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 COMMUNICATIONS COMMISSION

47 CFR Part 69

[CC Docket Nos. 96-262, 94-1, 91-213, 96-263; FCC 97-247]

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; sua sponte reconsideration.

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SUMMARY: The Federal Communications Commission here reconsiders on its

own

[[Page 40461]]

motion five specific issues addressed in its First Report and Order in

this proceeding. First, the Commission corrects errors in the rules

adopted in the First Report and Order in this proceeding that could

permit rural incumbent local exchange carriers (rural incumbent LECs)

to recover twice a portion of their local switching costs, that could

be interpreted to require carriers to deduct a potentially improper

long term support amount from the base factor portion of their common-

line revenue requirement, and that could result in improper calculation

of annual access minutes-of-use calculated by LECs for use in setting

per-minute charges for shared multiplexers on the end office side of

the tandem switch.

Second, the Commission clarified the steps non-price cap LECs

should take to reassign the costs of trunk ports and multiplexers used

at the tandem switch, and the costs of DS1/voice grade multiplexers

used at the local switch, from the transport interconnection charge

(TIC) rate element to the tandem switching rate element and the local

switching rate element, respectively.

Third, the Commission clarified that price cap carriers may vary

their tandem-switching charge in accordance with the part 61 price cap

rules, even after reassigning to the tandem-switching rate element the

portion of tandem switching costs now recovered through the TIC.

Fourth, the Commission revised its rules to revise the triggering

point at which a price cap carrier should begin calculating its SLC

based on average per-line common line revenues permitted under the

price cap rules.

Fifth, the Commission reinstated a portion of its rules relating to

general support facilities that we erroneously deleted in the First

Report and Order.

EFFECTIVE DATE: The amendments to Sec. 69.307(c) shall become effective

August 28, 1997. The amendments to Secs. 69.1(c), 69.106(b),

69.111(g)(4), 69.111(l)(1), 69.152(b), and 69.502(c) shall become

effective January 1, 1998.

FOR FURTHER INFORMATION CONTACT: Rich Lerner or Richard Cameron, 202-

418-1530.

SUPPLEMENTARY INFORMATION: Adopted: July 10, 1997; Released: July 10,

1997.

1. On May 7, 1997, we adopted the First Report and Order in this

proceeding 1 and the Report and Order in our related

Universal Service proceeding.2 On our own motion, and upon

further consideration of some of the issues addressed in our Access

Reform Order, we take this opportunity to revise or clarify certain of

our actions.3

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\1\ Access Charge Reform, First Report and Order, 62 FR 31838

(June 11, 1997) (Access Reform Order).

\2\ Federal-State Joint Board on Universal Service, Report and

Order, 62 FR 32862 (June 17, 1997) (Universal Service Order).

\3\ See 47 CFR 1.108.

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I. DEM Weighting, Long Term Support, and Local Switching

2. DEM Weighting. In our Universal Service Order, among other

actions, we provided that, on January 1, 1998, eligible rural telephone

company study areas with fewer than 50,000 lines would begin receiving

local switching support from the new universal service support

mechanisms in an amount equal to the implicit support they formerly

received from dial equipment minute-of-use (DEM) weighting.4

We did not make clear in the Access Reform Order, however, how the

switching rates for both incumbent LECs subject to price cap regulation

and those that are not subject to price cap regulation would be

affected by the new universal service mechanisms. The obvious solution

is to permit rural incumbent LECs to recover these switching costs

either from universal service support mechanisms or from interstate

access charges, but not to permit recovery of these costs from both

sources duplicatively.

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\4\ 47 CFR 54.301. The jurisdictional separations process

currently allocates local switching costs between the state and

interstate jurisdictions on the basis of relative DEM. Carrier study

areas with fewer than 50,000 lines receive support, until December

31, 1997, from DEM weighting, which shifts additional local

switching costs to the interstate jurisdiction by multiplying the

carrier's interstate DEM by a factor of up to 3.0. Until December

31, 1997, these weighted local switching costs will continue to be

recovered from interexchange carriers through per-minute access

charges for use of the local switch. Beginning in January 1998,

rural incumbent LECs will receive explicit support from the new

universal service support mechanisms equal to the amount previously

collected as a result of DEM weighting. Universal Service Order at

Paras. 303-04.

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3. The rules adopted to implement our Access Reform Order provide

that the per-minute local switching charge to be imposed by incumbent

LECs not subject to price cap regulation ``shall be computed by

dividing the projected annual revenue requirement for the Local

Switching element by the projected annual access minutes of use for all

interstate or foreign services that use local exchange switching

facilities.'' 5

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\5\ 47 CFR 69.106(b).

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4. On further consideration of our revisions to Sec. 69.106, we

recognize that, absent further clarification, rural incumbent LECs not

subject to price cap regulation may have the opportunity to recover

twice a portion of their local switching costs. DEM weighting increases

the interstate local switching revenue requirement when costs are

separated in part 36 between the intrastate and interstate

jurisdictions.6 Although the Universal Service Order

established a new mechanism for providing to carriers the amount of

support that was formerly received from DEM weighting, it preserved the

use of DEM weighting in assigning local switching revenue requirement

to the interstate jurisdiction. Thus, if a rural incumbent LEC were to

use the entire DEM-weighted interstate component of the part 36 local

switching revenue requirement in setting access charges for local

switching under Sec. 69.106, it would have the opportunity to recover

twice that portion of the interstate revenue requirement attributable

to DEM-weighting. Specifically, the rural incumbent LEC would receive

compensation for the DEM-weighted component of local switching from

universal service support mechanisms, and also would be able to

continue to set the local switching element of its access charges to

recover the portion of its interstate revenue requirement attributable

to DEM-weighting. Clearly, we did not intend our rules to permit such a

result.

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\6\ 47 CFR 36.125.

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5. On our own motion, therefore, we take this opportunity to

reconsider this issue and revise Sec. 69.106.7 We clarify

that, in setting its per-minute access charge for local switching under

Sec. 69.106, each rural incumbent LEC not subject to price cap

regulation must exclude from its local switching interstate revenue

requirement any high-cost support attributable to DEM weighting.

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\7\ See 47 CFR 1.108.

\8\ Access Reform Order at Paras. 125-135.

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6. Similarly, to the extent that any price cap LEC receives high-

cost support attributable to DEM-weighting under Sec. 54.301, we

require such price cap LEC, in its access tariff filed re-

flecting its receipt of support under Sec. 54.301, to make a downward

exoge-

nous adjustment to its traffic sensitive basket price cap index (PCI)

and to its common line basket PCI to reflect the recovery of this

amount from the new high-cost support mechanism. These exogenous

adjustments must be made after the exogenous adjustments required when

the price cap LEC reallocates the costs of line ports to the common

line basket in accordance with the Access Reform Order.8 The

exoge-

nous downward adjustment to each basket must be in proportion to the

local switching costs contained

within that basket. For

[[Page 40462]]

example, if a price cap LEC makes exogenous adjustments to reallocate

30 percent of its local switching costs contained within the traffic

sensitive basket to the common line basket, reflecting the costs of its

line ports, it must then make a downward exogenous adjustment to the

common line basket in an amount equal to 30 percent of the support it

receives under Sec. 54.301 and a downward exogenous adjustment to the

traffic sensitive basket in an amount equal to the remaining 70

percent.

7. Long Term Support. We also modify the language of Sec. 69.502(c)

to clarify the per-line support amount that carriers should use in

making deductions from the base factor portion of the common line

element. In the Universal Service Order, we did not adopt the Joint

Board's recommendation that, for the three years beginning January 1,

1998, high-cost support be calculated for rural incumbent LECs based on

historic high-cost loop support, DEM weighting, and long term support

(LTS) amounts.9 Instead, consistent with the recommendation

of the State High Cost Report 10 and of many commenters,

high-cost support attributable to the former LTS mechanism may increase

based on changes in the nationwide average loop cost.11 We

therefore replace the phrase ``frozen per-line support'' in Sec. 69.502

with the phrase ``per-line support.''

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\9\ Universal Service Order at Paras. 297-99, 305-306.

\10\ State Members' Report on the Use of Cost Proxy Models,

dated March 26, 1997 (contained in the record of Federal-State Joint

Board on Universal Service, CC Docket No. 96-45).

\11\ Universal Service Order at Paras. 305-306. See 47 CFR

54.303.

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8. Other Local Switching Issues. In the Access Reform Order, we

directed incumbent LECs to set per-minute rates for the transmission

component of tandem-switched transport using ``the total actual voice-

grade minutes of use, geographically averaged on a study-area-wide

basis, that the incumbent [LEC] experiences based on the prior year's

annual use,'' 12 or averaged on a zone-wide basis where the

incumbent LEC has implemented density pricing zones.13 In

new Sec. 69.111(l), however, we directed incumbent LECs to develop per-

minute charges for the shared multiplexers used on the end office side

of the tandem switch, using as a denominator ``the projected annual

access minutes of use calculated for purposes of recovery of common

transport costs in paragraph (c) of this section.''14 We

will delete the word ``projected'' from this sentence of our rules.

Paragraph (c) does not require a projection, but instead calls for the

use of the prior year's historical data. For clarity, we also delete

the extraneous phrase ``by the serving wire center side of the tandem

switch'' from this section.

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\12\ 47 CFR 69.111(c).

\13\ 47 CFR 69.111(c)(2)(ii).

\14\ 47 CFR 69.111(l)(1).

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II. TIC Reduction for Non-Price Cap Incumbent LECs

9. In our Access Reform Order, we took steps to adopt a cost-based

transport rate structure and to comply with the remand order issued by

the United States Court of Appeals for the District of Columbia Circuit

in Competitive Telecommunications Ass'n v. FCC (CompTel).15

In complying with the CompTel remand, we took steps to eliminate or

substantially reduce the transport interconnection charge (TIC), which

we originally created as part of our interim transport rate

structure.16

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\15\ 87 F.3d 522 (D.C. Cir. 1996).

\16\ Access Reform Order at Paras. 210-243. The TIC was created

as part of the interim transport rate structure adopted in Transport

Rate Structure and Pricing, Report and Order and Further Notice of

Proposed Rulemaking, 57 FR 54717 (November 20, 1992).

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10. We reassigned portions of the TIC to other rate elements, some

of which were created in the Access Reform Order only for price cap

carriers. In creating the new rate elements established for

multiplexers used at the tandem switch, we ``direct[ed] incumbent LECs

to establish separate rate elements for the multiplexing equipment on

each side of the tandem switch.'' 17 This language

potentially may be unclear, especially in light of subsequent language

directing only ``price cap LECs [to] reallocate revenues'' to these

rate elements.18 As an initial matter, therefore, we here

clarify that these rate elements apply only to price cap incumbent

LECs.

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\17\ Access Reform Order at para.170.

\18\ Id. at 173.

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11. We specifically directed carriers to reassign certain TIC

amounts to newly created rate elements for trunk ports and multiplexers

used at the tandem switch 19 and for DS1/voice grade

multiplexers used at the local switch.20 Because these rate

elements were created only for price cap carriers, however, we take

this opportunity to clarify the application of this section of our

Access Reform Order with respect to incumbent LECs not subject to price

cap regulation.

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\19\ Access Reform Order at Paras. 171-173.

\20\ Access Reform Order at Paras. 218-219.

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12. In access tariffs filed to become effective January 1, 1998,

incumbent LECs not subject to price cap regulation should assign TIC

amounts attributable to trunk ports and multiplexers used at the tandem

switch to the tandem switching rate element. Even though the specific

rate elements created for these amounts do not yet exist for non-price

cap carriers, the amounts involved relate broadly to the use of the

tandem switch. Similarly, in access tariffs filed to become effective

January 1, 1998, incumbent LECs not subject to price cap regulation

should assign TIC amounts attributable to DS1/voice grade multiplexers

used at analog local switches to the local switching rate element for

recovery. Even though the specific rate elements created for these

amounts do not yet exist for non-price cap carriers, the amounts

involved relate broadly to the use of analog local switches. We will

consider whether these amounts should be further reallocated to

individual rate elements in our upcoming rulemaking proceeding

addressing access charge reform for rate-of-return carriers.

III. Reallocation of Tandem Switching Costs

13. Section 69.1(c) of our rules 21 limits the extent to

which certain part 69 pricing rules apply to incumbent LECs subject to

price cap regulation. Under the terms of Sec. 69.1(c), while a price

cap LEC uses these part 69 rules, inter alia, to set initial charges

for new rate elements, the price cap LEC thereafter has discretion to

vary these charges, subject to the limitations of the relevant price

cap index and any applicable service category banding constraints.

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\21\ 47 CFR 69.1(c).

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14. Section 69.111(g) governs the reallocation by all carriers of

tandem switching amounts currently being recovered through the TIC to

the tandem switching rate element. As our rules are currently

constructed, Sec. 69.1(c) limits the extent to which Sec. 69.111(g)(1)

applies to price cap carriers, as described above, but

Secs. 69.111(g)(2) and 69.111(g)(3) are not so limited. We therefore

revise Sec. 69.1(c) to clarify that Secs. 69.111(g)(2) and 69.111(g)(3)

apply to price cap carriers only to the same extent as

Sec. 69.111(g)(1). To reallocate tandem switching amounts as described

in Sec. 69.111(g), price cap LECs must make downward exogenous

adjustments to the interconnection charge service band index (SBI) and

corresponding upward exogenous adjustments to the tandem-switched

transport SBI at the times and in the amounts prescribed in

Sec. 69.111(g)(1-3).22 Thereafter, they may vary the tandem-

switching charge in

[[Page 40463]]

accordance with the part 61 price cap rules.

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\22\ See Access Reform Order at para. 228.

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IV. Common Line Issues

15. In the Access Reform Order, we directed each price cap carrier

to calculate its subscriber line charge (SLC) based on the full average

per-line interstate allocation of the common line revenue requirement,

until its primary interexchange carrier charge (PICC) assessed on

multi-line business (MLB) lines no longer recovers any common line

revenues. At that time, we directed the price cap carrier to begin

calculating the SLC based on average per-line common line revenues

permitted under our price cap rules. 23 In certain

situations, when the MLB PICC no longer recovers common line revenues,

recalculation of the SLC may in turn create a common line residual to

be recovered by the MLB PICC, making it impossible for the price cap

LEC to develop a proper rate. Accordingly, we reconsider this aspect of

our PICC rules, and take this opportunity to revise the triggering

point at which a price cap carrier should begin calculating its SLC

based on average per-line common line revenues permitted under the

price cap rules. A price cap carrier should make this change in its SLC

calculation when the maximum PICC assessed on primary residential

lines, plus the maximum SLC on those lines, recovers the full amount of

its per-line common line price cap revenues.

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\23\ E.g., Access Reform Order at para. 102.

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V. General Support Facilities

16. We also here reinstate portions of Sec. 69.307(c), relating to

general support facilities (GSF), that were erroneously deleted in the

Access Reform Order. We will address GSF cost allocation issues in a

future order in this proceeding.

VI. Final Regulatory Flexibility Analysis

17. In the Access Reform Order, we conducted a Final Regulatory

Flexibility Analysis, as required by section 603 of the Regulatory

Flexibility Act, as amended by the Contract With America Advancement

Act of 1996, Public Law 104-121, 110 Stat. 847 (1996).24 The

changes we adopt in this Order do not affect that analysis.

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\24\ Access Reform Order at Paras. 419-440.

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VII. Ordering Clauses

18. Accordingly, it is ordered, pursuant to sections 1-4, 201-205,

251, 254, 303, and 405 of the Communications Act of 1934, as amended,

47 U.S.C. 151-154, 201-205, 251, 254, 303 and 405, and pursuant to

section 1.108 of the Commission's rules, 47 CFR Sec. 1.108, that this

Order on Reconsideration is adopted.

19. It is further ordered that Sec. 69.307(c) of the Commission's

rules, 47 CFR Sec. 69.307(c) is amended as set forth below, effective

August 28, 1997.

20. It is further ordered that Secs. 69.1(c), 69.106(b),

69.111(g)(4), 69.111(l)(1), 69.152(b), and 69.502(c) of the

Commission's rules, 47 CFR 69.1(c), 69.106(b), 69.111(g)(4),

69.111(l)(1), 69.152(b), and 69.502(c), are amended as set forth below,

effective January 1, 1998.

List of Subjects in 47 CFR Part 69

Communications common carriers, Telephone.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

47 CFR, Part 69, is amended as follows:

PART 69--ACCESS CHARGES

1. The authority citation for part 69 continues to read as follows:

Authority: 47 U.S.C. 154(i) and (j), 201, 202, 203, 205, 218,

254, and 403.

2. Section 69.1(c) is revised to read as follows:

Sec. 69.1 Application of access charges.

* * * * *

(c) The following provisions of this part shall apply to telephone

companies subject to price cap regulation only to the extent that

application of such provisions is necessary to develop the nationwide

average carrier common line charge, for purposes of reporting pursuant

to Secs. 43.21 and 43.22 of this chapter, and for computing initial

charges for new rate elements: Secs. 69.3(f), 69.106(b), 69.106(f),

69.106(g), 69.109(b), 69.110(d), 69.111(c), 69.111(g)(1), 69.111(g)(2),

69.111(g)(3), 69.111(l), 69.112(d), 69.114(b), 69.114(d), 69.125(b)(2),

69.301 through 69.310, and 69.401 through 69.412. The computation of

rates pursuant to these provisions by telephone companies subject to

price cap regulation shall be governed by the price cap rules set forth

in part 61 of this chapter and other applicable Commission rules and

orders.

3. Section 69.106(b) is revised to read as follows:

Sec. 69.106 Local switching.

* * * * *

(b) The per minute charge described in paragraph (a) of this

section shall be computed by dividing the projected annual revenue

requirement for the Local Switching element, excluding any local

switching support received by the carrier pursuant to Sec. 54.301 of

this chapter, by the projected annual access minutes of use for all

interstate or foreign services that use local exchange switching

facilities.

* * * * *

4. Sections 69.111 (g)(4) and (l)(1) are revised to read as

follows:

Sec. 69.111 Tandem Switched Transport and Tandem Charge.

* * * * *

(g) * * *

(4) A local exchange carrier that is subject to price cap

regulation as that term is defined in Sec. 61.3(x) of this chapter

shall calculate its tandem switching revenue requirement as used in

this paragraph by dividing the tandem switching revenue requirement

that was included in the original interconnection charge by the

original interconnection charge, and then multiplying this result by

the annual revenues recovered through the interconnection charge,

described in Sec. 69.124, as of June 30, 1997. A local exchange carrier

that is subject to price cap regulation as that term is defined in

Sec. 61.3(x) of this chapter shall then make downward exogenous

adjustments to the service band index for the interconnection charge

service category (defined in Sec. 61.43(e)(2)(vi) of this chapter) and

corresponding upward adjustments to the service band index for the

tandem-switched transport service category (defined in

Sec. 61.43(e)(2)(v) of this chapter) at the times and in the amounts

prescribed in paragraphs (g)(1) through (g)(3) of this section.

* * * * *

(l) * * *

(1) Local exchange carriers must establish a traffic-sensitive

charge for DS3/DS1 multiplexers used on the end office side of the

tandem switch, assessed on purchasers of common transport to the tandem

switch. This charge must be expressed in dollars and cents per access

minute of use. The maximum charge shall be calculated by dividing the

total costs of the multiplexers on the end office-side of the tandem

switch by the annual access minutes of use calculated for purposes of

recovery of common transport costs in paragraph (c) of this section. A

similar charge shall be assessed for DS1/voice-grade multiplexing

provided on the end-office side of analog tandem switches.

* * * * *

5. Section 69.152(b) is revised to read as follows:

[[Page 40464]]

Sec. 69.152 End user common line for price cap local exchange

carriers.

* * * * *

(b) Except as provided in paragraphs (d) through (i) of this

section, the maximum single line rate or charge shall be computed:

(1) By dividing one-twelfth of the projected annual revenue

requirement for the End User Common Line element by the projected

average number of local exchange service subscriber lines in use during

such annual period, only so long as a per-minute carrier common line

charge is assessed or the maximum PICC assessed on primary residential

lines, plus the maximum end user common line charge for primary

residential lines, does not recover the full amount of its per-line

common line price cap revenues; (and/or)

(2) by dividing one-twelfth of the projected annual revenues

permitted for the common line basket under the Commission's price cap

rules, as set forth in Part 61 of this chapter, by the projected

average number of local exchange service subscriber lines in use during

such annual period, if no per-minute carrier common line charge is

assessed and the maximum PICC assessed on primary residential lines,

plus the maximum end user common line charge for primary residential

lines, recovers the full amount of its per-line common line price cap

revenues.

* * * * *

6. Section 69.307(c) is added to read as follows:

Sec. 69.307 General support facilities.

* * * * *

(c) All other General Support Facilities investments shall be

apportioned among the interexchange category, the billing and

collection category, and Common Line, Local Switching, Information,

Transport, and Special Access elements on the basis of Central Office

Equipment, Information Origination/Termination Equipment, and Cable and

Wire Facilities, combined.

7. Section 69.502(c) is revised to read as follows:

Sec. 69.502 Base factor allocation.

* * * * *

(c) The portion of per-line support that carriers receive pursuant

to Sec. 54.303.

[FR Doc. 97-19912 Filed 7-28-97; 8:45 am]

BILLING CODE 6712-01-P