[Federal Register Volume 62, Number 62 (Tuesday, April 1, 1997)]
[Rules and Regulations]
[Pages 15412-15416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8113]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 36

[CC Docket No. 80-286; FCC 97-30]


Establishment of a Joint Board

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: On February 3, 1997, the Commission adopted a Report and Order 
(``Order'') adopting a recommended decision by the Federal-State Joint 
Board regarding permanent rules to govern the procedures that incumbent 
local exchange carriers (ILECs) use for allocating Other Billing and 
Collecting (OB&C) expenses between the intrastate and interstate 
jurisdictions. Specifically, the Joint Board recommended that OB&C 
expenses be divided equally among three services: Interstate toll; 
intrastate toll; and local exchange, with two thirds of the OB&C 
expenses thus allocated to the state jurisdiction, and one third 
allocated to the interstate jurisdiction. In cases in which an ILEC 
provides no interstate billing and collecting for an interexchange 
carrier (IXC), the Joint Board recommended an automatic reduction of 
the interstate assignment to five percent to cover the cost of billing 
the federal Subscriber Line Charge (SLC). The intended effect is to 
adopt the Joint Board's recommendations and implement new rules 
regarding the separations procedures applicable to OB&C expenses.

DATES: May 1, 1997.

FOR FURTHER INFORMATION CONTACT: Lynn Vermillera, Attorney/Advisor, 
Accounting and Audits Division, Common Carrier Bureau, (202) 418-0852.

SUPPLEMENTARY INFORMATION: In this proceeding, we establish permanent 
rules that satisfy our stated goals that the permanent rules (1) 
reflect principles of cost causation, (2) not be unnecessarily 
burdensome to implement and administer, (3) be simple to audit, and (4) 
be certain and predictable in their effect.

Regulatory Flexibility Analysis

    In the NPRM (60 FR 30059, June 7, 1995) Amendment of Part 36 of the 
Commission's Rules and Establishment of a Joint Board, Notice of 
Proposed Rulemaking, 10 FCC Rcd 7013 (1995)), the Commission certified 
that the Regulatory Flexibility Act (RFA) of 1980 did not apply to this 
rulemaking because the rules it proposed to adopt in this proceeding 
would not have a significant impact on a substantial number of small 
businesses. The Commission's RFA in this Report and Order (Amendment of 
Part 36 of the Commission's Rules and Establishment of a Joint Board, 
Report and Order, CC Docket No. 80-286, FCC 97-30 (1997)) conforms to 
the RFA, as amended by the Contract With America Advancement Act of 
1996 (CWAAA), Public Law 104-121, 110 Stat. 847 (1996).

Need for and Objectives of the Proposed Rules

    To reflect the fact that their facilities are used for both 
intrastate and interstate communication, ILECs must allocate their 
costs and expenses between the state and interstate jurisdictions. 
Prior to 1987, the rules for jurisdictional separation of OB&C expenses 
required ILECs to determine the amount of time spent billing for 
interstate services and for intrastate services. In 1987, the 
Commission adopted, at the recommendation of the Federal-State Joint 
Board, a new apportionment formula based on the number of users billed 
by each ILEC for specific interstate and intrastate services. Because 
the new system led to unpredictable results, and because carriers had 
difficulty administering the new formula (as evidenced by waiver 
requests), in 1988 the Commission reinstated, on an interim basis, a 
portion of the allocation rules that were in effect prior to 1987. In 
this proceeding, we are establishing permanent rules that satisfy our 
stated goals that the permanent rules (1) reflect principles of cost 
causation, (2) not be unnecessarily burdensome to implement and 
administer, (3) be simple to audit, and (4) be certain and predictable 
in their effect.

Summary of Significant Issues Raised by the Public Regarding Regulatory 
Flexibility

    There is some concern over what might be perceived by some as a 
likely shift of OB&C expenses to the interstate jurisdiction, with the 
possible result that ILECs could either lose money on billing and 
collection, or lose their IXC billing and collecting contracts

[[Page 15413]]

altogether. The argument suggested that a shift of OB&C expenses to the 
interstate jurisdiction might keep small ILECs from providing billing 
and collection services to IXCs, and convenient single-source billing 
to end users. In particular the Commission was urged to consider how 
this might affect small ILECs, and was suggested further that non-price 
cap companies should have the option of either using whatever fixed 
allocator is adopted, or user counts, or relative use among service 
categories. The Joint Board, however, thought and we concur, the 
likelihood of ILECs being unable to recover a large amount of their 
billing and collection expenses, or of their losing the IXCs' billing 
and collection business altogether, had been greatly exaggerated. The 
Joint Board therefore recommended that we not adopt the suggestion that 
non-price cap companies be allowed to choose among several 
methodologies in allocating their OB&C expenses. The Joint Board also 
stated that, under its recommended procedures, ILECs that lose their 
IXC OB&C customers (or that never handled billing and collecting for 
IXCs) need only allocate five percent of OB&C expenses to the 
interstate jurisdiction to cover the cost of billing the federal SLC.
    The Joint Board's recommendation included the preference for 
waivers of the fixed allocation for OB&C expenses over an automatic 
adjustment mechanism expressed by some of the state Commissioners. It 
was argued that waivers were preferable to a specific alternative 
procedure, because the waiver process would be flexible and sensitive 
to individual circumstances. If, contrary to the Joint Board's 
expectation, a pattern of waiver requests developed indicating that 
non-price cap ILECs might need other separations rules for allocation 
of OB&C expenses, the Joint Board suggested the Commission refer that 
issue, and the record accumulated through the waiver process, to it for 
consideration.
    We concur with the Joint Board's reasoning. As we have said, if 
IXCs discontinue employing ILECs as their billing agents, other 
developments, such as the IXCs competing with ILECs in local service 
markets, will probably influence their decision much more than this 
change to our allocation rules. If market forces or these rules do in 
fact cause an ILEC to lose all IXC billing and collecting business, 
that carrier will allocate only five percent of its OB&C expenses to 
the interstate jurisdiction to cover the cost of billing the SLC. 
PaPUC's suggestion that small ILECs choose among three different 
procedures could be burdensome to administer, difficult to audit, and 
have uncertain and unpredictable effects, and would therefore be a 
disproportionate response to a speculative concern. If a pattern of 
waiver requests indicates that non-price cap ILECs need other rules for 
the allocation of OB&C expenses, the record accumulated through the 
waiver process could form a record for the Joint Board's consideration. 
We believe, however, that the new rules will not cause significant IXC 
abandonment of their billing relationship with ILECs, but rather will 
simplify the needlessly complex procedures currently in use, and thus 
reduce the burden on carriers.

Description and Estimates of the Number of Small Entities to Which 
Rules Will Apply

    For the purposes of this 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. Sec. 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) categories 4812 (Radiotelephone Communications) and 4813 
(Telephone Communications, Except Radiotelephone) to be small entities 
when they have fewer than 1,500 employees. We first discuss generally 
the total number of small telephone companies falling within both of 
those SIC categories. Then, we discuss the number of small businesses 
within the two subcategories, and attempt to refine further those 
estimates to correspond with the categories of telephone companies that 
are commonly used under our rules.
    We have found incumbent LECs to be ``dominant in their field of 
operation'' since the early 1980's, and we consistently have certified 
under the RFA that incumbent LECs are not subject to regulatory 
flexibility analyses because they are not small businesses. We have 
made similar determinations in other areas. We recognize SBA's special 
role and expertise with regard to the RFA, and intend to continue to 
consult with SBA outside the context of this proceeding to ensure that 
the Commission is fully implementing the RFA. Although we are not 
persuaded on the basis of this record that our prior practice has been 
incorrect, we will, nevertheless, include small incumbent LECs in this 
FRFA to remove any possible issue of RFA compliance.

Total Number of Telephone Companies Affected

    Many of the decisions and rules adopted herein may have a 
significant effect on a substantial number of the small telephone 
companies identified by SBA. The United States Bureau of the Census 
(``the Census Bureau'') reports that, at the end of 1992, there were 
3,497 firms engaged in providing telephone services, as defined 
therein, for at least one year. This number contains a variety of 
different categories 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 this 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 
of which we are aware appears to be the data that we collect annually 
in connection with the Telecommunications Relay Service (TRS). 
According to our 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, we are 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, we estimate that there are fewer than 1,347 small 
incumbent LECs that may be affected by the decisions and rules adopted 
in this Order.

[[Page 15414]]

Interexchange Carriers

    Neither the Commission nor SBA has developed a definition of small 
entities specifically applicable to IXCs (SIC 4813). The closest 
applicable definition is for telephone carriers other than 
radiotelephone (wireless) companies. The most reliable source of 
information regarding the number of IXCs nationwide of which we are 
aware appears to be the data that we collect annually in connection 
with TRS. According to our most recent data, 97 companies reported that 
they were engaged in the provision of interexchange service. Although 
it seems certain that some of these carriers are not independently 
owned and operated, or have fewer than 1500 employees, we are unable at 
this time to estimate with greater precision the number of IXCs that 
would qualify as small business concerns under SBA's definition. 
Tentatively, we conclude that there are fewer than 97 small IXCs that 
may be affected by the permanent OB&C separations rules.

Description of Projected Reporting, Record Keeping and Other Compliance 
Requirements of the Rules

    The Commission's Part 36 rules apply to all incumbent local 
exchange carriers. This order reduces current reporting, record keeping 
or other compliance requirements, because carriers, including small 
ILECs, will no longer be required to segregate expenses assigned to the 
OB&C classification on the basis of the number of users of various 
services. We anticipate that carriers, including small ILECs, will need 
to devote less staff time to comply with these permanent rules than was 
needed to comply with the interim rules. No new skills are required to 
comply with these rules.

Steps Taken to Minimize Impact on Small Entities Consistent With Stated 
Objectives

    The Joint Board recommended a fixed-factor plan that was consistent 
with our stated objectives that the permanent rules be easy to 
implement and administer, simple to audit, and certain and predictable 
in their effect. As we explain in paragraph 22 above, the Joint Board 
recommended that we not adopt the PaPUC's suggestion that non-price cap 
companies be allowed to choose among several methodologies for 
allocating their OB&C expenses, because the Joint Board thought the 
likelihood of ILECs being unable to recover a large amount of their 
OB&C expenses, or of their losing their IXC OB&C customers, had been 
greatly exaggerated. We agree that having small ILECs choose among 
three different procedures would be needlessly complex to administer, 
difficult to audit, and unpredictable in result, and we consider such a 
complicated approach to be an excessive precaution against a 
speculative concern. We do, however, entertain waiver petitions for 
good cause shown,and if a pattern of waiver petitions develops that 
indicates, contrary to our expectation, that these rules are not 
satisfactory in regard to small ILECs, the waiver requests could form a 
basis for the Joint Board to recommend a solution tailored to any 
problem that is revealed. We also note that the Joint Board found 
greater support among commenters for waivers than for the alternative 
procedures we suggested in the NPRM.

Significant Alternatives Considered and Rejected

    The Joint Board considered and rejected an allocation procedure 
based on relative-use measurements. The Joint Board reasoned that 
measuring use produced results no more indicative of cost causation 
than applying a fixed factor, and that our other goals--ease of 
administration, auditability, and predictable results--were best met by 
adopting a fixed allocation factor. The Joint Board considered the 
contention of some parties that a measured-use method would be more 
convenient because it was self-adjusting, and that changing separations 
procedures was itself burdensome, but was persuaded by other 
commenters, including all the participating state public utility 
commissions, that the convenience of allocating OB&C expenses by a 
fixed factor outweighed these considerations and best met our goals.
    After determining to recommend allocation by fixed factor, the 
Joint Board considered all the possible factors set forth for its 
consideration by this Commission and by parties. The Joint Board took 
the approach that any plan that called for it to revise its 1987 view 
that there are three essential services (local exchange service, 
intrastate toll service, and interstate toll service) bore the burden 
of convincing the Joint Board of its superiority, and no plan overcame 
that challenge. We consider the Joint Board's approach reasonable. The 
Joint Board considered the argument that it should choose a factor that 
would result in an allocation to the interstate jurisdiction similar to 
that arrived at by using the interim rules, but rejected that approach 
because the results produced by the interim rules bear no special 
relation to cost causation that would justify their use as a benchmark.

Report to Congress

    The Secretary shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this 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). A copy of this Final Regulatory 
Flexibility Analysis shall also be published in the Federal Register.

Summary of Report and Order

    The expenses ILECs incur in preparing and rendering end user 
customer bills, and in accounting for revenues generated by those 
bills, are categorized as OB&C expenses. Most of the OB&C expenses are 
allocated to nonregulated activities, and, except for the cost of 
billing and collecting the SLC, ILECs recover them through untariffed 
charges.
    Prior to 1987, the rules for jurisdictional separation of OB&C 
expenses required ILECs to measure the amount of time they spent 
billing for interstate services and for intrastate services. In 1987, 
the Federal-State Joint Board in CC Docket No. 80-286 recommended, and 
we adopted, an interstate apportionment formula that replaced this 
method with one based on counting the number of users billed by each 
ILEC for specific interstate and intrastate services. This formula 
established an upper bound of thirty-three percent and a lower bound of 
five percent for the interstate assessment of OB&C expenses.
    Although we had expected that the new procedures would result in 
reduced interstate assignments, it became apparent that the new 
procedures would have the opposite effect, at least in some cases. In 
1988, this unanticipated result, combined with the difficulty carriers 
had administering the new formula (as evidenced by waiver requests), 
led us, on reconsideration, to reinstate on an interim basis a portion 
of the allocation rules that were in effect prior to 1987. On May 4, 
1995 we adopted a Notice of Proposed Rulemaking (NPRM) (60 FR 30059, 
June 7, 1995) in which we proposed replacing those interim rules with 
permanent rules for allocating OB&C expenses between the jurisdictions.
    The Order adopts the Joint Board's finding that nearly all OB&C 
expenses are joint or common with respect to the individual services 
appearing on customer bills, and that there is no method of allocating 
these joint and common expenses that reflects cost

[[Page 15415]]

causation better than a fixed allocator does. The Joint Board explained 
that a carrier's ability to attribute costs to individual services 
largely depends on the nature of the costs, i.e., on whether the costs 
are incremental, joint, or common. If a cost is incurred solely for a 
particular service, that cost is ``incremental'' with respect to the 
service. The Joint Board observed, however, that the costs of some 
shared facilities and operations are not incremental with respect to 
the individual services they support, and referred to such non-
incremental costs as joint or common.
    Moreover, the Order adopts the Joint Board's determination that 
most OB&C expenses are not incremental but rather are joint and common 
expenses, and as such are ill-suited to a measured-use method of 
allocation, because such measurements are not based on cost causation. 
As the Joint Board recommended, the Order adopts of a fixed allocation 
factor for OB&C expenses, because a fixed allocator would be easier to 
administer, easier to audit, and more certain and predictable in its 
effect than allocators based on usage measurements. Furthermore, as the 
Joint Board reasoned, a simple fixed allocator should be less expensive 
for ILECs to implement than procedures requiring time-consuming 
separations studies.
    The Joint Board recommended that ``assignment of these [OB&C] costs 
should reflect the three basic services for which the ILECs render 
bills: local, state toll and interstate toll.'' The Joint Board also 
stated that it saw no justification for departing from the established 
industry benchmark of allocating five percent of OB&C expenses to cover 
the cost of billing the SLC, and explained that allocating the larger 
share called for in some of the plans would consume an unreasonably 
high percentage of the total SLC revenue. The Joint Board anticipated, 
however, that the five percent assignment will be used only by those 
ILECs that do not perform billing functions for one or more IXC.
    The Joint Board acknowledged that dividing the allocation of OB&C 
expenses equally among interstate toll, intrastate toll, and local 
service may in at least some cases increase the allocation to the 
interstate jurisdiction, and that some commenters from the ILEC 
industry viewed this increased allocation to interstate as a drawback. 
The Joint Board did not, however, view this possible increase in the 
allocation to the interstate jurisdiction as a defect in its 
recommendation. In response to comments that the advent of competition 
may disrupt the traditional billing relationship between ILECs and 
IXCs, the Joint Board noted that the circumstances of individual ILECs 
are likely to vary significantly, and declined to speculate on the 
effect of local competition on the billing activities of ILECs. The 
Joint Board stated that, under its recommended procedures, ILECs that 
lose their IXC OB&C customers (or that never handled billing and 
collecting for IXCs) should allocate five percent of OB&C expenses to 
the interstate jurisdiction to cover the cost of billing the federal 
SLC.
    The Joint Board expressed skepticism in regard to the concern of 
some ILECs that, rather than pay ILECs for any increased interstate 
allocation, the IXCs would stop using the ILECs as billing agents 
altogether. The Joint Board noted that the IXCs must bill their 
customers in some manner, and asserted that sharing the OB&C expense 
with the ILECs, rather than bearing the entire billing expense 
themselves, would continue to be an attractive option for cost-
conscious and highly competitive IXCs. The Joint Board also discounted 
the concern of some ILECs that, because ILECs provide billing and 
collecting services to IXCs under fixed contractual arrangements, they 
would not be able to recover the increased allocation of OB&C expenses 
to interstate unless they could successfully renegotiate contracts with 
their IXC customers. The Joint Board observed that the ILECs are free 
to renegotiate their contracts with IXCs, and foresaw a one-third 
allocation to the interstate jurisdiction causing, at worst, a 
temporary decline in the profitability of some ILECs' billing 
operations. The Joint Board found that the likelihood of ILECs being 
unable to recover a large amount of their billing and collection 
expenses, or of their losing the IXCs' billing and collection business 
altogether, had been greatly exaggerated. Therefore the Joint Board 
recommended that we not adopt the suggestion of the Pennsylvania Public 
Utility Commission (PaPUC) that non-price cap companies be allowed to 
choose among a fixed-factor, a user-count, or a relative-use 
methodology in allocating their OB&C expenses. The Joint Board noted, 
however, that if cases occur where the effect of the allocation rules 
on an ILEC would be unduly harsh, the ILEC could file a petition for 
waiver.
    In the NPRM, we suggested that the proposed fixed allocation 
methods might require an adjustment mechanism that would be triggered 
if IXCs substantially reduced their use of ILEC billing and collecting 
services. The NPRM suggested two possible adjustment triggers. The 
first would permit an adjustment, or recourse to an alternative 
procedure, if an ILEC lost 50 percent of its existing interstate toll 
billing and collecting operations. The second would use the ILEC's loss 
of its largest IXC customer for billing services to activate the 
alternative allocation procedure. Under either procedure, the 
Commission could adjust the fixed allocator to take into account the 
decrease in the ILEC's interstate toll billing and collecting 
operations. The Joint Board, however, found little support from 
commenters for the proposed automatic adjustment mechanism to a fixed-
factor allocation system, and therefore recommended that we not adopt a 
specific automatic adjustment mechanism at this time. The Joint Board 
explained that if, contrary to its expectation, a pattern of waiver 
requests developed indicating that non-price cap ILECs appear to need 
other separations rules for allocation of OB&C expenses, we could refer 
that issue, and the record accumulated through the waiver process, to 
the Joint Board for consideration.
    We believe that adoption of these rules will further our goal of 
simplifying the separations process. In its Recommended Decision, the 
Joint Board carefully considered the nature of OB&C expenses, explained 
why a fixed factor is the most sensible approach to allocating these 
expenses among services and between the jurisdictions, and explained 
its recommendation that OB&C expenses be allocated equally among local 
exchange service, intrastate toll service, and interstate toll service. 
We also adopt as our own the Joint Board's reasoning in support of its 
recommendations.
    We agree with the Joint Board's characterization of OB&C expenses 
as joint and common expenses. In the NPRM, we suggested that postage 
costs constitute a substantial portion of OB&C costs, and that such 
costs are not directly attributable to any individual service, because 
several pages containing many itemized charges can be included in a 
customer's bill without increasing the postage charge. In addition, 
because the same group of employees perform the billing and collecting 
function for various services, segregation of their work by services is 
difficult and of doubtful usefulness. We agree, therefore, with the 
Joint Board that there is no method of allocating these joint and 
common expenses that reflects cost causation better than a fixed 
allocator does, and other considerations such as predictability and 
ease of administration strongly militate in favor of using a fixed 
factor. The Joint Board's recommended

[[Page 15416]]

methodology is clear and straightforward, and will be predictable in 
its effect, and will also be easier to administer and to audit than the 
current rules. Thus the Joint Board's recommendations fully satisfy the 
criteria for permanent rules for allocating OB&C expenses that we set 
forth in the NPRM.
    In the 1988 Reconsideration Order (53 FR 33010) (August 29, 1988), 
we said that ``[a]lthough these [OB&C] costs are fixed, only a specific 
and decreasing portion of the expenses in this category are related to 
interstate services [and] the reduction in the amount of billing and 
collecting the LECs perform on behalf of the [IXCs] should be reflected 
in reduced interstate assignments.'' We now believe that statement 
rested on faulty analysis. The Joint Board has correctly stated that 
nearly all the costs associated with OB&C are joint and common with 
respect to the services billed. In contrast to incrementally incurred 
costs, which are by nature specific, the interstate portion of these 
joint and common costs cannot meaningfully be described as ``specific 
and decreasing.'' Because the causation of joint and common costs is 
not attributable to individual services, no economic reason exists for 
concluding that a ``reduction in the amount of billing and collecting 
the LECs perform on behalf of IXCs should be reflected in reduced 
interstate assignments'' unless, of course, the service is no longer 
billed at all. We are further persuaded that noneconomic considerations 
of fairness and convenience do not, in the case of allocating OB&C 
expenses, call for adoption of a usage-based surrogate for measurable 
cost causation. The nature of OB&C expenses, which are unrelated to 
such possible surrogates for measurable cost causation as facilities 
investment or subscriber use, makes the option of allocating the costs 
equally among the billed services particularly attractive in this case.
    Thus we also find the factor chosen by the Joint Board--one third 
each to local exchange service, intrastate toll service, and interstate 
toll service--to be reasonable. The Joint Board saw no reason to depart 
from the tripartite division of services into local exchange, 
intrastate toll, and interstate toll that it recommended in 1987, 
stating that, ``Neither the three alternatives proposed in the Notice 
nor the fixed-factor proposals made by * * * [various commenters], 
surpass the simplicity or clarity of the three-way division we 
recommended in 1987 or otherwise offer benefits that induce us to 
depart from that position.'' We agree that the other possible factors 
that we and the commenters suggested do not improve on the three-way 
division recommended by the Joint Board. We also agree with the Joint 
Board that, for ILECs that do no billing or collecting for IXCs, there 
is no justification for departing at this time from the established 
industry benchmark of five percent as an appropriate allocation to 
cover the costs of billing the federal SLC.
    We do not find troubling the possibility that the new rules for 
allocating OB&C expenses may increase some ILECs' allocation to the 
interstate jurisdiction. We recognize that ILECs may wish to 
renegotiate IXC contracts that were based on the interim rules. Like 
the Joint Board, however, we find exaggerated the concern of some ILECs 
that, rather than pay a minor increase in OB&C expenses, IXCs will 
prefer to take on the entire cost of running a billing operation 
themselves. If IXCs discontinue employing ILECs as their billing 
agents, we think that other developments, such as the IXCs competing 
with ILECs in local service markets, will influence the IXCs' decisions 
in this regard much more than will this change to our OB&C expense 
allocation rules. If market forces or these rules do in fact cause an 
ILEC to lose all IXC billing and collecting business, that ILEC will no 
longer be required to allocate a third of its OB&C expenses to the 
interstate jurisdiction, but instead will allocate only five percent of 
its OB&C expenses to the interstate jurisdiction to cover the cost of 
billing the SLC.
    We also agree with the Joint Board's rejection of PaPUC's 
suggestion that small ILECs choose among three different allocation 
procedures. We conclude that PaPUC's proposal would be burdensome to 
administer, difficult to audit, and could have uncertain and 
unpredictable effects, and would therefore be a disproportionate 
response to a speculative concern.
    If unforeseen circumstances cause these or any of our rules to 
place an undue burden on specific carriers, those carriers may seek a 
waiver. We believe, however, for the reasons state above, that the new 
rules will not cause significant IXC abandonment of their billing 
relationship with ILECs, but rather will simplify the needlessly 
complex separations procedures currently in use, and will therefore 
reduce the administrative burden on carriers.

Ordering Clauses

    Accordingly, pursuant to Sections 1, 4(i), 220, 221(c) and 410(c) 
of the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 
220, 221(c), and 410(c).
    It is ordered That the recommendations of the Federal-State Joint 
Board in CC Docket No. 80-286 ARE ADOPTED.
    It is further ordered That, pursuant to Sections 1, 4(i), 220, and 
221(c) and 410(c) of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 154(i), 220, and 221(c), Part 36 of the Commission's Rules 
and Regulations, is amended as shown below.

List of Subjects in 47 CFR Part 36

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone, Uniform System of Accounts.

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

Rule Changes

    Part 36 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES 
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, 
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES

    1. The authority citation for part 36 continues to read as follows:

    Authority: 47 U.S.C. Secs. 151, 154 (i) and (j), 205, 221(c), 
403 and 410.

    2. Section 36.380 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 36.380  Other billing and collecting expense.

* * * * *
    (b) Local exchange carriers that bill or collect from end users on 
behalf of interexchange carriers shall allocate one third of the 
expenses assigned this classification to the interstate jurisdiction, 
and two thirds of the expenses assigned this classification to the 
state jurisdiction.
    (c) Local exchange carriers that do not bill or collect from end 
users on behalf of interexchange carriers shall allocate five percent 
of the expenses assigned this classification to the interstate 
jurisdiction, and ninety-five percent of the expenses assigned this 
classification to the state jurisdiction.

[FR Doc. 97-8113 Filed 3-31-97; 8:45 am]
BILLING CODE 6712-01-P