Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter 1

[CC Docket No. 96-149, FCC 99-242]

Implementation of the Non-Accounting Safeguards of Sections 271

and 272 of the Communications Act of 1934

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document declines to reconsider the Commission's Non-

Accounting Safeguards Order. It also clarifies several points

concerning the non-accounting safeguards requirements set forth in

section 272 of the Act, which prescribes the manner in which the Bell

Operating Companies may enter certain markets.

DATES: Effective December 13, 1999.

FOR FURTHER INFORMATION CONTACT: Michelle Carey, Deputy Chief, Policy

and Program Planning Division, Common Carrier Bureau, (202) 418-1580 or

via the Internet at [email protected]. Further information may also be

obtained by calling the Common Carrier Bureau's TTY number: 202/418-

0484.

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

adopted September 8, 1999, and released October 1, 1999. The full text

of this Order is available for inspection and copying during normal

business hours in the FCC Reference Center, 445 12th Street, S.W., Room

CY-A257, Washington, DC. The complete text also may be obtained through

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

Orders/fcc99242.wp, or may be purchased from the Commission's copy

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

1231 20th St., NW., Washington, DC 20036.

Synopsis of Third Order on Reconsideration

I. Introduction

1. On December 24, 1996, the Commission adopted the Non-Accounting

Safeguards Order, 62 FR 2927, (January 21, 1997), in its proceeding

implementing the non-accounting safeguards provisions of the

Communications Act of 1934 (the Act), as amended by the

Telecommunications Act of 1996 (the 1996 Act). On February 2, 1997,

several parties (the Association for Local Telecommunications Services,

AT&T, BellSouth, Cox Communications, MCI, TCG, Time Warner Cable and US

WEST) filed separate petitions to reconsider various aspects of the

Non-Accounting Safeguards Order. For the reasons discussed, we deny all

of the petitions. We also, on our own motion, clarify certain language

in the Non-Accounting Safeguards Order relating to so-called teaming

arrangements.

II. Background

2. Section 272 addresses the safeguards and statutory separate

affiliate requirements necessary for the BOCs' provision of

manufacturing activities, interLATA telecommunications services

originating in their in-region states, and interLATA information

services. Consistent with the statutory framework, the Commission held

in the Non-Accounting Safeguards Order that section 272 allows a BOC to

engage in manufacturing activities, origination of certain interLATA

telecommunications services, and the provision of interLATA information

services, as long as the BOC provides these activities through a

separate affiliate.

3. Parties request reconsideration with respect to the Commission's

interpretation in the Non-Accounting Safeguards Order of various

provisions in section 272. We deny these petitions, and affirm and

clarify the decisions in the underlying Order as follows:

(a) We affirm the prior conclusion that section 272(b)(1)'s

``operate independently'' requirement has no plain or ordinary meaning.

(b) We affirm the conclusion that specific reporting requirements

to implement section 272(e)(1) are unnecessary at this time.

(c) We find unpersuasive BellSouth's argument that a broader

reading of ``marketing'' and ``sale of services'' is consistent with

the language and purpose of section 272, and affirm the view that the

question of whether a section 272 affiliate is operating independently

if a BOC designs and develops its affiliate's services should be

decided on a case-by-case basis.

(d) We affirm the conclusion that section 272(a)(2)(C) does not

exclude out-of-region interLATA information services from the separate

affiliate requirement.

(e) We clarify that the conclusions in the Non-Accounting

Safeguards Order are binding regardless of whether they are codified in

the Code of Federal Regulations and decline to codify further those

conclusions.

(f) We conclude in this Third Order on Reconsideration that section

272 of the Act does not require BOCs to provide video programming

services through a separate affiliate.

(g) We clarify, on our own motion, that the Non-Accounting

Safeguards Order was not intended as an affirmative sanction of teaming

arrangements between a BOC and an unaffiliated entity.

(h) We find that Cox's petition requesting the Commission to

reconcile the Non-Accounting Safeguards with certain other proceedings

is moot.

III. Third Order on Reconsideration

A. Section 272(b)(1)'s ``Operate Independently'' Requirement

1. Inadequate Separation Of Operations

a. Background.

4. Section 272(b)(1) directs that the separate affiliate required

pursuant to section 272(a) ``shall operate independently from the

[BOC].'' In the Non-Accounting Safeguards Order, the Commission

concluded that the ``operate independently'' requirement of section

272(b)(1) imposes certain requirements beyond the structural separation

requirements contained in sections 272(b)(2)-(5), including the

preclusion of joint ownership of transmission and switching facilities

by a BOC and its section 272 affiliate, as well as the joint ownership

of the land and buildings where those facilities are located.

Additionally, we found that the ``operate independently'' requirement

precludes a section 272 affiliate from performing operating,

installation, and maintenance functions associated with the BOC's

facilities, and also prohibits the BOC from performing such functions

associated with the facilities that its section 271 affiliate owns, or

leases from a third party provider. The Order declined, however, to

impose additional restrictions on the sharing of services or on the

joint ownership of other property between the BOC and its section 272

affiliate, concluding that additional structural separation

requirements were unnecessary ``given the nondiscrimination safeguards,

the biennial audit requirement, and other public disclosure

requirements imposed by section 272.'' The Order also concluded that

section 272(b)(3)'s ``separate employee'' requirement does not prohibit

the sharing of services (other than operating, installation and

maintenance services) between a BOC and its section 272 affiliate.

b. Discussion.

5. AT&T and MCI contend that the requirements the Commission

adopted pursuant to section 272(b)(1) inadequately separate the

functions of the BOC from those of its section 272

[[Page 61528]]

affiliate. In contrast, BellSouth contends that the Commission's

interpretation of the ``operate independently'' requirement is too

stringent. The arguments put forth by AT&T, MCI and BellSouth here are

largely the same as those raised, considered, and rejected previously

in this docket. Accordingly, we deny the parties' petitions to

reconsider the interpretation of section 272(b)(1)'s ``operate

independently'' requirement.

6. The Relationship between Sections 274(b) and 272(b)(1). AT&T

asserts that section 271(b)(1)-(9) should be read into the ``operate

independently'' requirement of section 272(b)(1). We affirm the

conclusion in the Non-Accounting Safeguards Order, however, that the

structural differences in the two sections indicate that the term

``operate independently'' in section 272(b)(1) ``should not be

interpreted to impose the same obligations'' as the enumerated

requirements in sections 274(b)(1)-(9). Moreover, construing ``operate

independently'' in section 272(b)(1) to mean the same thing as

``operated independently'' in section 274(b) would render sections

272(b)(2)-(5), 272(c), and 272(e) redundant because the requirements in

those sections and the enumerated requirements in sections 274(b)(1)-

(9) overlap. This would violate the maxim that statutes must be

construed, where possible, so that no provision is rendered inoperative

or superfluous. Thus, we reject this argument.

7. Computer II and the Cellular Separation Rules. We also reject

AT&T's contention that the Commission's interpretation of the ``operate

independently'' requirement is irreconcilable with the prior

interpretation of that same phrase in the Computer II and cellular

structural separation rules. We agree with Ameritech that there is no

``precedent'' in the Commission's rules that defines the term ``operate

independently'' as used in section 272(b). Rather, the Non-Accounting

Safeguards Order interpreted ``operate independently'' to implement a

new statutory provision, relying upon its accumulated expertise and

predictive judgment. Moreover, we note that the Non-Accounting

Safeguards Order determined that the requirements of Computer II would

not necessarily increase an affiliate's operational independence. For

instance, we noted that prohibiting an affiliate from constructing,

owning, or operating its own local exchange facilities, as the

requirements of Computer II would necessitate, could actually increase

the affiliate's reliance on the BOC's facilities.

8. Shared Administrative Services. MCI's contention that the

``operate independently'' requirement of section 272(b)(1) requires

fully separate operations was considered and rejected in the Non-

Accounting Safeguards Order. Consistent with the letter and purposes of

section 272, the term ``operate independently'' does not require total

structural separation. We affirm that the economic benefits to

consumers from allowing a BOC and its section 272 affiliate to derive

the economies of scale and scope inherent in the integration of some

services outweigh any potential for harm to competition created

thereby. We reject as well MCI's argument that the explicit permission

for joint marketing in section 272(g) would not be necessary had

Congress not contemplated fully separate operations. Indeed, contrary

to MCI's assertions, provisions such as the arm's length requirement in

section 272(b)(5), the nondiscrimination requirement in section

272(c)(1), the Commission's accounting principles implemented in

accordance with section 272(c)(2), and the joint marketing provision in

section 272(g), suggest that Congress envisioned the type of sharing

that MCI claims section 272(b)(1) prohibits.

9. We are also unpersuaded by MCI's suggestion that allowing a BOC

to provide administrative services to its section 272 affiliate

undermines the ``separate employees'' requirement of section 272(b)(3).

The Non-Accounting Safeguards Order addressed these contentions, and

the parties provide no new reasons for us to reconsider the

interpretation of section 272(b)(3).

10. Joint Provision of Operating, Installation, and Maintenance

Services. BellSouth argues that the Commission improperly determined

that section 272(b)(1) prohibits a BOC affiliate, other than the

section 272 affiliate, from providing installation and maintenance

services to both the BOC and its section 272 affiliate. The Non-

Accounting Safeguards Order addressed and rejected this argument, and

BellSouth has not offered persuasive reasons to reverse course. The

Order determined that allowing the same personnel to perform operating,

installation, and maintenance services for the BOC and the section 272

affiliate would create a loophole around the separate affiliate

requirement. Furthermore, the Commission determined that such sharing

also would heighten the risk of improper cost allocation with regard to

time spent and equipment utilized. Recognizing the burdensome

regulatory involvement that would be necessary to detect and deter such

cost misallocation, the Commission concluded that an outright

prohibition of shared operating, installation and maintenance functions

is necessary in the context of a section 272 affiliate.

2. Provision Of Local Exchange Service By Section 272 Affiliates

a. Background.

11. The Non-Accounting Safeguards Order concluded that section 272

does not prohibit a section 272 affiliate from providing local exchange

service in addition to interLATA services, provided that the section

272 affiliate does not qualify as an incumbent LEC subject to the

requirements of section 251(c). The Order also concluded that if a BOC

transfers to an affiliated entity ownership of any network elements

that must be provided on an unbundled basis pursuant to section

251(c)(3), the entity would be considered an ``assign'' of the BOC

under section 3(4) of the Act with respect to those network elements.''

As a successor or assign, the affiliate would then be subject to the

requirements of section 272. MCI and TCG petition the Commission to

reconsider the decision to allow section 272 affiliates to provide

local service.

b. Discussion.

12. We reaffirm that section 272 does not, on its face, prohibit a

section 272 affiliate from providing both local exchange and interLATA

services. We reject MCI's and TCG's arguments that allowing a section

272 affiliate to provide local exchange services violates the ``operate

independently'' requirement and the separate affiliate requirement. We

agree with the BOCs that Congress' intent in enacting section 272 was

not to prevent a section 272 affiliate from providing both local

exchange and long distance services. Rather, as concluded in the Non-

Accounting Safeguards Order, the purpose of the ``operate

independently'' requirement is to prevent BOCs from abusing bottleneck

control of local exchange facilities. The BOCs' control over local

exchange facilities does not extend to their section 272 affiliates.

13. In addition to finding that there is no statutory bar to

allowing a section 272 affiliate to provide local service, we agree

with the BOCs that allowing a section 272 affiliate to provide local

services does not pose a competitive risk or violate sound public

policy. TCG offers no new support for its argument, which we reject

once again, that the risks of anticompetitive behavior are greater when

a BOC provides UNEs rather than resold services to its section 272

affiliate. We reiterate that the existing safeguards in sections 251,

252, and 272, as well as antitrust laws,

[[Page 61529]]

possible state regulations, and the Commission's existing cost

allocation and affiliate transaction rules provide protection against

improper cost allocation and discrimination. Finally, we disagree with

TCG and reaffirm that the increased flexibility from being able to

offer ``one-stop shopping'' for both local and interLATA services would

allow section 272 affiliates to create packages of services they would

not be able to offer if confined to the rates and services of the BOCs.

3. BOC Transfer Of Official Service Networks

a. Background.

14. The Non-Accounting Safeguards Order determined that a BOC that

seeks to transfer ownership of its Official Services Network to its

section 272 affiliate in order to provide interLATA services must

ensure that the transfer takes place in a nondiscriminatory manner, in

accordance with section 272(c)(1), and must adhere to the affiliate

transaction rules. MCI petitions the Commission to prohibit a BOC from

transferring or making available its Official Services Networks to its

section 272 affiliate under any conditions. Alternatively, should the

Commission permit the transfer of Official Services Networks, ACTS

urges the Commission to indicate that competitive Lees may bid on any

BOC ownership transfers of those networks.

b. Discussion.

15. We reaffirm that a BOC may transfer its Official Services

Network to its section 272 affiliate, provided that the transfer takes

place in a nondiscriminatory manner, consistent with section 272(c)(1),

and complies with the affiliate transaction rules. The parties dispute

the scope of the restrictions that the MAJ placed on the use of

Official Services Networks, but we need not resolve this dispute

because we have found that a BOC may, under the Act, transfer its

Official Services Network to its section 272 affiliate. Similarly, to

implement the Act, we need not determine whether BOCs have overbuilt

their Official Services Networks, as MCI contends. Rather, pursuant to

the language of section 272(c) and 272(b)(5), we must only ensure that

the terms of the transfer of Official Services Networks are fair and

consistent with our accounting rules.

16. We reaffirm the conclusion in the Non-Accounting Safeguards

Order that the nondiscrimination obligations established pursuant to

section 272, other provisions of the Act, and state statutes and

regulations provide sufficient protection in the event of a transfer of

Official Services Network facilities. We are unpersuaded by MCI's

argument that such a transfer cannot take place at arm's length in

accordance with section 272(b)(5). Transactions between a BOC and its

section 272 affiliate involving the BOC's Official Services Network

would have to comply with our affiliate transactions rules, which

generally satisfy the arm's length requirement of section 272.

Furthermore, our public disclosure requirements help ensure the arm's

length nature of the transaction by subjecting a BOC's transfer of its

Official Services Network to intense scrutiny by both policymakers and

the public.

17. We also reject MCI's unsupported assertion that the BOCs'

transfer of Official Services Networks would inherently discriminate in

favor of their section 272 affiliates. The Commission has explained

that the BOC must ensure that unaffiliated entities are given an equal

opportunity, along with the section 272 affiliate, to obtain ownership

of this network in the event it decides to transfer. We clarify, as

requested by ACTS, that one way in which a BOC may provide such an

equal opportunity to obtain ownership is to allow competing Lees to bid

for ownership of its Official Services Network.

B. Reporting Requirements

1. Background

18. The Non-Accounting Safeguards Order concluded that, with the

exception of section 272(e)(1), none of the reporting requirements of

Computer III/ONA were needed at that time to facilitate the detection

and adjudication of violations of the separate affiliate and

nondiscrimination requirements of section 272. The Order noted,

however, that the Commission would revisit the need for reporting

requirements should future developments warrant. MCI and TRA petition

the Commission to reconsider its decision not to impose reporting

requirements pursuant to section 272(c)(1), arguing that these

requirements are unenforceable absent information about the quality of

services that the BOCs provide to their section 272 affiliates.

2. Discussion

19. We deny the request by MCI and TRA to impose reporting

requirements at this time. Our decision not to adopt specific reporting

requirements was reinforced by the Commission's subsequent adoption of

a Notice of Proposed Rulemaking setting forth a set of model

performance measurements and reporting requirements for Operation

Support Systems (OSS), interconnection and access to operator services

and directory assistance. See Performance Measurements Notice of

Proposed Rulemaking, 63 FR 27012 (May 15, 1998). We determined to

establish model rules, rather than legally binding rules, in order to

allow states that have begun performance measurement and reporting

requirement proceedings to incorporate the model rules as they deem

beneficial, and as an aid to those states that have not yet begun such

proceedings.

20. The model performance measurements and reporting requirements

are designed to help ensure that BOCs meet their nondiscrimination

obligations when providing competing carriers access to critical

support functions. Moreover, the model performance measurements include

certain of the measurements that MCI seeks in its reconsideration

petition. Finally, states, the Department of Justice, and the BOCs

themselves have proposed performance measurements. The specific

measurements that BOCs are proposing, or in some cases have begun to

implement, are in many respects similar to those proposed in the

Performance Measurements Notice. For the foregoing reasons, we deny the

MCI and TRA requests for reconsideration.

C. The Joint Marketing Restrictions Of Sections 271(e)(1) And 272(g)(3)

1. Section 271(e)(1)--Joint Marketing Of Local And Long Distance

Services By Certain Interexchange Carriers

21. We deny US WEST's request that the Commission clarify on

reconsideration its interpretation of section 271(e)(1). This section

provides that, for a period no longer than 36 months after

implementation of the Telecommunications Act, certain interexchange

carriers may not market interLATA services jointly with BOC local

services purchased for resale. Because the 36-month period specified in

this provision expired on February 8, 1999, this provision is no longer

in effect and US WEST's petition for reconsideration on this issue is

moot.

2. Section 272(g)(3)--``Marketing'' And ``Sale Of Service''

a. Background.

22. Section 272(g)(3) of the Act states that ``[t]he joint

marketing and sale of services permitted under this section [272(g)]

shall not be considered to violate the nondiscrimination provisions of

section 272(c). The Non-Accounting Safeguards Order declined to develop

an exhaustive list of specific

[[Page 61530]]

BOC activities covered by section 272(g). The Order did state, however,

that activities such as customer inquiries, sales functions, and

ordering are permitted under section 272(g)(3), because they involve

only the marketing and sales of a section 272 affiliate's services.

BellSouth contends that the Commission construed the terms

``marketing'' and ``sale of services'' too narrowly and urges the

Commission to include planning, design, and development within the

meaning of those terms.

b. Discussion.

23. We affirm that the reading of the section 272(g)(3) exemption

from the nondiscrimination requirements of section 272(c) for ``joint

marketing and sale of services'' is consistent with the language and

purpose of section 272. We further conclude that the broad

interpretation of the ``joint marketing and sale of services''

exception BellSouth advocates would create a loophole that would allow

potential BOC discrimination in countless activities. We disagree with

BellSouth that the reading that we adopt imposes an unqualified

obligation on the BOCs to develop and design their competitors'

interLATA services. As noted in the Non-Accounting Safeguards Order, a

BOC must develop these services on a nondiscriminatory basis for or

with other entities only if the BOC develops such services for or with

its section 272 affiliate. Finally, as to MCI's contention that a BOC

that designs and develops its affiliate's services will not be

operating independently, as required by section 272(b)(1), we affirm

the view in the Non-Accounting Safeguards Order that such

determinations should be made on a case-by-case basis.

D. InterLATA Information Services

1. Out-of-Region InterLATA Information Services. Out-of-Region

InterLATA Information Services

a. Background.

24. The Non-Accounting Safeguards Order concluded that section

272(a)(2) of the Act requires the BOCs to provide out-of-region

interLATA information services through a section 272 separate

affiliate. Section 272(a)(2)(B)(ii) requires a separate affiliate for

the ``origination of telecommunication services,'' other than ``out-of-

region services described in section 271(b)(2).'' The Order concluded

that the section 272(a)(2)(B)(ii) exception extends only to out-of-

region interLATA services that are telecommunications services and does

not extend to out-of-region interLATA information services. The Order

also found that section 272(a)(2)(C) requires a separate affiliate for

``interLATA information services,'' and exempts electronic publishing

and alarm monitoring services from that requirement. The Order

concluded that the explicit exclusion of out-of-region interLATA

telecommunications services in one subsection of the statute, and the

lack of such an express exclusion of out-of-region interLATA

information services in another subsection of the same provision,

suggests that Congress did not intend to exclude out-of-region

interLATA information services from the separate affiliate requirement.

BellSouth and US WEST petition us to allow BOCs to provide out-of-

region information services on an integrated basis.

b. Discussion.

25. We affirm the determination that the statute does not exclude

out-of-region interLATA information services from the separate

affiliate requirement. Accordingly, we reject US WEST's contention that

the exception to the separate affiliate requirement in section

272(a)(2)(B)(ii) for ``out-of-region services'' applies to both

interLATA telecommunications services and interLATA information

services, in the same way that the reference to ``incidental interLATA

services'' in section 272(a)(2)(B)(i) applies to both

telecommunications services and information services. We note,

moreover, in response to US WEST's assertion, the conclusion in the

Non-Accounting Safeguards Order that the incidental interLATA services

exception contained in section 272(a)(2)(B)(i) ``applies, by its terms,

to the origination of incidental interLATA services that are

telecommunications services.'' Although services such as video and

audio programming services, which do not appear to be solely

telecommunications services, are listed within the exception, the Order

stated that the limitation in section 271(h) ``specifies that these

incidental interLATA services `are limited to those interLATA

transmissions incidental to the provision' '' of those services.

Therefore, US WEST's argument that the incidental interLATA exception

encompasses both telecommunications and information services is not

persuasive.

26. Instead, we agree with MCI and TRA that the only exceptions to

the separate affiliate requirement for interLATA information services

are the two specifically identified in section 272(a)(2)(C), i.e.,

electronic publishing and alarm monitoring. Thus, we likewise reject

BellSouth's argument that interLATA information services must fall

within the scope of exempted out-of region ``interLATA services''

because, by definition, interLATA information services are provided via

telecommunications that cross LATA boundaries. We instead agree with

MCI that if Congress had intended to exclude out-of-region interLATA

information services from the separate affiliate requirement, it would

have done so explicitly. We further reject US WEST's and BellSouth's

contention that it is incongruous as a policy matter to exclude out-of-

region interLATA telecommunications services from the separate

affiliate requirement, but to require a separate affiliate for out-of-

region interLATA information services. This policy argument is

foreclosed given that the statute requires that BOC out-of-region

interLATA information services be offered through a separate section

272 affiliate. We, therefore, deny US WEST's and BellSouth's petitions

for reconsideration on these grounds.

2. Codification Of Non-Accounting Safeguards Order Requirements

a. Background.

27. Several new rules, enumerated in Appendix B of the Non-

Accounting Safeguards Order, were promulgated upon adoption of that

order. The Order also imposed numerous other requirements that were not

codified in our rules. ACTS submits that we should codify the

conclusion in the Non-Accounting Safeguards Order that ``BOCs may not

provide interLATA information services, except for information services

covered by section 271(g)(4), in any of their in-region states prior to

obtaining section 271 authorization.'' ACTS claims that codifying this

requirement would reduce the potential for non-compliance and

litigation by the BOCs.

b. Discussion.

28. We note that the requirement addressed by ACTS in its petition

has been modified by subsequent Commission action. In the First Order

on Reconsideration 62 FR 02927 (January 21, 1997) in this proceeding,

we clarified that, prior to obtaining section 271 authorization, BOCs

may provide any interLATA information service designated as an

incidental interLATA service under section 271(g), not just those

enumerated in sub-section 271(g)(4), as suggested in the Non-Accounting

Safeguards Order. Like other conclusions in the Non-Accounting

Safeguards Order and in the First Order on Reconsideration, this

requirement is binding regardless of whether it is codified in the CFR.

We decline to single out this particular requirement for codification

because, as ACTS recognizes, ``there can be no

[[Page 61531]]

possible confusion about this requirement.'' We therefore deny the ACTS

petition for reconsideration on this issue.

E. Other Issues

1. Applicability Of Section 272 To Video Programming Services

a. Background.

29. The Non-Accounting Safeguards Order concluded that, ``pursuant

to section 272(a)(2)(B)(i), BOCs are not required to provide the

interLATA telecommunications transmission incidental to the provision

of programming services listed in sections 271(g)(1)(A), (B), and (C)

through a section 272 affiliate.'' We found this conclusion to be

consistent with the determination in the OVS Second Report and Order,

61 FR 28698 (June 5, 1996). Time Warner asks us to clarify on

reconsideration that section 272 requires a BOC to establish a separate

affiliate to provide video programming services to end users, while it

exempts the underlying transmission service or the OVS platform, which

may be provided by a BOC's local telephone company. Several BOCs

maintain, other hand, that video programming services are not

information services and therefore are not subject to section

272(a)(2)(C).

b. Discussion.

30. We agree with the BOCs that section 272 of the Act does not

require BOCs to provide video programming services through a separate

affiliate. We conclude that interLATA transmissions incidental to the

provision by a BOC or its affiliate of video, audio, and other

programming services are considered ``incidental'' interLATA services

under the Act. Section 272(a)(2)(B)(i) exempts such incidental

interLATA services from the section 272 separate affiliate requirement.

Moreover, as Ameritech and SBC recognize, it defies logic to suggest

that transmission component that itself is expressly exempt from the

separate affiliate requirements would render the video programming

component (which is neither intraLATA nor interLATA) subject to these

same requirements. There is no indication that Congress intended

section 271(h) to cancel out the exemption for audio, video and other

programming services in this manner.

31. In reaching this conclusion, we need not determine whether

programming services are, in some instances, ``information services,''

as defined by section 3(20) of the Communications Act. Even if a video

programming service were found to be an ``information service,'' it

would not be considered ``interLATA'' (and, thus, subject to the

separate affiliate requirement of section 272(a)(2)(C)) if it is

bundled with an incidental interLATA transmission component that is

exempt from section 272(a)(2)(C), for the reasons set forth.

Furthermore, there is no question that a BOC would be permitted to

offer a video programming service directly to the public that is not

bundled with an interLATA transmission component. Finally, we reject

Time Warner's contention that BOCs may provide the video programming

component of an open video service only through a section 272 separate

affiliate. As we have explained previously, ``Congress expressly

directed that Title II requirements not be applied to the

`establishment and operation of an open video system.' ''

2. Teaming Arrangements

32. Section 271(g)(2) states that a BOC ``may not market or sell

interLATA service provided by an affiliate required by this section

within any of its in-region States until such company is authorized to

provide interLATA services in such State under section 271(d).'' The

Commission concluded that ``section 272(g) is silent with respect to

the question of whether a BOC may align [or `team'] itself with an

unaffiliated entity to provide interLATA services prior until the BOC

receives section 271 authorization * * * to the extent that BOCs align

themselves with non-affiliates, they must do so on a nondiscriminatory

basis.''

33. We clarify, on our own motion, that the language concerning so-

called teaming arrangements contained in the Non-Accounting Safeguards

Order was not intended as an affirmative sanction of all teaming

arrangements between a BOC and an unaffiliated entity. In particular,

that language did not address the issue of whether, by entering into a

business arrangement that involves the marketing of an unaffiliated

entity's long distance services, a BOC may be providing interLATA

service in violation of section 271(a). That question was addressed in

the Qwest Order, where the Commission concluded that, although certain

marketing arrangements are permissible under the Act, business

arrangements between a BOC and an unaffiliated long distance carrier

may, nevertheless, violate section 271(a) if the BOC's involvement in

the long distance market enables it to obtain competitive advantages,

thereby reducing its incentive to cooperate in opening its local market

to competition. See In the Matter of AT&T Corporation et al., File Nos.

E-98-41, -42 and -43, Memorandum Opinion and Order.

3. Effect On Other Commission Proceedings

34. Cox petitions us to reconcile the Non-Accounting Safeguards

Order, which found that existing safeguards for BOC provision of

incidental interLATA services are sufficient to protect telephone

exchange ratepayers and competition in telecommunications markets, with

the CMRS Safeguards Notice and the Video Cost Allocation Notice, which

seek comment on what additional safeguards, if any, are necessary to

protect ratepayers and competition. Since Cox filed its petition, we

released the CMRS Safeguards Order, 62 FR 63864 (December 3, 1997). We

concluded in that order that all incumbent LECs (except rural telephone

companies) must provide in-region broadband CMRS, including cellular

services, through a CMRS affiliate, subject to the accounting and

affiliate transactions rules in parts 32 and 64 of our rules. Cox's

concerns with regard to the CMRS Safeguards proceeding, therefore, are

now moot. Furthermore, any concerns that Cox has with regard to the

Video Cost Allocation proceeding are more properly addressed in that

proceeding.

IV. Regulatory Flexibility Act

35. In the Non-Accounting Safeguards Order, the Commission

concluded and certified that the rules adopted in that Order would not,

under the Regulatory Flexibility Act of 1980, as amended (RFA), have

``a significant economic impact on a substantial number of small

entities.'' The rules then adopted pertained only to BOCs, which,

because of their size, do not qualify as small entities. We received no

petitions for reconsideration of that Final Regulatory Flexibility

Certification. In this present Third Order on Reconsideration, the

Commission promulgates no additional final rules, and our action does

not affect that previous final certification.

V. Ordering Clauses

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

205, 214, 251, 252, 271, 272, and 303(r) of the Communications Act of

1934, as amended, 47 U.S.C. 151-154, 201-205, 214, 251, 252, 271, 272,

303(r), the Third Order on Reconsideration in CC Docket No. 96-149 is

adopted.

37. It is further ordered that the Petitions for Reconsideration

filed by AT&T, MCI, TCG, Cox, ACTS, US WEST and Time Warner are denied,

as described herein.

[[Page 61532]]

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 99-29550 Filed 11-10-99; 8:45 am]

BILLING CODE 6712-01-P