Interstate, Interexchange Marketplace; and Implementation of Section 254(g) of the Communications Act of 1934, as Amended

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[CC Docket No. 96-61, FCC 96-123]

Interstate, Interexchange Marketplace; and Implementation of

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

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In the light of the passage of the 1996 Act, changes in the

interexchange market over the past decade, and the recent

reclassification of AT&T as a non-dominant carrier, the Commission is

issuing this Notice of Proposed Rulemaking (``Notice'' or ``NPRM'')

seeking comment on possible changes in the regulatory treatment of

interstate, interexchange telecommunications service providers.

Specifically, the Notice tentatively concludes that, as required by the

forbearance provision in Section 10 of the Communications Act, as

amended, the Commission must forbear from applying Section 203 tariff

filing requirements to non-dominant interexchange carriers for domestic

services. The Notice tentatively concludes that the Commission's

proposed detariffing policy should be implemented on a mandatory basis.

The Notice seeks comment on whether the Commission should forbear, with

respect to non-dominant carriers that file bundled domestic and

international tariffs, from requiring such carriers to file tariffs for

the international portions of their service offerings as well.

DATES: Comments on Section IV of the NPRM (related to market

definition), Section V (related to separation requirements) and Section

VI (related to the implementation of Section 254(g) of the

Communications Act of 1934, as amended) must be submitted on or before

April 19, 1996. Reply comments for these sections must be filed on or

before May 3, 1996. Comments on all other sections of the NPRM must be

submitted on or before April 25, 1996. Reply comments for these

sections must be submitted on or before May 24, 1996. Written comments

on the Initial Regulatory Flexibility Analysis must be filed in

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

issues (other than Sections IV, V, and VI) in the NPRM, but they must

have a separate and distinct heading designating them as responses to

the Regulatory Flexibility Analysis. Written comments by the public on

the proposed and/or modified information collections are due on or

before April 19, 1996. Written comments must be submitted by the Office

of Management and Budget (OMB) on the proposed and/or modified

information collections on or before June 3, 1996.

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

[[Page 14718]]

the Secretary, Federal Communications Commission, 1919 M Street, N.W.,

Room 222, Washington, D.C. 20554, with a copy to Janice Myles of the

Common Carrier Bureau, 1919 M Street, N.W., Room 544, Washington, D.C.

20554. Parties should also file one copy of any documents filed in this

docket with the Commission's copy contractor, International

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

Washington, D.C. 20037. Comments and reply comments will be available

for public inspection during regular business hours in the FCC

Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C.

20554. In order to facilitate review of comments and reply comments,

both by parties and by Commission staff, we require that comments on

Section IV of the NPRM (related to market definition), Section V

(related to separation requirements), and Section VI (related to

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

be no longer than forty-five (45) pages and reply comments be no longer

than twenty-five (25) pages. We require that comments on the remaining

sections of the NPRM be no longer than forty-five (45) pages and reply

comments on the remaining sections be no longer than twenty-five (25)

pages. Comments and reply comments must include a short and concise

summary of the substantive arguments raised in the pleading. Parties

are also asked to submit comments and reply comments on diskette. Such

diskette submissions would be in addition to and not a substitute for

the formal filing requirements addressed above. Parties submitting

diskettes should submit them to Janice Myles of the Common Carrier

Bureau, 1919 M Street, N.W., Room 544, Washington, D.C. 20554. Such a

submission should be on a 3.5 inch diskette formatted in an IBM

compatible form using MS DOS 5.0 and WordPerfect 5.1 software. The

diskette should be submitted in ``read only'' mode. The diskette should

be clearly labelled with the party's name, proceeding, type of pleading

(comment or reply comments) and date of submission. The diskette should

be accompanied by a cover letter. In addition to filing comments with

the Secretary, a copy of any comments on the information collections

contained herein should be submitted to Dorothy Conway, Federal

Communications Commission, Room 234, 1919 M Street, N.W., Washington,

DC 20554 or via the Internet to [email protected], and to Timothy Fain,

OMB Desk Officer, 10236 NEOB, 725 - 17th Street, N.W., Washington, DC

20503 or via the Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: Melissa Waksman or Donald Stockdale at

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

Division. For additional information concerning the information

collections contained in this NPRM, contact Dorothy Conway at 202-418-

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

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Notice of Proposed Rulemaking (FCC 96-123) adopted on March 21, 1996

and released on March 25, 1996. The full text of this Notice of

Proposed Rulemaking is available for inspection and copying during

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

St., N.W., Washington, DC. The complete text also may be purchased from

the Commission's copy contractor, International Transcription Service,

Inc., (202) 857-3800, 2100 M St., NW., Suite 140, Washington, DC 20037.

Background

The Notice reserves for another day, in a separate proceeding, the

broader question of whether the Commission should consider generally

forbearing from requiring tariffs for international service provided by

a non-dominant carrier, given the current market conditions in the

international market. The Notice also invites parties to comment on

whether, with respect to existing regulations examined in this Notice,

the Commission should forbear from applying such regulations to some or

all interexchange carriers or services, in particular areas or regions.

The Notice also considers whether the Commission should reexamine the

geographic and product market definitions that the Commission adopted

in the Competitive Carrier proceeding. The Notice tentatively concludes

that the Commission should follow the approach taken in the U.S.

Department of Justice/Federal Trade Commission 1992 Merger Guidelines

for defining relevant markets. The Notice interprets the Guidelines'

approach as suggesting that the Commission should define as a relevant

product market an interstate, interexchange service for which there are

no close substitutes or group of services that are close substitutes

for each other but for which there are no other close substitutes. The

Notice tentatively concludes, however, that the Commission need not

address the issue of delineating the boundaries of specific product

markets, except where there is credible evidence suggesting that there

is or could be a lack of competitive performance with respect to a

particular service or group of services. The Notice also tentatively

concludes that the Commission should define a relevant geographic

market for interstate, interexchange services as all calls between two

particular points. The Notice states, however, that geographic rate

averaging and other factors imply that a carrier or group of carriers

cannot change interexchange rates for calls between two particular

points without changing rates nationwide for calls of that distance.

The Notice, therefore, tentatively concludes that the Commission should

treat interstate, interexchange calling as generally one national

market. Where, however, there is credible evidence suggesting that

there is or could be a lack of competition in a particular point-to-

point market or group of markets, and that geographic rate averaging

will not sufficiently mitigate the exercise of market power, the Notice

proposes that the Commission will examine individually that market (or

group of markets) for the presence of market power. In the BOC Out-of-

Region NPRM, 60 FR 6607 (February 21, 1996) the Commission stated its

intent to consider whether it may be appropriate to modify or eliminate

separation requirements that are currently imposed upon independent

LECs, and that we tentatively concluded in the BOC Out-of-Region NPRM

should be imposed on BOCs, in order to qualify for non-dominant

treatment in the provision of out-of-region interstate, interexchange

services. The Notice thus seeks comment on whether the Commission

should modify or eliminate the separation requirements independent LECs

must satisfy if they are to be treated as non-dominant carriers in the

provision of interstate, interexchange services outside their local

exchange areas. The Notice seeks comment on whether, if the Commission

modifies or eliminates these requirements for independent LECs, it

should apply the same requirements to BOCs that provide out-of-region

interstate, interexchange services. Section 254(g) of the

Communications Act of 1934, as amended by the 1996 Act, requires the

Commission to adopt rules to implement the requirements that rates for

interexchange services be geographically averaged and be integrated.

The Notice proposes to adopt a rule requiring that the rates charged by

all providers of interexchange telecommunications services to

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

rates charged by each such provider to subscribers in

[[Page 14719]]

urban areas. The Notice states that Section 254(g) requires the

Commission to adopt rules to require geographic averaging for

intrastate and interstate telecommunications services. The Notice

states the Commission believes that Section 254(g) preempts state laws

or regulations requiring geographic rate averaging only to the extent

such laws or regulations are inconsistent with the Commission's rules

and policies. The Notice also proposes to adopt a rule to require rate

integration for services between the contiguous forty-eight states and

Alaska, Hawaii, U.S. territories and possessions. The Notice

tentatively concludes that providers of interexchange services must

file certifications stating they are in compliance with their statutory

geographic rate averaging obligations and that providers of interstate,

interexchange services must file certifications stating that they are

in compliance with their statutory rate integration obligations. The

Notice also seeks comment on: (1) the extent to which interexchange

carriers do not offer discount plans throughout their service areas,

and whether such carriers' failure to do so constitutes geographic

deaveraging; (2) the appropriate mechanism for implementing rate

integration for U.S. territories and possessions that are not currently

subject to the Commission's domestic rate integration policy; and (3)

whether there may be competitive conditions or other circumstances that

could justify Commission forbearance from enforcing the proposed

geographic rate averaging requirement with respect to particular

interexchange telecommunications carries or services. Changes in the

structure of the interexchange marketplace over the past decade have

raised certain issues relating to the pricing of interexchange

telecommunications services. The Notice seeks comment on certain of

these issues. Based on the Commission's prior findings regarding

competition in both the customer premises equipment (CPE) and

interstate, interexchange markets, the Notice tentatively concludes

that the Commission should amend Section 64.702(e) of the Commission's

rules to allow non-dominant interexchange carriers to bundle CPE with

interstate, interexchange services. The Notice notes that the

Commission intends to initiate a comprehensive proceeding to address

payphone issues, and therefore any amendment to Section 64.702(e) of

the Commission's rules adopted in this proceeding will not apply to

payphone bundling. Concerns about the application of the substantial

cause test and other issues related to contract tariffs raised in the

AT&T Reclassification proceeding by resellers and large business

subscribers remain relevant if the Commission decides not to adopt a

mandatory detariffing policy or implements permissive detariffing.

Accordingly, the Notice seeks comment on such tariff-related issues.

This NPRM contains proposed or modified information collections subject

to the Paperwork Reduction Act of 1995 (PRA). It has been submitted to

the Office of Management and Budget (OMB) for review under the PRA.

OMB, the general public, and other Federal agencies are invited to

comment on the proposed or modified information collections contained

in this proceeding.

Paperwork Reduction Act: This NPRM contains either a proposed or

modified information collection. The Commission, as part of its

continuing effort to reduce paperwork burdens, invites the general

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

information collections contained in this NPRM, as required by the

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

comments are due at the same time as comments on Section IV of the NPRM

(related to market definition), Section V (related to separation

requirements), and Section VI (related to Implementation of Section

254(g) of the Communications Act, as amended); OMB notification of

action is due June 3, 1996. Comments should address: (a) whether the

proposed collection of information is necessary for the proper

performance of the functions of the Commission, including whether the

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

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

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

minimize the burden of the collection of information on the

respondents, including the use of automated collection techniques or

other forms of information technology.

OMB Approval Number: None.

Title: Policy and Rules Concerning the Interstate, Interexchange

Marketplace; and Implementation of Section 254(g) of the Communications

Act of 1934, as amended, CC Docket No. 96-61.

Form No.: N/A.

Type of Review: New Collection.

Respondents: Businesses or other for-profit, including small

businesses.

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Estimated

Proposed requirement No. of time per

respondents response

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Detariffing*.................................... 0 0

Recordkeeping................................... 519 1

Certification................................... 519 2

Advertising..................................... 519 2

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* The Commission proposes to eliminate the tariffing requirement now

imposed on non-dominant interexchange carriers for domestic services.

Total Annual Burden: 2595.

Estimated Costs Per Respondent: $0.

Needs and Uses: The information collected under the proposed

recordkeeping and certification requirements would be used by the

Common Carrier Bureau of the Commission to ensure that affected

interexchange carriers fulfill their obligations under the

Communications Act, as amended. The information collected under the

advertising requirement, if adopted, would be used to ensure that

consumers have information regarding carriers' rate plans.

Synopsis of Notice of Proposed Rulemaking

I. Introduction

1. On February 8, 1996, the Telecommunications Act of 1996 (1996

Act) became law. The 1996 Act seeks ``to provide for a pro-competitive,

de-regulatory national policy framework'' designed to make available to

all Americans advanced telecommunications and information technologies

and services ``by opening all telecommunications markets to

competition.'' Integral to achieving this goal, the 1996 Act requires

the Commission to forbear from applying any provision of the

Communications Act of 1934, as amended (Communications Act), or our

regulations, to a telecommunications carrier or telecommunications

service, or class thereof, if the Commission makes certain specified

findings with respect to such provisions or regulations. In addition,

the 1996 Act provides for the entry of the Bell Operating Companies

(BOCs) and their affiliates into the interstate, interexchange market,

after certain preconditions are satisfied. 1996 Act at Sec. 151 (adding

Sec. 271). This entry can be expected to intensify competition in the

interstate, domestic, interexchange market. For purposes of this

proceeding, we generally use the term ``BOCs'' as that term is defined

in Section 3(a)(35) of the Communications Act of 1934, as amended. In a

few instances, however,

[[Page 14720]]

we use the term ``BOCs'' also to encompass BOC affiliates, such as are

contemplated by Section 272 of the Communications Act of 1934, as

amended. The preconditions specified in the 1996 Act apply to a BOC's

provision of interLATA services originating in any of its in-region

states. 1996 Act at Sec. 151 (adding Sec. 271).

2. Consistent with the thrust of the 1996 Act, the Commission has

long pursued policies designed to facilitate the growth of competition

in the domestic long-distance market. In 1979, the Commission commenced

the Competitive Carrier proceeding in which it considered how its

regulations should be modified to reflect and promote competition in

this market. In succeeding years, in part as a result of reforms

adopted in the Competitive Carrier proceeding, the interstate,

domestic, interexchange market has evolved from a market of fledgling

competitors overshadowed by a single, dominant service provider to a

market characterized by substantial competition. The Commission

explicitly acknowledged these dramatic changes when, in October 1995,

we concluded that AT&T Corporation (AT&T) no longer possessed

individual market power in the domestic long-distance market taken as a

whole and, accordingly, reclassified AT&T as a non-dominant carrier for

interstate, domestic, interexchange services.

3. The 1996 Act builds upon the progress made to date in

facilitating competition in the domestic long-distance market, and

provides a framework for raising competition to a higher plane. In

light of the passage of the 1996 Act, changes in the interexchange

market over the past decade, and our recent reclassification of AT&T as

a non-dominant carrier, we believe it is timely to review our

regulatory regime for interstate, domestic, interexchange

telecommunications services. In this proceeding, we therefore examine

whether and how our policies and rules should be changed, consistent

with the intent of the 1996 Act.

4. Specifically, we propose, pursuant to the forbearance authority

provided in the 1996 Act, to adopt a mandatory detariffing policy for

domestic services of non-dominant, interexchange carriers. We also

propose to eliminate the prohibition against bundling customer premises

equipment with the provision of interstate, interexchange services by

non-dominant interexchange carriers. In addition, we consider whether

to reduce or eliminate the separation requirements for non-dominant

treatment of local exchange carriers in their provision of certain

interstate, interexchange services. By these proposals, we seek to

promote competition by reducing or eliminating existing regulations

that may no longer be in the public interest in the increasingly

competitive interexchange marketplace.

5. We also reexamine other aspects of our oversight of the

interstate, interexchange market. In this respect, we consider whether

we should more narrowly focus our definitions of relevant product and

geographic markets for interexchange services to reflect current and

future market conditions. We also address issues related to residential

services pricing, including allegations of tacit price coordination in

the interexchange market, and inquire how additional facilities-based

competition pursuant to the 1996 Act affects this issue. We also

consider other issues, including tariff-related issues that would

remain relevant if we determine not to forbear from requiring non-

dominant interexchange carriers to file tariffs, or if we decide to

adopt a permissive detariffing policy. Finally, as required by the 1996

Act, we propose rules to implement the 1996 Act's provisions relating

to geographic rate averaging and rate integration.

II. Background

A. The Telecommunications Act of 1996

6. The 1996 Act significantly alters the legal framework governing

the interstate, interexchange market. The new statutory provisions

should generally promote facilities-based competition in the

interexchange market and open the door for new entrants to compete with

existing service providers. For example, the 1996 Act, inter alia,

permits the BOCs immediately to provide interLATA telecommunications

services originating outside their in-region states, as well as

``incidental'' interLATA services. More significantly, after fulfilling

specified preconditions, BOCs may provide interLATA telecommunications

services originating inside their in-region states. In addition, the

1996 Act provides regulatory flexibility by requiring the Commission to

forbear from applying any regulation or any provision of the

Communications Act to telecommunications carriers or telecommunications

services, or classes thereof, if the Commission determines that certain

specified conditions are satisfied. The forbearance authority applies

to all provisions of the Communications Act, except the provisions

added by the 1996 Act relating to interconnection and BOC entry into

long-distance services.

B. The Competitive Carrier Proceeding

7. The Commission, since 1979, has pursued, in the Competitive

Carrier proceeding, pro-competitive and deregulatory goals similar to

those now underlying the 1996 Act. The Commission there examined how

its regulations should be adapted to reflect and promote increasing

competition in interexchange telecommunications markets, and sought to

reduce or eliminate the application of economic regulation to new

competitive entrants. In these efforts, the Commission pursued a

forbearance policy, encompassing both permissive and mandatory

detariffing. Upon judicial review, however, the Court found that the

Communications Act, at that time, did not provide the Commission with

the requisite authority to do so.

8. In its Competitive Carrier orders, the Commission distinguished

two kinds of carriers--those with market power (dominant carriers) and

those without market power (non-dominant carriers). In determining

whether a firm possessed market power, the Commission focused on

certain ``clearly identifiable market features,'' including the number

and size distribution of competing firms, the nature of barriers to

entry, the availability of reasonably substitutable services, and

whether the firm controlled bottleneck facilities. The Commission

relaxed its tariff filing and facilities authorization requirements for

non-dominant carriers, and focused its regulatory efforts on

constraining the ability of dominant firms to act contrary to consumer

welfare.

C. The Interexchange Competition Proceeding

9. In 1990, the Commission commenced the Interexchange Competition

proceeding to examine the state of competition in the interstate, long-

distance marketplace, and to assess the efficacy of existing regulation

in light of this competition. In the First Interexchange Competition

Order, 56 FR 66602 (December 24, 1991), the Commission found that

business services (except analog private line services) had become

``substantially competitive.'' The Commission accordingly streamlined

its regulation of those AT&T services. For services subject to

``streamlined'' regulation, AT&T was allowed to file tariffs on 14

days' notice, without cost support, and such tariffs were presumed

lawful. In addition, price cap ceilings, bands and rate floors did not

apply to streamlined services. Later, the Commission, after

[[Page 14721]]

ordering 800 number portability, found that 800 services (except 800

directory assistance services) were also subject to substantial

competition, and streamlined regulation of those AT&T services as well.

10. In the First Interexchange Competition Order, 56 FR 55235

(October 25, 1991) the Commission also authorized all interexchange

carriers to offer services pursuant to individually negotiated,

contract-based tariffs, provided they make such rates generally

available to similarly situated customers. The Commission found such

arrangements would allow customers to negotiate service arrangements

that best addressed their particular needs and would unleash

competition by allowing AT&T to offer the same type of contract

arrangements its competitors were already offering.

D. The AT&T Reclassification Order

11. On October 23, 1995, we issued an order granting AT&T's motion

to be reclassified as a non-dominant carrier, based upon our finding

that AT&T no longer possessed individual market power in the

interstate, domestic, interexchange market taken as a whole. As a

result, AT&T is now generally subject to the same regulations as its

long-distance competitors. Like other non-dominant carriers, AT&T is

still subject to regulation under Title II of the Communications Act.

Thus, it is required to do the following: offer interstate services

under rates, terms and conditions that are just, reasonable and not

unduly discriminatory; file tariffs; and give notice prior to any

discontinuance, reduction or impairment of service. Moreover, like

other non-dominant carriers, AT&T continues to be subject to the

Commission's complaint process.

12. In the AT&T Reclassification proceeding, AT&T made certain

voluntary commitments, which AT&T stated were intended to serve as

transitional arrangements to address concerns expressed by parties

about possible adverse effects of reclassifying AT&T. These commitments

concerned: service to low-income and other customers; analog private

line and 800 directory assistance services; service to and from the

State of Alaska and other regions subject to our rate integration

policy; geographic rate averaging; changes to contract tariffs that

adversely affect existing customers; and dispute resolution procedures

for reseller customers. In the AT&T Reclassification Order, we accepted

AT&T's commitments and ordered AT&T to comply with those commitments.

13. In the AT&T Reclassification Order, we stated that we would

consider the following issues relevant to the interstate, domestic,

interexchange market as a whole in this proceeding: (1) whether there

is tacit price coordination in the interexchange market; (2) how

changes in the interexchange market affect our rate integration and

geographic averaging policies; (3) reseller and large user concerns

regarding contract tariffs; and (4) the application of the filed rate

doctrine to contract tariff arrangements.

E. Need for Review of Commission Regulation of the Interexchange Market

14. The Commission's obligation to be responsive to the dynamic

nature of the communications industry has long been recognized. The

passage of the 1996 Act, the dramatic changes in the interstate,

domestic, interexchange telecommunications services market since the

Interexchange Competition proceeding, and our reclassification of AT&T

as a non-dominant carrier in the overall interstate, domestic,

interexchange market, make it timely for us to reexamine our policies

and rules in light of the goals of the 1996 Act. In pursuing the pro-

competitive policy established by the 1996 Act, we intend to examine

existing regulations to see whether they can be reduced or eliminated

consistent with our public interest responsibilities.

III. Regulatory Forbearance

A. Introduction

15. The 1996 Act amends the Communications Act to require the

Commission to:

[F]orbear from applying any regulation or any provision of this Act

to a telecommunications carrier or telecommunications service, or class

of telecommunications carriers or telecommunications services, in any

or some of its or their geographic markets, if the Commission

determines that--

(1) enforcement of such regulation or provision is not necessary to

ensure that the charges, practices, classifications or regulations by,

for, or in connection with that telecommunications carrier or

telecommunications service are just and reasonable, and are not

unjustly or unreasonably discriminatory;

(2) enforcement of such regulation or provision is not necessary

for the protection of consumers; and

(3) forbearance from applying such provision or regulation is

consistent with the public interest.

In addition, in determining whether forbearance from enforcing a

particular provision or regulation is in the public interest, the

Commission is specifically required to consider whether forbearance

will promote competitive market conditions, including the extent to

which forbearance will enhance competition among providers of

telecommunications services. New Section 10(b) also provides that,

``[i]f the Commission determines that such forbearance will promote

competition among providers of telecommunications services, that

determination may be the basis for a Commission finding that

forbearance is in the public interest.'' Section 401 of 1996 Act also

provides that the Commission may not forbear from applying the

requirements of the provisions of new Section 251 related to

interconnection (except as provided in Section 251(f)) and of new

Section 271 related to BOC provision of interLATA services until the

Commission determines that those requirements have been fully

implemented.

16. Accordingly, with respect to each of the existing regulations

examined in this proceeding, we invite parties to comment on whether we

should forbear from applying such regulations to some or all

interexchange carriers or services, in particular geographic areas or

regions. With respect to each issue, parties should specify the bases

on which they believe we can make the findings required to meet the

statutory criteria for forbearance.

17. We address below whether, given the current domestic,

interstate, interexchange market, the 1996 Act requires the Commission

to forbear from requiring non-dominant interexchange carriers to file

tariffs for domestic services. Based on the Commission's analyses and

findings in prior proceedings, we tentatively conclude that we are

required by the 1996 Act to forbear from applying the Section 203

tariff filing requirements to non-dominant interexchange carriers for

domestic interexchange services.

18. We note that we do not address here the issue of forbearance

from applying Section 226 of the Act, which requires operator service

providers to file informational tariffs. That issue will be addressed

in a separate upcoming proceeding.

B. Forbearance From Tariff Filing Requirements for Non-Dominant

Interexchange Carriers

1. Background

19. In the Competitive Carrier proceeding, the Commission explored

the cost of imposing Title II regulation on entities lacking market

power. In the Competitive Carrier Further NPRM, 46 FR 10924 (February

5, 1981), the

[[Page 14722]]

Commission suggested that tariff filing requirements for non-dominant

carriers could harm consumers by slowing ``the introduction of new

services, dampening competitive responses and ultimately encouraging

price collusion through the forced publication of charges.'' The

Commission accordingly, in a series of orders, established a permissive

tariff forbearance policy for non-dominant carriers. In the Sixth

Report and Order, 50 FR 1215 (January 10, 1985), the Commission

established a mandatory detariffing policy for non-dominant carriers.

The Commission concluded that tariff filings were not essential to its

ability to ensure that non-dominant carriers do not unjustly

discriminate in their rates, and that other means were available to

ensure that the Commission fulfilled its mandate under the

Communications Act.

20. The Sixth Report and Order subsequently was vacated and

remanded by the U.S. Court of Appeals for the D.C. Circuit. The court

held that the Commission lacked statutory authority to prohibit

carriers from filing tariffs. The court, however, did not reach the

issue of whether the Commission's earlier permissive detariffing orders

were valid. The Commission, accordingly, continued to apply permissive

detariffing for non-dominant carriers. The Commission's permissive

detariffing regime subsequently was invalidated by the U.S. Court of

Appeals for the D.C. Circuit in 1992. The court, in reviewing and

disposing of a complaint filed by AT&T against MCI, vacated the

Commission's Fourth Report and Order, 48 FR 52452 (November 18, 1983),

thereby invalidating the Commission's tariff filing forbearance policy

for non-dominant carriers. While stating that it had no ``quarrel with

the Commission's policy objectives,'' the court found that the

Communications Act did not give the Commission authority to adopt such

a policy.

21. Prior to the U.S. Court of Appeals' vacation of the Fourth

Report and Order, the Commission adopted a Report and Order in a

rulemaking proceeding commenced in response to AT&T's complaint. The

Commission again determined that permissive detariffing was within its

authority under the Communications Act. The U.S. Court of Appeals for

the D.C. Circuit granted summary reversal of the Commission's order

based on the court's earlier ruling. In affirming the U.S. Court of

Appeal's ruling, the Supreme Court found that Section 203(b)(2) of the

Communications Act gave the Commission authority to modify the Act's

tariff filing requirement, but not to eliminate it entirely. The

Commission thereafter established a one-day tariff notice period for

all non-dominant carriers after again concluding that traditional

tariff regulation of non-dominant carriers is not necessary to ensure

just and reasonable rates.

22. Against this background, Congress enacted Section 401 of the

1996 Act, adding Section 10(a) to the Communications Act, to grant the

Commission authority to forbear from applying the provisions of Title

II, subject to certain, limited exceptions.

2. Discussion

23. As noted above, the 1996 Act requires the Commission to forbear

from applying to a telecommunications carrier or telecommunications

service any regulation or any provision of the Communications Act, if

the Commission makes the three specified determinations.

24. We believe, based on the Commission's prior analyses and

findings, that we can make the determinations necessary in order to

forbear from enforcing Section 203's tariffing requirements with

respect to the domestic services offered by non-dominant, interexchange

carriers. Specifically, we tentatively find that enforcement of the

Section 203 tariffing requirements with respect to non-dominant

interexchange carriers: (1) is not necessary to ensure that non-

dominant interexchange carriers' charges, practices, or classifications

are just and reasonable, and are not unjustly or unreasonably

discriminatory; and (2) is not necessary for the protection of

consumers. We also tentatively find that forbearing from enforcing

Section 203 tariffing requirements with respect to non-dominant

interexchange carriers is consistent with the public interest.

Accordingly, we tentatively conclude that we must forbear from applying

Section 203 tariff filing requirements to non-dominant interexchange

carriers for domestic services. Each of these tentative determinations

is discussed below.

25. We tentatively conclude that tariff filings for non-dominant

interexchange carriers are not necessary to ensure that the charges,

and practices of a telecommunications carrier or telecommunications

service are just and reasonable and are not unjustly or unreasonably

discriminatory. As the Commission stated in the First Report and Order,

45 FR 76148 (November 18, 1980):

The economic underpinning of our proposal to streamline the

regulatory procedures for non-dominant carriers flows from the fact

that firms lacking market power simply cannot rationally price their

services in ways which, or impose terms and conditions which,

contravene Sections 201(b) and 202(a) of the Act.

Two years ago, in adopting a mandatory detariffing policy for providers

of domestic commercial mobile radio service (CMRS), the Commission

reiterated its conclusion that ``non-dominant carriers are unlikely to

behave anticompetitively, in violation of Sections 201(b) and 202(a) of

the Act, because they recognize that such behavior would result in a

loss of customers.'' Based on the Commission's experience under its

prior tariff forbearance policy for non-dominant interexchange

carriers, as well as the Commission's findings in the Regulatory

Treatment of Mobile Services proceeding, we continue to believe that

non-dominant carriers are unlikely to price their services in ways

which, or to impose terms and conditions which, violate Section 201(b)

and Section 202(a) of the Act. Similarly, we continue to believe that

the Communications Act's objectives of just, reasonable, and not

unjustly or unreasonably discriminatory rates can be achieved

effectively through market forces and the administration of the

complaint process.

26. We also tentatively conclude that requiring non-dominant

interexchange carriers to file tariffs for domestic offerings is not

necessary for the protection of consumers of interexchange services. To

the contrary, we believe a tariff filing requirement harms consumers by

undermining the development of vigorous competition. The Commission

previously has found, in the Second Report and Order, 47 FR 37899

(August 27, 1982), that applying tariff requirements to competitive

entities is superfluous as a consumer protection device, since

competition circumscribes the prices and practices of these companies.

Moreover, beginning with the Second Report and Order, and as recently

as the 1994 Regulatory Treatment of Mobile Services Order, 59 FR 18493

(April 19, 1994), the Commission has consistently found that the

imposition of tariff obligations in these circumstances stifles price

competition and service and marketing innovations. We tentatively find

that these conclusions remain valid in today's more competitive

domestic, interexchange market.

27. Finally, we tentatively conclude that forbearing from imposing

tariff filing requirements on non-dominant interexchange carriers is

consistent with the public interest. As part of the determination of

whether forbearance is

[[Page 14723]]

consistent with public interest, the 1996 Act requires the Commission

to consider ``whether forbearance from enforcing the provision or

regulation will promote competitive market conditions, including the

extent to which forbearance will enhance competition among providers of

telecommunications services.'' We believe that forbearance from

requiring tariff filings for non-dominant carriers will promote

competition and deter price coordination. In the Sixth Report and

Order, the Commission found that requiring non-dominant carriers to

file tariffs can: (1) take away carriers' ability to make rapid,

efficient responses to changes in demand and cost; (2) impede and

remove incentives for competitive price discounting; and (3) impose

costs on carriers that attempt to make new offerings. The Commission

also concluded that continuing to require non-dominant carriers to file

tariffs presents an opportunity for collusive pricing by competing

carriers because carriers can ascertain their competitors' existing

rates and keep track of any changes by reviewing filed tariffs. The

Commission indicated that this may encourage carriers to maintain rates

at artificially high levels.

28. The Commission recently reiterated, in the Regulatory Treatment

of Mobile Services Order, its findings in the Sixth Report and Order.

We believe that forbearance from tariff filing requirements will

promote competition by enabling non-dominant carriers to respond

quickly to changes in the market, and reducing administrative costs on

carriers making new offerings. We also believe that, without pricing

and other material information available from the public tariffs of

their rivals, non-dominant interexchange carriers are more likely to

initiate price reductions and other competitive programs. Accordingly,

we tentatively conclude that forbearing from requiring non-dominant

carriers to file tariffs for interexchange services promotes

competitive market conditions, and therefore is in the public interest.

29. Based on the foregoing tentative determinations, we tentatively

conclude that we are required by Section 10 of the Communications Act,

as amended, to forbear from requiring non-dominant interexchange

carriers to file tariffs for domestic services. We invite comment on

all of these tentative conclusions.

30. We note that many carriers currently file bundled tariffs that

include both domestic and international services. We therefore seek

comment as to whether the Commission should forbear from requiring

these non-dominant firms to file tariffs for the international portions

of their offerings as well. We reserve for another day, in a separate

proceeding, the broader question of whether the Commission should

consider generally forbearing from requiring tariffs for international

service provided by a non-dominant carrier, given current market

conditions in the international market. As stated in an order adopted

earlier this month, we ``anticipate review of our international Section

214 authorization and tariffing procedures to identify new areas where

additional streamlining may be appropriate. . . . [S]uch steps should

be taken in the context of a new proceeding where we can make

additional determinations about the state of competition in the

international market and receive more public input.'' Streamlining the

International Section 214 Authorization Process and Tariff

Requirements, IB Docket No. 95-118, Report and Order, at para. 86 (rel.

Mar. 13, 1996).

31. We also tentatively conclude that forbearance from tariff

filing requirements for domestic services of non-dominant interexchange

carriers should be implemented on a mandatory basis. Permitting non-

dominant interexchange carriers to file tariffs in this context does

not appear to be in the public interest. We believe that a regime

without non-dominant interexchange carrier tariffs is the most pro-

competitive, deregulatory regime. The risk of anticompetitive conduct

inherent in, and the costs associated with, tariff filings by non-

dominant interexchange carriers, discussed above, would persist if

carriers were permitted to file tariffs voluntarily. In addition, the

absence of tariffs would eliminate possible invocation by carriers of

the filed rate doctrine, which allows carriers certain rights

unilaterally to change rates, terms, and conditions of contract tariffs

and other long-term service arrangements, and to limit their liability

for damages. Absent filed tariffs, the legal relationship between

carriers and customers will much more closely resemble the legal

relationship between service providers and customers in an unregulated

environment. Therefore, to establish a more market-based environment

that will help prevent these possible anti-competitive practices and

better protect consumers, we tentatively conclude that it would be in

the public interest to prohibit non-dominant interexchange carriers

from filing tariffs with respect to domestic interstate, interexchange

services.

32. Our proposal to adopt a mandatory tariff forbearance policy for

non-dominant interexchange carriers is supported by the Commission's

adoption of a mandatory tariff forbearance policy for domestic CMRS, in

response to a similar grant of forbearance authority with respect to

CMRS providers and services in Section 6002(b) of the Omnibus Budget

Reconciliation Act of 1993 (OBRA). In Regulatory Treatment of Mobile

Services, the Commission concluded that, in a competitive environment,

voluntary tariff filings would create a risk that competitors would use

tariff filings ``merely to send price signals and thereby manipulate

prices.'' It also found that forbearance would promote competition by

enabling providers of CMRS to respond quickly to competitors' price

packages and reducing administrative costs. To prevent collusive

pricing practices, and to protect consumers and the public interest,

the Commission determined that it would ``forbear from requiring or

permitting tariffs for interstate service offered directly by CMRS

providers to their customers.''

33. We seek comment on our tentative conclusion that we should

adopt a mandatory detariffing policy for the domestic services offered

by non-dominant interexchange carriers. We also seek comment on whether

the Commission has the authority pursuant to the Communications Act, as

amended, to prohibit carriers from filing tariffs. We tentatively

conclude that, if we adopt a mandatory or a permissive detariffing

policy, non-dominant carriers should be required to maintain at their

premises price and service information regarding all of their

interstate, interexchange offerings, that they can submit to the

Commission upon request. We seek comment on this tentative conclusion.

34. We recognize that the Commission gradually relaxed its

regulation of non-dominant carriers in the Competitive Carrier

proceeding in part because it concluded that the availability of

service from a nationwide dominant carrier subject to close regulation

would effectively constrain the rates that could be charged by non-

dominant carriers. Given the recent reclassification of AT&T, there

currently are no nationwide dominant interstate, domestic,

interexchange carriers. While we still believe that non-dominant

carriers lacking market power cannot rationally price services

anticompetitively, we seek comment on whether the absence of a

nationwide dominant carrier should affect our tentative conclusion to

forbear from requiring non-dominant interexchange carriers to file

tariffs, and if so, how.

35. We note that market conditions or other circumstances may

change in the

[[Page 14724]]

future. In the event of changed circumstances, such that the statutory

prerequisites for forbearance are no longer present, the Commission can

revisit tariff forbearance to consider whether it continues to meet the

statutory criteria.

36. Finally, in the AT&T Reclassification proceeding, AT&T made

certain voluntary commitments regarding its provision of interstate

analog private line and 800 directory assistance services.

Specifically, AT&T committed, for a period of three years, to limit any

price increases for these services to a maximum increase in any year of

no more than the increase in the consumer price index. AT&T also

committed, for a period of three years, to file tariff changes

increasing the prices of these services on not less than five business

days' notice, and to identify clearly such tariff transmittals as

affecting the provisions of this commitment. We believe that it would

be consistent with AT&T's intent that its commitments act as a

transitional mechanism for AT&T to continue to tariff these services in

accordance with its commitments. Accordingly, we tentatively conclude

that, even if we decide to forbear from requiring non-dominant

interexchange carriers to file tariffs, AT&T should remain subject to

its prior commitments, and our corresponding order, that AT&T file

tariffs with respect to these services for the specified term of the

commitments. We seek comment on these tentative conclusions.

IV. Definition of Relevant Product and Geographic Markets

37. In the Competitive Carrier proceeding, the Commission found,

for purposes of assessing the market power of interexchange carriers

covered by that proceeding, that: ``(1) interstate, domestic,

interexchange telecommunications services comprise the relevant product

market, and (2) the United States (including Alaska, Hawaii, Puerto

Rico, U.S. Virgin Islands, and other U.S. offshore points) comprises

the relevant geographic market for this product, with no relevant

submarkets.'' In this section, we consider whether we should reexamine

the geographic and product market definitions that the Commission

adopted in the Competitive Carrier proceeding. We believe more sharply

focused market definitions will aid us in evaluating whether the BOCs

possess market power with respect to the provision of interLATA

services in areas where they provide local access service. Moreover,

evidence in the recent AT&T Reclassification proceeding suggests that

the market definitions adopted in the Competitive Carrier proceeding

might be more narrowly drawn to provide us with a more refined

analytical tool for evaluating whether a carrier or group of carriers

has market power. For example, there was evidence that suggested that

AT&T might possess the ability to raise and sustain prices for 800

directory assistance and analog private line services above competitive

levels without making the price increase unprofitable, which may imply

that these services might constitute separate relevant product markets.

38. We invite comment on whether we should retain the relevant

product and geographic market definitions adopted in the Competitive

Carrier proceeding. We tentatively conclude that we should follow the

approach taken in the U.S. Department of Justice/Federal Trade

Commission 1992 Merger Guidelines (the ``Guidelines'') for defining

relevant markets. 1992 U.S. Department of Justice/Federal Trade

Commission Merger Guidelines, 4 Trade Reg. Rep. (CCH) para. 13,104, at

p. 20,569. ``In many respects the . . . Guidelines and the scholarship

on which they are based offer important insights and substantially

improved formulations of relevant market issues.'' Moreover, courts

have increasingly relied on the Guidelines' approach in defining

relevant markets. We believe the Guidelines' approach suggests that we

should define as a relevant product market an interstate, interexchange

service for which there are no close substitutes or a group of services

that are close substitutes for each other but for which there are no

other close substitutes. We tentatively conclude, however, that we need

not address the issue of delineating the boundaries of specific product

markets, except where there is credible evidence suggesting that there

is or could be a lack of competitive performance with respect to a

particular service or group of services.

39. With respect to the relevant geographic market, we tentatively

conclude that we should define a relevant geographic market for

interstate, interexchange services as all calls (in the relevant

product market) between two particular points. However, geographic rate

averaging and other factors imply that a carrier or group of carriers

cannot change interexchange rates for calls between two particular

points without changing rates nationwide for calls of that distance.

For purposes of market power analysis, we tentatively conclude to treat

interstate, interexchange calling generally as one national market, as

the Commission did in the Competitive Carrier proceeding. If there is

credible evidence suggesting that there is or could be a lack of

competition in a particular point-to-point market (or group of

markets), and there is a showing that geographic rate averaging will

not sufficiently mitigate the exercise of market power (if it exists);

however, we propose to examine individually that market (or group of

markets) for the presence of market power.

40. We note that comments and reply comments on this section are

due April 19, 1996; reply comments are due May 3, 1996.

A. Relevant Product Market

41. For the reasons discussed above, we tentatively conclude that

we should follow the Guidelines' approach for defining the relevant

product market. In the Competitive Carrier proceeding, the Commission

defined the relevant product market as ``all interstate, domestic,

interexchange telecommunications services'' and concluded that there

were no relevant submarkets. Although we recently used this product

market definition to reclassify AT&T as non-dominant, we question

whether a narrower product market definition might provide us with a

more refined analytical tool for evaluating whether a carrier or group

of carriers together are exerting market power. For example, our

finding that the prices of 800 directory assistance and analog private

line services could profitably be raised above competitive levels may

imply these services constitute distinct relevant product markets.

42. The Guidelines define the relevant product market as ``the

product or group of products such that a hypothetical profit maximizing

firm that was the only present and future seller of those products

(`monopolist') would impose at least a `small but significant and

nontransitory' increase in price.'' Accordingly, in defining the

relevant product market, one must examine whether a ``small but

significant and nontransitory'' increase in the price of the relevant

product would cause enough buyers to shift their purchases to a second

product, so as to make the price increase unprofitable. If so, the two

products should be considered to be in the same product market.

43. Under the Guidelines, ``[m]arket definition focuses solely on

demand substitution factors--i.e., possible consumer responses.''

Consideration of substitutability of demand supports the use of

narrower relevant product markets than the ``all services'' product

market defined in the Competitive

[[Page 14725]]

Carrier proceeding. It appears unlikely, for example, that a

substantial number of residential customers would switch from

residential service to 800 service in response to a small but

significant nontransitory increase in the price of residential service.

Thus, these two services may fall in different product markets. On the

other hand, it appears that defining each interexchange service as a

separate relevant product market would result in relevant markets that

are too narrow. Business customers, in particular, may view certain

interexchange services as sufficiently close substitutes that, if an

interexchange carrier raised the price of one of the services,

customers would switch to one of the substitute services. Based on this

analysis, we believe that we should define as a relevant product market

an interstate, interexchange service for which there are no close

substitutes or a group of services that are close substitutes for each

other, but for which there are no other close substitutes.

44. We believe that it would be administratively burdensome to

delineate all relevant product markets for interstate, interexchange

services. The fact that we have previously found that there is

substantial competition with respect to most interstate, domestic,

interexchange service offerings suggests that we do not need to do so

at this time. Accordingly, we tentatively conclude that we should

address the question whether a specific interstate, interexchange

service (or group of services) constitutes a separate product market

only if there is credible evidence suggesting that there is or could be

a lack of competitive performance with respect to that service (or

group of services). We seek comment on this approach and invite parties

to suggest other approaches. Interested parties should provide support

for the position they advocate. Parties recommending that services be

grouped in relevant product markets should identify the services that

should be grouped together, as well as providing evidence that there is

or could be a lack of competitive performance with respect to those

services. We also seek comment on what factors we should consider in

defining relevant product markets, as well as what obstacles, problems,

or administrative burdens we are likely to face in adopting narrower

market definitions.

B. Relevant Geographic Market

45. The Merger Guidelines define the relevant geographic market as

the ``region such that a hypothetical monopolist that was the only

present or future producer of the relevant product at locations in that

region would profitably impose at least a `small but significant and

nontransitory' increase in price, holding constant the terms of sale

for all products produced elsewhere.'' This definition focuses on

whether products in one region are good substitutes for products in

other regions. Accordingly, in defining the relevant geographic market,

one must examine whether a ``small but significant and nontransitory''

increase in the price of the relevant product at a particular location

would cause a buyer to shift his purchase to a second location, so as

to make the price increase unprofitable. If so, the two locations

should be considered to be in the same geographic market.

46. In applying the principles in the Guidelines, we note that, at

its most fundamental level, interexchange calling involves a customer

making a connection from a specific location to another specific

location. We believe that most telephone customers do not view

interexchange calls originating in different locations to be close

substitutes for each other. For example, it is unlikely that a person

living in Chicago who wishes to make a telephone call to San Francisco

will be willing to travel to another location to make the call for a

lower price. Similarly, a customer will not view a call that terminates

in a place other than the location of the person to whom he or she is

calling to be a good substitute for a call to that person. Thus,

applying the Merger Guidelines principles, we tentatively conclude that

the relevant geographic market for interstate, interexchange services

should be defined as all calls from one particular location to another

particular location. We note that defining a relevant geographic market

as transport between two specific points is well established in other

contexts. For example, the Department of Justice has used city pairs as

the relevant geographic market for evaluating mergers in the airline

industry. Similarly, in the International Competitive Carrier

proceeding, the Commission found that each country pair constitutes a

separate geographic market. See International Competitive Carrier

Policies, 50 FR 48191 (November 22, 1985). Thus, one geographic market

consists of calls between the U.S. and France, and another consists of

calls between the U.S. and Great Britain.

47. We recognize that it would be impracticable to conduct a market

power analysis in each individual market implied by a point-to-point

market definition for interstate, interexchange services. We believe

that, in the majority of cases, economic factors and the realities of

the marketplace will cause these markets to behave in a sufficiently

similar manner to allow us to aggregate them into broader, more

manageable groups of markets for purposes of market power analysis. For

example, residential interexchange service can be thought of as a

bundle of all possible interexchange calls originating from a single

point and terminating anywhere, and 800 service as a bundle of

interstate, interexchange calls originating from a certain geographic

region and terminating at a specific point. Similarly, the ``single

nationwide geographic market'' the Commission adopted in the

Competitive Carrier proceeding can be viewed as an aggregate of the

point-to-point markets encompassing all points in the United States.

48. We tentatively conclude for the following reasons that, in most

cases, we should continue to treat interstate, interexchange services

as a single national market when examining whether a carrier or group

of carriers acting together has market power. First, geographic rate

averaging reduces the likelihood that a carrier could exercise market

power in a single point-to-point market. Because the prices a carrier

can charge in a particular market are linked to the prices it charges

in all other markets, it generally would not be profitable for a

carrier to raise its prices throughout the nation (with a resulting

loss of market share in some areas) to take advantage of market power

between two particular cities. Second, customers typically purchase

ubiquitous calling that enables them to make calls to all domestic

locations. Thus, because of geographic rate averaging, a price change

in one point-to-point market would require such price changes to be

extended to all residential customers.

49. Another reason we can treat the relevant geographic market as a

national market is that price regulation of access services and excess

capacity in interstate transport further reduce the likelihood that an

interexchange carrier could exercise market power in most point-to-

point markets. In making this determination, we recognize that an

interstate, interexchange call from point A to point B requires three

separate inputs, each of which is sold in a separate input market: (1)

originating access from point A; (2) interstate transport from point A

to point B; and (3) terminating access to point B. The ability to raise

the price for any of the inputs above the competitive level or to

prevent competitors from assembling inputs to provide retail service

would enable a firm unilaterally to raise the

[[Page 14726]]

retail price of and thereby exercise market power with respect to

interexchange calls between points A and B. We note, however, that all

originating and terminating access services are currently subject to

some form of price regulation, which constrains a LEC's ability to

raise access prices to monopoly levels. We also note that there are

ways in which a LEC could exercise market power without raising the

price of interstate, interexchange services. For example, a LEC could

raise its interexchange rivals' costs by providing poorer

interconnection to the LEC's network facilities than the LEC provides

to itself or its affiliate, or by delaying fulfillment of its rivals'

requests to connect to the LEC's network. We will be addressing these

issues in upcoming proceedings that address implementation of new

Sections 251 and 272 of the Communications Act, as amended. While

interstate transport service is not subject to price regulation, we

concluded in the AT&T Reclassification Order that, between most points,

excess transport capacity undermines the ability of any carrier to

raise and maintain the price of interstate transport above the

competitive level. Thus, because the prices of access and transport

services are similarly constrained in all point-to-point markets, we

believe we can generally examine simply whether a carrier has market

power in the group of point-to-point markets that comprise the

``nationwide geographic market.''

50. Nevertheless, we believe there may be special circumstances in

which treating interexchange services as a national market will not be

sufficient for purposes of market power analysis. For example, the

BOCs' control of access facilities in their local service regions may

require us to examine those regions individually in determining whether

the BOCs have market power with respect to in-region interexchange

services. If market power were found to exist in such a large region,

there is no guarantee that geographic rate averaging would provide a

credible check on the exercise of such power. For instance, if a BOC's

interexchange customers and traffic are concentrated in one region, the

BOC might find it profitable to raise prices above competitive levels,

even if geographic rate averaging might cause it to lose market share

outside that region. We therefore propose to examine a particular

point-to-point market (or group of markets) for the presence of market

power if there is credible evidence suggesting that there is or could

be a lack of competition in that market (or group of markets) and there

is a showing that geographic rate averaging will not sufficiently

mitigate the exercise of market power (if it exists) in that market (or

group of markets). We are not addressing in this proceeding the

circumstances, if any, in which a BOC or independent LEC should be

classified as a dominant carrier with respect to the provision of

interstate, interexchange services in areas where it provides local

access services. We intend to address these questions in an upcoming

proceeding.

51. We seek comment on the proposed approach. We also seek comment

on how narrowly we would need to define points of origination and

termination if we adopt this approach. Because it would be

administratively infeasible to conduct a market power analysis that

defines separate geographic markets between each pair of individual

locations (such as homes), we need to adopt somewhat broader

definitions for this situation. One possibility is to define geographic

markets between two local exchange areas. An alternative approach might

be to use geographic areas currently used by the Commission, such as

Major Trading Areas (MTAs), Basic Trading Areas (BTAs), or Metropolitan

Statistical Areas (MSAs). Commenters should explain why the geographic

market definition they recommend is appropriate and should address the

administrative benefits or burdens of their proposed definition. We

note that Rand McNally & Company is the copyright owner of the Basic

Trading Area and Major Trading Area Listings, which list the counties

contained in each BTA, as embodied in Rand McNally's Trading Area

System Diskette and Atlas & Marketing Guide. Rand McNally has licensed

the use of its copyrighted MTA/BTA listings and maps for certain

wireless telecommunications services.

52. We also invite parties to suggest alternative approaches they

believe better characterize the relevant geographic market for

interstate, interexchange services, than the point-to-point market

definition we have proposed. Parties should explain how the market

definition they recommend reflects the market for interexchange

services and should describe the likely administrative benefits or

burdens of their proposal. Finally, parties should discuss the factors

that we should consider in defining the relevant geographic market for

interstate, domestic, interexchange services.

V. Separation Requirements for Independent Local Exchange Carrier and

Bell Operating Company Provision of ``Out-of-Region'' Interstate,

Interexchange Services

53. The 1996 Act authorizes the BOCs, upon enactment, to provide

interLATA services originating outside their in-region states. In a

recent Notice of Proposed Rulemaking, we considered what regulatory

regime we should apply to BOC provision of such ``out-of-region''

interstate, interexchange services. Specifically, we considered whether

such services should be subject to dominant carrier or non-dominant

carrier regulation. The BOC Out-of-Region NPRM, 60 FR 6607 (February

21, 1996) addresses only BOC provision of out-of-region interstate,

interexchange services; BOC provision of in-region interstate,

interexchange services will be considered in a separate proceeding. In

that Notice, we tentatively concluded that the separation requirements

imposed for non-dominant treatment of independent LEC provision of

interexchange services, presented a useful model upon which to base, on

an interim basis, oversight of BOC provision of out-of-region

interstate, interexchange services.

54. The separation requirements imposed on independent LECs were

established by the Commission in the Competitive Carrier proceeding.

The Commission there determined that interexchange carriers affiliated

with independent LECs would be regulated as non-dominant carriers. In

the Fifth Report and Order, 49 FR 34824 (September 4, 1984), the

Commission specified that an ``affiliate'' of an independent LEC was

``a carrier that is owned (in whole or in part) or controlled by, or

under common ownership (in whole or in part) or control with, an

exchange telephone company.'' The Commission further clarified that, to

qualify for non-dominant treatment, the affiliate providing interstate,

interexchange services must: (1) maintain separate books of account;

(2) not jointly own transmission or switching facilities with its

affiliated exchange telephone company; and (3) acquire any services

from its affiliated exchange telephone company at tariffed rates, terms

and conditions. The Commission also stated that any interstate service

offered directly by an independent LEC, rather than through a separate

affiliate, would be regulated as dominant.

55. The Commission observed that the separation requirements would

provide some ``protection against cost-shifting and anticompetitive

conduct'' by an

[[Page 14727]]

independent LEC that could result from using its control of local

bottleneck facilities. Noting that the requirements it had specified

were less stringent than those established in the Second Computer

Inquiry, the Commission concluded that the separation requirements

would not impose excessive burdens on independent LECs.

56. The Commission stated in the Fifth Report and Order that the

non-dominant treatment accorded to interexchange carriers affiliated

with independent LECs did not apply to the BOCs, which, the Commission

noted, were then prohibited from offering interLATA services. The

Commission added that, ``if this bar is lifted in the future, we would

regulate the BOCs' interstate, interLATA services as dominant until we

determined what degree of separation, if any, would be necessary for

the BOCs or their affiliates to qualify for nondominant regulation.''

57. As noted, in the BOC Out-of-Region NPRM we tentatively

concluded that the separation requirements imposed upon independent

LECs providing interexchange services, presented a useful model upon

which to base, on an interim basis, oversight of BOC provision of out-

of-region interstate, interexchange services. Accordingly, we

tentatively concluded that, if a BOC provides out-of-region interstate,

interexchange services through an affiliate that satisfies the

separation requirements established in the Competitive Carrier Fifth

Report and Order, the BOC affiliate should be regulated as a non-

dominant carrier. We also tentatively concluded that, if a BOC provides

out-of-region interstate, interexchange services directly, or through

an affiliate that does not meet the separation requirements, those

services should be regulated as dominant carrier offerings.

58. We stated in that Notice, however, our intent to consider in

this proceeding whether it may be appropriate at some future date to

modify or eliminate the separation requirements that are currently

imposed upon independent LECs, and that we tentatively concluded should

be imposed on BOCs, in order to qualify for non-dominant treatment in

the provision of out-of-region interstate, interexchange services.

Accordingly, we now seek comment on whether we should modify or

eliminate these separation requirements as a condition for non-dominant

treatment of independent LEC provision of interstate, interexchange

services outside their local exchange areas. We also seek comment on

whether, if we modify or eliminate these separation requirements for

non-dominant treatment of independent LEC provision of interstate,

interexchange services outside their local exchange areas, we should

apply the same requirements to BOC provision of out-of-region

interstate, interexchange services. We defer to another proceeding

consideration of the appropriate regulatory treatment of BOCs that

provide in-region interstate, interexchange services and independent

LECs that provide interstate, interexchange services within the area in

which they also provide local exchange service.

59. Parties should identify the requirement or requirements that

they believe should be modified or eliminated, and offer support for

their positions. Parties should comment on whether complying with the

separation requirements would create an unnecessary burden for LECs

subject to those requirements. Parties should also comment on whether

there is a possibility of cost-shifting or other anti-competitive

conduct that could result if the separation requirements are modified

or eliminated, and if so, how we can or should address such conduct.

60. We note that comments and reply comments on this section are

due April 19, 1996; reply comments are due May 3, 1996. See also

Section X.D. infra regarding requirements for all pleadings.

VI. Rate Averaging and Integration Requirements of 1996 Act

61. Section 254(g) of the Communications Act, as amended by the

1996 Act, provides that the Commission, within six months after the

date of enactment, must:

[A]dopt rules to require that the rates charged by providers of

interexchange telecommunications services to subscribers in rural

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

each such provider to its subscribers in urban areas. Such rules

shall also require that a provider of interstate interexchange

telecommunications services shall provide such services to its

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

to subscribers in any other State.

Accordingly, we propose and address here the rules necessary to

implement these requirements.

62. We note that comments and reply comments on this section

implementing Section 254(g) of the Communications Act, as amended, are

due April 19, 1996; reply comments are due May 3, 1996. See also

Section X.C. infra regarding requirements for all pleadings.

A. Geographic Rate Averaging

63. We first address the statutory requirement that the rates

charged by providers of interexchange telecommunications services to

subscribers in rural and high cost areas not be higher than the rates

charged to subscribers in the interexchange carrier's urban areas

(i.e., that rates be geographically averaged). The Commission has long

supported a policy of geographic rate averaging for interstate,

domestic, interexchange services. As the Commission stated in 1989:

This Commission has repeatedly voiced our support for rate

averaging. . . . Geographic rate averaging redounds to the benefit

of rural ratepayers, and customers of high cost local exchange

carriers. First, geographic rate averaging ensures that

interexchange rates for rural areas, or areas served by high cost

companies, will not reflect the disproportionate burdens that may be

associated with common line cost recovery in these areas. Thus,

geographic rate averaging furthers our goal of providing a universal

nationwide telecommunications network. Second, geographic rate

averaging ensures that ratepayers share in the benefits of

nationwide interexchange competition. If prices are falling due to

competition in the corridors carrying the most traffic, prices will

also fall for rural Americans. An additional benefit of rate

averaging has been its contribution to the simplicity of [message

toll service] rates. Customers seeking to compare rates charged by

various interexchange carriers have been substantially benefited by

the relative simplicity of the existing rate structure.

As recently as the AT&T Reclassification Order, we reaffirmed our

commitment to maintain our geographic rate averaging policy.

64. While the Commission has consistently endorsed a policy of

geographic rate averaging, the Commission has not formally promulgated

a requirement that rates be geographically averaged. As required by the

1996 Act, we propose to adopt a rule requiring that the rates charged

by all providers of interexchange telecommunications services to

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

rates charged by each such provider to its subscribers in urban areas.

As established by the 1996 Act, this requirement would apply to all

providers of interexchange telecommunications services. We seek comment

generally on this proposed rule.

65. Section 254(g) of the Communications Act, as amended by the

1996 Act, states in part:

the Commission shall adopt rules to require that the rates charged

by providers of interexchange telecommunications services to

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

rates charged by each such provider to its subscribers in urban

areas.

[[Page 14728]]

Thus, the statute requires the Commission to adopt rules to require

geographic rate averaging for intrastate and interstate, interexchange

telecommunications services. We note that the legislative history

states:

[n]ew section 254(g) is intended to incorporate the policies of

geographic rate averaging . . . of interexchange services in order

to ensure that subscribers in rural and high cost areas throughout

the Nation are able to continue to receive both intrastate and

interstate interexchange services at rates no higher than those paid

by urban subscribers.

We also believe, however, that Section 254(g) preempts state laws or

regulations requiring intrastate geographic rate averaging only to the

extent such laws or regulations are inconsistent with the rules we

adopt with respect to geographic rate averaging. Preemption may occur

even when Congress has not fully foreclosed state regulation in a

specific area if state law conflicts with federal law. See Florida Lime

& Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143 (1963) (conflict

when ``compliance with both federal and state regulations is a physical

impossibility''); Hines v. Davidowitz, 312 U.S. 52, 67 (1941) (conflict

when state law ``stands as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress''). Although

the statute makes clear that the Commission is to establish the rules

requiring geographic averaging, it does not appear to foreclose

consistent state action in this area. Indeed, the Senate Report

statement included in the Joint Explanatory Statement provides:

States shall continue to be responsible for enforcing this

[geographic averaging provision] with respect to intrastate

interexchange services, so long as the State rules are not

inconsistent with Commission rules and policies on rate averaging.

The Joint Explanatory Statement indicates that the House receded to the

Senate with modifications with respect to new Communications Act

Section 254. We note that the geographic rate averaging provision of

Section 254(g) contains only minor modifications from the Senate Bill

geographic rate averaging provision, Section 253(h). See S. 652 104th

Cong., 1st Sess. Sec. 253(h) (1995). Thus, we invite comment on these

views.

66. In addition to seeking comment on preemption, we seek comment

on whether there may be competitive conditions or other circumstances

that could justify Commission forbearance from enforcing the proposed

geographic rate averaging requirement with respect to particular

interexchange telecommunications carriers or services.

67. In light of our proposal in this Notice to forbear from

requiring non-dominant interexchange carriers to file tariffs, we

tentatively conclude that it would not be in the public interest to

attempt to enforce geographic rate averaging through the tariff

process. Rather, we believe that we can ensure compliance with the

proposed rate averaging requirements by requiring providers of

interexchange telecommunications services to file certifications

stating that they are in compliance with their statutory geographic

rate averaging obligations. Such a requirement would not impose a

significant burden on such providers. Accordingly, we tentatively

conclude that we should require providers of interexchange

telecommunications services to file such certifications. We also

tentatively conclude that we should rely on the complaint process under

Section 208 to bring violations to our attention. We seek comment on

these tentative conclusions. Parties challenging these tentative

conclusions should suggest possible alternative enforcement mechanisms.

68. Enforcement issues similarly arise in the absence of tariff

forbearance. Because non-dominant carriers currently are permitted to

file tariffs on one day's notice, we seek comment on whether, in the

absence of tariff forbearance, we should adopt any requirements in

order to facilitate enforcement of the proposed rule that requires,

inter alia, that the rates of non-dominant providers of interexchange

telecommunications services be geographically averaged. Parties

supporting such requirements should propose specific examples of

regulatory mechanisms that could be adopted.

69. Parties in the AT&T Reclassification proceeding asserted that

carriers often do not offer discount rate plans ubiquitously, and that,

as a result, interexchange customers in some rural and high cost areas

are forced to pay the carriers' higher basic rates, while customers in

other geographic areas can take advantage of the carriers' discount

plans. These parties further asserted that this disparity amounts to

geographic rate deaveraging. We seek comment on the extent to which

providers of interexchange telecommunications services do not offer

optional discount plans to subscribers in rural and high cost areas

and, if so, the reasons for this practice. We also seek comment on

whether an interexchange carrier's failure to make a promotional plan

available in the entirety of its service area constitutes geographic

deaveraging, and if so, whether we should require that discount rate

plans be made available and advertised in the entirety of an

interexchange telecommunications service provider's service area.

70. Finally, as noted above, in the AT&T Reclassification

proceeding, AT&T made voluntary commitments related to geographic rate

averaging. Specifically, AT&T committed to file any new geographically

specific tariffs that depart from its traditional approach to

geographic averaging for interstate residential direct dial services on

five business days' notice. AT&T committed that such tariff

transmittals will be clearly identified as affecting the provisions of

the commitment. AT&T committed that ``[t]his will continue for three

years unless the Commission adopts rules addressing this issue for all

carriers or there is a change in federal law addressing this issue.''

We tentatively conclude that, given the specific limitation of AT&T's

commitment on this issue, upon adoption of the foregoing proposed rules

relating to geographic rate averaging, AT&T would be subject to those

adopted rules, and would not be bound to the specific commitments it

made with respect to geographic rate averaging. We seek comment on this

tentative conclusion.

B. Rate Integration

71. As noted above, the 1996 Act also requires that the Commission

adopt rules to require that providers of interstate, interexchange

telecommunications services provide such services to their subscribers

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

subscribers in any other State (i.e., that rates be integrated). As

with geographic rate averaging, the Commission has long maintained a

rate integration policy for interexchange rates between the forty-eight

contiguous states and various non-contiguous United States regions,

including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands.

72. As required by the 1996 Act, and guided by the Conference

Committee's statement to incorporate the policies contained in our 1976

Integration of Rates and Services Order, we propose to adopt a rule

requiring that ``a provider of interstate interexchange

telecommunications services shall provide such services to its

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

its subscribers in any other State.'' The Joint Explanatory Statement

provides: ``[t]he conferees intend the Commission's rules to require

geographic rate averaging and rate integration, and to incorporate the

policies contained in the Commission's

[[Page 14729]]

proceeding entitled `Integration of Rates and Services for the

Provision of Communications by Authorized Common Carriers between the

United States Mainland and the Offshore Points of Hawaii, Alaska and

Puerto Rico/Virgin Islands' (61 FCC 2d 380 (1976)).'' We seek comment

on this proposed rule.

73. We note that the Communications Act, as amended, defines the

term ``State'' as including ``the District of Columbia and the

Territories and possessions.'' Accordingly, the 1996 Act extends rate

integration to U.S. Territories and possessions, such as Guam and the

Northern Mariana Islands, that currently are not subject to the

Commission's domestic rate integration policy. The U.S. Virgin Islands

and Puerto Rico are the only territories or possessions subject to the

Commission's domestic rate integration policy at the present time. We

seek comment on appropriate mechanisms to implement rate integration

for U.S. territories and possessions that currently are not subject to

the Commission's domestic rate integration policies. We note that

currently pending before the Commission are three petitions to

establish rulemakings to implement domestic rate integration policies

for the Territory of Guam and the Commonwealth of the Northern Mariana

Islands. See Governor's Office of the Territory of Guam Petition for

Rulemaking to Integrate Rates, filed May 12, 1995, Public Notice, AAD

95-84 (rel. June 16, 1995); JAMA Corporation Petition for Rulemaking to

Implement Domestic Rate Integration Policies for Guam, filed May 1,

1995, Public Notice, AAD 95-85 (rel. June 16, 1995); Commonwealth of

the Northern Mariana Islands Petition for Rulemaking to Implement

Domestic Rate Integration for the Commonwealth of the Northern Mariana

Islands, filed June 7, 1995, Public Notice, AAD 95-86 (rel. June 16,

1995). We believe these petitions would become moot when we adopt the

rules implementing new Section 254(g).

74. We tentatively conclude, in light of our proposal in this

Notice to forbear from requiring non-dominant interexchange carriers to

file tariffs, that it would not be in the public interest to attempt to

enforce rate integration through the tariff process. Rather, we believe

that we can ensure compliance with the proposed rate integration

requirements by requiring providers of interstate, interexchange

telecommunications services to file certifications stating that they

are in compliance with their statutory rate integration obligations.

Such a requirement would not impose a significant burden on such

providers. Accordingly, we tentatively conclude that we should require

providers of interstate, interexchange telecommunications services to

file such certifications. We also tentatively conclude that we should

rely on the complaint process under Section 208 to bring violations to

our attention. We seek comment on these tentative conclusions. Parties

challenging these tentative conclusions should suggest possible

alternative enforcement mechanisms.

75. Finally, in the AT&T Reclassification proceeding, AT&T made

voluntary commitments relating to service to and from the State of

Alaska and other regions subject to our rate integration policy.

Specifically, AT&T committed that it ``will continue to comply with all

conditions and obligations contained in the various Commission orders

regarding rate integration between the contiguous forty-eight states

and the states of Alaska, Hawaii, Puerto Rico and the Virgin Islands,

until or unless those orders are superseded by Congressional or

Commission action.'' We tentatively conclude that, given the specific

limitation of AT&T's commitment on this issue, upon adoption of the

foregoing proposed rule relating to rate integration, AT&T would be

subject to that rule, and would not be bound to the specific commitment

it made with respect to rate integration. We seek comment on this

tentative conclusion. We note that this tentative conclusion does not

apply to AT&T's separate commitment to ``comply with all the conditions

and obligations contained in the Commission orders associated with

AT&T's purchase of Alascom, Inc.'' as that commitment is not limited in

duration.

VII. Pricing Issues

76. Changes in the structure of the interexchange marketplace over

the past decade have raised certain issues relating to the pricing of

interexchange telecommunications services. In the AT&T Reclassification

proceeding, a number of parties alleged that the interexchange market

is characterized by oligopolistic price coordination, and that the

reclassification of AT&T would lead to an increase in basic rates for

domestic residential service. We address these issues in this section.

A. Allegations of Tacit Price Coordination

77. In the AT&T Reclassification Order, we found inconclusive and

conflicting evidence in the record regarding the existence of alleged

tacit price coordination among interexchange carriers for basic

residential services, or residential services generally. We concluded

that, if there were tacit price coordination in the interexchange

market, the problem was generic to the industry and would be better

addressed by removing regulatory requirements that may have facilitated

such conduct. Our reclassification of AT&T as non-dominant removed one

such regulatory requirement--the longer advance notice period

applicable only to AT&T tariff filings. In addition, we believe that

the 1996 Act provides the best solution to any problem of tacit price

coordination, to the extent that it exists currently, by allowing for

competitive entry in the interstate interexchange market by the

facilities-based BOCs and others. Increasing the number of facilities-

based carriers should make tacit price coordination more difficult.

Moreover, we believe that the mandatory detariffing regime we propose

in this Notice similarly will discourage price coordination by

eliminating carriers' ability to ascertain their competitors'

interstate rates and service offerings from publicly available tariffs

filed with the Commission. We seek comment on these issues.

B. Residential Services Rate Plans

78. In order to alleviate concerns expressed in the AT&T

Reclassification proceeding that rates for residential services would

increase if AT&T were reclassified as non-dominant, AT&T voluntarily

committed, for a period of three years, to offer two optional calling

plans designed to mitigate the impact of future increases in basic

schedule or residential rates. The first plan is targeted to low-income

customers, and the second is targeted to low-volume consumers, but is

generally available to all residential customers.

79. With respect to low-income customers, in our recent Notice of

Proposed Rulemaking regarding implementation of the 1996 Act's

universal service directives, we solicited comment ``on whether and how

we should encourage domestic interstate interexchange carriers to

provide optional calling plans for low-income consumers to promote the

statutory [universal service] principles enumerated [in the 1996

Act].'' We anticipate resolving this issue in the Universal Service

proceeding, but because the service is interstate in nature, we retain

concurrent jurisdiction.

[[Page 14730]]

VIII. Bundling of Customer Premises Equipment

80. In 1980, the Commission adopted a rule prohibiting common

carriers from bundling the provision of customer premises equipment

(CPE) with the provision of common carrier telecommunications services.

Carriers previously offered CPE as part of a package of services to

subscribers. Changes in the industry, in particular the advent of

competitive CPE vendors, led the Commission to conclude that carriers'

continued bundling of telecommunications services with CPE could force

customers to purchase unwanted CPE in order to obtain necessary

transmission services, thus restricting customer choice and retarding

the development of a competitive CPE market. It therefore required

carriers to separate the provision of CPE from the provision of

transmission services. Section 64.702(e) of our rules provides:

``Except as otherwise ordered by the Commission, after March 1, 1982,

the carrier provision of customer-premises equipment used in

conjunction with the interstate telecommunications network shall be

separate and distinct from provision of common carrier communications

services and not offered on a tariffed basis.''

81. The Commission recognized, however, that ``[i]f the markets for

components of [a] commodity bundle are workably competitive, bundling

may present no major societal problems so long as the consumer is not

deceived concerning the content and quality of the bundle.'' It further

acknowledged that some consumers may believe that bundled offerings can

reduce transaction costs to customers. Bundling can also enable market

participants to compete more effectively by offering attractive sales

packages.

82. Since the adoption of the rule prohibiting CPE bundling in

1980, significant changes have occurred in the markets for CPE and

interstate long-distance services. The CPE market is now widely

recognized to be fully competitive. In the AT&T Reclassification Order,

we found that AT&T no longer possesses market power in the overall

interstate, domestic, interexchange market. Moreover, in the

Interexchange Competition Proceeding, we concluded that the business

services market was ``substantially competitive.''

83. The Supreme Court has stated that the essential characteristic

of an illegal tying or bundling arrangement ``lies in the seller's

exploitation of its control over [one] product to force the buyer into

the purchase of a [second] product that the buyer either did not want

at all or might have preferred to purchase elsewhere on different

terms.'' Under the ``leverage theory'' of tying, ``tying provides a

mechanism whereby a firm with monopoly power in one market can use the

leverage provided by this power to foreclose sales in, and thereby

monopolize, a second market.''

84. Based on our earlier findings regarding competition in both the

CPE and interstate, interexchange services markets, we tentatively

conclude that it is unlikely that non-dominant interexchange carriers

can engage in the type of anticompetitive conduct that led the

Commission to prohibit the bundling of CPE with the provision, inter

alia, of interstate, interexchange services. We also tentatively

conclude that allowing non-dominant interexchange carriers to bundle

CPE with interstate, interexchange services would promote competition

by allowing such carriers to create attractive service/equipment

packages for customers. Accordingly, we tentatively conclude that we

should amend Section 64.702(e) of the Commission's rules to allow non-

dominant interexchange carriers to bundle CPE with interstate,

interexchange services. We seek comment on these tentative conclusions.

85. Parties that believe we should amend Section 64.702(e) should

also comment on whether we should require interexchange carriers

offering bundled packages of CPE and interstate, interexchange services

to continue to offer separately, unbundled interstate, interexchange

services on a nondiscriminatory basis. We note that the U.S. Government

has committed in the Uruguay Round Agreements of the General Agreement

on Tariffs and Trade, to ensure, among other things, that ``service

suppliers'' are permitted ``to purchase or lease and attach terminal or

other equipment which interfaces with the [public telecommun-ications

transport] network and which is necessary to supply a supplier's

service. . . .'' See Uruguay Round Agreements Act of 1994, Pub. L. No.

103-465, Section 801, 108 Stat. 4809 (1994) (to be codified at 47

U.S.C. Sec. 309(j)(13)). ``Service supplier'' is defined to mean a

supplier of any service in any sector except services supplied in the

exercise of governmental authority. We seek comment on whether this

commitment implies that interexchange carriers should be required to

offer separately, unbundled interstate, interexchange services on a

nondiscriminatory basis if they are permitted to bundle CPE with the

provision of interstate, interexchange services.

86. Parties that believe that we should not amend Section 64.702(e)

as proposed should set forth specific reasons in support of their

position. We also seek comment on the effect that the proposed

amendment of Section 64.702(e) would have on our other policies or

rules. We believe that our tentative conclusions regarding CPE bundling

are consistent with our nation's foreign trade policy that seeks to

promote, in trade negotiations with other countries, the unbundling of

telecommunications services and CPE in certain international markets

where monopoly providers may exist in either the services or CPE

market. As described above, our domestic CPE and interstate, domestic,

interexchange markets are both subject to competition, thus we believe

that the potential for anticompetitive bundling behavior is highly

unlikely in the U.S. market. Finally, we seek comment on whether and

how the anticipated entry of local exchange carriers, in particular the

BOCs, into the market for interstate, interexchange services should

affect our analysis.

87. We note that we intend to initiate a comprehensive proceeding

to address payphone issues, and to implement the sections of the 1996

Act relating to the provision of payphone service. In that proceeding,

we intend to consider the issue of bundling of pay telephone equipment

with underlying transmission capacity. Accordingly, any amendment to

Section 64.702(e) of our rules adopted in this proceeding will not

apply to payphone bundling.

IX. Other Issues

88. For reasons set forth above, we have tentatively concluded that

we are required to forbear from requiring non-dominant interexchange

carriers to file tariffs, and that such detariffing should be

mandatory. In the AT&T Reclassification proceeding, commenters raised

certain issues regarding contract tariffs. We deferred consideration of

those issues to this proceeding because we found those issues were

unrelated to the determination of whether AT&T possessed market power.

We note that these issues will largely be mooted if, as proposed above,

we adopt a mandatory detariffing policy. We examine those and other

tariff-related issues here, however, because such issues will remain

relevant if we determine not to forbear from requiring non-dominant

interexchange carriers to file tariffs. In addition, if we determine to

adopt a policy of permissive detariffing, it is possible that some

carriers will choose

[[Page 14731]]

to continue to file tariffs, including contract tariffs.

89. In the First Interexchange Competition Order, the Commission

established its contract carriage regime under which interexchange

carriers are permitted to offer services pursuant to individually

negotiated contracts. The Commission further found that, as long as all

contracts were made generally available to similarly situated customers

under substantially similar circumstances, the offering of

individually-negotiated contracts for interexchange services under the

contract carriage regime would comply with the nondiscrimination

provisions of the Communications Act. The Commission later found that

the ``contract carriage policy serves the public interest by enabling

users to purchase services that match their needs in particular ways

and by facilitating user and interexchange carrier planning by

increasing the availability of long-term commitments and price

protection.''

90. The Title II statutory scheme permits carriers to make changes

to their tariffs. Moreover, it is well established that, pursuant to

the ``filed rate doctrine,'' in a situation where a filed tariff rate

differs from a rate set in a non-tariffed carrier-customer contract,

the carrier is required to assess the tariff rate. Consequently, if a

carrier unilaterally changes a rate by filing a tariff revision, the

newly filed rate becomes the applicable rate unless the revised rate is

found to be unjust, unreasonable, or unlawful under the Communications

Act.

91. In the RCA Americom Decisions, the Commission recognized that a

dominant carrier's proposal ``to modify extensively a long term service

tariff may present significant issues of reasonableness under Section

201(b) that are not ordinarily raised in other tariff filings.''

Accordingly, the Commission held that a dominant carrier's unilateral

tariff revisions that alter material terms and conditions of a long-

term service tariff will be considered reasonable only if the carrier

can make a showing of ``substantial cause'' for the revision. The

Commission has stated that the substantial cause test would apply to

unilateral changes by dominant carriers to long-term contract tariffs.

In the February 1995 Interexchange Reconsideration Order, 60 FR 13637

(March 14, 1995), the Commission indicated that the substantial cause

test would also apply to unilateral tariff modifications made by non-

dominant carriers.

92. In the February 1995 Interexchange Reconsideration Order, we

indicated that commercial contract law was highly relevant in assessing

the reasonableness of a unilateral tariff revision, but we declined to

declare that contract law principles constituted the sole and

dispositive basis for a substantial cause showing. We seek comment on

whether commercial contract law principles should be the sole criterion

in applying the substantial cause test. If not, parties should suggest

other factors that the Commission should consider in evaluating whether

a carrier has shown substantial cause for unilaterally changing a

contract tariff. We also seek comment on whether the substantial cause

test should apply only to the carrier and the customer with whom it

negotiated the original contract, or whether it also should apply to

subsequent customers who take service under the contract tariff. We

note that, in the February 1995 Interexchange Reconsideration Order, we

stated that in applying the substantial cause test, we would consider

whether the original tariff terms were the product of negotiation and

mutual agreement. Commenters arguing that the substantial cause test

should apply only to the initial customer, should explain how this

position is consistent with the nondiscrimination requirements of

Section 202 of the Communications Act. In addition, in cases in which

the Commission determines that a carrier has established substantial

cause for a unilateral change to a contract tariff, we seek comment on

whether the modified contract tariff should be treated as a new

contract tariff and should be made available to other similarly

situated customers.

93. The Mobile-Sierra doctrine established a strict ``public

interest'' standard that a carrier must meet before a regulatory agency

can accept a superseding tariff that modifies the terms of a negotiated

carrier-to-carrier contract. See United Gas Pipe Line Co. v. Mobile Gas

Service Corp., 350 U.S. 332 (1956) (Mobile); FPC v. Sierra Pacific

Power Co., 350 U.S. 348 (1956) (Sierra). In Bell Telephone Company of

Pennsylvania v. FCC, 503 F.2d 1250 (3rd Cir. 1974), cert. denied, 422

U.S. 1026 (1975), rehearing denied, 423 U.S. 886 (1975), the U.S. Court

of Appeals for the Third Circuit, applying the Mobile-Sierra doctrine,

held that a common carrier could not abrogate a contract with another

carrier simply by filing superseding tariffs. We seek comment on the

relationship between the substantial cause test and the Mobile-Sierra

doctrine in cases where a carrier attempts through a tariff revision to

abrogate an underlying carrier-to-carrier contract.

94. In the AT&T Reclassification proceeding, resellers raised

various issues concerning contract tariffs. Several commenters argued

that resellers and other large customers need protection from the

ability of carriers to revise unilaterally contract-based service

arrangements. AT&T made certain transitional voluntary commitments, for

a period of twelve months, in order to alleviate those concerns on an

interim basis. Commenters proposed, among other things, that the

Commission require carriers to: give customers advance notice of any

tariff filing that materially alters negotiated agreements; obtain the

consent of all affected customers before making such a filing; treat

the lack of consent to a proposed tariff change as prima facie evidence

of its unlawfulness; allow any non-consenting customer either to

terminate its service arrangement without liability or to enforce the

unchanged term; and provide a reasonable period of rate stability to

permit service migration if the customer chooses to terminate its

service agreement. We seek comment on the above proposals. In addition,

we tentatively conclude that AT&T should remain subject to its

voluntary commitments concerning unilateral changes to contract

tariffs, regardless of what action we take in this proceeding with

respect to the foregoing proposals. We seek comment on this tentative

conclusion.

95. Parties in the AT&T Reclassification proceeding also argued

that the ability of non-dominant carriers to file unilateral tariff

modifications on one day's notice effectively precludes customers from

challenging such revisions before they become effective. We seek

comment on whether we should require a longer notice period for tariff

filings that materially revise long-term service or contract tariffs,

and if so, what notice period should be established. We also seek

comment on whether a carrier should be required to identify clearly

tariff filings that unilaterally alter existing long-term service or

contract tariffs.

96. Resellers have also complained that ordering procedures are

used to prevent them from subscribing to contract tariffs. Accordingly,

we seek comment on whether specific ordering procedures should be

allowed to be incorporated in contract tariffs (i.e., when is an order

placed, what documents must a customer file, when must a customer

identify locations that

[[Page 14732]]

it will include in the plan). Resellers also complain that carriers use

narrowly circumscribed customer descriptions in order to prevent

resellers from taking service under contract-based tariffs. We seek

comment on what is an appropriate level of specificity for customer

descriptions that are used by carriers to determine eligibility under a

contract tariff. We also seek comment on whether there are certain

terms that should be prohibited as unreasonable (e.g., extremely large

upfront deposits from the customer).

97. Finally, in the AT&T Reclassification proceeding, we indicated

that we would in the future ``initiate a new proceeding to identify

specific areas of the interstate, domestic, interexchange market that

may raise policy concerns, and if there are any, to seek comment on

possible remedies.'' Further, we noted that we would monitor closely

the areas in which AT&T had made voluntary commitments in order to

protect consumers. Should parties wish to raise issues in this

proceeding with regard to these issues, we encourage parties to

comment.

X. Procedural Issues

A. Ex Parte Presentations

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

proceeding. Ex parte presentations are permitted, except during the

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

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

1.1206.

B. Initial Regulatory Flexibility Analysis

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

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

with respect to the Notice of Proposed Rulemaking is as follows:

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

Proposed Rulemaking to review our regulatory regime for interstate,

domestic, interexchange telecommunications services, and to implement

certain provisions of the 1996 Act.

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

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

for a Commission decision on the issues stated above.

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

pursuant to Sections 1, 2, 4, 201-205, 215, 218 and 220 of the

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

201-205, 215, 218 and 220.

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

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

proceeding could impact entities which are small business entities, as

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

evaluating the comments in this proceeding, the Commission will further

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

findings in the Final Regulatory Flexibility Analysis. The Secretary

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

Counsel for Advocacy of the Small Business Administration in accordance

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

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

014. Reporting, recordkeeping and other compliance requirement: The

proposed rules would require non-dominant interexchange carriers to

retain business records containing price and service information

regarding their interstate, domestic, interexchange offerings. The

proposed rules also would require providers of interexchange services

to certify their compliance with their statutory geographic rate

averaging obligations, and providers of interstate, interexchange

services to certify their compliance with their statutory rate

integration obligations.

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

Commission's proposal: None.

106. Any significant alternatives minimizing impact on small

entities and consistent with stated objectives: The Notice of Proposed

Rulemaking solicits comments on alternatives.

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

Initial Regulatory Flexibility Analysis. These comments must be filed

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

other issues (other than those in Sections IV, V, and VI) in this

Notice of Proposed Rulemaking but they must have a separate and

distinct heading designating them as responses to the Regulatory

Flexibility Analysis. The Secretary shall send a copy of the Notice to

the Chief Counsel for Advocacy of the Small Business Administration in

accordance with Section 603(a) of the Regulatory Flexibility Act, 5

U.S.C. Sec. 601, et seq.

C. Initial Paperwork Reduction Act of 1995 Analysis

108. This Notice contains either a proposed or modified information

collection. As part of its continuing effort to reduce paperwork

burdens, we invite the general public and the Office of Management and

Budget (OMB) to take this opportunity to comment on the information

collections contained in this Notice, as required by the Paperwork

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

are due April 19, 1996; OMB comments are due June 3, 1996. Comments

should address: (a) whether the proposed collection of information is

necessary for the proper performance of the functions of the

Commission, including whether the information shall have practical

utility; (b) the accuracy of the Commission's burden estimates; (c)

ways to enhance the quality, utility, and clarity of the information

collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated

collection techniques or other forms of information technology.

D. Comment Filing Procedures

109. Pursuant to applicable procedures set forth in Sections 1.415

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

interested parties may file comments on Sections IV, V, and VI, on or

before April 19, 1996, and reply comments on Sections IV, V, and VI on

or before May 3, 1996. Interested parties may file comments on all

other sections of this Notice on or before April 25, 1996, and reply

comments on or before May 24, 1996.

110. To file formally in this proceeding, parties must file an

original and six copies of all comments, reply comments, and supporting

comments. Parties wanting each Commissioner to receive a personal copy

of their comments, must file an original and eleven copies. Comments

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

Communications Commission, 1919 M Street, N.W., Room 222, Washington,

D.C. 20554, with a copy to Janice Myles of the Common Carrier Bureau,

1919 M Street, N.W., Room 544, Washington, D.C. 20554. Parties should

also file one copy of any documents filed in this docket with the

Commission's copy contractor, International Transcription Services,

Inc., 2100 M Street, N.W., Suite 140, Washington, D.C. 20037. Comments

and reply comments will be available for public inspection during

regular business hours in the FCC Reference Center, 1919 M Street,

N.W., Room 239, Washington, D.C. 20554.

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

both by parties and by Commission staff, we require that comments

submitted on Sections IV, V, and VI, be no longer than

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45 pages and reply comments on those sections be no longer than 25

pages. We require that comments on the remaining sections of this

Notice be no longer than 45 pages and reply comments on the remaining

sections be no longer than 25 pages.

112. Comments and reply comments on all sections of this Notice

must include a short and concise summary of the substantive arguments

raised in the pleading. Comments and reply comments must also comply

with Section 1.49 and all other applicable sections of the Commissions

Rules. See 47 CFR Sec. 1.49. However, we require here that a summary be

included with all comments and reply comments, regardless of length.

The summary may be paginated separately from the rest of the pleading

(e.g., as ``i, ii''). See 47 CFR Sec. 1.49.

113. Parties are also asked to submit comments and reply comments

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

a substitute for the formal filing requirements addressed above.

Parties submitting diskettes should submit them to Janice Myles of the

Common Carrier Bureau, 1919 M Street, N.W., Room 544, Washington, D.C.

20554. Such a submission should be on a 3.5 inch diskette formatted in

an IBM compatible form using MS DOS 5.0 and WordPerfect 5.1 software.

The diskette should be submitted in ``read only'' mode. The diskette

should be clearly labelled with the party's name, proceeding, type of

pleading (comment or reply comments) and date of submission. The

diskette should be accompanied by a cover letter.

114. Written comments by the public on the proposed and/or modified

information collections are due April 19, 1996. Written comments must

be submitted by the Office of Management and Budget (OMB) on the

proposed and/or modified information collections on or before 60 days

after date of publication in the Federal Register. In addition to

filing comments with the Secretary, a copy of any comments on the

information collections contained herein should be submitted to Dorothy

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

N.W., Washington, DC 20554, or via the Internet to [email protected] and

to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, N.W.,

Washington, DC 20503 or via the Internet to [email protected].

E. Ordering Clauses

115. Accordingly, it is ordered that pursuant to Sections 1, 4, 10,

201-205, 214(e), 215, 218, 220 and 254 of the Communications Act of

1934, as amended, 47 U.S.C. Secs. 151, 154, 201-205, 214(e), 215, 218

and 220 a notice of proposed rulemaking is hereby adopted.

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

this notice of proposed rulemaking, including the regulatory

flexibility certification, to the Chief Counsel for Advocacy of the

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

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

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96-8116 Filed 4-2-96; 8:45 am]

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