amount that it adopted in

[[Page 65353]]

the Report and Order, in which the parties argue that the amount is 
inconsistent with the cost-based approach the Commission established in 
the local competition proceeding. Although Congress could have directed 
it to adopt a particular methodology for determining fair compensation, 
Congress did not mandate a cost-based standard for compensation in 
section 276, as it did in section 251. The Commission concluded in the 
Report and Order that ``use of a purely incremental cost standard for 
all calls could leave PSPs without fair compensation for certain types 
of payphone calls, because such a standard would not permit the PSP to 
recover a reasonable share of the joint and common costs associated 
with those calls.'' In the Order on Reconsideration, the Commission 
concludes that the cost-based total element long run incremental cost 
(``TELRIC'') standard that the Commission relied upon in the local 
competition proceeding is inapplicable here, because the payphone 
industry is not a bottleneck facility that is subject to regulation at 
virtually all levels. It notes that it would be particularly burdensome 
to impose a TELRIC-like costing standard on independent payphone 
providers, who have not had previous experience with any costing 
systems. In addition, as it concluded in the Report and Order, the 
Commission finds that the payphone industry is likely to become 
increasingly competitive. It also rejects suggestions that use of a 
market-based compensation standard, in lieu of one that is cost based, 
will overcompensate PSPs. The marketplace will ensure, over time, that 
PSPs are not overcompensated. Carriers have significant leverage within 
the marketplace to negotiate for lower per-call compensation amounts, 
regardless of the local coin rate at particular payphones, and to block 
subscriber 800 calls from payphones when the associated compensation 
amounts are not agreeable to the carrier. Finally, the Commission 
states that a cost-based compensation standard could lead to a 
reduction in payphones by limiting a PSP's recovery of its costs, and 
this result would be at odds with the legislative purpose of section 
276 that the Commission ``promote the widespread deployment of payphone 
services to the benefit of the general public.''
    21. More specifically, in denying all requests for reconsideration 
of the per-call compensation amount that it adopted in the Report and 
Order, the Commission rejects the arguments that the per-call 
compensation amount adopted in the Report and Order is inconsistent 
with the cost based approach the Commission established in the local 
competition proceeding. It concludes that the cost-based TELRIC plus a 
reasonable share of common cost standard upon which the Commission 
relied in the local competition proceeding is inapplicable here for 
three reasons. First, the purpose of the cost-based standard in the 
interconnection proceeding is to enable competitors to share in the 
economies of scale, scope and density, and thus rapidly to acquire 
potentially ``bottleneck'' elements that they cannot promptly supply 
themselves, at a cost in conformance with competitive retail pricing. 
Because of the cost structure of the industry and the ability of firms 
to rapidly enter, no such urgent need to share the benefits of these 
economies appears in the present proceeding.
    22. Second, the Commission concludes that Congress's use of the 
phrase ``* * * payphone service providers are fairly compensated for 
each and every completed interstate and intrastate call * * * '' is a 
different standard than the cost based standard articulated for the 
compensation for interconnection and unbundled elements. It concludes 
that the PSP will be providing a competitive service (payphone use) and 
should therefore receive compensation equal to the market-determined 
rate for proving this service. As it noted in the Report and Order, the 
market, as it becomes competitive, should generate the a fair market-
determined compensation rate. The cost-based interconnection standard, 
on the other hand, compensates a carrier for the long run incremental 
cost of providing interconnection or the long run incremental cost of 
providing an unbundled element plus a reasonable share of the common 
costs. Since the local exchange is not yet competitive, the Commission 
could not rely on the market to set competitive rates for unbundled 
elements. In the case of payphones, the presence of multiple PSPs 
already operating in many markets, and the structure of the industry 
that allows relatively easy entry and exit, led it to conclude that it 
can rely on market forces to provide for efficient pricing of these 
services in the near future.
    23. Third, the TELRIC plus common cost standard in the local 
competition proceeding refers to the long run cost of an element or 
physical facility. Since there are relatively few common costs between 
separate facilities, TELRIC compensation will compensate a carrier for 
virtually all costs associated with providing (the services of) that 
facility. With the addition of a share of the relatively small common 
costs, the firm will be able to cover its total costs. Commenters argue 
that the Commission should apply a total service long-run incremental 
cost (``TSLRIC'') standard to only a subset of services (i.e., 
subscriber 800 and dial around calls) provided by a facility 
(payphone). In general, when several services are provided by the same 
facility, the incremental cost of providing any one service is very 
small and the common cost among these services is very large. Thus, a 
TSLRIC standard under which a carrier is compensated only for the 
incremental cost of each service individually without a reasonable 
allocation of common costs, as suggested by commenters, would not allow 
the carrier to recover the total costs of providing all of the 
services. A TSLRIC standard that yields prices that recover a 
reasonable share of joint and common costs would require the difficult 
allocation of those (large) costs among the different types of calls 
made from payphones.
    24. The Commission also denies a request that it reconsider its 
compensation rules because the Commission did not mandate a uniform 
per-call compensation amount of $.90 to $1.50 for each compensable 
call. Under the approach it established in the Report and Order, the 
market is allowed to set the compensation amount for calls originated 
by each payphone. For market-based pricing to function effectively, 
there must be some variation in compensation amounts from location to 
location. It also denies Sprint's request that it either rescind the 
Report and Order in toto or establish a per-call compensation amount of 
$0, because Sprint does not present any arguments that were not already 
considered or contemplated by the Report and Order, and a compensation 
rate of $0 would not be in accord with the Commission's responsibility 
under the statute to ensure fair compensation for all payphone calls.
    25. A number of carriers argue that the local coin rate is an 
inappropriate surrogate upon which to base per-call compensation, 
because coin calls have additional costs, such as coin collection, that 
other calls do not incur. Therefore, the carriers argue, use of the 
local coin rate will tend to overcompensate PSPs for compensable 
subscriber 800 and other calls. The Commission disagrees. In the Report 
and Order, it found that the costs of originating the various types of 
payphone calls are similar. If there are significant cost differences 
between local coin calls and other types of calls,

[[Page 65354]]

however, it concludes that, over time, the market will address these 
differences and dictate appropriate per-call compensation amounts for 
each type of payphone call. The Commission also concludes that the 
market will address likely cost variations in originating local coin 
calls from payphone to payphone. In this environment of similar-but-
not-identical costs in originating the various types of payphone calls, 
it concluded in the Report and Order that the local coin rate is a 
default rate that applies in the absence of a contract between the 
carrier-payor and the PSP. Thus, it is a starting point for 
negotiations toward a mutually agreeable per-call compensation amount, 
not a fixed compensation rate. It concludes that those carriers that 
are concerned about overcompensating PSPs for subscriber 800 calls have 
substantial leverage, by way of the ability to block these calls from 
all or particular payphones, to negotiate with PSPs about the 
appropriate per-call compensation amount. Accordingly, the Commission 
denies those requests for reconsideration that are premised on the 
local coin rate being an inappropriate default compensation amount. It 
also declines to provide for downward adjustments in the default 
compensation amount to offset possible strategic pricing by PSPs; the 
carriers can make such provisions themselves through the contracting 
process.
    26. The Commission denies the petitions for reconsideration filed 
by the inmate PSPs. The inmate PSPs argue that they should be entitled 
to receive a special $.90 per-call compensation amount because their 
costs of service are higher than those of other PSPs. The inmate PSPs 
argue further that intrastate 0+ calls are frequently subject to state 
rate caps that are equivalent to the large carriers' standard collect 
rates for intraLATA calls. The Commission notes that section 276(d), 
which contains the only mention of inmate phones in the payphone 
statute, states that ``the term `payphone service' means the provision 
of public or semi-public pay telephones, the provision of inmate 
telephone service in correctional institutions, and any ancillary 
services.'' In the Report and Order, it elected to treat inmate 
payphones in the same manner as all other payphones, including semi-
public payphones. Under this approach, inmate payphones are entitled to 
receive the default compensation rate for any call that is not 
otherwise compensated by contract or through some other arrangement. 
Because virtually all calls originated by inmate payphones are 0+ 
calls, inmate PSPs tend to receive their compensation pursuant to 
contract, which makes them ineligible to receive a per-call 
compensation amount. As the Commission found in the Report and Order, 
however, whenever a PSP is able to negotiate for itself the terms of 
compensation for the calls its payphones originate, then the statutory 
obligation to provide fair compensation is satisfied. It notes that, in 
response to their arguments about state-mandated intrastate toll rate 
ceilings, the inmate petitioners may remind the states that section 
276's mandate that PSPs be fairly compensated for all payphone calls is 
an obligation that is borne both by the Commission and the states. If 
an inmate provider believes, after making its arguments to a particular 
state in light of section 276 and the instant proceeding, that it is 
not receiving fair compensation for intrastate toll calls originated by 
its inmate payphones, it may petition the Commission to review the 
specific state regulation of which it complains.
    27. AT&T and MCI request that the Commission clarify that state 
compensation requirements for intrastate access code calls are 
preempted by the compensation mechanism adopted in the Report and 
Order, as of the effective date of interim compensation. On the other 
hand, APCC argues that the Commission should not preempt forms of 
compensation that are outside the scope of our compensation rules. The 
Commission concludes that, in conjunction with reviewing, and removing 
if necessary, those regulations that affect competition, such as entry 
and exit restrictions, pursuant to the Report and Order, states should 
review their compensation regulations to ensure that PSPs are not 
receiving double compensation for certain types of calls. After a 
reasonable period for such a review, if any party believes that a 
specific state compensation rule conflicts with the Commission's rules, 
that party may file a petition for a declaratory ruling, and the 
Commission will evaluate the state compensation regulation at that 
time. Accordingly, the Commission declines to make the clarification 
requested by AT&T and MCI.
ii. Entities Required To Pay Compensation
    28. As it stated in the Report and Order, the Commission concludes 
that of the two approaches initially proposed in the Notice, the 
carrier-pays approach and the set-use fee, the carrier-pays approach 
``places the payment obligation on the primary economic beneficiary in 
the least burdensome, most cost effective manner.'' In the case of 
compensable access code or subscriber 800 calls where the call utilizes 
a particular carrier no matter the telephone that originates the call, 
the primary economic beneficiary is the carrier that carries the call. 
In addition, with specific regard to subscriber 800 calls, the 
Commission concludes that it is the called party that receives greater 
economic benefit from the payphone call than the calling party. The 
Commission concludes that the interexchange carrier (``IXC'') can best 
pass on, in the most cost effective manner, any charges for compensable 
calls to the appropriate customer. Therefore, it rejects the caller-
pays, coin-deposit approach to compensation, as proposed by commenters, 
because it would unduly burden transient payphone callers. The 
Commission also notes that TOCSIA prohibits it from prescribing that 
approach for interstate access code calls. Contrary to the arguments 
raised by petitioners, it concludes that its rejection of a caller-
pays, coin-deposit approach must stand. The Commission has long held 
that callers should not be required to deposit coins when making a call 
that is otherwise billed to an account. It notes that coinless calling, 
including use of coinless payphones, has proliferated in recent years. 
It concludes that when transient callers have an expectation that they 
may avoid carrying coins to make payphone calls, because they will be 
making only calls billed to a calling card or to a subscriber 800 end-
user, it would be burdensome and increase transaction costs to impose a 
compensation approach that would require callers to acquire coins to 
make such calls. The Commission concludes further that the ability to 
make coinless calls from payphones is a convenience that transient 
callers value.
    29. While the prohibition in TOCSIA against advance payment by 
callers, as cited in the Report and Order, does not apply to subscriber 
800 calls and, therefore, is not dispositive, the Commission concludes 
that the statute's direction that it avoid prescribing such a payment 
mechanism for a particular class of payphone calls (i.e. interstate 
access code calls) is consistent with the Commission's long-standing 
policy of not burdening callers with the deposit of coins when making a 
call that is otherwise billed to an account. In addition, if the 
Commission were to prescribe a coin-deposit compensation approach, 
TOCSIA would require the PSP to charge the end-user no more for making 
an access code call than it would charge for a call to the

[[Page 65355]]

presubscribed OSP. Thus, use of a coin-deposit compensation approach 
would require the PSP to impose a charge for access to the 
presubscribed OSP. More recently, in the 1996 amendments to the Act, 
Congress prohibited carriers from assessing the calling party a charge 
for completing any 800 number call. While this provision of the Act 
does not expressly apply to PSPs, the Commission concludes that section 
228(c)(7) provides persuasive evidence that Congress intended to ensure 
access to 800 number subscribers without the calling party incurring a 
charge. In addition to the foregoing reasons, the Commission concludes 
that it would be unduly burdensome and costly to mandate a caller-pays, 
coin-deposit approach for a particular type of subscriber 800 calls, 
such as calls to a paging service, while relying upon a carrier-pays 
approach for other compensable calls.
    30. With regard to arguments by AT&T and Sprint that the Commission 
adopt a set-use fee that could be billed by carriers as agents for 
PSPs, the Commission concludes that its rejection of the set-use fee 
compensation approach precludes a carrier from billing a particular 
government-mandate fee for use of payphones on behalf of PSPs. The 
Commission noted in the Report and Order, however, that, under the 
carrier-pays approach, carriers have ``the most flexibility to recover 
their own costs, whether through increased rates to all or particular 
customers, through direct charges to access code call or subscriber 800 
customers, or through contractual agreements with individual 
customers.'' The Commission concludes that the compensation approach 
adopted in the Report and Order gives carriers the ability, if they 
desire, to bill their customers for whatever amount they choose for use 
of the payphone. Carriers may find that billing such a payphone charge 
would give visibility to the public of the cost of using the payphone.
    31. In the Report and Order, the Commission stated that 
``[a]lthough some commenters would have the Commission limit the ways 
in which carriers could recover the cost of per-call compensation, it 
concluded that the marketplace will determine, over time, the 
appropriate options for recovering these costs.'' It concluded that 
this approach is necessary to give carriers the most flexibility in 
recovering their costs. For this reason, the Commission declines to 
adopt PageNet's proposal that the Commission limit IXCs to spreading 
the costs of compensation over all 800 subscribers and 800 access code 
users. Although petitioners from the paging industry argue that the 
carrier-pays approach will impose substantial costs and burdens on that 
industry, the Commission notes that these petitions do not contain 
specific data showing the volume of calls the paging companies receive 
from payphones. Therefore, it concludes that these claims are 
unsubstantiated and the possible costs and burdens unknown. It also 
rejects proposals that it increase the SLC as a means of spreading the 
cost of compensation over all callers. It concluded in the Report and 
Order that ``raising the SLC for this purpose would be contrary to the 
goals of the Act, because these payments would not be borne by either 
the primary economic beneficiary of the payphone calls or the cost 
causer.'' While the public is indeed a beneficiary of payphone calls 
generally, the primary economic beneficiary of a particular compensable 
payphone call is the carrier that carries the call.
    32. In the Report and Order, the Commission concluded that the 
underlying facilities-based carrier should be required to pay 
compensation to the PSP ``in lieu of a non-facilities-based carrier 
that resells services[.]'' Some IXCs argue in response that the 
Commission should, concurrent with its conclusion that the primary 
economic beneficiary of a call should pay the requisite compensation to 
the PSP, require resellers to pay compensation for the calls they 
receive from payphones and to assume responsibility for the tracking of 
such calls. The Commission concludes that it would be significantly 
burdensome for some parties, namely debit card providers, to track and 
pay compensation to PSPs on a per-call basis. It concludes, however, 
that it should clarify its conclusion in the Report and Order 
concerning which carriers are required to pay compensation and provide 
for per-call tracking. It clarifies that a carrier is required to pay 
compensation and provide per-call tracking for the calls originated by 
payphones if the carrier maintains its own switching capability, 
regardless if the switching equipment is owned or leased by the 
carrier. If a carrier with a switching capability has technical 
difficulty in tracking calls from origination to termination, it may 
fulfill its tracking and payment obligations by contracting out this 
duty to another entity, consistent with the market-based principles 
that it established in the Report and Order. If a carrier does not 
maintain its own switching capability, then, as set forth in the Report 
and Order, the underlying carrier remains obligated to pay compensation 
to the PSP in lieu of its customer that does not maintain a switching 
capability.
iii. Ability of Carriers To Track Calls From Payphones
    33. In the Report and Order, the Commission recognized that 
``tracking capabilities vary from carrier to carrier'' and concluded, 
as a result, that ``LECs, PSPs, and the carriers receiving payphone 
calls should be able to take advantage of each others technological 
capabilities through the contracting process.'' It also concluded that 
``no standardized technology for tracking calls is necessary, and that 
IXCs may use the technology of their choice to meet their tracking 
obligations.'' During the period before per-call tracking becomes 
mandatory, the Commission concludes in the Order on Reconsideration 
that carriers must take all appropriate steps, including using the 
contracting process, to provide for the per-call tracking of all calls 
they receive from payphones. Therefore, it declines to modify the per-
call tracking requirements set forth in the Report and Order and 
concludes that carriers should meet their per-call tracking 
obligations, if they are not otherwise technically able, through 
contracts with other entities.
iv. Administration of Per-Call Compensation
    34. Some IXCs argue that the differing per-call compensation 
amounts make the per-call compensation rules adopted in the Report and 
Order unadministerable for the carrier-payors. The Commission 
disagrees. While there are expenses associated with administering the 
compensation rules, the Commission concludes that these expenses are 
unavoidable and must be borne by the entity that receives the primary 
economic benefit of the payphone calls and is best able to administer a 
compensation system between it and those that receive the compensation. 
While varying per-call compensation amounts will eventually result from 
the Commission's decision to let the market set the appropriate per-
call compensation amount for compensable calls, it notes that for the 
first two years of the compensation mechanism established by its rules, 
the carrier-payors will not be required to pay per-call compensation in 
varying amounts. Carrier-payors should use this two-year period to make 
the requisite adjustments to their internal payphone compensation 
paying systems to prepare for variable per-call compensation amounts. 
Therefore, the Commission declines to modify its per-call

[[Page 65356]]

compensation rules as requested. It concludes further that compensation 
carrier-payors have an ability, however, to insulate themselves against 
potential costs that may be associated with differing compensation 
amounts by negotiating their own compensation arrangements, including 
compensation amounts, with PSPs.
    35. In the Report and Order, the Commission concluded, in response 
to an argument that we require compensation to be paid on a monthly 
basis, that it should ``leave the details associated with the 
administration of this compensation mechanism to the parties to 
determine for themselves through mutual agreement.'' Therefore, it 
declines to mandate a particular period for paying compensation, 
including penalties for late payments, and concludes that if a party 
believes that compensation should be paid more or less frequently than 
is currently the industry norm, that party should negotiate that 
particular issue with the other parties as a part of its total 
compensation contract.
    36. With regard to MCI's argument that the Commission reconsider 
its conclusion that PSPs may submit bills for compensation for one year 
after the end of the compensation period in questions, the Commission 
concludes, as it did in the Report and Order, that the carrier should 
remain liable for these claims for that period, although the parties 
(i.e., the carrier-payor and the PSP) can reduce this period of time 
through a contractual provision. MCI also argues that the Commission 
should reconsider its conclusion that the time for a PSP to file a 
complaint with the Commission will not begin to accrue until the 
carrier-payor issues a final denial of the claim. The Commission 
concludes that while the statute of limitations for bringing a 
complaint before the Commission is set by the Act, it is within its 
discretion to define the point at which the compensation claim becomes 
ripe for a complaint. Therefore, as it concluded in the Report and 
Order, it finds that ``the time period for the statute of limitations 
does not begin to run until after the carrier-payor considers a 
compensation claim and issues a final denial of that claim. To conclude 
otherwise, as suggested by MCI, would permit a carrier-payor to delay a 
denial of the claim to preclude a PSP's complaint remedy before the 
Commission.''
v. Interim Compensation Mechanism
    37. A number of IXCs argue that the interim compensation rules are 
discriminatory because they exclude LECs and small IXCs at the expense 
of the large IXCs. The Commission notes that once per-call compensation 
becomes effective, all carriers, including small IXCs and LECs, will be 
required to pay compensation for all calls deemed compensable by the 
Report and Order. The interim flat-rate compensation mechanism, 
however, was adopted for a specific, limited transitional period, and 
thus applies to those carriers that carry the large majority of 
compensable calls. To extend interim compensation obligations to all 
carriers would significantly increase the administrative costs of the 
compensation mechanism. As it did in the access code compensation 
proceeding, the Commission excludes small carriers with annual toll 
revenues under $100 million, because ``IXCs earning less than $100 
million in toll revenues per year collectively account for less than 
five percent of long-distance carrier toll revenues.'' It also excludes 
LECs from the interim flat-rate compensation obligation for similar 
reasons of administrative practicability and because LECs, on an 
individual basis, currently do not carry a significant volume of 
compensable calls. Thus, because the interim flat-rate compensation 
mechanism was adopted for a finite, transitional period, the Commission 
declines to modify its rule to include additional carriers, as 
suggested by the IXCs. If a party, in the course of the year during 
which the interim flat-rate compensation applies, has evidence that the 
LECs' carrying of compensable calls has increased significantly above 
current levels, it may petition the Commission to adjust the interim 
flat-rate to include some LECs as carrier-payors to account for the 
increase. The Commission delegates authority to the Chief, Common 
Carrier Bureau, to make any necessary adjustments to the list of 
compensation-payors for the interim flat-rate compensation period.
    38. With regard to AT&T's argument that interim compensation should 
not apply to low-usage and semi-public payphones, the Commission notes 
that it concluded in the Report and Order that PSPs will be allowed to 
receive per-call compensation for calls originated by semi-public 
payphones. For the reasons indicated in the Report and Order, the 
Commission concludes that PSPs are able to collect flat-rate interim 
compensation for semi-public payphones. In addition, because section 
276 of the Act neither defines nor directs the Commission to treat so-
called ``low-usage'' payphones differently than other payphones, it 
concludes that flat-rate interim compensation applies to all payphones, 
regardless if they are considered to be ``low-usage'' payphones. The 
Commission notes that the call volume data upon which it calculated the 
flat-rate interim compensation in the Report and Order is based on 
average call volumes from a variety of payphones maintained by 
independent providers and the BOCs. Its estimate of 131 compensable 
calls originated by each payphone each month is an average for each 
payphone; some payphones will originate more than 131 calls, while 
others will originate less. In sum, the Commission concludes that the 
level of interim compensation already takes into account the varying 
call volumes from payphones.
    39. The Commission denies the motion filed by Cable & Wireless that 
requests permission to pay its share of the flat-rate interim 
compensation amount into an interest-bearing escrow account until March 
31, 1997. Although Cable & Wireless argues that it currently does not 
have a system in place for paying such compensation to PSPs, the 
Commission notes that this is true for a significant number of carriers 
obligated to pay the flat-rate interim compensation. Carriers that 
receive calls from payphones, however, have been on notice since 
February 8, 1996, the date the 1996 Act was enacted, that they would be 
obligated to pay for such calls in the near future. In addition, many 
carriers, including Cable & Wireless for a time, have been required to 
pay flat-rate compensation for access code calls. Because the rules 
adopted in the instant proceeding did not become effective until thirty 
days after publication in the Federal Register, at which time the 
compensation period commences, carriers had an adequate time to devise 
a means of paying compensation. The carriers will have additional time 
beyond this thirty-day period in light of the fact that the actual 
compensation payments will not be due until after the compensation 
period has ended. Therefore, because it has not pleaded circumstances 
of a unique nature, the Commission denies Cable & Wireless's motion.
    40. The Commission denies a request that it require those IXCs that 
are currently able to pay per-call compensation to begin to do so 
immediately. The Commission has provided IXCs with a one-year period to 
implement a per-call tracking and compensation mechanism. In the 
interim, the Commission dated a flat-rate compensation amount for PSPs. 
To ensure a relatively easy administration for all parties and to allow 
them to

[[Page 65357]]

prepare for the per-call mechanism, it declines to modify its rules to 
require some IXCs to pay per-call compensation for all or some calls 
under the interim compensation mechanism. It concludes that the 
requested modification would impose greater transaction costs for all 
parties that outweigh its benefits, particularly because the flat-rate 
compensation mechanism is a interim mechanism that is scheduled to 
terminate in one year. Individual carrier-payors and the PSPs have the 
option, however, of mutually agreeing to pay per-call compensation for 
all or a portion of a particular carrier's share of the interim flat 
rate. Such a carrier-payor would have to petition the Commission for 
waiver and receive an approval before implementing such an arrangement. 
The Commission delegates the requisite authority to the Chief, Common 
Carrier Bureau, to determine whether any such waivers from its interim 
flat-rate compensation mechanism in the instant proceeding should be 
granted.
    41. The RBOCs, BellSouth, and Ameritech request that the Commission 
clarify that the LECs be allowed to eliminate subsidies and reclassify 
their assets, and, as a result, be eligible to receive payphone 
compensation, by April 15, 1997, as opposed to on that date. The 
Commission clarifies that the LECs may complete all of the steps 
necessary to receive compensation by April 15, 1997. In this regard, it 
recognizes that LECs may be in different positions with regard to the 
actions required to comply with the requirements established in the 
Report and Order. It also recognizes that there are benefits to moving 
quickly to the more competitive payphone market structure that it seeks 
to establish. The Commission states that it must be cautious, however, 
to ensure that LECs comply with the requirements set forth in the 
Report and Order. Accordingly, the Commission concludes that LECs will 
be eligible for compensation like other PSPs when they have completed 
the requirements for implementing its payphone regulatory scheme to 
implement section 276. LECs may file and obtain approval of these 
requirements earlier than the dates included in the Report and Order, 
as revised in the Order on Reconsideration, but no later than those 
required dates. To receive compensation, a LEC must be able to certify 
the following: (1) It has an effective cost accounting manual (``CAM'') 
filing; (2) it has an effective interstate carrier common line 
(``CCL'') tariff reflecting a reduction for deregulated payphone costs 
and reflecting additional multiline subscriber line charge (``SLC'') 
revenue; (3) it has effective intrastate tariffs reflecting the removal 
of charges that recover the costs of payphones and any intrastate 
subsidies; (4) it has deregulated and reclassified or transferred the 
value of payphone customer premises equipment (``CPE'') and related 
costs as required in the Report and Order; (5) it has in effect 
intrastate tariffs for basic payphone services (for ``dumb'' and 
``smart'' payphones); and (6) it has in effect intrastate and 
interstate tariffs for unbundled functionalities associated with those 
lines. The Commission clarifies that the requirements of the Report and 
Order apply to inmate payphones that were deregulated in an earlier 
order. As the requirements of the Report and Order become due, LECs 
must comply with those requirements for all payphones, including inmate 
payphones.
    42. In addition to the requirements for all other LECs, BOCs must 
also have approved CEI plans for basic payphone services and unbundled 
functionalities prior to receiving compensation. Similarly, prior to 
the approval of its comparably efficient interconnection (``CEI'') 
plan, a BOC may not negotiate with location providers on the location 
provider's selecting and contracting with the carriers that carry 
interLATA calls from their payphones. The Commission delegates 
authority to the Chief, Common Carrier Bureau, to make any necessary 
determination as to whether a LEC has complied with all requirements as 
set forth above.
vi. Barriers to Entry and Exit
    43. As it stated in the Report and Order, the Commission's ultimate 
goal in this proceeding is to ensure the wide deployment of payphones 
through the development of a competitive payphone industry. To achieve 
this goal, it found that it would be necessary to eliminate certain 
vestiges of a long-standing regulatory approach to payphones. To this 
end, the Report and Order directed the removal of subsidies to 
payphones, provided for nondiscriminatory access to bottleneck 
facilities, ensured compensation for all calls from payphones, and 
allowed all competitors an equal opportunity to compete for essential 
aspects of the payphone business. In particular, the Commission 
directed each state to examine its regulations applicable to payphones 
and PSPs, removing or modifying those that erect barriers to entry or 
exit and thereby affect the ability of companies to compete in the 
payphone industry on an equal footing. The Commission concludes on 
reconsideration that these actions are essential to implementing the 
congressional directive to establish 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.'' It also concludes that they are necessary in order to 
implement the stated goals of section 276 ``of promot[ing] competition 
among payphone service providers and promot[ing] the widespread 
deployment of payphone services to the benefit of the general public * 
* *'' In short, burdensome state entry and exit requirements would be 
inconsistent with the rules the Commission has adopted to implement the 
congressional mandate embedded generally in section 276 of the Act, 
and, more specifically, in the requirements of section 276(b)(1)(A) to 
ensure fair compensation for each and every call using a payphone. For 
these reasons, the Commission expresses satisfaction that its directive 
to the states to eliminate such burdens is within the preemption 
authority granted to it by Congress in section 276(c). Accordingly, it 
denies requests by the states that it reconsider its conclusions in 
that regard.
    44. While it recognizes the concerns expressed by the states, the 
Commission finds that none of the actions it took to ensure a 
competitive payphone industry is inconsistent with, or infringes upon, 
the states' traditional police powers. Rather, the Report and Order 
takes the initial steps necessary to move payphone services from a 
regulated industry to an unregulated one. As with any business, 
however, states retain authority to impose certain requirements without 
competitive effect that are designed to protect the health, safety and 
welfare of its citizens. For example, reasonable zoning requirements 
restricting the placement of payphones for public safety purposes are a 
legitimate exercise of a state's police power, just as a state may 
designate areas within its jurisdiction where restaurants and other 
competitive businesses may or may not be located. Similarly, a state 
may require a PSP to register as a prerequisite to doing business 
within that state, just as many require such registration of other 
nonregulated businesses. Indeed, the Commission stated in the Report 
and Order that states need remove or modify only ``those regulations 
that affect payphone competition[.]'' The

[[Page 65358]]

Commission notes, as one example, that ``the states remain free at all 
times to impose regulations, on a competitively neutral basis, to 
provide consumers with information and price disclosure.'' It 
emphasizes that any state regulations must treat all competitors in a 
nondiscriminatory and equal manner, and not involve the state in 
evaluating the subjective qualifications of competitors to provide 
payphone services. Thus, a state can identify, for public safety 
reasons, areas where no competitor can place a payphone; but it cannot 
draw distinctions that allow some class of competitors to enter the 
payphone market and not others. In this way, the market will determine 
who is best equipped to provide these services, while at the same time 
encouraging the development of advanced technology and the wide 
deployment of payphones.
    45. California also expresses the concern that the Commission's 
direction that states eliminate barriers to entry would prevent a state 
from requiring the placement of payphones in unprofitable locations, 
including densely populated urban areas, where persons would otherwise 
have no recourse to payphones. California argues that these 
restrictions would limit the states' ability to provide for the welfare 
of their residents. The Commission disagrees, explaining that there are 
at least two means by which a state could address the problem described 
by California. First, a location where a payphone does not exist 
because it is unprofitable, but which serves the public welfare, 
satisfies the requirements for placement of a public interest payphone. 
To this extent, a state may rely upon the public interest payphone 
funding mechanisms to arrange for the placement of a payphone at such 
location. Where a location does not satisfy the criteria for placement 
of a public interest payphone, the state may still contract with a PSP 
for provision of payphone service, in its role as a location provider, 
in locations over which it has such authority. It simply may not rely 
upon the funding mechanism for public interest payphones to support 
such payphones. Of course, a state may not, as suggested in the RBOCs 
comments, require that a PSP place a payphone at a particular location. 
Such a requirement would neither be competitively neutral, nor ensure 
fair compensation to the PSP as required by the 1996 Act. A state may, 
however, enter into a voluntary agreement with a PSP at mutually 
agreeable terms for the provision of such service.

B. Reclassification of Incumbent LEC-Owned Payphones

    46. Incumbent LEC payphones, classified as part of the network, 
recover their costs from 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 Report and Order established requirements 
for: (1) The termination of access charge compensation and all other 
subsidies for incumbent LEC payphones; (2) the prospective 
classification of incumbent LEC and AT&T payphones as CPE; (3) 
tariffing of basic payphone services and functionalities; and (4) the 
reclassification and transfer of incumbent LEC payphone equipment 
assets from regulated to nonregulated status.
i. Classification of LEC Payphones as CPE
    a. CPE Deregulation. 47. In the Report and Order, the Commission 
concluded 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. In 
addition, the Commission concluded that AT&T payphones must be 
deregulated, detariffed, and treated as CPE.
    b. Unbundling of Payphone Services. 48. Petitions for 
reconsideration requested that the Commission reconsider its 
requirement that LECs file federal tariffs for payphone services. In 
the Order on Reconsideration the Commission modifies the tariffing 
requirement. Section 276 requires that the Commission take all actions 
necessary to ``discontinue * * * all intrastate and interstate payphone 
subsidies from basic exchange and exchange access revenues.'' To 
implement this requirement, in the Report and Order the Commission 
deregulated payphone equipment and established a requirement that LECs 
provide tariffed payphone services to independent payphone providers 
that they provide to their own payphone operations. Federal tariffing 
enables the Commission to directly ensure that payphone services comply 
with section 276. In Computer III and ONA, the Commission included both 
state and federal tariffing requirements. The Commission's requirement 
in the Report and Order for federal tariffing was consistent with 
section 276, Computer III and ONA. The Commission did not, in the 
Report and Order, preclude states from requiring the tariffing of 
payphone services. Consistent with this conclusion, the Commission 
provided that states could require further unbundling of payphone 
services than those required in the Report and Order. Although the 
Commission disagrees with petitioners regarding its authority to 
require federal tariffing of payphone services, on reconsideration the 
Commission modifies the federally tariffing requirement as discussed 
below. As required in the Report and Order, LECs must provide tariffed, 
nondiscriminatory basic payphone services that enable independent 
providers to 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. LECs must file those tariffs with the 
states. In addition, as required by the Report and Order, any basic 
network services or unbundled features used by a LEC's operations to 
provide payphone services must be similarly available to independent 
payphone providers on a nondiscriminatory, tariffed basis. The 
Commission states that those unbundled features or functions must be 
tariffed in the state and federal jurisdiction, and that federal 
tariffing of unbundled network features is consistent with Computer III 
and ONA. The Commission has also required, for example, federal 
tariffing of originating line screening services.
    49. In the Order on Reconsideration, the Commission requires LECs 
to file tariffs for the basic payphone services and unbundled 
functionalities in the intrastate and interstate jurisdictions as 
discussed below. LECs must file intrastate tariffs for these payphone 
services and any unbundled features they provide to their own payphone 
services. The tariffs for these LEC payphone services must be: (1) Cost 
based; (2) consistent with the requirements of section 276 with regard, 
for example, to the removal of subsidies from exchange and exchange 
access services; and (3) nondiscriminatory. States must apply these 
requirements and the Computer III guidelines for tariffing such 
intrastate services. States unable to review these tariffs may require 
the LECs operating in their state to file these tariffs with the 
Commission. In addition, LECs must file with the Commission tariffs for 
unbundled

[[Page 65359]]

features consistent with the requirements established in the Report and 
Order. LECs are not required to file tariffs for the basic payphone 
line for smart and dumb payphones with the Commission. The Commission 
will rely on the states to ensure that the basic payphone line is 
tariffed by the LECs in accordance with the requirements of section 
276. As required in the Report and Order, and affirmed in the Order on 
Reconsideration, all required tariffs, both intrastate and interstate, 
must be filed no later than January 15, 1997 and must be effective no 
later than April 15, 1997. Where LECs have already filed intrastate 
tariffs for these services, states may, after considering the 
requirements of the Order on Reconsideration, the Report and Order, and 
section 276, conclude: (1) That existing tariffs are consistent with 
the requirements of the Report and Order as revised in the Order on 
Reconsideration; and (2) that in such case no further filings are 
required. The Commission delegates authority to the Common Carrier 
Bureau to determine the least burdensome method for small carriers to 
comply with the requirements for the filing of tariffs with the 
Commission.
    50. In the Report and Order the Commission provided a waiver of the 
notification period of Computer II and Computer III network information 
disclosure requirements with which BOCs may be required to comply 
pursuant to the requirements of the Report and Order. In the Order on 
Reconsideration, consistent with the clarification above that LECs may 
comply with all the requirements of the Report and Order by April 15, 
1997, the Commission also clarifies that the waiver of the network 
information disclosure requirements to allow a minimum three month 
period for notification of payphone service and related unbundled 
features tariffs is also granted if BOCs file those tariffs earlier 
than the January 15, 1997 date. The Commission clarifies further that 
the waiver provided in the Report and Order and in the Order on 
Reconsideration is only effective for payphone tariffs to comply with 
these requirements and only until April 15, 1997, because network 
information disclosures must be made, as required by the Report and 
Order, no later than January 15, 1997.
    51. On reconsideration, the Commission declines to require further 
unbundling of payphone services beyond those established in the Report 
and Order. The Commission clarifies that any unbundled network features 
provided to a LEC payphone operation must be available on a 
nondiscriminatory basis to independent payphone providers and must be 
tariffed in the federal and state jurisdictions. Under Computer III, 
independent payphone providers may request unbundled features through a 
120-day process and BOCs must indicate why they decline to provide the 
requested features. In the Report and Order, the Commission did not 
create a similar requirement for LECs other than BOCs to provide 
unbundled network functionalities requested by independent payphone 
providers. However, as discussed in the Order on Reconsideration, and 
provided in the Report and Order, states may require all LECs to 
provide, pursuant to nondiscriminatory tariffs, unbundled network 
functionalities associated with payphone services.
    c. Other Payphone Services. 52. In the Order on Reconsideration, 
the Commission clarifies that the requirement for LECs to provide 
installation and maintenance services applies only to the payphone 
transmission lines and unbundled basic functionalities not the payphone 
equipment, which pursuant to the Report and Order is unregulated 
equipment. The Commission declines to require access to unregulated 
services, such as installation and maintenance of unregulated CPE, and 
billing and collection (beyond the requirement established in the 
Report and Order). Services the Commission has deregulated are 
available on a competitive basis and do not have to be provided by LECs 
as the only source of services. The Commission also declines to require 
the LECs to joint market for independent payphone providers. The 
Commission states that it has not required joint marketing in Computer 
III, which also required nondiscriminatory access to BOC services.
    d. Registration and Demarcation Point for Payphones. 53. As 
requested by the RBOC Coalition, the Commission clarifies that its 
minimum point of entry demarcation point standards are flexible enough 
to allow for placement of payphones at the nearer and most cost-
effective drop point in unique circumstances, such as service stations. 
The Commission notes that this conclusion is consistent with the 
Commission's rules at 47 CFR 68.3, which defines the demarcation point 
and allows LECs to select a location ``as determined by the telephone 
company's reasonable and nondiscriminatory standard operating 
practices.'' The Commission requires that LECs must treat independent 
payphone providers in a nondiscriminatory manner with regard to such 
flexible placement.
    54. The Commission delegates to the Chief, Common Carrier Bureau, 
the authority to establish any specific requirements associated with 
the existing payphone equipment the Commission grandfathered from 
registration requirements under section 68.2 in the Report and Order.
ii. Reclassification or Transfer of Payphone Equipment to Nonregulated 
Status
    55. The Commission reaffirms its conclusions in the Report and 
Order regarding payphone asset valuation and accounting issues. The 
Report and Order addressed the issues that were raised again on 
reconsideration and stated that, in the situation in which a BOC or a 
LEC chooses to maintain the nonregulated payphone assets on the 
carrier's regulated books of account, the Commission's Part 64 cost 
allocation rules contain the necessary safeguards required by section 
276 of the 1996 Act to protect regulated ratepayers from improper 
cross-subsidies. Pursuant to these long-standing cost allocation rules, 
carriers are not required to ``write-up'' payphone assets when they are 
reclassified as nonregulated assets. The Commission concludes that APCC 
raised no new arguments in either its petition or comments that 
contradict the conclusions in the Report and Order.
    56. The Commission reaffirms its conclusions with respect to asset 
valuation when a BOC or a LEC transfers payphone assets to an 
affiliate. The Commission states that it does not believe, however, 
that the RBOC Coalition, BellSouth, SW Bell, and Ameritech raise an 
issue that it must clarify on reconsideration. The Commission states 
that those petitioners agree with the Commission that, if payphone 
assets are transferred from the carrier to an affiliate, the affiliate 
transactions rules must apply, and that under the Commission's rules, 
the transferred assets must be valued at the higher of fair market 
value or net book value. The petitioners disagree, however, with the 
Commission's determination that fair market value of assets transferred 
includes intangible assets that are not recorded on the carrier's 
regulated books. Some of these petitioners cited the Joint Cost 
Reconsideration Order and a 1988 Ameritech Cost Allocation Manual 
Review Order as authority for their contention. The Commission 
disagrees with the petitioners for the reasons discussed below.
    57. In the Report and Order, the Commission stated that, if a 
carrier

[[Page 65360]]

transferred its payphone assets to an affiliate, the transaction would 
be governed by the Commission's affiliate transactions rules. 
Accordingly, the payphone asset transfer would be recorded on the 
carrier's books at the higher of fair market value or net book value. 
The Commission further stated that fair market value is ``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 
next concluded that the going concern value associated with the 
payphone business must be taken into consideration in determining fair 
market value and that going concern value includes the value of 
intangible assets such as location contracts that add value to the 
payphone business. The Commission clarifies this latter point.
    58. The Commission reiterates in the Order on Reconsideration, that 
it continues to apply the definition of ``fair market value'' as 
provided for in the Report and Order. The issue raised by the RBOC 
Coalition, BellSouth, SW Bell and Ameritech on reconsideration focused 
on whether the definition should be applied to the tangible value of 
the assets, as contrasted to the value of all property rights directly 
associated with the payphone assets. The Commission clarifies that the 
answer depends on the nature of the transfer itself.
    59. The Commission envisioned in the Report and Order that if 
payphone assets were transferred by a carrier to an affiliate, these 
assets would be transferred inclusive of intangible assets such as 
location contracts. In this instance, appraisal techniques would be 
applied such as discounting the stream of predicted cash flows over the 
term of the location contract, capitalizing net income from payphone 
operations, using comparable sales data, or any other reasonable method 
that would yield an estimated fair market value. This computation could 
be done for each payphone on an individual basis, for accumulations of 
payphone assets, for example by geographic area, or for all payphone 
assets. If appraisal techniques indicated that fair market value 
exceeded net book value, the transfer of the payphone assets should be 
recorded at the fair market value. The Commission further states in the 
Report and Order, and the Order on Reconsideration, that the value of 
the carrier's brand name should not be included in the fair market 
value computation. If a carrier could reasonably estimate the value 
associated with the brand name, this value should be deducted from the 
overall fair market value computation.
    60. The Commission states that it did not envision in the Report 
and Order that a carrier would transfer only the physical assets 
themselves, but it discusses that situation in the Order on 
Reconsideration. On the date of transfer to affiliates, there may be 
circumstances in which the location contracts supporting payphone 
assets may have expired or otherwise been terminated. In this case, the 
affiliate would take those payphone assets and deploy those assets to 
new locations subject to new contracts. The fair market value 
established by reasonable appraisal techniques would not include the 
value of intangible assets such as location contracts; only the 
physical assets would be transferred. Even so, the same definition of 
fair market value would be applicable.
    61. The Commission states that the conclusions in the Report and 
Order and in the Order on Reconsideration are consistent with its 
affiliate transactions rules and do not reflect any change in those 
rules. The Commission states that its conclusions also do not conflict 
with the Joint Cost Reconsideration Order or the Ameritech CAM Order. 
In the Joint Cost Reconsideration Order, the Commission addressed in a 
footnote a commenter's suggestion that a nonregulated affiliate should 
be charged for the value of previous training when an employee is 
transferred to the affiliate. In that instance, the Commission stated 
that the value of previous employee training is an intangible benefit, 
the allocation of which is beyond the scope of the proceeding. In the 
Ameritech CAM Order, the Commission addressed the employee training 
issue again and stated that allocation of costs of employee training 
would not be required unless it became apparent that the regulated 
entity was providing employee training as a service to its affiliate. 
In addition, in the Ameritech CAM Order, the Commission addressed the 
BOC brand name issue. In that order, the Commission reaffirmed its 
position that the BOC brand name was an intangible benefit that has 
never appeared on Ameritech's books and is not a cost for affiliate 
transactions purposes.
    62. In the Order on Reconsideration the Commission states that it 
agrees that intangible benefits such as the carrier's brand name should 
not be considered in the determination of fair market value for 
affiliate transactions rules purposes. Such benefits accrue to all 
assets of the carrier and are not directly related to the asset being 
valued. In addition, as the Commission stated in the Report and Order, 
intangible assets such as the carrier's brand name would not generally 
be transferred by a willing seller under the definition of fair market 
value. The Commission thus concludes in the Order on Reconsideration 
that such intangible assets should not be included in the determination 
of fair market value. The Commission states that this determination is 
consistent with existing Commission rules and the Ameritech CAM Order.
    63. The Commission disagrees with those petitioners who assert that 
intangible assets, such as the going concern value stemming from 
location contracts and other like assets, should not be included in the 
determination of fair market value. Going concern value is the 
additional element of value that attaches to property by reason of its 
existence as an integral part of a going concern. As such, this 
intangible asset is directly related to the payphone assets being 
transferred and enhances the value of the assets. The fact that this 
intangible asset is directly related to the asset distinguishes this 
intangible asset from the carrier brand name that is not directly 
related. In addition, the petitioners have asserted that the cost of 
this intangible asset has never been recorded on the carriers' 
regulated books and thus should not be considered in determining fair 
market value. Most, if not all, of the going concern value associated 
with the payphone assets is generated by the existence of the location 
contracts. While the cost of these location contracts are not 
capitalized to the payphone asset accounts, the commissions paid to 
location providers as required by the location contracts are recorded 
as period expenses on the carrier's books. This further distinguishes 
these intangible assets from the carrier's brand name.
    64. The Commission states that it does not see any conflict with 
the Joint Cost Reconsideration Order or Ameritech CAM Order as those 
orders addressed the intangible benefits accruing from previous 
employee training. Like the carrier brand name, that type of intangible 
benefit is not directly associated with any particular asset. In 
addition, it is doubtful whether such an intangible benefit is even 
subject to valuation under reasonable appraisal techniques. As a 
result, the Commission concludes that these types of intangible 
benefits are distinguishable from the going concern value generated by 
the location contracts of the payphone assets. The Commission thus 
concludes that it did nothing in the Report and Order that conflicted 
with existing

[[Page 65361]]

Commission rules, nor deviated from either the Joint Cost 
Reconsideration Order or the Ameritech CAM Order.
iii. Termination of Access Charge Compensation and Other Subsidies
    65. The Report and Order requires LECs to remove interstate 
payphone costs being recovered through CCL charges by doing the 
following: (1) Transferring payphone set costs to nonregulated 
accounts; and (2) transferring the recovery of payphone line costs from 
CCL charges to subscriber line charges. The Order on Reconsideration 
addresses petitions seeking clarification of the method of revising CCL 
charges under price cap rules, and provides some modifications.
    66. The Commission denies USTA's request regarding 
Sec. 61.45(d)(1)(vi). The Commission indicates that it stated clearly 
in the Report and Order that LECs are required to transfer payphone set 
costs from regulated to nonregulated accounts pursuant to Sec. 64.901 
and other applicable rules. Section 61.45(d)(1)(v) governs exogenous 
cost changes resulting from ``the reallocation of investment from 
regulated to nonregulated activities pursuant to Sec. 64.901.'' The 
Commission concludes USTA has not provided any reasonable basis for 
construing Sec. 61.45(d)(1)(v) to be inapplicable.
    67. USTA seeks clarification of the procedure for LECs to use in 
removing from the CCL charges the deregulated payphone costs described 
in Sec. 69.501(d) of the rules. The Report and Order requires LECs to 
determine the percent ratio of payphone cost to all costs in the common 
line category in 1995, the payphone cost allocator, and to reduce the 
Common Line Basket price cap index (``PCI'') by that percentage. USTA 
maintains that costs associated with payphone lines identified by 
Sec. 69.501(d) should be subtracted before developing the payphone cost 
allocator, because payphone lines will remain under regulation. AT&T 
maintains that the intent of the Report and Order clearly states that 
payphone line costs allocated pursuant to Sec. 69.501(d) should remain 
as part of the LEC's regulated operations, and thus supports USTA's 
position.
    68. USTA also seeks acknowledgment that the exogenous cost 
adjustment to the PCI should be reduced by the amount of PCI adjustment 
that has already occurred as a result of prior deregulation of inmate 
payphones. According to USTA, this credit can be obtained by 
multiplying the PCI in effect prior to the inmate payphone filing by 
the payphone cost allocator. AT&T maintains that USTA's suggested 
approach will not achieve the correct result, which can be achieved by 
clarifying that the PCI and payphone cost allocator described in 
paragraph 185 of the Report and Order refer to the PCI and allocator 
that existed prior to implementation of the inmate payphone order.
    69. The Commission agrees that LECs should subtract the payphone 
costs described in Sec. 69.501(d) associated with payphone lines, prior 
to developing the payphone cost allocator. The Commission therefore 
clarifies and revises the exogenous cost adjustment mechanism it 
adopted in paragraph 185 of the Report and Order, and requires LECs to 
subtract the costs of lines associated with payphones from the costs 
described in Sec. 69.501(d), prior to calculating their payphone cost 
allocator. The Commission further agrees that a credit should be 
applied to the PCI adjustment equal to any prior PCI adjustment 
associated with inmate payphone deregulation, and that AT&T has 
proposed a method that achieves the correct result. The Commission 
states that LECs proposing to subtract payphone line costs or inmate 
payphone costs from Sec. 69.501(d) for the purpose of their PCI 
adjustment should provide complete details, including references to 
parts 32, 36, and 69 of the rules and associated ARMIS line items, to 
demonstrate that their line cost calculations are reasonable.
    70. Sprint seeks clarification by the Commission that CCL charges 
must be reduced by more than the amount of payphone equipment cost 
transferred from regulated to nonregulated accounts. Sprint further 
espouses that payphone cost includes non-equipment costs such as the 
cost of the local network used for payphone service and local business 
office expense. BellSouth maintains that local network and local 
business associated with the payphone lines should not be reclassified 
as nonregulated. The Commission agrees with Sprint that there are non-
equipment, local and network costs attributable to payphone set cost 
and concludes that the exogenous cost adjustment, as modified, removes 
an adequate amount of such interstate overhead costs from the LEC's 
common line charges. The Commission also agrees with BellSouth that 
line cost should not be reclassified, and concludes that this is 
clearly stated in the Report and Order.
    71. USTA and AT&T seek clarification of the treatment of additional 
revenues that will accrue to LECs as a result of the rule change that 
results in a multiline SLC charge on payphone lines. According to USTA, 
the application of a SLC to payphone lines will be a price cap 
restructure reflecting: (1) The additional SLC revenue as a result of 
applying a multiline SLC to public payphone lines, and (2) the 
additional SLC revenue as a result of applying the multiline SLC to 
semi-private payphones instead of the residential and single line 
business SLC that currently applies. The RBOC Coalition supports USTA's 
methodology. Similarly, AT&T maintains that LECs should reduce CCL 
charges by an amount equal to the additional SLC revenue. AT&T 
believes, however, that USTA's reference to restructuring the base 
period revenue is unclear. AT&T advocates no change to the base period 
revenue for the purpose of comparing revenues under the existing and 
modified rate structures.
    72. The Commission agrees that application of multiline SLCs to 
payphone lines is a restructure pursuant to Sec. 61.46(c), requiring a 
comparison of existing revenue to receipts of revenue under the 
modified rate structure. LECs can achieve this result by recalculating 
and revising CCL charges pursuant to the CCL formula in Sec. 61.46(d), 
using the following steps. First, recalculate the end user common line 
(minutes of use) factor displayed in 1996 annual filing to include 
public payphone costs and lines including any necessary adjustments to 
forecasts to reflect: (1) The increase in SLC revenue from application 
of multiline SLCs to public payphone lines; and (2) the increase in SLC 
revenue from applying multiline SLCs to the semi-private payphone lines 
instead of the residential and single line business SLC. Second, use 
the same carrier common line (minutes of use) factor displayed in the 
1996 annual filing, but recalculate the percent change in the PCI to 
reflect the exogenous cost change associated with payphone cost 
deregulated as a result of the Report and Order. Third, recalculate the 
percent change in the PCI to incorporate any change in Long Term 
Support (LTS) paid to NECA's common line pool, if revised LTS data are 
available at the time of filing. Otherwise, the LTS adjustment can be 
shown as a true-up to prior year LTS and reported in the 1997 annual 
filing. Fourth, recalculate the carrier common line (minutes of use), 
the CCL revenue component of the formula, to reflect these changes. 
Finally, recalculate the maximum allowable CCL charges.
    73. The procedure above will result in the removal from the CCL 
charge of deregulated set cost. Regulated line cost will also be 
removed and recovered through SLC charges except any portion that might 
exceed the $6.00 cap on the

[[Page 65362]]

multiline SLC charge. Those SLC deficit costs will be recovered through 
the CCL charge, in the same manner as the deficit costs associated with 
non-payphone lines.
    74. WPTA contends that the Act requires the Commission to 
discontinue the application of SLCs with regard to all payphone lines, 
to meet the Act's requirement for removal of subsidies from payphone 
services. BellSouth disputes WPTA's interpretation of the Act by 
contending that regulated charges such as the SLC should not apply only 
if those charges subsidize nonregulated payphone operations. BellSouth 
contends there is no subsidization, because the SLC serves the purpose 
of recovering regulated costs associated with payphone lines. The 
Commission agrees with BellSouth that the application of a SLC to 
payphone lines is necessary for LECs to recover regulated costs 
assigned to the interstate jurisdiction. In addition, SLC charges will 
apply equally to LEC and non-LEC payphone lines and, therefore, the 
incremental SLC cost is the same for LEC and non-LEC payphone 
providers.
    75. Finally, The Commission revises the rules regarding the 
recovery of common line costs. The Commission revises Part 69 of its 
rules to reflect the changes.

C. Nonstructural Safeguards for BOC Provision of Payphone Service

    76. In response to the request from the RBOC Coalition that the 
Commission clarify that the Report and Order preempts inconsistent 
nonstructural safeguards, the Commission notes in the Order on 
Reconsideration that section 276(c) provides for such preemption. The 
Commission clarifies that the Report and Order does preempt 
nonstructural safeguards that are inconsistent with those established 
in the Report and Order. In that order, the Commission specifically 
preempted any structural separation requirements for the LEC provision 
of payphone service because it concluded that such requirements are 
inconsistent with section 276. With regard to other nonstructural 
safeguards, the Commission noted that it applied the Computer III and 
ONA safeguards to the provision of payphone service by the BOCs. 
Although the Commission declined to apply these same safeguards to the 
nonBOC LECs, the Commission indicated that it did not preempt the 
states from imposing nonstructural safeguards that are no more 
stringent than those the Commission imposed on the BOCs. In the 
Computer III proceeding the Commission addressed when state 
nonstructural safeguards would be inconsistent with Computer III. The 
Commission addressed such preemption of state requirements with regard 
to jurisdictionally-mixed enhanced services in Computer III. In the 
Order on Reconsideration, the Commission adopts that analysis for 
preemption of state payphone service nonstructural safeguards that are 
inconsistent with the Report and Order. The Commission concludes that 
it is necessary to go further than the Computer III analysis to 
determine if a nonstructural safeguard is inconsistent with section 276 
because, for example, it is clear from section 276 that BOCs and other 
LECs may provide payphone services on an integrated basis. Thus, state 
requirements that, for example, require the LECs or BOCs to provide 
payphone services only through a separate corporate entity with 
separate books would be inconsistent with section 276. The Commission 
has previously addressed state regulations that may conflict with the 
Computer III network disclosure and CPNI requirements. In the Order on 
Reconsideration, the Commission adopts that analysis for clarifying 
when state requirements would be inconsistent with those requirements, 
although the Commission notes that CPNI requirements must also be 
consistent with section 222 of the Act. The provision for state 
requirements for further unbundling of payphone network functionalities 
are discussed in the Report and Order and above.
    77. The Commission clarifies that the requirements of the Report 
and Order apply to all payphones, including inmate payphones. LECs must 
comply with the requirements of the Report and Order with regard to 
inmate payphones.
    78. With regard to CEI Plans for payphone service, in the Order on 
Reconsideration, the Commission clarifies that they will be placed on 
public notice in a similar manner to CEI plans that have been filed for 
enhanced services. Like CEI plans for enhanced services, the Commission 
delegates the authority to review CEI plans to the Chief, Common 
Carrier Bureau. The Commission states that it anticipates that payphone 
service CEI plans will raise fewer issues than CEI plans for enhanced 
services because payphone services described in the CEI plans required 
by the Report and Order will address only basic payphone services and 
unbundled payphone features, not enhanced services. CEI plan review 
will evaluate the application of the nondiscrimination and cross-
subsidy nonstructural safeguards to the provision of payphone services 
by each BOC as required by the Report and Order and the Order on 
Reconsideration.

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

    79. InterLATA Presubscription. The Commission denies BellSouth's 
request to reconsider or clarify whether BOCs may engage in branding of 
interLATA service for its payphones. The Commission concludes that 
nothing in section 276(b)(1)(D) of the 1996 Act authorizes BOCs to 
engage in branding, or ``packaging,'' of interLATA service. The 
Commission explains that section 276(b)(1)(D) does not place BOCs on an 
equal footing with independent PSPs in every conceivable regard. 
Rather, that section is, by its own terms, limited to BOCs 
``negotiating'' with location providers with respect to the location 
providers' ``selecting and contracting'' for interLATA service to their 
payphones. In the Report and Order, the Commission rejected BellSouth's 
argument that this necessarily allowed a BOC to engage in all conduct 
allowed of non-BOC PSPs, including the provision of interLATA service 
to payphones outside of the requirements of section 271 of the 1996 
Act. The Commission finds that the same reasoning refutes BellSouth's 
argument that section 276 authorizes a BOC to ``brand'' interLATA OSP 
service--in effect, holding itself out as providing such service--
simply because non-BOC PSPs may be able to do so. The Commission adds 
that if Congress had intended such a broad grant of authority, it would 
not have included such specific limiting language in the statute. The 
Commission also notes that to the extent a BOC is holding itself out to 
the public as providing interLATA service through use of an audible 
brand identifying itself as the carrier, such conduct would seem to be 
inconsistent with the goals of TOCSIA, as well as inconsistent with the 
requirements of section 271 of the 1996 Act.
    80. Contracts. The Commission declines AT&T's request that it 
clarify that nothing in the statute or the new rules allows location 
providers to terminate contracts with carriers regarding the interLATA 
carrier presubscribed to payphones on their premises, regardless of the 
date of such agreements. The Commission believes that this issue was 
satisfactorily addressed in the Report and Order.
    81. The Commission concludes that contracts entered into pursuant 
to the grant of authority in section 276(b)(1)(D), but prior to a BOC 
receiving approval of a CEI plan required by the Report and Order, are 
in

[[Page 65363]]

violation of the Commission's rules adopted in the proceeding. The 
Commission explains that section 276(b)(1)(D) grants BOCs the authority 
to negotiate and contract with location providers with respect to the 
interLATA carrier presubscribed to their payphones. Congress 
conditioned this grant of authority upon the completion of this 
Commission rulemaking, specifically required by section 276, for 
purposes of evaluating whether granting such rights would be consistent 
with the public interest. In carrying out this responsibility, the 
Commission determined that each BOC should first be required to 
establish certain nonstructural and accounting safeguards as a 
prerequisite to being allowed to exercise these presubscription rights. 
The Commission finds that full compliance with these precautions is 
necessary to ensure the BOCs are not acting in an anticompetitive 
manner in the provision of these services and, ultimately, to protect 
the interests of the public. The Commission states that its decision to 
require the filing and approval of CEI plans was, in part, to prevent 
the BOCs from using their control over bottleneck facilities and other 
resources in order to obtain a competitive advantage over the non-LEC 
PSPs. The Commission concludes that, while it is not in a position to 
declare null and void specific contracts that it has not determined to 
be unlawful, it will review any complaints concerning such contracts in 
light of this policy.

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

    82. The Commission clarifies that, for purposes of the rules 
implementing section 276(b)(1)(E) of the 1996 Act, intraLATA calls 
include local calls. The Commission agrees with the reasoning presented 
by APCC that the policies supporting free competition in intraLATA 
presubscription are equally applicable to local calls.
    83. The Commission declines, however, to reconsider its decision to 
allow states to require 0- calls to be initially routed to the 
incumbent LEC or other local service provider, provided that the state 
does not mandate that the LEC or local service provider ultimately 
carry non-emergency intraLATA calls initiated by dialing `0' only. As 
the Commission stated in the Report and Order, it does not find that 
such requirements are necessarily inconsistent with the statutory 
language that PSPs should be allowed to negotiate for the intraLATA 
carriers presubscribed to their payphones. The Commission notes that 
states may impose reasonable requirements on the exercise of these 
rights, especially for purposes of ensuring public health and safety. 
Accordingly, it is unwilling at this time to find that a state 
requirement concerning the initial routing of 0- calls, in order to 
ensure that 0- emergency calls are handled in an appropriate and timely 
manner, unduly burdens non-LEC PSPs.

F. Establishment of Public Interest Payphones

    84. The Commission denies APCC's request that the definition of 
public interest payphones be modified to exclude payphones located 
within 200 yards of another payphone. Besides lacking any basis in the 
record for specifying a particular distance restriction, the Commission 
finds that such a requirement would unnecessarily restrict the states' 
ability to address local geographic, social and economic conditions 
impacting the need for payphones. The Commission concludes, as it did 
in the Report and Order, that the states are better positioned to 
respond to the diverse and unique payphones need of their communities.
    85. The Commission also denies Ohio PUC's request that it 
reconsider its determination that PIPs may not be placed in locations 
where payphones already exist as a result of the market. The Commission 
finds that Congress restricted the locations for which states could use 
the public interest payphone support mechanisms to subsidize the 
placement of a payphone. As stated in the Report and Order, the 
statutory language reflects a congressional intent that reliance on the 
public interest payphone provision is to be limited to instances where 
a payphone serves a strong public interest that would not be fulfilled 
by the normal operation of the marketplace.
    86. The Commission adds that, in its capacity as a location 
provider, a state may certainly contract with a PSP to place a non-PIP 
payphone at any location over which it has such authority. A state may, 
for example, contract with a PSP to place a payphone on a street 
corner, or in a school building, or at an airport, that competes with 
other payphones at or near such locations. It may not, however, 
subsidize such payphones through a public interest payphone support 
mechanism. Moreover, a state may contract with the PSP on any basis 
which a PSP is voluntarily willing to offer its services. Thus, if a 
state prefers to require low end-user rates for such payphones, perhaps 
as a trade-off to receiving lower commissions from the PSP, it may 
contract with the PSP on those terms.

III. Conclusion

    87. In the Order on Reconsideration, the Commission affirms the 
essential features of the policies established in the Report and Order. 
On reconsideration, however, the Commission modifies: (1) The 
requirements for LEC tariffing of payphone services and unbundled 
network functionalities; and (2) the requirements for LECs to remove 
unregulated payphone costs from the carrier common line charge and to 
reflect the application of multiline subscriber line charges to 
payphone lines. The Commission also clarifies various issues addressed 
in the Report and Order.

IV. Ordering Clauses

    88. Accordingly, pursuant to the authority contained in sections 1, 
4, 201-205, 226, 276 and 405 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 154, 201, 205, 226, 276, and 405, it is ordered 
that the policies, rules, and requirements set forth herein are 
adopted.
    89. It is further ordered, that 47 CFR Part 69 is amended and shall 
be effective (30) days after publication in the Federal Register.
    90. It is further ordered, that the Petitions for Reconsideration 
filed by Ohio PUC, NTCA, BellSouth and Sprint, are granted in part and 
denied in part, as described herein. All other Petitions for 
Reconsideration filed in this proceeding are denied
    91. It is further ordered, that the Petitions for Clarification 
filed in this proceeding are denied in part, and granted in part, as 
described herein.
    92. It is further ordered, that MCI's Motion to Serve One Day Late 
is granted.
    93. It is further ordered, that CompTel's Motion to Accept Petition 
for Reconsideration, or in the Alternative to Treat As Comments on 
Petitions for Reconsideration, is denied in part and granted in part, 
as described herein.
    94. It is further ordered, that Cable & Wireless' Motion for 
Temporary Waiver or, in the Alternative, for a Limited Stay, is denied.
    95. It is further ordered, that this Memorandum Opinion and Order 
on Reconsideration will be effective (30) days after publication of a 
summary thereof in the Federal Register.

[[Page 65364]]

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 
carriers, Communications equipment, Labeling, Reporting and 
recordkeeping requirements, Telephone.

47 CFR Part 69

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.

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

Rules Amended

    Part 69 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 69--ACCESS CHARGES

    1. The authority citation for Part 69 continues to read as follows:

    Authority: Secs. 4, 201, 202, 203, 205, 218, 403, 48 Stat. 1066, 
1070, 1072, 1077, 1094, as amended, 47 U.S.C. 154, 201, 202, 203, 
205, 218, 403.

    2. Section 69.5 is amended by revising paragraph (a) to read as 
follows:


Sec. 69.5   Persons to be assessed.

    (a) End user charges shall be computed and assessed upon end users, 
and upon providers of public telephones, as defined in this subpart, 
and as provided in subpart B of this part.
* * * * *
    3. Section 69.104 is amended by revising paragraph (a), 
redesignating paragraph (d) as paragraph (d)(1), and adding a new 
paragraph (d)(2) to read as follows:


Sec. 69.104   End user common line.

    (a) A charge that is expressed in dollars and cents per line per 
month shall be assessed upon end users that subscribe to local exchange 
telephone service or Centrex service to the extent they do not pay 
carrier common line charges. A charge that is expressed in dollars and 
cents per line per month shall also be assessed upon providers of 
public telephones. Such charge shall be assessed for each line between 
the premises of an end user, or public telephone location, and a Class 
5 office that is or may be used for local exchange service 
transmissions.
* * * * *
    (d)(1) * * *
    (2) The charge for each subscriber line associated with a public 
telephone shall be equal to the monthly charge computed in accordance 
with paragraph (d)(1) of this section.
* * * * *
    4. Section 69.501 is amended by removing and reserving paragraph 
(d); and by revising paragraph (e) to read as follows:


Sec. 69.501   General.

* * * * *
    (e) Any portion of the Common Line element revenue requirement that 
is not assigned to Carrier Common Line elements pursuant to paragraphs 
(a), (b), and (c) of this section shall be apportioned between End User 
Common Line and Carrier Common Line pursuant to Sec. 69.502. Such 
portion of the Common Line element annual revenue requirement shall be 
described as the base factor portion for purposes of this subpart.

[FR Doc. 96-30908 Filed 12-11-96; 8:45 am]
BILLING CODE 6712-01-P