Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45579

Source of flooding and location

# Depth in

feet above

ground.

*Elevation

in feet

(NGVD)

At confluence with Maxwell

Creek ................................... *561

Approximately 2,000 feet upstream of confluence ........... *575

Maps are available for inspection at the City of Murphy City

Hall, 205 North Murphy Road,

Murphy, Texas.

UTAH

St. George (City), Washington

County (FEMA Docket No.

7214)

Virgin River:

Approximately 4,400 feet

downstream of confluence

with Middleton Wash ........... *2,567

Approximately 2,700 feet upstream of confluence with

Middleton Wash ................... *2,583

Approximately 9,900 feet upstream of confluence with

Middleton Wash ................... *2,601

Maps are available for inspection at the City of St. George

Engineering Department, 175

East 200 North, St. George,

Utah.

(Catalog of Federal Domestic Assistance No.

83.100, ‘‘Flood Insurance’’)

Dated: August 15, 1997.

Michael J. Armstrong,

Associate Director for Mitigation.

[FR Doc. 97–22940 Filed 8–27–97; 8:45 am]

BILLING CODE 6718–04–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 51

[CC Docket No. 96–98; FCC 97–295]

Implementation of the Local

Competition Provisions in the

Telecommunications Act of 1996

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: The Third Order on

Reconsideration (Order) released August

18, 1997 addresses the obligation of

incumbent local exchange carriers

(LECs) to provide unbundled access to

interoffice transport facilities on a

shared basis. The Order clarifies the

definition of shared transport as a

network element which includes the

same transport links and routing table as

used by the incumbent local exchange

carrier. The effect of this rule will be to

allow competitive carriers to share in

the scale and scope benefits of the

incumbent LEC’s network, thus

increasing competition opportunities in

the local exchange and exchange access

market.

EFFECTIVE DATE: The stay of 47 CFR

51.501 through 51.515, 51.601 through

51.611, 51.705 through 51.715, and

51.809 effective October 15, 1996 (62 FR

662, Jan. 6, 1997) was lifted by the

United States Court of Appeals for the

Eighth Circuit effective July 18, 1997.

The amendments to 47 CFR part 51

made in this final rule are effective

September 29, 1997.

FOR FURTHER INFORMATION CONTACT:

Kalpak Gude, Attorney, Common

Carrier Bureau, Policy and Program

Planning Division, (202) 418–1580. For

additional information concerning the

information collections contained in

this Order contact Judy Boley at (202)

418–0214, or via the Internet at

jboley@fcc.gov.

SUPPLEMENTARY INFORMATION: This is a

summary of the Commission’s Order

adopted and released August 18, 1997.

The full text of this Order is available

for inspection and copying during

normal business hours in the FCC

Reference Center, 1919 M St., N.W.,

Room 239, Washington, D.C. The

complete text also may be obtained

through the World Wide Web, at http:/

/www.fcc.gov/Bureaus/Common

Carrier/Orders/fcc97–295.wp, or may be

purchased from the Commission’s copy

contractor, International Transcription

Service, Inc., (202) 857–3800, 1231 20th

St., N.W., Washington, D.C. 20036.

Regulatory Flexibility Analysis

The changes adopted in this Order do

not affect our analysis in the First

Report and Order (61 FR 45476 (August

29, 1996)).

Synopsis of Third Order on

Reconsideration

I. Introduction

1. In this Order, we address two

petitions for reconsideration or

clarification of the Local Competition

and Order regarding the obligation of

incumbent local exchange carriers

(LECs) to provide unbundled access to

interoffice transport facilities on a

shared basis. Implementation of the

Local Competition Provisions in the

Telecommunications Act of 1996,

Report and Order, (61 FR 45476 (August

29, 1996)) (Local Competition Order),

Order on Reconsideration, (61 FR 52706

(October 8, 1996)), Second Order on

Reconsideration, 61 FR 66931

(December 19, 1996)), further recon.

pending, aff’d in part and vacated in

part sub. nom. CompTel. v. FCC, 11

F.3d 1068 (8th Cir. 1997) (CompTel),

aff’d in part and vacated in part sub

nom. Iowa Utilities Bd. v. FCC and

consolidated cases, No. 96–3321 et al.,

1997 WL 403401 (8th. Cir., Jul. 18, 1997)

(Iowa Utilities Bd.). We intend to

address petitions for reconsideration of

other aspects of the Local Competition

Order in the future.

2. In the Local Competition Order,

which established rules to implement

sections 251 and 252 of the

Communications Act of 1934 (the Act),

as amended by the Telecommunications

Act of 1996, the Commission required

incumbent LECs ‘‘to provide unbundled

access to shared transmission facilities

between end offices and the tandem

switch.’’ In this reconsideration order,

we first explain that the Local

Competition Order required incumbent

LECs to provide requesting carriers with

access to the same transport facilities,

between the end office switch and the

tandem switch, that incumbent LECs

use to carry their own traffic. We further

explain that, when a requesting carrier

takes unbundled local switching, it

gains access to the incumbent LEC’s

routing table, resident in the switch.

Second, we reconsider the requirement

that incumbent LECs only provide

‘‘shared transport’’ between the end

office and tandem. Section 51.319(d) of

the Commission’s rules requires that

incumbent LECs provide access on an

unbundled basis to interoffice

transmission facilities shared by more

than one customer or carrier. 47 CFR

§ 51.319(d). In this reconsideration

order, we refer to such shared interoffice

transmission facilities as ‘‘shared

transport.’’ For the reasons discussed

below, we conclude that incumbent

LECs should be required to provide

requesting carriers with access to shared

transport for all transmission facilities

connecting incumbent LECs’ switches—

that is, between end office switches,

between an end office switch and a

tandem switch, and between tandem

switches. Third, we conclude that

incumbent LECs must permit requesting

carriers that purchase unbundled shared

transport and unbundled switching to

use the same routing table and transport

links that the incumbent LEC uses to

route and carry its own traffic. By

requiring incumbent LECs to provide

requesting carriers with access to the

incumbent LEC’s routing table and to all

its interoffice transmission facilities on

an unbundled basis, requesting carriers

can route calls in the same manner that

an incumbent routes its own calls and

thus take advantage of the incumbent

LEC’s economies of scale, scope, and
45580 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

density. Finally, incumbent LECs must

permit requesting carriers to use shared

transport as an unbundled element to

carry originating access traffic from, and

terminating access traffic to, customers

to whom the requesting carrier is also

providing local exchange service.

3. We also issue a further notice of

proposed rulemaking seeking comment

on whether requesting carriers may use

shared transport facilities in

conjunction with unbundled switching,

to originate or terminate interexchange

traffic to customers to whom the

requesting carrier does not provide local

exchange service. Moreover, we seek

comment on whether requesting carriers

may use dedicated transport facilities to

originate or terminate interexchange

traffic to customers to whom the

requesting carrier does not provide local

exchange service.

II. Background

Local Competition Order

4. Sections 251(c)(3) and 251(d)(2) of

the Act set forth standards for

identifying unbundled network

elements that incumbent LECs must

make available to requesting

telecommunications carriers. Section

251(c)(3) requires incumbent LECs to

provide requesting carriers with

‘‘nondiscriminatory access to network

elements on an unbundled basis at any

technically feasible point.’’ Section

251(d)(2) provides that, in identifying

unbundled elements, the ‘‘Commission

shall consider, at a minimum,

whether—

(A) Access to such network elements as are

proprietary in nature is necessary; and

(B) The failure to provide access to such

network elements would impair the ability of

the telecommunications carrier seeking

access to provide the services that it seeks to

offer.’’

5. In the Local Competition Order, the

Commission, pursuant to sections

251(c)(3) and 251(d)(2), identified a

minimum list of seven network

elements to which incumbent LECs

must provide access on an unbundled

basis. These network elements included

local switches, tandem switches, and

interoffice transmission facilities. With

respect to interoffice transmission

facilities, the Commission required

incumbent LECs to provide requesting

telecommunications carriers access to

both dedicated and ‘‘shared’’ interoffice

transmission facilities. The Commission

defined ‘‘interoffice transmission

facilities’’ as:

Incumbent LEC transmission facilities

dedicated to a particular customer or carrier,

or shared by more than one customer or

carrier, that provide telecommunications

between wire centers owned by incumbent

LECs or requesting telecommunications

carriers, or between switches owned by

incumbent LECs or requesting

telecommunications carriers.

The Commission stated that ‘‘[f]or some

elements, especially the loop, the

requesting carrier will purchase

exclusive access to the element for a

specific period, [and for] other elements,

especially shared facilities such as

common transport, [carriers] are

essentially purchasing access to a

functionality of the incumbent’s

facilities on a minute-by-minute basis.’’

In defining the network elements to

which incumbent LECs must provide

access on an unbundled basis, the

Commission adopted the statutory

definition of unbundled elements as

physical facilities of the network,

together with the features, functions,

and capabilities associated with those

facilities. The Commission concluded

that ‘‘the definition of the term network

element includes physical facilities,

such as a loop, switch, or other node, as

well as logical features, functions, and

capabilities that are provided by, for

example, software located in a physical

facility such as a switch.’’ The

Commission found that:

The embedded features and functions

within a network element are part of the

characteristics of that element and may not

be removed from it. Accordingly, incumbent

LECs must provide network elements along

with all of their features and functions, so

that new entrants may offer services that

compete with those offered by incumbents as

well as new services.

The Commission also determined that

‘‘we should not identify elements in

rigid terms, but rather by function.’’

6. On July 18, 1997, the United States

Court of Appeals for the Eighth Circuit

issued a decision affirming certain of

the Commission’s rules adopted in the

Local Competition Order, and vacating

other rules. Iowa Utilities Bd. v. FCC,

1997 WL 403401 (8th Cir. July 18, 1997).

With respect to issues relevant to this

reconsideration decision, the court

affirmed the Commission’s authority to

identify unbundled network elements

pursuant to section 251(d)(2), and

generally upheld the Commission’s

decision regarding incumbent LECs’

obligations to provide access to network

elements on an unbundled basis. The

order we issue today is consistent with

the court’s decision.

III. Discussion

7. On July 18, 1997, the United States

Court of Appeals for the Eighth Circuit

affirmed in part and vacated in part the

Commission’s Local Competition Order.

We note, as a predicate to our

discussion below, that the court

affirmed the Commission’s rulemaking

authority to identify unbundled network

elements. The court held that section

251(d)(2) of the Act expressly gave the

Commission jurisdiction in this area.

We thus conclude that the Commission

has authority to address, in this

reconsideration order, the issues raised

by petitioners concerning the extent to

which ‘‘shared transport’’ should be

provided as an unbundled element.

8. WorldCom filed a petition for

clarification, and LECC filed a petition

for reconsideration of the Local

Competition Order; both petitions

concerned the definition of shared

transport as an unbundled network

element. WorldCom filed a petition for

clarification pursuant to 47 U.S.C. § 405

and 47 CFR § 1.429, which set forth

rules regarding petitions for

reconsideration. In its petition

WorldCom also stated that, ‘‘[s]hould

the Commission not regard this petition

as a request for clarification of the Local

Competition Order, WorldCom requests

that it be regarded as a petition for

reconsideration.’’ We believe

WorldCom’s filing is more properly

addressed as a petition for

reconsideration, and treat it as such in

this decision.

9. Parties disagree about what we

required in the Local Competition Order

with respect to shared transport. In

addition, parties ask us to clarify or

reconsider our decision regarding the

provision of shared transport under

section 251(c)(3). We first restate what

we required in the Local Competition

Order, and then reconsider certain

aspects that may have been unclear or

that were not addressed in the Local

Competition Order. We then respond to

arguments raised by parties that

advocate a different approach to the

provision of shared transport than our

rules require.

10. We believe that the petitions for

reconsideration have raised reasonable

questions about the scope and nature of

an incumbent LEC’s obligation to offer

shared transport as an unbundled

network element, pursuant to section

251(c)(3) and our implementing

regulations. We address these issues

below. We also believe, however, some

parties have argued that certain aspects

of the rules adopted last August were

ambiguous which, in our view, were

clear. Specifically, in the Local

Competition Order, we expressly

required incumbent LECs to provide

access to transport facilities ‘‘shared by

more than one customer or carrier.’’ The

term ‘‘carrier’’ includes both an

incumbent LEC as well as a requesting

telecommunications carrier. We,
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45581

therefore, conclude that ‘‘shared

transport,’’ as required by the Local

Competition Order encompasses a

facility that is shared by multiple

carriers, including the incumbent LEC.

We recognize that the Local Competition

Order did not explicitly state that an

incumbent LEC must provide shared

transport in a way that enables the

traffic of requesting carriers to be carried

on the same facilities that an incumbent

LEC uses for its traffic. We find,

however, that a fair reading of our order

and rules does not support the claim

advanced by Ameritech that a shared

network element necessarily is shared

only among competitive carriers and is

separate from the facility used by the

incumbent LEC for its own traffic.

Indeed, only Ameritech and US West

suggest that the Local Competition

Order could be interpreted to require

sharing only between multiple

competitive carriers. Moreover, the fact

that we required incumbent LECs to

provide access to other network

elements, such as signalling, databases,

and the local switch, which are shared

among requesting carriers and

incumbent LECs is consistent with our

view that transport facilities ‘‘shared by

more than one customer or carrier’’

must be shared between the incumbent

LECs and requesting carriers.

Furthermore, with respect to local

switching, we expressly rejected, in the

Local Competition Order, a proposal

that incumbent LECs could, or were

required to, partition local switches

before providing requesting carriers

access to incumbent LEC switches

under section 251(c)(3). We stated that

‘‘[t]he requirements we establish for

local switch unbundling do not entail

physical division of the switch, and

consequently do not impose the

inefficiency or technical difficulties

identified by some commentators.’’ We

thus required that shared portions of

incumbent LEC switches would be

shared by all carriers, including the

incumbent LEC. Although we do not

believe that the Local Competition

Order was unclear as to this aspect of an

incumbent LEC’s obligation to provide

shared transport, we take this

opportunity to state explicitly that the

Local Competition Order requires

incumbent LECs to offer requesting

carriers access, on a shared basis, to the

same interoffice transport facilities that

the incumbent uses for its own traffic.

11. We also conclude that the Local

Competition Order was not ambiguous

as to an incumbent LEC’s obligation to

offer access to the routing table resident

in the local switch to requesting carriers

that purchase access to the unbundled

local switch. The Local Competition

Order made clear that requesting

carriers that purchase access to the

unbundled local switch may obtain

customized routing, unless it is not

technically feasible to provide

customized routing from that switch. In

those instances, a requesting carrier is

limited to using the routing instructions

in the incumbent LEC’s routing table. In

so holding, we necessarily accepted the

view that requesting carriers that take

unbundled local switching have access

to the incumbent LEC’s routing table,

resident in the switch. We find nothing

in the Local Competition Order that

supports the contention that requesting

carriers that obtain access to unbundled

local switching, pursuant to section

251(c)(3), do not obtain access to the

routing table in the unbundled local

switch.

12. The Local Competition Order did

not clearly define certain aspects of

incumbent LECs’ obligation to provide

access to shared transport under section

251(c)(3). In particular, we did not

clearly and unambiguously (1) identify

all portions of the network to which

incumbent LEC must provide interoffice

transport facilities on a shared basis;

and (2) address whether requesting

carriers may use shared transport

facilities to provide exchange access

service to IXCs for access to customers

to whom they also provide local

exchange service. We do so here on

reconsideration.

A. Incumbent LECs’ Obligation

Regarding Shared Transport

13. We conclude that the obligation of

incumbent LECs to provide requesting

carriers with access to shared transport

extends to all incumbent LEC interoffice

transport facilities, and not just to

interoffice facilities between an end

office and tandem. Thus, incumbent

LECs are required to provide shared

transport (between end offices, between

tandems, and between tandems and end

offices).

14. The Local Competition Order

expressly required ‘‘incumbent LECs to

provide unbundled access to shared

transmission facilities between end

offices and the tandem switch.’’ Parties

disagree, however, about whether

incumbent LECs are required to provide

shared transport between end offices. As

noted above, there is a discrepancy

between the rule that establishes the

general obligation to provide shared

transport as a network element, and the

rule vacated by the court that purports

to establish the pricing standard for

shared transport. 47 CFR §§ 51.319(d)

and 51.509(d). We note that the Eighth

Circuit has held that the Commission

lacked jurisdiction to adopt the pricing

standard set forth in § 51.509(d), and

accordingly vacated that section of the

Commission’s rules. To the extent that

incumbent LECs already have transport

facilities between end offices, and

between tandems, the routing table

contained in the switch most likely

would route calls between such

switches. We therefore conclude that

there is no basis for limiting the use of

shared transport facilities to links

between end office switches and tandem

switches. Limiting the definition of

shared transport in this manner would

not permit requesting carriers to utilize

the routing tables in the incumbent

LECs’ switches. To the contrary, such a

limitation effectively would require a

requesting carrier to design its own

customized routing table, in order to

avoid having its traffic transported over

the same interoffice facilities,

connecting end offices, that the

incumbent LEC use to transport its own

interoffice traffic. Moreover, in the Local

Competition Order, we held that it is

technically feasible to provide access to

interoffice transport facilities between

end offices and between end offices and

tandem switches. No new evidence has

been presented in this proceeding to

convince us that our earlier conclusion

regarding technical feasibility was

incorrect.

15. We further clarify in this order

that incumbent LECs are only required

to offer dedicated transport between

their switches, or serving wire centers,

and requesting carriers’ switches. Our

Local Competition Order was not

absolutely clear as to whether

incumbent LECs must provide

dedicated or shared interoffice transport

between incumbent LEC switches, or

serving wire centers, and switches

owned by requesting carriers. In the

Local Competition Order, we required

incumbent LECs to ‘‘provide access to

dedicated transmission facilities

between LEC central offices or between

end offices and those of competing

carriers.’’ This could be read to suggest

that incumbent LECs are only required

to provide dedicated (but not shared)

interoffice transport facilities between

their end offices, or serving wire

centers, and points in the requesting

carrier’s network. The rule that defines

interoffice transmission facilities,

however, is less clear, and could be read

to require incumbent LECs to provide

shared transport between incumbent

LECs’ switches, or serving wire centers,

and requesting carriers’ switches.

16. We therefore clarify here that

incumbent LECs must offer only

dedicated transport, and not shared

transport, between their switches, or
45582 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

serving wire centers, and requesting

carriers’ switches, as set forth in the

Local Competition Order. We also note

that the Local Competition Order

expressly limited the requirement to

provide unbundled interoffice transport

facilities to existing incumbent LEC

facilities.

17. On reconsideration, we further

clarify that incumbent LECs are not

required to provide shared transport

between incumbent LEC switches and

serving wire centers. We stated above

that shared transport must be provided

between incumbent LEC switches.

Serving wire centers are merely points

of demarcation in the incumbent LEC’s

network, and are not points at which

traffic is switched. Traffic routed to a

serving wire center is traffic dedicated

to a particular carrier. We thus conclude

that unbundled access to the transport

links between incumbent LEC switches

and serving wire centers must only be

provided by incumbent LECs on a

dedicated basis.

18. Finally, we note that,

traditionally, shared facilities are priced

on a usage-sensitive basis, and

dedicated facilities are priced on a flatrated basis. We believe that this usagesensitive pricing mechanism provides a

reasonable and fair allocation of cost

between the users of shared transport

facilities. For example, in the Access

Charge Reform Order (62 FR 40460 (July

29, 1997)), specifically the sections

dealing with rate structure issues for

interstate access charges, we required

that the cost of switching, a shared

facility, be recovered on a per minute of

use basis, while the cost of entrance

facilities, which are dedicated to a

single interexchange carrier, be

recovered on a flat-rated basis. We note

that several state commissions, in

proceedings conducted pursuant to

section 252 of the Act, have required

incumbent LECs to offer shared

transport priced on a usage-sensitive

basis. We acknowledge that, under the

Eighth Circuit’s decision, we may not

establish pricing rules for shared

transport. However, in situations where

the Commission is required to arbitrate

interconnection agreements pursuant to

subsection 252(e)(5), we intend to

establish usage-sensitive rates for

recovery of shared transport costs unless

parties demonstrate otherwise.

B. Application of the Requirements of

Section 251(d)(2) To Shared Transport

19. Shared transport, as defined in

this order, satisfies the two-prong test

set forth in section 251(d)(2) of the Act.

Section 251(d)(2) requires the

Commission, in determining what

network elements should be made

available under section 251(c)(3), to

consider ‘‘at a minimum, whether (A)

access to such network elements as are

proprietary in nature is necessary; and

(B) the failure to provide access to such

network elements would impair the

ability of the telecommunications

carrier seeking access to provide the

services that it seeks to offer.’’ In the

Local Competition Order, we held that

an incumbent could refuse to provide

access to a network element pursuant to

section 251(d)(2) only if the incumbent

LEC demonstrated that ‘‘the element is

proprietary and that gaining access to

that element is not necessary because

the competing provider can use other,

nonproprietary elements in the

incumbent LEC’s network to provide

service.’’ We further held that, under

section 251(d)(2)(B), we must consider

‘‘whether the failure of an incumbent to

provide access to a network element

would decrease the quality, or increase

the financial or administrative cost of

the service a requesting carrier seeks to

offer, compared with providing that

service over other unbundled elements

in the incumbent LEC’s network.’’ The

Eighth Circuit affirmed the

Commission’s interpretation of section

251(d)(2).

20. In the Local Competition Order,

we concluded that, with respect to

transport facilities, ‘‘the record provides

no basis for withholding these facilities

from competitors based on proprietary

considerations.’’ We also concluded that

section 251(d)(2)(B) requires incumbent

LECs to provide access to shared

interoffice facilities and dedicated

interoffice facilities. With respect to the

unbundled local switch, we held that,

even assuming that switching may be

proprietary, at least in some respects,

‘‘access to unbundled local switching is

clearly ‘necessary’ under our

interpretation of section 251(d)(2)(A).’’

We also concluded that a requesting

carrier’s ability to offer local exchange

service would be ‘‘impaired, if not

thwarted,’’ without access to the

unbundled local switch, and therefore,

that section 251(d)(2)(B) requires

incumbent LECs to provide access to the

unbundled local switch.

21. Upon reconsideration, we herein

affirm that incumbent LECs are

obligated under section 251(d)(2) to

provide access to shared transport, as

we here define it, as an unbundled

network element. Parties in the record

have not contended that interoffice

transport facilities are proprietary, and

we have no basis for modifying our

prior conclusion that interoffice

transport facilities are not proprietary.

Thus, there is no basis under section

251(d)(2)(A) for incumbent LECs to

refuse to provide interoffice transport

facilities on a shared as well as a

dedicated basis.

22. We also note that the failure of an

incumbent LEC to provide access to all

of its interoffice transport facilities on a

shared basis would significantly

increase the requesting carriers’ costs of

providing local exchange service and

thus reduce competitive entry into the

local exchange market. In the Local

Competition Order, we observed that:

By unbundling various dedicated and

shared interoffice facilities, a new entrant can

purchase all interoffice facilities on an

unbundled basis as part of a competing local

network, or it can combine its own interoffice

facilities with those of the incumbent LEC.

The opportunity to purchase unbundled

interoffice facilities will decrease the cost of

entry compared to the much higher cost that

would be incurred by an entrant that had to

construct all of its own facilities. An efficient

new entrant might not be able to compete if

it were required to build interoffice facilities

where it would be more efficient to use the

incumbent LEC’s facilities.

We continue to find the foregoing

statements to be true with respect to

shared as well as dedicated transport

facilities. Requesting carriers should

have the opportunity to use all of the

incumbent LEC’s interoffice transport

facilities. Moreover, the opportunity to

purchase transport facilities on a shared

basis, rather than exclusively on a

dedicated basis, will decrease the costs

of entry.

23. We believe that access to transport

facilities on a shared basis is

particularly important for stimulating

initial competitive entry into the local

exchange market, because new entrants

have not yet had an opportunity to

determine traffic volumes and routing

patterns. Moreover, requiring

competitive carriers to use dedicated

transport facilities during the initial

stages of competition would create a

significant barrier to entry because

dedicated transport is not economically

feasible at low penetration rates. In

addition, new entrants would be

hindered by significant transaction costs

if they were required to continually

reconfigure the unbundled transport

elements as they acquired customers.

We note that incumbent LECs have

significant economies of scope, scale,

and density in providing transport

facilities. Requiring transport facilities

to be made available on a shared basis

will assure that such economies are

passed on to competitive carriers.

Further, if new entrants were forced to

rely on dedicated transport facilities,

even at the earliest stages of competitive

entry, they would almost inevitably

miscalculate the capacity or routing
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45583

patterns. We recognize, however, that

the need for access to all of the

incumbent LEC’s interoffice facilities on

a shared basis may decrease as

competitive carriers expand their

customer base and have an opportunity

to identify traffic volumes and call

routing patterns. We therefore may

revisit at a later date whether incumbent

LECs continue to have an obligation,

under section 251(d)(2), to provide

access to all of their interoffice

transmission facilities on a shared,

usage sensitive basis. We note that, if, in

the future, competitive carriers gain

sufficient market penetration to justify

obtaining dedicated transport facilities,

either through the use of unbundled

elements or through building their

facilities, shared transport may no

longer meet the section 251(d)(2)

requirements. In that event, the

Commission can evaluate at that time

whether incumbent LECs must continue

to provide access to shared transport as

a network element.

24. As noted above, although

interoffice transport, as we define the

element pursuant to section 251(c)(3),

refers to the transport links in the

incumbent LEC’s network, access to

those links on a shared basis effectively

requires a requesting carrier to utilize

the routing table contained in the

incumbent LEC’s switch. Ameritech

contends that the routing table

contained in the switch, which is used

in conjunction with shared transport, is

proprietary. Ameritech and other

incumbent LECs further allege that

requesting carriers may obtain the

functional equivalent of shared

transport either by purchasing transport

as an access service, or by purchasing

dedicated transport facilities. These

parties thus contend that, under section

251(d)(2)(A), incumbent LECs are not

required to provide shared transport

(including use of the routing table

contained in the switch) as a network

element.

25. Issues regarding intellectual

property rights associated with network

elements are before us in a separate

proceeding. For purposes of this Order

only, we therefore assume without

deciding that the routing table is

proprietary. We nevertheless conclude

that section 251(d)(2) requires an

incumbent LEC to provide access to

both its interoffice transmission

facilities and to the routing tables

contained in the incumbent LEC’s

switches. We affirm our finding in the

Local Competition Order that transport

provided as part of access service, or as

a wholesale usage service, is not a viable

substitute for shared transport as a

network element. All incumbent LECs

are not required to offer transport as an

access service on a stand alone basis.

Only Class A carriers are required,

under our Expanded Interconnection

rules, to unbundle interstate transport

service. Moreover, transport service that

incumbents offer under the Expanded

Interconnection tariffs may include only

interstate transport facilities (transport

provided either via a tandem switch or

direct trunked between a local switch

and the serving wire center), not

interoffice transport facilities directly

connecting two local switches. In the

Local Competition Order, moreover, we

expressly rejected the suggestion that

requesting carriers ‘‘are not impaired in

their ability to provide a service * * *

if they can provide the proposed service

by purchasing the service at wholesale

rates from a LEC.’’

C. Use of Shared Transport Facilities To

Provide Exchange Access Service

26. In this order on reconsideration,

we clarify that requesting carriers that

take shared or dedicated transport as an

unbundled network element may use

such transport to provide interstate

exchange access services to customers to

whom it provides local exchange

service. We further clarify that, where a

requesting carrier provides interstate

exchange access services to customers,

to whom it also provides local exchange

service, the requesting carrier is entitled

to assess originating and terminating

access charges to interexchange carriers,

and it is not obligated to pay access

charges to the incumbent LEC.

27. In the Local Competition Order,

we held that, if a requesting carrier

purchases access to a network element

in order to provide local exchange

service, the carrier may also use that

element to provide exchange access and

interexchange services. We did not

impose any restrictions on the types of

telecommunications services that could

be provided over network elements. We

did not specifically consider in the

Local Competition Order, however,

whether a requesting carrier may use

interoffice transport to provide

exchange access service. We conclude

here that a requesting carrier may use

the shared transport unbundled element

to provide exchange access service to

customers for whom the carrier provides

local exchange service. We find that this

is consistent with our initial decision.

D. Response to Specific Arguments

Raised by Parties

28. As discussed above, we define the

unbundled network element of shared

transport under section 251(c)(3) as

interoffice transmission facilities,

shared between the incumbent LEC and

one or more requesting carriers or

customers, that connect end office

switches, end office switches and

tandem switches, or tandem switches,

in the incumbent LEC’s network. We

exclude from this definition interoffice

transmission facilities that connect an

incumbent LEC’s switch and a

requesting carrier’s switch, and those

connecting an incumbent LEC’s end

office switch, or tandem switch, and a

serving wire center. This definition of

shared transport assumes the

interconnection point between the two

carriers’ networks, pursuant to section

251(c)(2), is at the incumbent LEC’s

switch. This definition is consistent

with the statutory definition of network

elements, which defines a network

element as a facility or equipment used

in the provision of a

telecommunications service, including

the features, functions, and capabilities

provided by means of such facility or

equipment.

29. As an initial matter, we reject

Ameritech’s contention that, by

definition, network elements must be

partly or wholly dedicated to a

customer. To the contrary, we held in

the Local Competition Order that some

network elements, such as loops, are

provided exclusively to one requesting

carrier, and some network elements,

such as interoffice transport provided

on a shared basis, are provided on a

minute-of-use basis and are shared with

other carriers. In the Local Competition

Order, we also identified signalling,

call-related databases, and the switch, as

network elements that necessarily must

be shared among the incumbent and

multiple competing carriers.

30. We also reject Ameritech’s and

BellSouth’s contention that, because

WorldCom and other requesting carriers

seek access to an element—shared

transport—that cannot be effectively

disassociated from another element—

local switching, the requesting carriers

are in fact seeking access to a bundled

service rather than to transport as a

network element unbundled from

switching. As previously discussed,

several of the network elements we

identified in the Local Competition

Order depend, at least in part, on other

network elements. In particular,

although we identified the signalling

network as a network element, the

information necessary to utilize

signalling networks resides in the

switch, which we identified as a

separate network element. In addition,

we required incumbent LECs, upon

request, to provide access to unbundled

loops conditioned to provide, among

other things, digital services such as

ISDN, even though the equipment used
45584 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

to provide ISDN service typically

resides in the local switch, rather than

in the loop. We thus find no basis for

concluding that each network element

must be functionally independent of

other network elements.

31. We reject as well Ameritech’s

contention that a network element must

be identifiable as a limited or preidentified portion of the network. We

find nothing in the statutory definition

of network elements that prohibits

requesting telecommunications carriers

from seeking access to every transport

facility within the incumbent’s network.

Our definition of signalling as a network

element does not require requesting

carriers to identify in advance a

particular portion of the incumbent

LEC’s signalling facilities, but instead

permits requesting carriers to obtain

access to multiple signalling links and

signalling transfer points in the

incumbent LEC’s network on an asneeded basis. We also reject Ameritech’s

assertion that shared transport cannot be

physically separated from switching.

Both dedicated and shared transport

facilities are transport links between

switches. These links are physically

distinct from the end office and tandem

switches themselves.

32. Although we conclude that shared

transport is physically severable from

switching, incumbent LECs may not

unbundle switching and transport

facilities that are already combined,

except upon request by a requesting

carrier. Although, the Eighth Circuit

struck down the Commission’s rule that

required incumbent LECs to rebundle

separate network elements, the court

nevertheless stated that it: ‘‘upheld the

remaining unbundling rules as

reasonable constructions of the Act,

because, as we have shown, the Act

itself calls for the rapid introduction of

competition into the local phone

markets by requiring incumbent LECs to

make their networks available to * * *

competing carriers.’’ Among other

things, the court left in effect § 51.315(b)

of the Commission’s rules, which

provides that, ‘‘[e]xcept upon request,

an incumbent LEC shall not separate

requested network elements that the

incumbent LEC currently combines.’’

Therefore, although incumbent LECs are

not required to combine transport and

switching facilities to the extent that

those elements are not already

combined, incumbent LECs may not

separate such facilities that are currently

combined, absent an affirmative request.

In addition to violating section

51.315(b) of our rules, such dismantling

of network elements, absent an

affirmative request, would increase the

costs of requesting carriers and delay

their entry into the local exchange

market, without serving any apparent

public benefit. We believe that such

actions by an incumbent LEC would

impose costs on competitive carriers

that incumbent LECs would not incur,

and thus would violate the requirement

under section 251(c)(3) that incumbent

LECs provide nondiscriminatory access

to unbundled elements. Moreover, an

incumbent LEC that separates shared

transport facilities that are already

connected to a switch would likely

disrupt service to its own customers

served by the switch because, by

definition, the shared transport links are

also used by the incumbent LEC to serve

its customers. Thus, incumbent LECs

would seem to have no network-related

reason to separate network elements

that it already combines absent a

request.

33. We likewise reject Ameritech’s

contention that purchasing access to the

switch as a network element does not

entitle a carrier to use the routing table

located in that switch. According to

Ameritech, vendors provide switches

that are capable of acting on routing

instructions, but the switch itself does

not include routing instructions; those

instructions are added by the carrier

after it purchases the switch from the

vendor and are contained in a routing

table resident in the switch. Ameritech

asserts that its routing tables are

proprietary products, and ‘‘are not a

feature of the switch.’’ In the Local

Competition Order, we determined that

‘‘we should not identify elements in

rigid terms, but rather by function.’’

Routing is a critical and inseverable

function of the local switch. One of the

most essential features a switch

performs is to provide routing

information that sends a call to the

appropriate destination. We find no

support in the statute, the Local

Competition Order, or our rules for

Ameritech’s assertion that the switch, as

a network element, does not include

access to the functionality provided by

an incumbent LEC’s routing table. In

fact, the only question addressed in the

Local Competition Order was whether

requesting carriers could obtain

customized routing, that is, routing

different from the incumbent LEC’s

existing routing arrangements.

34. We further find that access to

unbundled switching is not necessarily

limited to the product the incumbent

LEC originally purchased from a vendor.

As we noted in the Local Competition

Order, incumbent LECs may in some

instances be required to modify or

condition a network element to

accommodate a request under section

251(c)(3). Moreover, we held that

unbundled local switching includes

access to the vertical features of the

switch, regardless of whether the

vertical features were included in the

switch when it was purchased, or

whether the vertical features were

purchased separately from the vendor or

developed by the incumbent. We held

that network elements include physical

facilities ‘‘as well as logical features,

functions, and capabilities that are

provided by, for example, software

located in a physical facility such as a

switch.’’ We also note that the Eighth

Circuit affirmed the Commission’s

interpretation of the Act’s definition of

‘‘network elements.’’ The court stated

that ‘‘the Act’s definition of network

elements is not limited to only the

physical components of a network that

are directly used to transmit a phone

call from point A to point B’’ and that

the Act’s definition explicitly made

reference to ‘‘databases, signaling

systems, and information sufficient for

billing and collection.’’ Thus, just as

databases and signaling systems may

include software created by the

incumbent LEC, which must be made

available to competitive carriers

purchasing those elements on an

unbundled basis, we believe that the

routing table created by the incumbent

LEC that is resident in the switch must

be made available to requesting carriers

purchasing unbundled switching.

Finally, we note that Ameritech is the

only incumbent LEC that has argued in

this record that the routing table is not

included in the unbundled local

switching element. Other incumbent

LECs have stated that they offer shared

transport in conjunction with

unbundled local switching. This

suggests that other incumbent LECs

recognize that the routing table is a

feature, function, or capability of the

switch.

35. We also disagree with Ameritech’s

and BellSouth’s argument that defining

the unbundled network element shared

transport as all transport links between

any two incumbent LEC switches would

be inconsistent with Congress’s

intention to distinguish between resale

services and unbundled network

elements. Section 251(c)(3) requires

incumbent LECs to make available

unbundled network elements at costbased rates; sections 251(c)(4) and

252(d)(3) require incumbent LECs to

make available for resale, at retail price

less avoided costs, services the

incumbent LEC offers to retail users. In

the Local Competition Order, we held

that a key distinction between section

251(c)(3) and section 251(c)(4) is that a

requesting carrier that obtains access to
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45585

unbundled network elements faces

greater risks than a requesting carrier

that only offers services for resale. A

requesting carrier that takes a network

element dedicated to that carrier, and

recovered on a flat-rated basis, must pay

for the cost of the entire element,

regardless of whether the carrier has

sufficient demand for the services that

the element is able to provide. The

carrier thus is not guaranteed that it will

recoup the costs of the element. By

contrast, a carrier that uses the resale

provision will not bear the risk of

paying for services for which it does not

have customers. In particular, a

requesting carrier that takes an

unbundled local switch must pay for all

of the vertical features included in the

switch, even if it is unable to sell those

vertical features to end user customers.

Requesting carriers that purchase shared

transport as a network element to

provide local exchange service must

also take local switching, for the

practical reasons set forth herein, and

consequently will be forced to assume

the risk associated with switching. A

requesting carrier that uses its own selfprovisioned local switches, rather than

unbundled local switches obtained from

an incumbent LEC, to provide local

exchange and exchange access service

would use dedicated transport facilities

to carry traffic between its network and

the incumbent LEC’s network. Thus, the

only carrier that would need shared

transport facilities would be one that

was using an unbundled local switch.

36. BellSouth’s argument, that

assessing a usage-sensitive rate for

shared transport would be inconsistent

with the 1996 Act because it would not

reflect the manner in which costs are

incurred, is similarly unpersuasive.

BellSouth’s argument is premised on the

assumption that incumbent LECs would

be required to provide shared transport

over facilities between the tandem

switch and the serving wire center. In

this order, however, we make clear that

incumbent LECs are required to provide

transport on a dedicated, but not on a

shared basis, over transport facilities

between the incumbent LEC’s tandem

and the serving wire center. Thus,

BellSouth’s concern is misplaced.

37. We also find that there is no

element in the incumbent LEC’s

network that is an equivalent substitute

for the routing table. We agree with

Ameritech that requesting carriers could

duplicate the shared transport network

by purchasing dedicated facilities. But

in that instance, requesting carriers

would be forced to develop their own

routing instructions, and would not be

utilizing a portion of the incumbent

LEC’s network to substitute for the

routing table. In the Local Competition

Order, we specifically rejected the

suggestion that an incumbent LEC is not

required to provide a network element

if a requesting carrier could obtain the

element from a source other than the

incumbent LEC. The Eighth Circuit

affirmed the Commission’s conclusion.

38. Furthermore, we find that, at this

stage of competitive entry, limiting

shared transport to dedicated transport

facilities, as Ameritech suggests, would

impose unnecessary costs on new

entrants without any corresponding,

direct benefits. AT&T and Ameritech

have both presented evidence regarding

the costs of dedicated transport facilities

linking every end office and tandem in

an incumbent LEC’s network as

significant relative to the cost of ‘‘shared

transport.’’. For example, AT&T

contends that the cost is $.041767 per

minute for dedicated transport plus

associated non-recurring charges

(NRCs). AT&T claims that Ameritech

would charge a total of $5008.58 per

DS1 (including administrative charges

and connection charges) and $58,552.87

per switch (including customized

routing and billing development). AT&T

argues that this compares with $.000776

per minute for unbundled shared

transport. Ameritech, on the other hand,

contends the use of tandem routed

dedicated facilities cost is $.0031148 per

minute plus associated NRCs.

Ameritech claims that the nonrecurring

charges per DS1 are $2769.27 (including

administrative charges per order).

Ameritech states that other NRCs

include two trunk port connection

charges ($770.29 initial, $29.16

subsequent), service ordering charge per

occasion ($398.72 initial, $17.37

subsequent), billing development charge

per switch ($35,328.87), custom routing

charge, per line class code per switch

($232.24), and a service order charge

($398.73). Nevertheless, under either

AT&T’s or Ameritech’s cost calculations

for dedicated transport, we conclude

that the relative costs of dedicated

transport, including the associated

NRCs, is an unnecessary barrier to entry

for competing carriers.

39. We also find that limiting shared

transport to dedicated facilities, as

defined by Ameritech, would be unduly

burdensome for new entrants. First, we

agree with MCI, AT&T, et al., that a new

entrant may not have sufficient traffic

volumes to justify the cost of dedicated

transport facilities. Second, a new

entrant entering the local market with

smaller traffic volumes would have to

maintain greater excess capacity relative

to the incumbent LEC in order to

provide the same level of service quality

(i.e., same level of successful call

attempts) as the incumbent LEC. See

William W. Sharkey, The Theory of

Natural Monopoly 184–85, (1982) (‘‘that

for a given number of circuits the

economies [of scale] are more

pronounced at higher grades of service

(lower blocking probability). The

economics of scale, however, decline

substantially as the number of circuits

increases. Therefore for small demands

a fragmentation of the network could

result in a significant cost penalty,

because more circuits would be required

to maintain the same grade of service.

At larger demands the costs of

fragmentation are less pronounced.’’)

(emphasis added). As a new entrant

gains market share and increased traffic

volumes for local service, however, the

relative amount of excess capacity

necessary to prevent blocking should

decrease. We do not rule out the

possibility, therefore, that, once new

entrants have had a fair opportunity to

enter the market and compete, we might

reconsider incumbent LECs’ obligations

to provide access to the routing table.

40. As discussed above, requesting

carriers may use shared transport to

provide exchange access service to

customers for whom they also provide

local exchange service. Several

competing carriers contend that an

interexchange carrier (IXC) has the right

to select a requesting carrier that has

purchased unbundled shared transport

to provide exchange access service. The

carriers further contend that, if the IXC

selects a requesting carrier, rather than

the incumbent LEC, as the exchange

access provider, the competing carrier is

entitled to bill the IXC for the access

services associated with shared

transport. We find that a requesting

carrier may use shared transport

facilities to provide exchange access

service to originate or terminate traffic

to its local exchange customers,

regardless of whether the requesting

carrier or another carrier is the IXC for

that traffic. We further conclude that a

requesting carrier that provides

exchange access service to another

carrier is entitled to assess access

charges associated with the shared

transport facilities used to transport the

traffic. We believe that this necessarily

follows from our decision in the Local

Competition Order where we stated that:

[W]here new entrants purchase access to

unbundled network elements to provide

exchange access services, whether or not they

are also offering toll services through such

elements, the new entrants may assess

exchange access charges to IXCs originating

or terminating toll calls on those elements. In

these circumstances, incumbent LECs may

not assess exchange access charges to IXCs

because the new entrants, rather than the
45586 Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations

incumbents, will be providing exchange

access services. * * *

We therefore find that requesting

carriers that provide exchange access

using shared transport facilities to

originate and terminate local exchange

calls may also use those same facilities

to provide exchange access service to

the same customers to whom the

requesting carrier is providing local

exchange service. Requesting carriers

are then entitled to assess access charges

to interexchange carriers that use the

shared transport facilities to originate

and terminate traffic to the requesting

carrier’s customers.

E. Final Regulatory Flexibility Analysis

41. As required by the Regulatory

Flexibility Act (RFA), the Commission

issued a Final Regulatory Flexibility

Analysis (FRFA) in its Local

Competition Order in this proceeding.

None of the petitions for reconsideration

filed in Docket No. 96–98 specifically

address, or seek reconsideration of, that

FRFA. This present Supplemental Final

Regulatory Flexibility Analysis

addresses the potential effect on small

entities of the rules adopted pursuant to

the Third Order on Reconsideration in

this proceeding, supra. This

Supplemental FRFA incorporates and

adds to our FRFA.

42. Need for and Objectives of this

Third Order on Reconsideration and the

Rules Adopted Herein. The need for and

objectives of the rules adopted in this

Third Order on Reconsideration are the

same as those discussed in the Local

Competition Order’s FRFA ‘‘Summary

Analysis of Section V Access to

Unbundled Network Elements.’’ In

general, our rules adopted in Section V

were intended to facilitate the statutory

requirement that incumbent local

exchange carriers (LECs) are required to

provide nondiscriminatory access to

unbundled network elements. In this

Third Order on Reconsideration, we

grant in part and deny in part the

petitions filed for reconsideration and/

or clarification of the Local Competition

Order, in order to further the same

needs and objectives. We conclude that

the duty of incumbent LECs to provide

access to unbundled network elements

also includes the provision of ‘‘shared

transport’’ as an unbundled network

element between end offices, even if

tandem switching is not used to route

the traffic. We also hold that the term

‘‘shared transport’’ refers to all

transmission facilities connecting an

incumbent LEC’s switches—that is,

between end office switches, between

an end office switch and a tandem

switch, and between tandem switches.

We conclude that incumbent LECs are

obligated under Section 251(d)(2) of the

Communications Act of 1934, as

amended, 47 U.S.C. § 251(d)(2), to

provide access to both their interoffice

transmission facilities and their routing

tables contained in the incumbent LEC’s

switches. Finally, we conclude that a

requesting carrier may use the shared

transport unbundled element to provide

exchange access service to customers for

whom the carrier provides local

exchange service.

43. Description and Estimate of the

Number of Small Entities To Which the

Rules Will Apply. In determining the

small entities affected by our Third

Order on Reconsideration for purposes

of this Supplemental FRFA, we adopt

the analysis and definitions set forth in

the FRFA in our Local Competition

Order. The RFA directs the Commission

to provide a description of and, where

feasible, an estimate of the number of

small entities that might be affected by

the rules we have adopted. The RFA

defines the term ‘‘small entity’’ as

having the same meaning as the terms

‘‘small business,’’ ‘‘small organization,’’

and ‘‘small business concern’’ under

Section 3 of the Small Business Act. A

small business concern is one which: (1)

Is independently owned and operated;

(2) is not dominant in its field of

operation; and (3) satisfies any

additional criteria established by the

Small Business Administration (SBA).

The SBA has defined a small business

for Standard Industrial Classification

(SIC) categories 4812 (Radiotelephone

Communications) and 4813 (Telephone

Communications, Except

Radiotelephone) to be an entity with no

more than 1,500 employees. Consistent

with our FRFA and prior practice, we

here exclude small incumbent local

exchange carriers (LECs) from the

definition of ‘‘small entity’’ and ‘‘small

business concern.’’ While such a

company may have 1500 or fewer

employees and thus fall within the

SBA’s definition of a small

telecommunications entity, such

companies are either dominant in their

field of operations or are not

independently owned and operated. Out

of an abundance of caution, however,

for regulatory flexibility analysis

purposes, we will consider small

incumbent LECs within this present

analysis and use the term ‘‘small

incumbent LECs’’ to refer to any

incumbent LEC that arguably might be

defined by SBA as a small business

concern.

44. In addition, for purposes of this

Supplemental FRFA, we adopt the

FRFA estimates of the numbers of

telephone companies, incumbent LECs,

and competitive access providers

(CAPs) that might be affected by the

Local Competition Order. In the FRFA,

we determined that it was reasonable to

conclude that fewer than 3,497

telephone service firms are small entity

telephone service firms or small

incumbent LECs that might be affected.

We further estimated that there are

fewer than 1,347 small incumbent LECs

that might be affected. Finally, we

estimated that there were fewer than 30

small entity CAPs that would qualify as

small business concerns.

45. Summary of Projected Reporting,

Recordkeeping and Other Compliance

Requirements. As a result of the rules

adopted in the Third Order on

Reconsideration, we require incumbent

LECs to provide requesting carriers with

access to the same shared transport for

all transmission facilities connecting

incumbent LECs’ switches. No party to

this proceeding has suggested that

changes in the rules relating to access to

unbundled network elements would

affect small entities or small incumbent

LECs. We determine that complying

with this rule may require use of

engineering, technical, operational,

accounting, billing, and legal skills. For

example, a new entrant may be required

to combine its own interoffice facilities

with those of the incumbent LEC, or be

required to combine purchased

unbundled network elements into a

package unique to its own needs.

46. Steps Taken To Minimize

Significant Economic Impact on Small

Entities, and Alternatives Considered.

As stated in our FRFA, we determined

that our decision to establish minimum

national requirements for unbundled

elements should facilitate negotiations

and reduce regulatory burdens and

uncertainty for all parties, including

small entities and small incumbent

LECs. National requirements for

unbundling may allow new entrants,

including small entities, to take

advantage of economies of scale in

network design, which may minimize

the economic impact of our decision in

the Local Competition Order. As stated

above, no petitioner has challenged this

finding. We further find that our new

rules, which clarify the definition of

‘‘shared transport,’’ will likely ensure

that small entities obtain the unbundled

elements that they request.

47. Report to Congress: The

Commission will send a copy of the

Third Order on Reconsideration,

including this Supplemental FRFA, in a

report to be sent to Congress pursuant

to the Small Business Regulatory

Enforcement Fairness Act of 1996, see 5

U.S.C. 801(a)(1)(A). A copy of the Third

Order on Reconsideration and this

supplemental FRFA (or summary
Federal Register / Vol. 62, No. 167 / Thursday, August 28, 1997 / Rules and Regulations 45587

thereof) will also be published in the

Federal Register, see 5 U.S.C. 604(b),

and will be sent to the Chief Counsel for

Advocacy of the Small Business

Administration.

IV. Ordering Clauses

48. Accordingly, it is ordered that,

pursuant to sections 1–4, 201–205, 214,

251, 252, and 303(r) of the

Communications Act of 1934, as

amended, 47 U.S.C. 151–154, 201–205,

214, 251, 252, and 303(r), the Third

Order on Reconsideration is adopted.

49. It is further ordered that changes

adopted on reconsideration and the rule

amendments will be effective September

29, 1997.

50. It is further ordered, pursuant to

section 405 of the Communications Act

of 1934, as amended, 47 U.S.C. 405, and

§ 1.106 of the Commission’s rules, 47

CFR 1.106 (1995), that the petitions for

reconsideration filed by WorldCom, Inc.

and the Local Exchange Carriers

Coalition are denied in part and granted

in part to the extent indicated above.

51. It is further ordered, that the

Commission shall send a copy of this

Third Order on Reconsideration and

Further Notice of Proposed Rulemaking,

including the associated Supplemental

Final Regulatory Flexibility Analysis

and Initial Regulatory Flexibility

Analysis, to the Chief Counsel for

Advocacy of the Small Business

Administration.

List of Subjects in 47 CFR Part 51

Communications common carriers,

Network elements, Transport and

termination.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 51 of title 47 of the Code of

Federal Regulations is amended as

follows:

PART 51—INTERCONNECTION

1. The authority citation for part 51

continues to read as follows:

Authority: Sections 1–5, 7, 201–05, 207–

09, 218, 225–27, 251–54, 271, 48 Stat. 1070,

as amended, 1077; 47 U.S.C. 151–55, 157,

201–05, 218, 225–27, 251–54, 271, unless

otherwise noted.

2. Section 51.319 is amended by

revising paragraph (d)(1) to read as

follows:

§ 51.319 Specific unbundling

requirements.

* * * * *

(d) * * *

(1) Interoffice transmission facilities

include:

(i) Dedicated transport, defined as

incumbent LEC transmission facilities

dedicated to a particular customer or

carrier that provide telecommunications

between wire centers owned by

incumbent LECs or requesting

telecommunications carriers, or between

switches owned by incumbent LECs or

requesting telecommunications carriers;

(ii) Shared transport, defined as

transmission facilities shared by more

than one carrier, including the

incumbent LEC, between end office

switches, between end office switches

and tandem switches, and between

tandem switches, in the incumbent

LEC’s network;

* * * * *

3. Section 51.515 is amended by

adding paragraph (d) to read as follows:

§ 51.515 Application of access charges.

* * * * *

(d) Interstate access charges described

in part 69 shall not be assessed by

incumbent LECs on each element

purchased by requesting carriers

providing both telephone exchange and

exchange access services to such

requesting carriers’ end users.

[FR Doc. 97–22734 Filed 8–27–97; 8:45 am]

BILLING CODE 6712–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 64

[FCC 97–163]

Implementation of Section 254(k) of the

Communications Act of 1934, as

Amended

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: In this Order, the Commission

implements section 254(k) by codifying

its prohibitions in part 64 of the

Commission’s rules. The Commission

revises § 64.901 to establish a new

section (c) to reflect section 254(k) of the

Telecommunications Act of 1996 (1996

Act). Section 254(k) states that ‘‘a

telecommunications company may not

use services that are not competitive to

subsidize services subject to

competition.’’

EFFECTIVE DATE: September 29, 1997.

FOR FURTHER INFORMATION CONTACT:

Andrew Mulitz, Accounting and Audits

Division, Common Carrier Bureau, (202)

418–0827.

SUPPLEMENTARY INFORMATION: The

opening of the local exchange and

exchange access markets to competition

as well as the ability of the Bell

Operating Companies (BOCs) to enter

new markets and engage in previously

proscribed activities creates the

potential for incumbent local exchange

carriers’ (ILECs) to misallocate costs in

ways that our current rules may not

restrict because these rules are focused

on the allocation of costs between

regulated and nonregulated activities.

New section 254(k), however,

establishes two dichotomies that are not

explicitly addressed by our existing

rules. Section 254(k) requires additional

scrutiny of the allocation of costs

between competitive and

noncompetitive activities, both

regulated and nonregulated, and

between universal services and all other

services.

Section 254(k) states that ‘‘a

telecommunications company may not

use services that are not competitive to

subsidize services that are subject to

competition.’’ The Commission

concludes that this provision of section

254(k) places an obligation on

telecommunications carriers that

supplements our existing rules. This

provision of section 254(k) addresses

the concern that ILECs may attempt to

gain an unfair market advantage in

competitive markets by allocating to

their less competitive services, for

which subscribers have no available

alternative, an excessive portion of the

costs incurred by their competitive

operations.

Section 254(k) also directs the

Commission, with respect to interstate

services, to ‘‘establish any necessary

cost allocation rules, accounting

safeguards, and guidelines to ensure

that services included in the definition

of universal service bear no more than

a reasonable share of the joint and

common costs of facilities used to

provide those services.

For ILECs, the Commission concludes

that codifying section 254(k)’s

prohibitions in part 64 of our rules will

give the fullest effect to the Act’s

prohibitions. In this way, our rules will

reflect the intent of the Act and

reinforce our commitment to enforcing

this mandate. Because this rule change

merely codifies the requirements of the

Act and involves no discretionary action

by the Commission, we find good cause

to conclude that notice and comment

procedures are unnecessary.

Ordering Clause

Accordingly, It is ordered that,

pursuant to sections 1, 4, 201–205, 218,

220, 251, 252 and 254(k) of the

Communications Act of 1934, as

amended, 47 U.S.C. § 151, 154, 201–205,

218, 220, 251, 252 and 254(k), and