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[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 1364 Introduced in Senate (IS)]

107th CONGRESS
  1st Session
                                S. 1364

  To ensure full and expeditious enforcement of the provisions of the 
  Communications Act of 1934 that seek to bring about competition in 
       local telecommunications markets, and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             August 3, 2001

Mr. Hollings (for himself, Mr. Inouye, and Mr. Stevens) introduced the 
 following bill; which was read twice and referred to the Committee on 
                 Commerce, Science, and Transportation

_______________________________________________________________________

                                 A BILL

 
  To ensure full and expeditious enforcement of the provisions of the 
  Communications Act of 1934 that seek to bring about competition in 
       local telecommunications markets, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Telecommunications Fair Competition 
Enforcement Act of 2001''.

SEC. 2. FINDINGS.

    The Congress finds:
            (1) The Telecommunications Act of 1996 put in place the 
        proper framework to achieve competition in local 
        telecommunications markets.
            (2) The Telecommunications Act of 1996 recognized that 
        local exchange facilities are essential facilities and required 
        that all incumbent local exchange carriers open their markets 
        to competition by interconnecting with and providing network 
        access to new entrants, a process to be overseen by Federal and 
        State regulators.
            (3) To increase the incentives of the Bell operating 
        companies to open their local networks to competition, the 
        Telecommunications Act of 1996 allows the Bell operating 
        companies to provide interLATA voice and data services in their 
        service region only after opening their local networks to 
        competition.
            (4) While some progress has been made in opening local 
        telecommunications markets, the Federal Communications 
        Commission has determined that, 6 years after passage of the 
        Telecommunications Act of 1996, the Bell operating companies 
        have met the market opening requirements of that Act in only 5 
        States.
            (5) It is apparent that the incumbent local exchange 
        carriers do not have adequate incentives to cooperate in this 
        process and that regulators have not exercised their 
        enforcement authority to require compliance.
            (6) By improving mandatory penalties on Bell operating 
        companies and their affiliates that have not opened their 
        network to competition, there will be greater assurance that 
        local telecommunications markets will be opened more 
        expeditiously and, as a result, American consumers will obtain 
        the full benefits of competition.
            (7) Competitive carriers continue to experience great 
        difficulty in gaining access to the Bell network, and, 5 years 
        after enactment of the Telecommunications Act of 1996, Bell 
        operating companies continue to control over 92 percent of all 
        access lines nationwide.

SEC. 3. PURPOSES.

    The purposes of this Act are--
            (1) to improve and strengthen the enforcement of the 
        Telecommunications Act of 1996, in order to ensure that local 
        telecommunications markets are opened more rapidly to full, 
        robust, and sustainable competition; and
            (2) to provide an alternative dispute resolution process 
        for expeditious resolution of disputes concerning 
        interconnection agreements.

SEC. 4. ENFORCEMENT OF COMPETITION.

    Title II of the Communications Act of 1934 (47 U.S.C. 201 et seq.) 
is amended by adding at the end the following:

                         ``PART IV--ENFORCEMENT

``SEC. 291. SHARED JURISDICTION OVER CERTAIN DISPUTES.

    ``(a) Violations of Sections 251, 252, 271, and 272.--A complaint 
under section 208 alleging that a specific act or practice or failure 
to act, of a Bell operating company or its affiliate, constitutes a 
violation of section 251, 252, 271, or 272 may be filed at the 
Commission or at a State commission.
    ``(b) Enforcement of Interconnection Agreements.--An action to 
enforce compliance by a Bell operating company or its affiliate with an 
interconnection agreement entered into under section 252 may be 
initiated at the Commission or at a State Commission.
    ``(c) Initiating Party.--A complaint described in subsection (a) or 
an enforcement action described in subsection (b) may be brought by a 
telecommunications carrier or by the Commission or a State commission 
on its own motion.

``SEC. 292. EXPEDITED CONSIDERATION OF INTERCONNECTION, INTERLATA, AND 
              SEPARATE AFFILIATE COMPLAINTS AND ENFORCEMENT ACTIONS.

    ``(a) In General.--The Commission shall make a final determination 
with respect to any complaint described in section 291(a) or an 
enforcement action described in section 291(b) within 90 days after the 
date on which the complaint, or the filing initiating the action, is 
received by the Commission.
    ``(b) Interim Relief.--
            ``(1) Violations of act.--Within 30 days after a complaint 
        described in section 291(a) has been filed with the Commission, 
        the Commission shall issue an order to the Bell operating 
        company or its affiliate named in the complaint directing it to 
        cease the act or practice that constitutes the alleged 
        violation, or initiate an act or practice to correct the 
        alleged violation, pending a final determination by the 
        Commission if--
                    ``(A) the complaint contains a prima facie showing 
                that the alleged violation occurred or is occurring;
                    ``(B) the complaint describes with specificity the 
                act or practice, or failure to act, that constitutes 
                the alleged violation; and
                    ``(C) it appears from specific facts shown by the 
                complaint or an accompanying affidavit that substantial 
                injury, loss, or damage will result to the complainant 
                before the 90-day period in subsection (a) expires if 
                the order is not issued.
            ``(2) Interconnection agreements.--Within 30 days after an 
        enforcement action described in section 291(b) has been 
        initiated at the Commission by a telecommunications carrier, 
        the Commission shall issue an order to the Bell operating 
        company or its affiliate named in the action directing it to 
        cease the act or practice that constitutes the alleged 
        noncompliance with the interconnection agreement, or initiate 
        an act or practice to correct the alleged noncompliance, 
        pending a final determination by the Commission if--
                    ``(A) the filing initiating the action contains a 
                prima facie showing that the alleged noncompliance 
                occurred or is occurring;
                    ``(B) the filing describes with specificity the act 
                or practice, or failure to act, that constitutes the 
                alleged noncompliance; and
                    ``(C) it appears from specific facts shown by the 
                filing or an accompanying affidavit that substantial 
                injury, loss, or damage will result to the 
                telecommunications carrier before the 90-day period in 
                subsection (a) expires if the order is not issued.
    ``(c) Burden of Proof.--In any proceeding under this part with 
respect to a complaint described in section 291(a), or an enforcement 
action described in section 291(b), by a telecommunications carrier 
against a Bell operating company or its affiliate, and upon a prima 
facie showing by a carrier that there are reasonable grounds to believe 
that there is a violation or noncompliance, the burden of proof shall 
be on such Bell operating company or its affiliate to demonstrate its 
compliance with the section allegedly violated, or with the terms of 
such agreement, as the case may be.

``SEC. 293. ALTERNATIVE DISPUTE RESOLUTION OF INTERCONNECTION 
              COMPLAINTS.

    ``(a) Interconnection Agreements.--A party to an interconnection 
agreement entered into under section 252 may submit a dispute under the 
agreement to the alternative dispute resolution process established by 
subsection (b). An action brought under this section may be brought in 
lieu of an action described in section 291(b) at the Commission or at a 
State commission.
    ``(b) Alternative Dispute Resolution Process.--
            ``(1) Commission to prescribe process.--Within 180 days 
        after the date of enactment of the Telecommunications Fair 
        Competition Enforcement Act of 2001, the Commission shall, 
        after notice and opportunity for public comment, issue a final 
        rule implementing an alternative dispute resolution process for 
        the resolution of disputes under interconnection agreements 
        entered into under section 252. The process shall be available 
        to any party to such an agreement, including agreements entered 
        into prior to the date of enactment of that Act, unless such 
        prior agreement specifically precludes the use of alternative 
        dispute resolution.
            ``(2) Process requirements.--In carrying out paragraph (1), 
        the Commission shall prescribe a process that--
                    ``(A) provides for binding private commercial 
                arbitration of disputes in an open, nondiscriminatory, 
                and unbiased forum;
                    ``(B) ensures that a dispute submitted to the 
                process can be resolved within 45 days after the date 
                on which the dispute is filed; and
                    ``(C) requires any decision reached under the 
                process to be in writing, available to the public, and 
                posted on the Internet.
            ``(3) Requests for information.--Any person or panel 
        conducting an arbitration under this subsection may require any 
        party to the dispute to provide such information as may be 
        necessary to enable that person or panel to reach a decision 
        with respect to the dispute. If the party that receives such a 
        request for information fails to comply with such a request for 
        information within 7 business days after the date on which the 
        request was made, then, unless that party shows that the 
        failure to comply was due to extenuating circumstances, the 
        person or panel conducting the arbitration shall render a 
        decision or award in favor of the other party to the 
        arbitration within 14 business days after the date on which the 
        request was made. The decision or award in favor of a party 
        shall not apply if the party in whose favor a decision or award 
        would be rendered under the preceding sentence is not in 
        compliance with a request for information from the person or 
panel conducting the arbitration.
            ``(4) Remedies and authority of arbitrator.--Any person or 
        panel conducting an arbitration under this subsection may grant 
        to the prevailing party any relief available in law or equity, 
        including remedies available under this Act, injunctive relief, 
        specific performance, monetary awards, and direct, 
        consequential, and compensatory damages.
            ``(5) Arbitration award and enforcement.--A final decision 
        or award made by a person or panel conducting an arbitration 
        under this subsection shall be binding upon the parties and is 
        not subject to appeal by the parties or review by the 
        Commission, a State commission, or any Federal or State court. 
        A decision or award under the process may be enforced in any 
        district court of the United States having jurisdiction under 
        sections 9 through 13 of title 9, United States Code.

``SEC. 294. ENFORCEMENT OF PERFORMANCE STANDARDS.

    ``(a) Commission To Prescribe Performance Standards for Compliance 
With Interconnection Agreements.--Not later than 180 days after the 
date of enactment of the Telecommunications Fair Competition 
Enforcement Act of 2001 the Commission shall, after notice and 
opportunity for public comment, issue final rules for performance 
standards, data validation procedures, and audit requirements to ensure 
prompt and verifiable implementation of interconnection agreements 
entered into under section 252 and for the purposes of sections 251, 
252, 271, and 272. At a minimum, the rules shall include the most 
rigorous performance standards, data validation procedures, and audit 
requirements for such agreements adopted by the Commission or any State 
commission before the date of enactment of the Telecommunications Fair 
Competition Enforcement Act of 2001, as well as any new performance 
standards, data validation procedures, and audit requirements needed to 
ensure full compliance with the requirements of this Act for the 
opening of local telecommunications markets to competition. In 
establishing performance standards, data validation procedures, and 
audit requirements under this section, the Commission shall ensure that 
such standards, procedures, and requirements are quantifiable and 
sufficient to determine ongoing compliance by incumbent local exchange 
carriers with the requirements of their interconnection agreements, 
including the provision of operating support systems, special access, 
and retail and wholesale customer service standards, and for the 
purposes of enforcing sections 251, 252, 271, and 272.
    ``(b) Specific Requirement for Provision of Local Loops.--A Bell 
operating company or its affiliate which has not been granted an 
exemption, suspension, or modification under section 251(f) of the 
requirement to provide access to local loops (including subloop 
elements to the extent required under section 251(d)(2)) as an 
unbundled network element under section 251(c)(3) shall provide any 
such local loop to a requesting telecommunications carrier with which 
such Bell operating company or affiliate has an interconnection 
agreement entered into under section 252 within 5 business days after 
receiving a request for a specific local loop.
    ``(c) Enforcement of Performance Metrics.--Any violation of this 
section, or the rules adopted hereunder, shall be a violation of 
section 251.

``SEC. 295. FORFEITURES; DAMAGES; ATTORNEYS FEES.

    ``(a) In General.--The forfeitures provided in this section are in 
addition to any other requirements, forfeitures, and penalties that may 
be imposed under any other provision of this Act, any other law, or by 
a State commission or court.
    ``(b) Forfeitures for Violation of Sections 251, 252, 271, or 
272.--
            ``(1) In general.--The Commission shall impose a forfeiture 
        of $10,000,000 for each violation by a Bell operating company 
        or any affiliate of such company of section 251, 252, 271, or 
        272, and a forfeiture of $2,000,000 for each day on which the 
        violation continues.
            ``(2) Forfeiture increased threefold for repeat 
        violations.--The forfeiture under paragraph (1) shall be 
        increased threefold for a repeated violation of any such 
        section by a Bell operating company or its affiliate.
    ``(c) Compensatory and Punitive Damages; Costs and Attorney's 
Fees.--
            ``(1) In general.--In any civil action brought by a 
        telecommunications carrier against a Bell operating company or 
        any affiliate of such company for damages for a violation of 
        section 251, 252, 271, or 272, or violation of any 
        interconnection agreement entered into under section 252 by a 
        Bell operating company, the carrier may be awarded--
                    ``(A) both compensatory and punitive damages; and
                    ``(B) reasonable attorney fees and costs incurred 
                in bringing the action.
            ``(2) Treble damages.--In any such action, the 
        telecommunications carrier may be awarded treble damages for a 
        repeated violation of any such section or interconnection 
        agreement by a Bell operating company or its affiliate.
    ``(d) Forfeiture for Failure to Comply With Order Granting Interim 
Relief.--If the Bell operating company or its affiliate to which an 
order is issued under section 292(b) does not comply with the order 
within 7 days after the date on which the Commission releases the 
order, and the Commission makes a final determination that the Bell 
operating company or affiliate is in violation of section 251, 252, 
271, or 272, or violation of an interconnection agreement entered into 
under section 252, then the Commission shall impose a forfeiture of 
$10,000,000 for each such violation, and a forfeiture of $2,000,000 for 
each day on which the violation continued after issuance of the order.
    ``(e) Attorneys Fees.--The Commission, a State commission, a court, 
or person conducting an arbitration under section 293 may award 
reasonable attorney fees and costs to the prevailing party in an action 
commenced by a complaint described in section 291(a), an enforcement 
action described in section 291(b), or an alternative dispute 
resolution proceeding under section 293, respectively.
    ``(f) Forfeitures Divided Between Complainants and Commission.--Any 
forfeiture imposed under subsection (b) or (d) shall be paid to the 
Commission and divided equally between--
            ``(1) either--
                    ``(A) the party whose complaint commenced the 
                action that resulted in the determination by the 
                Commission, if the Commission's determination was made 
                in response to a complaint; or
                    ``(B) the party against which the violation was 
                committed, if the action that resulted in the 
                determination by the Commission was commenced by the 
                Commission or a State commission; and
            ``(2) the Commission for use by its Enforcement Bureau for 
        the purpose of enforcing parts II and III of title II of the 
        Communications Act of 1934 (47 U.S.C. 251 et seq. and 271 et 
        seq.) and carrying out part IV of title II of that Act.
    ``(g) Adjustment for Inflation.--The amount of each forfeiture 
provided for under subsections (b) and (d) shall be increased for 
violations during each calendar year beginning with 2004 by a 
percentage amount equal to the percentage increase (if any) in the CPI 
for the preceding year over the CPI for 2001. For purposes of this 
subsection, the CPI for any year is the average for the 12 months of 
the year of the Consumer Price Index for all-urban consumers published 
by the Department of Labor.

``SEC. 296. SAVINGS CLAUSES.

    ``(a) Other Remedies Under Act.--The remedies in this part are in 
addition to any other requirements or penalties available under this 
Act or any other law.
    ``(b) Antitrust Laws.--Nothing in this part modifies, impairs, or 
supersedes the applicability of any antitrust law, except that a 
violation by an incumbent local exchange carrier of section 251 or 252 
shall also be a violation of the Act of July 2, 1890, commonly known as 
the Sherman Anti-Trust Act (15 U.S.C. 1 et seq.).''.

SEC. 5. RATEPAYER PROTECTION.

    The Commission shall not forbear from, or modify, any cost 
allocation rules, accounting safeguards, or other requirements in a 
manner that reduces its ability to enforce the provisions of this Act.

SEC. 6. STATUTE OF LIMITATIONS EXTENDED TO 3 YEARS.

    Section 503(b)(6) of the Communications Act of 1934 (47 U.S.C. 
503(b)(6)) is amended by striking ``1 year'' each place it appears and 
inserting ``5 years''.

SEC. 7. STATE COMMISSIONS MAY USE FEDERAL FORFEITURES.

    In any action brought before a State commission to enforce 
compliance with section 251, 252, 271, or 272 of the Communications Act 
of 1934 (47 U.S.C. 251, 252, 271, or 272) or an interconnection 
agreement entered into under section 252, the State commission may 
apply to the Federal Communications Commission requesting that the 
Commission impose a forfeiture under section 295 of that Act in 
addition to any relief granted by the State commission in that action. 
The Federal Communications Commission may impose a forfeiture under 
section 295 of that Act upon application by a State commission under 
this section if it determines that the State commission proceeding was 
conducted in accordance with the requirements of State law.

SEC. 8. SEPARATION OF RETAIL AND WHOLESALE FUNCTIONS.

    (a) In General.--Title II of the Communications Act of 1934 (47 
U.S.C. 201 et seq.) is amended by adding at the end the following:

``SEC. 277. FUNCTIONAL SEPARATION OF RETAIL SERVICES.

    ``(a) In General.--A Bell operating company may only provide retail 
service--
            ``(1) through a division that is legally separate from the 
        part of the Bell operating company that provides wholesale 
        services; and
            ``(2) in a manner that is consistent with the Code of 
        Conduct described in subsection (b).
    ``(b) Code of Conduct.--The Code of Conduct for the provision of 
retail service by a Bell operating company is as follows:
            ``(1) A Bell operating company shall transfer to its retail 
        division all relationships with retail customers, including 
        customer interfaces and retail billing and all development, 
        marketing, and pricing of retail services.
            ``(2) A Bell operating company shall transfer to its retail 
        division all accounts for retail services and all assets, 
        systems, and personnel used by the Bell operating company to 
        carry out the business functions described in paragraph (1).
            ``(3) The retail division required by this section--
                    ``(A) shall be operated independently from the 
                wholesale services and functions of the Bell operating 
                company of which it is a division;
                    ``(B) shall maintain books, records, and accounts 
                separate from those maintained by other departments, 
                divisions, sections, affiliates, or units of the Bell 
                operating company of which it is a division;
                    ``(C) shall have separate employees and office 
                space from the wholesale services and functions of the 
                Bell operating company of which it is a division;
                    ``(D) shall tie its management compensation only to 
                the performance of the retail division;
                    ``(E) may not own any telecommunications facilities 
                or equipment jointly with the Bell operating company of 
                which it is a division;
                    ``(F) shall not engage in any joint marketing with 
                the wholesale services department, division, section, 
                affiliate, or unit of the Bell operating company of 
                which it is a division;
                    ``(G) shall conduct all wholesale transactions with 
                the Bell operating company of which it is a division on 
                a fully compensatory, arms-length basis, in accordance 
                with part 32 of the Commission's rules (part 32 of 
                title 47, Code of Federal Regulations);
                    ``(H) shall offer retail telecommunications service 
                solely at rates set by tariff; and
                    ``(I) shall also offer all of its retail 
                telecommunications services to telecommunications 
                carriers for wholesale purchase at the avoided cost 
                discount as established pursuant to sections 251(c)(4) 
                and 252(d)(3).
            ``(4) A Bell operating company shall provide services, 
        facilities, and network elements to any requesting carrier, 
        including its retail division solely at rates, terms, and 
        conditions set by tariff; shall offer physical and virtual 
        collocation pursuant to tariffs; shall not provide any retail 
        service except through its retail division; and shall not grant 
        its retail division any preferential intellectual property 
        rights. The Bell operating company shall conduct any business 
        with unaffiliated persons in the same manner as it conducts 
        business with its retail division, and shall not prefer, or 
        discriminate in favor of, such retail division in the rates, 
        terms, or conditions offered to the retail division, 
        including--
                    ``(A) fulfilling any requests from unaffiliated 
                persons for ordering, maintenance, and repair of 
                unbundled network elements and services provided for 
                resale, within a period no longer than that in which it 
                fulfills such requests from its retail division;
                    ``(B) utilizing the same operating support systems 
                for dealings with unaffiliated persons providing 
                telecommunications service as it uses with its retail 
                division;
                    ``(C) providing any customer or network information 
                to unaffiliated persons providing retail services on 
                the same terms and conditions as it provides such 
                information to its retail division;
                    ``(D) fulfilling any requests from an unaffiliated 
                person for exchange access within a period no longer 
                than that in which it fulfills requests for exchange 
                access from its retail division; and
                    ``(E) fulfilling any such requests in subparagraph 
                (D) with service of a quality that meets or exceeds the 
                quality of exchange access it provides to its retail 
                division.
    ``(c) Biennial Audit.--
            ``(1) General requirement.--A Bell operating company shall 
        obtain and pay for a joint Federal/State audit every 2 years 
        which shall be conducted by an independent auditor to determine 
        whether such company has complied with this section and the 
        regulations promulgated to implement this section.
            ``(2) Results submitted to commission; state commissions.--
        The auditor described in paragraph (1) shall submit the results 
        of the audit to the Commission and to the State commission of 
        each State in which the company audited provides service, and 
        the Commission shall make such results available for public 
        inspection. Any party may submit comments on the final audit 
        report.
            ``(3) Access to documents.--For purposes of conducting 
        audits and reviews under this subsection--
                    ``(A) the independent auditor, the Commission, and 
                the State commission shall have access to the financial 
                books, records, and accounts of each Bell operating 
                company and its retail division necessary to verify 
                transactions conducted with that company that are 
                relevant to the specific activities permitted under 
                this section and that are necessary for the regulation 
                of rates;
                    ``(B) the Commission and the State commission shall 
                have access to the working papers and supporting 
                materials of any auditor who performs an audit under 
                this section; and
                    ``(C) the State commission shall implement 
                appropriate procedures to ensure the protection of any 
                proprietary information submitted to it under this 
                section.
    ``(d) Transition.--
            ``(1) A Bell operating company shall have one year from the 
        date of enactment of the Telecommunications Fair Competition 
        Enforcement Act of 2001 to comply with subsections (a) and (b).
            ``(2) Until such time as the Bell operating company 
        complies with the requirements of subsection (a), it shall file 
        quarterly reports demonstrating how it is implementing 
        compliance with the nondiscrimination requirements of 
        subsection (b)(4).
    ``(e) Ratepayer Protection.--The Commission shall not relax any 
cost allocation rules, accounting safeguards, or other requirements in 
a manner that reduces its ability to enforce the provisions of this 
section.
    ``(f) Definitions.--In this section:
            ``(1) Bell operating company.--Notwithstanding section 
        3(4)(C), the term `Bell operating company' includes any 
        affiliate of such company other than its retail division.
            ``(2) Retail devision.--The term `retail division' means 
        the division required by this section.
            ``(3) Retail service.--The term `retail service' means any 
        telecommunications or information service offered to a person 
        other than a common carrier or other provider of 
        telecommunications.
    ``(g) Report on Violations.--Until December 31, 2010, the 
Commission shall report to Congress annually on the amount and nature 
of any violations of sections 251, 252, 271, and 272 by each Bell 
Operating Company.
    ``(h) Preservation of Existing Authority.--Nothing in this section 
shall be construed to limit the authority of the Commission under any 
other section of this Act to prescribe additional safeguards consistent 
with the public interest, convenience, and necessity.

``SEC. 278. SEPARATE RETAIL AFFILIATE.

    ``(a) Repeated Violations.--If, beginning 2 years after enactment 
of the Telecommunications Fair Competition Enforcement Act of 2001, the 
Commission finds that a Bell operating company willfully or knowingly 
violated the requirements of sections 251, 252, 271, or 272 of this 
Act, the Commission may require the Bell Operating Company to implement 
structural separation under this section.
    ``(b) In General.--If the Commission requires a Bell operating 
company to implement structural separation under this section, then 
that Bell operating company may provide retail services only through a 
separate affiliate. A Bell operating company and a separate affiliate 
established under this section shall not engage in any joint marketing 
of retail services, notwithstanding section 272(g).
    ``(c) Structural Separation of Business.--A Bell operating company 
shall comply with subsection (b) by transferring the following business 
functions to its retail affiliate, at the higher of book value or 
market value:
            ``(1) all relationships with retail customers, including 
        customer interfaces and retail billing; and
            ``(2) all development, marketing, and pricing of retail 
        services.
    ``(d) Structural Separation of Assets.--
            ``(1) A Bell operating company shall comply with subsection 
        (b) by transferring the following assets to its retail 
        affiliate at the higher of book or market value:
                    ``(A) all accounts for retail services, subject to 
                the requirements of subsection (j); and
                    ``(B) all assets, systems, and personnel used by 
                the Bell operating company to carry out the business 
                functions described in subsection (c).
            ``(2) The price, terms, and conditions of the transfer of 
        assets required by paragraph (1) shall be made publicly 
        available.
    ``(e) Separate Subsidiary Safeguards.--The separate affiliate 
required by this section--
            ``(1) shall operate independently from the Bell operating 
        company;
            ``(2) shall maintain books, records, and accounts separate 
        from those maintained by the Bell operating company of which it 
        is an affiliate;
            ``(3) shall have separate officers and directors from the 
        Bell operating company of which it is an affiliate;
            ``(4) shall have separate capital stock, the outstanding 
        shares of which may not be held by the Bell operating company 
        in any amount exceeding four times the amount of shares held by 
        unaffiliated persons;
            ``(5) shall have separate employees and separate employee 
        benefit plans from the Bell operating company of which it is an 
        affiliate;
            ``(6) may not obtain credit under any arrangement that 
        would permit a creditor, upon default, to have recourse to the 
        assets of the Bell operating company;
            ``(7) may not own any telecommunications facilities or 
        equipment;
            ``(8) shall conduct all transactions with the Bell 
        operating company of which it is an affiliate on an arms' 
        length basis, with any such transactions reduced to writing and 
        available for public inspection;
            ``(9) shall offer retail telecommunications service solely 
        at rates set by tariff;
            ``(10) shall offer all of its retail telecommunications 
        services for wholesale purchase at the avoided cost discount as 
        established pursuant to sections 251(c)(4) and 252(d)(3);
            ``(11) shall have separate office space from the wholesale 
        services and functions of the Bell operating company of which 
        it is an affiliate;
            ``(12) shall tie its management compensation only to the 
        performance of the retail affiliate; and
            ``(13) shall conduct all wholesale transactions with the 
        Bell operating company of which it is an affiliate on a fully 
        compensatory basis, in accordance with part 32 of the 
        Commission's rules (part 32 of title 47, Code of Federal 
        Regulations).
    ``(f) Nondiscrimination Safeguards.--A Bell operating company--
            ``(1) shall provide services, facilities and network 
        elements to any requesting carrier, including its retail 
        affiliate, solely at rates set by tariff;
            ``(2) shall conduct any business with unaffiliated entities 
        in the same manner as it conducts business with its retail 
        affiliate, and shall not prefer, or discriminate in favor of, 
        such retail affiliate in the rates, terms, or conditions 
        offered to the retail affiliate, including--
                    ``(A) fulfilling any requests from an unaffiliated 
                entity for exchange access service within a period no 
                longer than that in which it fulfills requests for 
                exchange access service from its retail affiliate;
                    ``(B) fulfilling any such requests with service of 
                a quality that meets or exceeds the quality of exchange 
                access services it provides to its retail affiliate;
                    ``(C) fulfilling any requests from an unaffiliated 
                entity for ordering, maintenance and repair of 
                unbundled network elements and services provided for 
                resale, within a period no longer than that in which it 
                fulfills such requests from its retail affiliate;
                    ``(D) utilizing the same operating support systems 
                for dealings with unaffiliated entities providing 
                telecommunications service as it uses with its retail 
                affiliate; and
                    ``(E) providing any customer or network information 
                to unaffiliated entities providing telecommunications 
                services on the same terms and conditions as it 
                provides such information to its retail affiliate;
            ``(3) shall not offer physical and virtual collocation 
        other than pursuant to generally available tariffs;
            ``(4) shall not grant its retail affiliate any preferential 
        intellectual property rights; and
            ``(5) shall not provide any retail service for its own use, 
        but shall procure such services from a carrier other than its 
        retail affiliate.
    ``(g) Biennial Audit.--
            ``(1) General requirement.--A Bell operating company shall 
        obtain and pay for a joint Federal/State audit every 2 years 
        conducted by an independent auditor to determine whether such 
        company has complied with this section and the regulations 
        promulgated under this section.
            ``(2) Results submitted to commission; state commissions.--
        The auditor described in paragraph (1) shall submit the results 
        of the audit to the Commission and to the State commission of 
        each State in which the company audited provides service, which 
        shall make such results available for public inspection. Any 
        party may submit comments on the final audit report.
            ``(3) Access to documents.--For purposes of conducting 
        audits and reviews under this subsection--
                    ``(A) the independent auditor, the Commission, and 
                the State commission shall have access to the financial 
                books, records, and accounts of each Bell operating 
                company and of its affiliates necessary to verify 
                transactions conducted with that company that are 
                relevant to the specific activities permitted under 
                this section and that are necessary for the regulation 
                of rates;
                    ``(B) the Commission and the State commission shall 
                have access to the working papers and supporting 
                materials of any auditor who performs an audit under 
                this section; and
                    ``(C) the State commission shall implement 
                appropriate procedures to ensure the protection of any 
                proprietary information submitted to it under this 
                section.
    ``(h) Preservation of Existing Authority.--Nothing in this section 
shall be construed to limit the authority of the Commission under any 
other section of this Act to prescribe safeguards consistent with the 
public interest, convenience, and necessity.
    ``(i) Presubscription.--Concurrent with the establishment of the 
separate retail affiliate required by this section, in any local 
calling area served by a Bell operating company, consumers shall have 
the opportunity to select their provider of telephone exchange service 
by means of a balloting process established by rule by the Commission.
    ``(j) Ratepayer Protection.--The Commission shall not relax any 
cost allocation rules, accounting safeguards, or other requirements in 
a manner that reduces its ability to enforce the provisions of this 
section.
    ``(k) Definitions.--In this section:
            ``(1) Bell operating company.--Notwithstanding section 
        3(4)(C), the term `Bell operating company' includes any 
        affiliate of such company other than its retail affiliate.
            ``(2) Retail affiliate.--The term `retail affiliate' means 
        the affiliate required by this section.
            ``(3) Retail service.--The term `retail service' means any 
        telecommunications or information service offered to a person 
        other than a common carrier or other provider of 
        telecommunications.''.
                                 <all>
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