[Federal Register Volume 64, Number 218 (Friday, November 12, 1999)]
[Rules and Regulations]
[Pages 61527-61532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29550]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter 1

[CC Docket No. 96-149, FCC 99-242]


Implementation of the Non-Accounting Safeguards of Sections 271 
and 272 of the Communications Act of 1934

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document declines to reconsider the Commission's Non-
Accounting Safeguards Order. It also clarifies several points 
concerning the non-accounting safeguards requirements set forth in 
section 272 of the Act, which prescribes the manner in which the Bell 
Operating Companies may enter certain markets.

DATES: Effective December 13, 1999.

FOR FURTHER INFORMATION CONTACT: Michelle Carey, Deputy Chief, Policy 
and Program Planning Division, Common Carrier Bureau, (202) 418-1580 or 
via the Internet at [email protected]. Further information may also be 
obtained by calling the Common Carrier Bureau's TTY number: 202/418-
0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
adopted September 8, 1999, and released October 1, 1999. The full text 
of this Order is available for inspection and copying during normal 
business hours in the FCC Reference Center, 445 12th Street, S.W., Room 
CY-A257, Washington, DC. The complete text also may be obtained through 
the World Wide Web, at http://www.fcc.gov/Bureaus/Common Carrier/
Orders/fcc99242.wp, or may be purchased from the Commission's copy 
contractor, International Transcription Service, Inc., (202) 857-3800, 
1231 20th St., NW., Washington, DC 20036.

Synopsis of Third Order on Reconsideration

I. Introduction

    1. On December 24, 1996, the Commission adopted the Non-Accounting 
Safeguards Order, 62 FR 2927, (January 21, 1997), in its proceeding 
implementing the non-accounting safeguards provisions of the 
Communications Act of 1934 (the Act), as amended by the 
Telecommunications Act of 1996 (the 1996 Act). On February 2, 1997, 
several parties (the Association for Local Telecommunications Services, 
AT&T, BellSouth, Cox Communications, MCI, TCG, Time Warner Cable and US 
WEST) filed separate petitions to reconsider various aspects of the 
Non-Accounting Safeguards Order. For the reasons discussed, we deny all 
of the petitions. We also, on our own motion, clarify certain language 
in the Non-Accounting Safeguards Order relating to so-called teaming 
arrangements.

II. Background

    2. Section 272 addresses the safeguards and statutory separate 
affiliate requirements necessary for the BOCs' provision of 
manufacturing activities, interLATA telecommunications services 
originating in their in-region states, and interLATA information 
services. Consistent with the statutory framework, the Commission held 
in the Non-Accounting Safeguards Order that section 272 allows a BOC to 
engage in manufacturing activities, origination of certain interLATA 
telecommunications services, and the provision of interLATA information 
services, as long as the BOC provides these activities through a 
separate affiliate.
    3. Parties request reconsideration with respect to the Commission's 
interpretation in the Non-Accounting Safeguards Order of various 
provisions in section 272. We deny these petitions, and affirm and 
clarify the decisions in the underlying Order as follows:
    (a) We affirm the prior conclusion that section 272(b)(1)'s 
``operate independently'' requirement has no plain or ordinary meaning.
    (b) We affirm the conclusion that specific reporting requirements 
to implement section 272(e)(1) are unnecessary at this time.
    (c) We find unpersuasive BellSouth's argument that a broader 
reading of ``marketing'' and ``sale of services'' is consistent with 
the language and purpose of section 272, and affirm the view that the 
question of whether a section 272 affiliate is operating independently 
if a BOC designs and develops its affiliate's services should be 
decided on a case-by-case basis.
    (d) We affirm the conclusion that section 272(a)(2)(C) does not 
exclude out-of-region interLATA information services from the separate 
affiliate requirement.
    (e) We clarify that the conclusions in the Non-Accounting 
Safeguards Order are binding regardless of whether they are codified in 
the Code of Federal Regulations and decline to codify further those 
conclusions.
    (f) We conclude in this Third Order on Reconsideration that section 
272 of the Act does not require BOCs to provide video programming 
services through a separate affiliate.
    (g) We clarify, on our own motion, that the Non-Accounting 
Safeguards Order was not intended as an affirmative sanction of teaming 
arrangements between a BOC and an unaffiliated entity.
    (h) We find that Cox's petition requesting the Commission to 
reconcile the Non-Accounting Safeguards with certain other proceedings 
is moot.

III. Third Order on Reconsideration

A. Section 272(b)(1)'s ``Operate Independently'' Requirement

1. Inadequate Separation Of Operations
    a. Background.
    4. Section 272(b)(1) directs that the separate affiliate required 
pursuant to section 272(a) ``shall operate independently from the 
[BOC].'' In the Non-Accounting Safeguards Order, the Commission 
concluded that the ``operate independently'' requirement of section 
272(b)(1) imposes certain requirements beyond the structural separation 
requirements contained in sections 272(b)(2)-(5), including the 
preclusion of joint ownership of transmission and switching facilities 
by a BOC and its section 272 affiliate, as well as the joint ownership 
of the land and buildings where those facilities are located. 
Additionally, we found that the ``operate independently'' requirement 
precludes a section 272 affiliate from performing operating, 
installation, and maintenance functions associated with the BOC's 
facilities, and also prohibits the BOC from performing such functions 
associated with the facilities that its section 271 affiliate owns, or 
leases from a third party provider. The Order declined, however, to 
impose additional restrictions on the sharing of services or on the 
joint ownership of other property between the BOC and its section 272 
affiliate, concluding that additional structural separation 
requirements were unnecessary ``given the nondiscrimination safeguards, 
the biennial audit requirement, and other public disclosure 
requirements imposed by section 272.'' The Order also concluded that 
section 272(b)(3)'s ``separate employee'' requirement does not prohibit 
the sharing of services (other than operating, installation and 
maintenance services) between a BOC and its section 272 affiliate.
    b. Discussion.
    5. AT&T and MCI contend that the requirements the Commission 
adopted pursuant to section 272(b)(1) inadequately separate the 
functions of the BOC from those of its section 272

[[Page 61528]]

affiliate. In contrast, BellSouth contends that the Commission's 
interpretation of the ``operate independently'' requirement is too 
stringent. The arguments put forth by AT&T, MCI and BellSouth here are 
largely the same as those raised, considered, and rejected previously 
in this docket. Accordingly, we deny the parties' petitions to 
reconsider the interpretation of section 272(b)(1)'s ``operate 
independently'' requirement.
    6. The Relationship between Sections 274(b) and 272(b)(1). AT&T 
asserts that section 271(b)(1)-(9) should be read into the ``operate 
independently'' requirement of section 272(b)(1). We affirm the 
conclusion in the Non-Accounting Safeguards Order, however, that the 
structural differences in the two sections indicate that the term 
``operate independently'' in section 272(b)(1) ``should not be 
interpreted to impose the same obligations'' as the enumerated 
requirements in sections 274(b)(1)-(9). Moreover, construing ``operate 
independently'' in section 272(b)(1) to mean the same thing as 
``operated independently'' in section 274(b) would render sections 
272(b)(2)-(5), 272(c), and 272(e) redundant because the requirements in 
those sections and the enumerated requirements in sections 274(b)(1)-
(9) overlap. This would violate the maxim that statutes must be 
construed, where possible, so that no provision is rendered inoperative 
or superfluous. Thus, we reject this argument.
    7. Computer II and the Cellular Separation Rules. We also reject 
AT&T's contention that the Commission's interpretation of the ``operate 
independently'' requirement is irreconcilable with the prior 
interpretation of that same phrase in the Computer II and cellular 
structural separation rules. We agree with Ameritech that there is no 
``precedent'' in the Commission's rules that defines the term ``operate 
independently'' as used in section 272(b). Rather, the Non-Accounting 
Safeguards Order interpreted ``operate independently'' to implement a 
new statutory provision, relying upon its accumulated expertise and 
predictive judgment. Moreover, we note that the Non-Accounting 
Safeguards Order determined that the requirements of Computer II would 
not necessarily increase an affiliate's operational independence. For 
instance, we noted that prohibiting an affiliate from constructing, 
owning, or operating its own local exchange facilities, as the 
requirements of Computer II would necessitate, could actually increase 
the affiliate's reliance on the BOC's facilities.
    8. Shared Administrative Services. MCI's contention that the 
``operate independently'' requirement of section 272(b)(1) requires 
fully separate operations was considered and rejected in the Non-
Accounting Safeguards Order. Consistent with the letter and purposes of 
section 272, the term ``operate independently'' does not require total 
structural separation. We affirm that the economic benefits to 
consumers from allowing a BOC and its section 272 affiliate to derive 
the economies of scale and scope inherent in the integration of some 
services outweigh any potential for harm to competition created 
thereby. We reject as well MCI's argument that the explicit permission 
for joint marketing in section 272(g) would not be necessary had 
Congress not contemplated fully separate operations. Indeed, contrary 
to MCI's assertions, provisions such as the arm's length requirement in 
section 272(b)(5), the nondiscrimination requirement in section 
272(c)(1), the Commission's accounting principles implemented in 
accordance with section 272(c)(2), and the joint marketing provision in 
section 272(g), suggest that Congress envisioned the type of sharing 
that MCI claims section 272(b)(1) prohibits.
    9. We are also unpersuaded by MCI's suggestion that allowing a BOC 
to provide administrative services to its section 272 affiliate 
undermines the ``separate employees'' requirement of section 272(b)(3). 
The Non-Accounting Safeguards Order addressed these contentions, and 
the parties provide no new reasons for us to reconsider the 
interpretation of section 272(b)(3).
    10. Joint Provision of Operating, Installation, and Maintenance 
Services. BellSouth argues that the Commission improperly determined 
that section 272(b)(1) prohibits a BOC affiliate, other than the 
section 272 affiliate, from providing installation and maintenance 
services to both the BOC and its section 272 affiliate. The Non-
Accounting Safeguards Order addressed and rejected this argument, and 
BellSouth has not offered persuasive reasons to reverse course. The 
Order determined that allowing the same personnel to perform operating, 
installation, and maintenance services for the BOC and the section 272 
affiliate would create a loophole around the separate affiliate 
requirement. Furthermore, the Commission determined that such sharing 
also would heighten the risk of improper cost allocation with regard to 
time spent and equipment utilized. Recognizing the burdensome 
regulatory involvement that would be necessary to detect and deter such 
cost misallocation, the Commission concluded that an outright 
prohibition of shared operating, installation and maintenance functions 
is necessary in the context of a section 272 affiliate.
2. Provision Of Local Exchange Service By Section 272 Affiliates
    a. Background.
    11. The Non-Accounting Safeguards Order concluded that section 272 
does not prohibit a section 272 affiliate from providing local exchange 
service in addition to interLATA services, provided that the section 
272 affiliate does not qualify as an incumbent LEC subject to the 
requirements of section 251(c). The Order also concluded that if a BOC 
transfers to an affiliated entity ownership of any network elements 
that must be provided on an unbundled basis pursuant to section 
251(c)(3), the entity would be considered an ``assign'' of the BOC 
under section 3(4) of the Act with respect to those network elements.'' 
As a successor or assign, the affiliate would then be subject to the 
requirements of section 272. MCI and TCG petition the Commission to 
reconsider the decision to allow section 272 affiliates to provide 
local service.
    b. Discussion.
    12. We reaffirm that section 272 does not, on its face, prohibit a 
section 272 affiliate from providing both local exchange and interLATA 
services. We reject MCI's and TCG's arguments that allowing a section 
272 affiliate to provide local exchange services violates the ``operate 
independently'' requirement and the separate affiliate requirement. We 
agree with the BOCs that Congress' intent in enacting section 272 was 
not to prevent a section 272 affiliate from providing both local 
exchange and long distance services. Rather, as concluded in the Non-
Accounting Safeguards Order, the purpose of the ``operate 
independently'' requirement is to prevent BOCs from abusing bottleneck 
control of local exchange facilities. The BOCs' control over local 
exchange facilities does not extend to their section 272 affiliates.
    13. In addition to finding that there is no statutory bar to 
allowing a section 272 affiliate to provide local service, we agree 
with the BOCs that allowing a section 272 affiliate to provide local 
services does not pose a competitive risk or violate sound public 
policy. TCG offers no new support for its argument, which we reject 
once again, that the risks of anticompetitive behavior are greater when 
a BOC provides UNEs rather than resold services to its section 272 
affiliate. We reiterate that the existing safeguards in sections 251, 
252, and 272, as well as antitrust laws,

[[Page 61529]]

possible state regulations, and the Commission's existing cost 
allocation and affiliate transaction rules provide protection against 
improper cost allocation and discrimination. Finally, we disagree with 
TCG and reaffirm that the increased flexibility from being able to 
offer ``one-stop shopping'' for both local and interLATA services would 
allow section 272 affiliates to create packages of services they would 
not be able to offer if confined to the rates and services of the BOCs.
3. BOC Transfer Of Official Service Networks
    a. Background.
    14. The Non-Accounting Safeguards Order determined that a BOC that 
seeks to transfer ownership of its Official Services Network to its 
section 272 affiliate in order to provide interLATA services must 
ensure that the transfer takes place in a nondiscriminatory manner, in 
accordance with section 272(c)(1), and must adhere to the affiliate 
transaction rules. MCI petitions the Commission to prohibit a BOC from 
transferring or making available its Official Services Networks to its 
section 272 affiliate under any conditions. Alternatively, should the 
Commission permit the transfer of Official Services Networks, ACTS 
urges the Commission to indicate that competitive Lees may bid on any 
BOC ownership transfers of those networks.
    b. Discussion.
    15. We reaffirm that a BOC may transfer its Official Services 
Network to its section 272 affiliate, provided that the transfer takes 
place in a nondiscriminatory manner, consistent with section 272(c)(1), 
and complies with the affiliate transaction rules. The parties dispute 
the scope of the restrictions that the MAJ placed on the use of 
Official Services Networks, but we need not resolve this dispute 
because we have found that a BOC may, under the Act, transfer its 
Official Services Network to its section 272 affiliate. Similarly, to 
implement the Act, we need not determine whether BOCs have overbuilt 
their Official Services Networks, as MCI contends. Rather, pursuant to 
the language of section 272(c) and 272(b)(5), we must only ensure that 
the terms of the transfer of Official Services Networks are fair and 
consistent with our accounting rules.
    16. We reaffirm the conclusion in the Non-Accounting Safeguards 
Order that the nondiscrimination obligations established pursuant to 
section 272, other provisions of the Act, and state statutes and 
regulations provide sufficient protection in the event of a transfer of 
Official Services Network facilities. We are unpersuaded by MCI's 
argument that such a transfer cannot take place at arm's length in 
accordance with section 272(b)(5). Transactions between a BOC and its 
section 272 affiliate involving the BOC's Official Services Network 
would have to comply with our affiliate transactions rules, which 
generally satisfy the arm's length requirement of section 272. 
Furthermore, our public disclosure requirements help ensure the arm's 
length nature of the transaction by subjecting a BOC's transfer of its 
Official Services Network to intense scrutiny by both policymakers and 
the public.
    17. We also reject MCI's unsupported assertion that the BOCs' 
transfer of Official Services Networks would inherently discriminate in 
favor of their section 272 affiliates. The Commission has explained 
that the BOC must ensure that unaffiliated entities are given an equal 
opportunity, along with the section 272 affiliate, to obtain ownership 
of this network in the event it decides to transfer. We clarify, as 
requested by ACTS, that one way in which a BOC may provide such an 
equal opportunity to obtain ownership is to allow competing Lees to bid 
for ownership of its Official Services Network.

B. Reporting Requirements

1. Background
    18. The Non-Accounting Safeguards Order concluded that, with the 
exception of section 272(e)(1), none of the reporting requirements of 
Computer III/ONA were needed at that time to facilitate the detection 
and adjudication of violations of the separate affiliate and 
nondiscrimination requirements of section 272. The Order noted, 
however, that the Commission would revisit the need for reporting 
requirements should future developments warrant. MCI and TRA petition 
the Commission to reconsider its decision not to impose reporting 
requirements pursuant to section 272(c)(1), arguing that these 
requirements are unenforceable absent information about the quality of 
services that the BOCs provide to their section 272 affiliates.
2. Discussion
    19. We deny the request by MCI and TRA to impose reporting 
requirements at this time. Our decision not to adopt specific reporting 
requirements was reinforced by the Commission's subsequent adoption of 
a Notice of Proposed Rulemaking setting forth a set of model 
performance measurements and reporting requirements for Operation 
Support Systems (OSS), interconnection and access to operator services 
and directory assistance. See Performance Measurements Notice of 
Proposed Rulemaking, 63 FR 27012 (May 15, 1998). We determined to 
establish model rules, rather than legally binding rules, in order to 
allow states that have begun performance measurement and reporting 
requirement proceedings to incorporate the model rules as they deem 
beneficial, and as an aid to those states that have not yet begun such 
proceedings.
    20. The model performance measurements and reporting requirements 
are designed to help ensure that BOCs meet their nondiscrimination 
obligations when providing competing carriers access to critical 
support functions. Moreover, the model performance measurements include 
certain of the measurements that MCI seeks in its reconsideration 
petition. Finally, states, the Department of Justice, and the BOCs 
themselves have proposed performance measurements. The specific 
measurements that BOCs are proposing, or in some cases have begun to 
implement, are in many respects similar to those proposed in the 
Performance Measurements Notice. For the foregoing reasons, we deny the 
MCI and TRA requests for reconsideration.

C. The Joint Marketing Restrictions Of Sections 271(e)(1) And 272(g)(3)

1. Section 271(e)(1)--Joint Marketing Of Local And Long Distance 
Services By Certain Interexchange Carriers
21. We deny US WEST's request that the Commission clarify on 
reconsideration its interpretation of section 271(e)(1). This section 
provides that, for a period no longer than 36 months after 
implementation of the Telecommunications Act, certain interexchange 
carriers may not market interLATA services jointly with BOC local 
services purchased for resale. Because the 36-month period specified in 
this provision expired on February 8, 1999, this provision is no longer 
in effect and US WEST's petition for reconsideration on this issue is 
moot.
2. Section 272(g)(3)--``Marketing'' And ``Sale Of Service''
    a. Background.
    22. Section 272(g)(3) of the Act states that ``[t]he joint 
marketing and sale of services permitted under this section [272(g)] 
shall not be considered to violate the nondiscrimination provisions of 
section 272(c). The Non-Accounting Safeguards Order declined to develop 
an exhaustive list of specific

[[Page 61530]]

BOC activities covered by section 272(g). The Order did state, however, 
that activities such as customer inquiries, sales functions, and 
ordering are permitted under section 272(g)(3), because they involve 
only the marketing and sales of a section 272 affiliate's services. 
BellSouth contends that the Commission construed the terms 
``marketing'' and ``sale of services'' too narrowly and urges the 
Commission to include planning, design, and development within the 
meaning of those terms.
    b. Discussion.
    23. We affirm that the reading of the section 272(g)(3) exemption 
from the nondiscrimination requirements of section 272(c) for ``joint 
marketing and sale of services'' is consistent with the language and 
purpose of section 272. We further conclude that the broad 
interpretation of the ``joint marketing and sale of services'' 
exception BellSouth advocates would create a loophole that would allow 
potential BOC discrimination in countless activities. We disagree with 
BellSouth that the reading that we adopt imposes an unqualified 
obligation on the BOCs to develop and design their competitors' 
interLATA services. As noted in the Non-Accounting Safeguards Order, a 
BOC must develop these services on a nondiscriminatory basis for or 
with other entities only if the BOC develops such services for or with 
its section 272 affiliate. Finally, as to MCI's contention that a BOC 
that designs and develops its affiliate's services will not be 
operating independently, as required by section 272(b)(1), we affirm 
the view in the Non-Accounting Safeguards Order that such 
determinations should be made on a case-by-case basis.

D. InterLATA Information Services

1. Out-of-Region InterLATA Information Services. Out-of-Region 
InterLATA Information Services
    a. Background.
    24. The Non-Accounting Safeguards Order concluded that section 
272(a)(2) of the Act requires the BOCs to provide out-of-region 
interLATA information services through a section 272 separate 
affiliate. Section 272(a)(2)(B)(ii) requires a separate affiliate for 
the ``origination of telecommunication services,'' other than ``out-of-
region services described in section 271(b)(2).'' The Order concluded 
that the section 272(a)(2)(B)(ii) exception extends only to out-of-
region interLATA services that are telecommunications services and does 
not extend to out-of-region interLATA information services. The Order 
also found that section 272(a)(2)(C) requires a separate affiliate for 
``interLATA information services,'' and exempts electronic publishing 
and alarm monitoring services from that requirement. The Order 
concluded that the explicit exclusion of out-of-region interLATA 
telecommunications services in one subsection of the statute, and the 
lack of such an express exclusion of out-of-region interLATA 
information services in another subsection of the same provision, 
suggests that Congress did not intend to exclude out-of-region 
interLATA information services from the separate affiliate requirement. 
BellSouth and US WEST petition us to allow BOCs to provide out-of-
region information services on an integrated basis.
    b. Discussion.
    25. We affirm the determination that the statute does not exclude 
out-of-region interLATA information services from the separate 
affiliate requirement. Accordingly, we reject US WEST's contention that 
the exception to the separate affiliate requirement in section 
272(a)(2)(B)(ii) for ``out-of-region services'' applies to both 
interLATA telecommunications services and interLATA information 
services, in the same way that the reference to ``incidental interLATA 
services'' in section 272(a)(2)(B)(i) applies to both 
telecommunications services and information services. We note, 
moreover, in response to US WEST's assertion, the conclusion in the 
Non-Accounting Safeguards Order that the incidental interLATA services 
exception contained in section 272(a)(2)(B)(i) ``applies, by its terms, 
to the origination of incidental interLATA services that are 
telecommunications services.'' Although services such as video and 
audio programming services, which do not appear to be solely 
telecommunications services, are listed within the exception, the Order 
stated that the limitation in section 271(h) ``specifies that these 
incidental interLATA services `are limited to those interLATA 
transmissions incidental to the provision' '' of those services. 
Therefore, US WEST's argument that the incidental interLATA exception 
encompasses both telecommunications and information services is not 
persuasive.
    26. Instead, we agree with MCI and TRA that the only exceptions to 
the separate affiliate requirement for interLATA information services 
are the two specifically identified in section 272(a)(2)(C), i.e., 
electronic publishing and alarm monitoring. Thus, we likewise reject 
BellSouth's argument that interLATA information services must fall 
within the scope of exempted out-of region ``interLATA services'' 
because, by definition, interLATA information services are provided via 
telecommunications that cross LATA boundaries. We instead agree with 
MCI that if Congress had intended to exclude out-of-region interLATA 
information services from the separate affiliate requirement, it would 
have done so explicitly. We further reject US WEST's and BellSouth's 
contention that it is incongruous as a policy matter to exclude out-of-
region interLATA telecommunications services from the separate 
affiliate requirement, but to require a separate affiliate for out-of-
region interLATA information services. This policy argument is 
foreclosed given that the statute requires that BOC out-of-region 
interLATA information services be offered through a separate section 
272 affiliate. We, therefore, deny US WEST's and BellSouth's petitions 
for reconsideration on these grounds.
2. Codification Of Non-Accounting Safeguards Order Requirements
    a. Background.
    27. Several new rules, enumerated in Appendix B of the Non-
Accounting Safeguards Order, were promulgated upon adoption of that 
order. The Order also imposed numerous other requirements that were not 
codified in our rules. ACTS submits that we should codify the 
conclusion in the Non-Accounting Safeguards Order that ``BOCs may not 
provide interLATA information services, except for information services 
covered by section 271(g)(4), in any of their in-region states prior to 
obtaining section 271 authorization.'' ACTS claims that codifying this 
requirement would reduce the potential for non-compliance and 
litigation by the BOCs.
    b. Discussion.
    28. We note that the requirement addressed by ACTS in its petition 
has been modified by subsequent Commission action. In the First Order 
on Reconsideration 62 FR 02927 (January 21, 1997) in this proceeding, 
we clarified that, prior to obtaining section 271 authorization, BOCs 
may provide any interLATA information service designated as an 
incidental interLATA service under section 271(g), not just those 
enumerated in sub-section 271(g)(4), as suggested in the Non-Accounting 
Safeguards Order. Like other conclusions in the Non-Accounting 
Safeguards Order and in the First Order on Reconsideration, this 
requirement is binding regardless of whether it is codified in the CFR. 
We decline to single out this particular requirement for codification 
because, as ACTS recognizes, ``there can be no

[[Page 61531]]

possible confusion about this requirement.'' We therefore deny the ACTS 
petition for reconsideration on this issue.

E. Other Issues

1. Applicability Of Section 272 To Video Programming Services
    a. Background.
    29. The Non-Accounting Safeguards Order concluded that, ``pursuant 
to section 272(a)(2)(B)(i), BOCs are not required to provide the 
interLATA telecommunications transmission incidental to the provision 
of programming services listed in sections 271(g)(1)(A), (B), and (C) 
through a section 272 affiliate.'' We found this conclusion to be 
consistent with the determination in the OVS Second Report and Order, 
61 FR 28698 (June 5, 1996). Time Warner asks us to clarify on 
reconsideration that section 272 requires a BOC to establish a separate 
affiliate to provide video programming services to end users, while it 
exempts the underlying transmission service or the OVS platform, which 
may be provided by a BOC's local telephone company. Several BOCs 
maintain, other hand, that video programming services are not 
information services and therefore are not subject to section 
272(a)(2)(C).
    b. Discussion.
    30. We agree with the BOCs that section 272 of the Act does not 
require BOCs to provide video programming services through a separate 
affiliate. We conclude that interLATA transmissions incidental to the 
provision by a BOC or its affiliate of video, audio, and other 
programming services are considered ``incidental'' interLATA services 
under the Act. Section 272(a)(2)(B)(i) exempts such incidental 
interLATA services from the section 272 separate affiliate requirement. 
Moreover, as Ameritech and SBC recognize, it defies logic to suggest 
that transmission component that itself is expressly exempt from the 
separate affiliate requirements would render the video programming 
component (which is neither intraLATA nor interLATA) subject to these 
same requirements. There is no indication that Congress intended 
section 271(h) to cancel out the exemption for audio, video and other 
programming services in this manner.
    31. In reaching this conclusion, we need not determine whether 
programming services are, in some instances, ``information services,'' 
as defined by section 3(20) of the Communications Act. Even if a video 
programming service were found to be an ``information service,'' it 
would not be considered ``interLATA'' (and, thus, subject to the 
separate affiliate requirement of section 272(a)(2)(C)) if it is 
bundled with an incidental interLATA transmission component that is 
exempt from section 272(a)(2)(C), for the reasons set forth. 
Furthermore, there is no question that a BOC would be permitted to 
offer a video programming service directly to the public that is not 
bundled with an interLATA transmission component. Finally, we reject 
Time Warner's contention that BOCs may provide the video programming 
component of an open video service only through a section 272 separate 
affiliate. As we have explained previously, ``Congress expressly 
directed that Title II requirements not be applied to the 
`establishment and operation of an open video system.' ''
2. Teaming Arrangements
    32. Section 271(g)(2) states that a BOC ``may not market or sell 
interLATA service provided by an affiliate required by this section 
within any of its in-region States until such company is authorized to 
provide interLATA services in such State under section 271(d).'' The 
Commission concluded that ``section 272(g) is silent with respect to 
the question of whether a BOC may align [or `team'] itself with an 
unaffiliated entity to provide interLATA services prior until the BOC 
receives section 271 authorization * * * to the extent that BOCs align 
themselves with non-affiliates, they must do so on a nondiscriminatory 
basis.''
    33. We clarify, on our own motion, that the language concerning so-
called teaming arrangements contained in the Non-Accounting Safeguards 
Order was not intended as an affirmative sanction of all teaming 
arrangements between a BOC and an unaffiliated entity. In particular, 
that language did not address the issue of whether, by entering into a 
business arrangement that involves the marketing of an unaffiliated 
entity's long distance services, a BOC may be providing interLATA 
service in violation of section 271(a). That question was addressed in 
the Qwest Order, where the Commission concluded that, although certain 
marketing arrangements are permissible under the Act, business 
arrangements between a BOC and an unaffiliated long distance carrier 
may, nevertheless, violate section 271(a) if the BOC's involvement in 
the long distance market enables it to obtain competitive advantages, 
thereby reducing its incentive to cooperate in opening its local market 
to competition. See In the Matter of AT&T Corporation et al., File Nos. 
E-98-41, -42 and -43, Memorandum Opinion and Order.
3. Effect On Other Commission Proceedings
    34. Cox petitions us to reconcile the Non-Accounting Safeguards 
Order, which found that existing safeguards for BOC provision of 
incidental interLATA services are sufficient to protect telephone 
exchange ratepayers and competition in telecommunications markets, with 
the CMRS Safeguards Notice and the Video Cost Allocation Notice, which 
seek comment on what additional safeguards, if any, are necessary to 
protect ratepayers and competition. Since Cox filed its petition, we 
released the CMRS Safeguards Order, 62 FR 63864 (December 3, 1997). We 
concluded in that order that all incumbent LECs (except rural telephone 
companies) must provide in-region broadband CMRS, including cellular 
services, through a CMRS affiliate, subject to the accounting and 
affiliate transactions rules in parts 32 and 64 of our rules. Cox's 
concerns with regard to the CMRS Safeguards proceeding, therefore, are 
now moot. Furthermore, any concerns that Cox has with regard to the 
Video Cost Allocation proceeding are more properly addressed in that 
proceeding.

IV. Regulatory Flexibility Act

    35. In the Non-Accounting Safeguards Order, the Commission 
concluded and certified that the rules adopted in that Order would not, 
under the Regulatory Flexibility Act of 1980, as amended (RFA), have 
``a significant economic impact on a substantial number of small 
entities.'' The rules then adopted pertained only to BOCs, which, 
because of their size, do not qualify as small entities. We received no 
petitions for reconsideration of that Final Regulatory Flexibility 
Certification. In this present Third Order on Reconsideration, the 
Commission promulgates no additional final rules, and our action does 
not affect that previous final certification.

V. Ordering Clauses

    36. Accordingly, it is ordered that, pursuant to sections 1-4, 201-
205, 214, 251, 252, 271, 272, and 303(r) of the Communications Act of 
1934, as amended, 47 U.S.C. 151-154, 201-205, 214, 251, 252, 271, 272, 
303(r), the Third Order on Reconsideration in CC Docket No. 96-149 is 
adopted.
    37. It is further ordered that the Petitions for Reconsideration 
filed by AT&T, MCI, TCG, Cox, ACTS, US WEST and Time Warner are denied, 
as described herein.


[[Page 61532]]


Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 99-29550 Filed 11-10-99; 8:45 am]
BILLING CODE 6712-01-P