[Federal Register Volume 83, Number 205 (Tuesday, October 23, 2018)]
[Rules and Regulations]
[Pages 53377-53396]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22674]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 52

[WC Docket No. 17-192, CC Docket No. 95-155; FCC 18-137]


Toll Free Assignment Modernization; Toll Free Service Access 
Codes

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) revises its rules to allow the Commission to assign 
numbers by competitive bidding, on a first-come, first-served basis, by 
an alternative assignment methodology, or by a combination of 
methodologies. The Commission further establishes a single round, 
sealed-bid Vickrey auction for roughly 17,000 mutually exclusive 
numbers in the 833 code, set aside in the process of opening that code. 
Government and non-profit entities may file a petition seeking that a 
number be set aside from the auction for use for public health and 
safety purposes, and net proceeds from the auction will offset the 
costs of toll free numbering administration. Full auction procedures 
will be established in subsequent public notices. The Commission also 
revises its toll free rules to allow for the development of a secondary 
market for toll free numbers assigned in an auction, and to modernize 
its toll free rules to make them consistent with the other revisions 
adopted in this document and with industry terminology and practice.

DATES: Effective November 23, 2018.

FOR FURTHER INFORMATION CONTACT: Wireline Competition Bureau, 
Competition Policy Division, Matthew Collins, at (202) 418-7141, 
matthew.collins@fcc.gov.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order in WC Docket No. 17-192, CC Docket No. 95-155, FCC 18-137, 
adopted September 26, 2018, and released September 27, 2018. The full 
text of this document is available for public inspection during regular 
business hours in the FCC Reference Information Center, Portals II, 445 
12th Street SW, Room CY-A257, Washington, DC 20554. It is available on 
the Commission's website at https://docs.fcc.gov/public/attachments/FCC-18-137A1.pdf.

Synopsis

I. Introduction

    1. Today, we demonstrate our continued commitment to modernize the 
way we assign toll free numbers by adopting an additional assignment 
methodology that is both market-based and equitable. Based on the 
Federal Communications Commission's success using competitive bidding 
to assign spectrum licenses and award universal service support, we 
adopt new measures to explore the use of competitive bidding for the 
assignment of toll free numbers. To further evaluate this approach, as 
an experiment we establish the framework in this Report and Order for 
an auction of the rights to use certain numbers in the recently-opened 
833 toll free code. After the release of this Report and Order, we will 
initiate the pre-auction phase of this proceeding to seek input on the 
procedures for the auction. This experiment will help us determine how 
best to use competitive bidding to most effectively assign toll free 
numbers, as well as provide experience in applying auction procedures 
to the toll-free numbering assignment process.

II. Background

    2. Toll free calling and texting remains an important part of our 
communications system. Even as websites and smartphone apps have 
provided new avenues for public engagement, businesses, government 
entities, and non-profit organizations alike continue to make use of 
toll free services to keep an open line to the public, and enterprising 
subscribers put toll free numbers to use in creative new ways. Toll 
free services rely on toll free numbers--a limited resource the 
Commission is charged by statute with making available ``on an 
equitable basis.''
    3. Toll free calling began in 1967, with the introduction of the 
800 toll free code. The 800 code was established by AT&T, and the 
Commission's role in the toll free service market increased over the 
following 30 years. In 1997, faced with the possibility of exhaust of 
the 800 code, the Commission concluded that the Communications Act of 
1934, as amended, ``require[s] the Commission to ensure the efficient, 
fair, and orderly allocation of toll free numbers.'' Thirty years 
later, when the Commission opened the second toll free code--888--it 
addressed an age-old question for the first time in the context of toll 
free numbers: How can limited resources be most fairly and efficiently 
allocated when some of those resources are more desirable than others? 
Whether they

[[Page 53378]]

were desirable because they were easy to remember, because they could 
spell a name or common word, or because a subscriber had built up good 
will in that number in the 800 code, some 888 numbers were likely to be 
highly desirable while others might draw no interest at all.
    4. Congress has given the Commission only one guideline regarding 
the allocation of toll-free numbers: Do so ``on an equitable basis.'' 
Interpreting this guideline after opening the 888 code, the Commission 
understood ``equitable'' to include two prongs: ``orderly and 
efficient'' and ``fair.'' After considering multiple methodologies to 
assign toll free numbers, the Commission settled on a first-come, 
first-served approach. The Commission also offered a limited right of 
first refusal to subscribers of 800 numbers that expressed an interest 
in subscribing to that number in the 888 code. Inspired by its low cost 
and simplicity, the Commission found such an approach to be ``orderly 
and efficient''; it also concluded that it was ``fair'' because it did 
not discriminate on its face against any potential subscribers.
    5. Among the alternate methodologies the Commission considered when 
it opened the 888 code was competitive bidding. The Commission observed 
the fairness of this approach, stating that it ``would offer all 
participants an equal opportunity to obtain a particular . . . 
number''; it also described auctions as ``generally efficient.'' 
Although the Commission had conducted spectrum auctions prior to the 
888 code opening, the Commission concluded that an auction of toll free 
numbers presented ``practical difficulties''--not only could it cost 
more than a first-come, first-served approach, but it could also 
require oversight to ensure that bidders met requirements and followed 
auction procedures.
    6. When the Commission decided how to assign certain 888 toll free 
numbers, the Commission's auctions program was still in its relatively 
early stages. The Commission's first spectrum auction was held in July 
1994. The Notice of Proposed Rulemaking for the 888 toll free code was 
adopted in October 1995, and the 1998 Toll Free Order was adopted in 
March 1998. In the 20 years since that decision, the Commission has 
conducted over 70 spectrum auctions, including those for commercial 
wireless licenses and broadcast construction permits, using various 
auction formats. More recently, the Commission has begun using auctions 
as a mechanism for distributing universal service high-cost support.
    7. During this same period, the first-come, first-served approach 
to toll free number assignment--which was used with some modification 
for the 877, 866, 855, and 844 code openings--has been subject to 
scrutiny by the Wireline Competition Bureau (Bureau) for falling short 
of expectations in several ways. For example, first-come, first-served 
assignment has rewarded actors that have invested in systems to 
increase the chances that their choices are received first in the 
Service Management System Database (the Toll Free Database, the 
``database system for toll free numbers,'' in which entities reserve 
numbers and ``enter and amend the data about toll free numbers within 
their control''); and, by assigning numbers at no cost, it has allowed 
accumulation of numbers without ensuring those numbers are being put to 
their most efficient use. The Bureau addressed this latter issue, and 
the issue of some registrants having enhanced connectivity to the toll 
free database, by limiting registrants to 100 numbers per day for a 
month after the opening of the last two codes, 844 and 855.
    8. 833 Code Opening. In April 2017, the Bureau authorized Somos, 
Inc. (Somos), the Toll Free Numbering Administrator, to open the 833 
toll free code. To facilitate the exploration of alternative assignment 
methodologies, the Bureau took steps in the pre-code opening process to 
identify numbers that could be part of an experiment regarding the use 
of an alternative assignment process, such as an auction. Specifically, 
the Bureau authorized Responsible Organizations (RespOrgs, which are 
``entit[ies] chosen by a toll free subscriber to manage and administer 
the appropriate records in the toll free Service Management System for 
the toll free subscriber'') to identify up to 2,000 desired numbers in 
the 833 code and submit a request for those numbers to Somos. The 
Bureau directed Somos to review these requests, identify numbers 
subject to multiple requests, and place these ``mutually exclusive'' 
numbers in unavailable status (which means ``[t]he toll free number is 
not available for assignment due to an unusual condition'') pending the 
outcome of this proceeding. Numbers that were not requested by multiple 
RespOrgs were made available on a first-come, first-served basis.
    9. Nearly 150 RespOrgs participated in the 833 pre-code opening 
process, requesting over 72,000 numbers. Somos identified over 17,000 
mutually exclusive numbers--including `` `repeaters' (833-333-3333, 
833-888-8888, 833-800-0000, etc.) and numbers that spell memorable 
words or phrases (833-DENTIST, 833-DOCTORS, 833-FLOWERS . . . etc.)''--
and placed those numbers in unavailable status. Ten or more RespOrgs 
requested over 1,800 mutually exclusive numbers, and 65 or more 
RespOrgs requested the ten most popular numbers.
    10. Notice of Proposed Rulemaking. In September 2017, the 
Commission released the Toll Free Assignment NPRM, which proposed and 
sought comment on steps to better promote the equitable and efficient 
assignment and use of toll free numbers. Specifically, the Commission 
proposed expanding the existing toll free number assignment rule to 
include assignment by auction or other equitable assignment 
methodologies, and assigning the over 17,000 mutually exclusive numbers 
in the 833 toll free code through competitive bidding. (The Commission 
also proposed and sought comment on various specific auction rules and 
mechanisms.) The Commission also sought comment on eliminating the 
brokering (under our rules, the selling of numbers by a subscriber for 
a fee), warehousing (the reservation of numbers by a RespOrg without an 
actual subscriber for whom the numbers are being reserved), and 
hoarding (the acquisition of more numbers by a subscriber than it 
intends to use) prohibitions; setting aside numbers for use for public 
interest purposes; options to address abuse of toll free numbers; and 
changes to overall toll free numbering administration. The Commission 
received comments from various stakeholders including RespOrgs, service 
providers, and companies that have built their businesses around toll 
free calling.

III. Discussion

    11. Given the passage of time since adopting the first-come, first-
served methodology, and experience gained in opening five toll free 
codes, we modify our toll free number assignment rule to give the 
Commission flexibility to implement alternative approaches to assigning 
numbers. As an experiment in using such an alternative approach, we 
establish an auction to assign the over 17,000 identified mutually 
exclusive numbers in the 833 code (the 833 Auction). We also designate 
Somos as the auctioneer. While this Report and Order provides Somos 
with the general framework for the 833 Auction, we also provide for a 
pre-auction process to establish detailed auction procedures after 
additional notice and comment, as is typical in all Commission 
auctions. We require Somos to implement the established procedures to 
conduct the auction and, after the bidding has

[[Page 53379]]

ended, to provide the Commission with all data and information gained 
from the auction. Moreover, consistent with our goal of assigning 
numbers via a market mechanism, we create an exception to our 
brokering, warehousing, and hoarding prohibitions for numbers acquired 
through competitive bidding.

A. The Toll Free Assignment Rule

1. Adopting a Revised Toll Free Assignment Rule
    12. We adopt the toll free assignment revision of section 52.111 of 
our rules that the Commission proposed in the Toll Free Assignment 
NPRM. (We adopt the proposed rule revision with two minor changes. 
First, we make our rule consistent with the rules governing spectrum 
and universal service support competitive bidding, by using the phrase 
``competitive bidding'' rather than ``auction.'' Second, we improve the 
clarity of our rule by removing proposed language providing that the 
Commission will assign numbers through an assignment methodology ``as 
circumstances require.'' We further make administrative revisions to 
our toll free rules, consistent with the recommendations of the North 
American Numbering Council (NANC) Toll Free Assignment Modernization 
Working Group Report.) Our revised rule allows the Commission to direct 
the assignment of toll free telephone numbers to RespOrgs and 
subscribers on an equitable basis by competitive bidding, on a first-
come, first-served basis, by using an alternative assignment 
methodology, or by a combination of these approaches. We find that our 
experience assigning toll free numbers since the original rule's 
adoption 20 years ago--in which time certain entities have undertaken 
efforts to increase their chances that desirable numbers are assigned 
to them through the first-come, first-served system--supports the 
revised rule's flexible approach to number assignment and is supported 
by the record.
    13. With our revised rule, we increase our options to assign toll 
free numbers in a way that accounts for valuable social use. The 
revised rule provides us greater flexibility to explore alternative 
assignment mechanisms in addition to the current first-come, first-
served methodology. By revising our rule to permit--but not obligate--
the Commission to assign toll free numbers by auction, we add a 
valuable tool to our tool chest while maintaining the flexibility to 
craft assignment mechanisms suited to the nature of different 
inventories of numbers. One commenter argues that, in so doing we are 
``upending'' the toll free market to address demand for a 
``statistically insignificant'' amount of toll free numbers. But the 
demand for those specific numbers is not insignificant and, in fact, 
demonstrates the need to reconcile the demand with the assignment 
mechanism. Our rule does not mandate the use of a new assignment 
mechanism, instead allowing for targeted modifications to the 
assignment process going forward as circumstances require.
2. Considerations of Assignment Methodologies
    14. We find that revising our rules to allow alternative means of 
toll free number assignment is consistent with our statutory obligation 
to distribute numbers on an equitable basis. Section 251(e)(1) of the 
Communications Act of 1934, as amended (the Act), directs the 
Commission to make numbers available on an equitable basis. We find 
that the revised rule adopted today facilitates assignment of numbers 
equitably, per the standards of our precedent. The flexibility of our 
rule, including the option to use competitive bidding to assign toll 
free numbers, increases the likelihood that, as limited resources, toll 
free numbers will be assigned to parties that value the numbers most.
    15. In considering whether number distribution means are equitable 
under section 251(e)(1), we consider the principles of order, 
efficiency, and fairness. In so doing, the Commission has allowed 
exceptions to the assignment of numbers by the first-come, first-served 
approach, with the intent to serve the broader public interest of 
equitably distributing the finite resource of toll free numbers. (For 
example, the Wireline Competition Bureau allowed a right of first 
refusal in 1997 for 800 number subscribers seeking corresponding 888 
code numbers. The Bureau has also rationed the release of disconnected 
800 code numbers, and the release of 844 and 855 numbers upon opening 
of those codes. Aside from modifications of first-come, first-served, 
assignment, the Bureau has also assigned numbers upon request for 
reasons of national defense and public safety.) When it established the 
first-come, first-served assignment method in the 1998 Toll Free Order, 
the Commission opined that pursuant to section 251(e)(1), the 
Commission must apply a two-part test to determine if any given 
assignment methods were ``1) orderly and efficient, and 2) fair.'' When 
it first applied this test over twenty years ago, based on certain 
limitations and unknown factors with respect to number auctions, the 
Commission found that ``the use of a first-come, first-served 
assignment method is a more equitable method of allocating these 
numbers.'' With the benefit of some twenty years' of additional 
experience in toll free number allocation, in addition to extensive use 
of the auction mechanism in various contexts, we now reassess this 
conclusion.
    16. Section 251(e)(1) Test for Assigning Toll Free Numbers. We 
reapply the 251(e)(1) two-part test and conclude that the use of 
competitive bidding, like the other assignment methodologies in revised 
rule section 52.111, will result in an orderly, efficient, and fair 
assignment of toll free resources. The Commission has explained that an 
orderly toll free number assignment mechanism ``will simplify the 
administrative requirements necessary to assign toll free numbers and 
avoid the need to resolve competing claims among subscribers to 
particular numbers.'' Additionally, an efficient toll free number 
assignment mechanism will minimize exhaust of the toll free numbering 
resource.
    17. After reevaluating the criteria in the 1998 Toll Free Order, we 
conclude that assigning toll free numbers through the use of 
competitive bidding is orderly; any entity interested in a toll free 
number can, through an auction, express the value it places on a 
particular number, in a clear, transparent, and relatively simple 
manner. Moreover, assigning a number to the entity that places the 
highest bid is easy to understand and avoids the need to resolve 
competing claims among potential subscribers to particular numbers. 
Further, the first-come, first-served approach has not always resulted 
in an orderly and efficient distribution of highly-valued--i.e., 
mutually exclusive--numbers. Since the Commission's adoption of this 
approach in the 1998 Toll Free Order, the Bureau has intervened to 
withhold or ration highly desired numbers in subsequent code openings 
due to concerns with the first-come, first-served assignment process. 
The Bureau, expressing concern that RespOrgs were inefficiently 
warehousing numbers, implemented conservation plans for four out of the 
seven presently available toll free number codes.
    18. Given the Commission's considerable experience with auctions 
since 1998 and the ability of an entity to bid the value it places on a 
particular number in a clear, transparent, and relatively simple 
manner, we believe any administrative costs and ``practical 
difficulties'' in holding an auction would be significantly lower than

[[Page 53380]]

previously believed, making it more likely that the efficiencies of 
competitive bidding will outweigh such costs. Therefore, we conclude 
that adding competitive bidding as one possible assignment method meets 
the first prong of our established test, namely, that an assignment 
mechanism be orderly and efficient.
    19. We also find that the market-based assignment methodologies in 
revised rule 52.111 are fair, meeting the second part of the section 
251(e)(1) test. The Commission has explained that a fair toll free 
number assignment mechanism is one that gives ``[a]ll subscribers . . . 
an equal opportunity to reserve desirable toll free numbers as new 
codes are opened.'' Using a competitive bidding process to assign 
mutually exclusive toll free numbers can provide interested parties 
with a level playing field, on which everyone has the same ability to 
express their valuation for specific numbers in a clear, transparent 
manner, using an equally accessible method. Based on our experience 
with auctions in other contexts, we find that we are more likely to 
achieve our stated objective of assigning mutually exclusive toll-free 
numbers on an equitable basis by allowing all qualified bidders the 
same opportunity to express their value for a number and assigning the 
numbers to the party that values it the most, than if we use a method 
by which a number is assigned to the party that employs the most 
advanced access system. (We expect that the experimental use of an 
auction for mutually exclusive 833 toll free numbers (as adopted in 
this item) will yield additional insight into whether auctions are the 
best methodology for assigning toll free numbers and, if so, how best 
to use competitive bidding in the future.) Moreover, the current method 
leads to unnecessary expenditure on equipment to gain a timing 
advantage, whereas the proceeds from a toll free number auction will go 
towards the administration of the toll free system.
    20. While in its 1998 application of this test, the Commission 
stated that auctions ``offer all participants an equal opportunity to 
obtain a particular . . . number,'' it also concluded that a first-
come, first-served assignment mechanism was also fair and selected that 
approach due to its then perceived benefits of order and efficiency. We 
find that the Commission's prior conclusion has not borne out for 
highly desired toll free numbers; indeed, the Bureau has intervened in 
the last four toll free code openings, altering the first-come, first-
served methodology precisely to ensure fairness in the toll free number 
assignment methodology.
    21. Since the 1998 Toll Free Order was adopted, the Commission has 
observed that the underlying numbering access technology has evolved: 
Certain automated systems now used to access the Toll Free Database 
have placed smaller RespOrgs at a competitive disadvantage because they 
do not have the capacity to quickly reserve sought-after vanity 
numbers. Enhanced connectivity gives larger, more sophisticated 
entities the incentive to invest in these systems to increase the 
chances that their number requests are processed. This situation 
undermines a key rationale for the first-come, first-served approach: 
That all interested parties have an equal chance of getting a number. 
And while it advances the separate goal of ensuring a number is quickly 
allocated to the party that values it most highly--a differential 
willingness to invest indicates an underlying differential in the value 
the investing party sees in numbers--it does so only loosely, since 
there is no direct mechanism that allows potential subscribers to bid 
in their valuation. In the absence of conservation controls, the Bureau 
has seen evidence of unfair access following new toll free code 
openings. For example, following the 877 and 866 code openings, the 
Commission received reports from RespOrgs suggesting that during 
database ``timeouts,'' only RespOrgs with more advanced access systems 
were able to reserve numbers, while RespOrgs not using those advanced 
systems were ``locked out'' and unable to reserve their desired 
numbers. For the 855 and 844 toll free code openings, the Bureau 
directed the toll free database administrator to limit the quantity of 
toll free numbers a RespOrg may reserve to 100 per day for the first 30 
days--``larger RespOrgs with enhanced connectivity to the [toll free] 
database'' would otherwise be able to more quickly to reserve sought-
after numbers than smaller RespOrgs without enhanced connectivity.
    22. We reject commenters' arguments that an auction is unfair 
because it favors parties with deep pockets. An auction allocates the 
number to the bidder willing to pay the most, but that willingness may 
derive from expected future revenues from a profitable business case, 
rather than from the bidders' current finances. Moreover, auctions 
should reflect the value of the toll free number in the marketplace and 
a bidder may be able to obtain financing based on anticipated 
profitability. We anticipate that a first-come, first-served approach 
will continue to be an appropriate assignment methodology in some 
circumstances, however. For instance, first-come, first-served 
assignment may be appropriate for less desirable numbers, or in 
instances where numbers made available via an auction are not assigned 
thereby. We expect that our experience with the 833 Auction will 
provide us with insight we can use when determining the best mechanism 
for assignment of a given set of numbers.
    23. Effective Assignment of Toll Free Resources. Our revised 
assignment rule gives us a new option for the assignment of numbers, 
without removing currently available options. The Commission has 
extensive experience in public outreach and education about the auction 
process, including online tutorials for the auction application and 
bidding processes. Based on this experience, we disagree with the 
argument that providing adequate notice to the public about auction 
procedures will be unreasonably costly. Nor do we agree with commenters 
who argue that preparing for and participating in the auction will be 
unduly burdensome to participants. We recognize that individual 
subscribers or RespOrgs acquiring toll free numbers through an auction 
may incur some costs relating to the participation in the auction that 
they did not incur through the first-come, first-served process, but we 
believe those costs are outweighed by the benefits to the toll free 
system at large when toll free numbers are put to their highest-valued 
use. Many toll free numbers have a much greater value for certain 
subscribers. Some 150 RespOrgs participated in the 833 pre-code opening 
process, requesting over 72,000 numbers. This fact undermines the basic 
rationales on the effectiveness of first-come, first-served for 
mutually exclusive numbers--that first-come, first-served allocation 
requires less oversight, and avoids ``the need to resolve competing 
claims among subscribers to assignment of particular numbers.'' On the 
contrary, the Commission has been compelled to provide increased 
oversight by intervening multiple times to ensure new code openings are 
``orderly and efficient'' and ``fair,'' and adjudicated numbering 
conflicts in at least two notable cases. Our practice of resolving 
competing claims has previously been resolved inefficiently in favor of 
the party most privileged with access to the faster reservation system. 
Instead of the number going to whichever entity happens to be first in 
the door (thereby preventing others, who may value it more, from 
getting it), use of

[[Page 53381]]

competitive bidding will give all entities an equal opportunity to 
express the value they place on any particular number. By increasing 
the likelihood that mutually exclusive toll free numbers are assigned 
to parties that will use the resource in the most productive way, we in 
turn increase the efficiency and equity of our number assignment 
process.
    24. Revising the Commission's rules to allow us to assign numbers 
by auction, on a first-come, first-served basis, an alternative 
assignment methodology, or by a combination of the forgoing as 
circumstances require, gives the Commission the flexibility to adapt 
our assignment procedures to the circumstances and characteristics of 
the specific toll free numbers to be assigned. In any future toll free 
code release, the revised rule will not require the Commission to use 
competitive bidding and, if it decides to use competitive bidding, the 
Commission will not be confined to a specific auction design, or the 
designation of a particular auctioneer. Instead, for new toll free code 
openings, the Commission can determine the best method to proceed for 
assigning numbers, armed with the data collected in the 833 Auction.

B. The 833 Auction

1. The 833 Auction Established as an Experiment
    25. We establish the 833 Auction as an experiment to analyze the 
most efficient way to use competitive bidding as a toll free number 
assignment method. We agree with one commenter who argues that, as a 
first step, the Commission should assign toll free numbers by auction 
on a ``limited, trial basis,'' which will allow us to ``study the 
impact of this new allocation method and make any necessary changes to 
serve the public interest.'' (By adopting the 833 Auction as an 
experiment, the actions we take today are also consistent with the 
recommendation of the Administrative Conference of the United States 
(ACUS) that agencies adopt pilot programs and learn from regulatory 
experience.) Thus, we will offer in this auction only the rights to use 
the 17,000 mutually exclusive numbers in the 833 toll free code that 
were identified pursuant to the 833 Code Opening Order. Once the 
auction is complete, we direct Somos to assign those numbers to winning 
bidders based on the auction's results. We will continue to assign 833 
numbers that are not part of the 833 Auction using our first-come, 
first-served approach.
    26. After completion of the 833 Auction, and subsequent number 
assignments, the Bureau will issue a report outlining the outcomes of 
the 833 Auction, lessons learned, and future recommendations for toll 
free number assignment methodologies.
    27. We intend to use this experiment as an opportunity to evaluate 
the contours of using competitive bidding for toll free assignments and 
to determine how to best use a market-based assignment to effectively 
assign toll free numbers. We also underscore the need to reform the 
current method of assigning highly desired toll free numbers. We 
envision that the experiment, as designed in this Report and Order and 
forthcoming Auction Procedures Public Notice, will meet our goals of 
equitable distribution and be used, as designed, for certain future 
toll free number assignments or be used for future assignments with 
refinements.
2. General Framework for the 833 Auction
    28. In the Toll Free Assignment NPRM, the Commission ``invite[d] 
parties to . . . offer further economic, legal, or logistical insights 
about . . . auction designs and procedures.'' Given the experimental 
nature of using competitive bidding as a mechanism for assigning toll 
free numbers, we outline here a general framework for the 833 Auction 
and require a pre-auction proceeding in which we will seek public input 
on the procedures for the auction after the release of this Report and 
Order. We expect that our approach to the 833 Auction will be modeled 
on the rules and procedures governing auctions for wireless spectrum 
licenses, broadcast permits, and universal service support, where 
appropriate, given the success and familiar nature of those auctions.
    29. Specifically, we will issue an Auction Comment Public Notice 
after the release of this Report and Order and will solicit public 
input on proposed application and bidding procedures, including 
specific proposals for application requirements and bidding mechanisms, 
such as bid processing and determining payments. Thereafter, we will 
release an Auction Procedures Public Notice, and will specify final 
auction procedures, including dates, deadlines, and other final details 
of the application and bidding processes. We require the auctioneer to 
implement the auction pursuant to the procedures specified in the 
Auction Procedures Public Notice. We conclude that, in addition to the 
general framework we provide here, the Commission's practice of 
finalizing auction procedures in the pre-auction process will give 
interested participants sufficient time and opportunity both to comment 
on the final procedures and to develop business plans in advance of the 
auction.
a. Auction Design
    30. We adopt the proposal in the Toll Free Assignment NPRM to 
conduct the 833 Auction as a Vickrey single round, sealed-bid auction. 
In this type of auction, a qualified bidder can submit a sealed-bid for 
each available toll free number that the bidder wants. The 833 Auction 
will consist of only a single round of bidding, and the highest bidder 
for each toll free number will win the rights to that number, but will 
generally only pay the second highest bid for them. In the case of tied 
bids, a winning bidder may end up paying the tied bid amount. For the 
833 Auction, we defer to the pre-auction process, the detailed 
procedures for bid processing and payment determination, including, 
among other things, how winners and payments will be determined in the 
case of tied bids and what to do if a toll free number receives only 
one bid in the single round of bidding.
    31. A Vickrey auction can yield an equitable and efficient 
assignment of mutually exclusive toll free numbers as it incentivizes 
bidders to bid their true valuation. In particular, the amount paid by 
the winner (i.e., the bidder with the highest bid) is determined by the 
second highest bid and does not depend on the exact amount of the 
winning bidder's own bid. This payment rule results in the winning 
bidder essentially receiving what it might view as a ``surplus,'' i.e., 
the difference between its own bid and the second highest bid. A 
Vickrey auction thus encourages bidders to bid the true maximum they 
are willing to pay, while at the same time efficiently assigns the 
numbers to the bidders who have the highest valuations for the numbers. 
(As a first approximation, it is likely that individual valuations for 
toll free numbers are not dependent on another's valuation, at least 
beyond a broker's desire to purchase for resale. Moreover, to the 
extent that this is not the case, auction theory does not provide 
unambiguous direction as to optimal auction design. Thus, for our 
opening experiment in assigning toll free numbers via competitive 
bidding, we adopt the simple and transparent Vickrey auction.)
    32. We conclude that the 833 Auction should use a single round 
rather than multiple rounds to keep the auction process for this 
experiment as simple and cost-effective as possible. As the

[[Page 53382]]

Commission observed in the Toll Free Assignment NPRM, a single round, 
sealed-bid auction is relatively easy for both the auctioneer (to 
implement) and participants (to participate in). In addition, a single 
round auction will be completed more quickly than a multi-round 
auction, and comes at a lower cost to the auctioneer and the 
participants. In fact, we do not believe that auction participants will 
be required to incur substantial time or expense to prepare for the 
auction. They have already determined which 833 numbers to reserve, 
thus spending some time and expense in reaching those determinations; 
the incremental effort on their part to participate in the auction is 
unlikely to impose an additional time or cost burden on them. And 
because of the lower cost of a single round Vickrey auction, we reject 
commenters' concerns that the costs to implement and run the auction 
will be excessive.
    33. We also reject the notion that a Vickrey single round, sealed-
bid auction will result in a scenario where inexperienced bidders will 
overbid and be unwilling or unable to pay the winning bid. A second-
price auction encourages bidders to bid the true maximum that they are 
willing to pay, knowing they will not actually pay more than needed to 
outbid the second highest bidder. Also, we note that each bid is a 
binding commitment, so bidders know in advance that they should only 
submit bids that they are willing to pay. (This is true even in a 
Vickery auction, where the winning bidder will only pay the second 
highest bid, because the second highest bid price may be equal to (in 
case of a tie) or just slightly less than the winning bidder's 
submitted bid. As Power Auction notes, ``[i]t is important for bids to 
be binding commitments, because the lack of binding commitments could 
cause the auction process to be manipulated or to unravel.'') In 
addition, as discussed further below, entities interested in 
participating in an auction generally have to submit some form of 
financial security in order to participate. Further, consistent with 
the Commission's standard practice, we will ensure that prospective 
auction participants have an opportunity to become fully informed about 
the auction through public outreach and education, including online 
tutorials about the application and bidding processes.
    34. Alternative Auction Methodologies. Although the Commission 
sought comment on alternative auction methodologies to consider for 
assigning the mutually exclusive 833 numbers, we decline to employ any 
such methodologies for the 833 Auction. (For example, the Toll Free 
Assignment NPRM sought comment on a pay-your-bid auction, whereby the 
highest bidder wins and pays its bid, and an open auction, such as a 
simultaneous multi-round auction used by the Commission for our 
spectrum auctions.) One commenter suggested that we use what it calls 
an ``open'' auction, specifically ``a simultaneous ascending clock 
auction with multiple independent clocks.'' While this type of auction 
has certain advantages over a single round, sealed-bid, Vickrey 
auction, we conclude that these advantages do not justify the 
additional complexity and expense of a multiple round auction at this 
time. (Power Auctions enumerates several advantages of an ``open'' 
auction, including (1) permitting bidders the opportunity of price 
discovery; (2) permitting bidders more control over the money spent on 
winning bids; (3) permitting bidders some ability to handle bids for 
numbers that may be viewed as substitutes; (4) maintaining privacy of 
auction participants' bids; and (5) potentially resulting in higher 
auction revenues and more efficient results.) While the Commission uses 
multiple round auctions and will continue to do so, the 833 Auction 
will be the Commission's first auction of the rights to use toll free 
numbers, and our intent for this experiment is to gather data to help 
inform future toll free assignment decisions while minimizing the 
complexity and cost to the Commission, auctioneer, and participants 
during the experiment. We also have limited information on which to 
base any estimate of the dollar amounts potential subscribers are 
willing to bid. Also, the relatively modest nature of the items to be 
auctioned--the rights to use toll free numbers, as opposed to spectrum 
licenses or Universal Service Fund support--seems at this juncture to 
warrant a less complex and costly type of auction. Thus, we do not want 
to create a more complex and costly auction than necessary at this 
early stage.
    35. One commenter argues that a single round, sealed-bid Vickrey 
auction limits the ability of a bidder to develop a bidding strategy 
involving substitute numbers vis-[agrave]-vis an ``open'' auction. That 
commenter does not, however, provide a basis for its position that 
bidders in the 833 Auction will have a need for such a complex auction, 
or how such a need outweighs the impact to cost and complexity for this 
experimental auction. Further, unlike other auctions the Commission has 
conducted, such as auctions for spectrum and Universal Service Fund 
support, where some items may be substitutable, this auction allocates 
items for which managing bids across substitutes is less important. 
Similarly, there are important complementarities in bids for spectrum 
and Universal Service Fund support which we have no reason to believe 
apply to the toll free number market.
    36. More specifically, the Commission has historically used 
multiple round bidding as the primary auction methodology in spectrum 
auctions. When implementing its spectrum auction authority, the 
Commission found that multiple round auctions provide needed 
information about the value of substitutable and complementary licenses 
and allows participants the flexibility to pursue back-up strategies 
during an auction, allowing the spectrum to go to its highest value 
use. The Commission recognized, however, that while multiple round 
auctions are preferable, if the value of the licenses or the number of 
bidders would be so low that the administrative costs of a multiple 
round auction may exceed its benefits, other auction methods are 
available. Our spectrum auctions, generally, involve many entities 
pursuing complex strategies weighing the cost of various quantities of 
spectrum within and between markets. Similarly, in competitive bidding 
for Universal Service Fund support, many participants are contemplating 
multiple markets that they are willing to serve based on the price of 
the subsidy. In the case of toll free numbers, there is limited 
information in the record that one number is a substitute for another 
or on how bidders will view the relative values of the available 
numbers. The Commission hopes to obtain such information through this 
auction.
    37. In sum, because the Vickrey single round, sealed-bid auction 
should demand fewer resources from the Commission, the auctioneer, and 
the auction participants while still yielding an efficient allocation 
of toll free numbers, we believe it will help achieve our objectives 
for this experiment. We note, however, that we are not intending to 
foreclose the use of an ``open'' auction--or another auction 
methodology--in any future toll free number auctions. (To the contrary, 
we recognize that there are cases where an open auction may perform 
better than a sealed-bid auction.) We expect that the Bureau's report 
will address the success of the Vickrey single round, sealed-bid 
auction methodology, and compare it to alternative methodologies.

[[Page 53383]]

b. Auction Eligibility
    38. Deciding which parties can participate in an auction is an 
integral part of the process. Although we generally require applicants 
for our auctions to demonstrate certain qualifications consistent with 
the regulatory objectives of a particular auction, it is also true that 
the broader the participation, the more likely it is that 833 numbers 
will be assigned to the highest-valuing bidders. For the 833 Auction, 
we will allow any party interested in obtaining an 833 number 
(potential subscriber) to participate directly in the auction or 
indirectly through a RespOrg. We also will not limit the 833 Auction to 
only those RespOrgs that participated in the 833 pre-code opening; any 
RespOrg may participate. We believe allowing all interested parties to 
participate directly in the auction will provide them with greater 
flexibility and control to accurately express their level of interest 
and will allow the Commission to glean as much information from the 
experiment as possible to better inform future toll free code opening 
assignments.
    39. 833 Auction Not Limited to RespOrgs. We will permit any 
potential subscriber to participate directly in the 833 Auction or 
indirectly through a RespOrg. (A toll free ``subscriber,'' per the rule 
revision we adopt today, is ``The entity that has been assigned a toll 
free number.'' Because we do not intend to limit auction participation 
to entities that already have been assigned numbers, we establish that 
``potential subscribers''--any parties interested in subscribing to a 
toll free number--may participate in the 833 Auction. As auction 
participants, these parties will be obligated to comply with the 
Auctions Procedures Public Notice in this proceeding.) In the Toll Free 
Assignment NRPM, the Commission proposed to permit only RespOrgs to 
participate in the proposed auction, based on RespOrgs' role as manager 
and administrator of toll free records in the Toll Free Database. (The 
Commission also recognized ``the importance of RespOrgs as market 
makers'' and noted that RespOrgs ``may have strengths in maximizing the 
valuation of certain numbers, for example, by piecing together 
geographic coalitions of subscribers who may be unable to coordinate 
themselves.'') After reviewing the record, we conclude that allowing 
potential subscribers to directly participate will likely increase the 
efficiency of the auction while also addressing possible conflicts of 
interest between RespOrgs and potential subscribers. We agree with 800 
Response, who argues that allowing potential subscribers to participate 
will minimize opportunities for participants to engage in undesirable 
and/or anticompetitive strategic behavior that could occur if a RespOrg 
and one or more of its subscribers were interested in the same 833 
numbers. (If a RespOrg and one or more of its subscribers do not have 
an interest in the same 833 numbers, permitting RespOrgs to participate 
in the auction gives subscribers to option to have their RespOrgs bid 
on their behalf.) Therefore, we find it appropriate to allow potential 
subscribers to act on their own behalf and represent their own 
interests in the auction. (Potential subscribers also have the option 
to become a RespOrg by meeting various requirements for certification. 
By formally allowing potential subscribers the option to participate 
directly, non-RespOrg participants will not need to spend resources to 
become a RespOrg if they are concerned that current RespOrgs would not 
fully represent their interests.) We stress that if a potential 
subscriber directly participates in and is assigned a number via the 
833 Auction, it must still work with a RespOrg after the auction to 
reserve the number in the Toll Free Database in accordance with our 
rules.
    40. We do not go so far as to remove RespOrgs from the process of 
acquiring toll free numbers in the 833 Auction, as one commenter 
suggests. Because subscribers are familiar with working with RespOrgs 
to acquire toll free numbers and may prefer to continue to take 
advantage of RespOrg expertise here, we conclude that we should allow 
subscribers the choice of working with a RespOrg in the 833 Auction.
    41. Some commenters oppose permitting potential subscribers to 
participate in the auction. For example, Somos claims that allowing 
subscribers to participate ``would introduce unnecessary and 
potentially costly administrative problems'' and Power Auctions 
advocates allowing only RespOrgs to participate since they can maximize 
valuations of certain numbers and including subscribers would increase 
the costs of running the auction. On the other hand, one commenter 
advocates excluding RespOrgs completely, and allowing only end-user 
customers to participate. We recognize the value added by RespOrgs as 
``market makers'' (as the Commission recognized in the Toll Free 
Assignment NPRM, RespOrgs ``may have strengths in maximizing the 
valuation of certain numbers, for example, by piecing together 
geographic coalitions of subscribers who may be unable to coordinate 
themselves''), but find that allowing potential subscribers to 
participate in the auction will likely increase the efficiency of the 
auction, by increasing competition and reducing the likelihood of tacit 
collusion and other undesirable strategic behavior that can occur when 
there are very few auction participants. Although we recognize there 
may be additional cost in auction overhead by allowing more 
participants, we believe that the benefits to auction efficiency 
created by expanding the pool of potential participants identified 
above are worth the minimal expense in determining whether the 
additional participants are qualified to bid in the auction. And by 
allowing potential subscribers to bid on their own, we lower 
administrative costs for participants who choose not to place a bid 
through a RespOrg.
    42. Maximizing Auction Participation. We will not otherwise limit 
the number of participants in the auction, such as by limiting RespOrg 
eligibility to participate in the 833 Auction only to those RespOrgs 
that participated in the 833 pre-code opening process. Permitting the 
maximum number of eligible participants to bid in the 833 Auction 
ensures a robust auction and results in the bidders with the highest 
willingness to pay being assigned a number, which is in the public 
interest. The inclusion of all RespOrgs and potential subscribers in 
the pool of eligible participants will also provide the Commission with 
greater information about the value of toll free numbers, increasing 
the value of the experiment. In furtherance of this goal, the 
Commission, along with Somos in its role as auctioneer, will undertake 
outreach efforts to promote maximum participation among RespOrgs and 
potential subscribers.
c. Application Process
    43. In Commission auctions, interested parties must disclose 
certain information and make certain certifications in an application 
or series of applications. In the Commission auctions, we typically 
have a two-stage application filing process. In the pre-auction 
``short-form'' application, a potential bidder will need to establish 
its eligibility to participate, providing, among other things, basic 
ownership information. After the auction, the Commission conducts a 
more extensive review of the winning bidders' qualifications to receive 
support through ``long-form'' applications. This information helps 
promote auction transparency and integrity and assists us in monitoring 
compliance with our

[[Page 53384]]

auction rules and procedures, including, for example, the prohibition 
against certain communications. We find it is necessary to qualify 
entities to participate in the auction, and therefore require 
interested entities to submit a short-form application to participate 
in the auction. The information and certification required in the 
short-form application, along with an upfront payment, will help 
determine if an applicant is qualified to bid in the 833 Auction. We 
will not require applicants to submit a long-form application after the 
conclusion of this auction, given the lack of need to verify winning 
bidders' qualifications in this context and to limit the administrative 
burden on bidders, the auctioneer, and the Commission.
(i) Short-Form Application Requirements
    44. We establish here some basic requirements and limitations 
regarding applications to participate. We expect that each entity 
interested in bidding in the 833 Auction will be required to disclose 
certain information and make certain certifications to promote 
compliance with the framework we outline here and protect auction 
integrity. These submissions will promote the transparency and 
efficiency of the auction and reduce the instances of conflicts of 
interest and the likelihood of undesirable and/or anticompetitive 
strategic behavior by participants.
    45. A Potential Subscriber May Participate Through Only a Single 
Auction Applicant and Submit a Single Application. Potential 
subscribers can participate in the 833 Auction through only a single 
auction applicant. In particular, a potential subscriber may not engage 
multiple applicants to bid for a particular number in which it is 
interested. This prohibition assures a level playing field for all 
bidders and prevents distortions in the information on bidder 
interests, by assuring that each auction participant has at most one 
bid per number in the single round.
    46. We likewise prohibit a single party, or multiple parties with a 
controlling interest in common, from becoming qualified to bid based on 
multiple applications. While we will seek comment and decide how to 
define parties with common controlling interests in our pre-auction 
process, we anticipate utilizing the Commission's definitions adopted 
for similar purposes in our spectrum auctions. We employ this same 
prohibition in spectrum auctions to ensure that auction participants 
bid in a straightforward manner. We believe that this type of 
restriction is warranted in the 833 Auction and will address concerns 
raised in the record regarding the potential for undesirable strategic 
bidding behavior, which could harm other bidders.
    47. A RespOrg Can Apply on Behalf of Only a Single Potential 
Subscriber (Including Itself) per Number. We recognize that allowing 
RespOrgs to serve as bidders for potential subscribers of toll free 
numbers may present the opportunity for certain auction participants to 
have more information about the competition for certain numbers. Such 
asymmetric information could be used in ways that adversely affect some 
potential subscribers. To mitigate the potential anticompetitive 
effects of RespOrgs bidding for potential subscribers, we will limit a 
RespOrg to representing a single potential subscriber (including 
itself) for the rights to use a particular number. We note that, under 
a different auction design (e.g., in a multiple round auction) or with 
different eligibility requirements, a different limitation may be 
appropriate to help ensure that RespOrgs fully represent subscriber 
interests, but, for the 833 Auction, we find this limitation to be 
appropriate.
    48. Disclosures and Certifications. To promote transparency as well 
as compliance with the limitations discussed above, we establish 
certain general requirements for applicant disclosures and 
certifications. Specifically, we expect that each auction participant--
whether a potential subscriber or a RespOrg serving as a bidding 
agent--will be required to certify, as applicable, that it is not 
bidding on behalf of multiple interested parties (including itself) for 
the same toll free numbers or that it is only bidding through one 
entity for a given number. A RespOrg can bid on behalf of multiple 
subscribers, as long the subscribers it represents, as well as itself, 
are not bidding on the rights to use the same number(s). We will also 
require the applicants that have overlapping non-controlling interests 
to certify, during the application process, that they have established 
internal control procedures to preclude any person acting on behalf of 
an applicant from possessing information about the bids or bidding 
strategies of more than one applicant or communicating such information 
with respect to either applicant to another person acting on behalf of 
and possessing such information regarding another applicant. To enforce 
this prohibition, we expect that applicants will need to disclose the 
party on whose behalf it is bidding, for each toll free number that it 
selects. To enforce the prohibition, and to allow entities to comply 
with the prohibition on certain communications discussed below, we also 
expect that any entity wishing to participate in the 833 Auction will 
have to fully disclose information regarding the real party- or 
parties-in-interest in the applicant or application and the ownership 
structure of the applicant, including both direct and indirect 
ownership interests of 10 percent or more. We also will also require 
applicants to provide additional information and make additional 
certifications in the application, as may be found in the pre-auction 
process to be necessary to implement our decisions in this Report and 
Order. By requiring these certifications and disclosures, we guard 
against potential conflicts of interest between a RespOrg and its 
customer subscriber(s), between a RespOrg's customer subscribers, and 
between RespOrgs with overlapping controlling interests seeking the 
rights to use the same toll free numbers. Moreover, such actions will 
help implement our overriding principle that each entity should 
participate through only one bidder, thus encouraging sincere bidding 
and enhancing the integrity of the auction.
(ii) Procedures for Processing Pre-Auction Applications
    49. For the 833 Auction, we expect that applications to participate 
in the auction will be processed in a manner similar to applications to 
participate in spectrum license auctions. Specifically, no application 
will be accepted if, by the initial deadline, the applicant has failed 
to make the required certifications, e.g., no additional applications 
will be accepted after the initial deadline. Put differently, no 
additional applications will be accepted after the deadline. Moreover, 
applicants will be afforded an opportunity to cure any identified minor 
defects after an initial review of the application. Applications to 
which major modifications are made after the deadline for submitting 
applications shall be denied. Major modifications include, but are not 
limited to, any changes in the ownership of the applicant that 
constitute an assignment or change of control of the applicant (pro 
forma transfers and assignments have not generally been considered to 
be major modifications), or the certifications required in the 
application. If an applicant fails to make necessary corrections before 
a resubmission deadline, the applicant would be found not qualified to 
bid.

[[Page 53385]]

d. Other Competitive Bidding Considerations for the 833 Auction
    50. Prohibition on Certain Communications. For spectrum and 
universal service auctions, the Commission has adopted rules 
prohibiting an applicant from communicating certain auction-related 
information to another applicant from the auction application filing 
deadline until the post-auction deadline for winning bidders to file 
long-form applications. In these rules, ``applicant'' is defined 
broadly to include ``all controlling interest in the entity submitting 
a short-form application to participate in an auction . . . as well as 
all holders of partnership and other ownership interests and any stock 
interest amounting to 10 percent or more of the entity, or outstanding 
stock, or outstanding voting stock of the entity submitting a short-
form application, and all officers and directors of that entity.'' This 
prohibition on certain communications is intended to reinforce existing 
antitrust laws, facilitate detection of collusive conduct, and deter 
anticompetitive behavior. While we believe the 833 Auction should have 
a similar prohibition on certain communications, we defer until the 
pre-auction process the details of the prohibition on certain 
communications, but absent unique factors that may be applicable to the 
833 Auction we expect the prohibition to be generally consistent with 
our rule in spectrum auctions. Regardless of the procedures ultimately 
decided upon for the 833 Auction, participants will be subject to 
antitrust laws, which are designed to prevent anticompetitive behavior 
in the marketplace.
    51. Availability of Auction-Related Information During and After 
the Auction Process. It is our objective that the 833 Auction be 
transparent and objective. Consistent with that objective, we conclude 
that the procedures to be established in the pre-auction process should 
address what auction-related information will be available to bidders 
and to the public during the auction process, and when any information 
withheld during the auction will be made publicly available.
    52. Upfront Payments and Default Payments. Entities that are 
interested in participating in the 833 Auction will be required to 
demonstrate an ability to pay for the rights to use the numbers for 
which they intend to bid by submitting an upfront payment. Moreover, 
since bids are binding commitments, if a bidder fails to make full 
payment on its bid, or otherwise defaults, it should be subject to a 
default payment. We defer to the pre-auction process what the upfront 
payments and default payments for the 833 Auction should be, but we 
generally expect the approach to be modeled on those used in the 
Commission's spectrum auctions.
    53. Bidding Credits. We will not adopt bidding credits for the 833 
Auction. We recognize that bidding credits can provide economic 
opportunity for a wide range of participants. Given the experimental 
nature of this auction, however, we conclude bidding credits are not 
appropriate at this time. No commenters who advocate we incorporate 
bidding credits in the 833 Auction provide specifics about the size 
standards or size of the bidding credits that might be employed, and we 
have no prior basis for determining the appropriate amount of any such 
bidding credit. We further do not wish to confuse the lessons we take 
away from this experiment by including bidding credits, which would 
influence bidder behavior. Instead, we will consider all of the data 
collected from the 833 Auction to determine if bidding credits should 
be offered in any possible toll free number auctions in the future.
    54. Reserve Prices. We also decline to establish reserve prices for 
the 833 Auction. (By ``reserve price,'' we refer to a minimum amount 
that must be reached in order for a number to be assigned after the 
auction closes.) Most commenters oppose establishing reserve prices, 
arguing that reserves may discourage entities from bidding. Our goal 
for this auction is to gain as much information as possible about the 
effectiveness of a market-based approach to toll free number 
assignment, and we are convinced by the record that a reserve price may 
discourage auction participation and, thereby, decrease the amount of 
information we gain from the auction. And because this is our first 
time using competitive bidding to assign toll free numbers, we have a 
limited basis on which to establish a reasonable and efficient reserve 
price.
    55. Bidding on Multiple Numbers. Consistent with our proposal in 
the Toll Free Assignment NPRM, we will not limit the overall quantity 
of toll free numbers the rights to which can be acquired by an auction 
participant. Establishing such a limit could hamper the efficiency of 
the auction by constraining bidders who hold the highest valuations. 
Moreover, we wish to obtain as much information as possible from this 
experiment and believe any such constraint would limit the information 
derived from this experiment.
    56. Similarly, we find it is unnecessary to permit package bidding 
(i.e., single bids for the rights to groups of numbers) in the 
experiment. As the Commission stated in the Toll Free Assignment NPRM, 
though it is likely some bidders will demand the rights to multiple 
numbers, we do not believe valuation synergies warrant the additional 
complexity that package bidding brings. We desire to minimize the 
auctioneer's development costs for the auction interface and to 
simplify the bidding process for the auction participants. We expect 
the Bureau's post-auction report to address the auction's 
effectiveness, and to recommend whether any of the measures we have 
declined to adopt in the Report and Order--including package bidding--
could be useful in deciding on future toll free assignment methods.
    57. Post-Auction Winning Bidder Public Notice. Once the auction has 
been completed, we will release a public notice identifying the winning 
bidders and establishing the deadline for making final payment for 
winning bids. This public notice will also explain how unsold 
inventory--numbers that received no bids--will be assigned after the 
833 Auction. As we have explained, any potential subscriber that 
participates directly in the auction and wins the rights to a number 
must still work through a RespOrg after the auction to reserve the 
number in the Toll Free Database in accordance with our rules.
3. Somos as Auctioneer for the 833 Auction
    58. We establish Somos, the Toll Free Numbering Administrator, as 
the auctioneer for the 833 Auction. We believe this role is 
commensurate with its present statutory and regulatory duties and its 
responsibilities. The Commission established Somos as the Toll Free 
Numbering Administrator in the 2013 Toll Free Governance Order. There, 
we determined that Somos met the impartiality requirement of section 
251(e)(1) of the Act--codified in section 52.12 of our rules--and was 
``eligible to serve as neutral SMS administrator.'' As the auctioneer 
for the 833 Auction, Somos shall continue to implement impartially toll 
free number assignments, consistent with the Act and our implementing 
rules.
    59. In its role as auctioneer, we require Somos to provide the 
infrastructure and software for online bidding and carry out other 
activities necessary to implement the auction. These activities include 
performing bidder education and other outreach;

[[Page 53386]]

accepting and reviewing applications to participate in the auction; 
accepting upfront payments; announcing qualified bidders and those not 
qualified to bid; accepting bids during a single round of bidding; 
accepting final payments for winning bids and distributing refunds for 
any upfront payments not applied to winning bids; activating in the 
toll free database the numbers won at auction and for which final 
payment has been made; and undertaking any other tasks in furtherance 
of the 833 Auction that the Commission deems appropriate and as 
elaborated in the Auction Procedures Public Notice. The Commission will 
maintain oversight of Somos's implementation of the 833 Auction and 
will re-direct it as necessary to most effectively execute the 833 
Auction. To maintain oversight, the Commission will review tariff 
filings, issue specific instruction in the Auction Procedures Public 
Notice, and direct Somos under our broad authority over the Toll Free 
Numbering Administrator.
    60. One commenter posits that the present Toll Free Numbering 
Administrator should not serve as the toll free number auctioneer 
because Somos ``has no experience in conducting auctions'' and it 
``would be called upon to develop entirely new [auction] processes.'' 
We disagree. Somos has asserted that it is fully capable of executing 
the Commission's proposed auction, and we have no basis on which to 
question its assertion. Moreover, given the considerable expertise in 
number assignment and administration that Somos has gained since the 
Commission formally designated it as the Toll Free Numbering 
Administrator, we are confident that Somos will perform its auctioneer 
duties in accordance with the procedures established by the Auction 
Procedures Public Notice.
    61. We also agree with Somos that it is critical ``to maintain 
continuity and stability in TFN [toll free number] administration.'' In 
contrast, were we to establish an independent auctioneer, the 
independent auctioneer would have to first coordinate with Somos to 
verify that the numbers available in the 833 Auction are indeed 
available. The independent auctioneer would then have to direct Somos 
to assign the number to the winning bidder. We find this step in the 
process unnecessary as Somos is capable to serve as auctioneer in 
accord with the specific and direct instruction to be set forth in the 
Auction Procedures Public Notice.
    62. While we appreciate the novelty of our experiment in using 
competitive bidding in the toll free context, the Commission itself has 
a vast amount of experience in conducting auctions in other contexts. 
We will oversee Somos's implementation of the 833 Auction, along with 
our general oversight of numbering, to alleviate any concerns about 
auction execution. Moreover, a single-round, sealed-bid auction should 
not require complex software or administration.
    63. For these reasons, we direct Somos to serve as the auctioneer 
of the 833 Auction. In the event Somos seeks to add outside personnel 
to assist with the auction in any way, it may do so provided that it 
retains the overall administrative responsibility and neutrality. 
(Section 251(e) requires the Commission to ``create or designate one or 
more impartial entities to administer telecommunications numbering and 
to make such numbers available on an equitable basis.'') We further 
direct Somos to obtain an independent audit of the 833 Auction, 
including Somos's performance as auctioneer, after completion of the 
auction. In the event that the Bureau determines, and announces in a 
Public Notice, that the costs of conducting such an audit are unlikely 
to exceed the benefits--for example, because of low auction revenue--
Somos need not obtain an audit.
    64. In designating Somos as the auctioneer of the 833 Auction, we 
do not foreclose the Commission's ability to assign this role to a 
different entity, or through a different method, such as a competitive 
process, in a future toll free number auction. In its report on the 
outcomes of the 833 Auction, we direct the Bureau to evaluate Somos' 
performance as the auctioneer, including its technical execution and 
cost-effectiveness in conducting the auction. The results of the 833 
Auction, including its costs and the degree of its financial success, 
ought to inform the Commission's method for assigning the role of 
auctioneer in future toll free number auctions.
    65. Auction Information. To allow the Commission to make a fair and 
accurate assessment of the results and consequences of the 833 Auction, 
we require Somos to retain and make available to the Commission all 
data and information about the auction and its administration, gathered 
before, during, and after the auction. Such information includes, but 
is not limited to, information on the following: Winning and losing 
bids, bidders, administrative costs (including detailed costs to design 
the auction user interface, auction platform, and software to evaluate 
the auction results), and post-auction secondary market transfers. (Per 
the exception we establish today, the secondary market is limited to 
numbers assigned via competitive bidding. The mutually exclusive 
numbers in the 833 code assigned in the 833 Auction will therefore be 
eligible for secondary market transfers.) We also require Somos to make 
available to the Commission information on 833 numbers not included in 
the auction for comparison purposes. This data will enable us to get a 
complete picture of the viability of the 833 Auction and on competitive 
bidding as an assignment method for future toll free code openings.
4. 833 Auction Proceeds
    66. We will use any net positive proceeds from the 833 Auction to 
defray the costs of administering toll free numbering incurred by the 
Toll Free Numbering Administrator \1\ (i.e., costs beyond conducting 
the auction) and, potentially, the North American Numbering Plan 
Administrator (NANPA). (The NANPA is currently Neustar, Inc. The Toll 
Free Numbering Administrator is Somos, a not-for-profit corporation 
that provides the Toll Free Numbering Administrator function pursuant 
to FCC tariff, subject to section 61.38 of the Commission's rules.) By 
``net positive proceeds,'' we mean any amount by which revenues from 
the auction exceed the costs of conducting the auction. (Because Somos 
will also be developing and conducting the auction, the administrator's 
costs for the auction will be paid first from auction revenues.) 
Applying net positive proceeds in this manner is consistent with our 
authority in section 251(e) to administer numbering, and its 
requirement that the costs of administration be borne by carriers on a 
competitively neutral basis. As discussed in the Toll Free Assignment 
NPRM, it will benefit all toll free

[[Page 53387]]

subscribers and RespOrgs, as well as potentially all stakeholders in 
the 20 countries that are members of the NANP. (The NANP member 
countries are Anguilla, Antigua and Barbuda, Bahamas, Barbados, 
Bermuda, British Virgin Islands, Canada, Cayman Islands, Dominica, 
Dominican Republic, Grenada, Jamaica, Montserrat, Sint Maarten, St. 
Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad 
and Tobago, Turks and Caicos Islands, and the United States (including 
American Samoa, Puerto Rico, U.S. Virgin Islands, Guam, and the 
Commonwealth of the Northern Mariana Islands). NANP toll free numbers 
are allotted to all member countries. The Toll Free Numbering 
Administrator administers the pool of toll free number resources 
allotted to Canada, Sint Maarten, and the United States. Other NANP 
member countries administer toll free numbering outside of the Toll 
Free Numbering Administrator and its Toll Free Database.)
---------------------------------------------------------------------------

    \1\ Somos is a not-for-profit corporation that provides the Toll 
Free Numbering Administrator function pursuant to FCC tariff, 
subject to section 61.38 of the Commission's rules. 47 CFR 61.38. 
Somos must file annual tariff revisions pursuant to the applicable 
part 61 rules for a dominant carrier, subject to the tariff 
requirements and enforcement of the Commission pursuant to the Act 
and the Commission's rules. SMS/800 Order, 28 FCC Rcd at 15342, 
paragraphs. 37 through38; see also generally Somos, Inc., Tariff 
F.C.C. No. 1 (2018), https://s3.amazonaws.com/files-prod.somos.com/documents/SMS800FunctionsTariff.pdf (Toll Free Tariff). Previous 
tariff information is available at https://apps.fcc.gov/etfs/public/tariff.action?idTariff=787. Tariff modifications must be filed each 
January 31 (following the close of its fiscal year, which is the 
calendar year) updating the rates for its services, effective during 
the next tariff year that begins in February. Each such filing must 
contain an updated cost of service study pursuant to section 61.38. 
Id. Based upon that cost study, Somos's rates and charges are 
adjusted to recover those forecasted costs over the ensuing tariff 
year.
---------------------------------------------------------------------------

    67. Disbursement of 833 Auction Revenues That Exceed Somos's 
Auction Costs. We conclude that net positive proceeds from the 833 
Auction should be used to defray toll free numbering administration 
costs. We establish a methodology that will benefit Toll Free Numbering 
Administrator users while tempering resulting year-over-year change of 
administrative rates and charges. We therefore tie our disbursement to 
the ratio between net positive proceeds and Somos's revenue 
requirements. In the present tariff year, Somos's revenue requirement 
for toll free numbering administration services is $56.9 million. (The 
revenue requirement to cover forecasted costs for toll free numbering 
administration (referenced in the Tariff as ``SMS/800'') services in 
the current tariff period, covering February 15, 2018--February 14, 
2019, is $56,933,855.) If net positive proceeds are less than five 
percent of Somos's then-current annual revenue requirement, then the 
net positive proceeds should be used only to defray toll free numbering 
administration costs for the tariff period immediately following the 
close of the 833 Auction. (Somos would make this determination based on 
its cost study for the ensuing tariff year, with and without cost 
reduction by offset of auction proceeds. Should there be any further 
auction proceeds received after such determination (e.g., delayed 
payments accepted by the Commission), those proceeds will be applied/
remitted in accordance with the manner set forth herein based on the 
then-cumulative amount of all auction proceeds from that auction, 
inclusive of such further auction proceeds. Auction proceeds amounting 
to five percent or less of the current annual revenue requirement 
applied to that single tariff year would likely have a de minimis 
effect on administrative rates and charges.) In the event that net 
positive proceeds exceed five percent of Somos's costs, then the net 
positive proceeds should be distributed evenly across five years for 
cost recovery under the tariff to minimize the impact on the 
administrative rates and charges. This approach avoids substantial 
year-over-year changes in administrative rates and charges, and allows 
RespOrgs and toll free subscribers to receive the cost reduction over 
an extended period if net positive proceeds are large enough to 
warrant. (The Commission has long sought to ``smooth'' the impact of 
its actions on telephony rates and charges.)
    68. If net positive proceeds from the 833 Auction are large enough 
that applying them to defray toll free numbering administration costs 
over five years would result in a greater than 25 percent decrease in 
the revenue requirement for the Toll Free Numbering Administrator over 
the five-year period, then the excess of net positive proceeds beyond 
that amount will be remitted to the Billing and Collection (B&C) Agent 
for the NANP to be applied to defray the costs of NANP administration 
on behalf of its 20 member countries. (The present B&C Agent is Welch 
LLP. The B&C Agent will apply such funds prior to application of the 
various contribution factors and billing and collections processes.) We 
find that directing funds in excess of 25 percent for the benefit of 
the NANP strikes an appropriate balance, avoiding excessive 
fluctuations in the toll free tariff structure and benefitting both 
numbering administrations upon which toll free calling is dependent. 
The toll free numbers administered by the Toll Free Numbering 
Administrator are numbers within the NANP; it is therefore appropriate 
that such funds potentially go to defray the costs of the administering 
the NANP, which are borne by the countries served by the Toll Free 
Numbering Administrator and the other NANP member countries. In the 
event proceeds remitted to the B&C Agent exceed five percent of NANPA 
costs, then the net positive proceeds should be distributed evenly by 
the B&C Agent across five fiscal years of the NANPA, to minimize the 
impact on the NANPA rates and charges. If proceeds remitted to the B&C 
Agent are large enough that applying them to defray NANPA costs over 
five years would result in a greater than 25 percent decrease in the 
revenue requirement for the NANPA over the five-year period, then the 
excess of net positive proceeds beyond that amount will be distributed 
evenly by the B&C Agent across the next ten fiscal years of the NANPA.
    69. Recovery of 833 Auction Costs That Exceed Auction Revenues. In 
the event the costs of the 833 Auction exceed its revenues, Somos may 
recover the resulting deficit in the same manner as other costs of toll 
free number administration: By incorporating them into the cost 
recovery mechanism in its tariff. These auction costs would be 
recovered along with all other allowable costs as part of the Toll Free 
Numbering Administrator's revenue requirement for the ensuing tariff 
year(s). This means that all RespOrgs and their underlying toll free 
subscribers will bear the auction's costs, just as they would share the 
benefit of any net auction proceeds. This approach is consistent with 
the cost-recovery system whereby all RespOrgs, and ultimately all toll 
free subscribers, bear the costs of numbering administration 
collectively. (Toll free numbering administration costs are recovered 
via the Toll Free Numbering Administrator's rates and charges, in the 
form of both transaction-specific fees, and monthly and other charges 
that are not tied to any specific transaction of number acquisition or 
change.)
    70. We anticipate that the 833 Auction will benefit the entire 
toll-free industry by potentially lowering the monthly fees associated 
with toll free reservations. Accordingly, we reject the suggestion that 
equitable and efficient distribution of numbers requires that any costs 
of the 833 Auction exceeding auction revenues should be imposed only 
upon auction winners, or auction participants, under ``competitively 
neutral'' and ``cost-causer'' approaches. The 833 Auction is open to 
all RespOrgs and all potential subscribers. Moreover, the sharing of 
any net auction proceeds--or any auction deficit--does not of itself 
distort the toll free market in any fashion or favor one competitor in 
that marketplace over any other. As one commenter notes, consumers 
benefit directly from the use of toll free numbers, and ``reducing the 
input costs proportionally across RespOrgs will benefit all 
participants at their level of participation, thereby not distorting 
the toll-free market. The method proposed by the FCC is an efficient 
and effective mechanism for achieving that goal.''
    71. Finally, for the reasons discussed above, if the deficit 
exceeds five percent of the forecasted cost of the Toll Free Numbering 
Administrator's services for

[[Page 53388]]

the next tariff year, we will require the recovery of any deficit over 
the ensuing five years of cost recovery under the tariff. Such a 
deficit will be divided equally among each of those five years, and 
incorporated into the administrator's cost studies and revenue 
requirements for each of those years. By this approach, we seek to 
avoid or reduce any substantial increases or fluctuations in the Toll 
Free Number Administrator's rates and charges due to any deficit.
    72. International Considerations. One commenter notes the 
international nature of the NANP and asks ``what right does US, or its 
agencies, have to unilaterally benefit from an auction?'' This concern 
is misplaced. The United States will not unilaterally benefit from the 
833 Auction's proceeds. Rather, as explained, net positive proceeds 
will be used to defray the costs of toll free number administration, 
benefitting all RespOrgs (and ultimately toll free subscribers) in 
those countries served by the Toll Free Numbering Administrator 
(Canada, Sint Maarten and the United States), and may also be used to 
defray the cost of NANP administration, benefitting all of its member 
countries. Even if the 833 Auction does not meet the 25 percent 
threshold, RespOrgs from these countries will benefit from lowered 
charges from the Toll Free Numbering Administrator. We note that a 
coalition of 10 Canadian RespOrgs, including major Canadian 
telecommunications service providers, supports our proposal to apply 
net auction proceeds to the Toll Free Numbering Administrator's 
administration costs. Applying net auction proceeds as set forth herein 
is consistent with the way Somos applies RespOrg fee proceeds, and the 
NANPA collects fees, through the B&C Agent, from member countries and 
service providers.
    73. Somos Tariff Implications. We direct Somos to reflect any net 
positive proceeds or deficit related to the 833 Auction in the section 
61.38 cost support filed with the Toll Free Tariff. We have previously 
said that Somos must support the costs of its Toll Free Database 
administration as part of its tariff filing with the Commission. The 
present Toll Free Tariff ``contains regulations, rates and charges'' 
applicable to administration of the Toll Free Database. As explained 
above, any auction proceeds will be applied to decrease Toll Free 
Database administration costs. This will allow Somos to lower certain 
of its charges, such as the monthly customer record administration 
charge. On the other hand, any auction deficit, i.e., auction costs 
that exceed revenues from the auction, will be recovered via the 
tariff's cost recovery mechanism along with any other costs associated 
with administering the database. Inclusion of auction-related costs in 
the tariff's cost justification is necessary to show the impact of the 
833 Auction on the tariffed charges to RespOrgs for use of the Toll 
Free Database.
5. Toll Free Numbers Used for Public Purposes
    74. To ensure that the public interest is protected in the 833 
Auction, we will set aside numbers in the 833 code that have been 
identified as mutually exclusive upon reasonable request by government 
entities and non-profit health and safety organizations. (Government 
entities include federal, state, local, and Tribal governments, and 
includes any such entities in all countries served by the Toll Free 
Numbering Administrator. Non-profit health and safety organizations 
must be 26 U.S.C. 501(c)(3) organizations.) In the Toll Free Assignment 
NPRM, the Commission sought comment on whether certain desirable toll 
free numbers should be set aside for use, without cost, by government 
agencies or by non-profit health, safety, education, or other non-
profit public interest organizations. After reviewing the record, we 
find that ``[c]ertain desirable toll free numbers that promote health 
and safety should be set aside for use by government, without cost,'' 
as well as for use by non-profit health and safety organizations that 
meet the standard of our precedent.
    75. Government (federal, state, local and Tribal) entities as well 
non-profit health and safety organizations have a unique relationship 
with toll free numbers. Not only do they use numbers to provide service 
to the public, but they also face unique budgeting challenges that may 
place toll free numbers assigned at auction out of reach. We disagree 
with commenters who argue that the public interest nature of non-profit 
organizations can be practically difficult to identify, and that 
setting aside numbers for non-profits presents a greater possibility of 
fraud and abuse. We further disagree with the suggestion that allowing 
private non-profit organizations to petition for numbers to be set 
aside is an act of ``eminent domain.'' This claim is fundamentally at 
odds with the toll free numbering scheme, which vests the Commission 
with authority to assign numbers ``equitabl[y].'' Further, subscribers 
have no property interest in toll free numbers. The Commission will use 
the 501(c)(3) designation as well our existing standard for public 
health and safety use to limit set-asides to those legitimate public 
interest organizations that truly promote public health and safety. 
This process is consistent with the way the Commission has considered 
petitions for reassignment of toll free numbers in the past.
    76. We disagree with the arguments in the record that offering any 
public interest-related number set aside for governmental or non-profit 
entities is inherently not ``equitable'' under section 251(e)(1) of the 
Act. To the contrary, this set aside works to assuage concerns that 
some bidders--government and non-profit entities--may be precluded from 
obtaining desired numbers by our auction experiment. However, we are 
sympathetic to the argument that the public should have an opportunity 
to object to requests that numbers be set aside. For this reason, while 
we will consider requests from government and non-profit entities to 
set aside numbers in the 833 code that are already considered mutually 
exclusive, in order for a request to be considered, the government or 
non-profit entity must file a ``Petition for an 833 Toll Free Number'' 
with the Bureau in accordance with the Auction Procedures Public 
Notice. The Bureau will then solicit public comment prior to making its 
decision on the number request based on the public interest. (Petitions 
must be filed in ECFS in Docket No. WC 17-192 and CC Docket No. 95-155. 
Filing the petition does not guarantee the request will be granted.) We 
intend to maintain our standard for review consistent with the unusual 
and compelling public health and safety standards in Commission 
precedent and direct the Bureau to consider each application 
individually, on a case-by-case basis, as it is filed with the 
Commission. We note that while being a government entity or a 501(c)(3) 
organization is a necessary condition for a set aside, it is not in and 
of itself a sufficient condition and the Bureau must apply the unusual 
and compelling public health and safety standards discussed above. If, 
however, multiple government or non-profit entities file petitions 
requesting the same number for public health and safety purposes which 
meet the standard of our precedent, we direct Somos to conduct a 
lottery for the number among the requesting applicants. We believe a 
lottery is both an equitable and expedient way to resolve competing 
requests for the same number. The Commission will use the information 
obtained from this number set aside process to determine whether

[[Page 53389]]

we should continue to use it in future code openings.
6. Treatment of Trademark Holders
    77. We decline to adopt proposals in the record to provide special 
treatment for trademark-holders. Specifically, commenters have 
suggested that we provide trademark-holders a right of first refusal or 
adopt new ``procedures'' to address instances of abuse of a number 
desired by a trademark-holder. We find that, as under the first-come, 
first-served methodology, ``concerns regarding trademark infringement 
and unfair competition . . . should be addressed by the courts under 
the trademark protection and unfair competition laws, rather than by 
the Commission.''
    78. We disagree with commenters who argue that failing to provide 
special treatment for trademark-holders is contrary to the public 
interest. As 1-800-CONTACTS admits, the Lanham Act already serves to 
``protect consumers by preventing confusion and unfair competition,'' 
and 1-800-FLOWERS has acknowledged its success policing use that 
infringes on its trademarks under the first-come, first-served 
methodology. Some commenters argue that a market-based approach to 
number assignment will encourage ``extortion'' of trademark-holders by 
bad actors, but we see no reason to diverge from our position that 
number assignment should be trademark-agnostic. An auction mechanism 
assigns numbers to those who value them most highly, and a secondary 
market--which we adopt on a limited basis below--only facilitates this 
assignment. Subscribers remain bound by trademark law once a number has 
been assigned. We also disagree with the argument of 1-800-CONTACTS 
that auctioning numbers without special protection for trademark 
holders ``would conflict with the statutory requirements of the Lanham 
Act.'' 1-800-CONTACTS does not identify with specificity which 
requirements the Commission would violate, or provide support for its 
argument. The United States Court of Appeals for the Sixth Circuit has 
found, in the context of an internet domain name registrar, that 
assigning an item to a third party is not ``use'' for purposes of a 
trademark infringement claim.

C. Secondary Markets for Toll Free Numbers

    79. To fully realize the effectiveness of assigning numbers via 
competitive bidding, we allow for a secondary market of toll free 
numbers won at auction. In the Toll Free Assignment NPRM, the 
Commission sought comment on revising our rules to promote development 
of a secondary market for toll free numbers. We have reviewed the 
record, and agree with commenters who argue that our current rules may 
have a ``chilling impact . . . on private enterprise.'' Consistent with 
our goal of making the rights to use numbers available on an equitable 
basis by assigning them to those who can put the numbers to their best 
use, and with the record, we now allow for the development of a 
secondary market for numbers assigned via competitive bidding.
    80. The Commission's current rules prevent three types of conduct 
that limit or preclude the development of a secondary market. First, 
the rules prevent brokering--``the selling of a toll free number by a 
private entity for a fee.'' Second, the rules prevent hoarding, which 
is the ``acquisition by a toll free subscriber . . . of more toll free 
numbers than the toll free subscriber intends to use for the provision 
of toll free service.'' Third, the rules prevent warehousing, a 
practice in which a RespOrg reserves toll free numbers ``without having 
an actual toll free subscriber for whom the numbers are being 
reserved.'' These rules not only preclude the sale of the rights to use 
toll free numbers--central to a secondary market--but also frustrate 
number sales by placing obligations on potential sellers.
    81. As the Commission explained in the Toll Free Assignment NPRM, a 
secondary market appears to be ``an efficient and productive use of 
numbers'' because it ``permit[s] subscribers to legally obtain numbers 
which they value.'' It also promotes the efficient operation of an 
auction: Permitting the free acquisition and transfer of the rights to 
use numbers allows subscribers to purchase or sell numbers in response 
to the outcome of the auction, and limits pre-auction costs associated 
with estimating which--and how many--numbers a bidder may win. It 
further encourages value-creating entities to promote efficiency by 
procuring rights to numbers with an intent to sell those rights to 
other interested subscribers. The secondary market thus ensures that 
numbers are assigned to those parties who can most efficiently use 
them. Under our current system, by contrast, a party that desires a 
number most cannot ensure that it is assigned that number; and if it 
fails to be assigned that number, it has no mechanism to procure it 
after the initial assignment. An auction mechanism with a robust 
secondary market not only ensures that numbers are assigned to the 
bidder that values them most at the time of assignment, but also allows 
the rights to numbers to be reassigned when valuations change.
    82. We disagree with commenters who claim that permitting a robust 
secondary market will lead to undesirable conduct and extortion. With 
an auction and secondary market, the rights to numbers will be assigned 
to those entities who value them most; differences in valuation do not 
reflect undesirable conduct or extortion. To the extent there is 
genuine misconduct, trademark and competition law serves to protect 
parties from bad actors. Further, the argument that allowing a 
secondary market will ``lead to premature exhaust'' is minimized by our 
decision to allow a secondary market only for those numbers assigned by 
auction. In the present experiment, the 833 Auction includes 
approximately 17,000 numbers--under one percent of all 833 numbers. To 
the extent our rules preventing a secondary market were adopted to 
limit exhaust, we do not believe this limited exception will 
significantly affect the exhaust of the entire pool of 833 numbers. 
Because creating this limited secondary market will not lead to 
premature exhaust, we see no need to adopt the proposal in the record 
that we ``assess[ ] a fixed monthly direct contribution from all toll-
free number holders [to] discourage hoarding and warehousing'' in order 
to combat exhaust. Further, we disagree with CenturyLink's argument 
that we should not combine a secondary market with the 833 Auction 
experiment so that an auction ``may be adequately evaluated without the 
influence of other variables.'' As we have explained, a secondary 
market is an important component to a successful auction, because it 
allows auction participants to later transfer numbers in response to 
information learned at the auction. And exploring these two changes 
simultaneously will allow us to see how they work in conjunction with 
one another.
    83. We also disagree with the argument that ``abandoning the 
brokering rule . . . violates the statutory mandate of equitable 
distribution of numbers.'' The secondary market is both ``orderly and 
efficient'' and ``fair.'' The secondary market is ``orderly'' because 
it is simple: Competing claims are resolved by assigning rights to a 
number to the party who values it most. The secondary market is 
``efficient,'' as that term is interpreted under our precedent in this 
context, in that it will minimize number exhaust by allowing rights to 
numbers to be obtained without requiring the opening of a new code. 
Finally, the secondary market is ``fair''

[[Page 53390]]

because no potential subscribers are discriminated against; there is 
equal opportunity to participate in the secondary market.
    84. To allow for a secondary market to develop, we adopt exceptions 
to the Commission's rules prohibiting the brokering, hoarding, and 
warehousing of toll free numbers for numbers acquired in an auction. 
(We also modify our rule limiting how long a number may remain in 
``reserved'' status in order to harmonize that rule with the exceptions 
we adopt today.) Because, as explained, a secondary market can promote 
the efficiency of an auction, we find that it is appropriate that we 
apply our exceptions to numbers assigned via competitive bidding. 
Numbers which are eligible for this exception by virtue of having been 
assigned via competitive bidding do not lose their eligibility if they 
are sold or otherwise transferred to another subscriber. Numbers which 
are returned to the spare pool, however, do not retain eligibility for 
the exception simply because they were once assigned in an auction.
    85. We decline, at this time, to mandate that fees associated with 
the sale of numbers on the secondary market go to the cost of toll free 
numbering administration borne by Somos. We are convinced by the record 
that our rules should not ``increase the costs to subscribers.'' 
However, as we have explained previously, in order to evaluate the 
operation of the secondary market, we direct Somos to maintain data on 
secondary market transactions and make that data available to the 
Commission. To facilitate the collection of data, RespOrgs will be 
required to provide subscriber information to Somos, including the new 
subscriber's name and contact information, and other limited 
information Somos deems necessary.

D. Other Toll Free Rule Revisions

    86. To further modernize our decades-old toll free numbering rules, 
we adopt several definitional and technical updates to improve clarity 
and flexibility in toll free number assignment. We also incorporate 
recommendations of the North American Numbering Council (NANC, the 
Commission's Federal Advisory Committee on numbering matters) to revise 
our definitions and lag time rules to be consistent with our new 
market-based toll free assignment rule.
    87. NANC Report. In the Toll Free Assignment NPRM, the Commission 
sought comment on whether to ``eliminate or revise any other toll free 
rules'' and specifically suggested sections 52.101(d) and 52.103 as 
potential targets for revision. After the release of the NPRM, the 
Bureau directed the NANC to recommend possible rule changes to promote 
a market-based approach to the assignment of toll free numbers. In 
response to this direction, the NANC Toll Free Number Assignment 
Modernization Working Group recommended revisions to sections 52.101 
and 52.103 of our rules regarding general definitions and lag times.
    88. General Definitions. We revise section 52.101(a) to replace the 
term ``Number Administration and Service Center'' (NASC) with the term 
``Toll Free Numbering Administrator.'' (Section 52.101(a) currently 
defines ``Number Administration and Service Center'' as ``The entity 
that provides user support for the Service Management System and 
administers the Service Management System database on a day-to-day 
basis.'') Despite the fact that the Commission has used the term Toll 
Free Numbering Administrator for several years, our rules have not 
reflected that terminology. Our rules' reference to the NASC is now 
outdated, and this revision will update the Commission's rules to 
reflect current industry terminology. We further modify our definition, 
consistent with the NANC's recommendation, to reflect that the Toll 
Free Numbering Administrator role is filled by an entity appointed 
under our authority pursuant to section 251(e)(1) of the Act. Because 
the Toll Free Numbering Administrator serves the same purpose as the 
former NASC, however, we otherwise retain the same definition as to the 
role of the toll free administrator.
    89. We further revise section 52.101(e) to expand the definition of 
``Toll Free Subscriber.'' The Commission's rules currently define a 
Toll Free Subscriber as ``[T]he entity that requests a Responsible 
Organization to reserve a toll free number from the SMS database.'' Our 
revised rule establishes that a Toll Free Subscriber is ``The entity 
that has been assigned a toll free number.'' This change will make our 
definition consistent with our revised rule section 52.111, which 
allows for assignment via a market-based methodology, by making clear 
that a subscriber is not limited to requesting a toll free number be 
reserved in the toll free database. For example, a subscriber can be 
assigned a number through the competitive bidding process.
    90. Lag Times. We make multiple revisions to section 52.103, which 
sets forth the various statuses of toll free numbers in the Toll Free 
Database. First, we adopt a new section 52.103(a)(10) to create a 
``Transitional Status'' category for numbers that have been 
disconnected for less than four months, but for which no service 
provider intercept recording (also known as Exchange Carrier Intercept 
Recording) is being provided. (Transitional Status is thus distinct 
from Disconnect Status, where a service provider intercept recording 
(i.e., a recording explaining that a number has been disconnected) is 
being provided.) The NANC comments, and we agree, that adding this 
Transitional Status will better align the Commission's rules with 
current industry practice.
    91. Second, we modify section 52.103(d) to make the existing 
Disconnect Status rule compatible with a market-based number assignment 
approach. Section 52.103(d) requires disconnected numbers to stay in 
Disconnect Status for a period of up to four months, and then go to 
Spare Status at the end of that period. The NANC Report recommends 
amending the rule to allow numbers that have been in Disconnect Status 
for up to four months to go directly to Unavailable or Spare Status. 
(We note that numbers set-aside for a market-based assignment are 
placed in unavailable status.) We conclude, and the NANC agrees, that 
allowing numbers to go from Disconnect Status to Unavailable--rather 
than directly to Spare Status--will ensure that any number can be 
assigned by a market-based mechanism. This change will allow the Toll 
Free Numbering Administrator to send numbers that have been selected 
for market-based assignment directly into Unavailable rather than into 
Spare Status. We thus adopt this change, which will allow greater 
flexibility and further modernize the toll free assignment process.
    92. Finally, we also adopt a change to section 52.103(f), 
``Unavailable Status.'' The description of ``Unavailable Status'' in 
that section references DSMI, which has since been replaced by Somos as 
the Toll Free Numbering Administrator. The definition should be updated 
to refer to the Toll Free Numbering Administrator. This revision will 
ensure that the Commission's rules reflect current industry 
terminology. We also revise rule section 52.109(c) to change spare 
``poll'' to spare ``pool,'' thus correcting a typographical error in 
this rule.
    93. The ministerial revisions we adopt today are a logical 
outgrowth of the proposals in the Toll Free Assignment NPRM. As the 
Commission has previously explained, ``[a]n NPRM satisfies the logical 
outgrowth test if it `expressly ask[s] for comment on a particular 
issue or otherwise ma[kes]

[[Page 53391]]

clear that the agency [is] contemplating a particular change.''' That 
test is satisfied here. The Toll Free Assignment NPRM expressly 
proposed a revision to the rules governing toll free number assignment 
to allow for assignment via competitive bidding. It further sought 
comment on whether to ``eliminate or revise any other toll free 
rules,'' with specific reference to sections 52.101(d) and 52.103 of 
the rules. Our ministerial revisions, with one minor exception, apply 
to sections 52.101 and 52.103. (The exception is our revision to 
section 52.109(c), correcting a typographical error in that rule.) 
Further, the revisions operate to harmonize those rules with the 
competitive bidding assignment methodology expressly noticed in the 
Toll Free Assignment NPRM. We find that ``parties should have 
anticipated that the rule [revisions] ultimately adopted [were] 
possible.'' We also find good cause, to the extent necessary, to adopt 
these ministerial changes. These revisions are insignificant and 
inconsequential to the industry and the public. Our revisions to 
sections 52.101(a), 52.103(a)(10), 52.103(f), and 52.109(c) either 
correct typographical errors or bring our rules into line with 
contemporary practice and do not increase or otherwise modify any 
entities' regulatory burden. Our revisions to sections 52.101(e) and 
52.103(d) similarly do not impact any entities' regulatory burden, and 
only harmonize our rules to allow for the successful operation of the 
competitive bidding assignment methodology we adopt today.

E. Legal Authority

    94. The Commission has found section 251(e)(1) of the Act ``to 
empower the Commission to ensure that toll free numbers, which are a 
scarce and valuable national public resource, are allocated in an 
equitable and orderly manner that serves the public interest.'' 
Pursuant to these statutory mandates, the Commission has the 
``authority to set policy with respect to all facets of numbering 
administration in the United States,'' and a ``require[ment] . . . to 
ensure the efficient, fair, and orderly allocation of toll free 
numbers.'' The actions we take today meet the statutory requirement 
that numbers be made ``available on an equitable basis''--an auction 
and secondary market are both efficient and orderly, and fair. We also 
have clear authority to require Somos to serve as the auctioneer for 
833 numbers and to comply with requirements adopted in this order. 
Section 251(e)(1) obligates the Commission to ensure its Toll Free 
Numbering Administrator administers ``telecommunications numbering and 
to make such numbers available on an equitable basis.'' And section 
201(b) authorizes the Commission to ``prescribe such rules and 
regulations as may be necessary in the public interest to carry out the 
provisions of this [Act].''
    95. CenturyLink argues that we do not have authority to assign toll 
free numbers through competitive bidding because, unlike in the context 
of spectrum auctions, Congress did not specifically task the Commission 
with using competitive bidding for toll free numbers. Since the Act was 
adopted in 1934, however, Congress has stated with particularity the 
various means for assignment of spectrum licenses; the specific 
addition of an assignment via competitive bidding supplemented the 
previous Congressional direction to make licenses available via an 
application process or random assignment. By contrast, Congress has 
used much more general language in section 251 and thus given us broad 
discretion to administer numbering. In Congress's grant of ``exclusive 
jurisdiction over those portions of the North American Numbering Plan 
that pertain to the United States'' in section 251(e)(1), we find 
authority to employ any number assignment mechanisms which meet the 
statute's ``equitable basis'' requirement, including competitive 
bidding.

IV. Final Regulatory Flexibility Analysis

    1. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated into the Notice of Proposed Rulemaking (Toll Free 
Assignment NPRM) for the Toll Free Assignment Modernization proceeding. 
The Commission sought written public comment on the proposals in the 
Toll Free Assignment NPRM, including comment on the IRFA. The 
Commission received no comments on the IRFA. Because the Commission 
amends its rules in this Order, the Commission has included this Final 
Regulatory Flexibility Analysis (FRFA). This present FRFA conforms to 
the RFA.

A. Need for, and Objectives of, the Rules

    2. In the Toll Free Assignment NPRM, the Commission reconsidered 
how to best meet the statutory mandate that it make toll free numbers 
``available on an equitable basis.'' To this end, the Commission 
proposed and sought comment on numerous regulatory reforms to existing 
rules regarding toll free number assignment.
    3. Pursuant to the objectives set forth in the Toll Free Assignment 
NPRM, this Report and Order (Order) adopts changes to Commission rules 
regarding toll free number assignment. Specifically, the Order (1) 
revises the Commission's toll free assignment rule to allow for the use 
of competitive bidding for toll free numbers; (2) establishes the use 
of competitive bidding to assign the over 17,000 mutually exclusive 
numbers in the 833 toll free code, identified pursuant to the 833 Code 
Opening Order; (3) exempts numbers assigned via competitive bidding 
from the rules preventing the development of a secondary market; and 
(4) makes ministerial changes to our toll free number assignment rules. 
These modifications to our toll free number assignment rules will 
create a more efficient method of toll free number assignment, 
consistent with our statutory mandate. Ultimately, these reforms will 
ensure the equitable and efficient assignment of toll free numbers.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    4. The Commission did not receive comments addressing the rules and 
policies proposed in the IRFAs in the Toll Free Assignment NPRM.

C. Response to Comments by the Chief Counsel for Advocacy of the SBA

    5. Pursuant to the Small Business Jobs Act of 2010, which amended 
the RFA, the Commission is required to respond to any comments filed by 
the Chief Counsel for Advocacy of the Small Business Administration 
(SBA), and to provide a detailed statement of any change made to the 
proposed rules as a result of those comments.
    6. The Chief Counsel did not file any comments in response to this 
proceeding.

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

    7. The RFA directs agencies to provide a description and, where 
feasible, an estimate of the number of small entities that may be 
affected by the final rules adopted pursuant to the Order. 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. (Pursuant to 5 U.S.C. 601(3), the statutory 
definition of a small business

[[Page 53392]]

applies ``unless an agency, after consultation with the Office of 
Advocacy of the Small Business Administration and after opportunity for 
public comment, establishes one or more definitions of such term which 
are appropriate to the activities of the agency and publishes such 
definition(s) in the Federal Register.'') 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 SBA.
    8. The changes to our toll free number assignment rules affect 
obligations on wired and wireless telecommunications carriers, local 
exchange and interexchange carriers, local and toll resellers, prepaid 
calling card providers, and cable operators.
    9. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. Our actions, over time, may affect small entities that 
are not easily categorized at present. We therefore describe here, at 
the outset, three comprehensive small entity size standards that could 
be directly affected herein. First, while there are industry specific 
size standards for small businesses that are used in the regulatory 
flexibility analysis, according to data from the SBA's Office of 
Advocacy, in general a small business is an independent business having 
fewer than 500 employees. These types of small businesses represent 
99.9% of all businesses in the United States which translates to 28.8 
million businesses. Next, the type of small entity described as a 
``small organization'' is generally ``any not-for-profit enterprise 
which is independently owned and operated and is not dominant in its 
field.'' Nationwide, as of 2007, there were approximately 1,621,215 
small organizations. Finally, the small entity described as a ``small 
governmental jurisdiction'' is defined generally as ``governments of 
cities, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' U.S. Census 
Bureau data published in 2012 indicate that there were 89,476 local 
governmental jurisdictions in the United States. We estimate that, of 
this total, as many as 88,761 entities may qualify as ``small 
governmental jurisdictions.'' (The 2012 U.S. Census Bureau data for 
small governmental organizations are not presented based on the size of 
the population in each organization. There were 89,476 local 
governmental organizations in the Census Bureau data for 2012, which is 
based on 2007 data. As a basis of estimating how many of these 89,476 
local government organizations were small, we note that there were a 
total of 715 cities and towns (incorporated places and minor civil 
divisions) with populations over 50,000 in 2011. If we subtract the 715 
cities and towns that meet or exceed the 50,000 population threshold, 
we conclude that approximately 88,761 are small.) Thus, we estimate 
that most governmental jurisdictions are small.
    10. Wired Telecommunications Carriers. The U.S. Census Bureau 
defines this industry as ``establishments primarily engaged in 
operating and/or providing access to transmission facilities and 
infrastructure that they own and/or lease for the transmission of 
voice, data, text, sound, and video using wired communications 
networks. Transmission facilities may be based on a single technology 
or a combination of technologies. Establishments in this industry use 
the wired telecommunications network facilities that they operate to 
provide a variety of services, such as wired telephony services, 
including VoIP services, wired (cable) audio and video programming 
distribution, and wired broadband internet services. By exception, 
establishments providing satellite television distribution services 
using facilities and infrastructure that they operate are included in 
this industry.'' 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. Census data for 2012 show 
that there were 3,117 firms that operated that year. Of this total, 
3,083 operated with fewer than 1,000 employees. Thus, under this size 
standard, the majority of firms in this industry can be considered 
small.
    11. Local Exchange Carriers (LECs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to local exchange services. The closest applicable NAICS 
Code category is Wired Telecommunications Carriers as defined above. 
Under the applicable SBA size standard, such a business is small if it 
has 1,500 or fewer employees. According to Commission data, census data 
for 2012 shows that there were 3,117 firms that operated that year. Of 
this total, 3,083 operated with fewer than 1,000 employees. The 
Commission therefore estimates that most providers of local exchange 
carrier service are small entities that may be affected by the rules 
adopted.
    12. Incumbent LECs. Neither the Commission nor the SBA has 
developed a small business size standard specifically for incumbent 
local exchange services. The closest applicable NAICS Code category is 
Wired Telecommunications Carriers as defined above. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 3,117 firms operated in that year. Of 
this total, 3,083 operated with fewer than 1,000 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. Three hundred and seven (307) Incumbent 
Local Exchange Carriers reported that they were incumbent local 
exchange service providers. Of this total, an estimated 1,006 have 
1,500 or fewer employees.
    13. Competitive Local Exchange Carriers (Competitive LECs), 
Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
and Other Local Service Providers. Neither the Commission nor the SBA 
has developed a small business size standard specifically for these 
service providers. The appropriate NAICS Code category is Wired 
Telecommunications Carriers, as defined above. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
U.S. Census data for 2012 indicate that 3,117 firms operated during 
that year. Of that number, 3,083 operated with fewer than 1,000 
employees. Based on this data, the Commission concludes that the 
majority of Competitive LECS, CAPs, Shared-Tenant Service Providers, 
and Other Local Service Providers, are small entities. According to 
Commission data, 1,442 carriers reported that they were engaged in the 
provision of either competitive local exchange services or competitive 
access provider services. Of these 1,442 carriers, an estimated 1,256 
have 1,500 or fewer employees. In addition, 17 carriers have reported 
that they are Shared-Tenant Service Providers, and all 17 are estimated 
to have 1,500 or fewer employees. Also, 72 carriers have reported that 
they are Other Local Service Providers. Of this total, 70 have 1,500 or 
fewer employees. Consequently, based on internally researched FCC data, 
the Commission estimates that most providers of competitive local 
exchange service, competitive access providers, Shared-Tenant Service 
Providers, and Other Local Service Providers are small entities.
    14. We have included small incumbent LECs in this present RFA 
analysis. As noted above, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone

[[Page 53393]]

communications business having 1,500 or fewer employees), and ``is not 
dominant in its field of operation.'' The SBA's Office of Advocacy 
contends that, for RFA purposes, small incumbent LECs are not dominant 
in their field of operation because any such dominance is not 
``national'' in scope. (The Small Business Act contains a definition of 
``small business concern,'' which the RFA incorporates into its own 
definition of ``small business.'' SBA regulations interpret ``small 
business concern'' to include the concept of dominance on a national 
basis.) 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.
    15. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a definition for Interexchange Carriers. The closest 
NAICS Code category is Wired Telecommunications Carriers as defined 
above. The applicable size standard under SBA rules is that such a 
business is small if it has 1,500 or fewer employees. U.S. Census data 
for 2012 indicates that 3,117 firms operated during that year. Of that 
number, 3,083 operated with fewer than 1,000 employees. According to 
internally developed Commission data, 359 companies reported that their 
primary telecommunications service activity was the provision of 
interexchange services. Of this total, an estimated 317 have 1,500 or 
fewer employees. Consequently, the Commission estimates that the 
majority of IXCs are small entities that may be affected by our 
proposed rules.
    16. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. The 
Telecommunications Resellers industry comprises establishments engaged 
in purchasing access and network capacity from owners and operators of 
telecommunications networks and reselling wired and wireless 
telecommunications services (except satellite) to businesses and 
households. Establishments in this industry resell telecommunications; 
they do not operate transmission facilities and infrastructure. Mobile 
virtual network operators (MVNOs) are included in this industry. Under 
that size standard, such a business is small if it has 1,500 or fewer 
employees. Census data for 2012 show that 1,341 firms provided resale 
services during that year. Of that number, all operated with fewer than 
1,000 employees. Thus, under this category and the associated small 
business size standard, the majority of these prepaid calling card 
providers can be considered small entities.
    17. Toll Resellers. The Commission has not developed a definition 
for Toll Resellers. The closest NAICS Code Category is 
Telecommunications Resellers. The Telecommunications Resellers industry 
comprises establishments engaged in purchasing access and network 
capacity from owners and operators of telecommunications networks and 
reselling wired and wireless telecommunications services (except 
satellite) to businesses and households. Establishments in this 
industry resell telecommunications; they do not operate transmission 
facilities and infrastructure. Mobile virtual network operators (MVNOs) 
are included in this industry. The SBA has developed a small business 
size standard for the category of Telecommunications Resellers. Under 
that size standard, such a business is small if it has 1,500 or fewer 
employees. Census data for 2012 show that 1,341 firms provided resale 
services during that year. Of that number, 1,341 operated with fewer 
than 1,000 employees. Thus, under this category and the associated 
small business size standard, the majority of these resellers can be 
considered small entities. According to Commission data, 881 carriers 
have reported that they are engaged in the provision of toll resale 
services. Of this total, an estimated 857 have 1,500 or fewer 
employees. Consequently, the Commission estimates that the majority of 
toll resellers are small entities.
    18. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a definition 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 NAICS Code category is for 
Wired Telecommunications Carriers as defined above. Under the 
applicable SBA size standard, such a business is small if it has 1,500 
or fewer employees. Census data for 2012 shows that there were 3,117 
firms that operated that year. Of this total, 3,083 operated with fewer 
than 1,000 employees. Thus, under this category and the associated 
small business size standard, the majority of Other Toll Carriers can 
be considered small. According to internally developed Commission data, 
284 companies reported that their primary telecommunications service 
activity was the provision of other toll carriage. Of these, an 
estimated 279 have 1,500 or fewer employees. Consequently, the 
Commission estimates that most Other Toll Carriers are small entities 
that may be affected by rules adopted pursuant to the Report and Order.
    19. Prepaid Calling Card Providers. The SBA has developed a 
definition for small businesses within the category of 
Telecommunications Resellers. Under that SBA definition, such a 
business is small if it has 1,500 or fewer employees. According to the 
Commission's Form 499 Filer Database, 500 companies reported that they 
were engaged in the provision of prepaid calling cards. The Commission 
does not have data regarding how many of these 500 companies have 1,500 
or fewer employees. Consequently, the Commission estimates that there 
are 500 or fewer prepaid calling card providers that may be affected by 
the rules.
    20. Wireless Telecommunications Carriers (except Satellite). This 
industry comprises establishments engaged in operating and maintaining 
switching and transmission facilities to provide communications via the 
airwaves. Establishments in this industry have spectrum licenses and 
provide services using that spectrum, such as cellular services, paging 
services, wireless internet access, and wireless video services. The 
appropriate size standard under SBA rules is that such a business is 
small if it has 1,500 or fewer employees. For this industry, U.S. 
Census data for 2012 show that there were 967 firms that operated for 
the entire year. Of this total, 955 firms had employment of 999 or 
fewer employees and 12 had employment of 1000 employees or more. 
(Available census data do not provide a more precise estimate of the 
number of firms that have employment of 1,500 or fewer employees; the 
largest category provided is for firms with ``1000 employees or 
more.'') Thus under this category and the associated size standard, the 
Commission estimates that the majority of wireless telecommunications 
carriers (except satellite) are small entities.
    21. The Commission's own data--available in its Universal Licensing 
System--indicate that, as of October 25, 2016, there are 280 Cellular 
licensees that will be affected by our actions today. (For the purposes 
of this FRFA, consistent with Commission practice for wireless 
services, the Commission estimates the number of licensees based on the 
number of unique FCC Registration Numbers.) The Commission does not 
know how many of these licensees are small, as the Commission

[[Page 53394]]

does not collect that information for these types of entities. 
Similarly, according to internally developed Commission data, 413 
carriers reported that they were engaged in the provision of wireless 
telephony, including cellular service, Personal Communications Service, 
and Specialized Mobile Radio Telephony services. Of this total, an 
estimated 261 have 1,500 or fewer employees, and 152 have more than 
1,500 employees. Thus, using available data, we estimate that the 
majority of wireless firms can be considered small.
    22. Wireless Communications Services. This service can be used for 
fixed, mobile, radiolocation, and digital audio broadcasting satellite 
uses. The Commission defined ``small business'' for the wireless 
communications services (WCS) auction as an entity with average gross 
revenues of $40 million for each of the three preceding years, and a 
``very small business'' as an entity with average gross revenues of $15 
million for each of the three preceding years. The SBA has approved 
these definitions.
    23. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services, and specialized mobile radio 
telephony carriers. As noted, the SBA has developed a small business 
size standard for Wireless Telecommunications Carriers (except 
Satellite). Under the SBA small business size standard, a business is 
small if it has 1,500 or fewer employees. According to Commission data, 
413 carriers reported that they were engaged in wireless telephony. Of 
these, an estimated 261 have 1,500 or fewer employees and 152 have more 
than 1,500 employees. Therefore, a little less than one third of these 
entities can be considered small.
    24. Cable and Other Subscription Programming. This industry 
comprises establishments primarily engaged in operating studios and 
facilities for the broadcasting of programs on a subscription or fee 
basis. The broadcast programming is typically narrowcast in nature 
(e.g., limited format, such as news, sports, education, or youth-
oriented). These establishments produce programming in their own 
facilities or acquire programming from external sources. The 
programming material is usually delivered to a third party, such as 
cable systems or direct-to-home satellite systems, for transmission to 
viewers. The SBA has established a size standard for this industry 
stating that a business in this industry is small if it has 1,500 or 
fewer employees. The 2012 Economic Census indicates that 367 firms were 
operational for that entire year. Of this total, 357 operated with less 
than 1,000 employees. Accordingly we conclude that a substantial 
majority of firms in this industry are small under the applicable SBA 
size standard.
    25. Cable Companies and Systems (Rate Regulation). The Commission 
has developed its own small business size standards for the purpose of 
cable rate regulation. Under the Commission's rules, a ``small cable 
company'' is one serving 400,000 or fewer subscribers nationwide. 
Industry data indicate that there are currently 4,600 active cable 
systems in the United States. (This figure was derived from a August 
15, 2015 report from the FCC Media Bureau, based on data contained in 
the Commission's Cable Operations and Licensing System (COALS).) Of 
this total, all but eleven cable operators nationwide are small under 
the 400,000-subscriber size standard. In addition, under the 
Commission's rate regulation rules, a ``small system'' is a cable 
system serving 15,000 or fewer subscribers. Current Commission records 
show 4,600 cable systems nationwide. Of this total, 3,900 cable systems 
have fewer than 15,000 subscribers, and 700 systems have 15,000 or more 
subscribers, based on the same records. Thus, under this standard as 
well, we estimate that most cable systems are small entities.
    26. Cable System Operators (Telecom Act Standard). The 
Communications Act also contains a size standard for small cable system 
operators, which is ``a cable operator that, directly or through an 
affiliate, serves in the aggregate fewer than 1 percent of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' There are approximately 52,403,705 cable video 
subscribers in the United States today. Accordingly, an operator 
serving fewer than 524,037 subscribers shall be deemed a small operator 
if its annual revenues, when combined with the total annual revenues of 
all its affiliates, do not exceed $250 million in the aggregate. Based 
on available data, we find that all but nine incumbent cable operators 
are small entities under this size standard. We note that the 
Commission neither requests nor collects information on whether cable 
system operators are affiliated with entities whose gross annual 
revenues exceed $250 million. (The Commission does receive such 
information on a case-by-case basis if a cable operator appeals a local 
franchise authority's finding that the operator does not qualify as a 
small cable operator pursuant to section 76.901(f) of the Commission's 
rules.) Although it seems certain that some of these cable system 
operators are affiliated with entities whose gross annual revenues 
exceed $250 million, we are unable at this time to estimate with 
greater precision the number of cable system operators that would 
qualify as small cable operators under the definition in the 
Communications Act.
    27. All Other Telecommunications. The ``All Other 
Telecommunications'' industry is comprised of establishments that are 
primarily engaged in providing specialized telecommunications services, 
such as satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing internet services or 
voice over internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry. The 
SBA has developed a small business size standard for ``All Other 
Telecommunications,'' which consists of all such firms with gross 
annual receipts of $32.5 million or less. For this category, U.S. 
Census data for 2012 show that there were 1,442 firms that operated for 
the entire year. Of these firms, a total of 1,400 had gross annual 
receipts of less than $25 million. Thus a majority of ``All Other 
Telecommunications'' firms potentially affected by our action can be 
considered small.

E. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities

    28. Auction Applications and Certifications. The Order establishes 
the use competitive bidding to assign the over 17,000 mutually 
exclusive numbers in the 833 toll free code, identified pursuant to the 
833 Code Opening Order. In order to participate in the competitive 
bidding process, a potential participant will be obligated to submit an 
application including information regarding, but not limited to, 
ownership information. Potential participants will also be required to 
submit certifications stating that they will follow certain auction 
rules and requirements, including the limitation that each auction 
participant bid on behalf of only one interested party (including 
itself) for the same toll free numbers.
    29. Secondary Market Transfers. The Order exempts numbers assigned 
via competitive bidding from the rules

[[Page 53395]]

preventing the development of a secondary market. We require Somos, 
Inc., the Toll Free Numbering Administrator, to maintain information 
regarding post-auction secondary market transfers. Entities will be 
required to provide transaction information to Somos, including the new 
subscriber's name and contact information and other limited information 
as necessary.

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

    30. In this Order, the Commission modifies its toll free number 
assignment rules to promote the efficient and equitable assignment of 
toll free numbers. Overall, we believe the actions in this document 
will reduce burdens on toll free number subscribers, potential 
subscribers, and Responsible Organizations, including any small 
entities.
    31. In the Order, we find that revising our rule to allow for an 
auction-based assignment methodology will benefit smaller entities. Our 
first-come, first-served assignment methodology has allowed larger, 
more sophisticated entities to invest in systems that provided enhanced 
connectivity to the Toll Free Database, allowing these entities to be 
assigned desirable numbers before smaller competitors. An auction-based 
assignment methodology, by contrast, does not allow sophisticated 
entities this advantage.
    32. In the Order, we also establish the use of a Vickrey single 
round, sealed-bid auction to assign the over 17,000 mutually exclusive 
numbers in the 833 toll free code, identified pursuant to the 833 Code 
Opening Order. We conclude that the use of this type of auction is 
appropriate because it is simple to participate in, addressing concerns 
that an auction-based assignment methodology is more complicated than 
the first-come, first-served approach.

G. Report to Congress

    33. The Commission will send a copy of the Report and Order, 
including this FRFA, in a report to be sent to Congress pursuant to the 
Congressional Review Act. In addition, the Commission will send a copy 
of the Report and Order, including this FRFA, to the Chief Counsel for 
Advocacy of the SBA. A copy of the Order and FRFA (or summaries 
thereof) will also be published in the Federal Register.

V. Procedural Matters

    34. Congressional Review Act. The Commission will send a copy of 
this Report and Order, to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act, see 5 U.S.C. 
801(a)(1)(A).
    35. Paperwork Reduction Act of 1995 Analysis. This Order contains 
new or modified information collection requirements subject to the 
Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be 
submitted to the Office of Management and Budget (OMB) for review under 
section 3507(d) of the PRA, 44 U.S.C. 3507. OMB, the general public, 
and other Federal agencies will be invited to comment on the revised 
information collection requirements contained in this proceeding. In 
addition, we note that pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we 
previously sought specific comment on how the Commission might further 
reduce the information collection burden for small business concerns 
with fewer than 25 employees.
    36. Final Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act of 1980, see 5 U.S.C. 604, the Commission 
has prepared a Final Regulatory Flexibility Analysis (FRFA) of the 
possible significant economic impact on small entities of the policies 
and rules, as proposed, addressed in this Order. The FRFA is contained 
in Section IV above.

VI. Ordering Clauses

    37. Accordingly, it is ordered that, pursuant to sections 1, 4(i), 
201(b), and 251(e)(1) of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 154(i), 201(b), and 251(e)(1), this Order is adopted.
    38. It is further ordered that Part 52 of the Commission's rules 
are amended as set forth in Appendix A, and such rule amendments shall 
be effective thirty (30) days after publication of the rule amendments 
in the Federal Register.
    39. It is further ordered that, pursuant to sections 1, 4(i), 5(c), 
and 251(e)(1) of the Communications Act of 1934, as amended, 47 U.S.C. 
151, 154(i), 155(c), 251(e)(1), Somos, Inc., the Toll Free Numbering 
Administrator, is directed to retain and make available to the 
Commission all data and information about the auction and its 
administration gathered before, during, and after the auction.
    40. It is further ordered that, pursuant to section 251(e)(1) of 
the Communications Act of 1934, as amended, the Wireline Competition 
Bureau is directed to review specific petitions and, as necessary and 
after a notice and comment period, grant toll free numbers to 
governmental and non-profit entities where such grant is consistent 
with the public health and safety standards in Commission precedent.
    41. It is further ordered that the Commission's Consumer & 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act, see 5 
U.S.C. 801(a)(1)(A).

List of Subjects in 47 CFR Part 52

    Communications common carriers, Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

    For the reasons set forth above, part 52 of Title 47 of the Code of 
Federal Regulations is amended as follows:

PART 52--NUMBERING

0
1. The authority citation for part 52 continues to read as follows:

    Authority: 47 U.S.C. 151, 152, 153, 154, 155, 201-205, 207-209, 
218, 225-227, 251-252, 271, 332, unless otherwise noted.

Subpart D--Toll Free Numbers

0
2. Amend Sec.  52.101 by revising paragraphs (a) and (e) to read as 
follows:


Sec.  52.101  General definitions.

* * * * *
    (a) Toll Free Numbering Administrator (TFNA). The entity appointed 
by the Commission under its authority pursuant to 47 U.S.C. 251(e)(1) 
that provides user support for the Service Management System database 
and administers the Service Management System database on a day-to-day 
basis.
* * * * *
    (e) Toll Free Subscriber. The entity that has been assigned a toll 
free number.
* * * * *

0
3. Amend Sec.  52.103 by adding paragraphs (a)(10) and (b)(1); adding 
and reserving paragraph (b)(2); and revising paragraphs (d) and (f) to 
read as follows:


Sec.  52.103  Lag times.

    (a) * * *
    (10) Transitional Status. Toll free numbers that have been 
disconnected for less than four months, but for which no Exchange 
Carrier Intercept Recording is being provided.
    (b) * * *

[[Page 53396]]

    (1) Toll free numbers assigned via competitive bidding may remain 
in reserved status for a period of unlimited duration.
    (2) [Reserved]
* * * * *
    (d) Disconnect Status. Toll free numbers must remain in disconnect 
or a combination of disconnect and transitional status for up to 4 
months. No requests for extension of the 4-month disconnect or 
transitional interval will be granted. All toll free numbers in 
disconnect status must go directly into the spare or unavailable 
category upon expiration of the 4-month disconnect interval. A 
Responsible Organization may not retrieve a toll free number from 
disconnect or transitional status and return that number directly to 
working status at the expiration of the 4-month disconnect interval.
* * * * *
    (f) Unavailable Status. (1) Written requests to make a specific 
toll free number unavailable must be submitted to the Toll Free 
Numbering Administrator (TFNA) by the Responsible Organization managing 
the records of the toll free number. The request shall include the 
appropriate documentation of the reason for the request. The Toll Free 
Numbering Administrator (TFNA) is the only entity that can assign this 
status to or remove this status from a number. Responsible 
Organizations that have a Toll Free Subscriber with special 
circumstances requiring that a toll free number be designated for that 
particular subscriber far in advance of its actual usage may request 
that the Toll Free Numbering Administrator (TFNA) place such a number 
in unavailable status.
    (2) Seasonal numbers shall be placed in unavailable status. The 
Responsible Organization for a Toll Free Subscriber who does not have a 
year round need for a toll free number shall follow the procedures 
outlined in Sec.  52.103(f)(1) of these rules if it wants the Toll Free 
Numbering Administrator (TFNA) to place a particular toll free number 
in unavailable status.

0
4. Amend Sec.  52.105 by adding paragraph (f) to read as follows:


Sec.  52.105  Warehousing.

* * * * *
    (f) The provisions of this section shall not apply to toll free 
numbers assigned via competitive bidding or to numbers transferred 
under this exception.

0
5. Amend Sec.  52.107 by adding paragraph (c) to read as follows:


Sec.  52.107  Hoarding.

* * * * *
    (c) Toll Free Numbers Assigned via Competitive Bidding. The 
provisions of this section shall not apply to toll free numbers 
assigned via competitive bidding or to numbers transferred under the 
exception to Sec.  52.105 contained in paragraph (f) of that section.

0
6. Amend Sec.  52.109 by revising paragraph (c) to read as follows:


Sec.  52.109  Permanent cap on number reservations.

* * * * *
    (c) The Wireline Competition Bureau shall modify the quantity of 
numbers a Responsible Organization may have in reserve status or the 
percentage of numbers in the spare pool that a Responsible Organization 
may reserve when exigent circumstances make such action necessary. The 
Wireline Competition Bureau shall establish, modify, and monitor toll 
free number conservation plans when exigent circumstances necessitate 
such action.

0
7. Revise Sec.  52.111 to read as follows:


Sec.  52.111  Toll free number assignment.

    Toll free telephone numbers must be made available to Responsible 
Organizations and subscribers on an equitable basis. The Commission 
will assign toll free numbers by competitive bidding, on a first-come, 
first-served basis, by an alternative assignment methodology, or by a 
combination of the foregoing options.

[FR Doc. 2018-22674 Filed 10-22-18; 8:45 am]
BILLING CODE 6712-01-P