II

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Telecommunications

5 Fair Competition Enforcement Act of 2001’’.

6 SEC. 2. FINDINGS.

7 The Congress finds:
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1 (1) The Telecommunications Act of 1996 put in

2 place the proper framework to achieve competition in

3 local telecommunications markets.

4 (2) The Telecommunications Act of 1996 recog5 nized that local exchange facilities are essential fa6 cilities and required that all incumbent local ex7 change carriers open their markets to competition by

8 interconnecting with and providing network access to

9 new entrants, a process to be overseen by Federal

10 and State regulators.

11 (3) To increase the incentives of the Bell oper12 ating companies to open their local networks to com13 petition, the Telecommunications Act of 1996 allows

14 the Bell operating companies to provide interLATA

15 voice and data services in their service region only

16 after opening their local networks to competition.

17 (4) While some progress has been made in

18 opening local telecommunications markets, the Fed19 eral Communications Commission has determined

20 that, 6 years after passage of the Telecommuni21 cations Act of 1996, the Bell operating companies

22 have met the market opening requirements of that

23 Act in only 5 States.

24 (5) It is apparent that the incumbent local ex25 change carriers do not have adequate incentives to
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1 cooperate in this process and that regulators have

2 not exercised their enforcement authority to require

3 compliance.

4 (6) By improving mandatory penalties on Bell

5 operating companies and their affiliates that have

6 not opened their network to competition, there will

7 be greater assurance that local telecommunications

8 markets will be opened more expeditiously and, as a

9 result, American consumers will obtain the full bene10 fits of competition.

11 (7) Competitive carriers continue to experience

12 great difficulty in gaining access to the Bell net13 work, and, 5 years after enactment of the Tele14 communications Act of 1996, Bell operating compa15 nies continue to control over 92 percent of all access

16 lines nationwide.

17 SEC. 3. PURPOSES.

18 The purposes of this Act are—

19 (1) to improve and strengthen the enforcement

20 of the Telecommunications Act of 1996, in order to

21 ensure that local telecommunications markets are

22 opened more rapidly to full, robust, and sustainable

23 competition; and
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1 (2) to provide an alternative dispute resolution

2 process for expeditious resolution of disputes con3 cerning interconnection agreements.

4 SEC. 4. ENFORCEMENT OF COMPETITION.

5 Title II of the Communications Act of 1934 (47

6 U.S.C. 201 et seq.) is amended by adding at the end the

7 following:

8 ‘‘PART IV—ENFORCEMENT

9 ‘‘SEC. 291. SHARED JURISDICTION OVER CERTAIN DIS10 PUTES.

11 ‘‘(a) VIOLATIONS OF SECTIONS 251, 252, 271, AND

12 272.—A complaint under section 208 alleging that a spe13 cific act or practice or failure to act, of a Bell operating

14 company or its affiliate, constitutes a violation of section

15 251, 252, 271, or 272 may be filed at the Commission

16 or at a State commission.

17 ‘‘(b) ENFORCEMENT OF INTERCONNECTION AGREE18 MENTS.—An action to enforce compliance by a Bell oper19 ating company or its affiliate with an interconnection

20 agreement entered into under section 252 may be initiated

21 at the Commission or at a State Commission.

22 ‘‘(c) INITIATING PARTY.—A complaint described in

23 subsection (a) or an enforcement action described in sub24 section (b) may be brought by a telecommunications car-
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1 rier or by the Commission or a State commission on its

2 own motion.

3 ‘‘SEC. 292. EXPEDITED CONSIDERATION OF INTERCONNEC4 TION, INTERLATA, AND SEPARATE AFFILIATE

5 COMPLAINTS AND ENFORCEMENT ACTIONS.

6 ‘‘(a) IN GENERAL.—The Commission shall make a

7 final determination with respect to any complaint de8 scribed in section 291(a) or an enforcement action de9 scribed in section 291(b) within 90 days after the date

10 on which the complaint, or the filing initiating the action,

11 is received by the Commission.

12 ‘‘(b) INTERIM RELIEF.—

13 ‘‘(1) VIOLATIONS OF ACT.—Within 30 days

14 after a complaint described in section 291(a) has

15 been filed with the Commission, the Commission

16 shall issue an order to the Bell operating company

17 or its affiliate named in the complaint directing it to

18 cease the act or practice that constitutes the alleged

19 violation, or initiate an act or practice to correct the

20 alleged violation, pending a final determination by

21 the Commission if—

22 ‘‘(A) the complaint contains a prima facie

23 showing that the alleged violation occurred or is

24 occurring;
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1 ‘‘(B) the complaint describes with speci2 ficity the act or practice, or failure to act, that

3 constitutes the alleged violation; and

4 ‘‘(C) it appears from specific facts shown

5 by the complaint or an accompanying affidavit

6 that substantial injury, loss, or damage will re7 sult to the complainant before the 90-day pe8 riod in subsection (a) expires if the order is not

9 issued.

10 ‘‘(2) INTERCONNECTION AGREEMENTS.—Within

11 30 days after an enforcement action described in

12 section 291(b) has been initiated at the Commission

13 by a telecommunications carrier, the Commission

14 shall issue an order to the Bell operating company

15 or its affiliate named in the action directing it to

16 cease the act or practice that constitutes the alleged

17 noncompliance with the interconnection agreement,

18 or initiate an act or practice to correct the alleged

19 noncompliance, pending a final determination by the

20 Commission if—

21 ‘‘(A) the filing initiating the action con22 tains a prima facie showing that the alleged

23 noncompliance occurred or is occurring;
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1 ‘‘(B) the filing describes with specificity

2 the act or practice, or failure to act, that con3 stitutes the alleged noncompliance; and

4 ‘‘(C) it appears from specific facts shown

5 by the filing or an accompanying affidavit that

6 substantial injury, loss, or damage will result to

7 the telecommunications carrier before the 90-

8 day period in subsection (a) expires if the order

9 is not issued.

10 ‘‘(c) BURDEN OF PROOF.—In any proceeding under

11 this part with respect to a complaint described in section

12 291(a), or an enforcement action described in section

13 291(b), by a telecommunications carrier against a Bell op14 erating company or its affiliate, and upon a prima facie

15 showing by a carrier that there are reasonable grounds

16 to believe that there is a violation or noncompliance, the

17 burden of proof shall be on such Bell operating company

18 or its affiliate to demonstrate its compliance with the sec19 tion allegedly violated, or with the terms of such agree20 ment, as the case may be.

21 ‘‘SEC. 293. ALTERNATIVE DISPUTE RESOLUTION OF INTER22 CONNECTION COMPLAINTS.

23 ‘‘(a) INTERCONNECTION AGREEMENTS.—A party to

24 an interconnection agreement entered into under section

25 252 may submit a dispute under the agreement to the al-
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1 ternative dispute resolution process established by sub2 section (b). An action brought under this section may be

3 brought in lieu of an action described in section 291(b)

4 at the Commission or at a State commission.

5 ‘‘(b) ALTERNATIVE DISPUTE RESOLUTION PROC6 ESS.—

7 ‘‘(1) COMMISSION TO PRESCRIBE PROCESS.—

8 Within 180 days after the date of enactment of the

9 Telecommunications Fair Competition Enforcement

10 Act of 2001, the Commission shall, after notice and

11 opportunity for public comment, issue a final rule

12 implementing an alternative dispute resolution proc13 ess for the resolution of disputes under interconnec14 tion agreements entered into under section 252. The

15 process shall be available to any party to such an

16 agreement, including agreements entered into prior

17 to the date of enactment of that Act, unless such

18 prior agreement specifically precludes the use of al19 ternative dispute resolution.

20 ‘‘(2) PROCESS REQUIREMENTS.—In carrying

21 out paragraph (1), the Commission shall prescribe a

22 process that—

23 ‘‘(A) provides for binding private commer24 cial arbitration of disputes in an open, non25 discriminatory, and unbiased forum;
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1 ‘‘(B) ensures that a dispute submitted to

2 the process can be resolved within 45 days after

3 the date on which the dispute is filed; and

4 ‘‘(C) requires any decision reached under

5 the process to be in writing, available to the

6 public, and posted on the Internet.

7 ‘‘(3) REQUESTS FOR INFORMATION.—Any per8 son or panel conducting an arbitration under this

9 subsection may require any party to the dispute to

10 provide such information as may be necessary to en11 able that person or panel to reach a decision with re12 spect to the dispute. If the party that receives such

13 a request for information fails to comply with such

14 a request for information within 7 business days

15 after the date on which the request was made, then,

16 unless that party shows that the failure to comply

17 was due to extenuating circumstances, the person or

18 panel conducting the arbitration shall render a deci19 sion or award in favor of the other party to the arbi20 tration within 14 business days after the date on

21 which the request was made. The decision or award

22 in favor of a party shall not apply if the party in

23 whose favor a decision or award would be rendered

24 under the preceding sentence is not in compliance
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1 with a request for information from the person or

2 panel conducting the arbitration.

3 ‘‘(4) REMEDIES AND AUTHORITY OF ARBI4 TRATOR.—Any person or panel conducting an arbi5 tration under this subsection may grant to the pre6 vailing party any relief available in law or equity, in7 cluding remedies available under this Act, injunctive

8 relief, specific performance, monetary awards, and

9 direct, consequential, and compensatory damages.

10 ‘‘(5) ARBITRATION AWARD AND ENFORCE11 MENT.—A final decision or award made by a person

12 or panel conducting an arbitration under this sub13 section shall be binding upon the parties and is not

14 subject to appeal by the parties or review by the

15 Commission, a State commission, or any Federal or

16 State court. A decision or award under the process

17 may be enforced in any district court of the United

18 States having jurisdiction under sections 9 through

19 13 of title 9, United States Code.

20 ‘‘SEC. 294. ENFORCEMENT OF PERFORMANCE STANDARDS.

21 ‘‘(a) COMMISSION TO PRESCRIBE PERFORMANCE

22 STANDARDS FOR COMPLIANCE WITH INTERCONNECTION

23 AGREEMENTS.—Not later than 180 days after the date

24 of enactment of the Telecommunications Fair Competition

25 Enforcement Act of 2001 the Commission shall, after no-
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1 tice and opportunity for public comment, issue final rules

2 for performance standards, data validation procedures,

3 and audit requirements to ensure prompt and verifiable

4 implementation of interconnection agreements entered

5 into under section 252 and for the purposes of sections

6 251, 252, 271, and 272. At a minimum, the rules shall

7 include the most rigorous performance standards, data

8 validation procedures, and audit requirements for such

9 agreements adopted by the Commission or any State com10 mission before the date of enactment of the Telecommuni11 cations Fair Competition Enforcement Act of 2001, as

12 well as any new performance standards, data validation

13 procedures, and audit requirements needed to ensure full

14 compliance with the requirements of this Act for the open15 ing of local telecommunications markets to competition.

16 In establishing performance standards, data validation

17 procedures, and audit requirements under this section, the

18 Commission shall ensure that such standards, procedures,

19 and requirements are quantifiable and sufficient to deter20 mine ongoing compliance by incumbent local exchange car21 riers with the requirements of their interconnection agree22 ments, including the provision of operating support sys23 tems, special access, and retail and wholesale customer

24 service standards, and for the purposes of enforcing sec25 tions 251, 252, 271, and 272.
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1 ‘‘(b) SPECIFIC REQUIREMENT FOR PROVISION OF

2 LOCAL LOOPS.—A Bell operating company or its affiliate

3 which has not been granted an exemption, suspension, or

4 modification under section 251(f) of the requirement to

5 provide access to local loops (including subloop elements

6 to the extent required under section 251(d)(2)) as an

7 unbundled network element under section 251(c)(3) shall

8 provide any such local loop to a requesting telecommuni9 cations carrier with which such Bell operating company

10 or affiliate has an interconnection agreement entered into

11 under section 252 within 5 business days after receiving

12 a request for a specific local loop.

13 ‘‘(c) ENFORCEMENT OF PERFORMANCE METRICS.—

14 Any violation of this section, or the rules adopted here15 under, shall be a violation of section 251.

16 ‘‘SEC. 295. FORFEITURES; DAMAGES; ATTORNEYS FEES.

17 ‘‘(a) IN GENERAL.—The forfeitures provided in this

18 section are in addition to any other requirements, forfeit19 ures, and penalties that may be imposed under any other

20 provision of this Act, any other law, or by a State commis21 sion or court.

22 ‘‘(b) FORFEITURES FOR VIOLATION OF SECTIONS

23 251, 252, 271, OR 272.—

24 ‘‘(1) IN GENERAL.—The Commission shall im25 pose a forfeiture of $10,000,000 for each violation
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1 by a Bell operating company or any affiliate of such

2 company of section 251, 252, 271, or 272, and a

3 forfeiture of $2,000,000 for each day on which the

4 violation continues.

5 ‘‘(2) FORFEITURE INCREASED THREEFOLD FOR

6 REPEAT VIOLATIONS.—The forfeiture under para7 graph (1) shall be increased threefold for a repeated

8 violation of any such section by a Bell operating

9 company or its affiliate.

10 ‘‘(c) COMPENSATORY AND PUNITIVE DAMAGES;

11 COSTS AND ATTORNEY’S FEES.—

12 ‘‘(1) IN GENERAL.—In any civil action brought

13 by a telecommunications carrier against a Bell oper14 ating company or any affiliate of such company for

15 damages for a violation of section 251, 252, 271, or

16 272, or violation of any interconnection agreement

17 entered into under section 252 by a Bell operating

18 company, the carrier may be awarded—

19 ‘‘(A) both compensatory and punitive dam20 ages; and

21 ‘‘(B) reasonable attorney fees and costs in22 curred in bringing the action.

23 ‘‘(2) TREBLE DAMAGES.—In any such action,

24 the telecommunications carrier may be awarded tre25 ble damages for a repeated violation of any such sec-
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1 tion or interconnection agreement by a Bell oper2 ating company or its affiliate.

3 ‘‘(d) FORFEITURE FOR FAILURE TO COMPLY WITH

4 ORDER GRANTING INTERIM RELIEF.—If the Bell oper5 ating company or its affiliate to which an order is issued

6 under section 292(b) does not comply with the order with7 in 7 days after the date on which the Commission releases

8 the order, and the Commission makes a final determina9 tion that the Bell operating company or affiliate is in vio10 lation of section 251, 252, 271, or 272, or violation of

11 an interconnection agreement entered into under section

12 252, then the Commission shall impose a forfeiture of

13 $10,000,000 for each such violation, and a forfeiture of

14 $2,000,000 for each day on which the violation continued

15 after issuance of the order.

16 ‘‘(e) ATTORNEYS FEES.—The Commission, a State

17 commission, a court, or person conducting an arbitration

18 under section 293 may award reasonable attorney fees and

19 costs to the prevailing party in an action commenced by

20 a complaint described in section 291(a), an enforcement

21 action described in section 291(b), or an alternative dis22 pute resolution proceeding under section 293, respectively.

23 ‘‘(f) FORFEITURES DIVIDED BETWEEN COMPLAIN24 ANTS AND COMMISSION.—Any forfeiture imposed under
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1 subsection (b) or (d) shall be paid to the Commission and

2 divided equally between—

3 ‘‘(1) either—

4 ‘‘(A) the party whose complaint com5 menced the action that resulted in the deter6 mination by the Commission, if the Commis7 sion’s determination was made in response to a

8 complaint; or

9 ‘‘(B) the party against which the violation

10 was committed, if the action that resulted in

11 the determination by the Commission was com12 menced by the Commission or a State commis13 sion; and

14 ‘‘(2) the Commission for use by its Enforce15 ment Bureau for the purpose of enforcing parts II

16 and III of title II of the Communications Act of

17 1934 (47 U.S.C. 251 et seq. and 271 et seq.) and

18 carrying out part IV of title II of that Act.

19 ‘‘(g) ADJUSTMENT FOR INFLATION.—The amount of

20 each forfeiture provided for under subsections (b) and (d)

21 shall be increased for violations during each calendar year

22 beginning with 2004 by a percentage amount equal to the

23 percentage increase (if any) in the CPI for the preceding

24 year over the CPI for 2001. For purposes of this sub25 section, the CPI for any year is the average for the 12
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1 months of the year of the Consumer Price Index for all2 urban consumers published by the Department of Labor.

3 ‘‘SEC. 296. SAVINGS CLAUSES.

4 ‘‘(a) OTHER REMEDIES UNDER ACT.—The remedies

5 in this part are in addition to any other requirements or

6 penalties available under this Act or any other law.

7 ‘‘(b) ANTITRUST LAWS.—Nothing in this part modi8 fies, impairs, or supersedes the applicability of any anti9 trust law, except that a violation by an incumbent local

10 exchange carrier of section 251 or 252 shall also be a vio11 lation of the Act of July 2, 1890, commonly known as

12 the Sherman Anti-Trust Act (15 U.S.C. 1 et seq.).’’.

13 SEC. 5. RATEPAYER PROTECTION.

14 The Commission shall not forbear from, or modify,

15 any cost allocation rules, accounting safeguards, or other

16 requirements in a manner that reduces its ability to en17 force the provisions of this Act.

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

19 Section 503(b)(6) of the Communications Act of

20 1934 (47 U.S.C. 503(b)(6)) is amended by striking ‘‘1

21 year’’ each place it appears and inserting ‘‘5 years’’.

22 SEC. 7. STATE COMMISSIONS MAY USE FEDERAL FORFEIT23 URES.

24 In any action brought before a State commission to

25 enforce compliance with section 251, 252, 271, or 272 of
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1 the Communications Act of 1934 (47 U.S.C. 251, 252,

2 271, or 272) or an interconnection agreement entered into

3 under section 252, the State commission may apply to the

4 Federal Communications Commission requesting that the

5 Commission impose a forfeiture under section 295 of that

6 Act in addition to any relief granted by the State commis7 sion in that action. The Federal Communications Commis8 sion may impose a forfeiture under section 295 of that

9 Act upon application by a State commission under this

10 section if it determines that the State commission pro11 ceeding was conducted in accordance with the require12 ments of State law.

13 SEC. 8. SEPARATION OF RETAIL AND WHOLESALE FUNC14 TIONS.

15 (a) IN GENERAL.—Title II of the Communications

16 Act of 1934 (47 U.S.C. 201 et seq.) is amended by adding

17 at the end the following:

18 ‘‘SEC. 277. FUNCTIONAL SEPARATION OF RETAIL SERVICES.

19 ‘‘(a) IN GENERAL.—A Bell operating company may

20 only provide retail service—

21 ‘‘(1) through a division that is legally separate

22 from the part of the Bell operating company that

23 provides wholesale services; and

24 ‘‘(2) in a manner that is consistent with the

25 Code of Conduct described in subsection (b).
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1 ‘‘(b) CODE OF CONDUCT.—The Code of Conduct for

2 the provision of retail service by a Bell operating company

3 is as follows:

4 ‘‘(1) A Bell operating company shall transfer to

5 its retail division all relationships with retail cus6 tomers, including customer interfaces and retail bill7 ing and all development, marketing, and pricing of

8 retail services.

9 ‘‘(2) A Bell operating company shall transfer to

10 its retail division all accounts for retail services and

11 all assets, systems, and personnel used by the Bell

12 operating company to carry out the business func13 tions described in paragraph (1).

14 ‘‘(3) The retail division required by this

15 section—

16 ‘‘(A) shall be operated independently from

17 the wholesale services and functions of the Bell

18 operating company of which it is a division;

19 ‘‘(B) shall maintain books, records, and ac20 counts separate from those maintained by other

21 departments, divisions, sections, affiliates, or

22 units of the Bell operating company of which it

23 is a division;

24 ‘‘(C) shall have separate employees and of25 fice space from the wholesale services and func-
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1 tions of the Bell operating company of which it

2 is a division;

3 ‘‘(D) shall tie its management compensa4 tion only to the performance of the retail divi5 sion;

6 ‘‘(E) may not own any telecommunications

7 facilities or equipment jointly with the Bell op8 erating company of which it is a division;

9 ‘‘(F) shall not engage in any joint mar10 keting with the wholesale services department,

11 division, section, affiliate, or unit of the Bell op12 erating company of which it is a division;

13 ‘‘(G) shall conduct all wholesale trans14 actions with the Bell operating company of

15 which it is a division on a fully compensatory,

16 arms-length basis, in accordance with part 32

17 of the Commission’s rules (part 32 of title 47,

18 Code of Federal Regulations);

19 ‘‘(H) shall offer retail telecommunications

20 service solely at rates set by tariff; and

21 ‘‘(I) shall also offer all of its retail tele22 communications services to telecommunications

23 carriers for wholesale purchase at the avoided

24 cost discount as established pursuant to sec25 tions 251(c)(4) and 252(d)(3).
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1 ‘‘(4) A Bell operating company shall provide

2 services, facilities, and network elements to any re3 questing carrier, including its retail division solely at

4 rates, terms, and conditions set by tariff; shall offer

5 physical and virtual collocation pursuant to tariffs;

6 shall not provide any retail service except through its

7 retail division; and shall not grant its retail division

8 any preferential intellectual property rights. The

9 Bell operating company shall conduct any business

10 with unaffiliated persons in the same manner as it

11 conducts business with its retail division, and shall

12 not prefer, or discriminate in favor of, such retail di13 vision in the rates, terms, or conditions offered to

14 the retail division, including—

15 ‘‘(A) fulfilling any requests from unaffili16 ated persons for ordering, maintenance, and re17 pair of unbundled network elements and serv18 ices provided for resale, within a period no

19 longer than that in which it fulfills such re20 quests from its retail division;

21 ‘‘(B) utilizing the same operating support

22 systems for dealings with unaffiliated persons

23 providing telecommunications service as it uses

24 with its retail division;
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1 ‘‘(C) providing any customer or network

2 information to unaffiliated persons providing re3 tail services on the same terms and conditions

4 as it provides such information to its retail divi5 sion;

6 ‘‘(D) fulfilling any requests from an unaf7 filiated person for exchange access within a pe8 riod no longer than that in which it fulfills re9 quests for exchange access from its retail divi10 sion; and

11 ‘‘(E) fulfilling any such requests in sub12 paragraph (D) with service of a quality that

13 meets or exceeds the quality of exchange access

14 it provides to its retail division.

15 ‘‘(c) BIENNIAL AUDIT.—

16 ‘‘(1) GENERAL REQUIREMENT.—A Bell oper17 ating company shall obtain and pay for a joint Fed18 eral/State audit every 2 years which shall be con19 ducted by an independent auditor to determine

20 whether such company has complied with this sec21 tion and the regulations promulgated to implement

22 this section.

23 ‘‘(2) RESULTS SUBMITTED TO COMMISSION;

24 STATE COMMISSIONS.—The auditor described in

25 paragraph (1) shall submit the results of the audit
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1 to the Commission and to the State commission of

2 each State in which the company audited provides

3 service, and the Commission shall make such results

4 available for public inspection. Any party may sub5 mit comments on the final audit report.

6 ‘‘(3) ACCESS TO DOCUMENTS.—For purposes of

7 conducting audits and reviews under this

8 subsection—

9 ‘‘(A) the independent auditor, the Commis10 sion, and the State commission shall have ac11 cess to the financial books, records, and ac12 counts of each Bell operating company and its

13 retail division necessary to verify transactions

14 conducted with that company that are relevant

15 to the specific activities permitted under this

16 section and that are necessary for the regula17 tion of rates;

18 ‘‘(B) the Commission and the State com19 mission shall have access to the working papers

20 and supporting materials of any auditor who

21 performs an audit under this section; and

22 ‘‘(C) the State commission shall implement

23 appropriate procedures to ensure the protection

24 of any proprietary information submitted to it

25 under this section.
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1 ‘‘(d) TRANSITION.—

2 ‘‘(1) A Bell operating company shall have one

3 year from the date of enactment of the Tele4 communications Fair Competition Enforcement Act

5 of 2001 to comply with subsections (a) and (b).

6 ‘‘(2) Until such time as the Bell operating com7 pany complies with the requirements of subsection

8 (a), it shall file quarterly reports demonstrating how

9 it is implementing compliance with the non10 discrimination requirements of subsection (b)(4).

11 ‘‘(e) RATEPAYER PROTECTION.—The Commission

12 shall not relax any cost allocation rules, accounting safe13 guards, or other requirements in a manner that reduces

14 its ability to enforce the provisions of this section.

15 ‘‘(f) DEFINITIONS.—In this section:

16 ‘‘(1) BELL OPERATING COMPANY.—Notwith17 standing section 3(4)(C), the term ‘Bell operating

18 company’ includes any affiliate of such company

19 other than its retail division.

20 ‘‘(2) RETAIL DEVISION.—The term ‘retail divi21 sion’ means the division required by this section.

22 ‘‘(3) RETAIL SERVICE.—The term ‘retail serv23 ice’ means any telecommunications or information

24 service offered to a person other than a common car25 rier or other provider of telecommunications.
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1 ‘‘(g) REPORT ON VIOLATIONS.—Until December 31,

2 2010, the Commission shall report to Congress annually

3 on the amount and nature of any violations of sections

4 251, 252, 271, and 272 by each Bell Operating Company.

5 ‘‘(h) PRESERVATION OF EXISTING AUTHORITY.—

6 Nothing in this section shall be construed to limit the au7 thority of the Commission under any other section of this

8 Act to prescribe additional safeguards consistent with the

9 public interest, convenience, and necessity.

10 ‘‘SEC. 278. SEPARATE RETAIL AFFILIATE.

11 ‘‘(a) REPEATED VIOLATIONS.—If, beginning 2 years

12 after enactment of the Telecommunications Fair Competi13 tion Enforcement Act of 2001, the Commission finds that

14 a Bell operating company willfully or knowingly violated

15 the requirements of sections 251, 252, 271, or 272 of this

16 Act, the Commission may require the Bell Operating Com17 pany to implement structural separation under this sec18 tion.

19 ‘‘(b) IN GENERAL.—If the Commission requires a

20 Bell operating company to implement structural separa21 tion under this section, then that Bell operating company

22 may provide retail services only through a separate affil23 iate. A Bell operating company and a separate affiliate

24 established under this section shall not engage in any joint
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1 marketing of retail services, notwithstanding section

2 272(g).

3 ‘‘(c) STRUCTURAL SEPARATION OF BUSINESS.—A

4 Bell operating company shall comply with subsection (b)

5 by transferring the following business functions to its re6 tail affiliate, at the higher of book value or market value:

7 ‘‘(1) all relationships with retail customers, in8 cluding customer interfaces and retail billing; and

9 ‘‘(2) all development, marketing, and pricing of

10 retail services.

11 ‘‘(d) STRUCTURAL SEPARATION OF ASSETS.—

12 ‘‘(1) A Bell operating company shall comply

13 with subsection (b) by transferring the following as14 sets to its retail affiliate at the higher of book or

15 market value:

16 ‘‘(A) all accounts for retail services, subject

17 to the requirements of subsection (j); and

18 ‘‘(B) all assets, systems, and personnel

19 used by the Bell operating company to carry

20 out the business functions described in sub21 section (c).

22 ‘‘(2) The price, terms, and conditions of the

23 transfer of assets required by paragraph (1) shall be

24 made publicly available.
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1 ‘‘(e) SEPARATE SUBSIDIARY SAFEGUARDS.—The

2 separate affiliate required by this section—

3 ‘‘(1) shall operate independently from the Bell

4 operating company;

5 ‘‘(2) shall maintain books, records, and ac6 counts separate from those maintained by the Bell

7 operating company of which it is an affiliate;

8 ‘‘(3) shall have separate officers and directors

9 from the Bell operating company of which it is an

10 affiliate;

11 ‘‘(4) shall have separate capital stock, the out12 standing shares of which may not be held by the

13 Bell operating company in any amount exceeding

14 four times the amount of shares held by unaffiliated

15 persons;

16 ‘‘(5) shall have separate employees and separate

17 employee benefit plans from the Bell operating com18 pany of which it is an affiliate;

19 ‘‘(6) may not obtain credit under any arrange20 ment that would permit a creditor, upon default, to

21 have recourse to the assets of the Bell operating

22 company;

23 ‘‘(7) may not own any telecommunications fa24 cilities or equipment;
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1 ‘‘(8) shall conduct all transactions with the Bell

2 operating company of which it is an affiliate on an

3 arms’ length basis, with any such transactions re4 duced to writing and available for public inspection;

5 ‘‘(9) shall offer retail telecommunications serv6 ice solely at rates set by tariff;

7 ‘‘(10) shall offer all of its retail telecommuni8 cations services for wholesale purchase at the avoid9 ed cost discount as established pursuant to sections

10 251(c)(4) and 252(d)(3);

11 ‘‘(11) shall have separate office space from the

12 wholesale services and functions of the Bell oper13 ating company of which it is an affiliate;

14 ‘‘(12) shall tie its management compensation

15 only to the performance of the retail affiliate; and

16 ‘‘(13) shall conduct all wholesale transactions

17 with the Bell operating company of which it is an af18 filiate on a fully compensatory basis, in accordance

19 with part 32 of the Commission’s rules (part 32 of

20 title 47, Code of Federal Regulations).

21 ‘‘(f) NONDISCRIMINATION SAFEGUARDS.—A Bell op22 erating company—

23 ‘‘(1) shall provide services, facilities and net24 work elements to any requesting carrier, including

25 its retail affiliate, solely at rates set by tariff;
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1 ‘‘(2) shall conduct any business with unaffili2 ated entities in the same manner as it conducts busi3 ness with its retail affiliate, and shall not prefer, or

4 discriminate in favor of, such retail affiliate in the

5 rates, terms, or conditions offered to the retail affil6 iate, including—

7 ‘‘(A) fulfilling any requests from an unaf8 filiated entity for exchange access service within

9 a period no longer than that in which it fulfills

10 requests for exchange access service from its re11 tail affiliate;

12 ‘‘(B) fulfilling any such requests with serv13 ice of a quality that meets or exceeds the qual14 ity of exchange access services it provides to its

15 retail affiliate;

16 ‘‘(C) fulfilling any requests from an unaf17 filiated entity for ordering, maintenance and re18 pair of unbundled network elements and serv19 ices provided for resale, within a period no

20 longer than that in which it fulfills such re21 quests from its retail affiliate;

22 ‘‘(D) utilizing the same operating support

23 systems for dealings with unaffiliated entities

24 providing telecommunications service as it uses

25 with its retail affiliate; and
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1 ‘‘(E) providing any customer or network

2 information to unaffiliated entities providing

3 telecommunications services on the same terms

4 and conditions as it provides such information

5 to its retail affiliate;

6 ‘‘(3) shall not offer physical and virtual colloca7 tion other than pursuant to generally available tar8 iffs;

9 ‘‘(4) shall not grant its retail affiliate any pref10 erential intellectual property rights; and

11 ‘‘(5) shall not provide any retail service for its

12 own use, but shall procure such services from a car13 rier other than its retail affiliate.

14 ‘‘(g) BIENNIAL AUDIT.—

15 ‘‘(1) GENERAL REQUIREMENT.—A Bell oper16 ating company shall obtain and pay for a joint Fed17 eral/State audit every 2 years conducted by an inde18 pendent auditor to determine whether such company

19 has complied with this section and the regulations

20 promulgated under this section.

21 ‘‘(2) RESULTS SUBMITTED TO COMMISSION;

22 STATE COMMISSIONS.—The auditor described in

23 paragraph (1) shall submit the results of the audit

24 to the Commission and to the State commission of

25 each State in which the company audited provides
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1 service, which shall make such results available for

2 public inspection. Any party may submit comments

3 on the final audit report.

4 ‘‘(3) ACCESS TO DOCUMENTS.—For purposes of

5 conducting audits and reviews under this

6 subsection—

7 ‘‘(A) the independent auditor, the Commis8 sion, and the State commission shall have ac9 cess to the financial books, records, and ac10 counts of each Bell operating company and of

11 its affiliates necessary to verify transactions

12 conducted with that company that are relevant

13 to the specific activities permitted under this

14 section and that are necessary for the regula15 tion of rates;

16 ‘‘(B) the Commission and the State com17 mission shall have access to the working papers

18 and supporting materials of any auditor who

19 performs an audit under this section; and

20 ‘‘(C) the State commission shall implement

21 appropriate procedures to ensure the protection

22 of any proprietary information submitted to it

23 under this section.

24 ‘‘(h) PRESERVATION OF EXISTING AUTHORITY.—

25 Nothing in this section shall be construed to limit the au-
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1 thority of the Commission under any other section of this

2 Act to prescribe safeguards consistent with the public in3 terest, convenience, and necessity.

4 ‘‘(i) PRESUBSCRIPTION.—Concurrent with the estab5 lishment of the separate retail affiliate required by this

6 section, in any local calling area served by a Bell operating

7 company, consumers shall have the opportunity to select

8 their provider of telephone exchange service by means of

9 a balloting process established by rule by the Commission.

10 ‘‘(j) RATEPAYER PROTECTION.—The Commission

11 shall not relax any cost allocation rules, accounting safe12 guards, or other requirements in a manner that reduces

13 its ability to enforce the provisions of this section.

14 ‘‘(k) DEFINITIONS.—In this section:

15 ‘‘(1) BELL OPERATING COMPANY.—Notwith16 standing section 3(4)(C), the term ‘Bell operating

17 company’ includes any affiliate of such company

18 other than its retail affiliate.

19 ‘‘(2) RETAIL AFFILIATE.—The term ‘retail af20 filiate’ means the affiliate required by this section.

21 ‘‘(3) RETAIL SERVICE.—The term ‘retail serv22 ice’ means any telecommunications or information

23 service offered to a person other than a common car24 rier or other provider of telecommunications.’’.

Æ