[Federal Register Volume 68, Number 201 (Friday, October 17, 2003)]
[Proposed Rules]
[Pages 59757-59770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26107]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 51

[WC Docket No. 03-173; FCC 03-224]


Review of the Commission's Rules Regarding the Pricing of 
Unbundled Network Elements and the Resale of Service by Incumbent Local 
Exchange Carriers

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document initiates a rulemaking proceeding to examine the 
rules applicable to pricing of unbundled network elements (UNEs) and 
resold telecommunications services made available by incumbent local 
exchange carriers (LECs) to competitive LECs. The Federal 
Communications Commission (Commission) adopted the current UNE pricing 
regime known as the Total Element Long Run Incremental Cost (TELRIC) 
methodology in 1996. This Commission stated at that time that it 
intended to re-examine this methodology over time, and this rulemaking 
represents the Commission's first such re-examination of its UNE 
pricing rules. The Commission also adopted resale pricing rules in 
1996. The U.S. Court of Appeals for the Eighth Circuit reversed the 
resale pricing rules in 2000. This document seeks comment on whether, 
and, if so, in what manner, to revise the Commission's UNE pricing 
rules and on whether, and, if so, in what manner, to promulgate resale 
pricing rules.

DATES: Comments due December 16, 2003, and reply comments due January 
30, 2004.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554. See SUPPLEMENTARY INFORMATION for filing 
instructions.

FOR FURTHER INFORMATION CONTACT: Steve Morris, Wireline Competition 
Bureau, Pricing Policy Division, (202) 418-1530.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking (NPRM) in WC Docket No. 03-173, adopted on 
September 10, 2003, and released on September 15, 2003. The full text 
of this document is available on the Commission's website Electronic 
Comment Filing System and for public inspection Monday through Thursday 
from 8 a.m. to 4:30 p.m. and Friday from 8 a.m. to 11:30 a.m. in the 
FCC Reference Center, Room CY-A257, 445 Twelfth Street, SW., 
Washington, DC 20554. Alternative formats are available to persons with 
disabilities by contacting Brian Millin at (202) 418-7426 or TTY (202) 
418-7365. The full text of the NPRM may also be purchased from the 
Commission's duplicating contractor, Qualex International, Room CY-
B402, 445 Twelfth Street, SW., Washington, DC 20554, telephone (202) 
863-2893, facsimile (202) 863-2898, or e-mail at [email protected].

Background

    1. This NPRM, adopted September 10, 2003 and released September 15, 
2003 in WC Docket No. 03-173, FCC 03-224, initiates a proceeding to 
examine the Commission's UNE pricing and resale pricing rules. 
Currently, the Commission's TELRIC rules, 47 CFR 51.501 et seq., which 
were promulgated in 1996, apply to the pricing of UNEs. The U.S. 
Supreme Court affirmed the Commission's jurisdiction to promulgate 
these rules in 1999 and affirmed the reasonableness of these rules in 
2002. In contrast, however, because the U.S. Court of Appeals for the 
Eighth Circuit reversed the Commission's resale pricing rules in 2000, 
there currently are no resale pricing rules. Because the Commission's 
UNE pricing rules have not been examined in over seven years, and 
because the Commission does not have resale pricing rules, we conclude 
that it is time to examine the pricing rules for UNEs and resale.

Discussion

    2. We undertake this rulemaking with the goal of modifying or 
clarifying the Commission's UNE and resale pricing rules to aid state 
commissions in more easily developing UNE pricing and resale discounts 
that meet the statutory standards established by Congress in section 
252(d) of the Telecommunications Act of 1996 and to provide more 
certainty and consistency in the results of these state proceedings. 
See 47 U.S.C. 252(d). We seek to determine whether our UNE pricing 
methodology is working as intended and, in particular, whether it is 
conducive to efficient facilities investment. We also undertake this 
rulemaking to examine whether, and, if so, in what manner, to 
promulgate resale pricing rules.
    3. As a preliminary matter, we reaffirm our commitment to using 
forward-looking costing principles to determine UNE rates. We decline 
to open an inquiry into alternative pricing theories, including 
historical cost, efficient component pricing rule, and Ramsey pricing 
theories. Instead, in examining UNE pricing rules, the NPRM focuses, 
and seeks comment, on whether clarifications or modifications should be 
made to the current forward-looking economic cost-based rules.
    4. In the NPRM, we will examine whether the UNE pricing rules 
distort our intended pricing signals by understating forward-looking 
costs and thereby thwart the development of facilities-based 
competition. We will consider whether modifications to the current UNE 
pricing rules are necessary to both preserve their forward-looking 
emphasis and pro-competitive purposes, while simultaneously making the 
rules more transparent and theoretically sound. Specifically, we 
tentatively conclude that UNE prices should be based on costs more 
firmly rooted in the real-world attributes of the existing networks of 
incumbent LECs rather than the speculative attributes of a purely 
hypothetical network. We seek comment on this tentative conclusion.
    5. We seek comment on the appropriate goals of a UNE pricing 
regime. Should UNE prices continue to be set in a manner that sends 
efficient entry and investment signals to competitors and that enables 
incumbent LECs to recover their forward-looking costs? We ask that 
parties comment on whether these remain the appropriate goals and, if 
not, that parties identify alternative pricing goals. We seek 
information on how the Commission can measure whether a pricing regime 
is sending appropriate entry and investment signals. We request parties 
comment on the value of comparisons to an incumbent LEC's historical 
costs? We also seek comment on potential other goals of a pricing 
regime, such as transparency and verifiability.
    6. We seek comment on the effect of the Commission's recent 
decision in the Triennial Review Order, 68 FR 52276, September 2, 2003. 
In particular, the Commission adopted a new interpretation for 
determining whether requesting telecommunications carriers

[[Page 59758]]

are entitled to access a network element on an unbundled basis. We ask 
that comments discuss in detail the relationship, if any, between this 
new interpretation and the Commission's UNE pricing rules. In 
particular, we seek comment on the affect on our pricing rules of the 
limitations on the unbundling mandates associated with hybrid fiber/
copper loops. We also seek comment on the affect limitations on fiber 
loop unbundling should have on UNE pricing rules. Further, we request 
that parties comment on how states should set rates for network 
elements that no longer are required to be provided on an unbundled 
basis.
    7. In the universal service proceeding, the Commission determined 
that funding should be based on the forward-looking cost of providing 
universal service, and identified criteria to guide in the selection of 
a forward-looking universal service cost model. Universal Service 
Order, 62 FR 32862, June 17, 1997. The Commission applied these 
criteria to develop a computer cost model and to select the inputs 
necessary to develop forward-looking costs using this model. USF 
Platform Order, 63 FR 63993, November 18, 1998; USF Inputs Order, 64 FR 
67372, December 1, 1999. In developing the universal service cost model 
and inputs, the Commission did not intend to provide any systematic 
guidance for TELRIC rate-setting, and emphasized that universal service 
cost inputs may not be appropriate for use in determining UNE prices. 
The Commission continues to discourage states from using the universal 
service nationwide inputs for the purpose of developing UNE rates. We 
invite parties to comment on the relationship between universal service 
cost rules and UNE pricing rules.
    8. Network Assumptions--General Theory. One of the central internal 
tensions in the application of the TELRIC methodology is that it 
purports to replicate the conditions of a competitive market by 
assuming that the latest technology is deployed throughout the 
hypothetical network, while at the same time assuming that this 
hypothetical network benefits from the economies of scale associated 
with serving all of the lines in a study area. In the real world, 
however, even the most efficient carrier's network will reflect a mix 
of new and older technology at any given time. We thus seek comment on 
whether TELRIC's technology assumptions may result in forward-looking 
costs that are not achievable even in the most competitive markets and 
whether the TELRIC methodology, therefore, may undermine the incentive 
for either competitive LECs or incumbent LECs to build new facilities.
    9. We tentatively conclude that the TELRIC rules should more 
closely account for real-world attributes of the routing and topography 
of an incumbent LEC's network in the development of forward-looking 
costs. We seek comment on this approach and, in particular, on how such 
an approach may differ from the practices of state commissions in UNE 
pricing proceedings. We also ask parties to comment on proposals that 
would achieve these objectives. We seek comment on whether it is 
appropriate to assume that the cost of an existing element is the cost 
of that element if it were being replaced today. We also seek comment 
on whether we should define the relevant network as one that 
incorporates upgrades planned by the incumbent LEC over some objective 
time horizon (e.g., three or five years), as documented, for example, 
in an incumbent LEC's actual engineering plans. We request parties 
comment on any other alternatives that would ground the TELRIC rules in 
the attributes of an incumbent LEC's existing network. Further, we seek 
comment on whether any of these approaches would produce results that 
are more consistent across states and send better entry and investment 
signals to both incumbents and competitors.
    10. The TELRIC methodology currently defines the term ``long run'' 
to mean a period long enough for all of a firm's costs to be variable 
or avoidable. We seek comment on whether our tentative conclusion 
compels us to shift away from a long run average cost methodology to a 
short run average cost methodology and, if so, what are the 
consequences of such a shift. We request parties comment on whether 
such an approach is consistent with the statute's heavy presumption 
against the use of embedded costs.
    11. We ask the parties to suggest other ways of defining the 
network that is to be modeled in a UNE pricing proceeding. To what 
extent should network assumptions reflect evidence of the network 
decisions made by competitive LECs? Parties should explain in detail 
the network assumptions they advocate and the competitive assumptions 
implicit in their proposals. Parties should also explain whether they 
are proposing a theory based on short-run costs or long-run costs, and 
how their proposed definition of the network will produce more accurate 
economic signals and more consistent results than the current pricing 
regime.
    12. The dispute as to the relevant network for pricing purposes is 
in large part a dispute over what constitutes efficiency. We seek 
comment on the efficiency standard that the Commission should use in 
order to achieve UNE prices that send correct economic signals 
regarding investment, while still achieving the necessary level of cost 
recovery. A central principle of the current UNE pricing rules is that 
competitive LECs should not pay rates that compensate incumbent LECs 
for past inefficiencies. Given that many incumbent LECs have been 
subject to price cap regulation for some time, we seek comment on 
whether we should find an incumbent LEC's practices presumptively 
efficient. Would the adoption of a productivity factor be necessary as 
part of a transition to a regime based more on the network assumptions 
of an existing network? We also ask parties to identify the evidence 
that would be necessary to overcome a presumption of efficiency by an 
incumbent LEC and what effect any asymmetry in access to information 
about an incumbent's practices and costs should have on any presumption 
we create. We ask parties to be very specific in defining the standard 
of efficiency and explaining how to determine whether a network is 
optimized for economic efficiency. We further ask parties that favor a 
change in network assumptions to identify how such a change would 
affect each component of the pricing rules (e.g., operating expenses, 
cost of capital, depreciation).
    13. We ask parties to discuss whether a regime focused more closely 
on the existing network of an incumbent would be easier for state 
commissions to implement than the current TELRIC regime. For example, 
we seek comment on whether there would be issues of transparency and 
verifiability in placing a greater reliance on the attributes of an 
incumbent LEC's existing network. We seek comment on whether focusing 
the cost inquiry on an incumbent's existing network might place 
competitive LECs at an informational disadvantage in litigating any 
factual issues about which the incumbent LEC, as owner of that network, 
may have better information. We request parties propose concrete 
procedural safeguards designed to minimize risks of an informational 
imbalance resulting from methodological reforms discussed in the NPRM. 
We also ask parties to comment on ways in which UNE pricing proceedings 
can be streamlined without placing any party at a material 
informational disadvantage.

[[Page 59759]]

    14. Network Assumptions--Specific Network Inputs. In addition to 
our tentative conclusion that a forward-looking pricing methodology 
should more closely account for the real-world attributes of the 
routing and topography of an incumbent LEC's network, we believe there 
are a number of aspects of the current efficient network assumption 
that might benefit from clarification or modification. We discuss some 
of these issues below, and we encourage parties to identify additional 
steps we might take to produce prices that satisfy the objectives we 
have identified.
    15. We seek comment on the network routing assumptions that would 
be consistent with our tentative conclusion that prices should account 
for the real-world attributes of the routing and topography of an 
incumbent LEC's network. Specifically, we seek comment on the 
importance of the locations of existing rights-of-way, existing poles, 
and existing conduit for all wireline carriers when new facilities are 
built. We also seek comment on whether there is any theoretical basis 
for an approach that does not assume the existence of current roads, 
buildings, and natural obstacles. We request parties to comment on 
whether and how existing rights-of-way should be accounted for in 
network routing assumptions. Parties supporting the use of existing 
rights-of-way as a basis for network routing assumptions should explain 
how states can best determine current rights-of-way routes, and how 
such routes can be compared to the routes of incumbent LEC facilities 
and of the routes generated by computer cost models. We ask parties to 
explain how their proposed network principles reflect the variables 
than incumbent and competitive LECs consider in making routing and 
construction decisions. To the extent parties propose principles based 
on the real-world attributes of an incumbent LEC's existing network, 
they should explain in detail how a state commission would establish 
the forward-looking cost of an existing network, and how such a costing 
approach differs from ``rate-of-return or other rate-based'' 
methodologies prohibited under section 252(d)(1). 47 U.S.C. 252(d)(1). 
We also ask parties to comment on the applicability, if any, of the 
Commission's conclusion in the USF Platform Order that incumbent LEC 
networks are an inappropriate basis to use to determine outside plan 
design because they ``may not represent the least-cost, most-efficient 
design in some cases.'' Finally, we invite parties, and in particular 
state commissions, to comment on whether, and how, our tentative 
conclusion to account more closely for the real-world routing and 
topography of an incumbent's network would affect the ability of 
carriers to use computer cost models.
    16. We seek comment on the technology assumptions that should be 
assumed in developing UNE prices. We invite parties to comment on how 
our tentative conclusion above affects the technology assumptions used 
to develop UNE prices. We request parties to comment on the relevance 
to the development of UNE prices of the Commission's statement in the 
USF Platform Order that existing incumbent LEC plant likely does not 
reflect forward-looking technology choices. We seek comment on how to 
determine prices for equipment types that are no longer widely used in 
the industry, such as analog switches or older versions of digital loop 
carrier systems. We also seek comment on how an approach that 
replicates an incumbent LEC's existing technology compares to a 
reproduction cost methodology.
    17. We encourage parties to identify the specific factors that 
influence their decisions with respect to how quickly to deploy new 
technology. How, if at all, should we factor in the uncertainty 
associated with the timing and efficiency of new technology? Of what 
relevance, if any, is the pace at which incumbent LECs have deployed 
new technologies in the past? Is there evidence of the diffusion rates 
of new technology in competitive markets as opposed to monopoly markets 
that might inform our analysis?
    18. We seek comment on certain specific cost input issues. 
Structure sharing refers to how much of the cost of installing poles, 
digging trenches, and placing conduit would be shared on a forward-
looking basis by the incumbent LEC with other entities. The more 
sharing that is assumed, the lower the cost to the incumbent LEC of 
providing the element. We seek comment on the guidance the Commission 
should provide to state commissions on the method for establishing 
structure sharing percentages, particularly in light of our tentative 
conclusion, above. Should sharing opportunities that were available at 
the time plant was build be considered? How relevant are an incumbent 
LEC's actual sharing percentages? What other sources of data might be 
relevant? We request parties identify factors that either encourage or 
discourage parties from sharing construction costs today and explain 
how these factors should be reflected in determining UNE prices. 
Parties should provide empirical data with respect to their experiences 
sharing construction costs with other entities.
    19. A fill factor represents the percentage of capacity of a 
particular facility or piece of equipment that is used on average over 
its life. Increasing fill factors effectively lowers costs by reducing 
the amount of spare capacity allocated to working units. We seek 
comment on the appropriate guidelines for states to follow in 
establishing fill factors. What factors do states currently consider in 
developing fill factors? How relevant are an incumbent's existing fill 
factors in establishing forward-looking fill factors? Should they be 
dispositive in light of our tentative conclusion, above? If not, what 
other evidence should be considered? Are carrier of last resort 
obligations relevant to determining the appropriate fill factors? Would 
the fill factors of other incumbent LECs be relevant to demonstrate 
achievable efficiencies? We seek comment whether carriers would operate 
at higher or lower fill factors as the level of facilities-based 
competition increases in a market. We request that parties submit 
empirical evidence that distinguishes between the fill factors that 
carriers experience in competitive markets and monopoly markets. We 
also seek comment on how fill factors are likely to vary as the rate of 
demand growth varies. Finally, we seek comment on methods for 
quantifying dynamically efficient fill factors on a forward-looking 
basis.
    20. One of the key issues in determining unbundled switching prices 
is the switching discounts. In setting switching rates, state 
commissions have had to determine the appropriate mix of new switches, 
growth switching equipment, and technology upgrades to existing 
equipment. This issue arises because switch manufacturers typically 
offer a relatively large price discount for an entirely new switch and 
a smaller discount on growth or upgrade equipment added to an existing 
switch. The Commission has rejected assumptions of both 100 percent new 
switches and 100 percent growth equipment.
    21. Because switching equipment has a high degree of modularity, 
carriers over time grow their switches and upgrade them with new 
technology as it evolves over time on the premise that this is a better 
way to minimize costs than purchasing a switch large enough to satisfy 
anticipated demand over the entire life of the switch. We seek comment 
on whether unbundled switching costs should be based on the prices that 
an efficient incumbent LEC or other entrant would pay for switching

[[Page 59760]]

equipment over the life of the switch and not at a particular point in 
the switch's life cycle. In addressing this question, parties should 
explain the assumptions they make with respect to line demand and 
technology improvements, and their assumptions regarding vendor pricing 
strategies.
    22. The basic formula for developing a price for an element is to 
divide total cost by total demand. We ask for comment on the use of 
this principle in developing a price that is based on costs of 
equipment installed in increments over the life of the switch. Parties 
should also explain whether, and how, these calculations should account 
for the time value of money. Is the appropriate discount rate for use 
in determining the time value of money the cost of capital used in 
calculating UNE prices generally?
    23. Assuming that unbundled switching prices should reflect vendor 
prices for switch equipment that is installed in increments over the 
life of the switch, we seek comment on whether the starting point for 
calculating costs should be a new switch that is installed today. We 
also seek comment on whether unbundled switching prices should reflect, 
in addition to costs for the initial switch equipment, costs of growth 
additions and technology upgrades, growth additions alone, or upgrades 
alone for the years following the initial installation. Commenters that 
believe current prices should recover costs of future upgrades should 
explain why current competitive LECs should pay for benefits that they 
do not yet receive. In light of our conclusion that UNE pricing should 
continue to be based on a forward-looking methodology, we ask 
commenters to describe in detail any rationale for supporting or 
rejecting UNE prices based on vendor prices that incumbent LECs 
currently pay for equipment they are installing today in existing 
switches.
    24. We ask parties to explain in detail the methodology that should 
be used to develop total cost and total demand under this approach. We 
also invite parties to submit studies showing how to develop an 
unbundled switching price. These studies should assume that service is 
provided using modern digital switches that are installed today. We ask 
that commenters develop this price for either an incumbent LEC's study 
area or a UNE zone within a study area. One study should develop the 
costs of initial new equipment and all future growth equipment that is 
expected to be installed periodically over the life of the switch. A 
second study should develop costs for these two components plus costs 
of all future technology upgrade equipment that is expected to be 
installed periodically over the life of the switch. Parties should 
explain and fully document the methodology, assumptions, and data they 
use to estimate these costs and the demand over which these costs are 
spread. If a commenter believes UNE prices should be based on a switch 
technology other than digital technology, that party may submit other 
studies in addition to, rather than in place of, the studies requested 
above.
    25. Cost of Capital. The cost of capital is the cost a firm will 
incur in raising funds in a competitive capital market. It is generally 
estimated as a weighted average of the cost of equity and the cost of 
debt. In the Triennial Review Order, the Commission clarified that the 
TELRIC-based cost of capital should reflect the risks of a competitive 
market. Because the objective of TELRIC is to establish a price that 
replicates the price that would exist in a market in which there is 
facilities-based competition, the Commission held that TELRIC prices 
should reflect the risk of losing customers to other facilities-based 
carriers. The importance of this clarification was to confirm that 
state commission must use a consistent set of assumptions when they 
calculate the three main rate components (i.e., operating expenses, 
cost of capital, and depreciation). We invite parties to comment on 
whether this principle should apply even if the Commission adopts a UNE 
pricing methodology that is tied more closely to the existing network 
of an incumbent LEC.
    26. We ask parties to identify the specific variables that 
determine the cost of capital under the network assumptions that they 
advocate, and to offer suggestions as to how to quantify the various 
components of risk that should be reflected in a company's cost of 
capital. We request parties to identify both the theoretical arguments 
and empirical evidence supporting the use of these variables. We seek 
comment on how the cost of debt and equity should be weighted and on 
how states should determine the appropriate capital structure. We seek 
comment on whether incremental investment is typically funded through 
debt or equity and whether the cost of capital should reflect this.
    27. One important risk factor is the risk of losing customers to 
facilities-based competitors. How should this risk be measured? What is 
the relationship between this risk and the network assumptions we 
adopt. Is the risk of supplying a product or service always greater in 
a competitive market than in a monopoly market? We also seek comment on 
the role of fixed and sunk costs, assumptions about the level and kind 
of competition, and entry strategies of competitors in affect risk and 
cost of capital of incumbent carriers.
    28. We seek comment on the relationship, if any, between our 
unbundling rules and the risk of stranded investment. Have long-term 
contracts been used in the provision of UNEs and how does this answer 
affect the cost of capital? How can the risks associated with month-to-
month contracts be quantified? Does the use of economic depreciation 
eliminate the need to compensate separately an incumbent LEC for any 
additional risk of stranded investment?
    29. We ask parties to comment on ways in which the Commission might 
simplify the task of setting the cost of capital. For example, if we 
retain our current rules, should the cost of capital vary among 
different states or among different companies, and, if not, should the 
Commission establish a particular cost of capital for states to employ? 
If we move to a pricing regime that looks more closely at the incumbent 
LEC's actual network, are there any presumptions we could establish to 
facilitate selection of a cost of capital? We ask parties to provide 
studies in support of their proposals. Regardless of our network 
assumptions, are there particular models for projecting cost of capital 
that should or should not be used and are there particular data sources 
that should or should not be given deference? We ask parties to 
identify proxy companies or industries for use in estimating UNE cost 
of capital.
    30. We ask parties to comment on when it would be appropriate for a 
state commission to establish different costs of capital for different 
UNEs and, in those situations, to identify what types of risks 
distinguish one element from another. Would such an approach accurately 
reflect how incumbent LECs actually raise capital and, if not, is this 
relevant? We also seek comment on why such an approach has not been 
implemented in the states. We seek comment, particularly from state 
commissions, on whether and, if so, why such an approach has been 
considered and rejected. Are there steps the Commission could take to 
facilitate the ability of states to establish UNE-specific costs of 
capital? Do the benefits of using a cost of capital that more 
accurately reflects the risk associated with providing a particular UNE 
outweigh the administrative burden of such an approach?

[[Page 59761]]

    31. We ask parties to explain whether different proxy groups should 
be used to estimate the cost of capital for different UNEs. Parties 
should identify these proxy groups and explain in detail why they are 
appropriate. Alternatively, parties that advocate using a single proxy 
group and then adjusting that cost of capital according to the relative 
risk of the particular UNE should explain in detail how to make the 
relevant adjustments.
    32. Depreciation Expense. Economic depreciation is a method of 
reflecting anticipated declines in the net present value of an asset of 
the course of its useful life. Calculating the appropriate rate of a 
price decline is complicated because it is based largely on projections 
about future events. In UNE pricing cases, the task is even more 
difficult because most models include a levelization function that 
imposes a constant price schedule over the life of the asset. There are 
two components of depreciation--the useful life of the asset and the 
rate at which the asset is depreciated over that useful life. Although 
the Commission has yet to provide guidance regarding the use of 
economic depreciation or to mandate a specific set of economic lives, 
in the Triennial Review Order, the Commission clarified that a carrier 
may accelerate recovery of the initial capital outlay for an asset over 
its life to reflect any anticipated decline in its value.
    33. The useful life of an asset normally is determined by comparing 
the operating cost of the existing asset with the operating cost plus 
investment cost of a new asset that performs the same functions 
(assuming the new equipment will generate the same revenue as the 
existing equipment). Estimating asset lives is difficult because the 
estimate depends on the physical life of the existing asset, the 
expected operating costs of the existing asset, and the expected 
investment and operating cost of new assets, some of which may not yet 
have been invented.
    34. We seek comment on the guidance that we may provide to the 
states on the issue of asset lives. For example, is the Commission's 
past reluctance to rely solely on Generally Accepted Accounting 
Principles (GAAP) financial reporting lives warranted in the context of 
UNE ratesetting? We seek comment on the relationship between the 
financial lives used to develop earnings reported to shareholders and 
the financial lives those that companies use to plan their future 
capital expenditures? If those lives differ, we request that parties 
explain why. We also request that competitive LECs and incumbent LECs 
submit the lives that they use to plan their capital expenditures. We 
further seek comment on whether compliance with GAAP results in any 
systematic bias.
    35. We seek comment on how financial reporting lives are developed 
and whether they accurately represent the anticipated economic lives of 
assets. For example, how do financial lives reflect the potential 
impact of future technologies? What asset lives are appropriate for 
equipment in the existing incumbent LEC network that is, or soon will 
be, obsolete? How relevant, if at all, is the actual retirement 
experience of an incumbent LEC, its depreciation reserves, or its 
projected investment plans for the near future? Is there other 
objective evidence the Commission should consider in this regard? We 
encourage parties to provide studies forecasting the economic lives of 
the major local exchange carrier assets in support of their proposals.
    36. We also ask parties to comment on whether FCC regulatory lives 
reflect the competition and technology assumptions required under a 
forward-looking costing methodology. We seek comment on whether these 
lives, first established a decade ago, are still accurate. We ask 
parties to explain whether the validity of FCC asset lives depends in 
part on whether the Commission retains a scorched node approach to 
network design or instead adopts its tentative conclusion that forward-
looking costs should more closely account for the real-world attributes 
of the routing and topography of an incumbent LEC's network.
    37. The second component of depreciation is the depreciation rate. 
Where equipment prices are expected to decline over time, the value of 
existing network assets (and therefore prices under a forward-looking 
methodology) should decline at the same rate. We seek comment on the 
relationship between the rate of change in equipment prices and the 
rate of change in final product prices. To what extent do companies in 
competitive markets consider changes in the economic efficiency of 
assets (e.g., price changes, technological advances) in deciding how 
quickly to recover investments? How can we measure anticipated changes 
in the efficiency of equipment? Must any measure of equipment price 
also reflect advances in the capabilities of the equipment? What 
sources of information would be appropriate for use in establishing 
rates based on a forward-looking costing methodology? We request that 
parties explain how different sources of data address changing 
capabilities of equipment over time. We also request that parties 
explain whether recent declines in equipment costs, if any, are useful 
in establishing a general approach, or are they instead extraordinary 
events caused by the recent sudden decline in markets for 
telecommunications equipment generally and therefore not reliable 
indicators of general trends in equipment pricing.
    38. We seek comment on whether, if the investment cost of equipment 
changes from year to year, should UNE prices also similarly change from 
year to year, all else being equal. We ask parties to comment on the 
costs and benefits of using a wholesale pricing regime responds to a 
market where investment costs are changing and facilities-based 
competition exists or is expected to exist. We also ask parties to 
address whether adjustments to depreciation expense are the best 
mechanism for reflecting anticipated equipment price changes in UNE 
rates.
    39. Although carriers continually invest in new assets and 
depreciate old assets, UNE cost models typically assume that the entire 
investment in the network is made at a single point in time, and that 
no additional investment is made in subsequent periods. This same 
process is repeated each time a state commission sets new rates. 
Because the return on investment will decline in each period as the 
base of undepreciated investment declines, even straight-line 
depreciation will result in rapidly declining prices over time unless 
recovery is levelized across time periods. Consequently, a 
``levelization'' function is included in most cost models to replicate 
real-world investment and recovery patterns.
    40. The levelization of rates that occurs in most cost models 
appears to be inconsistent with the concept of adjusting UNE prices to 
reflect anticipated changes in equipment prices. We ask parties to 
comment on this statement and to discuss the consequences of running 
current cost models without the levelization function. Would there be 
dramatic variation in rates from year to year if rates were not 
levelized? Does the use of levelization send incorrect signals to the 
extent that it produces UNE prices that do not vary over time even when 
input prices are rising or falling? We seek comment on whether a better 
approach might be to recover through depreciation expense the 
difference between the current value of the asset and the anticipated 
value of the asset at the next rate proceeding. We request that parties 
explain how such an approach would work as a practical matter, 
including whether and how prices should be adjusted if a state

[[Page 59762]]

commission's expectation regarding equipment prices prove to be 
incorrect. We ask parties to identify any other approaches to economic 
depreciation that might be used.
    41. We also seek comment on whether a reduction in asset lives 
might be used as a proxy for changing investment costs. Under what 
circumstances would a carrier retire an asset before the end of its 
useful life? We ask parties to comment on how unregulated companies 
account for the uncertainties associated with equipment price changes 
and other consequences of advancing technologies.
    42. Expense Factors. Regulators often estimate projected operating 
expenses by multiplying the projected investment in the network by an 
annual cost factor (ACF). An ACF typically is a ratio of current 
expenses to current investment for a particular account. The ratio is 
multiplied by the projected investment to obtain the projected 
expenses. An alternative method of calculating monthly operating costs 
is to look at current operating expenses and make any adjustments that 
reflect anticipated experience in the period for which the projection 
is made, such as adjustments for productivity and inflation. We seek 
comment on these approaches to estimating expenses. Is one approach 
superior to the others? Under the network assumptions required by our 
TELRIC rules, is it correct to assume that expenses will be reduced in 
proportion to reductions in investment? Would such an assumption be 
more acceptable if we changed the network assumptions to more closely 
track an incumbent LEC's existing network? We request parties to 
explain whether it would be reasonable to assume that an incumbent 
LEC's current expenses represent the forward-looking costs of operating 
a network. We also request parties to identify if there are other 
approaches to projecting expenses that do not rely on an incumbent 
LEC's past experience. We invite parties to provide empirical evidence 
that demonstrates the factors that most influence the level of 
expenses.
    43. If we find that the best method of projecting expenses is to 
make forward-looking adjustments to actual expenses, we seek comment on 
the type of adjustments that would be appropriate. If adjustments are 
made for inflation and productivity, how should those factors be 
measured? From what sources should this information be developed?
    44. We ask parties to address any specific issues that arise in 
connection with estimating non-plant specific expenses, such as 
customer care or common overhead. How should these costs be allocated 
among different elements? Is it appropriate to allocate these costs to 
non-recurring charges, or should they be recovered only through 
recurring charges.
    45. Non-Recurring Charges. Non-recurring costs may be thought of as 
the ``installation'' or ``set-up'' costs an incumbent LEC incurs 
processing and provisioning a competitive LEC order for a UNE. Non-
recurring charges (NRCs) constitute an up-front cost to the competitive 
LEC that is generally not recoverable if it subsequently loses the end-
user customer served with the UNE. Consequently, NRCs can be a barrier 
to entry, especially if they are unduly high.
    46. There are two primary sets of issues that pertain to NRCs. The 
first set of issues relates to the costs an incumbent LEC should be 
permitted to recover for the activities needed to initiate service to a 
competitive LEC. We believe that consistency among the various 
components of rates is important. Using one set of network assumptions 
for recurring charges and a different set of network assumptions for 
NRCs potentially results in some over-recovery or under-recovery. 
Nevertheless, we are sensitive to the practical concern that network 
assumptions that depart significantly from an incumbent LEC's existing 
network might preclude recovery of the cost of non-recurring activities 
that would be required in establishing a competitive market. We ask 
parties to address whether our tentative conclusion that the pricing 
rules should more closely account for the real-world attributes of the 
routing and topography of and incumbent's network should apply with 
respect to NRCs and, if it does, whether this ensures that incumbent 
LECs will be able to recover all of their forward-looking costs of non-
recurring activities.
    47. A related issue is the relationship between NRCs for manual 
activities and an incumbent LEC's operational support systems (OSS). In 
light of our tentative conclusion, above, we seek comment on what 
assumptions should be made with respect to the capability of the 
incumbent LEC's OSS. Should OSS costs be recovered through expense 
factors or through a separate charge? If through a separate charge, how 
should that charge be calculated? Should incumbent LECs be permitted to 
recover through separate OSS charges the costs associated with systems 
that are used for both wholesale and retail services and, if so, how 
should regulators allocate OSS costs between these functions? Should 
all costs of making OSS available to competitors be borne by them or 
are there costs more appropriately spread among the incumbent LEC's 
retail customers as well?
    48. We seek comment on which activities are susceptible to 
automation and on how state commissions should determine the costs of 
performing these activities. We request that parties comment on how, in 
addition to subjective opinions of subject matter experts, state 
commissions might develop more objective evidence on non-recurring 
costs. Would a shift to network assumptions that more closely track the 
incumbent LEC's existing network eliminate some of the speculation that 
often characterizes state proceedings? Is it appropriate to establish a 
presumption that an incumbent LEC's current practices with respect to 
non-recurring activities are efficient, or are an incumbent LEC's 
incentives to be efficient diminished when competitive LECs are the 
primary users of a particular activity?
    49. The second main set of NRC issues relates to whether non-
recurring costs should be recovered through NRCs or through recurring 
charges. Generally, the non-recurring costs at issue are labor costs, 
such as the cost of sending a technician to a particular location to 
enable the competitive LEC to provide service to a particular end-user. 
One possible solution to this issue would be to limit recovery through 
NRCs to those costs that exclusively benefit the competitive LEC 
ordering the UNE. The cost of activities for which NRCs would not be 
permitted generally would be recovered in recurring charges through 
expense factors. We seek comment on this approach. What affect would 
this approach have on the number of activities for which NRCs would be 
permitted? How would such an approach be implemented by the states? 
Although such an approach would reduce the likelihood that NRCs would 
impose a barrier to competitive entry, would it also provide incumbent 
LECs with full recovery of their forward-looking costs? Under this 
approach to NRCs, would there be cost double recovery issues between 
expenses and NRCs with regard to carriers that already paid the NRCs 
and would now be paying for the costs again through ACFs in recurring 
charges?
    50. We solicit comment on whether a contrary approach, allowing 
NRCs for every activity related to a competitive LEC order, would 
provide sufficient incentive for incumbent LECs to use mechanized 
processes when it is efficient to do so. Would such an approach 
increase the risk of over-recovery by the incumbent? Would regulators 
need to develop mechanisms

[[Page 59763]]

to back out these costs in developing expense factors? Would it be 
necessary to develop some type of refund mechanism if other carriers 
also benefit from the work? Parties that oppose limiting the activities 
for which NRCs are permitted should suggest practical methods for 
making such adjustments.
    51. We invite parties to offer other suggestions on principles that 
states could apply to identify when it is appropriate to recover costs 
through NRCs, and the consequences of those principles on competitive 
entry and cost recovery. For example, of what relevance are the NRCs 
imposed by incumbent LECs on retail customers? Would eliminating or 
reducing the allocation of common costs and overhead to activities for 
which NRCs are imposed resolve concerns about the level of NRCs?
    52. Beyond these general NRC issues, we seek comment on some 
specific issues. We request that parties comment on whether 
disconnection costs should be recovered as a separate cost at the time 
of disconnection or if they should be recovered through a NRC imposed 
at the time of installation. We ask that parties provide empirical 
evidence with respect to the frequency with which facilities actually 
are disconnected and the costs are not recovered through other charges. 
We ask parties that favor recovering disconnection costs at the time of 
installation to explain how to reflect the time value of money in 
calculating the costs at the time of installation and to explain 
whether there are other factors that outweigh the consequences of 
having an intentional mismatch between costs and revenues (caused by 
recovering the costs before they are incurred).
    53. A second specific issue on which we seek comment is loop 
conditioning. In the Triennial Review Order, the Commission stated that 
state commissions have discretion to determine whether loop 
conditioning costs are forward-looking costs, and whether those costs 
should be recovered through recurring or non-recurring charges. We ask 
parties to comment on when and how the costs associated with loop 
conditioning should be recovered through recurring or non-recurring 
charges. We noted in the Triennial Review Order that one option 
available to state commissions would be to permit NRCs for loop 
conditioning only in extraordinary circumstances, such as copper loops 
that are longer than 18,000 feet. We seek comment on whether this is a 
useful distinction. We also seek comment on how, if at all, should such 
NRCs be distributed among the competitive LEC requesting conditioning 
and the future carriers that provide digital subscriber line service 
over the conditioned loop.
    54. Rate Structure. The current rules contain a variety of 
requirements regarding how UNE rates should be structured. 47 CFR 
51.509. We seek comment on whether, and under what circumstances, 
changes are needed to our rate structure requirements. For example, 
would it be appropriate to require switching costs or shared transport 
costs to be recovered solely through flat-rated charges?
    55. Rate Deaveraging. The Commission's current rules require that 
UNE rates be geographically deaveraged into at least three cost-based 
rate zones, and do not permit ``class-of-service'' deaveraging. We seek 
comment on whether, given the Commission's limited ability to influence 
or control retail local exchange rates, changes to our deaveraging 
policies with respect to UNEs are necessary to achieve the Commission's 
goal of sending appropriate economic signals with respect to 
competitive entry and investment or are there alternative steps the 
Commission might take. We seek comment on whether, and under what 
circumstances we should retain the requirement of geographic 
deaveraging. What are the consequences of deaveraging UNE prices in 
states where retail rates are not similarly deaveraged? Would it be 
appropriate to require deaveraging only in states where retail rates 
are deaveraged? Can such an approach be reconciled with the cost-based 
pricing standard contained in section 252(d)? We also seek comment on 
whether, and under what circumstances, to retain the requirement to 
average rates across different classes of service. Parties that favor 
elimination or modification of this requirement should present evidence 
demonstrating that the costs of serving different classes of customers 
are sufficiently different to warrant deaveraging of those rates. Also, 
we seek comment on whether deaveraging UNE rates across classes of 
customers is appropriate is retail rates do not reflect these same cost 
differences.
    56. Rate Changes Over Time. UNE pricing proceedings require a 
substantial commitment of resources from everyone involved and 
typically take a considerable time to complete. We ask parties to 
comment on whether there might be mechanisms that could be used to 
adjust prices over time, thereby reducing the need for state 
commissions to conduct a full UNE pricing proceeding every few years. 
Would an approach, similar to many price cap regimes, which 
periodically adjust rates based on productivity and inflation factors 
work for UNE prices and, if so, how? In particular, we ask parties how 
productivity factors might be calculated. We invite parties to produce 
empirical evidence regarding productivity, such as productivity 
studies, that could be used to establish productivity factors if we 
pursue this approach. We also seek comment on, if the use of 
productivity factors to adjust rates periodically is feasible, whether 
it should be mandatory and whether it satisfies a state's legal 
obligations under section 252. Are there methods other than the use of 
productivity factors that could be used to make periodic rate 
adjustments?
    57. Resale Pricing. Section 252(d)(3) of the Telecommunications Act 
of 1996 requires that state commissions establish wholesale rates for 
resold services based on the incumbent LEC's retail rates, ``excluding 
the portion thereof attributable to any marketing, billing, collection, 
and other costs that will be avoided by the local exchange carrier.'' 
47 U.S.C. 252(d)(3). The Commission's original resale pricing rules 
were vacated the by U.S. Court of Appeals for the Eighth Circuit, which 
found that the appropriate standard for determining avoided costs is 
not those costs that ``can be avoided,'' but rather ``those costs that 
the [incumbent LEC] will actually avoid in the future.'' Iowa Utils. 
Bd. v. FCC, 219 F.3d 744, 755 (8th Cir. 2000). In light of this 
decision, we ask parties to comment on the need for the Commission to 
adopt new rules implementing section 252(d)(3). Is the statutory 
language, as interpreted by the Eighth Circuit, sufficiently clear that 
further guidance from the Commission is unnecessary? Parties that favor 
the establishment of national rules should explain what those rules 
would require. Is it necessary or helpful for the Commission to 
identify categories of costs that either are or are not presumptively 
avoided? Parties that favor the Commission establishing this type of 
presumption should provide objective evidence demonstrating the type of 
costs that incumbent LECs actually avoid when they provide services to 
competitors for resale. For example, how should common costs be 
treated?
    58. We ask parties to discuss whether it is necessary, or helpful, 
for the Commission to establish evidentiary guidelines with respect to 
the resale discount. Should incumbent LECs be obligated to file cost 
studies in support of their proposed discounts, or are there 
alternative showings that might be sufficient? If studies are required, 
what level of detail should they contain?

[[Page 59764]]

Must direct and indirect costs be specifically identified?
    59. Finally, we ask parties to address whether the subscriber line 
charge should be subject to the resale discount.
    60. Interconnection Pricing and Reciprocal Compensation. Under 
section 252(d)(1), interconnection is subject to the same cost-based 
pricing standard as UNEs. We ask parties to comment on whether there is 
any reason that changes to the current pricing rules for UNEs should 
not also apply to interconnection provided pursuant to section 
251(c)(2). We note that the Commission is considering issues related to 
the costs associated with interconnecting networks in the pending 
Intercarrier Compensation NPRM, 66 FR 28410, May 23, 2001. Parties are 
invited to comment on the relationship between the section 251(d)(1) 
pricing standard and the proposals for recovery of interconnection 
costs that are now under consideration in that proceeding. We also 
invite parties to comment on issues related to the pricing of 
collocation, which is also subject to the section 252(d)(1) pricing 
standard. For example, we solicit comment on whether charges for direct 
current (DC) power should be based on the number of amps consumed or 
the number of amps fused. Finally, we ask parties to address whether 
the Commission should continue to apply the same pricing rules to UNEs 
and to reciprocal compensation. What would be the consequences of 
having different pricing regimes for these two different functions?
    61. Implementation Issues. We ask parties to comment on how any 
changes to the Commission's UNE pricing rules should be implemented by 
the states. We ask parties to explain how state commissions have 
proceeded in establishing prices under section 252(d)(1).
    62. We seek comment on whether we should establish a national 
timetable pursuant to which states will conduct new UNE cost 
proceedings to reset all rates in accordance with any new rules. If we 
establish a timetable for initiating new UNE rate proceedings, should 
we require that such proceedings be resolved within a certain time 
period, consistent with our direction to the states to perform the 
granular inquiries set forth in the Triennial Review proceeding? If so, 
is a nine-month time period sufficient to establish new UNE prices? 
What recourse should carriers have if a state fails to act in the 
allotted time?
    63. We also seek comment on whether to establish a true-up 
mechanism for the difference between what a competitor pays for network 
elements under rates established pursuant to the current TELRIC rules 
and what that competitor would pay for the same facilities or services 
under rates established pursuant to any new rules we may adopt in this 
proceeding. If a true-up mechanism is appropriate, to what period 
should any true-up be applicable? Should the beginning of the true-up 
period be the effective date of the final Commission order in this 
proceeding? Or is some other true-up period more appropriate?

Procedural Matters

Paperwork Reduction Act

    64. This Notice of Proposed Rulemaking (NPRM) does not contain 
proposed or modified information collection requirements.

Initial Regulatory Flexibility Act Analysis

    65. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), 5 U.S.C. 603, the Commission has prepared the present 
Initial Regulatory Flexibility Analysis (IRFA) of the possible 
significant economic impact on a substantial number of small entities 
by the policies and rules proposed in this NPRM. The RFA, see 5 U.S.C. 
601 et seq., has been amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title 
II, 110 Stat. 857 (1996). Written public comments are requested on this 
IRFA. Comments must be identified as responses to the IRFA and must be 
filed by the deadlines for comments on the NPRM provided below. The 
Commission will send a copy of the NPRM, including this IRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration. See 5 
U.S.C. 603(a). In addition, the NPRM and IRFA (or summaries thereof) 
are being published in the Federal Register.

Need for, and Objectives of, the Proposed Rules

    66. In this NPRM, the Commission initiates the first comprehensive 
review of TELRIC pricing rules since they were adopted. Section 
252(d)(1) of the Act sets forth the pricing standard for UNEs. Section 
252(d)(3) of the Act requires that state commissions establish 
wholesale rates for resold services based on the incumbent LEC's retail 
rates. Seven years ago, the Commission adopted its current rules that 
base UNE prices on the Total Element Long Run Incremental Cost (TELRIC) 
of a UNE. Local Competition First Report and Order, 61 FR 52706, 
October 8, 1996. The Commission stated at that time that it would 
continue to review its pricing rules based on the results of state 
arbitration proceedings and provide additional guidance as necessary.
    67. Based on the wealth of experience that has been developed over 
the last seven years, the Commission initiates this proceeding to 
consider whether the TELRIC methodology for pricing UNEs under the Act 
is working as intended and whether it is conducive to efficient 
facilities investment. The Commission also requests comment in this 
proceeding on its resale pricing rules. Incumbent LECs are required to 
resell retail services pursuant to section 251(c)(4) of the Act. This 
NPRM seeks to preserve the forward-looking emphasis and pro-competitive 
purposes of TELRIC, while simplifying this methodology. The 
Commission's objective is to help state commissions more easily develop 
UNE prices and resale discounts that meet the statutory standards 
established by Congress in section 252(d) and to provide more certainty 
and consistency in the results of these state proceedings.
    68. Although the Commission has addressed some specific TELRIC cost 
input disputes as they have arisen in section 271 proceedings, the 
Commission's disposition has provided no systematic guidance on pricing 
issues. This proceeding will provide states and interested parties 
comprehensive guidance lacking in our consideration of section 271 
applications. In the Triennial Review Order, the Commission clarified 
the existing rules regarding two key components of TELRIC--cost of 
capital and depreciation.
    69. Because of the general nature of the Commission's rules and the 
hypothetical and complex nature of the TELRIC inquiry, it is often 
difficult to understand how actual UNE rates are derived. Uncertainty 
or inconsistency in how to apply TELRIC rules may also result in rates 
that significantly vary from state to state without regard to genuine 
cost differences. This lack of predictability in UNE rates is difficult 
to reconcile with the Commission's desire that UNE prices send correct 
economic signals for competitive and investment purposes. This NPRM 
seeks to simplify TELRIC pricing, provide more specific guidance to 
make the TELRIC rate-setting process less speculative and improve the 
accuracy of its pricing signals.

Legal Basis

    70. This NPRM is adopted pursuant to sections 1, 4(i), (4j), 201-
205, 251, 252,

[[Page 59765]]

and 303 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
154(i), (j), 201-205, 251, 252, and 303.

Description and Estimate of the Number of Small Entities to Which the 
Proposed Rules Will Apply

    71. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that will be 
affected by the proposed rules. The RFA generally defines the term 
``small entity'' as having the same meaning as the terms ``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. 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). The term ``small governmental jurisdiction'' is 
defined as ``governments of cities, towns, townships, villages, school 
districts, or special districts, with a population of less than fifty 
thousand.'' 15 U.S.C. 632. As of 1997, there were about 87,453 
governmental jurisdictions in the United States. This number includes 
39,044 county governments, municipalities, and townships, of which 
37,546 (approximately 96.2%) have populations of fewer than 50,000, and 
of which 1,498 have populations of 50,000 or more. Thus, we estimate 
the number of small governmental jurisdictions overall to be 84,098 or 
fewer. We also note that the term ``small governmental jurisdiction'' 
includes state regulatory bodies commonly known as state public 
utilities commissions or public service commissions which may be 
directly affected by this NPRM.
    72. In this section, we further describe and estimate the number of 
small entity licensees and regulatees that may also be indirectly 
affected by rules adopted pursuant to this NPRM. The most reliable 
source of information regarding the total numbers of certain common 
carrier and related providers nationwide, as well as the number of 
commercial wireless entities, appears to be the data that the 
Commission publishes in its Trends in Telephone Service report. The SBA 
has developed small business size standards for wireline and wireless 
small businesses within the three commercial census categories of Wired 
Telecommunications Carriers, Paging, and Cellular and Other Wireless 
Telecommunications. Under these categories, a business is small if it 
has 1,500 or fewer employees. Below, using the above size standards and 
others, we discuss the total estimated numbers of small businesses that 
might be affected by our actions.
    73. 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 wired telecommunications carrier 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 Commission analyses and determinations 
in other, non-RFA contexts.
    74. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 1997, there were 2,225 firms in 
this category, total, that operated for the entire year. Of this total, 
2,201 firms had employment of 999 or fewer employees, and an additional 
24 firms had employment of 1,000 employees or more. Thus, under this 
size standard, the great majority of firms can be considered small.
    75. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to incumbent local exchange 
services. The closest applicable size standard under SBA rules is for 
Wired Telecommunications Carriers. Under that size standard, such a 
business is small if it has 1,500 or fewer employees. According to 
Commission data, 1,329 carriers reported that they were engaged in the 
provision of local exchange services. Of these 1,329 carriers, an 
estimated 1,024 have 1,500 or fewer employees and 305 have more than 
1,500 employees. Consequently, the Commission estimates that most 
providers of incumbent local exchange service are small businesses that 
may be affected by the rules and policies adopted herein.
    76. Competitive Local Exchange Carriers (CLECs). Neither the 
Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to providers of competitive exchange 
services or to competitive access providers or to ``Other Local 
Exchange Carriers,'' all of which are discrete categories under which 
TRS data are collected. The closest applicable size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 532 companies reported that they were 
engaged in the provision of either competitive access provider services 
or competitive local exchange carrier services. Of these 532 companies, 
an estimated 411 have 1,500 or fewer employees and 121 have more than 
1,500 employees. In addition, 55 carriers reported that they were 
``Other Local Exchange Carriers.'' Of the 55 ``Other Local Exchange 
Carriers,'' an estimated 53 have 1,500 or fewer employees and two have 
more than 1.500 employees. Consequently, the Commission estimates that 
most providers of competitive local exchange service, competitive 
access providers, and ``Other Local Exchange Carriers'' are small 
entities that may be affected by the rules and policies adopted herein.
    77. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 229 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 229 companies, an 
estimated 181 have 1,500 or fewer employees and 48 have more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
interexchange service providers are small entities that may be affected 
by the rules and policies adopted herein.
    78. Operator Service Providers (OSPs). Neither the Commission nor 
the SBA has developed a size standard for small businesses specifically 
applicable to operator service providers. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 22 companies reported 
that they were engaged in the provision of operator services. Of these 
22 companies, an estimated 20 have 1,500 or fewer employees and two 
have more than 1,500 employees. Consequently, the Commission

[[Page 59766]]

estimates that the great majority of operator service providers are 
small entities that may be affected by the rules and policies adopted 
herein.
    79. Payphone Service Providers (PSPs). Neither the Commission nor 
the SBA has developed a size standard for small businesses specifically 
applicable to payphone services providers. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 936 companies reported 
that they were engaged in the provision of payphone services. Of these 
936 companies, an estimated 933 have 1,500 or fewer employees and three 
have more than 1,500 employees. Consequently, the Commission estimates 
that the great majority of payphone service providers are small 
entities that may be affected by the rules and policies adopted herein.
    80. Prepaid Calling Card Providers. The SBA has developed a size 
standard for a small business within the category of Telecommunications 
Resellers. Under that SBA size standard, such a business is small if it 
has 1,500 or fewer employees. According to Commission data, 32 
companies reported that they were engaged in the provision of prepaid 
calling cards. Of these 32 companies, an estimated 31 have 1,500 or 
fewer employees and one has more than 1,500 employees. Consequently, 
the Commission estimates that the great majority of prepaid calling 
card providers are small entities that may be affected by the rules and 
policies adopted herein.
    81. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to ``Other Toll Carriers.'' This category includes toll carriers that 
do not fall within the categories of interexchange carriers, operator 
service providers, prepaid calling card providers, satellite service 
carriers, or toll resellers. The closest applicable size standard under 
SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 42 companies reported that their primary 
telecommunications service activity was the provision of payphone 
services. Of these 42 companies, an estimated 37 have 1,500 or fewer 
employees and five have more than 1,500 employees. Consequently, the 
Commission estimates that most ``Other Toll Carriers'' are small 
entities that may be affected by the rules and policies adopted herein.
    82. Wireless Service Providers. The SBA has developed a small 
business size standard for wireless firms within the two broad economic 
census categories of Paging and Cellular and Other Wireless 
Telecommunications. Under both SBA categories, a wireless business is 
small if it has 1,500 or fewer employees. For the census category of 
Paging, Census Bureau data for 1997 show that there were 1320 firms in 
this category, total, that operated for the entire year. Of this total, 
1303 firms had employment of 999 or fewer employees, and an additional 
17 firms had employment of 1,000 employees or more. Thus, under this 
category and associated small business size standard, the great 
majority of firms can be considered small. For the census category 
Cellular and Other Wireless Telecommunications firms, Census Bureau 
data for 1997 show that there were 977 firms in this category, total, 
that operated for the entire year. Of this total, 965 firms had 
employment of 999 or fewer employees, and an additional 12 firms had 
employment of 1,000 employees or more. Thus, under this second category 
and size standard, the great majority of firms can, again, be 
considered small.
    83. Broadband Personal Communications Service. The broadband 
Personal Communications Service (PCS) spectrum is divided into six 
frequency blocks designated A through F, and the Commission has held 
auctions for each block. The Commission defined ``small entity'' for 
Blocks C and F as an entity that has average gross revenues of $40 
million or less in the three previous calendar years. For Block F, an 
additional classification for ``very small business'' was added and is 
defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years.'' These standards defining ``small entity'' in the 
context of broadband PCS auctions have been approved by the SBA. No 
small businesses, within the SBA-approved small business size standards 
bid successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40 
percent of the 1,479 licenses for Blocks D, E, and F. On March 23, 
1999, the Commission re-auctioned 347 C, D, E, and F Block licenses. 
There were 48 small business winning bidders. On January 26, 2001, the 
Commission completed the auction of 422 C and F Broadband PCS licenses 
in Auction No. 35. Of the 35 winning bidders in this auction, 29 
qualified as ``small'' or ``very small'' businesses. Based on this 
information, the Commission concludes that the number of small 
broadband PCS licenses will include the 90 winning C Block bidders, the 
93 qualifying bidders in the D, E, and F Block auctions, the 48 winning 
bidders in the 1999 re-auction, and the 29 winning bidders in the 2001 
re-auction, for a total of 260 small entity broadband PCS providers, as 
defined by the SBA small business size standards and the Commission's 
auction rules. Consequently, the Commission estimates that 260 
broadband PCS providers are small entities that may be affected by the 
rules and policies adopted herein.
    84. Narrowband Personal Communications Services. To date, two 
auctions of narrowband personal communications services (PCS) licenses 
have been conducted. For purposes of the two auctions that have already 
been held, ``small businesses'' were entities with average gross 
revenues for the prior three calendar years of $40 million or less. 
Through these auctions, the Commission has awarded a total of 41 
licenses, out of which 11 were obtained by small businesses. To ensure 
meaningful participation of small business entities in future auctions, 
the Commission has adopted a two-tiered small business size standard in 
the Narrowband PCS Second Report and Order. A ``small business'' is an 
entity that, together with affiliates and controlling interests, has 
average gross revenues for the three preceding years of not more than 
$40 million. A ``very small business'' is an entity that, together with 
affiliates and controlling interests, has average gross revenues for 
the three preceding years of not more than $15 million. The SBA has 
approved these small business size standards. In the future, the 
Commission will auction 459 licenses to serve Metropolitan Trading 
Areas (MTAs) and 408 response channel licenses. There is also one 
megahertz of narrowband PCS spectrum that has been held in reserve and 
that the Commission has not yet decided to release for licensing. The 
Commission cannot predict accurately the number of licenses that will 
be awarded to small entities in future actions. However, four of the 16 
winning bidders in the two previous narrowband PCS auctions were small 
businesses, as that term was defined under the Commission's rules. The 
Commission assumes, for purposes of this analysis, that a large portion 
of

[[Page 59767]]

the remaining narrowband PCS licenses will be awarded to small 
entities. The Commission also assumes that at least some small 
businesses will acquire narrowband PCS licenses by means of the 
Commission's partitioning and disaggregation rules.
    85. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. Phase I licensing was conducted 
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized 
to operate in the 220 MHz band. The Commission has not developed a 
small business size standard for small entities specifically applicable 
to such incumbent 220 MHz Phase I licensees. To estimate the number of 
such licensees that are small businesses, we apply the small business 
size standard under the SBA rules applicable to ``Cellular and Other 
Wireless Telecommunications'' companies. This standard provides that 
such a company is small if it employs no more than 1,500 persons. 
According to Census Bureau data for 1997, there were 977 firms in this 
category, total, that operated for the entire year. Of this total, 965 
firms had employment of 999 or fewer employees, and an additional 12 
firms had employment of 1,000 employees or more. If this general ratio 
continues in the context of Phase I 220 MHz licensees, the Commission 
estimates that nearly all such licensees are small businesses under the 
SBA's small business size standard.
    86. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. The Phase II 220 MHz service is 
a new service, and is subject to spectrum auctions. In the 220 MHz 
Third Report and Order, we adopted a small business size standard for 
``small'' and ``very small'' businesses for purposes of determining 
their eligibility for special provisions such as bidding credits and 
installment payments. This small business size standard indicates that 
a ``small business'' is an entity that, together with its affiliates 
and controlling principals, has average gross revenues not exceeding 
$15 million for the preceding three years. A ``very small business'' is 
an entity that, together with its affiliates and controlling 
principals, has average gross revenues that do not exceed $3 million 
for the preceding three years. The SBA has approved these small 
business size standards. Auctions of Phase II licenses commenced on 
September 15, 1998, and closed on October 22, 1998. In the first 
auction, 908 licenses were auctioned in three different-sized 
geographic areas: Three nationwide licenses, 30 Regional Economic Area 
Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908 
licenses auctioned, 693 were sold. Thirty-nine small businesses won 
licenses in the first 220 MHz auction. The second auction included 225 
licenses: 216 EA licenses and 9 EAG licenses. Fourteen companies 
claiming small business status won 158 licenses.
    87. 800 MHz and 900 MHz Specialized Mobile Radio Licenses. The 
Commission awards ``small entity'' and ``very small entity'' bidding 
credits in auctions for Specialized Mobile Radio (SMR) geographic area 
licenses in the 900 MHz bands to firms that had revenues of no more 
than $15 million in each of the three previous calendar years, or that 
had revenues of no more than $3 million in each of the previous 
calendar years. The SBA has approved these size standards. The 
Commission awards ``small entity'' and ``very small entity'' bidding 
credits in auctions for Specialized Mobile Radio (SMR) geographic area 
licenses in the 800 MHz bands to firms that had revenues of no more 
than $40 million in each of the three previous calendar years, or that 
had revenues of no more than $15 million in each of the previous 
calendar years. These bidding credits apply to SMR providers in the 800 
MHz and 900 MHz bands that either hold geographic area licenses or have 
obtained extended implementation authorizations. The Commission does 
not know how many firms provide 800 MHz or 900 MHz geographic area SMR 
service pursuant to extended implementation authorizations, nor how 
many of these providers have annual revenues of no more than $15 
million. One firm has over $15 million in revenues. The Commission 
assumes, for purposes here, that all of the remaining existing extended 
implementation authorizations are held by small entities, as that term 
is defined by the SBA. The Commission has held auctions for geographic 
area licenses in the 800 MHz and 900 MHz SMR bands. There were 60 
winning bidders that qualified as small or very small entities in the 
900 MHz SMR auctions. Of the 1,020 licenses won in the 900 MHz auction, 
bidders qualifying as small or very small entities won 263 licenses. In 
the 800 MHz auction, 38 of the 524 licenses won were won by small and 
very small entities. Consequently, the Commission estimates that there 
are 301 or fewer small entity SMR licensees in the 800 MHz and 900 MHz 
bands that may be affected by the rules and policies adopted herein.
    88. Paging. In the Paging Third Report and Order, we developed a 
small business size standard for ``small businesses'' and ``very small 
businesses'' for purposes of determining their eligibility for special 
provisions such as bidding credits and installment payments. A ``small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues not exceeding $15 
million for the preceding three years. Additionally, a ``very small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues that are not more 
than $3 million for the preceding three years. The SBA has approved 
these size standards. An auction of Metropolitan Economic Area licenses 
commenced on February 24, 2000, and closed on March 2, 2000. Of the 985 
licenses auctioned, 440 were sold. Fifty-seven companies claiming small 
business status won. At present, there are approximately 24,000 
Private-Paging site-specific licenses and 74,000 Common Carrier Paging 
licenses. According to the most recent Trends in Telephone Service, 471 
carriers reported that they were engaged in the provision of either 
paging and messaging services or other mobile services. Of those, the 
Commission estimates that 450 are small, under the SBA business size 
standard specifying that firms are small if they have 1,500 or fewer 
employees.
    89. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, 
we adopted a small business size standard for ``small businesses'' and 
``very small businesses'' for purposes of determining their eligibility 
for special provisions such as bidding credits and installment 
payments. A ``small business'' as an entity that, together with its 
affiliates and controlling principals, has average gross revenues not 
exceeding $15 million for the preceding three years. Additionally, a 
``very small business'' is an entity that, together with its affiliates 
and controlling principals, has average gross revenues that are not 
more than $3 million for the preceding three years. An auction of 52 
Major Economic Area (MEA) licenses commenced on September 6, 2000, and 
closed on September 21, 2000. Of the 104 licenses auctioned, 96 
licenses were sold to nine bidders. Five of these bidders were small 
businesses that won a total of 26 licenses. A second auction of 700 MHz 
Guard Band licenses commenced on February 13, 2001 and closed on 
February 21, 2001. All eight of the licenses auctioned were sold to 
three bidders. One of these bidders was a small business that won a 
total of two licenses.
    90. Rural Radiotelephone Service. The Commission has not adopted a 
size standard for small businesses specific to

[[Page 59768]]

the Rural Radiotelephone Service. A significant subset of the Rural 
Radiotelephone Service is the Basic Exchange Telephone Radio System 
(BETRS). The Commission uses the SBA's small business size standard 
applicable to ``Cellular and Other Wireless Telecommunications,'' i.e., 
an entity employing no more than 1,500 persons. There are approximately 
1,000 licensees in the Rural Radiotelephone Service, and the Commission 
estimates that there are 1,000 or fewer small entity licensees in the 
Rural Radiotelephone Service that may be affected by the rules and 
policies adopted herein.
    91. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground 
Radiotelephone Service. We will use SBA's small business size standard 
applicable to ``Cellular and Other Wireless Telecommunications,'' i.e., 
an entity employing no more than 1,500 persons. There are approximately 
100 licensees in the Air-Ground Radiotelephone Service, and we estimate 
that almost all of them qualify as small under the SBA small business 
size standard.
    92. Aviation and Marine Radio Services. Small businesses in the 
aviation and marine radio services use a very high frequency (VHF) 
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator 
transmitter. The Commission has not developed a small business size 
standard specifically applicable to these small businesses. For 
purposes of this analysis, the Commission uses the SBA small business 
size standard for the category ``Cellular and Other 
Telecommunications,'' which is 1,500 or fewer employees. Most 
applicants for recreational licenses are individuals. Approximately 
581,000 ship station licensees and 131,000 aircraft station licensees 
operate domestically and are not subject to the radio carriage 
requirements of any statute or treaty. For purposes of our evaluations 
in this analysis, we estimate that there are up to approximately 
712,000 licensees that are small businesses (or individuals) under the 
SBA standard. In addition, between December 3, 1998 and December 14, 
1998, the Commission held an auction of 42 VHF Public Coast licenses in 
the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz 
(coast transmit) bands. For purposes of the auction, the Commission 
defined a ``small'' business as an entity that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $15 million dollars. In 
addition, a ``very small'' business is one that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $3 million dollars. There are 
approximately 10,672 licensees in the Marine Coast Service, and the 
Commission estimates that almost all of them qualify as ``small'' 
businesses under the above special small business size standards.
    93. Fixed Microwave Services. Fixed microwave services include 
common carrier, private operational-fixed, and broadcast auxiliary 
radio services. At present, there are approximately 22,015 common 
carrier fixed licensees and 61,670 private operational-fixed licensees 
and broadcast auxiliary radio licensees in the microwave services. The 
Commission has not created a size standard for a small business 
specifically with respect to fixed microwave services. For purposes of 
this analysis, the Commission uses the SBA small business size standard 
for the category ``Cellular and Other Telecommunications,'' which is 
1,500 or fewer employees. The Commission does not have data specifying 
the number of these licensees that have more than 1,500 employees, and 
thus are unable at this time to estimate with greater precision the 
number of fixed microwave service licensees that would qualify as small 
business concerns under the SBA's small business size standard. 
Consequently, the Commission estimates that there are up to 22,015 
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the 
microwave services that may be small and may be affected by the rules 
and policies adopted herein. We noted, however, that the common carrier 
microwave fixed licensee category includes some large entities.
    94. Offshore Radiotelephone Service. This service operates on 
several UHF television broadcast channels that are not used for 
television broadcasting in the coastal areas of states bordering the 
Gulf of Mexico. There are presently approximately 55 licensees in this 
service. We are unable to estimate at this time the number of licensees 
that would qualify as small under the SBA's small business size 
standard for ``Cellular and Other Wireless Telecommunications'' 
services. Under that SBA small business size standard, a business is 
small if it has 1,500 or fewer employees.
    95. Wireless Communications Services. This service can be used for 
fixed, mobile, radiolocation, and digital audio broadcasting satellite 
uses. The Commission established small business size standards for the 
wireless communications services (WCS) auction. A ``small business'' is 
an entity with average gross revenues of $40 million for each of the 
three preceding years, and a ``very small business'' is an entity with 
average gross revenues of $15 million for each of the three preceding 
years. The SBA has approved these small business size standards. The 
Commission auctioned geographic area licenses in the WCS service. In 
the auction, there were seven winning bidders that qualified as ``very 
small business'' entities, and one that qualified as a ``small 
business'' entity. We conclude that the number of geographic area WCS 
licensees affected by this analysis includes these eight entities.
    96. 39 GHz Service. The Commission created a special small business 
size standard for 39 GHz licenses--an entity that has average gross 
revenues of $40 million or less in the three previous calendar years. 
An additional size standard for ``very small business'' is: an entity 
that, together with affiliates, has average gross revenues of not more 
than $15 million for the preceding three calendar years. The SBA has 
approved these small business size standards. The auction of the 2,173 
39 GHz licenses began on April 12, 2000 and closed on May 8, 2000. The 
18 bidders who claimed small business status won 849 licenses. 
Consequently, the Commission estimates that 18 or fewer 39 GHz 
licensees are small entities that may be affected by the rules and 
polices adopted herein.
    97. Multipoint Distribution Service, Multichannel Multipoint 
Distribution Service, and ITFS. Multichannel Multipoint Distribution 
Service (MMDS) systems, often referred to as ``wireless cable,'' 
transmit video programming to subscribers using the microwave 
frequencies of the Multipoint Distribution Service (MDS) and 
Instructional Television Fixed Service (ITFS). In connection with the 
1996 MDS auction, the Commission established a small business size 
standard as an entity that had annual average gross revenues of less 
than $40 million in the previous three calendar years. The MDS auctions 
resulted in 67 successful bidders obtaining licensing opportunities for 
493 Basic Trading Areas (BTAs). Of the 67 auction winners, 61 met the 
definition of a small business. MDS also includes licensees of stations 
authorized prior to the auction. In addition, the SBA has developed a 
small business size standard for Cable and Other Program

[[Page 59769]]

Distribution, which includes all such companies generating $12.5 
million or less in annual receipts. According to Census Bureau data for 
1997, there were a total of 1,311 firms in this category, total, that 
had operated for the entire year. Of this total, 1,180 firms had annual 
receipts of under $10 million and an additional 52 firms had receipts 
of $10 million or more but less than $25 million. Consequently, we 
estimate that the majority of providers in this service category are 
small businesses that may be affected by the rules and policies adopted 
herein. This SBA small business size standard also appears applicable 
to ITFS. There are presently 2,032 ITFS licensees. All but 100 of these 
licenses are held by educational institutions. Educational institutions 
are included in this analysis as small entities. Thus, we tentatively 
conclude that at least 1,932 licensees are small businesses.
    98. Local Multipoint Distribution Service. Local Multipoint 
Distribution Service (LMDS) is a fixed broadband point-to-multipoint 
microwave service that provides for two-way video telecommunications. 
The auction of the 1,030 Local Multipoint Distribution Service (LMDS) 
licenses began on February 18, 1998 and closed on March 25, 1998. The 
Commission established a small business size standard for LMDS licenses 
as an entity that has average gross revenues of less than $40 million 
in the three previous calendar years. An additional small business size 
standard for ``very small business'' was added as an entity that, 
together with its affiliates, has average gross revenues of not more 
than $15 million for the preceding three calendar years. The SBA has 
approved these small business size standards in the context of LMDS 
auctions. There were 93 winning bidders that qualified as small 
entities in the LMDS auctions. A total of 93 small and very small 
business bidders won approximately 277 A Block licenses and 387 B Block 
licenses. On March 27, 1999, the Commission re-auctioned 161 licenses; 
there were 40 winning bidders. Based on this information, we conclude 
that the number of small LMDS licenses consists of the 93 winning 
bidders in the first auction and the 40 winning bidders in the re-
auction, for a total of 133 small entity LMDS providers.
    99. 218-219 MHz Service. The first auction of 218-219 MHz spectrum 
resulted in 170 entities winning licenses for 594 Metropolitan 
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by 
entities qualifying as a small business. For that auction, the small 
business size standard was an entity that, together with its 
affiliates, has no more than a $6 million net worth and, after federal 
income taxes (excluding any carry over losses), has no more than $2 
million in annual profits each year for the previous two years. In the 
218-219 MHz Report and Order and Memorandum Opinion and Order, we 
established a small business size standard for a ``small business'' as 
an entity that, together with its affiliates and persons or entities 
that hold interests in such an entity and their affiliates, has average 
annual gross revenues not to exceed $15 million for the preceding three 
years. A ``very small business'' is defined as an entity that, together 
with its affiliates and persons or entities that hold interests in such 
an entity and its affiliates, has average annual gross revenues not to 
exceed $3 million for the preceding three years. The SBA has approved 
these size standards. We cannot estimate, however, the number of 
licenses that will be won by entities qualifying as small or very small 
businesses under our rules in future auctions of 218-219 MHz spectrum.
    100. 24 GHz--Incumbent Licensees. This analysis may affect 
incumbent licensees who were relocated to the 24 GHz band from the 18 
GHz band, and applicants who wish to provide services in the 24 GHz 
band. The applicable SBA small business size standard is that of 
``Cellular and Other Wireless Telecommunications'' companies. This 
category provides that such a company is small if it employs no more 
than 1,500 persons. According to Census Bureau data for 1997, there 
were 977 firms in this category, total, that operated for the entire 
year. Of this total, 965 firms had employment of 999 or fewer 
employees, and an additional 12 firms had employment of 1,000 employees 
or more. Thus, under this size standard, the great majority of firms 
can be considered small. These broader census data notwithstanding, we 
believe that there are only two licensees in the 24 GHz band that were 
relocated from the 18 GHz band, Teligent and TRW, Inc. It is our 
understanding that Teligent and its related companies have less than 
1,500 employees, though this may change in the future. TRW is not a 
small entity. Thus, only one incumbent licensee in the 24 GHz band is a 
small business entity.
    101. 24 GHz--Future Licensees. With respect to new applicants in 
the 24 GHz band, the small business size standard for ``small 
business'' is an entity that, together with controlling interests and 
affiliates, has average annual gross revenues for the three preceding 
years not in excess of $15 million. ``Very small business'' in the 24 
GHz band is an entity that, together with controlling interests and 
affiliates, has average gross revenues not exceeding $3 million for the 
preceding three years. The SBA has approved these small business size 
standards. These size standards will apply to the future auction, if 
held.
    102. Internet Service Providers. While internet service providers 
(ISPs) are only indirectly affected by our present actions, and ISPs 
are therefore not formally included within this present IRFA, we have 
addressed them informally to create a fuller record. The SBA has 
developed a small business size standard for Online Information 
Services, which consists of all such companies having $21 million or 
less in annual receipts. According to Census Bureau data for 1997, 
there were 2,751 firms in this category, total, that operated for the 
entire year. Of this total, 2,659 firms had annual receipts of 
$9,999,999 or less, and an additional 67 had receipts of $10 million to 
$24,999,999. Thus, under this size standard, the great majority of 
firms can be considered small.

Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    103. We do not intend that any proposal we may adopt pursuant to 
this NPRM will increase existing reporting, recordkeeping or other 
compliance requirements. Rather, we seek to simplify TELRIC pricing and 
modify or clarify the Commission's rules to help state commissions more 
easily develop UNE prices and resale discounts that meet the statutory 
standards established by Congress in section 252(d) and to provide more 
certainty and consistency in state proceeding outcomes.

Steps Taken To Minimize Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered

    104. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): (1) The establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance or 
reporting requirements under the rule for small entities; (3) the use 
of performance, rather than design, standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for small entities.
    105. We will consider any proposals made to minimize significant 
economic

[[Page 59770]]

impact on small entities. The overall objective of this proceeding is 
to simplify TELRIC pricing while simultaneously improving the accuracy 
of its pricing signals. The NPRM seeks comment on an approach that 
bases UNE prices on a cost inquiry that is more firmly rooted in the 
real-world attributes of the existing telecommunications network, 
rather than the speculative attributes of a purely hypothetical 
network. This may change the standards applicable to cost studies on 
which UNE prices are based and indirectly result in changes to rates 
for UNEs that competitive LECs, including small carriers, order from 
incumbent LECs.
    106. State commissions stand to benefit directly to the extent that 
we clarify our TELRIC rules and provide more specific guidance so that 
state proceedings to determine UNE pricing and the resale discount 
become a less complex and speculative process. Providing greater 
certainty and consistency in how to apply our rules could help make the 
regulatory process throughout states more efficient and streamlined, 
indirectly benefiting small entities which participate in these 
proceedings. Complicated and time-consuming proceedings may work to 
divert scarce resources from small carriers that otherwise would use 
those resources to compete in local markets. Moreover, to the extent 
that we may be able to enhance the TELRIC ratemaking process, we may 
better be able to achieve the Commission's goal of sending appropriate 
economic signals to the marketplace for efficient competition and entry 
among providers that include small entities.

Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    107. None.

Ex Parte Presentations

    108. This matter shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. 47 CFR 
1.1200 et seq. Persons making oral ex parte presentations are reminded 
that memoranda summarizing the presentations must contain summaries of 
the substance of the presentations and not merely a listing of the 
subjects discussed. More than a one- or two-sentence description of the 
views and arguments presented generally is required. Other requirements 
pertaining to oral and written presentations are set forth in section 
1.1206(b) of the Commission's rules. 47 CFR 1.1206(b).

Comment Filing Procedures

    109. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, 47 CFR 1.415, 1.419, interested parties may file comments not 
later than December 16, 2003, and may file reply comments not later 
than January 30, 2004. In order to facilitate review of comments and 
reply comments, parties should include the name of the filing party and 
the date of the filing on all pleadings. Comments and reply comments 
must clearly identify the specific portion of the NPRM to which a 
particular comment or set of comments is responsive. Each new section 
should begin on a new page. If a portion of a party's comments does not 
fall under a particular topic listed in the Table of Contents, such 
comments should be included in a clearly labeled section at the 
beginning or end of the filing.
    110. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS) or by filing paper copies. Comments filed 
through the ECFS can be sent as an electronic file via the Internet to 
http://www.fcc.gov/cgb/ecfs. Generally, only one copy of an electronic 
submission must be filed. If multiple docket or rulemaking numbers 
appear in the caption of this proceeding, however, commenters must 
transmit one electronic copy of the comments to each docket or 
rulemaking number referenced in the caption. In completing the 
transmittal screen, commenters should include their full name, U.S. 
Postal Service mailing address, and the applicable docket or rulemaking 
number. Parties may also submit an electronic comment by Internet e-
mail. To get filing instructions for e-mail comments, commenters should 
send an e-mail to [email protected], and should include the following words 
in the body of the message, ``get form.'' A sample form and directions 
will be sent in reply.
    111. Parties who choose to file by paper must file an original and 
five copies of each filing. Two (2) copies of the comments should also 
be sent to the Chief, Pricing Policy Division, Wireline Competition 
Bureau, Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554.
    112. Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although we continue to experience delays in 
receiving U.S. Postal Service mail). The Commission's contractor, 
Natek, Inc., will receive hand-delivered or messenger-delivered paper 
filings for the Commission's Secretary at 236 Massachusetts Avenue, 
NE., Suite 110, Washington, DC 20002. The filing hours at this location 
are 8 a.m. to 7 p.m. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes must be disposed of before 
entering the building. Commercial overnight mail (other than United 
States Postal Service Express Mail and Priority Mail) must be sent to 
9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service 
first-class mail, Express Mail, and Priority Mail should be sent to 445 
12th Street, SW., Washington, DC 20554. The Commission advises that 
electronic media not be sent through USPS. All filings must be 
addressed to the Commission's Secretary, Office of the Secretary, 
Federal Communications Commission.
    113. Documents in this docket are available for public inspection 
and copying during business hours at the FCC Reference Information 
Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 
20554. The documents may also be purchased from Qualex International, 
telephone (202) 863-2893, facsimile (202) 863-2898.

Ordering Clauses

    114. It is ordered that, pursuant to the authority contained in 
sections 1, 4(i), 4(j), 201-205, 251, 252, and 303 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), (j), 
201-205, 251, 252, and 303, notice is hereby given of the rulemaking 
described above and comment is sought on those issues.
    115. It is further ordered that the Commission's Consumer 
Information Bureau, Reference Information Center, shall send a copy of 
this Notice of Proposed Rulemaking, including the Initial Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 03-26107 Filed 10-16-03; 8:45 am]
BILLING CODE 6712-01-P