[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Proposed Rules]
[Pages 69064-69065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32934]


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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 61

[CC Docket Nos. 87-313 and 93-197, FCC 96-454]


Policy and Rules Concerning Rates for Dominant Carriers; 
Revisions to Price Cap Rules for AT&T

AGENCY: Federal Communications Commission.

ACTION: Proposed Rules; termination.

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SUMMARY: This Order terminates as moot proceedings concerning the 
treatment of AT&T Corp.'s (AT&T) offerings of promotions and optional 
calling plans (OCPs) under price cap regulation in light of the 
Commission's determination that AT&T is non-dominant and the resultant 
removal of AT&T's services from price cap regulation.

DATES: Proceedings were terminated November 26, 1996.

FOR FURTHER INFORMATION CONTACT: Joel Taubenblatt, 202-418-1513.

SUPPLEMENTARY INFORMATION: The text of the Commission's Order in CC 
Dockets Nos. 87-313 and 93-197, FCC 96-454, adopted November 21, 1996, 
and released November 26, 1996, appears below:

I. Introduction

    1. In this Order, we terminate as moot proceedings concerning the 
treatment of AT&T Corp.'s (AT&T) offerings of promotions and optional 
calling plans (OCPs) under price cap regulation 1 in light of our 
determination that AT&T is non-dominant and the resultant removal of 
AT&T's services from price cap regulation.2
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    \1\ Policy and Rules Concerning Rates for Dominant Carriers, CC 
Docket No. 87-313, Order and Notice of Proposed Rulemaking, 8 FCC 
Rcd 3715 (1993), 58 FR 31936, June 7, 1993 (Promotions NPRM); 
Revisions to Price Cap Rules for AT&T, CC Docket No. 93-197, Notice 
of Proposed Rulemaking, 8 FCC Rcd 5205 (1993), 58 FR 44157, August 
19, 1993 (OCP NPRM); Policy and Rules Concerning Rates for Dominant 
Carriers, CC Docket No. 87-313, and Revisions to Price Cap Rules for 
AT&T, CC Docket No. 93-197, Further Notice of Proposed Rulemaking, 
10 FCC Rcd 7854 (1995), 60 FR 28774, June 2, 1995 (Further NPRM).
    \2\ Motion of AT&T Corp. to be Reclassified as a Non-Dominant 
Carrier, 11 FCC Rcd 3271 (1995) (AT&T Reclassification Order), 
recon. pending. In a subsequent order, the Commission removed AT&T's 
remaining price cap services, international services, from price cap 
regulation. Motion of AT&T Corp. to be Declared Non-Dominant for 
International Service, Order, FCC 96-209 (rel. May 14, 1996).
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II. Background

    2. In 1989, the Commission replaced traditional rate of return 
regulation with an incentive-based system of regulation, called price 
caps, for most of AT&T's services.3 To implement the price cap 
system, the Commission defined three categories of AT&T services, or 
baskets, and defined a price cap index (PCI) for each basket.4 The 
basket structure was designed so that AT&T would not be able to raise 
prices for services in one basket in order to lower prices for 
dissimilar services in another basket. Therefore, a change in rates in 
one basket or in services outside of price caps would not affect either 
the PCI or the actual price index (API) 5 for the other baskets.
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    \3\ Policy and Rules Concerning Rates for Dominant Carriers, CC 
Docket No. 87-313, Notice of Proposed Rulemaking, 2 FCC Rcd 5208 
(1987), 52 FR 33962, September 9, 1987; Further Notice of Proposed 
Rulemaking, 3 FCC Rcd 3195 (1988), 53 FR 22356, June 15, 1988; 
Report and Order and Second Further Notice of Proposed Rulemaking, 4 
FCC Rcd 2873 (1989), 54 FR 19836, May 8, 1989 (AT&T Price Cap 
Order); Erratum, 4 FCC Rcd 3379 (1989); Memorandum Opinion and Order 
on Reconsideration, 6 FCC Rcd 665 (1991), 56 FR 5952, February 14, 
1991 (AT&T Price Cap Reconsideration Order), remanded sub nom. AT&T 
v. FCC, 974 F.2d 1351 (D.C.Cir. 1992) (Remand Order). Those services 
that are not under price cap regulation are subject to streamlined 
regulation, which reduces their regulatory obligations under Part 61 
of the Commission's rules, 47 CFR Part 61.
    \4\ See Further NPRM, 10 FCC Rcd at 7855-56, for an explanation 
of how the price cap index is calculated.
    \5\ The API represents a weighted average of actual prices of 
the services within the basket. Id.
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    3. The Commission was silent in the AT&T Price Cap Order as to the 
treatment of promotional rates under price caps.6 After the 
Commission adopted the price cap rules, AT&T filed tariffs for a 
significant number of promotions in which it treated the rates 
associated with these offerings as rate reductions for purposes of API 
calculations. MCI Telecommunications Corporation (MCI) and Sprint 
Communications Company LP (Sprint) sought reconsideration of the AT&T 
Price Cap Order, requesting clarification of the price cap treatment of 
promotions. In the AT&T Price Cap Reconsideration Order, the Commission 
decided to exclude promotions from the price cap index prospectively. 
It reasoned that including promotional rates in price caps would give 
AT&T a greater degree of flexibility than warranted to offset the 
discounted promotional rates with increases in residential and small 
business rates within Basket 1.7
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    \6\ Id. at 7857.
    \7\ AT&T Price Cap Reconsideration Order at 671.
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    4. AT&T sought judicial review of the AT&T Price Cap 
Reconsideration Order. The United States Court of Appeals for the 
District of Columbia Circuit found that the Commission's decision to 
exclude promotional tariffs from the price cap index was not a reasoned 
decision supported by the record. The court remanded the AT&T Price Cap 
Reconsideration Order to the Commission with instructions either to 
show that its action was a clarification of the original AT&T Price Cap 
Order, or to ``offer a reasoned explanation of why promotional rates 
should be treated differently from other rates.'' 8
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    \8\ Remand Order, 974 F.2d at 1355.
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    5. In response, the Commission vacated its prior decision on this 
issue and issued the Promotions NPRM in Docket 87-313.9 In the 
Promotions NPRM, the Commission tentatively concluded that promotions 
should be excluded from price cap regulation prospectively. The 
Commission found that AT&T was able to insulate itself from revenue 
losses created by promotional discounts by raising its rates for other 
residential services in Basket 1.10 The Commission relied upon 
evidence that AT&T had taken advantage of any downward price 
flexibility generated by promotions to raise other rates in Basket 1, 
thereby keeping aggregate rates at the price cap maximum. According to 
the Commission, ``[p]ermitting promotional offerings to be used as a 
basis for raising basic schedule rates, without limitation, would 
strongly encourage the proliferation of excessive promotional offerings 
and undercut the efficiency incentives of the price cap program.'' 
11 As an alternative, the Commission sought comment on whether to 
treat promotions as either new or restructured services.12
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    \9\ Promotions NPRM, 8 FCC Rcd 3715.
    \10\ Id. at 3716.
    \11\ Id.
    \12\ Id. at 3717. Under price cap regulation, a service is 
classified as new if it provides an additional option to a service, 
but does not replace the existing service. A service is classified 
as a restructured offering if it replaces an existing service. See 
Sections 61.44(g), 61.46(b), and 61.47(b) of the Commission's rules, 
47 CFR Secs. 61.44(g), 61.46(b), and 61.47(b).

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[[Page 69065]]

    6. In the OCP NPRM, the Commission tentatively concluded that the 
ReachOut category of services (i.e., most domestic MTS OCPs) should be 
removed from Basket 1 because there is substantial competition among 
providers of discounted residential services.13 The Commission 
sought comment on whether the treatment of OCPs under the AT&T price 
cap plan should be changed, and, if so, in what manner. Specifically, 
the Commission sought comment on whether it should adjust the API or 
the PCI for Basket 1 to reflect the removal of OCPs from Basket 1. As 
an alternative to removal of OCPs from price cap regulation, it asked 
for comment on whether OCPs should remain subject to price cap 
regulation, but be placed in a separate basket.14
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    \13\ OCP NPRM, 8 FCC Rcd at 5205-6. The price cap system's 
treatment of OCPs differs from that accorded promotions. OCPs are 
included in a separate service category (the ReachOut service 
category) from the basic MTS service categories within Basket 1, 
whereas promotions are included in the applicable MTS service 
categories. Changes in OCP rates, therefore, are not subject to the 
same limitations on rate changes as the basic schedule service 
categories. Further NPRM, 10 FCC Rcd at 7859.
    \14\ The Commission also proposed a number of other changes to 
the price cap rules in the OCP NPRM, including whether to remove 
commercial, 800 Directory Assistance, and analog private line 
services from price caps. In the Report and Order in CC Docket No. 
93-197, 10 FCC Rcd 3009 (1995), 60 FR 4569, January 24, 1995 
(Commercial Services Price Cap Order), the Commission resolved these 
issues, removed commercial services from price cap regulation, and 
deferred the question of the regulatory treatment of OCPs to this 
proceeding.
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    7. Because the issues presented in determining the regulatory 
treatment of promotions and OCPs were closely related, we consolidated 
these issues in a Further Notice of Proposed Rulemaking.15 In the 
Further NPRM, we made several tentative conclusions. We determined that 
Basket 1 domestic MTS promotions, domestic MTS OCPs, and basic schedule 
MTS offerings exhibit significant cross-elasticities of demand and are 
generally offered to the same class of customers, i.e., residential 
customers, following the removal of AT&T's domestic commercial services 
from price cap regulation.16 If we removed domestic MTS OCPs and 
promotions from price caps, the result would be that some of AT&T's 
offerings of domestic MTS for residential customers would be 
streamlined while retaining price cap regulation for similar offerings 
to the same class of customers. We declined to take this step and 
determined that the issue of further streamlining of OCPs and 
promotions might be better considered together with AT&T's motion for 
non-dominant status in a separate proceeding. We did propose, however, 
a number of related modifications to AT&T's price cap plan. 
Specifically, we recommended that, because promotions and OCPs are 
simply different ways of pricing the same service, they should be 
redefined as alternative pricing plans (APPs) for domestic, residential 
MTS, which co-exist with the basic domestic MTS rate schedule.17
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    \15\ Further NPRM, 10 FCC Rcd 7854.
    \16\ Id. at 7861.
    \17\ Id. at 7862.
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    8. On October 23, 1995, we released an order granting AT&T's motion 
to be reclassified as a non-dominant carrier.18 The Commission 
defined the relevant product and geographic market for AT&T, under the 
Competitive Carrier paradigm,19 as the interstate, domestic, 
interexchange market.20 We then decided that the appropriate 
standard to evaluate AT&T's reclassification request was whether AT&T 
possessed market power in the overall relevant market, even if AT&T has 
the ability to control the prices of one or more services. Applying 
this standard to the record, the Commission concluded that the market 
structure characteristics and the indicia of market conduct and 
performance all indicate that AT&T lacks market power in the 
interstate, domestic, interexchange market.21
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    \18\ AT&T Reclassification Order, 11 FCC Rcd 3271.
    \19\ Policy and Rules Concerning Rates for Competitive Common 
Carrier Services and Facilities Authorizations Therefor, CC Docket 
No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 
(1979), 44 FR 67445, November 26, 1979; First Report and Order, 85 
FCC 2d 1 (1980), 45 FR 76148, November 18, 1980; Further Notice of 
Proposed Rulemaking, 84 FCC 2d 445 (1981), 46 FR 10924, February 5, 
1981; Second Further Notice of Proposed Rulemaking, FCC 82-187, 47 
FR 17308 (1982); Second Report and Order, 91 FCC 2d 59 (1982), 47 FR 
37889, August 27, 1982; Order on Reconsideration, 93 FCC 2d 54 
(1983); Third Further Notice of Proposed Rulemaking, 48 FR 28292 
(1983); Third Report and Order, 48 FR 46791 (1983); Fourth Report 
and Order, 95 FCC 2d 554 (1983), 48 FR 52452, November 18, 1983, 
vacated, AT&T v. FCC, 978 F.2d 727 (D.C.Cir. 1992), cert. denied, 
MCI Telecommunications Corp. v. AT&T, 113 S.Ct. 3020 (1993); Fourth 
Further Notice of Proposed Rulemaking, 96 FCC 2d 922 (1984), 49 FR 
11856, March 28, 1984; Fifth Report and Order, 98 FCC 2d 1191 
(1984), 49 FR 34824, September 4, 1984; Sixth Report and Order, 99 
FCC 2d 1020 (1985), 50 FR 1215, January 10, 1985, vacated, MCI 
Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C.Cir. 1985) 
(collectively referred to as the Competitive Carrier proceeding).
    \20\ AT&T Reclassification Order, 11 FCC Rcd at 3292.
    \21\ Id. at 3347.
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    9. The Commission noted that the reclassification of AT&T as a non-
dominant carrier would free AT&T from price cap regulation for its 
residential, operator, 800 directory assistance, and analog private 
line services.22 By subsequent order, we removed AT&T's 
international services from price cap regulation as well, thus 
completing the process of ending price cap regulation of AT&T.23
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    \22\ Id. at 3281.
    \23\ Motion of AT&T Corp. to be Declared Non-Dominant for 
International Service, Order, FCC 96-209 (rel. May 14, 1996).
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III. Discussion

    10. In the AT&T Reclassification Order, we granted AT&T's motion to 
be reclassified as a non-dominant carrier.24 The reclassification 
of AT&T as a non-dominant carrier resulted in the end of price cap 
regulation for AT&T's residential, operator, 800 directory assistance, 
and analog private line services. Since AT&T's domestic MTS, including 
promotions and OCPs, is no longer subject to price caps, the issues 
raised in our tentative conclusions and proposals in the Further NPRM 
concerning whether to remove promotions and OCPs from price cap 
regulation are now moot. Similarly, the issues raised by the D.C. 
Circuit in the Remand Order in CC Docket No. 87-313 are moot. 
Accordingly, we will terminate as moot CC Docket Nos. 87-313 and 93-
197.
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    \24\ AT&T Reclassification Order, 11 FCC Rcd 3271.
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IV. Ordering Clause

    11. Accordingly, it is ordered that CC Docket Nos. 87-313 and 93-
197 are terminated as moot.

List of Subjects in 47 CFR Part 61

    Communications common carriers.

Federal Communications Commission
Shirley S. Suggs,
Chief, Publications Branch.
[FR Doc. 96-32934 Filed 12-30-96; 8:45 am]
BILLING CODE 6712-01-P