[Federal Register Volume 69, Number 121 (Thursday, June 24, 2004)]
[Rules and Regulations]
[Pages 35258-35270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-14329]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 61

[CC Docket No. 96-262; FCC 04-110]


Access Charge Reform; Reform of Access Charges Imposed by 
Competitive Local Exchange Carriers

AGENCY: Federal Communications Commission.

ACTION: Final rule; petitions for reconsideration and clarification.

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SUMMARY: By this document, the Commission denies a number of petitions 
for reconsideration of the tariff rules governing the charges for 
interstate switched access services provided by competitive local 
exchange carriers (LECs). Although the Commission denies the petitions 
for reconsideration, it addresses a number of issues raised in 
petitions for clarification and amends the rules accordingly. The 
Commission also concludes that it is not necessary to immediately cap 
competitive LEC access rates for toll-free traffic at the rate of the 
competing incumbent LEC. With this decision, the Commission retains the 
benchmark regime governing interstate switched access services provided 
by competitive LECs and clarifies application of the regime in several 
respects.

DATES: Effective July 26, 2004.

ADDRESSES: All filings must be sent to the Commission's Secretary, 
Marlene H. Dortch, Office of the Secretary, Federal Communications 
Commission, Room TW-A325, 445 Twelfth Street SW., Washington, DC 20554. 
In addition to filing comments with the Secretary, a copy of any 
comments on the information collections contained herein must be 
submitted to Judith Boley Herman, Federal Communications Commission, 
Room 1-C804, 445 Twelfth Street SW., Washington, DC 20554, or via the 
Internet to [email protected], and to Kim A. Johnson, OMB Desk 
Officer, Room 10236 NEOB, 725 17th Street NW., Washington, DC 20503, or 
via the Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: Victoria Schlesinger, Wireline 
Competition Bureau, Pricing Policy Division, (202) 418-7353.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Eighth 
Report and Order and Fifth Order on Reconsideration in CC Docket No. 
96-262, adopted on May 13, 2004, and released on May 18, 2004. The 
complete text of this Order is available 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 Commission's Consumer and Governmental Affairs 
Bureau, Reference Information Center, Room CY-A257, 445 Twelfth Street, 
SW., Washington, DC 20554. The complete text is available also on the 
Commission's Internet site at http://www.fcc.gov. Alternative formats 
are available to persons with disabilities by contacting Brian Millin 
at (202) 418-7426 or TTY (202) 418-7365. The complete text of the 
decision may be purchased from the Commission's duplicating contractor, 
Best Copying and Printing, Inc., Room CY-B402, 445 Twelfth Street, SW., 
Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, 
or e-mail at http://www.bcpiweb.com.

Synopsis of Order on Reconsideration and Report and Order

    1. In 2001, the Commission adopted new rules governing the charges 
for

[[Page 35259]]

interstate switched access services provided by competitive LECs, 
Access Charge Reform, Reform of Access Charges Imposed by Competitive 
Local Exchange Carriers, CC Docket No. 96-262, Seventh Report and 
Order, 66 FR 27892, May 21, 2001, and Further Notice of Proposed 
Rulemaking, 66 FR 27927, May 21, 2001 (CLEC Access Reform Order). These 
rules established a regime whereby tariffed competitive LEC access 
rates cannot exceed a specified benchmark rate, 47 CFR 61.26(b). Under 
this regime, competitive LECs may not generally tariff interstate 
access charges above the competing incumbent LEC rate, 47 CFR 61.26(c).
    2. In order to avoid too great a disruption for competitive 
carriers, however, the Commission established a three-year transition 
period. During the transition, competitive LECs are permitted to charge 
rates higher than those charged by the competing incumbent LEC, but 
their tariffed rates cannot exceed specific benchmark rates set by the 
Commission and contained in Sec.  61.26(c) of the Commission's rules, 
47 CFR 61.26(c). Under Sec.  61.26(d) of the Commission's rules, 47 CFR 
61.26(d), these transition rates are not available to competitive LECs 
in new markets where they began serving end-users after the effective 
date of the CLEC Access Reform Order. This three-year transition period 
ends on June 21, 2004, 47 CFR 61.26(c). The Commission also adopted a 
rural exemption, pursuant to which rural competitive LECs meeting 
certain criteria are permitted to tariff rates up to the highest rate 
band in the NECA tariff, 47 CFR 61.26(a) and (e).
    3. With this decision, the Commission disposes of several petitions 
for reconsideration of the tariff rules adopted in the CLEC Access 
Reform Order. Although the Commission denies the petitions for 
reconsideration, it addresses several issues raised in petitions for 
clarification of the current rules. First, the Commission clarifies 
that a competitive LEC is entitled to charge the full benchmark rate if 
it provides an IXC with access to the competitive LEC's own end-users. 
It finds that the rate a competitive LEC charges for access components 
when it is not serving the end-user should be no higher than the rate 
charged by the competing incumbent LEC for the same functions. Second, 
the Commission provides guidance on the meaning of the appropriate 
switching rate used in determining the ``competing ILEC rate'' after 
the three-year transition period to the competing incumbent LEC rate 
ends. Third, the Commission clarifies that any pre-subscribed 
interexchange carrier charge (PICC) imposed by a competitive LEC 
qualifying for the rural exemption may be assessed in addition to the 
rural benchmark rate if and only to the extent that the competing 
incumbent LEC charges a PICC. Fourth, it identifies permissible ways in 
which competitive LECs may structure their rates if they serve a 
geographic area with more than one incumbent LEC. Fifth, the Commission 
clarifies the source of its authority to impose IXC interconnection 
obligations under section 201(a) and it denies a pending petition for 
waiver of the CLEC new markets rule. Finally, the Commission declines 
to set a separate access rate for originating toll-free (8YY) traffic 
and allows it to be governed by the same declining benchmark as other 
competitive LEC interstate access traffic.

Accounting for Services Still Provided by the Incumbent LEC

    4. Section 61.26(b) of the Commission's rules, 47 CFR 61.26(b), 
provides that a competitive LEC's tariffed rate for ``its interstate 
switched exchange access services'' cannot exceed the benchmark. Under 
Sec.  61.26(a)(3), 47 CFR 61.26(a)(3) the term interstate switched 
exchange access services ``shall include the functional equivalent of 
the ILEC interstate exchange access services typically associated with 
the following rate elements: Carrier common line (originating); carrier 
common line (terminating); local end office switching; interconnection 
charge; information surcharge; tandem switched transport termination 
(fixed); tandem switched transport facility (per mile); tandem 
switching.'' The rate elements identified in Sec.  61.26(a)(3), reflect 
those services needed to originate or terminate a call to a LEC's end-
user. When a competitive LEC originates or terminates traffic to its 
own end-users, it is providing the functional equivalent of those 
services, even if the call is routed from the competitive LEC to the 
IXC through an incumbent LEC tandem.
    5. The Commission is aware of a number of disputes regarding the 
appropriate compensation to be paid by IXCs when a competitive LEC 
handles interexchange traffic that is not originated or terminated by 
the competitive LEC's own end-users. Because neither the CLEC Access 
Reform Order nor other applicable precedent addressed the appropriate 
rate in this scenario, the Commission now clarifies that the benchmark 
rate established in the CLEC Access Reform Order is available only when 
a competitive LEC provides an IXC with access to the competitive LEC's 
own end-users. The Commission explains that a competitive LEC that 
provides access to its own end-users is providing the functional 
equivalent of the services associated with the rate elements listed in 
Sec.  61.26(a)(3) and therefore is entitled to the full benchmark rate.
    6. Because of the many disputes related to the rates charged by 
competitive LECs when they act as intermediate carriers, the Commission 
concludes that it is necessary to adopt a new rule to address these 
situations. The Commission amends Sec.  61.26 of the Commission's 
rules, 47 CFR 61.26, on a prospective basis, to specify that the rate 
that a competitive LEC charges for access components when it is not 
serving the end-user should be no higher than the rate charged by the 
competing incumbent LEC for the same functions. The Commission explains 
that regulation of these rates is necessary because an IXC may have no 
choice but to accept traffic from an intermediate competitive LEC 
chosen by the originating or terminating carrier and that it is 
necessary to constrain the ability of competitive LECs to exercise this 
monopoly power.
    7. Neither the CLEC Access Reform Order nor other applicable 
precedent addressed the appropriate rate a competitive LEC may charge 
when it is not serving the end-user. Further, the Commission 
established only a single rate for each year of the transition period 
and did not state that this rate was available only if a competitive 
LEC served the end-user on a particular call. Therefore, prior to this 
decision, the Commission finds that it would not have been unreasonable 
for a competitive LEC to charge the tariffed benchmark rate for traffic 
to or from end-users of other carriers, provided that the carrier 
serving the end-user did not also charge the IXC and provided that the 
competitive LEC's charges were otherwise in compliance with and 
supported by its tariff.
    8. Under the existing rules, tariffed competitive LEC access rates 
must decrease over time until they reach the rate charged by the 
competing incumbent LEC, subject to some exceptions. In order to avoid 
litigation and uncertainty, the Commission clarifies the meaning of the 
competing incumbent LEC rate used to determine the benchmark. The 
Commission finds that the competing incumbent LEC switching rate is the 
end office switching rate when a competitive LEC originates or 
terminates calls to end-users and the tandem switching rate when a 
competitive LEC passes calls between two other carriers. Competitive 
LECs also have, and always had, the ability to charge for common 
transport when they provide it, including when

[[Page 35260]]

they subtend an incumbent LEC tandem switch. Competitive LECs that 
impose such charges should calculate the rate in a manner that 
reasonably approximates the competing incumbent LEC rate.

The CLEC New Markets Rule

    9. Under Sec.  61.26(d) of the Commission's rules (the CLEC new 
markets rule), 47 CFR 61.26(d), competitive LECs may not tariff a rate 
higher than the competing incumbent LEC rate in metropolitan 
statistical areas (MSAs) where the competitive LEC initiated service 
after the effective date of the CLEC Access Reform Order. The 
Commission declines to modify the rule as requested in petitions for 
reconsideration. In adopting the benchmark system for competitive LEC 
access charges, the Commission intended to limit the subsidy flowing 
from IXCs and the long distance market to competitive LECs and their 
end-users, and to do so with a bright line mechanism that is objective 
and easy to enforce. Modifying the rule as the competitive LECs suggest 
could substantially increase the amount by which IXCs subsidize 
competitors in the local-service market and would create ongoing 
incentives for economically inefficient entry in new markets.
    10. The Commission also denies claims that it violated the 
Administrative Procedure Act because it did not provide notice that it 
was considering a different rule for new markets and did not provide 
any opportunity for parties to comment on it. The Commission 
specifically sought comment on the competing incumbent LEC rate as a 
benchmark in an earlier Further Notice of Proposed Rulemaking in CC 
Docket No. 96-262, Access Charge Reform, CC Docket No. 96-262, Further 
Notice of Proposed Rulemaking, 64 FR 51280 (1999). Thus, the Commission 
concludes that it should have been apparent to any interested party 
that the Commission was contemplating a benchmark at the competing 
incumbent LEC rate for at least some markets. That the Commission 
ultimately decided to adopt a transition mechanism for some parties 
does not in any way render the notice provided to parties defective.
    11. Moreover, the Commission clarifies that the CLEC new markets 
rule does not apply if the competitive LEC would otherwise qualify for 
the rural exemption contained in Sec.  61.26(e) of the Commission's 
rules. The rural exemption rate is a substitute for the incumbent LEC 
rate that would otherwise be used as the benchmark rate. The Commission 
agrees that this is the correct interpretation of the Commission's CLEC 
Access Reform Order, and amends Sec.  61.26(e) accordingly to read 
``Notwithstanding paragraphs (b) through (d) of this section * * *.''

The Rural Exemption

    12. Under Sec.  61.26(f) of the Commission's rules (the rural 
exemption), 47 CFR 61.26(f), qualifying competitive LECs competing with 
non-rural incumbent LECs may tariff rates up to the rate prescribed in 
the NECA access tariff, assuming the highest rate band for local 
switching and the transport interconnection charge minus the NECA 
tariff's carrier common line (CCL) charge if the competing incumbent 
LEC is subject to certain access rates. The Commission retains the 
rural exemption and declines requests to broaden its applicability 
based on the record. In adopting the rural exemption, the Commission 
intended to keep the exemption as narrow as possible to minimize the 
strain it placed on the interexchange market. The Commission also 
emphasized the need for administrative simplicity, and noted that it 
would apply only to a small number of carriers serving a small portion 
of the nation's access lines.
    13. The Commission also declines to revise the rural exemption to 
allow competitive LECs to charge the CCL portion of the NECA rate. 
Excluding the NECA tariff's CCL charge when the competitive LEC 
competes with a CALLS incumbent LEC promotes parity between the 
competing carriers. Because both the CCL charge and transport 
interconnection charge have since been eliminated, the Commission 
revises Sec.  61.26(e) of the rules to remove any references to the CCL 
and the transport interconnection charge.
    14. The Commission further clarifies that a PICC may be imposed by 
a rural competitive LEC in addition to the rural exemption rate if and 
only to the extent that the competing incumbent LEC assesses a PICC, 
and revises Sec.  61.26(e) of the Commission's rules accordingly. As 
the Commission found in the CLEC Access Reform Order, the ability of 
rural competitive LECs to assess a multi-line business PICC obviated, 
in part, the need for a CCL charge because the PICC provided a 
potential revenue source.

Structure of the Benchmark

    15. The Commission also rejects a specific proposal to modify the 
benchmark scheme to allow competitive LECs to charge higher access 
rates in lower density markets. In creating exemptions to the general 
benchmark scheme, the Commission emphasized the need for administrative 
simplicity and narrow application. The proposal considered would not 
meet these goals. Moreover, the proposed proxies for density would be 
ill-suited to the job, and additional arguments made in support of this 
proposal rely on the assumption that there has been some regulated 
determination of competitive LEC costs, which is not the case.

Multiple Incumbent LECs in a Service Area

    16. The Commission further specifies what access rate applies when 
more than one incumbent LEC operates within a competitive LEC's service 
area. It states that competitive LECs serving an area with multiple 
incumbent LECs can qualify for the safe harbor by charging different 
rates for access to particular end-users based on the access rate that 
would have been charged by the incumbent LEC in whose service area that 
particular end-user resides. The record suggests, however, that some 
competitive LECs may prefer to charge IXCs a blended access rate when 
more than one incumbent LEC operates within a competitive LEC's service 
area. The Commission confirms that one alternative for competitive LECs 
is to negotiate a blended access rate with the IXCs. If a competitive 
LEC charges a blended access rate other than a negotiated rate, 
however, the Commission finds that such a rate must reasonably 
approximate the rate that an IXC would have paid to the competing 
incumbent LECs for access to the competitive LEC's customers.

Billing Name Information

    17. The Commission also declines to condition the IXCs' section 
201(a) duty to accept competitive LEC access services on the provision 
of billing name and address (BNA) information that the IXC deems 
sufficient. The Commission considered the issue of LEC obligations to 
provide BNA information in the context of an extensive rulemaking 
proceeding, and determined that, in some cases, LECs are required to 
provide billing information under tariff. Moreover, competitive LECs 
persuasively argue that this proposal would encourage IXCs to find 
inadequacies with competitive LECs' BNA information in order to avoid 
accepting (and paying for) access service. This could create a loophole 
in the 201(a) obligation that the Commission imposed and would thereby 
again endanger the ubiquity of the network, a consideration that 
substantially animated the CLEC Access Reform Order.

[[Page 35261]]

Other Matters

    18. The Commission also declines to addresses several other 
specific requests contained in petitions for reconsideration and 
clarification. For instance, the Commission declines to address whether 
past refusals of AT&T to continue providing service without authority 
from the Commission violate section 214 and section 203(c) of the Act. 
The Commission finds that whether the prior actions of AT&T violated 
the Act depends on fact-specific findings that are more appropriately 
handled in the context of an enforcement proceeding. Similarly, the 
Commission finds that any claims of violations of section 202(a) or 
section 203(c) should be decided on a case-by-case basis because such 
claims depend on fact-specific circumstances. Moreover, the Commission 
rejects a request to impose a negotiation or arbitration requirement on 
IXCs and permit competitive LECs to tariff rates above the benchmark if 
cost-justified. The Commission observes that this request assumes 
incorrectly that the Commission adopted a cost-based approach to 
competitive LEC access charges in its CLEC Access Reform Order.
    19. Further, in the CLEC Access Reform Order, the Commission 
determined that section 201(a) of the Act places certain limitations on 
an IXC's ability to refuse competitive LEC access service. In 
determining these limitations, the Commission focused on the first 
clause of section 201(a), which requires common carriers to furnish 
communication service upon reasonable request therefor. In this 
discussion, the Commission also referenced the second clause of section 
201(a), which empowers the Commission, after a hearing and 
determination of the public interest, to order common carriers to 
establish physical connections with other carriers, and to establish 
through routes and charges for certain communications. The Commission 
did not, however, explicitly rely on this portion of section 201(a) in 
imposing limitations on an IXC's ability to refuse service. The 
Commission now finds it necessary to clarify its intent to rely on the 
second clause of section 201(a) to support such limitations. 
Accordingly, the Commission finds that an IXC's refusal to accept 
competitive LEC access service at rates at or below the benchmark would 
run afoul of the second clause of section 201(a).
    20. Finally, the Commission denies a Petition for Temporary Waiver 
of Commission rule in 47 CFR 61.26(d), the CLEC new markets rule, as 
applied to certain MSAs that Z-Tel was capable of serving as of the 
petition date. The Commission denies the petition because the arguments 
made by Z-Tel and other parties in support of a waiver are identical to 
those considered and rejected in this decision. The Commission also 
denies the petition for the separate reason that Z-Tel failed to 
demonstrate any special circumstances necessary to support a waiver of 
the Commission's rules.

Eighth Report and Order

    21. In the Further Notice of Proposed Rulemaking issued with the 
CLEC Access Reform Order, the Commission raised various questions 
relating to toll-free (8YY) traffic originating on competitive LEC 
networks. The Commission concludes that it is not necessary immediately 
to cap competitive LEC access rates for 8YY traffic at the rate of the 
competing incumbent LEC, and allows it to be governed by the same 
declining benchmark rate to which other competitive LEC access traffic 
is subject. The Commission is not convinced that the revenue-sharing 
arrangements that competitive LECs may have entered into with 8YY 
generators necessarily affect the level of traffic that these 
customers, typically universities and hotels, generate. The IXCs have 
failed to demonstrate that commission payments to 8YY generators such 
as universities or hotels translate effectively into incentives for the 
individuals who actually use those facilities to place excessive or 
fraudulent 8YY calls. Moreover, even if the Commission were persuaded 
that there was an incentive for 8YY traffic generation, the fact that 
competitive LEC access rates are now subject to the declining benchmark 
should eliminate any harm to IXCs from this traffic.
    22. The Commission also rejects AT&T's request that we adopt a 
separate competitive LEC access rate for outbound 8YY traffic carried 
over dedicated local access facilities. The Commission finds that the 
record does not support adoption of a separate lower benchmark rate 
based on the incumbent LEC local switching rate. To the extent that 
AT&T is concerned that it is paying two carriers for originating a 
call, the Commission addresses that concern by clarifying that the rate 
that a competitive LEC charges for access components when it is not 
serving the end-user should be no higher than the rate charged by the 
competing incumbent LEC for the same functions. When there are no 
intermediate carriers between the competitive LEC and the end-user, the 
fact that the end-user may provide some portion of the facilities would 
seem to be irrelevant.

Supplemental Final Regulatory Flexibility Analysis

    23. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the 1999 Further Notice of Proposed Rulemaking (FNPRM) 
in CC Docket No. 96-262, 64 FR 51280, September 22, 1999. The 
Commission sought written public comment on the proposals in that 
FNPRM, including comment on the IRFA. A Final Regulatory Flexibility 
analysis was provided in the Sixth Report and Order, 65 FR 38684, June 
21, 2000, as well as the Seventh Report and Order, 66 FR 27892, May 21, 
2001, and Further Notice of Proposed Rulemaking, 66 FR 27927, May 21, 
2001 (CLEC Access Reform Order). This present Supplemental Final 
Regulatory Flexibility Act Analysis conforms to the RFA. To the extent 
that any statement in this Supplemental FRFA is perceived as creating 
ambiguity with respect to Commission rules or statements made in the 
sections of these orders preceding the Supplemental FRFA, the rules and 
statement set forth in those preceding sections are controlling.

Need for, and Objectives of, the Rules

    24. In the CLEC Access Reform Order, the Commission revised its 
tariff rules more closely to align tariffed competitive LEC access 
rates with those of incumbent LECs. Specifically, the Commission 
limited to a declining benchmark the amounts that competitive LECs may 
tariff for interstate access services; restricted the interstate access 
rates of competitive LECs entering new markets to the rates of the 
competing incumbent local exchange carrier (incumbent LEC); and 
established a rural exemption permitting qualifying carriers to charge 
rates above the benchmark for their interstate access services. In 
adopting these rules, the Commission sought to ensure, by the least 
intrusive means possible, that competitive LEC access charges are just 
and reasonable. The Commission also sought to reduce existing 
regulatory arbitrage opportunities, spur efficient local competition, 
and avoid disrupting the development of competition in the local 
telecommunications market.
    25. With this order, the Commission disposes of seven petitions for 
reconsideration or clarification of these rules, and a related waiver 
request. Specifically, the Commission rejects each of the 
reconsideration requests and related request for waiver, but makes

[[Page 35262]]

several clarifications. In response to an issue raise by Qwest in a 
petition for clarification or, in the alternative, reconsideration, the 
Commission clarifies that the benchmark rate is available only when a 
competitive LEC provides an IXC with access to the competitive LEC's 
own end-users. The Commission finds that the rate that a competitive 
LEC charges for access components when it is not serving the end-user 
should be no higher than the rate charged by the competing incumbent 
LEC for the same functions, and we amend the current rules in 
accordance with this finding. The Commission also clarifies that the 
competing incumbent LEC rate is the end office switching rate when a 
competitive LEC originates or terminates calls to end-users and the 
tandem switching rate when a competitive LEC passes calls between two 
other carriers. The Commission concludes that the regulation of these 
rates is necessary for all the same reasons the Commission identified 
in the CLEC Access Reform Order.
    26. The Commission also responds to a request by the Rural 
Independent Competitive Alliance (RICA) to clarify whether PICCs may be 
tariffed in addition to the rural exemption rate specified in Sec.  
61.26(e) of the Commission's rules and whether PICCs may be tariffed 
when the competing incumbent LEC does not have a PICC. In this order, 
the Commission clarifies that any PICC imposed by a competitive LEC 
qualifying for the rural exemption may be assessed in addition to the 
rural benchmark rate if and only to the extent that the competing 
incumbent LEC charges a PICC. In the CLEC Access Reform Order, the 
Commission found that the ability of rural competitive LECs to assess a 
multi-line business PICC obviated, in part, the need for a CCL charge 
because the PICC provided a potential revenue source. This 
clarification will ensure that rural competitive LECs are able to 
assess a PICC on IXCs as intended by the Commission, but if and only to 
the extent that the competing incumbent LEC charges a PICC. Further, 
this clarification is necessary to more closely align tariffed 
competitive LEC access rates with those of incumbent LECs.
    27. In a separate petition for clarification, U.S. TelePacific asks 
the Commission to clarify and establish a simple methodology by which 
the benchmark rate will be set where a competitive LEC service area 
includes territory served by more than a single incumbent LEC. In this 
order, the Commission confirms that competitive LECs serving an area 
with multiple incumbent LECs can qualify for the safe harbor by 
charging different rates for access to particular end-users based on 
the access rate that would have been charged by the incumbent LEC in 
whose service area that particular end-user resides. As an alternative 
method, the Commission will permit a competitive LEC to charge an IXC a 
blended access rate only if that rate reasonably approximates the rate 
that an IXC would have paid to the competing incumbent LECs for access 
to the competitive LEC's customers. By permitting an alternative 
methodology based on a blended rate, the Commission seeks to ensure 
that the competitive LEC access rates are just and reasonable, and, at 
the same time, to minimize the burdens associated with establishing 
several different rates within a competitive LEC's service area.

Legal Basis

    28. These orders are adopted pursuant to sections 1-5, 201-205, 
214, 218-220, 254, 303(r), 403, 405, 502 and 503 of the Communications 
Act of 1934, as amended, 47 U.S.C. 151-155, 201-205, 214, 218-220, 254, 
303(r), 403, 405, 502 and 503.

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

    29. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the rules adopted herein. 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).
    30. 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 Order. 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.
    31. 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.
    32. 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 majority of firms can be considered small.
    33. 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, 1,337 carriers reported that they were engaged in the 
provision of local exchange services. Of these 1,337 carriers, an 
estimated 1,032 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.
    34. Competitive Local Exchange Carriers (CLECs), Competitive Access

[[Page 35263]]

Providers (CAPs), and ``Other Local Exchange Carriers.'' 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, 609 companies reported that they were 
engaged in the provision of either competitive access provider services 
or competitive local exchange carrier services. Of these 609 companies, 
an estimated 458 have 1,500 or fewer employees and 151 have more than 
1,500 employees. In addition, 35 carriers reported that they were 
``Other Local Service Providers.'' Of the 35 ``Other Local Service 
Providers,'' an estimated 34 have 1,500 or fewer employees and one has 
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.
    35. 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, 261 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 261 companies, an 
estimated 223 have 1,500 or fewer employees and 38 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.
    36. 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, 23 companies reported 
that they were engaged in the provision of operator services. Of these 
23 companies, an estimated 22 have 1,500 or fewer employees and one has 
more than 1,500 employees. Consequently, the Commission estimates that 
the majority of operator service providers are small entities that may 
be affected by the rules and policies adopted herein.
    37. Payphone Service Providers (PSPs). Neither the Commission nor 
the SBA has developed a size standard for small businesses specifically 
applicable to payphone 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, 761 companies reported 
that they were engaged in the provision of payphone services. Of these 
761 companies, an estimated 757 have 1,500 or fewer employees and four 
have more than 1,500 employees. Consequently, the Commission estimates 
that the majority of payphone service providers are small entities that 
may be affected by the rules and policies adopted herein.
    38. 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, 37 
companies reported that they were engaged in the provision of prepaid 
calling cards. Of these 37 companies, an estimated 36 have 1,500 or 
fewer employees and one has more than 1,500 employees. Consequently, 
the Commission estimates that the majority of prepaid calling card 
providers are small entities that may be affected by the rules and 
policies adopted herein.
    39. 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's data, 92 companies reported that their 
primary telecommunications service activity was the provision of other 
toll carriage. Of these 92 companies, an estimated 82 have 1,500 or 
fewer employees and ten 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.
    40. Paging. The SBA has developed a small business size standard 
for Paging, which consists of all such firms having 1,500 or fewer 
employees. According to Census Bureau data for 1997, in this category 
there was a total of 1,320 firms that operated for the entire year. Of 
this total, 1,303 firms had employment of 999 or fewer employees, and 
an additional seventeen firms had employment of 1,000 employees or 
more. Thus, under this size standard, the majority of firms can be 
considered small.
    41. Cellular and Other Wireless Telecommunications. The SBA has 
developed a small business size standard for Cellular and Other 
Wireless Telecommunication, which consists of all such firms having 
1,500 or fewer employees. According to Census Bureau data for 1997, in 
this category there was a total of 977 firms that operated for the 
entire year. Of this total, 965 firms had employment of 999 or fewer 
employees, and an additional twelve firms had employment of 1,000 
employees or more. Thus, under this size standard, the majority of 
firms can be considered small.
    42. 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-

[[Page 35264]]

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. We note 
that, as a general matter, the number of winning bidders that qualify 
as small businesses at the close of an auction does not necessarily 
represent the number of small businesses currently in service. Also, 
the Commission does not generally track subsequent business size 
unless, in the context of assignments or transfers, unjust enrichment 
issues are implicated.
    43. 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 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.
    44. 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.
    45. 200 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.
    46. 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

[[Page 35265]]

the 800 MHz auction, 38 of the 524 licenses won were won by small and 
very small entities. We note that, as a general matter, the number of 
winning bidders that qualify as small businesses at the close of an 
auction does not necessarily represent the number of small businesses 
currently in service. Also, the Commission does not generally track 
subsequent business size unless, in the context of assignments or 
transfers, unjust enrichment issues are implicated.
    47. Private and Common Carrier 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.
    48. 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.
    49. Rural Radiotelephone Service. The Commission has not adopted a 
size standard for small businesses specific to 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.
    50. 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.
    51. 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. 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. 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.
    52. 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 is 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.
    53. Offshore Radiotelephone Service. This service operates on 
several UHF television broadcast channels that are

[[Page 35266]]

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.
    54. 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.
    55. 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 
policies adopted herein.
    56. 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 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.
    57. 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.
    58. 218-219 MHz Service. The first auction of 218-219 MHz spectrum 
resulted in 170 entities winning licenses for 594 Metropolitan 
Statistical Area 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.
    59. 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 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

[[Page 35267]]

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.
    60. 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.
    61. 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 and to recognize 
their participation in this proceeding. 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.
    62. Satellite Service Carriers. The SBA has developed a size 
standard for small businesses within the category of Satellite 
Telecommunications. Under that SBA size standard, such a business is 
small if it has 1,500 or fewer employees. According to Commission data, 
31 carriers reported that they were engaged in the provision of 
satellite services. Of these 31 carriers, an estimated 25 have 1,500 or 
fewer employees and six, alone or in combination with affiliates, have 
more than 1,500 employees. Consequently, the Commission estimates that 
there are 31 or fewer satellite service carriers which are small 
businesses that may be affected by the rules and policies proposed 
herein.

Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    63. In this order, the Commission finds that the rate that a 
competitive LEC charges for access components when it is not serving 
the end-user should be no higher than the rate charged by the competing 
incumbent LEC for the same functions, and we amend the current rules in 
accordance with this finding. This amendment requires competitive LECs 
to review the federal tariff of the competing incumbent LEC to 
determine the rate charged for various functions or services. Under the 
current rules, after June 21, 2004, review of the competing incumbent 
LEC's tariff is required to determine the ``competing ILEC rate.'' 
Therefore, this amendment does not modify the existing compliance 
requirement.
    64. Pursuant to a rule clarification adopted in this order, if a 
competitive LEC eligible to charge a higher access rate pursuant to the 
rural exemption chooses to also charge a PICC, the competitive LEC is 
required to review the federal tariff of the competing incumbent LEC to 
see if the incumbent LEC for that particular end-user charges a PICC, 
and if so, the amount of that incumbent LEC's PICC. Under the current 
rules, review of the competing incumbent LEC's tariff is required to 
determine the rural exemption amount. Therefore, this clarification 
does not modify the existing compliance requirement.

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

    65. 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.
    66. Throughout this order, we seek to further resolve questions and 
contentious issues that remain with respect to competitive LEC access 
services. Because there are both small entity IXCs and small entity 
competitive LECs--often with conflicting interests in this proceeding--
we expect that small entities will be affected by the clarifications 
adopted in this decision. As discussed below, we conclude, based on a 
consideration both of the steps needed to minimize significant economic 
impact on small entities and of significant alternatives, that our 
clarifications best balance the goals of removing opportunities for 
regulatory arbitrage and minimizing the burdens placed on carriers.
    67. In this order, the Commission clarifies that the benchmark rate 
is available only when a competitive LEC provides an IXC with access to 
the competitive LEC's own end-users. With this clarification, the 
Commission will minimize the opportunity for regulatory arbitrage, and 
ensure that small IXCs continue to pay just and reasonable rates for 
competitive LEC switched access services. This clarification also 
ensures that IXCs continue to accept and pay for competitive LEC access 
services, thereby protecting universal connectivity.
    68. In adopting this clarification, the Commission considers and 
rejects the alternative approach advanced by some competitive LECs, 
which would permit competitive LECs to charge the full benchmark rates 
when they provide any component of the interstate switched access 
services used in connecting an end-user to an IXC. We believe that an 
approach in which rates are not tethered to the provision of particular 
services would be an invitation to abuse because it would enable 
multiple competitive LECs to impose the full benchmark rate on a single 
call. This outcome would be inconsistent with the Commission's goal to 
ensure just and reasonable competitive LEC access rates. The approach 
advanced by competitive LECs also would enable competitive LECs to 
discriminate among IXCs, including small entities, by providing varying 
levels of service for the same price. Thus, we believe the 
clarification provided will minimize the impact that excessive rates 
and discriminatory behavior may have on IXCs, including any small 
businesses.
    69. The Commission finds that the rate that a competitive LEC 
charges for access components when it is not serving the end-user 
should be no higher than the rate charged by the competing incumbent 
LEC for the same functions. We conclude that regulation of these rates 
is necessary for all the reasons that we identified in the CLEC Access 
Reform Order. Specifically, an IXC may have no choice but to accept 
traffic from an intermediate competitive LEC chosen by the originating 
or

[[Page 35268]]

terminating carrier and it is necessary to constrain the ability of 
competitive LECs to exercise this monopoly power. At the same time, the 
Commission declines to require a specific rate structure or rate 
elements for the services provided by a competitive LEC in an effort to 
minimize the regulatory burdens on competitive LECs, including small 
businesses.
    70. In addition, the Commission clarifies that the competing 
incumbent LEC rate is the end office switching rate when a competitive 
LEC originates or terminates calls to end-users and the tandem 
switching rate when a competitive LEC passes calls between two other 
carriers. In providing this clarification, the Commission considers and 
rejects the proposal advanced by NewSouth because it would allow 
competitive LECs to charge IXCs, including small entities, for services 
they may not provide. We find that clarification of the competing 
incumbent LEC rate is necessary to avoid litigation and uncertainty. 
Eliminating the uncertainty surrounding the existing rules will benefit 
both competitive LECs and IXCs, including small businesses, by 
preventing potential billing disputes.
    71. The Commission also clarifies the application of the multi-line 
business PICC under the rural exemption. Although Sprint advances an 
alternative interpretation of how the PICC is to be calculated under 
the rural exemption, that interpretation would deprive competitive 
LECs, including small entities, of additional revenues taken into 
account when formulating the rural exemption in the CLEC Access Reform 
Order. Under the clarification provided, a competitive LEC seeking to 
charge a PICC under the rural exemption must determine whether the 
competing incumbent LEC charges a PICC and the amount of that PICC. 
Although this imposes a minimal additional burden on competitive LECs, 
the additional burden is outweighed by the direct benefit of additional 
access revenues in rural areas in prescribed circumstances.
    72. Moreover, in this order, the Commission clarifies what access 
rate applies when more than one incumbent LEC operates within a 
competitive LEC's service area. The Commission agrees with competitive 
LECs that, without such clarification of the current rules, competitive 
LEC market entry will be delayed or possibly abandoned altogether 
because of uncertainty about rates and the prospect of IXC refusal to 
pay, or litigation. Eliminating the uncertainty surrounding the 
existing rules will benefit both competitive LECs and IXCs, including 
small businesses, by preventing potential billing disputes.
    73. Further, in clarifying the applicable access rate in these 
circumstances, the Commission determined that it would permit a 
competitive LEC to charge an IXC a blended access rate if it does not 
result in revenues that exceed those the competing incumbent LECs would 
receive from IXCs for access to those customers. The Commission will 
permit a blended rate in some circumstances because it recognizes that 
requiring different rates for individual end-users within a service 
area might be particularly burdensome for small entities. Although the 
Commission considered specific alternative methods for determining the 
blended rate, it declines to specify the precise manner in which a 
competitive LEC must set its access rates when it serves the area of 
multiple incumbent LECs. Rather, the Commission requires only that the 
blended access rate reasonably approximate the rate that an IXC would 
have paid to the competing incumbent LEC for access to the competitive 
LEC's customers. The adopted approach balances the needs of small 
entities for flexibility in formulating a blended rate, yet ensures 
that the blended rate is just and reasonable in accordance with the 
Act.
    74. Overall, we believe that this order best balances the competing 
goals that we have for our rules governing competitive LEC switched 
access charges. Neither in CLEC Access Reform Order nor in 
consideration of the petitions for reconsideration and clarification 
has there been any identification of additional alternatives that would 
have further limited the impact on all small entities while remaining 
consistent with Congress' pro-competitive objectives set out in the 
Act.

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

    75. None.

Final Regulatory Flexibility Certifications

    76. The RFA requires that a regulatory flexibility analysis be 
prepared for notice-and-comment rulemaking proceedings, unless the 
agency certifies that ``the rule will not, if promulgated, have a 
significant economic impact on a substantial number of small 
entities.'' 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).

Fifth Order on Reconsideration

Background

    77. In this Fifth Order on Reconsideration, the Commission 
clarifies some rules in ways that are not expected to have a 
significant economic impact on a substantial number of small entities. 
Specifically, in addition to the clarifications discussed in the 
supplemental FRFA above, the Commission clarifies the existing 
relationship between the CLEC new markets rule and the rural exemption. 
In particular, petitioners seek confirmation that new market rule does 
not apply if the competitive LEC would otherwise qualify for the rural 
exemption. The Commission agrees that this is the correct 
interpretation of the existing rule and amends rule section 61.26(e) to 
more clearly reflect the Commission's original intent. The Commission 
also amends rule section 61.26(e) to remove references to rate elements 
that have been eliminated by the Commission. Further, the Commission 
clarifies the source of its authority to impose interconnection 
obligations on IXCs under section 201(a).

Substantive Information

    78. The amendment to Sec.  61.26(e) of the Commission rules simply 
clarifies and codifies the existing relationship between the CLEC new 
markets rule and the rural exemption, and removes references to rate 
elements that have since been eliminated by the Commission. Because 
there is no change to the meaning or impact of the existing rule, this 
amendment will have no significant economic impact. Similarly, the 
Commission's clarification concerning the source of its authority does 
not change the meaning or impact of the existing rule on large and 
small entities.
    79. Therefore, we certify that these requirements will not have a 
significant economic impact on a substantial number of small entities.

Eighth Report and Order

Background Information

    80. In the Eighth Report and Order, the Commission declines to set 
a separate access rate for originating toll free (8YY) traffic and 
allows it to be

[[Page 35269]]

governed by the same declining benchmark that applies to other 
competitive LEC interstate access traffic. In a further notice of 
proposed rulemaking issued with the CLEC Access Reform Order, the 
Commission raised questions relating to 8YY traffic originating on 
competitive LEC networks. The Commission sought this information 
because AT&T had asserted that abuses surrounding competitive LEC-
originated 8YY traffic justified immediately capping the access rate 
for this category of traffic at the rate of the competing incumbent 
LEC. The Commission determines that the record does not support IXCs' 
claims that commission payments to 8YY generators translate effectively 
into incentives for the individuals who actually use those facilities 
to place excessive or fraudulent 8YY calls.

Substantive Information

    81. Because competitive LECs currently charge IXCs the previously 
established, declining benchmark rate for 8YY traffic, the Commission's 
decision results in no change to existing competitive LEC access 
charges for 8YY traffic. Thus, the Commission's decision will have no 
significant economic impact on competitive LECs or IXCs, large and 
small.
    82. Therefore, we certify that these requirements will not have a 
significant economic impact on a substantial number of small entities.

No Regulatory Flexibility Analysis or Certification Required

    83. In the CLEC Access Reform Order, the Commission provided an 
FRFA that conformed to the RFA. In this present order, the Commission 
denies petitions for reconsideration and a petition for waiver. Because 
the Commission promulgates no additional or revised final rules in 
response to petitions for reconsideration or the petition for waiver, 
our present action on these petitions is not an RFA matter.

Final Paperwork Reduction Act Analysis

    84. This action contained herein contains no new or modified 
information collections subject to the Paperwork Reduction Act of 1995 
(PRA), Pub. L. 104-13.

Report to Congress

    85. The Commission will send a copy of these orders, including this 
Supplemental FRFA and FRFCs, in a report to be sent to Congress 
pursuant to the Congressional Review Act. In addition, the Commission 
will send a copy of these orders, including the Supplemental FRFA and 
FRFCs, to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of these orders and Supplemental FRFA (or 
summaries thereof) and FRFCs will also be published in the Federal 
Register.

Ordering Clauses

    86. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1-5, 201-205, 214, 218-220, 254, 303(r), 403, 
405, 502 and 503 of the Communications Act of 1934, as amended, 47 
U.S.C. 151-155, 201-205, 214, 218-220, 254, 303(r), 403, 405, 502 and 
503, this eighth report and order and fifth order on reconsideration, 
with all attachments, including revisions to part 61 of the 
Commission's rules, 47 CFR part 61, is hereby adopted.
    87. It is further ordered that these orders and rule revisions 
adopted in these orders shall become effective July 26, 2004.
    88. It is further ordered that the Commission's Consumer 
Information Bureau, Reference Information Center, shall send a copy of 
this eighth report and order and fifth order on reconsideration, 
including the Supplemental Final Regulatory Flexibility Analysis and 
Final Regulatory Flexibility Certifications, to the Chief Counsel for 
Advocacy of the Small Business Administration.
    89. It is further ordered that the Petitions for Reconsideration 
and Petitions for Clarification filed by Focal Communications Corp. and 
U.S. LEC Corp., Qwest Communications International, Inc., TDS Metrocom, 
Inc., and Time Warner Telecom are denied.
    90. It is further ordered that the Petition for Clarification filed 
by U.S. TelePacific Corp. is denied in part and granted in part, to the 
extent discussed herein.
    91. It is further ordered that the Petitions for Reconsideration 
and/or Clarification filed by the Minnesota CLEC Consortium and Rural 
Independent Competitive Alliance are denied in part and granted in 
part, to the extent discussed herein.
    92. It is further ordered that the Petition of Z-Tel Communications 
Inc., for Temporary Waiver of Commission rule in Sec.  61.26(d) is 
denied.
    93. It is futher ordered that the Petition of TDS Metrocom, Inc. 
for Stay Pending Reconsideration is denied as moot.
    94. It is further ordered that the Emergency Petition of Mpower 
Communications Corp. and North County Communications, Inc. for Stay of 
Order is denied as moot.

List of Subjects

47 CFR Part 61

    Communications common carriers, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rules Changes

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 61 to read as follows:

PART 61--TARIFFS

0
1. The authority citation for part 61 continues to read as follows:

    Authority: Secs. 1, 4(i), 4(j), 201-205 and 403 of the 
Communications Act of 1934, as amended; 47 U.S.C 151, 154(i), 
154(j), 201-205 and 403, unless otherwise noted.


0
2. Section 61.26 is amended by revising paragraphs (a)(1) and (a)(2), 
revising paragraph (e), and adding paragraph (f) to read as follows:


Sec.  61.26  Tariffing of competitive interstate switched exchange 
access services.

    (a) * * *
    (1) CLEC shall mean a local exchange carrier that provides some or 
all of the interstate exchange access services used to send traffic to 
or from an end user and does not fall within the definition of 
``incumbent local exchange carrier'' in 47 U.S.C. 251(h).
    (2) Competing ILEC shall mean the incumbent local exchange carrier, 
as defined in 47 U.S.C. 251(h), that would provide interstate exchange 
access services, in whole or in part, to the extent those services were 
not provided by the CLEC.
* * * * *
    (e) Rural exemption. Notwithstanding paragraphs (b) through (d) of 
this section, a rural CLEC competing with a non-rural ILEC shall not 
file a tariff for its interstate exchange access services that prices 
those services above the rate prescribed in the NECA access tariff, 
assuming the highest rate band for local switching. In addition to that 
NECA rate, the rural CLEC may assess a presubscribed interexchange 
carrier charge if, and only to the extent that, the competing ILEC 
assesses this charge.
    (f) If a CLEC provides some portion of the interstate switched 
exchange access services used to send traffic to or from an end user 
not served by that CLEC, the rate for the access services provided may 
not exceed the rate charged by the

[[Page 35270]]

competing ILEC for the same access services.

[FR Doc. 04-14329 Filed 6-23-04; 8:45 am]
BILLING CODE 6712-01-P