**FCC 07-12**

**Released: February 20, 2007**

**FCC CONDITIONALLY GRANTS QWEST FORBEARANCE RELIEF FROM DOMINANT
CARRIER REGULATION OF IN-REGION, INTERSTATE, INTERLATA
TELECOMMUNICATIONS SERVICES PROVIDED ON AN INTEGRATED BASIS**

**WC Docket No. 05-333**

The Federal Communications Commission (Commission) today conditionally
granted in part and denied in part a petition for forbearance filed by
Qwest Communications International, Inc. (Qwest) seeking relief from
statutory and regulatory obligations that apply to Qwest's provision, on
an integrated basis,[^1] of in-region, interstate, interLATA
telecommunications services. This Public Notice summarizes the terms of
the Commission's Order, which will be released subsequently.[^2]

In order to avoid dominant carrier regulation of its in-region,
interstate, interLATA services, Qwest currently must provide these
services through separate affiliates that meet the requirements of
section 272 of the Communications Act and the Commission's implementing
rules. The Commission's Order conditionally allows Qwest to provide
these services through its BOC or through other Qwest affiliates that do
not comply with section 272 or the Commission's rules implementing that
section, without those services becoming subject to dominant carrier
regulation.[^3]

The Commission's market analysis reveals that Qwest generally lacks
classical market power in providing in-region, interstate, interLATA
telecommunications services -- *i.e.*, Qwest lacks the ability
unilaterally to raise and maintain retail prices of in-region,
interstate, interLATA telecommunications services above competitive
levels. The Commission finds, however, that Qwest has failed to present
persuasive evidence that it no longer possesses exclusionary market
power -- *i.e.*, market power over bottleneck inputs within its region
-- and the Commission assumes, for purposes of this proceeding, that
Qwest continues to have the ability to raise rivals' costs by reason of
its control over local bottleneck access facilities. The Commission
concludes that existing safeguards, along with the conditions it imposes
in connection with its grant of forbearance, are adequate to prevent
Qwest from exercising this exclusionary market power. For these reasons,
and because it finds that the burden of compliance with dominant carrier
regulation outweighs the benefits, the Commission forbears from applying
dominant carrier regulation to Qwest's provision of in-region,
interstate, interLATA telecommunications services on an integrated
basis.

**[Specific Relief]{.underline}**

The Order conditionally grants Qwest certain forbearance relief and
otherwise denies Qwest's petition for forbearance.

1.  **Tariff Filings.** Qwest will not be required to, and is in fact
    barred from, filing tariffs for in-region, interstate, interLATA
    telecommunications services pursuant to the tariffing requirements
    for dominant carriers in sections 61.31-.38 of our rules, and from
    annual price cap filing requirements in section 61.43 of our rules.
    The Commission further forbears from section 203 of the Act to the
    limited extent necessary to relieve Qwest of its section 61.31-.38
    obligations with respect to in-region, interstate, interLATA
    services. The Commission does not forbear from the application of
    the other dominant carrier price cap, rate of return, and tariffing
    rules identified by Qwest (*i.e.*, rules 61.41, 61.45, 61.46-.49,
    61.58-.59, 65.1(b)(1), 65.1(b)(3), and 65.600) because the
    forbearance from sections 61.31-.38 of the rules obviates the need
    for Qwest to file tariffs for any in-region, interstate, interLATA
    telecommunications services it chooses to provide on an integrated
    basis, and because the Commission treats, and will continue to
    treat, the costs and revenues associated with Qwest's provision of
    in-region, interstate, interLATA telecommunications services as
    nonregulated for accounting purposes.[^4]

2.  **Interexchange Basket.** Qwest will not be required to establish an
    "interexchange basket" pursuant to section 61.42(d)(4) of the rules,
    to the extent that rule 61.42(d)(4) would require the establishment
    of an interexchange basket for the provision of in-region,
    interstate, interLATA telecommunications services it chooses to
    provide on an integrated basis. We otherwise do not forbear from the
    application of section 61.42(d)(4).

3.  **International Services.** The Commission forbears from applying
    the tariffing requirements for dominant international carriers in
    section 61.28 of the rules to Qwest to the extent that, and only to
    the extent that, Qwest would be treated as a dominant carrier under
    that section for no other reason than it is providing in-region,
    international telecommunications services on an integrated basis. To
    the extent that Qwest otherwise would be treated as a dominant
    carrier with regard to international services, the grant of
    forbearance has no effect.

4.  **Discontinuance and Streamlined Transfer of Control.** The
    Commission grants limited forbearance from certain rules pertaining
    to streamlined transfers of control and the definitions, rules, and
    procedures that apply to the discontinuance, reduction, outage, and
    impairment of services. Specifically, the Commission forbears from
    rules 63.03 and 63.60-.90, and to the requirements relating to
    international services in rules 63.19, 63.21, 63.23, to the extent
    that, and only to the extent that, Qwest would be treated as a
    dominant carrier under these rules for no reason other than it is
    providing in-region, interstate, interLATA and international
    services on an integrated basis. To the extent that Qwest otherwise
    would be treated as a dominant carrier under these rules, that
    treatment shall continue. Forbearance with respect to rule 63.03
    extends only to those circumstances in which Qwest seeks to assign
    or transfer control of assets used solely for the purpose of
    providing in-region, interstate, interLATA telecommunications
    services or to transfer control of an affiliate that does not
    jointly own any assets with another entity that uses such assets to
    provide services that are subject to dominant carrier regulation.
    The Commission also does not forbear from any discontinuance rules
    and transfer of control rules for nondominant carriers implementing
    sections 214(a), (c), and (d) of the Act.

5.  **Contract Filing and Reporting Forbearance.** The Commission
    forbears from applying the contract filing and reporting
    requirements of section 43.51 of the rules to Qwest to the extent
    that, and only to the extent that, Qwest would be treated as a
    dominant carrier for no other reason than Qwest is providing
    in-region, interstate, interLATA telecommunications services on an
    integrated basis. To the extent that Qwest otherwise would be
    treated as a dominant carrier under rule 43.51, that treatment shall
    continue. The Commission does not forbear from sections 43.21 and
    43.43 of the rules. These rules apply because Qwest is an incumbent
    LEC, not because it is classified as dominant in the provision of
    any service.

6.  **Section 272(e).** The Commission does not forbear from the
    requirements in section 272(e) of the Act, and notes that these
    requirements do not preclude Qwest from providing, subject to
    nondominant carrier regulation, in-region, interstate, interLATA
    telecommunications services on an integrated basis. We need not
    forbear from the other provisions of section 272 that have sunset.

7.  **Accounting.** The Commission treats, and will continue to treat,
    the costs and revenues associated with Qwest's provision of
    in-region, interstate, interLATA telecommunications services as
    nonregulated for accounting purposes, even if they are provided on
    an integrated basis.

**[Safeguards]{.underline}**

The Commission's grant of forbearance relief is subject to the following
conditions:

1.  **Special Access Performance Metrics.** Qwest must comply with its
    commitment to implement special access metrics similar to those
    imposed on AT&T and Verizon under the terms of the *SBC/AT&T* and
    *Verizon/MCI* merger orders.[^5] The metrics are designed to ensure
    that Qwest does not engage in non-price discrimination in its
    provision of special access service; specifically, they address
    order taking, provisioning, and maintenance and repair of Qwest's
    DS0, DS1, DS3, and OCn services. Qwest will provide the Commission
    with its performance measurement results on a quarterly basis, and
    will implement these metrics for the first full quarter following
    the effective date of the Order. This commitment shall terminate on
    the earlier of: (i) 30 months and 60 days after the beginning of the
    first full quarter following the effective date of the Order;
    or (ii) the effective date of a Commission order adopting
    performance metrics for interstate special access services.

2.  **Imputation.** The Commission directs that Qwest impute to itself
    its tariffed rates for access, including access provided over
    joint-use facilities, where it sells comparable access to
    unaffiliated interexchange carriers. Qwest also will modify its Cost
    Allocation Manual (CAM), filed pursuant to section 64.903 of the
    rules, to include its imputation methodology as necessary to ensure
    that its imputation methodology remains consistent with the
    requirements of section 272(e)(3) of the Act. The Commission
    requires Qwest to include the imputation charges it debits to
    account 32.5280 in its ARMIS filings, accompanied by an explanatory
    footnote for each line item identifying the amount imputed. The
    revised CAM will be subject to public comment.

3.  **Low Volume Usage Plans.** Qwest must comply with its commitment to
    continue offering, for at least two years after the effective date
    of the Order, two specified residential calling plans tailored to
    the needs of customers who make relatively few interstate long
    distance calls.[^6] Specifically, Qwest commits to freeze the
    per-minute charges on these plans; to offer one of these plans with
    no monthly fee; and not to raise by more than \$1.00 the monthly fee
    on the other of these plans.

4.  **Monthly Usage Information.** Qwest must comply with its commitment
    to continue to provide certain monthly usage information, for at
    least two years after the effective date of the Order, to all
    residential consumers of interstate, interexchange services,
    including those who take new and bundled offerings.[^7]
    Specifically, Qwest must provide these customers with the date of
    the call, the time of the call, the place called, the number called,
    the duration of the call, and amount, if any, charged for the call.

The Commission's Order is effective on February 20, 2007.

For further information, contact William Kehoe, (202) 418-7122,
william.kehoe@fcc.gov, or Heather Hendrickson, (202) 418-7295,
heather.hendrickson@fcc.gov of the Competition Policy Division, Wireline
Competition Bureau. Press inquiries should be directed to Mark Wigfield,
Wireline Competition Bureau, (202) 418-0253.

Action taken by the Commission on February 20, 2007: Chairman Martin and
Commissioner Tate, with Commissioners Copps and Adelstein concurring,
and Commissioner McDowell not participating.

-   **FCC --**

**JOINT STATEMENT OF**

**COMMISSIONER MICHAEL J. COPPS AND\
COMMISSIONER JONATHAN S. ADELSTEIN,**

**CONCURRING**

Re: *In the Matter of Petition of Qwest Communications International
Inc. for Forbearance from Enforcement of the Commission's Dominant
Carrier Rules as They Apply After Section 272 Sunset*, WC Docket No.
05-333

In this Order, the Commission conditionally grants forbearance to allow
Qwest to provide long distance services on an integrated basis and
subject to non-dominant carrier regulations. We support a conditional
grant of relief here because the Commission must take into account the
rapidly changing long distance market and the unique competitive
position of the petitioner, and because this outcome is clearly superior
to allowing this petition to be granted by Commission inaction without
the safeguards described below. This Commission repeatedly has
recognized that Section 272 provides for structural and accounting
safeguards that form the principal guarantees against improper
accounting practices and cross-subsidization. We concur because we
remain concerned that the Commission has not completed its industry-wide
review of these issues and does not have in place a comprehensive
mechanism for monitoring changes in the marketplace (*e.g.*, in the long
distance, wireless, and access markets) that would enable the Commission
to reliably make decisions in this area.[^8]

Nearly four years ago the Commission issued the *Section 272 Sunset
Further Notice*, which was the second notice seeking comment on changes
to the long distance market and the appropriate regulatory framework for
carriers like the petitioner. That proceeding -- much like this
forbearance petition -- addresses the important issue of what rules
should govern Bell Operating Companies' (BOCs) provision of long
distance services after the sunset of the Section 272 separate affiliate
and related requirements. While we recognize that Congress specifically
contemplated that Section 272's separate affiliate and related
requirements sunset after three years, we have repeatedly urged the
Commission to engage in a rigorous analysis of the need for alternative
safeguards on an industry-wide basis.[^9] Yet, rather than complete this
rulemaking, the Commission adopts through this Order a combination of
conditions -- some voluntarily offered, others not -- in order to
facilitate the grant of a forbearance petition, which would raise
serious questions if granted as filed.[^10]

Although we would have preferred the Commission complete its Section 272
sunset proceeding, we recognize the efforts undertaken here to conduct a
rigorous market analysis to provide a picture of petitioner's unique
circumstances and the competitive landscape in which it operates.
Indeed, there are notable changes to the long distance market in
petitioner's territory that the Commission must account for. For many,
though not all, consumers, the available options are being reshaped by
the rise of wireless, cable, and over-the-top VoIP services. We have
also seen an increasing trend toward the availability and desirability
of bundled services. We appreciate that this Order acknowledges these
developments and takes steps to adjust our regulatory framework
accordingly. In particular, we find persuasive the relative market
shares of the petitioner in the long distance, and, in particular, the
wireless market, which make potential unlawful discrimination less
likely and relief more compelling in this case.

At the same time, it is not clear that all customers have benefited as
dramatically from these changes, as many customers lack an effective
choice of providers due to price or availability. It is imperative that
the Commission remain vigilant about the continued evolution of this
market. The most notable change in the long distance market, of course,
is the entry of the BOCs such as the petitioner, which less than 5 years
ago did not even compete in the long distance market. It therefore is
important to remember that the market share levels analyzed in this
Order have developed from a zero-baseline over a relatively short period
of time. We have also seen increasing consolidation in this industry,
including the merger of the two largest independent long distance
companies into the two largest incumbent LECs. There have also been
recent suggestions that the pricing for bundled services is evolving in
a duopolistic manner, with higher prices for consumers.[^11] We have
repeatedly stated that competition must mean more for consumers than a
choice between two providers, a cable and telephone company, and such a
result would be an unfortunate back-sliding for long distance customers.

We appreciate that the Commission does adopt some notable and necessary
safeguards in this Order to address some of these concerns. We were
particularly pleased that the petitioner has committed to offering
certain calling plans targeted for residential consumers who make
relatively few long distance calls and to provide call detail
information to enable consumers to make informed decisions about the
most cost effective long distance plans. Regrettably, the needs of low
volume consumers are often overlooked, although they have a real need
for our vigilance.

This Order also makes some important findings with respect to the
potential for price and performance discrimination. Notably, the Order
acknowledges that incumbent providers like the petitioner retain the
ability to raise their rivals' costs, and the Order maintains dominant
carrier regulation for critical access services used by alternative long
distance providers. The Order correctly concludes that certain
requirements of Section 272 will continue to apply and adopts rules for
imputation and reporting that should help the Commission and competitors
evaluate whether the petitioner is engaging in price discrimination. In
addition, we are pleased that petitioner has committed to comply with
special access performance metrics to ensure that it does not engage in
non-price discrimination in its provision of special access services.

Although these conditions may not be tailored in exactly the manner we
would have crafted, their adoption is certainly preferable to the
granting of the forbearance petition as filed. It is imperative for the
Commission to monitor the effect of these safeguards, and we encourage
the Commission to diligently verify whether its predictions about their
sufficiency are accurate. In the meantime, we again encourage the
Commission to return to its consideration of the Section 272 sunset
rulemaking proceeding expeditiously and to evaluate the need for
rigorous and more lasting conditions than the voluntary, time-limited
conditions offered here.

[^1]: For the sake of convenience, we use the phrase "on an integrated
    basis" to refer to service provided through Qwest's Bell Operating
    Company (BOC) or through other Qwest affiliates that are not
    compliant with section 272 or the Commission's rules implementing
    that section. *See* 47 U.S.C. § 272.

[^2]: The Commission's Order, FCC 07-13, was adopted today and will be
    released on a later date.

[^3]: The relief we grant today does not apply to Qwest's interstate
    switched and special access services. In addition, we do not forbear
    from the requirements contained in section 272(e) of the Act.

[^4]: The Commission also does not forbear from the applications of
    sections 63.10 and 63.18 of its rules because the provisions in
    these rules that deal with dominant carriers apply only to carriers
    classified as dominant based on their affiliations with foreign
    carriers. The Commission therefore does not need to forbear from
    these rules for Qwest to operate as it proposes to operate.

[^5]: *See* Letter from Melissa E. Newman, Vice President, Federal
    Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, WC Docket
    No. 05-333 (filed Feb. 9, 2007) (Qwest Feb. 9, 2007 *Ex Parte*
    Letter).

[^6]: *See* Letter from Melissa E. Newman, Vice President, Federal
    Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, WC Docket
    No. 05-333, Attach. at 1 (filed Feb. 8, 2007) (Qwest Feb. 8, 2007
    *Ex Parte* Letter).

[^7]: *Id.*

[^8]: *See Joint Statement of Commissioner Michael J. Copps and
    Commissioner Jonathan S. Adelstein, Concurring, Section 272(f)(1)
    Sunset of the BOC Separate Affiliate and Related Requirements*,
    Further Notice of Proposed Rulemaking, WC Docket No. 02-112, FCC
    03-111 (May 19, 2003) ("*Section 272 Sunset Further Notice*").

[^9]: Such an approach is also contemplated in the statute, which
    specifically preserves the Commission's ability to prescribe
    safeguards consistent with the public interest. *See* 47 U.S.C. §
    272(f)(3).

[^10]: While these conditions help to mitigate the concerns we have
    regarding petitioner's market power and the impact of integrating
    their businesses on residential and business consumers, petitioner
    does not exist in a vacuum and the question of whether these
    conditions are appropriate on an industry-wide basis is not before
    us. The fact may well be that they are insufficient as applied to
    the situation of industry participants not present here.

[^11]: *See* "Battle for the Bundle, 4Q06 Wireline Pricing Trends: Bells
    Turn the Corner on Price, Voice, & Data Bundles Up Y/Y", Bank of
    America (Jan. 24, 2007) (noting that "data appear to support our
    view that the emerging cable/telecom competitive price structure is
    unfolding in a duopolistic manner").