Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[CC Docket No. 96-128; FCC 96-254]

Pay Telephone Reclassification and Compensation Provisions of the

Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: The Telecommunications Act of 1996 directs the Commission to

promulgate new rules governing the payphone industry. Section 276 of

the 1996 Act directs the Commission, among other things, to ensure that

all payphone owners are compensated for calls originated on their

payphones, and to ``discontinue * * * all intrastate and interstate''

subsidies for payphones owned by incumbent local exchange carriers

(``LECs''). In this NPRM, the Commission proposed rules that would

accomplish the following objectives set forth by Congress in Section

276: compensation for ``each and every completed intrastate and

interstate call using [a] payphone[;]'' termination of all subsidies

for LEC payphones, including ``access charge payphone service

elements[;]'' prescription of nonstructural safeguards for Bell

Operating Company (``BOC'') payphones; promulgation of rules permitting

the BOCs to negotiate with the payphone location provider about a

payphone's presubscribed interLATA carrier, unless the Commission finds

that such negotiations are ``not in the public interest;'' promulgation

of rules permitting all payphone providers to negotiate with the

location provider about a payphone's presubscribed intraLATA carrier;

and establishment of a class of public interest payphones to be located

``where there would otherwise not be a payphone[.]'' The intended

effect of this NPRM is to propose a rule implementing Section 276 of

the Communications Act of 1996.

DATES: Written comments by the public on the Further NPRM of Proposed

Rule Making and the proposed and/or modified information collections

are due June 27, 1996. Reply comments are due on July 8, 1996. Written

comments by the Office of Management and Budget (OMB) on the proposed

and/or modified information collections on or before August 19, 1996.

ADDRESSES: In addition to filing comments with the Secretary, a copy of

any comments on the information collections contained herein should be

submitted to Dorothy Conway, Federal Communications Commission, Room

234, 1919 M Street, N.W., 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: Michael Carowitz, Enforcement

Division, Common Carrier Bureau, (202) 418-0960. For additional

information concerning the information collections contained in this

Further Notice of Proposed Rule Making contact Dorothy Conway at 202-

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

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice

of Proposed Rule Making in CC Docket No. 96-128, adopted on June 4,

1996 and released June 6, 1996. The full text of the Notice of Proposed

Rule Making is available for inspection and copying during normal

business hours in the FCC Reference Center, Room 239, 1919 M Street,

N.W., Washington, D.C. The complete text of this decision may also be

purchased from the Commission's duplicating contractor, International

Transcription Services, 2100 M Street, N.W., Suite 140, Washington,

D.C. 20037 (202) 857-3800. This Notice of Proposed Rule Making contains

proposed or modified information collections subject to the Paperwork

Reduction Act of 1995 (PRA), Public Law 104-13. It has been submitted

to the Office of Management and Budget (OMB) for review under Section

3507(d) of 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.

Paperwork Reduction Act

This NPRM contains eight proposed or modified information

collections. 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

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information collections contained in this NPRM, as required by the

Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency

comments are due at the same time as other comments on this NPRM; OMB

notification of action is due August 19, 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.

(1) OMB Control Number: None.

Title: Proposed Quarterly Report of Interexchange Carriers

(``IXCs'') Listing the Number of Dial-Around Calls for Which

Compensation is Being Paid to Payphone Owners.

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 275.

Estimated Time Per Response: \1/2\ hour.

Total Annual Burden: 550 hours.

Estimated Cost Per Respondent: $0.

Needs and Uses: IXCs who are responsible for paying per-call

compensation to payphone providers must provide this report to the

payphone providers. Without provision of this report, payphone

providers would be unable to ascertain the compensation amount to be

paid by the IXCs.

(2) OMB Control Number: None.

Title: Proposed Annual Report of Interexchange Carriers (``IXCs'')

Listing the Compensation Amount Paid to Payphone Providers and the

Number of Payees.

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 275.

Estimated Time Per Response: 2 hours.

Total Annual Burden: 550 hours.

Estimated Cost Per Respondent: $5,000.

Needs and Uses: IXCs who are responsible for paying per-call

compensation to payphone providers are required to provide annual

reports to the Common Carrier Bureau listing the amount of compensation

paid to payphone providers and the number of payees. Without provision

of this report, the Commission would be unable to ensure that all the

IXCs are paying their respective compensation obligations. In addition,

IXCs must initiate an annual independent verification of their per-call

tracking functions.

(3) OMB Control Number: None.

Title: Proposed Quarterly Report of IntraLATA Carriers Listing

Payphone ANIs.

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 400.

Estimated Time Per Response: 8 hours for initial report, 2 hours

for subsequent reports.

Total Annual Burden: 5600 hours for initial report, 3200 hours for

subsequent reports.

Estimated Cost Per Respondent: $0.

Needs and Uses: IntraLATA carriers are required to provide to

interexchange carriers (``IXCs'') a quarterly report listing payphone

ANIs. Without provision of this report, resolution of disputed ANIs

would be very difficult because IXCs would not be able to tell which

ANIs belong to payphones and would not be able to ascertain which dial-

around calls were originated by payphones for compensation purposes.

(4) OMB Control Number: None.

Title: Proposed One-Time Report of Local Exchange Companies

(``LECs'') of Cost Accounting Studies.

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 400.

Estimated Time Per Response: 50 hours.

Total Annual Burden: 20,000 hours.

Estimated Cost Per Respondent: $0.

Needs and Uses: LECs are required to provide to the Common Carrier

Bureau, on a one-time basis, a report containing engineering studies,

time and wage studies, and other cost accounting studies to identify

the direct cost of central office coin services. Without provision of

this report, the Commission would be unable to ascertain whether the

LECs were charging their payphone competitors unreasonably high prices

for central office coin services.

(5) OMB Control Number: None.

Title: Proposed Initial Report of Bell Operating Companies

(``BOCs'') of Comparably Efficient Interconnection Plans.

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 7.

Estimated Time Per Response: 50 hours.

Total Annual Burden: 350 hours.

Estimated Cost Per Respondent: $0.

Needs and Uses: BOCs are required to provide to the Common Carrier

Bureau initial Comparably Efficient Interconnection (``CEI'') plans

describing how they intend to comply with the CEI equal access

parameters. Thereafter, they may include this information in the CEI

plans they already file with the Commission. Without the provision of

these reports, the Commission would be unable to ascertain whether the

BOCs were providing competing payphone providers with unbundled

nondiscriminatory access to their network features and functionalities.

(6) OMB Control Number: None.

Title: Proposed Report of Bell Operating Companies (``BOCs'') of

Modified Comparably Efficient Interconnection Plans.

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 7.

Estimated Time Per Response: 6 hours.

Total Annual Burden: 42 hours.

Estimated Cost Per Respondent: $0.

Needs and Uses: BOCs are required to provide to the Common Carrier

Bureau initial Comparably Efficient Interconnection plans describing

how they intend to comply with the CEI equal access parameters.

Thereafter, they may include this information in the CEI plans they

already file with the Commission. Without the provision of these

reports, the Commission would be unable to ascertain whether the BOCs

were providing competing payphone providers with unbundled

nondiscriminatory access to their network features and functionalities.

(7) OMB Control Number: None.

Title: Proposed Annual Filing of Nondiscrimination Reports (on

quality of service, installation and maintenance) by Bell Operating

Companies (``BOCs'').

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 7.

Estimated Time Per Response: 50 hours.

Total Annual Burden: 350 hours.

Estimated Cost Per Respondent: $0.

Needs and Uses: BOCs are required to provide to the Common Carrier

Bureau nondiscrimination reports on an annual basis. Without the

provision of these reports, the Commission would be unable to ascertain

whether the BOCs were providing competing payphone providers with equal

access to all the basic underlying network services that are provided

to its own payphones.

[[Page 31483]]

(8) OMB Control Number: None.

Title: Proposed Public Disclosure of Network Information by Bell

Operating Companies (``BOCs'').

Type of Review: New collection.

Respondents: Business or other for-profit, including small

business.

Number of Respondents: 7.

Estimated Time Per Response: 50 hours.

Total Annual Burden: 350 hours. Report would be issued

periodically, when new network services are developed or network

changes made.

Estimated Cost Per Respondent: $0.

Needs and Uses: BOCs are required to publicly disclose changes in

their networks or new network services at two different points in time.

First, disclosure would occur at the ``make/buy'' point: when a BOC

decides to make for itself, or procure from an unaffiliated entity, any

product whose design affects or relies on the network interface.

Second, a BOC would publicly disclose technical information about a new

service 12 months before it is introduced. If the BOC could introduce

the service within 12 months of the make/buy point, it would make a

public disclosure at the make/buy point. In no event, however, would

the public disclosure occur less than six months before the

introduction of the service. Without provision of these reports, the

industry would be unable to ascertain whether the BOCs were designing

new network services or changing network technical specifications to

the advantage of their own payphones.

SUMMARY OF NOTICE OF PROPOSED RULE MAKING

I. Background

1. Section 276(b)(1)(A) directs the Commission to establish a

compensation mechanism to ensure ``that all payphone service providers

are fairly compensated for each and every completed intrastate and

interstate call'' from their payphones. Section 276(b)(1)(B) mandates

that the Commission ``discontinue the intrastate and interstate carrier

access charge payphone service elements and payments * * * and all

intrastate and interstate subsidies from basic exchange and exchange

access revenues.'' In addition, Section 276(b)(1)(D) directs the

Commission to consider whether BOCs should be permitted to be involved

with the location provider's selection of the payphone's presubscribed

carrier. Together with the other subsections of Section 276, these

three provisions help to establish regulatory parity for all payphone

service providers (``PSPs''), whether competitive payphone owners or

incumbent LECs (both independents and BOCs).

II. Discussion

A. Compensation for Each and Every Completed Intrastate and Interstate

Call Originated by Payphones

a. Scope of Payphone Calls Covered by this Rulemaking

2. Currently, most calls originated on payphones are within one of

the following categories: (1) coin calls; (2) directory assistance

calls; (3) operator service (``0+'' and ``0-'') calls; (4) access code

calls (using e.g., ``10XXX'' codes and ``1-800'' or ``950'' carrier

access numbers); and (5) subscriber 800 calls. Each of these categories

can be further subdivided between local, intraLATA toll, intrastate

interLATA, interstate interLATA and international. Each type of call is

a potential source of revenue for the payphone owner, whether the

revenue is derived from coins deposited into the payphone, through

commission payments on operator service calls, or from compensation

mandated by the FCC or the states.

3. The 1996 Act requires the Commission to ensure that PSPs are

fairly compensated for all calls originated by their payphones. In

light of the multiple sources of revenue for payphones, the Commission

seeks comment on what constitutes ``fair'' compensation and how we

should ``ensure'' that each PSP receives it for calls for originated by

its payphones. The Commission concludes that its mandate under Section

276(b)(1)(A) is to ensure that PSPs are ``fairly compensated'' for

``each and every completed intrastate and interstate call'' regardless

of whether the PSP currently receives compensation for the particular

call originated by its payphone. The Commission tentatively concludes,

however, that it should use this mandate to prescribe compensation only

when payphone providers are not already ``fairly compensated.''

Currently, PPOs and non-BOC LECs receive compensation, pursuant to

individual contracts, from the payphone's presubscribed IXC for all

``0+'' calls. IXCs have long competed for this type of business.

Therefore, the Commission tentatively concludes that it need not

prescribe per-call compensation for 0+ calls because competition in

this area ensures ``fair'' compensation for PSPs. It seeks comment on

these tentative conclusions.

4. The 1996 Act does not expressly state that compensation should

extend to international calls. The Commission finds no evidence,

however, of congressional intent to leave these calls uncompensated.

Therefore, despite the lack of reference to international calls in

Section 276(b)(1)(A), the Commission tentatively concludes that it

should exercise its general jurisdiction under Sections 4(i) and 201(b)

of the Communications Act of 1934, as amended, to ensure that PSPs are

compensated for international as well as interstate and intrastate

calls originating from their payphones in the United States. The

Commission seeks comment on this tentative conclusion.

5. The rate for the most common type of call, the local coin call,

is set by state commissions. Typically, the rate set for local coin

services provided by the incumbent LECs also applies to the PPOs.

Section 276 of the Act requires the Commission to ensure that the

payphone provider receives fair compensation for each interstate and

intrastate call, including local coin sent-paid calls. Section 276 also

expressly preempts state regulations that are inconsistent with the

Commission's regulations. The Commission seeks comment, however, on how

it should exercise its jurisdiction under Section 276. The Commission

notes that it had a range of options for ensuring fair compensation for

these calls, and it sought comment on which option will ensure fair

compensation for PSPs with respect to local coin sent-paid calls.

6. More specifically, one option would be to set a nationwide local

coin rate for all calls originated by payphones. The Commission seeks

comment on whether the Commission should take such action and request

that commenters identify the specific public interest benefits they

believe would result from a nationwide rate, why local rates are

inadequate to ensure fair compensation, the impacts of variations among

the states in the local coin sent-paid rate on PSPs and the public, and

whether those impacts are predominantly local, statewide, regional or

national. Another option would be for the Commission to prescribe

specific national guidelines that states would use to establish a local

rate that would ensure that all PSPs are fairly compensated. The

Commission seeks comment on whether the Commission should take such

action and request that commenters identify specific public interest

benefits they believe would result from the Commission prescribing such

guidelines, what factors such guidelines should consider, how the

guidelines would ensure fair compensation for local coin calls, the

impacts of variations among the states

[[Page 31484]]

in local coin rates, and whether those impacts are predominantly local,

statewide, regional or national.

7. A third option for ensuring fair compensation for PSPs would be

for the states, in the first instance, to continue to set the coin

rates for local payphone calls according to factors within their

discretion. The Commission has long recognized the interest of the

states in setting end-user rates for local calls, including rates for

411 calls. Indeed, as discussed above, the states have long had a

traditional and primary role in regulating payphones. However, because

Section 276 of the 1996 Act requires the Commission to ensure that PSPs

are fairly compensated for ``each and every completed intrastate and

interstate call,'' the Commission seeks comment on what further

procedures, such as a complaint or petition process, it should

establish, should it ultimately determine to defer to the states in

setting payphone rates. The Commission also seeks comment on what

standards it could use to adjudicate any complaints or petitions that

challenge a particular rate. It further ask whether the states' setting

of the rates for local coin calls subject to complaint or petition

would be consistent with Section 276's mandate that the Commission

ensure fair compensation for ``each and every completed intrastate and

interstate call.'' The Commission sought comment on whether the

Commission should take such action and request that commenters identify

specific public interest benefits they believe would result from having

coin rates for local payphone calls set by the states.

b. Entities Required To Pay Compensation

8. Because the 1996 Act directs the Commission to ensure that all

PSPs are compensated, with limited exception, for ``each and every

intrastate and interstate call'' using their payphones, the Commission

also addresses who pays that compensation. The possible payors include:

the caller using the payphone; the carrier over whose network the call

is placed; or, in the case of subscriber 800 calls, the entity being

called (who may or may not directly pass all the charges on to the

caller using the payphone). Industry participants have made two

compensation proposals that might satisfy the per-call compensation

requirement.

9. The first proposal builds on the per-call compensation mechanism

proposed for interstate access code calls in CC Docket No. 91-35. If

this ``carrier-pays'' mechanism were extended to all dial-around calls,

the IXC who receives such a call from a payphone would be required to

pay a per-call charge to the provider of the payphone. Each IXC would

decide independently how to recover this cost.

10. Another approach would be to rely on a ``set use fee.'' The

``set use fee'' is a fee that the IXC would bill and collect from the

end user. The fee would then be remitted to the PSP. In the case of the

subscriber 800 and other toll-free number calls, the set use fee could

be collected from the subscriber. For access code calls and operator-

assisted calls, the set use fee would be collected from the end user

that is billed for the call.

11. The Commission tentatively concludes that, for non-coin

payphone calls, either a ``carrier-pays'' system or a ``set use fee''

system where the end user pays would satisfy the requirements of the

1996 Act. As a general principle, however, the Commission tends to

favor an approach that minimizes transaction costs on the caller and on

the industry. The Commission finds that the carrier-pays mechanism is

preferable because it would result in less transaction costs because

the IXC could aggregate its payments to payphone providers. Under a

set-use fee, these payments would be spread among a vast number of

payphone callers through their individual telephone bills. Therefore,

the Commission tentatively concludes that it should adopt a ``carrier-

pays'' compensation mechanism that builds on existing procedures. It

seeks comment on these tentative conclusions.

c. Ability of Carriers To Track Calls From Payphones

12. Based on prior FCC proceedings, the Commission tentatively

concludes that tracking mechanisms and surrogates exist, or might

readily be made available, to support the complete per-call

compensation plan mandated by Section 276(b)(1)(A). It seeks comment on

what tracking options are currently, or may soon be, available. The

Commission seeks further comment on the ability of existing IXC-based

tracking mechanisms to accommodate all payphone providers and IXCs. In

the event that there is no standard technology or mechanism available

for tracking, the Commission seeks comment on alternative surrogate

methodologies that could be devised and by whom. Finally, it seeks

comment on which party or parties, whether IXCs, PSPs, or intraLATA

carriers, should be required to develop and maintain the tracking or

surrogate methodologies.

d. Administration of Per-Call Compensation

13. The Commission tentatively concludes that the direct-billing

arrangement established in previous Commission orders should be

maintained with the simple addition of requiring IXCs, and the

intrastate interexchange operations of LECs to send back to each PSP a

statement indicating the number of toll-free and access code calls that

each carrier has received from each of that PSP's payphones. The

Commission proposes to continue to leave the details of the billing

arrangements for the parties to determine. All parties, whether

carriers or PSPs, would be free to retain the services of one or more

clearinghouses to assist them with billing and collection and/or

payment of the compensation. The Commission would require, however,

that the carrier responsible for paying compensation file each year a

brief report with the Common Carrier Bureau listing the total amount of

compensation paid, pursuant to the rules adopted in this proceeding, to

PSPs for intrastate, interstate, and international calls; the number of

compensable calls received by the carrier; and the number of payees.

e. Per-Call Compensation Amount

14. The Commission previously examined various compensation methods

in the Second Report and Order. The Commission notes that the theory of

compensation and price surrogates that the Commission has historically

relied upon in its determination of the ``range of reasonable

compensation rates'' provides some guidance for our analysis of how to

ensure that PSPs are ``fairly compensated'' and what should be the

appropriate per-call compensation amount for all calls within the scope

of this rulemaking. As before, while the Commission noted that it was

confronted in the proceeding by the lack of reliable PPO cost data, it

tentatively concludes that PSPs should be compensated for their costs

in originating the types of calls for which it has tentatively

concludes that compensation is appropriate. It tentatively concludes

further that these costs should be measured by appropriate cost-based

surrogates. It seeks comment on these tentative conclusions. The

Commission also questions whether, to ensure that PSPs receive fair

compensation, it should prescribe different per-call compensation

amounts for the different types of calls originated by payphones. It

seeks further comment on how

[[Page 31485]]

compensation levels should be permitted to change in the future, and

whether some cost index or price cap system would be appropriate to

ensure that compensation levels reflect expected changes in unit costs

over time. The Commission also seeks comment on whether it should

provide PPOs some measure of interim compensation, to be paid until the

effective date of the final rules we adopt in this proceeding, for the

growing volume of dial-around calls originated from their payphones.

B. Reclassification of Incumbent LEC-Owned Payphones

a. Classification of LEC Payphones as CPE

15. To effectuate the Act's mandate that access charge payphone

service elements and payphone subsidies be discontinued, the Commission

tentatively concludes that it should treat incumbent LEC payphones as

unregulated, detariffed CPE. It tentatively concludes further that

incumbent LECs should be required to provide to PSPs, on a

nondiscriminatory tariffed basis, all functionalities used in a LEC's

delivery of payphone services.

16. The option of using central office coin services, such as coin

recognition, answer detection, and other related services, allows

incumbent LECs to use the less expensive ``dumb'' pay telephones, which

gives incumbent LECs a cost advantage over their competitors. The

Commission tentatively concludes that requiring that central office

coin services be made available to PPOs eliminates this cost advantage

and will increase competition in the payphone industry. To unbundle

payphones from their underlying transmission, the Commission

tentatively concludes that incumbent LECs, whether or not they

themselves provide payphone service, must offer individual central

office coin transmission services to PSPs under a nondiscriminatory,

public, tariffed offering. It seeks comment on this tentative

conclusion and on which central office coin services must be made

available by incumbent LECs to the PSPs to achieve this goal. In the

interest of clarity, it seeks comment on both the type of services and

the technological requirements necessary to allow PPOs to use payphones

that are equivalent to those payphones currently used by LECs. The

Commission also tentatively concludes that Section 68.2(a)(1) of the

FCC's regulations should be amended to facilitate registration of both

instrument implemented and central-office-implemented payphones. It

seeks comment on this tentative conclusion.

b. Transfer of Payphone Equipment to Unregulated Status

17. If the Commission concludes that it will treat payphones as

detariffed CPE, the incumbent LECs would have to transfer their

payphones and related equipment from regulated to unregulated

activities. FCC rules provide that, if reallocations of

telecommunications plant (i.e., central office equipment and outside

plant) from regulated to nonregulated operations are required, such

plant will be transferred at undepreciated baseline cost plus an

interest charge based on the authorized interstate rate of return to

reflect the time value of money. The Commission seeks comment on the

specific assets to be transferred. It tentatively concludes that the

assets to be transferred should be defined generally in terms of CPE

deregulation. Thus, the assets to be transferred may include all

facilities related to payphone service, including associated taxes and

depreciation, but likely would not include the loops connecting the

payphones to the network, or the central office ``coin-service'' or

operator service facilities supporting incumbent LEC payphones.

Including these network support facilities may be inappropriate because

it would allow incumbent LECs to continue providing a different form of

interconnection to their payphones than is available to PSPs. The

Commission also tentatively concludes that a phase-in period for a

transfer of payphone-related assets is not necessary, because payphone

terminal equipment consists of less than one percent of total plant

investment for the entire LEC industry. The Commission seeks comment on

our tentative conclusions and the general approach to asset transfers

outlined here.

c. Termination of Access Charge Compensation and Other Subsidies

18. Incumbent LECs today generally recover payphone costs allocated

to the interstate jurisdiction through the per-minute carrier common

line (``CCL'') charge they assess on IXCs and other interstate access

customers for originating and terminating interstate calls. The

incumbent LEC assesses the PPO a subscriber line charge (``SLC'') (at

the multi-line business rate) to recover the payphone common line costs

associated with that phone. In the case of competitive payphones, a PPO

recovers its payphone costs out of the revenue it receives from end

users, premises owners, and OSPs to whom its payphones are

presubscribed.

19. The 1996 Act mandates that the Commission ``discontinue the

intrastate and interstate carrier access charge payphone service

elements and payments * * * and all intrastate and interstate subsidies

from basic exchange and exchange access revenues[.]'' Accordingly, the

Commission must adopt rules that provide for the removal from regulated

intrastate and interstate rate structures of all charges that recover

the costs of payphones (i.e., the costs of payphone sets, not including

the costs of the lines connecting those sets to the public switched

network, which, like the lines connecting competitive payphones to the

network, will continue to be treated as regulated). It tentatively

concludes that incumbent LECs must reduce their interstate CCL charges

by an amount equal to the interstate allocation of payphone costs

currently recovered through those charges. LECs subject to the price

cap rules would treat this as an exogenous cost change to the Common

Line basket pursuant to Section 61.44(c) of our rules. The Commission

requests incumbent LECs to identify in their comments all accounts that

contain costs attributable to their payphone operations. The Commission

also requests comment on whether specific cost pools and allocators

should be used to capture the nonregulated investment and expenses

associated with their payphone operations. It seeks further comment on

whether a transition period is necessary to move from subsidized

compensation to per-call compensation for LEC payphones, and how that

transition would proceed.

20. The Commission also proposes, pursuant to the mandate of

Section 276(b)(1)(B), to require incumbent LECs to remove from their

intrastate rates any charges that recover the costs of payphones. The

Commission solicits comment on whether it should set a deadline and a

specific mechanism for elimination of any intrastate subsidies as well,

or whether it would be both consistent with the statute as well as

preferable from a policy perspective to permit the states to formulate

their own mechanisms for achieving this result within a specific time

frame.

21. In the telephone network, payphones, as well as all other

telephones, are connected to the local switch by means of a subscriber

line. The costs of the subscriber line that are allocated to the

interstate jurisdiction are recovered through two separate charges: a

flat-rate SLC assessed upon the end user customer who subscribes to

local service; and a per-minute CCL charge that recovers the balance of

the interstate subscriber line costs not

[[Page 31486]]

recovered through the SLC. LEC payphone costs are also included in the

CCL charge. The CCL charge, however, applies to interstate switched

access service that is unrelated to payphone service costs. While PPOs

are required to pay the SLC for the loop used by each of their

payphones, LECs have not been required to pay this charge because the

subscriber lines connected to LEC payphones have been recovered

entirely through the CCL charge. The Commission tentatively concludes

that, to avoid discrimination among payphone providers, the SLC should

apply to subscriber lines that terminate at both LEC and competitive

payphones. It tentatively concludes that the removal of payphone costs

from the CCL and the payment or imputation of a SLC to the subscriber

line that terminates at a LEC nonregulated payphone would result in the

recovery of LEC payphone costs on a more cost-causative basis. The

Commission seeks comment on these tentative conclusions and, more

generally, on how removing LEC payphones from the CCL charge would

affect the SLC.

22. The incumbent LECs' multi-line business SLC is currently

subject to a $6.00 per month cap. Those LECs with interstate subscriber

line costs that exceed this amount recover a portion of the interstate

costs of subscriber lines through the CCL charge. The issue of the

appropriate interstate SLC for the future has been referred to a

Federal-State Joint Board. To the extent that LECs charge or impute to

their own payphone operations only the multi-line business SLC, which

may be less than the full interstate cost of the subscriber lines

connecting their payphones to the network, and recover the balance of

the cost of these lines through the CCL charge, they may, in effect, be

subsidizing their payphones with access charge revenues, in violation

of Section 276. The Commission seeks comment on whether LECs in those

circumstances should charge or impute to their own payphone operations,

as well as to PPOs, an additional monthly charge representing the

difference between the SLC cap and the full interstate cost of these

subscriber lines. It also seeks comment on whether comparable changes

should be made to incumbent LECs' intrastate rates.

d. Deregulation of AT&T Payphones

23. In the Interstate, Interexchange Marketplace proceeding, the

Commission notes that it would consider in the instant proceeding ``the

issue of bundling pay telephone equipment with the underlying

transmission capacity.'' The Commission tentatively concludes that

other IXC bundling issues should be treated under the same rules we

have proposed in the Interstate, Interexchange Marketplace proceeding.

Commenters who disagree with this tentative conclusion, however, are

invited to comment in the proceeding.

24. Like LEC payphones, AT&T payphones are classified as network

equipment and, therefore, may receive subsidies. The Commission

tentatively concludes that payphones provided by AT&T should be

classified as CPE. While the 1996 Act does not expressly address AT&T

payphones, Section 276 directs the Commission to adopt regulations that

will ``promote competition among payphone service providers and promote

the widespread deployment of payphone services to the benefit of the

general public[.]'' Discontinuing possible subsidies for AT&T payphones

would be congruent with the 1996 Act's requirement that the Commission

discontinue subsidies for other payphones (i.e., those owned by

incumbent LECs) and would provide for symmetrical regulation of the

payphone industry. There are other reasons why this proposed action is

in harmony with the other rules the Commission has proposed in its

proceeding. First, since Tonka, AT&T payphones have been treated the

same as BOC payphones. Once LEC telephones, including those provided by

the BOCs, are declared to be CPE, the basis for treating AT&T payphones

as network equipment no longer exists. Second, the Commission believes

that deregulating AT&T payphones is in line with its general policy to

deregulate non-dominant carriers. It seeks comment on this tentative

conclusion.

C. Nonstructural Safeguards for BOC Provision of Payphone Service

25. The Computer III nonstructural safeguards currently apply to a

BOC's provision of payphone service if enhanced services are provided

through the payphone. Under the Computer III framework, BOCs are

permitted to provide enhanced services on an integrated basis subject

to nondiscrimination safeguards. The safeguards the Commission adopted

in Computer III include: (1) nondiscriminatory access to network

features and functionalities; (2) restrictions on the use of Customer

Proprietary Network Information (``CPNI''); (3) network information

disclosure rules; (4) nondiscrimination in the provision, installation,

and maintenance of services as well as nondiscrimination reporting

requirements; and (5) cost accounting safeguards. The Commission

tentatively concludes that all Computer III nonstructural safeguards

must be applied to meet our obligation under the 1996 Act. It seeks

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

there are other nonstructural safeguards that, while not explicitly

specified in the Computer III, should be applied to BOC payphones.

26. Currently, the Commission regulates BOC provision of enhanced

services through Comparably Efficient Interconnection (``CEI'') and

Open Network Architecture (``ONA'') requirements that require unbundled

nondiscriminatory access to BOC network features and functionalities.

Pursuant to these requirements, BOCs must file a service-specific CEI

plan before offering any enhanced service on an integrated basis. A BOC

must demonstrate in its CEI plan how it would provide competing

enhanced service providers (ESPs) with ``equal access'' to all basic

underlying network services the BOC used to provide its own enhanced

services. Subsequently, the Commission required BOCs to develop and

implement ONA plans detailing more fundamental unbundling of their

basic network services. ONA requires further unbundling of network

elements than under CEI because it is not limited to those elements

associated with specific BOC enhanced services. In 1993, the Common

Carrier Bureau lifted structural separation requirements after each BOC

demonstrated that its ONA plan complied with the BOC Safeguards Order.

Following the California III court decision, the Commission has

continued to require BOCs to file CEI plans for each individual

enhanced service it offers in addition to fulfilling the access

requirements of its ONA plan.

b. BOC CEI Plans

27. To ensure BOC compliance with the Computer III and ONA

requirements, we propose to require that each BOC file, within 90 days

of the effective date of the order in this proceeding, an initial CEI

plan describing how it intends to comply with the CEI equal access

parameters and nonstructural safeguards for the provision of payphone

services. Thereafter, the BOCs may integrate the filing of information

on payphone services unbundling and nonstructural safeguards with their

ongoing ONA filings. Generally, in a CEI plan, a BOC must describe how

it intends to comply with the CEI ``equal access'' parameters for the

specific payphone service it intends to offer. The CEI equal access

parameters include: interface functionality; unbundling of basic

[[Page 31487]]

services; resale; technical characteristics; installation, maintenance,

and repair; end user access; CEI availability; minimization of

transport costs; and availability to all interested customers or

enhanced service providers. Because the 1996 Act requires that we apply

safeguards that are equal to those set forth in Computer III ``at a

minimum,'' the Commission seeks comment on any other parameters or

requirements for BOC payphone service that, while not listed in this

NPRM, are consistent with the intent of the 1996 Act.

D. Ability of BOCs To Negotiate With Location Providers on the

Presubscribed Interlata Carrier

28. While the location provider selects the OSP for BOC and GTE

payphones, all other payphone providers are able to select the OSP

serving their payphones. As discussed above, payphone providers, both

PPOs and independent LECs, compete in the market for payphone services

by offering the location provider a commission on coin and 0+ traffic

originating from the payphones located on the location provider's

premises. In turn, payphone providers earn revenue by reselling local

and 1+ long distance service and by contracting for 0+ traffic with

OSPs that pay commissions on 0+ traffic. The legislation directs the

Commission to provide similar rights to BOCs, unless the Commission

determines that it is not in the public interest.

29. The Commission seeks comment on the extent to which extending

to the BOCs the same rights that all other payphone providers have to

select and contract with the interLATA carriers that carry interLATA

traffic from their payphones would be ``not in the public interest.''

The Commission questions whether these rights will benefit the general

public by increasing competition, available services, and overall

efficiency. It also asks whether carrier-selection rights will help to

foster increased competition and market parity that will ``promote the

widespread deployment of payphone services to the benefit of the

general public.'' Parties commenting on this issue should also address

how any Commission action with respect to a BOC's right to select and

contract with interLATA carriers would be consistent with the other

goals enunciated in Section 276, such as promoting regulatory parity

between BOCs and independent payphone providers, and that the location

provider has the ultimate decision-making authority in determining

interLATA services in connection with the choice of payphone providers.

30. The Commission seeks comment on whether the ability to select

the interLATA carrier serving their payphones is likely to permit the

BOCs to behave anticompetitively in the payphone market in the absence

of safeguards to prevent cost misallocations and discrimination. In

addition, the Commission seeks comment on whether the structural and

accounting safeguards mandated under Sections 271 and 272 of the 1996

Act, and any Commission rules implementing these safeguards, are

sufficient to prevent anticompetitive abuses. If not, the Commission

seeks comment on whether the Commission should adopt rules to prevent

BOCs from giving more favorable interLATA rates to their own payphone

operations than to their payphone competitors. Parties are asked to

specify what safeguards would be necessary to prevent potential

anticompetitive behavior by the BOCs in this regard. The Commission

also seeks comment on to what extent a BOC not authorized to provide

in-region interLATA service under Section 271 of the 1996 Act should be

allowed to participate in the selection of the interLATA carrier,

especially if the BOC has a non-attributable interest in the interLATA

carrier, such as an option to purchase or an agreement to merge.

E. Ability of Payphone Service Providers To Negotiate With Location

Providers on the Presubscribed Intralata Carrier

31. Currently, in some states, competitive payphones are required

to route intraLATA 0+ and 0- calls, and sometimes other intraLATA

calls, to the incumbent LEC. In contrast, Section 276(b)(1)(E) requires

the Commission to prescribe regulations to allow PSPs to negotiate with

the location provider on the selecting and contracting with the

intraLATA carrier serving the payphone. In accordance with this

requirement, the Commission tentatively concludes that all PSPs,

whether LECs or PPOs, should be given this right to negotiate with

location providers concerning the intraLATA carrier. The Commission

seeks comment on these tentative conclusions.

F. Establishment of Public Interest Payphones

32. Because Section 276(b)(2) directs the Commission to ``determine

whether public interest payphones * * * should be maintained,'' the

Commission seeks comment on whether it would be in the public interest

to maintain payphones provided in the interest of public health,

safety, and welfare, in locations where there would otherwise not be a

payphone.''

33. If the Commission determines that public interest payphones

should be maintained, then Section 276(b)(2) gives the Commission

statutory authority to determine further how public interest payphones

should be regulated. As with our jurisdiction over local call rates,

the Commission seeks comment on a range of options for maintaining

public interest payphones. One option would be for the Commission to

prescribe federal regulations for the maintenance of these payphones.

It seeks comment on whether and how this approach would serve the

public interest, and on whether Section 276 requires the Commission to

assume this responsibility.

34. A second option would be for the Commission to establish

national guidelines for public interest payphones. It seeks comment on

whether there are any state initiatives or programs concerning public

interest payphones that the Commission could use as a model for

national guidelines. Commenters supporting national guidelines should

specify what factors the guidelines should consider and how the

guidelines should be applied on a nationwide basis.

35. In the event that the Commission establishes national

guidelines for public interest payphones, it seeks comment on what is

to be considered a ``public interest payphone.'' The Joint Explanatory

Statement for Section 276 clarifies that the term ``public interest

payphones'' refers to payphones where payphone service would not

otherwise be available as a result of the operation of the market.

``Thus, the term does not apply to a payphone located near other

payphones, or to a payphone that, even though unprofitable by itself,

is provided for a location provider with whom the payphone provider has

a contract.'' The Commission seeks comment on whether a ``public

interest payphone'' should be defined as a payphone: (1) that operates

at a financial loss, but also fulfills some public policy objective,

such as emergency access; and (2) even though unprofitable by itself,

is not provided for a location provider with whom the PSP has a

contract. Under this definition, many payphones that fulfill important

public policy objectives would not be included because they would be

paid for, in the form of lower commission payments, by the entity that

is requesting that a payphone be placed in a particular location to

fulfill a public policy objective. This proposed definition would not

necessarily

[[Page 31488]]

decrease the number of payphones in existence fulfilling public policy

objectives, but would require the entities that most directly benefit

from these low profitability payphones to assume the cost of their

availability. The Commission seeks comment generally on this possible

definition. Parties may specify whether the definition should be

narrower, broader, or more specific.

36. A third option for maintaining public interest payphones would

be to defer to the states to determine, pursuant to their own statutes

and regulations, which payphones should be treated as ``public interest

payphones.'' This approach would treat the provision of ``public

interest payphones'' as primarily a matter of state concern. The

Commission seeks comment on whether it would be consistent with the

statute and better serve the public interest to allow the states to

develop their own guidelines regarding which payphones are ``public

interest payphones.''

37. With regard to a funding mechanism to support public interest

payphones ``fairly and equitably,'' the Commission seeks comment on

whether such a mechanism should be handled in conjunction with how

public interest payphones are maintained, whether through federal

regulations, federal guidelines for the states, or by the states

themselves. In the alternative, the Commission seeks comment on whether

it would it serve the public interest for the Commission and the states

to administer different portions of a public interest payphone program.

Commenters that support a Commission-mandated funding mechanism should

detail how the mechanism would function, including who would be

eligible to receive funding, who would be responsible for paying into

the fund, and who would administer the funding mechanism.

G. Other Issues

1. Dialing Parity

38. Section 251(b)(3) states that all LECs have the duty to

``provide dialing parity to competing providers of telephone exchange

service and telephone toll service.'' The Commission tentatively

concludes that the benefits of dialing parity requirements that it

adopts pursuant to Section 251(b)(3) of the Act should extend to all

payphone location providers. It seeks comment on this tentative

conclusion and on other methods for achieving dialing parity for

payphone location providers, and users, of payphones that are

consistent with the definition of dialing parity under Section 3(15) of

the 1934 Act, as amended. As a related matter, the Commission seeks

comment on whether the Commission should extend the type of intraLATA

carrier unblocking requirements established in TOCSIA to all local and

long distance calls.

2. Letterless Keypads

39. At least two distributors of payphone equipment have been

promoting letterless keypads. Such keypads defeat callers' attempts to

reach their OSP of choice through a ``vanity'' access number, such as

MCI's ``1-800-COLLECT'' or AT&T's ``1-800-CALL-ATT'' and ``10ATT,''

that can be easily remembered by callers. Standard payphone keypads

contain certain letters of the alphabet that correspond to each digit

(e.g., A, B, and C correspond to the digit ``2''). A ``letterless''

keypad does not include any letters associated with the requisite

digits. The Commission expressed concern that use of letterless keypads

may frustrate the intent of Congress, as expressed in TOCSIA, to permit

callers to reach the OSP of their choice from payphones. In addition,

the Commission is concerned that these keypads ultimately frustrates

congressional intent, as expressed in the 1996 Act, ``to promote

competition among payphone service providers and promote the widespread

deployment of payphone services to the benefit of the general

public[.]''

40. To promote consumer access to OSPs, TOCSIA required the

unblocking of 800 and 950 access numbers at aggregator locations and

directed the Commission to mandate the unblocking of 10XXX access codes

and/or the establishment of 800/950 access numbers by each OSP. In the

succeeding years, some OSPs have chosen to use ``vanity'' dialing

sequences for access numbers. While the Commission has previously found

that it does not have conclusive data showing a net change in the

average number of access code calls (both 10XXX and 800/950 access

calls) originated by each competitive payphone each month, payphone

industry representatives have argued that use of ``vanity'' dialing

sequences by payphone users has grown since their introduction.

41. The Commission staff has reviewed advertisements for letterless

keypads that specifically refer to a ``by-pass keypad'' that ``prevents

dial around [calls].'' The Commission tentatively concludes that the

use of letterless keypads violates both TOCSIA and the 1996 Act by

preventing callers from accessing their OSP of choice. It seeks comment

on how the Commission should take action to prohibit use of these ``by-

pass'' letterless keypads to restrict the availability of ``vanity''

access numbers.

3. Other Pending Payphone Proceedings

42. Several proceedings pending before the Commission concern the

rules governing the payphone industry. The Commission tentatively

concludes that it would further the public interest to consolidate and

address those proceedings within this rulemaking. The pending

proceedings are as follows: (1) Petition of the Public Telephone

Council to Treat BOC Payphones as CPE, DA 88-2055; (2) Policies and

Rules Concerning Operator Service Access and Pay Telephone

Compensation, CC Docket. No. 91-35 (payphone compensation issues only);

(3) Petition of Oncor Communications, Inc. Requesting Compensation for

Competitive Payphone Premises Owners and Presubscribed Operator

Services Providers, DA 95-1921; and (4) Amendment of Section 69.2 (m)

and (ee) of the Commission's Rules to Include Independent Public

Payphones Within the ``Public Telephone'' Exemption from End User

Common Line Access Charges, RM 8723. Each of these proceedings

addresses issues covered by Section 276 of the Act. We seek comment on

the implications of our tentative conclusion. Specifically, the

Commission seeks comment on which proceedings on the list commenters

believe may be resolved here, and reasons for such opinions, and which

proceedings should continue separately from this rulemaking, and the

reasons for those opinions. The Commission also concludes in the NPRM

that the Commission need not address the Florida Payphone remand in a

separate proceeding because the rules adopted in the proceeding will

address the remand by ensuring that PSPs are compensated, pursuant to

the 1996 Act, for all intrastate and interstate calls, including

subscriber 800 calls.

III. Comments and Ex Parte Presentations

43. All interested may file comments on the issues set forth in

this NPRM, on which comment is specifically sought, by June 27, 1996,

and reply comments by July 8, 1996. All relevant and timely comments

will be considered by the Commission before final action is taken in

this proceeding. To file formally in this proceeding, which involves

issues concerning the Commission's expedited implementation of the 1996

Act, participants must file an original, ten copies, and the electronic

version on disk of all comments and reply comments. Comments and reply

comments should be sent to the Office of the Secretary, Federal

[[Page 31489]]

Communications Commission, Washington, DC 20554. If participants want

each Commissioner to have a personal copy of their comments, an

original plus fourteen copies must be filed. In addition, participants

should submit two additional copies directly to the Common Carrier

Bureau, Enforcement Division, Room 6008, 2025 M Street NW., Washington,

D.C. 20554. The petition, comments, and reply comments will be

available for public inspection during regular business hours in the

Dockets Reference Room (Room 230) of the Federal Communications

Commission, 1919 M Street, NW., Washington, DC 20554. Copies of the

petition and any subsequently filed documents in this matter may be

obtained from ITS, Inc., 2100 M Street, NW., Suite 140, Washington, DC

20037, (202) 857-3800.

44. To facilitate review of comments and replies, both by parties

and by Commission staff, the Commission requires that comments be no

longer than seventy-five (75) pages and replies be no longer than

thirty-five (35) pages, including exhibits, appendices, and affidavits

of expert witnesses. Empirical economic studies and copies of relevant

state orders will not be counted against these page limits. The page

limits will not be waived and will be strictly enforced. Comments and

replies must include a short and concise summary of the substantive

arguments raised in the pleading. Comments and replies must also comply

with Section 1.49 and all other applicable sections of the Commission's

rules. The Commission also directs all interested parties to include

the name of the filing party and the date of the filing on each page of

their comments and replies. Comments and replies also must clearly

identify the specific portion of this NPRM to which a particular

comment or set of comments is responsive. If a portion of a party's

comments does not fall under a particular topic listed in the outline

of this NPRM, such comments must be included in a clearly labelled

section at the beginning or end of the filing. Parties may not file

more than a total of ten (10) pages of ex parte submissions, excluding

cover letters. This 10 page limit does not include: (1) written ex

parte filings made solely to disclose an oral ex parte contact; (2)

written material submitted at the time of an oral presentation to

Commission staff that provides a brief outline of the presentation; or

(3) written material filed in response to direct requests from

Commission staff. Ex parte filings in excess of this limit will not be

considered as part of the record in this proceeding.

45. Parties are invited to submit, in conjunction with their

comments or replies, proposed text for rules that the Commission could

adopt in this proceeding. Specific rule proposals should be filed as an

appendix to a party's comments or reply, and will not be counted

against the page limits set forth in the preceding paragraph. Such

appendices may include only proposed text for rules that would

implement proposals set forth in the parties' comments and replies in

this proceeding, and may not include any comments or arguments.

46. This is a non-restricted notice and comment rule making

proceeding. Ex parte presentations are permitted, except during the

Sunshine Agenda period, provided they are disclosed as provided in

Commission rules.

IV. Conclusion

V. Regulatory Flexibility Analysis

47. As required by Section 603 of the Regulatory Flexibility Act, 5

U.S.C. Section 601 et seq. (1981), the Commission has prepared a

Regulatory Flexibility Analysis of the expected impact on small

entities resulting from the policies and proposals set forth in the

NPRM. The full analysis is contained within the NPRM. The Secretary

shall send a copy of the NPRM to the Chief Counsel for Advocacy of the

Small Business Administration in accordance with Section 603(a) of the

Regulatory Flexibility Act.

VI. Ordering Clauses

48. Accordingly, it is further ordered, pursuant to Sections 1,

4(i)-4(j), 201-205, 226, and 276 of the Communications Act of 1934, as

amended, 47 U.S.C. 151, 154(i), 154(j), 201-205, 226, and 276 that a

Notice of Proposed Rulemaking is ADOPTED.

49. It is furhter ordered that the Chief of the Common Carrier

Bureau is delegated authority to require the submission of additional

information, make further inquiries, and modify the dates and

procedures, if necessary, to provide for a fuller record and a more

efficient proceeding.

50. It is further ordered that this Notice of Proposed Rulemaking

is the Commission's disposition of all matters remanded by the U.S.

Court of Appeals for the District of Columbia Circuit in Florida Public

Telecommunications Ass'n. v, FCC, 54 F.3d 857 (D.C. Cir. 1995).

51. It is further ordered that the Secretary shall send a copy of

this NPRM, including the IRFA, to the Chief Counsel for Advocacy of the

Small Business Administration in accordance with paragraph 603(a) of

the Regulatory Flexibility Act, Public Law No. 96-354, 94 Stat. 1164, 5

U.S.C. 601 et seq. (1981).

List of Subjects in 47 CFR Part 64

Communications common carriers; Reporting and recordkeeping

requirements; Telephone.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96-15789 Filed 6-19-96; 8:45 am]

BILLING CODE 6712-01-P