Implementation of the Local Competition Provisions in the Telecommunications Act of 1996

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[CC Docket No. 96-98, FCC 96-182]

Implementation of the Local Competition Provisions in the

Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In enacting the Telecommunications Act of 1996 (1996 Act)

Congress sought to establish a pro-competitive, deregulatory national

policy framework for the telecommunications industry. In adding new

sections 251, 252, and 253 to the Communications Act of 1934, Congress

set forth a blueprint for ending monopolies in local telecommunications

markets. Section 251(d)(1) of the Act directs the Commission to

establish rules to implement the requirements of Section 251. In this

Notice of Proposed Rulemaking (``NPRM'') the Commission seeks to

implement the local competition provisions of the 1996 Act. The

Commission's rules that arise from this rulemaking proceeding will

serve to promote the procompetitive provisions of the statute. These

rules will assist incumbent LECs, telecommunications carriers, state

commissions, the Commission, and the courts in defining rights and

responsibilities regarding

[[Page 18312]]

interconnection, unbundling, resale, and many other issues under the

1996 Act. The rules will relate to such issues as: the negotiation

process between incumbent LECs and telecommunications carriers; state

commission approval of arbitrated agreements; the Commission's review

of arbitrated agreements when a state commission fails to act; judicial

review of state commission and this Commission's actions; statements of

generally available terms and conditions by Bell Operating Companies;

removal of barriers to entry; and BOC entry into interLATA services.

DATES: Comments on all sections other than Dialing Parity, Number

Administration, Public Notice of Technical Changes, and Access to

Rights of Way, must be submitted on or before May 16, 1996. Reply

comments must be filed on or before May 30, 1996. Comments on the

remaining sections must be submitted on or before May 20, 1996. Reply

comments for these sections must be submitted on or before June 3,

1996. Written comments on the Initial Regulatory Flexibility Analysis

must be filed in accordance with the same filing deadlines set for

comments on the issues other than Dialing Parity, Number

Administration, Public Notice of Technical Changes, and Access to

Rights of Way, in the NPRM, but they must have a separate and distinct

heading designating them as responses to the Regulatory Flexibility

Analysis. Written comments by the public on the proposed and/or

modified information collections are due on or before May 16, 1996.

Written comments must be submitted by the Office of Management and

Budget (OMB) on the proposed and/or modified information collections on

or before June 24, 1996.

ADDRESSES: Comments and reply comments should be sent to Office of the

Secretary, Federal Communications Commission, 1919 M Street, NW., Room

222, Washington, DC 20554, with a copy to Janice Myles of the Common

Carrier Bureau, 1919 M Street, NW., Room 544, Washington, DC 20554. A

copy of Comments and Reply Comments on Dialing Parity, Number

Administration, Public Notice of Technical Changes, and Access to

Rights of Way should be submitted to Gloria Shambley of the Network

Services Division, Common Carrier Bureau, 2000 M Street, NW.,

Washington, DC 20554. Parties should also file one copy of any

documents filed in this docket with the Commission's copy contractor,

International Transcription Services, Inc., 2100 M Street, NW., Suite

140, Washington, DC 20037. Comments and reply comments will be

available for public inspection during regular business hours in the

FCC Reference Center, 1919 M Street, NW., Room 239, Washington, DC

20554. Parties are also asked to submit comments and reply comments on

diskette. Such diskette submissions would be in addition to and not a

substitute for the formal filing requirements addressed above. Parties

submitting diskettes should submit them to Janice Myles of the Common

Carrier Bureau, 1919 M Street, NW., Room 544, Washington, DC 20554. In

addition to filing comments with the Secretary, a copy of any comments

on the information collections contained herein should be remitted to

Dorothy Conway, Federal Communications Commission, Room 234, 1919 M

Street, NW., Washington, DC 20554 or via the Internet to

[email protected], and to Timothy Fain, OMB Desk Officer, 10236 NEOB,

725--17th Street, NW., Washington, DC 20503 or via the Internet to

[email protected].

FOR FURTHER INFORMATION CONTACT: Donald Stockdale or Kalpak Gude at

(202) 418-1580, Common Carrier Bureau, Policy and Program Planning

Division. For information concerning Dialing Parity, Number

Administration, and Public Notice of Technical Changes, contact Lisa

Boehley at (202) 418-2320. For Access to Rights of Way contact Tom

Power at (202) 416-1188. For additional information concerning the

information collections contained in the NPRM, contact Dorothy Conway

at (202) 418-0217, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This NPRM contains proposed or modified

information collections subject to the Paperwork Reduction Act of 1995

(PRA). It has been submitted to the Office of Management and Budget

(OMB) for review under the PRA. OMB, the general public, and other

federal agencies are invited to comment on the proposed or modified

information collections contained in this proceeding. This is a

synopsis of the Commission's Notice of Proposed Rulemaking (FCC 96-182)

adopted on April 19, 1996 and released on April 19, 1996. The full text

of this Notice of Proposed Rulemaking is available for inspection and

copying during normal business hours in the FCC Reference Center (Room

239), 1919 M Street, NW., Washington, DC. The complete text also may be

purchased from the Commission's copy contractor, International

Transcription Service, Inc., (202) 857-3800, 2100 M Street, NW., Suite

140, Washington, DC 20037.

Paperwork Reduction Act: This NPRM contains either a proposed or

modified information collection. The Commission, as part of its

continuing effort to reduce paperwork burdens, invites the general

public and the Office of Management and Budget (OMB) to comment on the

information collections contained in this NPRM, as required by the

Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency

comments are due at the same time as comments on the other issues

(other than Dialing Parity, Number Administration, Public Notice of

Technical Changes, and Access to Rights of Way) in the NPRM; OMB

notification of action is due June 24, 1996. Comments should address:

(a) Whether the proposed collection of information is necessary for the

proper performance of the functions of the Commission, including

whether the information shall have practical utility; (b) the accuracy

of the Commission's burden estimates; (c) ways to enhance the quality,

utility, and clarity of the information collected; and (d) ways to

minimize the burden of the collection of information on the

respondents, including the use of automated collection techniques or

other forms of information technology.

OMB Approval Number: None.

Title: Implementation of the Local Competition Provisions in the

Telecommunications Act of 1996, CC Docket No. 96-98.

Form No.: N/A.

Type of Review: New Collection.

Respondents: Business or other for-profit, including small

businesses.

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Annual

hour

Proposed requirement Number of burden

respondents per

response

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Public notice of technical changes............... 500 24

Network disclosure reference..................... 500 3

Consumer notification requirement................ 500 20

Burdens of proof regarding interconnection,

unbundling, and collocation..................... 75 36

Submission of agreements to state commission..... 75 5

Notification that state commission failed to act. 75 1

Proposed burden regarding access to rights-of-way

requirement..................................... 20 5

[[Page 18313]]

Notice of modification of rights-of-way

requirement..................................... 10,000 3

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Total Annual Burden: 56,750.

Estimated Costs per Respondent: 0.

Needs and Uses: The information collections proposed in the NPRM

would be to ensure that affected telecommunications carriers fulfill

their obligations under the Commnications Act, as amended.

Synopsis of Notice of Proposed Rulemaking

Adopted: April 19, 1996.

Released: April 19, 1996.

Comment Date: May 16, 1996.

Reply Date: May 30, 1996.

(Separate Dates for Dialing Parity/Number Administration/Notice of

Technical Changes/Access to Rights of Way)

Comment Date: May 20, 1996.

Reply Date: June 3, 1996.

By the Commission:

Table of Contents

Paragraph

No.

I. Introduction and Overview................................. 1

A. Background.............................................. 4

B. Overview of Sections 251, 252 and 253................... 14

II. Provisions of Section 251................................ 25

A. Scope of the Commission's Regulations................... 25

B. Obligations Imposed by Section 251(c) on ``Incumbent

LECs''.................................................... 42

1. Duty to Negotiate in Good Faith....................... 46

2. Interconnection, Collocation, and Unbundled Elements.. 49

3. Resale Obligations of Incumbent LECs [251(c)(4)]...... 172

4. Duty to Provide Public Notice of Technical Changes.... 189

C. Obligations Imposed on ``Local Exchange Carriers'' by

Section 251(b)............................................ 195

1. Resale................................................ 196

2. Number Portability.................................... 198

3. Dialing Parity........................................ 202

4. Access to Rights-of-Way............................... 220

5. Reciprocal Compensation for Transport and Termination

of Traffic.............................................. 226

D. Duties Imposed on ``Telecommunications Carriers'' by

Section 251(a)............................................ 245

E. Number Administration [251(e)].......................... 250

F. Exemptions, Suspensions, and Modifications [251(f)]..... 260

G. Continued Enforcement of Exchange Access and

Interconnection Regulations............................... 262

H. Advanced Telecommunications Capabilities................ 263

III. Provisions of Section 252............................... 264

A. Arbitration Process..................................... 264

B. Section 252(i).......................................... 269

IV. Procedural Issues........................................ 273

A. Ex Parte Presentations.................................. 273

B. Regulatory Flexibility Analysis......................... 274

C. Initial Paperwork Reduction Act of 1995 Analysis........ 288

D. Comment Filing Procedures............................... 289

E. Ordering Clauses........................................ 294

I. Introduction and Overview

1. In enacting the Telecommunications Act of 1996, Pub. L. No. 104-

104, 110 Stat. 56 (1996 Act), Congress sought to establish ``a pro-

competitive, de-regulatory national policy framework'' for the United

States telecommunications industry. S. Conf. Rep. No. 104-230, 104th

Cong., 2d Sess. 1 (1996) [hereinafter Joint Explanatory Statement]. The

statute imposes obligations and responsibilities on telecommunications

carriers, particularly incumbent local exchange carriers (LECs), that

are designed to open monopoly telecommunications markets to competitive

entry. The 1996 Act also includes provisions that are intended to

promote competition in markets that already are open to new

competitors. The 1996 Act seeks to develop robust competition, in lieu

of economic regulation, in telecommunications markets. The Act

envisions that removing legal and regulatory barriers to entry and

reducing economic impediments to entry will enable competitors to enter

markets freely, encourage technological developments, and ensure that a

firm's prowess in satisfying consumer demand will determine its success

or failure in the marketplace.

2. Congress entrusted to this Agency the responsibility for

establishing the rules that will implement most quickly and effectively

the national telecommunications policy embodied in the 1996 Act. Those

rules should promote the competitive markets envisioned by Congress. As

Senator Pressler has observed, ``Progress is being stymied by a morass

of regulatory barriers which balkanize the telecommunications industry

into protective enclaves. We need to devise a new national policy

framework--a new regulatory paradigm for telecommunications--which

accommodates and accelerates technological change and innovation.'' The

purpose of this proceeding is to adopt rules to implement the local

competition provisions of the Communications Act of 1934, as amended by

the 1996 Act, particularly Section 251. These rules will establish the

``new regulatory paradigm'' that is essential to achieving Congress'

policy goals.

3. This rulemaking is one of a number of interrelated proceedings

designed to advance competition, to reduce regulation in

telecommunications markets and at the same time to advance and preserve

universal service to all Americans. We are especially cognizant of the

interrelationship between this proceeding, our recently initiated

proceeding to implement the comprehensive universal service provisions

of the 1996 Act and our upcoming proceeding to reform our Part 69

access charge rules. Federal-State Joint Board on Universal Service, CC

Docket No. 96-45, Notice of Proposed Rulemaking and Order Establishing

Joint Board, FCC 96-93, 61 FR 10499 (Mar. 14, 1996) (Universal Service

NPRM) (proposing rules to implement Section 254 of the 1996 Act). This

proceeding also is relevant to our price cap regulations and our

regulation of the interstate, interexchange marketplace. Price Cap

Performance Review for Local Exchange Carriers, CC Docket No. 94-1,

Second Further Notice of Proposed Rulemaking, FCC 95-393, 60 FR 49539

(Sept. 26, 1996) (Price Caps Second Further Notice) (soliciting

comments on proposed and other possible changes to the price cap plan

to reflect emerging competition in telecommunications services); Price

Cap Performance Review for Local Exchange Carriers, CC Docket No. 94-1,

Fourth Further Notice of Proposed Rulemaking, FCC 95-406, 60 FR 52362

(Oct. 6, 1995) (Price Caps Fourth Further Notice) (seeking comment on

issues relating to revisions of the long-term price cap plan); Policy

and Rules Concerning the Interstate, Interexchange Marketplace, CC

Docket No. 96-91, Notice of Proposed Rulemaking, FCC 96-123, 61 FR

14717 (Apr. 3, 1996) (proposing to forbear from requiring tariffs for

nondominant interexchange carriers). We also plan to initiate a

proceeding that will review our existing jurisdictional separations

rules in the context of the new statute. Although these proceedings

will be conducted in separate dockets, and the 1996 Act prescribes

different completion dates for two of the proceedings, we intend to

conduct and

[[Page 18314]]

conclude all of these proceedings in a comprehensive, consistent, and

expedited fashion. We ask commenters in this proceeding to bear in mind

the relationship between these parallel proceedings and to frame their

proposals within the pro-competitive, deregulatory context of the 1996

Act as a whole.

A. Background

4. In contrast to the 1996 Act, the common carrier provisions of

the Communications Act of 1934 were grounded in the notion that

interstate telecommunications services would be offered and regulated

on a monopoly basis. For decades, state legislatures also followed this

traditional approach in regulating LECs' intrastate services. Local and

long distance telephone monopolies were created and maintained on the

grounds that the provision of telecommunications services was a natural

monopoly and, consequently, service could be provided at the lowest

cost to the maximum number of consumers through a single regulated

telecommunications network. The monopoly paradigm was thought to

further goals of universal service, service quality, and reliability.

The Modification of Final Judgment (MFJ) that required AT&T to divest

the Bell Operating Companies (BOCs) in 1984 was not so much a

repudiation as a reduction in the scope of this paradigm. United States

v. AT&T, 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom. Maryland v.

United States, 460 U.S. 1001 (1983), vacated sub nom. United States v.

Western Elect. Co., slip op. CA 82-0192 (D.D.C. April 11, 1996). It

reflected the judgment that the markets for interexchange services,

telecommunications equipment and information services could become

competitive. At the same time, the local exchange continued to be

treated as a natural monopoly that required rigorous regulatory

oversight by state and federal authorities.

5. Even as the MFJ was implemented, academic criticism of the

natural monopoly model for the local network was developing. During the

past 12 years, many commenters and businesses have asserted that

technological innovation has eroded any arguable natural monopoly in

the local exchange, and that government should eliminate any legal

impediments to entry. This view is now embodied in the 1996 Act. The

extent to which it can be proved in the marketplace depends on the

capabilities of inventors, entrepreneurs, and financiers, as well as

this Commission and its state counterparts. At the time the 1996 Act

was signed, 19 states had in place some rules opening local exchange

markets to competition, including seven states in which competing firms

had already begun to offer switched local service. Even these 19

states, however, vary widely in their efforts to promote competitive

entry into local markets. Moreover, as of 1996, more than 30 states had

not adopted laws or regulations providing for local competition. Many

of those states that had not adopted laws or regulations permitting

local competition had provisions that specifically limited competitive

entry into local telecommunications markets. Section 253(a) of the 1996

Act prohibits these affirmative legal barriers to entry, and authorizes

the Commission to preempt enforcement of such entry barriers.

6. We believe that, in enacting the 1996 Act, Congress recognized

that although removing legal barriers to entry is necessary, it is

still not sufficient to enable competition to replace monopoly in the

local exchange. Congress acknowledged that incumbent LECs have

constructed and put in place high quality, reliable, redundant local

networks that can provide virtually ubiquitous service, and that they

possess an approximate 99.7 percent share of the local market as

measured by revenues. Because of this existing infrastructure, an

incumbent LEC typically can serve a new customer at a much lower

incremental cost than could a new entrant that is denied access to the

incumbent LEC's facilities, and thereby is denied access to as many

central office switches and as much trunking and subscriber loops as

the incumbent LEC operates. Moreover, because virtually all existing

customers subscribe to the incumbent LEC, a consumer of local switched

service would not subscribe to a new entrant's network if the customer

could not complete calls to the incumbent LEC's end users. As Congress

appeared to recognize in enacting section 251, if the incumbent LEC has

no obligation to interconnect and to arrange for mutual transport and

termination of calls, it could effectively block or greatly retard

entry into switched local service by using its economies of scale and

network externalities as impediments to entry.

7. Congress expressly recognized that ``it is unlikely that

competitors will have a fully redundant network in place when they

initially offer local service, because the investment necessary is so

significant.'' AT&T, for example, in filings before the Commission has

estimated that it would have to invest approximately $29 billion to

construct new facilities in local markets in order to be able to

provide full facilities to reach 20 percent of the 117 million access

lines served by the BOCs. Similarly, cable and wireless systems will

require substantial investment before either is capable of providing a

widespread substitute for wireline telephony services.

8. In the 1996 Act, Congress boldly moved to restructure the local

telecommunications market so as to remove economic impediments to

efficient entry that existed under the monopoly paradigm. In order to

offset the economies of scale and network externalities that would

inhibit efficient entry of competitors into markets currently

monopolized by incumbent LECs, the 1996 Act requires those LECs to

offer interconnection and network elements on an unbundled basis, and

imposes a duty to establish reciprocal compensation arrangements for

the transport and termination of calls. As the 1996 Act further

recognizes, these duties of incumbent LECs are only meaningful in

conjunction with the Act's limitations on the rates that can be

charged; otherwise, an incumbent LEC could offer interconnection,

unbundling, and transport and termination, but at prices that

perpetuate its market power. To constrain the incumbent LEC's ability

to perpetuate its market power through the pricing of interconnection

and unbundled elements, Congress specified that the prices for such

transactions should be cost-based and just and reasonable. By freeing

new entrants from having to build facilities that totally duplicate the

LECs' networks, the 1996 Act has dramatically increased the

opportunities for competitive entry and minimized the otherwise

overwhelming competitive advantages of large established carriers. We

also note that the new law provides for exemption, suspension, or

modification of certain requirements, under certain conditions, with

respect to small and rural LECs.

9. Different entrants may be expected to pursue different

strategies that reflect their competitive advantages in the markets

they seek to target. For example, interexchange carriers and

competitive access providers may combine their own facilities with

unbundled loops and other LEC elements and perhaps augment their own

loop facilities over time. Cable systems may choose to develop more

extensive networks within their service areas, and thus require fewer

unbundled elements from LECs; but, like all entrants, they will require

termination arrangements with incumbent LECs. Outside their franchise

areas, or in areas not passed by their existing systems,

[[Page 18315]]

cable companies will need to find some other technique for offering

telecommunications services, such as resale of incumbent LEC services

or purchase of unbundled LEC elements. Because of local franchising, a

given cable operator may not have cable facilities in all parts of the

geographic market in which it intends to offer telecommunications

service.

10. In addition to imposing interconnection, termination, and

unbundling requirements in the 1996 Act, Congress also provided for

entrants to be able to resell a LEC's retail services. Even if an

entrant planned to construct its own facilities, it may still face

marketing disadvantages, because of the time it takes to construct a

new network. Resale enables new entrants to offer at the outset a

conventional service to all customers currently served by an incumbent

LEC. Some entrants also may choose to rely on resale as part of a

longer term strategy as well.

11. At the same time, Congress plainly intended for LECs in the

future to be vigorous competitors, to continue to offer high quality

service, and to play a vital role in delivering universal service to

all Americans. Nothing in the 1996 Act suggests that Congress intended

to divest incumbent LECs of all or part of their local networks, even

if some portions continue to be natural monopolies. Indeed, the Act

expressly confirms that incumbent LECs may earn a reasonable profit for

the interconnection services and network elements they provide.

12. Consistent with this perspective on competition, we also note

that the purpose and, given proper implementation, the likely effect of

the unbundling and other provisions of the 1996 Act is not to ensure

that entry shall take place irrespective of costs, but to remove both

the statutory and regulatory barriers and economic impediments that

inefficiently retard entry, and to allow entry to take place where it

can occur efficiently. This entry policy is competitively neutral; it

is pro-competition, not pro-competitor. Our discussion of the 1996 Act

in this and other proceedings, therefore, is phrased in terms of

removing statutory and regulatory barriers and economic impediments, in

permitting efficient competition to occur wherever possible, and

replicating competitive outcomes where competition is infeasible or not

yet in place.

13. This foregoing discussion has focused on obligations created by

the 1996 Act for incumbent LECs in order to reduce economic impediments

to efficient market entry by new competitors. The statute, however,

also creates general duties for all telecommunications carriers, and

obligations for all local exchange carriers, whether classified as

``incumbent'' LECs or not. These provisions are also important to

facilitating competitive local telecommunications markets. We discuss

those provisions below.

B. Overview of Sections 251, 252 and 253

14. In adding new sections 251, 252 and 253 to the Communications

Act of 1934, Congress set forth a blueprint for ending monopolies in

local telecommunications markets. As discussed above, sections 251 (b)

and (c) impose specific obligations on incumbent LECs to open their

networks to competitors. Section 251(b)(5), in particular, requires all

LECs, including incumbent LECs, to ``establish reciprocal compensation

arrangements for the transport and termination of telecommunications.''

15. Section 251(c) imposes on incumbent LECs three key and separate

duties. They must make available to new entrants and existing

competitors in local telecommunications markets interconnection

services and unbundled network elements, and offer for resale at

wholesale rates any telecommunications service that the incumbent LEC

provides at retail to subscribers. Specifically, section 251(c)(2)

requires an incumbent LEC to interconnect with any requesting

telecommunications carrier at any technically feasible point in the

LEC's network for the transmission and routing of telephone exchange

service and exchange access.

Section 251(c)(3) requires incumbent LECs to unbundle their network

facilities and features so that an entrant can choose among them,

combine them with any of its own facilities, and offer services that

will compete with the incumbent's offerings. In addition, section

251(c)(4) directs an incumbent LEC to offer for resale, at a wholesale

rate, any telecommunications service the incumbent LEC offers to end

users at retail. Viewed as a whole, the statutory scheme of section 251

(b) and (c) enables entrants to use interconnection, unbundled

elements, and/or resale in the manner that the entrant determines will

advance its entry strategy most effectively.

16. Section 251(d)(1) directs the Commission to establish rules to

implement the requirements of section 251, including the core

interconnection, unbundling, and resale provisions of section 251(c).

These rules, however, have much broader implications than merely

implementing the requirements of section 251. In fact, these rules are

central to a number of functions contemplated by the 1996 Act. As

discussed below, these rules in varying ways relate to such issues as:

(1) the voluntary negotiation process between incumbent LECs and

telecommunications carriers; (2) the arbitration process; (3) state

commission approval of arbitrated agreements; (4) the FCC's review of

arbitrated agreements when a state commission fails to act; (5)

judicial review of state commissions' and this Commission's actions;

(6) statements of generally available terms and conditions by BOCs; (7)

removal of barriers to entry; and (8) BOC entry into interLATA

services.

17. Section 251(f)(1) provides that the obligations under section

251(c) shall not apply to a rural telephone company, as defined in the

1996 Act, ``until (i) such company has received a bona fide request for

interconnection, services, or network elements, and (ii) the State

commission determines * * * that such request is not unduly

economically burdensome, is technically feasible, and is consistent

with section 254 (other than sections (b)(7) and (c)(1)(D) thereof.''

Section 251(f)(2) provides that a LEC ``with fewer than 2 percent of

the Nation's subscriber lines'' may petition the state commission for a

suspension or modification of the requirements set forth in sections

251 (b) and (c).

18. Section 252 sets forth the procedures that incumbent LECs and

new entrants must follow to transform the requirements of section 251

into binding contractual obligations. Under section 252, incumbent LECs

and new entrants initially must seek to agree on the terms and

conditions under which LEC facilities and services are made available

to the new entrant. To the extent that the resulting agreements are

based on voluntary negotiations rather than state arbitration, those

agreements are not required to satisfy the provisions of sections 251

and our regulations issued thereunder, but such agreements must not

discriminate against a telecommunications carrier not a party to the

agreement, and all portions must be consistent with the public

interest, convenience, and necessity.

19. If an incumbent LEC and requesting carrier are unable to reach

a negotiated agreement, section 252(c) authorizes a state commission to

resolve disputed issues by arbitration, and requires the state

commission to ``ensure that such resolution and conditions meet the

requirements of section 251, including the regulations prescribed by

the Commission pursuant to section 251.'' The Commission's section 251

rules also guide states in

[[Page 18316]]

their subsequent review of arbitrated arrangements. A state commission

may reject an arbitrated agreement (or any portion thereof) pursuant to

section 252(e)(2)(B) ``if it finds that the agreement does not meet the

requirements of section 251, including the regulations prescribed by

the Commission pursuant to section 251.'' The rules adopted in this

proceeding also will guide the Commission in a similar context. In the

event that the Commission must assume the responsibility of a state

commission under section 252(e)(5), the section 251 rules will provide

the substantive standards the Commission will apply to arbitrate and

approve agreements pursuant to section 252.

20. Thus, the statutory scheme of sections 251 and 252 contemplates

that the obligations imposed by section 251 and our regulations will

establish the relevant provisions that will frame the negotiation

process and will govern the resolution of disputes in the arbitration

process. We recognize that the section 251 rules will tend to influence

negotiations, pursuant to section 252(a) (1) and (2), between incumbent

LECs and requesting carriers seeking interconnection, access to

unbundled network elements, and resale of LEC services. As a practical

matter, it seems reasonable to expect that requesting carriers will

seek to negotiate terms and conditions that are, overall, at least as

advantageous as those available pursuant to the Commission's rules. At

least in some cases, the implementing Section 251 rules may serve as a

de facto floor or set of minimum standards that guide the parties in

the voluntary negotiation process.

21. Sections 271 and 273 create incentives for the BOCs to

implement promptly the mandates of sections 251 and 252. Pursuant to

section 271, a BOC may not offer interLATA services within its service

area (``in region'') until it is approved to do so (on a state-by-state

basis) by the Commission, and section 273 allows a BOC to enter

manufacturing at the same time the BOC is approved to offer in-region

interLATA services. Under the terms of the MFJ, the BOCs were barred

from manufacturing telecommunications equipment. Section 273 of the

1996 Act repealed that judicial prohibition and allows BOCS to

manufacture such equipment subject to certain conditions. One of the

requirements for obtaining approval for in-region interLATA services

under section 271 is that the BOC must produce either an

interconnection agreement that, among other things, has been approved

under section 252 or, under certain circumstances, a statement of

generally available interconnection terms and conditions. Under section

252 interconnection agreements that are arbitrated have to comply with

section 251's mandates, as do all statements of generally available

terms. In addition, all agreements and statements must comply with a

``competitive checklist'' set out in section 271, several requirements

of which expressly reference the mandates of section 251. In these

respects, compliance with section 251 and our regulations thereunder is

a prerequisite to BOC entry into in-region interLATA services. But

compliance may also facilitate BOC entry under section 271 in less

obvious ways. For example, in reviewing a BOC application, the

Commission must also consult with the Department of Justice and the

relevant state commission, and it must decide whether granting the

application serves the public interest. Each of these consultations and

determinations could, in theory, be affected by considerations of the

extent to which the BOC is regarded as complying with section 251 and

our rules. Thus, the Commission's section 251 rules will play a central

role regarding BOC entry into in-region interLATA services under

section 271.

22. Section 253 bars state and local regulations that prohibit or

have the effect of prohibiting entities from offering

telecommunications services. It also authorizes the Commission to

preempt any law or regulation that is violative of this section. The

section 251 rules should help to give content and meaning to what state

or local requirements the Commission ``shall preempt'' as barriers to

entry pursuant to section 253.

23. Moreover, the section 251 rules will assist the judiciary in

reviewing actions of state commissions and the Commission in this area.

Subsection 252(e)(6) provides that any party aggrieved by a state

determination regarding a negotiated or arbitrated agreement or a

statement of generally available terms, may bring an action in federal

district court ``to determine whether the agreement or statement meets

the requirements of section 251,'' presumably including our rules

thereunder. The federal district court will thus have to refer to our

implementing regulations in determining whether a state commission

acted properly in approving or rejecting an arbitrated agreement.

Similarly, Commission action in this area will be subject to review by

federal circuit courts of appeal. This might include, for example,

review of Commission decisions regarding BOC petitions to provide

interLATA services pursuant to section 271 or review of Commission

action preempting state or local regulations pursuant to section 253.

In all of these cases, the court will look to the Commission's section

251 rules to guide its review of the Commission's action.

24. These statutory provisions and the Commission's rules

implementing the requirements of section 251 are designed to end the

era of monopoly regulation for American telecommunications markets. By

dismantling entry barriers and reducing the inherent advantages of

incumbent LECs, they establish a national process for enhancing

competition, increasing consumer choice, lowering rates, and reducing

regulation. The Commission's rules implementing section 251 will have a

pervasive and substantial impact in a variety of contexts under the

1996 Act and will serve as the cornerstone of the pro-competitive

provisions of the statute. These rules will assist incumbent LECs,

telecommunications carriers, state commissions, the FCC, and the courts

in defining rights and responsibilities regarding interconnection,

unbundling, resale, and many other issues under the 1996 Act.

II. Provisions of Section 251

A. Scope of the Commission's Regulations

25. Section 251(d)(1) instructs the Commission, within six months

after the enactment of the 1996 Act (that is, August 8, 1996), to

``establish regulations to implement the requirements of [section

251].'' The Commission's implementing rules should be designed ``to

accelerate rapidly private sector deployment of advanced

telecommunications and information technologies and services to all

Americans by opening all telecommunications markets to competition.''

In addition to directing the Commission to establish rules to implement

section 251, section 253 further requires the Commission to preempt the

enforcement of any state or local statute, regulation or legal

requirement that ``prohibit[s] or [has] the effect of prohibiting the

ability of any entity to provide any interstate or intrastate

telecommunications service.''

26. These specific statutory directives make clear that Congress

intended the Commission to implement a pro-competitive, de-regulatory,

national policy framework envisioned by the 1996 Act. Given the

forward-looking focus of the 1996 Act, the nationwide character of

development and

[[Page 18317]]

deployment of underlying telecommunications technology, and the

nationwide nature of competitive markets and entry strategies in the

dynamic telecommunications industry, we believe we should take a

proactive role in implementing Congress's objectives. Thus, we intend

in this proceeding to adopt national rules that are designed to secure

the full benefits of competition for consumers, with due regard to work

already done by the states that is compatible with the terms and the

pro-competitive intent of the 1996 Act.

27. In accomplishing this objective, we need to determine the

extent to which our rules should elaborate on the meaning of the

statutory requirements set forth in sections 251 and 252. For example,

we could adopt explicit rules to address those issues that are most

critical to the successful development of competition, and with respect

to which significant variations would undermine competition. This

approach would further a uniform, pro-competitive national policy

framework, as envisioned by the statute, and yet still preserve broad

discretion for states to resolve, consistent with the 1996 Act, the

panoply of other individual issues that may be raised in arbitration

proceedings. This approach also would facilitate rapid private sector

deployment of advanced telecommunications and information technologies

and services by swiftly opening all telecommunications markets to

competition. We seek comment on such an approach and whether it would

accomplish Congress' goal of promoting efficient competition in local

telecommunications markets throughout the country.

28. We see many benefits in adopting such rules to implement

section 251. Such rules should minimize variations among states in

implementing Congress' national telecommunications policy and guide

states that have not yet adopted the competitive paradigm of the 1996

Act. Such rules also could expedite the transition to competition,

particularly in those states that have not adopted rules allowing local

competition, and thereby promote economic growth in state, regional,

and national markets. More than 30 states do not have rules governing

local competition in place today; most of those states have not

commenced proceedings to adopt the necessary rules.

29. The adoption of explicit national rules to implement section

251 would not necessarily undermine the initiatives undertaken by

various states prior to the enactment of the 1996 Act, and in fact, we

anticipate that we will build upon actions some states have taken to

address interconnection and other issues related to opening local

markets to competition. Some states have been in the forefront of the

pro-competitive effort to open local markets to competition, and these

approaches may comport with the 1996 Act despite the fact that many of

them pre-date it. Building on the progress made by these states,

explicit national rules could be modelled on existing state statutes or

regulations to the extent that they comply with the terms of the 1996

Act. For example, the Commission could conclude that a particular

state's approach to unbundling of network elements is consistent with

the 1996 Act and that it therefore may serve as a useful model for a

national rule on unbundling. The Commission might also conclude that a

range of different approaches used by several states to interconnection

arrangements comply with the Act and therefore would be acceptable

under a national rule. Throughout this item, we seek comment on the

extent to which existing state initiatives are consistent with the new

federal statute and, to the extent they are, the wisdom of using

existing state approaches as guideposts or benchmarks for our national

rules.

30. Explicit national rules implementing section 251 can be

expected to reduce the capital costs of, and attract investment in, new

entrants by enhancing the ability of the investment community to assess

an entrant's business plan. Such rules would also permit firms to

configure their networks in the same manner in every market they seek

to enter. Uniform network configurations could achieve significant cost

efficiencies for new entrants; if new competitors were required to

modify their networks in different markets solely to be compatible with

a patchwork of different regulations, they would likely incur

additional expense, thereby increasing the cost of entry that is

inconsistent with the pro-competitive goals of the statute. A uniform

network design can be expected to reduce start-up costs, accelerate

innovation, enhance interoperability of networks and equipment, and

reduce the administrative burdens for both incumbent LECs and entrants.

31. Explicit national rules under section 251 also could expedite

the implementation of other provisions of the 1996 Act that require

incumbent LECs, new entrants, the states, federal courts, and the

Commission to apply the requirements of section 251 in other contexts.

Section 252 provides that incumbent LECs and entrants initially will

seek to arrive at interconnection and unbundling arrangements through

voluntary negotiations. By narrowing the range of permissible results,

concrete national standards would limit the effect of the incumbent's

bargaining position on the outcome of the negotiations. In addition,

the application of explicit national rules under section 251 could

provide important guidance to federal district courts that are charged

with reviewing state determinations of whether particular arbitration

agreements are consistent with section 251 (presumably including our

rules thereunder). Moreover, the absence of such rules could lead to

varying or inconsistent decisions by individual district and circuit

courts concerning the core requirements of the 1996 Act. We believe

that such a result would be inconsistent with the intent of Congress in

passing comprehensive telecommunications legislation.

32. Further, rules that elaborate on the statutory requirements of

section 251 would establish clear guidelines that we will need to carry

out our responsibilities under the 1996 Act. We will need explicit

rules to guide our arbitration of disputes between incumbent LECs and

new entrants if we are required, under section 252(e), to assume those

responsibilities. In addition, BOCs must satisfy the checklist set

forth in section 271(c)(2)(B) before they may offer in-region,

interLATA services. The checklist requires BOCs to comply with specific

provisions of section 251. Thus, the Commission needs to articulate

clear rules that clarify what constitutes compliance with section 251

for purposes of our review under section 271.

33. On the other hand, there may be countervailing concerns that

could weigh against rules that significantly explicate in some detail

the statutory requirements of sections 251 and 252. Adopting explicit

national rules, in certain circumstances, might unduly constrain the

ability of states to address unique policy concerns that might exist

within their jurisdictions. The case for permitting material

variability among the states could be strengthened if there are

substantial state-specific variations in technological, geographic, or

demographic conditions in particular local markets that call for

fundamentally different regulatory approaches. We seek comment on the

nature of such variations, and on whether there are such variations

that require fundamentally different regulatory approaches. States may

also seek, to the extent permitted by sections 251, 252,

[[Page 18318]]

253, and 254, to ensure the uninterrupted delivery of certain services

by the incumbent where competition might arguably threaten those

services. It might also be argued that there is value to permitting

states to experiment with different pro-competitive regimes to the

extent that there is not a sufficient body of evidence upon which to

choose the optimal pro-competitive policy. If we were to decline to

adopt explicit rules at all, in effect we would be permitting states to

set different priorities and timetables for requiring incumbent LECs to

offer interconnection and unbundled network elements. Such an approach

means that we would balance the need to swiftly introduce

telecommunications competition against other policy priorities. We seek

comment on these issues.

34. We also note that, under section 252, states must implement any

rules we establish under section 251. Section 252 assigns to the states

the responsibility for arbitrating disputes between the parties,

including resolving factual disputes. We seek comment on how our

national rules can best be crafted to assist the states in carrying out

this responsibility.

35. In the succeeding sections of this NPRM, we invite parties to

comment, with respect to each of the obligations imposed by section

251, on the extent to which adoption of explicit national rules would

be the most constructive approach to furthering Congress' pro-

competitive, deregulatory goals of making local telecommunications

markets effectively competitive. We seek comment on the relative costs

and benefits of constraining or encouraging variations among the states

in carrying out their responsibilities under section 252. We also

invite parties to comment on whether our rules implementing section 251

can be crafted to allow states to implement policies reflecting unique

concerns present in the respective states, without vitiating the

intended effects of a scheme of overarching national rules. We further

ask parties to comment on the consequences of fostering or constraining

variability among the states.

36. As a separate matter, we note that section 251 and our

implementing regulations govern the states' review of BOC statements of

generally available terms and conditions, as well as arrangements

arrived at through compulsory arbitration pursuant to section 252(b).

We tentatively conclude that we should adopt a single set of standards

with which both arbitrated agreements and BOC statements of generally

available terms must comply. We believe that this is consistent with

both the language and the purpose of the 1996 Act. We seek comment on

this tentative conclusion.

37. On a separate jurisdictional issue, we tentatively conclude

that Congress intended sections 251 and 252 to apply to both interstate

and intrastate aspects of interconnection, service, and network

elements, and thus that our regulations implementing these provisions

apply to both aspects as well. It would make little sense, in terms of

economics, technology, or jurisdiction, to distinguish between

interstate and intrastate components for purposes of sections 251 and

252. Indeed, if the requirements of sections 251 and 252 regarding

interconnection, and our regulations thereunder, applied only to

interstate interconnection, as might be argued in light of the lack of

a specific reference to intrastate service in those sections, states

would be free, for example, to establish disparate guidelines for

intrastate interconnection with no guidance from the 1996 Act. We

believe that such a result would be inconsistent with Congress' desire

to establish a national policy framework for interconnection and other

issues critical to achieving local competition. As Senator Lott

observed, ``In addressing local and long distance issues, creating an

open access and sound interconnection policy was the key objective * *

*.'' Representative Markey noted that, ``[W]e take down the barriers of

local and long distance and cable company, satellite, computer,

software entry into any business they want to get in.''

38. We also tentatively conclude that it would be inconsistent with

the 1996 Act to read into sections 251 and 252 an unexpressed

distinction by assuming that the FCC's role is to establish rules for

interstate aspects of interconnection and the states' role is to

arbitrate and approve intrastate aspects of interconnection agreements.

Because the statute explicitly contemplates that the states are to

follow the Commission's rules, and because the Commission is required

to assume the state commission's responsibilities if the state

commission fails to act to carry out its section 252 responsibilities,

we believe that the jurisdictional role of each must be parallel. We

seek comment on our tentative conclusion. The argument has also been

raised that sections 251 and 252 apply only with respect to intrastate

aspects of interconnection, service, and network elements. We seek

comment on this argument as well.

39. Section 2(b) of the 1934 Act does not require a contrary

tentative conclusion. Section 2(b) provides that, except as provided in

certain enumerated sections not including sections 251 and 252,

``nothing in [the 1934] Act shall be construed to apply or to give to

the Commission jurisdiction with respect to * * * charges,

classifications, practices, services, facilities, or regulations for or

in connection with intrastate communication service by wire or radio of

any carrier * * *.'' As stated above, however, we tentatively conclude

that section 251 applies to certain ``charges, classifications,

practices, services, facilities, or regulations for or in connection

with intrastate communication service.'' In enacting section 251 after

section 2(b) and squarely addressing therein the issues before us, we

believe Congress intended for section 251 to take precedence over any

contrary implications based on section 2(b). We seek comment on this

tentative conclusion.

40. We note that sections 251 and 252 do not alter the

jurisdictional division of authority with respect to matters falling

outside the scope of these provisions. For example, rates charged to

end users for local exchange service, which have traditionally been

subject to state authority, continue to be subject to state authority.

Indeed, that section 251 does not disturb state authority over local

end user rates may explain why Congress saw no need to amend section

2(b) expressly, whereas it did see such a need in its 1993 legislation

establishing commercial mobile radio service (CMRS). In the 1993

legislation, Congress eliminated the authority of states to regulate

the rates charged for CMRS and so may have felt that an express

amendment to section 2(b) would be especially helpful. We seek comment

on these issues as well.

41. We also seek comment on the relationship between sections 251

and 252 and the Commission's existing enforcement authority under

section 208. Section 208 of the Act gives the Commission general

authority over complaints regarding acts by ``any common carrier

subject to this Act, in contravention of the provisions thereof.'' Does

this mean that the Commission has authority over complaints alleging

violations of requirements set forth in sections 251 or 252? If not, in

what forum would such complaints be reviewed? In state commissions? In

courts? Is there a relevant distinction here between complaints

concerning the formation of interconnection agreements and complaints

regarding implementation of

[[Page 18319]]

such agreements? We also seek comment on the relationship between

sections 251 and 252 and any other source of Commission enforcement

authority that may be applicable. We further seek comment on how we

might increase the effectiveness of the enforcement mechanisms

available under the 1934 Act, as amended. We seek comment on how

private rights of action might be used under sections 206-208 of the

1934 Act, as amended, and the different roles the Commission might

play, for example, as an expert agency, to speed resolution of disputes

in other forms used by private parties.

B. Obligations Imposed by Section 251(c) on ``Incumbent LECs''

42. We now turn to the particular provisions of section 251 that

the Commission is obligated to implement under section 251(d)(1). We

begin with section 251(c) because we believe that provision is the

cornerstone of Congress's plan for opening local telecommunication

markets to competitive entry.

43. Section 251(c) establishes obligations for ``incumbent local

exchange carriers.'' An ``incumbent local exchange carrier'' for a

particular area is defined in section 251(h)(1) as a LEC that: (1) as

of the enactment date of the 1996 Act, both ``provided telephone

exchange service in such area'' and ``was deemed to be a member of the

exchange carrier association pursuant to Section 69.601 of the

Commission's regulations'', or (2) ``is a person or entity'' that, on

or after the enactment date of the 1996 Act, ``became a successor or

assign of such member'' of the exchange carrier association.

44. In addition, under Section 251(h)(2), the Commission may, by

rule, treat another LEC or class of LECs as an incumbent LEC if (1)

``such carrier occupies a position in the market for telephone exchange

service within an area that is comparable'' to that of an incumbent

LEC, (2) ``such carrier has substantially replaced'' an incumbent LEC,

and (3) ``such treatment is consistent with the public interest,

convenience, and necessity and the purposes'' of Section 251. We seek

comment on whether we should establish at this time standards and

procedures by which carriers or other interested parties could seek to

demonstrate that a particular LEC should be treated as an incumbent LEC

pursuant to Section 251(h)(2).

45. We further seek comment on whether state commissions are

permitted to impose on carriers that have not been designated as

incumbent LECs any of the obligations the statute imposes on incumbent

LECs. We understand that some states have found that the negotiation

process between incumbent LECs and their potential competitors may move

more smoothly if the arrangements offered by an incumbent LEC are made

reciprocal. Under this approach, for example, a potential competitor

would be required to make available to an incumbent LEC directory

assistance information on the same basis that the LEC agreed to furnish

the information. Some parties have alleged, however, that imposing on

new entrants the obligations imposed on incumbent LECs would undermine

the competitive goals of the 1996 Act. We seek comment on whether

imposing on new entrants requirements the 1996 Act imposes on incumbent

LECs would be consistent with the Act's distinction between the

obligations of all telecommunications carriers, all LECs and the

additional obligations of all incumbent LECs.

1. Duty To Negotiate in Good Faith

46. As noted in section I.B., above, if the parties fail to

negotiate an agreement voluntarily, they must submit to arbitration.

Section 251(c)(1) states that ``each incumbent local exchange carrier

has the * * * duty to negotiate in good faith in accordance with

section 252 the particular terms and conditions of agreements to

fulfill the duties'' described in section 251(b) for LECs and section

251(c) for incumbent LECs. In addition, section 252(b)(5) provides

that, pursuant to the arbitration process, the refusal of a party to

``participate further in the negotiations, to cooperate with the State

commission in carrying out its function as an arbitrator, or to

continue to negotiate in good faith in the presence of, or with the

assistance of, the State commission shall be considered a failure to

negotiate in good faith.'' The state commission is required to resolve,

within 9 months after the incumbent LEC receives a request under

section 252, any issues that were submitted for arbitration.

47. We seek comment on the extent to which the Commission should

establish national guidelines regarding good faith negotiation under

section 251(c)(1), and on what the content of those rules should be. We

note that carriers have submitted some information alleging that LECs

already have employed certain tactics that the Commission should

determine violate the duty to negotiate in good faith. For example,

carriers have alleged that incumbent LECs have refused to begin to

negotiate until the requesting telecommunications carrier satisfies

certain conditions, such as signing a nondisclosure agreement, or

agreeing to limit its legal remedies in the event that negotiations

fail. We believe that such tactics might impede the development of

local competition, and may be inconsistent with provisions of the 1996

Act. We seek comment on the extent to which these or other practices

should be deemed to violate the duty to negotiate in good faith. We

note that courts and the Commission previously have addressed issues

regarding good faith negotiation. We seek comment on specific legal

precedent regarding the duty to negotiate in good faith that we should

rely on in establishing national guidelines regarding section

251(c)(1).

48. A related issue is what effect section 252 has on agreements

regarding service, interconnection, or unbundled network elements that

predate the 1996 Act. Section 252(e)(1) states: ``Any interconnection

agreement adopted by negotiation or arbitration shall be submitted for

approval to the State commission.'' Section 252(a)(1) states that an

agreement for interconnection, service, or network element, ``including

any interconnection agreement negotiated before the date of the

enactment of the Telecommunications Act of 1996, shall be submitted to

the State commission under subsection (e) of this section.'' We seek

comment on whether these provisions require parties that have existing

agreements to submit those agreements to state commissions for

approval. We also seek comment on whether one party to an existing

agreement may compel renegotiation (and arbitration) in accordance with

the procedures set forth in section 252.

2. Interconnection, Collocation, and Unbundled Elements

a. Interconnection. 49. Section 251(c)(2) imposes upon incumbent

LECs ``the duty to provide, for the facilities and equipment of any

requesting telecommunications carrier, interconnection with the local

exchange carrier's network * * * for the transmission and routing of

telephone exchange service and exchange access.'' Such interconnection

must be: (1) provided by the incumbent LEC at ``any technically

feasible point within [its] network;'' (2) ``at least equal in quality

to that provided by the local exchange carrier to itself or * * * [to]

any other party to which the carrier provides interconnection;'' and

(3) provided on rates, terms, and conditions that are ``just,

reasonable, and nondiscriminatory, in accordance with the terms and

conditions of the agreement and the requirements of this section and

section 252.'' The interconnection obligation plays a vital

[[Page 18320]]

role in promoting competition by ensuring that a requesting carrier can

on reasonable rates, terms and conditions transmit telecommunications

traffic between its network and the incumbent's network in a reliable

and efficient manner.

50. We believe that uniform national rules for evaluating

interconnection arrangements would likely offer several advantages in

advancing Congress' desire to create a pro-competitive national policy

framework regarding local telephone service. For example, national

standards would likely speed the negotiation process by eliminating

potential areas of dispute. We note that, in the past, disputes before

the FCC between LECs and interconnectors have arisen most often where

our rules lacked specificity, or where no standards had been adopted.

Lingering disputes over the terms and conditions of interconnection due

to confusion or ambiguity create the potential for incumbent LECs to

delay entry. For these reasons we tentatively conclude that uniform

interconnection rules would facilitate entry by competitors in multiple

states by removing the need to comply with a multiplicity of state

variations in technical and procedural requirements.

51. We also, however, seek comment on the consequences of not

establishing such specific rules for interconnection. We seek comment

on whether there are instances wherein the aims of the 1996 Act would

be better achieved by permitting states to experiment with different

approaches. Would permitting substantial variation make it easier for

states to respond more appropriately to technical, demographic, or

geographic issues specific to that state or region without detracting

from the overall purposes of the 1996 Act? For example, might technical

differences, such as a lack of digital switching capability in a

particular network, affect the technically feasible interconnection

points on the network? Would variations in technical requirements among

states affect the ability of new entrants to plan and configure

regional or national networks? For example, how would variations in the

definition of ``technical feasibility,'' the number of required points

of interconnection, and methods of interconnection, affect the ability

of new entrants to plan and configure regional or national networks?

How would such variations affect the entrant's ability to deploy

alternative network architectures, such as synchronous optical network

(SONET) rings, which may deliver telephone service more efficiently?

Would a lack of explicit national standards reduce predictability and

certainty, and thereby slow down the development of competition? Would

a lack of explicit guidelines impair the state's ability to complete

arbitration within 9 months of the date that the interconnection

request was made, or our ability to evaluate BOC compliance under

section 271 within 90 days? Would a lack of clear national standards

impair our ability under section 252(e) to assume a state commission's

responsibilities if the state commission fails to act to carry out its

responsibilities under section 252?

52. We also encourage parties to submit information regarding the

approaches taken by those states that have allowed interconnection. A

number of states already have adopted a variety of approaches to

interconnection. For example, New York sets basic ``expectations'' that

constitute default provisions if the parties fail to agree. These

provisions include the availability of two-way trunking facilities and

combined trunking arrangements. California has adopted what it calls a

``preferred outcomes'' approach. Under this approach, parties are

encouraged to use 13 broad criteria regarding interconnection

arrangements (the ``preferred outcomes'') that were established by the

State commission to guide the negotiation and arbitration process.

Although parties may develop different outcomes, preferred outcomes

receive expedited review and approval. Arbitration judges may also use

the preferred outcomes as guidelines in cases where the negotiations

fail, and they have the discretion to mandate interconnection

provisions that go beyond the preferred outcomes. With respect to each

of the issues discussed below, we invite commenters to analyze the

advantages and the disadvantages of the approaches states have adopted

with respect to interconnection arrangements. We also seek comment on

whether any elements of these state approaches would be suitable for

incorporation into national standards implementing the 1996 Act.

Finally, we ask commenting parties to identify state approaches to

interconnection that they believe are inconsistent with or preempted by

the 1996 Act, or that are inadvisable from a policy perspective.

53. We further seek comment on the relationship between the

obligation of incumbent LECs to provide ``interconnection'' under

251(c)(2) and the obligation of the incumbent LEC, and all LECs, to

establish reciprocal compensation arrangements for the ``transport and

termination'' of telecommunications pursuant to 251(b)(5). The issue is

significant mainly because, in section 252(d)(2), there is one pricing

standard for ``interconnection'' under section 251(c)(2) and a separate

one for ``transport and termination'' under 251(b)(5).

54. On the one hand, the term ``interconnection,'' as used in

section 251(c)(2), might refer only to the facilities and equipment

physically linking two networks and not to transport and termination

services provided by such linking--in which case there is no overlap in

the coverage of the two sections. On the other hand, the term

``interconnection'' as used in section 251(c)(2) might refer to both

the physical linking of the two networks and to transport and

termination services--in which case there is considerable overlap. We

seek comment on how to ``interpret'' the term ``interconnection'' in

section 251(c)(2). Parties that advocate the broader meaning should

also comment on the overlap in the coverage of the sections and how the

overlap affects which section 252(d) pricing standards apply.

55. In the following paragraphs, we discuss the requirements of the

1996 Act concerning interconnection in more detail. More specifically,

we address issues of technically feasible points of interconnection,

just, reasonable, and nondiscriminatory terms and conditions, and

quality and methods of interconnection.

(1) Technically Feasible Points of Interconnection. 56. Subsection

(c)(2)(B) requires that incumbent LECs provide interconnection ``at any

technically feasible point within the [incumbent LEC's] network.'' We

seek comment on what constitutes a ``technically feasible point''

within the incumbent LEC's network for purposes of this section. In

this regard, we note that network technology continues to advance and

emphasize that we seek to avoid a static definition that may

artificially limit future interconnection. Is there a definition of

``technically feasible'' that will provide the necessary flexibility in

determining interconnection points as network technology evolves?

Further, to what extent, if any, should a risk to network reliability

or other potential harm to the network be considered in determining

whether interconnection at a particular point is technically feasible?

We tentatively conclude that, if risks to network reliability are

considered in determining whether interconnection at a certain point is

technically feasible, the party alleging harm to the network will be

required to present detailed information to support such a claim. We

seek comment on these issues and our

[[Page 18321]]

tentative conclusion concerning claims of network harm.

57. We also tentatively conclude that the minimum federal standard

should provide that interconnection at a particular point will be

considered technically feasible within the meaning of section 251(c)(2)

if an incumbent LEC currently provides, or has provided in the past,

interconnection to any other carrier at that point, and that all

incumbent LECs that employ similar network technology should be

required to make interconnection at such points available to requesting

carriers. For example, many LECs already provide interconnection at the

trunk- and loop-side of the local switch, transport facilities, tandem

facilities, and signal transfer points. We thus tentatively conclude

that interconnection at those points should be technically feasible for

all incumbent LECs that use technology similar to that used by LECs

currently offering interconnection at those points. We believe that as

technology advances, the number of points at which interconnection is

feasible may change and acknowledge that the federal standard for

minimum interconnection points should change accordingly.

58. Alternatively, we could allow states to determine whether

interconnection at a greater number of points would also be technically

feasible. We seek comment on whether allowing states to designate

additional technically feasible interconnection points would make it

more difficult for a carrier to develop a regional or national network.

In this regard, commenters should address additional points at which

LECs currently provide interconnection and on other possible points of

interconnection that may be technically feasible. Because the statute

imposes an affirmative obligation on incumbent LECs to provide

interconnection at any technically feasible points in their networks,

we further tentatively conclude that, where a dispute arises, the

incumbent LEC has the burden of demonstrating that interconnection at a

particular point is technically infeasible. We seek comment on this

tentative conclusion.

59. We also invite parties to submit information concerning

interconnection obligations and policies that state commissions have

adopted for incumbent LECs to help us determine what points of

interconnection states have found to be technically feasible. We note,

for example, that the New York Public Service Commission (NYPSC) has

established options for interconnection points that range from the

incumbent LEC's premises to the requesting carrier's premises, and

include any point in between. These options are deemed reasonable by

the NYPSC, although they are not requirements (in contrast to other

interconnection requirements, which New York sets up as default

provisions). The parties are to negotiate the actual interconnection

points, however. We also seek comment on approaches that other states

have adopted for determining the technical feasibility of

interconnection at particular points. We also seek comment on which

state policies are either inconsistent with the language of the 1996

Act or unwarranted from a policy perspective.

(2) Just, Reasonable, and Nondiscriminatory Interconnection. 60.

Section 251(c)(2)(D) requires that the interconnection provided by the

incumbent LEC be ``on rates, terms, and conditions that are just,

reasonable, and nondiscriminatory.'' We address the pricing of

interconnection, collocation, and unbundled elements in section

II.B.2.d below.

61. We seek comment on how to determine whether the terms and

conditions for interconnection arrangements are just, reasonable, and

nondiscriminatory. For example, should we adopt explicit national

standards for the terms and conditions for interconnection? In

particular, we seek comment on whether we should adopt uniform national

guidelines governing installation, maintenance and repair of the

incumbent LEC's portion of interconnection facilities. We also seek

comment on whether we should adopt standards for the terms and

conditions concerning the payment of the non-recurring costs associated

with installation. We seek comment on whether the Commission should

establish incentives to encourage incumbent LECs to provide just,

reasonable, and nondiscriminatory interconnection and, if so, what

those incentives should be. For example, should LECs be required to

meet agreed upon performance standards for installing or repairing

interconnection facilities and pay liquidated damages for any failure

to satisfy the agreement? Are there means of accomplishing this result

that do not require the propagation of rules detailing specific

performance standards?

62. If we were to establish national guidelines on this issue, we

seek comment on state policies regarding the terms and conditions for

interconnection that might serve as models. For example, with respect

to meet point interconnection arrangements, the state of Washington

requires that each company pay for and be responsible for building and

maintaining its own facilities up to the meet point, as is typical in

this type of interconnection arrangement. We note that New York permits

earnest fees on interconnection arrangements to ensure the good faith

nature of interconnection requests before the incumbent LEC begins

construction or other necessary arrangements for interconnection. That

fee is then applied to the requesting party's costs for

interconnection. We recognize, however, that LECs potentially could use

such fees and other terms and conditions to delay and deter entry. We

invite parties to comment on this approach as well as on other states'

policies. We specifically seek comment on whether such policies are

consistent with the pro-competitive and deregulatory tenor of the Act.

We seek comment on whether any state substantive rules regarding the

terms and conditions for interconnection might be adopted as a national

standard, as well as comment on which state rules might be inconsistent

with the 1996 Act.

(3) Interconnection that is Equal in Quality. 63. Section

251(c)(2)(C) requires that the interconnection provided by the

incumbent LEC be ``at least equal in quality to that provided by the

[incumbent LEC] to itself or to any subsidiary, affiliate, or any other

party to which the carrier provides interconnection.'' We seek comment

on what criteria may be appropriate in determining whether

interconnection is ``equal in quality.'' We seek comment on whether

these criteria should be adopted as a national standard, or whether

competitive objectives would be achievable by allowing variations and

experimentation among states. We also seek comment on relevant state

requirements, such as those in Iowa, which prohibit a rate-regulated

incumbent from providing inferior interconnection to another provider.

We invite parties to comment on this and other provisions that might

guide our efforts in implementing the ``equal in quality'' requirement

of the 1996 Act.

(4) Relationship Between Interconnection and Other Obligations

Under the 1996 Act. 64. Section 251(c)(2) further requires incumbent

LECs to provide interconnection with the LEC's network ``for the

facilities and equipment of any requesting telecommunications

carrier.'' In comparison, section 251(c)(6) imposes upon incumbent LECs

``the duty to provide * * * for physical collocation of equipment

necessary for interconnection.'' We note that section 251(c)(6)

regarding physical collocation does not expressly limit the

Commission's authority under section 251(c)(2) to establish rules

requiring

[[Page 18322]]

incumbent LECs to make available a variety of technically feasible

methods for interconnection. These methods may, for example, include

meet point arrangement as well as physical and virtual collocation. We

tentatively conclude that the Commission has the authority to require,

in addition to physical collocation, virtual collocation and meet point

interconnection arrangements, as well as any other reasonable method of

interconnection. We seek comment on this tentative conclusion.

65. We seek comment on the various state requirements concerning

methods for interconnection. For example, in the state of Washington,

the commission has ordered that companies establish mutually agreed

upon meet points for purposes of exchanging local traffic. Incumbent

LECs may establish, through negotiations, separate meet points for each

company, or a common hub by which multiple companies can come together

efficiently. Oregon requires that requesting carriers be permitted to

interconnect with incumbent LECs by negotiating mutually acceptable

arrangements, including meet points. Maryland allows the incumbent LEC

the option of using virtual or physical collocation, subject to

commission review. We seek information on these and other similar state

requirements. We seek comment on whether any state requirements

concerning methods for interconnection might be appropriately adopted

as a national standard. We also seek comment concerning those state

requirements that may be inconsistent with the 1996 Act or

inappropriate from a policy standpoint.

b. Collocation. 66. Section 251(c)(6) of the Act requires incumbent

LECs to provide ``for the physical collocation of equipment necessary

for interconnection or access to unbundled network elements at the

premises of the local exchange carrier, except that the carrier may

provide for virtual collocation if the local exchange carrier

demonstrates to the State commission that physical collocation is not

practical for technical reasons or because of space limitations.''

Section 251(c)(6) fosters competition by ensuring that a competitor may

install equipment necessary for interconnection or access to unbundled

network elements on LEC premises and gives competitors access to the

LEC central office to install, maintain, and repair this equipment.

67. The establishment of national rules with respect to at least

some issues regarding collocation would appear to offer several

important benefits. For example, we believe that national standards

would speed the negotiation process by eliminating potential areas of

dispute. Lingering disputes or ambiguity regarding the parties'

obligations may delay competitive entry. In addition, uniform standards

would probably facilitate entry by competitors in multiple states by

removing the need to comply with a patchwork of state variations in

technical and procedural requirements. Finally, clear uniform rules

could add speed, fairness, and simplicity to the arbitration process,

and reduce uncertainty. We also note that beginning in 1992, the

Commission adopted both physical and virtual collocation rules and that

these rules were then used by several states to develop their own

approaches to collocation. We therefore tentatively conclude that we

should adopt national standards where appropriate to implement the

collocation requirements of the 1996 Act.

68. We also seek comment on the extent to which we should establish

national rules for collocation that allow for some variation among

states, and on the advantages and disadvantages of permitting such

variation. Would permitting material variation foster competition and

make it easier for states to respond more appropriately to issues

specific to that state or region? Would variations in technical

requirements among states affect the ability of new entrants to plan

and configure regional or national networks? Would a lack of specific

national standards reduce predictability and certainty, and thereby

slow down the development of competition? Would a lack of explicit

guidelines impair the state's ability to complete arbitration within 9

months of the date that the interconnection request was made, or our

ability to evaluate BOC compliance under section 271 within the

statutory time-frame? Would a lack of specific national standards

impair our ability under section 252(e) to assume a state commission's

responsibilities if the state commission fails to act to carry out its

responsibilities under section 252?

69. We also encourage parties to submit information concerning

specific state approaches regarding collocation that might provide

useful models for national guidelines. In several states, including

California and New York, incumbent LECs currently provide physical

collocation. Under California's ``preferred outcomes'' approach, the

``preferred outcome'' concerning physical collocation is similar to

rules the FCC previously established for physical collocation.

California presently allows LECs to offer virtual or physical

collocation. New York applies a comparably efficient interconnection

(CEI) standard to both new entrants and incumbent LECs, that requires

that interconnection be technically and economically comparable to

actual physical collocation. New York does not have detailed physical

collocation requirements under the CEI standard, but rather leaves such

matters to negotiation between the parties. Currently in New York,

Rochester Telephone and NYNEX both offer physical collocation to

satisfy the CEI standard. In other states, incumbent LECs currently

provide only virtual collocation. Illinois, which had originally

mandated physical collocation, recently adopted rules regarding virtual

collocation. The state of Washington also permits virtual collocation

and has stated that such charges for virtual collocation should be no

higher than charges for physical collocation. The Washington Commission

also concluded that, if meet point interconnection arrangements are

established by mutual agreement, decisions about where equipment is

placed will be resolved as part of that negotiation, and therefore a

virtual collocation tariff probably would not be necessary. Finally,

Florida permits LECs to offer both virtual and physical collocation,

but has left the details of such arrangements to negotiation between

the parties.

70. We seek comment on whether one or more of these state

collocation policies would be suitable for use as a national standard.

We also seek comment on state policies that commenters believe are

inconsistent with the goals of the 1996 Act, or that are inadvisable

from a policy perspective. In this regard, parties are specifically

asked to comment on the possible consequences of requiring new entrants

with regional or national business plans to comply with divergent state

requirements.

71. In light of our tentative conclusion that we should adopt

national guidelines concerning physical and virtual collocation, we

seek comment on what specific regulations would foster opportunities

for local competition. For example, section 251(c)(6) mandates physical

collocation at the ``premises'' of an incumbent LEC. Consistent with

the ordinary meaning of the term ``premises,'' we tentatively conclude

that ``premises'' includes, in addition to incumbent LEC central

offices or tandem offices, all buildings or similar structures owned or

leased by the incumbent LEC that house LEC network facilities. We seek

comment on this tentative conclusion. We also seek comment on whether

structures housing LEC network facilities on public rights

[[Page 18323]]

of way, such as vaults containing loop concentrators, or similar

structures should be deemed to be LEC premises. We note that

collocation of facilities inside such structures would still be subject

to the technical feasibility and space availability limitations of

section 251(c)(6).

72. Section 251(c)(6) requires the incumbent LEC to provide for the

physical collocation of equipment necessary for interconnection or

access to unbundled network elements. We seek comment on what types of

equipment competitors should be permitted to collocate on LEC premises.

Section 251(c)(6) also allows the incumbent LEC to provide virtual

collocation instead of physical collocation in specific locations if

``the local exchange carrier demonstrates to the state commission that

physical collocation is not practical for technical reasons or because

of space limitations.'' We seek comment on whether we should establish

guidelines for states to apply when determining whether physical

collocation is not practical for ``technical reasons or because of

space limitations,'' and, if so, what those guidelines might be. For

example, to what extent, if any, should the risk of reduced reliability

or other harm to the network be considered as a technical reason

justifying a refusal to offer physical collocation, and what type of

evidence must the LEC offer to prove its claim? We also seek comment on

whether national guidelines may be necessary to prevent anticompetitive

behavior by the manipulation or unreasonable allocation of space by

either the incumbent LEC or new entrants.

73. Finally, we seek comment on whether we should adopt

comprehensive national standards for collocation by readopting our

prior standards governing physical and virtual collocation that we

established in the Expanded Interconnection proceeding. Special Access

Expanded Interconnection Order, 57 FR 54323 (11/18/92); Virtual

Collocation Expanded Interconnection Order, 59 FR 38922 (8/1/94). In

that proceeding, we addressed standards governing, among other things,

the following: space exhaustion and allocation; types of equipment that

could be placed, or designated for placement, in incumbent LEC offices;

points of entry; insurance; and exemptions from physical collocation

requirements based on space limitations. We also seek comment regarding

whether we should modify those standards, in light of: (1) the new

statutory requirements; (2) disputes that have arisen in the subsequent

investigations regarding the LECs' physical and virtual collocation

tariffs; (Tariffs for both virtual and physical collocation offerings,

filed by the LECs pursuant to the Virtual Collocation Expanded

Interconnection Order, 59 FR 38922 (8/1/94), are currently under

investigation. In these designation orders, we addressed disputes that

arose over various standards issues, for example: space size, space

warehousing, termination notice and reasons, cage inspections, and

insurance.) or (3) additional policy considerations. We also

tentatively conclude, in light of the court decision in Pacific Bell v.

FCC, (Pacific Bell v. FCC, No. 94-1547 (D.C. Cir. Mar. 22, 1996). The

court remanded for reconsideration the Commission's virtual collocation

order, 59 FR 38922 (8/1/94), concluding that the Commission's

regulations implementing the 1996 Act would render moot the questions

about the future effect of the order. The petitioners had argued that

the Commission lacked statutory authority to order incumbent LECs to

provide virtual collocation.) that our existing policies on expanded

interconnection for interstate special access and switched transport

services should continue to apply pursuant to our authority under

sections 201 and 251(g). We seek comment on this tentative conclusion.

c. Unbundled Network Elements. 74. Section 251(c)(3) imposes a duty

upon incumbent LECs ``to provide, to any requesting telecommunications

carrier for the provision of a telecommunications service,

nondiscriminatory access to network elements on an unbundled basis at

any technically feasible point on rates, terms, and conditions that are

just, reasonable, and nondiscriminatory in accordance with the terms

and conditions of the agreement and the requirements of this section

and section 252.'' Incumbent LECs are required to provide these network

elements ``in a manner that allows requesting carriers to combine such

elements in order to provide such telecommunications service.'' In

addition, section 251(d)(2) provides that the Commission, in

determining which network elements incumbent LECs should unbundle,

``shall consider, at a minimum, whether (A) access to such network

elements as are proprietary in nature is necessary; and (B) the failure

to provide access to such network elements would impair the ability of

the telecommunications carrier seeking access to provide the services

that it seeks to offer.''

75. Together, sections 251(c)(3) and 251(d)(2) foster competition

by ensuring that new entrants wishing to compete with incumbent LECs

can purchase access to those network elements that they do not possess,

without paying for elements that they do not require. The ability to

purchase, at reasonable, cost-based prices, access only to those

network elements a carrier needs allows new entrants to enter the LEC's

market gradually, building their own networks over time, and purchasing

fewer unbundled elements as their own networks develop. Further, new

entrants can purchase access to those elements incumbent LECs can

provide most efficiently, and at the same time build their own

facilities only where it would be efficient.

76. In addition, the requirement that rates, terms, and conditions

be just, reasonable, and nondiscriminatory: (1) prevents the incumbent

LEC from offering unbundled elements on rates, terms, and conditions so

overpriced or burdensome as to discourage competition; (2) enables new

entrants to discipline the incumbent's pricing; and (3) allows entrants

to take market share from the incumbent if the new entrant is more

efficient or if the incumbent attempts to charge prices above

competitive levels.

77. Section 251(d)(2) provides that the Commission will

``determin[e] what network elements should be made available for

purposes of subsection (c)(3).'' As a result of this provision, and the

obligation created by section 251(d)(1), we tentatively conclude that

section 251 obligates the Commission to identify network elements that

incumbent LECs should unbundle and make available to requesting

carriers under subsection (c)(3). Rather than itemize an exhaustive

list of network elements, however, some of which competing carriers may

not desire, we further tentatively conclude that the Commission should

identify a minimum set of network elements that incumbent LECs must

unbundle for any requesting telecommunications carrier, and, to the

extent necessary, establish additional or different unbundling

requirements in the future as services, technology, and the needs of

competing carriers evolve. We seek comment on these tentative

conclusions.

78. Carriers may, of course, voluntarily negotiate agreements for

unbundling elements that differ from those addressed by the Commission

under section 251(c)(3). In addition, section 252(e)(3) preserves a

state's authority to impose other requirements of state law in its

review of arbitrated agreements. 1996 Act, sec. 101, Sec. 252(e)(3).

Such requirements could include intrastate telecommunications service

quality standards. Section

[[Page 18324]]

251(d)(3) also preserves the right of states to enforce consistent

access and interconnection regulations. 1996 Act, sec. 101,

Sec. 251(d)(3). Thus, to the extent such requirements are consistent

with the provisions of section 251(c)(3) and our rules, we tentatively

conclude that states may require additional unbundling of LEC networks.

79. In light of our obligations under sections 251(d)(1) and

251(d)(2), we also seek comment on whether and to what extent, beyond

merely identifying network elements that incumbent LECs must provide on

an unbundled basis pursuant to subsection (c)(3), the Commission should

establish minimum requirements governing such unbundling. These

requirements could include, for example, provisioning and service

intervals, nondiscrimination safeguards, and technical standards. We

believe that minimum national requirements governing the unbundling of

network elements would likely offer several advantages. Such

requirements would provide uniform technical requirements, and would

enhance the ability of new entrants to take advantage of economies of

scale and to plan and deploy networks stretching across state and LEC

boundaries. We note that telecommunications equipment has heretofore

been provided by national manufacturers selling to a nation-wide

market, without substantial regional or state-to-state variation in

equipment design. Minimum national requirements also may ensure some

level of network and equipment interoperability between both competing

and noncompeting carriers. Further, Commission minimums would reduce or

eliminate the need for certain duplicative decision-making by the

states, provide a ready framework for the many states that have not

acted to unbundle LEC networks, and speed the negotiation and

arbitration processes by reducing any ambiguity in the parties'

obligations. Thus, states could rely on a set of generally applicable

minimum requirements, while prescribing additional rules of unbundling

tailored to their particular circumstance.

80. We also seek comment on whether and to what extent we should

establish national rules for unbundled network elements that allow for

some variation among states. For example, we seek comment on the extent

to which such rules should permit states to impose different

obligations to address state-specific concerns and to experiment with

alternative approaches, and whether permitting such variation would

better achieve the goals of the 1996 Act. Would variations in technical

requirements among states affect the ability of new entrants to plan

and configure regional or national networks? Would a lack of explicit

requirements impair a state's ability to complete arbitrations within

the prescribed time-frame, or our ability to evaluate BOC compliance

under section 271 within 90 days? Would a lack of clear national rules

impair our ability under section 252(e) to assume a state commission's

responsibilities if the state commission fails to act to carry out its

responsibilities under section 252?

81. We also encourage parties to provide us with information

regarding the policies that states have adopted to address network

unbundling. While many states have not acted at all to unbundle LEC

networks, several states have ordered some amount of LEC network

unbundling. States such as Illinois, New York, California, and Maryland

require, or plan to require, LECs to unbundle at least local loops. New

York, for example, has implemented a request-based approach that

requires unbundling only for requested elements (to date local loops

and ports), and then only if essential facilities are involved. Other

states, such as Maryland and Florida, require LECs to unbundle all

network elements to the extent technically feasible and ``reasonable''

or ``economically feasible,'' and address unbundling requirements for a

specific element when that element is requested. In contrast to these

request-based approaches, some states, such as Colorado, Hawaii, and

California, determine an essential or ``key'' set of LEC network

elements that LECs must unbundle. We seek comment on the policies that

other states have adopted.

82. Finally, with respect to each of the issues discussed below, we

request comment on whether any existing state approaches, alone or in

combination, would be suitable for incorporation into national rules

implementing section 251(c)(3). We also ask commenting parties to

identify state approaches that they believe are either inconsistent

with the 1996 Act or that are inadvisable from a policy perspective.

(1) Network Elements. 83. Section 3(29) defines a ``network

element'' as both ``a facility or equipment used in the provision of a

telecommunications service'' as well as ``features, functions, and

capabilities that are provided by means of such facility or

equipment.'' According to the Joint Explanatory Statement, ``[t]he term

`network element' was included to describe the facilities, such as

local loops, equipment, such as switching, and the features, functions,

and capabilities that a [LEC] must provide for certain purposes under

other sections of the conference agreement.'' We believe that under

this broad definition, an entire local loop, for example, could

constitute a single network element, or comprise several network

elements. An alternative interpretation, albeit one that would provide

competitors less flexibility, is that a network element, once defined,

cannot be subdivided. We seek comment on our more flexible

interpretation of ``network element,'' and how to apply the definition

in accordance with the unbundling proposals discussed below.

84. We also seek comment on the apparent distinction, drawn in the

definition of ``network element'' in the 1996 Act, between the

``facility or equipment used in the provision of a telecommunications

service,'' and the service itself. We request comment on the meaning

and significance of such a distinction in general and with respect to

particular elements. For example, because the nature of a network

element, under the definition in the 1996 Act, is a facility or

function, and is not dependent upon the particular services offered by

means of such facility or function, does the purchase of access to such

an element entitle, or indeed obligate the requesting carrier to

provide the customer with all services, intrastate and interstate, that

use the element? Under this reading of the statute, a

telecommunications carrier that purchased local switching as a network

element would use that element to provide whatever intrastate and

interstate switching services the customer desired. As discussed more

fully below in section II.B.2.e., such an entitlement or obligation to

provide all of the services that a particular network element currently

is used to furnish may distinguish network elements from existing

access services.

85. In addition, we request comment on the relationship between

section 251(c)(3), concerning unbundling, and section 251(c)(4), which

addresses resale of incumbent LEC services. Specifically, may

requesting carriers order and combine network elements to offer the

same services an incumbent LEC offers for resale under subsection

(c)(4)? Does subsection (c)(3) in effect provide new entrants with an

alternative way to ``resell'' the services of incumbent LECs in

addition to the specific resale provision in subsection (c)(4)? In this

regard, we note that section 252(d) provides different pricing

standards for these two subsections, and we ask commenters to address

the implications of this difference. Some parties have asserted, for

example, that allowing interexchange carriers to offer

[[Page 18325]]

the same services over combined LEC network elements that the LEC

already offers would enable such carriers to circumvent the section

271(e)(1) joint marketing restriction. To the extent that section

251(c)(3) contemplates the purchase of unseparated facilities (i.e.

facilities used to provide both intra- and interstate services), as

discussed above, we note that a telecommunications carrier would not

necessarily be purchasing the same service(s) it would under section

251(c)(4). Does the difference, if any, between network elements and

the services provided by means of such elements play a meaningful role

in distinguishing these two subsections? For example, under the

Illinois Local Switching Platform concept, discussed in detail below,

requesting carriers may offer services by means of the unbundled

platform that the incumbent LEC does not offer. We invite parties to

comment on these and any other issues raised by the interplay of

subsections (c)(3) and (c)(4). Parties should base their comments on

specific statutory language.

(2) Access to Network Elements. 86. Section 251(c)(3) requires

incumbent LECs to provide ``access'' to network elements ``on an

unbundled basis.'' We interpret these terms as requiring incumbent LECs

for a fee to provide requesting carriers with the ability to obtain a

particular element's functionality, such as a local loop's function of

transmitting signals from a LEC central office to a customer premises,

separate from that of other functionalities or network elements, such

as the local switch. Further, the term ``unbundled'' suggests that

there must be a separate charge for each purchased network element. We

seek comment on this and any alternative interpretations of section

251(c)(3).

87. Section 251(c)(3) further mandates that incumbent LECs provide

access to network elements on an unbundled basis ``at any technically

feasible point.'' Parties are asked to identify and describe, in brief,

each network element for which they believe access on an unbundled

basis is technically feasible at this time. Further, we seek comment on

whether a dynamic definition of ``technically feasible'' is practical

for identifying elements beyond those discussed here, and, if so, what

such a definition should be. We also ask whether the states, rather

than the Commission, may apply the definition during the arbitration

process. We further request that parties comment on experiences with

providing or purchasing access to elements currently unbundled by the

states, and any state approaches to determining the technical

feasibility of unbundling elements that the Commission could use in a

national model. We also seek comment on whether the technical

feasibility of interconnection at a particular point affects, at least

in part, the technical feasibility of providing access to a network

element on an unbundled basis at that point. Finally, because

subsection (c)(3) imposes an affirmative obligation on incumbent LECs

to provide unbundled elements, we tentatively conclude that LECs have

the burden of proving that it is technically infeasible to provide

access to a particular network element. We also tentatively conclude

that the unbundling of a particular network element by one LEC (for any

carrier) evidences the technical feasibility of providing the same or a

similar element on an unbundled basis in another, similarly structured

LEC network. We seek comment on these tentative conclusions.

88. In addition to technical feasibility, section 251(d)(2)

requires that the Commission ``consider, at a minimum, whether * * *

access to such network elements as are proprietary is necessary, and

[whether] the failure to provide access to such network elements would

impair the ability of the telecommunications carrier seeking access to

provide the services that it seeks to offer.'' We seek comment on the

extent to which the Commission must ``consider'' these standards, how

these standards should be interpreted, and on any additional

considerations, such as possible risks to network reliability or other

harm. We note that the 1996 Act uses the terms ``technically feasible''

and ``economically reasonable'' together in other sections of the Act,

and we seek comment on what effect the absence of the term

``economically reasonable'' in section 251(c)(3) has on economic

considerations. See, e.g., 1996 Act, sec. 101, Sec. 254(h)(2). The

House Committee, in considering H.R. 1555, dropped the term

``economically reasonable'' from its unbundling provision, reporting

that ``this requirement could result in certain unbundled * * *

elements * * * not being made available.'' H. Rep. 104-204, 71 (1995).

Further, we request comment on whether this omission could be construed

to imply that Congress intended for carriers requesting unbundling to

pay its cost, and on whether that construction is consistent with the

intent of the 1996 Act. In any event, access to network elements must

be available at rates, terms, and conditions that are just, reasonable,

and nondiscriminatory. 1996 Act, sec. 101, Sec. 251(c)(3).

89. We also request comment on whether the Commission should

establish minimum requirements governing the ``terms'' and

``conditions'' that would apply to the provision of all network

elements. For example, should the Commission require incumbent LECs to

provide network elements using the appropriate installation, service,

and maintenance intervals that apply to LEC customers and services?

Alternatively, should the Commission require LECs to comply with

national or industry-based standards? Would minimum national

requirements for electronic ordering interfaces reduce the time and

resources required for new entrants to compete in regional markets?

What standard unbundling terms and conditions, if any, should the

Commission use in evaluating applications under section 271(b)? Would

national rules aid the states in arbitrating agreements within the

statutory period? If parties believe that the Commission should specify

minimum terms and conditions, we seek comment on what those terms and

conditions should be, and how those terms and conditions might be

enforced. Parties are encouraged to cite specific examples from the

states that could be incorporated into minimum national requirements.

90. In addition, we request comment on the meaning of the

requirement in section 251(c)(3) that LECs provide unbundled network

elements ``in a manner that allows requesting carriers to combine such

elements in order to provide * * * telecommunications service.'' For

example, should the required facilities or services associated with a

particular network element vary depending on the services the

requesting carrier wishes to provide or on the types of facilities the

requesting carrier will use in combination with the requested elements?

We also seek comment on the relationship between this provision and

section 251(d)(2)(B), discussed above, which requires the Commission to

consider whether the failure to provide access to an element would

impair the ability of a requesting carrier to provide a desired

service.

91. Section 251(c)(3) further requires incumbent LECs to provide

requesting carriers with ``nondiscriminatory'' access to unbundled

network elements. That section also requires LECs to provide access on

``terms, and conditions that are * * * nondiscriminatory.'' We seek

comment on what minimum requirements, if any, we should adopt to ensure

that LECs do not discriminate among requesting carriers. For example,

one criterion might be whether an end user could perceive any

differences in the quality

[[Page 18326]]

of service provided by one carrier as compared with another. Another

criterion might be to require LECs to make it as easy to switch local

service providers as it is for customers to switch interexchange

providers. Further, unlike subsection (c)(2), which requires that

interconnection offered requesting carriers be ``at least equal in

quality to that provided'' by the LEC itself, subsection (c)(3) does

not contain such a requirement. Nevertheless, we request comment on

whether we can and should prohibit an incumbent LEC from providing

requesting carriers with access inferior to that which it provides

itself.

(3) Specific Unbundling Proposals. 92. We now consider particular

network elements to which incumbent LECs must provide access on an

unbundled basis under section 251(c)(3). As discussed above, we propose

to identify a minimum number of elements that incumbent LECs must

unbundle, and we seek comment on what minimum requirements of

unbundling, if any, the Commission should adopt for each element. AT&T,

for example, has publicly advocated that the Commission should require

the unbundling of eleven network elements: loop distribution,

concentration, and feeder plant; local and access tandem switches;

dedicated and common transport; SS7 signalling links, signal transfer

points, and signal control points; and operator services. MCI

advocates, in addition, the unbundling of loop and trunk ports from

local switching. Some LECs favor the unbundling of significantly fewer

elements.

93. We address below four categories of elements: loops, switches,

transport facilities, and signaling and databases. For each of the

proposed network elements discussed in these categories, we request

that parties comment on the following issues:

(1) the technical feasibility of providing access to that or an

equivalent element on an unbundled basis, how such access should be

provided, and any demonstrable network reliability concerns;

(2) whether and to what extent LECs currently allow other carriers

to access such elements;

(3) whether the Commission should establish a standard for defining

the element, and if so, what level of technical detail is required in

the definition, and what facilities or functionalities should be

included or excluded from the definition;

(4) whether the Commission should establish minimum requirements

for the terms and conditions of provisioning the element, and if so,

what they should be;

(5) whether the failure to unbundle the element would impair a

requesting carrier's ability to provide the services that it seeks to

offer;

(6) whether proprietary interfaces or technology are involved in

providing the element, and if so, whether unbundled access to the

element is necessary; and

(7) any other issues presented by the unbundling of this element

that are important to effectuating the goals of section 251(c)(3) and

the 1996 Act.

(a) Local Loops. 94. We propose to require incumbent LECs to

provide local loops as unbundled network elements. The Joint

Explanatory Statement accompanying the 1996 Act expressly cites the

local loop as an example of a network element. In addition, the

competitive checklist of section 271(c)(2)(B) specifies the unbundling

of local loops from local switching or other services as a precondition

to BOC provision of in-region interLATA services. Further, several

states have ordered, and LECs currently offer, loops unbundled from

local switching, and thus we tentatively conclude that the unbundling

of local loops is technically feasible.

95. We first seek comment on whether and the extent to which the

Commission should prescribe a set of minimum requirements for

unbundling and provisioning loops. For example, we could require only

that incumbent LECs must, upon request, provide at central offices

individual transmission links to customer premises regardless of the

technology involved. It appears, however, that in states that already

have ordered loop unbundling, the general requirement to unbundle is

merely the first step in a process of providing new entrants with

meaningful facilities with which to compete.

96. The New York Commission, for example, having anticipated and

addressed many of the problems associated with unbundling loops and

ports, is still grappling with issues such as operational interfaces

between carriers, the timing of loop provisioning relative to number

porting, and underlying delivery systems supporting loop-provisioning.

In view of such complex and resource-intensive issues, we seek comment

on whether there are minimum requirements that would build upon the

progress of preexisting state initiatives and facilitate the

provisioning of unbundled loops. What requirements, for example, would

avoid the need for duplicative decision-making by states and variations

among states in the effectiveness of loop unbundling, while better

enabling new entrants to plan and fund regional networks? To what

extent is the avoidance of interstate duplication and variation

necessary to achieving the goals of the 1996 Act? How should the

Commission structure national requirements to provide sufficient

flexibility to carriers and the states for use of different or new

``loop'' technologies or services?

97. In addition, we tentatively conclude that we should require

further unbundling of the local loop. We seek comment on which subloop

elements are technically feasible to unbundle. For example, the

Commission could require incumbent LECs to provide access to loop

feeder and distribution plant on an unbundled basis at remote switching

or concentration sites, in addition to access to the switching or

concentration equipment itself. Hawaii, for example, divides local loop

functions into these three categories. Illinois also recently required

LECs to provide subloop elements in response to a bona fide request.

Such requests may come from carriers deploying cable or fiber feeder

facilities that lack distribution plant. We thus seek comment on

whether requiring access to loops prior to their concentration or

multiplexing would allow requesting carriers to provide services they

could not provide at LEC central offices, and whether such access would

involve proprietary equipment. Finally, we request comment on what

minimum requirements for subloop unbundling, at this early stage where

few if any states have addressed the issue, would pave the way for

rapid adoption and provision of subloop elements.

(b) Local Switching Capability. 98. In addition to the local loop,

we tentatively conclude that incumbent LECs should provide unbundled

local switching capability as a network element. The Joint Explanatory

Statement expressly cites switching equipment as an example of a

network element. In addition, the competitive checklist of section

271(c)(2)(B) specifies the unbundling of local switching from

transport, local loop transmission, or other services as a precondition

to BOC provision of in-region interLATA services. Finally, we believe

unbundling of local switching capability is critical to the

implementation of section 251(c)(3) and the provision of competing

telecommunications services.

99. Unlike a local loop, local switching equipment is often shared

by thousands of customers. As a result, it may be difficult to identify

or define the use of such equipment for a particular customer. One

possible way to identify

[[Page 18327]]

a switching element is to define the element in terms of the capacity

of a local switch to switch traffic from line to line, line to trunk,

trunk to line, or trunk to trunk. This is both the most essential and

rudimentary capacity of a local switch. Today's modern switches,

however, are capable of significantly more advanced functions, such as

call waiting, conference calling, signaling, and centrex. Under the

1996 Act's definition of network element, these functions could

constitute individual network elements separate from the basic

switching functionality, or could be grouped in part or whole with the

basic functionality, which would allow requesting carriers, in turn, to

offer the functions they desire.

100. Illinois, for example, is investigating a ``local switching

platform'' approach to unbundling the local switch. The platform is

described in terms of ``virtual'' switch capacity, including all the

services and functions performed by the switch on a per line basis,

such as dialtone, telephone number provision, all CLASS and CCF

features, originating and terminating usage, and 911 services.

According to its advocates, unlike merely reselling a single switching

service, under the platform structure requesting carriers incur added

risk because the cost of the platform includes the cost of all

functionalities provided by the switch on a per line basis, regardless

of the functionalities ultimately purchased by an end user. This added

risk translates into added profits if the requesting carrier is able to

sell a combination of these switching functionalities at a higher

profit than would have been possible under a simple resale arrangement.

Moreover, because requesting carriers are not tied to the incumbent

LEC's retail price structure, concerns about possible price squeezes

are reduced.

101. Other states have defined a switching ``port,'' which usually

includes all the capabilities of the local network provided at the main

distribution frame of a LEC central office. For example, New York

treats a port essentially as an interconnection point into the rest of

the NYNEX network. Thus a port defined in this way is not in the nature

of an unbundled element that a competing carrier could combine with its

own transport and other loop facilities to provide a competing

telecommunications service. Rather, such a port is effectively

equivalent to the LEC's bundled retail local service offering minus the

loop. We seek comment on whether such a definition of ``port'' is

consistent with the requirements of section 251(c)(3), especially the

requirement that incumbent LECs provide elements in a manner that

allows carriers to combine them to provide telecommunications services.

Further, we seek comment on alternative definitions of ``port,'' and on

whether the port should be a separate unbundled element from the

switch. For example, MCI defines a port as the link from the LEC main

distribution frame to the switch.

102. We also request comment on these and alternative approaches to

unbundling the local switch, and on the technical feasibility of such

approaches. Under the switching platform approach, for example, what

control, if any, can and should requesting carriers have over the

operations of a LEC local switch, and is access to proprietary

functions or equipment necessary? Further, should the Commission

identify several permissible approaches to switch unbundling, and what

minimum requirements, if any, should apply? What requirements of switch

unbundling would help the Commission in evaluating applications under

section 271(b), and the states and the courts in arbitrating and

evaluating agreements between carriers?

103. Finally, in conjunction with the next section addressing

transport facilities, we request comment on whether requirements

governing a local switching element could be tailored to apply to a

tandem switching element. Parties should address the issues discussed

above in the context of tandem switches.

(c) Local Transport and Special Access. 104. We also propose to

require incumbent LECs to provide access to unbundled transport

facilities as network elements. We note that the competitive checklist

of section 271(c)(2)(B) requires the provision of local transport from

the trunk side of a LEC switch unbundled from switching or other

services as a precondition to BOC provision of in-region interLATA

services. We tentatively conclude that the unbundling of local

transport and special access facilities is technically feasible. We

note that the Commission's action in the Expanded Interconnection

proceeding effectively required substantial unbundling of these

facilities.

105. We propose to require unbundling of LEC facilities that

correspond to the current interstate transport and special access rate

elements. For direct-trunked transport networks, transport trunks would

be unbundled from local switches, and the link from the serving wire

center (SWC) to the IXC point of presence (POP) would be unbundled from

the link between the central office and the SWC. For tandem-switched

transport networks, the elements could include, among other options,

unbundled trunks from the end office to the tandem office, trunks from

the tandem office to the SWC, trunks from the SWC to the IXC POP, and

the tandem switch itself. Finally, for special access we propose to

require the unbundling of channel termination facilities from

interoffice facilities.

106. We seek comment on the technical feasibility of unbundling

direct-trunked and tandem-switched transport and special access

facilities in this or in any alternative manner, and on how LECs should

unbundle any other network facilities used to transport traffic from

LEC central offices to IXC POPs or to other LEC central offices. As

discussed above, we ask parties to address the unbundling of tandem

switches in accordance with the issues raised in the local switching

section, and comment on any issues pertaining exclusively to tandem

switching.

(d) Databases and Signaling Systems. 107. The 1996 Act contemplates

the unbundling of incumbent LECs' signaling systems and databases.

Congress specifically included ``databases'' and ``signaling systems''

in the definition of network elements. The 1996 Act also requires BOCs

to provide access to ``databases and associated signaling necessary for

call routing and completion'' as a precondition for entry into in-

region interLATA services. Therefore, we tentatively conclude that

requiring incumbent LECs to unbundle their signaling systems and

databases is consistent with the intent of the 1996 Act.

108. Many incumbent LECs have Signaling System 7 (SS7) networks

that are separate from, but interconnected with, the telecommunications

networks that carry voice and data communications between end users.

SS7 networks perform three primary functions: (1) call set up, which

establishes transmission paths for calls; (2) access to remote

databases, which provides specialized call routing information to

switches; and (3) custom local area signaling service (CLASS) features,

such as caller ID, which require the transmission of certain

information between the calling and called parties. We request that

commenters identify the points at which carriers interconnect with LEC

SS7 networks today and the signaling and database functions currently

provided by incumbent LECs on an unbundled basis. Commenters should

also discuss

[[Page 18328]]

the technical feasibility of establishing other points of

interconnection and other unbundled signaling and database functions

not currently offered by incumbent LECs.

109. An example of unbundling particular signaling and database

elements is Colorado's requirement that incumbent LECs provide

unbundled access to signaling links, signal transfer points, and

service control points as well as access to non-proprietary signaling

protocols used in the routing of local and interexchange traffic, 800

service, alternative billing service, and line information database

(LIDB) service. Colorado has not specified whether access to signaling

and databases is limited to those particular services. Hawaii has taken

a similar approach by requiring incumbent LECs to unbundle signaling

links, signal transfer points, and service control points, and has not

specified which services provided by these network elements must be

made available to competitors. By contrast, Louisiana has ordered

unbundled access to incumbent LEC databases for all services that the

incumbent LEC provides itself, including 800 service, LIDB, and

advanced intelligent network (AIN) services. Does the variation among

the Colorado, Hawaii, and Louisiana regulations governing unbundled

signaling and databases reflect differing circumstances that should be

accommodated in our rules? Would such variation among states be

consistent with the goals of the 1996 Act? Would new entrants be better

served by uniform federal rules concerning unbundled access to

signaling systems and databases? If so, would any of the regulations

adopted by the states be useful to incorporate into national rules?

110. We also seek comment on the relative importance to potential

entrants of the various functions performed by incumbent LECs'

signaling systems and databases. For example, call set up plays an

important role in the transmission of calls that are routed through

more than one switch. Thus, it would appear that such functionality

will be needed by entrants to provide competing local exchange service.

However, we are aware that there are alternative suppliers of call set

up services other than incumbent LECs. What bearing, if any, should

this have on our adoption of unbundling rules for call set up? Are

there existing suppliers for other functions performed by incumbent

LECs' signaling systems and databases?

111. In addition, a competitor may seek to provide certain call

processing features to its customers by reselling the incumbent LEC's

call processing services. We seek comment on the importance of

unbundled access to the incumbent LEC's advanced call processing

features, such as single number service, in the market entry decisions

of potential competitors. We also seek comment on whether the software

``building blocks'' used by incumbent LECs to create call processing

services are network elements to be unbundled. Given the array of

existing and potential call processing services that could be provided

by incumbent LECs' signaling systems and databases, we seek comment on

whether the establishment of uniform national guidelines governing all

call processing services provided via remote databases would facilitate

the state arbitration process, judicial review, and/or Commission

activities under section 253. We also seek comment on whether it would

be consistent with the 1996 Act to permit variation among states with

regard to unbundling call processing services provided via remote

databases.

112. Under another scenario, a competitor that is providing resold

local exchange service might seek to distinguish its offerings by

connecting its own call processing database to the incumbent LEC's

network, which would allow the competitor to provide call processing

features not offered by the incumbent LEC. Enabling new entrants to

offer their own call processing services in this way would likely

stimulate local exchange competition. We seek comment on whether this

type of interconnection is technically feasible without jeopardizing

network reliability.

113. We also note that in our Intelligent Networks (IN) proceeding,

we are considering unbundling advanced intelligent network (AIN)

elements, which include signaling systems and databases. Intelligent

Networks, Notice of Inquiry, 56 FR 65721 (12/18/91); Intelligent

Networks, Notice of Proposed Rulemaking, 58 FR 48623 (9/17/93). In the

IN NPRM, we tentatively proposed ordering Tier 1 LECs to provide access

to several specific AIN elements in order to promote competition in the

provision of AIN services. Subsequently, a group of Tier 1 LECs filed a

joint proposal calling for a two-year testing plan to explore methods

of third-party interconnection to LEC AINs. We seek comment on what

role, if any, the LEC proposal for a testing program should play with

regard to access to signaling and database elements that we address in

this proceeding. We incorporate the record compiled in the IN

proceeding into this proceeding by reference.

114. We further note that our IN proceeding has focused on

providing all interested third parties with access to Tier 1 LECs' AIN

elements, primarily for the purpose of providing competing AIN

services. Section 251 of the 1996 Act provides any requesting

telecommunications carrier unbundled access to incumbent LECs' network

elements ``for the provision of a telecommunications service.'' We seek

comment on whether mandating the unbundling of signaling systems and

databases pursuant to section 251 would be sufficient to meet the

objectives of the IN proceeding. To the extent that section 251 does

not require incumbent LECs to provide certain third parties with access

to unbundled AIN elements, we seek comment on whether we should use our

section 201 authority to require such access. We also seek comment on

how the unbundling of signaling systems and databases in this

proceeding should affect our actions in the IN proceeding.

115. Requiring incumbent LECs to provide unbundled access to their

signaling and database networks could also potentially permit competing

carriers to gain access to competitively sensitive data. Louisiana has

addressed this potential problem by specifically prohibiting incumbent

providers from accessing the customer proprietary network information

(CPNI) of an interconnecting carrier in order to market services to the

interconnecting carrier's customers. We seek comment on whether such a

restriction should be implemented in federal standards. We plan to

initiate a proceeding in the near future to implement the provisions of

the 1996 Act that address CPNI. Are there other state regulations

concerning access to competitor's CPNI that would prevent this type of

anticompetitive conduct while allowing us to establish interconnection

and unbundling rules for signaling and database facilities?

116. Finally, we request comment on other network elements to which

the Commission should require access on an unbundled basis, and

specific standards that should govern their unbundling. For example,

the statutory definition of network element includes ``subscriber

numbers'' and ``information sufficient for billing and collection or

used in the transmission, routing, or other provision of a

telecommunications service.'' We tentatively conclude that these

elements should be unbundled and we request comment on the standards we

should set for such unbundling. In addition, section 271 of the 1996

Act requires incumbent LECs

[[Page 18329]]

to unbundle ``operator call completion services'' as a precondition for

providing in-region, interLATA services. In light of this, we

tentatively conclude that incumbent LECs should be required to unbundle

operator call completion services as a network element pursuant to

section 251(c) of the Act. We seek comment on this tentative

conclusion.

d. Pricing of Interconnection, Collocation, and Unbundled Network

Elements. (1) Commission's Authority to Set Pricing Principles. 117.

Section 251, in some instances, explicitly sets forth requirements

regarding rates for service, interconnection and unbundled elements.

For example, sections 251(c)(2), (c)(3), and (c)(6) require that

incumbent LECs' ``rates, terms and conditions'' for interconnection,

unbundled network elements, and collocation be ``just, reasonable, and

nondiscriminatory,'' and, with respect to interconnection and unbundled

elements, in accordance with section 252. Section 251(c)(4) requires

that incumbent LECs offer ``for resale at wholesale rates any

telecommunications service that the carrier provides at retail to

subscribers who are not telecommunications carriers,'' without

unreasonable conditions or limitations. Section 251(b)(5) requires that

all LECs ``establish reciprocal compensation arrangements for the

transport and termination of telecommunications.'' We tentatively

conclude that this statutory language establishes our authority under

section 251(d) to adopt pricing rules to ensure that rates for

interconnection, unbundled network elements, and collocation are just,

reasonable, and nondiscriminatory. We tentatively conclude that we have

statutory authority to define what are ``wholesale rates'' for purposes

of resale, and what is meant by ``reciprocal compensation

arrangements'' for transport and termination of telecommunications. We

seek comment on this tentative conclusion.

118. We note that, under the statutory framework established by

Congress, states have the critical role under section 252 of

establishing rates pursuant to arbitration and of reviewing rates under

BOC statements of generally available terms. Rates for both arbitrated

agreements and BOC statements of generally available terms must be in

accordance with section 252(d), which sets forth specific ``pricing

standards'' for interconnection and unbundled elements, wholesale

services, and transport and termination of traffic under reciprocal

compensation arrangements. The 1996 Act appears to give a role to both

the states and the Commission regarding rates for interconnection,

unbundled network elements, wholesale services, and reciprocal

compensation arrangements. We believe that the statute, and in

particular our statutory duty to implement the pricing requirements of

section 251, as elaborated in section 252, is reasonably read to

require that we establish pricing principles interpreting and further

explaining the provisions of section 252(d) for the states to apply in

establishing rates in arbitrations and in reviewing BOC statements of

generally available terms and conditions. Such an approach appears to

be consistent with both the language and the goals of the statute.

119. Establishing national pricing principles would be likely to

improve opportunities for local competition by reducing or eliminating

inconsistent state regulatory requirements, thereby easing

recordkeeping and other administrative burdens. In addition, national

pricing principles would be likely to increase the predictability of

rates, and facilitate negotiation, arbitration, and review of

agreements between incumbent LECs and competitive providers. We seek

comment on these tentative conclusions. We also seek comment on the

potential consequences if the Commission does not set specific pricing

principles. For example, would the lack of consistent rates, even in

contiguous geographic areas, create a barrier to entry or to deployment

of facilities throughout a multistate market? In addition, if the

Commission is required to assume the responsibility of the state

commission, pursuant to section 252(e)(5), would an absence of federal

pricing principles impede the Commission's ability to arbitrate or

review an agreement in a timely fashion?

120. Finally, consistent with our earlier discussion that sections

251 and 252 do not make jurisdictional distinctions between interstate

and intrastate services and facilities, we tentatively conclude that

the pricing principles we establish pursuant to section 251(d) would

not recognize any jurisdictional distinctions, but would be based on

some measure of unseparated costs. We do not believe section 2(b)

requires a different conclusion. We seek comment on this tentative

conclusion. We also seek comment on whether we need to revise our cost

allocation rules in Part 64, or whether we need to adopt a similar set

of cost allocation rules to remove the costs and revenues of services

provided pursuant to sections 251 and 252 before the separations

process is applied.

(2) Statutory Language. 121. Section 251(c)(2)(D) requires that

incumbent LECs provide interconnection ``on rates, terms, and

conditions that are just, reasonable, and nondiscriminatory, in

accordance with * * * the requirements of this section and section

252.'' Section 251(c)(3) similarly requires incumbent LECs to provide

``nondiscriminatory access to network elements on an unbundled basis *

* * on rates, terms and conditions that are just, reasonable, and

nondiscriminatory in accordance with * * * the requirements of this

section and section 252.'' Likewise, section 251(c)(6) requires

incumbent LECs to provide ``on rates, terms, and conditions that are

just, reasonable, and nondiscriminatory, for physical collocation of

equipment.'' Section 252(d)(1) provides that state determinations of

the just and reasonable rate for the interconnection of facilities and

equipment for purposes of subsection (c)(2) of section 251, and the

just and reasonable rate for network elements for purposes of

subsection (c)(3) of such section--

(A) shall be (i) based on the cost (determined without reference to

a rate of return or other rate-based proceeding) of providing the

interconnection or network element * * *, and (ii) nondiscriminatory,

and

(B) may include a reasonable profit.

We seek comment on the proper interpretation of each of these

statutory provisions. We also seek comment on any specific principles

that parties believe the Commission should promulgate to ensure that

the rates established or approved by states are just, reasonable, and

nondiscriminatory. We seek comment below on the national pricing

principles that states might apply in setting and reviewing rates for

interconnection, collocation, and access to unbundled network elements.

We also seek comment on what enforcement or monitoring mechanism, if

any, the Commission or the industry should adopt to ensure that all

carriers comply with any pricing principles that the Commission

establishes.

122. Further, we believe that any pricing principles we adopt

should be the same for interconnection and unbundled network elements,

because sections 251 (c)(2) and (c)(3) and 252(d)(1) use the same

standard for both types of services. We invite parties to comment on

whether there are any reasons to make a distinction. In addition, we

believe that the same pricing rules that apply to interconnection and

unbundled network elements should apply to collocation as required

under section 251(c)(6). We seek comment on this issue. In

[[Page 18330]]

particular, we seek comment on whether the absence of any pricing rule

for collocation in section 252 has any legal significance with regard

to our authority to specify rules for pricing of collocation services.

Alternatively, should collocation be considered a subset of

interconnection services, pursuant to sections 251(c)(2) and 252(d)(1)

for purposes of the statutory pricing principle?

(3) Rate Levels. 123. As previously set forth, section 252(d)(1)

provides that state determinations of just and reasonable rates for

interconnection and providing network elements shall be ``based on the

cost (determined without reference to a rate-of-return or other rate-

based proceeding),'' ``nondiscriminatory,'' and ``may include a

reasonable profit.'' We tentatively conclude that this language

precludes states from setting rates by use of traditional cost-of-

service regulation, with its detailed examination of historical carrier

costs and rate bases. Instead, the statute appears to contemplate the

use of other forms of cost-based price regulation, such as price cap

regulation that is indirectly based on costs, or the setting of prices

based on a forward-looking cost methodology that does not involve the

use of an embedded rate base, such as long-run incremental cost (LRIC).

We seek comment on this view of the meaning of section 252(d)(1).

124. Economists generally agree that rates based on LRIC give

appropriate signals to producers and consumers and ensure efficient

entry and utilization of the telecommunications infrastructure. They

further agree that competitive markets, over the long run, tend to

force prices toward LRIC. A broad range of parties appears to agree

that rates for interconnection and unbundled elements should be based

on some type of LRIC methodology, such as, for example, using what some

parties refer to as a ``total service long-run incremental cost''

(TSLRIC) approach. In the following section, we consider whether we

should adopt, a LRIC-based pricing methodology for states to use to set

interconnection and unbundled element rates under the 1996 Act. Under

such an approach, if voluntary negotiations between parties were

unsuccessful, the state commissions would conduct arbitration

proceedings under section 252 in order to develop the specific factual

information required to specify the actual rates in accordance with the

national policy. As discussed at greater length below, however, there

appear to be considerable differences of opinion as to the precise form

of the LRIC methodology that should be used. See, e.g., Ameritech's

March 25, 1996 submission at 9-10 (TSLRIC, joint and common costs, and

residual costs to the extent they reflect forward-looking costs should

be used to determine the pricing standard for interconnection and

unbundled network elements); AT&T Submission at 47 (TSLRIC of a network

element includes both the fixed equipment costs associated with the

element and the normal competitive return to the capital that must be

invested in order to supply that element). For a discussion of the

precise definitions of the terms LRIC and TSLRIC, see infra

Paras. [123-130]. The term ``long-run service incremental cost''

(LRSIC), used by some states and parties, appears to be synonymous with

the term TSLRIC. Further, while pricing based on LRIC may be the

theoretical ideal, significant practical and administrative problems

are likely to arise in determining the LRIC of specific services and

facilities for particular incumbent LECs, especially in the short term,

given the contentious and often time-consuming proceedings that may be

necessary to resolve the complex issues raised by incremental cost

studies. We explore these and other issues concerning the use of a

LRIC-based pricing methodology in the following section.

125. As an alternative to our specifying a methodology for states

to follow in setting prices under section 252(d)(1), we could establish

outer boundaries for rates for interconnection and unbundled network

elements, within which states would have a range of flexibility to

select a cost-based method of determining interconnection and unbundled

element rates. In particular, we could establish an administratively

simple methodology that is relatively easy to apply, potentially using

proxies for cost-based rates, to set rate ceilings or upper bounds on

the range of state ratemaking flexibility. The use of a proxy to set

the ceiling would reduce the administrative burden that is inherent in

the application of a LRIC-based methodology, and thus may be especially

attractive in the near term. We discuss this proxy-based ceiling

approach in detail below. We also discuss below the extent to which

embedded (or historical) costs are relevant to the pricing rule for

interconnection and unbundled network elements in the 1996 Act, the

relationships between this pricing rule and policies on universal

service and access charge reform, and whether certain methodologies are

so fundamentally inconsistent with the 1996 Act that the statute

precludes states from using such methodologies.

(a) LRIC-Based Pricing Methodology. 126. As noted above, most

economists--and a broad range of parties that have submitted materials

related to this proceeding--appear to agree that rates for

interconnection and unbundled elements ideally should be based on a

LRIC-type methodology. The economists and parties, however, do not

appear to agree on the specifics of a LRIC or TSLRIC methodology.

Parties sometimes assign different meanings to the same terms. We

therefore ask commenters advocating this approach to define with

specificity the costing methodology that they support. In particular,

we seek comment on precise definitions for the following terms: LRIC,

TSLRIC, forward-looking costs, joint costs, common costs, shared costs,

and stand-alone costs. We also seek comment on the definition of the

following related terms: embedded costs, fully distributed costs (FDC),

overheads, contribution, and residual costs. For example, many years

ago the Commission defined LRIC as including ``the full amount of

incremental investment and expenses which would be incurred by reason

of furnishing additional quantities of service, whether in a new or an

existing service category,'' and added that, in estimating LRIC, one

``determine[s] prospectively the effect on total costs, including the

effect on common costs, * * * of adding units of service.'' Does this

continue to be an appropriate definition of LRIC? In what respects, if

at all, does a TSLRIC analysis differ from a LRIC analysis? Commenters

should explain how any methodology they support should be calculated,

and how such an approach differs from other possible costing

methodologies.

127. We note that some states already have adopted LRIC-based

pricing methodologies to set rates for interconnection services and

unbundled network elements that new entrants purchase from incumbent

LECs. For example, the Illinois Commerce Commission has promulgated

detailed rules regarding the use of TSLRIC studies to derive the rates

for specified services offered by incumbent LECs. Michigan law provides

that incumbent LECs' rates for interconnection will be set at TSLRIC

levels until January 1, 1997. The California Public Utilities

Commission has set prices for unbundled elements based on a forward-

looking calculation of TSLRIC, which excludes shared and common costs.

The New York Public Service Commission has allowed incumbent LECs to

establish tariffed rates for interconnection offerings with rates

[[Page 18331]]

based on incremental cost plus, where appropriate, offsets to account

for contribution loss and the impacts of ``stranded plant.'' Finally,

the Local Competition Work Group of the NARUC Staff Subcommittee on

Communications has recommended that network component prices should

recover at least TSLRIC and, subject to state commission oversight and

review, may include ``a markup over TSLRIC to reflect a reasonable

allocation of joint and common costs.''

128. We invite parties to comment on the costing methodologies used

by these and other states, and on the extent to which these approaches

are consistent with the pricing principles and goals of the 1996 Act.

We also seek comment on whether the approach taken by any state

regarding pricing interconnection, collocation, and unbundled network

elements can be used as a model for a federal policy for these services

and facilities. Are the existing state standards substantially the same

or materially different? If there are significant differences, what are

the costs and benefits of such variation to economic efficiency and a

national, pro-competitive communications policy? We note that, while

several states have identified specific costing methodologies and have

ordered incumbent LECs to offer unbundled network elements at rates

based on LRIC, most states have not yet acted in this area.

129. We can consider a number of different approaches if we were to

require a LRIC-based methodology for states to follow. For example, we

could require that prices be set based on a narrowly defined LRIC of

interconnection service and unbundled network elements, with no

allowance for joint or common costs, overheads, or any other added

increment. There may, however, be a problem with basing rates on LRIC

alone if there are significant joint and common costs among network

elements, even if such costs are determined on a forward-looking basis.

As a second option, we could require prices to be based on the LRIC of

the applicable service or unbundled element plus a reasonable

allocation of forward-looking joint and common costs. Even then,

however, under some LRIC methodologies, the sum of all LRIC-based

service and element pricing may not cover all of the firm's forward-

looking costs. Finally, Ameritech has suggested a LRIC-based

methodology that includes, in addition to TSLRIC, an allocation of

joint (or shared) costs, common costs (or overhead), and residual

costs. We seek comment on these alternative approaches, or variations,

in terms of their compliance with the statute, including the statutory

provision that rates ``may include a reasonable profit,'' and their

respective advantages and disadvantages.

130. We also seek comment on how, if rates are to be set above

LRIC, to deal with the problems inherent in allocating common costs and

any other overheads. First, it may be possible to minimize the costs to

be allocated as joint and common by identifying a substantial portion

of costs as incremental to a particular service or element. The

feasibility of minimizing the costs to be allocated as joint and common

may depend, in part, on the degree to which unbundled elements are

disaggregated. Alternatively, joint and common costs could be minimized

by establishing a pricing standard at a higher level of aggregation

than individually unbundled subelements. For instance, the pricing

standard could apply to loops, even though there may be sub-loop

unbundling. A second approach would be to allocate common costs and

overhead among services in an inverse relationship to the sensitivity

of demand for each of the services. This ``Ramsey'' approach, in

theory, minimizes reductions in consumer welfare due to prices above

LRIC. On the other hand, Ramsey pricing principles were developed in

the context of regulated monopolies, and may not be desirable for

markets in which competition is developing. A third approach would be

to allocate common costs and overheads among all services based on some

specified allocator. For example, shared costs and overheads could be

allocated among services in proportion to each service's LRIC or direct

costs, or could be apportioned based on some measure of usage. We seek

comment on these approaches, and on the expected magnitude of forward-

looking costs under each approach that cannot be attributed to specific

services or elements. We also seek comment on whether, regardless of

the method of allocating common costs, we should limit rates to levels

that do not exceed stand-alone costs.

131. Parties should specify their reasons for supporting or

objecting to a particular costing model, and on what types of LRIC-

based pricing methodology would be consistent with the 1996 Act.

Parties that favor a particular methodology should explain how their

proposals satisfy the statutory requirement that cost-based rates be

determined ``without reference to a rate-of-return or other rate-based

proceeding.'' They should also address how their methodologies would

comply with the statutory requirement that rates for interconnection

and unbundled elements ``may include a reasonable profit.'' We also

seek comment on whether the ``reasonable profit'' provision should be

interpreted to mean that rates should yield reasonable levels of return

on capital (including assessment of risk). Parties are encouraged to

provide examples of states that have used the particular methodology

that they support, or other illustrative evidence to indicate how such

a standard would be applied. Should the LRIC-based methodology that any

particular state has used be adopted as a national policy for

interconnection and unbundled elements, or should a number of existing

state approaches be identified as acceptable options? We invite parties

to propose other approaches, to delineate with particularity how their

proposal differs from the approaches described above. Parties should

also address the practicality of such approaches in a state arbitration

setting, including the extent to which they would be clear and

relatively easy to derive with a minimum of controversy and delay, and

the administrative burdens associated with such approaches.

132. We also seek comment on a transitional pricing mechanism

during an interim time period. Should we adopt an easily implementable

interim approach that would address concerns about unequal bargaining

power in negotiations, followed by some sort of transition mechanism to

a more permanent set of pricing principles? One possible approach would

be to require that during an interim period, rates be set at short-run

marginal cost. Such an approach might give incumbent LECs an incentive

to reach a rapid agreement.

133. We seek comment on whether interconnection and unbundled

element rates should be set on a geographically- and class-of-service-

averaged basis for each incumbent LEC, or whether some form of

disaggregation would be desirable. Unlike with respect to interexchange

telephone services, Congress did not address the question of whether

interconnection and unbundled element rates should be geographically

averaged. On the one hand, averaged rates would be simpler to derive

and administer, and would minimize the possibility of unreasonable or

unlawfully discriminatory rate differences. On the other hand, averaged

rates might be above the cost of service in relatively dense areas, and

below cost in less dense areas. This could create uneconomic incentives

for competitive entrants to use incumbent LECs'

[[Page 18332]]

unbundled network elements rather than deploying their own facilities

in high cost areas, even if their costs are lower than those of the

incumbent LEC. Conversely, it might create incentives for competitive

entrants to deploy their own more costly facilities, rather than using

unbundled network elements provided by incumbent LECs, in low cost

areas. This problem may be exacerbated if the incumbent LECs' local

exchange or exchange access services are priced on a geographically

averaged basis. If interconnection and unbundled element rates should

be disaggregated, what level of disaggregation would be appropriate--by

density pricing zone, LATA, exchange, or some other unit? What types of

class-of-service disaggregation are appropriate? For example, should

incumbent LECs be permitted to charge different rates for unbundled

business and residential loops, or for unbundled loops using different

technologies? What rate differentials would be reasonable? We further

seek comment on whether some cost index or price cap system would be

appropriate to ensure that rates reflect expected changes in unit costs

over time.

(b) Proxy-Based Outer Bounds for Reasonable Rates. 134. We also

seek comment on the benefits, if any, of adopting a national policy of

outer boundaries for reasonable rates instead of specifying a

particular pricing methodology. For example, rate ceilings could define

the maximum end of the reasonable range within which state commissions

could establish rates for interconnection and unbundled elements in the

arbitration process pursuant to sections 252 (b) through (e). Properly

set rate ceilings would prevent incumbent LECs from setting rates at

levels so high as to prevent efficient competitive entry or to allow

them to extract monopoly rents, and would ensure that rate levels bear

some relationship to costs. If rates are too high, use of unbundled

elements will be deterred and therefore competitive entry will take

place only if competitors either resell incumbent LECs' existing

offerings (using few or none of their own facilities) or use their own

facilities to bypass the incumbent LEC network completely.

Consequently, setting rates too high would contravene Congress' desire

to allow new entrants to compete by purchasing, at cost-based rates,

unbundled elements or services of the incumbent LEC network. We

therefore seek comment on whether a ceiling to protect against

excessive rates for unbundled elements and services would be the best

means of furthering the pro-competitive goals of the 1996 Act.

135. We believe that, to be consistent with the pricing principles

of the 1996 Act, any mechanism used to set rate ceilings for

interconnection services and unbundled elements should: (1) make it

possible for competitors efficiently to enter the local exchange

market, even if all elements are priced at the rate ceiling; (2)

constrain incumbent LECs' ability to preclude efficient entry, for

example, by manipulating overheads and the allocation of common costs

between services; and (3) be as simple to administer as possible. We

seek comment on this approach, and request parties that favor a

particular approach to explain how that approach is consistent with

these principles.

136. Rate ceilings could be derived using a proxy or surrogate for

cost-based rates that does not require use of a cost study. Such a

proxy could approximate a rate derived through a detailed cost study,

and could establish a level above which rates set by states would be

too high to allow efficient entry by competitors. Such an approach

might well be simpler and speedier to implement than a LRIC-based

methodology. A proxy also might reduce or eliminate the need for

recordkeeping and examinations of carrier rate bases, consistent with

the deregulatory thrust of the 1996 Act. A proxy also would address the

concern that incumbents, which have the best information about their

own costs, might withhold or otherwise restrict access to those data.

Finally, carriers may have an incentive to manipulate their costs and

thus their rates. Using a methodology not directly related to costs

could remove this incentive. We seek comment on the use of a proxy for

a cost-based rate ceiling. Would setting a ceiling based on a proxy

fulfill the statutory mandate of section 252(d)(1) and the obligation

under section 251 to ensure that rates are just and reasonable? We also

seek comment on other possible approaches that would satisfy the

requirements of the statute.

137. One method for establishing proxies as a ceiling would be to

use generic or averaged cost data. For example, some measure of

nationally-averaged costs could be used in lieu of the actual costs of

each incumbent LEC. Alternatively, a generic cost study could be used.

For example, we could use the Benchmark Cost Model submitted by MCI,

Sprint, NYNEX and US WEST in the record of CC Docket No. 80-286, or the

Hatfield study submitted by MCI. We seek comment on whether this or

other cost studies would serve as an appropriate proxy for constraining

rates that states may set for interconnection and unbundled network

elements. We also seek comment on the extent to which any study we rely

on in establishing proxies should reflect geographically divergent

factors such as population density.

138. A second method for establishing proxies would be to use rates

in existing interconnection and unbundling arrangements between

incumbent LECs and other providers of local service, such as

neighboring incumbent LECs, CMRS providers, or other new entrants in

the same service area. Possible disadvantages of using existing

interconnection arrangements, however, are that they may reflect

various historical public policy influences that resulted in prices

that do not reflect underlying costs, and that they may reflect

arrangements between parties with unequal bargaining power. In

addition, these arrangements may not include rates for interconnection

services or network elements that are comparable with the services and

elements to be used by competitive entrants.

139. A third possible method for establishing a ceiling for the

pricing of certain unbundled network elements could be a subset of the

incumbent LECs' existing interstate access rates, charged for

interconnection with IXCs and other access customers, or an intrastate

equivalent. This method would have the advantage of setting ceilings

that could be relatively easier to derive than ceilings based on cost

studies. We would, however, want to be sure that any such ceilings

would not effectively become the price targets for interconnection.

These tariffs (and intrastate tariffs in many states), first, include

flat rates for special access and dedicated transport that we have

concluded, in general, are reasonably cost based. These rates could

serve as the upper limit for rates for unbundled network elements

consisting of transmission facilities between networks or between

central offices in the incumbent LEC's network. Second, for the

unbundled network elements corresponding to local switching, a ceiling

could be the lower of interstate or intrastate local switching access

charges--excluding part or all of the transport interconnection charge

(TIC) and the carrier common line charge (CCLC), or their intrastate

equivalents. Exclusion of the TIC and CCLC would reduce the effective

per-minute local switching charges substantially, and intrastate

charges could be lower. The use of access charges as a proxy for cost-

based rates to derive price ceilings may be reasonable, because

interstate access

[[Page 18333]]

charges were initially derived based on the accounting costs of

incumbent LEC networks after various regulatory allocations, and, for

the larger incumbent LECs, these charges have been subject to price cap

reg

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