Implementation of Section 254(g) of the Communications Act of 1934, as Amended

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[CC Docket No. 96-61; FCC 96-331]

Implementation of Section 254(g) of the Communications Act of

1934, as Amended

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: Pursuant to Section 254(g) of the Communications Act of 1934,

which was added by Section 101(a) of the 1996 Telecommunications Act,

the Commission adopts a geographic rate averaging rule ``to require

that the rates charged by providers of interexchange telecommunications

services to subscribers in rural and high cost areas shall be no higher

than the rates charged by each such provider to its subscribers in

urban areas'' and a rate integration rule to require ``that a provider

of interstate interexchange services shall provide such services to its

subscribers in each State at rates no higher than the rates charged to

its subscribers in any other State.'' These rules will ensure that

subscribers in rural and high-cost areas will not be charged higher

rates for interexchange services than subscribers in urban areas, and

that interexchange carriers will offer services to all their service

areas--whether rural, high-cost or urban--on the same terms.

EFFECTIVE DATE: September 16, 1996.

FOR FURTHER INFORMATION CONTACT: Sherille Ismail or Neil Fried,

Competitive Pricing Division, Common Carrier Bureau, (202) 418-1530.

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

and Order adopted and released August 7, 1996. The full text of this

Commission decision is available for inspection and copying during

normal business hours in the FCC Public Reference Room (Room 239), 1919

M St., N.W., Washington, D.C. The complete text of this decision may

also be purchased from the Commission's copy contractor, International

Transcription Service, Suite 140, 2100 M Street, N.W., Washington, D.C.

20037.

Regulatory Flexibility Analysis

The Commission promulgates the rules in the Report and Order to

implement Section 254(g) of the Communication Act of 1934, as amended

by the Telecommunications Act of 1996. The objective of these rules is

``to incorporate the policies of geographic rate averaging and rate

integration of interexchange services in order to ensure that

subscribers in rural and high cost areas throughout the Nation are able

to continue to receive both intrastate and interstate interexchange

services at rates no higher than those paid by urban subscribers.''

The Regulatory Flexibility Act defines ``small entity'' to include

the definition of ``small business concern'' under the Small Business

Act, 15 U.S.C. 632. Under the Small Business Act, a ``small business

concern'' is one that (1) is independently owned and operated, (2) is

not dominant in its field of operation, and (3) meets any additional

criteria established by the Small Business Administration (SBA). Our

geographic averaging and rate integration rules will apply to all

providers of interexchange service. The SBA has not developed a

definition of small entities specifically applicable to providers of

interexchange service. The closest applicable definition under SBA

rules is for telephone communications companies other than

radiotelephone (wireless) companies. According to SBA regulations, a

telephone communications company other than a radiotelephone company is

a small business concern if it has fewer than 1,500 employees.

The most relevant employee data available from the SBA does not

enable us to make a meaningful estimate of the number of providers of

interexchange service that are small entities because it is based upon

a 1992 Census of Transportation, Communications, and Utilities survey

from which we can only

[[Page 42559]]

calculate the average number of people employed by various-sized

telephone entities other than radiotelephone companies. Based on a

Commission staff report entitled Long Distant Market Shares: Fourth

Quarter, 1995, however, we estimate that approximately 500 carriers

provide interexchange service. Some of these carriers are not

independently owned and operated, or have more than 1,500 employees.

Consequently, we estimate that our geographic averaging and rate

integration rules will apply to less than 500 ``small entities.'' We

are unable on the present record to estimate with more particularity

how many of these entities would be considered small for the purposes

of the Regulatory Flexibility Act.

No comments specifically addressed the Commission's initial

regulatory flexibility analysis. However, a number of associations that

represent, at least to some extent, the interests of small

telecommunications providers, generally supported the Commission's

proposed rules to implement geographic averaging and rate integration.

Other commenters asserted that these rules would harm small regional

providers of interexchange service in high-cost areas, arguing that

such providers would be unable to compete with nationwide carriers that

can charge lower rates by spreading their costs over a larger customer

base. A few suggested that subsidies or other support mechanisms might

alleviate their concerns. The record in this proceeding does not show

that small interexchange service providers will be disproportionately

harmed by implementation of rate integration. The practical impact of

our rules will be to require all providers of interexchange service,

including those that are small entities, to set rates on a

geographically averaged and rate-integrated basis.

To comply with our Report and Order, carriers must charge rural and

high-cost area customers for interexchange service no more than they

charge urban customers, and must charge customers for such services in

one state no more than they charge customers in any other state. The

Notice of Proposed Rulemaking (NPRM), 61 FR 14717, April 3, 1996,

proposed requiring providers of interexchange telecommunications

services to file certifications that they were complying with these

requirements in the event the Commission decides to mandate permissive

detariffing of interexchange services. We will consider later in this

proceeding what enforcement mechanisms may be necessary to support

geographic averaging and rate integration when the Commission addresses

the detariffing issue. We have proposed a requirement that AT&T,

Sprint, MCI, IT&E, GTE, and PCI submit preliminary plans no later than

February 1, 1997, to achieve rate integration for services provided to

Guam, the Northern Marianas, American Samoa, and other offshore points,

and final plans no later than June 1, 1997. The preliminary plans need

not include rates, but at a minimum should resolve service and rate-

band issues. Final plans shall include a rate schedule. Carriers

already have in place their own individualized rate schedules, which

they have presumably tailored to the areas they provide service.

Consequently, carriers' staff preparing the preliminary and final plans

will likely need no special skills other than general familiarity with

the new rate schedules that these entities are planning, or have

chosen, to adopt to comply with the rate averaging and rate integration

requirements.

Section 254(g) reflects a congressional determination that the

country's higher-cost, lower-volume markets should share in the

technological advances and increased competition characteristic of the

nation's telecommunications industry as a whole, and that interexchange

rates should be provided throughout the nation on a geographically

averaged and rate- integrated basis. As noted above, we have decided

that the statutory objectives of Section 254(g) require us to apply our

rules to all providers of interexchange service, including small ones.

We have chosen, however, to allow carriers to offer private line

service and temporary promotions on a deaveraged basis. In so doing, we

have minimized the impact our rules might otherwise have had, and

enable carriers to use such devices to enter new markets.

The Commission considered and rejected several significant

alternatives. We could have reduced burdens on small carriers by

exempting them from compliance through forbearance. However, we do not

believe that forbearing at this time would be consistent with the

congressional goals that underlie Section 254(g). We could also have

reduced burdens on small carriers by establishing cost-support

mechanisms. However, the present record does not justify any such cost-

support mechanisms. Accordingly, we decline to adopt these alternative

measures for small carriers.

Paperwork Reduction Analysis

We have decided to require AT&T, Sprint, MCI, IT&E, GTE, and PCI to

submit preliminary and final plans to achieve rate integration of Guam,

the Northern Marianas, and American Samoa by August 1, 1997. These one-

time plan requirements constitute new ``collections of information,''

within the meaning of the Paperwork Reduction Act of 1995, 44 U.S.C.

3501-3520. The public burden for these one-time collections of

information is estimated as follows:

------------------------------------------------------------------------

Burden

Title Hours per Annual per

response responses carrier

------------------------------------------------------------------------

Preliminary rate integration plan...... 30 1 30 hrs.

Final rate integration plan............ 40 1 40 hrs.

--------------------------------

Total One-Time Annual Burden: 70 hrs.

x 6 carriers = 420 hrs.

------------------------------------------------------------------------

The foregoing estimate includes the time the carriers will need to

spend: (1) Reviewing the portions of our Report & Order relevant to the

one-time plan requirements; (2) reviewing their current rate schedules;

(3) determining what rate adjustments they will need to make to their

rate schedules to comply with our rate integration rule; (4) revising

their rates in the case of the final plans; and (5) completing and

reviewing the collections of information. Send comments regarding this

burden estimate or any other aspect of the collection of information,

including suggestions for reducing the burden, to the Federal

Communications Commission, Records Management Branch, Paperwork

Reduction Project, Washington, D.C. 20554 and to the Office of

Management and Budget, Paperwork Reduction Project, Washington, D.C.

20503.

Summary of Report and Order

1. On February 8, 1996, the ``Telecommunications Act of 1996''

(1996 Act), Public Law No. 104-104, 110 Stat. 56 (1996), became law.

Section 101(a) of the 1996 Act adds Section 254(g) of the

Communications Act of 1934. Section 254(g) provides that within six

months of enactment of the 1996 Act the Commission shall adopt a

geographic rate averaging rule ``to require that the rates charged by

providers of interexchange telecommunications services to subscribers

in rural and high cost areas shall be no higher than the rates charged

by each such provider to its subscribers

[[Page 42560]]

in urban areas'' and a rate integration rule to require ``that a

provider of interstate interexchange services shall provide such

services to its subscribers in each State at rates no higher than the

rates charged to its subscribers in any other State.'' In our March 25,

1996, NPRM, we proposed rules to implement Section 254(g). In our

Report and Order we establish those rules.

I. Rate Averaging

A. General Rule

2. Although we have consistently endorsed a policy of geographic

rate averaging, we have not formally issued a rule requiring carriers

to geographically average rates. We adopt the rate averaging rule we

proposed in the NPRM that ``the rates charged by all providers of

interexchange telecommunications services to subscribers in rural and

high cost areas shall be no higher than the rates charged by each such

provider to its subscribers in urban areas.'' As required under the

1934 Act, as amended, our rule will apply to all providers of

interexchange telecommunications services and to all interexchange

``telecommunications services,'' as defined in the 1934 Act. This

definition does not create any exception for nonresidential services.

B. Contract Tariffs, Tariff 12 Offerings, Optional Calling Plans,

Discounts, Promotions, and Private Line Services

3. Section 254(g) and our geographic rate averaging rule will

require carriers to charge subscribers in rural and high-cost areas

rates for telecommunications services that are no higher than rates

offered to urban subscribers. The Commission's current policy as

reflected in AT&T tariffs, however, has permitted AT&T to offer

contract tariffs, Tariff 12 offerings, optional calling plans, and

temporary promotions, subject to some limitations. Contract tariffs and

Tariff 12 offerings generally involve discounts from basic rate

schedules. Optional calling plans offer customers discounts from basic

rate schedules, subject to terms and conditions specified in the

optional calling plan. Temporary promotions involve discounts from

basic rate schedules as well as limited sign-up periods for the

promotional discount rates. As noted, we have also permitted AT&T to

offer private line services at geographically deaveraged rates. AT&T

rates for private line services vary from LATA (Local Access and

Transport Area) to LATA, continuing pricing practices that AT&T has

historically used in setting rates for private line services.

4. The legislative history of Section 254(g) states that Congress

intended that section to ``incorporate'' our existing policy concerning

geographic rate averaging, and ``that the Commission, where

appropriate, could continue to authorize limited exceptions to the

general geographic rate averaging policy using the [forbearance]

authority provided by new section 10 of the Communications Act.''

Therefore, we will conduct a forbearance analysis to determine whether

we should permit IXCs to depart from geographic rate averaging where we

have permitted them to do so under current policy.

5. We do not believe that our current policy of allowing carriers

to offer contract tariffs and Tariff 12 options conflicts with

geographic averaging because we require that these offerings be

available to similarly situated customers throughout the carrier's

service area. The legislative history to Section 254(g), however,

indicates that the conferees viewed contract tariffs and Tariff 12

offerings, at least to some extent, as permissible exceptions to

geographic rate averaging that could be authorized through forbearance.

Accordingly, our forbearance analysis will encompass contract tariffs

and Tariff 12 offerings to ensure that our requirements implementing

Section 254(g) are consistent with congressional intent.

6. Section 10 requires the Commission to forbear from applying any

provision of the Act if we find that (1) enforcement of such provision

unnecessary to ensure that practices in connection with the relevant

telecommunications service are just and reasonable and are not unjustly

or unreasonably discriminatory; (2) enforcement of such provision is

unnecessary to protect consumers; and (3) forbearance from applying

such provision is consistent with the public interest. In addition, the

Commission, in making its public interest determination, must

``consider whether forbearance from enforcing the provision * * * will

promote competitive market conditions, including the extent to which

such forbearance will enhance competition among providers of

telecommunications services.''

7. We do not believe that permitting carriers to depart from

geographic rate averaging to the extent necessary to offer contract

tariffs, Tariff 12 offerings, optional calling plans, temporary

promotions, and private line services in accordance with our current

policy will subject rural and high-cost area customers to unjust or

unreasonable, or unjustly or unreasonably discriminatory, rates

because: (1) We will continue to require carriers to make these

services generally available under our current rules (e.g., contract

tariffs and Tariff 12 offerings must be available to similarly situated

customers) regardless of their geographic location, and (2) the only

``geographically-specific'' discounts that carriers may offer are

temporary promotions. Thus, except for temporary promotions and private

line services, interexchange telecommunications service offerings will

be available on the same terms throughout a carrier's service area. In

addition, we do not believe based on the record that allowing

geographically deaveraged private line rates will produce unjust or

unreasonable or unjustly or unreasonably discriminatory rates, as it is

our current practice and has not raised such concerns. Thus, we find

that enforcement of the geographic rate-averaging requirement for

contract tariffs, Tariff 12 offerings, optional calling plans,

temporary promotions, and private line services is not necessary to

ensure that charges, practices, and classifications are just and

reasonable and not unjustly and unreasonably discriminatory.

8. Enforcement of the geographic rate-averaging requirement for

these services is also not necessary to protect consumers because these

service offerings are generally beneficial to consumers. For example,

promotions, optional calling plans, and discounts facilitate

introduction of new and beneficial services to consumers. Indeed, we

are particularly concerned that carriers will cease to offer such

service offerings, to the clear detriment of all consumers, unless

carriers are permitted to offer them for a limited time on a narrower

scale than throughout their entire service areas. We believe that the

limited scope and nature of promotions offered on a geographically

specific basis will protect consumers and that, to the extent that

these service offerings promote new services, consumers will benefit,

including rural customers. We also believe that it is not necessary to

apply geographic averaging to private line services, contract tariffs,

and Tariff 12 offerings to protect residential consumers because these

services are normally provided to businesses. Business consumers

benefit from these services because in many cases the services are

provided at discounted rates. Thus, we conclude that enforcement of the

geographic rate-averaging requirement for contract tariffs, Tariff 12

options, optional calling plans, temporary promotions, and

[[Page 42561]]

private line services is not necessary to protect consumers.

9. Finally, we believe that forbearance from applying the

geographic rate averaging requirement to the extent permitted under our

rules is consistent with the public interest. We come to this

conclusion because we believe that allowing deaveraged rates, such as

for temporary promotions, will ultimately benefit consumers by

encouraging widespread offerings of new services. Moreover, it has been

our practice to allow these exceptions to our existing policy, and we

have no reason to believe this current practice is contrary to the

public interest. In addition, excepting these specific types of service

offerings from the geographic rate averaging requirement will continue

to stimulate competition for customers among interexchange carriers.

Limited departures from geographic rate averaging, such as for private

line services and temporary promotions available only in some areas,

are often designed to spur, or respond to, competition. For example,

interexchange carriers often offer promotional discounts as a response

to competition within the interexchange market. For these reasons, we

conclude that limited forbearance from applying the geographic rate

averaging requirement to contract tariffs, Tariff 12 offerings,

temporary promotions, and private line services is consistent with the

public interest.

10. Accordingly, we forbear from applying Section 254(g),

consistent with the intent of Congress, to the extent necessary to

permit carriers to depart from geographic rate averaging to offer

contract tariffs, Tariff 12 offerings, optional calling plans,

temporary promotions, and private line services in accordance with our

policy as previously applied to AT&T. As with current policy, we will

require carriers to offer the same basic service package to all

customers in their service areas, and permit carriers to offer contract

tariffs, Tariff 12 offerings, and optional calling plans provided they

are available to all similarly situated customers, regardless of their

geographic location. We will permit carriers to offer promotions that

may be ``geographically limited,'' provided that the promotions are

temporary, as discussed further below.

11. These requirements are fully consistent with the Commission's

past practices. Contrary to the claims of some IXCs, we have not in the

past exempted from our geographic rate averaging policy entire groups

of services, such as contract tariffs, negotiated arrangements, or

optional calling plans, where carriers offer discounted rates on a

permanent or long-term basis. The record is clear, in fact, that we

have required optional calling plans to be generally available

throughout a carrier's service area and prohibited geographic

restrictions in contract tariffs because a service package that is

available to only one customer ``unreasonably discriminates among

similarly situated customers,'' and is therefore unlawful. The only

type of geographic restriction in a contract tariff that we have

permitted is one that is necessary because of technical limitations

imposed by a LEC's switching equipment or billing capabilities, or

where the underlying basic service is limited.

12. As stated, we believe that temporary promotions benefit

consumers because they facilitate the introduction of new services. We

have permitted temporary promotions in the past for these reasons, and

believe that Congress intended us to continue to do so. We conclude,

however, that ``temporary'' promotions should, in fact, be temporary

and not the basis for repeated offerings by carriers. Before AT&T was

found nondominant for purposes of interexchange service, we proposed to

keep promotional rates outside of price caps as long as they were

offered for no longer than 90 days. Further, we find that a 90-day

period in which customers may receive discounted rates as part of a

promotion is sufficient time for a targeted promotional offering to

attract interest in new or revised services, but not so long as to

undermine our geographic rate averaging requirement. Accordingly, even

though AT&T has tariffed longer promotions in the past, we believe this

length of time for temporary promotions not available throughout a

carrier's service area best implements the statutory mandate for

geographic averaging. Further, rather than specifying a range of

permissible combinations of sign-up and discount periods, we believe

that specifying a single time period for promotional discounts will

facilitate administration of Section 254(g) and our implementing rules.

13. We will therefore permit carriers, as part of temporary

promotions not available throughout a carrier's service area, to offer

discounted promotional rates for no more than 90 days. We will not at

this time establish limits on the duration of sign-up periods for

promotions, but we expect them to be relatively brief. We can review at

a later time specific carriers' practices in this regard if necessary.

We also expect that carriers' temporary promotions will not, when

viewed over a number of years, reflect a pattern of undue

discrimination against rural or high-cost areas. Thus, we expect that,

viewed over time, temporary promotions will be offered in rural and

high-cost areas, as well as to urban customers. We find it unnecessary

to adopt advertising requirements concerning discounts and promotions.

We believe that consumers will be protected as long as long-term

discounts and promotions are available to all similarly situated

customers throughout a carrier's service area.

C. Forbearance in Competitive Conditions

14. We are not persuaded that we should establish an exception to

our general rate averaging rule based on the existence of competing

regional carriers that may be able to offer lower rates for

interexchange services because of lower access charges or other costs.

To establish such an exception we would need to forbear under Section

10 of the 1934 Act. As noted previously, we must forbear from applying

any provision of the 1934 Act, as amended, when (1) enforcement of that

provision is unnecessary to ensure that the relevant charges and

practices are just and reasonable and not unjustly or unreasonably

discriminatory; (2) enforcement of that provision is unnecessary to

protect consumers; and (3) forbearance from applying the provision is

consistent with the public interest.

15. Commenters have failed to justify this exception under Section

10 because they have based their claims entirely on generalized

assertions of the alleged need for a competitive exception to

geographic averaging requirements. With respect to the first prong of

the forbearance test, we believe that establishing a broad exception to

Section 254(g) for low-cost regions entails a substantial risk that

many subscribers in rural and high cost areas may be charged more than

subscribers in other areas. Accordingly, we cannot conclude that

enforcing our rate averaging requirements is unnecessary to ensure just

and reasonable and nondiscriminatory charges for subscribers. We also

see no basis in the record to conclude that it is unnecessary to

enforce Section 254(g) to ensure protection of consumers. We are

concerned that widespread deaveraged rates for interexchange services

could produce unreasonably high rates for some subscribers. Further,

commenters have not made a persuasive case that our geographic rate

averaging requirement may compel them to abandon service in some areas.

Finally,

[[Page 42562]]

we believe that, as part of our initial implementation of Section

254(g), it is not in the public interest to create the broad exception

urged by commenters. Accordingly, we conclude that commenters have not

justified forbearance to create a competitive exception to geographic

rate averaging. We also will not forbear from enforcing our rate

averaging policy against nondominant carriers. We note that Congress

knew at the time the 1996 Act was passed that all IXCs were nondominant

and we find that Congress would not have required us to adopt rules to

implement geographic rate averaging if it had intended us to abandon

this policy with respect to all IXCs so soon after enactment.

16. We are also not persuaded that we should forbear for smaller

carriers serving high-cost areas on the grounds that they might have

difficulty competing against nationwide carriers. These carriers have

provided only conclusory allegations of harm and have not shown that

they will be unable to compete with larger carriers in a rate-averaged

environment, much less that they have satisfied all three of the

requirements set forth in Section 10 for exercise of our forbearance

authority. Thus, these carriers, like the nationwide carriers, have

failed to justify forbearance on this record.

17. We also reject AT&T's suggestion that we delay implementing

Section 254(g) until access charges are lower and more cost based. We

believe that Congress was fully aware of geographic differences in

access charges when it adopted Section 254(g), and intended us to

require geographic rate averaging even under these conditions.

Moreover, nothing in the text or legislative history of Section 254(g)

suggests that the Congress intended to delay implementation of the

geographic rate averaging requirement.

II. State Authority

18. We conclude that Congress intended the states to play an active

role in enforcing Section 254(g) with respect to intrastate geographic

rate averaging. The Senate Report states that ``States shall continue

to be responsible for enforcing [intrastate geographic rate averaging],

so long as the State rules are not inconsistent with'' the regulations

the Commission adopts. We believe that intrastate rate structures that

are based on reasonable mileage bands will meet this requirement

because that is the method traditionally used by carriers to offer

geographically averaged rates. We will not, however, permit states to

establish special rate zones within states absent forbearance by the

Commission because we believe that would result in geographically

deaveraged rates in violation of Section 254(g). Section 254(g)

requires that rates be no higher in any rural or high-cost area than

they are in any urban area. To the extent that AT&T proposes to

associate some, but not all, rural areas with certain urban areas, we

presume that some rural areas will experience higher rates than some

urban areas, in violation of the statute.

III. Rate Integration

A. General Rule

19. Section 254(g) also requires the Commission to promulgate a

rate integration rule requiring that ``a provider of interstate

interexchange services shall provide such services to its subscribers

in each State at rates no higher than the rates charged to its

subscribers in any other State.'' The Commission has a well-established

policy of rate integration. Since 1972, the Commission has required any

carrier that provides domestic interstate interexchange service between

the contiguous forty-eight states and various offshore points to

integrate its rates pursuant to a plan to integrate the carrier's rates

and services for offshore points with its rates for similar services on

the mainland. In 1976, the Commission required carriers that offered

message toll, private line, and specialized services to or from Alaska,

Hawaii, Puerto Rico, and the Virgin Islands to integrate their rates

for those services into the rate structures and uniform mileage rate

patterns applicable to the mainland. This policy required IXCs to lower

their rates in the newly integrated areas to levels comparable to those

prevailing in the mainland for interexchange calls of similar distance,

duration, and time of day. To implement the statutory requirements of

Section 254(g), we will adopt the rate integration rule we proposed in

the NPRM that ``a provider of interstate interexchange

telecommunications services shall provide such services to its

subscribers in each State at rates no higher than the rates charged to

its subscribers in any other State.'' As with geographic rate

averaging, this rule will incorporate our existing policies. This rule

will apply to all domestic interstate interexchange telecommunications

services as defined in the 1996 Act, and all providers of such

services. As with our geographic rate averaging policy, carriers may

comply with this rule by establishing reasonable mileage bands for

calls.

20. We are not persuaded that we must forbear from requiring

carriers to comply with rate integration, either generally or in

competitive conditions, for the same reasons discussed with respect to

geographic rate averaging. Our rate integration policy has integrated

offshore points into the domestic interstate interexchange rate

structure so that the benefits of growing competition for interstate

interexchange telecommunications services, as well as regulatory and

other developments concerning interstate services, are available

throughout our nation. Furthermore, absent forbearance, the statute

requires us to incorporate our 1976 Integration of Rates and Services

Order requiring geographic rate integration.

21. We are also not persuaded that we should forbear from applying

rate integration to smaller carriers serving high-cost areas on the

grounds that they might have difficulty competing against nationwide

carriers. These carriers have provided only conclusory allegations of

harm and have not shown that they will be unable to compete with larger

carriers in a rate-integrated environment, much less that they have

satisfied all three of the requirements for exercise of our forbearance

authority. Thus, these carriers have failed to make a showing on this

record justifying forbearance.

22. We believe that AMSC, despite its arguments to the contrary, is

required by the plain terms of the 1996 Act to integrate the rates

charged for its offshore service into the rate structure for its

mainland rates. Further, as with rate averaging, we interpret Section

254(g) to extend to all providers of interexchange service the rate

integration policy that previously was applied only to AT&T. AMSC's

services would appear to fall within the definition of interstate

interexchange telecommunications services subject to Section 254(g). A

Bureau decision referred to by AMSC permitted an AMSC tariff to take

effect without any finding of lawfulness; it did not establish any

policy of excluding AMSC services from rate integration. Accordingly,

we reject AMSC's arguments on this issue.

B. U.S. Territories and Possessions

23. In the NPRM, we noted that ``State'' is defined in the

Communications Act to include U.S. territories and possessions. Thus,

in making the Section 254(g) rate integration provision applicable to

interstate interexchange services provided between ``states,'' as

defined in the Communications Act, 47 U.S.C. 153(40), Congress made

rate integration applicable to interexchange services provided to all

U.S. possessions and

[[Page 42563]]

territories, including Guam, the Northern Marianas, and American Samoa.

Further, rate integration applies to all interstate interexchange

telecommunications services as defined in the Communications Act, 47

U.S.C. 153(22), 153(46). Accordingly, under our rate integration rule

implementing 254(g), providers of interexchange service to these points

must do so on an integrated basis with services they provide to other

states.

24. We believe that the resolutions the Guam/Northern Marianas

Working Group adopted July 9, 1996, regarding rate integration for Guam

and the Northern Marianas provide a reasonable framework to guide

carriers towards implementing rate integration. Thus, a carrier should

establish rates for services provided to Guam and the Northern Marianas

consistent with the rate methodology it employs for services it

provides to other states. Similarly, to the extent that a provider of

interexchange service offers optional calling plans, contract tariffs,

discounts, promotions, and private line services to its subscribers on

the mainland, it should use the same ratemaking methodology and rate

structure when offering those services to its subscribers in Guam or

the Northern Marianas.

25. We also agree with the Working Group that cost support and

universal service issues should be addressed in the first instance by

the Universal Service Joint Board. Guam has specifically raised these

issues in CC Docket No. 96-45. Accordingly, we will address those

issues in the context of any Joint Board recommendation. For purposes

of our decision, however, we do not view establishment of cost-support

mechanisms as a precondition of rate integration. Nor have they been

justified on the present record. Thus, we reject requests that we

establish, or further consider, any cost-support mechanisms in this

docket.

26. The Working Group resolutions urge that rate integration for

services provided to Guam and the Northern Marianas should take place

concurrently with, or shortly after, the inclusion of Guam and the

Northern Marianas into the North American Numbering Plan, the

implementation of Feature Group D service, and the Guam Telephone

Authority's (GTA's) revision to its access charge structure. All three

events are expected to occur by July 1, 1997. We do not view these

developments as preconditions for rate integration of services provided

to these points. Rather, the statute requires rate integration

regardless of whether these developments occur. However, we believe

that these developments will facilitate rate integration. Inclusion of

Guam and the Northern Marianas in the North American Numbering Plan

(NANP) will help carriers integrate them into their nationwide service

plans. Implementation of Feature Group D will provide subscribers with

high-quality equal access to providers of interexchange service serving

Guam. Revision of access charges by GTA will help providers of

interexchange service set final rate schedules for service to and from

Guam. Accordingly, we require providers of interexchange service to

integrate services offered to subscribers in Guam and the Northern

Marianas with services offered in other states no later than August 1,

1997.

27. We additionally require that carriers submit preliminary plans

to achieve rate integration no later than February 1, 1997, and final

plans no later than June 1, 1997. These plans will permit the

Commission to review progress toward achieving rate integration, as

required by the 1996 Act. The preliminary plans need not include rates,

but at a minimum should resolve service and rate-band issues. Final

plans shall include a rate schedule. Carriers may integrate these

points by expanding mileage bands, adding mileage bands, offering

postalized rates, or other means that achieve rate integration. We also

require that any rate changes between the adoption date of this Report

and Order and August 1, 1997, must be consistent with achieving rate

integration by August 1, 1997. We also believe that it would facilitate

resolution of any further regulatory issues concerning rate integration

for these points if the Common Carrier Bureau addresses them in the

first instance. Accordingly, we will delegate to the Chief, Common

Carrier Bureau, authority to resolve any issues concerning carriers'

plans for rate integration for these offshore points.

28. We reject GTE's view that Section 254(g) does not require its

Micronesian Telecommunications Corp. subsidiary to integrate rates with

other GTE affiliates. The statute mandates that the Commission require

rate integration among all states, territories, and possessions, and

this goal is best achieved by interpreting ``provider'' to include

parent companies that, through affiliates, provide service in more than

one state. Moreover, nothing in the record supports a finding that

Congress intended to allow providers of interexchange service to avoid

rate integration by establishing or using their existing subsidiaries

to provide service in limited areas. Thus, we determine that GTE, for

the purposes of Section 254(g), constitutes a ``provider'' of

interexchange services within the meaning of that section, and that it

must integrate rates across affiliates. Accordingly, we require GTE to

comply with the same timetable and requirements as the other carriers

serving the Northern Marianas and Guam.

29. We reject the contentions of PCI and IT&E that they are not

subject to the rate-integration obligation. As noted, Section 254

applies to all providers of interexchange service. Therefore, PCI &

IT&E must provide Guam and the Northern Marianas service on a rate-

integrated basis. Based on the present record, however, there is

insufficient evidence to evaluate whether PCI's and IT&E's rates for

service originating in Guam and the Northern Marianas comply with

Section 254(g). Consequently, we will also require PCI and IT&E to

abide by the same timetable and requirements as the other carriers

serving the Northern Marianas and Guam. They may demonstrate with more

particularity that their current rates comply with rate integration

when they submit their plans.

30. Although carriers serving American Samoa are required to

provide service on a rate-integrated basis, American Samoa has stated

that it believes that rates for services provided to American Samoa are

already rate integrated. Nevertheless, we will also direct providers of

interexchange service serving American Samoa to submit plans for

American Samoa in order to ensure that they will comply with the

statute. To the extent services are provided to other U.S. possessions

and territories by carriers subject to Section 254(g), the record does

not reflect what carriers serve some of these points, such as Wake

Island and Midway Island, or whether service is provided in special

ways, such as in cooperation with military authorities, that might

affect provision of service on a rate-integrated basis to these points.

Accordingly, we are directing the Common Carrier Bureau to investigate

service arrangements for these points and to take such steps as are

necessary to assure compliance with Section 254(g) by August 1, 1997.

31. We also believe that AT&T's concerns about termination of

foreign traffic in Guam, the Northern Marianas, and American Samoa do

not justify delaying rate integration. Our decision to extend rate

integration to Guam is intended to benefit U.S. consumers. We do not by

this decision, however, affect the classification or treatment of the

underlying costs of facilities between these offshore points and other

U.S.

[[Page 42564]]

points for purposes of interconnection arrangements with foreign

carriers.

32. Our requirement that carriers implement rate integration by

August 1, 1997, complies with Section 254(g). That section requires us

to adopt rules requiring rate integration for Guam, the Northern

Marianas and American Samoa by August 8, 1996. We do not read this

provision as mandating rate integration for all points by that date.

Instead, we interpret the statute to permit a reasonable transition

period for the offshore points to which our rate integration policy is

being applied for the first time.

IV. AT&T's Commitments

33. The rules we adopt in this proceeding will require AT&T to

provide interexchange service at geographically averaged and integrated

rates. We believe these requirements incorporate the Commission's

existing rate averaging and rate integration policies and, thus, should

supersede the commitments AT&T made in the AT&T Reclassification

proceeding concerning rate averaging and rate integration. Accordingly,

we release AT&T from its commitments to continue to comply with the

Commission's orders regarding rate integration and to file any tariff

containing a geographically deaveraged rate on five business days'

notice. We do not release AT&T from its more specific commitments

concerning Hawaii and Alaska. AT&T is still affirmatively bound by the

rules we establish in this Report and Order, and by our prior opinions,

rules, and orders on geographic rate averaging and rate integration,

which the rules incorporate.

Ordering Clauses

Accordingly, it is ordered That pursuant to authority contained in

sections 1, 4(i), 10, 201-205, 214(e), 215 and 254(g) of the

Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 160,

201-205, 214(e) and 254(g), Part 64 of the Commission's rules are

amended as set forth below.

It is further ordered That the policies, rules and requirements set

forth herein are adopted.

It is further ordered That the policies, rules and requirements

adopted herein shall be effective September 16, 1996.

It is further ordered That with respect to interexchange services

provided between any U.S. state, territory or, possession and Guam, the

Northern Marianas, or American Samoa, AT&T, GTE, MCI, Sprint, PCI, and

IT&E shall: (1) Submit to the Commission no later than February 1,

1997, preliminary plans to achieve rate integration by August 1, 1997,

with respect to those points; and (2) submit to the Commission no later

than June 1, 1997, final plans to achieve rate integration by August 1,

1997, with respect to those points.

It is further ordered That AT&T is released from the commitments it

made in the AT&T Reclassification proceeding concerning rate averaging

and rate integration, as described herein.

It is further ordered That the Chief, Common Carrier Bureau, is

delegated authority to resolve any regulatory issues concerning

implementation of rate integration for offshore points consistent with

this Report and Order. The Common Carrier Bureau is directed to

investigate service arrangements for offshore points and to take such

steps as are necessary to ensure compliance with Section 254(g), by

August 1, 1997, for such offshore points.

List of Subjects in 47 CFR Part 64

Communications common carriers, Telephone.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 64 of Title 47 of the Code of Federal Regulations is amended

as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

1. The authority citation for Part 64 continues to read as follows:

Authority: Sec. 4, 48 Stat. 1066, as amended; 47 U.S.C. 154,

unless otherwise noted. Interpret or apply secs. 201, 218, 226, 228,

48 Stat. 1070, as amended, 1077; 47 U.S.C. 201, 218, 226, 228,

unless otherwise noted.

2. Subpart R is added to Part 64 to read as follows:

Subpart R--Geographic Rate Averaging and Rate Integration

Sec. 64.1801 Geographic rate averaging and rate integration.

Authority: 47 U.S.C. Secs. 151, 154(i), 201-205, 214(e), 215 and

254(g).

Subpart R--Geographic Rate Averaging and Rate Integration

Sec. 64.1801 Geographic rate averaging and rate integration.

(a) The rates charged by providers of interexchange

telecommunications services to subscribers in rural and high-cost areas

shall be no higher than the rates charged by each such provider to its

subscribers in urban areas.

(b) A provider of interstate interexchange telecommunications

services shall provide such services to its subscribers in each U.S.

state at rates no higher than the rates charged to its subscribers in

any other state.

[FR Doc. 96-20859 Filed 8-15-96; 8:45 am]

BILLING CODE 6712-01-P