[Federal Register Volume 65, Number 29 (Friday, February 11, 2000)]
[Rules and Regulations]
[Pages 6912-6915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3196]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 51

[CC Docket No. 98-147; FCC 99-330]


Deployment of Wireline Services Offering Advanced 
Telecommunications Capability

AGENCY: Federal Communications Commission

ACTION: Final rule.

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SUMMARY: This document addresses whether the discounted resale 
obligation of section 251(c)(4) applies to incumbent LEC provision of 
advanced services without regard to their classification as telephone 
exchange or exchange access. The Commission determines that analysis of 
section 251(c)(4) requires a fact-specific evaluation of the features 
and characteristics of a particular transaction, and concludes that 
advanced services sold at retail by incumbent LECs to residential and 
business end-users are subject to the section 251(c)(4) discounted 
resale obligation, without regard to their classification as telephone 
exchange service or exchange access service. The Commission, however, 
reaches a different result as to advanced services sold to Internet 
Service Providers for inclusion in a high-speed Internet service 
offering, concluding that these advanced services are inherently 
different from advanced services made available directly to business 
and residential end-users, and as such, are not subject to the 
discounted resale obligations of section 251(c)(4).

DATES: Effective March 13, 2000.

FOR FURTHER INFORMATION CONTACT: Staci Pies, Attorney Advisor, Common 
Carrier Bureau, Policy and Program Planning Division, 202-418-1580.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Report and Order (Second R&O), in CC Docket No. 98-147, adopted 
November 2, 1999, and released November 9, 1999. This Second Report and 
Order addresses the issue raised in the Notice of Proposed Rulemaking 
in this docket (Advanced Services Order and NPRM), 63 FR 45246, August 
25, 1998. On December 22, 1999, the Commission released an Errata 
correcting various ministerial errors in the Second R&O. The complete 
text of the Second R&O and the Errata is available for inspection and 
copying during normal business hours in the FCC Reference Information 
Center, Courtyard Level, 445 12th Street, S.W., Washington, D.C. and 
also may be purchased from the Commission's copy contractor, 
International Transcription Services (ITS Inc.), CY-B400, 445 12th 
Street, SW, Washington, DC.

Synopsis of the Second Report and Order

I. Introduction

    1. The Second R&O concludes, based on an examination of the 
statutory language, the Act's purpose, and the specific facts, that 
advanced services sold to residential and business end-users are 
subject to the section 251(c)(4) discounted resale obligation, without 
regard to their classification as telephone exchange service or 
exchange access service. Moreover, the Second R&O concludes that 
advanced services sold to Internet Service Providers under volume and 
term discount plans are inherently and substantially different from 
advanced services made available directly to business and residential 
end-users, and as such, are not retail services and are not subject to 
the discounted resale obligations of section 251(c)(4).

II. Discussion

    2. The Second R&O finds that advanced services are 
telecommunications services that predominantly are offered to 
residential and business end-users and to Internet Service Providers--
all subscribers that are not telecommunications carriers. Moreover, 
advanced services made available directly to business and residential 
end-users are provided ``at retail.''
    3. The Second R&O finds that although Congress used the term ``at 
retail'' to identify the types of transactions that are subject to a 
wholesale discount, it is not clear how the Commission should interpret 
the term. The Act does not define the term ``at retail,'' and the 
legislative history on section 251(c)(4) provides only minimal 
clarification of Congress' intentions with regard to the appropriate 
definition and application of the term. Although the legislative 
history suggests that the Commission should interpret section 251(c)(4) 
in such a way so as to create affordable resale opportunities in order 
to stimulate the development of local competition, while still allowing 
incumbents to recover their costs for providing these services, there 
is no indication in the legislative history that Congress considered 
how ``at retail'' should be construed in the context of the sale of 
data services to Internet Service Providers as an input component to 
their information service offerings to the ultimate end-user.
    4. Webster's Unabridged Dictionary defines the term ``retail'' as 
``the sale of commodities, goods, articles, etc. individually or in 
small quantities or parcels directly to the consumer.'' Similarly, 
Black's Law Dictionary defines retail as ``[a] sale for final 
consumption in contrast to a sale for further sale or processing (i.e., 
wholesale) * * * to the ultimate consumer.'' Based on these 
definitions, the Second R&O finds that retail transactions necessarily 
involve direct sales of a product or service to the ultimate consumer 
for her own personal use or consumption.
    5. The Second R&O concludes that an Internet Service Provider is 
purchasing the DSL service for the sole purpose of combining the 
telecommunications service with its own information service and 
offering a new retail service, i.e., high-speed Internet service, to 
the ultimate end-user. In this process, the Internet Service Provider 
adds value to the bulk DSL telecommunications service by dividing that 
service for individual consumer use and adding the Internet service, 
thus enabling the

[[Page 6913]]

Internet Service Provider to offer and sell the newly created 
information service to the ultimate consumer: the residential or 
business subscriber. For these reasons, the Internet Service Provider 
is not the ultimate end-user.
    6. Further, the DSL services that incumbents are offering to 
Internet Service Providers specifically contemplate that the Internet 
Service Provider will be the entity providing to the ultimate end-user 
many services typically associated with retail sales, thus reinforcing 
the conclusions of the Second R&O that the bulk DSL services are not 
retail services offered to the ultimate end-users. Any Internet Service 
Provider that purchases a bulk DSL service must itself, rather than the 
incumbent, provide these typical retail services to the ultimate 
consumer. These facts underscore that bulk DSL services sold to 
Internet Service Providers are markedly different from the retail DSL 
services designed for individual end-user consumption.
    7. In contrast, the Second R&O finds that some incumbent LECs are 
selling single lines of DSL service directly to residential and 
business end-users. These customers buy the DSL service to meet their 
own internal telecommunications needs. The Second R&O concludes that an 
incumbent LEC DSL offering to residential and business end-users is 
clearly a retail offering designed for and sold to the ultimate end-
user. Accordingly, the Second R&O finds that DSL services designed for 
and sold to residential and business end-users are subject to the 
discounted resale obligations of section 251(c)(4). The Second R&O 
concludes, however, that section 251(c)(4) does not apply where the 
incumbent LEC offers DSL services as an input component to Internet 
Service Providers who combine the DSL service with their own Internet 
service.
    8. The Second R&O notes that the conclusions therein do not change 
the regulatory status of the Internet Service Provider, which the 
Commission previously has concluded to be an information service 
provider rather than a telecommunications carrier.
    9. The Second R&O finds that its conclusions are consistent with 
the Commission's decision regarding the scope of section 251(c)(4) as 
set forth in the Local Competition First Report and Order, 61 FR 45476, 
August 29, 1996, where the Commission resolved that the type of 
exchange access services predominantly offered to interexchange 
carriers are not subject to the discounted resale obligations of 
section 251(c)(4). Nonetheless, the Second R&O clarifies that advanced 
telecommunication services sold directly to residential and business 
end-users are not exempt from these obligations, even though such 
services may be classified as exchange access services.

III. Final Regulatory Flexibility Analysis (FRFA)

    1. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 
section 603, an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Advanced Services Order and NPRM. The Commission 
sought written public comment on the proposals in the Advanced Services 
Order and NPRM, including comment on the IRFA. This present FRFA 
conforms to the RFA.
A. Need for and Objectives of This Second Report and Order and the 
Rules Adopted Herein
    2. In order to encourage competition among carriers to develop and 
deploy new advanced services, it is critical that the marketplace for 
these services be conducive to investment, innovation, and meeting the 
needs of consumers. In this Second Report and Order, we seek to ensure 
that all carriers have economic incentives to innovate and invest in 
new technologies.
    3. We amend our rules to clarify that advanced services sold to 
Internet Service Providers as an input component to the Internet 
Service Providers' own retail Internet service offering are not subject 
to the discounted resale obligations of section 251(c)(4). We also 
amend our rules to clarify that, notwithstanding the fact that advanced 
services sold to Internet Service Providers are excluded from the 
residential resale obligations of section 251(c)(4), advanced 
telecommunication services sold directly to residential and business 
end-users are not exempt from these obligations, even though such 
services may be classified as exchange access services.
B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    4. In the IRFA, we stated that any rule changes would impose 
minimum burdens on small entities. We indicated that the IRFA solicited 
comment on alternatives to our proposed rules that would minimize the 
impact they may have on small entities. The comments we received did 
not respond directly to the issue addressed in this Order.
C. Description and Estimates of the Number of Small Entities Affected 
by the Second Report and Order
    5. The RFA generally defines ``small entity'' as having the same 
meaning as the term ``small business,'' ``small organization,'' and 
``small governmental jurisdiction.'' In addition, the term ``small 
business'' has the same meaning as the term ``small business concern'' 
under the Small Business Act, unless the Commission has developed one 
or more definitions that are appropriate to its activities. Under the 
Small Business Act, a ``small business concern'' is one that: (1) Is 
independently owned and operated; (2) is not dominant in its field of 
operation; and (3) meets any additional criteria established by the 
Small Business Administration (SBA). The SBA has defined a small 
business for Standard Industrial Classification (SIC) categories 4812 
(Radiotelephone Communications) and 4813 (Telephone Communications, 
Except Radiotelephone) to be small entities when they have no more than 
1,500 employees. We first discuss the number of small telephone 
companies falling within these SIC categories, then attempt to refine 
further those estimates to correspond with the categories of telephone 
companies that are commonly used under our rules.
    6. The most reliable source of information regarding the total 
numbers of common carrier and related providers nationwide, as well as 
the numbers of commercial wireless entities, appears to be data the 
Commission publishes annually in its Carrier Locator report, derived 
from filings made in connection with the Telecommunications Relay 
Service (TRS). According to data in the most recent report, there are 
3,604 interstate carriers. These carriers include, inter alia, local 
exchange carriers, wireline carriers and service providers, 
interexchange carriers, competitive access providers, operator service 
providers, pay telephone operators, providers of telephone toll 
service, providers of telephone exchange service, and resellers.
    7. We have included small incumbent LECs in this present RFA 
analysis. As noted above, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer 
employees), and ``is not dominant in its field of operation.'' The 
SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. We have therefore included 
small incumbent LECs in this RFA analysis, although we emphasize that 
this RFA action has no effect on FCC analyses and determinations in 
other, non-RFA contexts.

[[Page 6914]]

    8. Total Number of Telephone Companies Affected. The United States 
Bureau of the Census (``the Census Bureau'') reports that, at the end 
of 1992, there were 3,497 firms engaged in providing telephone 
services, as defined therein, for at least one year. This number 
contains a variety of different categories of carriers, including local 
exchange carriers, interexchange carriers, competitive access 
providers, cellular carriers, mobile service carriers, operator service 
providers, pay telephone operators, PCS providers, covered SMR 
providers, and resellers. It seems certain that some of those 3,497 
telephone service firms may not qualify as small entities or small 
incumbent LECs because they are not ``independently owned and 
operated.'' For example, a PCS provider that is affiliated with an 
interexchange carrier having more than 1,500 employees would not meet 
the definition of a small business. It seems reasonable to conclude, 
therefore, that fewer than 3,497 telephone service firms are small 
entity telephone service firms or small incumbent LECs that may be 
affected by the decisions and rules of the present action.
    9. Wireline Carriers and Service Providers. SBA has developed a 
definition of small entities for telephone communications companies 
other than radiotelephone companies. The Census Bureau reports that, 
there were 2,321 such telephone companies in operation for at least one 
year at the end of 1992. According to SBA's definition, a small 
business telephone company other than a radiotelephone company is one 
employing no more than 1,500 persons. All but 26 of the 2,321 non-
radiotelephone companies listed by the Census Bureau were reported to 
have fewer than 1,000 employees. Thus, even if all 26 of those 
companies had more than 1,500 employees, there would still be 2,295 
non-radiotelephone companies that might qualify as small entities or 
small incumbent LECs. Although it seems certain that some of these 
carriers are not independently owned and operated, we are unable at 
this time to estimate with greater precision the number of wireline 
carriers and service providers that would qualify as small business 
concerns under SBA's definition. Consequently, we estimate that there 
are fewer than 2,295 small entity telephone communications companies 
other than radiotelephone companies that may be affected by the 
decisions and rules of the present action.
    10. Local Exchange Carriers, Resellers and Internet Service 
Providers. Neither the Commission nor SBA has developed a definition of 
small local exchange carriers (LECs), competitive local exchange 
carriers (CLECs), resellers, or Internet Service Providers (ISPs). The 
closest applicable definition for these carrier-types under SBA rules 
is for telephone communications companies other than radiotelephone 
(wireless) companies. The most reliable source of information regarding 
the number of these carriers nationwide of which we are aware appears 
to be the data that we collect annually in connection with the TRS. 
According to our most recent data, there are 1,410 LECs, 129 CLECs, and 
351 resellers.
    11. Although it seems certain that some of these carriers are not 
independently owned and operated, or have more than 1,500 employees, we 
are unable at this time to estimate with greater precision the number 
of these carriers that would qualify as small business concerns under 
SBA's definition. Consequently, we estimate that there are fewer than 
1,410 small entity LECs or small incumbent LECs, 129 CLECs, and 351 
resellers that may be affected by the decisions and rules of the 
present action.
    12. Internet Service Providers. SBA has developed a small business 
size standard for ``Information Retrieval Services,'' SIC code 7375. 
This category includes establishments primarily engaged in providing 
online database information retrieval services, on a contract or fee 
basis. According to SBA regulations, a small business under this 
category is one having annual receipts of $18 million or less. Based on 
firm size data provided by the Bureau of the Census, 3,123 firms are 
small under SBA's $18 million size standard for SIC code 7375. Although 
some of these ISPs might not be independently owned and operated, we 
are unable at this time to estimate with greater precision the number 
of ISPs that would qualify as small business concerns under SBA's 
definition. Consequently, we estimate that there are 3,123 or fewer 
small entity ISPs that may be affected by the decisions and rules of 
the present action.
D. Summary of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    13. We require incumbent LECs to make available at a wholesale 
discount advanced services sold at retail to residential and business 
end-users, without regard to their classification as telephone exchange 
service or exchange access service. We determine that complying with 
these rules may require use of operational, accounting, billing, and 
legal skills. We believe, however, that incumbent LECs will already 
have these skills.
    14. The burden of compliance with this requirement is minimal 
because, pursuant to section 251(c), incumbent LECs already must comply 
with state mandated wholesale discount requirements for all 
telecommunications services they provide at retail to subscribers who 
are not telecommunications carriers.
E. Steps Taken to Minimize Significant Economic Impact on Small 
Entities and Small Incumbent LECs, and Alternatives Considered
    15. Section 251(c)(4) imposes on all incumbent LECs, including 
small incumbent LECs, the duty to offer for resale at wholesale rates 
``any telecommunications service that the carrier provides at retail to 
subscribers who are not telecommunications carriers.'' The Commission's 
conclusions in this order clarify this statutory obligation. The order 
imposes no additional obligations on incumbent LECs.
F. Report to Congress
    16. The Commission will send a copy of the Second Report and Order, 
including this FRFA, in a report to be sent to Congress pursuant to the 
Small Business Regulatory Enforcement Fairness Act of 1996. See 5 
U.S.C. 801(a)(1)(A). In addition, the Commission will send a copy of 
the Second Report and Order, including this FRFA, to the Chief Counsel 
for Advocacy of the Small Business Administration. A copy of the Second 
Report and Order and FRFA (or summaries thereof) will also be published 
in the Federal Register. See 5 U.S.C. 604(b).

IV. Procedural Matters

    17. Accordingly, It is ordered that, pursuant to sections 1 through 
4, 10, 201, 202, 251 through 254, 256, 271, and 303(r) of the 
Communications Act of 1934, as amended, 47 U.S.C. 151-154, 160, 201, 
202, 251-254, 256, 271, and 303(r), the Second Report and Order is 
hereby Adopted. The requirements adopted in this Second Report and 
Order shall be effective March 13, 2000.
    18. The actions contained in this Second Report and Order have been 
analyzed with respect to the Paperwork Reduction Act of 1995 and found 
to impose no new or modified reporting and recordkeeping requirements 
or burdens on the public.

List of Subjects in 47 CFR Part 51

    Communications, Common carriers, Telecommunications


[[Page 6915]]


Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Part 51 of Title 47 of the Code of Federal Regulations is amended 
as follows:

PART 51--INTERCONNECTION

    1. The authority for part 51 continues to read as follows:

    Authority: Sections 1-5, 7, 201-05, 207-09, 218, 225-27, 251-54, 
271, 332, 48 Stat. 1070, as amended, 1077; 47 U.S.C. 151-55, 157, 
201-05, 207-09, 218, 225-27, 251-54, 271, 332, unless otherwise 
noted.

    2. Section 51.605 is amended by revising paragraph (b), and adding 
paragraphs (c), (d) and (e) to read as follows:


Sec. 51.605  Additional obligations of incumbent local exchange 
carriers.

* * * * *
    (b) For purposes of this subpart, exchange access services, as 
defined in section 3 of the Act, shall not be considered to be 
telecommunications services that incumbent LECs must make available for 
resale at wholesale rates to requesting telecommunications carriers.
    (c) For purposes of this subpart, advanced telecommunications 
services sold to Internet Service Providers as an input component to 
the Internet Service Providers' retail Internet service offering shall 
not be considered to be telecommunications services offered on a retail 
basis that incumbent LECs must make available for resale at wholesale 
rates to requesting telecommunications carriers.
    (d) Notwithstanding paragraph (b) of this section, advanced 
telecommunications services that are classified as exchange access 
services are subject to the obligations of paragraph (a) of this 
section if such services are sold on a retail basis to residential and 
business end-users that are not telecommunications carriers.
    (e) Except as provided in Sec. 51.613, an incumbent LEC shall not 
impose restrictions on the resale by a requesting carrier of 
telecommunications services offered by the incumbent LEC.

    2. Section 51.607 is revised to read as follows:


Sec. 51.607  Wholesale pricing standard.

    The wholesale rate that an incumbent LEC may charge for a 
telecommunications service provided for resale to other 
telecommunications carriers shall equal the rate for the 
telecommunications service, less avoided retail costs, as described in 
section 51.609. For purposes of this subpart, exchange access services, 
as defined in section 3 of the Act, shall not be considered to be 
telecommunications services that incumbent LECs must make available for 
resale at wholesale rates to requesting telecommunications carriers.

[FR Doc. 00-3196 Filed 2-10-00; 8:45 am]
BILLING CODE 6712-01-U