Table of Contents
I. INTRODUCTION, OVERVIEW, AND EXECUTIVE SUMMARY
A. The Telecommunications Act of 1996 - A New
Direction
1. The Telecommunications Act of 1996(1) fundamentally
changes telecommunications regulation. In the old regulatory regime government encouraged
monopolies. In the new regulatory regime, we and the states remove the outdated barriers
that protect monopolies from competition and affirmatively promote efficient competition
using tools forged by Congress. Historically, regulation of this industry has been
premised on the belief that service could be provided at the lowest cost to the maximum
number of consumers through a regulated monopoly network. State and federal regulators
devoted their efforts over many decades to regulating the prices and practices of these
monopolies and protecting them against competitive entry. The 1996 Act adopts precisely
the opposite approach. Rather than shielding telephone companies from competition, the
1996 Act requires telephone companies to open their networks to competition.
2. The 1996 Act also recasts the relationship between the FCC and state commissions responsible for regulating telecommunications services. Until now, we and our state counterparts generally have regulated the jurisdictional segments of this industry assigned to each of us by the Communications Act of 1934. The 1996 Act forges a new partnership between state and federal regulators. This arrangement is far better suited to the coming world of competition in which historical regulatory distinctions are supplanted by competitive forces. As this Order demonstrates, we have benefitted enormously from the expertise and experience that the state commissioners and their staffs have contributed to these discussions. We look forward to the continuation of that cooperative working relationship in the coming months as each of us carries out the role assigned by the 1996 Act.
3. Three principal goals established by the telephony provisions of the 1996 Act are:
(1) opening the local exchange and exchange access markets to competitive entry; (2)
promoting increased competition in telecommunications markets that are already open to
competition, including the long distance services market; and (3) reforming our system of
universal service so that universal service is preserved and advanced as the local
exchange and exchange access markets move from monopoly to competition. In this rulemaking
and related proceedings, we are taking the steps that will achieve the pro-competitive,
deregulatory goals of the 1996 Act. The Act directs us and our state colleagues to remove
not only statutory and regulatory impediments to competition, but economic and operational
impediments as well. We are directed to remove these impediments to competition in all
telecommunications markets, while also preserving and advancing universal service in a
manner fully consistent with competition.
4. These three goals are integrally related. Indeed, the relationship between fostering
competition in local telecommunications markets and promoting greater competition in the
long distance market is fundamental to the 1996 Act. Competition in local exchange and
exchange access markets is desirable, not only because of the social and economic benefits
competition will bring to consumers of local services, but also because
competition eventually will eliminate the ability of an incumbent local exchange carrier
to use its control of bottleneck local facilities to impede free market competition. Under
section 251, incumbent local exchange carriers (LECs), including the Bell Operating
Companies (BOCs), are mandated to take several steps to open their networks to
competition, including providing interconnection, offering access to unbundled elements of
their networks, and making their retail services available at wholesale rates so that they
can be resold. Under section 271, once the BOCs have taken the necessary steps, they are
allowed to offer long distance service in areas where they provide local telephone
service, if we find that entry meets the specific statutory requirements and is consistent
with the public interest. Thus, under the 1996 Act, the opening of one of the last
monopoly bottleneck strongholds in telecommunications -- the local exchange and exchange
access markets -- to competition is intended to pave the way for enhanced competition in all
telecommunications markets, by allowing all providers to enter all markets. The opening of
all telecommunications markets to all providers will blur traditional industry
distinctions and bring new packages of services, lower prices and increased innovation to
American consumers. The world envisioned by the 1996 Act is one in which all providers
will have new competitive opportunities as well as new competitive challenges.
5. The Act also recognizes, however, that universal service cannot be maintained
without reform of the current subsidy system. The current universal service system is a
patchwork quilt of implicit and explicit subsidies. These subsidies are intended to
promote telephone subscribership, yet they do so at the expense of deterring or distorting
competition. Some policies that traditionally have been justified on universal service
considerations place competitors at a disadvantage. Other universal service policies place
the incumbent LECs at a competitive disadvantage. For example, LECs are required to charge
interexchange carriers a Carrier Common Line charge for every minute of interstate traffic
that any of their customers send or receive. This exposes LECs to competition from
competitive access providers, which are not subject to this cost burden. Hence, section
254 of the Act requires the Commission, working with the states and consumer advocates
through a Federal/State Joint Board, to revamp the methods by which universal service
payments are collected and disbursed.(2) The present
universal service system is incompatible with the statutory mandate to introduce efficient
competition into local markets, because the current system distorts competition in those
markets. For example, without universal service reform, facilities-based entrants would be
forced to compete against monopoly providers that enjoy not only the technical, economic,
and marketing advantages of incumbency, but also subsidies that are provided only to the
incumbents.
B. The Competition Trilogy: Section 251, Universal Service Reform and Access
Charge Reform
6. The rules that we adopt to implement the local competition provisions of the 1996
Act represent only one part of a trilogy. In this Report and Order, we adopt initial rules
designed to accomplish the first of the goals outlined above -- opening the local exchange
and exchange access markets to competition. The steps we take today are the initial
measures that will enable the states and the Commission to begin to implement sections 251
and 252. Given the dynamic nature of telecommunications technology and markets, it will be
necessary over time to review proactively and adjust these rules to ensure both that the
statute's mandate of competition is effectuated and enforced, and that regulatory burdens
are lifted as soon as competition eliminates the need for them. Efforts to review and
revise these rules will be guided by the experience of states in their initial
implementation efforts.
7. The second part of the trilogy is universal service reform. In early November, the
Federal/State Universal Service Joint Board, including three members of this Commission,
will make its recommendations to the Commission. These recommendations will serve as the
cornerstone of universal service reform. The Commission will act on the Joint Board's
recommendations and adopt universal service rules not later than May 8, 1997, and, we
hope, even earlier. Our universal service reform order, consistent with section 254, will
rework the subsidy system to guarantee affordable service to all Americans in an era in
which competition will be the driving force in telecommunications. By reforming the
collection and distribution of universal service funds, the states and the Commission will
also ensure that the goals of affordable service and access to advanced services are met
by means that enhance, rather than distort, competition. Universal service reform is
vitally connected to the local competition rules we adopt today.
8. The third part of the trilogy is access charge reform. It is widely recognized that,
because a competitive market drives prices to cost, a system of charges which includes
non-cost based components is inherently unstable and unsustainable. It also
well-recognized that access charge reform is intensely interrelated with the local
competition rules of section 251 and the reform of universal service. We will complete
access reform before or concurrently with a final order on universal service.
9. Only when all parts of the trilogy are complete will the task of adjusting the
regulatory framework to fully competitive markets be finished. Only when our counterparts
at the state level complete implementing and supplementing these rules will the complete
blueprint for competition be in place. Completion of the trilogy, coupled with the
reduction in burdensome and inefficient regulation we have undertaken pursuant to other
provisions of the 1996 Act, will unleash marketplace forces that will fuel economic
growth. Until then, incumbents and new entrants must undergo a transition process toward
fully competitive markets. We will, however, act quickly to complete the three essential
rulemakings. We intend to issue a notice of proposed rulemaking in 1996 and to complete
the access charge reform proceeding concurrently with the statutory deadline established
for the section 254 rulemaking. This timetable will ensure that actions taken by the Joint
Board in November and this Commission by not later than May 1997 in the universal service
reform proceeding will be coordinated with the access reform docket.
C. Economic Barriers
10. As we pointed out in our Notice of Proposed Rulemaking in this docket(3), the removal of statutory and regulatory barriers to entry
into the local exchange and exchange access markets, while a necessary precondition to
competition, is not sufficient to ensure that competition will supplant monopolies. An
incumbent LEC's existing infrastructure enables it to serve new customers at a much lower
incremental cost than a facilities-based entrant that must install its own switches,
trunking and loops to serve its customers.(4) Furthermore,
absent interconnection between the incumbent LEC and the entrant, the customer of the
entrant would be unable to complete calls to subscribers served by the incumbent LEC's
network. Because an incumbent LEC currently serves virtually all subscribers in its local
serving area,(5) an incumbent LEC has little economic
incentive to assist new entrants in their efforts to secure a greater share of that
market. An incumbent LEC also has the ability to act on its incentive to discourage entry
and robust competition by not interconnecting its network with the new entrant's network
or by insisting on supracompetitive prices or other unreasonable conditions for
terminating calls from the entrant's customers to the incumbent LEC's subscribers.
11. Congress addressed these problems in the 1996 Act by mandating that the most
significant economic impediments to efficient entry into the monopolized local market must
be removed. The incumbent LECs have economies of density, connectivity, and scale;
traditionally, these have been viewed as creating a natural monopoly. As we pointed out in
our NPRM, the local competition provisions of the Act require that these economies be
shared with entrants. We believe they should be shared in a way that permits the incumbent
LECs to maintain operating efficiency to further fair competition, and to enable the
entrants to share the economic benefits of that efficiency in the form of cost-based
prices.(6) Congress also recognized that the transition to
competition presents special considerations in markets served by smaller telephone
companies, especially in rural areas.(7) We are mindful of
these considerations, and know that they will be taken into account by state commissions
as well.
12. The Act contemplates three paths of entry into the local market -- the construction
of new networks, the use of unbundled elements of the incumbent's network, and resale. The
1996 Act requires us to implement rules that eliminate statutory and regulatory barriers
and remove economic impediments to each. We anticipate that some new entrants will follow
multiple paths of entry as market conditions and access to capital permit. Some may enter
by relying at first entirely on resale of the incumbent's services and then gradually
deploying their own facilities. This strategy was employed successfully by MCI and Sprint
in the interexchange market during the 1970's and 1980's. Others may use a combination of
entry strategies simultaneously -- whether in the same geographic market or in different
ones. Some competitors may use unbundled network elements in combination with their own
facilities to serve densely populated sections of an incumbent LEC's service territory,
while using resold services to reach customers in less densely populated areas. Still
other new entrants may pursue a single entry strategy that does not vary by geographic
region or over time. Section 251 neither explicitly nor implicitly expresses a preference
for one particular entry strategy. Moreover, given the likelihood that entrants will
combine or alter entry strategies over time, an attempt to indicate such a preference in
our section 251 rules may have unintended and undesirable results. Rather, our obligation
in this proceeding is to establish rules that will ensure that all pro-competitive entry
strategies may be explored. As to success or failure, we look to the market, not to
regulation, for the answer.
13. We note that an entrant, such as a cable company, that constructs its own network
will not necessarily need the services or facilities of an incumbent LEC to enable its own
subscribers to communicate with each other. A firm adopting this entry strategy, however,
still will need an agreement with the incumbent LEC to enable the entrant's customers to
place calls to and receive calls from the incumbent LEC's subscribers.(8)
Sections 251(b)(5) and (c)(2) require incumbent LECs to enter into such agreements on
just, reasonable, and nondiscriminatory terms and to transport and terminate traffic
originating on another carrier's network under reciprocal compensation arrangements. In
this item, we adopt rules for states to apply in implementing these mandates of section
251 in their arbitration of interconnection disputes, as well as their review of such
arbitrated arrangements, or a BOC's statement of generally available terms. We believe
that our rules will assist the states in carrying out their responsibilities under the
1996 Act, thereby furthering the Act's goals of fostering prompt, efficient, competitive
entry.
14. We also note that many new entrants will not have fully constructed their local
networks when they begin to offer service.(9) Although they
may provide some of their own facilities, these new entrants will be unable to reach all
of their customers without depending on the incumbent's facilities. Hence, in addition to
an arrangement for terminating traffic on the incumbent LEC's network, entrants will
likely need agreements that enable them to obtain wholesale prices for services they wish
to sell at retail and to use at least some portions of the incumbents' facilities, such as
local loops and end office switching facilities.
15. Congress recognized that, because of the incumbent LEC's incentives and superior
bargaining power, its negotiations with new entrants over the terms of such agreements
would be quite different from typical commercial negotiations. As distinct from bilateral
commercial negotiation, the new entrant comes to the table with little or nothing the
incumbent LEC needs or wants. The statute addresses this problem by creating an
arbitration proceeding in which the new entrant may assert certain rights, including that
the incumbent's prices for unbundled network elements must be "just, reasonable and
nondiscriminatory."(10) We adopt rules herein to
implement these requirements of section 251(c)(3).
D. Operational Barriers
16. The statute also directs us to remove the existing operational barriers to entering
the local market. Vigorous competition would be impeded by technical disadvantages and
other handicaps that prevent a new entrant from offering services that consumers perceive
to be equal in quality to the offerings of incumbent LECs. Our recently-issued number
portability Report and Order addressed one of the most significant operational barriers to
competition by permitting customers to retain their phone numbers when they change local
carriers.(11)
17. Closely related to number portability is dialing parity, which we address in a
companion order.(12) Dialing parity enables a customer of
a new entrant to dial others with the convenience an incumbent provides, regardless of
which carrier the customer has chosen as the local service provider. The history of
competition in the interexchange market illustrates the critical importance of dialing
parity to the successful introduction of competition in telecommunications markets. Equal
access enabled customers of non-AT&T providers to enjoy the same convenience of
dialing "1" plus the called party's number that AT&T customers had. Prior to
equal access, subscribers to interexchange carriers (IXCs) other than AT&T often were
required to dial more than 20 digits to place an interstate long-distance call. Industry
data show that, after equal access was deployed throughout the country, the number of
customers using MCI and other long-distance carriers increased significantly.(13) Thus, we believe that equal access had a substantial
pro-competitive impact. Dialing parity should have the same effect.
18. This Order addresses other operational barriers to competition, such as access to
rights of way, collocation, and the expeditious provisioning of resale and unbundled
elements to new entrants. The elimination of these obstacles is essential if there is to
be a fair opportunity to compete in the local exchange and exchange access markets. As an
example, customers can voluntarily switch from one interexchange carrier to another
extremely rapidly, through automated systems. This has been a boon to competition in the
interexchange market. We expect that moving customers from one local carrier to another
rapidly will be essential to fair local competition.
19. As competition in the local exchange market emerges, operational issues may be
among the most difficult for the parties to resolve. Thus, we recognize that, along with
the state commissions and the courts, we will be called upon to enforce provisions of
arbitrated agreements and our rules relating to these operational barriers to entry.
Because of the critical importance of eliminating these barriers to the accomplishment of
the Act's pro-competitive objectives, we intend to enforce our rules in a manner that is
swift, sure, and effective. To this end we will review, with the states, our enforcement
techniques during the fourth quarter of 1996.
20. We recognize that during the transition from monopoly to competition it is vital
that we and the states vigilantly and vigorously enforce the rules that we adopt today and
that will be adopted in the future to open local markets to competition. If we fail to
meet that responsibility, the actions that we take today to accomplish the 1996 Act's
pro-competitive, deregulatory objectives may prove to be ineffective.
E. Transition
21. We consider it vitally important to establish a "pro-competitive, deregulatory
national policy framework"(14) for local telephony
competition, but we are acutely mindful of existing common carrier arrangements,
relationships, and expectations, particularly those that affect incumbent LECs. In light
of the timing issues described above, we think it wise to provide some appropriate
transitions.
22. In this regard, this Order sets minimum, uniform, national rules, but also relies
heavily on states to apply these rules and to exercise their own discretion in
implementing a pro-competitive regime in their local telephone markets. On those issues
where the need to create a factual record distinct to a state or to balance unique local
considerations is material, we ask the states to develop their own rules that are
consistent with general guidance contained herein. The states will do so in rulemakings
and in arbitrating interconnection arrangements. On other issues, particularly those
related to pricing, we facilitate the ability of states to adopt immediate, temporary
decisions by permitting the states to set proxy prices within a defined range or subject
to a ceiling. We believe that some states will find these alternatives useful in light of
the strict deadlines of the law. For example, section 252(b)(4)(C) requires a state
commission to complete the arbitration of issues that have been referred to it, pursuant
to section 252(b)(1), within nine months after the incumbent local exchange carrier
received the request for negotiation. Selection of the actual prices within the range or
subject to the ceiling will be for the state commission to determine. Some states may use
proxies temporarily because they lack the resources necessary to review cost studies in
rulemakings or arbitrations. Other states may lack adequate resources to complete such
tasks before the expiration of the arbitration deadline. However, we encourage all states
to complete the necessary work within the statutory deadline. Our expectation is that the
bulk of interconnection arrangements will be concluded through arbitration or agreement,
by the beginning of 1997. Not until then will we be able to determine more precisely the
impact of this Order on promoting competition. Between now and then, we are eager to
continue our work with the states. In this period, as set forth earlier, we should be able
to take major steps toward implementing a new universal service system and far-reaching
reform of interstate access. These reforms will reflect intensive dialogue between us and
the states.
23. Similarly, as states implement the rules that we adopt in this order as well as
their own decisions, they may find it useful to consult with us, either formally or
informally, regarding particular aspects of these rules. We encourage and invite such
inquiries because we believe that such consultations are likely to provide greater
certainty to the states as they apply our rules to specific arbitration issues and
possibly to reduce the burden of expensive judicial proceedings on states. A variety of
formal and informal procedures exist under our rules for such consultations, and we may
find it helpful to fashion others as we gain additional experience under the 1996 Act.
F. Executive Summary
1. Scope of Authority of the FCC and State Commissions
24. The Commission concludes that sections 251 and 252 address both interstate and
intrastate aspects of interconnection, resale services, and access to unbundled elements.
The 1996 Act moves beyond the distinction between interstate and intrastate matters that
was established in the 1934 Act, and instead expands the applicability of national rules
to historically intrastate issues, and state rules to historically interstate issues. In
the Report and Order, the Commission concludes that the states and the FCC can craft a
partnership that is built on mutual commitment to local telephone competition throughout
the country, and that under this partnership, the FCC establishes uniform national rules
for some issues, the states, and in some instances the FCC, administer these rules, and
the states adopt additional rules that are critical to promoting local telephone
competition. The rules that the FCC establishes in this Report and Order are minimum
requirements upon which the states may build. The Commission also intends to review and
amend the rules it adopts in this Report and Order to take into account competitive
developments, states' experiences, and technological changes.
2. Duty to Negotiate in Good Faith
25. In the Report and Order, the Commission establishes some national rules regarding
the duty to negotiate in good faith, but concludes that it would be futile to try to
determine in advance every possible action that might be inconsistent with the duty to
negotiate in good faith. The Commission also concludes that, in many instances, whether a
party has negotiated in good faith will need to be decided on a case-by-case basis, in
light of the particular circumstances. The Commission notes that the arbitration process
set forth in section 252 provides one remedy for failing to negotiate in good faith. The
Commission also concludes that agreements that were negotiated before the 1996 Act was
enacted, including agreements between neighboring LECs, must be filed for review by the
state commission pursuant to section 252(a). If the state commission approves such
agreements, the terms of those agreements must be made available to requesting
telecommunications carriers in accordance with section 252(i).
3. Interconnection
26. Section 251(c)(2) requires incumbent LECs to provide interconnection to any
requesting telecommunications carrier at any technically feasible point. The
interconnection must be at least equal in quality to that provided by the incumbent LEC to
itself or its affiliates, and must be provided on rates, terms, and conditions that are
just, reasonable, and nondiscriminatory. The Commission concludes that the term
"interconnection" under section 251(c)(2) refers only to the physical linking of
two networks for the mutual exchange of traffic. The Commission identifies a minimum set
of five "technically feasible" points at which incumbent LECs must provide
interconnection: (1) the line side of a local switch (for example, at the main
distribution frame); (2) the trunk side of a local switch; (3) the trunk interconnection
points for a tandem switch; (4) central office cross-connect points; and (5) out-of-band
signalling facilities, such as signalling transfer points, necessary to exchange traffic
and access call-related databases. In addition, the points of access to unbundled elements
(discussed below) are also technically feasible points of interconnection. The Commission
finds that telecommunications carriers may request interconnection under section 251(c)(2)
to provide telephone exchange or exchange access service, or both. If the request is for
such purpose, the incumbent LEC must provide interconnection in accordance with section
251(c)(2) and the Commission's rules thereunder to any telecommunications carrier,
including interexchange carriers and commercial mobile radio service (CMRS) providers.
4. Access to Unbundled Elements
27. Section 251(c)(3) requires incumbent LECs to provide requesting telecommunications
carriers nondiscriminatory access to network elements on an unbundled basis at any
technically feasible point on rates, terms, and conditions that are just, reasonable, and
nondiscriminatory. In the Report and Order, the Commission identifies a minimum set of
network elements that incumbent LECs must provide under this section. States may require
incumbent LECs to provide additional network elements on an unbundled basis. The minimum
set of network elements the Commission identifies are: local loops, local and tandem
switches (including all vertical switching features provided by such switches),
interoffice transmission facilities, network interface devices, signalling and
call-related database facilities, operations support systems functions, and operator and
directory assistance facilities. The Commission concludes that incumbent LECs must provide
nondiscriminatory access to operations support systems functions by January 1, 1997. The
Commission concludes that access to such operations support systems is critical to
affording new entrants a meaningful opportunity to compete with incumbent LECs. The
Commission also concludes that incumbent LECs are required to provide access to network
elements in a manner that allows requesting carriers to combine such elements as they
choose, and that incumbent LECs may not impose restrictions upon the uses to which
requesting carriers put such network elements.
5. Methods of Obtaining Interconnection and Access to Unbundled Elements
28. Section 251(c)(6) requires incumbent LECs to provide physical collocation of
equipment necessary for interconnection or access to unbundled network elements at the
incumbent LEC's premises, except that the incumbent LEC may provide virtual collocation if
it demonstrates to the state commission that physical collocation is not practical for
technical reasons or because of space limitations. The Commission concludes that incumbent
LECs are required to provide for any technically feasible method of interconnection or
access requested by a telecommunications carrier, including physical collocation, virtual
collocation, and interconnection at meet points. The Commission adopts, with certain
modifications, some of the physical and virtual collocation requirements it adopted
earlier in the Expanded Interconnection proceeding. The Commission also
establishes rules interpreting the requirements of section 251(c)(6).
6. Pricing Methodologies
29. The 1996 Act requires the states to set prices for interconnection and unbundled
elements that are cost-based, nondiscriminatory, and may include a reasonable profit. To
help the states accomplish this, the Commission concludes that the state commissions
should set arbitrated rates for interconnection and access to unbundled elements pursuant
a forward-looking economic cost pricing methodology. The Commission concludes that the
prices that new entrants pay for interconnection and unbundled elements should be based on
the local telephone companies Total Service Long Run Incremental Cost of a particular
network element, which the Commission calls "Total Element Long-Run Incremental
Cost" (TELRIC), plus a reasonable share of forward-looking joint and common costs.
States will determine, among other things, the appropriate risk-adjusted cost of capital
and depreciation rates. For states that are unable to conduct a cost study and apply an
economic costing methodology within the statutory time frame for arbitrating
interconnection disputes, the Commission establishes default ceilings and ranges for the
states to apply, on an interim basis, to interconnection arrangements. The Commission
establishes a default range of 0.2-0.4 cents per minute for switching. For tandem
switching, the Commission establishes a default ceiling of 0.15 cents per minute. The
Order also establishes default ceilings for the other unbundled network elements.
7. Access Charges for Unbundled Switching
30. Nothing in this Report and Order alters the collection of access charges paid by an
interexchange carrier under Part 69 of the Commission's rules, when the incumbent LEC
provides exchange access service to an interexchange carrier, either directly or through
service resale. Because access charges are not included in the cost-based prices for
unbundled network elements, and because certain portions of access charges currently
support the provision of universal service, until the access charge reform and universal
service proceedings have been completed, the Commission continues to provide for a certain
portion of access charge recovery with respect to use of an incumbent LEC's unbundled
switching element, for a defined period of time. This will minimize the possibility that
the incumbent LEC will be able to "double recover," through access charges, the
facility costs that new entrants have already paid to purchase unbundled elements, while
preserving the status quo with respect to subsidy payments. Incumbent LECs will recover
from interconnecting carriers the carrier common line charge and a charge equal to 75% of
the transport interconnection charge for all interstate minutes traversing the incumbent
LECs local switches for which the interconnecting carriers pay unbundled network element
charges. This aspect of the Order expires at the earliest of: 1) June 30, 1997; 2) the
effective date of final decisions by the Commission in the universal service and access
reform proceedings; or 3) if the incumbent LEC is a Bell Operating Company (BOC), the date
on which that BOC is authorized under section 271 of the Act to provide in-region
interLATA service, for any given state.
31. For a similar limited period, incumbent LECs may charge the same portions of any
intrastate access charges comparable to the carrier common line charge (CCLC) and the
transport interconnection charge (TIC), as well as any existing explicit universal service
support mechanisms based on intrastate access charges. During this period, incumbent LECs
may continue to recover such revenues from purchasers of unbundled local switching
elements that use those elements to originate or terminate intrastate toll calls for end
user customers they win from incumbent LECs. These state mechanisms must end on the
earlier of: (1) June 30, 1997; (2) the effective date of a state commission decision that
an incumbent LEC may not assess such charges; and (3) if the incumbent LEC that receives
the access charge revenues is a BOC, the date on which that BOC is authorized under
section 271 of the 1996 Act to offer in-region interLATA service. The last end date will
apply only to the recovery of charges in those states in which the BOC is authorized to
offer interLATA service.
8. Resale
32. The 1996 Act requires all incumbent LECs to offer for resale any telecommunications
service that the carrier provides at retail to subscribers who are not telecommunications
carriers. Resale will be an important entry strategy both in the short term for many new
entrants as they build out their own facilities and for small businesses that cannot
afford to compete in the local exchange market by purchasing unbundled elements or by
building their own networks. State commissions must identify marketing, billing,
collection, and other costs that will be avoided or that are avoidable by incumbent LECs
when they provide services wholesale, and calculate the portion of the retail rates for
those services that is attributable to the avoided and avoidable costs. The Commission
identifies certain avoided costs, and the application of this definition is left to the
states. If a state elects not to implement the methodology, it may elect, on an interim
basis, a discount rate from within a default range of discount rates established by the
Commission. The Commission establishes a default discount range of 17-25% off retail
prices, leaving the states to set the specific rate within that range, in the exercise of
their discretion.
9. Requesting Telecommunications Carriers
33. The Commission concludes that, to the extent that a carrier is engaged in providing
for a fee local, interexchange, or international basic services directly to the public or
to such classes of users as to be effectively available directly to the public, the
carrier is a "telecommunications carrier," and is thus subject to the
requirements of section 251(a) and the benefits of section 251(c). The Commission
concludes that CMRS providers are telecommunications carriers, and that private mobile
radio service (PMRS) providers generally are not telecommunications carriers, except to
the extent that a PMRS provider uses excess capacity to provide local, interexchange, or
international services for a fee directly to the public. The Commission also concludes
that, if a company provides both telecommunications services and information services, it
must be classified as a telecommunications carrier.
10. Commercial Mobile Radio Service
34. The Commission concludes that LECs are obligated, pursuant to section 251(b)(5) and
the corresponding pricing standards of section 252(d)(2) to to enter into reciprocal
compensation arrangements with CMRS providers, including paging providers, for the
transport and termination of traffic on each other's networks. The Commission concludes
that many CMRS providers (specifically cellular, broadband PCS and covered specialized
mobile radio (SMR) providers) offer telephone exchange service and exchange access, and
that incumbent LECs therefore must make interconnection available to these CMRS providers
in conformity with sections 251(c) and 252. The Commission concludes that CMRS providers
should not be classified as LECs at this time. The Commission also concludes that it may
apply section 251 and 252 to LEC-CMRS interconnection. By opting to proceed under sections
251 and 252, the Commission is not finding that section 332 jurisdiction over
interconnection has been repealed by implication, and the Commission acknowledges that
section 332, in tandem with section 201, is a basis for jurisdiction over LEC-CMRS
interconnection.
11. Transport and Termination
35. The 1996 Act requires that charges for transport and termination of traffic set
based on "additional cost." The Commission concludes that state commissions,
during arbitrations, should set symmetrical prices based on the local telephone company's
forward-looking economic costs. The state commissions would use the TELRIC methodology
when establishing rates for transport and termination. The Commission establishes a
default range of 0.2-0.4 cents per minute for end office termination for states which have
not conducted a TELRIC cost study. The Commission finds significant evidence in the record
in support of the lower end of the range. In addition, the Commission finds that
additional reciprocal charges could apply to termination through a tandem switch. The
default ceiling for tandem switching is 0.15 cents per minute, plus applicable charges for
transport from the tandem switch to the end office. Each state opting for the default
approach for a limited period of time, may select a rate within that range.
12. Access to Rights of Way
36. The Commission amends its rules to implement the pole attachment provisions of the
1996 Act. Specifically, the Commission establishes procedures for nondiscriminatory access
by cable television systems and telecommunications carriers to poles, ducts, conduits, and
rights-of-way owned by utilities or LECs. The Order includes several specific rules as
well as a number of more general guidelines designed to facilitate the negotiation and
mutual performance of fair, pro-competitive access agreements without the need for
regulatory intervention. Additionally, an expedited dispute resolution is provided when
good faith negotiations fail, as are requirements concerning modifications to poles,
ducts, conduits, and rights-of-way and the allocation of the costs of such modifications.
13. Obligations Imposed on non-incumbent LECs
37. The Commission concludes that states generally may not impose on non-incumbent LECs
the obligations set forth in section 251(c) entitled, "Additional Obligations on
Incumbent Local Exchange Carriers." Section 251(h)(2) sets forth a process by which
the Commission may decide to treat LECs as incumbent LECs, and state commissions or other
interested parties may ask the Commission to issue a rule, in accordance with section
251(h)(2), providing for the treatment of a LEC as an incumbent LEC. In addition to this
Report and Order, the Commission addresses in separate proceedings some of the
obligations, such as dialing parity and number portability, that section 251(b) imposes on
all LECs.
14. Exemptions, Suspensions, and Modifications of Section 251 Requirements
38. Section 251(f)(1) provides for exemption from the requirements in section 251(c)
for rural telephone companies (as defined by the 1996 Act) under certain circumstances.
Section 251(f)(2) permits LECs with fewer than 2 percent of the nation's subscriber lines
to petition for suspension or modification of the requirements in sections 251(b) or (c).
In the Report and Order, the Commission establishes a very limited set of rules
interpreting the requirements of section 251(f). For example, the Commission finds that
LECs bear the burden of proving to the state commission that a suspension or modification
of the requirements of section 251(b) or (c) is justified. Rural LECs bear the burden of
proving that continued exemption of the requirements of section 251(c) is justified, once
a bona fide request has been made by a carrier under section 251. The Commission also
concludes that only LECs that, at the holding company level, have fewer than 2 percent of
the nation's subscriber lines are entitled to petition for suspension or modification of
requirements under section 251(f)(2). For the most part, however, the states will
interpret the provisions of section 251(f) through rulemaking and adjudicative
proceedings, and will be responsible for determining whether a LEC in a particular
instance is entitled to exemption, suspension, or modification of section 251
requirements.
15. Commission Responsibilities Under Section 252
39. Section 252(e)(5) requires the Commission to assume the state's responsibilities
under section 252 if the state "fails to act to carry out its responsibility"
under that section. In the Report and Order, the Commission adopts a minimum set of rules
that will provide notice of the standards and procedures that the Commission will use if
it has to assume the responsibility of a state commission under section 252(e)(5). The
Commission concludes that, if it arbitrates agreements, it will use a "final
offer" arbitration method, under which each party to the arbitration proposes its
best and final offer, and the arbitrator chooses among the proposals. The arbitrator could
choose a proposal in its entirety, or could choose different parties' proposals on an
issue-by-issue basis. In addition, the parties could continue to negotiate an agreement
after they submit their proposals and before the arbitrator makes a decision.
40. Section 252(i) of the 1996 Act requires that incumbent LECs make available to any requesting telecommunications carrier any individual interconnection, service, or network element on the same terms and conditions as contained in any agreement approved under Section 252 to which they are a party. The Commission concludes that section 252(i) entitles all carriers with interconnection agreements to "most favored nation" status regardless of whether such a clause is in their agreement. Carriers may obtain any individual interconnection, service, or network element under the same terms and conditions as contained in any publicly filed interconnection agreement without having to agree to the entire agreement. Additionally, carriers seeking interconnection, network elements, or services pursuant to section 252(i) need not make such requests pursuant to the procedures for initial section 251 requests, but instead may obtain access to agreement provisions on an expedited basis.
1. 1 Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, to be codified at 47 U.S.C. 151 et. seq. Hereinafter, all citations to the 1996 Act will be to the 1996 Act as codified in the United States Code.
2. 2 Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Notice of Proposed Rulemaking and Order Establishing Joint Board, FCC 96-93 (rel. Mar. 8, 1996) (Universal Service NPRM).
3. 3 Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98, Notice of Proposed Rulemaking, FCC 96-182 (rel. Apr. 19, 1996), 61 Fed. Reg. 18311 (Apr. 25, 1996) (NPRM).
4. 4 See NPRM at para. 6.
5. 5 See NPRM at n.13.
6. 6 See NPRM at paras. 10-12.
7. 7 47 U.S.C. 251(f).
8. 8 See infra, Section IV.A.
9. 9 Joint Managers' Statement, S. Conf. Rep. No. 104-230, 104th Cong., 2d Sess. 113 (1996) ("Joint Explanatory Statement") at 121.
10. 10 See 47 U.S.C. 251(c)(3)
11. 11 Telephone Number Portability, CC Docket No. 95-116, First Report and Order and Further Notice of Proposed Rulemaking, FCC 96-286 (rel. July 2, 1996) (Number Portability Order). Consistent with the 1996 Act, 47 U.S.C. 251(b)(2), we required LECs to implement interim and long-term measures to ensure that customers can change their local service providers without having to change their phone number. Number portability promotes competition by making it less expensive and less disruptive for a customer to switch providers, thus freeing the customer to choose the local provider that offers the best value.
12. 12 NPRM paras. 202-219.
13. 13 Federal Communications Commission, Statistics of Communications Common Carriers 1994-95, at 344, Table 8.8; Federal Communications Commission, Report on Long Distance Market Share, Second Quarter 1995, at 14, table 6 (Oct. 1995).
14. 14 Joint Explanatory Statement at 1.
© Copyright 1999
http://www.robotics.net
Nathan Stratton nathan@robotics.net
First Created February 15, 1999
Last Modified February 15, 1999