[Federal Register Volume 64, Number 165 (Thursday, August 26, 1999)]
[Rules and Regulations]
[Pages 46571-46584]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-22131]


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FEDERAL COMMUNICATIONS COMMISSION

47 CRF Part 52

[CC Docket No. 95-116; FCC 99-151]


Telephone Number Portability

AGENCY: Federal Communications Commission.

ACTION: Policy statement.

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SUMMARY: This document addresses issues raised on reconsideration of 
the First Report and Order relating to interim number portability. 
First, the Commission affirms its earlier conclusion that it has the 
authority to establish cost recovery guidelines for interim number 
portability. Second, the Commission rejects claims that the cost 
recovery guidelines for interim number portability set forth in the 
First Report and Order are arbitrary and capricious, or constitute an 
unconstitutional taking. The Commission denies the request that these 
cost recovery guidelines be applied retroactively. The Commission also 
affirms its earlier decision to adopt general cost recovery guidelines 
for interim number portability while allowing states flexibility to 
continue using a variety of cost recovery approaches that are 
consistent with its guidelines. The Commission also clarifies issues 
relating to terminating access charges, billing system modifications, 
and certain cost recovery allocators, as each of these issues relates 
to interim number portability.

DATES: Effective September 27, 1999.

FOR FURTHER INFORMATION CONTACT: Rhonda Lien or Janet Sievert at (202) 
418-1520, Competitive Pricing Division, Common Carrier Bureau.

SUPPLEMENTARY INFORMATION: This summarizes the Commission's Fourth 
Memorandum Opinion and Order on Reconsideration in CC Docket No. 95-
116, In re Telephone Number Portability, FCC 99-151, adopted June 23, 
1999 and released July 16, 1999. The file in its entirety is available 
for inspection and copying during the weekday hours of 9:00 a.m. to 
4:30 p.m. in the Commission's Reference Center, 445 12th St. SW., Room 
CY-A257, Washington DC, or copies may be purchased from the 
Commission's duplicating contractor, ITS Inc., 1231 20th St. NW., 
Washington DC 20036; (202) 857-3088.

Analysis of Proceeding

I. Introduction

    The Commission adopted the First Report and Order and Further 
Notice of Proposed Rulemaking, 61 FR 38605 (July 25, 1996) in this 
docket, which implemented the provisions of section 251 of the 
Communications Act of 1934, as amended, that relate to telephone number 
portability. In re Telephone Number Portability, CC Docket No. 95-116, 
First Report and Order and Further Notice of Proposed Rulemaking, 11 
FCC Rcd 8352 (1996) (First Report and Order). Specifically, section 
251(b)(2) requires that all local exchange carriers (LECs) provide, 
``to the extent technically feasible, number portability in accordance 
with requirements prescribed by the Commission.'' 47 U.S.C. 251(b)(2). 
Section 251(e)(2) provides that ``the costs of establishing * * * 
number portability shall be borne by all telecommunications carriers on 
a competitively neutral basis as determined by the Commission.'' 47 
U.S.C. 251(e)(2). The Communications Act of 1934, as amended (``the 
Act'' or ``the 1996 Act'') defines ``number portability'' as ``the 
ability of users of telecommunications services to retain, at the same 
location, existing telecommunications numbers without impairment of 
quality, reliability, or convenience when switching from one 
telecommunications carrier to another.'' 47 U.S.C. 153(30). In the 
First Report and Order, the Commission determined, among other things, 
that it has authority under section 251 to promulgate rules regarding 
long-term and currently available (or ``interim'') number portability, 
as well as to establish cost recovery methods for each.
    Twenty-two parties filed petitions for reconsideration or 
clarification of the First Report and Order. Nineteen parties filed 
oppositions to or comments on the petitions, and 16 parties filed reply 
comments. On March 6, 1997, the Commission adopted a First Memorandum 
Opinion and Order on Reconsideration, 62 FR 18280 (April 15, 1997) in 
this proceeding, addressing a number of these issues. In re Telephone 
Number Portability, CC Docket 95-116, First Memorandum Opinion and 
Order on Reconsideration, 12 FCC Rcd 7236 (1997). A Second Memorandum 
Opinion and Order on Reconsideration, 63 FR 68197 (Dec. 10, 1998) 
clarified that all LECs must discontinue using interim number 
portability in areas where a long-term number portability method has 
been implemented. In re

[[Page 46572]]

Telephone Number Portability, CC Docket 95-116, Second Memorandum 
Opinion and Order on Reconsideration, 13 FCC Rcd 21,204 (1998). The 
item also clarified that Remote Call Forwarding (RCF) and Flexible 
Direct Inward Dialing (DID) are not the exclusive methods of providing 
interim number portability that LECs are obligated to provide on a 
transitional basis. Instead, LECs may implement any technically 
feasible method of interim number portability comparable to RCF and 
DID. The Commission also held that a LEC is required to implement the 
specific method of interim number portability requested by a competing 
carrier, provided that provision of the requested method is not unduly 
burdensome. A Third Memorandum Opinion and Order on Reconsideration. CC 
Docket No. 95-116, 13 FCC Rcd 16,090 (1998) denied a petition for 
reconsideration that sought modification to the long-term number 
portability deployment schedule. In its Third Report and Order on 
number portability, 63 FR 35150 (June 29, 1998), CC Docket No. 95-116, 
13 FCC Rcd 11,701 (1998), the Commission adopted rules governing 
recovery of the costs of long-term number portability. In this Fourth 
Memorandum Opinion and Order on Reconsideration, the Commission 
addresses issues raised by petitioners relating to cost recovery for 
interim number portability.

II. Background

    3. In the First Report and Order, the Commission exercised its 
authority to prescribe requirements governing the LECs' duty to provide 
number portability. After determining that section 251(b)(2) requires 
LECs to provide number portability in the short term, the Commission 
prescribed that such number portability be provided through Remote Call 
Forwarding (RCF), Flexible Direct Inward Dialing (DID), or other 
comparable methods. The Commission based this finding on its conclusion 
that section 251(b)(2), by referring to the provision of number 
portability ``to the extent technically feasible,'' creates a dynamic 
requirement that allows for changes in the methods by which a LEC 
provides the required number portability. Accordingly, the Commission 
concluded that because RCF, DID, and other comparable measures 
currently are technically feasible number portability methods, section 
251(b)(2) requires LECs to provide number portability through such 
methods. The Commission stated that, upon receipt of a specific request 
from another telecommunications carrier, a LEC must provide number 
portability through such measures as soon as reasonably possible, until 
such time as the LEC implements a long-term database method for number 
portability in that area.
    4. In light of its finding that the Communications Act requires 
LECs to provide interim number portability, the Commission also 
determined that it must adopt cost recovery principles for interim 
number portability measures pursuant to section 251(e)(2). The 
Commission concluded that section 251(e)(2) ``gives us specific 
authority to prescribe pricing principles that ensure that the costs of 
establishing number portability are allocated on a `competitively 
neutral' basis.'' Applying section 251(e)(2) to interim number 
portability, the Commission concluded that it should adopt guidelines 
that the states must follow in mandating cost recovery mechanisms for 
interim number portability measures.
    5. Section 251(e)(2) requires that ``the costs of establishing 
number administration and number portability be borne by all 
telecommunications carriers on a competitively neutral basis.'' 47 
U.S.C. 251(e)(2). In the First Report and Order, the Commission 
determined that the costs of currently available (referred to here as 
interim) number portability are those ``incremental costs incurred by a 
LEC to transfer numbers initially and subsequently forward calls to new 
service providers.'' The Commission also determined that for purposes 
of interim number portability, the phrase ``all telecommunications 
carriers'' was to be read literally, and included ``any provider of 
telecommunications services,'' including incumbent LECs, new LECs, 
commercial mobile radio service (CMRS) providers, and interexchange 
carriers (IXCs).
    6. The Commission also set forth two criteria with which any cost 
recovery method must comply in order to be considered competitively 
neutral. First, ``a `competitively neutral' cost recovery mechanism 
should not give one service provider an appreciable, incremental cost 
advantage over another service provider, when competing for a specific 
subscriber.'' Second, the cost recovery mechanism ``should not have a 
disparate effect on the ability of competing service providers to earn 
normal returns on their investments.'' In the First Report and Order, 
the Commission provided some examples of methods currently in use that 
would comply with these criteria. Such methods include, but are not 
limited to: allocating incremental costs based on (a) the number of 
ported numbers, (b) the number of active telephone numbers, (c) the 
number of active telephone lines, (d) gross telecommunications revenues 
net of charges paid to other carriers; and (e) each carrier bearing its 
own costs. The Commission further stated that requiring new entrants to 
bear all of the costs of interim number portability, measured on the 
basis of incremental costs, would not comply with the statutory 
requirements of section 251(e)(2). In setting forth these criteria, 
however, the Commission left to the states the determination of the 
specific cost recovery mechanism to be utilized. On May 5, 1998, the 
Commission adopted a Third Report and Order that resolved numerous 
issues regarding the means by which carriers will bear the costs of 
providing long-term number portability. The Commission found that 
section 251(e)(2) expressly and unconditionally grants the Commission 
authority, and requires the Commission, to ensure that all 
telecommunications carriers bear the costs of providing number 
portability for interstate and intrastate calls on a competitively 
neutral basis. The Commission concluded that section 251(e)(2) 
addresses both interstate and intrastate matters and overrides the 
reservation of authority of section 2(b) to the states over intrastate 
matters. Thus, the Commission determined that section 251(e)(2) 
authorizes it to provide the distribution and cost recovery mechanism 
for all the costs of providing long-term number portability. The 
Commission determined that an exclusively federal recovery mechanism 
for long-term number portability ``will enable the Commission to 
satisfy most directly its competitive neutrality mandate.''

II. Reconsideration Issues

A. Commission Authority To Require Interim Number Portability

1. Background
    7. In the First Report and Order, the Commission required LECs to 
provide interim number portability, based on the 1996 Act's requirement 
that LECs provide number portability ``to the extent technically 
feasible.'' The Commission based this conclusion on the language of 
section 251(b)(2), which states that LECs have ``[t]he duty to provide, 
to the extent technically feasible, number portability in accordance 
with requirements prescribed by the Commission.'' Several carriers 
challenge the Commission's finding that the 1996 Act provides authority 
for the Commission to order LECs to provide interim number portability.

[[Page 46573]]

2. Discussion
    8. The Commission reaffirms its earlier conclusion that it has 
authority to require that number portability be implemented ``to the 
extent technically feasible'' and that its authority under section 
251(b)(2) encompasses all forms of number portability. Section 3(30) of 
the Act defines number portability as ``the ability of users of 
telecommunications services to retain, at the same location, existing 
telecommunications numbers without impairment of quality, reliability, 
or convenience when switching from one telecommunications carrier to 
another.'' This definition is not limited to any one technical method 
of number portability. Nor is the duty of LECs pursuant to section 
251(b)(2), to provide number portability ``to the extent technically 
feasible . . . in accordance with requirements prescribed by the 
Commission,'' limited to long-term number portability. The Commission 
acknowledges that some ambiguity exists regarding the statutory mandate 
to require the provision of interim number portability, because, while 
sections 251(b) and 3(30) refer to the provision of ``number 
portability,'' section 271(c)(2)(B) refers to both ``regulations 
pursuant to section 251 to require number portability'' and ``interim 
number portability'' to be provided by Bell Operating Companies (BOCs) 
until the Commission issues such regulations.'' See 47 U.S.C. 
251(b)(2), 271(c)(2)B)(ix), 153(30). The Commission finds, however, 
that its earlier interpretation of section 251(b)(2), that is, 
requiring all LECs to provide number portability to the extent 
technically feasible, is consistent with, and necessary to effectuate, 
Congress's goal to promote competition in the provision of local 
telecommunications service. Indeed, prior Commission decisions reflect 
its understanding of Congress's intent, stated in the First Report and 
Order, that number portability is a dynamic concept that allows for 
changes in the methods by which LECs provide it. Additionally, in 
placing number portability obligations within section 251, which is 
concerned overall with the development of competitive local markets, 
Congress recognized the importance of number portability to the 
development of local competition. Because the statutory language, like 
the language in the House bill, requires LECs to provide number 
portability ``to the extent technically feasible'' and according to 
requirements prescribed by the Commission, rather than ``when 
technically feasible,'' the Commission does not believe that this 
legislative history suggests an intent by Congress to prevent the 
Commission from requiring LECs to provide ``interim,'' ``currently 
available,'' or ``transitional'' number portability until ``true'' 
number portability becomes available.
    9. The Commission finds unpersuasive BellSouth's contention that, 
because Congress considered including a specific reference to interim 
number portability, but did not adopt it in section 251(b), the lack of 
such language demonstrates that the Commission is without jurisdiction 
in this area, in particular regarding language set forth in section 261 
of Senate Bill 652. This language was not included in the final version 
of the legislation. Because the legislative history provides no 
explanation for the deletion of this language, it is subject to various 
interpretations, and the Commission is not persuaded that BellSouth's 
is the most reasonable among them. See Mead Corp. v. Tilley, 490 U.S. 
714, 723 (1989); Rastelli v. Warnder, 782 F.2d 17, 23 (2d Cir. 1986). 
The Joint Explanatory Statement of the Conference Report states that 
all differences between the Senate Bill, the House Amendment, and the 
substitute reached in conference are noted therein ``except for 
clerical corrections, conforming changes made necessary by agreements 
reached by the conferees, and minor drafting and clerical changes.'' 
Because the Joint Explanatory Statement does not address the omission 
of section 261 of the Senate Bill from the final legislation, the more 
logical inference from the quoted statement is that Congress regarded 
the change as an inconsequential modification rather than a significant 
alteration. This view is supported by two additional facts noted above: 
first, the statement in the Joint Explanatory Statement that section 
251 ``incorporates provisions from both the Senate Bill and the House 
Amendment;'' and second, the statements from the House Report 
suggesting that the Commission's authority to prescribe requirements 
for number portability extends both to interim number portability, 
which is being provided now, and to long-term number portability, which 
will ``be deployed when it is technically feasible.''
    10. This reading of the term ``number portability'' to include all 
forms of number portability, whether interim or long-term, also is more 
consistent than BellSouth's reading with Congress' goal of fostering 
competition in the local exchange marketplace. Congress recognized that 
number portability is essential to meaningful competition in the 
provision of local exchange services, and the record in this proceeding 
demonstrates that customers are reluctant to switch carriers if doing 
so requires that they give up their current telephone numbers. Nor is 
this view inconsistent with the distinction between ``interim number 
portability'' and ``section 251 number portability'' referenced in 
section 271(c)(2)(B)(ix). The legislative history of the 1996 Act does 
not explain why Congress decided to refer specifically to interim 
number portability only in section 271(c)(2)(B)(ix). In the absence of 
such an explanation, and given the broad definition of number 
portability in section 3(30) and the legislative history described 
above, it seems unlikely that Congress's reference to interim number 
portability in section 271(c)(2)(B)(ix) was intended to narrow the 
concept of number portability as used elsewhere in the statute.
    11. Contrary to BellSouth's assertion, in the First Report and 
Order, the Commission did not rely on section 271(c)(2)(B)(xi) as the 
basis for requiring all LECs to provide interim number portability. 
Rather, the Commission merely referred to section 271(c)(2)(B)(xi) as 
offering further support for its interpretation of section 251(b)(2). 
In addition, the Commission explained that its interpretation of 
section 251(b)(2) would prevent a BOC seeking interLATA authorization, 
pursuant to section 271 of the Act, from being able to avoid providing 
number portability during the time between the adoption of the 
Commission's number portability rules and the implementation of long-
term number portability measures. See 47 U.S.C. 271. Under BellSouth's 
interpretation, a BOC could refuse to offer interim number portability 
from the time of the adoption of the First Report and Order until the 
actual implementation of long-term number portability, yet still be in 
compliance with the number portability checklist requirement set forth 
in section 271. The Commission believes that a more logical 
interpretation of these sections is that, in providing for both types 
of number portability, Congress did not intend for there to be such a 
time lag but instead required the provision of interim number 
portability until long-term number portability is in place.

[[Page 46574]]

B. Commission Authority To Establish Cost Recovery Guidelines for 
Interim Number Portability

1. Background
    12. In the First Report and Order, the Commission asserted 
jurisdiction over interim number portability and established cost 
recovery guidelines for interim number portability measures for the 
states to implement. Several commenters assert that the Commission 
lacks authority to promulgate cost recovery guidelines for interim 
number portability.
2. Discussion
    13. The Commission upholds its earlier decision and affirms its 
authority to establish cost recovery guidelines for interim number 
portability measures. Its interpretation of the statute finds support 
in the language of the 1996 Act, is consistent with the Act's 
underlying goals, and is consistent with the conclusions reached in the 
Third Report and Order.
    14. The Commission finds that sections 251(b)(2) and 251(e)(2) 
grant it explicit authority over, respectively, the provision of and 
the recovery of costs associated with number portability. 47 U.S.C. 
251(b)(2), (e)(2). The Commission finds that its authority under 
section 251(e)(2), as with section 251(b)(2), is not limited to long-
term number portability, since the statutory definition of number 
portability draws no distinction between interim and long-term number 
portability. Section 3(30) of the Act defines number portability as 
``the ability of users of telecommunications services to retain, at the 
same location, existing telecommunications numbers without impairment 
of quality, reliability, or convenience when switching from one 
telecommunications carrier to another. 47 U.S.C. 153(30). This 
definition is not limited to one technical method of providing number 
portability. Similarly, sections 251(b)(2) and 251(e)(2) refer only to 
the provision and cost recovery of ``number portability,'' but do not 
limit the term ``number portability'' to long-term measures. As 
discussed above, given the broad definition of number portability in 
section 3(30), it seems unlikely that Congress's reference to interim 
number portability in section 271(c)(2)(B)(ix) was intended to narrow 
the concept of number portability as used elsewhere in the statute, 
such as in sections 251(b)(2) and 251(e)(2). In addition, the 
Commission finds that its interpretation of section 251(b)(2), 
requiring all LECs to provide interim number portability, is consistent 
with, and necessary to effectuate Congress's goal to promote 
competition in the provision of local telecommunications service.
    15. The Commission also notes that its conclusion that it has 
statutory authority over interim number portability, regardless of 
whether it is characterized as an intrastate or interstate service, and 
the establishment of cost recovery rules for interim number 
portability, is consistent with its holdings in the Third Report and 
Order. There, the Commission concluded that the express and 
unconditional grant of authority of section 251(e)(2) to the Commission 
grants us the authority to ensure that carriers bear the costs of 
providing number portability on a competitively neutral basis for both 
interstate and intrastate calls. Section 251(e)(2) states that carriers 
shall bear the costs of number portability ``as determined by the 
Commission,'' and does not distinguish between costs incurred in 
connection with intrastate calls and costs incurred in connection with 
interstate calls. Thus, the Commission concludes for interim number 
portability, as it did in the Third Report and Order for long-term 
number portability, that section 251(e)(2) addresses both interstate 
and intrastate matters and overrides the reservation of authority to 
the states over intrastate matters contained in section 2(b). 47 U.S.C. 
152(b). See Iowa Utils. Bd. v. FCC, 120 F.3d at 792, 794 and n.10, 795 
and n.12, 802 and n.23, 806. See also In re Implementation of the Local 
Competition Provisions in the Telecommunications Act of 1996, CC Docket 
No. 96-98, First Report and Order, 61 FR 45476 (August 29, 1996), 11 
FCC Rcd 15,499 at 15,548 and n.155 (1996), vacated in part, aff'd in 
part, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), rev'd in 
part, aff'd in part and remanded sub nom. AT&T Corp. v. Iowa Utils. 
Bd., 119 S.Ct. at 730.
    16. The Commission is not persuaded that it lacks jurisdiction over 
cost recovery for interim number portability measures because the 
states have historically regulated the retail provision of RCF and DID. 
The states' regulation of rates for these services when provided on a 
retail basis does not preclude an express Congressional grant of 
authority to this Commission under section 251(e)(2) to regulate the 
cost recovery for interim number portability. Section 251(e)(2) states 
that carriers shall bear the costs of number portability ``as 
determined by the Commission,'' and does not distinguish between costs 
incurred in connection with intrastate calls and costs incurred in 
connection with interstate calls.
    17. The Commission disagrees with Bell Atlantic's claim that, 
because section 251(e)(2) refers to the costs of ``establishing'' 
number portability and there is nothing to ``establish'' with respect 
to interim number portability, the Commission is without authority to 
adopt cost recovery guidelines for the provision of interim number 
portability. In arguing that there is nothing to ``establish'' 
regarding interim number portability, Bell Atlantic defines the term 
``establish'' narrowly, i.e, limiting the meaning of ``establish'' to 
physically upgrading the public switched telephone network or creating 
databases necessary for customers to retain their telephone numbers 
when switching carriers. To give full effect to the pro-competitive 
objectives of the 1996 Act, the Commission concludes that the term 
``establish'' should be read more broadly. Although the functionalities 
necessary to provide interim number portability already exist in most 
public switched telephone networks, additional actions are necessary to 
implement interim number portability in a manner useful to new 
entrants. The actions required to establish interim number portability 
and the associated costs vary according to where the call originates in 
a carrier's network. The provision of interim number portability 
results in switching and transport costs, and may include some small 
non-recurring costs, such as administrative costs. Because additional 
actions are required by LECs in the provision of interim number 
portability, the Commission finds that the process of transferring 
numbers and subsequently forwarding calls is what ``establishes'' 
(i.e., ``creates'' or ``brings into existence'') interim number 
portability for use by new entrants.
    18. In addition to disagreeing with Bell Atlantic's narrow 
interpretation of the term ``establish'' in section 251(e)(2), the 
Commission also finds that it would be contrary to Congressional intent 
to conclude that the Commission's authority to impose a competitively 
neutral cost recovery mechanism is limited to long-term number 
portability. Congress imposed a number portability requirement on all 
LECs, and directed the Commission to adopt a competitively neutral cost 
recovery mechanism, in order to give new entrants a realistic 
opportunity to compete against incumbent LECs for local exchange 
customers. 47 U.S.C. 251(e). Mandating a number portability requirement 
without ensuring a competitively neutral cost recovery mechanism could 
significantly handicap the ability of new entrants to

[[Page 46575]]

win customers, whether the method of porting numbers is long-term or 
interim. In the First Report and Order, the Commission concluded that, 
because interim number portability costs will be small and incurred for 
a relatively short period, requiring carriers to bear their own costs 
would meet its competitive neutrality guidelines. The Commission 
specifically prohibited incumbent LECs from shifting all of their costs 
onto new entrants, however. Because both carriers would be competing 
for the same customer, the new provider may be forced to charge higher 
prices due to its need to recover the incumbent LEC's incremental costs 
of number portability, while the customer would face no additional 
charges if it stayed with the incumbent LEC. Thus, the Commission 
concludes that Bell Atlantic's interpretation--that the Commission has 
authority under section 251(e)(2) to impose a competitively neutral 
cost recovery mechanism for long-term number portability, but lacks 
such authority over interim number portability--will not promote 
competition.
    19. The Commission similarly is not persuaded by Bell Atlantic's 
claim that cost recovery for interim number portability must be subject 
to negotiation between carriers, and that the Commission therefore 
lacks authority to establish cost recovery guidelines. Bell Atlantic's 
argument is based on language in the Senate Report discussing section 
261 of Senate Bill 652, which states that interconnection agreements 
reached under section 251 must, if requested, provide for interim 
number portability, including the method by which it will be provided, 
and the amount of compensation. As discussed above, section 261, as it 
appeared in Senate Bill 652, distinguished between interim and final 
number portability, but was ultimately dropped from the final version 
of the 1996 Act. The Commission finds unpersuasive Bell Atlantic's 
interpretation of the legislative history. See Helvering v. Hallock, 
309 U.S. 106, 119-20 (1940); Brennan v. Midwestern United Life 
Insurance, 259 F. Supp. 673 (1966); Women Involved in Farm Economics v. 
USDA, 682 F. Supp. 599 (1988).
    20. The Commission rejects BellSouth's assertion that the 
Commission lacks authority to depart from cost-causative pricing 
principles. As the Commission explained in the Third Report and Order, 
Congress imposed a number portability requirement on all LECs, and 
directed the Commission to adopt a competitively neutral cost recovery 
mechanism, in order to give new entrants a realistic opportunity to 
compete against incumbent LECs for local exchange customers. A cost 
causative basis for pricing number portability could defeat the purpose 
for which number portability was mandated. Mandating a number 
portability requirement without ensuring a competitively neutral cost 
recovery mechanism could significantly handicap the ability of new 
entrants to win customers, whether the method of porting numbers is 
long-term or interim, because they could be forced to bear all 
incremental costs of number portability and pass those costs onto 
customers in the form of higher prices.
    21. Finally, the Commission rejects BellSouth's contention that the 
Commission based its jurisdiction to order interim number portability 
on pre-1996 Act provisions and is therefore precluded from relying on 
section 251(e)(2) for jurisdiction to determine cost recovery for such 
interim measures. To the contrary, in the First Report and Order the 
Commission concluded only that sections 1 and 202 of the Communications 
Act provide a pre-existing and independent basis for its jurisdiction 
to require the provision of interim number portability methods. The 
Commission did not rely solely on sections 1 and 202 as a basis for 
jurisdiction, and hereby clarifies that, although it finds that 
sections 1 and 202 provide an additional statutory basis on which it 
may require interim number portability, it has independent authority to 
do so by virtue of sections 251(b)(2) and 251(e)(2) of the Act.
    22. The Commission reiterates its earlier finding, as discussed 
above, that section 251(e)(2) addresses both interstate and intrastate 
matters, and overrides section 2(b)'s reservation of authority to the 
states over intrastate matters. Although the Commission asserts federal 
jurisdiction over interim number portability and affirms its authority 
to establish cost recovery guidelines for interim number portability 
measures, it denies requests that it generally preempt state number 
portability cost recovery policies. Instead, the Commission affirms its 
earlier conclusion that states may continue to utilize various cost 
recovery mechanisms as long as they meet the Commission's competitive 
neutrality guidelines. This cost recovery approach is different than 
the one adopted in the Third Report and Order for long-term number 
portability cost recovery, in which the Commission adopted an 
exclusively federal cost recovery mechanism. The Commission notes that 
in the Third Report and Order, it found that section 251(e)(2) 
authorizes the Commission to provide the distribution and recovery 
mechanism for all the costs of providing long-term number portability, 
but did not interpret the statute to require the adoption of an 
exclusively federal recovery mechanism for all forms of number 
portability. Instead, an exclusively federal cost recovery mechanism 
for long-term number portability was adopted for several policy reasons 
that are inapplicable to interim number portability. The Commission 
determined in the Third Report and Order that an exclusively federal 
cost recovery mechanism for long-term number portability will enable it 
``to satisfy most directly its competitive neutrality mandate and will 
minimize the administrative and enforcement difficulties that might 
arise where jurisdiction over long-term number portability divided.'' 
Additionally, an exclusively federal cost recovery mechanism for long-
term number portability obviates the need for state allocation of the 
shared costs of the regional database, a task that would likely be 
complicated by the database's multistate nature.
    23. Although the Commission has determined that the Commission's 
authority to provide the distribution and recovery mechanism for all 
number portability costs extends to long-term and interim number 
portability, it does not find it necessary to establish an exclusively 
federal recovery mechanism for interim number portability. Instead, it 
will continue to permit states to provide for cost recovery in accord 
with the competitive neutrality standards adopted in the First Report 
and Order, and elaborated here, for the following reasons. First, the 
Commission believes that adopting an exclusively federal cost recovery 
mechanism would be very disruptive to existing interim number 
portability cost recovery. States have been providing for interim 
number portability cost recovery since 1996. Also, cost recovery for 
interim number portability has been determined through existing 
interconnection agreements, as incumbent LECs are required by section 
251(c) to provide for interim number portability in their 
interconnection agreements. 47 U.S.C. 251(c). The Commission notes that 
federal courts have upheld the interim number portability cost recovery 
guidelines established in the First Report and Order. See, e.g., 
Southwestern Bell Telephone v. AT&T, 1998 WL 657717*4 (D.Tex. 1998); 
see also US WEST Communications v. MFS Intelnet, 35 F. Supp. 2d 1221, 
1236 (D.Or. 1998).

[[Page 46576]]

Second, the Commission believes that disruption of existing cost 
recovery mechanisms is not warranted because interim number portability 
will remain in place for a very limited period of time. Interim number 
portability was replaced by long-term number portability in the 100 
largest MSAs by the end of 1998, and is subsequently being replaced in 
other switches in which a bona fide request for number portability has 
been received. Third, the Commission believes that a cost allocation 
method that requires LECs to bear their own costs of interim number 
portability is competitively neutral, as individual carrier's costs 
will be small and no shared costs or database costs must be allocated. 
As previously indicated, to the extent that RCF, DID and other 
comparable methods are used to provide currently available number 
portability, and the capability for currently available number 
portability already exists in the incumbent LEC network, only the 
short-run incremental costs are properly attributed to interim number 
portability. Having already provisioned their switches with enough 
capacity to carry all of their respective customers' incoming and 
outgoing calls, the Commission does not expect incumbent LECs to incur 
additional costs with respect to switch capacity when a customer 
chooses to port its number to a new service provider and the incumbent 
LEC must forward calls using interim number portability methods. As a 
result, the Commission expects little or no change in the level of 
incumbent LECs switching and transport costs per ported number.
    24. As stated in the First Report and Order, if a carrier believes 
that a LEC's pricing provisions for number portability violate the 
Commission's competitive neutrality guidelines or violate a state-
mandated cost recovery mechanism, it may be able to seek relief from 
its state commission. If the carrier is not able to obtain relief in 
this way, or if a state has not yet adopted a cost recovery mechanism 
for cost recovery of interim number portability measures, it may be 
able to bring action against the LEC in federal district court pursuant 
to section 207 for damages or file a section 208 complaint with this 
Commission against another carrier alleging a violation of the Act or 
the Commission's rules. Alternatively, if a carrier believes that a 
state has not properly applied the statute or Commission rules, or if a 
state's cost recovery mechanism is not competitively neutral because it 
improperly burdens new entrants with interim number portability costs, 
it may file a request for declaratory ruling with the Commission or 
otherwise seek court review of the state cost recovery mechanism.

C. Cost Recovery Guidelines

1. Background
    25. In the First Report and Order, the Commission established two 
criteria with which any cost recovery method must comply in order to be 
considered competitively neutral. First, ``a `competitively neutral' 
cost recovery mechanism should not give one service provider an 
appreciable, incremental cost advantage over another service provider, 
when competing for a specific subscriber.'' Second, the cost recovery 
mechanism ``should not have a disparate effect on the ability of 
competing service providers to earn normal returns on their 
investments.'' In setting forth these criteria, however, the Commission 
left to the states the determination of the exact cost recovery 
mechanism to be utilized. Several carriers have challenged the 
Commission's cost recovery guidelines.
2. Discussion
    26. The Commission rejects the claims of those carriers that assert 
that its cost recovery guidelines are arbitrary, capricious, or plain 
error. Number portability promotes competition by allowing customers to 
switch carriers easily without having to change their telephone 
numbers. In the First Report and Order, the Commission explained that 
the Commission departed from cost causation principles with respect to 
interim number portability because, ``[d]epending on the technology 
used, to price number portability on a cost causative basis could 
defeat the purpose for which it was mandated.'' As the Commission 
stated in the Third Report and Order, pricing number portability on a 
cost-causative basis could defeat Congress's purpose of removing 
barriers to local competition because the nature of the costs involved 
with some number portability solutions might make it economically 
infeasible for some carriers to compete for a customer serviced by 
another carrier. If it is assumed that the customer who ports his or 
her number is the cost causer, and all of the costs associated with 
forwarding a call are placed on the customer who switches carriers, 
customers who want to retain their telephone numbers could be deterred 
from switching carriers due to increased costs. This result is wholly 
contrary to the pro-competitive intent of sections 251(b)(2) and 
252(e)(2) regarding the provision of number portability.
    27. Additional economic and policy considerations also support the 
Commission's decision not to follow strict principles of cost causation 
in this specific context by imposing all interim number portability 
costs on new entrants. First, all customers benefit from number 
portability because number portability promotes competition, lower 
prices, increased choices, and greater innovation. In addition, other 
customers will benefit to the extent that they need not search for a 
customer's new number when that customer switches carriers. Since 
number portability generates an externality from which all customers 
benefit, the porting customers should not pay the full economic costs. 
Moreover, as discussed in the First Report and Order and Third Report 
and Order, if the costs are placed entirely on one carrier or group of 
carriers, ``the new entrant's share of the cost [could be] so large, 
relative to its expected profits, that the entrant would decide not to 
enter.'' Preventing new, efficient entrants from offering service 
because of costs associated with number portability would directly 
contravene one of the 1996 Act's primary purposes, namely to encourage 
local exchange competition.
    28. Furthermore, the Commission agrees with MCI that the costs of 
number portability should not be viewed narrowly as simply costs of 
entry, but more broadly as costs of creating a competitive environment 
that will benefit all consumers. In the Third Report and Order, the 
Commission concluded that applying principles of competitive neutrality 
to long-term number portability cost recovery would ensure that the 
cost of number portability does not undermine the goal of the 1996 Act 
to ``promote a competitive environment'' for the provision of local 
communications services. Similarly, the Commission concludes that 
requiring incumbent LECs to share in the costs of providing both 
interim and long-term number portability is in the public interest and 
will contribute to the development of competition in the local exchange 
market.
    29. BellSouth asserts that the cost recovery guidelines for interim 
number portability are ``vague and ambiguous,'' and that the Commission 
failed to define the phrases ``appreciable cost advantage'' and 
``normal return.'' As applied to its cost recovery guidelines, the 
Commission clarifies that, when the Commission used the phrase 
``appreciable cost advantage'' the Commission meant a difference in 
costs that, if reflected in retail prices, would cause a not-
insignificant number of

[[Page 46577]]

customers to change, or decline to change, carriers. The Commission 
also finds that a ``normal return'' in economic terms is the return 
sufficient to assure confidence in the financial integrity of the 
company so as to maintain its credit and attract capital. Normal return 
in this context does not guarantee that all firms will be profitable 
and, hence, remain in the industry. Rather, this concept means that 
number portability costs imposed on a particular carrier should not be 
so significant, by themselves, as to drive existing carriers out of the 
market or make continued operations unprofitable, or deter the entry of 
carriers that, but for the number portability costs, would have entered 
the market.
    30. The Commission finds no merit to BellSouth's suggestion that 
the Commission's definition of, and criteria for, competitive 
neutrality, are novel or unprecedented. The ``competitively neutral'' 
principles established in the First Report and Order were drawn from 
well-accepted principles of economic theory. To be competitive, a firm 
must be able to offer a particular customer a service/price package 
which that customer finds comparable to that offered by other carriers, 
and it must be able to do so while earning a normal rate of return. In 
making business decisions, firms are concerned with both the short-run 
and the long-run. In the short-run, firms are concerned with their 
ability to compete, while in the long-run firms are concerned with 
remaining in the market. The first criterion of the competitive 
neutrality test addresses the short-run concern, in that carriers 
cannot compete effectively if one carrier has an appreciable, 
incremental cost advantage over other carriers. The second criterion 
addresses the concern that the cost recovery mechanism should not have 
a disparate effect on the ability of competing service providers to 
earn normal returns on their investments.
    31. The Commission also rejects arguments that the methods 
currently suggested in the First Report and Order fail to meet the 
second criterion of competitive neutrality, which states that ``[the 
allocation mechanism] should not have a disparate effect on the ability 
of competing service providers to earn normal returns on their 
investments.'' As applied to interim number portability, the methods 
for allocating the costs of interim number portability suggested in the 
First Report and Order, including allocation according to a carrier's 
number of active lines or number of active telephone numbers, meet the 
criteria established for competitive neutrality. Given the relatively 
small incremental costs of interim number portability, the Commission 
concludes that using either number of telephone lines or number of 
active telephone numbers as the basis for allocation also meets the 
second criterion. Although that carrier's costs for number portability 
go up relative to other carriers, it also receives the corresponding 
revenues generated by the new customer. One characteristic of these 
rules is that the costs allocated to particular carriers increase with 
the size of the carrier so that smaller carriers will not be driven 
from the market. In creating the competitive neutrality criteria, the 
Commission also was guided by the 1996 Act's objectives. Number 
portability and competitively neutral cost recovery are necessary to 
fulfill the 1996 Act.
    32. The Commission also rejects BellSouth's argument that it is 
arbitrary and capricious to use transitional measures as an incentive 
to adopt long-term number portability as quickly as possible. As 
discussed above, the Commission finds that it has jurisdiction over 
number portability, and that number portability is a dynamic, not 
static, concept. Section 271 of the Act explicitly states that BOCs 
must provide ``interim telecommunications number portability'' until 
``the date by which the Commission issues regulations pursuant to 
section 251 to require number portability.'' While the costs of long-
term number portability will be greater than those of interim number 
portability, carriers will be able to recover their costs through two 
separate federally-tariffed charges, and end-user and query service 
charge.
    33. The Commission disagrees that it is interfering with existing 
state-mandated interim number portability cost recovery mechanisms. As 
the Commission stated in the First Report and Order, the Commission 
provides flexibility for the states to determine their own cost 
allocation mechanisms, subject to the guidelines set forth in the First 
Report and Order. If a state previously determined its cost allocation 
scheme without taking section 251(e)(2) into account, that state must 
now ensure that its method comports with the 1996 Act and the 
Commission's implementing regulations.
    34. The Commission disagrees with AirTouch's assertion that 
carriers that do not serve customers with ported numbers, such as 
wireless carriers, should not be required to share in the cost of 
number portability because such carriers do not benefit from number 
portability. The Commission looks to section 251(e)(2) of the Act, 
which plainly requires that the costs of establishing number 
portability be borne by ``all telecommunications carriers on a 
competitively neutral basis as determined by the Commission.'' 47 
U.S.C. 251(e)(2). This interpretation is consistent with the Third 
Report and Order, wherein the Commission concluded that the provisions 
of section 3 of the Act, when read together, define ``all 
telecommunications carriers'' as all persons or entities other than 
aggregators that charge to transmit information for the public without 
changing the form or content of the information, regardless of the 
facilities they use. Applying the statutory definition to section 
251(e)(2), the Commission concluded that the way all telecommunications 
carriers bear the costs of providing number portability--including 
incumbent LECs, competitive LECs, CMRS providers, IXCs, and resellers--
must be competitively neutral as determined by the Commission. The 
Commission has exercised its statutory mandate by articulating criteria 
for states to use in adopting cost recovery mechanisms. As the states 
develop cost recovery mechanisms pursuant to the statutory mandate, 
carriers will bear their own costs or states may allocate costs in a 
competitively neutral fashion on all telecommunications carriers that 
does not unduly burden any particular carrier or group of carriers.
    35. The Commission finds no merit in SCLP and SCI's claim that 
requiring CMRS providers to contribute to number portability would have 
a ``disparate effect'' on their ability to earn a normal rate of 
return. These carriers have failed to present any evidence to support 
their claim that contributing to the costs of interim number 
portability would have such an effect. As noted in the First Report and 
Order, a disparate effect may be said to exist when a ``new entrant's 
share of the [interim number portability] costs may be so large, 
relative to its expected profits, that the entrant would decide not to 
enter the market.'' With respect to existing carriers, the Commission 
clarifies that a disparate effect under its definition would exist if 
that carrier or class of carriers would be driven from the market, 
while other carriers would not, as a result of number portability 
costs. These carriers' unsupported allegations that contributing to the 
costs of interim number portability would have a disparate effect are 
insufficient to support their request for a blanket exemption for all 
CMRS carriers.
    36. The Commission also disagrees with SCLP and SCI's assertion 
that its

[[Page 46578]]

First Report and Order demonstrates an intent that the costs of interim 
number portability be placed on non-cost causers only where necessary 
to preserve competitive neutrality. In making this claim, SCLP and SCI 
rely on the word ``relevant'' in the Commission's statement that 
``states may apportion the incremental costs of interim measures among 
relevant carriers by using competitively neutral allocators.'' In using 
the term ``relevant carriers,'' the Commission intended to reflect that 
differing cost recovery mechanisms, all of which could satisfy its 
competitively neutral mandate, might encompass all, or a subset of all, 
telecommunications carriers, depending on the specifics of the cost 
recovery mechanism.
    37. In the First Report and Order, the Commission concluded that, 
in choosing the phrase ``all telecommunications carriers,'' Congress 
intended to include all types of carriers in the cost recovery 
mechanism because, unlike the requirement to provide number portability 
which applies solely to local exchange carriers, the requirements 
relating to number portability cost recovery apply to ``all 
telecommunications carriers on a competitively neutral basis.'' The 
term ``telecommunications carrier'' is defined in the Act as ``any 
provider of telecommunications services. * * *'' 47 U.S.C. 153(44). The 
Commission adopted a literal reading of the statutory requirement and 
of the statutory definition of ``telecommunications carriers.'' While 
the Commission's interpretation prevents an incumbent LEC from 
recovering its costs entirely from the new entrant, such an incumbent 
LEC may be able to recover its incremental interim number portability 
costs via the state-adopted allocation mechanism from ``all 
telecommunications carriers'' if a state implements such a cost 
recovery mechanism. Since the carrier providing the call forwarding 
itself falls within the category of ``all telecommunications 
carriers,'' the carrier providing the forwarding is prevented by 
statute from recovering all of its costs from other carriers. States 
could also permit incumbent LECs to recover any remaining costs in some 
other manner, e.g., from end-users.
    38. The Commission affirms its finding that a ``mechanism that 
requires each carrier to pay for its own costs of interim number 
portability measures'' is competitively neutral and would constitute an 
acceptable cost recovery scheme that states could adopt. First, no 
significant capital costs are incurred by the carrier winning the 
customer or by the carrier losing the customer. Thus, the cost recovery 
mechanism does not give one service provider an appreciable, 
incremental advantage over another service provider when competing for 
the same customer. Second incumbent LECs should still be able to earn a 
normal return, as the anticipated costs of interim number portability 
measures are relatively small.
    39. The Commission disagrees with BellSouth's argument that 
``having determined that the costs of [interim number portability] will 
be incurred solely by the incumbent LECs,'' it was arbitrary and 
capricious for the Commission to determine that requiring each carrier 
to bear its own costs does not operate to the competitive disadvantage 
of the incumbent LECs. The Commission also disagrees with Bell 
Atlantic's argument that the First Report and Order was not 
competitively neutral because the Commission denied Bell Atlantic the 
ability to recover incremental costs of interim number portability. As 
a threshold matter, these carriers are incorrect when they assert that 
the Commission determined that the costs of providing interim number 
portability will be incurred solely by incumbent LECs. Although finding 
that ``initially, the costs of providing interim number portability 
will be incurred primarily by the incumbent LEC, because the incumbent 
LECs currently hold the vast majority of numbers in use,'' the First 
Report and Order imposed interim number portability requirements on all 
local exchange carriers. The Commission finds that it would be 
competitively neutral for carriers to pay their own incremental interim 
number portability costs, that is, to absorb the costs themselves or 
pass the costs onto their own retail customers. Additionally, the 
Commission has not foreclosed incumbent LECs from recovering all of 
their incremental costs of interim number portability, but has 
permitted each state to adopt a cost recovery mechanism, consistent 
with its competitive neutrality guidelines. The First Report and Order 
does not deny any carrier the right to recover costs, but, rather 
adopts guidelines that states must follow in implementing a cost 
recovery mechanism.
    40. The Commission also concludes that the assertion by Bell 
Atlantic and Cincinnati Bell that new entrants should be required to 
bear all the costs of interim number portability is not consistent with 
the pro-competitive intent of sections 251(b)(2), 252(e)(2), and the 
1996 Act as a whole. As the Commission stated in the Third Report and 
Order, the Commission has interpreted the Congressional mandate of 
competitive neutrality to require the Commission to depart from cost-
causation principles when necessary to ensure that the cost of number 
portability borne by each carrier does not significantly affect any 
carrier's ability to compete with other carriers. The Commission 
specifically prohibited incumbent LECs from shifting all of their costs 
onto new entrants, however. Despite the fact that such incremental 
costs are small, shifting all of an incumbent LEC's costs of interim 
number portability to a new entrant could result in a cost so large, 
``relative to expected profits,'' that the new entrant would decide not 
to enter the market. As the Commission stated in the First Report and 
Order, imposing the full incremental cost of interim number portability 
solely on new entrants would place them at an ``appreciable, 
incremental cost disadvantage relative to another service provider when 
competing for the same customer'' and would, therefore, violate the 
first criteria of the competitive neutrality mandate.
    41. The Commission is not persuaded by BellSouth's contention that 
the cost allocation mechanisms discussed in the First Report and Order 
guarantee the profitability of the new entrants. Number portability 
facilitates the development of competition among local providers. 
Through its competitive neutrality criteria and state-determined cost 
allocation mechanisms, the First Report and Order removes a potential 
barrier to entry that could result from high rates or charges that 
incumbent LECs potentially could impose for interim number portability 
on new entrants that possess their own switches. It does not guarantee 
that a new entrant will be profitable or be able to compete 
successfully in the market.
    42. GTE suggests a third criterion, that ``a cost recovery 
mechanism must not influence a customer's selection of his or her 
service provider.'' While the Commission agrees with GTE that a cost 
recovery mechanism should not influence a customer's selection of his 
or her service provider, this criterion is effectively embodied in the 
first prong of its competitive neutrality test and, thus, the 
Commission sees no need to revise that test.

D. Alternative Allocators for Cost Recovery of Interim Number 
Portability

1. Background
    43. In the First Report and Order, the Commission provided a list 
of examples of allocators for interim number portability cost recovery 
that would

[[Page 46579]]

meet the Commission's criteria for competitive neutrality. The 
Commission stated, for example, that a cost allocator based on a 
carrier's number of active telephone numbers, or a carrier's relative 
number of presubscribed customers, would meet its competitive 
neutrality guidelines. Several parties ask the Commission to approve 
additional allocators, or take exception to cost allocators deemed to 
be competitively neutral by the Commission in the First Report and 
Order.

2. Discussion

    44. In the First Report and Order, the Commission provided a non-
exhaustive list of examples of allocators for interim number 
portability cost recovery that would meet the Commission's criteria for 
competitive neutrality. The Commission disagrees with GTE's argument 
that a federally-mandated cost pooling mechanism needs to be 
implemented. For the reasons discussed in the First Report and Order, 
the Commission believes that states should be able to adopt various 
cost recovery mechanisms based on its competitive neutrality 
guidelines. The Commission is not, however, precluding states from 
selecting cost pooling as a cost recovery mechanism, nor is the 
Commission determining that cost pooling is not competitively neutral 
for the recovery of interim number portability costs. Although in the 
Third Report and Order the Commission rejected pooling of carriers' 
long-term number portability costs as a mechanism for recovery of these 
costs because pooling mechanisms, in general, reduce carrier incentives 
to provide service efficiently, states may find that these 
disadvantages are not as significant when pooling is used as a 
mechanism for the recovery of interim number portability costs. Because 
the costs of interim number portability are relatively small, given 
that incumbent LECs have already provisioned their switches with the 
capacity to provide the services needed for interim number portability, 
creating incentives for carriers to provide service efficiently may be 
less of a concern. The Commission allows states to utilize various cost 
recovery mechanisms, and states will make the decision as to whether 
they will choose pooling as a recovery mechanism and impose cost 
accounting and distribution mechanisms on carriers.
    45. In clarifying that the list of potential allocators referenced 
in the First Report and Order is not exhaustive, the Commission also 
affirms that a cost recovery mechanism based on a carriers' gross 
revenues is an acceptable means of allocating costs among carriers. 
Financial measures, including gross revenues, are developed for 
different uses, such as for tax filings, annual reports, and SEC 
filings, and are readily available for this use. Additionally, such an 
allocator does not disparately affect the incremental costs of winning 
a specific customer or group of customers. A LEC with a small share of 
the market's revenues would pay a percentage of the incremental costs 
of interim number portability that is small enough that it will have no 
appreciable affect on its ability to compete for that customer. 
Accordingly, utilizing a gross revenues allocator does not violate the 
Commission's competitive neutrality guidelines.
    46. It appears that carriers' concerns with some of the allocators 
approved by the Commission are focused on its second criterion, on 
whether losing a customer affects a firm's ``normal return.'' Losing a 
customer will necessarily affect a firm's revenues and subsequent 
return on investment. The First Report and Order did not intend to 
change that. Rather, as stated in the Third Report and Order, the 
second prong of the competitive neutrality test does not guarantee any 
particular rate of return, but merely states that an allocator should 
not disparately affect a carrier's ability to earn a normal return. The 
Commission also stated that allocating costs on an active telephone 
number basis would meet the second criteria, because it should not give 
any carrier a cost advantage, relative to its competitors.
    47. In a written ex parte presentation to the Commission, AT&T 
summarized a number of existing state cost recovery mechanisms in 
effect at that time. In one method, cost elements required for interim 
number portability are attributed to the requesting carrier, which is 
deemed the cost causer, and must be borne by that entity. This method 
allocates all incremental costs of interim number portability to the 
new entrant. The Commission reiterates its earlier conclusion in the 
First Report and Order that a cost recovery mechanism that imposes the 
entire incremental costs of interim number portability on a facilities-
based new entrant violates its competitive neutrality criteria. New 
entrants subjected to such a cost recovery mechanism may pursue one of 
the enforcement options discussed above.
    48. NYNEX suggests that allocating costs on the basis of total 
telecommunications retail revenues is competitively neutral and should 
be permitted as an allocator. The Commission agrees with NYNEX that 
such an allocation may meet its competitive neutrality guidelines 
because, as with allocators based on gross telecommunications revenues, 
it would not give one service provider an appreciable, incremental cost 
advantage over another service provider. Under this allocation method, 
a LEC with a small share of the market's revenues would pay a 
percentage of the incremental cost of number portability that will be 
small enough to have no appreciable affect on its ability to compete 
for a customer.
    49. In sum, the Commission reaffirms its determination to allow 
each state to determine the appropriate cost recovery mechanism for its 
jurisdiction as long as it meets its competitive neutrality criteria. 
The Commission recognizes that, in the First Report and Order, the 
Commission tentatively concluded that a cost recovery mechanism for 
interim number portability that assesses charges based on a carrier's 
gross revenues less charges carriers paid to other carriers would meet 
its competitive neutrality guidelines, while in the Third Report and 
Order, the Commission declined to utilize this allocator for long-term 
number portability cost recovery. The Commission notes, however, that 
interim number portability and long-term number portability, as 
implemented pursuant to industry-wide discussions, have very different 
cost characteristics. A cost recovery method that is appropriate for 
one may not be suitable for the other. Although the Commission has 
established one particular cost recovery mechanism for long-term number 
portability, the Commission declines to issue an exclusive list of 
acceptable cost recovery methods for interim number portability from 
which the states may choose to adopt. States are free to adopt an 
appropriate cost recovery method pursuant to the competitive neutrality 
criteria.

E. Takings

1. Background
    50. Several petitioners claim that its cost recovery guidelines for 
interim number portability do not ensure adequate compensation and 
therefore constitute an unlawful taking under the Fifth and Fourteenth 
Amendments to the Constitution.

2. Discussion

    51. The Commission rejects the claim that the cost recovery 
guidelines for interim number portability established in the First 
Report and Order violate the Fifth Amendment's mandate that no private 
property shall be ``taken for public use without just compensation.''

[[Page 46580]]

See U.S. Const. amend. V. As discussed below, the Commission concludes 
that the petitioners' takings claim is premature. More importantly, in 
examining its cost recovery guidelines in light of criteria articulated 
by the Supreme Court, the Commission finds that the petitioners' 
takings claim fails on the merits.
    52. In the First Report and Order, the Commission clearly stated 
that, although its guidelines govern state allocation of costs of 
interim number portability, it is the responsibility of the states to 
adopt specific cost recovery mechanisms. Although petitioners have 
broadly stated that they believe that incumbent LECs will not receive 
adequate compensation as a result of the guidelines established in the 
First Report and Order, they have not shown the actual impact of the 
guidelines based on state orders. The Commission concludes, therefore, 
that, absent an actual rate order under which the impact of the cost 
recovery guidelines can be evaluated, the petitioners' takings argument 
is premature. This conclusion is consistent with FPC v. Texaco Inc., in 
which the Supreme Court held that ``[a]ny broadside assertion that 
indirect regulation will be confiscatory is premature. The consequences 
of indirect regulation can only be viewed in the entirety of the rate 
of return allowed on investment, and this effect will be unknown until 
the Commission has applied its scheme in individual cases over a period 
of time.'' FPC v. Texaco Inc. 417 U.S. 380, 391-92 (1974).
    53. Assuming arguendo that the petitioners' takings claim is not 
premature, the Commission finds it without merit. The Supreme Court has 
made clear that ``government may execute laws or programs that 
adversely affect recognized economic values,'' Penn Central v. City of 
New York, 438 U.S. 104, 124 (1978), and that ``given the propriety of 
governmental power to regulate, it cannot be said that the Takings 
Clause is violated whenever legislation requires one person to use his 
or her assets for the benefit of another.'' Connolly v. Pension Benefit 
Guaranty Corp., 475 U.S. 211, 222 (1986). In fact, ``government hardly 
could go on if to some extent values incident to property could not be 
diminished without paying for every such change in the general law.'' 
Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 413 (1922). Despite the 
conclusory assertion of Cincinnati Bell to the contrary, its guidelines 
will not result in a significant economic impact on incumbent LECs. As 
noted in the First Report and Order, ``the capability to provide number 
portability through interim methods, such as RCF and DID, already 
exists in most of today's networks, and no additional network upgrades 
are necessary.'' The incremental costs associated with the utilization 
of pre-existing network functionality for purposes of interim number 
portability are relatively small.
    54. In Duquesne Light Co. v. Barasch, the Supreme Court rejected a 
takings claim on the grounds that it was permissible to preclude 
certain costs from inclusion in an electric utility's rate base because 
the overall rate was within constitutional requirements. Duquesne Light 
Co. v. Barasch, 488 U.S. 299 (1989). A rate is too low for 
constitutional purposes, according to the Court, if it is ``so unjust 
as to destroy the value of [the] property for all the purposes for 
which it was acquired.'' The Court held that `` `[i]t is not the 
theory, but the impact of the rate order which counts.' . . . The 
Constitution protects the utility from the net effect of the rate order 
on its property. Inconsistencies in one aspect of the methodology have 
no constitutional effect on the utility's property if they are 
compensated by countervailing factors in some other aspect.''
    55. In determining that the overall impact of the rate order was 
not constitutionally objectionable and that the takings clause was not 
violated, the Court in Duquesne Light Company took note of the fact 
that ``[n]o argument has been made that these slightly reduced rates 
jeopardize the financial integrity of the companies, either by leaving 
them insufficient operating capital or by impeding their ability to 
raise future capital. Nor has it been demonstrated that these rates are 
inadequate to compensate current equity holders for the risk associated 
with their investments. . . .'' Similarly, no showing has been made 
that the cost recovery guidelines at issue here will ``jeopardize the 
financial integrity'' of incumbent LECs, nor has a showing been made 
that the cost recovery guidelines will result in state rate orders that 
are inadequate to compensate LECs ``for the risk associated with their 
investments.''
    56. Having already provisioned their switches with enough capacity 
to carry all of their customers' incoming and outgoing calls, incumbent 
LECs should incur no additional costs with respect to switch capacity 
when losing customers and using RCF to provide number portability. 
Although RCF will require additional switch capacity--and an increase 
in transport costs--to process incoming calls, this effect is offset by 
the fact that the incumbent LEC will no longer handle the outgoing 
calls originated by the ported customer. As a result, little or no 
change in the level of incumbent LEC switching and transport costs per 
ported number should occur. The Commission concludes, therefore, that 
the additional incremental costs of interim number portability to 
incumbent LECs will be extremely small. Additionally, incumbent LECs 
may be able to recover some portion of their costs from other carriers 
through state-mandated cost recovery mechanisms. Additionally, as 
discussed above, if a carrier believes that a LEC's pricing provisions 
for number portability violate the Commission's competitive neutrality 
guidelines or violate a state-mandated cost recovery mechanism, a 
carrier has a variety of ways it may seek relief.
    57. Moreover, as the Supreme Court has stated, ``[t]hose who do 
business in the regulated field cannot object if the legislative scheme 
is buttressed by subsequent amendments to achieve the legislative 
end.'' Based on the extensive public debate that preceded enactment of 
the 1996 Act, it cannot be said that investors lacked adequate notice 
of possible changes to the Communications Act, including the number 
portability requirement at issue here. Indeed, while courts have 
readily found that a taking has occurred when interference with 
property rights can be characterized as a physical invasion or 
permanent appropriation, such a finding has not been reached when the 
challenged interference arises from a public program adjusting the 
benefits and burdens of economic life to promote the common good. The 
Commission's number portability cost recovery guidelines, which are 
designed to facilitate local telephone competition and thereby benefit 
all consumers of telecommunications services, falls squarely into the 
latter category. In short, the petitioners have failed to demonstrate 
that the Commission's cost recovery guidelines violate the Fifth and 
Fourteenth Amendments.

F. Retroactive Application of Cost Recovery Guidelines for Interim 
Number Portability

1. Background
    58. ACSI asks the Commission to allow new entrants to recover 
retroactively number portability costs paid to incumbent LECs in excess 
of that required pursuant to the guidelines set forth in the First 
Report and Order. Specifically, ACSI requests that the Commission 
provide for a true-up of rates paid in excess of those required 
pursuant to the First Report and Order

[[Page 46581]]

as far back as February 8, 1996, the date the 1996 Act became 
effective, or the date number portability was first provided to the new 
entrant, whichever is later.
2. Discussion
    59. The Commission denies ACSI's request that its cost recovery 
rules for interim number portability be applied to number portability 
provided prior to the adoption and effective date of those rules. In 
section 251(e)(2) of the Act, Congress required that ``the cost of 
establishing. . . number portability shall be borne by all 
telecommunications carriers on a competitively neutral basis as 
determined by the Commission.'' The plain language of this section 
demonstrates that, while establishing the parameters on how number 
portability costs are to be allocated and who should pay such costs, 
Congress intended that specific cost recovery rules were to be 
established by the Commission at some point in time following the 
enactment of the 1996 Act. The Commission rejects ACSI's argument that, 
because the number portability provision became effective on February 
8, 1996, ACSI is merely seeking to have the Commission give effect to 
this pre-existing requirement. Section 251(e)(2) is not self-executing, 
but is dependent on Commission action. The Commission sees no basis in 
the record for applying the rules adopted pursuant to section 251(e) 
retroactively.
    60. The Commission's cost recovery guidelines for interim number 
portability became effective August 26, 1996, however, and the 
Commission agrees that it may be appropriate for states to provide a 
true-up of interim number portability costs from that date through the 
effective date of a state-approved cost recovery program. To provide 
the states with the flexibility during the interim period to continue 
using a variety of cost recovery approaches, the Commission did not 
adopt a fixed cost recovery mechanism. Instead, it adopted guidelines 
for the states to follow in mandating cost recovery for interim number 
portability. The Commission recognizes, however, that a significant 
period of time may have elapsed before each state adopted a cost 
recovery mechanism for interim number portability. Thus, absent a true-
up from the effective date of the First Report and Order, the benefits 
of a competitively neutral cost recovery mechanism for interim number 
portability may be lost for many new entrants if they have been paying 
cost recovery amounts in excess of what would be allowed under the 
competitive guidelines of the First Report and Order. The Commission 
notes that several state arbitration decisions have adopted a true-up 
approach pending the adoption of a state-approved cost recovery 
mechanism. The Commission strongly encourages states to review their 
cost recovery mechanisms. Consistent with its competitive neutrality 
principles, the Commission encourages states to adopt a true-up of 
amounts paid for interim number portability between August 26, 1996 and 
the date the state-approved cost recovery program takes effect, to the 
extent such amounts exceed what would have been paid under the state-
approved plan, had it been in effect.

G. Terminating Access Charges

1. Background
    61. In the First Report and Order, the Commission stated that 
terminating access charges for calls forwarded from an incumbent LEC to 
a competing provider through the use of a interim number portability 
method should be shared between the incumbent LEC, which is the donor 
switch and the terminating switch carrier. A ``donor'' switch is the 
end office switch to which the called telephone number was originally 
assigned. The Commission stated that the ``overarching principle'' in 
such billing arrangements was that carriers were to share in the access 
revenues for a ported call, because neither the incumbent LEC 
forwarding carrier nor the terminating carrier provides all the 
facilities used to terminate a ported call. The Commission also held 
that incumbent LECs and new entrants should assess their terminating 
access charges on IXCs through meet-point billing arrangements. MCI 
asserts that, regardless of what type of billing arrangement is 
adopted, IXCs should not be charged increased access charges as a 
result of the additional call routing and associated costs necessary to 
terminate a call to a ported number under interim number portability 
measures.
2. Discussion
    62. IXCs currently pay LECs access charges for terminating calls on 
LEC switches. In a competitive local exchange market, an IXC 
terminating a call to a long distance customer that has ported his or 
her number to a new entrant will terminate the call to the incumbent 
LEC's switch, which then will forward it to the new entrant's switch 
utilizing interim number portability measures. Under this scenario, 
incumbent LECs and new entrants both provide facilities used to 
terminate calls to ported numbers using interim number portability. In 
the First Report and Order, the Commission required both forwarding and 
terminating carriers to assess charges on IXCs for terminating access 
through meet-point billing arrangements. In requiring that these 
revenues be shared, the Commission left to the carriers whether ``each 
issues a bill for access on a ported call, or whether one of them 
issues a bill to the IXCs covering all of the transferred calls and 
shares the correct portion of the revenues with the other carriers 
involved.'' The Commission further provided that, if carriers determine 
it more efficient to issue individual bills, the forwarding carrier 
must ``provide the terminating carrier with the necessary information 
to permit the terminating carrier to issue a bill.''
    63. The Commission finds that the additional costs that local 
exchange carriers may incur should not be included in the access 
charges paid by IXCs for terminating long-distance calls because any 
additional routing and transport costs that are a result of interim 
number portability are incremental costs of providing number 
portability. Such costs may be recovered through a local number 
portability cost recovery mechanism, or borne by the local exchange 
carrier that forwards the call, as determined by the state, on a 
competitively neutral basis. Because they are telecommunications 
carriers, IXCs may be required to contribute to the costs of interim 
number portability through the cost recovery mechanism adopted by state 
commissions. The Commission clarifies that, to prevent double recovery 
on the part of the terminating switch carrier, new entrants receiving a 
portion of access charges from IXCs for terminating calls may not also 
impose terminating charges on the incumbent LEC.
    64. As discussed in the First Report and Order, carriers may incur 
incremental costs for forwarding calls when utilizing interim number 
portability. MCI requests that the Commission clarify what is included 
in these incremental costs and, thus, what should be shared by all 
carriers on a competitively neutral basis. The incremental costs of 
providing number portability via RCF, DID, or other comparable 
technically feasible measures are the costs that the forwarding carrier 
incurs in forwarding the call that it would not incur if it did not 
forward the call. As mentioned in the First Report and Order, such 
costs may differ depending on where the call originates within the 
network, and on the type of technology utilized to forward the call. 
Thus, the Commission

[[Page 46582]]

declines to list each potential additional cost that may be incurred 
and who should be allowed to bill for those incremental costs.
    65. Finally, the Commission notes that it has ``not foreclose[d] 
arrangements in which one exchange carrier bills the entire amount [of 
access charges] and remits the other exchange carrier its share.'' The 
First Report and Order does not require that the carrier that owns the 
donor switch and the carrier that owns the terminating switch each 
issue a separate bill to the IXC. The First Report and Order states 
that ``it is up to the carriers whether they each issue a bill for 
access on a ported call, or whether one of them issues a bill to the 
IXCs covering all of the transferred calls and shares the correct 
portion of the revenues with the other carriers involved.'' Thus, 
either the carrier that owns the donor switch or the carrier that owns 
the terminating switch may bill the entire amount of access charges and 
remit to the other local exchange carrier its share of the invoiced 
charges. In short, the First Report and Order does not prohibit 
carriers who mutually agree from sending one bill to the IXC and then 
splitting the access charges appropriately between themselves.

H. Modification of Billing Systems to Accommodate the Sharing of Access 
Charges in Meet-Point Billing Type Arrangements

1. Background
    66. In the First Report and Order, the Commission concluded that 
meet-point billing between neighboring incumbent LECs provides the 
appropriate model for the proper access billing arrangement for interim 
number portability. In complying with the Commission's directive that 
forwarding and terminating carriers share access revenues received from 
IXCs for ported calls through meet-point billing arrangements, GTE 
argues that LECs should not be required to modify their billing 
systems.
2. Discussion
    67. The First Report and Order did not specify whether carriers 
must modify their billing systems in order to accommodate the 
requirement that access charges be shared in meet-point billing type 
arrangements. It requires that the forwarding carrier provide ``the 
necessary information to permit the terminating carrier to issue a 
bill,'' but does not specify whether carriers have to make 
modifications in their billing systems in order to do so. The 
Commission agrees with GTE and Time Warner that it would not be cost 
effective to require carriers to modify their billing systems to 
accommodate interim number portability. It does not require carriers to 
modify their billing systems to track and record the details of every 
call. It does require, however, that carriers adopt some method of 
implementing its requirement to share terminating access revenues, by, 
for example, providing information about PIU (percent interstate 
usage), traffic samples, or total access charges per line.
    68. If carriers cannot agree on appropriate meet-point billing 
arrangements, the Commission agrees that this issue may be included in 
mediation or arbitration before a state commission, or be subject to 
other dispute resolution processes chosen by the carriers involved. The 
Commission rejects GTE's suggestion, however, that parties seek 
informal assistance from the Commission as a means of resolving meet-
point billing arrangement disputes. Also, if a meet-point billing 
arrangement dispute arises in the context of an interconnection request 
made pursuant to section 251, the 1996 Act clearly places the 
responsibility for arbitration and/or mediation of unresolved issues on 
the state commissions.

IV. Supplemental Regulatory Regulatory Flexibility Analysis

    69. As required by the Regulatory Flexibility Act (RFA), see 5 
U.S.C. 601 et seq. (the RFA, see 5 U.S.C. 601 et seq., has been amended 
by the Contract with America Advancement Act of 1996, Pub. L. No. 104-
121, 110 Stat. 847 (1996) (CWAAA); Title II of the CWAAA is the Small 
Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)), an 
Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the 
First Report and Order. In addition, the Commission sought comments on 
the proposals included in the Initial Regulatory Flexibility Analysis 
(IRFA) in the First Report and Order. The Commission incorporated a 
Final Regulatory Flexibility Analysis in the Third Report and Order. 
The additional Regulatory Flexibility Analysis in this Fourth 
Memorandum Opinion and Order is as follows:
    70. Need for and Objectives of Action: The Commission, in 
compliance with sections 251(b)(2), 251(d)(1), and 251(e)(2) of the 
Communications Act of 1934, as amended by the Telecommunications Act of 
1996, adopted rules and procedures in the Third Report and Order that 
are intended to ensure the implementation of telephone number 
portability with the minimum regulatory and administrative burden on 
telecommunications carriers. Congress has recognized that number 
portability will lower barriers to entry and promote competition in the 
local exchange marketplace. To prevent the cost of number portability 
from itself becoming a barrier to local competition, section 251(e)(2) 
requires that ``[t]he cost of establishing telecommunications numbering 
administration arrangements and number portability shall be borne by 
all telecommunications carriers on a competitively neutral basis as 
determined by the Commission.'' The Commission issued this Fourth 
Memorandum Opinion and Order to address issues relating to cost 
recovery for interim number portability. Interim number portability 
utilizes an interim method to allow consumers to change carriers while 
retaining their telephone numbers before long-term number portability 
becomes available.
    71. Summary of Significant Issues Raised by the Public Response to 
the FRFA: There were no comments submitted specifically in response to 
the Regulatory Flexibility Analysis. In the Third Report and Order, the 
Commission adopted rules and regulations to ensure that the way all 
telecommunications carriers, including small entities, bear the costs 
of number portability does not significantly affect any carrier's 
ability to compete with other carriers for customers in the 
marketplace. This Fourth Memorandum Opinion and Order addresses issues 
relating to cost recovery for interim number portability. It affirms 
the Commission's conclusion that it has the authority to establish cost 
recovery guidelines for interim number portability. Second, the 
Commission rejects claims that the cost recovery guidelines for interim 
number portability set forth in the First Report and Order are 
arbitrary and capricious, or constitute an unconstitutional taking. The 
item denies the request that these cost recovery guidelines be applied 
retroactively. The item affirms the Commission's earlier decision to 
adopt general cost recovery guidelines for interim number portability 
while allowing states flexibility to continue using a variety of cost 
recovery approaches that are consistent with its guidelines. Finally, 
the item clarifies issues relating to terminating access charges, 
modification of billing systems, and the competitive neutrality of 
certain cost recovery allocators, as each of these issues relates to 
interim number portability.
    72. Description and Estimate of Number of Small Businesses to Which 
Actions Will Apply: The Regulatory

[[Page 46583]]

Flexibility Act generally defines the term ``small business'' as having 
the same meaning as the term ``small business concern'' under the Small 
Business Act. See 15 U.S.C. 632. A small business concern is one which: 
(1) Is independently owned and operated; (2) is not dominant in its 
field of operation; and (3) satisfies any additional criteria 
established by the Small Business Administration (SBA). Id. According 
to SBA's regulations, entities engaged in the provision of telephone 
service may have a maximum of 1,500 employees in order to qualify as a 
small business concern. See 13 CFR 121.201. This standard also applies 
in determining whether an entity is a small business for purposes of 
the RFA.
    73. As described in the previous Regulatory Flexibility Analysis 
contained in the Third Report and Order, the Commission's rules 
governing number portability cost recovery apply to all 
telecommunications carriers, including incumbent LECs, new LEC 
entrants, and IXCs, as well as cellular, broadband PCS, and covered SMR 
providers. Small incumbent LECs subject to these rules are either 
dominant in their filed of operations or are independently owned and 
operated, and, consistent with the Commission's prior practice, are 
excluded from the definition of ``small entities'' and ``small business 
concerns.'' See In re Implementation of the Local Competition 
Provisions in the Telecommunications Act of 1996, First Report and 
Order, 11 FCC Rcd 15499, 16144-45, 16149-50 (1996), vacated in part, 
aff'd in part, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), 
rev'd in part, aff'd in part and remanded sub nom. AT&T Corp. v. Iowa 
Utils. Bd., 119 S.Ct. (1998). Accordingly, the Commission's use of the 
terms ``small entities'' and ``small businesses'' does not encompass 
small incumbent LECs. Local Competition Order, 11 FCC Rcd at 16,150. 
Out of an abundance of caution, however, for regulatory flexibility 
analysis purposes, see 13 CFR 121.902(b)(4), the Commission 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.''
    74. Insofar as the Commission's rules apply to all 
telecommunications carriers, they may have an economic impact on a 
substantial number of small businesses, as well as on small incumbent 
LECs. The rules may have an impact upon new entrant LECs and small 
incumbent LECs, as well as cellular, broadband PCS, and covered SMR 
providers. Based upon data contained in the most recent census and a 
report by the Commission's Common Carrier Bureau, the Commission 
estimates that 2,100 small entities could be affected. The Commission 
has derived this estimate based on the following analysis.
    75. According to the 1992 Census of Transportation, Communications, 
and Utilities, there were approximately 3,469 firms with under 1,000 
employees operating under the Standard Industrial Classification (SIC) 
category 481--Telephone. See U.S. Dept. of Commerce, Bureau of the 
Census, 1992 Census of Transportation, Communications, and Utilities 
(issued May 1995). Many of these firms are the incumbent LECs and, as 
noted above, would not satisfy the SBA definition of a small business 
because of their market dominance. There were approximately 1,350 LECs 
in 1995. Industry Analysis Division, FCC, Carrier Locator: Interstate 
Service Providers at Table 1 (Number of Carriers Reporting by Type of 
Carrier and Type of Revenue) (December 1995). Subtracting this number 
from the total number of firms leaves approximately 2,119 entities 
which potentially are small businesses which may be affected. This 
number contains various categories of carriers, including small 
incumbent LECs, competitive access providers, cellular carriers, 
interexchange carriers, mobile service carriers, operator service 
providers, pay telephone operators, PCS providers, covered SMR 
providers, and resellers. Some of these carriers, although not 
dominant, may not meet the other requirement of the definition of a 
small business because they are not ``independently owned and 
operated.'' See 15 U.S.C. 632(a)(1). For example, a PCS provider that 
is affiliated with a long distance company with more than 1,500 
employees would not meet the definition of a small business. Another 
example would be if a cellular provider is affiliated with a dominant 
LEC. Thus, a reasonable estimate of the number of ``small businesses'' 
affected by this item would be approximately 2,100.
    76. Description of Projected Reporting, Recordkeeping and Other 
Compliance Requirements of the Rules: The Fourth Memorandum Opinion and 
Order provides guidance regarding issues relating to cost recovery for 
interim number portability. This Fourth Memorandum Opinion and Order 
affirms the Commission's conclusion that it has the authority to 
establish cost recovery guidelines for interim number portability. 
Second, the Commission rejects claims that the cost recovery guidelines 
for interim number portability set forth in the First Report and Order 
are arbitrary and capricious, or constitute an unconstitutional taking. 
This item denies the request that these cost recovery guidelines be 
applied retroactively. This item affirms the Commission's earlier 
decision to adopt general cost recovery guidelines for interim number 
portability while allowing states flexibility to continue using a 
variety of cost recovery approaches that are consistent with its 
guidelines.
    77. The Fourth Memorandum Opinion and Order also confirms an 
earlier Commission decision that a cost recovery mechanism based on a 
carrier's gross revenues is an acceptable means of allocating costs 
among carriers. It states that no additional recordkeeping will be 
required for this option of recordkeeping, because such gross revenue 
reporting is readily available through such things as tax filings, 
annual reports and SEC filings, which are developed for other purposes. 
The item does not require carriers to adopt any one billing arrangement 
for sharing costs when they forward calls while utilizing interim 
number portability. The item allows carriers to determine the best 
method of splitting these costs between them, but requires them to 
adopt some method of sharing terminating access revenues. Additionally, 
it affirms the Commission's earlier determination that meet-point 
billing between neighboring incumbent LECs provides the appropriate 
model for the proper access billing arrangement for interim number 
portability, but states that carriers are not required to modify their 
billing systems to track and record the details of every call.
    78. Steps Taken to Minimize Impact on Small Entities Consistent 
With Stated Objectives: The record in this proceeding indicates that 
the need for customers to change their telephone numbers when changing 
local service providers is a barrier to local competition. Requiring 
number portability, and ensuring that all telecommunications carriers 
bear the costs of number portability on a competitively neutral basis, 
will make it easier for competitive providers, many of which may be 
small entities, to enter the market. The Bureau has attempted to keep 
regulatory burdens on all local exchange carriers to a minimum to 
ensure that the public receives the benefits of the expeditious 
provision of service provider number portability in accordance with the 
statutory requirements. For example, the Fourth Memorandum Opinion and 
Order affirms the Commission's earlier determination that meet-point 
billing

[[Page 46584]]

between neighboring incumbent LECs provides the appropriate model for 
the proper access billing arrangement for interim number portability, 
but states that carriers are not required to modify their billing 
systems to track and record the details of every call. Such 
determination recognizes that number portability will cause some 
carriers, including small entities, to incur costs that they would not 
ordinarily have incurred in providing telecommunications services, but 
attempts to keep such costs to a minimum.
    79. Report to Congress: The Commission will send a copy of this 
Fourth Memorandum Opinion and Order, including this supplemental RFA, 
in a report to Congress pursuant to the Small Business Regulatory 
Enforcement Fairness Act of 1996. See 5 U.S.C. 801(a)(1)(A). A copy of 
the Third Report and Order and this supplemental FRFA (or summaries 
thereof) will be sent to the Chief Counsel for Advocacy of the Small 
Business Administration. See 5 U.S.C. 604(b).
    80. Paperwork Reduction Act: This Fourth Memorandum Opinion and 
Order provides guidance regarding issues relating to cost recovery for 
interim number portability. The Third Report and Order concluded that 
carriers may recover the portion of their number portability joint 
costs that is demonstrably an incremental cost incurred in the 
provision of number portability. Third Report and Order, 13 FCC Rcd at 
11,740, para. 73. The Third Report and Order also requires incumbent 
LECs that choose to recover their carrier-specific costs directly 
related to providing number portability to use federally-tariffed end-
user charges. Id. at 11,776. The Commission also concluded that 
carriers may identify only those incremental overheads that they can 
demonstrate were incurred specifically in the provision of number 
portability. Id. at 11,740. In this Fourth Memorandum Opinion and 
Order, the Commission affirms its earlier decision that it has the 
authority to establish cost recovery guidelines for interim number 
portability. Second, the Commission rejects claims that the cost 
recovery guidelines for interim number portability set forth in the 
First Report and Order are arbitrary and capricious, or constitute an 
unconstitutional taking. This item denies the request that these cost 
recovery guidelines be applied retroactively. The item affirms the 
Commission's earlier decision to adopt general cost recovery guidelines 
for interim number portability while allowing states flexibility to 
continue using a variety of cost recovery approaches that are 
consistent with its guidelines. The item also confirms an earlier 
Commission decision that a cost recovery mechanism based on a carrier's 
gross revenues is an acceptable means of allocation costs among 
carriers. The item states that no additional recordkeeping will be 
required for this option of recordkeeping, because such gross revenue 
reporting is readily available through such things as tax filings, 
annual reports and SEC filings, which are developed for other purposes. 
The item does not require carriers to adopt any one billing arrangement 
for sharing costs when they forward calls while utilizing interim 
number portability. The item allows carriers to determine the best 
method of splitting these costs between them, but requires them to 
adopt some method of sharing terminating access revenues. Additionally, 
the item affirms the Commission's earlier determination that meet-point 
billing between neighboring incumbent LECs provides the appropriate 
model for the proper access billing arrangement for interim number 
portability, but states that carriers are not required to modify their 
billing systems to track and record the details of every call. These 
information collection requirements are contingent upon approval of the 
Office of Management and Budget (OMB).

V. Ordering Clauses

    81. Accordingly, it is ordered that pursuant to authority contained 
in sections 1, 2, 4(i), 201-205, 215, 251(b)(2), 251(e)(2), and 332 of 
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 
201-205, 215, 251(b)(2), 251(e)(2), and 332, and Parts 1, 20 and 52 of 
the Commission's rules, 47 CFR 1.106, 20, and 52, the Petitions for 
Reconsideration and/or Clarification are granted to the extent 
indicated herein and otherwise are denied.
    82. It is further ordered that the Motion to Accept Late-filed 
Comments of Telecommunications Resellers Association and the Motion to 
Accept Late-Filed Reply Comments of US WEST are granted.
    83. It is further ordered that the Commission's Office of Public 
Affairs Reference Operations Division shall send a copy of this 
Memorandum Opinion and Order including the supplemental Regulatory 
Flexibility Analysis to the Chief Counsel for Advocacy of the Small 
Business Administration.

List of Subjects in 47 CFR Part 52

    Communications, Common Carriers, Telecommunications, Telephone.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 99-22131 Filed 8-25-99; 8:45 am]
BILLING CODE 6712-01-P