*Pages 1--186 from  Microsoft Word - 9468.doc*
 Before  the  FEDERAL  COMMUNICATIONS  COMMISSION 
 Washington,  D.  C.  20554 


 In  the  Matter  of  ) 
 ) 
 Implementation  of  the  )  CC  Docket  No.  96-  128 
 Pay  Telephone  Reclassification  ) 
 and  Compensation  Provisions  of  the  ) 
 Telecommunications  Act  of  1996  ) 
 ) 
 Policies  and  Rules  Concerning  )  CC  Docket.  No.  91-  35 
 Operator  Service  Access  and  ) 
 Pay  Telephone  Compensation  ) 
 ) 
 Petition  of  the  Public  Telephone  ) 
 Council  to  Treat  Bell  Operating  Company  ) 
 Payphones  as  Customer  Premises  ) 
 Equipment  ) 
 ) 
 Petition  of  Oncor  Communications  ) 
 Requesting  Compensation  for  ) 
 Competitive  Payphone  Premises  ) 
 Owners  and  Presubscribed  Operator  ) 
 Services  Providers  ) 
 ) 
 Petition  of  the  California  Payphone  ) 
 Association  to  Amend  and  Clarify  ) 
 Section  68.2(  a)  of  the  ) 
 Commission's  Rules  ) 
 ) 
 Amendment  of  Section  69.2(  m)  ) 
 and  (ee)  of  the  Commission's  Rules  ) 
 to  Include  Independent  Public  ) 
 Payphones  Within  the  "Public  ) 
 Telephone"  Exemption  from  End  User  ) 
 Common  Line  Access  Charges  ) 


 REPORT  AND  ORDER 
 Adopted:  September  20,  1996  Released:  September  20,  1996 
 By  the  Commission:  Commissioner  Chong  issuing  a  statement. 
 Table  of  ContentsTopic 
 Paragraph  No. 


 I.  Introduction  1 
 II.  Background  9 
1
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 2 
 III.  Issues  11 
 The  Payphone  Marketplace  11 
 A.  Compensation  for  Each  and  Every  Completed  Intrastate 
 and  Interstate  Call  Originated  by  Payphones  20 
 1.  Payphone  Calls  Subject  to  this  Rulemaking  and 
 Compensation  Amount  21 
 2.  Entities  Required  to  Pay  Compensation  77 
 3.  Ability  of  Carriers  to  Track  Calls  from  Payphones  88 
 4.  Administration  of  Per-  Call  Compensation  102 
 5.  Interim  Compensation  Mechanism  117 
 B.  Reclassification  of  LEC-  Owned  Payphones  127 
 1.  Classification  of  LEC  Payphones  as  CPE  129 
 2.  Transfer  of  Payphone  Equipment  to  Unregulated  Status  152 
 3.  Termination  of  Access  Charge  Compensation  and  Other 
 Subsidies  173 
 4.  Deregulation  of  AT&  T  Payphones  188 
 C.  Nonstructural  Safeguards  for  BOC  Provision  of  Payphone 
 Service  192 
 D.  Ability  of  BOCs  to  Negotiate  with  Location  Providers  on  the 
 Presubscribed  InterLATA  Carrier  208 
 E.  Ability  of  Payphone  Service  Providers  to  Negotiate  with 
 Location  Providers  on  the  Presubscribed  IntraLATA  Carrier  253 
 F.  Establishment  of  Public  Interest  Payphones  264 
 G.  Other  Issues  287 
 1.  Dialing  Parity  287 
 2.  Letterless  Keypads  on  Payphones  294 
 3.  Oncor  Petition  299 
 IV.  Procedural  Matters  300 
 1.  Petitions  for  Reconsideration  300 
 2.  Paperwork  Reduction  Act  Analysis  303 
 3.  Regulatory  Flexibility  Act  Analysis  311 
 V.  Conclusion  363 
 VI.  Ordering  Clauses  364 
 Appendix  A  Text  of  Section  276 
 Appendix  B  List  of  Parties  Filing  Comments 
 Appendix  C  List  of  Parties  Filing  Replies 
 Appendix  D  Immediate  Rules  Adopted  by  This  Order 
 Appendix  E  Rules  Adopted  by  This  Order 
 Appendix  F  Interim  Compensat  ion  Obligat  ions 


 I.  INTRODUCTION 
 1.  On  June  4,  1996,  the  Commission  adopted  a  Notice  of  Proposed  Rulemaking 
 ("  Notice")  to  implement  Section  276  of  the  Communications  Act  of  1934,  as  amended  by  the 
2
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


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


 telecommunications  regulation.  The  1996  Act  erects  a  "pro-  competitive  deregulatory  national 
 framework  designed  to  accelerate  rapid  private  sector  deployment  of  advanced 
 telecommunications  and  information  technologies  and  services  to  all  Americans  by  opening  all 
 telecommunicat  ions  markets  to  compet  it  ion."  8  In  this  proceeding  we  advance  the  twin  goals  of 
 Section  276  the  Act  of  "promot[  ing]  competition  among  payphone  service  providers  and 
 promot[  ing]  the  widespread  deployment  of  payphone  services  to  the  benefit  of  the  general 
 public..."  9  To  this  end,  we  seek  to  eliminate  those  regulatory  constraints  that  inhibit  the  ability 
 both  to  enter  and  exit  the  payphone  marketplace,  and  to  compete  for  the  right  to  provide  services 
 to  customers  through  payphones.  At  the  same  time,  we  recognize  that  a  transition  period  is 
 necessary  to  eliminate  the  effects  of  some  long-  standing  barriers  to  full  competition  in  the 
 payphone  market.  For  this  reason,  we  will  continue  for  a  limited  time  to  regulate  certain  aspects 
 of  the  payphone  market,  but  only  until  such  time  as  the  market  evolves  to  erase  these  sources  of 
 market  distortions. 
 4. 


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


 2  47  U.  S.  C.    276(  b)(  1)(  A). 


 3  47  U.  S.  C.    276(  b)(  1)(  B). 
 4  47  U.  S.  C.    276(  b)(  1)(  C). 
 5  47  U.  S.  C.    276(  b)(  1)(  D). 
 6  47  U.  S.  C.    276(  b)(  1)(  E). 
 7  47  U.  S.  C.    276(  b)(  2). 
 8  S.  Conf.  Rep.  No.  104-  230,  104th  Cong.,  2d  Sess.  1  (1996). 
 9  47  U.  S.  C.    276(  b)(  1). 
3
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 4 
 5.  Congress  has  directed  us  to  take  certain  actions  to  effectuate  its  goals  in  the 
 payphone  area  including  the  removal  of  subsidy  schemes,  providing  for  nondiscriminatory 
 access  to  bottleneck  facilities,  ensuring  fair  compensation  for  all  calls  from  payphones,  and 
 allowing  all  competitors  equal  opportunity  to  compete  for  essential  aspects  of  the  payphone 
 business.  In  general,  we  believe  that  vigorous  and  unfettered  competition  is  the  best  way  of 
 achieving  Congress'  dual  objectives.  Unfortunately,  various  barriers  --  regulatory,  structural, 
 economic,  and  technological  --  stand  in  the  way  of  having  a  fully  competitive  market  providing 
 payphone  services.  For  example,  the  lack  of  an  effective  per-  call  tracking  mechanism  is  a 
 technological  barrier  that  prevents  market  forces  from  readily  achieving  Congress'  goal  of 
 ensuring  fair  compensation  to  payphone  services  providers  ("  PSPs").  Regulatory  restrictions  on 
 the  placement  of  payphones,  and  existing  subsidies  from  other  telecommunication  services 
 available  to  certain  competitors  but  not  others  are  also  examples  of  regulatory  inefficiencies 
 affecting  competition  and  the  widespread  deployment  of  payphones. 
 6. 
 7.  In  this  Report  and  Order,  we  take  the  critical  steps  necessary  to  remove  these 
 barriers.  Some  barriers  are  removed  right  away.  For  example,  we  establish  an  immediate  plan  to 
 ensure  that  PSPs  receive  fair  compensation,  especially  for  those  calls  for  which  PSPs  have  not 
 been  compensated  in  the  past.  We  also  order  that  subsidies  from  basic  telecommunications 
 services  paid  to  some  carriers  for  providing  payphone  services  be  terminated  as  soon  as  it  is 
 practicable.  We  condition  the  competitive  entry  of  these  carriers  into  the  nonregulated  activity 
 of  providing  payphone  services  on  their  termination  of  these  subsidies.  Similarly,  we  allow  the 
 BOCs  to  negotiate  with  the  payphone  location  providers  in  selecting  and  contracting  with  the 
 telecommunications  carriers  that  provide  interLATA  service  from  their  payphones,  but  only  after 
 they  have  put  in  place  nonstructural  safeguards  necessary  to  protect  against  a  BOC  from 
 unlawfully  subsidizing  its  payphone  operations  from  its  local  exchange  services  or  otherwise 
 engaging  in  anti-  competitive  behavior. 
 8. 
 9.  Removing  other  types  of  barriers  to  full  compet  ition  will  take  more  time.  For 
 example,  the  ability  to  track  toll-  free  calls  has  not  been  developed  fully.  Until  that  functionality 
 is  available,  as  we  have  specified  in  this  Report  and  Order,  our  plan  for  ensuring  fair 
 compensation  will  be  a  proxy  that  closely  resembles  the  behavior  of  the  marketplace  as 
 demonstrated  by  the  record  of  this  proceeding.  To  the  extent  that  they  exist,  removing  entry  and 
 exit  restrictions  placed  upon  the  provisioning  of  payphone  services  will  also  take  time  because  it 
 requires  action  by  the  states.  During  the  interim  period  before  subsidies  for  LEC  payphones  are 
 terminated  and  per-  call  compensation  becomes  effective,  the  states  should  examine  and  remove 
 those  regulations  that  affect  the  ability  of  PSPs  to  freely  enter  and  exit  this  business. 
 10. 
 11.  Although  we  embark  in  this  Report  and  Order  on  a  new  deregulatory  structure  for 
 the  payphone  industry,  we  take  a  number  of  steps  to  facilitate  use  of  payphones  by  consumers. 
 First,  we  require  that  each  payphone  clearly  indicate  the  local  coin  rate  within  the  informational 
 placard  on  each  payphone.  Pursuant  to  existing  requirements,  10  this  placard  must  provide 
 information  on  the  operator  service  provider  presubscribed  to  the  payphone  and  the  address  of 
 the  Commission,  to  which  the  consumer  may  direct  complaints  regarding  operator  services. 


 10  47  CFR    64.703. 
4
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 5 
 Second,  we  require  that  each  payphone  provide  access,  free  of  charge  to  the  caller,  to  emergency 
 calling,  telecommunications  relay  service  calls  for  the  hearing  disabled,  and  dialtone  generally. 
 12. 
 13.  In  addition,  payphones  unquestionably  serve  critical  public  interests  in  health, 
 safety  and  welfare.  It  is  possible,  however,  that  reliance  on  the  market  may  fail  to  provide 
 adequately  for  payphones  in  locations  serving  important  public  needs,  because  some  payphones 
 providing  these  benefits  may  not  be  economically  self-  supporting.  For  example,  payphones  in 
 neighborhoods  with  low  residential  phone  penetration,  or  along  deserted  stretches  of  highway, 
 can  be  essential  for  public  safety  but  fail  to  be  revenue-  generating  for  various  reasons,  including 
 lack  of  sufficient  traffic,  damage  from  extreme  weather  conditions,  or  high  maintenance  costs. 
 For  these  reasons,  we  establish  criteria  by  which  the  states  may  maintain  and  fund  public  interest 
 payphones  in  locations  serving  health,  safety,  and  welfare  goals,  where  they  would  not  otherwise 
 exist  as  a  result  of  the  operation  of  the  market.  Public  interest  payphones  will  also  further  our 
 policies  on  emergency  access  11  and  telecommunications  relay  service  calls  for  the  hearing 
 disabled.  12  But  while  we  grant  the  states  broad  discretion  in  administering  and  funding  public 
 interest  payphone  programs,  we  also  require  that  they  do  so  in  a  manner  which  does  not  upset  the 
 competitive  balance  of  the  payphone  market  (i.  e.,  competitively  neutral),  and  that  fairly  and 
 equitably  compensates  those  entities  providing  public  interest  payphones. 
 14. 
 15.  Our  ultimate  goal  is  to  have  a  competitive  payphone  industry  that  meets  the  needs 
 of  the  public  by  a  wide  deployment  of  payphones.  In  our  view,  we  can  best  facilitate  this  by 
 putting  in  place  rules  and  regulations  that  provide  incentives  to  all  the  players  in  the  industry  to 
 eliminate,  as  soon  as  possible,  all  of  the  market  distorting  factors  that  exist  today. 
 16. 
 17. 
 18. 
 19. 
 20. 
 21. 
 22. 
 II.  BACKGROUND 


 1.  As  the  Commission  discussed  in  the  Notice,  payphone  services  have 
 historically  been  regulated  by  the  states  and  the  Commission.  13  To  date,  the  states  have  regulated 
 payphones  as  part  of  the  LEC's  network-  based  service.  Some  states  have  also  imposed 
 regulation  on  the  operator  service  rates  charged  at  payphones  maintained  by  non-  LEC, 
 independent  payphone  providers.  The  Commission  has  focused  on  payphones  primarily  in  the 
 context  of  our  regulation  of  carriers  that  provide  operator-  assisted  long-  distance  service,  known 


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


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


 13  For  a  brief  history  of  the  payphone  industry,  see  Notice  at  paras.  2-  12. 
5
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 6 
 as  operator  service  providers  ("  OSPs"),  and  in  particular,  our  implementation  of  the  Telephone 
 Operator  Consumer  Services  Improvement  Act  ("  TOCSIA").  14  Among  other  things,  TOCSIA 
 directed  the  Commission  to  determine  whether  independent  payphone  providers  should  receive 
 compensation  for  originating  interstate  calls  to  non-  presubscribed  OSPs  from  their  payphones.  15 
 The  Commission's  consideration  of  compensation  issues  under  TOCSIA  led  to  the  creation  of  a 
 compensation  mechanism  that  is  an  antecedent  to  the  one  adopted  in  the  instant  proceeding.  16 
 Currently,  there  are  approximately  1.5  million  incumbent  local  exchange  carrier  ("  LEC") 
 payphones  17  and  approximately  350,000  competitively  provided  payphones.  18 
 2. 
 3.  As  stated  in  the  Notice,  Section  276(  b)(  1)(  A)  directs  the  Commission  to 
 establish  a  compensation  plan  to  ensure  "that  all  payphone  service  providers  are  fairly 
 compensated  for  each  and  every  completed  intrastate  and  interstate  call"  from  their  payphones.  19 
 Section  276(  b)(  1)(  B)  mandates  that  the  Commission  "discontinue  the  intrastate  and  interstate 
 carrier  access  charge  payphone  service  elements  and  payments  ...  and  all  intrastate  and  interstate 
 subsidies  from  basic  exchange  and  exchange  access  revenues."  20  In  addition,  Section 
 276(  b)(  1)(  D)  directs  the  Commission  to  consider  whether  BOCs  should  be  granted  certain  rights 
 already  available  to  all  other  PSPs  to  participate  in  the  location  provider's  selection  of 
 presubscribed  interLATA  carrier,  while  Section  276(  b)(  1)(  E)  grants  certain  rights  to  all  PSPs  to 
 participate  in  the  selection  of  presubscribed  intraLATA  carriers.  21  Together  with  the  other 
 subsections  of  Section  276,  these  three  provisions  help  to  establish  regulatory  parity  for  all  PSPs, 
 whether  independent  payphone  providers  or  incumbent  LECs  (both  independents  LECs  and 
 BOCs).  22 


 14  Pub.  L.  No.  101-  435,  104  Stat.  986  (1990)  (codified  at  47  U.  S.  C.    226). 


 15  47  U.  S.  C.    226(  e)(  2). 
 16  Policies  and  Rules  Concerning  Operator  Service  Access  and  Pay  Telephone  Compensation,  Report  and 
 Order  and  Further  Notice  of  Proposed  Rulemaking,  6  FCC  Rcd  4736  (1991)  ("  First  Report  and  Order");  Order  on 
 Reconsideration,  7  FCC  Rcd  4355  (1992)  ("  Subscriber  800  Reconsideration  Order");  Second  Report  and  Order,  7 
 FCC  Rcd  3251,  3252-  53  (1992)  ("  Second  Report  and  Order");  Order  on  Reconsideration,  8  FCC  Rcd  7151  (1993) 
 ("  Reconsideration  Order");  remanded  for  further  proceedings,  Florida  Public  Telecommunications  Association  v. 
 FCC,  54  F.  3d  857,  860  (D.  C.  Cir.  1995)  ("  Florida  Payphone");  Memorandum  Opinion  and  Order  on  Further 
 Reconsideration  and  Second  Further  Notice  of  Proposed  Rulemaking,  10  FCC  Rcd  11457  (1995)("  Second  Further 
 Notice").  Because  the  compensation  issues  raised  in  the  Second  Further  Notice  have  been  subsumed  into  this 
 proceeding,  we  terminate  that  proceeding.  See  para.  374,  below. 


 17  Statistics  of  Communications  Common  Carriers,  1994/  1995  edition,  Common  Carrier  Bureau,  FCC  at  159, 
 Table  2.  10  (1995)  ("  Common  Carrier  Statistics"). 


 18  Notice  at  para.  6,  n.  22. 


 19  47  U.  S.  C.    276(  b)(  1)(  A).  The  provision  exempts  from  compensation  emergency  calls  and 
 telecommunications  relay  service  ("  TRS")  calls  for  hearing  disabled  individuals.  Id. 


 20  47  U.  S.  C.    276(  b)(  1)(  B). 


 21  47  U.  S.  C.    276(  b)(  1)(  B)  &  (E). 
 22  In  response  to  the  Notice,  the  Commission  received  87  initial  comments  and  47  replies.  Appendix  B  lists 
6
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 7 
 4. 
 III.  ISSUES 


 THE  PAYPHONE  MARKETPLACE 
 1.  According  to  the  record  in  this  proceeding,  the  payphone  industry  has  the 
 potential  to  be  very  competitive.  23  Entry  into  the  payphone  business  appears  to  be  easy.  The 
 ability  to  purchase  a  payphone,  secure  a  location  contract,  obtain  a  payphone  line  from  the  LEC, 
 and  maintain  the  payphone  are,  together,  the  minimal  technical  requirements  to  enter  into  the 
 payphone  business.  24  In  addition,  payphone  lines  are  part  of  the  tariffed  offerings  of  local 
 exchange  carriers  and,  in  some  jurisdictions,  only  a  simple  business  line  is  required  to  the 
 payphone  service.  As  contracts  come  up  for  renewal,  or  as  location  providers  find  it  economical 
 to  put  in  new  payphones,  PSPs  and  interexchange  carriers  ("  IXCs")  routinely  make  themselves 
 available  to  negotiate  new  agreements  among  themselves  and  the  location  provider. 
 2. 
 3.  A  payphone  can  be  removed  and  used  at  another  location,  which  facilitates  entry 
 and  exit.  If  a  PSP  can  easily  redeploy  its  assets,  it  will  be  more  willing  to  place  a  payphone  in 
 response  to  a  small  increase  in  price,  because  the  risk  of  such  placement  is  lower.  25  In  addition, 
 there  appear  to  be  no  significant  scale  or  scope  economies  or  network  externalities  that  would 
 impede  entry  of  new  firms.  26  As  a  result,  barriers  to  entry  appear  to  be  very  low.  27  In  fact  a  large 
 number  of  firms,  both  large  and  small,  have  entered  the  industry  since  it  was  initially  opened  to 
 competition  in  1984,  and  those  firms  have  provided  competition  in  at  least  some  segments  of  the 
 payphone  market.  28 


 the  parties  filing  comments  and  the  abbreviated  names  this  Order  uses  to  refer  to  them.  Similarly,  Appendix  C  lists 
 replies. 


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


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


 25  See  Department  of  Justice  and  Federal  Trade  Commission  Horizontal  Merger  Guidelines,  4  Trade  Reg. 
 Rep.  (CCH)  13,  104  at  para.  1.  3  (1992)  ("  1992  Merger  Guidelines")  ("  A  firm  viewed  as  a  [market]  participant  if,  in 
 response  to  a  small  but  significant  and  nontransitory  price  increase,  it  likely  would  enter  rapidly  into  production  or 
 sale  of  a  market  product  in  the  market's  area,  without  incurring  significant  sunk  costs  of  entry  and  exit."). 


 26  Id.  at  para.  33. 


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


 28  The  record  indicates  that  the  average  BOC  payphone  originates  about  500  calls  per  month  while  the 
 average  independent  payphone  originates  about  700  calls  per  month.  APCC  Comments  at  5.  This  suggests  that 
 independent  PSPs  have  entered  markets  in  which  there  is  higher  than  average  payphone  traffic. 
7
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 8 
 4. 
 5.  The  competition  we  observe  today,  however,  has  been  significantly  distorted  by 
 government  regulation  of  prices,  regulatory  barriers  to  entry  and  exit,  as  well  as  by  significant 
 subsidies  from  other  telecommunications  services.  Regulated  prices  prevent  the  market  from 
 operating  efficiently  to  deploy  payphone  facilities.  Moreover,  some  states  currently  prohibit  the 
 provision  of  payphone  service  by  any  entity  other  than  the  incumbent  LEC.  Removing  these 
 types  of  entry  and  exit  restrictions  is  a  necessary  step  toward  allowing  competitive  forces  to 
 guide  both  the  deployment  of  payphones  and  the  setting  of  prices  for  payphone  services.  29 
 6. 
 7.  Even  after  such  regulatory  barriers  are  removed,  there  are  three  structural  reasons 
 why,  at  least  initially,  the  full  benefits  of  competition  may  not  be  realized  by  all  segments  of  the 
 payphone  market.  First,  independent  PSPs  currently  rely  on  LECs  for  basic  payphone  services. 
 LEC  participation  both  in  providing  payphones  to  the  public  and  also  providing  the  underlying 
 tariffed  payphone  services  to  independent  PSPs  may  give  LECs  the  incentive  and  the  potential 
 ability  to  unfairly  act  to  the  detriment  of  their  PSP  competitors  and  to  act  in  other  anti-competitive 
 ways  against  PSPs.  However,  by  implementing  safeguards,  we  intend  to  ensure  that 
 LECs  cooperate  fully  in  the  provision  of  any  necessary  payphone  services  and  do  not  otherwise 
 restrain  competition,  as  long  as  LECs  remain  the  monopoly  providers  of  these  services.  30 
 8. 
 9.  Second,  there  are  certain  locations  where,  because  of  the  size  of  the  location  or 
 the  caller's  lack  of  time  to  identify  potential  substitute  payphones,  no  "off  premises"  payphone 
 serves  as  an  adequate  substitute  for  an  "on  premises"  payphone.  In  such  locations,  the  location 
 provider  can  contract  exclusively  with  one  PSP  to  establish  that  PSP  as  the  monopoly  provider  of 
 payphone  service.  Absent  any  regulation,  this  could  allow  the  PSP  to  charge  supra-  competitive 
 prices.  The  location  provider  would  share  in  the  resulting  "locational  rents"  through 
 commissions  paid  by  the  PSPs.  To  the  extent  that  market  forces  cannot  ensure  competitive 
 prices  at  such  locations,  continued  regulation  may  be  necessary.  31  Payphones  in  many  locat  ions 
 are  likely  to  face  a  sufficient  level  of  competition  from  payphones  at  nearby  locations  to  ensure 
 that  prices  are  at  the  competitive  level.  As  a  result,  we  believe  that  payphones  at  such  locations 
 are  unlikely  to  need  additional  scrutiny. 
 10. 
 11.  Third,  for  competitive  markets  to  work  properly,  it  is  essential  that  consumers 
 have  full  information  concerning  the  choices  available  to  them.  Information  on  prices  for 
 payphone  service  is  of  primary  importance.  32  The  instant  Report  and  Order  concerns  two 


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


 30  See  generally  Section  C,  below. 


 31  See  para.  51,  below. 
 32  See  e.  g.,  Billed  Party  Preference  for  InterLATA  0+  Calls,  CC  Docket  No.  92-  77,  Second  Further  Notice  of 
 Proposed  Rulemaking,  11  FCC  Rcd  7274  (1996)  ("  OSP  Reform").  In  the  OSP  Reform  proceeding,  we  have 
8
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 9 
 different  types  of  consumers  who  need  to  be  informed  of  the  charges  they  will  face:  (1) 
 consumers  who  choose  to  use  a  payphone  for  local,  0+,  33  or  access  code  calls,  34  and  (2) 
 consumers  who  contract  with  an  IXC  for  the  ability  to  receive  subscriber  800  calls.  35  Although 
 we  have  no  evidence  in  the  record  that  the  current  disclosure  of  local  coin  rates  are  inadequate, 
 our  past  experience  requires  us  to  ensure  that  such  disclosures,  including,  at  a  minimum,  the 
 posting  of  the  local  coin  rate,  are  effective  in  communicating  necessary  cost  information  to 
 consumers.  We  look  to  the  states  to  review  their  regulations  and  modify  them  to  ensure  the 
 adequacy  of  the  disclosure.  36  Consumers  thus  will  have  the  information  available  to  them  at  the 
 time  they  decide  to  make  a  call  from  a  payphone. 
 12. 
 13.  As  discussed  more  fully  below,  37  the  PSP  will  be  permitted  to  levy  a  charge  each 
 time  a  caller  dials  a  subscriber  800  number.  We  conclude  that  the  charge  must  be  paid  directly 
 by  the  IXC,  although  the  carrier  may  pass  it  through  to  the  800  subscriber,  either  on  a  per-  call 
 basis,  or  in  the  form  of  higher  per-  minute  rates.  Once  it  is  possible  to  track  subscriber  800  calls, 
 a  competitive  market  may  pass  these  costs  along  in  the  same  manner  as  they  are  incurred  --  on  a 
 per-  call  basis  --  to  the  called  customer.  If  charges  are  not  passed  on  in  this  manner,  the  called 
 party's  incentives  for  accepting  or  declining  a  particular  call  will  be  distorted.  IXCs  also  have 
 the  option  of  blocking  subscriber  800  calls  from  payphones,  if  they  do  not  want  to  pay  the  per-call 
 payphone  compensation  charge.  38 
 14. 
 15.  Aside  from  these  three  structural  concerns,  we  recognize  that  the  payphone 
 industry  has  not  operated  without  the  entry  and  exit  restrictions  and  subsidies  that  currently  exist. 


 proposed  rules  to  ensure  that  operator  service  providers  ("  OSPs")  inform  consumers  of  their  price,  or  if  their  price 
 will  be  higher  than  that  charged  by  the  largest  OSPs.  While  OSP  Reform  is  separate  from  the  instant  proceeding, 
 the  OSP  rules  we  ultimately  adopt  will  benefit  those  who  make  calls  from  payphones. 


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


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


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


 36  See  paras.  49-  50,  below. 


 37  See  para.  52,  below. 
 38  See  para.  49,  below. 
9
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 10 
 When  these  subsidies  are  terminated  and  barriers  are  removed,  other  structural  problems  or 
 market  imperfections  may  develop  that  would  mitigate  the  benefits  of  a  competitive  market. 
 However,  our  continued  monitoring  of  the  marketplace  will  ensure  that  the  rules  we  adopt  will 
 lead  to  both  competitive  prices  for  payphone  service  and  an  efficient  supply  of  payphones. 
 16. 
 17.  One  of  the  goals  of  Section  276  is  the  deployment  of  payphones  to  benefit  the 
 "public  health,  safety  and  welfare."  39  The  competitive  marketplace,  however,  will  not  always 
 lead  to  an  adequate  supply  of  payphones  in  areas  where  they  are  not  economically  viable.  For 
 this  reason,  we  conclude  that  public  interest  payphones  should  be  maintained,  although  we 
 define  the  term  narrowly  to  exclude  those  payphones  that  would  be  provided  through  the  normal 
 workings  of  the  marketplace.  40  Our  conclusions  regarding  public  interest  payphones  will  ensure 
 that  there  will  be  an  efficient  supply  of  payphones,  although  we  recognize  that  the  states  are 
 better  equipped  to  determine  where  these  public  interest  payphones  should  be  placed.  In 
 addition,  by  ensuring  that  PSPs  receive  the  benefits  of  their  payphone  investments,  these  PSPs 
 will  compete  to  place  additional  payphones  in  a  variety  of  geographic  areas.  41  Therefore,  public 
 safety  will  be  enhanced  because  of  requirements  that  emergency  access  be  available  from  all 
 payphones  at  no  cost  the  caller.  This  increased  emergency  access  from  payphones  is  consistent 
 with  the  Commission's  proposals  to  ensure  telephone  compatibility  with  enhanced  emergency 
 calling  systems.  42  In  sum,  we  believe  that  the  increased  access,  free  of  charge  to  the  caller,  to 
 emergency  calling,  telecommunications  relay  service  calls  for  the  hearing  disabled,  and  dialtone 
 generally,  may  be  one  of  the  most  significant  benefits  of  the  compensation  approach  we  adopt  in 
 this  Report  and  Order  . 
 18.  19. 


 20.  A.  COMPENSATION  FOR  EACH  AND  EVERY  COMPLETED  INTRASTATE  AND 
 INTERSTATE  CALL  ORIGINATED  BY  PAYPHONES  21. 


 22.  Section  276  requires  that  we  establish  a  plan  to  ensure  fair  compensation  for  all 
 calls.  As  discussed  below,  fair  compensation  can  be  ensured  best  when  the  PSP  can  track  the 
 calls  made  from  the  payphone  on  a  call-  by-  call  basis  and  be  assured  efficient  payment  for  those 
 calls;  when  the  market  can  set  a  fair  rate  for  the  call;  and  when  the  caller  has  the  information 
 necessary  to  make  an  informed  choice  as  to  whether  to  make  the  call  and  incur  the  compensation 
 charge. 
 23. 
 24.  1.  Payphone  Calls  Subject  to  this  Rulemaking  and  Compensation  Amount 
 25. 


 39  47  U.  S.  C.    276(  b)(  1). 
 40  See,  e.  g.,  Ex  Parte  Letter  of  Garry  Mendez,  Jr.,  Executive  Director,  National  Trust  for  the  Development  of 
 African-  American  Men  to  William  Caton,  Secretary,  FCC  (September  6,  1996)  (market-  based  rates  will  help  ensure 
 that  payphones  remain  widely  available  in  residential  neighborhoods). 


 41  See  generally  Section  A,  below. 


 42  911  Notice. 
10
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 11 
 26.  a.  The  Notice 
 27. 
 28.  Most  calls  originated  on  payphones  are  within  one  of  the  following 
 categories:  (1)  coin  calls;  (2)  directory  assistance  calls;  (3)  operator  service  ("  0+"  and  "0-") 
 calls;  (4)  access  code  calls  (using,  e.  g.,  "10XXX"  codes  and  "1-  800"  or  "950"  carrier  access 
 numbers);  and  (5)  subscriber  800  calls.  Each  of  these  categories  can  be  further  subdivided 
 between  local,  intraLATA  toll,  intrastate  interLATA,  interstate  interLATA,  and  international.  In 
 the  Notice,  the  Commission  sought  comment  on  what  constitutes  "fair"  compensation;  whether 
 international  calls  should  be  included  in  the  compensation  plan;  and  whether  calls  for  which  the 
 PSP  currently  receives  compensation  should  be  included  in  the  plan.  43  The  Commission 
 tentatively  concluded  that  we  must  at  least  prescribe  standards  for  determining  fair  compensation 
 for  all  access  code  calls,  subscriber  800  and  other  toll-  free  number  calls,  and  debit  card  calls.  44 
 The  Commission  tentatively  concluded  that  it  was  not  necessary  to  prescribe  per-  call 
 compensation  for  0+  calls  originated  by  payphones,  because  these  calls  were  compensated 
 pursuant  to  contracts  between  the  PSP  and  the  presubscribed  IXC.  45  The  Commission  sought 
 comment  on  whether  intraLATA  0+  calls  carried  by  the  presubscribed  intraLATA  carrier  should 
 be  treated  differently  than  local  coin  calls.  46 
 29. 
 30.  With  regard  to  local  rates,  the  Commission  stated  that  there  is  some 
 evidence  that  the  rate  may  not  necessarily  fairly  compensate  the  PSP.  47  We  sought  comment  on 
 how  to  fulfill  the  Act's  mandate  in  this  regard.  The  Commission  proposed  a  range  of  options  for 
 ensuring  fair  compensation  for  local  coin  calls.  One  was  to  set  a  nationwide  local  coin  rate  for 
 all  calls  originated  by  payphones.  48  Another  was  for  the  Commission  to  prescribe  specific 
 national  guidelines  that  states  would  use  to  establish  a  local  rate  to  ensure  that  all  PSPs  are  fairly 
 compensated.  49  A  third  was  for  the  states  to  continue  to  set  the  coin  rates  for  local  payphone 
 calls  according  to  factors  within  their  discretion.  50  Under  each  approach,  the  Commission  sought 
 comment  on  what  specific  public  interest  benefits  commenters  believe  would  result  from 
 adoption  of  a  particular  option.  51 
 31. 


 43  Notice  at  paras.  16,  18. 
 44  Id.  at  para.  17. 
 45  Id.  at  para.  16. 
 46  Id.  at  para.  22. 
 47  Id.  at  para.  22,  n.  64. 
 48  Id.  at  para.  21. 
 49  Id. 
 50  Id.  at  para.  22. 
 51  Id.  at  paras.  21-  22. 
11
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 12 
 32.  In  addition,  the  Commission  tentatively  concluded  that  international  calls 
 originated  by  payphones  should  be  compensated,  because  we  found  no  evidence  of  congressional 
 intent  to  leave  these  calls  uncompensated.  52  The  Commission  also  sought  comment  on  what 
 rules,  if  any,  should  be  adopted  to  prevent  the  improper  use  of  subscriber  800  numbers  to 
 increase  compensation,  as  well  as  other  types  of  fraud.  53 
 33. 
 34.  Citing  the  lack  of  reliable  independent  payphone  provider  specific  cost 
 data,  the  Commission  tentatively  concluded  in  the  Notice  that  PSPs  should  be  compensated  for 
 their  costs  in  originating  the  types  of  calls  for  which  compensation  is  deemed  appropriate,  and 
 that  these  costs  should  be  measured  by  appropriate  cost-  based  surrogates.  54  For  appropriate  cost-based 
 surrogates,  the  Commission  sought  comment  on  whether  some  measure  of  generic  or 
 industry-  wide  costs  is  available,  whether  incumbent  LECs'  costs  would  be  a  reasonable  surrogate 
 for  independent  payphone  providers'  costs,  and  whether  some  other  existing  set  of  rates,  such  as 
 state-  established  rates  for  local  coin  calls,  would  be  a  reasonable  surrogate.  55  The  Commission 
 also  sought  comment  on  whether  we  should  prescribe  different  per-  call  compensation  amounts 
 for  the  different  types  of  calls  originated  by  payphones.  The  Commission  requested  comment  on 
 how  compensation  levels  should  be  permitted  to  change  in  the  future,  and  whether  some  cost 
 index  or  price  cap  system  would  be  appropriate  to  ensure  that  compensation  levels  reflect 
 expected  changes  in  unit  costs  over  time.  56 
 35. 
 36.  b.  Comments 
 37. 
 38.  i.  Compensable  Calls 
 39. 
 40.  A  wide  range  of  commenters,  including  IXCs,  RBOCs,  57  independent  LECs, 
 states,  and  independent  payphone  providers,  support  the  Commission's  tentative  conclusion  that 
 we  must  at  least  prescribe  standards  for  determining  fair  compensation  for  all  access  code  calls, 
 subscriber  800  and  other  toll-  free  number  calls,  and  debit  card  calls.  58  Many  of  these 
 commenters  also  agree  with  the  Commission's  tentative  conclusion  that  it  is  not  necessary  to 


 52  Id.  at  para.  18. 
 53  Id.  at  para.  23. 
 54  Id.  at  para.  38. 
 55  Id. 
 56  Id. 
 57  Use  of  the  term  "RBOCs"  in  this  Report  and  Order  refers  to  the  RBOC  Payphone  Coalition,  which  includes 
 six  of  the  seven  Bell  Operating  Companies,  but  does  not  include  Ameritech. 


 58  See,  e.  g.,  AT&  T  Comments  at  4-  5;  GTE  Comments  at  3;  RBOC  Comments  at  2.  MobileMedia  argues  that 
 the  Commission  should  initiate  a  separate  proceeding  to  evaluate  compensation  options  for  subscriber  800  calls. 
 MobileMedia  Reply  at  11-  12. 
12
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 13 
 prescribe  compensation  for  0+  calls  carried  by  a  payphone's  presubscribed  carrier.  59  They  argue 
 that  compensation  agreements  between  the  presubscribed  carrier  and  PSP  or  location  provider 
 ensure  that  the  PSP  will  be  fairly  compensated  for  these  calls.  60  CompTel  further  contends  that 
 mandating  per-  call  compensation  for  0+  calls  in  addition  to  that  provided  by  contract  would 
 overlap  with  the  Commission's  intent  to  address  operator  service  rates  for  payphones  in  the  OSP 
 Reform  proceeding.  61  The  RBOCs  argue  that  the  Commission  need  not  prescribe  compensation 
 for  0+  calls  as  a  general  rule,  although  the  Commission  must  require  OSPs  to  pay  compensation 
 on  all  presubscribed  calls  made  on  BOC  payphones  to  compensate  the  BOCs  for  use  of  their 
 payphones  when  the  BOC  does  not  have  a  contractual  relationship  with  the  presubscribed 
 carrier.  62  The  RBOCs  contend  that  because  Section  276(  b)(  3)  expressly  grandfathers  contracts 
 existing  before  the  date  of  the  statute's  enactment  between  the  location  provider  and  the 
 presubscribed  carrier  on  many  BOC  payphones,  the  BOCs  would  not  otherwise  receive  any 
 compensation  for  these  0+  calls.  63  Sprint  argues  that  the  Commission  should  not  mandate 
 compensation  for  any  calls  that  make  use  of  a  payphone's  presubscribed  carrier,  because  any  call 
 using  the  presubscribed  carrier  would  be  compensated  under  the  terms  of  the  contract.  64  The 
 RBOCs  contend,  however,  that  the  amount  of  dial-  around  calls  has  no  relationship  to  a 
 payphone's  presubscribed  carrier,  and  that  the  PSP  has  no  authority  to  block  these  calls  to  force 
 revenue  generating  calls.  65  Conquest  argues  that  the  Commission  should  exempt  0+  calls  that 
 make  use  of  an  800  number  as  a  presubscription  device,  which  is  transparent  to  the  caller.  66 
 41. 
 42.  Other  commenters,  notably  USTA  and  APCC,  argue  that  the  statutory  duty  to 
 mandate  compensation  for  "each  and  every  completed  intrastate  and  interstate  call"  requires  the 
 Commission  to  mandate  a  per-  call  compensation  rate  for  0+  calls,  regardless  of  any 
 compensation  agreements  between  the  presubscribed  carrier  and  the  PSP.  67  APCC  argues  that 


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


 60  Id. 


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


 64  Sprint  Comments  at  6.  See  also  AT&  T  Reply  at  16. 


 65  RBOC  Reply  at  2. 
 66  Conquest  Comments  at  12. 
 67  APCC  Comments  at  20-  21;  Communications  Central  Comments  at  5-  6;  IPTA  Comments  at  4;  USTA 
 Comments  at  1. 
13
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 14 
 state-  imposed  rate  ceilings  on  intrastate  0+  calls  prevent  PSPs  from  receiving  fair 
 compensation.  68  In  addition,  it  contends  that  0+  commission  payments  are  for  the  value  to  the 
 IXC  of  receiving  the  presubscribed  traffic  and  do  not  address  the  need  for  use  of  the  payphone.  69 
 The  RBOCs,  Ameritech,  and  GTE  argue  that  0+  compensation  could  be  established  as  a  default 
 rate,  which  could  be  eliminated  or  supplanted  through  negotiations  between  the  requisite 
 parties.  70 
 43. 
 44.  The  commenters  take  varying  positions  on  what  action  the  Commission 
 should  take  to  ensure  fair  compensation  for  local  coin  calls  from  payphones.  The  independent 
 payphone  providers  support  the  Commission's  option  of  a  nationwide  local  coin  call  rate.  71  They 
 argue  that  a  nationwide  rate  is  necessary  to  override  inconsistent  state  rules,  to  ensure 
 predictability  of  rates  for  interstate  travelers,  to  break  the  dependence  of  PSPs  on  0+ 
 commissions,  and  to  establish  a  single,  uniform  rate  for  all  local  coin  calls.  72  APCC  contends 
 that  this  nationwide  rate  would  serve  as  the  maximum  rate  that  PSPs  could  receive  for  a  local 
 coin  call,  and  PSPs  would  likely  respond  to  competition  in  local  areas  by  lowering  this  per-  call 
 rate.  73  Other  parties  specifically  oppose  a  nationwide  local  coin  rate.  74  They  argue  that  regional 
 differences  in  handling  payphone  calls  make  a  single  nationwide  rate  impractical.  75  Several 
 commenters  state  that  the  Commission  lacks  authority  to  set  local  coin  rates  under  both  Section 
 276  and  the  Act.  76  They  argue  that  the  ability  to  ensure  compensation  is  different  than 
 jurisdiction  over  retail  rates,  and  that  nothing  in  Section  276  suggests  that  Congress  intended  to 
 remove  local  coin  rates  from  the  jurisdiction  of  the  states.  77  APCC  contends,  however,  that  the 
 Commission  has  the  requisite  authority  to  impose  a  nationwide  local  coin  rate,  because  Section 
 276's  mandate  to  ensure  fair  compensation  extends  to  setting  local  coin  rates.  78 


 68  APCC  Comments  at  19. 
 69  Id.  at  20. 
 70  Ameritech  Reply  at  1-  4;  RBOC  Reply  at  10-  11;  GTE  Reply  at  4. 
 71  See,  e.  g.,  Actel  Comments  at  8;  APCC  Comments  at  13-  19;  Communications  Central  Comments  at  8; 
 FPTA  Comments  at  4;  NJPA  Comments  at  5-  6;  Peoples  Comments  at  17-  19;  SCPCA  Comments  at  3;  Telaleasing 
 Reply  at  3-  4. 


 72  APCC  Comments  at  13-  19;  Peoples  Comments  at  17-  19. 


 73  APCC  Reply  at  8. 
 74  See,  e.  g.,  California  PUC  Comments  at  12;  Maine  Comments  at  5-  7;  SW  Bell  Reply  at  3. 
 75  Id. 
 76  See,  e.  g.,  Bell  Atlantic  Comments  at  1;  MPTA  Comments  at  4-  5;  Missouri  PSC  Reply  at  3;  contra  APCC 
 Reply  at  4-  7. 


 77  Id. 


 78  APCC  Reply  at  4-  7. 
14
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 15 
 45. 
 46.  Other  commenters,  including  USTA,  Ameritech,  and  GTE,  argue  that  the 
 Commission  should  adopt  federal  guidelines  that  the  states  would  use  to  adopt  local  coin  rates 
 that  fairly  compensate  PSPs  for  the  use  of  their  payphones.  79  They  argue  that  the  guidelines  must 
 recognize  that  costs  associated  with  local  calls  vary  and  have  individual  market  characteristics, 
 and  that  the  states  must  be  directed  to  eliminate  all  subsidies  from  other  local  exchange 
 operations  and  from  interexchange  carriers.  80  US  West  argues  that  the  Commission  should  not 
 require  the  states  to  reexamine  their  respective  local  coin  rates  unless  the  per-  call  rate  is  below 
 the  nationwide  predominant  rate  of  $.  25.  81 
 47. 
 48.  Many  states  argue  that  the  Commission  must  defer  to  the  states  in  setting  the  local 
 coin  rates.  82  They  argue  that  the  states  must  maintain  their  wide  discretion  in  setting  the  specific 
 local  coin  rates.  83  Florida  PSC,  Indiana  URC,  and  Tennessee  contend  that  the  Commission 
 should  prescribe  a  nationwide  local  coin  rate  or  price  cap  and  allow  the  states  to  petition  for  a 
 variance.  84  APCC  states  that  it  would  support  a  variance  approach.  85  Ohio  PUC  asserts  that  it  is 
 within  its  authority  to  keep  local  coin  rates  low  by  requiring  LECs  to  reduce  the  costs  of  various 
 payphone  services  to  PSPs.  86  California  PUC  argues  that  the  Commission  should  adopt  an 
 approach  to  local  coin  rates  that  is  a  hybrid  of  setting  federal  guidelines  and  deferring  to  the 
 states.  87  It  argues  that  federal  guidelines  should  allow  states  maximum  participat  ion  in  setting 
 rates  for  payphones  generally,  and  should  recognize  the  interest  of  states  in  setting  end-  user  rates 
 for  local  calls  and  directory  assistance  calls.  88 
 49. 


 79  See,  e.  g.,  Ameritech  Comments  at  7;  Brill  Comments  at  1-  2;  GTE  Comments  at  4;  GVNW  Comments  at  2- 
 3;  New  Jersey  DRA  Comments  at  2;  USTA  Comments  at  4. 


 80  Id. 


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


 83  Id. 


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


 85  APCC  Reply  at  10. 


 86  Ohio  PUC  Reply  at  2-  4. 
 87  California  PUC  Comments  at  12-  13. 
 88  Id.  California  PUC  also  argues  that  the  Commission's  proposed  petition  process  for  review  of  state-determined 
 local  rates  might  raise  state  constitutional  issues,  because  any  review  process  must  depend  on  state 
 constitutions  and  the  procedural  safeguards  developed  by  those  constitutions.  Id.  at  10. 
15
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 16 
 50.  The  RBOCs  argue  that  the  Commission  should  deregulate  local  coin  rates  entirely 
 and  allow  the  market  to  determine  the  rate  in  any  particular  location.  89  BellSouth,  SW  Bell,  and 
 US  West  argue  that  the  Commission  should  deregulate  local  coin  rates  immediately.  90  Bell 
 Atlantic,  NYNEX,  and  Pacific  Telesis  contend  that  the  Commission  should  deregulate  local  coin 
 rates  pursuant  to  federal  standards  after  a  transition  period.  91  GTE  argues  that  deregulation  of 
 local  coin  rates  would  be  appropriate  after  a  two-  year  transition  period.  92  BellSouth  contends 
 that  the  Commission  has  the  requisite  authority  to  review  local  coin  rates  during  any  transition 
 period.  93 
 51. 
 52.  USTA,  GTE,  WorldCom,  and  Florida  PSC  argue  that,  because  PSPs  receive 
 commissions  on  0+  intraLATA  calls,  these  0+  intraLATA  calls  should  be  treated  like  interLATA 
 0+  calls  for  purposes  of  compensation.  94  On  the  other  hand,  Virginia  SCC  contends  that 
 intraLATA  0+  calls  should  be  treated  in  the  same  manner  as  local  coin  calls.  95  CompTel  argues 
 that  because  intraLATA  calls  are  frequently  routed  to  the  LEC,  not  the  presubscribed  carrier,  for 
 which  there  may  not  be  a  commission  paid  to  the  PSP  or  location  provider,  treating  intraLATA 
 0+  calls  as  interLATA  0+  calls  would  require  IXCs  to  pay  compensation  on  calls  for  which  they 
 receive  no  benefit.  96 
 53. 
 54.  The  RBOCs  and  APCC,  among  others,  contend  that  the  Commission,  to  ensure 
 compensation  for  "each  and  every  completed  intrastate  and  interstate  call,"  should  mandate  that 
 callers  make  a  coin  deposit  or  otherwise  provide  per-  call  compensation  for  "411"  directory 
 assistance  calls.  97  They  argue  that  such  compensation  is  necessary  to  recover  the  costs  associated 
 with  use  of  the  payphone  to  make  a  directory  assistance  call.  98  SW  Bell  believes  that  per-  call 
 compensation  for  directory  assistance  calls  is  appropriate,  but  it  specifies  that  the  end  user  should 
 be  required  to  pay  for  these  calls  through  a  coin  deposit.  99  Oklahoma  CC  argues  that  if  the 


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


 90  RBOC  Comments  at  21. 


 91  Id.  at  22-  23. 
 92  GTE  Reply  at  5. 
 93  BellSouth  Comments  at  6. 
 94  Florida  PSC  Comments  at  4;  GTE  Comments  at  5;  USTA  Reply  at  5;  WorldCom  Comments  at  8. 
 95  Virginia  SCC  Comments  at  2. 
 96  CompTel  Comments  at  5. 
 97  APCC  Comments  at  23;  Ameritech  Comments  at  8;  RBOC  Comments  at  5;  Telaleasing  Reply  at  6. 
 98  Id. 
 99  SW  Bell  Comments  at  9;  SW  Bell  Reply  at  6-  7. 
16
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 17 
 incumbent  LEC  charges  independent  payphone  providers  for  directory  assistance  calls,  then  the 
 LEC  should  be  required  to  impute  this  cost  to  its  own  payphones  for  each  directory  assistance 
 call.  100  Ohio  PUC  argues  that  the  LEC  providing  the  directory  assistance  service  should  not  be 
 permitted  to  charge  the  PSP  for  it,  and,  therefore,  per-  call  compensation  would  not  be 
 necessary.  101 
 55. 
 56.  Because  Section  276(  b)(  1)(  A)  requires  a  plan  to  ensure  fair  compensation  for 
 "each  and  every  completed  intrastate  and  interstate  call,"  some  commenters  argue  that  the 
 Commission  is  obligated  to  determine  what  constitutes  a  "completed"  call  for  purposes  of  per-call 
 compensation.  Several  of  these  commenters  further  argue  that  the  Commission  should 
 define  a  "completed  call"  as  a  call  that  is  answered  by  the  called  party.  102  They  argue  that 
 compensating  unanswered  calls  will  lead  to  uneconomic  rates  for  payphone  users  and  will  be 
 contrary  to  a  caller's  expectations  about  when  a  call  is  billed.  On  the  other  hand,  some  of  the 
 independent  payphone  providers  argue  that  a  "completed  call"  consists  of  any  call  that  reaches 
 the  carrier's  platform,  regardless  of  whether  the  call  ultimately  reaches  the  called  party.  103  These 
 independent  payphone  providers  argue  that  per-  call  compensation  is  appropriate  for  these  calls, 
 because  the  payphone  is  being  used  for  these  calls  and  is,  therefore,  unable  to  earn  other 
 revenue.  104 
 57. 
 58.  Some  IXCs  provide  different  definitions  of  what  should  be  considered  a 
 "completed  call."  Sprint  and  MCI  argue  that  a  call  is  completed  when  it  earns  revenue  for  the 
 carrier.  105  WorldCom  contends  that  an  access  code  call  is  completed  when  it  is  billed,  and  a 
 subscriber  800  call  is  completed  when  answer  supervision  is  returned.  106  Other  parties  argue  that, 
 because  it  is  often  difficult  for  the  parties  to  know  whether  a  call  was  answered  by  the  called 
 party,  the  Commission  should  use  a  duration  surrogate  for  completed  calls.  107  The  debit  card 
 providers,  in  particular,  favor  a  duration  surrogate  because  they  estimate  that  fifty  percent  of 
 debit  card  calls  are  not  completed  to  the  called  party.  108  Under  this  approach,  they  argue,  any  call 
 placed  from  a  payphone  below  a  certain  duration  would  be  excluded  because  it  would  be  likely 


 100  Oklahoma  CC  Comments  at  2. 
 101  Ohio  PUC  Comments  at  6. 
 102  See,  e.  g.,  American  Express  Reply  at  5;  Cable  &  Wireless  Comments  at  6-  8;  CompTel  Comments  at  11; 
 Excel  Comments  at  5;  GTE  Comments  at  3;  ITA  Comments  at  17-  18;  TRA  Comments  at  19;  Voice  Reply  at  9. 


 103  APCC  Reply  at  24;  Brill  Comments  at  3. 


 104  Id. 
 105  MCI  Comments  at  2;  Sprint  Comments  at  13. 
 106  WorldCom  Comments  at  9-  10. 
 107  See,  e.  g.,  Conquest  Comments  at  11;  Intellicall  Comments  33-  34;  ITA  Reply  at  4;  One  Call  Reply  at  4-  5. 
 108  See,  e.  g.,  ITA  Reply  at  4. 
17
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 18 
 that  the  call  was  not  completed  to  the  called  party  within  that  time  period.  The  threshold 
 duration  proposed  by  these  commenters  varies  from  42  seconds  109  to  60  seconds.  110  The  RBOCs 
 argue  that  a  60-  second  threshold  should  be  used,  111  while  APCC  believes  that  the  Commission 
 should  not  rely  on  any  duration  threshold.  112  The  RBOCs  argue  that  multiple  calls  made  through 
 use  of  a  payphone's  "#"  button,  even  though  they  require  billing  information  to  be  dialed  only 
 once,  should  be  counted  as  separate  calls  for  compensation  purposes.  113 
 59. 
 60.  Several  commenters  suggest  alternative  or  supplementary  approaches  to  per-  call 
 compensation.  The  RBOCs  collectively  contend  that  the  Commission  should  look  to 
 compensating  incoming  calls  in  the  future,  because  Section  276  does  not  differentiate  between 
 calls  originated  and  received  by  a  payphone.  114  SW  Bell  and  US  West,  in  their  individual 
 capacities,  argue  that  the  Commission  must  ensure  fair  compensation  for  incoming  calls  in  this 
 proceeding.  115 
 61. 
 62.  AT&  T,  the  RBOCs,  GTE,  USTA,  Florida  PSC,  Indiana  URC,  and  various 
 independent  payphone  providers  agree  with  the  tentative  conclusion  in  the  Notice  that  the 
 Commission  should  provide  compensation  for  international  calls  that  make  use  of  a  payphone.  116 
 These  commenters  argue  that  there  is  no  basis  to  exclude  these  calls  from  a  compensation 
 mechanism,  and  that  a  payphone  performs  the  same  functions  for  all  types  of  calls.  117  AT&  T  and 
 APCC  argue  that  the  term  "interstate,"  as  used  in  Section  276(  b)(  1)(  A),  includes  international 
 calls.  118  Sprint,  MCI,  and  other  IXCs  oppose  the  Commission's  tentative  conclusion  and  argue 
 that  compensation  for  international  calls  goes  beyond  the  plain  language  of  the  Section  276;  that 
 Congress  would  have  specified  compensation  for  "international"  or  "foreign"  calls,  as  it  did  in 
 other  provisions  of  the  1996  Act,  if  it  intended  such  compensation;  and  that  the  Commission 


 109  One  Call  Reply  4-  5. 
 110  Conquest  Comments  at  11;  Intellicall  Comments  at  33-  34.  Cf.  CompTel  Comments  at  12  (billing  a  25 
 second  call  as  "completed"  is  an  unreasonable  practice). 


 111  RBOC  Reply  at  3. 


 112  APCC  Reply  at  28. 
 113  RBOC  Comments  at  17;  accord  Sprint  Comments  at  13. 
 114  RBOC  Comments  at  5-  6. 
 115  SW  Bell  Comments  at  9;  US  West  Comments  at  5. 
 116  See,  e.  g.,  Actel  Comments  at  6;  Ameritech  Comments  at  12;  AT&  T  Comments  at  5;  CPA  Comments  at  2-3; 
 Florida  PSC  Comments  at  3  GTE  Comments  at  3;  Indiana  URC  Comments  at  3;  NJPA  Comments  at  5;  One  Call 
 Comments  at  4;  RBOC  Comments  at  2;  Telaleasing  Reply  at  6;  USTA  Comments  at  3. 


 117  Id. 


 118  AT&  T  Comments  at  5;  APCC  Reply  at  12. 
18
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 19 
 does  not  otherwise  have  authority  to  impose  this  compensation  obligation.  119  MCI  argues  that 
 such  compensation  for  international  calls  billed  to  non-  U.  S.  carrier  customers  is  not  practicable, 
 because  the  Commission  does  not  have  the  requisite  jurisdiction  to  require  the  foreign  carrier  to 
 bill  and  collect  the  PSP  compensation.  120 
 63. 
 64.  In  response  to  the  Commission's  request  for  comment  on  how  it  might  address 
 possible  compensation  fraud  associated  with  the  improper  dialing  of  subscriber  800  numbers  to 
 increase  compensation  payments,  a  wide  range  of  commenters  argue  that  the  Commission  must 
 take  strong  enforcement  action,  including  imposing  severe  penalties,  on  any  party  engaging  in 
 such  fraud.  121  These  commenters  further  argue  that  while  the  possibility  of  fraud  exists,  the 
 Commission  cannot  refuse  to  compensate  subscriber  800  calls.  122  The  RBOCs,  GTE,  and  Cable 
 &  Wireless  contend  that,  in  addition  to  enforcement  action  by  the  Commission,  the  carrier-payors 
 should  be  given  some  latitude  to  take  action  and  withhold  compensation  to  parties  who 
 engage  in  fraud.  123  MCI  and  American  Express  argue  that  the  Commission  should  require  the 
 LECs  to  report  any  suspicious  calling  patterns  with  regard  to  subscriber  800  numbers.  124  Other 
 parties  argue  that  the  "carrier  pays"  compensation  mechanism  proposed  by  the  Commission 
 encourages  fraud.  125  Several  parties  further  argue  that  requiring  the  calling  party  to  deposit  coins 
 for  subscriber  800  calls  would  eliminate  the  incentive  to  engage  in  fraudulent  calling.  126  Sprint 
 argues  that  keeping  the  per-  call  compensation  amount  at  the  marginal  cost  of  the  use  of  the 
 payphone  would  also  reduce  fraudulent  calling.  127  AT&  T  contends  that  the  Commission  should 
 use  a  surrogate  setting  forth  the  average  number  of  subscriber  800  calls  from  a  payphone  to 
 calculate  the  payment  of  per-  call  compensation  for  these  calls.  128  To  prevent  other  types  of 
 potential  fraud,  Frontier  and  Sprint  argue  that  the  Commission  must  adopt  a  definition  of 
 "payphone"  for  compensation  purposes.  129 


 119  CompTel  Comments  at  13;  Excel  Comments  at  3;  MCI  Comments  at  3;  Sprint  Comments  at  8;  WorldCom 
 Comments  at  10. 


 120  MCI  Comments  at  3-  4. 


 121  See,  e.  g.,  Actel  Comments  at  6;  APCC  Reply  at  26-  28;  MCI  Comments  at  5;  NJPA  Comments  at  6;  RBOC 
 Reply  at  8. 


 122  Id. 


 123  Cable  &  Wireless  Comments  at  5-  6;  GTE  Comments  at  5-  6;  RBOC  Reply  at  8. 
 124  MCI  Comments  at  5;  American  Express  Reply  at  10-  11. 
 125  See,  e.  g.,  Frontier  Reply  at  5-  6;  MobileMedia  Reply  at  7-  8. 
 126  Arch  Comments  at  5;  Intellicall  Comments  at  27;  Page  Net  Comments  at  10-  11;  One  Call  Comments  at  5. 
 127  Sprint  Comments  at  11. 
 128  AT&  T  Comments  at  15. 
 129  Frontier  Reply  at  6;  Sprint  Reply  at  2. 
19
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 20 
 65. 
 66.  Four  states,  Maine,  New  Hampshire,  New  Mexico,  and  Vermont,  filing  joint 
 comments,  argue  that  Section  276  applies  only  to  payphones  provided  by  the  RBOCs.  130  They 
 argue  further  that  the  Commission  is  without  authority  under  Section  276  to  adopt  rules  that 
 apply  to  all  payphones,  including  those  provided  by  non-  BOC  LECs  and  independent  payphone 
 providers.  131 
 67. 
 68.  ii.  Compensation  Amount 
 69. 
 70.  APCC,  AT&  T,  Sprint,  and  other  commenters  argue  that  the  Commission  should 
 adopt  a  national  uniform  rate  that  it  deems  compensable  for  all  calls  using  a  payphone.  132  They 
 contend  that  uniformity  is  necessary  to  avoid  imposing  undue  burdens  on  carriers  that  would 
 result  from  varying  rates.  In  addition,  they  assert  that  the  payphones  perform  identical  functions 
 for  each  type  of  compensable  call.  133  The  RBOCs  argue  that  the  Commission  need  not  prescribe 
 a  rate  for  each  type  of  compensable  call,  and  should,  instead,  let  the  market  dictate  the 
 appropriate  per-  call  rate.  134 
 71. 
 72.  Some  commenters  argue  that  certain  types  of  calls  should  receive  a  different  per-call 
 compensation  amount  than  others.  WorldCom  contends  that  the  amount  of  compensation 
 should  vary  with  the  duration  of  the  call  to  the  extent  that  marginal  cost  also  varies.  135  Invision 
 and  the  Inmate  Coalition,  providers  of  inmate  payphones,  assert  that  the  Commission  should 
 adopt  a  $.  90  per-  call  compensation  rate  that  would  apply  only  to  calls  using  inmate  payphones 
 located  in  penal  inst  itutions.  136  They  argue  that  payphone  services  for  inmates  is  a  distinct, 
 specialized  industry,  which  is  required  to  provide,  at  a  significant  capital  investment,  operator 
 service,  fraud  control,  extensive  call  controls,  and  monitoring  services  throughout  the  duration  of 
 its  calls.  They  argue  further  that  these  factors  warrant  a  higher  per-  call  compensation  rate.  137 
 Another  inmate  payphone  provider,  Gateway,  contends  that  the  Commission  should  not  adopt  a 
 separate,  higher  rate  for  inmate  payphone  calls,  because  such  a  rate  would  give  inmate  providers 


 130  Maine  Comments  at  2-  3. 
 131  Id. 
 132  See,  e.  g.,  AirTouch  Comments  at  7;  APCC  Comments  at  4,  9,  12;  AT&  T  Comments  at  10;  Sprint 
 Comments  at  24. 


 133  AT&  T  Comments  at  10;  Sprint  Comments  at  24. 


 134  RBOC  Reply  at  1. 
 135  WorldCom  Comments  at  20. 
 136  Inmate  Coalition  Comments  at  13;  Invision  Comments  at  5.  Ameritech  states  that  it  would  not  oppose  a 
 special  per-  call  compensation  rate  for  calls  using  an  inmate  payphone.  Ameritech  Reply  at  8-  9. 


 137  Inmate  Coalition  Comments  at  2-  3;  Invision  Comments  at  5. 
20
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 21 
 double  recovery  of  costs  already  included  in  their  rates  and  surcharges.  138  Gateway  also  argues 
 that  the  Commission  should  defer  consideration  of  a  higher  rate  until  after  its  OSP  Reform 
 proceeding,  and  that  inmate  providers  should  petition  the  various  states  for  relief  from  state 
 operator  services  rate  caps.  139  MCI  opposes  the  provision  of  per-  call  compensat  ion  for  calls 
 using  either  inmate  payphones  or  semi-  public  payphones.  140  It  asserts  that  semi-  public 
 payphones  already  receive  adequate  compensation  from  the  premises  owners.  141  The  RBOCs 
 contend  that  per-  call  compensation  for  semi-  public  payphones  is  warranted,  because  there  is  no 
 statutory  basis  to  preclude  semi-  public  payphones  from  receiving  compensation,  and  carriers 
 benefit  from  dial-  around  traffic  that  originated  on  semi-  public  payphones.  142 
 73. 
 74.  The  RBOCs  also  argue  that  any  per-  call  rate  the  Commission  sets  should  be 
 regarded  as  a  default  rate,  which  parties  would  be  free  to  alter  by  contract.  143  MCI  and  Sprint 
 contend  that  the  per-  call  amount  should  be  adjusted  downward  in  the  future  to  account  for 
 technological  advances  that  will  reduce  PSP  costs.  144  APCC  contends,  on  the  other  hand,  that  the 
 per-  call  compensation  rate  should  rise  automatically  at  the  same  rate  as  inflation.  145 
 75. 
 76.  A  number  of  IXCs  and  other  commenters  support  the  Commission's  tentative 
 conclusion  that  the  amount  of  per-  call  compensation  should  be  based  on  PSP  costs  and  argue  that 
 the  Commission  must  adopt  a  marginal  cost  standard.  146  They  argue  that  under  a  marginal  cost 
 standard,  a  PSP  would  be  allowed  to  recover  the  costs  associated  with  the  wear  on  the 
 payphone's  keypad  and  handset,  along  with  additional  costs  over  fixed  costs.  147  MCI  provides  a 
 study  authored  by  the  Hatfield  Associates,  which  analyzes  the  costs  of  providing  service  for 


 138  Gateway  Reply  at  3-  7. 
 139  Id. 
 140  MCI  Comments  at  3. 
 141  Id. 
 142  RBOC  Reply  at  3.  Semi-  public  payphones  are  payphones  that  a  LEC  typically  provides  in  exchange  for 
 both  the  coin  revenue  generated  by  the  payphone  and  a  monthly  fee,  paid  by  the  location  provider,  discounted  from 
 the  rate  for  a  business  line.  Semi-  public  payphones  tend  to  be  located,  at  the  request  of  the  location  provider,  where 
 public  access  is  limited  and  an  insignificant  amount  of  calls  are  made. 


 143  Id.  at  10-  11;  RBOC  Comments  at  12.  See  also  Sprint  Comments  at  13. 


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


 145  APCC  Reply  at  34;  contra  Sprint  Comments  at  24. 


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


 147  Id. 
21
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 22 
 access  code  calls,  and  concludes  that  the  appropriate  compensation  amount  would  be  $.  083  for 
 each  compensable  call.  148  MCI  argues  that  the  $.  083  per  call  is  fair  compensation,  because  PSPs 
 already  receive  revenues  in  excess  of  costs.  149  Sprint  contends  that  the  Commission  should  adopt 
 a  marginal  cost-  based  rate  of  $.  0675  per  call,  based  on  its  view  that  the  $.  25  rate  it  currently  pays 
 for  access  code  calls  fairly  compensates  independent  payphone  providers  for  all  calls.  150  In  its 
 analysis,  Sprint  found  that  27%  of  all  non-  revenue  generating  calls  from  payphones  are  operator 
 service  calls  for  which  27%  of  $.  25  is  the  appropriate  per-  call  compensation  amount,  i.  e., 
 $.  0675.  151  MCI  and  Sprint  further  argue  that  the  Commission  should  consider  anew  the  $.  12  per-call 
 compensation  amount  originally  proposed  in  the  Commission's  1991  Notice  of  Proposed 
 Rulemaking  in  the  access  code  call  compensation  proceeding,  CC  Docket  No.  91-  35,  because 
 this  rate  reflects  payphone  costs  on  a  per-  call  basis.  152  AT&  T  favors  an  unspecified 
 compensation  amount  related  to  marginal  cost  and  based  on  the  total  services  long-  run 
 incremental  cost  ("  TSLRIC")  method,  which  would  recover  the  costs  of  providing  and 
 maintaining  the  payphone  instrument,  exclusive  of  coin  collection  functions,  and  the  monthly 
 SLC  and  other  tariffed  LEC  services  specific  to  payphones.  153  AT&  T  argues  that  the  TSLRIC 
 standard  is  "more  generous"  than  a  marginal-  cost  standard,  because  it  allows  PSPs  to  recover  the 
 portion  of  payphone  costs  that  benefit  the  carriers  whose  customers  initiate  calls  at  payphones.  154 
 77. 
 78.  The  RBOCs  and  the  independent  payphone  providers  oppose  the  use  of  a 
 marginal  cost-  based  compensation  amount.  155  They  argue  that  fair  compensation  embraces  more 
 than  cost  recovery,  and  that  marginal  cost  disregards  fixed  costs,  which  are  significant  for  a 
 PSP.  156  USTA  and  GTE  argue  that  AT&  T's  proposed  TSLRIC-  based  compensation  is  not 
 relevant  to  the  provision  of  competitive  services  where  rates  should  be  guided  by  the  market,  and 
 it  does  not  permit  full  recovery  of  costs.  157 


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


 149  Id.  at  3. 


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


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


 152  MCI  Comments  at  13-  14;  Sprint  Comments  at  21. 


 153  AT&  T  Comments  at  6-  8. 
 154  AT&  T  Reply  at  2. 
 155  See,  e.  g.,  APCC  Comments  at  11;  APCC  Reply  at  30-  34;  IPTA  Comments  at  5-  6;  MICPA  Comments  at  2- 
 3;  RBOC  Reply  at  11-  15;  Telaleasing  Reply  at  6-  7. 


 156  RBOC  Reply  at  13. 


 157  GTE  Reply  at  2;  USTA  Reply  at  5,  7. 
22
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 23 
 79. 
 80.  The  RBOCs  and  the  independent  payphone  providers  argue  that  the 
 Commission  should  adopt  a  per-  call  compensation  standard  that  looks  both  to  overall  PSP  costs 
 and  revenues  and  to  market-  based  pricing.  The  RBOCs  and  GTE,  in  particular,  advocate  a  per-call 
 compensation  amount  that  relies  on  market-  based  proxies.  158  The  RBOCs  provide  a  study 
 that  analyzes  commission  rates  paid  to  PSPs  by  IXCs  generally  and  commission  rates  paid  by 
 AT&  T  and  concludes  that  the  appropriate  per-  call  compensation  amount  should  be  in  the  range 
 of  $.  81  to  $.  90  per  call.  159 
 81. 
 82.  APCC  contends  that  the  Commission  must  consider  market-  based 
 surrogates  in  setting  a  per-  call  compensation  amount.  160  It  proposes  that  the  Commission  adopt  a 
 compensation  amount  of  $.  40  per  call,  if  the  Commission  extends  this  rate  to  local  coin  calls,  or 
 $.  80  per  call  for  all  non-  local  coin  calls  that  use  a  payphone.  161  APCC  argues  that  these  proposed 
 amounts  would  fairly  compensate  PSPs  for  use  of  their  payphones.  162  Peoples,  the  largest 
 independent  payphone  provider,  argues  that  the  Commission  should  adopt  a  per-  call 
 compensation  amount  of  $.  45,  which  would  apply  to  all  calls,  including  local  coin  calls.  163 
 Peoples  includes  in  its  comments  summaries  of  data  that,  it  maintains,  show  that  Peoples' 
 average  pre-  tax  cost  per  call  using  its  payphones  is  $.  40.  164  Other  independent  payphone 
 providers  argue  that  the  Commission  should  adopt  per-  call  compensation  amounts  that  range 
 from  $.  40  to  $.  55  per  call.  165  AT&  T  and  Sprint  disagree  with  the  approach  proposed  by  APCC 
 and  the  RBOCs  and  argue  that  it  relies  too  much  on  the  factors  set  forth  in  the  Second  Report 
 and  Order,  which  they  claim  are  flawed,  and  on  0+  commissions,  which  reflect  PSP  opportunity 
 costs,  a  basis  for  compensation  rejected  by  the  Commission  in  the  Second  Report  and  Order.  166 
 In  addition,  they  argue  that  APCC  and  the  RBOCs  do  not  disclose  actual  costs,  but  instead 
 include  substantial  overhead,  advertising,  and  marketing  and  sales  expenses  in  their  model.  167 
 83. 
 84.  One  Call  contends  that  the  local  coin  rate  should  be  used  as  a  surrogate  for  a  fair 


 158  GTE  Comments  at  9;  RBOC  Comments  at  8-  11. 


 159  RBOC  Comments  at  8-  11. 
 160  APCC  Comments  at  31-  34. 
 161  Id.  at  31. 
 162  Id.  at  31-  34. 
 163  Peoples  Comments  at  14-  15. 
 164  Id.  at  20-  24. 
 165  See,  e.  g.,  Actel  Comments  at  7  ($.  50);  Communications  Central  Comments  at  9-  10  ($.  40);  IPTA 
 Comments  at  6  ($.  55);  NJPA  Comments  at  8-  9  ($.  50). 


 166  AT&  T  Reply  at  4-  11;  Sprint  Reply  at  15-  17. 


 167  Id. 
23
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 24 
 per-  call  compensation  amount.  168  Conquest  argues  that  the  Commission  should  cap  the  per-  call 
 compensation  amount  at  the  rate  for  a  local  coin  call.  169  AT&  T,  MCI,  and  the  RBOCs  all  oppose 
 use  of  a  local  coin  rate  surrogate  to  achieve  fair  compensation  for  PSPs.  170  They  argue  that  local 
 coin  rates  are  kept  artificially  low  by  regulators  and  have  no  relationship  to  either  cost  or  the 
 market.  171 
 85. 
 86.  Some  commenters  contend  that  the  Commission  should  adopt  a  per-  call 
 compensation  amount  that  is  within  the  range  established  by  the  1992  Second  Report  and  Order 
 in  the  access  code  call  compensation  proceeding.  NTCA  argues  that  continued  use  of  the  $.  40 
 per  call  rate  adopted  in  the  Second  Report  and  Order  would  not  be  disruptive  and  would  ensure 
 fair  compensat  ion  for  PSPs.  172  APCC  argues  that  the  Second  Report  and  Order  sets  forth  the  type 
 of  market-  based  surrogates  that  are  appropriate  for  the  Commission  to  consider  in  the  instant 
 proceeding.  173  PageNet  argues  that  the  Commission  should  examine  the  $6  per  month  LEC 
 access  charge  compensation  for  payphones,  as  set  forth  in  the  Second  Report  and  Order,  and  use 
 this  amount  plus  an  intrastate  recovery  element  to  reach  an  amount  that  could  be  divided  by  the 
 average  number  of  compensable  calls  to  equal  the  appropriate  per-  call  rate.  174  The  RBOCs 
 contend,  on  the  other  hand,  that  the  $.  40  per  call  amount  in  the  Second  Report  and  Order  is  out 
 of  date  and  should  be  higher.  175  AT&  T  and  Sprint  argue  that  the  factors  used  in  the  Second 
 Report  and  Order  are  irrelevant  for  determining  fair  compensation,  because  the  factors  do  not 
 relate  to  marginal  cost  and  concern  costs  that  are  recovered  through  other  revenue  streams.  176 
 87. 
 88.  c.  Discussion 
 89.  90.  Defining  "Fair  Compensation".  Section  276(  b)(  1)(  A)  directs  the  Commission  to 


 establish  a  plan  "to  ensure  that  all  payphone  service  providers  are  fairly  compensated  for  each 
 and  every  completed  intrastate  and  interstate  call  using  their  payphone."  177  The  1996  Act  does 


 168  One  Call  Comments  at  8. 


 169  Conquest  Comments  at  11. 
 170  AT&  T  Reply  at  11;  MCI  Comments  at  14;  RBOC  Reply  at  16. 
 171  Id. 
 172  NTCA  Comments  at  2. 
 173  APCC  Reply  at  29. 
 174  PageNet  Comments  at  18.  PageNet  also  argues  that  it  would  not  be  appropriate  for  the  Commission  to  rely 
 on  the  surrogates  it  set  forth  in  the  Second  Report  and  Order.  Id.  at  17. 


 175  RBOC  Comments  at  11. 


 176  AT&  T  Comments  at  6;  Sprint  Comments  at  19-  20. 
 177  47  U.  S.  C.    276(  b)(  1)(  A).  As  stated  above,  this  provision  exempts  from  the  Commission's  mandate 
 "emergency  calls  and  telecommunications  relay  services  for  hearing  disabled  individuals"  and  states  that  such  calls 
 "shall  not  be  subject  to  such  compensation."  Id.  Cf.  Telecommunications  Relay  Services,  and  the  Americans  with 
24
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 25 
 not  prescribe  a  particular  course  to  achieve  these  goals,  other  than  to  specify  that  such  action 
 shall  "promote  competition  among  payphone  service  providers  and  promote  the  widespread 
 deployment  of  payphone  services  to  the  benefit  of  the  general  public[.]"  178  To  comply  with  this 
 mandate,  we  tentatively  concluded  in  the  Notice  that  we  must  provide  for  compensation  only 
 when  PSPs  are  not  already  "fairly  compensated"  for  a  particular  type  of  a  call  using  a 
 payphone.  179  A  number  of  commenters  contend  that  we  must  look  to  all  of  a  payphone's  possible 
 revenue  streams  and  ensure  that  the  payphone,  as  a  whole,  is  fairly  compensated.  180  We  disagree. 
 We  conclude  that,  by  ensuring  that  all  calls  are  fairly  compensated,  including  those  for  which  the 
 PSP  currently  receives  no  revenue,  we  will  "promote  competition"  among  PSPs  and  "promote 
 the  widespread  deployment  of  payphone  services  to  the  benefit  of  the  general  public[.]"  181  The 
 marketplace  will  necessarily  determine  whether  or  not  a  particular  payphone  is  economically 
 viable. 
 91.  92.  We  conclude  that,  once  competitive  market  conditions  exist,  the  most  appropriate 


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


 Disabilities  Act  of  1990,  Memorandum  Opinion  and  Order,  CC  Docket  No.  90-  571,  10  FCC  Rcd  10927  (Com.  Car. 
 Bur.  1995)  (suspending  enforcement  of  TRS  coin  sent-  paid  service  requirements  until  August  26,  1997,  and 
 adopting  an  interim  plan  wherein,  inter  alia,  local  TRS  coin  sent-  paid  calls  are  to  be  free  of  charge,  and  toll  TRS 
 coin  sent-  paid  calls  are  to  be  chargeable  to  calling  cards  or  debit  cards  at  rates  equivalent  to  rates  for  similar  coin 
 sent-  paid  service  by  non-  TRS  users). 


 178  47  U.  S.  C.    276(  b)(  1). 


 179  Notice  at  para.  16. 
 180  See  e.  g.,  APCC  Comments  at  4-  12. 
 181  47  U.  S.  C.    276(  b)(  1). 
 182  See  para.  60,  below. 
25
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 26 
 make  from  payphones.  To  this  end,  we  require  that  each  payphone  clearly  indicate  the  local  coin 
 rate  within  the  informational  placard  on  each  payphone. 
 93. 
 94.  While  the  most  appropriate  way  to  ensure  fair  compensation  is  to  let  the 
 market  set  the  price  for  individual  payphone  calls,  we  conclude  that  this  transition  to  market-based 
 rates  should  occur  in  two  phases.  Because  LECs  will  terminate,  pursuant  to  Section 
 276(  b)(  1)(  b),  subsidies  for  their  payphones  within  one  year  of  the  effective  date  of  the  rules 
 adopted  in  this  proceeding,  183  LECs  will  not  be  eligible  to  receive  compensation  under  Section 
 276(  b)(  1)(  a)  until  that  termination  date.  This  one-  year  period  before  per-  call  compensation  is 
 effective,  as  discussed  below,  will  be  the  first  phase  of  implementing  the  rules  adopted  in  this 
 proceeding.  During  this  first  phase,  states  may  continue  to  set  the  local  coin  rate  in  the  same 
 manner  as  they  currently  do.  States  may,  however,  move  to  market-  based  local  coin  rates 
 anytime  during  this  one-  year  period.  In  addition,  the  states  must  conduct  its  examination  of 
 payphone  regulations  during  this  one-  year  period  to  review  and  remove,  if  necessary,  those 
 regulations  that  affect  competition,  such  as  entry  and  exit  restrictions.  IXCs  will  pay 
 compensation  for  access  code  calls  and  subscriber  800  calls  on  a  flat-  rate  basis.  In  addition,  all 
 payphones  must  provide  free  access  to  dialtone,  emergency  calls,  and  telecommunications  relay 
 service  calls  for  the  hearing  disabled. 
 95. 
 96.  In  the  second  phase,  which  will  begin  one  year  after  the  effective  date  of  rules 
 adopted  in  this  proceeding,  LECs  will  be  eligible  to  receive  compensation,  and  per-  call  tracking 
 capabilities  will  be  in  place.  The  carriers  to  whom  payphone  calls  are  routed  will  be  responsible 
 for  tracking  each  compensable  call  and  remitting  per-  call  compensation  to  the  PSP.  During  this 
 second  year,  which  is  the  first  year  of  per-  call  compensation  (as  opposed  to  flat-  rate 
 compensation),  the  market  will  be  allowed  to  set  the  rate  for  local  coin  calls,  unless  the  state  can 
 show  that  there  are  market  failures  within  the  state  that  would  not  allow  market-  based  rates.  184  In 
 addition,  during  the  second  phase,  which  will  be  the  first  year  of  per-  call  compensation  (after  the 
 initial  year  of  flat-  rate  compensation),  to  allow  us  to  ascertain  the  status  of  competition  in  the 
 payphone  marketplace,  we  conclude,  as  discussed  below,  185  that  IXCs  must  pay  PSPs  a  default 
 rate  of  $.  35  for  each  compensable  call,  which  may  be  changed  by  mutual  agreement.  PSPs  will 
 be  required  to  post  the  local  coin  rate  they  choose  to  charge  at  each  payphone.  During  the 
 second  phase,  we  may  review,  at  our  option,  the  deregulation  of  local  coin  rates  nationwide  and 
 determine  whether  marketplace  disfunctions  exist,  such  as  locational  monopolies  caused  by  the 
 size  of  the  location  with  an  exclusive  PSP  contract  or  the  caller's  lack  of  time  to  identify  potential 
 substitute  payphones,  and  should  be  addressed  by  the  Commission.  If  we  find  that  the 
 deregulation  of  local  coin  rates  warrants  a  modification  of  our  approach  due  to  market  failures, 
 we  may  choose  to  set  a  cap  on  the  number  of  calls  subject  to  compensation  from  particular 
 payphones  to  limit  the  exercise  of  locational  market  power.  Absent  such  a  finding,  at  the 
 conclusion  of  the  second  phase,  the  market-  based  local  coin  rate  at  these  payphones  will  be  the 


 183  See  paras.  181-  183,  below. 
 184  See  para.  61,  below. 
 185  See  para.  72,  below. 
26
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 27 
 default  compensation  rate  for  all  compensable  calls  in  absence  of  an  agreement  between  the  PSP 
 and  the  carrier-  payor. 
 97. 
 98.  Ensuring  Fair  Compensation.  Most  commenters  who  address  the  issue 
 agree  with  our  tentative  conclusion  that  we  must  provide  for  compensation  for  all  access  code 
 calls,  subscriber  800  and  other  toll-  free  number  calls,  including  debit  card  calls.  186  In  keeping 
 with  our  long-  term  goal  to  have  the  market  set  the  compensation  amount,  we  define  "fair 
 compensation"  above  as  where  there  is  a  willing  seller  and  a  willing  buyer  at  a  price  agreeable  to 
 both.  For  each  of  these  types  of  calls,  the  PSP  either  receives  no  revenue  for  originating  these 
 calls  (i.  e.,  for  subscriber  800  and  other  toll-  free  number  calls),  or  it  is  unable  to  block  callers 
 from  making  such  calls  (access  code  calls).  The  record  in  this  proceeding  includes  substantial 
 evidence  that  the  number  of  these  types  of  calls  using  payphones  has  proliferated  in  the  past 
 several  years.  187  We  conclude,  therefore,  that  we  must  provide  for  compensation  for  access  code 
 calls  and  subscriber  800  and  other  toll-  free  number  calls,  whether  they  are  intrastate  or  interstate 
 in  destination. 
 99. 
 100.  We  tentatively  concluded  in  the  Notice  that  we  need  not  provide  for 
 compensation  for  0+  calls,  because  independent  payphone  providers  and  non-  BOC  LECs  receive 
 compensation  through  individual  contracts  with  the  payphone's  presubscribed  IXC.  188  We  also 
 tentatively  concluded  that  "competition  in  this  area  ensures  'fair'  compensation  for  PSPs."  189  The 
 RBOCs  contend,  however,  that  because  Section  276(  b)(  3)  expressly  grandfathers  contracts 
 existing  before  the  date  of  the  statute's  enactment  between  the  location  provider  and  the 
 presubscribed  carrier  on  many  BOC  payphones,  the  BOCs  would  not  otherwise  receive  any 
 compensation  for  0+  calls.  190  They  argue  that  the  Commission  must  ensure  fair  compensation 
 for  0+  calls  that  use  BOC  payphones.  191  We  agree  and  modify  our  tentative  conclusion  so  that, 
 once  the  BOCs  reclassify  their  payphones  and  terminate  all  subsidies,  pursuant  to  Section 
 276(  b)(  1)(  B),  192  they  may  receive  the  per-  call  compensation  established  by  this  Order,  so  long  as 


 186  Notice  at  para.  17. 
 187  See,  e.  g.,  APCC  Comments  at  5-  6;  Communications  Central  Comments  at  Attachment  B;  Peoples 
 Comments  at  9-  10;  Telaleasing  Reply  at  8.  For  example,  Peoples,  the  largest  independent  payphone  provider,  states 
 that  subscriber  800  calls  are  13%  of  the  calls  (86  calls  out  of  665  calls  total)  originated  by  a  typical  Peoples 
 payphone,  while  access  code  calls  comprise  6.  5%  (43  calls).  Peoples  also  states  that  subscriber  800  calls  represent 
 almost  50%  of  non-  coin  calls  for  which  compensation  is  warranted.  Peoples  Comments  at  9-  10.  Other  independent 
 payphone  providers  report  similar  levels  of  subscriber  800  and  access  code  calling  from  their  payphones.  See  para. 
 123,  below. 


 188  Notice  at  para.  16. 


 189  Id. 
 190  See  para.  25,  above. 
 191  Id. 
 192  See  paras.  181-  183,  below. 
27
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 28 
 they  do  not  otherwise  receive  compensation  for  use  of  their  payphones  in  originating  0+  calls. 
 We  conclude  further  that,  in  the  absence  of  a  contract  providing  compensation  to  the  PSP  for 
 intraLATA  0+  calls,  the  PSP  shall  be  eligible  to  collect  per-  call  compensation  from  the  carrier  to 
 whom  the  call  is  routed.  We  also  conclude  that  when  a  caller  dials  "0"  and  the  payphone 
 subsequently  translates  this  digit,  unbeknownst  to  the  caller,  into  an  800  access  number  (i.  e.,  as  a 
 way  of  presubscribing  the  payphone  to  a  particular  IXC),  such  a  call  is  not  compensable  as  an 
 access  code  call,  because  it  does  not  put  the  caller  into  contact  with  an  alternative  carrier.  193 
 101. 
 102.  We  conclude  that  PSPs  should  receive  compensation  for  international 
 calls.  We  conclude  that  we  have  authority  under  Sections  4(  i)  and  201(  b)  of  the 
 Communications  Act  of  1934,  as  amended,  194  to  ensure  that  PSPs  are  fairly  compensated  for 
 international  as  well  as  interstate  and  intrastate  calls  using  their  payphones  in  the  United  States. 
 In  addition,  as  we  stated  in  the  Notice,  we  find  no  evidence  of  congressional  intent  to  leave  these 
 calls  uncompensated  under  Section  276.  We  agree  with  AT&  T  and  other  commenters  that  a 
 payphone  performs  similar  functions,  regardless  of  the  destination  of  the  call. 
 103. 
 104.  Local  Coin  Calls.  As  outlined  above,  195  we  believe  that  full  and  unfettered 
 competition  is  the  best  way  of  achieving  Congress'  dual  objectives  to  promote  "competition 
 among  payphone  service  providers  and  promote  the  widespread  deployment  of  payphone 
 services  to  the  benefit  of  the  general  public."  196  Competition  over  time  will  lead  to  the  more 
 efficient  placement  of  payphones,  improved  payphone  service,  and  lower  prices  for  consumers. 
 To  encourage  competition  in  the  payphone  marketplace,  we  ensure  in  this  Report  and  Order  that 
 PSPs  are  fairly  compensated  for  "each  and  every  completed  intrastate  and  interstate  call[;]" 
 terminate  certain  LEC  subsidies  for  payphones;  and  permit  all  PSPs,  including  BOCs,  to 
 negotiate  with  the  location  provider  regarding  the  selection  of  the  presubscribed  interLATA  and 
 intraLATA  carriers. 
 105. 
 106.  Once  competitive  conditions  exist,  we  believe  that  the  market  should  set  the 
 compensation  amount  for  all  payphone  calls,  including  local  coin  calls.  Because  we  have  an 
 obligation  under  Section  276  to  ensure  that  the  compensation  for  all  local  coin  calls  is  fair,  we 
 conclude  that  the  market  should  be  allowed  to  set  the  price  for  all  compensable  calls,  including  a 
 local  coin  call.  We  believe  this  approach  is  appropriate  because,  once  PSPs  are  free  to  enter  the 
 market,  and  once  callers  are  free  to  choose  payphones  for  their  calls,  the  market  will  ultimately 
 determine  whether  a  particular  payphone  is  economically  viable.  According  to  the  record  in  this 
 proceeding,  five  states  have  already  deregulated  local  coin  rates.  197  In  four  of  those  states,  Iowa, 


 193  See  Reconsideration  Order,  8  FCC  Rcd  at  7154.  See  also  Conquest  Comments  at  12. 
 194  47  U.  S.  C.    4(  i),  201(  b). 
 195  See  paras.  11-  19,  above. 
 196  47  U.  S.  C.    276(  b)(  1). 
 197  See  Ex  Parte  Letter  of  Michael  Kellogg,  Counsel,  RBOCs,  to  William  Caton,  Acting  Secretary,  FCC 
 (August  30,  1996). 
28
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 29 
 Nebraska,  North  Dakota,  and  Wyoming,  the  market-  based  rate  is  $.  35  per  call.  198  In  the  other 
 deregulated  state,  South  Dakota,  the  market-  based  rate  is  $.  25  per  call.  199 
 107. 
 108.  Historically,  however,  the  rate  for  the  most  common  type  of  call  --  the  local  coin 
 call  --  has  not  been  set  by  the  market,  but  has  instead  been  determined  by  state  commissions.  200 
 In  the  Notice,  we  stated  that  Section  276  of  the  Act  requires  the  Commission  to  ensure  that  the 
 PSP  receives  fair  compensation  for  each  interstate  and  intrastate  call,  including  local  coin  sent-paid 
 calls.  201  Section  276  also  states  that  "to  the  extent  that  any  State  requirements  are 
 inconsistent  with  the  Commission's  regulations,  the  Commission's  regulations  on  such  matters 
 shall  preempt  such  State  requirements."  202  We  sought  comment  in  the  Notice  on  how  we  should 
 exercise  our  jurisdiction  under  Section  276,  and  noted  that  we  have  a  range  of  options  for 
 ensuring  fair  compensation  for  local  coin  calls,  including  setting  a  nationwide  local  coin  rate  for 
 all  calls  originated  by  payphones,  establishing  specific  national  guidelines  that  states  would  use 
 to  establish  a  local  rate  that  would  ensure  that  all  PSPs  are  fairly  compensated  and  permitting  the 
 states  to  continue  setting  the  coin  rates  for  local  payphone  calls  according  to  factors  within  their 
 discretion.  203 
 109.  110.  As  we  stated  in  the  Notice,  the  Commission  recognizes  that  the  states  have  long 


 had  a  traditional  and  primary  role  in  regulating  payphones,  including  setting  local  call  rates  paid 
 by  end  users.  204  This  role,  however,  has  been  in  the  context  of  LECs  providing  local  payphone 
 service  as  part  of  their  regulated  service.  Section  276,  however,  significantly  alters  the 
 regulatory  landscape  by  requiring  that  LEC  provision  of  payphone  service  be  on  par  with 
 independent  PSP  provision  of  service.  205  In  addition,  by  mandating  that  LEC  payphones  can  no 
 longer  receive  subsidies  from  basic  exchange  services,  Section  276  greatly  changes  the  way  in 
 which  states  set  local  coin  rates.  Further,  Section  276(  b)(  1)(  A)  gives  the  Commission  both  the 
 jurisdiction  to  ensure  fair  compensation  for  local  coin  calls  and  the  mandate  to  establish  a  plan  to 
 compensate  PSPs  on  a  per-  call  basis.  We  also  stated  our  concern  in  the  Notice  that  "current  local 
 rates  may  not  always  'fairly'  compensate  the  PSP  for  use  of  its  payphone[,]"  because  the  caller 


 198  Id. 
 199  Id. 
 200  Notice  at  para.  19. 
 201  Id. 
 202  47  U.  S.  C.    276(  c). 
 203  Notice  at  para.  20-  22. 
 204  Id. 
 205  See  also  Jt.  Statement  of  Managers,  S.  Conf.  Rep.  No.  104-  230,  104th  Cong.,  2d  Sess.  (1996)  at  43 
 ("  Conference  Report"):  "In  crafting  implementing  rules,  the  Commission  is  not  bound  to  adhere  to  existing 
 mechanisms  or  procedures  established  for  general  regulatory  purposes  in  other  provisions  of  the  Communications 
 Act." 
29
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 30 
 may  use  the  payphone  at  "a  subsidized  local  coin  rate[.]"  206  Based  on  the  record  in  this 
 proceeding,  we  conclude  that  a  deregulatory,  market-  based  approach  to  setting  local  coin  rates  is 
 appropriate,  because  existing  local  coin  rates  are  not  necessarily  fairly  compensatory. 
 111. 
 112.  We  recognize,  however,  that  the  competitive  conditions,  which  are  a  prerequisite 
 to  a  deregulatory,  market-  based  approach,  do  not  currently  exist  and  cannot  be  achieved 
 immediately.  Many  states  impose  regulations  on  PSPs,  including  certain  requirements  that  must 
 be  fulfilled  before  a  PSP  can  enter  or  exit  the  payphone  marketplace.  We  conclude  that  these 
 state  regulations  are  barriers  to  a  fully  competitive  payphone  market,  and,  therefore,  "to  the 
 extent  that  any  State  requirements  are  inconsistent  with  the  Commission's  regulations,  the 
 Commission's  regulations  on  such  matters  shall  preempt  such  State  requirements."  207  In  addition, 
 in  some  locations,  because  of  the  size  of  the  location  with  an  exclusive  PSP  contract  or  the 
 caller's  lack  of  time  to  identify  potential  substitute  payphones,  the  PSP  may  be  able  to  charge  an 
 inflated  rate  for  local  calls  based  on  its  monopoly,  pursuant  to  an  exclusive  contract  with  the 
 location  provider,  on  all  payphones  at  the  location.  We  conclude  that  such  monopoly 
 arrangements,  in  the  absence  of  regulatory  oversight,  could  impair  competition. 
 113. 
 114.  Based  on  these  concerns,  we  conclude  that  the  overall  transition  to  market-  based 
 local  coin  rates  should  not  occur  immediately.  As  discussed  below,  208  LECs  will  not  be  required 
 to  terminate,  pursuant  to  Section  276(  b)(  1)(  b),  certain  subsidies  associated  with  their  payphones 
 until  April  15,  1997.  LECs  will  not  be  eligible  to  receive  per-  call  compensation  under  Section 
 276(  b)(  1)(  a)  for  one  year,  when  all  such  subsidies  are  terminated.  For  this  one-  year  period,  the 
 states  will  be  responsible  for  both  ensuring  that  PSPs  are  fairly  compensated  for  local  coin  calls 
 and  protecting  consumers  from  excessive  rates.  Eventually,  when  fully  competitive  conditions 
 exist,  the  marketplace  will  address  both  concerns.  We  conclude  that,  during  this  one-  year  period 
 before  per-  call,  as  opposed  to  flat-  rate,  compensation  becomes  effective,  states  may  continue  to 
 set  the  local  coin  rate  in  the  same  manner  as  they  currently  do.  States  may,  however,  move  to 
 market-  based  local  coin  rates  anytime  during  this  one-  year  period,  and  are  encouraged  to  do  so. 
 In  addition,  we  conclude  that  during  the  same  period,  the  states  should  take  additional  action  to 
 ensure  that  payphone  competition  is  promoted.  As  discussed  above,  209  we  believe  that  ease  of 
 entry  and  exit  in  this  market  will  foster  competition  and  allow  the  market,  rather  than  regulation, 
 to  dictate  the  behavior  of  the  various  parties  in  the  payphone  industry.  To  this  end,  each  state 
 should  examine  and  modify  its  regulations  applicable  to  payphones  and  PSPs,  removing,  in 
 particular,  those  rules  that  impose  market  entry  or  exit  requirements.  We  conclude  that,  for 
 purposes  of  ensuring  fair  compensation  through  a  competitive  marketplace,  the  states  should 
 remove  only  those  regulations  that  affect  payphone  competition;  the  states  remain  free  at  all 
 times  to  impose  regulations,  on  a  competitively  neutral  basis,  to  provide  consumers  with 


 206  Notice  at  para.  22,  n.  64. 
 207  47  U.  S.  C.    276(  c). 
 208  See  para.  181,  below. 
 209  See  paras.  11-  19,  above. 
30
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 31 
 information  and  price  disclosure.  210  In  addition,  the  states  at  all  times  must  ensure  that  access  to 
 dialtone,  emergency  calls,  and  telecommunications  relay  service  calls  for  the  hearing  disabled  is 
 available  from  all  payphones  at  no  charge  to  the  caller. 
 115. 
 116.  At  the  conclusion  of  this  first  one-  year  period,  the  market  will  be  allowed  to  set 
 the  price  for  a  local  coin  call,  as  discussed  more  fully  above.  211  However,  we  conclude  that  we 
 should  make  an  exception  to  the  market-  based  approach  for  states  that  are  able  to  demonstrate  to 
 the  Commission  that  there  are  market  failures  within  the  state  that  would  not  allow  market-  based 
 rates.  212  Such  a  detailed  showing  could  consist  of,  for  example,  a  detailed  summary  of  the  record 
 of  a  state  proceeding  that  examines  the  costs  of  providing  payphone  service  within  that  state  and 
 the  reasons  why  the  public  interest  is  served  by  having  the  state  set  rates  within  that  market.  In 
 addition,  under  our  deregulatory,  market-  based  approach,  when  states  have  concerns  about 
 possible  market  failures,  such  as  that  of  payphone  locations  that  charge  monopoly  rates,  they  are 
 empowered  to  act  by,  for  example,  mandating  that  additional  PSPs  be  allowed  to  provide 
 payphones,  or  requiring  that  the  PSP  secure  its  contract  through  a  competitive  bidding  process 
 that  ensures  the  lowest  possible  rate  for  callers.  If  a  market  failure  persists  after  such  action,  the 
 state  should  recommend  the  matter  to  the  Commission  for  possible  investigation.  213  In  addition, 
 during  the  second  phase,  after  the  initial  year  of  flat-  rate  compensation,  we  may  review,  at  our 
 option,  the  deregulation  of  local  coin  rates  nationwide  and  determine  whether  marketplace 
 disfunctions,  such  as  locational  monopolies  where  the  size  of  the  location  or  the  caller's  lack  of 
 time  to  identify  potential  substitute  payphones,  exist  and  should  be  addressed  by  the 
 Commission.  At  this  point,  if  we  find  that  the  deregulation  of  local  coin  rates  warrants  a 
 modification  of  our  approach  due  to  market  failures,  we  may  choose,  for  example,  to  set  a  cap  on 
 the  number  of  calls  subject  to  compensation  from  particular  payphones  to  limit  the  exercise  of 
 locational  market  power.  Absent  such  a  finding,  at  the  conclusion  of  the  second  phase,  the 
 market-  based  local  coin  rate  at  these  payphones  will  be  the  default  compensation  rate  for  all 
 compensable  calls  in  absence  of  an  agreement  between  the  PSP  and  the  carrier-  payor. 
 117. 
 118.  With  regard  to  "411"  directory-  assistance  calls,  we  noted  that,  while  incumbent 
 LECs  in  many  jurisdictions  currently  do  not  charge  the  payphone  caller  for  "411"  calls  made 
 from  their  own  phones,  the  LECs  charge  independent  payphone  providers  for  directory-assistance 
 calls  made  from  their  payphones,  and  are  not  always  allowed  by  the  state  to  pass  those 
 charges  on  to  callers.  214  We  conclude  that  we  must  ensure  fair  compensation  for  "411"  and  other 


 210  We  note  that  state  regulations  and  requirements  must  comply  independently  with  other  provisions  of  the 
 Communications.  See  e.  g.,  47  U.  S.  C.    253. 


 211  See  para.  56,  above. 


 212  This  public  interest  showing  is  distinct  from  state  concerns  regarding  the  establishment  and  funding  of 
 public  interest  payphones,  as  discussed  in  Part  VI,  below. 


 213  In  its  investigation,  the  Commission  would  use  an  economic  and  antitrust  analysis  to  evaluate  the  market 
 failure  and  determine  whether  Commission  action  was  necessary  to  promote  the  underlying  goals  of  Section  276  of 
 the  Act.  See  paras.  2,  11-  19,  above. 


 214  Notice  at  para.  19. 
31
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 32 
 directory  assistance  calls  from  payphones  by  permitting  the  PSP  to  charge  a  market-  based  rate 
 for  this  service,  although  a  PSP  may  decline  to  charge  for  this  service  if  it  chooses.  In  addition, 
 to  help  ensure  that  a  LEC  does  not  discriminate  in  favor  of  its  own  payphones,  we  conclude  that 
 if  the  incumbent  LEC  imposes  a  fee  on  independent  payphone  providers  for  "411"  calls,  then  the 
 LEC  must  impute  the  same  fee  to  its  own  payphones  for  this  service. 
 119. 
 120.  Completed  Calls.  We  agree  with  the  commenters  that,  because  Section 
 276(  b)(  1)(  A)  mandates  compensation  for  "each  and  every  completed  intrastate  and  interstate 
 call,"  we  must  determine  what  constitutes  a  "completed"  call  for  purposes  of  per-  call 
 compensation.  We  conclude  that  a  "completed  call"  is  a  call  that  is  answered  by  the  called  party. 
 We  have  previously  found  that,  where  an  800  calling  card  call  is  routed  through  an  IXC's 
 platform,  it  should  not  be  viewed  as  two  distinct  calls  --  one  to  the  platform  and  one  to  the  called 
 party.  215  In  addition,  in  Florida  Public  Telecommunications  Ass'n  v.  FCC,  the  United  States 
 Court  of  Appeals  for  the  District  of  Columbia  Circuit  emphasized  the  one-  call  nature  of  a 
 subscriber  800  call  from  the  caller's  point  of  view.  216  A  number  of  commenters  contend  that  the 
 Commission  should  use  a  duration  surrogate  for  completed  calls.  We  conclude  that  exempting 
 calls  from  per-  call  compensation  because  they  are  not  of  a  requisite  duration,  whether  25 
 seconds  217  or  60  seconds,  218  would  not  be  in  accordance  with  Section  276's  mandate  that  "each 
 and  every  completed  intrastate  and  interstate  call"  be  compensated.  219  In  addition,  to  comply 
 with  this  mandate,  we  conclude  that,  as  argued  by  the  RBOCs,  multiple  sequential  calls  made 
 through  the  use  of  a  payphone's  "#"  button  should  be  counted  as  separate  calls  for  compensation 
 purposes.  220 
 121. 
 122.  The  RBOCs  argue  that  the  phrase  "call  using  their  payphone"  in  Section 
 276(  b)(  1)(  A)  covers  completed  calls  received  by  payphones  as  well  as  those  originated  by 
 payphones.  221  Bell  Atlantic,  BellSouth,  PacTel,  and  NYNEX,  maintain  that  the  Commission 
 should  look  to  compensating  incoming  calls  at  some  unspecified  point  in  the  future.  222  We  do  not 
 agree,  however,  that  Section  276(  b)(  1)(  A)  was  intended  to  apply  to  both  incoming  and  outgoing 
 calls.  223  Because  PSPs  may  block  incoming  calls,  they  are  able  to  restrict  use  of  their  payphones 


 215  Teleconnect  Co.  v.  Bell  Telephone  Company  of  Pennsylvania,  10  FCC  Rcd  1626,  1629  (1995).  See  also 
 Long  Distance/  USA,  Inc.  v.  Bell  Telephone  Company  of  Pennsylvania,  10  FCC  Rcd  1634  (1995). 


 216  Florida  Payphone,  54  F.  3d  at  860. 


 217  See  CompTel  Comments  at  12. 
 218  See  Conquest  Comments  at  11;  Intellicall  Comments  at  33-  34;  RBOC  Reply  at  3. 
 219  47  U.  S.  C.    276(  b)(  1)(  A)  (emphasis  added). 
 220  Some  IXCs  allow  a  caller  to  make  successive  calls,  once  she  dials  her  calling  card  information,  by  pushing 
 the  "#"  button  at  the  conclusion  of  each  call  to  regenerate  the  dialtone. 


 221  RBOC  Comments  at  5-  6. 


 222  Id. 
32
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 33 
 if  they  are  concerned  about  a  lack  of  compensation.  For  this  reason,  we  conclude  that  incoming 
 calls  are  not  within  the  purview  of  Section  276,  and  we  are  not  required,  as  a  result,  to  address 
 them  in  the  instant  proceeding. 
 123. 
 124.  Payphone  Fraud.  The  Commission  has  recognized,  since  it  first  addressed 
 the  issue  of  compensation  for  subscriber  800  calls  in  1991,  that  a  PSP  "could  attach  an  autodialer 
 to  a  payphone  and  have  it  place  repeated  800  calls  ...  to  increase  the  amount  of  compensation  [it] 
 receives."  224  Section  227(  b)(  1)  of  the  Act  states  that  it  is  unlawful  for  any  person  to  use  an 
 autodialer  to  call  "any  service  for  which  the  called  party  is  charged  for  the  call[.]"  225  We 
 conclude  that  this  provision  bars  the  use  of  autodialers  to  generate  payphone  compensation  by 
 calling  toll-  free  800  numbers,  which  are  billed  to  the  called  party.  A  number  of  commenters 
 argue  that  the  Commission  must  take  strong  enforcement  action  against  those  who  engage  in 
 autodialer  fraud.  We  agree.  We  will  aggressively  take  action  against  those  involved  in  such 
 fraud.  We  have  authority  under  the  1996  Act  and  our  rules  to  take  civil  enforcement  action 
 against  a  payphone  provider  who  deliberately  violates  the  Commission's  compensation  rules  by 
 placing  toll  free  calls  simply  to  obtain  compensation  from  the  carriers.  More  importantly,  such 
 activity  may  be  fraud  by  wire  and  subject  to  criminal  penalties.  226  Should  we  receive  information 
 that  a  PSP  is  using,  or  is  allowing  use  of,  its  facilities  in  this  manner,  we  will  refer  the  matter  to 
 the  appropriate  law  enforcement  agencies  for  criminal  prosecution.  Contrary  to  suggestions  by 
 some  commenters,  227  it  is  not  necessary,  nor  would  it  be  in  the  public  interest,  for  the 
 Commission  to  select  a  particular  method  of  per-  call  compensation,  such  as  a  marginal  cost-based 
 approach,  or  a  particular  compensation  amount,  i.  e.  low  enough  to  discourage  fraud, 
 simply  to  avoid  the  possibility  of  fraud. 
 125. 
 126.  Both  Frontier  and  Sprint  argue  that  the  Commission  should  adopt  a  definition  of 
 "payphone"  for  compensation  purposes.  228  We  have  previously  adopted  a  definition  of 
 "payphone"  in  the  access  code  call  compensation  proceeding,  although  the  definition  is  used  only 
 for  purposes  of  the  billing  and  collection  of  the  compensation  in  that  proceeding.  229  We 
 concluded  that  payphones  appearing  on  the  LEC-  provided  customer-  owned,  coin-  operated 
 telephone  ("  COCOT")  lists  were  payphones  that  are  eligible  for  compensation.  230  If  a  payphone 
 provider  does  not  subscribe  to  an  identifiable  payphone  service,  or  if  its  payphone  is  omitted 


 223  The  legislative  history  of  this  provision  does  not  address  incoming  calls. 


 224  First  Report  and  Order,  6  FCC  Rcd  at  4746. 
 225  47  U.  S.  C.    227(  b)(  1). 
 226  See,  e.  g.,  18  U.  S.  C.    1343. 
 227  See  para.  37,  above. 
 228  Frontier  Comments  at  22;  Sprint  Reply  at  2. 
 229  Reconsideration  Order,  8  FCC  Rcd  at  7156-  57. 
 230  Id.  at  7156. 
33
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 34 
 from  the  COCOT  list  in  error,  the  provider  is  required  to  provide  alternative  verification 
 information  to  the  IXC  paying  compensation.  231  We  conclude  that  this  definition  of  "payphone," 
 regardless  if  the  payphone  in  question  is  independently-  or  LEC-  provided,  will  be  sufficient  for 
 the  payment  of  compensation  as  mandated  by  Section  276  and  the  instant  proceeding.  In 
 addition,  as  discussed  below,  232  all  payphones  will  be  required  to  transmit  specific  payphone 
 coding  digits  as  a  part  of  their  automatic  number  identification  ("  ANI"),  which  will  assist  in 
 identifying  them  to  compensation  payors.  Beyond  the  immediate  purposes  of  paying 
 compensation,  we  conclude  that  a  payphone  is  any  telephone  made  available  to  the  public  on  a 
 fee-  per-  call  basis,  independent  of  any  other  commercial  transaction,  for  the  purpose  of  making 
 telephone  calls,  whether  the  telephone  is  coin-  operated  or  is  activated  either  by  calling  collect  or 
 using  a  calling  card.  233 
 127. 
 128.  Compensation  Amount.  In  the  Notice,  we  noted  that  "while  we  are  still 
 confronted  in  the  instant  proceeding  by  the  lack  of  reliable  [independent  payphone  provider]  cost 
 data,"  we  tentatively  concluded  that  "PSPs  should  be  compensated  for  their  costs  in  originating 
 ...  calls"  using  their  payphones.  234  We  tentatively  concluded  further  that  these  costs  should  be 
 measured  by  appropriate  cost-  based  surrogates.  235  We  sought  comment,  in  particular,  on  whether 
 some  measure  of  generic  or  industry-  wide  costs  is  available,  or  whether  incumbent  LEC  costs 
 would  be  a  reasonable  surrogate  for  the  costs  of  independent  payphone  providers.  236  Upon 
 review  of  the  comments  submitted  in  response  to  the  Notice,  we  find  that  while  few  parties 
 provided  cost  surrogate  data,  the  RBOCs,  Peoples,  IPTA,  and  MCI,  among  others,  present 
 studies  on  payphone  costs.  These  studies  vary  in  both  their  approaches  to  calculating 
 compensation  and  their  conclusions  on  the  appropriate  per-  call  compensation  amount  that  the 
 Commission  should  adopt. 
 129. 
 130.  A  number  of  commenters,  notably  the  IXCs,  argue  that  the  Commission  should 
 use  the  marginal  cost  of  originating  a  payphone  call  as  the  basis  for  compensating  PSPs.  We 
 conclude  that  use  of  a  purely  incremental  cost  standard  for  all  calls  could  leave  PSPs  without  fair 
 compensation  for  certain  types  of  payphone  calls,  because  such  a  standard  would  not  permit  the 
 PSP  to  recover  a  reasonable  share  of  the  joint  and  common  costs  associated  with  those  calls.  237 
 We  also  reject,  for  similar  reasons,  suggestions  by  commenters  that  we  use  local  coin  rates 


 231  Id.  at  7157.  See  also  Second  Further  Notice,  10  FCC  Rcd  at  11457. 


 232  See  para.  98,  below. 
 233  See  47  U.  S.  C.    226(  a)(  2);  47  CFR    32.2351,  68.  3. 
 234  Notice  at  para.  38. 
 235  Id. 
 236  Id. 
 237  Cf.  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996,  First 
 Report  and  Order,  FCC  96-  325,  para.  672-  703  (rel.  Aug.  8,  1996)  ("  Local  Competition  Order")  (describing  total 
 element  long-  run  incremental  cost  methodology  for  pricing  interconnection  and  unbundled  network  elements). 
34
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 35 
 currently  in  place  as  a  surrogate  for  a  per-  call  compensation.  238  As  we  stated  in  the  Notice,  "local 
 coin  rates  in  some  jurisdictions  may  not  cover  the  marginal  [incremental]  cost  of  the  service."  239 
 Therefore,  basing  the  per-  call  compensation  amount  on  current  local  coin  rates,  which  are 
 frequently  subsidized  by  state  regulators,  would  not  fairly  compensate  the  PSPs.  We  also  reject 
 use  of  the  $.  12  per-  call  compensation  amount  the  Commission  first  discussed  in  its  1991  Notice 
 of  Proposed  Rulemaking  in  the  access  code  call  compensation  proceeding.  We  never  adopted 
 the  $.  12  per-  call  amount,  and  that  rate  was  effectively  rejected  when  the  Commission  adopted  a 
 $6  flat  rate  per  payphone  per  month  based  on  a  per-  call  rate  of  $.  40.  240 
 131. 
 132.  On  the  other  hand,  the  RBOCs  and  the  independent  payphone  providers 
 propose  that  the  Commission  use  market-  based  surrogates  to  support  a  per-  call  compensation 
 amount.  In  particular,  these  commenters  provide  data  on  both  the  average  commissions  paid  to 
 independent  payphone  providers  by  AT&  T  on  0+  calls  and  the  average  commission  received  by 
 independent  payphone  providers  on  0+  calls  from  all  IXCs.  Previously,  in  the  access  code  call 
 compensation  proceeding,  we  relied  upon  AT&  T  0+  commissions  as  a  measure  of  the  fair  value 
 of  the  service  provided  by  independent  payphone  providers  when  they  originate  an  interstate 
 call.  241  We  conclude  that  use  of  0+  commission  data  would  tend  to  overcompensate  PSPs, 
 because  these  commissions  may  include  compensation  for  factors  other  than  the  use  of  the 
 payphone,  such  as  a  PSP's  promotion  of  the  OSP  through  placards  on  the  payphone.  We, 
 therefore,  reject  use  of  this  commission  data,  as  provided  by  the  RBOCs  and  independent 
 payphone  providers,  to  calculate  the  per-  call  compensation  amount. 
 133. 
 134.  Because  we  have  established  elsewhere  in  this  Report  and  Order  that  the 
 payphone  marketplace  has  low  entry  and  exit  barriers  and  will  likely  become  increasingly 
 competitive,  242  we  conclude  that  the  market  (or  the  states,  where  there  are  special  circumstances) 
 is  best  able  to  set  the  appropriate  price  for  payphone  calls  in  the  long  term.  We  conclude  further 
 that  the  appropriate  per-  call  compensation  amount  ultimately  is  the  amount  the  particular 
 payphone  charges  for  a  local  coin  call,  because  the  market  will  determine  the  fair  compensation 
 rate  for  those  calls.  For  example,  if  the  rate  at  a  particular  payphone  is  $.  35,  absent  an  agreement 
 between  the  PSP  and  the  carrier-  payor  for  a  different  amount,  then  the  PSP  should  receive  $.  35 
 for  each  compensable  call  (access  code,  subscriber  800,  and  directory  assistance).  If  a  rate  is 
 compensatory  for  local  coin  calls,  then  it  is  an  appropriate  compensation  amount  for  other  calls 
 as  well,  because  the  cost  of  originating  the  various  types  of  payphone  calls  are  similar.  Although 
 the  Commission  tentatively  concluded  in  the  Notice  that  PSPs  should  be  compensated  for  their 
 costs  in  originating  calls,  as  these  costs  are  measured  by  appropriate  cost-  based  surrogates,  we 
 conclude  that  deregulated  local  coin  rates  are  the  best  available  surrogates  for  payphone  costs 
 and  are  superior  to  the  cost  surrogate  data  provided  by  the  commenters. 


 238  See  para.  46,  above. 


 239  Notice  at  para.  22,  n.  64. 
 240  Second  Report  and  Order,  7  FCC  Rcd  at  3257. 
 241  Id. 
 242  See  paras.  11-  19,  above. 
35
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 36 
 135. 
 136.  We  conclude  that  the  per-  call  compensation  amount  equal  to  the  local  coin 
 rate,  is  a  default  rate  that  will  apply  only  in  the  absence  of  a  negotiated  agreement  between  the 
 parties.  PSPs,  IXCs,  subscriber  800  carriers,  and  intraLATA  carriers  may  agree  on  an  amount 
 for  some  or  all  compensable  calls  that  is  either  higher  or  lower  than  the  local  coin  rate  at  a  given 
 payphone.  In  absence  of  an  agreement,  the  PSP  shall  be  entitled  to  receive  compensation  for 
 compensable  calls  at  a  per-  call  rate  equal  to  its  local  coin  rate,  which  represents  the  market-  based 
 rate  for  a  call  at  the  payphone  in  question. 
 137. 
 138.  Before  we  move  to  a  local  coin  call  default  rate,  however,  we  find  it  necessary  to 
 observe  over  time  how  the  payphone  marketplace  will  function  in  the  absence  of  regulation.  In 
 particular,  consumers  facing  time  constraints  may  not  be  able  to  find,  in  certain  locations,  a 
 reasonable  substitute  for  a  payphone  located  on  the  premises.  In  these  cases  where  the  location 
 provider  has  an  exclusive  contract  with  a  PSP,  the  PSP  may  be  able  to  charge  supra-  competitive 
 prices.  The  location  provider  would  share  in  the  resulting  "locational  rents"  through 
 commissions  paid  by  PSPs.  To  the  extent  that  market  forces  cannot  ensure  competitive  prices  at 
 such  locations,  we  may  want  to  continue  regulating,  along  with  the  states,  the  provision  of 
 payphone  services  generally  or  in  particular  types  of  locations  where  the  size  of  the  location  or 
 the  caller's  lack  of  time  to  identify  potential  substitute  payphones  could  lead  to  locational 
 monopolies.  To  allow  us  to  ascertain  the  status  of  competition  in  the  payphone  marketplace,  we 
 conclude  that  we  should  establish  the  default  per-  call  rate  for  two  years  before  leaving  it  to  the 
 market  to  set  rate,  absent  any  changes  in  our  rules.  More  specifically,  as  discussed  below,  243  for 
 the  first  year  after  the  effective  date  of  the  rules  adopted  in  this  proceeding,  IXCs  will  pay  flat-rate 
 compensation  to  PSPs.  After  the  initial  year,  when  per-  call  tracking  capabilities  will  be  in 
 place,  we  conclude  that  IXCs  will  be  required  to  pay  a  default  rate  of  $.  35  per  call,  which  is  the 
 local  coin  rate  in  four  of  the  five  states  that  have  deregulated  their  local  calling  rates.  244  We 
 conclude  that  the  market-  based  rate  in  these  states  is  the  best  evidence  of  a  per-  call  compensation 
 amount  that  will  fairly  compensate  PSPs.  Therefore,  for  the  limited  purpose  of  calculating 
 compensation  for  PSPs  for  the  first  two  years  of  compensation  (one  year  of  flat-  rate  and  one  year 
 of  per-  call  compensation),  we  will  use  a  default  rate  of  $.  35  per  call,  which  is  the  rate  in  the 
 majority  of  states  that  have  allowed  the  market  to  determine  the  appropriate  local  coin  rate.  As 
 discussed  above,  245  the  carrier-  payor  and  the  PSP  may  agree  to  a  compensation  rate  that  is 
 different,  and,  therefore,  the  default  rate  would  not  apply.  For  coinless  payphones,  which  by 
 definition  do  not  have  a  local  coin  rate,  the  default  rate  will  remain  $.  35  per  call  for  as  long  as 
 this  rate  is  fairly  compensable  under  Section  276(  b)(  1)(  A). 
 139. 
 140.  Various  parties  ask  us  to  provide  for  either  upward  adjustments  in  the  per-  call 
 amount  to  account  for  inflation,  246  or  downward  adjustments  to  take  advantage  of  technological 


 243  See  paras.  119-  126,  below. 


 244  See  Ex  Parte  Letter  of  Michael  Kellogg,  Counsel,  RBOCs  to  William  Caton,  Acting  Secretary,  FCC 
 (August  30,  1996). 


 245  See  para.  51,  above. 


 246  APCC  Reply  at  34. 
36
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 37 
 advances.  247  We  conclude  that  by  making  the  per-  call  amount  subject  to  negotiations,  the 
 marketplace  will  make  the  appropriate  adjustments,  whether  upward  or  downward.  We  set  this 
 compensation  rate  as  a  default  rate  to  be  applied  only  if  the  PSP  and  the  IXC  are  unable  to 
 negotiate  some  other  form  of  compensation  for  compensable  calls.  Negotiations  may  lead  to 
 rates  other  than  the  default  rate  for  several  reasons.  First,  because  virtually  all  of  the  costs  are 
 fixed  costs  and  are  not  incurred  on  a  per  call  basis,  an  IXC  and  a  PSP  might  agree  to  a  fixed 
 compensation  rate  rather  than  compensation  for  the  monthly  number  of  calls.  Second,  there  may 
 be  locations  in  which  a  payphone  would  not  be  financially  viable  if  compensated  at  only  $.  35  per 
 compensable  call,  but  would  be  viable  at  a  higher  compensation  rate.  If  an  IXC  still  found  it 
 profitable  to  carry  calls  at  this  higher  rate,  then  it  would  be  in  the  mutual  interest  of  the  two 
 parties  to  negotiate  a  higher  rate.  Third,  the  IXCs  may  choose  to  pass  on  the  per-  call 
 compensation  rate  to  their  customers.  In  the  case  of  800  subscriber  calls,  the  IXC  could  pass  on 
 the  cost  to  the  called  party.  If  the  called  party  refused  to  accept  calls  for  which  it  was  charged 
 $.  35,  but  was  willing  to  accept  calls  with  a  lower  charge,  the  IXC  and  the  PSP  may  find  it  in 
 their  mutual  interest  to  negotiate  a  per-  call  rate  lower  than  $.  35.  Fourth,  in  locations  where  a 
 competing  payphone  could  be  placed  without  the  permission  of  the  location  provider,  a  PSP  may 
 be  willing  to  negotiate  a  lower  rate  than  $.  35,  rather  than  give  an  IXC  the  incentive  to  place  a 
 competing  payphone. 
 141. 
 142.  Some  PSPs  argue  that  they  should  be  entitled  to  a  per-  call  compensation 
 amount  greater  than  that  set  for  local  coin  calls.  In  particular,  inmate  payphone  providers  argue 
 that  their  costs  of  originating  calls  are  greater  than  that  of  other  payphone  providers,  which 
 should  entitle  them  to  a  special  compensation  rate  of  $.  90  per  call.  248  We  conclude  at  this 
 juncture,  however,  that  mandating  a  per-  call  amount  for  inmate  payphones,  which  do  not  allow 
 local  coin  calls,  could  possibly  lead  to  a  double  recovery  of  costs  already  included  in  higher-than- 
 average  operator  service  rates  and  special  surcharges  on  end-  user  phone  bills  for  calls  made 
 on  these  payphones,  as  argued  by  Gateway,  an  inmate  payphone  provider  that  opposes  a  greater 
 per-  call  amount. 
 143. 
 144.  MCI  argues  that  semi-  public  payphones  should  not  receive  any  per-  call 
 compensation.  249  Section  276(  d)  states,  however,  that  "in  this  section,  the  term  'payphone 
 service'  means  the  provision  of  public  or  semi-  public  pay  telephones...."  Pursuant  to  this 
 definition,  all  subsidies  for  semi-  public  payphones  are  terminated  under  Section  276(  b)(  1)(  B), 
 just  as  they  are  for  public  payphones,  "in  favor  of  a  compensation  plan  as  specified  in 
 subparagraph  (A)[.]"  Therefore,  we  conclude  that,  contrary  to  MCI's  arguments,  semi-  public 
 payphones  are  entitled  to  receive  per-  call  compensation  in  the  same  manner  as  public  payphones. 
 145. 
 146.  We  reject  the  argument  by  four  states  that  Section  276  applies  only  to 


 247  MCI  Comments  at  15;  Sprint  Comments  at  21. 
 248  Inmate  Coalition  Comments  at  2-  3;  Invision  Comments  at  5. 
 249  MCI  Comments  at  3. 
37
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 38 
 payphones  provided  by  the  BOCs.  250  While  Section  276(  a),  which  the  states  cite  as  support  for 
 their  argument,  applies  only  to  the  BOCs,  as  do  Sections  276(  b)(  1)(  C)  and  Section  276(  b)(  1)(  D), 
 the  remainder  of  Section  276  applies  to  all  payphones,  regardless  of  their  provider.  251  When 
 Congress  intended  to  limit  the  scope  of  a  particular  provision  in  Section  276  to  the  BOCs,  it  used 
 the  term  "Bell  operating  company."  252  Otherwise,  it  used  the  term  "all  payphone  service 
 providers[,]"  253  or  simply  "payphone  service  providers."  254  For  example,  Section  276(  b)(  1)(  A) 
 states  that  the  per-  call  compensation  plan  must  "ensure  that  all  payphone  service  providers  are 
 fairly  compensated[.]"  255  In  addition,  Section  276(  b)(  1)  states  that  the  Commission  shall  take 
 action  to  "promote  competition  among  payphone  service  providers  and  promote  the  widespread 
 deployment  of  payphone  services  to  the  benefit  of  the  general  public[.]"  256  Therefore,  based  on 
 the  plain  language  of  the  statute,  we  conclude  that  Section  276  grants  us  the  requisite  authority  to 
 adopt  rules  that  apply  to  all  payphones,  regardless  of  their  provider,  except  where  the  language 
 clearly  applies  only  to  the  BOCs.  Further,  the  legislative  history  of  Section  276  refers  to  both  the 
 BOCs  and  independent  payphone  service  providers.  257 
 147. 
 148.  2.  Entities  Required  to  Pay  Compensation 
 149. 
 150.  a.  The  Notice 
 151. 
 152.  In  the  Notice,  the  Commission  stated  that  either  a  "carrier-  pays"  system, 
 where  the  IXC  who  receives  the  call  would  be  required  to  pay  a  per-  call  charge  to  the  provider  of 
 the  payphone,  or  a  "set  use  fee"  system,  where  the  toll-  carrier  would  bill  and  collect  from  the  end 
 user  and  then  remit  payment  to  the  PSP,  would  satisfy  the  requirements  of  the  1996  Act.  258  The 
 Commission  stated,  however,  that  the  carrier-  pays  mechanism  is  preferable  because  it  would 
 result  in  less  transaction  costs  because  the  toll-  carrier  could  aggregate  its  payments  to  payphone 
 providers.  259  Under  a  set  use  fee,  the  Commission  stated,  these  payments  would  be  spread  among 


 250  See  Maine  Comments  at  2-  3.  Four  states,  Maine,  New  Hampshire,  New  Mexico,  and  Vermont,  filed 
 comments  jointly.  For  purposes  of  discussion,  we  refer  to  the  joint  comments  as  "Maine  Comments." 


 251  47  U.  S.  C.    276. 


 252  47  U.  S.  C.    276(  a),  276(  b)(  1)(  C),  276(  b)(  1)(  D). 
 253  47  U.  S.  C.    276(  b)(  1)(  A),  276(  b)(  1)(  E). 
 254  47  U.  S.  C.    276(  b)(  1),  276(  b)(  3). 
 255  47  U.  S.  C.    276(  b)(  1)(  A)  (emphasis  added). 
 256  47  U.  S.  C.    276(  b)(  1). 
 257  Conference  Report  at  43. 
 258  Notice  at  paras.  25-  28. 
 259  Id.  at  para.  28. 
38
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 39 
 a  vast  number  of  payphone  callers  through  their  individual  telephone  bills.  260  Therefore,  the 
 Commission  tentatively  concluded  that  the  appropriate  compensation  mechanism  is  a  "carrier-pays" 
 mechanism  that  builds  on  existing  procedures  under  which  IXCs  currently  pay  access  code 
 call  compensation.  261  Commenters  were  encouraged  to  include  data  on  the  transaction  costs  that 
 would  likely  be  imposed  by  either  the  "carrier-  pays"  or  "set  use  fee"  compensation 
 mechanisms.  262 
 153. 
 154.  b.  Comments 
 155. 
 156.  A  wide  range  of  commenters,  including  AT&  T,  the  RBOCs,  GTE,  various  states, 
 and  some  independent  payphone  providers,  supports  the  Commission's  tentative  conclusion  that 
 a  "carrier-  pays"  system  for  per-  call  compensation  should  be  adopted.  263  They  argue  that  this 
 approach  is  the  least  burdensome,  most  cost  effective,  and  places  the  obligation  to  pay  on  the 
 primary  economic  beneficiary  of  the  calls,  the  carrier  that  carries  the  call.  264  Some  parties  assert 
 that  under  this  system,  or  any  other  system  in  which  the  carrier  is  responsible  for  paying 
 compensation,  it  is  the  underlying,  facilities-  based  carrier  that  should  be  responsible  for  paying 
 compensation  to  PSPs.  265  Two  debit  card  providers  argue  that  IXCs  and  LECs  should  not  be 
 permitted  to  pass  on  the  costs  of  per-  call  compensation  exclusively  to  800  subscribers.  266 
 Frontier  contends  that,  under  the  carrier-  pays  system,  LECs  as  well  as  IXCs  should  be  required 
 to  pay  compensation.  267  Frontier  also  contends  that  the  Commission  should  adopt  a  carrier-  pays 
 system  that  is  administered  by  the  LECs,  who,  unlike  the  IXCs,  will  be  able  to  leverage  their 
 existing  business  relationships  as  billing  and  collection  agents  for  other  carriers.  268 
 157. 
 158.  Other  commenters,  including  APCC,  MCI,  and  Sprint,  contend  that  the 
 Commission  should  adopt  a  "set  use  fee,"  which  would  be  collected  by  the  carrier  that  handles 


 260  Id. 
 261  Id. 
 262  Id. 
 263  See,  e.  g.,  American  Express  Reply  at  10;  Ameritech  Comments  at  8;  AT&  T  Comments  at  12-  13;  California 
 PUC  Comments  at  13;  Florida  PSC  Comments  at  4;  GTE  Comments  at  7-  8;  IPTA  Comments  at  16;  ITA  Comments 
 at  12-  16;  MICPA  Comments  at  4-  5;  NJPA  Comments  at  7;  New  York  DPS  Comments  at  7;  Ohio  PUC  Comments  at 
 8;  Peoples  Comments  at  25;  RBOC  Comments  at  6;  Telaleasing  Reply  at  11;  Teleport  Comments  at  4;  Voice  Reply 
 at  2. 


 264  Id. 


 265  APCC  Comments  at  24-  25;  GTE  Reply  at  6-  7;  Indiana  URC  Comments  at  4;  New  York  DPS  Comments  at 
 7. 


 266  Intellicall  Reply  at  12;  MobileMedia  Reply  at  6. 


 267  Frontier  Comments  at  20-  21. 
 268  Id.  at  12-  14. 
39
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 40 
 the  call  and  remitted  to  the  PSP  to  compensate  it  for  the  use  of  its  payphone.  269  These 
 commenters  argue  that  such  a  government-  mandated  fee  would  give  visibility  to  the  costs  of 
 payphone  compensation,  and  would  appropriately  place  these  costs  on  the  cost  causer  and  lead  to 
 better  economic  decisions.  270  They  also  argue  that  the  carrier-  pays  approach  involves  greater 
 transaction  costs  than  the  set  use  fee,  and  that  the  carrier-  pays  approach  is  simply  a  payment  of  a 
 subsidy  to  PSPs.  271  Other  parties  specifically  oppose  a  set  use  fee  on  the  grounds,  among  others, 
 that  it  would  make  the  IXC  an  involuntary  billing  agent  for  the  PSPs.  272  With  regard  to 
 subscriber  800  calls,  PageNet,  a  paging  service  whose  customers  use  subscriber  800  numbers, 
 contends  that  charging  800  subscribers  a  set  use  fee  would  be  an  unjust  and  unreasonable 
 practice  under  Section  201(  b)  of  the  Act.  273  In  addition,  Intellicall,  a  debit  card  provider,  argues 
 that  imposing  fees  on  800  subscribers  would  interfere  with  existing  contracts  between  carriers 
 and  debit  card  providers.  274  While  favoring  a  "carrier-  pays"  system,  PacTel  argues  that  the 
 Commission  should  "grandfather"  the  existing  set  use  fee  imposed  at  the  state  level  by  the 
 California  PUC.  275  The  RBOCs  further  argue  that  the  Commission  should  grandfather  all 
 existing  state  set  use  fees.  276  On  the  other  hand,  Sprint  and  MWAA  argue  that  the  Commission 
 must  preempt  all  existing  state  set  use  fees  and  that  the  states  must  be  directed  to  follow  federal 
 compensation  models  to  avoid  inconsistent  state  regulations.  277 
 159. 
 160.  Various  commenters,  including  small  IXCs  and  paging  services,  argue  that  the 
 Commission  should  adopt  what  they  call  a  "caller-  pays"  compensation  system.  278  Under  this 
 system,  the  calling  party  would  always  pay  for  the  call  by  either  depositing  a  coin  or  by  billing 
 the  charge  to  a  credit  card  or  calling  card.  279  For  subscriber  800  calls,  the  calling  party  would 


 269  See,  e.  g.,  APCC  Comments  at  23;  CPA  Comments  at  5-  8;  MCI  Comments  at  6;  One  Call  Comments  at  5-  6; 
 Sprint  Comments  at  12. 


 270  Id. 


 271  Id. 
 272  See,  e.  g.,  ITA  Reply  at  9-  10;  MICPA  Comments  at  4-  5;  MWAA  Reply  at  6;  New  York  DPS  Comments  at 
 7;  Teleport  Comments  at  3;  TRA  Comments  at  23;  WorldCom  Comments  at  12. 


 273  PageNet  Comments  at  8.  Cf.  MobileMedia  Reply  at  6  (800  subscriber  is  wrong  compensation  payor). 


 274  Itellicall  Comments  at  22. 
 275  PacTel  Reply  at  2. 
 276  RBOC  Reply  at  6-  7. 
 277  MWAA  Reply  at  4-  6;  Sprint  Comments  at  10. 
 278  See,  e.  g.,  AirTouch  Comments  at  13;  Arch  Comments  at  4  (for  subscriber  800  calls);  Excel  Comments  at  8; 
 Frontier  Comments  at  10-  12;  MobileMedia  Reply  at  1-  2,  3-  7;  PCIA  Comments  at  3-  4;  PageNet  Comments  at  10-  11; 
 Scherers  Comments  at  3-  4,  6-  7;  WorldCom  Comments  at  11-  12. 


 279  Id. 
40
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 41 
 always  be  required  to  deposit  a  coin  into  the  payphone.  280  These  commenters  argue  all  of  the 
 following:  this  approach  would  be  no  more  burdensome  than  a  local  coin  call;  it  would  reduce 
 transaction  costs;  and  it  would  avoid  the  coin-  free  approach  that  is  inconsistent  with  CPE 
 treatment.  281  At  least  two  commenters  dispute  the  Commission's  statement  in  the  Notice  that 
 TOCSIA  barred  the  Commission  from  imposing  a  coin-  deposit  compensation  system  for  access 
 code  calls.  282  The  two  commenters  argue  that  the  adoption  of  rate  guidelines  or  a  rate  cap  would 
 not  be  a  prescription  of  advance  payment  by  callers,  as  prohibited  by  TOCSIA.  283  A  number  of 
 parties  oppose  either  a  fee  imposed  on  the  calling  party  or  the  coin-  deposit  requirement  for 
 certain  types  of  calls  under  this  system.  284  They  argue  that  the  impact  on  callers  should  be  either 
 minimized  or  transparent.  285 
 161. 
 162.  Conquest,  Intellicall,  MobileMedia,  and  PageNet  contend  that  the 
 Commission  should  recover  the  funds  necessary  for  per-  call  compensation  by  raising  the 
 monthly  subscriber  line  charge  ("  SLC")  that  is  paid  by  all  telephone  customers.  286  They  argue 
 that  because  payphones  are  used  at  one  time  or  another  by  virtually  all  telephone  customers,  they 
 should  collectively  bear  the  cost  of  per-  call  compensation.  In  addition,  they  argue  that  there  are 
 no  reliable  data  that  show  which  segments  of  the  population  use  payphones  more  than  others.  287 
 163. 
 164.  Some  commenters  argue  that  some  parties  should  either  be  exempted  from  the 
 obligation  to  pay  per-  call  compensation  or  be  allowed  to  "phase-  in"  their  payment  obligations. 
 TRA  and  Scherers  argue  that  resellers  of  interexchange  service  should  not  be  required  to  pay 
 per-  call  compensation,  at  least  on  an  interim  basis,  because  they  are  unable  to  pass  on  these  costs 
 without  severely  impacting  their  business.  288  TRA,  ITA,  and  American  Express  further  argue 
 that  all  existing  debit  cards  should  be  "grandfathered"  and  the  carriers  exempted  from  having  to 
 pay  per-  call  compensation  on  the  calls  associated  with  those  cards.  289  ITA  and  Voice  contend 
 that  per-  call  compensation  obligations  associated  with  debit  cards  should  be  phased  in  after  six 


 280  Id. 
 281  Id. 
 282  Intellicall  Comments  at  32-  33;  MobileMedia  Reply  at  9-  10. 
 283  Id. 
 284  See,  e.  g.,  Ameritech  Comments  at  8;  Florida  PSC  Comments  at  4;  MWAA  Reply  at  6;  New  York  DPS 
 Comments  at  7;  Oklahoma  Comments  at  2;  TRA  Comments  at  23;  Texas  PUC  Comments  at  3  (for  access  code 
 calls);  Virginia  SCC  Comments  at  3. 


 285  Id. 


 286  Intellicall  Comments  at  21;  MobileMedia  Reply  at  10-  11;  Page  Net  Comments  at  7. 
 287  Id. 
 288  Scherers  Comments  at  4-  9;  TRA  Comments  at  5-  12. 
 289  American  Express  Reply  at  10;  ITA  Comments  at  22-  23;  TRA  Comments  at  15-  16. 
41
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 42 
 months.  290 
 165. 
 166.  c.  Discussion 
 167. 
 168.  We  agree  with  those  commenters  who  maintain  that  the  primary  economic 
 beneficiary  of  payphone  calls  should  compensate  the  PSPs.  291  We  conclude  that  the  "carrier-pays" 
 system  for  per-  call  compensation  places  the  payment  obligation  on  the  primary  economic 
 beneficiary  in  the  least  burdensome,  most  cost  effective  manner.  The  Commission  has 
 previously  adopted  such  an  approach  in  the  access  code  compensation  proceeding,  and  the 
 compensation  participants  have  created  a  payment  system  that  is  an  appropriate  model  for  this 
 proceeding.  292  We  conclude  that  the  carrier-  pays  system  also  gives  IXCs  293  the  most  flexibility  to 
 recover  their  own  costs,  whether  through  increased  rates  to  all  or  particular  customers,  through 
 direct  charges  to  access  code  call  or  subscriber  800  customers,  or  through  contractual  agreements 
 with  individual  customers.  Although  some  commenters  would  have  the  Commission  limit  the 
 ways  in  which  carriers  could  recover  the  cost  of  per-  call  compensation,  294  we  conclude  that  the 
 marketplace  will  determine,  over  time,  the  appropriate  options  for  recovering  these  costs.  In 
 addition,  under  the  carrier-  pays  system,  individual  carriers,  while  obligated  to  pay  a  specified 
 per-  call  rate  to  PSPs,  have  the  option  of  recovering  either  a  different  amount  from  their 
 customers,  including  no  amount  at  all.  We  conclude  further  that  all  IXCs  that  carry  calls  from 
 payphones  are  required  to  pay  per-  call  compensation. 
 169. 
 170.  In  the  Notice,  we  discussed  the  option  of  adopting  a  "set  use  fee,  "  which 
 would  be  collected  by  the  carrier  and  remitted  to  the  PSP  to  compensate  it  for  the  use  of  its 
 payphone.  295  We  tentatively  concluded  that  this  system  involved  greater  transactions  costs  than 
 the  carrier-  pays  system,  because  a  set  use  fee  would  spread  payments  among  a  vast  number  of 
 payphone  callers  through  their  individual  telephone  bills.  296  A  number  of  commenters  maintain 
 that  the  set  use  fee  would  involve  fewer  transaction  costs  and  that  the  carrier-  pays  system 


 290  ITA  Comments  at  24-  26;  Voice  Reply  at  3. 
 291  See  para.  77,  above. 
 292  Second  Report  and  Order,  7  FCC  Rcd  at  3257-  60. 
 293  For  purposes  of  paying  compensation  for  compensable  calls  and  other  associated  obligations,  such  as  the 
 tracking  of  calls,  we  note  that  the  term  "IXC"  includes  a  LEC  when  it  provides  interstate,  intraLATA  toll  service. 
 Currently,  because  LECs  are  not  the  primary  carrier  for  subscriber  800  calls,  the  relevant  toll  calls  for  which  LECs 
 will  obligated  to  pay  compensation  are  those  that  are  made  with  use  of  a  LEC-  specific  access  code.  As  LECs  (both 
 incumbent  and  non-  incumbent)  begin  to  carry  additional  toll  calls  originated  by  payphones,  they  will  be  required  to 
 pay  per-  call  compensation  on  those  calls. 


 294  See  n.  262,  above 


 295  Notice  at  para.  28. 
 296  Id. 
42
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 43 
 represents  the  payment  of  a  subsidy  to  PSPs.  297  We  disagree  and  conclude  that  the  Commission's 
 mandating  that  a  particular  set  use  fee  be  imposed  and  collected  from  callers  on  millions  of 
 payphone  calls  would  lead  to  far  greater  transaction  costs  than  through  the  carrier-  pays  system, 
 particularly  given  the  flexibility  the  carrier  has  under  the  carrier-  pays  system  to  recover  the  costs 
 of  per-  call  compensation  as  it  sees  fits. 
 171. 
 172.  The  "caller-  pays"  system  advocated  by  a  number  of  commenters  is  a 
 variation  of  the  set  use  fee  under  which  the  caller,  as  the  "cost  causer,"  would  always  be  required 
 to  deposit  coins  to  make  a  subscriber  800  call,  and  would  have  the  option  of  either  depositing 
 coins  or  receiving  a  charge  through  a  calling  card  for  placing  other  types  of  calls  that  do  not  use 
 a  payphone's  presubscribed  carrier.  298  For  reasons  similar  to  those  cited  for  rejecting  the  set  use 
 fee  system,  we  likewise  reject  the  caller-  pays  system.  While  depositing  coins  into  a  payphone  to 
 make,  for  example,  a  subscriber  800  call  may  not  be  more  burdensome  than  a  local  coin  call  and 
 may  involve  fewer  transaction  costs  than  a  billed  charge,  we  found  in  the  Notice  that  any 
 payment  system  that  relies  upon  the  deposit  of  coins  "would  appear  to  unduly  burden  many 
 transient  payphone  callers  by  requiring  them  to  deposit  coins  in  addition  to  providing  call-  billing 
 information."  299  We  also  noted  in  the  Notice  that  "TOCSIA  expressly  prohibits  the  Commission 
 from  adopting  compensation  rules  for  interstate  access  code  calls  that  require  'advance  payment 
 by  consumers.  '"  300  At  least  two  commenters  argue  that  the  Commission  could  interpret  this 
 statutory  prohibition  as  applying  only  to  the  prescription  of  a  specific  compensation  amount, 
 which  would  not  preclude  adoption  of  compensation  amount  guidelines,  including  a  coin-  deposit 
 approach,  301  but  we  conclude  that  such  an  approach  would  contradict  the  congressional  intent, 
 and  possibly  the  plain  language,  of  Section  226(  e)(  2)  of  the  Act.  302  We  also  reject  the  approach 
 suggested  by  some  commenters  that  the  Commission  should  increase  the  monthly  SLC,  which 
 compensates  a  LEC  for  non-  traffic-  sensitive  costs  associated  with  the  use  of  its  network,  for  all 
 telephone  customers  to  fund  the  per-  call  compensation  system.  We  conclude  that  raising  the 
 SLC  for  this  purpose  would  be  contrary  to  the  goals  of  the  Act,  because  these  payments  would 
 not  be  borne  by  either  the  primary  economic  beneficiary  of  payphone  calls  or  the  cost  causer. 
 173. 
 174.  Some  commenters,  including  APCC,  GTE,  New  York  DPS,  and  Indiana 
 URC,  argue  that  it  is  the  underlying,  facilities-  based  carrier  that  should  be  required  to  pay 
 compensation  to  the  PSP  in  lieu  of  a  non-  facilities-  based  carrier  that  resells  services,  for 
 example,  to  specific  subscribers  or  to  debit  card  users.  303  We  agree.  Although  we  have 


 297  See  para.  79,  above. 


 298  See  para.  79,  above. 
 299  Notice  at  para.  27. 
 300  Id. 
 301  See  para.  80,  above. 
 302  47  U.  S.  C.    226(  e)(  2). 
 303  See  para.  81,  above. 
43
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 44 
 concluded  that  the  primary  economic  beneficiary  of  payphone  calls  should  bear  the  burden  of 
 paying  compensation  for  these  calls,  we  conclude  that,  in  the  interests  of  administrative 
 efficiency  and  lower  costs,  facilities-  based  carriers  should  pay  the  per-  call  compensation  for  the 
 calls  received  by  their  reseller  customers.  304  Because  they  do  not  have  their  own  networks,  it 
 would  be  significantly  more  burdensome  for  resellers  to  track  calls  from  payphones.  In  addition, 
 telecommunications  services  are  often  sold  in  advance,  particularly  in  the  debit  card  context,  and 
 resold  more  than  once  before  a  caller  ultimately  uses  the  service.  In  such  situations,  it  would  be 
 difficult  to  identify  the  party  that  is  liable  for  the  per-  call  compensation.  We  conclude  further 
 that  the  facilities-  based  carriers  may  recover  the  expense  of  payphone  per-  call  compensation 
 from  their  reseller  customers  as  they  deem  appropriate,  including  negotiating  future  contract 
 provisions  that  would  require  the  reseller  to  reimburse  the  facilities-  based  carrier  for  the  actual 
 payphone  compensation  amounts  associated  with  that  particular  reseller. 
 175. 
 176.  Various  commenters,  notably  resellers  and  debit  card  providers,  argue  that 
 the  Commission  should  either  exempt  them  on  an  interim  basis  from  the  obligation  to  pay 
 compensation,  or  to  "grandfather"  debit  cards  that  have  already  been  issued  from  the 
 compensation  obligation.  We  conclude  that,  because  Section  276  creates  no  exceptions  for  calls 
 facilitated  by  resellers  or  debit  card  providers,  such  exemptions  from  the  obligation  to  pay 
 compensation,  even  on  an  interim  basis,  would  be  contrary  to  the  congressional  mandate  that  we 
 ensure  fair  compensation  for  "each  and  every  completed  intrastate  and  interstate  call."  305  While 
 we  have  not  placed  the  burden  of  paying  per-  call  compensation  directly  on  resellers  or  debit  card 
 providers,  we  conclude  that  the  underlying  carrier  must  begin  paying  compensation  on  all 
 compensable  calls  facilitated  by  its  reseller  and  debit  card  customers  and  it  is,  in  turn,  permitted 
 to  impose  the  payphone  compensation  amounts  on  these  customers. 
 177.  178.  3.  Ability  of  Carriers  to  Track  Calls  From  Payphones 


 179. 
 180.  a.  The  Notice 
 181. 
 182.  The  Commission  tentatively  concluded,  in  the  Notice,  that  tracking 
 mechanisms  and  surrogates  exist,  or  might  readily  be  made  available,  to  support  the  per-  call 
 compensation  plan  mandated  by  Section  276(  b)(  1)(  A).  306  We  sought  comment  on  what  tracking 
 options  are  currently,  or  may  soon  be,  available.  Additionally,  we  sought  further  comment  on 
 the  ability  of  existing  IXC-  based  tracking  mechanisms  to  accommodate  all  payphone  providers 
 and  IXCs.  In  the  event  that  no  standard  technology  or  mechanism  available  for  tracking  exists, 
 the  Commission  sought  comment  on  alternative  surrogate  methodologies  that  could  be  devised. 
 Finally,  we  sought  comment  on  which  party  or  parties,  whether  IXCs,  PSPs,  or  intraLATA 
 carriers,  should  be  required  to  develop  and  maintain  the  tracking  or  surrogate  methodologies.  307 


 304  See,  e.  g.,  ITA  Comments  at  12-  16  ("  regulatory  nightmares"  involving  excessive  network  upgrades  and 
 transaction  costs  can  be  avoided  by  requiring  underlying  carrier  to  pay  compensation). 


 305  47  U.  S.  C.    276(  b)(  1)(  A). 


 306  Notice  at  para.  30. 
 307  Id. 
44
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 45 
 183. 
 184.  The  Commission  also  tentatively  concluded  that  IXCs  and  intraLATA 
 carriers  should  be  required  to  initiate  an  annual  independent  verification  of  their  per-  call  tracking 
 functions,  to  be  made  available  for  FCC  inspection,  to  ensure  that  they  are  tracking  all  of  the 
 calls  for  which  they  are  obligated  to  pay  compensation.  308  Additionally,  the  Commission  sought 
 comment  on  whether  BOCs  and  other  LECs  that  provide  network  tracking  for  their  own 
 payphones  should  be  required  to  make  those  tracking  services  available  to  independent  payphone 
 providers  at  the  same  rates,  terms,  and  conditions  as  they  provide  themselves.  309 
 185. 
 186.  b.  Comments 
 187. 
 188.  The  RBOCs  support  the  Commission's  tentative  conclusion  that  the 
 requisite  technology  currently  exists  for  carriers  to  track  calls  routed  to  them  from  payphones.  310 
 The  RBOCs  argue  further  that  no  standardized  technology  for  tracking  calls  needs  to  be 
 prescribed  by  the  Commission,  and  that  carriers  should  be  permitted  to  use  whatever  technology 
 they  prefer  to  meet  their  tracking  obligations.  311  They  request  that,  if  the  Commission  requires 
 the  carrier  receiving  the  call  to  provide  the  call  tracking,  then  the  Commission  should  not 
 preclude  LECs  and  PSPs  from  developing  their  own  call  tracking  capabilities.  312  The  RBOCs 
 also  contend  that  the  Commission  should  establish  both  a  timeline  for  achieving  full  call  tracking 
 capabilities  within  12  months  after  the  effective  date  of  the  rules,  and  interim  compensation  rates 
 based  on  average  calling  rates  until  then.  313 
 189. 
 190.  The  RBOCs,  USTA,  Sprint,  One  Call,  California  PUC,  and  others  argue  that  the 
 Commission  should  require  that  IXCs  that  receive  the  calls  from  payphones  be  obligated  to 
 provide  the  call  tracking  necessary  for  compensation.  314  These  parties  argue  that  only  IXCs  can 
 track  calls  to  completion,  IXCs  are  the  primary  economic  beneficiary  of  these  calls,  and  that  non-IXC 
 tracking  surrogates  are  not  reliable.  315  Ameritech  argues,  on  the  other  hand,  that  the  IXCs 
 should  not  be  required  to  track  calls,  except  during  a  brief  transition  period.  316 


 308  Id.  at  para.  31. 
 309  Id. 
 310  RBOC  Comments  at  7. 
 311  Id. 
 312  Id.  at  8. 
 313  Id. 
 314  See,  e.  g.,  California  PUC  Comments  at  11;  MICPA  Comments  at  5;  One  Call  Comments  at  7;  RBOC 
 Comments  at  7;  Sprint  Comments  at  13;  USTA  Reply  at  3-  4. 


 315  RBOC  Comments  at  7;  Sprint  Comments  at  13-  14. 


 316  Ameritech  Comments  at  11-  12. 
45
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 46 
 191. 
 192.  Other  commenters  note  difficulties  that  they  argue  are  inherent  with  IXC  tracking 
 capabilities.  MCI  and  Sprint  argue  that  each  payphone  should  be  required  to  generate  07  or  27 
 coding  digits  within  the  automatic  number  identification  ("  ANI")  for  the  carrier  to  track  calls.  317 
 AT&  T  states  that  it  currently  cannot  track  subscriber  800  calls  because  it  receives  only  the  ANI 
 of  the  terminating  telephone.  318  Because  it  estimates  that  a  per-  call  tracking  ability  for  subscriber 
 800  calls  will  take  one  year  to  achieve,  AT&  T  argues  that  the  Commission  should  use  a 
 surrogate  for  these  calls,  which  relies  on  "studies  made  from  a  representative  weighted  sample  of 
 central-  office-  implemented  payphones."  319  The  RBOCs  propose  a  year  phase-  in  period  for 
 tracking  subscriber  800  calls,  but  argue  that  AT&  T's  proposed  surrogate  would  rely  on  central-office- 
 implemented  or  "dumb"  payphones,  which  are  found  in  low  usage  areas  and,  therefore, 
 would  underestimate  the  volume  of  subscriber  800  calls.  320  USTA  also  supports  relying  on  a 
 surrogate  for  subscriber  800  calls  for  a  one  year  transition  period.  321  Some  IXCs,  such  as  MCI, 
 Cable  &  Wireless,  and  CompTel,  contend  that  carrier  tracking  is  not  practical  or  appropriate,  and 
 that  it  would  involve  substantial  new  investment.  322  Cable  &  Wireless  estimates  that  it  would 
 require  a  $1  million  investment  to  establish  a  tracking  mechanism  for  all  of  the  calls  that  its 
 network  carries.  323  Cable  &  Wireless  also  contends  that  requiring  IXCs  to  track  calls  would  lead 
 to  an  impossible  administrative  task  on  the  part  of  the  carriers,  because  the  IXCs  would  need  to 
 search  all  of  their  call  records  to  identify  and  separate  out  calls  from  payphones.  324 
 193. 
 194.  APCC  argues  that  the  Commission  has  a  number  of  options  for  mediating  the  per-call 
 tracking  burden  of  the  small  carriers.  One  option,  according  to  APCC,  would  be  to  require 
 the  LECs  to  track  calls  on  behalf  of  small  IXCs.  325  A  second  option,  APCC  argues,  would  be  to 
 relieve  small  carriers  of  the  tracking  obligation  and  have  them  pay  per-  call  compensation, 
 particularly  for  subscriber  800  calls,  on  a  flat  rate  per  month  according  to  their  percentage  of  toll 
 revenue  or,  if  possible,  their  percentage  of  overall  payphone  and  non-  payphone  800  service 
 traffic.  326  The  RBOCs  contend,  on  the  other  hand,  that  the  small  carriers  should  be  required  to 


 317  MCI  Comments  at  10;  Sprint  Comments  at  16. 
 318  AT&  T  Comments  at  14-  15. 
 319  Id.  at  15. 
 320  RBOC  Reply  at  7. 
 321  USTA  Reply  at  3-  4. 
 322  See,  e.  g.,  Cable  &  Wireless  Comments  at  9-  11;  CompTel  Comments  at  8;  MCI  Comments  at  8. 
 323  Cable  &  Wireless  Comments  at  10. 
 324  Id.  at  9-  11. 
 325  APCC  Reply  at  20-  21. 
 326  APCC  Comments  at  27. 
46
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 47 
 track  individual  calls  using  payphones  or  contract  out  the  tracking  to  another  party,  because 
 carriers  that  benefit  from  being  in  the  market  must  accept  the  responsibilities  that  go  with  it.  327 
 195. 
 196.  Various  commenters,  particularly  some  IXCs  and  Ameritech,  argue  that 
 the  Commission  should  place  the  obligation  to  track  calls  using  a  payphone  on  LECs,  PSPs,  or  a 
 combination  of  both.  For  example,  CompTel  argues  that  LECs  should  provide  the  tracking,  and 
 the  PSPs  should  pay  the  LECs  for  this  service.  328  MCI  and  Indiana  URC  contend  that  LECs  and 
 PSPs  should  share  the  responsibility  for  tracking  calls.  329  WorldCom  argues  that  per-  call 
 tracking  should  be  the  responsibility  of  the  LECs,  330  while  Ameritech  and  Scherers  argue  that  the 
 PSPs  should  assume  this  obligation.  331  These  parties  contend  that  LEC-  or  PSP-  based  tracking 
 would  be  superior  because  those  who  want  payment  must  keep  count  of  compensable  calls  and 
 bill  for  them,  and  all  payphones  will  soon  be  able  to  obtain  call  detail  information  to  make  this 
 possible.  332  Ameritech  argues  that  the  Commission  should  require  IXCs  to  process  answer 
 supervision  for  LECs  engaged  in  tracking.  333  The  RBOCs,  GTE,  and  NECA  oppose  a  tracking 
 system  that  would  place  the  responsibility  for  tracking  calls  on  LECs.  334  They  argue  both  that  the 
 Commission  should  not  disproportionately  burden  the  LECs  while  other  parties  receive  the 
 primary  benefit  for  these  calls,  and  that  only  IXCs  can  track  calls  to  completion  and  detect 
 multiple  calls  within  a  single  dialing  transaction.  335  USTA  contends  that  LECs  are  not  able  to 
 track  subscriber  800  calls.  336 
 197. 
 198.  The  RBOCs  support  the  Commission's  tentative  conclusion  that  carriers 
 should  be  required  to  initiate  an  annual  independent  verification  of  their  per-  call  tracking 
 functions  for  a  period  of  two  years,  provided  that  both  the  Commission  and  PSPs  be  allowed  to 
 inspect  this  verification.  337  APCC  argues  that  the  Commission  should  require  annual  independent 
 audits  of  carriers'  per-  call  tracking  functions  and  require  the  carriers  to  compare  their  data  against 
 parallel  LEC  or  smart  payphone  data.  338  Telaleasing  argues  that  such  an  audit  should  occur  on  a 


 327  RBOC  Reply  at  9. 


 328  CompTel  Comments  at  9-  10. 
 329  MCI  Comments  at  8;  Indiana  URC  Comments  at  4. 
 330  WorldCom  Comments  at  14-  15. 
 331  Ameritech  Comments  at  11;  Scherers  Comments  at  5. 
 332  Ameritech  Comments  at  11;  Scherers  Comments  at  5;  WorldCom  Comments  at  14-  15. 
 333  Ameritech  Reply  at  10. 
 334  GTE  Reply  at  7-  8;  NECA  Reply  at  2;  RBOC  Reply  at  6-  7.  See  also  Puerto  Rico  Telephone  Reply  at  6. 
 335  Id. 
 336  USTA  Reply  at  3-  4. 
 337  RBOC  Comments  at  7. 
47
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 48 
 quarterly  basis.  339 
 199. 
 200.  c.  Discussion 
 201. 
 202.  Based  on  the  information  in  the  record,  we  conclude  that  the  requisite 
 technology  exists  for  IXCs  to  track  calls  from  payphones.  We  recognize,  however,  that  tracking 
 capabilities  vary  from  carrier  to  carrier,  and  that  it  may  be  appropriate,  for  an  interim  period,  for 
 some  carriers  to  pay  compensation  for  "each  and  every  completed  intrastate  and  interstate  call" 
 on  a  flat-  rate  basis  until  per-  call  tracking  capabilities  are  put  into  place,  as  discussed  below. 
 203. 
 204.  We  conclude  further  that,  as  stated  in  the  Notice,  it  is  the  responsibility  of  the 
 carrier,  whether  it  provides  intraLATA  or  interLATA  services,  as  the  primary  economic 
 beneficiary  of  the  payphone  calls,  to  track  the  calls  it  receives  from  payphones,  340  although  the 
 carrier  has  the  option  of  performing  the  tracking  itself  or  contracting  out  these  functions  to 
 another  party,  such  as  a  LEC  or  clearinghouse.  In  other  words,  while  we  assign  the  burden  of 
 tracking  on  the  carrier  receiving  the  call  from  a  payphone,  parties  to  a  contract  may  find  it 
 economically  advantageous  to  place  this  tracking  responsibility  on  another  party.  We  decline  to 
 require  LECs  or  PSPs  to  perform  per-  call  tracking  themselves.  Neither  LECs  nor  PSPs  are  the 
 primary  economic  beneficiaries  of  payphone  calls.  We  conclude,  however,  that  LECs,  PSPs,  and 
 the  carriers  receiving  payphone  calls  should  be  able  to  take  advantage  of  each  other's 
 technological  capabilities  through  the  contracting  process.  To  this  end,  we  agree  with  the 
 RBOCs  and  conclude  that  no  standardized  technology  for  tracking  calls  is  necessary,  and  that 
 IXCs  may  use  the  technology  of  their  choice  to  meet  their  tracking  obligations.  341 
 205. 
 206.  MCI  and  Sprint  contend  that  each  payphone  should  be  required  to 
 generate  07  or  27  coding  digits  within  the  ANI  for  the  carrier  to  track  calls.  342  We  agree. 
 Currently  under  our  rules,  LECs  are  required  to  tariff  federally  originating  line  screening 
 ("  OLS")  services  that  provide  a  discrete  code  to  identify  payphones  that  are  maintained  by  non-LEC 
 providers.  343  We  conclude  that  LECs  should  be  required  to  provide  similar  coding  digits  for 
 their  own  payphones. 
 207. 
 208.  AT&  T  states  that  it  currently  cannot  track  subscriber  800  calls  because  it 
 receives  only  the  ANI  of  the  terminating  telephone,  and  it  estimates  that  a  per-  call  tracking 


 338  APCC  Comments  at  26. 
 339  Telaleasing  Reply  at  11. 
 340  Notice  at  paras.  29-  31. 
 341  See  RBOC  Comments  at  7. 
 342  MCI  Comments  at  10;  Sprint  Comments  at  16. 
 343  Policies  and  Rules  Concerning  Operator  Service  Access  and  Pay  Telephone  Compensation,  CC  Docket  No. 
 91-  35,  Third  Report  and  Order  (rel.  Apr.  5,  1996)  at  para.  34  ("  OLS  Order"). 
48
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 49 
 ability  for  subscriber  800  calls  will  take  one  year  to  achieve.  344  Other  commenters,  such  as  the 
 RBOCs  and  USTA,  propose  a  one-  year  transition  before  carriers  are  required  to  track  subscriber 
 800  calls.  In  view  of  the  current  difficulties  in  tracking  such  calls,  we  conclude  that  a  transition 
 is  warranted  for  requiring  carriers  to  track  compensable  calls.  Therefore,  we  require  carriers  to 
 provide  for  tracking  of  all  compensable  calls  they  receive  from  payphones,  through  any 
 arrangement  they  choose,  as  soon  as  possible,  but  no  later  than  one  year  from  the  effective  date 
 of  the  rules  adopted  in  this  proceeding.  345  Until  that  date,  carriers  must  pay  flat-  rate 
 compensation,  as  specified  below.  346 
 209. 
 210.  We  recognize  that  implementing  a  per-  call  tracking  capability  will  require 
 new  investments  for  some  carriers,  particularly  small  carriers,  but  we  conclude  that  the  mandate 
 of  Section  276  that  we  ensure  a  fair  "per  call  compensation  plan"  for  "each  and  every  completed 
 intrastate  and  interstate  call"  requires  these  carriers  to  provide  tracking  for  calls  for  which  they 
 receive  revenue,  even  though  they  previously  did  not  have  to  compensate  the  PSP  for  many  of 
 these  calls.  We  conclude  further  that,  by  permitting  carriers  to  contract  out  their  per-  call  tracking 
 responsibility,  and  by  allowing  a  transition  for  tracking  subscriber  800  calls,  we  have  taken  the 
 appropriate  steps  to  minimize  the  per-  call  tracking  burden  on  small  carriers.  In  addition,  we 
 conclude  that,  to  parallel  the  obligation  of  the  facilities-  based  carrier  to  pay  compensation,  the 
 underlying,  facilities-  based  carrier  has  the  burden  of  tracking  calls  to  its  reseller  customers,  and  it 
 may  recover  that  cost  from  the  reseller,  if  it  chooses. 
 211. 
 212.  In  the  Notice,  we  tentatively  concluded  that  carriers  should  be  required  to  initiate 
 an  annual  verification  of  their  per-  call  tracking  functions  to  be  made  available  for  FCC 
 inspection  upon  request,  to  ensure  that  they  are  tracking  all  of  the  calls  for  which  they  are 
 obligated  to  pay  compensation.  We  require  this  verification  for  a  one-  year  period,  the  1998 
 calendar  year,  and  delegate  to  the  Chief,  Common  Carrier  Bureau,  the  authority  to  establish  the 
 form  and  content,  if  necessary,  of  the  verification  documentation  of  these  per-  call  tracking 
 capabilities.  We  conclude  that  requiring  carriers  to  maintain  the  appropriate  records  and  certify 
 as  to  the  accuracy  of  both  the  data  and  the  tracking  methodology  would  facilitate  the  prompt  and 
 accurate  payment  of  per-  call  compensation.  We  also  conclude  that  PSPs  should  be  allowed  to 
 inspect  this  certification,  apart  from  any  proprietary  network  data.  In  addition,  we  expect  that  the 
 PSPs  and  carriers  performing  the  tracking  will  work  together  to  reconcile  or  explain  any  PSP 
 data  that  are  inconsistent  with  the  annual  certification.  We  decline  to  adopt,  however,  the 
 suggestions  of  some  commenters  that  we  require  a  full-  scale  independent  audit  of  a  carrier's 
 tracking  capability,  or  mandate  that  the  verification  occur  on  a  quarterly  basis.  A  full-  scale  audit 
 or  a  quarterly  verification  would  impose  too  great  of  a  burden  on  carriers  in  an  area  where  we 
 have  encouraged  them  to  use  technology  and  other  arrangements  of  their  choice  in  implementing 
 a  per-  call  tracking  capability. 


 344  AT&  T  Comments  at  14-  15. 
 345  As  discussed  at  para.  49,  above,  IXCs  also  have  the  option  of  avoiding  the  obligation  to  pay  per-  call 
 compensation  for  subscriber  800  calls  by  blocking  these  calls  from  payphones. 


 346  See  paras.  119-  126,  below. 
49
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 50 
 213. 
 214.  4.  Administration  of  Per-  Call  Compensation 
 215. 
 216.  a.  The  Notice 
 217. 
 218.  In  the  Notice,  the  Commission  tentatively  concluded  that  the  direct-  billing 
 arrangement  established  for  the  payment  of  compensation  from  IXCs  to  PPOs  should  be  used 
 with  the  simple  addition  of  requiring  IXCs,  and  the  intrastate  interexchange  operations  of  LECs, 
 to  send  back  to  each  PSP  a  statement  indicating  the  number  of  toll-  free  and  access  code  calls  that 
 each  carrier  has  received  from  each  of  that  PSP's  payphones.  347  The  Commission  also  proposed 
 to  establish  a  requirement  that  the  carrier  responsible  for  paying  compensation  file  annually  a 
 brief  report  with  the  Common  Carrier  Bureau  listing  the  total  amount  of  compensation  paid, 
 pursuant  to  the  rules  adopted  in  this  proceeding,  to  PSPs  for  intrastate,  interstate,  and 
 international  calls;  the  number  of  compensable  calls  received  by  the  carrier;  and  the  number  of 
 payees.  348  Such  a  requirement  would  help  ensure  that  the  carriers  are  tracking  all  of  the  calls  for 
 which  they  are  obligated  to  pay  compensation.  349 
 219. 
 220.  Because  the  compensation  mechanism  proposed  in  the  Notice  uses  the 
 ANI  as  the  basis  for  tracking  calls,  the  Commission  tentatively  concluded  that  minimal 
 regulatory  guidelines  for  the  industry  should  be  adopted  regarding  resolution  of  disputed  ANIs  in 
 the  per-  call  compensation  context.  350  Possible  guidelines  for  which  the  Commission  has  sought 
 comment  are  as  follows:  (1)  intraLATA  carrier  provision  of  a  list  of  payphone  ANIs  to  IXCs 
 (e.  g.,  each  quarter);  (2)  verification  of  disputed  ANIs  by  intraLATA  carrier  on  request;  (3) 
 maintenance  of  verification  data  for  at  least  18  months  after  the  close  of  a  compensation  period; 
 (4)  acceptance  of  compensation  claims  once  an  intraLATA  carrier  makes  a  positive  identification 
 of  an  installed  payphone;  (5)  IXC  denial  of  payment  for  compensation  claims  that  are  submitted 
 by  a  PSP  over  one  year  after  the  end  of  the  period  in  question.  351 
 221. 
 222.  b.  Comments 
 223. 
 224.  APCC  argues  that  the  compensation  payor  should  bear  the  costs  associated 
 with  the  administration  of  the  compensation  mechanism.  352  Various  commenters  argue  that  the 
 Commission  should  use  a  direct-  billing  arrangement  for  the  payment  of  compensation  from  IXCs 


 347  Notice  at  paras.  32-  33. 
 348  Id.  at  para.  33. 
 349  Id. 
 350  Id.  at  para.  34. 
 351  Id. 
 352  APCC  Reply  at  25-  26. 
50
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 51 
 to  PSPs  that  is  similar  to  the  one  adopted  in  the  access  code  call  compensation  proceeding.  353 
 MCI  argues  that  under  the  Commission's  proposed  direct-  billing  arrangement,  carriers  should  be 
 required  to  report  to  the  Commission  only  the  total  amount  of  compensation  paid  to  all  PSPs 
 annually.  354  Other  commenters,  notably  the  small  IXCs,  contend  that  the  LECs  are  better 
 equipped  than  the  IXCs  and  intraLATA  carriers  to  administer  the  payment  of  per-  call 
 compensation.  355  Some  of  these  commenters  argue  that  PSP-  administered  compensation  would 
 be  preferable  to  that  handled  by  the  carriers  receiving  the  payphone  calls.  356  SDN  argues  that 
 compensation  should  be  based  on  a  national  formula  and  administered  by  the  individual  states.  357 
 225. 
 226.  The  RBOCs,  Sprint,  APCC,  and  Peoples  support  the  Commission's 
 tentative  conclusion  that  minimal  regulatory  guidelines  for  the  industry  should  be  adopted 
 regarding  resolution  of  disputed  ANIs.  358  They  argue  that  LECs  must  be  given  an  incentive  to 
 provide  accurate  and  timely  verification  of  ANIs  for  independently  provided  payphones.  359  MCI 
 argues  that  a  dispute  resolution  process  is  not  necessary  if  payphones  are  required  to  transmit 
 certain  information  digits  associated  with  payphone-  originated  calls.  360 
 227. 
 228.  The  commenters  also  make  a  number  of  suggestions  on  the  possible  dispute 
 resolution  guidelines  articulated  by  the  Commission  in  the  Notice.  GTE  argues  that  mandatory 
 procedures  in  this  area  are  not  necessary,  because  of  the  increased  costs  they  will  entail.  361  In 
 addition,  GTE  argues  that  PSPs  are  able  to  file  a  complaint  with  the  Commission  when  they  have 
 a  dispute  regarding  compensation.  362  With  regard  to  the  list  of  payphone  ANIs  provided  each 
 quarter  by  the  LECs,  AT&  T  argues  that  it  is  the  LEC  that  provides  the  payphone  line  that  must 
 provide  the  list,  not  the  intraLATA  carrier  presubscribed  to  the  payphone.  363  GVNW  argues  that 
 requiring  LECs  to  furnish  IXCs  with  a  quarterly  list  of  ANIs  is  too  costly  and  burdensome,  and 


 353  See,  e.  g.,  AT&  T  Comments  at  16;  GVNW  Comments  at  4. 
 354  MCI  Comments  at  11. 
 355  See,  e.  g.,  Cable  &  Wireless  Comments  at  11-  12;  CompTel  Comments  at  10-  11;  Excel  Comments  at  6-  7; 
 Frontier  Comments  at  12-  14;  WorldCom  Comments  at  17-  18. 


 356  Cable  &  Wireless  Comments  at  13;  Excel  Comments  at  7;  MCI  Comments  at  19. 


 357  SDN  Comments  at  2. 
 358  APCC  Comments  at  29;  Peoples  Comments  at  26;  RBOC  Comments  at  7;  Sprint  Comments  at  15. 
 359  Id. 
 360  MCI  Comments  at  11. 
 361  GTE  Comments  at  8-  9. 
 362  Id. 
 363  AT&  T  Comments  at  17. 
51
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 52 
 technology-  based  solutions  to  tracking  problems  will  eventually  make  this  list  unnecessary.  364 
 AT&  T  requests  that  the  Commission  require  the  LECs  to  submit  the  ANI  list  to  the  IXCs  within 
 30  days  of  the  end  of  a  compensation  period.  365 
 229. 
 230.  AT&  T  and  Sprint  contend  that  if  the  LEC  does  not  provide  verification  of  a 
 disputed  payphone  ANI,  carriers  should  not  be  required  to  pay  compensation.  366  AT&  T  further 
 contends  that  LECs  should  be  required  to  provide  verification  in  a  timely  fashion.  367  MICPA 
 argues  that  carriers  should  not  be  able  to  use  delays  in  LEC  verification  to  delay  the  payment  of 
 compensation  to  PSPs.  368  APCC  argues  that  the  Commission  should  impose  a  penalty  for  LECs 
 that  do  not  make  a  verification  when  requested.  369  MCI  suggests  that  if  a  payphone  is 
 disconnected,  the  LEC  should  be  required  to  notify  the  compensation-  paying  carriers  within  24 
 hours.  370  NTCA  contends  that  the  possible  guidelines  outlined  by  the  Commission  would  impose 
 too  great  of  a  burden  on  small  LECs.  371  MCI  argues  that  the  statute  of  limitations  for  the 
 payment  of  compensation  should  not  be  tolled  while  ANIs  are  being  disputed.  372  Two  state 
 associations  of  independent  payphone  providers  argue  that  the  Commission  must  prohibit  the 
 carriers  from  imposing  undue  burdens  on  PSPs  before  paying  compensation.  373 
 231. 
 232.  A  number  of  independent  payphone  providers  argue  that  the  Commission  should 
 shorten  the  quarterly  compensation  period.  374  Peoples  and  Telaleasing  both  suggest  that  carriers 
 should  pay  compensation  to  PSPs  on  a  monthly  basis.  375  MCI  argues  that  it  should  not  be 
 required  to  pay  compensation  on  claims  more  than  three  months  old.  376  Sprint  argues  that,  to 
 reduce  the  administrative  burden  and  costs  associated  with  the  payment  of  compensation, 


 364  GVNW  Comments  at  3. 
 365  AT&  T  Comments  at  17. 
 366  AT&  T  Comments  at  17-  18;  Sprint  Comments  at  15. 
 367  AT&  T  Comments  at  17. 
 368  MICPA  Comments  at  6. 
 369  APCC  Comments  at  29. 
 370  MCI  Comments  at  12. 
 371  NTCA  Comments  at  5-  6. 
 372  MCI  Comments  at  12. 
 373  IPTA  Comments  at  19;  MICPA  Comments  at  6. 
 374  IPTA  Comments  at  21;  MICPA  Comments  at  6;  Peoples  Comments  at  26;  Telaleasing  Reply  at  11. 
 375  Peoples  Comments  at  26;  Telaleasing  Reply  at  11. 
 376  MCI  Comments  at  12. 
52
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 53 
 carriers  should  be  allowed  to  defer  payment  to  PSPs  until  the  PSP  is  due  to  receive  a  minimum 
 of  $10  from  that  carrier.  377  The  RBOCs  contend  that  the  Commission  should  impose  a  penalty 
 on  carriers  who  demonstrate  a  wilful  failure  to  pay  compensation.  378  APCC  argues  that  PSPs 
 should  be  allowed  to  charge  interest  for  payments  that  have  been  due  for  more  than  90  days.  379 
 233. 
 234.  To  facilitate  the  payment  of  compensation,  CompTel  argues  that  PSPs  should 
 register  with  a  central  resource  all  payphones  for  which  carriers  must  pay  compensation.  380  It 
 argues  that  this  step  would  reduce  administrative  costs  for  all  parties,  avoid  duplication  of 
 efforts,  and  negate  the  risk  of  multiple  payments  to  separate  parties  claiming  ownership  of  the 
 same  payphone.  381  APCC  argues  that,  to  avoid  additional  payment  disputes,  each  LEC  bill  for 
 payphone  service  must  affirmatively  state  that  it  is  for  payphone  service.  382 
 235. 
 236.  c.  Discussion 
 237. 
 238.  We  conclude  that  we  should  adopt  a  direct-  billing  arrangement  between 
 IXCs  and  PSPs,  once  tracking  capabilities  are  in  place,  that  would  build  on  the  arrangement 
 established  in  the  access  code  call  compensation  proceeding,  with  the  addition  of  the  requirement 
 that  these  carriers  must  send  back  to  each  PSP  a  statement  indicating  the  number  of  toll-  free  and 
 access  code  calls  that  each  carrier  has  received  from  each  of  that  PSP's  payphones.  383  This 
 arrangement  places  the  burden  of  billing  and  collecting  compensation  on  the  parties  who  benefit 
 the  most  from  calls  from  payphones  --  carriers  and  PSPs.  For  this  reason,  we  conclude  that  it 
 would  not  be  appropriate  to  burden  LECs  with  the  administration  of  the  per-  call  compensation 
 mechanism,  because  their  economic  interest  in  the  compensable  calls  is  significantly  less  than 
 that  of  the  IXCs  and  PSPs.  While  PSPs  could  be  efficient  administrators  of  a  compensation 
 mechanism,  we  conclude  that  the  carriers  already  responsible  for  tracking  the  calls  and  paying 
 compensation  for  them  have  the  greatest  ability  and  incentive  to  establish  the  most  efficient 
 means  of  administering  the  payment  of  compensation.  As  with  the  tracking  of  calls,  carrier-payors 
 are  free  to  use  clearinghouses,  similar  to  those  that  exist  for  access  code  call 
 compensation,  or  to  contract  out  the  direct-  billing  arrangement  associated  with  the  payment  of 
 compensation.  We  decline  to  leave  it  to  the  individual  states  to  administer  compensation,  as 
 suggested  by  SDN,  384  because  we  believe  the  parties  can  agree  on  a  solution  more  efficient  than 
 the  likely  varying  approaches  adopted  by  each  of  the  states. 


 377  Sprint  Comments  at  15. 


 378  RBOC  Comments  at  7. 
 379  APCC  Comments  at  30.  See  also  Telaleasing  Reply  at  11. 
 380  CompTel  Comments  at  11.  See  also  GTE  Comments  at  7-  8;  Oklahoma  CC  Comments  at  3. 
 381  CompTel  Comments  at  11. 
 382  APCC  Comments  at  30. 
 383  Notice  at  paras.  32-  33. 
 384  See  para.  104,  above. 
53
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 54 
 239. 
 240.  We  also  proposed  in  the  Notice  to  establish  a  requirement  that  the  carrier 
 responsible  for  paying  compensation  file  each  year  a  brief  report  with  the  Common  Carrier 
 Bureau  listing  the  total  compensation  paid  to  PSPs  for  intrastate,  interstate,  and  international 
 calls;  the  number  of  compensable  calls  carried  by  the  carrier;  and  the  number  of  payees.  385  Such 
 a  requirement  would  help  ensure  that  the  carriers  are  tracking  all  of  the  calls  for  which  they  are 
 obligated  to  pay  compensation.  This  requirement  will  apply  to  calendar  year  1998,  when 
 tracking  capabilities  are  in  place  and  compensation  is  being  paid  on  a  per-  call  basis.  While  MCI 
 argues  that  carriers  should  be  required  to  report  only  the  total  amount  of  compensation  to  all 
 PSPs  annually,  we  conclude  that  more  detailed  reporting  is  necessary  to  monitor  the  per-  call 
 payphone  compensat  ion  mechanism  in  its  init  ial  complete  calendar  year  to  help  ensure  that  all 
 IXCs  are  paying  their  respective  compensation  obligations.  We  conclude  further  that,  once  per-call 
 compensation  is  routinely  paid  by  IXCs,  this  reporting  requirement  will  be  terminated  after 
 the  carriers  have  filed  their  reports  for  the  1998  calendar  year.  386  Carrier-  payors  should  file  their 
 reports  as  soon  as  possible  after  the  end  of  the  calendar  year,  but  no  later  than  the  end  of  the  first 
 quarter  of  the  following  year.  To  implement  the  reporting  requirement,  we  delegate  to  the  Chief, 
 Common  Carrier  Bureau,  the  authority  to  establish  the  form  and  content,  if  necessary,  of  the 
 annual  report  listing  the  total  amount  of  compensation  paid  to  PSPs,  including  the  authority  to 
 extend  or  limit  the  scope  of  this  report. 
 241. 
 242.  While  we  have  elected  to  burden  the  LECs  only  insignificantly  in  creating 
 the  per-  call  compensation  mechanism  mandated  by  Section  276  of  the  Act,  we  conclude  that  we 
 must  establish  minimal  regulatory  guidelines  for  the  payphone  industry  regarding  resolution  of 
 disputed  ANIs  to  give  LECs  387  a  greater  incentive  to  provide  accurate  and  timely  verification  of 
 ANIs  for  independently  provided  payphones.  While  any  party  may  file  a  complaint  with  the 
 Commission  about  disputed  ANIs,  we  conclude  that  the  better  practice  is  for  LECs  who  maintain 
 the  list  of  ANIs  to  work  with  both  carrier-  payors  and  PSPs  to  resolve  disputes  more  efficiently 
 and  quickly  before  lodging  a  complaint  with  the  Commission.  We  also  conclude  that  we  should 
 require  that  each  LEC  must  submit  to  each  carrier-  payor  on  a  quarterly  basis  a  list  of  ANIs  of  all 
 payphones  in  the  LEC's  service  area  (called  the  "COCOT  list"  in  the  access  code  call 
 compensation  proceeding).  388  We  disagree  with  GVNW's  proposal  that  furnishing  the  quarterly 
 list  of  ANIs  is  too  costly  and  burdensome  for  LECs.  As  stated  above,  we  have  attempted  to 
 minimize  the  burdens  on  LECs,  and  no  party  has  shown  that  there  is  currently  an  effective 
 substitute  for  this  list,  despite  the  future  promise  of  technological  solutions. 
 243. 


 385  Notice  at  para.  33. 
 386  Id.  at  para.  33,  n.  90. 
 387  As  AT&  T  correctly  points  out,  it  is  the  LEC  that  provides  the  payphone  line  that  must  provide  the  list  of 
 ANIs,  not  the  intraLATA  carrier  presubscribed  to  the  payphone.  AT&  T  Comments  at  17. 


 388  Second  Report  and  Order,  7  FCC  Rcd  at  3259.  LECs  are  permitted  to  "recover  their  reasonable  costs  in 
 generating  and  producing  these  lists  through  direct  charges"  to  the  carriers  using  them.  Reconsideration  Order,  8 
 FCC  Rcd  at  7157.  "COCOT"  is  an  acronym  for  customer-  owned,  coin-  operated  telephone. 
54
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 55 
 244.  In  response  to  the  various  arguments  made  by  commenters,  we  conclude  that  the 
 following  guidelines  will  facilitate  the  proper  verification  of  payphone  ANIs  by  LECs.  First, 
 LECs  must  provide  a  list  of  payphone  ANIs  to  carrier-  payors  within  30  days  of  the  close  of  each 
 compensation  period  (i.  e.,  each  quarter).  Second,  LECs  must  provide  verification  of  disputed 
 ANIs  on  request,  in  a  timely  fashion.  Such  verification  data  must  be  maintained  and  available 
 for  at  least  18  months  after  the  close  of  a  compensation  period.  Third,  once  a  LEC  makes  a 
 positive  identification  of  an  installed  payphone,  the  carrier-  payor  must  accept  claims  for  that 
 payphone's  ANI  until  the  LEC  provides  information,  on  a  timely  basis,  that  the  payphone  has 
 been  disconnected.  Fourth,  a  LEC  must  respond  to  all  requests  for  ANI  verification,  even  if  the 
 verification  is  a  negative  response.  Carrier-  payors  are  not  required  to  pay  compensation  once  the 
 LEC  verifies  that  the  particular  ANI  is  not  associated  with  a  COCOT  line  for  which 
 compensation  must  be  paid.  Fifth,  carrier-  payors  should  be  able  to  refuse  payment  for 
 compensation  claims  that  are  submitted  long  after  they  were  due.  Carriers  should  not  refuse 
 payment  on  timeliness  grounds,  however,  for  ANIs  submitted  by  a  PSP  up  to  one  year  after  the 
 end  of  the  period  in  question.  Further,  the  period  for  a  PSP  to  bring  a  complaint  to  the 
 Commission  based  on  an  ANI  disputed  by  the  carrier-  payor  will  not  begin  to  accrue  until  the 
 carrier-  payor  issues  a  final  denial  of  the  claim. 
 245. 
 246.  We  conclude  that  the  guidelines,  as  outlined  above,  will  facilitate  the 
 proper  verification  of  payphones  without  imposing  undue  burdens  on  LECs,  PSPs,  or  carrier-payors. 
 In  adopting  these  guidelines,  we  reject  a  number  of  proposals  by  commenters.  First,  in 
 response  to  the  argument  of  AT&  T  and  Sprint  that  they  not  be  required  to  pay  compensation 
 when  a  LEC  fails  to  verify  a  particular  ANI,  we  conclude  that  by  directing  LECs  to  respond  to 
 all  requests  for  verification,  carriers  should  be  able  to  avoid  payment  only  when  the  LEC  issues  a 
 negative  response  to  the  verification  inquiry.  Second,  we  conclude  that  mandating  a  penalty  on 
 the  LEC,  as  urged  by  APCC,  for  failing  to  respond  to  a  verification  request  in  a  timely  manner,  is 
 not  necessary  when  the  Commission's  complaint  process  is  available.  Similarly,  the  complaint 
 process  is  available  to  PSPs  for  instances  of  a  carrier's  wilful  failure  to  pay  compensation,  as 
 discussed  by  the  RBOCs.  We  note  that  we  will  aggressively  take  action  on  such  complaints. 
 Third,  we  conclude  that  requiring  a  LEC  to  notify  all  carrier-  payors  of  a  payphone  disconnection 
 within  24  hours  would  be  too  great  a  burden  to  place  on  LECs,  particularly  when  they  are 
 required  to  provide  ANI  lists  only  on  a  quarterly  basis.  Such  notification,  however,  should  occur 
 on  a  basis  as  timely  as  possible.  Fourth,  we  conclude  that,  for  purposes  of  bringing  a  complaint 
 before  the  Commission  concerning  a  carrier's  payment  of  payphone  compensation,  the  time 
 period  for  the  statute  of  limitations  does  not  begin  to  run  until  after  the  carrier-  payor  considers  a 
 compensation  claim  and  issues  a  final  denial  of  the  claim.  To  conclude  otherwise,  as  suggested 
 by  MCI,  would  permit  a  carrier-  payor  to  delay  a  denial  of  the  claim  to  preclude  a  PSP's 
 complaint  remedy  before  the  Commission. 
 247. 
 248.  Various  independent  payphone  providers  argue  that  we  should  require 
 compensation  to  be  paid  on  a  monthly  basis.  In  the  access  code  call  compensation  proceeding, 
 we  allowed  the  parties  to  determine  how  and  when  compensation  would  be  paid,  and  quarterly 
 compensation  period  was  adopted  by  the  industry  through  consensus.  389  While  the  industry  may 


 389  Second  Report  and  Order,  7  FCC  Rcd  at  3259. 
55
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 56 
 decide  upon  a  similar  compensation  period  for  per-  call  compensation,  we  leave  the  details 
 associated  with  the  administration  of  this  compensation  mechanism  to  the  parties  to  determine 
 for  themselves  through  mutual  agreement.  390  We  disagree,  however,  with  MCI's  proposal  that 
 carriers  not  be  required  to  pay  compensation  claims  that  are  more  than  three  months  old. 
 Because  a  carrier-  payor's  administrative  expenses  are  presumably  reduced  through  the  payment 
 of  compensation  on  a  quarterly,  as  opposed  to  monthly,  basis,  we  conclude  that  the  reasonable 
 trade-  off  is  that  the  carrier  remains  liable,  as  discussed  above,  391  for  compensation  claims  that  are 
 submitted  within  one  year  of  the  end  of  the  compensation  period  in  question.  The  parties  may 
 themselves  revisit  this  issue  if  they  elect  a  shorter  compensation  period.  Sprint  argues  that  a 
 carrier  should  be  allowed  to  defer  payments  to  individual  PSPs  until  the  amount  due  aggregates 
 to  $10  from  that  carrier  to  the  particular  PSP  for  all  of  its  payphones.  We  agree  and  conclude 
 that  such  a  requirement  would  reduce  the  administrative  expenses  associated  with  the  payment  of 
 compensation.  If  PSPs  would  like  to  charge  interest  on  overdue  payments  from  IXCs,  as 
 suggested  by  APCC,  392  they  should  negotiate  such  a  provision  in  their  compensation  agreement 
 with  the  particular  carrier. 
 249. 
 250.  We  agree  with  APCC  that  the  payment  of  compensation  would  be  facilitated  and 
 some  disputes  avoided  if  LECs  were  required  to  state  affirmatively  on  their  bills  to  PSPs  that  the 
 bills  are  for  payphone  service.  We  conclude  that  LECs  who  have  knowledge  that  a  particular 
 phone  line  is  used  for  a  payphone,  must  indicate  on  that  payphone's  monthly  bill  that  the  amount 
 due  is  for  payphone  service.  We  also  agree  with  CompTel's  suggestion  that  the  registration  of  all 
 payphones  with  a  central  resource  or  clearinghouse  would  reduce  administrative  costs  for  all 
 parties  and  would  avoid  duplication  of  efforts.  We  decline,  however,  to  mandate  the  creation  of 
 a  central  resource  or  clearinghouse  for  compensation  purposes,  and  believe  that  the  parties 
 themselves  are  better  able  to  establish  such  a  resource  that  would  be  directly  connected  to  the 
 payment  of  compensation. 
 251.  5.  Interim  Compensation  Mechanism 
 252. 
 253.  a.  The  Notice 
 254. 
 255.  The  Commission  sought  comment  on  whether  independent  payphone 
 providers  should  receive  some  measure  of  interim  compensation,  to  be  paid  until  the  effective 
 date  of  the  final  rules  adopted  in  this  proceeding,  for  the  growing  volume  of  dial-  around  calls 
 originated  from  their  payphones.  393  Those  who  support  such  relief  were  instructed  to  comment 
 on  the  appropriate  interim  compensation  amount,  how  such  an  interim  compensation  mechanism 
 could  be  structured,  and  the  feasibility  of  implementing  an  interim  plan  when  final  rules  are 
 required  to  be  in  place  in  nine  months.  394  The  Commission  also  requested  comment  on  the  legal 


 390  Id. 


 391  See  para.  113,  above. 
 392  See  para.  108,  above. 
 393  Notice  at  para.  39. 
 394  Id.  at  para.  40. 
56
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 57 
 basis  for,  and  practical  consequences  of,  making  such  interim  compensation  effective  as  of  the 
 release  date  of  the  Notice.  395 
 256. 
 257.  b.  Comments 
 258. 
 259.  Various  independent  payphone  providers  and  BellSouth  argue  that  the 
 Commission  should  prescribe  interim  relief  for  independent  payphone  providers,  retroactive  to 
 the  date  of  the  Notice  and  to  be  paid  until  the  effective  date  of  the  rules  adopted  in  this 
 proceeding,  for  the  growing  volume  of  dial-  around  calls  originated  from  their  payphones.  396 
 They  argue  that  independent  payphone  providers,  unlike  the  LECs,  are  uncompensated  for  the 
 majority  of  coinless  calls  that  use  their  payphones,  and  that  the  quantity  of  these  calls  is 
 increasing.  397  They  also  argue  that  delays  for  unforeseen  reasons  will  likely  impact  the  effective 
 date  of  the  final  rules  in  this  proceeding,  which  makes  an  interim  relief  mechanism  a  necessity 
 for  the  survival  of  their  businesses.  398  These  commenters  suggest  compensation  amounts  that 
 range  from  $.  40  on  a  per-  call  basis  399  to  $24,  400  $38.70,  401  and  $40  402  on  a  flat  rate  per  phone  basis. 
 Intellicall  suggests  that  the  Commission  prescribe  interim  relief  through  a  "caller-  pays"  coin 
 deposit  approach.  403  BellSouth  also  argues  that  LEC-  owned  payphones  should  be  eligible  to 
 receive  interim  relief  once  they  have  removed  all  subsidies  from  their  payphone  operations.  404 
 The  RBOCs,  GTE,  AT&  T,  MCI,  Sprint,  and  One  Call  all  oppose  granting  interim  relief  to 
 independent  payphone  providers.  405  They  argue  that  such  relief  would  be  unadministrable 
 because  it  would  require  parties  to  participate  in  two  payment  systems,  and  interim  relief  would 
 be  without  a  statutory  basis.  406  AT&  T  states  that  it  does  not  oppose  interim  relief  for  access  code 


 395  Id. 
 396  APCC  Comments  at  34-  40;  BellSouth  Comments  at  6-  7;  Communications  Central  Comments  at  10-  11; 
 NJPA  Comments  at  9-  10;  Peoples  Comments  at  10-  11;  Telaleasing  Reply  at  8. 


 397  APCC  Comments  at  34-  37;  Peoples  Comments  at  10-  11. 


 398  Id. 
 399  APCC  Comments  at  36-  40;  Communications  Central  Comments  at  10-  11. 
 400  NJPA  Comments  at  9-  10. 
 401  Peoples  Comments  at  10-  11,  accord  BellSouth  Reply  at  2;  Telaleasing  Reply  at  9. 
 402  APCC  Comments  at  36-  40. 
 403  Intellicall  Comments  at  36. 
 404  BellSouth  Reply  at  2. 
 405  AT&  T  Comments  at  11;  GTE  Comments  at  10;  MCI  Comments  at  15;  One  Call  Comments  at  8;  RBOC 
 Comments  at  19-  20;  Sprint  Comments  at  25. 


 406  Id. 
57
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 58 
 calls  only.  407 
 260. 
 261.  c.  Discussion 
 262. 
 263.  Because  the  IXCs  required  to  pay  compensation  to  PSPs  are  not  required  to  track 
 individual  compensable  calls  until  one  year  from  the  effective  date  of  the  rules  adopted  in  this 
 proceeding,  we  conclude  that  PSPs  should  be  paid  monthly  compensation  on  a  flat  rate  by  IXCs 
 with  annual  toll  revenues  in  excess  of  $100  million,  beginning  on  the  effective  date  of  the  rules 
 adopted  in  this  proceeding  and  ending  on  October  1,  1997.  408  This  flat-  rate  monthly 
 compensation  will  apply  proportionally  to  individual  IXCs,  based  on  their  respective  annual  toll 
 revenues.  For  reasons  of  administrative  convenience  of  the  parties,  we  conclude  that  we  should 
 model  the  interim  mechanism  adopted  in  this  Report  and  Order  on  that  set  forth  in  the  access 
 code  call  compensation  proceeding.  409  In  the  access  code  compensation  proceeding,  CC  Docket 
 No.  91-  35,  we  excused  several  carriers  from  the  obligation  to  pay  flat-  rate  compensation  for 
 originating  access  code  calls,  because  they  certified  that  they  were  not  providers  of  "operator 
 services,"  as  defined  by  TOCSIA.  410  We  note  that  Section  276's  requirement  that  we  ensure  fair 
 compensation  for  "each  and  every  completed  intrastate  and  interstate  call,"  including  access  code 
 calls,  supersedes  the  compensation  obligations  established  in  CC  Docket  No.  91-  35,  including 
 the  waivers  granted  to  AT&  T  and  Sprint.  411  Because  Section  276  is  the  statutory  authority  for 
 mandating  per-  call  compensation  for  all  compensable  calls,  including  access  code  calls,  the 
 statutory  exclusion  in  TOCSIA  for  those  carriers  that  are  not  providers  of  "operator  services"  is 
 no  longer  a  basis  for  being  excused  from  the  obligation  to  pay  either  the  total  flat-  rate 
 compensation  amount  established  in  the  instant  proceeding,  or  a  portion  thereof. 
 264. 
 265.  In  the  Notice,  we  set  forth  the  history  of  the  flat-  rate  compensation 
 mechanism  we  adopted  for  access  code  calls.  TOCSIA  had  directed  the  Commission  to 
 determine  whether  independent  payphone  providers  should  receive  compensation  for  originating 
 interstate  calls  to  non-  presubscribed  OSPs  from  their  payphones.  412  The  Commission  concluded 


 407  AT&  T  Comments  at  11. 


 408  Unlike  the  per-  call  compensation  mechanism  adopted  in  this  Report  and  Order,  the  interim  flat-  rate 
 compensation  obligation  applies  to  both  facilities-  based  IXCs  and  resellers  that  have  respective  toll  revenues  of 
 $100  million  per  year. 


 409  See  generally  Second  Report  and  Order,  Reconsideration  Order,  and  Second  Further  Notice. 


 410  Second  Further  Notice,  10  FCC  Rcd  at  11463. 
 411  Two  IXCs,  AT&  T  and  Sprint,  certified  to  the  Commission  that  they  were  able  to  pay  compensation  on  a 
 per-  call  basis  and  petitioned  the  Commission  for  approval  to  pay  compensation  on  that  basis.  See  Policies  and  Rules 
 Concerning  Operator  Service  Access  and  Pay  Telephone  Compensation,  Memorandum  Opinion  and  Order,  10  FCC 
 Rcd  1590  (Com.  Car.  Bur.  1994)  ("  AT&  T  Waiver");  Memorandum  Opinion  and  Order,  10  FCC  Rcd  5490  (Com. 
 Car.  Bur.  1995)  ("  Sprint  Waiver").  They  argued  that  a  per-  call  compensation  mechanism  would  better  serve  the 
 Commission's  objective  to  implement  a  more  cost-  based  approach  to  compensation  for  calls  to  non-  presubscribed 
 OSPs.  The  Common  Carrier  Bureau  agreed  and  granted  AT&  T  and  Sprint  the  right  to  pay  compensation  in  the 
 amount  of  $.  25  per  call  in  lieu  of  paying  per-  phone  compensation  to  PPOs.  Id. 


 412  47  U.  S.  C.    226(  e)(  2). 
58
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 59 
 in  the  Second  Report  and  Order  that  a  per-  call  compensation  mechanism  was  preferable  because 
 it  would  create  greater  incentives  for  PPOs  to  place  their  payphones  in  locations  that  generate  the 
 most  traffic.  The  Commission  concluded,  however,  that  it  was  not  technically  feasible  to 
 implement  such  a  mechanism  at  that  time.  413  Instead,  the  Commission  adopted  flat-  rate 
 compensation  in  the  amount  of  $6  per  phone  per  month  (based  on  average  of  15  access  code 
 calls  at  a  rate  of  $.  40  per  call),  on  an  interim  basis. 
 266. 
 267.  When  we  adopted  a  compensation  mechanism  for  interstate  access  code 
 calls,  the  Commission  concluded  that,  because  they  did  not  involve  use  of  a  "carrier-  specific 
 access  code"  414  and  were  routed  directly  to  an  end  user,  subscriber  800  calls  were  not  within  the 
 class  of  calls  for  which  TOCSIA  directed  the  Commission  to  consider  compensation.  415  The 
 Commission,  therefore,  limited  compensation  to  interstate  "access  code  calls."  416  In  July  1992,  in 
 response  to  a  petition  for  reconsideration  by  the  APCC,  the  Commission  affirmed  its  conclusion 
 that  subscriber  800  calls  were  not  within  the  Commission's  definition  of  interstate  "access  code 
 calls"  for  which  compensat  ion  should  be  paid.  417  In  1992,  after  the  Commission  affirmed  its 
 exclusion  of  subscriber  800  calls  from  the  class  of  compensable  access  code  calls,  the  Florida 
 Pay  Telephone  Association  ("  FPTA")  sought  judicial  review  in  the  United  States  Court  of 
 Appeals  for  the  District  of  Columbia  Circuit  of  this  aspect  of  the  First  Report  and  Order  and  the 
 Subscriber  800  Reconsideration  Order.  In  its  Florida  Payphone  decision,  418  the  Court  found  no 
 reason  to  distinguish  between  the  routing  of  access  code  calls  and  subscriber  800  calls. 
 Therefore,  it  reversed  and  remanded  the  case  to  the  Commission  to  "consider  the  need  to 
 prescribe  compensation  for  subscriber  800  calls  'routed  to  providers  of  operator  services  that  are 
 other  than  the  presubscribed  provider  of  operator  services.  '"  419 
 268. 
 269.  We  first  re-  examine  the  basis  for  setting  the  $.  40  per-  call  compensation  amount 
 that  was  aggregated  to  a  flat  rate  of  $6  per  month.  In  the  1992  Second  Report  and  Order,  the 
 Commission  identified  three  reasonable  compensation  approaches  that  established  a  range  of 


 413  Second  Report  and  Order,  7  FCC  Rcd  at  3252-  53. 


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


 415  First  Report  and  Order,  6  FCC  Rcd  at  4746  (citing  S.  Rep.  No.  439,  101st  Cong.,  2d  Sess.  19  (1990), 
 reprinted  in  1990  U.  S.  Code  Cong.  &  Ad.  News  1577,  1582).  "Subscriber  800  calls"  consist  of  calls  to  an  800 
 number  assigned  to  a  particular  subscriber.  See  Florida  Payphone,  54  F.  3d  at  859. 


 416  Id. 


 417  Policies  and  Rules  Concerning  Operator  Service  Access  and  Pay  Telephone  Compensation,  Order  on 
 Reconsideration,  7  FCC  Rcd  4355,  4367  (1992)  ("  Subscriber  800  Reconsideration  Order"). 


 418  Florida  Payphone,  54  F.  3d  at  857. 


 419  Id. 
59
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 60 
 reasonable  compensation  rates.  The  three  approaches  were:  (1)  as  a  surrogate  for  independent 
 payphone  provider  costs,  access  charge  compensation  that  a  LEC  receives  for  its  regulated 
 provision  of  payphones;  (2)  as  a  measure  of  value  to  OSPs  of  receiving  access  code  calls, 
 charges  for  a  transfer  by  a  LEC  live  operator  to  an  OSP  of  the  caller's  choice  ("  O-  transfer 
 service  charges");  and  (3)  AT&  T's  federally  regulated  operator  service  rates  on  calls  made  from 
 payphones  presubscribed  to  AT&  T.  420  We  conclude  that  these  three  approaches,  which  are  based 
 on  a  different  standard  than  that  in  Section  276,  are  inapplicable  for  determining  interim 
 compensation  in  the  instant  proceeding.  Our  focus  in  the  instant  proceeding  is  to  let  the  market 
 set  the  appropriate  compensation  amount.  As  discussed  above,  421  for  the  limited  purpose  of 
 calculating  compensation  for  PSPs  on  a  flat-  rate  basis  until  per-  call  compensation  becomes 
 mandatory  we  will  use  a  rate  of  $.  35  per  call,  which  is  the  rate  in  the  majority  of  states  that  have 
 allowed  the  market  to  determine  the  appropriate  local  coin  rate. 
 270. 
 271.  We  next  re-  examine  the  average  number  of  access  code  calls  originated  by 
 a  payphone  per  month.  In  1992,  the  Commission  found  that  the  average  was  15  calls.  As 
 summarized  below,  data  on  the  record  in  the  instant  proceeding  indicate  that  the  average  number 
 of  access  code  calls  per  month  is  now  considerably  higher.  In  addition,  similar  data  show  the 
 volume  of  subscriber  800  calls  generated  by  the  average  payphone. 
 272. 
 273.  Various  independent  payphone  providers  and  the  RBOCs  submitted  data 
 on  the  average  number  of  access  code  and  subscriber  800  calls  originated  respectively  by  their 
 payphones.  Together,  these  data  cover  payphones  located  in  geographically  diverse  areas  across 
 the  country.  Peoples,  the  largest  independent  provider,  states  that  each  of  its  payphones 
 originates,  on  average,  43  access  code  calls  and  86  subscriber  800  calls  per  month  (total  of  129 
 compensable  calls).  422  Communications  Central,  another  large  independent  payphone  provider, 
 states  that  each  of  its  payphones  originates  an  average  of  49.5  access  code  calls  and  79.7 
 subscriber  800  calls  per  month  (total  of  130  compensable  calls).  423  Telaleasing  states  that  each  of 
 its  payphones  originates  an  average  of  37  access  code  calls  and  87  subscriber  800  calls  per 
 month  (total  of  124  compensable  calls).  424  APCC  states  that  it  surveyed  approximately  100,000 
 payphones  owned  by  20  diverse  providers  and  found  that,  in  a  three-  month  period  in  1996,  each 
 payphone  originated  an  average  of  40  access  code  calls  and  100  subscriber  800  calls  per  month 
 (total  of  140  compensable  calls).  425  Data  provided  by  the  RBOCs  show  that  the  payphones 


 420  See  Second  Report  and  Order,  7  FCC  Rcd  at  3255-  57. 


 421  See  para.  56,  above. 
 422  Peoples  Comments  at  9-  10.  Peoples'  estimates  are  derived  from  the  total  number  of  calls  originated  by  all 
 of  its  payphones  over  a  six-  month  period  spanning  late  1995  to  early  1996.  Id. 


 423  Communications  Central  Comments  at  Attachment  B.  Communications  Central's  estimates  are  derived 
 from  the  total  number  of  calls  originated  by  all  of  its  payphones  over  a  one-  month  period  in  1996.  Id. 


 424  Telaleasing  Reply  at  8.  Telaleasing's  estimates  are  derived  from  the  total  number  of  calls  originated  by  all 
 of  its  payphones  over  a  one-  month  period  in  1996.  Id. 


 425  APCC  Comments  at  5-  6. 
60
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 61 
 maintained  by  five  of  the  seven  RBOCs  originate,  on  average,  52  access  code  calls  and  80 
 subscriber  800  calls  per  payphone  per  month  (total  of  132  compensable  calls).  426 
 274. 
 275.  The  data  on  the  record  from  the  five  PSP  sources  noted  in  the  preceding 
 paragraph  yield  similar  average  monthly  compensable  call  volumes.  Based  on  the  call  volume 
 data  provided  by  the  PSPs,  we  conclude  that,  for  purposes  of  calculating  flat-  rate  compensation, 
 that  the  average  payphone  originates  a  combined  total  of  131  access  code  calls  and  subscriber 
 800  calls  per  month.  427  When  131  calls  per  month  is  multiplied  by  the  $.  35  compensation 
 amount,  the  monthly  flat-  rate  compensation  amount  is  $45.85.  We  conclude  that  this  $45.85 
 flat-  rate  amount  must  be  paid  by  carriers,  proportionally  to  their  annual  toll  revenues,  to  PSPs. 
 This  flat-  rate  obligation  applies  to  access  code  calls  and  subscriber  800  calls  originated  on  or 
 after  the  effective  date  of  the  rules  adopted  in  this  proceeding.  428  PSPs  that  are  affiliated  with 
 LECs  will  not  be  eligible  for  this  interim  compensation  until  the  first  day  of  the  month  following 
 their  reclassification  and  transfer  of  payment  equipment  along  with  the  termination  of  subsidies, 
 as  discussed  below.  429 
 276. 
 277.  We  decline  to  require  that  per-  call  compensation  be  paid  retroactive  to  the  date  of 
 release  of  the  Notice.  430  We  conclude  that  the  rules  adopted  in  this  Report  and  Order,  including 
 the  requirement  that  interim  flat-  rate  compensation  be  paid  until  per-  call  tracking  capabilities  are 
 in  place,  provides  compensation  to  PSPs  as  soon  as  practicable.  For  the  same  reasons  discussed 
 elsewhere  in  this  Report  and  Order,  431  we  also  reject  Intellicall's  argument  that  interim 
 compensation  be  mandated  through  a  "caller  pays"  coin-  deposit  approach. 
 278. 
 279. 
 280.  B.  RECLASSIFICATION  OF  INCUMBENT  LEC-  OWNED  PAYPHONES  281. 


 282.  In  the  foregoing  Part,  we  establish  rules  and  guidelines  to  ensure  that  PSPs  are 
 fairly  compensated  for  calls  originating  at  their  payphones.  For  certain  PSPs  --  those  who  are 


 426  See  Ex  Parte  Letter  of  Michael  Kellogg,  Counsel,  RBOCs,  to  William  Caton,  Acting  Secretary,  FCC 
 (August  23,  1996). 


 427  The  PSP  data  tend  to  show  that  one  third  of  the  total  amount  of  compensable  calls  are  access  code  calls, 
 while  two  thirds  are  subscriber  800  calls. 


 428  We  conclude  that  on  the  effective  date  of  the  interim  compensation  set  forth  in  this  Order,  the  $6  per 
 payphone  per  month  compensation  for  access  code  calls,  as  set  forth  in  CC  Docket  No.  91-  35,  is  terminated.  See 
 para.  119,  above. 


 429  See  generally,  Part  B  of  this  Report  and  Order. 


 430  The  independent  payphone  providers  refer  to  this  retroactive  compensation  as  "interim  relief."  See  para. 
 117,  above.  The  interim  flat-  rate  compensation  that  we  mandate  in  this  Report  and  Order,  pursuant  to  Section 
 276(  b)(  1)(  A),  is  for  the  first  year  after  the  effective  date  of  the  rules  adopted  in  this  proceeding.  The  term  "interim" 
 refers  to  the  one-  year  period  before  compensation  is  to  be  paid  on  a  per-  call  basis. 


 431  See  para.  85,  above. 
61
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 62 
 LECs  --  the  new  compensation  arrangement  can  be  implemented  only  upon  the  discontinuance 
 of  the  regulatory  system  under  which  they  now  recover  their  costs  of  providing  payphone 
 service.  In  this  Part,  we  describe  the  necessary  steps  for  the  LECs'  transition  to  the  new 
 compensation  framework,  and  set  a  schedule  for  the  LECs'  implementing  actions. 
 283. 
 284.  Section  276(  b)(  1)(  B)  directs  the  Commission  to  "discontinue  the  intrastate  and 
 interstate  carrier  access  charge  payphone  service  elements  and  payments  in  effect  on  such  date  of 
 enactment,  and  all  intrastate  and  interstate  payphone  subsidies  from  basic  exchange  and 
 exchange  access  revenues,  in  favor  of  a  [per-  call]  compensation  plan[.]"  432  Currently,  incumbent 
 LEC  payphones,  classified  as  part  of  the  network,  recover  their  costs  from  Carrier  Common  Line 
 (CCL)  charges  assessed  on  those  carriers  that  connect  with  the  incumbent  LEC.  In  order  to 
 comply  with  Section  276(  b)(  1)(  B)  by  removing  payphone  costs  from  the  CCL  charge  and  all 
 intrastate  and  interstate  payphone  subsidies  from  basic  exchange  and  exchange  access  revenues, 
 the  Notice  sought  comment  on:  (1)  the  prospective  classification  of  incumbent  LEC  payphones 
 as  Customer  Premises  Equipment  (CPE);  (2)  the  transfer  of  incumbent  LEC  payphone  equipment 
 assets  from  regulated  to  nonregulated  status;  (3)  the  termination  of  access  charge  compensation 
 and  all  other  subsidies  for  incumbent  LEC  payphones;  and  (4)  the  classification  of  AT&  T 
 payphones. 
 285. 
 286.  1.  Classification  of  LEC  Payphones  as  CPE 
 287. 
 288.  a.  The  Notice 
 289. 
 290.  In  the  Notice,  we  tentatively  concluded  that  incumbent  LEC  payphones 
 should  be  treated  as  nonregulated,  detariffed  CPE.  433  We  also  proposed  that  incumbent  LECs, 
 whether  or  not  they  provide  payphone  service,  must  offer  individual  central  office  coin 
 transmission  services  to  PSPs  under  a  nondiscriminatory,  public,  tariffed  offering.  434  To  this  end, 
 we  sought  comment  on  both  the  central  office  coin  services  that  must  be  made  available  by 
 incumbent  LECs  to  the  PSPs  to  achieve  this  goal,  and  the  type  of  services  and  the  technological 
 requirements  necessary  to  allow  independent  payphone  providers  to  use  payphones  that  are 
 equivalent  to  those  payphones  currently  used  by  LECs.  In  addition,  we  sought  comment  on  any 
 industry  standards  that  may  need  to  be  developed  with  respect  to  potential  claims  regarding  any 
 demonstrable  network  reliability  concerns  that  may  result  from  PSPs  connecting  their  payphones 
 that  make  use  of  central  office  coin  transmission  services.  435 
 291. 
 292.  Because  the  incumbent  LECs  have  used  central  office  coin  services  in  the 
 past,  but  have  not  made  these  services  available  to  independent  payphone  providers  for  use  in 
 their  provision  of  payphone  services,  we  sought  comment  on  whether  incumbent  LEC  provision 


 432  47  U.  S.  C.    276(  b)(  1)(  B). 


 433  Notice  at  para.  42. 
 434  Id.  at  para.  45. 
 435  Id. 
62
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 63 
 of  coin  transmission  services  on  an  unbundled  basis  should  be  treated  as  a  new  service  under  our 
 price  cap  rules.  436  Because  incumbent  LECs  may  have  an  incentive  to  charge  their  competitors 
 unreasonably  high  prices  for  these  services,  we  tentatively  concluded  that  the  new  services  test  is 
 necessary  to  ensure  that  central  office  coin  services  are  priced  reasonably.  437  Additionally,  we 
 sought  comment  on  whether  incumbent  LECs  not  currently  subject  to  price  cap  regulation  should 
 be  required  to  submit  cost  support  for  their  central  office  coin  services,  pursuant  to  Sections 
 61.38,  61.39,  and  61.50(  i)  of  our  rules.  438 
 293. 
 294.  We  also  tentatively  concluded  that  Section  68.2(  a)(  1)  of  our  rules  should 
 be  amended  to  facilitate  registration  of  both  instrument-  implemented  and  central-  office-implemented 
 payphones  and  sought  comment  on  this  tentative  conclusion.  439  In  addition,  we 
 tentatively  concluded  that  the  demarcation  point  for  all  new  LEC  payphones  should  be  consistent 
 with  the  minimum  point  of  entry  standards  for  other  wireline  services  and,  in  addition, 
 tentatively  concluded  that  the  demarcation  point  should  be  the  same  one  as  incumbent  LECs  use 
 for  independent  payphone  providers  today.  440  Finally,  we  sought  comment  on  what  services 
 (such  as  fraud  protection,  installation  and  maintenance  services,  joint  marketing  opportunities, 
 per-  call  tracking  capabilities,  and  call  validation  services)  other  than  those  associated  with 
 central  office  coin  transmission  services  provided  to  their  own  payphones  by  incumbent  LECs, 
 particularly  the  BOCs,  should  be  unbundled  under  the  rules  to  be  adopted  in  this  proceeding  and 
 made  available  to  PSPs.  441 
 295. 


 436  Id.  at  para.  46. 
 437  Id. 
 438  Id. 
 439  Id.  at  para.  47. 
 440  Id. 
 441  Id.  at  para.  48. 
63
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 64 
 296.  b.  Comments 
 297. 
 298.  i.  CPE  Deregulation 
 299. 
 300.  Most  of  the  parties  support  reclassifying  payphone  equipment  as  CPE  and 
 generally  assert  that  deregulating  payphone  equipment  is  important  in  establishing  a  competitive 
 payphone  market.  442  Ohio  PUC,  on  the  other  hand,  argues  that  payphones  should  be  detariffed 
 but  not  deregulated  and  a  charge  should  be  imputed  for  LEC  payphones.  443  Florida  PSC  supports 
 deregulating  payphones  because  needed  functionalities  are  available  either  from  the  set  or  the 
 network  and  because  deregulation  will  ensure  that  payphone  service  is  not  subsidized.  Florida 
 PSC  argues,  however,  that  smaller  LECs  should  be  given  a  choice  whether  to  deregulate  CPE, 
 because  separating  costs  is  burdensome.  444  Ameritech  contends  that  payphone  deregulation 
 should  apply  to  all  LECs,  not  just  incumbent  LECs,  because  Section  276  (b)(  1)(  B)  is  not  limited 
 in  applicability.  445 
 301. 
 302.  The  RBOCs  argue  that  there  should  be  a  twelve-  month  transition  period  to 
 nonregulated  status  for  payphone  CPE.  446  Others  argue  there  should  be  no  transition  period,  or  a 
 shorter  period  than  twelve  months,  for  example,  90  days  after  release  of  an  order.  447  BellSouth 
 argues  that  it  should  be  able  to  conduct  deregulated  operations  immediately  on  the  release  of  this 
 Report  and  Order.  448 
 303. 
 304.  GPCA  argues  that  a  separate  subsidiary  should  be  required  for  BOCs  that 
 merge.  449  Ohio  PUC  argues  that  Tier  1  LECs  should  provide  payphones  through  a  separate 
 subsidiary  if  payphone  equipment  is  deregulated.  450  Most  of  the  parties,  however,  do  not  argue 


 442  AT&  T  Comments  at  18;  USTA  Comments  at  5;  Ameritech  Comments  at  13;  NJPA  Comments  at  10; 
 SCPCA  Comments  at  2;  Sprint  Comments  at  25;  CPA  Comments  at  10-  11;  MCI  Comments  at  15;  RBOC 
 Comments  at  23;  GPCA  Comments  at  5  [Note:  with  regard  to  payphone  reclassification  and  nonstructural 
 safeguards,  APCC  relies  on  and  agrees  with  GPCA  comments.  See  APCC  Comments  at  41;  APCC  Reply  at  35]; 
 California  PUC  Comments  at  14;  USTA  Comments  at  5;  GTE  Reply  Comments  at  8-  10. 


 443  Ohio  PUC  Comments  at  9-  10  . 


 444  Florida  PSC  Comments  at  4-  5.  Florida  recommends  that  LECs  with  less  than  100,  000  access  lines  be 
 allowed  to  choose  whether  to  deregulate  CPE.  Id. 


 445  Ameritech  Comments  at  3-  4  . 


 446  RBOC  Comments  at  30. 
 447  International  Telecard  Comments  at  26-  27;  GPCA  Reply  at  15. 
 448  BellSouth  Reply  at  8. 
 449  GPCA  Comments  at  4. 
 450  Ohio  PUC  Comments  at  13. 
64
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 65 
 that  a  separate  subsidiary  is  required  451  and  Florida  PSC  argues  that  it  should  be  the  option  of  the 
 LEC.  452  The  RBOCs  argue  that  the  Commission's  accounting  safeguards  and  price  cap  rules  are 
 sufficient  to  deter  cross-  subsidization.  453  They  also  argue  that  a  separate  subsidiary  requirement 
 is  against  the  plain  language  of  the  1996  Act  and  that  such  a  requirement  was  dropped  from  the 
 Senate  version.  454  PacTel  argues  that  the  nonstructural  safeguards  of  Computer  III  were  expressly 
 mandated  by  Section  276.  455 
 305. 
 306.  ii.  Unbundling  of  Payphone  Services 
 307. 
 308.  The  RBOCs  and  PacTel  argue  that  the  Commission  should  not  require 
 more  unbundling  than  is  necessary  to  ensure  that  PSPs  and  LECs  are  able  to  use  the  same 
 payphones  --  standard  central-  office  coin  line  and  the  alternate  (smart  set)  access  line.  They 
 also  argue  that  the  unbundling  criteria  used  in  Computer  III  should  apply  to  any  further 
 unbundling.  456  California  PUC  and  GTE  state  that  access  line  and  central  office  transmission 
 services  should  be  tariffed.  457  Ameritech  states  that  it  will  offer  tariffed  coin  line  service, 
 centralized  office  based  coin  rating,  and  signaling  functionality,  or  payphone  line  (like  business 
 line).  458  GPCA  argues  that  coin  line  and  alternate  access  line  do  not  provide  all  the  needed 
 capabilities.  459  MCI  argues  that  the  BOCs  should  provide  all  functionalities  used  in  their  delivery 
 of  payphone  services  on  a  nondiscriminatory  basis,  including  coin  transmission  services  and 
 other  associated  services.  460 
 309. 
 310.  GVNW  argues  that  the  interconnection  rules  must  be  flexible  for  small 
 LECs  because  small  LECs  do  not  implement  payphone  services  in  the  same  way  as  do  the 
 BOCs,  and  that  small  LECs  should  only  have  to  provide  payphone  services  to  others  that  they 
 are  providing  to  themselves.  461  AT&  T  states  that  competitive  access  providers  (CAPs)  should  not 


 451  Florida  PSC  at  6;  NJPA  Comments  at  11-  12:  SW  Bell  Reply  at  5;  USTA  Comments  at  5;  PacTel  Reply 
 Comments  at  2-  5;  Sprint  Comments  at  25. 


 452  Florida  PSC  Comments  at  6. 


 453  RBOC  Reply  at  21-  23. 
 454  RBOC  Comments  at  40,  n.  53. 
 455  PacTel  Reply  at  2-  5. 
 456  PacTel  Reply  at  2-  5;  RBOC  Reply  at  21-  23. 
 457  California  PUC  Comments  at  14;  GTE  Reply  at  8-  10. 
 458  Ameritech  Comments  at  16-  17. 
 459  GPCA  Reply  at  3. 
 460  MCI  Comments  at  16. 
 461  GVNW  Comments  at  5-  7. 
65
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 66 
 have  to  offer  central  office  coin  service  unless  they  provide  payphone  service  themselves.  462 
 NCTA  and  OPASTCO  argue  that  LECs  should  not  have  to  provide  a  specific  set  of  payphone 
 services,  such  as  central  coin  services,  that  they  are  not  already  equipped  to  provide  because  of 
 the  significant  investment  required  to  upgrade  switches.  463  Florida  PSC  states  that  all  LECs  in 
 Florida  tariff  payphone  blocking,  screening,  and  intercept  services.  464 
 311. 
 312.  AT&  T  argues  that  LECs  should  be  required  to  offer  under  tariff  all 
 functions  used  in  their  delivery  of  payphone  services,  including:  all  central  office  intelligence, 
 answer  supervision,  collect  refund,  far  end  disconnect,  call  blocking  and  screening  options, 
 access  to  some  monitoring  and  disaggregation  routines,  and  911  services.  465  GPCA  argues  that 
 all  network  functions  must  be  unbundled  and  charges  should  be  imputed  for  inputs  from 
 regulated  services.  GPCA  also  argues  that  the  following  functions  should  be  unbundled:  answer 
 supervision,  the  intercept  signal  (indicating  that  the  call  cannot  be  completed  as  dialed),  coin 
 collect  and  return  functionality,  and  rate  schedule  functionality.  In  addition,  GPCA  asserts  that 
 these  functionalities  are  necessary  to  provide  fraud  protection  and  to  ensure  that  cross  subsidies 
 are  eliminated.  466  CPA  supports  GPCA's  recommended  list  of  functionalities.  467 
 313. 
 314.  AT&  T  contends  that  LECs  must  offer  public  access  line  services  for  resale 
 at  rates  that  reflect  the  economic  cost  of  providing  the  services  through  TSLRIC-  based  prices,  468 
 while  SW  Bell  argues  that  Section  252  pricing  should  not  apply  to  Section  276  payphones 
 services.  469  California  PUC  asserts  that  LECs  should  unbundle  and  provide  tariffed  payphone 
 services  and  that  new  services  should  be  justified  with  cost  studies.  470  CPA  argues  that  whatever 
 rates  are  established  for  payphone  services  should  be  imputed  to  the  LEC  payphone  operations.  471 
 The  RBOCs,  USTA  and  GTE  argue  that  unbundled  payphone  services  should  be  tariffed  at  the 
 state  level  and  therefore  not  subject  to  the  new  services  test  under  the  Commission's  rules.  472 
 315. 


 462  AT&  T  Comments  at  n.  37;  AT&  T  Reply  at  n.  71.  See  also  NCTA  Comments  at  5. 


 463  NCTA  Reply  at  4-  6;  OPASTCO  Reply  at  2-  3. 
 464  Florida  PSC  Comments  at  7. 
 465  AT&  T  Comments  at  19,  n.  36  &  at  22,  n.  42-  43. 
 466  GPCA  Reply  at  1-  7. 
 467  CPA  Reply  Comments  at  15-  16. 
 468  AT&  T  Comments  at  19,  n.  36. 
 469  SW  Bell  Reply  at  7. 
 470  California  PUC  Comments  at  16. 
 471  CPA  Reply  at  15-  16. 
 472  RBOC  Comments  at  25;  USTA  Reply  at  7;  GTE  Reply  at  9. 
66
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 67 
 316.  iii.  Other  Payphone  Services 
 317. 
 318.  GPCA  asserts  that  other  services  should  be  available  on  an  equal  access 
 basis,  including  fraud  protection,  special  number  assignments,  installation  and  maintenance, 
 billing  and  collection,  validation,  per  call  tracking,  and  joint  marketing.  GPCA  also  argues  that  if 
 operator  services  are  available  in  the  LEC  network,  and  commissions  are  paid  to  the  LEC,  the 
 commissions  should  be  available  to  independent  payphone  providers.  473  MCI  contends  that  fraud 
 protection,  installation  and  maintenance,  per-  call  tracking,  and  call  validation  services  should  be 
 available  to  independent  payphone  providers.  474  The  RBOCs  and  Sprint  argue  that  these 
 additional  services  are  not  necessary  for  PSPs  to  provide  service.  475 
 319. 
 320.  iv.  Registration  and  Demarcation  Point  for  Payphones 
 321. 
 322.  The  RBOCs,  MCI,  and  Oklahoma  CC  assert  that  Section  68.2(  a)(  1)  of  our 
 rules  should  be  amended  to  include  registration  of  both  instrument-  implemented  and  central-office- 
 implemented  payphones.  476  The  RBOCs  argue  that  the  embedded,  installed  base  should  be 
 grandfathered  but  new  sets  and  refurbished  sets  (with  added  functionality)  should  have  to  be 
 registered.  477  GPCA  does  not  oppose  grandfathering  the  installed  base  of  payphones  from  Part 
 68  registration,  but  argues  that  refurbished  payphones  should  not  be  grandfathered.  478  The 
 RBOCs  contend  that  standards  for  interconnection  should  be  established  by  revising  Section  68.3 
 of  our  rules  to  include  specifications  for  central-  office-  implemented  payphones.  479  Anchorage 
 Telephone  suggests  that  a  technical  committee  should  be  established  to  develop  interconnection 
 standards.  480 
 323. 
 324.  AT&  T,  MCI,  and  Sprint  contend  that  the  demarcation  point  for  LEC 
 payphones  should  be  the  same  as  it  is  today  for  independent  payphone  providers.  481  GPCA 
 argues  that  the  demarcation  point  should  be  applied  in  a  nondiscriminatory  manner  to  all 


 473  GPCA  Reply  at  7-  14. 
 474  MCI  Comments  at  15-  16.  MCI  contends  that  a  "cuckoo"  tone  (which  identifies  the  phone  to  an  operator  as 
 a  payphone)  should  be  available  for  fraud  protection,  rather  than  specialized  phone  numbers  used  for  LEC  phones 
 today.  Id.  at  16. 


 475  RBOC  Comments  at  25;  Sprint  Comments  at  26. 


 476  RBOC  Comments  at  26;  MCI  Comments  at  16;  Oklahoma  CC  Comments  at  3. 
 477  RBOC  Comments  at  26. 
 478  GPCA  Reply  at  7. 
 479  RBOC  Comments  at  26,  n.  28. 
 480  Anchorage  Telephone  Comments  at  1. 
 481  AT&  T  Comments  at  18  n.  34;  MCI  Comments  at  16;  Sprint  Comments  at  25-  26. 
67
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 68 
 payphones  and  that  LECs  should  be  required  to  set  demarcation  points  for  different  types  of  sites 
 if  the  points  will  vary.  GPCA  also  asserts  that  embedded  inside  wire  should  be  available  to  all 
 providers  on  an  equal  basis  and  that  the  demarcation  point  for  embedded  and  new  inside  wire 
 should  be  the  same.  482  The  RBOCs  argue  that  the  demarcation  point  should  be  treated  flexibly.  483 
 In  contrast,  CPA  argues  that  the  demarcation  point  should  not  be  flexible  and  should  be  at  the 
 minimum  point  of  entry.  484 
 325. 
 326.  c.  Discussion 
 327. 
 328.  i.  CPE  Deregulation 
 329.  330.  We  conclude  that  to  best  effectuate  the  1996  Act's  mandate  that  access 


 charge  payphone  service  elements  and  payphone  subsidies  from  basic  exchange  and  exchange 
 access  revenues  be  discontinued,  incumbent  LEC  payphones  should  be  treated  as  deregulated 
 and  detariffed  CPE.  The  Commission  determined  in  Computer  II  that  CPE  should  be 
 deregulated  and  detariffed  to  ensure  that  the  costs  associated  with  regulated  services  are 
 separated  from  the  competitive  provision  of  the  equipment  used  in  conjunction  with  those 
 services.  485  The  Commission  concluded  that  CPE  should  be  unbundled  from  its  underlying 
 transmission  service  in  order  to  prevent  improper  cross-  subsidization.  486  Consistent  with  this 
 prior  finding,  we  conclude  that  LEC  payphones  must  be  treated  as  unregulated,  detariffed  CPE  in 
 order  to  ensure  that  no  subsidies  are  provided  from  basic  exchange  and  exchange  access 
 revenues  or  access  charge  payphone  service  elements  as  required  by  the  Act. 
 331. 
 332.  In  Computer  II,  the  Commission  specifically  excluded  coin-  operated  payphones 
 from  the  definition  of  CPE.  487  The  Commission  found  that,  unlike  other  CPE,  which  could  be 
 unbundled  from  basic  exchange  service,  coin-  operated  payphones  were  still  integrated  with  the 
 LECs'  network  facilities  and  concluded  that  payphones  owned  by  LECs  and  AT&  T  should 
 remain  part  of  regulated  basic  communications  service.  488  The  Commission  later  extended  this 
 determination  to  LEC  coinless  payphones.  489  Thereafter,  the  Commission,  in  the  Coin 


 482  GPCA  Comments  at  7,  10-  11. 
 483  RBOC  Comments  at  27. 
 484  CPA  Comments  at  10-  11. 
 485  Amendment  of  Section  64.  702  of  the  Commission's  Rules  and  Regulations  (Second  Computer  Inquiry),  77 
 FCC  2d  384,  445  (1980)  (Computer  II),  modified  on  recon.,  84  FCC  2d  50  (1981),  modified  on  further  recon.,  88 
 FCC  2d  512  (1981),  aff'd  sub  nom.  Computer  and  Communications  Industry  Ass'n  v.  FCC,  693  F.  2d  198  (D.  C.  Cir. 
 1982),  cert  denied,  462  U.  S.  938  (1983). 


 486  Computer  II,  77  FCC  2d  at  466-  7,  474. 


 487  Id.  at  447,  n.  57. 
 488  Id. 
 489  Petition  for  Declaratory  Ruling  of  Tonka  Tools,  Inc.  and  Southern  Merchandise  Corp.  Regarding  American 
68
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 69 
 Registration  Order,  recognized  the  right  of  nonLEC  payphone  providers  to  interconnect  smart 
 payphones  to  the  interstate  public  switched  network.  490  Following  this  order  allowing  the 
 interconnection  of  smart  payphones,  independent  payphone  providers  began  to  compete  with  the 
 LECs.  Currently,  there  are  approximately  1.5  million  LEC  payphones  and  approximately 
 350,000  competitively  provided  payphones.  491  We  conclude  that  the  market  for  payphone  CPE  is 
 competitive  and  that  it  is  no  longer  necessary  to  treat  payphone  CPE  differently  by  integrating 
 LEC  payphones  with  the  underlying  service.  Moreover,  we  conclude  that  the  transient  public 
 that  uses  payphones  will  best  be  served  by  the  wide  availability  of  competitive  payphones 
 services.  We  also  conclude  that  it  is  not  in  the  public  interest  to  continue  to  treat  LEC  payphones 
 as  regulated  equipment,  while  treating  independent  payphones  as  CPE,  and  that  deregulation  of 
 payphones  is  consistent  with  the  procompetitive  approach  set  forth  in  Section  276.  492  We  have 
 recently  deregulated  inmate  payphones  493  and  most  of  the  parties  in  this  proceeding  agree  that 
 incumbent  LEC  payphones  should  also  be  deregulated  and  detariffed.  494  Accordingly,  we 
 conclude  that  incumbent  LEC  payphones  must  be  deregulated,  detariffed  and  classified  as  CPE 
 for  regulatory  purposes.  495 
 333.  We  decline  to  limit  the  deregulation  of  payphones  to  those  owned  by 
 larger  LECs,  as  suggested  by  the  Florida  PSC,  because  Section  276  is  not  limited  in  application 
 to  larger  LECs.  Moreover,  we  conclude  that  the  benefits  we  have  observed  in  CPE  deregulation 
 apply  to  payphones  and  that  these  benefits  apply  regardless  of  the  size  of  the  LEC. 
 334. 
 335.  We  decline  to  require  the  BOCs  or  other  incumbent  LECs  to  provide  their 
 payphone  CPE  through  a  structurally  separated  affiliate.  496  We  discuss  below  the  nonstructural 


 Telephone  and  Telegraph  Company  Provision  of  Coinless  Pay  Telephones,  58  RR2d  903,  910  (1985)  (Tonka 
 Tools). 


 490  See  Registration  of  Coin  Operated  Telephones,  Memorandum  Opinion  and  Order,  49  Fed.  Reg.  27763 
 (1984)  (Coin  Registration  Order). 


 491  See  para.  9,  above. 


 492  47  U.  S.  C.    276(  b)(  1) 
 493  Petition  for  Declaratory  Ruling  by  the  Inmate  Calling  Services  Providers  Task  Force,  Declaratory  Ruling, 
 11  FCC  Rcd  7362  (1996)  (Inmate  Services  Order);  Petitions  for  Waiver  and  Partial  Reconsideration  or  Stay  of 
 Inmate-  Only  Payphones  Declaratory  Ruling,  Order,  11  FCC  Rcd  8013  (Com.  Car.  Bur.  1996)(  Inmate  Services 
 Waiver  Order). 


 494  We  discuss  at  paras.  159,  below,  the  equipment  to  be  deregulated  and  detariffed  and  the  method  of 
 valuation. 


 495  See  also  para.  190,  below,  regarding  AT&  T  payphones.  Section  255  of  the  1996  Act  requires 
 manufacturers  of  telecommunications  equipment  and  CPE,  and  telecommunications  service  providers,  to  ensure  that 
 their  equipment  and  services  are  accessible  to  persons  with  disabilities,  if  readily  achievable.  47  U.  S.  C.    255(  b)  -( 
 c).  If  such  access  is  not  readily  achievable,  the  manufacturer  or  service  provider  must  ensure  that  the  equipment  or 
 service  is  compatible  with  existing  peripheral  devices  or  specialized  CPE  commonly  used  by  persons  with 
 disabilities,  if  readily  achievable.  47  U.  S.  C.    255(  d).  The  implementation  of  Section  255  will  be  addressed  in  a 
 separate  proceeding. 


 496  See  paras.  192-  207,  below,  for  a  discussion  of  the  statutory  mandate  that  we  "prescribe  a  set  of 
69
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 70 
 safeguards  we  require  for  BOCs  to  provide  payphone  CPE  on  an  integrated  basis  and  decline  to 
 require,  as  proposed  by  some  commenters,  that  other  incumbent  LECs  be  required  to  provide 
 CPE  through  structurally  separate  affiliates.  Section  276  does  not  require  LEC  or  BOC 
 provision  of  payphone  service  through  a  separate  subsidiary.  Although  the  1996  Act  does  not 
 specifically  prohibit  the  Commission  from  imposing  a  separation  requirement,  it  requires  the 
 establishment  of  nonstructural  safeguards  for  the  BOCs,  a  clear  statement  that  nonstructural 
 safeguards,  rather  than  structural  separation,  are  mandated.  497  Moreover,  Section  276  does  not 
 require  even  nonstructural  safeguards  for  other  LECs.  Other  sections  of  the  1996  Act,  including 
 Section  272,  BOC  provision  of  interLATA  services,  and  Section  274,  BOC  provision  of 
 electronic  publishing,  specifically  require  structural  separation.  In  addition,  in  the  BOC  CPE 
 Relief  Order  we  removed  the  structural  separation  requirements  established  in  Computer  II  for 
 BOC  provision  of  CPE  because  we  concluded  that  nonstructural  safeguards  were  sufficient  to 
 deter  cross-  subsidization  and  discrimination  and  the  high  costs  of  mandatory  structural 
 separation  were  not  in  the  public  interest.  498  This  conclusion  is  also  applicable  in  the  context  of 
 BOC  provision  of  payphone  CPE.  We  also  note  that  the  Computer  II  structural  separation 
 requirements  were  not  applied  to  the  provision  of  CPE  by  other  LECs.  499  Finally,  we  note  that 
 nonstructural  accounting  safeguards  applicable  to  the  BOCs'  provision  of  payphone  service  are 
 being  established  in  a  separate  proceeding.  500  Accordingly,  we  do  not  impose  structural 
 separation  requirements  for  the  provision  of  payphones  by  the  BOCs  or  other  LECs.  As  we  did 
 in  the  BOC  CPE  Relief  Order,  we  preempt  states'  ability  to  impose  structural  separation 
 requirements  on  the  payphone  operations  of  the  BOCs  or  other  LECs.  501  We  do  not,  however, 
 preempt  the  states  from  imposing  on  nonBOC  LECs  nonstructural  safeguards  that  are  no  more 
 stringent  than  those  we  impose  on  the  BOCs. 
 336. 
 337.  ii.  Unbundling  of  Payphone  Services  338. 


 339.  We  conclude,  pursuant  to  Computer  II,  Section  201,  202,  and  276  of  the 
 Act,  and  previous  CPE  decisions,  that  incumbent  LECs  must  offer  individual  central  office  coin 
 transmission  services  to  PSPs  under  nondiscriminatory,  public,  tariffed  offerings  if  the  LECs 


 nonstructural  safeguards  for  [BOC]  payphone  service  ...  which  safeguards  shall,  at  a  minimum,  include  the 
 nonstructural  safeguards  equal  to  those  adopted  in  the  Computer  Inquiry-  III  ...  proceeding."  47  U.  S.  C.   
 276(  b)(  1)(  C). 


 497  See  47  U.  S.  C.    276(  b)(  1)(  C). 


 498  Furnishing  of  Customer  Premises  Equipment  by  the  Bell  Operating  Telephone  Companies  and  the 
 Independent  Telephone  Companies,  2  FCC  Rcd  143  (1987)(  BOC  CPE  Relief  Order). 


 499  See  Computer  II,  77  FCC  2d  at  469-  70.  Structural  separation  requirements  initially  imposed  on  GTE  were 
 removed  on  reconsideration.  See  84  FCC  2d  at  72-  75. 


 500  See  Implementation  of  the  Telecommunications  Act  of  1996:  Accounting  Safeguards  under  the 
 Telecommunications  Act  of  1996,  Notice  of  Proposed  Rulemaking,  11  FCC  Rcd  9054  (1996)  ("  Accounting 
 Safeguards  NPRM"). 


 501  BOC  CPE  Relief  Order,  2  FCC  Rcd  at  143.  See  47  U.  S.  C.    276(  c). 
70
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 71 
 provide  those  services  for  their  own  operations.  502  Under  Computer  II,  all  carriers  must  unbundle 
 basic  transmission  services  from  CPE.  503  Moreover,  Section  202  of  the  Act  prohibits  a  carrier 
 from  discriminating  unreasonably  in  its  provision  of  basic  service.  504  We  conclude  that 
 incumbent  LECs  must  provide  coin  service  so  competitive  payphone  providers  can  offer 
 payphone  services  using  either  instrument-  implemented  "smart  payphones"  or  "dumb" 
 payphones  that  utilize  central  office  coin  services,  or  some  combination  of  the  two  in  a  manner 
 similar  to  the  LECs.  Because  the  incumbent  LECs  have  used  central  office  coin  services  in  the 
 past,  but  have  not  made  these  services  available  to  independent  payphone  providers  for  use  in 
 their  provision  of  payphone  services,  we  require  that  incumbent  LEC  provision  of  coin 
 transmission  services  on  an  unbundled  basis  be  treated  as  a  new  service  under  the  Commission's 
 price  cap  rules.  Because  incumbent  LECs  may  have  an  incentive  to  charge  their  competitors 
 unreasonably  high  prices  for  these  services,  we  conclude  that  the  new  services  test  is  necessary 
 to  ensure  that  central  office  coin  services  are  priced  reasonably.  Incumbent  LECs  not  currently 
 subject  to  price  cap  regulation  must  submit  cost  support  for  their  central  office  coin  services, 
 pursuant  to  Sections  61.38,  61.39,  or  61.50(  i)  of  the  Commission's  rules.  505  Incumbent  LECs 
 must  file  tariffs  with  the  Commission  for  these  services  no  later  than  January  15,  1997.  To  the 
 extent  that  this  requirement  precludes  the  BOCs  from  complying  with  the  Computer  II, 
 Computer  III,  and  ONA  network  information  disclosure  requirements,  we  waive  the  notice 
 period  in  order  to  ensure  that  these  services  are  provided  on  a  timely  basis  consistent  with  the 
 other  deregulatory  requirements  of  this  order.  506  Pursuant  to  this  waiver,  network  information 
 disclosure  on  the  basic  network  payphone  services  must  be  made  by  the  BOCs  by  January  15, 
 1997. 
 340. 
 341.  We  conclude  that  tariffs  for  payphone  services  must  be  filed  with  the 
 Commission  as  part  of  the  LECs'  access  services  to  ensure  that  the  services  are  reasonably  priced 
 and  do  not  include  subsidies.  507  This  requirement  is  consistent  with  the  Section  276  prescription 


 502  Computer  II,  77  FCC  2d  at  387-  9;  47  U.  S.  C.    201,  202,  and  276;  BOC  CPE  Relief  Order,  2  FCC  Rcd  at 
 143. 


 503  See  47  C.  F.  R.    64.  702(  e). 


 504  See  47  U.  S.  C.    202(  a). 
 505  47  C.  F.  R.      61.38,  61.  39,  61.  50(  i). 
 506  Network  disclosure  requirements  are  discussed  in  Computer  II,  2  FCC  Rcd  at  150-  151;  3  FCC  at  23-  24; 
 and  Computer  III  at  3  FCC  Rcd  at  1164-  65.  The  Commission  may  waive  a  rule  for  good  cause  shown,  in  whole  or 
 in  part,  on  the  Commission's  own  motion  or  petition.  47  C.  F.  R.    1.3.  Regarding  the  waiver  standard,  see  Wait 
 Radio  v.  Federal  Communications  Commission,  418  F.  2d  1153  (D.  C.  Cir.  1969);  Northeast  Cellular  Telephone  Co. 
 v.  Federal  Communications  Commission,  897  F.  2d  1164  (D.  C.  Cir.  1990).  See  also  Inmate  Services  Waiver  Order 
 11  FCC  Rcd  at  8013  (granting  a  waiver  of  the  network  disclosure  notice  period  to  enable  the  provision  of  payphone 
 services  for  inmate  payphones  before  the  required  notice  period). 


 507  BOCs  have  filed  payphone  service  tariffs  with  the  Commission.  See  e.  g.,  US  West  Communications, 
 Tariff  FCC  No.  5,  Pay  Telephone  Sent-  Paid  Services,  August  5,  1994;  BellSouth  Communications  Inc.,  Tariff 
 F.  C.  C.  No.  1,  Access  Service,  Coin  Services,  January  31,  1992.  See  47  U.  S.  C.    276(  c)  and    201-  205  regarding 
 authority  to  require  tariffing  of  basic  payphone  services. 
71
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 72 
 that  all  subsidies  be  removed  from  payphone  operations.  We  decline  to  require,  as  proposed  by 
 AT&  T,  that  the  pricing  regime  under  Sections  251  and  252  apply  to  all  Section  276  payphone 
 services  offered  by  incumbent  LECs.  Section  276  does  not  refer  to  or  require  the  application  of 
 Sections  251  and  252  to  LEC  payphone  services.  In  addition,  the  elements  and  services  to  be 
 offered  under  Sections  251  and  252  are  not  available  to  entities  that  are  not  telecommunications 
 carriers,  and  many  PSPs  are  not  telecommunications  carriers.  508  In  addition,  Section  276  does 
 not  refer  to  or  require  the  application  of  Sections  251  and  252  to  LEC  payphone  services. 
 Moreover,  Section  276  specifically  refers  to  the  application  of  Computer  III  and  ONA 
 requirements,  at  a  minimum  for  BOC  provision  of  payphone  services.  Accordingly,  we  conclude 
 that  Computer  III  tariff  procedures  and  pricing  are  more  appropriate  for  basic  payphone  services 
 provided  by  LECs  to  other  payphone  providers.  Pursuant  to  Section  276(  c),  any  inconsistent 
 state  requirements  with  regard  to  this  matter  are  preempted. 
 342. 
 343.  Parties  argue  that  several  other  network  services  and  network  elements 
 should  be  unbundled  and  provided  to  payphone  providers.  We  decline  to  impose  this 
 requirement  on  all  LECs.  We  do  not  find  that  such  unbundling  is  necessary  to  provide  payphone 
 services.  In  addition,  some  features  require  substantial  costs  to  make  switch  changes.  509 
 Moreover,  pursuant  to  Computer  III  and  ONA  requirements  discussed  below,  BOCs  must 
 unbundle  additional  network  elements  when  requested  by  payphone  providers  based  on  specific 
 criteria  established  in  the  Computer  III  and  ONA  proceedings.  In  Computer  III,  we  decided  that 
 it  was  not  necessary  to  apply  this  requirement  to  other  LECs,  and  we  similarly  conclude  that  it  is 
 not  necessary  to  direct  other  LECs  to  unbundle  additional  services  or  unbundled  elements  in  this 
 proceeding  because  additional  services  are  not  necessary  to  provide  payphone  services  and 
 because  other  LECs  do  not  represent  the  same  control  of  payphone  facilities  as  the  BOCs.  510  We 
 note,  however,  that  any  basic  transmission  services  provided  by  a  LEC  to  its  own  payphone 
 operations  must  be  available  under  tariff  to  other  payphone  providers  pursuant  to  Computer  II.  511 
 States  may  impose  further  payphone  service  unbundling  requirements  that  are  not  inconsistent 
 with  Section  276  requirements  and  requirements  established  herein.  512 
 344. 
 345.  iii.  Other  LEC  Payphone  Services  346. 


 508  See  Local  Competition  Order  at  para.  876  (holding  that  the  services  that  incumbent  LECs  offer  to  PSPs  are 
 retail  services  provided  to  end  users,  and  should  be  available  at  wholesale  rates  to  telecommunications  carriers  and 
 Section  251(  c)(  4),  but  need  not  be  made  available  at  wholesale  rates  to  independent  PSPs  that  are  not 
 telecommunications  carriers). 


 509  See  ex  parte,  Michael  K.  Kellogg  to  William  F.  Caton,  Secretary,  FCC,  September  6,  1996  at  3;  GVNW 
 Comments  at  5-  7. 


 510  See  Computer  III  Phase  II  Order  at  3101.  For  example,  Congress  did  not  require  that  Computer  III 
 safeguards,  at  a  minimum  be  applied  to  other  LECs.  See  47  U.  S.  C.    276(  b)(  1)(  C).  Under  Section  251,  LECs  must 
 provide  nondiscriminatory  access  to  unbundled  network  elements  to  certain  carriers.  See  Local  Competition  Order. 


 511  Computer  II,  77  FCC  2d  at  387-  9;  47  C.  F.  R.  64.  702. 


 512  See  para.  145,  above. 
72
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 73 
 347.  We  conclude  that  incumbent  LECs  should  provide  certain  other  services  to 
 other  payphone  providers  if  they  provide  those  services  to  their  own  payphone  operations.  These 
 services  must  be  made  available  by  the  LEC  or  its  affiliate  to  other  payphone  providers  on  a 
 comparable  basis  in  order  to  ensure  that  other  payphone  providers  do  not  receive  discriminatory 
 service  from  the  LECs  once  LEC  payphones  are  deregulated,  and  to  ensure  that  other  payphone 
 providers  can  compete  with  LEC  payphone  operations.  Specifically,  parties  have  indicated  the 
 need  for  the  following  services  to  enable  them  to  compete  effectively  for  the  provision  of 
 payphones:  fraud  protection,  special  number  assignments,  installation  and  maintenance,  billing 
 and  collection,  validation,  per-  call  tracking,  and  joint  marketing.  We  have  already  addressed 
 above  the  per-  call  tracking  requirements.  We  conclude  that  fraud  protection,  special  numbering 
 assignments,  and  installation  and  maintenance  of  basic  payphone  services  should  be  available  to 
 other  providers  of  payphone  services  on  a  nondiscriminatory  basis.  Validation  services  are 
 required  by  another  proceeding.  513  We  do  not  require  the  incumbent  LECs  to  joint  market  the 
 payphone  operations  of  other  providers.  We  have  concluded  that  the  market  for  payphone  CPE 
 is  competitive  and  LECs  do  not  have  any  specific  advantage  in  marketing  payphone  services  in  a 
 deregulated  payphone  market.  LEC  personnel  or  affiliates  will  have  to  market  to  payphone 
 location  providers  in  the  same  manner  as  other  payphone  providers  to  obtain  payphone  locations. 
 Regarding  billing  and  collection  services,  we  conclude  that  if  a  LEC  provides  basic,  tariffed 
 payphone  services  that  will  only  function  in  conjunction  with  billing  and  collection  services  from 
 the  LEC,  the  LEC  must  provide  the  billing  and  collection  services  it  provides  to  its  own 
 payphone  operations  for  these  services  to  independent  payphone  providers  on  a 
 nondiscriminatory  basis.  514  We  expect  this  requirement  to  apply,  for  example,  in  situations 
 where  coin  services  require  the  LEC  to  monitor  coin  deposits  and  such  information  is  not 
 otherwise  available  to  third  parties  for  billing  and  collection.  We  adopt  this  requirement  to 
 ensure  that  when  a  LEC  has  structured  its  payphone  services  in  a  way  that  they  could  not  operate 
 without  the  LECs  billing  and  collection  services,  those  services  will  be  available  to  other 
 payphone  providers  on  the  same  basis  they  are  available  to  the  LEC. 
 348. 
 349.  iv.  Registration  and  Demarcation  Point  for  Payphones  350. 


 351.  We  amend  our  Part  68  rules  to  provide  for  the  registration  of  central-office- 
 implemented  coin  payphones  to  enable  independent  payphone  providers  as  well  as  the 
 LECs  to  utilize  "dumb"  payphones.  Under  the  Coin  Registration  Order  and  current  Part  68  rules, 
 only  instrument-  implemented  payphones  can  be  registered  for  connection  to  the  network.  515 
 Amending  our  rules  enables  independent  payphone  providers  to  have  the  same  choices  as  LECs 
 in  providing  payphone  services.  Parties  did  not  object  to  proposed  Part  68  changes  in  the  Notice. 
 Accordingly,  we  adopt  amendments  to  Section  68.2(  a)(  1)  and  Section  68.3  of  the  Commission's 


 513  See  Policies  and  Rules  Concerning  Local  Exchange  Carrier  Validation  and  Billing  Information  for  Joint 
 Use  Calling  Cards,  Report  and  Order  and  Request  for  Supplemental  Comment,  CC  Docket  91-  115,  7  FCC  Rcd  3528 
 (1992);  Second  Report  and  Order,  8  FCC  Rcd  4478  (1993). 


 514  See  note  634,  below,  Computer  III  proceeding,  regarding  authority  over  nonregulated  activities  like  billing 
 and  collection  and  enhanced  services. 


 515  See  Coin  Registration  Order,  note  490,  above. 
73
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 74 
 rules  to  facilitate  registration  of  both  instrument-  implemented  and  central-  office-  implemented 
 payphones.  Consistent  with  the  Commission's  prior  practice  with  regard  to  existing  CPE,  in 
 order  to  avoid  unnecessary  costs,  and  because  these  existing  phones  do  not  present  potential 
 harm  to  the  network,  we  grandfather  existing  LEC  payphones  from  the  our  revised  Part  68 
 requirements,  unless  the  basic  functionality  in  the  payphones  is  changed.  516  We  require 
 incumbent  LECs  to  submit  proposed  interconnection  requirements  to  effectuate  such 
 interconnection  within  90  days  of  the  effective  date  of  this  order.  The  California  Payphone 
 Association  (CPA)  filed  before  the  Commission  a  Petition  for  Rule  Making  requesting  that 
 Section  68.  2(  a)(  1)  of  the  rules  be  amended  to  allow  for  the  registration  of  all  coin-  operated 
 telephones  and  that  the  Commission  re-  examine  and  clarify  its  interpretation  of  Section 
 68.2(  a)(  1).  We  note  that  our  decision  herein  addresses  the  relief  requested  in  the  CPA  petition. 
 Our  Report  and  Order  also  effectively  grants  a  petition  filed  by  the  Public  Telephone  Council  to 
 treat  payphones  as  CPE,  517  and  resolves  the  issues  raised  in  RM  8723  regarding  exclusion  of 
 public  payphones  from  end  user  access  charges. 
 352. 


 516  The  Commission  has  previously  exempted  existing  CPE  from  Part  68  registration  requirements.  See  47 
 C.  F.  R.(  b)-(  h). 


 517  3  FCC  Rcd  4779  (1988);  4  FCC  Rcd  737  (1989). 
74
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 75 
 353.  Consistent  with  our  objective  of  treating  incumbent  LEC  and  independent 
 payphone  providers'  payphones  in  a  similar  manner,  we  conclude  that  the  demarcation  point 
 must  be  the  same  as  incumbent  LECs  use  for  independent  payphone  providers  today. 
 Accordingly,  the  demarcation  for  all  new  LEC  payphones  must  be  consistent  with  the  minimum 
 point  of  entry,  demarcation  point  standards  for  other  wireline  services.  1  The  Commission  has 
 previously  allowed  equipment  reclassified  as  CPE,  resulting  in  a  change  in  the  demarcation 
 point,  to  remain  in  the  same  location  because  of  the  costs  involved  in  relocating  the  equipment.  2 
 Accordingly,  we  grandfather  the  location  of  all  existing  LEC  payphones  in  place  on  the  effective 
 date  of  this  order  because  of  the  difficulty  and  cost  of  moving  these  payphones  to  meet  our  new 
 demarcation  point  requirements.  Similarly,  we  do  not  require  that  network  interfaces  be  placed 
 for  existing  LEC  payphones  unless  these  payphones  are  substantially  refurbished,  for  example, 
 upgraded  from  dumb  to  smart  payphones  or  replaced. 
 354. 
 355.  2.  Reclassification  or  Transfer  of  Payphone  Equipment  to  Nonregulated  Status 
 356. 
 357.  a.  The  Notice 
 358. 
 359.  In  the  Notice,  we  sought  comment  on  the  specific  assets  to  be  transferred, 
 and  tentatively  concluded  that  the  assets  to  be  transferred  should  be  defined  generally  in  terms  of 
 CPE  deregulation.  3  Thus,  we  tentatively  concluded  that  the  assets  to  be  transferred  may  include 
 all  facilities  related  to  payphone  service,  including  associated  deferred  income  tax  reserves  and 
 depreciation,  but  likely  would  not  include  the  loops  connecting  the  payphones  to  the  network,  or 
 the  central  office  "coin-  service"  or  operator-  service  facilities  supporting  incumbent  LEC 
 payphones.  4  We  proposed  to  transfer  the  payphone  equipment  at  undepreciated  baseline  cost 
 plus  an  interest  charge  based  on  the  authorized  interstate  rate  of  return  to  reflect  the  time  value  of 
 money.  5  We  also  tentatively  concluded  that  a  phase-  in  period  for  a  transfer  of  payphone-  related 
 assets  is  not  necessary,  because  payphone  terminal  equipment  consists  of  less  than  one  percent  of 
 total  plant  investment  for  the  entire  LEC  industry.  6  In  the  Notice,  we  also  sought  comment  on 
 whether  our  approach  to  asset  transfer  is  consistent  with  the  1996  Act's  definition  of  "payphone 
 service"  as  the  "provision  of  public  or  semi-  public  pay  telephones,  the  provision  of  inmate 
 telephone  service  in  correctional  institutions,  and  any  ancillary  services."  7 


 1  47  C.  F.  R.    68.  3. 


 2  Id. 
 3  Notice  at  para.  49. 
 4  Id. 
 5  By  baseline  cost,  we  mean  either  the  depreciated  original  cost  at  the  time  of  the  initial  assignment  or 
 allocation  of  existing  plant  or  the  original  cost  of  subsequently  acquired  new  plant.  Id. 


 6  Notice  at  para.  49. 


 7  Id. 
75
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 76 
 360. 
 361.  b.  Comments 
 362. 
 363.  Both  USTA  and  MCI  indicate  that  all  public  telephone  terminal 
 equipment,  including  associated  assets  and  depreciation,  should  be  transferred,  but  not  loops  or 
 central  office  coin-  service  or  operator-  service  facilities.  8  GVNW  argues  that  the  assets  to  be 
 transferred  should  include  investment,  depreciation,  maintenance  and  overhead.  9  Florida  PSC 
 asserts  that  loops  and  central  office  features  should  not  be  deregulated  so  that  they  will  be 
 available  to  all.  10  GTE  argues  that  only  pay  station  investment  should  be  transferred.  11  The 
 RBOCs  list  the  assets  that  should  be  transferred  to  include:  payphones,  enclosures,  pedestals, 
 coin  counting  machines,  vehicles,  land,  and  buildings  used  solely  for  payphone  services.  12 
 364. 
 365.  GPCA  argues  that  location  contracts  associated  with  payphones  should  be 
 assigned  an  economic  value  to  recover  ratepayer  equity  and  achieve  competitive  equity.  GPCA 
 contends  that  the  Commission  can  use  present  value,  appraisals,  or  auctions  to  value  the 
 contracts.  13  Peoples  also  argues  that  the  contracts  should  be  valued,  noting  that  it  had  valued  the 
 location  contracts  and  goodwill  at  approximately  70  percent  in  a  recent  purchase  of  payphone 
 assets.  14  SDPOA  argues  that  the  name  brand  associated  with  LEC  payphones  should  also  be 
 valued  in  the  transfer  of  assets.  15  CPA  asserts  that  LEC  payphone  assets  should  be  valued  at  a 
 going  concern  value  and  that  a  transfer  at  net  book  value  would  give  the  LECs  a  competitive 
 advantage.  16  Brill  argues  that  BOCs  should  not  be  allowed  financial  and  accounting  advantages, 
 and  cites  other  competitive  advantages  that,  it  states,  the  BOCs  have  in  some  jurisdictions.  17 
 366. 
 367.  Ameritech  and  USTA  argue  that  the  accounting  treatment  for  transferred 
 assets  should  be  governed  by  Section  32.27(  c)  of  our  rules  regarding  transactions  with 


 8  USTA  Comments  at  6;  MCI  Comments  at  15-  16. 
 9  GVNW  Comments  at  8. 
 10  Florida  PSC  Comments  at  6. 
 11  GTE  Reply  at  8-  10. 
 12  RBOC  Comments  at  30. 
 13  GPCA  Comments  at  15-  16;  GPCA  Reply  at  13-  14;  See  also  CPA  Reply  at  12;  SCPCA  at  6-  7. 
 14  Peoples  Reply  at  20-  21. 
 15  SDPOA  Reply  at  3. 
 16  CPA  Reply  at  12-  15. 
 17  Brill  Comments  at  4. 
76
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 77 
 affiliates.  18  USTA  argues  that  there  is  no  need  to  alter  our  Part  64  rules  to  create  cost  pools  or  to 
 change  current  accounting  practices.  19  Ameritech  states  that  Section  32.27(  c)  requires  that  assets 
 be  transferred  at  the  higher  of  estimated  fair  market  value  or  net  book  value  and  that  the  cost 
 allocation  manual  process  provides  the  mechanism  for  making  the  asset  transfer.  20  The  RBOCs 
 argue  that  the  payphone  assets  should  be  valued  at  net  book  value,  as  the  Commission  has  done 
 in  the  past  including  the  recent  Inmate  Services  Order,  21  and  that  the  Commission  should  require 
 LECs  to  transfer  only  those  assets  in  their  existing  regulated  accounts.  22  They  assert  that  location 
 contracts  are  not  in  their  regulated  accounts  and  are  intangibles  that  have  never  been  recognized 
 in  Commission  rate  proceedings.  23  The  RBOCs  also  argue  that  establishing  market  value  for 
 payphone  assets  would  be  costly  and  cause  delays.  24  AT&  T  asserts  that  payphone  assets  should 
 be  valued  at  net  book  value  in  accordance  with  the  Commission's  existing  rules.  25 
 368. 
 369.  The  RBOCs  contend  that  the  asset  transfer  should  occur  within  12 
 months.  26  GPCA  opposes  a  delay  of  up  to  12  months  for  asset  transfers  and  elimination  of  access 
 charge  elements  and  subsidies,  and  argues  that  these  requirements  must  be  completed  by 
 November  8,  1996.  27  GPCA  recommends  that  the  Commission  implement  requirements  no  later 
 than  90  days  after  release  of  this  Report  and  Order.  28  Ameritech  argues  that  there  is  no  need  for  a 
 phase-  in  period.  29  MCI  does  not  object  to  up  to  12  months  for  transition,  but  argues  that  the 
 Commission  should  set  a  specific  date.  30  USTA  contends  that  the  deregulation  should  be  flash 


 18  Ameritech  Comments  at  14;  USTA  Reply  at  7-  8. 


 19  USTA  Comments  at  5. 
 20  Ameritech  Comments  at  13-  14. 
 21  See  note  493,  above. 
 22  RBOC  Reply  at  19-  21.  See  also  SW  Bell  Reply  at  4-  6.  The  RBOCs  assert  that  in  the  Inmate  Services 
 proceeding,  only  payphones  were  transferred  and  they  were  recorded  at  net  book  value  in  Account  32.  2351,  Public 
 Telephone  Equipment.  The  RBOCs  also  note,  however,  that  land  and  buildings  are  transferred  at  appraised  value. 
 RBOC  Comments  at  n.  28. 


 23  RBOC  Comments  at  28  &  Attachment,  Anderson  Report  at  20. 


 24  RBOC  Comments  at  28. 
 25  AT&  T  Reply  at  26-  28. 
 26  RBOC  Comments  at  30. 
 27  GPCA  Reply  at  15-  17. 
 28  Id. 
 29  Ameritech  Comments  at  14. 
 30  MCI  Reply  at  9. 
77
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 78 
 cut  in  order  to  eliminate  subsidies.  31 
 370. 
 371.  c.  Discussion  372. 


 373.  As  an  initial  matter,  we  have  already  determined  that  neither  Section  276 
 nor  our  past  experience  requires  the  BOCs'  competitive  provision  of  payphone  services  to  take 
 place  on  a  prospective  basis  through  the  use  of  structurally  separate  affiliates.  32  Instead,  in  this 
 Report  and  Order,  we  require  that,  if  a  BOC  does  not  provide  payphone  services  through  a 
 separate  affiliate,  it  must  provide  these  payphone  services  using  nonstructural  safeguards  as 
 described  in  our  Computer  III  Orders  and  ONA  proceedings  and  consistent  with  Section  276, 
 because  we  conclude  that,  in  the  absence  of  structural  separation,  our  nonstructural  safeguards 
 provide  sufficient  protection  against  the  possibility  of  cross-  subsidization  of  nonregulated 
 activities.  33  Those  nonstructural  safeguards  include  the  cost  allocation  rules  and  affiliate 
 transactions  rules  adopted  in  the  Joint  Cost  Order.  34  Under  those  rules,  the  BOCs  and  other 
 incumbent  LECs  must  classify  each  of  their  activities  as  regulated  or  nonregulated  in  accordance 
 with  our  requirements.  35  We  now  require  that  the  BOCs  and  other  incumbent  LECs,  subject  to 
 our  joint  cost  rules,  classify  their  payphone  operations  as  nonregulated  for  our  Part  32  accounting 
 purposes.  We  note,  however,  that  the  BOCs  or  other  incumbent  LECs  are  free  to  provide  these 
 services  using  structurally  separate  affiliates  if  they  choose  to  do  so.  36  Therefore,  our  discussion 
 below  will  address  two  possible  approaches  a  carrier  may  take  in  reclassifying  its  payphone 
 activities  as  nonregulated:  (1)  a  carrier  may  maintain  its  payphone  assets  on  the  carrier's  books 
 but  treat  the  assets  as  nonregulated,  or  (2)  a  carrier  may  transfer  its  payphone  assets  to  a  separate 
 affiliate  engaged  in  nonregulated  activities. 
 374. 
 375.  In  the  Notice,  we  sought  comment  on  three  primary  aspects  of  the 
 reclassification  of  payphone  assets  from  regulated  to  nonregulated  status.  We  solicited  comment 
 on  the  proper  accounting  treatment  for  the  reclassification  or  transfer  of  the  payphone  assets 
 from  a  regulated  activity  to  a  nonregulated  activity.  We  also  sought  comments  on  the  specific 
 assets  to  be  reclassified  or  transferred.  37  We  tentatively  concluded  that  the  assets  to  be 


 31  USTA  Comments  at  8. 


 32  See  para  145,  above. 
 33  See  paras.  199-  207,  below. 
 34  See  Separation  of  Costs  of  Regulated  Telephone  Service  From  Costs  of  Nonregulated  Activities,  2  FCC 
 Rcd  1298  (1987)  (Joint  Cost  Order),  recon.,  2  FCC  Rcd  6283  (1987)  (Joint  Cost  Reconsideration  Order),  further 
 recon.,  3  FCC  Rcd  6701  (1988),  aff'd  sub  nom.,  Southwestern  Bell  Corp.  v.  FCC,  896  F.  2d  1378  (D.  C.  Cir.  1990). 


 35  47  C.  F.  R.    32.  23(  a). 


 36  In  the  Accounting  Safeguards  NPRM,  we  sought  comment  on  what  rules  should  apply  to  transactions 
 between  a  LEC  and  a  separate  payphone  affiliate.  Id.  at  para.  118. 


 37  Notice  at  para.  49. 
78
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 79 
 transferred  should  be  defined  generally  in  terms  of  CPE  deregulation  and  that  this  would  include 
 all  facilities  related  to  payphone  service,  including  associated  depreciation  and  deferred  income 
 taxes,  but  likely  would  not  include  the  loops  connecting  the  payphones  to  the  network,  the 
 central  office  "coin-  service,"  or  operator  service  facilities  supporting  incumbent  LEC 
 payphones.  38  We  next  tentatively  concluded  that  a  phase-  in  period  was  not  necessary  for  the 
 reclassification  or  transfer  of  the  payphone  assets  to  nonregulated  status  and  sought  comment  on 
 this  tentative  conclusion.  39  We  address  these  questions  and  tentative  conclusions  in  the  sections 
 that  follow. 
 376. 
 377.  i.  Specific  Assets  Reclassified  or  Transferred 
 378. 
 379.  We  adopt  our  tentative  conclusion,  supported  by  numerous  commenters,  40 
 that  the  payphone  assets  to  be  reclassified  or  transferred  include  all  facilities  related  to  payphone 
 service,  including  associated  accumulated  depreciation  and  deferred  income  tax  liabilities.  We 
 do  not  agree  with  GVNW  that  related  expenses,  such  as  maintenance,  should  also  be  reclassified 
 and  transferred  41  because  expenses  are  period  costs  that  should  be  associated  with  the  status  of 
 the  service  at  the  time  they  were  incurred.  That  is,  expenses  incurred  during  the  period 
 payphones  were  regulated  remain  as  regulated  expenses  and  expenses  incurred  after  payphone 
 deregulation  should  be  classified  as  nonregulated  expenses.  We,  however,  do  not  include  as 
 payphone  assets  to  be  reclassified  or  transferred  the  loops  connecting  the  payphones  to  the 
 network,  the  central  office  "coin-  service,"  or  operator  service  facilities  supporting  incumbent 
 LEC  payphones  because  these  are  part  of  network  equipment  necessary  to  support  basic 
 telephone  services. 
 380. 
 381.  In  adopting  our  tentative  conclusion,  we  disagree  with  commenters  such 
 as  GPCA,  Peoples,  SDPOA  and  others  who  assert  that,  in  all  instances,  the  value  of  intangible 
 assets  that  have  not  been  capitalized  on  the  books  of  the  carrier,  such  as  location  contracts  and 
 brand  names,  should  be  included  in  the  payphone  assets  reclassified  to  nonregulated  status.  42  We 
 note  that  these  assets  are  not  recorded  in  the  carriers'  Part  32  accounts  and,  in  fact,  are  not, 
 without  some  triggering  event  such  as  a  purchase  or  sale,  required  to  be  recorded  by  either 
 generally  accepted  accounting  principles  or  our  Part  32  accounting  rules.  We  do,  however, 
 discuss  these  intangible  assets  in  more  detail  below  as  they  relate  to  actual  payphone  asset 
 transfers  to  separate  affiliates  or,  in  certain  limited  instances,  to  an  operating  division  of  the 
 carrier. 


 38  Id. 
 39  Id. 
 40  See  USTA  Comments  at  6;  MCI  Comments  at  15-  16;  Florida  PSC  Comments  at  6. 
 41  GVNW  Comments  at  8. 
 42  See  GPCA  Comments  at  15-  16;  GPCA  Reply  at  13-  14;  Peoples  Reply  at  20-  21;  SDPOA  Reply  at  3. 
79
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 80 
 382. 
 383.  ii.  Accounting  Treatment  for  Assets  Reclassified  or  Transferred  384. 


 385.  Our  tentative  conclusion  in  the  Notice  called  for  the  transfer  of  the  LECs' 
 payphone  assets  to  nonregulated  operations  to  take  place  at  the  undepreciated  baseline  costs  plus 
 interest  charges  at  the  authorized  rate  of  return  for  interstate  services.  The  parties  have  correctly 
 pointed  out  that  this  standard  only  applies  in  those  circumstances  where  there  has  been  an 
 underforecasting  of  demand  for  nonregulated  usage  requiring  a  transfer  to  compensate  ratepayers 
 for  the  additional  risks  they  have  borne  due  to  the  underforecasting.  43  Since  the  issue  at  hand 
 does  not  involve  an  underallocation  of  payphone  costs  between  regulated  and  nonregulated 
 activities,  we  see  no  need  to  consider  this  approach  any  further. 
 386. 
 387.  The  parties  question  whether  the  carriers  should  account  for  the  transfer  or 
 reclassification  of  the  payphone  assets  from  regulated  to  nonregulated  status  at  "fair  market 
 value"  or  the  net  book  value  of  the  assets.  44  While  Section  276  provides  us  with  discretion  to 
 change  our  accounting  rules  to  provide  safeguards  in  excess  of  those  provided  by  Computer  III, 
 we  believe  that  our  existing  rules  are  sufficient  to  meet  the  requirements  of  Section  276.  We 
 conclude  that  our  existing  rules  require  that  this  determination  be  based  on  whether  a  carrier 
 maintains  the  assets  in  its  regulated  Part  32  accounts  or  instead  transfers  the  payphone  assets  to  a 
 separate  affiliate  or  an  operating  division  within  the  carrier  that  is  treated  as  an  affiliate. 
 388. 
 389.  Carriers  that  do  not  transfer  the  payphone  assets  to  a  separate  affiliate 
 make  no  reclassification  accounting  entries  to  their  Part  32  regulated  accounts.  The 
 reclassification  of  these  assets  to  nonregulated  status  is  accomplished  instead  through  the 
 operation  of  our  Part  64  cost  allocat  ion  rules.  45  Accordingly,  we  conclude  that  payphone 
 investment  in  Account  32.2351,  Public  telephone  terminal  equipment,  and  any  other  assets  used 
 in  the  provision  of  payphone  service,  along  with  the  associated  accumulated  depreciation  and 
 deferred  income  tax  liabilities  should  be  directly  assigned  or  allocated  to  nonregulated  activities 
 pursuant  to  our  cost  allocation  rules.  46  LECs  should  establish  whatever  Part  64  cost  pools  47  are 
 needed  and  should  file  revisions  to  their  cost  allocations  manuals  within  sixty  (60)  days  prior  to 
 the  effective  date  of  the  change.  48  This  will  ensure  that  the  provision  of  payphone  service  is 


 43  See  Joint  Cost  Order,  2  FCC  Rcd  at  170-  171. 


 44  See,  e.  g.,  RBOC  Reply  at  19-  21. 
 45  47  C.  F.  R.    64.901-  904.  See  also  Inmate  Services  Order,  11  FCC  Rcd  at  7374. 
 46  RBOC  Comments  at  28,  citing  Inmate  Services  Order.  See  also  Letter  from  Michael  K.  Kellogg  to 
 William  F.  Caton,  Secretary  dated  August  30,  1996  at  9  (RBOC  Ex  Parte  8/  30/  96). 


 47  Inmate  Services  Order,  11  FCC  Rcd  at  7374.  "Cost  pools"  are  comprised  of  logical  homogeneous 
 groupings  of  costs  that  maximize  the  extent  to  which  cost  causative  allocation  factors  can  be  used  to  divide  costs 
 between  regulated  and  nonregulated  activities.  Implementation  of  Further  Cost  Allocation  Uniformity, 
 Memorandum  Opinion  and  Order,  8  FCC  Rcd  4664  (1993). 
80
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 81 
 separate  and  distinct  from  the  provision  of  common  carrier  services  in  accordance  with  our  rules. 
 390. 
 391.  On  the  other  hand,  carriers  that  transfer  their  payphone  assets  to  either  a 
 separate  affiliate  or  an  operating  division  that  has  no  joint  and  common  use  of  assets  or  resources 
 with  the  LEC  and  maintains  a  separate  set  of  books  in  accordance  with  Section  32.23(  b)  of  our 
 rules  must  account  for  the  transfer  according  to  the  affiliate  transactions  rules  of  Section  32.27(  c) 
 which  require  that  the  transfer  be  recorded  at  the  higher  of  fair  market  value  or  cost  less  all 
 applicable  valuation  reserves  (net  book  cost).  49  Fair  market  value  has  been  defined  as  "the  price 
 at  which  the  property  would  change  hands  between  a  willing  buyer  and  a  willing  seller,  neither 
 being  under  any  compulsion  to  buy  or  sell  and  both  having  reasonable  knowledge  of  relevant 
 facts."  50  We  conclude,  that  in  instances  when  the  transfer  of  payphone  assets  is  governed  by 
 Section  32.27(  c),  it  is  appropriate,  as  argued  by  CPA,  that  the  going  concern  value  associated 
 with  the  payphone  business  be  taken  into  consideration  in  determining  fair  market  value.  51  Such 
 going  concern  value  should,  as  asserted  by  GPCA  and  Peoples,  include  intangible  assets  such  as 
 location  contracts  that  add  value  to  the  payphone  business.  52  These  intangible  assets  would  be 
 considered  in  the  theoretical  purchase  price  negotiated  by  a  willing  buyer  and  seller.  We  do  not 
 believe,  however,  that  the  intangible  asset  value  of  BOC  or  LEC  brand  names  should  be  included 
 in  the  determination  of  going  concern  or  fair  market  value  because  a  BOC  or  a  LEC  would  not 
 transfer  the  right  to  use  its  brand  name  to  a  third  party  willing  buyer. 
 392. 
 393.  The  operation  of  our  cost  allocation  rules  and  our  affiliate  transactions  rules  serve 
 to  protect  ratepayers  from  different  concerns.  The  cost  allocation  rules  are  used  to  provide 
 guidance  to  carriers  as  to  how  joint  and  common  costs  are  to  be  allocated  among  regulated  and 
 nonregulated  activities  that  impact  upon  regulated  activities.  These  rules  are  premised  on  the 
 assumption  that  ratepayers  benefit  from  the  economies  of  scope  associated  with  integrated 
 operations  of  regulated  and  nonregulated  activities.  Since  costs  are  recorded  in  regulated 
 accounts,  the  Commission  retains  the  ability  to  scrutinize  costs  associated  with  nonregulated 
 activities.  For  example,  carriers  must  file  cost  allocation  manuals.  These  manuals  are  subject  to 


 48  47  C.  F.  R.    64.  904(  b). 
 49  47  C.  F.  R.    32.23(  b),  32.  27(  c).  In  applying  the  affiliate  transactions  rules  to  asset  transfers  to  operating 
 divisions  that  maintain  a  separate  set  of  books  and  do  not  jointly  use  assets  or  resources  with  the  carrier,  we  have 
 provided  a  safeguard  to  protect  against  a  carrier  that  attempts  to  avoid  our  affiliate  transactions  rules  by 
 "reincarnating  a  nonregulated  affiliate  as  an  operating  division."  Joint  Cost  Reconsideration  Order,  2  FCC  Rcd  at 
 6296. 


 50  26  C.  F.  R.    1.  170-  1.  See  also,  Accounting  Safeguards  NPRM  at  para.  83. 


 51  See  CPA  Reply  at  12-  15. 
 52  See  GPCA  Comments  at  15-  16;  GPCA  Reply  at  13-  14;  Peoples  Reply  at  20-  21.  This  conclusion  is  also 
 supported  by  the  APCC  and  GPCA  ex  parte  filing  dated  September  11,  1996  to  the  extent  that  the  ex  parte  filing 
 relates  to  transfers  to  separate  affiliates.  Letter  from  Albert  H.  Kramer,  Attorney  for  APCC  and  GPCA,  to  William 
 F.  Caton,  Secretary,  dated  September  11,  1996  (APCC  &  GPCA  Ex  Parte  9/  11/  1996). 
81
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 82 
 public  comment  and  must  be  audited  annually  by  an  independent  auditor.  53  The  report  of  the 
 independent  auditor  must  also  be  submitted  to  the  Commission.  54  These  procedures  promote  fair 
 cost  allocation  and  protect  regulated  ratepayers  from  absorbing  the  costs  of  nonregulated 
 activities.  In  addition,  as  assets  are  retained  on  the  books  of  the  carrier,  any  resulting  gains  from 
 a  sale  of  those  nonregulated  assets  accrue  to  the  carrier  and  to  the  benefit  of  ratepayers  and 
 shareholders. 
 394. 
 395.  Our  affiliate  transactions  rules  also  afford  a  level  of  protection  to 
 ratepayers.  These  rules  first  protect  ratepayers  by  requiring  that  when  an  affiliate  transfers  to  or 
 performs  a  service  for  the  carrier,  those  assets  or  services  are  not  charged  to  regulated  ratepayers 
 at  an  inflated  price.  In  addition,  when  the  carrier  transfers  assets  to  an  affiliate,  the  operation  of 
 our  affiliate  transactions  rules  effectively  captures  on  the  carrier's  books  any  appreciation  in 
 value  of  those  assets,  thus  ensuring  that  any  eventual  gains  would  accrue  to  the  benefit  of  the 
 ratepayers  and  shareholders. 
 396. 
 397.  The  difference  in  accounting  treatment  for  payphone  assets  either 
 reclassified  as  nonregulated  pursuant  to  our  Part  64  cost  allocation  rules  or  transferred  to  a 
 separate  affiliate  and  accounted  for  in  accordance  with  our  Part  32  affiliate  transactions  rules 
 stems  primarily  from  the  fact  that  in  one  instance  there  is  no  transfer,  only  a  reallocation  of  assets 
 to  nonregulated  status,  and  in  the  other  instance,  there  has  been  an  actual  transfer.  In  addition,  in 
 the  first  instance  our  rules  are  designed  to  promote  fair  cost  allocation  between  regulated  and 
 nonregulated  activities;  in  the  second  instance,  our  rules  are  designed  to  protect  against  cross-subsidies 
 between  separate  companies  by  capturing  any  appreciated  value  of  assets  transferred 
 on  the  books  of  the  carrier. 
 398. 
 399.  We  note  that  some  parties  assert  that,  based  on  the  holding  of  the  Court  of 
 Appeals  for  the  D.  C.  Circuit  in  Democratic  Central  Committee,  55  the  proper  measure  of  value  for 
 an  asset  reclassified  from  regulated  to  nonregulated  status  is  the  asset's  economic  value,  which 
 would  ordinarily  be  its  fair  market  value.  56  Democratic  Central  Committee  involved  the 
 distribution  of  capital  gains  realized  from  the  sale  to  a  third  party  of  property  that  had  been 
 transferred  out  of  the  rate  base.  Although  Democratic  Central  Committee  provided  several 
 general  guiding  principles  on  which  the  Commission  fashioned  its  affiliate  transactions  rules,  we 
 note  that  the  facts  in  that  case  did  not  involve  affiliate  transactions.  57  Accordingly,  we  do  not 
 think  that  case  is  directly  applicable  either  to  the  situation  where  a  carrier  retains  the  payphone 


 53  See  47  C.  F.  R.    64.  904(  a). 


 54  47  C.  F.  R.    64.  904(  b). 
 55  Democratic  Central  Committee  v.  Washington  Metropolitan  Area  Transit  Commission,  485  F.  2d  786 
 (D.  C.  Cir.  1973),  cert.  denied,  415  U.  S.  935  (1974)  (Democratic  Central  Committee). 


 56  See,  e.  g.,  GPCA  Comments  at  16-  17. 


 57  Joint  Cost  Reconsideration  Order,  2  FCC  Rcd  at  6295. 
82
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 83 
 assets  on  its  books  or  transfers  the  payphone  assets  to  a  separate  affiliate.  In  both  instances, 
 ratepayers  are  protected  by  the  application  of  our  accounting  safeguards. 
 400. 
 401.  One  of  the  primary  goals  of  Section  276  is  that  a  BOC  shall  not  be 
 allowed  to  subsidize  its  payphone  operations  directly  or  indirectly  from  its  telephone  exchange 
 operations  or  its  exchange  access  operations.  In  order  to  achieve  this  goal,  Congress  required 
 that  we  adopt  at  a  minimum  the  nonstructural  safeguards  of  Computer  III.  In  Computer  III,  the 
 Commission  reexamined  its  regulatory  regime  for  the  provision  of  enhanced  services  and 
 established  nonstructural  safeguards  for  the  provision  of  enhanced  services  on  an  integrated 
 basis.  These  safeguards  included  the  cost  allocation  rules  and  the  affiliate  transactions  rules  the 
 Commission  developed  in  the  Joint  Cost  Order.  These  nonstructural  safeguards  include  our  Part 
 64  cost  allocation  rules  and  our  Part  32  affiliate  transactions  rules.  We  also  note  that  the 
 Conference  Report  states: 
 402. 
 "[  t]  he  BOC  payphone  operations  will  be  transferred,  at  an  appropriate  valuation, 
 from  the  regulated  accounts  associated  with  local  exchange  services  to  the  BOC's 
 unregulated  books.  The  Commission's  implementing  safeguards  must  be  at  least 
 equal  to  those  adopted  in  the  Commission's  Computer  III  proceedings."  58 


 We  believe  that,  consistent  with  Computer  III,  our  cost  allocation  rules  and  affiliate  transactions 
 rules,  as  discussed  above,  provide  rules  for  the  appropriate  valuation  of  the  reclassification  or 
 transfer  of  payphone  assets  and  we  see  no  compelling  argument  to  deviate  from  those  well-settled 
 rules  at  this  time.  59 


 1.  APCC  and  GPCA  argue  that  the  legislative  history  cited  in  the  previous 
 paragraph  makes  clear  that  Congress  intended  that  the  assets  be  "transferred."  60  We  disagree. 
 We  have  already  stated  that  Section  276  does  not  require  that  a  BOC  establish  a  separate  affiliate 
 to  hold  the  payphone  assets.  61  In  fact,  the  Senate  version  of  Section  276  authorized  the 
 Commission  to  determine  whether  to  require  Bell  operating  companies  "to  provide  payphone 
 service...  through  a  separate  subsidiary..."  62  This  authorization  was  deleted  from  the  final  version 
 of  Section  276.  If  Congress  intended  that  there  be  a  "transfer",  we  believe  that  Congress  would 
 have  required  the  BOCs  to  establish  separate  affiliates  for  their  payphone  operations.  Congress 


 58  Conference  Report  at  43. 
 59  We  note  that  in  the  Accounting  Safeguards  NPRM,  we  proposed  changes  to  the  affiliate  transactions  rules 
 of  Section  32.27  of  our  rules.  See  Accounting  Safeguards  NPRM  at  paras.  70-  88. 


 60  Ex  Parte  Letter  from  Albert  Kramer,  Counsel,  APCC  to  William  Caton,  Acting  Secretary,  FCC  (September 
 11,  1996)  at  3. 


 61  See  para.  145,  above. 


 62  S.  652,  104th  Cong.,  1st  Sess.,    265(  c)  (1995).  See  also  RBOC  Comments  at  40,  n.  53. 
83
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 84 
 did  not  do  so.  Instead,  Congress  in  the  very  next  sentence  of  the  legislative  history  states  that  the 
 Commission's  implementing  safeguards  must,  at  a  minimum,  be  at  least  equal  to  those  adopted  in 
 the  Computer  III  proceedings.  These  safeguards  include  our  cost  allocation  rules.  Our  cost 
 allocation  rules  are  applicable  when  a  carrier  maintains  integrated  regulated  and  nonregulated 
 activities.  To  read  congressional  intent  to  require  a  "transfer"  would  effectively  eliminate  our 
 cost  allocation  rules  from  application  to  payphone  operations.  This  is  contrary  to  Section  276 
 which  states  that  the  Commission  shall  prescribe  regulations  that  prescribe  a  set  of  nonstructural 
 safeguards  for  BOC  payphone  service  which  "at  a  minimum,  include[  s]  the  nonstructural 
 safeguards  equal  to  those  adopted  in  the  Computer  Inquiry-  III...  proceeding."  63  Computer  III 
 included  our  cost  allocation  rules  as  a  part  of  the  nonstructural  safeguards  and  thus  they  are 
 applicable  to  BOC  payphone  operations.  To  exclude  the  cost  allocation  rules  would  be  contrary 
 to  Section  276's  intent  that  they  be  included. 
 2. 
 3.  We  also  agree  with  the  RBOCs  that  our  cost  allocation  rules  only  require  a 
 reassignment  of  payphone  assets  from  regulated  to  nonregulated  status.  64  In  reality,  carriers 
 maintain  these  assets  in  regulated  Part  32  accounts  and  do  not  establish  "unregulated  books." 
 These  accounts  are  considered  "regulated"  accounts  even  though  a  carrier  may  assign  the  entire 
 amount  in  an  account  to  nonregulated  activities.  Using  regulated  accounts  serves  the  public 
 interest  by  allowing  Commission  scrutiny  of  nonregulated  activities  as  they  potentially  impact 
 regulated  activities,  maintaining  a  minimal  amount  of  regulatory  burden  while  protecting 
 regulated  ratepayers  from  cross-  subsidies  and  cost  misallocations,  and  preserving  economies  of 
 scope  that  accrue  to  ratepayers  from  integrated  operations.  We  believe  regulated  ratepayers  are 
 better  served  by  the  requirement  that  carriers  account  for  payphone  operations  in  regulated 
 accounts  than  if  we  required  them  to  account  for  payphone  operations  in  "nonregulated"  accounts 
 or  "unregulated  books." 
 4. 
 5.  iii.  Other  Matters  6. 


 7.  We  require  the  LECs  to  reclassify  any  pay  telephone  investments  recorded 
 in  Account  32.2351,  Public  telephone  terminal  equipment,  and  other  assets  used  in  the  provision 
 of  payphone  service,  along  with  the  associated  accumulated  depreciation  and  deferred  income 
 tax  liabilities,  from  regulated  to  nonregulated  status  pursuant  to  our  Part  64  and  Part  32  rules  by 
 April  15,  1997  when  the  associated  revised  tariffs  are  effective.  We  thus  agree  with  Ameritech 
 that  we  should  adopt  our  tentative  conclusion  that  a  phase-  in  period  is  unnecessary.  65 
 8. 
 9.  3.  Termination  of  Access  Charge  Compensation  and  Other  Subsidies 
 10. 
 11.  a.  The  Notice 


 63  47  U.  S.  C.    276(  b)(  1)(  C). 


 64  See  RBOC  Ex  Parte  8/  30/  96  at  8. 
 65  Ameritech  Comments  at  14. 
84
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 85 
 12. 
 13.  In  the  Notice,  we  tentatively  concluded  that  incumbent  LECs  must  reduce 
 their  interstate  CCL  charges  by  an  amount  equal  to  the  interstate  allocation  of  payphone  costs 
 currently  recovered  through  those  charges.  66  LECs  subject  to  the  price  cap  rules  would  treat  this 
 as  an  exogenous  cost  change  to  the  Common  Line  basket  pursuant  to  Section  61.45(  d)  of  the 
 Commission's  rules.  67  We  requested  incumbent  LECs  to  identify  in  their  comments  all  accounts 
 that  contain  costs  attributable  to  their  payphone  operations  and  sought  comment  on  whether 
 specific  cost  pools  and  allocators  should  be  used  to  capture  the  nonregulated  investment  and 
 expenses  associated  with  their  payphone  operations.  68  We  also  sought  comment  on  whether  a 
 transition  period  is  necessary  to  move  from  subsidized  compensation  to  per-  call  compensation 
 for  LEC  payphones,  and  how  that  transition  would  proceed.  69  We  also  proposed,  in  accordance 
 with  the  mandate  of  Section  276(  b)(  1)(  B),  to  require  incumbent  LECs  to  remove  from  their 
 intrastate  rates  any  charges  that  recover  the  costs  of  payphones.  70  Additionally,  we  solicited 
 comment  on  whether  we  should  set  a  deadline  and  a  specific  mechanism  for  elimination  of  any 
 intrastate  subsidies,  or  whether  it  would  be  consistent  with  the  statute,  as  well  as  preferable  from 
 a  policy  perspective,  to  permit  the  states  to  formulate  their  own  mechanisms  for  achieving  this 
 result  within  a  specific  time  frame.  71 
 14. 
 15.  We  also  tentatively  concluded  that,  to  avoid  discrimination  among  PSPs, 
 the  Subscriber  Line  Charge  should  apply  to  subscriber  lines  that  terminate  at  both  LEC  and 
 competitive  payphones.  72  We  sought  comment  on  whether,  to  the  extent  that  LECs  charge  or 
 impute  to  their  own  payphone  operations  only  the  multi-  line  business  SLC,  which  is  less  than  the 
 full  interstate  cost  of  the  subscriber  lines  connecting  their  payphones  to  the  network,  and  recover 
 the  balance  of  the  cost  of  these  lines  through  the  CCL  charge,  they  may,  in  effect,  be  subsidizing 
 their  payphones  with  access  charge  revenues,  in  violation  of  Section  276.  73  We  sought  comment 
 on  whether  LECs  in  those  circumstances  should  charge  or  impute  to  their  own  payphone 
 operations,  as  well  as  to  independent  payphone  providers,  an  additional  monthly  charge 
 representing  the  difference  between  the  SLC  cap  and  the  full  interstate  cost  of  these  subscriber 
 lines.  74  We  also  sought  comment  on  whether  comparable  changes  should  be  made  to  incumbent 


 66  Notice  at  para.  51. 


 67  Id. 
 68  Id. 
 69  Id. 
 70  Id.  at  para.  52. 
 71  Id. 
 72  Id.  at  para.  53. 
 73  Id.  at  para.  54. 
85
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 86 
 LECs'  intrastate  rates.  75 
 16. 
 17.  b.  Comments 
 18. 
 19.  i.  Carrier  Common  Line  Charge  20. 


 21.  The  Florida  PSC  agrees  that  LECs  must  reduce  their  interstate  CCL 
 charge  by  an  amount  equal  to  their  interstate  allocation  of  payphone  set  costs  currently  recovered 
 through  these  charges.  76  USTA  asserts  that  there  is  no  need  for  a  federally-  imposed  cost  support, 
 create  cost  pools,  or  change  current  accounting  procedures.  77  USTA  asserts  that  incumbent 
 LECs  subject  to  price  caps  should  remove  the  costs  of  payphone  operations  through  an 
 exogenous  cost  adjustment  to  the  common  line  price  cap  basket  price  cap  index  (PCI),  and  that 
 rate-  of-  return  LECs  should  adjust  regulated  rates  for  the  charges  in  asset  and  operating  costs 
 based  on  the  results  of  the  accounting  changes  made  to  assets  and  expenses.  78 
 22. 
 23.  Ameritech  agrees  that  exogenous  treatment  is  appropriate  for  transfer  of 
 payphone  CPE  from  regulated  to  nonregulated  status.  79  One  Call  agrees  that  the  CCL  charge 
 should  be  reduced  to  eliminate  both  interstate  and  intrastate  subsidies.  80  MCI  argues  that  all 
 direct  and  indirect  costs  for  interstate  and  intrastate  costs  should  be  removed  and  that  Account 
 2351  and  associated  expenses  and  additional  interstate  allocated  costs  should  be  removed.  81 
 GPCA  contends  that  the  payphone  providers'  end-  user  common  line  charges  should  be  in  the 
 carrier  common  line  fund.  82  AT&  T  argues  that  the  removal  of  payphone  costs  from  interstate 
 access  should  not  be  transferred  to  the  Base  Factor  Portion  of  the  Common  Line  Basket,  but 
 should  remain  as  part  of  the  Part  69  category.  83 
 24. 


 74  Id. 
 75  Id. 
 76  Florida  PSC  Comments  at  7. 
 77  USTA  Comments  at  5,  n.  2. 
 78  Id.  at  9;  GTE  Reply  at  8-  10. 
 79  Ameritech  Comments  at  14. 
 80  One  Call  Comments  at  9. 
 81  MCI  Comments  at  17. 
 82  GPCA  Comments  at  17. 
 83  AT&  T  Reply  at  27,  n.  70. 
86
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 87 
 25.  CPA  argues  that  attempts  to  extend  the  period  should  be  rejected.  84  In  contrast, 
 GVNW  and  Texas  PUC  assert  that  a  short  transition  period  is  necessary  to  recover  costs.  85  The 
 RBOCs  argue  for  a  transition  period  of  up  to  12  months  during  which  per-  call  compensation 
 would  not  be  available  to  the  RBOCs,  while  GPCA  argues  the  there  should  be  no  more  than  a 
 90-  day  transition  period  after  release  of  this  Report  and  Order.  86  NECA  asserts  that  the  CCL 
 charge  should  continue  until  the  Commission  finalizes  decisions  on  access  reform  and  universal 
 service  have  been  made.  NECA  argues  there  will  be  no  discrimination  because  LECs  can  bill 
 the  CCL  charge  for  all  interstate  calls  and  the  SLC  to  all  payphones.  87 
 26. 
 27. 
 28.  ii.  Intrastate  Rates  29. 


 30.  Florida  PSC  asserts  that  intrastate  adjustments  vary  and  that  a  national 
 scheme  is  impractical.  Instead,  the  Commission  could  set  a  date  for  removal  of  state  subsidies.  88 
 California  PUC  is  concerned  that,  if  LECs  cannot  recover  the  interstate  costs  of  subscriber  lines 
 because  the  CCL  mechanisms  are  removed,  the  state's  local  phone  charges  and  the  state-mandated 
 pay  station  service  charge  may  not  fully  recover  costs.  89  USTA  argues  that  the 
 payphone  line  is  a  common  line  and  should  be  tariffed  at  the  state  level.  90  USTA  also  contends 
 that  states  should  be  permitted  to  formulate  mechanisms  to  remove  intrastate  costs.  91 
 31. 
 32.  iii.  Subscriber  Line  Charge 
 33. 
 34.  Florida  PSC  and  the  Ohio  PUC  argue  that  access  lines  terminating  at  LEC 
 payphones  should  be  subject  to  SLC  imputation.  92  Ameritech  and  SW  Bell  argue  that  a  SLC 
 should  be  imputed  to  all  payphones.  93  GPCA  opposes  application  of  the  SLC  to  payphones  but  if 
 the  Commission  imposes  such  a  requirement,  GPCA  also  opposes  any  additional  charge  in 


 84  CPA  Reply  at  8. 


 85  GVNW  Comments  at  8. 
 86  RBOC  Comments  at  31;  GPCA  Reply  at  15. 
 87  NECA  Comments  at  5,  n.  19. 
 88  Florida  PSC  Comments  at  7. 
 89  California  PUC  Comments  at  15. 
 90  USTA  Reply  at  7. 
 91  USTA  Comments  at  9. 
 92  Florida  PSC  Comments  at  8;  Ohio  PUC  Comments  at  12. 
 93  Ameritech  Comments  at  14;  SW  Bell  Reply  at  7-  9. 
87
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 88 
 addition  to  what  is  required  of  other  end  users.  94  USTA  also  opposes  imposition  of  an  additional 
 charge  for  the  difference  between  the  SLC  cap  and  the  full  cost  of  subscriber  lines.  USTA 
 argues  that  if  there  are  any  loop  subsidies  they  will  be  uniform  for  all  loops,  not  just  payphone 
 loops.  95  SW  Bell  argues  that  the  SLC  should  apply  to  payphones  because  payphones  use 
 common  lines  and  access  the  public  switched  network  just  like  any  other  common  line  service.  96 
 Sprint  supports  the  additional  charge  to  all  PSPs  including  LECs  to  the  extent  that  the  multi-  line 
 business  SLC  is  less  than  the  full  interstate  cost  of  subscriber  lines.  97 
 35. 
 36.  c.  Discussion 
 37. 
 38.  In  the  telephone  network,  payphones,  as  well  as  all  other  telephones,  are 
 connected  to  the  local  switch  by  means  of  a  subscriber  line.  The  costs  of  the  subscriber  line  that 
 are  allocated  to  the  interstate  jurisdiction  are  recovered  through  two  separate  charges:  a  flat-  rate 
 SLC  assessed  upon  the  end-  user  customer  who  subscribes  to  local  service;  and  a  per-  minute  CCL 
 charge  assessed  upon  IXCs  that  recovers  the  balance  of  the  interstate  subscriber  line  costs  not 
 recovered  through  the  SLC.  LEC  payphone  costs  are  also  included  in  the  CCL  charge.  The 
 CCL  charge,  however,  applies  to  interstate  switched  access  service  that  is  unrelated  to  payphone 
 service  costs.  While  independent  payphone  providers  are  required  to  pay  the  SLC  for  the  loop 
 used  by  each  of  their  payphones,  LECs  have  not  been  required  to  pay  this  charge  because  the 
 subscriber  lines  connected  to  LEC  payphones  have  been  recovered  entirely  through  the  CCL 
 charge. 
 39. 
 40.  We  conclude  that  to  implement  Section  276  (b)(  1)(  B)  of  the  1996  Act, 
 incumbent  LECs  must  reduce  their  interstate  CCL  charges  by  an  amount  equal  to  the  interstate 
 allocation  of  payphone  costs  currently  recovered  through  those  charges.  LECs  subject  to  the 
 price  cap  rules  would  treat  this  as  an  exogenous  cost  change  to  the  Common  Line  basket 
 pursuant  to  Section  61.45(  d)  of  the  Commission's  rules.  The  incumbent  LECs'  residential  SLC  is 
 limited  to  $3.  50  per  month  and  their  multi-  line  business  SLC  is  currently  subject  to  a  $6.  00  per 
 month  cap.  98  Those  LECs  with  interstate  subscriber  line  costs  that  exceed  this  amount  recover  a 
 portion  of  the  interstate  costs  of  subscriber  lines  through  the  CCL  charge.  The  issue  of  the 
 appropriate  interstate  SLC  has  been  referred  to  a  Federal-  State  Joint  Board.  99 


 94  GPCA  Reply  at  17-  19. 


 95  USTA  Comments  at  10.  See  also  RBOC  Comments  at  32. 
 96  SW  Bell  Reply  at  7-  8. 
 97  Sprint  Comments  at  28. 
 98  47  C.  F.  R.    69.  104. 
 99  See  Federal-  State  Joint  Board  on  Universal  Service,  NPRM  and  Order  Establishing  Joint  Board,  FCC  96- 
 93  at  para.  114  (rel.  March  8,  1996)  ("  Joint  Board  Notice").  We  note  that  pursuant  to  Section  254  of  the  Act,  we 
 have  referred  to  the  universal  service  joint  board  the  matter  of  how  to  recover  the  interstate  allocated  portion  of  the 
 subscriber  loop  costs.  Federal-  State  Joint  Board  on  Universal  Service,  Notice  of  Proposed  Rulemaking  and  Order 
88
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 89 
 41. 
 42.  Incumbent  LECs  today  generally  recover  payphone  costs  allocated  to  the 
 interstate  jurisdiction  through  the  per-  minute  carrier  CCL  charge  they  assess  on  IXCs  and  other 
 interstate  access  customers  for  originating  and  terminating  interstate  calls.  The  incumbent  LEC 
 assesses  the  independent  payphone  provider  a  SLC  (at  the  multi-  line  business  rate)  to  recover  the 
 payphone  common  line  costs  associated  with  that  phone.  100  In  the  case  of  competitive 
 payphones,  an  independent  payphone  provider  recovers  its  payphone  costs  out  of  the  revenue  it 
 receives  from  end  users,  premises  owners,  and  OSPs  to  whom  its  payphones  are  presubscribed. 
 The  1996  Act  mandates  that  the  Commission  "discontinue  the  intrastate  and  interstate  carrier 
 access  charge  payphone  service  elements  and  payments  ...  and  all  intrastate  and  interstate 
 subsidies  from  basic  exchange  and  exchange  access  revenues[.]"  101 
 43. 
 44.  Accordingly,  we  adopt  rules  that  provide  for  the  removal  from  regulated 
 intrastate  and  interstate  rate  structures  of  all  charges  that  recover  the  costs  of  payphones  (i.  e.,  the 
 costs  of  payphone  sets,  not  including  the  costs  of  the  lines  connecting  those  sets  to  the  public 
 switched  network,  which,  like  the  lines  connecting  competitive  payphones  to  the  network,  will 
 continue  to  be  treated  as  regulated).  Therefore,  we  conclude  that  incumbent  LECs  must  file 
 revised  CCL  tariffs  with  the  Common  Carrier  Bureau  no  later  than  January  15,  1997  to  reduce 
 their  interstate  CCL  charges  by  an  amount  equal  to  the  interstate  allocation  of  payphone  costs 
 currently  recovered  through  those  charges,  scheduled  to  take  effect  April  15,  1997.  LECs 
 subject  to  the  price  cap  rules  must  treat  this  as  an  exogenous  cost  change  to  the  Common  Line 
 basket  pursuant  to  Section  61.45(  d)(  1)(  v)  of  our  rules.  102  Incumbent  LECs  must  identify  and 
 report  accounts  that  contain  costs  attributable  to  their  payphone  operations.  Incumbent  LECs 
 must  identify  specific  cost  pools  and  allocators  that  are  required  to  capture  the  nonregulated 
 investment  and  expenses  associated  with  their  payphone  operations.  LECs  must  file  this 
 information  with  the  Common  Carrier  Bureau  by  January  15,  1997. 
 45. 
 46.  LECs  that  file  tariffs  pursuant  to  Section  61.38  or  Section  61.39,  rate-  of-return 
 regulation,  or  Section  61.50,  optional  incentive  regulation,  must  file  tariffs  to  revise 
 interstate  CCL  rates  to  remove  the  payphone  investment  and  any  other  assets  used  in  the 


 Establishing  Joint  Board,  CC  Docket  No.  96-  45,  FCC  96-  93  (adopted  and  released  on  Mar.  8,  1996).  The  decision 
 to  remove  payphone  costs  from  the  CCL  charge  and  the  decision  to  impose  a  SLC  to  all  subscriber  lines  that 
 terminate  at  both  LEC  and  competitive  payphones  was  not  referred  to  the  universal  service  joint  board. 


 100  We  recently  reaffirmed  a  decision  by  the  Common  Carrier  Bureau  concluding  that  independent  payphone 
 providers  should  be  classified  as  "end  users"  under  our  rules.  C.  F.  Communications  Corp.  v.  Century  Telephone  of 
 Wisconsin,  Inc.,  Memorandum  Opinion  and  Order,  10  FCC  Rcd  9775  (1995),  petition  for  review  filed,  C.  F. 
 Communications  Corp.  v.  FCC  and  United  States,  No.  95-  1563  (D.  C.  Cir.  filed  Nov.  6,  1995).  Thus,  independent 
 payphone  providers  are  required  to  pay  a  SLC  for  their  use  of  common  lines  connected  to  the  payphones  they  serve, 
 but  are  not  assessed  a  per-  minute  CCL  charge. 


 101  47  U.  S.  C.    276(  b)(  1)(  B). 


 102  47  C.  F.  R.    61.  45(  d)(  1)(  v). 
89
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 90 
 provision  of  payphone  service  along  with  the  accumulated  depreciation  and  deferred  income  tax 
 liabilities  from  the  common  line  costs  recovered  through  those  rates.  As  stated  previously,  these 
 LECs  must  reclassify  payphone  assets  from  regulated  to  nonregulated  activity  pursuant  to  Part 
 64  rules.  Expenses  incurred  after  payphones  are  deregulated  should  be  classified  as  nonregulated 
 expenses.  The  CCL  rate  reduction  must  account  for  overhead  costs  assigned  to  common  line 
 costs  as  a  result  of  payphone  investment  and  expenses.  We  require  these  LECs  to  recalculate 
 their  CCL  rates,  using  the  same  data  and  methods  they  used  to  develop  their  current  CCL  rates, 
 except  those  calculations  should  exclude  payphone  costs. 
 47. 
 48.  Price  cap  LECs  are  also  required  to  revise  their  CCL  rates,  using  the 
 following  method  to  remove  payphone  costs  from  their  CCL  rates.  First,  price  cap  LECs  should 
 develop  a  common  line  revenue  requirement  using  ARMIS  costs  for  calendar  year  1995. 
 Second,  price  cap  LECs  are  required  to  develop  a  payphone  cost  allocator  equal  to  the  payphone 
 costs  in  Section  69.501(  d)  divided  by  total  common  line  costs,  based  on  1995  ARMIS  data. 
 Each  LEC  is  required  to  reduce  its  PCI  in  the  common  line  basket  by  this  payphone  cost 
 allocator  minus  one. 
 49. 
 50.  We  require,  pursuant  to  the  mandate  of  Section  276(  b)(  1)(  B),  incumbent  LECs  to 
 remove  from  their  intrastate  rates  any  charges  that  recover  the  costs  of  payphones.  Revised 
 intrastate  rates  must  be  effective  no  later  than  April  15,  1997.  Parties  did  not  submit  state-specific 
 information  regarding  the  intrastate  rate  elements  that  recover  payphone  costs.  States 
 must  determine  the  intrastate  rates  elements  that  must  be  removed  to  eliminate  any  intrastate 
 subsidies  within  this  time  frame. 
 51. 
 52.  Finally,  we  conclude  that,  to  avoid  discrimination  among  payphone 
 providers,  the  multiline  business  SLC  must  apply  to  subscriber  lines  that  terminate  at  both  LEC 
 and  competitive  payphones.  We  conclude  that  the  removal  of  payphone  costs  from  the  CCL  and 
 the  payment  or  imputation  of  a  SLC  to  the  subscriber  line  that  terminates  at  a  LEC  nonregulated 
 payphone  will  result  in  the  recovery  of  LEC  payphone  costs  on  a  more  cost-  causative  basis 
 consistent  with  the  requirements  of  the  1996  Act.  103  No  action  we  take  today  affects  the  authority 
 of  states  to  address  the  state  ratemaking  implications  of  reclassification  or  transfer  of  payphone 
 assets. 
 53. 
 54.  4.  Deregulation  of  AT&  T  Payphones 
 55.  56.  a.  The  Notice 


 57.  58.  In  the  Notice,  we  tentatively  concluded  that  payphones  provided  by 
 AT&  T  should  be  classified  as  CPE,  finding  that  discontinuing  possible  subsidies  for  AT&  T 
 payphones  would  be  congruent  with  the  1996  Act's  requirement  that  the  Commission  discontinue 
 subsidies  for  other  payphones  (i.  e.,  those  owned  by  incumbent  LECs)  and  would  provide  for 


 103  See  Ameritech/  SW  Bell  Waiver  at  para.  25. 
90
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 91 
 symmetrical  regulation  of  the  payphone  industry.  104  We  cited  two  other  reasons  why  this 
 proposed  action  is  in  harmony  with  the  other  rules  we  proposed  in  this  proceeding.  First,  since 
 Tonka  Tools,  105  AT&  T  payphones  have  been  subject  to  the  same  regulatory  treatment  as  BOC 
 payphones.  Once  LEC  telephones,  including  those  provided  by  the  BOCs,  are  declared  to  be 
 CPE,  the  basis  for  treating  AT&  T  payphones  as  network  equipment  no  longer  exists.  Second, 
 we  believe  that  deregulating  AT&  T  payphones  is  consistent  with  our  general  policy  to  deregulate 
 non-  dominant  carriers.  In  the  Notice,  we  also  tentatively  concluded  that  the  bundling  of  pay 
 telephone  equipment  with  underlying  transmission  capacity  would  be  treated  pursuant  to  the 
 rules  proposed  in  the  Interstate,  Interexchange  Marketplace  proceeding.  106 
 59. 
 60.  b.  Comments 
 61. 
 62.  Those  commenting  on  AT&  T  payphones  were  unanimous  in  concluding  that 
 AT&  T  payphones  should  be  deregulated.  107  The  RBOCs  assert  that  AT&  T  payphones  should  be 
 deregulated  in  the  same  manner  as  LEC  payphones.  108  AT&  T  argues,  however,  that  AT&  T 
 payphones  should  not  be  treated  like  LEC  CPE  but  should  be  removed  from  all  regulation  except 
 Part  68  registration  and  treated  like  independent  payphone  providers.  109 
 63. 
 64.  c.  Discussion 
 65. 
 66.  We  conclude  that  AT&  T  payphones  must  be  deregulated,  detariffed  and 
 treated  as  CPE.  As  we  concluded  above,  there  is  a  competitive  market  for  payphones,  and, 
 pursuant  to  Section  276,  subsidies  must  be  removed  from  payphone  service.  AT&  T  payphones 
 have  been  treated  like  BOC  payphones  for  regulatory  purposes.  110  It  would  be  incongruous  to 
 deregulate  payphone  equipment  owned  by  all  other  carriers  except  AT&  T.  We  conclude, 
 therefore,  that  AT&  T  payphones  must  be  removed  from  regulation  and  treated  as  independent 
 PSPs'  payphones.  Accordingly,  we  require  that  AT&  T  follow  the  same  procedures  discussed 
 above  for  valuing  LEC  payphone  assets  and  transferring  them  to  nonregulated  status.  After 


 104  Notice  at  para.  56. 
 105  Tonka  Tools,  note  489,  above. 
 106  Notice  at  para.  55. 
 107  AT&  T  Reply  at  27;  RBOC  Comments  at  32;  California  PUC  Comments  at  15;  Florida  PSC  Comments  at 
 8;  USTA  Comments  at  10;  MCI  Comments  at  15. 


 108  RBOC  Comments  at  32. 


 109  AT&  T  Reply  at  27.  With  regard  to  bundling  of  AT&  T  payphones  and  phones  services,  MCI  suggests  that 
 the  Commission  review  the  effect  of  this  proposal  after  one  year.  MCI  argues,  however,  that  even  if  the  Commission 
 allows  bundling,  the  payphone  transmission  service  should  be  available  separately.  MCI  Comments  at  16. 


 110  Tonka  Tools,  note  489,  above. 
91
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 92 
 deregulation,  AT&  T  payphones  will  be  subject  to  the  same  requirements  as  independent 
 payphone  provider  payphones. 
 67. 
 68.  With  regard  to  the  issue  of  bundling  of  transmission  capacity  and 
 payphone  CPE,  we  note  that  in  the  Interstate,  Interexchange  Marketplace  Notice,  we  stated  that 
 we  would  consider  in  this  proceeding  "the  issue  of  bundling  pay  telephone  equipment  with  the 
 underlying  transmission  capacity."  111  In  the  Notice,  we  tentatively  concluded  that  other  IXC 
 bundling  issues  should  be  treated  under  the  same  rules  that  we  proposed  in  the  Interstate, 
 Interexchange  Marketplace  proceeding.  112  We  decline  to  adopt  in  this  proceeding  any  rules 
 regarding  the  bundling  of  payphone  CPE  with  the  underlying  transmission  capacity.  113  We  do 
 not  have  a  sufficient  record  to  revise,  with  regard  to  payphone  CPE,  the  Commission's 
 conclusion  in  the  Computer  II  proceeding  that  there  are  public  interest  benefits  in  unbundling 
 CPE  from  the  underlying  transmission  service.  114  The  issue  of  IXC  CPE  bundling  will  be 
 addressed  in  the  Interstate,  Interexchange  Marketplace  proceeding. 
 69. 
 70. 
 71.  C.  NONSTRUCTURAL  SAFEGUARDS  FOR  BOC  PROVISION  OF  PAYPHONE  SERVICE 


 72.  73.  The  foregoing  parts  establish  a  compensation  arrangement  that  applies  equally  to 
 the  payphone  operations  of  the  BOCs,  other  LECs,  AT&  T  and  PSPs  not  affiliated  with  LECs.  In 
 this  part,  we  address  certain  operating  requirements  that  are  imposed  only  on  the  BOCs' 
 payphone  operations. 
 74.  75.  Section  276(  b)(  1)(  C)  directs  the  Commission  to  "prescribe  a  set  of 


 nonstructural  safeguards  for  Bell  operating  company  payphone  service  to  implement  the 
 provisions  of  paragraphs  (1)  and  (2)  of  subsection  (a),  which  safeguards  shall,  at  a  minimum, 
 include  the  nonstructural  safeguards  equal  to  those  adopted  in  the  Computer  Inquiry  -  III  (CC 
 Docket  No.  90-  623)  proceeding[.]"  115  As  referred  to  in  Section  276(  b)(  1)(  C),  Section  276(  a) 
 provides  that  a  BOC  "(  1)  shall  not  subsidize  its  payphone  service  directly  or  indirectly  from  its 
 telephone  exchange  service  operations  or  its  exchange  access  operations;  and  (2)  shall  not  prefer 
 or  discriminate  in  favor  of  its  payphone  service."  116 


 111  Policy  and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  Notice  of  Proposed  Rulemaking, 
 CC  Docket  No.  96-  61  (rel.  Mar.  25,  1996)  at  para.  91  (Interstate,  Interexchange  Marketplace  Notice). 


 112  Notice  at  para.  55. 


 113  Interstate,  Interexchange  Marketplace  Notice  at  para.  91. 
 114  Computer  II,  77  FCC  2d  at  438-  447;  47  C.  F.  R.    64.  702(  e). 
 115  47  U.  S.  C.    276  (b)(  1)(  C). 
 116  47  U.  S.  C.    276(  a). 
92
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 93 
 76. 
 77.  1.  The  Notice 
 78. 
 79.  In  the  Notice,  we  tentatively  concluded  that  all  Computer  III  117 
 nonstructural  safeguards  must  be  applied  to  meet  our  obligation  "to  prescribe  nonstructural 
 safeguards  for  [BOC]  payphone  service"  under  the  1996  Act.  118  We  also  solicited  comment  on 
 whether  there  are  other  nonstructural  safeguards  that,  while  not  explicitly  specified  in  Computer 
 III,  should  be  applied  to  BOC  payphones.  119 
 80. 
 81.  To  ensure  BOC  compliance  with  the  Computer  III  and  Open  Network 
 Architecture  (ONA)  requirements,  we  proposed  a  requirement  that  each  BOC  file,  within  90 
 days  of  the  effective  date  of  this  Report  and  Order,  an  initial  Comparably  Efficient 
 Interconnection  (CEI)  plan  describing  how  it  intends  to  comply  with  the  CEI  equal  access 
 parameters  and  nonstructural  safeguards  for  the  provision  of  payphone  services.  120 
 82. 
 83.  Currently,  the  Commission  regulates  BOC  provision  of  enhanced  services 
 through  CEI  and  ONA  requirements  that  mandate  unbundled  nondiscriminatory  access  to  BOC 
 network  features  and  functionalities.  121  Pursuant  to  these  requirements,  BOCs  must  file  a 
 service-  specific  CEI  plan  before  offering  any  enhanced  service  on  an  integrated  basis.  122  A  BOC 


 117  See  Amendment  of  Section  64.  702  of  the  Commission's  Rules  and  Regulations  (Computer  III),  CC  Docket 
 No.  85-  229,  Phase  I,  104  FCC  2d  958  (1986)  (Phase  I  Order),  recon.,  2  FCC  Rcd  3035  (1987)  (Phase  I 
 Reconsideration  Order),  further  recon.,  3  FCC  Rcd  1135  (1988)  (Phase  I  Further  Reconsideration  Order),  second 
 further  recon.,  4  FCC  Rcd  5927  (1989)  (Phase  I  Second  Further  Reconsideration  Order);  Phase  I  Order  and  Phase  I 
 Reconsideration  Order  vacated  California  v.  FCC,  905  F.  2d  1217  (9th  Cir.  1990)  (California  I);  Phase  II,  2  FCC  Rcd 
 3072  (1987)  (Computer  III  Phase  II  Order),  recon.,  3  FCC  Rcd  1150  (1988)  (Phase  II  Reconsideration  Order), 
 further  recon.,  4  FCC  Rcd  5927  (1989)  (Phase  II  Further  Reconsideration  Order);  Phase  II  Order  vacated,  California 
 I,  905  F.  2d  1217  (9th  Cir.  1990);  Computer  III  Remand  Proceeding,  5  FCC  Rcd  7719  (1990)  (ONA  Remand  Order), 
 recon.,  7  FCC  Rcd  909  (1992),  pets.  for  review  denied,  California  v.  FCC,  4  F.  3d  1505  (9th  Cir.  1993)  (California 


 II);  Computer  III  Remand  Proceedings:  Bell  Operating  Company  Safeguards  and  Tier  1  Local  Exchange 
 Company  Safeguards,  6  FCC  Rcd  7571  (1991)  (BOC  Safeguards  Order),  BOC  Safeguards  Order  vacated  in  part  and  remanded,  California  v.  FCC,  39  F.  3d  919  (9th  Cir.  1994)  (California  III),  cert.  denied,  115  S.  Ct.  1427  (1995). 


 118  Notice  at  para.  58. 
 119  Id. 
 120  Id.  at  para.  60. 
 121  Filing  and  Review  of  Open  Network  Architecture  Plans,  4  FCC  Rcd  1  (1988)  (BOC  ONA  Order),  recon.,  5 
 FCC  Rcd  3084  (1990)  (BOC  ONA  Reconsideration  Order);  5  FCC  Rcd  3103  (1990)  (BOC  ONA  Amendment 
 Order),  erratum,  5  FCC  Rcd  4045,  pets.  for  review  denied,  California  v.  FCC,  4  F.  3d  1505  (9th  Cir.  1993),  recon.,  8 
 FCC  Rcd  97  (1993)  (BOC  ONA  Amendment  Reconsideration  Order);  6  FCC  Rcd  7646,  7649-  50  (1991)  (BOC 
 ONA  Further  Amendment  Order);  8  FCC  Rcd  2606  (1993)  (BOC  ONA  Second  Further  Amendment  Order),  pet.  for 
 review  denied,  California  v.  FCC,  4  F.  3d  1505  (9th  Cir.  1993). 


 122  Phase  I  Order,  104  FCC  2d  at  964-  965. 
93
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 94 
 must  demonstrate  in  its  CEI  plan  how  it  would  provide  competing  enhanced  service  providers 
 with  "equal  access"  to  all  basic  underlying  network  services  the  BOC  used  to  provide  its  own 
 enhanced  services.  123  Subsequently,  the  Commission  required  BOCs  to  develop  and  implement 
 ONA  plans  detailing  more  fundamental  unbundling  of  their  basic  network  services.  124  ONA 
 requires  further  unbundling  of  network  elements  than  under  CEI  because  it  is  not  limited  to  those 
 elements  associated  with  specific  BOC  enhanced  services.  125  In  1993,  the  Common  Carrier 
 Bureau  lifted  structural  separation  requirements  after  each  BOC  demonstrated  that  its  ONA  plan 
 complied  with  the  BOC  Safeguards  Order.  126  Following  the  California  III  court  decision,  127  the 
 Commission  has  continued  to  require  BOCs  to  file  CEI  plans  for  each  individual  enhanced 
 service  they  offer  in  addition  to  fulfilling  the  access  requirements  of  its  ONA  plan.  128 


 2.  Comments 
 1.  California  PUC,  One  Call,  Ameritech,  and  USTA  support  Computer  III 
 safeguards  and  CEI.  129  Florida  PSC  argues  that,  if  nonstructural  safeguards  are  used,  specific  cost 


 123  See  Phase  I  Order,  104  FCC  2d  at  1036. 


 124  Computer  III  Further  Remand  Proceedings:  Bell  Operating  Company  Provision  of  Enhanced  Services, 
 Notice  of  Proposed  Rulemaking,  10  FCC  Rcd  8360,  8372,  para.  17  (1995)  ("  Computer  III  Further  Remand 
 Proceedings"). 


 125  Id. 


 126  See  Bell  Atlantic's  Notice  and  Petition  for  Removal  of  the  Structural  Separation  Requirement  and  Waiver 
 of  Certain  State  Tariffing  Requirements,  CC  Docket  Nos.  90-  623  and  88-  2,  Phase  I,  7  FCC  Rcd  3877  (1992)  (Bell 
 Atlantic  Order);  Southwestern  Bell  Telephone  Company  Notice  and  Petition  for  Removal  of  the  Structural 
 Separation  Requirement  and  Waiver  of  Certain  State  Tariffing  Requirements,  CC  Docket  Nos.  90-  623  and  88-  2, 
 Phase  I,  7  FCC  Rcd  7294  (1992)  (SWBT  Order);  US  West  Notice  and  Petition  for  Removal  of  the  Structural 
 Separation  Requirement  and  Waiver  of  Certain  State  Tariffing  Requirements,  CC  Docket  Nos.  90-  623  and  88-  2, 
 Phase  I,  7  FCC  Rcd  3639  (1992)  (US  West  Order);  Ameritech  Operating  Companies  Notice  and  Petition  for 
 Removal  of  the  Structural  Separation  Requirement  and  Waiver  of  Certain  State  Tariffing  Requirements,  CC  Docket 
 Nos.  90-  623  and  88-  2,  Phase  I,  7  FCC  Rcd  4104  (1992)  (Ameritech  Order);  New  York  Telephone  Company  and 
 New  England  Telephone  Company  Notice  and  Petition  for  Removal  of  the  Structural  Separation  Requirement  and 
 Waiver  of  Certain  State  Tariffing  Requirements,  CC  Docket  Nos.  90-  623  and  88-  2,  Phase  I,  7  FCC  Rcd  8633  (1992) 
 (NYNEX  Order);  Pacific  Bell  and  Nevada  Bell  Notice  and  Petition  for  Removal  of  the  Structural  Separation 
 Requirement  and  Waiver  of  Certain  State  Tariffing  Requirements,  CC  Docket  Nos.  90-  623  and  88-  2,  Phase  I,  8  FCC 
 Rcd  3982  (1993)  (Pacific  Order);  BellSouth  Corporation  Notice  and  Petition  for  Removal  of  the  Structural 
 Separation  Requirement  and  Waiver  of  Certain  State  Tariffing  Requirements,  CC  Docket  Nos.  90-  623  and  88-  2, 
 Phase  I,  8  FCC  Rcd  4864  (1993)  (BellSouth  Order). 


 127  California  v.  FCC,  39  F.  3d  919  (9th  Cir.  1994)  (California  III),  cert.  denied,  115  S.  Ct.  1427  (1995). 


 128  Regarding  further  proceedings  on  remand,  see  Computer  III  Further  Remand  Proceedings:  Bell  Operating 
 Company  Provision  of  Enhanced  Services,  10  FCC  Rcd  8360  (1995). 


 129  California  PUC  Comments  at  17;  Ameritech  Comments  at  15;  One  Call  Comments  at  9-  10;  USTA 
 Comments  at  10. 
94
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 95 
 pools  and  allocators  should  be  used  to  identify  the  existence  of  subsidies.  130  GPCA  supports  the 
 Computer  III  safeguards  and  argues  that  they  should  be  strengthened  by  requiring  that  the  BOCs 
 also:  (1)  provide  unbundled  specific  services  such  as  answer  supervision  and  flexible  call  rating 
 based  on  subscribers  specifications,  and  continue  to  provide  dialtone  and  blocking  and  screening; 
 (2)  offer  volume  discounts  on  a  equal  basis  to  aggregators;  (3)  provide  service  order  processing; 
 (4)  implement  safeguards  against  interference  with  letters  of  agency;  (5)  follow  Customer 
 Proprietary  Network  Information  (CPNI)  restrictions;  (6)  file  CEI  plans;  (7)  conduct  independent 
 audits;  and  (8)  maintain  publicly  available  contracts.  131  SW  Bell  argues  that  there  is  no  incentive 
 for  cross-  subsidization  with  price  cap  regulation  and  the  elimination  of  sharing.  132  Ameritech 
 disagrees  with  the  Commission  that  a  separate  proceeding  is  necessary  to  develop  accounting 
 safeguards  different  than  those  applied  in  Computer  III.  133  Inmate  Coalit  ion  argues  that 
 additional  safeguards  should  include  accounting  and  fraud  control,  billing  and  collection,  and 
 CPNI  availability.  134  USTA  argues  that  pursuant  to  Section  276,  nonstructural  safeguards  only 
 apply  to  BOCs.  135  GPCA  argues  that  the  Computer  III  safeguards  should  apply  to  other  LECs, 
 particularly  those  with  annual  revenues  greater  than  100  million  dollars,  including  GTE,  Sprint 
 and  Alltel,  and  LECs  that  service  Puerto  Rico  and  the  Virgin  Islands.  136  Ohio  PUC  argues  that 
 Computer  III  nonstructural  safeguards  should  apply  to  all  LECs  if  payphones  are  deregulated  and 
 structural  separation  is  not  imposed.  137 
 2. 
 3.  AT&  T  and  GPCA  support  the  imposition  of  CEI  plans  on  the  BOC 
 provision  of  payphone  services.  138  The  RBOCs  and  PacTel  argue  that  CEI  plans  are  not  necessary 
 because  these  are  basic,  not  enhanced  services.  139  AT&  T  contends  that  CPNI  requirements 
 should  apply  to  BOC  provision  of  payphones.  140  One  Call  argues  that  if  CPNI  is  not  restricted,  it 


 130  Florida  PSC  Comments  at  8. 
 131  GPCA  Comments  at  8-  12,  23-  25. 
 132  SW  Bell  Reply  at  4-  6. 
 133  Ameritech  Comments  at  15-  16;  One  Call  Comments  at  9-  10. 
 134  Inmate  Coalition  Comments  at  22. 
 135  USTA  Reply  at  7-  8. 
 136  GPCA  Reply  at  18;  GPCA  Comments  at  26. 
 137  Ohio  PUC  Comments  at  13. 
 138  AT&  T  Comments  at  22;  GPCA  Comments  at  23-  25. 
 139  PacTel  Reply  at  5-  6. 
 140  AT&  T  Comments  at  23,  n.  47. 
95
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 96 
 should  be  available  to  all  providers.  141  GPCA  contends  that  information  about  the  use  of  LEC 
 payphones  is  CPNI  that  should  be  available  to  any  party  upon  reasonable  request.  142  AT&  T 
 supports  the  network  information  disclosure  requirements  established  in  our  implementation  of 
 Section  251  of  the  1996  Act,  plus  the  addition  of  two  requirements  that  BOCs  file  network 
 information  disclosures  with  the  Commission,  and  that  there  be  one  year  notification  of  network 
 changes.  143 
 4. 
 5.  3.  Discussion 
 6. 
 7.  a.  Nonstructural  Safeguards 
 8. 
 9.  In  addition  to  the  accounting  safeguards  that  we  will  adopt  with  respect  to 
 payphone  services  in  the  accounting  safeguards  proceeding,  we  conclude  that  the  Computer  III 
 and  ONA  nonstructural  safeguards  will  provide  an  appropriate  regulatory  framework  to  ensure 
 that  BOCs  do  not  discriminate  or  cross-  subsidize  in  their  provision  of  payphone  service.  The 
 Commission  and  the  BOCs  have  substantial  experience  in  the  application  of  these  safeguards 
 that  will  facilitate  their  use  in  the  context  of  BOC  payphone  services.  We  conclude  that  we  do 
 not  have  to  adopt  any  additional  safeguards  beyond  Computer  III  and  ONA  because  of  the 
 comprehensive  nature  of  that  regulatory  structure  and  the  lack  of  a  record  necessary  to  conclude 
 that  a  more  burdensome  framework  should  be  adopted  and  is  in  the  public  interest.  As  discussed 
 above,  we  decline  to  require  structural  separation  requirements.  To  ensure  that  the  BOCs 
 comply  with  the  Computer  III  and  ONA  nonstructural  separation  requirements  for  the  provision 
 of  payphone  services,  we  require  that,  within  90  days  after  the  effective  date  of  this  Report  and 
 Order,  BOCs  must  file  CEI  plans  describing  how  they  will  comply  with  the  Computer  III 
 unbundling,  CEI  parameters,  accounting  requirements,  CPNI  requirements  as  modified  by 
 Section  222  of  the  1996  Act,  network  disclosure  requirements,  and  installation,  maintenance, 
 and  quality  nondiscrimination  requirements. 
 10. 
 11.  The  Computer  III  nonstructural  safeguards  currently  apply  to  a  BOC's 
 provision  of  payphone  service  if  enhanced  services  are  provided  through  the  payphone.  144  Under 
 the  Computer  III  and  ONA  framework,  BOCs  are  permitted  to  provide  enhanced  services  on  an 
 integrated  basis  subject  to  nondiscrimination  safeguards.  The  safeguards  the  Commission 
 adopted  in  Computer  III  and  ONA  include:  (1)  nondiscriminatory  access  to  network  features  and 
 functionalities;  (2)  restrictions  on  the  use  of  CPNI;  (3)  network  information  disclosure  rules;  (4) 
 nondiscrimination  in  the  provision,  installation,  and  maintenance  of  services  as  well  as 


 141  One  Call  Comments  at  10. 
 142  GPCA  Comments  at  21. 
 143  AT&  T  Comments  at  22-  3. 
 144  See  American  Telephone  and  Telegraph  Company  Petition  for  Limited  Waiver  of  Comparably  Efficient 
 Interconnection  Requirements  of  Third  Computer  Inquiry;  Report  and  Order,  8  FCC  Rcd  6808  (1993). 
96
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 97 
 nondiscrimination  reporting  requirements;  and  (5)  cost  accounting  safeguards.  We  conclude 
 that  all  Computer  III  and  ONA  nonstructural  safeguards  must  be  applied  to  meet  our  obligation 
 under  the  1996  Act.  145  Pursuant  to  these  requirements,  we  note  that  any  basic  services  provided 
 by  a  BOC  to  its  payphone  affiliate  must  be  available  on  a  nondiscriminatory  basis  to  other 
 payphone  providers  and  that  payphone  providers  may  request  additional  unbundled  payphone 
 services  through  the  120  day  ONA  service  request  process.  146 
 12. 
 13.  Except  for  the  Commission's  Part  64  cost  allocation  rules  and  Part  32 
 affiliate  transaction  rules,  we  decline  to  apply  the  Computer  III  nonstructural  safeguards  to  other 
 LECs.  We  concluded  in  the  BOC  CPE  Relief  Order  that  application  of  those  safeguards  would 
 be  "unduly  burdensome  and  not  necessary  to  protect  against  potential  anticompetitive 
 conduct."  147  We  similarly,  declined  to  apply  Computer  III  and  ONA  nonstructural  safeguards  to 
 other  LECs,  except  GTE.  148  Moreover,  Section  276  specifically  directs  the  Commission  to 
 establish  nonstructural  safeguards  for  the  BOCs,  but  does  not  include  such  a  requirement 
 regarding  other  LECs.  149 
 14. 
 15.  b.  BOC  CEI  Plans 
 16. 
 17.  We  require  that  each  BOC  file,  within  90  days  of  the  effective  date  of  this 
 Report  and  Order,  an  initial  CEI  plan  describing  how  it  intends  to  comply  with  the  CEI  equal 
 access  parameters  and  nonstructural  safeguards  for  the  provision  of  payphone  services.  In 
 Computer  III,  CEI  plans  have  been  an  integral  part  of  ensuring  that  BOCs  do  not  discriminate  in 
 providing  basic  underlying  services  to  enhanced  services  providers.  We  likewise  require  the 
 filing  of  CEI  plans  for  payphone  services,  even  though  we  have  traditionally  only  required  such 
 plans  for  the  BOC  provision  of  enhanced  services,  to  ensure  that  the  BOCs  provide  payphone 
 services  in  a  nondiscriminatory  manner  and  consistent  with  other  Computer  III  and  ONA 
 requirements.  Finally,  we  conclude  that  this  requirement  is  consistent  with  the  requirement  in 
 Section  276  that  we  establish  safeguards,  at  a  minimum,  "equal  to  those  adopted  in  the  Computer 
 III  Inquiry."  150 
 18. 


 145  47  U.  S.  C.    276(  b)(  1)(  C). 
 146  See  BOC  ONA  Order,  4  FCC  Rcd  at  205-  6;  BOC  ONA  Amendment  Order,  5  FCC  Rcd  at  3117;  BOC 
 ONA  Further  Amendment  Order,  6  FCC  Rcd  at  7654-  6. 


 147  BOC  CPE  Relief  Order,  2  FCC  Rcd  at  157;  See  also  3  FCC  Rcd  22  (1987). 


 148  Computer  III  Phase  II  Order,  2  FCC  Rcd  at  3101.  In  1994,  the  Commission  decided  to  apply  the  Computer 
 III  and  ONA  requirements  to  GTE  Corporation.  Application  of  Open  Network  Architecture  and  Nondiscrimination 
 Safeguards  to  GTE  Corporation,  CC  Docket  No.  92-  256,  9  FCC  Rcd  4922  (1994). 


 149  47  U.  S.  C.    276(  b)(  1)(  C). 


 150  Id. 
97
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 98 
 19.  In  a  CEI  plan,  a  BOC  must  describe  how  it  intends  to  comply  with  the  CEI 
 "equal  access"  parameters  for  the  specific  payphone  service  it  intends  to  offer.  The  CEI  equal 
 access  parameters  include:  interface  functionality;  unbundling  of  basic  services;  resale;  technical 
 characteristics;  installation,  maintenance,  and  repair;  end  user  access;  CEI  availability; 
 minimization  of  transport  costs;  and  availability  to  all  interested  customers  or  enhanced  service 
 providers.  151 
 20. 
 21.  In  its  CEI  plan,  a  BOC  must  explain  how  it  will  unbundle  basic  payphone 
 services.  Thus,  a  BOC  must  indicate  how  it  plans  to  unbundle,  and  associate  with  a  specific  rate 
 element  in  a  tariff,  the  basic  services  and  basic  service  functions  that  underlie  its  provision  of 
 payphone  service.  152  Nonproprietary  information  used  by  the  BOC  in  providing  the  unbundled 
 basic  services  will  be  made  available  as  part  of  CEI.  153  In  addition,  any  options  available  to  the 
 BOC  in  the  provision  of  such  basic  services  or  functions  would  be  included  in  the  unbundled 
 offerings.  154 
 22. 
 23.  A  BOC  also  must  explain  in  its  CEI  plan  how  it  will  comply  with  the 
 CPNI  requirements.  We  have  continued  to  require  compliance  with  the  Computer  III  and  ONA 
 CPNI  requirements  that  are  not  inconsistent  with  Section  222  of  the  1996  Act,  which  was 
 immediately  effective.  155  In  the  CPNI  NPRM,  we  are  currently  examining  a  carrier's  obligations 
 under  the  CPNI  provisions  of  the  1996  Act.  156  We  disagree  with  GPCA's  contention  that 
 pursuant  to  the  Commission's  CPNI  requirements,  usage  of  LEC  payphones  should  be  treated  as 
 aggregate  CPNI  that  should  be  made  available  to  any  party  upon  request.  157  Under  Computer  III 
 and  ONA  BOCs  must  make  aggregate  CPNI  available  to  third  parties  if  they  make  it  available  to 
 BOC  personnel  for  marketing.  This  requirement  does  not  apply  merely  upon  a  third  party's 
 request,  and  the  requirement  does  not  apply  to  LECs  other  than  the  BOCs.  Moreover,  aggregate 
 CPNI  includes  compilations  of  CPNI  information,  not  individual  locations.  158  We  will  consider 


 151  Phase  I  Order,  104  FCC  2d  at  1039-  1043. 


 152  Id.  at  1040. 
 153  Id. 
 154  Id. 
 155  47  U.  S.  C.    222.  See  Implementation  of  the  Telecommunications  Act  of  1996,  Telecommunications 
 Carriers'  Use  of  Customer  Proprietary  Network  Information  and  Other  Customer  Information,  Notice  of  Proposed 
 Rulemaking,  CC  Docket  No.  96-  115  (rel.  May  17,  1996)  (CPNI  NPRM). 


 156  CPNI  NPRM  at  para.  37-  8. 


 157  The  statute  defines  the  term  "aggregate  customer  information"  as  "collective  data  that  relates  to  a  group  or 
 category  of  services  or  customers,  from  which  individual  customer  identities  and  characteristics  have  been 
 removed."  47  U.  S.  C.    222(  f)(  2). 


 158  Computer  III  Phase  II  Order,  2  FCC  Rcd  at  3097. 
98
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 99 
 the  requirements  for  LEC  provision  of  aggregate  CPNI  under  Section  222  in  the  CPNI 
 proceeding.  159 
 24. 
 25.  BOCs  must  comply  with  the  Computer  III  and  ONA  network  informat  ion 
 disclosure  requirements.  The  BOCs  cannot  design  new  network  services  or  change  network 
 technical  specifications  to  the  advantage  of  their  own  payphones.  160  Pursuant  to  these  rules,  the 
 BOCs  must  disclose  information  about  changes  in  their  networks  or  new  network  services  at  two 
 different  points  in  time.  161  First,  disclosure  must  occur  at  the  "make/  buy"  point:  when  a  BOC 
 decides  to  make  for  itself,  or  procure  from  an  unaffiliated  entity,  any  product  whose  design 
 affects  or  relies  on  the  network  interface.  Second,  a  BOC  must  publicly  disclose  technical 
 information  about  a  new  service  12  months  before  it  is  introduced.  If  the  BOC  can  introduce  the 
 service  within  12  months  of  the  make/  buy  point,  it  would  make  a  public  disclosure  at  the 
 make/  buy  point.  The  public  disclosure,  however,  must  not  occur  less  than  six  months  before  the 
 introduction  of  the  service.  162 
 26. 
 27.  In  addition,  BOCs  must  comply  with  the  Computer  III  and  ONA 
 requirements  regarding  nondiscrimination  in  the  quality  of  service,  installation,  and  maintenance. 
 BOCs  must  indicate  in  their  CEI  plans  how  they  will  comply  with  these  requirements.  We  do 
 not  impose  any  new  continuing  reporting  requirement  because  BOCs  are  already  subject  to 
 reporting  requirements  pursuant  to  Computer  III  and  ONA.  163  BOCs  must  report  on  payphone 
 services  as  they  do  for  other  basic  services. 
 28. 
 29.  30.  D.  ABILITY  OF  BOCs  TO  NEGOTIATE  WITH  LOCATION 


 31.  PROVIDERS  ON  THE  PRESUBSCRIBED  INTERLATA  CARRIER 
 32. 
 33.  Section  276(  b)(  1)(  D)  of  the  1996  Act  directs  the  Commission  to  eliminate 
 the  court-  ordered  competitive  barrier  prohibiting  the  BOCs  from  participating  in  the  selection  of 
 presubscribed  interLATA  carriers  to  their  payphones,  unless  we  find  such  activity  to  be  contrary 
 to  the  public  interest.  164  While  independent  payphone  service  providers,  as  well  as  non-  BOC 


 159  CPNI  NPRM  at  para.  37. 
 160  BOC  Safeguards  Order,  6  FCC  Rcd  at  7602-  04. 
 161  Amendment  to  Sections  64.  702  of  the  Commission's  Rules  and  Regulations  (Third  Computer  Inquiry), 
 Report  and  Order,  2  FCC  Rcd  3072,  3087-  88  (1988).  The  network  information  subject  to  disclosure  includes  only 
 network  changes  or  new  basic  services  that  affect  the  interconnection  of  enhanced  services  with  the  network.  Id.  at 
 3097.  These  network  disclosure  rules  parallel  those  for  CPE. 


 162  Computer  III,  3  FCC  Rcd  1150,  1164  (1988). 


 163  See  BOC  ONA  Reconsideration  Order,  5  FCC  Rcd  at  3093,  3096,  Appendix  B. 
 164  47  U.  S.  C.    276(  b)(  1)(  D);  See  United  States  v.  Western  Elec.  Co.,  698  F.  Supp.  348,  360  (D.  D.  C.  1988). 
99
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 100 
 LECs,  may  receive  a  portion  of  the  commissions  from  IXCs  on  interLATA  operator  service  calls 
 using  the  presubscribed  carrier  to  their  payphones,  the  BOCs  do  not  receive  any  revenues 
 directly  from  these  calls.  At  the  same  time,  BOCs  have  received  subsidies  from  local  access 
 services  for  their  payphone  operations,  which  have  not  been  available  to  independent  payphone 
 service  providers.  165  Section  276  promotes  competition  for  the  provision  of  payphone  services 
 by  directing  the  elimination  of  both  these  market-  distorting  factors.  166 
 34. 
 35. 
 36. 
 37. 
 38.  1.  Is  BOC  Ability  to  Negotiate  Presubscription  39.  in  the  Public  Interest? 


 40. 
 41.  a.  The  Notice 
 42. 
 43.  Under  Section  276(  b)(  1)(  D)  of  the  1996  Act,  the  Commission  is  to  "provide  for 
 Bell  operating  company  payphone  service  providers  to  have  the  same  right  that  independent 
 payphone  service  providers  have  to  negotiate  with  the  location  provider  on  the  location 
 provider's  selecting  and  contracting  with,  and,  subject  to  the  terms  of  any  agreement  with  the 
 location  provider,  to  select  and  contract  with,  the  carriers  that  carry  interLATA  calls  from  their 
 payphones,  unless  the  Commission  determines  in  the  rulemaking  pursuant  to  this  section  that  it  is 
 not  in  the  public  interest."  The  legislative  history  of  Section  276  states  that  the  location  provider 
 "has  the  ultimate  decision-  making  authority  in  determining  interLATA  services  in  connection 
 with  the  choice  of  payphone  providers."  167 
 44. 
 45.  In  the  Notice,  the  Commission  sought  comment  on  whether  the  BOCs  should  be 
 permitted  to  select  and  contract  with  the  interLATA  carriers  that  carry  interLATA  traffic  from 
 BOC  payphones.  168  The  Commission  sought  comment  on  whether  the  ability  to  select  the 
 interLATA  carrier  serving  their  payphones  is  likely  to  permit  the  BOCs  to  behave 
 anticompetitively  in  the  payphone  market  in  the  absence  of  safeguards  to  prevent  cost 
 misallocations  and  discrimination.  169  Similarly,  the  Commission  sought  comment  on  whether  the 
 structural  and  accounting  safeguards  mandated  under  Sections  271  and  272  of  the  1996  Act,  and 
 any  Commission  rules  implementing  these  safeguards,  are  sufficient  to  prevent  anticompetitive 
 abuses.  The  Commission  also  sought  comment  on  to  what  extent  a  BOC  not  authorized  to 
 provide  in-  region  interLATA  service  under  Section  271  of  the  1996  Act  should  be  allowed  to 


 165  See  Section  III.  B.,  above. 


 166  47  U.  S.  C.    276(  b)(  1)(  B)  and  (D) 
 167  S.  Conf.  Rep.  No.  104-  230  at  44. 
 168  Notice  at  para.  71. 
 169  Id.  at  para.  72. 
100
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 101 
 participate  in  the  selection  of  the  interLATA  carrier,  especially  if  the  BOC  has  a  non-  attributable 
 interest  in  the  interLATA  carrier,  such  as  an  option  to  purchase  or  an  agreement  to  merge.  170 
 46. 
 47.  b.  Comments 
 48. 


 170  Id. 
101
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 102 
 49.  The  RBOCs  and  Ameritech  argue  that  the  Act  specifically  directs  the 
 Commission  to  allow  the  BOCs  to  negotiate  presubscription  carriers  for  their  payphones  unless 
 the  Commission  makes  a  finding  that  such  authority  is  contrary  to  the  public  interest.  1  Other 
 commenters,  however,  argue  that  the  Commission  should  grant  this  authority  only  if  and  when  it 
 can  affirmatively  conclude  that  allowing  the  BOCs  to  negotiate  would  be  in  the  public  interest.  2 
 Oncor  additionally  asserts  that  consideration  of  this  issue  is  premature  until  such  time  as  the 
 Commission  has  adopted  rules  addressing  other  requirements  of  the  1996  Act,  including  those 
 governing  interconnection  rights,  and  the  authority  of  BOCs  to  provide  in-  region  interLATA 
 service.  3 
 50. 
 51.  The  RBOCs  assert  that  granting  them  equal  rights  with  the  independent  PSPs  to 
 negotiate  presubscription  for  their  payphones  promotes  the  public  interest.  The  RBOCs  argue 
 that  an  essential  assumption  underlying  the  1996  Act  is  that  competition  is  in  the  public  interest, 
 and  it  is  therefore  in  the  public  interest  to  allow  the  them  to  compete  against  the  independent 
 PSPs  with  respect  to  presubscription  of  their  payphones.  4  The  RBOCs  assert  that  such  authority 
 is  critical  to  establishing  market  parity  and  increasing  competition  between  BOC  and  non-  BOC 
 PSPs.  5  The  RBOCs  and  Ameritech  state  that  under  the  current  rules,  they  are  at  a  competitive 
 disadvantage  due  to  the  inability  to  offer  "one-  stop  shopping"  to  location  providers  who  wish  to 
 deal  with  a  single  entity  for  equipment,  local  service  and  toll  service.  6  The  RBOCs  also  argue 
 that  the  existing  presubscription  restriction  denies  consumers  the  benefits  of  true  competition  by 
 preventing  them  from  aggregating  interLATA  and  intraLATA  traffic  in  order  to  negotiate  the 
 best  possible  rates  from  interLATA  carriers,  while  allowing  the  independent  PSPs  to  do  so.  7 
 Additionally,  the  RBOCs  and  Ameritech  contend  that  if  they  are  denied  the  equal  opportunity  to 
 negotiate  interLATA  carriers,  while  simultaneously  being  stripped  of  existing  payphone-supporting 
 subsidies,  the  public  will  be  harmed  by  the  likely  reduction  in  the  number  of 
 payphones  they  provide.  8  Finally,  the  RBOCs  and  Ameritech  assert  that  granting  them  equal 
 opportunity  to  choose  the  carrier  for  their  payphones  would  serve  to  protect  consumers  from 
 price-  gouging  carriers,  since  they  have  a  strong  interest  in  protecting  the  reputation  and  brand 


 1  RBOC  Comments  at  42;  Ameritech  Comments  at  22. 
 2  See,  e.  g.,  AT&  T  Comments  at  26;  Oncor  Comments  at  2-  3. 
 3  Oncor  Comments  at  11-  13. 
 4  RBOC  Reply  at  25;  BellSouth  Comments  at  8. 
 5  RBOC  Comments  at  41-  42.  See  also  USTA  Comments  at  11. 
 6  Ameritech  Comments  at  20;  RBOC  Comments  at  41-  42. 
 7  RBOC  Comments  at  41-  42. 
 8  Id.;  Ameritech  Comments  at  21-  22. 
102
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 103 
 name  recognition  of  their  payphones.  9 
 52. 
 53.  Other  commenters,  including  state  regulatory  agencies,  agree  that  increased 
 compet  it  ion  result  ing  from  authorizing  the  BOCs  to  negotiate  for  presubscript  ion  of  their 
 payphones  would,  standing  alone,  be  in  the  public  interest.  10  Many  non-  LEC  commenters, 
 however,  also  express  concern  that  such  authority  would  present  serious  risk  of  exclusionary 
 conduct  by  the  BOCs,  which  would  be  contrary  to  the  public  interest.  11 
 54. 
 55.  Many  of  the  commenters  expressing  concern  about  the  BOCs'  ability  to 
 act  anticompetitively  if  allowed  to  negotiate  presubscription  carriers  with  location  providers 
 pointed  to  the  BOCs'  80  percent  or  greater  share  of  the  payphone  units  in  their  respective 
 regions.  12  These  commenters  argue  that  this  high  share  of  the  payphone  market  will  allow  the 
 BOCs  to  aggregate  large  volumes  of  traffic  in  order  to  extract  concessions  from  the  IXCs  (in  the 
 form  of  either  lower  rates  or  higher  commissions),  not  available  to  the  independent  PSPs,  and 
 which  in  turn  could  be  used  to  extend  their  share  of  the  payphone  market.  13  AT&  T  states  that 
 BellSouth,  US  West  and  GTE  have  already  contacted  AT&  T  and  other  IXCs  concerning  the 
 possibility  of  entering  into  contracts  for  the  delivery  of  0+  interLATA  service  from  their 
 companies'  entire  base  of  payphones.  14  Some  of  these  commenters  contend  that  the  ability  to 
 aggregate  their  volumes  and  direct  them  to  a  single  carrier  would  allow  the  BOCs  to  exercise  a 
 degree  of  control  in  the  interLATA  market  prior  to  being  authorized  to  provide  interLATA 
 service  pursuant  to  Section  271  of  the  1996  Act.  15  WorldCom  also  identifies  the  BOCs' 
 exclusive  control  over  their  line-  based  0+  calling  cards  as  an  additional  basis  for  leveraging  the 
 location  providers  selection  of  the  presubscribed  IXC.  16 
 56. 
 57.  Some  commenters,  including  the  IXCs,  assert  that  the  BOCs  should  not  be 
 allowed  to  negotiate  for  presubscription  of  their  payphones  at  least  until  they  satisfy  the 
 requirements  for  entering  the  interLATA  market  pursuant  to  Section  271  of  the  1996  Act.  17 


 9  RBOC  Comments  at  42-  43;  BellSouth  Comments  at  7-  8;  Ameritech  Comments  at  21. 


 10  See,  e.  g.,  California  PUC  Comments  at  18;  Virginia  SCC  Comments  at  3-  4;  Florida  PSC  Comments  at  8-  9; 
 SDPOA  Reply  at  2. 


 11  See,  e.  g.,  AT&  T  Comments  at  24-  27. 


 12  APCC  Comments  at  42-  43;  New  Jersey  Payphone  Comments  at  16-  17;  AT&  T  Comments  at  24-  26;  Oncor 
 Comments  at  6;  CompTel  Comments  at  17. 


 13  Id.;  See  also  CompTel  Comments  at  17-  21. 


 14  AT&  T  Comments  at  25-  26. 
 15  Id.  at  24;  APCC  Comments  at  42-  43;  CPA  Comments  at  20;  CompTel  Comments  at  17-  21. 
 16  WorldCom  Comments  at  22. 
 17  AT&  T  Comments  at  24;  MCI  comments  at  19;  Sprint  Comments  at  29-  30;  CompTel  Comments  at  20-  21. 
103
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 104 
 These  commenters  argue  that  until  the  BOCs  face  significant  competition  in  the  local  exchange 
 market,  they  will  be  able  to  subsidize  commission  payments  to  location  providers  with  regulated 
 service  revenue  and,  thus,  behave  anticompetitively  in  the  payphone  market.  18  Some 
 commenters  also  assert  that  the  BOCs  could  be  expected  to  leverage  the  market  power  they 
 currently  possess,  both  in  the  payphone  market  and  local  telephone  markets,  to  inhibit  the 
 development  of  competition  in  the  payphone  market.  19 
 58. 
 59.  The  RBOCs  contend  that  the  payphone  market  is  competitive  and  that  they  do 
 not,  and  cannot,  exercise  market  power  in  the  payphone  industry.  20  While  acknowledging  that 
 they  have  between  60  and  80  percent  of  the  payphone  units  in  their  respective  regions,  the 
 RBOCs  assert  that  this  is  not  an  appropriate  measure  of  market  share  or  market  power.  21 
 BellSouth  argues  that  market  share  measurements  based  upon  number  of  payphone  units  are 
 misleading  because  a  significant  portion  of  the  BOC  payphones  are  non-  competitive  or  semi-public 
 payphones  producing  below  market-  level  revenues,  while  the  independent  PSPs  have 
 targeted  high  volume  locations.  22  BellSouth  asserts  that  within  the  most  competitive  market 
 segments,  market  share  numbers  actually  indicate  competitive  parity.  23  BellSouth  submitted 
 estimated  market  share  data  for  states  within  its  region  stating  that,  while  independent  PSPs  have 
 only  39  per  cent  of  the  payphone  units,  they  have  almost  55  per  cent  of  the  public  payphone 
 revenues,  compared  with  BellSouth's  45  per  cent.  24  GPCA  disagrees  with  the  market  share  data 
 submitted  by  the  BOCs,  including  their  exclusion  of  semi-  public  payphones  while  including 
 small-  business-  self-  supply  payphones  (payphone  sets  which  permit  small  businesses  to  self-supply 
 payphone  service)  in  the  independent  payphone  providers'  market  share.  25 
 60. 
 61.  The  RBOCs  also  assert  that  the  payphone  market  has  very  low  entry 
 barriers,  so  that  any  efforts  to  exclude  competition  would  be  futile.  26  Information  submitted  by 
 BellSouth  states  that,  within  its  region,  no  state  has  fewer  than  107  certificated  independent 
 PSPs,  while  two  states  (Florida  and  South  Carolina)  each  have  more  than  one-  thousand 


 18  MCI  Comments  at  19;  Oncor  Comments  at  6. 
 19  Oncor  Comments  at  5-  10;  One  Call  Reply  at  6. 
 20  RBOC  Reply  at  26-  27;  BellSouth  Comments  at  Appendix  1,  p.  1;  BellSouth  Reply  at  3. 
 21  BellSouth  Comments  at  Appendix  1,  p.  14-  16. 
 22  Id.;  BellSouth  Reply  at  3-  4. 
 23  BellSouth  Reply  at  4  and  Exhibit  A. 
 24  Id.  at  Exhibit  A. 
 25  GPCA  Reply  at  20  n.  7  (referencing  BellSouth  Comments  at  Attachment  1,  p.  15). 
 26  RBOC  Reply  at  27;  BellSouth  Comments  at  Appendix  1,  p.  8-  16. 
104
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 105 
 independent  PSPs.  27  BellSouth  and  Ameritech  contend  that  existing  nonstructural  and  structural 
 safeguards  are  adequate  to  protect  against  attempts  to  leverage  market  power  in  local  telephone 
 service  or  to  engage  in  discriminatory  conduct.  28  BellSouth  also  argues  that  until  a  BOC  is 
 allowed  to  offer  in-  region  interLATA  service,  interexchange  service  will  be  acquired  by  the 
 BOC  PSPs  from  a  separate  affiliate,  making  subsidization  easily  detected.  29  Ameritech  contends 
 that  Congress  has  specifically  resolved  this  issue  by  both  granting  BOCs  equal  rights  with  non-BOC 
 PSPs  to  participate  in  the  selection  of  carriers  for  its  payphones  and  granting  them  the  right 
 to  provide  interLATA  service  themselves.  Thus,  Ameritech  argues,  Congress  has  determined 
 that  the  promotion  of  one's  own  affiliated  interLATA  services,  whether  done  by  a  BOC  itself  or  a 
 through  a  separate  pay  telephone  operation,  is  not  to  be  condemned  as  discrimination.  30 
 BellSouth  and  Ameritech  also  assert  that  the  location  provider's  ultimate  control  in  selecting  the 
 PSP  will  act  as  a  check  on  a  BOC's  ability  to  exercise  market  power.  31 
 62. 
 63.  Many  commenters  urging  against  authorizing  BOC  presubscription  rights  also 
 propose  options  for  minimizing  the  anticompetitive  potential  should  the  Commission  decide  to 
 approve  that  authority.  As  noted  above,  several  of  these  comments  assert  that  granting  BOCs  the 
 ability  to  presubscribe  their  payphones  should  be  delayed  at  least  until  the  BOCs  are  faced  with 
 competition  in  the  intraLATA  market.  32  Other  commenters  argue  that  the  Commission  should 
 require  structural  separation  between  the  BOCs'  carrier  services  and  their  payphone  services.  33 
 Peoples  supports  giving  BOCs  the  freedom  to  select  the  interLATA  carrier  serving  their 
 payphones,  but  only  if  they  offer  payphone  service  from  a  structurally  separate  subsidiary.  34 
 California  PUC  expresses  concern  as  to  whether  existing  nonstructural  safeguards  provide 
 sufficient  protection  against  anticompetitive  behavior  by  the  BOCs,  but  contends  that 
 Commission  oversight  in  the  form  of  reporting  requirements  on  the  BOCs  with  respect  to 
 implementation  of  nondiscriminatory  payphone  service  should  provide  adequate  notice  of 
 anticompetitive  abuses.  35  To  deter  such  abuses,  California  PUC  asserts  that  the  states  should  be 


 27  BellSouth  Reply  at  Appendix  B. 
 28  RBOC  Comments  at  43;  Ameritech  Comments  at  25-  28. 
 29  RBOC  Comments  at  43. 
 30  Ameritech  Comments  at  25-  27. 
 31  BellSouth  Comments  at  7,  9;  Ameritech  Comments  at  19. 
 32  See,  e.  g.,  AT&  T  Comments  at  24;  CompTel  Comments  at  21;  MCI  Comments  at  19;  Sprint  Comments  at 
 29-  30. 


 33  See,  e.  g.,  One  Call  Reply  at  6-  7;  APCC  Comments  at  43-  44;  ACTEL  Comments  at  12. 


 34  Peoples  Reply  at  22-  23. 
 35  California  PUC  Comments  at  18;  see  also  Virginia  SCC  Comments  at  3-  4. 
105
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 106 
 given  authority  to  prevent  BOCs  from  giving  more  favorable  interLATA  rates  to  their  own 
 payphone  operations  or  other  similar  anticompetitive  behavior.  36 
 64. 
 65.  The  RBOCs  contend  that  the  Commission  need  not  adopt  rules  in  addition 
 to  the  structural  and  accounting  safeguards  mandated  under  Sections  271  and  272  of  the  1996 
 Act  in  order  to  prevent  them  from  engaging  in  cross-  subsidization  or  other  anticompetitive 
 conduct  with  respect  to  their  payphone  activities.  37  Ameritech  asserts  that  the  Commission  has 
 incorrectly  assumed  that  the  nondiscrimination  provisions  of  Section  272  of  the  1996  Act  will 
 apply  to  the  BOCs'  participation  in  the  choice  of  interLATA  carrier  at  BOC  payphones.  It  argues 
 that  it  will  not  be  the  network  part  of  the  BOC  that  will  be  selecting  the  interLATA  carrier,  but 
 the  entity  that  owns  the  payphones  --  which  by  that  time  will  have  gone  through  the  nonstructural 
 separation  required  by  Section  276.  Ameritech  contends  that  the  payphone  entity  will  not  be 
 required  to  maintain  separation  from  the  BOC  subsidiary  providing  in-  region  interLATA 
 services,  and  therefore  there  will  be  no  Section  272  rule  against  discrimination  applicable  as 
 between  the  payphone  operation  and  the  interLATA  separate  subsidiaries.  38 
 66. 
 67.  Some  commenters  propose  limitations  designed  to  prevent  the  BOCs  from 
 leveraging  their  high  payphone  interLATA  volume  in  order  to  obtain  rates  not  available  to 
 independent  PSPs.  39  APCC  contends  that  if  the  Commission  decides  to  grant  the  BOCs  the 
 ability  to  presubscribe  their  payphones,  then  the  Commission  should  also  adopt  rules  requiring 
 any  independent  PSPs  aggregating  at  least  one-  third  of  the  non-  LEC  payphone  volume  in  a 
 region  to  qualify  for  the  lowest  rates  made  available  by  a  carrier  to  a  competing  BOC.  40  CPA 
 and  GPCA  argue  that  the  Commission  should  consider  placing  a  limit  on  the  volume  of  calls  that 
 must  be  aggregated  to  receive  an  IXC's  highest  available  commission  level  for  0+  interLATA 
 calls.  41  Several  other  commenters  urge  the  Commission  to  adopt  safeguards  that  would  limit  the 
 volume  of  traffic  that  a  BOC  could  route  to  a  single  interLATA  carrier,  as  well  as  limit  the 
 BOCs'  ability  to  aggregate  payphone  volume  into  a  single  commission  agreement.  42  Florida  PSC 
 contends  that  the  Commission  should  adopt  rules  to  prevent  the  BOCs  from  giving  more 
 favorable  interLATA  rates  to  their  own  payphone  operations  than  to  their  payphone 


 36  California  PUC  Comments  at  18-  19.  Also  Florida  PSC  Comments  at  9. 
 37  BellSouth  Comments  at  8;  RBOC  Comments  at  37-  40;  RBOC  Reply  at  21-  22,  29. 
 38  Ameritech  Comments  at  25-  26. 
 39  See,  e.  g.,  One  Call  Reply  at  6-  7;  APCC  Comments  at  43-  44;  CPA  Comments  at  20-  21;  ACTEL  Comments 
 at  11-  12;  GPCA  Reply  at  20-  22. 


 40  APCC  Comments  at  43-  44. 


 41  CPA  Comments  at  20-  21;  GPCA  Comments  at  10. 
 42  CPA  Comments  at  20-  21;  One  Call  Reply  at  6-  7. 
106
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 107 
 competitors.  43 
 68. 
 69.  Some  commenters  urging  limitations  on  the  BOCs'  ability  to  presubscribe 
 their  payphones  contend  that  such  limitations  are  only  needed  until  competition  sufficiently 
 develops  to  prevent  anticompetitive  conduct  by  the  BOCs.  44  Peoples  asserts  that  structural 
 separation  would  be  an  appropriate  transitional  requirement  to  prevent  cross-  subsidization  and 
 allow  the  development  of  full  competition  in  the  payphone  industry,  but  could  be  phased  out 
 after  the  BOCs  have  reclassified  their  payphone  assets  and  removed  all  of  the  subsidies  out  of 
 their  basic  service  rates.  45  Other  commenters  argue  that  restrictions  should  apply  to  a  BOC's 
 ability  to  presubscribe  itself  even  after  being  granted  authority  to  offer  interLATA  service 
 pursuant  to  Section  271.  46  CompTel  argues  that  BOC  participation  in  the  presubscription 
 selection  process  should  be  delayed  at  least  until  after  the  BOC  satisfies  the  Section  271 
 competitive  checklist.  Even  then,  CompTel  asserts,  safeguards  will  be  necessary  to  prevent 
 anticompetitive  conduct  by  the  BOCs,  including  (1)  limiting  the  volume  of  traffic  a  BOC  can 
 route  to  a  single  carrier;  (2)  prohibiting  the  BOC  from  presubscribing  itself  for  interLATA  calls 
 from  it  payphones;  and/  or  (3)  limiting  the  number  of  calls  the  BOCs  can  aggregate  into  a  single 
 commission  agreement.  47  NJPA  asserts  that  once  the  BOCs  are  allowed  to  enter  the  interLATA 
 market,  they  will  undoubtedly  direct  all  interLATA  calls  from  their  payphones  to  themselves, 
 and  accordingly  asserts  that  the  Commission  should  prohibit  indefinitely  the  BOCs  from 
 negotiating  presubscription  for  their  payphones.  48  AT&  T  argues  that  even  after  a  BOC  satisfies 
 the  Section  271  requirements,  the  Commission  should  not  allow  a  BOC  (or  other  LEC)  to 
 negotiate  with  location  providers  within  its  own  region  until  the  Commission  has  individually 
 evaluated  how  each  LEC's  control  over  local  exchange  facilities  and  extensive  payphone 
 penetration  affects  its  ability  to  behave  anticompetitively.  49 
 70. 
 71.  The  RBOCs  assert  that  any  regulatory  restrictions  which  limit  the  portion  of 
 interLATA  traffic  a  BOC  can  deliver  to  any  particular  carrier,  or  the  number  of  interLATA  calls 
 that  must  be  aggregated  to  receive  an  IXC's  highest  available  commission  level,  are  inefficient, 
 anticompetitive,  and  unnecessary.  50  The  RBOCs  contend  that  the  public  interest  standard  of 


 43  Florida  PSC  Comments  at  9. 
 44  See,  e.  g.,  Peoples  Comments  at  22. 
 45  Id. 
 46  APCC  Comments  at  44;  CompTel  Comments  at  21. 
 47  CompTel  Comments  at  21. 
 48  NJPA  Comments  at  17. 
 49  AT&  T  Comments  at  24.  See  also  Oncor  Comments  at  7. 
 50  RBOC  Reply  at  23-  28. 
107
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 108 
 Section  276  does  not  require  the  Commission  to  delay  granting  them  presubscription  negotiation 
 authority  until  after  they  are  authorized  to  provide  in-  region  interLATA  service  pursuant  to 
 Section  271,  noting  that  Congress  chose  not  to  link  those  two  section  of  the  1996  Act.  51 
 72. 
 73.  Location  providers,  including  airports  and  hospitals,  maintain  that 
 authorizing  the  BOCs  to  select  the  interLATA  carrier  for  their  payphones  could  deprive  the 
 location  providers  of  a  significant  source  of  revenues  by  reducing  or  eliminating  commissions 
 paid  to  them  for  the  placement  of  payphones.  52  These  location  providers  assert  that  the  1996  Act 
 establishes  that  location  providers  should  retain  ultimate  authority  to  determine  the  carriers 
 serving  payphones  on  their  premises,  and  argue  that  the  Commission  should  not  implement  rules 
 which  would  restrict  the  location  provider's  authority  in  this  regard.  53  Airport  and  hospital 
 location  providers  also  assert  that  the  commissions  they  receive  from  PSPs  help  reduce  the  cost 
 of  operating  these  public  facilities,  thus  allowing  the  BOCs  to  engage  in  conduct  likely  to  reduce 
 these  commission  levels  would  be  contrary  to  the  public  interest.  54  Some  location  providers  also 
 contend  that  they  have  a  reputational  interest  in  both  the  quality  of  service  from  payphones  on 
 their  premises  and  in  protecting  their  customers  from  unfair  rates  when  using  such  payphones.  55 
 Some  location  providers  assert  that  if  the  Commission  allows  the  BOCs  to  negotiate 
 presubscription,  then  the  Commission  should  also  make  clear  that  the  location  providers  retain 
 the  ultimate  decision  concerning  interLATA  carriers  for  payphones  on  their  premises.  56  ACI-  NA 
 states  that  while  it  agrees  with  the  tentative  conclusion  that  all  PSPs,  including  the  BOCs,  should 
 be  authorized  to  negotiate  with  location  providers  concerning  the  choice  of  interLATA  carrier, 
 the  Commission  should  also  make  it  clear  that  PSPs  may  not  contract  with  any  carrier  over  the 
 objection  of  the  location  provider.  57 
 74. 
 75.  The  RBOCs  argue  that  location  providers  always  retain  the  ultimate  decision-making 
 authority  concerning  interLATA  carriers  for  payphones  on  their  premises  through  their 
 choice  of  payphone  service  provider.  58  Ameritech  states  that  the  public  interest  analysis  required 


 51  BellSouth  Comments  at  8;  RBOC  Reply  at  29. 
 52  AAAE  Comments  at  1-  3;  ACI-  NA  at  3-  5;  AHA  TelePlan  Comments  at  1;  Cleveland  Clinic  Foundation 
 Comments  at  1;  NATSO  Comments  at  2-  3.  See  also  City  of  Kansas  City,  Missouri  Comments  at  1-  3. 


 53  Id.;  Admirals  Club  Comments  at  1;  AHA  TelePlan  Comments  at  1;  Greyhound  Lines,  Inc.  Comments  at  1; 
 ARVC  Comments  at  1-  3. 


 54  AAAE  Comments  at  1-  3;  ACI-  NA  Comments  at  2-  5;  AHA  TelePLAN  Comments  at  1. 


 55  ARVC  Comments  at  1-  3. 
 56  See,  e.  g.,  DFW  Comments  at  1. 
 57  ACI-  NA  Comments  at  5;  also  DFW  Comments  at  1. 
 58  RBOC  Reply  at  26  and  n.  25. 
108
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 109 
 under  the  1996  Act  does  not  protect  the  interests  of  location  providers  in  high  commission  levels, 
 especially  to  the  extent  such  commissions  are  recouped  by  the  carriers  through  higher  rates  to 
 consumers.  59 
 76. 
 77.  c.  Discussion  78. 


 79.  Section  276(  b)(  1)(  D)  directs  the  Commission  to  grant  the  BOCs  the  right 
 to  negotiate  with  location  providers  for  the  presubscription  of  interLATA  carriers  for  their 
 payphones,  unless  we  determine  that  such  rights  would  be  contrary  to  the  public  interest.  60 
 80. 
 81.  Commenters  arguing  that  BOC  participation  in  the  selection  of 
 presubscribed  interLATA  carriers  for  their  payphones  is  contrary  to  the  public  interest  contend 
 that  the  BOCs'  large  share  of  existing  payphone  units,  as  well  as  their  continuing  near-  monopoly 
 over  local  access  service,  will  allow  them  to  engage  in  anticompetitive  conduct  in  the  payphone 
 services  market  if  granted  unfettered  interLATA  presubscription  rights.  61  The  proponents  of  this 
 view  make  two  basic  arguments.  First,  they  assert  that  the  BOCs'  large  share  of  the  existing 
 payphones  will  enable  them  to  aggregate  their  payphone  volumes,  in  order  to  obtain  from  IXCs 
 lower  rates  (or  higher  commission  levels)  than  those  available  to  independent  payphone 
 providers.  62  This  cost  advantage  would,  in  turn,  allow  the  BOCs  to  strengthen  their  position  as 
 the  dominant  players  in  the  provision  of  payphone  services  by  enabling  them  to  either  pay  higher 
 commissions  to  location  providers,  or  to  offer  lower  rates  to  end  users.  Second,  these 
 commenters  argue  that  the  BOCs  will  be  able  to  use  their  bottleneck  control  over  local  service 
 facilities  to  subsidize  or  discriminate  in  favor  of  their  own  payphone  operations.  63  We  address 
 each  of  these  arguments  separately  below.  We  conclude,  however,  that  the  record  does  not 
 support  a  finding  that  it  would  be  contrary  to  the  public  interest  to  allow  the  BOCs  to  negotiate 
 with  location  providers  with  respect  to  selecting  and  contracting  for  the  interLATA  carriers 
 presubscribed  to  their  payphones. 
 82. 
 83.  Some  commenters  arguing  against  granting  the  BOCs  such 
 presubscription  rights  assert  that  the  BOCs  will  be  able  to  solidify,  or  even  expand,  their  current 
 dominant  share  of  the  payphone  services  market  by  using  their  existing  size  to  negotiate  lower 
 interexchange  rates  than  are  available  to  non-  BOC  payphone  service  providers.  Even  if  we 
 assume  that  the  BOCs  will  be  able  to  aggregate  their  traffic  to  obtain  superior  deals  from  the 
 IXCs,  however,  it  does  not  necessarily  follow  that  this  represents  injury  to  competition  or  the 


 59  Ameritech  Reply  at  15. 
 60  47  U.  S.  C.    276(  b)(  1)(  D). 
 61  See,  e.  g.,  AT&  T  Comments  at  24-  26;  APCC  Comments  at  41-  44. 
 62  Id. 
 63  See,  e.  g.,  MCI  Comments  at  19. 
109
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 110 
 public  interest.  Rather,  competition  is  injured  only  if  the  BOCs'  size  somehow  allows  them  to 
 exercise  market  power.  64  As  we  stated  in  Competition  in  the  Interstate  Interexchange 
 Marketplace: 
 84. 


 64  See,  e.  g.,  Ball  Memorial  Hospital,  Inc.  v.  Mutual  Hospital  Insurance,  Inc.,  784  F.  2d  1325,  1336  (7th  Cir.) 
 (Easterbrook,  J.)  ("  Market  share  is  just  a  way  of  estimating  market  power,  which  is  the  ultimate  consideration"). 
110
 Federal 
 Communications  Commission  FCC  96-  388  ______________________________________________________ 


 ________________________ 


 111 
 The  issue  is  not  whether  [the  dominant  competitor]  has 
 advantages,  but,  if  so,  why,  and  whether  any  such  advantages  are 
 so  great  as  to  preclude  the  effective  functioning  of  a  competitive 
 market.  .  .  .  Such  advantages  do  not  .  .  .  mean  that  these  markets 
 are  not  competitive  .  .  .  [or]  that  it  is  appropriate  for  government 
 regulators  to  deny  the  incumbent  the  efficiencies  its  size  confers  in 
 order  to  make  it  easier  for  others  to  compete.  1 


 1  Competition  in  the  Interstate  Interexchange  Marketplace,  CC  Docket 
 No.  90-  132,  Report  and  Order,  FCC  91-  251,  6  FCC  Rcd  5880,  5891-  92  (1991). 
 See  also  Application  of  McCaw  and  AT&  T,  9  FCC  Rcd  5836,  5862  at  para.  38 
 (1994). 
111
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 112 
 Volume  discounts  are  common  in  the  business  world,  and  typically  represent  a  recognition  by 
 the  seller  of  the  economies  of  scale  it  realizes  from  the  transaction.  1  If  these  volume  discounts 
 are  passed  through  to  the  end  user,  consumers  benefit.  Even  if  they  are  not  passed  on  to 
 consumers,  the  pre-  existing  level  of  competition  is  not  injured  because  prices  remain  the  same  to 
 end  users.  The  only  resulting  injury  is  to  competitors,  not  competition.  2 


 1.  The  issue  that  we  must  examine  is  whether  the  BOCs  will  be  able  to  exercise 
 market  power  if  allowed  to  participate  in  the  interLATA  presubscription  process  for  their 
 payphones.  We  have  previously  defined  "market  power"  as  "the  ability  to  maintain  price  above 
 the  competitive  level  without  driving  away  so  many  customers  as  to  make  the  increase 
 unprofitable."  3  The  1992  Joint  Merger  Guidelines  similarly  define  market  power  as  "the  ability 
 profitably  to  maintain  prices  above  competitive  levels  for  a  significant  period  of  time."  4  There 
 are  two  ways  in  which  a  competitor  may  profitably  raise  and  sustain  prices  above  competitive 
 levels  and  thereby  exercise  market  power.  First,  a  competitor  may  be  able  to  raise  and  sustain 
 prices  by  restricting  its  own  output.  Second,  a  company  may  be  able  to  raise  and  sustain  prices 
 by  increasing  its  rivals'  costs  or  restricting  its  rivals'  output  through  its  control  of  an  essential 
 output,  such  as  access  to  bottleneck  facilities,  that  its  rivals  need  to  offer  their  services. 
 2. 
 3.  The  commenters  arguing  that  the  BOCs  will  be  able  to  exercise  some  degree  of 
 market  power  each  start  with  the  assertion  that  the  BOCs  control  80  percent  or  more  of  the 
 installed  payphone  base.  5  The  BOCs,  however,  have  provided  information  that  indicates  that 
 their  individual  shares  of  payphone  units  in  their  regions  range  from  62-  65  percent  for  Pacific 
 Bell,  BellSouth  and  US  West,  to  approximately  80  percent  for  Ameritech  and  Southwestern 
 Bell.  6  These  percentage  shares  do  not  include  semi-  public  payphones,  which  the  BOCs  assert  do 
 not  accurately  reflect  market  power,  because  they  are  typically  not  revenue  generating  and  are 


 1  We  note  that  nothing  in  our  regulations,  or  the  antitrust  laws,  prevent  a  group  of  independent  payphone 
 service  providers  which  do  not  possess  market  power,  either  individually  or  jointly,  from  combining  their  purchases 
 to  take  advantage  of  volume  discounts.  See,  e.  g.,  Northwest  Wholesale  Stationers  Inc.  v.  Pacific  Stationery  and 
 Printing  Co.,  472  U.  S.  284,  295,  105  S.  Ct.  2613,  2620  (1985)  (recognizing  that  group  purchasing  may  facilitate 
 competition  by  enabling  smaller  retailers  to  reduce  prices  so  as  to  compete  more  effectively  with  large  retailers). 


 2  "It  is  axiomatic  that  the  antitrust  laws  were  passed  for  'the  protection  of  competition,  not  competitors.  '" 
 Brooke  Group,  Ltd.  v.  Brown  &  Williamson  Tobacco  Corp.,  509  U.  S.  209,  224,  113  S.  Ct.  2578,  2588  (1993) 
 (quoting  Brown  Shoe  Co.  v.  United  States,  370  U.  S.  294,  320,  82  S.  Ct.  1502,  1521  (1962)). 


 3  Policy  and  Rules  Concerning  Rates  for  Competitive  Common  Carrier  Services  and  Facilities 
 Authorizations  Thereof,  CC  Docket  No.  79-  252,  Fourth  Report  and  Order,  FCC  83-  481,  95  FCC  2d  554,  558 
 ("  Competitive  Carrier  Fourth  Report  and  Order")  (citing  II  P.  Areeda  &  D.  Turner,  Antitrust  Law  322  (1978)). 


 4  1992  Merger  Guidelines  at    0.1.  See  also  Matsushita  Elec.  Industries  Co.,  Ltd.  v.  Zenith  Radio  Corp.,  475 
 U.  S.  574,  588-  89  (1986);  Brooke  Group  Ltd.,  above. 


 5  See,  e.  g.,  APCC  Comments  at  41. 


 6  BellSouth  Comments  at  Appendix  1,  Table  2. 
112
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 113 
 therefore  not  subject  to  aggressively  competition  by  the  independent  payphone  service 
 providers.  7  The  independent  payphone  service  providers  dispute  these  market  share  figures.  8 
 4. 
 5.  We  first  note  that  these  market  share  figures  are  relevant  only  to  the 
 BOCs'  ability  to  exercise  market  power  in  the  provision  of  payphone  services  --  not,  as 
 contended  by  some  commenters,  to  their  ability  to  obtain  interexchange  rates  lower  than  those 
 available  to  the  independent  payphone  service  providers.  Volume  discounts  are  based  on  the 
 volume  of  traffic,  not  on  the  number  of  phones  from  which  such  traffic  originates.  Thus,  a  more 
 relevant  examination  in  this  regard  would  be  the  volume  of  traffic  generated  by  BOC  payphones, 
 versus  that  of  non-  BOC  payphones.  Unfortunately,  there  is  very  limited  data  in  the  record  on 
 this  point.  The  most  pertinent  information  was  submitted  by  BellSouth,  showing  that  (excluding 
 their  semi-  public  payphones)  they  currently  generate  only  45  per  cent  of  the  payphone  revenues 
 in  their  region.  9  It  is  quite  clear,  in  any  event,  that  the  BOCs'  share  of  the  payphone  market  does 
 not  allow  them  to  exercise  market  power  with  respect  to  the  IXCs.  10 
 6.  As  to  the  BOCs'  ability  to  exercise  market  power  in  the  provision  of  payphone 
 services,  market  share  analysis,  standing  alone,  does  not  tell  us  the  likelihood  that  the  dominant 
 firm  will  be  able  to  sustain  supracompetitive  prices.  11  If  entry  into  the  market  is  sufficiently 
 easy,  it  will  prevent  the  dominant  competitor  from  profitably  maintaining  prices  above 
 competitive  levels.  12  citing,  Application  of  General  Electric  Co.,  4  FCC  Rcd  8207,  8209  (1989).  See  also  II  P. 


 7  Id. 
 8  GPCA  Reply  at  20  n.  7. 
 9  BellSouth  Reply  at  Exhibit  A. 
 10  APCC  refers  to  the  BOCs  being  able  to  demand  "supracompetitive  commission  levels  from  carriers." 
 APCC  Comments  at  42.  This  would  require  the  BOCs  to  exercise  monopsonistic  market  power  over  the  IXCs.  See, 
 1992  Merger  Guidelines  at    0.1  (explaining  that  the  effects  of  monopsony  power  are  assessed  in  a  manner 
 analogous  to  monopoly  power).  Since,  from  a  technical  perspective,  there  is  no  difference  between  the 
 interexchange  facilities  made  available  to  residential  or  business  customers  and  those  made  available  for  calls  from 
 payphones,  the  ability  to  demand  "supracompetitive"  prices  from  the  IXCs  would  require  a  BOC  to  have  market 
 power  in  the  IXC  market  as  a  whole.  See  Competitive  Carrier  Fourth  Report  and  Order,  95  FCC  2d  at  562-  64 
 (viewing  interexchange  services  as  comprising  a  single  market);  also,  McCaw,  above,  9  FCC  Rcd.  at  5847,  para.  14. 
 That  is  clearly  not  the  case  here.  See  RBOC  Reply  at  27  n.  27  (noting  that  BOC  payphone  traffic  only  accounts  for 
 approximately  $1.9  billion,  or  less  than  3%,  of  the  approximately  $67  billion  interexchange  market). 


 11  In  light  of  the  changes  taking  place  in  the  telecommunications  industry,  it  is  important  to  emphasize  that 
 market  share  and  market  concentration  data,  evaluated  alone,  may  either  understate  or  overstate  the  likelihood  of 
 firms  being  able  to  exercise  market  power  in  the  future.  We  recognize  that  any  evaluation  of  market  power  based 
 upon  current  market  shares  may  underestimate  the  BOCs'  potential  to  exercise  some  market  power  if  allowed  to 
 engage  in  presubscription,  since  even  they  readily  admit  that  this  ability  will  make  them  more  effective  competitors. 
 At  the  same  time,  other  changes  to  the  industry  which  we  are  undertaking  both  in  this  rulemaking  and  other 
 rulemakings  implementing  the  1996  Act,  may  greatly  reduce  the  BOCs'  ability  to  maintain  market  share,  particularly 
 in  the  provision  of  local  service.  See,  e.  g.,  Local  Competition  Order,  note  508,  above. 


 12  1992  Merger  Guidelines  at  para.  3.0.  See  also  McCaw,  supra,  9  FCC  Rcd.  at  5868,  para.  51: 
113
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 114 
 Areeda  &  D.  Turner,  Antitrust  Law,  para.  505  at  328  ("  Substantial  market  power  can  persist  only  if  there  are 
 significant  and  continuing  barriers  to  entry").  Potential  entry  will  act  as  a  deterrent  if  it  would  be  timely, 
 likely,  and  sufficient  in  magnitude,  character  and  scope  to  counteract  the  anticompetitive  effect 
 of  concern.  13  In  markets  where  entry  meets  these  requirements,  high  market  share  generally  does 
 not  raise  antitrust  concerns.  14 
 7. 
 8.  We  find  the  record  demonstrates  that  the  market  for  provision  of  payphone 
 services  has  very  low  barriers  to  entry,  and  such  entry  would  act  to  prevent  the  BOCs  from 
 sustaining  prices  above  compet  it  ive  levels  if  allowed  to  negotiate  with  locat  ion  providers  for  the 
 interLATA  carriers  for  their  payphones.  15  In  reaching  this  conclusion,  we  start  with  the  fact  that 
 thousands  of  competitors  are  already  in  the  market.  16  Most  of  these  companies  have  very  small 
 operations.  Indeed,  the  largest  of  these  independents,  Peoples,  has  only  40,000  payphones,  less 
 than  3  percent  of  the  national  payphone  market.  17  While  we  understand  the  arguments  of  the 
 independent  payphone  providers  that  their  small  size  makes  them  vulnerable  to  BOC  predatory 
 conduct,  the  existence  of  literally  thousands  of  small  competitors  demonstrates  that  entry  is 
 relatively  easy  and  does  not  require  investment  or  scale  levels  that  would  deter  many  potential 
 competitors. 
 9. 
 10.  We  also  note  that  among  the  non-  BOC  payphone  service  providers  are 
 AT&  T,  MCI  and  Sprint.  18  Although  these  companies'  presence  in  the  payphone  market  is 
 currently  small,  at  least  relative  to  the  BOCs,  these  companies  certainly  have  the  financial 
 resources  to  make  an  aggressive  expansion  of  their  payphone  operations.  We  believe  that  this 
 would  be  particularly  likely  if,  as  at  least  one  IXC  commenter  suggests,  the  BOCs  attempt  to  use 


 A  company's  high  market  share  may  be  inoffensive  if  the  relevant 
 market  has  many  potential  entrants  --  where,  if  the  company  attempted  to 
 raise  price,  lower  quality,  or  fail  to  innovate,  a  new  competitor  could 
 enter  the  market  promptly,  offer  competitive  prices  and  quality,  and  thus 
 frustrate  the  first  company's  anticompetitive  plan. 


 13  1992  Merger  Guidelines  at  para.  3.0. 
 14  Id. 
 15  See,  e.  g.,  BellSouth  Comments  at  Attachment  1. 
 16  See,  e.  g.,  BellSouth  Reply  at  Attachment  A. 
 17  Peoples  Comments  at  4.  See  BellSouth  Comments  at  Attachment,  p.  15  (stating  that  there  are 
 approximately  1.5  million  payphone  stations,  excluding  semi-  public  payphones). 


 18  See,  e.  g.,  Ex  parte  letter  from  Ben  G.  Almond,  BellSouth,  to  William  Caton,  Acting  Secretary,  FCC, 
 August  15,  1996;  Sprint  Comments  at  2  (noting  that  Sprint  currently  has  50,  000  payphones).. 
114
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 115 
 their  current  market  share  to  squeeze  excessive  concessions  from  the  IXC  providers.  19 
 11. 
 12.  We  also  find  that  any  ability  that  the  BOCs  might  have  to  raise  prices  to  end  users 
 above  competitive  levels  is  severely  restricted  by  the  ability  of  end  users  to  dial  around  the 
 presubscribed  interLATA  carrier.  TOCSIA  requires,  and  will  continue  to  require,  open  access 
 for  such  calls  at  payphones.  Peoples  estimates  that  19.  4  per  cent  of  the  calls  originated  by  its 
 payphones  are  either  access  code  calls  (6.  5  per  cent)  or  subscriber  800  calls  (12.9  per  cent).  20  A 
 sustained  effort  by  the  BOCs  to  pass  on  monopoly  price  levels  to  consumers  would  certainly 
 induce  more  end  users  to  take  advantage  of  this  alternative.  21 
 13. 
 14.  As  noted  above,  the  second  way  in  which  a  competitor  can  sustain 
 supracompetitive  prices  is  through  the  control  of  a  bottleneck  facility.  We  recognize  that  for  the 
 immediate  future,  the  BOCs  will  continue  to  retain  effective  control  over  local  access  facilities. 
 Accordingly,  we  are  concerned  about  any  potential  ability  the  BOCs  may  have  to  leverage  that 
 market  power  in  favor  of  their  payphone  operations. 
 15. 
 16.  One  way  in  which  a  BOC  might  be  able  to  leverage  its  market  power  over 
 local  access  facilities  is  by  discriminating  in  favor  of  its  own  payphones  in  the  provision  of  such 
 services.  22  For  example,  a  BOC  could  discriminate  against  its  payphone  services  competitors  by 
 providing  them  with  poorer  quality  interconnection  to  the  BOC's  local  network  than  it  provides 
 to  its  own  payphone  operations,  or  could  unnecessarily  delay  satisfying  its  competitors'  requests 
 to  connect  to  the  BOC's  local  network  or  with  respect  to  repair  services.  To  the  extent  that  a 
 BOC  can  thereby  raise  its  rivals'  costs  of  doing  business,  or  damage  its  rivals'  reputation  for 
 quality  service,  the  BOC  may  be  able  to  raise  its  own  payphone  service  rates.  Alternatively, 
 some  commenters  have  asserted  that  the  BOCs  will  attempt  to  leverage  their  control  over  local 
 access  facilities  by  subsidizing  their  payphone  operations  from  basic  exchange  and  exchange 
 access  revenues.  23  As  addressed  above,  Section  276(  b)(  1)(  B)  of  the  1996  Act  requires  the 
 elimination  of  all  such  subsidies.  24  Improper  allocation  of  costs  may  allow  a  BOC  to  recover 


 19  AT&  T  Comments  at  25.  See  also  1992  Merger  Guidelines  at  para.  1.  32. 


 20  Peoples  Comments  at  9. 
 21  For  the  same  reasons,  alternative  forms  of  mobile  communications,  including  cellular  telephones,  are  an 
 adequate  substitute  for  payphones  for  many  end  users.  See  McCaw,  supra,  at  5847,  para.  14  (finding  anecdotal 
 evidence  of  substitution  occurring  between  interexchange  calls  from  cellular  telephones  and  interexchange  operator-assisted 
 and  credit  card  "wireline"  calls).  Thus,  the  proliferation  of  such  telephones  acts  as  another  constraint  on  the 
 ability  to  sustain  supracompetitive  prices  for  payphone  services. 


 22  See,  generally,  U.  S.  v.  Western  Electric  Co.,  993  F.  2d  1572,  1578  (D.  C.  Cir.),  cert.  denied  sub  nom. 
 Consumer  Federation  of  America  v.  U.  S.,  510  U.  S.  984  (1993)  (examining  the  BOCs'  ability  to  use  monopoly  power 
 over  local  exchange  service  in  order  to  raise  the  costs,  and  thereby  reduce  the  output,  of  any  rival  information 
 services  provider). 


 23  See,  e.  g.,  MCI  Comments  at  19;  Oncor  Comments  at  6. 
115
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 116 
 costs  incurred  in  its  payphone  operations  from  subscribers  to  the  BOC's  regulated  exchange 
 services,  potentially  harming  such  captive  subscribers  of  local  services  and  providing  the  BOC's 
 payphone  operations  with  an  unfair  advantage  over  its  competitors.  25 
 17. 
 18.  We  conclude,  however,  that  the  nonstructural  and  accounting  safeguards 
 we  are  requiring  with  respect  to  the  BOCs'  payphone  operations  are  sufficient  to  deter  such 
 abuses,  or  to  allow  the  Commission  to  identify  abuses  of  they  occur.  26  As  discussed  above,  we 
 are  applying  all  Computer  III  and  ONA  nonstructural  and  accounting  safeguards  to  the  BOCs' 
 provision  of  payphone  services,  and  requiring  that  any  basic  services  provided  by  a  BOC  to  its 
 own  payphone  operations  be  available  on  a  nondiscriminatory  basis  to  other  payphone 
 providers.  27  In  particular,  we  are  requiring  each  BOC  to  file  an  initial  CEI  plan  describing  how  it 
 intends  to  comply  with  the  Computer  III  and  ONA  equal  access  parameters  and  nonstructural 
 safeguards  for  the  provision  of  payphone  services,  including  a  description  of  how  each  BOC  will 
 comply  with  the  requirements  for  nondiscrimination  in  the  quality  of  service,  installation,  and 
 maintenance.  28  In  connection  with  our  discussion  of  these  safeguards,  we  previously  stated  our 
 conclusion  that  they  provide  an  appropriate  regulatory  framework  to  ensure  that  BOCs  do  not 
 engage  in  improper  subsidization  or  discriminate  in  the  provision  of  services  required  by  their 
 payphone  competitors.  29  We  also  note  that  such  payphone  competitors  may  file  a  complaint  to 
 the  Commission  if  they  believe  a  BOC  has  failed  to  satisfy  its  obligations  under  these 
 provisions.  30 
 19. 
 20.  For  the  reasons  stated  above,  we  decline  to  adopt  the  recommendation  of 


 24  47  U.  S.  C.    276(  b)(  1)(  B). 


 25  For  purposes  of  market  power  analysis,  we  would  be  concerned  that  the  improper  allocation  of  costs  would 
 enable  the  BOC  to  price  its  payphone  services  at  predatory  levels  (i.  e.  below  the  cost  incurred  to  provide  those 
 services),  drive  out  its  competitors,  and  then  raise  prices  above  competitive  levels.  As  discussed  above,  however, 
 we  have  determined  that  ease  of  entry  and  other  factors  make  it  highly  unlikely  that  a  BOC  could  recoup  the  costs  of 
 such  predation  through  sustained  supracompetitive  prices.  See  paras.  229  -  232,  above.  See  also  Brooke  Group  Ltd., 
 113  S.  Ct.  at  2588  ("  Recoupment  is  the  ultimate  objective  of  an  unlawful  predatory  pricing  scheme;  it  is  the  means 
 by  which  a  predator  profits  from  predation"). 


 26  See  47  U.  S.  C.    276(  b)(  1)(  C). 


 27  See  para.  199,  above. 
 28  See  paras.  202  -  206,  above. 
 29  See  para.  199,  above.  See  also  California  III,  39  F.  3d  at  927-  929. 
 30  We  also  note  that  these  nonstructural  safeguards  are  sufficient,  in  conjunction  with  other  requirements  of 
 the  1996  Act,  to  address  the  concerns  raised  by  California  PUC.  See  California  PUC  Comments  at  18-  19.  See  also 
 Implementation  of  the  Non-  Accounting  Safeguards  of  Sections  271  and  272  of  the  Communications  Act  of  1934,  as 
 amended,  CC  Docket  No.  96-  149,  Notice  of  Proposed  Rulemaking,  FCC  96-  308  (rel.  July  18,  1996)  (Non-Accounting 
 Safeguards  NPRM).  Accordingly,  we  decline  to  adopt  the  recommendation  of  California  PUC  to  grant 
 the  states  the  authority  to  implement  further  restrictions. 
116
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 117 
 commenters  asserting  that  the  risk  that  the  BOCs  will  seek  to  leverage  their  control  over  local 
 access  facilities  requires  us  to  mandate  structural  separation  of  the  BOCs'  payphone  operations 
 before  allowing  them  to  participate  in  interLATA  presubscription  for  their  payphones.  31  As 
 discussed,  we  have  previously  found  that  Computer  III-  type  nonstructural  and  accounting 
 safeguards  generally  to  be  effective  in  deterring  improper  allocation  of  costs  and 
 discrimination.  32  Moreover,  we  find  that  the  statutory  language  clearly  reflects  a  Congressional 
 determination  that  structural  separation  of  the  BOCs'  payphone  operations  from  their  core 
 business  is  neither  necessary  nor  appropriate.  Section  276(  b)(  1)(  C)  specifically  directs  the 
 Commission  to  "prescribe  a  set  of  nonstructural  safeguards  for  Bell  operating  company 
 payphone  service  to  implement"  the  non-  subsidization  and  non-  discrimination  provisions  of 
 Section  276(  a).  We  note  that  Congress  has,  where  it  deemed  necessary,  prescribed  structural 
 separation  requirements  as  a  precondition  to  BOC  entry  into  a  line  of  business.  33 
 21. 
 22.  Since  we  are  relying  on  the  nonstructural  and  accounting  safeguards 
 established  pursuant  to  Section  276(  b)(  1)(  C)  to  deter  anticompetitive  conduct,  however,  we 
 believe  that  it  is  prudent  to  ensure  that  such  safeguards  are  in  place  before  the  BOCs  are  allowed 
 to  participate  in  interLATA  presubscription  for  their  payphones.  Accordingly,  a  BOC  will  not  be 
 allowed  to  engage  in  the  conduct  authorized  by  Section  276(  b)(  1)(  D)  until  it  has  submitted  and 
 received  approval  of  an  initial  CEI  plan  filed  pursuant  to  Section  276(  b)(  1)(  C).  34  We  find  that 
 this  is  a  reasonable  requirement  for  meeting  our  statutory  mandate  of  protecting  the  public 
 interest  in  this  area. 
 23. 
 24.  For  all  of  the  reasons  discussed  above,  we  also  decline  to  place  restrictions 
 on  the  BOCs'  ability  to  negotiate  for  the  selecting  and  contracting  of  intraLATA  carriers 
 presubscribed  to  their  payphones.  Most  of  the  commenters  urging  such  restrictions  base  their 
 proposals  on  the  BOCs'  ability  to  exercise  market  power  through  the  aggregation  of  interLATA 
 traffic  from  their  payphones.  35  Since  we  find  that  the  BOCs  are  unlikely  to  be  able  to  exercise 
 such  market  power,  any  restrictions  on  their  ability  to  aggregate  interLATA  volume,  or  to  direct 
 interLATA  traffic  to  a  particular  carrier,  are  unwarranted.  36 


 31  See,  e.  g.,  Peoples  Comments  at  22;  APCC  Comments  at  43-  44. 
 32  See  para.  237,  above. 
 33  See,  e.  g.,  47  U.  S.  C.    271  and  272. 
 34  See  paras.  200  -  205,  above. 
 35  See,  e.  g.,  APCC  Comments  at  43-  44;  One  Call  Reply  at  6-  7. 
 36  We  also  note  that  our  conclusion  here  is  consistent  with  the  statutory  requirement  to  ensure  that  payphone 
 owners  are  fairly  compensated  for  each  and  every  call  made  from  their  payphones.  Sec.  276(  b)(  1)(  A).  While  this 
 issue  is  addressed  more  specifically  at  paras.  48  through  54,  above,  the  record  reflects  that  a  payphone  owner's 
 ability  to  influence  the  decision  of  presubscribed  interLATA  carrier  is  a  contributing  factor  to  the  revenues  earned 
 by  that  payphone  owner.  Indeed,  BOC,  IXC  and  independent  payphone  provider  commenters  all  recognize  that  the 
 ability  to  aggregate  payphone  traffic  strengthens  the  PSP's  ability  to  negotiate  low  rates  from  carriers.  See,  e.  g., 
117
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 118 
 25. 
 26.  We  are  also  mindful  of  the  statement  in  the  Conference  Report  that  location 
 providers  retain  "the  ultimate  decision-  making  authority  in  determining  interLATA  services  in 
 connection  with  the  choice  of  payphone  providers."  37  We  interpret  this  statement  as  a  mandate  to 
 ensure  that  strong  competition  exists  in  the  payphone  industry.  So  long  as  competition  exists 
 among  payphone  service  providers,  location  providers  will  continue  to  have  the  ultimate  choice 
 of  carrier  through  their  selection  of  payphone  service  provider.  38  As  to  the  location  providers' 
 argument  that  BOC  participation  in  the  presubscription  process  will  lead  to  a  reduction  in,  or 
 elimination  of,  the  commissions  they  receive  in  connection  with  placing  payphones  on  their 
 premises,  we  find  this  argument  unpersuasive.  We  find  it  unlikely  that  the  introduction  of 
 additional  competition  would  lead  to  commissions  being  reduced  below  competitive  levels.  In 
 this  respect,  we  note  that  MCI  and  independent  payphone  service  providers  have  asserted  just  the 
 opposite  --  that  the  BOCs  will  attempt  to  gain  market  share  by  offering  location  providers  higher 
 commissions  which  their  competitors  will  be  unable  to  match.  39  We  also  note  that,  to  the  extent 
 that  these  commissions  are  recouped  from  end  users  in  the  form  of  higher  rates,  protecting  higher 
 commissions  is  not  a  strong  public  interest  concern  weighing  heavily  against  granting  the  BOCs 
 presubscription  authority. 
 27. 
 28.  We  conclude  that  competition  in  the  provision  of  payphone  services  is  sufficiently 
 strong  to  ensure  location  providers  freedom  of  choice  concerning  the  interLATA  carriers  for 
 payphones  on  their  premises.  In  addition  to  the  conclusions  expressed  above,  we  also  note  that 
 the  record  indicates  that  many  long-  term  agreements  currently  exist  between  location  providers 
 and  payphone  service  providers  or  carriers,  concerning  the  choice  of  presubscribed  interLATA 
 carrier.  40  Since  these  agreements  will  expire  over  time,  the  existence  of  these  enforceable 
 agreements  will  help  to  ensure  the  continued  availability  of  choice  in  the  selection  of  carriers. 
 We  emphasize,  however,  that  a  location  provider's  ability  to  choose  should  be  protected  from 
 unjust  and  unreasonable  practices  which  seek  to  foreclose  meaningful  choice.  Such  practices 
 include  unreasonable  interference  with  pre-  existing  agreements  between  location  providers  and 
 payphone  service  providers  or  carriers,  or  conduct  which  is  unduly  coercive  of  the  location 
 provider's  right  to  choose  the  carrier  for  payphones  on  its  premises.  Such  conduct  may  violate 
 Section  201  of  the  Act,  which  proscribes  unjust  and  unreasonable  practices  by  common 


 RBOC  Comments  at  42;  APCC  Comments  at  42-  43;  AT&  T  Comments  at  25.  See  also  Ex  parte  letter  from  Michael 
 Kellogg,  Counsel,  RBOC  Coalition,  to  William  Caton,  Acting  Secretary,  FCC,  August  29,  1996  at  Attachment  1, 
 p.  1  (asserting  that  "RBOC  participation  in  the  selection  of  the  interLATA  carrier  is  critical  to  the  Commission's  per-call 
 compensation  scheme"). 


 37  S.  Conf.  Rep.  104-  230  at  44. 


 38  See  Ameritech  Comments  at  24. 
 39  APCC  Comments  at  42;  MCI  Comments  at  19. 
 40  See  BellSouth  Comments  at  9. 
118
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 119 
 carriers.  41 
 29. 
 30.  As  a  final  point,  we  address  the  argument  of  some  commenters  that  BOC 
 participation  in  the  interLATA  presubscription  of  their  payphones  would  constitute  the  offering 
 of  interLATA  service,  without  first  meeting  the  requirements  of  Sections  271  and  272  of  the 
 1996  Act.  42  Section  276  of  the  1996  Act,  however,  provides  only  that  BOCs  be  given  equal 
 rights  with  independent  payphone  providers  "to  select  and  contract  with,  the  carriers  that  carry 
 interLATA  calls  from  their  payphones  .  .  ."  43  We  interpret  the  phrase  "select  and  contract  with," 
 as  granting  the  BOCs  no  more  than  the  right  to  participate  as  a  contractual  intermediary  between 
 a  location  provider  and  a  third-  party  interLATA  carrier.  Such  conduct  does  not  amount  to  the 
 provision  of  interLATA  telecommunications  service  addressed  under  Sections  271  and  272.  44 
 Moreover,  we  find  nothing  in  the  statutory  language,  or  legislative  history,  to  indicate  that 
 Congress  intended  the  restrictions  of  Sections  271  and  272  to  encompass  the  specific  conduct 
 authorized  in  Section  276. 
 31. 
 32.  BellSouth,  however,  has  asked  us  to  find  that  Section  276(  b)(  1)(  D)  allows  the 
 BOCs  to  engage  in  reselling,  as  well  as  branding,  of  presubscribed  interLATA  service  to  their 
 payphones.  45  BellSouth  asserts  that  "Section  276  does  not  reference  other  sections  of  the  1996 
 Act  but  immediately  does  away  with  MFJ  interLATA  prohibitions  (but  only  for  RBOC 
 payphone  units  .  .  .)  unless  the  FCC  finds  interLATA  rights  for  RBOC  PSPs  not  to  be  in  the 
 public  interest."  46  While  we  recognize  that  independent  payphone  providers  have  the  ability  to 
 engage  in  the  resale  and/  or  branding  of  presubscribed  interLATA  service  to  their  payphones,  we 
 do  not  interpret  the  language  of  the  1996  Act  to  grant  this  authority  to  the  BOCs.  47  As  explained 
 above,  the  1996  Act  provides  that  the  BOCs  are  to  be  given  equal  rights  with  independent 
 payphone  service  providers  "to  negotiate  with  the  location  provider  on  the  location  provider's 


 41  47  U.  S.  C.  201(  b). 


 42  See,  e.  g.,  AT&  T  Comments  at  24;  CompTel  Comments  at  21. 
 43  47  U.  S.  C.    276(  b)(  1)(  D). 
 44  See  47  U.  S.  C.  153(  46).  See  also  Non-  Accounting  Safeguards  NPRM. 
 45  See  Ex  parte  letter  from,  Ben  G.  Almond,  BellSouth,  to  William  F.  Caton,  Acting  Secretary,  FCC,  filed  in 
 CC  Docket  96-  128,  August  8,  1996. 


 46  See  Ex  parte  letter  from  Ben  G.  Almond,  BellSouth,  to  William  F.  Caton,  Acting  Secretary,  FCC,  filed  in 
 CC  Docket  No.  96-  128,  August  16,  1996,  at  Attachment  p.  2. 


 47  We  have  previously  defined  "resale"  as  "an  activity  wherein  one  entity  subscribes  to  the  communications 
 services  and  facilities  of  another  entity  and  then  reoffers  communications  services  and  facilities  to  the  public  (with 
 or  without  "adding  value")  for  profit."  Regulatory  Policies  Concerning  Resale  and  Shared  Use  of  Common  Carrier 
 Services  and  Facilities,  Docket  No.  20097,  Report  and  Order,  60  F.  C.  C.  2d  261,  271  (1976).  Also  Interconnection 
 and  Resale  Obligations  Pertaining  to  Commercial  Mobile  Radio  Services,  CC  Docket  No.  94-  54,  First  Report  and 
 Order,  FCC  96-  263  (July  12,  1996). 
119
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 120 
 selecting  and  contracting  with,  and  subject  to  the  terms  of  any  agreement  with  the  location 
 provider,  to  select  and  contract  with,  the  carriers  that  carry  interLATA  calls  from  their 
 payphones  .  .  ."  48  We  interpret  this  language  as  envisioning  the  "carrier"  as  being  someone  other 
 than  the  BOC  to  whom  negotiating  rights  are  being  given.  49  We  do  not  find  that  Congress 
 intended  to  allow  BOCs  to  provide  interLATA  telecommunications  services  to  its  payphone 
 customers,  including  through  resale,  other  than  as  set  forth  in  Section  271(  b).  50  In  this  respect, 
 we  note  that  the  1996  Act  defines  telecommunications  service  as  "the  offering  of 
 telecommunications  for  a  fee  directly  to  the  public,  or  to  such  classes  of  users  as  to  be  effectively 
 available  directly  to  the  public,  regardless  of  the  facilities  used."  51  We  find  that,  for  purposes  of 
 Section  276,  resale  by  a  BOC  of  interLATA  service  for  its  in-  region  presubscribed  payphones, 
 which  service  will  ultimately  be  used  by  consumers  of  payphone  services,  lies  outside  of  the 
 specific  rights  granted  by  Section  276(  b)(  1)(  D)  of  the  1996  Act.  52 
 33. 
 34.  2.  Grandfathering  of  Contracts 
 35. 
 36.  a.  The  Notice 
 37. 
 38.  Section  276(  b)(  3)  states  that  "nothing  in  this  section  shall  affect  any 
 existing  contracts  between  location  providers  and  payphone  service  providers  or  interLATA  or 
 intraLATA  carriers  that  are  in  force  and  effect  as  of  the  date  of  enactment"  of  the  1996  Act.  We 
 tentatively  concluded  that  this  section  of  the  1996  Act  grandfathers  all  contracts  in  existence  as 
 of  February  8,  1996.  53  In  addition,  we  sought  comment  on  what  should  be  considered  a  Section 
 276(  b)(  3)  contract  for  purposes  of  Section  276(  b)(  1)(  D),  and  we  tentatively  concluded  that  a 
 Section  276(  b)(  1)(  D)  contract  must  be,  at  least,  a  lawful  agreement  where  both  parties  intended 
 to  be  bound.  54 


 48  47  U.  S.  C.  276(  b)(  1)(  D). 


 49  Our  conclusion  here  is  underscored  by  the  language  of  the  Conference  Report  which  describes  Section 
 276(  b)(  1)(  D)  as  providing  the  BOCs  the  same  rights  as  independent  payphone  providers  "in  negotiating  with  the 
 interLATA  carriers  for  their  payphones."  S.  Conf.  Rep.  104-  230  at  43-  44. 


 50  See  47  U.  S.  C.  271(  a):  "Neither  a  Bell  operating  company,  nor  any  affiliate  of  a  Bell  operating  company, 
 may  provide  interLATA  services  except  as  provided  in  this  section."  See  BellSouth  Comments  at  9  ("  BellSouth 
 recognizes,  of  course,  that  nothing  in  Section  276  shall  act  to  shortcut  the  requirements  of  Section  [sic]  before  a 
 BOC's  long  distance  affiliate  can  offer  service  in  a  particular  state.") 


 51  47  U.  S.  C.  153(  46)  (emphasis  added). 


 52  Bell  Atlantic  has  filed  an  ex  parte  letter  which  is  in  agreement  with  the  our  conclusion  here.  See  Ex  parte 
 letter  from  Marie  Breslin,  Bell  Atlantic,  to  William  Caton,  Acting  Secretary,  FCC,  filed  in  CC  Docket  No.  96-  128, 
 August  28,  1996. 


 53  Notice  at  para.  73. 


 54  Id. 
120
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 121 
 39. 
 40.  b.  Comments 
 41. 
 42.  Each  of  the  commenters  agrees  with  the  Commission's  tentative  conclusion  that 
 contracts  between  location  providers  and  payphone  service  providers  or  interLATA  or 
 intraLATA  carriers  in  force  as  of  February  8,  1996  should  be  grandfathered  and  remain  in 
 effect.  55  Oncor  asserts  that  contracts  entered  into  subsequent  to  February  8,  1996  should  also  be 
 given  full  effect  by  the  Commission.  56 
 43.  The  RBOCs  argue  that  the  Commission  should  specify  that  the  grandfathering 
 provision  applies  only  to  contracts  enforceable  by  either  party  and,  specifically,  that  a  location 
 provider's  letter  of  authorization  (which  authorizes  the  IXC  to  serve  a  particular  payphone)  is  not 
 enforceable  by  the  IXC  and  should  therefore  not  be  grandfathered.  57  Sprint  also  asserts  that  a 
 contract  can  only  be  grandfathered  if  it  includes  binding  obligations  applicable  to  both  parties  -- 
 which  would  not  include  letters  of  authorization  that  do  not  require  the  location  provider  to 
 subscribe  to  the  IXC's  service  for  any  fixed  length  of  time.  58 
 44. 
 45.  AT&  T  maintains  that  the  definition  of  contract  for  these  purposes  should  include 
 all  agreements  which  commit  a  location  owner  to  select  a  particular  IXC  for  phones  at  its 
 premises.  AT&  T  asserts  that  this  would  include  lawfully  executed  letters  of  authorization.  59 
 ACI-  NA  also  contends  that  the  Commission  should  adopt  a  broad  definition  of  contracts  to  be 
 grandfathered  under  the  1996  Act,  including  letters  of  authorization  and  term  extensions,  so  as  to 
 not  disadvantage  location  providers  that  may  rely  on  existing  presubscription  agreements  for  a 
 necessary  income  stream.  60  CompTel  also  argues  that  location  providers'  letters  of  authorization 
 constitute  contracts  that  Congress  intended  to  be  grandfathered  by  the  1996  Act,  since  such 
 agreements  are  typically  part  of  mutually  binding  initial  service  orders  or  contracts  with  IXCs.  61 
 AT&  T  urges  the  Commission  to  affirm  that  interference  with  any  existing  contract  at  any  time  is 
 an  unjust  and  unreasonable  practice  under  Section  201(  b).  62 
 46. 
 47.  Metropolitan  Washington  Airports  Authority  replies  that  so  long  as 


 55  See,  e.  g.,  AT&  T  Comments  at  27;  CompTel  Comments  at  21;  RBOC  Comments  at  45. 
 56  Oncor  Comments  at  13-  14. 
 57  RBOC  Comments  at  45. 
 58  Sprint  Comments  at  30. 
 59  AT&  T  Comment  at  27.  See  also  Oncor  Comments  at  14. 
 60  ACI-  NA  Comments  at  4. 
 61  CompTel  Comments  at  22. 
 62  AT&  T  Comments  at  27. 
121
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 122 
 location  providers  have  decision-  making  authority,  it  is  unnecessary  for  the  Commission  to 
 resolve  the  issue  of  whether  LOAs  are  binding  agreements  grandfathered  by  the  1996  Act.  63 
 Instead,  it  argues  that  the  determination  of  whether  specific  LOAs  are  binding  on  the  parties 
 should  be  left  to  applicable  state  law.  64 
 48. 
 49.  c.  Discussion  50. 


 51.  We  affirm  our  tentative  conclusion  that  the  1996  Act  grandfathers  all  contracts  in 
 force  between  location  providers  and  payphones  service  providers  or  interLATA  or  intraLATA 
 carriers  which  were  in  force  and  effect  as  of  February  8,  1996.  Since  the  statutory  language  is 
 specifically  limited  to  the  date  of  enactment  of  the  1996  Act,  and  because  there  is  an  insufficient 
 record  to  evaluate  the  propriety  of  extending  that  provision,  we  reject  the  argument  that  we 
 extend  this  grandfathering  protection  to  contracts  entered  into  subsequent  to  February  8,  1996.  65 
 52. 
 53.  As  the  statutory  language  specifically  limits  the  scope  of  this  provision  to 
 "contracts,"  we  leave  to  applicable  state  law  the  question  of  whether  a  particular  agreement 
 constitutes  an  enforceable  contract.  We  note  that  the  comments  reflect  a  difference  of  opinion  as 
 to  the  legal  obligations  involved  in  letters  of  authorization  ("  LOAs").  66  It  may  be  that  this 
 disagreement  reflects  the  fact  that  LOAs  may  be  entered  into  under  differing  circumstances, 
 reflecting  various  levels  of  commitment  and/  or  consideration  by  the  parties.  Accordingly,  we 
 express  no  opinion  as  to  whether  particular  LOAs  would  or  would  not  constitute  contracts  for 
 purposes  of  this  section  of  the  1996  Act. 
 54. 
 55.  We  do  find,  however,  that  interference  with  enforceable  agreements  between  a 
 location  provider  and  either  a  payphone  service  provider  or  an  interLATA  or  intraLATA  carrier 
 constitutes  an  unjust  and  unreasonable  practice  in  violation  of  Section  201(  b)  of  the  1996  Act.  67 
 We  also  find  that  practices  involving  undue  coercion  of  location  providers  with  respect  to  their 
 choice  of  interLATA  carrier  for  payphones  on  their  premises  may  be  found  unjust  and 
 unreasonable.  Such  practices  interfere  with  the  efficient  operation  of  the  market  by  restricting 
 choices,  and  thereby  limit  the  benefits  of  competition. 
 56. 
 57. 
 58.  E.  ABILITY  OF  PAYPHONE  SERVICE  PROVIDERS  TO  NEGOTIATE  WITH 


 63  Metropolitan  Washington  Reply  at  6-  7. 
 64  Id. 
 65  See,  Oncor  Comments  at  13-  14. 
 66  Compare  AT&  T  Comments  at  27;  RBOC  Comments  at  45.  See  also  Metropolitan  Washington  Reply  at  6-7. 


 67  47  U.  S.  C.  201(  b). 
122
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 123 
 59.  LOCATION  PROVIDERS  ON  THE  PRESUBSCRIBED  INTRALATA  CARRIER. 
 60. 
 61.  Section  276(  b)(  1)(  E)  directs  the  Commission  to  provide  all  payphone 
 service  providers  with  the  right  to  participate  in  the  selection  of  the  intraLATA  carriers 
 presubscribed  to  their  payphones.  68  In  implementing  this  mandate,  we  seek  to  eliminate  existing 
 barriers  upon  any  payphone  service  provider's  ability  to  compete  on  this  basis. 
 62. 
 63.  1.  The  Notice 
 64. 
 65.  Section  276(  b)(  1)(  E)  of  the  1996  Act  directs  the  Commission  to  "provide  for  all 
 payphone  service  providers  to  have  the  right  to  negotiate  with  the  location  provider  on  the 
 location  provider's  selecting  and  contracting  with,  and,  subject  to  the  terms  of  any  agreement 
 with  the  location  provider,  to  select  and  contract  with,  the  carriers  that  carry  intraLATA  calls 
 from  their  payphones."  In  the  Notice,  we  tentatively  concluded  that  all  PSPs,  whether  LECs  or 
 independent  payphone  service  providers,  should  be  given  the  right  to  negotiate  with  location 
 providers  concerning  the  intraLATA  carrier.  69  We  also  tentatively  concluded  that  the  intraLATA 
 carrier  presubscribed  to  a  payphone  should  be  required  to  meet  minimum  Commission  standards 
 for  the  routing  and  handling  of  emergency  calls.  70 
 66.  67.  2.  Comments 


 68. 
 69.  Commenters  generally  agree  with  the  tentative  conclusion  that  all  payphone 
 service  providers  should  have  the  ability  to  negotiate  with  location  providers  for  the  selection  of 
 intraLATA  carriers  from  their  payphones.  71  Those  who  commented  on  the  issue  also  agree  with 
 the  our  tentative  conclusion  that  minimum  standards  for  the  handling  and  routing  of  emergency 
 calls  should  be  required  of  all  intraLATA  carriers  presubscribed  to  a  payphone.  72 
 70. 
 71.  Some  commenters,  including  AT&  T,  MCI  and  SCPCA,  assert  that,  in  order  to 
 ensure  effective  competition  in  the  intraLATA  market,  the  Commission  should  specifically 
 preempt  any  state  requirement  mandating  the  routing  of  intraLATA  calls  to  the  incumbent 
 LEC.  73  AT&  T  also  argues  that  the  Commission  should  preempt  any  other  state  requirements  that 


 68  47  U.  S.  C.    276(  b)(  1)(  E). 


 69  Notice  at  para.  75. 
 70  Id. 
 71  See,  e.  g.,  AT&  T  Comments  at  28;  MCI  Comments  at  19;  ACI-  NA  Comments  at  4;  Florida  PSC  Comments 
 at  9;  RBOC  Comments  at  43-  44;  APCC  Comments  at  45-  46;  ACTEL  Comments  at  12;  NJPA  Comments  at  18; 
 SCPCA  Comments  at  8. 


 72  See,  e.  g.,  Florida  PSC  Comments  at  9;  APCC  Comments  at  45-  46;  California  PUC  Comments  at  19;  Sprint 
 Comments  at  31. 


 73  AT&  T  Comments  at  28;  MCI  Comments  at  19;  SCPCA  Comments  at  8. 
123
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 124 
 are  inconsistent  with  the  provisions  of  Section  276,  including  those  requiring  the  inclusion  of 
 ILEC  payphones  in  the  presubscription  process  in  states  with  toll  dialing  parity  orders  issued 
 prior  to  December  15,  1995.  74  AT&  T  additionally  asserts  that  the  Commission  should  require 
 immediate  intraLATA  presubscription  for  all  BOC  payphones  located  in  areas  where  intraLATA 
 presubscription  is  technically  feasible.  75  Florida  PSC  argues  that  end-  users  placing  0-  calls  often 
 seek  assistance  from  live  operators  for  emergency  purposes,  and  therefore  the  Commission 
 should  continue  to  allow  0-  traffic  to  be  routed  exclusively  to  the  LEC.  76 
 72. 
 73.  The  RBOCs  assert  that  the  Commission  should  not  mandate  the  adoption  of  new 
 technologies  in  order  to  allow  intraLATA  presubscription  at  the  central  office  switch.  77  The 
 RBOCs  state  that  such  a  requirement  is  neither  technically  feasible,  nor  necessary,  since 
 independent  payphone  service  providers  can  program  their  "smart"  payphones  to  select  a 
 presubscribed  intraLATA  carrier  without  relying  on  the  local  exchange  carrier's  central 
 switching  programming.  Instead,  the  RBOCs  contend  that  central  office  based  presubscription 
 for  payphones  should  be  addressed  at  the  same  time  as  all  other  intraLATA  presubscription 
 issues  under  Section  251  of  the  1996  Act.  78 
 74. 
 75.  ACI-  NA  asserts  that  while  all  payphone  service  providers  should  be 
 authorized  to  negotiate  with  location  providers  on  an  equal  basis,  the  Commission  should  make  it 
 clear  that  payphone  service  providers  may  not  contract  with  a  carrier  over  the  objections  of  the 
 locat  ion  provider.  79  Independent  payphone  service  providers  also  argue  that  the  Commission 
 should  make  explicit  that  the  right  to  choose  an  intraLATA  carrier  includes  the  right  to  use  the 
 carrier  for  local  sent  and  non-  sent  paid  calls.  80  SCPCA  also  contends  that  all  PSPs  should  be  able 
 to  negotiate  with  location  providers  for  selecting  the  local  operator  service  for  their  payphones.  81 
 76. 
 77.  3.  Discussion 
 78. 


 74  AT&  T  Comments  at  28. 
 75  Id. 
 76  Florida  PSC  Comments  at  9. 
 77  RBOC  Comments  at  43-  44. 
 78  Id.  See  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996,  CC 
 Docket  No.  96-  98,  Second  Report  and  Order  and  Memorandum  Opinion  and  Order,  FCC  96-  333  (rel.  Aug.  8,  1996) 
 ("  Local  Competition  Second  Order"). 


 79  ACI-  NA  Comments  at  4. 


 80  APCC  Comments  at  45-  46;  NJPA  Comments  at  18. 
 81  SCPCA  Comments  at  8. 
124
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 125 
 79.  We  affirm  our  conclusion  that  all  payphone  service  providers  should  have  the 
 right  to  negotiate  with  location  providers  concerning  the  intraLATA  carriers  presubscribed  to 
 their  payphones.  This  conclusion  is  consistent  with  both  the  specific  language  of  Section  276,  as 
 well  as  with  the  1996  Act's  goal  of  bringing  competition  into  this  industry  segment.  82 
 80. 
 81.  We  also  affirm  our  tentative  conclusion  that  intraLATA  carriers  presubscribed  to 
 payphones  should  be  required  to  meet  our  minimum  standards  for  routing  and  handling  of 
 emergency  calls.  We  recently  addressed  this  issue  in  CC  Docket  94-  198,  in  which  we  extended 
 to  aggregators,  including  payphone  owners,  standards  for  routing  emergency  calls.  83  This 
 conclusion  reflects  our  finding,  also  discussed  in  connection  with  public  interest  payphones,  that 
 payphones  often  serve  a  critical  role  in  accessing  emergency  service.  84  By  mandating  the 
 application  of  these  minimum  standards  to  intraLATA  carriers  presubscribed  to  payphones,  we 
 seek  to  ensure  that  individuals  can  receive  timely  and  proper  assistance  when  they  rely  on 
 payphones  for  0-  or  911  emergency  calls.  85 
 82. 
 83.  Because  Section  276(  b)(  1)(  E)  establishes  that  all  payphone  service 
 providers  are  to  have  the  right  to  negotiate  for  intraLATA  carriers  for  their  payphones,  we  find 
 that  state  regulations  which  require  the  routing  of  intraLATA  calls  to  the  incumbent  LEC  are 
 inconsistent  with  the  1996  Act.  Section  276(  c)  specifically  states  that  "to  the  extent  that  any 
 State  requirements  are  inconsistent  with  the  Commission's  regulations,  the  Commission's 
 regulations  on  such  matters  shall  preempt  such  State  requirements."  86  Since  we  have  found  state 
 requirements  that  mandate  the  routing  of  any  or  all  intraLATA  calls  to  an  incumbent  LEC  to  be 
 inconsistent  with  the  requirements  of  Section  276(  b)(  1)(  E),  we  conclude  that  all  such  state 
 requirements  are  preempted  by  the  Commission's  regulations.  87 


 82  With  respect  to  dialing  parity  requirements  for  intraLATA  carriers  presubscribed  to  payphones,  see  paras. 
 291  -  293,  below  (deferring  to  the  Section  251(  b)  rulemaking  on  dialing  parity  with  respect  to  technical  and  timing 
 requirements  concerning  dialing  parity  for  payphones). 


 83  See  Amendment  of  Policies  and  Rules  Concerning  Operator  Service  Providers  and  Call  Aggregators,  CC 
 Docket  No.  94-  158,  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  11  FCC  Rcd  4532  (1996). 
 These  standards  require  aggregators  and  operator  service  providers  to  ensure  immediate  connection  of  emergency 
 calls  to  the  proper  service  for  the  reported  location  of  the  emergency,  if  known,  and,  if  not  known,  for  the 


 originating  location  of  the  call.  47  C.  F.  R.  64.  706. 


 84  See  para.  277,  below. 


 85  We  are  addressing  similar  concerns  in  a  separate  rulemaking  regarding  enhanced  911  emergency  services. 
 See  911  Notice. 


 86  47  U.  S.  C.    276(  c). 


 87  The  Commission  also  has  general  authority  to  preempt  state  regulation  of  intrastate  communications 
 services  where  such  regulation  would  thwart  or  impede  the  Commission's  exercise  of  its  lawful  authority  over 
 interstate  communications  services,  such  as  when  it  is  not  "possible  to  separate  the  interstate  and  intrastate  portions 
 of  the  asserted  FCC  regulation."  Louisiana  Public  Service  Commission  v.  FCC,  476  U.  S.  355,  375  n.  4  (1986). 
125
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 126 
 84. 
 85.  We  take  particular  note,  however,  of  Florida  PSC's  argument  that  states  should  be 
 allowed  to  mandate  that  0-  calls  from  payphones  be  routed  exclusively  to  the  incumbent  LEC.  88 
 Florida  PSC  notes  that  such  a  requirement  is  necessary  to  ensure  that  emergency  calls,  where  the 
 caller  simply  dials  "0"  and  nothing  else,  are  delivered  to  a  live,  local  operator.  We  believe  that 
 requiring  0-  calls  to  be  initially  routed  to  the  LEC  is  not  necessarily  inconsistent  with  the 
 provisions  of  Section  276(  b)(  1)(  E),  so  long  as  the  state  does  not  mandate  that  the  LEC  ultimately 
 carry  non-  emergency  intraLATA  calls  initiated  by  dialing  "0"  only. 
 86. 
 87.  As  with  the  selection  of  an  interLATA  carrier,  payphone  location  providers  will 
 have  ultimate  decision-  making  authority  in  the  selection  of  intraLATA  carriers  for  payphones 
 located  on  their  premises  through  their  selection  of  a  payphone  service  provider.  89  Obviously 
 such  choice  is  predicated  on  the  development  of  competition  in  the  in-  region,  intraLATA  market. 
 Once  choice  of  intraLATA  providers  becomes  available,  however,  PSPs  can  be  expected  to 
 compete  for  locations  through,  among  other  things,  the  intraLATA  carriers  presubscribed  to  their 
 payphones.  As  with  the  selection  of  interLATA  carriers,  interference  with  existing  agreements 
 between  location  providers  and  payphone  service  providers  or  intraLATA  carriers,  as  well  as 
 undue  coercion  restricting  the  location  provider's  exercise  of  choice  of  such  carriers,  may 
 constitute  unjust  and  unreasonable  practices  in  violation  of  Section  201(  b)  of  the  Act.  90 
 88. 
 89. 


 88  Florida  PSC  Comments  at  9. 
 89  See  S.  Conf.  Rep.  104-  230  at  44  (House  amendment  provided  that  "[  l]  ocation  providers  prospectively  also 
 have  control  over  the  ultimate  choice  of  interLATA  and  intraLATA  carriers  in  connection  with  their  choice  of 
 payphone  service  providers"). 


 90  47  U.  S.  C.  201(  b).  See  discussion  at  para.  242,  above. 
126
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 127 
 1.  F.  ESTABLISHMENT  OF  PUBLIC  INTEREST  PAYPHONES 
 2. 
 3.  Section  276(  b)(  2)  of  the  1996  Act  directs  us  to  determine  whether  there  is 
 a  need  for  maintaining  payphones  serving  public  health,  safety,  and  welfare  goals,  and,  if  so,  to 
 ensure  that  such  payphones  are  supported  fairly  and  equitably.  91  As  noted  above,  we  recognize 
 the  potential  that  a  freely  competitive  marketplace  may  not  provide  for  payphones  in  locations 
 where  they  serve  important  public  policy  objectives,  but  which,  for  various  reasons,  may  not  be 
 economically  self-  supporting.  To  address  the  potential  for  such  market  failure,  we  establish 
 guidelines  by  which  the  states  may  ensure  the  maintenance  of  payphones  serving  public  interests 
 in  health,  safety  and  welfare,  in  locations  where  they  would  not  otherwise  be  available  as  a  result 
 of  the  operation  of  the  market.  92  Consistent  with  our  primary  reliance  on  the  competitive 
 marketplace,  however,  these  guideline  require  that  the  states  administer  and  fund  such  public 
 interest  payphone  programs  in  a  manner  which  is  competitively  neutral,  and  which  fairly  and 
 equitably  compensates  entities  providing  public  interest  payphones. 
 4. 
 5.  1.  The  Notice 
 6. 
 7.  Section  276(  b)(  2)  of  the  1996  Act  directs  the  Commission  to  "determine  whether 
 public  interest  payphones,  which  are  provided  in  the  interest  of  public  health,  safety,  and  welfare, 
 in  locations  where  there  would  otherwise  not  be  a  payphone,  should  be  maintained,  and  if  so, 
 ensure  that  such  public  interest  payphones  are  supported  fairly  and  equitably."  In  the  Notice,  we 
 sought  comment  on  whether  it  is  in  the  public  interest  to  maintain  payphones.  93  We  also  sought 
 comments  on  options  for  maintaining  public  interest  payphones.  94  One  option  would  be  for  the 
 Commission  to  prescribe  federal  regulations  for  the  maintenance  of  these  payphones.  A  second 
 option  would  be  for  the  Commission  to  establish  national  guidelines  for  public  interest 
 payphones.  A  third  option  for  maintaining  public  interest  payphones  would  be  to  defer  to  the 
 states  to  determine,  pursuant  to  their  own  statutes  and  regulations,  which  payphones  should  be 
 treated  as  "public  interest  payphones."  95 
 8. 
 9.  In  the  Notice,  we  also  sought  comment  on  whether  a  "public  interest  payphone"  should  be  defined  as  a  payphone  that  both  (1)  operates  at  a  financial  loss,  but  also  fulfills  some 


 public  policy  objective,  such  as  emergency  access;  and  (2)  even  though  unprofitable  by  itself,  is 


 91  47  U.  S.  C.    276(  b)(  2). 
 92  See  S.  Conf.  Rep.  104-  230  at  43. 
 93  Notice  at  paras.  77-  78. 
 94  Id.  at  paras.  78-  81. 
 95  Id. 
127
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 128 
 not  provided  for  a  location  provider  with  whom  the  PSP  has  a  contract.  96  Under  this  definition, 
 many  payphones  that  fulfill  important  public  policy  objectives  would  not  be  included  because 
 they  would  be  paid  for,  in  the  form  of  lower  commission  payments,  by  the  entity  that  is 
 requesting  that  a  payphone  be  placed  in  a  particular  location  to  fulfill  a  public  policy  objective.  97 
 10.  11.  In  addition,  we  sought  comment  on  appropriate  mechanisms  for  meeting 


 the  statutory  directive  that  we  ensure  public  interest  payphones  are  funded  "fairly  and 
 equitably."  98  We  sought  comment  on  whether  such  a  mechanism  should  be  addressed  through 
 federal  regulations,  federal  guidelines  for  the  states,  or  by  the  states  themselves.  We  requested 
 that  those  commenters  supporting  a  Commission-  mandated  funding  mechanism  detail  how  the 
 mechanism  would  function,  including  who  would  be  eligible  to  receive  funding,  who  would  be 
 responsible  for  paying  into  the  fund,  and  who  would  administer  the  funding  mechanism.  99 
 12. 
 13.  2.  Comments 
 14. 
 15.  Most  commenters  agree  that  payphones  can  serve  important  public 
 interests  in  health,  safety  and  welfare,  and  that  there  is  a  need  to  ensure  that  payphones  are 
 maintained  in  locations  where  they  may  not  be  self-  supporting.  100  For  example,  New  York  City 
 asserts  that,  in  the  absence  of  incentives,  PSPs  are  unlikely  to  place  payphones  in  indispensable 
 locations  such  as  under-  served  residential  neighborhoods  and  areas  with  significant  emergency 
 demands.  101  New  York  City  states  that  payphones  in  such  areas  serve  an  important  role  in 
 providing  the  public  with  basic  communications  services,  an  avenue  to  obtain  information,  and 
 access  to  critical  emergency  services.  102  Idaho  PUC  states  that  payphones  in  rural  areas  often 
 generate  little  revenue,  but  may  be  the  only  means  of  public  telephone  communication  for 
 miles.  103  New  Jersey  DRA  also  asserts  that  public  interest  payphones  provide  services  to 
 individuals  in  poor  and  isolated  communities  who  might  otherwise  not  have  any  access  to  the 
 exchange  network,  and  are  particularly  necessary  for  assuring  that  such  individuals  have  access 


 96  Id.  at  para.  80. 
 97  Id. 


 98  Id.  at  para.  82.  See  47  U.  S.  C.    276(  b)(  2). 
 99  Notice  at  para.  82. 
 100  See,  e.  g.,  New  York  City  Comments  at  3;  Ohio  PUC  Comments  at  15;  CPA  Comments  at  21;  Ameritech 
 Comments  at  29;  New  Jersey  DRA  at  3. 


 101  New  York  City  Comments  at  3. 


 102  Id.;  also  Maine  PUC  Comments  at  10. 
 103  Idaho  PUC  Comments  at  1. 
128
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 129 
 to  emergency  services  such  as  911.  104  Puerto  Rico  Telephone  states  that  those  who  by  necessity 
 use  payphones  as  a  substitute  for  residential  telephone  service  rely  on  such  payphones  as  their 
 means  of  access  to  emergency  services,  as  well  as  their  means  of  communication  with  family 
 members,  employers,  businesses  and  others.  105  Many  commenters  agree  that  public  interest 
 payphones  are  an  integral  part  of  efforts  to  achieve  universal  service.  106 
 16. 
 17.  A  few  commenters,  however,  assert  that  the  Commission  need  not  take  any  action 
 at  this  time  to  ensure  the  maintenance  of  public  interest  payphones.  MCI  contends  that  the  issue 
 of  public  interest  payphones  is  part  of  the  larger  question  of  ensuring  that  all  consumers  have 
 access  to  telephone  service,  and  should,  therefore,  be  referred  to  the  Federal-  State  Joint  Board  on 
 Universal  Service.  107  The  Iowa  Utilities  Board  argues  that  the  Commission  should  defer  to  the 
 states  with  respect  to  public  interest  payphones  because  Iowa  has  found  that  it  is  "not  necessary 
 to  establish  rules  requiring  public  interest  payphones"  in  that  state.  108 
 18. 
 19.  Most  commenters  assert  that  the  Commission  should  leave  to  the  states  the 
 primary  responsibility  for  administering  public  interest  payphone  programs.  109  A  number  of  state 
 and  local  regulatory  agencies  argue  that  any  public  interest  payphones  program  should  be  left 
 primarily  to  the  states,  because  national  guidelines  could  not  adequately  and  economically 
 prescribe  locations  or  criteria  for  such  payphones  throughout  the  country.  These  commenters 
 emphasize  that  state  and  local  entities,  including  police,  fire,  rescue  and  public  welfare  agencies, 
 are  best  situated  to  evaluate  community  needs  and  objectives.  110  Several  state  agencies  note  that 
 they  already  have,  or  are  prepared  to  develop,  programs  which  provide  for  placing  payphones  in 
 locations  where  they  might  otherwise  not  exist.  111  For  example,  several  states  comment  that  they 
 require  incumbent  local  exchange  carriers  in  their  jurisdictions  to  place  at  least  one  payphone  in 


 104  New  Jersey  DRA  Comments  at  3. 
 105  Puerto  Rico  Telephone  Comments  at  2. 
 106  See,  e.  g.,  New  Jersey  DRA  Comments  at  3;  GVNW  Comments  at  8-  9;  Sprint  Comments  at  31-  32;  MCI 
 Comments  at  20;  Texas  PUC  Comments  at  5;  GTE  Comments  at  16-  17. 


 107  MCI  Comments  at  20.  See  also  Sprint  Comments  at  31-  32. 


 108  Iowa  Utilities  Board  Comments  at  4.  See  also  US  West  Reply  at  6. 
 109  See,  e.  g.,  APCC  Comments  at  47;  RBOC  Comments  at  46;  CPA  Comments  at  22;  Maine  PUC  Comments 
 at  11-  12;  New  Jersey  DRA  Comments  at  4;  AT&  T  Reply  at  28;  NTCA  Reply  at  7. 


 110  California  PUC  Comments  at  20-  21;  Maine  PUC  Comments  at  11-  12;  Ohio  PUC  Comments  at  16-  17; 
 Texas  PUC  Comments  at  5;  Idaho  PUC  Comments  at  1-  2;  New  Jersey  DRA  Comments  at  4;  New  York  DPS 
 Comments  at  8;  Virginia  SCC  Comments  at  4;  also,  New  York  City  Comments  at  4-  8;  Puerto  Rico  Telephone 
 Comments  at  1-  4. 


 111  California  PUC  Comments  at  20;  Ohio  PUC  Comments  at  16-  17;  New  York  City  Comments  at  5-  7;  Texas 
 PUC  Comments  at  5. 
129
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 130 
 each  exchange  area.  112 
 20. 
 21.  One  state  plan  referenced  often  in  the  comments  is  the  California  Universal 
 Services  program.  California's  program  requires  that  LECs  maintain  "public  policy"  payphones 
 at  locations  where  revenues  are  not  sufficient  to  profitably  support  a  payphone.  113  The  program 
 requires  that:  (1)  a  selected  committee  evaluate  the  need  for  payphones  at  locations  where  they 
 do  not  already  exist;  (2)  the  LECs  install  and  maintain  these  payphones  with  the 
 acknowledgement  that  revenues  will  not  cover  costs  of  installation  and  operation;  (3)  all  PSPs 
 support  these  payphones  through  a  monthly  rate  charged  to  connect  their  payphones  to  the 
 network;  and  (4)  all  LECs  with  payphones  support  these  payphones  with  a  contribution  from 
 their  competitive  public  and  semi-  public  payphones.  Thus,  the  costs  of  supporting  these  public 
 interest  payphones  are  borne  not  by  the  general  body  of  ratepayers,  but  rather  by  the  payphone 
 industry  as  a  whole.  114  CPA  asserts  that  this  program  does  not  place  an  undue  burden  on  PSPs 
 because  the  criteria  for  public  interest  payphones  has  been  narrowly  drawn,  resulting  in  only  one 
 per  cent  of  all  payphones  in  the  state  being  identified  as  public  interest  payphones.  115  The 
 RBOCs,  however,  assert  that  the  California  plan  may  not  work  in  other  states,  particularly  in 
 rural  areas  where  the  number  of  competitive  payphones  may  be  small  relative  to  the  number  of 
 public  interest  payphones.  116 
 22. 
 23.  Several  commenters,  particularly  the  BOCs  and  independent  payphone  providers, 
 urge  the  Commission  to  adopt  national  guidelines  for  state  implementation  of  a  public  interest 
 payphone  program.  117  The  RBOCs  argue  that  the  1996  Act  requires  the  Commission  to  adopt  a 
 narrow  definition  of  what  constitutes  a  public  interest  payphone  in  order  to  limit  what  state  and 
 local  governments  can  require  of  payphone  providers.  118  They  argue  that  since  the  1996  Act 
 requires  the  installation  of  public  interest  payphones  only  "in  locations  where  there  would 
 otherwise  not  be  a  payphone,"  119  state  and  local  regulators  should  not  be  allowed  to  require  the 
 installation  of  public  interest  payphones  in  locations  where  a  payphone  already  exists,  or  on  the 
 premises  of  a  location  provider  who  has  an  existing  contract  for  the  placement  of  a  payphone.  120 


 112  Ohio  PUC  Comments  at  16;  Idaho  PUC  Comments  at  1;  Missouri  PSC  Reply  at  3. 


 113  California  PUC  Comments  at  20 
 114  Id. 
 115  CPA  Comments  at  21-  24. 
 116  RBOC  Comments  at  47. 
 117  Id.  at  46-  47;  Ameritech  Comments  at  29-  31;  CPA  Comments  at  22. 
 118  RBOC  Comments  at  46-  47. 
 119  47  U.  S.  C.    276(  b)(  2). 
 120  RBOC  Comments  at  46-  47;  Ameritech  Comments  at  29-  30. 
130
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 131 
 Ameritech  specifically  recommends  adoption  of  guidelines,  similar  to  the  existing  California 
 model,  which  specify  that  a  public  interest  payphone  is  one  that  would  not  "break  even,"  and 
 would  not  exist  in  the  location  absent  public  intervention.  121  The  RBOCs  and  Ameritech  urge 
 rules  limiting  the  designation  of  "public  interest  payphones"  to  those  requested  by  state  or  local 
 governmental  agencies  for  purposes  of  ensuring  health,  safety,  and  welfare.  122  The  RBOCs  also 
 contend  that  local  governmental  agencies  already  provide  for  the  public  interest  payphones  by 
 requiring  the  placement  of  certain  numbers  of  non-  profitable  payphones  as  part  of  their  contracts 
 with  individual  payphone  service  providers  for  the  placement  of  competitive  payphones.  123  A 
 few  state  commenters  also  stated  that  it  may  be  appropriate  for  the  Commission  to  adopt  basic 
 national  guidelines  in  order  to  ensure  the  deployment  of  public  interest  payphones  in  critical 
 locat  ions.  124 
 24.  Puerto  Rico  Telephone  contends  that  because  of  the  particularly  low  level  of 
 residential  telephone  service,  any  definition  of  public  service  payphones  adopted  by  the 
 Commission  should  include  payphones  that  are  used  as  a  substitute  for  local  residential 
 telephone  service.  125  GVNW,  which  represents  small  LECs,  also  recommends  a  broader 
 definition  of  public  interest  payphones  in  order  to  ensure  adequate  access  to  payphones  in 
 schools,  public  parks,  and  other  public  locations.  126 
 25. 
 26.  Among  the  independent  payphone  providers,  APCC  argues  that  the 
 legislative  history  indicates  that  location  providers,  including  state  and  local  governments, 
 having  an  existing  contract  with  a  PSP  for  the  placement  of  payphones,  should  be  precluded 
 from  having  public  interest  payphones  located  on  their  premises.  127  CPA  argues  that  the 
 Commission  should  set  basic  national  guidelines,  while  leaving  implementation  to  the  states.  128 
 It  recommends  the  criteria  of  the  California  program  as  a  good  model  for  narrowly  defining  the 
 scope  of  public  interest  payphones.  129 
 27. 


 121  Ameritech  Comments  at  29-  30. 
 122  RBOC  Comments  at  46-  47;  Ameritech  Comments  at  32. 
 123  RBOC  Comments  at  46. 
 124  Oklahoma  CC  Comments  at  4.  See  also  New  Jersey  DRA  Comments  at  3-  4;  New  York  DPS  Comments  at 
 8. 


 125  Puerto  Rico  Telephone  Comments  at  3-  4. 


 126  GVNW  Comments  at  8-  10. 
 127  APCC  Comments  at  50-  51. 
 128  CPA  Comments  at  22. 
 129  Id.  at  22-  23;  APCC  Comments  at  50-  51. 
131
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 132 
 28.  Many  commenters,  particularly  state  and  local  regulators,  contend  that  funding  for 
 public  interest  payphones  should  also  be  left  to  the  discretion  of  the  states.  130  Maine  PUC  asserts 
 that  if  the  Commission  does  attempt  to  prescribe  national  siting  standards,  then  the  Commission 
 must  also  provide  the  states  federal  or  interstate-  derived  funding  to  support  such  requirements.  131 
 Otherwise,  it  contends,  the  Commission  should  not  limit  the  funding  options  available  for  state 
 administration  of  public  interest  payphone  programs.  132  Other  commenters  argue  that  to  meet  the 
 1996  Act's  requirement  that  public  interest  payphones  be  "supported  fairly  and  equitably,"  such 
 payphones  should  be  paid  for  by  the  requesting  party.  133  Specifically,  the  RBOCs  assert  that  the 
 Commission  should  require  requesting  entities,  including  state  and  local  governments,  to 
 compensate  PSPs  in  an  amount  that  allows  the  PSP  to  recover  its  costs  for  establishing  a  public 
 interest  payphone,  plus  a  reasonable  rate  of  return.  134  The  BOCs  argue  that  any  funding 
 mechanism  that  requires  the  PSPs  to  share  in  the  responsibility  of  providing  public  interest 
 payphones  would  necessitate  a  complex  analysis  of  market  share  or  a  running  tally  of  the  number 
 of  payphones  each  PSP  provides  in  a  particular  area.  135  Puerto  Rico  Telephone  and  NTCA  also 
 contend  that,  if  the  Commission  determines  that  public  interest  payphones  should  be  maintained, 
 then  the  Commission  is  also  obligated  to  ensure  that  such  payphones  are  properly  funded.  136 
 They  recommend  that  the  Commission  establish  a  fund  segregated  from  other  universal  service 
 support  mechanisms,  and  administered  by  the  NECA,  to  support  public  interest  payphones. 
 NECA  affirms  in  its  comments  its  ability  to  implement  such  a  program.  137 
 29. 
 30.  APCC  also  maintains  that  the  states  should  be  given  the  discretion  to 
 determine  the  funding  mechanism  for  public  interest  payphones,  including  funding  based  upon 
 surcharges  for  all  PSPs  serving  the  location,  or  through  a  universal  service  mechanism  funded  by 
 all  rate  payers.  138  While  endorsing  the  funding  mechanism  adopted  in  the  California  plan,  CPA 
 argues  that  an  alternative  funding  mechanism  would  be  to  allow  PSPs  to  seek  subsidy  support  for 


 130  See,  e.  g.,  Maine  PUC  Comments  at  11;  New  York  City  Comments  at  9;  Ohio  PUC  Comments  at  17;  Texas 
 PUC  Comments  at  5.  See  also,  APCC  Comments  at  47. 


 131  Maine  PUC  Comments  at  12. 


 132  Id. 
 133  Id.;  Ameritech  Comments  at  32;  also  USTA  Comments  at  11;  NTCA  Comments  at  7;  GTE  Comments  at 
 16-  17. 


 134  RBOC  Reply  at  33  (noting,  however,  that  California's  existing  system  should  be  grandfathered  because  it 
 works  due  to  the  state's  uniquely  competitive  factors). 


 135  Id. 


 136  Puerto  Rico  Telephone  Reply  at  4-  5;  NTCA  Reply  at  7.  See  also  NECA  Comments  at  6-  7. 
 137  NECA  Comments  at  6-  7. 
 138  APCC  Comments  at  47-  51;  also  GPCA  Reply  at  22. 
132
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 133 
 non-  self-  supporting  payphones  determined  to  be  in  the  public  interest,  with  award  of  the 
 payphone  location  to  the  PSP  bidding  to  provide  a  payphone  at  that  location  for  the  lowest 
 subsidy  amount.  139  GTE  asserts  that  the  Commission  should  require  states  to  adopt  rules  for 
 public  interest  payphone  programs  that  are  competitively  neutral,  including  requiring  fair 
 compensation  to  PSPs  providing  public  interest  payphones,  and  ensuring  that  all  PSPs  may 
 participate  in  such  programs  on  a  voluntary  basis.  140  GTE  argues  that  states  may  establish  funds 
 to  ensure  that  public  interest  payphone  programs  are  supported  fairly,  or  could  support  such 
 payphones  as  part  of  their  state  universal  services  fund.  141  SW  Bell  also  urges  the  Commission  to 
 require  the  states  to  adopt  competitively  neutral  funding  mechanisms  for  public  interest 
 payphone  programs,  including  the  use  of  competitive  bidding  for  the  right  to  provide  public 
 interest  payphones.  142 
 31. 
 32.  3.  Discussion 
 33. 
 34.  We  conclude  that  there  is  a  need  to  ensure  the  maintenance  of  payphones  that 
 serve  the  public  policy  interests  of  health,  safety,  and  welfare  in  locations  where  there  would  not 
 otherwise  be  payphones  as  a  result  of  the  operation  of  the  market.  143  As  demonstrated  by  the 
 comments,  all  payphones  serve  the  public  interest  by  providing  access  to  basic  communications 
 services.  144  We  are  particularly  concerned  about  the  role  served  by  payphones  in  providing 
 access  to  emergency  services,  especially  in  isolated  locations  and  areas  with  low  levels  of 
 residential  phone  penetration.  Indeed,  in  some  such  areas,  payphones  are  the  only  readily 
 available  means  of  accessing  these  critical  communications  services.  145  Moreover,  as  several 
 commenters  recognize,  some  payphones  which  are  most  critical  for  public  health,  safety  and 
 welfare  purposes,  are  also  the  least  likely  to  be  economically  self-  supporting.  146  With  the 
 elimination  of  subsidies  which  have  helped  support  such  payphones  in  the  past,  as  directed  by 
 the  1996  Act,  it  is  possible  that  many  of  these  payphones  could  disappear  absent  the  availability 
 of  alternative  methods  to  ensure  their  existence.  147 


 139  CPA  Comments  at  24. 


 140  GTE  Comments  at  16-  17. 
 141  Id. 
 142  SW  Bell  Comments  at  8. 
 143  47  U.  S.  C.    276(  b)(  2).  See  S.  Conf.  Report  104-  230  at  43. 
 144  See,  e.  g.,  New  Jersey  DRA  Comments  at  3-  4;  New  York  City  Comments  at  3. 
 145  See,  e.  g.,  New  York  City  Comments  at  3;  Puerto  Rico  Telephone  Comments  at  1-  4;  Idaho  PUC  Comments 
 at  1. 


 146  See,  e.  g.,  Idaho  PUC  Comments  at  1-  2. 


 147  See  47  U.  S.  C.    276(  b)(  1)(  B). 
133
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 134 
 35. 
 36.  Many  states  have  already  developed  systems  for  identifying  the  need  for  public 
 interest  payphones,  and  developing  solutions  to  address  that  need.  148  Indeed,  we  find  that  the 
 states  are  typically  in  a  superior  position  to  evaluate  the  need  for  payphones  which  serve 
 community  interests  in  health,  safety  and  public  welfare.  In  particular,  the  states  are  better 
 equipped  than  the  Commission  to  respond  to  geographic  and  socio-  economic  factors  affecting 
 the  need  for  such  payphones  that  are  too  diverse  to  be  effectively  addressed  on  a  national  basis.  149 
 37. 
 38.  We  also  find  that  the  existence  of  a  variety  of  state  and  local  plans  already 
 providing  for  payphones  serving  public  welfare  goals  demonstrates  that  the  states  are  able  to 
 successfully  administer  such  programs.  For  example,  we  note  the  program  adopted  in  California, 
 which  all  parties  involved  appear  to  view  as  having  successfully  provided  for  public  interest 
 payphones  in  the  most  critical  locations.  150  The  California  program  is  funded  by  the  payphone 
 industry  as  a  whole,  yet  is  endorsed  by  payphone  providers  doing  business  in  the  state  because, 
 in  part,  it  narrowly  defines  the  criteria  for  public  interest  payphones  to  locations  where  there  is  a 
 true  public  welfare  need  not  being  met  by  the  competitive  marketplace.  151  These  criteria  include 
 requirements  that  a  public  interest  payphone  not  be  located  on  the  premises  of  a  person  receiving 
 compensation  under  a  contract  for  the  placement  of  other  payphones,  that  access  to  the  payphone 
 be  unrestricted,  and  that  the  payphone  be  at  least  a  specified  distance  away  from  any  other 
 payphones.  152  The  experience  in  California  has  been  that  only  a  very  small  number  of  locations, 
 relative  to  the  overall  number  of  payphones,  meet  the  narrow  criteria  for  public  interest 
 payphones.  153  It  may  be,  however,  that  in  other  states  such  a  program  would  not  effectively 
 provide  for  public  interest  telephones  because  there  are  insufficient  numbers  of  competitive 
 payphones  available  to  adequately  and  fairly  support  the  locations  meeting  the  criteria  for  public 
 interest  payphones.  154  Other  states,  however,  have  responded  to  an  identified  need  for  payphones 
 necessary  to  satisfy  public  health,  safety,  and  welfare  concerns  by  requiring  LECs  to  provide  at 
 least  one  public  payphone  in  each  telephone  exchange,  155  or  by  requiring  the  placement  of 


 148  See  NTCA  Comments  at  6-  7  (describing  several  state  requirements  for  the  provision  of  payphone  service 
 where  it  might  otherwise  not  exist);  also  Missouri  PSC  Reply  at  3;  Ohio  PUC  Comments  at  16-  17;  California  PUC 
 Comments  at  20;  Idaho  PUC  Comments  at  1. 


 149  See,  e.  g.,  Idaho  PUC  Comments  at  1-  2;  New  York  DPS  Comments  at  8;  Maine  PUC  Comments  at  11. 


 150  See,  e.  g.,  California  PUC  Comments  at  20-  21;  CPA  Comments  at  22-  24;  RBOC  Comments  at  47,  n.  62; 
 SDPOA  Reply  at  3. 


 151  CPA  Comments  at  22-  24;  SDPOA  Comments  at  3. 


 152  CPA  Comments  at  23. 
 153  CPA  Comments  at  22-  24  (stating  that  less  than  2,  000  of  the  200,  000  payphones  in  the  state,  or  less  than 
 one  percent,  were  found  to  have  met  these  criteria). 


 154  See  RBOC  Comments  at  47,  n.  62;  US  West  Reply  at  6; 


 155  See,  e.  g.,  Missouri  PSC  Comments  at  3;  Ohio  PUC  Comments  at  16. 
134
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 135 
 unprofitable  payphones  as  part  of  contracts  with  PSPs  for  the  placement  of  profitable  payphones 
 on  public  property.  156 
 39. 
 40.  The  existence  of  these  various  and  diverse  plans  confirms  both  that  the  states  have 
 the  authority  to  adequately  address  the  need  for  public  interest  payphones,  and  that  any  effort  to 
 implement  a  uniform  national  program  is  unlikely  to  be  as  successful  in  accounting  for  differing 
 conditions  among  the  states.  We  also  believe  that  any  effort  by  the  Commission  to  implement 
 such  a  national  program  would  be  beyond  our  current  resource  capabilities.  For  all  of  the  above 
 reasons,  we  conclude  that  the  primary  responsibility  for  administering  and  funding  of  public 
 interest  payphone  programs  should  be  left  to  the  states. 
 41. 
 42.  While  we  leave  the  administration  of  public  interest  payphones  to  the  states,  we 
 believe  that  the  1996  Act  requires  us  to  impose  minimum  guidelines  for  establishment  of  a 
 public  interest  payphone  program  to  meet  our  statutory  obligation  to  ensure  the  maintenance  of 
 such  payphones.  In  particular,  we  believe  it  is  very  important  to  establish  a  basic  definition  of 
 public  interest  payphones  that  is  narrowly  tailored  to  payphones  that  are  truly  needed  for  the 
 public  interest  reasons  enunciated  in  the  statute.  The  1996  Act  describes  public  interest 
 payphones  as  those  "which  are  provided  in  the  interest  of  public  health,  safety,  and  welfare,  in 
 locations  where  there  would  otherwise  not  be  a  payphone  .  .  ."  157  The  Conference  Report  further 
 explains  that  "the  term  does  not  apply  to  a  payphone  located  near  other  payphones,  or  to  a 
 payphone  that,  even  though  profitable  by  itself,  is  provided  for  a  location  provider  with  whom 
 the  payphone  provider  has  a  contract."  158  The  definition  proposed  in  the  Notice  encompasses 
 both  of  these  statements.  We  also  note  that  the  limitations  reflected  in  the  Conference  Report  are 
 similar  to  those  included  in  the  California  program's  criteria  for  "public  policy  payphones."  159 
 43. 
 44.  We  adopt  as  a  definition  of  "public  interest  payphone,"  a  payphone  which  (1) 
 fulfills  a  public  policy  objective  in  health,  safety,  or  public  welfare,  (2)  is  not  provided  for  a 
 location  provider  with  an  existing  contract  for  the  provision  of  a  payphone,  and  (3)  would  not 
 otherwise  exist  as  a  result  of  the  operation  of  the  competitive  marketplace.  This  definition  is 
 similar  in  effect  to  the  one  proposed  in  the  Notice.  We  conclude  that  the  statute  and  Conference 
 Report  reflect  a  congressional  intent  that  reliance  on  the  public  interest  payphone  provision  is  to 
 be  limited  to  instances  where  a  payphone  location  serves  a  strong  public  interest  that  would  not 
 be  fulfilled  by  the  normal  operation  of  the  market.  Thus,  a  state  may  not  require  that  a  public 
 interest  payphone  be  installed  on  premises  where  a  location  provider  already  has  a  contract  for 
 the  maintenance  of  a  competitive  payphone,  even  if  such  contract  requires  the  location  provider 


 156  RBOC  Comments  at  46. 
 157  47  U.  S.  C.    276(  b)(  2). 
 158  S.  Conf.  Rep.  104-  230  at  43. 
 159  See  CPA  Comments  at  23. 
135
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 136 
 to  pay  for  the  continued  maintenance  of  such  payphone.  160 
 45. 
 46.  The  1996  Act  directs  the  Commission,  in  the  event  that  we  find  the  need  for 
 public  interest  payphone  programs,  to  "ensure  that  such  public  interest  payphones  are  supported 
 fairly  and  equitably."  161  We  find  that  this  provision  requires  a  national  guideline  that  companies 
 providing  public  interest  payphones  be  fairly  compensated  for  the  cost  of  such  services.  We 
 leave  to  the  discretion  of  the  states  how  to  fund  their  respective  public  interest  payphone 
 programs,  so  long  as  the  funding  mechanism,  (1)  "fairly  and  equitably"  distributes  the  costs  of 
 such  a  program,  and  (2)  does  not  involve  the  use  of  subsidies  prohibited  by  Section  276(  b)(  1)(  B) 
 of  the  1996  Act.  162  Thus,  a  state  may  choose  to  fund  public  interest  payphones  from  its  general 
 revenues  through  a  process  that  ensures  that  companies  providing  public  interest  payphones  are 
 fairly  compensated  and  in  a  manner  that  does  not  otherwise  affect  the  competitive  balance  of  the 
 industry.  163  Similarly,  a  state  or  local  government  may  include  requirements  for  placing  non-profitable 
 payphones  as  part  of  a  voluntary,  contractual  agreement  with  a  payphone  services 
 provider  for  the  installation  of  competitive  payphones  on  public  property.  164 
 47. 
 48.  Alternatively,  states  may  address  the  need  for  public  interest  payphones  by 
 adopting  appropriate  rules  in  conjunction  with  their  responsibilities  for  ensuring  universal 
 service  pursuant  to  Section  254(  f)  of  the  1996  Act.  165  We  note  that  issues  relating  to  public 


 160  We  note  that  public  interest  payphones  are  distinct  from  some  public  payphones  that  are  classified  by 
 various  states  as  "semi-  public"  payphones.  Semi-  public  payphones  tend  to  be  payphones  placed  in  locations,  at  the 
 request  of  the  premises  owner,  that  do  not  generate  significant  amounts  of  traffic.  See  RBOC  Comments  at  48-  49. 
 The  LEC  providing  the  semi-  public  payphone  typically  receives  the  coin  revenues  from  the  payphone,  as  well  as  a 
 monthly  fee  discounted  from  the  rate  for  a  business  line. 


 161  47  U.  S.  C.    276(  b)(  3). 


 162  See  47  U.  S.  C.    276(  b)(  1)(  B)  &  (b)(  3) 
 163  State  programs  supporting  public  interest  payphones  are  also  subject  to  the  provisions  of  Section  253(  b)  of 
 the  1996  Act  which  requires  that  such  a  program  be  implemented  on  a  "competitively  neutral  basis."  47  U.  S.  C. 
 253(  b).  One  means  of  achieving  a  competitively  neutral  process  is  by  choosing  the  payphone  services  provider  for 
 public  interest  payphone  locations  through  a  competitive  bidding  process,  i.  e,  whereby  the  location  is  awarded  to  the 
 PSP  bidding  to  serve  the  location  for  the  lowest  subsidy  level.  See,  e.  g.,  RBOC  Comments  at  46-  47;  CPA 
 Comments  at  24  (suggesting  an  alternative  whereby  a  payphone  provider  could  seek  subsidy  support  for  a  particular 
 location,  but  only  through  an  auction  whereby  the  right  and  obligation  to  provide  a  payphone  at  the  location  would 
 be  given  to  the  PSP  bidding  the  lowest  subsidy  amount).  Alternatively,  a  funding  program,  like  California's,  which 
 relies  upon  levies  on  all  payphone  service  providers  in  the  state,  may  be  appropriate  to  the  extent  that  it  treats  all 
 PSPs,  including  LECs,  in  a  competitively  neutral  manner  and  eliminates  subsidies  from  local  access  charges.  See 
 paras.  269  and  277,  above. 


 164  See,  e.  g.,  RBOC  Comments  at  46. 


 165  Section  254(  f)  provides: 
 (f)  State  Authority.  -  A  State  may  adopt  regulations  not  inconsistent 
 with  the  Commission's  rules  to  preserve  and  advance  universal  service. 
136
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 137 
 interest  payphones  were  not  referred  to  the  Universal  Services  Federal-  State  Joint  Board  in 
 Docket  96-  45.  166  Section  254(  f),  however,  provides  that  states  may  adopt  regulations  to  preserve 
 and  advance  universal  service  within  each  state,  not  inconsistent  with  the  rules  we  will 
 eventually  adopt  in  that  proceeding.  167  Accordingly,  any  state  may  adopt  regulations  to  provide 
 for  additional  definitions  and  standards  to  preserve  and  advance  universal  service  within  that 
 state  so  long  as  such  regulations  include  additional  specific,  predictable,  and  sufficient 
 mechanisms  to  support  such  definitions  or  standards,  and  that  do  not  burden  or  rely  on  federal 
 universal  service  support  mechanisms.  168  We  note  that  among  the  among  the  criteria  established 
 by  the  1996  Act  for  defining  services  that  are  to  be  supported  by  a  universal  services  program, 
 are  whether  such  telecommunications  services  "are  essential  to  education,  public  health,  or 
 public  safety  .  .  .  .  [and]  are  consistent  with  the  public  interest,  convenience,  and  necessity."  169 
 We  find  that  the  implementation  of  a  public  interest  payphone  program  is  consistent  with  these 
 goals,  and  may  be  a  valuable  tool  in  the  states'  efforts  to  achieve  universal  service.  170  Therefore, 
 we  find  that  states  may  establish  funding  mechanisms  for  public  interest  payphones  either  by 
 meeting  the  funding  requirements  of  Section  276(  b)(  2),  as  limited  by  Section  276(  b)(  1)(  B),  or  in 
 accordance  with  state  universal  service  rules  adopted  pursuant  to  Section  254(  f)  in  conjunction 
 with  Section  276(  b)(  2)  and  (b)(  1)(  B). 
 49. 
 50.  In  furtherance  of  our  statutory  responsibility  under  Section  276(  b)(  2),  we 
 direct  each  state  to  review  whether  it  has  adequately  provided  for  public  interest  payphones  in  a 
 manner  consistent  with  this  Report  and  Order.  In  particular,  each  state  should  evaluate  whether 
 it  needs  to  take  any  measures  to  ensure  that  payphones  serving  important  public  interests  will 


 Every  telecommunications  carrier  that  provides  intrastate 
 telecommunications  services  shall  contribute,  on  an  equitable  and 
 nondiscriminatory  basis,  in  a  manner  determined  by  the  State  to  the 
 preservation  and  advancement  of  universal  service  in  that  State.  A  State 
 may  adopt  regulations  to  provide  for  additional  definitions  and  standards 
 to  preserve  and  advance  universal  service  within  that  State  only  to  the 
 extent  that  such  regulations  adopt  additional  specific,  predictable,  and 
 sufficient  mechanisms  to  support  such  definitions  or  standards  that  do  not 
 rely  on  or  burden  Federal  universal  service  support  mechanisms. 


 47  U.  S.  C.  254(  f). 


 166  See  Joint  Board  Notice  at  para.  57,  n.  128. 
 167  47  U.  S.  C.  254(  f). 
 168  Id. 
 169  47  U.  S.  C.  254(  c)(  1)(  A)  and  (D)  (emphasis  added).  See  Joint  Board  Notice  at  para.  9. 
 170  See  Maine  PUC  Comments  at  12;  New  Jersey  DRA  Comments  at  3;  Texas  PUC  Comments  at  5;  Sprint 
 Comments  at  31-  32;  . 
137
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 138 
 continue  to  exist  in  light  of  the  elimination  of  subsidies  and  other  competitive  provisions 
 established  pursuant  to  Section  276  of  the  1996  Act,  and  that  any  existing  programs  are 
 administered  and  funded  consistent  with  the  requirements  described  above.  This  review  must  be 
 completed  by  each  state  within  two  years  of  the  date  of  issuance  of  this  Report  and  Order,  and 
 may  be  conducted  in  conjunction  with  each  state's  study  of  the  payphone  marketplace  which  we 
 are  requiring  in  connection  with  the  transition  to  market-  based  payphone  compensation.  171 
 51. 
 52.  Finally,  we  do  not  delegate  our  entire  responsibility  under  Section 
 276(  b)(  2)  to  "ensure  that  such  public  interest  payphones  are  supported  fairly  and  equitably."  172  If 
 interested  parties  believe  that  a  state  is  not  supporting  public  interest  payphones  fairly  and 
 equitably,  such  parties  may  file  a  petition  with  the  Commission  asserting  that  the  state  is  not 
 providing  for  payphones  in  accordance  with  Section  276(  b)(  2)  and  the  guidelines  we  adopt  in 
 this  Report  and  Order,  as  may  be  amended  from  time  to  time.  53. 


 54. 
 55.  G.  OTHER  ISSUES  56. 


 57.  1.  Dialing  Parity 
 58. 
 59.  a.  The  Notice 
 60. 
 61.  We  tentatively  concluded  in  the  Notice  that  the  benefits  of  the  dialing 
 parity  requirements  to  be  adopted  pursuant  to  Section  251(  b)(  3)  of  the  1996  Act  should  extend  to 
 all  payphone  location  providers.  173  We  sought  comment  on  this  and  other  methods  for  achieving 
 dialing  parity  for  payphone  location  providers,  and  users,  of  payphones  that  are  consistent  with 
 the  definition  of  dialing  parity  under  Section  3(  15)  of  the  1934  Act,  as  amended.  174  As  a  related 
 matter,  we  also  sought  comment  on  whether  we  should  extend  the  unblocking  requirements 
 established  in  TOCSIA  to  all  local  and  long  distance  calls.  175 
 62. 
 63.  b.  Comments 


 171  See  para.  60,  above. 
 172  47  U.  S.  C    276(  b)(  2). 
 173  Notice  at  para.  84.  Section  251(  b)(  3)  states  that  all  LECs  have  the  duty  to  "provide  dialing  parity  to 
 competing  providers  of  telephone  exchange  service  and  telephone  toll  service."  47  U.  S.  C.  251(  b)(  3). 


 174  Id.  See  47  U.  S.  C.  153(  15)  ("  The  term  'dialing  parity'  means  that  a  person  that  is  not  an  affiliate  of  a  local 
 exchange  carrier  is  able  to  provide  telecommunications  services  in  such  a  manner  that  customers  have  the  ability  to 
 route  automatically,  without  the  use  of  any  access  code,  their  telecommunications  to  the  telecommunications 
 services  provider  of  the  customer's  designation  among  2  or  more  telecommunications  services  providers  (including 
 such  local  exchange  carrier)"). 


 175  Notice  at  para.  84. 
138
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 139 
 64. 
 65.  AT&  T,  MCI,  Sprint  and  the  Virginia  SCC  all  agree  with  the  Commission's 
 tentative  conclusion  that  the  benefits  of  the  dialing  parity  requirements  to  be  adopted  pursuant  to 
 Section  251(  b)(  3)  of  the  1996  Act  should  extend  to  all  payphone  location  providers.  176  While  the 
 RBOCs  agree  with  the  tentative  conclusion,  they  assert  that  such  benefits  should  be  exercised 
 indirectly  through  the  PSP's  programming  of  their  "smart"  payphones  to  select  a  presubscribed 
 intraLATA  carrier,  as  opposed  to  directly  through  presubscription  at  the  LEC's  central  office 
 switch.  177 


 176  AT&  T  Comments  at  29;  MCI  Comments  at  20;  Sprint  Comments  at  32;  Virginia  SCC  Comments  at  4. 
 177  RBOC  Comments  at  43-  44. 
139
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 140 
 66.  The  Florida  PSC  contends  that  a  PSP  should  be  able  to  "program"  its  payphones  to  route  1+ 
 and  0+  toll  calls  to  the  preferred  carrier.  1  GVNW  argues  that  it  is  the  states  who  should  be  given 
 the  discretion  of  determining  when  and  how  dialing  parity  for  intraLATA  calls  should  be  applied 
 to  payphones.  2 
 67. 
 68.  AT&  T  requests  that  the  Commission  mandate  inclusion  of  all  incumbent 
 LEC  payphones  in  the  presubscription  process  in  the  15  states  with  toll  dialing  parity  orders 
 issued  prior  to  December  15,  1995  as  well  as  immediate  intraLATA  presubscription  for  all  BOC 
 payphones  located  in  territories  where  intraLATA  presubscription  is  now  technically  available.  3 
 The  RBOCs  argue  that  the  Commission  should  deny  AT&  T's  immediate  intraLATA 
 presubscription  request,  contending  that  this  request  is  without  basis  in  Section  276  and  cannot 
 be  implemented  for  intraLATA  payphone  calls,  apart  from  intraLATA  residential  and  business 
 calls.  4  According  to  the  RBOCs,  intraLATA  dialing  parity  for  payphone  calls  should  operate  on 
 the  same  timetable  as  for  all  other  calls.  5 
 69. 
 70.  AT&  T  and  MCI  both  argue  that  the  Commission  should  adopt  intraLATA 
 unblocking  requirements  similar  to  the  interLATA  carrier  unblocking  requirements  established 
 in  TOCSIA.  6  Sprint  argues  that  the  interLATA  unblocking  requirements  established  pursuant  to 
 TOCSIA  should  extend  to  all  local  and  long  distance  calls.  7  Ameritech  argues  that  the  existing 
 anti-  blocking  rules  promulgated  under  TOCSIA  remain  sufficient  to  prevent  aggregators  from 
 defeating  LEC  equal  access  features,  so  long  as  all  LECs  are  mandated  to  continue  providing 
 these  features.  8  According  to  Ameritech,  Section  251(  b)(  3)  of  the  1996  Act  does  not  incorporate 
 the  full  list  of  equal  access  features  in  that  it  relies  on  a  definition  of  dialing  parity  which 
 includes  only  presubscription  and  omits  mention  of  10XXX  or  other  dialed  access  codes.  9 
 Therefore,  Ameritech  argues  that  because  the  dialing  parity  rules  of  Section  251(  b)(  3)  do  not 
 include  an  express  reaffirmation  of  the  LECs'  duty  to  honor  10XXX  and  other  access  codes,  the 
 Commission  should  expressly  articulate  such  a  reaffirmation  in  its  implementation  of  Section 


 1  Florida  PSC  Comments  at  10. 
 2  GVNW  Comments  at  10. 
 3  AT&  T  Comments  at  28  n.  51. 
 4  RBOC  Reply  at  31-  32. 
 5  Id. 
 6  AT&  T  Comments  at  29;  MCI  Comments  at  20. 
 7  Sprint  Comments  at  32. 
 8  Ameritech  Comments  at  33. 
 9  Id.  at  33-  34. 
140
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 141 
 251(  b)(  3).  10 
 71. 
 72.  c.  Discussion 
 73. 
 74.  In  our  recently  issued  order  implementing  the  Section  251(  b)(  3)  dialing 
 parity  requirements,  we  concluded  that  dialing  parity  was  an  important  element  in  fostering 
 vigorous  local  exchange  and  long  distance  competition  "by  ensuring  that  each  customer  has  the 
 freedom  and  the  flexibility  to  choose  among  different  carriers  for  different  services  without  the 
 burden  of  dialing  access  codes."  11  We  believe  that  this  statement  is  equally  applicable  to 
 fostering  vigorous  competition  in  the  payphone  industry,  and  accordingly  affirm  our  tentative 
 conclusion  that  the  benefits  of  dialing  parity  requirements  adopted  pursuant  to  Section  251(  b)(  3) 
 of  the  1996  Act  should  extend  to  all  payphone  location  providers. 
 75. 
 76.  We  also  conclude  that  the  technical  and  timing  requirements  established  pursuant 
 to  Section  251(  b)(  3),  and  Section  271(  c)(  2)(  B),  should  apply  equally  to  payphones.  12  We  find 
 that  burden  on  the  LECs  in  requiring  them  to  provide  dialing  parity  for  payphones,  prior  to  all 
 other  phones,  outweighs  any  competitive  benefit  that  might  result.  In  this  respect,  we  note  that 
 independent  payphone  service  providers'  "smart  payphones"  can  adequately  create  dialing  parity 
 within  the  payphone  unit  pending  the  implementation  of  true  dialing  parity. 
 77. 
 78.  Finally,  we  conclude  that  the  unblocking  of  carrier  access  codes  mandated 
 by  TOCSIA  and  our  rules  for  interstate  calls  should  also  apply  to  intrastate  (including  local) 
 access  code  calls.  This  may  already  be  normal  within  the  industry,  and  no  party  objected  to  our 
 proposal.  Allowing  unrestricted  access  to  a  caller's  preferred  carrier  is  an  essential  feature  of 
 creating  a  competitive  payphone  industry,  and  we  have  created  a  mechanism  that  ensures  that  the 
 PSP  will  receive  compensation  for  all  access  code  calls,  including  intrastate  calls.  Given  the 
 existence  of  compensation  and  the  pro-  competitive  purpose  of  Section  276  of  the  1996  Act,  and 
 in  the  absence  of  any  technical  limitations,  we  find  that  unblocked  access  for  all  access  code 
 calls  from  payphones  is  required. 
 79. 


 10  Id. 
 11  Local  Competition  Second  Orde,  at  para.  9.  We  also  noted  in  that  Order  that  Section  251(  b)(  3)  creates  a 
 duty  to  provide  dialing  parity  with  respect  to  all  telecommunications  services,  and  does  not  limit  the  types  of  traffic 
 or  services  for  which  dialing  parity  must  be  provided.  Id.  at  para.  12. 


 12  See  Id.  at  2-  5,  14-  45.  In  general,  we  adopted  in  that  order  a  dialing  parity  schedule  that  requires  each  LEC, 
 including  a  BOC,  to  implement  toll  dialing  parity  no  later  than  February  8,  1999;  requires  each  LEC,  including  a 
 BOC,  to  provide  toll  dialing  parity  throughout  a  state  coincident  with  its  provision  of  in-  region,  interLATA  or  in-region, 
 interstate  toll  service  in  that  state.  We  also  require  all  LECs,  other  than  BOCs,  that  are  either  already 
 offering  or  plan  to  begin  to  provide  in-  region,  interLATA  or  in-  region,  interstate  toll  service  before  August  8,  1997, 
 to  implement  toll  dialing  parity  by  August  8,  1997.  We  also  note  in  that  Order  that  Section  271  of  the  1996  Act 
 requires  BOCs  to  provide  intraLATA  dialing  parity  throughout  a  state  coincident  with  the  exercise  of  their  authority 
 to  offer  interLATA  services  originating  within  the  state.  See  47  U.  S.  C.  271(  e)(  2)(  A). 
141
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 142 
 80.  2.  Letterless  Keypads  81. 
 82.  a.  The  Notice 
 83. 
 84.  In  the  Notice,  the  Commission  expressed  a  concern  that  use  of  letterless  keypads 
 may  frustrate  the  intent  of  Congress,  as  expressed  in  TOCSIA,  to  permit  callers  to  reach  the  OSP 
 of  their  choice  from  payphones.  We  also  stated  that  letterless  keypads  ultimately  frustrate 
 Congressional  intent,  as  expressed  in  the  1996  Act,  "to  promote  competition  among  payphone 
 service  providers  and  promote  the  widespread  deployment  of  payphone  services  to  the  benefit  of 
 the  general  public[.]"  13  Therefore,  the  Commission  tentatively  concluded  that  the  use  of 
 letterless  keypads  violates  both  TOCSIA  and  the  1996  Act  by  preventing  callers  from  accessing 
 their  OSP  of  choice,  and  we  solicited  comment  on  how  the  Commission  should  take  action  to 
 prohibit  use  of  these  "by-  pass"  letterless  keypads  to  restrict  the  availability  of  "vanity"  access 
 numbers.  14 
 85. 
 86.  b.  Comments 
 87. 
 88.  A  wide  range  of  commenters,  including  IXCs,  RBOCs,  independent 
 LECs,  state  utility  commissions  and  PPOs,  share  our  concern  that  letterless  keypads  prevent 
 consumers  from  reaching  their  OSP  of  choice  and  inhibit  competition  in  the  payphone  industry.  15 


 13  Notice  at  para.  85. 


 14  Id. 
 15  See,  e.  g.,  Actel  Comments  at  12-  13;  Ameritech  Comments  at  37;  California  PUC  Comments  at  21;  GVNW 
 Comments  at  10-  11;  Idaho  PUC  Comments  at  2-  3;  Indiana  URC  Comments  at  6-  7;  MCI  Comments  at  20-  21;  Ohio 
 PUC  Comments  at  17-  18;  Oklahoma  CC  Comments  at  4;  RBOC  Comments  at  49;  Scherers  Comments  at  3;  Sprint 
 Comments  at  33;  Texas  PUC  Comments  at  5-  6;  Virginia  SCC  Comments  at  4. 
142
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 143 
 The  Ohio  PUC  cites  complaints  by  consumers  and  "representatives  of  persons  with 
 communications  disabilities."  16  In  addition,  many  of  the  commenters  agree  with  the 
 Commission's  tentative  conclusion  that  letterless  keypads  violate  both  TOCSIA  and  the  1996 
 Act.  17  A  significant  number  of  commenters  encourage  the  Commission  to  ban  these  devices 
 entirely.  18 


 16  Ohio  PUC  Comments  at  18. 
 17  See,  e.  g.,  California  PUC  Comments  at  21;  Indiana  URC  Comments  at  6;  MCI  Comments  at  20-  21;  Sprint 
 Comments  at  33;  Texas  PUC  Comments  at  5. 


 18  See,  e.  g.,  Ameritech  Comments  at  37;  GVNW  Comments  at  10;  Idaho  PUC  Comments  at  3;  Indiana  URC 
 Comments  at  6;  RBOC  Comments  at  49;  Scherers  Comments  at  3;  Sprint  Comments  at  33;  Texas  PUC  Comments 
 at  6. 
143
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 144 
 89.  Alternatively,  Sprint  argues  for  promulgation  of  positive  rules  requiring  alphanumeric 
 keypads  on  all  payphones.  1  MCI,  Scherers,  and  the  Indiana  URC  argue  for  penalties  to  be 
 assessed  against  offenders.  2  In  particular,  MCI  calls  for  "significant  Commission  forfeitures," 
 while  Scherers  endorses  punitive  fines  and  disconnection  of  service  as  a  response  to  violations.  3 
 Sprint  proposes  further  that  no  IXC  should  be  required  to  provide  compensation  to  any  PSP 
 found  to  be  violating  the  proposed  rule  on  letterless  keypads.  4 
 90. 
 91.  c.  Discussion 
 92. 
 93.  We  now  conclude,  as  we  tentatively  concluded  in  the  Notice,  that  the  use 
 of  letterless  keypads  violates  both  TOCSIA  and  the  1996  Act.  We  find  that  an  exclusively 
 numeric  payphone  keypad  defeats  a  caller's  attempt  to  reach  its  OSP  of  choice  through  the  use  of 
 commonly-  used  "vanity"  access  sequences  such  as  AT&  T's  "1-  800-  CALL-  ATT"  and  "10ATT" 
 or  MCI's  "1-  800-  COLLECT."  Such  access  sequences,  which  can  be  easily  remembered  by 
 consumers,  require  the  presence  of  both  alphabetic  and  numeric  characters  on  payphone  keypads. 
 A  letterless  keypad,  therefore,  clearly  defeats  a  consumer's  attempt  to  utilize  these  heuristic 
 sequences.  In  their  sales  material,  letterless  keypad  manufacturers  have  specifically  positioned 
 these  devices  as  "by-  pass  keypad[  s]"  that  "prevent[]  dial  around  [calls]."  5  No  party  has 
 commented  on  a  plausible  purpose  for  these  devices  other  than  to  restrict  access  to  a  non-presubscribed 
 carrier. 
 94. 
 95.  To  promote  consumer  access  to  OSPs,  TOCSIA  required  the  unblocking 
 of  800  and  950  access  numbers  at  aggregator  locations  and  directed  the  Commission  to  mandate 
 the  unblocking  of  10XXX  access  codes  and/  or  the  establishment  of  800/  950  access  numbers  by 
 each  OSP.  6  We  conclude  that  letterless  keypads  violate  the  unblocking  requirements  of  TOCSIA 
 by  preventing  consumers  from  reaching  their  OSP  of  choice  through  the  dialing  of  vanity  access 
 sequences.  A  payphone  keypad  without  alphabetic  characters  serves  the  same  purpose  as  the 
 blocking  that  is  prohibited  by  TOCSIA.  Accordingly,  we  will  take  enforcement  action,  including 
 forfeitures,  if  such  devices  are  used,  just  as  we  would  take  action  against  other  forms  of 
 blocking.  Moreover,  OSPs  may  not  pay  commissions  to  PSPs  whose  payphones  block  access.  7 
 96. 


 1  Sprint  Comments  at  33. 


 2  Indiana  URC  Comments  at  7;  MCI  Comments  at  21;  Scherers  Comments  at  3. 
 3  MCI  Comments  at  21;  Scherers  Comments  at  3. 
 4  Sprint  Comments  at  33. 
 5  Notice  at  para.  87. 
 6  47  U.  S.  C.    226(  e). 
 7  47  C.  F.  R.    64.  704(  b)(  2). 
144
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 145 
 97.  Independent  of  TOCSIA  requirements,  we  conclude  that  the  practice  of 
 deploying  letterless  keypads  inhibits  consumer  choice  in  the  selection  of  OSP  services  and  is 
 anticompetitive.  Likewise,  we  conclude  that  such  deployment  restricts  the  availability  of 
 payphone  OSP  services  to  the  general  public.  The  1996  Act  seeks  "to  promote  competition 
 among  payphone  service  providers  and  promote  the  widespread  deployment  of  payphone 
 services  to  the  benefit  of  the  general  public[.]"  8  Therefore,  we  conclude  that  use  of  letterless 
 keypads  is  inconsistent  with  the  1996  Act. 
 98. 
 99.  3.  Oncor  Petition  100. 


 101.  On  August  7,  1995  Oncor  Communications,  Inc.  filed  a  petition  asking  the 
 Commission  to  prescribe  compensation  for  public  payphone  premises  owners  and  presubscribed 
 OSPs.  Oncor  states  that  such  compensation  "is  necessary  to  remedy  the  injustices  resulting  from 
 access  code  calls."  9  The  Commission  invited  comment  on  Oncor's  petition  by  Public  Notice 
 released  September  12,  1995.  We  deny  Oncor's  request.  As  commenters  note,  the  presubscribed 
 OSP  incurs  no  costs  when  a  consumer  makes  an  access  code  call  from  a  payphone,  and  it  would 
 be  inequitable  to  require  any  party  to  compensate  the  OSP  because  the  caller  chose  not  to  use  it.  10 
 Moreover,  there  is  no  need  for  us  to  prescribe  compensation  for  premises  owners.  The  rules  that 
 we  adopt  in  this  Report  and  Order  will  ensure  that  PSPs  are  fairly  compensated  for  calls  that 
 originate  on  their  facilities,  and  market  forces  will  ensure  that  the  PSPs  fairly  compensate 
 premises  owners. 
 102. 
 103. 
 IV.  PROCEDURAL  MATTERS 


 1.  Petitions  for  Reconsideration  and  Ex  Parte  Presentations 
 1.  Parties  must  file  any  petitions  for  reconsideration  of  this  Report  and  Order 
 within  30  days  from  release  of  this  document.  We  hereby  waive,  on  our  own  motion,  the 
 requirements  of  Section  1.4  of  our  rules  to  establish  this  new  date  of  public  notice  in  light  of  the 
 deadline  established  in  the  1996  Act  to  complete  this  proceeding.  Parties  may  file  oppositions  to 
 the  petitions  for  reconsideration  pursuant  to  Section  1.106(  g)  of  the  rules,  except  that  we  require 
 that  oppositions  to  the  petitions  be  filed  within  seven  (7)  days  after  the  date  for  filing  the 
 petitions  for  reconsideration.  The  Commission  will  not  issue  a  separate  notice  of  any  petitions 
 for  reconsideration;  this  paragraph  serves  as  notice  to  all  interested  parties  of  the  due  dates  for 
 petitions  and  oppositions.  In  addition,  the  Commission  hereby  waives  Section  1.106(  h)  of  the 
 rules  and  will  not  accept  reply  comments  in  response  to  oppositions.  We  conclude  that  these 
 actions  are  necessary  to  complete  all  Commission  action  in  this  proceeding,  which  involves 


 8  47  U.  S.  C.    276(  b). 


 9  Oncor  Petition  at  1. 
 10  See  MCI  Comments  on  Oncor's  Petition  at  2-  3;  Comments  of  APCC  on  Oncor's  Petition  at  2. 
145
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 146 
 issues  concerning  the  Commission's  expedited  implementation  of  the  1996  Act,  by  the  statutory 
 deadline  of  November  8,  1996.  We  will  consider  all  relevant  and  timely  petitions  and 
 oppositions  before  final  action  is  taken  in  this  proceeding. 
 2. 
 3.  To  file  a  petition  for  reconsideration  in  this  proceeding  parties  must  file  an 
 original  and  ten  copies  of  all  petitions  and  oppositions.  Petitions  and  oppositions  should  be  sent 
 to  the  Office  of  the  Secretary,  Federal  Communications  Commission,  Washington,  DC  20554.  If 
 parties  want  each  Commissioner  to  have  a  personal  copy  of  their  documents,  an  original  plus 
 fourteen  copies  must  be  filed.  In  addition,  participants  should  submit  two  additional  copies 
 directly  to  the  Common  Carrier  Bureau,  Enforcement  Division,  Room  6008,  2025  M  Street  NW, 
 Washington,  D.  C.  20554.  The  petitions  and  oppositions  will  be  available  for  public  inspection 
 during  regular  business  hours  in  the  Dockets  Reference  Room  (Room  230)  of  the  Federal 
 Communications  Commission,  1919  M  Street,  NW,  Washington,  DC  20554.  Copies  of  the 
 petition  and  any  subsequently  filed  documents  in  this  matter  may  be  obtained  from  ITS,  Inc., 
 2100  M  Street,  NW,  Suite  140,  Washington,  DC  20037,  (202)  857-  3800. 
 4. 
 5.  Petitions  for  reconsideration  must  comply  with  Sections  1.106  and  1.49  and  all 
 other  applicable  sections  of  the  Commission's  rules.  11  Petitions  also  must  clearly  identify  the 
 specific  portion  of  this  Report  and  Order  for  which  relief  is  sought.  If  a  portion  of  a  party's 
 arguments  does  not  fall  under  a  particular  topic  listed  in  the  outline  of  this  Report  and  Order, 
 such  arguments  should  be  included  in  a  clearly  labelled  section  at  the  beginning  or  end  of  the 
 filing.  Parties  may  not  file  more  than  a  total  of  ten  (10)  pages  of  ex  parte  submissions,  excluding 
 cover  letters.  This  10  page  limit  does  not  include:  (1)  written  ex  parte  filings  made  solely  to 
 disclose  an  oral  ex  parte  contact;  (2)  written  material  submitted  at  the  time  of  an  oral  presentation 
 to  Commission  staff  that  provides  a  brief  outline  of  the  presentation;  or  (3)  written  material  filed 
 in  response  to  direct  requests  from  Commission  staff.  Ex  parte  filings  in  excess  of  this  limit  will 
 not  be  considered  as  part  of  the  record  in  this  proceeding. 
 6. 
 7.  2.  Final  Paperwork  Reduction  Act  Analysis 
 8. 
 9.  The  decision  herein  has  been  analyzed  with  respect  to  the  Paperwork  Reduction 
 Act  of  1995,  Pub.  L.  104-  13,  and  several  of  its  requirements  have  been  approved  in  accordance 
 with  the  provisions  of  that  Act.  The  Office  of  Management  and  Budget  ("  OMB")  made  several 
 suggestions  for  our  proposals: 
 10. 
 11.  Report  of  Local  Exchange  Companies  of  Cost  Accounting  Studies.  OMB 
 suggested  that  the  description  and  justification  for  this  requirement  be  clarified.  12  The  rules 
 require  incumbent  LECs  to  offer  individual  central  office  coin  transmission  services  to  PSPs 


 11  See  47  C.  F.  R.    1.49.  We  require,  however,  that  a  summary  be  included  with  all  comments,  although  a 
 summary  that  does  not  exceed  three  pages  will  not  count  toward  the  page  limits.  The  summary  may  be  paginated 
 separately  from  the  rest  of  the  pleading  (e.  g.,  as  "i,  ii").  Id. 


 12  Notice  of  Office  of  Management  and  Budget  Action,  (OMB  No.  3060-  0721)  (Released  September  8,  1996). 
146
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 147 
 under  a  nondiscriminatory,  public  tariffed  offering  if  the  LECs  provide  those  services  for  their 
 own  operations.  Because  the  incumbent  LECs  may  have  an  incentive  to  charge  their  competitors 
 unreasonably  high  prices  for  these  services,  we  require  them  to  submit  cost  support  for  their 
 central  office  coin  services,  on  a  one-  time  basis.  This  will  ensure  that  the  services  are  reasonably 
 priced  and  do  not  include  subsidies. 
 12. 
 13.  Report  of  Bell  Operating  Companies  of  Initial  Comparably  Efficient 
 Interconnection  Plans.  OMB  requested  that  we  provide  revised  cost  and  burden  hour  estimates.  13 
 The  cost  and  burden  hour  estimates  have  not  changed. 
 14. 
 15.  Annual  Filing  of  Nondiscrimination  Reports  by  Bell  Operating 
 Companies.  OMB  requested  that  we  provide  revised  cost  and  burden  hour  estimates.  14  The  cost 
 and  burden  hour  estimates  have  not  changed. 
 16.  17.  Quarterly  Report  of  IntraLATA  Carriers  Listing  Payphone  Automatic 


 Number  Identification  (ANIs).  OMB  suggested  that  we  allow  interLATA  carriers  to  use 
 innovative  approaches  to  provide  ANIs,  such  as  posting  the  information  on  the  Internet  or 
 distributing  the  information  via  electronic  mail.  15  We  have  not  specified  the  manner  in  which 
 interLATA  carriers  must  supply  carrier-  payors  with  the  list  of  payphone  ANIs.  InterLATA 
 carriers  are  free  to  use  any  technologies  at  their  disposal  to  distribute  the  necessary  information. 
 18.  Public  Disclosure  of  Network  Information  by  Bell  Operating  Companies.  OMB 
 suggested  that  we  weigh  the  reporting  and  notification  burden  of  this  requirement,  as  well  as 
 consider  shortening  the  period  of  public  disclosure  from  a  minimum  of  six  months,  so  as  not  to 
 unfairly  burden  BOCs  by  delaying  technical  modifications  to  their  systems.  16  We  agree  with 
 OMB  that  we  should  choose  the  least  burdensome  method  to  accomplish  our  goal  of  prohibiting 
 the  BOCs  from  discriminating  in  the  provision  of  payphone  service.  We  believe,  however,  that  a 
 minimum  six-  month  period  of  public  disclosure  prior  to  the  introduction  of  a  new  service  is  vital 
 to  ensure  that  BOCs  do  not  design  new  network  services  or  change  network  technical 
 specifications  to  the  advantage  of  their  own  payphones. 
 19.  20.  Annual  Report  of  Interexchange  Carriers  Listing  the  Compensation  Amount  Paid 


 to  Payphone  Providers  and  the  Number  of  Payees.  OMB  suggested  that  we  weigh  the  burden 
 imposed  by  the  payment  and  information  mechanism  contained  in  this  requirement.  17  We  agree 
 with  OMB  that  we  should  choose  the  least  burdensome  method  to  accomplish  our  goal  of 


 13  Notice  of  Office  of  Management  and  Budget  Action,  (OMB  No.  3060-  0722)  (Released  August  26,  1996). 
 14  Notice  of  Office  of  Management  and  Budget  Action,  (OMB  No.  3060-  0725)  (Released  August  26,  1996). 
 15  Notice  of  Office  of  Management  and  Budget  Action,  (OMB  No.  3060-  0719)  (Released  August  26,  1996). 
 16  Notice  of  Office  of  Management  and  Budget  Action,  at  2  (OMB  No.  3060-  0723)  (Released  August  29,  1996). 
 17  Notice  of  Office  of  Management  and  Budget  Action,  at  2  (OMB  No.  3060-  0724)  (Released  August  29,  1996). 
147
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 148 
 ensuring  that  all  IXCs  are  paying  their  respective  compensation  obligations.  Therefore  we 
 conclude  that  this  reporting  requirement  will  be  terminated  after  the  carriers  have  filed  their 
 reports  for  the  1999  calendar  year.  In  addition,  for  further  flexibility,  we  delegate  to  the  Chief, 
 Common  Carrier  Bureau,  the  authority  to  establish  the  details,  as  necessary,  of  this  annual  report, 
 including  the  authority  to  extend  or  limit  the  scope  of  this  report. 
 21. 
 22.  Quarterly  Report  of  Interexchange  Carriers  Listing  the  Number  of  Dial  Around 
 Calls  for  Which  Compensation  is  Being  Paid  to  Payphone  Owners.  OMB  suggested  that  we 
 weigh  the  burden  imposed  by  the  payment  verification  mechanism  contained  in  this 
 requirement.  18  We  agree  with  OMB  that  we  should  choose  the  least  burdensome  method  to 
 accomplish  our  goal  of  ensuring  that  billing  and  collection  are  as  efficient  as  possible.  In  fact, 
 we  weighed  several  alternatives  to  achieve  optimum  efficiency  and  the  least  burdensome 
 approach,  before  imposing  this  requirement.  This  requirement  is  imposed  on  the  IXCs  because 
 they  have  the  greatest  ability  and  incentive  to  establish  the  most  efficient  means  of  administering 
 the  payment  of  compensation. 
 23. 
 24.  3.  Final  Regulatory  Flexibility  Act  Analysis  25. 


 26.  As  required  by  Section  603  of  the  Regulatory  Flexibility  Act  (RFA),  5  U.  S.  C. 
   603,  an  Initial  Regulatory  Flexibility  Analysis  (IRFA)  was  incorporated  in  the  Notice.  The 
 Commission  sought  written  public  comment  on  the  proposals  in  the  Notice,  including  comment 
 on  the  IRFA.  19  The  Commission's  Final  Regulatory  Flexibility  Analysis  (FRFA)  in  this  Order 
 conforms  to  the  RFA,  as  amended  by  the  Contract  With  America  Advancement  Act  of  1996 
 (CWAAA),  Pub.  L.  No.  104-  121,  110  Stat.  847  (1996).  20 
 27. 
 28.  A.  Need  for  and  Objectives  of  this  Report 
 29.  and  Order  and  the  Rules  Adopted  Herein 
 30. 
 31.  The  Commission,  in  compliance  with  Section  276  of  the  Communications  Act  of 
 1934,  as  amended  by  the  Telecommunications  Act  of  1996  (the  1996  Act),  promulgates  the  rules 
 in  this  Order  to  promptly  implement  Section  276  of  the  1996  Act,  which  directs  the  Commission, 
 among  other  things,  to  adopt  rules  that:  (1)  establish  a  plan  to  ensure  fair  compensation  for 
 "each  and  every  completed  intrastate  and  interstate  call  using  [a]  payphone[;]"  21  (2)  discontinue 
 intrastate  and  interstate  carrier  access  charge  payphone  service  elements  payments  and  intrastate 


 18  Notice  of  Office  of  Management  and  Budget  Action,  at  2  (OMB  No.  3060-  0726)  (Released  August  29,  1996). 
 19  Notice  at  paras.  95-  102. 
 20  Subtitle  II  of  the  CWAAA  is  "The  Small  Business  Regulatory  Enforcement  Fairness  Act  of  1996" 
 ("  SBREFA"),  codified  at  5  U.  S.  C.    601  et  seq. 


 21  47  U.  S.  C.    276(  b)(  1)(  A). 
148
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 149 
 and  interstate  payphone  subsidies  from  basic  exchange  services;  22  (3)  prescribe  nonstructural 
 safeguards  for  Bell  Operating  Company  (BOC)  payphones;  23  (4)  permit  the  BOCs  to  negotiate 
 with  payphone  location  providers  for  the  intraLATA  carriers  presubscribed  to  their  payphones;  24 
 (5)  permit  all  payphone  providers  to  negotiate  with  the  locat  ion  provider  for  the  intraLATA 
 carriers  presubscribed  to  their  payphones;  25  and  (6)  adopt  guidelines  for  use  by  the  states  in 
 establishing  public  interest  payphone  programs.  26 


 1.  The  objective  of  the  rules  adopted  in  this  Order  is  "to  promote  competition 
 among  payphone  service  providers  and  promote  the  widespread  deployment  of  payphone 
 services  to  the  benefit  of  the  general  public."  27  In  doing  so,  we  are  mindful  of  the  balance  that 
 Congress  struck  between  this  goal  of  bringing  the  benefits  of  competition  to  consumers  and  its 
 concern  for  the  impact  of  the  1996  Act  on  small  businesses. 


 22  47  U.  S.  C.    276(  b)(  1)(  B). 
 23  47  U.  S.  C.    276(  b)(  1)(  C). 
 24  47  U.  S.  C.    276(  b)(  1)(  D). 
 25  47  U.  S.  C.    276(  b)(  1)(  E). 
 26  47  U.  S.  C.    276(  b)(  2). 
 27  47  U.  S.  C.    276(  b)(  1). 
149
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 150 
 B.  Analysis  of  Significant  Issues  Raised  in  Response  to  the  IRFA 
 1.  Summary  of  the  Initial  Regulatory  Flexibility  Analysis  (IRFA).  In  the  IRFA,  the 
 Commission  found  that  the  rules  we  proposed  to  adopt  in  this  proceeding  may  have  a  significant 
 impact  on  a  substantial  number  of  small  business  as  defined  by  section  601(  3)  of  the  RFA.  The 
 IRFA  solicited  comment  on  alternatives  to  our  proposed  rules  that  would  minimize  the  impact  on 
 small  entities  consistent  with  the  objectives  of  this  proceeding.  The  Commission  received  one 
 comment  on  the  potential  impact  on  small  business  entities,  which  the  Commission  considered  in 
 promulgating  the  rules  in  this  Order.  Frontier  commented  generally  that  the  compensation 
 scheme  advanced  in  the  NPRM  was  "unnecessarily  onerous  and  inefficient"  and  "in  conflict  with 
 the  goals  of  the  ....  Regulatory  Flexibility  Act."  28  Frontier  did  not  comment  specifically  on  what 
 aspect  of  the  compensation  scheme  would  have  economic  impact  on  small  business  entities.  We 
 disagree  with  Frontier's  general  assertion  that  the  compensation  scheme  is  in  conflict  with  the 
 Regulatory  Flexibility  Act.  Our  rules  are  designed  to  facilitate  the  development  of  competition, 
 which  benefits  many  small  business  entities.  The  rules  will  ensure  that  payphone  services 
 providers,  many  of  whom  may  be  small  business  entities,  receive  fair  compensation.  Our  rules 
 provide  significant  flexibility  to  permit  the  affected  parties,  including  small  business  entities,  to 
 structure  procedures  that  would  minimize  their  burdens.  For  example,  the  rules  require  IXCs  and 
 intraLATA  carriers,  as  primary  economic  beneficiary  of  payphone  calls,  to  track  the  calls  they 
 receive  from  payphones.  The  carrier  has  the  option  of  performing  the  function  itself  or 
 contracting  out  these  functions  to  another  party,  such  a  LEC  or  clearinghouse.  We  also  provide  a 
 transition  period.  We  believe  that  our  rules  are  designed  to  effectively  optimize  the  efficiency 
 and  minimize  the  burdens  of  the  compensation  scheme  on  all  parties,  including  small  entities. 


 C.  Description  and  Estimates  of  the  Number  of 
 Small  Entities  Affected  by  this  Report  and  Order 


 1.  For  the  purposes  of  this  Order,  the  RFA  defines  a  "small  business"  to  be 
 the  same  as  a  "small  business  concern"  under  the  Small  Business  Act,  15  U.  S.  C.    632,  unless 
 the  Commission  has  developed  one  or  more  definitions  that  are  appropriate  to  its  activities.  29 
 Under  the  Small  Business  Act,  a  "small  business  concern"  is  one  that:  (1)  is  independently 
 owned  and  operated;  (2)  is  not  dominant  in  its  field  of  operation;  and  (3)  meets  any  additional 
 criteria  established  by  the  Small  Business  Administration  (SBA).  30  SBA  has  defined  a  small 
 business  for  Standard  Industrial  Classification  (SIC)  category  4813  (Telephone  Communications, 


 28  Frontier  Comments  at  2. 
 29  See  5  U.  S.  C.    601(  3)  (incorporating  by  reference  the  definition  of  "small  business  concern"  in  5  U.  S.  C. 
   632). 


 30  15  U.  S.  C.    632.  See,  e.  g.,  Brown  Transport  Truckload,  Inc.  v.  Southern  Wipers,  Inc.,  176  B.  R.  82 
 (N.  D.  Ga.  1994). 
150
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 151 
 Except  Radiotelephone)  to  be  a  small  entity  when  it  has  fewer  than  1,500  employees.  31 
 2. 
 3.  We  have  found  incumbent  LECs  to  be  "dominant  in  their  field  of 
 operation"  since  the  early  1980s,  and  we  consistently  have  certified  under  the  RFA  32  that 
 incumbent  LECs  are  not  subject  to  regulatory  flexibility  analyses  because  they  are  not  small 
 businesses.  33  We  have  made  similar  determinations  in  other  areas.  34  However,  in  the  Local 
 Competition  proceeding,  several  parties,  including  the  SBA,  commented  that  we  should  have 
 included  small  incumbent  LECs  in  the  IRFA  pertaining  to  that  order.  35  We  recognize  SBA's 
 special  role  and  expertise  with  regard  to  the  RFA,  and  intend  to  continue  to  consult  with  SBA 
 outside  the  context  of  this  proceeding  to  ensure  that  the  Commission  is  fully  implementing  the 
 RFA.  Although  we  are  not  fully  persuaded  that  our  prior  practice  has  been  incorrect,  we  will, 
 nevertheless,  include  small  incumbent  LECs  in  this  FRFA  to  remove  any  possible  issue  of  RFA 
 compliance.  Consistent  with  our  prior  practice,  we  shall  continue  to  exclude  small  incumbent 
 LECs  from  the  definition  of  a  small  entity  for  the  purpose  of  this  FRFA.  Nevertheless,  as 
 mentioned  above,  we  include  small  incumbent  LECs  in  our  FRFA.  Accordingly,  our  use  of  the 
 terms  "small  entities"  and  "small  businesses"  does  not  encompass  "small  incumbent  LECs."  We 
 use  the  term  "small  incumbent  LECs"  to  refer  to  any  incumbent  LECs  that  arguably  might  be 
 defined  by  SBA  as  "small  business  concerns."  36 


 31  13  C.  F.  R.    121.  201. 
 32  See  5  U.  S.  C.    605(  b). 
 33  See,  e.  g.,  Expanded  Interconnection  with  Local  Telephone  Company  Facilities,  Supplemental  Notice  of 
 Proposed  Rulemaking,  6  FCC  Rcd  5809  (1991);  MTS  and  WATS  Market  Structure,  Report  and  Order,  2  FCC  Rcd 
 2953,  2959  (1987)  (citing  MTS  and  WATS  Market  Structure,  Third  Report  and  Order,  93  F.  C.  C.  2d  241,  338-  39 
 (1983)). 


 34  See,  e.  g.,  Implementation  of  Sections  of  the  Cable  Television  Consumer  Protection  Act  of  1992:  Rate 
 Regulation,  Sixth  Report  and  Order  and  Eleventh  Order  on  Reconsideration,  10  FCC  Rcd  7393,  7418  (1995). 


 35  The  Small  Business  Administration  (SBA),  the  Rural  Telephone  Coalition  (Rural  Tel.  Coalition),  and 
 CompTel  maintain  that  the  Commission  violated  the  RFA  when  it  failed  to  include  small  incumbent  LECs  in  its 
 IRFA  without  first  consulting  SBA  to  establish  a  definition  of  "small  business."  See  Local  Competition  Order  at 
 paras.  1328-  1330. 


 36  See  13  C.  F.  R.    121.210  (SIC  4813). 
151
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 152 
 Telephone  Companies  (SIC  4813) 
 1.  Total  Number  of  Telephone  Companies  Affected.  Many  of  the  decisions  and 
 rules  adopted  herein  may  have  a  significant  effect  on  a  substantial  number  of  the  small  telephone 
 companies  identified  by  the  SBA.  The  United  States  Bureau  of  the  Census  (the  Census  Bureau) 
 reports  that,  at  the  end  of  1992,  there  were  3,497  firms  engaged  in  providing  telephone  services, 
 as  defined  therein,  for  at  least  one  year.  37  This  number  encompasses  a  broad  category  which 
 contains  a  variety  of  different  subsets  of  carriers,  including  local  exchange  carriers, 
 interexchange  carriers,  competitive  access  providers,  cellular  carriers,  mobile  service  carriers, 
 operator  service  providers,  pay  telephone  operators,  PCS  providers,  covered  SMR  providers,  and 
 resellers.  It  seems  certain  that  some  of  those  3,497  telephone  service  firms  may  not  qualify  as 
 small  entities  or  small  incumbent  LECs  because  they  are  not  "independently  owned  and 
 operated."  38  For  example,  a  PCS  provider  that  is  affiliated  with  an  interexchange  carrier  having 
 more  than  1,500  employees  would  not  meet  the  definition  of  a  small  business.  It  seems 
 reasonable  to  conclude,  therefore,  that  fewer  than  3,497  telephone  service  firms  are  small  entity 
 telephone  service  firms  or  small  incumbent  LECs  that  may  be  affected  by  this  Order.  We 
 estimate  below  the  potential  small  entity  telephone  service  firms  or  small  incumbent  LECs  that 
 may  be  affected  by  this  Order  by  service  category. 


 1.  Wireline  Carriers  and  Service  Providers.  The  SBA's  definition  of  small  entities 
 for  telephone  communications  companies,  other  than  radiotelephone  (wireless)  companies,  is  one 
 employing  fewer  than  1,500  persons.  39  The  Census  Bureau  reports  that,  there  were  2,  321  such 
 telephone  companies  in  operation  for  at  least  one  year  at  the  end  of  1992.  40  All  but  26  of  the 
 2,321  non-  radiotelephone  companies  listed  by  the  Census  Bureau  were  reported  to  have  fewer 
 than  1,000  employees.  Thus,  even  if  all  26  of  those  companies  had  more  than  1,500  employees, 
 there  would  still  be  2,295  non-  radiotelephone  companies  that  might  qualify  as  small  entities  or 
 small  incumbent  LECs.  Although  it  seems  certain  that  some  of  these  carriers  are  not 
 independently  owned  and  operated,  we  are  unable  at  this  time  to  estimate  with  greater  precision 
 the  number  of  wireline  carriers  and  service  providers  that  would  qualify  as  small  business 
 concerns  under  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  2,295 
 small  entity  telephone  communications  companies  other  than  radiotelephone  companies  that  may 
 be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 2. 
 3.  Local  Exchange  Carriers.  Neither  the  Commission  nor  SBA  has 


 37  United  States  Department  of  Commerce,  Bureau  of  the  Census,  1992  Census  of  Transportation, 
 Communications,  and  Utilities:  Establishment  and  Firm  Size,  at  Firm  Size  1-  123  (1995)  (1992  Census). 


 38  15  U.  S.  C.    632(  a)(  1). 


 39  13  C.  F.  R.    121.201,  Standard  Industrial  Classification  (SIC)  Code  4812. 
 40  1992  Census,  supra,  at  Firm  Size  1-  123. 
152
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 153 
 developed  a  definition  of  small  providers  of  local  exchange  services  (LECs).  The  closest 
 applicable  definition  under  SBA  rules  is  for  telephone  communications  companies  other  than 
 radiotelephone  (wireless)  companies  (SIC  4813).  The  most  reliable  source  of  information 
 regarding  the  number  of  LECs  nationwide  of  which  we  are  aware  appears  to  be  the  data  that  we 
 collect  annually  in  connection  with  the  Telecommunications  Relay  Service  (TRS).  41  According 
 to  our  most  recent  data,  1,347  companies  reported  that  they  were  engaged  in  the  provision  of 
 local  exchange  services.  42  Although  it  seems  certain  that  some  of  these  carriers  are  not 
 independently  owned  and  operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this 
 time  to  estimate  with  greater  precision  the  number  of  LECs  that  would  qualify  as  small  business 
 concerns  under  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  1,347 
 small  incumbent  LECs  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 


 1.  Interexchange  Carriers.  Neither  the  Commission  nor  SBA  has  developed  a 
 definition  of  small  entities  specifically  applicable  to  providers  of  interexchange  services  (IXCs). 
 The  closest  applicable  definition  under  SBA  rules  is  for  telephone  communications  companies 
 other  than  radiotelephone  (wireless)  companies  (SIC  4813).  The  most  reliable  source  of 
 information  regarding  the  number  of  IXCs  nationwide  of  which  we  are  aware  appears  to  be  the 
 data  that  we  collect  annually  in  connection  with  TRS.  According  to  our  most  recent  data,  97 
 companies  reported  that  they  were  engaged  in  the  provision  of  interexchange  services.  43 
 Although  it  seems  certain  that  some  of  these  carriers  are  not  independently  owned  and  operated, 
 or  have  more  than  1,500  employees,  we  are  unable  at  this  time  to  estimate  with  greater  precision 
 the  number  of  IXCs  that  would  qualify  as  small  business  concerns  under  SBA's  definition. 
 Consequently,  we  estimate  that  there  are  fewer  than  97  small  entity  IXCs  that  may  be  affected  by 
 the  decisions  and  rules  adopted  in  this  Order. 


 41  All  carriers  that  provide  interstate  service  are  required  to  pay  into  the  TRS  Fund,  which  provides  access  to 
 Telecommunications  Device  for  the  Deaf  (TDD).  See  generally,  47  C.  F.  R.    64.  601  et  seq. 


 42  Federal  Communications  Commission,  CCB,  Industry  Analysis  Division,  Telecommunications  Industry 
 Revenue:  TRS  Fund  Worksheet  Data,  Tbl.  21  (Average  Total  Telecommunications  Revenue  Reported  by  Class  of 
 Carrier)  (Feb.  1996)  (TRS  Worksheet). 


 43  Id. 
153
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 154 
 1.  Competitive  Access  Providers.  Neither  the  Commission  nor  SBA  has 
 developed  a  definition  of  small  entities  specifically  applicable  to  providers  of  competitive  access 
 services  (CAPs).  The  closest  applicable  definition  under  SBA  rules  is  for  telephone 
 communications  companies  other  than  radiotelephone  (wireless)  companies  (SIC  4813).  The 
 most  reliable  source  of  information  regarding  the  number  of  CAPs  nationwide  of  which  we  are 
 aware  appears  to  be  the  data  that  we  collect  annually  in  connection  with  the  TRS.  According  to 
 our  most  recent  data,  30  companies  reported  that  they  were  engaged  in  the  provision  of 
 competitive  access  services.  44  Although  it  seems  certain  that  some  of  these  carriers  are  not 
 independently  owned  and  operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this 
 time  to  estimate  with  greater  precision  the  number  of  CAPs  that  would  qualify  as  small  business 
 concerns  under  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  30  small 
 entity  CAPs  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 


 1.  Operator  Service  Providers.  Neither  the  Commission  nor  SBA  has  developed  a 
 definition  of  small  entities  specifically  applicable  to  providers  of  operator  services  (OSPs).  The 
 closest  applicable  definition  under  SBA  rules  is  for  telephone  communications  companies  other 
 than  radiotelephone  (wireless)  companies  (SIC  4813).  The  most  reliable  source  of  information 
 regarding  the  number  of  operator  service  providers  nationwide  of  which  we  are  aware  appears  to 
 be  the  data  that  we  collect  annually  in  connection  with  the  TRS.  According  to  our  most  recent 
 data,  29  companies  reported  that  they  were  engaged  in  the  provision  of  operator  services.  45 
 Although  it  seems  certain  that  some  of  these  companies  are  not  independently  owned  and 
 operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this  time  to  estimate  with  greater 
 precision  the  number  of  operator  service  providers  that  would  qualify  as  small  business  concerns 
 under  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  29  small  entity 
 operator  service  providers  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 2. 
 3.  Pay  Telephone  Operators.  Neither  the  Commission  nor  SBA  has  developed  a 
 definition  of  small  entities  specifically  applicable  to  pay  telephone  operators.  The  closest 
 applicable  definition  under  SBA  rules  is  for  telephone  communications  companies  other  than 
 radiotelephone  (wireless)  companies.  The  most  reliable  source  of  information  regarding  the 
 number  of  pay  telephone  operators  nationwide  of  which  we  are  aware  appears  to  be  the  data  that 
 we  collect  annually  in  connection  with  the  TRS.  According  to  our  most  recent  data,  197 
 companies  reported  that  they  were  engaged  in  the  provision  of  pay  telephone  services.  46 
 Although  it  seems  certain  that  some  of  these  carriers  are  not  independently  owned  and  operated, 
 or  have  more  than  1,500  employees,  we  are  unable  at  this  time  to  estimate  with  greater  precision 
 the  number  of  pay  telephone  operators  that  would  qualify  as  small  business  concerns  under 
 SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  197  small  entity  pay 


 44  Id. 


 45  Id. 
 46  Id. 
154
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 155 
 telephone  operators  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 4. 
 5.  Resellers  (including  debit  card  providers).  Neither  the  Commission  nor  SBA  has 
 developed  a  definition  of  small  entities  specifically  applicable  to  resellers.  The  closest 
 applicable  definition  under  SBA  rules  is  for  all  telephone  communications  companies  (SIC  4812 
 and  4813).  The  most  reliable  source  of  information  regarding  the  number  of  resellers  nationwide 
 of  which  we  are  aware  appears  to  be  the  data  that  we  collect  annually  in  connection  with  the 
 TRS.  According  to  our  most  recent  data,  206  companies  reported  that  they  were  engaged  in  the 
 resale  of  telephone  services.  47  Although  it  seems  certain  that  some  of  these  carriers  are  not 
 independently  owned  and  operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this 
 time  to  estimate  with  greater  precision  the  number  of  resellers  that  would  qualify  as  small 
 business  concerns  under  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than 
 206  small  entity  resellers  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 6. 
 7.  800-  Subscribers.  Neither  the  Commission  nor  SBA  has  developed  a 
 definition  of  small  entities  specifically  applicable  to  800-  subscribers.  The  most  reliable  source 
 of  information  regarding  the  number  of  800-  subscribers  of  which  we  are  aware  appears  to  be  the 
 data  we  collect  on  the  number  of  800-  numbers  in  use.  48  According  to  our  most  recent  data,  at  the 
 end  of  1995,  the  number  of  800-  numbers  in  use  was  6,987,063.  Although  it  seems  certain  that 
 some  of  these  subscribers  are  not  independently  owned  and  operated  businesses,  or  have  more 
 than  1,500  employees,  we  are  unable  at  this  time  to  estimate  with  greater  precision  the  number  of 
 800-  subscribers  that  would  qualify  as  small  business  concerns  under  SBA's  definition. 
 Consequently,  we  estimate  that  there  are  fewer  than  6,987,063  small  entity  800-  subscribers  that 
 may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 8. 
 9.  Location  Providers.  Neither  the  Commission  nor  SBA  has  developed  a  definition 
 of  small  entities  specifically  applicable  to  location  providers.  A  location  provider  is  the  entity 
 that  is  responsible  for  maintaining  the  premises  upon  which  the  payphone  is  physically  located. 
 Due  to  the  fact  that  location  providers  do  not  fall  into  any  specific  category  of  business  entity,  it 
 is  impossible  to  estimate  with  any  accuracy  the  number  of  location  providers.  Using  several 
 sources,  however,  we  have  derived  a  figure  of  1,850,000  payphones  in  existence.  49  Although  it 
 seems  certain  that  some  of  these  payphones  are  not  located  on  property  owned  by  location 
 providers  that  are  small  business  entities,  nor  does  the  figure  take  into  account  the  possibility  of 


 47  Id. 


 48  Federal  Communications  Commission,  CCB,  Industry  Analysis  Division,  FCC  Releases,  Study  on 
 Telephone  Trends,  Tbl.  20  (May  16,  1996). 


 49  There  are  approximately  1.5  million  LEC  payphones.  Statistics  of  Communications  Common  Carriers,  1994/  1995 
 edition,  Common  Carrier  Bureau,  FCC  at  159,  Table  2.10  (1995).  There  are  approximately  350,000  competitively 
 provided  payphones.  See  Ex  Parte  Letter  of  Michael  Benson,  Senior  Product  Manager,  PPO  Compensation 
 Clearinghouse,  Cincinnati  Bell  to  Michael  Carowitz,  Attorney,  Common  Carrier  Bureau,  FCC  (April  24,  1996). 
 Cincinnati  Bell,  as  the  payphone  compensation  paying  agent  for  three  interexchange  carriers,  states  that  it  receives 
 quarterly  bills  from  PPOs  for  more  than  350,  000  competitively  provided  payphones.  Id. 
155
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 156 
 multiple  payphones  at  a  single  location,  we  are  unable  at  this  time  to  estimate  with  greater 
 precision  the  number  of  location  providers  that  would  qualify  as  small  business  concerns  under 
 SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  1,850,000  small  entity 
 location  providers  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 10. 
 11.  Wireless  (Radiotelephone)  Carriers  (including  paging  services).  The  SBA's 
 definition  of  a  small  business  radiotelephone  company  is  one  employing  fewer  than  1,  500 
 persons.  50  The  Census  Bureau  reports  that  there  were  1,176  such  companies  in  operation  for  at 
 least  one  year  at  the  end  of  1992.  51  The  Census  Bureau  also  reported  that  1,164  of  those 
 radiotelephone  companies  had  fewer  than  1,000  employees.  Thus,  even  if  all  of  the  remaining 
 12  companies  had  more  than  1,500  employees,  there  would  still  be  1,164  radiotelephone 
 companies  that  might  qualify  as  small  entities  if  they  are  independently  owned  are  operated. 
 Although  it  seems  certain  that  some  of  these  carriers  are  not  independently  owned  and  operated, 
 we  are  unable  at  this  time  to  estimate  with  greater  precision  the  number  of  radiotelephone 
 carriers  and  service  providers  that  would  qualify  as  small  business  concerns  under  SBA's 
 definition.  Consequently,  we  estimate  that  there  are  fewer  than  1,164  small  entity  radiotelephone 
 companies  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 


 1.  Cellular  Service  Carriers  (including  paging  services).  Neither  the  Commission 
 nor  SBA  has  developed  a  definition  of  small  entities  specifically  applicable  to  providers  of 
 cellular  services.  The  closest  applicable  definition  under  SBA  rules  is  for  telephone 
 communications  companies  other  than  radiotelephone  (wireless)  companies  (SIC  4813).  The 
 most  reliable  source  of  information  regarding  the  number  of  cellular  service  carriers  nationwide 
 of  which  we  are  aware  appears  to  be  the  data  that  we  collect  annually  in  connection  with  the 
 TRS.  According  to  our  most  recent  data,  789  companies  reported  that  they  were  engaged  in  the 
 provision  of  cellular  services.  52  Although  it  seems  certain  that  some  of  these  carriers  are  not 
 independently  owned  and  operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this 
 time  to  estimate  with  greater  precision  the  number  of  cellular  service  carriers  that  would  qualify 
 as  small  business  concerns  under  SBA's  definition.  Consequently,  we  estimate  that  there  are 
 fewer  than  789  small  entity  cellular  service  carriers  that  may  be  affected  by  the  decisions  and 
 rules  adopted  in  this  Order. 


 1.  Mobile  Service  Carriers  (including  paging  services).  Neither  the  Commission  nor 
 SBA  has  developed  a  definition  of  small  entities  specifically  applicable  to  mobile  service 
 carriers,  such  as  paging  companies.  The  closest  applicable  definition  under  SBA  rules  is  for 
 telephone  communications  companies  other  than  radiotelephone  (wireless)  companies.  The  most 
 reliable  source  of  information  regarding  the  number  of  mobile  service  carriers  nationwide  of 


 50  13  C.  F.  R.    121.201,  Standard  Industrial  Classification  (SIC)  Code  4812. 


 51  United  States  Department  of  Commerce,  Bureau  of  the  Census,  1992  Census  of  Transportation, 
 Communications,  and  Utilities:  Establishment  and  Firm  Size,  at  Firm  Size  1-  123  (1995)  (1992  Census). 


 52  Id. 
156
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 157 
 which  we  are  aware  appears  to  be  the  data  that  we  collect  annually  in  connection  with  the  TRS. 
 According  to  our  most  recent  data,  117  companies  reported  that  they  were  engaged  in  the 
 provision  of  mobile  services.  53  Although  it  seems  certain  that  some  of  these  carriers  are  not 
 independently  owned  and  operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this 
 time  to  estimate  with  greater  precision  the  number  of  mobile  service  carriers  that  would  qualify 
 under  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  117  small  entity 
 mobile  service  carriers  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 2. 
 3.  Broadband  PCS  Licensees  (including  paging  services).  The  broadband  PCS 
 spectrum  is  divided  into  six  frequency  blocks  designated  A  through  F.  As  set  forth  in  47  C.  F.  R. 
   24.720(  b),  the  Commission  has  defined  "small  entity"  in  the  auctions  for  Blocks  C  and  F  as  a 
 firm  that  had  average  gross  revenues  of  less  than  $40  million  in  the  three  previous  calendar 
 years.  Our  definition  of  a  "small  entity"  in  the  context  of  broadband  PCS  auctions  has  been 
 approved  by  SBA.  54  The  Commission  has  auctioned  broadband  PCS  licenses  in  Blocks  A,  B, 
 and  C.  We  do  not  have  sufficient  data  to  determine  how  many  small  businesses  bid  successfully 
 for  licenses  in  Blocks  A  and  B.  There  were  90  winning  bidders  that  qualified  as  small  entities  in 
 the  Block  C  auctions.  55  Based  on  this  information,  we  conclude  that  the  number  of  broadband 
 PCS  licensees  affected  by  the  decisions  in  this  Order  includes,  at  a  minimum,  the  90  winning 
 bidders  that  qualified  as  small  entities  in  the  Block  C  broadband  PCS  auction. 
 4. 
 5.  At  present,  no  licenses  have  been  awarded  for  Blocks  D,  E,  and  F  of  broadband 
 PCS  spectrum.  Therefore,  there  are  no  small  businesses  currently  providing  these  services. 
 However,  a  total  of  1,479  licenses  will  be  awarded  in  the  D,  E,  and  F  Block  broadband  PCS 
 auctions,  which  are  scheduled  to  begin  on  August  26,  1996.  Of  the  153  qualified  bidders  for  the 
 D,  E,  and  F  Block  PCS  auctions,  105  were  small  businesses.  56  Eligibility  for  the  493  F  Block 
 licenses  is  limited  to  entrepreneurs  with  average  gross  revenues  of  less  than  $125  million.  57 
 There  are  114  eligible  bidders  for  the  F  Block.  58  We  cannot  estimate,  however,  the  number  of 


 53  Id. 
 54  See  Implementation  of  Section  309(  j)  of  the  Communications  Act  --  Competitive  Bidding,  PP  Docket 
 No.  93-  253,  Fifth  Report  and  Order,  9  FCC  Rcd  5532,  5581-  84  (1994). 


 55  The  FCC's  Personal  Communications  Services  (PCS)  Entrepreneurs'  Block  (C  Block)  auction  began  on 
 December  18,  1995  and  closed  on  May  6,  1996.  The  reauction  for  18  defaulted  PCS  C  Block  licenses  commenced 
 on  July  3,  1996  and  was  completed  on  July  16,  1996. 


 56  See  Auction  of  Broadband  Personal  Communications  Service  (D,  E,  and  F  Blocks),  Public  Notice,  DA  96-1400 
 (rel.  Aug.  20,  1996). 


 57  Amendment  of  Parts  20  and  24  of  the  Commission's  Rules  --  Broadband  PCS  Competitive  Bidding  and  the 
 Commercial  Mobile  Radio  Service  Spectrum  Cap,  WT  Docket  No.  96-  59,  Amendment  of  the  Commission's 
 Cellular/  PCS  Cross-  Ownership  Rule,  Report  and  Order,  GN  Docket  No.  90-  314,  11  FCC  Rcd  7874  (1996). 


 58  See  Auction  of  Broadband  Personal  Communications  Service  (D,  E,  and  F  Blocks),  Public  Notice,  DA  96- 
157
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 158 
 these  licenses  that  will  be  won  by  small  entities  under  our  definition,  nor  how  many  small 
 entities  will  win  D  or  E  Block  licenses.  Given  that  nearly  all  radiotelephone  companies  have 
 fewer  than  1,000  employees  59  and  that  no  reliable  estimate  of  the  number  of  prospective  D,  E, 
 and  F  Block  licensees  can  be  made,  we  assume  for  purposes  of  this  FRFA,  that  all  of  the  licenses 
 in  the  D,  E,  and  F  Block  Broadband  PCS  auctions  may  be  awarded  to  small  entities  under  our 
 rules,  which  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 


 1.  SMR  Licensees  (including  paging  services).  Pursuant  to  47  C.  F.  R.   
 90.814(  b)(  1),  the  Commission  has  defined  "small  entity"  in  auctions  for  geographic  area  800 
 MHz  and  900  MHz  SMR  licenses  as  a  firm  that  had  average  annual  gross  revenues  of  less  than 
 $15  million  in  the  three  previous  calendar  years.  This  definition  of  a  "small  entity"  in  the 
 context  of  800  MHz  and  900  MHz  SMR  has  been  approved  by  the  SBA.  60  The  rules  adopted  in 
 this  Order  may  apply  to  SMR  providers  in  the  800  MHz  and  900  MHz  bands  that  either  hold 
 geographic  area  licenses  or  have  obtained  extended  implementation  authorizations.  We  do  not 
 know  how  many  firms  provide  800  MHz  or  900  MHz  geographic  area  SMR  service  pursuant  to 
 extended  implementation  authorizations,  nor  how  many  of  these  providers  have  annual  revenues 
 of  less  than  $15  million.  We  assume,  for  purposes  of  this  FRFA,  that  all  of  the  extended 
 implementation  authorizations  may  be  held  by  small  entities,  which  may  be  affected  by  the 
 decisions  and  rules  adopted  in  this  Order. 


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


 1400  (rel.  Aug.  20,  1996). 
 59  1992  Census,  Table  5,  Employment  Size  of  Firms:  1992,  SIC  Code  4812. 


 60  See  Amendment  of  Parts  2  and  90  of  the  Commission's  Rules  to  Provide  for  the  Use  of  200  Channels 
 Outside  the  Designated  Filing  Areas  in  the  896-  901  MHz  and  the  935-  940  MHz  Bands  Allotted  to  the  Specialized 
 Mobile  Radio  Pool,  PR  Docket  No.  89-  583,  Second  Order  on  Reconsideration  and  Seventh  Report  and  Order,  11 
 FCC  Rcd  2639,  2693-  702  (1995);  Amendment  of  Part  90  of  the  Commission's  Rules  to  Facilitate  Future 
 Development  of  SMR  Systems  in  the  800  MHz  Frequency  Band,  PR  Docket  No.  93-  144,  First  Report  and  Order, 
 Eighth  Report  and  Order,  and  Second  Further  Notice  of  Proposed  Rulemaking,  11  FCC  Rcd  1463  (1995). 
158
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 159 
 D.  Description  of  Projected  Reporting,  Recordkeeping,  and  Other  Compliance 
 Requirements,  and  Steps  Taken  by  Agency  to  Minimize  Significant  Economic  Impact  on  Small  Entities  and  Small  Incumbent  LECs,  consistent 


 with  Stated  Objectives 
 1.  Structure  of  the  Analysis.  In  this  section  of  the  FRFA,  we  analyze  the  projected 
 reporting,  recordkeeping,  and  other  compliance  requirements  that  may  apply  to  small  entities  and 
 small  incumbent  LECs  as  a  result  of  this  Order.  61  As  a  part  of  this  discussion,  we  ment  ion  some 
 of  the  types  of  skills  that  will  be  needed  to  meet  the  new  requirements.  We  also  describe  the 
 steps  taken  to  minimize  the  economic  impact  of  our  decisions  on  small  entities  and  small 
 incumbent  LECs,  including  the  significant  alternatives  considered  and  rejected.  62 
 2. 
 3. 
 FAIR  COMPENSATION  FOR  EACH  AND  EVERY  COMPLETED  INTRASTATE  AND  INTERSTATE  CALL  ORIGINATED  BY  PAYPHONES 


 1.  Summary  of  Projected  Reporting,  Recordkeeping  and  other  Compliance 
 Requirements.  Section  276(  b)(  1)(  A)  directs  the  Commission  to  "establish  a  per  call 
 compensation  plan  to  ensure  that  all  payphone  service  providers  are  fairly  compensated  for  each 
 and  every  completed  intrastate  and  interstate  call  using  their  payphone...."  63  To  implement 
 Section  276(  b)(  1)(  A),  this  Order  requires:  (1)  that  the  market  set  the  price  for  local  coin  calls 
 originated  by  payphones;  (2)  the  appropriate  per-  call  compensation  amount  for  the  service 
 provided  by  independent  payphone  providers  (PSPs)  when  they  originate  an  interstate  call  should 
 be  the  same  amount  the  particular  payphone  provider  charges  for  a  local  coin  call;  (3)  the 
 adoption  of  the  "carrier  pays"  compensation  system,  which  essentially  places  the  payment 
 obligation  of  per-  call  compensation  on  the  primary  economic  beneficiary  of  payphone  calls;  (4) 
 that  the  carrier,  as  the  primary  economic  beneficiary  of  payphone  calls,  perform  the  tracking  of 
 calls  it  receives  from  payphones;  (5)  that  carriers  initiate  an  annual  independent  verification  of 
 their  per-  call  tracking  functions  for  a  period  of  two  years,  to  ensure  that  they  are  tracking  all  of 
 the  calls  for  which  they  are  obligated  to  pay  compensation,  (6)  a  direct  billing  arrangement 
 between  IXCs  and  intraLATA  carriers  and  PSPs;  (7)  that  LECs,  who  maintain  the  list  of  ANIs, 
 have  the  burden  of  resolving  disputed  ANIs;  and  (8)  that  an  interim  compensation  mechanism  be 
 set  up  under  which  PSPs  are  paid  compensation  at  a  flat  monthly  rate.  Compliance  with  these 
 requirements  may  require  the  use  of  engineering,  technical,  operational,  accounting,  billing,  and 
 legal  skills. 
 2. 
 3.  The  payphone  industry  appears  to  have  the  potential  of  being  a  very  competitive 


 61  See  5  U.  S.  C.    604(  a)(  4). 


 62  See  5  U.  S.  C.    604(  a)(  5). 
 63  47  U.  S.  C.    276(  b)(  1)(  A). 
159
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 160 
 industry  once  the  significant  subsidies  and  entry/  exit  restrictions  which  are  presently  distorting 
 the  competition  are  removed.  64  However,  we  perceive  five  potential  areas  that  could  have 
 significant  economic  impact  on  small  businesses  and  small  incumbent  LECs:  (1)  the  amount  of 
 compensation  paid  to  PSPs;  (2)  the  "carrier  pays"  compensation  system;  (3)  the  administration  of 
 per-  call  compensation;  (4)  the  direct  billing  arrangement  between  carriers  and  PSPs;  and  (5)  the 
 interim  compensation  mechanism. 
 4. 
 5.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small  Entities  and 
 Small  Incumbent  LECs,  and  Alternatives  Considered:  Amount  of  compensation:  By  requiring 
 that  the  market  set  the  price  for  individual  coin  calls  originated  by  payphones  we  ensure  that 
 PSPs,  many  of  whom  may  be  small  business  entities,  receive  fair  compensation.  We  considered 
 different  options  in  deciding  upon  this  alternative.  We  reject  proposals  for  adopting  a  national 
 uniform  rate  of  compensation  for  all  calls  using  a  payphone  because  a  single,  nationwide  rate 
 could  jeopardize  the  financial  viability  of  a  majority  of  payphones.  Rejection  of  this  option 
 allows  for  accounting  for  the  significant  variation  in  payphones  in  order  to  ensure  the  incentives 
 to  place  and  maintain  phones  in  a  variety  of  geographic  areas.  65  We  also  reject  proposals  that 
 certain  types  of  calls  should  receive  a  different  per-  call  compensation  amount  than  others.  We 
 decline  to  interfere  in  marketplace  transactions  by  providing  for  different  compensation  amounts 
 for  different  types  of  calls,  in  instances  where  marketplace  failures  are  limited  or  would  have 
 minimal  impact  on  consumer  welfare.  66  We  do  not  perceive  the  need  to  intervene  in  an 
 apparently  structurally  competitive  industry. 
 6. 
 7.  Many  commentators,  notably  the  IXCs,  contend  that  marginal  cost  of  originating 
 a  payphone  call  should  be  used  as  the  basis  for  compensating  PSPs.  We  conclude  that  use  of  a 
 marginal  cost  standard  or  any  closely  related  TSLRIC  standard  would  leave  PSPs  under 
 compensated,  because  such  cost  standards  do  not  permit  the  recovery  of  any  of  a  PSPs'  fixed 
 costs,  which  make  up  the  bulk  of  a  PSP's  costs.  We  also  reject,  for  similar  reasons,  suggestions 
 that  current  local  coin  rates  be  used  as  a  surrogate  for  per-  call  compensation.  Local  coin  rates 
 are  not  necessarily  fairly  compensatory.  Local  coin  rates  in  some  jurisdictions  may  not  cover  the 
 marginal  cost  of  service  and  therefore,  would  not  fairly  compensate  the  PSPs. 
 8. 
 9.  This  "market  sets  the  price"  approach  provides  flexibility.  Some  PSPs  may  find  it 
 advantageous  to  set  coin  rates  as  low  as  $.  10  per  call  in  select  locations,  perhaps  as  promotions 
 to  enhance  their  brand  names.  PSPs  in  other  locations  may  choose  to  set  the  coin  rate  higher, 
 e.  g.  $.  35  or  $.  40  per  call.  67  We  expect  our  action  to  minimize  regulatory  burdens,  expedite  and 
 simplify  negotiations,  and  minimize  economic  impacts  through  lower  transaction  costs. 


 64  See  paras.  11-  19,  above. 


 65  See  paras.  49-  51,  55-  61,  above. 
 66  See  para.  49,  above. 
 67  See  para.  51,  above. 
160
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 161 
 10. 
 11.  We  reject  the  proposal  of  the  BOCs  and  some  independent  payphone  providers  to 
 use  AT&  T  O+  commissions  as  a  measure  of  fair  value  of  the  service  provided  by  independent 
 payphone  providers  when  they  originate  an  interstate  call.  These  commissions  may  include 
 compensation  for  factors  other  than  the  use  of  the  payphone,  such  as  a  PSP's  promotion  of  the 
 OSP  through  placards  on  the  payphone.  In  the  absence  of  reliable  data,  the  appropriate  per-  call 
 compensation  amount  is  whatever  amount  the  particular  payphone  charges  for  a  local  coin  call. 
 PSPs,  IXCs,  subscriber  800  carriers,  and  intraLATA  carriers,  many  of  whom  may  be  small 
 business  entities,  may  find  it  advantageous  to  agree  on  an  amount  for  some  or  all  compensable 
 calls  that  is  either  higher  or  lower  than  the  local  coin  rate  at  a  given  payphone  because  it  will 
 grant  parties  in  the  payphone  industry  some  flexibility  and  allow  them  to  take  advantage  of 
 technological  advances. 
 12. 
 13.  Payment  of  compensation:  Various  commenters,  including  small  IXCs  and 
 paging  services,  proposed  that  the  Commission  should  adopt  the  "carrier-  pays"  system.  68  We 
 reject  proposals  to  adopt  "caller-  pays"  and  "set  use  fee"  systems,  because  we  believe  that  they 
 would  involve  greater  transaction  costs  which  can  pose  particular  burdens  for  small  businesses. 
 We  considered  various  alternatives  to  adopt  the  "carrier  pays"  system  for  per-  call  compensation 
 because  it  places  the  payment  obligation  on  the  primary  economic  beneficiary  in  the  least 
 burdensome,  most  cost-  effective  manner.  All  carriers  that  receive  calls  from  payphones  are 
 required  to  pay  per-  call  compensation,  whether  they  are  IXCs  or  intraLATA  carriers.  69  The 
 "carrier  pays"  system  gives  the  carriers  the  broadest  latitude  on  how  to  recover  the  costs  of 
 payphone  compensation,  whether  through  increased  rates  to  all  or  particular  customers,  through 
 direct  charges  to  access  code  call  or  subscriber  800  customers,  or  through  contractual  agreements 
 with  individual  customers,  thereby  involving  fewer  transaction  costs.  In  addition,  under  the 
 carrier  pays  system,  individual  carriers  have  the  option  of  recovering  either  a  different  amount 
 from  their  customers  or  no  amount  at  all. 
 14. 
 15.  However,  in  the  interests  of  administrative  efficiency  and  lower  costs,  we  require 
 that  facilities  based  carriers  should  pay  the  per-  call  compensation  for  calls  received  by  their 
 reseller  customers.  This  would  permit  competitive  facilities  based  carriers  to  negotiate  contract 
 provisions  that  would  require  the  reseller  to  reimburse  the  carrier.  We  believe  our  actions  will 
 expedite  and  simplify  negotiations,  minimize  regulatory  burdens  and  the  impact  of  our  decisions 
 for  all  parties,  including  small  entities. 
 16. 
 17.  Administration  of  per-  call  compensation:  We  considered  various  proposals  to 
 determine  who  should  provide  call  tracking.  This  Order  requires  IXCs  and  intraLATA  carriers, 
 as  primary  economic  beneficiary  of  payphone  calls,  to  track  the  calls  they  receive  from 
 payphones.  The  carrier  has  the  option  of  performing  the  function  itself  or  contracting  out  these 


 68  See  paras.  78,  83,  above. 
 69  See  para.  83,  above. 
161
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 162 
 functions  to  another  party,  such  a  LEC  or  clearinghouse.  We  recognize  that  tracking  capabilities 
 vary  from  carrier  to  carrier  and  it  may  be  appropriate  for  some  carriers  to  pay  compensation  at  a 
 flat  rate  basis  until  per-  call  tracking  capabilities  are  put  into  place.  Neither  LECs  nor  PSPs  are 
 primary  economic  beneficiaries  of  payphone  calls  and  PSPs  do  not  universally  have  call-  tracking 
 capabilities.  However,  LECs,  PSPs,  and  carriers  receiving  payphone  calls  should  be  able  to  take 
 advantage  of  each  others'  technological  capabilities  through  the  contracting  process.  70 
 18. 
 19.  In  view  of  current  difficulties  in  tracking  such  calls,  we  conclude  that  a 
 transition  period  is  warranted.  71  By  permitting  carriers  to  contract  out  their  per-  call  tracking 
 responsibility,  and  by  allowing  a  transition  period  for  tracking  subscriber  800  calls,  we  have 
 taken  appropriate  steps  to  minimize  the  per-  call  tracking  burden  on  small  carriers.  In  addition,  to 
 parallel  the  obligation  to  pay  compensation,  the  underlying,  facilities-  based  carrier  has  the 
 burden  of  tracking  calls  to  its  reseller  customers,  and  it  may  recover  that  cost  from  the  reseller,  if 
 it  chooses.  72 
 20. 
 21.  We  conclude  that  carriers  should  be  required  to  initiate  an  annual  independent 
 verification  of  their  per-  call  tracking  functions  for  a  period  of  two  years,  to  ensure  that  they  are 
 tracking  all  of  the  calls  for  which  they  are  obligated  to  pay  compensation.  This  would  facilitate 
 the  prompt  and  accurate  payment  of  all  per-  call  compensation.  We  believe  our  actions  will 
 foster  opportunities  for  small  entities  to  gain  access  to  such  information  without  requiring 
 investigation  or  discovery  proceedings,  and  reduce  delay  and  transaction  costs. 
 22. 
 23.  To  establish  minimal  regulatory  guidelines  for  the  payphone  industry  regarding 
 resolution  of  disputed  ANIs,  we  conclude  that  LECs  who  maintain  the  list  of  ANIs  must  work 
 with  both  carrier-  payors  and  PSPs  to  resolve  disputes  more  efficiently  and  quickly  for  all  parties 
 concerned.  This  provides  LECs  with  the  incentive,  which  they  do  not  currently  have,  to  provide 
 accurate  and  timely  verification  of  ANIs  for  independently  provided  payphones.  Additionally, 
 no  other  party  has  the  information  more  readily  available.  73  We  expect  this  action  to  assist  all 
 parties,  including  small  entities,  expedite  and  simplify  negotiations,  and  help  equalize  bargaining 
 power. 
 24. 
 25.  Each  time  a  caller  dials  a  subscriber  800  number,  the  PSP  will  also  levy  a  charge 
 which  may  be  paid  directly  by  the  IXC,  but  will  eventually  be  passed  through  to  the  800 
 subscriber,  either  on  a  per-  call  basis  or  in  the  form  of  higher  per  minute  rates.  Establishment  of 
 the  requirement  that  PSPs  inform  these  subscribers  of  the  price  of  the  call  they  are  deciding  to 
 accept,  provide  subscribers  with  the  opportunity  to  accept  or  decline  to  accept  the  call  based  on 


 70  See  para.  97,  above. 


 71  See  para.  99,  above. 
 72  See  para.  100,  above. 
 73  See  paras.  112-  113,  above. 
162
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 163 
 the  cost.  Without  the  requirement,  the  PSP  would  have  the  ability  to  charge  a  high  amount  in  the 
 face  of  the  subscriber's  lack  of  information.  We  expect  our  action  to  facilitate  good  faith 
 negotiations,  and  minimize  regulatory  burdens  and  the  impact  of  our  decisions  for  all  parties, 
 including  small  entities. 
 26. 
 27.  While  incumbent  LECs  in  many  jurisdictions  currently  do  not  charge  payphone 
 callers  for  "411"  calls  made  from  their  own  payphones,  the  LECs  charge  independent  PSPs  for 
 directory  assistance  calls  made  from  their  phones.  The  PSPs  are  not  always  allowed  by  the  state 
 to  pass  those  charges  on  to  callers,  which  can  pose  particular  burdens  for  them.  In  this  Order  we 
 conclude  that,  to  ensure  fair  compensation  for  "411"  and  other  directory  assistance  calls  from 
 payphones,  a  PSP  is  permitted  to  charge  a  market-  based  rate  for  the  service,  although  the  PSP 
 may  decline  to  charge  for  this  service  if  it  chooses.  In  addition,  we  conclude  that  if  the 
 incumbent  LEC  imposes  a  fee  on  independent  payphone  providers  for  "411"  calls,  then  the  LEC 
 must  impute  the  same  fee  to  its  own  payphones  for  this  service.  74  We  believe  our  action  will 
 facilitate  the  development  of  competition. 
 28. 
 29.  The  direct  billing  arrangement  between  IXCs  and  intraLATA  carriers  and  PSPs 
 adopted  in  this  Order  places  the  burden  of  billing  and  collecting  information  on  the  parties  who 
 benefit  the  most  from  calls  from  payphones:  carriers  and  PSPs.  Carriers  must  send  to  each  PSP  a 
 statement  indicating  the  number  of  toll-  free  and  access  code  calls  received  from  that  PSP's 
 payphones.  The  carrier-  payor  has  the  option  of  using  clearinghouses,  similar  to  those  that  exist 
 for  access  code  call  compensation,  or  to  contract  out  the  direct-  billing  arrangement  associated 
 with  the  payment  of  compensation.  75  We  expect  our  action  will  foster  opportunities  for  small 
 entities  to  gain  access  to  such  information  without  requiring  investigation  or  discovery 
 proceedings. 
 30. 
 31.  Interim  compensation  mechanism:  We  considered  various  proposals 
 regarding  the  feasibility  of  implementing  an  interim  compensation  mechanism  before  final  rules 
 go  into  effect.  Because  IXCs  and  intraLATA  carriers  are  not  required  to  track  individual  calls 
 until  October  1,  1997,  we  conclude  that  PSPs  should  be  paid  monthly  compensation  on  a  flat 
 monthly  rate.  We  expect  that  the  flat  rate  obligation  will  be  of  administrative  convenience  for  all 
 parties  involved,  including  small  businesses. 
 32. 
 RECLASSIFICATION  OF  LEC-  OWNED  PAYPHONES  1.  Summary  of  Projected  Reporting,  Recordkeeping  and  Other  Compliance 


 Requirements.  Section  276(  b)(  1)(  B)  directs  the  Commission  to  "discontinue  the  intrastate  and 
 interstate  carrier  access  charge  payphone  service  elements  and  payments  ...  and  all  intrastate  and 
 interstate  payphone  subsidies  from  basic  exchange  and  exchange  access  revenues,  in  favor  of  a 


 74  See  para.  62,  above. 
 75  See  para.  110,  above. 
163
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 164 
 [per-  call]  compensation  plan."  76  Currently,  incumbent  LEC  payphones,  classified  as  part  of  the 
 network,  recover  their  costs  from  Carrier  Common  Line  (CCL)  charges  assessed  on  those 
 carriers  that  connect  with  the  incumbent  LEC.  This  Order  requires  incumbent  LECs  to  (1) 
 classify  their  payphones  as  detariffed  and  deregulated  CPE;  77  (2)  provide  to  PSPs 
 nondiscriminatory  access  to  unbundled  central  office  coin  transmission  services  and  certain  other 
 services  the  LECs  provide  to  their  own  payphones,  and  must  file  tariffs  for  central  office  coin 
 services  and  those  incumbent  LECs  that  are  not  subject  to  price  cap  regulation  must  submit  cost 
 support  for  their  central  office  coin  service;  78  (3)  transfer  their  payphone  assets  to  unregulated 
 accounts  or  affiliates  at  the  market  value  of  the  "payphone  going  concern,"  by  April  15,  1997, 
 and  obtain  independent  appraisal  of  the  fair  market  value  to  submit  to  the  Common  Carrier 
 Bureau  within  180  days  of  the  effective  date  of  this  Order;  79  and  (4)  reduce  their  interstate  CCL 
 charges  by  an  amount  equal  to  the  interstate  allocation  of  payphone  costs  currently  recovered 
 through  those  charges,  and  file  revised  CCL  tariffs  reflecting  the  changed  rate  structures.  80 
 Compliance  with  these  requirements  may  necessitate  the  use  of  engineering,  technical, 
 operational,  accounting,  billing,  and  legal  skills. 


 1.  Some  of  the  smaller  incumbent  LECs  may  find  difficult  the  administrative 
 burdens  of  reclassifying  payphones  as  CPE,  transferring  payphone  assets  to  unregulated 
 accounts,  and  filing  new  tariffs.  Therefore,  if  a  requesting  carrier,  which  may  be  a  small  entity, 
 seeks  access  to  an  incumbent  LEC's  unbundled  elements,  the  requesting  carrier  is  required  to 
 compensate  the  incumbent  LEC  for  any  costs  incurred  to  provide  such  access. 
 2. 
 3.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small  Entities  and 
 Small  Incumbent  LECs,  and  Alternatives  Considered.  The  deregulation  of  LEC  payphones  is 
 essential  to  promoting  competition  in  the  payphone  industry.  We  reject  several  alternatives  in 
 making  this  determination,  including  proposals  suggesting  that  the  Commission  (1)  should  allow 
 smaller  LECs  to  choose  whether  or  not  to  deregulate  their  payphones;  81  and  (2)  should  impose  a 
 structural  separation  requirement  for  incumbent  LEC  payphones.  82  The  establishment  of 
 minimum  national  requirements  for  discontinuation  of  payphone  subsidies  from  basic  exchange 
 and  exchange  access  revenues  should  facilitate  negotiations  and  reduce  regulatory  burdens  and 
 uncertainty  for  all  parties,  including  small  entities  and  small  incumbent  LECs.  National 


 76  47  U.  S.  C.    276(  b)(  1)(  B). 


 77  See  para.  142,  above. 
 78  See  paras.  146-  148,  above. 
 79  See  paras.  161-  169,  above. 
 80  See  paras.  179-  185,  above. 
 81  See  para.  ___,  above. 
 82  See  para.  145,  above. 
164
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 165 
 requirements  may  also  allow  new  entrants,  including  small  entities,  to  take  advantage  of 
 economies  of  scale. 


 1.  By  requiring  the  incumbent  LECs  to  offer  individual  central  office  coin 
 transmission  services  to  PSPs  on  a  nondiscriminatory,  public,  tariffed  offering,  new  entrants, 
 which  may  include  small  entities,  should  have  access  to  the  same  technologies  and  economies  of 
 scale  and  scope  that  are  available  to  incumbent  LECs.  This  will  permit  competitive  payphone 
 providers,  some  of  whom  are  small  business  entities,  to  offer  payphone  services  using  either 
 instrument  implemented  "smart  payphones"  or  "dumb"  payphones  that  utilize  central  office  coin 
 services.  We  reject  the  proposal  suggesting  that  the  Commission  require  incumbent  LECs  to 
 provide  on  a  nondiscriminatory  basis  all  the  services  that  they  provide  to  their  own  payphone 
 operations  or  require  incumbent  LECs  to  perform  joint  marketing  of  the  payphone  operations  of 
 other  providers.  83  Instead,  we  require  only  that  the  incumbent  LEC  offer  the  following  services 
 on  a  nondiscriminatory  basis  if  it  provides  such  services  to  its  own  payphone  operations:  fraud 
 protection,  special  numbering  assignments,  and  installation  and  maintenance  of  basic  payphone 
 services.  Rejection  of  this  alternative  will  allow  small  incumbent  LECs  to  distinguish  certain 
 services  from  services  offered  by  other  payphone  providers.  Our  actions  in  this  area  could 
 decrease  entry  barriers  for  small  business  entities  and  provide  reasonable  opportunities  for  all 
 payphone  service  providers  to  provide  service. 
 2. 
 ABILITY  OF  PAYPHONE  SERVICE  PROVIDERS  TO  NEGOTIATE  WITH  LOCATION  PROVIDERS  ON  THE  PRESUBSCRIBED  INTRALATA  CARRIER 


 1.  Summary  of  Projected  Reporting,  Recordkeeping  and  Other  Compliance 
 Requirements.  Section  276(  b)(  1)(  E)  directs  the  Commission  to  "provide  for  all  payphone  service 
 providers  to  have  the  right  to  negotiate  with  the  location  provider  on  the  location  provider's 
 selecting  and  contracting  with,  and  subject  to  the  terms  of  any  agreement  with  the  location 
 provider,  to  select  and  contract  with,  the  carriers  that  carry  intraLATA  calls  from  their 
 payphones."  84  This  Order  grants  to  all  payphone  service  providers,  including  incumbent  LECs, 
 the  right  to  negotiate  with  location  providers  concerning  the  intraLATA  carriers  presubscribed  to 
 their  payphones.  85  We  also  preempt  any  state  regulations  mandating  the  routing  of  intraLATA 
 calls  to  the  incumbent  LEC.  86  Compliance  with  these  requirements  should  not  necessitate  the  use 
 of  additional  skills,  since  such  skills  are  already  used  in  negotiations  concerning  the  interLATA 
 carriers  presubscribed  to  payphones. 


 83  See  para.  148,  above. 
 84  47  U.  S.  C.    276(  b)(  1)(  E). 
 85  See  para.  220  above. 
 86  See  para.  222  above. 
165
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 166 
 1.  Allowing  all  payphone  service  providers  to  negotiate  with  location  providers 
 concerning  the  intraLATA  carriers  presubscribed  to  their  payphones  could  have  a  positive 
 economic  impact  on  payphone  providers  who  are  small  business  entities  by  allowing  them 
 flexibility  to  create  favorable  contract  terms.  Small  incumbent  LECs  may  suffer  some  negative 
 economic  impact  because  intraLATA  calls  will  no  longer  be  routinely  routed  to  them. 
 2.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small  Entities  and 
 Small  Incumbent  LECs,  and  Alternatives  Considered.  State  regulations  that  require  routing  of 
 intraLATA  calls  to  the  incumbent  LEC  are  preempted  by  this  Order,  thereby  creating  a  national 
 rule  allowing  all  payphone  service  providers  to  negotiate  with  location  providers  concerning  the 
 intraLATA  carriers  presubscribed  to  their  payphones.  A  national  rule  should  facilitate 
 negotiations  and  reduce  regulatory  burdens  and  uncertainty  for  all  parties,  including  small 
 entities  and  small  incumbent  LECs.  Our  actions  in  granting  to  all  payphone  providers  the  same 
 ability  to  negotiate  with  location  providers  on  the  selection  of  the  intraLATA  carrier 
 presubscribed  to  the  payphone  will  facilitate  the  development  of  competition. 
 3. 
 REQUIRING  LECS  TO  PROVIDE  DIALING  PARITY  FOR  PAYPHONES 


 1.  Summary  of  Projected  Reporting,  Recordkeeping,  and  Other  Compliance 
 Requirements.  The  Order  concludes  that  the  dialing  parity  requirements  of  Section  251(  b)(  3) 
 should  extend  to  all  payphone  location  providers  and  that  the  interLATA  carrier  unblocking 
 requirements  established  in  TOCSIA  should  be  extended  to  all  local  and  long-  distance  calls.  87 
 The  Order  requires  that  the  technical  and  timing  requirements  established  pursuant  to  Section 
 251(  b)(  3)  and  Section  271(  c)(  2)(  B)  should  apply  equally  to  payphones.  88  Compliance  with  these 
 requirements  may  require  the  use  of  engineering,  technical,  and  operational  skills. 


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


 87  See  paras.  249,  251  above. 
 88  See  para.  250  above. 
166
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 167 
 regulatory  burdens  and  uncertainty  for  all  parties,  including  small  entities  and  small  incumbent 
 LECs. 
 4. 
 5.  E.  Commission's  Outreach  Efforts  to  Learn  of  and  Respond  to  the  Views  of 
 Small  Entities  Pursuant  to  5  U.  S.  C.    609  6. 


 7.  Our  staff  has  conducted  several  ex  parte  meetings  with  numerous  outside 
 parties  and  their  counsel,  several  of  whom  may  qualify  as  small  business  entities,  during  the 
 pendency  of  this  rulemaking  to  identify  and  discuss  various  aspects  of  the  implementation  of 
 Section  276.  For  example,  we  have  received  ex  parte  suggestions  and  comments  from  the 
 American  Public  Communications  Council,  a  trade  association  that  represents  independent 
 payphone  providers,  many  of  whom  qualify  as  small  business  entities.  We  have  attempted,  to 
 the  furthest  possible  extent,  to  take  into  account  as  many  of  these  concerns  as  possible  in 
 promulgating  the  rules  contained  in  this  Order. 
 8. 
 F.  Report  to  Congress 


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


 V.  CONCLUSION 
 1.  In  this  Report  and  Order,  we  have  established  procedures  that  will  ensure 
 that  all  payphone  service  providers  are  fairly  compensated  for  every  completed  intrastate, 
 interstate  and  international  call,  except  for  those  calls  excepted  by  statute,  and  we  adopt  interim 
 compensation  until  the  new  compensation  procedures  are  effective.  We  have  also  established 
 procedures  that  ensure  that  all  subsidies  from  basic  exchange  and  exchange  access  revenues  are 
 removed  simultaneous  with  the  LECs'  receipt  of  compensation  for  calls  from  LEC  payphones. 
 We  require  the  BOCs  to  comply  with  certain  nonstructural  safeguards  for  their  provision  of 
 payphone  service,  and  allow  them  to  negotiate  with  location  providers  for  selecting  and 
 contracting  with  the  carriers  that  provide  interLata  service  from  their  phones.  We  set  forth 
 herein  guidelines  for  public  interest  payphones,  and  establish  guidelines  for  states  to  use  in  their 
 proceedings  for  funding  of  such  payphones. 
 2. 
 VI.  ORDERING  CLAUSES  1.  Accordingly,  pursuant  to  authority  contained  in  Sections  1,  4,  201-  205, 


 215,  218,  219,  220,  226,  and  276  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.   
 151,  154,  201-  205,  215,  218,  219,  220,  226,  and  276,  IT  IS  ORDERED  that  the  policies,  rules, 
 and  requirements  set  forth  herein  ARE  ADOPTED. 
 2.  3.  IT  IS  FURTHER  ORDERED,  that  47  C.  F.  R.  Part  64,  Subpart  G  and  Subpart  M 
167
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 168 
 ARE  AMENDED  as  set  forth  in  Appendix  D,  effective  (30)  days  after  publication  of  the  text 
 thereof  in  the  Federal  Register. 
 4. 
 5.  IT  IS  FURTHER  ORDERED,  that  47  C.  F.  R.  Part  64,  Subpart  M  IS  AMENDED 
 as  set  forth  in  Appendix  E,  effective  one  year  after  publication  of  the  text  thereof  in  the  Federal 
 Register. 
 6. 
 7.  IT  IS  FURTHER  ORDERED,  that  47  C.  F.  R.  Part  68,  Subpart  A  IS  AMENDED 
 as  set  forth  in  Appendix  E,  effective  April  15,  1997. 
 8. 
 9.  IT  IS  FURTHER  ORDERED,  that  local  exchange  carriers  SHALL 
 RECLASSIFY  their  payphone  assets  and  related  expenses  to  nonregulated  status  on  April  15, 
 1997. 
 10. 
 11.  IT  IS  FURTHER  ORDERED,  that  carriers  required  to  file  a  cost 
 allocation  manual  pursuant  to  47  C.  F.  R.  Section  64.903  or  by  Commission  order  SHALL  FILE 
 revisions  to  their  manuals  implementing  the  reclassification  required  herein  no  later  than 
 February  14,  1997. 
 12. 
 13.  IT  IS  FURTHER  ORDERED,  that  local  exchange  carriers  SHALL  FILE 
 tariff  revisions  required  by  paras.  180  to  187  herein  on  January  15,  1997,  to  be  effective  April 
 15,  1997. 
 14. 
 15.  IT  IS  FURTHER  ORDERED,  the  Bell  Operating  Companies  ARE 
 GRANTED  waivers  of  the  time  requirements  of  the  Computer  II  and  the  Computer  III  network 
 disclosure  requirements  in  order  to  provide  basic  network  payphone  services  by  April  15,  1997. 
 Pursuant  to  this  waiver,  network  disclosure  notification  for  these  basic  network  payphone 
 services  must  be  filed  no  later  than  January  15,  1997. 
 16. 
 17.  IT  IS  FURTHER  ORDERED,  that  the  Bell  Operating  Companies  SHALL 
 FILE  CEI  plans  for  the  provision  of  payphone  service  not  later  than  90  days  following 
 publication  of  a  summary  of  this  Report  and  Order  in  the  Federal  Register. 
 18. 
 19.  IT  IS  FURTHER  ORDERED,  that  the  waivers  of  Section  64.1301  of  the 
 Commission's  Rules  granted  to  AT&  T  and  Sprint  in  the  proceedings  referenced  in  para.  119 
 above  ARE  REVOKED,  effective  30  days  after  publication  of  a  summary  of  this  Report  and 
 Order  in  the  Federal  Register. 
 20. 
 21.  IT  IS  FURTHER  ORDERED,  that  the  proceedings  initiated  by  our 
 Memorandum  Opinion  and  Order  on  Further  Reconsideration  and  Second  Further  Notice  of 
 Proposed  Rulemaking  in  CC  Docket  91-  35,  Policies  and  Rules  Concerning  Operator  Service 
 Access  and  Pay  Telephone  Compensation,  10  FCC  Rcd  11457  (1995),  ARE  TERMINATED. 
 22.  IT  IS  FURTHER  ORDERED,  that  the  July  18,  1988  Petition  of  the  Public 
 Telephone  Council  for  a  declaratory  ruling  that  BOC  Payphones  should  be  treated  as  CPE  IS 
 DISMISSED  AS  MOOT. 
168
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 169 
 23. 
 24.  IT  IS  FURTHER  ORDERED,  that  the  August  7,  1995  Petition  of  Oncor 
 Communications,  Inc.  Requesting  Compensation  for  Competitive  Payphone  Premises  Owners 
 and  Presubscribed  Operator  Services  Providers  IS  DENIED. 
 25. 
 26.  IT  IS  FURTHER  ORDERED,  that  the  proceedings  entitled  Amendment  of 
 Section  69.2(  m)  and  (ee)  of  the  Commission's  Rules  to  Include  Independent  Public  Payphones 
 Within  the  "Public  Telephone"  Exemption  from  End  User  Common  Line  Access  Charges,  RM 
 8723,  ARE  TERMINATED. 
 27. 
 28.  IT  IS  FURTHER  ORDERED,  that  the  December  28,  1989  Petition  of  the 
 California  Payphone  Association  IS  DISMISSED  AS  MOOT. 
 29. 
 30.  IT  IS  FURTHER  ORDERED,  that  the  provisions  set  forth  in  Section  1.  4  of  the 
 Commission's  rules  establishing  the  date  of  public  notice  for  this  Report  and  Order  ARE 
 WAIVED,  and  petitions  for  reconsideration  SHALL  BE  FILED  within  30  days  of  release  of  this 
 document,  and  oppositions  to  the  petitions  must  be  filed  within  seven  (7)  days  after  the  date  for 
 filing  the  petitions  for  reconsideration.  For  purposes  of  this  proceeding,  Section  1.106(  h)  of  the 
 Commission's  Rules  IS  WAIVED,  and  the  Commission  will  not  accept  replies  to  oppositions. 
 31. 
 FEDERAL  COMMUNICATIONS  COMMISSION 


 William  F.  Caton 
 Acting  Secretary 
169
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 170 
 APPENDIX  A 
 TEXT  OF  SECTION  276 
 PROVISION  OF  PAYPHONE  SERVICE 
 (a)  NONDISCRIMINATION  SAFEGUARDS.  --  After  the  effective  date  of  the  rules 
 prescribed  pursuant  to  subsection  (b),  any  Bell  operating  company  that  provides  payphone 
 service-  -( 


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


 (2)  shall  not  prefer  or  discriminate  in  favor  of  its  payphone  service. 
 (b)  REGULATIONS.  -- 
 (1)  CONTENTS  OF  REGULATIONS.  --  In  order  to  promote  competition  among 
 payphone  service  providers  and  promote  the  widespread  deployment  of  payphone  services  to  the 
 benefit  of  the  general  public,  within  9  months  after  the  date  of  enactment  of  the 
 Telecommunications  Act  of  1996,  the  Commission  shall  take  all  actions  necessary  (including 
 any  reconsideration)  to  prescribe  regulations  that  -- 


 (A)  establish  a  per  call  compensation  plan  to  ensure  that  all  payphone 
 service  providers  are  fairly  compensated  for  each  and  every  completed  intrastate  and  interstate 
 call  using  their  payphone,  except  that  emergency  calls  and  telecommunications  relay  service 
 calls  for  hearing  disabled  individuals  shall  not  be  subject  to  such  compensation; 


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


 (C)  prescribe  a  set  of  nonstructural  safeguards  for  Bell  operating  company 
 payphone  service  to  implement  the  provisions  of  paragraphs  (1)  and  (2)  of  subsection  (a),  which 
 safeguards  shall,  at  a  minimum,  include  the  nonstructural  safeguards  equal  to  those  adopted  in 
 the  Computer  Inquiry-  III  (CC  Docket  No.  90-  623)  proceeding; 


 (D)  provide  for  Bell  operating  company  payphone  service  providers  to 
 have  the  same  right  that  independent  payphone  providers  have  to  negotiate  with  the  location 
 provider  on  the  location  provider's  selecting  and  contracting  with,  and,  subject  to  the  terms  of 
 any  agreement  with  the  location  provider,  to  select  and  contract  with,  the  carriers  that  carry 
 interLATA  calls  from  their  payphones,  unless  the  Commission  determines  in  the  rulemaking 
 pursuant  to  this  section  that  it  is  not  in  the  public  interest;  and 
170
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 171 
 (E)  provide  for  all  payphone  service  providers  to  have  the  right  to 
 negotiate  with  the  location  provider  on  the  location  provider's  selecting  and  contracting  with, 
 and,  subject  to  the  terms  of  any  agreement  with  the  location  provider,  to  select  and  contract  with, 
 the  carriers  that  carry  intraLATA  calls  from  their  payphones. 


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


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


 (c)  STATE  PREEMPTION.--  To  the  extent  that  any  State  requirements  are  inconsistent 
 with  the  Commission's  regulations,  the  Commission's  regulations  on  such  matters  shall  preempt 
 such  State  requirements. 


 (d)  DEFINITION.--  As  used  in  this  section,  the  term  "payphone  service"  means  the 
 provision  of  public  or  semi-  public  pay  telephones,  the  provision  of  inmate  telephone  service  in 
 correctional  institutions,  and  any  ancillary  services. 
171
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 172 
 APPENDIX  B 
 PARTIES  FILING  COMMENTS 
 1  American  Association  of  Airport  Executives  ("  AAAE") 
 2  ACTEL,  Inc.  ("  ACTEL") 
 3  Admiral's  Club 
 4  AHA  T  elePLAN 
 5  Aid  Association  for  Lutherans 
 6  Air  Touch  Paging  ("  Air  Touch") 
 7  Airports  Council  International  -  North  America  ("  ACI-  NA") 
 8  American  Hotel  &  Motel  Associat  ion  ("  AHMA") 
 9  Ameritech 
 10  Anchorage  Telephone  Utility  ("  Anchorage  Telephone") 
 11  American  Public  Communications  Council  ("  APCC") 
 12  Arch  Communications  Group,  Inc.  ("  Arch") 
 13  AT&  T  Corp.  ("  AT&  T") 
 14  Bell  At  lant  ic 
 15  Bell  South  Corporation  ("  Bell  South") 
 16  Robert  M.  Brill,  Esquire  ("  Brill") 
 17  Cable  and  Wireless,  Inc.  ("  Cable  &  Wireless") 
 18  California  Association  of  Long  Distance  Telephone  Companies  ("  CALTEL") 
 19  California  Payphone  Association  ("  CPA") 
 20  People  of  the  State  of  California  and  the  Public  Utilities  Commission  of  the  State  of  Cali 
 21  Call  West  Communications,  Inc.  ("  Call  West") 
 22  Cleveland  Clinic  Foundation  ("  Cleveland  Clinic") 
 23  Communications  Central,  Inc.  ("  Communications  Central") 
 24  Compet  it  ive  Telecommunications  Association  ("  CompTel") 
 25  ConQuest  Long  Distance  Corp.  ("  ConQuest") 
 26  Dallas/  Fort  Worth  International  Airport  ("  DFW") 
 27  Excel  Telecommunications,  Inc.  ("  Excel") 
 28  Florida  Public  Service  Commission  ("  Florida  PSC") 
 29  Florida  Public  Telecommunications  Association,  Inc.  ("  FPTA") 
 30  Flying  J  Inc.  ("  Flying  J") 
 31  Frontier  Corporation  ("  Frontier") 
 32  Georgia  Public  Communications  Association  ("  GPCA") 
 33  Greyhound  Lines,  Inc.  ("  Greyhound") 
 34  GTE  Service  Corporation  ("  GTE") 
 35  GVNW  Inc./  Management  ("  GVNW") 
 36  Idaho  Public  Utilities  Commission  ("  Idaho  PUC") 
 37  Illinois  Public  Telecommunications  Association  ("  IPTA") 
 38  Independent  Technologies,  Inc.  ("  Independent  Technologies") 
 39  Indiana  Utility  Regulatory  Commission  ("  Indiana  URC") 
 40  Inmate  Calling  Services  Providers  Coalition  ("  Inmate") 
 41  Intellicall  Companies  ("  Intellicall") 
172
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 173 
 42  International  Telecard  Association  ("  ITA") 
 43  InVision  Telecom,  Inc.  ("  InVision") 
 44  Iowa  Utilities  Board 
 45  City  of  Kansas  City,  Missouri  ("  Kansas  City") 
 46  Kampgrounds  Of  America,  Inc.  ("  KOA") 
 47  Lubbock  County  Sheriff's  Office  ("  Lubbock  County  Sheriff") 
 48  State  of  Maine  Public  Utilities  Commission,  State  of  New  Hampshire  Public  Utilities  Com 
 49  MCI  Telecommunications  Corporation  ("  MCI") 
 50  Michigan  Pay  Telephone  Association  ("  MPTA") 
 51  Midwest  Independent  Coin  Payphone  Association  ("  MICPA") 
 52  National  Association  of  RV  Parks  and  Campgrounds  ("  ARVC") 
 53  National  Exchange  Carrier  Association,  Inc.  ("  NECA") 
 54  NATSO,  Inc.  ("  NATSO") 
 55  New  Jersey  Payphone  Association  ("  NJPA") 
 56  New  Jersey  Division  of  the  Ratepayer  Advocate  ("  New  Jersey  DRA") 
 57  New  York  City  Department  of  Information  Technology  and  Telecommunications  ("  New  York  City" 
 58  New  York  State  Department  of  Public  Service  ("  New  York  DPS") 
 59  National  Telephone  Cooperative  Association  ("  NTCA") 
 60  Public  Utilities  Commission  of  Ohio  ("  Ohio  PUC") 
 61  Oklahoma  Corporation  Commission  ("  Oklahoma  CC) 
 62  Oncor  Communications,  Inc.  ("  Oncor") 
 63  One  Call  Communications,  Inc.  d/  b/  a  Opticom  ("  One  Call") 
 64  Paging  Network,  Inc.  ("  PageNet") 
 65  Personal  Communications  Industry  Association  ("  PCIA") 
 66  Pennsylvania  Public  Utility  Commission  ("  Pennsylvania  PUC") 
 67  Peoples  Telephone  Company,  Inc.  ("  Peoples") 
 68  Promus  Hotel  Corporation  ("  Promus") 
 69  Puerto  Rico  Telephone  Company  ("  Puerto  Rico  Telephone") 
 70  RBOC  Payphone  Coalition  ("  RBOC") 
 71  Scherers  Communications  Group,  Inc.  ("  Scherers") 
 72  SDN  Users  Association,  Inc.  ("  SDN  Users") 
 73  South  Carolina  Public  Communications  Association  ("  SCPCA") 
 74  Southwestern  Bell  Telephone  Company  ("  SW  Bell") 
 75  Sprint  Corporation  ("  Sprint") 
 76  Tarrant  County,  Texas  ("  Tarrant  County") 
 77  Telecommunications  Resellers  Association  ("  TRA") 
 78  Teleport  Communications  Group  Inc.  ("  Teleport") 
 79  Public  Utility  Commission  of  Texas  ("  Texas  PUC") 
 80  Truckstops  of  America 
 81  United  States  Telephone  Association  ("  USTA") 
 82  US  Satellite  Corp.  ("  US  Satellite") 
 83  US  WEST,  Inc.  ("  US  WEST") 
 84  Virginia  State  Corporation  Commission  ("  Virginia  SCC") 
 85  Wisconsin  Public  Communications  Association  ("  WPCA") 
 86  WorldCom,  Inc.  d/  b/  a  LDDS  WorldCom  ("  WorldCom") 
173
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 174 
 87  Yuma  County  Airport  Authority,  Inc.  ("  Yuma  County  Airport") 
174
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 175 
 APPENDIX  C 
 PARTIES  FILING  REPLY  COMMENTS 


 1  Air  Touch  Paging  ("  Air  Touch") 
 2  American  Express  Telecommunications,  Inc.  ("  American  Express") 
 3  Ameritech 
 4  American  Public  Communications  Council  ("  APCC") 
 5  Arch  Communications  Group,  Inc.  ("  Arch") 
 6  AT&  T  Corp.  ("  AT&  T") 
 7  Bell  At  lant  ic 
 8  Bell  South  Corporation  ("  Bell  South") 
 9  Robert  M.  Brill,  Esquire  ("  Brill") 
 10  California  Payphone  Association  ("  CPA") 
 11  People  of  the  State  of  California  and  the  Public  Utilities  Commission  of  the  State  of  Cali 
 12  Communications  Central,  Inc.  ("  Communications  Central") 
 13  Compet  it  ive  Telecommunications  Association  ("  CompTel") 
 14  Frontier  Corporation  ("  Frontier") 
 15  Gateway  Technologies,  Inc.  ("  Gateway") 
 16  Georgia  Public  Communications  Association  ("  GPCA") 
 17  GTE  Service  Corporation  ("  GTE") 
 18  Indiana  Utility  Regulatory  Commission  ("  Indiana  URC") 
 19  Inmate  Calling  Services  Providers  Coalition  ("  Inmate") 
 20  Intellicall  Companies  ("  Intellicall") 
 21  International  Telecard  Association  ("  ITA") 
 22  MCI  Telecommunications  Corporation  ("  MCI") 
 23  Medeco 
 24  Metropolitan  Washington  Airports  Authority  ("  Metropolitan  Washington") 
 25  Michigan  Pay  Telephone  Association  ("  MPTA") 
 26  Missouri  Public  Service  Commission  ("  Missouri  PSC") 
 27  MobileMedia  Communications,  Inc.  ("  MobileMedia") 
 28  Montana  Public  Service  Commission  ("  Montana  PSC") 
 29  National  Exchange  Carrier  Association,  Inc.  ("  NECA") 
 30  National  Telephone  Cooperative  Association  ("  NTCA") 
 31  Public  Utilities  Commission  of  Ohio  ("  Ohio  PUC") 
 32  One  Call  Communications,  Inc.  d/  b/  a  Opticom  ("  One  Call") 
 33  Organization  for  the  Promotion  and  Advancement  of  Small  Telecommunications  Companies 
 34  Pacific  Telesis  Group  ("  PacTel") 
 35  Personal  Communications  Industry  Association  ("  PCIA") 
 36  Peoples  Telephone  Company,  Inc.  ("  Peoples") 
 37  Puerto  Rico  Telephone  Company  ("  Puerto  Rico  Telephone") 
 38  RBOC  Payphone  Coalition  ("  RBOC") 
 39  San  Diego  Payphone  Owners  Association  ("  SDPOA") 
 40  Southwestern  Bell  Telephone  Company  ("  SW  Bell") 
175
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 176 
 41  Sprint  Corporation  ("  Sprint") 
 42  Telaleasing  Enterprises,  Inc.  ("  Telaleasing") 
 43  Telecommunications  Resellers  Association  ("  TRA") 
 44  Tennessee  Regulatory  Authority 
 45  United  States  Telephone  Association  ("  USTA") 
 46  US  WEST,  Inc.  ("  US  WEST") 
 47  Voice  Telephone  Company  ("  Voice") 
 48  Wisconsin  Public  Communications  Association  ("  WPCA") 
176
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 177 
 APPENDIX  D 
 RULES  AMENDED  (IMMEDIATE) 
 Part  64  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 1.  The  authority  citation  for  Part  64  is  revised  to  read  as  follows: 
 AUTHORITY:  Sec.  4,  48  Stat.  1066,  as  amended:  47  U.  S.  C.  154,  unless  otherwise  noted. 
 Interpret  or  apply  secs.  201,  218,  226,  228,  276,  48  Stat.  1070,  as  amended;  47  U.  S.  C.  201,  218,  226,  228,  276  unless  otherwise  noted. 


 2.  The  heading  of  Subpart  M  of  Part  64  is  revised  to  read  as  follows: 
 Subpart  M  --  Payphone  Compensation 
 3.  The  first  sentence  of  Section  64.1301(  a)  is  revised  to  read  as  follows: 
 (a)  Each  payphone  service  provider  eligible  to  receive  compensation  shall  be  paid  $45.85  per 
 payphone  per  month  for  originating  access  code  and  toll-  free  calls. 


 4.  Section  64.1301(  b)  is  revised  to  read  as  follows: 
 (b)  This  compensation  shall  be  paid  by  interexchange  carriers  (IXCs)  that  earn  annual  toll 
 revenues  in  excess  of  $100  million,  as  reported  in  the  FCC  staff  report  entitled  "Long  Distance 
 Market  Shares."  Each  individual  IXC's  compensation  obligation  shall  be  set  in  accordance  with 
 its  relative  share  of  toll  revenues  among  IXCs  required  to  pay  compensation.  For  example,  if 
 total  toll  revenues  of  IXCs  required  to  pay  compensation  is  $50  billion,  and  one  of  these  IXCs 
 had  $5  billion  of  total  toll  revenues,  the  IXC  must  pay  $4.585  per  payphone  per  month. 


 5.  Section  64.1330  is  added  to  read  as  follows: 
 64.1330  State  Review  of  Payphone  Entry  and  Exit  Regulations  and  Public  Interest 
 Payphones. 


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


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


 (c)  Each  state  must  review  its  rules  and  policies  to  determine  whether  it  has  provided  for 
 public  interest  payphones  consistent  with  applicable  Commission  guidelines,  evaluate  whether  it 
177
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 178 
 needs  to  take  measures  to  ensure  that  such  payphones  will  continue  to  exist  in  light  of  the 
 Commision's  implementation  of  Section  276  of  the  Communications  Act,  and  administer  and 
 fund  such  programs  so  that  such  payphones  are  supported  fairly  and  equitably.  This  review  must 
 be  completed  by  September  20,  1998. 


 6.  Section  64.1340  is  added  to  read  as  follows: 
 64.1340  Right  to  Negotiate 
 Unless  prohibited  by  Commission  order,  payphone  service  providers  have  the  right  to 
 negotiate  with  the  location  provider  on  the  location  provider's  selecting  and  contracting  with, 
 and,  subject  to  the  terms  of  any  agreement  with  the  location  provider,  to  select  and  contract  with, 
 the  carriers  that  carry  interLATA  and  intraLATA  calls  from  their  payphones. 


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


 (3)  In  the  case  of  a  pay  telephone,  the  local  coin  rate  for  the  pay  telephone  location;  and 
178
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 179 
 APPENDIX  E 
 RULES  AMENDED  (DEFERRED) 
 Part  64  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 1.  The  authority  citation  for  Part  64  continues  to  read  as  follows: 
 AUTHORITY:  Sec.  4,  48  Stat.  1066,  as  amended:  47  U.  S.  C.  154,  unless  otherwise  noted.  Interpret  or  apply  secs.  201,  218,  226,  228,  276,  48  Stat.  1070,  as  amended;  47  U.  S.  C.  201, 
 218,  226,  228,  276  unless  otherwise  noted. 
 2.  Section  64.1301  is  deleted. 
 3.  Section  64.1300  is  added  to  read  as  follows: 
 64.1300  Payphone  Compensation  Obligation. 
 (a)  Except  as  provided  herein,  every  carrier  to  whom  a  completed  call  from  a  payphone  is  routed 
 shall  compensate  the  payphone  service  provider  for  the  call  at  a  rate  agreed  upon  by  the  parties 
 by  contract. 


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


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


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


 4.  Section  64.1310  is  added  to  read  as  follows: 
 64.1310  Payphone  Compensation  Payment  Procedures. 
 (a)  It  is  the  responsibility  of  each  carrier  to  whom  a  compensable  call  from  a  payphone  is  routed 
 to  track,  or  arrange  for  the  tracking  of,  each  such  call  so  that  it  may  accurately  compute  the 
 compensation  required  by  Section  64.1300(  a). 
179
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 180 
 (b)  Carriers  and  payphone  service  providers  shall  establish  arrangements  for  the  billing  and 
 collection  of  compensation  for  calls  subject  to  Section  64.1300(  a). 


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


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


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


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


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


 5.  Section  64.1320  is  added  to  read  as  follows: 
 64.1320  Payphone  Compensation  Verification  and  Reports. 
 (a)  Carriers  subject  to  payment  of  compensation  pursuant  to  Section  64.1300(  a)  shall  conduct  an 
 annual  verification  of  calls  routed  to  them  that  are  subject  to  such  compensation  and  file  a  report 
 with  the  Chief,  Common  Carrier  Bureau  within  90  days  of  the  end  of  the  calendar  year, 
 provided,  however,  that  such  verification  and  report  shall  not  be  required  for  calls  received  after 
 December  31,  1998. 


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


 6.  The  authority  citation  for  Part  68  continues  to  read  as  follows: 
 Authority:  Secs.  1,  4,  5,  201-  5,  215,  218,  226,  227,  303,  313,  314,  403,  404,  410,  602  of  the 
 Communications  Act  of  1934,  as  amended,  47  U.  S.  C.  151,  154,  155,  201-  5,  208,  215,  218,  226,  227,  303,  313,  314,  403,  404,  410,  602. 
180
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 181 
 7.  Section  68.2(  a)(  1)  is  amended  to  read: 
 Of  all  terminal  equipment  to  the  public  switched  telephone  network,  for  use  in  conjunction  with 
 all  services  other  than  party  line  service; 


 8.  Section  68.3,  the  definition  of  "coin-  implemented  telephone"  is  deleted. 
 9.  Section  68.3,  is  amended  to  add  the  definition  of  "instrument  implemented  telephone"  to  read: 
 Instrument-  implemented  telephone:  A  telephone  containing  all  circuitry  required  to  execute  coin 
 acceptance  and  related  functions  within  the  instrument  itself  and  not  requiring  coin  service 
 signaling  from  the  central  office. 


 10.  Section  68.3  definition  of  "Coin  Service"  is  deleted. 
 11.  Section  68.3  is  amended  to  add  the  definition  of  "Central-  office  implemented  telephone"  to 
 read: 


 Central-  office  implemented  telephone:  A  telephone  executing  coin  acceptance  requiring  coin 
 service  signaling  from  the  central  office. 
181
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 182 
 APPENDIX  F 
 INTERIM  COMPENSATION  OBLIGATIONS 


 Company 
 1995  Total  Toll 
 Services  Revenues 
 ($  in  Millions) 
 %  of  Total 
 Toll  Revenues 


 Amount  Per 
 Phone  Per 
 Month 


 AT&  T  COMPANIES: 
 AT&  T  COMMUNICATIONS,  INC.  $38,069  56.69%  $25.9923406 
 ALASCOM,  INC.  325  0.48%  0.2219000 
 MCI  TELECOMMUNICATIONS 
 CORP. 
 12,924  19.25%  8.  8241091 


 SPRINT  COMMUNICATIONS  CO.  7,  277  10.84%  4.  9685115 
 LDDS  WORLDCOM  3,640  5.42%  2.4852799 
 FRONTIER  COMPANIES: 
 ALLNET  COMM.  SVCS.  dba 
 FRONTIER  COMM.  SVCS. 
 827  1.23%  0.5646501 


 FRONTIER  COMMUNICATIONS 
 INT'L,  INC. 
 309  0.46%  0.2109757 


 FRONTIER  COMM.  OF  THE 
 NORTH  CENTRAL  REGION 
 133  0.20%  0.0908083 


 FRONTIER  COMMUNICATIONS 
 OF  THE  WEST,  INC. 
 127  0.19%  0.0867117 


 CABLE  &  WIRELESS 
 COMMUNICATIONS,  INC. 
 700  1.04%  0.4779384 


 LCI  INTERNATIONAL  TELECOM 
 CORP. 
 671  1.00%  0.4581381 


 EXCEL  TELECOMMUNICATIONS, 
 INC. 
 363  0.54%  0.2478452 


 TELCO  COMMUNICATIONS  GROUP, 
 INC. 
 215  0.32%  0.1467954 


 MIDCOM  COMMUNICATIONS,  INC.  204  0.30%  0.1392849 
 TEL-  SAVE,  INC.  9/  180  0.27%  0.1228985 
 U.  S.  LONG  DISTANCE,  INC.  155  0.23%  0.1058292 
 VARTEC  TELECOM,  INC.  125  0.19%  0.0853461 
 Continued  from  the  previous  page 
182
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 183 
 Company 
 1995  Total  Toll 
 Services  Revenues 
 ($  in  Millions) 
 %  of  Total 
 Toll  Revenues 


 Amount  Per 
 Phone  Per 
 Month 


 GENERAL  COMMUNICATION,  INC.  120  0.18%  0.0819323 
 BUSINESS  TELECOM,  INC.  115  0.17%  0.0785185 
 ONCOR  COMMUNICATIONS,  INC.  111  0.17%  0.0757874 
 THE  FURST  GROUP,  INC.  109  0.16%  0.0744218 
 AMERICAN  NETWORK  EXCHANGE, 
 INC. 
 101  0.15%  0.0689597 


 TOTAL  67,153  100.00%  45.85 
183
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 184 
 September  20,  1996 
 Separate  Statement  of 
 Commissioner  Rachelle  B.  Chong 


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


 In  the  Telecommunications  Act  of  1996,  1  Congress  mandated  twin  goals  for  a 
 restructuring  of  our  nation's  payphone  industry.  Congress  directed  the  Commission  to  establish 
 rules  that  "promote  competition  among  payphone  service  providers  and  promote  the  widespread 
 deployment  of  payphone  services  to  the  general  public."  2  In  this  order,  we  effectuate  Congress' 
 intent  by  putting  in  place  a  new  market-  oriented  scheme  governing  payphones.  Thus, 
 competition  now  becomes  the  new  coin  of  the  realm  for  the  payphone  industry. 


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


 The  payphone  industry  is  one  in  which  competition  with  its  attendant  consumer  benefits 
 can  easily  thrive.  However,  our  current  payphone  regulations  were  not  crafted  in  a  way  that 
 promoted  regulatory  parity  between  the  market  players  or  put  a  high  premium  on  consumer 
 protection.  Under  the  statutory  and  regulatory  framework  that  was  in  place  prior  to  the  1996 
 Act,  payphone  providers  were  subject  to  different  regulations  whose  application  mainly 
 depended  upon  whether  an  entity  providing  payphone  service  was  a  local  exchange  company  or 
 an  independent  payphone  provider.  For  example,  local  exchange  companies  traditionally  had  the 
 ability  to  subsidize  their  payphone  operations  with  telephone  service  revenues  and  were 
 restricted  from  choosing  long  distance  providers  on  their  payphones.  In  contrast,  independent 
 payphone  providers  had  to  support  their  operations  mainly  from  revenues  received  at  payphone 
 stations  and  through  commission  arrangements  with  operator  service  providers.  This  disparate 


 1  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104,  110  Stat.  56  to  be  codified  at  47 
 U.  S.  C.    151  et.  seq.  (1996  Act). 
 2  47  U.  S.  C.    276(  b)(  1). 
184
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 185 
 treatment  created  certain  incentives  and  distortions  in  the  market  that,  during  the  past  decade, 
 resulted  in  supracompetitive  rates  at  certain  payphones  and  in  consumer  confusion.  As  the  rest 
 of  the  telecommunications  industry  moves  swiftly  into  a  new  pro-  competitive,  deregulatory  era, 
 our  payphone  regulations  cried  out  for  revision. 


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


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


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


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


 In  deciding  to  rely  on  market  forces,  however,  we  have  also  refocused  on  consumers.  I 
 am  pleased  that  we  have  put  in  place  several  safeguards  to  ensure  their  protection.  We  do  so  in 
 light  of  the  fact  that  payphones  serve  an  important  role  in  allowing  people  to  place  calls  when 
 they  are  away  from  home  or  the  office.  We  require  that  all  payphones  must  provide  free  access 
185
 Federal  Communications  Commission  FCC 
 96-  388  ______________________________________________________________________________ 


 186 
 to  dialtone.  Further,  our  new  rules  require  that  payphone  providers  must  prominently  display  the 
 local  coin  rate  they  choose  to  charge  at  each  payphone,  so  that  consumers  will  have  full 
 information  about  the  charges  and  can  make  an  informed  choice  to  use  the  payphone. 


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


 Our  order  also  requires  that  every  payphone  provide  free  access  to  both  emergency 
 services  and  to  telecommunications  relay  service  (TRS)  calls  for  the  hearing  disabled.  I  believe 
 it  is  appropriate  for  the  states  to  take  the  lead  on  public  interest  payphones  in  their  states.  I  look 
 forward  to  their  good  work  in  this  area  that  is  so  fundamental  to  Congress'  second  goal  in  Section 
 276  --  the  "widespread  deployment  of  payphone  services  to  the  general  public."  3 


 3  47  U.  S.  C.  Section  276(  b)(  1). 
186