**Before the**

**FEDERAL COMMUNICATIONS COMMISSION**

**Washington, D.C. 20554**

In the Matter of )

)

Implementation of the ) CC Docket No. 96‑128

Pay Telephone Reclassification )

and Compensation Provisions of the )

Telecommunications Act of 1996 )

)

Policies and Rules Concerning ) CC Docket. No. 91‑35

Operator Service Access and )

Pay Telephone Compensation )

)

Petition of the Public Telephone )

Council to Treat Bell Operating Company )

Payphones as Customer Premises )

Equipment )

)

Petition of Oncor Communications )

Requesting Compensation for )

Competitive Payphone Premises )

Owners and Presubscribed Operator )

Services Providers )

)

Petition of the California Payphone )

Association to Amend and Clarify )

Section 68.2(a)of the )

Commission\'s Rules )

)

Amendment of Section 69.2(m) )

and (ee) of the Commission\'s Rules )

to Include Independent Public )

Payphones Within the \"Public )

Telephone\" Exemption from End User )

Common Line Access Charges )

**REPORT AND ORDER**

**Adopted: September 20, 1996 Released: September 20, 1996**

By the Commission: Commissioner Chong issuing a statement.

**Table of ContentsTopic Paragraph No.**

I. Introduction 1

II\. Background 9

III\. Issues 11

The Payphone Marketplace 11

A. Compensation for Each and Every Completed Intrastate

and Interstate Call Originated by Payphones 20

1\. Payphone Calls Subject to this Rulemaking and

Compensation Amount 21

2\. Entities Required to Pay Compensation 77

3\. Ability of Carriers to Track Calls from Payphones 88

4\. Administration of Per-Call Compensation 102

5\. Interim Compensation Mechanism 117

B. Reclassification of LEC-Owned Payphones 127

1\. Classification of LEC Payphones as CPE 129

2\. Transfer of Payphone Equipment to Unregulated Status 152 3.
Termination of Access Charge Compensation and Other

Subsidies 173

4\. Deregulation of AT&T Payphones 188

C. Nonstructural Safeguards for BOC Provision of Payphone

Service 192

D. Ability of BOCs to Negotiate with Location Providers on the

Presubscribed InterLATA Carrier 208

E. Ability of Payphone Service Providers to Negotiate with

Location Providers on the Presubscribed IntraLATA Carrier 253

F. Establishment of Public Interest Payphones 264

G. Other Issues 287

1\. Dialing Parity 287

2\. Letterless Keypads on Payphones 294

3\. Oncor Petition 299

IV\. Procedural Matters 300

1\. Petitions for Reconsideration 300

2\. Paperwork Reduction Act Analysis 303

3\. Regulatory Flexibility Act Analysis 311

V. Conclusion 363 VI. Ordering Clauses 364

Appendix A Text of Section 276

Appendix B List of Parties Filing Comments

Appendix C List of Parties Filing Replies

Appendix D Immediate Rules Adopted by This Order

Appendix E Rules Adopted by This Order

Appendix F Interim Compensation Obligations

**I. [INTRODUCTION]{.underline}**

1.  On June 4, 1996, the Commission adopted a [Notice of Proposed
    Rulemaking]{.underline} (\"[Notice]{.underline}\") to implement
    Section 276 of the Communications Act of 1934, as amended by the
    Telecommunications Act of 1996 (\"1996 Act\").[^1] In this [Report
    and Order]{.underline}, the Commission adopts new rules and policies
    governing the payphone industry that: (1) establish a plan to ensure
    fair compensation for \"each and every completed intrastate and
    interstate call using \[a\] payphone\[;\]\"[^2] (2) discontinue
    intrastate and interstate carrier access charge payphone service
    elements and payments and intrastate and interstate payphone
    subsidies from basic exchange services;[^3] (3) prescribe
    nonstructural safeguards for Bell Operating Company (\"BOC\")
    payphones;[^4] (4) permit the BOCs to negotiate with payphone
    location providers on the interLATA carrier presubscribed to their
    payphones;[^5] (5) permit all payphone service providers to
    negotiate with location providers on the intraLATA carrier
    presubscribed to their payphones;[^6] and (6) adopt guidelines for
    use by the states in establishing public interest payphones to be
    located \"where there would otherwise not be a payphone\[.\]\"[^7]

2.  

3.  The Telecommunications Act of 1996 fundamentally changes
    telecommunications regulation. The 1996 Act erects a
    \"pro-competitive deregulatory national framework designed to
    accelerate rapid private sector deployment of advanced
    telecommunications and information technologies and services to all
    Americans by opening all telecommunications markets to
    competition.\"[^8] In this proceeding we advance the twin goals of
    Section 276 the Act of \"promot\[ing\] competition among payphone
    service providers and promot\[ing\] the widespread deployment of
    payphone services to the benefit of the general public\...\"[^9] To
    this end, we seek to eliminate those regulatory constraints that
    inhibit the ability both to enter and exit the payphone marketplace,
    and to compete for the right to provide services to customers
    through payphones. At the same time, we recognize that a transition
    period is necessary to eliminate the effects of some long-standing
    barriers to full competition in the payphone market. For this
    reason, we will continue for a limited time to regulate certain
    aspects of the payphone market, but only until such time as the
    market evolves to erase these sources of market distortions.

4.  

5.  Congress has directed us to take certain actions to effectuate its
    goals in the payphone area including the removal of subsidy schemes,
    providing for nondiscriminatory access to bottleneck facilities,
    ensuring fair compensation for all calls from payphones, and
    allowing all competitors equal opportunity to compete for essential
    aspects of the payphone business. In general, we believe that
    vigorous and unfettered competition is the best way of achieving
    Congress\' dual objectives. Unfortunately, various barriers \--
    regulatory, structural, economic, and technological \-- stand in the
    way of having a fully competitive market providing payphone
    services. For example, the lack of an effective per-call tracking
    mechanism is a technological barrier that prevents market forces
    from readily achieving Congress\' goal of ensuring fair compensation
    to payphone services providers (\"PSPs\"). Regulatory restrictions
    on the placement of payphones, and existing subsidies from other
    telecommunication services available to certain competitors but not
    others are also examples of regulatory inefficiencies affecting
    competition and the widespread deployment of payphones.

6.  

7.  In this [Report and Order]{.underline}, we take the critical steps
    necessary to remove these barriers. Some barriers are removed right
    away. For example, we establish an immediate plan to ensure that
    PSPs receive fair compensation, especially for those calls for which
    PSPs have not been compensated in the past. We also order that
    subsidies from basic telecommunications services paid to some
    carriers for providing payphone services be terminated as soon as it
    is practicable. We condition the competitive entry of these carriers
    into the nonregulated activity of providing payphone services on
    their termination of these subsidies. Similarly, we allow the BOCs
    to negotiate with the payphone location providers in selecting and
    contracting with the telecommunications carriers that provide
    interLATA service from their payphones, but only after they have put
    in place nonstructural safeguards necessary to protect against a BOC
    from unlawfully subsidizing its payphone operations from its local
    exchange services or otherwise engaging in anti-competitive
    behavior.

8.  

9.  Removing other types of barriers to full competition will take more
    time. For example, the ability to track toll-free calls has not been
    developed fully. Until that functionality is available, as we have
    specified in this [Report and Order]{.underline}, our plan for
    ensuring fair compensation will be a proxy that closely resembles
    the behavior of the marketplace as demonstrated by the record of
    this proceeding. To the extent that they exist, removing entry and
    exit restrictions placed upon the provisioning of payphone services
    will also take time because it requires action by the states. During
    the interim period before subsidies for LEC payphones are terminated
    and per-call compensation becomes effective, the states should
    examine and remove those regulations that affect the ability of PSPs
    to freely enter and exit this business.

10. 

11. Although we embark in this [Report and Order]{.underline} on a new
    deregulatory structure for the payphone industry, we take a number
    of steps to facilitate use of payphones by consumers. First, we
    require that each payphone clearly indicate the local coin rate
    within the informational placard on each payphone. Pursuant to
    existing requirements,[^10] this placard must provide information on
    the operator service provider presubscribed to the payphone and the
    address of the Commission, to which the consumer may direct
    complaints regarding operator services. Second, we require that each
    payphone provide access, free of charge to the caller, to emergency
    calling, telecommunications relay service calls for the hearing
    disabled, and dialtone generally.

12. 

13. In addition, payphones unquestionably serve critical public
    interests in health, safety and welfare. It is possible, however,
    that reliance on the market may fail to provide adequately for
    payphones in locations serving important public needs, because some
    payphones providing these benefits may not be economically
    self-supporting. For example, payphones in neighborhoods with low
    residential phone penetration, or along deserted stretches of
    highway, can be essential for public safety but fail to be
    revenue-generating for various reasons, including lack of sufficient
    traffic, damage from extreme weather conditions, or high maintenance
    costs. For these reasons, we establish criteria by which the states
    may maintain and fund public interest payphones in locations serving
    health, safety, and welfare goals, where they would not otherwise
    exist as a result of the operation of the market. Public interest
    payphones will also further our policies on emergency access[^11]
    and telecommunications relay service calls for the hearing
    disabled.[^12] But while we grant the states broad discretion in
    administering and funding public interest payphone programs, we also
    require that they do so in a manner which does not upset the
    competitive balance of the payphone market ([i.e.]{.underline},
    competitively neutral), and that fairly and equitably compensates
    those entities providing public interest payphones.

14. 

15. Our ultimate goal is to have a competitive payphone industry that
    meets the needs of the public by a wide deployment of payphones. In
    our view, we can best facilitate this by putting in place rules and
    regulations that provide incentives to all the players in the
    industry to eliminate, as soon as possible, all of the market
    distorting factors that exist today.

16. 

17. 

18. 

19. 

20. 

21. 

22. 

**II. [BACKGROUND]{.underline}**

1.  As the Commission discussed in the [Notice]{.underline}, payphone
    services have historically been regulated by the states and the
    Commission.[^13] To date, the states have regulated payphones as
    part of the LEC\'s network-based service. Some states have also
    imposed regulation on the operator service rates charged at
    payphones maintained by non-LEC, independent payphone providers. The
    Commission has focused on payphones primarily in the context of our
    regulation of carriers that provide operator-assisted long-distance
    service, known as operator service providers (\"OSPs\"), and in
    particular, our implementation of the Telephone Operator Consumer
    Services Improvement Act (\"TOCSIA\").[^14] Among other things,
    TOCSIA directed the Commission to determine whether independent
    payphone providers should receive compensation for originating
    interstate calls to non-presubscribed OSPs from their
    payphones.[^15] The Commission\'s consideration of compensation
    issues under TOCSIA led to the creation of a compensation mechanism
    that is an antecedent to the one adopted in the instant
    proceeding.[^16] Currently, there are approximately 1.5 million
    incumbent local exchange carrier (\"LEC\") payphones[^17] and
    approximately 350,000 competitively provided payphones.[^18]

2.  

3.  As stated in the [Notice]{.underline}, Section 276(b)(1)(A) directs
    the Commission to establish a compensation plan to ensure \"that all
    payphone service providers are fairly compensated for each and every
    completed intrastate and interstate call\" from their
    payphones.[^19] Section 276(b)(1)(B) mandates that the Commission
    \"discontinue the intrastate and interstate carrier access charge
    payphone service elements and payments \... and all intrastate and
    interstate subsidies from basic exchange and exchange access
    revenues.\"[^20] In addition, Section 276(b)(1)(D) directs the
    Commission to consider whether BOCs should be granted certain rights
    already available to all other PSPs to participate in the location
    provider\'s selection of presubscribed interLATA carrier, while
    Section 276(b)(1)(E) grants certain rights to all PSPs to
    participate in the selection of presubscribed intraLATA
    carriers.[^21] Together with the other subsections of Section 276,
    these three provisions help to establish regulatory parity for all
    PSPs, whether independent payphone providers or incumbent LECs (both
    independents LECs and BOCs).[^22]

4.  

**III. [ISSUES]{.underline}**

**[THE PAYPHONE MARKETPLACE]{.underline}**

1.  According to the record in this proceeding, the payphone industry
    has the potential to be very competitive.[^23] Entry into the
    payphone business appears to be easy. The ability to purchase a
    payphone, secure a location contract, obtain a payphone line from
    the LEC, and maintain the payphone are, together, the minimal
    technical requirements to enter into the payphone business.[^24] In
    addition, payphone lines are part of the tariffed offerings of local
    exchange carriers and, in some jurisdictions, only a simple business
    line is required to the payphone service. As contracts come up for
    renewal, or as location providers find it economical to put in new
    payphones, PSPs and interexchange carriers (\"IXCs\") routinely make
    themselves available to negotiate new agreements among themselves
    and the location provider.

2.  

3.  A payphone can be removed and used at another location, which
    facilitates entry and exit. If a PSP can easily redeploy its assets,
    it will be more willing to place a payphone in response to a small
    increase in price, because the risk of such placement is lower.[^25]
    In addition, there appear to be no significant scale or scope
    economies or network externalities that would impede entry of new
    firms.[^26] As a result, barriers to entry appear to be very
    low.[^27] In fact a large number of firms, both large and small,
    have entered the industry since it was initially opened to
    competition in 1984, and those firms have provided competition in at
    least some segments of the payphone market.[^28]

4.  

5.  The competition we observe today, however, has been significantly
    distorted by government regulation of prices, regulatory barriers to
    entry and exit, as well as by significant subsidies from other
    telecommunications services. Regulated prices prevent the market
    from operating efficiently to deploy payphone facilities. Moreover,
    some states currently prohibit the provision of payphone service by
    any entity other than the incumbent LEC. Removing these types of
    entry and exit restrictions is a necessary step toward allowing
    competitive forces to guide both the deployment of payphones and the
    setting of prices for payphone services.[^29]

6.  

7.  Even after such regulatory barriers are removed, there are three
    structural reasons why, at least initially, the full benefits of
    competition may not be realized by all segments of the payphone
    market. First, independent PSPs currently rely on LECs for basic
    payphone services. LEC participation both in providing payphones to
    the public and also providing the underlying tariffed payphone
    services to independent PSPs may give LECs the incentive and the
    potential ability to unfairly act to the detriment of their PSP
    competitors and to act in other anti-competitive ways against PSPs.
    However, by implementing safeguards, we intend to ensure that LECs
    cooperate fully in the provision of any necessary payphone services
    and do not otherwise restrain competition, as long as LECs remain
    the monopoly providers of these services.[^30]

8.  

9.  Second, there are certain locations where, because of the size of
    the location or the caller\'s lack of time to identify potential
    substitute payphones, no \"off premises\" payphone serves as an
    adequate substitute for an \"on premises\" payphone. In such
    locations, the location provider can contract exclusively with one
    PSP to establish that PSP as the monopoly provider of payphone
    service. Absent any regulation, this could allow the PSP to charge
    supra-competitive prices. The location provider would share in the
    resulting \"locational rents\" through commissions paid by the PSPs.
    To the extent that market forces cannot ensure competitive prices at
    such locations, continued regulation may be necessary.[^31]
    Payphones in many locations are likely to face a sufficient level of
    competition from payphones at nearby locations to ensure that prices
    are at the competitive level. As a result, we believe that payphones
    at such locations are unlikely to need additional scrutiny.

10. 

11. Third, for competitive markets to work properly, it is essential
    that consumers have full information concerning the choices
    available to them. Information on prices for payphone service is of
    primary importance.[^32] The instant [Report and Order]{.underline}
    concerns two different types of consumers who need to be informed of
    the charges they will face: (1) consumers who choose to use a
    payphone for local, 0+,[^33] or access code calls,[^34] and (2)
    consumers who contract with an IXC for the ability to receive
    subscriber 800 calls.[^35] Although we have no evidence in the
    record that the current disclosure of local coin rates are
    inadequate, our past experience requires us to ensure that such
    disclosures, including, at a minimum, the posting of the local coin
    rate, are effective in communicating necessary cost information to
    consumers. We look to the states to review their regulations and
    modify them to ensure the adequacy of the disclosure.[^36] Consumers
    thus will have the information available to them at the time they
    decide to make a call from a payphone.

12. 

13. As discussed more fully below,[^37] the PSP will be permitted to
    levy a charge each time a caller dials a subscriber 800 number. We
    conclude that the charge must be paid directly by the IXC, although
    the carrier may pass it through to the 800 subscriber, either on a
    per-call basis, or in the form of higher per-minute rates. Once it
    is possible to track subscriber 800 calls, a competitive market may
    pass these costs along in the same manner as they are incurred \--
    on a per-call basis \-- to the called customer. If charges are not
    passed on in this manner, the called party\'s incentives for
    accepting or declining a particular call will be distorted. IXCs
    also have the option of blocking subscriber 800 calls from
    payphones, if they do not want to pay the per-call payphone
    compensation charge.[^38]

14. 

15. Aside from these three structural concerns, we recognize that the
    payphone industry has not operated without the entry and exit
    restrictions and subsidies that currently exist. When these
    subsidies are terminated and barriers are removed, other structural
    problems or market imperfections may develop that would mitigate the
    benefits of a competitive market. However, our continued monitoring
    of the marketplace will ensure that the rules we adopt will lead to
    both competitive prices for payphone service and an efficient supply
    of payphones.

16. 

17. One of the goals of Section 276 is the deployment of payphones to
    benefit the \"public health, safety and welfare.\"[^39] The
    competitive marketplace, however, will not always lead to an
    adequate supply of payphones in areas where they are not
    economically viable. For this reason, we conclude that public
    interest payphones should be maintained, although we define the term
    narrowly to exclude those payphones that would be provided through
    the normal workings of the marketplace.[^40] Our conclusions
    regarding public interest payphones will ensure that there will be
    an efficient supply of payphones, although we recognize that the
    states are better equipped to determine where these public interest
    payphones should be placed. In addition, by ensuring that PSPs
    receive the benefits of their payphone investments, these PSPs will
    compete to place additional payphones in a variety of geographic
    areas.[^41] Therefore, public safety will be enhanced because of
    requirements that emergency access be available from all payphones
    at no cost the caller. This increased emergency access from
    payphones is consistent with the Commission\'s proposals to ensure
    telephone compatibility with enhanced emergency calling
    systems.[^42] In sum, we believe that the increased access, free of
    charge to the caller, to emergency calling, telecommunications relay
    service calls for the hearing disabled, and dialtone generally, may
    be one of the most significant benefits of the compensation approach
    we adopt in this [Report and Order]{.underline} .

18. 

19. 

20. **A. [COMPENSATION FOR EACH AND EVERY COMPLETED INTRASTATE
    AND]{.underline} [INTERSTATE CALL ORIGINATED BY
    PAYPHONES]{.underline}**

21. 

22. Section 276 requires that we establish a plan to ensure fair
    compensation for all calls. As discussed below, fair compensation
    can be ensured best when the PSP can track the calls made from the
    payphone on a call-by-call basis and be assured efficient payment
    for those calls; when the market can set a fair rate for the call;
    and when the caller has the information necessary to make an
    informed choice as to whether to make the call and incur the
    compensation charge.

23. 

24. **1. [Payphone Calls Subject to this Rulemaking and Compensation
    Amount]{.underline}**

25. 

26. **a. [The Notice]{.underline}**

27. 

28. Most calls originated on payphones are within one of the following
    categories: (1) coin calls; (2) directory assistance calls; (3)
    operator service (\"0+\" and \"0-\") calls; (4) access code calls
    (using, [e.g.]{.underline}, \"10XXX\" codes and \"1‑800\" or \"950\"
    carrier access numbers); and (5) subscriber 800 calls. Each of these
    categories can be further subdivided between local, intraLATA toll,
    intrastate interLATA, interstate interLATA, and international. In
    the [Notice]{.underline}, the Commission sought comment on what
    constitutes \"fair\" compensation; whether international calls
    should be included in the compensation plan; and whether calls for
    which the PSP currently receives compensation should be included in
    the plan.[^43] The Commission tentatively concluded that we must at
    least prescribe standards for determining fair compensation for all
    access code calls, subscriber 800 and other toll-free number calls,
    and debit card calls.[^44] The Commission tentatively concluded that
    it was not necessary to prescribe per-call compensation for 0+ calls
    originated by payphones, because these calls were compensated
    pursuant to contracts between the PSP and the presubscribed
    IXC.[^45] The Commission sought comment on whether intraLATA 0+
    calls carried by the presubscribed intraLATA carrier should be
    treated differently than local coin calls.[^46]

29. 

30. With regard to local rates, the Commission stated that there is some
    evidence that the rate may not necessarily fairly compensate the
    PSP.[^47] We sought comment on how to fulfill the Act\'s mandate in
    this regard. The Commission proposed a range of options for ensuring
    fair compensation for local coin calls. One was to set a nationwide
    local coin rate for all calls originated by payphones.[^48] Another
    was for the Commission to prescribe specific national guidelines
    that states would use to establish a local rate to ensure that all
    PSPs are fairly compensated.[^49] A third was for the states to
    continue to set the coin rates for local payphone calls according to
    factors within their discretion.[^50] Under each approach, the
    Commission sought comment on what specific public interest benefits
    commenters believe would result from adoption of a particular
    option.[^51]

31. 

32. In addition, the Commission tentatively concluded that international
    calls originated by payphones should be compensated, because we
    found no evidence of congressional intent to leave these calls
    uncompensated.[^52] The Commission also sought comment on what
    rules, if any, should be adopted to prevent the improper use of
    subscriber 800 numbers to increase compensation, as well as other
    types of fraud.[^53]

33. 

34. Citing the lack of reliable independent payphone provider specific
    cost data, the Commission tentatively concluded in the
    [Notice]{.underline} that PSPs should be compensated for their costs
    in originating the types of calls for which compensation is deemed
    appropriate, and that these costs should be measured by appropriate
    cost-based surrogates.[^54] For appropriate cost-based surrogates,
    the Commission sought comment on whether some measure of generic or
    industry-wide costs is available, whether incumbent LECs\' costs
    would be a reasonable surrogate for independent payphone providers\'
    costs, and whether some other existing set of rates, such as
    state-established rates for local coin calls, would be a reasonable
    surrogate.[^55] The Commission also sought comment on whether we
    should prescribe different per-call compensation amounts for the
    different types of calls originated by payphones. The Commission
    requested comment on how compensation levels should be permitted to
    change in the future, and whether some cost index or price cap
    system would be appropriate to ensure that compensation levels
    reflect expected changes in unit costs over time.[^56]

35. 

36. **b. [Comments]{.underline}**

37. 

38. **i. [Compensable Calls]{.underline}**

39. 

40. A wide range of commenters, including IXCs, RBOCs,[^57] independent
    LECs, states, and independent payphone providers, support the
    Commission\'s tentative conclusion that we must at least prescribe
    standards for determining fair compensation for all access code
    calls, subscriber 800 and other toll-free number calls, and debit
    card calls.[^58] Many of these commenters also agree with the
    Commission\'s tentative conclusion that it is not necessary to
    prescribe compensation for 0+ calls carried by a payphone\'s
    presubscribed carrier.[^59] They argue that compensation agreements
    between the presubscribed carrier and PSP or location provider
    ensure that the PSP will be fairly compensated for these calls.[^60]
    CompTel further contends that mandating per-call compensation for 0+
    calls in addition to that provided by contract would overlap with
    the Commission\'s intent to address operator service rates for
    payphones in the [OSP Reform]{.underline} proceeding.[^61] The RBOCs
    argue that the Commission need not prescribe compensation for 0+
    calls as a general rule, although the Commission must require OSPs
    to pay compensation on all presubscribed calls made on BOC payphones
    to compensate the BOCs for use of their payphones when the BOC does
    not have a contractual relationship with the presubscribed
    carrier.[^62] The RBOCs contend that because Section 276(b)(3)
    expressly grandfathers contracts existing before the date of the
    statute\'s enactment between the location provider and the
    presubscribed carrier on many BOC payphones, the BOCs would not
    otherwise receive any compensation for these 0+ calls.[^63] Sprint
    argues that the Commission should not mandate compensation for any
    calls that make use of a payphone\'s presubscribed carrier, because
    any call using the presubscribed carrier would be compensated under
    the terms of the contract.[^64] The RBOCs contend, however, that the
    amount of dial-around calls has no relationship to a payphone\'s
    presubscribed carrier, and that the PSP has no authority to block
    these calls to force revenue generating calls.[^65] Conquest argues
    that the Commission should exempt 0+ calls that make use of an 800
    number as a presubscription device, which is transparent to the
    caller.[^66]

41. 

42. Other commenters, notably USTA and APCC, argue that the statutory
    duty to mandate compensation for \"each and every completed
    intrastate and interstate call\" requires the Commission to mandate
    a per-call compensation rate for 0+ calls, regardless of any
    compensation agreements between the presubscribed carrier and the
    PSP.[^67] APCC argues that state-imposed rate ceilings on intrastate
    0+ calls prevent PSPs from receiving fair compensation.[^68] In
    addition, it contends that 0+ commission payments are for the value
    to the IXC of receiving the presubscribed traffic and do not address
    the need for use of the payphone.[^69] The RBOCs, Ameritech, and GTE
    argue that 0+ compensation could be established as a default rate,
    which could be eliminated or supplanted through negotiations between
    the requisite parties.[^70]

43. 

44. The commenters take varying positions on what action the Commission
    should take to ensure fair compensation for local coin calls from
    payphones. The independent payphone providers support the
    Commission\'s option of a nationwide local coin call rate.[^71] They
    argue that a nationwide rate is necessary to override inconsistent
    state rules, to ensure predictability of rates for interstate
    travelers, to break the dependence of PSPs on 0+ commissions, and to
    establish a single, uniform rate for all local coin calls.[^72] APCC
    contends that this nationwide rate would serve as the maximum rate
    that PSPs could receive for a local coin call, and PSPs would likely
    respond to competition in local areas by lowering this per-call
    rate.[^73] Other parties specifically oppose a nationwide local coin
    rate.[^74] They argue that regional differences in handling payphone
    calls make a single nationwide rate impractical.[^75] Several
    commenters state that the Commission lacks authority to set local
    coin rates under both Section 276 and the Act.[^76] They argue that
    the ability to ensure compensation is different than jurisdiction
    over retail rates, and that nothing in Section 276 suggests that
    Congress intended to remove local coin rates from the jurisdiction
    of the states.[^77] APCC contends, however, that the Commission has
    the requisite authority to impose a nationwide local coin rate,
    because Section 276\'s mandate to ensure fair compensation extends
    to setting local coin rates.[^78]

45. 

46. Other commenters, including USTA, Ameritech, and GTE, argue that the
    Commission should adopt federal guidelines that the states would use
    to adopt local coin rates that fairly compensate PSPs for the use of
    their payphones.[^79] They argue that the guidelines must recognize
    that costs associated with local calls vary and have individual
    market characteristics, and that the states must be directed to
    eliminate all subsidies from other local exchange operations and
    from interexchange carriers.[^80] US West argues that the Commission
    should not require the states to reexamine their respective local
    coin rates unless the per-call rate is below the nationwide
    predominant rate of \$.25.[^81]

47. 

48. Many states argue that the Commission must defer to the states in
    setting the local coin rates.[^82] They argue that the states must
    maintain their wide discretion in setting the specific local coin
    rates.[^83] Florida PSC, Indiana URC, and Tennessee contend that the
    Commission should prescribe a nationwide local coin rate or price
    cap and allow the states to petition for a variance.[^84] APCC
    states that it would support a variance approach.[^85] Ohio PUC
    asserts that it is within its authority to keep local coin rates low
    by requiring LECs to reduce the costs of various payphone services
    to PSPs.[^86] California PUC argues that the Commission should adopt
    an approach to local coin rates that is a hybrid of setting federal
    guidelines and deferring to the states.[^87] It argues that federal
    guidelines should allow states maximum participation in setting
    rates for payphones generally, and should recognize the interest of
    states in setting end-user rates for local calls and directory
    assistance calls.[^88]

49. 

50. The RBOCs argue that the Commission should deregulate local coin
    rates entirely and allow the market to determine the rate in any
    particular location.[^89] BellSouth, SW Bell, and US West argue that
    the Commission should deregulate local coin rates immediately.[^90]
    Bell Atlantic, NYNEX, and Pacific Telesis contend that the
    Commission should deregulate local coin rates pursuant to federal
    standards after a transition period.[^91] GTE argues that
    deregulation of local coin rates would be appropriate after a
    two-year transition period.[^92] BellSouth contends that the
    Commission has the requisite authority to review local coin rates
    during any transition period.[^93]

51. 

52. USTA, GTE, WorldCom, and Florida PSC argue that, because PSPs
    receive commissions on 0+ intraLATA calls, these 0+ intraLATA calls
    should be treated like interLATA 0+ calls for purposes of
    compensation.[^94] On the other hand, Virginia SCC contends that
    intraLATA 0+ calls should be treated in the same manner as local
    coin calls.[^95] CompTel argues that because intraLATA calls are
    frequently routed to the LEC, not the presubscribed carrier, for
    which there may not be a commission paid to the PSP or location
    provider, treating intraLATA 0+ calls as interLATA 0+ calls would
    require IXCs to pay compensation on calls for which they receive no
    benefit.[^96]

53. 

54. The RBOCs and APCC, among others, contend that the Commission, to
    ensure compensation for \"each and every completed intrastate and
    interstate call,\" should mandate that callers make a coin deposit
    or otherwise provide per-call compensation for \"411\" directory
    assistance calls.[^97] They argue that such compensation is
    necessary to recover the costs associated with use of the payphone
    to make a directory assistance call.[^98] SW Bell believes that
    per-call compensation for directory assistance calls is appropriate,
    but it specifies that the end user should be required to pay for
    these calls through a coin deposit.[^99] Oklahoma CC argues that if
    the incumbent LEC charges independent payphone providers for
    directory assistance calls, then the LEC should be required to
    impute this cost to its own payphones for each directory assistance
    call.[^100] Ohio PUC argues that the LEC providing the directory
    assistance service should not be permitted to charge the PSP for it,
    and, therefore, per-call compensation would not be necessary.[^101]

55. 

56. Because Section 276(b)(1)(A) requires a plan to ensure fair
    compensation for \"each and every [completed]{.underline} intrastate
    and interstate call,\" some commenters argue that the Commission is
    obligated to determine what constitutes a \"completed\" call for
    purposes of per-call compensation. Several of these commenters
    further argue that the Commission should define a \"completed call\"
    as a call that is answered by the called party.[^102] They argue
    that compensating unanswered calls will lead to uneconomic rates for
    payphone users and will be contrary to a caller\'s expectations
    about when a call is billed. On the other hand, some of the
    independent payphone providers argue that a \"completed call\"
    consists of any call that reaches the carrier\'s platform,
    regardless of whether the call ultimately reaches the called
    party.[^103] These independent payphone providers argue that
    per-call compensation is appropriate for these calls, because the
    payphone is being used for these calls and is, therefore, unable to
    earn other revenue.[^104]

57. 

58. Some IXCs provide different definitions of what should be considered
    a \"completed call.\" Sprint and MCI argue that a call is completed
    when it earns revenue for the carrier.[^105] WorldCom contends that
    an access code call is completed when it is billed, and a subscriber
    800 call is completed when answer supervision is returned.[^106]
    Other parties argue that, because it is often difficult for the
    parties to know whether a call was answered by the called party, the
    Commission should use a duration surrogate for completed
    calls.[^107] The debit card providers, in particular, favor a
    duration surrogate because they estimate that fifty percent of debit
    card calls are not completed to the called party.[^108] Under this
    approach, they argue, any call placed from a payphone below a
    certain duration would be excluded because it would be likely that
    the call was not completed to the called party within that time
    period. The threshold duration proposed by these commenters varies
    from 42 seconds[^109] to 60 seconds.[^110] The RBOCs argue that a
    60-second threshold should be used,[^111] while APCC believes that
    the Commission should not rely on any duration threshold.[^112] The
    RBOCs argue that multiple calls made through use of a payphone\'s
    \"#\" button, even though they require billing information to be
    dialed only once, should be counted as separate calls for
    compensation purposes.[^113]

59. 

60. Several commenters suggest alternative or supplementary approaches
    to per-call compensation. The RBOCs collectively contend that the
    Commission should look to compensating incoming calls in the future,
    because Section 276 does not differentiate between calls originated
    and received by a payphone.[^114] SW Bell and US West, in their
    individual capacities, argue that the Commission must ensure fair
    compensation for incoming calls in this proceeding.[^115]

61. 

62. AT&T, the RBOCs, GTE, USTA, Florida PSC, Indiana URC, and various
    independent payphone providers agree with the tentative conclusion
    in the [Notice]{.underline} that the Commission should provide
    compensation for international calls that make use of a
    payphone.[^116] These commenters argue that there is no basis to
    exclude these calls from a compensation mechanism, and that a
    payphone performs the same functions for all types of calls.[^117]
    AT&T and APCC argue that the term \"interstate,\" as used in Section
    276(b)(1)(A), includes international calls.[^118] Sprint, MCI, and
    other IXCs oppose the Commission\'s tentative conclusion and argue
    that compensation for international calls goes beyond the plain
    language of the Section 276; that Congress would have specified
    compensation for \"international\" or \"foreign\" calls, as it did
    in other provisions of the 1996 Act, if it intended such
    compensation; and that the Commission does not otherwise have
    authority to impose this compensation obligation.[^119] MCI argues
    that such compensation for international calls billed to non-U.S.
    carrier customers is not practicable, because the Commission does
    not have the requisite jurisdiction to require the foreign carrier
    to bill and collect the PSP compensation.[^120]

63. 

64. In response to the Commission\'s request for comment on how it might
    address possible compensation fraud associated with the improper
    dialing of subscriber 800 numbers to increase compensation payments,
    a wide range of commenters argue that the Commission must take
    strong enforcement action, including imposing severe penalties, on
    any party engaging in such fraud.[^121] These commenters further
    argue that while the possibility of fraud exists, the Commission
    cannot refuse to compensate subscriber 800 calls.[^122] The RBOCs,
    GTE, and Cable & Wireless contend that, in addition to enforcement
    action by the Commission, the carrier-payors should be given some
    latitude to take action and withhold compensation to parties who
    engage in fraud.[^123] MCI and American Express argue that the
    Commission should require the LECs to report any suspicious calling
    patterns with regard to subscriber 800 numbers.[^124] Other parties
    argue that the \"carrier pays\" compensation mechanism proposed by
    the Commission encourages fraud.[^125] Several parties further argue
    that requiring the calling party to deposit coins for subscriber 800
    calls would eliminate the incentive to engage in fraudulent
    calling.[^126] Sprint argues that keeping the per-call compensation
    amount at the marginal cost of the use of the payphone would also
    reduce fraudulent calling.[^127] AT&T contends that the Commission
    should use a surrogate setting forth the average number of
    subscriber 800 calls from a payphone to calculate the payment of
    per-call compensation for these calls.[^128] To prevent other types
    of potential fraud, Frontier and Sprint argue that the Commission
    must adopt a definition of \"payphone\" for compensation
    purposes.[^129]

65. 

66. Four states, Maine, New Hampshire, New Mexico, and Vermont, filing
    joint comments, argue that Section 276 applies only to payphones
    provided by the RBOCs.[^130] They argue further that the Commission
    is without authority under Section 276 to adopt rules that apply to
    all payphones, including those provided by non-BOC LECs and
    independent payphone providers.[^131]

67. 

68. **ii. [Compensation Amount]{.underline}**

69. 

70. APCC, AT&T, Sprint, and other commenters argue that the Commission
    should adopt a national uniform rate that it deems compensable for
    all calls using a payphone.[^132] They contend that uniformity is
    necessary to avoid imposing undue burdens on carriers that would
    result from varying rates. In addition, they assert that the
    payphones perform identical functions for each type of compensable
    call.[^133] The RBOCs argue that the Commission need not prescribe a
    rate for each type of compensable call, and should, instead, let the
    market dictate the appropriate per-call rate.[^134]

71. 

72. Some commenters argue that certain types of calls should receive a
    different per-call compensation amount than others. WorldCom
    contends that the amount of compensation should vary with the
    duration of the call to the extent that marginal cost also
    varies.[^135] Invision and the Inmate Coalition, providers of inmate
    payphones, assert that the Commission should adopt a \$.90 per-call
    compensation rate that would apply only to calls using inmate
    payphones located in penal institutions.[^136] They argue that
    payphone services for inmates is a distinct, specialized industry,
    which is required to provide, at a significant capital investment,
    operator service, fraud control, extensive call controls, and
    monitoring services throughout the duration of its calls. They argue
    further that these factors warrant a higher per-call compensation
    rate.[^137] Another inmate payphone provider, Gateway, contends that
    the Commission should not adopt a separate, higher rate for inmate
    payphone calls, because such a rate would give inmate providers
    double recovery of costs already included in their rates and
    surcharges.[^138] Gateway also argues that the Commission should
    defer consideration of a higher rate until after its [OSP
    Reform]{.underline} proceeding, and that inmate providers should
    petition the various states for relief from state operator services
    rate caps.[^139] MCI opposes the provision of per-call compensation
    for calls using either inmate payphones or semi-public
    payphones.[^140] It asserts that semi-public payphones already
    receive adequate compensation from the premises owners.[^141] The
    RBOCs contend that per-call compensation for semi-public payphones
    is warranted, because there is no statutory basis to preclude
    semi-public payphones from receiving compensation, and carriers
    benefit from dial-around traffic that originated on semi-public
    payphones.[^142]

73. 

74. The RBOCs also argue that any per-call rate the Commission sets
    should be regarded as a default rate, which parties would be free to
    alter by contract.[^143] MCI and Sprint contend that the per-call
    amount should be adjusted downward in the future to account for
    technological advances that will reduce PSP costs.[^144] APCC
    contends, on the other hand, that the per-call compensation rate
    should rise automatically at the same rate as inflation.[^145]

75. 

76. A number of IXCs and other commenters support the Commission\'s
    tentative conclusion that the amount of per-call compensation should
    be based on PSP costs and argue that the Commission must adopt a
    marginal cost standard.[^146] They argue that under a marginal cost
    standard, a PSP would be allowed to recover the costs associated
    with the wear on the payphone\'s keypad and handset, along with
    additional costs over fixed costs.[^147] MCI provides a study
    authored by the Hatfield Associates, which analyzes the costs of
    providing service for access code calls, and concludes that the
    appropriate compensation amount would be \$.083 for each compensable
    call.[^148] MCI argues that the \$.083 per call is fair
    compensation, because PSPs already receive revenues in excess of
    costs.[^149] Sprint contends that the Commission should adopt a
    marginal cost-based rate of \$.0675 per call, based on its view that
    the \$.25 rate it currently pays for access code calls fairly
    compensates independent payphone providers for all calls.[^150] In
    its analysis, Sprint found that 27% of all non-revenue generating
    calls from payphones are operator service calls for which 27% of
    \$.25 is the appropriate per-call compensation amount,
    [i.e.]{.underline}, \$.0675.[^151] MCI and Sprint further argue that
    the Commission should consider anew the \$.12 per-call compensation
    amount originally proposed in the Commission\'s 1991 [Notice of
    Proposed Rulemaking]{.underline} in the access code call
    compensation proceeding, CC Docket No. 91-35, because this rate
    reflects payphone costs on a per-call basis.[^152] AT&T favors an
    unspecified compensation amount related to marginal cost and based
    on the total services long-run incremental cost (\"TSLRIC\") method,
    which would recover the costs of providing and maintaining the
    payphone instrument, exclusive of coin collection functions, and the
    monthly SLC and other tariffed LEC services specific to
    payphones.[^153] AT&T argues that the TSLRIC standard is \"more
    generous\" than a marginal-cost standard, because it allows PSPs to
    recover the portion of payphone costs that benefit the carriers
    whose customers initiate calls at payphones.[^154]

77. 

78. The RBOCs and the independent payphone providers oppose the use of a
    marginal cost-based compensation amount.[^155] They argue that fair
    compensation embraces more than cost recovery, and that marginal
    cost disregards fixed costs, which are significant for a PSP.[^156]
    USTA and GTE argue that AT&T\'s proposed TSLRIC-based compensation
    is not relevant to the provision of competitive services where rates
    should be guided by the market, and it does not permit full recovery
    of costs.[^157]

79. 

80. The RBOCs and the independent payphone providers argue that the
    Commission should adopt a per-call compensation standard that looks
    both to overall PSP costs and revenues and to market-based pricing.
    The RBOCs and GTE, in particular, advocate a per-call compensation
    amount that relies on market-based proxies.[^158] The RBOCs provide
    a study that analyzes commission rates paid to PSPs by IXCs
    generally and commission rates paid by AT&T and concludes that the
    appropriate per-call compensation amount should be in the range of
    \$.81 to \$.90 per call.[^159]

81. 

82. APCC contends that the Commission must consider market-based
    surrogates in setting a per-call compensation amount.[^160] It
    proposes that the Commission adopt a compensation amount of \$.40
    per call, if the Commission extends this rate to local coin calls,
    or \$.80 per call for all non-local coin calls that use a
    payphone.[^161] APCC argues that these proposed amounts would fairly
    compensate PSPs for use of their payphones.[^162] Peoples, the
    largest independent payphone provider, argues that the Commission
    should adopt a per-call compensation amount of \$.45, which would
    apply to all calls, including local coin calls.[^163] Peoples
    includes in its comments summaries of data that, it maintains, show
    that Peoples\' average pre-tax cost per call using its payphones is
    \$.40.[^164] Other independent payphone providers argue that the
    Commission should adopt per-call compensation amounts that range
    from \$.40 to \$.55 per call.[^165] AT&T and Sprint disagree with
    the approach proposed by APCC and the RBOCs and argue that it relies
    too much on the factors set forth in the [Second Report and
    Order]{.underline}, which they claim are flawed, and on 0+
    commissions, which reflect PSP opportunity costs, a basis for
    compensation rejected by the Commission in the [Second Report and
    Order]{.underline}.[^166] In addition, they argue that APCC and the
    RBOCs do not disclose actual costs, but instead include substantial
    overhead, advertising, and marketing and sales expenses in their
    model.[^167]

83. 

84. One Call contends that the local coin rate should be used as a
    surrogate for a fair per-call compensation amount.[^168] Conquest
    argues that the Commission should cap the per-call compensation
    amount at the rate for a local coin call.[^169] AT&T, MCI, and the
    RBOCs all oppose use of a local coin rate surrogate to achieve fair
    compensation for PSPs.[^170] They argue that local coin rates are
    kept artificially low by regulators and have no relationship to
    either cost or the market.[^171]

85. 

86. Some commenters contend that the Commission should adopt a per-call
    compensation amount that is within the range established by the 1992
    [Second Report and Order]{.underline} in the access code call
    compensation proceeding. NTCA argues that continued use of the \$.40
    per call rate adopted in the [Second Report and Order]{.underline}
    would not be disruptive and would ensure fair compensation for
    PSPs.[^172] APCC argues that the [Second Report and
    Order]{.underline} sets forth the type of market-based surrogates
    that are appropriate for the Commission to consider in the instant
    proceeding.[^173] PageNet argues that the Commission should examine
    the \$6 per month LEC access charge compensation for payphones, as
    set forth in the [Second Report and Order]{.underline}, and use this
    amount plus an intrastate recovery element to reach an amount that
    could be divided by the average number of compensable calls to equal
    the appropriate per-call rate.[^174] The RBOCs contend, on the other
    hand, that the \$.40 per call amount in the [Second Report and
    Order]{.underline} is out of date and should be higher.[^175] AT&T
    and Sprint argue that the factors used in the [Second Report and
    Order]{.underline} are irrelevant for determining fair compensation,
    because the factors do not relate to marginal cost and concern costs
    that are recovered through other revenue streams.[^176]

87. 

88. **c. [Discussion]{.underline}**

89. 

90. [Defining \"Fair Compensation\"]{.underline}. Section 276(b)(1)(A)
    directs the Commission to establish a plan \"to ensure that all
    payphone service providers are fairly compensated for each and every
    completed intrastate and interstate call using their
    payphone.\"[^177] The 1996 Act does not prescribe a particular
    course to achieve these goals, other than to specify that such
    action shall \"promote competition among payphone service providers
    and promote the widespread deployment of payphone services to the
    benefit of the general public\[.\]\"[^178] To comply with this
    mandate, we tentatively concluded in the [Notice]{.underline} that
    we must provide for compensation only when PSPs are not already
    \"fairly compensated\" for a particular type of a call using a
    payphone.[^179] A number of commenters contend that we must look to
    all of a payphone\'s possible revenue streams and ensure that the
    payphone, as a whole, is fairly compensated.[^180] We disagree. We
    conclude that, by ensuring that all calls are fairly compensated,
    including those for which the PSP currently receives no revenue, we
    will \"promote competition\" among PSPs and \"promote the widespread
    deployment of payphone services to the benefit of the general
    public\[.\]\"[^181] The marketplace will necessarily determine
    whether or not a particular payphone is economically viable.

91. 

92. We conclude that, once competitive market conditions exist, the most
    appropriate way to ensure that PSPs receive fair compensation for
    each call is to let the market set the price for individual calls
    originated on payphones. It is only in cases where the market does
    not or cannot function properly that the Commission needs to take
    affirmative steps to ensure fair compensation, such as in the
    following situations. First, because TOCSIA requires all payphones
    to unblock access to alternative OSPs through the use of access
    codes (including 800 access numbers), PSPs cannot block access to
    toll free numbers generally. However, TOCSIA does not prohibit an
    IXC from blocking subscriber 800 numbers from payphones,
    particularly if the IXC wants to avoid paying the per-call
    compensation charge on these calls. This uneven bargaining between
    parties necessitates the Commission\'s involvement. Second, as
    discussed more fully below,[^182] we conclude that each state
    should, in light of the instant proceeding, examine and modify its
    regulations applicable to payphones and PSPs, particularly those
    rules that impose market entry or exit requirements, and others that
    are not competitively neutral and consistent with the requirements
    of Section 276 of the Act. We conclude that, for purposes of
    ensuring fair compensation through a competitive marketplace, states
    need only remove those regulations that restrict competition, and
    they need not address those regulations that, on a competitively
    neutral basis, provide consumers with information and price
    disclosure. Third, we conclude that callers should have information
    in every instance about the price of the calls they make from
    payphones. To this end, we require that each payphone clearly
    indicate the local coin rate within the informational placard on
    each payphone.

93. 

94. While the most appropriate way to ensure fair compensation is to let
    the market set the price for individual payphone calls, we conclude
    that this transition to market-based rates should occur in two
    phases. Because LECs will terminate, pursuant to Section
    276(b)(1)(b), subsidies for their payphones within one year of the
    effective date of the rules adopted in this proceeding,[^183] LECs
    will not be eligible to receive compensation under Section
    276(b)(1)(a) until that termination date. This one-year period
    before per-call compensation is effective, as discussed below, will
    be the first phase of implementing the rules adopted in this
    proceeding. During this first phase, states may continue to set the
    local coin rate in the same manner as they currently do. States may,
    however, move to market-based local coin rates anytime during this
    one-year period. In addition, the states must conduct its
    examination of payphone regulations during this one-year period to
    review and remove, if necessary, those regulations that affect
    competition, such as entry and exit restrictions. IXCs will pay
    compensation for access code calls and subscriber 800 calls on a
    flat-rate basis. In addition, all payphones must provide free access
    to dialtone, emergency calls, and telecommunications relay service
    calls for the hearing disabled.

95. 

96. In the second phase, which will begin one year after the effective
    date of rules adopted in this proceeding, LECs will be eligible to
    receive compensation, and per-call tracking capabilities will be in
    place. The carriers to whom payphone calls are routed will be
    responsible for tracking each compensable call and remitting
    per-call compensation to the PSP. During this second year, which is
    the first year of per-call compensation (as opposed to flat-rate
    compensation), the market will be allowed to set the rate for local
    coin calls, unless the state can show that there are market failures
    within the state that would not allow market-based rates.[^184] In
    addition, during the second phase, which will be the first year of
    per-call compensation (after the initial year of flat-rate
    compensation), to allow us to ascertain the status of competition in
    the payphone marketplace, we conclude, as discussed below,[^185]
    that IXCs must pay PSPs a default rate of \$.35 for each compensable
    call, which may be changed by mutual agreement. PSPs will be
    required to post the local coin rate they choose to charge at each
    payphone. During the second phase, we may review, at our option, the
    deregulation of local coin rates nationwide and determine whether
    marketplace disfunctions exist, such as locational monopolies caused
    by the size of the location with an exclusive PSP contract or the
    caller\'s lack of time to identify potential substitute payphones,
    and should be addressed by the Commission. If we find that the
    deregulation of local coin rates warrants a modification of our
    approach due to market failures, we may choose to set a cap on the
    number of calls subject to compensation from particular payphones to
    limit the exercise of locational market power. Absent such a
    finding, at the conclusion of the second phase, the market-based
    local coin rate at these payphones will be the default compensation
    rate for all compensable calls in absence of an agreement between
    the PSP and the carrier-payor.

97. 

98. [Ensuring Fair Compensation]{.underline}. Most commenters who
    address the issue agree with our tentative conclusion that we must
    provide for compensation for all access code calls, subscriber 800
    and other toll-free number calls, including debit card calls.[^186]
    In keeping with our long-term goal to have the market set the
    compensation amount, we define \"fair compensation\" above as where
    there is a willing seller and a willing buyer at a price agreeable
    to both. For each of these types of calls, the PSP either receives
    no revenue for originating these calls ([i.e.]{.underline}, for
    subscriber 800 and other toll-free number calls), or it is unable to
    block callers from making such calls (access code calls). The record
    in this proceeding includes substantial evidence that the number of
    these types of calls using payphones has proliferated in the past
    several years.[^187] We conclude, therefore, that we must provide
    for compensation for access code calls and subscriber 800 and other
    toll-free number calls, whether they are intrastate or interstate in
    destination.

99. 

100. We tentatively concluded in the [Notice]{.underline} that we need
     not provide for compensation for 0+ calls, because independent
     payphone providers and non-BOC LECs receive compensation through
     individual contracts with the payphone\'s presubscribed IXC.[^188]
     We also tentatively concluded that \"competition in this area
     ensures \'fair\' compensation for PSPs.\"[^189] The RBOCs contend,
     however, that because Section 276(b)(3) expressly grandfathers
     contracts existing before the date of the statute\'s enactment
     between the location provider and the presubscribed carrier on many
     BOC payphones, the BOCs would not otherwise receive any
     compensation for 0+ calls.[^190] They argue that the Commission
     must ensure fair compensation for 0+ calls that use BOC
     payphones.[^191] We agree and modify our tentative conclusion so
     that, once the BOCs reclassify their payphones and terminate all
     subsidies, pursuant to Section 276(b)(1)(B),[^192] they may receive
     the per-call compensation established by this [Order]{.underline},
     so long as they do not otherwise receive compensation for use of
     their payphones in originating 0+ calls. We conclude further that,
     in the absence of a contract providing compensation to the PSP for
     intraLATA 0+ calls, the PSP shall be eligible to collect per-call
     compensation from the carrier to whom the call is routed. We also
     conclude that when a caller dials \"0\" and the payphone
     subsequently translates this digit, unbeknownst to the caller, into
     an 800 access number ([i.e.]{.underline}, as a way of
     presubscribing the payphone to a particular IXC), such a call is
     not compensable as an access code call, because it does not put the
     caller into contact with an alternative carrier.[^193]

101. 

102. We conclude that PSPs should receive compensation for international
     calls. We conclude that we have authority under Sections 4(i) and
     201(b) of the Communications Act of 1934, as amended,[^194] to
     ensure that PSPs are fairly compensated for international as well
     as interstate and intrastate calls using their payphones in the
     United States. In addition, as we stated in the
     [Notice]{.underline}, we find no evidence of congressional intent
     to leave these calls uncompensated under Section 276. We agree with
     AT&T and other commenters that a payphone performs similar
     functions, regardless of the destination of the call.

103. 

104. [Local Coin Calls]{.underline}. As outlined above,[^195] we believe
     that full and unfettered competition is the best way of achieving
     Congress\' dual objectives to promote \"competition among payphone
     service providers and promote the widespread deployment of payphone
     services to the benefit of the general public.\"[^196] Competition
     over time will lead to the more efficient placement of payphones,
     improved payphone service, and lower prices for consumers. To
     encourage competition in the payphone marketplace, we ensure in
     this [Report and Order]{.underline} that PSPs are fairly
     compensated for \"each and every completed intrastate and
     interstate call\[;\]\" terminate certain LEC subsidies for
     payphones; and permit all PSPs, including BOCs, to negotiate with
     the location provider regarding the selection of the presubscribed
     interLATA and intraLATA carriers.

105. 

106. Once competitive conditions exist, we believe that the market
     should set the compensation amount for all payphone calls,
     including local coin calls. Because we have an obligation under
     Section 276 to ensure that the compensation for all local coin
     calls is fair, we conclude that the market should be allowed to set
     the price for all compensable calls, including a local coin call.
     We believe this approach is appropriate because, once PSPs are free
     to enter the market, and once callers are free to choose payphones
     for their calls, the market will ultimately determine whether a
     particular payphone is economically viable. According to the record
     in this proceeding, five states have already deregulated local coin
     rates.[^197] In four of those states, Iowa, Nebraska, North Dakota,
     and Wyoming, the market-based rate is \$.35 per call.[^198] In the
     other deregulated state, South Dakota, the market-based rate is
     \$.25 per call.[^199]

107. 

108. Historically, however, the rate for the most common type of call
     \-- the local coin call \-- has not been set by the market, but has
     instead been determined by state commissions.[^200] In the
     [Notice]{.underline}, we stated that Section 276 of the Act
     requires the Commission to ensure that the PSP receives fair
     compensation for each interstate and intrastate call, including
     local coin sent-paid calls.[^201] Section 276 also states that \"to
     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.\"[^202] We sought
     comment in the [Notice]{.underline} on how we should exercise our
     jurisdiction under Section 276, and noted that we have a range of
     options for ensuring fair compensation for local coin calls,
     including setting a nationwide local coin rate for all calls
     originated by payphones, establishing specific national guidelines
     that states would use to establish a local rate that would ensure
     that all PSPs are fairly compensated and permitting the states to
     continue setting the coin rates for local payphone calls according
     to factors within their discretion.[^203]

109. 

110. As we stated in the [Notice]{.underline}, the Commission recognizes
     that the states have long had a traditional and primary role in
     regulating payphones, including setting local call rates paid by
     end users.[^204] This role, however, has been in the context of
     LECs providing local payphone service as part of their regulated
     service. Section 276, however, significantly alters the regulatory
     landscape by requiring that LEC provision of payphone service be on
     par with independent PSP provision of service.[^205] In addition,
     by mandating that LEC payphones can no longer receive subsidies
     from basic exchange services, Section 276 greatly changes the way
     in which states set local coin rates. Further, Section 276(b)(1)(A)
     gives the Commission both the jurisdiction to ensure fair
     compensation for local coin calls and the mandate to establish a
     plan to compensate PSPs on a per-call basis. We also stated our
     concern in the [Notice]{.underline} that \"current local rates may
     not always \'fairly\' compensate the PSP for use of its
     payphone\[,\]\" because the caller may use the payphone at \"a
     subsidized local coin rate\[.\]\"[^206] Based on the record in this
     proceeding, we conclude that a deregulatory, market-based approach
     to setting local coin rates is appropriate, because existing local
     coin rates are not necessarily fairly compensatory.

111. 

112. We recognize, however, that the competitive conditions, which are a
     prerequisite to a deregulatory, market-based approach, do not
     currently exist and cannot be achieved immediately. Many states
     impose regulations on PSPs, including certain requirements that
     must be fulfilled before a PSP can enter or exit the payphone
     marketplace. We conclude that these state regulations are barriers
     to a fully competitive payphone market, and, therefore, \"to 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.\"[^207] In addition,
     in some locations, because of the size of the location with an
     exclusive PSP contract or the caller\'s lack of time to identify
     potential substitute payphones, the PSP may be able to charge an
     inflated rate for local calls based on its monopoly, pursuant to an
     exclusive contract with the location provider, on all payphones at
     the location. We conclude that such monopoly arrangements, in the
     absence of regulatory oversight, could impair competition.

113. 

114. Based on these concerns, we conclude that the overall transition to
     market-based local coin rates should not occur immediately. As
     discussed below,[^208] LECs will not be required to terminate,
     pursuant to Section 276(b)(1)(b), certain subsidies associated with
     their payphones until April 15, 1997. LECs will not be eligible to
     receive per-call compensation under Section 276(b)(1)(a) for one
     year, when all such subsidies are terminated. For this one-year
     period, the states will be responsible for both ensuring that PSPs
     are fairly compensated for local coin calls and protecting
     consumers from excessive rates. Eventually, when fully competitive
     conditions exist, the marketplace will address both concerns. We
     conclude that, during this one-year period before per-call, as
     opposed to flat-rate, compensation becomes effective, states may
     continue to set the local coin rate in the same manner as they
     currently do. States may, however, move to market-based local coin
     rates anytime during this one-year period, and are encouraged to do
     so. In addition, we conclude that during the same period, the
     states should take additional action to ensure that payphone
     competition is promoted. As discussed above,[^209] we believe that
     ease of entry and exit in this market will foster competition and
     allow the market, rather than regulation, to dictate the behavior
     of the various parties in the payphone industry. To this end, each
     state should examine and modify its regulations applicable to
     payphones and PSPs, removing, in particular, those rules that
     impose market entry or exit requirements. We conclude that, for
     purposes of ensuring fair compensation through a competitive
     marketplace, the states should remove only those regulations that
     affect payphone competition; the states remain free at all times to
     impose regulations, on a competitively neutral basis, to provide
     consumers with information and price disclosure.[^210] In addition,
     the states at all times must ensure that access to dialtone,
     emergency calls, and telecommunications relay service calls for the
     hearing disabled is available from all payphones at no charge to
     the caller.

115. 

116. At the conclusion of this first one-year period, the market will be
     allowed to set the price for a local coin call, as discussed more
     fully above.[^211] However, we conclude that we should make an
     exception to the market-based approach for states that are able to
     demonstrate to the Commission that there are market failures within
     the state that would not allow market-based rates.[^212] Such a
     detailed showing could consist of, for example, a detailed summary
     of the record of a state proceeding that examines the costs of
     providing payphone service within that state and the reasons why
     the public interest is served by having the state set rates within
     that market. In addition, under our deregulatory, market-based
     approach, when states have concerns about possible market failures,
     such as that of payphone locations that charge monopoly rates, they
     are empowered to act by, for example, mandating that additional
     PSPs be allowed to provide payphones, or requiring that the PSP
     secure its contract through a competitive bidding process that
     ensures the lowest possible rate for callers. If a market failure
     persists after such action, the state should recommend the matter
     to the Commission for possible investigation.[^213] In addition,
     during the second phase, after the initial year of flat-rate
     compensation, we may review, at our option, the deregulation of
     local coin rates nationwide and determine whether marketplace
     disfunctions, such as locational monopolies where the size of the
     location or the caller\'s lack of time to identify potential
     substitute payphones, exist and should be addressed by the
     Commission. At this point, if we find that the deregulation of
     local coin rates warrants a modification of our approach due to
     market failures, we may choose, for example, to set a cap on the
     number of calls subject to compensation from particular payphones
     to limit the exercise of locational market power. Absent such a
     finding, at the conclusion of the second phase, the market-based
     local coin rate at these payphones will be the default compensation
     rate for all compensable calls in absence of an agreement between
     the PSP and the carrier-payor.

117. 

118. With regard to \"411\" directory-assistance calls, we noted that,
     while incumbent LECs in many jurisdictions currently do not charge
     the payphone caller for \"411\" calls made from their own phones,
     the LECs charge independent payphone providers for
     directory-assistance calls made from their payphones, and are not
     always allowed by the state to pass those charges on to
     callers.[^214] We conclude that we must ensure fair compensation
     for \"411\" and other directory assistance calls from payphones by
     permitting the PSP to charge a market-based rate for this service,
     although a PSP may decline to charge for this service if it
     chooses. In addition, to help ensure that a LEC does not
     discriminate in favor of its own payphones, we conclude that if the
     incumbent LEC imposes a fee on independent payphone providers for
     \"411\" calls, then the LEC must impute the same fee to its own
     payphones for this service.

119. 

120. [Completed Calls]{.underline}. We agree with the commenters that,
     because Section 276(b)(1)(A) mandates compensation for \"each and
     every [completed]{.underline} intrastate and interstate call,\" we
     must determine what constitutes a \"completed\" call for purposes
     of per-call compensation. We conclude that a \"completed call\" is
     a call that is answered by the called party. We have previously
     found that, where an 800 calling card call is routed through an
     IXC\'s platform, it should not be viewed as two distinct calls \--
     one to the platform and one to the called party.[^215] In addition,
     in [Florida Public Telecommunications Ass\'n v. FCC]{.underline},
     the United States Court of Appeals for the District of Columbia
     Circuit emphasized the one-call nature of a subscriber 800 call
     from the caller\'s point of view.[^216] A number of commenters
     contend that the Commission should use a duration surrogate for
     completed calls. We conclude that exempting calls from per-call
     compensation because they are not of a requisite duration, whether
     25 seconds[^217] or 60 seconds,[^218] would not be in accordance
     with Section 276\'s mandate that \"[each and every]{.underline}
     completed intrastate and interstate call\" be compensated.[^219] In
     addition, to comply with this mandate, we conclude that, as argued
     by the RBOCs, multiple sequential calls made through the use of a
     payphone\'s \"#\" button should be counted as separate calls for
     compensation purposes.[^220]

121. 

122. The RBOCs argue that the phrase \"call using their payphone\" in
     Section 276(b)(1)(A) covers completed calls [received]{.underline}
     by payphones as well as those [originated]{.underline} by
     payphones.[^221] Bell Atlantic, BellSouth, PacTel, and NYNEX,
     maintain that the Commission should look to compensating incoming
     calls at some unspecified point in the future.[^222] We do not
     agree, however, that Section 276(b)(1)(A) was intended to apply to
     both incoming and outgoing calls.[^223] Because PSPs may block
     incoming calls, they are able to restrict use of their payphones if
     they are concerned about a lack of compensation. For this reason,
     we conclude that incoming calls are not within the purview of
     Section 276, and we are not required, as a result, to address them
     in the instant proceeding.

123. 

124. [Payphone Fraud]{.underline}. The Commission has recognized, since
     it first addressed the issue of compensation for subscriber 800
     calls in 1991, that a PSP \"could attach an autodialer to a
     payphone and have it place repeated 800 calls \... to increase the
     amount of compensation \[it\] receives.\"[^224] Section 227(b)(1)
     of the Act states that it is unlawful for any person to use an
     autodialer to call \"any service for which the called party is
     charged for the call\[.\]\"[^225] We conclude that this provision
     bars the use of autodialers to generate payphone compensation by
     calling toll-free 800 numbers, which are billed to the called
     party. A number of commenters argue that the Commission must take
     strong enforcement action against those who engage in autodialer
     fraud. We agree. We will aggressively take action against those
     involved in such fraud. We have authority under the 1996 Act and
     our rules to take civil enforcement action against a payphone
     provider who deliberately violates the Commission\'s compensation
     rules by placing toll free calls simply to obtain compensation from
     the carriers. More importantly, such activity may be fraud by wire
     and subject to criminal penalties.[^226] Should we receive
     information that a PSP is using, or is allowing use of, its
     facilities in this manner, we will refer the matter to the
     appropriate law enforcement agencies for criminal prosecution.
     Contrary to suggestions by some commenters,[^227] it is not
     necessary, nor would it be in the public interest, for the
     Commission to select a particular method of per-call compensation,
     such as a marginal cost-based approach, or a particular
     compensation amount, [i.e.]{.underline} low enough to discourage
     fraud, simply to avoid the possibility of fraud.

125. 

126. Both Frontier and Sprint argue that the Commission should adopt a
     definition of \"payphone\" for compensation purposes.[^228] We have
     previously adopted a definition of \"payphone\" in the access code
     call compensation proceeding, although the definition is used only
     for purposes of the billing and collection of the compensation in
     that proceeding.[^229] We concluded that payphones appearing on the
     LEC-provided customer-owned, coin-operated telephone (\"COCOT\")
     lists were payphones that are eligible for compensation.[^230] If a
     payphone provider does not subscribe to an identifiable payphone
     service, or if its payphone is omitted from the COCOT list in
     error, the provider is required to provide alternative verification
     information to the IXC paying compensation.[^231] We conclude that
     this definition of \"payphone,\" regardless if the payphone in
     question is independently- or LEC-provided, will be sufficient for
     the payment of compensation as mandated by Section 276 and the
     instant proceeding. In addition, as discussed below,[^232] all
     payphones will be required to transmit specific payphone coding
     digits as a part of their automatic number identification
     (\"ANI\"), which will assist in identifying them to compensation
     payors. Beyond the immediate purposes of paying compensation, we
     conclude that a payphone is any telephone made available to the
     public on a fee-per-call basis, independent of any other commercial
     transaction, for the purpose of making telephone calls, whether the
     telephone is coin-operated or is activated either by calling
     collect or using a calling card.[^233]

127. 

128. [Compensation Amount]{.underline}. In the [Notice]{.underline}, we
     noted that \"while we are still confronted in the instant
     proceeding by the lack of reliable \[independent payphone
     provider\] cost data,\" we tentatively concluded that \"PSPs should
     be compensated for their costs in originating \... calls\" using
     their payphones.[^234] We tentatively concluded further that these
     costs should be measured by appropriate cost-based
     surrogates.[^235] We sought comment, in particular, on whether some
     measure of generic or industry-wide costs is available, or whether
     incumbent LEC costs would be a reasonable surrogate for the costs
     of independent payphone providers.[^236] Upon review of the
     comments submitted in response to the [Notice]{.underline}, we find
     that while few parties provided cost surrogate data, the RBOCs,
     Peoples, IPTA, and MCI, among others, present studies on payphone
     costs. These studies vary in both their approaches to calculating
     compensation and their conclusions on the appropriate per-call
     compensation amount that the Commission should adopt.

129. 

130. A number of commenters, notably the IXCs, argue that the Commission
     should use the marginal cost of originating a payphone call as the
     basis for compensating PSPs. We conclude that use of a purely
     incremental cost standard for all calls could leave PSPs without
     fair compensation for certain types of payphone calls, because such
     a standard would not permit the PSP to recover a reasonable share
     of the joint and common costs associated with those calls.[^237] We
     also reject, for similar reasons, suggestions by commenters that we
     use local coin rates currently in place as a surrogate for a
     per-call compensation.[^238] As we stated in the
     [Notice]{.underline}, \"local coin rates in some jurisdictions may
     not cover the marginal \[incremental\] cost of the service.\"[^239]
     Therefore, basing the per-call compensation amount on current local
     coin rates, which are frequently subsidized by state regulators,
     would not fairly compensate the PSPs. We also reject use of the
     \$.12 per-call compensation amount the Commission first discussed
     in its 1991 [Notice of Proposed Rulemaking]{.underline} in the
     access code call compensation proceeding. We never adopted the
     \$.12 per-call amount, and that rate was effectively rejected when
     the Commission adopted a \$6 flat rate per payphone per month based
     on a per-call rate of \$.40.[^240]

131. 

132. On the other hand, the RBOCs and the independent payphone providers
     propose that the Commission use market-based surrogates to support
     a per-call compensation amount. In particular, these commenters
     provide data on both the average commissions paid to independent
     payphone providers by AT&T on 0+ calls and the average commission
     received by independent payphone providers on 0+ calls from all
     IXCs. Previously, in the access code call compensation proceeding,
     we relied upon AT&T 0+ commissions as a measure of the fair value
     of the service provided by independent payphone providers when they
     originate an interstate call.[^241] We conclude that use of 0+
     commission data would tend to overcompensate PSPs, because these
     commissions may include compensation for factors other than the use
     of the payphone, such as a PSP\'s promotion of the OSP through
     placards on the payphone. We, therefore, reject use of this
     commission data, as provided by the RBOCs and independent payphone
     providers, to calculate the per-call compensation amount.

133. 

134. Because we have established elsewhere in this [Report and
     Order]{.underline} that the payphone marketplace has low entry and
     exit barriers and will likely become increasingly
     competitive,[^242] we conclude that the market (or the states,
     where there are special circumstances) is best able to set the
     appropriate price for payphone calls in the long term. We conclude
     further that the appropriate per-call compensation amount
     ultimately is the amount the particular payphone charges for a
     local coin call, because the market will determine the fair
     compensation rate for those calls. For example, if the rate at a
     particular payphone is \$.35, absent an agreement between the PSP
     and the carrier-payor for a different amount, then the PSP should
     receive \$.35 for each compensable call (access code, subscriber
     800, and directory assistance). If a rate is compensatory for local
     coin calls, then it is an appropriate compensation amount for other
     calls as well, because the cost of originating the various types of
     payphone calls are similar. Although the Commission tentatively
     concluded in the [Notice]{.underline} that PSPs should be
     compensated for their costs in originating calls, as these costs
     are measured by appropriate cost-based surrogates, we conclude that
     deregulated local coin rates are the best available surrogates for
     payphone costs and are superior to the cost surrogate data provided
     by the commenters.

135. 

136. We conclude that the per-call compensation amount equal to the
     local coin rate, is a default rate that will apply only in the
     absence of a negotiated agreement between the parties. PSPs, IXCs,
     subscriber 800 carriers, and intraLATA carriers may agree on an
     amount for some or all compensable calls that is either higher or
     lower than the local coin rate at a given payphone. In absence of
     an agreement, the PSP shall be entitled to receive compensation for
     compensable calls at a per-call rate equal to its local coin rate,
     which represents the market-based rate for a call at the payphone
     in question.

137. 

138. Before we move to a local coin call default rate, however, we find
     it necessary to observe over time how the payphone marketplace will
     function in the absence of regulation. In particular, consumers
     facing time constraints may not be able to find, in certain
     locations, a reasonable substitute for a payphone located on the
     premises. In these cases where the location provider has an
     exclusive contract with a PSP, the PSP may be able to charge
     supra-competitive prices. The location provider would share in the
     resulting \"locational rents\" through commissions paid by PSPs. To
     the extent that market forces cannot ensure competitive prices at
     such locations, we may want to continue regulating, along with the
     states, the provision of payphone services generally or in
     particular types of locations where the size of the location or the
     caller\'s lack of time to identify potential substitute payphones
     could lead to locational monopolies. To allow us to ascertain the
     status of competition in the payphone marketplace, we conclude that
     we should establish the default per-call rate for two years before
     leaving it to the market to set rate, absent any changes in our
     rules. More specifically, as discussed below,[^243] for the first
     year after the effective date of the rules adopted in this
     proceeding, IXCs will pay flat-rate compensation to PSPs. After the
     initial year, when per-call tracking capabilities will be in place,
     we conclude that IXCs will be required to pay a default rate of
     \$.35 per call, which is the local coin rate in four of the five
     states that have deregulated their local calling rates.[^244] We
     conclude that the market-based rate in these states is the best
     evidence of a per-call compensation amount that will fairly
     compensate PSPs. Therefore, for the limited purpose of calculating
     compensation for PSPs for the first two years of compensation (one
     year of flat-rate and one year of per-call compensation), we will
     use a default rate of \$.35 per call, which is the rate in the
     majority of states that have allowed the market to determine the
     appropriate local coin rate. As discussed above,[^245] the
     carrier-payor and the PSP may agree to a compensation rate that is
     different, and, therefore, the default rate would not apply. For
     coinless payphones, which by definition do not have a local coin
     rate, the default rate will remain \$.35 per call for as long as
     this rate is fairly compensable under Section 276(b)(1)(A).

139. 

140. Various parties ask us to provide for either upward adjustments in
     the per-call amount to account for inflation,[^246] or downward
     adjustments to take advantage of technological advances.[^247] We
     conclude that by making the per-call amount subject to
     negotiations, the marketplace will make the appropriate
     adjustments, whether upward or downward. We set this compensation
     rate as a default rate to be applied only if the PSP and the IXC
     are unable to negotiate some other form of compensation for
     compensable calls. Negotiations may lead to rates other than the
     default rate for several reasons. First, because virtually all of
     the costs are fixed costs and are not incurred on a per call basis,
     an IXC and a PSP might agree to a fixed compensation rate rather
     than compensation for the monthly number of calls. Second, there
     may be locations in which a payphone would not be financially
     viable if compensated at only \$.35 per compensable call, but would
     be viable at a higher compensation rate. If an IXC still found it
     profitable to carry calls at this higher rate, then it would be in
     the mutual interest of the two parties to negotiate a higher rate.
     Third, the IXCs may choose to pass on the per-call compensation
     rate to their customers. In the case of 800 subscriber calls, the
     IXC could pass on the cost to the called party. If the called party
     refused to accept calls for which it was charged \$.35, but was
     willing to accept calls with a lower charge, the IXC and the PSP
     may find it in their mutual interest to negotiate a per-call rate
     lower than \$.35. Fourth, in locations where a competing payphone
     could be placed without the permission of the location provider, a
     PSP may be willing to negotiate a lower rate than \$.35, rather
     than give an IXC the incentive to place a competing payphone.

141. 

142. Some PSPs argue that they should be entitled to a per-call
     compensation amount greater than that set for local coin calls. In
     particular, inmate payphone providers argue that their costs of
     originating calls are greater than that of other payphone
     providers, which should entitle them to a special compensation rate
     of \$.90 per call.[^248] We conclude at this juncture, however,
     that mandating a per-call amount for inmate payphones, which do not
     allow local coin calls, could possibly lead to a double recovery of
     costs already included in higher-than-average operator service
     rates and special surcharges on end-user phone bills for calls made
     on these payphones, as argued by Gateway, an inmate payphone
     provider that opposes a greater per-call amount.

143. 

144. MCI argues that semi-public payphones should not receive any
     per-call compensation.[^249] Section 276(d) states, however, that
     \"in this section, the term \'payphone service\' means the
     provision of public or semi-public pay telephones\....\" Pursuant
     to this definition, all subsidies for semi-public payphones are
     terminated under Section 276(b)(1)(B), just as they are for public
     payphones, \"in favor of a compensation plan as specified in
     subparagraph (A)\[.\]\" Therefore, we conclude that, contrary to
     MCI\'s arguments, semi-public payphones are entitled to receive
     per-call compensation in the same manner as public payphones.

145. 

146. We reject the argument by four states that Section 276 applies only
     to payphones provided by the BOCs.[^250] While Section 276(a),
     which the states cite as support for their argument, applies only
     to the BOCs, as do Sections 276(b)(1)(C) and Section 276(b)(1)(D),
     the remainder of Section 276 applies to all payphones, regardless
     of their provider.[^251] When Congress intended to limit the scope
     of a particular provision in Section 276 to the BOCs, it used the
     term \"Bell operating company.\"[^252] Otherwise, it used the term
     \"all payphone service providers\[,\]\"[^253] or simply \"payphone
     service providers.\"[^254] For example, Section 276(b)(1)(A) states
     that the per-call compensation plan must \"ensure that
     [all]{.underline} payphone service providers are fairly
     compensated\[.\]\"[^255] In addition, Section 276(b)(1) states that
     the Commission shall take action to \"promote competition among
     payphone service providers and promote the widespread deployment of
     payphone services to the benefit of the general public\[.\]\"[^256]
     Therefore, based on the plain language of the statute, we conclude
     that Section 276 grants us the requisite authority to adopt rules
     that apply to all payphones, regardless of their provider, except
     where the language clearly applies only to the BOCs. Further, the
     legislative history of Section 276 refers to both the BOCs and
     independent payphone service providers.[^257]

147. 

148. **2. [Entities Required to Pay Compensation]{.underline}**

149. 

150. **a. [The Notice]{.underline}**

151. 

152. In the [Notice]{.underline}, the Commission stated that either a
     \"carrier-pays\" system, where the IXC who receives the call would
     be required to pay a per-call charge to the provider of the
     payphone, or a \"set use fee\" system, where the toll-carrier would
     bill and collect from the end user and then remit payment to the
     PSP, would satisfy the requirements of the 1996 Act.[^258] The
     Commission stated, however, that the carrier-pays mechanism is
     preferable because it would result in less transaction costs
     because the toll-carrier could aggregate its payments to payphone
     providers.[^259] Under a set use fee, the Commission stated, these
     payments would be spread among a vast number of payphone callers
     through their individual telephone bills.[^260] Therefore, the
     Commission tentatively concluded that the appropriate compensation
     mechanism is a \"carrier-pays\" mechanism that builds on existing
     procedures under which IXCs currently pay access code call
     compensation.[^261] Commenters were encouraged to include data on
     the transaction costs that would likely be imposed by either the
     \"carrier-pays\" or \"set use fee\" compensation mechanisms.[^262]

153. 

154. **b. [Comments]{.underline}**

155. 

156. A wide range of commenters, including AT&T, the RBOCs, GTE, various
     states, and some independent payphone providers, supports the
     Commission\'s tentative conclusion that a \"carrier-pays\" system
     for per-call compensation should be adopted.[^263] They argue that
     this approach is the least burdensome, most cost effective, and
     places the obligation to pay on the primary economic beneficiary of
     the calls, the carrier that carries the call.[^264] Some parties
     assert that under this system, or any other system in which the
     carrier is responsible for paying compensation, it is the
     underlying, facilities-based carrier that should be responsible for
     paying compensation to PSPs.[^265] Two debit card providers argue
     that IXCs and LECs should not be permitted to pass on the costs of
     per-call compensation exclusively to 800 subscribers.[^266]
     Frontier contends that, under the carrier-pays system, LECs as well
     as IXCs should be required to pay compensation.[^267] Frontier also
     contends that the Commission should adopt a carrier-pays system
     that is administered by the LECs, who, unlike the IXCs, will be
     able to leverage their existing business relationships as billing
     and collection agents for other carriers.[^268]

157. 

158. Other commenters, including APCC, MCI, and Sprint, contend that the
     Commission should adopt a \"set use fee,\" which would be collected
     by the carrier that handles the call and remitted to the PSP to
     compensate it for the use of its payphone.[^269] These commenters
     argue that such a government-mandated fee would give visibility to
     the costs of payphone compensation, and would appropriately place
     these costs on the cost causer and lead to better economic
     decisions.[^270] They also argue that the carrier-pays approach
     involves greater transaction costs than the set use fee, and that
     the carrier-pays approach is simply a payment of a subsidy to
     PSPs.[^271] Other parties specifically oppose a set use fee on the
     grounds, among others, that it would make the IXC an involuntary
     billing agent for the PSPs.[^272] With regard to subscriber 800
     calls, PageNet, a paging service whose customers use subscriber 800
     numbers, contends that charging 800 subscribers a set use fee would
     be an unjust and unreasonable practice under Section 201(b) of the
     Act.[^273] In addition, Intellicall, a debit card provider, argues
     that imposing fees on 800 subscribers would interfere with existing
     contracts between carriers and debit card providers.[^274] While
     favoring a \"carrier-pays\" system, PacTel argues that the
     Commission should \"grandfather\" the existing set use fee imposed
     at the state level by the California PUC.[^275] The RBOCs further
     argue that the Commission should grandfather all existing state set
     use fees.[^276] On the other hand, Sprint and MWAA argue that the
     Commission must preempt all existing state set use fees and that
     the states must be directed to follow federal compensation models
     to avoid inconsistent state regulations.[^277]

159. 

160. Various commenters, including small IXCs and paging services, argue
     that the Commission should adopt what they call a \"caller-pays\"
     compensation system.[^278] Under this system, the calling party
     would always pay for the call by either depositing a coin or by
     billing the charge to a credit card or calling card.[^279] For
     subscriber 800 calls, the calling party would always be required to
     deposit a coin into the payphone.[^280] These commenters argue all
     of the following: this approach would be no more burdensome than a
     local coin call; it would reduce transaction costs; and it would
     avoid the coin-free approach that is inconsistent with CPE
     treatment.[^281] At least two commenters dispute the Commission\'s
     statement in the [Notice]{.underline} that TOCSIA barred the
     Commission from imposing a coin-deposit compensation system for
     access code calls.[^282] The two commenters argue that the adoption
     of rate guidelines or a rate cap would not be a prescription of
     advance payment by callers, as prohibited by TOCSIA.[^283] A number
     of parties oppose either a fee imposed on the calling party or the
     coin-deposit requirement for certain types of calls under this
     system.[^284] They argue that the impact on callers should be
     either minimized or transparent.[^285]

161. 

162. Conquest, Intellicall, MobileMedia, and PageNet contend that the
     Commission should recover the funds necessary for per-call
     compensation by raising the monthly subscriber line charge
     (\"SLC\") that is paid by all telephone customers.[^286] They argue
     that because payphones are used at one time or another by virtually
     all telephone customers, they should collectively bear the cost of
     per-call compensation. In addition, they argue that there are no
     reliable data that show which segments of the population use
     payphones more than others.[^287]

163. 

164. Some commenters argue that some parties should either be exempted
     from the obligation to pay per-call compensation or be allowed to
     \"phase-in\" their payment obligations. TRA and Scherers argue that
     resellers of interexchange service should not be required to pay
     per-call compensation, at least on an interim basis, because they
     are unable to pass on these costs without severely impacting their
     business.[^288] TRA, ITA, and American Express further argue that
     all existing debit cards should be \"grandfathered\" and the
     carriers exempted from having to pay per-call compensation on the
     calls associated with those cards.[^289] ITA and Voice contend that
     per-call compensation obligations associated with debit cards
     should be phased in after six months.[^290]

165. 

166. **c. [Discussion]{.underline}**

167. 

168. We agree with those commenters who maintain that the primary
     economic beneficiary of payphone calls should compensate the
     PSPs.[^291] We conclude that the \"carrier-pays\" system for
     per-call compensation places the payment obligation on the primary
     economic beneficiary in the least burdensome, most cost effective
     manner. The Commission has previously adopted such an approach in
     the access code compensation proceeding, and the compensation
     participants have created a payment system that is an appropriate
     model for this proceeding.[^292] We conclude that the carrier-pays
     system also gives IXCs[^293] the most flexibility to recover their
     own costs, whether through increased rates to all or particular
     customers, through direct charges to access code call or subscriber
     800 customers, or through contractual agreements with individual
     customers. Although some commenters would have the Commission limit
     the ways in which carriers could recover the cost of per-call
     compensation,[^294] we conclude that the marketplace will
     determine, over time, the appropriate options for recovering these
     costs. In addition, under the carrier-pays system, individual
     carriers, while obligated to pay a specified per-call rate to PSPs,
     have the option of recovering either a different amount from their
     customers, including no amount at all. We conclude further that all
     IXCs that carry calls from payphones are required to pay per-call
     compensation.

169. 

170. In the [Notice]{.underline}, we discussed the option of adopting a
     \"set use fee, \" which would be collected by the carrier and
     remitted to the PSP to compensate it for the use of its
     payphone.[^295] We tentatively concluded that this system involved
     greater transactions costs than the carrier-pays system, because a
     set use fee would spread payments among a vast number of payphone
     callers through their individual telephone bills.[^296] A number of
     commenters maintain that the set use fee would involve fewer
     transaction costs and that the carrier-pays system represents the
     payment of a subsidy to PSPs.[^297] We disagree and conclude that
     the Commission\'s mandating that a particular set use fee be
     imposed and collected from callers on millions of payphone calls
     would lead to far greater transaction costs than through the
     carrier-pays system, particularly given the flexibility the carrier
     has under the carrier-pays system to recover the costs of per-call
     compensation as it sees fits.

171. 

172. The \"caller-pays\" system advocated by a number of commenters is a
     variation of the set use fee under which the caller, as the \"cost
     causer,\" would always be required to deposit coins to make a
     subscriber 800 call, and would have the option of either depositing
     coins or receiving a charge through a calling card for placing
     other types of calls that do not use a payphone\'s presubscribed
     carrier.[^298] For reasons similar to those cited for rejecting the
     set use fee system, we likewise reject the caller-pays system.
     While depositing coins into a payphone to make, for example, a
     subscriber 800 call may not be more burdensome than a local coin
     call and may involve fewer transaction costs than a billed charge,
     we found in the [Notice]{.underline} that any payment system that
     relies upon the deposit of coins \"would appear to unduly burden
     many transient payphone callers by requiring them to deposit coins
     in addition to providing call-billing information.\"[^299] We also
     noted in the [Notice]{.underline} that \"TOCSIA expressly prohibits
     the Commission from adopting compensation rules for interstate
     access code calls that require \'advance payment by
     consumers.\'\"[^300] At least two commenters argue that the
     Commission could interpret this statutory prohibition as applying
     only to the prescription of a specific compensation amount, which
     would not preclude adoption of compensation amount guidelines,
     including a coin-deposit approach,[^301] but we conclude that such
     an approach would contradict the congressional intent, and possibly
     the plain language, of Section 226(e)(2) of the Act.[^302] We also
     reject the approach suggested by some commenters that the
     Commission should increase the monthly SLC, which compensates a LEC
     for non-traffic-sensitive costs associated with the use of its
     network, for all telephone customers to fund the per-call
     compensation system. We conclude that raising the SLC for this
     purpose would be contrary to the goals of the Act, because these
     payments would not be borne by either the primary economic
     beneficiary of payphone calls or the cost causer.

173. 

174. Some commenters, including APCC, GTE, New York DPS, and Indiana
     URC, argue that it is the underlying, facilities-based carrier that
     should be required to pay compensation to the PSP in lieu of a
     non-facilities-based carrier that resells services, for example, to
     specific subscribers or to debit card users.[^303] We agree.
     Although we have concluded that the primary economic beneficiary of
     payphone calls should bear the burden of paying compensation for
     these calls, we conclude that, in the interests of administrative
     efficiency and lower costs, facilities-based carriers should pay
     the per-call compensation for the calls received by their reseller
     customers.[^304] Because they do not have their own networks, it
     would be significantly more burdensome for resellers to track calls
     from payphones. In addition, telecommunications services are often
     sold in advance, particularly in the debit card context, and resold
     more than once before a caller ultimately uses the service. In such
     situations, it would be difficult to identify the party that is
     liable for the per-call compensation. We conclude further that the
     facilities-based carriers may recover the expense of payphone
     per-call compensation from their reseller customers as they deem
     appropriate, including negotiating future contract provisions that
     would require the reseller to reimburse the facilities-based
     carrier for the actual payphone compensation amounts associated
     with that particular reseller.

175. 

176. Various commenters, notably resellers and debit card providers,
     argue that the Commission should either exempt them on an interim
     basis from the obligation to pay compensation, or to
     \"grandfather\" debit cards that have already been issued from the
     compensation obligation. We conclude that, because Section 276
     creates no exceptions for calls facilitated by resellers or debit
     card providers, such exemptions from the obligation to pay
     compensation, even on an interim basis, would be contrary to the
     congressional mandate that we ensure fair compensation for \"each
     and every completed intrastate and interstate call.\"[^305] While
     we have not placed the burden of paying per-call compensation
     directly on resellers or debit card providers, we conclude that the
     underlying carrier must begin paying compensation on all
     compensable calls facilitated by its reseller and debit card
     customers and it is, in turn, permitted to impose the payphone
     compensation amounts on these customers.

177. 

178. **3. [Ability of Carriers to Track Calls From
     Payphones]{.underline}**

179. 

180. **a. [The Notice]{.underline}**

181. 

182. The Commission tentatively concluded, in the [Notice]{.underline},
     that tracking mechanisms and surrogates exist, or might readily be
     made available, to support the per‑call compensation plan mandated
     by Section 276(b)(1)(A).[^306] We sought comment on what tracking
     options are currently, or may soon be, available. Additionally, we
     sought further comment on the ability of existing IXC-based
     tracking mechanisms to accommodate all payphone providers and IXCs.
     In the event that no standard technology or mechanism available for
     tracking exists, the Commission sought comment on alternative
     surrogate methodologies that could be devised. Finally, we sought
     comment on which party or parties, whether IXCs, PSPs, or intraLATA
     carriers, should be required to develop and maintain the tracking
     or surrogate methodologies.[^307]

183. 

184. The Commission also tentatively concluded that IXCs and intraLATA
     carriers should be required to initiate an annual independent
     verification of their per‑call tracking functions, to be made
     available for FCC inspection, to ensure that they are tracking all
     of the calls for which they are obligated to pay
     compensation.[^308] Additionally, the Commission sought comment on
     whether BOCs and other LECs that provide network tracking for their
     own payphones should be required to make those tracking services
     available to independent payphone providers at the same rates,
     terms, and conditions as they provide themselves.[^309]

185. 

186. **b. [Comments]{.underline}**

187. 

188. The RBOCs support the Commission\'s tentative conclusion that the
     requisite technology currently exists for carriers to track calls
     routed to them from payphones.[^310] The RBOCs argue further that
     no standardized technology for tracking calls needs to be
     prescribed by the Commission, and that carriers should be permitted
     to use whatever technology they prefer to meet their tracking
     obligations.[^311] They request that, if the Commission requires
     the carrier receiving the call to provide the call tracking, then
     the Commission should not preclude LECs and PSPs from developing
     their own call tracking capabilities.[^312] The RBOCs also contend
     that the Commission should establish both a timeline for achieving
     full call tracking capabilities within 12 months after the
     effective date of the rules, and interim compensation rates based
     on average calling rates until then.[^313]

189. 

190. The RBOCs, USTA, Sprint, One Call, California PUC, and others argue
     that the Commission should require that IXCs that receive the calls
     from payphones be obligated to provide the call tracking necessary
     for compensation.[^314] These parties argue that only IXCs can
     track calls to completion, IXCs are the primary economic
     beneficiary of these calls, and that non-IXC tracking surrogates
     are not reliable.[^315] Ameritech argues, on the other hand, that
     the IXCs should not be required to track calls, except during a
     brief transition period.[^316]

191. 

192. Other commenters note difficulties that they argue are inherent
     with IXC tracking capabilities. MCI and Sprint argue that each
     payphone should be required to generate 07 or 27 coding digits
     within the automatic number identification (\"ANI\") for the
     carrier to track calls.[^317] AT&T states that it currently cannot
     track subscriber 800 calls because it receives only the ANI of the
     terminating telephone.[^318] Because it estimates that a per-call
     tracking ability for subscriber 800 calls will take one year to
     achieve, AT&T argues that the Commission should use a surrogate for
     these calls, which relies on \"studies made from a representative
     weighted sample of central-office-implemented payphones.\"[^319]
     The RBOCs propose a year phase-in period for tracking subscriber
     800 calls, but argue that AT&T\'s proposed surrogate would rely on
     central-office-implemented or \"dumb\" payphones, which are found
     in low usage areas and, therefore, would underestimate the volume
     of subscriber 800 calls.[^320] USTA also supports relying on a
     surrogate for subscriber 800 calls for a one year transition
     period.[^321] Some IXCs, such as MCI, Cable & Wireless, and
     CompTel, contend that carrier tracking is not practical or
     appropriate, and that it would involve substantial new
     investment.[^322] Cable & Wireless estimates that it would require
     a \$1 million investment to establish a tracking mechanism for all
     of the calls that its network carries.[^323] Cable & Wireless also
     contends that requiring IXCs to track calls would lead to an
     impossible administrative task on the part of the carriers, because
     the IXCs would need to search all of their call records to identify
     and separate out calls from payphones.[^324]

193. 

194. APCC argues that the Commission has a number of options for
     mediating the per-call tracking burden of the small carriers. One
     option, according to APCC, would be to require the LECs to track
     calls on behalf of small IXCs.[^325] A second option, APCC argues,
     would be to relieve small carriers of the tracking obligation and
     have them pay per-call compensation, particularly for subscriber
     800 calls, on a flat rate per month according to their percentage
     of toll revenue or, if possible, their percentage of overall
     payphone and non-payphone 800 service traffic.[^326] The RBOCs
     contend, on the other hand, that the small carriers should be
     required to track individual calls using payphones or contract out
     the tracking to another party, because carriers that benefit from
     being in the market must accept the responsibilities that go with
     it.[^327]

195. 

196. Various commenters, particularly some IXCs and Ameritech, argue
     that the Commission should place the obligation to track calls
     using a payphone on LECs, PSPs, or a combination of both. For
     example, CompTel argues that LECs should provide the tracking, and
     the PSPs should pay the LECs for this service.[^328] MCI and
     Indiana URC contend that LECs and PSPs should share the
     responsibility for tracking calls.[^329] WorldCom argues that
     per-call tracking should be the responsibility of the LECs,[^330]
     while Ameritech and Scherers argue that the PSPs should assume this
     obligation.[^331] These parties contend that LEC- or PSP-based
     tracking would be superior because those who want payment must keep
     count of compensable calls and bill for them, and all payphones
     will soon be able to obtain call detail information to make this
     possible.[^332] Ameritech argues that the Commission should require
     IXCs to process answer supervision for LECs engaged in
     tracking.[^333] The RBOCs, GTE, and NECA oppose a tracking system
     that would place the responsibility for tracking calls on
     LECs.[^334] They argue both that the Commission should not
     disproportionately burden the LECs while other parties receive the
     primary benefit for these calls, and that only IXCs can track calls
     to completion and detect multiple calls within a single dialing
     transaction.[^335] USTA contends that LECs are not able to track
     subscriber 800 calls.[^336]

197. 

198. The RBOCs support the Commission\'s tentative conclusion that
     carriers should be required to initiate an annual independent
     verification of their per-call tracking functions for a period of
     two years, provided that both the Commission and PSPs be allowed to
     inspect this verification.[^337] APCC argues that the Commission
     should require annual independent audits of carriers\' per-call
     tracking functions and require the carriers to compare their data
     against parallel LEC or smart payphone data.[^338] Telaleasing
     argues that such an audit should occur on a quarterly basis.[^339]

199. 

200. **c. [Discussion]{.underline}**

201. 

202. Based on the information in the record, we conclude that the
     requisite technology exists for IXCs to track calls from payphones.
     We recognize, however, that tracking capabilities vary from carrier
     to carrier, and that it may be appropriate, for an interim period,
     for some carriers to pay compensation for \"each and every
     completed intrastate and interstate call\" on a flat-rate basis
     until per-call tracking capabilities are put into place, as
     discussed below.

203. 

204. We conclude further that, as stated in the [Notice]{.underline}, it
     is the responsibility of the carrier, whether it provides intraLATA
     or interLATA services, as the primary economic beneficiary of the
     payphone calls, to track the calls it receives from
     payphones,[^340] although the carrier has the option of performing
     the tracking itself or contracting out these functions to another
     party, such as a LEC or clearinghouse. In other words, while we
     assign the burden of tracking on the carrier receiving the call
     from a payphone, parties to a contract may find it economically
     advantageous to place this tracking responsibility on another
     party. We decline to require LECs or PSPs to perform per-call
     tracking themselves. Neither LECs nor PSPs are the primary economic
     beneficiaries of payphone calls. We conclude, however, that LECs,
     PSPs, and the carriers receiving payphone calls should be able to
     take advantage of each other\'s technological capabilities through
     the contracting process. To this end, we agree with the RBOCs and
     conclude that no standardized technology for tracking calls is
     necessary, and that IXCs may use the technology of their choice to
     meet their tracking obligations.[^341]

205. 

206. MCI and Sprint contend that each payphone should be required to
     generate 07 or 27 coding digits within the ANI for the carrier to
     track calls.[^342] We agree. Currently under our rules, LECs are
     required to tariff federally originating line screening (\"OLS\")
     services that provide a discrete code to identify payphones that
     are maintained by non-LEC providers.[^343] We conclude that LECs
     should be required to provide similar coding digits for their own
     payphones.

207. 

208. AT&T states that it currently cannot track subscriber 800 calls
     because it receives only the ANI of the terminating telephone, and
     it estimates that a per-call tracking ability for subscriber 800
     calls will take one year to achieve.[^344] Other commenters, such
     as the RBOCs and USTA, propose a one-year transition before
     carriers are required to track subscriber 800 calls. In view of the
     current difficulties in tracking such calls, we conclude that a
     transition is warranted for requiring carriers to track compensable
     calls. Therefore, we require carriers to provide for tracking of
     all compensable calls they receive from payphones, through any
     arrangement they choose, as soon as possible, but no later than one
     year from the effective date of the rules adopted in this
     proceeding.[^345] Until that date, carriers must pay flat-rate
     compensation, as specified below.[^346]

209. 

210. We recognize that implementing a per-call tracking capability will
     require new investments for some carriers, particularly small
     carriers, but we conclude that the mandate of Section 276 that we
     ensure a fair \"per call compensation plan\" for \"each and every
     completed intrastate and interstate call\" requires these carriers
     to provide tracking for calls for which they receive revenue, even
     though they previously did not have to compensate the PSP for many
     of these calls. We conclude further that, by permitting carriers to
     contract out their per-call tracking responsibility, and by
     allowing a transition for tracking subscriber 800 calls, we have
     taken the appropriate steps to minimize the per-call tracking
     burden on small carriers. In addition, we conclude that, to
     parallel the obligation of the facilities-based carrier to pay
     compensation, the underlying, facilities-based carrier has the
     burden of tracking calls to its reseller customers, and it may
     recover that cost from the reseller, if it chooses.

211. 

212. In the [Notice]{.underline}, we tentatively concluded that carriers
     should be required to initiate an annual verification of their
     per-call tracking functions to be made available for FCC inspection
     upon request, to ensure that they are tracking all of the calls for
     which they are obligated to pay compensation. We require this
     verification for a one-year period, the 1998 calendar year, and
     delegate to the Chief, Common Carrier Bureau, the authority to
     establish the form and content, if necessary, of the verification
     documentation of these per-call tracking capabilities. We conclude
     that requiring carriers to maintain the appropriate records and
     certify as to the accuracy of both the data and the tracking
     methodology would facilitate the prompt and accurate payment of
     per-call compensation. We also conclude that PSPs should be allowed
     to inspect this certification, apart from any proprietary network
     data. In addition, we expect that the PSPs and carriers performing
     the tracking will work together to reconcile or explain any PSP
     data that are inconsistent with the annual certification. We
     decline to adopt, however, the suggestions of some commenters that
     we require a full-scale independent audit of a carrier\'s tracking
     capability, or mandate that the verification occur on a quarterly
     basis. A full-scale audit or a quarterly verification would impose
     too great of a burden on carriers in an area where we have
     encouraged them to use technology and other arrangements of their
     choice in implementing a per-call tracking capability.

213. 

214. **4. [Administration of Per-Call Compensation]{.underline}**

215. 

216. **a. [The Notice]{.underline}**

217. 

218. In the [Notice]{.underline}, the Commission tentatively concluded
     that the direct-billing arrangement established for the payment of
     compensation from IXCs to PPOs should be used with the simple
     addition of requiring IXCs, and the intrastate interexchange
     operations of LECs, to send back to each PSP a statement indicating
     the number of toll-free and access code calls that each carrier has
     received from each of that PSP\'s payphones.[^347] The Commission
     also proposed to establish a requirement that the carrier
     responsible for paying compensation file annually a brief report
     with the Common Carrier Bureau listing the total amount of
     compensation paid, pursuant to the rules adopted in this
     proceeding, to PSPs for intrastate, interstate, and international
     calls; the number of compensable calls received by the carrier; and
     the number of payees.[^348] Such a requirement would help ensure
     that the carriers are tracking all of the calls for which they are
     obligated to pay compensation.[^349]

219. 

220. Because the compensation mechanism proposed in the
     [Notice]{.underline} uses the ANI as the basis for tracking calls,
     the Commission tentatively concluded that minimal regulatory
     guidelines for the industry should be adopted regarding resolution
     of disputed ANIs in the per-call compensation context.[^350]
     Possible guidelines for which the Commission has sought comment are
     as follows: (1) intraLATA carrier provision of a list of payphone
     ANIs to IXCs ([e.g.]{.underline}, each quarter); (2) verification
     of disputed ANIs by intraLATA carrier on request; (3) maintenance
     of verification data for at least 18 months after the close of a
     compensation period; (4) acceptance of compensation claims once an
     intraLATA carrier makes a positive identification of an installed
     payphone; (5) IXC denial of payment for compensation claims that
     are submitted by a PSP over one year after the end of the period in
     question.[^351]

221. 

222. **b. [Comments]{.underline}**

223. 

224. APCC argues that the compensation payor should bear the costs
     associated with the administration of the compensation
     mechanism.[^352] Various commenters argue that the Commission
     should use a direct-billing arrangement for the payment of
     compensation from IXCs to PSPs that is similar to the one adopted
     in the access code call compensation proceeding.[^353] MCI argues
     that under the Commission\'s proposed direct-billing arrangement,
     carriers should be required to report to the Commission only the
     total amount of compensation paid to all PSPs annually.[^354] Other
     commenters, notably the small IXCs, contend that the LECs are
     better equipped than the IXCs and intraLATA carriers to administer
     the payment of per-call compensation.[^355] Some of these
     commenters argue that PSP-administered compensation would be
     preferable to that handled by the carriers receiving the payphone
     calls.[^356] SDN argues that compensation should be based on a
     national formula and administered by the individual states.[^357]

225. 

226. The RBOCs, Sprint, APCC, and Peoples support the Commission\'s
     tentative conclusion that minimal regulatory guidelines for the
     industry should be adopted regarding resolution of disputed
     ANIs.[^358] They argue that LECs must be given an incentive to
     provide accurate and timely verification of ANIs for independently
     provided payphones.[^359] MCI argues that a dispute resolution
     process is not necessary if payphones are required to transmit
     certain information digits associated with payphone-originated
     calls.[^360]

227. 

228. The commenters also make a number of suggestions on the possible
     dispute resolution guidelines articulated by the Commission in the
     [Notice]{.underline}. GTE argues that mandatory procedures in this
     area are not necessary, because of the increased costs they will
     entail.[^361] In addition, GTE argues that PSPs are able to file a
     complaint with the Commission when they have a dispute regarding
     compensation.[^362] With regard to the list of payphone ANIs
     provided each quarter by the LECs, AT&T argues that it is the LEC
     that provides the payphone line that must provide the list, not the
     intraLATA carrier presubscribed to the payphone.[^363] GVNW argues
     that requiring LECs to furnish IXCs with a quarterly list of ANIs
     is too costly and burdensome, and technology-based solutions to
     tracking problems will eventually make this list unnecessary.[^364]
     AT&T requests that the Commission require the LECs to submit the
     ANI list to the IXCs within 30 days of the end of a compensation
     period.[^365]

229. 

230. AT&T and Sprint contend that if the LEC does not provide
     verification of a disputed payphone ANI, carriers should not be
     required to pay compensation.[^366] AT&T further contends that LECs
     should be required to provide verification in a timely
     fashion.[^367] MICPA argues that carriers should not be able to use
     delays in LEC verification to delay the payment of compensation to
     PSPs.[^368] APCC argues that the Commission should impose a penalty
     for LECs that do not make a verification when requested.[^369] MCI
     suggests that if a payphone is disconnected, the LEC should be
     required to notify the compensation-paying carriers within 24
     hours.[^370] NTCA contends that the possible guidelines outlined by
     the Commission would impose too great of a burden on small
     LECs.[^371] MCI argues that the statute of limitations for the
     payment of compensation should not be tolled while ANIs are being
     disputed.[^372] Two state associations of independent payphone
     providers argue that the Commission must prohibit the carriers from
     imposing undue burdens on PSPs before paying compensation.[^373]

231. 

232. A number of independent payphone providers argue that the
     Commission should shorten the quarterly compensation period.[^374]
     Peoples and Telaleasing both suggest that carriers should pay
     compensation to PSPs on a monthly basis.[^375] MCI argues that it
     should not be required to pay compensation on claims more than
     three months old.[^376] Sprint argues that, to reduce the
     administrative burden and costs associated with the payment of
     compensation, carriers should be allowed to defer payment to PSPs
     until the PSP is due to receive a minimum of \$10 from that
     carrier.[^377] The RBOCs contend that the Commission should impose
     a penalty on carriers who demonstrate a wilful failure to pay
     compensation.[^378] APCC argues that PSPs should be allowed to
     charge interest for payments that have been due for more than 90
     days.[^379]

233. 

234. To facilitate the payment of compensation, CompTel argues that PSPs
     should register with a central resource all payphones for which
     carriers must pay compensation.[^380] It argues that this step
     would reduce administrative costs for all parties, avoid
     duplication of efforts, and negate the risk of multiple payments to
     separate parties claiming ownership of the same payphone.[^381]
     APCC argues that, to avoid additional payment disputes, each LEC
     bill for payphone service must affirmatively state that it is for
     payphone service.[^382]

235. 

236. **c. [Discussion]{.underline}**

237. 

238. We conclude that we should adopt a direct-billing arrangement
     between IXCs and PSPs, once tracking capabilities are in place,
     that would build on the arrangement established in the access code
     call compensation proceeding, with the addition of the requirement
     that these carriers must send back to each PSP a statement
     indicating the number of toll-free and access code calls that each
     carrier has received from each of that PSP\'s payphones.[^383] This
     arrangement places the burden of billing and collecting
     compensation on the parties who benefit the most from calls from
     payphones \-- carriers and PSPs. For this reason, we conclude that
     it would not be appropriate to burden LECs with the administration
     of the per-call compensation mechanism, because their economic
     interest in the compensable calls is significantly less than that
     of the IXCs and PSPs. While PSPs could be efficient administrators
     of a compensation mechanism, we conclude that the carriers already
     responsible for tracking the calls and paying compensation for them
     have the greatest ability and incentive to establish the most
     efficient means of administering the payment of compensation. As
     with the tracking of calls, carrier-payors are free to use
     clearinghouses, similar to those that exist for access code call
     compensation, or to contract out the direct-billing arrangement
     associated with the payment of compensation. We decline to leave it
     to the individual states to administer compensation, as suggested
     by SDN,[^384] because we believe the parties can agree on a
     solution more efficient than the likely varying approaches adopted
     by each of the states.

239. 

240. We also proposed in the [Notice]{.underline} to establish a
     requirement that the carrier responsible for paying compensation
     file each year a brief report with the Common Carrier Bureau
     listing the total compensation paid to PSPs for intrastate,
     interstate, and international calls; the number of compensable
     calls carried by the carrier; and the number of payees.[^385] Such
     a requirement would help ensure that the carriers are tracking all
     of the calls for which they are obligated to pay compensation. This
     requirement will apply to calendar year 1998, when tracking
     capabilities are in place and compensation is being paid on a
     per-call basis. While MCI argues that carriers should be required
     to report only the total amount of compensation to all PSPs
     annually, we conclude that more detailed reporting is necessary to
     monitor the per-call payphone compensation mechanism in its initial
     complete calendar year to help ensure that all IXCs are paying
     their respective compensation obligations. We conclude further
     that, once per-call compensation is routinely paid by IXCs, this
     reporting requirement will be terminated after the carriers have
     filed their reports for the 1998 calendar year.[^386]
     Carrier-payors should file their reports as soon as possible after
     the end of the calendar year, but no later than the end of the
     first quarter of the following year. To implement the reporting
     requirement, we delegate to the Chief, Common Carrier Bureau, the
     authority to establish the form and content, if necessary, of the
     annual report listing the total amount of compensation paid to
     PSPs, including the authority to extend or limit the scope of this
     report.

241. 

242. While we have elected to burden the LECs only insignificantly in
     creating the per-call compensation mechanism mandated by Section
     276 of the Act, we conclude that we must establish minimal
     regulatory guidelines for the payphone industry regarding
     resolution of disputed ANIs to give LECs[^387] a greater incentive
     to provide accurate and timely verification of ANIs for
     independently provided payphones. While any party may file a
     complaint with the Commission about disputed ANIs, we conclude that
     the better practice is for LECs who maintain the list of ANIs to
     work with both carrier-payors and PSPs to resolve disputes more
     efficiently and quickly before lodging a complaint with the
     Commission. We also conclude that we should require that each LEC
     must submit to each carrier-payor on a quarterly basis a list of
     ANIs of all payphones in the LEC\'s service area (called the
     \"COCOT list\" in the access code call compensation
     proceeding).[^388] We disagree with GVNW\'s proposal that
     furnishing the quarterly list of ANIs is too costly and burdensome
     for LECs. As stated above, we have attempted to minimize the
     burdens on LECs, and no party has shown that there is currently an
     effective substitute for this list, despite the future promise of
     technological solutions.

243. 

244. In response to the various arguments made by commenters, we
     conclude that the following guidelines will facilitate the proper
     verification of payphone ANIs by LECs. First, LECs must provide a
     list of payphone ANIs to carrier-payors within 30 days of the close
     of each compensation period (i.e., each quarter). Second, LECs must
     provide verification of disputed ANIs on request, in a timely
     fashion. Such verification data must be maintained and available
     for at least 18 months after the close of a compensation period.
     Third, once a LEC makes a positive identification of an installed
     payphone, the carrier-payor must accept claims for that payphone\'s
     ANI until the LEC provides information, on a timely basis, that the
     payphone has been disconnected. Fourth, a LEC must respond to all
     requests for ANI verification, even if the verification is a
     negative response. Carrier-payors are not required to pay
     compensation once the LEC verifies that the particular ANI is not
     associated with a COCOT line for which compensation must be paid.
     Fifth, carrier-payors should be able to refuse payment for
     compensation claims that are submitted long after they were due.
     Carriers should not refuse payment on timeliness grounds, however,
     for ANIs submitted by a PSP up to one year after the end of the
     period in question. Further, the period for a PSP to bring a
     complaint to the Commission based on an ANI disputed by the
     carrier-payor will not begin to accrue until the carrier-payor
     issues a final denial of the claim.

245. 

246. We conclude that the guidelines, as outlined above, will facilitate
     the proper verification of payphones without imposing undue burdens
     on LECs, PSPs, or carrier-payors. In adopting these guidelines, we
     reject a number of proposals by commenters. First, in response to
     the argument of AT&T and Sprint that they not be required to pay
     compensation when a LEC fails to verify a particular ANI, we
     conclude that by directing LECs to respond to all requests for
     verification, carriers should be able to avoid payment only when
     the LEC issues a negative response to the verification inquiry.
     Second, we conclude that mandating a penalty on the LEC, as urged
     by APCC, for failing to respond to a verification request in a
     timely manner, is not necessary when the Commission\'s complaint
     process is available. Similarly, the complaint process is available
     to PSPs for instances of a carrier\'s wilful failure to pay
     compensation, as discussed by the RBOCs. We note that we will
     aggressively take action on such complaints. Third, we conclude
     that requiring a LEC to notify all carrier-payors of a payphone
     disconnection within 24 hours would be too great a burden to place
     on LECs, particularly when they are required to provide ANI lists
     only on a quarterly basis. Such notification, however, should occur
     on a basis as timely as possible. Fourth, we conclude that, for
     purposes of bringing a complaint before the Commission concerning a
     carrier\'s payment of payphone compensation, the time period for
     the statute of limitations does not begin to run until after the
     carrier-payor considers a compensation claim and issues a final
     denial of the claim. To conclude otherwise, as suggested by MCI,
     would permit a carrier-payor to delay a denial of the claim to
     preclude a PSP\'s complaint remedy before the Commission.

247. 

248. Various independent payphone providers argue that we should require
     compensation to be paid on a monthly basis. In the access code call
     compensation proceeding, we allowed the parties to determine how
     and when compensation would be paid, and quarterly compensation
     period was adopted by the industry through consensus.[^389] While
     the industry may decide upon a similar compensation period for
     per-call compensation, we leave the details associated with the
     administration of this compensation mechanism to the parties to
     determine for themselves through mutual agreement.[^390] We
     disagree, however, with MCI\'s proposal that carriers not be
     required to pay compensation claims that are more than three months
     old. Because a carrier-payor\'s administrative expenses are
     presumably reduced through the payment of compensation on a
     quarterly, as opposed to monthly, basis, we conclude that the
     reasonable trade-off is that the carrier remains liable, as
     discussed above,[^391] for compensation claims that are submitted
     within one year of the end of the compensation period in question.
     The parties may themselves revisit this issue if they elect a
     shorter compensation period. Sprint argues that a carrier should be
     allowed to defer payments to individual PSPs until the amount due
     aggregates to \$10 from that carrier to the particular PSP for all
     of its payphones. We agree and conclude that such a requirement
     would reduce the administrative expenses associated with the
     payment of compensation. If PSPs would like to charge interest on
     overdue payments from IXCs, as suggested by APCC,[^392] they should
     negotiate such a provision in their compensation agreement with the
     particular carrier.

249. 

250. We agree with APCC that the payment of compensation would be
     facilitated and some disputes avoided if LECs were required to
     state affirmatively on their bills to PSPs that the bills are for
     payphone service. We conclude that LECs who have knowledge that a
     particular phone line is used for a payphone, must indicate on that
     payphone\'s monthly bill that the amount due is for payphone
     service. We also agree with CompTel\'s suggestion that the
     registration of all payphones with a central resource or
     clearinghouse would reduce administrative costs for all parties and
     would avoid duplication of efforts. We decline, however, to mandate
     the creation of a central resource or clearinghouse for
     compensation purposes, and believe that the parties themselves are
     better able to establish such a resource that would be directly
     connected to the payment of compensation.

251. **5. [Interim Compensation Mechanism]{.underline}**

252. 

253. **a. [The Notice]{.underline}**

254. 

255. The Commission sought comment on whether independent payphone
     providers should receive some measure of interim compensation, to
     be paid until the effective date of the final rules adopted in this
     proceeding, for the growing volume of dial-around calls originated
     from their payphones.[^393] Those who support such relief were
     instructed to comment on the appropriate interim compensation
     amount, how such an interim compensation mechanism could be
     structured, and the feasibility of implementing an interim plan
     when final rules are required to be in place in nine months.[^394]
     The Commission also requested comment on the legal basis for, and
     practical consequences of, making such interim compensation
     effective as of the release date of the [Notice]{.underline}.[^395]

256. 

257. **b. [Comments]{.underline}**

258. 

259. Various independent payphone providers and BellSouth argue that the
     Commission should prescribe interim relief for independent payphone
     providers, retroactive to the date of the [Notice]{.underline} and
     to be paid until the effective date of the rules adopted in this
     proceeding, for the growing volume of dial-around calls originated
     from their payphones.[^396] They argue that independent payphone
     providers, unlike the LECs, are uncompensated for the majority of
     coinless calls that use their payphones, and that the quantity of
     these calls is increasing.[^397] They also argue that delays for
     unforeseen reasons will likely impact the effective date of the
     final rules in this proceeding, which makes an interim relief
     mechanism a necessity for the survival of their businesses.[^398]
     These commenters suggest compensation amounts that range from \$.40
     on a per-call basis[^399] to \$24,[^400] \$38.70,[^401] and
     \$40[^402] on a flat rate per phone basis. Intellicall suggests
     that the Commission prescribe interim relief through a
     \"caller-pays\" coin deposit approach.[^403] BellSouth also argues
     that LEC-owned payphones should be eligible to receive interim
     relief once they have removed all subsidies from their payphone
     operations.[^404] The RBOCs, GTE, AT&T, MCI, Sprint, and One Call
     all oppose granting interim relief to independent payphone
     providers.[^405] They argue that such relief would be
     unadministrable because it would require parties to participate in
     two payment systems, and interim relief would be without a
     statutory basis.[^406] AT&T states that it does not oppose interim
     relief for access code calls only.[^407]

260. 

261. **c. [Discussion]{.underline}**

262. 

263. Because the IXCs required to pay compensation to PSPs are not
     required to track individual compensable calls until one year from
     the effective date of the rules adopted in this proceeding, we
     conclude that PSPs should be paid monthly compensation on a flat
     rate by IXCs with annual toll revenues in excess of \$100 million,
     beginning on the effective date of the rules adopted in this
     proceeding and ending on October 1, 1997.[^408] This flat-rate
     monthly compensation will apply proportionally to individual IXCs,
     based on their respective annual toll revenues. For reasons of
     administrative convenience of the parties, we conclude that we
     should model the interim mechanism adopted in this [Report and
     Order]{.underline} on that set forth in the access code call
     compensation proceeding.[^409] In the access code compensation
     proceeding, CC Docket No. 91-35, we excused several carriers from
     the obligation to pay flat-rate compensation for originating access
     code calls, because they certified that they were not providers of
     \"operator services,\" as defined by TOCSIA.[^410] We note that
     Section 276\'s requirement that we ensure fair compensation for
     \"each and every completed intrastate and interstate call,\"
     including access code calls, supersedes the compensation
     obligations established in CC Docket No. 91-35, including the
     waivers granted to AT&T and Sprint.[^411] Because Section 276 is
     the statutory authority for mandating per-call compensation for all
     compensable calls, including access code calls, the statutory
     exclusion in TOCSIA for those carriers that are not providers of
     \"operator services\" is no longer a basis for being excused from
     the obligation to pay either the total flat-rate compensation
     amount established in the instant proceeding, or a portion thereof.

264. 

265. In the [Notice]{.underline}, we set forth the history of the
     flat-rate compensation mechanism we adopted for access code calls.
     TOCSIA had directed the Commission to determine whether independent
     payphone providers should receive compensation for originating
     interstate calls to non-presubscribed OSPs from their
     payphones.[^412] The Commission concluded in the [Second Report and
     Order]{.underline} that a per-call compensation mechanism was
     preferable because it would create greater incentives for PPOs to
     place their payphones in locations that generate the most traffic.
     The Commission concluded, however, that it was not technically
     feasible to implement such a mechanism at that time.[^413] Instead,
     the Commission adopted flat-rate compensation in the amount of \$6
     per phone per month (based on average of 15 access code calls at a
     rate of \$.40 per call), on an interim basis.

266. 

267. When we adopted a compensation mechanism for interstate access code
     calls, the Commission concluded that, because they did not involve
     use of a \"carrier-specific access code\"[^414] and were routed
     directly to an end user, subscriber 800 calls were not within the
     class of calls for which TOCSIA directed the Commission to consider
     compensation.[^415] The Commission, therefore, limited compensation
     to interstate \"access code calls.\"[^416] In July 1992, in
     response to a petition for reconsideration by the APCC, the
     Commission affirmed its conclusion that subscriber 800 calls were
     not within the Commission\'s definition of interstate \"access code
     calls\" for which compensation should be paid.[^417] In 1992, after
     the Commission affirmed its exclusion of subscriber 800 calls from
     the class of compensable access code calls, the Florida Pay
     Telephone Association (\"FPTA\") sought judicial review in the
     United States Court of Appeals for the District of Columbia Circuit
     of this aspect of the [First Report and Order]{.underline} and the
     [Subscriber 800 Reconsideration Order]{.underline}. In its [Florida
     Payphone]{.underline} decision,[^418] the Court found no reason to
     distinguish between the routing of access code calls and subscriber
     800 calls. Therefore, it reversed and remanded the case to the
     Commission to \"consider the need to prescribe compensation for
     subscriber 800 calls \'routed to providers of operator services
     that are other than the presubscribed provider of operator
     services.\'\"[^419]

268. 

269. We first re-examine the basis for setting the \$.40 per-call
     compensation amount that was aggregated to a flat rate of \$6 per
     month. In the 1992 [Second Report and Order]{.underline}, the
     Commission identified three reasonable compensation approaches that
     established a range of reasonable compensation rates. The three
     approaches were: (1) as a surrogate for independent payphone
     provider costs, access charge compensation that a LEC receives for
     its regulated provision of payphones; (2) as a measure of value to
     OSPs of receiving access code calls, charges for a transfer by a
     LEC live operator to an OSP of the caller\'s choice (\"O- transfer
     service charges\"); and (3) AT&T\'s federally regulated operator
     service rates on calls made from payphones presubscribed to
     AT&T.[^420] We conclude that these three approaches, which are
     based on a different standard than that in Section 276, are
     inapplicable for determining interim compensation in the instant
     proceeding. Our focus in the instant proceeding is to let the
     market set the appropriate compensation amount. As discussed
     above,[^421] for the limited purpose of calculating compensation
     for PSPs on a flat-rate basis until per-call compensation becomes
     mandatory we will use a rate of \$.35 per call, which is the rate
     in the majority of states that have allowed the market to determine
     the appropriate local coin rate.

270. 

271. We next re-examine the average number of access code calls
     originated by a payphone per month. In 1992, the Commission found
     that the average was 15 calls. As summarized below, data on the
     record in the instant proceeding indicate that the average number
     of access code calls per month is now considerably higher. In
     addition, similar data show the volume of subscriber 800 calls
     generated by the average payphone.

272. 

273. Various independent payphone providers and the RBOCs submitted data
     on the average number of access code and subscriber 800 calls
     originated respectively by their payphones. Together, these data
     cover payphones located in geographically diverse areas across the
     country. Peoples, the largest independent provider, states that
     each of its payphones originates, on average, 43 access code calls
     and 86 subscriber 800 calls per month (total of 129 compensable
     calls).[^422] Communications Central, another large independent
     payphone provider, states that each of its payphones originates an
     average of 49.5 access code calls and 79.7 subscriber 800 calls per
     month (total of 130 compensable calls).[^423] Telaleasing states
     that each of its payphones originates an average of 37 access code
     calls and 87 subscriber 800 calls per month (total of 124
     compensable calls).[^424] APCC states that it surveyed
     approximately 100,000 payphones owned by 20 diverse providers and
     found that, in a three-month period in 1996, each payphone
     originated an average of 40 access code calls and 100 subscriber
     800 calls per month (total of 140 compensable calls).[^425] Data
     provided by the RBOCs show that the payphones maintained by five of
     the seven RBOCs originate, on average, 52 access code calls and 80
     subscriber 800 calls per payphone per month (total of 132
     compensable calls).[^426]

274. 

275. The data on the record from the five PSP sources noted in the
     preceding paragraph yield similar average monthly compensable call
     volumes. Based on the call volume data provided by the PSPs, we
     conclude that, for purposes of calculating flat-rate compensation,
     that the average payphone originates a combined total of 131 access
     code calls and subscriber 800 calls per month.[^427] When 131 calls
     per month is multiplied by the \$.35 compensation amount, the
     monthly flat-rate compensation amount is \$45.85. We conclude that
     this \$45.85 flat-rate amount must be paid by carriers,
     proportionally to their annual toll revenues, to PSPs. This
     flat-rate obligation applies to access code calls and subscriber
     800 calls originated on or after the effective date of the rules
     adopted in this proceeding.[^428] PSPs that are affiliated with
     LECs will not be eligible for this interim compensation until the
     first day of the month following their reclassification and
     transfer of payment equipment along with the termination of
     subsidies, as discussed below.[^429]

276. 

277. We decline to require that per-call compensation be paid
     retroactive to the date of release of the
     [Notice]{.underline}.[^430] We conclude that the rules adopted in
     this [Report and Order]{.underline}, including the requirement that
     interim flat-rate compensation be paid until per-call tracking
     capabilities are in place, provides compensation to PSPs as soon as
     practicable. For the same reasons discussed elsewhere in this
     [Report and Order]{.underline},[^431] we also reject Intellicall\'s
     argument that interim compensation be mandated through a \"caller
     pays\" coin-deposit approach.

278. 

279. 

280. **B. [RECLASSIFICATION OF INCUMBENT LEC‑OWNED
     PAYPHONES]{.underline}**

281. 

282. In the foregoing Part, we establish rules and guidelines to ensure
     that PSPs are fairly compensated for calls originating at their
     payphones. For certain PSPs \-- those who are LECs \-- the new
     compensation arrangement can be implemented only upon the
     discontinuance of the regulatory system under which they now
     recover their costs of providing payphone service. In this Part, we
     describe the necessary steps for the LECs\' transition to the new
     compensation framework, and set a schedule for the LECs\'
     implementing actions.

283. 

284. Section 276(b)(1)(B) directs the Commission to \"discontinue the
     intrastate and interstate carrier access charge payphone service
     elements and payments in effect on such date of enactment, and all
     intrastate and interstate payphone subsidies from basic exchange
     and exchange access revenues, in favor of a \[per‑call\]
     compensation plan\[.\]\"[^432] Currently, incumbent LEC payphones,
     classified as part of the network, recover their costs from Carrier
     Common Line (CCL) charges assessed on those carriers that connect
     with the incumbent LEC. In order to comply with Section
     276(b)(1)(B) by removing payphone costs from the CCL charge and all
     intrastate and interstate payphone subsidies from basic exchange
     and exchange access revenues, the [Notice]{.underline} sought
     comment on: (1) the prospective classification of incumbent LEC
     payphones as Customer Premises Equipment (CPE); (2) the transfer of
     incumbent LEC payphone equipment assets from regulated to
     nonregulated status; (3) the termination of access charge
     compensation and all other subsidies for incumbent LEC payphones;
     and (4) the classification of AT&T payphones.

285. 

286. **1. [Classification of LEC Payphones as CPE]{.underline}**

287. 

288. **a. [The Notice]{.underline}**

289. 

290. In the [Notice]{.underline}, we tentatively concluded that
     incumbent LEC payphones should be treated as nonregulated,
     detariffed CPE.[^433] We also proposed that incumbent LECs, whether
     or not they provide payphone service, must offer individual central
     office coin transmission services to PSPs under a
     nondiscriminatory, public, tariffed offering.[^434] To this end, we
     sought comment on both the central office coin services that must
     be made available by incumbent LECs to the PSPs to achieve this
     goal, and the type of services and the technological requirements
     necessary to allow independent payphone providers to use payphones
     that are equivalent to those payphones currently used by LECs. In
     addition, we sought comment on any industry standards that may need
     to be developed with respect to potential claims regarding any
     demonstrable network reliability concerns that may result from PSPs
     connecting their payphones that make use of central office coin
     transmission services.[^435]

291. 

292. Because the incumbent LECs have used central office coin services
     in the past, but have not made these services available to
     independent payphone providers for use in their provision of
     payphone services, we sought comment on whether incumbent LEC
     provision of coin transmission services on an unbundled basis
     should be treated as a new service under our price cap rules.[^436]
     Because incumbent LECs may have an incentive to charge their
     competitors unreasonably high prices for these services, we
     tentatively concluded that the new services test is necessary to
     ensure that central office coin services are priced
     reasonably.[^437] Additionally, we sought comment on whether
     incumbent LECs not currently subject to price cap regulation should
     be required to submit cost support for their central office coin
     services, pursuant to Sections 61.38, 61.39, and 61.50(i) of our
     rules.[^438]

293. 

294. We also tentatively concluded that Section 68.2(a)(1) of our rules
     should be amended to facilitate registration of both
     instrument-implemented and central-office-implemented payphones and
     sought comment on this tentative conclusion.[^439] In addition, we
     tentatively concluded that the demarcation point for all new LEC
     payphones should be consistent with the minimum point of entry
     standards for other wireline services and, in addition, tentatively
     concluded that the demarcation point should be the same one as
     incumbent LECs use for independent payphone providers today.[^440]
     Finally, we sought comment on what services (such as fraud
     protection, installation and maintenance services, joint marketing
     opportunities, per-call tracking capabilities, and call validation
     services) other than those associated with central office coin
     transmission services provided to their own payphones by incumbent
     LECs, particularly the BOCs, should be unbundled under the rules to
     be adopted in this proceeding and made available to PSPs.[^441]

295. 

296. **b. [Comments]{.underline}**

297. 

298. **i. [CPE Deregulation]{.underline}**

299. 

300. Most of the parties support reclassifying payphone equipment as CPE
     and generally assert that deregulating payphone equipment is
     important in establishing a competitive payphone market.[^442] Ohio
     PUC, on the other hand, argues that payphones should be detariffed
     but not deregulated and a charge should be imputed for LEC
     payphones.[^443] Florida PSC supports deregulating payphones
     because needed functionalities are available either from the set or
     the network and because deregulation will ensure that payphone
     service is not subsidized. Florida PSC argues, however, that
     smaller LECs should be given a choice whether to deregulate CPE,
     because separating costs is burdensome.[^444] Ameritech contends
     that payphone deregulation should apply to all LECs, not just
     incumbent LECs, because Section 276 (b)(1)(B) is not limited in
     applicability.[^445]

301. 

302. The RBOCs argue that there should be a twelve-month transition
     period to nonregulated status for payphone CPE.[^446] Others argue
     there should be no transition period, or a shorter period than
     twelve months, for example, 90 days after release of an
     order.[^447] BellSouth argues that it should be able to conduct
     deregulated operations immediately on the release of this [Report
     and Order]{.underline}.[^448]

303. 

304. GPCA argues that a separate subsidiary should be required for BOCs
     that merge.[^449] Ohio PUC argues that Tier 1 LECs should provide
     payphones through a separate subsidiary if payphone equipment is
     deregulated.[^450] Most of the parties, however, do not argue that
     a separate subsidiary is required[^451] and Florida PSC argues that
     it should be the option of the LEC.[^452] The RBOCs argue that the
     Commission\'s accounting safeguards and price cap rules are
     sufficient to deter cross-subsidization.[^453] They also argue that
     a separate subsidiary requirement is against the plain language of
     the 1996 Act and that such a requirement was dropped from the
     Senate version.[^454] PacTel argues that the nonstructural
     safeguards of [Computer III]{.underline} were expressly mandated by
     Section 276.[^455]

305. 

306. **ii. [Unbundling of Payphone Services]{.underline}**

307. 

308. The RBOCs and PacTel argue that the Commission should not require
     more unbundling than is necessary to ensure that PSPs and LECs are
     able to use the same payphones \-- standard central-office coin
     line and the alternate (smart set) access line. They also argue
     that the unbundling criteria used in [Computer III]{.underline}
     should apply to any further unbundling.[^456] California PUC and
     GTE state that access line and central office transmission services
     should be tariffed.[^457] Ameritech states that it will offer
     tariffed coin line service, centralized office based coin rating,
     and signaling functionality, or payphone line (like business
     line).[^458] GPCA argues that coin line and alternate access line
     do not provide all the needed capabilities.[^459] MCI argues that
     the BOCs should provide all functionalities used in their delivery
     of payphone services on a nondiscriminatory basis, including coin
     transmission services and other associated services.[^460]

309. 

310. GVNW argues that the interconnection rules must be flexible for
     small LECs because small LECs do not implement payphone services in
     the same way as do the BOCs, and that small LECs should only have
     to provide payphone services to others that they are providing to
     themselves.[^461] AT&T states that competitive access providers
     (CAPs) should not have to offer central office coin service unless
     they provide payphone service themselves.[^462] NCTA and OPASTCO
     argue that LECs should not have to provide a specific set of
     payphone services, such as central coin services, that they are not
     already equipped to provide because of the significant investment
     required to upgrade switches.[^463] Florida PSC states that all
     LECs in Florida tariff payphone blocking, screening, and intercept
     services.[^464]

311. 

312. AT&T argues that LECs should be required to offer under tariff all
     functions used in their delivery of payphone services, including:
     all central office intelligence, answer supervision, collect
     refund, far end disconnect, call blocking and screening options,
     access to some monitoring and disaggregation routines, and 911
     services.[^465] GPCA argues that all network functions must be
     unbundled and charges should be imputed for inputs from regulated
     services. GPCA also argues that the following functions should be
     unbundled: answer supervision, the intercept signal (indicating
     that the call cannot be completed as dialed), coin collect and
     return functionality, and rate schedule functionality. In addition,
     GPCA asserts that these functionalities are necessary to provide
     fraud protection and to ensure that cross subsidies are
     eliminated.[^466] CPA supports GPCA\'s recommended list of
     functionalities.[^467]

313. 

314. AT&T contends that LECs must offer public access line services for
     resale at rates that reflect the economic cost of providing the
     services through TSLRIC-based prices,[^468] while SW Bell argues
     that Section 252 pricing should not apply to Section 276 payphones
     services.[^469] California PUC asserts that LECs should unbundle
     and provide tariffed payphone services and that new services should
     be justified with cost studies.[^470] CPA argues that whatever
     rates are established for payphone services should be imputed to
     the LEC payphone operations.[^471] The RBOCs, USTA and GTE argue
     that unbundled payphone services should be tariffed at the state
     level and therefore not subject to the new services test under the
     Commission\'s rules.[^472]

315. 

316. **iii. [Other Payphone Services]{.underline}**

317. 

318. GPCA asserts that other services should be available on an equal
     access basis, including fraud protection, special number
     assignments, installation and maintenance, billing and collection,
     validation, per call tracking, and joint marketing. GPCA also
     argues that if operator services are available in the LEC network,
     and commissions are paid to the LEC, the commissions should be
     available to independent payphone providers.[^473] MCI contends
     that fraud protection, installation and maintenance, per-call
     tracking, and call validation services should be available to
     independent payphone providers.[^474] The RBOCs and Sprint argue
     that these additional services are not necessary for PSPs to
     provide service.[^475]

319. 

320. **iv. [Registration and Demarcation Point for
     Payphones]{.underline}**

321. 

322. The RBOCs, MCI, and Oklahoma CC assert that Section 68.2(a)(1) of
     our rules should be amended to include registration of both
     instrument-implemented and central-office-implemented
     payphones.[^476] The RBOCs argue that the embedded, installed base
     should be grandfathered but new sets and refurbished sets (with
     added functionality) should have to be registered.[^477] GPCA does
     not oppose grandfathering the installed base of payphones from Part
     68 registration, but argues that refurbished payphones should not
     be grandfathered.[^478] The RBOCs contend that standards for
     interconnection should be established by revising Section 68.3 of
     our rules to include specifications for central-office-implemented
     payphones.[^479] Anchorage Telephone suggests that a technical
     committee should be established to develop interconnection
     standards.[^480]

323. 

324. AT&T, MCI, and Sprint contend that the demarcation point for LEC
     payphones should be the same as it is today for independent
     payphone providers.[^481] GPCA argues that the demarcation point
     should be applied in a nondiscriminatory manner to all payphones
     and that LECs should be required to set demarcation points for
     different types of sites if the points will vary. GPCA also asserts
     that embedded inside wire should be available to all providers on
     an equal basis and that the demarcation point for embedded and new
     inside wire should be the same.[^482] The RBOCs argue that the
     demarcation point should be treated flexibly.[^483] In contrast,
     CPA argues that the demarcation point should not be flexible and
     should be at the minimum point of entry.[^484]

325. 

326. **c. [Discussion]{.underline}**

327. 

328. **i. [CPE Deregulation]{.underline}**

329. 

330. We conclude that to best effectuate the 1996 Act\'s mandate that
     access charge payphone service elements and payphone subsidies from
     basic exchange and exchange access revenues be discontinued,
     incumbent LEC payphones should be treated as deregulated and
     detariffed CPE. The Commission determined in [Computer
     II]{.underline} that CPE should be deregulated and detariffed to
     ensure that the costs associated with regulated services are
     separated from the competitive provision of the equipment used in
     conjunction with those services.[^485] The Commission concluded
     that CPE should be unbundled from its underlying transmission
     service in order to prevent improper cross-subsidization.[^486]
     Consistent with this prior finding, we conclude that LEC payphones
     must be treated as unregulated, detariffed CPE in order to ensure
     that no subsidies are provided from basic exchange and exchange
     access revenues or access charge payphone service elements as
     required by the Act.

331. 

332. In [Computer II]{.underline}, the Commission specifically excluded
     coin-operated payphones from the definition of CPE.[^487] The
     Commission found that, unlike other CPE, which could be unbundled
     from basic exchange service, coin-operated payphones were still
     integrated with the LECs\' network facilities and concluded that
     payphones owned by LECs and AT&T should remain part of regulated
     basic communications service.[^488] The Commission later extended
     this determination to LEC coinless payphones.[^489] Thereafter, the
     Commission, in the [Coin Registration Order]{.underline},
     recognized the right of nonLEC payphone providers to interconnect
     smart payphones to the interstate public switched network.[^490]
     Following this order allowing the interconnection of smart
     payphones, independent payphone providers began to compete with the
     LECs. Currently, there are approximately 1.5 million LEC payphones
     and approximately 350,000 competitively provided payphones.[^491]
     We conclude that the market for payphone CPE is competitive and
     that it is no longer necessary to treat payphone CPE differently by
     integrating LEC payphones with the underlying service. Moreover, we
     conclude that the transient public that uses payphones will best be
     served by the wide availability of competitive payphones services.
     We also conclude that it is not in the public interest to continue
     to treat LEC payphones as regulated equipment, while treating
     independent payphones as CPE, and that deregulation of payphones is
     consistent with the procompetitive approach set forth in Section
     276.[^492] We have recently deregulated inmate payphones[^493]and
     most of the parties in this proceeding agree that incumbent LEC
     payphones should also be deregulated and detariffed.[^494]
     Accordingly, we conclude that incumbent LEC payphones must be
     deregulated, detariffed and classified as CPE for regulatory
     purposes.[^495]

333. We decline to limit the deregulation of payphones to those owned by
     larger LECs, as suggested by the Florida PSC, because Section 276
     is not limited in application to larger LECs. Moreover, we conclude
     that the benefits we have observed in CPE deregulation apply to
     payphones and that these benefits apply regardless of the size of
     the LEC.

334. 

335. We decline to require the BOCs or other incumbent LECs to provide
     their payphone CPE through a structurally separated
     affiliate.[^496] We discuss below the nonstructural safeguards we
     require for BOCs to provide payphone CPE on an integrated basis and
     decline to require, as proposed by some commenters, that other
     incumbent LECs be required to provide CPE through structurally
     separate affiliates. Section 276 does not require LEC or BOC
     provision of payphone service through a separate subsidiary.
     Although the 1996 Act does not specifically prohibit the Commission
     from imposing a separation requirement, it requires the
     establishment of nonstructural safeguards for the BOCs, a clear
     statement that nonstructural safeguards, rather than structural
     separation, are mandated.[^497] Moreover, Section 276 does not
     require even nonstructural safeguards for other LECs. Other
     sections of the 1996 Act, including Section 272, BOC provision of
     interLATA services, and Section 274, BOC provision of electronic
     publishing, specifically require structural separation. In
     addition, in the [BOC CPE Relief Order]{.underline} we removed the
     structural separation requirements established in [Computer
     II]{.underline} for BOC provision of CPE because we concluded that
     nonstructural safeguards were sufficient to deter
     cross-subsidization and discrimination and the high costs of
     mandatory structural separation were not in the public
     interest.[^498] This conclusion is also applicable in the context
     of BOC provision of payphone CPE. We also note that the [Computer
     II]{.underline} structural separation requirements were not applied
     to the provision of CPE by other LECs.[^499] Finally, we note that
     nonstructural accounting safeguards applicable to the BOCs\'
     provision of payphone service are being established in a separate
     proceeding.[^500] Accordingly, we do not impose structural
     separation requirements for the provision of payphones by the BOCs
     or other LECs. As we did in the [BOC CPE Relief Order]{.underline},
     we preempt states\' ability to impose structural separation
     requirements on the payphone operations of the BOCs or other
     LECs.[^501] We do not, however, preempt the states from imposing on
     nonBOC LECs nonstructural safeguards that are no more stringent
     than those we impose on the BOCs.

336. 

337. **ii. [Unbundling of Payphone Services]{.underline}**

338. 

339. We conclude, pursuant to [Computer II]{.underline}, Section 201,
     202, and 276 of the Act, and previous CPE decisions, that incumbent
     LECs must offer individual central office coin transmission
     services to PSPs under nondiscriminatory, public, tariffed
     offerings if the LECs provide those services for their own
     operations.[^502] Under [Computer II]{.underline}, all carriers
     must unbundle basic transmission services from CPE.[^503] Moreover,
     Section 202 of the Act prohibits a carrier from discriminating
     unreasonably in its provision of basic service.[^504] We conclude
     that incumbent LECs must provide coin service so competitive
     payphone providers can offer payphone services using either
     instrument-implemented \"smart payphones\" or \"dumb\" payphones
     that utilize central office coin services, or some combination of
     the two in a manner similar to the LECs. Because the incumbent LECs
     have used central office coin services in the past, but have not
     made these services available to independent payphone providers for
     use in their provision of payphone services, we require that
     incumbent LEC provision of coin transmission services on an
     unbundled basis be treated as a new service under the Commission\'s
     price cap rules. Because incumbent LECs may have an incentive to
     charge their competitors unreasonably high prices for these
     services, we conclude that the new services test is necessary to
     ensure that central office coin services are priced reasonably.
     Incumbent LECs not currently subject to price cap regulation must
     submit cost support for their central office coin services,
     pursuant to Sections 61.38, 61.39, or 61.50(i) of the Commission\'s
     rules.[^505] Incumbent LECs must file tariffs with the Commission
     for these services no later than January 15, 1997. To the extent
     that this requirement precludes the BOCs from complying with the
     [Computer II]{.underline}, [Computer III]{.underline}, and
     [ONA]{.underline} network information disclosure requirements, we
     waive the notice period in order to ensure that these services are
     provided on a timely basis consistent with the other deregulatory
     requirements of this order.[^506] Pursuant to this waiver, network
     information disclosure on the basic network payphone services must
     be made by the BOCs by January 15, 1997.

340. 

341. We conclude that tariffs for payphone services must be filed with
     the Commission as part of the LECs\' access services to ensure that
     the services are reasonably priced and do not include
     subsidies.[^507] This requirement is consistent with the Section
     276 prescription that all subsidies be removed from payphone
     operations. We decline to require, as proposed by AT&T, that the
     pricing regime under Sections 251 and 252 apply to all Section 276
     payphone services offered by incumbent LECs. Section 276 does not
     refer to or require the application of Sections 251 and 252 to LEC
     payphone services. In addition, the elements and services to be
     offered under Sections 251 and 252 are not available to entities
     that are not telecommunications carriers, and many PSPs are not
     telecommunications carriers.[^508] In addition, Section 276 does
     not refer to or require the application of Sections 251 and 252 to
     LEC payphone services. Moreover, Section 276 specifically refers to
     the application of [Computer III]{.underline} and [ONA]{.underline}
     requirements, at a minimum for BOC provision of payphone services.
     Accordingly, we conclude that [Computer III]{.underline} tariff
     procedures and pricing are more appropriate for basic payphone
     services provided by LECs to other payphone providers. Pursuant to
     Section 276(c), any inconsistent state requirements with regard to
     this matter are preempted.

342. 

343. Parties argue that several other network services and network
     elements should be unbundled and provided to payphone providers. We
     decline to impose this requirement on all LECs. We do not find that
     such unbundling is necessary to provide payphone services. In
     addition, some features require substantial costs to make switch
     changes.[^509] Moreover, pursuant to [Computer III]{.underline} and
     [ONA]{.underline} requirements discussed below, BOCs must unbundle
     additional network elements when requested by payphone providers
     based on specific criteria established in the [Computer
     III]{.underline} and [ONA]{.underline} proceedings. In [Computer
     III]{.underline}, we decided that it was not necessary to apply
     this requirement to other LECs, and we similarly conclude that it
     is not necessary to direct other LECs to unbundle additional
     services or unbundled elements in this proceeding because
     additional services are not necessary to provide payphone services
     and because other LECs do not represent the same control of
     payphone facilities as the BOCs.[^510] We note, however, that any
     basic transmission services provided by a LEC to its own payphone
     operations must be available under tariff to other payphone
     providers pursuant to [Computer II]{.underline}.[^511] States may
     impose further payphone service unbundling requirements that are
     not inconsistent with Section 276 requirements and requirements
     established herein.[^512]

344. 

345. **iii. [Other LEC Payphone Services]{.underline}**

346. 

347. We conclude that incumbent LECs should provide certain other
     services to other payphone providers if they provide those services
     to their own payphone operations. These services must be made
     available by the LEC or its affiliate to other payphone providers
     on a comparable basis in order to ensure that other payphone
     providers do not receive discriminatory service from the LECs once
     LEC payphones are deregulated, and to ensure that other payphone
     providers can compete with LEC payphone operations. Specifically,
     parties have indicated the need for the following services to
     enable them to compete effectively for the provision of payphones:
     fraud protection, special number assignments, installation and
     maintenance, billing and collection, validation, per-call tracking,
     and joint marketing. We have already addressed above the per-call
     tracking requirements. We conclude that fraud protection, special
     numbering assignments, and installation and maintenance of basic
     payphone services should be available to other providers of
     payphone services on a nondiscriminatory basis. Validation services
     are required by another proceeding.[^513] We do not require the
     incumbent LECs to joint market the payphone operations of other
     providers. We have concluded that the market for payphone CPE is
     competitive and LECs do not have any specific advantage in
     marketing payphone services in a deregulated payphone market. LEC
     personnel or affiliates will have to market to payphone location
     providers in the same manner as other payphone providers to obtain
     payphone locations. Regarding billing and collection services, we
     conclude that if a LEC provides basic, tariffed payphone services
     that will only function in conjunction with billing and collection
     services from the LEC, the LEC must provide the billing and
     collection services it provides to its own payphone operations for
     these services to independent payphone providers on a
     nondiscriminatory basis.[^514] We expect this requirement to apply,
     for example, in situations where coin services require the LEC to
     monitor coin deposits and such information is not otherwise
     available to third parties for billing and collection. We adopt
     this requirement to ensure that when a LEC has structured its
     payphone services in a way that they could not operate without the
     LECs billing and collection services, those services will be
     available to other payphone providers on the same basis they are
     available to the LEC.

348. 

349. **iv. [Registration and Demarcation Point for
     Payphones]{.underline}**

350. 

351. We amend our Part 68 rules to provide for the registration of
     central-office-implemented coin payphones to enable independent
     payphone providers as well as the LECs to utilize \"dumb\"
     payphones. Under the [Coin Registration Order]{.underline} and
     current Part 68 rules, only instrument-implemented payphones can be
     registered for connection to the network.[^515] Amending our rules
     enables independent payphone providers to have the same choices as
     LECs in providing payphone services. Parties did not object to
     proposed Part 68 changes in the [Notice]{.underline}. Accordingly,
     we adopt amendments to Section 68.2(a)(1) and Section 68.3 of the
     Commission\'s rules to facilitate registration of both
     instrument-implemented and central-office-implemented payphones.
     Consistent with the Commission\'s prior practice with regard to
     existing CPE, in order to avoid unnecessary costs, and because
     these existing phones do not present potential harm to the network,
     we grandfather existing LEC payphones from the our revised Part 68
     requirements, unless the basic functionality in the payphones is
     changed.[^516] We require incumbent LECs to submit proposed
     interconnection requirements to effectuate such interconnection
     within 90 days of the effective date of this order. The California
     Payphone Association (CPA) filed before the Commission a Petition
     for Rule Making requesting that Section 68.2(a)(1) of the rules be
     amended to allow for the registration of all coin-operated
     telephones and that the Commission re-examine and clarify its
     interpretation of Section 68.2(a)(1). We note that our decision
     herein addresses the relief requested in the CPA petition. Our
     [Report and Order]{.underline} also effectively grants a petition
     filed by the Public Telephone Council to treat payphones as
     CPE,[^517] and resolves the issues raised in RM 8723 regarding
     exclusion of public payphones from end user access charges.

352. 

353. Consistent with our objective of treating incumbent LEC and
     independent payphone providers\' payphones in a similar manner, we
     conclude that the demarcation point must be the same as incumbent
     LECs use for independent payphone providers today. Accordingly, the
     demarcation for all new LEC payphones must be consistent with the
     minimum point of entry, demarcation point standards for other
     wireline services.[^518] The Commission has previously allowed
     equipment reclassified as CPE, resulting in a change in the
     demarcation point, to remain in the same location because of the
     costs involved in relocating the equipment.[^519] Accordingly, we
     grandfather the location of all existing LEC payphones in place on
     the effective date of this order because of the difficulty and cost
     of moving these payphones to meet our new demarcation point
     requirements. Similarly, we do not require that network interfaces
     be placed for existing LEC payphones unless these payphones are
     substantially refurbished, for example, upgraded from dumb to smart
     payphones or replaced.

354. 

355. **2. [Reclassification or Transfer of Payphone Equipment to
     Nonregulated Status]{.underline}**

356. 

357. **a. [The Notice]{.underline}**

358. 

359. In the [Notice]{.underline}, we sought comment on the specific
     assets to be transferred, and tentatively concluded that the assets
     to be transferred should be defined generally in terms of CPE
     deregulation.[^520] Thus, we tentatively concluded that the assets
     to be transferred may include all facilities related to payphone
     service, including associated deferred income tax reserves and
     depreciation, but likely would not include the loops connecting the
     payphones to the network, or the central office \"coin‑service\" or
     operator-service facilities supporting incumbent LEC
     payphones.[^521] We proposed to transfer the payphone equipment at
     undepreciated baseline cost plus an interest charge based on the
     authorized interstate rate of return to reflect the time value of
     money.[^522] We also tentatively concluded that a phase-in period
     for a transfer of payphone-related assets is not necessary, because
     payphone terminal equipment consists of less than one percent of
     total plant investment for the entire LEC industry.[^523] In the
     [Notice]{.underline}, we also sought comment on whether our
     approach to asset transfer is consistent with the 1996 Act\'s
     definition of \"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.\"[^524]

360. 

361. **b. [Comments]{.underline}**

362. 

363. Both USTA and MCI indicate that all public telephone terminal
     equipment, including associated assets and depreciation, should be
     transferred, but not loops or central office coin-service or
     operator-service facilities.[^525] GVNW argues that the assets to
     be transferred should include investment, depreciation, maintenance
     and overhead.[^526] Florida PSC asserts that loops and central
     office features should not be deregulated so that they will be
     available to all.[^527] GTE argues that only pay station investment
     should be transferred. [^528] The RBOCs list the assets that should
     be transferred to include: payphones, enclosures, pedestals, coin
     counting machines, vehicles, land, and buildings used solely for
     payphone services.[^529]

364. 

365. GPCA argues that location contracts associated with payphones
     should be assigned an economic value to recover ratepayer equity
     and achieve competitive equity. GPCA contends that the Commission
     can use present value, appraisals, or auctions to value the
     contracts.[^530] Peoples also argues that the contracts should be
     valued, noting that it had valued the location contracts and
     goodwill at approximately 70 percent in a recent purchase of
     payphone assets.[^531] SDPOA argues that the name brand associated
     with LEC payphones should also be valued in the transfer of
     assets.[^532] CPA asserts that LEC payphone assets should be valued
     at a going concern value and that a transfer at net book value
     would give the LECs a competitive advantage.[^533] Brill argues
     that BOCs should not be allowed financial and accounting
     advantages, and cites other competitive advantages that, it states,
     the BOCs have in some jurisdictions.[^534]

366. 

367. Ameritech and USTA argue that the accounting treatment for
     transferred assets should be governed by Section 32.27(c) of our
     rules regarding transactions with affiliates.[^535] USTA argues
     that there is no need to alter our Part 64 rules to create cost
     pools or to change current accounting practices.[^536] Ameritech
     states that Section 32.27(c) requires that assets be transferred at
     the higher of estimated fair market value or net book value and
     that the cost allocation manual process provides the mechanism for
     making the asset transfer.[^537] The RBOCs argue that the payphone
     assets should be valued at net book value, as the Commission has
     done in the past including the recent [Inmate Services
     Order]{.underline},[^538] and that the Commission should require
     LECs to transfer only those assets in their existing regulated
     accounts.[^539] They assert that location contracts are not in
     their regulated accounts and are intangibles that have never been
     recognized in Commission rate proceedings.[^540] The RBOCs also
     argue that establishing market value for payphone assets would be
     costly and cause delays.[^541] AT&T asserts that payphone assets
     should be valued at net book value in accordance with the
     Commission\'s existing rules.[^542]

368. 

369. The RBOCs contend that the asset transfer should occur within 12
     months.[^543] GPCA opposes a delay of up to 12 months for asset
     transfers and elimination of access charge elements and subsidies,
     and argues that these requirements must be completed by November 8,
     1996.[^544] GPCA recommends that the Commission implement
     requirements no later than 90 days after release of this [Report
     and Order]{.underline}.[^545] Ameritech argues that there is no
     need for a phase-in period.[^546] MCI does not object to up to 12
     months for transition, but argues that the Commission should set a
     specific date.[^547] USTA contends that the deregulation should be
     flash cut in order to eliminate subsidies.[^548]

370. 

371. **c. [Discussion]{.underline}**

372. 

373. As an initial matter, we have already determined that neither
     Section 276 nor our past experience requires the BOCs\' competitive
     provision of payphone services to take place on a prospective basis
     through the use of structurally separate affiliates.[^549] Instead,
     in this [Report and Order]{.underline}, we require that, if a BOC
     does not provide payphone services through a separate affiliate, it
     must provide these payphone services using nonstructural safeguards
     as described in our [Computer III Orders]{.underline} and ONA
     proceedings and consistent with Section 276, because we conclude
     that, in the absence of structural separation, our nonstructural
     safeguards provide sufficient protection against the possibility of
     cross-subsidization of nonregulated activities.[^550] Those
     nonstructural safeguards include the cost allocation rules and
     affiliate transactions rules adopted in the [Joint Cost
     Order]{.underline}.[^551] Under those rules, the BOCs and other
     incumbent LECs must classify each of their activities as regulated
     or nonregulated in accordance with our requirements.[^552] We now
     require that the BOCs and other incumbent LECs, subject to our
     joint cost rules, classify their payphone operations as
     nonregulated for our Part 32 accounting purposes. We note, however,
     that the BOCs or other incumbent LECs are free to provide these
     services using structurally separate affiliates if they choose to
     do so.[^553] Therefore, our discussion below will address two
     possible approaches a carrier may take in reclassifying its
     payphone activities as nonregulated: (1) a carrier may maintain its
     payphone assets on the carrier\'s books but treat the assets as
     nonregulated, or (2) a carrier may transfer its payphone assets to
     a separate affiliate engaged in nonregulated activities.

374. 

375. In the [Notice]{.underline}, we sought comment on three primary
     aspects of the reclassification of payphone assets from regulated
     to nonregulated status. We solicited comment on the proper
     accounting treatment for the reclassification or transfer of the
     payphone assets from a regulated activity to a nonregulated
     activity. We also sought comments on the specific assets to be
     reclassified or transferred.[^554] We tentatively concluded that
     the assets to be transferred should be defined generally in terms
     of CPE deregulation and that this would include all facilities
     related to payphone service, including associated depreciation and
     deferred income taxes, but likely would not include the loops
     connecting the payphones to the network, the central office
     \"coin-service,\" or operator service facilities supporting
     incumbent LEC payphones.[^555] We next tentatively concluded that a
     phase-in period was not necessary for the reclassification or
     transfer of the payphone assets to nonregulated status and sought
     comment on this tentative conclusion.[^556] We address these
     questions and tentative conclusions in the sections that follow.

376. 

377. **i. [Specific Assets Reclassified or Transferred]{.underline}**

378. 

379. We adopt our tentative conclusion, supported by numerous
     commenters,[^557] that the payphone assets to be reclassified or
     transferred include all facilities related to payphone service,
     including associated accumulated depreciation and deferred income
     tax liabilities. We do not agree with GVNW that related expenses,
     such as maintenance, should also be reclassified and
     transferred[^558] because expenses are period costs that should be
     associated with the status of the service at the time they were
     incurred. That is, expenses incurred during the period payphones
     were regulated remain as regulated expenses and expenses incurred
     after payphone deregulation should be classified as nonregulated
     expenses. We, however, do not include as payphone assets to be
     reclassified or transferred the loops connecting the payphones to
     the network, the central office \"coin-service,\" or operator
     service facilities supporting incumbent LEC payphones because these
     are part of network equipment necessary to support basic telephone
     services.

380. 

381. In adopting our tentative conclusion, we disagree with commenters
     such as GPCA, Peoples, SDPOA and others who assert that, in all
     instances, the value of intangible assets that have not been
     capitalized on the books of the carrier, such as location contracts
     and brand names, should be included in the payphone assets
     reclassified to nonregulated status.[^559] We note that these
     assets are not recorded in the carriers\' Part 32 accounts and, in
     fact, are not, without some triggering event such as a purchase or
     sale, required to be recorded by either generally accepted
     accounting principles or our Part 32 accounting rules. We do,
     however, discuss these intangible assets in more detail below as
     they relate to actual payphone asset transfers to separate
     affiliates or, in certain limited instances, to an operating
     division of the carrier.

382. 

383. **ii. [Accounting Treatment for Assets Reclassified or
     Transferred]{.underline}**

384. 

385. Our tentative conclusion in the [Notice]{.underline} called for the
     transfer of the LECs\' payphone assets to nonregulated operations
     to take place at the undepreciated baseline costs plus interest
     charges at the authorized rate of return for interstate services.
     The parties have correctly pointed out that this standard only
     applies in those circumstances where there has been an
     underforecasting of demand for nonregulated usage requiring a
     transfer to compensate ratepayers for the additional risks they
     have borne due to the underforecasting.[^560] Since the issue at
     hand does not involve an underallocation of payphone costs between
     regulated and nonregulated activities, we see no need to consider
     this approach any further.

386. 

387. The parties question whether the carriers should account for the
     transfer or reclassification of the payphone assets from regulated
     to nonregulated status at \"fair market value\" or the net book
     value of the assets.[^561] While Section 276 provides us with
     discretion to change our accounting rules to provide safeguards in
     excess of those provided by [Computer III]{.underline}, we believe
     that our existing rules are sufficient to meet the requirements of
     Section 276. We conclude that our existing rules require that this
     determination be based on whether a carrier maintains the assets in
     its regulated Part 32 accounts or instead transfers the payphone
     assets to a separate affiliate or an operating division within the
     carrier that is treated as an affiliate.

388. 

389. Carriers that do not transfer the payphone assets to a separate
     affiliate make no reclassification accounting entries to their Part
     32 regulated accounts. The reclassification of these assets to
     nonregulated status is accomplished instead through the operation
     of our Part 64 cost allocation rules.[^562] Accordingly, we
     conclude that payphone investment in Account 32.2351, Public
     telephone terminal equipment, and any other assets used in the
     provision of payphone service, along with the associated
     accumulated depreciation and deferred income tax liabilities should
     be directly assigned or allocated to nonregulated activities
     pursuant to our cost allocation rules.[^563] LECs should establish
     whatever Part 64 cost pools[^564] are needed and should file
     revisions to their cost allocations manuals within sixty (60) days
     prior to the effective date of the change.[^565] This will ensure
     that the provision of payphone service is separate and distinct
     from the provision of common carrier services in accordance with
     our rules.

390. 

391. On the other hand, carriers that transfer their payphone assets to
     either a separate affiliate or an operating division that has no
     joint and common use of assets or resources with the LEC and
     maintains a separate set of books in accordance with Section
     32.23(b) of our rules must account for the transfer according to
     the affiliate transactions rules of Section 32.27(c) which require
     that the transfer be recorded at the higher of fair market value or
     cost less all applicable valuation reserves (net book cost).[^566]
     Fair market value has been defined as \"the price at which the
     property would change hands between a willing buyer and a willing
     seller, neither being under any compulsion to buy or sell and both
     having reasonable knowledge of relevant facts.\"[^567] We conclude,
     that in instances when the transfer of payphone assets is governed
     by Section 32.27(c), it is appropriate, as argued by CPA, that the
     going concern value associated with the payphone business be taken
     into consideration in determining fair market value.[^568] Such
     going concern value should, as asserted by GPCA and Peoples,
     include intangible assets such as location contracts that add value
     to the payphone business.[^569] These intangible assets would be
     considered in the theoretical purchase price negotiated by a
     willing buyer and seller. We do not believe, however, that the
     intangible asset value of BOC or LEC brand names should be included
     in the determination of going concern or fair market value because
     a BOC or a LEC would not transfer the right to use its brand name
     to a third party willing buyer.

392. 

393. The operation of our cost allocation rules and our affiliate
     transactions rules serve to protect ratepayers from different
     concerns. The cost allocation rules are used to provide guidance to
     carriers as to how joint and common costs are to be allocated among
     regulated and nonregulated activities that impact upon regulated
     activities. These rules are premised on the assumption that
     ratepayers benefit from the economies of scope associated with
     integrated operations of regulated and nonregulated activities.
     Since costs are recorded in regulated accounts, the Commission
     retains the ability to scrutinize costs associated with
     nonregulated activities. For example, carriers must file cost
     allocation manuals. These manuals are subject to public comment and
     must be audited annually by an independent auditor.[^570] The
     report of the independent auditor must also be submitted to the
     Commission.[^571] These procedures promote fair cost allocation and
     protect regulated ratepayers from absorbing the costs of
     nonregulated activities. In addition, as assets are retained on the
     books of the carrier, any resulting gains from a sale of those
     nonregulated assets accrue to the carrier and to the benefit of
     ratepayers and shareholders.

394. 

395. Our affiliate transactions rules also afford a level of protection
     to ratepayers. These rules first protect ratepayers by requiring
     that when an affiliate transfers to or performs a service for the
     carrier, those assets or services are not charged to regulated
     ratepayers at an inflated price. In addition, when the carrier
     transfers assets to an affiliate, the operation of our affiliate
     transactions rules effectively captures on the carrier\'s books any
     appreciation in value of those assets, thus ensuring that any
     eventual gains would accrue to the benefit of the ratepayers and
     shareholders.

396. 

397. The difference in accounting treatment for payphone assets either
     reclassified as nonregulated pursuant to our Part 64 cost
     allocation rules or transferred to a separate affiliate and
     accounted for in accordance with our Part 32 affiliate transactions
     rules stems primarily from the fact that in one instance there is
     no transfer, only a reallocation of assets to nonregulated status,
     and in the other instance, there has been an actual transfer. In
     addition, in the first instance our rules are designed to promote
     fair cost allocation between regulated and nonregulated activities;
     in the second instance, our rules are designed to protect against
     cross-subsidies between separate companies by capturing any
     appreciated value of assets transferred on the books of the
     carrier.

398. 

399. We note that some parties assert that, based on the holding of the
     Court of Appeals for the D.C. Circuit in [Democratic Central
     Committee]{.underline},[^572] the proper measure of value for an
     asset reclassified from regulated to nonregulated status is the
     asset\'s economic value, which would ordinarily be its fair market
     value.[^573] [Democratic Central Committee]{.underline} involved
     the distribution of capital gains realized from the sale to a third
     party of property that had been transferred out of the rate base.
     Although [Democratic Central Committee]{.underline} provided
     several general guiding principles on which the Commission
     fashioned its affiliate transactions rules, we note that the facts
     in that case did not involve affiliate transactions.[^574]
     Accordingly, we do not think that case is directly applicable
     either to the situation where a carrier retains the payphone assets
     on its books or transfers the payphone assets to a separate
     affiliate. In both instances, ratepayers are protected by the
     application of our accounting safeguards.

400. 

401. One of the primary goals of Section 276 is that a BOC shall not be
     allowed to subsidize its payphone operations directly or indirectly
     from its telephone exchange operations or its exchange access
     operations. In order to achieve this goal, Congress required that
     we adopt at a minimum the nonstructural safeguards of [Computer
     III]{.underline}. In [Computer III]{.underline}, the Commission
     reexamined its regulatory regime for the provision of enhanced
     services and established nonstructural safeguards for the provision
     of enhanced services on an integrated basis. These safeguards
     included the cost allocation rules and the affiliate transactions
     rules the Commission developed in the [Joint Cost
     Order]{.underline}. These nonstructural safeguards include our Part
     64 cost allocation rules and our Part 32 affiliate transactions
     rules. We also note that the [Conference Report]{.underline}
     states:

402. 

> \"\[t\]he BOC payphone operations will be transferred, at an
> appropriate valuation, from the regulated accounts associated with
> local exchange services to the BOC\'s unregulated books. The
> Commission\'s implementing safeguards must be at least equal to those
> adopted in the Commission\'s [Computer III]{.underline}
> proceedings.\"[^575]

We believe that, consistent with [Computer III]{.underline}, our cost
allocation rules and affiliate transactions rules, as discussed above,
provide rules for the appropriate valuation of the reclassification or
transfer of payphone assets and we see no compelling argument to deviate
from those well-settled rules at this time.[^576]

1.  APCC and GPCA argue that the legislative history cited in the
    previous paragraph makes clear that Congress intended that the
    assets be \"transferred.\"[^577] We disagree. We have already stated
    that Section 276 does not require that a BOC establish a separate
    affiliate to hold the payphone assets.[^578] In fact, the Senate
    version of Section 276 authorized the Commission to determine
    whether to require Bell operating companies \"to provide payphone
    service\...through a separate subsidiary\...\"[^579] This
    authorization was deleted from the final version of Section 276. If
    Congress intended that there be a \"transfer\", we believe that
    Congress would have required the BOCs to establish separate
    affiliates for their payphone operations. Congress did not do so.
    Instead, Congress in the very next sentence of the legislative
    history states that the Commission\'s implementing safeguards must,
    at a minimum, be at least equal to those adopted in the [Computer
    III]{.underline} proceedings. These safeguards include our cost
    allocation rules. Our cost allocation rules are applicable when a
    carrier maintains integrated regulated and nonregulated activities.
    To read congressional intent to require a \"transfer\" would
    effectively eliminate our cost allocation rules from application to
    payphone operations. This is contrary to Section 276 which states
    that the Commission shall prescribe regulations that prescribe a set
    of nonstructural safeguards for BOC payphone service which \"at a
    minimum, include\[s\] the nonstructural safeguards equal to those
    adopted in the Computer Inquiry-III\...proceeding.\"[^580] [Computer
    III]{.underline} included our cost allocation rules as a part of the
    nonstructural safeguards and thus they are applicable to BOC
    payphone operations. To exclude the cost allocation rules would be
    contrary to Section 276\'s intent that they be included.

2.  

3.  We also agree with the RBOCs that our cost allocation rules only
    require a reassignment of payphone assets from regulated to
    nonregulated status.[^581] In reality, carriers maintain these
    assets in regulated Part 32 accounts and do not establish
    \"unregulated books.\" These accounts are considered \"regulated\"
    accounts even though a carrier may assign the entire amount in an
    account to nonregulated activities. Using regulated accounts serves
    the public interest by allowing Commission scrutiny of nonregulated
    activities as they potentially impact regulated activities,
    maintaining a minimal amount of regulatory burden while protecting
    regulated ratepayers from cross-subsidies and cost misallocations,
    and preserving economies of scope that accrue to ratepayers from
    integrated operations. We believe regulated ratepayers are better
    served by the requirement that carriers account for payphone
    operations in regulated accounts than if we required them to account
    for payphone operations in \"nonregulated\" accounts or
    \"unregulated books.\"

4.  

5.  **iii. [Other Matters]{.underline}**

6.  

7.  We require the LECs to reclassify any pay telephone investments
    recorded in Account 32.2351, Public telephone terminal equipment,
    and other assets used in the provision of payphone service, along
    with the associated accumulated depreciation and deferred income tax
    liabilities, from regulated to nonregulated status pursuant to our
    Part 64 and Part 32 rules by April 15, 1997 when the associated
    revised tariffs are effective. We thus agree with Ameritech that we
    should adopt our tentative conclusion that a phase-in period is
    unnecessary.[^582]

8.  

9.  **3. [Termination of Access Charge Compensation and Other
    Subsidies]{.underline}**

10. 

11. **a. [The Notice]{.underline}**

12. 

13. In the [Notice]{.underline}, we tentatively concluded that incumbent
    LECs must reduce their interstate CCL charges by an amount equal to
    the interstate allocation of payphone costs currently recovered
    through those charges.[^583] LECs subject to the price cap rules
    would treat this as an exogenous cost change to the Common Line
    basket pursuant to Section 61.45(d) of the Commission\'s
    rules.[^584] We requested incumbent LECs to identify in their
    comments all accounts that contain costs attributable to their
    payphone operations and sought comment on whether specific cost
    pools and allocators should be used to capture the nonregulated
    investment and expenses associated with their payphone
    operations.[^585] We also sought comment on whether a transition
    period is necessary to move from subsidized compensation to per‑call
    compensation for LEC payphones, and how that transition would
    proceed.[^586] We also proposed, in accordance with the mandate of
    Section 276(b)(1)(B), to require incumbent LECs to remove from their
    intrastate rates any charges that recover the costs of
    payphones.[^587] Additionally, we solicited comment on whether we
    should set a deadline and a specific mechanism for elimination of
    any intrastate subsidies, or whether it would be consistent with the
    statute, as well as preferable from a policy perspective, to permit
    the states to formulate their own mechanisms for achieving this
    result within a specific time frame.[^588]

14. 

15. We also tentatively concluded that, to avoid discrimination among
    PSPs, the Subscriber Line Charge should apply to subscriber lines
    that terminate at both LEC and competitive payphones.[^589] We
    sought comment on whether, to the extent that LECs charge or impute
    to their own payphone operations only the multi-line business SLC,
    which is less than the full interstate cost of the subscriber lines
    connecting their payphones to the network, and recover the balance
    of the cost of these lines through the CCL charge, they may, in
    effect, be subsidizing their payphones with access charge revenues,
    in violation of Section 276.[^590] We sought comment on whether LECs
    in those circumstances should charge or impute to their own payphone
    operations, as well as to independent payphone providers, an
    additional monthly charge representing the difference between the
    SLC cap and the full interstate cost of these subscriber
    lines.[^591] We also sought comment on whether comparable changes
    should be made to incumbent LECs\' intrastate rates.[^592]

16. 

17. **b. [Comments]{.underline}**

18. 

19. **i. [Carrier Common Line Charge]{.underline}**

20. 

21. The Florida PSC agrees that LECs must reduce their interstate CCL
    charge by an amount equal to their interstate allocation of payphone
    set costs currently recovered through these charges.[^593] USTA
    asserts that there is no need for a federally-imposed cost support,
    create cost pools, or change current accounting procedures.[^594]
    USTA asserts that incumbent LECs subject to price caps should remove
    the costs of payphone operations through an exogenous cost
    adjustment to the common line price cap basket price cap index
    (PCI), and that rate-of-return LECs should adjust regulated rates
    for the charges in asset and operating costs based on the results of
    the accounting changes made to assets and expenses.[^595]

22. 

23. Ameritech agrees that exogenous treatment is appropriate for
    transfer of payphone CPE from regulated to nonregulated
    status.[^596] One Call agrees that the CCL charge should be reduced
    to eliminate both interstate and intrastate subsidies.[^597] MCI
    argues that all direct and indirect costs for interstate and
    intrastate costs should be removed and that Account 2351 and
    associated expenses and additional interstate allocated costs should
    be removed.[^598] GPCA contends that the payphone providers\'
    end-user common line charges should be in the carrier common line
    fund.[^599] AT&T argues that the removal of payphone costs from
    interstate access should not be transferred to the Base Factor
    Portion of the Common Line Basket, but should remain as part of the
    Part 69 category.[^600]

24. 

25. CPA argues that attempts to extend the period should be
    rejected.[^601] In contrast, GVNW and Texas PUC assert that a short
    transition period is necessary to recover costs.[^602] The RBOCs
    argue for a transition period of up to 12 months during which
    per-call compensation would not be available to the RBOCs, while
    GPCA argues the there should be no more than a 90-day transition
    period after release of this [Report and Order]{.underline}.[^603]
    NECA asserts that the CCL charge should continue until the
    Commission finalizes decisions on access reform and universal
    service have been made. NECA argues there will be no discrimination
    because LECs can bill the CCL charge for all interstate calls and
    the SLC to all payphones.[^604]

26. 

27. 

28. **ii. [Intrastate Rates]{.underline}**

29. 

30. Florida PSC asserts that intrastate adjustments vary and that a
    national scheme is impractical. Instead, the Commission could set a
    date for removal of state subsidies.[^605] California PUC is
    concerned that, if LECs cannot recover the interstate costs of
    subscriber lines because the CCL mechanisms are removed, the
    state\'s local phone charges and the state-mandated pay station
    service charge may not fully recover costs.[^606] USTA argues that
    the payphone line is a common line and should be tariffed at the
    state level.[^607] USTA also contends that states should be
    permitted to formulate mechanisms to remove intrastate costs.[^608]

31. 

32. **iii. [Subscriber Line Charge]{.underline}**

33. 

34. Florida PSC and the Ohio PUC argue that access lines terminating at
    LEC payphones should be subject to SLC imputation.[^609] Ameritech
    and SW Bell argue that a SLC should be imputed to all
    payphones.[^610] GPCA opposes application of the SLC to payphones
    but if the Commission imposes such a requirement, GPCA also opposes
    any additional charge in addition to what is required of other end
    users.[^611] USTA also opposes imposition of an additional charge
    for the difference between the SLC cap and the full cost of
    subscriber lines. USTA argues that if there are any loop subsidies
    they will be uniform for all loops, not just payphone loops.[^612]
    SW Bell argues that the SLC should apply to payphones because
    payphones use common lines and access the public switched network
    just like any other common line service.[^613] Sprint supports the
    additional charge to all PSPs including LECs to the extent that the
    multi-line business SLC is less than the full interstate cost of
    subscriber lines.[^614]

35. 

36. **c. [Discussion]{.underline}**

37. 

38. In the telephone network, payphones, as well as all other
    telephones, are connected to the local switch by means of a
    subscriber line. The costs of the subscriber line that are allocated
    to the interstate jurisdiction are recovered through two separate
    charges: a flat-rate SLC assessed upon the end-user customer who
    subscribes to local service; and a per-minute CCL charge assessed
    upon IXCs that recovers the balance of the interstate subscriber
    line costs not recovered through the SLC. LEC payphone costs are
    also included in the CCL charge. The CCL charge, however, applies to
    interstate switched access service that is unrelated to payphone
    service costs. While independent payphone providers are required to
    pay the SLC for the loop used by each of their payphones, LECs have
    not been required to pay this charge because the subscriber lines
    connected to LEC payphones have been recovered entirely through the
    CCL charge.

39. 

40. We conclude that to implement Section 276 (b)(1)(B) of the 1996 Act,
    incumbent LECs must reduce their interstate CCL charges by an amount
    equal to the interstate allocation of payphone costs currently
    recovered through those charges. LECs subject to the price cap rules
    would treat this as an exogenous cost change to the Common Line
    basket pursuant to Section 61.45(d) of the Commission\'s rules. The
    incumbent LECs\' residential SLC is limited to \$3.50 per month and
    their multi-line business SLC is currently subject to a \$6.00 per
    month cap.[^615] Those LECs with interstate subscriber line costs
    that exceed this amount recover a portion of the interstate costs of
    subscriber lines through the CCL charge. The issue of the
    appropriate interstate SLC has been referred to a Federal-State
    Joint Board.[^616]

41. 

42. Incumbent LECs today generally recover payphone costs allocated to
    the interstate jurisdiction through the per‑minute carrier CCL
    charge they assess on IXCs and other interstate access customers for
    originating and terminating interstate calls. The incumbent LEC
    assesses the independent payphone provider a SLC (at the multi‑line
    business rate) to recover the payphone common line costs associated
    with that phone.[^617] In the case of competitive payphones, an
    independent payphone provider recovers its payphone costs out of the
    revenue it receives from end users, premises owners, and OSPs to
    whom its payphones are presubscribed. The 1996 Act mandates that the
    Commission \"discontinue the intrastate and interstate carrier
    access charge payphone service elements and payments \... and all
    intrastate and interstate subsidies from basic exchange and exchange
    access revenues\[.\]\"[^618]

43. 

44. Accordingly, we adopt rules that provide for the removal from
    regulated intrastate and interstate rate structures of all charges
    that recover the costs of payphones ([i.e.]{.underline}, the costs
    of payphone sets, not including the costs of the lines connecting
    those sets to the public switched network, which, like the lines
    connecting competitive payphones to the network, will continue to be
    treated as regulated). Therefore, we conclude that incumbent LECs
    must file revised CCL tariffs with the Common Carrier Bureau no
    later than January 15, 1997 to reduce their interstate CCL charges
    by an amount equal to the interstate allocation of payphone costs
    currently recovered through those charges, scheduled to take effect
    April 15, 1997. LECs subject to the price cap rules must treat this
    as an exogenous cost change to the Common Line basket pursuant to
    Section 61.45(d)(1)(v) of our rules.[^619] Incumbent LECs must
    identify and report accounts that contain costs attributable to
    their payphone operations. Incumbent LECs must identify specific
    cost pools and allocators that are required to capture the
    nonregulated investment and expenses associated with their payphone
    operations. LECs must file this information with the Common Carrier
    Bureau by January 15, 1997.

45. 

46. LECs that file tariffs pursuant to Section 61.38 or Section 61.39,
    rate-of-return regulation, or Section 61.50, optional incentive
    regulation, must file tariffs to revise interstate CCL rates to
    remove the payphone investment and any other assets used in the
    provision of payphone service along with the accumulated
    depreciation and deferred income tax liabilities from the common
    line costs recovered through those rates. As stated previously,
    these LECs must reclassify payphone assets from regulated to
    nonregulated activity pursuant to Part 64 rules. Expenses incurred
    after payphones are deregulated should be classified as nonregulated
    expenses. The CCL rate reduction must account for overhead costs
    assigned to common line costs as a result of payphone investment and
    expenses. We require these LECs to recalculate their CCL rates,
    using the same data and methods they used to develop their current
    CCL rates, except those calculations should exclude payphone costs.

47. 

48. Price cap LECs are also required to revise their CCL rates, using
    the following method to remove payphone costs from their CCL rates.
    First, price cap LECs should develop a common line revenue
    requirement using ARMIS costs for calendar year 1995. Second, price
    cap LECs are required to develop a payphone cost allocator equal to
    the payphone costs in Section 69.501(d) divided by total common line
    costs, based on 1995 ARMIS data. Each LEC is required to reduce its
    PCI in the common line basket by this payphone cost allocator minus
    one.

49. 

50. We require, pursuant to the mandate of Section 276(b)(1)(B),
    incumbent LECs to remove from their intrastate rates any charges
    that recover the costs of payphones. Revised intrastate rates must
    be effective no later than April 15, 1997. Parties did not submit
    state-specific information regarding the intrastate rate elements
    that recover payphone costs. States must determine the intrastate
    rates elements that must be removed to eliminate any intrastate
    subsidies within this time frame.

51. 

52. Finally, we conclude that, to avoid discrimination among payphone
    providers, the multiline business SLC must apply to subscriber lines
    that terminate at both LEC and competitive payphones. We conclude
    that the removal of payphone costs from the CCL and the payment or
    imputation of a SLC to the subscriber line that terminates at a LEC
    nonregulated payphone will result in the recovery of LEC payphone
    costs on a more cost-causative basis consistent with the
    requirements of the 1996 Act.[^620] No action we take today affects
    the authority of states to address the state ratemaking implications
    of reclassification or transfer of payphone assets.

53. 

54. **4. [Deregulation of AT&T Payphones]{.underline}**

55. 

56. **a. [The Notice]{.underline}**

57. 

58. In the [Notice]{.underline}, we tentatively concluded that payphones
    provided by AT&T should be classified as CPE, finding that
    discontinuing possible subsidies for AT&T payphones would be
    congruent with the 1996 Act\'s requirement that the Commission
    discontinue subsidies for other payphones ([i.e.]{.underline}, those
    owned by incumbent LECs) and would provide for symmetrical
    regulation of the payphone industry.[^621] We cited two other
    reasons why this proposed action is in harmony with the other rules
    we proposed in this proceeding. First, since [Tonka
    Tools]{.underline},[^622] AT&T payphones have been subject to the
    same regulatory treatment as BOC payphones. Once LEC telephones,
    including those provided by the BOCs, are declared to be CPE, the
    basis for treating AT&T payphones as network equipment no longer
    exists. Second, we believe that deregulating AT&T payphones is
    consistent with our general policy to deregulate non-dominant
    carriers. In the [Notice]{.underline}, we also tentatively concluded
    that the bundling of pay telephone equipment with underlying
    transmission capacity would be treated pursuant to the rules
    proposed in the [Interstate, Interexchange Marketplace]{.underline}
    proceeding.[^623]

59. 

60. **b**. **[Comments]{.underline}**

61. 

62. Those commenting on AT&T payphones were unanimous in concluding that
    AT&T payphones should be deregulated.[^624] The RBOCs assert that
    AT&T payphones should be deregulated in the same manner as LEC
    payphones.[^625] AT&T argues, however, that AT&T payphones should
    not be treated like LEC CPE but should be removed from all
    regulation except Part 68 registration and treated like independent
    payphone providers.[^626]

63. 

64. **c.** **[Discussion]{.underline}**

65. 

66. We conclude that AT&T payphones must be deregulated, detariffed and
    treated as CPE. As we concluded above, there is a competitive market
    for payphones, and, pursuant to Section 276, subsidies must be
    removed from payphone service. AT&T payphones have been treated like
    BOC payphones for regulatory purposes.[^627] It would be incongruous
    to deregulate payphone equipment owned by all other carriers except
    AT&T. We conclude, therefore, that AT&T payphones must be removed
    from regulation and treated as independent PSPs\' payphones.
    Accordingly, we require that AT&T follow the same procedures
    discussed above for valuing LEC payphone assets and transferring
    them to nonregulated status. After deregulation, AT&T payphones will
    be subject to the same requirements as independent payphone provider
    payphones.

67. 

68. With regard to the issue of bundling of transmission capacity and
    payphone CPE, we note that in the [Interstate, Interexchange
    Marketplace Notice]{.underline}, we stated that we would consider in
    this proceeding \"the issue of bundling pay telephone equipment with
    the underlying transmission capacity.\"[^628] In the
    [Notice]{.underline}, we tentatively concluded that other IXC
    bundling issues should be treated under the same rules that we
    proposed in the [Interstate, Interexchange Marketplace]{.underline}
    proceeding.[^629] We decline to adopt in this proceeding any rules
    regarding the bundling of payphone CPE with the underlying
    transmission capacity.[^630] We do not have a sufficient record to
    revise, with regard to payphone CPE, the Commission\'s conclusion in
    the [Computer II]{.underline} proceeding that there are public
    interest benefits in unbundling CPE from the underlying transmission
    service.[^631] The issue of IXC CPE bundling will be addressed in
    the [Interstate, Interexchange Marketplace]{.underline} proceeding.

69. 

70. 

71. **C. [NONSTRUCTURAL SAFEGUARDS FOR BOC PROVISION OF
    PAYPHONE]{.underline}** **[SERVICE]{.underline}**

72. 

73. The foregoing parts establish a compensation arrangement that
    applies equally to the payphone operations of the BOCs, other LECs,
    AT&T and PSPs not affiliated with LECs. In this part, we address
    certain operating requirements that are imposed only on the BOCs\'
    payphone operations.

74. 

75. 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 subsection
    (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\[.\]\"[^632] As referred to in Section
    276(b)(1)(C), Section 276(a) provides that a BOC \"(1) shall not
    subsidize its payphone service directly or indirectly from its
    telephone exchange service operations or its exchange access
    operations; and (2) shall not prefer or discriminate in favor of its
    payphone service.\"[^633]

76. 

77. **1. [The Notice]{.underline}**

78. 

79. In the [Notice]{.underline}, we tentatively concluded that all
    [Computer III]{.underline}[^634] nonstructural safeguards must be
    applied to meet our obligation \"to prescribe nonstructural
    safeguards for \[BOC\] payphone service\" under the 1996 Act.[^635]
    We also solicited comment on whether there are other nonstructural
    safeguards that, while not explicitly specified in [Computer
    III]{.underline}, should be applied to BOC payphones.[^636]

80. 

81. To ensure BOC compliance with the [Computer III]{.underline} and
    Open Network Architecture (ONA) requirements, we proposed a
    requirement that each BOC file, within 90 days of the effective date
    of this [Report and Order]{.underline}, an initial Comparably
    Efficient Interconnection (CEI) plan describing how it intends to
    comply with the CEI equal access parameters and nonstructural
    safeguards for the provision of payphone services.[^637]

82. 

83. Currently, the Commission regulates BOC provision of enhanced
    services through CEI and ONA requirements that mandate unbundled
    nondiscriminatory access to BOC network features and
    functionalities.[^638] Pursuant to these requirements, BOCs must
    file a service-specific CEI plan before offering any enhanced
    service on an integrated basis.[^639] A BOC must demonstrate in its
    CEI plan how it would provide competing enhanced service providers
    with \"equal access\" to all basic underlying network services the
    BOC used to provide its own enhanced services.[^640] Subsequently,
    the Commission required BOCs to develop and implement ONA plans
    detailing more fundamental unbundling of their basic network
    services.[^641] ONA requires further unbundling of network elements
    than under CEI because it is not limited to those elements
    associated with specific BOC enhanced services.[^642] In 1993, the
    Common Carrier Bureau lifted structural separation requirements
    after each BOC demonstrated that its ONA plan complied with the [BOC
    Safeguards Order]{.underline}.[^643] Following the [California
    III]{.underline} court decision,[^644] the Commission has continued
    to require BOCs to file CEI plans for each individual enhanced
    service they offer in addition to fulfilling the access requirements
    of its ONA plan.[^645]

**2. [Comments]{.underline}**

1.  California PUC, One Call, Ameritech, and USTA support [Computer
    III]{.underline} safeguards and CEI.[^646] Florida PSC argues that,
    if nonstructural safeguards are used, specific cost pools and
    allocators should be used to identify the existence of
    subsidies.[^647] GPCA supports the [Computer III]{.underline}
    safeguards and argues that they should be strengthened by requiring
    that the BOCs also: (1) provide unbundled specific services such as
    answer supervision and flexible call rating based on subscribers
    specifications, and continue to provide dialtone and blocking and
    screening; (2) offer volume discounts on a equal basis to
    aggregators; (3) provide service order processing; (4) implement
    safeguards against interference with letters of agency; (5) follow
    Customer Proprietary Network Information (CPNI) restrictions; (6)
    file CEI plans; (7) conduct independent audits; and (8) maintain
    publicly available contracts.[^648] SW Bell argues that there is no
    incentive for cross-subsidization with price cap regulation and the
    elimination of sharing.[^649] Ameritech disagrees with the
    Commission that a separate proceeding is necessary to develop
    accounting safeguards different than those applied in [Computer
    III]{.underline}.[^650] Inmate Coalition argues that additional
    safeguards should include accounting and fraud control, billing and
    collection, and CPNI availability.[^651] USTA argues that pursuant
    to Section 276, nonstructural safeguards only apply to BOCs.[^652]
    GPCA argues that the [Computer III]{.underline} safeguards should
    apply to other LECs, particularly those with annual revenues greater
    than 100 million dollars, including GTE, Sprint and Alltel, and LECs
    that service Puerto Rico and the Virgin Islands.[^653] Ohio PUC
    argues that [Computer III]{.underline} nonstructural safeguards
    should apply to all LECs if payphones are deregulated and structural
    separation is not imposed.[^654]

2.  

3.  AT&T and GPCA support the imposition of CEI plans on the BOC
    provision of payphone services.[^655] The RBOCs and PacTel argue
    that CEI plans are not necessary because these are basic, not
    enhanced services.[^656] AT&T contends that CPNI requirements should
    apply to BOC provision of payphones.[^657] One Call argues that if
    CPNI is not restricted, it should be available to all
    providers.[^658] GPCA contends that information about the use of LEC
    payphones is CPNI that should be available to any party upon
    reasonable request.[^659] AT&T supports the network information
    disclosure requirements established in our implementation of Section
    251 of the 1996 Act, plus the addition of two requirements that BOCs
    file network information disclosures with the Commission, and that
    there be one year notification of network changes.[^660]

4.  

5.  **3. [Discussion]{.underline}**

6.  

7.  **a. [Nonstructural Safeguards]{.underline}**

8.  

9.  In addition to the accounting safeguards that we will adopt with
    respect to payphone services in the accounting safeguards
    proceeding, we conclude that the [Computer III]{.underline} and
    [ONA]{.underline} nonstructural safeguards will provide an
    appropriate regulatory framework to ensure that BOCs do not
    discriminate or cross-subsidize in their provision of payphone
    service. The Commission and the BOCs have substantial experience in
    the application of these safeguards that will facilitate their use
    in the context of BOC payphone services. We conclude that we do not
    have to adopt any additional safeguards beyond [Computer
    III]{.underline} and [ONA]{.underline} because of the comprehensive
    nature of that regulatory structure and the lack of a record
    necessary to conclude that a more burdensome framework should be
    adopted and is in the public interest. As discussed above, we
    decline to require structural separation requirements. To ensure
    that the BOCs comply with the [Computer III]{.underline} and
    [ONA]{.underline} nonstructural separation requirements for the
    provision of payphone services, we require that, within 90 days
    after the effective date of this [Report and Order]{.underline},
    BOCs must file CEI plans describing how they will comply with the
    [Computer III]{.underline} unbundling, CEI parameters, accounting
    requirements, CPNI requirements as modified by Section 222 of the
    1996 Act, network disclosure requirements, and installation,
    maintenance, and quality nondiscrimination requirements.

10. 

11. The [Computer III]{.underline} nonstructural safeguards currently
    apply to a BOC\'s provision of payphone service if enhanced services
    are provided through the payphone.[^661] Under the [Computer
    III]{.underline} and [ONA]{.underline} framework, BOCs are permitted
    to provide enhanced services on an integrated basis subject to
    nondiscrimination safeguards. The safeguards the Commission adopted
    in [Computer III]{.underline} and [ONA]{.underline} include: (1)
    nondiscriminatory access to network features and
    functionalities; (2) restrictions on the use of CPNI; (3) network
    information disclosure rules; (4) nondiscrimination in the
    provision, installation, and maintenance of services as well as
    nondiscrimination reporting requirements; and (5) cost accounting
    safeguards. We conclude that all [Computer III]{.underline} and ONA
    nonstructural safeguards must be applied to meet our obligation
    under the 1996 Act. [^662] Pursuant to these requirements, we note
    that any basic services provided by a BOC to its payphone affiliate
    must be available on a nondiscriminatory basis to other payphone
    providers and that payphone providers may request additional
    unbundled payphone services through the 120 day ONA service request
    process.[^663]

12. 

13. Except for the Commission\'s Part 64 cost allocation rules and Part
    32 affiliate transaction rules, we decline to apply the [Computer
    III]{.underline} nonstructural safeguards to other LECs. We
    concluded in the [BOC CPE Relief Order]{.underline} that application
    of those safeguards would be \"unduly burdensome and not necessary
    to protect against potential anticompetitive conduct.\"[^664] We
    similarly, declined to apply [Computer III]{.underline} and
    [ONA]{.underline} nonstructural safeguards to other LECs, except
    GTE.[^665] Moreover, Section 276 specifically directs the Commission
    to establish nonstructural safeguards for the BOCs, but does not
    include such a requirement regarding other LECs.[^666]

14. 

15. **b. [BOC CEI Plans]{.underline}**

16. 

17. We require that each BOC file, within 90 days of the effective date
    of this [Report and Order]{.underline}, an initial CEI plan
    describing how it intends to comply with the CEI equal access
    parameters and nonstructural safeguards for the provision of
    payphone services. In [Computer III]{.underline}, CEI plans have
    been an integral part of ensuring that BOCs do not discriminate in
    providing basic underlying services to enhanced services providers.
    We likewise require the filing of CEI plans for payphone services,
    even though we have traditionally only required such plans for the
    BOC provision of enhanced services, to ensure that the BOCs provide
    payphone services in a nondiscriminatory manner and consistent with
    other [Computer III]{.underline} and [ONA]{.underline} requirements.
    Finally, we conclude that this requirement is consistent with the
    requirement in Section 276 that we establish safeguards, at a
    minimum, \"equal to those adopted in the Computer III
    Inquiry.\"[^667]

18. 

19. In a CEI plan, a BOC must describe how it intends to comply with the
    CEI \"equal access\" parameters for the specific payphone service it
    intends to offer. The CEI equal access parameters include: interface
    functionality; unbundling of basic services; resale; technical
    characteristics; installation, maintenance, and repair; end user
    access; CEI availability; minimization of transport costs; and
    availability to all interested customers or enhanced service
    providers.[^668]

20. 

21. In its CEI plan, a BOC must explain how it will unbundle basic
    payphone services. Thus, a BOC must indicate how it plans to
    unbundle, and associate with a specific rate element in a tariff,
    the basic services and basic service functions that underlie its
    provision of payphone service.[^669] Nonproprietary information used
    by the BOC in providing the unbundled basic services will be made
    available as part of CEI.[^670] In addition, any options available
    to the BOC in the provision of such basic services or functions
    would be included in the unbundled offerings.[^671]

22. 

23. A BOC also must explain in its CEI plan how it will comply with the
    CPNI requirements. We have continued to require compliance with the
    [Computer III]{.underline} and [ONA]{.underline} CPNI requirements
    that are not inconsistent with Section 222 of the 1996 Act, which
    was immediately effective.[^672] In the [CPNI NPRM]{.underline}, we
    are currently examining a carrier\'s obligations under the CPNI
    provisions of the 1996 Act.[^673] We disagree with GPCA\'s
    contention that pursuant to the Commission\'s CPNI requirements,
    usage of LEC payphones should be treated as aggregate CPNI that
    should be made available to any party upon request.[^674] Under
    [Computer III]{.underline} and [ONA]{.underline} BOCs must make
    aggregate CPNI available to third parties if they make it available
    to BOC personnel for marketing. This requirement does not apply
    merely upon a third party\'s request, and the requirement does not
    apply to LECs other than the BOCs. Moreover, aggregate CPNI includes
    compilations of CPNI information, not individual locations.[^675] We
    will consider the requirements for LEC provision of aggregate CPNI
    under Section 222 in the CPNI proceeding. [^676]

24. 

25. BOCs must comply with the [Computer III]{.underline} and
    [ONA]{.underline} network information disclosure requirements. The
    BOCs cannot design new network services or change network technical
    specifications to the advantage of their own payphones.[^677]
    Pursuant to these rules, the BOCs must disclose information about
    changes in their networks or new network services at two different
    points in time.[^678] First, disclosure must occur at the
    \"make/buy\" point: when a BOC decides to make for itself, or
    procure from an unaffiliated entity, any product whose design
    affects or relies on the network interface. Second, a BOC must
    publicly disclose technical information about a new service 12
    months before it is introduced. If the BOC can introduce the service
    within 12 months of the make/buy point, it would make a public
    disclosure at the make/buy point. The public disclosure, however,
    must not occur less than six months before the introduction of the
    service.[^679]

26. 

27. In addition, BOCs must comply with the [Computer III]{.underline}
    and [ONA]{.underline} requirements regarding nondiscrimination in
    the quality of service, installation, and maintenance. BOCs must
    indicate in their CEI plans how they will comply with these
    requirements. We do not impose any new continuing reporting
    requirement because BOCs are already subject to reporting
    requirements pursuant to [Computer III]{.underline} and
    [ONA]{.underline}.[^680] BOCs must report on payphone services as
    they do for other basic services.

28. 

29. 

30. **D. ABILITY OF BOCs TO NEGOTIATE WITH LOCATION**

31. **[PROVIDERS ON THE PRESUBSCRIBED INTERLATA CARRIER]{.underline}**

32. 

33. Section 276(b)(1)(D) of the 1996 Act directs the Commission to
    eliminate the court-ordered competitive barrier prohibiting the BOCs
    from participating in the selection of presubscribed interLATA
    carriers to their payphones, unless we find such activity to be
    contrary to the public interest.[^681] While independent payphone
    service providers, as well as non-BOC LECs, may receive a portion of
    the commissions from IXCs on interLATA operator service calls using
    the presubscribed carrier to their payphones, the BOCs do not
    receive any revenues directly from these calls. At the same time,
    BOCs have received subsidies from local access services for their
    payphone operations, which have not been available to independent
    payphone service providers.[^682] Section 276 promotes competition
    for the provision of payphone services by directing the elimination
    of both these market-distorting factors.[^683]

34. 

35. 

36. 

37. 

38. **1. [Is BOC Ability to Negotiate Presubscription]{.underline}**

39. **[in the Public Interest?]{.underline}**

40. 

41. **a. [The Notice]{.underline}**

42. 

43. Under Section 276(b)(1)(D) of the 1996 Act, the Commission is to
    \"provide for Bell operating company payphone service providers to
    have the same right that independent payphone service 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, unless
    the Commission determines in the rulemaking pursuant to this section
    that it is not in the public interest.\" The legislative history of
    Section 276 states that the location provider \"has the ultimate
    decision-making authority in determining interLATA services in
    connection with the choice of payphone providers.\"[^684]

44. 

45. In the [Notice]{.underline}, the Commission sought comment on
    whether the BOCs should be permitted to select and contract with the
    interLATA carriers that carry interLATA traffic from BOC
    payphones.[^685] The Commission sought comment on whether the
    ability to select the interLATA carrier serving their payphones is
    likely to permit the BOCs to behave anticompetitively in the
    payphone market in the absence of safeguards to prevent cost
    misallocations and discrimination.[^686] Similarly, the Commission
    sought comment on whether the structural and accounting safeguards
    mandated under Sections 271 and 272 of the 1996 Act, and any
    Commission rules implementing these safeguards, are sufficient to
    prevent anticompetitive abuses. The Commission also sought comment
    on to what extent a BOC not authorized to provide in-region
    interLATA service under Section 271 of the 1996 Act should be
    allowed to participate in the selection of the interLATA carrier,
    especially if the BOC has a non-attributable interest in the
    interLATA carrier, such as an option to purchase or an agreement to
    merge.[^687]

46. 

47. **b. [Comments]{.underline}**

48. 

49. The RBOCs and Ameritech argue that the Act specifically directs the
    Commission to allow the BOCs to negotiate presubscription carriers
    for their payphones unless the Commission makes a finding that such
    authority is contrary to the public interest.[^688] Other
    commenters, however, argue that the Commission should grant this
    authority only if and when it can affirmatively conclude that
    allowing the BOCs to negotiate would be in the public
    interest.[^689] Oncor additionally asserts that consideration of
    this issue is premature until such time as the Commission has
    adopted rules addressing other requirements of the 1996 Act,
    including those governing interconnection rights, and the authority
    of BOCs to provide in-region interLATA service.[^690]

50. 

51. The RBOCs assert that granting them equal rights with the
    independent PSPs to negotiate presubscription for their payphones
    promotes the public interest. The RBOCs argue that an essential
    assumption underlying the 1996 Act is that competition is in the
    public interest, and it is therefore in the public interest to allow
    the them to compete against the independent PSPs with respect to
    presubscription of their payphones.[^691] The RBOCs assert that such
    authority is critical to establishing market parity and increasing
    competition between BOC and non-BOC PSPs.[^692] The RBOCs and
    Ameritech state that under the current rules, they are at a
    competitive disadvantage due to the inability to offer \"one-stop
    shopping\" to location providers who wish to deal with a single
    entity for equipment, local service and toll service.[^693] The
    RBOCs also argue that the existing presubscription restriction
    denies consumers the benefits of true competition by preventing them
    from aggregating interLATA and intraLATA traffic in order to
    negotiate the best possible rates from interLATA carriers, while
    allowing the independent PSPs to do so.[^694] Additionally, the
    RBOCs and Ameritech contend that if they are denied the equal
    opportunity to negotiate interLATA carriers, while simultaneously
    being stripped of existing payphone-supporting subsidies, the public
    will be harmed by the likely reduction in the number of payphones
    they provide.[^695] Finally, the RBOCs and Ameritech assert that
    granting them equal opportunity to choose the carrier for their
    payphones would serve to protect consumers from price-gouging
    carriers, since they have a strong interest in protecting the
    reputation and brand name recognition of their payphones.[^696]

52. 

53. Other commenters, including state regulatory agencies, agree that
    increased competition resulting from authorizing the BOCs to
    negotiate for presubscription of their payphones would, standing
    alone, be in the public interest.[^697] Many non-LEC commenters,
    however, also express concern that such authority would present
    serious risk of exclusionary conduct by the BOCs, which would be
    contrary to the public interest.[^698]

54. 

55. Many of the commenters expressing concern about the BOCs\' ability
    to act anticompetitively if allowed to negotiate presubscription
    carriers with location providers pointed to the BOCs\' 80 percent or
    greater share of the payphone units in their respective
    regions.[^699] These commenters argue that this high share of the
    payphone market will allow the BOCs to aggregate large volumes of
    traffic in order to extract concessions from the IXCs (in the form
    of either lower rates or higher commissions), not available to the
    independent PSPs, and which in turn could be used to extend their
    share of the payphone market.[^700] AT&T states that BellSouth, US
    West and GTE have already contacted AT&T and other IXCs concerning
    the possibility of entering into contracts for the delivery of 0+
    interLATA service from their companies\' entire base of
    payphones.[^701] Some of these commenters contend that the ability
    to aggregate their volumes and direct them to a single carrier would
    allow the BOCs to exercise a degree of control in the interLATA
    market prior to being authorized to provide interLATA service
    pursuant to Section 271 of the 1996 Act.[^702] WorldCom also
    identifies the BOCs\' exclusive control over their line-based 0+
    calling cards as an additional basis for leveraging the location
    providers selection of the presubscribed IXC.[^703]

56. 

57. Some commenters, including the IXCs, assert that the BOCs should not
    be allowed to negotiate for presubscription of their payphones at
    least until they satisfy the requirements for entering the interLATA
    market pursuant to Section 271 of the 1996 Act.[^704] These
    commenters argue that until the BOCs face significant competition in
    the local exchange market, they will be able to subsidize commission
    payments to location providers with regulated service revenue and,
    thus, behave anticompetitively in the payphone market.[^705] Some
    commenters also assert that the BOCs could be expected to leverage
    the market power they currently possess, both in the payphone market
    and local telephone markets, to inhibit the development of
    competition in the payphone market.[^706]

58. 

59. The RBOCs contend that the payphone market is competitive and that
    they do not, and cannot, exercise market power in the payphone
    industry.[^707] While acknowledging that they have between 60 and 80
    percent of the payphone units in their respective regions, the RBOCs
    assert that this is not an appropriate measure of market share or
    market power.[^708] BellSouth argues that market share measurements
    based upon number of payphone units are misleading because a
    significant portion of the BOC payphones are non-competitive or
    semi-public payphones producing below market-level revenues, while
    the independent PSPs have targeted high volume locations.[^709]
    BellSouth asserts that within the most competitive market segments,
    market share numbers actually indicate competitive parity.[^710]
    BellSouth submitted estimated market share data for states within
    its region stating that, while independent PSPs have only 39 per
    cent of the payphone units, they have almost 55 per cent of the
    public payphone revenues, compared with BellSouth\'s 45 per
    cent.[^711] GPCA disagrees with the market share data submitted by
    the BOCs, including their exclusion of semi-public payphones while
    including small-business-self-supply payphones (payphone sets which
    permit small businesses to self-supply payphone service) in the
    independent payphone providers\' market share.[^712]

60. 

61. The RBOCs also assert that the payphone market has very low entry
    barriers, so that any efforts to exclude competition would be
    futile.[^713] Information submitted by BellSouth states that, within
    its region, no state has fewer than 107 certificated independent
    PSPs, while two states (Florida and South Carolina) each have more
    than one-thousand independent PSPs.[^714] BellSouth and Ameritech
    contend that existing nonstructural and structural safeguards are
    adequate to protect against attempts to leverage market power in
    local telephone service or to engage in discriminatory
    conduct.[^715] BellSouth also argues that until a BOC is allowed to
    offer in-region interLATA service, interexchange service will be
    acquired by the BOC PSPs from a separate affiliate, making
    subsidization easily detected.[^716] Ameritech contends that
    Congress has specifically resolved this issue by both granting BOCs
    equal rights with non-BOC PSPs to participate in the selection of
    carriers for its payphones and granting them the right to provide
    interLATA service themselves. Thus, Ameritech argues, Congress has
    determined that the promotion of one\'s own affiliated interLATA
    services, whether done by a BOC itself or a through a separate pay
    telephone operation, is not to be condemned as discrimination.[^717]
    BellSouth and Ameritech also assert that the location provider\'s
    ultimate control in selecting the PSP will act as a check on a
    BOC\'s ability to exercise market power.[^718]

62. 

63. Many commenters urging against authorizing BOC presubscription
    rights also propose options for minimizing the anticompetitive
    potential should the Commission decide to approve that authority. As
    noted above, several of these comments assert that granting BOCs the
    ability to presubscribe their payphones should be delayed at least
    until the BOCs are faced with competition in the intraLATA
    market.[^719] Other commenters argue that the Commission should
    require structural separation between the BOCs\' carrier services
    and their payphone services.[^720] Peoples supports giving BOCs the
    freedom to select the interLATA carrier serving their payphones, but
    only if they offer payphone service from a structurally separate
    subsidiary.[^721] California PUC expresses concern as to whether
    existing nonstructural safeguards provide sufficient protection
    against anticompetitive behavior by the BOCs, but contends that
    Commission oversight in the form of reporting requirements on the
    BOCs with respect to implementation of nondiscriminatory payphone
    service should provide adequate notice of anticompetitive
    abuses.[^722] To deter such abuses, California PUC asserts that the
    states should be given authority to prevent BOCs from giving more
    favorable interLATA rates to their own payphone operations or other
    similar anticompetitive behavior.[^723]

64. 

65. The RBOCs contend that the Commission need not adopt rules in
    addition to the structural and accounting safeguards mandated under
    Sections 271 and 272 of the 1996 Act in order to prevent them from
    engaging in cross-subsidization or other anticompetitive conduct
    with respect to their payphone activities.[^724] Ameritech asserts
    that the Commission has incorrectly assumed that the
    nondiscrimination provisions of Section 272 of the 1996 Act will
    apply to the BOCs\' participation in the choice of interLATA carrier
    at BOC payphones. It argues that it will not be the network part of
    the BOC that will be selecting the interLATA carrier, but the entity
    that owns the payphones \-- which by that time will have gone
    through the nonstructural separation required by Section 276.
    Ameritech contends that the payphone entity will not be required to
    maintain separation from the BOC subsidiary providing in-region
    interLATA services, and therefore there will be no Section 272 rule
    against discrimination applicable as between the payphone operation
    and the interLATA separate subsidiaries.[^725]

66. 

67. Some commenters propose limitations designed to prevent the BOCs
    from leveraging their high payphone interLATA volume in order to
    obtain rates not available to independent PSPs.[^726] APCC contends
    that if the Commission decides to grant the BOCs the ability to
    presubscribe their payphones, then the Commission should also adopt
    rules requiring any independent PSPs aggregating at least one-third
    of the non-LEC payphone volume in a region to qualify for the lowest
    rates made available by a carrier to a competing BOC.[^727] CPA and
    GPCA argue that the Commission should consider placing a limit on
    the volume of calls that must be aggregated to receive an IXC\'s
    highest available commission level for 0+ interLATA calls.[^728]
    Several other commenters urge the Commission to adopt safeguards
    that would limit the volume of traffic that a BOC could route to a
    single interLATA carrier, as well as limit the BOCs\' ability to
    aggregate payphone volume into a single commission agreement.[^729]
    Florida PSC contends that the Commission should adopt rules to
    prevent the BOCs from giving more favorable interLATA rates to their
    own payphone operations than to their payphone competitors.[^730]

68. 

69. Some commenters urging limitations on the BOCs\' ability to
    presubscribe their payphones contend that such limitations are only
    needed until competition sufficiently develops to prevent
    anticompetitive conduct by the BOCs.[^731] Peoples asserts that
    structural separation would be an appropriate transitional
    requirement to prevent cross-subsidization and allow the development
    of full competition in the payphone industry, but could be phased
    out after the BOCs have reclassified their payphone assets and
    removed all of the subsidies out of their basic service rates.[^732]
    Other commenters argue that restrictions should apply to a BOC\'s
    ability to presubscribe itself even after being granted authority to
    offer interLATA service pursuant to Section 271.[^733] CompTel
    argues that BOC participation in the presubscription selection
    process should be delayed at least until after the BOC satisfies the
    Section 271 competitive checklist. Even then, CompTel asserts,
    safeguards will be necessary to prevent anticompetitive conduct by
    the BOCs, including (1) limiting the volume of traffic a BOC can
    route to a single carrier; (2) prohibiting the BOC from
    presubscribing itself for interLATA calls from it payphones;
    and/or (3) limiting the number of calls the BOCs can aggregate into
    a single commission agreement.[^734] NJPA asserts that once the BOCs
    are allowed to enter the interLATA market, they will undoubtedly
    direct all interLATA calls from their payphones to themselves, and
    accordingly asserts that the Commission should prohibit indefinitely
    the BOCs from negotiating presubscription for their payphones.[^735]
    AT&T argues that even after a BOC satisfies the Section 271
    requirements, the Commission should not allow a BOC (or other LEC)
    to negotiate with location providers within its own region until the
    Commission has individually evaluated how each LEC\'s control over
    local exchange facilities and extensive payphone penetration affects
    its ability to behave anticompetitively.[^736]

70. 

71. The RBOCs assert that any regulatory restrictions which limit the
    portion of interLATA traffic a BOC can deliver to any particular
    carrier, or the number of interLATA calls that must be aggregated to
    receive an IXC\'s highest available commission level, are
    inefficient, anticompetitive, and unnecessary.[^737] The RBOCs
    contend that the public interest standard of Section 276 does not
    require the Commission to delay granting them presubscription
    negotiation authority until after they are authorized to provide
    in-region interLATA service pursuant to Section 271, noting that
    Congress chose not to link those two section of the 1996 Act.[^738]

72. 

73. Location providers, including airports and hospitals, maintain that
    authorizing the BOCs to select the interLATA carrier for their
    payphones could deprive the location providers of a significant
    source of revenues by reducing or eliminating commissions paid to
    them for the placement of payphones.[^739] These location providers
    assert that the 1996 Act establishes that location providers should
    retain ultimate authority to determine the carriers serving
    payphones on their premises, and argue that the Commission should
    not implement rules which would restrict the location provider\'s
    authority in this regard.[^740] Airport and hospital location
    providers also assert that the commissions they receive from PSPs
    help reduce the cost of operating these public facilities, thus
    allowing the BOCs to engage in conduct likely to reduce these
    commission levels would be contrary to the public interest.[^741]
    Some location providers also contend that they have a reputational
    interest in both the quality of service from payphones on their
    premises and in protecting their customers from unfair rates when
    using such payphones.[^742] Some location providers assert that if
    the Commission allows the BOCs to negotiate presubscription, then
    the Commission should also make clear that the location providers
    retain the ultimate decision concerning interLATA carriers for
    payphones on their premises.[^743] ACI-NA states that while it
    agrees with the tentative conclusion that all PSPs, including the
    BOCs, should be authorized to negotiate with location providers
    concerning the choice of interLATA carrier, the Commission should
    also make it clear that PSPs may not contract with any carrier over
    the objection of the location provider.[^744]

74. 

75. The RBOCs argue that location providers always retain the ultimate
    decision-making authority concerning interLATA carriers for
    payphones on their premises through their choice of payphone service
    provider.[^745] Ameritech states that the public interest analysis
    required under the 1996 Act does not protect the interests of
    location providers in high commission levels, especially to the
    extent such commissions are recouped by the carriers through higher
    rates to consumers.[^746]

76. 

77. **c. [Discussion]{.underline}**

78. 

79. Section 276(b)(1)(D) directs the Commission to grant the BOCs the
    right to negotiate with location providers for the presubscription
    of interLATA carriers for their payphones, unless we determine that
    such rights would be contrary to the public interest.[^747]

80. 

81. Commenters arguing that BOC participation in the selection of
    presubscribed interLATA carriers for their payphones is contrary to
    the public interest contend that the BOCs\' large share of existing
    payphone units, as well as their continuing near-monopoly over local
    access service, will allow them to engage in anticompetitive conduct
    in the payphone services market if granted unfettered interLATA
    presubscription rights.[^748] The proponents of this view make two
    basic arguments. First, they assert that the BOCs\' large share of
    the existing payphones will enable them to aggregate their payphone
    volumes, in order to obtain from IXCs lower rates (or higher
    commission levels) than those available to independent payphone
    providers.[^749] This cost advantage would, in turn, allow the BOCs
    to strengthen their position as the dominant players in the
    provision of payphone services by enabling them to either pay higher
    commissions to location providers, or to offer lower rates to end
    users. Second, these commenters argue that the BOCs will be able to
    use their bottleneck control over local service facilities to
    subsidize or discriminate in favor of their own payphone
    operations.[^750] We address each of these arguments separately
    below. We conclude, however, that the record does not support a
    finding that it would be contrary to the public interest to allow
    the BOCs to negotiate with location providers with respect to
    selecting and contracting for the interLATA carriers presubscribed
    to their payphones.

82. 

83. Some commenters arguing against granting the BOCs such
    presubscription rights assert that the BOCs will be able to
    solidify, or even expand, their current dominant share of the
    payphone services market by using their existing size to negotiate
    lower interexchange rates than are available to non-BOC payphone
    service providers. Even if we assume that the BOCs will be able to
    aggregate their traffic to obtain superior deals from the IXCs,
    however, it does not necessarily follow that this represents injury
    to competition or the public interest. Rather, competition is
    injured only if the BOCs\' size somehow allows them to exercise
    market power.[^751] As we stated in [Competition in the Interstate
    Interexchange Marketplace]{.underline}:

84. 

The issue is not whether \[the dominant competitor\] has advantages,
but, if so, why, and whether any such advantages are so great as to
preclude the effective functioning of a competitive market. . . . Such
advantages do not . . . mean that these markets are not competitive . .
. \[or\] that it is appropriate for government regulators to deny the
incumbent the efficiencies its size confers in order to make it easier
for others to compete.[^752]

Volume discounts are common in the business world, and typically
represent a recognition by the seller of the economies of scale it
realizes from the transaction.[^753] If these volume discounts are
passed through to the end user, consumers benefit. Even if they are not
passed on to consumers, the pre-existing level of competition is not
injured because prices remain the same to end users. The only resulting
injury is to competitors, not competition.[^754]

1.  The issue that we must examine is whether the BOCs will be able to
    exercise market power if allowed to participate in the interLATA
    presubscription process for their payphones. We have previously
    defined \"market power\" as \"the ability to maintain price above
    the competitive level without driving away so many customers as to
    make the increase unprofitable.\"[^755] The 1992 Joint Merger
    Guidelines similarly define market power as \"the ability profitably
    to maintain prices above competitive levels for a significant period
    of time.\"[^756] There are two ways in which a competitor may
    profitably raise and sustain prices above competitive levels and
    thereby exercise market power. First, a competitor may be able to
    raise and sustain prices by restricting its own output. Second, a
    company may be able to raise and sustain prices by increasing its
    rivals\' costs or restricting its rivals\' output through its
    control of an essential output, such as access to bottleneck
    facilities, that its rivals need to offer their services.

2.  

3.  The commenters arguing that the BOCs will be able to exercise some
    degree of market power each start with the assertion that the BOCs
    control 80 percent or more of the installed payphone base.[^757] The
    BOCs, however, have provided information that indicates that their
    individual shares of payphone units in their regions range from
    62-65 percent for Pacific Bell, BellSouth and US West, to
    approximately 80 percent for Ameritech and Southwestern Bell.[^758]
    These percentage shares do not include semi-public payphones, which
    the BOCs assert do not accurately reflect market power, because they
    are typically not revenue generating and are therefore not subject
    to aggressively competition by the independent payphone service
    providers.[^759] The independent payphone service providers dispute
    these market share figures.[^760]

4.  

5.  We first note that these market share figures are relevant only to
    the BOCs\' ability to exercise market power in the provision of
    payphone services \-- not, as contended by some commenters, to their
    ability to obtain interexchange rates lower than those available to
    the independent payphone service providers. Volume discounts are
    based on the volume of traffic, not on the number of phones from
    which such traffic originates. Thus, a more relevant examination in
    this regard would be the volume of traffic generated by BOC
    payphones, versus that of non-BOC payphones. Unfortunately, there is
    very limited data in the record on this point. The most pertinent
    information was submitted by BellSouth, showing that (excluding
    their semi-public payphones) they currently generate only 45 per
    cent of the payphone revenues in their region.[^761] It is quite
    clear, in any event, that the BOCs\' share of the payphone market
    does not allow them to exercise market power with respect to the
    IXCs.[^762]

6.  As to the BOCs\' ability to exercise market power in the provision
    of payphone services, market share analysis, standing alone, does
    not tell us the likelihood that the dominant firm will be able to
    sustain supracompetitive prices.[^763] If entry into the market is
    sufficiently easy, it will prevent the dominant competitor from
    profitably maintaining prices above competitive levels.[^764]
    [citing]{.underline}, Application of General Electric Co., 4 FCC Rcd
    8207, 8209 (1989). [See]{.underline} [also]{.underline} II P. Areeda
    & D. Turner, [Antitrust Law]{.underline}, para. 505 at 328
    (\"Substantial market power can persist only if there are
    significant and continuing barriers to entry\"). Potential entry
    will act as a deterrent if it would be timely, likely, and
    sufficient in magnitude, character and scope to counteract the
    anticompetitive effect of concern.[^765] In markets where entry
    meets these requirements, high market share generally does not raise
    antitrust concerns.[^766]

7.  

8.  We find the record demonstrates that the market for provision of
    payphone services has very low barriers to entry, and such entry
    would act to prevent the BOCs from sustaining prices above
    competitive levels if allowed to negotiate with location providers
    for the interLATA carriers for their payphones.[^767] In reaching
    this conclusion, we start with the fact that thousands of
    competitors are already in the market.[^768] Most of these companies
    have very small operations. Indeed, the largest of these
    independents, Peoples, has only 40,000 payphones, less than 3
    percent of the national payphone market.[^769] While we understand
    the arguments of the independent payphone providers that their small
    size makes them vulnerable to BOC predatory conduct, the existence
    of literally thousands of small competitors demonstrates that entry
    is relatively easy and does not require investment or scale levels
    that would deter many potential competitors.

9.  

10. We also note that among the non-BOC payphone service providers are
    AT&T, MCI and Sprint.[^770] Although these companies\' presence in
    the payphone market is currently small, at least relative to the
    BOCs, these companies certainly have the financial resources to make
    an aggressive expansion of their payphone operations. We believe
    that this would be particularly likely if, as at least one IXC
    commenter suggests, the BOCs attempt to use their current market
    share to squeeze excessive concessions from the IXC providers.[^771]

11. 

12. We also find that any ability that the BOCs might have to raise
    prices to end users above competitive levels is severely restricted
    by the ability of end users to dial around the presubscribed
    interLATA carrier. TOCSIA requires, and will continue to require,
    open access for such calls at payphones. Peoples estimates that 19.4
    per cent of the calls originated by its payphones are either access
    code calls (6.5 per cent) or subscriber 800 calls (12.9 per
    cent).[^772] A sustained effort by the BOCs to pass on monopoly
    price levels to consumers would certainly induce more end users to
    take advantage of this alternative.[^773]

13. 

14. As noted above, the second way in which a competitor can sustain
    supracompetitive prices is through the control of a bottleneck
    facility. We recognize that for the immediate future, the BOCs will
    continue to retain effective control over local access facilities.
    Accordingly, we are concerned about any potential ability the BOCs
    may have to leverage that market power in favor of their payphone
    operations.

15. 

16. One way in which a BOC might be able to leverage its market power
    over local access facilities is by discriminating in favor of its
    own payphones in the provision of such services.[^774] For example,
    a BOC could discriminate against its payphone services competitors
    by providing them with poorer quality interconnection to the BOC\'s
    local network than it provides to its own payphone operations, or
    could unnecessarily delay satisfying its competitors\' requests to
    connect to the BOC\'s local network or with respect to repair
    services. To the extent that a BOC can thereby raise its rivals\'
    costs of doing business, or damage its rivals\' reputation for
    quality service, the BOC may be able to raise its own payphone
    service rates. Alternatively, some commenters have asserted that the
    BOCs will attempt to leverage their control over local access
    facilities by subsidizing their payphone operations from basic
    exchange and exchange access revenues.[^775] As addressed above,
    Section 276(b)(1)(B) of the 1996 Act requires the elimination of all
    such subsidies.[^776] Improper allocation of costs may allow a BOC
    to recover costs incurred in its payphone operations from
    subscribers to the BOC\'s regulated exchange services, potentially
    harming such captive subscribers of local services and providing the
    BOC\'s payphone operations with an unfair advantage over its
    competitors.[^777]

17. 

18. We conclude, however, that the nonstructural and accounting
    safeguards we are requiring with respect to the BOCs\' payphone
    operations are sufficient to deter such abuses, or to allow the
    Commission to identify abuses of they occur.[^778] As discussed
    above, we are applying all [Computer III]{.underline} and ONA
    nonstructural and accounting safeguards to the BOCs\' provision of
    payphone services, and requiring that any basic services provided by
    a BOC to its own payphone operations be available on a
    nondiscriminatory basis to other payphone providers.[^779] In
    particular, we are requiring each BOC to file an initial CEI plan
    describing how it intends to comply with the [Computer
    III]{.underline} and ONA equal access parameters and nonstructural
    safeguards for the provision of payphone services, including a
    description of how each BOC will comply with the requirements for
    nondiscrimination in the quality of service, installation, and
    maintenance.[^780] In connection with our discussion of these
    safeguards, we previously stated our conclusion that they provide an
    appropriate regulatory framework to ensure that BOCs do not engage
    in improper subsidization or discriminate in the provision of
    services required by their payphone competitors.[^781] We also note
    that such payphone competitors may file a complaint to the
    Commission if they believe a BOC has failed to satisfy its
    obligations under these provisions.[^782]

19. 

20. For the reasons stated above, we decline to adopt the recommendation
    of commenters asserting that the risk that the BOCs will seek to
    leverage their control over local access facilities requires us to
    mandate structural separation of the BOCs\' payphone operations
    before allowing them to participate in interLATA presubscription for
    their payphones.[^783] As discussed, we have previously found that
    [Computer III]{.underline}-type nonstructural and accounting
    safeguards generally to be effective in deterring improper
    allocation of costs and discrimination.[^784] Moreover, we find that
    the statutory language clearly reflects a Congressional
    determination that structural separation of the BOCs\' payphone
    operations from their core business is neither necessary nor
    appropriate. Section 276(b)(1)(C) specifically directs the
    Commission to \"prescribe a set of nonstructural safeguards for Bell
    operating company payphone service to implement\" the
    non-subsidization and non-discrimination provisions of Section
    276(a). We note that Congress has, where it deemed necessary,
    prescribed structural separation requirements as a precondition to
    BOC entry into a line of business.[^785]

21. 

22. Since we are relying on the nonstructural and accounting safeguards
    established pursuant to Section 276(b)(1)(C) to deter
    anticompetitive conduct, however, we believe that it is prudent to
    ensure that such safeguards are in place before the BOCs are allowed
    to participate in interLATA presubscription for their payphones.
    Accordingly, a BOC will not be allowed to engage in the conduct
    authorized by Section 276(b)(1)(D) until it has submitted and
    received approval of an initial CEI plan filed pursuant to Section
    276(b)(1)(C).[^786] We find that this is a reasonable requirement
    for meeting our statutory mandate of protecting the public interest
    in this area.

23. 

24. For all of the reasons discussed above, we also decline to place
    restrictions on the BOCs\' ability to negotiate for the selecting
    and contracting of intraLATA carriers presubscribed to their
    payphones. Most of the commenters urging such restrictions base
    their proposals on the BOCs\' ability to exercise market power
    through the aggregation of interLATA traffic from their
    payphones.[^787] Since we find that the BOCs are unlikely to be able
    to exercise such market power, any restrictions on their ability to
    aggregate interLATA volume, or to direct interLATA traffic to a
    particular carrier, are unwarranted.[^788]

25. 

26. We are also mindful of the statement in the Conference Report that
    location providers retain \"the ultimate decision-making authority
    in determining interLATA services in connection with the choice of
    payphone providers.\"[^789] We interpret this statement as a mandate
    to ensure that strong competition exists in the payphone industry.
    So long as competition exists among payphone service providers,
    location providers will continue to have the ultimate choice of
    carrier through their selection of payphone service provider.[^790]
    As to the location providers\' argument that BOC participation in
    the presubscription process will lead to a reduction in, or
    elimination of, the commissions they receive in connection with
    placing payphones on their premises, we find this argument
    unpersuasive. We find it unlikely that the introduction of
    additional competition would lead to commissions being reduced below
    competitive levels. In this respect, we note that MCI and
    independent payphone service providers have asserted just the
    opposite \-- that the BOCs will attempt to gain market share by
    offering location providers higher commissions which their
    competitors will be unable to match.[^791] We also note that, to the
    extent that these commissions are recouped from end users in the
    form of higher rates, protecting higher commissions is not a strong
    public interest concern weighing heavily against granting the BOCs
    presubscription authority.

27. 

28. We conclude that competition in the provision of payphone services
    is sufficiently strong to ensure location providers freedom of
    choice concerning the interLATA carriers for payphones on their
    premises. In addition to the conclusions expressed above, we also
    note that the record indicates that many long-term agreements
    currently exist between location providers and payphone service
    providers or carriers, concerning the choice of presubscribed
    interLATA carrier.[^792] Since these agreements will expire over
    time, the existence of these enforceable agreements will help to
    ensure the continued availability of choice in the selection of
    carriers. We emphasize, however, that a location provider\'s ability
    to choose should be protected from unjust and unreasonable practices
    which seek to foreclose meaningful choice. Such practices include
    unreasonable interference with pre-existing agreements between
    location providers and payphone service providers or carriers, or
    conduct which is unduly coercive of the location provider\'s right
    to choose the carrier for payphones on its premises. Such conduct
    may violate Section 201 of the Act, which proscribes unjust and
    unreasonable practices by common carriers.[^793]

29. 

30. As a final point, we address the argument of some commenters that
    BOC participation in the interLATA presubscription of their
    payphones would constitute the offering of interLATA service,
    without first meeting the requirements of Sections 271 and 272 of
    the 1996 Act.[^794] Section 276 of the 1996 Act, however, provides
    only that BOCs be given equal rights with independent payphone
    providers \"to select and contract with, the carriers that carry
    interLATA calls from their payphones . . .\"[^795] We interpret the
    phrase \"select and contract with,\" as granting the BOCs no more
    than the right to participate as a contractual intermediary between
    a location provider and a third-party interLATA carrier. Such
    conduct does not amount to the provision of interLATA
    telecommunications service addressed under Sections 271 and
    272.[^796] Moreover, we find nothing in the statutory language, or
    legislative history, to indicate that Congress intended the
    restrictions of Sections 271 and 272 to encompass the specific
    conduct authorized in Section 276.

31. 

32. BellSouth, however, has asked us to find that Section 276(b)(1)(D)
    allows the BOCs to engage in reselling, as well as branding, of
    presubscribed interLATA service to their payphones.[^797] BellSouth
    asserts that \"Section 276 does [not]{.underline} reference other
    sections of the 1996 Act but immediately does away with MFJ
    interLATA prohibitions (but [only]{.underline} for RBOC payphone
    units . . .) unless the FCC finds interLATA rights for RBOC PSPs not
    to be in the public interest.\"[^798] While we recognize that
    independent payphone providers have the ability to engage in the
    resale and/or branding of presubscribed interLATA service to their
    payphones, we do not interpret the language of the 1996 Act to grant
    this authority to the BOCs.[^799] As explained above, the 1996 Act
    provides that the BOCs are to be given equal rights with independent
    payphone service providers \"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 . . .\"[^800] We interpret this language as
    envisioning the \"carrier\" as being someone other than the BOC to
    whom negotiating rights are being given.[^801] We do not find that
    Congress intended to allow BOCs to provide interLATA
    telecommunications services to its payphone customers, including
    through resale, other than as set forth in Section 271(b).[^802] In
    this respect, we note that the 1996 Act defines telecommunications
    service as \"the offering of telecommunications for a fee directly
    to the public, or to such classes of users as to be effectively
    available directly to the public, [regardless of the facilities
    used]{.underline}.\"[^803] We find that, for purposes of Section
    276, resale by a BOC of interLATA service for its in-region
    presubscribed payphones, which service will ultimately be used by
    consumers of payphone services, lies outside of the specific rights
    granted by Section 276(b)(1)(D) of the 1996 Act.[^804]

33. 

34. **2. [Grandfathering of Contracts]{.underline}**

35. 

36. **a. [The Notice]{.underline}**

37. 

38. Section 276(b)(3) states that \"nothing in this section shall affect
    any existing contracts between location providers and payphone
    service providers or interLATA or intraLATA carriers that are in
    force and effect as of the date of enactment\" of the 1996 Act. We
    tentatively concluded that this section of the 1996 Act grandfathers
    all contracts in existence as of February 8, 1996.[^805] In
    addition, we sought comment on what should be considered a Section
    276(b)(3) contract for purposes of Section 276(b)(1)(D), and we
    tentatively concluded that a Section 276(b)(1)(D) contract must be,
    at least, a lawful agreement where both parties intended to be
    bound.[^806]

39. 

40. **b. [Comments]{.underline}**

41. 

42. Each of the commenters agrees with the Commission\'s tentative
    conclusion that contracts between location providers and payphone
    service providers or interLATA or intraLATA carriers in force as of
    February 8, 1996 should be grandfathered and remain in effect.[^807]
    Oncor asserts that contracts entered into subsequent to February 8,
    1996 should also be given full effect by the Commission.[^808]

43. The RBOCs argue that the Commission should specify that the
    grandfathering provision applies only to contracts enforceable by
    either party and, specifically, that a location provider\'s letter
    of authorization (which authorizes the IXC to serve a particular
    payphone) is not enforceable by the IXC and should therefore not be
    grandfathered.[^809] Sprint also asserts that a contract can only be
    grandfathered if it includes binding obligations applicable to both
    parties \-- which would not include letters of authorization that do
    not require the location provider to subscribe to the IXC\'s service
    for any fixed length of time.[^810]

44. 

45. AT&T maintains that the definition of contract for these purposes
    should include all agreements which commit a location owner to
    select a particular IXC for phones at its premises. AT&T asserts
    that this would include lawfully executed letters of
    authorization.[^811] ACI-NA also contends that the Commission should
    adopt a broad definition of contracts to be grandfathered under the
    1996 Act, including letters of authorization and term extensions, so
    as to not disadvantage location providers that may rely on existing
    presubscription agreements for a necessary income stream.[^812]
    CompTel also argues that location providers\' letters of
    authorization constitute contracts that Congress intended to be
    grandfathered by the 1996 Act, since such agreements are typically
    part of mutually binding initial service orders or contracts with
    IXCs.[^813] AT&T urges the Commission to affirm that interference
    with any existing contract at any time is an unjust and unreasonable
    practice under Section 201(b).[^814]

46. 

47. Metropolitan Washington Airports Authority replies that so long as
    location providers have decision-making authority, it is unnecessary
    for the Commission to resolve the issue of whether LOAs are binding
    agreements grandfathered by the 1996 Act.[^815] Instead, it argues
    that the determination of whether specific LOAs are binding on the
    parties should be left to applicable state law.[^816]

48. 

49. **c. [Discussion]{.underline}**

50. 

51. We affirm our tentative conclusion that the 1996 Act grandfathers
    all contracts in force between location providers and payphones
    service providers or interLATA or intraLATA carriers which were in
    force and effect as of February 8, 1996. Since the statutory
    language is specifically limited to the date of enactment of the
    1996 Act, and because there is an insufficient record to evaluate
    the propriety of extending that provision, we reject the argument
    that we extend this grandfathering protection to contracts entered
    into subsequent to February 8, 1996.[^817]

52. 

53. As the statutory language specifically limits the scope of this
    provision to \"contracts,\" we leave to applicable state law the
    question of whether a particular agreement constitutes an
    enforceable contract. We note that the comments reflect a difference
    of opinion as to the legal obligations involved in letters of
    authorization (\"LOAs\").[^818] It may be that this disagreement
    reflects the fact that LOAs may be entered into under differing
    circumstances, reflecting various levels of commitment and/or
    consideration by the parties. Accordingly, we express no opinion as
    to whether particular LOAs would or would not constitute contracts
    for purposes of this section of the 1996 Act.

54. 

55. We do find, however, that interference with enforceable agreements
    between a location provider and either a payphone service provider
    or an interLATA or intraLATA carrier constitutes an unjust and
    unreasonable practice in violation of Section 201(b) of the 1996
    Act.[^819] We also find that practices involving undue coercion of
    location providers with respect to their choice of interLATA carrier
    for payphones on their premises may be found unjust and
    unreasonable. Such practices interfere with the efficient operation
    of the market by restricting choices, and thereby limit the benefits
    of competition.

56. 

57. 

58. **E. ABILITY OF PAYPHONE SERVICE PROVIDERS TO NEGOTIATE WITH**

59. [**LOCATION PROVIDERS ON THE PRESUBSCRIBED INTRALATA
    CARRIER**.]{.underline}

60. 

61. Section 276(b)(1)(E) directs the Commission to provide all payphone
    service providers with the right to participate in the selection of
    the intraLATA carriers presubscribed to their payphones.[^820] In
    implementing this mandate, we seek to eliminate existing barriers
    upon any payphone service provider\'s ability to compete on this
    basis.

62. 

63. **1. [The Notice]{.underline}**

64. 

65. Section 276(b)(1)(E) of the 1996 Act 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 intraLATA calls from their payphones.\" In
    the [Notice]{.underline}, we tentatively concluded that all PSPs,
    whether LECs or independent payphone service providers, should be
    given the right to negotiate with location providers concerning the
    intraLATA carrier.[^821] We also tentatively concluded that the
    intraLATA carrier presubscribed to a payphone should be required to
    meet minimum Commission standards for the routing and handling of
    emergency calls.[^822]

66. 

67. **2. [Comments ]{.underline}**

68. 

69. Commenters generally agree with the tentative conclusion that all
    payphone service providers should have the ability to negotiate with
    location providers for the selection of intraLATA carriers from
    their payphones.[^823] Those who commented on the issue also agree
    with the our tentative conclusion that minimum standards for the
    handling and routing of emergency calls should be required of all
    intraLATA carriers presubscribed to a payphone.[^824]

70. 

71. Some commenters, including AT&T, MCI and SCPCA, assert that, in
    order to ensure effective competition in the intraLATA market, the
    Commission should specifically preempt any state requirement
    mandating the routing of intraLATA calls to the incumbent LEC.[^825]
    AT&T also argues that the Commission should preempt any other state
    requirements that are inconsistent with the provisions of Section
    276, including those requiring the inclusion of ILEC payphones in
    the presubscription process in states with toll dialing parity
    orders issued prior to December 15, 1995.[^826] AT&T additionally
    asserts that the Commission should require immediate intraLATA
    presubscription for all BOC payphones located in areas where
    intraLATA presubscription is technically feasible.[^827] Florida PSC
    argues that end-users placing 0- calls often seek assistance from
    live operators for emergency purposes, and therefore the Commission
    should continue to allow 0- traffic to be routed exclusively to the
    LEC.[^828]

72. 

73. The RBOCs assert that the Commission should not mandate the adoption
    of new technologies in order to allow intraLATA presubscription at
    the central office switch.[^829] The RBOCs state that such a
    requirement is neither technically feasible, nor necessary, since
    independent payphone service providers can program their \"smart\"
    payphones to select a presubscribed intraLATA carrier without
    relying on the local exchange carrier\'s central switching
    programming. Instead, the RBOCs contend that central office based
    presubscription for payphones should be addressed at the same time
    as all other intraLATA presubscription issues under Section 251 of
    the 1996 Act.[^830]

74. 

75. ACI-NA asserts that while all payphone service providers should be
    authorized to negotiate with location providers on an equal basis,
    the Commission should make it clear that payphone service providers
    may not contract with a carrier over the objections of the location
    provider.[^831] Independent payphone service providers also argue
    that the Commission should make explicit that the right to choose an
    intraLATA carrier includes the right to use the carrier for local
    sent and non-sent paid calls.[^832] SCPCA also contends that all
    PSPs should be able to negotiate with location providers for
    selecting the local operator service for their payphones.[^833]

76. 

77. **3. [Discussion]{.underline}**

78. 

79. We affirm our conclusion that all payphone service providers should
    have the right to negotiate with location providers concerning the
    intraLATA carriers presubscribed to their payphones. This conclusion
    is consistent with both the specific language of Section 276, as
    well as with the 1996 Act\'s goal of bringing competition into this
    industry segment.[^834]

80. 

81. We also affirm our tentative conclusion that intraLATA carriers
    presubscribed to payphones should be required to meet our minimum
    standards for routing and handling of emergency calls. We recently
    addressed this issue in CC Docket 94-198, in which we extended to
    aggregators, including payphone owners, standards for routing
    emergency calls.[^835] This conclusion reflects our finding, also
    discussed in connection with public interest payphones, that
    payphones often serve a critical role in accessing emergency
    service.[^836] By mandating the application of these minimum
    standards to intraLATA carriers presubscribed to payphones, we seek
    to ensure that individuals can receive timely and proper assistance
    when they rely on payphones for 0- or 911 emergency calls.[^837]

82. 

83. Because Section 276(b)(1)(E) establishes that all payphone service
    providers are to have the right to negotiate for intraLATA carriers
    for their payphones, we find that state regulations which require
    the routing of intraLATA calls to the incumbent LEC are inconsistent
    with the 1996 Act. Section 276(c) specifically states that \"to 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.\"[^838] Since we have
    found state requirements that mandate the routing of any or all
    intraLATA calls to an incumbent LEC to be inconsistent with the
    requirements of Section 276(b)(1)(E), we conclude that all such
    state requirements are preempted by the Commission\'s
    regulations.[^839]

84. 

85. We take particular note, however, of Florida PSC\'s argument that
    states should be allowed to mandate that 0- calls from payphones be
    routed exclusively to the incumbent LEC.[^840] Florida PSC notes
    that such a requirement is necessary to ensure that emergency calls,
    where the caller simply dials \"0\" and nothing else, are delivered
    to a live, local operator. We believe that requiring 0- calls to be
    initially routed to the LEC is not necessarily inconsistent with the
    provisions of Section 276(b)(1)(E), so long as the state does not
    mandate that the LEC ultimately carry non-emergency intraLATA calls
    initiated by dialing \"0\" only.

86. 

87. As with the selection of an interLATA carrier, payphone location
    providers will have ultimate decision-making authority in the
    selection of intraLATA carriers for payphones located on their
    premises through their selection of a payphone service
    provider.[^841] Obviously such choice is predicated on the
    development of competition in the in-region, intraLATA market. Once
    choice of intraLATA providers becomes available, however, PSPs can
    be expected to compete for locations through, among other things,
    the intraLATA carriers presubscribed to their payphones. As with the
    selection of interLATA carriers, interference with existing
    agreements between location providers and payphone service providers
    or intraLATA carriers, as well as undue coercion restricting the
    location provider\'s exercise of choice of such carriers, may
    constitute unjust and unreasonable practices in violation of Section
    201(b) of the Act.[^842]

88. 

89. 

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1.  **F. [ESTABLISHMENT OF PUBLIC INTEREST PAYPHONES]{.underline}**

2.  

3.  Section 276(b)(2) of the 1996 Act directs us to determine whether
    there is a need for maintaining payphones serving public health,
    safety, and welfare goals, and, if so, to ensure that such payphones
    are supported fairly and equitably.[^843] As noted above, we
    recognize the potential that a freely competitive marketplace may
    not provide for payphones in locations where they serve important
    public policy objectives, but which, for various reasons, may not be
    economically self-supporting. To address the potential for such
    market failure, we establish guidelines by which the states may
    ensure the maintenance of payphones serving public interests in
    health, safety and welfare, in locations where they would not
    otherwise be available as a result of the operation of the
    market.[^844] Consistent with our primary reliance on the
    competitive marketplace, however, these guideline require that the
    states administer and fund such public interest payphone programs in
    a manner which is competitively neutral, and which fairly and
    equitably compensates entities providing public interest payphones.

4.  

5.  **1. [The Notice]{.underline}**

6.  

7.  Section 276(b)(2) of the 1996 Act directs the Commission to
    \"determine whether public interest payphones, which are provided in
    the interest of public health, safety, and welfare, in locations
    where there would otherwise not be a payphone, should be maintained,
    and if so, ensure that such public interest payphones are supported
    fairly and equitably.\" In the [Notice]{.underline}, we sought
    comment on whether it is in the public interest to maintain
    payphones.[^845] We also sought comments on options for maintaining
    public interest payphones.[^846] One option would be for the
    Commission to prescribe federal regulations for the maintenance of
    these payphones. A second option would be for the Commission to
    establish national guidelines for public interest payphones. A third
    option for maintaining public interest payphones would be to defer
    to the states to determine, pursuant to their own statutes and
    regulations, which payphones should be treated as \"public interest
    payphones.\"[^847]

8.  

9.  In the [Notice]{.underline}, we also sought comment on whether a
    \"public interest payphone\" should be defined as a payphone that
    both (1) operates at a financial loss, but also fulfills some public
    policy objective, such as emergency access; and (2) even though
    unprofitable by itself, is not provided for a location provider with
    whom the PSP has a contract.[^848] Under this definition, many
    payphones that fulfill important public policy objectives would not
    be included because they would be paid for, in the form of lower
    commission payments, by the entity that is requesting that a
    payphone be placed in a particular location to fulfill a public
    policy objective.[^849]

10. 

11. In addition, we sought comment on appropriate mechanisms for meeting
    the statutory directive that we ensure public interest payphones are
    funded \"fairly and equitably.\"[^850] We sought comment on whether
    such a mechanism should be addressed through federal regulations,
    federal guidelines for the states, or by the states themselves. We
    requested that those commenters supporting a Commission-mandated
    funding mechanism detail how the mechanism would function, including
    who would be eligible to receive funding, who would be responsible
    for paying into the fund, and who would administer the funding
    mechanism.[^851]

12. 

13. **2. [Comments]{.underline}**

14. 

15. Most commenters agree that payphones can serve important public
    interests in health, safety and welfare, and that there is a need to
    ensure that payphones are maintained in locations where they may not
    be self-supporting.[^852] For example, New York City asserts that,
    in the absence of incentives, PSPs are unlikely to place payphones
    in indispensable locations such as under-served residential
    neighborhoods and areas with significant emergency demands.[^853]
    New York City states that payphones in such areas serve an important
    role in providing the public with basic communications services, an
    avenue to obtain information, and access to critical emergency
    services.[^854] Idaho PUC states that payphones in rural areas often
    generate little revenue, but may be the only means of public
    telephone communication for miles.[^855] New Jersey DRA also asserts
    that public interest payphones provide services to individuals in
    poor and isolated communities who might otherwise not have any
    access to the exchange network, and are particularly necessary for
    assuring that such individuals have access to emergency services
    such as 911.[^856] Puerto Rico Telephone states that those who by
    necessity use payphones as a substitute for residential telephone
    service rely on such payphones as their means of access to emergency
    services, as well as their means of communication with family
    members, employers, businesses and others.[^857] Many commenters
    agree that public interest payphones are an integral part of efforts
    to achieve universal service.[^858]

16. 

17. A few commenters, however, assert that the Commission need not take
    any action at this time to ensure the maintenance of public interest
    payphones. MCI contends that the issue of public interest payphones
    is part of the larger question of ensuring that all consumers have
    access to telephone service, and should, therefore, be referred to
    the Federal-State Joint Board on Universal Service.[^859] The Iowa
    Utilities Board argues that the Commission should defer to the
    states with respect to public interest payphones because Iowa has
    found that it is \"not necessary to establish rules requiring public
    interest payphones\" in that state.[^860]

18. 

19. Most commenters assert that the Commission should leave to the
    states the primary responsibility for administering public interest
    payphone programs.[^861] A number of state and local regulatory
    agencies argue that any public interest payphones program should be
    left primarily to the states, because national guidelines could not
    adequately and economically prescribe locations or criteria for such
    payphones throughout the country. These commenters emphasize that
    state and local entities, including police, fire, rescue and public
    welfare agencies, are best situated to evaluate community needs and
    objectives.[^862] Several state agencies note that they already
    have, or are prepared to develop, programs which provide for placing
    payphones in locations where they might otherwise not exist.[^863]
    For example, several states comment that they require incumbent
    local exchange carriers in their jurisdictions to place at least one
    payphone in each exchange area.[^864]

20. 

21. One state plan referenced often in the comments is the California
    Universal Services program. California\'s program requires that LECs
    maintain \"public policy\" payphones at locations where revenues are
    not sufficient to profitably support a payphone.[^865] The program
    requires that: (1) a selected committee evaluate the need for
    payphones at locations where they do not already exist; (2) the LECs
    install and maintain these payphones with the acknowledgement that
    revenues will not cover costs of installation and operation; (3) all
    PSPs support these payphones through a monthly rate charged to
    connect their payphones to the network; and (4) all LECs with
    payphones support these payphones with a contribution from their
    competitive public and semi-public payphones. Thus, the costs of
    supporting these public interest payphones are borne not by the
    general body of ratepayers, but rather by the payphone industry as a
    whole.[^866] CPA asserts that this program does not place an undue
    burden on PSPs because the criteria for public interest payphones
    has been narrowly drawn, resulting in only one per cent of all
    payphones in the state being identified as public interest
    payphones.[^867] The RBOCs, however, assert that the California plan
    may not work in other states, particularly in rural areas where the
    number of competitive payphones may be small relative to the number
    of public interest payphones.[^868]

22. 

23. Several commenters, particularly the BOCs and independent payphone
    providers, urge the Commission to adopt national guidelines for
    state implementation of a public interest payphone program.[^869]
    The RBOCs argue that the 1996 Act requires the Commission to adopt a
    narrow definition of what constitutes a public interest payphone in
    order to limit what state and local governments can require of
    payphone providers.[^870] They argue that since the 1996 Act
    requires the installation of public interest payphones only \"in
    locations where there would otherwise not be a payphone,\"[^871]
    state and local regulators should not be allowed to require the
    installation of public interest payphones in locations where a
    payphone already exists, or on the premises of a location provider
    who has an existing contract for the placement of a payphone.[^872]
    Ameritech specifically recommends adoption of guidelines, similar to
    the existing California model, which specify that a public interest
    payphone is one that would not \"break even,\" and would not exist
    in the location absent public intervention.[^873] The RBOCs and
    Ameritech urge rules limiting the designation of \"public interest
    payphones\" to those requested by state or local governmental
    agencies for purposes of ensuring health, safety, and welfare.[^874]
    The RBOCs also contend that local governmental agencies already
    provide for the public interest payphones by requiring the placement
    of certain numbers of non-profitable payphones as part of their
    contracts with individual payphone service providers for the
    placement of competitive payphones.[^875] A few state commenters
    also stated that it may be appropriate for the Commission to adopt
    basic national guidelines in order to ensure the deployment of
    public interest payphones in critical locations.[^876]

24. Puerto Rico Telephone contends that because of the particularly low
    level of residential telephone service, any definition of public
    service payphones adopted by the Commission should include payphones
    that are used as a substitute for local residential telephone
    service.[^877] GVNW, which represents small LECs, also recommends a
    broader definition of public interest payphones in order to ensure
    adequate access to payphones in schools, public parks, and other
    public locations.[^878]

25. 

26. Among the independent payphone providers, APCC argues that the
    legislative history indicates that location providers, including
    state and local governments, having an existing contract with a PSP
    for the placement of payphones, should be precluded from having
    public interest payphones located on their premises.[^879] CPA
    argues that the Commission should set basic national guidelines,
    while leaving implementation to the states.[^880] It recommends the
    criteria of the California program as a good model for narrowly
    defining the scope of public interest payphones.[^881]

27. 

28. Many commenters, particularly state and local regulators, contend
    that funding for public interest payphones should also be left to
    the discretion of the states.[^882] Maine PUC asserts that if the
    Commission does attempt to prescribe national siting standards, then
    the Commission must also provide the states federal or
    interstate-derived funding to support such requirements.[^883]
    Otherwise, it contends, the Commission should not limit the funding
    options available for state administration of public interest
    payphone programs.[^884] Other commenters argue that to meet the
    1996 Act\'s requirement that public interest payphones be
    \"supported fairly and equitably,\" such payphones should be paid
    for by the requesting party.[^885] Specifically, the RBOCs assert
    that the Commission should require requesting entities, including
    state and local governments, to compensate PSPs in an amount that
    allows the PSP to recover its costs for establishing a public
    interest payphone, plus a reasonable rate of return.[^886] The BOCs
    argue that any funding mechanism that requires the PSPs to share in
    the responsibility of providing public interest payphones would
    necessitate a complex analysis of market share or a running tally of
    the number of payphones each PSP provides in a particular
    area.[^887] Puerto Rico Telephone and NTCA also contend that, if the
    Commission determines that public interest payphones should be
    maintained, then the Commission is also obligated to ensure that
    such payphones are properly funded.[^888] They recommend that the
    Commission establish a fund segregated from other universal service
    support mechanisms, and administered by the NECA, to support public
    interest payphones. NECA affirms in its comments its ability to
    implement such a program.[^889]

29. 

30. APCC also maintains that the states should be given the discretion
    to determine the funding mechanism for public interest payphones,
    including funding based upon surcharges for all PSPs serving the
    location, or through a universal service mechanism funded by all
    rate payers.[^890] While endorsing the funding mechanism adopted in
    the California plan, CPA argues that an alternative funding
    mechanism would be to allow PSPs to seek subsidy support for
    non-self-supporting payphones determined to be in the public
    interest, with award of the payphone location to the PSP bidding to
    provide a payphone at that location for the lowest subsidy
    amount.[^891] GTE asserts that the Commission should require states
    to adopt rules for public interest payphone programs that are
    competitively neutral, including requiring fair compensation to PSPs
    providing public interest payphones, and ensuring that all PSPs may
    participate in such programs on a voluntary basis.[^892] GTE argues
    that states may establish funds to ensure that public interest
    payphone programs are supported fairly, or could support such
    payphones as part of their state universal services fund.[^893] SW
    Bell also urges the Commission to require the states to adopt
    competitively neutral funding mechanisms for public interest
    payphone programs, including the use of competitive bidding for the
    right to provide public interest payphones.[^894]

31. 

32. **3. [Discussion]{.underline}**

33. 

34. We conclude that there is a need to ensure the maintenance of
    payphones that serve the public policy interests of health, safety,
    and welfare in locations where there would not otherwise be
    payphones as a result of the operation of the market.[^895] As
    demonstrated by the comments, all payphones serve the public
    interest by providing access to basic communications services.[^896]
    We are particularly concerned about the role served by payphones in
    providing access to emergency services, especially in isolated
    locations and areas with low levels of residential phone
    penetration. Indeed, in some such areas, payphones are the only
    readily available means of accessing these critical communications
    services.[^897] Moreover, as several commenters recognize, some
    payphones which are most critical for public health, safety and
    welfare purposes, are also the least likely to be economically
    self-supporting.[^898] With the elimination of subsidies which have
    helped support such payphones in the past, as directed by the 1996
    Act, it is possible that many of these payphones could disappear
    absent the availability of alternative methods to ensure their
    existence.[^899]

35. 

36. Many states have already developed systems for identifying the need
    for public interest payphones, and developing solutions to address
    that need.[^900] Indeed, we find that the states are typically in a
    superior position to evaluate the need for payphones which serve
    community interests in health, safety and public welfare. In
    particular, the states are better equipped than the Commission to
    respond to geographic and socio-economic factors affecting the need
    for such payphones that are too diverse to be effectively addressed
    on a national basis.[^901]

37. 

38. We also find that the existence of a variety of state and local
    plans already providing for payphones serving public welfare goals
    demonstrates that the states are able to successfully administer
    such programs. For example, we note the program adopted in
    California, which all parties involved appear to view as having
    successfully provided for public interest payphones in the most
    critical locations.[^902] The California program is funded by the
    payphone industry as a whole, yet is endorsed by payphone providers
    doing business in the state because, in part, it narrowly defines
    the criteria for public interest payphones to locations where there
    is a true public welfare need not being met by the competitive
    marketplace.[^903] These criteria include requirements that a public
    interest payphone not be located on the premises of a person
    receiving compensation under a contract for the placement of other
    payphones, that access to the payphone be unrestricted, and that the
    payphone be at least a specified distance away from any other
    payphones.[^904] The experience in California has been that only a
    very small number of locations, relative to the overall number of
    payphones, meet the narrow criteria for public interest
    payphones.[^905] It may be, however, that in other states such a
    program would not effectively provide for public interest telephones
    because there are insufficient numbers of competitive payphones
    available to adequately and fairly support the locations meeting the
    criteria for public interest payphones.[^906] Other states, however,
    have responded to an identified need for payphones necessary to
    satisfy public health, safety, and welfare concerns by requiring
    LECs to provide at least one public payphone in each telephone
    exchange,[^907] or by requiring the placement of unprofitable
    payphones as part of contracts with PSPs for the placement of
    profitable payphones on public property.[^908]

39. 

40. The existence of these various and diverse plans confirms both that
    the states have the authority to adequately address the need for
    public interest payphones, and that any effort to implement a
    uniform national program is unlikely to be as successful in
    accounting for differing conditions among the states. We also
    believe that any effort by the Commission to implement such a
    national program would be beyond our current resource capabilities.
    For all of the above reasons, we conclude that the primary
    responsibility for administering and funding of public interest
    payphone programs should be left to the states.

41. 

42. While we leave the administration of public interest payphones to
    the states, we believe that the 1996 Act requires us to impose
    minimum guidelines for establishment of a public interest payphone
    program to meet our statutory obligation to ensure the maintenance
    of such payphones. In particular, we believe it is very important to
    establish a basic definition of public interest payphones that is
    narrowly tailored to payphones that are truly needed for the public
    interest reasons enunciated in the statute. The 1996 Act describes
    public interest payphones as those \"which are provided in the
    interest of public health, safety, and welfare, in locations where
    there would otherwise not be a payphone . . .\"[^909] The Conference
    Report further explains that \"the term does not apply to a payphone
    located near other payphones, or to a payphone that, even though
    profitable by itself, is provided for a location provider with whom
    the payphone provider has a contract.\"[^910] The definition
    proposed in the [Notice]{.underline} encompasses both of these
    statements. We also note that the limitations reflected in the
    Conference Report are similar to those included in the California
    program\'s criteria for \"public policy payphones.\"[^911]

43. 

44. We adopt as a definition of \"public interest payphone,\" a payphone
    which (1) fulfills a public policy objective in health, safety, or
    public welfare, (2) is not provided for a location provider with an
    existing contract for the provision of a payphone, and (3) would not
    otherwise exist as a result of the operation of the competitive
    marketplace. This definition is similar in effect to the one
    proposed in the [Notice]{.underline}. We conclude that the statute
    and Conference Report reflect a congressional intent that reliance
    on the public interest payphone provision is to be limited to
    instances where a payphone location serves a strong public interest
    that would not be fulfilled by the normal operation of the market.
    Thus, a state may not require that a public interest payphone be
    installed on premises where a location provider already has a
    contract for the maintenance of a competitive payphone, even if such
    contract requires the location provider to pay for the continued
    maintenance of such payphone.[^912]

45. 

46. The 1996 Act directs the Commission, in the event that we find the
    need for public interest payphone programs, to \"ensure that such
    public interest payphones are supported fairly and
    equitably.\"[^913] We find that this provision requires a national
    guideline that companies providing public interest payphones be
    fairly compensated for the cost of such services. We leave to the
    discretion of the states how to fund their respective public
    interest payphone programs, so long as the funding mechanism, (1)
    \"fairly and equitably\" distributes the costs of such a program,
    and (2) does not involve the use of subsidies prohibited by Section
    276(b)(1)(B) of the 1996 Act.[^914] Thus, a state may choose to fund
    public interest payphones from its general revenues through a
    process that ensures that companies providing public interest
    payphones are fairly compensated and in a manner that does not
    otherwise affect the competitive balance of the industry.[^915]
    Similarly, a state or local government may include requirements for
    placing non-profitable payphones as part of a voluntary, contractual
    agreement with a payphone services provider for the installation of
    competitive payphones on public property.[^916]

47. 

48. Alternatively, states may address the need for public interest
    payphones by adopting appropriate rules in conjunction with their
    responsibilities for ensuring universal service pursuant to Section
    254(f) of the 1996 Act.[^917] We note that issues relating to public
    interest payphones were not referred to the Universal Services
    Federal-State Joint Board in Docket 96-45.[^918] Section 254(f),
    however, provides that states may adopt regulations to preserve and
    advance universal service within each state, not inconsistent with
    the rules we will eventually adopt in that proceeding.[^919]
    Accordingly, any state may adopt regulations to provide for
    additional definitions and standards to preserve and advance
    universal service within that state so long as such regulations
    include additional specific, predictable, and sufficient mechanisms
    to support such definitions or standards, and that do not burden or
    rely on federal universal service support mechanisms.[^920] We note
    that among the among the criteria established by the 1996 Act for
    defining services that are to be supported by a universal services
    program, are whether such telecommunications services \"are
    essential to education, *public health*, *or* *public safety* . . .
    . \[and\] are consistent with the *public interest*, *convenience*,
    and necessity.\"[^921] We find that the implementation of a public
    interest payphone program is consistent with these goals, and may be
    a valuable tool in the states\' efforts to achieve universal
    service.[^922] Therefore, we find that states may establish funding
    mechanisms for public interest payphones either by meeting the
    funding requirements of Section 276(b)(2), as limited by Section
    276(b)(1)(B), or in accordance with state universal service rules
    adopted pursuant to Section 254(f) in conjunction with Section
    276(b)(2) and (b)(1)(B).

49. 

50. In furtherance of our statutory responsibility under Section
    276(b)(2), we direct each state to review whether it has adequately
    provided for public interest payphones in a manner consistent with
    this [Report and Order]{.underline}. In particular, each state
    should evaluate whether it needs to take any measures to ensure that
    payphones serving important public interests will continue to exist
    in light of the elimination of subsidies and other competitive
    provisions established pursuant to Section 276 of the 1996 Act, and
    that any existing programs are administered and funded consistent
    with the requirements described above. This review must be completed
    by each state within two years of the date of issuance of this
    [Report and Order]{.underline}, and may be conducted in conjunction
    with each state\'s study of the payphone marketplace which we are
    requiring in connection with the transition to market-based payphone
    compensation.[^923]

51. 

52. Finally, we do not delegate our entire responsibility under Section
    276(b)(2) to \"ensure that such public interest payphones are
    supported fairly and equitably.\"[^924] If interested parties
    believe that a state is not supporting public interest payphones
    fairly and equitably, such parties may file a petition with the
    Commission asserting that the state is not providing for payphones
    in accordance with Section 276(b)(2) and the guidelines we adopt in
    this [Report and Order]{.underline}, as may be amended from time to
    time.

53. 

54. 

55. **G. [OTHER ISSUES]{.underline}**

56. 

57. **1. [Dialing Parity]{.underline}**

58. 

59. **a. [The Notice]{.underline}**

60. 

61. We tentatively concluded in the Notice that the benefits of the
    dialing parity requirements to be adopted pursuant to Section
    251(b)(3) of the 1996 Act should extend to all payphone location
    providers.[^925] We sought comment on this and other methods for
    achieving dialing parity for payphone location providers, and users,
    of payphones that are consistent with the definition of dialing
    parity under Section 3(15) of the 1934 Act, as amended.[^926] As a
    related matter, we also sought comment on whether we should extend
    the unblocking requirements established in TOCSIA to all local and
    long distance calls.[^927]

62. 

63. **b. [Comments]{.underline}**

64. 

65. AT&T, MCI, Sprint and the Virginia SCC all agree with the
    Commission\'s tentative conclusion that the benefits of the dialing
    parity requirements to be adopted pursuant to Section 251(b)(3) of
    the 1996 Act should extend to all payphone location providers.[^928]
    While the RBOCs agree with the tentative conclusion, they assert
    that such benefits should be exercised indirectly through the PSP\'s
    programming of their \"smart\" payphones to select a presubscribed
    intraLATA carrier, as opposed to directly through presubscription at
    the LEC\'s central office switch.[^929]

66. The Florida PSC contends that a PSP should be able to \"program\"
    its payphones to route 1+ and 0+ toll calls to the preferred
    carrier.[^930] GVNW argues that it is the states who should be given
    the discretion of determining when and how dialing parity for
    intraLATA calls should be applied to payphones.[^931]

67. 

68. AT&T requests that the Commission mandate inclusion of all incumbent
    LEC payphones in the presubscription process in the 15 states with
    toll dialing parity orders issued prior to December 15, 1995 as well
    as immediate intraLATA presubscription for all BOC payphones located
    in territories where intraLATA presubscription is now technically
    available.[^932] The RBOCs argue that the Commission should deny
    AT&T\'s immediate intraLATA presubscription request, contending that
    this request is without basis in Section 276 and cannot be
    implemented for intraLATA payphone calls, apart from intraLATA
    residential and business calls.[^933] According to the RBOCs,
    intraLATA dialing parity for payphone calls should operate on the
    same timetable as for all other calls.[^934]

69. 

70. AT&T and MCI both argue that the Commission should adopt intraLATA
    unblocking requirements similar to the interLATA carrier unblocking
    requirements established in TOCSIA.[^935] Sprint argues that the
    interLATA unblocking requirements established pursuant to TOCSIA
    should extend to all local and long distance calls.[^936] Ameritech
    argues that the existing anti-blocking rules promulgated under
    TOCSIA remain sufficient to prevent aggregators from defeating LEC
    equal access features, so long as all LECs are mandated to continue
    providing these features.[^937] According to Ameritech, Section
    251(b)(3) of the 1996 Act does not incorporate the full list of
    equal access features in that it relies on a definition of dialing
    parity which includes only presubscription and omits mention of
    10XXX or other dialed access codes.[^938] Therefore, Ameritech
    argues that because the dialing parity rules of Section 251(b)(3) do
    not include an express reaffirmation of the LECs\' duty to honor
    10XXX and other access codes, the Commission should expressly
    articulate such a reaffirmation in its implementation of Section
    251(b)(3).[^939]

71. 

72. **c. [Discussion]{.underline}**

73. 

74. In our recently issued order implementing the Section 251(b)(3)
    dialing parity requirements, we concluded that dialing parity was an
    important element in fostering vigorous local exchange and long
    distance competition \"by ensuring that each customer has the
    freedom and the flexibility to choose among different carriers for
    different services without the burden of dialing access
    codes.\"[^940] We believe that this statement is equally applicable
    to fostering vigorous competition in the payphone industry, and
    accordingly affirm our tentative conclusion that the benefits of
    dialing parity requirements adopted pursuant to Section 251(b)(3) of
    the 1996 Act should extend to all payphone location providers.

75. 

76. We also conclude that the technical and timing requirements
    established pursuant to Section 251(b)(3), and Section 271(c)(2)(B),
    should apply equally to payphones.[^941] We find that burden on the
    LECs in requiring them to provide dialing parity for payphones,
    prior to all other phones, outweighs any competitive benefit that
    might result. In this respect, we note that independent payphone
    service providers\' \"smart payphones\" can adequately create
    dialing parity within the payphone unit pending the implementation
    of true dialing parity.

77. 

78. Finally, we conclude that the unblocking of carrier access codes
    mandated by TOCSIA and our rules for interstate calls should also
    apply to intrastate (including local) access code calls. This may
    already be normal within the industry, and no party objected to our
    proposal. Allowing unrestricted access to a caller\'s preferred
    carrier is an essential feature of creating a competitive payphone
    industry, and we have created a mechanism that ensures that the PSP
    will receive compensation for all access code calls, including
    intrastate calls. Given the existence of compensation and the
    pro-competitive purpose of Section 276 of the 1996 Act, and in the
    absence of any technical limitations, we find that unblocked access
    for all access code calls from payphones is required.

79. 

80. **2. [Letterless Keypads]{.underline}**

81. 

82. **a. [The Notice]{.underline}**

83. 

84. In the [Notice]{.underline}, the Commission expressed a concern that
    use of letterless keypads may frustrate the intent of Congress, as
    expressed in TOCSIA, to permit callers to reach the OSP of their
    choice from payphones. We also stated that letterless keypads
    ultimately frustrate Congressional intent, as expressed in the 1996
    Act, \"to promote competition among payphone service providers and
    promote the widespread deployment of payphone services to the
    benefit of the general public\[.\]\"[^942] Therefore, the Commission
    tentatively concluded that the use of letterless keypads violates
    both TOCSIA and the 1996 Act by preventing callers from accessing
    their OSP of choice, and we solicited comment on how the Commission
    should take action to prohibit use of these \"by-pass\" letterless
    keypads to restrict the availability of \"vanity\" access
    numbers.[^943]

85. 

86. **b. [Comments]{.underline}**

87. 

88. A wide range of commenters, including IXCs, RBOCs, independent LECs,
    state utility commissions and PPOs, share our concern that
    letterless keypads prevent consumers from reaching their OSP of
    choice and inhibit competition in the payphone industry.[^944] The
    Ohio PUC cites complaints by consumers and \"representatives of
    persons with communications disabilities.\"[^945] In addition, many
    of the commenters agree with the Commission\'s tentative conclusion
    that letterless keypads violate both TOCSIA and the 1996 Act.[^946]
    A significant number of commenters encourage the Commission to ban
    these devices entirely.[^947]

89. Alternatively, Sprint argues for promulgation of positive rules
    requiring alphanumeric keypads on all payphones.[^948] MCI,
    Scherers, and the Indiana URC argue for penalties to be assessed
    against offenders.[^949] In particular, MCI calls for \"significant
    Commission forfeitures,\" while Scherers endorses punitive fines and
    disconnection of service as a response to violations.[^950] Sprint
    proposes further that no IXC should be required to provide
    compensation to any PSP found to be violating the proposed rule on
    letterless keypads.[^951]

90. 

91. **c. [Discussion]{.underline}**

92. 

93. We now conclude, as we tentatively concluded in the
    [Notice]{.underline}, that the use of letterless keypads violates
    both TOCSIA and the 1996 Act. We find that an exclusively numeric
    payphone keypad defeats a caller\'s attempt to reach its OSP of
    choice through the use of commonly-used \"vanity\" access sequences
    such as AT&T\'s \"1-800-CALL-ATT\" and \"10ATT\" or MCI\'s
    \"1-800-COLLECT.\" Such access sequences, which can be easily
    remembered by consumers, require the presence of both alphabetic and
    numeric characters on payphone keypads. A letterless keypad,
    therefore, clearly defeats a consumer\'s attempt to utilize these
    heuristic sequences. In their sales material, letterless keypad
    manufacturers have specifically positioned these devices as
    \"by-pass keypad\[s\]\" that \"prevent\[\] dial around
    \[calls\].\"[^952] No party has commented on a plausible purpose for
    these devices other than to restrict access to a non-presubscribed
    carrier.

94. 

95. To promote consumer access to OSPs, TOCSIA required the unblocking
    of 800 and 950 access numbers at aggregator locations and directed
    the Commission to mandate the unblocking of 10XXX access codes
    and/or the establishment of 800/950 access numbers by each
    OSP.[^953] We conclude that letterless keypads violate the
    unblocking requirements of TOCSIA by preventing consumers from
    reaching their OSP of choice through the dialing of vanity access
    sequences. A payphone keypad without alphabetic characters serves
    the same purpose as the blocking that is prohibited by TOCSIA.
    Accordingly, we will take enforcement action, including forfeitures,
    if such devices are used, just as we would take action against other
    forms of blocking. Moreover, OSPs may not pay commissions to PSPs
    whose payphones block access.[^954]

96. 

97. Independent of TOCSIA requirements, we conclude that the practice of
    deploying letterless keypads inhibits consumer choice in the
    selection of OSP services and is anticompetitive. Likewise, we
    conclude that such deployment restricts the availability of payphone
    OSP services to the general public. The 1996 Act seeks \"to promote
    competition among payphone service providers and promote the
    widespread deployment of payphone services to the benefit of the
    general public\[.\]\"[^955] Therefore, we conclude that use of
    letterless keypads is inconsistent with the 1996 Act.

98. 

99. **3. [Oncor Petition]{.underline}**

100. 

101. On August 7, 1995 Oncor Communications, Inc. filed a petition
     asking the Commission to prescribe compensation for public payphone
     premises owners and presubscribed OSPs. Oncor states that such
     compensation \"is necessary to remedy the injustices resulting from
     access code calls.\"[^956] The Commission invited comment on
     Oncor\'s petition by Public Notice released September 12, 1995. We
     deny Oncor\'s request. As commenters note, the presubscribed OSP
     incurs no costs when a consumer makes an access code call from a
     payphone, and it would be inequitable to require any party to
     compensate the OSP because the caller chose not to use it.[^957]
     Moreover, there is no need for us to prescribe compensation for
     premises owners. The rules that we adopt in this [Report and
     Order]{.underline} will ensure that PSPs are fairly compensated for
     calls that originate on their facilities, and market forces will
     ensure that the PSPs fairly compensate premises owners.

102. 

103. 

**IV. PROCEDURAL MATTERS**

**1. [Petitions for Reconsideration and Ex Parte
Presentations]{.underline}**

1.  Parties must file any petitions for reconsideration of this [Report
    and Order]{.underline} within 30 days from release of this document.
    We hereby waive, on our own motion, the requirements of Section 1.4
    of our rules to establish this new date of public notice in light of
    the deadline established in the 1996 Act to complete this
    proceeding. Parties may file oppositions to the petitions for
    reconsideration pursuant to Section 1.106(g) of the rules, except
    that we require that oppositions to the petitions be filed within
    seven (7) days after the date for filing the petitions for
    reconsideration. The Commission will not issue a separate notice of
    any petitions for reconsideration; this paragraph serves as notice
    to all interested parties of the due dates for petitions and
    oppositions. In addition, the Commission hereby waives Section
    1.106(h) of the rules and will not accept reply comments in response
    to oppositions. We conclude that these actions are necessary to
    complete all Commission action in this proceeding, which involves
    issues concerning the Commission\'s expedited implementation of the
    1996 Act, by the statutory deadline of November 8, 1996. We will
    consider all relevant and timely petitions and oppositions before
    final action is taken in this proceeding.

2.  

3.  To file a petition for reconsideration in this proceeding parties
    must file an original and ten copies of all petitions and
    oppositions. Petitions and oppositions should be sent to the Office
    of the Secretary, Federal Communications Commission, Washington,
    DC 20554. If parties want each Commissioner to have a personal copy
    of their documents, an original plus fourteen copies must be filed.
    In addition, participants should submit two additional copies
    directly to the Common Carrier Bureau, Enforcement Division, Room
    6008, 2025 M Street NW, Washington, D.C. 20554. The petitions and
    oppositions will be available for public inspection during regular
    business hours in the Dockets Reference Room (Room 230) of the
    Federal Communications Commission, 1919 M Street, NW, Washington,
    DC 20554. Copies of the petition and any subsequently filed
    documents in this matter may be obtained from ITS, Inc., 2100 M
    Street, NW, Suite 140, Washington, DC 20037, (202) 857-3800.

4.  

5.  Petitions for reconsideration must comply with Sections 1.106 and
    1.49 and all other applicable sections of the Commission\'s
    rules.[^958] Petitions also must clearly identify the specific
    portion of this [Report and Order]{.underline} for which relief is
    sought. If a portion of a party\'s arguments does not fall under a
    particular topic listed in the outline of this [Report and
    Order]{.underline}, such arguments should be included in a clearly
    labelled section at the beginning or end of the filing. Parties may
    not file more than a total of ten (10) pages of [ex
    parte]{.underline} submissions, excluding cover letters. This 10
    page limit does not include: (1) written [ex parte]{.underline}
    filings made solely to disclose an oral [ex parte]{.underline}
    contact; (2) written material submitted at the time of an oral
    presentation to Commission staff that provides a brief outline of
    the presentation; or (3) written material filed in response to
    direct requests from Commission staff. [Ex parte]{.underline}
    filings in excess of this limit will not be considered as part of
    the record in this proceeding.

6.  

7.  **2. [Final Paperwork Reduction Act Analysis]{.underline}**

8.  

9.  The decision herein has been analyzed with respect to the Paperwork
    Reduction Act of 1995, Pub. L. 104-13, and several of its
    requirements have been approved in accordance with the provisions of
    that Act. The Office of Management and Budget (\"OMB\") made several
    suggestions for our proposals:

10. 

11. [Report of Local Exchange Companies of Cost Accounting
    Studies]{.underline}. OMB suggested that the description and
    justification for this requirement be clarified.[^959] The rules
    require incumbent LECs to offer individual central office coin
    transmission services to PSPs under a nondiscriminatory, public
    tariffed offering if the LECs provide those services for their own
    operations. Because the incumbent LECs may have an incentive to
    charge their competitors unreasonably high prices for these
    services, we require them to submit cost support for their central
    office coin services, on a one-time basis. This will ensure that the
    services are reasonably priced and do not include subsidies.

12. 

13. [Report of Bell Operating Companies of Initial Comparably Efficient
    Interconnection Plans]{.underline}. OMB requested that we provide
    revised cost and burden hour estimates.[^960] The cost and burden
    hour estimates have not changed.

14. 

15. [Annual Filing of Nondiscrimination Reports by Bell Operating
    Companies]{.underline}. OMB requested that we provide revised cost
    and burden hour estimates.[^961] The cost and burden hour estimates
    have not changed.

16. 

17. [Quarterly Report of IntraLATA Carriers Listing Payphone Automatic
    Number Identification (ANIs)]{.underline}. OMB suggested that we
    allow interLATA carriers to use innovative approaches to provide
    ANIs, such as posting the information on the Internet or
    distributing the information via electronic mail.[^962] We have not
    specified the manner in which interLATA carriers must supply
    carrier-payors with the list of payphone ANIs. InterLATA carriers
    are free to use any technologies at their disposal to distribute the
    necessary information.

18. [Public Disclosure of Network Information by Bell Operating
    Companies]{.underline}. OMB suggested that we weigh the reporting
    and notification burden of this requirement, as well as consider
    shortening the period of public disclosure from a minimum of six
    months, so as not to unfairly burden BOCs by delaying technical
    modifications to their systems.[^963] We agree with OMB that we
    should choose the least burdensome method to accomplish our goal of
    prohibiting the BOCs from discriminating in the provision of
    payphone service. We believe, however, that a minimum six-month
    period of public disclosure prior to the introduction of a new
    service is vital to ensure that BOCs do not design new network
    services or change network technical specifications to the advantage
    of their own payphones.

19. 

20. [Annual Report of Interexchange Carriers Listing the Compensation
    Amount Paid to Payphone Providers and the Number of
    Payees]{.underline}. OMB suggested that we weigh the burden imposed
    by the payment and information mechanism contained in this
    requirement.[^964] We agree with OMB that we should choose the least
    burdensome method to accomplish our goal of ensuring that all IXCs
    are paying their respective compensation obligations. Therefore we
    conclude that this reporting requirement will be terminated after
    the carriers have filed their reports for the 1999 calendar year. In
    addition, for further flexibility, we delegate to the Chief, Common
    Carrier Bureau, the authority to establish the details, as
    necessary, of this annual report, including the authority to extend
    or limit the scope of this report.

21. 

22. [Quarterly Report of Interexchange Carriers Listing the Number of
    Dial Around Calls for Which Compensation is Being Paid to Payphone
    Owners]{.underline}. OMB suggested that we weigh the burden imposed
    by the payment verification mechanism contained in this
    requirement.[^965] We agree with OMB that we should choose the least
    burdensome method to accomplish our goal of ensuring that billing
    and collection are as efficient as possible. In fact, we weighed
    several alternatives to achieve optimum efficiency and the least
    burdensome approach, before imposing this requirement. This
    requirement is imposed on the IXCs because they have the greatest
    ability and incentive to establish the most efficient means of
    administering the payment of compensation.

23. 

24. **3. [Final Regulatory Flexibility Act Analysis]{.underline}**

25. 

26. As required by Section 603 of the Regulatory Flexibility Act (RFA),
    5 U.S.C. § 603, an Initial Regulatory Flexibility Analysis (IRFA)
    was incorporated in the [Notice]{.underline}. The Commission sought
    written public comment on the proposals in the [Notice]{.underline},
    including comment on the IRFA.[^966] The Commission\'s Final
    Regulatory Flexibility Analysis (FRFA) in this Order conforms to the
    RFA, as amended by the Contract With America Advancement Act of 1996
    (CWAAA), Pub. L. No. 104-121, 110 Stat. 847 (1996).[^967]

27. 

28. **A. [Need for and Objectives of this Report ]{.underline}**

29. **[and Order and the Rules Adopted Herein]{.underline}**

30. 

31. The Commission, in compliance with Section 276 of the Communications
    Act of 1934, as amended by the Telecommunications Act of 1996 (the
    1996 Act), promulgates the rules in this Order to promptly implement
    Section 276 of the 1996 Act, which directs the Commission, among
    other things, to adopt rules that: (1) establish a plan to ensure
    fair compensation for \"each and every completed intrastate and
    interstate call using \[a\] payphone\[;\]\"[^968] (2) discontinue
    intrastate and interstate carrier access charge payphone service
    elements payments and intrastate and interstate payphone subsidies
    from basic exchange services;[^969] (3) prescribe nonstructural
    safeguards for Bell Operating Company (BOC) payphones;[^970] (4)
    permit the BOCs to negotiate with payphone location providers for
    the intraLATA carriers presubscribed to their payphones;[^971] (5)
    permit all payphone providers to negotiate with the location
    provider for the intraLATA carriers presubscribed to their
    payphones;[^972] and (6) adopt guidelines for use by the states in
    establishing public interest payphone programs.[^973]

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1.  The objective of the rules adopted in this Order is \"to promote
    competition among payphone service providers and promote the
    widespread deployment of payphone services to the benefit of the
    general public.\"[^974] In doing so, we are mindful of the balance
    that Congress struck between this goal of bringing the benefits of
    competition to consumers and its concern for the impact of the 1996
    Act on small businesses.

**B. [Analysis of Significant Issues ]{.underline}**

**[Raised in Response to the IRFA]{.underline}**

1.  [Summary of the Initial Regulatory Flexibility Analysis
    (IRFA)]{.underline}*.* In the IRFA, the Commission found that the
    rules we proposed to adopt in this proceeding may have a significant
    impact on a substantial number of small business as defined by
    section 601(3) of the RFA. The IRFA solicited comment on
    alternatives to our proposed rules that would minimize the impact on
    small entities consistent with the objectives of this proceeding.
    The Commission received one comment on the potential impact on small
    business entities, which the Commission considered in promulgating
    the rules in this Order. Frontier commented generally that the
    compensation scheme advanced in the NPRM was \"unnecessarily onerous
    and inefficient\" and \"in conflict with the goals of the \....
    Regulatory Flexibility Act.\"[^975] Frontier did not comment
    specifically on what aspect of the compensation scheme would have
    economic impact on small business entities. We disagree with
    Frontier\'s general assertion that the compensation scheme is in
    conflict with the Regulatory Flexibility Act. Our rules are designed
    to facilitate the development of competition, which benefits many
    small business entities. The rules will ensure that payphone
    services providers, many of whom may be small business entities,
    receive fair compensation. Our rules provide significant flexibility
    to permit the affected parties, including small business entities,
    to structure procedures that would minimize their burdens. For
    example, the rules require IXCs and intraLATA carriers, as primary
    economic beneficiary of payphone calls, to track the calls they
    receive from payphones. The carrier has the option of performing the
    function itself or contracting out these functions to another party,
    such a LEC or clearinghouse. We also provide a transition period. We
    believe that our rules are designed to effectively optimize the
    efficiency and minimize the burdens of the compensation scheme on
    all parties, including small entities.

**C. [Description and Estimates of the Number of ]{.underline}**

**[Small Entities Affected by this Report and Order]{.underline}**

1.  For the purposes of this Order, the RFA defines a \"small business\"
    to be the same as a \"small business concern\" under the Small
    Business Act, 15 U.S.C. § 632, unless the Commission has developed
    one or more definitions that are appropriate to its
    activities.[^976] Under the Small Business Act, a \"small business
    concern\" is one that: (1) is independently owned and operated; (2)
    is not dominant in its field of operation; and (3) meets any
    additional criteria established by the Small Business Administration
    (SBA).[^977] SBA has defined a small business for Standard
    Industrial Classification (SIC) category 4813 (Telephone
    Communications, Except Radiotelephone) to be a small entity when it
    has fewer than 1,500 employees.[^978]

2.  

3.  We have found incumbent LECs to be \"dominant in their field of
    operation\" since the early 1980s, and we consistently have
    certified under the RFA[^979] that incumbent LECs are not subject to
    regulatory flexibility analyses because they are not small
    businesses.[^980] We have made similar determinations in other
    areas.[^981] However, in the [Local Competition]{.underline}
    proceeding, several parties, including the SBA, commented that we
    should have included small incumbent LECs in the IRFA pertaining to
    that order.[^982] We recognize SBA\'s special role and expertise
    with regard to the RFA, and intend to continue to consult with SBA
    outside the context of this proceeding to ensure that the Commission
    is fully implementing the RFA. Although we are not fully persuaded
    that our prior practice has been incorrect, we will, nevertheless,
    include small incumbent LECs in this FRFA to remove any possible
    issue of RFA compliance. Consistent with our prior practice, we
    shall continue to exclude small incumbent LECs from the definition
    of a small entity for the purpose of this FRFA. Nevertheless, as
    mentioned above, we include small incumbent LECs in our FRFA.
    Accordingly, our use of the terms \"small entities\" and \"small
    businesses\" does not encompass \"small incumbent LECs.\" We use the
    term \"small incumbent LECs\" to refer to any incumbent LECs that
    arguably might be defined by SBA as \"small business
    concerns.\"[^983]

**Telephone Companies (SIC 4813)**

1.  [Total Number of Telephone Companies Affected.]{.underline} Many of
    the decisions and rules adopted herein may have a significant effect
    on a substantial number of the small telephone companies identified
    by the SBA. The United States Bureau of the Census (the Census
    Bureau) reports that, at the end of 1992, there were 3,497 firms
    engaged in providing telephone services, as defined therein, for at
    least one year.[^984] This number encompasses a broad category which
    contains a variety of different subsets of carriers, including local
    exchange carriers, interexchange carriers, competitive access
    providers, cellular carriers, mobile service carriers, operator
    service providers, pay telephone operators, PCS providers, covered
    SMR providers, and resellers. It seems certain that some of those
    3,497 telephone service firms may not qualify as small entities or
    small incumbent LECs because they are not \"independently owned and
    operated.\"[^985] For example, a PCS provider that is affiliated
    with an interexchange carrier having more than 1,500 employees would
    not meet the definition of a small business. It seems reasonable to
    conclude, therefore, that fewer than 3,497 telephone service firms
    are small entity telephone service firms or small incumbent LECs
    that may be affected by this Order. We estimate below the potential
    small entity telephone service firms or small incumbent LECs that
    may be affected by this Order by service category.

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1.  [Wireline Carriers and Service Providers.]{.underline} The SBA\'s
    definition of small entities for telephone communications companies,
    other than radiotelephone (wireless) companies, is one employing
    fewer than 1,500 persons.[^986] The Census Bureau reports that,
    there were 2,321 such telephone companies in operation for at least
    one year at the end of 1992.[^987] All but 26 of the 2,321
    non-radiotelephone companies listed by the Census Bureau were
    reported to have fewer than 1,000 employees. Thus, even if all 26 of
    those companies had more than 1,500 employees, there would still be
    2,295 non-radiotelephone companies that might qualify as small
    entities or small incumbent LECs. Although it seems certain that
    some of these carriers are not independently owned and operated, we
    are unable at this time to estimate with greater precision the
    number of wireline carriers and service providers that would qualify
    as small business concerns under SBA\'s definition. Consequently, we
    estimate that there are fewer than 2,295 small entity telephone
    communications companies other than radiotelephone companies that
    may be affected by the decisions and rules adopted in this Order.

2.  

3.  [Local Exchange Carriers]{.underline}. Neither the Commission nor
    SBA has developed a definition of small providers of local exchange
    services (LECs). The closest applicable definition under SBA rules
    is for telephone communications companies other than radiotelephone
    (wireless) companies (SIC 4813). The most reliable source of
    information regarding the number of LECs nationwide of which we are
    aware appears to be the data that we collect annually in connection
    with the Telecommunications Relay Service (TRS).[^988] According to
    our most recent data, 1,347 companies reported that they were
    engaged in the provision of local exchange services.[^989] Although
    it seems certain that some of these carriers are not independently
    owned and operated, or have more than 1,500 employees, we are unable
    at this time to estimate with greater precision the number of LECs
    that would qualify as small business concerns under SBA\'s
    definition. Consequently, we estimate that there are fewer than
    1,347 small incumbent LECs that may be affected by the decisions and
    rules adopted in this Order.

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1.  [Interexchange Carriers]{.underline}. Neither the Commission nor SBA
    has developed a definition of small entities specifically applicable
    to providers of interexchange services (IXCs). The closest
    applicable definition under SBA rules is for telephone
    communications companies other than radiotelephone (wireless)
    companies (SIC 4813). The most reliable source of information
    regarding the number of IXCs nationwide of which we are aware
    appears to be the data that we collect annually in connection with
    TRS. According to our most recent data, 97 companies reported that
    they were engaged in the provision of interexchange services.[^990]
    Although it seems certain that some of these carriers are not
    independently owned and operated, or have more than 1,500 employees,
    we are unable at this time to estimate with greater precision the
    number of IXCs that would qualify as small business concerns under
    SBA\'s definition. Consequently, we estimate that there are fewer
    than 97 small entity IXCs that may be affected by the decisions and
    rules adopted in this Order.

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1.  [Competitive Access Providers]{.underline}. Neither the Commission
    nor SBA has developed a definition of small entities specifically
    applicable to providers of competitive access services (CAPs). The
    closest applicable definition under SBA rules is for telephone
    communications companies other than radiotelephone (wireless)
    companies (SIC 4813). The most reliable source of information
    regarding the number of CAPs nationwide of which we are aware
    appears to be the data that we collect annually in connection with
    the TRS. According to our most recent data, 30 companies reported
    that they were engaged in the provision of competitive access
    services.[^991] Although it seems certain that some of these
    carriers are not independently owned and operated, or have more than
    1,500 employees, we are unable at this time to estimate with greater
    precision the number of CAPs that would qualify as small business
    concerns under SBA\'s definition. Consequently, we estimate that
    there are fewer than 30 small entity CAPs that may be affected by
    the decisions and rules adopted in this Order.

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1.  [Operator Service Providers]{.underline}. Neither the Commission nor
    SBA has developed a definition of small entities specifically
    applicable to providers of operator services (OSPs). The closest
    applicable definition under SBA rules is for telephone
    communications companies other than radiotelephone (wireless)
    companies (SIC 4813). The most reliable source of information
    regarding the number of operator service providers nationwide of
    which we are aware appears to be the data that we collect annually
    in connection with the TRS. According to our most recent data, 29
    companies reported that they were engaged in the provision of
    operator services.[^992] Although it seems certain that some of
    these companies are not independently owned and operated, or have
    more than 1,500 employees, we are unable at this time to estimate
    with greater precision the number of operator service providers that
    would qualify as small business concerns under SBA\'s definition.
    Consequently, we estimate that there are fewer than 29 small entity
    operator service providers that may be affected by the decisions and
    rules adopted in this Order.

2.  

3.  [Pay Telephone Operators]{.underline}. Neither the Commission nor
    SBA has developed a definition of small entities specifically
    applicable to pay telephone operators. The closest applicable
    definition under SBA rules is for telephone communications companies
    other than radiotelephone (wireless) companies. The most reliable
    source of information regarding the number of pay telephone
    operators nationwide of which we are aware appears to be the data
    that we collect annually in connection with the TRS. According to
    our most recent data, 197 companies reported that they were engaged
    in the provision of pay telephone services.[^993] Although it seems
    certain that some of these carriers are not independently owned and
    operated, or have more than 1,500 employees, we are unable at this
    time to estimate with greater precision the number of pay telephone
    operators that would qualify as small business concerns under SBA\'s
    definition. Consequently, we estimate that there are fewer than 197
    small entity pay telephone operators that may be affected by the
    decisions and rules adopted in this Order.

4.  

5.  [Resellers (including debit card providers]{.underline}). Neither
    the Commission nor SBA has developed a definition of small entities
    specifically applicable to resellers. The closest applicable
    definition under SBA rules is for all telephone communications
    companies (SIC 4812 and 4813). The most reliable source of
    information regarding the number of resellers nationwide of which we
    are aware appears to be the data that we collect annually in
    connection with the TRS. According to our most recent data, 206
    companies reported that they were engaged in the resale of telephone
    services.[^994] Although it seems certain that some of these
    carriers are not independently owned and operated, or have more than
    1,500 employees, we are unable at this time to estimate with greater
    precision the number of resellers that would qualify as small
    business concerns under SBA\'s definition. Consequently, we estimate
    that there are fewer than 206 small entity resellers that may be
    affected by the decisions and rules adopted in this Order.

6.  

7.  [800-Subscribers]{.underline}. Neither the Commission nor SBA has
    developed a definition of small entities specifically applicable to
    800-subscribers. The most reliable source of information regarding
    the number of 800-subscribers of which we are aware appears to be
    the data we collect on the number of 800-numbers in use.[^995]
    According to our most recent data, at the end of 1995, the number of
    800-numbers in use was 6,987,063. Although it seems certain that
    some of these subscribers are not independently owned and operated
    businesses, or have more than 1,500 employees, we are unable at this
    time to estimate with greater precision the number of
    800-subscribers that would qualify as small business concerns under
    SBA\'s definition. Consequently, we estimate that there are fewer
    than 6,987,063 small entity 800-subscribers that may be affected by
    the decisions and rules adopted in this Order.

8.  

9.  [Location Providers]{.underline}. Neither the Commission nor SBA has
    developed a definition of small entities specifically applicable to
    location providers. A location provider is the entity that is
    responsible for maintaining the premises upon which the payphone is
    physically located. Due to the fact that location providers do not
    fall into any specific category of business entity, it is impossible
    to estimate with any accuracy the number of location providers.
    Using several sources, however, we have derived a figure of
    1,850,000 payphones in existence.[^996] Although it seems certain
    that some of these payphones are not located on property owned by
    location providers that are small business entities, nor does the
    figure take into account the possibility of multiple payphones at a
    single location, we are unable at this time to estimate with greater
    precision the number of location providers that would qualify as
    small business concerns under SBA\'s definition. Consequently, we
    estimate that there are fewer than 1,850,000 small entity location
    providers that may be affected by the decisions and rules adopted in
    this Order.

10. 

11. [Wireless (Radiotelephone) Carriers (including paging
    services)]{.underline}. The SBA\'s definition of a small business
    radiotelephone company is one employing fewer than 1,500
    persons.[^997] The Census Bureau reports that there were 1,176 such
    companies in operation for at least one year at the end of
    1992.[^998] The Census Bureau also reported that 1,164 of those
    radiotelephone companies had fewer than 1,000 employees. Thus, even
    if all of the remaining 12 companies had more than 1,500 employees,
    there would still be 1,164 radiotelephone companies that might
    qualify as small entities if they are independently owned are
    operated. Although it seems certain that some of these carriers are
    not independently owned and operated, we are unable at this time to
    estimate with greater precision the number of radiotelephone
    carriers and service providers that would qualify as small business
    concerns under SBA\'s definition. Consequently, we estimate that
    there are fewer than 1,164 small entity radiotelephone companies
    that may be affected by the decisions and rules adopted in this
    Order.

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1.  [Cellular Service Carriers (including paging services)]{.underline}.
    Neither the Commission nor SBA has developed a definition of small
    entities specifically applicable to providers of cellular services.
    The closest applicable definition under SBA rules is for telephone
    communications companies other than radiotelephone (wireless)
    companies (SIC 4813). The most reliable source of information
    regarding the number of cellular service carriers nationwide of
    which we are aware appears to be the data that we collect annually
    in connection with the TRS. According to our most recent data, 789
    companies reported that they were engaged in the provision of
    cellular services.[^999] Although it seems certain that some of
    these carriers are not independently owned and operated, or have
    more than 1,500 employees, we are unable at this time to estimate
    with greater precision the number of cellular service carriers that
    would qualify as small business concerns under SBA\'s definition.
    Consequently, we estimate that there are fewer than 789 small entity
    cellular service carriers that may be affected by the decisions and
    rules adopted in this Order.

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1.  [Mobile Service Carriers (including paging services)]{.underline}.
    Neither the Commission nor SBA has developed a definition of small
    entities specifically applicable to mobile service carriers, such as
    paging companies. The closest applicable definition under SBA rules
    is for telephone communications companies other than radiotelephone
    (wireless) companies. The most reliable source of information
    regarding the number of mobile service carriers nationwide of which
    we are aware appears to be the data that we collect annually in
    connection with the TRS. According to our most recent data, 117
    companies reported that they were engaged in the provision of mobile
    services.[^1000] Although it seems certain that some of these
    carriers are not independently owned and operated, or have more than
    1,500 employees, we are unable at this time to estimate with greater
    precision the number of mobile service carriers that would qualify
    under SBA\'s definition. Consequently, we estimate that there are
    fewer than 117 small entity mobile service carriers that may be
    affected by the decisions and rules adopted in this Order.

2.  

3.  [Broadband PCS Licensees (including paging services)]{.underline}.
    The broadband PCS spectrum is divided into six frequency blocks
    designated A through F. As set forth in 47 C.F.R. § 24.720(b), the
    Commission has defined \"small entity\" in the auctions for Blocks C
    and F as a firm that had average gross revenues of less than \$40
    million in the three previous calendar years. Our definition of a
    \"small entity\" in the context of broadband PCS auctions has been
    approved by SBA.[^1001] The Commission has auctioned broadband PCS
    licenses in Blocks A, B, and C. We do not have sufficient data to
    determine how many small businesses bid successfully for licenses in
    Blocks A and B. There were 90 winning bidders that qualified as
    small entities in the Block C auctions.[^1002] Based on this
    information, we conclude that the number of broadband PCS licensees
    affected by the decisions in this Order includes, at a minimum, the
    90 winning bidders that qualified as small entities in the Block C
    broadband PCS auction.

4.  

5.  At present, no licenses have been awarded for Blocks D, E, and F of
    broadband PCS spectrum. Therefore, there are no small businesses
    currently providing these services. However, a total of 1,479
    licenses will be awarded in the D, E, and F Block broadband PCS
    auctions, which are scheduled to begin on August 26, 1996. Of the
    153 qualified bidders for the D, E, and F Block PCS auctions, 105
    were small businesses.[^1003] Eligibility for the 493 F Block
    licenses is limited to entrepreneurs with average gross revenues of
    less than \$125 million.[^1004] There are 114 eligible bidders for
    the F Block.[^1005] We cannot estimate, however, the number of these
    licenses that will be won by small entities under our definition,
    nor how many small entities will win D or E Block licenses. Given
    that nearly all radiotelephone companies have fewer than 1,000
    employees[^1006] and that no reliable estimate of the number of
    prospective D, E, and F Block licensees can be made, we assume for
    purposes of this FRFA, that all of the licenses in the D, E, and F
    Block Broadband PCS auctions may be awarded to small entities under
    our rules, which may be affected by the decisions and rules adopted
    in this Order.

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1.  [SMR Licensees (including paging services)]{.underline}. Pursuant to
    47 C.F.R. § 90.814(b)(1), the Commission has defined \"small
    entity\" in auctions for geographic area 800 MHz and 900 MHz SMR
    licenses as a firm that had average annual gross revenues of less
    than \$15 million in the three previous calendar years. This
    definition of a \"small entity\" in the context of 800 MHz and 900
    MHz SMR has been approved by the SBA.[^1007] The rules adopted in
    this Order may apply to SMR providers in the 800 MHz and 900 MHz
    bands that either hold geographic area licenses or have obtained
    extended implementation authorizations. We do not know how many
    firms provide 800 MHz or 900 MHz geographic area SMR service
    pursuant to extended implementation authorizations, nor how many of
    these providers have annual revenues of less than \$15 million. We
    assume, for purposes of this FRFA, that all of the extended
    implementation authorizations may be held by small entities, which
    may be affected by the decisions and rules adopted in this Order.

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1.  The Commission recently held auctions for geographic area licenses
    in the 900 MHz SMR band. There were 60 winning bidders who qualified
    as small entities in the 900 MHz auction. Based on this information,
    we conclude that the number of geographic area SMR licensees
    affected by the rule adopted in this Order includes these 60 small
    entities. No auctions have been held for 800 MHz geographic area SMR
    licenses. Therefore, no small entities currently hold these
    licenses. A total of 525 licenses will be awarded for the upper 200
    channels in the 800 MHz geographic area SMR auction. However, the
    Commission has not yet determined how many licenses will be awarded
    for the lower 230 channels in the 800 MHz geographic area SMR
    auction. There is no basis, moreover, on which to estimate how many
    small entities will win these licenses. Given that nearly all
    radiotelephone companies have fewer than 1,000 employees and that no
    reliable estimate of the number of prospective 800 MHz licensees can
    be made, we assume, for purposes of this FRFA, that all of the
    licenses may be awarded to small entities who, thus, may be affected
    by the decisions in this Order.

**D. [Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements, and Steps Taken by Agency to Minimize
Significant Economic Impact on Small Entities and Small Incumbent LECs,
consistent with Stated Objectives]{.underline}**

1.  [Structure of the Analysis.]{.underline} In this section of the
    FRFA, we analyze the projected reporting, recordkeeping, and other
    compliance requirements that may apply to small entities and small
    incumbent LECs as a result of this Order.[^1008] As a part of this
    discussion, we mention some of the types of skills that will be
    needed to meet the new requirements. We also describe the steps
    taken to minimize the economic impact of our decisions on small
    entities and small incumbent LECs, including the significant
    alternatives considered and rejected.[^1009]

2.  

3.  

**FAIR COMPENSATION FOR EACH AND EVERY COMPLETED**

**INTRASTATE AND INTERSTATE CALL ORIGINATED BY PAYPHONES**

1.  [Summary of Projected Reporting, Recordkeeping and other Compliance
    Requirements.]{.underline} Section 276(b)(1)(A) directs 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\....\"[^1010] To implement Section 276(b)(1)(A), this Order
    requires: (1) that the market set the price for local coin calls
    originated by payphones; (2) the appropriate per-call compensation
    amount for the service provided by independent payphone providers
    (PSPs) when they originate an interstate call should be the same
    amount the particular payphone provider charges for a local coin
    call; (3) the adoption of the \"carrier pays\" compensation system,
    which essentially places the payment obligation of per-call
    compensation on the primary economic beneficiary of payphone
    calls; (4) that the carrier, as the primary economic beneficiary of
    payphone calls, perform the tracking of calls it receives from
    payphones; (5) that carriers initiate an annual independent
    verification of their per-call tracking functions for a period of
    two years, to ensure that they are tracking all of the calls for
    which they are obligated to pay compensation, (6) a direct billing
    arrangement between IXCs and intraLATA carriers and PSPs; (7) that
    LECs, who maintain the list of ANIs, have the burden of resolving
    disputed ANIs; and (8) that an interim compensation mechanism be set
    up under which PSPs are paid compensation at a flat monthly rate.
    Compliance with these requirements may require the use of
    engineering, technical, operational, accounting, billing, and legal
    skills.

2.  

3.  The payphone industry appears to have the potential of being a very
    competitive industry once the significant subsidies and entry/exit
    restrictions which are presently distorting the competition are
    removed.[^1011] However, we perceive five potential areas that could
    have significant economic impact on small businesses and small
    incumbent LECs: (1) the amount of compensation paid to PSPs; (2) the
    \"carrier pays\" compensation system; (3) the administration of
    per-call compensation; (4) the direct billing arrangement between
    carriers and PSPs; and (5) the interim compensation mechanism.

4.  

5.  [Steps Taken to Minimize Significant Economic Impact on Small
    Entities and Small Incumbent LECs, and Alternatives
    Considered]{.underline}: [Amount of compensation]{.underline}: By
    requiring that the market set the price for individual coin calls
    originated by payphones we ensure that PSPs, many of whom may be
    small business entities, receive fair compensation. We considered
    different options in deciding upon this alternative. We reject
    proposals for adopting a national uniform rate of compensation for
    all calls using a payphone because a single, nationwide rate could
    jeopardize the financial viability of a majority of payphones.
    Rejection of this option allows for accounting for the significant
    variation in payphones in order to ensure the incentives to place
    and maintain phones in a variety of geographic areas.[^1012] We also
    reject proposals that certain types of calls should receive a
    different per-call compensation amount than others. We decline to
    interfere in marketplace transactions by providing for different
    compensation amounts for different types of calls, in instances
    where marketplace failures are limited or would have minimal impact
    on consumer welfare.[^1013] We do not perceive the need to intervene
    in an apparently structurally competitive industry.

6.  

7.  Many commentators, notably the IXCs, contend that marginal cost of
    originating a payphone call should be used as the basis for
    compensating PSPs. We conclude that use of a marginal cost standard
    or any closely related TSLRIC standard would leave PSPs under
    compensated, because such cost standards do not permit the recovery
    of any of a PSPs\' fixed costs, which make up the bulk of a PSP\'s
    costs. We also reject, for similar reasons, suggestions that current
    local coin rates be used as a surrogate for per-call compensation.
    Local coin rates are not necessarily fairly compensatory. Local coin
    rates in some jurisdictions may not cover the marginal cost of
    service and therefore, would not fairly compensate the PSPs.

8.  

9.  This \"market sets the price\" approach provides flexibility. Some
    PSPs may find it advantageous to set coin rates as low as \$.10 per
    call in select locations, perhaps as promotions to enhance their
    brand names. PSPs in other locations may choose to set the coin rate
    higher, e.g. \$.35 or \$.40 per call.[^1014] We expect our action to
    minimize regulatory burdens, expedite and simplify negotiations, and
    minimize economic impacts through lower transaction costs.

10. 

11. We reject the proposal of the BOCs and some independent payphone
    providers to use AT&T O+ commissions as a measure of fair value of
    the service provided by independent payphone providers when they
    originate an interstate call. These commissions may include
    compensation for factors other than the use of the payphone, such as
    a PSP\'s promotion of the OSP through placards on the payphone. In
    the absence of reliable data, the appropriate per-call compensation
    amount is whatever amount the particular payphone charges for a
    local coin call. PSPs, IXCs, subscriber 800 carriers, and intraLATA
    carriers, many of whom may be small business entities, may find it
    advantageous to agree on an amount for some or all compensable calls
    that is either higher or lower than the local coin rate at a given
    payphone because it will grant parties in the payphone industry some
    flexibility and allow them to take advantage of technological
    advances.

12. 

13. [Payment of compensation]{.underline}: Various commenters, including
    small IXCs and paging services, proposed that the Commission should
    adopt the \"carrier-pays\" system.[^1015] We reject proposals to
    adopt \"caller-pays\" and \"set use fee\" systems, because we
    believe that they would involve greater transaction costs which can
    pose particular burdens for small businesses. We considered various
    alternatives to adopt the \"carrier pays\" system for per-call
    compensation because it places the payment obligation on the primary
    economic beneficiary in the least burdensome, most cost-effective
    manner. All carriers that receive calls from payphones are required
    to pay per-call compensation, whether they are IXCs or intraLATA
    carriers.[^1016] The \"carrier pays\" system gives the carriers the
    broadest latitude on how to recover the costs of payphone
    compensation, whether through increased rates to all or particular
    customers, through direct charges to access code call or subscriber
    800 customers, or through contractual agreements with individual
    customers, thereby involving fewer transaction costs. In addition,
    under the carrier pays system, individual carriers have the option
    of recovering either a different amount from their customers or no
    amount at all.

14. 

15. However, in the interests of administrative efficiency and lower
    costs, we require that facilities based carriers should pay the
    per-call compensation for calls received by their reseller
    customers. This would permit competitive facilities based carriers
    to negotiate contract provisions that would require the reseller to
    reimburse the carrier. We believe our actions will expedite and
    simplify negotiations, minimize regulatory burdens and the impact of
    our decisions for all parties, including small entities.

16. 

17. [Administration of per-call compensation]{.underline}: We considered
    various proposals to determine who should provide [call
    tracking]{.underline}. This Order requires IXCs and intraLATA
    carriers, as primary economic beneficiary of payphone calls, to
    track the calls they receive from payphones. The carrier has the
    option of performing the function itself or contracting out these
    functions to another party, such a LEC or clearinghouse. We
    recognize that tracking capabilities vary from carrier to carrier
    and it may be appropriate for some carriers to pay compensation at a
    flat rate basis until per-call tracking capabilities are put into
    place. Neither LECs nor PSPs are primary economic beneficiaries of
    payphone calls and PSPs do not universally have call-tracking
    capabilities. However, LECs, PSPs, and carriers receiving payphone
    calls should be able to take advantage of each others\'
    technological capabilities through the contracting process.[^1017]

18. 

19. In view of current difficulties in tracking such calls, we conclude
    that a transition period is warranted.[^1018] By permitting carriers
    to contract out their per-call tracking responsibility, and by
    allowing a transition period for tracking subscriber 800 calls, we
    have taken appropriate steps to minimize the per-call tracking
    burden on small carriers. In addition, to parallel the obligation to
    pay compensation, the underlying, facilities-based carrier has the
    burden of tracking calls to its reseller customers, and it may
    recover that cost from the reseller, if it chooses.[^1019]

20. 

21. We conclude that carriers should be required to initiate an annual
    independent verification of their per-call tracking functions for a
    period of two years, to ensure that they are tracking all of the
    calls for which they are obligated to pay compensation. This would
    facilitate the prompt and accurate payment of all per-call
    compensation. We believe our actions will foster opportunities for
    small entities to gain access to such information without requiring
    investigation or discovery proceedings, and reduce delay and
    transaction costs.

22. 

23. To establish minimal regulatory guidelines for the payphone industry
    regarding resolution of [disputed ANIs]{.underline}, we conclude
    that LECs who maintain the list of ANIs must work with both
    carrier-payors and PSPs to resolve disputes more efficiently and
    quickly for all parties concerned. This provides LECs with the
    incentive, which they do not currently have, to provide accurate and
    timely verification of ANIs for independently provided payphones.
    Additionally, no other party has the information more readily
    available.[^1020] We expect this action to assist all parties,
    including small entities, expedite and simplify negotiations, and
    help equalize bargaining power.

24. 

25. Each time a caller dials a [subscriber 800 number]{.underline}, the
    PSP will also levy a charge which may be paid directly by the IXC,
    but will eventually be passed through to the 800 subscriber, either
    on a per-call basis or in the form of higher per minute rates.
    Establishment of the requirement that PSPs inform these subscribers
    of the price of the call they are deciding to accept, provide
    subscribers with the opportunity to accept or decline to accept the
    call based on the cost. Without the requirement, the PSP would have
    the ability to charge a high amount in the face of the subscriber\'s
    lack of information. We expect our action to facilitate good faith
    negotiations, and minimize regulatory burdens and the impact of our
    decisions for all parties, including small entities.

26. 

27. While incumbent LECs in many jurisdictions currently do not charge
    payphone callers for [\"411\" calls]{.underline} made from their own
    payphones, the LECs charge independent PSPs for directory assistance
    calls made from their phones. The PSPs are not always allowed by the
    state to pass those charges on to callers, which can pose particular
    burdens for them. In this Order we conclude that, to ensure fair
    compensation for \"411\" and other directory assistance calls from
    payphones, a PSP is permitted to charge a market-based rate for the
    service, although the PSP may decline to charge for this service if
    it chooses. In addition, we conclude that if the incumbent LEC
    imposes a fee on independent payphone providers for \"411\" calls,
    then the LEC must impute the same fee to its own payphones for this
    service.[^1021] We believe our action will facilitate the
    development of competition.

28. 

29. The [direct billing arrangement]{.underline} between IXCs and
    intraLATA carriers and PSPs adopted in this Order places the burden
    of billing and collecting information on the parties who benefit the
    most from calls from payphones: carriers and PSPs. Carriers must
    send to each PSP a statement indicating the number of toll-free and
    access code calls received from that PSP\'s payphones. The
    carrier-payor has the option of using clearinghouses, similar to
    those that exist for access code call compensation, or to contract
    out the direct-billing arrangement associated with the payment of
    compensation.[^1022] We expect our action will foster opportunities
    for small entities to gain access to such information without
    requiring investigation or discovery proceedings.

30. 

31. [Interim compensation mechanism]{.underline}: We considered various
    proposals regarding the feasibility of implementing an interim
    compensation mechanism before final rules go into effect. Because
    IXCs and intraLATA carriers are not required to track individual
    calls until October 1, 1997, we conclude that PSPs should be paid
    monthly compensation on a flat monthly rate. We expect that the flat
    rate obligation will be of administrative convenience for all
    parties involved, including small businesses.

32. 

**RECLASSIFICATION OF LEC-OWNED PAYPHONES**

1.  [Summary of Projected Reporting, Recordkeeping and Other Compliance
    Requirements]{.underline}. Section 276(b)(1)(B) 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, in favor of a \[per-call\] compensation
    plan.\"[^1023] Currently, incumbent LEC payphones, classified as
    part of the network, recover their costs from Carrier Common
    Line (CCL) charges assessed on those carriers that connect with the
    incumbent LEC. This Order requires incumbent LECs to (1) classify
    their payphones as detariffed and deregulated CPE;[^1024] (2)
    provide to PSPs nondiscriminatory access to unbundled central office
    coin transmission services and certain other services the LECs
    provide to their own payphones, and must file tariffs for central
    office coin services and those incumbent LECs that are not subject
    to price cap regulation must submit cost support for their central
    office coin service;[^1025] (3) transfer their payphone assets to
    unregulated accounts or affiliates at the market value of the
    \"payphone going concern,\" by April 15, 1997, and obtain
    independent appraisal of the fair market value to submit to the
    Common Carrier Bureau within 180 days of the effective date of this
    Order;[^1026] and (4) reduce their interstate CCL charges by an
    amount equal to the interstate allocation of payphone costs
    currently recovered through those charges, and file revised CCL
    tariffs reflecting the changed rate structures.[^1027] Compliance
    with these requirements may necessitate the use of engineering,
    technical, operational, accounting, billing, and legal skills.

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1.  Some of the smaller incumbent LECs may find difficult the
    administrative burdens of reclassifying payphones as CPE,
    transferring payphone assets to unregulated accounts, and filing new
    tariffs. Therefore, if a requesting carrier, which may be a small
    entity, seeks access to an incumbent LEC\'s unbundled elements, the
    requesting carrier is required to compensate the incumbent LEC for
    any costs incurred to provide such access.

2.  

3.  [Steps Taken to Minimize Significant Economic Impact on Small
    Entities and Small Incumbent LECs, and Alternatives
    Considered.]{.underline} The deregulation of LEC payphones is
    essential to promoting competition in the payphone industry. We
    reject several alternatives in making this determination, including
    proposals suggesting that the Commission (1) should allow smaller
    LECs to choose whether or not to deregulate their payphones;[^1028]
    and (2) should impose a structural separation requirement for
    incumbent LEC payphones.[^1029] The establishment of minimum
    national requirements for discontinuation of payphone subsidies from
    basic exchange and exchange access revenues should facilitate
    negotiations and reduce regulatory burdens and uncertainty for all
    parties, including small entities and small incumbent LECs. National
    requirements may also allow new entrants, including small entities,
    to take advantage of economies of scale.

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1.  By requiring the incumbent LECs to offer individual central office
    coin transmission services to PSPs on a nondiscriminatory, public,
    tariffed offering, new entrants, which may include small entities,
    should have access to the same technologies and economies of scale
    and scope that are available to incumbent LECs. This will permit
    competitive payphone providers, some of whom are small business
    entities, to offer payphone services using either instrument
    implemented \"smart payphones\" or \"dumb\" payphones that utilize
    central office coin services. We reject the proposal suggesting that
    the Commission require incumbent LECs to provide on a
    nondiscriminatory basis all the services that they provide to their
    own payphone operations or require incumbent LECs to perform joint
    marketing of the payphone operations of other providers.[^1030]
    Instead, we require only that the incumbent LEC offer the following
    services on a nondiscriminatory basis if it provides such services
    to its own payphone operations: fraud protection, special numbering
    assignments, and installation and maintenance of basic payphone
    services. Rejection of this alternative will allow small incumbent
    LECs to distinguish certain services from services offered by other
    payphone providers. Our actions in this area could decrease entry
    barriers for small business entities and provide reasonable
    opportunities for all payphone service providers to provide service.

2.  

**ABILITY OF PAYPHONE SERVICE PROVIDERS TO NEGOTIATE WITH LOCATION
PROVIDERS ON THE PRESUBSCRIBED INTRALATA CARRIER**

1.  [Summary of Projected Reporting, Recordkeeping and Other Compliance
    Requirements]{.underline}. 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 intraLATA calls from their
    payphones.\"[^1031] This Order grants to all payphone service
    providers, including incumbent LECs, the right to negotiate with
    location providers concerning the intraLATA carriers presubscribed
    to their payphones.[^1032] We also preempt any state regulations
    mandating the routing of intraLATA calls to the incumbent
    LEC.[^1033] Compliance with these requirements should not
    necessitate the use of additional skills, since such skills are
    already used in negotiations concerning the interLATA carriers
    presubscribed to payphones.

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1.  Allowing all payphone service providers to negotiate with location
    providers concerning the intraLATA carriers presubscribed to their
    payphones could have a positive economic impact on payphone
    providers who are small business entities by allowing them
    flexibility to create favorable contract terms. Small incumbent LECs
    may suffer some negative economic impact because intraLATA calls
    will no longer be routinely routed to them.

2.  [Steps Taken to Minimize Significant Economic Impact on Small
    Entities and Small Incumbent LECs, and Alternatives
    Considered.]{.underline} State regulations that require routing of
    intraLATA calls to the incumbent LEC are preempted by this Order,
    thereby creating a national rule allowing all payphone service
    providers to negotiate with location providers concerning the
    intraLATA carriers presubscribed to their payphones. A national rule
    should facilitate negotiations and reduce regulatory burdens and
    uncertainty for all parties, including small entities and small
    incumbent LECs. Our actions in granting to all payphone providers
    the same ability to negotiate with location providers on the
    selection of the intraLATA carrier presubscribed to the payphone
    will facilitate the development of competition.

3.  

**REQUIRING LECS TO PROVIDE DIALING PARITY FOR PAYPHONES**

1.  [Summary of Projected Reporting, Recordkeeping, and Other Compliance
    Requirements]{.underline}. The Order concludes that the dialing
    parity requirements of Section 251(b)(3) should extend to all
    payphone location providers and that the interLATA carrier
    unblocking requirements established in TOCSIA should be extended to
    all local and long-distance calls.[^1034] The Order requires that
    the technical and timing requirements established pursuant to
    Section 251(b)(3) and Section 271(c)(2)(B) should apply equally to
    payphones.[^1035] Compliance with these requirements may require the
    use of engineering, technical, and operational skills.

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1.  Requiring the LECs to extend dialing parity to payphone location
    providers may burden some small LECs.

2.  

3.  [Steps Taken to Minimize Significant Economic Impact on Small
    Entities and Small Incumbent LECs, and Alternatives
    Considered]{.underline}. While this requirement may burden some
    small LECs, such burdens are far outweighed by the benefits gained
    from competition among local exchange and long distance carriers,
    many of whom are small business entities. We reject several
    alternatives in making this determination, including (1) a proposal
    suggesting that the states be given discretion to determine when and
    how dialing parity for intraLATA calls should be applied to
    payphones; (2) a proposal requiring LECs to provide dialing parity
    for payphones prior to all other phones; and (3) not altering the
    existing anti-blocking rules under TOCSIA. Rejection of these
    alternatives helps to ensure that small LECs will not be
    unnecessarily burdened. Furthermore, establishing a national rule
    should facilitate negotiations and reduce regulatory burdens and
    uncertainty for all parties, including small entities and small
    incumbent LECs.

4.  

5.  **E. [Commission\'s Outreach Efforts to Learn of and Respond to the
    Views of Small Entities Pursuant to 5 U.S.C. § 609]{.underline}**

6.  

7.  Our staff has conducted several [ex]{.underline} [parte]{.underline}
    meetings with numerous outside parties and their counsel, several of
    whom may qualify as small business entities, during the pendency of
    this rulemaking to identify and discuss various aspects of the
    implementation of Section 276. For example, we have received
    [ex]{.underline} [parte]{.underline} suggestions and comments from
    the American Public Communications Council, a trade association that
    represents independent payphone providers, many of whom qualify as
    small business entities. We have attempted, to the furthest possible
    extent, to take into account as many of these concerns as possible
    in promulgating the rules contained in this Order.

8.  

**F. [Report to Congress]{.underline}**

1.  The Commission shall send a copy of this FRFA, along with this
    Order, in a report to Congress pursuant to the Small Business
    Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. §
    801(a)(1)(A). A copy of this FRFA will also be published in the
    Federal Register.

**V. [CONCLUSION]{.underline}**

1.  In this [Report and Order]{.underline}, we have established
    procedures that will ensure that all payphone service providers are
    fairly compensated for every completed intrastate, interstate and
    international call, except for those calls excepted by statute, and
    we adopt interim compensation until the new compensation procedures
    are effective. We have also established procedures that ensure that
    all subsidies from basic exchange and exchange access revenues are
    removed simultaneous with the LECs\' receipt of compensation for
    calls from LEC payphones. We require the BOCs to comply with certain
    nonstructural safeguards for their provision of payphone service,
    and allow them to negotiate with location providers for selecting
    and contracting with the carriers that provide interLata service
    from their phones. We set forth herein guidelines for public
    interest payphones, and establish guidelines for states to use in
    their proceedings for funding of such payphones.

2.  

**VI. [ORDERING CLAUSES]{.underline}**

1.  Accordingly, pursuant to authority contained in Sections 1, 4,
    201-205, 215, 218, 219, 220, 226, and 276 of the Communications Act
    of 1934, as amended, 47 U.S.C. §§ 151, 154, 201-205, 215, 218, 219,
    220, 226, and 276, IT IS ORDERED that the policies, rules, and
    requirements set forth herein ARE ADOPTED.

2.  

3.  IT IS FURTHER ORDERED, that 47 C.F.R. Part 64, Subpart G and Subpart
    M ARE AMENDED as set forth in Appendix D, effective (30) days after
    publication of the text thereof in the Federal Register.

4.  

5.  IT IS FURTHER ORDERED, that 47 C.F.R. Part 64, Subpart M IS AMENDED
    as set forth in Appendix E, effective one year after publication of
    the text thereof in the Federal Register.

6.  

7.  IT IS FURTHER ORDERED, that 47 C.F.R. Part 68, Subpart A IS AMENDED
    as set forth in Appendix E, effective April 15, 1997.

8.  

9.  IT IS FURTHER ORDERED, that local exchange carriers SHALL RECLASSIFY
    their payphone assets and related expenses to nonregulated status on
    April 15, 1997.

10. 

11. IT IS FURTHER ORDERED, that carriers required to file a cost
    allocation manual pursuant to 47 C.F.R. Section 64.903 or by
    Commission order SHALL FILE revisions to their manuals implementing
    the reclassification required herein no later than February 14,
    1997.

12. 

13. IT IS FURTHER ORDERED, that local exchange carriers SHALL FILE
    tariff revisions required by paras. 180 to 187 herein on January 15,
    1997, to be effective April 15, 1997.

14. 

15. IT IS FURTHER ORDERED, the Bell Operating Companies ARE GRANTED
    waivers of the time requirements of the [Computer II]{.underline}
    and the [Computer III]{.underline} network disclosure requirements
    in order to provide basic network payphone services by April
    15, 1997. Pursuant to this waiver, network disclosure notification
    for these basic network payphone services must be filed no later
    than January 15, 1997.

16. 

17. IT IS FURTHER ORDERED, that the Bell Operating Companies SHALL FILE
    CEI plans for the provision of payphone service not later than 90
    days following publication of a summary of this [Report and
    Order]{.underline} in the Federal Register.

18. 

19. IT IS FURTHER ORDERED, that the waivers of Section 64.1301 of the
    Commission\'s Rules granted to AT&T and Sprint in the proceedings
    referenced in para. 119 above ARE REVOKED, effective 30 days after
    publication of a summary of this [Report and Order]{.underline} in
    the Federal Register.

20. 

21. IT IS FURTHER ORDERED, that the proceedings initiated by our
    [Memorandum Opinion and Order on Further Reconsideration and Second
    Further Notice of Proposed Rulemaking]{.underline} in CC Docket
    91-35, Policies and Rules Concerning Operator Service Access and Pay
    Telephone Compensation, 10 FCC Rcd 11457 (1995), ARE TERMINATED.

22. IT IS FURTHER ORDERED, that the July 18, 1988 Petition of the Public
    Telephone Council for a declaratory ruling that BOC Payphones should
    be treated as CPE IS DISMISSED AS MOOT.

23. 

24. IT IS FURTHER ORDERED, that the August 7, 1995 Petition of Oncor
    Communications, Inc. Requesting Compensation for Competitive
    Payphone Premises Owners and Presubscribed Operator Services
    Providers IS DENIED.

25. 

26. IT IS FURTHER ORDERED, that the proceedings entitled Amendment of
    Section 69.2(m) and (ee) of the Commission\'s Rules to Include
    Independent Public Payphones Within the \"Public Telephone\"
    Exemption from End User Common Line Access Charges, RM 8723, ARE
    TERMINATED.

27. 

28. IT IS FURTHER ORDERED, that the December 28, 1989 Petition of the
    California Payphone Association IS DISMISSED AS MOOT.

29. 

30. IT IS FURTHER ORDERED, that the provisions set forth in Section 1.4
    of the Commission\'s rules establishing the date of public notice
    for this [Report and Order]{.underline} ARE WAIVED, and petitions
    for reconsideration SHALL BE FILED within 30 days of release of this
    document, and oppositions to the petitions must be filed within
    seven (7) days after the date for filing the petitions for
    reconsideration. For purposes of this proceeding, Section 1.106(h)
    of the Commission\'s Rules IS WAIVED, and the Commission will not
    accept replies to oppositions.

31. 

> FEDERAL COMMUNICATIONS COMMISSION
>
> William F. Caton
>
> Acting Secretary

**APPENDIX A**

**TEXT OF SECTION 276**

PROVISION OF PAYPHONE SERVICE

\(a\) NONDISCRIMINATION SAFEGUARDS. \-- After the effective date of the
rules prescribed pursuant to subsection (b), any Bell operating company
that provides payphone service\--

\(1\) shall not subsidize its payphone service directly or indirectly
from its telephone exchange service operations or its exchange access
operations; and

\(2\) shall not prefer or discriminate in favor of its payphone service.

\(b\) REGULATIONS. \--

\(1\) CONTENTS OF REGULATIONS. \-- In order to promote competition among
payphone service providers and promote the widespread deployment of
payphone services to the benefit of the general public, within 9 months
after the date of enactment of the Telecommunications Act of 1996, the
Commission shall take all actions necessary (including any
reconsideration) to prescribe regulations that \--

\(A\) 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, except that
emergency calls and telecommunications relay service calls for hearing
disabled individuals shall not be subject to such compensation;

\(B\) discontinue the intrastate and interstate carrier access charge
payphone service elements and payments in effect on such date of
enactment, and all intrastate and interstate payphone subsidies from
basic exchange and exchange access revenues, in favor of a compensation
plan as specificed in subparagraph (A);

\(C\) prescribe a set of nonstructural safeguards for Bell operating
company payphone service to implement the provisions of paragraphs (1)
and (2) of subsection (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;

\(D\) 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, unless the
Commission determines in the rulemaking pursuant to this section that it
is not in the public interest; and

\(E\) 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 intraLATA calls from their payphones.

\(2\) PUBLIC INTEREST TELEPHONES.\-- In the rulemaking conducted
pursuant to paragraph (1), the Commission shall determine whether public
interest payphones, which are provided in the interest of public health,
safety, and welfare, in locations where there would otherwise not be a
payphone, should be maintained, and if so, ensure that such public
interest payphones are supported fairly and equitably.

\(3\) EXISTING CONTRACTS.\-- Nothing in this section shall affect eny
existing contracts between location providers and payphone service
providers or interLATA or intraLATA carriers that are in force and
effect as of the date of enactment of the Telecommunications Act of
1996.

\(c\) STATE PREEMPTION.\-- To 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.

\(d\) DEFINITION.\-- As used in this section, the term \"payphone
service\" means the provision of public or semi-public pay telephones,
the provision of inmate telephone service in correctional institutions,
and any ancillary services.

**APPENDIX B**

**PARTIES FILING COMMENTS**

1 American Association of Airport Executives (\"AAAE\")

2 ACTEL, Inc. (\"ACTEL\")

3 Admiral\'s Club

4 AHA TelePLAN

5 Aid Association for Lutherans

6 Air Touch Paging (\"Air Touch\")

7 Airports Council International - North America (\"ACI-NA\")

8 American Hotel & Motel Association (\"AHMA\")

9 Ameritech

10 Anchorage Telephone Utility (\"Anchorage Telephone\")

11 American Public Communications Council (\"APCC\")

12 Arch Communications Group, Inc. (\"Arch\")

13 AT&T Corp. (\"AT&T\")

14 Bell Atlantic

15 Bell South Corporation (\"Bell South\")

16 Robert M. Brill, Esquire (\"Brill\")

17 Cable and Wireless, Inc. (\"Cable & Wireless\")

18 California Association of Long Distance Telephone Companies
(\"CALTEL\")

19 California Payphone Association (\"CPA\")

20 People of the State of California and the Public Utilities Commission
of the State of California (\"California PUC\")

21 Call West Communications, Inc. (\"Call West\")

22 Cleveland Clinic Foundation (\"Cleveland Clinic\")

23 Communications Central, Inc. (\"Communications Central\")

24 Competitive Telecommunications Association (\"CompTel\")

25 ConQuest Long Distance Corp. (\"ConQuest\")

26 Dallas/Fort Worth International Airport (\"DFW\")

27 Excel Telecommunications, Inc. (\"Excel\")

28 Florida Public Service Commission (\"Florida PSC\")

29 Florida Public Telecommunications Association, Inc. (\"FPTA\")

30 Flying J Inc. (\"Flying J\")

31 Frontier Corporation (\"Frontier\")

32 Georgia Public Communications Association (\"GPCA\")

33 Greyhound Lines, Inc. (\"Greyhound\")

34 GTE Service Corporation (\"GTE\")

35 GVNW Inc./Management (\"GVNW\")

36 Idaho Public Utilities Commission (\"Idaho PUC\")

37 Illinois Public Telecommunications Association (\"IPTA\")

38 Independent Technologies, Inc. (\"Independent Technologies\")

39 Indiana Utility Regulatory Commission (\"Indiana URC\")

40 Inmate Calling Services Providers Coalition (\"Inmate\")

41 Intellicall Companies (\"Intellicall\")

42 International Telecard Association (\"ITA\")

43 InVision Telecom, Inc. (\"InVision\")

44 Iowa Utilities Board

45 City of Kansas City, Missouri (\"Kansas City\")

46 Kampgrounds Of America, Inc. (\"KOA\")

47 Lubbock County Sheriff\'s Office (\"Lubbock County Sheriff\")

48 State of Maine Public Utilities Commission, State of New Hampshire
Public Utilities Commission, State of New Mexico State Corporation
Commission, State of Vermont Public Service Board and Department of
Public Service (\"Maine PUC\")

49 MCI Telecommunications Corporation (\"MCI\")

50 Michigan Pay Telephone Association (\"MPTA\")

51 Midwest Independent Coin Payphone Association (\"MICPA\")

52 National Association of RV Parks and Campgrounds (\"ARVC\")

53 National Exchange Carrier Association, Inc. (\"NECA\")

54 NATSO, Inc. (\"NATSO\")

55 New Jersey Payphone Association (\"NJPA\")

56 New Jersey Division of the Ratepayer Advocate (\"New Jersey DRA\")

57 New York City Department of Information Technology and
Telecommunications (\"New York City\")

58 New York State Department of Public Service (\"New York DPS\")

59 National Telephone Cooperative Association (\"NTCA\")

60 Public Utilities Commission of Ohio (\"Ohio PUC\")

61 Oklahoma Corporation Commission (\"Oklahoma CC)

62 Oncor Communications, Inc. (\"Oncor\")

63 One Call Communications, Inc. d/b/a Opticom (\"One Call\")

64 Paging Network, Inc. (\"PageNet\")

65 Personal Communications Industry Association (\"PCIA\")

66 Pennsylvania Public Utility Commission (\"Pennsylvania PUC\")

67 Peoples Telephone Company, Inc. (\"Peoples\")

68 Promus Hotel Corporation (\"Promus\")

69 Puerto Rico Telephone Company (\"Puerto Rico Telephone\")

70 RBOC Payphone Coalition (\"RBOC\")

71 Scherers Communications Group, Inc. (\"Scherers\")

72 SDN Users Association, Inc. (\"SDN Users\")

73 South Carolina Public Communications Association (\"SCPCA\")

74 Southwestern Bell Telephone Company (\"SW Bell\")

75 Sprint Corporation (\"Sprint\")

76 Tarrant County, Texas (\"Tarrant County\")

77 Telecommunications Resellers Association (\"TRA\")

78 Teleport Communications Group Inc. (\"Teleport\")

79 Public Utility Commission of Texas (\"Texas PUC\")

80 Truckstops of America

81 United States Telephone Association (\"USTA\")

82 US Satellite Corp. (\"US Satellite\")

83 US WEST, Inc. (\"US WEST\")

84 Virginia State Corporation Commission (\"Virginia SCC\")

85 Wisconsin Public Communications Association (\"WPCA\")

86 WorldCom, Inc. d/b/a LDDS WorldCom (\"WorldCom\")

87 Yuma County Airport Authority, Inc. (\"Yuma County Airport\")

**APPENDIX C**

**PARTIES FILING REPLY COMMENTS**

1 Air Touch Paging (\"Air Touch\")

2 American Express Telecommunications, Inc. (\"American Express\")

3 Ameritech

4 American Public Communications Council (\"APCC\")

5 Arch Communications Group, Inc. (\"Arch\")

6 AT&T Corp. (\"AT&T\")

7 Bell Atlantic

8 Bell South Corporation (\"Bell South\")

9 Robert M. Brill, Esquire (\"Brill\")

10 California Payphone Association (\"CPA\")

11 People of the State of California and the Public Utilities Commission
of the State of California (\"California PUC\")

12 Communications Central, Inc. (\"Communications Central\")

13 Competitive Telecommunications Association (\"CompTel\")

14 Frontier Corporation (\"Frontier\")

15 Gateway Technologies, Inc. (\"Gateway\")

16 Georgia Public Communications Association (\"GPCA\")

17 GTE Service Corporation (\"GTE\")

18 Indiana Utility Regulatory Commission (\"Indiana URC\")

19 Inmate Calling Services Providers Coalition (\"Inmate\")

20 Intellicall Companies (\"Intellicall\")

21 International Telecard Association (\"ITA\")

22 MCI Telecommunications Corporation (\"MCI\")

23 Medeco

24 Metropolitan Washington Airports Authority (\"Metropolitan
Washington\")

25 Michigan Pay Telephone Association (\"MPTA\")

26 Missouri Public Service Commission (\"Missouri PSC\")

27 MobileMedia Communications, Inc. (\"MobileMedia\")

28 Montana Public Service Commission (\"Montana PSC\")

29 National Exchange Carrier Association, Inc. (\"NECA\")

30 National Telephone Cooperative Association (\"NTCA\")

31 Public Utilities Commission of Ohio (\"Ohio PUC\")

32 One Call Communications, Inc. d/b/a Opticom (\"One Call\")

33 Organization for the Promotion and Advancement of Small
Telecommunications Companies (\"OPASTCO\")

34 Pacific Telesis Group (\"PacTel\")

35 Personal Communications Industry Association (\"PCIA\")

36 Peoples Telephone Company, Inc. (\"Peoples\")

37 Puerto Rico Telephone Company (\"Puerto Rico Telephone\")

38 RBOC Payphone Coalition (\"RBOC\")

39 San Diego Payphone Owners Association (\"SDPOA\")

40 Southwestern Bell Telephone Company (\"SW Bell\")

41 Sprint Corporation (\"Sprint\")

42 Telaleasing Enterprises, Inc. (\"Telaleasing\")

43 Telecommunications Resellers Association (\"TRA\")

44 Tennessee Regulatory Authority

45 United States Telephone Association (\"USTA\")

46 US WEST, Inc. (\"US WEST\")

47 Voice Telephone Company (\"Voice\")

48 Wisconsin Public Communications Association (\"WPCA\")

**APPENDIX D**

**RULES AMENDED** **(IMMEDIATE**)

Part 64 of Title 47 of the Code of Federal Regulations is amended as
follows:

1\. The authority citation for Part 64 is revised to read as follows:

**AUTHORITY: Sec. 4, 48 Stat. 1066, as amended: 47 U.S.C. 154, unless
otherwise noted. Interpret or apply secs. 201, 218, 226, 228, 276, 48
Stat. 1070, as amended; 47 U.S.C. 201, 218, 226, 228, 276 unless
otherwise noted.**

2\. The heading of Subpart M of Part 64 is revised to read as follows:

Subpart M \-- Payphone Compensation

3\. The first sentence of Section 64.1301(a) is revised to read as
follows:

\(a\) Each payphone service provider eligible to receive compensation
shall be paid \$45.85 per payphone per month for originating access code
and toll-free calls.

4\. Section 64.1301(b) is revised to read as follows:

\(b\) This compensation shall be paid by interexchange carriers (IXCs)
that earn annual toll revenues in excess of \$100 million, as reported
in the FCC staff report entitled \"Long Distance Market Shares.\" Each
individual IXC\'s compensation obligation shall be set in accordance
with its relative share of toll revenues among IXCs required to pay
compensation. For example, if total toll revenues of IXCs required to
pay compensation is \$50 billion, and one of these IXCs had \$5 billion
of total toll revenues, the IXC must pay \$4.585 per payphone per month.

5\. Section 64.1330 is added to read as follows:

**64.1330 State Review of Payphone Entry and Exit Regulations and Public
Interest Payphones.**

\(a\) Each state must review and remove any of its regulations
applicable to payphones and payphone service providers that impose
market entry or exit requirements.

\(b\) Each state must ensure that access to dialtone, emergency calls,
and telecommunications relay service calls for the hearing disabled is
available from all payphones at no charge to the caller.

\(c\) Each state must review its rules and policies to determine whether
it has provided for public interest payphones consistent with applicable
Commission guidelines, evaluate whether it needs to take measures to
ensure that such payphones will continue to exist in light of the
Commision\'s implementation of Section 276 of the Communications Act,
and administer and fund such programs so that such payphones are
supported fairly and equitably. This review must be completed by
September 20, 1998.

6\. Section 64.1340 is added to read as follows:

**64.1340 Right to Negotiate**

Unless prohibited by Commission order, payphone service providers 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 and intraLATA calls from their
payphones.

7\. Section 64.703(b) is revised by removing the \"and\" at the end of
subsection (2); by renumbering subsection (3) as (4); and adding a new
subsection (3) as follows:

\(3\) In the case of a pay telephone, the local coin rate for the pay
telephone location; and

**APPENDIX E**

**RULES AMENDED** **(DEFERRED)**

Part 64 of Title 47 of the Code of Federal Regulations is amended as
follows:

1\. The authority citation for Part 64 continues to read as follows:

**AUTHORITY: Sec. 4, 48 Stat. 1066, as amended: 47 U.S.C. 154, unless
otherwise noted. Interpret or apply secs. 201, 218, 226, 228, 276, 48
Stat. 1070, as amended; 47 U.S.C. 201, 218, 226, 228, 276 unless
otherwise noted.**

2\. Section 64.1301 is deleted.

3\. Section 64.1300 is added to read as follows:

**64.1300 Payphone Compensation Obligation.**

\(a\) Except as provided herein, every carrier to whom a completed call
from a payphone is routed shall compensate the payphone service provider
for the call at a rate agreed upon by the parties by contract.

\(b\) The compensation obligation set forth herein shall not apply to
calls to emergency numbers, calls by hearing disabled persons to a
telecommunications relay service or local calls for which the caller has
made the required coin deposit.

\(c\) In the absence of an agreement as required by subsection (a)
herein, the carrier is obligated to compensate the payphone service
provider shall do so at a per-call rate equal to its local coin rate at
the payphone in question.

\(d\) For the initial one-year period during which carriers are required
to pay per-call compensation, in the absence of an agreement as required
by subsection (a) herein, the carrier is obligated to compensate the
payphone service provider at a per-call rate of \$.35 per call. After
this initial one-year period of per-call compensation, subsection (c)
herein will apply.

4\. Section 64.1310 is added to read as follows:

**64.1310 Payphone Compensation Payment Procedures.**

\(a\) It is the responsibility of each carrier to whom a compensable
call from a payphone is routed to track, or arrange for the tracking of,
each such call so that it may accurately compute the compensation
required by Section 64.1300(a).

\(b\) Carriers and payphone service providers shall establish
arrangements for the billing and collection of compensation for calls
subject to Section 64.1300(a).

\(c\) Local Exchange Carriers must provide to carriers required to pay
compensation pursuant to Section 64.1300(a) a list of payphone numbers
in their service areas. The list must be provided on a quarterly basis.
Local Exchange Carriers must verify disputed numbers in a timely manner,
and must maintain verification data for 18 months after close of the
compensation period.

\(d\) Local Exchange Carriers must respond to all carrier requests for
payphone number verification in connection with the compensation
requirements herein, even if such verification is a negative response.

\(e\) A payphone service provider that seeks compensation for payphones
that are not included on the Local Exchange Carrier\'s list satisfies
its obligation to provide alternative reasonable verification to a payor
carrier if it provides to that carrier:

\(1\) A notarized affidavit attesting that each of the payphones for
which the payphone service provider seeks compensation is a payphone
that was in working order as of the last day of the compensation period;
and

\(2\) Corroborating evidence that each such payphone is owned by the
payphone service provider seeking compensation and was in working order
on the last day of the compensation period. Corroborating evidence shall
include, at a minimum, the telephone bill for the last month of the
billing quarter indicating use of a line screening service.

5\. Section 64.1320 is added to read as follows:

**64.1320 Payphone Compensation Verification and Reports.**

\(a\) Carriers subject to payment of compensation pursuant to Section
64.1300(a) shall conduct an annual verification of calls routed to them
that are subject to such compensation and file a report with the Chief,
Common Carrier Bureau within 90 days of the end of the calendar year,
provided, however, that such verification and report shall not be
required for calls received after December 31, 1998.

\(b\) The annual verification required in this section shall list the
total amount of compensation paid to payphone service providers for
intrastate, interstate and international calls, the number of
compensable calls received by the carrier and the number of payees.

6\. The authority citation for Part 68 continues to read as follows:

**Authority: Secs. 1, 4, 5, 201-5, 215, 218, 226, 227, 303, 313, 314,
403, 404, 410, 602 of the Communications Act of 1934, as amended, 47
U.S.C. 151, 154, 155, 201-5, 208, 215, 218, 226, 227, 303, 313, 314,
403, 404, 410, 602.**

7\. Section 68.2(a)(1) is amended to read:

Of all terminal equipment to the public switched telephone network, for
use in conjunction with all services other than party line service;

8\. Section 68.3, the definition of \"coin-implemented telephone\" is
deleted.

9\. Section 68.3, is amended to add the definition of \"instrument
implemented telephone\" to read:

*Instrument‑implemented telephone*: A telephone containing all circuitry
required to execute coin acceptance and related functions within the
instrument itself and not requiring coin service signaling from the
central office.

10\. Section 68.3 definition of \"Coin Service\" is deleted.

11\. Section 68.3 is amended to add the definition of \"Central-office
implemented telephone\" to read:

*Central‑office implemented telephone*: A telephone executing coin
acceptance requiring coin service signaling from the central office.

**APPENDIX F**

**INTERIM COMPENSATION OBLIGATIONS**

+-----------------------------+-----------------+----------+-----------+
| Company                     | 1995 Total Toll | \% of    | Amount    |
|                             | Services        | Total    | Per Phone |
|                             | Revenues        | Toll     | Per Month |
|                             |                 | Revenues |           |
|                             | (\$ in          |          |           |
|                             | Millions)       |          |           |
+-----------------------------+-----------------+----------+-----------+
| AT&T COMPANIES:             |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| AT&T COMMUNICATIONS, INC.   | \$38,069        | 56.69%   | \$2       |
|                             |                 |          | 5.9923406 |
+-----------------------------+-----------------+----------+-----------+
| ALASCOM, INC.               | 325             | 0.48%    | 0.2219000 |
+-----------------------------+-----------------+----------+-----------+
| MCI TELECOMMUNICATIONS      | 12,924          | 19.25%   | 8.8241091 |
| CORP.                       |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| SPRINT COMMUNICATIONS CO.   | 7,277           | 10.84%   | 4.9685115 |
+-----------------------------+-----------------+----------+-----------+
| LDDS WORLDCOM               | 3,640           | 5.42%    | 2.4852799 |
+-----------------------------+-----------------+----------+-----------+
| FRONTIER COMPANIES:         |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| ALLNET COMM. SVCS. dba      | 827             | 1.23%    | 0.5646501 |
| FRONTIER COMM. SVCS.        |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| FRONTIER COMMUNICATIONS     | 309             | 0.46%    | 0.2109757 |
| INT\'L, INC.                |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| FRONTIER COMM. OF THE NORTH | 133             | 0.20%    | 0.0908083 |
| CENTRAL REGION              |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| FRONTIER COMMUNICATIONS OF  | 127             | 0.19%    | 0.0867117 |
| THE WEST, INC.              |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| CABLE & WIRELESS            | 700             | 1.04%    | 0.4779384 |
| COMMUNICATIONS, INC.        |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| LCI INTERNATIONAL TELECOM   | 671             | 1.00%    | 0.4581381 |
| CORP.                       |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| EXCEL TELECOMMUNICATIONS,   | 363             | 0.54%    | 0.2478452 |
| INC.                        |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| TELCO COMMUNICATIONS GROUP, | 215             | 0.32%    | 0.1467954 |
| INC.                        |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| MIDCOM COMMUNICATIONS, INC. | 204             | 0.30%    | 0.1392849 |
+-----------------------------+-----------------+----------+-----------+
| TEL‑SAVE, INC. 9/           | 180             | 0.27%    | 0.1228985 |
+-----------------------------+-----------------+----------+-----------+
| U.S. LONG DISTANCE, INC.    | 155             | 0.23%    | 0.1058292 |
+-----------------------------+-----------------+----------+-----------+
| VARTEC TELECOM, INC.        | 125             | 0.19%    | 0.0853461 |
+-----------------------------+-----------------+----------+-----------+
| *Continued from the         |                 |          |           |
| previous page*              |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| Company                     | 1995 Total Toll | \% of    | Amount    |
|                             | Services        | Total    | Per Phone |
|                             | Revenues        | Toll     | Per Month |
|                             |                 | Revenues |           |
|                             | (\$ in          |          |           |
|                             | Millions)       |          |           |
+-----------------------------+-----------------+----------+-----------+
| GENERAL COMMUNICATION, INC. | 120             | 0.18%    | 0.0819323 |
+-----------------------------+-----------------+----------+-----------+
| BUSINESS TELECOM, INC.      | 115             | 0.17%    | 0.0785185 |
+-----------------------------+-----------------+----------+-----------+
| ONCOR COMMUNICATIONS, INC.  | 111             | 0.17%    | 0.0757874 |
+-----------------------------+-----------------+----------+-----------+
| THE FURST GROUP, INC.       | 109             | 0.16%    | 0.0744218 |
+-----------------------------+-----------------+----------+-----------+
| AMERICAN NETWORK EXCHANGE,  | 101             | 0.15%    | 0.0689597 |
| INC.                        |                 |          |           |
+-----------------------------+-----------------+----------+-----------+
| TOTAL                       | 67,153          | 100.00%  | 45.85     |
+-----------------------------+-----------------+----------+-----------+

September 20, 1996

**Separate Statement of**

**Commissioner Rachelle B. Chong**

*Re: In the Matter of Implementation of the Pay Telephone
Reclassification and Compensation Provisions of the Telecommunications
Act of 1996, CC Docket No. 96-128; Policies and Rules Concerning
Operator Service Access and Pay Telephone Compensation, CC Docket No.
91-35.*

In the Telecommunications Act of 1996,[^1036] Congress mandated twin
goals for a restructuring of our nation\'s payphone industry. Congress
directed the Commission to establish rules that \"promote competition
among payphone service providers and promote the widespread deployment
of payphone services to the general public.\"[^1037] In this order, we
effectuate Congress\' intent by putting in place a new market-oriented
scheme governing payphones. Thus, competition now becomes the new coin
of the realm for the payphone industry.

I write separately to show my strong support for the new policies we
unanimously adopt today. In my view, these innovative policies will
strip away outmoded regulations, unleash competitive forces upon all
segments of the payphone industry, and put in place a mechanism to
preserve the continuing availability of payphones that serve the public
interest.

The payphone industry is one in which competition with its attendant
consumer benefits can easily thrive. However, our current payphone
regulations were not crafted in a way that promoted regulatory parity
between the market players or put a high premium on consumer protection.
Under the statutory and regulatory framework that was in place prior to
the 1996 Act, payphone providers were subject to different regulations
whose application mainly depended upon whether an entity providing
payphone service was a local exchange company or an independent payphone
provider. For example, local exchange companies traditionally had the
ability to subsidize their payphone operations with telephone service
revenues and were restricted from choosing long distance providers on
their payphones. In contrast, independent payphone providers had to
support their operations mainly from revenues received at payphone
stations and through commission arrangements with operator service
providers. This disparate treatment created certain incentives and
distortions in the market that, during the past decade, resulted in
supracompetitive rates at certain payphones and in consumer confusion.
As the rest of the telecommunications industry moves swiftly into a new
pro-competitive, deregulatory era, our payphone regulations cried out
for revision.

In this order, we dismantle the existing regulatory system by putting in
place rules that in essence will establish a new competitive payphone
industry. These rules are designed to remove existing subsidies, provide
for nondiscriminatory access to bottleneck facilities, ensure fair
compensation for all calls originated on payphones, and allow all
competitors equal opportunity to compete for essential aspects of the
payphone business.

At the heart of our new policies is that we have agreed that the best
way to ensure fair compensation for payphone service is to let the
market set the price for individual payphone calls. In this order, we
establish a two-stage process as a transition to market-based rates.
During stage one, or during the first year after this order becomes
effective, local exchange companies are required to terminate subsidies
for their payphones and are not be eligible to receive compensation for
non-coin calls made on their payphones until such subsidies are
terminated. Independent payphone providers, however, will begin to
receive compensation for access code calls and subscriber 800 calls on a
flat-rate basis. In addition, during this first stage, the states may
continue to set the local coin rate but may move to market-based local
coin rates at any time during this one-year period. The states are asked
to conduct an examination of payphone regulations to review and remove
any regulations that affect competition.

In stage two, which will commence one year after this order becomes
effective, carriers to whom payphone calls are routed must have in place
a per-call tracking capability and are required to remit per-call
compensation to payphone providers, including local exchange carriers.
In this stage, the market will set the rate for local coin calls and we
establish a \$.35 default compensation rate that interexchange carriers
will pay to payphone providers for each compensable call. After the
conclusion of the second stage, the market-based local coin rate at
these payphones will be the default compensation rate for all
compensable calls in the absence of an agreement between the payphone
provider and the carrier-payor. Thus, in two years, with certain limited
exceptions, we can look forward with confidence to competition \--
rather than regulation \-- determining calling and compensation rates in
the payphone industry.

We also retain the discretion to review the deregulation of local coin
rates nationwide and determine whether marketplace disfunctions in
certain locational monopoly areas \-- such as airports or train stations
\-- exist and should be addressed. If a problem arises, we will stand
ready to step in and resolve any problems.

In deciding to rely on market forces, however, we have also refocused on
consumers. I am pleased that we have put in place several safeguards to
ensure their protection. We do so in light of the fact that payphones
serve an important role in allowing people to place calls when they are
away from home or the office. We require that all payphones must provide
free access to dialtone. Further, our new rules require that payphone
providers must prominently display the local coin rate they choose to
charge at each payphone, so that consumers will have full information
about the charges and can make an informed choice to use the payphone.

Payphones located in isolated or remote areas also serve as critical
links to help when a person is faced with an unexpected emergency. In
circumstances where the free market may not adequately encourage the
deployment of payphones in locations that would serve public health,
safety, and welfare needs, we establish guidelines by which the states
may maintain and fund such public interest payphones. Under our order,
states will be able to use their knowledge of local conditions to ensure
that the public has access to telecommunications by requiring the
maintenance of payphones at locations, such as along remote stretches of
a rural road or on a county beach, that may not be economically
self-supporting in the free market.

Our order also requires that every payphone provide free access to both
emergency services and to telecommunications relay service (TRS) calls
for the hearing disabled. I believe it is appropriate for the states to
take the lead on public interest payphones in their states. I look
forward to their good work in this area that is so fundamental to
Congress\' second goal in Section 276 \-- the \"widespread deployment of
payphone services to the general public.\"[^1038]

[^1]: Implementation of the Pay Telephone Reclassification and
    Compensation Provisions of the Telecommunications Act of 1996, CC
    Docket No. 96-128, [Notice of Proposed Rulemaking]{.underline}, 11
    FCC Rcd 6716 (1996) (\"[Notice]{.underline}\"). The complete text of
    Section 276 is attached as Appendix A.

[^2]: 47 U.S.C. § 276(b)(1)(A).

[^3]: 47 U.S.C. § 276(b)(1)(B).

[^4]: 47 U.S.C. § 276(b)(1)(C).

[^5]: 47 U.S.C. § 276(b)(1)(D).

[^6]: 47 U.S.C. § 276(b)(1)(E).

[^7]: 47 U.S.C. § 276(b)(2).

[^8]: S. Conf. Rep. No. 104-230, 104th Cong., 2d Sess. 1 (1996).

[^9]: 47 U.S.C. § 276(b)(1).

[^10]: 47 CFR § 64.703.

[^11]: Revision of the Commission\'s Rules to Ensure Compatibility with
    Enhanced 911 Emergency Calling Systems, CC Docket No. 94-102,
    [Notice of Proposed Rulemaking]{.underline}, 9 Fcc Rcd 6170 (1994)
    (\"[911 Notice]{.underline}).

[^12]: Telecommunications Relay Services and the Americans with
    Disabilities Act, CC Docket No. 90-571, [Memorandum Opinion and
    Order]{.underline}, 10 FCC Rcd 10927 (Com. Car. Bur. 1995).

[^13]: For a brief history of the payphone industry, [see]{.underline}
    [Notice]{.underline} at paras. 2-12.

[^14]: Pub. L. No. 101‑435, 104 Stat. 986 (1990) (codified at 47 U.S.C.
    § 226).

[^15]: 47 U.S.C. § 226(e)(2).

[^16]: Policies and Rules Concerning Operator Service Access and Pay
    Telephone Compensation, Report and Order and Further Notice of
    Proposed Rulemaking, 6 FCC Rcd 4736 (1991) (\"[First Report and
    Order]{.underline}\"); Order on Reconsideration, 7 FCC Rcd 4355
    (1992) (\"[Subscriber 800 Reconsideration Order]{.underline}\");
    Second Report and Order, 7 FCC Rcd 3251, 3252-53 (1992) (\"[Second
    Report and Order]{.underline}\"); Order on Reconsideration, 8 FCC
    Rcd 7151 (1993) (\"[Reconsideration Order]{.underline}\"); [remanded
    for further proceedings]{.underline}, [Florida Public
    Telecommunications Association v. FCC]{.underline}, 54 F.3d 857, 860
    (D.C.Cir. 1995) (\"[Florida Payphone]{.underline}\"); Memorandum
    Opinion and Order on Further Reconsideration and Second Further
    Notice of Proposed Rulemaking, 10 FCC Rcd 11457 (1995)(\"[Second
    Further Notice]{.underline}\"). Because the compensation issues
    raised in the [Second Further Notice]{.underline} have been subsumed
    into this proceeding, we terminate that proceeding.
    [See]{.underline} para. 374, below.

[^17]: Statistics of Communications Common Carriers, 1994/1995 edition,
    Common Carrier Bureau, FCC at 159, Table 2.10 (1995) (\"[Common
    Carrier Statistics]{.underline}\").

[^18]: [Notice]{.underline} at para. 6, n.22.

[^19]: 47 U.S.C. § 276(b)(1)(A). The provision exempts from compensation
    emergency calls and telecommunications relay service (\"TRS\") calls
    for hearing disabled individuals. [Id]{.underline}.

[^20]: 47 U.S.C. § 276(b)(1)(B).

[^21]: 47 U.S.C. §§ 276(b)(1)(B) & (E).

[^22]: In response to the [Notice]{.underline}, the Commission received
    87 initial comments and 47 replies. Appendix B lists the parties
    filing comments and the abbreviated names this Order uses to refer
    to them. Similarly, Appendix C lists replies.

[^23]: An industry\'s competitive structure is generally determined by
    five factors. These are: (1) level of rivalry between existing
    firms; (2) potential new entrants; (3) bargaining power of
    suppliers; (4) bargaining power of buyers; and (5) availability of
    substitutes. [See]{.underline} [generally]{.underline} M. Porter,
    [Competitive Advantage]{.underline} and [Competitive
    Strategy]{.underline}.

[^24]: According to the RBOCs, there are over 15,000 PSPs. [Ex
    Parte]{.underline} Letter of Ben Almond, Executive Director of
    Federal Regulatory, to William Caton, Secretary, FCC (August 15,
    1996). APCC has stated that fewer than 25 independent payphone
    providers have more than 1500 payphones. [Ex Parte]{.underline}
    letter from Albert Kramer, Counsel, APCC, to William Caton,
    Secretary, FCC (September 6, 1996).

[^25]: [See]{.underline} Department of Justice and Federal Trade
    Commission Horizontal Merger Guidelines, 4 Trade Reg. Rep. (CCH) 13,
    104 at para. 1.3 (1992) (\"[1992 Merger Guidelines]{.underline}\")
    (\"A firm viewed as a \[market\] participant if, in response to a
    small but significant and nontransitory price increase, it likely
    would enter rapidly into production or sale of a market product in
    the market\'s area, without incurring significant sunk costs of
    entry and exit.\").

[^26]: [Id]{.underline}. at para. 33.

[^27]: The ability to enter and exit easily is generally thought to be
    evidence of a competitive industry. [See]{.underline} Baumol,
    Panzar, and Willig, [Contestible Market Theory]{.underline} at 466.

[^28]: The record indicates that the average BOC payphone originates
    about 500 calls per month while the average independent payphone
    originates about 700 calls per month. APCC Comments at 5. This
    suggests that independent PSPs have entered markets in which there
    is higher than average payphone traffic.

[^29]: [See]{.underline} para. 49, below. For example, there are large
    variations in the number of independent payphone providers in the
    various states. In BellSouth\'s nine-state region, there are the
    following number of certifications: Alabama 110; Florida 1016;
    Georgia 505; Kentucky 293; Louisiana 243; Mississippi 107; North
    Carolina 491; South Carolina 1102; Tennessee 387. [Ex
    Parte]{.underline} Letter of Ben Almond, Executive Director of
    Federal Regulatory, BellSouth, to William Caton, Secretary, FCC
    (August 15, 1996).

[^30]: [See]{.underline} [generally]{.underline} Section C, below.

[^31]: [See]{.underline} para. 51, below.

[^32]: [See]{.underline} [e.g.]{.underline}, Billed Party Preference for
    InterLATA 0+ Calls, CC Docket No. 92-77, [Second Further Notice of
    Proposed Rulemaking]{.underline}, 11 FCC Rcd 7274 (1996) (\"[OSP
    Reform]{.underline}\"). In the [OSP Reform]{.underline} proceeding,
    we have proposed rules to ensure that operator service providers
    (\"OSPs\") inform consumers of their price, or if their price will
    be higher than that charged by the largest OSPs. While [OSP
    Reform]{.underline} is separate from the instant proceeding, the OSP
    rules we ultimately adopt will benefit those who make calls from
    payphones.

[^33]: A 0+ call occurs when the caller dials \"0\" plus the called
    telephone number. 0+ calls include credit card, collect, and third
    number billing calls. [Second Report and Order]{.underline}, 7 FCC
    Rcd at 3251, n.4. 0- call transfer service is a service offered by
    LECs to OSPs under which LECs transfer a 0- call (when a caller
    dials only the digit \"0\" and then waits for operator intervention)
    to the OSP requested by the calling party. [Id]{.underline}. at
    3255, n.44.

[^34]: The [Second Report and Order]{.underline} defines an \"access
    code\" as a \"sequence of numbers that, when dialed, connects the
    caller to the OSP associated with that sequence, as opposed to the
    OSP presubscribed to the originating line. Access codes include
    10XXX in equal access areas and \"950\" Feature Group B dialing
    (950-0XXX or 950-1XXX) anywhere, where the three-digit XXX denotes a
    particular IXC. Some OSPs use an 800 number as an access code.\"
    [Id]{.underline}. at 3251, n.1.

[^35]: \"Subscriber 800 calls\" consist of calls to an 800 number
    assigned to a particular subscriber. [Notice]{.underline} at para.
    11, n.37. In the [Notice]{.underline}, we stated that, for purposes
    of this proceeding, \"the term \'subscriber 800 calls\' includes
    other sequences of numbers that the FCC deems, or may deem in the
    future, the equivalent of subscriber 800 numbers, such as numbers
    with an \'888\' code.\" [Notice]{.underline} at para. 15, n.49.

[^36]: [See]{.underline} paras. 49-50, below.

[^37]: [See]{.underline} para. 52, below.

[^38]: [See]{.underline} para. 49, below.

[^39]: 47 U.S.C. § 276(b)(1).

[^40]: [See]{.underline}, [e.g.]{.underline}, [Ex Parte]{.underline}
    Letter of Garry Mendez, Jr., Executive Director, National Trust for
    the Development of African-American Men to William Caton, Secretary,
    FCC (September 6, 1996) (market-based rates will help ensure that
    payphones remain widely available in residential neighborhoods).

[^41]: [See]{.underline} [generally]{.underline} Section A, below.

[^42]: [911 Notice]{.underline}.

[^43]: [Notice]{.underline} at paras. 16, 18.

[^44]: [Id]{.underline}. at para. 17.

[^45]: [Id]{.underline}. at para. 16.

[^46]: [Id]{.underline}. at para. 22.

[^47]: [Id]{.underline}. at para. 22, n.64.

[^48]: [Id]{.underline}. at para. 21.

[^49]: [Id]{.underline}.

[^50]: [Id]{.underline}. at para. 22.

[^51]: [Id]{.underline}. at paras. 21-22.

[^52]: [Id]{.underline}. at para. 18.

[^53]: [Id]{.underline}. at para. 23.

[^54]: [Id]{.underline}. at para. 38.

[^55]: [Id]{.underline}.

[^56]: [Id]{.underline}.

[^57]: Use of the term \"RBOCs\" in this [Report and Order]{.underline}
    refers to the RBOC Payphone Coalition, which includes six of the
    seven Bell Operating Companies, but does not include Ameritech.

[^58]: [See]{.underline}, [e.g]{.underline}., AT&T Comments at 4-5; GTE
    Comments at 3; RBOC Comments at 2. MobileMedia argues that the
    Commission should initiate a separate proceeding to evaluate
    compensation options for subscriber 800 calls. MobileMedia Reply at
    11-12.

[^59]: [See]{.underline}, [e.g.]{.underline}, Actel Comments at 4; AT&T
    Comments at 4; Cable & Wireless Comments at 4; California PUC
    Comments at 9; CompTel Comments at 4; Florida PSC Comments at 2; GTE
    Comments at 3; MCI Comments at 2; One Call Comments at 3; Sprint
    Comments at 4-5; USTA Comments at 3; WorldCom Comments at 8.

[^60]: [Id]{.underline}.

[^61]: CompTel Reply at 4.

[^62]: RBOC Comments at 4-5.

[^63]: [Id]{.underline}. Ameritech also contends that, for the RBOCs,
    two issues are directly linked: (1) compensation for 0+ calls under
    Section 276(b)(1)(A); and (2) the ability of the RBOCs to
    participate in negotiation with the location provider on the
    selection of the presubscribed interLATA carrier under Section
    276(b)(1)(D). Ameritech Comments at 4-5.

[^64]: Sprint Comments at 6. [See]{.underline} [also]{.underline} AT&T
    Reply at 16.

[^65]: RBOC Reply at 2.

[^66]: Conquest Comments at 12.

[^67]: APCC Comments at 20-21; Communications Central Comments at 5-6;
    IPTA Comments at 4; USTA Comments at 1.

[^68]: APCC Comments at 19.

[^69]: [Id]{.underline}. at 20.

[^70]: Ameritech Reply at 1-4; RBOC Reply at 10-11; GTE Reply at 4.

[^71]: [See]{.underline}, [e.g]{.underline}., Actel Comments at 8; APCC
    Comments at 13-19; Communications Central Comments at 8; FPTA
    Comments at 4; NJPA Comments at 5-6; Peoples Comments at 17-19;
    SCPCA Comments at 3; Telaleasing Reply at 3-4.

[^72]: APCC Comments at 13-19; Peoples Comments at 17-19.

[^73]: APCC Reply at 8.

[^74]: [See]{.underline}, [e.g]{.underline}., California PUC Comments at
    12; Maine Comments at 5-7; SW Bell Reply at 3.

[^75]: [Id]{.underline}.

[^76]: [See]{.underline}, [e.g]{.underline}., Bell Atlantic Comments at
    1; MPTA Comments at 4-5; Missouri PSC Reply at 3;
    [contra]{.underline} APCC Reply at 4-7.

[^77]: [Id]{.underline}.

[^78]: APCC Reply at 4-7.

[^79]: [See]{.underline}, [e.g.]{.underline}, Ameritech Comments at 7;
    Brill Comments at 1-2; GTE Comments at 4; GVNW Comments at 2-3; New
    Jersey DRA Comments at 2; USTA Comments at 4.

[^80]: [Id]{.underline}.

[^81]: US West Comments at 4.

[^82]: [See]{.underline}, [e.g.]{.underline}, Indiana URC Comments at
    3-4; Iowa Comments at 2; Maine Comments at 2; Missouri PSC Reply at
    3; Montana PSC Reply at 2; New York DPS Comments at 4; New York City
    Comments at 9; Ohio PUC Comments at 5; Oklahoma CC Comments at 3;
    Texas PUC Comments at 2; Virginia SCC Comments at 2.
    [See]{.underline} [also]{.underline} Cable & Wireless Comments at 5;
    MCI Comments at 4; MPTA Comments at 12-13.

[^83]: [Id]{.underline}.

[^84]: Florida PSC Comments at 3; Indiana URC Reply at 3 (only when
    states do not directly regulate payphone rates); Tennessee Reply at
    1.

[^85]: APCC Reply at 10.

[^86]: Ohio PUC Reply at 2-4.

[^87]: California PUC Comments at 12-13.

[^88]: [Id]{.underline}. California PUC also argues that the
    Commission\'s proposed petition process for review of state-
    determined local rates might raise state constitutional issues,
    because any review process must depend on state constitutions and
    the procedural safeguards developed by those constitutions.
    [Id]{.underline}. at 10.

[^89]: RBOC Comments at 20; Ameritech Reply at 7; BellSouth Comments at
    5; SW Bell Comments at 3; US West Reply at 5-6.

[^90]: RBOC Comments at 21.

[^91]: [Id]{.underline}. at 22-23.

[^92]: GTE Reply at 5.

[^93]: BellSouth Comments at 6.

[^94]: Florida PSC Comments at 4; GTE Comments at 5; USTA Reply at 5;
    WorldCom Comments at 8.

[^95]: Virginia SCC Comments at 2.

[^96]: CompTel Comments at 5.

[^97]: APCC Comments at 23; Ameritech Comments at 8; RBOC Comments at 5;
    Telaleasing Reply at 6.

[^98]: [Id]{.underline}.

[^99]: SW Bell Comments at 9; SW Bell Reply at 6-7.

[^100]: Oklahoma CC Comments at 2.

[^101]: Ohio PUC Comments at 6.

[^102]: [See]{.underline}, [e.g.]{.underline}, American Express Reply at
    5; Cable & Wireless Comments at 6-8; CompTel Comments at 11; Excel
    Comments at 5; GTE Comments at 3; ITA Comments at 17-18; TRA
    Comments at 19; Voice Reply at 9.

[^103]: APCC Reply at 24; Brill Comments at 3.

[^104]: [Id]{.underline}.

[^105]: MCI Comments at 2; Sprint Comments at 13.

[^106]: WorldCom Comments at 9-10.

[^107]: [See]{.underline}, [e.g.]{.underline}, Conquest Comments at 11;
    Intellicall Comments 33-34; ITA Reply at 4; One Call Reply at 4-5.

[^108]: [See]{.underline}, [e.g.]{.underline}, ITA Reply at 4.

[^109]: One Call Reply 4-5.

[^110]: Conquest Comments at 11; Intellicall Comments at 33-34.
    [Cf]{.underline}. CompTel Comments at 12 (billing a 25 second call
    as \"completed\" is an unreasonable practice).

[^111]: RBOC Reply at 3.

[^112]: APCC Reply at 28.

[^113]: RBOC Comments at 17; [accord]{.underline} Sprint Comments at 13.

[^114]: RBOC Comments at 5-6.

[^115]: SW Bell Comments at 9; US West Comments at 5.

[^116]: [See]{.underline}, [e.g.]{.underline}, Actel Comments at 6;
    Ameritech Comments at 12; AT&T Comments at 5; CPA Comments at 2-3;
    Florida PSC Comments at 3 GTE Comments at 3; Indiana URC Comments at
    3; NJPA Comments at 5; One Call Comments at 4; RBOC Comments at 2;
    Telaleasing Reply at 6; USTA Comments at 3.

[^117]: [Id]{.underline}.

[^118]: AT&T Comments at 5; APCC Reply at 12.

[^119]: CompTel Comments at 13; Excel Comments at 3; MCI Comments at 3;
    Sprint Comments at 8; WorldCom Comments at 10.

[^120]: MCI Comments at 3-4.

[^121]: [See]{.underline}, [e.g.]{.underline}, Actel Comments at 6; APCC
    Reply at 26-28; MCI Comments at 5; NJPA Comments at 6; RBOC Reply at
    8.

[^122]: [Id]{.underline}.

[^123]: Cable & Wireless Comments at 5-6; GTE Comments at 5-6; RBOC
    Reply at 8.

[^124]: MCI Comments at 5; American Express Reply at 10-11.

[^125]: [See]{.underline}, [e.g.]{.underline}, Frontier Reply at 5-6;
    MobileMedia Reply at 7-8.

[^126]: Arch Comments at 5; Intellicall Comments at 27; Page Net
    Comments at 10-11; One Call Comments at 5.

[^127]: Sprint Comments at 11.

[^128]: AT&T Comments at 15.

[^129]: Frontier Reply at 6; Sprint Reply at 2.

[^130]: Maine Comments at 2-3.

[^131]: [Id]{.underline}.

[^132]: [See]{.underline}, [e.g.]{.underline}, AirTouch Comments at 7;
    APCC Comments at 4, 9, 12; AT&T Comments at 10; Sprint Comments at
    24.

[^133]: AT&T Comments at 10; Sprint Comments at 24.

[^134]: RBOC Reply at 1.

[^135]: WorldCom Comments at 20.

[^136]: Inmate Coalition Comments at 13; Invision Comments at 5.
    Ameritech states that it would not oppose a special per-call
    compensation rate for calls using an inmate payphone. Ameritech
    Reply at 8-9.

[^137]: Inmate Coalition Comments at 2-3; Invision Comments at 5.

[^138]: Gateway Reply at 3-7.

[^139]: [Id]{.underline}.

[^140]: MCI Comments at 3.

[^141]: [Id]{.underline}.

[^142]: RBOC Reply at 3. Semi-public payphones are payphones that a LEC
    typically provides in exchange for both the coin revenue generated
    by the payphone and a monthly fee, paid by the location provider,
    discounted from the rate for a business line. Semi-public payphones
    tend to be located, at the request of the location provider, where
    public access is limited and an insignificant amount of calls are
    made.

[^143]: [Id]{.underline}. at 10-11; RBOC Comments at 12.
    [See]{.underline} [also]{.underline} Sprint Comments at 13.

[^144]: MCI Comments at 15; Sprint Comments at 21. Sprint also argues
    that the per-call compensation rate should be subject to periodic
    Commission review. Sprint Comments at 24.

[^145]: APCC Reply at 34; [contra]{.underline} Sprint Comments at 24.

[^146]: [See]{.underline}, [e.g.]{.underline}, American Express Reply at
    6-8; CompTel Comments at 16; Frontier Comments at 6-10; ITA Reply at
    12-13; MCI Comments at 13; Oklahoma CC Comments at 2; Sprint
    Comments at 17-18; WorldCom Comments at 19-20.

[^147]: [Id]{.underline}.

[^148]: MCI Comments at 13. MCI also argues that \$.1559 per call is the
    maximum per-call amount that the Commission should consider under a
    marginal cost standard. MCI Reply at 2.

[^149]: [Id]{.underline}. at 3.

[^150]: Sprint Comments at 23. Sprint also argues that because PSPs are
    already adequately compensated, the Commission should prescribe a
    per-call compensation amount of \$0, which it claims would comply
    with Section 276(b)(1)(A). [Id]{.underline}. at 18.

[^151]: [Id]{.underline}. Sprint argues that, in any case, the maximum
    permissible per-call compensation would be \$.25, with a downward
    adjustment mechanism to take advantage of technological developments
    that will reduce costs. [Id]{.underline}. at 21.

[^152]: MCI Comments at 13-14; Sprint Comments at 21.

[^153]: AT&T Comments at 6-8.

[^154]: AT&T Reply at 2.

[^155]: [See]{.underline}, [e.g.]{.underline}, APCC Comments at 11; APCC
    Reply at 30-34; IPTA Comments at 5-6; MICPA Comments at 2-3; RBOC
    Reply at 11-15; Telaleasing Reply at 6-7.

[^156]: RBOC Reply at 13.

[^157]: GTE Reply at 2; USTA Reply at 5, 7.

[^158]: GTE Comments at 9; RBOC Comments at 8-11.

[^159]: RBOC Comments at 8-11.

[^160]: APCC Comments at 31-34.

[^161]: [Id]{.underline}. at 31.

[^162]: [Id]{.underline}. at 31-34.

[^163]: Peoples Comments at 14-15.

[^164]: [Id]{.underline}. at 20-24.

[^165]: [See]{.underline}, [e.g.]{.underline}, Actel Comments at 7
    (\$.50); Communications Central Comments at 9-10 (\$.40); IPTA
    Comments at 6 (\$.55); NJPA Comments at 8-9 (\$.50).

[^166]: AT&T Reply at 4-11; Sprint Reply at 15-17.

[^167]: [Id]{.underline}.

[^168]: One Call Comments at 8.

[^169]: Conquest Comments at 11.

[^170]: AT&T Reply at 11; MCI Comments at 14; RBOC Reply at 16.

[^171]: [Id]{.underline}.

[^172]: NTCA Comments at 2.

[^173]: APCC Reply at 29.

[^174]: PageNet Comments at 18. PageNet also argues that it would not be
    appropriate for the Commission to rely on the surrogates it set
    forth in the [Second Report and Order]{.underline}.
    [Id]{.underline}. at 17.

[^175]: RBOC Comments at 11.

[^176]: AT&T Comments at 6; Sprint Comments at 19-20.

[^177]: 47 U.S.C. § 276(b)(1)(A). As stated above, this provision
    exempts from the Commission\'s mandate \"emergency calls and
    telecommunications relay services for hearing disabled individuals\"
    and states that such calls \"shall not be subject to such
    compensation.\" [Id]{.underline}. [Cf]{.underline}.
    Telecommunications Relay Services, and the Americans with
    Disabilities Act of 1990, [Memorandum Opinion and
    Order]{.underline}, CC Docket No. 90-571, 10 FCC Rcd 10927 (Com.
    Car. Bur. 1995) (suspending enforcement of TRS coin sent-paid
    service requirements until August 26, 1997, and adopting an interim
    plan wherein, [inter alia]{.underline}, local TRS coin sent-paid
    calls are to be free of charge, and toll TRS coin sent-paid calls
    are to be chargeable to calling cards or debit cards at rates
    equivalent to rates for similar coin sent-paid service by non-TRS
    users).

[^178]: 47 U.S.C. § 276(b)(1).

[^179]: [Notice]{.underline} at para. 16.

[^180]: [See]{.underline} [e.g.]{.underline}, APCC Comments at 4-12.

[^181]: 47 U.S.C. § 276(b)(1).

[^182]: [See]{.underline} para. 60, below.

[^183]: [See]{.underline} paras. 181-183, below.

[^184]: [See]{.underline} para. 61, below.

[^185]: [See]{.underline} para. 72, below.

[^186]: [Notice]{.underline} at para. 17.

[^187]: [See]{.underline}, [e.g.]{.underline}, APCC Comments at 5-6;
    Communications Central Comments at Attachment B; Peoples Comments at
    9-10; Telaleasing Reply at 8. For example, Peoples, the largest
    independent payphone provider, states that subscriber 800 calls are
    13% of the calls (86 calls out of 665 calls total) originated by a
    typical Peoples payphone, while access code calls comprise 6.5% (43
    calls). Peoples also states that subscriber 800 calls represent
    almost 50% of non-coin calls for which compensation is warranted.
    Peoples Comments at 9-10. Other independent payphone providers
    report similar levels of subscriber 800 and access code calling from
    their payphones. [See]{.underline} para. 123, below.

[^188]: [Notice]{.underline} at para. 16.

[^189]: [Id]{.underline}.

[^190]: [See]{.underline} para. 25, above.

[^191]: [Id]{.underline}.

[^192]: [See]{.underline} paras. 181-183, below.

[^193]: [See]{.underline} [Reconsideration Order]{.underline}, 8 FCC Rcd
    at 7154. [See]{.underline} [also]{.underline} Conquest Comments at
    12.

[^194]: 47 U.S.C. §§ 4(i), 201(b).

[^195]: [See]{.underline} paras. 11-19, above.

[^196]: 47 U.S.C. § 276(b)(1).

[^197]: [See]{.underline} [Ex Parte]{.underline} Letter of Michael
    Kellogg, Counsel, RBOCs, to William Caton, Acting Secretary, FCC
    (August 30, 1996).

[^198]: [Id]{.underline}.

[^199]: [Id]{.underline}.

[^200]: [Notice]{.underline} at para. 19.

[^201]: [Id]{.underline}.

[^202]: 47 U.S.C. § 276(c).

[^203]: [Notice]{.underline} at para. 20-22.

[^204]: [Id]{.underline}.

[^205]: [See also]{.underline} Jt. Statement of Managers, S. Conf. Rep.
    No. 104-230, 104th Cong., 2d Sess. (1996) at 43 (\"[Conference
    Report]{.underline}\"): \"In crafting implementing rules, the
    Commission is not bound to adhere to existing mechanisms or
    procedures established for general regulatory purposes in other
    provisions of the Communications Act.\"

[^206]: [Notice]{.underline} at para. 22, n.64.

[^207]: 47 U.S.C. § 276(c).

[^208]: [See]{.underline} para. 181, below.

[^209]: [See]{.underline} paras. 11-19, above.

[^210]: We note that state regulations and requirements must comply
    independently with other provisions of the Communications.
    [See]{.underline} [e.g.]{.underline}, 47 U.S.C. § 253.

[^211]: [See]{.underline} para. 56, above.

[^212]: This public interest showing is distinct from state concerns
    regarding the establishment and funding of public interest
    payphones, as discussed in Part VI, below.

[^213]: In its investigation, the Commission would use an economic and
    antitrust analysis to evaluate the market failure and determine
    whether Commission action was necessary to promote the underlying
    goals of Section 276 of the Act. [See]{.underline} paras. 2, 11-19,
    above.

[^214]: [Notice]{.underline} at para. 19.

[^215]: Teleconnect Co. v. Bell Telephone Company of Pennsylvania, 10
    FCC Rcd 1626, 1629 (1995). [See]{.underline} [also]{.underline} Long
    Distance/USA, Inc. v. Bell Telephone Company of Pennsylvania, 10 FCC
    Rcd 1634 (1995).

[^216]: [Florida Payphone]{.underline}, 54 F.3d at 860.

[^217]: [See]{.underline} CompTel Comments at 12.

[^218]: [See]{.underline} Conquest Comments at 11; Intellicall Comments
    at 33-34; RBOC Reply at 3.

[^219]: 47 U.S.C. § 276(b)(1)(A) (emphasis added).

[^220]: Some IXCs allow a caller to make successive calls, once she
    dials her calling card information, by pushing the \"#\" button at
    the conclusion of each call to regenerate the dialtone.

[^221]: RBOC Comments at 5-6.

[^222]: [Id]{.underline}.

[^223]: The legislative history of this provision does not address
    incoming calls.

[^224]: [First Report and Order]{.underline}, 6 FCC Rcd at 4746.

[^225]: 47 U.S.C. § 227(b)(1).

[^226]: [See]{.underline}, [e.g.]{.underline}, 18 U.S.C. § 1343.

[^227]: [See]{.underline} para. 37, above.

[^228]: Frontier Comments at 22; Sprint Reply at 2.

[^229]: [Reconsideration Order]{.underline}, 8 FCC Rcd at 7156-57.

[^230]: [Id]{.underline}. at 7156.

[^231]: [Id]{.underline}. at 7157. [See]{.underline} [also]{.underline}
    [Second Further Notice]{.underline}, 10 FCC Rcd at 11457.

[^232]: [See]{.underline} para. 98, below.

[^233]: [See]{.underline} 47 U.S.C. § 226(a)(2); 47 CFR §§32.2351, 68.3.

[^234]: [Notice]{.underline} at para. 38.

[^235]: [Id]{.underline}.

[^236]: [Id]{.underline}.

[^237]: [Cf]{.underline}. Implementation of the Local Competition
    Provisions of the Telecommunications Act of 1996, [First Report and
    Order]{.underline}, FCC 96-325, para. 672-703 (rel. Aug. 8, 1996)
    (\"[Local Competition Order]{.underline}\") (describing total
    element long-run incremental cost methodology for pricing
    interconnection and unbundled network elements).

[^238]: [See]{.underline} para. 46, above.

[^239]: [Notice]{.underline} at para. 22, n.64.

[^240]: [Second Report and Order]{.underline}, 7 FCC Rcd at 3257.

[^241]: [Id]{.underline}.

[^242]: [See]{.underline} paras. 11-19, above.

[^243]: [See]{.underline} paras. 119-126, below.

[^244]: [See]{.underline} [Ex Parte]{.underline} Letter of Michael
    Kellogg, Counsel, RBOCs to William Caton, Acting Secretary, FCC
    (August 30, 1996).

[^245]: [See]{.underline} para. 51, above.

[^246]: APCC Reply at 34.

[^247]: MCI Comments at 15; Sprint Comments at 21.

[^248]: Inmate Coalition Comments at 2-3; Invision Comments at 5.

[^249]: MCI Comments at 3.

[^250]: [See]{.underline} Maine Comments at 2-3. Four states, Maine, New
    Hampshire, New Mexico, and Vermont, filed comments jointly. For
    purposes of discussion, we refer to the joint comments as \"Maine
    Comments.\"

[^251]: 47 U.S.C. § 276.

[^252]: 47 U.S.C. §§ 276(a), 276(b)(1)(C), 276(b)(1)(D).

[^253]: 47 U.S.C. §§ 276(b)(1)(A), 276(b)(1)(E).

[^254]: 47 U.S.C. §§ 276(b)(1), 276(b)(3).

[^255]: 47 U.S.C. § 276(b)(1)(A) (emphasis added).

[^256]: 47 U.S.C. § 276(b)(1).

[^257]: [Conference Report]{.underline} at 43.

[^258]: [Notice]{.underline} at paras. 25-28.

[^259]: [Id]{.underline}. at para. 28.

[^260]: [Id]{.underline}.

[^261]: [Id]{.underline}.

[^262]: [Id]{.underline}.

[^263]: [See]{.underline}, [e.g.]{.underline}, American Express Reply at
    10; Ameritech Comments at 8; AT&T Comments at 12-13; California PUC
    Comments at 13; Florida PSC Comments at 4; GTE Comments at 7-8; IPTA
    Comments at 16; ITA Comments at 12-16; MICPA Comments at 4-5; NJPA
    Comments at 7; New York DPS Comments at 7; Ohio PUC Comments at 8;
    Peoples Comments at 25; RBOC Comments at 6; Telaleasing Reply at 11;
    Teleport Comments at 4; Voice Reply at 2.

[^264]: [Id]{.underline}.

[^265]: APCC Comments at 24-25; GTE Reply at 6-7; Indiana URC Comments
    at 4; New York DPS Comments at 7.

[^266]: Intellicall Reply at 12; MobileMedia Reply at 6.

[^267]: Frontier Comments at 20-21.

[^268]: [Id]{.underline}. at 12-14.

[^269]: [See]{.underline}, [e.g.]{.underline}, APCC Comments at 23; CPA
    Comments at 5-8; MCI Comments at 6; One Call Comments at 5-6; Sprint
    Comments at 12.

[^270]: [Id]{.underline}.

[^271]: [Id]{.underline}.

[^272]: [See]{.underline}, [e.g.]{.underline}, ITA Reply at 9-10; MICPA
    Comments at 4-5; MWAA Reply at 6; New York DPS Comments at 7;
    Teleport Comments at 3; TRA Comments at 23; WorldCom Comments at 12.

[^273]: PageNet Comments at 8. [Cf]{.underline}. MobileMedia Reply at 6
    (800 subscriber is wrong compensation payor).

[^274]: Itellicall Comments at 22.

[^275]: PacTel Reply at 2.

[^276]: RBOC Reply at 6-7.

[^277]: MWAA Reply at 4-6; Sprint Comments at 10.

[^278]: [See]{.underline}, [e.g.]{.underline}, AirTouch Comments at 13;
    Arch Comments at 4 (for subscriber 800 calls); Excel Comments at 8;
    Frontier Comments at 10-12; MobileMedia Reply at 1-2, 3-7; PCIA
    Comments at 3-4; PageNet Comments at 10-11; Scherers Comments at
    3-4, 6-7; WorldCom Comments at 11-12.

[^279]: [Id]{.underline}.

[^280]: [Id]{.underline}.

[^281]: [Id]{.underline}.

[^282]: Intellicall Comments at 32-33; MobileMedia Reply at 9-10.

[^283]: [Id]{.underline}.

[^284]: [See]{.underline}, [e.g.]{.underline}, Ameritech Comments at 8;
    Florida PSC Comments at 4; MWAA Reply at 6; New York DPS Comments at
    7; Oklahoma Comments at 2; TRA Comments at 23; Texas PUC Comments at
    3 (for access code calls); Virginia SCC Comments at 3.

[^285]: [Id]{.underline}.

[^286]: Intellicall Comments at 21; MobileMedia Reply at 10-11; Page Net
    Comments at 7.

[^287]: [Id]{.underline}.

[^288]: Scherers Comments at 4-9; TRA Comments at 5-12.

[^289]: American Express Reply at 10; ITA Comments at 22-23; TRA
    Comments at 15-16.

[^290]: ITA Comments at 24-26; Voice Reply at 3.

[^291]: [See]{.underline} para. 77, above.

[^292]: [Second Report and Order]{.underline}, 7 FCC Rcd at 3257-60.

[^293]: For purposes of paying compensation for compensable calls and
    other associated obligations, such as the tracking of calls, we note
    that the term \"IXC\" includes a LEC when it provides interstate,
    intraLATA toll service. Currently, because LECs are not the primary
    carrier for subscriber 800 calls, the relevant toll calls for which
    LECs will obligated to pay compensation are those that are made with
    use of a LEC-specific access code. As LECs (both incumbent and
    non-incumbent) begin to carry additional toll calls originated by
    payphones, they will be required to pay per-call compensation on
    those calls.

[^294]: [See]{.underline} n. 262, above

[^295]: [Notice]{.underline} at para. 28.

[^296]: [Id]{.underline}.

[^297]: [See]{.underline} para. 79, above.

[^298]: [See]{.underline} para. 79, above.

[^299]: [Notice]{.underline} at para. 27.

[^300]: [Id]{.underline}.

[^301]: [See]{.underline} para. 80, above.

[^302]: 47 U.S.C. § 226(e)(2).

[^303]: [See]{.underline} para. 81, above.

[^304]: [See]{.underline}, [e.g.]{.underline}, ITA Comments at 12-16
    (\"regulatory nightmares\" involving excessive network upgrades and
    transaction costs can be avoided by requiring underlying carrier to
    pay compensation).

[^305]: 47 U.S.C. § 276(b)(1)(A).

[^306]: [Notice]{.underline} at para. 30.

[^307]: [Id]{.underline}.

[^308]: [Id]{.underline}. at para. 31.

[^309]: [Id.]{.underline}

[^310]: RBOC Comments at 7.

[^311]: [Id]{.underline}.

[^312]: [Id]{.underline}. at 8.

[^313]: [Id]{.underline}.

[^314]: [See]{.underline}, [e.g.]{.underline}, California PUC Comments
    at 11; MICPA Comments at 5; One Call Comments at 7; RBOC Comments at
    7; Sprint Comments at 13; USTA Reply at 3-4.

[^315]: RBOC Comments at 7; Sprint Comments at 13-14.

[^316]: Ameritech Comments at 11-12.

[^317]: MCI Comments at 10; Sprint Comments at 16.

[^318]: AT&T Comments at 14-15.

[^319]: [Id]{.underline}. at 15.

[^320]: RBOC Reply at 7.

[^321]: USTA Reply at 3-4.

[^322]: [See]{.underline}, [e.g.]{.underline}, Cable & Wireless Comments
    at 9-11; CompTel Comments at 8; MCI Comments at 8.

[^323]: Cable & Wireless Comments at 10.

[^324]: [Id]{.underline}. at 9-11.

[^325]: APCC Reply at 20-21.

[^326]: APCC Comments at 27.

[^327]: RBOC Reply at 9.

[^328]: CompTel Comments at 9-10.

[^329]: MCI Comments at 8; Indiana URC Comments at 4.

[^330]: WorldCom Comments at 14-15.

[^331]: Ameritech Comments at 11; Scherers Comments at 5.

[^332]: Ameritech Comments at 11; Scherers Comments at 5; WorldCom
    Comments at 14-15.

[^333]: Ameritech Reply at 10.

[^334]: GTE Reply at 7-8; NECA Reply at 2; RBOC Reply at 6-7.
    [See]{.underline} [also]{.underline} Puerto Rico Telephone Reply at
    6.

[^335]: [Id]{.underline}.

[^336]: USTA Reply at 3-4.

[^337]: RBOC Comments at 7.

[^338]: APCC Comments at 26.

[^339]: Telaleasing Reply at 11.

[^340]: [Notice]{.underline} at paras. 29-31.

[^341]: [See]{.underline} RBOC Comments at 7.

[^342]: MCI Comments at 10; Sprint Comments at 16.

[^343]: Policies and Rules Concerning Operator Service Access and Pay
    Telephone Compensation, CC Docket No. 91-35, [Third Report and
    Order]{.underline} (rel. Apr. 5, 1996) at para. 34 (\"[OLS
    Order]{.underline}\").

[^344]: AT&T Comments at 14-15.

[^345]: As discussed at para. 49, above, IXCs also have the option of
    avoiding the obligation to pay per-call compensation for subscriber
    800 calls by blocking these calls from payphones.

[^346]: [See]{.underline} paras. 119-126, below.

[^347]: [Notice]{.underline} at paras. 32-33.

[^348]: [Id]{.underline}. at para. 33.

[^349]: [Id]{.underline}.

[^350]: [Id]{.underline}. at para. 34.

[^351]: [Id]{.underline}.

[^352]: APCC Reply at 25-26.

[^353]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 16; GVNW
    Comments at 4.

[^354]: MCI Comments at 11.

[^355]: [See]{.underline}, [e.g.]{.underline}, Cable & Wireless Comments
    at 11-12; CompTel Comments at 10-11; Excel Comments at 6-7; Frontier
    Comments at 12-14; WorldCom Comments at 17-18.

[^356]: Cable & Wireless Comments at 13; Excel Comments at 7; MCI
    Comments at 19.

[^357]: SDN Comments at 2.

[^358]: APCC Comments at 29; Peoples Comments at 26; RBOC Comments at 7;
    Sprint Comments at 15.

[^359]: [Id]{.underline}.

[^360]: MCI Comments at 11.

[^361]: GTE Comments at 8-9.

[^362]: [Id]{.underline}.

[^363]: AT&T Comments at 17.

[^364]: GVNW Comments at 3.

[^365]: AT&T Comments at 17.

[^366]: AT&T Comments at 17-18; Sprint Comments at 15.

[^367]: AT&T Comments at 17.

[^368]: MICPA Comments at 6.

[^369]: APCC Comments at 29.

[^370]: MCI Comments at 12.

[^371]: NTCA Comments at 5-6.

[^372]: MCI Comments at 12.

[^373]: IPTA Comments at 19; MICPA Comments at 6.

[^374]: IPTA Comments at 21; MICPA Comments at 6; Peoples Comments at
    26; Telaleasing Reply at 11.

[^375]: Peoples Comments at 26; Telaleasing Reply at 11.

[^376]: MCI Comments at 12.

[^377]: Sprint Comments at 15.

[^378]: RBOC Comments at 7.

[^379]: APCC Comments at 30. [See]{.underline} [also]{.underline}
    Telaleasing Reply at 11.

[^380]: CompTel Comments at 11. [See]{.underline} [also]{.underline} GTE
    Comments at 7-8; Oklahoma CC Comments at 3.

[^381]: CompTel Comments at 11.

[^382]: APCC Comments at 30.

[^383]: [Notice]{.underline} at paras. 32-33.

[^384]: [See]{.underline} para. 104, above.

[^385]: [Notice]{.underline} at para. 33.

[^386]: [Id]{.underline}. at para. 33, n. 90.

[^387]: As AT&T correctly points out, it is the LEC that provides the
    payphone line that must provide the list of ANIs, not the intraLATA
    carrier presubscribed to the payphone. AT&T Comments at 17.

[^388]: [Second Report and Order]{.underline}, 7 FCC Rcd at 3259. LECs
    are permitted to \"recover their reasonable costs in generating and
    producing these lists through direct charges\" to the carriers using
    them. [Reconsideration Order]{.underline}, 8 FCC Rcd at 7157.
    \"COCOT\" is an acronym for customer-owned, coin-operated telephone.

[^389]: [Second Report and Order]{.underline}, 7 FCC Rcd at 3259.

[^390]: [Id]{.underline}.

[^391]: [See]{.underline} para. 113, above.

[^392]: [See]{.underline} para. 108, above.

[^393]: [Notice]{.underline} at para. 39.

[^394]: [Id]{.underline}. at para. 40.

[^395]: [Id]{.underline}.

[^396]: APCC Comments at 34-40; BellSouth Comments at 6-7;
    Communications Central Comments at 10-11; NJPA Comments at 9-10;
    Peoples Comments at 10-11; Telaleasing Reply at 8.

[^397]: APCC Comments at 34-37; Peoples Comments at 10-11.

[^398]: [Id]{.underline}.

[^399]: APCC Comments at 36-40; Communications Central Comments at
    10-11.

[^400]: NJPA Comments at 9-10.

[^401]: Peoples Comments at 10-11, [accord]{.underline} BellSouth Reply
    at 2; Telaleasing Reply at 9.

[^402]: APCC Comments at 36-40.

[^403]: Intellicall Comments at 36.

[^404]: BellSouth Reply at 2.

[^405]: AT&T Comments at 11; GTE Comments at 10; MCI Comments at 15; One
    Call Comments at 8; RBOC Comments at 19-20; Sprint Comments at 25.

[^406]: [Id]{.underline}.

[^407]: AT&T Comments at 11.

[^408]: Unlike the per-call compensation mechanism adopted in this
    [Report and Order]{.underline}, the interim flat-rate compensation
    obligation applies to both facilities-based IXCs and resellers that
    have respective toll revenues of \$100 million per year.

[^409]: [See]{.underline} [generally]{.underline} [Second Report and
    Order]{.underline}, [Reconsideration Order]{.underline}, and [Second
    Further Notice]{.underline}.

[^410]: [Second Further Notice]{.underline}, 10 FCC Rcd at 11463.

[^411]: Two IXCs, AT&T and Sprint, certified to the Commission that they
    were able to pay compensation on a per-call basis and petitioned the
    Commission for approval to pay compensation on that basis.
    [See]{.underline} Policies and Rules Concerning Operator Service
    Access and Pay Telephone Compensation, Memorandum Opinion and Order,
    10 FCC Rcd 1590 (Com. Car. Bur. 1994) (\"[AT&T
    Waiver]{.underline}\"); Memorandum Opinion and Order, 10 FCC Rcd
    5490 (Com. Car. Bur. 1995) (\"[Sprint Waiver]{.underline}\"). They
    argued that a per-call compensation mechanism would better serve the
    Commission\'s objective to implement a more cost-based approach to
    compensation for calls to non-presubscribed OSPs. The Common Carrier
    Bureau agreed and granted AT&T and Sprint the right to pay
    compensation in the amount of \$.25 per call in lieu of paying
    per-phone compensation to PPOs. [Id]{.underline}.

[^412]: 47 U.S.C. § 226(e)(2).

[^413]: [Second Report and Order]{.underline}, 7 FCC Rcd at 3252-53.

[^414]: The [Second Report and Order]{.underline} defines an \"access
    code\" as a \"sequence of numbers that, when dialed, connects the
    caller to the OSP associated with that sequence, as opposed to the
    OSP presubscribed to the originating line. Access codes include
    10XXX in equal access areas and \"950\" Feature Group B dialing
    (950-0XXX or 950-1XXX) anywhere, where the three-digit XXX denotes a
    particular IXC. Some OSPs use an 800 number as an access code.\"
    [Id]{.underline}. at 3251 n.1.

[^415]: [First Report and Order]{.underline}, 6 FCC Rcd at 4746
    ([citing]{.underline} S. Rep. No. 439, 101st Cong., 2d Sess. 19
    (1990), [reprinted in]{.underline} 1990 U.S. Code Cong. & Ad. News
    1577, 1582). \"Subscriber 800 calls\" consist of calls to an 800
    number assigned to a particular subscriber. [See]{.underline}
    [Florida Payphone]{.underline}, 54 F.3d at 859.

[^416]: [Id]{.underline}.

[^417]: Policies and Rules Concerning Operator Service Access and Pay
    Telephone Compensation, [Order on Reconsideration]{.underline}, 7
    FCC Rcd 4355, 4367 (1992) (\"[Subscriber 800 Reconsideration
    Order]{.underline}\").

[^418]: [Florida Payphone]{.underline}, 54 F.3d at 857.

[^419]: [Id]{.underline}.

[^420]: [See]{.underline} [Second Report and Order]{.underline}, 7 FCC
    Rcd at 3255-57.

[^421]: [See]{.underline} para. 56, above.

[^422]: Peoples Comments at 9-10. Peoples\' estimates are derived from
    the total number of calls originated by all of its payphones over a
    six-month period spanning late 1995 to early 1996. [Id]{.underline}.

[^423]: Communications Central Comments at Attachment B. Communications
    Central\'s estimates are derived from the total number of calls
    originated by all of its payphones over a one-month period in 1996.
    [Id]{.underline}.

[^424]: Telaleasing Reply at 8. Telaleasing\'s estimates are derived
    from the total number of calls originated by all of its payphones
    over a one-month period in 1996. [Id]{.underline}.

[^425]: APCC Comments at 5-6.

[^426]: [See]{.underline} [Ex Parte]{.underline} Letter of Michael
    Kellogg, Counsel, RBOCs, to William Caton, Acting Secretary, FCC
    (August 23, 1996).

[^427]: The PSP data tend to show that one third of the total amount of
    compensable calls are access code calls, while two thirds are
    subscriber 800 calls.

[^428]: We conclude that on the effective date of the interim
    compensation set forth in this Order, the \$6 per payphone per month
    compensation for access code calls, as set forth in CC Docket No.
    91-35, is terminated. [See]{.underline} para. 119, above.

[^429]: [See]{.underline} [generally]{.underline}, Part B of this
    [Report and Order]{.underline}.

[^430]: The independent payphone providers refer to this retroactive
    compensation as \"interim relief.\" [See]{.underline} para. 117,
    above. The interim flat-rate compensation that we mandate in this
    [Report and Order]{.underline}, pursuant to Section 276(b)(1)(A), is
    for the first year after the effective date of the rules adopted in
    this proceeding. The term \"interim\" refers to the one-year period
    before compensation is to be paid on a per-call basis.

[^431]: [See]{.underline} para. 85, above.

[^432]: 47 U.S.C. § 276(b)(1)(B).

[^433]: [Notice]{.underline} at para. 42.

[^434]: [Id]{.underline}. at para. 45.

[^435]: [Id]{.underline}.

[^436]: [Id]{.underline}. at para. 46.

[^437]: [Id]{.underline}.

[^438]: [Id]{.underline}.

[^439]: [Id]{.underline}. at para. 47.

[^440]: [Id]{.underline}.

[^441]: [Id]{.underline}. at para. 48.

[^442]: AT&T Comments at 18; USTA Comments at 5; Ameritech Comments at
    13; NJPA Comments at 10; SCPCA Comments at 2; Sprint Comments at 25;
    CPA Comments at 10-11; MCI Comments at 15; RBOC Comments at 23; GPCA
    Comments at 5 \[Note: with regard to payphone reclassification and
    nonstructural safeguards, APCC relies on and agrees with GPCA
    comments. [See]{.underline} APCC Comments at 41; APCC Reply at 35\];
    California PUC Comments at 14; USTA Comments at 5; GTE Reply
    Comments at 8-10.

[^443]: Ohio PUC Comments at 9-10 .

[^444]: Florida PSC Comments at 4-5. Florida recommends that LECs with
    less than 100,000 access lines be allowed to choose whether to
    deregulate CPE. [Id]{.underline}.

[^445]: Ameritech Comments at 3-4 .

[^446]: RBOC Comments at 30.

[^447]: International Telecard Comments at 26-27; GPCA Reply at 15.

[^448]: BellSouth Reply at 8.

[^449]: GPCA Comments at 4.

[^450]: Ohio PUC Comments at 13.

[^451]: Florida PSC at 6; NJPA Comments at 11-12:SW Bell Reply at 5;
    USTA Comments at 5; PacTel Reply Comments at 2-5; Sprint Comments at
    25.

[^452]: Florida PSC Comments at 6.

[^453]: RBOC Reply at 21-23.

[^454]: RBOC Comments at 40, n.53.

[^455]: PacTel Reply at 2-5.

[^456]: PacTel Reply at 2-5; RBOC Reply at 21-23.

[^457]: California PUC Comments at 14; GTE Reply at 8-10.

[^458]: Ameritech Comments at 16-17.

[^459]: GPCA Reply at 3.

[^460]: MCI Comments at 16.

[^461]: GVNW Comments at 5-7.

[^462]: AT&T Comments at n. 37; AT&T Reply at n.71. [See
    also]{.underline} NCTA Comments at 5.

[^463]: NCTA Reply at 4-6; OPASTCO Reply at 2-3.

[^464]: Florida PSC Comments at 7.

[^465]: AT&T Comments at 19, n. 36 & at 22, n. 42-43.

[^466]: GPCA Reply at 1-7.

[^467]: CPA Reply Comments at 15-16.

[^468]: AT&T Comments at 19, n. 36.

[^469]: SW Bell Reply at 7.

[^470]: California PUC Comments at 16.

[^471]: CPA Reply at 15-16.

[^472]: RBOC Comments at 25; USTA Reply at 7; GTE Reply at 9.

[^473]: GPCA Reply at 7-14.

[^474]: MCI Comments at 15-16. MCI contends that a \"cuckoo\" tone
    (which identifies the phone to an operator as a payphone) should be
    available for fraud protection, rather than specialized phone
    numbers used for LEC phones today. [Id]{.underline}. at 16.

[^475]: RBOC Comments at 25; Sprint Comments at 26.

[^476]: RBOC Comments at 26; MCI Comments at 16; Oklahoma CC Comments at
    3.

[^477]: RBOC Comments at 26.

[^478]: GPCA Reply at 7.

[^479]: RBOC Comments at 26, n.28.

[^480]: Anchorage Telephone Comments at 1.

[^481]: AT&T Comments at 18 n.34; MCI Comments at 16; Sprint Comments at
    25-26.

[^482]: GPCA Comments at 7, 10-11.

[^483]: RBOC Comments at 27.

[^484]: CPA Comments at 10-11.

[^485]: Amendment of Section 64.702 of the Commission\'s Rules and
    Regulations (Second Computer Inquiry), 77 FCC 2d 384, 445 (1980)
    ([Computer II]{.underline}), [modified on recon]{.underline}., 84
    FCC 2d 50 (1981), [modified on further recon.,]{.underline} 88 FCC
    2d 512 (1981), [aff\'d sub nom. Computer and Communications Industry
    Ass\'n v. FCC]{.underline}, 693 F.2d 198 (D.C. Cir. 1982), [cert
    denied]{.underline}, 462 U.S. 938 (1983).

[^486]: [Computer II]{.underline}, 77 FCC 2d at 466-7, 474.

[^487]: [Id]{.underline}. at 447, n. 57.

[^488]: [Id]{.underline}.

[^489]: Petition for Declaratory Ruling of Tonka Tools, Inc. and
    Southern Merchandise Corp. Regarding American Telephone and
    Telegraph Company Provision of Coinless Pay Telephones, 58 RR2d 903,
    910 (1985) ([Tonka Tools]{.underline}).

[^490]: [See]{.underline} Registration of Coin Operated Telephones,
    [Memorandum Opinion and Order]{.underline}, 49 Fed. Reg. 27763
    (1984) ([Coin Registration Order]{.underline}).

[^491]: [See]{.underline} para. 9, above.

[^492]: 47 U.S.C. § 276(b)(1)

[^493]: Petition for Declaratory Ruling by the Inmate Calling Services
    Providers Task Force, [Declaratory Ruling]{.underline}, 11 FCC Rcd
    7362 (1996) ([Inmate Services Order]{.underline}); Petitions for
    Waiver and Partial Reconsideration or Stay of Inmate-Only Payphones
    Declaratory Ruling, [Order]{.underline}, 11 FCC Rcd 8013 (Com. Car.
    Bur. 1996)([Inmate Services Waiver Order]{.underline}).

[^494]: We discuss at paras. 159, below, the equipment to be deregulated
    and detariffed and the method of valuation.

[^495]: [See also]{.underline} para. 190, below, regarding AT&T
    payphones. Section 255 of the 1996 Act requires manufacturers of
    telecommunications equipment and CPE, and telecommunications service
    providers, to ensure that their equipment and services are
    accessible to persons with disabilities, if readily achievable. 47
    U.S.C. § 255(b)-(c). If such access is not readily achievable, the
    manufacturer or service provider must ensure that the equipment or
    service is compatible with existing peripheral devices or
    specialized CPE commonly used by persons with disabilities, if
    readily achievable. 47 U.S.C. § 255(d). The implementation of
    Section 255 will be addressed in a separate proceeding.

[^496]: [See]{.underline} paras. 192-207, below, for a discussion of the
    statutory mandate that we \"prescribe a set of nonstructural
    safeguards for \[BOC\] payphone service \... which safeguards shall,
    at a minimum, include the nonstructural safeguards equal to those
    adopted in the Computer Inquiry-III \... proceeding.\" 47 U.S.C. §
    276(b)(1)(C).

[^497]: [See]{.underline} 47 U.S.C. § 276(b)(1)(C).

[^498]: Furnishing of Customer Premises Equipment by the Bell Operating
    Telephone Companies and the Independent Telephone Companies, 2 FCC
    Rcd 143 (1987)([BOC CPE Relief Order]{.underline}).

[^499]: [See]{.underline} [Computer II]{.underline}, 77 FCC 2d at
    469-70. Structural separation requirements initially imposed on GTE
    were removed on reconsideration. [See]{.underline} 84 FCC 2d at
    72-75.

[^500]: [See]{.underline} Implementation of the Telecommunications Act
    of 1996: Accounting Safeguards under the Telecommunications Act of
    1996, [Notice of Proposed Rulemaking]{.underline}, 11 FCC Rcd 9054
    (1996) (\"[Accounting Safeguards NPRM]{.underline}\").

[^501]: [BOC CPE Relief Order]{.underline}, 2 FCC Rcd at 143.
    [See]{.underline} 47 U.S.C. § 276(c).

[^502]: [Computer II]{.underline}, 77 FCC 2d at 387-9; 47 U.S.C. §§ 201,
    202, and 276; [BOC CPE Relief Order]{.underline}, 2 FCC Rcd at 143.

[^503]: [See]{.underline} 47 C.F.R. §  64.702(e).

[^504]: [See]{.underline} 47 U.S.C. § 202(a).

[^505]: 47 C.F.R. § §  61.38, 61.39, 61.50(i).

[^506]: Network disclosure requirements are discussed in [Computer
    II]{.underline}, 2 FCC Rcd at 150-151; 3 FCC at 23-24; and [Computer
    III]{.underline} at 3 FCC Rcd at 1164-65. The Commission may waive a
    rule for good cause shown, in whole or in part, on the Commission\'s
    own motion or petition. 47 C.F.R. § 1.3. Regarding the waiver
    standard, [see Wait Radio v. Federal Communications
    Commission]{.underline}, 418 F.2d 1153 (D.C. Cir. 1969); [Northeast
    Cellular Telephone Co. v. Federal Communications
    Commission]{.underline}, 897 F.2d 1164 (D.C. Cir. 1990). [See
    also]{.underline} [Inmate Services Waiver Order]{.underline} 11 FCC
    Rcd at 8013 (granting a waiver of the network disclosure notice
    period to enable the provision of payphone services for inmate
    payphones before the required notice period).

[^507]: BOCs have filed payphone service tariffs with the Commission.
    [See]{.underline} [e.g.]{.underline}, US West Communications, Tariff
    FCC No. 5, Pay Telephone Sent-Paid Services, August 5, 1994;
    BellSouth Communications Inc., Tariff F.C.C.No. 1, Access Service,
    Coin Services, January 31, 1992. [See]{.underline} 47 U.S.C. §
    276(c) and §§ 201-205 regarding authority to require tariffing of
    basic payphone services.

[^508]: [See]{.underline} [Local Competition Order]{.underline} at para.
    876 (holding that the services that incumbent LECs offer to PSPs are
    retail services provided to end users, and should be available at
    wholesale rates to telecommunications carriers and Section
    251(c)(4), but need not be made available at wholesale rates to
    independent PSPs that are not telecommunications carriers).

[^509]: [See ex parte]{.underline}, Michael K. Kellogg to William F.
    Caton, Secretary, FCC, September 6, 1996 at 3; GVNW Comments at 5-7.

[^510]: [See Computer III Phase II Order]{.underline} at 3101. For
    example, Congress did not require that [Computer III]{.underline}
    safeguards, at a minimum be applied to other LECs. See 47 U.S.C. §
    276(b)(1)(C). Under Section 251, LECs must provide nondiscriminatory
    access to unbundled network elements to certain carriers.
    [See]{.underline} [Local Competition Order]{.underline}.

[^511]: [Computer II]{.underline}, 77 FCC 2d at 387-9; 47 C.F.R. 64.702.

[^512]: [See]{.underline} para. 145, above.

[^513]: [See]{.underline} Policies and Rules Concerning Local Exchange
    Carrier Validation and Billing Information for Joint Use Calling
    Cards, [Report and Order and Request for Supplemental
    Comment]{.underline}, CC Docket 91-115, 7 FCC Rcd 3528 (1992);
    [Second Report and Order]{.underline}, 8 FCC Rcd 4478 (1993).

[^514]: [See]{.underline} note 634, below, [Computer III]{.underline}
    proceeding, regarding authority over nonregulated activities like
    billing and collection and enhanced services.

[^515]: [See]{.underline} [Coin Registration Order]{.underline}, note
    490, above.

[^516]: The Commission has previously exempted existing CPE from Part 68
    registration requirements. [See]{.underline} 47 C.F.R.(b)-(h).

[^517]: 3 FCC Rcd 4779 (1988); 4 FCC Rcd 737 (1989).

[^518]: 47 C.F.R. § 68.3.

[^519]: [Id]{.underline}.

[^520]: [Notice]{.underline} at para. 49.

[^521]: [Id]{.underline}.

[^522]: By baseline cost, we mean either the depreciated original cost
    at the time of the initial assignment or allocation of existing
    plant or the original cost of subsequently acquired new plant.
    [Id]{.underline}.

[^523]: [Notice]{.underline} at para. 49.

[^524]: [Id]{.underline}.

[^525]: USTA Comments at 6; MCI Comments at 15-16.

[^526]: GVNW Comments at 8.

[^527]: Florida PSC Comments at 6.

[^528]: GTE Reply at 8-10.

[^529]: RBOC Comments at 30.

[^530]: GPCA Comments at 15-16; GPCA Reply at 13-14; [See
    also]{.underline} CPA Reply at 12; SCPCA at 6-7.

[^531]: Peoples Reply at 20-21.

[^532]: SDPOA Reply at 3.

[^533]: CPA Reply at 12-15.

[^534]: Brill Comments at 4.

[^535]: Ameritech Comments at 14; USTA Reply at 7-8.

[^536]: USTA Comments at 5.

[^537]: Ameritech Comments at 13-14.

[^538]: [See]{.underline} note 493, above.

[^539]: RBOC Reply at 19-21. [See also]{.underline} SW Bell Reply at
    4-6. The RBOCs assert that in the [Inmate Services]{.underline}
    proceeding, only payphones were transferred and they were recorded
    at net book value in Account 32.2351, Public Telephone Equipment.
    The RBOCs also note, however, that land and buildings are
    transferred at appraised value. RBOC Comments at n. 28.

[^540]: RBOC Comments at 28 & Attachment, Anderson Report at 20.

[^541]: RBOC Comments at 28.

[^542]: AT&T Reply at 26-28.

[^543]: RBOC Comments at 30.

[^544]: GPCA Reply at 15-17.

[^545]: [Id]{.underline}.

[^546]: Ameritech Comments at 14.

[^547]: MCI Reply at 9.

[^548]: USTA Comments at 8.

[^549]: [See]{.underline} para 145, above.

[^550]: [See]{.underline} paras. 199-207, below.

[^551]: [See]{.underline} Separation of Costs of Regulated Telephone
    Service From Costs of Nonregulated Activities, 2 FCC Rcd 1298 (1987)
    ([Joint Cost Order]{.underline}), [recon]{.underline}., 2 FCC Rcd
    6283 (1987) ([Joint Cost Reconsideration Order]{.underline}),
    [further recon]{.underline}., 3 FCC Rcd 6701 (1988), [aff\'d sub
    nom]{.underline}., [Southwestern Bell Corp. v. FCC]{.underline}, 896
    F.2d 1378 (D.C.Cir. 1990).

[^552]: 47 C.F.R. § 32.23(a).

[^553]: In the [Accounting Safeguards NPRM]{.underline}, we sought
    comment on what rules should apply to transactions between a LEC and
    a separate payphone affiliate. [Id]{.underline}. at para. 118.

[^554]: [Notice]{.underline} at para. 49.

[^555]: [Id.]{.underline}

[^556]: [Id.]{.underline}

[^557]: [See]{.underline} USTA Comments at 6; MCI Comments at 15-16;
    Florida PSC Comments at 6.

[^558]: GVNW Comments at 8.

[^559]: [See]{.underline} GPCA Comments at 15-16; GPCA Reply at 13-14;
    Peoples Reply at 20-21; SDPOA Reply at 3.

[^560]: [See]{.underline} [Joint Cost Order]{.underline}, 2 FCC Rcd at
    170-171.

[^561]: [See]{.underline}, [e.g]{.underline}., RBOC Reply at 19-21.

[^562]: 47 C.F.R. §§ 64.901-904. [See]{.underline} [also]{.underline}
    [Inmate Services Order]{.underline}, 11 FCC Rcd at 7374.

[^563]: RBOC Comments at 28*,* [citing]{.underline} [Inmate Services
    Order]{.underline}. [See]{.underline} [also]{.underline} Letter from
    Michael K. Kellogg to William F. Caton, Secretary dated August 30,
    1996 at 9 (RBOC [Ex Parte]{.underline} 8/30/96).

[^564]: [Inmate Services Order]{.underline}, 11 FCC Rcd at 7374. \"Cost
    pools\" are comprised of logical homogeneous groupings of costs that
    maximize the extent to which cost causative allocation factors can
    be used to divide costs between regulated and nonregulated
    activities. Implementation of Further Cost Allocation Uniformity,
    [Memorandum Opinion and Order]{.underline}, 8 FCC Rcd 4664 (1993).

[^565]: 47 C.F.R. § 64.904(b).

[^566]: 47 C.F.R. §§ 32.23(b), 32.27(c). In applying the affiliate
    transactions rules to asset transfers to operating divisions that
    maintain a separate set of books and do not jointly use assets or
    resources with the carrier, we have provided a safeguard to protect
    against a carrier that attempts to avoid our affiliate transactions
    rules by \"reincarnating a nonregulated affiliate as an operating
    division.\" [Joint Cost Reconsideration Order]{.underline}, 2 FCC
    Rcd at 6296.

[^567]: 26 C.F.R. § 1.170-1. [See]{.underline} [also,]{.underline}
    [Accounting Safeguards NPRM]{.underline} at para. 83.

[^568]: [See]{.underline} CPA Reply at 12-15.

[^569]: See GPCA Comments at 15-16; GPCA Reply at 13-14; Peoples Reply
    at 20-21. This conclusion is also supported by the APCC and GPCA [ex
    parte]{.underline} filing dated September 11, 1996 to the extent
    that the [ex parte]{.underline} filing relates to transfers to
    separate affiliates. Letter from Albert H. Kramer, Attorney for APCC
    and GPCA, to William F. Caton, Secretary, dated September 11, 1996
    (APCC & GPCA [Ex Parte]{.underline} 9/11/1996).

[^570]: [See]{.underline} 47 C.F.R. § 64.904(a).

[^571]: 47 C.F.R. § 64.904(b).

[^572]: [Democratic Central Committee v. Washington Metropolitan Area
    Transit Commission]{.underline}, 485 F.2d 786 (D.C.Cir. 1973),
    [cert.]{.underline} [denied]{.underline}, 415 U.S. 935 (1974)
    ([Democratic Central Committee]{.underline}).

[^573]: [See]{.underline}, [e.g]{.underline}., GPCA Comments at 16-17.

[^574]: [Joint Cost Reconsideration Order]{.underline}, 2 FCC Rcd at
    6295.

[^575]: [Conference Report]{.underline} at 43.

[^576]: We note that in the [Accounting Safeguards NPRM]{.underline}, we
    proposed changes to the affiliate transactions rules of Section
    32.27 of our rules. [See]{.underline} [Accounting Safeguards
    NPRM]{.underline} at paras. 70-88.

[^577]: [Ex Parte]{.underline} Letter from Albert Kramer, Counsel, APCC
    to William Caton, Acting Secretary, FCC (September 11, 1996) at 3.

[^578]: [See]{.underline} para. 145, above.

[^579]: S. 652, 104th Cong., 1st Sess., § 265(c) (1995). [See
    also]{.underline} RBOC Comments at 40, n. 53.

[^580]: 47 U.S.C. § 276(b)(1)(C).

[^581]: [See]{.underline} RBOC [Ex Parte]{.underline} 8/30/96 at 8.

[^582]: Ameritech Comments at 14.

[^583]: [Notice]{.underline} at para. 51.

[^584]: [Id]{.underline}.

[^585]: [Id]{.underline}.

[^586]: [Id]{.underline}.

[^587]: [Id]{.underline}. at para. 52.

[^588]: [Id]{.underline}.

[^589]: [Id]{.underline}. at para. 53.

[^590]: [Id]{.underline}. at para. 54.

[^591]: [Id]{.underline}.

[^592]: [Id]{.underline}.

[^593]: Florida PSC Comments at 7.

[^594]: USTA Comments at 5, n.2.

[^595]: [Id]{.underline}. at 9; GTE Reply at 8-10.

[^596]: Ameritech Comments at 14.

[^597]: One Call Comments at 9.

[^598]: MCI Comments at 17.

[^599]: GPCA Comments at 17.

[^600]: AT&T Reply at 27, n.70.

[^601]: CPA Reply at 8.

[^602]: GVNW Comments at 8.

[^603]: RBOC Comments at 31; GPCA Reply at 15.

[^604]: NECA Comments at 5, n. 19.

[^605]: Florida PSC Comments at 7.

[^606]: California PUC Comments at 15.

[^607]: USTA Reply at 7.

[^608]: USTA Comments at 9.

[^609]: Florida PSC Comments at 8; Ohio PUC Comments at 12.

[^610]: Ameritech Comments at 14; SW Bell Reply at 7-9.

[^611]: GPCA Reply at 17-19.

[^612]: USTA Comments at 10. [See also]{.underline} RBOC Comments at 32.

[^613]: SW Bell Reply at 7-8.

[^614]: Sprint Comments at 28.

[^615]: 47 C.F.R. § 69.104.

[^616]: [See]{.underline} Federal-State Joint Board on Universal
    Service, [NPRM and Order Establishing Joint Board]{.underline}, FCC
    96-93 at para. 114 (rel. March 8, 1996) (\"[Joint Board
    Notice]{.underline}\"). We note that pursuant to Section 254 of the
    Act, we have referred to the universal service joint board the
    matter of how to recover the interstate allocated portion of the
    subscriber loop costs. Federal‑State Joint Board on Universal
    Service, Notice of Proposed Rulemaking and Order Establishing Joint
    Board, CC Docket No. 96‑45, FCC 96‑93 (adopted and released on Mar.
    8, 1996). The decision to remove payphone costs from the CCL charge
    and the decision to impose a SLC to all subscriber lines that
    terminate at both LEC and competitive payphones was not referred to
    the universal service joint board.

[^617]: We recently reaffirmed a decision by the Common Carrier Bureau
    concluding that independent payphone providers should be classified
    as \"end users\" under our rules. C.F. Communications Corp. v.
    Century Telephone of Wisconsin, Inc., [Memorandum Opinion and
    Order]{.underline}, 10 FCC Rcd 9775 (1995), [petition for review
    filed]{.underline}, [C.F. Communications Corp. v. FCC and United
    States]{.underline}, No. 95-1563 (D.C. Cir. filed Nov. 6, 1995).
    Thus, independent payphone providers are required to pay a SLC for
    their use of common lines connected to the payphones they serve, but
    are not assessed a per-minute CCL charge.

[^618]: 47 U.S.C. § 276(b)(1)(B).

[^619]: 47 C.F.R. § 61.45(d)(1)(v).

[^620]: [See]{.underline} [Ameritech/SW Bell Waiver]{.underline} at
    para. 25.

[^621]: [Notice]{.underline} at para. 56.

[^622]: [Tonka Tools]{.underline}, note 489, above.

[^623]: [Notice]{.underline} at para. 55.

[^624]: AT&T Reply at 27; RBOC Comments at 32; California PUC Comments
    at 15; Florida PSC Comments at 8; USTA Comments at 10; MCI Comments
    at 15.

[^625]: RBOC Comments at 32.

[^626]: AT&T Reply at 27. With regard to bundling of AT&T payphones and
    phones services, MCI suggests that the Commission review the effect
    of this proposal after one year. MCI argues, however, that even if
    the Commission allows bundling, the payphone transmission service
    should be available separately. MCI Comments at 16.

[^627]: [Tonka Tools]{.underline}, note 489, above.

[^628]: Policy and Rules Concerning the Interstate, Interexchange
    Marketplace, [Notice of Proposed Rulemaking]{.underline}, CC Docket
    No. 96-61 (rel. Mar. 25, 1996) at para. 91 ([Interstate,
    Interexchange Marketplace Notice]{.underline}).

[^629]: [Notice]{.underline} at para. 55.

[^630]: [Interstate, Interexchange Marketplace Notice]{.underline} at
    para. 91.

[^631]: [Computer II]{.underline}, 77 FCC 2d at 438-447; 47 C.F.R. §
    64.702(e).

[^632]: 47 U.S.C. § 276 (b)(1)(C).

[^633]: 47 U.S.C. §  276(a).

[^634]: ^?^ [See]{.underline} [Amendment of Section 64.702 of the
    Commission\'s Rules and Regulations]{.underline} ([Computer
    III]{.underline}), CC Docket No. 85-229, Phase I, 104 FCC 2d 958
    (1986) ([Phase I Order]{.underline}), [recon]{.underline}., 2 FCC
    Rcd 3035 (1987) ([Phase I Reconsideration Order]{.underline}),
    [further recon]{.underline}., 3 FCC Rcd 1135 (1988) ([Phase I
    Further Reconsideration Order]{.underline}), [second further
    recon]{.underline}., 4 FCC Rcd 5927 (1989) ([Phase I Second Further
    Reconsideration Order]{.underline}); [Phase I Order]{.underline} and
    [Phase I Reconsideration Order]{.underline} [vacated]{.underline}
    [California v. FCC]{.underline}, 905 F.2d 1217 (9th Cir. 1990)
    ([California I]{.underline}); Phase II, 2 FCC Rcd 3072 (1987)
    ([Computer III Phase II Order]{.underline}), [recon]{.underline}., 3
    FCC Rcd 1150 (1988) ([Phase II Reconsideration Order]{.underline}),
    [further recon]{.underline}., 4 FCC Rcd 5927 (1989) ([Phase II
    Further Reconsideration Order]{.underline}); [Phase II
    Order]{.underline} [vacated]{.underline}, [California
    I]{.underline}, 905 F.2d 1217 (9th Cir. 1990); Computer III Remand
    Proceeding, 5 FCC Rcd 7719 (1990) ([ONA Remand Order]{.underline}),
    [recon]{.underline}., 7 FCC Rcd 909 (1992), [pets. for review
    denied]{.underline}, [California v. FCC]{.underline}, 4 F.3d 1505
    (9th Cir. 1993) ([California II]{.underline}); [Computer III Remand
    Proceedings: Bell Operating Company Sa]{.underline}feguards and Tier
    1 Local Exchange Company Safeguards, 6 FCC Rcd 7571 (1991) ([BOC
    Safeguards Order]{.underline}), [BOC Safeguards Order vacated in
    part and remanded]{.underline}, [California v. FCC]{.underline}, 39
    F.3d 919 (9th Cir. 1994) ([California III]{.underline}),
    [cert.]{.underline} [denied]{.underline}, 115 S.Ct. 1427 (1995).

[^635]: [Notice]{.underline} at para. 58.

[^636]: [Id]{.underline}.

[^637]: [Id]{.underline}. at para. 60.

[^638]: [Filing and Review of Open Network Architecture
    Plans]{.underline}, 4 FCC Rcd 1 (1988) ([BOC ONA
    Order]{.underline}), [recon]{.underline}., 5 FCC Rcd 3084 (1990)
    ([BOC ONA Reconsideration Order]{.underline}); 5 FCC Rcd 3103 (1990)
    ([BOC ONA Amendment Order]{.underline}), [erratum]{.underline}, 5
    FCC Rcd 4045, [pets. for review denied]{.underline}, [California v.
    FCC]{.underline}, 4 F.3d 1505 (9th Cir. 1993), [recon]{.underline}.,
    8 FCC Rcd 97 (1993) ([BOC ONA Amendment Reconsideration
    Order]{.underline}); 6 FCC Rcd 7646, 7649-50 (1991) ([BOC ONA
    Further Amendment Order]{.underline}); 8 FCC Rcd 2606 (1993) ([BOC
    ONA Second Further Amendment Order]{.underline}), [pet. for review
    denied]{.underline}, [California v. FCC]{.underline}, 4 F.3d 1505
    (9th Cir. 1993).

[^639]: [Phase I Order]{.underline}, 104 FCC 2d at 964-965.

[^640]: [See]{.underline} [Phase I Order]{.underline}, 104 FCC 2d at
    1036.

[^641]: Computer III Further Remand Proceedings: Bell Operating Company
    Provision of Enhanced Services, [Notice of Proposed
    Rulemaking]{.underline}, 10 FCC Rcd 8360, 8372, para. 17 (1995)
    (\"[Computer III Further Remand Proceedings]{.underline}\").

[^642]: [Id]{.underline}.

[^643]: [See]{.underline} Bell Atlantic\'s Notice and Petition for
    Removal of the Structural Separation Requirement and Waiver of
    Certain State Tariffing Requirements, CC Docket Nos. 90-623 and
    88-2, Phase I, 7 FCC Rcd 3877 (1992) ([Bell Atlantic
    Order]{.underline}); Southwestern Bell Telephone Company Notice and
    Petition for Removal of the Structural Separation Requirement and
    Waiver of Certain State Tariffing Requirements, CC Docket Nos.
    90-623 and 88-2, Phase I, 7 FCC Rcd 7294 (1992) ([SWBT
    Order]{.underline}); US West Notice and Petition for Removal of the
    Structural Separation Requirement and Waiver of Certain State
    Tariffing Requirements, CC Docket Nos. 90-623 and 88-2, Phase I, 7
    FCC Rcd 3639 (1992) ([US West Order]{.underline}); Ameritech
    Operating Companies Notice and Petition for Removal of the
    Structural Separation Requirement and Waiver of Certain State
    Tariffing Requirements, CC Docket Nos. 90-623 and 88-2, Phase I, 7
    FCC Rcd 4104 (1992) ([Ameritech Order]{.underline}); New York
    Telephone Company and New England Telephone Company Notice and
    Petition for Removal of the Structural Separation Requirement and
    Waiver of Certain State Tariffing Requirements, CC Docket Nos.
    90-623 and 88-2, Phase I, 7 FCC Rcd 8633 (1992) ([NYNEX
    Order]{.underline}); Pacific Bell and Nevada Bell Notice and
    Petition for Removal of the Structural Separation Requirement and
    Waiver of Certain State Tariffing Requirements, CC Docket Nos.
    90-623 and 88-2, Phase I, 8 FCC Rcd 3982 (1993) ([Pacific
    Order]{.underline}); BellSouth Corporation Notice and Petition for
    Removal of the Structural Separation Requirement and Waiver of
    Certain State Tariffing Requirements, CC Docket Nos. 90-623 and
    88-2, Phase I, 8 FCC Rcd 4864 (1993) ([BellSouth
    Order]{.underline}).

[^644]: [California v. FCC]{.underline}, 39 F.3d 919 (9th Cir. 1994)
    ([California III]{.underline}), [cert.]{.underline}
    [denied]{.underline}, 115 S.Ct. 1427 (1995).

[^645]: Regarding further proceedings on remand, [see Computer
    III]{.underline} Further Remand Proceedings: Bell Operating Company
    Provision of Enhanced Services, 10 FCC Rcd 8360 (1995).

[^646]: California PUC Comments at 17; Ameritech Comments at 15; One
    Call Comments at 9-10; USTA Comments at 10.

[^647]: Florida PSC Comments at 8.

[^648]: GPCA Comments at 8-12, 23-25.

[^649]: SW Bell Reply at 4-6.

[^650]: Ameritech Comments at 15-16; One Call Comments at 9-10.

[^651]: Inmate Coalition Comments at 22.

[^652]: USTA Reply at 7-8.

[^653]: GPCA Reply at 18; GPCA Comments at 26.

[^654]: Ohio PUC Comments at 13.

[^655]: AT&T Comments at 22; GPCA Comments at 23-25.

[^656]: PacTel Reply at 5-6.

[^657]: AT&T Comments at 23, n.47.

[^658]: One Call Comments at 10.

[^659]: GPCA Comments at 21.

[^660]: AT&T Comments at 22-3.

[^661]: [See]{.underline} American Telephone and Telegraph Company
    Petition for Limited Waiver of Comparably Efficient Interconnection
    Requirements of Third Computer Inquiry; [Report and
    Order]{.underline}, 8 FCC Rcd 6808 (1993).

[^662]: 47 U.S.C. § 276(b)(1)(C).

[^663]: [See]{.underline} [BOC ONA Order]{.underline}, 4 FCC Rcd at
    205-6; [BOC ONA Amendment Order]{.underline}, 5 FCC Rcd at 3117;
    [BOC ONA Further Amendment Order]{.underline}, 6 FCC Rcd at 7654-6.

[^664]: [BOC CPE Relief Order]{.underline}, 2 FCC Rcd at 157; [See
    also]{.underline} 3 FCC Rcd 22 (1987).

[^665]: [Computer III Phase II Order]{.underline}, 2 FCC Rcd at 3101. In
    1994, the Commission decided to apply the [Computer III]{.underline}
    and [ONA]{.underline} requirements to GTE Corporation. Application
    of Open Network Architecture and Nondiscrimination Safeguards to GTE
    Corporation, CC Docket No. 92-256, 9 FCC Rcd 4922 (1994).

[^666]: 47 U.S.C. §  276(b)(1)(C).

[^667]: [Id]{.underline}.

[^668]: [Phase I Order]{.underline}, 104 FCC 2d at 1039-1043.

[^669]: [Id]{.underline}. at 1040.

[^670]: [Id]{.underline}.

[^671]: [Id]{.underline}.

[^672]: 47 U.S.C. §  222. [See]{.underline} Implementation of the
    Telecommunications Act of 1996, Telecommunications Carriers\' Use of
    Customer Proprietary Network Information and Other Customer
    Information, [Notice of Proposed Rulemaking]{.underline}, CC Docket
    No. 96-115 (rel. May 17, 1996) ([CPNI NPRM]{.underline}).

[^673]: [CPNI NPRM]{.underline} at para. 37-8.

[^674]: The statute defines the term \"aggregate customer information\"
    as \"collective data that relates to a group or category of services
    or customers, from which individual customer identities and
    characteristics have been removed.\" 47 U.S.C. § 222(f)(2).

[^675]: [Computer III Phase II Order]{.underline}, 2 FCC Rcd at 3097.

[^676]: [CPNI NPRM]{.underline} at para. 37.

[^677]: [BOC Safeguards Order]{.underline}, 6 FCC Rcd at 7602-04.

[^678]: Amendment to Sections 64.702 of the Commission\'s Rules and
    Regulations (Third Computer Inquiry), [Report and
    Order]{.underline}, 2 FCC Rcd 3072, 3087-88 (1988). The network
    information subject to disclosure includes only network changes or
    new basic services that affect the interconnection of enhanced
    services with the network. [Id]{.underline}. at 3097. These network
    disclosure rules parallel those for CPE.

[^679]: [Computer III]{.underline}, 3 FCC Rcd 1150, 1164 (1988).

[^680]: [See]{.underline} [BOC ONA Reconsideration Order]{.underline}, 5
    FCC Rcd at 3093, 3096, Appendix B.

[^681]: 47 U.S.C. § 276(b)(1)(D); [See]{.underline} [United States v.
    Western Elec. Co.]{.underline}, 698 F. Supp. 348, 360 (D.D.C. 1988).

[^682]: [See]{.underline} Section III.B., above.

[^683]: 47 U.S.C. § 276(b)(1)(B) and (D)

[^684]: S. Conf. Rep. No. 104-230 at 44.

[^685]: [Notice]{.underline} at para. 71.

[^686]: [Id]{.underline}. at para. 72.

[^687]: [Id]{.underline}.

[^688]: RBOC Comments at 42; Ameritech Comments at 22.

[^689]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 26;
    Oncor Comments at 2-3.

[^690]: Oncor Comments at 11-13.

[^691]: RBOC Reply at 25; BellSouth Comments at 8.

[^692]: RBOC Comments at 41-42. [See]{.underline} [also]{.underline}
    USTA Comments at 11.

[^693]: Ameritech Comments at 20; RBOC Comments at 41-42.

[^694]: RBOC Comments at 41-42.

[^695]: [Id]{.underline}.; Ameritech Comments at 21-22.

[^696]: RBOC Comments at 42-43; BellSouth Comments at 7-8; Ameritech
    Comments at 21.

[^697]: [See]{.underline}, [e.g.]{.underline}, California PUC Comments
    at 18; Virginia SCC Comments at 3-4; Florida PSC Comments at 8-9;
    SDPOA Reply at 2.

[^698]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 24-27.

[^699]: APCC Comments at 42-43; New Jersey Payphone Comments at 16-17;
    AT&T Comments at 24-26; Oncor Comments at 6; CompTel Comments at 17.

[^700]: [Id]{.underline}.; [See]{.underline} [also]{.underline} CompTel
    Comments at 17-21.

[^701]: AT&T Comments at 25-26.

[^702]: [Id]{.underline}. at 24; APCC Comments at 42-43; CPA Comments at
    20; CompTel Comments at 17-21.

[^703]: WorldCom Comments at 22.

[^704]: AT&T Comments at 24; MCI comments at 19; Sprint Comments at
    29-30; CompTel Comments at 20-21.

[^705]: MCI Comments at 19; Oncor Comments at 6.

[^706]: Oncor Comments at 5-10; One Call Reply at 6.

[^707]: RBOC Reply at 26-27; BellSouth Comments at Appendix 1, p.1;
    BellSouth Reply at 3.

[^708]: BellSouth Comments at Appendix 1, p. 14-16.

[^709]: [Id]{.underline}.; BellSouth Reply at 3-4.

[^710]: BellSouth Reply at 4 and Exhibit A.

[^711]: [Id]{.underline}. at Exhibit A.

[^712]: GPCA Reply at 20 n.7 (referencing BellSouth Comments at
    Attachment 1, p. 15).

[^713]: RBOC Reply at 27; BellSouth Comments at Appendix 1, p. 8-16.

[^714]: BellSouth Reply at Appendix B.

[^715]: RBOC Comments at 43; Ameritech Comments at 25-28.

[^716]: RBOC Comments at 43.

[^717]: Ameritech Comments at 25-27.

[^718]: BellSouth Comments at 7, 9; Ameritech Comments at 19.

[^719]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 24;
    CompTel Comments at 21; MCI Comments at 19; Sprint Comments at
    29-30.

[^720]: [See]{.underline}, [e.g.]{.underline}, One Call Reply at 6-7;
    APCC Comments at 43-44; ACTEL Comments at 12.

[^721]: Peoples Reply at 22-23.

[^722]: California PUC Comments at 18; [see]{.underline}
    [also]{.underline} Virginia SCC Comments at 3-4.

[^723]: California PUC Comments at 18-19. [Also]{.underline} Florida PSC
    Comments at 9.

[^724]: BellSouth Comments at 8; RBOC Comments at 37-40; RBOC Reply at
    21-22, 29.

[^725]: Ameritech Comments at 25-26.

[^726]: [See]{.underline}, [e.g.]{.underline}, One Call Reply at 6-7;
    APCC Comments at 43-44; CPA Comments at 20-21; ACTEL Comments at
    11-12; GPCA Reply at 20-22.

[^727]: APCC Comments at 43-44.

[^728]: CPA Comments at 20-21; GPCA Comments at 10.

[^729]: CPA Comments at 20-21; One Call Reply at 6-7.

[^730]: Florida PSC Comments at 9.

[^731]: [See]{.underline}, [e.g.]{.underline}, Peoples Comments at 22.

[^732]: [Id]{.underline}.

[^733]: APCC Comments at 44; CompTel Comments at 21.

[^734]: CompTel Comments at 21.

[^735]: NJPA Comments at 17.

[^736]: AT&T Comments at 24. [See]{.underline} [also]{.underline} Oncor
    Comments at 7.

[^737]: RBOC Reply at 23-28.

[^738]: BellSouth Comments at 8; RBOC Reply at 29.

[^739]: AAAE Comments at 1-3; ACI-NA at 3-5; AHA TelePlan Comments at 1;
    Cleveland Clinic Foundation Comments at 1; NATSO Comments at 2-3.
    [See]{.underline} [also]{.underline} City of Kansas City, Missouri
    Comments at 1-3.

[^740]: [Id.]{.underline}; Admirals Club Comments at 1; AHA TelePlan
    Comments at 1; Greyhound Lines, Inc. Comments at 1; ARVC Comments at
    1-3.

[^741]: AAAE Comments at 1-3; ACI-NA Comments at 2-5; AHA TelePLAN
    Comments at 1.

[^742]: ARVC Comments at 1-3.

[^743]: [See]{.underline}, [e.g.]{.underline}, DFW Comments at 1.

[^744]: ACI-NA Comments at 5; [also]{.underline} DFW Comments at 1.

[^745]: RBOC Reply at 26 and n. 25.

[^746]: Ameritech Reply at 15.

[^747]: 47 U.S.C. § 276(b)(1)(D).

[^748]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 24-26;
    APCC Comments at 41-44.

[^749]: [Id]{.underline}.

[^750]: [See]{.underline}, [e.g.]{.underline}, MCI Comments at 19.

[^751]: [See]{.underline}, [e.g]{.underline}., [Ball Memorial Hospital,
    Inc. v. Mutual Hospital Insurance, Inc.]{.underline}, 784 F.2d 1325,
    1336 (7th Cir.) (Easterbrook, J.) (\"Market share is just a way of
    estimating market power, which is the ultimate consideration\").

[^752]: Competition in the Interstate Interexchange Marketplace, CC
    Docket No. 90-132, [Report and Order]{.underline}, FCC 91-251, 6 FCC
    Rcd 5880, 5891-92 (1991). [See]{.underline} [also]{.underline}
    Application of McCaw and AT&T, 9 FCC Rcd 5836, 5862 at para. 38
    (1994).

[^753]: We note that nothing in our regulations, or the antitrust laws,
    prevent a group of independent payphone service providers which do
    not possess market power, either individually or jointly, from
    combining their purchases to take advantage of volume discounts.
    [See]{.underline}, [e.g.]{.underline}, [Northwest Wholesale
    Stationers Inc. v. Pacific Stationery and Printing Co.]{.underline},
    472 U.S. 284, 295, 105 S.Ct. 2613, 2620 (1985) (recognizing that
    group purchasing may facilitate competition by enabling smaller
    retailers to reduce prices so as to compete more effectively with
    large retailers).

[^754]: \"It is axiomatic that the antitrust laws were passed for \'the
    protection of competition, not competitors.\'\" [Brooke Group, Ltd.
    v. Brown & Williamson Tobacco Corp.]{.underline}, 509 U.S. 209, 224,
    113 S.Ct. 2578, 2588 (1993) ([quoting]{.underline} [Brown Shoe Co.
    v. United States]{.underline}, 370 U.S. 294, 320, 82 S.Ct. 1502,
    1521 (1962)).

[^755]: Policy and Rules Concerning Rates for Competitive Common Carrier
    Services and Facilities Authorizations Thereof, CC Docket No.
    79-252, [Fourth Report and Order]{.underline}, FCC 83-481, 95 FCC 2d
    554, 558 (\"[Competitive Carrier Fourth Report and
    Order]{.underline}\") ([citing]{.underline} II P. Areeda & D.
    Turner, [Antitrust Law]{.underline} 322 (1978)).

[^756]: 1992 Merger Guidelines at ¶ 0.1. [See]{.underline}
    [also]{.underline} [Matsushita Elec. Industries Co., Ltd. v. Zenith
    Radio Corp.]{.underline}, 475 U.S. 574, 588-89 (1986); [Brooke Group
    Ltd.]{.underline}, above.

[^757]: [See]{.underline}, [e.g.]{.underline}, APCC Comments at 41.

[^758]: BellSouth Comments at Appendix 1, Table 2.

[^759]: [Id]{.underline}.

[^760]: GPCA Reply at 20 n.7.

[^761]: BellSouth Reply at Exhibit A.

[^762]: APCC refers to the BOCs being able to demand \"supracompetitive
    commission levels from carriers.\" APCC Comments at 42. This would
    require the BOCs to exercise monopsonistic market power over the
    IXCs. [See]{.underline}, 1992 Merger Guidelines at ¶ 0.1 (explaining
    that the effects of monopsony power are assessed in a manner
    analogous to monopoly power). Since, from a technical perspective,
    there is no difference between the interexchange facilities made
    available to residential or business customers and those made
    available for calls from payphones, the ability to demand
    \"supracompetitive\" prices from the IXCs would require a BOC to
    have market power in the IXC market as a whole. [See]{.underline}
    [Competitive Carrier Fourth Report and Order]{.underline}, 95 FCC 2d
    at 562-64 (viewing interexchange services as comprising a single
    market); [also]{.underline}, [McCaw]{.underline}, above, 9 FCC Rcd.
    at 5847, para. 14. That is clearly not the case here.
    [See]{.underline} RBOC Reply at 27 n.27 (noting that BOC payphone
    traffic only accounts for approximately \$1.9 billion, or less than
    3%, of the approximately \$67 billion interexchange market).

[^763]: In light of the changes taking place in the telecommunications
    industry, it is important to emphasize that market share and market
    concentration data, evaluated alone, may either understate or
    overstate the likelihood of firms being able to exercise market
    power in the future. We recognize that any evaluation of market
    power based upon current market shares may underestimate the BOCs\'
    potential to exercise some market power if allowed to engage in
    presubscription, since even they readily admit that this ability
    will make them more effective competitors. At the same time, other
    changes to the industry which we are undertaking both in this
    rulemaking and other rulemakings implementing the 1996 Act, may
    greatly reduce the BOCs\' ability to maintain market share,
    particularly in the provision of local service. [See]{.underline},
    [e.g.]{.underline}, [Local Competition Order]{.underline}, note 508,
    above.

[^764]: ^?^ 1992 Merger Guidelines at para. 3.0. [See]{.underline}
    [also]{.underline} [McCaw]{.underline}, [supra]{.underline}, 9 FCC
    Rcd. at 5868, para. 51:

    > A company\'s high market share may be inoffensive if the relevant
    > market has many potential entrants \-- where, if the company
    > attempted to raise price, lower quality, or fail to innovate, a
    > new competitor could enter the market promptly, offer competitive
    > prices and quality, and thus frustrate the first company\'s
    > anticompetitive plan.

[^765]: 1992 Merger Guidelines at para. 3.0.

[^766]: [Id]{.underline}.

[^767]: [See]{.underline}, [e.g.]{.underline}, BellSouth Comments at
    Attachment 1.

[^768]: [See]{.underline}, [e.g.]{.underline}, BellSouth Reply at
    Attachment A.

[^769]: Peoples Comments at 4. [See]{.underline} BellSouth Comments at
    Attachment, p. 15 (stating that there are approximately 1.5 million
    payphone stations, excluding semi-public payphones).

[^770]: [See]{.underline}, [e.g.]{.underline}, [Ex]{.underline}
    [parte]{.underline} letter from Ben G. Almond, BellSouth, to William
    Caton, Acting Secretary, FCC, August 15, 1996; Sprint Comments at 2
    (noting that Sprint currently has 50,000 payphones)..

[^771]: AT&T Comments at 25. [See]{.underline} [also]{.underline} 1992
    Merger Guidelines at para. 1.32.

[^772]: Peoples Comments at 9.

[^773]: For the same reasons, alternative forms of mobile
    communications, including cellular telephones, are an adequate
    substitute for payphones for many end users. [See]{.underline}
    [McCaw]{.underline}, [supra]{.underline}, at 5847, para. 14 (finding
    anecdotal evidence of substitution occurring between interexchange
    calls from cellular telephones and interexchange operator-assisted
    and credit card \"wireline\" calls). Thus, the proliferation of such
    telephones acts as another constraint on the ability to sustain
    supracompetitive prices for payphone services.

[^774]: [See]{.underline}, [generally]{.underline}, [U.S. v. Western
    Electric Co.]{.underline}, 993 F.2d 1572, 1578 (D.C. Cir.),
    [cert.]{.underline} [denied]{.underline} [sub]{.underline}
    [nom.]{.underline} [Consumer Federation of America v.
    U.S.]{.underline}, 510 U.S. 984 (1993) (examining the BOCs\' ability
    to use monopoly power over local exchange service in order to raise
    the costs, and thereby reduce the output, of any rival information
    services provider).

[^775]: [See]{.underline}, [e.g.]{.underline}, MCI Comments at 19; Oncor
    Comments at 6.

[^776]: 47 U.S.C. § 276(b)(1)(B).

[^777]: For purposes of market power analysis, we would be concerned
    that the improper allocation of costs would enable the BOC to price
    its payphone services at predatory levels ([i.e.]{.underline} below
    the cost incurred to provide those services), drive out its
    competitors, and then raise prices above competitive levels. As
    discussed above, however, we have determined that ease of entry and
    other factors make it highly unlikely that a BOC could recoup the
    costs of such predation through sustained supracompetitive prices.
    [See]{.underline} paras. 229 - 232, above. [See]{.underline}
    [also]{.underline} [Brooke Group Ltd.]{.underline}, 113 S.Ct. at
    2588 (\"Recoupment is the ultimate objective of an unlawful
    predatory pricing scheme; it is the means by which a predator
    profits from predation\").

[^778]: [See]{.underline} 47 U.S.C. § 276(b)(1)(C).

[^779]: [See]{.underline} para. 199, above.

[^780]: [See]{.underline} paras. 202 - 206, above.

[^781]: [See]{.underline} para. 199, above. [See]{.underline}
    [also]{.underline} [California III]{.underline}, 39 F.3d at 927-929.

[^782]: We also note that these nonstructural safeguards are sufficient,
    in conjunction with other requirements of the 1996 Act, to address
    the concerns raised by California PUC. [See]{.underline} California
    PUC Comments at 18-19. [See]{.underline} [also]{.underline}
    Implementation of the Non-Accounting Safeguards of Sections 271 and
    272 of the Communications Act of 1934, as amended, CC Docket No.
    96-149, [Notice of Proposed Rulemaking]{.underline}, FCC 96-308
    (rel. July 18, 1996) ([Non-Accounting Safeguards NPRM]{.underline}).
    Accordingly, we decline to adopt the recommendation of California
    PUC to grant the states the authority to implement further
    restrictions.

[^783]: [See]{.underline}, [e.g.]{.underline}, Peoples Comments at 22;
    APCC Comments at 43-44.

[^784]: [See]{.underline} para. 237, above.

[^785]: [See]{.underline}, [e.g.]{.underline}, 47 U.S.C. §§ 271 and 272.

[^786]: [See]{.underline} paras. 200 - 205, above.

[^787]: [See]{.underline}, [e.g.]{.underline}, APCC Comments at 43-44;
    One Call Reply at 6-7.

[^788]: We also note that our conclusion here is consistent with the
    statutory requirement to ensure that payphone owners are fairly
    compensated for each and every call made from their payphones. Sec.
    276(b)(1)(A). While this issue is addressed more specifically at
    paras. 48 through 54, above, the record reflects that a payphone
    owner\'s ability to influence the decision of presubscribed
    interLATA carrier is a contributing factor to the revenues earned by
    that payphone owner. Indeed, BOC, IXC and independent payphone
    provider commenters all recognize that the ability to aggregate
    payphone traffic strengthens the PSP\'s ability to negotiate low
    rates from carriers. [See]{.underline}, [e.g.]{.underline}, RBOC
    Comments at 42; APCC Comments at 42-43; AT&T Comments at 25.
    [See]{.underline} [also]{.underline} [Ex]{.underline}
    [parte]{.underline} letter from Michael Kellogg, Counsel, RBOC
    Coalition, to William Caton, Acting Secretary, FCC, August 29, 1996
    at Attachment 1, p.1 (asserting that \"RBOC participation in the
    selection of the interLATA carrier is critical to the Commission\'s
    per-call compensation scheme\").

[^789]: S. Conf. Rep. 104-230 at 44.

[^790]: [See]{.underline} Ameritech Comments at 24.

[^791]: APCC Comments at 42; MCI Comments at 19.

[^792]: [See]{.underline} BellSouth Comments at 9.

[^793]: 47 U.S.C. §201(b).

[^794]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 24;
    CompTel Comments at 21.

[^795]: 47 U.S.C. § 276(b)(1)(D).

[^796]: [See]{.underline} 47 U.S.C. §153(46). [See]{.underline}
    [also]{.underline} [Non-Accounting Safeguards NPRM]{.underline}.

[^797]: [See]{.underline} [Ex]{.underline} [parte]{.underline} letter
    from, Ben G. Almond, BellSouth, to William F. Caton, Acting
    Secretary, FCC, filed in CC Docket 96-128, August 8, 1996.

[^798]: [See]{.underline} [Ex]{.underline} [parte]{.underline} letter
    from Ben G. Almond, BellSouth, to William F. Caton, Acting
    Secretary, FCC, filed in CC Docket No. 96-128, August 16, 1996, at
    Attachment p.2.

[^799]: We have previously defined \"resale\" as \"an activity wherein
    one entity subscribes to the communications services and facilities
    of another entity and then reoffers communications services and
    facilities to the public (with or without \"adding value\") for
    profit.\" Regulatory Policies Concerning Resale and Shared Use of
    Common Carrier Services and Facilities, Docket No. 20097, [Report
    and Orde]{.underline}r, 60 F.C.C. 2d 261, 271 (1976).
    [Also]{.underline} Interconnection and Resale Obligations Pertaining
    to Commercial Mobile Radio Services, CC Docket No. 94-54, [First
    Report and Order]{.underline}, FCC 96-263 (July 12, 1996).

[^800]: 47 U.S.C. §276(b)(1)(D).

[^801]: Our conclusion here is underscored by the language of the
    Conference Report which describes Section 276(b)(1)(D) as providing
    the BOCs the same rights as independent payphone providers \"in
    negotiating with the interLATA carriers for their payphones.\" S.
    Conf. Rep. 104-230 at 43-44.

[^802]: [See]{.underline} 47 U.S.C. §271(a): \"Neither a Bell operating
    company, nor any affiliate of a Bell operating company, may provide
    interLATA services except as provided in this section.\"
    [See]{.underline} BellSouth Comments at 9 (\"BellSouth recognizes,
    of course, that nothing in Section 276 shall act to shortcut the
    requirements of Section \[sic\] before a BOC\'s long distance
    affiliate can offer service in a particular state.\")

[^803]: 47 U.S.C. §153(46) (emphasis added).

[^804]: Bell Atlantic has filed an [ex]{.underline} [parte]{.underline}
    letter which is in agreement with the our conclusion here.
    [See]{.underline} [Ex]{.underline} [parte]{.underline} letter from
    Marie Breslin, Bell Atlantic, to William Caton, Acting Secretary,
    FCC, filed in CC Docket No. 96-128, August 28, 1996.

[^805]: [Notice]{.underline} at para. 73.

[^806]: [Id.]{.underline}

[^807]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 27;
    CompTel Comments at 21; RBOC Comments at 45.

[^808]: Oncor Comments at 13-14.

[^809]: RBOC Comments at 45.

[^810]: Sprint Comments at 30.

[^811]: AT&T Comment at 27. [See]{.underline} [also]{.underline} Oncor
    Comments at 14.

[^812]: ACI-NA Comments at 4.

[^813]: CompTel Comments at 22.

[^814]: AT&T Comments at 27.

[^815]: Metropolitan Washington Reply at 6-7.

[^816]: [Id]{.underline}.

[^817]: [See]{.underline}, Oncor Comments at 13-14.

[^818]: [Compare]{.underline} AT&T Comments at 27; RBOC Comments at 45.
    [See]{.underline} [also]{.underline} Metropolitan Washington Reply
    at 6-7.

[^819]: 47 U.S.C. §201(b).

[^820]: 47 U.S.C. § 276(b)(1)(E).

[^821]: [Notice]{.underline} at para. 75.

[^822]: [Id]{.underline}.

[^823]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 28; MCI
    Comments at 19; ACI-NA Comments at 4; Florida PSC Comments at 9;
    RBOC Comments at 43-44; APCC Comments at 45-46; ACTEL Comments at
    12; NJPA Comments at 18; SCPCA Comments at 8.

[^824]: [See]{.underline}, [e.g.]{.underline}, Florida PSC Comments at
    9; APCC Comments at 45-46; California PUC Comments at 19; Sprint
    Comments at 31.

[^825]: AT&T Comments at 28; MCI Comments at 19; SCPCA Comments at 8.

[^826]: AT&T Comments at 28.

[^827]: [Id]{.underline}.

[^828]: Florida PSC Comments at 9.

[^829]: RBOC Comments at 43-44.

[^830]: [Id]{.underline}. [See]{.underline} Implementation of the Local
    Competition Provisions of the Telecommunications Act of 1996, CC
    Docket No. 96-98, [Second Report and Order and Memorandum Opinion
    and Order]{.underline}, FCC 96-333 (rel. Aug. 8, 1996) (\"[Local
    Competition Second Order]{.underline}\").

[^831]: ACI-NA Comments at 4.

[^832]: APCC Comments at 45-46; NJPA Comments at 18.

[^833]: SCPCA Comments at 8.

[^834]: With respect to dialing parity requirements for intraLATA
    carriers presubscribed to payphones, [see]{.underline} paras. 291 -
    293, below (deferring to the Section 251(b) rulemaking on dialing
    parity with respect to technical and timing requirements concerning
    dialing parity for payphones).

[^835]: [See]{.underline} Amendment of Policies and Rules Concerning
    Operator Service Providers and Call Aggregators,CC Docket No.
    94-158, [Report and Order and Further Notice of Proposed
    Rulemaking]{.underline}, 11 FCC Rcd 4532 (1996). These standards
    require aggregators and operator service providers to ensure
    immediate connection of emergency calls to the proper service for
    the reported location of the emergency, if known, and, if not known,
    for the originating location of the call. 47 C.F.R. §64.706.

[^836]: [See]{.underline} para. 277, below.

[^837]: We are addressing similar concerns in a separate rulemaking
    regarding enhanced 911 emergency services. [See]{.underline} [911
    Notice]{.underline}.

[^838]: 47 U.S.C. § 276(c).

[^839]: The Commission also has general authority to preempt state
    regulation of intrastate communications services where such
    regulation would thwart or impede the Commission\'s exercise of its
    lawful authority over interstate communications services, such as
    when it is not \"possible to separate the interstate and intrastate
    portions of the asserted FCC regulation.\" [Louisiana Public Service
    Commission v. FCC]{.underline}, 476 U.S. 355, 375 n. 4 (1986).

[^840]: Florida PSC Comments at 9.

[^841]: [See]{.underline} S. Conf. Rep. 104-230 at 44 (House amendment
    provided that \"\[l\]ocation providers prospectively also have
    control over the ultimate choice of interLATA and intraLATA carriers
    in connection with their choice of payphone service providers\").

[^842]: 47 U.S.C. §201(b). [See]{.underline} discussion at para. 242,
    above.

[^843]: 47 U.S.C. § 276(b)(2).

[^844]: [See]{.underline} S. Conf. Rep. 104-230 at 43.

[^845]: [Notice]{.underline} at paras. 77-78.

[^846]: [Id]{.underline}. at paras. 78-81.

[^847]: [Id]{.underline}.

[^848]: [Id]{.underline}. at para. 80.

[^849]: [Id]{.underline}.

[^850]: [Id.]{.underline} at para. 82. [See]{.underline} 47 U.S.C. §
    276(b)(2).

[^851]: [Notice]{.underline} at para. 82.

[^852]: [See]{.underline}, [e.g.]{.underline}, New York City Comments at
    3; Ohio PUC Comments at 15; CPA Comments at 21; Ameritech Comments
    at 29; New Jersey DRA at 3.

[^853]: New York City Comments at 3.

[^854]: [Id]{.underline}.; [also]{.underline} Maine PUC Comments at 10.

[^855]: Idaho PUC Comments at 1.

[^856]: New Jersey DRA Comments at 3.

[^857]: Puerto Rico Telephone Comments at 2.

[^858]: [See]{.underline}, [e.g.]{.underline}, New Jersey DRA Comments
    at 3; GVNW Comments at 8-9; Sprint Comments at 31-32; MCI Comments
    at 20; Texas PUC Comments at 5; GTE Comments at 16-17.

[^859]: MCI Comments at 20. [See]{.underline} [also]{.underline} Sprint
    Comments at 31-32.

[^860]: Iowa Utilities Board Comments at 4. [See]{.underline}
    [also]{.underline} US West Reply at 6.

[^861]: [See]{.underline}, [e.g.]{.underline}, APCC Comments at 47; RBOC
    Comments at 46; CPA Comments at 22; Maine PUC Comments at 11-12; New
    Jersey DRA Comments at 4; AT&T Reply at 28; NTCA Reply at 7.

[^862]: California PUC Comments at 20-21; Maine PUC Comments at 11-12;
    Ohio PUC Comments at 16-17; Texas PUC Comments at 5; Idaho PUC
    Comments at 1-2; New Jersey DRA Comments at 4; New York DPS Comments
    at 8; Virginia SCC Comments at 4; [also]{.underline}, New York City
    Comments at 4-8; Puerto Rico Telephone Comments at 1-4.

[^863]: California PUC Comments at 20; Ohio PUC Comments at 16-17; New
    York City Comments at 5-7; Texas PUC Comments at 5.

[^864]: Ohio PUC Comments at 16; Idaho PUC Comments at 1; Missouri PSC
    Reply at 3.

[^865]: California PUC Comments at 20

[^866]: [Id]{.underline}.

[^867]: CPA Comments at 21-24.

[^868]: RBOC Comments at 47.

[^869]: [Id]{.underline}. at 46-47; Ameritech Comments at 29-31; CPA
    Comments at 22.

[^870]: RBOC Comments at 46-47.

[^871]: 47 U.S.C. § 276(b)(2).

[^872]: RBOC Comments at 46-47; Ameritech Comments at 29-30.

[^873]: Ameritech Comments at 29-30.

[^874]: RBOC Comments at 46-47; Ameritech Comments at 32.

[^875]: RBOC Comments at 46.

[^876]: Oklahoma CC Comments at 4. [See]{.underline} [also]{.underline}
    New Jersey DRA Comments at 3-4; New York DPS Comments at 8.

[^877]: Puerto Rico Telephone Comments at 3-4.

[^878]: GVNW Comments at 8-10.

[^879]: APCC Comments at 50-51.

[^880]: CPA Comments at 22.

[^881]: [Id]{.underline}. at 22-23; APCC Comments at 50-51.

[^882]: [See]{.underline}, [e.g]{.underline}., Maine PUC Comments at 11;
    New York City Comments at 9; Ohio PUC Comments at 17; Texas PUC
    Comments at 5. [See]{.underline} [also]{.underline}, APCC Comments
    at 47.

[^883]: Maine PUC Comments at 12.

[^884]: [Id]{.underline}.

[^885]: [Id.]{.underline}; Ameritech Comments at 32; [also]{.underline}
    USTA Comments at 11; NTCA Comments at 7; GTE Comments at 16-17.

[^886]: RBOC Reply at 33 (noting, however, that California\'s existing
    system should be grandfathered because it works due to the state\'s
    uniquely competitive factors).

[^887]: [Id]{.underline}.

[^888]: Puerto Rico Telephone Reply at 4-5; NTCA Reply at 7.
    [See]{.underline} [also]{.underline} NECA Comments at 6-7.

[^889]: NECA Comments at 6-7.

[^890]: APCC Comments at 47-51; [also]{.underline} GPCA Reply at 22.

[^891]: CPA Comments at 24.

[^892]: GTE Comments at 16-17.

[^893]: [Id]{.underline}.

[^894]: SW Bell Comments at 8.

[^895]: 47 U.S.C. § 276(b)(2). [See]{.underline} S. Conf. Report 104-230
    at 43.

[^896]: [See]{.underline}, [e.g.]{.underline}, New Jersey DRA Comments
    at 3-4; New York City Comments at 3.

[^897]: [See]{.underline}, [e.g.]{.underline}, New York City Comments at
    3; Puerto Rico Telephone Comments at 1-4; Idaho PUC Comments at 1.

[^898]: [See]{.underline}, [e.g.]{.underline}, Idaho PUC Comments at
    1-2.

[^899]: [See]{.underline} 47 U.S.C. § 276(b)(1)(B).

[^900]: [See]{.underline} NTCA Comments at 6-7 (describing several state
    requirements for the provision of payphone service where it might
    otherwise not exist); [also]{.underline} Missouri PSC Reply at 3;
    Ohio PUC Comments at 16-17; California PUC Comments at 20; Idaho PUC
    Comments at 1.

[^901]: [See]{.underline}, [e.g.]{.underline}, Idaho PUC Comments at
    1-2; New York DPS Comments at 8; Maine PUC Comments at 11.

[^902]: [See]{.underline}, [e.g.]{.underline}, California PUC Comments
    at 20-21; CPA Comments at 22-24; RBOC Comments at 47, n. 62; SDPOA
    Reply at 3.

[^903]: CPA Comments at 22-24; SDPOA Comments at 3.

[^904]: CPA Comments at 23.

[^905]: CPA Comments at 22-24 (stating that less than 2,000 of the
    200,000 payphones in the state, or less than one percent, were found
    to have met these criteria).

[^906]: [See]{.underline} RBOC Comments at 47, n. 62; US West Reply at
    6;

[^907]: [See]{.underline}, [e.g.]{.underline}, Missouri PSC Comments at
    3; Ohio PUC Comments at 16.

[^908]: RBOC Comments at 46.

[^909]: 47 U.S.C. § 276(b)(2).

[^910]: S. Conf. Rep. 104-230 at 43.

[^911]: [See]{.underline} CPA Comments at 23.

[^912]: We note that public interest payphones are distinct from some
    public payphones that are classified by various states as
    \"semi-public\" payphones. Semi-public payphones tend to be
    payphones placed in locations, at the request of the premises owner,
    that do not generate significant amounts of traffic.
    [See]{.underline} RBOC Comments at 48-49. The LEC providing the
    semi-public payphone typically receives the coin revenues from the
    payphone, as well as a monthly fee discounted from the rate for a
    business line.

[^913]: 47 U.S.C. § 276(b)(3).

[^914]: [See]{.underline} 47 U.S.C. § 276(b)(1)(B) & (b)(3)

[^915]: State programs supporting public interest payphones are also
    subject to the provisions of Section 253(b) of the 1996 Act which
    requires that such a program be implemented on a \"competitively
    neutral basis.\" 47 U.S.C. §253(b). One means of achieving a
    competitively neutral process is by choosing the payphone services
    provider for public interest payphone locations through a
    competitive bidding process, [i.e]{.underline}, whereby the location
    is awarded to the PSP bidding to serve the location for the lowest
    subsidy level. [See]{.underline}, [e.g.]{.underline}, RBOC Comments
    at 46-47; CPA Comments at 24 (suggesting an alternative whereby a
    payphone provider could seek subsidy support for a particular
    location, but only through an auction whereby the right and
    obligation to provide a payphone at the location would be given to
    the PSP bidding the lowest subsidy amount). Alternatively, a funding
    program, like California\'s, which relies upon levies on all
    payphone service providers in the state, may be appropriate to the
    extent that it treats all PSPs, including LECs, in a competitively
    neutral manner and eliminates subsidies from local access charges.
    [See]{.underline} paras. 269 and 277, above.

[^916]: [See]{.underline}, [e.g.]{.underline}, RBOC Comments at 46.

[^917]: ^?^ Section 254(f) provides:

    > \(f\) State Authority. - A State may adopt regulations not
    > inconsistent with the Commission\'s rules to preserve and advance
    > universal service. Every telecommunications carrier that provides
    > intrastate telecommunications services shall contribute, on an
    > equitable and nondiscriminatory basis, in a manner determined by
    > the State to the preservation and advancement of universal service
    > in that State. A State may adopt regulations to provide for
    > additional definitions and standards to preserve and advance
    > universal service within that State only to the extent that such
    > regulations adopt additional specific, predictable, and sufficient
    > mechanisms to support such definitions or standards that do not
    > rely on or burden Federal universal service support mechanisms.

    47 U.S.C. §254(f).

[^918]: [See]{.underline} [Joint Board Notice]{.underline} at para. 57,
    n. 128.

[^919]: 47 U.S.C. §254(f).

[^920]: [Id]{.underline}.

[^921]: 47 U.S.C. §254(c)(1)(A) and (D) (emphasis added).
    [See]{.underline} [Joint Board Notice]{.underline} at para. 9.

[^922]: [See]{.underline} Maine PUC Comments at 12; New Jersey DRA
    Comments at 3; Texas PUC Comments at 5; Sprint Comments at 31-32; .

[^923]: [See]{.underline} para. 60, above.

[^924]: 47 U.S.C § 276(b)(2).

[^925]: [Notice]{.underline} at para. 84. Section 251(b)(3) states that
    all LECs have the duty to \"provide dialing parity to competing
    providers of telephone exchange service and telephone toll
    service.\" 47 U.S.C. §251(b)(3).

[^926]: [Id.]{.underline} [See]{.underline} 47 U.S.C. §153(15) (\"The
    term \'dialing parity\' means that a person that is not an affiliate
    of a local exchange carrier is able to provide telecommunications
    services in such a manner that customers have the ability to route
    automatically, without the use of any access code, their
    telecommunications to the telecommunications services provider of
    the customer\'s designation among 2 or more telecommunications
    services providers (including such local exchange carrier)\").

[^927]: [Notice]{.underline} at para. 84.

[^928]: AT&T Comments at 29; MCI Comments at 20; Sprint Comments at 32;
    Virginia SCC Comments at 4.

[^929]: RBOC Comments at 43-44.

[^930]: Florida PSC Comments at 10.

[^931]: GVNW Comments at 10.

[^932]: AT&T Comments at 28 n.51.

[^933]: RBOC Reply at 31-32.

[^934]: [Id.]{.underline}

[^935]: AT&T Comments at 29; MCI Comments at 20.

[^936]: Sprint Comments at 32.

[^937]: Ameritech Comments at 33.

[^938]: [Id]{.underline}. at 33-34.

[^939]: [Id.]{.underline}

[^940]: [Local Competition Second Orde]{.underline}, at para. 9. We also
    noted in that Order that Section 251(b)(3) creates a duty to provide
    dialing parity with respect to all telecommunications services, and
    does not limit the types of traffic or services for which dialing
    parity must be provided. [Id]{.underline}. at para. 12.

[^941]: [See]{.underline} [Id]{.underline}. at 2-5, 14-45. In general,
    we adopted in that order a dialing parity schedule that requires
    each LEC, including a BOC, to implement toll dialing parity no later
    than February 8, 1999; requires each LEC, including a BOC, to
    provide toll dialing parity throughout a state coincident with its
    provision of in-region, interLATA or in-region, interstate toll
    service in that state. We also require all LECs, other than BOCs,
    that are either already offering or plan to begin to provide
    in-region, interLATA or in-region, interstate toll service before
    August 8, 1997, to implement toll dialing parity by August 8, 1997.
    We also note in that Order that Section 271 of the 1996 Act requires
    BOCs to provide intraLATA dialing parity throughout a state
    coincident with the exercise of their authority to offer interLATA
    services originating within the state. [See]{.underline} 47 U.S.C.
    §271(e)(2)(A).

[^942]: [Notice]{.underline} at para. 85.

[^943]: [Id.]{.underline}

[^944]: [See]{.underline}, [e.g.]{.underline}, Actel Comments at 12-13;
    Ameritech Comments at 37; California PUC Comments at 21; GVNW
    Comments at 10-11; Idaho PUC Comments at 2-3; Indiana URC Comments
    at 6-7; MCI Comments at 20-21; Ohio PUC Comments at 17-18; Oklahoma
    CC Comments at 4; RBOC Comments at 49; Scherers Comments at 3;
    Sprint Comments at 33; Texas PUC Comments at 5-6; Virginia SCC
    Comments at 4.

[^945]: Ohio PUC Comments at 18.

[^946]: [See]{.underline}, [e.g.]{.underline}, California PUC Comments
    at 21; Indiana URC Comments at 6; MCI Comments at 20-21; Sprint
    Comments at 33; Texas PUC Comments at 5.

[^947]: [See]{.underline}, [e.g.]{.underline}, Ameritech Comments at 37;
    GVNW Comments at 10; Idaho PUC Comments at 3; Indiana URC Comments
    at 6; RBOC Comments at 49; Scherers Comments at 3; Sprint Comments
    at 33; Texas PUC Comments at 6.

[^948]: Sprint Comments at 33.

[^949]: Indiana URC Comments at 7; MCI Comments at 21; Scherers Comments
    at 3.

[^950]: MCI Comments at 21; Scherers Comments at 3.

[^951]: Sprint Comments at 33.

[^952]: [Notice]{.underline} at para. 87.

[^953]: 47 U.S.C. § 226(e).

[^954]: 47 C.F.R. §  64.704(b)(2).

[^955]: 47 U.S.C. § 276(b).

[^956]: Oncor Petition at 1.

[^957]: See MCI Comments on Oncor\'s Petition at 2-3; Comments of APCC
    on Oncor\'s Petition at 2.

[^958]: [See]{.underline} 47 C.F.R. § 1.49. We require, however, that a
    summary be included with all comments, although a summary that does
    not exceed three pages will not count toward the page limits. The
    summary may be paginated separately from the rest of the pleading
    ([e.g.]{.underline}, as \"i, ii\"). [Id]{.underline}.

[^959]: [Notice of Office of Management and Budget Action]{.underline},
    (OMB No. 3060-0721) (Released September 8, 1996).

[^960]: [Notice of Office of Management and Budget Action]{.underline},
    (OMB No. 3060-0722) (Released August 26, 1996).

[^961]: [Notice of Office of Management and Budget Action]{.underline},
    (OMB No. 3060-0725) (Released August 26, 1996).

[^962]: [Notice of Office of Management and Budget Action]{.underline},
    (OMB No. 3060-0719) (Released August 26, 1996).

[^963]: [Notice of Office of Management and Budget Action]{.underline},
    at 2 (OMB No. 3060-0723) (Released August 29, 1996).

[^964]: [Notice of Office of Management and Budget Action]{.underline},
    at 2 (OMB No. 3060-0724) (Released August 29, 1996).

[^965]: [Notice of Office of Management and Budget Action]{.underline},
    at 2 (OMB No. 3060-0726) (Released August 29, 1996).

[^966]: [Notice]{.underline} at paras. 95-102.

[^967]: Subtitle II of the CWAAA is \"The Small Business Regulatory
    Enforcement Fairness Act of 1996\" (\"SBREFA\"), codified at 5
    U.S.C. § 601 [et]{.underline} [seq]{.underline}.

[^968]: 47 U.S.C. § 276(b)(1)(A).

[^969]: 47 U.S.C. § 276(b)(1)(B).

[^970]: 47 U.S.C. § 276(b)(1)(C).

[^971]: 47 U.S.C. § 276(b)(1)(D).

[^972]: 47 U.S.C. § 276(b)(1)(E).

[^973]: 47 U.S.C. § 276(b)(2).

[^974]: 47 U.S.C. § 276(b)(1).

[^975]: Frontier Comments at 2.

[^976]: [See]{.underline} 5 U.S.C. § 601(3) (incorporating by reference
    the definition of \"small business concern\" in 5 U.S.C. § 632).

[^977]: 15 U.S.C. § 632. [See]{.underline}, [e.g]{.underline}., [Brown
    Transport Truckload, Inc. v. Southern Wipers, Inc]{.underline}., 176
    B.R. 82 (N.D. Ga. 1994).

[^978]: 13 C.F.R. § 121.201.

[^979]: [See]{.underline} 5 U.S.C. § 605(b).

[^980]: [See]{.underline}, [e.g]{.underline}., Expanded Interconnection
    with Local Telephone Company Facilities, [Supplemental Notice of
    Proposed Rulemaking]{.underline}, 6 FCC Rcd 5809 (1991); MTS and
    WATS Market Structure, [Report and Order]{.underline}, 2 FCC Rcd
    2953, 2959 (1987) (citing MTS and WATS Market Structure, [Third
    Report and Order]{.underline}, 93 F.C.C.2d 241, 338-39 (1983)).

[^981]: [See]{.underline}, [e.g]{.underline}., Implementation of
    Sections of the Cable Television Consumer Protection Act of 1992:
    Rate Regulation, [Sixth Report and Order and Eleventh Order on
    Reconsideration]{.underline}, 10 FCC Rcd 7393, 7418 (1995).

[^982]: The Small Business Administration (SBA), the Rural Telephone
    Coalition (Rural Tel. Coalition), and CompTel maintain that the
    Commission violated the RFA when it failed to include small
    incumbent LECs in its IRFA without first consulting SBA to establish
    a definition of \"small business.\" [See]{.underline} [Local
    Competition Order]{.underline} at paras. 1328-1330.

[^983]: [See]{.underline} 13 C.F.R. § 121.210 (SIC 4813).

[^984]: United States Department of Commerce, Bureau of the Census,
    [1992 Census of Transportation, Communications, and Utilities:
    Establishment and Firm Size]{.underline}, at Firm Size 1‑123 (1995)
    ([1992 Census]{.underline}).

[^985]: 15 U.S.C. § 632(a)(1).

[^986]: 13 C.F.R. § 121.201, Standard Industrial Classification (SIC)
    Code 4812.

[^987]: [1992 Census]{.underline}, [supra]{.underline}, at Firm
    Size 1‑123.

[^988]: All carriers that provide interstate service are required to pay
    into the TRS Fund, which provides access to Telecommunications
    Device for the Deaf (TDD). [See]{.underline} generally, 47 C.F.R. §§
    64.601 [et]{.underline} [seq]{.underline}.

[^989]: Federal Communications Commission, CCB, Industry Analysis
    Division, [Telecommunications Industry Revenue: TRS Fund Worksheet
    Data]{.underline}, Tbl. 21 (Average Total Telecommunications Revenue
    Reported by Class of Carrier) (Feb. 1996) ([TRS
    Worksheet]{.underline}).

[^990]: [Id]{.underline}.

[^991]: [Id]{.underline}.

[^992]: [Id]{.underline}.

[^993]: [Id]{.underline}.

[^994]: [Id]{.underline}.

[^995]: Federal Communications Commission, CCB, Industry Analysis
    Division, [FCC Releases, Study on Telephone Trends]{.underline},
    Tbl. 20 (May 16, 1996).

[^996]: There are approximately 1.5 million LEC payphones. Statistics of
    Communications Common Carriers,1994/1995 edition, Common Carrier
    Bureau, FCC at 159, Table 2.10 (1995). There are approximately
    350,000 competitively provided payphones. [See]{.underline}
    [Ex]{.underline} [Parte]{.underline} Letter of Michael Benson,
    Senior Product Manager, PPO Compensation Clearinghouse, Cincinnati
    Bell to Michael Carowitz, Attorney, Common Carrier Bureau, FCC
    (April 24, 1996). Cincinnati Bell, as the payphone compensation
    paying agent for three interexchange carriers, states that it
    receives quarterly bills from PPOs for more than 350,000
    competitively provided payphones. [Id]{.underline}.

[^997]: 13 C.F.R. § 121.201, Standard Industrial Classification (SIC)
    Code 4812.

[^998]: United States Department of Commerce, Bureau of the Census,
    [1992 Census of Transportation, Communications, and Utilities:
    Establishment and Firm Size]{.underline}, at Firm Size 1‑123 (1995)
    ([1992 Census]{.underline}).

[^999]: [Id]{.underline}.

[^1000]: [Id]{.underline}.

[^1001]: [See]{.underline} Implementation of Section 309(j) of the
    Communications Act \-- Competitive Bidding, PP Docket No. 93-253,
    [Fifth Report and Order]{.underline}, 9 FCC Rcd 5532, 5581-84
    (1994).

[^1002]: ^?^ The FCC\'s Personal Communications Services (PCS)
    Entrepreneurs\' Block (C Block) auction began on

    December 18, 1995 and closed on May 6, 1996. The reauction for 18
    defaulted PCS C Block licenses commenced on July 3, 1996 and was
    completed on July 16, 1996.

[^1003]: [See]{.underline} Auction of Broadband Personal Communications
    Service (D, E, and F Blocks), [Public Notice]{.underline}, DA
    96-1400 (rel. Aug. 20, 1996).

[^1004]: Amendment of Parts 20 and 24 of the Commission\'s Rules \--
    Broadband PCS Competitive Bidding and the Commercial Mobile Radio
    Service Spectrum Cap, WT Docket No. 96-59, Amendment of the
    Commission\'s Cellular/PCS Cross-Ownership Rule, [Report and
    Order]{.underline}, GN Docket No. 90-314, 11 FCC Rcd 7874 (1996).

[^1005]: [See]{.underline} Auction of Broadband Personal Communications
    Service (D, E, and F Blocks), [Public Notic]{.underline}e, DA
    96-1400 (rel. Aug. 20, 1996).

[^1006]: [1992 Census]{.underline}, Table 5, Employment Size of Firms:
    1992, SIC Code 4812.

[^1007]: [See]{.underline} Amendment of Parts 2 and 90 of the
    Commission\'s Rules to Provide for the Use of 200 Channels Outside
    the Designated Filing Areas in the 896-901 MHz and the 935-940 MHz
    Bands Allotted to the Specialized Mobile Radio Pool, PR Docket No.
    89-583, [Second Order on Reconsideration and Seventh Report and
    Orde]{.underline}r, 11 FCC Rcd 2639, 2693-702 (1995); Amendment of
    Part 90 of the Commission\'s Rules to Facilitate Future Development
    of SMR Systems in the 800 MHz Frequency Band, PR Docket No. 93-144,
    [First Report and Order, Eighth Report and Order, and Second Further
    Notice of Proposed Rulemaking]{.underline}, 11 FCC Rcd 1463 (1995).

[^1008]: [See]{.underline} 5 U.S.C. § 604(a)(4).

[^1009]: [See]{.underline} 5 U.S.C. § 604(a)(5).

[^1010]: 47 U.S.C. § 276(b)(1)(A).

[^1011]: [See]{.underline} paras. 11-19, above.

[^1012]: [See]{.underline} paras. 49-51, 55-61, above.

[^1013]: [See]{.underline} para. 49, above.

[^1014]: [See]{.underline} para. 51, above.

[^1015]: [See]{.underline} paras. 78,83, above.

[^1016]: [See]{.underline} para. 83, above.

[^1017]: [See]{.underline} para. 97, above.

[^1018]: [See]{.underline} para. 99, above.

[^1019]: [See]{.underline} para. 100, above.

[^1020]: [See]{.underline} paras. 112-113, above.

[^1021]: [See]{.underline} para. 62, above.

[^1022]: [See]{.underline} para. 110, above.

[^1023]: 47 U.S.C. § 276(b)(1)(B).

[^1024]: [See]{.underline} para. 142, above.

[^1025]: [See]{.underline} paras. 146-148, above.

[^1026]: [See]{.underline} paras. 161-169, above.

[^1027]: [See]{.underline} paras. 179-185, above.

[^1028]: [See]{.underline} para. \_\_\_, above.

[^1029]: [See]{.underline} para. 145, above.

[^1030]: [See]{.underline} para. 148, above.

[^1031]: 47 U.S.C. § 276(b)(1)(E).

[^1032]: [See]{.underline} para. 220 above.

[^1033]: [See]{.underline} para. 222 above.

[^1034]: [See]{.underline} paras. 249, 251 above.

[^1035]: [See]{.underline} para. 250 above.

[^1036]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat.
    56 *to be codified at* 47 U.S.C. §§ 151 *et. seq.* (1996 Act).

[^1037]: 47 U.S.C. § 276(b)(1).

[^1038]: 47 U.S.C. Section 276(b)(1).