[Federal Register Volume 63, Number 138 (Monday, July 20, 1998)]
[Proposed Rules]
[Pages 38774-38783]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19266]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 69

[CC Docket No. 98-77; FCC 98-101]


Access Charge Reform for Incumbent Local Exchange Carriers 
Subject to Rate-of-Return Regulation

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: By this Notice of Proposed Rulemaking (NPRM), the Commission 
commences a proceeding to reform access charge rules applicable to 
incumbent local exchange carriers (LECs) subject to rate-of-return 
regulation. The NPRM seeks comment on proposals to establish a 
transition to access charges that more closely reflect economic costs, 
with a goal of making our system of interstate access charges 
compatible with a competitive paradigm. Specifically, the Commission 
seeks comment on proposals to revise the switched access rate structure 
for rate-of-return LECs. The Commission also solicits comments on some 
additional issues relating to the regulation of interstate access 
services of rate-of-return LECs.

DATES: Comments are due on or before August 17, 1998, and reply 
comments are due on or before September 17, 1998. Written comments and 
reply comments by the public on the proposed information collections 
are due August 17 and September 17, 1998, respectively.

ADDRESSES: Federal Communications Commission, Secretary, Room 222, 1919 
M Street N.W., Washington, DC 20554. In addition to filing comments 
with the

[[Page 38775]]

Commission's Secretary, a copy of any comments on the proposed 
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].

FOR FURTHER INFORMATION CONTACT: Douglas L. Slotten, Common Carrier 
Bureau, Competitive Pricing Division, at (202) 418-1572. For additional 
information concerning information collections, contact Judy Boley at 
(202) 418-0214, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's NPRM 
in the matter of Access Charge Reform for Incumbent Local Exchange 
Carriers Subject to Rate-of-Return Regulation, CC Docket 98-77, adopted 
May 26, 1998, and released June 4, 1998. The complete text of this NPRM 
is available for inspection and copying during normal business hours in 
the Commission's Reference Center, Room 239, 1919 M Street N.W., 
Washington, DC. In addition, the NPRM is available through the Internet 
at http://www.fcc.gov/Bureaus/Common__Carrier/Notices/1998/fcc98101.wp. 
The complete text may be purchased from the Commission's duplicating 
contractor, International Transcription Service, Inc. (ITS, Inc.), at 
1231 20th Street N.W., Washington, DC 20036 (202-857-3800).

Paperwork Reduction Act

    This NPRM contains either proposed or modified information 
collections. As part of our continuing effort to reduce paperwork 
burdens, we invite the general public and OMB to take this opportunity 
to comment on any additional information collections contained in this 
NPRM, not previously approved by OMB, as required by the Paperwork 
Reduction Act of 1995, Pubic Law 104-13. Public and agency comments and 
reply comments are due August 17 and September 17, 1998, respectively. 
Written comments by the Office of Management and Budget on the proposed 
information collections are due September 18, 1998. Comments should 
address: (a) Whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.
    OMB Control No.: None.
    Title: Access Charge Reform for Incumbent Local Exchange Carriers 
Subject to Rate-of-Return Regulation--CC Docket No. 98-77.
    Form No.: N/A.
    Respondents: Business or other for-profit entities.
    Type of Review: New collection.

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                                      Number of      Estimated time per response                                
        Proposed collection          respondents               (annual)                  Total annual burden    
----------------------------------------------------------------------------------------------------------------
Cost Study for Local Switching Port          155  400 Hours........................  62,000 Hours.              
 Costs.                                                                                                         
Tariff Filing......................           51  200 Hours........................  10,200 Hours.              
New Services Requirement...........           10  10 Hours.........................  100 Hours.                 
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    Frequency of Response: One-time requirement, on occasion.
    Total Annual Burden: 72,300 Hours.
    Estimated Costs Per Respondent: $600 per respondent.
    Needs and Uses: The Commission commences a proceeding to reform 
access charge rules applicable to incumbent local exchange carriers 
(LECs) subject to rate-of-return regulation. We propose to require 
rate-of-return LECs to conduct cost studies to determine the 
geographically-averaged portion of local switching costs that is 
attributable to the line-side ports and to dedicated trunk-side ports, 
to be filed with the tariffs implementing these changes. The Commission 
also proposes to allow rate-of-return carriers to file a petition for 
new services based on a public interest standard. The information will 
be used to determine whether the incumbent LECs should receive the 
regulatory relief proposed in the NPRM. The information collections are 
necessary to implement the Telecommunications Act of 1996.

Synopsis of Notice of Proposed Rulemaking

    1. Access reform is one of a series of actions that collectively 
are intended to foster and accelerate the introduction of efficient 
competition in all telecommunications markets, pursuant to the mandate 
of the 1996 Telecommunications Act (1996 Act). In the Access Charge 
Reform Order, we set in motion the forces of competition and 
deregulation in local telecommunications markets served by incumbent 
LECs subject to price cap regulation. Access Charge Reform, CC Docket 
No. 96-262, First Report and Order, 12 FCC Rcd 15982 (1997), 62 FR 
31868 (June 11, 1997) (Access Charge Reform Order); Order on 
Reconsideration, 12 FCC Rcd 10119 (1997), 62 FR 40460 (July 29, 1997); 
appeal pending sub nom. Southwestern Bell Tel. Co. v. FCC, No. 97-2618 
(and consolidated cases) (8th Cir. argued Jan. 15, 1998); Second Order 
on Reconsideration, 12 FCC Rcd 16606 (1997), 62 FR 56121 (October 29, 
1997) (Second Reconsideration Order). The 1996 Act, however, expressly 
provides that ``Consumers in all regions of the Nation . . . should 
have access to telecommunications and information services . . . that 
are reasonably comparable to those services provided in urban areas and 
that are available at rates that are reasonably comparable to rates 
charged for similar services in urban areas.'' 47 U.S.C. 254(b)(3). 
With this NPRM, we commence a further proceeding on access reform to 
mobilize the same forces to serve the interests of consumers located in 
those rural and suburban areas that are served by incumbent LECs 
subject to rate-of-return regulation. The first step in this reform 
process is to enable these rate-of-return LECs to assess interstate 
access charges that are more consistent with principles of cost-
causation and economic efficiency.
    2. With this NPRM, we continue the process of reforming the access 
charge rate structure for rate-of-return LECs that was begun in the 
Access Charge Reform Order with the modifications to the transport rate 
structure, the reallocation of costs in the transport interconnection 
charge (TIC), and the amendments reflecting the changes necessary to 
implement universal service reform. In doing so, we intend to build on 
the analysis of the access charge rate structure developed in the 
Access Charge Reform Order. While rate-of-return LEC costs generally 
may be higher than price cap LEC costs due to longer loops or lower 
economies of

[[Page 38776]]

scale, the two groups of carriers incur costs in the same manner, and 
similar economic principles should apply. Subject to receiving evidence 
showing that differences exist between price cap LECs and rate-of-
return LECs that require different rules to achieve the goal of 
fostering an efficient, competitive marketplace, we propose to amend 
the access charge rules for rate-of-return LECs in a manner similar to 
that adopted for price cap LECs.
    3. We recognize that differences in the circumstances of rate-of-
return and price cap LECs may require different approaches to reform, 
including a different transition to more economically efficient, cost-
based interstate access charges. We seek to ensure that, at the end of 
the transition, all Americans enjoy the benefits of competition. By 
varying the transitional mechanisms, we can ensure that the process of 
getting to those benefits is as smooth as possible.
    In this NPRM we propose to reform the access charge rate structure 
of rate-of-return LECs. We address many of the most fundamental 
economic inefficiencies in the current structure and will lay a 
foundation on which to develop further initiatives for rate-of-return 
LECs, including the rural LECs, most of whom are subject to rate-of-
return regulation. In a subsequent phase of this proceeding, we intend 
to address the very difficult question of when, and how much, 
additional pricing flexibility should be afforded to rate-of-return 
LECs. We also intend to address, in a future proceeding, alternative 
forms of regulation for LECs currently subject to rate-of-return 
regulation. Such alternative regulatory structures could offer 
incentives to rate-of-return LECs that are able to become more 
efficient.
    5. The Access Charge Reform Order, including subsequent 
reconsideration and waiver orders, and the Universal Service Order, 
made the modifications necessary to implement the revisions to the 
universal service support mechanisms adopted in the Universal Service 
Order. Federal-State Joint Board on Universal Service, CC Docket No. 
96-45, First Report and Order, 12 FCC Rcd 8776 (1997), 62 FR 32862 
(June 17, 1997) (Universal Service Order). This NPRM is not intended to 
address contentions that some additional costs or services should 
receive universal service support; those matters will be resolved in 
the Universal Service proceeding. We note that the Commission has 
determined that there shall be no change in the existing high cost 
support mechanisms for rural LECs until January 1, 2001, at the 
earliest. This means that, in the interim, the amount of universal 
service support for rural LECs will be maintained initially at existing 
levels and should increase in accordance with specified factors, such 
as inflation, that have historically guided changes in such support.
    6. Common Line Costs. Currently, rate-of-return LECs' subscriber 
line charges (SLCs) are limited to recovering the lesser of the actual 
cost of the interstate portion of the local loop, or $3.50 per month 
for residential and single line business customers, or $6.00 per month 
for multi-line business customers. Any remaining common line costs are 
recovered through carrier common line (CCL) charges, which are per-
minute charges imposed on interexchange carriers (IXCs).
    7. We tentatively conclude that we should adopt rate structure 
modifications for rate-of-return LECs that are similar to those that 
were adopted for price cap LECs in the Access Charge Reform Order. We 
seek comment on the applicability of the rate structure modifications 
adopted for price cap LECs to rate-of-return LECs. Specifically, the 
Commission proposes to permit rate-of-return LECs to adjust their SLC 
ceilings on non-primary residential and multi-line business lines to 
the level necessary to recover their average per-line interstate-
allocated common line costs, subject to an inflation-adjusted $9.00 
ceiling, while leaving the existing SLC ceiling of $3.50 for primary 
residential and single-line business lines at its current level.
    8. To ameliorate possible adverse impacts of an immediate SLC 
adjustment for non-primary residential lines, the Commission proposes 
to adjust the SLC ceilings for these lines gradually. The Commission 
seeks comment on adjusting the monthly SLC ceiling initially to the 
LEC's average per-line interstate-allocated costs, but not exceeding 
$1.50 more than the current SLC ceiling. Annually thereafter, rate-of-
return LECs could adjust the monthly SLC ceiling for these lines for 
inflation and could increase the ceiling by $1.00 per line, until the 
SLC ceiling for non-primary residential lines is equal to the SLC 
ceiling permitted for multi-line business lines.
    9. To the extent that SLC ceilings prevent rate-of-return LECs from 
recovering their allowed common line revenues from end users, the 
Commission proposes to permit these LECs to recover the shortfall, 
subject to a maximum charge, through a presubscribed interexchange 
carrier charge (PICC), a flat, per-line charge assessed on the end-
user's presubscribed interexchange carrier. For the first year, the 
proposed ceiling on the PICC will be $1.50 per month for non-primary 
residential lines and $2.75 per month for multi-line business lines. 
The Commission proposes adjusting the PICC for price cap non-primary 
residential and multi-line business lines annually for inflation and 
increasing the PICCs for non-primary residential and multi-line 
business lines by a maximum of $1.00 and $1.50 per year, respectively, 
until price cap LECs recover all their permitted common line revenues 
through a combination of flat-rated SLC and PICCs. The Commission also 
invites comment on whether the PICC for primary residential and single-
line business lines should be capped at $0.53 per month for the first 
year, and adjusted annually thereafter for inflation, and increase by 
$0.50 per year, until it equals one twelfth of the sum of the annual 
per-line common line cost and residual interconnection charge cost 
permitted under our rate-of-return rules, divided by the projected 
average number of local exchange service subscriber lines in use during 
such annual period, less the maximum primary residential and single-
line business lines SLC computed pursuant to our rules. If a customer 
does not designate a presubscribed interexchange carrier, the 
Commission proposes to permit rate-of-return LECs to collect directly 
from the customer the PICC that could otherwise be assessed against the 
presubscribed interexchange carrier.
    10. To the extent that the SLC ceilings on all lines and the PICC 
ceilings on primary residential and single-line business lines prevent 
recovery of the full common line revenues permitted by the rate-of-
return rules, the Commission proposes to permit rate-of-return LECs to 
recover the shortfall through a per-minute residual CCL charge. The 
Commission proposes that rate-of-return LECs should assess the residual 
CCL charge initially on originating minutes, subject to a rate cap, 
with any residual being collected through a per-minute terminating CCL 
charge. Rate-of-return LECs would, under the Commission's proposal, be 
allowed to assess an originating CCL charge that, when added to the sum 
of local switching charges, the per-minute residual TIC, and any per-
minute charges related to marketing expenses, does not exceed the sum 
of local switching charges, the per-minute CCL charge, and TIC assessed 
on originating minutes on December 31, 1997. A per-minute residual TIC 
could also be assessed on IXCs by rate-of-return LECs to recover any 
TIC costs not recovered through facility-based charges. The originating 
residual TIC charge would be subject to the same

[[Page 38777]]

ceiling mechanism as the residual CCL charge.
    11. Under the Commission's proposal, the per-minute residual CCL 
and residual TIC charges will be eliminated as the PICC ceilings 
increase. After the residual CCL and the residual TIC charges are 
eliminated, increases in the PICC for primary residential and single-
line business lines will reduce the PICCs on non-primary residential 
and multi-line business lines by an amount that corresponds to the 
total increases in PICCs for primary residential and single-line 
business lines. Reductions will be targeted to the PICCs on multi-line 
business lines until the PICCs for those lines are equal to the PICCs 
for non-primary residential lines. Thereafter, reductions will be 
applied to both classes of customers equally until the combined SLCs 
and PICCs for primary residential and single-line business lines 
recover the full average per-line common line costs permitted under our 
rules, and the additional PICCs on non-primary residential and multi-
line business lines no longer recover common line costs. Under the 
proposal, certain TIC costs and marketing expenses, in addition to 
common line costs, will be recovered through non-primary residential 
line and multi-line business PICCs, even though SLCs and PICCs for 
primary residential and single-line business lines only recover the 
average per-line common line costs permitted under our rules.
    12. We conclude that modifications similar to those we made for 
price cap LECs are needed to remove implicit subsidies and ensure that 
charges more accurately reflect the manner in which the costs are 
incurred, thereby promoting competition. We acknowledge that certain 
rate-of-return LECs, especially those in rural and insular areas, face 
different market conditions and incur higher costs than do many price 
cap LECs due to the lack of economies of scale that result from low 
subscriber density and small exchanges that characterize rural areas. 
Smaller LECs serving more costly areas, however, will receive universal 
service support based on their embedded costs until the Commission, 
with the Universal Service Joint Board's assistance, develops an 
appropriate model to ensure that rural carriers receive support at a 
level that will enable them to provide supported services at affordable 
rates. Adopting the same rate structure approach for rate-of return 
LECs, therefore, most likely will not align rates with costs as quickly 
as it will for price cap LECs. For many rate-of-return companies, 
especially those located in rural and insular areas, longer loops and 
difficult terrain result in average loop costs that significantly 
exceed the average loop costs of price cap LECs. The cost recovery 
mechanism for price cap LECs contemplates that price cap LECs will be 
able to recover all of their interstate-allocated common line costs 
through a combination of SLCs and PICCs, reducing the CCL charge to 
zero in a relatively short amount of time.
    13. If rate-of-return LECs were to implement the revised common 
line rate structure applied to price cap LECs, multi-line business 
PICCs and CCL charges would often go to their respective ceilings and 
remain higher than those of price cap LECs for the foreseeable future, 
because rate-of-return LEC common line costs are significantly higher 
than those of price cap LECs. If we direct rate-of-return LECs to 
recover certain switching, marketing, and residual TIC costs through 
the common line SLCs and PICCs, per-line common line costs will 
increase further. Under this scenario, the SLCs and/or PICCs for many 
rate-of-return LECs would have to be adjusted to a level that would be 
higher than the ceilings we adopted for price cap LECs if significant 
reductions in the CCL rate were desired. We solicit comment on this 
analysis.
    14. We ask interested parties to discuss how we should determine 
appropriate SLC ceilings. Several entities have expressed concern that 
the immediate SLC increases to $9.00 for non-primary or multi-line 
business lines will create a large disparity between SLCs charged by 
rate-of-return LECs and neighboring price cap LECs, and that under the 
1996 Act and applicable state laws, the lower-cost price cap carriers 
will be able to ``cherry pick'' the high volume business customers of 
the higher priced rate-of-return LECs. These entities urge the 
Commission to grant them pricing flexibility and propose that SLCs be 
set based on the national average or on the neighboring price cap LEC's 
average SLC.
    15. We invite comment on establishing a ceiling that is based on 
the neighboring price cap LEC's average multi-line business SLC, or on 
the national average. In addition, in some cases, as the non-primary 
SLC cap increases, the disparity between the $3.50 SLC for primary 
residential lines and the SLC for non-primary residential lines will 
most likely be greater for rate-of-return carriers than it is for price 
cap companies. Would this disparity warrant a different approach for 
rate-of-return carriers' non-primary residential lines than we adopted 
for price cap LECs?
    16. Interested parties should discuss whether the PICC is an 
effective cost recovery mechanism for rate-of-return LECs' common line 
costs and, if so, to what extent the PICCs and CCL charges for rate-of-
return LECs should be comparable to those of price cap LECs. If 
commenters believe that the plan we adopted in the Access Charge Reform 
Order would not produce the expected economic benefits for rate-of-
return LECs and their customers, interested parties should submit 
alternative plans. For example, should we prescribe higher ceilings for 
PICCs that would permit rate-of-return LECs to reduce their CCL rates 
to levels comparable to those of price cap LECs? Alternatively, should 
we prescribe a maximum CCL charge and eliminate the PICC ceiling to 
allow rate-of-return LECs to recover the shortfall through flat-rated 
charges? In addition, in light of the higher common line costs incurred 
by many rate-of-return LECs, and because, if adopted, other 
modifications proposed in this NPRM will require rate-of-return LECs to 
recover certain switching, marketing, and TIC costs through the common 
line recovery mechanism, we invite parties to discuss whether we should 
permit these carriers to recover relatively more of the common line 
revenue requirement through terminating minutes. Given that local 
switching per-minute rates will be reduced significantly by the 
inclusion of dial equipment minutes (DEM) weighing in universal service 
support, we ask interested parties to discuss whether a higher per-
minute CCL charge in the short run is unsatisfactory.
    17. Interested parties should also discuss the extent to which, for 
purposes of assessing SLCs and PICCs, residential and business lines 
should be treated differently. For example, should non-primary 
residential lines be assessed lower PICCs than multi-line business 
lines and phased in over time, as we did for price cap LECs, or should 
we permit the SLCs for non-primary residential lines to increase more 
rapidly for rate-of-return LECs than for price cap LECs, in order to 
allow carriers in high-cost areas to reduce their CCL charge more 
rapidly than would otherwise be possible with graduated increases in 
the SLC? Alternatively, should a uniform PICC be applied to all non-
primary residential and business lines to spread the revenue 
requirement evenly across these classes of customers?
    18. In the Second Reconsideration Order in the Access Charge Reform 
proceeding, we concluded that with

[[Page 38778]]

respect to the PICC, Centrex customers should be treated similarly to 
PBX customers, because the two arrangements are functionally 
equivalent. Accordingly, we determined that Centrex lines should be 
assessed PICCs using a 9:1 line-to-trunk equivalency ratio, except 
where the multi-line business SLC ceiling does not permit the recovery 
of all interstate-allocated loop costs from the end user. In those 
instances, a PICC that includes the difference between the per-line 
loop cost and the multi-line business SLC cap, subject to the multi-
line business PICC ceiling, will be assessed on Centrex lines. We seek 
comment on the applicability of this approach and of the 9:1 ratio to 
rate-of-return LECs. Parties proposing different ratios should submit 
data supporting the ratio they propose.
    19. We also seek comment on how the 1996 Act will affect the 
development of competition in areas served by small and rural rate-of-
return LECs. While the entry of competitors in many rate-of-return LEC 
service areas may be delayed due to the provisions of 47 CFR 251(f), 
entry in these areas will likely occur in time. Specifically, section 
251(f)(1) provides an exemption for certain rural telephone companies 
from the duties of local exchange carriers enumerated in section 
251(c), including but not limited to the duties to interconnect, to 
provide access to network elements on an unbundled basis, and to resell 
telecommunications services. Section 251(f)(2) provides a mechanism by 
which local exchange carriers with fewer than two percent of the 
nation's subscriber lines may petition the state for suspension or 
modification of some of the duties imposed by the Act on local exchange 
carriers. We ask interested parties to discuss the impact of these 
statute sections and the development of competition as they relate to 
the rate structure and transition mechanism we are proposing in this 
NPRM.
    20. We also seek comment on whether we should adopt one approach 
for all rate-of-return LECs or whether our approach should vary 
depending on size, population density, topography, or other factors 
that may vary among rate-of-return LECs. Are there concerns that are 
specific to National Exchange Carrier Association (NECA) pooling 
companies that warrant separate treatment? Interested parties should 
address the specific issues raised and submit proposals for 
modifications that are consistent with the goals of the 1996 Act. 
Interested parties should also propose a time frame for adopting 
modifications to the rate structure. Should modifications adopted 
become effective immediately or should they be phased in over time? 
Finally, parties should address the extent to which options proposed 
affect small business entities, including small incumbent LECs and new 
entrants.
    21. Assessment of SLCs and PICCs on Derived Channels. We propose to 
adopt similar SLCs and PICCs for integrated services digital network 
(ISDN) service offered by rate-of-return LECs. Specifically, we propose 
to permit rate-of-return LECs to charge SLC and PICC rates for Primary 
Rate Interface (PRI) ISDN service equal to five times the rate-of-
return LEC's multi-line business SLC and PICC, and SLC and PICC rates 
for Basic Rate Interface (BRI) ISDN service equal to the rate-of-return 
LEC's non-primary residential line SLC and PICC. We seek comment on 
these conclusions and invite parties to comment on the impact that 
assessing SLCs and PICCs on ISDN lines will have on rate-of-return 
carriers and their customers. Parties should address whether the cost 
relationship between ISDN and analog service provided by rate-of-return 
LECs is similar to that of price cap LECs; if they believe it is not, 
they should submit specific data supporting their position. We also 
invite parties to discuss the relationship between proposed 
modifications to the common line rate structure and our tentative 
conclusion to treat rate-of-return LECs' ISDN lines in the manner 
discussed above.
    22. Local Switching Dedicated Facilities. The interstate portion of 
local switching costs is currently recovered through per-minute local 
switching charges levied on IXCs, even though a significant portion of 
local switching costs is associated with ports and appears to be driven 
by the number of lines or trunks connected to the switch, not by the 
number of minutes of traffic routed by the switch. We propose to 
require rate-of-return LECs to reassign all costs for line-side ports, 
including the line card, protector, and main distribution frame, from 
the local switching category to the common line category, for recovery 
through the common line rate structure. We seek comment on this 
proposal. We ask if there are any specific factors for rate-of-return 
LECs that would preclude our adoption of this rate structure change at 
this time.
    23. We propose to require rate-of-return LECs to conduct cost 
studies to determine the geographically-averaged portion of local 
switching costs that is attributable to the line-side ports and to 
dedicated trunk-side ports, to be filed with the tariffs implementing 
these changes. We solicit comment on this cost study proposal. In the 
alternative, commenters are requested to suggest a substitute mechanism 
to identify and assign costs to line-side ports or to trunk-side ports.
    24. We also propose to require rate-of-return LECs to recover 
dedicated trunk port costs through a flat-rated trunk port charge 
assessed on the purchaser of the dedicated trunk terminating at the 
port. Analog switches require a voice-grade interface on the trunk-side 
of the end office switch, thereby requiring DS1 transport trunks to be 
demultiplexed into individual voice-grade circuits before being 
switched at analog end office switches. DS1/voice-grade multiplexers 
perform this function. A digital switch port includes the DS1/voice-
grade multiplexing function. In addition, we propose to establish a 
separate rate element through which rate-of-return LECs can recover on 
a flat-rated basis the additional costs of DS1/voice grade multiplexers 
required in conjunction with terminating dedicated trunks at analog 
switches that were reassigned from the TIC. We ask whether the benefits 
to be gained from a more efficient, cost-causative rate structure 
outweigh the burden on rate-of-return LECs of establishing these new 
rate elements. In addition, we solicit suggestions as to what specific 
modifications of the part 69 cost allocation rules we should make to 
implement any rate structure changes for dedicated local switching 
facilities.
    25. Common line charges will recover the cost of a line port used 
to provide basic, analog service, even when the end user has another 
form of service. For some services, such as ISDN, the cost of a line 
port is significantly more than the cost of a line port associated with 
a basic, analog line. We propose to permit rate-of-return LECs to 
assess a separate, monthly, flat-rated charge directly on end users of 
such services, to recover the amount by which the cost of a line port 
for ISDN, or the cost of a line port associated with other services, 
exceeds the cost of a line port for basic, analog service. We request 
comment on this proposal.
    26. Local Switching Shared Facilities. We seek comment on our 
tentative conclusion that rate-of-return LECs adhere to a per-minute 
rate structure for shared local switching facilities, including the 
central processing unit, switching matrix, and shared trunk ports. 
Under this approach, the shared trunk ports and any associated DS1/
voice grade multiplexers required at analog local switches will be 
assessed on a per-minute basis, separate from the charge for the switch 
itself. We ask whether there are any factors inherent to

[[Page 38779]]

rate-of-return LECs that should lead us to change this tentative 
conclusion.
    27. Call Setup Charge. We propose to permit, but not require, rate-
of-return LECs to establish a charge for call setup, the process of 
establishing a transmission path over which a phone call will be 
routed. Costs for call setup using SS7 are incurred primarily on a per-
call rather than a per-minute basis. Under this proposed revision to 47 
CFR 69.106, a rate-of-return LEC could elect to establish a separate 
per-call setup charge assessed on IXCs for all originating interstate 
calls handed off to the IXC's point of presence (POP), and on all 
terminating interstate calls that are received from an IXC's POP, 
whether or not a call is completed. We invite comment on this proposal 
for an optional call setup charge, including specific language to 
modify our part 69 cost allocation rules to implement this rate 
structure change. Moreover, if a rate-of-return LEC elects to recover 
revenue requirements through a call setup charge, we tentatively 
conclude that this charge cannot overlap with any other local switching 
charges, with charges for dedicated SS7 facilities, or with other 
signalling charges. We request comment on our tentative conclusion 
prohibiting double recovery for call setup charges by rate-of-return 
LECs. Commenters also should suggest mechanisms that would prevent any 
double recovery for rate-of-return LECs.
    28. It would be extremely difficult to segregate the costs of the 
switch central processing unit and other traffic-sensitive costs into 
per-message and per-minute portions and to verify that the allocation 
has been done properly. Therefore, we propose to limit the costs that a 
rate-of-return LEC may recover through call setup charges to those 
associated with signalling. We request comment on this proposal. We 
seek comment on how call setup costs are affected by whether 
multifrequency (MF) signalling or SS7 signalling is employed. We also 
request estimates of the percentage of the total costs of a typical 
call that are represented by call setup costs. To facilitate our 
comparison of the estimates submitted, we request that commenters use 
an average call duration of 3.86 minutes, which we used as the call 
duration in our analysis in the Access Charge Reform Order.
    29. Tandem-Switched Transport Issues. We request comment on our 
analysis that we should require rate-of-return LECs to recover the 
costs of trunk ports used to terminate dedicated trunks on the serving 
wire center (SWC) side of the tandem switch through flat-rated charges 
assessed on the purchaser of the dedicated trunk terminated at the 
trunk port on the SWC side of the tandem switch. To ease the burdens of 
implementing this unbundling, we propose to permit rate-of-return LECs 
to use the dedicated trunk port rates at the local switch to establish 
this unbundled charge. We ask for comment on this proposal. With regard 
to shared facilities at the tandem switch, we solicit comment on our 
tentative conclusion that there is no need to create a separate charge 
for shared trunk ports on the end-office-side of the tandem switch 
because this trunk port cost is included in the charge for the tandem 
switch and there is no reason to charge separately for shared trunk 
ports in the tandem switching context.
    30. We also propose to require rate-of-return LECs to establish 
separate rate elements to recover the costs of multiplexing equipment 
on each side of the tandem switch that were reassigned to tandem 
switching from the TIC in the Access Charge Reform First 
Reconsideration Order. The rates for multiplexers on the SWC side of 
the tandem switch would be flat rated because they are dedicated to a 
single IXC. The rates for the multiplexers on the end office side of 
the tandem switch would be per-minute charges because these 
multiplexers are shared among all users of common transport. To 
simplify the implementation process for rate-of-return LECs, we propose 
to permit them to use multiplexer rates already established in their 
special access tariff for similar multiplexers. We request comment on 
these proposals. These provisions cover DS1/voice grade multiplexers 
used with analog tandem switches, as well as other multiplexers that 
are not included in transport rates.
    31. Outstanding Transport Interconnection Charge Issues for Rate-
of-Return LECs. Although the Commission in the Access Charge Reform 
Order directed rate-of-return LECs to make specified cost reallocations 
from the TIC to other facilities-based rate elements, thereby reducing 
the amount in the TIC, the reallocation of costs from the TIC to other 
rate elements will not remove all of the costs from the TIC, leaving a 
residual TIC. We propose to incorporate the residual TIC in the common 
line pricing structure of rate-of-return LECs, just as we did for price 
cap LECs. This will put in place a mechanism that will, at different 
times for different rate-of-return LECs, begin the process of 
transferring TIC costs to other rate elements. We ask for comment on 
this analysis and on our proposal to adopt a similar rate structure to 
that we employed for price cap LECs.
    32. The Access Charge Reform Order reduces the TIC for price cap 
LECs by targeting certain price cap index (PCI) reductions to reducing 
the TIC. Price cap LECs will target price cap productivity (X-factor) 
adjustments to the trunking basket's PCI, and therein to the TIC 
service band index (SBI), thus reducing the amounts recovered through 
the residual TIC and effectively spreading those residual TIC revenues 
among the universe of access services. We ask whether any comparable 
mechanism exists for rate-of-return LECs that would eliminate the 
residual TIC in a reasonable time. We ask commenters whether it would 
be practical to spread the residual TIC proportionately over the other 
access elements in a manner comparable to that of targeting price cap 
productivity reductions to the TIC. We seek comment on what would be a 
reasonable time in which to accomplish such a reallocation. We ask 
parties supporting such an approach to propose cost allocation rules to 
implement their approach. Parties presenting data to quantify amounts 
in the residual TIC should include sufficient detail to permit the 
Commission and interested parties to evaluate the procedures used and 
to adjust the results, if necessary, to address concerns raised by the 
record. We seek comment on how these approaches affect small business 
entities, including small incumbent LECs and new entrants.
    33. We ask parties to address whether there are additional causes 
of costs remaining in the residual TIC for rate-of-return LECs that 
have not been identified previously that would justify further 
reallocations of costs from the TIC. Parties identifying such costs 
should indicate the other element(s) to which these additional costs 
should be reallocated. We invite parties to comment on whether any 
public policy reasons would support retaining some costs of rate-of-
return LECs in the residual TIC indefinitely. We ask parties to address 
the competitive implications of waiting for completion of a Joint Board 
review of separations procedures to determine which, if any, of the 
costs in the TIC reflect the higher cost of providing transport 
services in less densely populated areas, as compared with the costs 
underlying transport rates that were derived from special access rates. 
See Jurisdictional Separations Reform and Referral to the Federal-State 
Joint Board, CC Docket No. 80-286, Notice of Proposed Rulemaking, 12 
FCC Rcd 22120 (1997), 62 FR 59842 (November 5, 1997).
    34. Signalling System Seven (SS7). SS7 is the international 
standard

[[Page 38780]]

network protocol currently used to establish and close transmission 
paths over which telephone calls are carried. Once the reallocation of 
SS7 costs included in the TIC is completed, most, if not all, of SS7 
costs presumably will be recovered through the local switching charge. 
We invite comment on our proposal to continue the existing rate 
structure for SS7 cost recovery by rate-of-return LECs, and to permit 
these LECs to adopt the rate structure for SS7 services that we 
approved in Ameritech Operating Companies Petition for Waiver of Part 
69 of the Commission's Rules to Establish Unbundled Rate Elements for 
SS7 Signalling, Order, 11 FCC Rcd 3839, 3841 (Com. Car. Bur. 1996). The 
rate structure established by Ameritech pursuant to that waiver 
recovers costs through four unbundled charges for the various functions 
performed by SS7 networks: (1) Signal link; (2) STP port termination; 
(3) signal transport; and (4) signal switching. We also solicit 
additional, alternative SS7 rate structure proposals for rate-of-return 
LECs. Any comments on this issue should include an assessment of the 
expense of requiring rate-of-return LECs to install equipment in their 
networks for metering SS7 traffic. Would the streamlined waiver 
petition procedure we propose pursuant to section 69.4(g) be preferable 
as a means to address alternative SS7 rate structures proposed by rate-
of-return LECs?
    35. We recognize that some call setup is still performed using in-
band, MF signalling, rather than out-of-band signalling systems such as 
SS7. SS7 signalling may be less prevalent for rate-of-return LECs than 
for price cap LECs. Any determination we make concerning a SS7 rate 
structure for rate-of-return LECs could be affected by the extent that 
rate-of-return LEC networks use SS7. We also ask parties to comment on 
the need for revisions to the cost allocation rules in part 69 to 
accommodate the provision of SS7 signalling in accordance with the 
provisions of the Ameritech SS7 waiver.
    36. General Support Facilities Costs. To the extent that rate-of-
return LECs' costs are underallocated to the billing and collection 
category, rate-of-return LECs' regulated services are recovering costs 
associated with unregulated services through interstate access charges. 
We solicit comment on our tentative conclusion that we should modify 47 
CFR 69.307 for rate-of-return LECs to allocate general support 
facilities (GSF) costs related to billing and collection services to 
the billing and collection category. For rate-of-return LECs that 
maintain accounts below the summary account level, we propose the use 
of a general expense allocator to apportion the interstate share of 
Accounts 2111 (Land), 2121 (Buildings), 2123 (Office Equipment), and 
2124 (General Purpose Computers) between: (1) The billing and 
collection category and (2) all other elements and categories. To 
determine the amount to be assigned to the billing and collection 
category, we propose to apply a modified ``Big Three Expense Factor'' 
allocator to the interstate investment recorded in these four accounts. 
The interstate portion of Account 6120 (General Support Expenses) will 
continue to be apportioned among all elements and categories, including 
billing and collection, based upon the allocation rules contained in 47 
CFR 69.401(a)(2). Access Charge Reform, Third Report and Order, CC 
Docket No. 96-262, 12 FCC Rcd 22430 (1997) (Third Report and Order), 62 
FR 65619 (December 15, 1997). Because certain small rate-of-return LECs 
do not maintain accounts below the summary account level, we seek 
comment on what adjustments, if any, we should make to the allocation 
procedures to reflect this difference. It would be helpful if parties 
would comment on how many rate-of-return LECs use general purpose 
computers to provide billing and collection services. We also invite 
parties to identify any changes that should be made to other access 
elements as a result of any changes we may make to the GSF allocation 
procedures. Finally, parties should also address the extent to which 
these approaches affect large and small rate-of-return LECs differently 
and how small business entities, including small incumbent LECs and new 
entrants, will be affected.
    37. Marketing Expenses. The Commission concluded in the Access 
Charge Reform Order that price cap LECs' marketing costs that are not 
related to the sale or advertising of interstate switched access 
services are not appropriately recovered from IXCs through per-minute 
interstate switched access charges. We seek comment on our tentative 
conclusion that rate-of-return LECs' marketing expenses allocated to 
the interstate jurisdiction should be recovered through the common line 
recovery mechanism from end users on a per-line basis. Specifically, we 
propose that rate-of-return LECs recover the revenues related to the 
Account 6610 marketing expenses by increasing the SLCs for multi-line 
business and non-primary residential lines, subject to the SLC 
ceilings. To the extent the SLC ceilings prevent full recovery of these 
amounts, rate-of-return LECs would be required to recover marketing 
costs through equal increases on the PICCs for non-primary residential 
and multi-line business lines, subject to the PICC ceilings. In the 
event the PICC ceilings prevent full recovery of these expenses, any 
residual marketing expenses may be recovered through per-minute charges 
on originating access service, subject to the ceiling placed on 
originating minutes. If rate-of-return LECs cannot recover their 
remaining marketing expenses through per-minute charges on originating 
access, any residual may be recovered through per-minute charges on 
terminating access service. To the extent marketing expenses will be 
recovered through the SLC, they shall not be included in the base 
factor portion or considered common line revenues.
    38. We also ask parties to propose a mechanism comparable to the 
separate basket created for price cap LECs that will remove marketing 
expenses from access charges assessed by rate-of-return LECs. We invite 
parties to provide language for the amendment of our part 69 cost 
allocation rules that affect the recovery of these marketing expenses 
through the common line cost recovery mechanism.
    39. Special Access. In light of the most recent changes to the 
charges incurred by multi-line businesses, including the higher SLC and 
the new multi-line business PICC, it may be cost effective for some 
multi-line businesses to substitute the purchase of special access 
lines for the use of switched access. We have already tentatively 
concluded that we should permit price cap LECs to assess a PICC on 
special access lines to recover revenues for the common line basket. 
Access Charge Reform, CC Docket No. 96-262, Further Notice of Proposed 
Rulemaking, 12 FCC Rcd 15982, 16154 para. 401 (1997), 62 FR 31868 (June 
11, 1997) (Further Notice). The special access PICC would be no higher 
than the PICC that a price cap LEC could charge for a multi-line 
business line, would not recover TIC or marketing expenses, and would 
be gradually eliminated as the single-line PICC is gradually 
implemented for price cap LECs. We tentatively concluded that allowing 
price cap LECs to impose such special access PICCs would be necessary 
to facilitate the transition from current per minute CCL charges to the 
flat-rate PICC.
    40. We invite parties to comment on whether, if we apply a PICC to 
special access services offered by price cap LECs, we should apply a 
PICC to special access services offered by rate-of-return LECs. Parties 
should comment on the

[[Page 38781]]

impact of PICCs on special access lines if the PICCs on rate-of-return 
LECs' multi-line business lines remain in place for a considerably 
longer time than they do for price cap LECs. To the extent parties 
advocate assessing PICCs on special access lines, we seek comment on 
how special access connections should be counted for purposes of 
assessing a ``per line'' PICC. Parties should also address the extent 
to which our proposal affects large and small LECs differently and how 
small business entities, including small incumbent LECs and new 
entrants, will be affected.
    41. Part 69 Cost Allocation Rules. Under the Commission's 
separations rules at 47 CFR part 36, certain costs of the incumbent LEC 
network are assigned to the interstate jurisdiction. For rate-of-return 
LECs, the Commission's cost allocation rules at 47 CFR part 69 allocate 
these interstate costs among the various access and interexchange 
services. In addition to the comment requested previously in this NPRM 
on the need for changes to our cost allocation rules in conjunction 
with specific proposals to revise certain rate structure provisions of 
the part 69 rules, we ask whether we should make any other 
modifications at this time to our cost allocation rules for rate-of-
return LECs to accommodate any of those changes, or to update the rules 
in other respects. Parties making such suggestions should be specific 
about the reasons the change is needed and include proposed language 
for revising the cost allocation rules.
    42. Modification of New Services Requirement. Rate-of-return LECs 
currently must file a petition pursuant to 47 CFR 1.3 to request a part 
69 waiver for the establishment of one or more new switched access rate 
elements to accommodate a new service offering to switched access 
customers. In order to streamline the part 69 waiver process for a 
rate-of-return LEC wishing to offer a new service, we request comment 
on our proposal to adopt for rate-of-return LECs the streamlined 
petition provisions of section 69.4(g), which currently requires a 
price cap LEC in similar circumstances to file a petition that 
demonstrates one of two criteria: (1) That another LEC has previously 
obtained approval to establish identical rate elements and that the 
original petition did not rely upon a competitive showing as part of 
its public interest justification, or (2) that the new rate elements 
would serve the public interest. In addition, we request suggestions as 
to any manner in which the procedures or standards of section 69.4(g) 
should be modified for rate-of-return LECs. Parties should comment, for 
instance, on whether a showing of prior approval should be limited to 
petitions granted to other rate-of-return LECs.

Ex Parte Presentations

    43. This Notice of Proposed Rulemaking is a permit-but-disclose 
proceeding and is subject to the permit-but-disclose requirements under 
47 CFR 1206(b), as revised. Persons making oral ex parte presentations 
are reminded that memoranda summarizing the presentation must contain a 
summary of the substance of the presentation and not merely a listing 
of the subjects discussed. More than a one or two sentence description 
of the views and arguments presented is generally required. Other rules 
pertaining to oral and written presentations are set forth in section 
1.1206(b), as well.

Regulatory Flexibility Analysis

    44. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared this Initial Regulatory Flexibility Analysis 
(IRFA) of the possible significant economic impact on small entities of 
the proposals suggested in this NPRM. See 5 U.S.C. 603. The RFA, 5 
U.S.C. 601 et seq., has been amended by the Contract With America 
Advancement Act of 1996, Public Law 104-121, 110 Stat. 847 (1996) 
(CWAAA). Title II of the CWAAA is the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA).
    45. Written public comments are requested on the IRFA. Comments and 
reply comments must be identified by a separate and distinct heading as 
responses to the IRFA and must be filed on or before August 17 or 
September 17, 1998 respectively. Parties should address the extent to 
which our proposals affect large and small incumbent rate-of-return 
local exchange carriers (LECs) differently and how small business 
entities, including small incumbent LECs and new entrants, will be 
affected. The Commission's Office of Public Affairs, Reference 
Operations Division, will send a copy of this NPRM, including this 
IRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration, in accordance with 5 USC 603(a). In addition, the NPRM 
and IRFA (or summaries thereof) will be published in the Federal 
Register.
    46. Need for, and Objectives of, the Proposed Rules. The 
Commission's access charge rules for rate-of-return LECs were adopted 
at a time when interstate access and local exchange services were 
offered on a monopoly basis. We seek to revise the Commission's access 
charge rules for local exchange carriers (LECs) subject to rate-of-
return regulation to make the rules consistent with the pro-
competitive, deregulatory policies contemplated by the 
Telecommunications Act of 1996. In the 1997 Access Charge Reform Order, 
we focused on setting in motion the forces of competition and 
deregulation in local markets served by incumbent local exchange 
carriers subject to price cap regulation. In this NPRM, we propose to 
modify our rate structure requirements, to the extent possible, to 
permit rate-of-return LECs to recover costs in a manner that more 
accurately reflects the way those costs are incurred, identify implicit 
subsidies, and reduce subsidies by recovering more costs from the cost 
causer, thereby sending more accurate pricing signals to both consumers 
and competitors, and facilitating the transformation from a regulated 
to a competitive marketplace. Specifically, we propose to reduce usage-
sensitive interstate access charges by diminishing local loop and other 
non-traffic sensitive costs and directing rate-of-return LECs to 
recover those non-traffic sensitive costs through more economically 
efficient, flat-rated charges.
    47. Legal Basis. The proposed action is authorized by sections 1-4, 
201-205, 251, 254, 303(r) and 403 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151-154, 201-205, 251, 254, 303(r) and 403.
    48. Description and Estimate of the Number of Small Entities To 
Which the Proposed Rules Will Apply. The Regulatory Flexibility Act 
directs agencies to provide a description of and an estimate, where 
feasible, of the number of small entities that may be affected by 
proposed rules, if adopted. 5 U.S.C. 603(b)(3). The Regulatory 
Flexibility Act generally defines the term ``small entity'' as having 
the same meaning as the term ``small business.'' 5 U.S.C. 601(6). The 
term ``small business'' has the same meaning as the term ``small 
business concern'' under the Small Business Act. See 5 U.S.C. 601(3). 
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). 15 USC 632. See, e.g., 
Brown Transport Truckload, Inc. v. Southern Wipers, Inc., 176 B.R. 82 
(N.D. Ga. 1994).
    49. Because the small rate-of-return LECs that would be subject to 
these rules are either dominant in their field of operations or are not 
independently owned and operated, consistent with

[[Page 38782]]

our prior practice, they are excluded from the definition of ``small 
entity'' and ``small business concerns.'' See Implementation of the 
Local Competition Provisions of the Telecommunications Act of 1996, CC 
Docket No. 96-98, First Report and Order, 11 FCC Rcd 15499, 16144-45 
Paras. 1327-30 (1996) (Local Competition Order), 61 FR 45476 (August 
29, 1996), Order on Reconsideration, 11 FCC Rcd 13042 (1996), 61 FR 
52706 (October 8, 1996), vacated in part sub nom. Iowa Utils. Bd. v. 
FCC, 120 F.3d 753 (8th Cir. 1997), cert. granted sub nom. AT&T Corp. v. 
Iowa Utils. Bd., 118 S.Ct. 879 (1998). Accordingly, our use of the 
terms ``small entities'' and ``small businesses'' does not encompass 
small rate-of-return LECs. Out of an abundance of caution, however, for 
regulatory flexibility analysis purposes, we will consider small rate-
of-return LECs within this analysis and use the term ``small incumbent 
rate-of-return LECs'' to refer to any rate-of-return LECs that arguably 
might be defined by SBA as ``small business concerns,'' including 
consideration of any adverse impact of the rules we adopt and 
consideration of alternatives that may reduce adverse impacts on such 
entities. Since the time of the Commission's 1996 decision in the Local 
Competition Order, 11 FCC Rcd at 16144-45, 61 FR 45476 (August 29, 
1996), the Commission has consistently addressed in its regulatory 
flexibility analyses the impact of its rules on incumbent LECs. See 13 
CFR 121.210 (SIC 4813). See also Executive Office of the President, 
Office of Management and Budget, Standard Industrial Classification 
Manual (1987).
    50. The SBA has defined a small business for Standard Industrial 
Classification (SIC) category 4813 (Telephone Communications, Except 
Radiotelephone) to be small telecommunications entities when they have 
no more than 1,500 employees at the holding company level. 13 CFR 
121.201. We invite interested parties to discuss the number of 
telecommunications providers, if any, that can be considered ``small 
entities'' within the meaning of the Regulatory Flexibility Act, and 
whether there is any reason to establish different requirements for 
small telecommunication providers. Below, we discuss the total 
estimated number of telephone companies falling within these categories 
and the number of small businesses in each category, and we then 
attempt to refine further those estimates to correspond with the 
categories of telephone companies that are commonly used under our 
rules.
    51. The most reliable source of information regarding the total 
numbers of certain common carriers nationwide appears to be data the 
Commission publishes annually in its Telecommunications Industry 
Revenue report, regarding the Telecommunications Relay Service (TRS). 
FCC, Telecommunications Industry Revenue: TRS Fund Worksheet Data, 
Figure 2 (Number of Carriers Paying Into the TRS Fund by Type of 
Carrier) (Nov. 1997) (Telecommunications Industry Revenue). According 
to data in the most recent report, there are 3,459 interstate carriers. 
These carriers include, inter alia, local exchange carriers, wireline 
carriers and service providers, interexchange carriers, competitive 
access providers, operator service providers, pay telephone operators, 
providers of telephone toll service, providers of telephone exchange 
service, and resellers. See 13 CFR 121.201, SIC code 4813.
    52. Telephone Companies Affected. The United States Bureau of the 
Census (Census Bureau) reports that, at the end of 1992, there were 
3,497 firms engaged in providing telephone service, as defined therein, 
for at least one year. United States Department of Commerce, Bureau of 
the Census, 1992 Census of Transportation, Communications, and 
Utilities, Establishment and Firm Size, at Firm Size 1-123 (1995) (1992 
Census). This number contains a variety of different categories of 
carriers, including incumbent LECs, interexchange carriers (IXCs), 
competitive access providers, cellular carriers, mobile service 
carriers, operator service providers, pay telephone operators, personal 
communication service (PCS) providers, covered specialized mobile radio 
(SMR) providers, and resellers. It seems certain that some of those 
3,497 telephone service firms may not qualify as small entities or 
small rate-of-return incumbent LECs because they are not independently 
owned or operated. See generally 15 U.S.C. 632(a)(1). For example, a 
PCS provider that is affiliated with an IXC having more than 1,500 
employees would not meet the definition of a small business. It seems 
reasonable to conclude that fewer than 3,497 telephone service firms 
are small entity telephone service firms or small incumbent rate-of-
return LECs because some of them are not independently owned or 
operated.
    53. Wireline Carriers and Service Providers Affected. The SBA has 
developed a definition of small entities for telephone communications 
companies other than radiotelephone (wireless) companies. According to 
the SBA's definition, a small business telephone company other than a 
radiotelephone company is one employing no more than 1,500 persons. 13 
CFR 121.201, SIC Code 4812. The Census Bureau reports that there were 
2,321 such telephone companies in operation for at least one year at 
the end of 1992. 1992 Census, supra, at Firm Size 1-123. All but 26 of 
the 2,321 non-radiotelephone companies listed by the Census Bureau were 
reported to have fewer than 1,000 employees. Thus, even if all 26 of 
those companies had more than 1,500 employees, there would still be 
2,295 non-radiotelephone companies that might qualify as small entities 
or small rate-of-return LECs. We do not have data on the number of 
carriers that are not independently owned and operated, and thus are 
unable at this time to estimate with greater precision the number of 
wireline carriers and service providers that would qualify as small 
business concerns under the SBA's definition. Consequently, we estimate 
that there are fewer than 2,295 small telephone communications 
companies other than radiotelephone companies that may be affected by 
the proposed rules, if adopted.
    54. Incumbent Local Exchange Carriers Affected. Neither the 
Commission nor the SBA has developed a definition of small providers of 
local exchange service. The closest applicable definition under SBA 
rules is for telephone telecommunications companies other than 
radiotelephone (wireless) companies. Standard Industrial Classification 
(SIC) Code 4813. The most reliable source of information regarding the 
number of incumbent LECs nationwide appears to be the report that we 
compiled from the 1997 Telecommunications Relay Service (TRS) Fund 
worksheets and the Universal Service Fund (USF) worksheets of 
September, 1997. According to our most recent data, 1,376 companies 
that provided interstate telecommunications service as of June 30, 1997 
reported that they were engaged in the provision of local exchange 
service. Federal Communications Commission, Common Carrier Bureau, 
Industry Analysis Division, Carrier Locator: Interstate Service 
Providers, Figure 1 (Nov. 1997). Although it seems certain that some of 
these carriers are not independently owned or operated, have more than 
1,500 employees, or are subject to price cap regulation, we are unable 
at this time to estimate with greater precision the number of rate-of-
return LECs that would qualify as small business

[[Page 38783]]

concerns under the SBA's definition. Consequently, we estimate that 
there are fewer than 1,376 small rate-of-return LECs that may be 
affected by the proposals in this NPRM, if adopted. We seek comment on 
this estimate.
    55. Interexchange Carriers. Neither the Commission nor the SBA has 
developed a definition of small entities specifically applicable to 
providers of interexchange services. The closest applicable definition 
under the SBA rules is for telephone communications companies other 
than radiotelephone (wireless) companies. 13 CFR 121.201, SIC code 
4813. According to the most recent Telecommunications Industry Revenue 
data, 143 carriers reported that they were engaged in the provision of 
interexchange services. Telecommunications Industry Revenue, Figure 2. 
We do not have data specifying the number of these carriers that are 
not independently owned and operated or have more than 1,500 employees, 
and thus are unable at this time to estimate with greater precision the 
number of interexchange carriers (IXCs) that would qualify as small 
business concerns under the SBA's definition. Consequently, we estimate 
that there are fewer than 143 small entity IXCs that may be affected by 
the proposed rules, if adopted.
    56. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements. It is not clear whether, on balance, proposals 
in this NPRM would increase or decrease incumbent rate-of-return LECs' 
administrative burdens. With respect to rate-of-return LECs, we believe 
that the rate structure reforms that we propose in Sections II and III 
would require at least one, and possibly several, additional filings, 
and may reduce some administrative burdens. For example, if we adopt 
the streamlined petition provisions of 47 CFR 69.4(g) for introduction 
of new services by rate-of-return LECs, we expect that this would 
decrease some administrative burdens of rate-of-return LECs.
    57. If the rule revisions we propose are adopted, we estimate that 
these rate-of-return LECs would make one tariff filing to bring their 
access charges into compliance with the revised rules. We are unable to 
estimate how extensive each tariff filing would be, on average. We 
estimate that, on average, it would take approximately two hours per 
page for the rate-of-return LEC to prepare each tariff filing, at a 
cost of $35 per hour in professional level and support staff salaries. 
If we decide to require the filing of a cost study for determining 
local switching costs attributable to line-side ports and to trunk-side 
ports, these rate-of-return LECs would file one cost study. We estimate 
that, on average, it would take approximately 400 hours for the rate-
of-return LEC to prepare a cost study, at a cost of $30 per hour in 
professional level and support staff salaries. Compliance with these 
tariff and cost study requirements may compel the use of engineering, 
technical, operational, accounting, billing, and legal skills.
    58. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered. In Sections II and 
III, for the subscriber line charge, the carrier common line charge, 
non-traffic sensitive switching costs, the transport interconnection 
charge, a special access PICC, and general purpose computer costs, we 
have sought comment on how a number of proposals would affect small 
entities. These proposals could have varying positive or negative 
impacts on small entities, including small rate-of-return LECs and new 
entrants. We seek comment on these proposals and urge that parties 
support their comments with specific evidence and analysis.
    59. Federal Rules that May Duplicate, Overlap, or Conflict with the 
Proposed Rules. None.

Additional NPRM Filing Procedures

    60. Pursuant to applicable procedures set forth in 47 CFR 1.399 and 
1.411 et seq., interested parties may file comments with the Secretary, 
Federal Communications Commission, Washington D.C. 20554, no later than 
August 17, 1998. Interested parties may file replies no later than 
September 17, 1998. To file formally in this proceeding, participants 
must file an original and twelve copies of all comments, reply 
comments, and supporting comments. If participants want each 
Commissioner to receive a personal copy of their comments, an original 
plus 16 copies must be filed. In addition, parties must file two copies 
of any such pleading with the Competitive Pricing Division, Common 
Carrier Bureau, Room 518, 1919 M Street, N.W., Washington, D.C. 20554.
    61. Parties submitting diskettes should submit them along with 
their formal filings to the Commission's Office of the Secretary. 
Submissions should be on a 3.5 inch diskette formatted in an DOS PC 
compatible form. The document should be saved into WordPerfect 5.1 for 
Windows format. The diskette should be submitted in ``read only'' mode. 
The diskette should be clearly labelled with the party's name, 
proceeding, type of pleading (comment or reply comment), docket number, 
and date of submission.
    62. Parties may also file informal comments electronically via e-
mail <[email protected]>. Only one copy of electronically-filed 
comments must be submitted. The docket number of this proceeding must 
appear in the subject line, CC Docket No. 98-77. The subject line must 
also disclose whether an electronic submission is an exact copy of 
formal comments. Your full name and U.S. Postal Service mailing address 
must be included in your submission.
    63. Comments and replies must comply with 47 CFR 1.49 and all other 
applicable sections of the Commission's Rules. We also direct all 
interested parties to include the name of the filing party and the date 
of the filing on each page of their comments and replies. Comments and 
replies must also clearly identify the specific portion of the NPRM to 
which a particular comment or set of comments is responsive. If a 
portion of a party's comments does not fall under a particular topic 
listed in the Table of Contents of this NPRM, such comments must be 
included in a clearly labelled section at the beginning or end of the 
submission.

Ordering Clauses

    64. Accordingly, it is ordered, pursuant to sections 1-4, 201-205, 
251, 254, 303(r) and 403 of the Communications Act of 1934, as amended, 
47 U.S.C. 151-154, 201-205, 251, 254, 303(r) and 403, that notice is 
hereby given of the rulemaking described above and that comment is 
sought on these issues.
    65. It is further ordered that the Commission's Office of Public 
Affairs, Reference Operations Division, shall send a copy of this 
Notice of Proposed Rulemaking, including the Initial Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

List of Subjects in 47 CFR Part 69

    Access charges, Communications common carriers.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-19266 Filed 7-17-98; 8:45 am]
BILLING CODE 6712-01-U