[Federal Register Volume 64, Number 157 (Monday, August 16, 1999)]
[Rules and Regulations]
[Pages 44423-44426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20887]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[CC Docket Nos. 96-149 and 96-61; FCC 99-103]


Regulatory Treatment of LEC Provision of Interexchange Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document amends the Commission's rules to allow 
independent local exchange carriers (LECs) that provide in-region, long 
distance services solely on a resale basis to do so through a separate 
corporate division rather than a separate legal entity.

EFFECTIVE DATE: September 15, 1999.

FOR FURTHER INFORMATION CONTACT: Andrea Kearney, Attorney, Common 
Carrier Bureau, Policy and Program Planning Division, (202) 418-1580.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Order On Reconsideration adopted May 18, 1999, and released June 30, 
1999 (FCC 99-103). The full text of this Order is available for 
inspection and copying during normal business hours in the FCC 
Reference Center, 425 12th Street, SW, Washington, D.C. The complete 
text also may be obtained through the World Wide Web, at http://
www.fcc.gov/Bureaus/Common Carrier/Order/fcc99-103.wp, or may be 
purchased from the Commission's copy contractor, International 
Transcription Service, Inc., (202) 857-3800, 1231 20th St., N.W., 
Washington, D.C. 20036.

Synopsis of Second Order on Reconsideration

    1. In this second order on reconsideration, we modify our 
conclusion in the LEC Classification Order, 62 FR 35974 (July 3, 1997) 
and allow independent LECs that provide in-region, long distance 
services solely on a resale basis to do so through a separate corporate 
division rather than a separate legal entity. The record indicates that 
this group includes most of the small and mid-sized LECs that currently 
provide in-region, long distance services. We also clarify the meaning 
of the term ``interexchange'' to avoid any possibility of unnecessary 
application of the Commission's separate affiliate requirements. In 
addition, we affirm our decision relaxing regulation of the BOCs' 
section 272 interLATA affiliates, i.e., by classifying these affiliates 
as non-

[[Page 44424]]

dominant for in-region, long distance services. We also address several 
other miscellaneous issues raised in the reconsideration petitions. 
Consistent with the LEC Classification Partial Stay Order, 63 FR 16696 
(April 6, 1998) and the relief we grant in this order on 
reconsideration, any independent LEC that was providing long distance 
services on an integrated basis through the use or control of its own 
facilities must form a separate affiliate to provide such services 
within 60 days of the release of this order on reconsideration. 
Finally, we act on the Leaco Rural Telephone Cooperative, Inc. (Leaco) 
Petition for Waiver of the LEC Classification Order requirements.

V. Supplemental Final Regulatory Flexibility Analysis

    2. As required by the Regulatory Flexibility Act (RFA), the 
Commission issued a Final Regulatory Flexibility Analysis (FRFA) in the 
LEC Classification Order, in which it certified that the rules adopted 
in that order would not have a significant impact on a substantial 
number of small entities. None of the petitions for reconsideration 
filed in this proceeding specifically addresses, or seeks 
reconsideration of, that FRFA. This present Supplemental FRFA addresses 
the potential effect on small entities of the rules we adopt in this 
order. This Supplemental FRFA incorporates and adds to our FRFA in the 
LEC Classification Order.
    3. Need for and Objectives of this Report and Order and the 
Regulations Adopted Herein. The need for and objectives of the rules 
adopted in this order on reconsideration are the same as those 
discussed in the LEC Classification Order's FRFA. In general, the 
regulations adopted in the LEC Classification Order are intended to 
promote increased competition in the interexchange market. In this 
order on reconsideration, we clarify the LEC Classification Order and 
grant or deny petitions filed for reconsideration in order to further 
the same needs and objectives.
    4. Description and Estimates of the Number of Small Entities 
Affected by this Report and Order. In this FRFA, we consider the impact 
of this order on two categories of entities, ``small incumbent LECs'' 
and ``small non-incumbent LECs.'' Consistent with our prior practice, 
we shall continue to exclude small incumbent LECs from the definition 
of a small entity for the purpose of this FRFA. Accordingly, our use of 
the terms ``small entities'' and ``small businesses'' does not 
encompass ``small incumbent LECs.'' We use the term ``small incumbent 
LECs'' to refer to any incumbent LECs that arguably might be defined by 
SBA as ``small business concerns.'' We include ``small non-incumbent 
LECs'' in our analysis, even though we believe that we are not required 
to do so.
    5. The RFA defines a ``small business'' to be the same as a ``small 
business concern'' under the Small Business Act, 15 U.S.C. 632, unless 
the Commission has developed one or more definitions that are 
appropriate to its activities. Under the Small Business Act, a ``small 
business concern'' is one that: (1) Is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) meets 
any additional criteria established by the SBA. SBA has defined a small 
business for Standard Industrial Classification (SIC) category 4813 
(Telephone Communications, Except Radiotelephone) to be a small entity 
when it has fewer than 1,500 employees.
    6. Incumbent LECs. SBA has not developed a definition of small 
incumbent LECs. The closest applicable definition under SBA rules is 
for telephone communications companies other than radiotelephone 
(wireless) companies. The most reliable source of information regarding 
the number of LECs nationwide of which we are aware appears to be the 
data that we collect annually in connection with the Telecommunications 
Relay Service (TRS). According to our most recent data, 1,376 companies 
reported that they were engaged in the provision of local exchange 
services. Although it seems certain that some of these carriers are not 
independently owned and operated, or have more than 1,500 employees, we 
are unable at this time to estimate with greater precision the number 
of LECs that would qualify as small business concerns under SBA's 
definition. Consequently, we estimate that there are fewer than 1,376 
small incumbent LECs that may be affected by the decisions and 
regulations adopted in this order on reconsideration.
    7. Non-Incumbent LECs. SBA has not developed a definition of small 
non-incumbent LECs. For purposes of this order, we define the category 
of ``small non-incumbent LECs'' to include small entities providing 
local exchange services that do not fall within the statutory 
definition in section 251(h), including potential LECs, LECs which have 
entered the market since the 1996 Act was passed, and LECs that were 
not members of the exchange carrier association pursuant to 
Sec. 69.601(b) of the Commission's regulations. We believe it is 
impracticable to estimate the number of small entities in this 
category. We believe it is impossible to estimate the number of 
entities which may enter the local exchange market in the near future. 
Nonetheless, we will estimate the number of small entities in a 
subgroup of the category of ``small non-incumbent LECs.'' According to 
our most recent data, 119 companies identify themselves in the category 
``Competitive Access Providers (CAPs) and Competitive LECs (CLECs).'' A 
CLEC is a provider of local exchange services which does not fall 
within the definition of ``incumbent LEC'' in section 251(h). Although 
it seems certain that some of the carriers in this category are CAPs, 
are not independently owned and operated, or have more than 1,500 
employees, we are unable at this time to estimate with greater 
precision the number of non-incumbent LECs that would qualify as small 
business concerns under SBA's definition.
    8. Summary Analysis of the Projected Reporting, Recordkeeping, and 
Other Compliance Requirements. In this order on reconsideration, we 
conclude that independent LECs that are in-region, long distance 
resellers are permitted to provide such services through a separate 
division rather than a separate legal entity, subject to the Fifth 
Report and Order requirements, as modified by the LEC Classification 
Order. No party to this proceeding suggests that permitting independent 
LECs to provide long distance resale through a separate division would 
affect small entities or small incumbent LECs. We determine that 
compliance with the separate division requirement, rather than a 
separate legal entity requirement, may require small incumbent LECs to 
use accounting, economic, technical, legal, and clerical skills.
    9. Steps Taken To Minimize Economic Impact on Small Entities and 
Small Incumbent LECs, and Alternatives Considered. We believe that the 
modification of the separate legal entity requirement will facilitate 
entry of independent LECs into the long distance market. We believe 
that resale is an essential facilitator of competition in the long 
distance industry because it allows independent LECs, some of which may 
be small entities, and other providers to enter the market immediately, 
and add their own facilities when it becomes efficient to do so. The 
modification of the separate legal entity requirement for independent 
LEC long distance resellers seems likely to benefit independent LECs, 
some of which may be small entities, by helping to reduce the cost of 
entry and of providing service. We reject alternatives to exempt all 
independent

[[Page 44425]]

LECs, or small and rural independent LECs, from the separate legal 
entity requirement, for the reasons stated in Section III of this order 
on reconsideration.
    10. Report to Congress. The Commission shall send a copy of this 
FRFA, along with this order on reconsideration, in a report to Congress 
pursuant to the SBREFA, 5 U.S.C. 801(a)(1)(A). A copy of this analysis 
will also be provided to the Chief Counsel for Advocacy of the Small 
Business Administration, and will be published in the Federal Register.

VI. Ordering Clauses

    11. Accordingly, It is Ordered that pursuant to sections 1, 2, 4, 
201, 202, 220, 251, 271, 272 and 303(r) of the Communications Act of 
1934, as amended, 47 U.S.C. sections 151, 152, 154, 201, 202, 220, 251, 
271, 272, and 303(r), the ORDER ON RECONSIDERATION is hereby Adopted, 
and the requirements contained herein shall be effective 30 days after 
publication of a summary thereof in the Federal Register. The amendment 
to the Uniform System of Accounts for Telecommunications Companies, 
part 32 of the Commission's rules, shall be effective six months after 
publication in the Federal Register, although affected parties may 
elect to implement these changes upon adoption.
    12. It is further ordered that part 64, subpart T of the 
Commission's rules, is AMENDED as set forth in the rule changes hereto.
    13. It is further ordered that the petitions for reconsideration 
are granted in part, as described herein, and otherwise are denied.
    14. It is further ordered that the Leaco Rural Telephone 
Cooperative, Inc. Petition for Waiver is rendered moot in part, as 
described herein, and the remainder is denied.
    15. It is further ordered that the Commission's Office of Public 
Affairs, Reference Operations Division, shall send a copy of this order 
on reconsideration, including the Final Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration.

List of Subjects in 47 CFR Part 64

    Communications common carriers.

Federal Communications Commission.
LaVera F. Marshall,
Chief, Agenda Branch.

Rule Changes

    For the reasons discussed in the preamble, Federal Communications 
Commission amends 47 CFR part 64 as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS MATERIALS

    1. The authority citation for part 64 continues to read:

    Authority: 47 U.S.C. 10, 201, 218, 226, 228, 332, unless 
otherwise noted.

    2. Section 64.1902 is revised to read as follows:


Sec. 64.1902  Terms and definitions.

    Terms used in this part have the following meanings:
    Books of Account. Books of account refer to the financial 
accounting system a company uses to record, in monetary terms, the 
basic transactions of a company. These books of account reflect the 
company's assets, liabilities, and equity, and the revenues and 
expenses from operations. Each company has its own separate books of 
account.
    Incumbent Independent Local Exchange Carrier (Incumbent Independent 
LEC). The term incumbent independent local exchange carrier means, with 
respect to an area, the independent local exchange carrier that:
    (1) On February 8, 1996, provided telephone exchange service in 
such area; and
    (2) (i) On February 8, 1996, was deemed to be a member of the 
exchange carrier association pursuant to Sec. 69.601(b) of this title; 
or
    (ii) Is a person or entity that, on or after February 8, 1996, 
became a successor or assign of a member described in paragraph (2)(i) 
of this section. The Commission may also, by rule, treat an independent 
local exchange carrier as an incumbent independent local exchange 
carrier pursuant to section 251(h)(2) of the Communications Act of 
1934, as amended.
    Independent Local Exchange Carrier (Independent LEC). Independent 
local exchange carriers are local exchange carriers, including GTE, 
other than the BOCs.
    Independent Local Exchange Carrier Affiliate (Independent LEC 
Affiliate). An independent local exchange carrier affiliate is a 
carrier that is owned (in whole or in part) or controlled by, or under 
common ownership (in whole or in part) or control with, an independent 
local exchange carrier.
    In-Region Service. In-region service means telecommunications 
service originating in an independent local exchange carrier's local 
service areas or 800 service, private line service, or their 
equivalents that:
    (1) Terminate in the independent LEC's local exchange areas; and
    (2) Allow the called party to determine the interexchange carrier, 
even if the service originates outside the independent LEC's local 
exchange areas.
    Local Exchange Carrier. The term local exchange carrier means any 
person that is engaged in the provision of telephone exchange service 
or exchange access. Such term does not include a person insofar as such 
person is engaged in the provision of a commercial mobile service under 
section 332(c), except to the extent that the Commission finds that 
such service should be included in the definition of that term.
    3. Section 64.1903 is revised to read as follows:


Sec. 64.1903  Obligations of all incumbent independent local exchange 
carriers.

    (a) Except as provided in paragraph (c) of this section, an 
incumbent independent LEC providing in-region, interstate, 
interexchange services or in-region international interexchange 
services shall provide such services through an affiliate that 
satisfies the following requirements:
    (1) The affiliate shall maintain separate books of account from its 
affiliated exchange companies. Nothing in this section requires the 
affiliate to maintain separate books of account that comply with Part 
32 of this title;
    (2) The affiliate shall not jointly own transmission or switching 
facilities with its affiliated exchange companies. Nothing in this 
section prohibits an affiliate from sharing personnel or other 
resources or assets with an affiliated exchange company; and
    (3) The affiliate shall acquire any services from its affiliated 
exchange companies for which the affiliated exchange companies are 
required to file a tariff at tariffed rates, terms, and conditions. 
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 exchange companies, 
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) Except as provided in paragraph (b) (1) of this section, the 
affiliate required in paragraph (a) of this section shall be a separate 
legal entity from its affiliated exchange companies. The affiliate may 
be staffed by personnel of its affiliated exchange companies, housed in 
existing offices of its affiliated exchange companies, and use its 
affiliated exchange companies'

[[Page 44426]]

marketing and other services, subject to paragraph (a)(3) of this 
section.
    (1) For an incumbent independent LEC that provides in-region, 
interstate domestic interexchange services or in-region international 
interexchange services using no interexchange switching or transmission 
facilities or capability of the LEC's own (i.e., ``independent LEC 
reseller,'') the affiliate required in paragraph (a) of this section 
may be a separate corporate division of such incumbent independent LEC. 
All other provisions of this Subpart applicable to an independent LEC 
affiliate shall continue to apply, as applicable, to such separate 
corporate division.
    (2) [Reserved]
    (c) An incumbent independent LEC that is providing in-region, 
interstate, domestic interexchange services or in-region international 
interexchange services prior to April 18, 1997, but is not providing 
such services through an affiliate that satisfies paragraph (a) of this 
section as of April 18, 1997, shall comply with the requirements of 
this section no later than August 30, 1999.

[FR Doc. 99-20887 Filed 8-13-99; 8:45 am]
BILLING CODE 6712-01-P