**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | )  | Bureau/CPD No. 00-01         |
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**MEMORANDUM OPINION AND ORDER**

Adopted: January 28, 2002 Released: January 31, 2002

By the Commission:

**I. INTRODUCTION**

1\. In this *Memorandum Opinion and Order* (*Order*), we grant the LEC
Coalition's[^1] application for review of the Bureau's March 2, 2000
Order[^2] (*Bureau Order*) that directed the four largest LECs in
Wisconsin[^3] to submit to the Federal Communications Commission
(Commission) their currently effective tariffs for intrastate payphone
service offerings. The *Bureau Order* stated that we would review the
Wisconsin LECs' intrastate payphone service offerings for compliance
with section 276 of the Communications Act of 1934, as amended (the
Act),[^4] and our rules, including the *Payphone Orders*.[^5] While we
do agree to review the LEC Coalition's application for review, we deny
the Coalition's request to withdraw or stay the *Bureau Order*.[^6]

2\. After careful review of section 276 and its legislative history, we
conclude that Congress enacted section 276 to "promote competition among
payphone service providers and promote the widespread deployment of
payphone service to the benefit of the general public."[^7] To advance
these pro-competitive statutory goals, Congress directed the Commission
to "terminat\[e\] the current system of payphone regulation" and
"eliminate *all* discrimination between \[Bell Operating Company (BOC)\]
and independent payphones and all subsidies or cost recovery for BOC
payphones."[^8] In compliance with this statutory mandate, we affirm the
Bureau's conclusion that section 276 requires BOCs to set their
intrastate payphone line rates in compliance with the Commission's
cost-based, forward-looking "new services" test.[^9]

Although the administrative record for this matter shows disparate
applications of the new services test in various state proceedings,[^10]
we believe that this *Order* will assist states in applying the new
services test to BOCs' intrastate payphone line rates in order to ensure
compliance with the *Payphone Orders* and Congress' directives in
section 276.

3\. Payphones are an important part of the nation's telecommunications
system. They are critical not only for emergency communications, but
also for those Americans who cannot afford their own telephone
service.[^11] Thus, despite evidence that payphones are losing market
share to wireless services,[^12] the basic pay telephone remains a vital
telecommunications link for many Americans.

**II. BACKGROUND**

**A. OVERVIEW OF SECTION 276**

4\. Before addressing the *Bureau Order*, we summarize the applicable
statutory and regulatory provisions. We also review the *Payphone
Orders*, other Commission orders, and the procedural history of this
matter.

5\. *The Requirements of Section 276*. Section 276(a) prohibits any BOC
from: (1) subsidizing "its payphone service directly or indirectly from
its telephone exchange operations or its exchange access operations;"
and (2) preferring or discriminating "in favor of its payphone service"
after the effective date of rules prescribed under section 276(b).

6\. Section 276(b)(1) requires the Commission to prescribe regulations
to "promote competition among payphone service providers and promote the
widespread deployment of payphone services for the benefit of the
general public."[^13] The statute sets out five requirements to meet
these goals. First, section 276(b)(1)(A) requires the Commission to
"establish a per call compensation plan to ensure that all payphone
service providers are fairly compensated for each and every completed
intrastate and interstate call using their payphone." Second, under
section 276(b)(1)(B), the Commission must promulgate regulations that
"discontinue the intrastate and interstate carrier access charge
payphone service elements and payments . . . and all intrastate and
interstate payphone subsidies from basic exchange and exchange access
revenues." Third, section 276(b)(1)(C) directs the Commission to
"prescribe a set of nonstructural safeguards for Bell operating company
payphone service to implement the provisions of paragraphs (1) and (2)
of subparagraph (a), which safeguards shall, at a minimum, include the
nonstructural safeguards equal to those adopted in the Computer
Inquiry-III (CC Docket No. 90-623) proceeding."[^14] Fourth, pursuant to
section 276(b)(1)(D), the Commission shall "provide for Bell operating
company payphone service providers to have the same right that
independent payphone providers have to negotiate with the location
provider on the location provider's selecting and contracting with, and,
subject to the terms of any agreement with the location provider, to
select and contract with, the carriers that carry interLATA calls from
their payphones." Finally, section 276(b)(1)(E) directs the Commission
to "provide for all payphone service providers to have the right to
negotiate with the location provider on the location provider's
selecting and contracting with, and, subject to the terms of any
agreement with the location provider, to select and contract with, the
carriers that carry interLATA calls from their payphones."

7\. *Preemption.* Section 276(c) states that, "\[t\]o the extent that
any State requirements are inconsistent with the Commission's
regulations, the Commission's regulations on such matters shall preempt
such State requirements."

8\. *Definition of "Payphone Service."* Section 276(d) broadly defines
the term "payphone service" as the "provision of public or semi-public
pay telephones, the provision of inmate telephone service in
correctional institutions, and any ancillary services."

**B. THE *PAYPHONE ORDERS* AND RELATED COURT CHALLENGES**

9\. *The First Payphone Order.* We addressed the statutory requirements
of section 276(b)(1) in the *First Payphone Order*.[^15] To implement
section 276(b)(1)(A)'s "fair compensation" plan requirements, we
directed interexchange carriers (IXCs) that carry calls originating from
payphones to compensate the payphone service provider (PSP).[^16]
Previously, PSPs received no revenue for originating certain calls (such
as subscriber 800 and other toll-free number calls) and were prohibited
from blocking callers from making some of those calls (such as access
code calls).[^17] We concluded that PSPs must be compensated for all
such calls and determined that IXCs, as the primary beneficiaries of
those calls, should be responsible for providing that compensation.[^18]

10\. We decided that the best way to ensure fair competition was to
allow the market to set the price for each call.[^19] Because no market
existed for so-called "dial around" coinless calls, we first adopted a
market-based surrogate -- the price of a local coin call at a typical
deregulated payphone of \$0.35. In selecting this regime, we stated that
"the cost\[s\] of originating the various types of payphone calls are
similar."[^20]

11\. To discontinue access charges and subsidies under section
276(b)(1)(B), we concluded that, in order to receive compensation for
completed calls originating from its payphones, a LEC PSP "must be able
to certify" that it has complied with several requirements, including
the institution of "effective intrastate tariffs reflecting the removal
of charges that recover the costs of payphones and any intrastate
\[payphone\] subsidies."[^21] We also required that all incumbent LEC
payphones be treated as deregulated and detariffed customer premises
equipment (CPE).[^22]

12\. To implement the nonstructural safeguards requirement of section
276(b)(1)(C), we stated that all BOCs must comply with the nonstructural
safeguards from our *Computer III* order.[^23] We stated that such
safeguards will "ensure that BOCs do not discriminate or cross-subsidize
in their provision of payphone service."[^24] We concluded that, to
comply with *Computer III*, LECs must unbundle payphone line services
and file tariffs with the Commission for such services using the price
cap "new services" test.[^25] The new services test is a cost-based test
that sets the direct cost of providing the new service as a price floor
and then adds a reasonable amount of overhead to derive the overall
price of the new service.[^26] The Commission has applied this test to
new interstate access service proposed by LECs subject to price cap
regulation.[^27]

13\. Finally, subsections 276(b)(1)(D) and (E) concern the ability of
BOCs and independent PSPs to negotiate with location providers on the
selection of presubscribed interLATA and intraLATA carriers,
respectively.[^28] In the *First Payphone Order*, we identified certain
"market-distorting factors" affecting these negotiation rights, such as
conflicting state rules and discriminatory access, but we stated that
the nonstructural safeguards in *Computer III* would address our
concerns.[^29] Pursuant to the express authority provided under Section
276(c), we also preempted any intrastate rules that limited or affected
these negotiation rights.[^30]

14\. *The Reconsideration Order*. Acting on several petitions for
reconsideration, we modified certain requirements for LEC tariffing of
payphone services and unbundled network functionalities. We stated that
LECs should file tariffs for basic payphone lines at the state level
only. Unbundled features and functions provided by LECs to their own
payphone operations or to others should be tariffed at both the state
and federal levels.[^31] We confirmed that, even if LEC payphone tariffs
were filed at the state level, they should nevertheless comply with
section 276 as implemented by the Commission and, as such, should be
cost-based, nondiscriminatory, and consistent with both section 276 and
our *Computer III* tariffing guidelines.[^32] Thus, rates assessed by
LECs for payphone services tariffed at the state level should satisfy
the new services test.

15\. In the interest of federal-state comity, we stated that we would
rely initially on state commissions to ensure that the rates, terms, and
conditions applicable to the provision of basic payphone lines comply
with the requirements of section 276.[^33] We noted, however, that state
commissions that are unable to review these tariffs may ask incumbent
LECs operating in their states to file such tariffs with the
Commission.[^34] We also preempted all state rules that were
inconsistent with our nonstructural safeguards.[^35]

16\. *Illinois Public Telecommunications Association v. FCC.* Various
parties sought review of several portions of the *Payphone Orders.*[^36]
As an initial matter, the D.C. Circuit held that the Commission has
jurisdiction to set purely intrastate local coin rates for payphones as
part of a compensation plan under section 276(b)(1)(A).[^37] The court
also upheld those portions of the two challenged orders that deregulated
local coin rates for payphones, set such rates according to the market,
established a "carrier pays" compensation plan for toll-free payphone
calls, and required IXCs to track calls from payphones.[^38] The court
remanded the coinless call rate determination to us, however, stating
that we had overlooked record evidence that the costs of coin calls and
coinless calls are not similar.[^39]

17\. *MCI Telecommunications Corp. v. FCC*. On remand, we re-calculated
the coinless call rate using a "top down" methodology.[^40] Several
parties challenged portions of the *Second Payphone Order* in the D.C.
Circuit.[^41] The court invalidated the Commission's methodology for
calculating the local coinless call rate and remanded the order for
further proceedings.

18\. *American Public Communications Counsel v. FCC*. On remand, the
Commission developed and applied a "bottom up" methodology to calculate
the local coinless call rate.[^42] The D.C. Circuit upheld the
Commission's order, finding that the bottom up methodology was a
reasonable exercise of the Commission's authority to establish per-call
compensation rates.[^43]

**C. PROCEDURAL HISTORY OF THIS MATTER**

19\. In July 1997, the Wisconsin Pay Telephone Association filed a
petition with the Wisconsin Commission "request\[ing\] that the
\[Wisconsin Commission\] determine the cost basis for each network
service provided by Wisconsin \[LECs\] to payphone providers under the
federal New Services Test, determine whether the network services
provided by LECs to payphone providers discriminate in favor of the
LECs' own payphone operations, \[and\] determine whether LECs are
subsidizing payphone operations with revenue from noncompetitive
services."[^44]

20\. Four months later, in November 1997, one month after the D.C.
Circuit remanded the *Second Payphone Order* to the Commission, the
Wisconsin Commission held that its ability to investigate the rates
charged by LECs to payphone service providers "is very narrowly
circumscribed to enforcing a prohibition on cross subsidy . . . and
discriminatory practices."[^45] The Wisconsin Commission also stated
that the statutory remedies available under Wisconsin law "only address
whether the retail rates charged by telecommunications utilities for
competitive telecommunications service recover the underlying cost for
that service."[^46] The Wisconsin Commission concluded that it could not
review the rates, terms, and conditions of basic payphone services for
compliance with the requirements of section 276 and the Commission's
rules.[^47]

21\. On October 28, 1998, the Bureau sent a letter to the Wisconsin
Commission stating that, in light of the Wisconsin Commission's
decision, the Bureau would require the Wisconsin LECs to file with the
Commission "tariffs that set forth the rates, terms, and conditions
associated with pay phone services, along with the required supporting
documentation."[^48] The Bureau stated that its review of such rates
would ensure that LEC payphone line service tariffs in Wisconsin
complied with section 276 and the *Payphone Orders*.[^49]

22\. On March 2, 2000, the Bureau issued an order directing Wisconsin
Bell, Inc. (d/b/a Ameritech Wisconsin), GTE North Incorporated, Century
Telephone Enterprises Inc., and Telephone Data Systems, Inc., to submit
to the Commission copies of their companies' currently effective
intrastate tariffs that set forth the rates, terms, and conditions
associated with payphone line services in Wisconsin.[^50] The *Bureau
Order* also requested documentation demonstrating compliance with the
requirements of section 276 and the Commission's rules.[^51]

**1. Cost-Based Federal Pricing Standards**

23\. The *Bureau Order* summarized the guidelines to be applied under
*Computer III* and other Commission proceedings concerning the
application of the new services test and cost-based ratemaking
principles to services that incumbent LECs offer to competitors.[^52]
The Bureau explained that, to satisfy these requirements, an incumbent
LEC must demonstrate that the proposed payphone line rates do not
recover more than the direct costs of the service, plus "a just and
reasonable portion of the carrier's overhead costs."[^53] Costs must be
determined by an appropriate forward-looking, economic cost methodology
that is consistent with the principles articulated in the *Local
Competition Order*.[^54]

24\. The *Bureau Order* confirmed our longstanding policy that the new
services test requires the use of consistent methodologies in computing
direct costs for related services.[^55] As a result, the *Bureau Order*
stated, cost study inputs and assumptions used to justify payphone line
rates should be consistent with the cost inputs used in computing rates
for comparable services offered to competitors.[^56]

**2. Just and Reasonable Overhead Allocations**

25\. The *Bureau Order* stated that overhead allocations must be based
on cost and may not be set artificially high in order to subsidize or
contribute to other services.[^57] The *Bureau Order* required the
Wisconsin LECs to justify the methodology used to determine such
overhead costs.[^58] Absent justification, the *Bureau Order* stated,
the Wisconsin LECs may not recover a greater share of overheads in rates
for the service under review than they recover for comparable
services.[^59] The Bureau concluded that, for purposes of justifying
overhead allocations, unbundled network elements (UNEs) appear to be
"comparable" to payphone line services because both provide critical
network functions to a BOC's competitors and are subject to a
"cost-based" pricing requirement.[^60] The Bureau stated its expectation
that the Wisconsin LECs should explain any overhead allocations for
payphone line services that depart significantly from overhead
allocations approved for UNE services.[^61]

26\. Finally, the *Bureau Order* stated that any forward-looking cost
studies required for an overhead allocation demonstration should produce
cost estimates on an "unseparated" basis.[^62] The *Bureau Order*
explained that, to avoid double recovery of costs, the BOC must
demonstrate that in setting its payphone line rates it has taken into
account other sources of revenue (*e.g.*, subscriber line charges (SLC),
presubscribed interexchange carrier charges (PICC), and carrier common
line (CCL) charges).[^63]

27\. The *Bureau Order* required that copies of tariffs and supporting
documentation be filed by May 12, 2000.[^64] On April 3, 2000, the LEC
Coalition filed an application for review and request for stay of the
Order. On April 10, 2000, the American Public Communications Council
(APCC) and the Wisconsin Pay Telephone Association (WPTA) filed
oppositions to the LEC Coalition's request for stay. On April 12, 2000,
the Bureau, on its own initiative, deferred the date for the filings
required by the *Bureau Order* until August 12, 2000, and issued a
public notice requesting comment on the LEC Coalition's request for stay
and application for review.[^65] Oppositions to the request for stay and
application for review were filed by APCC, WPTA, and several other state
payphone associations on May 12, 2000. The LEC Coalition replied on May
30, 2000. On August 12, 2000, the Wisconsin LECs filed their tariff
submissions pursuant to the March 2 Order. We requested comments and
reply comments on those submissions, which were filed on October 2, 2000
and October 23, 2000, respectively.

28\. The LEC Coalition argues that our application of the new services
test to intrastate payphone line rates is improper.[^66] The Coalition
states that the new services test is flexible and need not be based on
forward-looking costs.[^67] The LEC Coalition also contends that the
pricing regime of sections 251 and 252 does not apply to payphone
services.[^68] The Coalition states that overhead loading rates should
not be based on those for UNEs.[^69] Finally, the LEC Coalition argues
that the Commission lacked the jurisdiction under section 276 to issue
the *Bureau* *Order* in the first place and that, in any event, it
violates the Tenth Amendment.[^70]

29\. APCC and other payphone associations counter that we properly
asserted jurisdiction in the *Payphone Orders* and in the *Bureau
Order.*[^71] They argue that we cannot possibly fulfill Congress'
directive to prevent the BOCs from discriminating against other PSPs if
the underlying payphone line rate is not subject to a cost-based
standard such as the new services test.[^72]

30\. Before turning to the merits of the LEC Coalition's arguments
concerning pricing and related issues from the *Bureau Order*, we first
address the claim that the Commission lacks jurisdiction to require BOCs
to set their intrastate payphone line rates in compliance with the new
services test.[^73]

**III. DISCUSSION**

**A. INTRASTATE JURISDICTION UNDER SECTION 276**

31\. The threshold question before the Commission is whether we have the
authority to set the standard that states must apply in reviewing
payphone line rate tariffs. Because these rates have been considered
intrastate rates and thus traditionally handled by the states, the
central issue is whether the Commission has jurisdiction over the
intrastate component of payphone line rates. In the *First Payphone
Order,* we asserted such authority and ordered that all LEC payphone
line rates be cost-based, as measured by the new services test. Four
years after the Commission first asserted jurisdiction over intrastate
payphone line rates, the LEC Coalition now challenges our authority over
intrastate payphone line rates.[^74] For the reasons set forth below, we
confirm the holding of our previous orders that we have jurisdiction
over the intrastate payphone line rates charged by BOCs, but also hold
that we do not have jurisdiction over such rates charged by non-BOC
LECs. Nevertheless, as discussed below, states may find it appropriate
to apply to all LECs the same cost-based requirement that they must
apply to BOCs.

32\. We must determine whether Congress through section 276 has granted
us authority to regulate this traditionally intrastate matter. Our
interpretation of section 276 is guided by section 2(b), which states
that "nothing in this Act shall be construed to apply or give the
Commission jurisdiction with respect to" intrastate services.[^75] As a
result of that interpretive rule, the Commission may regulate intrastate
services when Congress has conferred intrastate jurisdiction in a manner
that is "unambiguous or straightforward."[^76] Thus, we will examine
section 276 to determine whether it constitutes such a grant of
authority.

33\. We begin with the terms of the statute. Sections 276(a)(1) and (2)
provide that any BOC that provides payphone service "shall not subsidize
its payphone service directly or indirectly from its telephone exchange
service operations or its exchange access operations" and that a BOC
"shall not prefer or discriminate in favor of its payphone
service."[^77] Those prohibitions necessarily apply to both intra- and
interstate payphone service provided by BOCs because the statutory
language is unqualified and contains no limitation whatsoever on the
discrimination, subsidies, and preferences that are prohibited. Congress
would not have directed the elimination of subsidies and discrimination
if BOCs were free to subsidize and discriminate at the intrastate level.
To the extent that it is "not possible to separate the interstate and
the intrastate components" of telephone regulation, the Commission may
ensure effective regulation of the federal component, despite section
2(b), by asserting jurisdiction over the state component as well.[^78]

34\. Other provisions of section 276 support the conclusion that
sections 276(a)(1) and (2) apply to intrastate service. In place of the
subsidies that formerly supported the LEC-owned payphone system,
Congress in section 276(b)(1)(A) substituted a "per call compensation
plan" that applies to "each and every completed intrastate and
interstate call." The D.C. Circuit held in *IPTA v. FCC* that this
provision gives the Commission authority to deregulate the price charged
to payphone users, which like the line rate had long been the subject of
state regulation.[^79] The compensation plan's explicit application to
intrastate matters significantly indicates that Congress also intended
to reach intrastate subsidies when it forbade BOCs from subsidizing
payphone operations in section 276(a)(1). Similarly, Congress
effectuated the anti-subsidy policy of section 276(a) through section
276(b)(1)(B), which directs the Commission to "discontinue the
intrastate and interstate carrier access charge payphone service
elements and payments . . . and all intrastate and interstate payphone
subsidies from basic exchange and exchange access revenues." Thus,
section 276(b)(1)(B) applies explicitly to both intrastate and
interstate subsidies and by doing so strongly indicates that section
276(a)(1), the provision it effectuates, was also intended to apply to
intrastate discrimination.[^80]

35\. In addition to individual provisions of the statute indicating
Congress' intent that the non-subsidy provision (and by implication the
non-discrimination provision) apply to both intra- and interstate
service, the statutory language and structure as a whole demonstrate
that Congress so intended. Section 276 establishes a comprehensive
federal scheme of payphone regulation, both intra- and interstate, to be
administered by the Commission. The statute eliminates the subsidies
that supported the old system and implements in its place a new
market-oriented approach. Four of the five specific regulatory
directives in the statute, contained in subsections A, B, D, and E of
section 276(b)(1), refer directly to intrastate regulation.[^81] That
focus on intrastate regulation alone indicates Congress' intent that the
Commission occupy the field. This is not surprising. An overarching
federal program is necessary to achieve Congress' goal of eliminating
subsidies in order to "promote competition among payphone service
providers and promote the widespread deployment of payphone
services."[^82] The importance of federal control is driven home by
section 276(c), which expressly preempts "any State requirements . . .
inconsistent with the Commission's regulations" implementing the
statute. Such a comprehensive plan also shows that Congress intended the
BOC non-discrimination and non-subsidization provisions to apply to
*all* BOC payphone activity, both intra- and interstate.[^83]

36\. The legislative history of section 276 supports that interpretation
of the statutory language. Congress intended to "terminat\[e\] the
current system of payphone regulation" \-- *i.e.*, the subsidization and
state regulation that had long prevailed \-- and to "eliminate *all*
discrimination between BOC and independent payphones and *all* subsidies
or cost recovery for BOC payphones from regulated interstate or
intrastate exchange or exchange access revenue."[^84] The Senate
Committee Report similarly recognizes that BOCs have the "incentive and
the potential for *all* the forms of discrimination, cross-subsidy, and
leveraging of bottleneck facilities that both the divestiture and the
Commission's regulatory regime for competitive \[BOC\] offerings are
supposed to prevent."[^85] Thus, Congress' stated intention to eradicate
all forms of discrimination was made manifest in the broad mandate of
section 276(a) to eliminate all subsidies and discrimination, intra- or
interstate.

37\. Subsection 276(b)(1)(C) is the only sub-part of section 276(b)(1)
that does not use the term "intrastate" or otherwise refer directly to
such service. But subsection C directs the Commission to impose
nonstructural safeguards on BOC payphone operations in order to
"implement the provisions of paragraphs (1) and (2) of subsection (a),"
*i.e.*, sections 276(a)(1) and (2). If section 276(a) applies to
intrastate payphone services, as we have shown it does, then section
276(b)(1)(C) necessarily applies to intrastate services, especially in
light of the comprehensive regulatory scheme intended by Congress.

38\. The preemption provision of section 276(c) comes strongly into play
here. That provision preempts "*any* State requirement" that is
"inconsistent with the Commission's regulations" implemented pursuant to
section 276(b)(1). Nonstructural safeguards implemented under subsection
C would, of course, be implemented pursuant to section 276(b)(1) and
would fall within the scope of the preemption provision. Thus, a federal
policy that payphone line rates be cost-based would be binding on the
states. But if sections 276(a) and (b)(1)(C) do not apply to intra- as
well as interstate matters, our broad preemption authority would greatly
exceed our jurisdiction to issue rules in the first place. We find no
evidence that Congress intended us to implement such a fractured regime.

39\. In reviewing our authority in the matter before us, Congress'
directive in section 276(b)(1)(C) to implement, "at a minimum,"
*Computer III* safeguards requires that we direct the states to apply
the cost-based new services test to the payphone line rate. In *Computer
III* itself, the Commission "adopted a cost-based approach to the
initial pricing of new ONA services" to prevent BOCs from discriminating
against independent service providers.[^86] *Computer III* is not the
only Commission order in which we evaluated purely intrastate services
for compliance with a federal pricing standard.

40\. In the *Phase I ONA Order*, for example, the Commission extensively
discussed federal jurisdiction over tariffs for the BOCs' intrastate ONA
services.[^87] The Commission stated that "unbundling and economical
pricing are two hallmarks of an ideal tariff structure for ONA
services."[^88] The Commission reviewed, and ultimately approved, the
fundamental intrastate tariff structures of many of the plans under
review. The Commission did, however, require several BOCs to file
amendments explaining their intrastate ONA pricing strategies.[^89]
These BOCs had not demonstrated that their intrastate ONA services were
either cost-based or sufficiently unbundled, characteristics that we
lauded in NYNEX's intrastate ONA services plan, for example.[^90] We
concluded that, "\[i\]f a BOC's ONA plan contains elements that are so
inconsistent with ONA policies that they would jeopardize fulfillment of
these goals, we cannot approve that plan."[^91] We cautioned that,
"\[t\]o do otherwise could create a discriminatory or inefficient
environment for \[providers\] that rely on the BOC's ONA services."[^92]

41\. The LEC Coalition argues that the absence of the word "intrastate"
from subsection C is evidence of Congress' intent that structural
safeguards apply only to interstate services. The absence of that word
means little in light of the clear overall thrust of the statute.[^93]
As the Supreme Court stated, "the mere lack of parallelism \[in one
subsection\] is surely not enough to displace \[the Commission's\]
explicit authority" under another subsection.[^94] In addition, the LEC
Coalition's interpretation would "produce\[\] a most chopped-up statute"
of the sort rejected in that case.[^95] Further, as we have also
discussed, section 276(b)(1)(C) itself implicitly applies to intrastate
payphone service. The nonstructural safeguards called for by Congress
must include, "at a minimum," the safeguards adopted in *Computer III*.
In the course of the *Computer III* proceedings, we preempted various
state regulations and asserted federal jurisdiction over a number of
intrastate matters.[^96]

42\. In sum, we require that BOC payphone line rates be cost-based, in
accordance with the standards we set forth below.[^97] It is important
to note that we require only BOCs, and not LECs generally, to provide
payphone lines at cost-based rates. Because sections 276(a) and
(b)(1)(C) apply only to BOCs, we do not find that Congress has expressed
with the requisite clarity its intention that the Commission exercise
jurisdiction over the intrastate payphone prices of non-BOC LECs. Since
there are statutory provisions that empower us to apply the new services
test to payphone line rates and grant us that authority only over BOCs,
we do not have a Congressional grant of jurisdiction over non-BOC LEC
line rates. Although the federal regulatory program implemented in
section 276 would surely benefit if all LECs were required to use
cost-based rates for their payphone line services, we cannot say that,
with respect to non-BOC LECs, Congress has spoken with sufficient
clarity to overcome the presumption of section 2(b). We do, however,
encourage states to apply the new services test to all LECs, thereby
extending the pro-competitive regime intended by Congress to apply to
the BOCs to other LECs that occupy a similarly dominant position in the
provision of payphone lines.

**B. PRICING STANDARDS FOR PAYPHONE SERVICES**

**1. Application of the New Services Test**

43\. The Commission previously concluded that rates for ONA services
must satisfy the flexible, cost-based "new services test."[^98] Contrary
to the claims of the LEC Coalition,[^99] the Commission's longstanding
precedent shows that we have used forward-looking cost methodologies
where we have applied the new services test.[^100] Thus, the ONA
safeguard from *Computer III* and section 276 requires that payphone
service rates comply with the flexible, cost-based, forward-looking new
services test. Consistent with the plain language of section
276(b)(1)(C), however, only BOC's intrastate payphone services need
satisfy the new services test.[^101]

44\. We note that many states have relied on our *Payphone Orders* and
have diligently applied the new services test, as we directed, to
intrastate payphone line rates.[^102] We commend those states. Other
states have been awaiting additional guidance from us on this
issue.[^103]

**2. Use of TELRIC and TSLRIC**

45\. The LEC Coalition contends that the *Bureau Order* contains three
primary substantive errors. The Coalition first asserts that payphone
services are not new and therefore should not be subject to the new
services test. The LEC Coalition also argues that the pricing regime of
sections 251 and 252 does not apply to payphone services. Finally, the
Coalition claims that the *Bureau Order* mandates the provision of
payphone services using only the "total element long-run incremental
cost" (TELRIC) pricing methodology.[^104] We address these contentions
below and conclude that they lack merit.

46\. The Coalition argues that payphone lines are not themselves a "new
service" and that they are therefore exempted from the new services test
requirement to use forward-looking costs.[^105] Nothing in the *Payphone
Orders* or section 276 supports this argument. In the *Payphone*
*Orders,* the Commission adopted a new regulatory regime for payphone
services, and we therefore required the application of the "new
services" test to payphone line services, whether or not BOCs consider
those services to be "new."

47\. As we previously explained, "\[b\]ecause the incumbent LECs have
used central office coin services in the past, but have not made these
services available to independent \[PSPs\] for use in their provision of
payphone services, we require that incumbent LECs' provision of payphone
transmission services on an unbundled basis be treated as a new service
under the Commission's price cap rules."[^106] We noted that the new
services test is necessary to ensure that central office coin services
are priced reasonably because "incumbent LECs may have an incentive to
charge their competitors unreasonably high prices for these
services."[^107] We stated that, because we required "dumb" lines to be
re-priced on the same basis as "smart" lines, existing dumb lines would
also have to meet the new services test.[^108]

48\. Second, the Coalition states that the pricing regime set forth in
sections 251 and 252 does not apply to all section 276 payphone services
offered by incumbent LECs.[^109] We previously reached the same
conclusion in the *First* *Payphone Order*.[^110]

49\. Finally, the LEC Coalition asserts that the *Bureau Order* mandates
the exclusive use of the TELRIC pricing methodology and that this
mandate is improper.[^111] The *Bureau Order*, however, contains no such
directive. Indeed, the *Bureau Order* states that the LECs should use a
forward-looking methodology that is "consistent" with the *Local
Competition Order*.[^112] TELRIC is the specific forward-looking
methodology described in 47 C.F.R. § 51.505 and required by our rules
for use by states in determining UNE prices.[^113] States often use
"total service long run incremental cost" (TSLRIC) methodology in
setting rates for intrastate services. It is consistent with the *Local
Competition Order* for a state to use its accustomed TSLRIC methodology
(or another forward-looking methodology) to develop the direct costs of
payphone line service costs.[^114]

50\. As such, we do not impose on payphone line services the sections
251 and 252 pricing regime for local interconnection services. For
example, while we have prohibited LECs from including certain "retail"
costs in their prices for UNEs,[^115] no such prohibition applies to
payphone line services. If they wish, the LECs may include in their
direct cost calculations those "retail" costs, such as marketing and
billing costs, that they can show are attributable to payphone line
services.

**C. OVERHEAD ALLOCATION AND LOADING FACTORS**

51\. With respect to overhead loading factors, the *Bureau Order* states
that:

> the LECs must justify the methodology used to determine \[payphone
> service\] overhead costs. Absent justification, LECs may not recover a
> greater share of overheads in rates for the service under review than
> they recover in rates for comparable services. Given that the new
> services test is a cost-based test, overhead allocations must be based
> on costs, and therefore may not be set artificially high in order to
> subsidize or contribute to other LEC services. For purposes of
> justifying overhead allocations, UNEs appear to be "comparable
> services" to payphone line services, because both provide critical
> network functions to an incumbent LEC's competitors and both are
> subject to a "cost-based" pricing requirement. Thus, we expect
> incumbent LECs to explain any overhead allocations for their payphone
> line services that represent a significant departure from overhead
> allocations approved for UNE services.[^116]

52\. The *Bureau Order* correctly states our policy that our pricing
requirements do not mandate uniform overhead loading, provided that the
loading methodology as well as any deviation from it is justified.[^117]
As the above quotation shows, the Bureau approved the use of UNE loading
factors to determine an appropriate overhead allocation for payphone
services. We agree with the Bureau that UNE overhead loadings may be
used in this manner, and states that have used this methodology are in
full compliance with section 276 and our *Payphone Orders*. We do not
agree, however, with the Bureau that UNE overhead loadings must serve as
a default ceiling. There are other approaches that are also consistent
with our precedent regarding overhead assignments to new services
provided to competitors.

53\. In the *Physical Collocation Tariff Order*,[^118] we stated that,
to calculate the appropriate overhead loading, the incumbent LECs must
(1) compute the direct costs of providing the DS-1 and DS-3 services
that compete with the services offered by collocated competitors; and
(2) subtract those costs from the lowest rates charged for those
services, taking into account all volume and term discounts.[^119] The
difference between the retail rates and the direct costs represents the
contribution to overhead from these competitive services.[^120] The
Commission then prescribed overhead loading factors for each LEC's
expanded interconnection services that did not exceed the lowest
overhead loading resulting from the calculation described above.[^121]
By limiting the overheads applicable to expanded interconnection rates
to the lowest overheads applied by LECs to competitive services, the
Commission sought to prevent the incumbent LECs from disadvantaging
competitors.[^122]

54\. We have expressed similar concerns about the potential for
discriminatory practices in the context of payphone services.[^123]
Indeed, as we explained above, Congress expressly directed the
Commission to prevent the BOCs from discriminating against competing
PSPs in the provision of payphone services. For these reasons, we
believe that it is appropriate for states to adopt the same method for
calculating a ceiling for overhead allocation as we did in the *Physical
Collocation Tariff Order*, recognizing that states that continue to use
UNE overhead allocations for payphone services are also in full
compliance with section 276 and our precedent.

Moreover, it is also consistent with our past application of the price
cap new services test, and permissible in this context, for states to
determine overhead assignments using the methodology that the Commission
used to evaluate the reasonableness of ONA tariffs in the *ONA Tariff
Order.*[^124] In that investigation, the Commission used ARMIS data to
calculate an upper limit for both the ratio of direct cost to direct
investment and the ratio of overhead cost to total cost. Analogously,
states could use ARMIS data relating to the plant categories used to
provide payphone services in calculating an upper limit on overhead
loadings.

55\. The LEC Coalition claims that BOCs are free to apply to payphone
line service rates whatever markup over direct cost is incorporated in
their business line rates, even though business line rates may include
subsidies for other BOC services.[^125] The Coalition asserts that BOCs
have virtually unlimited flexibility in determining the overhead
component of payphone line service rates because "the amount of overhead
costs that are recovered in the rate does not affect whether the rate is
based on costs."[^126] The LEC Coalition argues that any overhead
loading a BOC might choose is "reasonable" for purposes of the new
services test so long as it is justified by "some plausible
benchmark."[^127]

56\. We reject the LEC Coalition's argument. As noted above, under the
new services test and our precedent, BOCs bear the burden of
affirmatively justifying their overhead allocations. In general, in our
decisions applying the new services test to services offered to
competitors, we have allowed BOCs some flexibility in calculating
overhead allocations, but we have carefully reviewed the reasonableness
of BOCs' overhead allocations. We have *not* simply accepted any
"plausible benchmark" proffered by an BOC.[^128]

57\. We also reject the Coalition's argument that the Commission's
*Payphone Features Order*[^129] supports the proposition that any
overhead allocation within a wide range is "reasonable" for purposes of
the new services test. In fact, that decision shows that our evaluation
of overhead allocations under the new services test has been very
fact-specific. We did permit an unusually high overhead loading in that
matter based on adequate justification. We stressed, however, that our
decision was specific to the circumstances of the particular
investigation, which involved payphone features whose monthly costs did
not exceed a few cents per line. We specifically ruled that "we do not
find that it will necessarily be determinative in evaluating overhead
loadings for other services."[^130]

58\. In sum, we establish a flexible approach to calculating BOCs'
overhead allocation for intrastate payphone line rates. States may
continue to use UNE loading factors to evaluate BOCs' overhead
allocation for payphone services, but we do not require that UNE
overhead allocations must serve as a ceiling on payphone service
overhead loading. To evaluate such a ceiling, states should use the
methodology from either the Commission's *Physical Collocation Tariff
Order* or *ONA Tariff Order*. Consistent with Commission precedent, the
BOCs bear the burden of justifying their overhead allocations for
payphone services and demonstrating compliance with our standards.

**D. ADJUSTMENT FOR FEDERALLY TARIFFED COMMON LINE CHARGES**

59\. The *Bureau Order* stated that "cost based" payphone line service
rates calculated pursuant to the *Payphone Order* requirements must be
adjusted to take account of federally tariffed charges, *i.e.*, the SLC
and PICC.[^131] We affirm this requirement with respect to the SLC but
not with respect to the PICC.

60\. Under the new services test, the BOC may not charge more for
payphone line service than is necessary to recover from PSPs all monthly
recurring direct and overhead costs incurred by BOCs in providing
payphone lines. The forward-looking cost studies used to make these
determinations are usually calculations of total costs, not
jurisdictionally separated costs. If an incumbent BOC files in its state
tariff a charge that fully recovers these unseparated costs and also
assesses on the PSP its federally tariffed SLC, the BOC will
over-recover its costs, and the PSP will over-pay, in violation of the
new services test and the cost-based rates requirement of the *Payphone
Orders*. The multiline business PICC, on the other hand, does not
recover the costs of the lines on which it is assessed. Rather, it
recovers costs that would be recovered through charges on residential
and single line business lines, if those charges were not capped.[^132]
It is a temporary subsidy element that is being phased out of the
interstate access charge system.[^133] PICC revenues should not,
therefore, be subtracted in determining a forward-looking cost-based
rate for payphone lines.

61\. Therefore, in establishing its cost-based, state-tariffed charge
for payphone line service, a BOC must reduce the monthly per line charge
determined under the new services test by the amount of the applicable
federally tariffed SLC. Verizon contends that cost-based rates need only
be adjusted to account for SLC rate levels as of April 1997.[^134] We
disagree. At whatever point in time a state reviews a BOC's payphone
line rates for compliance with the new services test, it must apply an
offset for the SLC that is then in effect.

**E. COST SUPPORT FOR USAGE ELEMENTS**

62\. The *Bureau Order* stated that the new services test applies to
usage sensitive as well as flat-rate elements of the services offered to
PSPs. We affirm.

63\. The LEC Coalition argues that, in the *Payphone Orders*, we only
required the new services test to be applied to the monthly rate for the
payphone line.[^135] Two years ago, however, the Bureau clarified that
the new services test applies to all payphone line service rates,
including per-call or per-minute rates applicable to local usage.[^136]
Nevertheless, the Coalition contends that we did not require application
of the test to local usage rates that are uniformly applicable to PSPs
and business line subscribers. According to the LEC Coalition, rates
that are equal to business usage rates are not "payphone-specific" and
were not intended to be covered by the new services test.[^137]

##  64. We reject the LEC Coalition's interpretation of the Commission's orders. In the *Payphone Orders*, we required LECs to provide PSPs with local exchange services that would enable payphone service providers to offer payphone service using either "smart" or "dumb" payphones.[^138] Providing only a line, without allowing local calls over the line, does not satisfy this requirement.[^139] We required these payphone line services to be priced at cost-based rates in accordance with the new services test.[^140] Therefore, any rate for local usage billed to a payphone line, as well as the monthly payphone line rate, must be cost-based and priced in accordance with the new services test. This requirement applies regardless of whether current payphone line service tariffs specify a particular rate for payphone line usage, or whether they currently incorporate by reference the applicable rate from a business service tariff. 

## 

##  65. This conclusion advances our purpose in requiring cost-based payphone line rates in the first place. A high usage rate would undermine our and the states' efforts to set the payphone service rates in accordance with a cost-based standard. A non-cost-based usage rate would also constitute an impermissible "end run" around the requirements of section 276. 

**F. WISCONSIN PAYPHONE RATES**

66\. We do not now review or evaluate the cost support materials
submitted by Ameritech and Verizon. We urge the Wisconsin Commission to
review its jurisidiction to apply the new services test in light of the
fact that, as we have described above, it is intended to address
potentially discriminatory practices in accordance with the requirements
of section 276 and would seem to be within the Wisconsin Commission's
authority to prevent such discrimination.[^141]

67\. We also relieve TDS and Century, and by extension other small rural
incumbent LECs, of the obligation to comply with the application of the
new services test as set forth herein. Neither TDS nor Century are BOCs,
and, as we have discussed above, our federal jurisdiction to apply the
new services test was intended to reach BOCs only.[^142] Nevertheless,
nothing prevents states from applying the new services test to all
non-BOC LECs, whether rural or not, but we conclude that the states
themselves should determine whether that is appropriate and
warranted.[^143]

**IV. CONCLUSION**

68\. In sum, we issue this *Order* to assist states in determining
whether BOCs' intrastate payphone line rates comply with section 276 and
our *Payphone Orders*. This *Order* includes the following basic
propositions: First, BOCs' intrastate payphone line rates, including
usage rates, should comply with the flexible, cost-based new services
test. Second, these rates should be calculated using a forward-looking,
direct cost methodology such as TELRIC or TSLRIC, but the full pricing
regime of sections 251 and 252 does not apply. Third, overhead loading
rates for payphone line rates should be cost-based, and such rates may
be calculated using UNE overhead loading factors, provided that such
rates do not exceed an upper limit calculated using the methodology from
either the *Physical Collocation Tariff Order* or the *ONA Tariff
Order*. Finally, BOCs' payphone line rates should be adjusted to account
for SLC charges, as set forth herein.

**V. ORDERING CLAUSES**

69\. Accordingly, pursuant to sections 4(i), 205, and 276 of the
Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 205, and
276, IT IS HEREBY ORDERED that the Application for Review of the LEC
Coalition is hereby GRANTED and that the LEC Coalition's request that we
withdraw or stay the *Bureau Order* is hereby DENIED.

FEDERAL COMMUNICATIONS COMMISSION

William F. Caton

Acting Secretary

[^1]: The members of the LEC Coalition (Coalition) are: Ameritech
    Corporation, the Bell Atlantic companies (Bell Atlantic-Delaware,
    Inc., Bell Atlantic-Maryland, Inc., Bell Atlantic-New Jersey, Inc.,
    Bell Atlantic-Pennsylvania, Inc., Bell Atlantic-Virginia, Inc., Bell
    Atlantic-Washington, D.C., Inc., Bell Atlantic-West Virginia, Inc.,
    New York Telephone Company, and New England Telephone and Telegraph
    Company), BellSouth Telecommunications, Inc., GTE Service
    Corporation, SBC Telecommunications, Inc., Wisconsin Bell (d/b/a
    Ameritech Wisconsin), and U S WEST Communications, Inc. (now Qwest
    Corporation). The LEC Coalition's Application for Review of the
    Common Carrier Bureau's "New Services Test" Order at 1 n.1 (April 3,
    2000) (LEC App.).

[^2]: *In the Matter of Wisconsin Public Service Commission: Order
    Directing Filings*, DA No. 00-347, Order, 15 FCC Rcd 9978 (March 2,
    2000).

[^3]: Wisconsin Bell, Inc. (d/b/a Ameritech Wisconsin), Century
    Telephone Enterprises, Inc., GTE North Incorporated, and Telephone
    Data Systems, Inc. (collectively, the Wisconsin LECs).

[^4]: 47 U.S.C. §§ 151-614.

[^5]: *Implementation of the Pay Telephone Reclassification and
    Compensation Provisions of the Telecommunications Act of 1996*, CC
    Docket No. 96-128, First Report and Order, 11 FCC Rcd 20541 (Sept.
    20, 1996) (*First Payphone Order*), Order on Reconsideration, 11 FCC
    Rcd 21233 (Nov. 8, 1996) (*Payphone Reconsideration Order*), *aff'd
    in part and remanded in part*, *Illinois Pub. Telecomms. Ass'n v.
    FCC*, 117 F.3d 555 (D.C. Cir. 1997); Second Report and Order, 13 FCC
    Rcd 1778 (Oct. 9, 1997) (*Second Payphone Order*), *vacated and
    remanded*, *MCI Telecomms. Corp. v. FCC*, 143 F.3d 606 (D.C. Cir.
    1998); Third Report and Order and Order on Reconsideration of the
    Second Report and Order, 14 FCC Rcd 2545 (Feb. 4, 1999) (*Third
    Payphone Order*), *aff'd*, *American Pub. Communications Counsel v.
    FCC*, 215 F.3d 51 (D.C. Cir. 2000). The *First Payphone Order* and
    the *Payphone Reconsideration Order* are collectively known as the
    *Payphone Orders*.

[^6]: LEC App. at 1-2.

[^7]: 47 U.S.C. § 276(b).

[^8]: H.R. Rep. No. 104-204, at 88 (1995) (emphasis added).

[^9]: *Payphone Reconsideration Order*, 11 FCC Rcd at 20614, para. 146.
    *See also infra* note 26 and accompanying text.

[^10]: State payphone association filings in this proceeding, and
    related proceedings before this Commission, have described diverse
    state public service commission approaches to the requirements of
    the *Payphone Orders* in more than a dozen states. *See* Reply
    Comments of the Ind. Payphone Ass'n (Oct. 23, 2000); Reply Comments
    of the Midwest Independent Coin Payphone Ass'n (Oct. 23, 2000)
    (discussing Missouri Public Service Commission proceedings); Reply
    Comments of the Independent Payphone Ass'n of N.Y., Inc. (Oct. 23,
    2000); Reply Comments of the Northwest Payphone Ass'n (discussing
    Oregon Public Utility Commission proceedings); Joint Reply Comments
    of Atl. Payphone Ass'n and Central Atl. Payphone Ass'n (filed Oct.
    23, 2000) (discussing proceedings in Maryland, Virginia, and
    Washington, DC); Reply Comments of the Illinois Pub. Telecomms.
    Ass'n, Michigan Pay Tele. Ass'n, Payphone Ass'n of Ohio, and the
    Kentucky Payphone Ass'n (filed Oct. 23, 2000). *See also* North
    Carolina Payphone Ass'n, Petition for Expedited Review, File No.
    CCB/CPD No. 99-27 (filed Aug. 13, 1999); Michigan Pay Tele. Ass'n,
    Petition for Declaratory Ruling, File No. CCB/CPD No. 99-35 (filed
    Nov. 12, 1999). *See also* Public Serv. Comm'n of S.C., *In re
    Request of BellSouth Telecommunications, Inc. for Approval of
    Revisions to its General Subscriber Service Tariff and Access
    Service Tariff to Comply with the FCC's Implementation of the Pay
    Telephone Reclassification and Compensation Provisions of the
    Telecommunications Act of 1996*, Docket No. 97-124-C, Order Setting
    Rates for Payphone Lines and Associated Features, Order No. 1999-285
    (April 19, 1999), *reconsideration denied*, Order No. 1999-497 (July
    19, 1999); Tennessee Regulatory Auth., *In re: All Telephone
    Companies Tariff Filings Regarding Reclassification of Pay Telephone
    Service as Required by Federal Communications Commission (FCC)
    Docket 96-128,* Docket No. 97-00409, Interim Order (Feb. 1, 2001).

[^11]: *See* Liza Mundy, *Hearing the Call*, The Wash. Post Magazine,
    Sept. 2, 2001, at 26. *See also* Raymond McCaffrey, *For the Phone
    Booth, It's Last Call*, The Wash. Post, Sept. 17, 2001, at B3.

[^12]: *Hearing the Call*, *supra* note 11, at 12, 25. We find nothing
    in section 276 that would authorize intervention into competitive
    issues as between the wireless and payphone services markets.
    Nevertheless, we acknowledge the concerns expressed in many letters
    to Congress and the Commission about competition from wireless
    services.

[^13]: 47 U.S.C. § 276(b)(1).

[^14]: *See In the Matter of Computer III Remand Proceedings: Bell
    Operating Company Safeguards and Tier I Local Exchange Company
    Safeguards*, CC Docket No. 90-623, Report and Order, 6 FCC Rcd 7571
    (Dec. 20, 1991) (*Computer III*).

[^15]: *First Payphone Order,* 11 FCC Rcd at 20543-45, paras. 1-8.

[^16]: *Id.* at 20566, para. 48.

[^17]: *In the Matter of Bell Atlantic-Dela. v. Frontier Comms. Servs.,
    Inc.,* No. E-98-48/49, Mem. Opinion and Order, 14 FCC Rcd 16050,
    16053-54, para. 5 (Sept. 24, 1999).

[^18]: *Id.*; *First Payphone Order*, 11 FCC Rcd at 20584, para. 83.

[^19]: *First Payphone Order*, 11 FCC Rcd at 20577, para. 70.

[^20]: *Id*.

[^21]: *Payphone Reconsideration Order*, 11 FCC Rcd at 21293, para. 131
    (summarizing certification requirements).

[^22]: *First Payphone Order*, 11 FCC Rcd at 20611, para. 142.

[^23]: *Id*. at 20640-41, paras. 199-200. *See supra* note 14.

[^24]: *Id*. at 20640, para. 199.

[^25]: *Id.* at 20614, para. 146.

[^26]: *See Amendment of Part 69 of the Commission\'s Rules Relating to
    the Creation of Access Charge Subelements for Open Network
    Architecture*, CC Docket No. 89-79, Report and Order and Order on
    Further Reconsideration and Supplemental Notice of Proposed
    Rulemaking, 6 FCC Rcd 4524 (July 11, 1991) (*Part 69/ONA Order*);
    *In the Matter of Telephone Company-Cable Television Cross-Ownership
    Rules*, CC Docket No. 87-266, Mem. Opinion and Order on
    Reconsideration and Third Further Notice of Proposed Rulemaking, 10
    FCC Rcd 244, 340-47, paras. 209-22 (Nov. 7, 1994) (defining new
    services test) (*Video Dialtone Reconsideration Order*).

[^27]: *See Amendment of Sections 64.702 of the Commission\'s Rules and
    Regulations (Third Computer Inquiry)*, CC Docket No. 85-229, Report
    and Order, 104 FCC 2d 958 (1986).

[^28]: *First Payphone Order*, 11 FCC Rcd at 20644, para. 208, and
    20667, para. 253.

[^29]: *Id*. at 20644, para. 208, and 20660, para. 238.

[^30]: *Id*. at 20669-70, para. 261.

[^31]: *Payphone Reconsideration Order,* 11 FCC Rcd at 21307-09, paras.
    162-65.

[^32]: *Id*. at 21308, para. 163.

[^33]: *See* Letter to Joseph P. Mettner, Chairman, Public Service
    Commission of Wisconsin, from Kathryn C. Brown, Chief, Common
    Carrier Bureau, 13 FCC Rcd 20865, 20866 (Oct. 28, 1998) (1998 CCB
    Letter).

[^34]: *Payphone Reconsideration Order*, 11 FCC Rcd at 21308, para. 163.

[^35]: *Id*. at 21328-29, paras. 218-220.

[^36]: *Illinois Pub. Telecomms. Ass'n v. FCC*, 117 F.3d 555 (D.C. Cir.
    1997) (*IPTA v. FCC*)

[^37]: *Id*. at 562.

[^38]: *Id*. at 562-67.

[^39]: *Id*. at 563-64.

[^40]: *Payphone Reconsideration Order,* 11 FCC Rcd 21233.

[^41]: *MCI Telecomms. Corp. v. FCC*, 143 F.3d 606 (D.C. Cir. 1998).

[^42]: *Third Payphone Order*, 14 FCC Rcd at 2577, para. 72.

[^43]: *American Pub. Communications Counsel v. FCC*, 215 F.3d 51 (D.C.
    Cir. 2000). Neither the top down nor bottom up methodology is at
    issue in this proceeding, but we include this discussion to provide
    context.

[^44]: Wisconsin Public Service Commission Letter Order, Docket No.
    05-TI-156 (Nov. 6, 1997) (unpublished).

[^45]: *Id*.

[^46]: *Id.*

[^47]: *Id.*

[^48]: *See* 1998 CCB Letter, 13 FCC Rcd at 20866.

[^49]: *Id*.

[^50]: *Bureau Order*, 15 FCC Rcd at 9980, para. 5.

[^51]: *Id.*

[^52]: *Id*. at 9981-82, paras. 7-12.

[^53]: *Id.* at 9981, para. 9.

[^54]: *Id. See also In the Matter of Implementation of the Local
    Competition Provisions in the Telecommunications Act of 1996*, CC
    Docket 96-98, First Report and Order, 11 FCC Rcd 15499 (Aug. 8,
    1996) (*Local Competition Order*).

[^55]: *Bureau Order*, 15 FCC Rcd at 9981-82, para. 10.

[^56]: *Id*. at 9982, para. 10.

[^57]: *Id*. at 9982, para. 11. *See* *Computer III*, 6 FCC Rcd at 7601,
    para. 64 n.108; *Part 69/ONA Order*, 6 FCC Rcd at 4532, para. 46.

[^58]: *Bureau* *Order*, 15 FCC Rcd at 9982, para. 11.

[^59]: *Id*.

[^60]: *Id*.

[^61]: *Id*.

[^62]: *Id*. at 9982, para. 12.

[^63]: *Id*.

[^64]: *Id*. at 9982, para. 13.

[^65]: *FCC Public Notice: Pleading Cycle Established for CCB/CPD No.
    00-01*, 15 FCC Rcd 6238, 6238 (April 12, 2000).

[^66]: LEC App. at 5-7.

[^67]: *Id*. at 10.

[^68]: *Id*. at 11.

[^69]: *Id*.

[^70]: *Id*. at 20-22. Although the LEC Coalition did not challenge our
    jurisdiction to issue the *Payphone Orders*, *see* *infra* note 74,
    we believe that, by challenging the jurisdictional basis of the
    *Bureau Order* concerning federal review of intrastate payphone line
    rates, the LEC Coalition necessarily challenges those portions of
    the *Payphone Orders* on which the *Bureau Order* relies.

[^71]: Letter from A.H. Kramer and R.F. Aldrich, counsel for APCC, to
    Dorothy Attwood, Chief, Common Carrier Bureau (March 20, 2001).

[^72]: *Id*.

[^73]: The LEC Coalition also makes three other arguments. First, it
    alleges that the *Bureau Order* violates the Bureau's delegated
    authority under 47 C.F.R. § 0.291(a)(2) as a "novel" assertion of
    federal power "without precedent." LEC App. at 10. As the discussion
    below shows, however, the *Bureau Order* adheres to the commands of
    section 276 and also is consistent with our prior orders concerning
    pricing and payphones. Accordingly, we conclude that the *Bureau
    Order* was within the Bureau's delegated authority. Second, the
    Coalition claims that the *Bureau Order* is a "legislative rule"
    that must go through notice and comment. *Id*. at 10. We disagree.
    The *Bureau Order* simply applies our existing authority. In any
    event, many parties, including the LEC Coalition and APCC, have
    submitted thorough *ex parte* comments on the jurisdictional issue.
    Finally, the Coalition contends that the *Bureau Order* violates the
    Tenth Amendment by "dictat\[ing\] the content of state law." *Id*.
    at 21. Section 276 simply sets a federal standard, and the Supreme
    Court has repeatedly validated "Congress' power to offer States the
    choice of regulating \[an\] activity according to federal standards
    or having state law pre-empted by federal regulation." *New York v.
    United States*, 505 U.S. 144, 167 (1992) (citations omitted). *See
    also FERC v. Mississippi*, 456 U.S. 742, 759 (1982).

[^74]: This new challenge is inconsistent with position taken by the BOC
    coalition in 1997, when it sought and obtained a 45-day waiver for
    compliance with the new services test, acknowledging in the process
    that the Commission *does* in fact have jurisdiction over intrastate
    payphone services *See In the Matter of Implementation of the Pay
    Telephone Reclassification and Compensation Provisions of the
    Telecommunications Act of 1996*, CC Docket No. 96-128, Order, 12 FCC
    Rcd 21370, 21375-76, paras. 13-14 (April 15, 1997). The Commission
    noted that the "RBOC Coalition *concedes* that the Commission's
    payphone orders . . . mandate that the payphone services a LEC
    tariffs at the state level are subject to the new services test and
    that the requisite cost-support data must be submitted to the
    individual states." *Id*. at 21378, para. 18 (emphasis added).

[^75]: 47 U.S.C. § 152(b).

[^76]: *Louisiana Pub. Serv. Comm'n v. FCC*, 476 U.S. 355, 377 (1986).

[^77]: 47 U.S.C. § 276(a)(1), (2).

[^78]: *Louisiana*, 476 U.S. at 375 n.4.

[^79]: *IPTA v. FCC*, 117 F.3d 555. The Commission previously determined
    that payphone line rates are the greatest single cost associated
    with providing payphone service. *Third Payphone Order*, 14 FCC Rcd
    at 2623-25, paras. 170-74, and 2632, para. 191. *See also* APCC,
    "New Services Test Presentation," Tab 1 at 1 (July 19, 2001).

[^80]: Section 276(b)(1)(B) is somewhat broader than section 276(a)(1)
    because it applies to all LECs and is not limited to the BOCs, as is
    section 276(a)(1). That distinction explains why Congress included a
    separate directive to the Commission to eliminate subsidies.

[^81]: Subsections D and E refer to intraLATA and interLATA services,
    which necessarily include intrastate service.

[^82]: 47 U.S.C. § 276(b)(1).

[^83]: In that respect, section 276 is akin to section 251 in that it
    extends the Communications Act into an area previously controlled by
    the states. In those circumstances, the Supreme Court held, section
    2(b) "may have less practical effect" than before Congress
    instituted a federal payphone policy. *AT&T Corp. v. Iowa Utils.
    Brd.*, 525 U.S. 366, 381 n.8 (1999).

[^84]: H.R. Rep. No. 104-204, at 88 (emphasis added).

[^85]: S. Rep. No. 104-23, at 57-58 (March 30, 1995) (emphasis added).

[^86]: *Computer III*, 6 FCC Rcd at 7601, para. 64 n.108. *See also*
    *Part 69/ONA Order*, 6 FCC Rcd at 4531, paras. 38-41.

[^87]: *Phase I ONA Order*, 4 FCC Rcd at 162-71, paras. 309-25.

[^88]: *Id*. at 164, para. 313.

[^89]: *Id*. at 166-67, paras. 316-17.

[^90]: *Id*. at 166-67, para. 317.

[^91]: *Id*.

[^92]: *Id*. *See also Part 69/ONA Order*, 6 FCC Rcd at 4532, para. 45
    ("ONA services do present an increased danger of unreasonable
    discrimination.").

[^93]: The LEC Coalition's argument that the absence of the word
    "intrastate" from section 276(b)(1)(C) is dispositive of the
    jurisdictional question cannot be squared with the Coalition's
    recent statement that the Commission's "authority with respect to
    the rates that BOCs charge for intrastate payphone services extends
    only to ensuring that the BOCs' state tariffs do not undermine the
    Commission's federal regulatory structure." Letter from Aaron M.
    Panner, counsel for LEC Coalition, to Magalie Salas, Secretary, FCC,
    at 6 (Oct. 15, 2001). That is, having conceded that the Commission
    has jurisdiction *at all* over intrastate payphone line rates \--
    even if limited to ensuring compliance with federal standards \--
    the LEC Coalition cannot also claim that the Commission's intrastate
    jurisdiction fails for want of a single word.

[^94]: *Iowa Utils. Bd.*, 525 U.S. at 385.

[^95]: *Id*. at 381 n.8.

[^96]: *Computer III*, 6 FCC Rcd at 7625-37, paras. 110-131. *See supra*
    paras. 39-41.

[^97]: When the Commission's jurisdiction over intrastate services
    arises by implication, federal regulation of intrastate services
    must be as narrow as possible. *IPTA v. FCC*, 117 F.2d at 563. In
    this case, however, we have been given an express mandate to preempt
    state regulation of intrastate payphone line rates; therefore, our
    jurisdiction does not arise by implication, and it need not be
    narrowly construed. *Cf. id.*

[^98]: *Computer III*, 6 FCC Rcd at 7601, para. 64 n.108; *Part 69/ONA
    Order,* 6 FCC Rcd at 4531, paras. 38-41.

[^99]: LEC App. at 10.

[^100]: *In the Matter of Open Network Architecture Tariffs of Bell
    Operating Companies*, CC Docket No. 92-91, Order, 9 FCC Rcd 440,
    454-55, paras. 36, 40, 41 (Dec. 15, 1993) (*ONA Tariff Order*);
    *Local Competition Order*, 11 FCC Rcd at 15911-12, paras. 825-26.

[^101]: To the extent that the *Bureau Order* required application of
    the new services test to non-BOCs, we hereby vacate that conclusion.

[^102]: *E.g.,* Public Serv. Comm'n of Md., *In the Matter of the
    Inquiry into the Payphone Tariffs of Bell Atlantic-Md., Inc.*, Case
    No. 8763, Order No. 76787 (Feb. 27, 2001).

[^103]: *E.g.,* Letter from James Connelly, Chairman, Mass. Dept. of
    Telecomms. & Energy, to Michael K. Powell, Chairman, FCC (March 5,
    2001) (requesting decision on whether new services test applies to
    intrastate payphone line rates).

[^104]: LEC App*.* at 12. *See also Local Competition Order*, 11 FCC Rcd
    at 15846, para. 679 (defining TELRIC); *AT&T Corp. v. FCC*, 220 F.3d
    607, 615-16 (2000) (same); *Video Dialtone Reconsideration Order*,
    10 FCC Rcd at 340-47, paras. 209-22 (same).

[^105]: LEC Coalition's Reply in Support of Its Application for Review
    and Request for Stay at 7 (filed May 30, 2000) (LEC Reply).

[^106]: *First Payphone Order*, 11 FCC Rcd at 20614, para. 146.

[^107]: *Id*.

[^108]: *Id.*

[^109]: LEC App. at 14-15.

[^110]: *See* *First Payphone Order*, 11 FCC Rcd at 20615, para. 147.

[^111]: LEC App. at 9.

[^112]: *Bureau Order*, 15 FCC Rcd at 9981, para. 9.

[^113]: *Local Competition Order*, 11 FCC Rcd at 15844-46, paras.
    672-78.

[^114]: *Id*. at 15845-46, paras. 677-78.

[^115]: *Id*. at 15851, para. 691.

[^116]: *Bureau Order*, 15 FCC Rcd at 9982, para. 11.

[^117]: *In the Matter of Local Exchange Carriers' Payphone Functions
    and Features*, CC Docket No. 97-140, Mem. Opinion and Order, 12 FCC
    Rcd 17996, 18002, para. 13 (Oct. 29, 1997) (*Payphone Features
    Order*); *Part 69/ONA Order*, 6 FCC Rcd at 4531, para. 44.

[^118]: *Local Exchange Carriers' Rates, Terms, and Conditions for
    Expanded Interconnection Through Physical Collocation for Special
    Access and Switched Transport*, CC Docket No. 93-162, Second Report
    and Order, 12 FCC Rcd 18730 (June 13, 1997) (*Physical Collocation
    Tariff Order*).

[^119]: *Id*. at 18858-59, para. 313.

[^120]: *Id*.

[^121]: *Id*. paras. 313-14.

[^122]: *Id*. at 18855, para. 307.

[^123]: *First Payphone Order*, 11 FCC Rcd at 20614, para. 146, and
    20640, para. 199; *Payphone Reconsideration Order*, 11 FCC Rcd at
    21308, para. 163.

[^124]: *In the Matter of Open Network Architecture Tariffs of Bell
    Operating Companies*, CC Docket No. 92-91, Order, 9 FCC Rcd 440,
    458-59, para. 50, and 477-80, Attach. C (Dec. 15, 1993) (*ONA Tariff
    Order*).

[^125]: LEC Reply at 9.

[^126]: *Id*. at 10.

[^127]: *Id*. at 7.

[^128]: *See, e.g., ONA Tariff Order,* 9 FCC Rcd at 455, para. 40;
    *Physical Collocation Tariff Order*, 12 FCC Rcd at 18856, paras.
    308-09.

[^129]: *Payphone Features Order,* 12 FCC Rcd 17996.

[^130]: *Id.* at 18003, para. 13.

[^131]: *See supra* note 63 and accompanying text.

[^132]: *In the Matter of Access Charge Reform, Price Cap Performance
    Review for Local Exchange Carriers, Low-Volume Long-Distance Users,
    Federal-State Joint Board on Universal Service*, CC Docket Nos.
    96-262, 94-1, 99-249, and 96-45, Report and Order*,* 15 FCC Rcd
    12962, 13004, para. 106 (May 31, 2000). We note that parties have
    filed a reconsideration petition seeking relief from application of
    the multiline business PICC to payphone lines. This petition is
    currently pending.

[^133]: *Id*.

[^134]: Response of Verizon North at 6-7 (filed Oct. 23, 2000) (Verizon
    Response).

[^135]: LEC App. at 16 n.14; Verizon Response at 12-14.

[^136]: Letter from Yog R. Varma*,* Deputy Chief, Common Carrier Bureau,
    to Caroline Vachier, Deputy Attorney General of New Jersey, 14 FCC
    Rcd 17091, 17092 (Oct. 5, 1999).

[^137]: LEC App. at 16 n.14.

[^138]: *Payphone Reconsideration Order*, 11 FCC Rcd at 21307-08, para.
    162.

[^139]: The LEC Coalition cites a prior Bureau order discussing
    "payphone specific" services in support of its position that a BOC
    may exempt local usage from *Payphone Orders* requirements by not
    including local usage rates in a "payphone specific" tariff or by
    not offering local usage at a "payphone specific" rate. LEC App. at
    16 n.14. The Bureau used the term "payphone specific" to distinguish
    those network "features and functions" that must be *federally
    tariffed* from those that may be offered solely under *state
    tariffs*. Nothing in the Bureau's orders supports the proposition
    that a BOC could avoid subjecting necessary network services, such
    as local usage, to any of the *Payphone Orders'* tariffing
    requirements, under *either* federal *or* state tariffs, by the
    simple device of tariffing those services in a
    "non-payphone-specific" manner.

[^140]: *Payphone Reconsideration Order*, 11 FCC Rcd at 21308, para. 163
    & n.492.

[^141]: *See supra* note 45 and accompanying text.

[^142]: *See supra* para. 42.

[^143]: *See also id.*