Access Charge Reform; Price Cap Performance Review for Local Exchange Carriers; Transport Rate Structure and Pricing; Usage of the Public Switched Network by Information Service and Internet Access Providers
Federal RegisterJun 11, 1997
Ask Donna
What actually matters in this document.
Text
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 61 and 69
[CC Docket Nos. 96-262, 94-1, 91-213, 96-263; FCC 97-158]
Access Charge Reform; Price Cap Performance Review for Local
Exchange Carriers; Transport Rate Structure and Pricing; Usage of the
Public Switched Network by Information Service and Internet Access
Providers
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: On December 23, 1996, the Commission adopted a Notice of
Proposed Rulemaking in this docket, seeking comment on how the
interstate access charge regime should be revised in light of the local
competition and Bell Operating Company entry provisions of the
Telecommunications Act of 1996 and state actions to open local markets
to competition, the effects of potential and actual competition on
incumbent LEC pricing for interstate access, and the impact of the
Act's mandate to preserve and enhance universal service. In this Report
and Order, the Commission adopts many of the rules it proposed. These
rule revisions are intended to foster competition, move access charges
over time to more economically efficient levels and rate structures,
preserve universal service, and lower rates.
DATES: The following rules or amendments thereto, shall become
effective July 11, 1997 47 CFR 69.103, 69.107, 69.122, 69.303, 69.304,
69.307, 69.308, and 69.406. The following rules or amendments thereto,
which impose new or modified information or collection requirements,
shall become effective upon approval by the Office of Management and
Budget (OMB), but no sooner than June 15, 1997: 47 CFR 61.45, 61.47,
69.104, 69.126, 69.151, 69.152, and 69.410. The following rules, or
amendments thereto, in this Report and Order shall be effective January
1, 1998: 47 CFR 61.3, 61.46, 69.1, 69.2, 69.105, 69.123, 69.124,
69.125, 69.154, 69.155, 69.157, 69.305, 69.306, 69.309, 69.401, 69.411,
69.501, 69.502, and 69.611. The following rules, which impose new or
modified information or collection requirements, shall become effective
upon approval by the Office of Management and Budget (OMB), but no
sooner than January 1, 1998: 47 CFR 61.42, 61.48, 69.4, 69.106, 69.111,
69.153, and 69.156. The Commission will publish a document in the
Federal Register at a later date announcing the effective date for the
sections containing information collection requirements.
FOR FURTHER INFORMATION CONTACT: Richard Lerner, Attorney, Common
Carrier Bureau, Competitive Pricing Division, (202) 418-1530. For
additional information concerning the information collections contained
in this Report and Order contact Judy Boley at 202-418-0214, or via the
Internet at [email protected].
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order adopted May 7, 1997, and released May 16, 1997. The full text
of this Report and Order 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 obtained
through the World Wide Web, http://www.fcc.gov/Bureaus/Common__Carrier/
Orders/1997/fcc97158.wp, or may be purchased from the Commission's copy
contractor, International Transcription Service, Inc., (202) 857-3800,
2100 M St., N.W., Suite 140, Washington, DC 20037. To seek comment on
the rules adopted in this Report and Order, the Commission released
Access Charge Reform, CC Docket No. 96-262, Notice of Proposed
Rulemaking, 62 FR 4670 (January 31, 1997); Price Cap Performance Review
for Local Exchange Carriers, CC Docket No. 94-1, Second Further Notice
of Proposed Rulemaking, 60 FR 49539 (September 25, 1995); and Price Cap
Performance Review for Local Exchange Carriers, CC Docket 94-1, Fourth
Further Notice of Proposed Rulemaking, 60 FR 52362 (October 6, 1995).
This Report and Order 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. Please note that the
Commission has requested emergency review and approval of this
collection by June 10, 1997 under the provisions of 5 CFR 1320.13.
Paperwork Reduction Act
This Report and Order 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 Report and Order, as required
by the Paperwork Reduction Act of 1995, Public Law 104-13. Please note
that the Commission has requested emergency review and approval of this
collection by June 10, 1997 under the provisions of 5 CFR 1320.13. OMB
notification of action is due June 10, 1997. 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: 3060-0760.
Title: Access Charge Reform Report and Order.
Form No.: N/A.
Type of Review: Revised Collection.
Respondents: Business and other for profit.
Number of Respondents: 13.
Estimated Time Per Response: 138,714 hours.
Total Annual Burden: 1,803,282 hours.
Estimated costs per respondent: $2,400.
Total Annual Estimated Costs: $31,200.
Needs and Uses: In the Access Charge Reform First Report and Order,
the Commission adopts, that, consistent with principles of cost-
causation and economic efficiency, non-traffic sensitive (NTS) costs
associated with local switching should be recovered on an NTS basis,
through flat-rated, per month charges. The information collections
resulting from this Report and Order are as follows:
a. Cost Study of Local Switching Costs: The FCC does not establish
a fixed percentage of local switching costs that incumbent LECs must
reassign to the Common Line basket or newly created Trunk Cards and
Ports service category as NTS costs. In light of the widely varying
estimates in the record, we conclude that the portion of costs that is
NTS costs likely varies among LEC switches. Accordingly, we require
each price cap LEC to conduct a cost study to determine the
geographically-averaged portion of local switching costs that is
attributable to the line-side ports, as defined above, and to dedicated
trunk side cards and ports. These amounts, including cost support,
should be reflected in the access charge
[[Page 31869]]
elements filed in the LEC's access tariff effective January 1, 1998.
b. Cost Study of Interstate Access Service That Remain Subject to
Price Cap Regulation: The 1996 Act has created an unprecedented
opportunity for competition to develop in local telephone markets. We
recognize, however, that competition is unlikely to develop at the same
rate in different locations, and that some services will be subject to
increasing competition more rapidly than others. We also recognize,
however, that there will be areas and services for which competition
may not develop. We will adopt a prescriptive ``backstop'' to our
market-based approach that will serve to ensure that all interstate
access customers receive the benefits of more efficient prices, even in
those places and for those services where competition does not develop
quickly. To implement our backstop to market-based access charge
reform, we require each incumbent price cap LEC to file a cost study no
later than February 8, 2001, demonstrating the cost of providing those
interstate access services that remain subject to price cap regulation
because they do not face substantial competition.
c. Tariff Filings. The Commission also suggests several information
collections relating to tariff filings. Specifically, the Commission
adopts its proposals to require the filing of various tariffs, with
modifications. For example, the FCC directs incumbent LECs to establish
separate rate elements for the multiplexing equipment on each side of
the tandem switch. LECs must establish a flat-rated charge for the
multiplexers on the SWC side of the tandem, imposed pro-rata on the
purchasers of the dedicated trunks on the SWC side of the tandem.
Multiplexing equipment on the EO side of the tandem shall be charged to
users of common EO-to-tandem transport on a per-minute of use basis.
These multiplexer rate elements must be included in the LEC access
tariff filings to be effective January 1, 1998.
Synopsis of Report and Order
I. Introduction
1. In passing the Telecommunications Act of 1996, Public Law 104-
104, 110 Stat. 56 (codified at 47 U.S.C. secs. 151 et seq.) (1996 Act),
Congress sought to establish ``a pro-competitive, deregulatory national
policy framework'' for the United States' telecommunications industry.
With this Order, we begin the third part in a trilogy of actions
collectively intended to foster and accelerate the introduction of
competition into all telecommunications markets, pursuant to the
mandate of the 1996 Act.
2. In the Local Competition Order, we set forth rules to implement
section 251 and section 252 of the Communications Act of 1934, as
amended. Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-98, First Report and
Order, 61 FR 45476 (August 29, 1996) (Local Competition Order), Order
on Reconsideration, CC Docket No. 96-98, 61 FR 52706 (October 8, 1996),
petition for review pending and partial stay granted, sub nom. Iowa
Utils. Bd. v. FCC, 109 F.3d 418 (8th Cir. 1996). As with all of Part II
of Title II of the Communications Act, those sections, and the rules
implementing them, seek to remove the legal, regulatory, economic, and
operational barriers to telecommunications competition. Among other
things, sections 251 and 252 provide entrants with the opportunity to
compete for consumers in local markets by either constructing new
facilities, leasing unbundled network elements, or reselling
telecommunication services.
3. In the Universal Service Order, which we adopt in a companion
order today, we take steps to ensure that support mechanisms that are
necessary to maintain local rates at affordable levels are protected
and advanced as local telecommunication markets become subject to the
competitive pressures unleashed by the 1996 Act. Federal-State Board on
Universal Service, CC Docket No. 96-45, First Report and Order, FCC 97-
157, ______ FR ______ (released May 8, 1997) (Universal Service Order).
When it enacted section 254 of the Communications Act, Congress
detailed the principles that must guide this effort. It placed on the
Commission and the states the duty to implement these principles in a
manner consistent with the pro-competition purposes of the Act, as
embodied in, for instance, the interconnection provisions of the Act.
It stated that ``[t]here should be specific, predictable and sufficient
Federal and State mechanisms to preserve and advance universal
service.''
4. Congress also specified that universal service support ``should
be explicit,'' and that, with respect to federal universal service
support, ``[e]very telecommunications carrier that provides interstate
telecommunications services shall contribute, on an equitable and non-
discriminatory basis, to the specific, predictable, and sufficient
mechanisms established by the Commission to preserve and advance
universal service.'' As explained further in the Joint Explanatory
Statement of the Committee of the Conference, Congress intended that,
``[t]o the extent possible, * * * any support mechanisms continued or
created under new section 254 should be explicit, rather than implicit
as many support mechanisms are today.'' Congress directed the
Commission, by May 8, 1997, to complete a universal service proceeding
that ``include[s] a definition of the services that are supported by
Federal universal service support mechanisms and a specific timetable
for implementation.''
5. Through our accompanying Universal Service Order, we establish
the definition of services to be supported by federal universal service
support mechanisms and the specific timetable for implementation.
Further, through this First Report and Order in our access reform
docket and our Universal Service Order, we set in place rules that will
identify and convert existing federal universal service support in the
interstate high cost fund, the dial equipment minutes (DEM) weighting
program, Long Term Support, Lifeline, Link-up, and interstate access
charges to explicit federal universal service support mechanisms. As
detailed below, we will identify the implicit federal universal service
support currently contained in interstate access charges through three
methods.
6. First, we will reduce usage-sensitive interstate access charges
by phasing out local loop and other non-traffic-sensitive (NTS) costs
from those charges and directing incumbent local exchange carriers
(LECs) to recover those NTS costs through more economically efficient,
flat-rated charges. Because NTS costs, by definition, do not vary with
usage, the recovery of NTS costs on a usage basis pursuant to our
current access charge rules amounts to an implicit subsidy from high-
volume users of interstate toll services to low-volume users of
interstate long-distance services.
7. Second, we will rely in part on emerging competition in local
telecommunications markets, spurred by the adoption of the 1996 Act, to
help identify the differences between the rates for interstate access
services established by incumbent LECs under price cap regulation and
those that competition would set. The prices for interstate access
services offered by competing providers presumably will not contain any
implicit universal service support such as that embedded in the
incumbent LECs' access charges. Consequently, the introduction of
competition inevitably will help to
[[Page 31870]]
remove implicit support from the incumbent LECs' access charges where
competition develops and also will help to identify the extent of
implicit support in other areas.
8. Third, we will engage in further deliberations on a forward-
looking economic cost-based mechanism that we will use to distribute
federal support to rural, insular, and high cost areas, beginning in
1999. Based on cost studies the states will conduct during the coming
year (or, at a state's election, based upon Commission-developed proxy
methods), an estimate of the forward-looking economic cost of providing
service to a customer in a particular rural, insular, or high cost area
will be calculated. We will distribute federal universal service
support based on the interstate portion of the difference between
forward-looking economic cost and a nationwide revenue benchmark. The
amount of the support will be explicitly calculable and identifiable by
competing carriers, and the support will be portable among competing
carriers, i.e., distributed to the eligible telecommunications carrier
chosen by the customer. It will be funded by equitable and non-
discriminatory contributions from all carriers that provide interstate
telecommunications services. Through this First Report and Order, we
direct that federal universal service support received by incumbent
LECs be used to reduce or satisfy the interstate revenue requirement
otherwise collected through interstate access charges. Accordingly,
through both our Universal Service Order and this First Report and
Order on access reform, interstate implicit support for universal
service will be identified and removed from interstate access charges,
and support will be provided through the explicit interstate universal
service support mechanisms.
9. Although these three steps will set in motion a process that
will remove implicit universal service support from access charges, it
will not remove all implicit support from all access charges
immediately. This result is fully in accord with Congress's directives.
Although Congress said in the Act that ``support should be explicit'',
it did not provide that ``support shall be explicit.'' Congress's
decision to say ``should'' instead of ``shall'' is especially pertinent
in light of Congress's repeated use of ``shall'' in the 1996 Act.
Moreover, in the Act's legislative history, Congress qualified its
intention that ``support mechanisms should be explicit, rather than
implicit,'' with the phrase ``[t]o the extent possible.'' Thus,
Congress recognized that the conversion of the existing web of implicit
subsidies to a system of explicit support would be a difficult task
that probably could not be accomplished immediately. As explained
below, we conclude that a process that eliminates implicit subsidies
from access charges over time is warranted primarily for three reasons.
First, we simply do not have the tools to identify the existing
subsidies precisely at this time. Second, we prefer to rely on the
market rather than regulation to identify implicit support because we
are more confident of the market's ability to do so accurately. Third,
even if we were more confident of our ability to identify all of the
existing implicit support mechanisms at this time, eliminating them all
at once might have an inequitable impact on the incumbent local
exchange carriers.
10. Nor, by our orders today, do we attempt to identify or
eliminate the implicit universal service support mechanisms established
by state commissions. We recognize that states are initially
responsible for identifying implicit intrastate subsidies. For the
reasons stated above, we believe the Commission has discretion under
the statute to employ pro-competitive, deregulatory policies to aid in
the reform of the existing, complex system of universal service. Where
pro-competition policies, such as those set forth in sections 251, 252
and 253, can force prices for telecommunications services to
competitive levels, and, as a result, eliminate or, at least,
substantially eliminate implicit support, the Act grants us the
authority to rely on such policies over a period of time. We find that
the Act does not require, nor did Congress intend, that we immediately
institute a vast set of wide-ranging pricing rules applicable to
interstate and intrastate services provided by incumbent LECs that
would have enormously disruptive effects on both ratepayers as well as
the affected LECs. Indeed, the congressional mandate that we implement
pro-competitive, deregulatory policies is a continuing reminder that,
wherever feasible, we should select competition instead of regulation
as our means of accomplishing the stated statutory goals. Reliance on
competition is the keystone that unifies our universal service and
access reform orders.
11. Nevertheless, implicit intrastate universal service support is
substantial. States have maintained low residential basic service rates
through, among other things, a combination of: geographic rate
averaging, high rates for business customers, high intrastate access
rates, high rates for intrastate toll service, and high rates for
vertical features and services such as call waiting and call
forwarding. By not mandating immediate Commission action to eliminate
these policies and instead by ordering that the Commission and the
states together achieve universal service goals, Congress intended that
states, acting pursuant to section 254(f) of the Communications Act,
must in the first instance be responsible for identifying intrastate
implicit universal service support. Indeed, by our decisions in this
Order and in our companion Universal Service Order, we strongly
encourage states to take such steps.
12. To achieve the vital, historic, and congressionally-mandated
purposes of universal service in every state in an era in which
competition replaces monopoly, it is necessary that the states and the
Commission develop new and effective mechanisms of complementing the
activities of each other. Therefore, as states implement their
universal service plans, we will be able to assess whether additional
federal universal service support is necessary to ensure that quality
services remain ``available at just, reasonable, and affordable
rates.'' Our decisions in this Order are meant in part to provide some
elements of the plan and time sufficient to discharge responsibly an
aspect of the federal role in this federal-state universal service
partnership.
13. In this First Report and Order, we also take the actions
necessary to permit the market, in the first instance, to expose any
implicit universal service support that we may fail to identify as we
implement our federal mechanisms for supporting universal service in
insular, rural, and high cost areas and to drive access rates toward
levels that competition would be expected to produce. Our decision also
fulfills the congressional intent that we eliminate the rules that have
helped to sustain de facto or de jure monopolies in access markets and
instead create the conditions for competitive entry on a sustainable,
long-term basis. That requires, among other things, that we phase out
opportunities for inefficient entry that are created primarily by
anomalies in the current, monopoly-oriented regime. Consequently, this
Order sets forth a plan for removing distortions and inefficiencies in
both the current ``rate structures'' (the term used to describe the
manner in which a particular charge is assessed, such as through a per-
minute-of-use fee or a flat-rated fee) and ``rate levels'' (the term
used to describe the aggregate size of a particular access charge). By
rationalizing the access charge rate structure, we ensure that charges
more accurately reflect the manner in which
[[Page 31871]]
the costs are incurred, thereby facilitating the movement to a
competitive market. We also establish, in this First Report and Order,
a prescriptive mechanism to ensure that, through the operation of price
caps and by other means, interstate access charges in areas where
competition does not develop will also be driven toward the levels that
competition would be expected to produce. The Price Cap Fourth Report
and Order, which is also the Second Report and Order in this docket and
which is also adopted today, modifies the X-Factor in accordance with
this plan. Price Cap Performance Review for Local Exchange Carriers,
Fourth Report and Order in CC Docket No. 94-1, and Access Charge
Reform, Second Report and Order in CC Docket No. 96-262, FCC 97-159,
______ FR ______ (adopted May 7, 1997) (Price Cap Fourth Report and
Order).
14. In a subsequent order in the present docket, we will provide
detailed rules for implementing the market-based approach that we adopt
in today's Order. That process will give carriers progressively greater
flexibility in setting rates as competition develops, gradually
replacing regulation with competition as the primary means of setting
prices and facilitating investment decisions. A separate order in this
docket will also address ``historical cost'' recovery: whether and to
what extent carriers should receive compensation for the recovery of
the allocated costs of past investments if competitive market
conditions prevent them from recovering such costs in their charges for
interstate access services.
15. By our orders today, we reject the arguments made by some
parties that section 254 compels us immediately to remove all universal
service costs from interstate access charges. Making ``implicit''
universal service subsidies ``explicit'' ``to the extent possible''
means that we have authority at our discretion to craft a phased-in
plan that relies in part on prescription and in part on competition to
eliminate subsidies in the prices for various products sold in the
market for telecommunications services. Moreover, we have met section
254's clear command that we identify the services to be supported by
federal universal service support mechanisms and that we establish a
specific timetable for implementation. Under that timetable, we will
over the next year identify implicit interstate universal support and
make that support explicit, as further provided by section 254(e). As
with any implicit support mechanism, universal service costs are
presently intermingled with all other costs, including the forward-
looking economic costs of interstate access and any historic costs
associated with the provision of interstate access services. We cannot
remove universal service costs from interstate access charges until we
can identify those costs, which we will not be able to do even for non-
rural LECs before January 1, 1999.
16. Coupled with the modifications implemented in our Universal
Service Order, the changes we put in place today will provide far-
reaching benefits to the American people. This Order will restructure
access charges, resulting in lower long-distance rates for many
consumers, while substantially increasing the volume of long-distance
calling. It will promote the spread of competition by replacing
significant implicit subsidies with an explicit and secure universal
service support system. It will foster competition and economic
prosperity by creating an access charge system that is both efficient
and fair. We believe that the changes implemented by this Order are
necessary to meet the goal set forth in the 1996 Act--``opening all
telecommunications markets to competition.''
A. Background
1. The Existing Rate System
17. For much of this century, most telephone subscribers obtained
both local and long-distance services from the same company, the pre-
divestiture Bell System, owned and operated by AT&T. Its provision of
local and intrastate long-distance services through its wholly-owned
operating companies was regulated by state commissions. The Commission
regulated AT&T's provision of interstate long-distance service. Much of
the telephone plant that is used to provide local telephone service
(such as the local loop, the line that connects a subscriber's
telephone to the telephone company's switch) is also needed to
originate and terminate interstate long-distance calls. Consequently, a
portion of the costs of this common plant historically was assigned to
the interstate jurisdiction and recovered through the rates that AT&T
charged for interstate long-distance calls. The balance of the costs of
the common plant was assigned to the intrastate jurisdiction and
recovered through the charges administered by the state commissions for
intrastate services. The system of allocating costs between the
interstate and intrastate jurisdictions is known as the separations
process. The difficulties inherent in allocating the costs of
facilities that are used for multiple services between the two
jurisdictions are discussed below.
18. At first, there was no formal system of tariffed charges to
determine how the BOCs and the hundreds of unaffiliated, independent
LECs would recover the costs allocated to the interstate jurisdiction
by the separations rules. Instead, AT&T remitted to these companies the
amounts necessary to recover their allocated interstate costs,
including a return on allocated capital investment.
19. In the 1970s, MCI and other interexchange carriers (IXCs) began
to provide switched long-distance service in competition with AT&T.
However, AT&T still maintained monopolies in the local markets served
by its local subsidiaries, the Bell Operating Companies (BOCs). The
BOCs owned and operated the telephone wires that connected the
customers in their local markets. Other independent (non-Bell) LECs
held similar monopoly franchises in their local service areas. MCI and
the other IXCs were dependent on the BOCs and the independent LECs to
complete the long-distance calls to the end user.
20. For much of the 1970s, MCI and AT&T fought over the fees--the
access charges--that MCI should pay the BOCs for originating and
terminating interstate calls placed by or to end users on the BOCs'
local networks. That battle took place before federal regulators, as
well as in the federal courts. In December 1978, under Commission
supervision, AT&T, MCI, and the other long-distance competitors entered
into a comprehensive interim agreement, known as Exchange Network
Facilities for Interstate Access (ENFIA), that set rates that AT&T
would charge long-distance competitors for originating and terminating
interstate traffic over the facilities of its local exchange
affiliates. Several years afterwards, AT&T's divestiture was completed,
separating the local exchange operations of the BOCs from the rest of
AT&T's operations, including AT&T's long distance business. The BOCs
maintained monopoly franchises in their local market, but by splitting
them off from AT&T's long-distance business, the federal courts removed
an incentive for the BOCs to favor AT&T's long distance business over
its competitors. Now AT&T competed directly with MCI and the other
competitors to provide interstate service, and all of the competitors
paid the BOCs for the service of providing the necessary access to end
users.
21. In 1978, the Commission commenced a wide-ranging review of the
system by which LECs were compensated for originating and
[[Page 31872]]
terminating interstate traffic. In 1983, following the decision to
break-up AT&T, the Commission adopted uniform access charge rules in
lieu of earlier agreements. MTS and WATS Market Structure, Third Report
and Order, CC Docket No. 78-72, Phase 1, 48 FR 10319 (March 11, 1983)
(MTS and WATS Market Structure Third Report and Order), recon., 48 FR
42984 (September 21, 1983), second recon., 49 FR 7810 (March 2, 1984).
These rules governed the provision of interstate access services by all
incumbent LECs, BOCs as well as independents. The access charge rules
provide for the recovery of the incumbent LECs' costs assigned to the
interstate jurisdiction by the separations rules.
22. The Commission uses a multi-step process to identify the cost
of providing access service. First, the rules require an incumbent LEC
to record all of its expenses, investments, and revenues in accordance
with accounting rules set forth in our regulations. Second, the rules
divide these costs between those associated with regulated
telecommunications services and those associated with nonregulated
activities. Third, the separations rules determine the fraction of the
incumbent LEC's regulated expenses and investment that should be
allocated to the interstate jurisdiction. After the total amount of
interstate cost is identified, the access charge rules translate these
interstate costs into charges for the specific interstate access
services and rate elements. Part 69 specifies in detail the rate
structure for recovering those costs. That is, the rules tell the
incumbent LECs the precise manner in which they may assess charges on
interexchange carriers and end users.
23. Determining the costs that an incumbent LEC incurs to provide
interstate access services and that, consequently, should be recovered
from those services, is relatively straightforward in some cases and
problematic in others. Some facilities, such as private lines, can be
used exclusively for interstate services and, in such cases, the entire
cost of those facilities is assigned to the interstate jurisdiction by
the separations rules. Most facilities, however, are used for both
intrastate and interstate services. The costs of some of these
facilities vary depending on the amount of telecommunications traffic
that they handle. The separations rules typically assign these traffic-
sensitive (TS) costs on the basis of the relative interstate and
intrastate usage of the facilities, as measured, for example, by the
relative minutes of interstate and intrastate traffic carried by such
facilities. By contrast, the costs of other facilities used for both
interstate and intrastate traffic do not vary with the amount of
traffic carried over the facilities, i.e., the costs are non-traffic-
sensitive. These costs pose particularly difficult problems for the
separations process: The costs of such facilities cannot be allocated
on the basis of cost-causation principles because all of the facilities
would be required even if they were used only to provide local service
or only to provide interstate access services. A significant
illustration of this problem is allocating the cost of the local loop,
which is needed both to provide local telephone service as well as to
originate and terminate long-distance calls. The current separations
rules allocate 25 percent of the cost of the local loop to the
interstate jurisdiction for recovery through interstate charges. The
general process of separating these costs between the interstate and
intrastate jurisdictions is discussed by the Supreme Court in Smith v.
Illinois Bell Tel. Co., 282 U.S. 133 (1930).
24. The Commission has recognized in prior rulemaking proceedings
that, to the extent possible, costs of interstate access should be
recovered in the same way that they are incurred, consistent with
principles of cost-causation. Thus, the cost of traffic-sensitive
access services should be recovered through corresponding per-minute
access rates. Similarly, NTS costs should be recovered through fixed,
flat-rated fees. The Commission, however, has not always adopted rules
that are consistent with this goal. In particular, the Commission
limited the amount of the allocated interstate cost of a local loop
that is assessed to residential and business customers as a flat
monthly charge, because of concerns that allowing the flat charges to
rise above the specified limits might cause customers to disconnect
their telephone service. The residual cost of the loop not recovered
from end users through the flat charge is recovered through a per-
minute-of-use charge assessed to long-distance carriers.
25. Through the end of 1990, the vast majority of access revenues
were governed by ``cost-of-service'' regulation. Under cost-of-service
regulation, incumbent LECs calculate the specific access charge rates
using projected costs and projected demand for access services. Thus,
for example, if an incumbent LEC projects that it will provide 10,000
total minutes of switching for interstate calls and estimates that it
must generate $1,000 dollars in revenue in order to recover the costs
of switching that are allocated to the interstate jurisdiction by the
separations rules, the access charge for local switching would be set
at $0.10 per minute ($1,000/10,000 minutes). In 1991, however, we
implemented a system of price cap regulation that altered the manner in
which the largest incumbent LECs established their interstate access
charges. While most rural and small LECs remained subject to all of the
Part 69 cost-of-service rules, generally the largest incumbent LECs are
now subject to price cap regulations set forth in Part 61 of our rules.
26. Price cap regulation fundamentally alters the process by which
incumbent LECs determine the revenues they are permitted to obtain from
interstate access charges for access services. Briefly stated, cost-of-
service regulation is designed to limit the profits an incumbent LEC
may earn from interstate access service, whereas price cap regulation
focuses primarily on the prices that an incumbent LEC may charge and
the revenues it may generate from interstate access services. Under the
Part 69 cost-of-service rules, revenue requirements are based on
embedded or accounting costs allocated to individual services.
Incumbent LECs are limited to earning a prescribed return on investment
and are potentially obligated to provide refunds if their interstate
rate of return exceeds the authorized level. By contrast, although the
access charges of price cap LECs originally were set at the cost-of-
service levels that existed at the time they entered price caps, their
prices have been limited ever since by price indices that have been
adjusted annually pursuant to formulae set forth in our Part 61 rules.
Price cap carriers whose interstate access charges are set by these
pricing rules are permitted to earn returns significantly higher than
the prescribed rate of return that incumbent LECs are allowed to earn
under cost-of-service rules. Price cap regulation encourages incumbent
LECs to improve their efficiency by harnessing profit-making incentives
to reduce costs, invest efficiently in new plant and facilities, and
develop and deploy innovative service offerings, while setting price
ceilings at reasonable levels. In this way, price caps act as a
transitional regulatory scheme until the advent of actual competition
makes price cap regulation unnecessary. Price Cap Performance Review
for Local Exchange Carriers, Second Further Notice of Proposed
Rulemaking in CC Docket No. 93-124, and Second Further Notice of
Proposed Rulemaking in CC Docket No. 93-197, 60 FR 49539
[[Page 31873]]
(September 26, 1995) (Price Cap Second Further NPRM).
27. Although price cap regulation eliminates the direct link
between changes in allocated accounting costs and change in prices, it
does not sever the connection between accounting costs and prices
entirely. The overall interstate revenue levels still generally reflect
the accounting and cost allocation rules used to develop access rates
to which the price cap formulae were originally applied. Price cap
indices are adjusted upwards if a price cap carrier earns returns below
a specified level in a given year. Moreover, a price cap LEC may
petition the Commission to set its rates above the levels permitted by
the price cap indices based on a showing that the authorized rate
levels will produce earnings that are so low as to be confiscatory. In
the past, all or some price cap LECs were required to ``share,'' or
return to ratepayers, earnings above specified levels. The new rules
adopted in the companion Price Cap Fourth Report and Order remove this
limit on the maximum returns that can be earned by price cap incumbent
LECs.
2. Implicit Subsidies in the Existing System
28. Both our price cap and cost-of-service rules contain
requirements that inevitably result in charges to certain end users
that exceed the cost of the service they receive. To the extent these
rates do not reflect the underlying cost of providing access service,
they could be said to embody an implicit subsidy. Some of these
subsidies are due to the rate structures prescribed by our rules, which
in some cases prevent incumbent LECs from recovering their access costs
in the same way they have been incurred. For example, although the cost
of the local loop that connects an end user to the telephone company's
switch does not vary with usage, the current rate structure rules
require incumbent LECs to recover a large portion of these non-traffic-
sensitive costs through traffic-sensitive, per-minute charges. These
mandatory recovery rules inflate traffic-sensitive usage charges and
reduce charges for connection to the network, in essence creating an
implicit support flow from end users that make many interstate long-
distance calls to end users that make few or no interstate long-
distance calls.
29. Several Federal-State Joint Boards have observed that
additional subsidies and distortions may be due, not only to the rate
structure, but to the separations rules that divide costs between the
interstate and intrastate jurisdictions. For example, the current
separations rules require larger incumbent LECs to allocate the costs
of their switching facilities between the interstate and intrastate
jurisdictions on the basis of relative use (i.e., if 30 percent of the
minutes of use handled by the LEC's switching facilities are interstate
long-distance calls, 30 percent of the LEC's switching costs are
allocated to the interstate jurisdiction and recovered through
interstate access charges). Our rules, however, permit smaller
incumbent LECs to allocate a greater share of their switching costs to
interstate access services than would result from the relative use
allocator. These smaller incumbent LECs multiply the interstate use
ratio by a factor (as high as 3) specified in the separations rules. In
its Recommended Decision, the Joint Board on Universal Service observed
that these separations rules ``shift what would otherwise be intrastate
costs to the interstate jurisdiction,'' thereby allowing such LECs to
charge lower prices for intrastate services. Federal-State Joint Board
on Universal Service, CC Docket No. 96-45, Recommended Decision, 61 FR
63778 (December 2, 1996) (Joint Board Recommended Decision). The Joint
Board found that this allocation structure, known as DEM (dial
equipment minute) weighting, is ``an implicit support mechanism that is
recovered through the switched access rates charged to interexchange
carriers by those carriers serving less than 50,000 lines.'' Joint
Board Recommended Decision. Similarly, in the Marketing Expense
Recommended Decision, another Federal-State Joint Board observed that
the separations rules allocate a share of the incumbent LECs' retail
marketing expenses to the interstate jurisdiction that is unreasonably
high, given that the interstate access services consist primarily of
wholesale service offerings. Amendment of Part 67 (New Part 36) of the
Commission's Rules and Establishment of a Federal-State Joint Board, CC
Docket No. 86-297, Recommended Decision and Order, 52 FR 15355 (April
28, 1987) (Marketing Expense Recommended Decision). To the extent these
and other separation rules do not apportion costs between the
jurisdictions in a manner that reflects the costs incurred to provide
service in each jurisdiction, they might be viewed as generating
subsidies from the interstate to the intrastate jurisdiction. These
subsidies effectively require incumbent LECs to charge higher rates for
interstate services and lower rates for intrastate services than would
otherwise occur if the subsidies were eliminated.
30. This ``patchwork quilt of implicit and explicit subsidies''
generates inefficient and undesirable economic behavior. For example, a
rate structure that requires the use of per-minute access charges where
flat-rated fees would be more appropriate increases the per-minute
rates paid by IXCs and long-distance consumers, thus artificially
suppressing demand for interstate long-distance services. Similarly,
the possible overallocation of costs to the interstate jurisdiction
may, for some consumers, increase long-distance rates substantially,
suppressing their demand for interstate interexchange services.
Implicit subsidies also have a disruptive effect on competition,
impeding the efficient development of competition in both the local and
long-distance markets. For example, where rates are significantly above
cost, consumers may choose to bypass the incumbent LEC's switched
access network, even if the LEC is the most efficient provider.
Conversely, where rates are subsidized (as in the case of consumers in
high-cost areas), rates will be set too low and an otherwise efficient
provider would have no incentive to enter the market. In either case,
the total cost of telecommunications services will not be as low as it
would otherwise be in a competitive market. Because of the growing
importance of the telecommunications industry to the economy as a
whole, this inefficient system of access charges retards job creation
and economic growth in the nation.
31. Despite the existence of distortions and inefficiencies, the
current system of cross-subsidies has persisted for over a decade. The
structure has been justified on policy grounds, principally as a means
to serve universal service goals. By providing incumbent LECs with a
stream of subsidized revenues from certain customers, the system allows
regulators to demand below-cost rates for other customers, such as
those in high-cost areas.
3. The Telecommunications Act of 1996
32. The existing system of implicit subsidies and support flows is
sustainable only in a monopoly environment in which incumbent LECs are
guaranteed an opportunity to earn returns from certain services and
customers that are sufficient to support the high cost of providing
other services to other customers. The new competitive environment
envisioned by the 1996 Act threatens to undermine this structure over
the long run. The 1996 Act removes barriers to entry in
[[Page 31874]]
the local market, generating competitive pressures that make it
difficult for incumbent LECs to maintain access charges above economic
cost. For example, by giving competitors the right to lease an
incumbent LEC's unbundled network elements at cost, Congress provided
IXCs an alternative avenue to connect to and share the local network.
Thus, where existing rules require an incumbent LEC to set access
charges above cost for a high-volume user, a competing provider of
exchange access services entering into a market can lease unbundled
network elements at cost, or construct new facilities, to circumvent
the access charge. In Section VI.A of this Order, we conclude that
access charges may not be assessed on unbundled network elements since
they are not part of the ``cost'' of providing those elements, as
defined in 47 U.S.C. sec. 252(d)(1)(A)(i). In this way, a new entrant
might target an incumbent LEC's high-volume access customers, for whom
access charges are now set at levels significantly above economic cost.
As competition develops, incumbent LECs may be forced to lower their
access charges or lose market share, in either case jeopardizing the
source of revenue that, in the past, has permitted the incumbent LEC to
offer service to other customers, particularly those in high-cost
areas, at below-cost prices. Incumbent LECs have for some time been
claiming that this process has already made more than trivial inroads
on their high-volume customer base.
33. Recognizing the vulnerability of implicit subsidies to
competition, Congress directed the Commission and the states to take
the necessary steps to create permanent universal service mechanisms
that would be secure in a competitive environment. To achieve this end,
Congress directed the Commission to strive to replace the system of
implicit subsidies with ``explicit and sufficient'' support mechanisms.
In calling for explicit mechanisms, Congress did not intend simply to
require carriers to identify and disclose the implicit subsidies that
currently exist in the industry. Rather, as we determine in the
Universal Service Order adopted today, Congress intended to establish
subsidies that were both ``measurable'' and ``portable''--
``measurable'' in a way that allows competitors to assess the
profitability of serving subsidized end users; and ``portable'' in a
way that ensures that competitors who succeed in winning a customer
also win the corresponding subsidy. A system of portable and measurable
subsidies will permit carriers to compete for the subsidies associated
with high-cost or low-income consumers. In the long run, this approach
may even allow us to set subsidy levels through competitive bidding
rather than through regulation. By contrast, under the current system
of implicit subsidies, the only carriers that will serve high-cost
consumers are those that are required to do so by regulation and that
are able (because of their protected monopoly positions) to charge
above-cost rates to other end users.
34. In the Universal Service Order, we establish ``explicit and
sufficient'' support mechanisms to assist users in high-cost areas,
low-income consumers, schools, and health care providers. By creating
explicit support mechanisms, we establish a system to advance the
universal service goals of the 1996 Act that is compatible with the
development of competition in the local exchange and exchange access
markets. By creating a portable and measurable system of subsidies, we
utilize the power of the market to serve universal service goals more
efficiently. That order, in short, guarantees that Congress's universal
service goals are met in a way that conforms with the pro-competitive
and deregulatory goals of the 1996 Act.
B. Access Charge Reform
35. In light of Congress's command to create secure and explicit
mechanisms to achieve universal service goals, we conclude that
implicit subsidies embodied in the existing system of interstate access
charges cannot be indefinitely maintained in their current form. In
this Order, therefore, we take two steps with respect to the rules
governing the interstate access charges of price cap incumbent LECs.
First, we reform the current rate structure to bring it into line with
cost-causation principles, phasing out significant implicit subsidies.
Second, we set in place a process to move the baseline rate level
toward competitive levels. Together with the Universal Service Order,
these adjustments will promote the public welfare by encouraging
investment and efficient competition, while establishing a secure
structure for achieving the universal service goals established by law.
Further, the process we set in place to achieve these goals avoids the
destabilizing effects of sudden radical change, facilitating the
transformation from a regulated to a competitive marketplace. With the
limited exceptions identified in Section V, the scope of this
proceeding is limited to price cap incumbent LECs. As we explain in
that section, the need for access reform is most immediate for these
carriers, since they are most vulnerable to competition from
interconnection and the availability of unbundled network elements.
This proceeding will affect the vast majority of all access lines and
revenues, because price cap regulation governs more than 90 percent of
all incumbent LEC access lines. We will initiate a separate proceeding
later this year to examine the special circumstances of small and rural
rate-of-return LECs.
1. Rationalizing the Rate Structure
36. In this Order, we reshape the existing rate structure in order
to eliminate significant implicit subsidies in the access charge
system. To achieve that end, we make several modifications to ensure
that costs are recovered in the same way that they are incurred. In
general, NTS costs incurred to serve a particular customer should be
recovered through flat fees, while traffic-sensitive costs should be
recovered through usage-based rates. The present structure violates
this basic principle of cost causation by requiring incumbent LECs to
recover many fixed costs through variable, per-minute access rates. An
important goal of this Order is to increase the amount of fixed costs
recovered through flat charges and decrease the amount recovered
through variable rates.
37. Common Line Costs. Because the costs of using the incumbent
LEC's common line (or ``local loop'') do not increase with usage, these
costs should be recovered through flat, non-traffic-sensitive fees. The
current rate structure, however, generally allows an incumbent LEC to
recover no more than a portion of its interstate common line revenues
through a flat-rated Subscriber Line Charge (SLC), which is capped at
$3.50 per month for residential and single-line business users, and
$6.00 per month for multi-line users. The remaining common line
revenues must be recovered through a per-minute Common Carrier Line
(CCL) charge assessed on IXCs (which, in turn, may recover these
charges through their prices to long-distance customers). In order to
align the rate structure more closely with the manner in which costs
are incurred, we adjust access rates over time until the common line
revenues of all price cap LECs are recovered through flat-rated
charges.
38. For primary residential and single-line business lines,
however, we decline to implement this goal by increasing the SLC
ceiling above its existing $3.50 level as urged by many companies,
including price cap LECs and IXCs. We do not wish to see increases in
the price of basic dial tone charged by local exchange carriers to
their end users for
[[Page 31875]]
fear that such increases might cause some consumers to discontinue
service, a result that would be contrary to our mandate to ensure
universal service. We agree with the Joint Board's finding that
increasing the SLC ceiling may make telecommunications service
unaffordable for some consumers. Consequently, to the extent that
common line revenues are not recovered through the customer's SLC, we
conclude that LECs should recover these revenues through a flat, per-
line charge assessed on the IXC to whom the access line is
presubscribed--the presubscribed interexchange carrier charge, or PICC.
Where an end user does not select a presubscribed interexchange
carrier, we allow an incumbent LEC to collect this charge directly from
the end user. Further, in order to provide IXCs with the opportunity to
incorporate these changes into their business plans, we set the PICC
for primary residential and single-line business lines at not more than
the existing flat-rated line charges for the first year, and we
gradually increase the ceiling thereafter until it reaches a level that
permits full recovery of the common line revenues from flat charges
assessed to both end users and IXCs. To the extent that the PICC
ceiling prevents full recovery of average per-line common line revenues
for primary residential and single-line business lines, the residual
amount will be recovered through the PICC imposed upon non-primary
residential and multi-line business lines. As described in Section
III.A below, as the PICC associated with primary residential and
single-line business lines increases, the amount of common line
revenues associated with those lines that is recovered through the PICC
imposed upon non-primary residential and multi-line business lines will
fall to zero.
39. For non-primary residential and multi-line business lines, we
conclude that affordability concerns do not require us to retain the
current ceiling on the monthly SLC. Consequently, we raise the SLC
ceiling for these lines to the level that permits incumbent LECs full
recovery for their common line revenues, but never more than $3.00
above the current SLC ceiling for multi-line business lines today,
adjusted for inflation. The $3.00 increase in the SLC cap for these
lines is measured on a per-month basis. Almost all subscribers will pay
SLCs below, and often substantially below, the ceiling. The increase in
the SLC ceiling for multi-line businesses will be implemented in the
first year. To ameliorate the impact that a dramatic increase in the
SLC ceiling might have on residential customers, however, the increase
for non-primary residential lines will be phased in over time. The data
indicate that raising the SLC ceiling to this level will permit
incumbent price cap LECs to recover their average common line revenues
from 99 percent of their non-primary residential and multi-line
business lines. For the remaining lines, many of which are located in
rural areas, the SLC ceiling for non-primary residential and multi-line
business lines will ensure that end-user charges are not prohibitive or
significantly above the national average, thereby advancing universal
service goals of affordability and access. We have also taken account
of concerns raised by rural carriers and consumers groups that the
increase in the SLC for non-primary residential lines and multi-lines
could lead to substantial price increases in rural areas. Consequently,
we are adopting these changes only for price cap incumbent LECs and
will review rate structure modifications affecting small, rural
carriers in a separate proceeding.
40. In summary, the plan we adopt here phases out significant
implicit subsidies in the access charge rate structure, while taking
into account universal service concerns of affordability and access.
The resulting rate structure is more closely aligned with cost
principles. Under this plan, most price cap incumbent LECs will recover
their interstate common line revenues through flat-rated SLCs and
PICCs.
41. Switching and Transport Charges. Following the same pricing
principle that flat charges should recover fixed costs and variable
charges should recover variable costs, we make several modifications to
the rate structure for switching and transport services. Among other
things, we move the cost of line-side ports to the common line and
require their recovery through flat-rated charges. To the extent
permitted by the record, we also direct incumbent LECs to reassign
costs in the Transport Interconnection Charge (TIC) in order to comply
with principles of cost causation and the D.C. Circuit's recent
decision in CompTel v. FCC, 87 F.3d 522 (D.C. Cir. 1996).
2. Baseline Rate Level Reductions
42. The rate structure changes that we implement in this Order
eliminate some of the distortions that have characterized the access
charge system for over a decade. These changes, however, are not alone
sufficient to create a system that accurately reflects the true cost of
service in all respects. To fulfill Congress's pro-competitive mandate,
access charges should ultimately reflect rates that would exist in a
competitive market. We recognize that competitive markets are far
better than regulatory agencies at allocating resources and services
efficiently for the maximum benefit of consumers. We conclude,
consequently, that competition or, in the event that competition fails
to develop, rates that approximate the prices that a competitive market
would produce, best serve the public interest.
43. The rate restructuring we implement in this Order results in
substantial reductions in the charges for usage-rated interstate access
services. These reductions move these access charges a long way towards
their forward-looking cost levels. Furthermore, in addition to these
rate structure adjustments, we also take several steps in this Order to
address specific cost misallocations that cause access charges to be
set above economic costs. For example, we require incumbent LECs to
make an exogenous cost adjustment to reflect the full amortization of
certain equal access costs. We also issue a Further Notice of Proposed
Rulemaking to consider our tentative conclusion that certain General
Support Facility (GSF) costs should be reallocated to detariffed
services.
44. We recognize that the prescriptive measures that we implement
today represent the first step toward our goal of removing implicit
universal service subsidies from interstate access charges and moving
such charges toward economically efficient levels. In the NPRM, we
identified two separate ways to continue this process in the future--a
prescriptive approach in which we actively set rates at economic cost
levels, and a market-based approach that relies on competition itself
to drive access charges down to forward-looking costs. We conclude in
this Order, based on our experience in exchange access and other
telecommunications markets and the record in this proceeding, that a
market-based approach to reducing interstate access charges will, in
most cases, better serve the public interest. Although the Commission
has considerable expertise in regulating telecommunications providers
and services efficiently for the maximum benefit of consumers, we
believe that emerging competition will provide a more accurate means of
identifying implicit subsidies and moving access prices to economically
sustainable levels. Further, as discussed above, we believe that this
approach is most consistent with the pro-competitive, deregulatory
policy contemplated by the 1996 Act. Accordingly, where
[[Page 31876]]
competition is developing, it should be relied upon in the first
instance to protect consumers and the public interest.
45. We acknowledge that a market-based approach under this scenario
may take several years to drive costs to competitive levels. We also
recognize that several commenters have urged us to move immediately to
forward-looking rates by prescriptive measures utilizing forward-
looking cost models. We decline to follow that suggestion for several
reasons. First, as a practical matter, accurate forward-looking cost
models are not available at the present time to determine the economic
cost of providing access service. Because of the existence of
significant joint and common costs, the development of reliable cost
models may take a year or more to complete. This situation might be
contrasted with that addressed in our Local Competition Order, where we
endorsed the use of cost models to estimate the cost of providing
unbundled network elements. There, we observed that unbundled elements
have few joint and common costs, so that devising accurate cost models
for unbundled network elements is more straightforward.
46. In addition, even assuming that accurate forward-looking cost
models were available, we are concerned that any attempt to move
immediately to competitive prices for the remaining services would
require dramatic cuts in access charges for some carriers. Such an
action could result in a substantial decrease in revenue for incumbent
LECs, which could prove highly disruptive to business operations, even
when new explicit universal support mechanisms are taken into account.
Moreover, lacking the tools for making accurate prescriptions,
precipitous action could lead to significant errors in the level of
access charge reductions necessary to reach competitive levels. That
would further impede the development of competition in the local
markets and disrupt existing services. Consequently, we strongly prefer
to rely on the competitive pressures unleashed by the 1996 Act to make
the necessary reductions.
47. To the extent that some commenters contend that the immediate
elimination of all implicit subsidies is mandated by the 1996 Act, we
disagree. Neither in the 1996 Act nor its legislative history did
Congress state that all forms of implicit universal service support
shall be made explicit by May 8, 1997. To the contrary, Congress stated
that the conversion of implicit subsidies to explicit support is a goal
that ``should be'' pursued ``[t]o the extent possible.'' Congress most
certainly did not state that we must reach that goal by May 8, 1997.
Rather, it directed that, by that date, we issue rules that ``shall
include a definition of the services that are supported by Federal
universal service support mechanisms and a specific timetable for
implementation.'' Our companion order satisfies that timetable, and
this Order establishes a process that will eliminate some implicit
subsidies quickly and more gradually eliminate others.
48. We are confident that the pro-competitive regime created by the
Act and implemented in the Local Competition Order and numerous state
decisions will generate workable competition over the next several
years in many cases, and we would then expect that access price levels
to be driven to competitive levels. We also recognize, however, that
competition may develop at different rates in different places and that
some services may prove resistant to competition. Where competition has
not emerged, we reserve the right to adjust rates in the future to
bring them into line with forward-looking costs. To assist us in that
effort, we will require price cap LECs to submit forward-looking cost
studies of their services no later than February 8, 2001, and sooner if
we determine that competition is not developing sufficiently for the
market-based approach to work. We anticipate that the tools needed to
complete these cost studies will be available soon, well before this
deadline. Indeed, our Universal Service Order requires comparable cost
models to be ready by 1998. We will then review competitive conditions
and the submitted cost studies.
49. As we acknowledged in the NPRM, a market-based approach will
permit and, indeed, require us progressively to deregulate the access
charge regime as competition develops. In a subsequent order, we will
examine specific issues concerning the timing and degrees of pricing
flexibility. That order will identify the competitive triggers that
must be met to justify relaxation of specific regulatory constraints.
We also recognize the need to examine whether incumbent LECs should be
compensated for any historical costs that they have no reasonable
opportunity to recover as a result of the transformation from a
regulated to competitive marketplace. We recognize that this issue may
raise difficult questions of both law and equity, and we intend to
respond fully to concerns about historical cost recovery in a
subsequent order to be issued this year.
50. Finally, we adopt in this Order our earlier tentative
conclusion that incumbent LECs may not assess interstate access charges
on information service providers (ISPs). We find that our existing
policy promotes the development of the information services industry,
advances the goals of the 1996 Act, and creates significant benefits
for the economy and the American people. With respect to second and
additional residential lines, which are often used by consumers to
access ISPs, our goal is to move towards price levels and structures
that reflect underlying costs, and thereby to create a neutral market
environment in which these lines neither give nor receive subsidies. We
will address fundamental questions concerning ISP usage of the public
switched network as part of a broader set of issues under review in a
related Notice of Inquiry. See Usage of the Public Switched Network by
Information Service and Internet Access Providers, CC Docket No. 96-
263, Notice of Inquiry, 62 FR 4670 (January 31, 1997).
51. Section II of this Order provides an overview of the rate
structure adjustments adopted today. Section III offers detailed
explanations of these changes, which include adjustments to the rate
structure for the common line, local switching, transport, SS7, and
switching, and modifications to the TIC. In Section IV, we adopt a
market-based approach to reducing access charges and address several
specific rate level adjustments. In Section V, we determine which of
the changes adopted in this Order should apply to rate-of-return LECs.
52. Section VI touches upon several additional issues, including
the applicability of access charges to unbundled network elements, our
treatment of terminating access, and ISPs. We also discuss
modifications that may be needed to reconcile our access charge rules
with the Universal Service Order released today. In Section VII, we
issue an FNPRM to seek comment on proposals to alter the current
allocation of GSF costs and to allow incumbent LECs to impose a PICC on
special access lines.
II. Summary of Rate Structure Changes and Transitions
53. In rationalizing the switched access rate structure in this
Order, our primary goal is to ensure that traffic-sensitive costs are
recovered through traffic-sensitive charges and NTS costs are recovered
through flat-rated charges, wherever appropriate. Because many NTS
costs are currently recovered through per-minute charges, the
[[Page 31877]]
principal effect of our Order is to reduce the amount recovered through
per-minute interstate access charges and increase the amounts recovered
through flat-rated charges. We phase in these changes over time to
ameliorate any disruptions these adjustments might cause end users.
A. Common Line Rate Structure Changes
54. Because the cost of using the incumbent LEC's common line does
not increase with usage, the costs should be recovered through flat
non-traffic-sensitive fees. In this Order we increase the amount of
common line revenues recovered through flat-rated charges over time
until incumbent LECs can recover all of their interstate common lines
revenues through NTS fees.
55. Primary Residential and Single-Line Business Lines. We agree
with the Federal-State Joint Board on Universal Service that the SLC
ceiling for primary residential and single-line business lines should
not be increased, because a higher SLC could make telecommunications
service unaffordable for some consumers. To the extent common line
revenues cannot be recovered through the customer's existing SLC, we
conclude that LECs should recover these revenues through a flat, per-
line charge (the ``primary interexchange carrier charge'' or ``PICC'')
assessed, not on the end user, but on the end user's presubscribed
interexchange carrier. Where an end user does not select a
presubscribed interexchange carrier, we allow a price cap LEC to
collect this charge directly from the end user. We set a ceiling on the
PICC at the level of existing per-line charges for the first year.
56. In order to give IXCs an opportunity to adjust to the new
charge, we gradually increase the PICC ceiling over the next several
years until it reaches a level that permits full recovery of common
line revenues--plus a portion of ``residual TIC'' revenues. To the
extent that the ceiling on the primary residential and single-line
business PICC does not allow for full recovery of these common line
revenues immediately, the remaining revenues will be recovered through
a PICC imposed upon non-primary residential and multi-line business
lines, and through per-minute charges.
57. As the PICC ceiling for primary residential and single-line
business lines increases, the amount of common line revenues
transferred to non-primary residential and multi-line business lines
will fall to zero. At that point, all common line costs for primary
residential and single-line business lines will be recovered through
flat-charges on those lines.
58. Non-Primary Residential and Multi-Line Business Lines. Because
affordability concerns are not as significant for these lines, we
permit a modest increase in the SLC to permit recovery of the price cap
LEC's average per-line common line revenues, but never to more than
$3.00 above the SLC ceiling for multi-line business lines today,
adjusted for inflation. To ameliorate the impact that an increase in
the SLC might have on residential customers, the increase in the SLC
ceiling will be phased in for non-primary residential lines over
several years.
59. We also establish a flat-rated PICC on non-primary residential
and multi-line business lines. This PICC will cover common line
revenues that exceed the ceilings on SLCs and primary residential
PICCs. It may also recover some residual TIC revenues and certain
marketing expenses, as discussed below. We set a ceiling on this PICC
in the first year of $1.50 for non-primary residential lines and $2.75
for multi-line business lines, and permit those ceilings to increase
gradually thereafter. We anticipate that the actual PICC imposed upon
multi-line business lines will, on average, decrease from 1998 to 1999,
and for every year thereafter, and will fall to less than $1.00 by
2001.
60. To the extent that the ceilings on SLCs and PICCs do not allow
recovery through flat charges of all common line revenues, LECs shall
be permitted to impose a per-minute CCL charge assessed on originating
minutes. To the extent that the sum of a LEC's originating local
switching charge and any residual per-minute CCL, TIC, and marketing
expense charges exceeds the sum of its originating local switching,
CCL, and TIC charges on December 31, 1997, the excess shall be
collected through a per-minute charge on terminating access. We expect
that this will only apply to a few LECs, and to none beyond 1998. As
the PICC cap for non-primary residential and multi-line business lines
increases--and as revenues transferred from primary residential and
single-line businesses fall to zero--the per-minute CCL charge will
fall to zero, too. Eventually, we anticipate that most, if not all,
price cap LECs will be able to recover the full per-line revenues
associated with non-primary residential and multi-line business lines
through the SLC, after taking into account the assistance provided
through the explicit high-cost universal service support mechanisms. In
addition, residual TIC revenues will also be recovered through the PICC
on non-primary residential and multi-line business lines. As described
more fully below, to the extent that the PICC ceilings prevent full
recovery of the residual TIC, the remaining amount will be recovered
through a per-minute residual TIC.
B. Other Rate Structure Changes
61. Switching. The traffic-sensitive costs of local switching will
continue to be recovered through per-minute local switching charges.
62. For price cap LECs, the NTS costs associated with line ports
will no longer be included in the local switching charge, and instead
will be recovered through the flat-rated common line charges discussed
above. Price cap LECs will also assess a monthly flat-rated charge
directly on end users that are subscribing to integrated services
digital network services, digital subscriber line, or other services
that have higher line port costs than basic, analog service. This
charge recovers the amount by which the cost of the line port exceeds
the cost of a line port for basic, analog service. Costs of local
switching attributable to trunk ports are moved to a separate service
category within the traffic-sensitive basket. These costs will be
recovered through flat-rated monthly charges collected from users of
dedicated trunk ports and per-minute, traffic-sensitive charges
assessed on users of shared trunk ports. The new rate structure also
includes an optional call set-up charge.
63. Transport. Effective July 1, 1998, the unitary rate structure
option for tandem-switched transmission is eliminated and the costs of
tandem-switched transmission must be recovered through the existing
three-part rate structure. For price cap LECs, a new flat-rated monthly
charge recovers the NTS costs of tandem switching attributable to
dedicated ports. A new per-minute rate element recovers the costs of
multiplexers used between tandem switch DS-1 port interfaces and the
DS-3 circuits used to transport traffic from tandem to end offices. For
all incumbent LECs, the formula used to compute the tandem-switched
transport rate is based on actual usage of the circuit, rather than an
assumed 9000 minutes of use per month.
64. For all incumbent LECs, certain costs currently recovered
through the TIC are reassigned to specified facilities charges,
including tandem-switching rates. For price cap LECs, those costs of
the TIC that remain (the ``residual TIC'') are recovered through the
PICC. To the extent that the PICC ceiling prevents recovery of the
entire residual TIC
[[Page 31878]]
through the flat-rated PICC, the remaining portion will be collected
through a per-minute residual TIC. As the ceilings on the PICCs
increase, a larger percentage of the residual TIC will be recovered
through the PICC. Beginning in July 1997, price cap reductions will be
targeted to the per-minute residual TIC until it is eliminated. We
expect that the per-minute TIC charge will be eliminated in two to
three years. Residual per-minute TICs shall be assessed only on
incumbent LEC transport customers, and therefore shall no longer be
assessed on competitive access providers (CAPs) that interconnect with
the LEC switched network at the end office.
65. SS7 Signalling. Price cap LECs may, but are not required to,
adopt a rate structure for SS7 signalling that unbundles SS7 signalling
functions, as was permitted in the Ameritech SS7 Waiver Order.
Ameritech Operating Companies Petition for Waiver of Part 69 of the
Commission's Rules to Establish Unbundled Rate Elements for SS7
Signalling, Order, DA 96-446 (1996) (Ameritech SS7 Waiver Order).
66. Retail Marketing Expense. Price cap LECs may no longer recover
certain marketing expenses through per-minute access charges assessed
on IXCs. These expenses are recovered from end users through per-line
charges on second and additional residential lines and multi-line
business lines, subject to ceilings on SLCs. Any residual shall be
recovered through the PICCs on these lines and then through per-minute
charges on originating access, subject to the exception described in
Section III.A, below.
III. Rate Structure Modifications
A. Common Line
1. Overview
67. In the 1983 MTS and WATS Market Structure Third Report and
Order, the Commission established a comprehensive mechanism for
incumbent LECs to recover the costs associated with their provision of
access service required to complete interstate and foreign
telecommunications. The access plan distinguished between traffic
sensitive costs and NTS costs incurred by an incumbent LEC to provide
interstate access service An incumbent LEC's NTS costs of providing
interstate access, or costs that do not vary with the amount of usage,
include the common line, or ``local loop,'' which connects an end
user's home or business to a LEC central office.
68. In the MTS and WATS Market Structure Third Report and Order,
the Commission emphasized that its long range goal was to have
incumbent LECs recover a large share of the NTS common line costs from
end users instead of carriers, and to recover these costs on a flat-
rated, rather than on a usage-sensitive, basis. The Commission
recognized, however, that a sudden increase in the flat rates imposed
by LECs on end users could have a detrimental effect on universal
service. For this reason, the rules adopted in 1983 apportioned charges
for common line costs between a monthly flat-rated end-user SLC and a
per-minute CCL charge assessed to the IXCs. The SLC is based on average
interstate-allocated common line costs, which the incumbent LEC may
average over an entire region or over a study area, depending on how it
files its interstate tariff. These charges currently are the lesser of
the per-line average common line costs allocated to the interstate
jurisdiction or $3.50 per month for residential and single-line
business users, and $6.00 per month for multi-line business users. Any
remaining common line revenues permitted under our price cap rules are
recovered by incumbent price cap LECs through per-minute CCL charges
assessed on the IXCs, and are ultimately recovered by IXCs from end-
users through long distance toll charges.
69. Because common line and other NTS costs do not increase with
each additional minute of use transmitted over the loop, the current
per-minute CCL charge that recovers loop costs represents an
economically inefficient cost-recovery mechanism and implicit subsidy.
A rate structure that recovers NTS costs through per-minute charges
creates an incentive for customers to underutilize the loop by
requiring them to pay usage rates that significantly exceed the
incremental cost of using the loop. Additionally, a rate structure that
forces high-volume customers to pay significantly more than the cost of
the facilities used to service them is not sustainable in a competitive
environment because high-volume customers can migrate to a competitive
LEC able to offer an efficient combination of flat and per-minute
charges, even if the competitive LEC has the same or higher costs than
the incumbent LEC.
70. The Federal-State Universal Service Joint Board stated, in its
Recommended Decision, that primary residential and single-line business
lines are essential to the provision of universal service, and that
current rates for local services are generally affordable based on
subscribership levels. The Joint Board also concluded that the SLC, as
a charge assessed directly on local telephone subscribers, has an
impact on universal service concerns such as affordability, and
recommended that the Commission leave the current SLC ceilings in place
for primary residential and single-line business lines. In our
companion Universal Service Order, consistent with that recommendation,
we conclude that we should not raise the current $3.50 SLC ceiling on
primary residential and single-line business lines.
71. We adjust the SLC ceilings for multi-line business lines and
residential lines beyond the primary connection. Adjusting the SLC
ceilings for multi-line business lines and non-primary residential
lines will permit incumbent LECs to recover directly from end users
more of the common line revenues permitted under our price cap rules
for those lines and will reduce the amount of NTS costs related to
these lines that are currently recovered through CCL charges. Where the
SLC ceilings do not allow the incumbent LEC to recover its price cap
common line revenues through end-user charges, the remaining, or
``residual'' amount will be recovered through flat, per-line charges
assessed to each customer's presubscribed interexchange carrier. This
presubscribed interexchange carrier charge, or ``PICC'', will increase
gradually until the incumbent price cap LECs'' full interstate-
allocated common line revenues permitted under our price cap rules are
recovered through a combination of flat-rated SLCs and PICCs. To the
extent that the flat-rated charges do not recover, during the initial
phase, the full interstate-allocated common line revenues permitted
under our price cap rules, incumbent LECs may continue to assess the
IXCs a per-minute CCL charge based on the costs not recovered through
flat-rated charges. This per-minute charge, however, will be generally
much lower than today's CCL charge and will be eliminated once all
common line revenues are recovered through a combination of SLCs and
PICCs.
2. Subscriber Line Charge
a. Background
72. In the NPRM we proposed to increase the ceiling on the SLC for
second and additional lines for residential customers, and for all
lines for multi-line business customers, to the per-line loop costs
assigned to the interstate jurisdiction. Access Charge Reform Notice of
Proposed Rulemaking in CC Docket No. 96-262, Price Cap Performance
Review for Local Exchange Carriers and Transport Rate Structure
[[Page 31879]]
and Pricing, Third Report and Order, in CC Docket Nos. 94-1 and 91-213
(Price Cap Third Report and Order), and Usage of the Public Switched
Network by Information Service and Internet Access Providers, Notice of
Inquiry in CC Docket No. 96-263, 62 FR 4670 (December 24, 1996) (NPRM)
Alternatively, we proposed to eliminate the ceiling for multi-line
business customers and for residential connections beyond the primary
connection, especially where the incumbent LEC has entered into
interconnection agreements and taken other steps to lower barriers to
actual or potential local competition. We sought comment on these
proposals. We also invited parties to comment on whether any changes
that we adopt to the ceiling on SLCs for incumbent price cap LECs
should be extended to incumbent rate-of-return LECs, and on the
relationship of any such changes to the Joint Board Recommended
Decision. We sought comment on whether to establish a transition
mechanism for this increase if the ceilings on SLCs for multi-line
business lines and residential lines beyond the primary connection are
increased and whether such a transition could be implemented consistent
with section 254, the Act's universal service provision. We sought
comment on whether geographic averaging of SLCs is an implicit subsidy
that is inconsistent with the requirements of section 254(e), and thus
on whether we are required to deaverage SLCs.
b. Discussion
73. The Commission has had the longstanding goal of ensuring that
all consumers have affordable access to telecommunications services. In
its Recommended Decision, the Joint Board stated that current rates for
local telephone services are generally affordable and that the SLC, as
a charge assessed directly on local telephone subscribers, has an
impact on universal service concerns such as affordability. The Joint
Board further recommended that the Commission maintain the current SLC
ceilings for primary residential and single-line business lines, and we
adopt that recommendation in our companion Universal Service Order.
Numerous parties in this proceeding argue that we should raise or
eliminate the SLC ceiling on all lines to permit LECs to recover the
full interstate allocated costs of the local loop from end-users. This
would increase the average SLC for all residential and single-line
business lines from $3.50 per month to $6.10 per month. We conclude
that it would be inappropriate to make significant changes to the SLC
cap for primary residential and single-line business lines. Primary
residential and single-line business lines are central to the provision
of universal service. Because of concerns about affordability, and in
light of the significant changes that are still underway in this
proceeding, in the federal universal service support proceeding, and
possible future changes to the separations process, we conclude that
the current SLC for these lines should not be raised. Consistent with
the Joint Board's recommendation and our conclusion in the Universal
Service Order, therefore, the ceiling on the SLC for primary
residential and single-line business lines will remain at $3.50 or the
permitted price cap common line revenues per line, whichever is less.
74. With regard to multi-line users, the Joint Board suggested in
its Recommended Decision that universal service support should not be
extended to non-primary residential lines and multi-line business lines
because it found that cost of service is unlikely to be a factor that
would cause multi-line users not to subscribe to telephone service.
Subsequently, the state members of the Joint Board filed a report with
the Commission in which they proposed that we retain high cost support
for all lines served in high cost study areas during a transition to a
forward-looking cost methodology. Consistent with that proposal, we
adopt, in our Universal Service Order, a modified version of the
existing high-cost support system and continue support for all
residential and business connections in areas currently receiving high
cost support until at least January 1, 1999. We therefore continue to
provide high cost support for non-primary residential and multi-line
business lines at this time, by allocating a lower portion of these
costs to the intrastate jurisdiction than would otherwise be the case.
In that order, we also express our concern, however, that providing
universal service support for non-primary residential and multi-line
business lines in high-cost areas may be inconsistent with our long-
term universal service goals, and that overly expansive universal
service support mechanisms potentially could harm all consumers by
increasing the expense of telecommunications services for all. We state
that we will continue to evaluate the Joint Board's recommendation to
limit universal service support to primary residential connections and
businesses with single connections.
75. We conclude here that it is necessary to adjust the ceilings on
the interstate SLCs on both non-primary residential and multi-line
business lines in order to create a rate structure that supports our
long-term universal service goals, is pro-competitive, and is
sustainable in a competitive local exchange market. Section 254 of the
Act requires that all consumers have access to basic telephone service
at just, reasonable, and affordable rates that are comparable among
different regions of the nation. This section of the Act also requires
that universal service support be achieved through support mechanisms
that are ``specific, predictable, and sufficient.'' Because universal
service concerns about ensuring affordable access to basic telephone
services are not as great for non-primary residential and multi-line
business lines as they are for primary residential and single-line
business lines, we must take action to remove the implicit subsidies
contained in our current interstate access charges. Thus, we are
adopting a rate structure that will permit LECs to recover greater
amounts of their costs on a flat-rated basis from end users and to
reduce the amount of revenues they must recover through per-minute
access charges. Our initial implementation improves upon the current
rate structure because it reduces subsidies by recovering more costs
from the cost causer. It also creates a rate structure that is more
pro-competitive than the existing one by providing for greater flat-
rated recovery of NTS costs. Without these modifications, new entrants,
which are not subject to the non-cost-causative rate structure
requirements, would be in a position to target the incumbent LECs' most
profitable, high-volume customers based on regulatory requirements. A
loss of profitable customers would increase the incumbent LECs' costs
of providing service to the rest of their customers, especially to
those in high-cost areas. Consistent with our universal service goal of
ensuring that all consumers receive affordable rates that are
comparable in different parts of the nation, however, the SLC
adjustments will be subject to ceilings to prevent end-user customers
in high-cost areas from paying SLCs that are significantly higher than
in other parts of the country.
76. In virtually all cases, current SLC ceilings do not permit
incumbent LECs to recover their average per-line interstate-allocated
common line costs. As a result of the existing SLC ceilings, which have
been in place for the past decade, incumbent LECs must recover the
shortfall through usage-sensitive CCL charges assessed on IXCs. The
IXCs in turn recover most or all of these costs from toll users in the
form of per-minute
[[Page 31880]]
charges, keeping toll rates artificially high and discouraging demand
for interstate long distance services. The high per-minute toll charges
also create support flows between different classes of customers. For
example, because end-user customers vary widely in their use of
interstate long distance services, low-volume toll users do not pay the
full cost of their loops while high-volume toll users contribute far
more than the total cost of their loops. In addition high-volume toll
users, who include significant numbers of low-income customers,
effectively support non-primary residential and multi-line business
customers.
77. In order to create a rate structure that supports our long-term
universal service goals, is pro-competitive, and is sustainable in a
competitive market, we modify our rate structure requirements to permit
incumbent LECs to recover costs in a manner that more accurately
reflects the way those costs are incurred. Because common line costs do
not vary with usage, these costs should be recovered on a flat-rated
instead of on a per-minute basis. In addition, these costs should be
assigned, where possible, to those customers who benefit from the
services provided by the local loop. Accordingly, the SLC ceilings for
non-primary residential and multi-line business lines will be adjusted
generally to a level that permits incumbent LECs to recover, directly
from the end user, their average per-line interstate common line
revenues.
78. For multi-line business lines, the SLC will be adjusted to
recover the average per-line interstate-allocated common line costs
beginning July 1, 1997. To the extent incumbent price cap LECs, mostly
in rural areas, have common line costs that significantly exceed the
national average, we establish a ceiling on SLCs for multi-line
business lines of $9.00, adjusted annually for inflation. To ameliorate
any possible adverse impact of adjustments in SLC ceilings for non-
primary residential lines, we adopt an approach that will gradually
phase in adjustments in the SLC ceilings for these lines. The SLC for
non-primary residential lines will be adjusted initially beginning
January 1, 1998. For the first year, beginning January 1, 1998, the SLC
ceiling for non-primary residential lines will be adjusted to the
incumbent LEC's average per-line interstate-allocated costs, but may
not exceed $1.50 more than the current SLC ceiling. Beginning January
1, 1999, the monthly SLC ceiling for these lines will be adjusted for
inflation and will increase annually by $1.00 per-line, until the SLC
ceiling for non-primary residential lines is equal to the ceiling
permitted for multi-line business lines.
79. The data indicate that the long term ceilings we are
establishing will permit incumbent price cap LECs to recover their
average per-line common line revenues from 99 percent of their non-
primary residential and multi-line business lines. For the few
incumbent price cap LECs that have common line costs in certain study
areas that exceed the ceiling, the ceiling will serve as an economic
safeguard for those customers who would otherwise pay significantly
higher SLCs. We conclude that maintaining a ceiling for non-primary
residential and multi-line business customers in high-cost areas is a
reasonable response to a legitimate universal service concern because,
consistent with section 254(b)(3), it ensures that these customers have
access to telecommunication services at rates that are comparable to
rates charged for similar services in urban areas.
80. We believe that the approach we adopt should prevent widespread
discontinuance of lines by multi-line customers. The record indicates
that nationwide, the average interstate allocation of common line costs
is only $6.10 per line, and that for more than half of multi-line
business lines, the interstate common line costs are below the existing
$6.00 ceiling. Therefore, when the SLC ceiling is adjusted July 1,
1997, more than half of multi-line business lines will see no immediate
increase in their SLC. The $5.00 SLC ceiling for non-primary
residential lines for the first year is a net increase of $1.50 per
month, and the gradual increase, if any, in subsequent years, is
designed to allow these customers time to adjust to the new rate
structure. Moreover, we expect the rate structure modifications we
adopt in this order to benefit the majority of multi-line customers
through reductions in per-minute long distance rates. Thus, for many
customers, the access restructuring will lead to an overall reduction
in their telephone bill. We also note that, because we are adjusting
the SLC on non-primary residential lines only to a level that recovers
the average interstate allocated costs attributable to the line, to the
extent that a customer chooses not to purchase an additional line
because of the SLC increase, it is because the benefits of the second
line to that customer are less than the average cost of the line.
81. Many parties contend that adjusting the SLC ceiling for non-
primary residential lines and multi-line business lines will affect
economic development in rural areas. To respond to this concern, with
the limited exception of cost allocation to new elements, discussed in
Section V, below, we are limiting application of the rate structure
modifications we adopt in this Order to incumbent price cap LECs only.
Most consumers in rural areas are served by small rate-of-return LECs
that are not affected by the SLC adjustment we are adopting. We will
review rate structure modifications affecting small, rural carriers in
a separate proceeding when we address access charge reform for those
carriers. To the extent there are incumbent price cap LECs that serve
high-cost areas of the country and have common line costs that exceed
the national average, we are maintaining a ceiling on the SLCs for
these lines to ensure that subscribers do not pay rates that greatly
exceed the national average.
82. We are not persuaded by arguments that an upward adjustment to
a SLC ceiling that was set over a decade ago, and that has never been
adjusted for inflation, would violate section 254(b)'s requirement that
consumers in all regions of the nation have affordable access to
telecommunications and information services at rates that are
reasonably comparable to those services provided in urban areas. The
data indicate that if the SLC ceilings for business and residential
lines had been adjusted annually for inflation since they became
effective in 1984 and 1989, respectively, the $6.00 business SLC
ceiling would have increased by 1996 to $9.00 per line, and the $3.50
residential and single-line business SLC ceiling would have increased
to $4.39 per line. Thus, for multi-line business customers, the SLC
ceiling we adopt today is not significantly different from what it
would have been, if it had been adjusted for inflation annually.
Moreover, to adopt a ceiling lower than $9.00 would effectively create
an additional impermissible subsidy for a class of customers not
enumerated by Congress in section 254 of the 1996 Act as beneficiaries
of fundamental universal service goals. We find that the $9.00 ceiling
we adopt today strikes a reasonable balance between our desire to
establish a more efficient interstate access charge rate structure
consistent with our long-term universal service goals in a competitive
local exchange environment, and the need to avoid precipitous rate
increases to consumers in high cost areas. Although SLCs in some areas
may ultimately be lower than SLCs in high-cost areas, we conclude that
$9.00 SLCs remain ``reasonably comparable'' to those in urban areas.
83. We are also not persuaded that we should maintain the current
SLC ceiling
[[Page 31881]]
for non-primary residential lines because of claims that incumbent LECs
will be unable to identify second lines for purposes of billing
different SLCs to these lines. Additional telephone lines are a well-
established telecommunications product marketed by LECs. This product
is supported by a marketing and billing infrastructure that will enable
LECs to distinguish non-primary residential lines for purposes of
billing different SLCs. We note that we are not defining ``primary'' or
``non-primary'' lines in this Order. In a further notice of proposed
rulemaking in the Universal Service proceeding, we will address this
issue, and release an order defining ``primary''and ``non-primary''
residential lines by the end of the year.
84. We are unpersuaded by arguments that we should forgo these
changes on the grounds that increasing the SLC ceilings for non-primary
residential lines will create undue incentives for subscribers to order
their primary lines from the incumbent LEC and their additional lines
from competitors. The changes we adopt in this Order are intended to
permit incumbent LECs to move their prices for non-primary residential
and multi-line business lines toward more economically efficient levels
by substantially reducing implicit subsidies flowing between different
classes of customers. Once these subsidies are eliminated and the new
universal service regime is fully implemented, incumbent LECs will be
able to recover their common line costs from customers through a rate
structure that accurately reflects the manner in which these costs are
incurred, and through a targeted, portable universal service
contribution where necessary. At that point, both incumbent LECs and
new entrants should be able to compete efficiently in the local
exchange market. Subscribers, therefore, should not have an incentive
to use other carriers for their additional lines unless a competitor is
operating more efficiently and can offer local exchange service at a
lower rate than the incumbent LEC is able to offer. Indeed, the ability
of a competitive local exchange carrier to offer local exchange service
at a lower rate is precisely the type of competition envisioned by the
1996 Act: it will encourage the incumbent LEC to reduce its costs of
providing service in order to meet or beat the prices of its
competition.
85. To address the concerns of some commenters that charging a
higher SLC for second and additional residential lines will encourage
subscribers to order their additional line from competitors, we will
permit LECs to charge competitors the higher SLC when the competitor
provides a customer with a second line through resale of an incumbent
LEC offering. If prior to the development of full competition, we find
that disparity between SLC charges on primary and additional
residential lines becomes a significant problem, we will reexamine this
issue in conjunction with further reforms we adopt in an upcoming
order.
86. Certain incumbent LECs have requested that any rule that
increases the SLC ceiling for non-primary residential lines should be
optional for LECs. We adopt this proposal in part and will not require
LECs to charge a higher SLC for non-primary residential lines. Thus, if
an incumbent LEC finds that charging higher SLCs leads to a large
number of disconnections, it is free to charge less. To the extent
price cap LECs choose to charge a SLC that is less than the maximum
allowed, however, they may not recover these foregone revenues through
the PICC or CCL charges. This restriction is consistent with our
current price cap rules, which prevent LECs from transferring SLC costs
to the CCL charge.
87. Several incumbent price cap LECs argue in favor of deaveraging
SLCs, stating that an averaged SLC creates cross-subsidies between
high-cost and low-cost areas, in violation of section 254 of the Act.
We will resolve this issue, along with issues concerning the timing and
degrees of geographic deaveraging, pricing flexibility, and ultimate
deregulation in an upcoming order.
3. Carrier Common Line Charge
a. Background
88. Because we are retaining the $3.50 ceiling on SLCs for primary
residential and single-line business customers, virtually all price cap
LECs will be unable to recover, through the SLC, all of their common
line revenues permitted under our price cap rules. In the NPRM, we
sought comment on possible revisions to the current CCL charge
structure that would allow incumbent price cap LECs to recover these
NTS common line costs in a way that reflects the way costs are
incurred. We proposed a recovery mechanism suggested by the Joint Board
in its Recommended Decision that would permit incumbent LECs to recover
common line costs not recovered from SLCs through a flat, per-line
charge assessed against each end-user's presubscribed interexchange
carrier. The Joint Board suggested that the Commission allow incumbent
LECs to collect the flat-rated charge directly from end users who have
not selected a primary interexchange carrier (``PIC''). We sought
comments on this approach and also invited parties to discuss any
potential problems created when end-user customers have selected PICs,
but use other IXCs for Internet, fax, interexchange, or other
interstate services by ``dialing-around'' the PIC.
89. We also sought comment on several alternative approaches to the
per-minute recovery of interstate NTS loop costs proposed by the
Competition Policy Institute (CPI), including a ``bulk billing'' method
that would assess a charge against the IXC based upon its percentage
share of interstate minutes of use or revenues, a ``capacity charge,''
a ``trunk port charge,'' and a ``trunk port and line port'' charge. We
invited parties to comment on whether any changes that we adopt to the
recovery of interstate NTS local loop costs for price cap LECs should
be extended to rate-of-return LECs, and on the relationship of
interstate NTS loop cost recovery to the universal service mechanisms
proposed in the Joint Board Recommended Decision. We asked parties to
address how such an extension to rate-of-return LECs would affect small
business entities, especially small incumbent LECs.
90. Additionally, we asked parties to address whether an
alternative mechanism for recovering common line costs currently
recovered through the CCL charge would be necessary if we were to
eliminate the SLC ceiling for certain lines. We asked interested
parties to address the extent to which any proposed alternative
recovery mechanism for recovering common line costs currently recovered
through the CCL charge would affect small business entities, including
small incumbent price cap LECs and new entrants. We also sought comment
on whether section 254(g) precludes an IXC from charging its customers
the flat, per-line monthly rate assessed on that line if the amount of
that charge varied among customers in different areas within a state or
among customers in different states, and if so, whether conditions
exist sufficient to require us to forbear from the application of
section 254(g) to IXC recovery of flat-rate CCL charges.
b. Discussion
91. The $3.50 SLC ceiling for primary residential and single-line
business customers prevents most incumbent price cap LECs from
recovering, through end-user charges, all of the common line revenues
permitted under our price cap rules. To the extent that common line
revenues are not recovered through
[[Page 31882]]
SLCs, incumbent LECs will be allowed to recover these revenues through
a PICC, a flat, per-line charge assessed on the end-user's
presubscribed interexchange carrier.
92. We adopt the Joint Board's recommendation that incumbent LECs
may collect directly, from any customer who does not select a
presubscribed carrier, the PICC that could otherwise be assessed
against the presubscribed interexchange carrier. Assessing the PICC
directly against end users that do not presubscribe to a long distance
carrier should eliminate the incentive for customers to access long-
distance services solely through ``dial-around'' carriers in order to
avoid paying long-distance rates that reflect the PICC. Several parties
argue that this type of billing arrangement will create administrative
difficulties because it will require LECs to prorate charges for both
the end user and the IXC when a customer leaves an IXC in the middle of
the billing cycle. To avoid any potential administrative difficulties
resulting from customers leaving their presubscribed interexchange
carriers in the middle of a billing cycle, we will permit LECs to
assess the full PICC at the beginning of each billing cycle.
93. We recognize that this flat, per-line PICC will not prevent
customers from ``dialing around'' their presubscribed long distance
carrier to obtain interstate service. Collecting a PICC from a
customer, however, in and of itself, creates no incentive for a
customer to presubscribe to one carrier and use ``dial-around'' service
of another. If the presubscribed carrier is an efficient competitor, it
should be able to offer usage-based rates comparable to the prices of a
competitor, thus eliminating any artificial benefits of ``dial-around''
capability. A combination of lower per-minute long distance rates and
attractive long-distance pricing packages that reward customers for
increasing their usage of the presubscribed interexchange carrier's
services should also help deter customers from using separate long-
distance carriers for various services solely because of regulation.
There is customer contact value in being a customer's presubscribed
interexchange carrier. Regulators have long concluded that the
convenience of making a long-distance call by simply dialing ``1+''
conveys certain advantages. And the advantages of ``1+'' dialing will
only increase if, as many predict, we move to a world in which ``one-
stop shopping'' for a multiplicity of services becomes the primary
paradigm for provision of telecommunication services. We conclude that
the record does not support a finding that assessing a charge on the
presubscribed carrier will artificially encourage ``dial-around''
traffic to such a degree that we should not adopt access charge
modifications that will move substantially toward efficient pricing for
common line elements and lower usage charges for long-distance service.
If evidence appears to us that our rules do substantially contribute to
undue use of ``dial-around'' capabilities to circumvent presubscribed
interexchange services, we stand ready to revisit this issue at a later
time.
94. The rate structure we are adopting calls for the single-line
PICC ultimately to recover the difference between revenues collected
through the SLC and the per-line common line revenues for primary
residential lines and single-line business lines permitted under our
price cap rules. In order to provide incumbent LECs and IXCs with
adequate time to adjust to this rate structure change, we cap the PICC
for primary residential and single-line business lines at $0.53 per
month for the first year, beginning January 1, 1998, and establish
ceilings on increases thereafter. We note that the monthly $0.53 PICC
is approximately equal to the current presubscribed per-line charges
that are assessed to IXCs for the Universal Service Fund and Lifeline
Assistance plan, which are being eliminated in our Universal Service
Order. Beginning January 1, 1999, the ceiling on the monthly PICC on
primary residential and single-line business lines will be adjusted for
inflation and will increase by $0.50 per year until the sum of the SLC
plus the flat-rated PICC is equal to the price cap LEC's permitted
common line revenues per line. In no event shall the sum of the single-
line SLC and PICC exceed the sum of the maximum allowable multi-line
SLC and multi-line PICC.
95. Sprint asserts that if LECs recover NTS common line costs
through deaveraged rates assessed on IXCs, we must forbear from
applying section 254(g) to the extent it requires an IXC to average
geographically any flat charges an IXC passes on to its customers.
WorldCom asserts that IXCs should be permitted to recover their costs
in any manner the market will allow, and that unless the Commission
forbears with respect to the application of section 254(g) to these
costs, IXCs that operate nationally will be forced to average together
numerous subscribers' loop costs, and thus use long-distance rates as a
vehicle for cross-subsidies that run counter to the overall policies of
section 254 (b) and (c). We conclude that the information in the record
before us does not demonstrate that we are required, by section 10(a)
of the Act, to forbear from enforcing section 254(g) as it relates to
the manner in which IXCs recover their costs.
96. Section 10(a) of the 1934 Act requires the Commission to
forbear from applying any regulation or provision of the Communications
Act of 1934 if: (1) enforcement of that provision is unnecessary to
ensure that the relevant charges and practices are just and reasonable
and not unjustly or unreasonably discriminatory; (2) enforcement of
that provision is unnecessary to protect consumers; and (3) forbearance
from applying such provision or regulation is consistent with the
public interest. We conclude that, on the basis of the current record,
IXCs have not demonstrated that forbearance of section 254(g) is
warranted at this time.
97. We find that establishing a broad exception to section 254(g)
to permit IXCs to pass through flat-rated charges on a deaveraged basis
may create a substantial risk that many subscribers in rural and high-
cost areas may be charged significantly more than subscribers in other
areas. Accordingly, we cannot conclude that enforcing our rate
averaging requirement is unnecessary to ensure that charges are just
and reasonable. In addition, because assessing subscribers flat-rated
charges on a deaveraged basis could lead to significantly higher rates
for subscribers in high-cost areas, we find no basis in this record to
conclude that it is unnecessary to enforce section 254(g) to ensure
protection of consumers or to protect the public interest. In contrast,
IXCs cite no countervailing public interest considerations but merely
make broad, unsupported assertions of the need to deaverage rates in
light of the varying PICC amounts expected to be assessed by incumbent
LECs. We also note that IXCs now pay access charges that often vary
from location to location and from incumbent LEC to incumbent LEC, and
still maintain geographically averaged rates. We therefore conclude
that, based on the record before us, the IXCs have not met the test set
forth in section 10(a) of the Act, and forbearance of section 254(g) is
not warranted.
98. We note that we will continue to examine the issue of whether
conditions exist that require us to forbear from application of section
254(g) as it relates to recovery of the PICC costs from subscribers. We
will resolve this and other specific issues concerning the timing and
degrees of pricing flexibility and ultimate deregulation in an upcoming
order.
99. To the extent that the SLC ceilings on all lines and the PICC
ceilings on
[[Page 31883]]
primary residential and single-line business lines prevent recovery of
the full common line revenues permitted by our price cap rules,
incumbent price cap LECs may recover the shortfall through a flat-
rated, per-line PICC on non-primary residential and multi-line business
lines. The incumbent LECs will calculate this additional charge by
dividing residual permitted common line revenues by the number of non-
primary residential and multi-line business lines served by the LEC.
For the first year, the ceiling on the PICC will be $1.50 per month for
non-primary residential lines and $2.75 per month for multi-line
business lines. To the extent that these PICCs do not recover an
incumbent LEC's remaining permitted CCL revenues, incumbent LECs will
be allowed to recover any such residual common line revenues through
per-minute CCL charges assessed on originating access minutes. The per-
minute charges shall be calculated based on forecasts of originating
access minutes as currently provided in our rules.
100. We generally will not permit incumbent LECs to recover
residual common line revenues through per-minute CCL charges assessed
on terminating access minutes, because terminating minutes are not
likely to be subject to as much competitive pressure as originating
access minutes. As discussed in Section III.D, below, we are similarly
adopting a rule that requires that incumbent LECs be allowed to recover
certain residual transport interconnection charge costs through access
charges assessed on originating minutes. In placing these various
residual costs on originating minutes only, however, we do not want to
destroy the salutary effects of our access charge reforms by creating
higher prices for originating minutes than exist under our current
access charge rules. To the extent, therefore, that the sum of local
switching charges, the per-minute CCL charge, the per-minute residual
TIC, and any per-minute charges related to marketing expenses exceed
the current sum of local switching charges and the per-minute CCL
charge and TIC assessed on originating minutes, the excess may be
recovered through charges assessed on terminating minutes. We emphasize
that any such amounts recovered through charges assessed on terminating
minutes would be temporary and would be phased out as the non-primary
residential SLC ceilings and the PICC ceilings are adjusted, and in any
event, no later than July 1, 2000.
101. Beginning January 1, 1999, the PICC will be adjusted for
inflation and will increase by a maximum of $1.00 per year for non-
primary residential lines and $1.50 per year for multi-line business
lines, until incumbent LECs recover all their permitted common line
revenues through a combination of flat-rated SLC and PICCs. These
increases will cease as the PICCs on primary residential and single-
line business lines recover more of the common line revenues permitted
under price cap rules. In addition, as the incumbent price cap LECs
increase their PICCs for primary residential and single-line business
lines, they shall reduce the amount recovered from the residual per-
minute CCL charges and reduce their PICCs on non-primary residential
and multi-line business lines by a corresponding amount in accordance
with the procedures described below. While the plan we adopt today does
not eliminate, even on a flat-rated basis, transitional higher rates
for business users, it redistributes collection from a very few high-
volume users to business users generally. This will permit the charges
to be sustainable while we finish refining access charges and implement
a forward-looking cost-based universal service mechanism for rural,
insular, and high cost areas. We also acknowledge that our plan will
require customers with multiple telephone lines to contribute, for a
limited period, to the recovery of common line costs that incumbent
LECs incur to serve single-line customers. We conclude that this aspect
of the plan is a reasonable measure to avoid an adverse impact on
residential customers.
102. As the PICC ceilings on primary residential and single-line
business lines increase, the residual per-minute CCL charge will
decrease until it is eliminated. After the residual per-minute CCL is
eliminated, incumbent LECs shall make further reductions due to the
increase in the PICC ceilings for primary residential and single-line
business lines, first to the PICCs on multi-line business lines until
the flat-rated PICCs for those lines are equal to the flat-rated PICCs
for non-primary residential lines. Thereafter, incumbent LECs shall
apply the annual reductions to both classes of customers equally until
the combined SLC and PICCs for primary residential and single-line
business lines recover the full average per-line common line revenues
permitted under our price cap rules, and the additional flat-rated
PICCs on non-primary residential and multi-line business lines no
longer recover common line revenues. As discussed in Sections III.D and
IV.D, below, the PICC will recover TIC revenues and certain marketing
expenses in addition to common line revenues. Therefore, multi-line
PICCs may continue to recover non-common line revenues, even though
SLCs and PICCs for primary residential and single-line business lines
recover the average per-line common line revenues permitted under our
price cap rules. If the incumbent LEC's per-line common line revenues
permitted by our price cap rules exceed the SLC ceiling for non-primary
residential lines and multi-line businesses, the flat-rated charges
will continue to apply to those lines so that the sum of the SLCs and
flat-rated charges is equal to the permitted common line revenues. Once
the multi-line PICC no longer recovers any common line revenues, the
calculation of the SLC will be changed from the average per-line
interstate allocation of revenue requirement to the average per-line
common line revenues permitted by our current price cap rules. With
this change, the LEC will not be able to recover more than the average
per-line common line revenues permitted under our price cap rules from
any access line. We note that at least one party contends that under
our current rules, certain price cap carriers could be required to
charge negative carrier common line charges, if the revenues recovered
through the SLC, which continues to be developed on a cost-of-service
basis, exceed the PCI for the common line basket. This adjustment to
the calculation of the SLC will solve any such problem.
103. We are concerned that assessing PICCs on multi-line business
lines may create an artificial and undue incentive for some multi-line
customers to convert from switched access to special access to avoid
the multi-line PICC charges. A migration of multi-line customers to
special access could significantly reduce the amount of revenue that
could be recovered through per-minute charges, and would result in
higher PICCs for the non-primary residential and multi-line business
lines remaining on the switched network. We tentatively conclude that
we should therefore apply PICCs to purchasers of special access lines
as well. The NPRM, however, may not have provided sufficient notice to
interested parties that we might apply certain rate structure
modifications to special access lines. We therefore seek comment on
this issue in Section VII.A, below.
104. We reject claims that a flat-rated, per-line recovery
mechanism assessed on IXCs would be inconsistent with section 254(b)
which requires ``equitable and nondiscriminatory contribution to
universal service'' by all
[[Page 31884]]
telecommunications providers. The PICC is not a universal service
mechanism, but rather a flat-rated charge that recovers local loop
costs in a cost-causative manner. Numerous commenters responding to the
NPRM support a flat-rated cost recovery mechanism, and we conclude that
the PICC is preferable to the other proposals made in the NPRM. We
agree with MCI and the Minnesota Independent Coalition that proposals
based on the number of trunks or ports that an IXC purchases from the
incumbent LEC may encourage IXCs to use fewer trunks or ports than are
needed and thereby have an adverse effect on service quality. We
decline to adopt the bulk billing approach set out in the NPRM, as well
as Ameritech's proposed Loop/Port Recovery charge and the approach
proposed by the Competition Policy Institute, because these mechanisms
are substantially affected by usage and do not reflect the NTS manner
in which common line costs are incurred. The Alliance for Public
Technology's proposed ``facilities charge,'' which is a hybrid system
that accounts both for level of use and intensity of use by all
telecommunication carriers that use the local network, is flawed
because it is based partly on usage and is complex and administratively
burdensome. A cost-recovery mechanism that recovers common line costs
through flat-rated charges imposed on end-user customers and IXCs is an
administratively simple mechanism. Further, under our plan, interstate
common line access charges will become more closely aligned with
allocated interstate costs than they would be under any of the
alternative proposals.
105. The plan we describe above should move us from the pricing
scheme that has been in place for more than a decade to a flat-rated
pricing scheme that seeks to promote competition, while balancing
universal service considerations. We recognize that the modifications
we adopt in this Order do not eliminate all the existing support flows.
The modifications, however, do move to eliminate subsidies built into
the current rate structure, to an extent that is compatible with
preserving the universal service goals of providing support to primary
residential and single-line business and to customers in high-cost
areas pursuant to the mandate of section 254. As we set final support
levels for universal service, address any legal issues related to the
transition from embedded to forward-looking economic costs, and factor
in the development of competition, we will identify and deal with any
remaining legal issues relating to the recovery of these revenues. In
addition, the plan we are adopting allows incumbent price cap LECs to
recover costs in the manner that reflects the way in which they are
incurred. We believe that this realignment of rates with costs will
reduce the per-minute access charges assessed on IXCs and benefit
consumers through lower long-distance rates, as well as create a pro-
competitive local exchange market in which LECs will be able to compete
more efficiently.
4. Common Line PCI Formula
a. Background
106. When we adopted price cap regulation in 1990, we established a
separate common line basket in order to balance the price cap goal of
economically efficient prices with important goals, such as universal
service, that were reflected in common line rates prior to the adoption
of price caps. Because common line costs are non-traffic sensitive,
growth in demand leads to a reduction in average per-minute common line
charges. Therefore, in the LEC Price Cap Order, we established a price
cap index (``PCI'') formula for the price cap basket that differed from
the PCI formula we established for the other three baskets, to ensure
that carrier common line charges declined as common line demand
increased. Policy and Rules Concerning Rates for Dominant Carriers, CC
Docket No. 87-313, Second Report and Order, 55 FR 42375 (October 19,
1990) (LEC Price Cap Order). Specifically, we added a term, ``g/2,'' to
the common line PCI formula, to represent half the growth in demand per
line in the prior year. This adjustment was made because we originally
concluded that both LECs and IXCs have the ability to influence common
line growth, and that both LECs and IXCs should benefit from increases
in demand.
107. In the LEC Price Cap Performance Review, we found that
incumbent LECs in fact have little influence over per-minute common
line demand, and tentatively concluded that we should remove the ``g''
term from the common line formula, because including an industry-wide
moving average X-Factor in the common line formula might tend to
double-count demand growth. Price Cap Performance Review for Local
Exchange Carriers, CC Docket No. 94-1, First Report and Order, 60 FR
19526 (April 19, 1995) (LEC Price Cap Performance Review). We sought
comment, in the Price Cap Fourth Further NPRM, whether to apply the
same PCI formula to the common line basket that we use for the other
baskets if we were to adopt a TFP-based X-Factor. Price Cap Performance
Review for Local Exchange Carriers, CC Docket No. 94-1, Further Notice
of Proposed Rulemaking, 60 FR 52362 (October 6, 1995) (Price Cap Fourth
Further NPRM). We also invited comment on whether we could eliminate g/
2 from the common line formula if we retain a separate common line
formula. In this Order, we adopt a plan that should quickly convert the
CCL charge from a per-minute charge to a flat-rated per-line charge
assessed on interexchange carriers. We also revise the common line
formula to reflect the phase out of the CCL charge.
b. Discussion
108. We conclude that the separate common line PCI formula should
be eliminated, and that the PCI formula for the traffic-sensitive and
trunking baskets should be used for the common line basket, once
traffic-sensitive CCL charges have been eliminated. In this Order, we
have reduced substantially traffic-sensitive CCL charges, and replaced
them with the per-line PICC. The remaining traffic-sensitive CCL
charges imposed by incumbent price cap LECs will be reduced and then
eliminated over the next two or three years. Once common line costs are
recovered solely through per-line charges, increased minutes will not
affect common line recovery. Therefore, when the traffic-sensitive CCL
charges have been eliminated, it will no longer be necessary to ensure
that CCL rates decline as per-minute demand increases. Incumbent price
cap LECs that no longer assess per-minute CCL charges will use the same
PCI formula for the common line basket as they use for the traffic-
sensitive and trunking baskets.
109. In the LEC Price Cap Order, we established ``g/2'' as the
common line PCI formula because we believed that because both LECs and
IXCs contributed to encouraging common line demand growth, both LECs
and IXCs should share in the benefits of common line demand growth. In
the LEC Price Cap Performance Review, we tentatively concluded that
IXCs contributed more to common line demand growth, but declined to
revise the common line formula at that time because we were
contemplating eliminating the common line PCI formula completely, and
because we did not wish to create unnecessary rate churn. To avoid
unnecessary rate churn here, we decide to retain ``g/2'' while carriers
continue to charge per-minute CCL charges.
[[Page 31885]]
110. We revise sections 61.45(c) and 61.46(d), which govern the
common line PCI and API, respectively, to reflect our revisions to the
common line rate structure in the common line PCI formula. First, we
redesignate section 61.45(c) as 61.45(c)(1) and adopt a new section
61.45(c)(2) that requires price cap LECs to use the separate common
line formula only while they continue to charge per-minute CCL charges.
Section 61.45(c)(2) also states that the common line PCI will be
governed by the same PCI formula LECs use for the traffic-sensitive and
trunking baskets. Second, we redesignate section 61.46(d) as
61.46(d)(1), and amend section 61.46(d)(1) to recognize that LECs now
impose PICC charges as well as CCL charges on IXCs. We also adopt a new
section 61.46(d)(2) to govern PICC charges once per-minute CCL charges
have been phased out. These revisions are set forth in Appendix C of
this Order.
5. Assessment of SLCs and PICCs on Derived Channels
a. Background
111. Integrated services digital network (ISDN) services permit
digital transmission over ordinary local loops through the use of
advanced hardware and software. ISDN offers data transmission at higher
speeds and with greater reliability than standard analog service. Most
incumbent LECs currently offer two types of ISDN service, Basic Rate
Interface (BRI) service and Primary Rate Interface (PRI) service. BRI
service allows a subscriber to obtain two voice-grade-equivalent
channels and a signalling/data channel over an ordinary local loop,
which generally is provided over a single twisted pair of copper wires.
PRI service allows subscribers to obtain 23 voice-grade-equivalent
channels and one data signalling channel over two pairs of twisted
copper wires. BRI service generally is used by individuals and small
businesses, and PRI service generally is used by larger businesses. LEC
services other than ISDN use derived channel technology to provide
multiple channels over a single facility. The LECs also use derived
channel technologies within their networks, for example, to provide
customers with individual local loops. In such situations, the end user
has not generally requested derived channel service and thus most
likely is not aware that the LEC is using this technology.
112. On May 30, 1995, we released a Notice of Proposed Rulemaking
seeking comment on the application of SLCs to ISDN and other derived
channel services. End User common Line Charges, CC Docket No. 95-72,
Notice of Proposed Rulemaking, 60 FR 31274 (June 14, 1995) (ISDN SLC
NPRM). In the ISDN SLC NPRM, we noted that our current rules, which
assess one SLC per derived channel, may discourage efficient use of
ISDN services, and we sought comment on several options, ranging from
continuation of the current rules applying one SLC to each derived
channel to requiring LECs to assess one SLC per each pair of copper
wires or each physical facility. Other options presented in the ISDN
SLC NPRM included: (1) basing the application of SLCs on a ratio of the
average LEC cost of providing a derived channel service, including the
trunk or line card costs, to the average cost of providing an ordinary
local loop or T-1 facility; (2) applying one SLC for every two derived
channels; (3) reducing the number of SLCs applied to derived channel
services while increasing slightly the SLC rates; or (4) giving LECs
flexibility concerning the number of SLCs they assess for derived
channel services, at the same time adjusting the price cap rules to
prevent an increase in CCL charges.
113. In addition to the comments filed in response to the ISDN SLC
NPRM, several BOCs provided data on the relative NTS costs of single
and derived channel services. The cost data included information about
all NTS cost components, including components located in the central
office, such as line cards. As shown in Table 1 below, the cost data
indicates that the ratio of NTS loop costs of BRI ISDN to standard
analog service is approximately 1 to 1. The ratio of NTS loop costs of
PRI ISDN to standard analog service, excluding NYNEX's data, is
approximately 5 to 1. As shown in Table 2, NYNEX's data appear to be
outliers because the ratios of its outside plant and NTS costs for PRI
ISDN to standard analog service are almost twice those of other
incumbent LECs. NYNEX's data, therefore, are excluded from the
calculation of the average ratio for PRI ISDN to standard analog
service.
Table 1.--Ratio of Costs of Standard Analog Service to BRI ISDN Service
------------------------------------------------------------------------
Outside plant
(loop only) All NTS costs
costs
------------------------------------------------------------------------
Ameritech............................... 1:1.07 1:1.45
Bell Atlantic........................... 1:1.01 1:1.36
NYNEX................................... 1:0.85 1:1.23
Pacific Bell............................ 1:1.05 1:1.13
US West................................. 1:0.80 1:1.07
Average ratio of costs.................. * 1:0.96 * 1:1.24
------------------------------------------------------------------------
* Averages may differ due to rounding.
Table 2.--Ratio of Costs of Standard Analog Service to PRI ISDN Service
--------------------------------------------------------------------------------------------------------------------------------------------------------
Outside plant (loop Outside plant (loop only) costs All NTS costs
only) costs (excluding NYNEX data) All NTS costs (excluding NYNEX data)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ameritech.............................. 1:5.68 1:5.68.............................. 1:8.9 1:8.9.
Bell Atlantic.......................... 1:4.13 1:4.13.............................. 1:15.80 1:15.80.
NYNEX.................................. 1:10.94 Excluded............................ 1:27.74 Excluded.
Pacific Bell........................... 1:4.67 1:4.67.............................. 1:8.70 1:8.70.
US West................................ 1:5.33 1:5.33.............................. 1:10.60 1:10.60.
[[Page 31886]]
Average ratio of costs................. * 1:6.5 1:4.95 *............................ * 1:15.13 1:10.5 *.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Averages may differ due to rounding.
114. We incorporated by reference, in the current proceeding, all
pleadings filed in response to the 1995 ISDN SLC NPRM, as listed in
Appendix A of that order. In the NPRM for the current proceeding, we
invited comments on the effect of the 1996 Act on determining how many
SLCs should be applied to ISDN services. We also sought comment on
whether mandatory rate structures or rate caps should be prescribed for
ISDN service or other derived channel services.
b. Discussion
115. Consistent with the goal of this Order of realigning cost
recovery in a manner that more closely reflects the manner in which
those costs are incurred, we conclude that we should establish separate
SLC rates for ISDN service based on the NTS loop costs of BRI and PRI
ISDN service. We agree with the majority of commenters that a SLC for
ISDN service equal to a SLC for single-channel analog service
multiplied by the number of derived channels exceeds the NTS costs of
ISDN service and therefore artificially discourages efficient use of
ISDN. We find that basing ISDN SLCs on relative costs is most likely to
assign costs of ISDN service to customers who subscribe to, and benefit
from, that service. Further, we find that the current SLC-per-derived
channel rule requires LECs to assess charges that are not related to
the NTS costs of the service provided.
116. As set out above, the record indicates that the NTS loop costs
of PRI ISDN service, excluding switching costs, reflect a cost ratio of
approximately 5:1 compared to the NTS loop costs of single-channel
analog service. We therefore conclude that we should amend our rules to
establish, effective July 1, 1997, a SLC rate for PRI ISDN service
equal to five times the incumbent LEC's average per-line interstate-
allocated common line costs, subject to a ceiling of five times $9.00,
adjusted annually for inflation. Similarly, the record shows that the
NTS loop costs of BRI ISDN service, excluding NTS switching costs, when
rounded to the nearest half SLC, reflect a 1:1 cost ratio relative to
the NTS loop costs of single-channel analog service. Therefore, we here
amend our rules to provide for a SLC rate for BRI ISDN service equal to
the incumbent LEC's average per-line interstate-allocated common line
costs, subject to the same ceilings otherwise applicable to non-primary
residential lines. Thus, beginning January 1, 1998, the SLC ceiling for
BRI ISDN service will be set at the lesser of the incumbent LEC's
average per-line interstate-allocated costs, or $5.00. Each subsequent
year, beginning January 1, 1999, the SLC ceiling will be adjusted for
inflation and increased by $1.00 per line, until the ceiling equals
that permitted for multi-line business lines.
117. The cost data submitted by the BOCs in response to our request
for information includes information about all NTS cost components,
including components located in the central office, such as line cards
and trunk cards. The data confirm that line cards and trunk cards for
PRI ISDN service in particular constitute a significant portion of the
total NTS costs that are dedicated to the provision of service to the
subscriber, and that ISDN line cards and trunk cards are many times
more expensive than the cards used for standard analog service. As
discussed in Section III.B, below, LECs will be required to recover the
difference between the cost of an ISDN line card and the cost of a line
card used for basic, analog service through a separate charge assessed
directly on ISDN end users. For purposes of determining the rate levels
for ISDN SLCs, therefore, we considered only the NTS loop costs
associated with providing ISDN service.
118. As with other non-primary residential and multi-line business
lines, incumbent price cap LECs may assess flat-rated PICCs on ISDN
service to the extent necessary to recover the shortfall of common line
revenues caused by SLC ceilings. Incumbent price cap LECs are permitted
to assess one PICC for BRI ISDN service and five PICCs for PRI ISDN
service. It is necessary for incumbent LECs to be able to assess up to
five PICCs on PRI ISDN service because, as discussed above, the record
indicates that the NTS loop costs of providing PRI ISDN service,
excluding switching costs, reflect a cost ratio of approximately 5:1
compared to NTS loop costs of single-channel analog service. Because
the PICC recovers NTS common line costs not recovered through the SLC,
prohibiting incumbent LECs from charging as many as five PICCs for PRI
ISDN service could prevent them from recovering the common line costs
associated with providing PRI ISDN service in cases where the common
line costs exceed the SLC ceiling.
119. Incumbent LECs shall assess PICCs on BRI and PRI ISDN services
in conjunction with those on the non-primary residential and multi-line
business lines. For the first year, the BRI ISDN PICC will be capped at
$1.50 per month, and the PRI ISDN PICC will be capped at $2.75 per
month. Each subsequent year these two PICCs shall increase by no more
than an inflation adjustment, plus $1.00 and $1.50, respectively.
120. The record does not contain sufficient information to enable
us to determine the relative NTS costs of derived channel services
other than ISDN. We therefore limit our decision to BRI and PRI ISDN
service. We agree with NYNEX that we should not apply the rules we
adopt here regarding SLCs when the LEC uses derived channel technology
but the end user has not requested derived channel service. Unless a
subscriber orders ISDN or another service that requires derived channel
technology, we see no reason to vary from our general rule that the
incumbent LEC should charge one SLC for each channel regardless of how
it is provisioned.
121. We are not persuaded by PacTel's argument that ISDN service is
not an interstate service and should not, therefore, be regulated by
the Commission. ISDN lines are not directly assigned to the intrastate
jurisdiction, but are treated as common lines. The Commission's
jurisdiction thus includes the interstate-allocated portion of the
costs of the ISDN lines. The rules we adopt in this order govern only
the manner in which LECs recover the
[[Page 31887]]
interstate-allocated common line costs associated with providing ISDN
service.
122. Before the Commission initiated CC Docket No. 95-72, Bell
Atlantic, Pacific Bell, GTE, Cincinnati Bell, U S West, and Bellsouth
sought waivers of Section 69.104 of the Commission's rules as it
applies to ISDN service. In their petitions, these LECs urged the
Commission to amend its rules regarding the application of SLCs to ISDN
service. We have amended our rules regarding the application of SLCs to
ISDN service. We therefore dismiss the waiver petitions of Bell
Atlantic, Pacific Bell, GTE, Cincinnati Bell, U S West, and Bellsouth
on the grounds that they are moot.
B. Local Switching
1. Non-Traffic Sensitive Charges
a. Background
123. The local switch connects subscriber lines both with other
local subscriber lines and with interoffice dedicated and common
trunks. A local switch consists of (1) an analog or digital switching
system; and (2) line and trunk cards, which connect subscriber lines
and interoffice trunks, respectively, to the switch. Because all of
this equipment is deployed within the central office, all of its costs
are assigned to the central office switching accounts of the
Commission's Uniform System of Accounts and to the local switching
category of central office expenses for jurisdictional separations
purposes. 47 CFR Secs. 32.2001(j), 36.125. The interstate portion of
these costs is currently recovered through per-minute local switching
charges levied on IXCs. 47 CFR Sec. 69.106.
124. In the NPRM, we observed that a significant portion of local
switching costs may not vary with usage. For example, the cost of line
cards or line-side ports appears to vary with the number of loops
connected to the switch, not with the level of traffic over the loops.
We tentatively concluded that LECs should not recover these costs
through per-minute charges. Instead, we tentatively concluded that it
is more reasonable and economically efficient to recover costs of
equipment dedicated to individual customers, such as line-side ports
and trunk ports associated with dedicated transport, through flat-rated
charges. Trunk-side ports not associated with dedicated transport and
the central processing portion of the switch, on the other hand, are
shared among multiple carriers. We asked if these costs are driven by
usage or by the number of lines and trunks served by the switch. We
sought comment on whether rate structures for shared local switching
facilities should consist of usage-sensitive, flat-rated, or a
combination of both flat-rated and usage-sensitive rate elements. We
asked commenters to recommend methods of identifying non-traffic-
sensitive (NTS) local switching costs.
b. Discussion
125. We conclude that, consistent with principles of cost-causation
and economic efficiency, NTS costs associated with local switching
should be recovered on a flat-rated, rather than usage sensitive,
basis. The record before us indicates clearly that the costs of the
line side port (including the line card, protector, and main
distribution frame) are NTS. We conclude, therefore, that these costs
should be recovered through flat-rated charges. Accordingly, for price-
cap LECs, we reassign all line-side port costs from the Local Switching
rate element to the Common Line rate elements. For price cap companies,
these costs will be recovered through the common line rate elements,
including the SLC and flat-rated PICC, described above.
126. LECs incur differing costs for line ports used in the
provision of different services. The SLC and PICC cost recovery
mechanisms will recover only the cost of a line port used to provide
basic, analog service, whether the end user has basic, analog service,
or another form of service. As discussed above, data submitted in
response to the ISDN SLC NPRM show that ISDN line cards cost
significantly more than line cards associated with a basic, analog,
subscriber line. To the extent that the costs of ISDN line ports, and
line ports associated with other services, exceed the costs of a port
used for basic, analog service, price cap LECs will recover this excess
amount through a separate end-user charge.
127. We conclude that the costs of a dedicated trunk port
(including the trunk card and DS1/voice-grade multiplexers, if needed)
should be recovered on a flat-rated basis because these costs are also
NTS in nature. These costs should be recovered from the carrier
purchasing the dedicated trunk terminated by that port. Similarly, we
conclude that the costs of shared trunk ports should be recovered on a
per-minute of use basis from the users of common transport trunks. We
therefore establish two separate rate elements for recovery of these
costs. Price cap LECs may recover the costs of each dedicated trunk
port on a flat-rated basis from the purchaser of the dedicated trunk
terminating at the port. In order to ensure that these purchasers of
dedicated trunks do not pay the costs of shared trunk ports that they
do not use, price cap LECs must also establish a usage-sensitive rate
element for recovery of the costs of shared trunk ports. The costs of
these shared trunk ports will be recovered on a per minute-of-use basis
from users of common transport trunks terminating at these ports. We
therefore add a separate category for all trunk port costs within the
traffic sensitive basket, 47 CFR Sec. 61.42(e)(1). As with the other
categories within this basket, the ``trunk ports'' category will have
an upper service band index of +5 percent and no lower service band
index.
128. We do not establish a fixed percentage of local switching
costs that incumbent LECs must reassign to the Common Line basket or
newly created Trunk Cards and Ports service category as NTS costs. In
light of the widely varying estimates in the record, we conclude that
the NTS portion of local switching costs likely varies among LEC
switches. Accordingly, we require each price cap LEC to conduct a cost
study to determine the geographically-averaged portion of local
switching costs that is attributable to the line-side ports, as defined
above, and to dedicated trunk side ports. These amounts, including cost
support, should be reflected in the access charge elements filed in the
LEC's access tariff effective January 1, 1998. Once established, this
service category, like all others in the traffic sensitive basket,
shall be subject to price cap adjustments for inflation and
productivity. Although some LECs have obtained authority to
geographically deaverage transport rates under a zone density pricing
plan, because the costs of trunk ports will remain within the Traffic
Sensitive basket, we conclude that trunk port costs should remain
geographically averaged for now. We will consider deaveraging of these
costs in connection with our assessment of other forms of pricing
flexibility in a subsequent Order in this proceeding.
129. We direct all price cap LECs to include in their tariff
filings implementing this Order an exogenous downward adjustment to the
Traffic Sensitive basket, 47 CFR Sec. 61.42(d)(2), and corresponding
exogenous upward adjustment to the Common Line Interstate Access
Elements basket, 47 CFR Sec. 61.42(d)(1) to reflect the recovery of the
interstate NTS costs of line-side ports from the Common Line rate
elements.
130. USTA, SNET, and BA/NYNEX argue that we should not codify any
specific local switching rate elements. We disagree. In the NPRM, we
proposed to eliminate local switching rate
[[Page 31888]]
elements only when an actual competitive presence is established for an
exchange access service in a relevant geographic area, as measured by
(1) demonstrated presence of competition; (2) full implementation of
competitively neutral universal service support mechanisms; and (3)
credible and timely enforcement of pro-competitive rules. We
tentatively concluded in the NPRM that, in the absence of actual
competition, the mere availability of unbundled network elements under
efficient rate structures would not provide incumbent LECs with
sufficient incentive to adopt efficient, cost-causative access rate
elements or structures. The record before us indicates that flat-rated
pricing for line ports and dedicated trunk ports is efficient, and
reflective of cost causation. We will first amend the baseline switched
access rate structure to reflect this determination. Then, in a
subsequent Report and Order in this docket, we will determine when and
under what circumstances we will allow incumbent LECs greater
flexibility in designing interstate access rate structures.
131. In addition, despite arguments from BA/NYNEX to the contrary,
we find that the benefits to be gained from a more efficient, cost-
causative rate structure outweigh the burden of establishing these
flat-rate elements. Independent estimates from Cable & Wireless and
USTA, both using NYNEX data, indicate that as much as, or even more
than, half of local switching costs may be NTS. Since the current, per-
minute rate structure for the local switch was established, digital
switches have become increasingly predominant in the network. Given
USTA's estimate that six percent of the costs of an analog switch and
51 percent of the costs of a digital switch are NTS, we find that local
switching costs have become increasingly NTS and now warrant the
creation of a NTS recovery mechanism. Including NTS local switching
costs in per-minute access charges contributes significantly toward
unnecessarily high per-minute long distance rates for all customers.
Restructuring rates to reflect more accurately cost-causation will
promote competition, reduce per-minute charges, stimulate long-distance
usage, and improve the overall efficiency of the rate structure.
132. We also reject proposals to recover the entire NTS portion of
local switching costs from the new universal service support
mechanisms. In the Universal Service Order, we agreed with the Joint
Board that we should establish a ``nationwide benchmark based on
average revenues per line for local, discretionary, interstate and
intrastate access services, and other telecommunications revenues that
will be used with either a cost model or a cost study to determine the
level of support carriers will receive for lines in a particular
geographic area.'' We find that it would be inconsistent with the Joint
Board's recommendation if we were to mandate recovery of NTS local
switching costs directly from universal service support mechanisms,
independent of the revenue benchmark, and the percentage of high cost
support recoverable from the federal universal service mechanisms at
this time.
133. In allocating costs between the intrastate and interstate
jurisdictions, the Commission consults with the states through the
operation of the Joint Board on Separations. See 47 U.S.C. sec. 410(c);
Amendment of Part 67 of the Commission's Rules and Establishment of a
Joint Board, CC Docket No. 80-286, Notice of Proposed Rulemaking and
Order Establishing a Joint Board, 45 FR 41459 (June 19, 1980). It is
not necessary to await action by the Joint Board on Separations before
revising the recovery mechanisms applicable to the interstate portion
of the costs attributed to line ports and dedicated trunk ports. Our
revision of the mechanisms used to recover the interstate portion of
the costs in Part 32 local switching accounts that the jurisdictional
separations process allocates to the interstate jurisdiction will have
no direct effect on that allocation because these costs will continue
to be separated in Part 36 based on relative dial-equipment-minutes of
use. The fact that local switching costs are apportioned between
jurisdictions based on a relative interstate and state usage is
irrelevant to the choice of pricing structure for recovering those
costs, however. Economic efficiency does not require the jurisdictional
separation of NTS costs be based on an NTS (flat) factor. The
jurisdictional separations process only determines whether the billed
charges (flat or variable) are characterized as intrastate or
interstate. Economic efficiency does require that NTS costs, regardless
of how they are separated, be recovered in each jurisdiction through
flat charges. Thus, there was no loss of economic efficiency when the
Commission, agreeing with the recommendation of the Joint Board,
simplified the separation of local switching by eliminating the former
distinction between NTS and traffic-sensitive costs and creating a
single switching category that is assigned to the jurisdictions based
on dial equipment minutes. MTS and WATS Market Structure, CC Docket No.
78-72, Report and Order, 52 FR 17228 (May 6, 1987).
134. On the other hand, economic efficiency will be increased if
local switching costs (regardless of the jurisdiction to which they are
assigned) are recovered through a combination of flat charges for NTS
costs and traffic sensitive charges for the remainder. Because, at the
time that the Commission established the current jurisdictional
separations process, it did not consider the distinction between the
switch and the port that we address today, the current jurisdictional
separations process does not distinguish port costs from the costs of
the local switch itself. 47 CFR 36.125(b). We have the authority and
obligation, independent from the Joint Board, to establish appropriate
rate structures for recovering the costs the jurisdictional separations
process allocates to the interstate jurisdiction. E.g., 47 U.S.C. secs.
151, 152, 154(i-j). We take steps today to address the fact that the
costs of line ports and dedicated trunk ports are more properly
recovered for Part 69 purposes from the Common Line and Direct-Trunked
Transport rate elements as NTS charges, instead of from the traffic
sensitive Local Switching element. We will, however, examine any
jurisdictional separations issues presented by NTS switching costs in
our upcoming separations Notice of Proposed Rulemaking.
135. Costs may vary for shared local switching facilities according
to the number of lines connected, or the traffic over those lines. In
the former case, the costs of the shared facility may be recovered in
the most cost-causative manner by imposing a proportionate share of the
costs on each line while, in the latter case, usage-sensitive charges
may better reflect cost causation. With respect to such shared local
switching facilities, including the switching matrix and shared trunk
ports, we gave states flexibility in our interconnection proceeding to
establish either per-minute usage charges, or flat-rated charges, as
appropriate. Local Competition Order. In the access context, however,
we will continue to require price cap incumbent LECs to recover the
costs of shared local switching facilities, including the central
processor, switching matrix, and shared trunk ports, on a per-minute
basis. On the basis of the information in the record before us, it
would be difficult to identify the NTS and traffic-sensitive portions
of the costs of shared switching facilities and to verify the accuracy
of LEC studies attempting to do so. Therefore, until we gain more
[[Page 31889]]
experience with rate structures for unbundled network elements that are
implemented pursuant to Sections 251 and 252 and that segregate these
costs into traffic-sensitive and NTS components, we will continue to
adhere to the current, per-minute rate structure for shared switching
facilities.
2. Traffic Sensitive Charges
136. In the NPRM, we sought comment on several alternative rate
structures for recovery of usage-sensitive local switching costs.
Specifically, we sought comment on whether the Commission should
require or permit LECs to establish a separate charge for call setup,
and if so, whether the charge should be levied on all call attempts, or
only completed calls. We also sought comment on whether the Commission
should require or permit incumbent LECs to establish peak and off-peak
pricing structures for shared local switching facilities, and whether
the existing per-minute rate structure adequately reflects the manner
in which traffic-sensitive local switching costs are incurred.
a. Call Setup Charges
137. Among price cap carriers today, most call setup is performed
with out-of-band signalling, generally using the SS7 signalling
network. In light of the widely varying estimates of the costs of call
setup in the record, we conclude that these costs may be more than a de
minimis portion of the costs of local switching. The record indicates
that these call setup charges are incurred primarily on a per-call
rather than a per-minute basis. By requiring recovery the costs of call
setup on a per-minute basis, our current rate structure mandates an
implicit subsidy running from customers that make lengthy calls to
those that make many short-duration calls. Therefore, we find that we
should not continue to require the price cap LECs to recover costs of
call setup from per-minute local switching charges.
138. Accordingly, we will revise Section 69.106 of our rules, 47
CFR Sec. 69.106, to permit, but not to require, price cap LECs to
establish a separate per-call setup charge assessed on IXCs for all
calls handed off to the IXC's point of presence (POP). As noted
earlier, because an incumbent LEC originating an interstate call incurs
call setup costs even if the call is not completed at the called
location, we permit these LECs to recover call setup charges on all
originating interstate calls that are handed off to the IXC's POP, and
on all terminating calls that are received from an IXC's POP. With
respect to originating call attempts, we agree with the California
Commission that, when the call is handed off to the IXC's POP, the
incumbent LEC's switches and signalling network have performed their
functions and the incumbent LEC has incurred the full cost of call
setup. We also permit incumbent LECs to impose a setup charge for
terminating calls received from an IXC's POP, whether or not that call
is completed at the called location, because the incumbent LEC
signalling network in either case must perform its setup function.
139. We conclude that the call setup charge should not be mandat
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.