Telephone Number Portability

FEDERAL COMMUNICATIONS COMMISSION

47 CRF Part 52

[CC Docket No. 95-116; FCC 99-151]

Telephone Number Portability

AGENCY: Federal Communications Commission.

ACTION: Policy statement.

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SUMMARY: This document addresses issues raised on reconsideration of

the First Report and Order relating to interim number portability.

First, the Commission affirms its earlier conclusion that it has the

authority to establish cost recovery guidelines for interim number

portability. Second, the Commission rejects claims that the cost

recovery guidelines for interim number portability set forth in the

First Report and Order are arbitrary and capricious, or constitute an

unconstitutional taking. The Commission denies the request that these

cost recovery guidelines be applied retroactively. The Commission also

affirms its earlier decision to adopt general cost recovery guidelines

for interim number portability while allowing states flexibility to

continue using a variety of cost recovery approaches that are

consistent with its guidelines. The Commission also clarifies issues

relating to terminating access charges, billing system modifications,

and certain cost recovery allocators, as each of these issues relates

to interim number portability.

DATES: Effective September 27, 1999.

FOR FURTHER INFORMATION CONTACT: Rhonda Lien or Janet Sievert at (202)

418-1520, Competitive Pricing Division, Common Carrier Bureau.

SUPPLEMENTARY INFORMATION: This summarizes the Commission's Fourth

Memorandum Opinion and Order on Reconsideration in CC Docket No. 95-

116, In re Telephone Number Portability, FCC 99-151, adopted June 23,

1999 and released July 16, 1999. The file in its entirety is available

for inspection and copying during the weekday hours of 9:00 a.m. to

4:30 p.m. in the Commission's Reference Center, 445 12th St. SW., Room

CY-A257, Washington DC, or copies may be purchased from the

Commission's duplicating contractor, ITS Inc., 1231 20th St. NW.,

Washington DC 20036; (202) 857-3088.

Analysis of Proceeding

I. Introduction

The Commission adopted the First Report and Order and Further

Notice of Proposed Rulemaking, 61 FR 38605 (July 25, 1996) in this

docket, which implemented the provisions of section 251 of the

Communications Act of 1934, as amended, that relate to telephone number

portability. In re Telephone Number Portability, CC Docket No. 95-116,

First Report and Order and Further Notice of Proposed Rulemaking, 11

FCC Rcd 8352 (1996) (First Report and Order). Specifically, section

251(b)(2) requires that all local exchange carriers (LECs) provide,

``to the extent technically feasible, number portability in accordance

with requirements prescribed by the Commission.'' 47 U.S.C. 251(b)(2).

Section 251(e)(2) provides that ``the costs of establishing * * *

number portability shall be borne by all telecommunications carriers on

a competitively neutral basis as determined by the Commission.'' 47

U.S.C. 251(e)(2). The Communications Act of 1934, as amended (``the

Act'' or ``the 1996 Act'') defines ``number 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.'' 47 U.S.C. 153(30). In the

First Report and Order, the Commission determined, among other things,

that it has authority under section 251 to promulgate rules regarding

long-term and currently available (or ``interim'') number portability,

as well as to establish cost recovery methods for each.

Twenty-two parties filed petitions for reconsideration or

clarification of the First Report and Order. Nineteen parties filed

oppositions to or comments on the petitions, and 16 parties filed reply

comments. On March 6, 1997, the Commission adopted a First Memorandum

Opinion and Order on Reconsideration, 62 FR 18280 (April 15, 1997) in

this proceeding, addressing a number of these issues. In re Telephone

Number Portability, CC Docket 95-116, First Memorandum Opinion and

Order on Reconsideration, 12 FCC Rcd 7236 (1997). A Second Memorandum

Opinion and Order on Reconsideration, 63 FR 68197 (Dec. 10, 1998)

clarified that all LECs must discontinue using interim number

portability in areas where a long-term number portability method has

been implemented. In re

[[Page 46572]]

Telephone Number Portability, CC Docket 95-116, Second Memorandum

Opinion and Order on Reconsideration, 13 FCC Rcd 21,204 (1998). The

item also clarified that Remote Call Forwarding (RCF) and Flexible

Direct Inward Dialing (DID) are not the exclusive methods of providing

interim number portability that LECs are obligated to provide on a

transitional basis. Instead, LECs may implement any technically

feasible method of interim number portability comparable to RCF and

DID. The Commission also held that a LEC is required to implement the

specific method of interim number portability requested by a competing

carrier, provided that provision of the requested method is not unduly

burdensome. A Third Memorandum Opinion and Order on Reconsideration. CC

Docket No. 95-116, 13 FCC Rcd 16,090 (1998) denied a petition for

reconsideration that sought modification to the long-term number

portability deployment schedule. In its Third Report and Order on

number portability, 63 FR 35150 (June 29, 1998), CC Docket No. 95-116,

13 FCC Rcd 11,701 (1998), the Commission adopted rules governing

recovery of the costs of long-term number portability. In this Fourth

Memorandum Opinion and Order on Reconsideration, the Commission

addresses issues raised by petitioners relating to cost recovery for

interim number portability.

II. Background

3. In the First Report and Order, the Commission exercised its

authority to prescribe requirements governing the LECs' duty to provide

number portability. After determining that section 251(b)(2) requires

LECs to provide number portability in the short term, the Commission

prescribed that such number portability be provided through Remote Call

Forwarding (RCF), Flexible Direct Inward Dialing (DID), or other

comparable methods. The Commission based this finding on its conclusion

that section 251(b)(2), by referring to the provision of number

portability ``to the extent technically feasible,'' creates a dynamic

requirement that allows for changes in the methods by which a LEC

provides the required number portability. Accordingly, the Commission

concluded that because RCF, DID, and other comparable measures

currently are technically feasible number portability methods, section

251(b)(2) requires LECs to provide number portability through such

methods. The Commission stated that, upon receipt of a specific request

from another telecommunications carrier, a LEC must provide number

portability through such measures as soon as reasonably possible, until

such time as the LEC implements a long-term database method for number

portability in that area.

4. In light of its finding that the Communications Act requires

LECs to provide interim number portability, the Commission also

determined that it must adopt cost recovery principles for interim

number portability measures pursuant to section 251(e)(2). The

Commission concluded that section 251(e)(2) ``gives us specific

authority to prescribe pricing principles that ensure that the costs of

establishing number portability are allocated on a `competitively

neutral' basis.'' Applying section 251(e)(2) to interim number

portability, the Commission concluded that it should adopt guidelines

that the states must follow in mandating cost recovery mechanisms for

interim number portability measures.

5. Section 251(e)(2) requires that ``the costs of establishing

number administration and number portability be borne by all

telecommunications carriers on a competitively neutral basis.'' 47

U.S.C. 251(e)(2). In the First Report and Order, the Commission

determined that the costs of currently available (referred to here as

interim) number portability are those ``incremental costs incurred by a

LEC to transfer numbers initially and subsequently forward calls to new

service providers.'' The Commission also determined that for purposes

of interim number portability, the phrase ``all telecommunications

carriers'' was to be read literally, and included ``any provider of

telecommunications services,'' including incumbent LECs, new LECs,

commercial mobile radio service (CMRS) providers, and interexchange

carriers (IXCs).

6. The Commission also set forth two criteria with which any cost

recovery method must comply in order to be considered competitively

neutral. First, ``a `competitively neutral' cost recovery mechanism

should not give one service provider an appreciable, incremental cost

advantage over another service provider, when competing for a specific

subscriber.'' Second, the cost recovery mechanism ``should not have a

disparate effect on the ability of competing service providers to earn

normal returns on their investments.'' In the First Report and Order,

the Commission provided some examples of methods currently in use that

would comply with these criteria. Such methods include, but are not

limited to: allocating incremental costs based on (a) the number of

ported numbers, (b) the number of active telephone numbers, (c) the

number of active telephone lines, (d) gross telecommunications revenues

net of charges paid to other carriers; and (e) each carrier bearing its

own costs. The Commission further stated that requiring new entrants to

bear all of the costs of interim number portability, measured on the

basis of incremental costs, would not comply with the statutory

requirements of section 251(e)(2). In setting forth these criteria,

however, the Commission left to the states the determination of the

specific cost recovery mechanism to be utilized. On May 5, 1998, the

Commission adopted a Third Report and Order that resolved numerous

issues regarding the means by which carriers will bear the costs of

providing long-term number portability. The Commission found that

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

authority, and requires the Commission, to ensure that all

telecommunications carriers bear the costs of providing number

portability for interstate and intrastate calls on a competitively

neutral basis. The Commission concluded that section 251(e)(2)

addresses both interstate and intrastate matters and overrides the

reservation of authority of section 2(b) to the states over intrastate

matters. Thus, the Commission determined that section 251(e)(2)

authorizes it to provide the distribution and cost recovery mechanism

for all the costs of providing long-term number portability. The

Commission determined that an exclusively federal recovery mechanism

for long-term number portability ``will enable the Commission to

satisfy most directly its competitive neutrality mandate.''

II. Reconsideration Issues

A. Commission Authority To Require Interim Number Portability

1. Background

7. In the First Report and Order, the Commission required LECs to

provide interim number portability, based on the 1996 Act's requirement

that LECs provide number portability ``to the extent technically

feasible.'' The Commission based this conclusion on the language of

section 251(b)(2), which states that LECs have ``[t]he duty to provide,

to the extent technically feasible, number portability in accordance

with requirements prescribed by the Commission.'' Several carriers

challenge the Commission's finding that the 1996 Act provides authority

for the Commission to order LECs to provide interim number portability.

[[Page 46573]]

2. Discussion

8. The Commission reaffirms its earlier conclusion that it has

authority to require that number portability be implemented ``to the

extent technically feasible'' and that its authority under section

251(b)(2) encompasses all forms of number portability. Section 3(30) of

the Act defines number 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.'' This definition is not limited to any one technical method

of number portability. Nor is the duty of LECs pursuant to section

251(b)(2), to provide number portability ``to the extent technically

feasible . . . in accordance with requirements prescribed by the

Commission,'' limited to long-term number portability. The Commission

acknowledges that some ambiguity exists regarding the statutory mandate

to require the provision of interim number portability, because, while

sections 251(b) and 3(30) refer to the provision of ``number

portability,'' section 271(c)(2)(B) refers to both ``regulations

pursuant to section 251 to require number portability'' and ``interim

number portability'' to be provided by Bell Operating Companies (BOCs)

until the Commission issues such regulations.'' See 47 U.S.C.

251(b)(2), 271(c)(2)B)(ix), 153(30). The Commission finds, however,

that its earlier interpretation of section 251(b)(2), that is,

requiring all LECs to provide number portability to the extent

technically feasible, is consistent with, and necessary to effectuate,

Congress's goal to promote competition in the provision of local

telecommunications service. Indeed, prior Commission decisions reflect

its understanding of Congress's intent, stated in the First Report and

Order, that number portability is a dynamic concept that allows for

changes in the methods by which LECs provide it. Additionally, in

placing number portability obligations within section 251, which is

concerned overall with the development of competitive local markets,

Congress recognized the importance of number portability to the

development of local competition. Because the statutory language, like

the language in the House bill, requires LECs to provide number

portability ``to the extent technically feasible'' and according to

requirements prescribed by the Commission, rather than ``when

technically feasible,'' the Commission does not believe that this

legislative history suggests an intent by Congress to prevent the

Commission from requiring LECs to provide ``interim,'' ``currently

available,'' or ``transitional'' number portability until ``true''

number portability becomes available.

9. The Commission finds unpersuasive BellSouth's contention that,

because Congress considered including a specific reference to interim

number portability, but did not adopt it in section 251(b), the lack of

such language demonstrates that the Commission is without jurisdiction

in this area, in particular regarding language set forth in section 261

of Senate Bill 652. This language was not included in the final version

of the legislation. Because the legislative history provides no

explanation for the deletion of this language, it is subject to various

interpretations, and the Commission is not persuaded that BellSouth's

is the most reasonable among them. See Mead Corp. v. Tilley, 490 U.S.

714, 723 (1989); Rastelli v. Warnder, 782 F.2d 17, 23 (2d Cir. 1986).

The Joint Explanatory Statement of the Conference Report states that

all differences between the Senate Bill, the House Amendment, and the

substitute reached in conference are noted therein ``except for

clerical corrections, conforming changes made necessary by agreements

reached by the conferees, and minor drafting and clerical changes.''

Because the Joint Explanatory Statement does not address the omission

of section 261 of the Senate Bill from the final legislation, the more

logical inference from the quoted statement is that Congress regarded

the change as an inconsequential modification rather than a significant

alteration. This view is supported by two additional facts noted above:

first, the statement in the Joint Explanatory Statement that section

251 ``incorporates provisions from both the Senate Bill and the House

Amendment;'' and second, the statements from the House Report

suggesting that the Commission's authority to prescribe requirements

for number portability extends both to interim number portability,

which is being provided now, and to long-term number portability, which

will ``be deployed when it is technically feasible.''

10. This reading of the term ``number portability'' to include all

forms of number portability, whether interim or long-term, also is more

consistent than BellSouth's reading with Congress' goal of fostering

competition in the local exchange marketplace. Congress recognized that

number portability is essential to meaningful competition in the

provision of local exchange services, and the record in this proceeding

demonstrates that customers are reluctant to switch carriers if doing

so requires that they give up their current telephone numbers. Nor is

this view inconsistent with the distinction between ``interim number

portability'' and ``section 251 number portability'' referenced in

section 271(c)(2)(B)(ix). The legislative history of the 1996 Act does

not explain why Congress decided to refer specifically to interim

number portability only in section 271(c)(2)(B)(ix). In the absence of

such an explanation, and given the broad definition of number

portability in section 3(30) and the legislative history described

above, it seems unlikely that Congress's reference to interim number

portability in section 271(c)(2)(B)(ix) was intended to narrow the

concept of number portability as used elsewhere in the statute.

11. Contrary to BellSouth's assertion, in the First Report and

Order, the Commission did not rely on section 271(c)(2)(B)(xi) as the

basis for requiring all LECs to provide interim number portability.

Rather, the Commission merely referred to section 271(c)(2)(B)(xi) as

offering further support for its interpretation of section 251(b)(2).

In addition, the Commission explained that its interpretation of

section 251(b)(2) would prevent a BOC seeking interLATA authorization,

pursuant to section 271 of the Act, from being able to avoid providing

number portability during the time between the adoption of the

Commission's number portability rules and the implementation of long-

term number portability measures. See 47 U.S.C. 271. Under BellSouth's

interpretation, a BOC could refuse to offer interim number portability

from the time of the adoption of the First Report and Order until the

actual implementation of long-term number portability, yet still be in

compliance with the number portability checklist requirement set forth

in section 271. The Commission believes that a more logical

interpretation of these sections is that, in providing for both types

of number portability, Congress did not intend for there to be such a

time lag but instead required the provision of interim number

portability until long-term number portability is in place.

[[Page 46574]]

B. Commission Authority To Establish Cost Recovery Guidelines for

Interim Number Portability

1. Background

12. In the First Report and Order, the Commission asserted

jurisdiction over interim number portability and established cost

recovery guidelines for interim number portability measures for the

states to implement. Several commenters assert that the Commission

lacks authority to promulgate cost recovery guidelines for interim

number portability.

2. Discussion

13. The Commission upholds its earlier decision and affirms its

authority to establish cost recovery guidelines for interim number

portability measures. Its interpretation of the statute finds support

in the language of the 1996 Act, is consistent with the Act's

underlying goals, and is consistent with the conclusions reached in the

Third Report and Order.

14. The Commission finds that sections 251(b)(2) and 251(e)(2)

grant it explicit authority over, respectively, the provision of and

the recovery of costs associated with number portability. 47 U.S.C.

251(b)(2), (e)(2). The Commission finds that its authority under

section 251(e)(2), as with section 251(b)(2), is not limited to long-

term number portability, since the statutory definition of number

portability draws no distinction between interim and long-term number

portability. Section 3(30) of the Act defines number 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. 47 U.S.C. 153(30). This

definition is not limited to one technical method of providing number

portability. Similarly, sections 251(b)(2) and 251(e)(2) refer only to

the provision and cost recovery of ``number portability,'' but do not

limit the term ``number portability'' to long-term measures. As

discussed above, given the broad definition of number portability in

section 3(30), it seems unlikely that Congress's reference to interim

number portability in section 271(c)(2)(B)(ix) was intended to narrow

the concept of number portability as used elsewhere in the statute,

such as in sections 251(b)(2) and 251(e)(2). In addition, the

Commission finds that its interpretation of section 251(b)(2),

requiring all LECs to provide interim number portability, is consistent

with, and necessary to effectuate Congress's goal to promote

competition in the provision of local telecommunications service.

15. The Commission also notes that its conclusion that it has

statutory authority over interim number portability, regardless of

whether it is characterized as an intrastate or interstate service, and

the establishment of cost recovery rules for interim number

portability, is consistent with its holdings in the Third Report and

Order. There, the Commission concluded that the express and

unconditional grant of authority of section 251(e)(2) to the Commission

grants us the authority to ensure that carriers bear the costs of

providing number portability on a competitively neutral basis for both

interstate and intrastate calls. Section 251(e)(2) states that carriers

shall bear the costs of number portability ``as determined by the

Commission,'' and does not distinguish between costs incurred in

connection with intrastate calls and costs incurred in connection with

interstate calls. Thus, the Commission concludes for interim number

portability, as it did in the Third Report and Order for long-term

number portability, that section 251(e)(2) addresses both interstate

and intrastate matters and overrides the reservation of authority to

the states over intrastate matters contained in section 2(b). 47 U.S.C.

152(b). See Iowa Utils. Bd. v. FCC, 120 F.3d at 792, 794 and n.10, 795

and n.12, 802 and n.23, 806. See also In re Implementation of the Local

Competition Provisions in the Telecommunications Act of 1996, CC Docket

No. 96-98, First Report and Order, 61 FR 45476 (August 29, 1996), 11

FCC Rcd 15,499 at 15,548 and n.155 (1996), vacated in part, aff'd in

part, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), rev'd in

part, aff'd in part and remanded sub nom. AT&T Corp. v. Iowa Utils.

Bd., 119 S.Ct. at 730.

16. The Commission is not persuaded that it lacks jurisdiction over

cost recovery for interim number portability measures because the

states have historically regulated the retail provision of RCF and DID.

The states' regulation of rates for these services when provided on a

retail basis does not preclude an express Congressional grant of

authority to this Commission under section 251(e)(2) to regulate the

cost recovery for interim number portability. Section 251(e)(2) states

that carriers shall bear the costs of number portability ``as

determined by the Commission,'' and does not distinguish between costs

incurred in connection with intrastate calls and costs incurred in

connection with interstate calls.

17. The Commission disagrees with Bell Atlantic's claim that,

because section 251(e)(2) refers to the costs of ``establishing''

number portability and there is nothing to ``establish'' with respect

to interim number portability, the Commission is without authority to

adopt cost recovery guidelines for the provision of interim number

portability. In arguing that there is nothing to ``establish''

regarding interim number portability, Bell Atlantic defines the term

``establish'' narrowly, i.e, limiting the meaning of ``establish'' to

physically upgrading the public switched telephone network or creating

databases necessary for customers to retain their telephone numbers

when switching carriers. To give full effect to the pro-competitive

objectives of the 1996 Act, the Commission concludes that the term

``establish'' should be read more broadly. Although the functionalities

necessary to provide interim number portability already exist in most

public switched telephone networks, additional actions are necessary to

implement interim number portability in a manner useful to new

entrants. The actions required to establish interim number portability

and the associated costs vary according to where the call originates in

a carrier's network. The provision of interim number portability

results in switching and transport costs, and may include some small

non-recurring costs, such as administrative costs. Because additional

actions are required by LECs in the provision of interim number

portability, the Commission finds that the process of transferring

numbers and subsequently forwarding calls is what ``establishes''

(i.e., ``creates'' or ``brings into existence'') interim number

portability for use by new entrants.

18. In addition to disagreeing with Bell Atlantic's narrow

interpretation of the term ``establish'' in section 251(e)(2), the

Commission also finds that it would be contrary to Congressional intent

to conclude that the Commission's authority to impose a competitively

neutral cost recovery mechanism is limited to long-term number

portability. Congress imposed a number portability requirement on all

LECs, and directed the Commission to adopt a competitively neutral cost

recovery mechanism, in order to give new entrants a realistic

opportunity to compete against incumbent LECs for local exchange

customers. 47 U.S.C. 251(e). Mandating a number portability requirement

without ensuring a competitively neutral cost recovery mechanism could

significantly handicap the ability of new entrants to

[[Page 46575]]

win customers, whether the method of porting numbers is long-term or

interim. In the First Report and Order, the Commission concluded that,

because interim number portability costs will be small and incurred for

a relatively short period, requiring carriers to bear their own costs

would meet its competitive neutrality guidelines. The Commission

specifically prohibited incumbent LECs from shifting all of their costs

onto new entrants, however. Because both carriers would be competing

for the same customer, the new provider may be forced to charge higher

prices due to its need to recover the incumbent LEC's incremental costs

of number portability, while the customer would face no additional

charges if it stayed with the incumbent LEC. Thus, the Commission

concludes that Bell Atlantic's interpretation--that the Commission has

authority under section 251(e)(2) to impose a competitively neutral

cost recovery mechanism for long-term number portability, but lacks

such authority over interim number portability--will not promote

competition.

19. The Commission similarly is not persuaded by Bell Atlantic's

claim that cost recovery for interim number portability must be subject

to negotiation between carriers, and that the Commission therefore

lacks authority to establish cost recovery guidelines. Bell Atlantic's

argument is based on language in the Senate Report discussing section

261 of Senate Bill 652, which states that interconnection agreements

reached under section 251 must, if requested, provide for interim

number portability, including the method by which it will be provided,

and the amount of compensation. As discussed above, section 261, as it

appeared in Senate Bill 652, distinguished between interim and final

number portability, but was ultimately dropped from the final version

of the 1996 Act. The Commission finds unpersuasive Bell Atlantic's

interpretation of the legislative history. See Helvering v. Hallock,

309 U.S. 106, 119-20 (1940); Brennan v. Midwestern United Life

Insurance, 259 F. Supp. 673 (1966); Women Involved in Farm Economics v.

USDA, 682 F. Supp. 599 (1988).

20. The Commission rejects BellSouth's assertion that the

Commission lacks authority to depart from cost-causative pricing

principles. As the Commission explained in the Third Report and Order,

Congress imposed a number portability requirement on all LECs, and

directed the Commission to adopt a competitively neutral cost recovery

mechanism, in order to give new entrants a realistic opportunity to

compete against incumbent LECs for local exchange customers. A cost

causative basis for pricing number portability could defeat the purpose

for which number portability was mandated. Mandating a number

portability requirement without ensuring a competitively neutral cost

recovery mechanism could significantly handicap the ability of new

entrants to win customers, whether the method of porting numbers is

long-term or interim, because they could be forced to bear all

incremental costs of number portability and pass those costs onto

customers in the form of higher prices.

21. Finally, the Commission rejects BellSouth's contention that the

Commission based its jurisdiction to order interim number portability

on pre-1996 Act provisions and is therefore precluded from relying on

section 251(e)(2) for jurisdiction to determine cost recovery for such

interim measures. To the contrary, in the First Report and Order the

Commission concluded only that sections 1 and 202 of the Communications

Act provide a pre-existing and independent basis for its jurisdiction

to require the provision of interim number portability methods. The

Commission did not rely solely on sections 1 and 202 as a basis for

jurisdiction, and hereby clarifies that, although it finds that

sections 1 and 202 provide an additional statutory basis on which it

may require interim number portability, it has independent authority to

do so by virtue of sections 251(b)(2) and 251(e)(2) of the Act.

22. The Commission reiterates its earlier finding, as discussed

above, that section 251(e)(2) addresses both interstate and intrastate

matters, and overrides section 2(b)'s reservation of authority to the

states over intrastate matters. Although the Commission asserts federal

jurisdiction over interim number portability and affirms its authority

to establish cost recovery guidelines for interim number portability

measures, it denies requests that it generally preempt state number

portability cost recovery policies. Instead, the Commission affirms its

earlier conclusion that states may continue to utilize various cost

recovery mechanisms as long as they meet the Commission's competitive

neutrality guidelines. This cost recovery approach is different than

the one adopted in the Third Report and Order for long-term number

portability cost recovery, in which the Commission adopted an

exclusively federal cost recovery mechanism. The Commission notes that

in the Third Report and Order, it found 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,

but did not interpret the statute to require the adoption of an

exclusively federal recovery mechanism for all forms of number

portability. Instead, an exclusively federal cost recovery mechanism

for long-term number portability was adopted for several policy reasons

that are inapplicable to interim number portability. The Commission

determined in the Third Report and Order that an exclusively federal

cost recovery mechanism for long-term number portability will enable it

``to satisfy most directly its competitive neutrality mandate and will

minimize the administrative and enforcement difficulties that might

arise where jurisdiction over long-term number portability divided.''

Additionally, an exclusively federal cost recovery mechanism for long-

term number portability obviates the need for state allocation of the

shared costs of the regional database, a task that would likely be

complicated by the database's multistate nature.

23. Although the Commission has determined that the Commission's

authority to provide the distribution and recovery mechanism for all

number portability costs extends to long-term and interim number

portability, it does not find it necessary to establish an exclusively

federal recovery mechanism for interim number portability. Instead, it

will continue to permit states to provide for cost recovery in accord

with the competitive neutrality standards adopted in the First Report

and Order, and elaborated here, for the following reasons. First, the

Commission believes that adopting an exclusively federal cost recovery

mechanism would be very disruptive to existing interim number

portability cost recovery. States have been providing for interim

number portability cost recovery since 1996. Also, cost recovery for

interim number portability has been determined through existing

interconnection agreements, as incumbent LECs are required by section

251(c) to provide for interim number portability in their

interconnection agreements. 47 U.S.C. 251(c). The Commission notes that

federal courts have upheld the interim number portability cost recovery

guidelines established in the First Report and Order. See, e.g.,

Southwestern Bell Telephone v. AT&T, 1998 WL 657717*4 (D.Tex. 1998);

see also US WEST Communications v. MFS Intelnet, 35 F. Supp. 2d 1221,

1236 (D.Or. 1998).

[[Page 46576]]

Second, the Commission believes that disruption of existing cost

recovery mechanisms is not warranted because interim number portability

will remain in place for a very limited period of time. Interim number

portability was replaced by long-term number portability in the 100

largest MSAs by the end of 1998, and is subsequently being replaced in

other switches in which a bona fide request for number portability has

been received. Third, the Commission believes that a cost allocation

method that requires LECs to bear their own costs of interim number

portability is competitively neutral, as individual carrier's costs

will be small and no shared costs or database costs must be allocated.

As previously indicated, to the extent that RCF, DID and other

comparable methods are used to provide currently available number

portability, and the capability for currently available number

portability already exists in the incumbent LEC network, only the

short-run incremental costs are properly attributed to interim number

portability. Having already provisioned their switches with enough

capacity to carry all of their respective customers' incoming and

outgoing calls, the Commission does not expect incumbent LECs to incur

additional costs with respect to switch capacity when a customer

chooses to port its number to a new service provider and the incumbent

LEC must forward calls using interim number portability methods. As a

result, the Commission expects little or no change in the level of

incumbent LECs switching and transport costs per ported number.

24. As stated in the First Report and Order, if a carrier believes

that a LEC's pricing provisions for number portability violate the

Commission's competitive neutrality guidelines or violate a state-

mandated cost recovery mechanism, it may be able to seek relief from

its state commission. If the carrier is not able to obtain relief in

this way, or if a state has not yet adopted a cost recovery mechanism

for cost recovery of interim number portability measures, it may be

able to bring action against the LEC in federal district court pursuant

to section 207 for damages or file a section 208 complaint with this

Commission against another carrier alleging a violation of the Act or

the Commission's rules. Alternatively, if a carrier believes that a

state has not properly applied the statute or Commission rules, or if a

state's cost recovery mechanism is not competitively neutral because it

improperly burdens new entrants with interim number portability costs,

it may file a request for declaratory ruling with the Commission or

otherwise seek court review of the state cost recovery mechanism.

C. Cost Recovery Guidelines

1. Background

25. In the First Report and Order, the Commission established two

criteria with which any cost recovery method must comply in order to be

considered competitively neutral. First, ``a `competitively neutral'

cost recovery mechanism should not give one service provider an

appreciable, incremental cost advantage over another service provider,

when competing for a specific subscriber.'' Second, the cost recovery

mechanism ``should not have a disparate effect on the ability of

competing service providers to earn normal returns on their

investments.'' In setting forth these criteria, however, the Commission

left to the states the determination of the exact cost recovery

mechanism to be utilized. Several carriers have challenged the

Commission's cost recovery guidelines.

2. Discussion

26. The Commission rejects the claims of those carriers that assert

that its cost recovery guidelines are arbitrary, capricious, or plain

error. Number portability promotes competition by allowing customers to

switch carriers easily without having to change their telephone

numbers. In the First Report and Order, the Commission explained that

the Commission departed from cost causation principles with respect to

interim number portability because, ``[d]epending on the technology

used, to price number portability on a cost causative basis could

defeat the purpose for which it was mandated.'' As the Commission

stated in the Third Report and Order, pricing number portability on a

cost-causative basis could defeat Congress's purpose of removing

barriers to local competition because the nature of the costs involved

with some number portability solutions might make it economically

infeasible for some carriers to compete for a customer serviced by

another carrier. If it is assumed that the customer who ports his or

her number is the cost causer, and all of the costs associated with

forwarding a call are placed on the customer who switches carriers,

customers who want to retain their telephone numbers could be deterred

from switching carriers due to increased costs. This result is wholly

contrary to the pro-competitive intent of sections 251(b)(2) and

252(e)(2) regarding the provision of number portability.

27. Additional economic and policy considerations also support the

Commission's decision not to follow strict principles of cost causation

in this specific context by imposing all interim number portability

costs on new entrants. First, all customers benefit from number

portability because number portability promotes competition, lower

prices, increased choices, and greater innovation. In addition, other

customers will benefit to the extent that they need not search for a

customer's new number when that customer switches carriers. Since

number portability generates an externality from which all customers

benefit, the porting customers should not pay the full economic costs.

Moreover, as discussed in the First Report and Order and Third Report

and Order, if the costs are placed entirely on one carrier or group of

carriers, ``the new entrant's share of the cost [could be] so large,

relative to its expected profits, that the entrant would decide not to

enter.'' Preventing new, efficient entrants from offering service

because of costs associated with number portability would directly

contravene one of the 1996 Act's primary purposes, namely to encourage

local exchange competition.

28. Furthermore, the Commission agrees with MCI that the costs of

number portability should not be viewed narrowly as simply costs of

entry, but more broadly as costs of creating a competitive environment

that will benefit all consumers. In the Third Report and Order, the

Commission concluded that applying principles of competitive neutrality

to long-term number portability cost recovery would ensure that the

cost of number portability does not undermine the goal of the 1996 Act

to ``promote a competitive environment'' for the provision of local

communications services. Similarly, the Commission concludes that

requiring incumbent LECs to share in the costs of providing both

interim and long-term number portability is in the public interest and

will contribute to the development of competition in the local exchange

market.

29. BellSouth asserts that the cost recovery guidelines for interim

number portability are ``vague and ambiguous,'' and that the Commission

failed to define the phrases ``appreciable cost advantage'' and

``normal return.'' As applied to its cost recovery guidelines, the

Commission clarifies that, when the Commission used the phrase

``appreciable cost advantage'' the Commission meant a difference in

costs that, if reflected in retail prices, would cause a not-

insignificant number of

[[Page 46577]]

customers to change, or decline to change, carriers. The Commission

also finds that a ``normal return'' in economic terms is the return

sufficient to assure confidence in the financial integrity of the

company so as to maintain its credit and attract capital. Normal return

in this context does not guarantee that all firms will be profitable

and, hence, remain in the industry. Rather, this concept means that

number portability costs imposed on a particular carrier should not be

so significant, by themselves, as to drive existing carriers out of the

market or make continued operations unprofitable, or deter the entry of

carriers that, but for the number portability costs, would have entered

the market.

30. The Commission finds no merit to BellSouth's suggestion that

the Commission's definition of, and criteria for, competitive

neutrality, are novel or unprecedented. The ``competitively neutral''

principles established in the First Report and Order were drawn from

well-accepted principles of economic theory. To be competitive, a firm

must be able to offer a particular customer a service/price package

which that customer finds comparable to that offered by other carriers,

and it must be able to do so while earning a normal rate of return. In

making business decisions, firms are concerned with both the short-run

and the long-run. In the short-run, firms are concerned with their

ability to compete, while in the long-run firms are concerned with

remaining in the market. The first criterion of the competitive

neutrality test addresses the short-run concern, in that carriers

cannot compete effectively if one carrier has an appreciable,

incremental cost advantage over other carriers. The second criterion

addresses the concern that the cost recovery mechanism should not have

a disparate effect on the ability of competing service providers to

earn normal returns on their investments.

31. The Commission also rejects arguments that the methods

currently suggested in the First Report and Order fail to meet the

second criterion of competitive neutrality, which states that ``[the

allocation mechanism] should not have a disparate effect on the ability

of competing service providers to earn normal returns on their

investments.'' As applied to interim number portability, the methods

for allocating the costs of interim number portability suggested in the

First Report and Order, including allocation according to a carrier's

number of active lines or number of active telephone numbers, meet the

criteria established for competitive neutrality. Given the relatively

small incremental costs of interim number portability, the Commission

concludes that using either number of telephone lines or number of

active telephone numbers as the basis for allocation also meets the

second criterion. Although that carrier's costs for number portability

go up relative to other carriers, it also receives the corresponding

revenues generated by the new customer. One characteristic of these

rules is that the costs allocated to particular carriers increase with

the size of the carrier so that smaller carriers will not be driven

from the market. In creating the competitive neutrality criteria, the

Commission also was guided by the 1996 Act's objectives. Number

portability and competitively neutral cost recovery are necessary to

fulfill the 1996 Act.

32. The Commission also rejects BellSouth's argument that it is

arbitrary and capricious to use transitional measures as an incentive

to adopt long-term number portability as quickly as possible. As

discussed above, the Commission finds that it has jurisdiction over

number portability, and that number portability is a dynamic, not

static, concept. Section 271 of the Act explicitly states that BOCs

must provide ``interim telecommunications number portability'' until

``the date by which the Commission issues regulations pursuant to

section 251 to require number portability.'' While the costs of long-

term number portability will be greater than those of interim number

portability, carriers will be able to recover their costs through two

separate federally-tariffed charges, and end-user and query service

charge.

33. The Commission disagrees that it is interfering with existing

state-mandated interim number portability cost recovery mechanisms. As

the Commission stated in the First Report and Order, the Commission

provides flexibility for the states to determine their own cost

allocation mechanisms, subject to the guidelines set forth in the First

Report and Order. If a state previously determined its cost allocation

scheme without taking section 251(e)(2) into account, that state must

now ensure that its method comports with the 1996 Act and the

Commission's implementing regulations.

34. The Commission disagrees with AirTouch's assertion that

carriers that do not serve customers with ported numbers, such as

wireless carriers, should not be required to share in the cost of

number portability because such carriers do not benefit from number

portability. The Commission looks to section 251(e)(2) of the Act,

which plainly requires that the costs of establishing number

portability be borne by ``all telecommunications carriers on a

competitively neutral basis as determined by the Commission.'' 47

U.S.C. 251(e)(2). This interpretation is consistent with the Third

Report and Order, wherein the Commission concluded that the provisions

of section 3 of the Act, when read together, define ``all

telecommunications carriers'' as all persons or entities other than

aggregators that charge to transmit information for the public without

changing the form or content of the information, regardless of the

facilities they use. Applying the statutory definition to section

251(e)(2), the Commission concluded that the way all telecommunications

carriers bear the costs of providing number portability--including

incumbent LECs, competitive LECs, CMRS providers, IXCs, and resellers--

must be competitively neutral as determined by the Commission. The

Commission has exercised its statutory mandate by articulating criteria

for states to use in adopting cost recovery mechanisms. As the states

develop cost recovery mechanisms pursuant to the statutory mandate,

carriers will bear their own costs or states may allocate costs in a

competitively neutral fashion on all telecommunications carriers that

does not unduly burden any particular carrier or group of carriers.

35. The Commission finds no merit in SCLP and SCI's claim that

requiring CMRS providers to contribute to number portability would have

a ``disparate effect'' on their ability to earn a normal rate of

return. These carriers have failed to present any evidence to support

their claim that contributing to the costs of interim number

portability would have such an effect. As noted in the First Report and

Order, a disparate effect may be said to exist when a ``new entrant's

share of the [interim number portability] costs may be so large,

relative to its expected profits, that the entrant would decide not to

enter the market.'' With respect to existing carriers, the Commission

clarifies that a disparate effect under its definition would exist if

that carrier or class of carriers would be driven from the market,

while other carriers would not, as a result of number portability

costs. These carriers' unsupported allegations that contributing to the

costs of interim number portability would have a disparate effect are

insufficient to support their request for a blanket exemption for all

CMRS carriers.

36. The Commission also disagrees with SCLP and SCI's assertion

that its

[[Page 46578]]

First Report and Order demonstrates an intent that the costs of interim

number portability be placed on non-cost causers only where necessary

to preserve competitive neutrality. In making this claim, SCLP and SCI

rely on the word ``relevant'' in the Commission's statement that

``states may apportion the incremental costs of interim measures among

relevant carriers by using competitively neutral allocators.'' In using

the term ``relevant carriers,'' the Commission intended to reflect that

differing cost recovery mechanisms, all of which could satisfy its

competitively neutral mandate, might encompass all, or a subset of all,

telecommunications carriers, depending on the specifics of the cost

recovery mechanism.

37. In the First Report and Order, the Commission concluded that,

in choosing the phrase ``all telecommunications carriers,'' Congress

intended to include all types of carriers in the cost recovery

mechanism because, unlike the requirement to provide number portability

which applies solely to local exchange carriers, the requirements

relating to number portability cost recovery apply to ``all

telecommunications carriers on a competitively neutral basis.'' The

term ``telecommunications carrier'' is defined in the Act as ``any

provider of telecommunications services. * * *'' 47 U.S.C. 153(44). The

Commission adopted a literal reading of the statutory requirement and

of the statutory definition of ``telecommunications carriers.'' While

the Commission's interpretation prevents an incumbent LEC from

recovering its costs entirely from the new entrant, such an incumbent

LEC may be able to recover its incremental interim number portability

costs via the state-adopted allocation mechanism from ``all

telecommunications carriers'' if a state implements such a cost

recovery mechanism. Since the carrier providing the call forwarding

itself falls within the category of ``all telecommunications

carriers,'' the carrier providing the forwarding is prevented by

statute from recovering all of its costs from other carriers. States

could also permit incumbent LECs to recover any remaining costs in some

other manner, e.g., from end-users.

38. The Commission affirms its finding that a ``mechanism that

requires each carrier to pay for its own costs of interim number

portability measures'' is competitively neutral and would constitute an

acceptable cost recovery scheme that states could adopt. First, no

significant capital costs are incurred by the carrier winning the

customer or by the carrier losing the customer. Thus, the cost recovery

mechanism does not give one service provider an appreciable,

incremental advantage over another service provider when competing for

the same customer. Second incumbent LECs should still be able to earn a

normal return, as the anticipated costs of interim number portability

measures are relatively small.

39. The Commission disagrees with BellSouth's argument that

``having determined that the costs of [interim number portability] will

be incurred solely by the incumbent LECs,'' it was arbitrary and

capricious for the Commission to determine that requiring each carrier

to bear its own costs does not operate to the competitive disadvantage

of the incumbent LECs. The Commission also disagrees with Bell

Atlantic's argument that the First Report and Order was not

competitively neutral because the Commission denied Bell Atlantic the

ability to recover incremental costs of interim number portability. As

a threshold matter, these carriers are incorrect when they assert that

the Commission determined that the costs of providing interim number

portability will be incurred solely by incumbent LECs. Although finding

that ``initially, the costs of providing interim number portability

will be incurred primarily by the incumbent LEC, because the incumbent

LECs currently hold the vast majority of numbers in use,'' the First

Report and Order imposed interim number portability requirements on all

local exchange carriers. The Commission finds that it would be

competitively neutral for carriers to pay their own incremental interim

number portability costs, that is, to absorb the costs themselves or

pass the costs onto their own retail customers. Additionally, the

Commission has not foreclosed incumbent LECs from recovering all of

their incremental costs of interim number portability, but has

permitted each state to adopt a cost recovery mechanism, consistent

with its competitive neutrality guidelines. The First Report and Order

does not deny any carrier the right to recover costs, but, rather

adopts guidelines that states must follow in implementing a cost

recovery mechanism.

40. The Commission also concludes that the assertion by Bell

Atlantic and Cincinnati Bell that new entrants should be required to

bear all the costs of interim number portability is not consistent with

the pro-competitive intent of sections 251(b)(2), 252(e)(2), and the

1996 Act as a whole. As the Commission stated in the Third Report and

Order, the Commission has interpreted the Congressional mandate of

competitive neutrality to require the Commission to depart from cost-

causation principles when necessary to ensure that the cost of number

portability borne by each carrier does not significantly affect any

carrier's ability to compete with other carriers. The Commission

specifically prohibited incumbent LECs from shifting all of their costs

onto new entrants, however. Despite the fact that such incremental

costs are small, shifting all of an incumbent LEC's costs of interim

number portability to a new entrant could result in a cost so large,

``relative to expected profits,'' that the new entrant would decide not

to enter the market. As the Commission stated in the First Report and

Order, imposing the full incremental cost of interim number portability

solely on new entrants would place them at an ``appreciable,

incremental cost disadvantage relative to another service provider when

competing for the same customer'' and would, therefore, violate the

first criteria of the competitive neutrality mandate.

41. The Commission is not persuaded by BellSouth's contention that

the cost allocation mechanisms discussed in the First Report and Order

guarantee the profitability of the new entrants. Number portability

facilitates the development of competition among local providers.

Through its competitive neutrality criteria and state-determined cost

allocation mechanisms, the First Report and Order removes a potential

barrier to entry that could result from high rates or charges that

incumbent LECs potentially could impose for interim number portability

on new entrants that possess their own switches. It does not guarantee

that a new entrant will be profitable or be able to compete

successfully in the market.

42. GTE suggests a third criterion, that ``a cost recovery

mechanism must not influence a customer's selection of his or her

service provider.'' While the Commission agrees with GTE that a cost

recovery mechanism should not influence a customer's selection of his

or her service provider, this criterion is effectively embodied in the

first prong of its competitive neutrality test and, thus, the

Commission sees no need to revise that test.

D. Alternative Allocators for Cost Recovery of Interim Number

Portability

1. Background

43. In the First Report and Order, the Commission provided a list

of examples of allocators for interim number portability cost recovery

that would

[[Page 46579]]

meet the Commission's criteria for competitive neutrality. The

Commission stated, for example, that a cost allocator based on a

carrier's number of active telephone numbers, or a carrier's relative

number of presubscribed customers, would meet its competitive

neutrality guidelines. Several parties ask the Commission to approve

additional allocators, or take exception to cost allocators deemed to

be competitively neutral by the Commission in the First Report and

Order.

2. Discussion

44. In the First Report and Order, the Commission provided a non-

exhaustive list of examples of allocators for interim number

portability cost recovery that would meet the Commission's criteria for

competitive neutrality. The Commission disagrees with GTE's argument

that a federally-mandated cost pooling mechanism needs to be

implemented. For the reasons discussed in the First Report and Order,

the Commission believes that states should be able to adopt various

cost recovery mechanisms based on its competitive neutrality

guidelines. The Commission is not, however, precluding states from

selecting cost pooling as a cost recovery mechanism, nor is the

Commission determining that cost pooling is not competitively neutral

for the recovery of interim number portability costs. Although in the

Third Report and Order the Commission rejected pooling of carriers'

long-term number portability costs as a mechanism for recovery of these

costs because pooling mechanisms, in general, reduce carrier incentives

to provide service efficiently, states may find that these

disadvantages are not as significant when pooling is used as a

mechanism for the recovery of interim number portability costs. Because

the costs of interim number portability are relatively small, given

that incumbent LECs have already provisioned their switches with the

capacity to provide the services needed for interim number portability,

creating incentives for carriers to provide service efficiently may be

less of a concern. The Commission allows states to utilize various cost

recovery mechanisms, and states will make the decision as to whether

they will choose pooling as a recovery mechanism and impose cost

accounting and distribution mechanisms on carriers.

45. In clarifying that the list of potential allocators referenced

in the First Report and Order is not exhaustive, the Commission also

affirms that a cost recovery mechanism based on a carriers' gross

revenues is an acceptable means of allocating costs among carriers.

Financial measures, including gross revenues, are developed for

different uses, such as for tax filings, annual reports, and SEC

filings, and are readily available for this use. Additionally, such an

allocator does not disparately affect the incremental costs of winning

a specific customer or group of customers. A LEC with a small share of

the market's revenues would pay a percentage of the incremental costs

of interim number portability that is small enough that it will have no

appreciable affect on its ability to compete for that customer.

Accordingly, utilizing a gross revenues allocator does not violate the

Commission's competitive neutrality guidelines.

46. It appears that carriers' concerns with some of the allocators

approved by the Commission are focused on its second criterion, on

whether losing a customer affects a firm's ``normal return.'' Losing a

customer will necessarily affect a firm's revenues and subsequent

return on investment. The First Report and Order did not intend to

change that. Rather, as stated in the Third Report and Order, the

second prong of the competitive neutrality test does not guarantee any

particular rate of return, but merely states that an allocator should

not disparately affect a carrier's ability to earn a normal return. The

Commission also stated that allocating costs on an active telephone

number basis would meet the second criteria, because it should not give

any carrier a cost advantage, relative to its competitors.

47. In a written ex parte presentation to the Commission, AT&T

summarized a number of existing state cost recovery mechanisms in

effect at that time. In one method, cost elements required for interim

number portability are attributed to the requesting carrier, which is

deemed the cost causer, and must be borne by that entity. This method

allocates all incremental costs of interim number portability to the

new entrant. The Commission reiterates its earlier conclusion in the

First Report and Order that a cost recovery mechanism that imposes the

entire incremental costs of interim number portability on a facilities-

based new entrant violates its competitive neutrality criteria. New

entrants subjected to such a cost recovery mechanism may pursue one of

the enforcement options discussed above.

48. NYNEX suggests that allocating costs on the basis of total

telecommunications retail revenues is competitively neutral and should

be permitted as an allocator. The Commission agrees with NYNEX that

such an allocation may meet its competitive neutrality guidelines

because, as with allocators based on gross telecommunications revenues,

it would not give one service provider an appreciable, incremental cost

advantage over another service provider. Under this allocation method,

a LEC with a small share of the market's revenues would pay a

percentage of the incremental cost of number portability that will be

small enough to have no appreciable affect on its ability to compete

for a customer.

49. In sum, the Commission reaffirms its determination to allow

each state to determine the appropriate cost recovery mechanism for its

jurisdiction as long as it meets its competitive neutrality criteria.

The Commission recognizes that, in the First Report and Order, the

Commission tentatively concluded that a cost recovery mechanism for

interim number portability that assesses charges based on a carrier's

gross revenues less charges carriers paid to other carriers would meet

its competitive neutrality guidelines, while in the Third Report and

Order, the Commission declined to utilize this allocator for long-term

number portability cost recovery. The Commission notes, however, that

interim number portability and long-term number portability, as

implemented pursuant to industry-wide discussions, have very different

cost characteristics. A cost recovery method that is appropriate for

one may not be suitable for the other. Although the Commission has

established one particular cost recovery mechanism for long-term number

portability, the Commission declines to issue an exclusive list of

acceptable cost recovery methods for interim number portability from

which the states may choose to adopt. States are free to adopt an

appropriate cost recovery method pursuant to the competitive neutrality

criteria.

E. Takings

1. Background

50. Several petitioners claim that its cost recovery guidelines for

interim number portability do not ensure adequate compensation and

therefore constitute an unlawful taking under the Fifth and Fourteenth

Amendments to the Constitution.

2. Discussion

51. The Commission rejects the claim that the cost recovery

guidelines for interim number portability established in the First

Report and Order violate the Fifth Amendment's mandate that no private

property shall be ``taken for public use without just compensation.''

[[Page 46580]]

See U.S. Const. amend. V. As discussed below, the Commission concludes

that the petitioners' takings claim is premature. More importantly, in

examining its cost recovery guidelines in light of criteria articulated

by the Supreme Court, the Commission finds that the petitioners'

takings claim fails on the merits.

52. In the First Report and Order, the Commission clearly stated

that, although its guidelines govern state allocation of costs of

interim number portability, it is the responsibility of the states to

adopt specific cost recovery mechanisms. Although petitioners have

broadly stated that they believe that incumbent LECs will not receive

adequate compensation as a result of the guidelines established in the

First Report and Order, they have not shown the actual impact of the

guidelines based on state orders. The Commission concludes, therefore,

that, absent an actual rate order under which the impact of the cost

recovery guidelines can be evaluated, the petitioners' takings argument

is premature. This conclusion is consistent with FPC v. Texaco Inc., in

which the Supreme Court held that ``[a]ny broadside assertion that

indirect regulation will be confiscatory is premature. The consequences

of indirect regulation can only be viewed in the entirety of the rate

of return allowed on investment, and this effect will be unknown until

the Commission has applied its scheme in individual cases over a period

of time.'' FPC v. Texaco Inc. 417 U.S. 380, 391-92 (1974).

53. Assuming arguendo that the petitioners' takings claim is not

premature, the Commission finds it without merit. The Supreme Court has

made clear that ``government may execute laws or programs that

adversely affect recognized economic values,'' Penn Central v. City of

New York, 438 U.S. 104, 124 (1978), and that ``given the propriety of

governmental power to regulate, it cannot be said that the Takings

Clause is violated whenever legislation requires one person to use his

or her assets for the benefit of another.'' Connolly v. Pension Benefit

Guaranty Corp., 475 U.S. 211, 222 (1986). In fact, ``government hardly

could go on if to some extent values incident to property could not be

diminished without paying for every such change in the general law.''

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 413 (1922). Despite the

conclusory assertion of Cincinnati Bell to the contrary, its guidelines

will not result in a significant economic impact on incumbent LECs. As

noted in the First Report and Order, ``the capability to provide number

portability through interim methods, such as RCF and DID, already

exists in most of today's networks, and no additional network upgrades

are necessary.'' The incremental costs associated with the utilization

of pre-existing network functionality for purposes of interim number

portability are relatively small.

54. In Duquesne Light Co. v. Barasch, the Supreme Court rejected a

takings claim on the grounds that it was permissible to preclude

certain costs from inclusion in an electric utility's rate base because

the overall rate was within constitutional requirements. Duquesne Light

Co. v. Barasch, 488 U.S. 299 (1989). A rate is too low for

constitutional purposes, according to the Court, if it is ``so unjust

as to destroy the value of [the] property for all the purposes for

which it was acquired.'' The Court held that `` `[i]t is not the

theory, but the impact of the rate order which counts.' . . . The

Constitution protects the utility from the net effect of the rate order

on its property. Inconsistencies in one aspect of the methodology have

no constitutional effect on the utility's property if they are

compensated by countervailing factors in some other aspect.''

55. In determining that the overall impact of the rate order was

not constitutionally objectionable and that the takings clause was not

violated, the Court in Duquesne Light Company took note of the fact

that ``[n]o argument has been made that these slightly reduced rates

jeopardize the financial integrity of the companies, either by leaving

them insufficient operating capital or by impeding their ability to

raise future capital. Nor has it been demonstrated that these rates are

inadequate to compensate current equity holders for the risk associated

with their investments. . . .'' Similarly, no showing has been made

that the cost recovery guidelines at issue here will ``jeopardize the

financial integrity'' of incumbent LECs, nor has a showing been made

that the cost recovery guidelines will result in state rate orders that

are inadequate to compensate LECs ``for the risk associated with their

investments.''

56. Having already provisioned their switches with enough capacity

to carry all of their customers' incoming and outgoing calls, incumbent

LECs should incur no additional costs with respect to switch capacity

when losing customers and using RCF to provide number portability.

Although RCF will require additional switch capacity--and an increase

in transport costs--to process incoming calls, this effect is offset by

the fact that the incumbent LEC will no longer handle the outgoing

calls originated by the ported customer. As a result, little or no

change in the level of incumbent LEC switching and transport costs per

ported number should occur. The Commission concludes, therefore, that

the additional incremental costs of interim number portability to

incumbent LECs will be extremely small. Additionally, incumbent LECs

may be able to recover some portion of their costs from other carriers

through state-mandated cost recovery mechanisms. Additionally, as

discussed above, if a carrier believes that a LEC's pricing provisions

for number portability violate the Commission's competitive neutrality

guidelines or violate a state-mandated cost recovery mechanism, a

carrier has a variety of ways it may seek relief.

57. Moreover, as the Supreme Court has stated, ``[t]hose who do

business in the regulated field cannot object if the legislative scheme

is buttressed by subsequent amendments to achieve the legislative

end.'' Based on the extensive public debate that preceded enactment of

the 1996 Act, it cannot be said that investors lacked adequate notice

of possible changes to the Communications Act, including the number

portability requirement at issue here. Indeed, while courts have

readily found that a taking has occurred when interference with

property rights can be characterized as a physical invasion or

permanent appropriation, such a finding has not been reached when the

challenged interference arises from a public program adjusting the

benefits and burdens of economic life to promote the common good. The

Commission's number portability cost recovery guidelines, which are

designed to facilitate local telephone competition and thereby benefit

all consumers of telecommunications services, falls squarely into the

latter category. In short, the petitioners have failed to demonstrate

that the Commission's cost recovery guidelines violate the Fifth and

Fourteenth Amendments.

F. Retroactive Application of Cost Recovery Guidelines for Interim

Number Portability

1. Background

58. ACSI asks the Commission to allow new entrants to recover

retroactively number portability costs paid to incumbent LECs in excess

of that required pursuant to the guidelines set forth in the First

Report and Order. Specifically, ACSI requests that the Commission

provide for a true-up of rates paid in excess of those required

pursuant to the First Report and Order

[[Page 46581]]

as far back as February 8, 1996, the date the 1996 Act became

effective, or the date number portability was first provided to the new

entrant, whichever is later.

2. Discussion

59. The Commission denies ACSI's request that its cost recovery

rules for interim number portability be applied to number portability

provided prior to the adoption and effective date of those rules. In

section 251(e)(2) of the Act, Congress required that ``the cost of

establishing. . . number portability shall be borne by all

telecommunications carriers on a competitively neutral basis as

determined by the Commission.'' The plain language of this section

demonstrates that, while establishing the parameters on how number

portability costs are to be allocated and who should pay such costs,

Congress intended that specific cost recovery rules were to be

established by the Commission at some point in time following the

enactment of the 1996 Act. The Commission rejects ACSI's argument that,

because the number portability provision became effective on February

8, 1996, ACSI is merely seeking to have the Commission give effect to

this pre-existing requirement. Section 251(e)(2) is not self-executing,

but is dependent on Commission action. The Commission sees no basis in

the record for applying the rules adopted pursuant to section 251(e)

retroactively.

60. The Commission's cost recovery guidelines for interim number

portability became effective August 26, 1996, however, and the

Commission agrees that it may be appropriate for states to provide a

true-up of interim number portability costs from that date through the

effective date of a state-approved cost recovery program. To provide

the states with the flexibility during the interim period to continue

using a variety of cost recovery approaches, the Commission did not

adopt a fixed cost recovery mechanism. Instead, it adopted guidelines

for the states to follow in mandating cost recovery for interim number

portability. The Commission recognizes, however, that a significant

period of time may have elapsed before each state adopted a cost

recovery mechanism for interim number portability. Thus, absent a true-

up from the effective date of the First Report and Order, the benefits

of a competitively neutral cost recovery mechanism for interim number

portability may be lost for many new entrants if they have been paying

cost recovery amounts in excess of what would be allowed under the

competitive guidelines of the First Report and Order. The Commission

notes that several state arbitration decisions have adopted a true-up

approach pending the adoption of a state-approved cost recovery

mechanism. The Commission strongly encourages states to review their

cost recovery mechanisms. Consistent with its competitive neutrality

principles, the Commission encourages states to adopt a true-up of

amounts paid for interim number portability between August 26, 1996 and

the date the state-approved cost recovery program takes effect, to the

extent such amounts exceed what would have been paid under the state-

approved plan, had it been in effect.

G. Terminating Access Charges

1. Background

61. In the First Report and Order, the Commission stated that

terminating access charges for calls forwarded from an incumbent LEC to

a competing provider through the use of a interim number portability

method should be shared between the incumbent LEC, which is the donor

switch and the terminating switch carrier. A ``donor'' switch is the

end office switch to which the called telephone number was originally

assigned. The Commission stated that the ``overarching principle'' in

such billing arrangements was that carriers were to share in the access

revenues for a ported call, because neither the incumbent LEC

forwarding carrier nor the terminating carrier provides all the

facilities used to terminate a ported call. The Commission also held

that incumbent LECs and new entrants should assess their terminating

access charges on IXCs through meet-point billing arrangements. MCI

asserts that, regardless of what type of billing arrangement is

adopted, IXCs should not be charged increased access charges as a

result of the additional call routing and associated costs necessary to

terminate a call to a ported number under interim number portability

measures.

2. Discussion

62. IXCs currently pay LECs access charges for terminating calls on

LEC switches. In a competitive local exchange market, an IXC

terminating a call to a long distance customer that has ported his or

her number to a new entrant will terminate the call to the incumbent

LEC's switch, which then will forward it to the new entrant's switch

utilizing interim number portability measures. Under this scenario,

incumbent LECs and new entrants both provide facilities used to

terminate calls to ported numbers using interim number portability. In

the First Report and Order, the Commission required both forwarding and

terminating carriers to assess charges on IXCs for terminating access

through meet-point billing arrangements. In requiring that these

revenues be shared, the Commission left to the carriers whether ``each

issues a bill for access on a ported call, or whether one of them

issues a bill to the IXCs covering all of the transferred calls and

shares the correct portion of the revenues with the other carriers

involved.'' The Commission further provided that, if carriers determine

it more efficient to issue individual bills, the forwarding carrier

must ``provide the terminating carrier with the necessary information

to permit the terminating carrier to issue a bill.''

63. The Commission finds that the additional costs that local

exchange carriers may incur should not be included in the access

charges paid by IXCs for terminating long-distance calls because any

additional routing and transport costs that are a result of interim

number portability are incremental costs of providing number

portability. Such costs may be recovered through a local number

portability cost recovery mechanism, or borne by the local exchange

carrier that forwards the call, as determined by the state, on a

competitively neutral basis. Because they are telecommunications

carriers, IXCs may be required to contribute to the costs of interim

number portability through the cost recovery mechanism adopted by state

commissions. The Commission clarifies that, to prevent double recovery

on the part of the terminating switch carrier, new entrants receiving a

portion of access charges from IXCs for terminating calls may not also

impose terminating charges on the incumbent LEC.

64. As discussed in the First Report and Order, carriers may incur

incremental costs for forwarding calls when utilizing interim number

portability. MCI requests that the Commission clarify what is included

in these incremental costs and, thus, what should be shared by all

carriers on a competitively neutral basis. The incremental costs of

providing number portability via RCF, DID, or other comparable

technically feasible measures are the costs that the forwarding carrier

incurs in forwarding the call that it would not incur if it did not

forward the call. As mentioned in the First Report and Order, such

costs may differ depending on where the call originates within the

network, and on the type of technology utilized to forward the call.

Thus, the Commission

[[Page 46582]]

declines to list each potential additional cost that may be incurred

and who should be allowed to bill for those incremental costs.

65. Finally, the Commission notes that it has ``not foreclose[d]

arrangements in which one exchange carrier bills the entire amount [of

access charges] and remits the other exchange carrier its share.'' The

First Report and Order does not require that the carrier that owns the

donor switch and the carrier that owns the terminating switch each

issue a separate bill to the IXC. The First Report and Order states

that ``it is up to the carriers whether they each issue a bill for

access on a ported call, or whether one of them issues a bill to the

IXCs covering all of the transferred calls and shares the correct

portion of the revenues with the other carriers involved.'' Thus,

either the carrier that owns the donor switch or the carrier that owns

the terminating switch may bill the entire amount of access charges and

remit to the other local exchange carrier its share of the invoiced

charges. In short, the First Report and Order does not prohibit

carriers who mutually agree from sending one bill to the IXC and then

splitting the access charges appropriately between themselves.

H. Modification of Billing Systems to Accommodate the Sharing of Access

Charges in Meet-Point Billing Type Arrangements

1. Background

66. In the First Report and Order, the Commission concluded that

meet-point billing between neighboring incumbent LECs provides the

appropriate model for the proper access billing arrangement for interim

number portability. In complying with the Commission's directive that

forwarding and terminating carriers share access revenues received from

IXCs for ported calls through meet-point billing arrangements, GTE

argues that LECs should not be required to modify their billing

systems.

2. Discussion

67. The First Report and Order did not specify whether carriers

must modify their billing systems in order to accommodate the

requirement that access charges be shared in meet-point billing type

arrangements. It requires that the forwarding carrier provide ``the

necessary information to permit the terminating carrier to issue a

bill,'' but does not specify whether carriers have to make

modifications in their billing systems in order to do so. The

Commission agrees with GTE and Time Warner that it would not be cost

effective to require carriers to modify their billing systems to

accommodate interim number portability. It does not require carriers to

modify their billing systems to track and record the details of every

call. It does require, however, that carriers adopt some method of

implementing its requirement to share terminating access revenues, by,

for example, providing information about PIU (percent interstate

usage), traffic samples, or total access charges per line.

68. If carriers cannot agree on appropriate meet-point billing

arrangements, the Commission agrees that this issue may be included in

mediation or arbitration before a state commission, or be subject to

other dispute resolution processes chosen by the carriers involved. The

Commission rejects GTE's suggestion, however, that parties seek

informal assistance from the Commission as a means of resolving meet-

point billing arrangement disputes. Also, if a meet-point billing

arrangement dispute arises in the context of an interconnection request

made pursuant to section 251, the 1996 Act clearly places the

responsibility for arbitration and/or mediation of unresolved issues on

the state commissions.

IV. Supplemental Regulatory Regulatory Flexibility Analysis

69. As required by the Regulatory Flexibility Act (RFA), see 5

U.S.C. 601 et seq. (the RFA, see 5 U.S.C. 601 et seq., has been amended

by the Contract with America Advancement Act of 1996, Pub. L. No. 104-

121, 110 Stat. 847 (1996) (CWAAA); Title II of the CWAAA is the Small

Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)), an

Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the

First Report and Order. In addition, the Commission sought comments on

the proposals included in the Initial Regulatory Flexibility Analysis

(IRFA) in the First Report and Order. The Commission incorporated a

Final Regulatory Flexibility Analysis in the Third Report and Order.

The additional Regulatory Flexibility Analysis in this Fourth

Memorandum Opinion and Order is as follows:

70. Need for and Objectives of Action: 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, adopted rules and procedures in the Third Report and Order that

are intended to ensure the implementation of telephone number

portability with the minimum regulatory and administrative burden on

telecommunications carriers. 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, 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.'' The Commission issued this Fourth

Memorandum Opinion and Order to address issues relating to cost

recovery for interim number portability. Interim number portability

utilizes an interim method to allow consumers to change carriers while

retaining their telephone numbers before long-term number portability

becomes available.

71. Summary of Significant Issues Raised by the Public Response to

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

the Regulatory Flexibility Analysis. In the Third Report and Order, the

Commission adopted rules and regulations to ensure that the way 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. This Fourth Memorandum Opinion and Order addresses issues

relating to cost recovery for interim number portability. It affirms

the Commission's conclusion that it has the authority to establish cost

recovery guidelines for interim number portability. Second, the

Commission rejects claims that the cost recovery guidelines for interim

number portability set forth in the First Report and Order are

arbitrary and capricious, or constitute an unconstitutional taking. The

item denies the request that these cost recovery guidelines be applied

retroactively. The item affirms the Commission's earlier decision to

adopt general cost recovery guidelines for interim number portability

while allowing states flexibility to continue using a variety of cost

recovery approaches that are consistent with its guidelines. Finally,

the item clarifies issues relating to terminating access charges,

modification of billing systems, and the competitive neutrality of

certain cost recovery allocators, as each of these issues relates to

interim number portability.

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

Actions Will Apply: The Regulatory

[[Page 46583]]

Flexibility Act generally defines the term ``small business'' as having

the same meaning as the term ``small business concern'' under the Small

Business Act. See 15 U.S.C. 632. 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). Id. According

to 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. See 13 CFR 121.201. This standard also applies

in determining whether an entity is a small business for purposes of

the RFA.

73. As described in the previous Regulatory Flexibility Analysis

contained in the Third Report and Order, the Commission's rules

governing 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 filed 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.'' See In re Implementation of the Local Competition

Provisions in the Telecommunications Act of 1996, First Report and

Order, 11 FCC Rcd 15499, 16144-45, 16149-50 (1996), vacated in part,

aff'd in part, Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997),

rev'd in part, aff'd in part and remanded sub nom. AT&T Corp. v. Iowa

Utils. Bd., 119 S.Ct. (1998). Accordingly, the Commission's use of the

terms ``small entities'' and ``small businesses'' does not encompass

small incumbent LECs. Local Competition Order, 11 FCC Rcd at 16,150.

Out of an abundance of caution, however, for regulatory flexibility

analysis purposes, see 13 CFR 121.902(b)(4), the Commission 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.''

74. Insofar as the Commission's 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, the Commission

estimates that 2,100 small entities could be affected. The Commission

has derived this estimate based on the following analysis.

75. 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. 632(a)(1). For example, a PCS provider that

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 item would be approximately 2,100.

76. Description of Projected Reporting, Recordkeeping and Other

Compliance Requirements of the Rules: The Fourth Memorandum Opinion and

Order provides guidance regarding issues relating to cost recovery for

interim number portability. This Fourth Memorandum Opinion and Order

affirms the Commission's conclusion that it has the authority to

establish cost recovery guidelines for interim number portability.

Second, the Commission rejects claims that the cost recovery guidelines

for interim number portability set forth in the First Report and Order

are arbitrary and capricious, or constitute an unconstitutional taking.

This item denies the request that these cost recovery guidelines be

applied retroactively. This item affirms the Commission's earlier

decision to adopt general cost recovery guidelines for interim number

portability while allowing states flexibility to continue using a

variety of cost recovery approaches that are consistent with its

guidelines.

77. The Fourth Memorandum Opinion and Order also confirms an

earlier Commission decision that a cost recovery mechanism based on a

carrier's gross revenues is an acceptable means of allocating costs

among carriers. It states that no additional recordkeeping will be

required for this option of recordkeeping, because such gross revenue

reporting is readily available through such things as tax filings,

annual reports and SEC filings, which are developed for other purposes.

The item does not require carriers to adopt any one billing arrangement

for sharing costs when they forward calls while utilizing interim

number portability. The item allows carriers to determine the best

method of splitting these costs between them, but requires them to

adopt some method of sharing terminating access revenues. Additionally,

it affirms the Commission's earlier determination that meet-point

billing between neighboring incumbent LECs provides the appropriate

model for the proper access billing arrangement for interim number

portability, but states that carriers are not required to modify their

billing systems to track and record the details of every call.

78. 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. The Bureau has 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 Fourth Memorandum Opinion and

Order affirms the Commission's earlier determination that meet-point

billing

[[Page 46584]]

between neighboring incumbent LECs provides the appropriate model for

the proper access billing arrangement for interim number portability,

but states that carriers are not required to modify their billing

systems to track and record the details of every call. Such

determination 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, but

attempts to keep such costs to a minimum.

79. Report to Congress: The Commission will send a copy of this

Fourth Memorandum Opinion and Order, including this supplemental RFA,

in a report to Congress pursuant to the Small Business Regulatory

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

the Third Report and Order and this supplemental FRFA (or summaries

thereof) will be sent to the Chief Counsel for Advocacy of the Small

Business Administration. See 5 U.S.C. 604(b).

80. Paperwork Reduction Act: This Fourth Memorandum Opinion and

Order provides guidance regarding issues relating to cost recovery for

interim number portability. The Third Report and Order concluded that

carriers may recover the portion of their number portability joint

costs that is demonstrably an incremental cost incurred in the

provision of number portability. Third Report and Order, 13 FCC Rcd at

11,740, para. 73. The Third Report and Order also requires incumbent

LECs that choose to recover their carrier-specific costs directly

related to providing number portability to use federally-tariffed end-

user charges. Id. at 11,776. The Commission also concluded that

carriers may identify only those incremental overheads that they can

demonstrate were incurred specifically in the provision of number

portability. Id. at 11,740. In this Fourth Memorandum Opinion and

Order, the Commission affirms its earlier decision that it has the

authority to establish cost recovery guidelines for interim number

portability. Second, the Commission rejects claims that the cost

recovery guidelines for interim number portability set forth in the

First Report and Order are arbitrary and capricious, or constitute an

unconstitutional taking. This item denies the request that these cost

recovery guidelines be applied retroactively. The item affirms the

Commission's earlier decision to adopt general cost recovery guidelines

for interim number portability while allowing states flexibility to

continue using a variety of cost recovery approaches that are

consistent with its guidelines. The item also confirms an earlier

Commission decision that a cost recovery mechanism based on a carrier's

gross revenues is an acceptable means of allocation costs among

carriers. The item states that no additional recordkeeping will be

required for this option of recordkeeping, because such gross revenue

reporting is readily available through such things as tax filings,

annual reports and SEC filings, which are developed for other purposes.

The item does not require carriers to adopt any one billing arrangement

for sharing costs when they forward calls while utilizing interim

number portability. The item allows carriers to determine the best

method of splitting these costs between them, but requires them to

adopt some method of sharing terminating access revenues. Additionally,

the item affirms the Commission's earlier determination that meet-point

billing between neighboring incumbent LECs provides the appropriate

model for the proper access billing arrangement for interim number

portability, but states that carriers are not required to modify their

billing systems to track and record the details of every call. These

information collection requirements are contingent upon approval of the

Office of Management and Budget (OMB).

V. Ordering Clauses

81. 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. 151, 152, 154(i),

201-205, 215, 251(b)(2), 251(e)(2), and 332, and Parts 1, 20 and 52 of

the Commission's rules, 47 CFR 1.106, 20, and 52, the Petitions for

Reconsideration and/or Clarification are granted to the extent

indicated herein and otherwise are denied.

82. It is further ordered that the Motion to Accept Late-filed

Comments of Telecommunications Resellers Association and the Motion to

Accept Late-Filed Reply Comments of US WEST are granted.

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

Affairs Reference Operations Division shall send a copy of this

Memorandum Opinion and Order including the supplemental Regulatory

Flexibility Analysis to the Chief Counsel for Advocacy of the Small

Business Administration.

List of Subjects in 47 CFR Part 52

Communications, Common Carriers, Telecommunications, Telephone.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 99-22131 Filed 8-25-99; 8:45 am]

BILLING CODE 6712-01-P