Interconnection Between Local Exchange Carriers and Commercial Mobile Radio Service Providers; Equal Access and Interconnection Obligations Pertaining to Commercial Mobile Radio Service Providers

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20, 61, and 69

[CC Docket Nos. 95-185 and 94-54, FCC 95-505]

Interconnection Between Local Exchange Carriers and Commercial

Mobile Radio Service Providers; Equal Access and Interconnection

Obligations Pertaining to Commercial Mobile Radio Service Providers

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is issuing this Notice of Proposed Rulemaking

seeking comment on possible changes in the regulatory treatment of

interconnection compensation arrangements between LECs and CMRS

providers and related issues. The Notice tentatively concludes that in

order to ensure the continued development of wireless services as a

potential competitor to LEC services, the Commission should move

expeditiously to adopt interim policies governing the rates charged for

LEC-CMRS interconnection. The Notice further tentatively concludes

that, at least for an interim period, interconnection rates for local

switching facilities and connections to end users should be priced on a

``bill and keep'' basis (i.e., both the LEC and the CMRS provider

charge a rate of zero for the termination of traffic), and that rates

for dedicated transmission facilities connecting LEC and CMRS networks

should be set based on existing access charges for similar transmission

facilities. The Notice seeks comment on these tentative conclusions and

on a number of alternative pricing options for LEC-CMRS interconnection

arrangements. The Notice tentatively concludes that information about

interconnection compensation arrangements should be made publicly

available, and seeks comment on what method to use to achieve this

objective, such as tariffing, public disclosure, or some other

approach. The Notice seeks comment on how to implement both interim and

permanent interconnection policies (i.e., a non-binding model, or

mandatory general or specific federal requirements), and tentatively

concludes that the Commission has authority to adopt these approaches.

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The Notice also proposes compensation arrangements that should apply to

interstate, interexchange traffic traversing interconnections between

LECs and CMRS providers, which typically involve an interexchange

carrier (IXC).

DATES: Comments are due on or before February 26, 1996 and Reply

comments are due on or before March 12, 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.

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.

FOR FURTHER INFORMATION CONTACT: David Sieradzki at (202) 418-1576 or

Kathleen Franco at (202) 418-1932, Common Carrier Bureau, Policy and

Program Planning Division.

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

of Proposed Rulemaking adopted December 15, 1995 and released January

11, 1996 (FCC-95-505). 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 St., NW,

Washington, DC. The complete text also may be obtained through the

World Wide Web, at http: //www.fcc.gov/Bureaus/Common Carrier/Notices/

fcc95505.wp, or may be purchased from the Commission's copy contractor,

International Transcription Service, Inc., (202) 857-3800, 2100 M St.,

NW, Suite 140, Washington, DC 20037.

Synopsis of Notice of Proposed Rulemaking

I. Introduction

A. Summary

1. In this Notice, the Commission continues its examination of

whether our policies related to interconnection between commercial

mobile radio service (CMRS) providers and local exchange carriers

(LECs) are sufficient to advance the public interest. We currently

require LECs to offer interconnection to CMRS providers on reasonable

terms and conditions, and to do so under the principle of mutual

compensation. We have not, however, set specific limits on the price of

such interconnection, nor have we required that interconnection

agreements be filed with regulatory authorities or that interconnection

be provided pursuant to tariff.

2. We are concerned that existing general interconnection policies

may not do enough to encourage the development of CMRS, especially in

competition with LEC-provided wireline service. LECs unquestionably

still possess substantial market power in the provision of local

telecommunications services. If commercial mobile radio services, such

as broadband personal communications services (PCS), cellular telephone

services, satellite telephony, and interconnected specialized mobile

radio (SMR) services, are to begin to compete directly against LEC

wireline services, it is important that the prices, terms, and

conditions of interconnection arrangements not serve to buttress LEC

market power against erosion by competition.

3. This Notice therefore considers the policy issues involved in

establishing compensation arrangements for LEC-CMRS interconnection. We

tentatively conclude that in order to ensure the continued development

of wireless services as a potential competitor to LEC services, we

should move expeditiously to adopt interim policies governing the rates

charged for LEC-CMRS interconnection. We further tentatively conclude

that, at least for an interim period, interconnection rates for local

switching facilities and connections to end users should be priced on a

``bill and keep'' basis (i.e., both the LEC and the CMRS provider

charge a rate of zero for the termination of traffic), and that rates

for dedicated transmission facilities connecting LEC and CMRS networks

should be set based on existing access charges for similar transmission

facilities. We seek comment on these tentative conclusions and on a

number of alternative pricing options for LEC-CMRS interconnection

arrangements. We also tentatively conclude that information about

interconnection compensation arrangements should be made publicly

available, and seek comment on what method to use to achieve this

objective, such as tariffing, public disclosure, or some other

approach. We also seek comment on how we should implement both interim

and permanent interconnection policies (i.e., a non-binding model, or

mandatory general or specific federal requirements), and we tentatively

conclude that we have authority to adopt these approaches. In addition,

we propose compensation arrangements that should apply to interstate,

interexchange traffic traversing interconnections between LECs and CMRS

providers, which typically involve an interexchange carrier (IXC).

B. Overview

1. Goals. 4. In developing policies regarding LEC-CMRS

interconnection, our overriding goal is to maximize the benefits of

telecommunications for the American consumer and for American society

as a whole. As with other areas of common carrier policy, we adopt

policies that are intended to create or replicate market-based

incentives and prices for both suppliers and consumers. By relying on

market-based incentives and prices, where possible, and replicating

them, where necessary, our policies have sought to ensure the

availability to consumers of goods and services at the lowest overall

cost. With the most efficient firms producing goods and services at the

lowest cost, consumers benefit from lower prices. With consumers

receiving cost-based pricing signals, they purchase communications

goods and services only when they receive value greater than or equal

to the cost of producing them. In general, reasonable and non-

discriminatory rates should give consumers incentives to purchase the

combination of services that they most value. As a matter of long-term

policy, functionally equivalent services--including services related to

network interconnection--should be available to all classes of

consumers at the same prices, unless there are cost differences or

policy considerations that justify different rates. In addition, these

policies, over time, should ensure an efficient level of innovation in

terms of the development of new services and the deployment of new

technology, as well as the efficient entry of new firms. Service

providers should make optimal levels of investments in developing new

technologies and new services, and consumers should receive the maximum

benefit from their purchases of telecommunications services.

5. Our policies also have sought to ensure and advance universal

basic telephone service. For individual households, being connected to

telecommunications networks--whether wireline LEC networks or wireless

CMRS networks--facilitates access to emergency services, employment and

educational opportunities, and social interaction. We recognize that

not all the societal benefits accrue to the

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individual being connected with the network. Thus, we have pursued our

mandate under the Communications Act by adopting specific programs

designed to advance universal service in areas and for individuals

where special needs exist.

6. Our primary means for achieving these public interest goals has

been competition. Competition drives prices toward cost: In a

competitive market, rival service providers will have strong incentives

to reduce their prices to attract customers until prices approach their

costs. The cost-based prices achieved in competitive markets ensure

optimal utilization of the network by consumers and give service

providers accurate information regarding the benefits and costs of

introducing new services and incentives for investing in technological

innovations. In addition, competition gives producers strong incentives

to stimulate demand and reduce costs. By forcing producers to minimize

the per-unit costs of providing service, competition generally

advances, rather than hinders, universal service. It increases the

number of consumers willing and able to connect to the nation's

telecommunications networks.

7. Of course, full competition does not exist in many areas of

telecommunications, and, because of the general benefits society

derives from universal service, even full competition by itself may not

be sufficient to further our public interest goals. In those

circumstances, policymakers may need to intervene. Regulatory policies

should be capable of implementation in a timely manner, cost-effective

to both regulators and industry, and enforceable.

2. Need for Reform. 8. The Communications Act provides that

carriers shall offer interconnection when it is determined to be in the

public interest. The ability to interconnect has become more important

because today telecommunications is increasingly provided by a system

of independent, interconnected networks, often referred to as a

``network of networks.'' In this environment, the ability of

communications to move seamlessly from one network to another is

becoming increasingly vital. Uneconomic and unnecessary barriers to the

flow of communications between the increasing number of diverse

networks would seriously undermine the benefits of telecommunications

to consumers and the American economy and would impede the development

of competition between network providers.

9. Efficient interconnection with LEC networks, which reach, on a

nationwide basis, 93.8% of all households, benefits both subscribers

and providers of services. First, interconnection enables new providers

to compete with incumbent LECs on the basis of the services they offer

the public and the prices, quality, and features of those services. In

the complete absence of interconnection, prospective new entrants would

have to attract enough capital to build and provide origination,

transport, and termination services for an entire geographic area, such

as a metropolitan area. Second, interconnection allows subscribers of

one network to obtain access to subscribers of all other interconnected

networks. In a market with multiple and possibly competing networks, it

is unlikely that all people would subscribe to all networks. Thus,

without interconnection, subscribers to one network may be unable to

reach people who subscribe only to some other network.

10. The availability of interconnection cannot, however, be

divorced from its price. Interconnection that is priced too high can be

the marketplace equivalent of no interconnection. An interconnection

obligation is undermined if the charges imposed for interconnection are

excessive, and society will not enjoy the benefits described above. On

the other hand, if interconnection is available at an unreasonably low

price, service providers that otherwise may have built their own

facilities to serve part of a LEC's service territory in competition

with the LEC may decline to do so. Facilities-based competition can

confer benefits on customers such as lower prices, accelerated

innovation, and deployment of new technologies. Interconnection at

efficient prices should lead to the highest and best use of the

existing telecommunications infrastructure, as well as the expansion of

this infrastructure, because proper pricing will send economically

efficient signals to firms to decide whether the costs of

interconnection in a particular case are less than or greater than the

benefits of interconnection.

11. In the absence of market power or other distortions, efficient

forms of interconnection may develop through private negotiation. For

example, small interexchange carriers interconnect with one another,

and purchase and resell one another's services, with little or no

outside involvement. Similarly, Internet service providers have

developed interconnection arrangements without intervention by outside

parties.

12. LECs, however, unquestionably still possess substantial market

power in the provision of local telecommunications services. Thus, a

LEC may have the incentive and the ability to prevent or reduce the

demand for interconnection with a prospective local competitor, such as

a CMRS provider, below the efficient level by denying interconnection

or setting interconnection rates at excessive levels. Such abuse of

market power could lead to at least two problems. First, a LEC may

extract monopoly rents for interconnection. Excessive prices for

termination of CMRS-originated traffic would lead to retail prices

(charged to CMRS customers) that are above the efficient level and thus

discourage CMRS customers from placing calls to wireline customers that

would be made if LEC interconnection rates were set at efficient

levels. Second, a LEC may attempt to restrict the entry of potential

competitors. To the extent that certain CMRS providers are potential

competitors to a LEC's local telephone service, or to the extent that a

LEC may wish to provide certain wireless services, a LEC may have an

incentive to withhold interconnection from some CMRS providers. Even

where interconnection is mandated, a LEC still could potentially

restrict entry either by setting the interconnection rates

prohibitively high or by specifying technical requirements for

interconnection that are disadvantageous for the connecting network.

13. Another potential problem is that a LEC and an interconnecting

CMRS provider may have the incentive and the ability to engage in

collusive behavior. If the CMRS provider constitutes a substitute for

the LEC network, the two networks could negotiate a high per minute

charge to terminate each other's traffic as a means of giving each

incentives to charge customers supra-competitive rates for local

exchange service. It may be particularly likely that such collusive

behavior could occur in cases where the CMRS provider is an affiliate

of the LEC. Negotiation of interconnection arrangements could be used

as a vehicle to keep the retail price of their respective retail

services uneconomically high at the expense of customers. Depending on

market structure developments, intervention may be necessary to prevent

such outcomes.

14. As set forth below, we have recognized LEC market power by

requiring that LECs interconnect with CMRS providers. Under our rules,

LECs must negotiate in good faith to provide the type of

interconnection arrangement desired by CMRS providers under the

principle of mutual compensation, and to furnish interconnection for

interstate

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traffic at reasonable and non-discriminatory rates. In response to an

earlier Notice relating to CMRS interconnection issues, many commenters

strongly argued, however, that our current policy can be and is being

used by LECs to reduce competition. LECs typically terminate many more

calls that originate from the cellular network than an interconnecting

cellular network terminates LEC-originated calls. This is due, in part,

to cellular customers' reluctance to give out their wireless telephone

numbers (since they generally are charged for incoming calls), charges

for cellular air time, or technical limitations on cellular telephones

(e.g., limited battery life). Because of this imbalance, LECs clearly

would benefit competitively from maintaining high, even if symmetrical,

interconnection charges. With the growing significance of

interconnection and competition in today's telecommunications

environment, we believe that a reexamination of our policies addressing

compensation arrangements for LEC-CMRS interconnection is essential.

II. Compensation for Interconnected Traffic Between LECS and CMRS

Providers' Networks

A. Compensation Arrangements

1. Existing Compensation Arrangements. 15. According to the

comments received in this proceeding, at present, cellular carriers

typically pay LECs three types of usage-sensitive charges for local

calls from cellular subscribers to LEC subscribers, regardless of the

physical interconnection facility used: (1) Per-call charges for call

set-up; (2) per-minute charges for usage; and (3) per-minute, per-mile

charges for transport between the cellular carrier's mobile telephone

switching office (MTSO) and the LEC's tandem or end-office switch. Some

cellular carriers contend that, notwithstanding our mutual compensation

requirement, they typically are forced to pay LECs these charges for

calls originating from cellular customers and terminating to LEC

wireline customers, as well as for calls originating from LEC customers

and terminating to cellular customers. Commenters also submit that,

typically, substantially more traffic flows from cellular carriers to

LECs than vice versa. This may be due to cellular customers' reluctance

to give out their wireless telephone numbers, because of charges for

cellular air time, technical limitations on cellular telephones (e.g.,

limited battery life), or other factors. On the other hand, for

services such as paging, most (or all) of the interconnected traffic

flows from LECs to CMRS providers, rather than vice versa, because most

pager devices are incapable of originating calls.

16. We invite commenting parties to provide more detailed

information about existing LEC-CMRS interconnection arrangements.

Specifically, we are interested in data regarding the rate structures

and price levels in those arrangements. We also request comment on what

facilities and technical arrangements are used in providing LEC-CMRS

interconnection, what rate elements are applicable to providing the

services, and the functions that are associated with each rate element.

To what extent are these arrangements filed in tariffs before state

commissions, or are otherwise publicly disclosed? To what extent do

these arrangements make use of provisions in FCC tariffs? We also seek

comment on the extent of, and reasons for, the imbalance of traffic

flowing between LECs and CMRS providers. Are traffic flows likely to be

more balanced in the future for existing commercial mobile radio

services or new services such as PCS? Do LECs' current charges/tariffs

differ depending on the flow of traffic? We also invite parties to

submit data on the extent to which existing LEC-CMRS interconnection

arrangements involve both interstate and intrastate traffic. In

particular, we seek empirical data and analysis on the extent to which

significant levels of interstate wireless traffic are being carried

under such arrangements. We also seek comment on the extent to which

our mutual compensation requirement is not being observed in the

marketplace.

2. General Pricing Principles. a. Rate Structure. 17. In general,

we believe that costs should be recovered in a manner that reflects the

way they are incurred. Network providers incur costs in providing two

broad categories of facilities, dedicated and shared. Dedicated

facilities are those that are used by a single party--either an end

user or an interconnecting network. Shared facilities are those that

are used by multiple parties. Shared facilities can be further divided

into two sub-categories, those that need to be augmented to increase

the network's capacity and those that need not. In the first such sub-

category are facilities, such as switches and multiplexing electronics,

for which incremental investments can increase the volume of traffic

that the network can handle during peak periods. In the second such

sub-category are facilities, such as telephone poles and buildings that

house equipment, whose capacity will not restrict the volume of traffic

that the network can handle during peak periods.

18. The cost of a dedicated facility can be attributed directly to

the party ordering the service that uses that facility. To the extent

that the benefits of a dedicated facility accrue to the party to whom

it is dedicated, it is efficient for that party to pay charges that

recover the full cost of the facility. To ensure that the party pays

the full fixed cost of the facility, the cost should be recovered on a

non-traffic sensitive (NTS) basis (i.e., without regard to actual

usage). Charging a flat, cost-based rate ensures that a customer will

pay the full fixed cost of the facility, and no more; this ensures that

the customer will, for example, add additional lines if and only if the

customer believes that the benefits of the additional lines will exceed

their cost. An additional advantage of a flat fee is that it does not

distort usage. The alternative, a usage-based charge, would cause

parties with high traffic volumes to overpay (i.e., pay more than the

fixed cost of the facility), while parties with low traffic volumes

would underpay (i.e., pay less than the fixed cost of the facility). In

addition, a usage-based charge would give all parties an uneconomic

incentive to reduce their traffic volumes or to avoid connecting with

networks that impose such charges. It would also give parties with low

volumes of traffic, who face below-cost prices, an incentive to add

lines that they valued below their cost.

19. The costs of shared facilities whose cost varies with capacity,

such as network switching, should be recovered in a manner that

efficiently apportions costs among users. Since the cost of capacity is

a function of the volume of traffic the facilities are able to handle

during peak load periods, we believe, as a matter of economic theory,

that network capacity costs should primarily be recovered through

traffic-sensitive (TS) rates charged for peak period traffic, with

lower rates for non-peak usage. The peak load price should be designed

to recover at least the cost of the incremental network capacity added

to carry peak period traffic. Pricing traffic during peak periods based

on the cost of the incremental capacity needed to handle additional

traffic is economically efficient because additional traffic will be

placed on the network if and only if the user or interconnecting

network is willing to pay the cost of the incremental network capacity

required to handle this additional traffic. Such pricing also ensures

that a call made during the peak period generates enough revenue to

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cover the cost of the facilities expansion it requires, and it thus

gives carriers an incentive to expand and develop the network

efficiently. In contrast, off-peak traffic imposes relatively little

additional cost because it does not require any incremental capacity to

be added, and consequently, the price for carrying off-peak traffic

should be lower.

20. We recognize that there may be practical problems in

implementing a peak sensitive pricing system. For example, different

parts of a given provider's network may experience peak traffic volumes

at different times (e.g., in LEC networks, business districts may

experience their peak period between 10 and 11 a.m., while suburban

areas may have their peak periods between 7 and 8 p.m.). Moreover, peak

periods may change over time. For instance, charging different prices

for calls made during different parts of the day may cause some

customers to shift their calling to the less expensive time periods,

which could potentially shift the peak or create new peaks. We seek

comment on whether a system with a long peak period (e.g., 8 a.m. to 9

p.m.) and with peak and off-peak rates that reflect both the difference

in costs across these periods and customers' propensity to substitute

across time periods would improve the utilization rates of the network

and would be administratively simple. We seek comment on this analysis,

and on possible methods for implementing peak-load pricing or other

schemes to recover shared network capacity costs. We also seek comment

on possible administrative costs associated with peak-load pricing or

other schemes to recover shared network capacity costs.

21.There are also certain shared facilities, such as land,

buildings, and telephone poles, whose costs do not vary with capacity

(or peak period traffic volumes). As we discuss in the following

section on rate levels, there are theoretical and practical problems

associated with recovering these shared costs and overheads. We seek

comment on how these costs should be recovered and, in particular, on

whether they should be recovered entirely through peak rate charges, or

through off-peak rates as well. Finally, we note that a carrier may

incur varying costs to provide a given service in different geographic

areas. We seek comment on how this should be taken into account.

b. Rate Levels. (1) Long Run Incremental Costs. 22. The long run

incremental cost (LRIC) of a service is the theoretical foundation for

efficient pricing of interconnection and other network services.

Economists generally agree that prices based on LRIC reflect the true

economic cost of a service and give appropriate signals to producers

and consumers and ensure efficient entry and utilization of the

telecommunications infrastructure. Since customers will buy a good only

if the benefit to the customer exceeds the price, prices based on LRIC

ensure that customers purchase a good only when the benefit exceeds the

cost. Similarly, since firms will offer a service when the revenue

exceeds the cost, prices based on LRIC ensure a firm has an incentive

to offer a service when customers' willingness to pay for the service

exceeds the cost of providing it.

23. Pricing at LRIC raises some difficulties, however. First,

attempting to determine the LRIC of a specific service for a particular

LEC is likely to raise significant practical and administrative

problems. In addition, given that services are provided over shared

facilities and there are economies of scale and scope, setting the

price of each discrete service based on the LRIC of that service will

not recover the total costs of the network. Similarly, where

technological developments are reducing the costs of providing service,

setting the price of discrete services equal to the forward-looking

LRIC of each service is not likely to recover the historical, embedded

costs of the network (or the interstate share of such costs assigned by

our Part 36 separations rules). We seek comment on the empirical

magnitude of these cost differentials.

(2) Recovering Costs in Excess of Long Run Incremental Costs. 24.

The fact that pricing based on the LRIC of specific services may not

cover all common costs raises difficult issues for pricing

interconnection. In particular, this problem means that, if all costs

are to be recovered, some services must be priced above LRIC, which

will cause some distortions. It is therefore necessary to consider

whether terminating carriers should be allowed to recover such costs in

excess of LRIC, and if so, to address the method of recovering such

costs that would minimize economic distortions and best advance our

goals. We seek comment on how best to deal with this recovery issue

and, in particular, on the following approaches.

25. One approach would be to allow carriers to set LEC-CMRS

interconnection rates equal to the LRIC of the individual services

associated with interconnection, and to recover common costs by having

the rates for other services, such as vertical calling features (e.g.,

call waiting, call forwarding, or caller ID), exceed LRIC. This would

clearly benefit those CMRS and LEC networks that seek to interconnect

with one another's network. We seek comment on whether, and on what

basis, LEC-CMRS interconnection offerings should be treated differently

from a carrier's other service offerings, which generally are priced to

recover some portion of shared costs and overheads.

26. Another approach would be to allocate shared costs and overhead

among services in an inverse relationship to the sensitivity of demand

for each of the services. Under this ``Ramsey rule,'' a higher

percentage of shared costs and overheads would be allocated to services

for which the quantity demanded declines less as the price increases,

than to services for which demand is more sensitive to changes in

price. In theory, this approach has the advantage that it efficiently

minimizes reductions in the quantities of services demanded due to

prices above LRIC. While demand sensitivity is clearly relevant to

setting efficient prices, there is some concern about how Ramsey

principles should be applied to markets subject to actual or potential

competition. We recognize that Ramsey pricing principles were developed

in the context of a regulated monopoly and not for markets subject to

existing or potential competition. We seek comment on whether such an

approach is desirable for markets in which competition is developing.

We also seek comment on whether such a pricing rule is in the public

interest, given that it may result in imposing the greatest burdens on

those customers who have the fewest alternatives.

27. A third commonly employed alternative would be to allocate

shared costs and overheads among all services based on some specified

allocator. For example, shared costs and overheads could be allocated

among services uniformly in proportion to each service's LRIC or direct

costs, or could be apportioned based on some measure of usage. The

advantages of these allocators are that they are relatively simple to

administer and result in full recovery of all shared and overhead

costs. A principal drawback of this approach, however, is that it may

have undesirable effects on demand for particular services. More

specifically, such allocators do not minimize the distortions in demand

caused by divergences between price and LRIC, and may induce

inefficient investment by incumbents and entrants. In addition, or in

the alternative, we could limit the permissible overhead loading factor

a LEC could collect from an interconnecting CMRS provider to the

overhead loading factor that the LEC

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uses for some comparable service or services that compete with CMRS

offerings.

28. A fourth approach would be to allow incumbent carriers such as

LECs to employ the ``efficient component pricing rule'' (ECPR) proposed

by economist William Baumol and others. Under this approach, an

incumbent carrier that sells an essential input service, such as

interconnection, to a competing network would set the price of that

input service equal to ``the input's direct per-unit incremental cost

plus the opportunity cost to the input supplier of the sale of a unit

of input.'' The ECPR essentially guarantees that the incumbent will

recover not only all of its overheads, but also any profits that it

would otherwise forego due to the entry of the competitor. Proponents

of the ECPR argue that the ECPR creates an incentive for services to be

provided by the least-cost provider and that it makes the incumbent

indifferent between selling an input service to a competitor or a final

service to an end user. Critics, however, have shown that these

properties only hold in special circumstances. On the other hand, some

express concern that the ECPR may inhibit beneficial entry. In

addition, because the ECPR would permit an incumbent carrier to recover

its opportunity costs, including any monopoly profits in the sale of

the final service, the use of this rule may prevent competitive entry

from driving prices towards competitive levels. These arguments cast

significant doubts on claims that the rule will yield efficient

outcomes. Finally, as an administrative matter, it would be difficult

for a regulatory agency to determine the actual level of a carrier's

opportunity cost.

29. Finally, we might adopt an approach that permits a range of

permissible rates (and implicitly of overhead allocations). We note,

for example, that the Commission has repeatedly expressed concern about

preventing cross-subsidies. Some economists have defined the following

alternative tests for cross-subsidy: (1) The price of each individual

service, and of any group of services, must be less than the stand-

alone cost of that service (i.e., the cost of providing that service

alone but no other services); or (2) the revenue from each service and

from all subsets of services must exceed the incremental cost of the

service or the subset of services. According to these definitions, if

either of the two tests is satisfied, there is no cross-subsidy. This

test effectively requires that the revenues generated by any group of

services that share a common facility recover at least the incremental

cost of that facility. We seek comment on this theory, and on whether

it reduces the range of acceptable prices, and hence, implicitly, the

range of acceptable allocation schemes.

30. We seek comment on the foregoing approaches to determining rate

levels, how they might apply in the context of LEC-CMRS

interconnection, the extent to which they are administratively

feasible, and how they will affect rates for other services including

intrastate services. We also seek comment on how these LEC-CMRS

interconnection rate levels could affect telecommunications network

subscribership and universal service. We also ask parties to address

the extent to which these approaches could be implemented in the

context of the specific pricing options discussed in the following

section.

c. Practical Considerations Regarding Cost-Based Pricing. 31. LEC-

CMRS interconnection rates could be based on a specific demonstration

of the costs of providing service, much as we do for establishing rates

for new services under our price cap rules. The new services test

requires price cap LECs to demonstrate that the rates for a new service

recover the direct costs of that service plus a reasonable share of

overhead loadings. We seek comment on whether we should provide

guidance with respect to such a cost showing similar to our

interpretation of the new services test in Telephone Company-Cable

Television Cross Ownership Rules, Memorandum Opinion and Order on

Reconsideration, 59 FR 63909 (December 12, 1994) (Video Dialtone

Reconsideration Order). In addition, we seek comment on how we should

deal with overhead loadings and whether we should employ any of the

alternative approaches discussed in the previous section. We also note

that similar cost justification requirements could be enforced by state

commissions.

32. The approaches described in the preceding paragraph have a

number of advantages, in that they result, at least in theory, in cost-

based rates for particular services. On the other hand, these

approaches have the disadvantage, typically, of requiring contentious,

and time-consuming administrative proceedings to resolve the complex

issues raised by cost studies.

3. Pricing Options. a. Interim Approach. 33. Any significant delays

in the resolution of issues related to LEC-CMRS interconnection

compensation arrangements, combined with the possibility that LECs

could use their market power to stymie the ability of CMRS providers to

interconnect (and may have incentives to do so), could adversely affect

the public interest. We tentatively conclude that it will better serve

the public interest to give providers some degree of certainty, within

a short time, that reasonable interconnection arrangements will be

available. Some of the alternatives described below may approximate the

results of cost studies, and thus provide most of the advantages of the

theoretical model described above, but avoid the main disadvantages--

administrative costs and delays.

34. Accordingly, we tentatively conclude that an interim pricing

approach should be adopted that could be implemented relatively quickly

and with minimal administrative burdens on CMRS providers, LECs, and

regulators. We plan to move forward expeditiously so as to have an

interim pricing approach in place in the near term. Below, we discuss

our tentative conclusion that a bill and keep approach (zero rate for

termination of traffic) should apply with respect to local switching

facilities and connections to end users, with the exception of

dedicated transmission facilities linking the two networks. We also set

out a number of alternative approaches. Our preferred approach or the

alternative options could be adopted as interim solutions for some

limited period of time. We seek comment on whether such an approach

should apply for a prescribed time period, whether months or years, or

until the occurrence of a specific triggering event. With respect to

our preferred approach and each of the alternative options discussed

below, we ask parties to address whether some combination of these

options should be made available, and on the implementation costs for

carriers, as well as the speed with which such options could be

implemented. In particular, we seek comment on the extent to which

modifications would be required in the network to implement such

options (e.g., to collect information necessary for billing and

collection), the cost of such modifications, and who should bear such

costs. We also solicit parties' analysis of the relevant administrative

burdens on the Commission caused by the various options, and the ease

with which these options can be enforced. Finally, we seek comment on

any changes to our approaches that would be necessary or advisable if

LECs and CMRS providers were to change current arrangements for

recovering costs from end users.

(1) Tentative Conclusions. 35. Bill and Keep. We tentatively

conclude that a ``bill and keep'' arrangement represents the best

interim solution with respect to

[[Page 3650]]

terminating access from LEC end offices to LEC end-user subscribers,

and with respect to terminating access from equivalent CMRS facilities

to CMRS subscribers. Under bill and keep arrangements, neither of the

interconnecting networks charges the other network for terminating the

traffic that originated on the other network, and hence the terminating

compensation rate on a usage basis is zero. Instead, each network

recovers from its own end-users the cost of both originating traffic

delivered to the other network and terminating traffic received from

the other network. Bill and keep arrangements yield results that are

equivalent to the networks charging one another incremental cost-based

rates for shared network facilities if the incremental cost of using

such facilities is equal to (or approximates) zero for both networks.

We note that several states, including California, Connecticut, Texas

and Pennsylvania, have implemented bill and keep arrangements, at least

on an interim basis. We tentatively conclude that, as an interim

solution, such bill and keep arrangements should cover both peak and

off-peak time periods.

36. Bill and keep arrangements appear to have a number of

advantages, especially as an interim solution. First, such arrangements

are administratively simple and would require the development of no new

billing or accounting systems. Second, the bill and keep approach

prevents incumbent LECs that possess market power from charging

excessively high interconnection rates. Third, according to proponents,

a bill and keep approach is economically efficient if either of two

conditions are met: (1) Traffic is balanced in each direction, or (2)

actual interconnection costs are so low that there is little difference

between a cost-based rate and a zero rate. Proponents of bill and keep

submit that condition (2) is satisfied in the case of LEC-CMRS

interconnection because they allege that the average incremental cost

of local termination on LEC networks is approximately 0.2 cents per

minute.

37. In view of these advantages, we tentatively conclude that, for

terminating access between the end office (or equivalent CMRS

facilities) and the end-user subscriber, a bill and keep arrangement

applied to both peak and off-peak periods represents the best interim

solution. We also tentatively conclude that a requirement that LECs and

CMRS providers not charge one another for terminating traffic from the

other network would not violate any party's legal rights. Specifically,

we believe that a bill and keep requirement would not deprive either

LECs or CMRS providers of a reasonable opportunity to recover costs

they incurred to terminate traffic from the other's network, because

these costs could be recovered from their own subscribers. We seek

comment on these tentative conclusions. We also seek comment on the

effect that a bill and keep approach is likely to have on traffic flows

between LEC and CMRS networks: is this approach likely to lead to more

balanced traffic flows, or will it create incentives to perpetuate or

exacerbate existing traffic imbalances between LEC and CMRS networks?

38. Transport Costs between the CMRS and LEC Networks. The analysis

of bill and keep presented in comments by Dr. Gerald W. Brock, Director

of the Graduate Telecommunications Program, George Washington

University, appears not to consider the costs associated with the

physical transmission circuits connecting CMRS MTSOs with LEC end

offices. Transmitting calls between CMRS and LEC networks can be

accomplished through the use of dedicated facilities between CMRS MTSOs

and LEC end offices, or through dedicated facilities between CMRS MTSOs

and LEC tandem switches. When tandem switches are used, additional

tandem-switched transport, consisting of tandem switching and

transmission over common transport facilities, is used to transmit

traffic between LEC tandem switches and LEC end offices. These

facilities are generally provided by LECs. With respect to dedicated

transport facilities, cost-causation principles suggest that the costs

of such facilities be recovered from the cost-causer through flat

rates. With respect to shared facilities used to provide tandem-

switched transport, cost-causation principles suggest traffic-sensitive

cost recovery, at least during peak periods.

39. LECs' existing interstate access tariffs include flat rates for

dedicated transport (entrance facilities and direct-trunked transport)

that we have concluded, in general, are reasonably cost-based. Similar

charges are included in many LEC intrastate access tariffs. These

tariffed charges could be applied to CMRS providers relatively rapidly,

with virtually no additional administrative proceedings. Moreover, we

believe that the dedicated transport facilities used to connect LEC and

IXC networks are similar or identical to the facilities connecting LEC

and CMRS networks. Accordingly, we tentatively conclude that, when LECs

provide the dedicated transmission facilities between CMRS MTSOs and

LEC networks, they should be able to recover the costs of those

facilities from CMRS providers through appropriate dedicated transport

rates found in their existing access tariffs. We seek comment on this

tentative conclusion.

40. We also seek comment on whether and how LECs should recover

from CMRS providers the costs of tandem switching and common transport

between tandem switches and end offices, in cases where such LEC-

provided facilities are used. The LECs' interstate access tariffs

include usage-sensitive charges for tandem-switched transport, as do

many state tariffs. Should these tandem-switched transport charges be

applied to CMRS providers? Should such charges apply to all minutes, or

only to traffic during peak periods?

(2) Other Options. 41. While we tentatively conclude that the

proposals outlined above would lead to LEC-CMRS interconnection

arrangements that best serve our public interest objectives during an

interim period, we also seek comment on a number of alternative

approaches. We seek comment on the relative costs and benefits of our

proposals and these options. We also invite parties to suggest other

alternatives or combinations of these options that would advance our

public interest objectives and that could be implemented rapidly and

with minimal administrative costs.

42. Bill and Keep for Off-Peak Usage Only. Brock acknowledges that

``[i]f interconnection charges are imposed, they should be assessed at

the long run incremental cost of adding capacity.'' He also

acknowledges that ``the true cost for peak period usage is much greater

than the cost for off peak usage * * * (which) may be near zero,'' and

that the cost for peak period usage is much higher than the average

incremental cost of local usage, which he estimates to be 0.2 cents

($0.002) per minute. In light of Brock's comments, we seek comment on

whether a bill and keep approach should be limited to off-peak traffic,

with charges assessed for peak-period traffic. We seek comment on what

charges should apply for peak period traffic under this approach. For

instance, we seek comment on whether some subset of existing access

charges should apply, or whether an incremental capacity cost for peak-

period traffic should be developed. We also seek comment on the peak

periods for both LEC and CMRS networks, and the appropriate period for

a peak capacity charge. In addition, we seek comment on whether

charging different prices for peak and off-peak traffic has any

disadvantages and whether it is

[[Page 3651]]

likely to result in a shift in the peak period. In addition, we seek

comment on the potential administrative costs and complexity involved

in this approach.

43. Subset of Access Charges. To the extent that LEC-CMRS

interconnection arrangements are similar to the interconnection

arrangements between LECs and IXCs or other access customers, the rates

for LEC-CMRS interconnection could be based on a subset of the LECs'

existing interstate access charges (or comparable rates from their

intrastate access tariffs). As noted above, LECs could charge existing

local transport rates for the transmission facilities that they provide

to link LEC and CMRS networks. Similarly, LECs could charge CMRS

providers existing local switching rates for minutes of use originating

on CMRS networks and terminating on LEC networks. We do not envision

that the LECs would charge CMRS providers the carrier common line (CCL)

charge. The CCL charge, in essence, represents a subsidy from LECs'

interstate access customers to reduce the subscriber line charges (SLC)

paid by end-user subscribers for loop facilities that are dedicated to

their use. We do not believe that such a subsidy should be imposed on

CMRS providers. Under this alternative, we are also inclined not to

permit LECs to charge CMRS providers the transport interconnection

charge (TIC), given that the extent to which the TIC recovers

transport-related costs is unclear. We seek comment on what subset of

access charges should apply if we select this option as an interim

compensation mechanism. We also seek comment on whether per-minute

access charges should be converted into peak-sensitive capacity charges

(either per-peak minute or flat-rate) in the context of LEC-CMRS

interconnection, and, if so, on how to do so. In addition, we seek

comment on whether the LECs' access charges would be an appropriate

framework for LEC-CMRS interconnection once our Access Reform

proceeding is completed.

44. Existing Interconnection Arrangements Between Neighboring LECs.

In the alternative, LEC-CMRS interconnection arrangements could be

based on existing arrangements between neighboring LECs. We seek

comment on whether LECs should be required to disclose publicly the

terms of their interconnection arrangements with neighboring LECs and

to offer CMRS providers comparable arrangements. This option could help

ensure that CMRS providers receive interconnection on terms and

conditions that are at least as favorable as neighboring LECs.

Neighboring LECs generally are larger and more established than CMRS

providers and thus more likely to have been able to negotiate

reasonable interconnection arrangements. We ask parties for comment on

this option. In particular, we ask parties to describe existing

arrangements between neighboring LECs and to comment on whether these

arrangements would be workable in the context of other forms of LEC-

CMRS interconnection.

45. Existing Interconnection Arrangements Between LECs and Cellular

Carriers. Another possibility would be to apply the same rates, terms,

and conditions in existing LEC-cellular interconnection arrangements to

broadband PCS providers, or to other categories of CMRS providers. Like

the previous option, this option could help ensure that CMRS providers

would receive interconnection on terms and conditions that are at least

as favorable as cellular carriers. We seek comment on whether cellular

carriers, like neighboring LECs, are better established than broadband

PCS providers and thus are more likely to have negotiated reasonable

interconnection arrangements. We ask the parties to describe existing

interconnection arrangements between LECs and cellular carriers and to

comment on whether these arrangements could be extended to other forms

of LEC-CMRS interconnection.

46. Intrastate Interconnection Arrangements Between LECs and New

Entrants. In a few states, LECs have filed tariffs providing for

interconnection arrangements with competing wireline providers of local

exchange service. We invite parties to comment on the various state

approaches, such as those in Illinois, Michigan, Maryland, and

California, in particular on whether CMRS providers should be eligible

for these offerings or whether there is any technical or economic basis

for distinguishing CMRS from wireline interconnection. We also ask

parties to provide us with other relevant information about state

regulations in this area, and to comment on the extent to which state

actions in wireline-wireless interconnection may serve as a model for

LEC-CMRS interconnection. We note that, as part of broader initiatives

to remove the statutory or regulatory barriers to entry into the local

telephone market, several states have initiated proceedings, and in

some cases adopted interim or permanent rules, governing

interconnection arrangements between LECs and competing local carriers.

We ask parties to comment on these state regulations and on the

relative costs and benefits of various approaches states have taken in

this area.

47. Measured Local Service Rates. With respect to rates that

recover the costs of shared facilities whose costs vary in proportion

to capacity, we seek comment on whether interconnection rates should be

set at some fixed percentage of the measured local service rates that

LECs currently charge their local customers. For example, if a LEC

currently charges its own measured local service customers 5 cents per

minute, it could charge an interconnecting CMRS provider half that

amount--2.5 cents per minute. This option essentially would assume that

the existing measured service rates are cost-based, and that the LEC's

cost in terminating a call placed by a CMRS customer is one-half (or

some other percentage) of the cost of both originating and terminating

a call placed by a LEC customer to another LEC customer. Under a

variant of this option, if a LEC does not offer measured local service,

or if few LEC customers select such service, an imputed per-minute rate

could be derived by dividing the LEC's monthly local service rate by

the average customer's number of local minutes originated per month.

Both the basic option and the variant discussed here have the appeal of

facilitating competition between CMRS providers and LECs, by ensuring

that CMRS providers never pay more for interconnection than LECs charge

for a complete call. A disadvantage of these options is that they would

not necessarily result in cost-based interconnection rates.

48. Uniform Rate. We also seek comment on whether a presumptive

uniform per-minute interconnection rate should be established for all

LECs and CMRS providers. Such a rate could be developed from generic,

forward-looking studies of LEC network costs. We invite parties to

submit any such studies into the record of this proceeding. A second

option would be to develop such a rate based on one or more (or an

average) of the state policy decisions cited in the preceding

paragraph. Interconnection rates that have been ordered or accepted by

state commissions range between 0.5 cents to 2.4 cents per minute, with

a median of around one cent per minute. A third possibility would be to

set such a uniform rate based on the average level of LECs' interstate

access charges. For example, the per minute rate for terminating

traffic interconnected at an end-office (exclusive of flat-rate charges

for circuits connecting LEC and CMRS networks and per-minute charges

for tandem switched transport) could be set

[[Page 3652]]

based on the average level of LECs' interstate local switching charges,

but not transport interconnection charges or carrier common line

charges. We seek comment on the advantages and disadvantages of

establishing a uniform interconnection rate level, whether establishing

such a uniform rate would be lawful, the basis on which such a rate

might be set, and the practical problems of implementing such a rate

scheme. We also seek comment on whether such a rate, instead of being a

presumptively lawful rate, should be a prescription, and on what

showing a carrier would need to make to charge a different rate. In the

alternative, we seek comment on whether carriers should apply different

interconnection rate levels in different geographic areas that they

serve.

49. Bill and Keep Until a Satisfactory Rate Is Developed. Finally,

we seek comment on whether a bill and keep arrangement should be

imposed on a LEC pending the negotiation of a satisfactory

interconnection arrangement between the LEC and a CMRS provider or the

approval of other cost based charges. If the negotiations were to break

down, a reasonable basis for resolving the dispute might be the

imposition of a rate equal to the lowest of: (1) Existing

interconnection arrangements between the LEC and neighboring LECs; (2)

intrastate interconnection arrangements between the LEC and new

entrants; or (3) a subset of LEC interstate access charges for

terminating traffic. A LEC would be allowed, however, to demonstrate

that the lowest of the charges described above does not provide the LEC

with a reasonable opportunity to recover all the costs incurred in

terminating CMRS traffic on the local landline network, and some

overhead costs. This approach would preserve the primary role of

negotiations between the parties in reaching interconnection

arrangements, but would limit the LEC's ability to exercise its market

power, while simultaneously creating an incentive for it to negotiate a

satisfactory rate expeditiously. We also seek comment on whether CMRS

providers would have an incentive to negotiate under this approach.

b. Long Term Approach. 50. We seek comment on what the long-term

approach to interconnection pricing should be, whether one of the

interim options outlined above should be the permanent methodology, or

whether interconnection rates should be based on a specific

demonstration of the cost of providing service, much as we require for

establishing rates for new services under our price cap rules. We

believe that, in the long term, pro-competitive LEC-CMRS

interconnection arrangements should be developed that advance our

public interest objectives. First, these arrangements should give

efficient incentives regarding both consumption and investment in

telecommunications services. To this end, prices should be reasonably

cost-based. Cost-based prices could be derived through cost studies, or

could be based on potentially reasonable proxies in lieu of developing

rates based on complete cost justifications, possibly including one or

more of the interim approaches described above. Moreover, over time, we

believe that price cap regulation and increasing competition will force

interconnection rates toward cost. Ultimately, markets may become

sufficiently competitive that cost-based interconnection prices should

result without any regulatory intervention.

51. Second, functionally equivalent forms of network

interconnection arguably should be available to all types of networks

at the same prices, unless there are cost differences or other policy

considerations that justify different rates. Thus, in the long run, if

LECs provide essentially similar interconnection services to CMRS

providers and to IXCs, then it may well be in the public interest for

the rates in LEC-CMRS interconnection arrangements not to differ from

the rates for LEC-IXC interconnection--i.e., access charges. We

acknowledge, however, that there may be significant reasons, including

our interest in facilitating the competitive development of CMRS and

considerations relating to the Part 36 jurisdictional separations

rules, that may necessitate differences in regulatory regimes. We also

recognize that current interstate access charges are problematic, and

in the near future we intend to initiate a comprehensive proceeding to

reform the access charge regime. We also seek comment on the impact of

each of the pricing options on universal service considerations.

Finally, we note that substantially different prices for similar forms

of interconnection raise the possibility that parties could seek to

deflect traffic from a more costly form of interconnection to a less

costly form. We invite comment on the implications of this possibility,

including methods to prevent such traffic deflection.

c. Symmetrical Compensation Arrangements. 52. We tentatively

conclude that LEC-CMRS interconnection rates should be symmetrical--

that is, LECs should pay CMRS providers the same rates as CMRS

providers pay LECs. Most existing interconnection arrangements between

LECs and competing wireline providers of local exchange service require

that interconnection rates be symmetrical.

53. We recognize that symmetrical interconnection rates have

certain disadvantages. Asymmetrical, cost-based rates have the benefit

of providing each of the carriers (and, if passed through to them,

their customers) incentives to use resources such as interconnection

commensurate with the actual cost of those resources. LEC networks and

CMRS networks use different technologies that may have different costs.

If interconnection rates were fully cost-based, then a LEC might pay a

CMRS provider different interconnection rates than the CMRS provider

would pay the LEC.

54. On the other hand, symmetrical compensation rates would be

administratively easier to derive and manage than asymmetrical rates

based on the costs of each of the respective networks. Moreover,

symmetrical rates could reduce LECs' ability to use their bargaining

strength to negotiate an excessively high termination charge that CMRS

providers would pay LECs and an excessively low termination rate that

LECs pay CMRS providers. Setting asymmetric, cost-based rates might

require evaluating the cost structure of non-dominant carriers, which

would be complex and intrusive. Accordingly, we tentatively conclude

that interconnection arrangements should include symmetrical

compensation rates, at least during an interim period. We seek comments

on the foregoing analysis. Commenters should discuss any other reasons

why symmetrical or asymmetrical compensation rates would be in the

public interest and the relative merits of these approaches. We also

seek comment on whether we should revisit our existing policy of

forbearing from regulating CMRS providers' rates in order to enforce

our interim policies with respect to the rates CMRS providers charge to

LECs.

55. In addition, we note that, according to a number of parties,

many LECs do not now pay any compensation to CMRS providers for LEC-

originated traffic that terminates on their networks, and that some

LECs even impose charges on CMRS providers for such traffic. Such

conduct would appear to violate our existing mutual compensation

requirement. We seek comment on whether such violations are occurring

and what methods could and should be used to enforce this requirement.

In Implementation of Sections 3(n) and 332 of the Communications Act,

Regulatory Treatment of Mobile Services, Second Report and Order, 59 FR

18493 (April

[[Page 3653]]

19, 1994), we stated that CMRS providers may file complaints, under

section 208 of the Act, if a LEC violates the requirement that they

charge the same rates to CMRS providers for interstate interconnection

as they charge other mobile service providers. Is this avenue for

obtaining remedies sufficient, or should we institute some other

procedure or other mechanism to ensure that LECs comply with our

existing rules? For example, should we require LECs to report to us on

the amounts of compensation they are paying to CMRS providers for

traffic that originates on LEC networks and terminates on CMRS

networks? Are alternative dispute resolution procedures necessary?

C. Implementation of Compensation Arrangements

1. Negotiations and Tariffing. 56. As discussed above, we believe

that some involvement in the formation and administration of

interconnection arrangements between LECs and CMRS providers would help

to counter possible abuses of market power and would help ensure that

these arrangements are efficient and advance the public interest. We

also have addressed the types of compensation arrangements that we

believe would best serve the public interest. We seek more detailed

comment on the type of involvement that would be optimal in light of

our views on the compensation arrangements. In particular, we ask

parties to comment on the interrelationship of the procedural issues

addressed in this section to the substantive policy options regarding

compensation arrangements discussed above. Some of the substantive

options discussed above might make some procedural approaches

infeasible, or could make certain protections unnecessary.

57. In considering how to implement our policies regarding

interconnection arrangements, we seek to promote arrangements that

foster competition and advance economic efficiency and our other goals.

We also desire to enable LECs and CMRS carriers to respond rapidly and

flexibly to changing interconnection needs. We seek comment on whether

an open process in which a LEC and a CMRS provider freely discuss and

negotiate a wide variety of interconnection options is preferable to a

process whereby the LEC presents the CMRS provider with a limited

choice of preset interconnection options. There may be a useful purpose

in some level of intervention to prevent abuse of market power or

unreasonable discrimination. This may be particularly critical in cases

in which the parties are unable to negotiate a satisfactory agreement,

but may also be valuable as a ``backstop'' measure even when parties

can reach agreement, to prevent unreasonable discrimination against

other parties or anticompetitive collusion that might disadvantage

consumers.

58. If LECs and CMRS providers were to negotiate interconnection

arrangements consistent with the compensation framework discussed

above, the public interest would be served while avoiding the need for

intervention. As discussed above, however, we believe that optimal

compensation arrangements are unlikely to result from purely private

negotiations. At least for the near future, there is likely to be an

imbalance in negotiating power between the incumbent LECs, which

currently possess monopoly power in local exchange markets, and new

CMRS providers seeking to enter such markets. The LECs may seek to

impose unduly high interconnection rates or other unreasonable

conditions that could reduce CMRS entry. Moreover, there is a

significant risk that LECs may not offer new CMRS carriers

interconnection agreements that are as financially advantageous as

those that large and incumbent CMRS providers have already secured.

Finally, in cases where LECs and CMRS providers compete directly

against one another, there is a significant risk that LECs and CMRS

providers could engage in collusive behavior and voluntarily agree to

arrangements that would not advance the public interest. Thus,

participation in the process by regulators may be warranted for some

period of time.

59. An alternative would be a requirement that voluntarily-

negotiated interconnection contracts be filed publicly. Such public

filing--either at the Commission (pursuant to section 211) or at state

commissions--could reduce the LECs' ability to engage in unreasonable

discrimination among CMRS providers, although we recognize that such a

procedure would not necessarily ensure that arrangements will comply

with the substantive standards discussed above. We also seek further

comment on possible ways to minimize the burden of such disclosure and

protect the confidentiality of LECs' and CMRS providers' proprietary

data, while still obtaining disclosure of enough information to advise

new entrants about rates, terms, and conditions. Finally, we seek

comment on whether filing at a regulatory agency is necessary if the

carriers themselves were required to make publicly available relevant,

specified information about the agreement upon request.

60. As noted above, even public disclosure of negotiated agreements

may not be sufficient to prevent anticompetitive behavior by LECs

possessing market power and to ensure that interconnection compensation

arrangements are structured in an optimal manner. A more forceful

approach would be to require that interconnection arrangements be filed

as tariffs. The tariff process is a well-established mechanism for

regulatory commissions to protect the public interest by rejecting

unreasonable provisions in carriers' offerings. On the other hand,

tariffing requirements could entail administrative costs. We

tentatively disagree with the position taken by some of the commenting

parties that any tariffing requirement would automatically preclude

flexible interconnection arrangements. We note that, even in a

contractual environment, one party might inflexibly present a limited

number of options and refuse to negotiate alternatives; by contrast,

even under a tariffing requirement, parties can cooperatively negotiate

provisions in a flexible manner. Such provisions can later be

incorporated as tariffed options. Thus, tariffed interconnection

arrangements need not be ``one size fits all.''

61. The major difference we see between non-tariffed arrangements

and arrangements subject to a contract tariff process is that, in the

latter case, the regulator has additional mechanisms to protect against

terms that may be unreasonable or unreasonably discriminatory, such as

issuing an order for investigation pursuant to section 205 of the Act.

We seek comment on the costs and benefits of amending our rules to

permit the use of contract tariffs to implement LEC-CMRS

interconnection arrangements. We also seek comment on whether a

different form of contract tariffing for LEC-CMRS interconnection would

better serve the public interest. For instance, should a special notice

period apply to LEC-CMRS interconnection contracts? Should some level

of cost showing be required for LEC-CMRS interconnection contracts,

unlike contract tariffs generally?

62. In sum, we tentatively conclude that information about

interconnection compensation arrangements should be made publicly

available in order to foster competition and to advance the public

interest. As to what form this information should take--tariff, public

disclosure or other approach--we seek comment from parties as to the

costs and benefits of each option, keeping in mind the goals of

promoting economic

[[Page 3654]]

efficiency through competition and negotiating flexibility.

2. Jurisdictional Issues. 63. We seek comment on three alternative

approaches to implementing the interconnection policies discussed

above. We recognize that states share our goals of stimulating economic

growth by promoting the development of CMRS, which would upgrade the

nation's telecommunications infrastructure and would help make

available broader access to communications networks. We also recognize

that, as detailed above, some state public utility commissions have

begun to develop their own policies governing interconnection

arrangements. We intend to continue to work cooperatively with state

regulators to formulate interconnection policies that advance our

common public interest goals.

64. One approach to implementing these goals would be to adopt a

federal interconnection policy framework that would directly govern

LEC-CMRS two-carrier interconnection with respect to interstate

services and that would serve as a model for state commissions

considering these issues with respect to intrastate services.

Essentially, we would recommend that states voluntarily follow our

guidelines, rather than making them mandatory requirements. Under this

informal model, we would give guidance to the states while not

directing state regulators in interconnection matters. For example, if

we were to affirm our tentative conclusions discussed above regarding

bill and keep compensation, we could require LECs and CMRS providers to

use that approach with respect to terminating interstate traffic

originating on the other's network, and encourage states to adopt the

same approach with respect to intrastate traffic. On the other hand,

there would be no guarantee that states would adopt our proposed model.

We seek comment on this option and whether there might be some way to

supplement it to better achieve the goals discussed above. For example,

would it be beneficial to have an industry group develop specific

standards to govern the terms and conditions for interconnection

arrangements, based on our informal model? If so, should we set a date

certain by which such an industry group should develop these standards?

65. A second approach would be to adopt a mandatory federal policy

framework or set of general parameters to govern interconnection

arrangements between LECs and CMRS providers with respect to interstate

and intrastate services, but allow state commissions a wide range of

choices with respect to implementing specific elements of these

arrangements. Thus, although compliance with these policy parameters

would be mandatory, state commissions would have substantial latitude

in developing specific arrangements that would comply with these

parameters. One example of a general policy parameter is our existing

mutual compensation requirement--which generally requires that there be

mutual compensation between LECs and CMRS providers for the reasonable

costs of terminating each other's traffic--without precluding the

states from setting the actual interconnection rates that LECs and CMRS

providers charge. We could also adopt more specific policy parameters,

while still preserving a degree of discretion for state commissions.

For example, we could require the use of bill and keep compensation, as

discussed above, for all off-peak traffic, but allow states to decide

whether to use bill and keep or some alternative option with respect to

compensation for intrastate traffic during peak periods. The possible

benefit of this approach is that it would provide some greater national

uniformity, while still preserving the state commissions' flexibility

to develop specific arrangements that meet their needs. We seek comment

on this option and on whether it would most effectively achieve our

goals. If parties do support the use of mandatory federal policy

parameters, we ask that they comment on what level of detail we should

adopt in such parameters--that is, whether we should adopt broad,

general parameters on what the appropriate interconnection rates should

be or whether we should adopt a more detailed set of parameters.

66. As a third alternative, we seek comment on our promulgating

specific federal requirements for interstate and intrastate LEC-CMRS

interconnection arrangements. This approach would place more specific

parameters on state action regarding interconnection rates. For

example, if we were to affirm our tentative conclusions discussed above

regarding bill and keep compensation, we could require LECs and CMRS

providers to adopt such an approach with respect to all traffic.

67. We tentatively conclude that the Commission has sufficient

authority to implement these options, including our proposal that

interconnection compensation on a bill and keep basis be adopted on an

interim basis. As a preliminary matter, 47 U.S.C. 332 explicitly

preempts state regulation in this area to the extent that such

regulation precludes (or effectively precludes) entry of CMRS

providers. In addition, to the extent state regulation in this area

precludes reasonable interconnection, it would be inconsistent with the

federal right to interconnection established by Section 332 and our

prior decision to preempt state regulation that prevents the physical

interconnection of LEC and CMRS networks. We also believe, contrary to

our conclusion in earlier orders, that preemption under Louisiana

Public Service Commission v. FCC, 476 U.S. 355 (1986), may well be

warranted here on the basis of inseverability, particularly in light of

the strong federal policy underlying Section 332 favoring a nationwide

wireless network. Indeed, in this regard, we note that several entities

have argued that section 332 itself gives the Commission exclusive

jurisdiction in this area.

68. We seek comment on this analysis and also ask parties to submit

relevant factual information on this issue. We seek comment, first, on

the inseverability of interconnection rate regulation. We note that

much of the LEC-CMRS traffic that may appear to be intrastate may

actually be interstate, because CMRS service areas often cross state

lines, and CMRS customers are mobile. For example, if a cellular

customer from Richmond travels to Baltimore and then places a call to

Alexandria, the call might appear to be an intrastate call, placed from

a Virginia telephone number to another Virginia number, but would in

fact be interstate because the call originates in Maryland and

terminates in Virginia. Service areas defined as ``local'' in wireless

providers' rate structure do not coincide with LEC ``exchanges''

defined by section 221(b) as subject to state authority, and often

cross state lines. This is true of many existing cellular providers,

and is even more likely to be true with respect to PCS licensees in

major trading areas (MTAs). We request that commenting parties submit

empirical data and analysis on the extent to which existing LEC-CMRS

interconnection arrangements involve both interstate and intrastate

traffic, the extent to which significant levels of interstate wireless

traffic are being carried under such arrangements, and, most

importantly, the extent to which interstate and intrastate traffic can

be severed for regulatory pricing purposes. We seek comment on whether

either the CMRS or the LEC networks have the technical capability to

distinguish whether a wireless call interconnecting with its network is

an interstate or intrastate call. We also seek comment on whether we

should reconsider our

[[Page 3655]]

recent conclusion, cited by BellSouth, that section 332 does not

circumscribe state regulation of the interconnection rates that LECs

charge CMRS providers.

69. We also ask parties to identify what types of state rate

regulation, if any, preclude (or effectively preclude) entry of CMRS

providers. We seek specific information on the types of regulations

that are either in effect or have been proposed by state regulators in

the area of LEC-CMRS interconnection, and seek comment on what impact

such state action has had on interconnection arrangements and on the

ability of CMRS providers to compete in the market. We also request

comment on the meaning and relevance of section 332(c)(1)(B) to our

jurisdictional analysis.

70. In determining what the Commission's role should be with

respect to implementation of LEC-CMRS interconnection policies, we

again emphasize our recognition of the states' legitimate interest in

interconnection issues and our intention to work in coordination with

state regulators in this regard. In addition, although we have

identified three possible options to implement our interconnection

compensation proposals, and we seek comment on these options, we also

encourage parties to suggest other options, or variations of our

options, regarding implementation. Our goal is to achieve

implementation of our interconnection proposals in the most efficient

and effective manner to the collective benefit of all the parties

involved.

III. Interconnection for the Origination and Termination of Interstate

Interexchange Traffic

71. We held in 1984 that radio common carriers and cellular

carriers are not IXCs and therefore are not required to pay LECs

interstate access charges. We have never addressed, however, whether

LECs or IXCs should remit any interstate access charges to CMRS

providers when the LEC and the CMRS provider jointly provide access

service. For example, when a cellular customer places a long-distance

call, the cellular carrier typically transmits the call to the LEC,

which connects the call to the IXC. Similarly, when long-distance calls

are placed to cellular customers, the IXC handling the call typically

transmits the call to a LEC, which, in turn, hands it to the cellular

carrier for termination to the called party. We have not previously

established specific rules or guidelines applicable to the joint

provision of interstate access service by a LEC and a CMRS provider.

Until CMRS providers generate sufficient traffic to warrant direct

connections to IXC points of presence, we believe that most CMRS

providers are likely to depend on LECs for interconnection of

interexchange traffic to IXCs. Thus, we tentatively conclude that it

will be necessary to apply certain protections to such interconnection

arrangements, at least in the foreseeable future. We seek comment on

this analysis and on our tentative conclusion. We also invite CMRS

providers and LECs to describe existing arrangements under which CMRS

providers are compensated for originating and terminating interstate

interexchange traffic that transits a LEC's network.

72. In the context of the existing access charge regime, we

tentatively conclude that CMRS providers should be entitled to recover

access charges from IXCs, as the LECs do when interstate interexchange

traffic passes from CMRS customers to IXCs (or vice versa) via LEC

networks. We propose to require that CMRS providers be treated no less

favorably than neighboring LECs or CAPs with respect to recovery of

access charges from IXCs and LECs for interstate interexchange traffic.

We tentatively conclude that any less favorable treatment of CMRS

providers would be unreasonably discriminatory, and would interfere

with our statutory objective and ongoing commitment to foster the

development of new wireless services such as CMRS. We seek comment on

how to implement this non-discrimination requirement. For example,

should we require that contracts between neighboring LECs establishing

joint arrangements for providing interstate access, as well as

comparable contracts between LECs and CMRS providers, be publicly filed

pursuant to section 211 of the Act in order to protect against such

discrimination? Should such arrangements be included in LEC interstate

access tariffs?

73. We also seek comment on the basis for CMRS providers' access

charges, which under our proposal would be collected directly or

indirectly from IXCs. Should CMRS providers impose interstate access

charges that mirror those of the LECs with which they connect? Or

should they impose their own access charges, as do many independent

LECs? If the latter, should we retain our existing policy of forbearing

from regulating CMRS providers' interstate access charges? In the

alternative, should we find that, even though CMRS providers may lack

market power with respect to end users, they may have some market power

over IXCs that need to terminate calls to a particular CMRS provider's

customer, or to originate calls (in an equal access context) from such

a customer? If we were to adopt such a conclusion, should we adopt

guidelines or some other form of pricing regulation to govern CMRS

providers' interstate access charges? Should we address the billing

arrangements that would apply in this context? Parties are invited to

comment on the issues and proposals discussed herein, and to address

the costs and benefits of these and possible alternative approaches.

IV. Application of These Proposals

74. We invite comment on whether the proposals and options

considered in this Notice of Proposed Rulemaking should apply to

interconnection arrangements between LECs and: (1) Broadband PCS

providers only; (2) broadband PCS, cellular telephone, SMR, satellite

telephony, and other CMRS providers that offer two-way, point-to-point

voice communications, which could compete with LEC landline

telecommunications services; or (3) all CMRS providers. We solicit

comments and analysis on the relative costs and benefits of broader and

narrower approaches, and on any technical or economic similarities or

differences among CMRS services that would warrant similar or different

treatment. (We note that, as a matter of convenience, we refer

elsewhere in this notice generically to ``CMRS providers;'' this usage

is not intended to exclude the possibility of applying our policies

more narrowly.)

75. There may be benefits to focusing primarily on broadband PCS or

some other limited group of CMRS services. First, it might be desirable

to limit our focus to broadband PCS because it is a new service. We

have assigned the initial broadband PCS licenses relatively recently

and will soon assign more. Fewer issues arise in applying policy

changes to a new service, such as broadband PCS, than to existing

services: For example, it is less likely that we would need to consider

problems of displacement, interference with existing contracts, or

transitions from existing interconnection arrangements to new

arrangements.

76. Second, we could consider addressing interconnection between

LECs and all types of commercial mobile radio services that support

voice telecommunications and could compete with the local telephone

services provided by the LECs. The interconnection arrangements between

this group of CMRS providers and LECs could have a critical effect on

whether these carriers can develop into effective

[[Page 3656]]

competitors for providing the local links required for interstate

communications. Focusing narrowly either on broadband PCS alone or on

this subset of CMRS would allow us to tailor our policies more

carefully to the particular subset of carriers or services involved.

77. Third, there are arguments for applying our proposals more

broadly to interconnection between LECs and all CMRS providers because

this would enable us to make improvements in as large a part of the

local telephone and CMRS markets as possible. Moreover, pursuant to

Congressional intent, we have taken a number of actions to apply

similar regulatory treatment to different types of CMRS providers.

Differential treatment among CMRS providers in the critical area of

interconnection could be interpreted as inconsistent with our overall

policies with respect to CMRS. On the other hand, some of the proposals

in this Notice might not be in the public interest if applied to CMRS

providers that do not compete with LEC services.

V. Procedural Issues

A. Ex Parte Presentations

78. This is a non-restricted notice-and-comment rulemaking

proceeding. Ex parte presentations are permitted, except during the

Sunshine Agenda period, provided that they are disclosed as provided in

the Commission's rules. See generally 47 CFR 1.1202, 1.1203, 1.1206.

B. Initial Regulatory Flexibility Analysis

79. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.

601-612, the Commission's Initial Regulatory Flexibility Analysis with

respect to the Notice of Proposed Rulemaking is as follows:

80. Reason for Action: The Commission is issuing this Notice of

Proposed Rulemaking seeking comment on possible changes in the

regulatory treatment of interconnection compensation arrangements

between LECs and CMRS providers and related issues.

81. Objectives: The objective of the Notice of Proposed Rulemaking

is to provide an opportunity for public comment and to provide a record

for a Commission decision on the issues stated above.

82. Legal basis: The Notice of Proposed Rulemaking is adopted

pursuant to sections 1, 2, 4, 201-205, 215, 218, 220, 303(r) and 332 of

the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154,

201-205, 215, 218, 220, 303(r) and 332;

83. Description, potential impact, and number of small entities

affected: Any rule changes that might occur as a result of this

proceeding could impact entities which are small business entities, as

defined in section 601(3) of the Regulatory Flexibility Act. After

evaluating the comments in this proceeding, the Commission will further

examine the impact of any rule changes on small entities and set forth

findings in the Final Regulatory Flexibility Analysis. The Secretary

shall send a copy of this Notice of Proposed Rulemaking to the Chief

Counsel for Advocacy of the Small Business Administration in accordance

with section 603(a) of the Regulatory Flexibility Act, Pub. L. No. 96-

354, 94 Stat. 1164, 5 U.S.C. 601, et seq. (1981).

84. Reporting, recordkeeping and other compliance requirement:

None.

85. Federal rules which overlap, duplicate or conflict with the

Commission's proposal: None.

86. Any significant alternatives minimizing impact on small

entities and consistent with stated objectives: The Notice of Proposed

Rulemaking solicits comments on a variety of alternatives.

87. Comments are solicited: Written comments are requested on this

Initial Regulatory Flexibility Analysis. These comments must be filed

in accordance with the same filing deadlines set for comments on the

other issues in this Notice of Proposed Rulemaking but they must have a

separate and distinct heading designating them as responses to the

Regulatory Flexibility Analysis. The Secretary shall send a copy of the

Notice to the Chief Counsel for Advocacy of the Small Business

Administration in accordance with section 603(a) of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq.

C. Comment Filing Procedures

88. Comments and reply comments should be captioned in CC Docket

No. 95-185 only. Pursuant to applicable procedures set forth in

Secs. 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419,

interested parties may file comments on or before February 26, 1996,

and reply comments on or before March 12, 1996. To file formally in

this proceeding, you must file an original and four copies of all

comments, reply comments, and supporting comments. If you want each

Commissioner to receive a personal copy of your comments, you must file

an original and nine copies. 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. 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.

89. In order to facilitate review of comments and reply comments,

both by parties and by Commission staff, we request that such comments

be organized in a uniform format. Specifically, we ask the parties to

organize their comments and reply comments according to the following

outline:

I. General Comments

II. Compensation for Interconnected Traffic between LECs and CMRS

Providers' Networks

A. Compensation Arrangements

1. Existing Compensation Arrangements

2. General Pricing Principles

3. Pricing Proposals (Interim, Long Term, Symmetrical)

B. Implementation of Compensation Arrangements

1. Negotiations and Tariffing

2. Jurisdictional Issues

III. Interconnection for the Origination and Termination of

Interstate Interexchange Traffic

IV. Application of These Proposals

V. Responses to Initial Regulatory Flexibility Analysis

VI. Other

Each new section should begin on a new page, and should be labeled with

the name of the filing party, identification of whether the document is

an initial comment or a reply comment, the docket number, filing date,

and number and name of the outline section addressed (although formal

legal headers are unnecessary for section headings). No pages need be

submitted for issues that a party chooses not to address. Arguments

that conceptualize issues in a manner that does not fit into the

segments listed above may be included in the ``Other'' section.

D. Ordering Clauses

90. Accordingly, it is ordered that, pursuant to sections 1, 4,

201-205, 215, 218, 220, 303(r) and 332 of the Communications Act of

1934, as amended, 47 U.S.C. 151, 154, 201-205, 215, 218, 220, 303(r)

and 332, a notice of proposed rulemaking is hereby adopted.

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

this

[[Page 3657]]

notice of proposed rulemaking, including the regulatory flexibility

certification, to the Chief Counsel for Advocacy of the Small Business

Administration, in accordance with paragraph 603(a) of the Regulatory

Flexibility Act, 5 U.S.C. 601 et seq. (1981).

List of Subjects

47 CFR Part 20

Radio.

47 CFR Part 61

Communications common carriers, Reporting and recordkeeping

requirements, Telephone.

47 CFR Part 69

Communications common carriers, Reporting and recordkeeping

requirements, Telephone.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96-1974 Filed 1-31-96; 8:45 am]

BILLING CODE 6712-01-U