Before the
                FEDERAL COMMUNICATIONS COMMISSION
                     Washington, D.C. 20554


In the Matter of         )
                         )
Expanded Interconnection )    CC Docket No. 91-141
with Local Telephone     )
Company Facilities       )



                      REPLY COMMENTS OF THE
   NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

     The National Telecommunications and Information
Administration ("NTIA"), as the Executive branch agency
principally responsible for the development and presentation of
U.S. telecommunications and information policy, respectfully
replies to the comments filed in response to the Commission's
Notice of Proposed Rulemaking and Notice of Inquiry ("Notice") in
the above-captioned proceeding.[1]

I.   INTRODUCTION AND SUMMARY OF POSITION

     NTIA strongly supports the Commission proposal to require
that all "Tier 1"[2] local exchange carriers ("LECs") offer
expanded interconnection opportunities to Competitive Access
Providers ("CAPs") for the provision of interstate special access
services.[3]  Although commenting parties disagree on matters of
implementation, there is a broad consensus that, by increasing
competition in the provision of local exchange services, such
interconnection should reduce service rates, enhance consumer
choice, improve service quality, and promote the development on
the nation's telecommunications infrastructure.[4]

     In developing its interconnection policies, the Commission
should be guided by several fundamental principles.  First,
although the Commission should adopt minimum criteria for special
access interconnection, it should afford the respective parties
considerable flexibility in deciding how to embody those criteria
into a formal interconnection agreement.[5]  NTIA believes that
such flexibility can be provided if parties are allowed to
proceed initially via privately negotiated contracts, rather than
carrier-filed tariffs.  However, after the Commission has gained
experience concerning the requirements and contours of
interconnection, it should eventually require that all
interconnection agreements be reduced to tariffs.

     Second, while the Commission should grant parties flexi-
bility to establish the terms and conditions of their
interconnection agreements, it should also establish procedures
to ensure that both parties negotiate promptly and in good faith. 
Thus, the Commission should require that the negotiations be
concluded within a reasonable period, and it should be prepared
to step in after that period to resolve any remaining
disagreements.  Third, the right of interconnection should be
reciprocal, at least between common carriers.  That is, if a CAP
should request interconnection from a LEC, the CAP must also
permit the LEC to interconnect with the CAP's network under
substantially similar terms and conditions.

     Further expanded local interconnection will necessitate
fundamental changes in the way that LECs currently price their
interstate special access services and, indeed, in the way that
LECs are regulated.  As a first step, the Commission should
require that LECs unbundle the channel termination element in
their existing interstate special access tariffs, which would
both allow customers, including CAPs, to purchase only those LEC
access services that they need, and position LECs to compete
head-to-head with CAPs for the transmission segment of special
access traffic.[6]  

     Moreover, because expanded local interconnection will
inevitably increase competitive pressures on LECs, the Commission
must give them latitude to respond to that competition.  It
should not, as is proposes to do in the Notice, increase its
scrutiny of the LECs' restructured special access rates and
reduce their pricing flexibility with respect to those
services.[7]  Additionally, as discussed below, the Commission
should consider adding a "contribution" element to the
restructured special access connection charge to alleviate any
hardships or dislocations stemming from expanded
interconnection,[8] although that element should be phased out
over time.

     Finally, the Commission should promptly institute a
rulemaking to mandate expanded interconnection opportunities with
respect to interstate switched access services.  Expanded
switched access interconnection promises to produce the same
sorts of efficiency gains that will likely result from liberal
special access interconnection.  Although the issues surrounding
switched access interconnection are complex, NTIA believes that
they can and should be resolved expeditiously.

II.  BENEFITS OF EXPANDED SPECIAL ACCESS INTERCONNECTION

     The immediate effect of expanded special access
interconnection should be an increase in competition for the
provision of special access services.  More importantly, the
experience with respect to customer premises equipment ("CPE")
and interexchange services indicates that greater competition
will, in turn, generate substantial benefits for consumers.[9] 
The salutary effects of CPE competition, as evidenced by lower
prices, expanded capabilities, and increased consumer choice, are
beyond serious dispute.  Further, although some question whether
the sharp reduction in long distance rates over the last decade
is attributable to competition,[10] most observers agree that
competition has both induced providers to expand the range of
pricing and service options available to consumers and pressured
carriers to modernize their facilities.[11]  As one result, there
are now at least four nationwide, fiber-based interexchange
carrier networks within the United States, not to mention
numerous regional networks.

     The limited competitive entry into local exchange services
markets that has occurred to date strongly suggests that
competition will produce similar benefits in those markets, as
well.  New York Telephone has reduced rates for certain of its
intrastate private line offerings by some 16 percent since the
New York Public Service Commission authorized expanded
interconnection within the state.[12]  The advent or threat of
competing local service providers has also prompted LECs to
improve service quality, introduce new services, and modernize
their networks.[13]  These pro-consumer developments can be
expected to increase if the Commission promotes competition
further by mandating expanded special access interconnection.[14]

III. INTERCONNECTION ISSUES

     NTIA believes that the Commission's fundamental objective in
developing its interconnection guidelines should be to establish
parity, insofar as possible, between the configuration of the
LECs' special access services and those of their competitors.  In
our view, just as rival enhanced service providers cannot compete
effectively unless they have interconnection "comparably
efficient" to that available to LEC enhanced services, CAPs will
be competitively disadvantaged if they do not have "the same [or
substantially similar] connectivity to LEC central offices and
the local loop network as enjoyed by the LEC's competing . . .
network facilities."[15]

     In the Notice, the Commission suggests two "minimum
criteria" that will help competing special access offerings
achieve parity or comparability with those of LECs.  First, it
proposes to allow interconnecting parties to designate the
equipment that will used to connect their transmission facilities
with LEC facilities or LEC central offices.[16]  Second, the
Commission tentatively concludes an interconnecting party should
have the ability to monitor and control its circuits terminating
in a LEC central office.[17]  NTIA strongly supports adoption of
these criteria and recommends that they be required as an
essential element in any special access interconnection
agreement.

     Although the Commission must ensure comparability between
LECs and CAPs and other interconnecting parties, NTIA does not
believe that this necessitates uniform interconnection
arrangements.  Indeed, the record in this proceeding indicates
that it would be unwise to mandate a single such arrangement.  As
one commenter points out, for example, there are likely to be
vast differences among LEC offices with respect to "space
availability, local zoning and building codes, central office age
and layout, conduit capacity, type and capacity of switches, and
ease of secure physical access to the building or manholes."[18] 
The needs of various interconnecting parties could also vary from
firm to firm.

     Given these circumstances, the terms and conditions of a
mutually-acceptable interconnection agreement will differ from
state to state, office to office, or even, for example, CAP to
CAP.  This fact is graphically illustrated by the interconnection
experience of Teleport Communications.[19]  Teleport has
concluded interconnection arrangements with LECs in five
different states.  With one exception,[20] those arrangements are
different to one degree or another.

     As a result, although the Commission should clearly require
interconnection, it should not attempt initially to develop a
standard interconnection agreement.  Rather, the Commission
should afford the respective parties flexibility not only to
choose between actual and virtual collocation, but also to
establish other terms and conditions of their agreements.[21]

     However, we recommend that, after a reasonable period of
initial experimentation with privately negotiated agreements,
regulators require the terrifying of interconnection agreements
in order to facilitate regulatory review and, thus, ease the
regulators' task of detecting and remedying unreasonable or
discriminatory rates, terms, or conditions.  As importantly,
tariffing could also be a valuable tool for promoting technical
standardization, if that is deemed necessary.[22]  

     On the other hand, requiring interconnection agreements to
be tariffed immediately may limit a LEC's ability to negotiate 
different, but still mutually satisfactory, agreements with other
alternative local telecommunications providers.  This problem
could be alleviated, at least in the early stages of local
exchange interconnection, by requiring interconnection agreements
to be treated as a variation of the "Individual Case Basis"
tariffs that LECs may now file, which could give LECs and alter-
native providers some flexibility with respect to price, terms,
and conditions.[23]  As experience is gained concerning the
requirements and contours of interconnection, regulators could
decide at a future time to require that all interconnection
agreements be embodied in tariffs.  However state and federal
regulators decide to proceed, the availability of some formal
review mechanism is necessary to ensure that interconnection
agreements are reasonable and nondiscriminatory and preserve the
interoperability of the nationwide telecommunications system.  

     Additionally, while the Commission should afford the parties
flexibility, at least initially, to establish the terms and
conditions of their interconnection agreement, it should
nevertheless establish procedures to ensure that both parties
negotiate in good faith.  For example, the Commission should
consider requiring that the negotiations be concluded within a
time certain.  At the end of that period, it should be prepared
to step in, at the request of any party, to resolve remaining
disagreements.  To minimize regulatory involvement in this
process, we recommend that the Commission create incentives for
the parties to limit areas of disagreement before the regulator
enters the negotiation.  Thus, the Commission could declare at
the outset that, in resolving disputes, it will choose only
between the last offers made by the parties.

     Finally, the right of interconnection should be reciprocal,
at least between common carriers.[24]  In other words, if a CAP
should request interconnection from a LEC, the CAP must permit
the LEC to interconnect with the CAP's network under
substantially similar terms and conditions.  As a matter of
fairness, if alternative local exchange carriers are able,
through liberal interconnection, to share in the efficiencies of
an LEC's network, the opposite should be equally true.[25]  Addi-
tionally, reciprocity will further promote good faith dealing in
parties' negotiations because a party that proposed unfair
interconnection terms could have the same unfair terms imposed
upon it.[26]

IV.  PRICING ISSUES

     Because expanded special access interconnection promises to
intensify competition within the local exchange services market,
it will exacerbate the pressures on the existing rate structure
for LEC services.  That rate structure evolved over a period of
years in which LECs were the sole, or the dominant, providers of
local exchange services.  It is replete with subsidies flowing
from service to service, as well as prices that have only a
passing relationship to true economic costs.  While the growth of
competition in other telecommunications markets has begun to
undermine the current pricing structure, the advent of
competition in the local exchange services market will jeopardize
its sustainability as never before.

     The existing regulatory structure for LECs was likewise
crafted for a set of firms holding dominant positions in the
provision of local exchange services.  The expansion of
competition for those services will necessitate a reassessment of
that structure.  LECs will have to be given more flexibility in
setting and changing regulated rates, if they are to compete
effectively with their new, unregulated rivals.

     In NTIA's view, these pricing and regulatory issues are the
critical concerns to be addressed in this proceeding.  Although
the terms and conditions of interconnection may determine the
success of the new entrants in the local exchange services
market, reform of existing LEC pricing and regulatory policies in
a careful, consistent fashion will help ensure that such
competitive entry will produce benefits for consumers and
efficiency gains for society.  NTIA urges the Commission to begin
that process here.

     A.   Unbundling of LEC Special Access Rates

     Under the LECs current special access tariffs, a customer
pays a flat-rate, non-distance-sensitive channel termination
charge for the facility between the customer's premise and the
LEC central office, and another channel termination charge for
the facility between the central office and the customer-
designated end point.[27]  The Commission seeks comments on two
alternatives for restructuring those tariffs to accommodate
expanded interconnection.  Under the first, LECs would substitute
a connection charge for interconnecting parties for the channel
termination charge.  All other customers would continue to pay
the latter charge.[28]  Under the second approach, LECs would be
required to unbundle the channel termination charge into separate
connection and transmission charges.[29]  Interconnecting parties
would generally pay only the connection charge (because they
would presumably replace the LEC facilities that are subject to
transmission charges with their own facilities).  Other parties
would continue to pay both charges.

     NTIA recommends that the Commission adopt the second
alternative.  Requiring the LECs to unbundle the special access
channel termination charge would be fully consistent with the
Commission's Open Network Architecture rulings, thus allowing
customers to make more efficient use of the LECs' special access
services.[30]  Moreover, as the Commission points out, an
unbundled special access rate structure would allow all
customers, including interconnectors, to order only those access
services that they need.[31]  Finally, an unbundled rate
structure would place LECs and their competitors (such as CAPs)
on an equal footing in the special access market[32], and
position them to compete head-to-head for the transmission
segments of those services.[33]

     B.   LEC Pricing Flexibility

     As noted above, the growth of special access competition
means that LECs must inevitably given greater flexibility to fix
and adjust their rates in response to competitive entry.[34]  If
LECs are denied that latitude, such entry may be due to the
asymmetric regulatory burdens borne by LECs, rather to the
efficiency of the entrants.  Where that is the case, competitive
entry will cause a loss of total welfare.[35]

     Despite these considerations, the Commission appears intent
on reducing the LECs' pricing flexibility with respect to special
access services.  Thus, it tentatively concludes that the LECs'
new connection charges "should be reviewed not only under the
existing price cap rules, but also pursuant to additional
standards adopted in this proceeding."[36]  Further, the
Commission indicates that the LECs' pricing flexibility with
respect to the connection charge will be "limited to annual
increases of two percent relative to the percentage change in the
price cap index" for special access services.[37]  In other
words, the rate bands for the new connection charge will be three
percentage points narrower (or more restrictive) than the rate
bands for other special access services.

     NTIA urges the Commission to abandon both proposals.  Simply
put, the Commission offers no convincing reason for imposing
additional regulatory burdens on the LECs at a time when the
growth of competition requires the opposite response.  This
deficiency is particularly evident with respect to the proposed
two percent rate band for the connection charge.  When the
Commission adopted the wider five percent rate band for LEC
regulated services in its price cap order, it specifically
rejected narrower bands as unnecessarily restrictive.[38]  The
Commission's sudden departure from that conclusion in this
proceeding requires an explanation that does not appear in the
Notice.

     C.   Need for a "Contribution" Element

     The Commission seeks comments on whether the LECs'
restructured special access tariffs should include a separate
"contribution" element "to alleviate any hardships caused by
changes resulting from expanded interconnection."[39]  As
discussed below, NTIA believes that the Commission should
strongly consider prescribing such a contribution charge,
although it should probably phase that charge out over a period
of years.

     A contribution element seems appropriate principally because
of the likely divergence between LEC special access rates and
economic costs.  Although some commenters contend that such rates
are currently cost-based,[40] the "costs" that are typically used
for regulatory purposes are backward-looking, historical costs,
rather than the lower, forward-looking costs that are more
appropriate for a technologically-dynamic, increasingly
competitive market such as telecommunications.[41]  Moreover,
LECs are generally required to engage in a greater level of rate
averaging than their competitors,[42] which tends to overstate
the costs and, thus, the prices for certain of their special
access services.[43]  Finally, the determination  of LEC "costs"
is strongly influenced by a hosts of factors (such as separations
policies, depreciation practices, universal service obligations)
that are as much a result of political and social policy choices
as economic realities.

     For all of these reasons, the LECs' current special access
rates, although arguably in line with regulatorily-established
costs, are likely to diverge significantly from true economic
costs.  Unless this disparity is corrected, competitive entrants
may take special access customers away from the LECs even though
the LECs might be the most efficient providers of such
services.[44]  A contribution element (payable by both LECs and
their competitors) could help deter, if not prevent, such an
inefficient outcome.

     That being said, however, the Commission must exercise some
caution in determining the appropriate level of contribution. 
Although the probable disparity between special access rates and
underlying costs may be attributable largely to regulatory
policy, there may also be other explanations.  For example, New
York Telephone's current charge for a DS1 channel termination is
considerably above even fully distributed costs,[45] which
suggests the exercise of some market power by the firm. 
Moreover, it is also plausible that some of the LECs' relatively
higher costs are due to the fact that, as rate of return
regulated, dominant firms, they may have lacked the incentive to
minimize costs.[46]

     Because we cannot rule out these factors as possible causes
of the divergence between LEC special access rates and underlying
costs, we recommend that the Commission take them into account
when it develops any proposed contribution charge.  For example,
the Commission should not set that charge as the difference
between current LEC price or revenue requirement and incremental
costs.

     Finally, we question whether a contribution charge should be
permanent.  If such a charge fully compensates LECs for the
difference between their special access rates and economic costs,
it could significantly reduce the LECs' incentives to move rates
towards costs over time or to operate more efficiently.[47]  To
avoid these potential problems, the Commission should consider
phasing the contribution charge out over a period of years.

V.   EXPANDED INTERCONNECTION FOR SWITCHED ACCESS SERVICES

     Finally, the Commission requests comments on whether it
should mandate expanded interconnection with respect to switched
access services.  NTIA submits that the Commission should
promptly move to authorized switch access interconnection for the
same reasons that it has chosen to order special access
interconnection:  the resulting competition should result in
lower rates, expanded consumer choice, and accelerated deployment
of new technology.[48]  Indeed, because the switched access
market is considerably larger than the special access market,[49]
and because more consumers use switched access services, the
benefits from expanded interconnection may be even more
substantial and more widespread with respect to switched access
than with respect to special access.

     Switched access interconnection could also enhance the
ability of CAPs to compete with LECs for federally-regulated
local exchange services.[50]  Presently, LECs are free to offer a
complete range of interstate access services, both switched and
special, in addition to their intrastate service offerings.  In
contrast, even if the Commission were to order special access
interconnection, CAPs would be limited to providing only
interstate special access services and intrastate private line
services in some states.  Switched access interconnection would
not only permit CAPs to offer their customers a wider, more
competitive range of services, but also enable them to use their
networks more efficiently.[51]

     Moreover, a Commission order mandating special access
interconnection will inexorably compel action with respect to
switched access services.  Because the two services are close
substitutes for many customers, changes in the price of special
access services (which can be expected in the wake of expanded
special access interconnection) will inevitably affect the demand
for switched access services.[52]  Thus, although regulatory
treatment of the two services need not be addressed
simultaneously, treatment of either cannot be considered in
isolation.  If the Commission mandates special access
interconnection, as NTIA believes that it should, it must also
consider switched access interconnection issues promptly and
consistently to prevent inefficient and undesirable customer
migration from switched to special access services.

     In supporting switched access interconnection, NTIA is fully
aware of the complexities involved.  Switched access rates
undoubtedly contains many of the same inefficiencies that pervade
special access rates.  Moreover, switched access services bear
many of the explicit subsidies that have been created to promote
and preserve universal service goals.  Much care will be needed
to ensure that switched access interconnection and switched
access competition is fully compatible with those important
goals.  However, the difficulties of the task justify caution,
not inaction.  Indeed, with the growth of competition in other
telecommunications services markets, including special access
services, delay in dealing with switched access interconnection
will surely disserve the public interest.  NTIA therefore urges
the Commission promptly to institute a rulemaking to consider
mandated expended interconnection for switched access services.


VI.  CONCLUSION
     For the foregoing reasons, NTIA respectfully requests that
the Commission adopt the recommendations contained herein.

Respectfully submitted,



Thomas J. Sugrue                                          
Deputy Assistant Secretary for     Jean M. Prewitt
 Communications & Information       Chief Counsel
 
               


William F. Maher, Jr.,             Phyllis E. Hartsock
 Associate Administrator           Attorney

Alfred M. Lee
Tim Sloan
Office of Policy Analysis
 and Development


                                   National Telecommunications
                                   and Information Administration


U.S. Department of Commerce
Room 4717
14th Street and Constitution Ave., N.W.
Washington, D.C.  20230
(202) 377-1816

September 20, 1991                           

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                                ENDNOTES

[1]  6 FCC Rcd 3259 (1991).

[2]  Tier 1 LECs "are those exchange carriers with more than $100
     million in annual interstate revenues for a sustained period
     of time."  Id. at 3259 n.1.

[3]  See id. at 3259, para. 1.  We are aware that several
     commenters have criticized Commission's tentative conclusion
     to impose expanded interconnection obligations only on Tier
     1 LECs.  See, e.g., Comments of Metropolitan Fiber Systems,
     Inc. at 68-70; Comments of the American Petroleum Institute
     at 12-14.  While these criticisms are not without substance,
     NTIA believes that the record supports the measured approach
     that the Commission proposes.  First, because smaller LECs
     are unlikely to receive requests for expanded
     interconnection in the short term, see Notice, 6 FCC Rcd at
     3264, para. 33; Comments of Metropolitan Fiber Systems, Inc.
     at 69, restricting interconnection obligations to Tier 1
     LECs at this time should not significantly limit competitive
     opportunities for CAPs.  More importantly, NTIA agrees with
     those commenters who note that expanded interconnection may
     impose undue costs and risks upon smaller LECs, which may
     have limited customer bases or may depend heavily on a few
     large customers.  See, e.g., Comments of the United States
     Telephone Association at 38-39; Comments of the Chief
     Counsel for Advocacy of the United States Small Business
     Administration at 18-19; Comments of Rochester Telephone
     Corporation at 18-19.  See also Notice, 6 FCC Rcd at 3264,
     paras. 33-35.

[4]  See, e.g., Comments of the General Services Administration
     at 5-7; Comments of the New York Department of Public
     Service at 6-7; Comments of Pacific Bell and Nevada Bell at
     1-2;  Comments of the NYNEX Telephone Companies at 8-9;
     Comments of Metropolitan Fiber Systems, Inc. at 8-15;
     Comments of the International Communications Association at
     3-4; Comments of EDS Corporation at 3-4; Comments of the
     Florida Public Service Commission at 2-3.

[5]  In particular, the choice whether to proceed by actual or
     virtual collocation should be a joint decision by the
     parties, rather than a unilateral decision by either the
     Commission or any party unilaterally.

[6]  In so doing, however, the Commission must ensure that the
     new special access rate structure is consistent with the
     other LEC access tariffs.  See 78-72 proceeding; Amendment
     of Part 69 of the Commission's Rules Relating to the
     Creation of Access Charge Subelements for Open Network
     Architecture, CC Docket No. 89-79, FCC 91-186 (released July
     11, 1991).  Consistent rate structures for these various
     services, which are substitutable to one degree or another,
     will help deter inefficient "tariff shopping" among them.

[7]  See Notice, 6 FCC Rcd at 3267, para. 52, 3268, para. 57.

[8]  As the Commission notes, this contribution element would be
     paid by both LECs and interconnecting parties.  See id. at
     3266 n.34.

[9]  As the Commission notes, competition in the CPE and
     interexchange services market is attributable in large part
     to Commission and court decisions mandating interconnection
     with LEC facilities.  Id. at 3260, para. 11.

[10] See, e.g., Kahn, The Necessary Conditions of Effective
     Competition for Local Transport 11-13 (Aug. 1991) (attached
     to Comments of several Bell Operating Companies) ("Kahn
     Affidavit"); Taylor, Effects of Competitive Entry in the
     U.S. Interstate Toll Markets (Aug. 1991) (attached to Kahn
     Affidavit).  But see Notice, 6 FCC Rcd at 3260, para. 11.

[11] See, e.g., Kahn Affidavit at 12-13.

[12] See Comments of the New York State Department of Public
     Service at 7.

[13] See Comments of Teleport Communications Group at 6.

[14] As noted below, however, the benefits of increased
     competition will be fully achieved only if the Commission
     changes the way in which the LECs' special access services
     are priced and regulated.

[15] Comments of Teleport Communications Group at 9.  See also
     Comments of Metropolitan Fiber Systems, Inc. at 28.

[16] Notice, 6 FCC Rcd at 3263, para. 25.

[17] Id. at 3263, para. 23.  Of course, in both instances, the
     interconnecting parties rights should be subject to
     reasonable restrictions designed to preserve the security of
     LECs central offices, ensure the safety of LEC employees,
     and preserve the integrity of the LECs' networks.  See,
     e.g., Comments of Bell Atlantic, App. A at 5-6.

[18] Comments of Bell Atlantic, App. A at 4-5.  See also Comments
     of the United States Telephone Association at 36; Comments
     of GTE Service Corporation at 31-33.

[19] See Comments of Teleport Communications Group at 29.

[20] In New York and Massachusetts, Teleport will collocate its
     equipment and facilities in relevant LECs' central offices. 
     See id.

[21] The Commission requests comments on CAPs and other parties
     should be authorized to interconnect with LECs via non-fiber
     optic transmission facilities.  See Notice, 6 FCC Rcd at
     3264, para. 29.  A number of commenters recommend that
     interconnection be limited to fiber optic facilities.  See,
     e.g., Comments of Pacific Bell and Nevada Bell at 72;
     Comments of the NYNEX Telephone Companies at 20;  Comments
     of United Telephone System Companies at 9-11.  However, NTIA
     sees little reason for the Commission to either define or
     limit the types of technologies and equipment used in an
     interconnection arrangement.  If, as some commenters
     suggest, fiber optic cable is superior to other transmission
     technologies, CAPs and other interconnecting parties will
     have strong economic incentives to employ fiber.  If, on the
     other hand, interconnecting firms wish to use another
     transmission system, they should be prepared to conclude an
     interconnection agreement that reflects the additional costs
     to both the interconnector and the LEC.  By declining to
     establish technology-specific interconnection standards, the
     Commission wisely avoids the possibility of making a short-
     sighted or incorrect choice, reduces the risk that
     regulatory policies will distort private parties' equipment
     choices, and affords negotiating parties flexibility to
     establish interconnection arrangements demanded by their
     customers.

[22] In this regard, we note that the New York Public Service
     Commission's interconnection order required New York
     Telephone to proceed by tariff.  See Opinion and Order
     Concerning Regulatory Response to Competition, Case 26469,
     Opinion No. 89-12, at 26 (N.Y. State Pub. Serv. Comm'n May
     16, 1989).  Additionally, the interconnection agreement for
     Chicago between Teleport Communications and Illinois Bell
     has been embodied in a tariff.  See Illinois Bell Tel. Co.
     Tariff Illinois Commerce Comm'n No. 15 (issued Feb. 20,
     1991).  Similarly, the FCC requires tariffed interconnection
     arrangements for interexchange services and enhanced servic-
     es.

[23] We note that the Commission adopted this approach with
     respect to certain of the LECs high-capacity special access
     services.  See Local Exchange Carriers' Individual Case
     Basis DS3 Service Offerings, 4 FCC Rcd 8634 (1989).

[24] As the Commission notes, it clearly has authority to order
     interconnection between common carriers if it determines
     that such interconnection would be in the public interest. 
     Notice, 6 FCC Rcd at 3269, para. 69.  See also 47 U.S.C. 
     201(a) (1988).  The comments filed in this proceeding
     provides a compelling public interest justification for
     mandatory interconnection between common carriers.  On the
     other hand, the legal rationale is significantly weaker for
     imposing reciprocal interconnection obligations on non-
     common carriers appears to be significantly weaker.

[25] See, e.g., Kahn Affidavit at 20-21.  In the short term, this
     reciprocity may not substantially benefit the LECs. 
     However, as alternative providers enter and become more
     established, LECs may find the right to interconnect with
     their rivals' networks more advantageous as a way to
     supplement or quickly modernize LEC networks.

[26] See Petition for Rulemaking of Metropolitan Fiber Systems,
     Inc. at 33 (filed Nov. 14, 1989).

[27] See Notice, 6 FCC Rcd at 3264, para. 36.  The customer would
     also pay distance sensitive channel mileage channel for a
     connection between LEC central offices, if one is necessary. 
     See id.

[28] See id. at 3265, paras. 38, 41.

[29] See id. at 3265, para. 3265.  Some commenters suggest that
     the connection charge in a virtual collocation arrangement
     should be greater than under actual collocation because
     virtual collocation entails more extensive facilities and,
     therefore, greater costs.  See Comments of the NYNEX
     Telephone Companies at 26.  See also Notice, 6 FCC Rcd at
     3265, para. 41.  However, NTIA believes that permitting
     different connection charges for virtual and actual
     collocation arrangements would unduly disadvantage
     interconnecting parties opting, for one reason or another,
     virtual collocation.  A more equitable approach would be to
     establish a uniform connection charge for all
     interconnection arrangements completed within a designated
     distance of a LEC central office.  All parties who
     interconnect (or who, as in the Teleport example, establish
     an "ownership" demarcation point) within that an identical
     connection charge.

     This approach would have at least two advantages.  First, it
     could encourage LECs to offer actual, rather than virtual,
     collocation, because the providing the latter would involve
     more costs without generating any additional revenues. 
     Since, from an operational and engineering perspective,
     actual collocation appears to be superior to virtual
     collocation, see Comments of Metropolitan Fiber Systems,
     Inc. at 31-37, it seems appropriate to create reasonable
     incentives for LECs to offer actual collocation, whenever
     possible.  Second, a uniform connection charge could help
     offset the potential competitive advantage that AT&T could
     gain by virtue of the fact that many of its POPs are now
     collocated within LEC offices, which is a vestige of the
     integrated Bell System and AT&T long-time monopoly position
     in the interexchange market.  See Comments of the
     Competitive Telecommunications Association at 8-10.

     Identifying a standard "interconnection point" outside of
     the central office, such as the one-eighth of a mile
     proposed in the Notice, see Notice, 6 FCC Rcd at 3262-3263,
     para. 22, could help in the development a uniform connection
     charge.  NTIA nonetheless questions the appropriateness of
     the mileage zone suggested in the Notice.  For one thing,
     the Commission offers little, if any, justification for the
     figure proposed.  Additionally, adoption of that mileage
     zone could cause untoward results in one important respect. 
     Under the Commission's current Computer III price parity
     rules, all enhanced service providers located within two
     miles of a LEC central office pay the same transmission
     charges.  See Notice, 6 FCC Rcd at 3262 n.17.  If the
     Commission should adopt a smaller mileage zone with respect
     to special access interconnection, some interconnecting
     parties may be inclined to inefficiently alter their service
     offerings (by, for example, "enhancing" them in some
     fashion) in order to take advantage of the larger enhanced
     service mileage band.

[30] See Comments of AT&T at 10.

[31] Notice, 6 FCC Rcd at 3265, para. 40.

[32] See Comments the General Services Administration at 14.

[33] See Comments of the NYNEX Telephone Companies at 25.

[34] See, e.g., Opinion and Order Concerning Regulatory Response
     to Competition, Case 26469, Opinion No. 89-12, at 27 (N.Y.
     State Pub. Serv. Comm'n May 16, 1989) ("the entry of private
     line competitors must be accompanied by a concomitant
     increase in the existing carriers' pricing flexibility").

[35] See Kahn Affidavit at 8-9.

[36] Notice, 6 FCC Rcd at 3267, para. 52.

[37] Id. at 3268, para. 57.

[38] See Policy and Rules Regarding Rates for Dominant Carriers,
     5 FCC Rcd 6786, 6813-6814 (1990).

[39] Notice, 6 FCC Rcd at 3266, para. 43.  This contribution
     charge would be applied to LECs, as well as to
     interconnectors.  See id. at 3266 n.34.

[40] See, e.g., Comments of Metropolitan Fiber Systems, Inc., at
     83.

[41] See Comments of Pacific Bell and Nevada Bell at 24.

[42] Some level of rate averaging is unavoidable for all firms
     because of the difficulties in establishing a separate price
     and costs for each customer.  See Kahn and Shew, Current
     Issues in Telecommunications Regulation:  Pricing, 4 Yale J.
     on Reg. 191, 232-233 (1987).

[43] See Comments of Pacific Bell and Nevada Bell at 24.

[44] See Kahn Affidavit at 16-17.

[45] See Comments of the NYNEX Telephone Companies at 37.

[46] This is, of course, one reason why the Commission elected to
     replace rate of return regulation with price caps.

[47] See Comments of AT&T at 12.  See also Kahn Affidavit at 24.

[48] See Notice, 6 FCC Rcd at 3270, para. 71.

[49] See id.

[50] See Comments of Teleport Communications Group at 51-53;
     Comments of Metropolitan Fiber Systems, Inc. at 122-125;
     Comments of the Association for Local Telecommunications
     Services at 22-24.

[51] Comments of Teleport Communications Group at 52; Comments of
     Metropolitan Fiber Systems, Inc. at 123-124.

[52] See Comments of GTE Service Corporation at 53; Comments of
     Pacific Bell and Nevada Bell at 6-7;