[Federal Register Volume 90, Number 169 (Thursday, September 4, 2025)]
[Proposed Rules]
[Pages 42713-42725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-16981]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 61 and 69
[WC Docket Nos. 21-17, 17-144; FCC 25-44; FR ID 309561]
Price Cap Business Data Services; Regulation of Business Data
Services for Rate-of-Return Local Exchange Carriers
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) seeks comment on its proposed rules to eliminate rate
regulation and tariffing obligations for business data services
provided by incumbent local exchange carriers in light of technological
and marketplace changes and recent Executive Orders and Commission
initiatives. The Commission alternatively seeks comment on updates to
its regulatory framework and competitive market tests to better align
with current market conditions based on current data.
DATES: Comments are due on or before October 6, 2025, and reply
comments are due on or before October 20, 2025.
ADDRESSES: Interested parties may file comments and reply comments on
or before the dates indicated in this document in WC Docket Nos. 21-17
and 17-144 by any of the following methods:
Electronic Filers: Comments may be filed electronically
using the internet by accessing the Electronic Comment Filing System
(ECFS): https://www.fcc.gov/ecfs/filings/standard.
Paper Filers: Parties who choose to file by paper must
file an original and one copy of each filing. If more than one docket
or rulemaking number appears in the caption of this proceeding, filers
must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by
commercial courier, or by the U.S. Postal Service. All filings must be
addressed to the Secretary, Federal Communications Commission.
Hand-delivered or messenger-delivered paper filings for
the Commission's Secretary are accepted between 8:00 a.m. and 4:00 p.m.
by the FCC's mailing contractor at 9050 Junction Drive, Annapolis
Junction, MD 20701. All hand deliveries must be held together with
rubber bands or fasteners. Any envelopes and boxes must be disposed of
before entering the building.
Commercial courier deliveries (any deliveries not by the
U.S. Postal Service) must be sent to 9050 Junction Drive, Annapolis
Junction, MD 20701. Filings sent by U.S. Postal Service First-Class
Mail, Priority Mail, and Priority Mail Express must be sent to 45 L
Street NE, Washington, DC 20554.
People with Disabilities. To request materials in
accessible formats for people with disabilities (Braille, large print,
electronic files, audio format), send an email to [email protected], or
call the Consumer and Governmental Affairs Bureau at (202) 418-0530
(voice) or (202) 418-0432 (TTY).
[[Page 42714]]
FOR FURTHER INFORMATION CONTACT: Christopher Koves, Associate Division
Chief, Pricing Policy Division, Wireline Competition Bureau, (202) 418-
8209, [email protected].
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rulemaking and Third Further Notice of Proposed Rulemaking
(NPRM and Third FNPRM) in WC Docket Nos. 21-17, 17-144; FCC 25-44,
adopted on August 4, 2025 and released on August 8, 2025. The full text
of this document is available at the following internet address:
https://docs.fcc.gov/public/attachments/FCC-25-44A1.pdf.
Paperwork Reduction Act. This document does not contain proposed
new or substantively modified information collection requirements
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. In addition, therefore, it does not contain any proposed new or
substantively modified information collection burden for small business
concerns with fewer than 25 employees, pursuant to the Small Business
Paperwork Relief Act of 2002, Public Law 107-198.
Providing Accountability Through Transparency Act. Consistent with
the Providing Accountability Through Transparency Act of 2023, Public
Law 118-9, a brief plain-language summary of this document will be
published on: https://www.fcc.gov/proposed-rulemakings.
Synopsis
I. Introduction
1. Today, we continue to promote competition and economic growth by
proposing to further streamline and eliminate outdated, unnecessary,
burdensome regulations in the provision of legacy business data
services (BDS) offered by telephone companies. The Commission has long
recognized the importance of BDS to businesses, schools and libraries,
non-profit organizations, and state and local governments. Because
local telephone companies (incumbent local exchange carriers) held
local monopolies on circuit-switched telephone service, historically
the Commission relied on dominant carrier regulation under Title II of
the Communications Act of 1934, as amended (the Act), to ensure that
the rates, terms, and conditions of service were just and reasonable
and not unreasonably discriminatory. In response to the growth of
competition in the provision of BDS, the Commission has, in recent
years, streamlined its regulation of these services to forbear from
unnecessary regulatory burdens on legacy circuit-based services and to
promote long-term innovation and investment in modern packet-based
internet Protocol (IP) services.
2. In the NPRM and Third FNPRM, we build on the Commission's
earlier efforts by seeking comment on further deregulating BDS in light
of marketplace and technological changes and consistent with recent
Executive Orders and other Commission efforts. We seek comment on
eliminating ex ante pricing regulation and tariffing obligations for
end user channel termination services provided by incumbent local
exchange carriers (LECs or carriers). We also seek comment on
deregulating and detariffing rates charged for transport services
provided by rate-of-return carriers. In the alternative, we seek
comment on updates to the Commission's regulatory framework and
competitive market tests to better align those tests with current
market conditions based on current data.
II. Background
A. Business Data Services
3. ``Business data services'' (BDS) refers to the dedicated point-
to-point transmission of data at certain guaranteed speeds and service
levels using high capacity connections to support applications that
require symmetrical bandwidth, substantial reliability, security, and
connected service to more than one location. Businesses, non-profit
organizations, and government institutions rely on BDS to enable the
secure and reliable transfer of data, for example, as a means of
connecting to the internet or the cloud, and to create private or
virtual private networks.
4. BDS fall into two technology categories: circuit-based and
packet-based. Circuit-based BDS utilize the Time Division Multiplexing
(TDM) protocol, which sends communications over a single circuit-
switched channel by dividing the channel into dedicated time slots. TDM
is considered a legacy technology, and TDM-based services consist
primarily of DS1 and DS3 circuits with symmetrical capacities of 1.5
Mbps and 45 Mbps, respectively. Packet-based BDS, on the other hand,
relies on the modern IP in which data are sent using packets, and can
generally offer much higher capacities. The Commission generally has
historically imposed dominant carrier regulation on carriers' legacy
TDM-based BDS and abstained from regulating packet-based BDS.
5. The Commission has traditionally viewed legacy TDM-based BDS in
two distinct segments: end user channel termination and dedicated
transport. Channel termination refers to the last-mile, local loop,
transmission links to end user locations, i.e., laterals. Transport
involves higher-capacity connections between network aggregation
points, i.e., middle-mile connections or feeder plant. In the BDS
context, the Commission referred to ``transport'' as interoffice
facilities and channel terminations between an incumbent LEC's serving
wire center and an interexchange carrier.
B. The Commission's Regulation of Business Data Services
6. The Commission has traditionally relied on sections 201 and 202
of the Act, to impose BDS pricing regulation to ensure that ``charges,
practices, classifications, and regulations'' for interstate
communication service provided by common carriers are ``just and
reasonable,'' and free of ``unjust or unreasonable discrimination.''
Under existing rules, incumbent LECs must therefore file tariff
schedules specifying the rates, terms, and conditions governing their
interstate service offerings. Section 204 prescribes procedures for
filing streamlined tariffs with the Commission subject to Commission
review and, if necessary, potential suspension and investigation should
the LECs' rates be found to violate the requirements of sections 201
and 202. After full opportunity for hearing upon a complaint or an
order for investigation and hearing, section 205 authorizes the
Commission to determine and prescribe just and reasonable charges.
7. Rate-of-Return and Price Cap Regulation. The Commission
traditionally has used two forms of rate regulation to ensure that the
rates, charges, and practices of incumbent LECs in connection with the
provision of BDS are ``just and reasonable'' under sections 201 and 202
of the Act: rate-of-return and price cap regulation. Under rate-of-
return regulation, a carrier's rates are set at levels allowing
recovery of operating costs plus an authorized rate of return
(currently 9.75%) on the regulated rate base. Under price cap
regulation, a carrier's rates are set at levels based on indices that
are adjusted downward based on an industry-wide productivity factor
``intended to capture the amount by which incumbent LECs could be
expected to outperform economy-wide productivity gains and to pass
those gains on to consumers in the form of lower prices.'' Carriers'
service areas are divided into study areas designated as price cap or
rate-of-return, depending on the applicable form of rate regulation.
Price cap study areas include urban areas and densely-
[[Page 42715]]
populated areas, while rate-of-return study areas are predominantly
rural and less-densely populated than price cap study areas.
8. Currently, in all price cap study areas and a little over a
third of rate-of-return study areas, there are no rate regulation and
tariffing obligations on incumbent LECs' packet-based and higher-
capacity (above DS3) TDM-based BDS (i.e., end user channel termination
service and transport service and other special access services). For
lower-capacity end user channel termination services provided by price
cap carriers and certain electing rate-of-return carriers, the
Commission preserved rate regulation and tariffing obligations and
adopted a competitive market test to identify areas with sufficient
competition warranting deregulation and detariffing of those services.
Lower-capacity TDM-based transport offered in rate-of-return study
areas is also subject to rate regulation and tariffing requirements. In
a little over two-thirds of rate-of-return study areas, rate regulation
and tariffing obligations still apply to end user channel termination
services and rate-of-return carriers may tariff certain packet-based
BDS.
9. Competitive Market Tests. The competitive market tests are used
to identify areas subject to potential or actual competition that
warranted eliminating rate regulation and tariffing obligations.
Results of the competitive market test are updated every three years to
determine whether any additional regulated counties or study areas meet
the competitive threshold. The Bureau released updated test results in
2020 and 2023, and the next update is due January 31, 2026.
10. Forbearance. An integral element of the ``pro-competitive, de-
regulatory national policy framework'' adopted in the
Telecommunications Act of 1996 (the 1996 Act) is the Commission's
forbearance authority under section 10. Section 10 of the Act, as
amended by the 1996 Act, requires the Commission to forbear from
applying the Act or its rules to a telecommunications carrier or a
telecommunications service if the Commission determines that: (1)
enforcement ``is not necessary to ensure that the charges, practices,
classifications, or regulations . . . are just and reasonable and are
not unjustly or unreasonably discriminatory,'' (2) enforcement ``is not
necessary for the protection of consumers,'' and (3) ``forbearance from
applying such provision or regulation is consistent with the public
interest.'' In making the public interest determination, the Commission
must also consider, pursuant to section 10(b) of the Act, ``whether
forbearance from enforcing the provision or regulation will promote
competitive market conditions.'' Forbearance is required only if all
three criteria are satisfied.
11. The Commission has a long history of granting price cap and
rate-of-return carriers forbearance from section 203 tariffing
requirements for various of their BDS offerings. More than a decade
ago, the Commission granted forbearance from section 203 tariffing
obligations to price cap carriers for their packet-switched and optical
transmission BDS. In 2017 and 2018, the Commission granted price cap
and electing rate-of-return carriers forbearance from section 203
tariffing obligations in the provision of packet-based and higher-
capacity TDM-based BDS, and lower speed end user channel termination
services in counties deemed competitive (82 FR 25660, June 2, 2017; 83
FR 67098, Dec. 28, 2018). In 2019, the Commission granted price cap
carriers forbearance from section 203 tariffing obligations for TDM-
based transport, 84 FR 38566 (Aug. 7, 2019).
12. Current State. To date, almost two-thirds of counties served by
price cap carriers (1,970 out of 3,234) have been deemed competitive or
were grandfathered and subject to mandatory deregulation and
detariffing for their lower-capacity end user channel termination
services. In total, 1,265 counties served by price cap carriers are
subject to ex ante pricing regulation and tariffing for their lower-
capacity TDM-based end user channel termination services. A little over
one-third of active rate-of-return carriers elected incentive
regulation (346 out of 1,107) and are thus subject to incentive
regulation for their BDS offerings. Of these 346 study areas, 17 have
been deemed competitive and subject to complete rate deregulation and
detariffing for their BDS. In total, 761 rate-of-return carriers remain
subject to ex ante pricing regulation and tariffing obligations for
their lower- and higher-capacity TDM-based BDS as of 2024.
C. Broader Deregulatory Efforts
13. This year, the President issued a series of Executive Orders
calling on administrative agencies to alleviate unnecessary regulatory
burdens. Consistent with this direction, in March, the Commission's
Office of General Counsel issued a Public Notice initiating a
proceeding broadly seeking public comment on ``deregulatory initiatives
that would facilitate and encourage American firms' investment in
modernizing their networks, developing infrastructure, and offering
innovative and advanced capabilities.'' The Public Notice, among other
things, broadly sought comment on Commission rules for which the costs
exceed the benefits and whether the rule produces the predicted
benefits or is unnecessary or inappropriate, whether rules are
unnecessary or inappropriate based on marketplace and technological
changes, whether the rules pose a barrier to entry, whether the changes
in the broader regulatory context render the rules unnecessary or
inappropriate, and, finally, whether there are any other considerations
relevant to identifying rules that are unnecessary or inappropriate.
14. Commenters identified part 61 tariff requirements and part 69
access charge rules as ripe for further deregulation and streamlining.
The International Center for Law and Economics (ICLE), for example,
argues that tariff requirements, ``thanks to competition . . . are now
largely obsolete'' and ``[f]urther simplification would reduce
administrative burdens and align with market-driven pricing.'' The
Digital Progress Institute argues that the Commission should ``fully
detariff all remaining TDM services, abolishing parts 61 and 69, and
allow carriers to reflect their actual costs.'' In support, the Digital
Progress Institute contends that ``arbitrary caps and tariffs stimulate
artificial demand for'' legacy TDM-based services, the part 61 and 69
rules ``divert investment from new infrastructure towards reams of
paperwork,'' and ``tariffing is unnecessary'' as ``[c]ompetition in the
voice market is so replete.'' USTelecom--The Broadband Association
identifies part 61 tariffing requirements to ``streamline or eliminate
unnecessary or obsolete rules in order to simplify processes without
making significant substantive changes.'' Commenters also identified
part 65, which governs rate-of-return prescription, as ripe for
deregulation. For example, ICLE argues that rate-of-return regulation
is ``largely obsolete, as the FCC has transitioned most carriers to
incentive-based frameworks (e.g., price caps)'' and that ``[p]art 65
perpetuates inefficiencies by tying investment decisions to artificial
returns, rather than market signals, thus discouraging modernization.''
III. Notice of Proposed Rulemaking and Third Further Notice of Proposed
Rulemaking
15. The Commission has long expressed its preference to rely on
competition rather than incentive-distorting regulation to ensure that
rates, terms, and conditions of telecommunications service are ``just
[[Page 42716]]
and reasonable.'' Accordingly, we propose to end ex ante pricing
regulation and tariffing obligations for end user channel termination
services provided by price cap and rate-of-return carriers, and
transport services provided by rate-of-return carriers. To effectuate
deregulation, we propose to grant incumbent LECs forbearance, pursuant
to section 10 of the Act, from section 203 tariffing and other
requirements for these deregulated services. We believe that
technological and marketplace developments have rendered ex ante
regulation and tariffing requirements unnecessary and seek comment on
these views. Finally, we alternatively seek comment on the efficacy and
continued viability of the incentive regulation framework for rate-of-
return carriers and the competitive market tests.
A. Business Data Services Marketplace Developments
16. In this section, we seek comment on broader developments in the
BDS marketplace, particularly on competitors' service deployment,
competitive conditions, and technological advancements, that would
support further deregulation.
17. The Commission has recognized the dramatic transformation of
the communications marketplace since Congress passed the 1996 Act. At
the time, incumbent LECs controlled 99.7% of the local telephone
service market. Today, incumbent LECs' wireline voice subscriptions
using switched access lines account for 19.5% (16.5 million
connections) of all wireline voice retail subscriptions and 16.1% (8.4
million connections) of all wireline voice retail business connections.
Between December 2019 and December 2023, residential connections to
copper (including DSL) provided by telephone companies decreased by
almost 40% from 17.6 million to 10.6 million. As of June 30, 2024,
copper wire technology only accounted for 8.0% of the fixed connections
used to deliver internet access service to end users.
18. When the Commission eliminated ex ante pricing regulation for
certain BDS provided by price cap carriers in 2017, it recognized that
higher bandwidth packet-based services, including Ethernet services,
``already ma[d]e up a large part of the business data services
marketplace'' and circuit-based DS1s and DS3s were becoming obsolete.
The Commission predicted that the shift from circuit-based to packet-
based services would continue at a ``rapid pace.'' Factoring in
intermodal competition, the Commission concluded that the enterprise
market was subject to ``intense competition,'' finding that 95% of
census blocks within Metropolitan Statistical Areas served by price cap
carriers with BDS demand (constituting 99% of all businesses) had at
least one competitive alternative to the incumbent LEC.
19. We seek updated information and data on the shift from circuit-
based to packet-based BDS in the years since 2017. We invite commenters
to submit or identify data that would justify further pricing
deregulation and detariffing. Acknowledging that a large data
collection could be burdensome and that our preference is to rely on
data either already in the Commission's possession or relevant data
provided by commenters, we seek comment on whether a data collection
would ultimately be necessary or beneficial in supporting the actions
we propose today. To what extent has the transition from TDM-based to
IP-based BDS rendered ex ante rate regulation and tariffing of lower-
capacity BDS and other regulated BDS unnecessary? To what extent does
rate regulation of BDS distort market incentives? Commenters have
previously suggested that ``as a result of more substitutes in the
market, incumbent LECs face declining sales in TDM-based services,
notably DS1s and DS3s, including customer loss to cable operators and
other providers.'' Have sales of TDM-based BDS declined? If so, by how
much? Do commenters attribute this decline to the availability of
higher bandwidth services? Are TDM-based services declining in rate-of-
return study areas at a rate similar to the decline in price cap areas?
We urge commenters to be as specific and detailed as possible in
describing trends in the BDS marketplace and the availability of
substitute services for TDM-based BDS.
20. Why do some users continue to purchase TDM-based BDS? Do any
industry standard practices or regulatory requirements encourage or
mandate the purchase of TDM-based services? We seek specific comment on
any regulations that require or encourage the purchase of TDM-based
BDS. Commenters should identify the public interest purpose of those
rules. In the absence of such a showing, we tentatively conclude that
any such rules should be eliminated to accelerate the IP Transition.
21. We also seek comment on how the competitive landscape has
changed given entry by cable operators. Prior reductions in ex ante
pricing regulation were premised in part on the Commission's predictive
judgment that dynamic and growing competition in the BDS market, driven
increasingly by the emergence of cable competition, would allow
reliance on competition rather than regulation to ensure just and
reasonable rates for BDS. At the time, the Commission acknowledged that
BDS provided by cable operators was growing at a rate of 20% annually
over the past several years. Between December 2019 and 2023,
residential connections to cable (DOCSIS 3.1) services increased from
67.1 million to 73.4 million, an increase of over 9%. As of December
31, 2023, residential cable broadband was deployed to approximately
86.7% of U.S. households and adopted in 66.4% of households. As of June
30, 2024, coaxial cable technology accounted for 59.0% of the fixed
connections used to deliver internet access service to end users. How
has market entry by cable providers changed in the years since 2017?
Have cable operators continued to deploy into counties and study areas
served by legacy TDM-based BDS? If so, can commenters quantify the
scope of such entry in terms of market share, revenues, and other
factors? In counties and study areas deemed competitive and deregulated
under the Commission's competitive market tests, what impact has this
deregulation had on end user channel termination services and transport
services?
22. We also seek comment on the existence and effect of other
market entrants regardless of the technology, including competing
providers using fiber, fixed wireless, satellite, and other
technologies to offer services that compete with incumbent LECs' TDM-
based BDS. Between December 2019 and December 2023, residential
connections to fiber increased 67.7% (from 16.7 to 28.0 million), to
terrestrial fixed wireless broadband increased 453.3% (from 1.5 to 6.8
million), and to satellite increased 11.1% (from 1.8 to 2.0 million).
Have the growth trends been similar for non-residential BDS? Have
competing providers been using fixed wireless, satellite or other
technologies to offer BDS? Has new entry for competing providers using
any technology been greater in areas that have been deregulated under
the competitive market test? What about other entrants such as non-
cable competitive LECs? What other services compete with or serve as
substitutes for TDM-based BDS? Do alternative suppliers put competitive
pressure on end user channel termination and transport services? If so,
how?
[[Page 42717]]
B. Deregulating End User Channel Termination and Transport Services in
Remaining Regulated Counties and Study Areas
23. Subject to a transition period, we propose to eliminate ex ante
pricing regulation and tariffing obligations for end user channel
termination services in all price cap study areas and rate-of-return
study areas and transport services offered in rate-of-return study
areas. We propose to deregulate these services in rate-of-return study
areas regardless of whether those carriers elected and are subject to
incentive regulation. Alternatively, we seek comment on eliminating
rate regulation and tariffing obligations for all price cap carriers'
lower-capacity TDM-based end user channel termination services and only
electing rate-of-return carriers' lower-capacity TDM-based end user
channel termination and transport services.
24. Does the fact that nearly two-thirds of counties served by
price cap carriers are no longer subject to ex ante pricing regulation
or tariffing obligations suggest that competition is sufficiently
ubiquitous in price cap areas to obviate the need to update the
competitive market test results? As previously noted, there are 329
active electing rate-of-return study areas that still tariff lower-
capacity end user channel termination services, and 761 active rate-of-
return study areas that still tariff end user channel termination and
transport services subject to rate-of-return regulation, and thus have
obligations to prepare cost studies, and file tariffs with the
Commission. What effect would deregulating the remaining regulated
counties and study areas have? What data could be used to estimate the
costs and benefits of deregulating the remaining counties and study
areas?
25. End User Channel Termination Services. We propose to end ex
ante pricing regulation and tariffing of end user channel termination
services provided by price cap and rate-of-return carriers. We propose
revisions to Sec. 61.201 of the Commission's rules that would require
price cap carriers to detariff lower-capacity end user channel
termination services subject to a 24-month transition. We propose
revisions to our part 61 rules that would require all rate-of-return
carriers to detariff all end user channel termination services subject
to a 24-month transition. We also propose revisions to Sec. 61.50(k)
of the Commission's rules that would require electing rate-of-return
carriers to detariff their lower-capacity TDM-based end user channel
termination services.
26. Is the market for the end user channel termination services
provided by price cap and rate-of-return carriers likely to be
sufficiently competitive going forward such that the harms of ex ante
pricing regulation would be greater than the harms that might occur
were we to not regulate? If the Commission eliminated regulations
associated with the provision of end user channel termination services,
lower-capacity TDM-based services in particular, what effect would this
have on prices and service availability and competition? To what extent
do differences in the price cap and rate-of-return marketplaces justify
different regulatory treatment for end user channel termination
services? If we deregulate rates charged by rate-of-return carriers
that did not elect incentive regulation, what effect would this have on
BDS prices and service availability and competition in those study
areas?
27. Transport Services. We also propose to end ex ante pricing
regulation for rate-of-return carriers' transport services. We propose
revisions to our part 61 rules that would require rate-of-return
carriers that are not subject to incentive regulation to detariff
lower- and higher-capacity TDM-based transport services subject to a
24-month transition. We also propose revisions to Sec. 61.50(k) of the
Commission's rules that would require electing rate-of-return carriers
to detariff their lower-capacity TDM-based transport services.
28. Do the costs and burdens of continuing to regulate transport
services offered by rate-of-return carriers outweigh the benefits? Why
or why not? Should the Commission treat TDM-based transport provided by
rate-of-return carriers that continue to receive cost-based legacy
universal service support differently? Why or why not? Do the costs and
burdens of continuing to regulate lower-capacity TDM-based transport
provided by electing rate-of-return carriers outweigh the benefits? Why
or why not? Does the analysis support treating price cap carriers'
transport services and rate-of-return carriers' transport services
equally?
29. Market Efficiencies. What benefits have commenters observed
resulting from deregulation of end user channel termination and
transport services? What benefits have commenters observed resulting
from deregulation in areas deemed competitive under the competitive
market tests? Are there any harms commenters have observed in
deregulated areas? Some commenters have suggested that there has been
an increase in prices for DS1s and DS3s and/or discontinuance of those
services without offering alternatives such as IP-based services. To
the extent these claims are valid, are the markets for these services
sufficiently competitive such that the harms of ex ante pricing
regulation outweigh the harms from deregulation and detariffing these
services?
30. Are these markets sufficiently competitive to maintain just and
reasonable rates, terms, and conditions for BDS? If the Commission
deregulated, what effect would this have on prices, service
availability, and competition? If we detariff and remove ex ante
pricing regulation of end-user channel termination and transport
services nationwide, would sections 201, 202, and 208 of the Act be
sufficient to protect consumers from unjust and unreasonable rates,
charges, and practices? Commenters are encouraged to provide evidence
and data to support their arguments.
31. Electing Rate-of-Return Carriers. As an alternative to the
removal of ex ante pricing regulation for all rate-of-return carriers'
BDS, should the Commission instead consider whether to subject electing
rate-of-return carriers' lower-capacity TDM-based end-user channel
termination and transport services to a competitive market test? If so,
should the Commission mirror the structure of the competitive market
tests it adopted previously? Should the same test be used for both end-
user channel termination services and transport services? Some
commenters have argued that a competitive market test for TDM-based
transport services ``should be structured in a manner that is
characterized by lower thresholds for electing rate-of-return carriers
to demonstrate transport competition than the competitive market test
the Commission adopted for end user channel termination services.'' Do
commenters agree? Why or why not? Should the Commission simply
deregulate and detariff electing rate-of-return carriers' lower-
capacity TDM-based BDS?
32. Rate-of-Return Carriers Not Subject to Incentive Regulation. As
part of the Commission's deregulatory approach, we propose to eliminate
ex ante rate regulation and tariffing obligations for rate-of-return
carriers that are not subject to incentive regulation, including
carriers receiving legacy cost-based universal service support. What
are the costs and benefits of this approach? Do the costs of rate
regulation and tariffing BDS offered by rate-of-return carriers
receiving legacy universal service support outweigh the benefits? If
the Commission deregulates BDS provided by rate-of-return carriers
nationwide, does this obviate the need
[[Page 42718]]
to have a voluntary incentive regulation framework under Sec. 61.50 of
the Commission's rules? Does eliminating ex ante rate regulation and
tariffing obligations for rate-of-return carriers receiving legacy
universal service support raise cost-shifting concerns? Are there
measures the Commission could take to avoid any potential system-gaming
opportunities if we deregulate and detariff BDS offerings provided by
rate-of-return carriers receiving legacy universal service support? Are
there other deregulatory approaches the Commission should consider with
respect to end user channel termination and transport services offered
by rate-of-return carriers receiving legacy universal service support?
What are the costs and benefits of any proposed approaches? Are there
BDS offerings provided by rate-of-return carriers beyond TDM-based end
user channel termination and transport that the Commission should
consider deregulating and detariffing and what are the costs and
benefits of any proposals?
33. Eliminating the Competitive Market Tests. Our proposal above to
deregulate and detariff BDS nationwide would obviate the need to
conduct the competitive market tests, accordingly, we propose to
eliminate the competitive market tests in Sec. Sec. 61.50(j) and
69.803 of the Commission's rules and seek comment on this approach. Is
competition sufficiently pervasive and ubiquitous in price cap and
rate-of-return study areas that it obviates the need for the
competitive market tests? Do the costs of running the tests outweigh
the benefits?
34. In 2017, the Commission concluded that price cap ``incumbent
LEC market power has been in many cases largely eliminated, and
elsewhere is declining thanks to increased competition in business data
services markets.'' One of the Commission's rationales for proposing a
competitive market test was to determine whether incumbent LEC market
power continued to exist. Does the competitive market test effectively
measure market power? Is there evidence that suggests incumbent LECs
exercise market power (i.e., the power to control price) in the
provision of end user channel termination services, particularly lower-
capacity services? Is there evidence that significant network
deployment of BDS, particularly lower-capacity BDS at or below the
level of a DS3, to end users is being leveraged in ways that prevent
abuses by incumbent LECs of market power?
35. When the Commission adopted the competitive market test for
electing rate-of-return carriers, it recognized that ``a relatively
small percentage of electing carriers' study areas will be deemed
competitive,'' which was ``consistent with the rural nature and ascent
deployment of cable in many eligible carriers' study areas.'' Is this
still true today in rate-of-return study areas nationwide? There are 28
total rate-of-return study areas (out of 1,107 study areas) that were
deemed competitive under the competitive market test. Is the relatively
low number of competitive rate-of-return study areas indicative of a
lack of competition in those study areas? Why or why not? Or does the
low number suggest that the competitive market test has not functioned
as the Commission anticipated? In regulated rate-of-return study areas,
is there evidence that ex ante pricing regulation and tariffing
distorts market incentives and causes harms? For instance, has the
maintenance of regulation on TDM-based BDS inhibited the deployment of
more advanced IP-based services?
C. Implementation
1. Forbearance
36. To effectuate these proposed deregulatory actions, we propose
to grant forbearance under section 10 of the Act from the application
of section 203 tariffing requirements for price cap and rate-of-return
carriers in their provision of end user channel termination services
nationwide and for rate-of-return carriers in their provision of
transport services nationwide. We seek comment on this proposal.
37. Specifically, we propose to detariff price cap carriers' TDM-
based lower-capacity (DS1 and DS3) end user channel termination
services in the remaining regulated counties by granting forbearance
from section 203 tariffing obligations. We propose to detariff electing
rate-of-return carriers' TDM-based lower-capacity (DS1 and DS3) end
user channel termination and transport services by granting forbearance
from section 203 tariffing obligations. We also propose to grant rate-
of-return carriers forbearance from section 203 tariffing requirements
in the provision of end user channel termination services and transport
services and other BDS on a nationwide basis. Our proposed forbearance
applies to rate-of-return carriers that did not elect, or were
ineligible to elect, incentive regulation, including rate-of-return
carriers receiving legacy universal service support. We seek comment on
this proposal. The Commission granted electing rate-of-return carriers
forbearance from tariffing obligations with respect to packet-based and
higher-capacity TDM BDS and lower-capacity TDM-based end user channel
termination services in study areas deemed competitive. The Commission
also granted forbearance from parts 32, 63, 64, 65, and 69 cost
assignment rules, part 36 separations rules, and Sec. 54.1305
reporting requirements for electing rate-of-return carriers' TDM-based
end user channel termination and transport services. We similarly
propose to grant forbearance from these rules to rate-of-return
carriers receiving model-based or fixed universal service support for
their TDM-based end user channel termination and transport services and
other BDS nationwide and we seek comment on this proposal.
38. Would forbearance for these services meet the statutory
criteria set y section 10 of the Act? Why or why not? Would forbearance
promote competitive market conditions? Would detariffing reduce
compliance costs, increase regulatory flexibility, increase incentives
to invest in innovative products and services, or otherwise be in the
public interest? Why or why not? Are the tariffing requirements no
longer necessary to ensure just and reasonable BDS rates? Are tariffing
requirements no longer necessary to protect consumers in the BDS
market? Are there other rules for which the Commission must or should
grant forbearance in connection with our deregulatory proposals here?
In the alternative, we seek comment on granting forbearance from
tariffing obligations to electing rate-of-return carriers' lower-
capacity TDM-based end user channel termination and transport services,
or solely to lower-capacity TDM-based transport services.
39. Most rate-of-return carriers establish rates for BDS by
participating in the National Exchange Carrier Association, Inc. (NECA)
traffic-sensitive tariff and traffic-sensitive pool. NECA sets BDS
rates based on aggregate costs projected to earn the authorized rate-
of-return. In the Rate-of-Return BDS Order, the Commission required
electing rate-of-return carriers participating in the NECA traffic-
sensitive tariff pool for their BDS to remove these services from the
pool since those services will be subject to incentive regulation. We
similarly propose to require these rate-of-return carriers
participating in the NECA traffic-sensitive tariff pool to remove their
BDS from the pool since they will no longer tariff these services.
Consistent with the Rate-of-Return BDS Order, we propose to allow rate-
of-return carriers exiting the NECA traffic-sensitive tariff pool to
participate in
[[Page 42719]]
NECA tariffs for services other than BDS. We seek comment on the costs
and benefits of this approach.
2. Transition Mechanism and Timing
40. We propose mandatory detariffing of remaining regulated end
user channel termination and transport services after a 24-month
transition, during which we will allow permissive tariffing. This is a
shorter period than the Commission provided in the Price Cap BDS Order
(82 FR 25660, June 2, 2017) and Rate-of-Return BDS Order (83 FR 67098,
Dec. 28, 2018), but we anticipate that it will provide incumbent LECs
sufficient time to adapt their BDS operations to a detariffed regime,
particularly since incumbent LECs have already undertaken some BDS
detariffing. We seek comment on this proposal. Under our proposal,
during the transition period, the Commission would accept new tariffs
and revisions to existing tariffs for affected services. And, apart
from the rate freeze discussed below, carriers would no longer be
required to comply with ex ante pricing regulation for the affected
services. At the conclusion of the transition period, no price cap
carrier or rate-of-return carrier may file or maintain any interstate
tariffs for the affected BDS. We seek comment on these proposals.
41. We seek comment on whether 24 months is an appropriate length
for the transition period. In the Price Cap BDS Order, the Commission
established a 36-month transition period that began on the effective
date of the order (60 days after Federal Register publication). And in
the Rate-of-Return BDS Order, the Commission established a 36-month
transition that began on the date incentive regulation became effective
for electing rate-of-return carriers, either July 1, 2019 or July 1,
2020 or after accepting future offers of A-CAM or other fixed support.
In that order, the Commission also established a 36-month transition
for detariffing lower-capacity end user channel termination services in
study areas that are newly deemed competitive. The Commission also
required price cap and rate-of-return carriers to freeze tariffed rates
for BDS subject to detariffing for six months after the effective date
of the Price Cap BDS Order and six months after the date the incentive
regulation becomes effective, respectively. The Commission structured
the transition in this way ``in light of the need for an adequate
transition to ensure that small businesses will have time to adjust to
the new regulatory conditions.''
42. For the same reasons, we propose to adopt a similar 6-month
rate freeze and seek comment on this proposal. Because a significant
number of carriers already have detariffed most of their BDS, we
propose a slightly abbreviated transition period of 24-months instead
of 36-months and seek comment on this approach. Should the Commission
adopt a longer transition for rate-of-return carriers and, if so, how
long would be an appropriate transition? Should we adopt a 24-month
transition for rate-of-return carriers to exit the NECA traffic-
sensitive pool for their BDS? Why or why not? Should we continue a
staged transition for rate-of-return carriers that need to exit the
NECA traffic-sensitive pool for their BDS, such as requiring them to
exit the pool within 12 months, subject to permissive detariffing, and
mandatory detariffing after 24 months? What are the costs and benefits
of this approach?
43. During this transition, should the Commission permit or require
rate-f-return carriers receiving legacy universal service support to
transition from rate-of-return to incentive regulation for their BDS
under Sec. 61.50 of the Commission's rules? What are the costs and
benefits of these approaches? Are these approaches feasible in light of
the fact that those carriers still calculate universal service support
based on costs? Are there potential cost-shifting concerns under this
approach that would inflate legacy universal service support without
network investments? Are there measures the Commission could take to
avoid these cost-shifting concerns?
D. Necessary Rule Changes
44. In Appendix A, we propose rules that would effectuate the
deregulation of price cap carriers' and rate-of-return carriers' end
user channel termination services and rate-of-return carriers'
transport services proposed above. We seek comment on these proposed
rules. We also seek comment on any other specific rule changes or new
rules necessitated by the deregulation proposed today after
consideration of the record. Any comments proposing new or amended
rules should include, as part of the commenter's submission, a draft
rule or markup of an existing rule.
E. Retaining Voluntary Incentive Regulation for Rate-of-Return Carriers
45. Alternatively, we seek comment on the continuing role of the
Commission's voluntary incentive regulation framework for electing
rate-of-return carriers. Incentive regulation is intended to replicate
the beneficial incentives of competition, encouraging carriers to be
more efficient by lowering costs to realize higher profits. Rate-of-
return regulation, by contrast, incentivizes carriers to inflate their
costs and rate base and make inefficiently high use of capital inputs
and imposes regulatory burdens on carriers requiring them to prepare
cost studies accounting for their costs. Over the last three decades,
the Commission has provided incentives to encourage incumbent LECs to
move from inefficient rate-of-return regulation to more efficient
incentive regulation.
46. Should we maintain the Commission's incentive regulation
framework? Should we require carriers receiving model-based or fixed
universal service support to adopt incentive regulation for their BDS,
particularly during a transition period to deregulation? Should we
require carriers that receive legacy universal service support and do
not participate in the NECA traffic-sensitive pool to adopt incentive
regulation for their BDS? Or should we require all rate-of-return
carriers to exit the NECA traffic-sensitive pool and adopt incentive
regulation for their BDS? Should we continue to make the election of
incentive regulation voluntary as the Commission did in 2018 and allow
additional opportunities for rate-of-return carriers receiving model-
based or fixed universal service support to elect incentive regulation?
We seek comment on the timing of such elections. For example, should we
provide an annual opportunity or only at fixed times during the
transition period? What are the costs and benefits of the different
approaches? Are there measures the Commission could take that would
appropriately incentivize carriers and avoid the risk of system-gaming?
F. Retaining the Competitive Market Tests
47. In the alternative, we propose to update the competitive market
tests to rely on Broadband Data Collection (BDC) program data if we
determine, based on the record, that limited regulation of BDS remains
necessary. In addition to seeking comment on the data transition, we
seek comment on how to make the competitive market tests more effective
in measuring competition.
48. Measuring Competition. Staff analysis in Appendix B suggests
that the competitive market tests may be underreporting competition.
Based on a cable-only measure used in the current tests, approximately
7.6% (96 counties) of the remaining 1,264 regulated price cap counties
and 1.5% (5 study areas) of the remaining 329 regulated study areas
meet the competitive thresholds. When the competitive market tests are
[[Page 42720]]
expanded to include competition from cable, fiber, and DSL
technologies, approximately 63.2% (800 counties) of regulated price cap
counties and 40.2% (131 study areas) of regulated rate-of-return study
areas meet the 75% competitive thresholds to be deemed competitive
under the existing tests. This analysis indicates the competitive
market tests may not sufficiently capture the extent of competition in
a county or study area. Do commenters agree? Why or why not?
49. We seek comment on updates or other modifications to the
competitive market tests if the Commission continues to use the tests.
Have the Commission's competitive market tests advanced the
Commission's policy objectives as originally intended? Why or why not?
In light of marketplace and technological changes since the tests were
adopted, what changes to the tests would commenters propose and why?
Specifically, given the significant growth in broadband availability
and services, should the Commission reevaluate the competitive
thresholds adopted for the competitive market tests or revise the tests
to measure competitive effects from additional providers (e.g., fiber-
to-the-premises, copper, and terrestrial fixed wireless providers)?
What are the costs and benefits of such changes? Are there other
updates to the competitive market tests the Commission should consider
to modernize and improve the tests to ensure that the tests result in
deregulation in areas where competition is likely to constrain rates to
just and reasonable levels?
50. We also seek comment on ultimately pausing or waiving the
competitive market test altogether. If, at the conclusion of this
proceeding, after careful consideration of the record, the Commission
decides to completely deregulate and detariff BDS then would it be
necessary to permanently pause or waive the competitive market tests?
51. Data Transition. In the event the Commission retains the
competitive market tests, it will be necessary to transition those
tests to the use of the BDC data given the sunset of the Form 477 data.
We seek comment on how to facilitate that transition. In particular, we
seek comment on revising Sec. Sec. 61.50(j)(2) (for rate-of-return
carriers) and 69.803(c)(1) (for price cap carriers) of the Commission's
rules to incorporate the use of BDC data in the competitive market
tests.
52. BDC data provide geographic locations within the Broadband
Serviceable Location Fabric (Fabric) where fixed broadband service is
or can be installed, specifying the technology and the maximum download
and upload speeds. We seek comment on conducting the triennial update
to the competitive market tests using BDC broadband availability data
on wireline or fixed wireless service. The Commission focused the
competitive market tests on the competitive presence from cable
operators offering broadband service regardless of the technology. Are
there other broadband services and/or competing providers that we
should consider when updating the results to the competitive market
tests? BDC data measure fiber-to-the-premises (FTTP), copper (DSL), and
terrestrial fixed wireless. Should we deem census blocks competitive if
they are served by providers offering FTTP, copper, terrestrial fixed
wireless, or other broadband services?
53. We next seek comment on the appropriate speed capacity for the
price cap competitive market test. While the Commission adopted a 10/1
Mbps capacity threshold for the competitive market test for areas
served by electing rate-of-return carriers, it did not specify a
similar threshold for the price cap competitive market test. If we
maintain the competitive market test, we would propose to revise Sec.
69.803(c)(1) to adopt a 10/1 Mbps download/upload capacity threshold
for the price cap competitive market test consistent with the rate-of-
return competitive market test. We seek comment on this approach.
54. We also seek comment on whether to continue to treat as
competitive census blocks that report business or residential BDC
broadband availability. In the current tests, any cable presence,
regardless of whether the cable operator was shown to be serving
business or residential customers, is treated as competitive, given the
high sunk costs of broadband network investment. The BDC data show
whether a particular service is residential-only, business-only, and
mixed-use customers. We seek comment on continuing to treat census
blocks as competitive if BDC data indicate broadband availability from
cable operators or other providers, regardless of customer type.
55. Should we continue to measure presence of a competitive
provider based on census blocks rather than locations even though BDC
data capture locations? Consistent with the existing approach, in areas
served by price cap carriers, a county will be deemed competitive if
BDC data demonstrate that 75% of the census blocks within the county
have broadband service by a competing provider in at least one
location, and in areas served by electing rate-of-return carriers, a
study area will be deemed competitive if BDC data show that 75% of the
census blocks within the study area have broadband service by a
competing provider in at least one location. We also seek comment on
excluding from the denominator of these calculations any census blocks
without broadband serviceable locations because otherwise unpopulated
areas without demand would distort the results and undercount
competition.
56. Alternatively, should we update the competitive market tests
based on location-level calculations? Should we treat a county or study
area as competitive if a set threshold percentage of locations report
BDC broadband connection availability offered by a competing provider?
Or should we consider adopting a competitive threshold based on
locations within a half-mile of BDS demand? If so, should we apply the
current 75% competitive threshold or another threshold?
G. Cost-Benefit Analysis
57. We seek comment on the benefits and costs of ending ex ante
pricing regulation and tariffing obligations for BDS. How will the
deregulation of rates charged for legacy TDM-based BDS in counties and
study areas currently deemed non-competitive affect market prices for
these services? Are there potential costs to deregulating legacy TDM-
based BDS in these markets? We seek comment on whether ex ante pricing
regulation remains effective or necessary to discipline provider prices
in markets deemed non-competitive. Absent rate regulation, would
incumbent LECs still wield market power such that deregulating these
areas would lead to higher prices?
58. We also seek comment on the likely benefits of eliminating
pricing regulation and tariffing obligations for incumbent LECs in
currently non-competitive areas. What regulatory costs will incumbent
LECs avoid as a result of such deregulation? For example, what are the
likely savings in labor hours resulting from not having to file tariffs
or comply with price regulation? Our preliminary analysis indicates
that annual cost savings from reduced compliance and filings costs
associated with detariffing will amount to approximately $1 million. We
seek comment on this analysis and result.
59. In addition, what are the likely benefits to competition of
relaxing these regulations for incumbent LECs? To what extent will
incumbent LECs be better able to respond to competitive initiatives by
cable companies and competing providers of BDS, and to what extent will
consumers benefit as a result? Relatedly, to what extent might
[[Page 42721]]
deregulation reduce possible price coordination facilitated by the
incumbent LEC's tariffing obligations among broadband competitors in
areas still subject to pricing and tariffing regulation?
60. We also seek comment on whether, and to what extent, the
competitive market tests accurately measure the extent of competition
in these markets. As discussed above, if our tests understate the
extent of competition for both price cap and rate-of-return carriers,
what are the relative costs and benefits of deregulation if the areas
that are deregulated are effectively competitive already?
61. Market for Legacy TDM-Based Services. Appendix B reports the
results of an initial staff analysis of BDS competition in currently
non-competitive areas using BDC data as of June 30, 2024. The inclusion
of competing cable, fiber, and DSL technologies increases the number of
counties that would be deemed competitive. Based on the inclusion of
these additional technologies, an additional approximate 63% (800
counties) of the remaining 1,264 regulated price cap counties and 40%
(131 study areas) of the remaining 329 regulated study areas meet the
competitive thresholds for deregulation. The additional competitive
pressure from providers utilizing these technologies suggests that
prices would not be impacted significantly by deregulation in a large
share of areas currently deemed non-competitive based on the previous
iteration of the competitive market test. The few remaining non-
competitive areas would still experience pricing pressure from fixed
wireless and satellite, limiting any potential price increases from
deregulation. We seek comment on this analysis and this tentative
conclusion. Do the original competitive market tests understate true
competition such that our updated analysis is a necessary step to
inform needed deregulatory action? As in our discussion above, we seek
comment on any other necessary improvements or modifications to this
analysis to measure competition for BDS.
62. We seek comment on the change in demand for legacy TDM-based
BDS in recent years. How quickly, and to what extent, is demand for
these legacy services shrinking relative to demand for packet-based
services? For price cap and rate-of-return carriers currently under ex
ante pricing regulation, how have these revenues changed vis-[agrave]-
vis revenues for packet-based services over the past five years? We
encourage commenters to submit any data and reports on the size of this
market segment. Specifically, are there recent estimates of annual
nationwide revenues for legacy TDM-based services? Are there data that
capture the revenues of only the regulated services in areas where ex
ante price regulation is still in effect? Do pricing dynamics differ
between end user channel termination and transport services? That is,
would we need separate approaches to understand the impact of
deregulation on each service? If these services have become largely
obsolete, would the economic impact of deregulation, even in areas
where incumbent LECs exhibit market power, be limited?
63. Additional Considerations. In the absence of rate regulation
and tariffing obligations, we seek comment on what proportion of legacy
TDM-based BDS arrangements would likely shift to alternative commercial
services offered by incumbent LECs or other competitors, and at what
prices. If commenters expect that prices for commercial alternatives to
lower capacity TDM-based BDS will be higher or lower than the current
rates, we seek comment on why that would be so.
64. What are the expected impacts to investment of each proposal
discussed above? If incumbent LECs increase their investment in fiber
or next-generation services as a result of any relief, how should we
account for such increased investment in any updated cost-benefit
analysis? To the extent that the elimination of certain lower capacity
TDM-based BDS would have economic effects on end users, we seek comment
as to the magnitude of these effects and how we should quantify them.
For example, how can we quantify the benefits of migrating users to
next-generation services or higher speed networks? Should we confine
our analysis to consumers that currently rely on lower capacity TDM-
based BDS or take into account the network effects that migrations to
new networks could have on all consumers?
65. We also seek comment on any other benefits and costs of our
proposed actions. More generally, for each proposal discussed above, we
seek comment on the respective costs and benefits of particular
alternative rules or approaches as compared to retaining the current
rate regulation and tariffing requirements.
IV. Procedural Matters
66. Ex Parte Requirements. This proceeding shall be treated as a
``permit-but-disclose'' proceeding in accordance with the Commission's
ex parte rules. Persons making ex parte presentations must file a copy
of any written presentation or a memorandum summarizing any oral
presentation within two business days after the presentation (unless a
different deadline applicable to the Sunshine period applies). Persons
making oral ex parte presentations are reminded that memoranda
summarizing the presentation must (1) list all persons attending or
otherwise participating in the meeting at which the ex parte
presentation was made, and (2) summarize all data presented and
arguments made during the presentation. If the presentation consisted
in whole or in part of the presentation of data or arguments already
reflected in the presenter's written comments, memoranda or other
filings in the proceeding, the presenter may provide citations to such
data or arguments in his or her prior comments, memoranda, or other
filings (specifying the relevant page and/or paragraph numbers where
such data or arguments can be found) in lieu of summarizing them in the
memorandum. Documents shown or given to Commission staff during ex
parte meetings are deemed to be written ex parte presentations and must
be filed consistent with rule 1.1206(b). In proceedings governed by
Rule 1.49(f) or for which the Commission has made available a method of
electronic filing, written ex parte presentations and memoranda
summarizing oral ex parte presentations, and all attachments thereto,
must be filed through the electronic comment filing system available
for that proceeding, and must be filed in their native format (e.g.,
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding
should familiarize themselves with the Commission's ex parte rules.
67. Regulatory Flexibility Act. The Regulatory Flexibility Act of
1980, as amended (RFA), requires that an agency prepare a regulatory
flexibility analysis for notice and comment rulemakings, unless the
agency certifies that ``the rule will not, if promulgated, have a
significant economic impact on a substantial number of small
entities.'' Accordingly, the Commission has prepared an Initial
Regulatory Flexibility Analysis (IRFA) concerning the potential rule
and policy changes contained in this NPRM and Third FNPRM. The IRFA is
set forth in Appendix C. The Commission invites the general public,
particularly small businesses, to comment on the IRFA. Comments must be
filed by the deadlines for comments on the NPRM and Third FNPRM
indicated on the first
[[Page 42722]]
page of this document and must have a separate and distinct heading
designating them as responses to the IRFA.
V. Initial Regulatory Flexibility Analysis
68. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Federal Communications Commission (Commission) has
prepared this Initial Regulatory Flexibility Analysis (IRFA) of the
policies and rules proposed in the NPRM and Third FNPRM assessing the
possible significant economic impact on a substantial number of small
entities. The Commission requests written public comments on this IRFA.
Comments must be identified as responses to the IRFA and must be filed
by the deadlines for comments specified on the first page of the NPRM
and Third FNPRM. The Commission will send a copy of the NPRM and Third
FNPRM, including this IRFA, to the Chief Counsel for Advocacy of the
Small Business Administration (SBA). In addition, the NPRM and Third
FNPRM and IRFA (or summaries thereof) will be published in the Federal
Register.
A. Need for, and Objectives of, the Proposed Rules
69. In response to the growth of competition for business data
services (BDS), the Commission has, in recent years, streamlined its
regulation of these services to promote long-term innovation and
investment in response to the growth of competition for these services.
In 2017, the Commission reduced ex ante pricing regulation for some BDS
provided by price cap incumbent local exchange carriers (LECs or
carriers), concluding that reducing government intervention and
allowing market forces to continue working would spur entry,
innovation, and competition in the markets served by price cap
carriers. In 2018, the Commission took similar deregulatory actions to
relieve some BDS provided by rate-of-return carriers receiving
Alternative Connect America Cost Model (A-CAM) support or other forms
of fixed universal service fund support (electing rate-of-return
carriers) fixed high-cost universal service support from ex ante
pricing regulation. In both cases, the Commission adopted a regulatory
framework governing BDS that would apply ex ante pricing regulation
only where competition is expected to materially fail to ensure just
and reasonable rates measured by competitive market tests.
70. In today's NPRM and Third FNPRM, the Commission continues its
efforts to streamline its regulation of BDS to promote investment and
competition. Specifically, we propose to end ex ante pricing regulation
and tariffing for end user channel termination services and transport
services provided by incumbent local exchange carriers. Alternatively,
we propose to end ex ante pricing regulation for Time Division
Multiplexing (TDM)-based DS1 and DS3 end user channel termination
services provided by price cap and electing rate-of-return carriers in
areas that, to date, have not yet been deemed competitive under the
competitive market tests. We also propose to take the same actions with
regard to TDM-based DS1 and DS3 transport services provided by electing
rate-of-return carriers. In doing so, we seek comment on the efficacy
of the competitive market tests in measuring competition. As an
alternative to removing ex ante regulation, we seek comment on possible
changes to the competitive market tests to better align those tests
with current market conditions and on transitioning the competitive
market tests from using Form 477 data to using Broadband Data
Collection (BDC) data to update the results of the competitive market
tests as required by Sec. Sec. 61.50 and 69.803 of the Commission's
rules resulting from the sunsetting of the collection of broadband
deployment data through Form 477 in December 2022.
B. Legal Basis
71. The proposed action is authorized pursuant to sections 1, 4(i)
and (j), 10, 201(b), 202(a), 214, 303(r), 403, of the Communications
Act of 1934, as amended, and section 706 of the Telecommunications Act
of 1996, 47 U.S.C. 151, 152, 154(i) and (j), 160, 201(b), 202(a), 214,
303(r), 1302.
C. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules Will Apply
72. The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' The SBA establishes small business size standards that
agencies are required to use when promulgating regulations relating to
small businesses; agencies may establish alternative size standards for
use in such programs, but must consult and obtain approval from SBA
before doing so.
73. Our actions, over time, may affect small entities that are not
easily categorized at present. We therefore describe three broad groups
of small entities that could be directly affected by our actions. 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 34.75 million
businesses. Next, ``small organizations'' are not-for-profit
enterprises that are independently owned and operated and not dominant
their field. While we do not have data regarding the number of non-
profits that meet that criteria, over 99 percent of nonprofits have
fewer than 500 employees. Finally, ``small governmental jurisdictions''
are defined as cities, counties, towns, townships, villages, school
districts, or special districts with populations of less than fifty
thousand. Based on the 2022 U.S. Census of Governments data, we
estimate that at least 48,724 out of 90,835 local government
jurisdictions have a population of less than 50,000.
74. The rules proposed in the NPRM and Third FNPRM will apply to
small entities in the industries identified in the chart below by their
six-digit North American Industry Classification System codes and
corresponding SBA size standard.
--------------------------------------------------------------------------------------------------------------------------------------------------------
% Small firms
Regulated industry NAICS code SBA size standard Total firms Small firms in industry
--------------------------------------------------------------------------------------------------------------------------------------------------------
All Other Telecommunications................. 517810 $40 million.............................. 1,079 1,039 96.29
Telecommunications Resellers................. 517121 1,500 employees.......................... 1,386 1,375 99.21
Wired Telecommunications Carriers............ 517111 1,500 employees.......................... 3,054 2,964 97.05
Wireless Telecommunications Carriers (except 517112 1,500 employees.......................... 2,893 2,837 98.06
Satellite).
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 42723]]
75. Based on currently available U.S. Census data regarding the
estimated number of small firms in each identified industry, we
conclude that the adopted rules will impact a substantial number of
small entities. Where available, we provide additional information
regarding the number of potentially affected entities in the above
identified industries, and information for other affected entities, as
follows.
----------------------------------------------------------------------------------------------------------------
2024 Universal service monitoring report telecommunications SBA size standard (1,500 Employees)
service provider data (data as of December 2023) -----------------------------------------------
----------------------------------------------------------------- Total # FCC
form 499A Small firms % Small
Affected entity filers entities
----------------------------------------------------------------------------------------------------------------
Competitive Local Exchange Carriers (CLECs)..................... 3,729 3,576 95.90
Incumbent Local Exchange Carriers (Incumbent LECs).............. 1,175 917 78.04
Interexchange Carriers (IXCs)................................... 113 95 84.07
Local Exchange Carriers (LECs).................................. 4,904 4,493 91.62
Local Resellers................................................. 222 217 97.75
Other Toll Carriers............................................. 74 71 95.95
Toll Resellers.................................................. 411 398 96.84
Telecommunications Resellers.................................... 633 615 97.16
Wired Telecommunications Carriers............................... 4,682 4,276 91.33
Wireless Telecommunications Carriers (except Satellite)......... 585 498 85.13
Wireless Telephony.............................................. 326 247 75.77
----------------------------------------------------------------------------------------------------------------
76. Wired Broadband Internet Access Service Providers (Wired ISPs).
According to Commission data on internet access services as of June 30,
2024, nationwide there were approximately 2,204 providers of
connections over 200 kbps in at least one direction using various
wireline technologies.
77. Wireless Broadband Internet Access Service Providers (Wireless
ISPs or WISPs). According to Commission data on internet access
services as of June 30, 2024, nationwide there were approximately 1,157
fixed wireless and 52 mobile wireless providers of connections over 200
kbps in at least one direction.
78. Cable Companies and Systems (Rate Regulation). The Commission
has developed its own small business size standard 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. Based
on industry data, there are about 420 cable companies in the U.S. Of
these, only seven have more than 400,000 subscribers. In addition,
under the Commission's rules, a ``small system'' is a cable system
serving 15,000 or fewer subscribers. Based on industry data, there are
about 4,139 cable systems (headends) in the U.S. Of these, about 639
have more than 15,000 subscribers. Accordingly, the Commission
estimates that the majority of cable companies and cable systems are
small under this size standard.
79. Cable System Operators (Telecom Act Standard). The
Communications Act of 1934, as amended, contains a size standard for a
``small cable operator,'' which is ``a cable operator that, directly or
through an affiliate, serves in the aggregate fewer than one 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.'' For purposes of the Telecom Act Standard, the
Commission determined that a cable system operator that serves fewer
than 498,000 subscribers, either directly or through affiliates, will
meet the definition of a small cable operator. Based on industry data,
only six cable system operators have more than 498,000 subscribers.
Accordingly, the Commission estimates that the majority of cable system
operators are small under this size standard.
D. Description of Economic Impact and Projected Reporting,
Recordkeeping, and Other Compliance Requirements for Small Entities
80. The RFA directs agencies to describe the economic impact of
proposed rules on small entities, as well as projected reporting,
recordkeeping and other compliance requirements, including an estimate
of the classes of small entities which will be subject to the
requirements and the type of professional skills necessary for
preparation of the report or record.
81. In the NPRM and Third FNPRM, the Commission seeks comment on
proposals to reduce its regulation of BDS. In particular, the
Commission seeks comment on ending ex ante pricing regulation for end
user channel termination services provided by price cap and rate-of-
return carriers. We also propose to take the same actions with regard
to transport services provided by rate-of-return carriers. To
effectuate these proposals, the Commission proposes to grant
forbearance from tariffing and other requirements, and require
mandatory detariffing of the affected BDS following a transition. As an
alternative, we seek comment on modernizing the competitive market
tests and transitioning those tests to using BDC data. The NPRM and
Third FNPRM proposes mandatory detariffing of remaining end user
channel termination and transport services after a 24-month transition
to allow incumbent LECs sufficient time to adapt their BDS operations
to a detariffing regime. This would be similar to previous detariffing
actions, however with less time to comply because many carriers have
already detariffed their BDS. In proposing these reforms, the
Commission seeks comment on any costs and burdens on small entities
associated with the proposed rules, including data quantifying the
extent of those costs or burdens. Because we propose to streamline our
regulation of BDS, the Commission estimates that any compliance costs
for small entities will be minimal.
82. It is possible that compliance with mandatory detariffing, if
adopted, may impact some small entities and may include new or reduced
administrative processes, which the Commission does not expect will
require small entities to hire professionals to comply. For small
carriers that may be affected, obligations may include changes to
existing tariffs during the transition and eventual removal of tariffs
for the affected BDS. However, these impacts may be mitigated by the
deregulatory nature of the proposed reforms, which would relieve
affected small carriers from having to tariff their BDS. We seek
comment on potential costs and benefits associated with the
Commission's
[[Page 42724]]
proposals, including information that will allow the Commission to
further quantify the costs of compliance for small entities to
determine whether it will be necessary for small entities to hire
professionals to comply with the proposed rules, if adopted.
E. Discussion of Significant Alternatives Considered That Minimize the
Significant Economic Impact on Small Entities
83. The RFA directs agencies to provide a description of any
significant alternatives to the proposed rules that would accomplish
the stated objectives of applicable statutes, and minimize any
significant economic impact on small entities. The discussion is
required to include alternatives such as: ``(1) the establishment of
differing compliance or reporting requirements or timetables that take
into account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (3) the
use of performance rather than design standards; and (4) an exemption
from coverage of the rule, or any part thereof, for such small
entities.''
84. The NPRM and Third FNPRM seeks comment from all interested
parties on the proposals and what potential burdens would be imposed by
ending ex ante regulation for end user channel termination services and
transport services. As an alternative to ending ex ante pricing
regulation, the NPRM and Third FNPRM seeks comment on how the
Commission can modernize the competitive market tests to make them more
accurate based on current data in light of technological and
marketplace developments. This includes comments on whether BDC data,
which currently rely on broadband availability data submitted by cable
operators, is sufficient to capture competition in an area, or whether
alternatively the tests should be revised to measure competitive
effects from additional competitive providers, such as providers of
fiber-to-the-premises, copper, and terrestrial fixed wireless. As
another alternative, the Commission seeks comment on encouraging more
small and other incumbent local exchange carriers subject to rate-of-
return regulation for their BDS to transition these services to the
Commission's incentive regulation framework with pricing flexibility
and regulatory relief. The NPRM and Third FNPRM also proposes a 24-
month transition period to allow small and other incumbent LECs time to
adapt their business data services operations to a detariffing regime,
and seeks comment on whether an alternative timeline of 36-months,
similar to previous detariffing orders, would be more appropriate for
carriers.
F. Federal Rules That May Duplicate, Overlap, or Conflict With the
Proposed Rules
85. None.
VI. Ordering Clauses
86. Accordingly, it is ordered, pursuant to sections 1, 4(i)-(j),
10, 201(b), 202(a), 214, 303(r), 403, of the Communications Act of
1934, as amended, and section 706 of the Telecommunications Act of
1996, 47 U.S.C. 151, 152, 154(i) and (j), 160, 201(b), 202(a), 214,
303(r), 403, 1302, this Notice of Proposed Rulemaking and Third Further
Notice of Proposed Rulemaking is adopted.
87. It is further ordered that, pursuant to applicable procedures
set forth in Sec. Sec. 1.415 and 1.419 of the Commission's rules, 47
CFR 1.415, 1.419, interested parties may file comments on the Notice of
Proposed Rulemaking and Third Further Notice of Proposed Rulemaking on
or before 30 days after publication in the Federal Register, and reply
comments on or before 45 days after publication in the Federal
Register.
88. It is further ordered that, pursuant to section 220(i) of the
Communications Act of 1934, as amended, 47 U.S.C. 220(i), that notice
be given to each state commission of the above rulemaking proceeding,
and that the Wireline Competition Bureau shall serve a copy of this
Notice of Proposed Rulemaking and Third Further Notice of Proposed
Rulemaking on each state commission.
89. It is further ordered that the Commission's Office of the
Secretary, shall send a copy of the Notice of Proposed Rulemaking,
including the Initial Regulatory Flexibility Analysis, to the Chief
Counsel for Advocacy of the Small Business Administration.
List of Subjects
47 CFR Part 61
Communications common carriers, Radio, Reporting and recordkeeping
requirements, Telegraph, Telephone.
47 CFR Part 69
Communications common carriers, Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
Katura Jackson,
Federal Register Liaison Officer, Office of the Secretary.
Proposed Rules
For the reasons discussed in the preamble, the Federal
Communications Commission proposes to amend 47 CFR parts 61 and 69 as
follows:
PART 61--TARIFFS
0
1. The authority citation for part 61 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 154(j), 201-205, 403, unless
otherwise noted.
Subpart E--General Rules for Dominant Carriers
0
2. Amend Sec. 61.50 by removing and reserving paragraph (j), removing
and reserving paragraph (k)(3)(ii), and adding paragraphs (k)(3)(iii)
and (k)(4) to read as follows:
Sec. 61.50 Regulation of business data services offered by rate-of-
return carriers electing incentive regulation.
* * * * *
(j) [Removed and Reserved]
(k) * * *
(3) * * *
(ii) [Removed and Reserved]
(iii) All time division multiplexed end user channel termination
business data services at or below a DS3 bandwidth and time division
multiplexed transport business data services at or below a DS3
bandwidth within twenty-four months after September 4, 2025.
(4) Time division multiplexed end user channel termination business
data services at or below a DS3 bandwidth and time division multiplexed
transport business data services at or below a DS3 bandwidth detariffed
in accordance with paragraph (k)(3)(iii) of this section shall not be
subject to ex ante pricing regulation.
* * * * *
Subpart K--Detariffing of Business Data Services
0
3. Amend Sec. 61.201 by adding paragraph (a)(6) and revising paragraph
(b) to read as follows:
Sec. 61.201 Detariffing of price cap local exchange carriers.
* * * * *
(a) * * *
(6) All tariffed DS1 and DS3 end user channel terminations not yet
deemed competitive as defined in Sec. 69.801 of this chapter.
(b) The detariffing referenced in paragraph (a)(6) of this section
must be completed twenty-four months after
[[Page 42725]]
September 4, 2025, but detariffing can take place at any time before
the twenty-four months is completed.
0
4. Add Sec. 61.205 to read as follows:
Sec. 61.205 Detariffing of rate-of-return local exchange carriers.
* * * * *
(a) Rate-of-return local exchange carriers shall remove from their
interstate tariffs:
(1) End user channel terminations, and all other tariffed special
access services; and
(2) Any transport services as defined in Sec. 69.801(j) of this
chapter.
(b) Rate-of-return local exchange carriers shall remove their
business data services from the NECA Traffic Sensitive Pool but may
continue to participate in the NECA Traffic Sensitive Pool for access
services other than business data services.
(c) The detariffing must be completed twenty-four months after
September 4, 2025, but detariffing can take place at any time before
the twenty-four months is completed.
PART 69--ACCESS CHARGES
0
5. The authority citation for part 69 continues to read as follows:
Authority: 47 U.S.C. 154, 201, 202, 203, 204, 218, 220, 254,
403.
Subpart I--Business Data Services
0
6. Amend Sec. 69.801 by removing and reserving paragraphs (b), (f),
and (g) and revising paragraph (e) to read as follows:
69.801 Definitions.
* * * * *
(b) [Removed and Reserved]
* * * * *
(e) Grandfathered market. A county for which a price cap local
exchange carrier obtained Phase II relief pursuant to Sec. 69.711(c).
(f) [Removed and Reserved]
(g) [Removed and Reserved]
* * * * *
Sec. 69.803 [Removed and Reserved].
0
7. Remove and reserve Sec. 69.803.
Sec. 69.805 [Removed and Reserved].
0
8. Remove and reserve Sec. 69.805.
0
9. Amend Sec. 69.807 by removing and reserving paragraph (c) and
revising paragraph (b) to read as follows:
Sec. 69.807 Regulatory Relief.
* * * * *
(b) Price cap local exchange carrier end user channel terminations
subject to detariffing in Sec. 61.201(a)(6) and (c) of this chapter
are granted the following regulatory relief:
(1) Elimination of the rate structure requirements in subpart B of
this part;
(2) Elimination of price cap regulation; and
(3) Elimination of tariffing requirements as specified in Sec.
61.201 of this chapter.
(c) [Removed and Reserved]
[FR Doc. 2025-16981 Filed 9-3-25; 8:45 am]
BILLING CODE 6712-01-P