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                                Before the
                     FEDERAL COMMUNICATIONS COMMISSION          FCC  96-319
                          Washington, D.C.  20554
In the Matter of)
     )
Amendment of the Commission's Rules to )     WT Docket No. 96-162
Establish Competitive Service Safeguards for      )
Local Exchange Carrier Provision of    )
Commercial Mobile Radio Services )
     )
Implementation of Section 601(d) of the           )
Telecommunications Act of 1996, and    )
Sections 222 and 251(c)(5) of the      )
Communications Act of 1934       )
     )
Amendment of the Commission's Rules to )     GEN Docket No. 90-314
Establish New Personal Communications  )
Services        )
     )
Requests of Bell Atlantic-NYNEX Mobile,      )
Inc., and U S WEST, Inc., for Waiver of)
Section 22.903 of the Commission's Rules          )
                      NOTICE OF PROPOSED RULEMAKING,
                     ORDER ON REMAND, AND WAIVER ORDER
Adopted:    July 25, 1996        Released:  August 13, 1996
Comment Date:  30 days after Federal Register publication
Reply Comment Date:  51 days after Federal Register publication
Comments and Replies are to be filed in WT Docket 96-162 only.
By the Commission:
                             TABLE OF CONTENTS
                                                                        Para.
I.  INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
II.  EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . - 3-
III.  REGULATORY BACKGROUND. . . . . . . . . . . . . . . . . . . . . . - 8-
      A.  Derivation of Current Safeguards . . . . . . . . . . . . . .- 12-
           1.  BOC Cellular Structural Separation  . . . . . . . . . .- 12-
           2.  Current Part 22 Requirements. . . . . . . . . . . . . .- 14-
           3.  Nonstructural Safeguards for Other LEC CMRS . . . . . .- 15-
      B.  Recent Developments. . . . . . . . . . . . . . . . . . . . .- 16-
IV.  BOC CELLULAR SAFEGUARDS . . . . . . . . . . . . . . . . . . . . .- 17-
      A.  Introduction . . . . . . . . . . . . . . . . . . . . . . . .- 24-
      B.  Record on Continued Need for Section 22.903. . . . . . . . .- 25-
      C.  Interconnection Actions Relevant to Structural Separation. .- 31-
      D.  Analysis of Continued Need for Section 22.903. . . . . . . .- 37-
           1.  Background. . . . . . . . . . . . . . . . . . . . . . .- 37-
           2.  Discussion. . . . . . . . . . . . . . . . . . . . . . .- 40-
      E.  Proposed Revisions to Section 22.903; Immediate Relief; and
           Implementation of Section 601(d); Section 222 and Section 251(c)(5)
           of the 1996 Act . . . . . . . . . . . . . . . . . . . . . .- 53-
           1.  Limitation of Section 22.903 to In-Region BOC Cellular Services- 54-
           2.  Interim Relief for Out-of-Region Operations . . . . . .- 56-
           3.  Ownership of Landline Facilities. . . . . . . . . . . .- 58-
           4.  Section 601(d); BOC CMRS Joint Marketing and Resale; Section
                222 CPNI Requirements; and Section 251(c)(5) Network
                Information Disclosure Obligations . . . . . . . . . .- 60-
                 (a)  Joint Marketing and Promotion. . . . . . . . . .- 61-
                 (b)  Direct Sale of CMRS and Landline Services. . . .- 65-
                 (c)  Privacy of Customer Information; CPNI Requirements- 69-
                 (d)  Section 251(c)(5); Network Information Disclosure- 74-
      F.  Sunset/Elimination of Section 22.903 . . . . . . . . . . . .- 77-
      G.  BOC Provision of Incidental InterLATA CMRS . . . . . . . . .- 84-
V.  SYMMETRY OF CELLULAR SAFEGUARDS. . . . . . . . . . . . . . . . . .- 87-
VI.  SAFEGUARDS FOR PROVISION OF CMRS BY LECS. . . . . . . . . . . . .- 93-
      A.  Present Competitive Safeguard Alternatives . . . . . . . . .- 94-
      B.  Nonstructural Safeguards in PacTel PCS Plan. . . . . . . . - 100-
           1.  Summary of PacTel's Plan. . . . . . . . . . . . . . . - 101-
           2.  Record in Response. . . . . . . . . . . . . . . . . . - 106-
      C.  Discussion . . . . . . . . . . . . . . . . . . . . . . . . - 108-
           1.  Preliminary Matters . . . . . . . . . . . . . . . . . - 108-
           2.  Proposed Competitive Safeguards for LEC In-Region PCS - 116-
           3.  Sunset  . . . . . . . . . . . . . . . . . . . . . . . - 125-
      D.  Safeguards for Other CMRS  . . . . . . . . . . . . . . . . - 126-
VII.   CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . - 127-
VIII.  PROCEDURAL ISSUES . . . . . . . . . . . . . . . . . . . . . . - 128-
      A.  Ex Parte Presentations . . . . . . . . . . . . . . . . . . - 128-
      B.  Initial Regulatory Flexibility Analysis. . . . . . . . . . - 129-
      C.  Initial Paperwork Reduction Act of 1995 Analysis . . . . . - 138-
      D.  Comment Filing Procedures. . . . . . . . . . . . . . . . . - 139-
      E.  Ordering Clauses . . . . . . . . . . . . . . . . . . . . . - 141-
APPENDIX A:  Record on the Need for Section 22.903 . . . . . . . . Page A-1
APPENDIX B:  Record on the PCS Nonstructural Safeguards Plan
      filed by Pacific Telesis . . . . . . . . . . . . . . . . . . Page B-1
APPENDIX C: CMRS Safeguards Comparison . . . . . . . . . . . . . . Page C-1                            I.  INTRODUCTION
     1.  In this Notice of Proposed Rulemaking, we initiate a comprehensive review of our
existing regulatory framework of structural and nonstructural safeguards for local exchange
carrier (LEC) provision of commercial mobile radio services (CMRS).  We propose herein to
eliminate our current Part 22 requirement that Bell Operating Companies (BOCs) must
provide cellular service through a structurally separate corporation, and we seek comment on
whether we should adopt a transition to this end.  This Notice thus responds to one of the
issues remanded to the Commission by the Sixth Circuit's Cincinnati Bell decision.  We also
propose rule changes necessary to implement those provisions of the Telecommunications Act
of 1996 that govern the joint marketing of CMRS and  landline services, protections for
customer proprietary network information (CPNI) and network information disclosure.
     2  By instituting this proceeding, we seek to implement further the mandate of the
1993 Budget Act to treat similar commercial mobile radio services similarly by placing all
CMRS  licensees under a uniform set of nonstructural safeguards.  We have previously
recognized that the 1993 Budget Act revisions to the Communications Act reflect a Congres-
sional objective that, "consistent with the public interest, similar commercial mobile  radio
services are accorded similar regulatory treatment."  Further, in the CMRS Third Report and
Order, the Commission concluded that all CMRS -- including one-way messaging and data,
and two-way voice, messaging and data -- are competing services or have the reasonable
potential to become competing services in the CMRS marketplace.  A central focus of our
review is the question of whether the structural separation requirements of Section 22.903
continue to serve the public interest.  We will include in our review of our existing rules the
examination of the broader competitive issues raised by provision of in-region wireless
services by all local exchange carriers, and of the effects of the 1996 Act on our existing and
proposed rules.
II.  EXECUTIVE SUMMARY
      3.  This Notice includes several proposals designed to facilitate a smooth transition
from structural separation to the more flexible competitive paradigm established by the 1996
Act.  These proposals are discussed in detail in Sections IV, V and VI, below.   A chart
depicting our current requirements and the proposals made herein, is attached as Appendix C
for illustrative purposes only.  In Section IV, we examine the restrictions imposed in Section
22.903 of the Commission's Rules regarding provision of cellular service by the BOCs.  In
particular, in response to the decision of the Court of Appeals for the Sixth Circuit in
Cincinnati Bell, we consider the continued necessity of the requirement that a BOC seeking to
offer cellular service do so through a separate subsidiary corporation.
      4.  We propose two options.  The first option would generally retain streamlined
separate affiliate and nondiscrimination requirements of Section 22.903 for BOC provision of
cellular service within the BOC's area of operation (i.e., "in-region"), but would sunset the
restrictions for a particular BOC when that BOC receives authorization to provide interLATA
service originating in any in-region state.  For example, we propose to retain the prohibition
against a BOC cellular affiliate owning any landline facilities that the incumbent affiliated
LEC uses in the provision of landline local exchange services, but we would permit the
cellular affiliate to own landline facilities for the provision of, among other things,
competitive landline local exchange service (CLLE).  In addition, we seek to implement that
portion of the 1996 Act that permits a LEC to market jointly and resell the cellular service of
its separate subsidiary.  In so doing, we seek comment on whether permitting integrated
provision of resold cellular and landline service would raise anticompetitive concerns.  We
also pose questions regarding the treatment of customer proprietary information and network
information.
      5.  The second option we propose is to eliminate Section 22.903 immediately in favor
of the uniform safeguards for LEC provision of PCS, and potentially other CMRS, proposed
in Section VI of this Notice.  This option differs from Option 1 primarily in that it would
eliminate the requirements for independent operation, separate officers and personnel, and
arm's-length transactions between the BOC and its cellular affiliate, although such transactions
would still be subject to Part 64 cost allocation rules.   Regardless of which option we
ultimately adopt, this Notice grants the BOCs immediate interim relief through a waiver of
our current rules as they apply to out-of-region cellular service, pending the outcome of this
rulemaking.  Thus, a BOC will no longer need to have in place a separate subsidiary to
provide cellular service outside of its service area.
      6.  In Section V, we explore ways to achieve regulatory parity among wireless
providers.  In particular, we reexamine the basis for excluding LECs other than BOCs from
Section 22.903.  While we conclude that the rationale for requiring BOC structural separation
could be extended to Tier 1 LECs, we decline to propose that Section 22.903 apply to such
LECs in light of our proposal to eliminate the rule, either immediately or after a sunset
period.  We do propose, however, that the safeguards proposed in Section VI extend to all
Tier 1 LECs rather than just the BOCs.
      7.  In Section VI, we propose a uniform set of streamlined competitive service
safeguards for the in-region provision of PCS and other CMRS by Tier 1 LECs.  These
safeguards are based on a "Plan of Nonstructural Safeguards Against Cross-Subsidy and
Discrimination" filed by PacTel in 1995.  We propose that all Tier 1 LECs providing
broadband PCS within their in-region states file with the Commission a nonstructural
safeguard plan that includes the following elements:
     (1) a description of a separate affiliate (defined with reference to the 1985 Competitive
     Carrier Fifth Report and Order) for the provision of PCS;
     (2) a description of compliance with our Part 64 and Part 32 accounting rules, with
     copies of the relevant cost allocation manual changes attached;
     (3) a description of planned compliance with all outstanding interconnection
     obligations;
     (4) a description of compliance with all outstanding network disclosure rules; and
     (5) a description of planned compliance with the customer proprietary information
     requirements in new Section 222 of the 1996 Act.
In addition, we seek comment regarding whether to adopt a sunset period for these rules, and
whether to apply these safeguards to Tier 1 LECs' in-region provision of CMRS other than
PCS.
                        III.  REGULATORY BACKGROUND
     8.  Currently, we have distinct rules for BOC provision of cellular service versus non-
BOC provision of personal communications service (PCS) and other commercial mobile radio
services.  BOCs are required to provide cellular service through structurally separate
subsidiary corporations, whereas all other LECs may provide cellular service on an
unseparated basis.  Moreover, we have declined to impose these restrictions on LEC,
including BOC, provision of other CMRS, such as PCS and specialized mobile radio (SMR)
service.
     9.  In numerous recent waiver requests, the BOCs have sought relief from our cellular
structural separation rule on the grounds of changed circumstances and competitive necessity.
The BOCs' challenges to the continued viability of the restrictions contained in Section
22.903 are premised on two points:  (1) the Commission's existing interconnection rules and
accounting safeguards are sufficient to protect against anticompetitive behavior by the BOCs;
and (2) LECs that are not BOCs are treated differently with respect to the provision of
cellular service and other commercial mobile radio services.  In response, parties opposing
grant of such waivers have cited the broader competitive implications of the individual waiver
requests, and have generally disputed the BOC  claims.  A comprehensive record has thus
been generated on these issues in response to these waiver requests, and with respect to
PacTel's PCS Nonstructural Safeguards Plan.
     10.  A central purpose of the 1996 Act is to provide open access to local and other
telecommunications markets in order to encourage entry by new competitors.  The
legislative history states that the 1996 Act is intended to "provide for a pro-competitive,
deregulatory national policy framework . . . by opening all telecommunications markets to
competition."   Structural separation was originally imposed over a decade ago on certain
local exchange carriers to prevent them from leveraging their market power in the local
exchange market into other competitive markets, such as cellular service.  With this Notice,
we move from this regulatory model to the competitive paradigm established by the new
legislation and the current telecommunications marketplace.
     11.  At the outset, we remain cognizant that CMRS providers will, in the very near
term, need to enter into a series of agreements with local exchange incumbents for such
things as the mutual exchange of traffic, the location of equipment, and the sharing of
network functionalities.  Effective competitive safeguards, where a demonstrated need exists,
should permit competitors to construct their networks, implement their business plans, and
begin offering service to customers with the reasonable assurance that the incumbent local
exchange carrier will not be able to extend its market power into the critical new PCS market.
The question of what these safeguards should be and whether they should remain in place for
a transitional period is the primary subject of this rulemaking.  In order to adequately answer
this question, we need to review the reasons behind the Commission's adoption of its current
safeguards.
A.  Derivation of Current Safeguards
     1.  BOC Cellular Structural Separation
     12.  The original version of Section 22.903 was adopted as Section 22.901 in 1981,
when the Commission amended Part 22 of the rules to provide for the authorization of two
cellular  licensees in each market -- one wireline carrier and one non-wireline carrier.  To
preserve the competitive potential of the non-wireline cellular provider, the Commission
required the wireline carrier to provide its cellular service through a structurally separate
subsidiary, i.e., an independent corporation with separate officers, separate books of account,
and separate operating, marketing, installation and maintenance personnel, and also prohibited
cellular licensees affiliated with landline LECs from owning facilities for the provision of
landline telephone service.  The structural separation requirement was intended to protect
against improper cross-subsidization, to assure equitable interconnection arrangements, and to
make the detection of anti-competitive  conduct "somewhat easier for the regulatory authori-
ties."
     13.  In 1982, the Commission revised Section 22.901 to apply only to AT&T and its
affiliates.  In 1983, the Commission further amended Section 22.901 in response to the
breakup of AT&T under the divestiture agreement entered into by AT&T and the Department
of Justice.  The chief question addressed was whether the BOCs possessed the potential to
cross-subsidize and discriminate, and if so, whether nonstructural safeguards alone would
provide adequate protection.  The Commission concluded that BOC control over local
exchange services provides an opportunity for anti-competitive conduct with respect to
customer premises equipment (CPE), enhanced and cellular services, much the same as it did
for AT&T.  The Commission further found that the BOCs would have the financial
resources to provide cellular service through structurally separate subsidiaries.
     2.  Current Part 22 Requirements
     14.  A final revision of the cellular structural separation requirement occurred in the
1994 Part 22 Rewrite Order as part of the Commission's comprehensive reorganization of
Part 22 of our Rules.  In  that Order, Section 22.903 was amended to incorporate the provi-
sions of former Section 22.901.  Section 22.903 essentially consists of two parts:  the
requirement that BOCs provide cellular service through a separate corporation; and a series of
restrictions on the operation of that separate affiliate, including restrictions on use and
ownership of landline transmission facilities and requirements for the independent operation
of the separate cellular affiliate through separate  books of account, officers, operating,
marketing, installation and maintenance personnel and utilization of separate computer and
transmission facilities in the provision of cellular service.  In addition, subsection (d) requires
that all transactions between the BOC and the cellular subsidiary or its affiliates be reduced to
writing and that a copy of all agreements (other than  interconnection agreements) between
such entities be kept available for inspection upon reasonable request by the FCC.  It also
requires that all affiliate contracts with respect to cellular/landline interconnection be filed
with the Commission; however, this requirement does not apply to any transaction governed
by an effective state or federal tariff.   Subsection (e) prohibits BOCs from engaging in the
sale or promotion of cellular service on behalf of the separate corporation.  This prohibition
does not extend to joint advertising or  promotions by the landline carrier and its cellular
affiliate.  Finally, the rule prohibits the provision of BOC customer proprietary network
information (CPNI) to the cellular affiliate, unless such CPNI is made publicly available on
the same terms and conditions.
     3.  Nonstructural Safeguards for Other LEC CMRS
     15.  Broadband PCS Proceeding.  The Broadband PCS Order found that allowing
LECs to participate in PCS may produce significant economies of scope between wireline and
PCS networks, and that these economies will promote more rapid development of PCS, yield
a broader range of PCS services at lower costs to consumers, and should encourage LECs to
develop their wireline architectures to better accommodate all PCS.  Thus, the Commission
declined to impose structural separation for PCS providers affiliated with LECs, including the
BOCs, reasoning that such limitations on the ability of LECs to take advantage of their
potential economies of scope would "jeopardize, if not eliminate, the public interest benefits
sought through LEC participation in PCS.  The Commission further concluded that the
cellular-PCS cross-ownership policies "are adequate to ensure that LECs do not behave in an
anticompetitive manner."  The Commission also found that existing accounting safeguards
were sufficient to protect against cross-subsidization by the LECs, and therefore declined to
impose additional cost-accounting rules on LECs that provide PCS service.  The Broadband
PCS Order also reiterated that commencement of PCS operations by LECs would be
contingent on the LEC implementing an acceptable non-structural safeguards plan.  Finally,
although the issue had been raised in the Broadband PCS Notice, we declined to eliminate the
structural separation requirement for BOCs and their cellular operations, citing the
insufficiency of the record.
     16.  Other CMRS.   In the CMRS Second Report and Order, the Commission
concluded that all LECs with CMRS affiliates must follow the same accounting safeguards
that were adopted in the PCS proceeding.  The Commission observed that these safeguards
were necessary to prevent cost-shifting from the non-regulated affiliates to the regulated
ratebase of the local exchange carrier.  We also noted that the commenters had raised
important issues with respect to the potential role of accounting, structural separation, and
other safeguards in promoting a competitive CMRS environment.  Although we deferred
consideration of these issues to a separate proceeding, we emphasized that the Commission
"can play a positive role in fostering this competitive environment by examining and
establishing the proper mix of safeguards designed to ensure that no CMRS provider gains an
unfair competitive advantage resulting from its size or preexisting position in particular
CMRS markets."  At that time, due to inadequate notice and an insufficient record, the
Commission again declined to address the issue of removing the cellular structural separations
requirements for the BOCs.  In addition, in our recent order permitting wireline carriers to
provide specialized mobile radio ("SMR") service, we did not require LECs to establish
structurally separate entities.  We did state, however, that LECs providing SMR service, or
CMRS  generally, would have to comply with accounting safeguards and affiliate transaction
rules.
     B.  Recent Developments
     17.  Cincinnati Bell.  On November 9, 1995, the Sixth Circuit Court of Appeals found
that the Commission had failed to adequately justify its retention of Section 22.903 in the
Broadband PCS docket, in light of the Commission's decision permitting LECs (including
BOCs) to provide PCS under nonstructural safeguards.  The court stated that the
Commission was required to give a reasoned explanation of its disparate treatment of the Bell
companies.  The court directed the Commission to reexamine whether the Section 22.903
"still in any way serves the public interest."  Accordingly, the court remanded the matter to
the Commission with instructions to promptly conduct an inquiry into whether the structural
separation requirement continues to serve as "a necessary regulatory restriction on BellSouth
and other Bell Operating Companies."
     18.  BOC Requests for Relief from Section 22.903.  Both before and after the
Cincinnati Bell decision, a number of BOCs filed waiver petitions seeking varying forms of
relief from the  requirements of Section 22.903.  As summarized below, the Commission has
granted one such waiver (Southwestern), another has been withdrawn (BellSouth), and the
remainder (U S West, Bell Atlantic) are pending.
     19.  On October 23, 1995, we granted Southwestern Bell Mobile Systems (SBMS) a
limited waiver of Section 22.903 to enable it to provide integrated cellular and "Competitive
Landline Local Exchange" (CLLE)  service outside of Southwestern Bell Telephone
Company's (SWBT) local exchange service area.  SBMS had sought permission to provide
these services on an integrated basis without being required to create a new structurally
separate entity.  We concluded that the waiver would promote significant Commission
objectives by encouraging local  loop competition, avoiding duplicative costs, and promoting
increased efficiency, thus enhancing SBMS' ability to provide innovative service.  We also
found that rigid application of Section 22.903 to out-of-region cellular and landline services
would not serve the public interest objectives of the rule, and would impose a significant and
unnecessary regulatory burden on a potentially valuable service.
     20.  On November 8, 1995,  U S West, Inc. (U S West) filed a request for waiver of
Section 22.903 so that its out-of-region telecommunications subsidiaries and affiliates can
provide integrated cellular and CLLE services through a single company.  Similarly, on
January 19, 1996, Bell Atlantic NYNEX Mobile, Inc. (BANM) also sought a waiver of
Section 22.903 to the extent necessary to permit BANM to provide integrated competitive
landline local exchange services outside the combined Bell Atlantic and NYNEX local
exchange service regions.   U S West and BANM each argue that its waiver request is
identical to the SBMS request, and should be granted under the same rationale.
     21.  On August 25, 1995, BellSouth Corporation (BellSouth), filed a request seeking
authorization to engage in in-region resale of cellular service without the structural separations
 required by Section 22.903.  BellSouth stated that it sought to provide integrated landline
local exchange, cellular, and PCS through its incumbent LEC, BellSouth Telecommunications,
Inc.  (BST), by reselling the cellular and PCS service of its own affiliates, as well as that of
unaffiliated providers.  BellSouth argued that the structural separation rule no longer serves
the  public interest, and prevents it from offering customers "one-stop shopping" for
integrated wireline and wireless services, while potential competitors such as GTE, AT&T,
and Sprint are not subject to the structural separation requirement for landline, cellular and
PCS service offerings.  On February 12, 1996, BellSouth formally withdrew its Resale
Authorization   Request.
     22.  On October 11, 1995, Ameritech Communications, Inc. (ACI), a newly-formed,
structurally separate subsidiary of Ameritech Corporation, requested a limited waiver of
Section  22.903 in order to provide integrated in-region local exchange, long distance, and
cellular service.  ACI was formed prior to the 1996 Act, in part, to enable Ameritech to
obtain relief from the MFJ in exchange for opening its local exchange bottleneck to competi-
tion.  Because ACI is and will remain an entity structurally separated from Ameritech, ACI
requests a waiver only of the provisions of Section 22.903 that (1) prohibit a BOC-affiliated
cellular carrier from owning landline facilities, and (2) prohibit a BOC affiliate from engaging
in the sale and promotion of cellular service.
     23.  The Telecommunications Act of 1996.  The 1996 Act contains specific
requirements that BOCs be permitted to enter into previously prohibited or constrained lines
of business, including, inter alia, in-region interLATA telecommunications services,
interLATA manufacturing, information, and electronic publishing services through a separate
affiliate.  In certain cases, this separate subsidiary requirement "sunsets" after a number of
years.  With respect to in-region interLATA service, these separate affiliates are under
additional structural and transactional constraints similar to, although more stringent than,
those contained in Section 22.903(b)-(g), including the requirement that the BOC deal with
the separate affiliate on an "arm's length basis."  Section 272(c) imposes additional
nondiscrimination safeguards on a BOC's dealings with its separate affiliate.  With the
addition of new Section 601(d), the 1996 Act expressly permits BOCs to market jointly and
sell CMRS together with a variety of landline services.   Section 702 of the 1996 Act
amended Title II of the 1934 Act to add new Section 222, which contains new requirements
for maintaining the  confidentiality of carrier information and CPNI.
                        IV.  BOC CELLULAR SAFEGUARDS
A.  Introduction
     24.  In this section we address one of the issues remanded by the Sixth Circuit in
Cincinnati Bell, "whether the structural separation requirement continues to serve as a
necessary regulatory restriction" on the BOCs.  We discuss this question below, and propose
a series of amendments to the rule intended to provide BOCs sufficient flexibility in serving
the public, while preserving our ability, and the ability of BOC competitors, to detect and
correct any potential anticompetitive behavior, whether that be cost shifting, interconnection
discrimination, or some other form of leveraging the BOCs' dominant position in the local
exchange market.   We also seek comment whether the public interest would be better served
by (1) a transitional arrangement whereby some aspects of our current structural separation
requirements would be retained during an interim period or (2) immediate replacement of
Section 22.903 with the uniform streamlined safeguards we propose in Sections V and VI for
in-region LEC PCS and other commercial mobile radio services.
B.  Record on Continued Need for Section 22.903
     25.  In response to the various BOC waiver petitions, and in ex parte filings
responding to the Sixth Circuit's Cincinnati Bell remand decision, described above in Section
II, a record was developed on the question of the continued need for Section 22.903.  Insofar
as the issues raised in those pleadings directly address the question of structural versus
nonstructural safeguards and  implementation of the provisions of the 1996 Act regarding
BOC provision of CMRS, they are summarized fully in Appendix A.  In this section, we
highlight the general policy arguments supporting and opposing retention of Section 22.903.
     26.  In general, the BOCs argue that Section 22.903 is no longer needed to prevent
cross-subsidization of cellular operations or to assure nondiscriminatory interconnection, and
should be eliminated in its entirety.  BellSouth argues, in its Resale Request, that structural
separation was intended to foster the competitive development of the new cellular industry,
and that the rule was never intended to be either absolute or permanent.  BellSouth argues
that market circumstances have changed dramatically since the structural safeguards were
adopted, and that the rule is no longer needed to deter cross-subsidization and discriminatory
interconnection.  Continued application of this requirement to the BOCs alone, according to
BellSouth, places BOCs at a competitive disadvantage with respect to wireless providers,
particularly PCS providers who may offer integrated landline and wireless services.  Bell
Atlantic claims that "one-stop-shopping" is an important customer requirement, and that recent
studies conclude that the vast majority of customers want a single provider for all their
telecommunications needs.  Bell Atlantic argues that its competitors have already begun to
offer packaged services, or have announced their intention to do so in the near future.
     27.  Southwestern Bell and Bell Atlantic also argue that the public interest would be
served by the elimination of the structural separation requirements of Section 22.903 in light
of  the sufficiency of existing nonstructural safeguards to address any possible concerns
regarding cross-subsidization or interconnection discrimination.  Southwestern Bell contends
that the existing separation rule -- which applies only to the BOCs and only to their cellular
service, harms consumers and inhibits competition.  Several BOCs have taken the position,
in response to the Sixth Circuit's Cincinnati Bell decision, that the court has directed the
Commission to immediately eliminate Section 22.903.
     28.  Opponents of the relief requested by the BOCs generally caution that
circumstances have not changed with respect to the BOCs' dominant market position.  AT&T
argues that while  competition has taken hold in many telecommunications services, the BOCs
continue to dominate the local exchange market, and can use their control of bottleneck
facilities to disadvantage  wireless competitors with respect to interconnection.  Others argue
that the presence of companies such as AT&T and AirTouch in the wireless market does not
diminish the need for structural separations.  Despite the fact that some of these companies
have a nationwide presence in wireless, these commenters contend, they still are new entrants
into the local exchange market.  Nextel dismisses BellSouth arguments that AT&T, MCI,
Sprint, and GTE are competitive threats to BellSouth's ability to provide its customers with
"one-stop shopping" because these carriers are not yet providing landline local exchange
service within BellSouth's territory.
     29.  In a set of joint ex parte letters concerning the Cincinnati Bell Order, AirTouch,
Comcast, and Cox argue that the BOCs' requests for relief from structural separations ignore
the  effects of their continuing and undisputed control over essential bottleneck facilities.
They state that the LECs' wireless competitors will need to enter into a series of agreements
with the incumbents for such things as mutual exchange of traffic, the location of equipment
and the sharing of network functionalities.  They argue that LEC ability to control the fate of
their  competitors makes LECs with CMRS affiliates a special case, and that, as part of the
remand proceeding, the Commission must examine the competitive issues raised by in-region
cellular and  broadband PCS activity by the LECs.
     30.  In particular, AirTouch, Comcast, and Cox argue that rather than accepting at face
value LEC claims of "cost savings" and "efficiencies" of "integrated" LEC wireless activity,
the  Commission must require LECs to quantify the harm they allege is inherent in retaining
or expanding structural separation.  They further contend that the success of BOC cellular
affiliates  demonstrates that structurally separate BOC in-region cellular operators have a
firmly established brand name, vibrantly growing customer base and are financially solid.
According to AirTouch, Comcast, and Cox,  competitors of the LECs will be harmed if
structural separation or equally effective nonstructural safeguards are not imposed on LEC in-
region wireless activity.  They claim that structural separation is one way to address the
acknowledged incentive and ability of a LEC to favor its own CMRS operations.   In
addition, they argue that BOCs, to gain relief  from the cellular structural separation
requirement, must show that the elimination of the requirement is not harmful despite the
persistence of the local exchange bottleneck.  Several BOCs filed responses opposing the
relief requested in the Joint Safeguards Ex Parte letter, with Southwestern advocating
immediate elimination of Section 22.903.
C.  Interconnection Actions Relevant to Structural Separation
     31.  As noted above, one of the primary objectives underlying our adoption of
structural separations was to prevent interconnection discrimination by BOCs in their
relationship with affiliated and unaffiliated cellular carriers.  In considering whether to retain
structural separation for BOC cellular service, we must take into account whether proposed
changes to our existing  LEC CMRS interconnection policies either support retention of
Section 22.903, or demonstrate its obsolescence.  In addition, the 1996 Act contains
significant new provisions with respect to interconnection.  We briefly review  the nature of
these  pending changes in this section.
     32.  Current FCC Requirements.  The  LECs' cellular interconnection obligations
were defined in the same order that established the structural separations requirements, as part
of a comprehensive regulatory framework.  In the Cellular Order, the Commission required
the BOCs to furnish interconnection to cellular systems upon terms "no less favorable than
those offered to the cellular systems of affiliated entities or independent telephone
companies."  In its subsequent Policy Statement, the Commission outlined its interconnection
standard, which requires all local telephone companies to provide: (1) the type of
interconnection the mobile carrier requests; (2) interconnection to the nonwireline carrier that
is not less favorable than that furnished to its affiliated wireline cellular carrier; and (3)
reasonable interconnection arrangements with the nonwireline carrier that may not be the
same as those used by the wireline cellular carrier.
     33.  This framework for LEC provision of interconnection to cellular licensees was
further  refined in the Interconnection Order, in which the Commission ordered the LECs to
engage in good faith negotiation over the terms and conditions of interconnection with
cellular carriers.   The Commission stated that it expected the agreements to be concluded
without delay, noting that a cellular carrier having difficulty obtaining a good faith agreement
may file a complaint before the Commission under Section 208 or 312 of the Act.  The
Commission further determined that the relationship between the landline carrier and the
cellular carrier was that of "co-carriers," and therefore the Commission expected the carriers
to observe the principal of mutual compensation.  In the CMRS Second Report and Order,
we extended our existing policies with respect to LEC/cellular interconnection to cover LEC
interconnection with all CMRS providers.
     34.  Pending FCC Rule Changes.  We have continued to examine LEC/CMRS
interconnection issues in recent dockets.  On December 15, 1995, we initiated CC Docket No.
95-185 by adopting an NPRM to examine issues relating to compensation for LEC/CMRS
interconnection.  In the Interconnection Compensation NPRM, we found that if the
commercial mobile radio services are to compete directly against LEC landline services, it is
important that the prices, terms and conditions of interconnection arrangements not serve to
buttress LEC market power against erosion by competition.  The Interconnection
Compensation NPRM further finds that, at least for the near future, there is likely to be an
imbalance in negotiating power between the incumbent LECs and new CMRS providers
seeking to enter local markets.  Thus, we have recently found that our existing LEC/CMRS
interconnection rules and policies are insufficient to protect against discriminatory
interconnection practices and rates, and have tentatively concluded that further regulatory
oversight and intervention will be needed for some time in the future in order to prevent the
LECs from abusing their position of control over interconnection to the public switched
telephone network.
     35.  Interconnection Changes Pursuant to Sections 251 and 252.  Section 251 of the
1996 Act imposes extensive interconnection obligations on all telecommunications carriers,
and particularly on LECs and incumbent LECs.  Section 251(a) imposes a general duty on all
telecommunications carriers (1) to interconnect directly or indirectly with the facilities and
equipment of other  telecommunications carriers; and (2) not to install network features,
functions, or capabilities that do not comply with the guidelines and standards established
pursuant to Section 255 or 256.  The new interconnection obligations in Section 251(b) for
LECs govern LEC provision of: resale; number portability; dialing parity; access to rights-of-
way; and reciprocal compensation for the transport and termination of traffic originating on
another carrier's facilities.
     36.  Section 251(c) contains additional obligations for incumbent LECs, which include,
inter alia:  (1) good faith negotiation of terms and conditions of agreements to fulfill Section
251(b) and (c) interconnection obligations; (2) provision of interconnection with the LEC's
network for transmission and routing of telephone exchange and exchange access service, at
any technically feasible point, that is at least equal in quality to that provide by the LEC to
itself or any affiliate or other party, on rates, terms and conditions that are just, reasonable
and nondiscriminatory; (3) provision of unbundled, nondiscriminatory access to network
elements to any requesting telecommunications carrier, at any technically feasible point on
rates, terms and conditions that are just, reasonable and nondiscriminatory; (4) provision of
public notice of changes in the information necessary for transmission and routing of services
using the LEC's network or of changes that would affect interoperabililty; and (5) the duty to
provide physical  collocation of equipment necessary for interconnection or access to
unbundled network elements at the premises of the LEC, on reasonable and nondiscriminatory
rates, terms and conditions,  unless the LEC demonstrates to the State commission that
physical collocation is not practical due to technical reasons or space limitations, in which
case the LEC may provide virtual  collocation.  Section 252 contains procedures for
negotiation, arbitration, and approval of agreements, and gives the States authority to resolve
interconnection disputes arising under  Sections 251 and 252.  In addition, pursuant to new
Section 252(i), a LEC must make available to any requesting carrier, on the same terms and
conditions, any interconnection, service, or  network element provided under an approved
agreement to which it is a party.
D.  Analysis of Continued Need for Section 22.903
     1.  Background
     37.  The question remanded by the Sixth Circuit is whether the structural separation
requirements of Section 22.903 continue to serve as a "necessary regulatory restriction" on the
Bell operating companies, or, whether changed circumstances, regulatory or otherwise, have
either obviated the need for such restrictions, or rendered them contrary to the public interest.
This Commission has repeatedly grappled with the question of traditional structural versus
nonstructural safeguards in the contexts of LEC landline enhanced, CPE, and wireless
services.  Although the results have varied over time, our fundamental approach and analysis
of the question has remained consistent.  The restrictions on the Bell companies in Section
22.903 were  imposed, as a general matter, in recognition of their dominant market position
in the local and exchange access markets, to prevent them from leveraging their dominance
into the newly created cellular service markets.  The structural separation requirements were
specifically intended to  protect BOC local exchange ratepayers by preventing cross-
subsidization of the more competitive cellular service, and to prevent discriminatory
interconnection practices with respect to the non-wireline cellular provider by requiring that
the wireline and non-wireline entities exist independently from one another with respect to
facilities, operations, management and other personnel.  With respect to both cross-
subsidization and interconnection, structural separation was believed to permit easier detection
and disclosure of improper activities, and to reduce unnecessary regulatory intrusion into
competitive or unregulated operations.
     38.  We have also recognized that structural separation entails costs to the carriers, in
the form of lost efficiencies of scope and added costs of establishing separate facilities,
operations, and personnel, as well as lost opportunities for customers to obtain integrated and
innovative service packages.  In the case of CPE and enhanced services, the Commission
recognized costs to small business and residential customers because the BOCs, which already
had existing marketing contacts with households in their service regions, could not inform
them of new and desirable enhanced service offerings, such as voice messaging, through
existing marketing contacts.  The result, in many cases, was that such customers would never
learn of the availability of such desired offerings at all.  Thus, in the Computer III
proceedings, the public benefit of dissemination of advanced telephone offerings that has been
the product of joint marketing of basic and enhanced services and CPE was found to
outweigh the costs to competition of integrated BOC offerings, if such integrated services
were provided pursuant to appropriate nonstructural safeguards.
     39.  The BOCs claim that we have previously recognized the value of integrated
offering with respect to enhanced services, CPE and PCS, and argue that the same rationale
should apply to their provision of cellular service.  Their competitors, on the other hand, have
claimed that the benefits of service integration for the customers, and the cost savings to the
BOCs, are vastly  outweighed by the costs to competition that integrated operations would
present.  Although the Broadband PCS orders referred to the economies of scope arising from
the use of "wireless loops" and "wireless tails," the Commission made no specific findings
about the public benefits of integrated operations or joint marketing of BOC cellular and
landline services.  Nor did it undertake the task of reviewing the nonstructural safeguards
developed for the BOCs' provision of integrated local exchange and enhanced services and
CPE to determine their suitability for application to the LEC provision of CMRS.  In contrast
to the Computer III proceeding in which  nondiscriminatory network interconnection
safeguards were a prominent feature of the nonstructural safeguard plan, the only
nonstructural safeguards specifically addressed in the Broadband PCS proceeding were the
cost accounting and allocation rules contained in Parts 32 and 64 of the Commission's rules.
Thus, the nature of the nonstructural safeguards, other than the accounting rules, that might be
applied in lieu of structural separations to LEC-provided CMRS has never been squarely
addressed by this Commission, and we begin the process of doing so in this Notice, as part of
our examination of the issues remanded by the Sixth Circuit in the Cincinnati Bell decision.
     2.  Discussion
     40.  We observe that, in light of the many separate affiliate requirements in the 1996
Act, it is evident that Congress has concluded as a general matter that such requirements,
together with associated nondiscrimination safeguards, constitute an appropriate initial
safeguard for BOC entry into the provision of certain competitive services,  which can be
phased out as markets become more competitive.  At the same time, we note that the BOCs
have been subject to structural separation requirements for their cellular operations since their
inception, and that the BOCs are generally incumbents in CMRS markets, facing market entry
by PCS competitors.  In this Notice, we explore varying approaches to separate affiliate and
nondiscrimination safeguards for BOC cellular operations, while proposing to give full
expression to Congressional intent regarding joint marketing, customer proprietary information
and network information disclosure requirements.
     41.  At the outset, we think it important to define the terms that we utilize in this
analysis.  By "structural separation," we mean the kind of requirements that are spelled out in
Section 22.903 and in our Computer II decisions.  We define "separate affiliate" requirements
more generally, so as to include structural separation, but also to encompass less restrictive
provisions that relate to corporate structure without necessarily including requirements for
separate officers, separate personnel, and arm's-length transactions.   We thus propose, in later
sections of this Notice, limited, "non-structural" separate affiliate requirements which do not
entail all aspects of structural separation.
     42.  We find that although there have been vast changes in the nature of the wireless
market since the 1981 imposition of our BOC cellular structural separation requirement, the
market power of the BOCs in the landline local exchange and exchange access markets has
remained relatively stable, and is likely to remain so until the sweeping market entry and
interconnection changes authorized by the 1996 Act have taken hold.   We note that the
interconnection provisions of the 1996 Act, designed to facilitate entry into the  local
exchange market, have only recently been legislated and will not be implemented for at least
several months.  The BOCs thus currently retain market power in the local exchange market,
and therefore control over public switched  network interconnection, within their in-region
states.   We seek comment as to whether in-region application of separate affiliate and
nondiscrimination requirements would continue to serve as an important regulatory check on
the BOCs' market power in local exchange.  In  the following paragraphs, we examine each
of the traditional bases for our cellular structural separation requirement in light of today's
telecommunications market and regulatory framework,  and also examine the overall relative
merits of structural versus non-structural safeguards.
     43.  Interconnection.  Prevention of  interconnection discrimination was, as we have
discussed above, one of the central justifications for imposing structural separation.  The
insufficiency of our existing interconnection safeguards to protect against CMRS
interconnection pricing discrimination has been extensively discussed in the LEC/CMRS
Interconnection Compensation NPRM.  We also note that these existing LEC/CMRS
interconnection requirements grew from the initial requirement that LECs (at that time,
primarily the AT&T Bell operating companies) offer the nonwireline cellular carrier
interconnection arrangements no less favorable than those offered to their wireline affiliates,
and this obligation was established in the same order creating the cellular structural separation
requirement.  A separate cellular affiliate provides a template by which to measure the rates,
terms and conditions of these entities'  interconnection agreements with their affiliated LECs.
The effective enforcement of nondiscrimination rules depends on the visibility of the
transactions under scrutiny.  Such visibility does not depend on structural separation per se,
however, but could be achieved through a more limited separate affiliate requirement,
including one that permitted integrated management with affiliates providing landline services.
We believe that it will be particularly crucial to retain some form of separate affiliate
requirement, either structural or non-structural, as the new CMRS entrants begin to negotiate
their interconnection arrangements with the incumbent  BOCs.  We seek comment on our
analysis.
     44.  Price Discrimination.  Another aspect of the problem alleged by BOC CMRS
competitors is that integrated operations present opportunities for pricing discrimination.
Competitors have essentially complained that, absent separation of these activities into two
corporate structures, any "charge" that a local exchange carrier places on services or facilities
provided to wireless operations would be merely a bookkeeping entry, subject to the cost
allocation requirements of Section 64.901 of our rules.  In order to determine whether such
carriers were pursuing a nondiscriminatory pricing policy, competitors and this Commission
would be required to compare these cost allocations with actual charges levied on non-
affiliated competitors, which they maintain would be a problematic comparison, especially
where allocations of joint and common costs are concerned.  We are concerned that the
possibility of discrimination by a BOC or incumbent LEC in favor of its own cellular
operations and against other CMRS providers could be increased absent some form of
separate subsidiary requirement, either structural or non-structural, and that our tasks of
detecting such discrimination and determining whether it is reasonable or unreasonable would
be greatly complicated.  We seek comment on the value of separate affiliates in detecting and
deterring  pricing discrimination, and whether the degree of separation (i.e., structural versus
non-structural) has any effect on the value of this safeguard.
     45.  Cross-subsidization.  With respect to the other historical basis for the structural
separation requirement, the BOCs have argued that the possibilities of cross-subsidization
have greatly declined in number and scope since the early 1980s, so that cross-subsidization
no longer serves as a rationale for keeping the structural separation requirement of Section
22.903.  They claim that they have neither the incentive nor the opportunity to cross-subsidize
cellular service.  In contrast, their competitors have argued that none of the changes in
accounting rules, reporting requirements, audit schedules or the adoption of the price cap form
of rate regulation, cited by the BOCs, can replace the protections against cross-subsidy
offered by Section 22.903.  In addition, they maintain that cross-subsidization through
misallocation or misassignment of costs is still possible, and that the detection of landline to
cellular cross-subsidization is made more difficult by the fact that cellular rates are no longer
subject to tariff.
     46.  In the Computer II and BOC Separation Orders, the Commission observed that
structural separation and cost accounting rules are two complementary parts of a single
regulatory regime.  Our subsequent Joint Cost Order, and the rules and regulations adopted
thereunder, impose significant additional new cost allocation and affiliate transaction rules on
the LECs, that were specifically designed to prevent cost-shifting in an environment of LEC
provision of integrated regulated and unregulated services.  Our Joint Cost Order, affiliate
transaction and Part 64 cost allocation rules, together with our price cap regime for tariffed
LEC interstate services go far in reducing the possibility of undetected cost-shifting among
the LEC interstate services.  Nonetheless, some commenters continue to argue that cross-
subsidization is possible even under a price cap regime, for those services that are either not
subject to a "pure price cap" option, or continue to be regulated under a rate-of-return system
at the intrastate level.  Presumably, the cost-shifting these parties are concerned with would
occur between the as-yet primarily intrastate competitive cellular service and the intrastate as-
yet primarily monopoly local exchange service.  We seek further comment on these issues,
and urge the parties alleging continued cross-subsidy problems under price caps to provide
specific data and argumentation in support of their claims and to address the relative value of
structural and non-structural separate affiliate requirements in this regard.
     47.  Leveraging of Market Power.  One concern with respect to integrated landline and
cellular operations has been the incentives and opportunities such a corporate structure
provides for leveraging of the LEC's local exchange market power into the more competitive
cellular and, more generally, CMRS market.   Because structural separation requirements have
been in place for BOC cellular service since its inception, we cannot determine how
differently the market would have developed absent these safeguards.  We note that, during
the period that structural separation  has been in place, the market shares in each cellular
service area  have  been divided on a roughly equal basis between wireline and nonwireline
carriers.   While this indicates that, within the parameters of a duopoly market structure,
some degree of competition has developed,  it provides no evidence of the specific role of
structural separation in promoting such competition.   The question before us is whether
continued requirements for separate officers, separate books of account, separate facilities and
separate personnel in Section 22.903  for BOC cellular operations would have a beneficial
effect for increased competition with the advent of PCS.
     48.  On the record before us at this time, we are not able to determine whether our
current requirements or  some lesser degree of separation is warranted for BOC cellular
service during this period of transition to more competitive telecommunications markets.   In
the case of BOC cellular service without structural separation, the incumbent LEC could be
integrated with its cellular affiliate, and therefore could realize efficiencies through integrated
management and operations that have previously been denied.   In a competitive environment,
such efficiencies could promote higher-quality, lower-cost service to subscribers.   On the
other hand, a BOC which integrated a well-established incumbent wireless provider into its
landline management and operations could possess incentives and opportunities to favor its
own wireless operations while at the same time providing essential services and facilities to
its cellular system's potential competitors.   We are concerned about the potential for abuses
in provisioning, installation, maintenance and customer network design that might not be
addressed adequately by the  uniform nonstructural safeguards that we propose for  LEC
provision of CMRS, at least during the transitional period before implementation of the 1996
Act's interconnection and network unbundling provisions.
     49.  We have acknowledged that broadband PCS is widely expected to  provide
"major new competition for cellular systems," as well as potential local loop competition.
Thus, because PCS is likely to be competitive with both landline local exchange and
incumbent cellular service, an integrated double incumbency (BOC cellular and local
exchange operations) would appear to increase the incentives and the opportunities of the
BOC to act in an anticompetitive manner.  Structural separation, if continued on an interim
basis, could prevent, for example, the BOC from tasking a single set of officers and personnel
with the interconnection arrangements for its cellular unit's PCS competitor as well as
dealings with that competitor's major customers to provide local exchange service, or cellular
service, or both.  The nonstructural safeguards we propose below in Section VI would not
prevent such sharing of personnel and integrated management decisionmaking.  We seek
comment on whether such integrated operations would present realistic opportunities for
anticompetitive conduct and, if so, whether safeguards less restrictive than our current
structural separation rules would sufficiently constrain such conduct.
     50.  Costs and Benefits of Integrated Versus Structurally Separated Operations.
Whatever the benefits of structural separation to BOC competitors, these requirements also
place costs on the BOCs that are not borne by any other CMRS market participants.  We next
address the balance of costs and benefits arising from our current structural separation
requirements.
     51.  The BOCs have sought relief from Section 22.903, both through individual waiver
petitions and  requests that the rule be eliminated, primarily so that they could benefit from
the cost efficiencies of integrated operations, and so that their customers could benefit from
"one-stop-shopping," i.e., a single point of contact for all service, repair and billing needs.
We recognized similar benefits in declining to adopt structural separation for LEC provision
of PCS.  We note, however, that that decision was in the context of a discussion of the goal
of promoting a set of  then-undeveloped new services where the cellular structural safeguards
were to be retained and restrictions placed on cellular-PCS cross-ownership. We also
recognize that "one-stop-shopping" may, from the customer  standpoint, constitute a valuable
benefit.  This point is substantially addressed by Section 601(d) of the 1996 Act, which
confers upon BOCs, and other companies, the right to market jointly and sell certain landline
services together with CMRS.  Thus, Section 601(d) appears to have removed one of the
principal "costs" to the BOCs of continued compliance with Section 22.903 of our rules.
Section 601(d) increases the flexibility afforded the BOCs to meet customer demands without
necessarily eliminating the remainder of the structural separation requirement.  We seek
comment on this analysis.
     52.  We also seek data on the relative benefit of integrated operations other than those
relating to joint marketing.   Although the BOCs have alleged that there are cost savings to
be realized from integrated operations, they have not presented a quantification of either the
magnitude of these overall benefits, or the costs to the BOCs to continue to maintain
structurally separate corporate affiliates for cellular service.  We believe that this data is
essential to final evaluation of the benefits of integrated versus separated operations, and urge
the parties to include such data in their comments.  We therefore seek comment on specific
public benefits from integrated cellular\landline operations that structural separation precludes.
Parties submitting comments should provide specific instances of savings, economies of scale
and/or scope, or other consumer benefits that they contend would be impossible without
integrated operations.  We are cognizant of the fact that many carriers may already have plans
underway for more integrated uses of landline and wireless capabilities.  Therefore, we are
particularly interested in receiving information and comment on the effect on our cost-benefit
analysis of our recent initiatives seeking to introduce greater flexibility for CMRS licensees'
use of their spectrum.
E.  Proposed Revisions to Section 22.903; Immediate Relief; and Implementation of
Section 601(d), Section 702 and Section 251(c)(5) of the 1996 Act
     53.  Regardless whether we determine that the core structural separation requirements
in Section 22.903 should be eliminated without delay or after some period of transition, we
believe that certain aspects of the restrictions under which BOC separate cellular affiliates
must operate have, over time, either become obsolete, or should be narrowed.  If we retain
some form of structural separation, it is our intention that the rule continue to serve the public
interest by not unduly limiting the business operations of the BOCs.  Therefore, we
tentatively conclude that, at a minimum, certain aspects of Section 22.903 may be safely
relaxed to permit the BOCs increased flexibility in meeting customer needs, while at the same
time protecting BOC ratepayers and wireless competitors.  We discuss in a subsequent section
whether Section 22.903 should be replaced in its entirety by the uniform set of safeguards we
propose to apply generally to LEC provision of CMRS.
     1.  Limitation of Section 22.903 to In-Region BOC Cellular Services
     54.   In the SBMS Waiver Order, we concluded that the out-of-region provision of
integrated competitive landline local exchange and cellular service by a single, structurally
separate BOC subsidiary, SBMS, was in the public interest because it would promote local
loop competition, without raising the types of competitive concerns that would be raised by
in-region integrated landline and wireless services.   The 1996 Act also distinguishes
between the competitive risks posed by in-region versus out-of-region BOC entry into
interLATA markets.  Section 271(b)(2) generally permits a BOC, or any affiliate of that BOC,
to provide interLATA services originating outside its "in-region" states immediately after the
date of enactment of the 1996 Act.  On the other hand, BOC provision of interLATA service
originating, in-region is generally conditioned on compliance with the new interconnection
obligations, the presence of a facilities-based competitor, or failure of one to request
interconnection, and the satisfaction of a "competitive checklist."   Moreover, in-region
originating interLATA services may only be provided by the BOC through a separate affiliate
as specified in Section 272.
     55.   We continue to believe, consistent, with the SBMS Waiver Order, that for out-of-
region combined service offerings, the costs to the carrier of establishing a subsidiary in
addition to their structurally separate cellular subsidiary to provide integrated competitive
landline local exchange  (CLLE) and cellular services outweigh any possible benefits to the
public of such fragmented operations.  We  also believe that additional relief is warranted for
BOC provision of out-of-region cellular service, and tentatively conclude that Section 22.903
should be limited in scope to in-region services of the BOC and its cellular operations, or, in
the case of a joint venture between two or more BOCs, the in-region services of all of the
joint venture participants together.  Thus, for out-of-region cellular services, BOCs would be
free to provide service directly, if they so desired.  We tentatively conclude that such  relief
would promote local exchange competition in those areas in which the affiliated LEC is not
the incumbent local exchange provider.  We seek comment on these tentative conclusions.
     2.  Interim Relief for Out-of-region Operations
     56.  Following issuance of the SBMS Waiver Order, waiver petitions were filed by
U S West and Bell Atlantic seeking identical relief for out-of-region activities.  No comments
or  oppositions were filed in response to these petitions.  In this Notice, we take action that
goes beyond the relief granted SBMS, and eliminates any out-of-region effect of Section
22.903, as part of our effort to narrowly tailor its restrictions to reach only the relationship
between the incumbent BOC and its cellular subsidiary in the incumbent's in-region service
area.  As we explain above, this approach is consistent with the 1996 Act's treatment of in-
region versus out-of-region BOC entry into new, or previously constrained, service.
     57.  Although this relief goes beyond the scope of the SBMS Waiver Order, we
conclude, in light of the record accumulated to date in the various BOC waiver proceedings,
and for the reasons stated in the SBMS Waiver Order, that the public interest would be served
by granting the BOCs interim relief from the out-of-region reach of our existing Section
22.903 requirements.  We conclude that immediate out-of-region relief from Section 22.903
will benefit consumers by promoting competition in those areas in which the  BOC cellular
operation is not affiliated with the incumbent  LEC by permitting the BOCs to structure their
out-of-region  offerings to suit their business judgment.  We further conclude that the BOCs
may exercise this degree of flexibility in provisioning their out-of-region cellular services
without undermining the core protections of the rule for either the BOCs' in-region local
exchange ratepayers, or their cellular competitors.  With respect to in-region services, the
competitive threat arises primarily from the need of the non-affiliated cellular carrier to
interconnect to the public switched network through its  competitor's landline corporate
affiliate.  This crucial relationship does not obtain out-of-region.  Pursuant to Sections 1.3 and
22.19 of our rules, the Commission may grant a waiver upon its own motion, for good cause
shown.  We are hereby granting to all BOCs a waiver of the requirements of Section 22.903
with respect to the provision of cellular service outside of their in-region service areas.  This
action also has the effect of granting the individual waiver petitions filed by U S West and
Bell Atlantic.
     3.  Ownership of Landline Facilities
     58.  Section 22.903(a) prohibits, inter alia, BOC separate cellular affiliates from
owning "any facilities for the provision of landline service."  In its waiver petition, Ameritech
expressly sought relief from this provision so that its in-region, but structurally separate
affiliate, ACI, could own landline facilities for the provision of competitive landline  local
exchange and long distance services and resell cellular service on an integrated basis.
     59.  We propose to amend the portion of Section 22.903(a) prohibiting the cellular
affiliate from owning any facilities for the provision of landline service to permit a BOC
cellular affiliate to own landline facilities for the provision of landline services, including
competitive landline local exchange (CLLE) and interexchange service, in the same market
with the affiliated incumbent LEC.   Thus, the rule would be modified only to prohibit the
cellular affiliate from owning -- including jointly owning with the incumbent affiliated LEC
--landline facilities that the latter uses in the provision of landline local exchange services.
We believe that retention of this prohibition is appropriate for the same reasons that we
propose to include a limited separate affiliate requirement in our proposed uniform
LEC/CMRS safeguards infra, i.e., to distinguish clearly between charges applied to all
interconnectors and joint cost allocations resulting from integrated operations.   We believe
that such relief would benefit the public by enabling a new entrant to the local exchange
market, such as ACI, to provide a package of services without the risk of LEC monopoly
cross-subsidization or interconnection discrimination.  We seek comment on this proposal.
     4.  BOC CMRS Joint Marketing and Resale; Section 222 CPNI Requirements;
and Section 251(c)(5) Network Information Disclosure Obligations
     60.  In this section, we explore changes to Section 22.903 to reflect the new
landline/CMRS joint marketing and sale authority, and related changes with respect to CPNI
and network information disclosure consistent with Sections 601(d), 702 and 251(c)(5) of the
1996 Act.
     (a)  Joint Marketing and Promotion
     61.  Section 601(d).  The 1996 Act expressly permits a BOC to market jointly and sell
CMRS in conjunction with several types of landline service in Section 601(d).  Section
601(d) states:   "Notwithstanding section 22.903 of the Commission's regulations (47 C.F.R.
22.903) or any other Commission regulation, a Bell operating company or any other company
may, except as provided in sections 271(e)(1) and 272 of the Communications Act of 1934 as
amended by this Act as they relate to wireline service, jointly market and sell commercial
mobile services in conjunction with telephone exchange service, exchange access, intraLATA
telecommunications service, interLATA telecommunications service, and information
services."
     62.  In its February 14, 1996 ex parte letter, AirTouch asserts that Section 601(d)
allows LECs to market jointly CMRS and landline services, but contains no language
prohibiting  structural separation of CMRS provided by a LEC.  AirTouch observes that when
this section was proposed in the House, its sponsor specifically affirmed that the section does
not lift the FCC's prohibition against the Bell operating telephone companies providing
cellular and landline services on an integrated basis.  Finally, AirTouch maintains, Section
601(d) is not self-executing, and that the Commission should determine the definition of joint
marketing, and decide how  it is to be implemented.
     63.  Discussion.  The legislative history indicates that Section 601(d) was added to the
1996 Act specifically to provide all BOCs, and, by its text, "any other company," with the
same relief from Section 22.903 that BellSouth sought in its September 25, 1995 Resale
Authorization Request, discussed in Section IV, above.  That is, it permits the landline LEC
affiliate to market jointly and sell, or more specifically, to resell, the cellular service of  its
separate cellular subsidiary.  We tentatively conclude that the provision does not necessarily
require the elimination of the remainder of our current structural separation requirements.  As
support for this conclusion, we note that the authority to engage in joint marketing and sale of
landline and CMRS services is expressly made subject to the provisions of Section 272,
which include separate affiliate requirements.  We tentatively conclude that the competitive
concerns raised in response to the BellSouth Request are relevant to our regulatory response
to this new statutory authority, and that we should take these into account in determining how
this statutory provision affects the other provisions of Section 22.903 other than subsection
(e).  While the language and statutory history of Section 601(d) of the 1996 Act indicate that
the provision is self-executing and thus Section 22.903(e) is now a nullity, we believe that we
retain authority and responsibility to determine the scope of this statutory provision, the
definition of joint marketing intended, and the rules to define the relationship between the
affiliated entities engaged in such joint marketing.  We seek comments on our interpretation
of the effect of Section 601(d).
     64.  Consistent with our interpretation of the intent behind Section 601(d), we propose
to define "joint marketing" as referenced in that provision as the advertising, promotion, and
sale, at a single point of contact, of the CMRS, telephone exchange service, exchange access,
intraLATA and interLATA telecommunications, and information services provided by the
BOC.  Such joint marketing also includes, but is not limited to, activities such as promotion,
advertising and in-bound service marketing.  We further tentatively conclude that, at a
minimum, new Section 601(d) restores the ability of the BOCs to engage in the joint sale or
promotion of cellular and landline service.  In addition, Section 601(d) expressly cross-
references Section 271(e)(1) and 272 of the 1996 Act.  Section 272(f)(3) preserves the
authority of the Commission to implement safeguards consistent with the public interest,
convenience and necessity.  We tentatively conclude that the public interest in preventing, and
permitting easy detection of, cross-subsidization requires that such joint marketing be done on
behalf of the separate affiliate, subject to our affiliate transaction rules and classified as a
non-regulated activity, on a compensatory, arms-length basis.  This is not only consistent with
the original requirements of Section 22.901, but is also consistent with new Section
272(b)(5)'s requirement that the new BOC separate affiliate required under the 1996 Act
"shall conduct all transactions with the BOC of which it is an affiliate on an arm's length
basis, with any such transaction reduced to writing and available for public inspection."
We seek comment on these tentative conclusions, and whether we should impose a
requirement similar to that of  Section 272(b)(5) of the 1996 Act, requiring that all
transactions be reduced to writing and made available for public inspection.
     (b)  Direct Sale of CMRS and Landline Services
     65.  The Wireless Telecommunications Bureau has previously determined that a
reseller of cellular service is engaged in the "provision of cellular service" for purposes of
Section 22.903.  In light of our tentative conclusions regarding the general meaning and
scope of the authority conferred on the BOCs by Section 601(d), we find it necessary to
address the question of what additional rules, if any, are required by the addition of this resale
authority.  We include here a summary of responses to the BellSouth Resale Request, to the
extent that issues related to such authority were raised.
     66.  Positions of the Parties.  BellSouth, in its Resale Request, argues that structurally
unseparated resale presents no danger of cross-subsidy, and that existing accounting
safeguards  are sufficient to deter any possible cross-subsidization of cellular resale by its
local exchange ratepayers.  It further maintains that increasingly, Bell Companies have no
meaningful source of "monopoly" funds from which to subsidize cellular service.  Several
parties responding to the BellSouth Resale Request raised cross-subsidization concerns
specifically presented by the integrated or "direct" provision of resold cellular and incumbent
landline local exchange service, despite the existence of nonstructural accounting safeguards,
price caps, and other related requirements.
     67.  Discussion.  Integrated  sales and marketing of resold cellular and incumbent LEC
landline local exchange service  are clearly permitted under Section 601(d).  The difficult
question before us is how to implement this provision in a manner consistent with the public
interest and our goal to promote a vibrant, competitive commercial mobile services and local
exchange marketplace.  The positions of the parties with respect to the withdrawn BellSouth
Request highlight the concerns of competitors, and should be taken into account as we move
to implement this provision.  We seek comment on whether we should impose conditions
implementing the resale authority under Section 601(d) of the 1996 Act, and if so, what these
conditions should be.  For example, to prevent discriminatory resale practices, should we
prohibit "one-of-a-kind" volume discounts for cellular service sold by the cellular affiliate to
the  affiliated telephone company for resale to the end user, as suggested in the record in
response to the BellSouth Resale Request?  Such unique discounts could offer per-unit airtime
rates lower than those available to other resellers, as a practical matter, based on the affiliated
telephone company's willingness to pay high guaranteed minimums to its affiliated joint
marketing partner in exchange for volume commitments that might be unreasonable for a non-
affiliated reseller.   In addition, we seek comment on whether we should mandate public
disclosure of rates, terms and conditions of service in cases where the LEC is reselling its
cellular affiliate's service.   In the alternative, we seek comment on whether the general
proscription against unjust or unreasonable discrimination in Section 202(a) of the
Communications Act and the formal complaint process are sufficient deterrents to
discriminatory resale practices.
     68.  In addition, we seek comment as to how implementation of Section 601(d) should
affect potentially related joint marketing and sale activities that are currently prohibited under
Section 22.903, such as joint installation, maintenance, and repair of BOC cellular and
landline local exchange services.  We also seek comment on the effect of the joint
marketing  authorization on activities such as billing and collection.  We note that joint
billing was initially proscribed in the BOC Separation Order on the grounds that the costs of
providing billing services "cannot be properly allocated between unregulated and regulated
operations" and because of concerns over access to CPNI.  Our subsequent adoption of
joint cost and CPNI rules rendered these concerns moot.  Moreover, in the Billing and
Collection Order, we found that a separate subsidiary requirement applicable to the
detariffed provision by local exchange carriers of billing and collection services was not
warranted.  We tentatively conclude that our reasoning in the Billing and Collection Order
remains valid  in the BOC cellular context and that the core structural separation requirements
need not be expanded so as to proscribe joint billing.  We find that the proper application of
the requirement in Section 22.903 for separate books of account would appropriately place
joint billing within the category of affiliate transactions, and that our Part 64 rules as they
apply to such affiliate transactions adequately address any concern over improper cross-
shifting through joint billing.   We seek comment on these tentative conclusions. We address
matters related to CPNI below in the context of the recent legislation affecting those matters.
     (c)  Privacy of Customer Information; CPNI Requirements
       69.  The new BOC authority to market jointly and sell CMRS together with landline
services under Section 601(d) raises an issue with respect to the operation of our rules on use
of  CPNI, and the treatment of such information under the 1996 Act.  Section 22.903(f)
currently prohibits the BOC from providing to its cellular affiliate any customer proprietary
information  unless such information is publicly available on the same terms and
conditions.  Our treatment of the issue of customer proprietary information in other
contexts, such as our decision on the AT&T/McCaw merger, was predicated on the use of
safeguards developed in rulemakings for the provision by dominant landline common carriers
of nonregulated enhanced services and CPE.  For the BOCs, the most recent iteration of the
CPNI rules is contained in our decision in the Computer III proceeding on remand from the
Ninth Circuit Court of Appeals.  These rules, as  well as other permutations that apply in
different instances to AT&T and the BOCs, permit these carriers to use the CPNI of some or
all of their customers for their marketing of enhanced  services and CPE, even if these
customers have not authorized the use of such CPNI for such purposes, or, in some cases,
have not even been apprised that they can direct the dissemination or protection of such
information.
     70.  Statutory Language.  Section 702 of the 1996 Act creates a new Section 222 in
Title II of the Communications Act of 1934.  Section 222(c)(1), "Confidentiality of Customer
Proprietary Network Information," provides:
     PRIVACY REQUIREMENTS FOR TELECOMMUNICATIONS CARRIERS.--
     Except as required by law or with the approval of the customer, a
     telecommunications carrier that receives or obtains customer proprietary
     network information by virtue of its provision of a telecommunications service
     shall only use, disclose, or permit access to individually identifiable customer
     proprietary network information in its provision of (A) the telecommunications
     service from which such information is derived, or (B) services necessary to, or
     used in, the provision of such telecommunications service, including the
     publishing of directories.
Section 222(c)(2) provides that, "[a] telecommunications carrier shall disclose customer
proprietary network information, upon affirmative written request by the customer, to any
person  designated by the customer."  Section 222(c)(3) requires that a local exchange carrier
may use, disclose, or permit access to aggregate CPNI for purposes other than those described
above only if the LEC makes such information available to other parties on a
nondiscriminatory basis upon request.
     71.  Positions of the Parties.  On March 20, 1996, AirTouch submitted a letter to the
Wireless Telecommunications Bureau stating that the new Section 222 of the Act does not
vitiate Section 22.903(f) of our Rules, and that "Section 222(c)(1) should not be read to allow
unrestricted BOC access to customer CPNI in a manner that eliminates the protections of
Section 22.903(f)."  According to AirTouch, to the extent that a customer specifically
requests in writing the release of its CPNI to another person under Section 222(c)(2), then
the restriction in Section 22.903(f) would no longer apply.  It also argues, however, that the
current rule should continue to apply in cases where the customer approved, pursuant to
Section 222(c)(1), the use, disclosure or access to CPNI on terms other than those set forth in
that section.
     72.  Discussion.  We have recently initiated a separate proceeding to consider the
formulation of CPNI regulations to apply to all telecommunications carriers.  In that
context, we tentatively concluded that the self-executing provisions of the new Section 222 --
which apply to all telecommunications carriers, require prior customer authorization for
individual CPNI disclosure, and set the terms for disclosure of aggregate CPNI -- do not
prohibit the Commission from enforcing requirements that are not inconsistent  with the  new
statutory provisions, since nothing  in the 1996 Act affects these requirements.  For
purposes of this rulemaking, we seek  comment whether our current CPNI rule in Part 22 is
inconsistent with Section 222.  We note that continued application of our existing rule would
limit a customer's options in granting  approval for use or disclosure of, or access to,
individually identifiable CPNI under Section 222(c)(1) and (2).  Applying our current rule in
that context would mean that a customer could choose only between permitting no use of
individually identifiable CPNI (except as permitted under Section 222(c)(1) and (d)) or
making this CPNI publicly available.  This restriction of a customer's options would appear to
alter the balance between the competitive and consumer privacy concerns embodied in
Section 222.  In addition, we seek comment whether we should eliminate Section 22.903(f)
even if we were to determine that continued application of this rule is not inconsistent with
new Section 222, on the grounds that our current rule would be superfluous in light of the
comprehensive statutory scheme put in place by Section 222.  We also seek comment on the
approach advocated by AirTouch, described above, and, if we determine that continued
application of Section 22.903(f) to the BOCs is not inconsistent with new Section 222,
whether and how we should continue to apply our current CPNI rule.
     73.  In addition, we seek comment on whether, in considering the joint marketing
authorization in Section 601(d) of the 1996 Act together with the CPNI requirements
contained in the new Section 222 of the 1934 Act, we should require any particular BOC
organizational structure or procedures to guard against the unauthorized disclosure of CPNI in
the context of  joint marketing of CMRS and other BOC-provided services.  We ask for
comment on the need for, and formulation of, appropriate organizational and procedural
guidelines specific to the BOC/CMRS joint marketing situation that would be in accord with
both Section 601(d) and Section 702 of the 1996 Act.
     (d)  Section 251(c)(5); Network Information Disclosure
     74.  Discussion.  In our regulation of cellular service up to this point, we have
required no affirmative disclosure of network information outside of the application process.
Specifically, we required cellular wireline carriers applying for a cellular system in an area
where it also  provided landline service to set forth in its application exactly how its system
would interconnect with the landline network.  This information has to be "of sufficient
specificity to enable a potential competitor to design its system to connect with the landline
network in exactly the same fashion if the competitor so chooses."  These requirements did
not create any continuing  requirement for network information disclosure after licenses have
been issued.  Cellular carriers were arguably subject to requirements created  in  the
Computer II proceeding, where the Commission applied "to all carriers owning basic
transmission facilities the requirement that information relating to network design be released
to all interested parties on the same terms and conditions, insofar as such information affects
either  intercarrier interconnection or the manner in which interconnected CPE operates."
This "all-carrier rule"   was amplified in the CPE and enhanced services contexts, where the
Commission has fashioned both structural and nonstructural  safeguards for AT&T and the
BOCs regarding the disclosure of carrier network information.
      75.  The new interconnection provisions of the 1996 Act make it a duty of incumbent
local exchange carriers "to provide reasonable public notice of changes to the network
necessary for the transmission and routing of services using  that local exchange carrier's
facilities or networks , as well as any other changes that would affect the interoperability of
those facilities and networks." In the Notice of Proposed Rulemaking we adopted to initiate
implementation of the new interconnection provisions, we tentatively concluded that:
       (1) 'information necessary for transmission and routing'  should be defined as
      any information in the LEC's possession that affects interconnectors
      performance or ability to provide services; (2) ' services' should include both
      telecommunications  services and information services as defined in sections
      3(46) and 3(20), respectively, of the 1934 Act, as amended; and (3)
      'interoperability' should be  defined as the ability of two or more facilities, or
      networks, to be connected, to exchange information, and to use the information
      that has been exchanged.
In addition, we tentatively concluded that "incumbent LECs should be required to disclose  all
information relating to  network design and technical  standards, and information concerning
changes to the network that affect interconnection."  We also sought comment as to how
and  when the public notice and disclosure of network changes should be provided.
      76.  In light of the statutory provision regarding public notice by incumbent LECs of
network technical  changes and our efforts toward comprehensive implementation of that
provision in a manner that will include CMRS interconnection to incumbent LECs' networks,
we  tentatively conclude that no specific Part 22 rule pertaining to network information
disclosure by the BOCs is necessary or appropriate.   We seek comment on  this tentative
conclusion.   Commenters supporting a specific Part 22 rule should provide information about
particular technical or regulatory issues to be addressed by such a rule.
F.  Sunset/Elimination of Section 22.903
      77.  Current FCC Requirement/Approach of 1996 Act.  Section 22.903 and its
predecessor, Section 22.901, were established without "sunset" provisions, or the requirement
that  the Commission periodically review the continued need for the restrictions contained
therein.  In contrast, the general approach of the 1996 Act to BOC-provided competitive
services is initial entry pursuant to establishment of separate subsidiary corporations, through
which the competitive service must be provided for a period of years.  In the case of BOC
entry into interLATA services, a competitive checklist must be met prior to BOC entry into
that competitive market, and such entry must be through a structurally separate corporation.
This structural separation continues for 3 years after the BOC receives in-region interLATA
authorization, unless extended by order of this Commission.
      78.  With respect to other competitive services, the Act imposes sunset provisions of
varying lengths.  For example, Section 272(f) provides that the separate affiliate requirements
with respect to the manufacturing activities or the interLATA telecommunications services of
a Bell operating company, with the exception of the request fulfillment obligations in
subsection  (e), shall cease to apply 3 years after the date the BOC is authorized to provide
interLATA telecommunications service under Section 271(d), unless extended by Commission
rule or order.  For interLATA information services, the separate affiliate requirements, with
the exception of the request fulfillment obligations in subsection (e), shall cease to apply 4
years after the date of enactment of the 1996 Act, unless extended by Commission rule or
order.  In contrast, for BOC electronic publishing services under Section 274, the separate
affiliate requirement terminates pursuant to subsection (g) 4 years after the date of enactment,
with no express provision for extension by Commission rule or order.
      79.  Option 1:  sunset of Section 22.903.  We seek ultimately to eliminate any
regulatory asymmetry between BOC provision of cellular services, on the one hand, and BOC
provision of other CMRS as well as LEC provision of any CMRS, on the other.  Yet, the
competitive safeguards contained in Section 22.903, as modified through the proposals we
have made above, may continue to  serve the public interest during the present crucial phase
of entry of new wireless competitors into the CMRS markets.  Further, the realization of the
fundamental regulatory reforms contained in the 1996 Act, including the opening of the LEC
network for purposes of local  exchange competition pursuant to Section 251, would reduce
the need for these safeguards in the not too distant future, and would provide a convenient
milepost to mark a transition period.   We therefore seek comment on the addition of a sunset
provision to Section 22.903, similar to those contained in the 1996 Act for BOC provision of
other competitive services.  Upon the sunset of the Section 22.903 requirements for each
BOC's cellular operations, we propose that such service would be governed by the uniform set
of competitive safeguards we propose below in Section VI for all in-region LEC CMRS.
      80.  If we adopt the transitional approach, we propose to sunset the effectiveness of
the Section 22.903 requirements for a particular BOC in tandem with that BOC's receipt of
authorization pursuant to Section 271(d) to provide interLATA service originating in any in-
region State.  The interconnection provisions of the Act, Section 251 and 252, are designed to
promote facilities-based local exchange competition, as reflected in their inclusion in the
access and interconnection competitive checklist contained in Section 271(c)(2)(B).  In
addition to the Section 251 and 252 interconnection requirements, the competitive checklist
requires BOCs to provide, inter alia, further unbundling of local loops, switching and
transport; nondiscriminatory access to 911 and E911 services; directory assistance, and
operator call completion services; and nondiscriminatory access to databases and associated
signaling necessary for call routing and completing.  The effective implementation of these
requirements should provide potential CMRS competitors with sufficient protection from
interconnection discrimination and monopoly leveraging such that we may safely relax the
degree of separation required for BOC cellular operations.  We believe that effectively
conditioning relief from Section 22.903 upon each BOC's meeting a "competitive checklist"
may be a viable approach to assure that, from the regulator's and the competitor's standpoint,
a sufficiently "level playing field" is in place such that structural safeguards may safely be
eliminated.  Moreover, this approach to sunsetting Section 22.903 would provide the BOCs
with an added incentive to meet the requirements of the competitive checklist.  We seek
comment on this formulation of an approach to sunsetting Section 22.903.
      81.  We also seek comment on alternative sunset dates.  Parties advocating a different
sunset should provide information supporting their recommendations.  Parties proposing that
we use a sunset date and\or competitive checklist different than that contained in Section
271(c)(2)(B) and (d) of the 1996 Act should detail why their proposed factors are relevant to
the question of BOC cellular safeguards.  Parties may also suggest alterations to the list for
purposes of setting a sunset date for our Section 22.903 requirements.  Finally, we note that,
pursuant to Section 271(c)(1)(B), BOCs may be able to meet the requirements of the 1996
Act if, after 10 months from the date of enactment, no facilities-based provider, as described
in subparagraph (A), has requested the access and interconnection arrangements described
therein (referencing one or more binding agreements approved under Section 252), but the
State has approved a statement of generally available terms that satisfies the competitive
checklist of subsection (c)(2)(B).  Thus, BOC entry in some areas could potentially occur
without a single facilities-based competitor actually obtaining interconnection arrangements
consistent with Sections 251 and 252 of the 1996 Act, as long as the BOC is generally
offering access and interconnection in a manner that meets the requirements of the
competitive checklist.  We seek comment on the effect of this aspect of Section 271 on the
proposal to tie sunset of Section 22.903 to BOC entry into in-region interLATA markets.
      82.  Option 2:  immediate elimination of Section 22.903.  We seek comment on
whether we should forgo the transition period we describe above, where a streamlined Section
22.903 would be in effect for BOC cellular operations until a designated sunset, in favor of
immediate elimination of Section 22.903 and its replacement by the uniform set of safeguards
we propose below in Section VI.  This approach would advance our goal of regulatory
symmetry more expeditiously, and would remove relatively intrusive requirements that may
not be necessary in a more competitive environment.  Such an approach would enable the
BOCs to realize some degree of efficiencies through integration with landline management
and operations, akin to those already available to their largest competitors, AT&T and GTE.
Other factors must also be considered, however, primarily the potential effect of such action
on evolving competition in both the wireless and the local exchange markets.  Although
mindful of the Cincinnati Bell court's observation that "the structural separation requirements
will prevent the Bell Companies from competing with Personal Communications Services
providers on a level playing field," we must first determine whether the playing field will
indeed be level at the time Section 22.903 is eliminated.  In so doing, we must seriously
consider the mandate in Section 332 to consider whether changes in our regulations will
promote competition in commercial mobile services.  We are concerned about whether
transitional structural separation for BOC provision of cellular service, which is more
restrictive than any rules applying to other cellular providers or any provision of PCS, will
promote or inhibit the development of competition.  We therefore seek comment on this
aspect of our two alternative safeguards proposals, and whether immediate elimination of
Section 22.903 in favor of uniform LEC CMRS safeguards will promote competition and the
public interest more effectively than the sunset approach we have outlined above.
      83.  A significant difference in these two approaches involves the requirement under
Section 22.903, that would continue under Option 1 on an in-region basis, that the BOC
cellular affiliate remain an independently managed and operating company, with separate
officers and personnel.  Option 2 would permit integrated management and shared personnel
for BOC incumbent local exchange and BOC incumbent wireline cellular operations.  Another
significant difference is that Option 1 would entail the retention under Section 22.903(c) of
the requirement that any research or development performed by BOCs for separate
corporations, either separately or jointly, be undertaken on a compensatory basis.  Option 2
would eliminate this specific rule, and apply Part 64 cost allocation requirements as those
rules apply to any operations involving both regulated and nonregulated aspects. We seek
comment on the relative costs and benefits for the public and the BOCs if the independent
operation and joint research requirements were eliminated before the BOCs meet the
requirements of the competitive checklist in Section 271.  Parties should focus specifically on
how the relative costs and benefits of independent versus integrated management and
personnel bear upon the competitive equity issues discussed above.
G.  BOC Provision of Incidental InterLATA CMRS
       84.  The 1996 Act permits the BOCs to immediately engage, without establishing
separate affiliates,  in specified in-region interLATA services that the Act defines as
"incidental."  Questions have arisen as to whether this authorization bears upon the question
of the retention or elimination of Section 22.903.  Section 271 defines "incidental interLATA
services" as the interLATA provision by a Bell operating company or its affiliate, inter alia,
"of commercial mobile services in accordance with section 332(c) of this Act and with the
regulations prescribed by the Commission pursuant to paragraph (8) of such section."
Paragraph 8 of Section 332(c) states that "a person engaged in the provision of commercial
mobile services, insofar as such person is so engaged, shall not be required to provide equal
access to common carriers for the provision of telephone toll services," but permits the
Commission to order unblocked access to the toll carrier of the subscribers' choice, upon
appropriate findings.  Finally, Section 271(h) states that the provisions of subsection (g) are to
be narrowly construed, and that the "Commission shall ensure that the provision of services
authorized under subsection (g) by a Bell operating company or its affiliate will not adversely
affect telephone exchange service ratepayers or competition in any telecommunications
market."
      85.  In addition, Section 272, which establishes separate affiliate and nondiscrimination
safeguards for BOC provision of, inter alia, in-region interLATA telecommunications
services, contains a specific exception in subsection (a)(2)(B)(i) for incidental interLATA
services described in paragraphs (1), (2), (3), (5) and (6) of section 271 (g).  Section
272(f)(3), in turn, specifically preserves "the authority of this Commission, under any other
section of the Act to prescribe safeguards consistent with the public interest, convenience and
necessity."  Thus Section  271(g)(3) authorizes immediate market entry by BOCs for the
provision of in-region, "incidental" interLATA services, which are defined as the provision of
CMRS on a non-"1+"equal access basis.
      86.  We do not believe that the authorization contained in Sections 271(g)(3) and
272(a)(2)(B)(i) for immediate BOC provision of in-region, incidental interLATA service,
defined as commercial mobile radio service, limits our authority  to retain our current BOC
cellular separate affiliate rules, or to prescribe alternative rules, should we determine that such
rules constitute an appropriate competitive safeguard.  We note, in this regard, that Section
271(f)(3) preserves our authority to prescribe safeguards consistent with the public interest,
convenience and necessity.  We seek comment on this analysis.
                    V.  SYMMETRY OF CELLULAR SAFEGUARDS
      87.  One of the principal criticisms of our cellular structural separation requirement is
that it applies only to the BOCs, but not to other large LECs with similar characteristics,
particularly GTE.  This lack of regulatory symmetry was a concern of the court in the
Cincinnati Bell decision, and presents the Commission with a complex problem in this period
of transition to more competitive landline and wireless markets.  We believe that this is an
appropriate time to reexamine the basis for excluding LECs other than the BOCs from the
scope of the rule.
      88.  We note that in 1994, we extended the BOC open network architecture (ONA)
and non-discrimination safeguards to GTE, in recognition, inter alia, of the fact that GTE's
merger with Contel Corporation had  significantly expanded the scope of GTE's operations
and increased the benefits that GTE would bring to its customers by conforming to the
Computer III  BOC ONA and nondiscrimination requirements.  On the other hand,
Congress, in the 1996 Act, did not treat the BOCs and GTE in an equivalent manner with
respect to provision of in-region interLATA services.
      89.  Discussion. The lack of regulatory symmetry between BOC-provided cellular
service and LEC-provided cellular service under Section 22.903 presents a difficult problem
in this period of transition to more competitive landline and wireless markets.  Rather than
distinguish between BOCs and other LECs, it would arguably be more consistent to apply
Section 22.903 to GTE, which is similar in size to the BOCs, or to all LECs above a
particular size, e.g., all Tier 1 LECs.  We have used the Tier 1 demarcation for analogous
purposes in determining which LECs would be subject to expanded interconnection rules or
required to comply with certain cost accounting rules, including the required filing of Cost
Allocation Manuals.  Nevertheless, regulatory consistency or "symmetry" is only one
among many of the considerations we must take into account when evaluating whether to
impose structural separation on non-BOC LECs.
      90.  Based upon the record before us, the rationale for imposing structural separation
on the BOCs' cellular service would appear to apply to all Tier 1 LECs.  Yet, if we adopt the
proposal to sunset Section 22.903 in tandem with BOC entry into in-region interLATA
services, and to replace its provisions with the streamlined safeguards we here propose for in-
region LEC PCS, we do not believe that the relative benefits of imposing Section 22.903 on
any additional Tier 1 LECs for a transition period followed by a sunset would outweigh the
costs of such requirements.  Adoption of the alternative proposal to eliminate Section 22.903
immediately would of course moot this issue in its entirety. We do no therefore propose to
apply Section 22.903 to any additional LECs at this time.  We seek comment on this
approach.
      91. We also propose to require all the Tier 1 LECs to implement the same service
safeguards for their in-region cellular service that we propose for in-region PCS and other
CMRS in Section VI below.  We seek comment on the costs to the Tier 1 LECs of
establishing nonstructurally separate affiliates as described in Section VI.
      92. Finally, we do not believe it appropriate to impose either a streamlined Section
22.903 or the proposed nonstructural competitive safeguards on any non-Tier 1 independent
and rural LECs because, on balance, we believe that the cost and potential disruption of
requiring non-Tier 1 LECs to establish new separate affiliates for the provision of cellular
service would likely be significant, both in terms of the direct costs of incorporation and lost
efficiencies of joint operations, facilities, and staff.  These costs are obviously different than
the going-forward costs of retaining a structurally separate corporate entity, discussed above.
We  therefore seek comment on the nature and extent of such costs, and ask that commenters
be specific in their quantification of both direct costs of separate incorporation, and of lost
economies of scope.  We seek comment on our tentative conclusion that such costs likely
outweigh the benefits of imposing a limited separate affiliate requirement.
              VI.  SAFEGUARDS FOR PROVISION OF CMRS BY LECS
      93.  In this section, we address the issue of safeguards for LEC-provided PCS and
other CMRS.  While our current rules require the BOCs to comply with Section 22.903
structural  safeguards in the provision of cellular service, we determined in the Broadband
PCS Order that we would require implementation of nonstructural safeguards to protect
against discrimination and cross-subsidization in the provision of PCS by both BOCs and
other LECs.  In the CMRS Second Report and Order, we extended this decision to apply
accounting safeguards to all LEC-provided CMRS.  We deferred consideration of additional
safeguards issues -- including the asymmetry between our cellular and PCS rules -- to a
subsequent proceeding.  We return to these issues in this proceeding because we believe that
developing clear and consistent safeguards is essential to ensuring that LEC provision of
CMRS does not impair competition in the wireless market by other CMRS providers.  In
order to address the concerns raised by the Cincinnati Bell court, to ensure that our rules treat
similar services in a consistent manner, and to respond to the changes in the 1996 Act
relating to joint marketing, CPNI, and network disclosure, we believe that further examination
of the question of competitive safeguards for LEC-provided CMRS is appropriate.
A.  Present Competitive Safeguard Alternatives
      94.  Structural and Nonstructural Safeguards.  As we discussed in Sections II and III,
the BOC cellular structural separation requirement was, in essence, an adaptation of the
Commission's Computer II structural separation rules for AT&T system's provision of
enhanced services.  Computer II structural safeguards were designed to offer the maximum
amount of  separation between regulated and unregulated BOC offerings in situations where
the competitive concerns were found to outweigh lost operating efficiencies.  In contrast, the
Broadband PCS  Order, relied, in large part, on the Computer III proceeding,  in which those
structural separation requirements for BOC provision of enhanced services were replaced with
a set of nonstructural  safeguards, that were to be phased-in in stages.
      95.  The Computer III nonstructural safeguards featured implementation of "open
network architecture" or "ONA," designed to ensure nondiscriminatory access to network
facilities and functions for all enhanced service providers (ESPs).  ONA was to provide all
enhanced service providers equal access to the components of the BOCs' telephone network,
as well as the ability to select network service elements not used by the BOCs in providing
their own enhanced services.  As a first step in implementing Computer III, the Commission
permitted the BOCs,  pending full structural relief, to offer individual enhanced services on an
integrated basis (i.e., directly by the operating company, rather than through a separate
affiliate) following approval of service-specific comparably efficient interconnection (CEI)
plans.  The other nondiscrimination safeguards of Computer III include:  accounting
safeguards; timely disclosure to competing ESPs of network information, including technical
interfaces; access to and use of CPNI; and quarterly reporting to help ensure that BOC
provision of basic services to competing ESPs was nondiscriminatory in terms of quality,
installation, and maintenance.  With the full implementation of ONA, Computer III envisioned
that the BOCs would be permitted to provide integrated enhanced services without prior
Commission approval of service- specific CEI plans.
      96.  Allowing BOCs to provide enhanced services pursuant to non-structural
safeguards was considered a means to achieve several important public interest goals,
including bringing enhanced services more quickly and effectively to the consumer market by
permitting the BOCs to realize fully their vast potential.  This would permit the BOCs to use
their extensive, geographically dispersed facilities and the associated management and
operational resources, to provide such services throughout the country.  In particular, it was
designed to permit BOCs to use existing marketing contacts with virtually every household
within their regions to market enhanced services to consumers inexpensively, to use the same
personnel to repair and install the services and equipment necessary to provide basic and
enhanced services, and to use their expertise to engage in research and development of
enhanced services.
      97.  Competitive Carrier.  In the Competitive Carrier proceeding, the Commission
established yet another approach to the question of the degree of separation appropriate for
certain  LEC-provided common carrier services.  We distinguished between carriers with
market power (dominant carriers) and those without market power (non-dominant carriers),
and  gradually relaxed regulation of non-dominant carriers on the grounds that non-dominant
carriers  lacked the incentive and ability to engage in conduct that  might be anticompetitive
or otherwise inconsistent with the public interest.
     98.  In its Competitive Carrier Fifth Report and Order, the Commission clarified that
an "affiliate" of an independent LEC for purposes of qualifying for regulation as a non-
dominant  carrier is "a carrier that is owned (in whole or part) or controlled by, or under
common ownership (in whole or part) or control with, an exchange telephone company."
The Commission went on to explain that in order to qualify for non-dominant status, the
affiliate must:  (1) maintain separate books of account; (2) not jointly own transmission or
switching facilities with the exchange telephone company; and (3) obtain any exchange
telephone company services at tariffed rates and conditions.  The Commission specified that
the separation requirements would provide some protection against cost-shifting and
anticompetitive conduct by an independent LEC that could result from using its control of
bottleneck facilities.  The Commission concluded that the specific separation requirements
would not impose excessive burdens on independent LECs, and noted that those requirements
were less stringent than those established in Computer II.
      99.  As we noted earlier, in response to the 1996 Act's Section 271(b) authorization
for the BOCs to begin immediately to provide interLATA services originating outside of their
in-region areas, we adopted, as an interim measure, non-dominant carrier regulation for BOC
provision of interstate, interexchange services originating outside of their in-region states if
those services were provided through an affiliate that complied with our Competitive Carrier
rules.  In requiring that the non-dominant interexchange affiliate be a separate legal entity, we
stated:  "[i]n no other sense do we require 'structural separation.'"  By specifically
permitting the sharing of personnel and other resources and assets, and banning only joint
ownership of transmission and switching facilities, we found that application of the
Competitive Carrier rules would avoid excessive burdens and would not impede the BOCs'
ability to realize efficiencies through the use of joint resources.
B.  Nonstructural Safeguards in PacTel PCS Plan
      100.  On July 10, 1995, Pacific Bell, Nevada Bell, Pacific Bell Mobile Services and
Pacific Telesis (PacTel), filed a "Plan of Nonstructural Safeguards Against Cross-Subsidy and
  Discrimination" (PacTel Plan).  On February 27, 1996, the Wireless Telecommunications
Bureau approved the PacTel Plan as in compliance with existing nonstructural  safeguards for
LEC-provided PCS, and authorized PacTel to commence operations, subject to any
compliance actions PacTel needs to ensure that its Plan is in compliance with all aspects of
the 1996 Act.  The Bureau noted that the Plan was filed prior to passage of the 1996 Act,
and that the Commission would shortly institute this rulemaking, and that if, as a result of the
rulemaking, the LEC PCS rules or policies change, then PacTel will have to modify its Plan
and operations accordingly.  The PacTel Plan Order dismissed the arguments of opponents to
the PacTel Plan that the existing safeguard rules and policies are inadequate, or that the
Commission should adopt additional safeguards, as issues that properly belong in the context
of a rulemaking.  The proceeding before the Bureau was thus properly limited to a
determination of whether the Plan complies with existing rules, not with the adequacy of such
rules.  In response to objections by BellSouth that PacTel was not required to file a plan,
the Bureau observed that PacTel relied on the Commission's statements regarding safeguards
as evidence that the Commission fully considered the implications of LECs providing PCS in-
region.
      1.  Summary of PacTel's Plan
      101.  PacTel's Plan as proposed consisted of five principal parts:  (1) establishment of
a non-structurally separate affiliate for corporate purposes only; (2) reliance on existing Part
32 and Part 64 accounting safeguards, as incorporated into its LECs' cost accounting manuals
(CAMs); (3) compliance with established interconnection obligations; (4) voluntary compli-
ance with the Commission's Computer III CPNI rules; and (5) voluntary compliance with the
Commission's Computer III network disclosure  rules.
      102.  Separate Affiliate.  PacTel  stated that it would provide PCS through a wholly-
owned subsidiary of Pacific Bell, Pacific Bell Mobile Services (PBMS).  PacTel explained
that  Pacific Bell, Nevada Bell and PTMS are subsidiaries of Pacific Telesis Group, and
PTMS is the PCS licensee.  PTMS has entered into a letter agreement with PBMS whereby
PBMS will design,  construct, manage, operate and market services for PTMS in California
and Nevada.  PTMS will retain control and supervision over the licensed system.  PBMS is a
subsidiary of Pacific Bell for corporate purposes only, not a structurally separate subsidiary,
as that term has been defined by the Commission.  PacTel explained that it chose to
provide PCS services through a separate subsidiary, rather than as a fully integrated corporate
division, for three reasons:  (1) since PCS is a competitive service with associated risks, a
separate subsidiary will permit a different compensation system that reflects the risk in the
business; (2) a separate subsidiary will provide a more discrete measurement of operating
results; and (3) it provides the advantage of a single purpose entity that can still take
advantage of many of the economies of scope described by the  Commission, such as joint
marketing and collocation.
      103.  Cost Accounting/Affiliate Transactions.   PacTel explained that having a separate
affiliate makes it easier to track PCS costs and to keep these costs separated from regulated
costs, because it limits joint and common costs between PCS and regulated telephone
service.  According to PacTel, its telephone operating companies have already revised their
CAMs to describe the services they will provide the PCS subsidiaries.  Consistent with the
Commission's Part 32 requirements, all services provided to PBMS by Pacific and Nevada
Bell will be at tariffed rates, or if not tariffed, at fully distributed cost unless there is a market
rate for such services.   Finally, the Plan did not anticipate the sale or transfer of assets
between Pacific Bell  and Nevada Bell and PBMS.  If a sale or transfer of assets does occur,
the Plan provides that it will be done in accordance with all applicable rules.
      104.  Interconnection.  PacTel stated that interconnection services are now available to
all CMRS providers in California by negotiated agreement, but that Pacific Bell has filed a
proposed tariff, which is pending before the California Public Utilities Commission
(CPUC).  Nevada Bell has an effective interconnection tariff on file with the Public Service
Commission of Nevada, and any interconnection services purchased by PBMS from Nevada
Bell will be at tariffed rates.  PacTel claimed that PBMS will receive the same fair and
nondiscriminatory interconnection arrangements and services that Pacific Bell and Nevada
Bell provide other CMRS carriers pursuant to state and federal requirements.  This includes
types of interconnection, speed of installation of facilities, maintenance or repair.  In addition,
PBMS will collocate equipment on Pacific Bell and Nevada Bell property.  PacTel stated that
PBMS will pay either fully distributed cost for such services for which there is no tariff price
or prevailing price.  PacTel argued further that PBMS will receive neither a pricing advantage
due to the location of PBMS equipment at Pacific Bell and Nevada Bell facilities, nor a
volume discount.  PacTel explained that Nevada Bell does not currently offer discount rates
for wireless interconnection, and stated that Pacific Bell's discount rates are based on the term
of the contract and the individual carrier's projected minutes of use growth and not on total
volume.  PacTel asserted that all wireless carriers that commit to the same term and growth
are eligible to receive the same discount from Pacific Bell.
      105.  Joint Marketing/CPNI.  PacTel  stated that it  anticipates that PBMS will use the
LEC's sales channels for some of its marketing activity, to take advantage of economies of
scope identified in the Broadband PCS  Order.  Further, PBMS will compensate Pacific Bell
and Nevada Bell pursuant to the Commission's Part 64 rules, and will pay fully distributed
cost for these services as well as any other services for which there is no tariff price or
prevailing price.  In its Reply Comments, PacTel committed to comply with the Commission's
CPNI and network disclosure rules already in place regarding public notification and public
disclosure of information.
      2.  Record in Response
      106.  Commenters responding to the PacTel Plan raised a number of procedural and
substantive issues with respect to the contents of the Plan.  In general, as reflected in the
Cox  comments, opponents of the PacTel Plan argued that the Plan fails to provide effective
safeguards against cross-subsidization and interconnection discrimination, and thus fails to
address the  significant threat to competition that integration of LEC landline monopoly
facilities and advanced PCS spectrum poses.  Cox claimed that Part 64 accounting rules are
inadequate to  prevent cross-subsidization because they are designed solely to separate the
costs of regulated telephony service from the costs of non-regulated activities, but do not
provide guidance for the  carriers or the Commission on what appropriately constitutes a
"PCS cost" as opposed to a telephone cost.  Cox further complained that the benefits of
"economy of scope" of integrated  operations in this case are illusory because this assertion
begs the central question of what costs are properly allocated to PCS and telephony,
respectively.
      107.  Sprint urged that the Plan is defective because, aside from stating that PacTel
intends to comply with existing Commission interconnection rules and policies, it fails to
provide any basis for the Commission (or anyone else) to assess the carrier's actual
compliance with these interconnection requirements.  Sprint argued that failure to establish
and enforce specific safeguards with regard to LEC interconnection arrangements could
seriously impede deployment of new competing networks. Sprint contended that
discriminatory policies that allow collocation only for the monopoly LEC affiliate have been
acknowledged by the Commission as a danger to fair competition; nonetheless, the Plan
suggests that Pacific Bell will allow collocation of PCS facilities only for its PCS affiliates,
without providing assurance that other providers will have similar opportunities.  Sprint
objected that under the Plan, Pacific Bell's PCS affiliates will have an inherent non-pricing
advantage if they can physically collocate facilities and  maintenance crews at the LEC's end
offices without any comparable interconnection offered to similarly situated providers.
Finally, Sprint raised concerns about joint marketing activities  between Pacific Bell's
telephony and PCS sales personnel.
C.  Discussion
      1.  Preliminary Matters
      108.  Cellular/PCS Regulatory Parity.  As a general matter, we seek comment on
whether there are differences between cellular and PCS that justify different regulatory
treatment, at least in the short term.  We note that PCS was intended to be competitive with
both incumbent cellular systems and landline networks, and its identity as a new entrant
places PCS providers in a different competitive situation from incumbent cellular carriers.  As
is evident in the Broadband PCS proceeding, the Commission intended that the new personal
communications service would compete with cellular service at the outset, and eventually
compete with, complement, or, where  appropriate, replace landline local exchange service.
In addition, PCS providers face competitive hurdles unlike those existing when the cellular
service was established, such as  auction payments, competition with incumbent cellular
providers themselves, and the need, in some case, to relocate incumbent microwave users
before PCS can become fully operational.   Permitting LECs greater flexibility in the
provision of PCS than the BOCs enjoy with respect to cellular was part of the Commission's
plan to get PCS into the market quickly, and to encourage the LECs to engineer their network
architectures in a "PCS-friendly" manner.  This added degree of flexibility may act as a
counterbalance to the competitive hurdles unique to PCS.  We seek comment whether this
analysis pertains today in the same way as when the Commission established PCS as a new
service.
      109.  We continue to believe that it serves the public interest to permit the LECs,
including the BOCs, flexibility in the provision of PCS through nonstructural  safeguards as
part of our efforts to introduce greater competition to the CMRS market.  LEC participation
in PCS was originally considered very important to getting the service started quickly, and on
a broad scale, so as to provide vigorous competition to incumbent cellular providers, and this
public interest benefit continues to inform our judgement regarding the need to permit
flexibility in service provisioning.  We also believe, however, that such PCS safeguards
should go beyond the joint cost accounting safeguards specifically identified in the Broadband
PCS Order, and the case-by-case approach that has served until now.
      110.  Need for Uniform Safeguards.   Our decisions in the Computer II and Computer
III proceedings set forth alternative comprehensive frameworks for competitive safeguards.  In
 contrast, the Broadband PCS Order  stated simply that LECs must implement an acceptable
plan for nonstructural safeguards prior to commencing service, and identified only existing
accounting safeguards as specifically applicable to LEC provision of PCS.  In light of our
experience in evaluating the Nonstructural Safeguards Plan filed by PacTel, we now believe it
appropriate to establish the safeguards which we contemplated in the Broadband PCS
proceeding, and require that all Tier 1 LECs providing PCS in their in-region states comply
with a uniform set of service safeguards.  We believe that the Competitive Carrier separate
affiliate requirements offer a suitable middle path between the two alternatives of the
Computer II structural and Computer III nonstructural safeguards.  The Competitive Carrier
model does not create the costs and administrative burdens of independent operation
requirements and offers the carriers greater flexibility in structuring their competitive
businesses.  We believe the added flexibility is important if PCS is to enter the market
quickly and reach its full potential.  At the same time, this regulatory model offers
competitors and the Commission greater visibility for the detection of any anticompetitive
behavior on the part of LECs.
      111.  We believe that the imposition of competitive safeguards in addition to
accounting safeguards for LEC provision of in-region broadband PCS will serve the public
interest.  We further believe that this step was foreshadowed by the Commission's suggested
requirement that LECs file Nonstructural Safeguards Plans with the Commission prior to
commencing PCS operations.  If accounting safeguards were all that were intended in the
Broadband PCS Order, then such a plan would be superfluous for the largest LECs, because
they are already under an obligation imposed in Part 64 to make the appropriate changes in
their Cost Allocation Manuals.  Furthermore, the suggested requirement of the
Nonstructural  Safeguard Plan was also intended to address the carriers' safeguards against
discriminatory interconnection practices, as PacTel has clearly understood.  We believe it is
time to replace our initial case-by-case approach with a uniform set of requirements.  This
should be more efficient for both the carriers and the Commission, as it will streamline the
review process and provide a consistent regulatory framework for future competition.  In
addition,  the Broadband PCS Order's decision that nonstructural safeguards would be
sufficient for LEC PCS rested, in part, on the cellular/PCS cross-ownership rules "to ensure
that LECs do not behave in an anticompetitive manner."  In a recently released Notice, we
seek comment on whether our  PCS/cellular cross-ownership rule should be relaxed or
simplified.  Thus, our proposed changes to the cross-ownership rules also argue in favor of
reconsideration of the sufficiency of the nonstructural safeguards currently in place for LEC
PCS.  We seek comment on this analysis.
      112.  It is evident that the potential costs of imposing additional nonstructural
safeguards on LEC provision of PCS at this time are different from the costs for either
retaining structural separation for BOC cellular service, or for extending such  structural
separation  requirements for the first time to other  LECs, such as GTE.  In the  case of BOC
cellular service, the costs of establishing the subsidiary have already been incurred, whereas
in the  case of the independent LECs, the re-arrangement of existing corporate structures
would entail additional costs of a particular scope and nature.  We also recognize that, in the
case of an entirely new service such as in-region LEC broadband PCS, the start-up costs of
structural separation would likely be of a different nature and scope altogether.  Few LECs
currently have in-region PCS licenses as a result of our cellular-PCS cross-ownership and
spectrum cap requirements.  It is also not clear, with the exception of Pacific Bell, which has
already filed its Plan of Nonstructural  Safeguards for PCS, how far along those other LECs
are in building-out their PCS networks and in structuring their PCS operations from an
organizational perspective.  We seek comment on this analysis and on the relative costs of
imposing the requirements we propose in this section.
      113.  In-Region/Spectrum Allocation Limitations.  With respect to the imposition of
nonstructural safeguards, the Broadband PCS Order did not distinguish between in-region
versus  out-of-region PCS, nor did it distinguish among LEC PCS providers on the basis of
the amount of PCS spectrum they would be utilizing to provide service.  Many of the
comments in response  to the PacTel Plan identified the dangers of fully integrated LEC
provision of broadband PCS, through a 30 MHz license, in the same service area in which the
LEC is the incumbent local exchange provider.  Echoing this distinction,  U S West, in a
recent ex parte submission, has argued that the Commission recognized in the Broadband
PCS Order the significant potential consumer benefits associated with permitting LECs to
hold 10 MHz PCS licenses and provide in-region PCS service on an integrated basis.   U S
West further contends that existing accounting  safeguards are adequate for LEC provision of
in-region 10 MHz PCS.
      114.  As we found with respect to cellular service in Section III, above, we do not
believe that the competitive dangers of integrated LEC provision of landline and  PCS outside
of the local exchange service areas in which they are the incumbent LEC raises the same
concerns as in-region integrated services.  In fact, we have found that out-of-region
competition from LECs offering integrated service packages will promote local exchange
competition.  We therefore propose to limit LEC PCS nonstructural safeguards to in-region
broadband PCS service.  We seek comment on this tentative conclusion.  In addition, we seek
comment on the relevance of the distinction raised in the record between LEC holders of 30
MHz versus 10 MHz in-region PCS licenses for our proposed uniform nonstructural
safeguards.  Specifically, we seek comment on whether we should exempt LEC licensees with
no more than 10 MHz of PCS spectrum from some or all of the competitive safeguards
discussed herein, with the exception of those safeguards which arise from the provisions of
the 1996 Act.  We also seek comment on the effect of the proposed rule changes described in
the CMRS Spectrum Cap; Cellular\PCS Cross-Ownership Notice have on the safeguards
under discussion.
      115.  Applicability to Tier 1 LECs.   We believe that our goal of regulatory symmetry
should be tempered by a realistic assessment of the costs and benefits of applying our
proposed   competitive safeguards to small telephone companies.  We note that small
telephone companies, particularly those operating in rural areas, are uniquely positioned to
provide wireless services to populations which might otherwise not receive them.  We wish
to take no action that would unduly burden or discourage small telephone company entry into
cellular and PCS markets nor  do we believe that these companies pose a significant threat of
anticompetitive conduct toward potential wireless competitors, as their ability to leverage their
bottleneck local exchange facilities is limited as compared to that of the BOCs and the larger
independents.  On the other hand, we also seek to ensure that the local exchange and
exchange access customers of the small telephone companies are not unduly burdened with
the costs of these companies' ventures in competitive wireless markets.  We therefore would
apply the uniform set of  competitive safeguards that we propose here only to the Tier 1
LECs.  We seek comment on this proposal and on what changes, if any, to our accounting
rules are necessary or  appropriate to ensure that LECs not subject to our proposed
competitive safeguards will not cross-subsidize  PCS activities from the regulated telephone
ratebase.
      2.  Proposed Competitive Safeguards for LEC In-Region PCS
      116.  The Wireless Telecommunications Bureau recently permitted the PacTel Plan to
take effect, subject to amendments made necessary by the changes contained in the 1996 Act
with  respect to CPNI, and also advised PacTel to include in this filing any other
modifications which it deems necessary to bring its Plan into full compliance with the recent
legislation.  Upon review of the record in the PacTel Plan proceeding, we have decided to
use the five elements PacTel identified in its Plan, as modified by the Bureau's Order, as the
basis of the competitive safeguards that we propose in this Notice.  That is,  we propose that
all Tier 1 LECs providing broadband PCS within their in-region states should implement a
nonstructural safeguard plan, and file the plan for approval with this Commission, that
includes the following elements:  (1) a description of a separate affiliate, as defined herein,
for the provision of PCS; (2) a description of compliance with our Part 64 and Part 32
accounting rules, with copies of the relevant CAM changes attached; (3) a description of
planned compliance with all outstanding interconnection obligations;  (4) a description of
compliance with all outstanding network disclosure rules; and (5) a description of planned
compliance with the CPNI requirements in  new Section 222 of the  Act.
      117.  Separate Affiliate.  PacTel has presented a convincing justification for its choice
of a separate affiliate to provide its PCS service, from both a business and a regulatory
standpoint.  For the reasons we have previously identified, requiring the LEC to establish a
separate affiliate to provide a competitive service lessens the opportunities for cost-shifting,
price discrimination and interconnection discrimination, and increases the ability of both
competitors and the Commission to detect any anticompetitive behavior.  As PacTel argued,
the separate affiliate structure makes it easier to track PCS costs and to keep those costs
separated from regulated telephone costs.  It also decreases the scope of any joint and
common costs from the outset.  We also note that BellSouth has established a separate
affiliate, "BPCI," for the provision of its in-region PCS, and similarly, Ameritech established
ACI as the vehicle to provide its in-region integrated landline and cellular services.  Thus, it
would appear to be an unexceptional and reasonable business practice to enter into new
competitive ventures through a separate corporate affiliate.  In addition, it is consistent with
the approach taken by Congress in the 1996 Act with respect to BOC entry into previously
prohibited or restricted services.  For these reasons, we propose to require that LEC in-region
broadband PCS services should be provided through a corporate affiliate that is separate from
the local exchange carrier.
      118.  We propose to require this affiliate to meet the separation conditions outlined in
the 1985 Competitive Carrier Fifth Report and Order.  That is, the affiliate must:  (1)
maintain separate books of account; (2) not jointly own transmission or switching facilities
with the exchange telephone company; and (3) obtain any exchange telephone company-
provided communications services at tariffed rates and conditions.  We propose to modify the
second requirement to conform with our proposed modification of the facilities-sharing
prohibition of Section 22.903(a).  That is, the separate PCS affiliate  would not be permitted
to have joint ownership with the incumbent LEC of transmission and switching facilities that
the   latter uses in the provision of landline services in the same in-region market.  We note
that this proposed requirement would not include requirements for separate officers, separate
debt, or independent operation of the PCS affiliate.  Any joint research or development would
be subject to Part 64 accounting separations. We seek comment on these proposals.
      119.  In the Fifth Report and Order and in the recent BOC Out-of-Region Notice, the
Commission found that  the requirements discussed there would not impose excessive burdens
on LECs, while providing "some, albeit not complete, protection against cost-shifting and
anticompetitive conduct."  We tentatively conclude that this is also true in the case of Tier
1 LEC in-region PCS, in that the Competitive Carrier separate affiliate requirement permits
greater flexibility for the LEC than the Section 22.903 structural separation requirement, while
preserving the competitive safeguards of separate books of account, facilities, and tariffed
services between the PCS affiliate and its affiliated LEC.   We seek comment on the effect
that changes in interconnection tariffing requirements under Sections 251 and 252 of the 1996
Act have on the requirement that the separate affiliate obtain any exchange telephone
company service at tariffed rates and conditions.  In addition, we tentatively conclude that,
consistent with Section 601(d) of the 1996 Act and the interim approach proposed above with
respect to BOC cellular services,  joint marketing of PCS and LEC landline services should
be permitted on a compensatory, arm's length basis.  Any such joint marketing must be
subject to our Part 64 cost allocation and affiliate transaction rule and the CPNI requirements
discussed below.  We seek comment on these tentative conclusions.
      120.  Accounting Safeguards.  In its Nonstructural Safeguards Plan, PacTel described
its compliance with our Part 32 and 64 cost allocation rules, and included descriptions of
changes to its Cost Allocation Manual to reflect its PCS expenditures and transactions.  We
believe that this type of description is sufficient to satisfy our procedural CAM disclosure
requirements.   In particular, this filing should address the separation of costs engendered by
joint marketing operations.   Even with these filing requirements, we believe that only an
annual audit will help determine compliance with our accounting, affiliate transaction and cost
allocation rules.  We note that all CAM changes are also subject to comment and review by
the Commission and interested parties.  We believe that a description of the carrier's
procedures to ensure compliance with our Part 32 and 64 rules, together with copies of the
relevant CAM changes, is sufficient for purposes of our initial review of the carriers'
Nonstructural Safeguards Plans.   This initial review will determine whether adequate
accounting procedures are in place.  The company's compliance with these procedures,
however, can only be determined through the existing annual audit process.  We seek
comment on this analysis.
      121.  CPNI.  In our discussion above on  BOC cellular operations and the
implementation of the 1996 Act, we addressed the effects of the new Section 222 of the Act,
which applies to all telecommunications carriers with respect to the use and protection of
CPNI.  We seek comment on whether the same type of organizational and procedural
guidelines for the protection and dissemination of CPNI for which we are seeking comment
relating to BOC cellular operations, should apply to the PCS operations of any  LEC
(including  non-Tier 1 LECs) or interexchange carrier possessing CPNI gathered in the
provision of landline services.  We also seek comment as to whether there are any
circumstances under which we should forbear from requiring a description of such
organizational structures and procedures, and rely instead on enforcement procedures for any
violations of the CPNI statutory mandates.  Such circumstances could include a weighing of
relative costs and benefits, as well as the significance of the CPNI at issue.  In this regard, we
tentatively conclude that we need not require the filing of such descriptions by non-Tier 1
LECs and non-dominant interexchange carriers holding PCS licenses.  We seek comment on
this tentative conclusion and this issue generally.  In addition, we seek comment whether, for
purposes of applying new Section 222 of the Act, cellular service and PCS should be
considered the same "service" (i.e., commercial mobile radio service) such that CPNI gained
in the provision of one could be utilized without restriction in the marketing of the other.  We
also seek comment whether other CMRS, such as paging and Specialized Mobile Radio,
should be considered the same "service" as cellular service and PCS for purposes of
implementing Section 222 and what distinctions, if any, we should make among these
different types of CMRS.  Finally, we seek comment whether a toll service provided by
means of CMRS (e.g., cellular long distance) should be treated as a distinct
"telecommunications service" for purposes of implementing the new Section 222.
      122.  Interconnection.  As we indicated in our discussion of interconnection with
respect to BOC cellular safeguards, we observe that the changes effected by the 1996 Act
with respect to LEC interconnection obligations, together with the changes proposed in our
LEC/CMRS Interconnection Compensation rulemaking, are intended to diminish the incidence
of  discriminatory interconnection practices.  These same concerns regarding interconnection
discrimination inform our consideration of whether to eliminate immediately the structural
separation requirements for BOC cellular services.
      123.  In the case of LEC PCS, and without prejudice to our decision on BOC cellular
structural separation, we believe that two factors render a lesser degree of separation
appropriate.  First, and most importantly, the public interest benefits we anticipate from
permitting LECs somewhat more flexibility in establishing their PCS operations
counterbalance the loss of the added level of protection that complete structural separation
under Section 22.903 provides.  Our proposal that LECs establish nonstructurally separate
affiliates for the provision of in-region PCS is intended as an interconnection safeguard that
will render visible the LEC's interconnection arrangements with its affiliate.  The second
factor is one of timing. Commenters opposing the PacTel Plan raised a number of specific
objections to PacTel's Plan despite the carrier's establishment of a separate affiliate for PCS,
including objections to the collocation arrangements PacTel offers its affiliate.  We believe
that, for the most part, the types of interconnection discrimination problems identified by the
commenters will be largely addressed by the pending regulatory changes with respect to LEC
interconnection set in motion by the 1996 Act and our rulemakings thereunder, which will be
contemporaneous with PCS start-up in many areas of the country .  In the meantime, our
possible retention of structural separation for the in-region BOC cellular service may act as
additional protection against anticompetitive actions with respect to PCS competitors of the
BOC cellular providers who are seeking interconnection arrangements.  We seek comment on
this proposal, and ask that parties disagreeing with our interpretation of the likely effect of the
legislation and our implementation rulemaking provide specific examples and argument in
support of their position.
      124.  Network Information Disclosure.  As we stated in Section III, the new
interconnection provisions of the 1996 Act make it a duty of incumbent local exchange
carriers "to provide reasonable public notice of changes to the network necessary for the
transmission and routing of services using that local exchange carrier's facilities or networks,
as well as any other  changes that would affect the interoperability of those facilities and
networks."  of network technical   In light of the statutory provision regarding public notice
by incumbent LECs of network technical changes and our implementation of that provision,
we seek comment on the need for specific PCS rules pertaining to network information
disclosure.  Commenters supporting a specific Part 24 rule should provide information about
particular technical or regulatory issues to be addressed by such a rule.
      3.  Sunset
      125.  With respect to LEC in-region broadband PCS, we have proposed a set of
flexible service safeguards that, we believe, strike an appropriate and non-obtrusive balance
between our pro-competitive goals and our goal of expediting in-region LEC-provided
broadband PCS service.   Nonetheless, assuming that competition in the local exchange
market increases to the point where LECs do not have market power in the provision of local
exchange service, we anticipate that those safeguards that are not mandated by statute could
be relaxed or eliminated.  We therefore seek comment on whether the rules proposed here
should be subject to a sunset provision.  We also seek comment on the appropriate term of
such a provision, or the conditions that would justify relaxing or eliminating these restrictions
in the future.
D.  Safeguards for Other CMRS
      126.  We also note that Congress created the CMRS regulatory classification and
mandated that similar commercial mobile radio services be accorded similar regulatory
treatment under our rules.  Therefore, we tentatively conclude that the nonstructural
safeguards discussed above for LEC provision of PCS  should apply to Tier 1 LEC provision
of other in-region CMRS.  We seek comment on this proposal.
VII.   CONCLUSION
      127.  Dynamic changes are taking place in the telecommunications industry, as
judicially-imposed restrictions give way to a legislative mandate to open markets and to
promote an interconnected network of networks.  We believe that the proposals that we make
in this Notice are consistent with that mandate and will promote competition in wireless
communications  markets by applying the least intrusive means to curb the residual market
power of the local exchange carriers.  We take seriously our proposal to sunset those rules
which become no longer necessary after further changes in the telecommunications industry,
wrought by the Telecommunications Act of 1996, are in place.  We intend to move rapidly to
complete the comprehensive review of our CMRS safeguards initiated by this Notice, and to
put into place new, streamlined rules which accomplish our goals of promoting wireless
competition, limiting the exercise of market power, and establishing regulatory symmetry.
VIII.  PROCEDURAL ISSUES
A.  Ex Parte Presentations
      128.  This is a non-restricted notice-and-comment rulemaking proceeding.  Ex parte
presentations are permitted, except during the Sunshine Agenda period, provided that they are
disclosed as provided in the Commission's rules.  See generally 47 C.F.R.  1.1202, 1.1203,
1.1206.
B.  Initial Regulatory Flexibility Analysis
      129.  As required by Section 603 of the Regulatory Flexibility Act, the Commission
has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the expected impact on
small entities of the policies and rules proposed in this Notice of Proposed Rulemaking.
Written public comments are requested on the IRFA.
      130.  Reason for Action:  The Commission is issuing this Notice of Proposed
Rulemaking to review our regulatory regime for the provision of commercial mobile services,
and to implement certain provisions of the Telecommunications Act of 1996.  The proposals
advanced in the Notice of Proposed Rulemaking are designed to explore whether the BOC
separate subsidiary requirement of Section 22.903 continues to be relevant in today's
marketplace.  The Notice also proposes streamlined safeguards for Tier 1 LECs seeking to
provide PCS and other commercial mobile services.
      131.  Objectives:  The objective of the Notice of Proposed Rulemaking is to provide
an opportunity for public comment and to provide a record for a Commission decision
regarding appropriate competitive safeguards for landline telephone companies seeking to
provide wireless services.  The Notice proposes two alternatives for modification of Section
22.903, the BOC/cellular separate subsidiary requirement.  The first alternative is to retain the
rule for in-region provision of cellular service, subject to a sunset period.  The second
alternative is to eliminate the rule immediately for in-region cellular services.  (The
Commission waives the requirement for out-of-region cellular service.)  Further, the Notice
proposes a uniform set of safeguards for Tier 1 LECs seeking to provide PCS and other
CMRS services.
      132.  Reporting, Recordkeeping and Other Compliance Requirements:  The LEC/PCS
safeguards proposed in the Notice would require that Tier 1 LECs submit to the Commission
a nonstructural safeguards plan.  Smaller LECs would not be subject to this requirement.
      133.  Federal Rules Which Overlap, Duplicate or Conflict With These Rules:  None.
      134.  Description and Number of Small Entities Involved:  Because Section 22.903
only applies to the BOCs and because the proposed LEC/PCS safeguards would apply only to
the 23 Tier 1 LECs (including the BOCs), no small entities would be affected by the
proposals included in the Notice of Proposed Rulemaking.
      135.  Significant Alternatives Mimizing the Impact on Small Entities Consistent With
the Stated Objectives:  The Notice proposes to adopt LEC/PCS safeguards only for Tier 1
LECs and not for smaller LECs.  A Tier 1 LEC is a local exchange carrier with over $100
million in revenues from regulated telecommunications operations that are subject to the
CAM filing requirements of Section 64.903 of the Commission's Rules.  The Commission
notes that small telephone companies are uniquely positioned to provide wireless services to
populations that might otherwise receive them.  The Notice points out that the Commission
wishes to take no action that would unduly burden or discourage small telephone company
entry into cellular and PCS markets, nor do we believe that these companies pose a
significant threat of anticompetitive conduct toward potential wireless competitors.
      136.  Legal Basis.  The Notice of Proposed Rulemaking is adopted pursuant to
Sections 1, 2, 4, and 332 of the Communications Act of 1934, as amended, 47 U.S.C.  151,
152, 154, and 332.
      137.  IRFA Comments.  We request written public comment on the foregoing Initial
Regulatory Flexibility Analysis.  Comments must have a separate and distinct heading
designating them as responses of the IRFA and must be filed by the deadline for comments in
response to the Notice of Proposed Rulemaking.
C.  Initial Paperwork Reduction Act of 1995 Analysis
      138.  This Notice of Proposed Rulemaking (NPRM) contains a proposed information
collection.  As part of its continuing effort to reduce paperwork burdens, the Commission
invites the general public and the Office of Management and Budget (OMB) to take this
opportunity to comment on the information collections contained in this NPRM, as required
by the Paperwork Reduction act of 1995, Pub. L. No. 104-13.  Public and agency comments
are due at the same time as other comments on this NPRM; OMB comments are due 60 days
from the date of publication of this NPRM in the Federal Register.  Comments should address
(a) whether the  proposed collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information shall have practical
utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the
quality, utility, and clarity of the information collected; and (d) ways to minimize the burden
of the collection of information on the respondents, including the use of automated collection
techniques or other forms of information technology.
D.  Comment Filing Procedures
      139.  Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the
Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file comments on  or
before 30 days after a summary of this Notice is published in the Federal Register, and reply
comments on or before 51 days after a summary of this Notice is published in the Federal
Register.  To file formally in this proceeding, you must file an original and four copies of all
comments, reply comments, and supporting comments.  If you want each Commissioner to
receive a personal copy of your comments, you must file an original and nine copies.
Comments should follow the outline of topics contained in this Notice.  Parties are urged not
to repeat the regulatory history contained in this Notice, or the arguments they have already
submitted that are summarized in this Notice, and to make their comments as concise as
possible.  Comments and reply comments should be sent to Office of the Secretary, Federal
Communications Commission, 1919 M Street, N.W., Room 222, Washington, D.C.  20554,
with two copies to Bobby Brown, Wireless Telecommunications Bureau, 2025 M Street,
N.W., Room 7130, Washington, D.C.  20554.  Parties should also file one copy of any
documents filed in this docket with the Commission's copy contractor, International
Transcription  Services, Inc., 2100 M Street, N.W., Suite 140, Washington, D.C.  20037.
Comments and reply comments will be available for public inspection during regular business
hours in the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.C.
20554.
      140.  Written comments by the public on the proposed information collection are due
on or before 30 days after a summary of this Notice is published in the Federal Register.
Written comments must be submitted by OMB on the proposed information collection on or
before 60 days after date of publication in the Federal Register.  In addition to comments
filed with the Secretary , a copy of any comments on the  information collection contained
herein should be submitted to Dorothy Conway, Federal Communications Commission, Room
234, 1919 M Street , N.W., Washington, D.C. 20554, or via the Internet to dconway@fcc.gov
and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 17th Street, N.W., Washington,
D.C. 20503, or via the Internet to fain_t@al.eop.gov.
E.  Ordering Clauses
      141.  Accordingly, IT IS ORDERED that pursuant to Sections 1, 4, 222, 252(c)(5),
301,  and 303 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154, 222,
252(c)(5), 301, and 303, and Section 601(d) of the Telecommunications Act of 1996, 47
U.S.C.  152, a NOTICE OF PROPOSED RULEMAKING is hereby ADOPTED.
      142.  IT IS FURTHER ORDERED that, pursuant to Sections 1.3 and 22.19 of the
Commission's Rules, 47 C.F.R.  1.3, 22.19, all Bell Operating Companies are hereby
granted a WAIVER of the provisions of Section 22.903 of the Commission's Rules, 47 C.F.R.
 22.903 with respect to the provision of cellular service outside of their in-region service
areas as defined herein.
      143.  IT IS FURTHER ORDERED that, pursuant to Sections 1.3 and 22.19 of the
Commission's Rules, 47 C.F.R.  1.3, 22.19, a waiver of Section 22.903 with respect to the
provision of cellular service outside of their in-region service areas as defined herein, is
GRANTED to Bell Atlantic NYNEX Mobile, Inc. and  U S West, Inc.
      144.  IT IS FURTHER ORDERED that, the Secretary shall send a copy of this
NOTICE OF PROPOSED RULEMAKING, including the regulatory flexibility certification, to
the Chief Counsel for Advocacy of the Small Business Administration, in accordance with
paragraph 603(a) of the Regulatory Flexibility Act, 5 U.S.C.  601 et seq. (1981).
      FEDERAL COMMUNICATIONS COMMISSION
      William F. Caton
      Acting SecretaryAPPENDIX A:
Record on the Need for Section 22.903
1.  Regulatory Parity/BOC Dominance
      BellSouth argues that today, unlike 1981 when AT&T was the monopoly provider,
there is no reason for singling out the Bell Companies for more restrictive cellular regulation
than that  governing other LECs with respect to wireless services.  BellSouth argues that now,
no single company dominates local exchange service throughout the nation.  Moreover, it
cites statistics indicating that GTE is now the largest U.S.-based local telephone company,
with revenues exceeding those of every Bell Company.  Similarly, BellSouth observes that in
the cellular market, Bell Companies do not have the dominant position.  Rather, AT&T is
once again in the leading position for cellular, and is one of the five largest cellular/PCS
carriers, along with  Airtouch, GTE and Sprint and the Bell Companies.  BellSouth  asserts
that GTE is now a more ubiquitous provider of both landline and landline service than most,
if not all, of the Bell Companies, nonetheless, GTE is free to provide service in an integrated
fashion.  In response to the Cincinnati Bell Order, BellSouth argued that regulatory parity
considerations required the immediate elimination of BOC cellular structural separation
because this requirement disadvantages BellSouth and its customers vis-a-vis PCS licensees
who are not required to  establish separate corporate entities for their PCS operations.
      In contrast, AT&T contends that, given the BOCs' continued control of essential
landline facilities, the anticompetitive consequences of  the elimination of structural separation
far  outweighs any possible benefits to consumers.  AT&T claims that BOCs continue to
abuse their control of local exchange bottlenecks to disadvantage wireless competitors with
respect to  interconnection, as they have since the inception of cellular service, and that
interconnection issues are likely to become increasingly contentious in the future as the new
CMRS entrants enter into initial interconnection negotiations.  According to AT&T, access to
the landline network will be of paramount importance to these competitors, and the
Commission should not jeopardize competition by removing an important means for assuring
that this access will be provided on a fair and nondiscriminatory basis.
      AirTouch, Comcast and Cox argue that effective wireless competition with LECs is
dependent upon effective LEC wireless safeguards, because without adequate policies, the
incumbent LECs will leverage their monopoly power from their wired networks into new
markets and into the wireless industry.  They observe that LECs are not like other wireless
industry participants.  AirTouch, Comcast, and Cox maintain that after over 75 years of
government-granted monopoly status, LECs have amassed enormous capital, plant and
equipment, and human resources as well as essential bottleneck facilities that can be used to
forestall competition.  Additionally, they argue, LECs have a huge competitive advantage over
other potential service providers because of their unique access to customer proprietary
network information and customer calling habits.  Any regulatory framework that does not
account for the presence of these overwhelming advantages will fail to encourage the
development of local loop competition, according to AirTouch, Comcast, and Cox.
      In response to BellSouth's Resale Request, many other commenters note that the BOCs
are still the dominant providers in the local exchange market and argue therefore, that relief
should not be granted to BellSouth, or any of the BOCs, until vigorous competition in
broadband wireless services has been achieved.  Sprint states  that the structural separation
rules were adopted to prevent improper cross-subsidization and interconnection abuses, which
can only be committed by a firm with market power, which the BellSouth, as well as nearly
all the LECs, continue to possess in the local exchange market, despite emergent local
exchange competition.  Sprint therefore urges the Commission to take a cautious approach to
relief from the structural separation requirement.
      Sprint cites the McCaw/AT&T Consent Decree and the BOC MFJ Wireless Waiver
Order as examples of ways in which the market power of a dominant carrier is controlled to
prevent unfair leveraging in competitive markets (i.e., cellular duopolist/competitive long
distance markets).  Sprint argues that the case for restraint of market power is even more
compelling when a cellular carrier's market power is integrated with that of an incumbent
LEC that retains nearly 100 percent of the local service customers in its operating area.
AT&T Wireless and AirLink argue that BellSouth's comparison of itself to GTE and AT&T is
misleading because structural separation was not adopted due to BOC presence in the wireless
market and it should not be  eliminated or waived because other non-BOC companies have a
greater wireless reach than BellSouth on a nationwide basis. AirLink observes that "[w]hile
AT&T may be seeking to use  wireless services as a strategy to enter the local exchange
market this is merely an entry strategy".  Nextel observes that where the Commission has
permitted BOCs and other local exchange carriers to enter a competitive market on an
integrated basis, it has found it necessary to apply alternative safeguards, including, interim
access plans, network information disclosure  rules, customer proprietary network information
requirements, and usage and line-count reporting requirements.
      Nextel dismisses BellSouth arguments that AT&T, MCI, Sprint and GTE are
competitive threats to its ability to provide its customers with "one-stop shopping" because
these carriers are not yet providing local service within BellSouth's territory.  Nextel  urges
that there must be some  relation between BOC integrated landline and wireless offerings, and
the ability of other carriers to offer such service packages.  Thus, Nextel, in effect,  asks the
Commission to look at the state laws regarding local exchange competition in determining
whether relief from structural separations is appropriate for a particular BOC, because in
states where local exchange competition is not yet permitted, integrated landline local
exchange and wireless services should not present a competitive threat to the BOC.
2.  Cross-Subsidy Issues
      Cross-Subsidy Arguments Relevant to Structural Separation.  According to BellSouth,
"[t]he cellular separation rule was adopted in a very different era, during the transition to a
competitive telecommunications environment."  BellSouth contends that the structural
separation requirement may have made sense during the era of rate base/rate of return
regulation, marked by both acknowledged and hidden "contributions" or "cross-subsidies"
among telephone services -- interstate and intrastate, local exchange and interexchange,
competitive and monopoly.  However, BellSouth avers, all of that changed with the advent of
access charges, price caps and the removal of competitive services from the regulated rate
base.  Increasingly, BellSouth maintains, the Bell Companies have no meaningful source of
"monopoly" funds from which to subsidize cellular service.  Under state regulation, BellSouth
argues, local exchange service rates have been kept low for years, and local exchange service
revenues are under competitive pressure from competing local exchange providers such as
AT&T, MCI, and Sprint.  BellSouth also contends that intraLATA toll service is very
competitive; access charges have been lowered time and again; and that there are simply no
meaningful source of subsidy in light of the profound changes that have taken place in
telecommunications regulation in the last fourteen years.  As a result, BellSouth states, LECs
have neither the incentive nor the ability to cross-subsidize cellular service.
      Moreover, BellSouth argues, the Commission has comprehensively revised the
Uniform System of Accounts and adopted rules and policies in the Joint Cost Order
governing joint and common cost allocations and affiliate transactions.  It contends that there
have been no cross-subsidy problems from the unseparated offerings of landline local and
cellular service by the non-BOC local exchange carriers (LECs) such as GTE in over a
decade.  BellSouth states that, in the fourteen years since structural separation was adopted,
the Commission has found no evidence of landline cross-subsidization of cellular service.
      In response, commenters cite numerous ways in which cross-subsidization may yet
occur.  MCI contends that the "economies of scale" that BellSouth refers to are nothing more
than monopoly leveraging and cross-subsidization in disguise.  Sprint and AT&T warn that a
LEC, such as BellSouth, if permitted to integrate cellular and local exchange service
offerings, could, without detection, price retail cellular offerings below cost and subsidize the
loss through their already excessive rates for LEC/CMRS interconnection.  MCI argues that
cross-subsidies could occur under integrated cellular and landline operations through transfers
of trained personnel, and joint marketing.  Radiofone also argues that cross-subsidy can be
effectuated in subtle ways such as misassignment of personnel time, CPNI abuses, and
misallocation of marketing costs.
      Nextel observes that in the last two years, audits conducted by National Association of
Regulatory Utility Commissioners (NARUC) have confirmed that both the Pacific Telesis
Group and Ameritech Services, Inc. have engaged in extensive cross-subsidization between
their landline operations and their affiliated companies, and that recent audits of various
BOCs conducted by the Commission have uncovered significant accounting and reporting rule
violations.  Nextel argues that nonstructural safeguards simply have not been successful in
deterring cross- subsidization.  It notes that the sharing of personnel raises additional issues
regarding the ability of competitors and regulators to detect cross-subsidization.  Finally,
Nextel contests BellSouth's assertion that price caps serve as an additional preventative
against cross-subsidization, relying on a report prepared in the LEC Price Cap Performance
Review proceeding on behalf of Cox Enterprises, Inc., that purports to demonstrate that the
Commission's existing price cap regime  preserves the ability of the BOCs to cross-subsidize
for the benefit of their affiliates providing newly developed, competitive services.   In
addition, some commenters, including Airlink and MCI, note that because cellular rates are no
longer subject to tariff, detection of landline to wireless cross-subsidization is made more
difficult.
      In general, BellSouth replies to opponents' concerns about cross-subsidization by
arguing that it will have no meaningful opportunity or incentive to engage in such cross-
subsidization,  and that nonstructural safeguards are sufficient to deter any cross-subsidization
that could possibly occur, just as the Commission has found true for PCS and SMR.
BellSouth further argues that the Commission and the courts have repeatedly found that its
existing nonstructural safeguards are sufficient to protect against cross-subsidization when
LECs provide facilities-based wireless services such as PCS and SMR service on a
structurally unseparated basis.
      Cross-Subsidy Arguments Specific to BOC Resale of  Cellular Service.  Sprint and
AT&T warn that the LEC could, without detection, price retail cellular offerings below cost
and  subsidize the loss through its already excessive rates for LEC/CMRS interconnection.
AT&T notes that this could be accomplished directly, or indirectly through methods such as
exclusive volume-based interconnection agreements between BellSouth and its cellular
affiliate in exchange for capacity on the cellular system.  In the case of integrated resold
cellular and local exchange service, Sprint contends that a LEC could, by hiding its cellular
sales costs and actual losses through bundling cellular and local exchange offerings, cross-
subsidize its resale of cellular service by allocating what would have been over-earnings at
the local level to the resale of cellular service at less than market returns or losses on cellular
sales, thus reducing local earnings.  In addition, common expense categories could be
misallocated to local exchange rather than  resold cellular operations.
      Sprint explains that there are several weaknesses in BellSouth's claim that the
obligations of its facilities-based cellular provider to provide service for resale to all takers at
the same price, combined with the Commission's affiliate transaction rules will protect against
cross-subsidy, not the least of which is the fact that local exchange revenues are accounted
for on a local and not a federal basis.  Sprint observes that the fact that BellSouth cellular
offers a bulk service discount does not establish the existence of a "market price" for
purposes of CC-Docket No. 86-111 and the Commission Rule's Section 32.27 purposes.
Sprint states that cellular service is untariffed, and if there are no other significant resale
purchasers at the "wholesale for resale" price provided to the BellSouth LEC, a "resale market
price" has not been established.  Thus, Sprint claims that the fully distributed cost of service
must be established and paid by the BOC if direct resale of its affiliate's cellular service is
permitted.
      In response, BellSouth argues that the only valid issue raised by the opponents is
whether its LEC subsidiary, BST, will be likely to subsidize its own resale of cellular service,
and that the simple answer is that BST will have no meaningful opportunity or incentive to
engage in such cross-subsidization.  BellSouth claims that BST would be reselling cellular
service as a convenience to customers and to remain competitive, and that it has no incentive
to use anticompetitive tactics to dominate a business that "is at best a side line."  BellSouth
states that  cellular resale provides no greater opportunities or incentives for cross-
subsidization than exist in facilities-based PCS or SMR service, so that the same safeguards
should suffice.
3.  Interconnection Issues
      The BOCs argue generally that structural separation is no longer required to deter
discriminatory interconnection practices.  According to BellSouth, the Commission initially
took a very cautious approach to interconnection for cellular service, which was not then
operational, by requiring both structural separation and nondiscriminatory interconnection,
including  requirements that LECs provide reasonable interconnection to cellular carriers, that
landline cellular applicants to disclose their interconnection plans, and conditioning landline
cellular  license awards on the provision of nondiscriminatory interconnection to the
competing cellular carrier.  Since that time, the Commission, according to BellSouth, has
issued a series of increasingly detailed policy determinations concerning interconnection that
require LECs to provide cellular carriers with reasonable, nondiscriminatory interconnection
and to negotiate interconnection arrangements in good faith.  In addition, BellSouth notes that
the Commission's complaint process is available to facilitate compliance.
      BellSouth maintains that the cellular industry has been successful in obtaining
reasonable and nondiscriminatory interconnection from LECs, including GTE which is not
under a structural separations requirement, thus evidencing a lack of interconnection
problems.  Further, BellSouth claims that its LEC subsidiary provides interconnection services
to cellular and other mobile carriers in each of the nine states in its region.  In eight states,
these arrangements are provided under tariff and by PUC-approved contract in the other state.
Under these circumstances, BellSouth argues that there is no realistic potential for
interconnection abuse because any facilities-based cellular carrier can obtain interconnection
on the same basis as any other, and the reseller in turn obtains pre-packaged interconnected
service from the facilities-based cellular  carrier.
      AT&T, MCI and Nextel challenge BellSouth's assertions that deterrence of
discriminatory interconnection arrangements is no longer a reason to retain the structural
separation requirement   Nextel maintains that because a LEC with wireless operations
potentially will compete against other unaffiliated wireless service providers within its market,
which are wholly dependent on the LEC for interconnection to the local exchange, the LEC is
incented to disadvantage its competitors regardless of whether it is a facilities-based cellular
provider or a reseller of cellular service.  Moreover, Nextel argues that joint offerings of
cellular and landline service present new reasons to discriminate against those who sell
unbundled services.
      Nextel maintains that LEC/CMRS interconnection issues are, as the Commission itself
has repeatedly recognized, vital to the development of wireless competition, and that many
questions  remain unresolved regarding the full extent of the BOC's interconnection
obligations, including the extent and nature of the BOC's mutual compensation obligations.
Furthermore, the  provision of standard interconnection arrangements under tariff does not
disclose the specifics of the interconnection arrangements and does not readily enable
detection of discriminatory interconnection policies, according to Nextel.  Sprint  notes that
despite the provision of standard physical interconnection arrangements with CMRS carriers
under tariff in most states, the LECs continue to retain the power and incentive to abuse the
interconnection negotiation process, by, for example, denying new forms of interconnection
that do not advantage the LEC's CMRS affiliate in the marketplace.  Sprint argues that static
interconnection tariffs do not protect against prospective abuse by BellSouth LECs if they
refuse to negotiate new interconnection arrangements or continue to fail to meet their mutual
compensation obligations.
      In response to opponents, BellSouth states that the Commission has repeatedly found,
and has done so as late as October, 1994, that its existing interconnection policies are
sufficient to deter discriminatory interconnection even when LECs operate cellular, PCS, or
SMR facilities without structural separation, and that the claims to the contrary made by
opponents of its Request "cannot be taken seriously." APPENDIX B:
Record on the PCS Nonstructural Safeguards Plan filed by Pacific Telesis
1.   Cellular/PCS Regulatory Parity
      AirTouch, Cox and Nextel contend that in the Broadband PCS Order the Commission
did not consider the possibility that a LEC, such as PacTel, would spin-off its cellular
interests and thereby be able to offer PCS in its wireline service area under a 30 MHz PCS
license, but rather contemplated that LECs would be constrained by their cellular interests and
therefore would only  be able to acquire 10 MHz .  AirTouch also argues that it is
inconsistent for the Commission to require BOCs with cellular interests to place their cellular
operations in structurally separate subsidiaries and not to impose a similar requirement on
BOCs that have PCS operations.  AirTouch, Cox and Nextel contend that under the present
circumstances the Commission should impose a structural separation requirement on PacTel.
In its February 14, 1996 ex parte letter, AirTouch contends that nothing in the 1996 Act
changes the Commission's ability to impose structural separation for LEC-CMRS if the
Commission believes that structural separation will best promote the open, competitive
markets the Act hopes to encourage.
      PacTel responds that the Broadband PCS Order clearly permits any BOC without
attributable cellular interests to acquire a 30 MHz PCS license in its serving territory and that
when the Commission included this language in the Broadband PCS Order, it was well aware
of PacTel's plan to spin-off its cellular interests and bid for large PCS licenses.  In response
to  AirTouch's regulatory parity argument, PacTel notes that in the Broadband PCS Order the
Commission specifically stated that there was not enough information in the record for the
Commission to eliminate the separate subsidiary requirement for BOCs providing cellular
service.
2.  Cross-Subsidization
       Cox, Nextel and Sprint all attack PacTel's Plan as insufficient to prevent cross-
subsidization.  Cox argues that the Commission's cost allocation, affiliate transaction, and
other  Computer III safeguards were not designed to address LEC diversification into quasi-
regulated markets that compete against the core LEC monopoly.  Cox states that the
effectiveness of  Computer III-type nonstructural safeguards is in doubt because of the Ninth
Circuit decision vacating and remanding these rules.  Cox argues that the Commission's price
cap regulations do not adequately protect against cross subsidization.  Cox cites a report
prepared by the CPUC Division of Ratepayer Advocates ("DRA") that Cox describes as
finding PacTel "engaged in  extensive cross-subsidization despite the presence of numerous
accounting  safeguards ."  Cox also questions PacTel's accounting for past PCS investment.
Cox argues that the Commission should require PacTel to fully disclose its PCS costs and
revenues on a line-item basis.
      Nextel states that if Computer III nonstructural safeguards are to be used for LEC
PCS, they must be modified to reflect differences between wireless and enhanced services.
Nextel  claims that PacTel's Plan is deficient because the Plan identifies legal, management,
personnel and systems operation staff resources that Pacific Bell will devote to its PCS
affiliate, but it fails to allocate any direct or joint and common costs associated with these
resources to PCS.  Nextel asks that the Commission require Pacific Bell to comply with
expanded cost allocation and affiliate transaction rules and to disclose the scope of its PCS
affiliates' activities.
      Sprint argues that Pacific Bell's pricing of facilities to its PCS affiliate will likely be
done as a "special assembly," allowing Pacific Bell to use "cost" as the basis of providing this
service because the service is unique and not otherwise available.  Sprint makes three cost
accounting recommendations.  First, it recommends that contracts for wireless transactions
between members of the Pacific Bell family be filed with the Commission.  Second, it
recommends that Pacific Bell be required to undertake a more detailed separation of its PCS-
related costs from its other telephony costs.  Third, it states that independent auditors should
certify in their annual attestation  letter that Pacific Bell is allocating properly all PCS related
costs to nonregulated accounts.
      PacTel responds that, with regard to past PCS costs, most development costs were
born by shareholders, but that a small portion of these costs were paid by Pacific Bell and
that these  costs have already been refunded to ratepayers.  PacTel responds further that it
will not incur costs that are common to its regulated wireline service and its PCS.  PacTel
explains that its PCS network is separate from it wireline network and that it will have its
own switches, base stations and antennas which will be solely used by PBMS.  PacTel adds
that the construction,  management and maintenance of the PCS network will be done by
employees of PBMS and that, unlike its video dialtone service, it PCS operations will not
share basic wireline facilities.  PacTel  asserts that Cox's price cap argument "makes little
sense" because PCS costs are unregulated and are therefore already removed from Pacific
Bell's and Nevada Bell's price cap calculations.  PacTel also dismisses Cox's argument
regarding the DRA report.  PacTel states that the DRA is an advocacy group and is not an
impartial auditor, and that DRA only found that it had concerns about "possible" cross
subsidization.  PacTel adds that the CPUC has not taken any action with respect to the
report.
3.  Interconnection/Network Disclosure
      Cox, Sprint and Nextel also challenge PacTel's Plan on grounds that it does not ensure
that PacTel will not provide PBMS with more favorable interconnection arrangements than
other CMRS providers.  Cox argues that "PacTel's proffering of its intrastate interconnection
tariff is an outright repudiation of the Commission's requisite standards for good-faith
negotiation on the terms and conditions of interconnection."  Cox also argues that the Plan
fails because it does not explain how PacTel will meet mutual compensation requirements.
Cox maintains that, in order to ensure that PacTel does not engage in discriminatory
interconnection, the Commission should require PacTel to: (1) comply with existing rules
requiring good-faith negotiation of  interconnection arrangements; (2) provide meaningful cost
support to justify any interconnection arrangements it offers to its PCS affiliates; (3)
demonstrate, by means of a certified  interconnection agreement with a non-affiliated PCS
provider, that it faces demonstrable competition from a facilities-based competitor prior to its
implementation of downward pricing  flexibility mechanisms (such as the term discount
proposed in the Plan); (4) make mutual compensation available to affiliated and non-affiliated
PCS providers for termination of one another's traffic; and (5) meet its long-standing common
carriage obligations, as reflected recently in the Commission's ONA and expanded
interconnection proceedings, to make the same terms,  conditions and type of interconnection
available to non-affiliated PCS competitors that it makes available to its own PCS affiliate.
      Cox, Nextel and Sprint also assert that they should have the same ability as PBMS to
physically locate equipment on Pacific Bell's property.  They argue, that under the principles
of the Commission's CC Docket 91-141 Expanded Interconnection requirements, that all
interconnectors are entitled to the same type, nature and scope of interconnection as similarly
situated interconnectors, and that all interconnectors should have the same access as PBMS.
Sprint states that there will be inherent non-pricing benefits if there is physical collocation of
facilities and maintenance crews.  Sprint also argues that PacTel has not explained how it will
comply with network disclosure obligations.  Nextel claims that the interconnection options
referenced in PacTel's Plan may not be responsive to the needs of individual CMRS
providers.  Nextel states that the Commission should require complete equality between LEC-
affiliate and other CMRS provides for all aspects of interconnection.  In order to ensure
compliance with this standard, Nextel urges the Commission to require LECs to file full
reports on all affiliate  interconnection arrangements on a periodic basis.
      PacTel asserts that the commenters have not shown that any of the interconnection
policies contained in its Plan violate federal policy or are discriminatory.  In addition,
PacTel states that the commenters have not offered any detail on how its Plan fails to meet
their interconnection needs.  According to PacTel, the only pending issue is whether the
Commission is going to retain its good faith negotiation standard or require LECs to provide
interconnection to CMRS providers under a tariff.  PacTel responds to Cox's argument
regarding the use of state interconnection tariffs by stating that it is not improper to use a
tariff provided good faith negotiations have taken place prior to the filing of the tariff.
PacTel asserts that it cannot shift  interconnection costs to its PCS competitors because when
it negotiates with a wireless interconnector, it provides cost data for its interconnection rates
to the interconnector under a  non-disclosure agreement.  PacTel also asserts that Cox's
concerns about discounts are unfounded because Pacific Bell's discounts are not based on total
volume but on the length of the contract and on an individual carrier's projected minutes of
use growth.  With respect to mutual compensation, PacTel notes that this issue is pending
before the Commission in a separate docket, and that states that once the Commission reaches
a decision on this issue it will comply with that decision.
      With respect to the collocation argument, PacTel states that to the extent that any PCS
provider wants to place transmission facilities and equipment to interconnect with switched or
special access equipment, it can order expanded interconnection service from Pacific Bell's
tariff.  It argues that there is no basis for the Commission to order the physical collocation of
PCS equipment on LEC property, and states that real estate is readily available in the market
place and that commenters, such as Cox and Sprint, will probably collocate their PCS
equipment with their own facilities.  PacTel asserts that the benefit of collocating its
equipment is a "benefit of integration" and represents "an economy of scope."  PacTel also
argues that there is no pricing  advantage to the collocation of equipment because there is no
distance sensitivity in the rates for interconnection between the switch of the CMRS provider
and its serving wire center.  Finally, PacTel responds that it will follow network disclosure
rules already in effect regarding public notification and public disclosure of technical
information.  In order to alleviate concerns about PBMS acquiring more favorable
interconnection arrangements than other PCS providers, PacTel states that it will make
PBMS's contract with Pacific Bell available to a third party upon request under a non-
disclosure agreement.
4.  Joint Marketing/CPNI
      Sprint expresses concern with PacTel's joint marketing plans, and argues that the
Commission has not expressly authorized the joint marketing of local exchange services and
PCS and urges the Commission to impose structural safeguards to prohibit this practice.
Sprint avers that a telephone company service representative taking orders (receiving
incoming calls) for monopoly local service should not be permitted to prefer, in any way, its
affiliated wireless company over competitive wireless companies and should not be allowed to
jointly market  monopoly and competitive services.
      In response, PacTel argues that the joint use of marketing forces is exactly the type of
economy of scope that the Commission felt would benefit the public when it decided that
LECs could provide PCS on an integrated basis with its wireline services.  However, in order
to alleviate possible joint marketing concerns, PacTel states in its reply comments that it will
comply with the Commission's Customer Proprietary Network Information ("CPNI")
requirements in its provision of PCS.  PacTel observes that the Commission has imposed
CPNI requirements as a way to allow BOCs to engage in integrated marketing and sales of
regulated and nonregulated services.
                     APPENDIX C
                                                CMRS SAFEGUARDS COMPARISON
               Broadband
                                                PCS Order
                                             Non-Structural
                                               Safeguards
                                         Current BOC Cellular
                                     Structural Separation (22.903)
                                         Proposed BOC Cellular
                                         Streamlined Structural
                                     Separation (Proposed Revisions
                                        to 22.903 under Option 1)
Proposed Non-Separated
                                     Affiliate Safeguards for Tier 1
                                       LEC PCS (Applicable to BOC
                                       Cellular under Option 2)
Independent
operation/
separate officers,
separate personnel?
                                            No requirements
                                      Full independence, separate
                                   officers and personnel for cellular
                                                subsidiary
Full independence, separate
                                   officers and personnel for cellular
                                                subsidiary
Separate corporate structure;
                                     independence, separate officers
                                        and personnel not required
Separate
capitalization?
                                    No requirements
                                            No requirements
                                            No requirements
                                            No requirements
Part 64/Part 32 cost
rules apply?
                                            Yes
                                   Yes; few joint costs - primarily
                                          affiliate transactions
                                  Yes; few joint costs anticipated -
                                    primarily affiliate transactions
                                  Yes; few joint costs anticipated -
                                     primarily affiliate transactions
Joint/common
computer and
transmission
facilities?
                                      No requirements
                                 No; must utilize separate facilities
                                     for provision of cellular service
Out-of-region: yes; In-region: no, if
                                   facility used for incumbent  local
                                            exchange service
                                 Out-of-region: yes; In-region: no, if
                                    facility used for incumbent local
                                             exchange service
Joint marketing?
No requirements
                                    Yes, as permitted by 601(d) of
                                        1996 Telecommunications Act
Yes, as permitted by 601(d) of
                                        1996 Telecommunications Act
Yes, as permitted by 601(d) of
                                       1996 Telecommunications Act)
Joint research and
                                               development?
   No requirements
                                   Yes, but must be on arms-length,
                                            compensatory basis
Yes, but must be on arms-length,
                                            compensatory basis
  No requirements
                                           (Part 64 rules apply)
CPNI requirements?
No requirements
                                     No access to LEC CPNI unless
                                            publicly available
Implement 1996 Act provisions
                                    requiring prior written customer
                                       authorization for disclosure
Implement 1996 Act provisions
                                    requiring prior written customer
                                       authorization for disclosure
Network information
                                                disclosure?
   No requirements
                                            No requirements
Implement 1996 Act provisions
                                   requiring public notice of network
                                                  changes
Implement 1996 Act provisions
                                   requiring public notice of network
                                                  changes