[Federal Register Volume 62, Number 232 (Wednesday, December 3, 1997)]
[Rules and Regulations]
[Pages 63864-63872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31713]



[[Page 63864]]

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20 and 22

[WT Docket No. 96-162; FCC 97-352]


Competitive Service Safeguards for Local Exchange Carrier 
Provision of Commercial Mobile Radio Services and Implementation of 
Section 601(d) of the Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this Report and Order, the Commission modifies the current 
structural separation requirement for the provision of cellular service 
by the Bell Operating Companies (BOCs), and adopts a new requirement 
that all incumbent local exchange carriers (LECs) provide in-region 
broadband CMRS, including cellular services, through a CMRS affiliate, 
subject to the Commission's accounting and affiliate transactions 
rules. Rural telephone companies will be exempt from this requirement; 
however, a competing carrier, interconnected with the rural carrier, 
may petition the Commission to remove the exemption, or the Commission 
may do so on its own motion, where the rural telephone company has 
engaged in anti-competitive conduct, such as discrimination. Companies 
serving fewer than two percent of the nation's subscriber lines that 
seek to provide broadband CMRS may petition the Commission for 
suspension or modification of the requirement that broadband CMRS be 
provided through a separate affiliate. These safeguards are adopted to 
address concerns that recent developments in the CMRS market, such as 
direct competition among telecommunications carriers and the 
development of fixed wireless services, may increase the incentive for 
anti-competitive behavior by incumbent LECs. The separate affiliate 
requirement will sunset on January 1, 2002, unless the Commission 
determines that the competitive conditions in the local exchange market 
are such that continuation of these safeguards is in the public 
interest.

EFFECTIVE DATE: February 11, 1998.

FOR FURTHER INFORMATION CONTACT: David Krech, Commercial Wireless 
Division, Wireless Telecommunications Bureau, (202) 418-0620. For 
additional information concerning the information collections contained 
in this Order contact Dorothy Conway at (202) 418-7349, or via the 
Internet at [email protected].

SUPPLEMENTARY INFORMATION: This Report and Order in WT Docket No. 96-
162, adopted September 30, 1997, and released October 3, 1997 (erratum 
released October 29, 1997), clarification Order (FCC 97-389) adopted 
October 24, 1997, and released October 27, 1997, is available for 
inspection and copying during normal business hours in the FCC 
Reference Center, Room 230, 1919 M Street N.W., Washington D.C. The 
complete text may be purchased from the Commission's copy contractor, 
International Transcription Service, Inc., 1231 20th Street, N.W., 
Washington D.C. 20036 (202) 857-3800. Synopsis of the Report and Order:

I. Background

    1. Safeguards Under Section 22.903 for BOC Provision of Cellular 
Service. Section 22.903 of the Commission's rules comprises two 
principal parts: the requirement that BOCs provide cellular service 
through a structurally separate corporation; and a series of 
restrictions on the separate affiliate, including restrictions on use 
and ownership of landline transmission facilities and requirements for 
the independent operation of the separate cellular affiliate through 
separate books of account, officers, operating, marketing, 
installation, and maintenance personnel and utilization of separate 
computer and transmission facilities in the provision of cellular 
service. This requirement was adopted in order to preserve the 
competitive potential of the non-wireline cellular provider, the 
Commission required the wireline carrier to provide its cellular 
service through a structurally separate affiliate, i.e., an independent 
corporation with separate officers, separate books of account, and 
separate operating, marketing, installation, and maintenance personnel. 
The Commission also prohibited the wireline carrier's cellular 
affiliate from owning facilities for the provision of landline 
telephone service. These structural separation requirements were 
intended to prevent wireline carriers from using their market power in 
the local exchange market to engage in anti-competitive practices, such 
as improper cost allocation between the wireline carrier and its 
cellular affiliate and discrimination by the wireline carrier in favor 
of its cellular affiliate. The Commission also prohibited the wireline 
carrier's cellular affiliate from owning facilities for the provision 
of landline telephone service.
    2. Section 22.903 Separate Affiliate Not Required for LEC Provision 
of personal communications services (PCS) and specialized mobile radio 
(SMR). Section 22.903 applies only to BOC provision of cellular 
service. Structural safeguards are not required for LEC, including BOC, 
provision of other CMRS, such as broadband PCS. See Amendment of the 
Commission's Rules to Establish New Personal Communications Services, 
GEN Docket No. 90-314, Second Report and Order, 58 FR 59174 (Nov. 8, 
1993), recon., 59 FR 32830 (June 24, 1994) (Broadband PCS Second Report 
and Order); Implementation of Sections 3(n) and 332 of the 
Communications Act, Regulatory Treatment of Mobile Service, GN Docket 
No. 93-252, Report and Order, 59 FR 18493 (April 19, 1994) (CMRS Second 
Report and Order). In addition, non-BOC LECs may provide cellular 
service without structural safeguards.
    3. Cincinnati Bell. In Cincinnati Bell Telephone v. FCC, 69 F.3d 
752 (6th Cir. 1995) the Sixth Circuit found that the Commission had 
failed to justify adequately the conclusion in the Broadband PCS Second 
Report and Order that the record was insufficient to repeal section 
22.903. The Court held that, in light of the decision that all LECs, 
including BOCs, could provide broadband PCS without establishing a 
structurally separate affiliate, the Commission was required--but had 
failed--to give a reasoned explanation for the disparate treatment of 
BOC provision of cellular and PCS, as well as the disparity in BOC and 
non-BOC provision of cellular service.
    4. NPRM. In the NPRM, Amendment of the Commission's Rules to 
Establish Competitive Service Safeguards for Local Exchange Carrier 
Provision of Commercial Mobile Radio Services, WT Docket No. 96-162, 
Notice of Proposed Rulemaking, Order on Remand, and Waiver Order, 61 FR 
46420 (Sept. 3, 1996), the Commission observed that the BOCs currently 
retain market power in the local exchange market because they control 
bottleneck facilities and serve the vast majority of customers within 
their service areas, and other carriers must seek interconnection from 
the BOC. To address this issue, the Commission proposed two 
alternatives to the existing structural safeguards for BOC cellular 
operations, and asked commenters to submit information regarding the 
costs of the structural separation requirement: (1) to retain the 
structural separations requirements of section 22.903 for BOC provision 
of in-region cellular service, but sunset the restrictions for a 
particular BOC when that BOC receives authorization to provide 
interLATA service originating in any in-region state; or (2) to 
eliminate the structural safeguards of section

[[Page 63865]]

22.903 immediately in favor of uniform safeguards for all Tier 1 LEC 
provision of broadband CMRS. With respect to both options, the 
Commission proposed to replace section 22.903 with safeguards similar 
to those adopted in the Competitive Carrier Fifth Report and Order 
proceeding. See Policy and Rules Concerning Rates for Competitive 
Common Carrier Services and Facilities Authorizations Therefor, CC 
Docket No. 79-252, Fifth Report and Order, 49 FR 34824 (Sept. 4, 1984) 
(Competitive Carrier Fifth Report and Order). In that order, the 
Commission concluded that, in order to qualify for treatment as a 
nondominant carrier, an independent local exchange company must provide 
interstate interexchange services through a separate affiliate that (1) 
has separate books of account; (2) does not jointly own transmission or 
switching facilities with that local exchange company; and (3) acquires 
any services from the affiliated local exchange carrier at tariffed 
rates, terms, and conditions. In addition, the Commission subjected the 
affiliate to the Commission's joint cost and affiliate transaction 
rules. In the NPRM, the Commission proposed a similar framework of 
safeguards for Tier 1 LECs providing in-region broadband CMRS

II. Report and Order

A. General Issues Regarding Incumbent LEC Provision of CMRS

    5. Section 22.903 was intended to apply only to cellular service; 
however, the anti-competitive practices it was meant to address are by 
their nature not unique to cellular service, but can occur any time a 
competing service provider requests interconnection with a local 
exchange network. That is because LECs that own CMRS subsidiaries have 
the incentive to engage in such anti-competitive practices in order to 
benefit their own CMRS subsidiaries and to protect their local exchange 
monopolies from wireless competition. At the same time, LEC control of 
bottleneck local exchange facilities, upon which competing CMRS 
providers must rely, gives LECs the opportunity to engage in anti-
competitive behavior.
    6. Improper cost allocation occurs when a LEC shifts costs from its 
CMRS subsidiary to its regulated local exchange service. Cost shifting 
has the effect of both subsidizing the LEC's CMRS subsidiary, thus 
giving the subsidiary a substantial competitive advantage over non-LEC 
affiliated CMRS providers, and of raising the costs borne by the LEC's 
captive local exchange ratepayers. See Regulatory Treatment of LEC 
Provision of Interexchange Services Originating in the LEC's Local 
Exchange Area and Policy and Rules Concerning the Interstate, 
Interexchange Marketplace, Second Report and Order in CC Docket No. 96-
149 and Third Report and Order in CC Docket No. 96-61, 62 FR 35974 
(Jul. 3, 1997) (Dom/Nondom Order).
    7. Requiring LECs to create a separate affiliate for the provision 
of CMRS services helps deter the LECs' incentive and ability to engage 
in anti-competitive practices and facilitates their detection. Arm's 
length transactions between LECs and their CMRS affiliates and the 
requirement that agreements be reduced to writing will help the 
Commission and competing CMRS providers to detect, and address, 
competitive abuses. Ease of detection will, in turn, deter a LEC from 
engaging in such abuses in the first place.
    8. The Commission observes that in the past structural separation 
requirements were applied in the wireless context only to BOC provision 
of cellular service. In the Broadband PCS Second Report and Order and 
the CMRS Second Report and Order the Commission concluded that 
nonstructural accounting safeguards were sufficient to protect against 
improper cost allocations and interconnection discrimination by LECs 
providing PCS or other CMRS. Not only did the Commission, prior to 
divestiture, apply structural separation in the wireless context only 
to cellular service, but in formulating rules for cellular service, the 
Commission applied the structural separation rules only to the BOCs, 
and not to the non-BOC LECs, in the provision of cellular service. The 
Commission believes that the rules should treat similar services 
consistently and that any structural separation requirements should be 
uniform to avoid disparate treatment. Thus, the choices for achieving 
regulatory symmetry are either to extend the section 22.903 structural 
safeguards for BOC provided cellular service to all LECs and all CMRS 
services, or to eliminate section 22.903 in favor of less restrictive 
safeguards applicable to the provision of all broadband CMRS.

B. Separate Affiliate Requirements for In-Region Incumbent LEC 
Provision of CMRS

    9. Anti-competitive interconnection practices, particularly 
discriminatory behavior, pose a substantial threat to full and fair 
competition in the CMRS marketplace, and all LECs, not just the BOCs, 
have the ability and incentive to engage in anti-competitive behavior. 
There are ways to lessen the threat of discrimination, predatory price 
squeezes, and cost misallocation that are less burdensome than the 
requirements currently imposed by section 22.903. For example, 
accounting safeguards, section 251 of the Communications Act, 47 U.S.C. 
251, and related interconnection rules, and price cap regulation all 
serve to protect local exchange ratepayers from bearing the costs and 
risks of the telephone companies' other nonregulated activities and 
reduce the likelihood that LECs will raise interconnection rates in 
order to effect a predatory price squeeze. Such mechanisms do not, 
however, eliminate the possibility of interconnection discrimination.
    10. In this Report and Order, the Commission requires that 
incumbent LECs offering in-region broadband CMRS services do so through 
a separate corporate affiliate. The CMRS affiliate must: (1) maintain 
separate books of account, and must maintain the books, records, and 
accounts in accordance with generally accepted accounting principles; 
(2) not jointly own transmission or switching facilities with the 
affiliated LEC that the affiliated LEC uses for the provision of local 
exchange services in the same in-region market; and (3) acquire any 
services from the affiliated LEC on a compensatory arm's length basis, 
as required by our affiliate transactions rules. The affiliate will be 
subject to the Commission's joint cost and affiliate transaction rules. 
Title II common carrier services or services, facilities, or network 
elements provided pursuant to sections 251 and 252 that are acquired 
from the affiliated LEC must be available to all other carriers, 
including CMRS providers, on the same terms and conditions.
    11. Applicability of Safeguards to Out-of-Region CMRS Operations. 
The Commission's concerns regarding incumbent LEC provision of CMRS 
services extend only to the provision of in-region CMRS services 
because concerns regarding discrimination in interconnection 
arrangements are not present outside of an incumbent LEC's wireline 
service territory. In addition, the geographic separation between an 
incumbent LEC's in-region service area and out-of-region CMRS mitigates 
the potential for undetected improper allocation of costs. With regard 
to interconnection, the lack of control of ``bottleneck'' local 
facilities means that an incumbent LEC providing CMRS ``out-of-region'' 
is similar to any other provider of CMRS.
    12. The Commission is not requiring any LEC to provide out-of-
region CMRS offerings through a separate affiliate. To the extent there 
is potential for incumbent LECs that provide out-of-

[[Page 63866]]

region CMRS to engage in anti-competitive behavior or cost 
misallocations such potential is adequately addressed through 
accounting requirements and other non-structural safeguards.
    13. The Commission also recognizes that CMRS license areas and 
incumbent LEC wireline service areas are not generally congruent. 
Moreover, non-BOC incumbent LECs, particularly smaller companies, do 
not necessarily have distinct service areas but may have discrete 
patches of coverage over a large area. With respect to CMRS, on the 
other hand, licensees typically have a well-defined geographic service 
area (e.g., major trading area (MTA), basic trading area (BTA)) under 
our rules. The Commission observes that an incumbent LEC's incentives 
and ability to act anti-competitively are significantly attenuated 
where the area served by its bottleneck wireline facilities is a small 
fraction of the area served by its wireless operations. Indeed, in 
situations where there is de minimis overlap between the incumbent's 
wireline service area and its CMRS license area, that incumbent LEC is 
close to offering ``out-of-region'' services. Therefore, the Commission 
is applying ``in-region'' CMRS structural safeguards only to an 
incumbent LEC whose wireline service area substantially overlaps its 
CMRS license area. The Commission defines ``in-region'' CMRS to be a 
CMRS offering where 10 percent or more of the population covered by the 
CMRS service area is within the incumbent LEC's wireline service area. 
The Commission concludes that the standard 10 percent attribution 
criteria should apply with respect to ownership relationships between 
an incumbent LEC and an in-region CMRS licensee.
    14. Applicability of Safeguards to All Broadband CMRS Services and 
All In-Region Incumbent LECs. The separate affiliate rules adopted 
herein will apply to all in-region LEC broadband CMRS operations 
because all incumbent LECs have the incentive and ability to 
discriminate against unaffiliated broadband CMRS providers of every 
type--not just cellular operators--where there is sufficient overlap 
between the incumbent LEC's wireline service area and the CMRS service 
area. Thus, limited safeguards applicable to all in-region incumbent 
LECs for all broadband CMRS services are necessary to promote 
competitive communications markets and to achieve regulatory symmetry.
    15. Increased competition and convergence of services in the CMRS 
market has heightened the need for regulatory symmetry among commercial 
mobile radio services and among different kinds of CMRS providers. In 
applying a separate affiliate requirement to all in-region incumbent 
LEC provision of CMRS and not just BOC provision of cellular service, 
the Commission is imposing certain costs on, and limiting flexibility 
for, independent LECs, which were not previously subject to these 
requirements or to any of the other requirements of section 22.903. 
Nevertheless, the competitive concerns regarding the ownership and 
control of bottleneck facilities are significant so long as there is a 
substantial geographic overlap between the incumbent LEC's wireline 
local telephone service area and the LEC's CMRS service area. When that 
overlap passes the 10 percent overlap threshold, the benefits of 
preventing the competitive harm inherent in the incumbent LEC-CMRS 
relationship significantly outweigh the costs imposed by safeguards. To 
the extent that incumbent LECs are concerned that imposition of a 
separate affiliate requirement will impair their ability to offer 
integrated wireline and wireless services, the rules permit the 
creation of certain bundled and integrated service packages, either 
through an incumbent LEC's offering facilities and services to the CMRS 
affiliate on nondiscriminatory terms, or solely through the CMRS 
affiliate that is able to offer competitive local exchange service. 
Absent a separate affiliate requirement, it would be more difficult for 
the Commission and competitors to detect and prevent cost 
misallocation, discrimination and other anti-competitive behavior by 
incumbent LECs. Particularly with respect to interconnection, a 
separate affiliate requirement is an effective way to afford the 
requisite degree of ``transparency'' to enable competitors and the 
Commission to detect discrimination in interconnection. Without a 
separate affiliate requirement, non-affiliated CMRS providers would 
have greater difficulty determining whether their interconnection 
arrangements with the LEC are comparable to those between the LEC and 
its CMRS provider.
    16. The Commission recognizes that this decision represents a 
departure from prior decisions in the Broadband PCS Second Report and 
Order and CMRS Second Report and Order where the Commission declined to 
impose structural safeguards for broadband PCS providers affiliated 
with LECs, and for LECs with CMRS affiliates, respectively. The 
Commission similarly declined to impose structural safeguards in the 
SMR Wireline Order, in which we permitted wireline carriers to obtain 
SMR licenses without restriction. The Commission's decision in this 
Report and Order strikes a different balance between the interest in 
fostering efficient provision of CMRS and the commitment to prevent 
unlawful discrimination and other anti-competitive practices by 
incumbent LECs than our decisions in the Broadband PCS Second Report 
and Order, CMRS Second Report and Order, SMR Wireline Order, and 
Cellular Reconsideration Order. These earlier decisions were not based 
on a full analysis of the competitive harms that might result from LEC 
provision of SMR, PCS, and cellular, particularly with respect to 
discrimination against unaffiliated competitors requesting 
interconnection.
    17. Basis for Level of Safeguards. These structural safeguards are 
substantially similar to those recently adopted with regard to 
independent LEC provision of in-region interstate, domestic, 
interexchange service, and are similar to the separate affiliate 
requirements the Commission adopted in the Competitive Carrier Fifth 
Report and Order. These safeguards provide an adequate measure of 
transparency between an incumbent LEC's wireline and in-region CMRS 
operations so as to prevent improper cost allocations and to ensure 
that competing CMRS providers are receiving nondiscriminatory 
treatment. The affiliate transactions rules and the requirement of 
separate books of account are useful to detect and address potential 
misallocation of costs and/or assets between a LEC and its CMRS 
affiliate. Any transaction between the incumbent LEC and its CMRS 
affiliate becomes subject to the Commission's affiliate transactions 
rules, which serve to prevent cost misallocation. The Commission 
concludes that, while price cap regulation may reduce the incentive for 
misallocation of costs of the nonregulated wireless services, it does 
not entirely eliminate that incentive. The Commission's requirement 
that any services and facilities provided by the incumbent LEC to its 
CMRS affiliate must also be available to independent CMRS operators on 
the same prices, terms, and conditions ensures that these transactions 
between the incumbent and its CMRS affiliate will be arms-length 
transactions. The Commission anticipates that interconnection 
arrangements between the incumbent LEC and its CMRS affiliate will be 
undertaken pursuant to tariff or through section 251 negotiated or 
arbitrated

[[Page 63867]]

interconnection agreements that are available to all CMRS carriers.
    18. Differences between In-Region Incumbent LEC-CMRS Safeguards and 
Current BOC Cellular Safeguards. In two critical respects, the 
requirements adopted herein are less stringent than the section 22.903 
restrictions. First, the CMRS separate affiliate does not need to have 
separate officers and employees from the incumbent LEC. Second, the 
CMRS separate affiliate is permitted to own its own wireline local 
exchange facilities, and the CMRS affiliate may operate as a 
competitive local exchange carrier in its region. The only restriction 
on the wireline LEC activities of the CMRS affiliate is that the 
affiliate may not jointly own transmission and switching facilities 
that the affiliated LEC uses for the provision of local exchange 
service in the region. This safeguard is generally consistent with the 
proposal made in the NPRM. This does not preclude the CMRS affiliate 
from using the affiliated incumbent LEC's central office, switch, roof 
space or other facilities--the incumbent LEC and the CMRS affiliate are 
merely precluded from jointly owning such facilities. This does not 
preclude the affiliate from jointly using the LEC's landline facilities 
to provide integrated service (subject to applicable interconnection 
and other regulations). Such transactions between the CMRS affiliate 
and the incumbent LEC for joint use would be subject to the affiliate 
transaction rules and the requirement that any facilities or services 
an incumbent LEC makes available to its CMRS affiliate also be made 
available to independent CMRS operators on the same rates, terms, and 
conditions.

C. In-Region Safeguards Applicable to Rural and Certain Mid-Sized 
Incumbent LECs

    19. In the 1996 Act Congress expressed particular concern about 
burdens placed on small and rural LECs. In determining where to draw 
the appropriate balance between concerns about burdens on LECs other 
than the largest LECs, Congress, in section 251 of the Communications 
Act, excluded two groups of LECs from the same good faith negotiation, 
interconnection, unbundling, resale, network disclosure and physical 
collocation requirements imposed on other LECs. First, rural telephone 
companies are exempt from the above-referenced section 251 requirements 
until such company receives a bona fide request for interconnection and 
the state commission acts to terminate the exemption. Second, local 
exchange carriers with fewer than two percent of the nation's 
subscriber lines installed in the aggregate nationwide may petition a 
state commission for suspension or modification of requirements in 
section 251 (b) and (c).
    20. The Commission finds that it is appropriate and equitable to 
exempt rural telephone companies from the separate affiliate 
requirement. A competing carrier, interconnected with the rural 
telephone company may petition the Commission to remove the exemption, 
or the Commission may do so on its own motion, where the rural 
telephone company has engaged in anti-competitive conduct, such as 
discrimination. We also find, consistent with Congress's treatment of 
LECs in section 251, that incumbent LECs with fewer than two percent of 
the nation's subscriber lines, may petition the Commission for 
suspension or modification of the separate affiliate requirement. The 
Commission will grant such a petition where petitioner can show that 
suspension or modification of the separate affiliate requirement is 
necessary to avoid a significant adverse economic impact on users of 
telecommunications services generally, or to avoid a requirement that 
would be unduly economically burdensome. In addition, petitioners must 
demonstrate that suspension or modification of the requirement is 
consistent with the public interest, convenience and necessity. Some 
LECs, especially rural telephone companies, might not have the 
resources to comply with the separate affiliate requirements and still 
provide CMRS. By reducing the regulatory burden on rural LECs the 
Commission will encourage the development of wireless services in areas 
where otherwise there may be no wireless service at all. Rural 
telephone companies may find it economical to use CMRS licenses to 
provide fixed wireless services in remote areas as an alternative means 
of extending the local exchange network to unserved or hard to serve 
areas. Moreover, under section 309(j)(3) of the Communications Act, 47 
U.S.C. Sec. 309(j)(3), the Commission is required to promote the 
development and rapid deployment of new technologies, products, and 
services for benefit of the public, including those residing in rural 
areas, and to disseminate licenses among a wide variety of applicants, 
including small businesses, rural telephone companies, and businesses 
owned by members of minority groups and women. Thus, foregoing a 
separate affiliate requirement for rural incumbent LECs and allowing 
these carriers to minimize any additional costs and reporting 
requirements promotes the goals set by Congress in section 309(j).
    21. For similar reasons, the Commission will permit carriers 
serving fewer than two percent of the nation's subscriber lines to 
petition the Commission for suspension or modification of the separate 
affiliate requirement.

D. Joint Marketing

    22. Overview. Section 601(d) of the 1996 Act provides: 
``Notwithstanding section 22.903 of the Commission's regulations (47 
CFR 22.903) or any other Commission regulation, a Bell operating 
company or any other company may, except as provided in sections 
271(e)(1) and 272 of the Communications Act of 1934 as amended by this 
Act as they relate to wireline service, jointly market and sell 
commercial mobile services in conjunction with telephone exchange 
service, exchange access, intraLATA telecommunications service, 
interLATA telecommunications service, and information services.''
    23. While section 601(d) negates section 22.903(e), the Commission 
retains authority to determine the permissible scope of LEC/CMRS joint 
marketing, including the rules to define the relationship between the 
affiliated entities engaged in such joint marketing. Section 601(d) 
expressly permits a BOC to market jointly and sell CMRS in conjunction 
with several types of landline services. Nothing in the plain language 
of section 601(d) prohibits or circumscribes the Commission from 
imposing conditions on, or defining the permissible scope of, such 
joint marketing. The authority to engage in joint marketing and sale of 
landline and CMRS services is expressly made subject to the provisions 
of section 272, which include separate affiliate requirements. The 
Commission requires that all incumbent LECs, other than LECs exempt 
from the separate affiliate rules, engaging in joint marketing of local 
exchange and exchange access and CMRS services, do so subject to the 
affiliate transactions rules (i.e., governing the transaction between 
the company's wireline and wireless affiliates). Such CMRS activity 
will be classified as nonregulated under the Commission's accounting 
rules, and must be conducted on a compensatory, arm's-length basis. 
These agreements must be reduced to writing and must be made available 
for public inspection upon request. Pursuant to the procedures set 
forth in Implementation of the Telecommunications Act of 1996: 
Accounting Safeguards Under the Telecommunications Act of 1996, CC 
Docket No. 96-150, Report and Order,

[[Page 63868]]

62 FR 2927 (Jan. 21, 1997), concerning making agreements available for 
public inspection, the CMRS affiliate, at a minimum, must provide a 
detailed written description of the terms and conditions of the 
transaction on the Internet within ten days of the transaction through 
the company's home page. The broad access of the Internet will increase 
the availability and accessibility of this information to interested 
parties, while imposing a minimum burden. The Commission also requires 
that the description of the terms and conditions of the transaction be 
sufficiently detailed to allow evaluation of compliance with the 
accounting rules. This information must also be made available for 
public inspection at the principal place of business of the parties, 
and must include a certification statement identical to the 
certification statement currently required to be included with all 
Automated Reporting and Management Information Systems (ARMIS) reports.

E. Resale

    24. The Commission's analysis with respect to authority to impose 
conditions on resale is necessarily quite similar to the analysis of 
such authority with respect to joint marketing. Section 601(d) clearly 
permits LECs to resell CMRS provided by their wireless affiliates, and 
as discussed above, the Commission retains authority to place 
conditions on, or define the scope of, resale of wireline and CMRS 
services. There is a considerable amount of CMRS spectrum capacity 
available in the open market. In addition, broadband CMRS providers 
(including LEC affiliates) are prohibited from restricting resale of 
their services or discriminating against resellers. In this 
environment, there is no reason to be particularly concerned about the 
terms and conditions in which the CMRS affiliate makes available CMRS 
to its incumbent LEC parent for resale. Therefore, the Commission does 
not believe it is appropriate to impose any further regulation upon 
incumbent LEC resale of its CMRS affiliate's CMRS, aside from other 
Commission rules such the accounting and affiliate transaction rules.
    25. With respect to joint billing and collection, which is not 
currently prohibited under Sec. 22.903, and other collateral activities 
that are currently prohibited under Sec. 22.903, including joint 
installation, maintenance, and repair for BOC cellular and wireline 
local exchange services, the Commission is not imposing any 
restrictions at this time. Carriers must adhere to other applicable 
Commission rules such as accounting and affiliate transactions rules.

F. Customer Proprietary Network Information

    26. Section 22.903(f) of the Commission's rules, 47 CFR 22.903(f), 
states that BOCs must not provide to their cellular separate affiliate 
any customer proprietary information, unless such information is 
publicly available on the same terms and conditions. The 1996 
amendments to the Communications Act address telecommunications 
carriers' use, disclosure and permission of access to Customer 
Proprietary Network Information (CPNI) in general. Specifically, 
section 222(c)(1), 47 U.S.C. 222(c)(1), provides: ``PRIVACY 
REQUIREMENTS FOR TELECOMMUNICATIONS CARRIERS.--Except as required by 
law or with the approval of the customer, a telecommunications carrier 
that receives or obtains customer proprietary network information by 
virtue of its provision of a telecommunications service shall only use, 
disclose, or permit access to individually identifiable customer 
proprietary network information in its provision of (A) the 
telecommunications service from which such information is derived, or 
(B) services necessary to, or used in, the provision of such 
telecommunications service, including the publishing of directories.'' 
Section 222(c)(2), 47 U.S.C. 222(c)(2), provides that, ``[a] 
telecommunications carrier shall disclose customer proprietary network 
information, upon affirmative written request by the customer, to any 
person designated by the customer.'' Section 222(c)(3), 47 U.S.C. 
222(c)(3), allows a local exchange carrier to use, disclose, or permit 
access to aggregate customer information for purposes other than those 
described in section 222(c)(1) only if the LEC provides such 
information to other carriers or persons on reasonable and 
nondiscriminatory terms and conditions upon reasonable request.
    27. The Commission recently initiated a separate proceeding to 
consider the formulation of CPNI regulations pursuant to section 222 
that would apply to all telecommunications carriers. See Implementation 
of the Telecommunications Act of 1996: Telecommunications Carriers' Use 
of Customer Proprietary Network Information and Other Customer 
Information, CC Docket No. 96-115, Notice of Proposed Rulemaking, 61 FR 
26483 (May 28, 1996) (CPNI NPRM). In the CPNI NPRM, the Commission 
sought comment on whether Sec. 22.903(f) is inconsistent with section 
222 of the Communications Act. The Commission also sought comment on 
whether Sec. 22.903(f) should be eliminated even if the rule is 
consistent with section 222, on the grounds that Sec. 22.903(f) is 
superfluous in light of section 222.
    28. Based on the record, the ability to use CPNI obtained from the 
wireline monopoly service for marketing purposes is clearly a 
competitive advantage the BOC CMRS providers would be very interested 
in utilizing, and other carriers are equally anxious to obtain. So that 
the Commission does not prejudge any aspect of the CPNI rulemaking, 
however, the appropriate interpretation of the scope of section 222's 
CPNI protections is deferred to CC Docket No. 96-115. Accordingly, 
pending the decision in the CPNI proceeding, the Commission will not 
eliminate Sec. 22.903(f) at this time, nor will Sec. 22.903(f) be 
extended to non-BOC LECs and to all CMRS. The Commission will take 
appropriate action regarding Sec. 22.903(f) upon resolution of the 
section 222 proceeding.
    29. As described above, section 222 provides general requirements 
regarding a telecommunications carrier's use, disclosure and permission 
of access to CPNI. These statutory provisions are self-executing. 
Consequently, the requirements of section 222 are applicable to the 
provision of CPNI by all incumbent LECs to their CMRS affiliates. (We 
note that section 222 applies to all telecommunications carriers and 
not just incumbent LECs. For the purposes of this Report and Order, 
however, we address only the issue of section 222 as it applies to 
incumbent LECs and their CMRS affiliates. This in no way limits the 
statutory obligations of other telecommunications carriers under 
section 222.) Specifically, we expect all incumbent LECs and their CMRS 
affiliates to comply with the limitations on use, disclosure, and 
access to CPNI set forth in section 222(c) in their provision of CMRS 
and LEC services respectively. Further, we expect BOCs to continue to 
comply with Sec. 22.903(f) of the Commission's rules with respect to 
BOC provision of CPNI to their cellular affiliates.

G. Network Information Disclosure

    30. Section 251(c)(5) of the Communications Act, 47 U.S.C. 
251(c)(5), imposes a duty on incumbent LECs to provide reasonable 
public notice of changes to the network necessary for the transmission 
and routing of services using that LEC's facilities or networks, as 
well as any other changes that would affect the

[[Page 63869]]

interoperability of those facilities and networks. The Commission 
tentatively concluded that no specific Part 22 rule pertaining to 
network information disclosure by the BOCs would be necessary or 
appropriate due to the requirement in section 251(c)(5). Incumbent LECs 
are required to ``provide public notice of changes in the information 
necessary for the transmission and routing of services'' using the 
incumbent LEC's CMRS facilities or networks, pursuant to section 
251(c)(5). The Communications Act imposes on incumbent LECs the duty to 
provide reasonable public notice of changes in the information needed 
to transmit and route services using a LEC's facilities or networks. 
Incumbent LECs must provide reasonable public notice of any other 
changes that would affect the interoperability of those facilities or 
networks. Section 51.325(c) of the Commission's rules, 47 CFR 
51.325(c), provides that until public notice has been given, an 
incumbent LEC may not disclose information about planned network 
changes to ``separate affiliates, separated affiliates, or unaffiliated 
entities.'' Accordingly, the Commission adopts the conclusion in the 
NPRM that no specific Part 22 rule pertaining to network information 
disclosure by the BOCs is needed.

VI. Conclusion

    31. In this proceeding, the Commission has modified the rules to 
reflect the Congressionally mandated goal of consistent treatment of 
like services and to afford telecommunications providers flexibility in 
structuring service offerings in response to changing consumer demand. 
In so doing, the Commission has considered the increasing convergence 
of regulated wireline services and nonregulated wireless services and 
consumer demand for ``one-stop shopping'' for telecommunications 
customers. At the same time, the Commission is mindful of concerns that 
incumbent wireline providers, seeking to offer wireless services, may 
take advantage of their wireline market power to allocate costs 
improperly, discriminate against competitors, or engage in a predatory 
price squeeze, all to the detriment of consumers. The Commission 
believes that the approach adopted in this Report and Order, including 
requiring incumbent LECs to offer in-region broadband CMRS through a 
separate CMRS affiliate, appropriately balances the LECs' need for 
flexibility in an evolving marketplace with competitors' concerns 
regarding the incentive for anti-competitive behavior by incumbent 
LECs. Further, the goals of section 22.903 are fulfilled through the 
separate CMRS affiliate requirement and through other factors in the 
marketplace, including increasing competition and convergence, 
accounting safeguards, price cap regulation, new interconnection 
requirements and other existing rules. Rural telephone companies are 
exempt from the separate affiliate requirement, and companies serving 
fewer than two percent of the nation's subscriber lines that seek to 
provide broadband CMRS without forming a separate affiliate may 
petition the Commission for suspension or modification of that 
requirement.
    32. The separate affiliate requirement will sunset on January 1, 
2002, unless the Commission determines that the competitive conditions 
in the local exchange market are such that continuation of these 
safeguards is in the public interest.

IV. Procedural Matters and Ordering Clauses

A. Regulatory Flexibility Analysis

    As required by the Regulatory Flexibility Act, 5 U.S.C. 603 (RFA), 
an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in 
the Notice of Proposed Rulemaking (NPRM) in WT Docket No. 96-162. The 
Commission sought written comments on the proposals in the NPRM, 
including the IRFA. The Commission's Final Regulatory Flexibility 
Analysis (FRFA) for the Report and Order conforms to the RFA, as 
amended by the Contract With America Advancement Act of 1996.
1. Need for and Purpose of the Action
    The Report and Order in this docket sets forth a consistent 
regulatory framework for the provision of commercial mobile radio 
services (CMRS) by incumbent local exchange carriers (LECs) and their 
affiliates. This framework will treat all broadband CMRS, including 
cellular services, uniformly and is narrowly tailored to address 
specific concerns about potential anti-competitive use of bottleneck 
wireline local exchange facilities.
2. Issues Raised in Response to the IRFA
    The Commission sought comment generally on the IRFA. No comments 
were submitted specifically in response to the IRFA.
3. Description and Estimates of the Number of Small Entities to Which 
the Rules Adopted in This Report and Order Will Apply
    The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that will be 
affected by our rules. The RFA defines the term ``small entity'' as 
having the same meaning as the terms ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction,'' and the same 
meaning as the term ``small business concern'' under the Small Business 
Act, 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 which: (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). The SBA has defined a small business for Standard 
Industrial Classification (SIC) category 4813 (Telephone 
Communications, Except Radiotelephone) to be small entities having 
fewer than 1,500 employees. This FRFA discusses generally the total 
number of small telephone entities potentially affected by this Report 
and Order.
    The rules adopted in this Report and Order apply to all incumbent 
LECs offering in-region broadband CMRS. Incumbent LEC is defined in 
section 251(h)(1) of the Communications Act of 1934, as amended 
(Communications Act), 47 U.S.C. 251(h)(1), with respect to an area, as 
``the local exchange carrier that (A) on the date of enactment of the 
Telecommunications Act of 1996, provided local exchange service in such 
area; and (B)(i) on such date of enactment, was deemed to be a member 
of the exchange carrier association pursuant to section 69.601(b) of 
the Commission's regulations (47 CFR 69.601(b)); or (ii) is a person or 
entity that, on or after such date of enactment, became a successor or 
assign of a member described in clause (i).'' Rural telephone companies 
are exempt from the structural safeguards imposed in this Report and 
Order; however, a competing carrier, interconnected with the rural 
telephone company, may petition the Commission to remove the exemption, 
or the Commission may do so on its own motion, where the rural 
telephone company has engaged in anti-competitive conduct. In addition, 
companies serving fewer than two percent of the nation's subscriber 
lines may petition the Commission for

[[Page 63870]]

suspension or modification of the separate affiliate requirement.
    Small incumbent LECs subject to these rules are either dominant in 
their field of operation or are not independently owned and operated, 
and, consistent with our prior practice, they are excluded from the 
definition of ``small entity'' and ``small business concerns.'' Out of 
an abundance of caution, however, for regulatory flexibility analysis 
purposes, we will consider small incumbent LECs within this analysis 
and use the term ``small incumbent LECs'' to refer to any incumbent 
LECs that arguably might be defined by the SBA as ``small business 
concerns.''
    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, wireless carriers, operator service 
providers, pay telephone operators, and resellers. It seems certain 
that some of the 3,497 telephone service firms may not qualify as small 
incumbent LECs because they are not incumbent LECs or they are not 
independently owned and operated. It seems reasonable to conclude that 
fewer than 3,497 telephone service firms would qualify as small 
incumbent LECs that may be affected by this Report and Order.
    The SBA has developed a definition of small entities for 
telecommunications companies other than radiotelephone (Telephone 
Communications, Except Radiotelephone). The Census Bureau reports that 
there were 2,321 such telephone companies in operation for at least one 
year at the end of 1992. According to the SBA's definition, a small 
business telephone company other than a radiotelephone company is one 
employing fewer than 1,500 persons. Of the 2,321 non-radiotelephone 
companies listed by the Census Bureau, 2,295 were reported to have 
fewer than 1,000 employees. Thus, at least 2,295 non-radiotelephone 
companies might qualify as small entities or small incumbent LECs based 
on these statistics. As it seems certain that some of these carriers 
are not independently owned and operated, this figure necessarily 
overstates the actual number of non-radiotelephone companies that would 
qualify as small businesses under the SBA definition. Consequently, the 
Commission estimates that using this methodology there are fewer than 
2,295 small entity telephone communications companies (other than 
radiotelephone companies) that may be affected by the proposed 
decisions and rules adopted in this Report and Order.
    Neither the Commission nor the SBA has developed a definition of 
small providers of local exchange services. The closest applicable 
definition under the SBA rules is for telephone communications 
companies other than radiotelephone companies. The most reliable source 
of information regarding the number of LECs nationwide of which the 
Commission is aware appears to be the data collected annually in the 
TRS Worksheet. According to the most recent data, 1,347 companies 
reported that they were engaged in the provision of local exchange 
services. As some of these carriers 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 the SBA's 
definition. Consequently, the Commission estimates that there are fewer 
than 1,347 small incumbent LECs that may be affected by the decisions 
and rules adopted in this Report and Order.
4. Reporting, Recordkeeping, and Other Compliance Requirements
    The rule adopted in this Report and Order requires incumbent LECs 
offering in-region broadband CMRS services to do so through a separate 
corporate affiliate. The CMRS affiliate must:
    (1) Maintain separate books of account, and must maintain the 
books, records, and accounts in accordance with generally accepted 
accounting principals (GAAP);
    (2) Not jointly own transmission or switching facilities with the 
affiliated LEC that the affiliated LEC uses for the provision of local 
exchange services in the same in-region market; and
    (3) Acquire any services from the affiliated LEC on a compensatory 
arm's length basis, as required by our affiliate transactions rules. 
The affiliate will be subject to the Commission's joint cost and 
affiliate transaction rules. Title II common carrier services or 
services, facilities, or network elements provided pursuant to sections 
251 and 252 that are acquired from the affiliated LEC must be available 
to all other carriers, including CMRS providers, on the same terms and 
conditions.
    This rule may require incumbent LECs to have additional reporting 
and recordkeeping with respect to transactions with the CMRS affiliate.
    Affiliate transactions. Some incumbent LECs may now be required to 
comply with the affiliate transactions rules in Part 32 of the 
Commission's rules if they offer broadband CMRS through a separate 
affiliate and conduct transactions with the CMRS affiliate. Prior to 
the adoption of the rule in this Report and Order, the Commission 
required the BOCs to establish a separate affiliate for provision of 
cellular services, otherwise a separate affiliate was not required for 
LEC provision of broadband CMRS. Therefore, LECs that previously did 
not have a separate affiliate for broadband CMRS, and thus did not have 
affiliate transactions, will now have to establish a separate affiliate 
and comply with the Commission's affiliate transactions rules.
    Joint marketing agreements. The rule adopted in this Report and 
Order requires all incumbent LECs and the CMRS affiliates engaging in 
joint marketing of local exchange and exchange access and CMRS to 
reduce all such agreements to writing and make the agreements available 
for public inspection upon request at the principal place of business 
of the affiliate and the incumbent LEC. The documentation also must 
include a certification statement identical to the certification 
statement currently required to be included with all Automated 
Reporting and Management Information Systems (ARMIS) reports. The 
affiliate must also provide a detailed written description of the terms 
and conditions of the transaction on the Internet within ten days of 
the transaction through the affiliate's home page.
5. Steps Taken To Minimize Burdens on Small Entities and Significant 
Alternatives Considered
    The Commission sought to minimize burdens on small entities by 
providing an exemption for rural telephone companies. Rural telephone 
companies are exempted from the separate affiliate requirement; 
however, a competing local exchange carrier, interconnected with the 
rural telephone company, may petition the Commission to remove the 
exemption, or the Commission may do so on its own motion, if the rural 
telephone company has engaged in anti-competitive conduct.
    The Commission sought to minimize burdens on small entities by 
permitting incumbent LECs with fewer than two percent of the nation's 
subscriber lines to petition the Commission for suspension or 
modification of the separate affiliate requirement. The Commission will 
grant such a petition if the incumbent LEC can demonstrate that 
suspension or modification of the separate affiliate requirement is 
necessary to avoid a significant adverse

[[Page 63871]]

economic impact on users of telecommunications services generally or to 
avoid a requirement that would be unduly burdensome, and consistent 
with the public interest, convenience, and necessity.
    The Commission considered and rejected the proposals in the NPRM: 
(1) to retain, but sunset, section 22.903 of the Commission's rules, or 
(2) to require all Tier 1 (or Class A) LECs providing in-region 
broadband CMRS to file a safeguards plan. Neither of the proposals in 
the NPRM would impose additional regulation on Class B LECs. The 
Commission instead decided to impose structural separation regulations 
on all incumbent LECs providing broadband CMRS because anti-competitive 
interconnection practices, particularly discriminatory behavior, pose a 
substantial threat to full and fair competition in the CMRS 
marketplace, and all incumbent LECs have the ability and incentive to 
engage in anti-competitive behavior. The Commission observed that 
increased competition in the CMRS market and the possibility that CMRS 
in the future may substitute for wireline local loops may actually 
increase incumbent LECs' incentive to discriminate against unaffiliated 
CMRS providers. The Commission concluded that it was appropriate to 
apply structural safeguards to all incumbent LECs. As described above, 
however, the Commission has considered, and taken measures to address, 
the additional burdens these requirements might have on rural telephone 
companies and on those entities serving two percent of the nations' 
subscriber lines.
6. Report to Congress
    The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis with this Report and Order in a report to Congress 
pursuant to section 251 of the Small Business Regulatory Enforcement 
Fairness Act of 1996, 5 U.S.C. Sec. 801(a)(1)(A).

B. Paperwork Reduction Act

    This Report and Order contains a modified information collection. 
The Commission, as part of its continuing effort to reduce paperwork 
burdens, has submitted this to Office of Management and Budget (OMB) 
for emergency approval under the Paperwork Reduction Act of 1995, Pub. 
L. No. 104-13.
    Paperwork Reduction Act Comment Filing Procedures. Written comments 
by the public on the proposed and/or modified information collections 
are due on or before January 2, 1998. Written comments must be 
submitted by the Office of Management and Budget (OMB) on the proposed 
and/or modified information collections on or before February 2, 1998. 
In addition to filing comments with the Secretary, a copy of any 
comments on the information collections contained herein should be 
submitted to Judy Boley, Federal Communications Commission, Room 234, 
1919 M Street, N.W., Washington, DC 20554, or via the Internet to 
[email protected] and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--
17th Street, N.W., Washington, DC 20503 or via the Internet to 
[email protected].
    Further Information: For additional information concerning the 
information collections contained in this Notice of Proposed Rulemaking 
contact Dorothy Conway at (202) 418-7349 or via the Internet at 
[email protected].

Supplementary Information

    Title: Amendment of the Commission's Rules to Establish Competitive 
Service Safeguards for Local Exchange Carrier Provision of Commercial 
Mobile Radio Services and Implementation of section 601(d) of the 
Telecommunications Act of 1996.
    Type of Review: Revision of currently approved Collection.
    Respondents:
    Number of Respondents: We estimate up to 19.
    Estimated Time Per Response: The average burden on the applicant is 
6056 hours for the information necessary to maintain books of account 
of incumbent LEC's in-region CMRS affiliate separate from LEC's local 
exchange and other activities. The average burden on the applicant is 
72 hours to conduct arms length transactions between the incumbent LEC 
and the CMRS affiliate. The average burden on the affiliate is 1 hour 
for making the written contracts available for public inspection at 
their principal place of business and posting a written description of 
the terms and conditions of the transaction in the Internet.
    Total burden = 116,456 hours,
    We estimate that up to five respondents may have to estabish 
separate affiliates and thus would incur start-up costs.
    Estimated Cost Per Respondent: $200,600.
    Total Respondent Costs: $1,003,000.
    Needs and Uses: The Commission imposes the recordkeeping collection 
to ensure that incumbent LECs providing broadband CMRS in-region 
through a separate affiliate are in compliance with the Communications 
Act, as amended, and with Commission policies and regulations.

C. Authority

    33. The above action is authorized under the Communications Act, 
4(i), 303(r), 309(c), 309(j), and 332, 47 U.S.C. 154(i), 303(r), 
309(c), 309(j), and 332, as amended.

D. Ordering Clauses

    34. Accordingly, it is ordered that, pursuant to the authority of 
sections 4(i), 303(g), 303(r), and 332(a) of the Communications Act of 
1934, as amended, 47 U.S.C. 154(i), 303(g), 303(r), and 332(a), Part 22 
of the Commission's Rules, 47 CFR Parts 20 and 22, is amended in the 
rule changes.
    35. It is further ordered that the rules adopted in this Report and 
Order will be effective February 11, 1998.

List of Subjects in 47 CFR Parts 20 and 22

    Communication common carriers, Reporting and recordkeeping 
requirements.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Title 47 of the Code of Federal Regulations part 20 is amended as 
follows:

PART 20--COMMERCIAL MOBILE RADIO SERVICES

    1. The authority citation for part 20 continues to read as follows:

    Authority: Secs. 4, 251-52, 303, and 332, 48 Stat. 1066, 1062, 
as amended; 47 U.S.C. 154, 251-52, 303, and 332 unless otherwise 
noted.

    2. Section 20.20 is added to read as follows:


Sec. 20.20  Conditions applicable to provision of CMRS service by 
incumbent Local Exchange Carriers.

    (a) Separate affiliate. An incumbent LEC providing in-region 
broadband CMRS shall provide such services through an affiliate that 
satisfies the following requirements:
    (1) The affiliate shall maintain separate books of account from its 
affiliated incumbent LEC. Nothing in this section requires the 
affiliate to maintain separate books of account that comply with part 
32 of this chapter;
    (2) The affiliate shall not jointly own transmission or switching 
facilities with its affiliated incumbent LEC that the affiliated 
incumbent LEC uses for the provision of local exchange service in the 
same in-region market. Nothing in this section prohibits the affiliate 
from sharing personnel or other resources or

[[Page 63872]]

assets with its affiliated incumbent LEC; and
    (3) The affiliate shall acquire any services from its affiliated 
incumbent LEC for which the affiliated incumbent LEC is required to 
file a tariff at tariffed rates, terms, and conditions. Other 
transactions between the affiliate and the incumbent LEC for services 
that are not acquired pursuant to tariff must be reduced to writing and 
must be made on a compensatory, arm's length basis. All transactions 
between the incumbent LEC and the affiliate are subject to part 32 of 
this chapter, including the affiliate transaction rules. Nothing in 
this section shall prohibit the affiliate from acquiring any unbundled 
network elements or exchange services for the provision of a 
telecommunications service from its affiliated incumbent LEC, subject 
to the same terms and conditions as provided in an agreement approved 
under section 252 of the Communications Act of 1934, as amended.
    (b) Independence. The affiliate required in paragraph (a) of this 
section shall be a separate legal entity from its affiliated incumbent 
LEC. The affiliate may be staffed by personnel of its affiliated 
incumbent LEC, housed in existing offices of its affiliated incumbent 
LEC, and use its affiliated incumbent LEC's marketing and other 
services, subject to paragraphs (a)(3) and (c) of this section.
    (c) Joint marketing. Joint marketing of local exchange and exchange 
access service and CMRS services by an incumbent LEC shall be subject 
to part 32 of this chapter. In addition, such agreements between the 
affiliate and the incumbent LEC must be reduced to writing and made 
available for public inspection upon request at the principle place of 
business of the affiliate and the incumbent LEC. The documentation must 
include a certification statement identical to the certification 
statement currently required to be included with all Automated 
Reporting and Management Information Systems (ARMIS) reports. The 
affiliate must also provide a detailed written description of the terms 
and conditions of the transaction on the Internet within 10 days of the 
transaction through the affiliate's home page.
    (d) Exceptions. (1) Rural telephone companies. Rural telephone 
companies are exempted from the requirements set forth in paragraphs 
(a), (b) and (c) of this section. A competing telecommunications 
carrier, interconnected with the rural telephone company, however, may 
petition the FCC to remove the exemption, or the FCC may do so on its 
own motion, where the rural telephone company has engaged in 
anticompetitive conduct.
    (2) Incumbent LECs with fewer than 2 percent of subscriber lines. 
Incumbent LECs with fewer than 2 percent of the nation's subscriber 
lines installed in the aggregate nationwide may petition the FCC for 
suspension or modification of the requirements set forth in paragraphs 
(a), (b) and (c) of this section. The FCC will grant such a petition 
where the incumbent LEC demonstrates that suspension or modification of 
the separate affiliate requirement is
    (i) Necessary to avoid a significant adverse economic impact on 
users of telecommunications services generally or to avoid a 
requirement that would be unduly economically burdensome, and
    (ii) Consistent with the public interest, convenience, and 
necessity.
    (e) Definitions. Terms used in this section have the following 
meanings:
    Affiliate. ``Affiliate'' means a person that (directly or 
indirectly) owns or controls, is owned or controlled by, or is under 
common ownership with, another person. For purposes of this section, 
the term ``own'' means to own and equity interest (or the equivalent 
thereof) of more than 10 percent.
    Broadband Commercial Mobile Radio Service (Broadband CMRS). For the 
purposes of this section, ``broadband CMRS'' means Domestic Public 
Cellular Radio Telecommunications Service (part 22, subpart H of this 
chapter), Specialized Mobile Radio (part 90, subpart S of this 
chapter), and broadband Personal Communications Services (part 24, 
subpart E of this chapter).
    Incumbent Local Exchange Carrier (Incumbent LEC). ``Incumbent LEC'' 
has the same meaning as that term is defined in Sec. 51.5 of this 
chapter.
    In-region. For the purposes of this section, an incumbent LEC's 
broadband CMRS service is considered ``in-region'' when 10 percent or 
more of the population covered by the CMRS affiliate's authorized 
service area, as determined by the 1990 census figures, is within the 
affiliated incumbent LEC's wireline service area.
    Rural Telephone Company. ``Rural Telephone Company'' has the same 
meaning as that term is defined in Sec. 51.5 of this chapter.
    (f) Sunset. This section will no longer be effective after January 
1, 2002.
    Title 47 of the Code of Federal Regulations part 22, subpart H is 
amended as follows:

Subpart H--Cellular Radiotelephone Service

    3. The authority citation for part 22 continues to read as follows:

    Authority: 47 U.S.C. 154, 303, unless otherwise noted.

    4. Section 22.903 is revised to read as follows:


Sec. 22.903  Conditions applicable to former Bell Operating Companies.

    Ameritech Corporation, Bell Atlantic Corporation, BellSouth 
Corporation, NYNEX Corporation, Pacific Telesis Group, Southwestern 
Bell Corporation, U.S. West Inc., their successors in interest and 
affiliated entities (BOCs) may engage in the provision of cellular 
service only in accordance with the conditions in this section and 
Sec. 20.20 of this chapter, unless otherwise authorized by the FCC. 
BOCs may, subject to other provisions of law, have a controlling or 
lessor interest in or be under common control with separate 
corporations that provide cellular service only under the following 
conditions:
    (a) Through (e) [Reserved].
    (f) Proprietary information. BOCs must not provide to any such 
separate corporation any customer proprietary information, unless such 
information is publicly available on the same terms and conditions.
    (g) Reserved.

[FR Doc. 97-31713 Filed 12-2-97; 8:45 am]
BILLING CODE 6712-01-P