Treatment of Guam Telephone Authority and Other Similarly Situated LECs as ILECs Under Section 251(h)(2) of the Communications Act

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 51

[CC Docket No. 97-134; FCC 97-171]

Treatment of Guam Telephone Authority and Other Similarly

Situated LECs as ILECs Under Section 251(h)(2) of the Communications

Act

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: The Notice of Proposed Rulemaking for CC Docket No. 97-134

tentatively concludes that, pursuant to section 251(h)(2) of the

Communications Act, the Guam Telephone Authority (GTA) and similarly

situated carriers, if any, can be treated as incumbent LECs for

purposes of section 251(c) of the Communications Act, as amended, if

three conditions are met: Under section 251(h)(2)(A), the LEC must

``occup[y] a position in the market for telephone exchange service

within an area that is comparable to the position occupied by a carrier

described in (section 251(h)(1)).'' Under section 251(h)(2)(B), where

the LEC at issue provides local exchange service to all or virtually

all of the subscribers in an area that did not receive telephone

exchange service from NECA member as of the date of enactment of the

1996 Act. Under section 251(h)(2)(C), treating the LEC as an incumbent

LEC must be ``consistent with the public interest, convenience and

necessity and the purposes of (section 251).''

DATES: Comments are due July 7, 1997, and reply comments are due July

28, 1997.

FOR FURTHER INFORMATION CONTACT: Alex Starr, Attorney, Common Carrier

Bureau, Policy and Program Planning Division, (202) 418-1580.

SUPPLEMENTARY INFORMATION: Regulatory Flexibility Analysis: This is a

summary of the Commission's Notice of Proposed Rulemaking adopted May

16, 1997 and released May 19, 1997.

Synopsis of Notice of Proposed Rulemaking

I. Introduction

1. In a Declaratory Ruling, CCB Pol 96-18, released simultaneously

with this NPRM, the Commission determined that GTA is not an

``incumbent local exchange carrier'' within the meaning of section

251(h)(1). This determination means that, absent a Commission decision

to provide for the treatment of GTA as an incumbent LEC for purposes of

section 251, GTA will presently be under no legal mandate to comply

with the obligations of section 251(c). See Local Competition Order, 61

FR 45476 (August 29, 1996).

2. IT&E and GCT suggest section 251(h)(2) as an alternative for

applying the obligations of section 251(c) to GTA. IT&E asserts that

section 251(h)(2) permits the application of the obligations of section

251(c) to GTA because ``GTA meets the spirit, if not the letter, of the

statutory definition of an `incumbent LEC.' '' GCT maintains that

section 251(h)(2) permits the application of the obligations of section

251(c) to GTA because GTA ``occupies a position `comparable' to the

position occupied by an incumbent LEC (i.e., a quasi-monopoly

position).'' The Guam Commission notes that ``the Commission may, by

rule, provide that GTA is comparable to an incumbent LEC pursuant to

section 251(h)(2),'' but ``section 251(h)(2) may not be applicable in

this instance'' because ``GTA has not replaced an ILEC.''

3. Section 251(h)(2) allows the Commission to treat a LEC (or class

or category of LECs) as an incumbent LEC, for purposes of section 251,

when the LEC ``occupies a position in the market for telephone exchange

service within an area that is comparable to the position occupied by a

carrier described in (section 251(h)(1))''; 47 U.S.C. section 251

(h)(2)(A) the LEC has ``substantially replaced an incumbent local

exchange carrier described in (section 251(h)(1))''; 47 U.S.C. section

251(h)(2)(B) and ``such treatment is consistent with the public

interest, convenience, and necessity and the purposes of (section

251).'' 47 U.S.C. 251(h)(2)(C). In this NPRM, we tentatively conclude

that each of these requirements is met with respect to GTA.

4. Regarding the first requirement, we tentatively conclude that

GTA occupies a position in the market for telephone exchange service in

its service area that is comparable to an incumbent LEC's, because GTA

appears to occupy a dominant position in that market. Regarding the

second requirement, we tentatively reject an overly literal reading of

the statutory language that would produce absurd results at odds with

manifest Congressional intent. Instead, we tentatively conclude that

the second requirement is satisfied where the LEC at issue provides

local exchange service to all or virtually all of the subscribers in an

area that did not receive telephone exchange service from a NECA member

as of the date of enactment of the 1996 Act. Accordingly, we also

tentatively conclude that GTA satisfies the second requirement, because

GTA apparently provides all or virtually all of the telephone exchange

service in Guam, and no NECA member provided telephone exchange service

in Guam as of February 8, 1996. Regarding the third requirement, we

tentatively conclude that treatment of GTA as an incumbent LEC would

serve the public interest, convenience, and necessity and the purposes

of section 251, because such treatment would foster the development of

competitive telecommunications markets in Guam. In light of the

foregoing tentative conclusions, we propose, pursuant to section

251(h)(2), to adopt a rule providing for the treatment of GTA as an

incumbent LEC for purposes of section 251. We also seek comment whether

LECs situated similarly to GTA exist and, if so, whether we should

adopt the same rule with respect to such class or category of LECs.

A. Discussion

1. Section 251(h)(2)(A)

5. Under section 251(h)(2)(A), in order for the Commission to treat

GTA as an incumbent LEC, GTA must ``occup(y) a position in the market

for telephone exchange service within an area that is comparable to the

position occupied by a carrier described in (section 251(h)(1)).'' 47

U.S.C. 251(h)(2)(A). Incumbent LECs typically occupy a dominant

position in the market for telephone exchange service in their

respective operating areas, and possess economies of density,

connectivity, and scale that make efficient competitive entry quite

difficult, if not impossible, absent compliance with the obligations of

section 251(c). See Local Competition Order, 61 FR 45476 (August 29,

1996).

6. GTA seems to exercise such dominance in Guam. It apparently is

the sole provider of local exchange and exchange access services on

Guam. It therefore appears to control the bottleneck local exchange

network on Guam and possess substantial economies of density,

connectivity, and scale that, absent compliance with the obligations of

section 251(c), can impede the development of telephone exchange

service competition in Guam. Consequently, we tentatively conclude that

GTA occupies a position in the market for telephone exchange service in

Guam that is comparable to the position typically occupied by

statutorily-defined incumbent LECs. Accordingly, we also tentatively

conclude that GTA satisfies the requirement of section 251(h)(2)(A). We

invite comment on these tentative conclusions.

[[Page 29321]]

2. Section 251(h)(2)(B)

7. Under section 251(h)(2)(B), in order for the Commission to treat

GTA as an incumbent LEC, GTA must have ``substantially replaced an

incumbent local exchange carrier described in (section 251(h)(1)).'' 47

U.S.C. 251(h)(2)(B) The word ``replace'' can mean ``to take the place

of: serve as a substitute for or successor of: SUCCEED, SUPPLANT * *

*'' Webster's Third New International Dictionary of the English

Language Unabridged (1993) at 1925. Consequently, if construed

literally, section 251(h)(2)(B) would mean that GTA must have

supplanted an incumbent LEC (as defined in section 251(h)(1)) in its

service area in order to be treated as an incumbent LEC for purposes of

section 251. GTA did not supplant such an incumbent LEC, because none

existed as of the date of enactment of the 1996 Act.

8. We invite comment on whether we should construe section

251(h)(2)(B) so literally. The Supreme Court has long and consistently

recognized that the ``plain meaning'' rule of statutory construction

must give way when its application would result in an absurd outcome

contrary to the clear intent of Congress:

It is a familiar rule, that a thing may be within the letter of

the statute and yet not within the statute, because not within its

spirit, nor within the intention of its makers * * * If a literal

construction of the words be absurd, the Act must be construed to

avoid the absurdity.

Holy Trinity Church v. United States, 143 U.S. 457, 459 (1898).

See, e.g., Public Citizen v. United States Department of Justice, 491

U.S. 440, 454-455 (1989)(``Where the literal reading of a statutory

term would compel an odd result, we must search for other evidence of

congressional intent to lend the term its proper scope. The

circumstances of the enactment of a particular legislation, for

example, may persuade a court that Congress did not intend words of

common meaning to have their literal effect''); United States v. Ron

Pair Enterprises, Inc., 489 U.S. 235, 242 (1989)(where ``the literal

application of a statute will produce a result demonstrably at odd with

the intention of its drafter[,] * * * the intention of the drafters,

rather than the strict language, controls''); United Steelworkers of

America v. Weber, 443 U.S. 193, 201-04 (1979). Indeed, the Supreme

Court has further instructed that ``even when the plain meaning [of

statutory language] d[oes] not produce absurd results but merely an

unreasonable one plainly at variance with the policy of the legislation

as a whole this Court has followed that purpose, rather than the

literal words.'' United States v. American Trucking Associations, 310

U.S. 534, 543 (1967)(citations, footnote, and quotation marks omitted).

Compare MCI Telecommunications Corp. v. American Telephone and

Telegraph Co., 512 U.S. 218 (1994)(adhering to literal meaning of

tariff provision of Communications Act partly because doing otherwise

would frustrate purposes of complaint provisions of that Act).

9. The United States Courts of Appeals have followed these

precedents when necessary to avoid results that are clearly

inconsistent with Congressional intent. See, e.g., Environmental

Defense Fund v. Environmental Protection Agency, 82 F.3d 451, 468-469

(D.C. Cir.), amended on other grounds, 92 F.3d 1209 (D.C. Cir 1996)

(``Because this literal reading of the statute would actually frustrate

the congressional intent supporting it, we look to the EPA for an

interpretation of the statute more true to Congress's purpose''); In re

Nofziger, 925 F.2d 428, 434-435 (D.C. Cir. 1991)(``In statutory

interpretation it is a given that statutes must be construed reasonably

so as to avoid absurdities--manifest intent prevails over the

letter''); Quinn v. Butz, 510 F.2d 743, 753-54 (D.C. Cir. 1975)(``The

Secretary's interpretation obviously rests upon a literal reading of

the language, a technique which may well stifle true legislative

intent''); Red River Broadcasting Co. v. Federal Communications

Commission, 98 F.2d 282, 287 (D.C. Cir.), cert. denied, 305 U.S. 625

(1938)(``A well-settled rule of statutory construction enjoins courts

not to attribute to the Legislature a construction which leads to

absurd results''). So, too, has the Commission. See Application of Fox

Television Stations, Inc., Third Memorandum Opinion and Order, 10 FCC

Rcd 8452, 8471 (1995), recon. denied, 11 FCC Rcd 7773 (1996)(rejecting

literal ``count-the-shares'' methodology for determining whether

foreign ownership ceiling in 47 U.S.C. 310(b)(4) is reached), petitions

for review pending sub nom., Metropolitan Council of NAACP Branches, et

al. v. FCC, No. 95-1424 and consolidated case (D.C. Cir. filed Aug. 21,

1995).

10. In keeping with this consistent precedent, we tentatively

conclude that we should find section 251(h)(2)(B) satisfied where, as

here, the LEC at issue provides local exchange service to all or

virtually all of the subscribers in an area that did not receive

telephone exchange service from a NECA member as of the date of

enactment of the 1996 Act. In our tentative view, we must so construe

section 251(h)(2)(B) in order to avoid absurd and unreasonable results

clearly contradictory of Congressional intent. We seek comment on these

tentative conclusions.

11. These tentative conclusions are premised on Congress' clearly

expressed purpose in the 1996 Act ``to provide for a pro-competitive,

de-regulatory national policy framework designed to accelerate rapidly

private sector deployment of advanced telecommunications and

information technologies and services to all Americans by opening all

telecommunications markets to competition * * *'' Joint Explanatory

Statement at 1 (emphasis added). See generally 47 U.S.C.

160(b)(providing in the 1996 Act that ``forbearance is in the public

interest'' if it ``will promote competitive market conditions'' and

``enhance competition among providers of telecommunications

services''); 47 U.S.C. 253(authorizing Commission to preempt state or

local laws that ``may prohibit or have the effect of prohibiting the

ability of any entity to provide any interstate or intrastate

telecommunications service''); 47 U.S.C. 257(b)(describing the

``policies and purposes of this (1996) Act'' as ``favoring * * *

vigorous economic competition''). To accomplish this purpose, Congress

chose, inter alia, to impose on entities that are classified as

incumbent LECs the duties of interconnection, access to unbundled

network elements, resale of retail services, collocation, public

notification of interoperability changes, and good faith negotiation

specified in section 251(c). See 47 U.S.C. 251(c). These duties require

incumbent LECs to share with competitors some of their inherent

economic advantages--advantages that would otherwise render competitive

entry very difficult, if not impossible. For example, the existing

infrastructure of the incumbent LEC in an area enables the incumbent

LEC to serve new customers therein at a much lower incremental cost

than a facilities-based entrant that must install its own switches,

trunking, and loops to serve its customers. Because the incumbent LEC

is typically dominant in its service area, it has little economic

incentive to assist new entrants. Prior to the enactment of section

251(c), an incumbent LEC also had the ability to discourage entry and

robust competition by refusing to interconnect its network with the new

entrant's network or by insisting on supracompetitive prices or other

unreasonable conditions for terminating calls from the entrant's

customers to its customers. See Local

[[Page 29322]]

Competition Order, 61 FR 45476 (August 29, 1996).

12. An unduly literal construction of section 251(h)(2)(B) would

mean that these statutory objectives would be thwarted in Guam unless

GTA were to comply voluntarily with each of the obligations of section

251(c). Indeed, GTA appears to possess all of the advantages of

incumbency characteristic of the incumbent LECs described in section

251(h)(1), advantages that can impede the development of competitive

markets. For example, GTA apparently has substantial financial

resources, significant economies of density, connectivity, and scale,

and, most importantly, control of the bottleneck local exchange network

in Guam. Thus, the seemingly dominant market presence of GTA in Guam

appears to be precisely the type of non-competitive situation that

Congress intended section 251(c) to redress.

13. Moreover, we note that Congress left intact several provisions

of the Communications Act that led the Commission in 1992 to conclude

that ``the Communications Act was intended by Congress to apply, * * *

in every respect, to all radio and wire communications originating or

terminating on the Territory of Guam.'' Guam Jurisdictional Order, 7

FCC Rcd at 4024. First, in the 1996 Act, Congress incorporated by

reference the definitions in the 1934 Act. 47 U.S.C. 153(b). Those

definitions define the ``United States'' as including ``the several

States and Territories * * * and the possessions of the United States *

* *;'' 47 U.S.C. 153(50) (emphasis added) define ``State'' as including

``the Territories''; 47 U.S.C. 153(40) and define ``interstate

communication'' as including ``communication or transmission * * * from

any State, Territory, or possession of the United States * * * to any

other State, Territory, or possession of the United States * * * .'' 47

U.S.C. 153(22) (emphasis added). Furthermore, despite amending section

1 of the 1934 Act in other respects, Congress left unchanged that

section's command to the Commission ``to make available, so far as

possible, to all the people of the United States * * * a rapid,

efficient, Nation-wide, and world-wide wire and radio communication

service with adequate facilities at reasonable charges * * * .'' 47

U.S.C. 151 (emphasis added). See Joint Explanatory Statement at 32.

These provisions appear to make clear that Congress believed that ``the

residents of Guam are just as entitled to the benefits of competition

in telecommunications as any other Americans,'' Guam Jurisdictional

Order, 7 FCC Rcd at 4024, 4026. See Policy and Rules Concerning the

Interstate, Interexchange Marketplace, Implementation of Section 254(g)

of the Communications Act of 1934, as amended, Report and Order, 61 FR

42558 (August 16, 1996) (applying rate integration requirements of

section 254(g) to Guam because section 153(40) defines ``State'' to

include ``the Territories''). and suggest that Congress did not intend

to exclude GTA from treatment as an incumbent LEC for purposes of

section 251(c).

14. Of course, under section 251(f), our holding in the Declaratory

Ruling issued simultaneously with this NPRM that GTA is a ``rural

telephone company'' within the meaning of section 3(37) would entitle

GTA to an exemption, at least initially, from the obligations of

section 251(c), should GTA be treated as an incumbent LEC in the

future. Congress included within section 251(f), however, a procedure

for terminating such an exemption under appropriate circumstances.

Construing section 251(h)(2)(B) to foreclose the possibility of

classifying GTA as an incumbent LEC would thwart that procedure,

substituting a permanent exemption for the potentially temporary

exemption expressly set forth in section 251(f).

15. An overly literal interpretation of section 251(h)(2)(B) would

also exalt form over substance. As indicated previously, on May 12,

1997, the Commission granted NECA's petition to become a member of

NECA. GTA apparently could have filed that petition at any time after

the release of the Guam Jurisdictional Order on June 2, 1992. Thus, it

appears that only the date of initial NECA membership will distinguish

GTA from LECs that are incumbent LECs under section 251(h)(1).

16. In sum, the circumstances with respect to GTA and Guam appear

to counsel against an overly literal construction of statutory

language. See, e.g., EDF v. EPA, 82 F. 3d at 468-69. Construed so

literally, the language of section 251(h)(2)(B) would produce absurd

results ``demonstrably at odds with the intention of its drafters.''

U.S. v. Ron Pair, 489 U.S. at 242. The most immediate absurdity would

be a permanent exemption of a seemingly dominant provider of local

exchange and exchange access services--GTA--from the very requirements

that Congress designed specifically to end such dominance and foster

competition in local exchange and exchange access markets. Furthermore,

this result would not be benign; rather, it apparently would conflict

with Congress' pro-competitive objectives with respect to the twenty-

ninth largest local telephone network in the United States. We seek

comment, therefore, on whether the outcome suggested by an unduly

literal reading of the statute's language would be an ``unreasonable

one `plainly at variance with the policy of the legislation as a

whole.'' ' Quinn v. Butz, 510 F.2d at 753 (quoting U.S. v. A.T.A., 310

U.S. at 543).

17. To avoid these absurd results and to construe the statute

consistently with Congress' obvious pro-competitive purpose, we propose

to interpret section 251(h)(2)(B) to include any LEC that provides

telephone exchange service to all or virtually all of the subscribers

in its service area, where, as here, no NECA member served the area at

issue as of the date of enactment of the 1996 Act. Accordingly, we also

propose to find that GTA satisfies section 251(h)(2)(B) as construed in

this manner. We invite comment on these proposals.

18. We also seek comment whether reading section 251(h)(2) in

conjunction with other provisions of the Communications Act creates

ambiguity in Section 251(h)(2)'s meaning and intended application such

that we may reasonably exercise our discretion to construe the statute

to permit treating GTA as an incumbent LEC. Applying section 251(h)(2)

so as to exempt GTA permanently from the statutory responsibilities of

an incumbent LEC would, as described above, arguably conflict with

sections 251(c) and 251(f), among other Communications Act provisions.

Cf. Lyons v. Ohio Adult Parole Authority, 105 F.3d 1063, 1067-68 (6th

Cir. 1997) (holding that two statutory provisions were in direct

conflict, creating ``a rare but difficult form of ambiguity'').

3. Section 251(h)(2)(C)

19. Under section 251(h)(2)(C), in order for the Commission to

treat GTA as an incumbent LEC for purposes of section 251, ``such

treatment (must be) consistent with the public interest, convenience,

and necessity and the purposes of (section 251).'' 47 U.S.C.

251(h)(2)(C). As described above, Congress has declared unequivocally

that promoting competition in local exchange and exchange access

markets serves the public interest, convenience, and necessity.

Treating GTA as an incumbent LEC would promote competition in the local

exchange and exchange access markets in Guam, because such treatment

would require GTA to comply with the pro-competitive obligations of

section 251(c), absent an exemption,

[[Page 29323]]

suspension, or modification under section 251(f). Moreover, because GTA

appears to be the sole provider of local exchange and exchange access

services in Guam, we tentatively conclude that GTA has market power,

economies of density, connectivity, and scale, and control of the local

network comparable to that possessed by entities that are incumbent

LECs under section 251(h)(1). Consequently, treating GTA as an

incumbent LEC may well be a prerequisite for the development of

competition in the local exchange and exchange access markets in Guam.

Thus, we tentatively conclude that treating GTA as an incumbent LEC for

purposes of section 251 would be consistent with the public interest,

convenience, and necessity.

20. For similar reasons, we also tentatively conclude that treating

GTA as an incumbent LEC would be consistent with the purposes of

section 251. Section 251's primary purpose is to foster competition

that otherwise would not likely develop in local exchange and exchange

access markets. It is possible that failing to treat GTA as an

incumbent LEC would stifle competition in Guam.

21. Having tentatively concluded that GTA has market power,

economies of density, connectivity, and scale, and control of the local

network, and that treating GTA as an incumbent LEC would be consistent

with the public interest, convenience, and necessity and the purposes

of section 251, we further conclude tentatively that the circumstances

here satisfy the requirements of section 251(h)(2)(C). We invite

comment regarding these tentative conclusions.

4. Proposal to Treat GTA--and Possibly Others--as an Incumbent LEC

22. For all of the reasons explained above, we tentatively conclude

that the relevant facts and circumstances meet the requirements of

section 251(h)(2) for treating GTA as an incumbent LEC for purposes of

section 251. Accordingly, we propose to provide for the treatment of

GTA as an incumbent LEC for purposes of section 251. We seek comment

regarding this tentative conclusion and proposal. We also seek comment

whether LECs situated similarly to GTA exist and, if so, whether we

should adopt the same rule with respect to such class or category of

LECs.

B. Procedural Matters

1. Ex Parte Presentations

23. With respect to the rulemaking proposal in Part IV, supra, to

treat GTA as an incumbent local exchange carrier pursuant to section

251(h)(2), 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 required by

the Commission's rules. See generally 47 CFR 1.1201, 1.1203, and

1.1206.

2. Initial Regulatory Flexibility Analysis

24. Section 603 of the Regulatory Flexibility Act, as amended, 5

U.S.C. 603, requires an initial regulatory flexibility analysis in NPRM

and comment rulemaking proceedings, unless we certify that ``the rule

will not, if promulgated, have a significant economic impact on a

substantial number of small entities.'' 5 U.S.C. section 605(b). Our

proposal in Part IV, supra, to treat GTA as an incumbent local exchange

carrier pursuant to section 251(h)(2) will affect only GTA and the

limited number of entities that seek to interconnect with GTA's network

or resell GTA's services. Even if all of these entities can be

classified as small entities, we do not believe that they constitute a

``significant number of small entities'' for purposes of the Regulatory

Flexibility Act. Therefore, we certify that the proposed rule will not,

if promulgated, have a significant economic impact on a substantial

number of small entities. The Secretary shall send a copy of this

Notice of Proposed Rulemaking, including this certification and

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

Administration. See 5 U.S.C. 605(b). A copy of this certification also

will be published in the Federal Register.

3. Comment Filing Procedures

25. Pursuant to applicable procedures set forth in sections 1.415

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

parties may file comments on or before July 7, 1997 and reply comments

on or before July 28, 1997. To file formally in this proceeding, you

must file an original and six copies of all comments, reply comments,

and supporting comments. If you would like each Commissioner to receive

a personal copy of your comments, you 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, NW, Room

222, Washington, DC 20554. Parties should also file copies of any

documents filed in this docket with Janice Myles of the Common Carrier

Bureau, 1919 M Street, NW, Room 544, Washington, DC 20554, and with the

Commission's copy contractor, International Transcription Services,

Inc., 2100 M Street, NW, Suite 140, Washington, DC 20037. Comments and

reply comments will be available for public inspection during regular

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

239, Washington, DC 20554.

II. Ordering Clauses

26. It is ordered That, pursuant to sections 1, 2, 4, 251, and

303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 151,

152, 154, 251, and 303(r), the Notice of Proposed Rulemaking contained

herein, is hereby adopted.

27. 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. 601 et seq. (1981).

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 97-14119 Filed 5-29-97; 8:45 am]

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