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

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[CC Docket No. 96-98, FCC 99-70]

Implementation of the Local Competition Provisions of the

Telecommunications Act of 1996

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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

SUMMARY: In response to the Supreme Court's January 25, 1999 decision,

the Second Further Notice of Proposed Rulemaking (Second FNPRM) seeks

public comment on issues related to how the Commission should identify

the network elements incumbent local exchange carriers must make

available to requesting carriers, pursuant to sections 251(c)(3) and

251(d)(2) of the Telecommunications Act of 1996. The ability of

requesting carriers to use unbundled network elements is integral to

achieving Congress' objective of promoting rapid competition in the

local telecommunications marketplace. In this proceeding, we seek to

move forward to resolve this issue in a timely manner, in order to

further reduce uncertainties in the marketplace and to promote robust

competition in local telecommunications markets.

DATES: Comments are due on or before May 26, 1999 and reply comments

are due on or before June 10, 1999.

ADDRESSES: Federal Communications Commission, Office of the Secretary,

445 Twelfth Street, S.W., Room TW-A325, Washington, D.C. 20554, with a

copy to Janice Myles of the Common Carrier Bureau, 445 12th Street,

S.W., Room 5-C327, Washington, D.C. 20554. Parties should also file one

copy of any documents filed in this docket with the Commission's copy

contractor, International Transcription Services, Inc., 1231 20 St.,

N.W., Washington, D.C. 20036.

FOR FURTHER INFORMATION CONTACT: Jake Jennings or Claudia Fox, Common

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

Further information may also be obtained by calling the common Carrier

Bureau's TTY number: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second

Further Notice of Proposed Rulemaking adopted April 8, 1999, and

released April 14, 1999 (FCC 99-70). The full text of this Second FNPRM

is available for inspection and copying during normal business hours in

the FCC Reference Center, 445 12th Street, S.W., Room CY-A257,

Washington, D.C 20554. The complete text also may be obtained through

the World Wide Web, at http://www.fcc.gov/Bureaus/Common Carrier/

Orders/fcc99070.wp, or may be purchased from the Commission's copy

contractor, International Transcription Service, In., (202) 857-3800,

1231 20th St., N.W., Washington, D.C. 20036.

I. Synopsis of Second Further Notice of Proposed Rulemaking

1. On January 25, 1999, the United States Supreme Court upheld all

but one of the Commission's local competition rules that had been

challenged before the United States Court of Appeals for the Eighth

Circuit (Eighth Circuit). The Supreme Court rejected, in part, the

Commission's implementation of the network element unbundling

obligations set forth in section 251(c)(3) of the Telecommunications

Act of 1996, and concluded that section 51.319 of the Commission's

rules should be vacated. Section 51.319, which was adopted in the Local

Competition First Report and Order, CC Docket No. 96-98, sets forth the

minimum set of network elements that incumbent local exchange carriers

(LECs) must make available on an unbundled basis to requesting carriers

pursuant to sections 251(c)(3) and 251(d)(2). The Supreme Court found

that the Commission, in determining which network elements must be

unbundled pursuant to section 251(c)(3), had not adequately considered

the ``necessary'' and ``impair'' standards of section 251(d)(2). By

this Second Further NPRM, we seek to refresh the record in CC Docket

96-98, specifically on the issues of: (1) how, in light of the Supreme

Court ruling, the Commission should interpret the standards set forth

in section 251(d)(2); and (2) which specific network elements

[[Page 20239]]

the Commission should require incumbent LECs to unbundle under section

251(c)(3).

2. The ability of requesting carriers to use unbundled network

elements, including combinations of unbundled network elements, is

integral to achieving Congress' objective of promoting rapid

competition in the local telecommunications market. Our identification

of the network elements that must be unbundled pursuant to section 251

is therefore a critical tool for promoting the goals of the 1996 Act.

In this proceeding, we seek to move forward quickly to resolve the

issue of which network elements incumbent LECs must make available on

an unbundled basis, in order to reduce uncertainties in the marketplace

and to allow carriers to make informed and rational business decisions

in order to provide service on a competitive basis to consumers.

3. We seek to build on industry experience and technological

changes that have occurred in the telecommunications marketplace since

the 1996 Act was enacted three years ago. Today, both incumbent LECs

and requesting carriers are at the early stages of deploying innovative

technologies to meet the ever-increasing demand for high-speed, high-

capacity advanced services. In order to encourage competition among

carriers to develop and deploy new advanced services, it is critical

that the marketplace for these services be conducive to investment,

innovation, and meeting the needs of consumers. Accordingly, as we

revisit our rule implementing the network unbundling obligations of the

Act, we will consider, as well, how the unbundling obligations of the

Act can best facilitate the rapid and efficient deployment of all

telecommunications services, including advanced services.

4. We need to move quickly in this proceeding but, as always, we

must also move with precision. The Supreme Court's opinion requires the

Commission to take a hard look at the question of when an incumbent

local exchange carrier must make parts of its network available to

competitors at cost-based rates. In the words of the Court, we are to

``determine on a rational basis which network elements must be made

available taking into account the objectives of the Act and giving some

substance to the `necessary' and `impair' requirements.'' We therefore

seek further comment to refresh the record in this proceeding in order

to identify those network elements to which incumbent local exchange

carriers must provide nondiscriminatory access--giving substance to the

requirements of section 251(d)(2).

II. Background

5. On August 8, 1996, the Commission adopted the Local Competition

First Report and Order, implementing the local competition provisions

of the 1996 Act. In that order, the Commission established rules

governing the obligations and responsibilities of incumbent LECs to

open their local networks to competition pursuant to the requirements

of section 251 of the 1996 Act. Among other things, the order adopted

rules implementing the network unbundling requirements of sections

251(c)(3) and 251(d)(2) of the 1996 Act. Section 251(c)(3) imposes a

duty on all incumbent LECs to provide to competitors access to network

elements on an unbundled basis. Section 251(d)(2) provides that, in

determining which network elements should be unbundled under section

251(c)(3), 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

element would impair the ability of the telecommunications carrier

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

In the Local Competition First Report and Order, the Commission

applied its interpretation of the ``necessary'' and ``impair''

standards of section 251(d)(2) to the unbundling requirements of

section 251(c)(3). Specifically, the Commission defined ``necessary''

to mean ``an element is a prerequisite for competition,'' and it

defined ``impair'' to mean ``to make or cause to become worse; diminish

in value.'' The Commission also determined that a requesting carrier's

ability to offer service is ``impaired'' (``diminished in value'') if

``the quality of the service the entrant can offer, absent access to

the requested element, declines'' or if ``the cost of providing the

service rises.''

After addressing the ``necessary'' and ``impair'' standards, the

Commission adopted rule 51.319, which sets forth the network elements

that incumbent LECs must make available to requesting carriers on an

unbundled basis. Section 51.319 of the Commission's rules required

incumbent LECs to make available, on an unbundled basis, the following

network elements: (1) local loops; (2) network interface devices; (3)

local switching; (4) interoffice transmission facilities; (5) signaling

networks and call-related databases; (6) operations support systems;

and (7) operator services and directory assistance.

Following adoption of the Local Competition First Report and Order,

incumbent LECs and state commissions filed various challenges to the

Commission's rules; these appeals were consolidated in the Eighth

Circuit. Among other holdings, the Eighth Circuit rejected incumbent

LECs' argument that, in determining which elements were subject to the

unbundling requirements, the Commission had not properly applied the

``necessary'' and ``impair'' standards of section 251(d)(2).

Accordingly, the Eighth Circuit upheld section 51.319. A number of

parties sought and were granted review of the Eighth Circuit's decision

by the Supreme Court.

9. In its January 25, 1999 opinion, the Supreme Court reversed the

Eighth Circuit's decision on this issue, stated that section 51.319

should be vacated, and remanded the matter for further proceedings. The

Court concluded that the Commission had not adequately considered the

``necessary'' and ``impair'' standards of section 251(d)(2). The Court

found, among other things, that the Commission, in deciding which

elements must be unbundled, did not adequately take into consideration

the ``availability of elements outside the incumbent's network.'' The

Court also faulted the Commission's ``assumption that any increase in

cost (or decrease in quality) imposed by a denial of a network element

renders access to that element `necessary,' and causes the failure to

provide that element to `impair' the entrant's ability to furnish its

desired services.'' In addition, the Court criticized the Commission's

interpretation of section 251(d)(2) because it ``allows entrants,

rather than the Commission, to determine'' whether the requirements of

that section are satisfied.

III. Request for Further Comments

10. In response to the Supreme Court ruling, we must further

consider the ``necessary'' and ``impair'' standards of section

251(d)(2) in identifying network elements that are subject to the

unbundling requirements of section 251(c)(3). Although we retain the

right to consider and rely upon comments previously filed in this

docket, any comments parties want the Commission to consider on this

issue must be filed in response to this Notice, and commenters should

not simply incorporate by reference previous arguments made in this

proceeding.

11. We seek comment on a number of issues related to the

interpretation of section 251(d)(2), including identification of

unbundled network elements on a nationwide basis, the

[[Page 20240]]

interpretation of the ``necessary'' and ``impair'' standards of section

251(d)(2), and the criteria the Commission and states should consider

in determining whether a network element is subject to the unbundling

obligations of section 251(c)(3) of the 1996 Act. In determining which

network elements are subject to the unbundling obligations of section

251(c)(3), we seek comment on an approach that would allow sunset or

modification of the unbundling obligations as technology and market

conditions evolve over time. Such an approach would allow the

Commission and the states to identify particular network elements that

should be sunsetted or removed from, or added to, the initial list of

elements subject to the unbundling obligations of the Act, as

warranted.

12. As we have stated, the Supreme Court found that the Commission,

in deciding which elements must be unbundled, did not adequately take

into consideration the availability of elements outside the incumbent's

network. More generally, we note that application of the ``necessary''

and ``impair'' standards that we develop pursuant to section 251(d)(2)

may be relatively fact-intensive. At the same time, we recognize that

in resolving these fact-intensive questions, particularly in an

expedited time frame, it may be beneficial to consider what evidentiary

standards and presumptions are most appropriate, both in the context of

the initial designation of network elements subject to unbundling

requirements, and any subsequent proceedings to modify the unbundling

obligations. We ask parties to comment on the types of evidentiary

standards or approaches that should govern application of the section

251(d)(2) standards in determining which network elements must be

unbundled. Commenters should address which parties should bear the

burdens of proof and production, whether any presumptions should apply,

and why. Commenters are also requested to justify the evidentiary

standards or approaches they advocate, especially in light of the kinds

of data that can be made available in this proceeding, the purposes and

structure of the Act, and the identity of the parties most likely to be

in control of relevant data.

A. Identification of Unbundled Network Elements on a Nationwide Basis

13. In the Local Competition First Report and Order, the Commission

concluded that, by identifying a specific list of network elements that

must be unbundled, applicable uniformly in all states and territories,

we would best further the ``national policy framework'' established by

Congress to promote competition. The Commission adopted a minimum list

of network elements that must be unbundled on a national basis, and

permitted states to impose additional unbundling requirements.

14. We find nothing in the Supreme Court's decision that calls into

question our decision to establish minimum national unbundling

requirements. We therefore tentatively conclude that the Commission

should continue to identify a minimum set of network elements that must

be unbundled on a nationwide basis. We seek comment on this tentative

conclusion. We also seek comment on whether the existence of geographic

variations in the availability of elements outside the incumbent LEC's

network is relevant to a decision to impose minimum national unbundling

requirements. We also seek comment on the relevance, if any, to the

interpretation of the ``necessary'' and ``impair'' standard that we are

reexamining these issues today, more than three years after passage of

the Act. We note that, under our rules, the states have authority to

impose additional unbundling requirements, pursuant to our

interpretation of section 251(d)(2). We do not propose to eliminate the

states' authority to impose additional unbundling requirements,

pursuant to the standards and criteria we adopt in this proceeding. In

addition, we seek comment on whether states may, consistent with the

Supreme Court's decision, apply our interpretation of section 251(d)(2)

to determine in the first instance that a network element need not be

unbundled in light of the availability of that element outside the

incumbent's network in that state. If so, under what circumstances, if

any, should the Commission review state decisions?

B. Interpretation of the Term ``Proprietary'' in Section 251(d)(2)(A)

15. Section 251(d)(2)(A) refers to network elements that are

``proprietary'' in nature. We seek comment on the meaning of the term

``proprietary'' for purposes of this section. In the Local Competition

First Report and Order, the Commission referred to proprietary network

elements as including, for example, ``those elements with proprietary

protocols or elements containing proprietary information.'' The

Commission also concluded that the incumbent LEC's signaling protocols

that adhere to Bellcore standards are not proprietary in nature because

they use industry-wide, rather than LEC-specific, protocols. We seek

comment on whether we should consider network elements as non-

proprietary if the interfaces, functions, features, and capabilities

sought by the requesting carrier are defined by recognized industry

standard-setting bodies (e.g., ITU, ANSI, or IEEE), are defined by

Bellcore general requirements, or otherwise are widely available from

vendors. We also seek comment on whether non-carrier specific standards

can be proprietary. What effect, if any, could Commission action have

on whether a network element is proprietary? Commenters should discuss

whether the term ``proprietary'' should be limited to information,

software, or technology that can be protected by patents, copyrights,

or trade secrecy laws, or whether it can also apply to materials that

do not qualify for such legal protection. If a network element contains

what parties assert to be proprietary information, but access to that

information is not accessible by third parties seeking access to a

particular element, should the entire element be considered

``proprietary'' for purposes of section 251(d)(2)(A)? We also seek

comment on whether the term ``proprietary'' refers solely to

proprietary interests the incumbent LEC may have in an element, or

whether it may also refer to proprietary interests of third parties

(e.g., vendors).

C. Interpretation of ``Necessary'' in Section 251(d)(2)(A)

16. In the Local Competition First Report and Order, the Commission

defined a ``necessary'' network element as one that is a

``prerequisite'' to competition. We seek comment on the definition of

``necessary'' for the purpose of determining proprietary network

elements that must be unbundled pursuant to the requirements of section

251(d)(2)(A) and on the Commission's application of this term in the

Local Competition First Report and Order.

D. Interpretation of ``Impair'' in Section 251(d)(2)(B)

17. Section 251(d)(2)(B) requires us to consider whether the

failure to provide access to an element would ``impair'' the ability of

a new entrant to provide a service it seeks to offer. In the Local

Competition First Report and Order, the Commission adopted a dictionary

definition of the term ``impair'' that means ``to make or cause to

become worse; diminish in value.'' The Commission stated that

``generally * * * an entrant's ability to offer a telecommunications

service is `diminished in value' if the quality of the service the

entrant can offer, absent access to the requested element,

[[Page 20241]]

declines and/or the cost of providing the service rises.'' We seek

comment on the meaning of the term ``impair.'' Should the Commission

adopt a standard by which we examine whether the new entrant's ability

to offer a telecommunications service in a competitive manner is

materially diminished in value? Would a new entrant be ``impaired''

from providing service in a certain area if there is no additional

collocation space available in the incumbent LECs' central office?

E. The Difference Between the ``Necessary'' and ``Impair'' Standards

18. We seek comment on the difference between the ``necessary''

standard under section 251(d)(2)(A) and the ``impair'' standard of

section 251(d)(2)(B). Since the 1996 Act employs two different terms,

must the Commission apply different criteria to determine whether a

network element meets these standards? To the extent parties propose

using the same criteria, we seek comment on the legal basis for

applying the same criteria as well as on how we should apply the

criteria to differentiate between the ``necessary'' and ``impair''

standards.

19. In the Local Competition First Report and Order, the Commission

found that the ``necessary'' standard only applies to ``proprietary''

network elements, and that the ``impair'' standard applies to

``nonproprietary'' network elements. This construction was also applied

by the Eighth Circuit and, apparently, by the Supreme Court in

reviewing the Commission's analysis of unbundling requirements under

section 251(d)(2). We seek comment on whether our understanding of the

courts' interpretation should govern in this proceeding.

F. Criteria for Determining ``Necessary'' and ``Impair'' Standards

20. We seek more specific comment on what factors or criteria the

Commission should adopt in determining whether access to network

elements is necessary and whether failure to provide such access would

impair an entrant's ability to provide service. The Supreme Court has

provided some guidance in this respect. The Court stated that ``the Act

requires the FCC to apply some limiting standard, rationally related to

the goals of the Act, which it has simply failed to do.'' The Court

stated further that ``[w]e cannot avoid the conclusion that, if

Congress had wanted to give blanket access to incumbents' networks on a

basis as unrestricted as the scheme the Commission has come up with, it

would not have included section 251(d)(2) in the statute at all. It

would simply have said (as the Commission in effect has) that whatever

requested element can be provided must be provided.''

21. Although the Supreme Court acknowledged incumbent LEC arguments

that section 251(d)(2) codifies ``something akin'' to the essential

facilities doctrine, the Court did not find that section 251(d)(2)

mandates that standard. We nevertheless seek comment on the

significance of the essential facilities standard under section

251(d)(2). Next, the Supreme Court concluded that we must take into

account the availability of substitutes for incumbent LEC network

elements outside of the incumbent's network. We thus seek comment on

when we should deem a substitute sufficiently available so as to render

access to the incumbent's network element unnecessary. Finally, the

Court found that the Commission erred in concluding that ``any''

increase in cost or decrease in quality resulting from the failure to

gain access to a network element satisfied the necessary and impair

standard. We therefore seek comment on whether and the extent to which

an increase in cost or decrease in quality caused by the inability of

obtaining access to an incumbent's network element meets the

``necessary'' or ``impairment'' standard. In addressing these factors,

commenters should distinguish between the ``necessary'' and ``impair''

standards if appropriate to do so in light of the factor being

discussed.

1. Essential Facilities Doctrine

22. In their arguments before the Supreme Court, incumbent LECs

asserted that section 251(d)(2) codifies a standard similar to the

``essential facilities'' doctrine, as defined in antitrust

jurisprudence. We ask parties to describe this doctrine and how it

should be applied, if at all, to the determination of which network

elements incumbent LECs must provide on an unbundled basis pursuant to

sections 251(c)(3) and 251(d)(2). Parties should also cite any relevant

legislative history that would indicate Congress' views on this

standard or any similar standard.

23. In discussing the ``essential facilities'' doctrine, the

Supreme Court observed that ``it may be that some other standard would

provide an equivalent or better criterion for the limitation upon

network-element availability that the statute has in mind.''

Accordingly, we seek comment on alternative standards that should be

considered in determining which network elements must be unbundled

pursuant to sections 251(c)(3) and 251(d)(2).

2. Availability and Cost of Network Elements Outside the Incumbent

LEC's Network

24. The Supreme Court stated that, in determining the list of

elements that incumbent LECs must provide on an unbundled basis

pursuant to sections 251(c)(3) and 251(d)(2) of the Act, the Commission

must take into consideration the availability of network elements

outside the incumbent's network. We seek comment on how the Commission

should consider the availability of network elements outside of the

incumbent's network. We ask commenters to discuss potential alternative

sources of network elements from other competing carriers, as well as

availability of network elements through self-provisioning. We also ask

commenters to provide information on the costs of alternatives, the

length of time it takes to obtain alternatives, and the extent to which

alternatives to unbundled elements are being utilized now. We also seek

comment on how the Commission, in assessing potential alternative

sources of network elements, should evaluate alternatives available

from other competing carriers if those carriers are not subject to

unbundling obligations of 251(c)(3).

25. In determining whether a requesting carrier's ability to

provide a service would be impaired if it did not obtain a network

element on an unbundled basis from the incumbent LEC, how should we

assess and treat the additional cost of utilizing an alternative source

for that element? The Supreme Court found insufficient the Commission's

``assumption that any increase in cost would impair a requesting

carrier's ability to provide service.'' We therefore seek comment on

whether and the extent to which the Commission should consider

differences in costs between obtaining the network element from the

incumbent versus through self-provisioning or from an alternative

source. Should the Commission adopt a standard under which we examine

whether the difference in cost between obtaining a network element from

an incumbent LEC as opposed to obtaining it through self-provisioning

or from an alternative source is a ``material'' difference? If so, what

constitutes a ``material'' difference? For example, if the cost of

obtaining the network element from the incumbent LEC is half of the

cost of obtaining it from another source, should the incumbent be

required to unbundle it? How would

[[Page 20242]]

this work in practice? Should the threshold vary by the network

element?

26. We also seek comment on what specific cost differences the

Commission should include in evaluating the ``necessary'' and

``impair'' standards. In the Local Competition First Report and Order,

the Commission stated that incumbent LECs ``have economies of density,

connectivity, and scale * * * [that must] be shared with entrants.'' We

seek comment on the extent to which we should consider cost differences

based on economies of density, connectivity, and scale in determining

whether a network element must be unbundled pursuant to sections

251(c)(3) and 251(d)(2). We also seek comment on whether the Commission

should evaluate ``sunk'' costs that would be incurred by requesting

carriers if they were to obtain the network elements through self-

provisioning or from other sources outside the incumbent LEC's network

(e.g., those costs associated with entry that are not fully recoverable

if the requesting carrier exits the market).

27. We seek comment on the extent to which we should consider the

quantity of facilities that may be necessary for competitors to obtain

in order to compete effectively. For example, a competitor's ability to

compete may not be ``impaired'' if it is required to self-provision

only one switch. With respect to some entry strategies, however, in

order to compete effectively, the new entrant may need to obtain

multiple switches. Accordingly, we ask parties to comment on the extent

to which such factors as economies of scale, penetration assumptions,

and the requesting carrier's particular market entry strategies should

be considered as part of the ``necessary'' and ``impair'' analysis.

28. In addition to cost, we seek comment on other factors that the

Commission should consider in evaluating the availability of network

elements from alternative sources. For example, how should the

Commission assess factors such as the difference in the length of time

it takes to obtain a network element from an incumbent LEC versus

obtaining it from an alternative source. We seek comment, in

particular, on whether and the extent to which the language of the

statute and the Supreme Court's opinion constrain the factors that we

can or should consider in evaluating the availability of elements

outside the incumbent's network. We also seek comment on whether

differences in quality that result from acquiring a network element

from the incumbent LEC compared to an alternative source are relevant

to our analysis of the ``necessary'' and ``impair'' standards of

section 251(d)(2). Parties advocating the application of such factors

for analyzing unbundling requirements under the ``necessary'' and

``impair'' standards of section 251(d)(2) should discuss specific

methods for measuring and applying those differences to specific

network elements.

G. Weight To Be Given to Various Factors

29. Section 251(d)(2) states that the Commission shall ``consider,

at a minimum'' whether access is necessary or lack of access would

impair a requesting carrier's ability to provide service. In explaining

the Commission's duty when directed by Congress to ``consider'' a

particular factor, the D.C. Circuit has held: ``That means only that

[the Commission] must `reach an express and considered conclusion'

about the bearing of a factor, but is not required `to give any

specific weight' to it.'' At the same time, the Supreme Court observed

in its remand of the Local Competition First Report and Order that, in

determining which network elements must be unbundled, ``the Commission

cannot consistent with the statute, blind itself to the availability of

elements outside the incumbent's network.'' The Court also observed

that ``giving some substance to the `necessary' and `impair'

requirements * * * is not achieved by disregarding entirely the

availability of elements outside the network. * * *'' What weight,

then, should the Commission attach to the ``necessary'' and ``impair''

requirements of section 251(d)(2)? In particular, commenters should

address how much weight the Commission must give to these requirements

in order to satisfy section 251(d)(2) and the Supreme Court decision.

30. We also seek comment on what other factors the Commission

should consider, in addition to the ``necessary'' and ``impair''

standards, in determining whether a particular network element should

be unbundled, and on how any proposed additional criteria would

interrelate with the ``necessary'' and ``impair'' standards set forth

in the statute. Commenters should specifically identify any factors

deemed sufficiently important in meeting the goals of the 1996 Act to

require the unbundling of a network element, even if such unbundling

did not otherwise meet the ``necessary'' or ``impair'' standards of

sections 251(d)(2)(A) or (B) standing alone.

31. Finally, we ask commenters addressing particular standards and

criteria for interpreting the ``necessary'' and ``impair'' standards of

section 251(d)(2) to discuss how those standards and criteria are

consistent with, and further the goals of the 1996 Act.

H. Application of Criteria to Previously Identified and Other Network

Elements

32. In the Local Competition First Report and Order, the Commission

identified seven network elements that were subject to the unbundling

obligations of section 251(c)(3). We note that in the Local Competition

proceeding, even incumbent LECs agreed that the local loop is a network

element that must be unbundled pursuant to sections 251(c)(3) and

251(d)(2) of the Act. It is our strong expectation that under any

reasonable interpretation of the ``necessary'' and ``impair'' standards

of section 251(d)(2), loops will generally be subject to the section

251(c)(3) unbundling obligations. We seek comment on this analysis. We

also see nothing in the statute or the Supreme Court's opinion that

would preclude us from requiring that loops that must be unbundled must

also be conditioned in a manner that allows requesting carriers

supplying the necessary electronics to provide advanced

telecommunications services, such as digital subscriber line technology

(xDSL). We seek comment on this analysis.

33. Parties are requested to apply their proposed standards and

criteria, as well as other proposed standards, to the loop and the

other six network elements previously identified in the Local

Competition First Report and Order. Parties should also apply their

proposed standards and criteria to any other network elements they

contend should be unbundled. For example, we seek comment on whether,

due to technology changes, we should require sub-loop unbundling at the

remote terminal or at other points within the incumbent LEC's network.

Parties should also comment on situations where the incumbent LEC owns

facilities on the end user's side of the network demarcation point and

whether those facilities should be unbundled under section 251(c)(3).

In light of the Supreme Court decision, we also seek comment on whether

the Commission can require incumbent LECs to combine unbundled network

elements that they do not already combine (e.g., an unbundled loop

combined with unbundled transport). To the extent parties advocate that

certain network elements fail to meet the ``necessary'' or

[[Page 20243]]

``impair'' standard, we ask that parties provide the Commission

sufficient information regarding the competitive availability of

alternatives to such network elements. Parties are requested to include

specific costs and availability of such network elements, on an

element-by-element basis. Additionally, we ask commenters to provide

factual information comparing the quality of alternatives to those

network elements that they request to be unbundled.

34. We also ask parties to comment on whether, in light of

technological advances or experience in the marketplace since adoption

of the Local Competition First Report and Order, the Commission should

modify the definition of any of its previously identified network

elements. For example, should we modify the definition of ``loops'' or

``transport'' to include dark fiber?

35. In light of the Supreme Court remand, we seek additional

comment on whether network elements used in the provision of advanced

services should be unbundled, as discussed in the Advanced Services

NPRM. For example, parties should comment on whether digital subscriber

line access multiplexers and/or packet switches should be unbundled

pursuant to section 251(c)(3). Parties should also comment on whether

there is any basis for treating network elements used in the

provisioning of packet-switched advanced services any differently than

those used in the provisioning of traditional circuit-switched voice

services.

I. Modifications to Unbundling Requirements

36. Given that technological, competitive, and economic factors

may, over time, affect the availability of network elements from

sources outside the incumbent LEC's network, we seek comment on whether

the Commission should adopt a mechanism by which network elements would

no longer have to be unbundled at a future date. In particular, we seek

comment on whether affirmative steps by the parties or the Commission

should be necessary to remove a particular element from unbundling

requirements, or whether affirmative action should be necessary to

continue requiring the unbundling of particular elements. Commenters

should address this question in light of the language and purposes of

the statute, as well as the Supreme Court's opinion. If there

subsequently is a modification to an unbundling requirement, should an

incumbent LEC be required to continue to unbundle that element

identified in an interconnection agreement until the date that the

agreement expires? Under such a scenario, should an incumbent LEC be

able to refuse to unbundle a network element that is no longer required

when negotiating a new contract with other parties?

37. Parties advocating that we adopt a mechanism for removing

particular elements from the unbundling requirements should provide

specific details and explain the legal basis under section 251(d)(2)

for doing so. Parties should discuss what factors the Commission should

consider in determining whether to remove an element from the

unbundling obligations of section 251(c)(3), how the Commission should

apply those factors to the particular element, and what conditions

would trigger removal from the unbundling requirements. If the

Commission adopts a mechanism for removing the unbundling obligation

for specified network elements, to what extent should the Commission

consider whether to phase out the use of such unbundled network

elements in a manner that avoids market disruptions? Should the

incumbent LEC bear the burden of demonstrating to the Commission that a

particular network element no longer need be unbundled, and what

showing should be necessary to overcome any presumption in favor of

continuing the unbundling requirement? Alternatively, should competing

LECs bear the burden of demonstrating that unbundling is still required

pursuant to section 251(d)(2)? Should we restrict incumbents from

seeking removal of certain network elements from the unbundling

requirements for a specific period of time following implementation of

our new unbundling rules (e.g., two years), or in the case of regional

Bell Operating Companies (BOCs), until after section 271 authority is

obtained?

38. We also seek comment on whether section 251(d)(2), or any other

provision of the Act, provides the Commission with the authority to

delegate to the states responsibility for removing network elements

from any national unbundling requirements, applying the standards for

section 251(d)(2) we adopt in this proceeding. If we were to delegate

such responsibility to the states, what procedure should apply for

appeals to the Commission from a state's determination that a network

element no longer qualified for unbundling under section 251(c)(3)?

39. We also seek comment on whether the Commission has authority to

adopt a ``sunset'' provision under which unbundling obligations for

particular elements or all elements would no longer be required, upon

the passage of time or occurrence of certain events, without any

subsequent action by the Commission. Inasmuch as Congress included

``sunset'' provisions in other parts of the 1996 Act, how does the lack

of reference to one here affect our authority to adopt such a

provision? We seek comment on specific criteria that the Commission

should consider in determining whether to ``sunset'' a requirement to

provide unbundled network elements, if the Commission has such

authority. Parties should comment on what predictive judgments about

the future would be needed, if any, and they should provide the

information the Commission would need in order to make a determination

that a ``sunset'' provision is appropriate. Parties advocating a sunset

provision should address any possible uncertainties and incentives

created by such an approach and any possible effects on local

competition and future new entrants.

40. We also seek comment on the extent to which adoption of a

``sunset'' provision would constitute forbearance prohibited under

section 10(d) of the Act. Section 10(d) forbids the Commission from

forbearing ``from applying the requirements of section 251(c) or 271 *

* * until it determines that those requirements have been fully

implemented.'' We also seek comment on the meaning of ``fully

implemented'' in this provision of the Act. Would it be considered

forbearance if unbundling of a particular element were no longer

required because that element no longer satisfied the requirements of

section 251(d)(2)?

J. Additional Questions

41. We seek comment on what effect, if any, the fact that Congress

required BOCs seeking in-region interLATA authority to unbundle certain

network elements should have on our interpretation of section

251(d)(2). For example, should there be a presumption that the network

elements set forth in the competitive checklist of section 271(c)(2)(B)

are subject to the unbundling obligation contained in section

251(c)(3)? Conversely, what would be the effect on future 271

applications of concluding that a network element identified in section

271(c)(2)(B) is not subject to the 251(c)(3) unbundling obligations?

For example, if after considering the ``necessary'' and ``impair''

standards of section 251(d)(2) we determine that a network element need

not be unbundled pursuant to section 251(c)(3), what terms and

conditions would still apply to that element if it must be provided as

part of the competitive checklist of

[[Page 20244]]

section 271? Commenters should address what pricing standard, if any,

would apply in such a situation, and what pricing rule would govern in

arbitrations where the parties had been unable to negotiate a price.

42. In addition, we seek comment on whether the existence of a

competitive market for a network element is necessary to demonstrate

that an element is sufficiently available outside the incumbent's

network so that failure of the incumbent to provide the element would

not be ``necessary'' or would not ``impair'' a carrier's ability to

provide service. What relevance is the fact that those entities that

could provide alternative sources of the element do not have a legal

obligation to unbundle that element? For example, section 251(b)(3)

requires all local exchange carriers to provide operator services and

directory assistance (OS/DA) to competing providers of telephone

exchange carriers. Assuming there is a competitive market for OS/DA,

and LECs are obligated to provide those services under section 251(b),

is a competitor's ability to compete ``impaired'' if these functions

are not provided by incumbent LECs as an unbundled network element

under section 251(c)(3)?

43. In the Local Competition First Report and Order, the Commission

explicitly rejected the argument that would allow incumbent LECs to

deny access to unbundled elements if the element is equivalent to a

service available at resale. The Commission stated that such a

conclusion would lead to impractical results, because incumbents could

completely avoid section 251(c)(3) unbundling obligations by offering

unbundled elements to end users as retail services. In light of the

Supreme Court decision, we seek comment on the extent to which, if any,

the availability of resold services obtained from the incumbent LEC

should be considered in determining whether a particular network

element should be unbundled. More specifically, we ask parties to apply

their interpretations of the ``necessary'' and ``impair'' standards in

light of the availability of incumbent LEC resold services. Is there a

legal or policy basis for concluding that the inability to obtain

access to combinations of network elements could impair a requesting

carrier's ability to provide service to residential customers, but not

business customers?

44. Parties should submit the text of any proposed rules they urge

the Commission to adopt as part of their filings in this proceeding.

IV. Procedural Issues

A. Ex Parte Presentations

45. The matter in Docket No. 96-98, initiated by this Second

Further NPRM, shall be treated as a ``permit-but-disclose'' proceeding

in accordance with the Commission's ex parte rules. Persons making oral

ex parte presentations are reminded that memoranda summarizing the

presentations must contain summaries of the substance of the

presentations and not merely a listing of the subjects discussed. More

than a one or two sentence description of the views and arguments

presented is generally required. Other rules pertaining to oral and

written presentations are set forth in section 1.1206(b) as well.

Interested parties are to file with the Secretary, FCC, and serve

Janice Myles and International Transcription Services (ITS) with copies

of any written ex parte presentations or summaries of oral ex parte

presentations in these proceedings in the manner specified below for

filing comments.

B. Supplemental Initial Regulatory Flexibility Analysis

46. In the Local Competition First Report and Order, the Commission

prepared a Final Regulatory Flexibility Analysis (FRFA) addressing the

impact of the local competition rules on small businesses, including

section 51.319. In AT&T v. Iowa Utils. Bd. the Supreme Court vacated

section 51.319 because it found that the Commission had not properly

considered and applied the ``necessary'' and ``impair'' standards of

section 251(d)(2) when it identified network elements that must be

unbundled pursuant to section 251(c)(3) of the Act. This proceeding

will further consider, in light of the Supreme Court's decision in AT&T

v. Iowa Utils. Bd., how the Commission should interpret the standards

set forth in section 251(d)(2), and which network elements should be

unbundled under section 251(c)(3). This may require modification of the

portion of the Local Competition First Report and Order FRFA addressing

former section 51.319. Therefore, we have prepared this Supplemental

Initial Regulatory Flexibility Analysis (SIRFA) to address any possible

significant economic impact on small entities that may result from our

further consideration. Written public comments are requested on this

SIRFA. These comments must be filed in accordance with the same filing

deadlines for comments on the rest of the Second Further NPRM, but they

must have a separate and distinct heading, designating the comments as

responses to the SIRFA. The Commission will send a copy of the Second

Further NPRM, including this SIRFA, to the Chief Counsel for Advocacy

of the Small Business Administration. In addition, the Second Further

NPRM and SIRFA (or summaries thereof) will be published in the Federal

Register.

47. Reason for Action: This further proceeding is required by the

remand following the Supreme Court order vacating section 51.319.

48. Objectives: The objective of this Second Further NPRM is to

afford the public the opportunity to supplement the record previously

adduced concerning the ``necessary'' and ``impair'' standards of

section 251(d)(2) and the identification of network elements that are

subject to the unbundling requirements of section 251(c)(3).

49. Legal Basis: Sections 1-4, 10, 201, 202, 251-254, 271, and

303(r) of the Communications Act, as amended, 47 U.S.C. 151-154, 160,

201, 202, 251-254, 271, and 303(r).

50. Description and estimate of the number of small entities

affected: We anticipate no change in the description and estimate of

the number of small entities that might be affected by our further

consideration from the description and estimate adopted in the Local

Competition Report and Order FRFA.

51. Description of projected reporting, recordkeeping, and other

compliance requirements: None are anticipated from the further

consideration.

52. Federal rules that may duplicate, overlap, or conflict with the

proposed rule: None.

53. Any significant alternatives minimizing the impact on small

entities consistent with the stated objectives: We have outlined and

sought comment on the many issues involved in the further

consideration. We seek comment on any interpretation of the

``necessary'' and ``impair'' standards of section 251(d)(2) used to

identify network elements that are subject to the unbundling

requirements of section 251(c)(3) that would minimize the impact on

small entities.

C. Comment Filing Procedures

54. Interested parties may file any comments in response to this

Second Further NPRM no later than May 26, 1999, with the Secretary,

FCC, at 445 12th Street, S.W., Washington, D.C. 20554. Reply comments

may be filed with the Secretary, FCC, no later than June 10, 1999. All

pleadings are to reference CC Docket No. 96-98. Interested parties

should file an original and 12 copies of all pleadings. An

[[Page 20245]]

additional copy of all pleadings must also be sent to Janice M. Myles,

Common Carrier Bureau, FCC, 445 12th Street, S.W., Room 5-C327,

Washington, D.C. 20554, and to the Commission's contractor for public

service records duplication, ITS, 1231 20th Street, N.W., Washington,

D.C. 20036. Comments and reply comments will be available for

inspection and copying during normal business hours in the FCC's

Reference Center, 445 12th Street, S.W., Washington, D.C. 20554. Copies

also can be obtained from ITS at 1231 20th Street, N.W., Washington,

D.C. 20036, or by calling ITS at (202) 857-3800 or faxing ITS at (202)

857-3805.

55. Parties are required to file a copy of all pleadings

electronically via the Internet to http://www.fcc.gov/e-file-

ecfs.html>. Generally, only one copy of an electronic submission must

be filed. If multiple docket or rulemaking numbers appear in the

caption of this proceeding, however, commenters must transmit one

electronic copy of the comments for each docket or rulemaking number

referenced in the caption. In completing the transmittal screen,

commenters should include their full name, Postal Service mailing

address, and the applicable docket or rulemaking number. Parties may

also submit an electronic comment by Internet e-mail. To get filing

instructions for e-mail comments commenters should send an e-mail to

[email protected], and should include the following words in the body of the

message, ``get form, your e-mail address.'' A sample form and

directions will be sent in reply.

56. We will treat this proceeding as permit-but-disclose for

purposes of the Commission's ex parte rules. See generally 47 CFR

1.1200-1.1216. Parties making oral ex parte presentations are reminded

that memoranda summarizing the presentation must contain a summary of

the substance of the presentation and not merely a listing of the

subjects discussed. More than a one or two sentence description of the

views and arguments presented is generally required. See 47 CFR

1.1206(b)(2), as revised. Other rules pertaining to oral and written

presentations are set forth in section 1.1206(b) as well. Interested

parties are to file with the Secretary, FCC, and serve Janice Myles and

ITS, with copies of any written ex parte presentations or summaries of

oral ex parte presentations in these proceedings in the manner

specified.

V. Ordering Clauses

57. Accordingly, it is ordered that pursuant to Sections 1, 3, 4,

201-205, 251, 252, 254, 256, and 271 of the Communications Act of 1934,

as amended, 47 U.S.C. 151, 153, 154, 251, 252, 256, and 271, the second

further notice of proposed rulemaking is hereby adopted.

58. It is further ordered that, the Office of Public Affairs,

Reference Operations Division shall send a copy of this second further

notice of proposed rulemaking, including the SIRFA, to the Chief

Counsel for Advocacy of the Small Business Administration, in

accordance with section 603(a) of the Regulatory Flexibility Act, 5

U.S.C. 601 et seq. (1981).

Federal Communications Commission.

William F. Caton,

Deputy Secretary.

[FR Doc. 99-10307 Filed 4-23-99; 8:45 am]

BILLING CODE 6712-01-P