[Federal Register Volume 82, Number 105 (Friday, June 2, 2017)]
[Rules and Regulations]
[Pages 25535-25538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11418]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 36

[CC Docket 80-286; FCC 17-55]


Jurisdictional Separations and Referral to the Federal-State 
Joint Board

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission extends the existing freeze 
of jurisdictional separations rules. The current extension allows the 
Commission, in cooperation with the Federal-State Joint Board, to 
consider further changes to the separations process in light of changes 
taking place in the telecommunications market place. The freeze also 
serves to ease the burdens of regulatory compliance and uncertainty for 
Local Exchange Carriers.

DATES: Effective June 2, 2017.

ADDRESSES: Federal Communications Commission, 445 12th Street SW., 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Rhonda Lien, Pricing Policy Division, 
Wireline Competition Bureau, at (202) 418-1540 or at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order, FCC 17-55 released May 15, 2017. The full text of this 
document is available for public inspection during regular business 
hours in the FCC Reference Center, Room CY-A257, 445 12th Street SW., 
Washington, DC 20554. The full-text copy of this document can also be 
found at the following internet address: https://apps.fcc.gov/edocs_public/attachmatch/FCC-17-55A1.docx.

Synopsis

I. Background

    1. Historically, incumbent LECs (ILECs) were subject to rate-of-
return rate regulation at both the federal and state levels. After the 
adoption of the 1996 Telecommunications Act (1996 Act), the Commission 
initiated a proceeding to comprehensively reform the part 36 
separations procedures to ensure compliance with the objectives of the 
1996 Act, and to address statutory, technological, and market changes 
in the telecommunications industry.
    2. Jurisdictional separations is the third step in a four-step 
regulatory process that begins with a carrier's accounting system and 
ends with the establishment of tariffed rates for the ILEC's interstate 
and intrastate regulated services. First, carriers record their costs

[[Page 25536]]

into various accounts in accordance with the Uniform System of Accounts 
for Telecommunications Companies (USOA) prescribed by part 32 of our 
rules. Second, carriers divide the costs in these accounts between 
regulated and nonregulated activities in accordance with part 64 of our 
rules. This division ensures that the costs of nonregulated activities 
will not be recovered in regulated interstate service rates. Third, 
carriers separate the regulated costs between the intrastate and 
interstate jurisdictions in accordance with our part 36 separations 
rules. In certain instances, costs are further disaggregated among 
service categories. Finally, carriers apportion the interstate 
regulated costs among the interexchange services and rate elements that 
form the cost basis for their exchange access tariffs. For carriers 
subject to rate-of-return regulation, this apportionment is performed 
in accordance with part 69 of our rules.
    3. In 1997, the Commission initiated a proceeding seeking comment 
on the extent to which legislative, technological, and market changes 
warranted comprehensive reform of the separations process. In the 2001 
Separations Freeze Order, the Commission froze, on an interim basis, 
the part 36 jurisdictional separation rules for a five-year period 
beginning July 1, 2001, or until the Commission completed comprehensive 
separations reform, whichever came first. Specifically, the Commission 
adopted a freeze of all part 36 category relationships and allocation 
factors for price cap carriers, and a freeze of all allocation factors 
for rate-of-return carriers. The Commission concluded that several 
issues, including the separations treatment of Internet traffic, should 
be addressed in the context of comprehensive separations reform. The 
Commission further concluded that the freeze would provide stability 
and regulatory certainty for ILECs by minimizing any impacts on 
separations results that might occur due to circumstances not 
contemplated by the Commission's part 36 rules, such as growth in local 
competition and new technologies. The Commission also found that a 
freeze of the separations process would reduce regulatory burdens on 
ILECs during the transition from a regulated monopoly to a deregulated, 
competitive environment in the local telecommunications marketplace.
    4. Price cap carriers have since received conditional forbearance 
from the part 36 jurisdictional separations rules. As a result, the 
freeze primarily impacts rate-of-return carriers who were only required 
to freeze their allocation factors, but were given the option of also 
freezing their category relationships at the outset of the freeze. 
Those that have chosen to freeze relationships calculate: (1) The 
relationships between categories of investment and expenses within part 
32 accounts; and (2) the jurisdictional allocation factors, as of a 
specific point in time, and then lock or ``freeze'' those category 
relationships and allocation factors in place for a set period of time. 
The carriers use the ``frozen'' category relationships and allocation 
factors for their calculations of separations results and therefore are 
not required to conduct separations studies for the duration of the 
freeze.
    5. Over time, the Commission has repeatedly extended the freeze, 
which is currently set to expire on June 30, 2017. The Commission has 
consistently consulted with the Joint Board about separations reform, 
pursuant to the Act's requirement that the Commission refer to the 
Joint Board proceedings regarding ``the jurisdictional separations of 
common carrier property and expenses between interstate and intrastate 
operations.'' The Joint Board recommended the initial freeze and has 
made a number of recommendations to the Commission about how best to 
proceed with reform of the separations rules. The state members of the 
Joint Board made their most recent recommendations in 2011.
    6. Since the Joint Board's recommendations, the Commission 
comprehensively reformed its universal service and intercarrier 
compensation systems and proposed additional reforms. On March 30, 
2016, the Commission adopted the Rate-of-Return Reform Order, which 
instituted significant reforms to the rules governing the provision of 
universal service support to rate-of-return LECs. On February 23, 2017, 
we completed our review of the part 32 Uniform System of Accounts 
(USOA) rules and streamlined various accounting requirements for all 
carriers and eliminated certain accounting requirements for large 
carriers.
    7. On March 20, 2017, in a Further Notice of Proposed Rulemaking 
(2017 FNPRM), 82 FR 16152-01, April 3, 2017, we proposed and sought 
comment on a further eighteen month extension of the separations freeze 
while we continue to work with the Joint Board. Comments were received 
from eight parties. On April 24, 2017, the Joint Board signaled its 
intent to move forward by releasing two public notices seeking comment 
on issues related to comprehensive permanent separations reform, and 
separations reform in light of recent reforms to part 32 rules. As we 
explained in the 2017 FNPRM, we anticipate that the Joint Board will 
meet in July 2017 to consider reform of the separations process and we 
expect to receive the Joint Board's recommendations for comprehensive 
separations reform within nine months thereafter.

II. Discussion

    8. To allow us to move forward with orderly reform of the 
separations rules, based on the record before us, we extend through 
December 31, 2018, the freeze on part 36 category relationships and 
jurisdictional cost allocation factors that the Commission adopted in 
the 2001 Separations Freeze Order. As a result of the extension, price 
cap carriers that have not availed themselves of conditional 
forbearance from the part 36 rules will use the same relationships 
between categories of investment and expenses within part 32 accounts 
and the same jurisdictional allocation factors that have been in place 
since the inception of the current freeze on July 1, 2001. Rate-of-
return carriers will use the same frozen jurisdictional allocation 
factors, and will, absent a waiver, use the same frozen category 
relationships if they had opted in 2001 to freeze those.
    9. The issues involved with modernizing separations are broad and 
complex. As commenters point out, the policy changes the Commission has 
adopted in recent years, particularly those arising from the 
Commission's fundamental reform of the high cost universal service 
support program, the intercarrier compensation systems, and the part 32 
accounting rules, will significantly affect our analysis of interim and 
comprehensive separations reform, as well as that of the Joint Board. 
Extending the freeze provides time for the Joint Board to consider the 
impact of our recent reforms on the separations rules and gives us the 
time necessary to tackle rule changes informed by the Joint Board's 
recommendations. We strongly urge interested parties to provide 
detailed and constructive feedback about how best to revise or 
eliminate the separations process as we work towards separations reform 
with the Joint Board.
    10. We agree with those commenters that argue that allowing the 
existing freeze to lapse and frozen separations rules to be reinstated 
during the pendency of our work with the Joint Board would create undue 
instability and administrative burdens on affected carriers. As WTA has 
explained, reinstating these long-unused separations rules, many of 
which are

[[Page 25537]]

now outmoded, would not only require substantial training and 
investment by rural LECs, but also could cause significant disruptions 
in their regulated rates, cost recovery and other operating conditions. 
If we were to allow the freeze to expire, carriers would have to 
reinstitute their former separations processes, even those that no 
longer have the necessary employees and systems in place to comply with 
the separations rules. Many carriers likely would have to hire or 
reassign and train employees and redevelop systems for collecting and 
analyzing the data necessary to perform separations in the prior 
manner. Requiring carriers to reinstate their separations systems 
``would be unduly burdensome when there is a significant likelihood 
that there would be no lasting benefit to doing so.''
    11. Two commenters, a group of concerned individuals called the 
Irregulators and Terral Telephone Company, Inc. (Terral), oppose the 
extension of the freeze. According to the Irregulators, the freeze is 
being used to deliberately hide ``massive financial cross subsidies and 
data manipulation.'' However, the evidence offered does not support 
this claim. We thus find the harm alleged by the Irregulators to be 
speculative and insufficient to outweigh the clear benefits that will 
result from granting a further extension. Terral opposes the extension 
as it applies to Terral and then uses its comments to ask the 
Commission to grant its pending petition for waiver of the categories 
of frozen separations. We decline, however, to substantively address 
individual requests for relief or a waiver of the separations rules in 
this Order as those requests are beyond the scope of this proceeding. 
We do welcome the input of these commenters as we move toward full 
consideration of how best to reform the separations rules and note that 
the decision to extend the freeze does not affect the Commission's 
ability to address pending or future waiver petitions.
    12. Separately, we deny the request of USTelecom to modify frozen 
category relationships for carriers electing the Alternative Connect 
America Cost Model and to make other changes to the separations 
process. These issues fall within the pending referral to the Joint 
Board and may be addressed in the Joint Board's recommended decision. 
We will therefore not grant USTelecom's request here.
    13. With regard to the length of the extension, the majority of 
commenters support extending the freeze for at least eighteen months. 
Some argue that the freeze should be longer, and should be tied to the 
completion of a comprehensive rulemaking. Some stakeholders have 
expressed concern about the amount of time needed to operationalize any 
changes we ultimately make to the separations rules. While those 
concerns are legitimate, they are premature at this point in the 
process, and would be more appropriately raised and addressed when 
considering the implementation of any reform measures as part of the 
on-going, comprehensive rulemaking proceeding.
    14. We find that extending the freeze by eighteen months, the 
length of time proposed in the 2017 FNPRM, is appropriate. We fully 
agree with NASUCA that the freeze should not continue indefinitely. 
While we recognize that an eighteen-month freeze extension is shorter 
than those the Commission previously adopted, as we explained in the 
2017 FNPRM, ``now is the time to address the separations rules.'' We 
are committed to moving this process forward and believe that eighteen 
months is a sufficient amount of time to carefully consider the issues 
in the record and work with the Joint Board toward meaningful 
separations reform. We intend to work diligently with the Joint Board 
toward that goal.

III. Procedural Matters

    15. Final Regulatory Flexibility Certification. The Regulatory 
Flexibility Act of 1980, as amended (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 that: (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).
    16. As discussed above, in 2001 the Commission adopted a Joint 
Board recommendation to impose an interim freeze of the part 36 
category relationships and jurisdictional cost allocation factors, 
pending comprehensive reform of the part 36 separations rules. The 
Commission ordered that the freeze would be in effect for a five-year 
period beginning July 1, 2001, or until the Commission completed 
comprehensive separations reform, whichever came first. On May 16, 
2006, concluding that more time was needed to implement comprehensive 
separations reform, the Commission extended the freeze for three years 
or until such comprehensive reform could be completed, whichever came 
first. On May 15, 2009, the Commission extended the freeze through June 
30, 2010; on May 24, 2010, extended the freeze through June 30, 2011; 
on May 3, 2011, extended the freeze through June 30, 2012; on May 8, 
2012, extended the freeze through June 30, 2104; and on June 12, 2014, 
extending the freeze through June 30, 2017.
    17. The purpose of the current extension of the freeze is to allow 
the Commission and the Joint Board additional time to consider changes 
that may need to be made to the separations process in light of changes 
in the law, technology, and market structure of the telecommunications 
industry without creating the undue instability and administrative 
burdens that would occur were the Commission to eliminate the freeze.
    18. Implementation of the freeze extension will ease the 
administrative burden of regulatory compliance for LECs, including 
small incumbent LECs. The freeze has eliminated the need for all 
incumbent LECs, including incumbent LECs with 1500 employees or fewer, 
to complete certain annual studies formerly required by the 
Commission's rules. The effect of the freeze extension is to reduce a 
regulatory compliance burden for small incumbent LECs, by abating the 
aforementioned separations studies and providing these carriers with 
greater regulatory certainty. Therefore, we certify that the 
requirement of the report and order will not have a significant 
economic impact on a substantial number of small entities.
    19. The Commission will send a copy of the report and order, 
including a copy of this Final Regulatory Flexibility Certification, in 
a report to Congress pursuant to the Congressional Review Act. In 
addition, the report and order and this final certification will be 
sent to the Chief Counsel for Advocacy of the SBA, and will be 
published in the Federal Register.
    20. Paperwork Reduction Act Analysis. This Report and Order does 
not contain new, modified, or proposed information collections subject 
to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In 
addition, therefore, it does not contain any new, modified, or proposed 
information collection burden for small business

[[Page 25538]]

concerns with fewer than 25 employees, pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4).
    21. Congressional Review Act. The Commission will send a copy of 
this Report and Order in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).
    22. Effective Date. We find good cause to make these rule changes 
effective June 2, 2017. As explained above, the current freeze is 
scheduled to expire on June 30, 2017. To avoid unnecessary disruption 
to carriers subject to these rules, we preserve the status quo by 
making the extension of the freeze effective before the scheduled 
expiration date.

IV. Ordering Clauses

    23. Accordingly, it is ordered, pursuant to sections 1, 2, 4(i), 
201-05, 215, 218, 220, and 410 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 152, 154(i), 201-205, 215, 218, 220, and 410, 
that this Report and Order is adopted.
    24. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, including the Final Regulatory 
Flexibility Certification, to the Chief Counsel for Advocacy of the 
Small Business Administration.
    25. It is further ordered, pursuant to section 553(d)(3) of the 
Administrative Procedure Act, 5 U.S.C. 553(d)(3), and sections 
1.4(b)(1) and 1.427(b) of the Commission's rules, 47 CFR 1.4(b)(1), 
1.427(b), that this Report and Order shall be effective June 2, 2017.

List of Subjects in 47 CFR Part 36

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone, Uniform System of Accounts.

Federal Communications Commission.
Katura Jackson,
Federal Register Liaison Officer, Office of the Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 36 as follows:

PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES 
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, 
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES

0
1. The authority citation for part 36 continues to read as follows:

    Authority:  47 U.S.C. 151, 154(i) and (j), 205, 221(c), 254, 
303(r), 403, 410 and 1302 unless otherwise noted.


Sec. Sec.  36.3, 36.123, 36.124, 36.125, 36.126, 36.141, 36.142, 
36.152, 36.154, 36.155, 36.157, 36.191, 36.212, 36.214, 36.372, 36.374, 
36.375, 36.377, 36.378, 36.379, 36.380, 36.381, and 36.382   [Amended]

0
2. In 47 CFR part 36, remove the date ``June 30, 2017'' and add, in its 
place, the date ``December 30, 2018'' in the following places:
0
a. Section 36.3(a) through (c), (d) introductory text, and (e);
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b. Section 36.123(a)(5) and (6);
0
c. Section 36.124(c) and (d);
0
d. Section 36.125(h) and (i);
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e. Section 36.126(b)(6), (c)(4), (e)(4), and (f)(2);
0
f. Section 36.141(c);
0
g. Section 36.142(c);
0
h. Section 36.152(d);
0
i. Section 36.154(g);
0
j. Section 36.155(b);
0
k. Section 36.156(c);
0
l. Section 36.157(b);
0
m. Section 36.191(d);
0
n. Section 36.212(c);
0
o. Section 36.214(a);
0
p. Section 36.372;
0
q. Section 36.374(b) and (d);
0
r. Section 36.375(b)(4) and (5);
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s. Section 36.377(a) introductory text, (a)(1)(ix), (a)(2)(vii), 
(a)(3)(vii), (a)(4)(vii), (a)(5)(vii), and (a)(6)(vii);
0
t. Section 36.378(b)(1);
0
u. Section 36.379(b)(1) and (2);
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v. Section 36.380(d) and (e);
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w. Section 36.381(c) and (d); and
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x. Section 36.382(a).

[FR Doc. 2017-11418 Filed 6-1-17; 8:45 am]
 BILLING CODE 6712-01-P