Telephone Number Portability

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 52

[CC Docket No. 95-116; FCC 98-82]

Telephone Number Portability

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: On May 12, 1998, the Commission released a Third Report and

Order in CC Docket No. 95-115, adopting measures to distribute the

costs of long-term number portability among telecommunications

carriers. In this order, the Commission decides that telecommunications

carriers shall pay for the shared costs of the number portability

regional databases based on each telecommunications carrier's end-user

telecommunications revenues in each region, telecommunications carriers

shall bear their own carrier-specific costs directly related to

providing number portability, incumbent LECs have the option to recover

their carrier-specific costs directly related to providing number

portability through a five-year end user charge, as well as through

number portability query charges to other carriers, and unregulated

carriers may recover their carrier-specific costs directly related to

providing number portability in any lawful manner. This Third Report

and Order ensures that all telecommunications carriers bear the costs

of number portability in a competitively neutral manner.

EFFECTIVE DATE: July 29, 1998, except for Secs. 52.32(b) and

52.33(a)(1), which contain information collection requirements that are

not effective until approved by the Office of Management and Budget.

The Commission will publish a document in the Federal Register

announcing the effective date for those sections.

FOR FURTHER INFORMATION CONTACT: Lloyd Collier at (202) 418-2712, or

Neil Fried at (202) 418-1865, Competitive Pricing Division, Common

Carrier Bureau.

SUPPLEMENTARY INFORMATION: This summarizes the Commission's Third

Report and Order in CC Docket No. 95-116, In the Matter of Telephone

Number Portability, FCC 98-82, RM 8535, adopted May 5, 1998, and

released May 12, 1998. The file in its entirety is available for

inspection and copying during the weekday hours of 9 a.m. to 4:30 p.m.

in the Commission's Reference Center, room 239, 1919 M St., N.W.,

Washington D.C., or copies may be purchased from the Commission's

duplicating contractor, ITS, Inc. 1231 20th St., N.W., Washington, D.C.

20036, phone (202) 857-3800.

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ANALYSIS OF PROCEEDING

I. Background

A. The Provision of Long-Term Number Portability

The Telecommunications Act of 1996 amends the 1934 Act to provide

for a pro-competitive, de-regulatory national policy framework designed

to accelerate rapidly private sector deployment of advanced

telecommunications and information technologies and services to all

Americans by opening all telecommunications markets to competition.

Congress added section 251(b)(2) to the 1934 Act, which requires all

LECs, both incumbents and new entrants, ``to provide, to the extent

technically feasible, number portability in accordance with

requirements prescribed by the Commission.'' In light of Congress'

number portability mandate, the Commission released a combined First

Report and Order (Order) & Further Notice of Proposed Rulemaking

(Further Notice) (61 FR 38605, July 25, 1996) in July 1996 to begin

implementing number portability. Without number portability, customers

ordinarily cannot change their local telephone companies unless they

change telephone numbers. Under the existing network architecture and

the North American Numbering Plan (NANP), a telephone number functions

like an address: every number is associated with an individual switch

operated by a particular local telephone company in a specific

geographic area. The area code, also called the Numbering Plan Area

(the NPA), identifies the general geographic area within which the

switch provides service. The next three digits of the telephone number

(the NXX) identify the switch that serves the customer. The last four

digits identify the specific telephone line serving the customer's

location. Carriers use this ten-digit number to connect a telephone

call to the called party. Thus, if a customer changes local telephone

companies and receives service at the same location from a different

telephone company providing service from a different switch, the

customer's new local telephone company typically must assign the

customer a new seven-digit number (NXX code plus line number)

associated with the new switch and new telephone line.

2. Number portability technology allows customers to retain their

telephone numbers when changing local service providers. Although the

Commission did not mandate a specific long-term number portability

method, most carriers intend to provide long-term number portability

through a location routing number (LRN) architecture. Under an LRN

architecture, each switch is assigned a unique ten-digit LRN, the first

six digits of which identify the location of that switch. Each

customer's telephone number is matched in a regional database with the

LRN for the switch that currently serves that telephone number. Each

database serves an area that corresponds to one of the original

regional Bell Operating Company (RBOC) service territories. Neutral

third parties, called local number portability administrators (LNPAs),

will administer these regional databases.

3. When a customer changes from one LEC to another, the carrier

that wins the customer will ``port'' the customer's number from the

former carrier by electronically transmitting (uploading) the new LRN

to the administrator of the relevant regional database. This will pair

the customer's original telephone number with the LRN for the switch of

the new carrier, allowing the customer to retain the original telephone

number. The regional database administrators will then electronically

transmit (download) LRN updates to carrier-operated local service

management systems (LSMSs). Each carrier will distribute this

information to service control points (SCPs) or signal transfer points

(STPs) that the carrier will use to store and process data for

providing number portability.

4. For a carrier to route an interswitch telephone call to a

location where number portability is available, the carrier must

determine the LRN for the switch that serves the terminating telephone

number of the call. Once number portability is available for an NXX,

carriers must ``query'' all interswitch calls to that NXX to determine

whether the terminating customer has ported the telephone number.

Carriers will accomplish this by sending a signal over the SS7 network

to retrieve from an SCP or STP the LRN associated with the called

telephone number. The industry has proposed, and the Commission has

endorsed, an ``N minus one'' (N-1) querying protocol. Under this

protocol, the N-1 carrier will be responsible for the query, where

``N'' is the entity terminating the call to the end user, or a network

provider contracted by the entity to provide tandem access. Thus the N-

1 carrier (i.e. the last carrier before the terminating carrier) for a

local call will usually be the calling customer's local service

provider; the N-1 carrier for an interexchange call will usually be the

calling customer's interexchange carrier (IXC). An N-1 carrier may

perform its own querying, or it may arrange for other carriers or third

parties to provide querying services on its behalf.

5. To route a local call under this system, the originating local

service provider will examine the seven-digit number that its customer

dialed, for example ``456-7890.'' If the called telephone number is on

the originating switch (i.e. an intraswitch call), the originating

local service provider will simply complete the call. If the call is

interswitch, the originating local service provider will compare the

NXX, ``456,'' with its table of NXXs for which number portability is

available. If ``456'' is not such an NXX, the originating local service

provider will treat the call the same as it did before the existence of

long-term number portability. If it is an NXX for which portability is

available, the originating local service provider will add the NPA, for

instance ``123,'' to the dialed number and query ``(123) 456-7890'' to

an SCP containing the LRNs downloaded from the relevant regional

database. The SCP will return the LRN for ``(123) 456-7890'' (which

would be ``(123) 456 XXXX'' if the customer has not changed carriers,

or something like ``(123) 789-XXXX'' if the customer has changed

carriers), and use the LRN to route the call to the appropriate switch

with an SS7 message indicating that it has performed the query. The

terminating carrier will then complete the call. To route an

interexchange call, the originating local service provider will hand

the call off to the IXC and the IXC will undertake the same procedure.

B. Prior Commission Decisions

6. The Order, as modified by the First Memorandum Opinion and Order

on Reconsideration (First Reconsideration Order) ( 62 FR 18280, April

15, 1997), requires LECs to implement long-term number portability: (1)

in Chicago, Philadelphia, Atlanta, New York, Los Angeles, Houston, and

Minneapolis--the largest metropolitan statistical area (MSA) in each of

the seven RBOC regions'between October 1, 1997, and March 31, 1998; (2)

in the rest of the 100 largest MSAs in quarterly stages between January

1, 1998, and December 31, 1998; and (3) thereafter in switches outside

the 100 largest MSAs, within six months of a request by a

telecommunications carrier. A number of carriers have received

extensions of the March 31, 1998, implementation deadline for certain

areas ranging from two to five months.

7. The Commission explained that the statutory definition of number

portability requires LECs to implement

[[Page 35152]]

number portability in such a way that LEC customers can keep their

telephone numbers when they switch to any other telecommunications

carrier, including, therefore, when they switch to a commercial mobile

radio services (CMRS) provider. The Commission also required in the

Order that certain types of CMRS providers be able by December 31,

1998, to route calls to any ported numbers and be able by June 30,

1999, to allow their own customers to take their telephone numbers to

other carriers. By its language, section 251(b)(2) requires only that

LECs provide number portability, and the 1934 Act, as amended, excludes

from the definition of ``local exchange carrier'' those entities

engaged in the provision of a commercial mobile service under section

332(c), except to the extent that the Commission finds that such

service should be included in the definition of such term. Although the

Commission declined in the Order to address whether CMRS providers are

LECs, the Commission exercised authority under sections 1, 2, 4(i), and

332 to require three categories of CMRS providers'cellular providers,

broadband personal communications service (PCS) providers, and covered

specialized mobile radio (SMR) providers'to provide number portability.

The Commission concluded that requiring these CMRS providers to provide

number portability would serve the public interest by promoting

competition between and among local wireless and wireline carriers, as

well as among providers of interstate access service.

8. In the Order, the Commission exempted some CMRS providers from

the obligation to provide number portability: paging and other

messaging service providers, private paging service providers, business

radio service providers, providers of land mobile service on 220-222

MHz, public coast stations, public land mobile service providers, 800

MHz air-ground radio-telephone service providers, offshore radio

service providers, mobile satellite service providers, narrowband PCS

service providers, local SMR licensees, and local multipoint

distribution service (LMDS) providers. The Commission reasoned that

such carriers currently have little impact on competition for local

service.

9. In the First Reconsideration Order, the Commission concluded

that within the 100 largest MSAs, LECs must provide number portability

only in switches for which another carrier has specifically and

reasonably requested the provision of number portability. The

Commission reasoned that such an approach allows carriers to focus

their resources where competitors plan to enter, which is where number

portability is likely to have the most impact in the short run on the

development of competition for local services. Structuring

implementation in this fashion reduces costs, eases the demands on

software vendors, and encourages efficient deployment, network

planning, and testing. The Commission emphasized, however, that all

carriers, even those operating portability-incapable switches, are

still responsible for properly routing calls to telephone numbers in

locations where number portability is available. Carriers can meet that

responsibility either by routing the call to one of their switches that

is capable of performing the necessary database query, or by arranging

for another carrier or a third party to query the database or route the

call.

10. In the Second Report and Order (62 FR 48774, September 17,

1997), the Commission determined that if an N-1 carrier arranges with

another entity to perform queries on the carrier's behalf, that other

entity may charge the N-1 carrier in accordance with requirements to be

established in this Third Report and Order. The Commission also noted

that when an N-1 carrier fails to ensure that a call is queried, the

call might inadvertently be routed by default to the LEC that

originally served the telephone number. If the number was ported, the

LEC incurs costs in redirecting the call. This could happen, for

example, if there is a technical failure in the N-1 carrier's ability

to query, or if the N-1 carrier fails to ensure that its calls are

queried, either through its own query capability or through an

arrangement with another carrier or third-party. The Commission

determined in the Second Report and Order that if a LEC performs

queries on default-routed calls, the LEC may charge the N-1 carrier in

accordance with requirements to be established in this Third Report and

Order. The Commission determined further that it would allow LECs to

block default-routed calls, but only in specific circumstances when

failure to do so is likely to impair network reliability. The

Commission also said that it would require LECs to apply this blocking

standard to calls from all carriers on a nondiscriminatory basis.

II. The Statutory Framework

A. Federal/State Jurisdiction

11. We conclude that section 251(e)(2) requires the Commission to

ensure that carriers bear the costs of providing long-term number

portability on a competitively neutral basis for both interstate and

intrastate calls. In reaching this conclusion, we note that section

251(e)(2) expressly and unconditionally grants the Commission authority

to ensure that carriers bear the costs of providing number portability

on a competitively neutral basis.

12. Consequently, we find that section 251(e)(2) authorizes the

Commission to provide the distribution and recovery mechanism for all

the costs of providing long-term number portability. We conclude that

an exclusively federal recovery mechanism for long-term number

portability will enable the Commission to satisfy most directly its

competitive neutrality mandate, and will minimize the administrative

and enforcement difficulties that might arise were jurisdiction over

long-term number portability divided. Further, such an approach

obviates the need for state allocation of the shared costs of the

regional databases, a task that would likely be complicated by the

databases' multistate nature. Under the exclusively federal number

portability cost recovery mechanism, incumbent LECs' number portability

costs will not be subject to jurisdictional separations. Instead, we

will allow incumbent LECs to recover their costs pursuant to

requirements we establish in this Third Report and Order.

B. Scope of Section 251(e)(2)

13. We interpret the terms of section 251(e)(2) in ways that will

best implement its goals. The 1996 Act amended the 1934 Act to provide

for a pro-competitive, de-regulatory national policy framework and to

open all telecommunications markets to competition. Section 251(b)(2)

furthers those congressional goals by requiring all LECs to provide

number portability so that subscribers of local telephone service can

retain their telephone numbers when changing carriers. At the same

time, by requiring the Commission to ensure that all telecommunications

carriers bear on a competitively neutral basis the costs of providing

number portability, section 251(e)(2) seeks to prevent those costs from

themselves undermining competition.

14. We conclude that ``the cost[s] of establishing `` number

portability'' to be borne on a competitively neutral basis include the

costs that LECs incur to meet the obligations imposed by section

251(b)(2), as well as the costs other telecommunications carriers'such

as IXCs and CMRS providers'incur for the industry-wide solution to

local number portability. 1 The Act defines number

[[Page 35153]]

portability as the ability of users of telecommunications services to

retain, at the same location, existing telecommunications numbers

without impairment of quality, reliability, or convenience when

switching from one telecommunications carrier to another. Thus, ``the

costs of number portability'' are the costs of enabling

telecommunications users to keep their telephone numbers without

degradation of service when they switch carriers. Such costs include

the costs a carrier incurs to make it possible to transfer a telephone

number to another carrier, as well as the costs involved in making it

possible to route calls to customers who have switched carriers (i.e.,

the costs involved in making the N-1 querying protocol possible). IXCs

and CMRS providers, as well as LECs, incur these costs.

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\1\ Under the N-1 protocol recommended by the industry under the

auspices of the NANC, and the Commission's requirements for the

provision of long-term number portability, almost all

telecommunications carriers'including LECs, IXCs, and CMRS

providers'will incur costs of number portability.

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15. We also adopt the tentative conclusion in the Further Notice

that costs not directly related to providing number portability, as

defined further below, are not costs of providing number portability.

Consequently, such costs need not ``be borne by all telecommunications

carriers on a competitively neutral basis'' under section 251(e)(2).

Section 251(e)(2) requires that the costs of providing number

portability be borne on a competitively neutral basis. Costs not

directly related to providing number portability encompass a wide range

of costs that carriers incur to provide telecommunications functions

unrelated to number portability. We find no indication that Congress

intended to place such costs within the scope of the competitive

neutrality requirement of section 251(e)(2). Because costs not directly

related to providing number portability are not subject to 251(e)(2),

the Commission is not obligated under that section to create special

provisions to ensure that they are borne on a competitively neutral

basis.

16. We also conclude that section 251(e)(2) requires the Commission

to ensure that number portability costs are distributed among, as well

as recovered by, carriers on a competitively neutral basis. Despite the

Commission's tentative conclusion that section 251(e)(2) only applies

to the distribution of number portability costs, we now find ambiguous

the scope of the language requiring that costs ``be borne * * * on a

competitively neutral basis.'' We find further that reading section

251(e)(2) as applying to both distribution and recovery best achieves

the congressional goal of ensuring that the costs of providing number

portability do not restrict the local competition that number

portability is intended to encourage. Because the manner in which

carriers recover the costs of providing number portability could affect

their ability to compete, we cannot ensure that number portability

costs are ``borne by all telecommunications carriers on a competitively

neutral basis'' unless we address both distribution and recovery. If

the Commission ensured the competitive neutrality of only the

distribution of costs, carriers could effectively undo this

competitively neutral distribution by recovering from other carriers.

For example, an incumbent LEC could redistribute its number portability

costs to other carriers by seeking to recover them in increased access

charges to IXCs. Therefore, we find that section 251(e)(2) requires the

Commission to ensure that both the distribution and recovery of

intrastate and interstate number portability costs occur on a

competitively neutral basis.

C. Competitive Neutrality

17. We adopt the Commission's tentative conclusion to apply to

long-term number portability the Order's definition of competitive

neutrality as requiring that the cost of number portability borne by

each carrier does not affect significantly any carrier's ability to

compete with other carriers for customers in the marketplace. Applying

this definition will ensure that the cost of implementing number

portability does not undermine the goal of the 1996 Act to promote a

competitive environment for the provision of local communications

services.

18. We also adopt the Commission's tentative conclusion to apply to

long-term number portability the two-part test the Commission developed

to determine whether carriers will bear the interim costs of number

portability on a competitively neutral basis. Under this test, the way

carriers bear the costs of number portability: (1) must not give one

service provider an appreciable, incremental cost advantage over

another service provider when competing for a specific subscriber, and

(2) must not disparately affect the ability of competing service

providers to earn a normal return.

19. Accordingly, we adopt for purposes of long-term number

portability the Order's definition of competitive neutrality as

requiring that the cost of number portability borne by each carrier

does not affect significantly any carrier's ability to compete with

other carriers for customers in the marketplace. We also adopt the two-

part test for determining whether this definition is met. We apply this

interpretation of competitive neutrality to the shared costs of

providing number portability below. We find it unnecessary to address

whether to apply our competitive neutrality principles to states that

opt out of the regional database plan because no state elected to opt

out by the July 1, 1997, deadline. We apply the interpretation of

competitive neutrality to the carrier-specific costs directly related

to providing number portability below.

III. Categorization of Costs

20. We adopt the Commission's tentative conclusion to divide the

costs raised by this proceeding into three categories: (1) shared

costs; (2) carrier-specific costs directly related to providing number

portability; and (3) carrier-specific costs not directly related to

providing number portability. The division of costs between shared

costs and carrier-specific costs directly related to providing number

portability recognizes that some costs of providing number portability

are incurred by regional database administrators, while others are

incurred by carriers in the first instance. The division between

carrier-specific costs directly related to providing number portability

and carrier-specific costs not directly related to providing number

portability recognizes that some component of the costs carriers incur

will provide carriers with benefits unrelated to number portability.

21. We adopt the Commission's tentative definition of shared costs

as costs incurred by the industry as a whole, such as those incurred by

the third-party administrator to build, operate, and maintain the

databases needed to provide number portability. We also conclude that

once the shared costs are allocated they are attributable to specific

carriers, at which point we will treat them as carrier-specific costs

directly related to providing number portability.

22. We also adopt the Commission's tentative subcategorization of

the shared costs into nonrecurring costs, recurring costs, upload

costs, and download costs. We clarify, however, that the shared upload

and download costs include only the costs that the database

administrators incur to process uploads and downloads; the costs that

the carriers incur individually to process uploads and downloads are

carrier-specific costs directly related to providing number

portability.

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23. We further conclude that query costs are not shared costs

initially incurred by the regional database administrators, but are

carrier-specific costs directly related to providing number

portability. At the time of the Further Notice, the Commission's

understanding had been that the regional administrators might perform

queries for carriers. In that case, query costs might have constituted

shared costs because the database administrators would have incurred

costs for the industry as a whole, and the costs would need to be

allocated among individual carriers. The industry has chosen, however,

not to adopt this approach to number portability. Instead, the N-1

carrier will incur all querying costs individually in the first

instance, either by querying its own copy of data downloaded from the

regional databases, or by arranging for the querying of such a database

copy maintained by another carrier or other third party. Because the

regional database administrators will not perform queries on behalf of

carriers, query costs are more appropriately considered carrier-

specific costs directly related to providing number portability.

24. We conclude that carrier-specific costs directly related to

providing number portability are limited to costs carriers incur

specifically in the provision of number portability services, such as

for the querying of calls and the porting of telephone numbers from one

carrier to another. Costs that carriers incur as an incidental

consequence of number portability, however, are not costs directly

related to providing number portability.

25. We reject the requests of some commenters that we classify the

entire cost of an upgrade as a carrier-specific cost directly related

to providing number portability just because some aspect of the upgrade

relates to the provision of number portability. Carriers incur costs

for software generics, switch hardware, and OSS, SS7 or AIN upgrades to

provide a wide range of services and features. Consequently, only a

portion of such joint costs are carrier-specific costs directly related

to providing number portability. Thus, we will consider as subject to

the competitive neutrality mandate of section 251(e)(2) all of a

carrier's dedicated number portability costs, such as for number

portability software and for the SCPs and STPs reserved exclusively for

number portability. We will also consider as carrier-specific costs

directly related to the provision of number portability that portion of

a carrier's joint costs that is demonstrably an incremental cost

carriers incur in the provision of long-term number portability.

Apportioning costs in this way will further the goals of section

251(e)(2) by recognizing that providing number portability will cause

some carriers, including small and rural LECs, to incur costs that they

would not ordinarily have incurred in providing telecommunications

service. At the same time, this approach recognizes that some upgrades

will enhance carriers' services generally, and that at least some

portion of such upgrade costs are not directly related to providing

number portability.

26. Because carrier-specific costs directly related to providing

number portability only include costs carriers incur specifically in

the provision of number portability, carriers may not use general

overhead loading factors in calculating such costs. Carriers already

allocate general overhead costs to their rates for other services, and

allowing general overhead loading factors for long-term number

portability might lead to double recovery. Instead, carriers may

identify as carrier-specific costs directly related to providing long-

term number portability only those incremental overheads that they can

demonstrate they incurred specifically in the provision of long-term

number portability.

27. As discussed below, we are permitting incumbent LECs to recover

their number portability costs in federally tariffed end-user charges

and query services. To facilitate determination of the portion of joint

costs carriers shall treat as carrier-specific costs directly related

to providing number portability, and to facilitate evaluation of the

cost support that carriers will file in their federal tariffs, we are

requesting that carriers and interested parties file comments by August

3, 1998 proposing ways to apportion the different types of joint costs.

Carriers and interested parties may file reply comments by September

16, 1998. We will delegate authority to the Chief, Common Carrier

Bureau, to determine appropriate methods for apportioning joint costs

among portability and nonportability services, and to issue any orders

to provide guidance to carriers before they file their tariffs, which

are to take effect no earlier than February 1, 1999.

28. We decline to create special cost categories for the number

portability costs of small and rural carriers. The Commission's

definitions of carrier-specific costs directly and not directly related

to providing number portability will enable all carriers, including

small and rural carriers, as well as carriers providing Extended Area

Service, to identify the costs subject to section 251(e)(2). The three

cost categories the Commission has created account for all potential

number portability costs and provide workable distinctions for the

purposes of implementing section 251(e)(2).

29. Creating unique cost categories for wireless carriers is also

unnecessary at this time. The Commission's definitions are not tied to

unique technological constraints of wireline communications, and

nothing in the record leads us to conclude that the three cost

categories are too narrow to apply to the number portability costs of

wireless carriers. Wireless carriers, like wireline carriers, will

depend upon the regional databases, and the record does not suggest

that the costs of the regional databases are disproportionately

affected by any one industry segment.

IV. Costs of the Regional Databases

A. Distribution of Shared Costs: Allocation v. Usage-Based Rates

30. We require telecommunications carriers to pay for the database

administrators' nonrecurring, recurring, upload, and download costs

pursuant to an allocator, which we select below, rather than on a

usage-sensitive basis. We have used the two-prong competitive

neutrality test to ensure that the allocator we choose distributes

these costs on a competitively neutral basis. Once these shared costs

are distributed to telecommunications carriers, we treat each carrier's

portion of the costs as a carrier-specific cost directly related to

providing number portability. Because telecommunications carriers will

recover these costs as carrier-specific costs directly related to

providing number portability, which we discuss below, we need not

address their recovery here.

31. Distributing the shared costs among telecommunications carriers

in proportion to database use would shift these costs to

telecommunications carriers that win more customers because such

carriers will perform more uploads. At the outset of number

portability, these carriers are more likely to be competitive LECs.

Consequently, usage-sensitive distribution of the shared costs could

give one service provider an appreciable, incremental cost advantage

over another service provider when competing for a specific subscriber,

as well as disparately affect the ability of competing service

providers to earn a normal return. Although the record does not show

conclusively that usage-based charges would hamper materially a

carrier's ability to compete for subscribers, we

[[Page 35155]]

believe it prudent at this early stage in the deployment of number

portability to minimize such risk.

32. Moreover, assessing shared costs on a usage-sensitive basis

could discourage carriers from performing uploads and downloads, or at

least penalize those carriers that do so more frequently. The entire

industry benefits from the maintenance of reliable regional databases

for providing number portability: unless carriers download data, they

will be unable to terminate traffic to the appropriate end-user; unless

carriers upload ported numbers to the databases, the databases will be

inaccurate, making downloads useless for current and future database

participants alike. Thus, all carriers that port telephone numbers and

all carriers that terminate calls to portability-capable NXXs depend on

the timely uploading and downloading of information to and from the

regional databases to ensure an accurate database and the proper

routing of telephone calls. Furthermore, all telecommunications

carriers that depend on the availability of telephone numbers will

benefit from number portability because it allows subscribers to retain

their telephone numbers when changing local service providers, and

because it facilitates the conservation of telephone numbers through

number pooling.

33. We will not adopt a separate distribution methodology for

wireless carriers. The record indicates that wireless carriers will use

the regional databases in the same manner as wireline carriers.

Consequently, we see no reason to treat wireless carriers differently

than wireline carriers with respect to the distribution of the shared

costs.

B. The Allocator

34. As part of its management duties under Sec. 52.26 of the

Commission's Rules, the LNPA of each regional database must collect

sufficient revenues to fund that database. We will require the LNPA of

each regional database to do this by allocating the costs of each

regional database among carriers in proportion to each carrier's

intrastate, interstate, and international end-user telecommunications

revenues attributable to that region. The Commission adopted end-user

telecommunications revenues in the Universal Service Order (62 FR

32862, June 17, 1997) as the assessment base for determining

contributions to universal support mechanisms. We will require carriers

to include intrastate, interstate, and international revenues in

calculating end-user revenues because number portability will affect

all such services. An end-user telecommunications revenue allocator is

similar to a retail-revenues allocator in that both are based on

telecommunications revenues that carriers collect from end-users.

Unlike retail-revenues, however, end-user telecommunications revenues

includes revenues derived from subscriber line charges

(SLCs).2 End-user telecommunications revenues also include

revenues collected from carriers that purchase telecommunications

services for their own internal use.

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\2\ The SLC is a flat monthly per-line rate that the end user

pays.

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35. The end-user telecommunications revenue allocator meets the

two-prong competitive neutrality test. First, the allocator will not

give one service provider an appreciable, incremental cost advantage

when competing for a subscriber. Because the end-user

telecommunications revenue allocator will distribute the shared costs

of the regional databases to each carrier in proportion to that

carrier's end-user revenues, it will cost carriers approximately the

same increase in shared costs to win a specific subscriber. For

example, if one of two LECs wins a third LEC's subscriber, whichever of

the two LECs wins the subscriber will win the end-user revenue that

subscriber generates, which will increase its allocated portion of the

shared costs. Because the subscriber is likely to use approximately the

same amount of local service regardless which of the two competing LECs

provides service to the subscriber, the incremental shared cost one of

the two LECs would experience if it had won the subscriber would be

about the same as the incremental shared cost the other would

experience if it won the subscriber. This increase would also

approximately equal the decrease in shared costs the third carrier

would experience, having lost the subscriber. These amounts may not be

exactly the same because each of the three carriers may have different

rates and may not collect exactly the same revenue from that

subscriber. The difference, however, will not be significant enough to

create an appreciable, incremental cost disadvantage. Furthermore, any

difference will not be caused by providing number portability, but by

differences in the underlying efficiency, services, and rates of each

of the carriers. Thus we believe the allocator will not itself create

an appreciable, incremental cost advantage that was not already present

even absent number portability.

36. Second, allocating shared costs in proportion to end-user

revenues will prevent the shared costs from disparately affecting the

ability of carriers to earn a normal return. Because carriers'

allocations of the shared costs will vary directly with their end-user

revenues, their share of the regional database costs will increase in

proportion to their customer base. Thus, no carrier's portion of the

shared costs will be excessive in relation to its expected revenues,

and its allocated share will only increase as it increases its revenue

stream. Consequently, the end-user revenues allocator will not

disparately affect competing carriers' abilities to earn a normal

return. An end-user revenues allocator will also be easy to administer

because carriers already track their sales to end-users for billing

purposes, and will be familiar with the end-user revenues allocator

from its use for universal service support contributions. Although an

end-user revenues allocator will relieve pure wholesalers, which have

no end-user revenue, from directly bearing shared costs, the end-user

method does not exclude wholesale revenues from the revenue base that

determines carriers' shared costs. As the Commission explained in the

Universal Service Order, wholesale charges are built into retail rates,

and thus the allocator still reflects wholesale revenue. This is

competitively neutral because it avoids double-counting revenues, and

because wholesale carriers are not competing with retail carriers for

end users in the marketplace.

C. Carriers Required To Share the Costs of the Regional Databases

37. We will require allocation of the shared costs among all

telecommunications carriers because section 251(e)(2) states that

``[t]he cost of establishing * * * number portability shall be borne by

all telecommunications carriers on a competitively neutral basis.'' Our

end-user revenues allocator, by its nature, does not reach carriers,

such as pure wholesalers, that do not have end-user revenues. Because

section 251(e)(2) requires all carriers to bear the costs of number

portability on a competitively neutral basis, we will require carriers

that do not have end-user revenues to pay $100 per year per region as

their statutory share of the shared costs. We believe that $100

represents a fair contribution for carriers that do not have end-user

revenues, but can revisit this issue should it become necessary. This

fee will not give any such carriers an appreciable, incremental cost

advantage when competing for a

[[Page 35156]]

subscriber because such carriers do not compete for end-user customers.

Moreover, this charge will be the same for all such carriers. Thus, it

will not create any disadvantage to the extent these carriers are

competing with each other. This fee is also not likely to disparately

affect the ability of competing carriers to earn a normal return

because such a nominal charge is unlikely to affect a carrier's return

and, again, because all such carriers will face the same charge.

Consequently, such a fee is competitively neutral.

D. Regional v. National Allocation of Regional Database Costs

38. We will require telecommunications carriers to bear the shared

costs on a regional basis because such a plan is most consistent with

the regional nature of the databases, and because a national approach

would require designation of a national administrator. As part of its

duties established in Sec. 52.26 of the Commission's Rules,3

each local number portability administrator of a regional database

shall collect sufficient revenues from all telecommunications carriers

providing telecommunications service in areas that regional database

serves to fund the operation of that regional database. Thus, after

subtracting the charges it collects from telecommunications carriers

with no end-user revenues, each database administrator shall distribute

the remaining shared costs based upon each remaining telecommunications

carrier's proportion of the end-user revenues collected by all

telecommunications carriers in that region. To apply the end-user

revenues allocator, administrators may request regional end-user

revenues data from telecommunications carriers once a year. We direct

telecommunications carriers to comply with such requests. One of the

objectives of the biennial review of our regulations required under the

Communications Act is to consider ways to reduce filing burdens on

carriers. The Commission may further consider in the biennial review or

other proceedings how best to administer the allocation of the shared

costs.

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

\3\ These duties include all management tasks required to run

the regional databases.

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39. We are aware that some carriers have already begun paying their

regional database administrators based on temporary agreements

negotiated by the regional LLCs. We will permit, but not require, each

regional administrator and LLC to adjust prospectively through a

reasonable true-up mechanism the future bills of those carriers that

participated in such agreements so that the shared costs each such

carrier will have contributed approaches what those carriers would have

paid had an end-user telecommunications revenue allocator been in place

when carriers started paying the regional administrators. Permitting

the regional administrators and LLCs to perform such true-ups ensures

that costs are recovered from carriers in a manner consistent with our

rules, while accounting for the period prior to the effective date of

our rules and recognizing that agreements may have been reasonable

mechanisms to recover regional database costs on a temporary basis

pending this Third Report and Order.

V. Carrier-Specific Costs Directly Related to Providing Number

Portability

40. We will allow but not require incumbent LECs subject to rate-

of-return or price-cap regulation to recover their carrier-specific

costs directly related to providing number portability through a

federal charge assessed on end-users. As noted, we recognize consumers'

sensitivity to end-user charges. Under the circumstances before us,

however, we conclude that allowing carriers to recover number

portability costs in this manner will best serve the goals of the

statute. The Commission has only two sources from which it may allow

carriers to recover costs in the federal jurisdiction: charges IXCs pay

LECs for exchange access, and end-user charges. Because number

portability is not an access-related service and IXCs will incur their

own costs for the querying of long-distance calls, we will not allow

LECs to recover long-term number portability costs in interstate access

charges. Nor would it likely be competitively neutral to do so. We note

further that, like long-term number portability, the advent of equal

access and 800 number portability required carriers to incur

significant costs to modify their networks, although these costs were

not recovered in federal end-user charges. These improvements led to

increased competition and substantial long-term benefits to consumers.

We anticipate a similarly positive effect for consumers with respect to

the impact of number portability, namely the increased choice and lower

prices that result from the competition that number portability helps

make possible. We also note that number portability will facilitate

number pooling, which will help forestall telephone-number

exhaust.4

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\4\ Until now, local service providers had to be assigned entire

NXXs, even if they did not need all 10,000 of the NXX's telephone

numbers. With the advent of number portability, carriers can share

NXXs and pool unused telephone numbers, which results in more

efficient allocation of telephone numbers and reduces the need for

measures such as area-code overlays to combat telephone number

exhaust.

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41. Carriers not subject to rate regulation--such as competitive

LECs, CMRS providers, and non-dominant IXCs--may recover their carrier-

specific costs directly related to providing number portability in any

lawful manner consistent with their obligations under the

Communications Act.5 Requiring incumbent LECs to bear their

own carrier-specific costs of providing number portability and allowing

them to recover those costs from their own customers, while leaving

other carriers unregulated, meets our competitive neutrality standard

that number portability cost distribution and recovery mechanisms: (1)

not give one service provider an appreciable, incremental cost

advantage over another service provider when competing for a specific

subscriber, and (2) not disparately affect the ability of competing

service providers to earn a normal return.

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\5\ Although generally not rate regulated, competitive LECs,

CMRS providers, and IXCs--as telecommunications carriers--remain

subject to the Communications Act and Commission rules.

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

42. Requiring incumbent LECs to bear their own carrier-specific

costs directly related to providing number portability will not

disadvantage any telecommunications carrier because under an LRN

implementation of long-term number portability a carrier's costs should

vary directly with the number of customers that carrier serves. Our

examination of the present record and cost data that some carriers have

provided indicates that incumbent LECs, competitive LECs, and CMRS

providers competing in the local service market are likely to have

approximately the same long-run incremental number portability cost of

winning a subscriber. Incumbent LECs will likely have large absolute

costs because of their large networks, but they also will have a large

customer base over which to spread those costs; competitive LECs and

CMRS providers will likely incur fewer absolute costs because of their

smaller networks, but they will also likely have smaller customer bases

over which to spread those costs.

43. Some small LECs and CMRS providers may find that their smaller

customer bases make adding number portability capability in their own

[[Page 35157]]

networks uneconomical. Such carriers can benefit from economies of

scale similar to those of incumbent LECs, however, by arranging for

another carrier or third-party provider to provide number portability

functionality for them, as it appears that a market for number

portability services may develop. Similarly, they may enter into

cooperative agreements with other small carriers. Conversely, such

carriers might install number portability in their networks and sell

any excess number portability capacity to other carriers. Because

resellers will simply be reselling the number portability capability of

a facilities-based carrier, we would expect that resellers will also

have comparable incremental number portability costs. Similarly, we

would expect that carriers competing for interexchange customers will

bear the costs of providing number portability associated with N-1

queries in rough proportion to the number of interexchange customers

they serve; the more customers they win, the more queries they must

perform to terminate those customers' calls. IXCs and CMRS providers

can either query interexchange calls themselves or arrange for other

carriers or third-party providers to provide querying service for them.

44. Regulating the recovery of number portability costs by

incumbent LECs, but not by competitive LECs, CMRS providers, and IXCs,

also will not place any carrier at a competitive disadvantage. Creating

an optional end-user charge for incumbent LECs ensures that such

carriers have a reasonable opportunity to recover their costs and at

the same time allows carriers to forego some or all of such charges if

they deem it necessary to compete in the local service market.

Similarly, unregulated carriers may recover their costs in end-user

charges if they choose to do so. Regulating incumbent LEC recovery

should not disadvantage incumbent LECs as compared to competitive LECs

because competitive LECs also have number portability costs under LRN.

If a customer does switch to a competitive LEC, that customer may have

to pay end-user charges or service rates that recover the competitive

LEC's portability costs. Thus, the customer's incentive to leave the

incumbent LEC is offset by the fact that the customer would then have

to pay charges that recover the competitive LEC's number portability

costs. Therefore, incumbent LECs are unlikely to have a material

disadvantage in competing for subscribers under our recovery mechanism.

45. We also observe that under LRN-based long-term number

portability the LEC serving the customer who places a local call will

generally be responsible for the query. Thus, winning a customer shifts

responsibility for the queries needed to complete that customer's local

calls from the original carrier to the acquiring carrier. Similarly,

the IXC serving the customer who places an interexchange call will be

responsible for any query needed. Consequently, under the LRN approach

to number portability, query costs follow customers, and requiring each

carrier to bear its own carrier-specific costs directly related to

providing number portability is competitively neutral.

46. Under the requirements we adopt today, an incumbent LEC may

recover its carrier-specific costs directly related to providing long-

term number portability to end users by establishing a monthly, number

portability charge in tariffs filed with the Commission. We determine,

however, that recovery from end users should be designed so that end

users generally receive the charges only when and where they are

reasonably able to begin receiving the direct benefits of long-term

number portability. To achieve this, we will allow the monthly number-

portability charge to begin no earlier than February 1, 1999, on a date

the incumbent LEC carrier selects, and to last no longer than five

years. We choose this start date for the federal end-user charge

because by the end of 1998, under the implementation schedule the

Commission has mandated for number portability, a large proportion of

customers will reside in areas where number portability is available:

the largest 100 MSAs. 6 In contrast, if the end-user charge

were permitted to start immediately, substantially fewer customers

would be in areas where number portability is available. Thus, the

February 1, 1999, start date will better tailor recovery to areas where

customers can receive number portability than would an earlier start

date for recovery. We choose February 1, 1999, rather than January 1,

1999, to provide a brief additional time-period to ensure that number

portability has been implemented before customers incur charges, and

because carriers will also be filing tariff revisions to take effect

January 1, 1999, to implement PICC and SLC adjustments.

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\6\ The top 100 MSAs comprise approximately 61.1% of all

subscriber lines, a conservative estimate, based on our calculation

that approximately 61.1% of the United States population resides in

the 100 largest MSAs. We calculated this percentage from population

estimates of the United States Census Bureau.

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47. In addition, we will allow an incumbent LEC to assess the

monthly charge only on end users it serves in the 100 largest MSAs, and

end users it serves outside the 100 largest metropolitan statistical

areas from a number-portability-capable switch. Because carriers may

make any switch number-portability capable, this approach will

encourage carriers to install number portability and help ensure that

end-users are assessed number portability charges only where they are

reasonably likely to be benefitting from number portability. If a

carrier receives an extension past February 1, 1999, for one of the 100

largest MSAs, the carrier may not assess the monthly charge in that MSA

until it begins providing long-term number portability in the MSA. The

incumbent local exchange carrier shall levelize 7 the

monthly number-portability charge over five years by setting a rate for

each charge at which the present value of the revenue recovered by the

charge equals the present value of the cost being recovered. The

carriers shall use a discount rate equal to the rate of return on

investment which the Commission has authorized for regulated interstate

access services pursuant to Part 65 of the Commission's Rules.

Currently, this rate is 11.25 percent. We require levelization of the

monthly charge to protect consumers from varying rates. Incumbent LECs

may collect less than the maximum allowable charge, or decline to

collect the charge, from some or all of their customers so long as they

do so in a reasonable and nondiscriminatory manner. Thus we will not,

for example, allow incumbent LECs to offset such lower charges by

collecting higher charges in areas where no competitive carriers are

present.

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\7\ A levelized rate is one that is calculated to remain

constant over a recovery period and is set at the level at which the

discounted present value of the stream of payments is equal to the

discounted present value of the stream of costs over the period.

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

48. We choose the five-year period for the end-user charge because

it will enable incumbent LECs to recover their portability costs in a

timely fashion, but will also help produce reasonable charges for

customers and avoid imposing those charges for an unduly long period. A

longer period would increase the total charges consumers pay because,

as discussed, carriers' unrecovered capital investment will be subject

to an 11.25 percent return, while a shorter period would increase the

monthly charge to consumers. We find that a five-year period

effectively balances these concerns. After a carrier

[[Page 35158]]

establishes its levelized end-user charge in the tariff review process

we do not anticipate that it may raise the charge during the five-year

period unless it can show that the end-user charge was not reasonable

based on the information available at the time it was initially set.

Furthermore, once incumbent LECs have recovered their initial

implementation costs, number portability will be a normal network

feature, and a special end-user charge will no longer be necessary to

ensure that incumbent LECs recover their number portability costs on a

competitively neutral basis. Carriers can recover any remaining costs

through existing mechanisms available for recovery of general costs of

providing service.

49. We will allow incumbent LECs to assess one monthly number-

portability charge per line, except that one PBX trunk shall receive

nine monthly number-portability charges and one primary rate interface

integrated services digital network line (PRI ISDN line) shall receive

five monthly number-portability charges. As the Commission observed in

the access charge reform proceeding, a PBX trunk provides on average

the equivalent service capacity of nine Centrex lines. See In re Access

Charge Reform, Second Order on Reconsideration and Memorandum Opinion

and Order (62 FR 56120, October 29, 1997). We set the PBX charge at

nine times the level of the ordinary charge because Centrex and PBX

arrangements are functionally equivalent. To do otherwise could

encourage a large customer to choose one of these arrangements over the

other because of the number portability charge, and thus would not be

competitively neutral. Similarly, the access charge reform proceeding

set a five to one equivalency ratio for PRI ISDN lines, and we apply

that equivalency ratio here. To further our goals for the Lifeline

Assistance Program, carriers may not impose the monthly number-

portability charge on customers in that program.

50. The incumbent LEC may assess the monthly charge on resellers of

the incumbent LEC's local service, as well as on purchasers of

switching ports as unbundled network elements under section 251 of the

Communications Act, because the incumbent LEC will be providing the

underlying number portability functionality even though the incumbent

LEC will no longer have a direct relationship with the end user. Thus,

it appears that the reseller and the purchaser of the unbundled switch

port will receive all their number portability functionality through

these arrangements. Consequently, allowing the incumbent LEC to assess

the charge will be competitively neutral because the reseller and the

purchaser of the switch port will incur the charge in lieu of costs

they would otherwise incur in obtaining long-term number portability

functionality elsewhere. The unregulated reseller and purchaser of the

switch port may recover in any lawful manner the charges the incumbent

LEC assesses on them. The incumbent local exchange carrier may not

assess the monthly number-portability charge on carriers that purchase

the incumbent local exchange carrier's local loops as unbundled network

elements under section 251. We do not allow the incumbent LEC to assess

such a charge because the unbundled loop does not contain the number

portability functionality. The purchaser of the unbundled loop will

still be responsible for providing such functionality, and thus

incurring elsewhere the corresponding cost. Congress has directed the

Commission to provide for the recovery of number portability costs.

Because we have so provided in this proceeding, we presume that state

commissions will not include the costs of number portability when

pricing unbundled network elements.

51. Local service providers may query calls for other carriers by

arrangement, or may receive unqueried, default-routed traffic when the

N-1 carrier has not performed the query. Thus we also will allow

incumbent LECs to recover from N-1 carriers in a federally tariffed

query-service charge their carrier-specific costs directly related to

providing prearranged and default query services. Other carriers

required or permitted to file federal tariffs may also tariff query

services. Carriers shall indicate in the cost support section of their

tariffs the portion of their carrier-specific costs directly related to

providing number portability attributable to the number portability

services they provide end users, and that portion attributable to the

number portability query services they provide on behalf of other

carriers.

52. All the RBOCs and GTE have submitted, and periodically revised,

estimates of the costs they will incur in implementing LRN number

portability. In reviewing the record, we observe a wide variation among

companies' estimated costs and their categorization of those costs as

directly related or not directly related to providing number

portability. We remind the incumbent LECs that only costs directly

related to providing number portability are recoverable through the

long-term number portability cost recovery mechanism we establish in

this Third Report and Order. As discussed above, the Chief, Common

Carrier Bureau, will further consider methods of identifying the

portion of joint costs that incumbent LECs should treat as carrier-

specific costs directly related to providing number portability.

VI. Regulatory Flexibility Act Analysis

53. As required by section 603 of the Regulatory Flexibility Act

(RFA), an Initial Regulatory Flexibility Analysis (IRFA) was

incorporated in the Further Notice. The Commission sought written

public comments on the proposals in the Further Notice, including on

the IRFA. The Commission's Final Regulatory Flexibility Analysis (FRFA)

in this Third Report and Order is as follows:

54. Need for and Objectives of Rules: The Commission, in compliance

with sections 251(b)(2), 251(d)(1), and 251(e)(2) of the Communications

Act of 1934, as amended by the Telecommunications Act of 1996, adopts

rules and procedures intended to ensure the implementation of telephone

number portability with the minimum regulatory and administrative

burden on telecommunications carriers. In implementing the statute, the

Commission has the responsibility to adopt rules that will implement

most quickly and effectively the national telecommunications policy

embodied in the Act and to promote the pro-competitive, deregulatory

markets envisioned by Congress. Congress has recognized that number

portability will lower barriers to entry and promote competition in the

local exchange marketplace. To prevent the cost of number portability

from itself becoming a barrier to local competition, however, section

251(e)(2) requires that ``[t]he cost of establishing telecommunications

numbering administration arrangements and number portability shall be

borne by all telecommunications carriers on a competitively neutral

basis as determined by the Commission.''

55. Summary of Significant Issues Raised by the Public in Response

to the IRFA: There were no comments submitted specifically in response

to the IRFA. However, in their general comments, some commenters assert

that if competition is to emerge in the local exchange market the

regulatory standards adopted by the Commission to recover the cost of

implementing long-term number portability should not disproportionately

burden small entities, especially new entrants. In the Third Report and

Order, we adopt rules and regulations to ensure that the way

[[Page 35159]]

all telecommunications carriers, including small entities, bear the

costs of number portability does not significantly affect any carrier's

ability to compete with other carriers for customers in the

marketplace.

56. Description and Estimate of Number of Small Businesses to Which

Rules Will Apply: The Regulatory Flexibility Act generally defines the

term ``small business'' as having the same meaning as the term ``small

business concern'' under 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). According to the SBA's regulations, entities engaged in the

provision of telephone service may have a maximum of 1,500 employees in

order to qualify as a small business concern. This standard also

applies in determining whether an entity is a small business for

purposes of the RFA.

57. Our rules governing long-term number portability cost recovery

apply to all telecommunications carriers, including incumbent LECs, new

LEC entrants, and IXCs, as well as cellular, broadband PCS, and covered

SMR providers. Small incumbent LECs subject to these rules are either

dominant in their field of operations or are independently owned and

operated, and, consistent with the Commission's prior practice, are

excluded from the definition of ``small entities'' and ``small business

concerns.'' Accordingly, our use of the terms ``small entities'' and

``small businesses'' does not encompass small incumbent LECs. Out of an

abundance of caution, however, for regulatory flexibility analysis

purposes, we will consider small incumbent LECs within this analysis

and use the term ``small incumbent LECs'' to refer to any incumbent

LECs that arguably might be defined by the SBA as ``small business

concerns.''

58. Insofar as our rules apply to all telecommunications carriers,

they may have an economic impact on a substantial number of small

businesses, as well as on small incumbent LECs. The rules may have an

impact upon new entrant LECs and small incumbent LECs, as well as

cellular, broadband PCS, and covered SMR providers. Based upon data

contained in the most recent census and a report by the Commission's

Common Carrier Bureau, we estimate that 2,100 small entities could be

affected. We have derived this estimate based on the following

analysis:

59. According to the 1992 Census of Transportation, Communications,

and Utilities, there were approximately 3,469 firms with under 1,000

employees operating under the Standard Industrial Classification (SIC)

category 481--Telephone. See U.S. Dept. of Commerce, Bureau of the

Census, 1992 Census of Transportation, Communications, and Utilities

(issued May 1995). Many of these firms are the incumbent LECs and, as

noted above, would not satisfy the SBA definition of a small business

because of their market dominance. There were approximately 1,350 LECs

in 1995. Industry Analysis Division, FCC, Carrier Locator: Interstate

Service Providers at Table 1 (Number of Carriers Reporting by Type of

Carrier and Type of Revenue) (December 1995). Subtracting this number

from the total number of firms leaves approximately 2,119 entities

which potentially are small businesses which may be affected. This

number contains various categories of carriers, including small

incumbent LECs, competitive access providers, cellular carriers,

interexchange carriers, mobile service carriers, operator service

providers, pay telephone operators, PCS providers, covered SMR

providers, and resellers. Some of these carriers--although not

dominant--may not meet the other requirement of the definition of a

small business because they are not ``independently owned and

operated.'' See 15 U.S.C. Sec. 632(a)(1). For example, a PCS provider

which is affiliated with a long distance company with more than 1,500

employees would not meet the definition of a small business. Another

example would be if a cellular provider is affiliated with a dominant

LEC. Thus, a reasonable estimate of the number of ``small businesses''

affected by this Order would be approximately 2,100.

60. Description of Projected Reporting, Recordkeeping and Other

Compliance Requirements of the Rules: The Third Report and Order

concludes that the costs raised in this proceeding should be divided

into three categories: shared costs, carrier-specific costs directly

related to number portability, and carrier-specific costs not directly

related to number portability. Shared costs are those costs incurred on

behalf of the industry as a whole, such as the costs of the regional

database administrator to build, operate, and maintain the databases

needed to provide number portability. The Third Report and Order

concludes that all telecommunications carriers with end-user revenues

are required to pay an allocated portion of the shared costs incurred

by the regional database administrator in proportion to that carrier's

international, interstate, and intrastate end-user telecommunications

revenues for that region. While carriers already track their sales to

end-users for billing purposes, they will need to identify their

regional end-user revenues. That information, along with periodic

updates, must be provided to the regional database administrator for

the appropriate allocation of shared costs.

61. The Third Report and Order requires incumbent LECs to maintain

records that detail both the nature and specific amount of those

carrier-specific costs that are directly related to number portability,

and those carrier-specific costs that are not directly related to

number portability. The Third Report and Order directs carriers and

interested parties to file comments by August 3, 1998, and reply

comments by September 16, 1998, proposing ways to apportion the

different types of joint costs between portability and nonportability

services. The Third Report and Order requires incumbent LECs that

choose to recover their carrier-specific costs directly related to

providing number portability to use federally-tariffed end-user

charges.

62. Steps Taken to Minimize Impact on Small Entities Consistent

with Stated Objectives: The record in this proceeding indicates that

the need for customers to change their telephone numbers when changing

local service providers is a barrier to local competition. Requiring

number portability, and ensuring that all telecommunications carriers

bear the costs of number portability on a competitively neutral basis,

will make it easier for competitive providers, many of which may be

small entities, to enter the market. We have attempted to keep

regulatory burdens on all local exchange carriers to a minimum to

ensure that the public receives the benefits of the expeditious

provision of service provider number portability in accordance with the

statutory requirements. For example, the Third Report and Order

concludes that all telecommunications carriers with end-user revenues

are required to pay an allocated portion of the shared costs incurred

by the regional database administrator in proportion to that carrier's

international, interstate, and intrastate end-user telecommunications

revenues for the region. Apportioning shared costs in this way will

further the statutory purpose of ensuring that carriers bear the costs

of number portability on a competitively neutral basis. Furthermore,

the Third Report and Order concludes that regulated

[[Page 35160]]

carriers may identify that portion of their joint costs that is

demonstrably an incremental cost that they incurred in the provision of

long-term number portability. Allowing such identification recognizes

that number portability will cause some carriers, including small

entities, to incur costs that they would not ordinarily have incurred

in providing telecommunications services. The Third Report and Order

also concludes that non-dominant carriers, such as competitive LECs,

CMRS providers, and IXCs--some of which will be small entities--are not

subject to extensive regulation and may recover their number

portability costs in any manner otherwise consistent with Commission

rules and the Communications Act.

63. Report to Congress: The Commission shall send a copy of this

FRFA, along with this Third Report and Order, in a report to Congress

pursuant to the Small Business Regulatory Enforcement Fairness Act of

1996. A copy of the Third Report and Order and this FRFA (or summaries

thereof) will also be published in the Federal Register and will be

sent to the Chief Counsel for Advocacy of the Small Business

Administration.

VII. Paperwork Reduction Act

64. This Third Report and Order concludes that the costs raised in

this proceeding should be divided into three categories: shared costs,

carrier-specific costs directly related to number portability, and

carrier-specific costs not directly related to number portability.

Shared costs are those costs incurred on behalf of the industry as a

whole, such as the costs of the regional database administrator to

build, operate, and maintain the databases needed to provide number

portability. The Third Report and Order concludes that all

telecommunications carriers with end-user revenues are required to pay

an allocated portion of the shared costs incurred by the regional

database administrator in proportion to that carrier's international,

interstate, and intrastate end-user telecommunications revenues for the

region. While carriers already track their sales to end-users for

billing purposes, they will need to identify their regional end-user

revenues. That information, along with periodic updates, must be

provided to the regional database administrator for the appropriate

allocation of shared costs. The Third Report and Order also requires

incumbent LECs to maintain records that detail both the nature and

specific amount of those carrier-specific costs that are directly

related to number portability, and those carrier-specific costs that

are not directly related to number portability. The Third Report and

Order requires incumbent LECs that choose to recover their carrier-

specific costs directly related to providing number portability to use

federally-tariffed end-user charges. These information collection

requirements are contingent upon approval of the Office of Management

and Budget (OMB).

VIII. Ordering Clauses

65. Accordingly, it is ordered that pursuant to authority contained

in sections 1, 2, 4(i), 201-205, 215, 251(b)(2), 251(e)(2), and 332 of

the Communications Act of 1934, as amended, 47 U.S.C. Secs. 151, 152,

154(i), 201-205, 215, 251(b)(2), 251(e)(2), and 332, Part 52 of the

Commission's rules is amended as set forth.

66. It is further ordered that the policies, rules and requirements

set forth herein are adopted.

67. It is further ordered that the policies, rules and requirements

adopted herein shall be effective on July 29, 1998, except for

Secs. 52.32(b) and 52.33(a)(1), which contain information collection

requirements that are not effective until approved by the Office of

Management and Budget. The Commission will publish a document in the

Federal Register announcing the effective date for those sections.

68. It is further ordered that the Commission's Office of Public

Affairs, References Operations Division, shall send a copy of this

Third Report and Order, including the Final Regulatory Flexibility

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

Administration.

69. It is further ordered that incumbent local exchange carriers

may file tariffs to take effect no earlier than February 1, 1999,

setting out the monthly number portability charge they intend to

collect from their end users, in accordance with this Order.

70. It is further ordered that pursuant to authority contained in

section 5(c)(1) of the Communications Act of 1934, as amended, 47

U.S.C. 155(c)(1), the Chief, Common Carrier Bureau, is delegated

authority to determine appropriate methods for apportioning joint costs

among portability and nonportability services, and to issue any orders

to provide guidance to incumbent LECs before they file their tariffs,

which are to take effect no earlier than February 1, 1999. To

facilitate determination of the portion of joint costs carriers shall

treat as carrier-specific costs directly related to providing number

portability, and to facilitate evaluation of the cost support that

carriers will file in their federal tariffs, carriers and interested

parties may file comments by August 3, 1998 proposing ways to apportion

the different types of joint costs. Carriers and interested parties may

file reply comments by September 16, 1998.

List of Subjects in 47 CFR Part 52

Carrier-specific costs, Communications common carriers, Long-term

number portability cost recovery, Number portability, Regional

databases, Shared costs.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

Rule Changes

Accordingly, part 52 of Title 47 of the Code of Federal Regulations

is amended to read as follows:

PART 52--NUMBERING

1. The authority for part 52 continues to read as follows:

Authority: Sec. 1, 2, 4, 5, 48 Stat. 1066, as amended; 47 U.S.C.

Sec. 151, 152, 154, 155, 251 unless otherwise noted. Interpret or

apply secs. 3, 4, 201-05, 207-09, 218, 225-27, 251-52, 271 and 332,

48 Stat. 1070, as amended, 1077; 47 U.S.C. 153, 154, 201-05, 207-09,

218, 225-27, 251-52, 271 and 332 unless otherwise noted.

2. Add Sec. 52.32 to read as follows:

Sec. 52.32 Allocation of the shared costs of long-term number

portability

(a) The local number portability administrator, as defined in

Sec. 52.21(h), of each regional database, as defined in Sec. 52.21(1),

shall recover the shared costs of long-term number portability

attributable to that regional database from all telecommunications

carriers providing telecommunications service in areas that regional

database serves. Pursuant to its duties under Sec. 52.26, the local

number portability administrator shall collect sufficient revenues to

fund the operation of the regional database by:

(1) Assessing a $100 yearly contribution on each telecommunications

carrier identified in paragraph (a) introductory text that has no

intrastate, interstate, or international end-user telecommunications

revenue derived from providing telecommunications service in the areas

that regional database serves, and

(2) Assessing on each of the other telecommunications carriers

providing telecommunications service in areas that regional database

serves, a charge that recovers the remaining shared costs of long-term

number portability attributable to that regional database in proportion

to the ratio of:

(i) The sum of the intrastate, interstate, and international end-

user

[[Page 35161]]

telecommunications revenues that such telecommunications carrier

derives from providing telecommunications service in the areas that

regional database serves, ii) to the sum of the intrastate, interstate,

and international end-user telecommunications revenues that all

telecommunications carriers derive from providing telecommunications

service in the areas that regional database serves.

(b) The local number portability administrator for a particular

regional database may require the telecommunications carriers providing

telecommunications service in the areas served by the regional database

to provide once a year that data necessary to calculate, pursuant to

paragraph (a)(1) or (a)(2) of this section, those carriers' portions of

the shared costs of long-term number portability attributable to that

regional database. All such telecommunications carriers shall comply

with any such requests.

(c) Once a telecommunications carrier has been allocated, pursuant

to paragraph (a)(1) or (a)(2) of this section, its portion of the

shared costs of long-term number portability attributable to a regional

database, the carrier shall treat that portion as a carrier-specific

cost directly related to providing number portability.

3. Add Sec. 52.33 to read as follows:

Sec. 52.33 Recovery of carrier-specific costs directly related to

providing long-term number portability.

(a) Incumbent local exchange carriers may recover their carrier-

specific costs directly related to providing long-term number

portability by establishing in tariffs filed with the Federal

Communications Commission a monthly number-portability charge, as

specified in paragraph (a)(1), and a number portability query-service

charge, as specified in paragraph (a)(2).

(1) The monthly number-portability charge may take effect no

earlier than February 1, 1999, on a date the incumbent local exchange

carrier selects, and may end no later than five years after that date.

(i) An incumbent local exchange carrier may assess each end user it

serves in the 100 largest metropolitan statistical areas, and each end

user it serves from a number-portability-capable switch outside the 100

largest metropolitan statistical areas, one monthly number-portability

charge per line except that:

(A) One PBX trunk shall receive nine monthly number-portability

charges.

(B) One PRI ISDN line shall receive five monthly number-portability

charges.

(C) Lifeline Assistance Program customers shall not receive the

monthly number-portability charge.

(ii) An incumbent local exchange carrier may assess on carriers

that purchase the incumbent local exchange carrier's switching ports as

unbundled network elements under section 251 of the Communications Act,

and resellers of the incumbent local exchange carrier's local service,

the same charges as described in paragraph (a)(1)(A) of this section,

as if the incumbent local exchange carrier were serving those carriers'

end users.

(iii) An incumbent local exchange carrier may not assess a monthly

number-portability charge for local loops carriers purchase as

unbundled network elements under section 251.

(iv) The incumbent local exchange carrier shall levelize the

monthly number-portability charge over five years by setting a rate for

the charge at which the present value of the revenue recovered by the

charge does not exceed the present value of the cost being recovered,

using a discount rate equal to the rate of return on investment which

the Commission has prescribed for interstate access services pursuant

to Part 65 of the Commission's Rules.

(2) The number portability query-service charge may recover only

carrier-specific costs directly related to providing long-term number

portability that the incumbent local exchange carrier incurs to provide

long-term number portability query service to carriers on a prearranged

and default basis.

(b) All telecommunications carriers other than incumbent local

exchange carriers may recover their number portability costs in any

manner consistent with applicable state and federal laws and

regulations.

[FR Doc. 98-17076 Filed 6-26-98; 8:45 am]

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