[Federal Register Volume 62, Number 21 (Friday, January 31, 1997)]
[Rules and Regulations]
[Pages 4657-4660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2143]


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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 61 and 69

[CC Docket No. 94-1; FCC 96-488]


Price Cap Performance Review for Local Exchange Carriers

AGENCY: Federal Communications Commission.

ACTION: Final Rule.

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SUMMARY: On September 14, 1995, the Commission adopted a Second Further 
Notice of Proposed Rulemaking in this docket, seeking comment on how 
its price cap regulation of local exchange carriers should be revised 
as the competition faced by those carriers grows. In particular, the 
Commission sought comment on relaxing the procedural requirements for 
establishing new rate elements for new switched access services, and 
eliminating the lower boundaries of the service band indices. In this 
Third Report and Order, the Commission adopts the rules it proposed. 
These rule revisions are intended to make it easier for local exchange 
carriers to introduce new services, and to lower rates.

EFFECTIVE DATE: Effective June 30, 1997.

FOR FURTHER INFORMATION CONTACT: Richard Lerner, Attorney, Common 
Carrier Bureau, Competitive Pricing Division, (202) 418-1530. For 
additional information concerning the information collections contained 
in this Report and Order contact Dorothy Conway at 202-418-0217, or via 
the Internet at <a href="/cdn-cgi/l/email-protection#4125222e2f362038012722226f262e37"><span class="__cf_email__" data-cfemail="5c383f33322b3d251c3a3f3f723b332a">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order adopted December 23, 1996, and released December 24, 1996. 
The full text of this Report and Order is available for inspection and 
copying during normal business hours in the FCC Reference Center (Room 
239), 1919 M St., NW., Washington, DC. The complete text also may be 
obtained through the World Wide Web, at <a href="http://www.fcc.gov/Bureaus/
Common__Carrier/Notices/fcc96488.wp">http://www.fcc.gov/Bureaus/
Common__Carrier/Notices/fcc96488.wp</a>, or may be purchased from the 
Commission's copy contractor, International Transcription Service, 
Inc., (202) 857-3800, 2100 M St., NW., Suite 140, Washington, DC 20037. 
The Commission released a Second Further Notice of Proposed Rulemaking, 
CC Docket No. 94-1, Further Notice of Proposed Rulemaking, CC Docket 
No. 93-124, and Second Further Notice of Proposed Rulemaking CC Docket 
No. 93-197 (all three published at 60 FR 49539 (September 25, 1995)) 
(Price Cap Second FNPRM) to seek comment on the rules adopted in the 
Third Report and Order.
    Regulatory Flexibility Analysis: As required by the Regulatory 
Flexibility Act, the Third Report and Order contains a Final Regulatory 
Flexibility Analysis which is set forth in Section XI.F of the Third 
Report and Order. The Commission concluded that the Regulatory 
Flexibility Act is not applicable because the rules adopted in the 
Third Report and Order will not have a significant impact on a 
substantial number of small entities.
    Paperwork Reduction Act: Public burden for the collection of 
information is estimated as follows:
    OMB Approval Number: None.
    Title: Third Report and Order, Price Cap Performance Review for 
Local Exchange Carriers.
    Form No.: N/A.
    Type of Review: New collection.

----------------------------------------------------------------------------------------------------------------
                                                                                        Annual hour     Total   
                          Information collection                            Number of    burden per     annual  
                                                                           respondents    response      burden  
----------------------------------------------------------------------------------------------------------------
Elimination of the lower Service Band Index and Petition to offer new                                           
 switched access services................................................           13           10          130
----------------------------------------------------------------------------------------------------------------

    Total Annual Burden: 130 hours.
    Respondents: Business or other for-profit.
    Estimated costs per respondent: $0.
    Needs and Uses: The agency will use the data submission to review 
Local Exchange Carriers' proposed new switched access services. Public 
reporting burden for the collection of information is estimated to 
average 10 hours per response. Send comments on the agency's need for 
this information, the accuracy of the provided burden estimates, and 
any suggested methods for minimizing respondent burden, including 
through the use of automated collection techniques to the Federal 
Communications Commission, Records Management Branch, Washington, D.C. 
20554.

Final Regulatory Flexibility Act Certification

    In the Price Cap Second FNPRM, we certified that the Regulatory 
Flexibility Act did not apply to this rulemaking proceeding because 
none of the rule amendments under consideration would have a 
significant economic impact on a substantial number of small entities. 
We concluded that the proposed rules would apply only to carriers 
subject to price cap regulation for local exchange access, and such 
carriers are generally large corporations or affiliates of such 
corporations. No comments were received concerning the proposed 
certification. Since our initial certification, certain changes 
occurred. The Regulatory Flexibility Act was amended by the Small 
Business Regulatory Enforcement Fairness Act of 1996 (``SBREFA''), and 
Citizens elected price cap regulation. Nonetheless, we certify that the 
rules adopted herein will not have a significant economic impact

[[Page 4658]]

on a substantial number of small entities.
    The Regulatory Flexibility Act defines a ``small business'' to be 
the same as a ``small business concern'' under the Small Business Act. 
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. Section 121.201 of the Small 
Business Administration regulations defines a small telecommunications 
entity in SIC code 4813 (Telephone Companies Except Radio Telephone) as 
any entity with 1,500 or fewer employees at the holding company level. 
Entities directly subject to these rule changes are carriers subject to 
price cap regulation. These entities, including the newest carrier 
subject to price cap regulation, Citizens, are generally large 
corporations that have more than 1,500 employees, or they are either 
dominant in their fields of operations or are not independently owned 
or operated. Thus, they are not ``small entities'' as defined by the 
Small Business Act.
    We therefore certify that the rules adopted herein will not have a 
significant economic impact on a substantial number of small entities. 
The Commission shall provide a copy of this certification to the Chief 
Counsel for Advocacy of the Small Business Administration, and include 
it in the report to Congress pursuant to the SBREFA. The certification 
will also be published in the Federal Register.
    Summary of Report and Order: We conclude that certain revisions to 
our rules should be made upon issuance of this Order. These changes 
include eliminating the price caps lower service band indices, and 
substantially easing the requirements necessary for the introduction of 
new services. We make these adjustments in order to remove obstacles to 
lower access prices, and allow incumbent LECs to recover their costs in 
a manner consistent with the way that costs are incurred. Moreover, we 
believe that these changes will not adversely affect the development of 
a competitive marketplace.

A. Lower Service Band Indices

i. Background
    1. Our price cap rules divide incumbent LEC services among four 
baskets, with each basket being subject to a separate price cap index 
(PCI). Selected categories of services within the trunking and traffic-
sensitive baskets are also subject to individual SBIs. Each tariff year 
the carrier must establish, for each such group of services, new upper 
and lower bands that are set at specified percentages above and below 
the SBI. Price changes are presumptively lawful if the API for the 
basket is at or below the PCI, and the prices for each category of 
services within the basket are within the established pricing bands. 
Most categories of services are currently subject to lower bands that 
limit the annual price reductions for those categories to ten percent, 
relative to the percentage change in the PCI for that basket, such as 
the service categories in the traffic-sensitive and trunking baskets 
other than the TIC. Where incumbent LECs are permitted to deaverage 
rates, as when an expanded interconnection cross-connect for special 
access or transport service has been taken in a LEC study area, annual 
price reductions within any zone of the service category are limited to 
fifteen percent, although price reductions for the service category as 
a whole cannot go down by more than 10 percent.
    2. In the Price Cap Second FNPRM, we proposed eliminating the lower 
pricing bands for service categories to permit incumbent LECs to reduce 
prices to any level above average variable cost. We tentatively 
concluded that the price cap indices and upper service band limits 
would continue to inhibit predatory pricing effectively.
ii. Discussion
    3. We find that removing the lower service band indices would be in 
the public interest, and we therefore eliminate them. As set forth in 
the Price Cap Second FNPRM, we find that this will lead to lower 
prices, particularly as competition emerges and puts pressure on 
incumbent LECs to charge rates that are related to the underlying costs 
of providing exchange access services. We believe that the current PCI 
and upper SBIs adequately control predatory pricing, and that we do not 
need AT&T's conditions for eliminating the lower SBIs to address 
predation. If an incumbent LEC lowers its prices in one year, the upper 
SBIs prevent the incumbent LEC from immediately raising its rates back 
to its previous levels. In addition, we remain skeptical that incumbent 
LECs in this context successfully could engage in predatory pricing 
(lowering prices to eliminate competitors and then raising prices to 
above-competitive levels). The lower service band indices do not 
prohibit below-band tariff filings. Rather, they establish higher cost 
support requirements for below-band filings, and a presumption that 
below-cap, within-band tariff filings are lawful. Based on the comments 
submitted in response to the Price Cap Second FNPRM, and in light of 
our continuing skepticism about the potential for an incumbent LEC to 
engage successfully in predatory pricing, we conclude that the 
presumption of lawfulness that we have applied to within-band tariff 
filings can now be extended to all rate decreases.
    4. We also find that AT&T's suggested conditions are not necessary 
to limit the ``headroom'' an incumbent LEC might create by lowering 
certain access rates within a basket. We are retaining the SBI upper 
bands. Those upper bands constrain the incumbent price cap LECs' 
ability to use headroom to increase rates for any particular access 
service beyond specified percentages. This decision is consistent with 
our current treatment of below-band filings, which are included in the 
calculation of an incumbent LEC's API. In addition, in this NPRM, we 
invite comment on two alternative approaches to access reform. 
Regardless of which approach we adopt, access reform should result in 
incumbent LECs' access rates moving closer to forward-looking economic 
cost, and so would limit the extent to which an incumbent LEC could 
take advantage of any headroom that may be created by lowering certain 
access rates.

B. Waiver Requirement for Introduction of New Services

i. Background
    5. In the Price Cap Second FNPRM, we noted that many incumbent LECs 
have argued that new services and technologies often do not fit the 
existing Part 69 rate structure requirements, and that obtaining a 
waiver to introduce a new rate element is costly, time-consuming, and 
poses a significant impediment to the introduction of new services. 
Because we found that our rules may unnecessarily hinder the 
introduction of new services, we proposed to eliminate the current Part 
69 requirement that incumbent price cap LECs seek a waiver each time 
they want to establish new rate elements for a new switched access 
service. Specifically, we proposed to modify Part 69 to permit an 
incumbent price cap LEC to introduce a new service by filing a petition 
for the new service based on a public interest standard. We further 
proposed that after the first incumbent LEC had satisfied the public 
interest requirement for establishing new rate elements for a new 
switched access service, other incumbent price cap LECs could introduce 
identical new services, and their petitions would be

[[Page 4659]]

reviewed in an expedited fashion (i.e., within ten days).
ii. Discussion
    6. We conclude that the relaxed procedures for introducing new 
switched access services that we set forth in the Price Cap Second 
FNPRM will further the public interest, and we therefore adopt them. We 
find that requiring an incumbent LEC to file a waiver to introduce a 
new rate element imposes a costly, time-consuming, and unnecessary 
burden on incumbent LECs, and significantly impedes the introduction of 
new services. Also, we believe that delaying implementation would not 
assist in the development of a competitive marketplace. We therefore 
amend Part 69 so that an incumbent LEC may introduce a new service by 
filing a petition for the new service based on a public interest 
standard.
    7. We also amend Part 69 so that after the first incumbent LEC has 
satisfied the public interest requirement for establishing new rate 
elements for a new switched access service, another incumbent price cap 
LEC can file a petition seeking authority to introduce identical rate 
elements for an identical new service, and its petition will be 
reviewed within ten days of the release of a Public Notice. Parties may 
file comments in response to such a petition within seven days of the 
Public Notice. The incumbent LEC shall have authority to introduce 
these new rate elements after expiration of the ten-day period, unless 
the Common Carrier Bureau has informed the LEC that the LEC has not 
demonstrated that its new service qualifies as a ``me-too'' service. 
The incumbent LEC may then file one subsequent new petition for ``me-
too'' authorization for that service or may file a public interest 
petition seeking to introduce that service. An incumbent LEC may not 
seek expedited review based on our public interest authorization of a 
new service based on a competitive showing, such as was the case with 
the NYNEX USPP and Ameritech Customers First waivers. In such cases, an 
incumbent LEC must file its own petition seeking approval for a new 
rate element.

Ordering Clauses

    8. It is further ordered that, pursuant to Sections 1-4, 201-205, 
and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 
151-154, 201-205, and 303(r) that the third report and order is 
adopted, effective June 30, 1997. The collections of information 
contained within are contingent upon approval by the Office of 
Management and Budget.
    9. It is further ordered that Parts 61 and 69 of the Commission's 
rules, 47 CFR Parts 61 and 69 are amended as set forth below.

List of Subjects

47 CFR Part 61

    Communications common carriers, Reporting and recordkeeping 
requirements, Tariffs.

47 CFR Part 69

    Access charges, Communications common carriers, Reporting and 
recordkeeping requirements.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Title 47 of the Code of Federal Regulations, Parts 61 and 69, are 
amended as follows:

PART 61--TARIFFS

    1. The authority citation for Part 61 continues to read as follows:

    Authority: Secs. 1, 4(i), 4(j), 201-205, and 403 of the 
Communications Act of 1934, as amended; 47 U.S.C. 151, 154(i), 
154(j), 201-205, and 403, unless otherwise noted.

    2. Section 61.47 is amended by revising paragraphs (e), (g)(1), 
(g)(2), (g)(4), and (h)(2) and by removing paragraph (g)(6) to read as 
follows:


Sec. 61.47  Adjustments to the SBI; pricing bands.

* * * * *
    (e) Pricing bands shall be established each tariff year for each 
service category and subcategory within a basket. Except as provided in 
paragraphs (f), (g), and (h) of this section, each band shall limit the 
pricing flexibility of the service category or subcategory, as 
reflected in the SBI, to an annual increase of five percent, relative 
to the percentage change in the PCI for that basket, measured from the 
levels in effect on the last day of the preceding tariff year. For 
local exchange carriers subject to price caps as that term is defined 
in Sec. 61.3(x), there shall be no lower pricing band for any service 
category or subcategory.
* * * * *
    (g)(1) Local Exchange Carriers--Service Categories and 
Subcategories. Local exchange carriers subject to price cap regulation 
as that term is defined in Sec. 61.3(x) shall use the methodology set 
forth in paragraphs (a) through (d) of this section to calculate two 
separate subindexes: One for the DS1 services offered by such carriers 
and the other for the DS3 services offered by such carriers. The annual 
pricing flexibility for each of these two subindexes shall be limited 
to an annual increase of five percent, relative to the percentage 
change in the PCI for the special access services basket, measured from 
the last day of the preceding tariff year. There shall be no lower 
pricing band for these two subindexes.
    (2) The upper pricing band for the tandem-switched transport 
service category shall limit the annual upward pricing flexibility for 
this service category, as reflected in its SBI, to two percent, 
relative to the percentage change in the PCI for the trunking basket, 
measured from the levels in effect on the last day of the preceding 
tariff year. There shall be no lower pricing band for the tandem-
switched transport service category.
* * * * *
    (4) Local exchange carriers subject to price cap regulation as that 
term is defined in Sec. 61.3(x) shall use the methodology set forth in 
paragraphs (a) through (d) of this section to calculate a separate 
subindex for the 800 data base vertical features offered by such 
carriers. The annual pricing flexibility for this subindex shall be 
limited to an annual increase of five percent, relative to the 
percentage change in the PCI for the traffic sensitive basket, measured 
from the last day of the preceding tariff year. There shall be no lower 
pricing band for this subindex.
* * * * *
    (h) * * *
    (2) The annual pricing flexibility for each of the subindexes 
specified in paragraph (h)(1) of this section shall be limited to an 
annual increase of five percent, relative to the percentage change in 
the PCI for the trunking basket, measured from the levels in effect on 
the last day of the preceding tariff year. There shall be no lower 
pricing band for these subindexes.


Sec. 61.49  [Amended]

    3. Section 61.49 is amended by removing paragraph (d) and 
redesignating paragraphs (e) through (k) as paragraphs (d) through (j).

PART 69--ACCESS CHARGES

    4. The authority citation for Part 69 continues to read as follows:

    Authority: Sec. 4, 201, 202, 203, 205, 218, 403, 48 Stat. 1066, 
1070, 1077, 1094, as amended; 47 U.S.C. 154, 201, 202, 203, 205, 
218, 403.

    5. Section 69.4 is amended by adding paragraph (g) to read as 
follows:


Sec. 69.4  Charges to be filed.

* * * * *

[[Page 4660]]

    (g)(1) Local exchange carriers subject to price cap regulation as 
that term is defined in Sec. 61.3(x) of this chapter may establish one 
or more switched access rate elements for a new service within the 
meaning of Sec. 61.42(g) of this chapter, upon approval of a petition 
demonstrating that:
    (i) The establishment of the new rate element or elements would be 
in the public interest; or
    (ii) Another local exchange carrier has previously obtained 
permission to establish one or more rate elements identical to those 
proposed in the petition to offer the identical service; and the 
original petition did not rely upon a competitive showing as part of 
the public interest justification.
    (2) The Chief, Common Carrier Bureau shall issue a Public Notice of 
the filing of a petition under paragraph (g)(1)(ii) of this section. 
Parties may file comments in response to such a petition within seven 
days of the Public Notice. The local exchange carrier shall have 
authority to introduce new rate elements under paragraph (g)(1)(ii) of 
this section, after the expiration of ten days from issuance of the 
Public Notice, unless the Chief, Common Carrier Bureau informs the LEC 
that the LEC has not demonstrated that its new service meets the 
standards of paragraph (g)(1)(ii) of this section. The incumbent LEC 
may then file one subsequent petition for authorization of that service 
under paragraph (g)(1)(ii) of this section.

[FR Doc. 97-2143 Filed 1-30-97; 8:45 am]
BILLING CODE 6712-01-P


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