Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996
Federal RegisterDec 12, 1996
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 64, 68 and 69
[CC Docket 96-128; FCC No. 96-439]
Pay Telephone Reclassification and Compensation Provisions of the
Telecommunications Act of 1996
AGENCY: Federal Communications Commission.
ACTION: Final rule: order on reconsideration.
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SUMMARY: On September 20, 1996, Federal Communications Commission
(``Commission'') adopted a Report and Order in CC Docket No. 96-128,
FCC 96-388 (61 FR 52307, October 7, 1996) implementing section 276 of
the Communications Act of 1934, as amended by the Telecommunications
Act of 1996 (``1996 Act''). In its Order on Reconsideration in this
proceeding, the Commission affirms the essential features of the
policies established in the Report and Order. Additionally, the
Commission modifies: The requirements for LEC tariffing of payphone
services and unbundled network functionalities; and the requirements
for LECs to remove unregulated payphone costs from the carrier common
line charge and to reflect the application of multiline subscriber line
charges to payphone lines. The Commission also clarifies various issues
addressed in the Report and Order. The Order on Reconsideration is
issued to implement the provisions of section 276 of the 1996 Act.
EFFECTIVE DATES: January 13, 1997.
FOR FURTHER INFORMATION CONTACT: Michael Carowitz, 202-418-0960,
Enforcement Division, Common Carrier Bureau.
SUPPLEMENTARY INFORMATION: On June 4, 1996, the Commission adopted a
Notice of Proposed Rulemaking (``NPRM'') [61 FR 33074, June 4, 1996] to
implement section 276 of the Telecommunications Act of 1996. On
September 20, 1996, the Commission adopted and released a Report and
Order in CC Docket No. 96-128, FCC 96-388 [61 FR 52307, October 7,
1996]. The Commission subsequently released an Errata, making certain
technical corrections to the Report and Order [61 FR 54344; October 18,
1996]. The Commission received 28 Motions requesting reconsideration
and/or clarification of the Report and Order. This is a summary of the
Commission's Order on Reconsideration in CC Docket No. 96-128, adopted
and released on November 8, 1996. The full text of the Order on
Reconsideration is available for inspection and copying during normal
business hours in the FCC Reference Center, Room 239, 1919 M Street,
N.W., Washington, D.C. The complete text of the Order on
Reconsideration may also be purchased from the Commission's duplicating
contractor, international Transcription Services, 2100 M Street, N.W.,
Suite 140, Washington, D.C. 20037, (202) 857-3800.
Paperwork Reduction Act
The Order on Reconsideration contains new or modified information
collections. It has been submitted to the Office of Management and
Budget (OMB) for review under the Paperwork Reduction Act of 1995
(PRA). The Commission has updated its September 1996 paperwork
submission made for the collections contained in the Report and Order
in this proceeding to OMB to reflect the new and/or modified
collections in the Order on Reconsideration. OMB is asked to approve
the following changes in addition to any requirements in the original
submission under the rules promulgated in the Report and Order, LECs
had to file tariffs with both the Commission and the state. Under the
Order on Reconsideration, LECs only have to file these tariffs with the
state, except for tariffs for unbundled features, which must be filed
with both the Commission and the state. The Report and Order specified
a certain method for calculating CCL charges. The Order on
Reconsideration modifies that method. The Order on Reconsideration also
requires that LECs supply to carrier-payors, on demand, a list of
emergency numbers.
The Commission, as part of its continuing effort to reduce
paperwork burdens, invites the general public and the Office of
Management and Budget (OMB) to comment on the following information
collections contained in the Order on Reconsideration as required by
the Paperwork Reduction Act of 1995, Public Law No. 104-13. Written
comments by the public on the proposed and/or modified information
collections are due 20 days after date of publication in the Federal
Register. OMB notification of action is due on December 19, 1996.
Comments should address: (a) Whether the proposed or modified
information collection is necessary for the proper performance of the
functions of the Commission, including whether the information shall
have practical utility; (b) the accuracy of the Commission's burden
estimates; (c) ways to enhance the quality, utility, and clarity of the
information collected; and (d) ways to minimize the burden of the
collection of information on the respondents, including the use of
automated collection techniques or other forms of information
technology.
OMB Control Number: None.
Title: Implementation of the Payphone Reclassification and
Compensation Provisions of the Telecommunications Act of 1996, CC
Docket No. 96-128.
Form No.: N/A.
Type of Review: Revised collections.
Respondents: State, local or tribal government; business or other
for-profit, including small businesses.
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Est. Total
No. of time per annual
Section/title respondents response burden
(hours) (hours)
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a. LEC Tariff Filings................... 400 100 40,000
b. Reclassification of LEC-Owned
Payphones.............................. 400 100 40,000
c. LEC Provision of List of Emergency
Numbers................................ 400 1 400
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Total Annual Burden: 80,400 hours. No change is anticipated for the
burden estimates reported in our September 1996 filing for the LEC
Tariff Flings and Reclassification of LEC-Owned Payphone collections.
Estimated Costs per Respondent: $0.
Needs and Uses: The rules adopted in CC Docket 96-128: (1)
Establish a plan to ensure fair competition for each and every
completed intrastate and interstate call using a payphone; (2)
discontinue intrastate and interstate carrier access charge payphone
service elements and payments and intrastate and interstate payphone
subsidies from basic exchange services; (3) prescribe nonstructural
safeguards for Bell Operating Company payphones; (4) permit the BOCs to
negotiate with the payphone location provider about a payphone's
presubscribed interLATA carrier; (5) permit all payphone providers to
negotiate with the location provider abut a payphone's presubscribed
intraLATA carrier; and (6) adopt guidelines for use by the states in
establishing public interest payphones to be located where there would
otherwise not be a payphone. The new and modified collections in this
Order on Reconsideration are necessary to implement the provisions of
section 276 of the Telecommunications Act of 1996.
Final Regulatory Flexibility Analysis
As required by section 603 of the Regulatory Flexibility Act (RFA),
5 U.S.C. 603, an Initial Regulatory
[[Page 65342]]
Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed
Rulemaking (NPRM) in the Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the Telecommunications
Act of 1996 (CC Docket No. 96-128) [61 FR 33074]. The Commission sought
written public comment on the proposals in the NPRM including on the
IRFA. The Commission's Final Regulatory Flexibility Analysis (FRFA) in
the Report and Order conforms to the RFA, as amended by the Contract
With America Advancement Act of 1996 (CWAAA), Public Law 104-121, 110
Stat. 847 (1996).\1\ The discussion below constitutes the FRFA for both
the Report and Order and the Order on Reconsideration in this
proceeding.
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\1\ Subtitle II of the CWAAA is ``The Small Business Regulatory
Enforcement Fairness Act of 1996'' (``SBREFA''), codified at 5
U.S.C. 601 et seq.
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Report and Order
A. Need for and Objectives of the Report and Order and the Rules
Adopted
The Commission, in compliance with section 276 of the
Communications Act of 1934, as amended by the Telecommunications Act of
1996 (the 1996 Act), promulgates the rules in the Report and Order to
promptly implement section 276 of the 1996 Act, which directs the
Commission, among other things, to adopt rules that: (1) Establish a
plan to ensure fair compensation for ``each and every completed
intrastate and interstate call using [a] payphone[;]'' (2) discontinue
intrastate and interstate carrier access charge payphone service
elements and payments and intrastate and interstate payphone subsidies
from basic exchange services; (3) prescribe nonstructural safeguards
for Bell Operating Company (BOC) payphones; (4) permit the BOCs to
negotiate with the payphone location providers to negotiate with the
location provider about a payphone's presubscribed intraLATA carrier;
(5) permit all payphone providers to negotiate with the location
provider about a payphone's presubscribed intraLATA carrier; and (6)
adopt guidelines for use by the states in establishing public interest
payphones to be located where there would otherwise not be a
payphone[.]''
The objective of the rules adopted in the Report and Order is ``to
promote competition among payphone service providers and promote the
widespread deployment of payphone services to the benefit of the
general public.''
B. Analysis of Significant Issues Raised in Response to the IRFA
Summary of the Initial Regulatory Flexibility Analysis (IRFA). In
the IRFA, the Commission found that the rules it proposed to adopt in
this proceeding may have a significant impact on a substantial number
of small business as defined by section 601(3) of the RFA. The IRFA
solicited comment on alternatives to the proposed rules that would
minimize the impact on small entities consistent with the objectives of
this proceeding. The Commission received one comment on the potential
impact on small business entities, which the Commission considered in
promulgating the rules in the Report and Order. Frontier commented
generally that the compensation scheme advanced in the NPRM was
``unnecessarily onerous and inefficient'' and ``in conflict with the
goals of the * * * Regulatory Flexibility Act.'' Frontier did not
comment specifically on what aspect of the compensation scheme would
have economic impact on small business entities. The Commission
disagrees with Frontier's general assertion that the compensation
scheme is in conflict with the Regulatory Flexibility Act. The
Commission's rules are designed to facilitate the development of
competition, which benefits many small business entities. The rules
will ensure that payphone services providers (PSPs), many of whom may
be small business entities, receive fair compensation. The Commission's
rules provide significant flexibility to permit the affected parties,
including small business entities, to structure procedures that would
minimize their burdens. For example, the rules require IXCs and
intraLATA carriers, as primary economic beneficiary of payphone calls,
to track the calls it receives from payphones. The carrier has the
option of performing the function itself or contracting out these
functions to another party, such as a LEC or clearinghouse. The
Commission also provides a transition period. The Commission believes
that its rules are designed to effectively optimize the efficiency and
minimize the burdens of the compensation scheme on all parties,
including small entities.
C. Description and Estimates of the Number of Small Entities Affected
by the Report and Order
For the purposes of the Report and Order, the RFA defines a ``small
business'' to be the same as a ``small business concern'' under the
Small Business Act, 15 U.S.C. 632, unless the Commission has developed
one or more definitions that are appropriate to its activities. 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). SBA has defined a small business
for Standard Industrial Classification (SIC) category 4813 (Telephone
Communications, Except Radiotelephone) to be a small entity when it has
fewer than 1,500 employees.
The Commission has found incumbent LECs to be ``dominant in their
field of operation'' since the early 1980's, and consistently has
certified under the RFA that incumbent LECs are not subject to
regulatory flexibility analyses because they are not small businesses.
The Commission has made similar determinations in other areas. However,
in the Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996, Report and Order, several parties,
including the SBA, commented that the Commission should have included
small incumbent LECs in the IRFA pertaining to that order. The
Commission recognizes SBA's special role and expertise with regard to
the RFA, and intends to continue to consult with SBA outside the
context of this proceeding to ensure that the Commission is fully
implementing the RFA. Although it is not fully persuaded that its prior
practice has been incorrect, the Commission will, nevertheless, include
small incumbent LECs in this FRFA to remove any possible issue of RFA
compliance. Consistent with the Commission's prior practice, it shall
continue to exclude small incumbent LECs from the definition of a small
entity for the purpose of this FRFA. Nevertheless, as mentioned above,
it includes small incumbent LECs in the FRFA. Accordingly, use of the
terms ``small entities'' and ``small businesses'' does not encompass
``small incumbent LECs.'' The term ``small incumbent LECs'' refers to
any incumbent LECs that arguably might be defined by SBA as ``small
business concerns.''
Telephone Companies (SIC 4813)
Total Number of Telephone Companies Affected. Many of the decisions
and rules adopted in the Report and Order may have a significant effect
on a substantial number of the small telephone companies identified by
the SBA. The United States Bureau of the Census (the Census Bureau)
reports that, at the end of 1992, there
[[Page 65343]]
were 3,497 firms engaged in providing telephone services, as defined
therein, for at least one year. This number encompasses a broad
category which contains a variety of different subsets of carriers,
including local exchange carriers, interexchange carriers, competitive
access providers, cellular carriers, mobile service carriers, operator
service providers, pay telephone operators, PCS providers, covered SMR
providers, and resellers. It seems certain that some of those 3,497
telephone service firms may not qualify as small entities or small
incumbent LECs because they are not ``independently owned and
operated.'' For example, a PCS provider that is affiliated with an
interexchange carrier having more than 1,500 employees would not meet
the definition of a small business. It seems reasonable to conclude,
therefore, that fewer than 3,497 telephone service firms are small
entity telephone service firms or small incumbent LECs that may be
affected by the Report and Order. The Commission estimates below the
potential small entity telephone service firms or small incumbent LECs
that may be affected by the Report and Order by service category.
Wireline Carriers and Service Providers. The SBA's definition of
small entities for telephone communications companies, other than
radiotelephone (wireless) companies, is one employing fewer than 1,500
persons. The Census Bureau reports that, there were 2,321 such
telephone companies in operation for at least one year at the end of
1992. All but 26 of the 2,321 non-radiotelephone companies listed by
the Census Bureau were reported to have fewer than 1,000 employees.
Thus, even if all 26 of those companies had more than 1,500 employees,
there would still be 2,295 non-radiotelephone companies that might
qualify as small entities or small incumbent LECs. Although it seems
certain that some of these carriers are not independently owned and
operated, the Commission is unable at this time to estimate with
greater precision the number of wireline carriers and service providers
that would qualify as small business concerns under SBA's definition.
Consequently, it estimates that there are fewer than 2,295 small entity
telephone communications companies other than radiotelephone companies
that may be affected by the decisions and rules adopted in the Report
and Order.
Local Exchange Carriers. Neither the Commission nor SBA has
developed a definition of small providers of local exchange services
(LECs). The closest applicable definition under SBA rules is for
telephone communications companies other than radiotelephone (wireless)
companies (SIC 4813). The most reliable source of information regarding
the number of LECs nationwide appears to be the data the Commission
collects annually in connection with the Telecommunications Relay
Service (TRS). According to the most recent data, 1,347 companies
reported that they were engaged in the provision of local exchange
services. Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees,
the Commission is unable at this time to estimate with greater
precision the number of LECs that would qualify as small business
concerns under SBA's definition. Consequently, it estimates that there
are fewer than 1,347 small incumbent LECs that may be affected by the
decisions and rules adopted in the Report and Order.
Interexchange Carriers. Neither the Commission nor the SBA has
developed a definition of small entities specifically applicable to
providers of interexchange services (IXCs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies (SIC 4813). The most
reliable source of information regarding the number of IXCs nationwide
appears to be the data collected annually in connection with TRS.
According to the most recent data, 97 companies reported that they were
engaged in the provision of interexchange services. Although it seems
certain that some of these carriers are not independently owned and
operated, or have more than 1,500 employees, the Commission is unable
at this time to estimate with greater precision the number of IXCs that
would qualify as small business concerns under SBA's definition.
Consequently, it estimates that there are fewer than 97 small entity
IXCs that may be affected by the decisions and rules adopted in the
Report and Order.
Competitive Access Providers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of competitive access services (CAPs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies (SIC 4813). The most
reliable source of information regarding the number of CAPs nationwide
appears to be the data collected annually in connection with the TRS.
According to the most recent data, 30 companies reported that they were
engaged in the provision of competitive access services. Although it
seems certain that some of these carriers are not independently owned
and operated, or have more than 1,500 employees, the Commission is
unable at this time to estimate with greater precision the number of
CAPs that would qualify as small business concerns under SBA's
definition. Consequently, it estimates that there are fewer than 30
small entity CAPs that may be affected by the decisions and rules
adopted in the Report and Order.
Operator Service Providers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of operator services (OSPs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies (SIC 4813). The most
reliable source of information regarding the number of operator service
providers nationwide appears to be the data collected annually in
connection with the TRS. According to the most recent data, 29
companies reported that they were engaged in the provision of operator
services. Although it seems certain that some of these companies are
not independently owned and operated, or have more than 1,500
employees, the Commission is unable at this time to estimate with
greater precision the number of operator service providers that would
qualify as small business concerns under SBA's definition.
Consequently, it estimates that there are fewer than 29 small entity
operator service providers that may be affected by the decisions and
rules adopted in the Report and Order.
Pay Telephone Operators. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to pay
telephone operators. The closest applicable definition under SBA rules
is for telephone communications companies other than radiotelephone
(wireless) companies. The most reliable source of information regarding
the number of pay telephone operators nationwide appears to be the data
collected annually in connection with the TRS. According to the most
recent data, 197 companies reported that they were engaged in the
provision of pay telephone services. Although it seems certain that
some of these carriers are not independently owned and operated, or
have more than 1,500 employees, the Commission is unable at this time
to estimate with greater precision the number of pay telephone
operators that would qualify as small business concerns under SBA's
definition. Consequently, it estimates
[[Page 65344]]
that there are fewer than 197 small entity pay telephone operators that
may be affected by the decisions and rules adopted in the Report and
Order.
Resellers (including debit card providers). Neither the Commission
nor SBA has developed a definition of small entities specifically
applicable to resellers. The closest applicable definition under SBA
rules is for all telephone communications companies (SIC 4812 and
4813). The most reliable source of information regarding the number of
resellers nationwide appears to be the data collected annually in
connection with the TRS. According to the most recent data, 206
companies reported that they were engaged in the resale of telephone
services. Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees,
the Commission is unable at this time to estimate with greater
precision the number of resellers that would qualify as small business
concerns under SBA's definition. Consequently, it estimates that there
are fewer than 206 small entity resellers that may be affected by the
decisions and rules adopted in the Report and Order.
800-Subscribers. Neither the Commission nor SBA has developed a
definition of small entities specifically applicable to 800-
subscribers. The most reliable source of information regarding the
number of 800-subscribers appears to be the data collected on the
number of 800-numbers in use. According to the most recent data, at the
end of 1995, the number of 800-numbers in use was 6,987,063. Although
it seems certain that some of these subscribers are not independently
owned and operated businesses, or have more than 1,500 employees, the
Commission is unable at this time to estimate with greater precision
the number of 800-subscribers that would qualify as small business
concerns under SBA's definition. Consequently, it estimates that there
are fewer than 6,987,063 small entity 800-subscribers that may be
affected by the decisions and rules adopted in the Report and Order.
Location Providers. Neither the Commission nor SBA has developed a
definition of small entities specifically applicable to location
providers. A location provider is the entity that is responsible for
maintaining the premises upon which the payphone is physically located.
Due to the fact that location providers do not fall into any specific
category of business entity, it is impossible to estimate with any
accuracy the number of location providers. Using several sources,
however, the Commission derived a figure of 1,850,000 payphones in
existence. Although it seems certain that some of these payphones are
not located on property owned by location providers that are small
business entities, nor does the figure take into account the
possibility of multiple payphones at a single location, the Commission
is unable at this time to estimate with greater precision the number of
location providers that would qualify as small business concerns under
SBA's definition. Consequently, it estimates that there are fewer than
1,850,000 small entity location providers that may be affected by the
decisions and rules adopted in the Report and Order.
Wireless (Radiotelephone) Carriers (including paging services). The
SBA's definition of a small business radiotelephone company is one
employing fewer than 1,500 persons. The Census Bureau reports that
there were 1,176 such companies in operation for at least one year at
the end of 1992. The Census Bureau also reported that 1,164 of those
radiotelephone companies had fewer than 1,000 employees. Thus, even if
all of the remaining 12 companies had more than 1,500 employees, there
would still be 1,164 radiotelephone companies that might qualify as
small entities if they are independently owned and operated. Although
it seems certain that some of these carriers are not independently
owned and operated, the Commission is unable at this time to estimate
with greater precision the number of radiotelephone carriers and
service providers that would qualify as small business concerns under
SBA's definition. Consequently, it estimates that there are fewer than
1,164 small entity radiotelephone companies that may be affected by the
decisions and rules adopted in the Report and Order.
Cellular Service Carriers (including paging services). Neither the
Commission nor SBA has developed a definition of small entities
specifically applicable to providers of cellular services. The closest
applicable definition under SBA rules is for telephone communications
companies other than radiotelephone (wireless) companies (SIC 4813).
The most reliable source of information regarding the number of
cellular service carriers nationwide appears to be the data collected
annually in connection with the TRS. According to the most recent data,
789 companies reported that they were engaged in the provision of
cellular services. Although it seems certain that some of these
carriers are not independently owned and operated, or have more than
1,500 employees, the Commission is unable at this time to estimate with
greater precision the number of cellular service carriers that would
qualify as small business concerns under SBA's definition.
Consequently, it estimates that there are fewer than 789 small entity
cellular service carriers that may be affected by the decisions and
rules adopted in the Report and Order.
Mobile Service Carriers (including paging services). Neither the
Commission nor SBA has developed a definition of small entities
specifically applicable to mobile service carriers, such as paging
companies. The closest applicable definition under SBA rules is for
telephone communications companies other than radiotelephone (wireless)
companies. The most reliable source of information regarding the number
of mobile service carriers nationwide appears to be the data collected
annually in connection with the TRS. According to the most recent data,
117 companies reported that they were engaged in the provision of
mobile services. Although it seems certain that some of these carriers
are not independently owned and operated, or have more than 1,500
employees, the Commission is unable at this time to estimate with
greater precision the number of mobile service carriers that would
qualify under SBA's definition. Consequently, it estimates that there
are fewer than 117 small entity mobile service carriers that may be
affected by the decisions and rules adopted in the Report and Order.
Broadband PCS Licensees (including paging services). The broadband
PCS spectrum is divided into six frequency blocks designated A through
F. As set forth in 47 CFR 24.720(b), the Commission has defined ``small
entity'' in the auctions for Blocks C and F as a firm that had average
gross revenues of less than $40 million in the three previous calendar
years. Its definition of a ``small entity'' in the context of broadband
PCS auctions has been approved by SBA. The Commission has auctioned
broadband PCS licenses in Blocks A, B, and C. It does not have
sufficient data to determine how many small businesses bid successfully
for licenses in Blocks A and B. There were 90 winning bidders that
qualified as small entities in the Block C auctions. Based on this
information, the Commission concludes that the number of broadband PCS
licensees affected by the decisions in the Report and Order includes,
at a minimum, the 90 winning bidders that qualified as small entities
in the Block C broadband PCS auction.
[[Page 65345]]
At present, no licenses have been awarded for Blocks D, E, and F of
broadband PCS spectrum. Therefore, there are no small businesses
currently providing these services. However, a total of 1,479 licenses
were to be awarded in the D, E, and F Block broadband PCS auctions,
which was scheduled to begin on August 26, 1996. Of the 153 qualified
bidders for the D, E, and F Block PCS auctions, 105 were small
businesses. Eligibility for the 493 F Block licenses is limited to
entrepreneurs with average gross revenues of less than $125 million.
There were 114 eligible bidders for the F Block. The Commission cannot
estimate, however, the number of these licenses that will be won by
small entities under its definition, nor how many small entities will
win D or E Block licenses. Given that nearly all radiotelephone
companies have fewer than 1,000 employees and that no reliable estimate
of the number of prospective D, E, and F Block licensees can be made,
it assumes for purposes of this FRFA, that all of the licenses in the
D, E, and F Block Broadband PCS auctions may be awarded to small
entities under its rules, which may be affected by the decisions and
rules adopted in the Report and Order.
SMR Licensees (including paging services). Pursuant to 47 CFR
90.814(b)(1), the Commission has defined ``small entity'' in auctions
for geographic area 800 MHz and 900 MHz SMR licenses as a firm that had
average annual gross revenues of less than $15 million in the three
previous calendar years. This definition of a ``small entity'' in the
context of 800 MHz and 900 MHz SMR has been approved by the SBA. The
rules adopted in the Report and Order may apply to SMR providers in the
800 MHz and 900 MHz bands that either hold geographic area licenses or
have obtained extended implementation authorizations. The Commission
does not know how many firms provide 800 MHz or 900 MHz geographic area
SMR service pursuant to extended implementation authorizations, nor how
many of these providers have annual revenues of less than $15 million.
It assumes, for purposes of this IRFA, that all of the extended
implementation authorizations may be held by small entities, which may
be affected by the decisions and rules adopted in the Report and Order.
The Commission recently held auctions for geographic area licenses
in the 900 MHz SMR band. There were 60 winning bidders who qualified as
small entities in the 900 MHz auction. Based on this information, the
Commission concludes that the number of geographic area SMR licensees
affected by the rule adopted in the Report and Order includes these 60
small entities. No auctions have been held for 800 MHz geographic area
SMR licenses. Therefore, no small entities currently hold these
licenses. A total of 525 licenses will be awarded for the upper 200
channels in the 800 MHz geographic area SMR auction. However, the
Commission has not yet determined how many licenses will be awarded for
the lower 230 channels in the 800 MHz geographic area SMR auction.
There is no basis, moreover, on which to estimate how many small
entities will win these licenses. Given that nearly all radiotelephone
companies have fewer than 1,000 employees and that no reliable estimate
of the number of prospective 800 MHz licensees can be made, the
Commission assumes, for purposes of this FRFA, that all of the licenses
may be awarded to small entities who, thus, may be affected by the
decisions in the Report and Order.
D. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements, and Steps Taken by Agency To Minimize
Significant Economic Impact on Small Entities and Small Incumbent LECs,
Consistent With Stated Objectives
Structure of the Analysis. In this section of the FRFA, the
Commission analyzes the projected reporting, recordkeeping, and other
compliance requirements that may apply to small entities and small
incumbent LECs as a result of the Report and Order. As a part of this
discussion, it mentions some of the types of skills that will be needed
to meet the new requirements. It also describes the steps taken to
minimize the economic impact of decisions on small entities and small
incumbent LECs, including the significant alternatives considered and
rejected.
Fair Compensation for Each and Every Completed Intrastate and
Interstate Call Originated by Payphones
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements
Section 276(b)(1)(A) directs the Commission to ``establish a per
call compensation plan to ensure that all payphone service providers
are fairly compensated for each and every completed intrastate and
interstate call using their payphone * * *.'' To implement section
276(b)(1)(A), the Report and Order requires: (i) That the market set
the price for local coin calls originated by payphones; (ii) the
appropriate per-call compensation amount for the service provided by
independent payphone providers (PSPs) when they originate an interstate
call should be the same amount the particular payphone provider charges
for a local coin call; (iii) the adoption of the ``carrier pays''
compensation system, which essentially places the payment obligation of
per-call compensation on the primary economic beneficiary of payphone
calls; (iv) that the carrier, as the primary economic beneficiary of
payphone calls, perform the tracking of calls it receives from
payphones; (v) that carriers initiate an annual independent
verification of their per-call tracking functions for a period of two
years, to ensure that they are tracking all of the calls for which they
are obligated to pay compensation; (vi) a direct billing arrangement
between IXCs and intraLATA carriers and PSPs; (vii) that LECs, who
maintain the list of ANIs, have the burden of resolving disputed ANIs;
and (viii) that an interim compensation mechanism be set up under which
PSPs are paid compensation at a flat monthly rate. Compliance with
these requirements may require the use of engineering, technical,
operational, accounting, billing, and legal skills.
The payphone industry appears to have the potential of being a very
competitive industry once the significant subsidies and entry/exit
restrictions which are presently distorting the competition are
removed. However, the Commission perceives five potential areas that
could have significant economic impact on small businesses and small
incumbent LECs: (1) the amount of compensation paid to PSPs; (2) the
``carrier pays'' compensation system; (3) the administration of per-
call compensation; (4) the direct billing arrangement between carriers
and PSPs; and (5) the interim compensation mechanism.
Steps Taken To Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered
Amount of compensation: By requiring that the market set the price
for individual coin calls originated by payphones the Report and Order
ensures that PSPs, many of whom may be small business entities, receive
fair compensation. The Commission considered different options in
deciding upon this alternative. It rejected proposals for adopting a
national uniform rate of compensation for all calls using a payphone
because a single, nationwide rate could jeopardize the financial
viability of a majority of
[[Page 65346]]
payphones. Rejection of this option allows for accounting for the
significant variation in payphones in order to ensure the incentives to
place and maintain phones in a variety of geographic areas. It also
rejected proposals that certain types of calls should receive a
different per-call compensation amount than others. It declined to
interfere in marketplace transactions by providing for different
compensation amounts for different types of calls, in instances where
marketplace failures are limited or would have minimal impact on
consumer welfare. It does not perceive the need to intervene in an
apparently structurally competitive industry.
Many commentators, notably the IXCs, contend that marginal cost of
originating a payphone call should be used as the basis for
compensating PSPs. The Commission concluded that use of a marginal cost
standard or any closely related TSLRIC standard would leave PSPs under
compensated, because such cost standards do not permit the recovery of
any of a PSPs' fixed costs, which make up the bulk of a PSP's costs. It
also rejected, for similar reasons, suggestions that current local coin
rates be used as a surrogate for per-call compensation. Local coin
rates are not necessarily fairly compensatory. Local coin rates in some
jurisdictions may not cover the marginal cost of service and therefore,
would not fairly compensate the PSPs.
This ``market sets the price'' approach provides flexibility. Some
PSPs may find it advantageous to set coin rates as low as $.10 per call
in select locations, perhaps as promotions to enhance their brand
names. PSPs in other locations may choose to set the coin rate higher,
e.g. $.35 or $.40 per call. The Commission expects its action to
minimize regulatory burdens, expedite and simplify negotiations, and
minimize economic impacts through lower transaction costs.
The Commission rejected the proposal of RBOCs and some independent
payphone providers to use AT&T O+ commissions as a measure of fair
value of the service provided by independent payphone providers when
they originate an interstate call. These commissions may include
compensation for factors other than the use of the payphone, such as a
PSP's promotion of the OSP through placards on the payphone. In the
absence of reliable data, the appropriate per-call compensation amount
is whatever amount the particular payphone charges for a local coin
call. PSPs, IXCs, subscriber 800 carriers, and intraLATA carriers, many
of whom may be small business entities, may find it advantageous to
agree on an amount for some or all compensable calls that is either
higher or lower than the local coin rate at a given payphone because it
will grant parties in the payphone industry some flexibility and allow
them to take advantage of technological advances.
Payment of compensation. Various commenters, including small IXCs
and paging services proposed that the Commission should adopt the
``carrier pays'' system. The Commission rejected proposals to adopt
``caller pays'' and ``set use fee'' systems, because it believe that
they would involve greater transaction costs which can pose particular
burdens for small businesses. It considered various alternatives to
adopt the ``carrier pays'' system for per-call compensation because it
places the payment obligation on the primary economic beneficiary in
the least burdensome, most cost-effective manner. All carriers that
receive calls from payphones are required to pay per-call compensation,
whether they are IXCs or intraLATA carriers. The ``carrier pays''
system gives the carriers the broadest latitude on how to recover the
costs of payphone compensation, whether through increased rates to all
or particular customers, through direct charges to access code call or
subscriber 800 customers, or through contractual agreements with
individual customers, thereby involving fewer transaction costs. In
addition, under the carrier pays system, individual carriers have the
option of recovering either a different amount from their customers or
no amount at all.
However, in the interests of administrative efficiency and lower
costs, the Commission requires that facilities based carriers should
pay the per-call compensation for calls received by their reseller
customers. This would permit competitive facilities based carriers to
negotiate contract provisions that would require the reseller to
reimburse the carrier. The Commission believes its actions will
expedite and simplify negotiations, minimize regulatory burdens and the
impact of its decisions for all parties, including small entities.
Administration of per-call compensation. The Commission considered
various proposals to determine who should provide call tracking. The
Report and Order requires IXCs and intraLATA carriers, as primary
economic beneficiary of payphone calls, to track the calls it receives
from payphones. The carrier has the option of performing the function
itself or contracting out these functions to another party, such a LEC
or clearinghouse. The Commission recognizes that tracking capabilities
vary from carrier to carrier and it may be appropriate for some
carriers to pay compensation at a flat rate basis until per-call
tracking capabilities are put into place. Neither LECs nor PSPs are
primary economic beneficiaries of payphone calls and PSPs do not
universally have call-tracking capabilities. However, LECs, PSPs, and
carriers receiving payphone calls should be able to take advantage of
each others' technological capabilities through the contracting
process.
In view of current difficulties in tracking such calls, the
Commission concluded that a transition period is warranted. By
permitting carriers to contract out their per-call tracking
responsibility, and by allowing a transition period for tracking
subscriber 800 calls, it has taken appropriate steps to minimize the
per-call tracking burden on small carriers. In addition, to parallel
the obligation to pay compensation, the underlying, facilities-based
carrier has the burden of tracking calls to its reseller customers, and
it may recover that cost from the reseller, if it chooses.
The Commission concluded that carriers should be required to
initiate an annual independent verification of their per-call tracking
functions for a period of two years, to ensure that they are tracking
all of the calls for which they are obligated to pay compensation. This
would facilitate the prompt and accurate payment of all per-call
compensation. It believes these actions will foster opportunities for
small entities to gain access to such information without requiring
investigation or discovery proceedings, and reduce delay and
transaction costs.
To establish minimal regulatory guidelines for the payphone
industry regarding resolution of disputed ANIs, the Commission
concluded that LECs who maintain the list of ANIs must work with both
carrier-payors and PSPs to resolve disputes more efficiently and
quickly for all parties concerned. This provides LECs with the
incentive, which they do not currently have, to provide accurate and
timely verification of ANIs for independently provided payphones.
Additionally, no other party has the information more readily
available. The Commission expects this action to assist all parties,
including small entities, expedite and simplify negotiations, and help
equalize bargaining power.
Each time a caller dials a subscriber 800 number, the PSP will also
levy a charge which may be paid directly by the IXC, but will
eventually be passed through to the 800 subscriber, either on
[[Page 65347]]
a per-call basis or in the form of higher per minute rates.
Establishment of the requirement that PSPs inform these subscribers of
the price of the call they are deciding to accept, provide subscribers
with the opportunity to accept or decline to accept the call based on
the cost. Without the requirement, the PSP would have the ability to
charge a high amount in the face of the subscriber's lack of
information. The Commission expects its action to facilitate good faith
negotiations, and minimize regulatory burdens and the impact of its
decisions for all parties, including small entities.
While incumbent LECs in many jurisdictions currently do not charge
payphone callers for ``411'' calls made from their own payphones, the
LECs charge independent PSPs for directory assistance calls made from
their phones. The PSPs are not always allowed by the state to pass
those charges on to callers, which can pose particular burdens for
them. In the Report and Order, the Commission concluded that, to ensure
fair compensation for ``411'' and other directory assistance calls from
payphones, a PSP should be permitted to charge its local coin rate for
the service, although the PSP may decline to charge for this service if
it chooses. In addition, it concluded that if the incumbent LEC imposes
a fee on independent payphone providers for ``411'' calls, then the LEC
must impute the same fee to its own payphones for this service. The
Commission believes its action will facilitate the development of
competition.
The direct billing arrangement between IXCs and intraLATA carriers
and PSPs adopted in the Report and Order places the burden of billing
and collecting information on the parties who benefit the most from
calls from payphones: carriers and PSPs. Carriers must send to each PSP
a statement indicating the number of toll-free and access code calls
received from that PSP's payphones. The carrier-payor has the option of
using clearinghouses, similar to those that exist for access code call
compensation, or to contract out the direct-billing arrangement
associated with the payment of compensation. The Commission expects its
action will foster opportunities for small entities to gain access to
such information without requiring investigation or discovery
proceedings.
Interim compensation mechanism. The Commission considered various
proposals regarding the feasibility of implementing an interim
compensation mechanism before final rules go into effect. Because IXCs
and intraLATA carriers are not required to track individual calls until
October 1, 1997, it concluded that PSPs should be paid monthly
compensation on a flat monthly rate. It expects that the flat rate
obligation will be of administrative convenience for all parties
involved, including small businesses.
Reclassification of LEC-Owned Payphones
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements
Section 276(b)(1)(B) directs the Commission to ``discontinue the
intrastate and interstate carrier access charge payphone service
elements and payments * * * and all intrastate and interstate payphone
subsidies from basic exchange and exchange access revenues, in favor of
a (per-call) compensation plan.'' Currently, incumbent LEC payphones,
classified as part of the network, recover their costs from Carrier
Common Line (CCL) charges assessed on those carriers that connect with
the incumbent LEC. The Report and Order requires incumbent LECs to (1)
classify their payphones as detariffed and deregulated CPE; (2) provide
to PSPs nondiscriminatory access to unbundled central office coin
transmission services and certain other services the LECs provide to
their own payphones, and must file tariffs for central office coin
services and those incumbent LECs that are not subject to price cap
regulation must submit cost support for their central office coin
service; (3) transfer their payphone assets to unregulated accounts or
affiliates at the market value of the ``payphone going concern,'' by
April 15, 1997, and obtain independent appraisal of the fair market
value to submit to the Common Carrier Bureau within 180 days of the
effective date of the Report and Order; and (4) reduce their interstate
CCL charges by an amount equal to the interstate allocation of payphone
costs currently recovered through those charges, and file revised CCL
tariffs reflecting the changed rate structures. Compliance with these
requirements may necessitate the use of engineering, technical,
operational, accounting, billing, and legal skills.
Some of the smaller incumbent LECs may find difficult the
administrative burdens of reclassifying payphones as CPE, transferring
payphone assets to unregulated accounts, and filing new tariffs.
Therefore, if a requesting carrier, which may be a small entity, seeks
access to an incumbent LEC's unbundled elements, the requesting carrier
is required to compensate the incumbent LEC for any costs incurred to
provide such access.
Steps Taken To Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered
The deregulation of LEC payphones is essential to promoting
competition in the payphone industry. The Commission rejected several
alternatives in making this determination, including proposals
suggesting that the Commission (1) should allow smaller LECs to choose
whether or not to deregulate their payphones; and (2) should impose a
structural separation requirement for incumbent LEC payphones. The
establishment of minimum national requirements for discontinuation of
payphone subsidies from basic exchange and exchange access revenues
should facilitate negotiations and reduce regulatory burdens and
uncertainty for all parties, including small entities and small
incumbent LECs. National requirements may also allow new entrants,
including small entities, to take advantage of economies of scale.
By requiring the incumbent LECs to offer individual central office
coin transmission services to PSPs on a nondiscriminatory, public,
tariffed offering, new entrants, which may include small entities,
should have access to the same technologies and economies of scale and
scope that are available to incumbent LECs. This will permit
competitive payphone providers, some of whom are small business
entities, to offer payphone services using either instrument
implemented ``smart payphones'' or ``dumb'' payphones that utilize
central office coin services. The Commission rejected the proposal
suggesting that the Commission require incumbent LECs to provide on a
nondiscriminatory basis all the services that they provide to their own
payphone operations or require incumbent LECs to perform joint
marketing of the payphone operations of other providers. Instead, it
requires only that the incumbent LEC offer the following services on a
nondiscriminatory basis if it provides such services to its own
payphone operations: fraud protection, special numbering assignments,
and installation and maintenance of basic payphone services. Rejection
of this alternative will allow small incumbent LECs to distinguish
certain services from services offered by other payphone providers. The
Commission's actions in this area could decrease entry barriers for
small business entities and provide
[[Page 65348]]
reasonable opportunities for all payphone service providers to provide
service.
Ability of Payphone Service Providers To Negotiate With Location
Providers on the Presubscribed Intralata Carrier
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements
Section 276(b)(1)(E) directs the Commission to ``provide for all
payphone service providers to have the right to negotiate with the
location provider on the location provider's selecting and contracting
with, and subject to the terms of any agreement with the location
provider, to select and contract with, the carriers that carry
intraLATA calls from their payphones.'' The Report and Order grants to
all payphone service providers, including incumbent LECs, the right to
negotiate with location providers concerning the intraLATA carriers
presubscribed to their payphones. It also preempts any state
regulations mandating the routing of intraLATA calls to the incumbent
LEC. Compliance with these requirements should not necessitate the use
of additional skills, since such skills are already used in
negotiations concerning the interLATA carriers presubscribed to
payphones.
Allowing all payphone service providers to negotiate with location
providers concerning the intraLATA carriers presubscribed to their
payphones could have a positive economic impact on payphone providers
who are small business entities by allowing them flexibility to create
favorable contract terms. Small incumbent LECs may suffer some negative
economic impact because intraLATA calls will no longer be routinely
routed to them.
Steps Taken To Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered
State regulations that require routing of intraLATA calls to the
incumbent LEC are preempted by the Report and Order, thereby creating a
national rule allowing all payphone service providers to negotiate with
location providers concerning the intraLATA carriers presubscribed to
their payphones. A national rule should facilitate negotiations and
reduce regulatory burdens and uncertainty for all parties, including
small entities and small incumbent LECs. The Commission's actions in
granting to all payphone providers the same ability to negotiate with
location providers on the selection of the intraLATA carrier
presubscribed to the payphone will facilitate the development of
competition.
Requiring LECS To Provide Dialing Parity for Payphones
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The Report and Order concludes that the dialing parity requirements
of section 251(b)(3) should extend to all payphone location providers
and that the interLATA carrier unblocking requirements established in
TOCSIA should be extended to all local and long-distance calls. The
Report and Order requires that the technical and timing requirements
established pursuant to section 251(b)(3) and section 271(c)(2)(B)
should apply equally to payphones. Compliance with these requirements
may require the use of engineering, technical, and operational skills.
Requiring the LECs to extend dialing parity to payphone location
providers may burden some small LECs.
Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered
While this requirement may burden some small LECs, such burdens are
far outweighed by the benefits gained from competition among local
exchange and long distance carriers, many of whom are small business
entities. The Commission rejected several alternatives in making this
determination, including: (1) A proposal suggesting that the states be
given discretion to determine when and how dialing parity for intraLATA
calls should be applied to payphones; (2) a proposal requiring LECs to
provide dialing parity for payphones prior to all other phones; and (3)
not altering the existing anti-blocking rules under TOCSIA. Rejection
of these alternatives helps to ensure that small LECs will not be
unnecessarily burdened. Furthermore, establishing a national rule
should facilitate negotiations and reduce regulatory burdens and
uncertainty for all parties, including small entities and small
incumbent LECs.
E. Commission's Outreach Efforts to Learn of and Respond to the Views
of Small Entities Pursuant to 5 U.S.C. 609
The Commission staff conducted several ex parte meetings with
numerous outside parties and their counsel, several of whom may qualify
as small business entities, during the pendency of the rulemaking to
identify and discuss various aspects of the implementation of section
276. For example, the Commission received ex parte suggestions and
comments from the American Public Communications Council, a trade
association that represents independent payphone providers, many of
whom qualify as small business entities. It has attempted, to the
furthest possible extent, to take into account as many of these
concerns as possible in promulgating the rules contained in the Report
and Order.
F. Report to Congress
The Commission shall send a copy of this FRFA, along with the
Report and Order, in a report to Congress pursuant to the Small
Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.
801(a)(1)(A).
Order on Reconsideration
The following Final Regulatory Flexibility Analysis on
Reconsideration (FRFA on Reconsideration) addresses only those issues
that the Commission modified in the Order on Reconsideration in the
Implementation of the Pay Telephone Reclassification and Compensation
Provisions of the Telecommunications Act of 1996 (1996 Act).
Specifically, this FRFA on Reconsideration addresses modification of
tariffing requirements for payphone services, calculating carrier
common line (CCL) charges, and amendments to Part 69 of the
Commission's rules. The Commission also incorporates by reference the
Report and Order released on September 20, 1996, CC Docket No. 96-128,
91-35, FCC 96-388 (61 FR 52307, October 7, 1996), and the Final
Regulatory Flexibility Analysis (FRFA).
1. Need for and Objectives of the Order on Reconsideration and the
Rules Adopted
The Order on Reconsideration requires no changes to the FRFA in the
original Report and Order.
The objective of the rules adopted in the Order on Reconsideration
is ``to promote competition among payphone service providers and
promote the widespread deployment of payphone services to the benefit
of the general public.'' In doing so, the Commission is mindful of the
balance that Congress struck between this goal of bringing the benefits
of competition to consumers and its concern for the impact of the 1996
Act on small businesses.
2. Summary of Petitions for Reconsideration and/or Comments Relating to
Small Entities
No party sought reconsideration of the FRFA in this proceeding. The
National
[[Page 65349]]
Telephone Cooperative Association (NTCA), however, requested a
clarification of the requirement that LECs file coin transmission
services in their access service tariffs may be satisfied by small LECs
through participation in a national tariff filed by National Exchange
Carrier Association (NECA) and recover its costs through a NECA
administered pool. If not, NTCA asked for reconsideration of the
decision to require federal tariffing. Moreover, NTCA also requested
the Commission to clarify that the tariff provisions to be filed be
limited to services added to enable payphone services, such as counting
and control of coins and fraud protection, but do not include loops and
switching functions, and to clarify the costing methodology to be used.
3. Description and Estimate of the Number of Small Entities Affected by
the Order on Reconsideration
The modifications in the Order on Reconsideration apply only to
incumbent LECs. The estimates of the number of small entities affected
by the Order on Reconsideration remain the same as the estimates
detailed in the FRFA in the Report and Order.
4. Tariffing Requirements for Unbundling of Payphone Services
i. Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements on Reconsideration
The Order on Reconsideration modifies the federal tariffing
provisions to require that LECs must file tariffs with the states
regarding the provision of nondiscriminatory basic payphone services
that enable LECs and independent providers to provide payphone service
using either ``dumb'' or ``smart'' payphones. Any basic network
services or unbundled features used by a LECs operations to provide
payphone services must be similarly available to independent payphone
providers on a nondiscriminatory, tariffed basis and must be tariffed
in the state and federal jurisdiction. The tariffs for basic payphone
services and any unbundled features that LECs provide to their own
payphone services must be: (1) Cost based; (2) consistent with the
requirements of section 276 with regard, for example, to the removal of
subsidies from exchange and exchange access services; and (3)
nondiscriminatory. States unable to review these tariffs for compliance
with section 276 and other requirements set forth in the Order may
require the LECs operating in their state to file these tariffs with
the Commission. Compliance with these requirements may necessitate the
use of engineering, technical, operational, accounting, billing, and
legal skills.
ii. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent and Independent LECs, and Alternatives
Considered
This tariff filing requirement is not unduly burdensome on small
entities in that LECs are now required to file their payphone service
tariffs with the states in the same manner as they have been filing
tariffs for other telephone services with the states. Additionally, to
provide maximum flexibility and the least burdensome approach, the
Order on Reconsideration delegates to the Common Carrier Bureau the
authority to determine the least burdensome method for small carriers
to comply with the requirements for filing of tariffs with the
Commission, such as those suggested by the NTCA.
5. Amendments to Part 69
i. Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements on Reconsideration
The Order on Reconsideration clarifies and modifies the method for
calculating the carrier common line charge to remove payphone costs and
to adjust for additional subscriber line revenues. The Order clarifies
and revises the exogenous cost adjustment mechanism adopted in the
Report and Order and requires LECs to subtract the payphone costs
described in Sec. 69.501(d) of the Commission Rules associated with
payphone lines, prior to developing the payphone cost allocator. LECs
proposing to subtract payphone line costs or inmate payphone costs for
the purpose of their PCI adjustment are required to provide complete
details to demonstrate that their line cost calculations are
reasonable. LECs can achieve application of multiline subscriber line
charges (SLCs) to payphone lines through recalculating and revising
carrier CCL charges pursuant to the CCL formula in Sec. 61.46(d).
Compliance with these requirements may necessitate the use of
engineering, technical, operational, accounting, billing, and legal
skills.
ii. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent and Independent LECs, and Alternatives
Considered
The requirement that LECs proposing to subtract payphone line costs
or inmate payphone costs for the purpose of their PCI adjustment must
provide complete details to demonstrate that their line cost
calculations are reasonable, averts discrimination, facilitates the
growth of competition, and ensures that there is no unnecessary burden
for all parties, including small entities and small incumbent LECs.
6. Report to Congress
The Commission shall send a copy of this FRFA on Reconsideration,
along with the Order on Reconsideration, in a report to Congress
pursuant to the Small Business Regulatory Enforcement Fairness Act of
1996, 5 U.S.C. 801(a)(1)(A).
Summary of Order on Reconsideration
I. Background
1. On September 20, 1996, the Commission adopted a Report and Order
implementing section 276 of the Communications Act of 1934, as amended
by the Telecommunications Act of 1996 (``1996 Act''). In the Report and
Order, the Commission adopted new rules and policies governing the
payphone industry that: (1) Establish a plan to ensure fair
compensation for ``each and every completed intrastate and interstate
call using [a] payphone[;]'' (2) discontinue intrastate and interstate
carrier access charge payphone service elements and payments and
intrastate and interstate payphone subsidies from basic exchange
services; (3) prescribe nonstructural safeguards for Bell Operating
Company (``BOC'') payphones; (4) permit the BOCs to negotiate with
payphone location providers on the interLATA carrier presubscribed to
their payphones; (5) permit all payphone service providers to negotiate
with location providers on the intraLATA carrier presubscribed to their
payphones; and (6) adopt guidelines for use by the states in
establishing public interest payphones to be located ``where there
would otherwise not be a payphone[.]''
2. In the Report and Order, the Commission noted that the 1996 Act
fundamentally changes telecommunications regulation. The Commission
stated that the 1996 Act erects a ``pro-competitive deregulatory
national framework designed to accelerate rapid private sector
deployment of advanced telecommunications and information technologies
and services to all Americans by opening all telecommunications markets
to competition.'' To this end, the Commission advanced the twin goals
of section 276 of the 1996 Act of ``promot[ing] competition among
payphone service providers and promot[ing] the widespread deployment of
payphone services to the benefit of
[[Page 65350]]
the general public * * *''. The Commission sought to eliminate those
regulatory constraints that inhibit the ability both to enter and exit
the payphone marketplace, and to compete for the right to provide
services to customers through payphones. At the same time, the
Commission recognized that a transition period is necessary to
eliminate the effects of some long-standing barriers to full
competition in the payphone market. For this reason, the Commission
concluded that it would continue, for a limited time, to regulate
certain aspects of the payphone market, but only until such time as the
market evolves to erase these sources of market distortions.
3. On October 21, 1996, a number of parties filed petitions
requesting that the Commission reconsider or clarify the rules adopted
in the Report and Order. These petitions focused on the Commission's
conclusions regarding the following: the status of competition in the
payphone marketplace; the use of market-based compensation for payphone
calls; the appropriate per-call compensation amount for various types
of calls; the Commission's authority to let the market set local coin
rates; state entry and exit regulations; who should pay the per-call
compensation; how calls should be tracked; how per-call compensation
payments should be administered; the amount and appropriate payors of
the interim flat-rate compensation; the valuation of local exchange
carriers (``LECs'') payphone assets; federal tariffing for payphone-
related services; and various other requirements relating to payphones.
In the Order on Reconsideration, the Commission addresses each of these
issues and concludes that the petitions for reconsideration should be
denied, with two limited exceptions, because it finds that the
petitions contain no new evidence or arguments not contemplated by the
conclusions in the Report and Order. On two issues, the Commission
grants requests for reconsideration and modifies: (1) The requirements
for LEC tariffing of payphone services and unbundled network
functionalities; and (2) the requirements for LECs to remove
unregulated payphone costs from the carrier common line charge and to
reflect the application of multiline subscriber line charges to
payphone lines. The Commission also clarifies several issues addressed
in the Report and Order.
II. Issues
A. Compensation for Each and Every Completed Intrastate and Interstate
Call Originated by Payphones
i. Payphone Calls Subject to This Rulemaking and Compensation Amount
4. Defining Fair Compensation. The Commission denies requests that
it reconsider its conclusions in the Report and Order about the
existence of a competitive payphone marketplace. The Commission
concludes that the policies it adopted in the Report and Order will
promote competition in a way that will benefit the general public.
Because robust competition will take some time to develop, it provided
in the Report and Order for a transition period before market-based
pricing becomes effective. During this transition period, ``states may
continue to set the local coin rate in the same manner as they
currently do.'' After this transition period, the Commission may, at
its option, ``ascertain the status of competition in the payphone
marketplace,'' and states may recommend possible market failures to the
Commission for investigation. The Commission concludes that, while the
payphone marketplace may not be currently fully competitive, the rules
adopted in the Report and Order will bring about competition, and the
phased-in approach to market-based pricing will allow all parties to
make the appropriate adjustments over time. In addition, it concludes
that by monitoring the status of competition in the payphone
marketplace, and by allowing states to refer potential market failures
to it, it has ensured that market failures, particularly those arising
from so-called locational monopolies, will be addressed. Because
payphone callers in most cases are free to seek out alternative
payphones in nearby locations or able to make calls from portable
phones, it rejects arguments by some petitioners that all payphones
will become individual unregulated monopolies with monopoly-level
pricing.
5. Ensuring Fair Compensation. The Commission disagrees with MCI
that its conclusion in the Report and Order concerning the ability of
the BOCs to receive per-call compensation for certain 0+ calls
interferes with pre-existing contracts, as prohibited by section
276(b)(3). First, it found in the Report and Order that section 276
mandates that the Commission provide for fair compensation for all
calls originated by payphones, including 0+ calls for which there is no
contract that compensates the payphone service provider (``PSP'').
Second, it finds that because pre-existing contracts are grandfathered
by section 276(b)(3), the BOCs ``would not otherwise receive any
compensation for 0+ calls[,]'' because the contracts for such calls are
between the location provider and the payphone's presubscribed operator
service provider (``OSP''). Third, it concludes that, without
disturbing existing contracts that cover 0+ calls, the BOCs should be
able to receive the per-call compensation established by the Report and
Order, ``so long as they do not otherwise receive compensation for * *
* originating 0+ calls.'' Finally, it notes that, as the RBOCs point
out, MCI does not argue that the pre-existing contracts between the
location providers and the OSPs for BOC payphones are nullified or
void. In sum, the Commission concludes that its determination in the
Report and Order concerning compensation for 0+ calls originated by BOC
payphones is required by the plain language of section 276(b)(1)(A),
which directs it provide fair compensation for ``each and every
completed intrastate and interstate call[,]'' and this determination
does not interfere with existing contracts in a manner that is
prohibited by section 276(b)(3). Accordingly, it denies MCI's request
for reconsideration of this requirement.
6. In response to the RBOCs' request that it clarify that the BOCs
are able to collect per-call compensation for 0+ calls originated from
BOC inmate payphones, the Commission concludes that such per-call
compensation is warranted when the BOCs do not otherwise receive
compensation pursuant to a contract. This clarification is consistent
with the conclusion that BOCs should receive per-call compensation on
0+ calls from their payphones in the absence of receiving compensation
under a contract. In addition, the clarification is consistent with its
conclusion in the Report and Order that inmate payphones are to receive
the same compensation amount as other payphones, in the absence of a
contract that prescribes a compensation methodology. The Commission
also clarifies that inmate payphones, whether or not they are
maintained by the BOCs, are not eligible for interim flat-rate
compensation, because such payphones are not capable of originating
either access code or subscriber 800 calls, and the interim
compensation is provided only for those two types of calls. Because the
level of 0+ commissions paid pursuant to contract on operator service
calls is beyond the scope of both section 276 and this
[[Page 65351]]
proceeding, the Commission declines to require that LECs make
available, on a nondiscriminatory basis, any commission payments
provided to their own payphone divisions in return for the
presubscription of operator service traffic to the LEC.
7. The Commission concluded in the Report and Order that it has the
requisite authority under sections 4(i) and 201(b) of the
Communications Act of 1934, as amended, to ensure that PSPs are fairly
compensated for international calls. The Commission notes that it has
relied upon its authority under these two sections of the Act, because
it had concluded that there was ``no evidence of congressional intent
to leave these calls uncompensated under Section 276.'' In addition, it
found that a payphone performs similar functions in originating a call,
regardless of the call's destination. Therefore, it concludes that its
determination in the Report and Order, pursuant to sections 4(i) and
201(b) of the Act, is in the interest of equity and is necessary to
enact a comprehensive regulatory framework to compensate all payphone
calls that are not otherwise compensated pursuant to contract. While
MCI argues that it may be difficult for carriers to recover the costs
of per-call compensation on international calls, the Commission
concludes that carriers and PSPs may negotiate differing compensation
amounts, which take into account varying costs, for different types of
calls.
8. Completed Calls. Because it would be an interpretation
inconsistent with its responsibility under section 276, the Commission
denies the request by Cable & Wireless that the Commission allow
carriers to treat calls re-originated within the carrier's platform as
a single compensable call. It had concluded in the Report and Order
that, to comply with its statutory mandate that ``each and every
completed intrastate and interstate call'' be compensated, ``multiple
sequential calls made through the use of a payphone's '#' button should
be counted as separate calls for compensation purposes.'' Although
Cable & Wireless states that this approach is technically difficult,
the Commission notes that the requirement that carriers track
individual calls does not become effective for one year. Carriers will
be able to use this period to address these types of technical
difficulties with respect to their tracking obligations.
9. The Commission declines to require carriers, if they choose to
block calls from particular payphones, to provide an announcement to
payphone callers indicating that it is not the payphone equipment that
is blocking the call. Although APCC and Peoples suggest that callers
may become confused and could possibly damage the payphone equipment,
the Commission concludes that PSPs are better equipped to take the
necessary steps, including posting notices, to educate callers at their
payphones and protect their equipment. The Commission also declines to
reconsider its conclusion, as urged by AirTouch, that carriers are
permitted to block calls originated by payphones. It concludes that 800
subscribers that are concerned that callers will not be able to reach
them from payphones should contact their carriers and negotiate
contract terms that will ensure that the 800 subscribers are able to
receive such calls. The Commission declines to require the PSP to
provide a coin-deposit mechanism for calls that are blocked by
carriers.
10. The Commission disagrees with MCI's argument that PSPs should
not be compensated for subscriber 800 calls because, according to MCI,
they have the option of blocking these calls if they are concerned
about a lack of compensation. MCI argues further that this approach
would be inconsistent with the Commission's conclusion in the Report
and Order that incoming calls need not be compensated because they can
be blocked. First, the Commission concluded in the Report and Order
that the average payphone originates a substantial number of subscriber
800 calls, in excess of 85 such calls per month. In contrast, there was
no showing that the average payphone necessarily receives any incoming
calls in a typical month. Second, while the Commission recognized in
the Report and Order that carriers are permitted to block subscriber
800 calls, it did not address blocking of subscriber 800 calls by PSPs.
It notes, however, that, if a PSP blocks access code calls (including
1-800 access numbers), it is in violation of its rules under Telephone
Operator Consumer Services Improvement Act (``TOCSIA''). Third, the
Commission concluded in the Report and Order that section 276's mandate
that it provide fair compensation for ``each and every completed
intrastate and interstate call'' requires it to provide such
compensation for subscriber 800 calls. For these reasons, the
Commission rejects MCI's request that it reconsider its decision to
compensate subscriber 800 calls.
11. Local Coin Calls. The Commission finds that section 276 gives
the Commission significant authority to ``take all actions necessary''
to ``promote the widespread deployment of payphone services to the
benefit of the general public'' and, more specifically, to ensure fair
compensation for ``each and every completed intrastate and interstate
call.'' In enacting section 276 after section 2(b), and squarely
addressing the issue of interstate and intrastate jurisdiction,
Congress intended for section 276 to take precedence over any contrary
implications based on section 2(b). While section 2(b) of the Act
reserves to the states jurisdiction over intrastate communications,
Congress can make an exception to that statutory rule whenever it
chooses, and the exception in section 276 is broad. As stated in the
Conference Report: ``In crafting implementing rules, the Commission is
not bound to adhere to existing mechanisms or procedures established
for general regulatory purposes in other provisions of the
Communications Act.'' Congress gave the Commission the requisite
authority in section 276 and directed us to adopt a comprehensive
compensation plan for payphones, and it did so in the Report and Order.
Congress also provided that ``[t]o the extent that any State
requirements are inconsistent with the Commission's regulations, the
Commission's regulations on such matters shall preempt such State
requirements.'' Contrary to an argument by Maine, the Commission
concludes that section 276(c) eliminates any question about its
authority to adopt a particular compensation plan, even if it
contradicts existing state regulations. It finds that Congress's use of
the term ``compensation'' instead of ``rates'', as argued by Maine, did
not limit its authority to address local coin rates. It concludes that,
because Congress gave it broad authority to enact a comprehensive
payphone compensation plan, the term ``compensation'' in section 276
encompasses the authority to address local coin ``rates,'' because the
local coin rate is the only manner in which a PSP is compensated for
local coin calls. Accordingly, the Commission denies all petitions for
reconsideration that have as their basis arguments that the Commission
lacks jurisdiction to deregulate local coin rates, or that the
Commission's action constitutes unwarranted preemption.
12. The Commission also rejects arguments that because the
Commission chose to let the market set local coin rates in lieu of
itself prescribing a nationwide rate or rate guidelines, that section
10 of the 1996 Act concerning forbearance applies. It concludes that
Congress required the Commission to adopt regulations ensuring fair
[[Page 65352]]
compensation for all payphone calls and left it to the Commission to
determine the appropriate approach to take. Therefore, because the
Commission adopted a comprehensive regulatory framework to ensure fair
compensation for PSPs and will continue to have oversight over the
payphone industry, it concludes that it did not forebear from imposing
regulation and are not required to conduct the forbearance analysis
required by section 10.
13. Because section 276 gives the Commission jurisdiction to ensure
fair compensation for ``each and every completed call'' originated by
payphones, the Commission concludes that it has jurisdiction to impose
a market-based rate for intrastate directory assistance calls from
payphones. It also clarifies that PSPs are entitled to require
consumers to deposit coins into the payphone for these calls, as they
would any other local call. In response to the request that the
Commission clarify that PSPs may be compensated for 0- general
assistance calls where the caller asks for call rates or dialing
instructions, it concludes that such a clarification is not
appropriate, because such operator inquiries, which are distinct from
directory assistance calls, merely seek information on how or whether
to complete a future call and, thus, are not ``completed'' calls that
are compensable under section 276.
14. The Commission concludes that, contrary to arguments by certain
states, it gave adequate notice to interested parties, in accordance
with the Administrative Procedures Act, that it was contemplating
action concerning local coin rates. It concludes further that this
notice was broad enough to encompass the option it ultimately adopted:
the determination that the market should set the per-call rate for
local coin calls at each payphone. In the Notice, the Commission
stated: ``We seek comment * * * on how we should exercise our
jurisdiction under section 276. We have a range of options for ensuring
fair compensation for these calls, and we seek comment on which option
will ensure fair compensation for PSPs with respect to coin sent-paid
calls.'' The Commission then discussed a number of possible options
within that range, including setting a nationwide local coin rate. The
use of the term ``range'' was an indication that its articulation of
possible options in the Notice was not an exhaustive list, but merely
defined various points within the range. The Commission was under no
obligation to adopt the precise proposals contained in the Notice. It
concludes that letting the market set local coin rates was within the
range of options on which it sought comment and a logical outgrowth
from soliciting comment on ``how we should exercise our jurisdiction
under Section 276'' with regard to local coin rates. It notes that
various parties responding to the Notice addressed the issue of
Commission jurisdiction over local coin rates in their comments.
15. In the Report and Order, the Commission stated that ``the
market * * * is best able to set the appropriate price for payphone
calls in the long term.'' It concludes that the record contained
significant evidence, particularly in the comments of the RBOCs and the
independent payphone providers, that the costs associated with each
call from a payphone often exceed the local coin rate in a particular
state. Therefore, it denies requests that it reconsider its conclusions
about local coin rates because of arguments by petitioners that there
is no evidence that local coin rates are not fairly compensatory. It
also rejects suggestions by certain petitioners that the deregulation
of local coin rates is not in the public interest and will be met with
consumer antagonism. While some disruption or confusion among payphone
callers is inevitable with any new policy, the Commission concludes
that market-based pricing will result in a greater availability of
payphones at more economically efficient prices, which will ultimately
benefit callers.
16. A number of states argue that market-based rates will not
always lead to reasonably priced payphone services, particularly in
situations where the PSP is a monopoly provider. Ohio PUC and Oklahoma
CC both request approval for local coin call rate ceilings, while
Oklahoma CC individually seeks permission to identify market failures
to the Commission immediately. The Commission declines both to
reconsider its conclusions and to make the modifications suggested by
the states. It concludes that the Report and Order adequately addresses
the possibility of market failures that would lead to local coin rates
that are not reasonable. It made an exception to the market-based
approach for local coin rates in those situations in which the state
makes a showing that market-based rates are not possible due to a
market failure. Because the Commission intended the exception to be a
limited one, however, it concludes that a state's showing would have to
be detailed and likely the result of a state proceeding that itself
examined the market failure.
17. Payphone Fraud. A number of petitioners request that the
Commission reconsider its conclusions about payphone fraud and take
steps to reduce the risk of fraud. In the Report and Order, the
Commission stated that ``[w]e will aggressively take action against
those involved in such fraud'' and detailed how we would proceed to
address fraudulent practices.'' Without any specific factual
circumstances before it, the Commission declines to take further steps
that could be both costly and burdensome to all parties involved in
payphone compensation. It states that it will continue, however, to
monitor developments in this area and respond to specific requests for
intervention from carriers or PSPs.
18. In response to requests that it reconsider its conclusions
about the definition of ``payphone,'' the Commission clarifies that for
the first year of the payphone compensation mechanism, when
compensation is paid on a flat-rate basis, the definition of
``payphone,'' for compensation purposes, will be the one established in
CC Docket No. 91-35, along with the alternative verification
procedures. Once per-call compensation becomes effective, the
Commission clarifies that, to be eligible for such compensation,
payphones will be required to transmit specific payphone coding digits
as a part of their automatic number identification (``ANI''), which
will assist in identifying them to compensation payors. Each payphone
must transmit coding digits that specifically identify it as a
payphone, and not merely as a restricted line. It also clarifies that
LECs must make available to PSPs, on a tariffed basis, such coding
digits as a part of the ANI for each payphone. The Commission declines
to require PSPs to use customer-owned, coin-operated telephone
(``COCOT'') lines, as suggested by the RBOCs, because it previously
found that COCOT service is not available in all jurisdictions.
19. More generally, as it stated in the Report and Order, ``a
payphone is any telephone made available to the public on a fee-per-
call basis, independent of any commercial transaction, for the purpose
of making telephone calls, whether the telephone is coin-operated or is
activated either by calling collect or using a calling card.'' It
clarifies that this definition of ``payphone'' excludes from the
compensation mechanism phones in hotel rooms, dormitory rooms, or
hospital rooms. It also concludes that, once per-call compensation
becomes effective, LECs should provide to carrier-payors a list of
emergency numbers, as such calls are statutorily exempt from
compensation.
20. Compensation Amount. The Commission denies all requests for
reconsideration of the per-call compensation amount that it adopted in
[[Page 65353]]
the Report and Order, in which the parties argue that the amount is
inconsistent with the cost-based approach the Commission established in
the local competition proceeding. Although Congress could have directed
it to adopt a particular methodology for determining fair compensation,
Congress did not mandate a cost-based standard for compensation in
section 276, as it did in section 251. The Commission concluded in the
Report and Order that ``use of a purely incremental cost standard for
all calls could leave PSPs without fair compensation for certain types
of payphone calls, because such a standard would not permit the PSP to
recover a reasonable share of the joint and common costs associated
with those calls.'' In the Order on Reconsideration, the Commission
concludes that the cost-based total element long run incremental cost
(``TELRIC'') standard that the Commission relied upon in the local
competition proceeding is inapplicable here, because the payphone
industry is not a bottleneck facility that is subject to regulation at
virtually all levels. It notes that it would be particularly burdensome
to impose a TELRIC-like costing standard on independent payphone
providers, who have not had previous experience with any costing
systems. In addition, as it concluded in the Report and Order, the
Commission finds that the payphone industry is likely to become
increasingly competitive. It also rejects suggestions that use of a
market-based compensation standard, in lieu of one that is cost based,
will overcompensate PSPs. The marketplace will ensure, over time, that
PSPs are not overcompensated. Carriers have significant leverage within
the marketplace to negotiate for lower per-call compensation amounts,
regardless of the local coin rate at particular payphones, and to block
subscriber 800 calls from payphones when the associated compensation
amounts are not agreeable to the carrier. Finally, the Commission
states that a cost-based compensation standard could lead to a
reduction in payphones by limiting a PSP's recovery of its costs, and
this result would be at odds with the legislative purpose of section
276 that the Commission ``promote the widespread deployment of payphone
services to the benefit of the general public.''
21. More specifically, in denying all requests for reconsideration
of the per-call compensation amount that it adopted in the Report and
Order, the Commission rejects the arguments that the per-call
compensation amount adopted in the Report and Order is inconsistent
with the cost based approach the Commission established in the local
competition proceeding. It concludes that the cost-based TELRIC plus a
reasonable share of common cost standard upon which the Commission
relied in the local competition proceeding is inapplicable here for
three reasons. First, the purpose of the cost-based standard in the
interconnection proceeding is to enable competitors to share in the
economies of scale, scope and density, and thus rapidly to acquire
potentially ``bottleneck'' elements that they cannot promptly supply
themselves, at a cost in conformance with competitive retail pricing.
Because of the cost structure of the industry and the ability of firms
to rapidly enter, no such urgent need to share the benefits of these
economies appears in the present proceeding.
22. Second, the Commission concludes that Congress's use of the
phrase ``* * * payphone service providers are fairly compensated for
each and every completed interstate and intrastate call * * * '' is a
different standard than the cost based standard articulated for the
compensation for interconnection and unbundled elements. It concludes
that the PSP will be providing a competitive service (payphone use) and
should therefore receive compensation equal to the market-determined
rate for proving this service. As it noted in the Report and Order, the
market, as it becomes competitive, should generate the a fair market-
determined compensation rate. The cost-based interconnection standard,
on the other hand, compensates a carrier for the long run incremental
cost of providing interconnection or the long run incremental cost of
providing an unbundled element plus a reasonable share of the common
costs. Since the local exchange is not yet competitive, the Commission
could not rely on the market to set competitive rates for unbundled
elements. In the case of payphones, the presence of multiple PSPs
already operating in many markets, and the structure of the industry
that allows relatively easy entry and exit, led it to conclude that it
can rely on market forces to provide for efficient pricing of these
services in the near future.
23. Third, the TELRIC plus common cost standard in the local
competition proceeding refers to the long run cost of an element or
physical facility. Since there are relatively few common costs between
separate facilities, TELRIC compensation will compensate a carrier for
virtually all costs associated with providing (the services of) that
facility. With the addition of a share of the relatively small common
costs, the firm will be able to cover its total costs. Commenters argue
that the Commission should apply a total service long-run incremental
cost (``TSLRIC'') standard to only a subset of services (i.e.,
subscriber 800 and dial around calls) provided by a facility
(payphone). In general, when several services are provided by the same
facility, the incremental cost of providing any one service is very
small and the common cost among these services is very large. Thus, a
TSLRIC standard under which a carrier is compensated only for the
incremental cost of each service individually without a reasonable
allocation of common costs, as suggested by commenters, would not allow
the carrier to recover the total costs of providing all of the
services. A TSLRIC standard that yields prices that recover a
reasonable share of joint and common costs would require the difficult
allocation of those (large) costs among the different types of calls
made from payphones.
24. The Commission also denies a request that it reconsider its
compensation rules because the Commission did not mandate a uniform
per-call compensation amount of $.90 to $1.50 for each compensable
call. Under the approach it established in the Report and Order, the
market is allowed to set the compensation amount for calls originated
by each payphone. For market-based pricing to function effectively,
there must be some variation in compensation amounts from location to
location. It also denies Sprint's request that it either rescind the
Report and Order in toto or establish a per-call compensation amount of
$0, because Sprint does not present any arguments that were not already
considered or contemplated by the Report and Order, and a compensation
rate of $0 would not be in accord with the Commission's responsibility
under the statute to ensure fair compensation for all payphone calls.
25. A number of carriers argue that the local coin rate is an
inappropriate surrogate upon which to base per-call compensation,
because coin calls have additional costs, such as coin collection, that
other calls do not incur. Therefore, the carriers argue, use of the
local coin rate will tend to overcompensate PSPs for compensable
subscriber 800 and other calls. The Commission disagrees. In the Report
and Order, it found that the costs of originating the various types of
payphone calls are similar. If there are significant cost differences
between local coin calls and other types of calls,
[[Page 65354]]
however, it concludes that, over time, the market will address these
differences and dictate appropriate per-call compensation amounts for
each type of payphone call. The Commission also concludes that the
market will address likely cost variations in originating local coin
calls from payphone to payphone. In this environment of similar-but-
not-identical costs in originating the various types of payphone calls,
it concluded in the Report and Order that the local coin rate is a
default rate that applies in the absence of a contract between the
carrier-payor and the PSP. Thus, it is a starting point for
negotiations toward a mutually agreeable per-call compensation amount,
not a fixed compensation rate. It concludes that those carriers that
are concerned about overcompensating PSPs for subscriber 800 calls have
substantial leverage, by way of the ability to block these calls from
all or particular payphones, to negotiate with PSPs about the
appropriate per-call compensation amount. Accordingly, the Commission
denies those requests for reconsideration that are premised on the
local coin rate being an inappropriate default compensation amount. It
also declines to provide for downward adjustments in the default
compensation amount to offset possible strategic pricing by PSPs; the
carriers can make such provisions themselves through the contracting
process.
26. The Commission denies the petitions for reconsideration filed
by the inmate PSPs. The inmate PSPs argue that they should be entitled
to receive a special $.90 per-call compensation amount because their
costs of service are higher than those of other PSPs. The inmate PSPs
argue further that intrastate 0+ calls are frequently subject to state
rate caps that are equivalent to the large carriers' standard collect
rates for intraLATA calls. The Commission notes that section 276(d),
which contains the only mention of inmate phones in the payphone
statute, states that ``the term `payphone service' means the provision
of public or semi-public pay telephones, the provision of inmate
telephone service in correctional institutions, and any ancillary
services.'' In the Report and Order, it elected to treat inmate
payphones in the same manner as all other payphones, including semi-
public payphones. Under this approach, inmate payphones are entitled to
receive the default compensation rate for any call that is not
otherwise compensated by contract or through some other arrangement.
Because virtually all calls originated by inmate payphones are 0+
calls, inmate PSPs tend to receive their compensation pursuant to
contract, which makes them ineligible to receive a per-call
compensation amount. As the Commission found in the Report and Order,
however, whenever a PSP is able to negotiate for itself the terms of
compensation for the calls its payphones originate, then the statutory
obligation to provide fair compensation is satisfied. It notes that, in
response to their arguments about state-mandated intrastate toll rate
ceilings, the inmate petitioners may remind the states that section
276's mandate that PSPs be fairly compensated for all payphone calls is
an obligation that is borne both by the Commission and the states. If
an inmate provider believes, after making its arguments to a particular
state in light of section 276 and the instant proceeding, that it is
not receiving fair compensation for intrastate toll calls originated by
its inmate payphones, it may petition the Commission to review the
specific state regulation of which it complains.
27. AT&T and MCI request that the Commission clarify that state
compensation requirements for intrastate access code calls are
preempted by the compensation mechanism adopted in the Report and
Order, as of the effective date of interim compensation. On the other
hand, APCC argues that the Commission should not preempt forms of
compensation that are outside the scope of our compensation rules. The
Commission concludes that, in conjunction with reviewing, and removing
if necessary, those regulations that affect competition, such as entry
and exit restrictions, pursuant to the Report and Order, states should
review their compensation regulations to ensure that PSPs are not
receiving double compensation for certain types of calls. After a
reasonable period for such a review, if any party believes that a
specific state compensation rule conflicts with the Commission's rules,
that party may file a petition for a declaratory ruling, and the
Commission will evaluate the state compensation regulation at that
time. Accordingly, the Commission declines to make the clarification
requested by AT&T and MCI.
ii. Entities Required To Pay Compensation
28. As it stated in the Report and Order, the Commission concludes
that of the two approaches initially proposed in the Notice, the
carrier-pays approach and the set-use fee, the carrier-pays approach
``places the payment obligation on the primary economic beneficiary in
the least burdensome, most cost effective manner.'' In the case of
compensable access code or subscriber 800 calls where the call utilizes
a particular carrier no matter the telephone that originates the call,
the primary economic beneficiary is the carrier that carries the call.
In addition, with specific regard to subscriber 800 calls, the
Commission concludes that it is the called party that receives greater
economic benefit from the payphone call than the calling party. The
Commission concludes that the interexchange carrier (``IXC'') can best
pass on, in the most cost effective manner, any charges for compensable
calls to the appropriate customer. Therefore, it rejects the caller-
pays, coin-deposit approach to compensation, as proposed by commenters,
because it would unduly burden transient payphone callers. The
Commission also notes that TOCSIA prohibits it from prescribing that
approach for interstate access code calls. Contrary to the arguments
raised by petitioners, it concludes that its rejection of a caller-
pays, coin-deposit approach must stand. The Commission has long held
that callers should not be required to deposit coins when making a call
that is otherwise billed to an account. It notes that coinless calling,
including use of coinless payphones, has proliferated in recent years.
It concludes that when transient callers have an expectation that they
may avoid carrying coins to make payphone calls, because they will be
making only calls billed to a calling card or to a subscriber 800 end-
user, it would be burdensome and increase transaction costs to impose a
compensation approach that would require callers to acquire coins to
make such calls. The Commission concludes further that the ability to
make coinless calls from payphones is a convenience that transient
callers value.
29. While the prohibition in TOCSIA against advance payment by
callers, as cited in the Report and Order, does not apply to subscriber
800 calls and, therefore, is not dispositive, the Commission concludes
that the statute's direction that it avoid prescribing such a payment
mechanism for a particular class of payphone calls (i.e. interstate
access code calls) is consistent with the Commission's long-standing
policy of not burdening callers with the deposit of coins when making a
call that is otherwise billed to an account. In addition, if the
Commission were to prescribe a coin-deposit compensation approach,
TOCSIA would require the PSP to charge the end-user no more for making
an access code call than it would charge for a call to the
[[Page 65355]]
presubscribed OSP. Thus, use of a coin-deposit compensation approach
would require the PSP to impose a charge for access to the
presubscribed OSP. More recently, in the 1996 amendments to the Act,
Congress prohibited carriers from assessing the calling party a charge
for completing any 800 number call. While this provision of the Act
does not expressly apply to PSPs, the Commission concludes that section
228(c)(7) provides persuasive evidence that Congress intended to ensure
access to 800 number subscribers without the calling party incurring a
charge. In addition to the foregoing reasons, the Commission concludes
that it would be unduly burdensome and costly to mandate a caller-pays,
coin-deposit approach for a particular type of subscriber 800 calls,
such as calls to a paging service, while relying upon a carrier-pays
approach for other compensable calls.
30. With regard to arguments by AT&T and Sprint that the Commission
adopt a set-use fee that could be billed by carriers as agents for
PSPs, the Commission concludes that its rejection of the set-use fee
compensation approach precludes a carrier from billing a particular
government-mandate fee for use of payphones on behalf of PSPs. The
Commission noted in the Report and Order, however, that, under the
carrier-pays approach, carriers have ``the most flexibility to recover
their own costs, whether through increased rates to all or particular
customers, through direct charges to access code call or subscriber 800
customers, or through contractual agreements with individual
customers.'' The Commission concludes that the compensation approach
adopted in the Report and Order gives carriers the ability, if they
desire, to bill their customers for whatever amount they choose for use
of the payphone. Carriers may find that billing such a payphone charge
would give visibility to the public of the cost of using the payphone.
31. In the Report and Order, the Commission stated that
``[a]lthough some commenters would have the Commission limit the ways
in which carriers could recover the cost of per-call compensation, it
concluded that the marketplace will determine, over time, the
appropriate options for recovering these costs.'' It concluded that
this approach is necessary to give carriers the most flexibility in
recovering their costs. For this reason, the Commission declines to
adopt PageNet's proposal that the Commission limit IXCs to spreading
the costs of compensation over all 800 subscribers and 800 access code
users. Although petitioners from the paging industry argue that the
carrier-pays approach will impose substantial costs and burdens on that
industry, the Commission notes that these petitions do not contain
specific data showing the volume of calls the paging companies receive
from payphones. Therefore, it concludes that these claims are
unsubstantiated and the possible costs and burdens unknown. It also
rejects proposals that it increase the SLC as a means of spreading the
cost of compensation over all callers. It concluded in the Report and
Order that ``raising the SLC for this purpose would be contrary to the
goals of the Act, because these payments would not be borne by either
the primary economic beneficiary of the payphone calls or the cost
causer.'' While the public is indeed a beneficiary of payphone calls
generally, the primary economic beneficiary of a particular compensable
payphone call is the carrier that carries the call.
32. In the Report and Order, the Commission concluded that the
underlying facilities-based carrier should be required to pay
compensation to the PSP ``in lieu of a non-facilities-based carrier
that resells services[.]'' Some IXCs argue in response that the
Commission should, concurrent with its conclusion that the primary
economic beneficiary of a call should pay the requisite compensation to
the PSP, require resellers to pay compensation for the calls they
receive from payphones and to assume responsibility for the tracking of
such calls. The Commission concludes that it would be significantly
burdensome for some parties, namely debit card providers, to track and
pay compensation to PSPs on a per-call basis. It concludes, however,
that it should clarify its conclusion in the Report and Order
concerning which carriers are required to pay compensation and provide
for per-call tracking. It clarifies that a carrier is required to pay
compensation and provide per-call tracking for the calls originated by
payphones if the carrier maintains its own switching capability,
regardless if the switching equipment is owned or leased by the
carrier. If a carrier with a switching capability has technical
difficulty in tracking calls from origination to termination, it may
fulfill its tracking and payment obligations by contracting out this
duty to another entity, consistent with the market-based principles
that it established in the Report and Order. If a carrier does not
maintain its own switching capability, then, as set forth in the Report
and Order, the underlying carrier remains obligated to pay compensation
to the PSP in lieu of its customer that does not maintain a switching
capability.
iii. Ability of Carriers To Track Calls From Payphones
33. In the Report and Order, the Commission recognized that
``tracking capabilities vary from carrier to carrier'' and concluded,
as a result, that ``LECs, PSPs, and the carriers receiving payphone
calls should be able to take advantage of each others technological
capabilities through the contracting process.'' It also concluded that
``no standardized technology for tracking calls is necessary, and that
IXCs may use the technology of their choice to meet their tracking
obligations.'' During the period before per-call tracking becomes
mandatory, the Commission concludes in the Order on Reconsideration
that carriers must take all appropriate steps, including using the
contracting process, to provide for the per-call tracking of all calls
they receive from payphones. Therefore, it declines to modify the per-
call tracking requirements set forth in the Report and Order and
concludes that carriers should meet their per-call tracking
obligations, if they are not otherwise technically able, through
contracts with other entities.
iv. Administration of Per-Call Compensation
34. Some IXCs argue that the differing per-call compensation
amounts make the per-call compensation rules adopted in the Report and
Order unadministerable for the carrier-payors. The Commission
disagrees. While there are expenses associated with administering the
compensation rules, the Commission concludes that these expenses are
unavoidable and must be borne by the entity that receives the primary
economic benefit of the payphone calls and is best able to administer a
compensation system between it and those that receive the compensation.
While varying per-call compensation amounts will eventually result from
the Commission's decision to let the market set the appropriate per-
call compensation amount for compensable calls, it notes that for the
first two years of the compensation mechanism established by its rules,
the carrier-payors will not be required to pay per-call compensation in
varying amounts. Carrier-payors should use this two-year period to make
the requisite adjustments to their internal payphone compensation
paying systems to prepare for variable per-call compensation amounts.
Therefore, the Commission declines to modify its per-call
[[Page 65356]]
compensation rules as requested. It concludes further that compensation
carrier-payors have an ability, however, to insulate themselves against
potential costs that may be associated with differing compensation
amounts by negotiating their own compensation arrangements, including
compensation amounts, with PSPs.
35. In the Report and Order, the Commission concluded, in response
to an argument that we require compensation to be paid on a monthly
basis, that it should ``leave the details associated with the
administration of this compensation mechanism to the parties to
determine for themselves through mutual agreement.'' Therefore, it
declines to mandate a particular period for paying compensation,
including penalties for late payments, and concludes that if a party
believes that compensation should be paid more or less frequently than
is currently the industry norm, that party should negotiate that
particular issue with the other parties as a part of its total
compensation contract.
36. With regard to MCI's argument that the Commission reconsider
its conclusion that PSPs may submit bills for compensation for one year
after the end of the compensation period in questions, the Commission
concludes, as it did in the Report and Order, that the carrier should
remain liable for these claims for that period, although the parties
(i.e., the carrier-payor and the PSP) can reduce this period of time
through a contractual provision. MCI also argues that the Commission
should reconsider its conclusion that the time for a PSP to file a
complaint with the Commission will not begin to accrue until the
carrier-payor issues a final denial of the claim. The Commission
concludes that while the statute of limitations for bringing a
complaint before the Commission is set by the Act, it is within its
discretion to define the point at which the compensation claim becomes
ripe for a complaint. Therefore, as it concluded in the Report and
Order, it finds that ``the time period for the statute of limitations
does not begin to run until after the carrier-payor considers a
compensation claim and issues a final denial of that claim. To conclude
otherwise, as suggested by MCI, would permit a carrier-payor to delay a
denial of the claim to preclude a PSP's complaint remedy before the
Commission.''
v. Interim Compensation Mechanism
37. A number of IXCs argue that the interim compensation rules are
discriminatory because they exclude LECs and small IXCs at the expense
of the large IXCs. The Commission notes that once per-call compensation
becomes effective, all carriers, including small IXCs and LECs, will be
required to pay compensation for all calls deemed compensable by the
Report and Order. The interim flat-rate compensation mechanism,
however, was adopted for a specific, limited transitional period, and
thus applies to those carriers that carry the large majority of
compensable calls. To extend interim compensation obligations to all
carriers would significantly increase the administrative costs of the
compensation mechanism. As it did in the access code compensation
proceeding, the Commission excludes small carriers with annual toll
revenues under $100 million, because ``IXCs earning less than $100
million in toll revenues per year collectively account for less than
five percent of long-distance carrier toll revenues.'' It also excludes
LECs from the interim flat-rate compensation obligation for similar
reasons of administrative practicability and because LECs, on an
individual basis, currently do not carry a significant volume of
compensable calls. Thus, because the interim flat-rate compensation
mechanism was adopted for a finite, transitional period, the Commission
declines to modify its rule to include additional carriers, as
suggested by the IXCs. If a party, in the course of the year during
which the interim flat-rate compensation applies, has evidence that the
LECs' carrying of compensable calls has increased significantly above
current levels, it may petition the Commission to adjust the interim
flat-rate to include some LECs as carrier-payors to account for the
increase. The Commission delegates authority to the Chief, Common
Carrier Bureau, to make any necessary adjustments to the list of
compensation-payors for the interim flat-rate compensation period.
38. With regard to AT&T's argument that interim compensation should
not apply to low-usage and semi-public payphones, the Commission notes
that it concluded in the Report and Order that PSPs will be allowed to
receive per-call compensation for calls originated by semi-public
payphones. For the reasons indicated in the Report and Order, the
Commission concludes that PSPs are able to collect flat-rate interim
compensation for semi-public payphones. In addition, because section
276 of the Act neither defines nor directs the Commission to treat so-
called ``low-usage'' payphones differently than other payphones, it
concludes that flat-rate interim compensation applies to all payphones,
regardless if they are considered to be ``low-usage'' payphones. The
Commission notes that the call volume data upon which it calculated the
flat-rate interim compensation in the Report and Order is based on
average call volumes from a variety of payphones maintained by
independent providers and the BOCs. Its estimate of 131 compensable
calls originated by each payphone each month is an average for each
payphone; some payphones will originate more than 131 calls, while
others will originate less. In sum, the Commission concludes that the
level of interim compensation already takes into account the varying
call volumes from payphones.
39. The Commission denies the motion filed by Cable & Wireless that
requests permission to pay its share of the flat-rate interim
compensation amount into an interest-bearing escrow account until March
31, 1997. Although Cable & Wireless argues that it currently does not
have a system in place for paying such compensation to PSPs, the
Commission notes that this is true for a significant number of carriers
obligated to pay the flat-rate interim compensation. Carriers that
receive calls from payphones, however, have been on notice since
February 8, 1996, the date the 1996 Act was enacted, that they would be
obligated to pay for such calls in the near future. In addition, many
carriers, including Cable & Wireless for a time, have been required to
pay flat-rate compensation for access code calls. Because the rules
adopted in the instant proceeding did not become effective until thirty
days after publication in the Federal Register, at which time the
compensation period commences, carriers had an adequate time to devise
a means of paying compensation. The carriers will have additional time
beyond this thirty-day period in light of the fact that the actual
compensation payments will not be due until after the compensation
period has ended. Therefore, because it has not pleaded circumstances
of a unique nature, the Commission denies Cable & Wireless's motion.
40. The Commission denies a request that it require those IXCs that
are currently able to pay per-call compensation to begin to do so
immediately. The Commission has provided IXCs with a one-year period to
implement a per-call tracking and compensation mechanism. In the
interim, the Commission dated a flat-rate compensation amount for PSPs.
To ensure a relatively easy administration for all parties and to allow
them to
[[Page 65357]]
prepare for the per-call mechanism, it declines to modify its rules to
require some IXCs to pay per-call compensation for all or some calls
under the interim compensation mechanism. It concludes that the
requested modification would impose greater transaction costs for all
parties that outweigh its benefits, particularly because the flat-rate
compensation mechanism is a interim mechanism that is scheduled to
terminate in one year. Individual carrier-payors and the PSPs have the
option, however, of mutually agreeing to pay per-call compensation for
all or a portion of a particular carrier's share of the interim flat
rate. Such a carrier-payor would have to petition the Commission for
waiver and receive an approval before implementing such an arrangement.
The Commission delegates the requisite authority to the Chief, Common
Carrier Bureau, to determine whether any such waivers from its interim
flat-rate compensation mechanism in the instant proceeding should be
granted.
41. The RBOCs, BellSouth, and Ameritech request that the Commission
clarify that the LECs be allowed to eliminate subsidies and reclassify
their assets, and, as a result, be eligible to receive payphone
compensation, by April 15, 1997, as opposed to on that date. The
Commission clarifies that the LECs may complete all of the steps
necessary to receive compensation by April 15, 1997. In this regard, it
recognizes that LECs may be in different positions with regard to the
actions required to comply with the requirements established in the
Report and Order. It also recognizes that there are benefits to moving
quickly to the more competitive payphone market structure that it seeks
to establish. The Commission states that it must be cautious, however,
to ensure that LECs comply with the requirements set forth in the
Report and Order. Accordingly, the Commission concludes that LECs will
be eligible for compensation like other PSPs when they have completed
the requirements for implementing its payphone regulatory scheme to
implement section 276. LECs may file and obtain approval of these
requirements earlier than the dates included in the Report and Order,
as revised in the Order on Reconsideration, but no later than those
required dates. To receive compensation, a LEC must be able to certify
the following: (1) It has an effective cost accounting manual (``CAM'')
filing; (2) it has an effective interstate carrier common line
(``CCL'') tariff reflecting a reduction for deregulated payphone costs
and reflecting additional multiline subscriber line charge (``SLC'')
revenue; (3) it has effective intrastate tariffs reflecting the removal
of charges that recover the costs of payphones and any intrastate
subsidies; (4) it has deregulated and reclassified or transferred the
value of payphone customer premises equipment (``CPE'') and related
costs as required in the Report and Order; (5) it has in effect
intrastate tariffs for basic payphone services (for ``dumb'' and
``smart'' payphones); and (6) it has in effect intrastate and
interstate tariffs for unbundled functionalities associated with those
lines. The Commission clarifies that the requirements of the Report and
Order apply to inmate payphones that were deregulated in an earlier
order. As the requirements of the Report and Order become due, LECs
must comply with those requirements for all payphones, including inmate
payphones.
42. In addition to the requirements for all other LECs, BOCs must
also have approved CEI plans for basic payphone services and unbundled
functionalities prior to receiving compensation. Similarly, prior to
the approval of its comparably efficient interconnection (``CEI'')
plan, a BOC may not negotiate with location providers on the location
provider's selecting and contracting with the carriers that carry
interLATA calls from their payphones. The Commission delegates
authority to the Chief, Common Carrier Bureau, to make any necessary
determination as to whether a LEC has complied with all requirements as
set forth above.
vi. Barriers to Entry and Exit
43. As it stated in the Report and Order, the Commission's ultimate
goal in this proceeding is to ensure the wide deployment of payphones
through the development of a competitive payphone industry. To achieve
this goal, it found that it would be necessary to eliminate certain
vestiges of a long-standing regulatory approach to payphones. To this
end, the Report and Order directed the removal of subsidies to
payphones, provided for nondiscriminatory access to bottleneck
facilities, ensured compensation for all calls from payphones, and
allowed all competitors an equal opportunity to compete for essential
aspects of the payphone business. In particular, the Commission
directed each state to examine its regulations applicable to payphones
and PSPs, removing or modifying those that erect barriers to entry or
exit and thereby affect the ability of companies to compete in the
payphone industry on an equal footing. The Commission concludes on
reconsideration that these actions are essential to implementing the
congressional directive to establish a ``pro-competitive deregulatory
national framework designed to accelerate rapid private sector
deployment of advanced telecommunications and information technologies
and services to all Americans by opening all telecommunications markets
to competition.'' It also concludes that they are necessary in order to
implement the stated goals of section 276 ``of promot[ing] competition
among payphone service providers and promot[ing] the widespread
deployment of payphone services to the benefit of the general public *
* *'' In short, burdensome state entry and exit requirements would be
inconsistent with the rules the Commission has adopted to implement the
congressional mandate embedded generally in section 276 of the Act,
and, more specifically, in the requirements of section 276(b)(1)(A) to
ensure fair compensation for each and every call using a payphone. For
these reasons, the Commission expresses satisfaction that its directive
to the states to eliminate such burdens is within the preemption
authority granted to it by Congress in section 276(c). Accordingly, it
denies requests by the states that it reconsider its conclusions in
that regard.
44. While it recognizes the concerns expressed by the states, the
Commission finds that none of the actions it took to ensure a
competitive payphone industry is inconsistent with, or infringes upon,
the states' traditional police powers. Rather, the Report and Order
takes the initial steps necessary to move payphone services from a
regulated industry to an unregulated one. As with any business,
however, states retain authority to impose certain requirements without
competitive effect that are designed to protect the health, safety and
welfare of its citizens. For example, reasonable zoning requirements
restricting the placement of payphones for public safety purposes are a
legitimate exercise of a state's police power, just as a state may
designate areas within its jurisdiction where restaurants and other
competitive businesses may or may not be located. Similarly, a state
may require a PSP to register as a prerequisite to doing business
within that state, just as many require such registration of other
nonregulated businesses. Indeed, the Commission stated in the Report
and Order that states need remove or modify only ``those regulations
that affect payphone competition[.]'' The
[[Page 65358]]
Commission notes, as one example, that ``the states remain free at all
times to impose regulations, on a competitively neutral basis, to
provide consumers with information and price disclosure.'' It
emphasizes that any state regulations must treat all competitors in a
nondiscriminatory and equal manner, and not involve the state in
evaluating the subjective qualifications of competitors to provide
payphone services. Thus, a state can identify, for public safety
reasons, areas where no competitor can place a payphone; but it cannot
draw distinctions that allow some class of competitors to enter the
payphone market and not others. In this way, the market will determine
who is best equipped to provide these services, while at the same time
encouraging the development of advanced technology and the wide
deployment of payphones.
45. California also expresses the concern that the Commission's
direction that states eliminate barriers to entry would prevent a state
from requiring the placement of payphones in unprofitable locations,
including densely populated urban areas, where persons would otherwise
have no recourse to payphones. California argues that these
restrictions would limit the states' ability to provide for the welfare
of their residents. The Commission disagrees, explaining that there are
at least two means by which a state could address the problem described
by California. First, a location where a payphone does not exist
because it is unprofitable, but which serves the public welfare,
satisfies the requirements for placement of a public interest payphone.
To this extent, a state may rely upon the public interest payphone
funding mechanisms to arrange for the placement of a payphone at such
location. Where a location does not satisfy the criteria for placement
of a public interest payphone, the state may still contract with a PSP
for provision of payphone service, in its role as a location provider,
in locations over which it has such authority. It simply may not rely
upon the funding mechanism for public interest payphones to support
such payphones. Of course, a state may not, as suggested in the RBOCs
comments, require that a PSP place a payphone at a particular location.
Such a requirement would neither be competitively neutral, nor ensure
fair compensation to the PSP as required by the 1996 Act. A state may,
however, enter into a voluntary agreement with a PSP at mutually
agreeable terms for the provision of such service.
B. Reclassification of Incumbent LEC-Owned Payphones
46. Incumbent LEC payphones, classified as part of the network,
recover their costs from CCL charges assessed on those carriers that
connect with the incumbent LEC. In order to comply with section
276(b)(1)(B) by removing payphone costs from the CCL charge and all
intrastate and interstate payphone subsidies from basic exchange and
exchange access revenues, the Report and Order established requirements
for: (1) The termination of access charge compensation and all other
subsidies for incumbent LEC payphones; (2) the prospective
classification of incumbent LEC and AT&T payphones as CPE; (3)
tariffing of basic payphone services and functionalities; and (4) the
reclassification and transfer of incumbent LEC payphone equipment
assets from regulated to nonregulated status.
i. Classification of LEC Payphones as CPE
a. CPE Deregulation. 47. In the Report and Order, the Commission
concluded that to best effectuate the 1996 Act's mandate that access
charge payphone service elements and payphone subsidies from basic
exchange and exchange access revenues be discontinued, incumbent LEC
payphones should be treated as deregulated and detariffed CPE. In
addition, the Commission concluded that AT&T payphones must be
deregulated, detariffed, and treated as CPE.
b. Unbundling of Payphone Services. 48. Petitions for
reconsideration requested that the Commission reconsider its
requirement that LECs file federal tariffs for payphone services. In
the Order on Reconsideration the Commission modifies the tariffing
requirement. Section 276 requires that the Commission take all actions
necessary to ``discontinue * * * all intrastate and interstate payphone
subsidies from basic exchange and exchange access revenues.'' To
implement this requirement, in the Report and Order the Commission
deregulated payphone equipment and established a requirement that LECs
provide tariffed payphone services to independent payphone providers
that they provide to their own payphone operations. Federal tariffing
enables the Commission to directly ensure that payphone services comply
with section 276. In Computer III and ONA, the Commission included both
state and federal tariffing requirements. The Commission's requirement
in the Report and Order for federal tariffing was consistent with
section 276, Computer III and ONA. The Commission did not, in the
Report and Order, preclude states from requiring the tariffing of
payphone services. Consistent with this conclusion, the Commission
provided that states could require further unbundling of payphone
services than those required in the Report and Order. Although the
Commission disagrees with petitioners regarding its authority to
require federal tariffing of payphone services, on reconsideration the
Commission modifies the federally tariffing requirement as discussed
below. As required in the Report and Order, LECs must provide tariffed,
nondiscriminatory basic payphone services that enable independent
providers to offer payphone services using either instrument-
implemented ``smart payphones'' or ``dumb'' payphones that utilize
central office coin services, or some combination of the two, in a
manner similar to the LECS. LECs must file those tariffs with the
states. In addition, as required by the Report and Order, any basic
network services or unbundled features used by a LEC's operations to
provide payphone services must be similarly available to independent
payphone providers on a nondiscriminatory, tariffed basis. The
Commission states that those unbundled features or functions must be
tariffed in the state and federal jurisdiction, and that federal
tariffing of unbundled network features is consistent with Computer III
and ONA. The Commission has also required, for example, federal
tariffing of originating line screening services.
49. In the Order on Reconsideration, the Commission requires LECs
to file tariffs for the basic payphone services and unbundled
functionalities in the intrastate and interstate jurisdictions as
discussed below. LECs must file intrastate tariffs for these payphone
services and any unbundled features they provide to their own payphone
services. The tariffs for these LEC payphone services must be: (1) Cost
based; (2) consistent with the requirements of section 276 with regard,
for example, to the removal of subsidies from exchange and exchange
access services; and (3) nondiscriminatory. States must apply these
requirements and the Computer III guidelines for tariffing such
intrastate services. States unable to review these tariffs may require
the LECs operating in their state to file these tariffs with the
Commission. In addition, LECs must file with the Commission tariffs for
unbundled
[[Page 65359]]
features consistent with the requirements established in the Report and
Order. LECs are not required to file tariffs for the basic payphone
line for smart and dumb payphones with the Commission. The Commission
will rely on the states to ensure that the basic payphone line is
tariffed by the LECs in accordance with the requirements of section
276. As required in the Report and Order, and affirmed in the Order on
Reconsideration, all required tariffs, both intrastate and interstate,
must be filed no later than January 15, 1997 and must be effective no
later than April 15, 1997. Where LECs have already filed intrastate
tariffs for these services, states may, after considering the
requirements of the Order on Reconsideration, the Report and Order, and
section 276, conclude: (1) That existing tariffs are consistent with
the requirements of the Report and Order as revised in the Order on
Reconsideration; and (2) that in such case no further filings are
required. The Commission delegates authority to the Common Carrier
Bureau to determine the least burdensome method for small carriers to
comply with the requirements for the filing of tariffs with the
Commission.
50. In the Report and Order the Commission provided a waiver of the
notification period of Computer II and Computer III network information
disclosure requirements with which BOCs may be required to comply
pursuant to the requirements of the Report and Order. In the Order on
Reconsideration, consistent with the clarification above that LECs may
comply with all the requirements of the Report and Order by April 15,
1997, the Commission also clarifies that the waiver of the network
information disclosure requirements to allow a minimum three month
period for notification of payphone service and related unbundled
features tariffs is also granted if BOCs file those tariffs earlier
than the January 15, 1997 date. The Commission clarifies further that
the waiver provided in the Report and Order and in the Order on
Reconsideration is only effective for payphone tariffs to comply with
these requirements and only until April 15, 1997, because network
information disclosures must be made, as required by the Report and
Order, no later than January 15, 1997.
51. On reconsideration, the Commission declines to require further
unbundling of payphone services beyond those established in the Report
and Order. The Commission clarifies that any unbundled network features
provided to a LEC payphone operation must be available on a
nondiscriminatory basis to independent payphone providers and must be
tariffed in the federal and state jurisdictions. Under Computer III,
independent payphone providers may request unbundled features through a
120-day process and BOCs must indicate why they decline to provide the
requested features. In the Report and Order, the Commission did not
create a similar requirement for LECs other than BOCs to provide
unbundled network functionalities requested by independent payphone
providers. However, as discussed in the Order on Reconsideration, and
provided in the Report and Order, states may require all LECs to
provide, pursuant to nondiscriminatory tariffs, unbundled network
functionalities associated with payphone services.
c. Other Payphone Services. 52. In the Order on Reconsideration,
the Commission clarifies that the requirement for LECs to provide
installation and maintenance services applies only to the payphone
transmission lines and unbundled basic functionalities not the payphone
equipment, which pursuant to the Report and Order is unregulated
equipment. The Commission declines to require access to unregulated
services, such as installation and maintenance of unregulated CPE, and
billing and collection (beyond the requirement established in the
Report and Order). Services the Commission has deregulated are
available on a competitive basis and do not have to be provided by LECs
as the only source of services. The Commission also declines to require
the LECs to joint market for independent payphone providers. The
Commission states that it has not required joint marketing in Computer
III, which also required nondiscriminatory access to BOC services.
d. Registration and Demarcation Point for Payphones. 53. As
requested by the RBOC Coalition, the Commission clarifies that its
minimum point of entry demarcation point standards are flexible enough
to allow for placement of payphones at the nearer and most cost-
effective drop point in unique circumstances, such as service stations.
The Commission notes that this conclusion is consistent with the
Commission's rules at 47 CFR 68.3, which defines the demarcation point
and allows LECs to select a location ``as determined by the telephone
company's reasonable and nondiscriminatory standard operating
practices.'' The Commission requires that LECs must treat independent
payphone providers in a nondiscriminatory manner with regard to such
flexible placement.
54. The Commission delegates to the Chief, Common Carrier Bureau,
the authority to establish any specific requirements associated with
the existing payphone equipment the Commission grandfathered from
registration requirements under section 68.2 in the Report and Order.
ii. Reclassification or Transfer of Payphone Equipment to Nonregulated
Status
55. The Commission reaffirms its conclusions in the Report and
Order regarding payphone asset valuation and accounting issues. The
Report and Order addressed the issues that were raised again on
reconsideration and stated that, in the situation in which a BOC or a
LEC chooses to maintain the nonregulated payphone assets on the
carrier's regulated books of account, the Commission's Part 64 cost
allocation rules contain the necessary safeguards required by section
276 of the 1996 Act to protect regulated ratepayers from improper
cross-subsidies. Pursuant to these long-standing cost allocation rules,
carriers are not required to ``write-up'' payphone assets when they are
reclassified as nonregulated assets. The Commission concludes that APCC
raised no new arguments in either its petition or comments that
contradict the conclusions in the Report and Order.
56. The Commission reaffirms its conclusions with respect to asset
valuation when a BOC or a LEC transfers payphone assets to an
affiliate. The Commission states that it does not believe, however,
that the RBOC Coalition, BellSouth, SW Bell, and Ameritech raise an
issue that it must clarify on reconsideration. The Commission states
that those petitioners agree with the Commission that, if payphone
assets are transferred from the carrier to an affiliate, the affiliate
transactions rules must apply, and that under the Commission's rules,
the transferred assets must be valued at the higher of fair market
value or net book value. The petitioners disagree, however, with the
Commission's determination that fair market value of assets transferred
includes intangible assets that are not recorded on the carrier's
regulated books. Some of these petitioners cited the Joint Cost
Reconsideration Order and a 1988 Ameritech Cost Allocation Manual
Review Order as authority for their contention. The Commission
disagrees with the petitioners for the reasons discussed below.
57. In the Report and Order, the Commission stated that, if a
carrier
[[Page 65360]]
transferred its payphone assets to an affiliate, the transaction would
be governed by the Commission's affiliate transactions rules.
Accordingly, the payphone asset transfer would be recorded on the
carrier's books at the higher of fair market value or net book value.
The Commission further stated that fair market value is ``the price at
which the property would change hands between a willing buyer and a
willing seller, neither being under any compulsion to buy or sell and
both having reasonable knowledge of relevant facts.'' The Commission
next concluded that the going concern value associated with the
payphone business must be taken into consideration in determining fair
market value and that going concern value includes the value of
intangible assets such as location contracts that add value to the
payphone business. The Commission clarifies this latter point.
58. The Commission reiterates in the Order on Reconsideration, that
it continues to apply the definition of ``fair market value'' as
provided for in the Report and Order. The issue raised by the RBOC
Coalition, BellSouth, SW Bell and Ameritech on reconsideration focused
on whether the definition should be applied to the tangible value of
the assets, as contrasted to the value of all property rights directly
associated with the payphone assets. The Commission clarifies that the
answer depends on the nature of the transfer itself.
59. The Commission envisioned in the Report and Order that if
payphone assets were transferred by a carrier to an affiliate, these
assets would be transferred inclusive of intangible assets such as
location contracts. In this instance, appraisal techniques would be
applied such as discounting the stream of predicted cash flows over the
term of the location contract, capitalizing net income from payphone
operations, using comparable sales data, or any other reasonable method
that would yield an estimated fair market value. This computation could
be done for each payphone on an individual basis, for accumulations of
payphone assets, for example by geographic area, or for all payphone
assets. If appraisal techniques indicated that fair market value
exceeded net book value, the transfer of the payphone assets should be
recorded at the fair market value. The Commission further states in the
Report and Order, and the Order on Reconsideration, that the value of
the carrier's brand name should not be included in the fair market
value computation. If a carrier could reasonably estimate the value
associated with the brand name, this value should be deducted from the
overall fair market value computation.
60. The Commission states that it did not envision in the Report
and Order that a carrier would transfer only the physical assets
themselves, but it discusses that situation in the Order on
Reconsideration. On the date of transfer to affiliates, there may be
circumstances in which the location contracts supporting payphone
assets may have expired or otherwise been terminated. In this case, the
affiliate would take those payphone assets and deploy those assets to
new locations subject to new contracts. The fair market value
established by reasonable appraisal techniques would not include the
value of intangible assets such as location contracts; only the
physical assets would be transferred. Even so, the same definition of
fair market value would be applicable.
61. The Commission states that the conclusions in the Report and
Order and in the Order on Reconsideration are consistent with its
affiliate transactions rules and do not reflect any change in those
rules. The Commission states that its conclusions also do not conflict
with the Joint Cost Reconsideration Order or the Ameritech CAM Order.
In the Joint Cost Reconsideration Order, the Commission addressed in a
footnote a commenter's suggestion that a nonregulated affiliate should
be charged for the value of previous training when an employee is
transferred to the affiliate. In that instance, the Commission stated
that the value of previous employee training is an intangible benefit,
the allocation of which is beyond the scope of the proceeding. In the
Ameritech CAM Order, the Commission addressed the employee training
issue again and stated that allocation of costs of employee training
would not be required unless it became apparent that the regulated
entity was providing employee training as a service to its affiliate.
In addition, in the Ameritech CAM Order, the Commission addressed the
BOC brand name issue. In that order, the Commission reaffirmed its
position that the BOC brand name was an intangible benefit that has
never appeared on Ameritech's books and is not a cost for affiliate
transactions purposes.
62. In the Order on Reconsideration the Commission states that it
agrees that intangible benefits such as the carrier's brand name should
not be considered in the determination of fair market value for
affiliate transactions rules purposes. Such benefits accrue to all
assets of the carrier and are not directly related to the asset being
valued. In addition, as the Commission stated in the Report and Order,
intangible assets such as the carrier's brand name would not generally
be transferred by a willing seller under the definition of fair market
value. The Commission thus concludes in the Order on Reconsideration
that such intangible assets should not be included in the determination
of fair market value. The Commission states that this determination is
consistent with existing Commission rules and the Ameritech CAM Order.
63. The Commission disagrees with those petitioners who assert that
intangible assets, such as the going concern value stemming from
location contracts and other like assets, should not be included in the
determination of fair market value. Going concern value is the
additional element of value that attaches to property by reason of its
existence as an integral part of a going concern. As such, this
intangible asset is directly related to the payphone assets being
transferred and enhances the value of the assets. The fact that this
intangible asset is directly related to the asset distinguishes this
intangible asset from the carrier brand name that is not directly
related. In addition, the petitioners have asserted that the cost of
this intangible asset has never been recorded on the carriers'
regulated books and thus should not be considered in determining fair
market value. Most, if not all, of the going concern value associated
with the payphone assets is generated by the existence of the location
contracts. While the cost of these location contracts are not
capitalized to the payphone asset accounts, the commissions paid to
location providers as required by the location contracts are recorded
as period expenses on the carrier's books. This further distinguishes
these intangible assets from the carrier's brand name.
64. The Commission states that it does not see any conflict with
the Joint Cost Reconsideration Order or Ameritech CAM Order as those
orders addressed the intangible benefits accruing from previous
employee training. Like the carrier brand name, that type of intangible
benefit is not directly associated with any particular asset. In
addition, it is doubtful whether such an intangible benefit is even
subject to valuation under reasonable appraisal techniques. As a
result, the Commission concludes that these types of intangible
benefits are distinguishable from the going concern value generated by
the location contracts of the payphone assets. The Commission thus
concludes that it did nothing in the Report and Order that conflicted
with existing
[[Page 65361]]
Commission rules, nor deviated from either the Joint Cost
Reconsideration Order or the Ameritech CAM Order.
iii. Termination of Access Charge Compensation and Other Subsidies
65. The Report and Order requires LECs to remove interstate
payphone costs being recovered through CCL charges by doing the
following: (1) Transferring payphone set costs to nonregulated
accounts; and (2) transferring the recovery of payphone line costs from
CCL charges to subscriber line charges. The Order on Reconsideration
addresses petitions seeking clarification of the method of revising CCL
charges under price cap rules, and provides some modifications.
66. The Commission denies USTA's request regarding
Sec. 61.45(d)(1)(vi). The Commission indicates that it stated clearly
in the Report and Order that LECs are required to transfer payphone set
costs from regulated to nonregulated accounts pursuant to Sec. 64.901
and other applicable rules. Section 61.45(d)(1)(v) governs exogenous
cost changes resulting from ``the reallocation of investment from
regulated to nonregulated activities pursuant to Sec. 64.901.'' The
Commission concludes USTA has not provided any reasonable basis for
construing Sec. 61.45(d)(1)(v) to be inapplicable.
67. USTA seeks clarification of the procedure for LECs to use in
removing from the CCL charges the deregulated payphone costs described
in Sec. 69.501(d) of the rules. The Report and Order requires LECs to
determine the percent ratio of payphone cost to all costs in the common
line category in 1995, the payphone cost allocator, and to reduce the
Common Line Basket price cap index (``PCI'') by that percentage. USTA
maintains that costs associated with payphone lines identified by
Sec. 69.501(d) should be subtracted before developing the payphone cost
allocator, because payphone lines will remain under regulation. AT&T
maintains that the intent of the Report and Order clearly states that
payphone line costs allocated pursuant to Sec. 69.501(d) should remain
as part of the LEC's regulated operations, and thus supports USTA's
position.
68. USTA also seeks acknowledgment that the exogenous cost
adjustment to the PCI should be reduced by the amount of PCI adjustment
that has already occurred as a result of prior deregulation of inmate
payphones. According to USTA, this credit can be obtained by
multiplying the PCI in effect prior to the inmate payphone filing by
the payphone cost allocator. AT&T maintains that USTA's suggested
approach will not achieve the correct result, which can be achieved by
clarifying that the PCI and payphone cost allocator described in
paragraph 185 of the Report and Order refer to the PCI and allocator
that existed prior to implementation of the inmate payphone order.
69. The Commission agrees that LECs should subtract the payphone
costs described in Sec. 69.501(d) associated with payphone lines, prior
to developing the payphone cost allocator. The Commission therefore
clarifies and revises the exogenous cost adjustment mechanism it
adopted in paragraph 185 of the Report and Order, and requires LECs to
subtract the costs of lines associated with payphones from the costs
described in Sec. 69.501(d), prior to calculating their payphone cost
allocator. The Commission further agrees that a credit should be
applied to the PCI adjustment equal to any prior PCI adjustment
associated with inmate payphone deregulation, and that AT&T has
proposed a method that achieves the correct result. The Commission
states that LECs proposing to subtract payphone line costs or inmate
payphone costs from Sec. 69.501(d) for the purpose of their PCI
adjustment should provide complete details, including references to
parts 32, 36, and 69 of the rules and associated ARMIS line items, to
demonstrate that their line cost calculations are reasonable.
70. Sprint seeks clarification by the Commission that CCL charges
must be reduced by more than the amount of payphone equipment cost
transferred from regulated to nonregulated accounts. Sprint further
espouses that payphone cost includes non-equipment costs such as the
cost of the local network used for payphone service and local business
office expense. BellSouth maintains that local network and local
business associated with the payphone lines should not be reclassified
as nonregulated. The Commission agrees with Sprint that there are non-
equipment, local and network costs attributable to payphone set cost
and concludes that the exogenous cost adjustment, as modified, removes
an adequate amount of such interstate overhead costs from the LEC's
common line charges. The Commission also agrees with BellSouth that
line cost should not be reclassified, and concludes that this is
clearly stated in the Report and Order.
71. USTA and AT&T seek clarification of the treatment of additional
revenues that will accrue to LECs as a result of the rule change that
results in a multiline SLC charge on payphone lines. According to USTA,
the application of a SLC to payphone lines will be a price cap
restructure reflecting: (1) The additional SLC revenue as a result of
applying a multiline SLC to public payphone lines, and (2) the
additional SLC revenue as a result of applying the multiline SLC to
semi-private payphones instead of the residential and single line
business SLC that currently applies. The RBOC Coalition supports USTA's
methodology. Similarly, AT&T maintains that LECs should reduce CCL
charges by an amount equal to the additional SLC revenue. AT&T
believes, however, that USTA's reference to restructuring the base
period revenue is unclear. AT&T advocates no change to the base period
revenue for the purpose of comparing revenues under the existing and
modified rate structures.
72. The Commission agrees that application of multiline SLCs to
payphone lines is a restructure pursuant to Sec. 61.46(c), requiring a
comparison of existing revenue to receipts of revenue under the
modified rate structure. LECs can achieve this result by recalculating
and revising CCL charges pursuant to the CCL formula in Sec. 61.46(d),
using the following steps. First, recalculate the end user common line
(minutes of use) factor displayed in 1996 annual filing to include
public payphone costs and lines including any necessary adjustments to
forecasts to reflect: (1) The increase in SLC revenue from application
of multiline SLCs to public payphone lines; and (2) the increase in SLC
revenue from applying multiline SLCs to the semi-private payphone lines
instead of the residential and single line business SLC. Second, use
the same carrier common line (minutes of use) factor displayed in the
1996 annual filing, but recalculate the percent change in the PCI to
reflect the exogenous cost change associated with payphone cost
deregulated as a result of the Report and Order. Third, recalculate the
percent change in the PCI to incorporate any change in Long Term
Support (LTS) paid to NECA's common line pool, if revised LTS data are
available at the time of filing. Otherwise, the LTS adjustment can be
shown as a true-up to prior year LTS and reported in the 1997 annual
filing. Fourth, recalculate the carrier common line (minutes of use),
the CCL revenue component of the formula, to reflect these changes.
Finally, recalculate the maximum allowable CCL charges.
73. The procedure above will result in the removal from the CCL
charge of deregulated set cost. Regulated line cost will also be
removed and recovered through SLC charges except any portion that might
exceed the $6.00 cap on the
[[Page 65362]]
multiline SLC charge. Those SLC deficit costs will be recovered through
the CCL charge, in the same manner as the deficit costs associated with
non-payphone lines.
74. WPTA contends that the Act requires the Commission to
discontinue the application of SLCs with regard to all payphone lines,
to meet the Act's requirement for removal of subsidies from payphone
services. BellSouth disputes WPTA's interpretation of the Act by
contending that regulated charges such as the SLC should not apply only
if those charges subsidize nonregulated payphone operations. BellSouth
contends there is no subsidization, because the SLC serves the purpose
of recovering regulated costs associated with payphone lines. The
Commission agrees with BellSouth that the application of a SLC to
payphone lines is necessary for LECs to recover regulated costs
assigned to the interstate jurisdiction. In addition, SLC charges will
apply equally to LEC and non-LEC payphone lines and, therefore, the
incremental SLC cost is the same for LEC and non-LEC payphone
providers.
75. Finally, The Commission revises the rules regarding the
recovery of common line costs. The Commission revises Part 69 of its
rules to reflect the changes.
C. Nonstructural Safeguards for BOC Provision of Payphone Service
76. In response to the request from the RBOC Coalition that the
Commission clarify that the Report and Order preempts inconsistent
nonstructural safeguards, the Commission notes in the Order on
Reconsideration that section 276(c) provides for such preemption. The
Commission clarifies that the Report and Order does preempt
nonstructural safeguards that are inconsistent with those established
in the Report and Order. In that order, the Commission specifically
preempted any structural separation requirements for the LEC provision
of payphone service because it concluded that such requirements are
inconsistent with section 276. With regard to other nonstructural
safeguards, the Commission noted that it applied the Computer III and
ONA safeguards to the provision of payphone service by the BOCs.
Although the Commission declined to apply these same safeguards to the
nonBOC LECs, the Commission indicated that it did not preempt the
states from imposing nonstructural safeguards that are no more
stringent than those the Commission imposed on the BOCs. In the
Computer III proceeding the Commission addressed when state
nonstructural safeguards would be inconsistent with Computer III. The
Commission addressed such preemption of state requirements with regard
to jurisdictionally-mixed enhanced services in Computer III. In the
Order on Reconsideration, the Commission adopts that analysis for
preemption of state payphone service nonstructural safeguards that are
inconsistent with the Report and Order. The Commission concludes that
it is necessary to go further than the Computer III analysis to
determine if a nonstructural safeguard is inconsistent with section 276
because, for example, it is clear from section 276 that BOCs and other
LECs may provide payphone services on an integrated basis. Thus, state
requirements that, for example, require the LECs or BOCs to provide
payphone services only through a separate corporate entity with
separate books would be inconsistent with section 276. The Commission
has previously addressed state regulations that may conflict with the
Computer III network disclosure and CPNI requirements. In the Order on
Reconsideration, the Commission adopts that analysis for clarifying
when state requirements would be inconsistent with those requirements,
although the Commission notes that CPNI requirements must also be
consistent with
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