**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+----+------------------------------+
| In the Matter of                 | )  | CC Docket No. 02-53          |
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| Presubscribed Interexchange      | )  |                              |
| Carrier Charges                  |    |                              |
|                                  | )  |                              |
|                                  |    |                              |
|                                  | )  |                              |
|                                  |    |                              |
|                                  | )  |                              |
|                                  |    |                              |
|                                  | )  |                              |
+----------------------------------+----+------------------------------+

**REPORT AND ORDER**

**Adopted: February 10, 2005 Released: February 17, 2005**

By the Commission: Chairman Powell issuing a statement; Commissioner
Adelstein concurring and issuing a statement; Commissioner Copps
approving in part, dissenting in part, and issuing a statement.

# Introduction

1.  Presubscribed interexchange carrier (PIC) change charges are
    federally tariffed charges imposed by local exchange carriers (LECs)
    on end user subscribers when these subscribers change their
    presubscribed interexchange carriers (IXCs). For incumbent LECs,
    these charges currently are subject to a \$5 safe harbor within
    which a PIC change charge is considered reasonable.[^1] Significant
    industry and market changes have occurred since the implementation
    of the \$5 safe harbor in 1984; therefore, the Commission initiated
    this proceeding to reexamine the existing safe harbor for incumbent
    LEC PIC change charges.[^2] Based on the record in this proceeding,
    we require incumbent LECs to adopt separate PIC change charges for
    changes that are processed electronically and manually.[^3] We adopt
    a safe harbor of \$1.25 for electronically processed PIC changes,
    and a safe harbor of \$5.50 for manually processed PIC changes.[^4]

# BACKGROUND

2.  In its proceeding investigating the LECs' initial 1983 interstate
    access tariff filings, the Commission concluded both that it was
    reasonable for carriers to recover costs associated with changing an
    end user's presubscribed IXC, and that it was difficult to establish
    the exact costs incurred by incumbent LECs for this service.[^5] In
    light of these findings, the Commission established a safe harbor
    for PIC change charges. PIC change charges of \$5 would be
    considered reasonable.[^6] When the Commission next addressed the
    PIC change charge in 1987, it found that carriers had not submitted
    sufficient cost support to justify increasing the charge. The
    Commission required all carriers "to continue to apply a fixed rate
    of \$5.00 per presubscription change."[^7]

3.  On May 16, 2001, CompTel petitioned the Commission to initiate a
    rulemaking proceeding to revise its policies governing the PIC
    change charge.[^8] CompTel's petition was based largely on a
    Commission decision on a formal complaint concerning such
    charges.[^9] In the *MCI Order*, the Commission found that, although
    PIC change costs had fallen, a complaint proceeding was not the
    proper venue for altering existing rules governing the
    reasonableness of the \$5 safe harbor.[^10] In response to CompTel's
    petition, the Commission concluded that significant industry and
    market changes had occurred since the implementation of the safe
    harbor in 1984, and that it was therefore appropriate for the
    Commission to initiate a rulemaking proceeding to reexamine the
    existing safe harbor for incumbent LEC PIC change charges.[^11]
    Comments on the *Notice* were due by June 14, 2002, and reply
    comments by July 1, 2002.[^12] On April 23, 2004, the Commission
    released a further notice of proposed rulemaking seeking comment on
    PIC change cost data filed by BellSouth in support of an increase in
    its federally tariffed rate from \$1.49 to \$3.07.[^13] Comments on
    the *Further Notice* were due by June 14, 2004, and reply comments
    by June 25, 2004.[^14] Verizon filed detailed cost information
    during the pleading cycle of the *Further Notice*.[^15] SBC filed
    cost information four months after the pleading cycle closed, on
    November 4, 2004.[^16]

# DISCUSSION

4.  As a threshold matter, we consider whether regulation of incumbent
    LEC PIC change charges is necessary at the current time. As
    discussed above, incumbent LECs assess PIC change charges on their
    end user customers that switch long distance service providers. In
    the *Notice*, the Commission sought comment on whether market forces
    could be relied upon to establish reasonable rates for incumbent LEC
    PIC change charges.[^17] Many commenters argue that market forces
    currently will not constrain incumbent LEC PIC change charge
    rates.[^18] Commenters argue that, at this time, most residential
    customers do not have a choice of LEC; therefore, end users cannot
    yet shop around among different LECs to find lower PIC change charge
    rates.[^19] Under the Commission's existing domestic common carrier
    regulations, incumbent LECs generally are treated as dominant
    carriers because the Commission has found that these carriers
    possess and are likely to be able to exercise market power.[^20]
    According to the most recent report, as of December 2003 incumbent
    LECs provide local service to approximately 84 percent of end
    users.[^21] There are no competitive LECs providing service in more
    than 25 percent of the zip codes in the country.[^22] While we do
    believe that residential competition is growing, competition is not
    yet so ubiquitous to serve as a reliable constraint on PIC change
    charge rates. Thus, we find that, at this time, market forces cannot
    be relied upon to limit incumbent LEC PIC change charge rates.

## PIC Change Charge Safe Harbors

5.  Having determined that market forces are not yet sufficient to
    constrain incumbent LEC PIC change charge rates, we examine how
    costs related to PIC changes are incurred and how incumbent LECs may
    recover these costs through the PIC change charge. Some commenters
    argue that PIC change charge rates should be based on each
    individual incumbent LEC's actual costs.[^23] Other commenters urge
    us to establish a new safe harbor lower than the current \$5 safe
    harbor to reflect incumbent LECs' lower costs associated with PIC
    changes.[^24] Incumbent LEC commenters argue that costs associated
    with PIC changes justify retention of the existing \$5 safe
    harbor.[^25]

6.  We do not agree that we should require incumbent LECs to tariff PIC
    change charges based on individual incumbent LEC actual costs. Such
    a requirement would be unduly burdensome, both to the incumbent LECs
    that would now be required to compile and submit detailed cost
    information related to PIC changes, and to the Commission, which
    would have to expend scarce resources evaluating the multiple cost
    submissions. Instead, we find that adopting a safe harbor for the
    incumbent LEC PIC change charge has been a reasonable method of
    regulating the charge in the past, and use of this method continues
    to be a reasonable practice going forward. Under the safe harbor
    approach, incumbent LECs may tariff PIC change charge rates that are
    equal to or less than the safe harbor without having to provide
    detailed cost filings in support of the rates. Incumbent LECs are
    free, however, to submit cost showings if their costs exceed the
    safe harbor limit. We find that adoption of a safe harbor in this
    instance provides a reasonable proxy for incumbent LECs' PIC change
    costs, while allowing carriers the option of foregoing the
    submission of cost support if their rates are within the safe harbor
    limits.

7.  As we discussed in the *Further Notice*, an examination of PIC
    change costs reveals a substantial difference between the costs of
    electronically processed PIC changes and PIC changes that require
    manual processing.[^26] The record in this proceeding further
    confirms that the costs of an electronically processed PIC change
    are substantially lower than the costs of PIC changes that must be
    processed manually.[^27] By allowing carriers to impose a single,
    blended PIC change charge, customers whose PIC changes are processed
    through the less costly electronic system are realizing no benefit
    from the use of these more efficient systems. They will be assessed
    the same charge as a customer whose PIC change is more complicated
    and requires costly manual processing. With no distinction in the
    rates between electronically processed and manually processed
    changes, IXCs lack an incentive to invest in the more efficient
    electronic systems, as there is no competitive benefit to doing so.
    Instead, we believe that both customers and IXCs should reap the
    benefit of the IXCs' investments in more efficient electronic
    processing capabilities. We therefore adopt separate safe harbors
    for incumbent LEC PIC changes that are processed manually and
    electronically. Adopting a two-tiered approach will provide an
    incentive for IXCs to invest in electronic processing capabilities
    to gain the competitive advantage of lower incumbent LEC PIC change
    charges for customers switching to these IXCs' services.

8.  Commenters opposing our proposal to adopt a two-tiered safe harbor
    claim that such a system will lead to customer confusion.[^28] We
    note that the two safe harbor rates will be filed in incumbent LEC
    tariffs, just as is the current single PIC change charge. Customers
    will still be able to look to incumbent LEC tariffs to find the rate
    they will be assessed for a change. Furthermore, to the extent that
    IXCs will now be able to secure for potential customers lower PIC
    change charge rates if the changes are submitted electronically, we
    expect that IXCs will include this information in their marketing
    materials. We also reject ACUTA's request for a single safe harbor
    based solely on the costs of the less expensive electronic PIC
    change process.[^29] There may be instances where electronic
    processing is not feasible, and incumbent LECs should still be able
    to recover the costs legitimately related to manual PIC changes.

9.  Some commenters argue that, regardless of our decision on the PIC
    change charge applicable to large incumbent LECs, we should retain
    the \$5.00 safe harbor for small and rural incumbent LECs.[^30]
    Commenters assert that these carriers have higher PIC change costs
    than larger LECs.[^31] We find that small and rural incumbent LECs
    should be subject to the same safe harbors for electronic and manual
    processing applicable to larger incumbent LECs. There is no evidence
    on the record that the costs for processing electronically submitted
    PIC changes are greater for small and rural incumbent LECs than for
    larger and non-rural incumbent LECs. Therefore we have no basis on
    which to establish a separate electronic PIC change safe harbor rate
    for these carriers. One carrier submitted cursory cost information
    regarding its costs to process manually submitted PIC changes, but
    this information from a single carrier was not sufficient evidence
    on which to base a separate small and rural incumbent LEC manual PIC
    change charge safe harbor.[^32] In any event, we note that, as
    discussed below, we are raising the current manual safe harbor rate
    for all incumbent LECs, including small and rural carriers. Finally,
    we note that prior to our decision in this report and order small
    and rural incumbent LECs have been subject to the same \$5.00 safe
    harbor applicable to all other incumbent LECs. No small or rural
    carrier has submitted cost information seeking to increase this
    \$5.00 charge. As has been the case since 1984, all carriers remain
    free to submit cost studies to justify a higher rate to the extent
    these companies' costs exceed the safe harbors.

10. We find that incumbent LECs without electronic PIC change
    capabilities may rely solely on a manual rate, subject to the manual
    safe harbor. We do not require any small or rural carrier to
    implement electronic PIC change processing systems if doing so would
    not be economically rational. To the extent small and rural
    incumbent LECs have electronic PIC change processing systems in
    place, we find that the separate electronic PIC change rate will
    provide an incentive for IXCs to use this less costly manner of PIC
    change submission. Customers selecting IXCs that employ electronic
    PIC change processing will be charged the incumbent LECs' tariffed
    lower electronic PIC change charge rates.

## Costs Recovered in the PIC Change Charge

11. There is substantial discussion in the record as to the costs that
    should be recovered through the PIC change charge. In general, IXC
    and consumer group commenters argue that only the incremental costs
    of switching carriers should be recovered through the PIC change
    charge.[^33] Incumbent LECs, on the other hand, argue that they
    should recover costs beyond the incremental costs of changing
    carriers through the PIC change charge.[^34] The incumbent LEC
    commenters argue that costs related to administering PIC
    freezes,[^35] third-party verification (TPV) costs,[^36] costs
    related to investigating slamming complaints, and a reasonable
    percentage of a carrier's total company common costs should be
    recovered through the PIC change charge.[^37] For the reasons
    discussed below, we find that incumbent LECs should not recover PIC
    freeze or TPV costs through the PIC change charge.

12. PIC freeze services are optional services offered by LECs to their
    customers. If LECs choose to offer a PIC freeze service, they should
    recover the costs from those customers requesting and using the
    service. If LECs are allowed to recover the costs of PIC freezes
    through the PIC change charge, customers that pay the PIC change
    charge are paying for the PIC freeze service for other customers. As
    WorldCom points out in its comments, customers that do not subscribe
    to the PIC freeze service are more likely to change their long
    distance providers and to pay the PIC change charge.[^38] It is
    unreasonable to require these customers to pay the costs of a PIC
    freeze service utilized by other customers. Therefore, we find that
    the costs associated with administering PIC freeze services cannot
    be recovered through the PIC change charge.

13. We also find that the costs of TPV cannot be recovered through the
    PIC change charge. LECs are not required to conduct TPV under our
    rules unless a customer is switching to the service of the LECs'
    long distance affiliates (or from a competitive LEC to the LECs
    themselves for local service).[^39] To the extent TPV is used to
    verify a change to a LEC-affiliated carrier, LECs should not be
    allowed to recover these costs from customers switching to competing
    long distance providers. Instead, these costs should be recovered by
    the LEC from its affiliate. Similarly, LECs should not be allowed to
    increase the costs of PIC changes by including the costs of TPV
    processes that are voluntarily undertaken by the LECs. For example,
    Verizon's study demonstrates that TPV costs represent approximately
    12 percent of its manual processing costs.[^40] Allowing LECs to
    inflate the PIC change charge by recovering these voluntarily
    incurred costs may reduce customers' willingness to switch long
    distance providers, thereby hindering competition. Therefore, we
    find that incumbent LECs may not recover voluntarily-incurred TPV
    costs through the PIC change charge, and may recover
    mandatorily-incurred TPV costs only from customers that switch to
    the incumbent LECs' long distance affiliates.

14. Some commenters also argue that slamming costs should not be
    recovered through the PIC change charge.[^41] They contend that
    incumbent LECs have no legitimate role in investigating slamming
    complaints so there are no costs to be recovered.[^42] These
    commenters overlook the fact that customers may not be aware of the
    Commission's slamming complaint procedures and may contact the LECs
    for information about the process. Under the Commission's rules, if
    a customer notifies its LEC of an unauthorized change of its IXC,
    the LEC must notify both the authorized and the unauthorized IXCs,
    and must also refer the customer to the appropriate regulatory
    authority for resolution of the complaint.[^43] Incumbent LECs do
    incur some small costs in carrying out these duties. In Verizon's
    cost study, for example, slamming inquiry costs represented only
    approximately \$0.09 per PIC change, or approximately two percent of
    the total costs included in Verizon's PIC change costs.[^44] Because
    these costs are incurred legitimately by the LECs as part of
    implementation of customers' PIC selections; because, as represented
    by Verizon's cost study, these costs are slight; and because all
    customers benefit directly or indirectly from the LECs' diligence in
    investigating slamming complaints, we will allow incumbent LECs to
    spread these costs over all PIC change requests and recover them
    through the PIC change charge.

15. We also find that incumbent LECs may recover a reasonable percentage
    of their common costs through the PIC change charge. SBC and Verizon
    argue that common costs, such as legal, executive, marketing, and
    other costs, are not incurred in relation to any specific service,
    but are required for LECs to provide all of the services they offer,
    including the PIC change service.[^45] Commenters have offered no
    justification for treating the PIC change service differently from
    other incumbent LEC services with respect to the inclusion of
    reasonable common costs.[^46]

## Establishing Safe Harbor Rates

16. To set the incumbent LEC electronic and manual PIC change charge
    safe harbors, we look to the cost information submitted in the
    record of this proceeding. There are three cost studies in the
    record: one filed by BellSouth in support of a change to its
    tariffed PIC change charge rate in November 2003;[^47] one filed by
    Verizon in response to the *Further Notice* on June 15, 2004;[^48]
    and one filed by SBC more than four months after the record closed,
    on November 4, 2004.[^49] BellSouth's cost information was not
    promulgated in response to the issues raised in this proceeding, and
    it does not provide as much detail in certain areas, such as PIC
    freeze costs, as does Verizon's cost study. Verizon's cost study
    provides the most detailed analysis of the costs it includes in its
    PIC change charge, including costs associated with PIC freezes and
    the TPV process. Commenters objecting to Verizon's cost study focus
    on costs that should be excluded from the PIC change charge and do
    not contest the actual amounts of the costs. SBC's cost study was
    submitted after the record closed and parties have not had an
    opportunity to comment on it. Furthermore, SBC's cost study does not
    provide a detailed analysis of the costs attributable to
    electronically processed PIC changes.[^50] We therefore rely on
    Verizon's cost study as the best record evidence to establish
    revised safe harbor rates.

17. After removing costs that Verizon identifies as associated with PIC
    freezes and TPV, we adopt a safe harbor rate of \$1.25 for
    electronically processed PIC changes[^51] and a safe harbor rate of
    \$5.50 for manually processed PIC changes.[^52] Verizon's cost study
    on which we base these safe harbor rates includes in its
    electronically processed PIC change costs the costs associated with
    electronically submitted change requests that "fall out" of the
    electronic system and require some manual handling.[^53] We
    therefore clarify that all PIC change requests that are submitted
    electronically by the IXC will result in the incumbent LEC charging
    the end user the electronic PIC change charge rate, regardless of
    whether some manual processing is required.[^54]

18. Incumbent LECs that process PIC change requests through electronic
    and manual methods must amend their tariffs to reflect separate
    rates for electronic and manual processing of PIC changes. If an
    incumbent LEC's rates are at or below these safe harbors, the
    incumbent LEC is not required to file cost support for the rates. If
    an incumbent LEC wishes to demonstrate costs in excess of the safe
    harbor rates, it must file detailed cost support for its proposed
    rates. If at the time it filed its currently tariffed PIC change
    charge rate an incumbent LEC relied on cost data demonstrating that
    its costs are lower than the new safe harbor rates, the incumbent
    LEC may not increase its PIC change charge rates unless it files new
    cost support justifying the higher rates.

19. BellSouth argues in this proceeding that the PIC change charge
    should be included in price cap regulation.[^55] Commenters
    overwhelmingly oppose BellSouth's proposal.[^56] Sprint argues that
    LECs should not be able to move PIC change charges, which are driven
    by end users' decisions to switch long distance providers, into
    price cap regulated access charges, which are assessed on IXCs.[^57]
    We agree with Sprint, and find that incumbent LECs should not
    include PIC change charges in price cap regulation. We also reject
    Verizon's argument that any reduction in the PIC change charge would
    require price cap LECs to make an exogenous adjustment to their
    price cap rates.[^58] Verizon's argument rests on the false premise
    that incumbent LECs are entitled to a certain amount of revenue
    based on the \$5.00 PIC change charge safe harbor.[^59] The \$5.00
    safe harbor is not a "prescribed rate" as Verizon contends.[^60] The
    PIC change charge is based on the costs related to PIC changes. To
    the extent incumbent LECs' PIC change-related costs exceed the safe
    harbor rate, incumbent LECs have had the ability to file cost
    studies to justify a higher rate. And to the extent their costs were
    less than the safe harbor rate, as in the cases of SNET and
    BellSouth,[^61] these companies have reduced their PIC change
    charges accordingly. No exogenous adjustment to price caps was made
    by either company, as none was warranted under our rules. As in the
    case of the former \$5.00 safe harbor, we are not here prescribing
    rates for incumbent LEC PIC change charges in this proceeding.

20. In the *Further Notice* the Commission sought comment on whether the
    PIC change charge should be changed from an end user charge to a
    charge that is assessed on the IXCs if the IXCs submit the change
    request to the LECs.[^62] Commenters opposing this position argue
    that the end user causes the costs by deciding to change carriers
    and should therefore pay the charge.[^63] We agree, and maintain the
    PIC change charge as an end user charge at this time. ACUTA argues
    that imposing the PIC change charge on IXCs could provide a
    disincentive for slamming.[^64] Other commenters argue, however,
    that IXCs already may be paying customers' PIC change charges as a
    marketing tool to gain long distance customers;[^65] assessing the
    charge on IXCs is not likely to have a significant deterrent effect
    for slamming.

## Multiple PIC Change Charges for Simultaneous Changes in Services

21. Some commenters in the proceeding argue that LECs should not be able
    to assess multiple PIC change charges when customers change both
    their PIC and their intraLATA primary interexchange carrier (LPIC)
    at the same time.[^66] Two incumbent LEC commenters confirm that,
    when the changes are requested simultaneously, the costs are equal
    to the costs of a single change.[^67] Specifically, to avoid double
    recovery of costs, Sprint assesses only the interLATA PIC change
    charge when a customer changes both its PIC and LPIC
    simultaneously.[^68] SBC splits the charge in half when the PIC and
    LPIC changes are requested at the same time, charging \$2.49 for
    each.[^69] Generally, incumbent LECs' PIC change charges are
    contained in their federal tariffs and LPIC change charges are
    contained in state tariffs. For purposes of the federally-tariffed
    PIC change charge, when customers change their PICs in conjunction
    with changing their LPICs, incumbent LECs should assess half of the
    applicable federally-tariffed PIC change charge. Carriers may
    recover their remaining costs through the state-tariffed LPIC change
    charges. We require incumbent LECs to amend their federal tariffs to
    include a rate that is 50 percent of the manual PIC change charge
    rate, and another rate that is 50 percent of the electronic PIC
    change charge rate, and the respective 50 percent rate will apply
    when a customer requests a PIC change simultaneously with an LPIC
    change.

# conclusion

22. As discussed above, we require all incumbent LECs that process PIC
    change requests through electronic and manual methods to revise
    their tariffs to include one rate for PIC changes that are processed
    electronically and a separate rate for PIC changes that are
    processed manually. Rates that are within the safe harbors of \$1.25
    for electronically processed PIC changes and \$5.50 for manually
    processed PIC changes may be filed without separate cost support.
    Rates in excess of these safe harbors must include appropriately
    detailed cost support justifying the rates. Incumbent LECs must also
    revise their tariffs to reflect a rate that is equal to 50 percent
    of the full PIC change charge rate when a customer requests a PIC
    change in conjunction with an LPIC change. These tariff revisions
    are to be filed on or before the 30^th^ day after this Report and
    Order is published in the Federal Register.

# procedural matters

## Paperwork Reduction Act Analysis

23. This document does not contain new or modified information
    collection requirements subject to the Paperwork Reduction Act of
    1995 (PRA), Public Law 104-13. In addition, therefore, it does not
    contain any new or modified "information collection burden for small
    business concerns with fewer than 25 employees," pursuant to the
    Small Business Paperwork Relief Act of 2002, Public Law
    107-198.[^70]

## Congressional Review Act

24. The Commission will send a copy of this Report & Order in a report
    to be sent to Congress and the General Accounting Office pursuant to
    the Congressional Review Act.[^71]

## Final Regulatory Flexibility Analysis

25. As required by the Regulatory Flexibility Act,[^72] the Final
    Regulatory Flexibility Analysis for this Report and Order is
    contained in Appendix B.

# ordering clauses

26. Accordingly, IT IS ORDERED that, pursuant to 4(i), 4(j), 201(b),
    203(a), 205, and 403 of the Communications Act of 1934, as amended,
    47 U.S.C. §§ 154(i), 154(j), 201(b), 203(a), 205, and 403, all
    incumbent LECs that process PIC change requests through electronic
    and manual methods SHALL FILE REVISED RATES, to include one rate for
    PIC changes that are processed electronically and a separate rate
    for PIC changes that are processed manually as described in
    paragraphs 7-18 above, and all incumbent LECs SHALL FILE REVISED
    RATES equal to 50 percent of the full PIC change charge rate when a
    customer requests a PIC change in conjunction with an LPIC change as
    described in paragraph 21 above, no later than thirty (30) calendar
    days from the publication of this Report and Order in the Federal
    Register. These rates SHALL BE EFFECTIVE on fifteen (15) days'
    notice.

27. IT IS FURTHER ORDERED that the Commission's Consumer and
    Governmental Affairs Bureau, Reference Information Center, SHALL
    SEND a copy of this Report and Order, including the Final Regulatory
    Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
    Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

**Appendix A**

PIC Change Charge Notice of Proposed Rulemaking

**CC Docket No. 02-53**

**Comments Filed by June 14, 2002:**

ACUTA, Inc.: The Association for Telecommunications Professionals in
Higher Education (ACUTA)

Association of Communications Enterprises (ASCENT)

AT&T Corp. (AT&T)

Beacon Telecommunications Advisors, LLC (Beacon)

BellSouth Corporation (BellSouth)

Cincinnati Bell Telephone Company (Cincinnati Bell)

Joseph Friedman

Hot Springs Telephone Company

National Association of State Utility Consumer Advocates (NASUCA)

National Exchange Carrier Association, Inc. and the Organization for the
Promotion and Advancement of Small Telecommunications Companies
(NECA/OPASTCO)

National Telecommunications Cooperative Association (NTCA)

SBC Communications, Inc. (SBC)

Sprint Corporation (Sprint)

Office of the Attorney General of the State of Texas (Texas AG)

Verizon

WorldCom

**Reply Comments Filed by July 1, 2002:**

AT&T

BellSouth

Vicera Communications, Inc. d/b/a Genesis Communications International
(Genesis)

NASUCA

SBC

Sprint

Verizon

WorldCom/CompTel

**Supplemental Comments Filed by June 15, 2004:**

ACUTA

AT&T

BellSouth

Cincinnati Bell

MCI

NASUCA

National Exchange Carrier Association *et al.* (NECA)

New Jersey Division of the Ratepayer Advocate

SBC

Sprint

Verizon

**Supplemental Reply Comments Filed by June 25, 2004:**

AT&T

BellSouth

MCI

NASUCA

NECA

SBC

Verizon

**Appendix B**

**Final Regulatory Flexibility Analysis**

As required by the Regulatory Flexibility Act of 1980, as amended
(RFA),[^73] an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the *Notice* and the *Further Notice*.[^74] The
Commission sought written public comment on the proposals in the
*Notice* and *Further Notice*, including comment on the IRFA. This
present Final Regulatory Flexibility Analysis (FRFA) conforms to the
RFA.[^75]

**Need for, and Objectives of, the Report and Order**

Presubscribed interexchange carrier (PIC) change charges are federally
tariffed charges imposed by local exchange carriers (LECs) on end user
subscribers when these subscribers change their presubscribed
interexchange carriers (IXCs). The Commission in 1984 established a safe
harbor of \$5 for PIC change charges of incumbent LECs, allowing
carriers to set rates at or below the \$5 safe harbor without the need
for filing detailed cost support for the rates. Significant industry and
market changes have occurred since the implementation of the \$5 safe
harbor in 1984; therefore, the Commission initiated this proceeding to
reexamine the existing safe harbor for incumbent LEC PIC change charges.
As discussed in paragraphs 6-18 of the report and order, incumbent LECs
are required to adopt separate PIC change charges for changes that are
processed electronically and manually. We adopt a safe harbor of \$1.25
for electronically processed PIC changes, and a safe harbor of \$5.50
for manually processed PIC changes. Also as discussed in paragraph 21,
incumbent LECs must include in their federal tariffs a rate equal to 50
percent of the full PIC change charge rate when a customer requests a
PIC change in conjunction with a change in its intraLATA presubscribed
interexchange carrier (LPIC).

**Summary of Significant Issues Raised by Public Comments in Response to
the IRFA**

There were no comments filed that specifically addressed the rules and
policies proposed in the IRFA.

**Description and Estimate of the Number of Small Entities to Which the
Proposed Rules will Apply**

The RFA directs agencies to provide a description of, and, where
feasible, an estimate of the number of small entities that may be
affected by rules adopted herein.[^76] The RFA generally defines the
term "small entity" as having the same meaning as the terms "small
business," "small organization," and "small governmental
jurisdiction."[^77] In addition, the term "small business" has the same
meaning as the term "small business concern" under the Small Business
Act.[^78] A "small business concern" is one that: 1) is independently
owned and operated; 2) is not dominant in its field of operation; and 3)
satisfies any additional criteria established by the Small Business
Administration (SBA).[^79]

We have included small incumbent LECs in this present RFA analysis. As
noted above, a "small business" under the RFA is one that, *inter alia*,
meets the pertinent small business size standard (e.g., a telephone
communications business having 1,500 or fewer employees), and "is not
dominant in its field of operation."[^80] The SBA's Office of Advocacy
contends that, for RFA purposes, small incumbent LECs are not dominant
in their field of operation because any such dominance is not "national"
in scope.[^81] We have therefore included small incumbent LECs in this
RFA analysis, although we emphasize that this RFA action has no effect
on Commission analyses and determinations in other, non-RFA contexts.

*Wired Telecommunications Carriers*. The SBA has developed a small
business size standard for Wired Telecommunications Carriers, which
consists of all such companies having 1,500 or fewer employees.[^82]
According to Census Bureau data for 1997, there were 2,225 firms in this
category, total, that operated for the entire year.[^83] Of this total,
2,201 firms had employment of 999 or fewer employees, and an additional
24 firms had employment of 1,000 employees or more.[^84] Thus, under
this size standard, the majority of firms can be considered small.

*Incumbent Local Exchange Carriers*. Neither the Commission nor the SBA
has developed a size standard for small businesses specifically
applicable to incumbent local exchange carriers. The closest applicable
size standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such a business is small if it has 1,500 or
fewer employees.[^85] According to Commission data, 1,310 carriers
reported that they were incumbent local exchange service providers.[^86]
Of these 1,310 carriers, an estimated 1,025 have 1,500 or fewer
employees and 285 have more than 1,500 employees.[^87] Consequently, the
Commission estimates that most incumbent local exchange carriers are
small entities that may be affected by the rules and policies adopted
herein.

**Description of Projected Reporting, Recordkeeping and Other Compliance
Requirements for Small Entities**

All incumbent LECs, including those that are small entities, are now
required to make revisions to their federal tariffs to implement our
revised PIC change charge policies. To the extent their federal tariffs
do not already reflect this, all incumbent LECs must file rates equal to
50 percent of the full PIC change charge rate when an end user customer
requests a PIC change in conjunction with an LPIC change. Also, all
incumbent LEC that are able to process PIC changes electronically must
file separate rates for PIC changes that are processed manually and
electronically. If the rates are within the safe harbor rates of \$5.50
for manually processed changes and \$1.25 for electronically processed
changes, no cost support is required. For rates in excess of the safe
harbor rates, incumbent LECs must file detailed cost information
justifying the higher rates.

**Steps Taken to Minimize Significant Economic Impact on Small Entities,
and Significant Alternatives Considered**

The RFA requires an agency to describe any significant alternatives that
it has considered in developing its approach, which may include the
following four alternatives (among others): "1) the establishment of
differing compliance or reporting requirements or timetables that take
into account the resources available to small entities; 2) the
clarification, consolidation, or simplification of compliance or
reporting requirements under the rule for small entities; 3) the use of
performance rather than design standards; and 4) an exemption from
coverage of the rule, or any part thereof, for small entities."[^88]

Some commenters in this proceeding argue that incumbent LECs should be
required to base their PIC change charges on their individual costs. As
discussed in paragraph 6 of the report and order, we reject this
approach as unduly burdensome on incumbent LECs, including any that may
be small entities. Instead, adopting safe harbors for PIC change charges
allows incumbent LECs to file rates without the burden of filing
detailed cost support. Incumbent LECs still have the option of filing
cost support if their PIC change costs exceed the safe harbor rates. As
discussed in paragraphs 9-10 of the report and order, we decline to
adopt a separate safe harbor rate for small and rural incumbent LECs. We
note that prior to our decision in this order small and rural carriers
have been subject to the same \$5.00 safe harbor applicable to all other
carriers. No small or rural carrier has submitted cost information
seeking to increase this \$5.00 charge. As has been the case since 1984,
all carriers remain free to submit cost studies to justify a higher rate
to the extent these companies' costs exceed the safe harbors. As
discussed in paragraph 10, we do not require any small or rural carrier
to implement electronic PIC change processing systems if doing so would
not be economically rational.

**Report to Congress**

The Commission will send a copy of this Report and Order, including this
FRFA, in a report to be sent to Congress pursuant to the Congressional
Review Act.[^89] In addition, the Commission will send a copy of the
Report and Order, including the FRFA, to the Chief Counsel for Advocacy
of the SBA. A copy of the Report and Order and FRFA (or summaries
thereof) will also be published in the Federal Register.[^90]

**STATEMENT OF**

**CHAIRMAN MICHAEL K. POWELL**

> *RE: In the Matter of Rules and Regulations Implementing Minimum
> Customer Account Record Exchange Obligation on All Local and
> Interexchange Carriers*, CG Docket No. 02-386.
>
> *RE: Rules and Regulations Implementing the Telephone Consumer
> Protection Act of 1991*, CG Docket No. 02-278.
>
> *RE: Presubscribed Interexchange Carrier Charges*, CC Docket No.
> 02-53.

The three items the Commission adopts today continue our efforts to
place consumers at the forefront of the Commission's agenda.
Specifically, we take action to strengthen the Commission's
telemarketing rules, which were amended in 2003. This continues the work
begun in 2003 with the establishment of a national do-not-call registry
and other consumer protection measures concerning telemarketing calls.
The do-not-call registry now contains over 80 million telephone numbers
and continues to serve as an option to protect consumers from unwanted
telemarketing calls.

Moreover, the rules we adopt today help to ensure that consumers' phone
service

bills are accurate and that their carrier selection requests are honored
and executed without undue delay. Facilitating the exchange of customer
account information in certain situations will assist all carriers in
resolving billing issues and moving customers seamlessly from one
carrier to another. I am pleased that the Commission has endorsed a
proposal that has garnered the support of a broad cross-section of the
industry. These standards will create greater industry uniformity
without imposing unnecessary burdens on carriers.

Finally, we revise the Commission's policies governing charges
associated with a consumer's choice to change long distance providers.
The current \$5 safe harbor rate was implemented in 1984, and industry
and market conditions have changed dramatically since that time.
Moreover, the record in this proceeding clearly demonstrates a large
disparity between the costs of PIC change charges that are processed
electronically versus those that are processed manually. As a result,
based on cost data filed in the record, we set a separate safe harbor
rate for electronically and manually processed PIC changes \-- \$ 1.25
and \$5.50, respectively. Carriers that have invested in the technology
to process and submit PIC changes electronically should be rewarded by
offering potential customers a lower PIC change rate reflecting the
lower costs of electronic processing. Adopting a two-tiered approach
provides an incentive for providers offering long distance service to
invest in electronic processing capabilities to gain the competitive
advantage of lower PIC change charges for customers switching to these
services.

I am pleased to support these three interrelated items. They represent
the Commissions commitment to protecting individuals throughout the
life-cycle of consumer choice -- from the decision to change providers,
to the costs associated with that choice, to a decision to prevent
unwanted telemarketing calls.

**STATEMENT OF**

**COMMISSIONER MICHAEL J. COPPS,**

**APPROVING IN PART, DISSENTING IN PART**

Re: *Presubscribed Interexchange Carrier Charges*, Report and Order (CC
Docket

No. 02-53)

The Commission's \$5 safe harbor for PIC change charges has been on our
books for two decades. The \$5 charge is a relic from the early days of
divestiture. So I welcome the opportunity this proceeding affords to
bring the PIC change charge into the modern era of telecommunications.
This is especially important because these charges can end up on
consumer bills whenever end users switch long distance providers.

But I think today's decision may miss the mark. While the Order lowers
the mechanized threshold to \$1.25, it raises the manual threshold to
\$5.50. To figure out if this is good or bad for consumers, it is
important to determine how many changes are processed mechanically and
how many are processed manually. Yet we don't analyze this thoroughly in
today's decision. There is record evidence seeming to show that while as
few as 21% of PIC changes are mechanized, as many as 79% are
manual.[^91] This means that while the benefit of a lower PIC change
charge is enjoyed by a few, the burden of a higher charge could be
imposed on the many. And no amount of discussion about net benefits or
changed incentives can mask the fact that this Order could subject the
majority of end-users to increased charges. As a result, I support
today's item and our effort to reduce charges for mechanized changes,
but respectfully dissent from its conclusions with respect to manual
charges.

**CONCURRING STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN**

*Re: Presubscribed Interexchange Carrier Charges, CC Docket 02-53.*

With this Order, the Commission revisits the charge that consumers must
pay to switch their long distance provider. The current charge was
established over twenty years ago, so consumer groups and long distance
carriers who bear these charges have fairly asked us to find out whether
the costs incurred still justify the current rate. When we refreshed the
record in this proceeding last spring, my goal was to pass on the
savings of twenty years of technological innovation to consumers.
Despite some reservations, I am hopeful that this Order will accomplish
that goal.

Unlike our former rules which applied one safe harbor rate, this Order
establishes two rates for changes to a consumer's long distance carrier
(also known as the presubscribed interexchange carrier or "PIC"): one
rate for electronic transactions, and another for manual transactions.
That first rate, for electronic transactions, is reduced in this Order
-- as you might expect from twenty years of technological innovation.
Unfortunately, the other rate, for manual changes, goes up. The theory
of this approach is that consumers and long distance carriers will have
incentives to choose the lower cost option.

I do have some concern that the bulk of consumers, today, use the more
expensive manual process -- and that the rates may go up for these
consumers in the short run. Without perfect information about how this
new incentive-based system will work, it is imperative that the
Commission test its theory that rates will eventually go down for all
consumers by re-evaluating these new rules in a reasonable period of
time. We can't wait another 20 years to look at this again.

For these reasons, I concur in this item.

[^1]: *Annual 1985 Access Tariff Filings*, CC Docket No. 86-125,
    Memorandum Opinion and Order, 2 FCC Rcd 1416, 1445-46, paras. 272-74
    (1987) (*1987 Access Tariff Order*). A carrier may establish that a
    higher PIC change charge is warranted by providing the Commission
    with appropriate cost support data. *Id.*

[^2]: *Presubscribed Interexchange Carrier Charges*, CC Docket No.
    02-53, CCB/CPD File No. 01-12, RM-10131, Order and Notice of
    Proposed Rulemaking, 17 FCC Rcd 5568 (2002) (*Notice*).

[^3]: Competitive LECs also may impose PIC change charges on their end
    user customers. The PIC change charge requirements we adopt in this
    Report and Order apply only to incumbent LECs. At the current time
    we rely on market forces to constrain competitive LEC PIC change
    charges. Should market forces fail to constrain competitive LEC PIC
    change charge rates in the future, we might at that time consider
    applying our PIC change charge requirements to competitive LECs as
    well as to incumbent LECs. *See, e.g., Access Charge Reform, Reform
    of Access Charges Imposed by Competitive Local Exchange Carriers*,
    CC Docket No. 96-262, Seventh Report and Order and Further Notice of
    Proposed Rulemaking, 16 FCC Rcd 9923, 9936, para. 34 (2001) (the
    Commission found it necessary to regulate competitive LEC access
    rates when the market failed to constrain these rates).

[^4]: Carriers that have filed cost information demonstrating costs
    below these safe harbors must adjust their PIC change charges based
    on their actual costs and cannot avail themselves of the safe
    harbors.

[^5]: *Investigation of Access and Divestiture Related Tariffs*, CC
    Docket No. 83-1145, Phase I, Memorandum Opinion and Order, 55 Rad.
    Reg. 2d (P&F) 1422, App. B at 13-5 (Apr. 27, 1984) (*1984 Access
    Tariff Order*); *1987 Access Tariff Order*, 2 FCC Rcd at 1446, para.
    274.

[^6]: *1984 Access Tariff Order*, App. B at 13-5.

[^7]: *1987 Access Tariff Order*, 2 FCC Rcd at 1446, para. 274.

[^8]: Petition for Rulemaking Regarding Presubscribed Interexchange
    Carrier Charges, Competitive Telecommunications Association Petition
    for Rulemaking, CCB/CPD File No. 01-12, RM-10131 (filed May 16,
    2001).

[^9]: *MCI Telecommunications Corp. v. U S WEST Communications, Inc.*,
    File Nos. E-97-08, E-97-20 through 24, Memorandum Opinion and Order,
    15 FCC Rcd 9328 (2000) (*MCI Order*).

[^10]: *See MCI Order*, 15 FCC Rcd at 9329, para. 2.

[^11]: *Notice*, 17 FCC Rcd 5568.

[^12]: *Comments Sought on the Commission's Policies for Regulating
    Presubscribed Interexchange Carrier Charges*, CC Docket No. 02-53,
    Public Notice, 17 FCC Rcd 8846 (Pric. Pol. Div. 2002). A list of
    commenting parties is included at Appendix A.

[^13]: *Presubscribed Interexchange Carrier Charges*, CC Docket No.
    02-53, Further Notice of Proposed Rulemaking, 19 FCC Rcd 7445 (2004)
    (*Further Notice*).

[^14]: *Further Comments Sought on the Commission's Policies for
    Regulating Presubscribed Interexchange Carrier Charges*, CC Docket
    No. 02-53, Public Notice, DA 04-1586 (Pric. Pol. Div., May 28,
    2004). A list of parties filing supplemental comments is included at
    Appendix A.

[^15]: Verizon Supplemental Comments at Att. B.

[^16]: Letter from Davida Grant, Senior Counsel, SBC Telecommunications,
    Inc., to Marlene H. Dortch, Secretary, Federal Communications
    Commission, CC Docket No. 02-53 (Nov. 4, 2004) (SBC November 4 *Ex
    Parte* Letter).

[^17]: *Notice*, 17 FCC Rcd at 5575, para. 14.

[^18]: ASCENT Comments at 16; AT&T Comments at 2-3 n.5; NASUCA Comments
    at 6; WorldCom Comments at 2; Genesis Reply at 5.

[^19]: AT&T Comments at 2-3 n.5; WorldCom Comments at 2-3.

[^20]: *See* *Review of Regulatory Requirements for Incumbent LEC
    Broadband Telecommunications Services*, CC Docket No. 01-337, Notice
    of Proposed Rulemaking, 16 FCC Rcd 22745, 22747-48, para. 5 (2001).
    For a discussion of how the Commission distinguishes between
    dominant and non-dominant carriers, *see Policy and Rules Concerning
    Rates for Competitive Common Carrier Services and Facilities
    Authorizations Therefor*, CC Docket No. 79-252, Notice of Inquiry
    and Proposed Rulemaking, 77 FCC 2d 308 (1979) (*Competitive Carrier*
    *Notice*); First Report and Order, 85 FCC 2d 1 (1980) (*Competitive
    Carrier First Report and Order*); Further Notice of Proposed
    Rulemaking, 84 FCC 2d 445 (1981); Second Further Notice of Proposed
    Rulemaking, 47 Fed. Reg. 17308 (1982); Second Report and Order, 91
    FCC 2d 59 (1982), *recon. denied*, 93 FCC 2d 54 (1983); Third
    Further Notice of Proposed Rulemaking, 48 Fed. Reg. 28,292 (Comm.
    Carr. Bur. 1983); Third Report and Order, 48 Fed. Reg. 46,791 (Comm.
    Carr. Bur. 1983); Fourth Report and Order, 95 FCC 2d 554 (1983)
    (*Competitive Carrier Fourth Report and Order*), *vacated, AT&T v.
    FCC*, 978 F.2d 727 (D.C. Cir. 1992), *cert. denied, MCI
    Telecommunications Corp. v. AT&T*, 509 U.S. 913 (1993); Fourth
    Further Notice of Proposed Rulemaking, 96 FCC 2d 922 (1984); Fifth
    Report and Order, 98 FCC 2d 1191 (1984); Sixth Report and Order, 99
    FCC 2d 1020 (1985), *vacated, MCI Telecommunications Corp. v. FCC*,
    765 F.2d 1186 (D.C. Cir. 1985) (collectively referred to as the
    *Competitive Carrier* proceeding).

[^21]: *Local Telephone Competition: Status as of December 31, 2003*,
    Federal Communications Commission, Wireline Competition Bureau,
    Industry Analysis Division, Table 1 (June 2004) (*June 2004 Local
    Competition Report*).

[^22]: *June 2004 Local Competition Report* at Table 14. Even in zip
    codes where competitive LECs are present, these competitive LECs may
    not offer service to customers in all areas covered by the zip
    codes, and may not offer service to all types of customers (i.e., to
    both residential and business customers).

[^23]: AT&T Comments at 7-10; Genesis Reply at 1; AT&T Supplemental
    Comments at 2-3; AT&T Supplemental Reply at 4-5.

[^24]: ACUTA Comments at 3; ASCENT Comments at 1; Texas AG Comments at
    1-2; Genesis Reply at 5; NASUCA Reply at 2; NASUCA Supplemental
    Comments at 2-5.

[^25]: Beacon Comments at 1-3; NTCA Comments at 2-3; SBC Comments at 11;
    Sprint Comments at 2; Verizon Comments at 2; NECA Supplemental
    Comments at 3-4.

[^26]: *Further Notice*, 19 FCC Rcd at 7446-47, paras. 3-4.

[^27]: *See* Letter from Jennette C. Fields, Tariff Administrator,
    BellSouth Telecommunications, Inc., to Secretary, Federal
    Communications Commission, F.C.C. Tariff No. 1 Transmittal No. 746,
    Description and Justification at 2-4, (filed Oct. 14, 2003)
    (BellSouth Transmittal No. 746); Letter from Jennette C. Fields,
    Tariff Administrator, BellSouth Telecommunications, Inc., to
    Secretary, Federal Communications Commission, F.C.C. Tariff No. 1
    Transmittal No. 756, Att. A at 2, Row 23 Column F and Row 36 Column
    F (filed Nov. 4, 2003) (BellSouth Transmittal No. 756) (showing
    total weighted costs of \$2.45 for a manually processed PIC change
    and \$0.48 for an electronically processed PIC change); AT&T
    Supplemental Comments at 6-7; Verizon Supplemental Comments at Att.
    B, Ex. Verizon East PIC Cost Workpapers 1.2 and 1.3 Row 38 (loaded
    manual PIC change cost is \$6.25 and electronic is \$2.06 for
    Verizon East), Ex. Verizon West PIC Cost Workpapers 1.2 and 1.3 Row
    29 (loaded manual PIC change cost is \$6.28 and electronic is \$1.86
    for Verizon West).

[^28]: ACUTA Supplemental Comments at 2; Cincinnati Bell Supplemental
    Comments at 3; Sprint Supplemental Comments at 3; Verizon
    Supplemental Comments at 4.

[^29]: ACUTA Supplemental Comments at 2.

[^30]: Cincinnati Bell Comments at 5; NECA/OPASTCO Comments at 4.

[^31]: HSTC Comments at 1, Att. A (HSTC claims that its average cost for
    a PIC change is \$23.65, with all changes done manually); NTCA
    Comments at 3-4; Sprint Comments at 14; Cincinnati Bell Supplemental
    Comments at 5.

[^32]: HSTC Comments at Att. A.

[^33]: ASCENT Comments at 1, 8; NASUCA Comments at 8-9; Texas AG
    Comments at 2; WorldCom Comments at 4-7; Genesis Reply at 1.

[^34]: BellSouth Comments at 6 n.2; SBC Comments at 6-8; Sprint Comments
    at 6-8, 9-10; Verizon Comments at 4-8.

[^35]: When a customer requests a PIC freeze from a LEC, the LEC blocks
    the customer's account from mechanized PIC changes submitted by
    IXCs. The PIC freeze customer must notify the LEC that it wishes to
    lift the PIC freeze before the LEC will process a PIC change for the
    customer's account.

[^36]: In the TPV process, the LEC connects the end user customer to an
    independent company to confirm the customer's request for a service
    change.

[^37]: BellSouth Comments at 6 n.2; NTCA Comments at 2-3; SBC Comments
    at 6-8; Sprint Comments at 6-8, 9-10; Verizon Comments at 4-8.

[^38]: WorldCom Comments at 5.

[^39]: *Implementation of the Subscriber Carrier Selection Changes
    Provisions of the Telecommunications Act of 1996; Policies and Rules
    Concerning Unauthorized Changes of Consumers' Long Distance
    Carriers*, CC Docket No. 94-129, Order, 18 FCC Rcd 10997, 10999,
    para. 5 (2003); *Implementation of the Subscriber Carrier Selection
    Changes Provisions of the Telecommunications Act of 1996; Policies
    and Rules Concerning Unauthorized Changes of Consumers' Long
    Distance Carriers*, CC Docket No. 94-129, Fifth Order on
    Reconsideration, FCC 04-214, paras. 9-14 (rel. Nov. 24, 2004).
    Section 64.1190 of the Commission's rules sets out several options
    that LECs may use to verify the implementation and lifting of PIC
    freezes. 47 C.F.R. § 11.6900. TPV is listed as one of several
    options LECs may use to verify the implementation of PIC freezes,
    but TPV is not even listed as a method for verifying the lifting of
    a freeze. 47 C.F.R. § 64.1190 (d)(2)(iii) and (e).

[^40]: Verizon Supplemental Comments at Att. B, Exhibits Verizon East
    PIC Freeze Cost Workpaper 1.1, Verizon West PIC Freeze Cost
    Workpaper 1, Verizon East PIC Cost Workpaper 1.2, Verizon West PIC
    Cost Workpaper 1.2. Verizon's TPV costs are found in its cost study
    at rows 1, 5 and 6 of Exhibit Verizon East PIC Freeze Cost Workpaper
    1.1 and Exhibit Verizon West PIC Freeze Cost Workpaper 1.

[^41]: ASCENT Comments at 8-13; NASUCA Comments at 8-9; WorldCom
    Comments at 5-6; AT&T Reply at 7; Genesis Reply at 8-10;
    WorldCom/CompTel Reply at 7-9.

[^42]: ASCENT Comments at 8-13; NASUCA Comments at 8-9; WorldCom
    Comments at 5-6; AT&T Reply at 7; Genesis Reply at 8-10;
    WorldCom/CompTel Reply at 7-9.

[^43]: 47 C.F.R. § 54.1150 (a) and (b).

[^44]: According to Verizon's cost study, Verizon East's PIC costs,
    excluding PIC freeze costs, are \$4.75. Of this total cost, \$0.06,
    or approximately one percent of the total, are slamming costs.
    Verizon Supplemental Comments at Att. B, Exhibit Verizon East PIC
    Cost Workpaper 1.1 Rows 35 and 37. Verizon's cost study shows that
    Verizon West's PIC costs, excluding PIC freeze costs, are \$3.93. Of
    this total cost, \$0.14, or approximately four percent of the total,
    are slamming costs. Verizon Supplemental Comments at Att. B, Exhibit
    Verizon West PIC Cost Workpaper 1.1 Rows 26 and 28. Verizon's cost
    study shows that there were approximately 52 percent as many PIC
    changes in Verizon West as in Verizon East. Verizon Supplemental
    Comments at Att. B, Exhibit Verizon East PIC Cost Workpaper 2 Row 3
    (8,196,979 total PIC changes in Verizon East) and Exhibit Verizon
    West PIC Cost Workpaper 2.1 Row 5 (4,268,280 total PIC changes in
    Verizon West). Using a weighted average, Verizon's total PIC costs,
    excluding PIC freeze costs, are approximately \$4.46. Of this total,
    approximately \$0.09, or two percent of the total, are slamming
    costs.

[^45]: SBC Comments at 6; Verizon Comments at 6.

[^46]: Genesis argues that inclusion of LEC common costs in the PIC
    change charge potentially could allow the incumbent LEC to recover
    from its competitors "win-back" marketing costs and costs from legal
    actions brought by its competitors. Genesis Reply at 8. The PIC
    change charge is not assessed on IXCs, but on the LECs' end user
    customers. IXCs are not required to reimburse this charge for
    customers that switch to their service. Any payment by an IXC of the
    PIC change charge is voluntary.

    To the extent incumbent LECs seek to tariff PIC change charges
    greater than the safe harbor rates, they will be required to include
    in their cost support the percentage of common costs allocated to
    the PIC change charge. The Commission will then be able to examine
    the reasonableness of these allocations on a case-by-case basis.
    *See, e.g., Long-Term Number Portability Tariff Filings, Ameritech
    Operating Companies et. al,* CC Docket No. 99-158, Memorandum
    Opinion and Order, 14 FCC Rcd 11883, 11923-24, 11926-28, paras. 89,
    95-100 (1999) (examining incumbent LECs' allocations of common costs
    in a tariff investigation proceeding).

[^47]: *See* BellSouth Transmittal No. 746; Letter from Jennette C.
    Fields, Tariff Administrator, BellSouth Telecommunications, Inc., to
    Secretary, Federal Communications Commission, F.C.C. Tariff No. 1
    Application No. 140 (filed Nov. 3, 2003) (BellSouth Application No.
    140); BellSouth Transmittal No. 756.

[^48]: Verizon Supplemental Comments at Att. B.

[^49]: SBC November 4 *Ex Parte* Letter.

[^50]: In an *ex parte* letter discussing its cost filing, SBC provides
    rate summaries showing costs for 100 percent manual and 100 percent
    mechanized PIC changes, but SBC does not provide any detail as to
    how it arrived at the costs for the mechanized PIC changes. Letter
    from Toni Acton, Associate Director, SBC Telecommunications, Inc.,
    to Marlene Dortch, Secretary, Federal Communications Commission, CC
    Docket No. 02-53, Att. (filed November 17, 2004) (SBC November 17
    *Ex Parte* Letter).

[^51]: The \$1.25 electronic safe harbor rate is based on the weighted
    average of Verizon East's electronic PIC change costs, minus PIC
    freeze costs (\$1.34), and Verizon West's electronic PIC change
    costs, minus PIC freeze costs (\$0.95). Verizon Supplemental
    Comments at Att. B, Exhibit Verizon East PIC Cost Workpaper 1.3 Rows
    36, 38, and Verizon West PIC Cost Workpaper 1.3 Rows 27, 29. As
    discussed above, Verizon's cost study shows that there were
    approximately 52 percent as many PIC changes in Verizon West as in
    Verizon East. *See* note Error: Reference source not found, *supra*.
    The weighted cost of Verizon's electronic PIC changes is
    approximately \$1.21, and we rounded this to \$1.25 to arrive at the
    electronic safe harbor rate.

[^52]: The \$5.50 manual safe harbor rate is based on the weighted
    average of Verizon East's manual PIC change costs, minus PIC freeze
    costs (\$5.53) and Verizon West's manual PIC change costs, minus PIC
    freeze costs (\$5.37). Verizon Supplemental Comments at Att. B,
    Exhibit Verizon East PIC Cost Workpaper 1.2 Rows 36, 38, and Verizon
    West PIC Cost Workpaper 1.2 Rows 27, 29. As discussed above,
    Verizon's cost study shows that there were approximately 52 percent
    as many PIC changes in Verizon West as in Verizon East. *See* note
    Error: Reference source not found, *supra*. The weighted cost of
    Verizon's manual PIC changes is approximately \$5.48, and we rounded
    this to \$5.50 to arrive at the manual safe harbor rate.

[^53]: Verizon Supplemental Comments at Att. B, Exhibit Verizon East PIC
    Cost Workpaper 1.3 Row 2.

[^54]: The exception to this application of the electronic PIC change
    charge would be if the end user customer has implemented a PIC
    freeze on the account. In that case, the costs of the manual
    processing of the PIC change are not reflected in the electronic
    rate, and PIC freeze customers will be assessed the manual PIC
    change charge. The manual PIC change charge would be in addition to
    any PIC freeze implementation or removal costs that the LECs choose
    to recover from the end user for providing the service.

[^55]: BellSouth Comments at 3-4.

[^56]: AT&T Reply at 6-7; SBC Reply at 6; Sprint Reply at 5-7;
    WorldCom/CompTel Reply at 9-10.

[^57]: Sprint Reply at 5-7.

[^58]: Verizon Supplemental Comments at 9-10.

[^59]: Verizon Supplemental Comments at 10.

[^60]: Verizon Supplemental Comments at 10.

[^61]: *See* Letter from Eugene J. Baldrate, Director-Federal
    Regulatory, Southern New England Telephone, to Secretary, Federal
    Communications Commission, Tariff F.C.C. No. 39 Transmittal No. 663,
    (filed Jan. 19, 1996) (SNET Transmittal No. 663) (setting a PIC
    change charge rate of \$2.60), BellSouth Transmittal No. 746,
    BellSouth Application No. 140, BellSouth Transmittal No. 756
    (setting a PIC change charge rate of \$3.07).

[^62]: *Further Notice*, 19 FCC Rcd at 7447, para. 5.

[^63]: Cincinnati Bell Supplemental Comments at 2; Sprint Supplemental
    Comments at 3.

[^64]: ACUTA Supplemental Comments at 3.

[^65]: Beacon Comments at 3; MCI Supplemental Comments at 9; Verizon
    Supplemental Comments at 4 n. 2.

[^66]: NASUCA Comments at 7; WorldCom Comments at 6-7; NASUCA Reply at
    11-12; NJ Ratepayer Advocate Supplemental Comments at 2.

[^67]: Sprint Comments at 13; SBC Supplemental Reply at 4.

[^68]: Sprint Comments at 13.

[^69]: SBC Supplemental Reply at 4.

[^70]: 44 U.S.C. § 3506(c)(4).

[^71]: 5 U.S.C. § 801(a)(1)(A).

[^72]: 5 U.S.C. § 604.

[^73]: 5 U.S.C. § 603.

[^74]: *Presubscribed Interexchange Carrier Charges*, CC Docket No.
    02-53, CCB/CPD File No. 01-12, RM-10131, Order and Notice of
    Proposed Rulemaking, 17 FCC Rcd 5568, 5578-82, paras. 22-34 (2002)
    (*Notice*); *Presubscribed Interexchange Carrier Charges*, CC Docket
    No. 02-53, Further Notice of Proposed Rulemaking, 19 FCC Rcd 7445,
    7449-7453, paras. 13-24 (2004) (*Further Notice*).

[^75]: 5 U.S.C. § 604.

[^76]: 5 U.S.C. § 604(a)(3).

[^77]: 5 U.S.C. § 601(6).

[^78]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a
    small business applies "unless an agency, after consultation with
    the Office of Advocacy of the Small Business Administration and
    after opportunity for public comment, establishes one or more
    definitions of such term which are appropriate to the activities of
    the agency and publishes such definition(s) in the Federal
    Register."

[^79]: 15 U.S.C. § 632.

[^80]: 15 U.S.C. § 632.

[^81]: Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to
    William E. Kennard, Chairman, FCC (May 27, 1999). The Small Business
    Act contains a definition of "small business concern," which the RFA
    incorporates into its own definition of "small business." *See* 15
    U.S.C. § 632(a); 5 U.S.C. § 601(3). SBA regulations interpret "small
    business concern" to include the concept of dominance on a national
    basis. 13 C.F.R. § 121.102(b).

[^82]: 13 C.F.R. § 121.201, NAICS code 517110.

[^83]: U.S. Census Bureau, 1997 Economic Census, Subject Series:
    Information, "Establishment and Firm Size (Including Legal Form of
    Organization)," Table 5, NAICS code 513310 (issued October 2000)
    (NAICS code 513310 was changed to 517110 in October 2002).

[^84]: *Id.* The census data do not provide a more precise estimate of
    the number of firms that have employment of 1,500 or fewer
    employees; the largest category provided is "Firms with 1,000
    employees or more."

[^85]: 13 C.F.R. § 121.201, NAICS code 517110.

[^86]: *Trends in Telephone Service*, Federal Communications Commission,
    Wireline Competition Bureau, Industry Analysis and Technology
    Division, Table 5.3 (May 2004) (*Trends in Telephone Service*).

[^87]: *Trends in Telephone Service*, Table 5.3.

[^88]: 5 U.S.C. § 603(c)(1)-(c)(4).

[^89]: 5 U.S.C. § 801(a)(1)(A).

[^90]: 5 U.S.C. § 604(b).

[^91]: *See* Letter from Mary L. Henze, Assistant Vice President,
    BellSouth D.C., Inc., Attachment at 3 (filed February 1, 2005); *see
    also* Letter from Richard T. Ellis, Executive Director, Verizon
    (filed February 8, 2005); Letter from Toni Acton, Associate
    Director, SBC Services Inc., Attachment (filed February 7, 2005).