Implementation of the Local Competition Provisions in the Telecommunications Act of 1996

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 51

[CC Docket No. 96-98; FCC 97-295]

Implementation of the Local Competition Provisions in the

Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Third Order on Reconsideration (Order) released August 18,

1997 addresses the obligation of incumbent local exchange carriers

(LECs) to provide unbundled access to interoffice transport facilities

on a shared basis. The Order clarifies the definition of shared

transport as a network element which includes the same transport links

and routing table as used by the incumbent local exchange carrier. The

effect of this rule will be to allow competitive carriers to share in

the scale and scope benefits of the incumbent LEC's network, thus

increasing competition opportunities in the local exchange and exchange

access market.

EFFECTIVE DATE: The stay of 47 CFR 51.501 through 51.515, 51.601

through 51.611, 51.705 through 51.715, and 51.809 effective October 15,

1996 (62 FR 662, Jan. 6, 1997) was lifted by the United States Court of

Appeals for the Eighth Circuit effective July 18, 1997.

The amendments to 47 CFR part 51 made in this final rule are

effective September 29, 1997.

FOR FURTHER INFORMATION CONTACT: Kalpak Gude, Attorney, Common Carrier

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

additional information concerning the information collections contained

in this 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 Order

adopted and released August 18, 1997. The full text of this Order is

available for inspection and copying during normal business hours in

the FCC Reference Center, 1919 M St., N.W., Room 239, Washington, D.C.

The complete text also may be obtained through the World Wide Web, at

http://www.fcc.gov/Bureaus/Common Carrier/Orders/fcc97-295.wp, or may

be purchased from the Commission's copy contractor, International

Transcription Service, Inc., (202) 857-3800, 1231 20th St., N.W.,

Washington, D.C. 20036.

Regulatory Flexibility Analysis

The changes adopted in this Order do not affect our analysis in the

First Report and Order (61 FR 45476 (August 29, 1996)).

Synopsis of Third Order on Reconsideration

I. Introduction

1. In this Order, we address two petitions for reconsideration or

clarification of the Local Competition and Order regarding the

obligation of incumbent local exchange carriers (LECs) to provide

unbundled access to interoffice transport facilities on a shared basis.

Implementation of the Local Competition Provisions in the

Telecommunications Act of 1996, Report and Order, (61 FR 45476 (August

29, 1996)) (Local Competition Order), Order on Reconsideration, (61 FR

52706 (October 8, 1996)), Second Order on Reconsideration, 61 FR 66931

(December 19, 1996)), further recon. pending, aff'd in part and vacated

in part sub. nom. CompTel. v. FCC, 11 F.3d 1068 (8th Cir. 1997)

(CompTel), aff'd in part and vacated in part sub nom. Iowa Utilities

Bd. v. FCC and consolidated cases, No. 96-3321 et al., 1997 WL 403401

(8th. Cir., Jul. 18, 1997) (Iowa Utilities Bd.). We intend to address

petitions for reconsideration of other aspects of the Local Competition

Order in the future.

2. In the Local Competition Order, which established rules to

implement sections 251 and 252 of the Communications Act of 1934 (the

Act), as amended by the Telecommunications Act of 1996, the Commission

required incumbent LECs ``to provide unbundled access to shared

transmission facilities between end offices and the tandem switch.'' In

this reconsideration order, we first explain that the Local Competition

Order required incumbent LECs to provide requesting carriers with

access to the same transport facilities, between the end office switch

and the tandem switch, that incumbent LECs use to carry their own

traffic. We further explain that, when a requesting carrier takes

unbundled local switching, it gains access to the incumbent LEC's

routing table, resident in the switch. Second, we reconsider the

requirement that incumbent LECs only provide ``shared transport''

between the end office and tandem. Section 51.319(d) of the

Commission's rules requires that incumbent LECs provide access on an

unbundled basis to interoffice transmission facilities shared by more

than one customer or carrier. 47 CFR Sec. 51.319(d). In this

reconsideration order, we refer to such shared interoffice transmission

facilities as ``shared transport.'' For the reasons discussed below, we

conclude that incumbent LECs should be required to provide requesting

carriers with access to shared transport for all transmission

facilities connecting incumbent LECs' switches--that is, between end

office switches, between an end office switch and a tandem switch, and

between tandem switches. Third, we conclude that incumbent LECs must

permit requesting carriers that purchase unbundled shared transport and

unbundled switching to use the same routing table and transport links

that the incumbent LEC uses to route and carry its own traffic. By

requiring incumbent LECs to provide requesting carriers with access to

the incumbent LEC's routing table and to all its interoffice

transmission facilities on an unbundled basis, requesting carriers can

route calls in the same manner that an incumbent routes its own calls

and thus take advantage of the incumbent LEC's economies of scale,

scope, and

[[Page 45580]]

density. Finally, incumbent LECs must permit requesting carriers to use

shared transport as an unbundled element to carry originating access

traffic from, and terminating access traffic to, customers to whom the

requesting carrier is also providing local exchange service.

3. We also issue a further notice of proposed rulemaking seeking

comment on whether requesting carriers may use shared transport

facilities in conjunction with unbundled switching, to originate or

terminate interexchange traffic to customers to whom the requesting

carrier does not provide local exchange service. Moreover, we seek

comment on whether requesting carriers may use dedicated transport

facilities to originate or terminate interexchange traffic to customers

to whom the requesting carrier does not provide local exchange service.

II. Background

Local Competition Order

4. Sections 251(c)(3) and 251(d)(2) of the Act set forth standards

for identifying unbundled network elements that incumbent LECs must

make available to requesting telecommunications carriers. Section

251(c)(3) requires incumbent LECs to provide requesting carriers with

``nondiscriminatory access to network elements on an unbundled basis at

any technically feasible point.'' Section 251(d)(2) provides that, in

identifying unbundled elements, the ``Commission shall consider, at a

minimum, whether--

(A) Access to such network elements as are proprietary in nature

is necessary; and

(B) The failure to provide access to such network elements would

impair the ability of the telecommunications carrier seeking access

to provide the services that it seeks to offer.''

5. In the Local Competition Order, the Commission, pursuant to

sections 251(c)(3) and 251(d)(2), identified a minimum list of seven

network elements to which incumbent LECs must provide access on an

unbundled basis. These network elements included local switches, tandem

switches, and interoffice transmission facilities. With respect to

interoffice transmission facilities, the Commission required incumbent

LECs to provide requesting telecommunications carriers access to both

dedicated and ``shared'' interoffice transmission facilities. The

Commission defined ``interoffice transmission facilities'' as:

Incumbent LEC transmission facilities dedicated to a particular

customer or carrier, or shared by more than one customer or carrier,

that provide telecommunications between wire centers owned by

incumbent LECs or requesting telecommunications carriers, or between

switches owned by incumbent LECs or requesting telecommunications

carriers.

The Commission stated that ``[f]or some elements, especially the loop,

the requesting carrier will purchase exclusive access to the element

for a specific period, [and for] other elements, especially shared

facilities such as common transport, [carriers] are essentially

purchasing access to a functionality of the incumbent's facilities on a

minute-by-minute basis.'' In defining the network elements to which

incumbent LECs must provide access on an unbundled basis, the

Commission adopted the statutory definition of unbundled elements as

physical facilities of the network, together with the features,

functions, and capabilities associated with those facilities. The

Commission concluded that ``the definition of the term network element

includes physical facilities, such as a loop, switch, or other node, as

well as logical features, functions, and capabilities that are provided

by, for example, software located in a physical facility such as a

switch.'' The Commission found that:

The embedded features and functions within a network element are

part of the characteristics of that element and may not be removed

from it. Accordingly, incumbent LECs must provide network elements

along with all of their features and functions, so that new entrants

may offer services that compete with those offered by incumbents as

well as new services.

The Commission also determined that ``we should not identify elements

in rigid terms, but rather by function.''

6. On July 18, 1997, the United States Court of Appeals for the

Eighth Circuit issued a decision affirming certain of the Commission's

rules adopted in the Local Competition Order, and vacating other rules.

Iowa Utilities Bd. v. FCC, 1997 WL 403401 (8th Cir. July 18, 1997).

With respect to issues relevant to this reconsideration decision, the

court affirmed the Commission's authority to identify unbundled network

elements pursuant to section 251(d)(2), and generally upheld the

Commission's decision regarding incumbent LECs' obligations to provide

access to network elements on an unbundled basis. The order we issue

today is consistent with the court's decision.

III. Discussion

7. On July 18, 1997, the United States Court of Appeals for the

Eighth Circuit affirmed in part and vacated in part the Commission's

Local Competition Order. We note, as a predicate to our discussion

below, that the court affirmed the Commission's rulemaking authority to

identify unbundled network elements. The court held that section

251(d)(2) of the Act expressly gave the Commission jurisdiction in this

area. We thus conclude that the Commission has authority to address, in

this reconsideration order, the issues raised by petitioners concerning

the extent to which ``shared transport'' should be provided as an

unbundled element.

8. WorldCom filed a petition for clarification, and LECC filed a

petition for reconsideration of the Local Competition Order; both

petitions concerned the definition of shared transport as an unbundled

network element. WorldCom filed a petition for clarification pursuant

to 47 U.S.C. Sec. 405 and 47 CFR Sec. 1.429, which set forth rules

regarding petitions for reconsideration. In its petition WorldCom also

stated that, ``[s]hould the Commission not regard this petition as a

request for clarification of the Local Competition Order, WorldCom

requests that it be regarded as a petition for reconsideration.'' We

believe WorldCom's filing is more properly addressed as a petition for

reconsideration, and treat it as such in this decision.

9. Parties disagree about what we required in the Local Competition

Order with respect to shared transport. In addition, parties ask us to

clarify or reconsider our decision regarding the provision of shared

transport under section 251(c)(3). We first restate what we required in

the Local Competition Order, and then reconsider certain aspects that

may have been unclear or that were not addressed in the Local

Competition Order. We then respond to arguments raised by parties that

advocate a different approach to the provision of shared transport than

our rules require.

10. We believe that the petitions for reconsideration have raised

reasonable questions about the scope and nature of an incumbent LEC's

obligation to offer shared transport as an unbundled network element,

pursuant to section 251(c)(3) and our implementing regulations. We

address these issues below. We also believe, however, some parties have

argued that certain aspects of the rules adopted last August were

ambiguous which, in our view, were clear. Specifically, in the Local

Competition Order, we expressly required incumbent LECs to provide

access to transport facilities ``shared by more than one customer or

carrier.'' The term ``carrier'' includes both an incumbent LEC as well

as a requesting telecommunications carrier. We,

[[Page 45581]]

therefore, conclude that ``shared transport,'' as required by the Local

Competition Order encompasses a facility that is shared by multiple

carriers, including the incumbent LEC. We recognize that the Local

Competition Order did not explicitly state that an incumbent LEC must

provide shared transport in a way that enables the traffic of

requesting carriers to be carried on the same facilities that an

incumbent LEC uses for its traffic. We find, however, that a fair

reading of our order and rules does not support the claim advanced by

Ameritech that a shared network element necessarily is shared only

among competitive carriers and is separate from the facility used by

the incumbent LEC for its own traffic. Indeed, only Ameritech and US

West suggest that the Local Competition Order could be interpreted to

require sharing only between multiple competitive carriers. Moreover,

the fact that we required incumbent LECs to provide access to other

network elements, such as signalling, databases, and the local switch,

which are shared among requesting carriers and incumbent LECs is

consistent with our view that transport facilities ``shared by more

than one customer or carrier'' must be shared between the incumbent

LECs and requesting carriers. Furthermore, with respect to local

switching, we expressly rejected, in the Local Competition Order, a

proposal that incumbent LECs could, or were required to, partition

local switches before providing requesting carriers access to incumbent

LEC switches under section 251(c)(3). We stated that ``[t]he

requirements we establish for local switch unbundling do not entail

physical division of the switch, and consequently do not impose the

inefficiency or technical difficulties identified by some

commentators.'' We thus required that shared portions of incumbent LEC

switches would be shared by all carriers, including the incumbent LEC.

Although we do not believe that the Local Competition Order was unclear

as to this aspect of an incumbent LEC's obligation to provide shared

transport, we take this opportunity to state explicitly that the Local

Competition Order requires incumbent LECs to offer requesting carriers

access, on a shared basis, to the same interoffice transport facilities

that the incumbent uses for its own traffic.

11. We also conclude that the Local Competition Order was not

ambiguous as to an incumbent LEC's obligation to offer access to the

routing table resident in the local switch to requesting carriers that

purchase access to the unbundled local switch. The Local Competition

Order made clear that requesting carriers that purchase access to the

unbundled local switch may obtain customized routing, unless it is not

technically feasible to provide customized routing from that switch. In

those instances, a requesting carrier is limited to using the routing

instructions in the incumbent LEC's routing table. In so holding, we

necessarily accepted the view that requesting carriers that take

unbundled local switching have access to the incumbent LEC's routing

table, resident in the switch. We find nothing in the Local Competition

Order that supports the contention that requesting carriers that obtain

access to unbundled local switching, pursuant to section 251(c)(3), do

not obtain access to the routing table in the unbundled local switch.

12. The Local Competition Order did not clearly define certain

aspects of incumbent LECs' obligation to provide access to shared

transport under section 251(c)(3). In particular, we did not clearly

and unambiguously (1) identify all portions of the network to which

incumbent LEC must provide interoffice transport facilities on a shared

basis; and (2) address whether requesting carriers may use shared

transport facilities to provide exchange access service to IXCs for

access to customers to whom they also provide local exchange service.

We do so here on reconsideration.

A. Incumbent LECs' Obligation Regarding Shared Transport

13. We conclude that the obligation of incumbent LECs to provide

requesting carriers with access to shared transport extends to all

incumbent LEC interoffice transport facilities, and not just to

interoffice facilities between an end office and tandem. Thus,

incumbent LECs are required to provide shared transport (between end

offices, between tandems, and between tandems and end offices).

14. The Local Competition Order expressly required ``incumbent LECs

to provide unbundled access to shared transmission facilities between

end offices and the tandem switch.'' Parties disagree, however, about

whether incumbent LECs are required to provide shared transport between

end offices. As noted above, there is a discrepancy between the rule

that establishes the general obligation to provide shared transport as

a network element, and the rule vacated by the court that purports to

establish the pricing standard for shared transport. 47 CFR

Secs. 51.319(d) and 51.509(d). We note that the Eighth Circuit has held

that the Commission lacked jurisdiction to adopt the pricing standard

set forth in Sec. 51.509(d), and accordingly vacated that section of

the Commission's rules. To the extent that incumbent LECs already have

transport facilities between end offices, and between tandems, the

routing table contained in the switch most likely would route calls

between such switches. We therefore conclude that there is no basis for

limiting the use of shared transport facilities to links between end

office switches and tandem switches. Limiting the definition of shared

transport in this manner would not permit requesting carriers to

utilize the routing tables in the incumbent LECs' switches. To the

contrary, such a limitation effectively would require a requesting

carrier to design its own customized routing table, in order to avoid

having its traffic transported over the same interoffice facilities,

connecting end offices, that the incumbent LEC use to transport its own

interoffice traffic. Moreover, in the Local Competition Order, we held

that it is technically feasible to provide access to interoffice

transport facilities between end offices and between end offices and

tandem switches. No new evidence has been presented in this proceeding

to convince us that our earlier conclusion regarding technical

feasibility was incorrect.

15. We further clarify in this order that incumbent LECs are only

required to offer dedicated transport between their switches, or

serving wire centers, and requesting carriers' switches. Our Local

Competition Order was not absolutely clear as to whether incumbent LECs

must provide dedicated or shared interoffice transport between

incumbent LEC switches, or serving wire centers, and switches owned by

requesting carriers. In the Local Competition Order, we required

incumbent LECs to ``provide access to dedicated transmission facilities

between LEC central offices or between end offices and those of

competing carriers.'' This could be read to suggest that incumbent LECs

are only required to provide dedicated (but not shared) interoffice

transport facilities between their end offices, or serving wire

centers, and points in the requesting carrier's network. The rule that

defines interoffice transmission facilities, however, is less clear,

and could be read to require incumbent LECs to provide shared transport

between incumbent LECs' switches, or serving wire centers, and

requesting carriers' switches.

16. We therefore clarify here that incumbent LECs must offer only

dedicated transport, and not shared transport, between their switches,

or

[[Page 45582]]

serving wire centers, and requesting carriers' switches, as set forth

in the Local Competition Order. We also note that the Local Competition

Order expressly limited the requirement to provide unbundled

interoffice transport facilities to existing incumbent LEC facilities.

17. On reconsideration, we further clarify that incumbent LECs are

not required to provide shared transport between incumbent LEC switches

and serving wire centers. We stated above that shared transport must be

provided between incumbent LEC switches. Serving wire centers are

merely points of demarcation in the incumbent LEC's network, and are

not points at which traffic is switched. Traffic routed to a serving

wire center is traffic dedicated to a particular carrier. We thus

conclude that unbundled access to the transport links between incumbent

LEC switches and serving wire centers must only be provided by

incumbent LECs on a dedicated basis.

18. Finally, we note that, traditionally, shared facilities are

priced on a usage-sensitive basis, and dedicated facilities are priced

on a flat-rated basis. We believe that this usage-sensitive pricing

mechanism provides a reasonable and fair allocation of cost between the

users of shared transport facilities. For example, in the Access Charge

Reform Order (62 FR 40460 (July 29, 1997)), specifically the sections

dealing with rate structure issues for interstate access charges, we

required that the cost of switching, a shared facility, be recovered on

a per minute of use basis, while the cost of entrance facilities, which

are dedicated to a single interexchange carrier, be recovered on a

flat-rated basis. We note that several state commissions, in

proceedings conducted pursuant to section 252 of the Act, have required

incumbent LECs to offer shared transport priced on a usage-sensitive

basis. We acknowledge that, under the Eighth Circuit's decision, we may

not establish pricing rules for shared transport. However, in

situations where the Commission is required to arbitrate

interconnection agreements pursuant to subsection 252(e)(5), we intend

to establish usage-sensitive rates for recovery of shared transport

costs unless parties demonstrate otherwise.

B. Application of the Requirements of Section 251(d)(2) To Shared

Transport

19. Shared transport, as defined in this order, satisfies the two-

prong test set forth in section 251(d)(2) of the Act. Section 251(d)(2)

requires the Commission, in determining what network elements should be

made available under section 251(c)(3), to consider ``at a minimum,

whether (A) access to such network elements as are proprietary in

nature is necessary; and (B) the failure to provide access to such

network elements would impair the ability of the telecommunications

carrier seeking access to provide the services that it seeks to

offer.'' In the Local Competition Order, we held that an incumbent

could refuse to provide access to a network element pursuant to section

251(d)(2) only if the incumbent LEC demonstrated that ``the element is

proprietary and that gaining access to that element is not necessary

because the competing provider can use other, nonproprietary elements

in the incumbent LEC's network to provide service.'' We further held

that, under section 251(d)(2)(B), we must consider ``whether the

failure of an incumbent to provide access to a network element would

decrease the quality, or increase the financial or administrative cost

of the service a requesting carrier seeks to offer, compared with

providing that service over other unbundled elements in the incumbent

LEC's network.'' The Eighth Circuit affirmed the Commission's

interpretation of section 251(d)(2).

20. In the Local Competition Order, we concluded that, with respect

to transport facilities, ``the record provides no basis for withholding

these facilities from competitors based on proprietary

considerations.'' We also concluded that section 251(d)(2)(B) requires

incumbent LECs to provide access to shared interoffice facilities and

dedicated interoffice facilities. With respect to the unbundled local

switch, we held that, even assuming that switching may be proprietary,

at least in some respects, ``access to unbundled local switching is

clearly `necessary' under our interpretation of section 251(d)(2)(A).''

We also concluded that a requesting carrier's ability to offer local

exchange service would be ``impaired, if not thwarted,'' without access

to the unbundled local switch, and therefore, that section 251(d)(2)(B)

requires incumbent LECs to provide access to the unbundled local

switch.

21. Upon reconsideration, we herein affirm that incumbent LECs are

obligated under section 251(d)(2) to provide access to shared

transport, as we here define it, as an unbundled network element.

Parties in the record have not contended that interoffice transport

facilities are proprietary, and we have no basis for modifying our

prior conclusion that interoffice transport facilities are not

proprietary. Thus, there is no basis under section 251(d)(2)(A) for

incumbent LECs to refuse to provide interoffice transport facilities on

a shared as well as a dedicated basis.

22. We also note that the failure of an incumbent LEC to provide

access to all of its interoffice transport facilities on a shared basis

would significantly increase the requesting carriers' costs of

providing local exchange service and thus reduce competitive entry into

the local exchange market. In the Local Competition Order, we observed

that:

By unbundling various dedicated and shared interoffice

facilities, a new entrant can purchase all interoffice facilities on

an unbundled basis as part of a competing local network, or it can

combine its own interoffice facilities with those of the incumbent

LEC. The opportunity to purchase unbundled interoffice facilities

will decrease the cost of entry compared to the much higher cost

that would be incurred by an entrant that had to construct all of

its own facilities. An efficient new entrant might not be able to

compete if it were required to build interoffice facilities where it

would be more efficient to use the incumbent LEC's facilities.

We continue to find the foregoing statements to be true with respect to

shared as well as dedicated transport facilities. Requesting carriers

should have the opportunity to use all of the incumbent LEC's

interoffice transport facilities. Moreover, the opportunity to purchase

transport facilities on a shared basis, rather than exclusively on a

dedicated basis, will decrease the costs of entry.

23. We believe that access to transport facilities on a shared

basis is particularly important for stimulating initial competitive

entry into the local exchange market, because new entrants have not yet

had an opportunity to determine traffic volumes and routing patterns.

Moreover, requiring competitive carriers to use dedicated transport

facilities during the initial stages of competition would create a

significant barrier to entry because dedicated transport is not

economically feasible at low penetration rates. In addition, new

entrants would be hindered by significant transaction costs if they

were required to continually reconfigure the unbundled transport

elements as they acquired customers. We note that incumbent LECs have

significant economies of scope, scale, and density in providing

transport facilities. Requiring transport facilities to be made

available on a shared basis will assure that such economies are passed

on to competitive carriers. Further, if new entrants were forced to

rely on dedicated transport facilities, even at the earliest stages of

competitive entry, they would almost inevitably miscalculate the

capacity or routing

[[Page 45583]]

patterns. We recognize, however, that the need for access to all of the

incumbent LEC's interoffice facilities on a shared basis may decrease

as competitive carriers expand their customer base and have an

opportunity to identify traffic volumes and call routing patterns. We

therefore may revisit at a later date whether incumbent LECs continue

to have an obligation, under section 251(d)(2), to provide access to

all of their interoffice transmission facilities on a shared, usage

sensitive basis. We note that, if, in the future, competitive carriers

gain sufficient market penetration to justify obtaining dedicated

transport facilities, either through the use of unbundled elements or

through building their facilities, shared transport may no longer meet

the section 251(d)(2) requirements. In that event, the Commission can

evaluate at that time whether incumbent LECs must continue to provide

access to shared transport as a network element.

24. As noted above, although interoffice transport, as we define

the element pursuant to section 251(c)(3), refers to the transport

links in the incumbent LEC's network, access to those links on a shared

basis effectively requires a requesting carrier to utilize the routing

table contained in the incumbent LEC's switch. Ameritech contends that

the routing table contained in the switch, which is used in conjunction

with shared transport, is proprietary. Ameritech and other incumbent

LECs further allege that requesting carriers may obtain the functional

equivalent of shared transport either by purchasing transport as an

access service, or by purchasing dedicated transport facilities. These

parties thus contend that, under section 251(d)(2)(A), incumbent LECs

are not required to provide shared transport (including use of the

routing table contained in the switch) as a network element.

25. Issues regarding intellectual property rights associated with

network elements are before us in a separate proceeding. For purposes

of this Order only, we therefore assume without deciding that the

routing table is proprietary. We nevertheless conclude that section

251(d)(2) requires an incumbent LEC to provide access to both its

interoffice transmission facilities and to the routing tables contained

in the incumbent LEC's switches. We affirm our finding in the Local

Competition Order that transport provided as part of access service, or

as a wholesale usage service, is not a viable substitute for shared

transport as a network element. All incumbent LECs are not required to

offer transport as an access service on a stand alone basis.

Only Class A carriers are required, under our Expanded Interconnection

rules, to unbundle interstate transport service. Moreover, transport

service that incumbents offer under the Expanded Interconnection

tariffs may include only interstate transport facilities (transport

provided either via a tandem switch or direct trunked between a local

switch and the serving wire center), not interoffice transport

facilities directly connecting two local switches. In the Local

Competition Order, moreover, we expressly rejected the suggestion that

requesting carriers ``are not impaired in their ability to provide a

service * * * if they can provide the proposed service by purchasing

the service at wholesale rates from a LEC.''

C. Use of Shared Transport Facilities To Provide Exchange Access

Service

26. In this order on reconsideration, we clarify that requesting

carriers that take shared or dedicated transport as an unbundled

network element may use such transport to provide interstate exchange

access services to customers to whom it provides local exchange

service. We further clarify that, where a requesting carrier provides

interstate exchange access services to customers, to whom it also

provides local exchange service, the requesting carrier is entitled to

assess originating and terminating access charges to interexchange

carriers, and it is not obligated to pay access charges to the

incumbent LEC.

27. In the Local Competition Order, we held that, if a requesting

carrier purchases access to a network element in order to provide local

exchange service, the carrier may also use that element to provide

exchange access and interexchange services. We did not impose any

restrictions on the types of telecommunications services that could be

provided over network elements. We did not specifically consider in the

Local Competition Order, however, whether a requesting carrier may use

interoffice transport to provide exchange access service. We conclude

here that a requesting carrier may use the shared transport unbundled

element to provide exchange access service to customers for whom the

carrier provides local exchange service. We find that this is

consistent with our initial decision.

D. Response to Specific Arguments Raised by Parties

28. As discussed above, we define the unbundled network element of

shared transport under section 251(c)(3) as interoffice transmission

facilities, shared between the incumbent LEC and one or more requesting

carriers or customers, that connect end office switches, end office

switches and tandem switches, or tandem switches, in the incumbent

LEC's network. We exclude from this definition interoffice transmission

facilities that connect an incumbent LEC's switch and a requesting

carrier's switch, and those connecting an incumbent LEC's end office

switch, or tandem switch, and a serving wire center. This definition of

shared transport assumes the interconnection point between the two

carriers' networks, pursuant to section 251(c)(2), is at the incumbent

LEC's switch. This definition is consistent with the statutory

definition of network elements, which defines a network element as a

facility or equipment used in the provision of a telecommunications

service, including the features, functions, and capabilities provided

by means of such facility or equipment.

29. As an initial matter, we reject Ameritech's contention that, by

definition, network elements must be partly or wholly dedicated to a

customer. To the contrary, we held in the Local Competition Order that

some network elements, such as loops, are provided exclusively to one

requesting carrier, and some network elements, such as interoffice

transport provided on a shared basis, are provided on a minute-of-use

basis and are shared with other carriers. In the Local Competition

Order, we also identified signalling, call-related databases, and the

switch, as network elements that necessarily must be shared among the

incumbent and multiple competing carriers.

30. We also reject Ameritech's and BellSouth's contention that,

because WorldCom and other requesting carriers seek access to an

element--shared transport--that cannot be effectively disassociated

from another element--local switching, the requesting carriers are in

fact seeking access to a bundled service rather than to transport as a

network element unbundled from switching. As previously discussed,

several of the network elements we identified in the Local Competition

Order depend, at least in part, on other network elements. In

particular, although we identified the signalling network as a network

element, the information necessary to utilize signalling networks

resides in the switch, which we identified as a separate network

element. In addition, we required incumbent LECs, upon request, to

provide access to unbundled loops conditioned to provide, among other

things, digital services such as ISDN, even though the equipment used

[[Page 45584]]

to provide ISDN service typically resides in the local switch, rather

than in the loop. We thus find no basis for concluding that each

network element must be functionally independent of other network

elements.

31. We reject as well Ameritech's contention that a network element

must be identifiable as a limited or pre-identified portion of the

network. We find nothing in the statutory definition of network

elements that prohibits requesting telecommunications carriers from

seeking access to every transport facility within the incumbent's

network. Our definition of signalling as a network element does not

require requesting carriers to identify in advance a particular portion

of the incumbent LEC's signalling facilities, but instead permits

requesting carriers to obtain access to multiple signalling links and

signalling transfer points in the incumbent LEC's network on an as-

needed basis. We also reject Ameritech's assertion that shared

transport cannot be physically separated from switching. Both dedicated

and shared transport facilities are transport links between switches.

These links are physically distinct from the end office and tandem

switches themselves.

32. Although we conclude that shared transport is physically

severable from switching, incumbent LECs may not unbundle switching and

transport facilities that are already combined, except upon request by

a requesting carrier. Although, the Eighth Circuit struck down the

Commission's rule that required incumbent LECs to rebundle separate

network elements, the court nevertheless stated that it: ``upheld the

remaining unbundling rules as reasonable constructions of the Act,

because, as we have shown, the Act itself calls for the rapid

introduction of competition into the local phone markets by requiring

incumbent LECs to make their networks available to * * * competing

carriers.'' Among other things, the court left in effect Sec. 51.315(b)

of the Commission's rules, which provides that, ``[e]xcept upon

request, an incumbent LEC shall not separate requested network elements

that the incumbent LEC currently combines.'' Therefore, although

incumbent LECs are not required to combine transport and switching

facilities to the extent that those elements are not already combined,

incumbent LECs may not separate such facilities that are currently

combined, absent an affirmative request. In addition to violating

section 51.315(b) of our rules, such dismantling of network elements,

absent an affirmative request, would increase the costs of requesting

carriers and delay their entry into the local exchange market, without

serving any apparent public benefit. We believe that such actions by an

incumbent LEC would impose costs on competitive carriers that incumbent

LECs would not incur, and thus would violate the requirement under

section 251(c)(3) that incumbent LECs provide nondiscriminatory access

to unbundled elements. Moreover, an incumbent LEC that separates shared

transport facilities that are already connected to a switch would

likely disrupt service to its own customers served by the switch

because, by definition, the shared transport links are also used by the

incumbent LEC to serve its customers. Thus, incumbent LECs would seem

to have no network-related reason to separate network elements that it

already combines absent a request.

33. We likewise reject Ameritech's contention that purchasing

access to the switch as a network element does not entitle a carrier to

use the routing table located in that switch. According to Ameritech,

vendors provide switches that are capable of acting on routing

instructions, but the switch itself does not include routing

instructions; those instructions are added by the carrier after it

purchases the switch from the vendor and are contained in a routing

table resident in the switch. Ameritech asserts that its routing tables

are proprietary products, and ``are not a feature of the switch.'' In

the Local Competition Order, we determined that ``we should not

identify elements in rigid terms, but rather by function.'' Routing is

a critical and inseverable function of the local switch. One of the

most essential features a switch performs is to provide routing

information that sends a call to the appropriate destination. We find

no support in the statute, the Local Competition Order, or our rules

for Ameritech's assertion that the switch, as a network element, does

not include access to the functionality provided by an incumbent LEC's

routing table. In fact, the only question addressed in the Local

Competition Order was whether requesting carriers could obtain

customized routing, that is, routing different from the incumbent LEC's

existing routing arrangements.

34. We further find that access to unbundled switching is not

necessarily limited to the product the incumbent LEC originally

purchased from a vendor. As we noted in the Local Competition Order,

incumbent LECs may in some instances be required to modify or condition

a network element to accommodate a request under section 251(c)(3).

Moreover, we held that unbundled local switching includes access to the

vertical features of the switch, regardless of whether the vertical

features were included in the switch when it was purchased, or whether

the vertical features were purchased separately from the vendor or

developed by the incumbent. We held that network elements include

physical facilities ``as well as logical features, functions, and

capabilities that are provided by, for example, software located in a

physical facility such as a switch.'' We also note that the Eighth

Circuit affirmed the Commission's interpretation of the Act's

definition of ``network elements.'' The court stated that ``the Act's

definition of network elements is not limited to only the physical

components of a network that are directly used to transmit a phone call

from point A to point B'' and that the Act's definition explicitly made

reference to ``databases, signaling systems, and information sufficient

for billing and collection.'' Thus, just as databases and signaling

systems may include software created by the incumbent LEC, which must

be made available to competitive carriers purchasing those elements on

an unbundled basis, we believe that the routing table created by the

incumbent LEC that is resident in the switch must be made available to

requesting carriers purchasing unbundled switching. Finally, we note

that Ameritech is the only incumbent LEC that has argued in this record

that the routing table is not included in the unbundled local switching

element. Other incumbent LECs have stated that they offer shared

transport in conjunction with unbundled local switching. This suggests

that other incumbent LECs recognize that the routing table is a

feature, function, or capability of the switch.

35. We also disagree with Ameritech's and BellSouth's argument that

defining the unbundled network element shared transport as all

transport links between any two incumbent LEC switches would be

inconsistent with Congress's intention to distinguish between resale

services and unbundled network elements. Section 251(c)(3) requires

incumbent LECs to make available unbundled network elements at cost-

based rates; sections 251(c)(4) and 252(d)(3) require incumbent LECs to

make available for resale, at retail price less avoided costs, services

the incumbent LEC offers to retail users. In the Local Competition

Order, we held that a key distinction between section 251(c)(3) and

section 251(c)(4) is that a requesting carrier that obtains access to

[[Page 45585]]

unbundled network elements faces greater risks than a requesting

carrier that only offers services for resale. A requesting carrier that

takes a network element dedicated to that carrier, and recovered on a

flat-rated basis, must pay for the cost of the entire element,

regardless of whether the carrier has sufficient demand for the

services that the element is able to provide. The carrier thus is not

guaranteed that it will recoup the costs of the element. By contrast, a

carrier that uses the resale provision will not bear the risk of paying

for services for which it does not have customers. In particular, a

requesting carrier that takes an unbundled local switch must pay for

all of the vertical features included in the switch, even if it is

unable to sell those vertical features to end user customers.

Requesting carriers that purchase shared transport as a network element

to provide local exchange service must also take local switching, for

the practical reasons set forth herein, and consequently will be forced

to assume the risk associated with switching. A requesting carrier that

uses its own self-provisioned local switches, rather than unbundled

local switches obtained from an incumbent LEC, to provide local

exchange and exchange access service would use dedicated transport

facilities to carry traffic between its network and the incumbent LEC's

network. Thus, the only carrier that would need shared transport

facilities would be one that was using an unbundled local switch.

36. BellSouth's argument, that assessing a usage-sensitive rate for

shared transport would be inconsistent with the 1996 Act because it

would not reflect the manner in which costs are incurred, is similarly

unpersuasive. BellSouth's argument is premised on the assumption that

incumbent LECs would be required to provide shared transport over

facilities between the tandem switch and the serving wire center. In

this order, however, we make clear that incumbent LECs are required to

provide transport on a dedicated, but not on a shared basis, over

transport facilities between the incumbent LEC's tandem and the serving

wire center. Thus, BellSouth's concern is misplaced.

37. We also find that there is no element in the incumbent LEC's

network that is an equivalent substitute for the routing table. We

agree with Ameritech that requesting carriers could duplicate the

shared transport network by purchasing dedicated facilities. But in

that instance, requesting carriers would be forced to develop their own

routing instructions, and would not be utilizing a portion of the

incumbent LEC's network to substitute for the routing table. In the

Local Competition Order, we specifically rejected the suggestion that

an incumbent LEC is not required to provide a network element if a

requesting carrier could obtain the element from a source other than

the incumbent LEC. The Eighth Circuit affirmed the Commission's

conclusion.

38. Furthermore, we find that, at this stage of competitive entry,

limiting shared transport to dedicated transport facilities, as

Ameritech suggests, would impose unnecessary costs on new entrants

without any corresponding, direct benefits. AT&T and Ameritech have

both presented evidence regarding the costs of dedicated transport

facilities linking every end office and tandem in an incumbent LEC's

network as significant relative to the cost of ``shared transport.''.

For example, AT&T contends that the cost is $.041767 per minute for

dedicated transport plus associated non-recurring charges (NRCs). AT&T

claims that Ameritech would charge a total of $5008.58 per DS1

(including administrative charges and connection charges) and

$58,552.87 per switch (including customized routing and billing

development). AT&T argues that this compares with $.000776 per minute

for unbundled shared transport. Ameritech, on the other hand, contends

the use of tandem routed dedicated facilities cost is $.0031148 per

minute plus associated NRCs. Ameritech claims that the nonrecurring

charges per DS1 are $2769.27 (including administrative charges per

order). Ameritech states that other NRCs include two trunk port

connection charges ($770.29 initial, $29.16 subsequent), service

ordering charge per occasion ($398.72 initial, $17.37 subsequent),

billing development charge per switch ($35,328.87), custom routing

charge, per line class code per switch ($232.24), and a service order

charge ($398.73). Nevertheless, under either AT&T's or Ameritech's cost

calculations for dedicated transport, we conclude that the relative

costs of dedicated transport, including the associated NRCs, is an

unnecessary barrier to entry for competing carriers.

39. We also find that limiting shared transport to dedicated

facilities, as defined by Ameritech, would be unduly burdensome for new

entrants. First, we agree with MCI, AT&T, et al., that a new entrant

may not have sufficient traffic volumes to justify the cost of

dedicated transport facilities. Second, a new entrant entering the

local market with smaller traffic volumes would have to maintain

greater excess capacity relative to the incumbent LEC in order to

provide the same level of service quality (i.e., same level of

successful call attempts) as the incumbent LEC. See William W. Sharkey,

The Theory of Natural Monopoly 184-85, (1982) (``that for a given

number of circuits the economies [of scale] are more pronounced at

higher grades of service (lower blocking probability). The economics of

scale, however, decline substantially as the number of circuits

increases. Therefore for small demands a fragmentation of the network

could result in a significant cost penalty, because more circuits would

be required to maintain the same grade of service. At larger demands

the costs of fragmentation are less pronounced.'') (emphasis added). As

a new entrant gains market share and increased traffic volumes for

local service, however, the relative amount of excess capacity

necessary to prevent blocking should decrease. We do not rule out the

possibility, therefore, that, once new entrants have had a fair

opportunity to enter the market and compete, we might reconsider

incumbent LECs' obligations to provide access to the routing table.

40. As discussed above, requesting carriers may use shared

transport to provide exchange access service to customers for whom they

also provide local exchange service. Several competing carriers contend

that an interexchange carrier (IXC) has the right to select a

requesting carrier that has purchased unbundled shared transport to

provide exchange access service. The carriers further contend that, if

the IXC selects a requesting carrier, rather than the incumbent LEC, as

the exchange access provider, the competing carrier is entitled to bill

the IXC for the access services associated with shared transport. We

find that a requesting carrier may use shared transport facilities to

provide exchange access service to originate or terminate traffic to

its local exchange customers, regardless of whether the requesting

carrier or another carrier is the IXC for that traffic. We further

conclude that a requesting carrier that provides exchange access

service to another carrier is entitled to assess access charges

associated with the shared transport facilities used to transport the

traffic. We believe that this necessarily follows from our decision in

the Local Competition Order where we stated that:

[W]here new entrants purchase access to unbundled network

elements to provide exchange access services, whether or not they

are also offering toll services through such elements, the new

entrants may assess exchange access charges to IXCs originating or

terminating toll calls on those elements. In these circumstances,

incumbent LECs may not assess exchange access charges to IXCs

because the new entrants, rather than the

[[Page 45586]]

incumbents, will be providing exchange access services. * * *

We therefore find that requesting carriers that provide exchange access

using shared transport facilities to originate and terminate local

exchange calls may also use those same facilities to provide exchange

access service to the same customers to whom the requesting carrier is

providing local exchange service. Requesting carriers are then entitled

to assess access charges to interexchange carriers that use the shared

transport facilities to originate and terminate traffic to the

requesting carrier's customers.

E. Final Regulatory Flexibility Analysis

41. As required by the Regulatory Flexibility Act (RFA), the

Commission issued a Final Regulatory Flexibility Analysis (FRFA) in its

Local Competition Order in this proceeding. None of the petitions for

reconsideration filed in Docket No. 96-98 specifically address, or seek

reconsideration of, that FRFA. This present Supplemental Final

Regulatory Flexibility Analysis addresses the potential effect on small

entities of the rules adopted pursuant to the Third Order on

Reconsideration in this proceeding, supra. This Supplemental FRFA

incorporates and adds to our FRFA.

42. Need for and Objectives of this Third Order on Reconsideration

and the Rules Adopted Herein. The need for and objectives of the rules

adopted in this Third Order on Reconsideration are the same as those

discussed in the Local Competition Order's FRFA ``Summary Analysis of

Section V Access to Unbundled Network Elements.'' In general, our rules

adopted in Section V were intended to facilitate the statutory

requirement that incumbent local exchange carriers (LECs) are required

to provide nondiscriminatory access to unbundled network elements. In

this Third Order on Reconsideration, we grant in part and deny in part

the petitions filed for reconsideration and/or clarification of the

Local Competition Order, in order to further the same needs and

objectives. We conclude that the duty of incumbent LECs to provide

access to unbundled network elements also includes the provision of

``shared transport'' as an unbundled network element between end

offices, even if tandem switching is not used to route the traffic. We

also hold that the term ``shared transport'' refers to all transmission

facilities connecting an incumbent LEC's switches--that is, between end

office switches, between an end office switch and a tandem switch, and

between tandem switches. We conclude that incumbent LECs are obligated

under Section 251(d)(2) of the Communications Act of 1934, as amended,

47 U.S.C. Sec. 251(d)(2), to provide access to both their interoffice

transmission facilities and their routing tables contained in the

incumbent LEC's switches. Finally, we conclude that a requesting

carrier may use the shared transport unbundled element to provide

exchange access service to customers for whom the carrier provides

local exchange service.

43. Description and Estimate of the Number of Small Entities To

Which the Rules Will Apply. In determining the small entities affected

by our Third Order on Reconsideration for purposes of this Supplemental

FRFA, we adopt the analysis and definitions set forth in the FRFA in

our Local Competition Order. The RFA directs the Commission to provide

a description of and, where feasible, an estimate of the number of

small entities that might be affected by the rules we have adopted. The

RFA defines the term ``small entity'' as having the same meaning as the

terms ``small business,'' ``small organization,'' and ``small business

concern'' under Section 3 of the Small Business Act. A small business

concern is one which: (1) Is independently owned and operated; (2) is

not dominant in its field of operation; and (3) satisfies any

additional criteria established by the Small Business Administration

(SBA). The SBA has defined a small business for Standard Industrial

Classification (SIC) categories 4812 (Radiotelephone Communications)

and 4813 (Telephone Communications, Except Radiotelephone) to be an

entity with no more than 1,500 employees. Consistent with our FRFA and

prior practice, we here exclude small incumbent local exchange carriers

(LECs) from the definition of ``small entity'' and ``small business

concern.'' While such a company may have 1500 or fewer employees and

thus fall within the SBA's definition of a small telecommunications

entity, such companies are either dominant in their field of operations

or are not independently owned and operated. Out of an abundance of

caution, however, for regulatory flexibility analysis purposes, we will

consider small incumbent LECs within this present analysis and use the

term ``small incumbent LECs'' to refer to any incumbent LEC that

arguably might be defined by SBA as a small business concern.

44. In addition, for purposes of this Supplemental FRFA, we adopt

the FRFA estimates of the numbers of telephone companies, incumbent

LECs, and competitive access providers (CAPs) that might be affected by

the Local Competition Order. In the FRFA, we determined that it was

reasonable to conclude that fewer than 3,497 telephone service firms

are small entity telephone service firms or small incumbent LECs that

might be affected. We further estimated that there are fewer than 1,347

small incumbent LECs that might be affected. Finally, we estimated that

there were fewer than 30 small entity CAPs that would qualify as small

business concerns.

45. Summary of Projected Reporting, Recordkeeping and Other

Compliance Requirements. As a result of the rules adopted in the Third

Order on Reconsideration, we require incumbent LECs to provide

requesting carriers with access to the same shared transport for all

transmission facilities connecting incumbent LECs' switches. No party

to this proceeding has suggested that changes in the rules relating to

access to unbundled network elements would affect small entities or

small incumbent LECs. We determine that complying with this rule may

require use of engineering, technical, operational, accounting,

billing, and legal skills. For example, a new entrant may be required

to combine its own interoffice facilities with those of the incumbent

LEC, or be required to combine purchased unbundled network elements

into a package unique to its own needs.

46. Steps Taken To Minimize Significant Economic Impact on Small

Entities, and Alternatives Considered. As stated in our FRFA, we

determined that our decision to establish minimum national requirements

for unbundled elements should facilitate negotiations and reduce

regulatory burdens and uncertainty for all parties, including small

entities and small incumbent LECs. National requirements for unbundling

may allow new entrants, including small entities, to take advantage of

economies of scale in network design, which may minimize the economic

impact of our decision in the Local Competition Order. As stated above,

no petitioner has challenged this finding. We further find that our new

rules, which clarify the definition of ``shared transport,'' will

likely ensure that small entities obtain the unbundled elements that

they request.

47. Report to Congress: The Commission will send a copy of the

Third Order on Reconsideration, including this Supplemental FRFA, in a

report to be sent to Congress pursuant to the Small Business Regulatory

Enforcement Fairness Act of 1996, see 5 U.S.C. 801(a)(1)(A). A copy of

the Third Order on Reconsideration and this supplemental FRFA (or

summary

[[Page 45587]]

thereof) will also be published in the Federal Register, see 5 U.S.C.

604(b), and will be sent to the Chief Counsel for Advocacy of the Small

Business Administration.

IV. Ordering Clauses

48. Accordingly, it is ordered that, pursuant to sections 1-4, 201-

205, 214, 251, 252, and 303(r) of the Communications Act of 1934, as

amended, 47 U.S.C. 151-154, 201-205, 214, 251, 252, and 303(r), the

Third Order on Reconsideration is adopted.

49. It is further ordered that changes adopted on reconsideration

and the rule amendments will be effective September 29, 1997.

50. It is further ordered, pursuant to section 405 of the

Communications Act of 1934, as amended, 47 U.S.C. 405, and Sec. 1.106

of the Commission's rules, 47 CFR 1.106 (1995), that the petitions for

reconsideration filed by WorldCom, Inc. and the Local Exchange Carriers

Coalition are denied in part and granted in part to the extent

indicated above.

51. It is further ordered, that the Commission shall send a copy of

this Third Order on Reconsideration and Further Notice of Proposed

Rulemaking, including the associated Supplemental Final Regulatory

Flexibility Analysis and Initial Regulatory Flexibility Analysis, to

the Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 51

Communications common carriers, Network elements, Transport and

termination.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 51 of title 47 of the Code of Federal Regulations is amended

as follows:

PART 51--INTERCONNECTION

1. The authority citation for part 51 continues to read as follows:

Authority: Sections 1-5, 7, 201-05, 207-09, 218, 225-27, 251-54,

271, 48 Stat. 1070, as amended, 1077; 47 U.S.C. 151-55, 157, 201-05,

218, 225-27, 251-54, 271, unless otherwise noted.

2. Section 51.319 is amended by revising paragraph (d)(1) to read

as follows:

Sec. 51.319 Specific unbundling requirements.

* * * * *

(d) * * *

(1) Interoffice transmission facilities include:

(i) Dedicated transport, defined as incumbent LEC transmission

facilities dedicated to a particular customer or carrier that provide

telecommunications between wire centers owned by incumbent LECs or

requesting telecommunications carriers, or between switches owned by

incumbent LECs or requesting telecommunications carriers;

(ii) Shared transport, defined as transmission facilities shared by

more than one carrier, including the incumbent LEC, between end office

switches, between end office switches and tandem switches, and between

tandem switches, in the incumbent LEC's network;

* * * * *

3. Section 51.515 is amended by adding paragraph (d) to read as

follows:

Sec. 51.515 Application of access charges.

* * * * *

(d) Interstate access charges described in part 69 shall not be

assessed by incumbent LECs on each element purchased by requesting

carriers providing both telephone exchange and exchange access services

to such requesting carriers' end users.

[FR Doc. 97-22734 Filed 8-27-97; 8:45 am]

BILLING CODE 6712-01-P