Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58659

clinics, public health facilities, and

similar establishments, including

governmental entities and agencies for

their own medical activities.

(2) This authority to operate does not

extend to mobile vehicles, such as

ambulances, even if those vehicles are

associated with a health care facility.

(b) The fundamental emissions from a

biomedical telemetry device operating

under the provisions of this section

shall be contained within a single

television broadcast channel, as defined

in part 73 of this chapter, under all

conditions of operation and shall lie

wholly within the frequency ranges of

174–216 MHz and 470–668 MHz.

(c) The field strength of the

fundamental emissions shall not exceed

200 mV/m, as measured at a distance of

3 meters using a quasi-peak detector.

Manufacturers should note that a quasipeak detector function indicates field

strength per 120 kHz of bandwidth ±20

kHz. Accordingly, the total signal level

over the band of operation may be

higher than 200 mV/m. The field

strength of emissions radiated on any

frequency outside of the television

broadcast channel within which the

fundamental is contained shall not

exceed the general limits in § 15.209.

(d) The user and the installer of a

biomedical telemetry device operating

within the frequency range 174–216

MHz, 470–608 MHz or 614–668 MHz

shall ensure that the following

minimum separation distances are

maintained between the biomedical

telemetry device and the authorized

radio services operating on the same

frequencies:

(1) At least 10.3 km outside of the

Grade B field strength contour (56

dBuV/m) of a TV broadcast station or an

associated TV booster station operating

within the band 174–216 MHz.

(2) At least 5.5 km outside of the

Grade B field strength contour (64

dBuV/m) of a TV broadcast station or an

associated TV booster station operating

within the bands 470–608 MHz or 614–

668 MHz.

(3) At least 5.1 km outside of the 68

dBuV/m field strength contour of a low

power TV or a TV translator station

operating within the band 174–216

MHz.

(4) At least 3.1 km outside of the 74

dBuV/m field strength contour of a low

power TV or a TV translator station

operating within the bands 470–608

MHz or 614–668 MHz.

(5) Whatever distance is necessary to

protect other authorized users within

these bands.

(e) The user and the installer of a

biomedical telemetry device operating

within the frequency range 608–614

MHz and that will be located within 32

km of the very long baseline array

(VLBA) stations or within 80 km of any

of the other radio astronomy

observatories noted in footnote US 311

of Section 2.106 of this chapter must

coordinate with, and obtain the written

concurrence of, the director of the

affected radio astronomy observatory

before the equipment can be installed or

operated. The National Science

Foundation point of contact for

coordination is: Spectrum Manager,

Division of Astronomical Sciences, NSF

Rm 1045, 4201 Wilson Blvd., Arlington,

VA 22230; tel: (703) 306–1823.

(f) Biomedical telemetry devices must

not cause harmful interference to

licensed TV broadcast stations or to

other authorized radio services, such as

operations on the broadcast frequencies

under subparts G and H of part 74 of

this chapter, land mobile stations

operating under part 90 of this chapter

in the 470–512 MHz band, and radio

astronomy operation in the 608–614

MHz band. (See § 15.5.) If harmful

interference occurs, the interference

must either be corrected or the device

must immediately cease operation on

the occupied frequency. Further, the

operator of the biomedical telemetry

device must accept whatever level of

interference is received from other radio

operations. The operator, i.e., the health

care facility, is responsible for resolving

any interference that occurs subsequent

to the installation of these devices.

(g) The manufacturers, installers, and

users of biomedical telemetry devices

are reminded that they must ensure that

biomedical telemetry transmitters

operating under the provisions of this

section avoid operating in close

proximity to authorized services using

this spectrum. Sufficient separation

distance, necessary to avoid causing or

receiving harmful interference, must be

maintained from co-channel operations.

These parties are reminded that the

frequencies of the authorized services

are subject to change, especially during

the implementation of the digital

television services. The operating

frequencies of the part 15 devices may

need to be changed, as necessary and in

accordance with the permissive change

requirements of this chapter, to

accommodate changes in the operating

frequencies of the authorized services.

(h) The manufacturers, installers and

users of biomedical telemetry devices

are cautioned that the operation of this

equipment could result in harmful

interference to other nearby medical

devices.

[FR Doc. 97–28761 Filed 10–29–97; 8:45 am]

BILLING CODE 6712–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 64

[CC Docket 96–128; FCC 97–371]

Pay Telephone Reclassification and

Compensation Provisions of the

Telecommunications Act of 1996

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: On October 9, 1997, the

Commission adopted a Second Report

and Order in CC Docket 96–128, FCC

97–371, in which it concluded that

interexchange carriers must compensate

payphone service providers for all

coinless payphone calls not otherwise

compensated pursuant to contract,

including subscriber 800 and access

code calls, 0+ and inmate calls, at the

rate of $.284 per call. The Commission

based this decision on the conclusion

that the default rate for per-call

compensation for these calls is the

deregulated local coin rate adjusted for

cost differences. This rate will continue

to be the default rate for coinless

payphone calls for the first two years of

per-call compensation. After the first

two years, the market-based local coin

rate adjusted for certain costs is the

surrogate for the default per-call rate.

EFFECTIVE DATE: October 30, 1997.

FOR FURTHER INFORMATION CONTACT: Rose

Crellin or Greg Lipscomb, Formal

Complaints and Information Branch,

Enforcement Division, Common Carrier

Bureau (202) 418–0960.

SUPPLEMENTARY INFORMATION:

Adopted: October 9, 1997.

Released: October 9, 1997.

By the Commission: Commissioners Quello

and Ness issuing separate statements.

TABLE OF CONTENTS

Topic Paragraph

No.

I. Introduction .............................. 1

II. Background ............................. 6

III. Per-Call Compensation ......... 16

A. The Standard for Determining Per-Call Compensation .......................... 16

B. Market-Based Compensation Analysis ........... 29

C. Alternatives to a MarketBased Compensation

Rate .................................. 68

D. Per-Call Compensation

Rate .................................. 111

E. Other ............................... 123

IV. Procedural Matters ................ 134

A. Paperwork Reduction Act

Analysis ............................ 134
58660 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

1The default per-call rate is the rate that shall

apply in the absence of a negotiated agreement

between parties during the first two years of percall compensation (October 7, 1997, through

October 6, 1999). Thereafter, the default rate, in the

absence of a negotiated agreement, is the marketbased local coin rate less $0.066. For coinless

payphones, $0.284 will continue to be the default

rate, absent a negotiated agreement.

2An ‘‘access code’’ is a sequence of numbers that,

when dialed, connect the caller to the operator

service provider (‘‘OSP’’) associated with that

sequence, as opposed to the OSP presubscribed to

the originating line. Access codes include 800

numbers, 10XXX in equal access areas and ‘‘950’’

Feature Group B dialing (950–0XXX or 950–1XXX)

anywhere, where the three-digit XXX denotes a

particular interexchange carrier. See Policies and

Rules Concerning Operator Service Access and Pay

Telephone Compensation, 57 FR 21038 (May 18,

1992); 7 FCC Rcd 3251, 3251 n.1 (1992) (‘‘OSP

Second Report and Order’’). ‘‘Subscriber 800 calls’’

consist of calls to an 800 number assigned to a

particular subscriber. See Implementation of the

Pay Telephone Reclassification and Compensation

Provisions of the Telecommunications Act of 1996,

Notice of Proposed Rulemaking, 61 FR 31481 (June

20, 1996); 11 FCC Rcd 6716 (1996) (‘‘NPRM’’). In

this order, subscriber 800 encompasses toll-free

subscriber calls, including 888 numbers. See Toll

Free Service Access Codes, 61 FR 7738 (February

29, 1996); 11 FCC Rcd 2496 (1996).

3 117 F.3d 555 ( D.C. Cir. 1997) (‘‘Illinois Public

Telecomm.’’).

4 Implementation of the Pay Telephone

Reclassification and Compensation Provisions of

the Telecommunications Act of 1996, CC Docket

No. 96–128, Report and Order, 61 FR 52307

(October 7, 1996), 11 FCC Rcd 20,541 (1996)

(‘‘Report and Order’’); Order on Reconsideration, 61

FR 65341 (December 12, 1996), 11 FCC Rcd 21,233

(1996) (‘‘Order on Reconsideration’’) (collectively

the ‘‘Payphone Orders’’).

5 Illinois Public Telecomm., 117 F.3d at 564.

6 Id.

7 47 U.S.C. § 276 Communications Act of 1934,

Section 276 was added by the Telecommunications

Act of 1996 (‘‘1996 Act’’).

8 In the Payphone Orders, we established a twopart compensation scheme for subscriber 800 and

access code calls, as well as for local coin calls, to

facilitate the transition from a highly regulated

industry to a deregulated one. As noted above, the

court vacated the interim compensation plan

regarding compensation for subscriber 800 and

access code calls; the court, however, upheld the

interim compensation plan for local coin calls.

Phase one, or the first year of interim compensation

for access code and subscriber 800 calls, required

that IXCs with a certain annual toll revenue pay

PSPs a flat-rate compensation of $45.85 per

payphone per month in shares proportionate to

their share of total market long distance revenues.

During the second year of interim compensation

(also, the first year of per-call compensation) we

required the IXCs to pay the PSP for each

completed subscriber 800 and access code call. See

Report and Order, 61 FR 52307 (October 7, 1996);

11 FCC Rcd at 20,568 at para. 51. This order

addresses specifically the first two years of per-call

compensation, and as noted above, establishes a

default rate for per-call compensation at $0.284. See

infra paras. 117–22.

9The Payphone Orders state that LEC PSPs are

entitled to be paid per-call compensation by IXCs

for access code and subscriber 800 calls when they

have complied with the requirements of the

Payphone Orders and will certify to that effect.

Order on Reconsideration, 61 FR 65341 (December

12, 1996); 11 FCC Rcd at 21,293–94, paras. 130–32.

We note that the Commission did not establish a

requirement that LEC PSPs obtain a formal

certification of compliance from the Commission or

the states to receive per-call compensation pursuant

to the Payphone Orders.

10As determined in this order, the difference

between the per-call rate for subscriber 800 and

access code calls and the local coin rate is $0.066.

11 47 U.S.C. § 276(d).

12See Report and Order, 61 FR 52307 (October 7,

1996); 11 FCC Rcd at 20,579, para. 74; Order on

Reconsideration, 61 FR 65341 (December 12, 1996);

11 FCC Rcd at 21,259, para. 52. A 0+ call occurs

when the caller dials ‘‘0’’ plus the called telephone

number. 0+ calls include credit card, collect, and

third number billing calls. See OSP Second Report

and Order, 7 FCC Rcd at 3251 n.4. 0–calls are calls

in which the caller dials only the digit ‘‘0’’ and then

waits for operator intervention. 0–transfer service is

a service offered by LECs to OSPs under which

LECs transfer a 0-call to the OSP requested by the

calling party. See OSP Second Report and Order, 57

FR 21038 (May 18, 1992); 7 FCC Rcd at 3255 n.44.

13The normal period until effectiveness in a

rulemaking is thirty days after publication of the

changed rules in the Federal Register, but we

accelerate that period here for good cause, pursuant

to Section 553(d) of the Administrative Procedure

Act. See 5 U.S.C. § 553(d).

14This requirement established in the Report and

Order becomes effective October 7, 1997, one year

after publication in the Federal Register, 61 FR

52,307 (1996).

TABLE OF CONTENTS—Continued

Topic Paragraph

No.

B. Final Regulatory Flexibility Act Analysis ................. 135

V. Conclusion .............................. 165

VI. Ordering Clauses .................. 166

Rule Changes

Attachment B—List of Parties Filing

Comments

Attachment C—List of Parties Filing Replies

(Note: In the FCC Record version of this

order, Attachments are listed as Appendices,

and their order is different from that stated

above.)

I. Introduction

1. In this order, we address the default

per-call compensation rate 1 for

subscriber 800 and access code calls 2

originated from payphones in light of

the decision of the United States Court

of Appeals for the District of Columbia

Circuit (the court) in Illinois Public

Telecommunications Ass’n versus

FCC, 3 which vacated and remanded

portions of the Payphone Orders. 4 In

that decision, the court concluded that

the Commission did not justify

adequately setting the per-call

compensation rate for subscriber 800

and access code calls at the deregulated

local coin rate of $0.35, 5 because it did

not justify its conclusion that the costs

of local coin calls are similar to those of

subscriber 800 calls and access code

calls. 6 After seeking additional

comment on this issue, we conclude in

this order that the default rate for percall compensation of subscriber 800 and

access code calls from payphones is the

deregulated local coin rate adjusted for

cost differences. As discussed herein,

based on our analysis of the record and

the statutory policy goals of Section 276

of the Communications Act, 7 we

establish a rate of $0.284 per call as the

default per-call compensation rate for

subscriber 800 and access code calls for

the first two years of per-call

compensation. 8 This rate will continue

to be the default rate for coinless

payphones absent a negotiated rate.

Interexchange carriers (IXCs) must pay

this per-call amount to payphone

service providers (PSPs) for access code

and subscriber 800 calls beginning

October 7, 1997, as required by the

Payphone Orders. 9 After the first two

years of per-call compensation, the

market-based local coin rate adjusted for

certain costs is the surrogate for the

default per-call rate for subscriber 800

and access code calls. 10

2. The compensation amount we

adopt in this Second Report and Order

is applicable, as Section 276(d)

provides, to ‘‘[t]he provision of public or

semi-public pay telephones, the

provision of inmate telephone service in

correctional institutions, and any

ancillary services.’’ 11 We previously

have declined to treat 0+ and calls from

inmate payphones differently from other

payphone calls, 12 and we reaffirm that

decision here. As of October 7, 1997,

PSPs must be compensated for all

payphone calls not otherwise

compensated pursuant to contract,

including 0+ and inmate calls.

3. The immediate implementation of

the rule provisions adopted herein is

crucial to the Commission’s efforts to

ensure fair compensation for PSPs,

encourage the deployment of

payphones, and enhance competition

among payphone providers, as

mandated by Section 276 of the Act.13

The Commission’s Payphone Orders

require that per-call compensation for

certain payphone calls begin by October

7, 1997. To meet this obligation, we

must revise those rules vacated by the

court in Illinois Public Telecomm. that

relate to the implementation of a percall compensation scheme and

commence on October 7, 1997. The

Report and Order, released September

20, 1996 (61 FR 52307 (October 7,

1996)), informed parties that per-call

compensation would commence on

October 7, 1997.14 Therefore, parties

affected by this rule change have had

notice since the release of that order that

they would be subject to certain

obligations beginning October 7, 1997.

Making this order effective immediately
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58661

15Order on Reconsideration, 61 FR 65341

(December 12, 1996); 11 FCC Rcd at 21,278–79,

paras. 93–95. See Bureau Waiver Order, DA 97–

2162 (rel. Oct. 7, 1997).

16Report and Order, 61 FR 52307 (October 7,

1996); 11 FCC Rcd at 20,541; Order on

Reconsideration, 61 FR 65341 (December 12, 1996);

11 FCC Rcd at 21,233.

17 47 U.S.C. § 276(b)(1)(A).

18 47 U.S.C. § 276(b)(1)(B).

19 47 U.S.C. § 276(b)(1)(C).

20 47 U.S.C. § 276(b)(1)(D).

21 47 U.S.C. § 276(b)(1)(E).

22 47 U.S.C. § 276(b)(2).

23S. Conf. Rep. No. 104–230, 104th Cong. 1

(1996).

24 47 U.S.C. § 276(b)(1).

25 A number of parties subsequently filed

petitions requesting that the Commission reconsider

or clarify the rules the Commission adopted in the

Report and Order. In the Order on Reconsideration,

we substantially affirmed the rules adopted in the

Report and Order. We denied all but two of the

requested reconsiderations; those exceptions are not

at issue here. In the Order on Reconsideration, the

Commission modified: (1) the requirements for LEC

tariffing of payphone services and unbundled

network facilities; and (2) the requirements for LECs

to remove unregulated payphone costs from the

carrier common line charge and to reflect the

application of multiline subscriber line charges to

payphone lines. See Order on Reconsideration, 61

FR 65341 (December 12, 1996); 11 FCC Rcd at

21,234, para. 3.

26See 47 CFR § 276(b)(1)(A) (directing the

Commission to establish a plan ‘‘to ensure that all

payphone service providers are fairly compensated

for each and every completed intrastate and

interstate call using their payphone’’). See also

Report and Order, 61 FR 52307 (October 7, 1996);

11 FCC Rcd at 20,566, para. 48.

27See Report and Order, 61 FR 52307 (October 7,

1996); 11 FCC Rcd at 20,568, para. 52 n.187.

28See id. at 20,568, para. 52.

29See id. at 20,547, para. 11.

30See id. at 20,567, 20,577, paras. 49, 70.

minimizes disruption within the

payphone industry by eliminating

disputes about payment obligations and

enhances the general availability of

payphone services to the public.

4. This order does not address other

issues vacated and remanded by the

court or otherwise alter the

requirements of the Payphone Orders.

Other requirements remanded in Illinois

Public Telecomm., including the

compensation obligations applicable

during the period from November 1996,

through October 6, 1997, will be

addressed in a subsequent order in this

proceeding. We tentatively conclude in

this regard that the $0.284 per-call rate

we are adopting as a default rate on a

going forward basis should also govern

compensation obligations during the

period ending October 6, 1997. We also

tentatively conclude that PSPs are

entitled to compensation for all of their

access code and subscriber 800 calls

during this period. We plan to address

the manner in which the total payment

obligation for that period will be

calculated and allocated among IXCs in

a subsequent order.

5. We note that the Common Carrier

Bureau (Bureau) has granted a limited

waiver, until March 9, 1998, for those

payphones that cannot provide

payphone-specific digits as required by

the Payphone Orders.15 This limited

waiver applies to the requirement that

local exchange carriers (LECs) provide

payphone-specific coding digits to PSPs,

and that PSPs provide coding digits

from their payphones before they can

receive per-call compensation from IXCs

for subscriber 800 and access code calls.

This limited waiver was granted by the

Bureau to afford LECs, IXCs, and PSPs

an extended transition period for the

provision of payphone-specific coding

digits without further delaying the

payment of per-call compensation as

required by Section 276 of the Act and

this order. The Bureau made this

limited waiver effective immediately in

order to ensure that PSPs receive percall compensation beginning October 7,

1997.

II. Background

6. In the Payphone Orders,16 the

Commission adopted new rules and

policies governing the payphone

industry to implement Section 276 of

the Act. Those rules and policies: (1)

establish a plan to ensure fair

compensation for ‘‘each and every

completed intrastate and interstate call

using [a] payphone[;]’’ 17 (2) discontinue

intrastate and interstate carrier access

charge service elements and payments

in effect on such date of enactment, and

all intrastate and interstate payphone

subsidies from basic exchange

services; 18 (3) prescribe nonstructural

safeguards for Bell Operating Company

(‘‘BOC’’) payphones; 19 (4) permit the

BOCs to negotiate with payphone

location providers on the interLATA

carrier presubscribed to their

payphones; 20 (5) permit all payphone

service providers to negotiate with

location providers on the intraLATA

carriers that presubscribed to their

payphones; 21 and (6) adopt guidelines

for use by the states in establishing

public interest payphones to be located

‘‘where there would otherwise not be a

payphone[.]’’ 22

7. In the Report and Order, the

Commission noted that the 1996 Act

erects a ‘‘procompetitive deregulatory

national framework designed to

accelerate rapid private sector

deployment of advanced

telecommunications and information

technologies and services to all

Americans by opening all

telecommunications markets to

competition.’’ 23 Thus, we sought to

advance the twin goals of Section 276 of

the Act of ‘‘promot[ing] competition

among payphone service providers and

promot[ing] the widespread deployment

of payphone services to the benefit of

the general public * * * ,’’ 24 by

eliminating the effects of some longstanding barriers to full competition in

the payphone market. To effectuate this

objective, we concluded that we would

continue to regulate certain aspects of

the payphone market, but only until

such time as the market evolves to erase

these sources of market distortions. 25

8. Section 276(b)(1)(A) of the Act

directs the Commission to establish a

plan to ensure that all PSPs are fairly

compensated for every completed call. 26

We defined ‘‘fair compensation’’ as the

amount to which a willing seller (i.e.

PSP) and a willing buyer (i.e. customer,

or IXC) would agree for the completion

of a payphone call. For certain calls, the

PSP received no revenue for originating

certain calls (i.e., for subscriber 800 and

other toll-free number calls) and could

not block callers from making such calls

(access code calls). Based on evidence

in the record, we noted in the Report

and Order that the number of these

types of calls completed from

payphones had proliferated in the past

several years, 27 and we concluded that

PSPs must be compensated for access

code, subscriber 800, and other toll-free

number calls, whether they are

jurisdictionally intrastate or interstate. 28

9. In the Report and Order, we

concluded that the payphone

marketplace has low entry and exit

barriers and likely will become

increasingly competitive, 29 and that the

market generally is best able to set the

appropriate price for payphone calls,

including local coin calls, in the long

term. 30 Therefore, because we have an

obligation under Section 276 to ensure

that the compensation for all local coin

calls is fair, we concluded that the local

market should be allowed to set the

price for all compensable calls unless a

state demonstrated that competition

would not constrain prices; for example,

payphones at certain locations would be

priced at monopoly rates. This approach

is appropriate, because once PSPs are

free to enter the market, and once callers

are free to choose payphones for their

calls, the market ultimately will

determine whether a particular

payphone is economically viable.

Therefore, in the Payphone Orders, we

concluded that the appropriate per-call

compensation amount, in the absence of

a negotiated agreement, ultimately is the

amount the particular payphone charges

for a local coin call, because the market

will determine the fair compensation
58662 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

31 Id. at 20,577–78, para. 70; Order on

Reconsideration, 61 FR 65341 (December 12, 1996);

11 FCC Rcd at 21,268–69, para. 71.

32See Report and Order, 61 FR 52307 (October 7,

1996); 11 FCC Rcd at 20,572, para. 60 (further

stating that states are empowered to act where

concerns exist about market failures, and that the

Commission could address such market concerns if

necessary).

33 We noted that $0.35 was the local coin rate in

four of the five states where the local coin rate had

been deregulated and concluded that the marketbased rate in those states was the best evidence of

the per-call compensation amount for PSPs for the

first two years of interim compensation. See Letter

to William Caton, Acting Secretary, FCC from

Michael Kellogg, Counsel, Coalition (Aug. 30, 1996)

(noting that the local coin rate is $0.35 in four of

the five states that have deregulated the local coin

rate). The Coalition is comprised of the Bell

Operating Companies (‘‘BOCs’’)—Ameritech, the

Bell Atlantic Telephone Companies, BellSouth

Corporation, Pacific Bell, Nevada Bell,

Southwestern Bell Telephone Company, and US

West—together with GTE Service Corporation

(‘‘GTE’’) and Southern New England Telephone

Company (‘‘SNET’’). See also Report and Order, 61

FR 52307 (October 7, 1996); 11 FCC Rcd at 20,578,

para. 72. As we noted above, we believed the costs

to originate access code and subscriber 800 calls

were similar to those incurred when initiating a

local coin call, and thus established a default rate

based on the deregulated local coin rate. We note

that of seven states that now have deregulated local

coin rates, in five states (Michigan, Iowa, Nebraska,

North Dakota and Wyoming) the rate is $0.35, and

in two states (Montana and South Dakota) the rate

is $0.25. See Ex Parte Presentation to FCC from

Michael Kellogg, Counsel, Coalition (Sept. 26,

1997). In this order, the one year per-call

compensation period subject to the $0.284 default

rate is extended to two years.

34 Illinois Public Telecomm., 117 F.3d at 558.

35 See Pleading Cycle Established for Comment

on Remand Issues in the Payphone Proceeding, CC

Docket No. 96–128, 62 FR 43686 (August 15, 1997);

DA 97–1673, rel. Aug. 5, 1997 (Notice). In the

Notice we indicated that we placed the industry on

notice that payphone compensation obligations, or

the absence of such obligations, incurred by

providers of interexchange services, and

compensation levels paid or received under our

existing rules pending action on remand, may be

subject to retroactive adjustment. Id. at 1. With

regard to the interim compensation plan, we

specifically sought comment on compensation for

subscriber 800, access code, and 0+ calls, and on

retroactive adjustments to interim compensation

levels and obligations. See id.

36 See id. at 2.

37 Id.

38 Id.

39 Id. at 3.

40 See infra paras. 123–33.

rate for those calls. We further

concluded that if a rate is compensatory

for local coin calls, then it is an

appropriate compensation amount for

other calls as well, because we found

the costs of originating various types of

payphone calls such as access code and

subscriber 800 calls to be similar to the

costs incurred when initiating a local

coin call. 31

10. Before we moved to a local coin

call default rate, however, we found that

it was necessary to observe over time

how the payphone marketplace would

function in the absence of regulation. In

particular, we concluded that

consumers facing time constraints may

not be able to find, in certain locations,

a reasonable substitute for a payphone

located on the premises. We stated that

in these cases where the location

provider has an exclusive contract with

a PSP, the PSP may be able to charge

supra-competitive prices. The location

provider would share in the resulting

‘‘locational rents’’ through commissions

paid by PSPs. We concluded that to the

extent that market forces cannot ensure

competitive prices at such locations, we

may want to continue regulating, along

with the states, the provision of

payphone services generally or in

particular types of locations where the

size of the location or the caller’s lack

of time to identify potential substitute

payphones could lead to locational

monopolies. To allow us to ascertain the

status of competition in the payphone

marketplace, we concluded that we

should establish the default per-call rate

before leaving it to the market to set the

rate, absent any changes in our rules.

11. We recognized that competitive

conditions, which are a prerequisite to

a deregulatory market-based approach,

did not exist yet, and would not be

achieved instantaneously. Therefore, we

established an interim compensation

plan to ease the transition to marketbased local coin rates and ensure fair

compensation for coin and noncoin

calls. In particular, we established a two

phase interim plan to address coin calls.

During the first year (phase) the states

would be responsible for ensuring that

PSPs were fairly compensated for local

coin calls as well as for protecting

consumers from excessive rates. We

concluded that states could continue to

set the local coin rate during the year

prior to market-based per-call

compensation. During the second phase,

beginning October 7, 1997, we stated

that the market would set the price for

the local coin call, absent particular

state concerns, and the need for

modification. 32

12. Additionally, in the Payphone

Orders, the Commission established a

two-year interim plan for payphone

compensation for subscriber 800 and

access code calls based on a rate of

$0.35 per call that began November 7,

1996. For the first year after the effective

date of the rules adopted in this

proceeding, we required that IXCs pay

flat-rate compensation to PSPs. More

specifically, under the first year of the

interim plan, IXCs with annual toll

revenues in excess of $100 million were

required to pay, collectively, a flat-rate

compensation of $45.85 per payphone

per month in shares proportionate to

their share of total market long distance

revenues. During the second year of the

interim plan, which is the first year of

per-call compensation, all IXCs were

required to pay $0.35 per subscriber 800

call or access code call unless they

contracted with the PSP to pay a

different amount. 33

13. Numerous parties filed petitions

in federal court seeking review of the

Payphone Orders. In Illinois Public

Telecomm, the court affirmed important

parts of the Commission’s rules

implementing Section 276, but also

vacated and remanded certain other

aspects of those rules. The court

overturned our determination in the

Payphone Orders regarding: (1) the

interim and permanent compensation

rates established for access code and

subscriber 800 calls; (2) the requirement

that only those IXCs with annual toll

revenues over $100 million pay PSPs for

these calls during the first year of the

interim period; (3) the failure to provide

any interim compensation to BOC PSPs

for ‘‘0+’’ calls and calls made from

inmate payphones; and (4) the use of

fair market value for payphone assets

transferred from a BOC to a separate

affiliate. 34

14. By Public Notice released August

5, 1997, we sought comment on the

issues remanded by the court. 35 We

sought comment on the differences in

costs to the PSP of originating

subscriber 800 and access code calls as

compared to local coin calls. 36 We

sought comment on whether these

potential differences in costs should

affect a market based compensation

amount, and if so, how. 37 We sought

comment on whether the local coin

rate—subject to an offset for expenses

unique to those calls—is an appropriate

per-call compensation rate for calls that

are not compensated pursuant to a

contract or other arrangement, such as

subscriber 800 calls and access code

calls. 38 We stated that parties should

respond specifically to concerns raised

by the court in setting forth their views

on the appropriate per-call

compensation amount. 39

15. This order addresses only the

amount of default per-call

compensation. We decline to address in

this order other issues related to the

implementation of the per-call

compensation structure.40 Because the

court vacated and remanded the per-call

compensation rate for access code and

subscriber 800 calls, we have sought to

act expeditiously to reevaluate the

default per-call rate. We conclude,

because of the exigency of the situation

wherein PSPs are not receiving per-call
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58663

41 See Notice at 2–3.

42 Illinois Public Telecomm. 117 F. 3d at 564.

43 Id. at 563–64.

44 See id.; Illinois Public Telecomm.,

Supplemental Opinion, slip op. at 2.

45 Abbreviations for parties are listed in

Attachments B and C. The following section

includes the analyses of the comments and reply

comments submitted in this proceeding. Although

for presentation the comments are summarized

generally by subject area, we consider these

comments and replies in reaching our decisions

wherever the comment and reply comments are

appropriate.

46See APCC Comments at 2–3; see also CCI

Comments at 5.

47APCC Comments at 2–3.

48 Id. at 3–4.

49 Id.

50APCC Reply at 5.

51 Id. at 6.

52APCC Comments at 2 (citing 47 U.S.C.

§§ 276(b)(1), (1)(A)). See Coalition Reply at iv, 2, 5.

53APCC Reply at 7.

54Peoples Reply at 4.

55Coalition Reply at 6; Coalition Comments at

11–13.

56 Id.

57AT&T Reply at 2; see also ACTA Comments at

3, CWI Comments at 11.

58AT&T Comments at 3–4.

59Frontier Reply at 3–4.

60 Id. (stating that the ‘‘court plainly tied its

assessment of what constitutes reasonable

compensation to the costs of completing coinless

calls’’).

61Sprint Reply at 14.

62 Id. at 14–15.

63CPI Comments at 3 (arguing that a market-based

rate is inappropriate because the payphone industry

is not competitive, and because PSPs are

monopolies or near monopolies).

64PageMart Reply at 7.

65See PageNet Comments at 9–11; PageNet Reply

at 5, 7. See also Section D infra (discussing

reconsideration of caller pays and the paging

carriers arguments that only a calling party pays

system would result in a true market rate); see also

WorldCom Comments at 3–4 (arguing that the rates

being proposed by the LECs and PSPs—between

$0.42 and $0.63 per call—would not be accepted if

the consumer paid them directly).

66WorldCom Reply at 3.

compensation as required by Congress

in Section 276, that we must address

quickly and efficiently the most urgent

issue—the per call compensation

amount to be paid by IXCs to PSPs

beginning on October 7, 1997, the

beginning of per-call compensation.

III. Per-Call Compensation

A. The Standard for Determining PerCall Compensation

16. In the Notice, we sought comment

on whether the market-based local coin

rate—subject to an offset for expenses

unique to those calls—is an appropriate

per-call compensation rate for calls that

are not compensated pursuant to a

contract or other arrangement, such as

subscriber 800 and access code calls.41

In Illinois Public Telecomm., the court

in particular concluded that the

Commission did not adequately justify

‘‘tying the default rate [for per-call

compensation] to local coin rates.’’ 42

The court found evidence in the record

that the costs of coin calls are higher

than those for coinless calls because: (1)

additional costs are incurred for

equipment and coin collection; and (2)

the PSP pays for originating and

terminating local calls, while for

coinless calls the PSP only pays for

originating the calls.43 Therefore, the

court stated that setting the per-call

compensation for subscriber 800 calls

and access code calls at the deregulated

local coin rate of $0.35 was not justified,

and vacated and remanded the issue to

the Commission for further

consideration.44

1. Comments 45

17. APCC asserts that Illinois Public

Telecomm. affirms the Commission’s

market-based approach to determine

compensation and does not mandate an

analysis of costs.46 According to APCC,

the court also affirmed the

Commission’s finding that the payphone

marketplace is competitive, even if

market forces do not yet operate freely

for dial-around calling.47 APCC further

argues that the court did not preclude

the Commission from relying on marketbased surrogates, such as the local coin

rate, or require the Commission to

calculate an exact cost differential to be

reflected in the per-call compensation

figure.48 The Commission, APCC asserts,

could exclude consideration of cost

evidence altogether and focus solely on

market price indicators.49 APCC

contends that the court objected only to

the Commission’s attempt to compare

the costs of dial-around calls and local

coin calls.50 Only if the Commission

continues to rely on cost comparisons as

a factor in the application of a marketbased approach, must the Commission

adhere to the reasoning issues raised by

the court, states APCC.51 Parties further

contend that a market-based approach

will fulfill the requirements of the

statute, i.e., provide rates that ‘‘fairly

compensate’’ PSPs and ‘‘promote

competition among payphone service

providers and the widespread

deployment of payphone services.’’ 52

APCC alleges that the IXCs do not

provide any arguments for rejecting a

market-based approach, and challenges

the arguments that there are local

payphone provider monopolies that

prevent the payphone market from

being competitive.53 Peoples adds that

PSPs are not monopoly providers

because Commission rules require PSPs

to unblock access code calls, giving

every caller the option to dial around a

PSP’s presubscribed service provider or

to use a debit card to reach a carrier of

their choice.54

18. The Coalition argues that the court

did not question the Commission’s

decision to rely on market-determined

prices rather than regulatory accounting

procedures.55 The Coalition asserts that

the court did not require the

Commission to abandon its marketbased proxies, but instead required the

Commission to consider appropriate

differences, such as originating costs,

between coin and coinless calls.56

19. AT&T asserts that the court found

that the Commission acted unlawfully

in establishing an assumed market rate

for coinless calls, because the

Commission ignored record evidence on

the cost differences between coin and

coinless calls.57 Because of this error,

AT&T states, the court found that there

was no rational basis for the

Commission’s conclusion that per-call

compensation should be set at the

assumed deregulated market price, and

therefore, that the Commission’s

compensation rate could not stand.58

20. Frontier similarly argues that the

court did not endorse the Commission’s

market-based approach,59 and further,

that the court found the Commission’s

conclusion that the local coin rate

represents the best surrogate of the costs

of completing local calls unjustified.60

21. Sprint asserts that although the

Commission used a market-based

approach to determine local coin rates,

the Commission never purported to use

a market-based approach for per-call

compensation for access code and

subscriber 800 calls.61 Instead, Sprint

contends that the Commission has

viewed costs as the appropriate

approach from the outset, and has

sought surrogates for originating costs

while rejecting non cost-based market

surrogates.62

22. PageMart and CPI argue that the

great disparity in the record between the

market rates and costs demonstrates that

the payphone market is not yet

competitive, 63 because price in a truly

competitive market would have been

driven closer to cost.64 PageNet argues

that market rates are misleading,

because, as consumers, IXCs cannot

decline a sale, i.e., block incoming

payphone calls, and thus have a

weakened market power.65 WorldCom

asserts that market-based rate would be

more arbitrary and artificial than rates

based on objective and verifiable costs.66

2. Discussion

23. Despite a careful review, we find

no statement in the court’s decision that

precludes us from relying on marketbased surrogates, or requires us to

determine a rate based on cost data
58664 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

67See supra para. 13.

68 47 U.S.C. § 276(b)(1). 69 47 U.S.C. § 276(b)(1).

70See APCC Comments at 4; APCC Reply at 10

(stating that the Commission adopted a marketbased approach in the Payphone Orders, and that

the Commission should apply that approach in the

instant proceeding); Peoples Comments at 8 (stating

that the cost of a dial around call is similar to the

deregulated market rate). See also Coalition Reply

at 2–3 (stating that once the cost analyses provided

by the IXCs are corrected for costs that should be

included, the cost of a call reaches, and in some

cases exceeds, the market rate).

71APCC Comments at 5.

72APCC Reply at 14.

73APCC Comments at 6.

submitted by incumbent LECs,

independent PSPs, and other parties to

determine the new per-call rate. The

court did not reject the concept of

linking the market-based local coin rate

to the per-call rate for access code and

subscriber 800 calls based on the

similarity in costs, nor conclude that

our approach was irrational. Rather, the

court concluded that the Commission

had not responded to information on the

record regarding the cost disparities

between the cost of providing coin calls

and subscriber 800 and access code

calls. Therefore, the court concluded

that adoption of the default rate without

further explanation was arbitrary and

capricious.67

24. The 1996 Act does not prescribe

a particular course to ensure that all

PSPs are fairly compensated for each

and every call.68 Nothing on the record

in response to the Notice persuades us

to change the deregulatory scheme

established in the Payphone Orders.

Based on the record in this proceeding,

we affirm our decision in the Payphone

Orders to use a market-based default

rate for per-call compensation for

subscriber 800 and access code calls.

We conclude for the reasons stated there

that a market-based rate best responds to

the competitive marketplace for

payphones consistent with the

deregulatory scheme we adopted in the

Payphone Orders for the provision of

payphone services pursuant to Section

276, and also will effectively advance

the statutory goals of encouraging

competition and promoting the

deployment of payphones.

25. As discussed above, because of

market imperfections such as the

inability of PSPs to block access code

and subscriber 800 calls, we concluded

in the Payphone Orders that a default

rate was necessary to ensure that PSPs

received fair compensation during the

transition to a deregulated market. We

also concluded in those orders, as we

conclude here, that the default rate

should be market-based. The method we

use in this order to estimate a

reasonable default per-call

compensation rate addresses the court’s

concerns as well as those raised on the

record in response to the Notice by

LECs, IXCs, and PSPs. Specifically, our

approach continues to rely on a marketbased rate (the local coin rate).

26. We, however, adjust the marketbased local coin rate for differences in

the costs of coin and coinless operation,

reducing the market-based local coin

rate for coin-related costs and increasing

the market-based local coin rate to

reflect costs that are related to access

code and subscriber 800 calls. In

addition, in response to the arguments

of parties in this proceeding that a

market-based rate would be

unreasonable and that we must establish

a rate based on cost data submitted by

the parties, we also have performed an

analysis of those cost data to test the

reasonableness of the selected per-call

market-based rate. As discussed below,

we find based on this analysis that the

adjusted market-based rate is

reasonable. Accordingly, we conclude

that the deregulated local coin rate,

adjusted for cost considerations, is a

reasonable market-based surrogate for

determining the default per-call

compensation rate and specifically

responds to the court’s concerns that

cost differences between coin calls and

coinless access and subscriber 800 calls

be explained. Furthermore, we conclude

that the per-call rate established in this

order will further the goals of Section

276 and is in the public interest.

27. The record on remand supports

our prior conclusion that per-call

compensation should be set by the

marketplace and that full and unfettered

competition is the best mechanism to

achieve Congress’ dual policy

objectives.69 Competition over time will

lead to the more efficient placement of

payphones, improved payphone service,

and lower prices for consumers. To

encourage competition in the payphone

marketplace, we ensure in this Second

Report and Order that PSPs are fairly

compensated for ‘‘each and every

completed intrastate and interstate

call.’’

28. We conclude that because we

make the per-call amount subject to

negotiations, the marketplace will make

the appropriate adjustments in the percall rate. We established the per-call

default rate to be applied only if the PSP

and the IXC are unable to negotiate

some other rate of compensation for

compensable calls. Negotiations may

lead to rates other than the default rate

for several reasons. First, because

virtually all of the costs are fixed costs

and are not incurred on a per-call basis,

an IXC and a PSP might agree to a flatrated charge rather than a usage-based

compensation rate. Second, there may

be locations where a payphone would

not be viable financially if compensated

at only the default rate per compensable

call, but would be viable at a higher

compensation rate. If an IXC found it

profitable to carry calls at this higher

rate, it would be in the mutual interest

of the two parties to agree on a higher

rate. Third, IXCs may choose to pass on

the per-call compensation rate to their

customers. In the case of 800 subscriber

calls, the IXC could pass on the cost to

the called party. If the called party

refused to accept calls for which it was

charged the default rate, but was willing

to accept calls with a lower charge, the

IXC and the PSP may find it in their

mutual interest to negotiate a per-call

rate lower than the default rate. Fourth,

in locations where a competing

payphone could be placed without the

permission of the location provider, a

PSP may be willing to negotiate a lower

rate than the default rate, rather than

give an IXC the incentive to place a

competing payphone.

B. Market-Based Compensation

Analysis

29. As discussed above, we conclude

that the appropriate rate of per-call

compensation for access code and

subscriber 800 calls is the market-based

local coin rate adjusted for costs. In

setting the per-call compensation rate

for the first two years of per-call

compensation, we begin with the $0.35

market-based local coin rate established

in the Payphone Orders and adjust that

rate to remove coin-related costs and

add costs specific to subscriber 800 and

access code calls.

1. Comments

30. Market Rate. APCC, the Coalition,

Peoples, and CCI request that the

Commission adopt a market-based percall compensation rate, and

furthermore, assert that the underlying

costs attributable to both coin and

noncoin calls are similar.70 APCC

contends that any market-based ratesetting mistakes are self-corrective,

because the market will demonstrate the

mistake.71 APCC further contends that

contrary to the IXCs position, the market

will prevent PSPs from gaining any long

term windfall, and would force any

such ‘‘windfall,’’ to be passed on to

consumers.72 APCC contends that

market-based rates are more objective

than the subjective components of costbased rates.73

31. The Coalition further maintains

that the market will reflect variations

from region to region and payphone to
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58665

74Coalition Reply at 6 (citing Order on

Reconsideration, 61 FR 65341 (December 12, 1996);

11 FCC Rcd at 21,268–69, para. 71).

75Coalition Comments at 22.

76 Id. at 23.

77 Id. at 12–14; Coalition Reply at 4, 14–15.

78CCI Comments at 2.

79See id.

80See, e.g., AT&T Comments at 4, 6; AT&T Reply

at 4 (stating that market-based compensation is

unrelated to and in excess of costs to originate

coinless calls); Excel Reply at 1; MIDCOM

Comments at 4–6 (stating that any alleged market

rate would be distorted by the binding contracts to

which the majority of payphone locations already

are subject).

81See AT&T Comments at 13; MCI Reply at 3.

82See AT&T Reply at 12–13 (explaining that since

AT&T negotiated the 25 cent rate, the average price

of a dial around call has declined).

83MCI Comments at 4.

84MCI Reply at 10.

85 Id.

86 Coalition Reply at 8–9.

87See APCC Comments at 11–15 (arguing that

fixed payphone costs do not change with the

presence of dial-around calls, and further that there

are no major differences in the variable costs); see

also TEI Comments at 2; CCI Comments at 6–8

(arguing that the deregulated coin rate of $.35 per

call is an appropriate surrogate).

88Peoples Comments at 7.

89 Id.

90 Id. at 6–7.

91 CWI Comments at 9 n.7; CompTel Comments

at 14 n.7; LCI Comments at 8; RCN Reply at 1.

92CPI Comments at 7.

93TRA Comments at 20.

94Frontier Reply at 5.

95APCC Comments at 8–10.

96 Id. at 7–8 (arguing that the Commission

erroneously rejected 0+ commissions in its Report

and Order in this proceeding, but accepted them as

a benchmark in CC Docket No. 91–35). The midrange level of these commissions, according to

APCC’s 1996 data, is $0.62 per call. See id.

97 Id. at 9–10 (explaining that the sent-paid toll

call surcharge is the amount, above the standard

transmission charge, that a PSP charges for the

convenience of making a toll call from a payphone).

The middle-range price of such a call is $1.40 per

call. See id.

98 Id. at 9 (stating that the average price of a

completed 0¥ transfer call is $0.41).

99 Id. at 10.

100See, e.g., AT&T Reply at 35; CWI Reply at 2–

4; CompTel Reply at i, 2–3; RCN Reply at 7–8,

Sprint Reply at 17; WorldCom Comments at 4;

Excel Reply at 7 (arguing that these surrogates do

not overcome the uncompetitive characteristic of

the current payphone market by virtue of the fact

that payphone callers are a captive audience);

Frontier Comments at 3 (arguing that commissions

paid on 0+ calls include monopoly rents and

locational monopolies); ITA Comment at 6–7

(arguing that compensation for 0+ calls includes

other compensation factors, such as the PSP’s

promotion of the operator service provider through

payphone placards, and that market surrogates in

Continued

payphone.74 The Coalition urges that the

market rate be the local coin rate

adjusted to reflect the relative

elasticities of demand of the various

types of calls.75 The Coalition contends

that under market conditions sellers

will tend to load costs onto services for

which prices are less likely to fluctuate,

i.e., that have a lower elasticity of

demand, than onto services that have a

higher price sensitivity. The Coalition

further argues that the elasticity of

demand for local coin calls is higher

than for long distance calls. In other

words, the Coalition argues, customers

of local calls will respond more quickly

to price changes than customers of 0+,

subscriber 800 and dial-around calls.76

Thus, the Coalition contends, the price

of long distance calls should be the local

call rate adjusted upward to reflect the

lower elasticity of demand and the

greater proportion of costs, relative to

local calls, that such calls will carry

under true market conditions.77

32. CCI, an independent payphone

provider, argues that the Commission

should adopt a market-based surrogate,

and contends that there are few

differences between the costs of a local

coin call and a subscriber 800 or access

code call.78 CCI argues, however, that

even under a cost-based approach, the

cost of a local coin call and a dial

around call is approximately $0.35.79

33. Several of the IXCs assert that the

retail price for local coin calls is not an

appropriate surrogate for the costs of a

noncoin call, because there are

substantial cost differences between

these two types of calls.80 AT&T and

MCI assert that if the Commission

develops a rate based on an offset from

the local coin rate, the offset should be

at least fifty percent,81 or based on the

rate negotiated between AT&T and

APCC in 1994 for dial-around access

code calls.82 MCI asserts that a marketbased rate, being higher than a costbased rate, would lead to increased

blocking by 800 subscribers, as those

subscribers try to avoid having to pay

IXCs for unduly high payphone

charges.83 MCI also asserts that marketbased rates are artificially driven up by

location owners holding out for the

highest bidding PSP.84 These higher,

market-based rates will lead to an

unwarranted income transfer from

consumers to payphone providers, MCI

contends, because excessively high rates

will encourage PSPs to place payphones

in increasingly marginal locations.85

The Coalition disputes MCI’s assertion

that a market-based rate would lead to

increased blocking arguing that PSPs

have an interest in seeing calls

completed, which call blocking would

defeat, and an acceptable market rate

would result in more completed calls.86

34. Local Coin Rate as Surrogate.

Several of the PSPs argue that if the

local coin calling rate is used, no

significant adjustment for cost

differences between the coin rate and

dial-around calls is required, because

any cost differences are minimal.87

35. Peoples argues that a single, flat

default rate would simplify procedures,

much as a first-class postage stamp

covers mail that goes various

distances.88 Peoples further argues that

the local coin rate is such a flat rate,

because it is used to originate all types

of calls from a payphone.89 Moreover,

Peoples argues, coinless calls alone do

not justify installing a payphone;

payphones are installed for coin calls,

thus, the local coin rate is a good market

measure for all of the calls that originate

from it.90

36. Several of the IXCs oppose the use

of the local coin rate as a surrogate, but

state that if the Commission uses the

local coin rate, then the Commission

should reduce the local coin rate so that

it reflect only expenses unique to access

code and subscriber 800 calls. 91 CPI

objects to the use of the local coin rate

as a starting point because the coin rate

does not represent the result of a

competitive market. 92 TRA says that

using the local coin rate will lead to a

grossly inflated default rate. 93 Frontier

states that the coin rate bears little

relationship to the costs of completing

a coin call, much less a coinless call. 94

37. Other Surrogates. APCC requests

that the Commission consider other

surrogates for the market rate, such as

0+ commissions, 0¥ transfer rates and

sent-paid toll call surcharges. 95

According to APCC, the 0+ call

commissions are the only known

instance where carriers and PSPs meet

in the marketplace to negotiate a price

for routing a call from the payphone to

the carrier, and therefore, the

Commission should reconsider 0+

commissions. 96 APCC further contends

that sent-paid tolls are another

reasonable indicator of the market

price. 97 Additionally, APCC contends

that the 0¥ transfer rates are a

reasonable surrogate, because these rates

indicate the minimum price IXCs are

willing to pay to obtain telephone

traffic. 98 APCC concludes that the most

appropriate market-based surrogates are

local coin calls, operator-assisted call

commissions and sent-paid toll

surcharges, because these three

surrogates are based on prices actually

charged in the marketplace for

origination of payphone calls. APCC

states that a weighted average price for

these three charges is $0.45 per call. 99

38. Several of the IXCs argue that 0+

commissions cannot be used as a market

guide because these commissions

include factors unrelated to the use of

payphones for the use of access code

and subscribers 800 calls.100
58666 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

general include costs not incurred in PSP

origination of dial-around calls, such as LEC line

costs, premise owner commissions, and billing and

collection charges); PageNet Reply at 11 (arguing

that 0-transfer rates include compensation for

operator assistance services that subscriber 800

calls do not use). See infra para. 62 for a more

thorough discussion regarding commissions.

101PageNet Reply at 11–12.

102MCI Reply at 6 (arguing that the 0+

commission represents the value to the IXC of being

a payphone’s presubscribed carrier).

103 Id.

104Sprint Reply at 18.

105 Id.

106Excel Reply at 3, 9 (arguing that setting the

default rate at the highest deregulated rate in the

country is contrary to competition, and further that

the proceeding before the Massachusetts DPUC

regarding NYNEX’s payphone rates demonstrates

that the market rate for local coin calls should not

be higher than $0.25 per call).

107Excel Comments at 4.

108AT&T Reply at 24 (stating that no charges

should be added to this rate such as ANI or

completion costs for local coin calls).

109CompTel Comments at 14 n.7.

110MCI Comments at 3.

111RCN Comments at 4 (stating that the per-call

rate should not exceed the market-based local coin

rate).

112Coalition Reply at 13–15 (arguing that an

avoided cost methodology not only requires the

deduction of certain costs, but also the addition of

costs that PSPs must incur for a noncoin call).

113 Id. at 14. See infra paras. 64–67 regarding

demand elasticity.

114See, e.g., AT&T Comments at 11 (per-call

compensation should be lower than the default

rate); Sprint Comments at 9; APCC Comments at 8;

Coalition Comments at 30–33 (stating that per-call

compensation should be above the local coin rate

to account for implementing ANI and other costs).

115AT&T Comments, Analysis of Economist

David Robinson at 6 [hereinafter AT&T Comments,

Robinson]; MCI Comments at 3.

116See Peoples Comments at 7.

117Coalition Comments, Analysis of Economist

Jerry A. Hausman, Ph.D. at 9 [hereinafter Coalition

Comments, Hausman].

Furthermore, carriers argue, sent-paid

calls are not a reliable surrogate,

because these charges cover such

services as a payphone’s capability to

track time and amount, and recognize

types of coins, services not needed for

800 subscriber calls.101 MCI argues that

these surrogates are not representative

because they are narrowly tailored to

specific types of calls.102 Moreover, MCI

contends, some of so-called surrogates

apply to calls from telephones that are

not even payphones.103 Sprint argues

that the only truly reliable indicator of

the market for subscriber 800 and access

code calls is what the market provided

to PSPs for such calls prior to the

imposition of the Commission’s orders

in CC Docket No. 91–35.104 At that time

there was no compensation to PSPs for

these calls, and therefore, Sprint

contends, the market price was zero. 105

39. Excel argues that the Commission

should start with a local coin rate at

$0.25,106 then subtract those costs

unique to the local coin service—coin

equipment and collection, coin rating,

originating and terminating access from

the local coin rate.107 AT&T, CompTel,

and CWI argue that the Commission

should not rely on avoided costs in

establishing the default compensation

rate, because this method

inappropriately compares the price of

coin calls with the costs of coinless calls

and may overcompensate PSPs.

Nonetheless, if the Commission adopts

this method, AT&T argues, the

Commission must set the local coin rate

at $0.25 and determine the actual

avoided costs related to coinless calls,108

and CompTel and CWI argue that the

Commission should subtract the costs of

tracking and billing compensation.109

MCI argues that if the Commission

adopts a top-down approach, it should

calculate the default rate by subtracting

the coin specific costs from the cost of

a coin call, not from the market rate.110

RCN argues that the Commission should

determine a nationwide default rate and

then subtract those costs that are unique

to coin calls.111

40. The Coalition argues that the

avoided cost methodology will not

produce a per-call compensation rate

lower than the deregulated coin rate,

and in fact, will increase the amount of

compensation owed to the PSPs.112

Furthermore, the Coalition argues,

avoided cost methodology will not

produce competitive outcomes, because

joint and common costs are a significant

portion of the total costs, and the market

does not price goods or services on costs

alone.113

2. Discussion

41. In the Payphone Orders, we found

that the market rate for a local coin call

is $0.35 and we stated that this is also

the rate for access code and subscriber

800 calls for the first year of per-call

compensation. In response to the court’s

concern that there may be differences in

cost between providing local coin calls

and subscriber 800 and access code

calls, we have evaluated the evidence

on the record to develop a default rate

for access code and subscriber 800 calls

that reflect those cost differences. On

the record, parties discuss several cost

factors suggesting that compensation for

access code and subscriber 800 calls

should be either above or below the

market price for coin calls.114 In section

(a) we conclude that based on

differences in costs, a market rate for

access code and subscriber 800 calls

likely would be between 5.9 and 7.3

cents lower than the market rate for a

local coin call, resulting in a rate of

$0.284. In section (b) we conclude that

the parties failed to provide sufficient

information to adjust the default dial

access and subscriber 800 rate to reflect

differences in the elasticities of access

code and subscriber 800 calls compared

with local coin service. Thus, we do not

make any adjustment for elasticity

differences.

a. Adjustments to the Local Coin Market

Rate Based on Cost Differences

i. General Approach

42. Our general approach is to start

with the market rate for local coin

service ($0.35), and subtract costs

directly attributable to coin calls and

add costs specific to access code and

subscriber 800 calls. The majority of the

costs associated with a payphone are

joint and common costs that are shared

by the different types of calls made by

means of the payphone. These costs do

not increase or decrease as the number

or composition of calls changes at a

particular location. By making no

adjustment to the coin rate for these

costs, we conclude that each call placed

at a payphone should bear an equal

share of joint and common costs.

43. The long distance and paging

companies argue that we should limit

the costs attributed to access code and

subscriber 800 calls to the costs that

would be incurred from providing

access at a coinless payphone; coinrelated costs should not be included.

Under this theory, all other costs that

are incurred to support a payphone coin

call would be attributed to coin calls

and either removed from any marketbased rate or excluded from any other

type of cost estimate.115 PSPs, however,

maintain that few locations could

support a coinless instrument.116

Instead, they explain that most

payphones are installed to handle both

coin and coinless calls.117

44. We agree with the IXCs, and

paging companies, that costs directly

associated with the coin mechanism

should be borne by coin calls. Under

their general approach, however,

compensation for subscriber 800 and

access code calls would not fairly

contribute to the recovery of joint and

common costs of payphone service that

would occur, even if the payphone is

used solely to place such calls. In our

view, such joint and common costs are

not ‘‘additional’’ costs occurred to

provide local coin calls. Hence,

compensation for subscriber 800 and

access code calls should contribute to

the recovery of such costs. Our

calculation assumes that each call will

contribute to a multi-use payphone’s

joint and common costs.
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58667

118AT&T Comments, Robinson at 12.

119APCC Comments, Attachment 4 at 2.

120Other parties believe that AT&T’s estimated

monthly cost of a coinless telephone is too low.

Coalition Reply at 29.

121Several PSPs suggested that commissions

should be included in the cost of providing access

code and subscriber 800 calls. See infra para. 62.

122See TEI Comments at 8.

123Existing LECs require premises owners to pay

for placement of payphones, rather than receive a

commission, if there is a sufficiently low volume of

coin traffic at a location.

124APCC submitted data from two different

studies; one pertaining to cost, and one pertaining

to call type volumes. See APCC Comments,

Attachment 3 (‘‘Weighted Average of Cost and Call

Volume Data from 46 Payphone Companies’’),

Attachment 4 (‘‘Results of APCC’s 1996 Survey of

Payphone Call Volumes’’). For this analysis we

needed the following information: average cost per

payphone; average commissions paid to premises

owners per payphone; average number of calls per

payphone; the marginal cost per coin call; and

breakdown of average call types per payphone.

APCC and CCI provided a breakdown by call type;

in relying on APCCs data, we note that other

commenters supplied APCC’s call type data in their

comments as representative of the payphone

industry, and further, that CCI’s call data is similar

to that of APCC. See, e.g., CWI Comments, LCI

Comments, CompTel Comments. APCC and several

other commenters, such as Peoples and CCI,

provided cost data; however, we selected the APCC

data because it is the most thorough and

representative of the payphone industry averages.

125See APCC Comments, Attachment 3.

126See OSP Second Report and Order, 57 FR

21038 (May 18, 1992); 7 FCC Rcd at 3251.

45. We reject AT&T’s contention that

using a coinless payphone results in a

per-call compensation rate of 11 cents

per call and that this rate should be the

basis for selecting a per-call

compensation rate. We note that AT&T

divided its monthly costs to install,

operate, and maintain a coinless

payphone ($76.85) by the number of

calls at a coin payphone estimated by

APCC.118 The APCC study showed that

the average payphone carried 713 calls

per month, and that 511 of these calls

were coin calls and 202 of these calls

were coin-less calls.119 It is more

reasonable to assume that you would

divide AT&T’s estimated monthly costs

for a coinless payphone ($76.85) by 202,

the number of coinless calls. This

calculation results in a cost of 38 cents

per call, rather than the 11 cents

estimated by AT&T. If the number of

calls at coinless payphone were

adjusted for a marginal location as we

do in our analysis below, the per-call

cost would be even greater. Thus, we

conclude that the 11 cent rate obtained

by AT&T in its analysis would not be an

appropriate per-call compensation rate

for subscriber 800 and access code

calls.120

46. Selecting the number of calls to

represent a low traffic location. Any

analysis of the costs incurred for a call

from a payphone must be based on a

particular number of calls. Most of the

parties presented cost information based

on coin payphones serving locations

with an average amount of calling. We

believe, however, that it is appropriate

to analyze cost for a location with less

than average calling. Prices in

competitive markets tend to be set at the

marginal cost of production. For

payphone service, the marginal unit of

production is the installation of a

payphone at a low traffic location. If

prices for payphone calls increased,

providers would be willing to install

more payphones; however, customers

would likely place fewer calls. At the

equilibrium price for payphone calls,

newly installed payphones would be

expected to generate just sufficient calls

to earn only a normal return on

investment. Thus, we believe that

setting a default compensation rate to

achieve fair and reasonable

compensation requires that a payphone

operator be able to cover costs at a low

traffic location. A single instrument

would be required to provide both coin

and coinless calls at such a location,

with neither class of calls, by itself,

sufficient to justify installation of a

payphone.

47. We select the number of calls to

represent a low traffic location by

estimating the number of calls that

could cover all of the costs of operating

a payphone with the exception of

commissions paid to location owners.

This number represents the lowest

number of calls at which a payphone

could be operated without requiring a

subsidy. Most of the costs associated

with a payphone do not vary with the

number of calls made at an individual

payphone. Thus an individual call must

cover its own marginal costs as well as

a share of the non-varying costs. The

contribution made by an individual call

is the price of the call less the marginal

costs of the call. If the price of calls

remains constant, each additional call

adds a fixed amount of contribution. If

the number of calls is high enough, the

total of this contribution will exceed the

total of non-varying costs, including a

normal return on investment. The

amount by which total revenue exceeds

total cost is referred to as economic rent.

In the long run, premises owners will be

able to extract any economic rent from

payphone owners through

commissions.121 If a location generates

only enough traffic to support the

installation and upkeep of a payphone,

however, there will not be any

commission payments. Some PSPs may

choose to pay standardized commission

amounts.122 These companies will not

serve as wide a mix of locations. All

things being equal, the owner of a high

traffic location would seek out the

potential profits by choosing the PSP

that is willing to pay the highest

commissions. On the other hand, if the

owner of a low traffic location insisted

on a commission, no PSP would be

willing to install a new payphone at that

location because no PSP could pay the

commission and generate a sufficient

return on its new investment.123

Accordingly, a marginal location is a

location where traffic just covers costs

other than premises owner

commissions.

48. Based on the data provided by the

commenters, it is necessary to complete

several steps to determine the

appropriate number of calls needed to

sustain a payphone at a marginal

location. As explained more thoroughly

below, we rely on APCC cost data,

because these data are representative of

the payphone industry as a whole.

However, APCC did not provide a

breakdown of the 689 calls that it

reported as the average per payphone

when it collected the cost data.

Therefore, we first used APCC data from

the call type study—which provided

data based on an average of 713 calls—

to determine the proportion of access

code and subscriber 800, coin and other

calls for the 689 calls reported in the

cost study. Second, using these derived

call numbers, we estimated the amount

of coin and other calls necessary to

generate commission payments, and

subtract those calls to yield the number

of calls needed to sustain the marginal

payphone.

49. We use APCC data to estimate the

number of calls per month that an

average PSP would need at a location to

cover costs other than commissions.124

APCC reported $242 monthly cost per

payphone, including $45 in

commissions, based on an average of

689 calls of all types.125 Until October

1996, $6 of the monthly cost per

payphone was met from dial around

compensation and the balance of the

monthly cost per payphone had to be

met with coin revenues and revenues

from 0+, 0¥, and 00¥ calls.126 To

determine the amount of revenue that

the average coin, 0+, 0¥, and 00¥ call

had to produce so that the average

number of calls would cover total costs,

we had to determine the total number of

each such call type. Therefore, we used

the data in the APCC call distribution

study, which produced a total of 713

calls of all call types—152 access code

and subscriber 800 calls and 561 coin

and other calls—and applied this

breakdown to the 689 calls in the cost

study to develop a call distribution.
58668 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

127See APCC Comments, Exhibit 4 (providing

specific amount of numbers of each call type). The

APCC survey found $242 per month total cost based

on an average of 689 calls per month. The APCC

call distribution study (APCC Comments, Exhibit 4)

showed 713 total calls, comprised of 152 access

code and subscriber 800 calls (21%), and 561 coin

and other calls (79%)). We applied this breakdown

to 689 calls to estimate 147 access code and

subscriber 800 calls and 542 coin and other calls.

The 542 coin and other calls includes 411 and 555

calls that we treated as coin calls for our analyses.

128The quantity ($242 less $6 dial around

compensation) divided by (542 calls) results in 43.5

cents per call. The $6 in dial around compensation

is based on historic data. We have used historic

data rather than the default compensation rate times

projected access code and subscriber 800 calls in

order both to meet the concern that the

compensation rate be fair to existing payphone

providers and also because it is difficult to forecast

the future number of access code and subscriber

800 calls.

129 We find below that the marginal collection,

maintenance, and lines costs of a coin call are

between 4.6 and 6.0 cents per call. The APCC usage

study shows that if access code and subscriber 800

calls are omitted, about 91% of the remaining calls

are strictly coin (i.e., excluding 411 and 555 calls).

To determine an average cost for coin and other call

types, we used an average marginal cost for a coin

call multiplied by the percentage of coin calls. This

translated to 5.3 cents of marginal cost for a coin

call [(4.6+6.0)/2] multiplied by the percentage of

coin calls (91%), which results in 4.8 cents per

average coin and other call.

130 Since our default compensation rate will

cover more joint and common costs than the $6 per

month compensation rate in effect through October

6, 1996, payphones will become economically

viable at more locations, satisfying one of the goals

of the 1996 Act.

131 Using the number 116 calls, we divided 116

coin and other calls (excluding subscriber 800 and

access code calls) by 542 total coin and other calls

(again excluding subscriber 800 and access code

calls). This resulted in a reduction of 21.4%. This

percentage does not indicate that the type of calls

declined, but rather, is a percentage used to develop

the relative proportions of the various call types

from the call volume study to the cost study.

132 This assumes that access code and subscriber

800 calls also would decline by the same percentage

as would coin and other calls. 116 coin and other

calls times (152 average access code and subscriber

800 calls / 561 coin and other) equals 31 fewer

access code and subscriber 800 calls.

133 We use the 542 number of calls at a low traffic

payphone location in the following sections of the

market based analysis: coin mechanism capital

costs; line savings (in part); and ANI ii.

134 Bell Atlantic Telephone Companies v. FCC, 79

F.3d 1195, 1202–04 (stating that the Commission is

not required to include all data when determining

a rate, and that the Commission has the authority

to exclude suspicious data or statistical outliers).

135AT&T Comments, Robinson at 3.

136See Coalition Comments, Report of Arthur

Andersen on per-call compensation and cost

calculations, Carl Geppert at 8 (Aug. 26, 1997).

Local exchange carriers, in contrast, have an

installed base that typically consists of ‘‘dumb’’

payphones that must rely on telephone company

central offices for functionality. The Coalition

submitted a study by Carl Geppert for Arthur

Andersen citing New England Telephone data for

New Hampshire to show that the average costs of

coin and coinless telephones were similar. Other

parties have presented information to the effect that

Applying the representative percentages

of the call types resulted in the

following distribution: 147 access code

and subscriber 800 calls, 494 coin calls,

and 48 other calls.127 Thus, to recover

the $242 in monthly costs at an average

location, the PSPs surveyed by APCC

had to collect an average of 43.5 cents

per call in revenue from coin and other

calls.128

50. The APCC data illustrate that PSPs

pay an average of $45 per month in

commissions. For the purposes of this

analysis, we impute the number of calls

at a low traffic location by taking the

number of calls at an average location,

and subtract the number of coin and

other calls that would produce marginal

revenue of $45. As explained above, to

break even at an average location, PSPs

must have generated 43.5 cents per call

from an average number of coin and

other calls. This revenue per call,

however, is offset by about 4.8 cents of

marginal cost per call, 129 meaning that

payphone providers must realize about

38.7 cents in average net revenue per

call. Dividing $45, the average

compensation to premises owners, by

38.7 cents, which is the marginal

revenue per call, results in 116 coin and

other calls. In other words, if the

number of coin and other calls is

decreased by 116, all other things being

equal, the PSP’s net revenue would be

reduced by $45 (116 calls times 38.7

cents per call). Assuming a

proportionate reduction in all calls, a

break even or low traffic location would

have 116 fewer coin and other calls and

31 fewer access code and subscriber 800

calls. 130 Using the total number of all

calls from the cost study (689), we

subtracted 116—the number of coin and

other calls that would generate $45 in

commissions. This resulted in 573 calls.

We also expect that the number of

access code and subscriber 800 calls at

a marginal payphone location would be

less. As noted above, we determined

that 147 of the 689 calls at an average

location would be subscriber 800 and

access code calls. To reduce that

amount (147) by the decrease in access

code and subscriber 800 calls that

would be originated at a marginal

location, we then determined how many

of the remaining calls were subscriber

800 and access code calls. Comparing

the numbers from the APCC call volume

study, we determined that the number

of coin and other calls (excluding

subscriber 800 and access code calls)

was approximately 21.4% less in the

cost study. 131 Assuming that the

subscriber 800 and access code calls

also would decrease proportionately, we

determined that there would be 31

fewer subscriber 800 and access code

calls. 132 Thus, we subtracted 31 from

573, which results in 542 calls.

Accordingly, we use this number, 542,

as the total number of calls that would

be made from a low traffic location. 133

ii. Estimate of avoided and added costs.

51. The parties submitted data on

avoided and added costs of dial access

and subscriber 800 calls compared with

local coin calls. Different parties have

different costs by category due to

differences in the type of location

served and differences in accounting

treatments. Line charges, for example,

vary from state to state. One party may

treat a specific cost as overhead while

another party might include the same

sort of cost a direct cost of maintenance.

It is not possible to fully reconcile

differences in cost estimates by

analyzing the data filed on the record.

Accordingly, we have used the

information submitted by the parties

along with information from Securities

and Exchange Commission 10K filings

to develop ranges within which cost for

an average PSP might reasonably be

expected to fall. 134

52. Coin Mechanism Capital Costs.

While a single payphone may be

installed to handle both coin and

coinless traffic, the direct costs of the

coin mechanism should be recovered by

coin calls. After installation, the capital

costs of a payphone become fixed.

Because we are looking at the long run,

where all costs are avoidable, we

consider the decision made by the PSP

at the time the phone is installed. When

a payphone provider considers

installing a telephone at a new location,

it must consider whether the additional

coin traffic at that location would justify

the additional cost of installing a coin

telephone. The PSP would not install a

coin payphone instead of a coinless

payphone unless the additional coin

traffic would at least cover the

additional costs of a coin mechanism.

Therefore we conclude that costs

directly associated with the coin

mechanism should be attributed to coin

traffic. We assume that the market rate

for local coin calls recovers these costs

and therefore conclude these costs

should be removed from the adjusted

market rate.

53. David Robinson, in a study

submitted by AT&T, provided the most

detailed information on the costs of

purchasing and installing different types

of telephones. Independent PSPs

typically use smart payphones.

Robinson estimated that new smart coin

payphones cost about $900 to $1200 per

unit compared with $200 to $250 per

unit for coinless units.135 The

differences in cost are primarily due to

equipment used to accept, count, and

hold coins.136 Some cost differences,
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58669

a coin mechanism by itself would cost less than

$100. Stronger, theftproof housing, however, also is

required if a coin mechanism is to be included. We

conclude that the best information is the current

prices of comparable telephones with and without

coin mechanisms and that the Robinson data is

most suitable for this comparison.

137AT&T Comments, Robinson at 3.

138 In reviewing costs infra, we use data from

Peoples and CCI’s 10K reports to estimate that the

total new investment for a payphone would be

about $3000, including support facilities. Thus, the

$710 in coin related costs represents about a quarter

of the total new investment.

139Equal monthly payments of $12.36 would

depreciate $710 over a 10 year life and earn a return

of 11.25% on net plant, allowing for the statutory

federal income tax rate of 34%. We selected a 10

year life consistent with AT&T and Peoples. See

AT&T Comments, Robinson at 5; Peoples 1996 10K

at 31 (using a 10 year straight line depreciation rate

for public payphones. Cf. CCI Comments at 10

(using a 7 year life). See also infra para. 59 for

further explanation of interest rates.

140This is not a marginal cost per coin call.

Rather, it represents the amount included in the

market rate of local coin calls to recover the costs

of equipment attributed to coin service. For this

purpose, the market rate was assumed to be based

on a low traffic location, meaning 542 total calls,

including a total of 399 coin, 411, and 555 calls.

141See Coalition Comments, Andersen at 4

($0.02); CCI Comments at 9 ($0.02); Peoples

Comments at 11 ($0.04). We note, however, that six

of the eight Coalition members reported no

measured service lines, and further, that the line

savings per call was $0.07 and $0.08 for the other

two. In a deregulated environment, LECs will have

incentives to select measured service lines for

payphones when such lines would be the low cost

alternative. Accordingly, the LEC data is not

representative of costs for the PSPs. The Peoples

estimate contains some avoided toll costs in

addition to avoided coin collection costs. Peoples

did not provide sufficient information to separate

this part of the costs. Accordingly, that amount is

too high to serve as a high range for estimates. See

also AT&T Comments at 4 ($0.029) (deriving this

figure as total billing cost, $15.03 local usage for a

smart phone divided by 511 coin calls as

represented in the APCC study, Attachment 4 at 2).

Telaleasing data was excluded because its estimates

are radically different from the estimates filed by

any other party and because its data could not be

verified by parent company 10K filing. See

Telaleasing Comments at 7; Davel 10K at 19. Also,

all of Sprint’s payphones appeared to be in nonmeasured service areas, which is not representative

of the industry average, so we did not use Sprint’s

line cost data when determining line savings. Sprint

Reply, Exhibit 1 at 2. Line costs are dependent on

local exchange carrier rates which vary by

community. We do not believe that the industry

average would be much higher than the figure

derived from AT&T data. Accordingly, we select 3.0

cents per call for the high call estimate (slightly

higher figure than that derived from AT&T data).

We select 2.5 cents per call as the low estimate,

based on an average of the AT&T and CCI data.

142See, e.g., AT&T Comments, Robinson at 7.

143This would more likely be the case at a low

traffic location than a high traffic location, since

more coin pickups are scheduled for high traffic

locations.

144Peoples Comments at 13.

145Coalition Comments, Andersen at 4 ($0.02

attributed to collection and maintenance); CCI

Comments at 9 ($0.01 based on comparing the

collection and maintenance cost of a coin call of

$0.06 and maintenance cost of an access code call

of $0.05) This probably considers most, if not all,

maintenance costs as joint and common. See also

Peoples Comments at 13 ($0.03 attributed to

collection and some avoided maintenance); AT&T

Comments, Robinson at 7 (maintenance: $.018 = $7

difference in coin vs. coinless monthly maintenance

divided by 399). Note that the coinless phones

Robinson studied might have had lower

maintenance expense than the coin phones in his

study not because of coin induced wear, but rather

because the coinless phones were in sheltered

locations. AT&T Comments at 9 (collection: $0.047

based on $13.50 collection costs per $100 of coins

times 35 cents per call). Robinson’s collection costs

represent the cost of collections if performed on a

stand alone basis. PSPs often perform maintenance

and collections at the same time and much of the

combined cost should be considered joint and

common to all calls, rather than solely attributable

to coin calls. Accordingly, we selected 2.1 cents as

the low estimate (the Coalition estimate allowing

for slightly higher cost per call at a low traffic

location) and 3.0 cents as the high estimate (the

Peoples estimate with no adjustment).

146Peoples’ 1996 Form 10K indicates that Peoples

financial books for 1995 included approximately

one million dollars in additional bad debt reserves

related to both the inmate and payphone

operations. Peoples 1996 10K at 29 (filed with the

Securities and Exchange Commission Mar. 31,

1997). This translates to about $2 per payphone per

month. Since there was no change in the FCC’s

payphone compensation plan in 1995, this increase

is not attributable to access code and subscriber 800

calls. Thus, some, if not most, of the $4.02 per

payphone per month cited by Peoples should not

be viewed as an increased cost attributable solely

to access code and subscriber 800 calls. Peoples

Comments at 13.

147CompTel Reply at 13.

148CWI Reply at 11.

149AT&T Reply, Robinson at 11–12.

150CWI Reply at 11; CompTel Reply at 11.

however, may be due to quality features

that allow the payphone to be used in

harsher environments. We selected the

$900 figure for smart coin telephones as

an amount that would be suitable for

general locations instead of the $1200

figure, because the latter figure likely

included additional features that go

beyond the standard smart coin

telephone that would not be necessary

at the general location. We determine

that $250 is an appropriate amount for

the coinless phone operated in a general

location, to reflect some quality features,

and further, because there is not a

significant difference in the capabilities

among the coinless phones and the

difference between the estimates ($200

to $250) is not significant. The

difference in price, from $900 to $250,

$650 per telephone, would be due to

added costs associated with coin traffic.

Robinson also estimates that a smart

coin telephone requires $60 more for

installation than does a coinless

telephone due to additional testing and

programming for the coin rating and

collection functions.137 Thus, we

estimate a total investment cost of $710

per payphone that is related to coin

functions.138 This equates to $12.36 in

investment costs per month for a coin

telephone.139 Thus, we impute that the

market rate for local coin service

includes 3.1 cents per coin call at a low

usage location and that this amount

represents an avoided cost for dial

around and subscriber 800 calls.140

54. Line Savings. In some areas, all

payphones are charged per-message or

per minute charges for all local calls. In

other areas, all payphones use

unmeasured lines. In still other areas,

payphone providers can choose between

using some form of measured service

and unlimited calling. PSPs taking

measured service pay message charges

for local coin calls, but not for access

code or 800 subscriber calls. This

represents a marginal cost difference of

coin versus coinless service. Based on

the record, we conclude that the average

cost savings for line charges is about 2.5

to 3.0 cents per call.141

55. Collection and Maintenance

Savings. The parties concur that coin

collection costs are related to coin calls,

that coin telephones have higher

maintenance costs than coinless

telephones and that maintenance costs

increase as the number of coin calls

increases.142 It is difficult to separate

maintenance from coin collection costs,

however, because some coin collection

and routine maintenance may occur at

the same time.143 Not all maintenance is

related to coin calls.144 For example, key

pads and handsets are used for both

coin and non-coin calls and vandalism

may be directed against the phone or the

enclosure as well as targeted against the

coin box. Based on the record, we

conclude that the average savings from

coin collection and maintenance is 2.1

to 3.0 cents per call.145

56. Bad Debt / Collection Charges.

Peoples identifies some collection and

bad debt expenses that it attributes

solely to compensation for access code

and subscriber 800 calls. Under the

interim compensation plan, Peoples was

unable to collect from IXCs

approximately $4.02 per payphone per

month, which translates to $0.03 per

access code and subscriber 800 call.146

Conversely, CompTel alleges that

Peoples’ bad debt expenses arose

primarily from operator service

operations.147 CWI opposes including

any allowance for increased collection

costs of access calls, arguing this is not

a cost of access and that the IXCs also

bear such costs.148 Furthermore, AT&T

notes that collection costs should

decrease steadily with the

implementation of ANI and other

Commission requirements.149 CWI and

CompTel contend that per-call

compensation should not include

billing or bad debt costs.150 Neither the

Coalition nor the other PSPs included

specific estimates of increased
58670 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

151See, e.g., Coalition Comments at 19 (stating

that the implementation of the Commission’s ANI

requirements for the provision of payphone specific

coding digits might ultimately add $0.05 to $0.08

to the cost of a access code and subscriber 800 call);

AT&T Reply at 27–28 (arguing that less expensive

alternatives exist to the plan promoted by USTA);

Excel Reply at 5; RCN Reply at 6. The Coalition

based its figure on USTA estimates that LEC

investments would increase by about $1.035 billion

dollars to implement ANI, that all of the cost would

be borne by PSPs, and that such costs should be

attributed entirely to access code and 800

subscriber calls. See Coalition Comments at 17.

Sprint points out that most of the cost cited by

USTA would arise from modifying all switches in

non equal access areas. However, Sprint points out

that many switches would not need to be modified

because there are only 10,000 payphones in nonequal access areas compared with 3400 exchanges

that lack equal access. See Sprint Reply at 8.

152Letter to Michael Carowitz, Common Carrier

Bureau, from Keith Townsend, USTA, CC Docket

96–128, at 5 (July 28, 1997); USTA Petition for

Waiver, CC Docket No. 96–128, Exhibit 1, 5 (Sept.

30, 1997).

153Sprint Reply at 8.

154 $5.65 is the levelized monthly amount per

payphone that would depreciate $600 million over

10 years and earn an 11.25% return on net

investment, allowing for income taxes at the

statutory rate of 34%.

155See AT&T Reply at 27–28. See also Excel

Reply at 5; RCN Reply at 6.

156Coalition Ex parte, Sept. 26, 1997.

157APCC Comments at 15; CCI Comments at 9–

10; TEI Reply at 5.

158Peoples Comments at 13.

159AT&T Comments, Robinson at 5.

160APCC Reply at 14.

161Peoples Comments at 10.

162Representing the Authorized Rate of Return for

Interstate Services of Local Exchange Carriers, 55

FR 51423 (December 14, 1990); 5 FCC Rcd 7507

(1990).

163Teleport Reply at 6. Teleport Comments at 3,

6 (arguing that whatever cost differences may exist

are eliminated by the opportunity costs associated

with noncoin calls because coin paying customers

cannot use a payphone if it is being used by a

noncoin customer).

164Sprint Reply at 4.

165See, e.g., CWI Comments at 9, n.7; CWI Reply

at 9; CompTel Comments at 14; CompTel Reply at

11; Excel Reply at 4; LCI Comments at 8. See ITA

Reply at 2, 4 (requesting that the Commission adopt

an incremental cost approach, and that such a rate

should not include premise owner commissions);

Sprint Reply at 7 (stating that pre-existing

commission payments are recovered from local coin

and 0+ calls); Frontier Comments at 3 (arguing that

commissions cannot be included in computing the

per-call compensation amount because

compensation based on commissions paid on 0+

calls would allow monopoly rents for locational

monopolies).

166CompTel Reply at 12; RCN Reply at 5 (arguing

that without safeguards, PSPs have no incentive to

keep rates low).

167APCC Comments at 13 (stating that

commissions are unlikely to vary except in relation

to the price of calls and that location owners

demand and receive commissions on every form of

revenue derived from a payphone including

subscriber 800 and access code calls); CCI

Comments at 9 (stating that commissions must be

paid to location owners so that payphones can be

placed for public use). CCI treated the costs as equal

for coin calls and subscriber 800 and access code

calls while noting that some marginal differences

collection and bad debts. As such, we

do not have sufficient information to

attribute an amount to bad debt and/or

collection charges.

57. ANI ii. The Commission’s rules

require that LECs provide certain

automatic number identification

information (ANI ii) to the IXC with

each call. These digits provide IXC’s

with automated information that

enables them to bill, block, and track

calls. On the record, the parties disagree

about the costs associated with the

provision of ANI ii digits, and further,

who should bear those costs.151 USTA

estimated the cost of providing ANI ii

digits through hardcoding and through

FLEX ANI. The estimated total capital

cost for hard coding the digits was about

$1.035 billion of which $558 million

was for upgrading all non-equal access

switches and $477 million was for hard

coding switches.152 Sprint notes that the

USTA figure assumes equipment

upgrades for every non-equal access

switch, while many of these switches do

not support any payphones.153 Given

that not all non-equal access switches

would be upgraded, and that the

upgrade would benefit all users of the

switches, it seems unlikely that all the

upgrade expense would be attributed to

payphone service. For the purpose of

translating the USTA cost estimates into

additional pay telephone costs, we

assume that $600 million of additional

LEC investment would be recovered

from increased payphone line rates.

$600 million in increased investment

recovered over 10 years would require

increased monthly line charges of

$5.65.154 Divided by the low traffic

location number of calls, 542, would

equal approximately $0.01 per call.

58. AT&T notes that less expensive

alternatives to the plan advanced by

USTA exist.155 The Coalition indicates

that if LECs are allowed to use a

combination of FLEX ANI or original

line screening technology, payphone

digit identification costs may be as low

as $0.01 per call.156 As discussed above,

we have evaluated the data supplied by

the USTA, the Coalition, AT&T, and

Sprint, and we estimate a cost of $0.01

per call.

59. Interest. Several payphone

providers note that they have the use of

coin receipts almost immediately while

they must wait to collect compensation

on access calls.157 Peoples, for example,

collected payphone compensation for

access calls completed between October

8 and December 31, 1996 in April

1997.158 Accordingly, we conclude that

the delay in receipt of compensation for

access calls represents an additional

cost of providing access code and

subscriber 800 service calls that would

not be included in the market rate for

local coin calls.

60. AT&T uses 11.25% as the interest

rate and the return requirement for

payphone investment.159 APCC claims

that the appropriate interest rate for

many payphone providers would

exceed that rate significantly.160 Peoples

used a 10% interest rate in its

calculations.161 Most payphones,

however, are owned by large local

exchange carriers, whose authorized

interstate rate of return has been 11.25%

representing a weighted average of debt

and equity costs.162 Accordingly, we

conclude that 11.25% is the appropriate

cost of capital for payphone providers in

this context. Thus, the delayed receipt

of compensation for access code and

subscriber 800 calls justifies an upward

adjustment of .8 cents (11.25% for 3

months times the market rate adjusted

for other costs).

61. Opportunity Costs. Teleport

contends that the Commission should

recognize the opportunity costs

associated with use of a payphone for

non-coin calls.163 This cost theoretically

arises because the payphone provider

does not have the opportunity to realize

coin or 0+ commission revenue

whenever its payphone is being utilized

for an access code or subscriber 800 call.

Sprint, however, notes that the

payphone will be available for 0+ and

coin calls 98.2% of the time based on

average amounts of access code and

subscriber 800 calling. Sprint also states

that when a given phone is not

available, another phone from the same

company may be available, so the call

is not necessarily lost.164 Therefore, we

make no adjustments to the local coin

rate based on opportunity costs.

62. Commissions. Several IXCs argue

that commissions paid to location

owners on 0+ and 1+ calls should not

be attributed to per-call compensation

rate.165 CompTel argues that these

commissions have been paid on 0+, 1+,

and local calls, and recovered through

these revenues. CompTel and RCN

argue that there is no assurance that

these commissions are just and

reasonable.166 WorldCom argues that 0+

commissions should not be included as

a cost in computing per-call

compensation because these

commissions reflect the value of being

selected as the default 0+ provider and

as such are unrelated to the costs of

providing subscriber 800 and access

code calls. The Coalition and the

independent PSPs propose that per-call

compensation default be set on the basis

of the average commission received by

independent payphone providers on 0+

calls to set the rate for access code and

subscriber 800 calls.167 CompTel and
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58671

exist in the commission levels paid to coin as

compared with noncoin calls. See also Peoples

Reply at 11 (stating that commissions will not result

in increased costs for the consumer).

168CompTel Reply at 12; RCN Reply at 5 (arguing

that without safeguards, PSPs have no incentive to

keep rates low).

169Coalition Comments, Hausman at 4–5.

170 Id. at 11.

171 Given the relative elasticities presented in the

paper, these methods generally would produce

market rates below $0.35 for local coin telephone

calls.

172Hausman estimates that the local coin rate

elasticity is about -.663. (Coalition Comments,

Hausman at 11) Hausman estimates a derived

elasticity for dial around calls by multiplying an

elasticity for interstate calls (-.723) times the

percentage that a $0.35 access cost would add to a

dial around toll call, reported to have an average

price of $2.16. Hausman makes a similar calculation

using an elasticity of -.77 and an average call price

of $0.50 for subscriber 800 calls. He calculates that

the weighted average of these two derived

elasticities is -.398, significantly less elastic than his

estimated local coin call elasticity.

173Coalition Comments, Hausman at 28.

174AT&T Reply, Warren-Boulton at 4.

175MCI Comments at 4.

176MCI ex parte at 15 (Oct. 2, 1997).

177See ITA Comments at 8.

178For example, 0+ calls incorporate commission

of $0.62 per call and toll calls that customers pay

for by depositing coins incorporate commissions of

about $1.40 per call. APCC Comments at 8–10.

179See supra paras. 30–40 for specific cost

components discussed in the comments. These

costs were discussed previously in determining for

what costs the market-based rate should be

adjusted, and are incorporated herein.

180See, e.g., ACTA Reply at 6 (arguing that any

compensation scheme should focus the recovery on

the PSPs forward looking direct costs associated

with the origination of coinless calls). AT&T

Comments at 2; AT&T Reply at 2 (including the

following costs: maintaining the payphone

instrument, excluding coin-related functions and

coin collection costs; basic line costs, excluding

coin rating functionalities but including the

monthly subscriber line charge and tariffed

screening and blocking service from the LEC; and

other reasonable expenses such as touch tone and

911 charges). AT&T and MCI argue that the

Commission should adopt a cost-based

compensation scheme based on a PSP’s actual

efficient costs to originate access code and

Continued

RCN argue that there is no assurance

that these commissions are just and

reasonable.168 Accordingly, we do not

need to make any adjustments to reflect

commission costs.

63. Total Adjustments to MarketBased Rate. The preceding analysis

suggests that costs associated with coin

equipment, line, coin collection and

maintenance are not directly

attributable to provision of access code

or subscriber 800 call. We estimate that

in total, between 7.7 cents and 9.1 cents

per call are directly attributable to local

coin calls, and thus should be

subtracted from the market rate. There

are uncertainties with the estimates but

we found no evidence to suggest a

preponderance of either high or low

biases. On the other hand, we adjust the

local coin market rate upward by 1.0

cent to account for additional costs to

PSPs resulting from ANI ii

implementation to identify payphone

originated calls for the benefit of IXCs,

and 0.8 cents for interest attributable to

the delay in compensation for access

code and subscriber 800 calls. These

additions and subtractions produce an

adjusted market-based range of $0.277

to $0.291. The midpoint of that range is

$0.284. Thus, we conclude that the

surrogate or adjusted market default

price is $0.284 per access code and

subscriber 800 call.

b. Adjustments to the Local Coin

Market-Rate Based on Demand

Differences

64. The Coalition filed a study by Dr.

Hausman that adjusts the local coin

market rate for differences in demand.

Dr. Hausman explains that in an

industry with a significant amount of

joint and common costs, competitive

firms take into account demand

conditions and competitive conditions

as well as costs when setting price.169 A

competitive firm recovers joint and

common costs through markups over

marginal costs. Dr. Hausman states that

the markups are set so that the firms

recover total costs. Dr. Hausman then

asserts that services, where the demand

is relatively price elastic, compared to

other services provided over the joint

facility, would receive lower

markups.170 Dr. Hausman uses several

methods to translate relative elasticities

into relative prices for coin calls versus

access code and subscriber 800 calls.171

Dr. Hausman uses derived elasticities to

show that access code and subscriber

800 services are less elastic than local

coin calling.172 His analysis concludes

that the Commission should set the

default compensation rate at the local

coin rate plus approximately $0.07 to

$0.08 per call.173

65. AT&T replies with a study by Dr.

Warren-Boulton, who contends that the

derived elasticities presented by Dr.

Hausman significantly underestimate

true elasticities. Dr. Warren-Boulten

notes that customers faced with a $0.35

increase in toll rates at payphones likely

would substitute toll services that did

not increase in price, rather than simply

deciding not to make the calls.174 This

view is supported by MCI’s comment

that many 800 customers are interested

in blocking subscriber 800 calls from

payphones to avoid paying the

compensation charge.175 MCI, however,

suggests that the demand for coin calls

is significantly less elastic than Dr.

Hausman suggests.176 These customers

may anticipate that at least some

potential callers subsequently would

make a subscriber 800 call from another

location.

66. Dr. Hausman’s derived elasticities

are sensitive to several of his underlying

assumptions. He based the average price

of an access code call on historic AT&T

data. These data probably overstate the

current average price for an access code

call because many firms exclusively

operate by providing prepaid calling

cards, which do not include a

surcharge, 177 and because there have

been significant decreases in some

interstate and international toll rates.

Furthermore, Dr. Hausman uses the

overall toll elasticity as the elasticity for

dial around access calls. Customers

placing access code calls, as opposed to

0+, 0-, and 00-calls, have already made

choices based on perceived price

differences.178 These customers

therefore may be much more price

sensitive than average toll customers,

and may be far more willing to forego

or delay calls than indicated by

Hausman’s derived elasticity. We

conclude that the demand for access

code and subscriber 800 calls are

significantly more responsive to price

than Dr. Hausman suggests.

67. We conclude that while

differences in demand elasticities for

access may prove useful to some firms

in setting prices, the information

presented in the current record

evidences wide variations in assumed

elasticities and the results are

inadequate to determine whether access

code and subscriber 800 service or local

coin service is the more price elastic

service. Because we do not have

confidence in the elasticity analyses in

the record given the variation in results,

we decline to adjust the market-based

default per-call compensation rate for

differences in demand.

C. Alternatives to a Market-Based

Compensation Rate

68. As noted above, some commenters

request that we establish the default percall compensation rate based on cost

information filed by the parties in this

proceeding. We decline to adopt this

approach, but we have assessed the

record evidence on this matter and have

calculated a cost-based default rate

below to validate that our market-based

adjusted per-call rate is reasonable.179

1. Comments

a. Costing Methodologies

69. Several of the commenters argue

that the Commission should derive a

compensation rate based on the costs

that are incurred to originate coinless

calls.180 Several of the IXCs request that
58672 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

subscriber 800 calls. See AT&T Comments at 2; MCI

Comments at i.

181CPI Reply at 6. WorldCom Reply at 4.

WorldCom cites the rates set forth in AT&T’s

comments ($0.11 per call), MCI’s comments ($0.083

cents per call), and Sprint’s Comments ($0.057

cents per call), and states that the Commission

should adopt one of these approaches or a blended

approach using several methods. See WorldCom

Reply at 4–5.

182AT&T Reply at 10, 17–18.

183Sitel Reply (stating that $0.35 cents per call is

too high and that such a rate could adversely effect

small business due to increased

telecommunications costs).

184Excel Comments at 3–4.

185CompTel Reply at 6–7 (stating that the rate

should be based on the costs of an efficient provider

to originate subscriber 800 and access code calls

and noting that other call types would be

compensated by market pricing); ITA Comments at

2 (stating that the rate should be based on economic

costs including a reasonable profit for the PSPs).

186 ITA Reply at 2, 5.

187Sprint Comments at 8–11; AT&T Comments at

15 n.12.

188Coalition Reply at 2.

189CWI Comments at 5; LCI Comments at 5

(stating that the only costs that are relevant are

additional maintenance and wear and tear for usage

attributed to access code and subscriber 800 calls);

Sprint Reply at 3 n.5 (stating that although CWI,

LCI, and CompTel raise the possibility that local

usage charges should be included in marginal costs,

Sprint is not aware that any LEC imposes such

usage related costs for subscriber 800 and access

code calls. Instead, Sprint states, the IXC carrying

the call pays the LEC’s access charges for the use

of the LEC’s network for call origination.). Sprint

and CompTel also state that this method is

appropriate because access code and subscriber 800

calls are by-products of payphone installation, not

its primary purpose. Thus, the decision to install a

payphone, Sprint and CompTel argue, is driven by

the revenues the PSP anticipates from other types

of calls such as 0+ and coin calls. Sprint Reply at

3; Comptel Comments at 10–13.

190Sprint Reply at 6.

191Sprint Reply at 5 (also arguing that the public

is protected through the mandate for public interest

payphones in the Act).

192Peoples Comments at 6–7; APCC Reply at 9.

193Coalition Comments at 21–23 (citing

Reconsideration Order, 61 FR 65341 (December 12,

1996); 11 FCC Rcd at 21,268, para. 69).

194 Id.

195TRA Comments at 19 (stating that a reasonable

profit for PSPs could be included); WorldCom

Comments at 4 (further stating that this rate should

be based on the forward looking costs that an

efficient PSP would incur).

196CWI Comments at 9; CompTel Comments at

13–14; LCI Comments at 7. CWI, CompTel, and LCI

argue that costs to be included are the following:

the amortized cost of installing a coinless

payphone; costs of maintaining the equipment; and

the cost of a basic phone line plus usage charges,

if any, for subscriber 800 and access code calls.

Costs for coin equipment and coin collections,

terminating local calls, bad debt, depreciation,

interest, commissions, and administrative or

overhead charges not attributed to coinless calls

should be excluded.

197Frontier Reply at 2; RCN Comments at 1.

198 GCI Reply at 3.

199PageMart Reply at 6; PageNet Comments at 12.

200PageNet Reply at 27–28.

201CCI Comments at 15–16.

202 Id. at 17.

the Commission adopt a bottom-up

methodology to calculate per-call

compensation.181 AT&T argues that a

rate computed in this manner will be

sufficient to provide for the widespread

deployment of payphones, and would

not require the Commission to engage in

lengthy cost proceedings.182 AT&T

argues that its analysis is based on

TELRIC, which, AT&T argues, is the

most appropriate methodology in the

circumstances. Borden, Champion, and

Sitel 183 argue that the fair compensation

rate must be based on a PSP’s actual

costs for handling 800 calling card calls.

SDN supports a national rate based on

verifiable long range incremental costs

for all PSPs. Excel argues that the

Commission should adopt a rate that

reflects the actual costs incurred by an

efficient PSP for delivering subscriber

800 and access code calls.184

70. CompTel and ITA argue that the

Commission should base compensation

for subscriber 800 and access code calls

on the PSPs’ incremental cost of

originating these calls.185 ITA contends

that the Commission should use the cost

of a payphone call as determined by

Massachusetts Department of Public

Utilities (Massachusetts DPU) and

adjust that number downward.186 Sprint

and AT&T also argue that the

Commission should use the coin rate

filed by New England Telephone (NET)

with the Massachusetts DPU indicating

a per-call local coin rate of $0.167 as the

point at which we should begin our

analysis of a rate adjusted for costs

related to coin calls.187 The Coalition

argues, however, that this cost study is

not an appropriate basis for establishing

per-call rate in this proceeding.188 CWI,

LCI, CompTel, and Sprint argue that the

incremental costs to be included are the

additional or marginal costs created by

access code and subscriber 800 calls—

additional maintenance and wear and

tear for increased usage, and the per

minute usage charges, if any, imposed

by a LEC for originating access code or

subscriber 800 calls.189

71. Alternatively, Sprint argues that if

the Commission takes a fully allocated

approach to costs, then the rate should

be based on the most efficient

‘‘bellwether’’ PSP’s costs minus costs

related to coin functionality, local call

completion and premises owner

commissions from a local coin call.190

Sprint rejects Dr. Hausman’s view that

costs of the least efficient (or marginal)

provider should be used as the default

rate to prevent the removal of

payphones, arguing that this approach

overlooks the Commission’s policy that

inefficiency should not be rewarded in

a multiprovider market and that rates

should be based on the costs of an

efficient provider to promote

competition.191 The Coalition and APCC

contend that Sprint’s ‘‘bellwether’’

approach is flawed, because large, fixed

joint and common costs that should be

included as costs, were omitted; 192

relying on incremental costs only is

inappropriate because the PSP cannot

recover the total costs of providing the

service; 193 and cost estimates for a

single state are not representative.194

72. TRA and WorldCom argue that the

Commission should apply total service

long term incremental costs (TSLRIC)

principles to determine forward looking

costs on efficient provider would incur

to provide access to noncoin calls.195

CompTel, CWI, and LCI argue in the

alternative that if the Commission wants

access code and subscriber 800 calls to

bear some of the costs to ensure that

PSPs are fairly compensated, then the

Commission should set the

compensation rate based on forward

looking direct costs for access code and

subscriber 800 calls.196 Frontier and

RCN argue that the Commission should

adopt a cost-based rate based on the

costs of completing subscriber 800 and

access code calls.197 GCI argues that

PSPs should be compensated solely for

the costs of subscriber 800 and access

code calls.198

73. PageMart and PageNet argue that

the Commission should adopt a callerpays rate. Alternatively, PageMart

argues that it should remove the

avoided costs of a coinless call from the

compensation rate.199 Alternatively,

PageNet requests that the Commission

adopt a cost-based approach that

apportions only the additional costs that

are incurred through the origination or

subscriber 800 calls on a per-call

increment, not per-call basis.200

74. CCI argues that the Commission

should not adopt a cost-based

methodology because a marginal cost

rate does not fairly compensate all calls

as required by Section 276 of the Act

and does not address fair compensation

for other types of calls from payphones

or whether additional costs could be

recovered through compensation

available to PSPs.201 CCI contends that

if the Commission adopts a marginal

cost standard, then the rates would need

to be sufficient such that revenues

would recover the total marginal costs

of installing and operating payphones,

which in the long run could increase

long distance rates and force some PSPs

out of business.202

75. Peoples and the Coalition argue

that the Commission should not adopt

a cost-based rate because the costs for

local coin calls and dial around calls are

similar, and further that access code and
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58673

203APCC Reply at 11.

204TEI Comments at 10.

205The comments on commissions and billing/

bad debt cost components are discussed supra at

para. 62 and 56, respectively.

206CWI Comments at 8.

207MCI Comments at 3; RCN Comments at 4

(arguing that this cost is unique to the local coin

rate and should be subtracted from a true rate that

PSPs would provide as a deregulated local coin

service on a nationwide basis). CompTel Comments

at 13; CompTel Reply at 8 (CompTel argues that

data is not available specifically for maintenance

costs, but the cost for maintenance less coin

capability is about $0.029 per call, thus the

maximum incremental costs would be

approximately between $0.01 to $0.02 per call); LCI

Comments at 5–6 (requesting that the Commission

adopt a default rate based on marginal costs and

stating that costs associated with installing and

maintaining a payphone should not be considered

when determining per-call compensation).

208PageNet Comments at 14.

209Teleport Comments at 4.

210APCC Comments at 11(further stating that

payphone equipment costs which include coin and

coinless calling capabilities must be incurred by

coin and noncoin calls); APCC Reply at 12.

211CCI Comments at 9.

212APCC Comments at 13.

213AT&T Comments at 9: CompTel Reply at 11,

14 (stating that some PSPs’ basic payphone line

charges include line cost categories such as network

costs, which should not be included).

214CompTel Reply at 11, 14.

215CWI Comments at 8 (arguing that these costs

should be considered proportionately based on

relative usage for access code and subscriber 800

calls).

216See, e.g., CWI Comments at 9; LCI Comments

at 7; MCI Comments at 3; Sprint Reply at 6; Excel

Comments at 3 (also arguing that originating access

should not be included in the per-call

compensation amount). See AT&T Comments at 9

(stating that local usage charges should not be

included in the cost of a noncoin call).

217CompTel Comments at 13; CompTel Reply at

8 (stating that it does not object to applying the

average per-call usage charge in areas where usage

is employed, about $0.02–$0.03 per call, citing

APCC Comments at 13 and Coalition Comments at

16).

218PageNet Reply at 20.

224Peoples Comments at 11–12 (arguing that at a

minimum 50% of the line charge is fixed and that

the variable portion that would be related to coin

calls only is less than $0.04 per call).

225 Id. at 12.

226Coalition Comments at 14–17.

227CCI Comments at 9.

228Coalition Comments at 16.

229APCC Comments at 14–15 (estimating the

costs of dial-around compensation to be about 5–

6 cents per call).

230Peoples Comments at 12–13.

231 Id. at 13.

232Peoples Reply at 8.

subscriber 800 calls may be more costly

than coin calls. Several of the PSPs and

the Coalition further argue that a costbased rate would lead to the removal of

payphones with low call volumes or

above average costs.203 TEI argues that

cost plus a fair rate of return is not

appropriate, because the underlying

costs are similar and there is seldom

agreement regarding costs or a fair rate

of return.204 APCC argues that the Court

did not require the Commission to adopt

a cost-based methodology.

b. Cost Components 205

76. Equipment. CWI contends that

only forward-looking direct costs should

be considered, including the amortized

cost of installing a coinless payphone

and the cost of maintaining the

equipment, excluding the cost for coin

equipment.206 Several of the IXCs argue

that coin equipment costs should be

excluded when determining per-call

compensation.207 PageNet argues that

coin related costs such as maintenance,

repair and replacement for coin

functions should not be included in

determining per-call compensation.208

77. The Coalition contends that

equipment costs are attributable to both

coin and noncoin calls. Teleport

contends that the fixed costs associated

with installing a coin operated

payphone, such as the cost of the

payphone, the enclosure, the cable

plant, and supporting network

infrastructure, are attributable to both

coin and noncoin calls.209 APCC states

that most payphone costs, including

purchasing, installing, and maintaining

equipment, are fixed and should be

attributed to both coin and noncoin

calls.210

78. CCI contends that monthly direct

costs such as the telephone bill (6 cents

per call), location owner commissions

($0.05 per call), maintenance and

collection ($0.05 per call), parts and

supply are properly attributable to both

coin and noncoin calls. CCI, however,

discounts the telephone bill costs ($0.02

per call) and maintenance and

collection costs ($0.01 per call) to

deduct local measured usage charge and

the costs associated with dial around

collection.211

79. Payphone Lines. APCC states that

local exchange line charges represent a

small differential between coin and

noncoin calls—on average, about 3 cents

per call.212 AT&T argues that tariffed

screening and blocking service from the

LECs as well as other reasonable

expenses such as touch tone and 911

charges should be included in the cost

of a call when computing the

appropriate amount of per-call

compensation.213 CompTel argues that

the line charge should be no more than

$0.046 per call.214 CWI contends that

basic phone line plus usage charges, if

any, for subscriber 800 and access code

calls should be included in computing

per-call compensation.215

80. Several of the IXCs contend that

the costs associated with terminating

local calls should not be used to

compute per-call compensation.216

CompTel argues that per-minute usage

charges, if any, imposed by a LEC for

originating access code or subscriber

800 calls are appropriate.217 PageNet

argues that line charges should not be

included because non-PSP carriers

already pay the LEC for the use of the

payphone line through originating

access charges.218

81. Peoples argues that line charges

are attributable to coin and noncoin

calls. Peoples argues that there is a

minimum fixed line charge, and that in

some states, there is an additional usage

charge.224 Peoples further argues,

however, that as more states require

fixed charges, there will be no

difference between line charges for coin

and noncoin calls.225

82. The Coalition contends that the

Commission should not impose an

offset for the local usage charge because

in many cases payphone lines are flatrated and PSPs do not recover

termination or local usage charges. The

Coalition contends, however, that if

there is an offset, it should not be

greater than $0.02 per call, which

reflects the average local termination

cost across all Coalition members.226

CCI does not include local usage charges

in calculating per call compensation

amount.227

83. Coin/Noncoin Collections. The

Coalition contends that the cost of coin

collection, counting, and related

equipment accounts for approximately

$0.02 of the total cost of a local coin, but

argues that this rate may be inflated

because it allocates coin collection costs

among coin calls based on coin

volumes, not the number of coins

deposited.228 APCC argues that the

differences between coin and noncoin

calls in the area of coin collection are

limited because coin collection is

generally combined with general

maintenance visits to the payphone,

about $0.03. APCC further argues that

coinless collection costs are likely to

increase and may actually be $0.05–

$0.06, thus higher than coin calls.229

Peoples contends that coinless

collection costs are greater than coin

call collection costs, and further that in

the past six months, coin related

maintenance accounted for only 38% of

all maintenance visits.230 Peoples

estimates that coin collection related

costs are approximately $0.03 per call,

and that coin collection costs are

slightly lower than the cost involved in

collecting for noncoin compensation.231

Peoples contends that dial around

collection costs are approximately

$0.05–$0.06 per call.232 CCI argues that

it does not include coin collection costs

of dial around calls in computing the

appropriate amount of per-call
58674 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

233CCI Comments at 6–8.

234 Id. at 2, 10.

235CPI Comments at 5 (arguing that only a keypad

capable of originating dialing codes and electronics

to identify the phone is needed and that PSPs do

not incur costs of visiting a payphone and

collecting and handling coins for subscriber 800

and access code calls); CompTel Reply at 11, 13.

CompTel notes that Peoples argues a coin phone

costs $41.66 per month to operate, but a coinless

phone (as reported by AT&T) costs only $25.10 per

month, and argues that coin phones are more costly,

because a coin phone requires more frequent

service and coin collection visits, and additional

equipment that can be broken or vandalized.

CompTel further argues that Peoples’ cost figures

for maintenance should be reduced by at least 50%.

Comptel Reply, supra.

236See AT&T Comments at 9; CWI Comments at

9; MCI Comments at 3; PageNet Comments at 14

(arguing that the majority of features and functions

as well as maintenance and repairs provisions of

payphones are related to the acceptance and

handling of coins, and that such costs are not

properly attributable to subscriber 800 and access

code calls); PageNet Reply at 19. See also Frontier

Comments at 7–8 (stating that $0.043 is attributable

to coin collection costs); ITA Comments at 6–7

(stating that in the Report and Order, at para. 44,

the Commission estimated the cost of coin

collection to be $0.02 per call); RCN Comments at

3 (stating that the PSP does not incur coin

collection costs when originating a subscriber 800

or access code call, and therefore, the default rate

of $0.35 must be reduced).

237TEI Reply at 6.

238APCC Reply at 23.

239Coalition Comments at 18; Peoples Reply at 8.

240AT&T Reply at 27–28; Excel Reply at 5; GCI

Reply at 3; Sprint Reply at 8–10.

241Excel Reply at 5; RCN Reply at 5.

242CWI Reply at 11; CompTel Reply at 11, 14

(stating, however, that if these costs are included,

then the cost per call should be only $0.011).

243LCI Comments at 8; CWI Comments at 9, n.7;

CWI Reply at 9; CompTel Comments at 14.

244CCI Comments at 10. CCI attributes $0.04 to

overhead, $0.03 to depreciation, $0.02 to

amortization, and $0.02 to interest. CCI notes that

these costs relate only to their payphones, but

reflect the payphone industry. See id.

245Peoples Reply at 10.

246AT&T Comments at 10.

247AT&T Reply at 14.

248CCI Comments at 10.

249CPI Comments at 6.

250TRA Comments at 19.

251See CWI Comments at 5; Comptel Comments

at 10; LCI Comments at 5; Sprint Comments at 3–

4.

252Coalition Comments at 28 n.16.

253Cf. Implementation of the Local Competition

Provisions of the Telecommunications Act of 1996,

First Report and Order, 61 FR 45476 (August 29,

1996); 11 FCC Rcd 15,499,15844–15856 (1996)

(‘‘Local Competition Order’’) (describing total

element long-run incremental cost methodology for

pricing interconnection and unbundled network

elements).

254NPRM at para. 22 n.64.

compensation,G5233 but argues,

however, that the costs associated with

noncoin calls may increase due to

additional expenses for collecting and

auditing such compensation.234

84. CPI and CompTel contend that

PSPs experience lower costs for

subscriber 800 and access code calls

than for coin calls because it is more

costly to maintain a coin phone than a

coinless phone.235 AT&T, CWI, Excel,

Frontier, MCI, PageNet, RCN, and ITA

state that coin collection costs should

not be included in the rate of per-call

compensation.236 TEI states that some

service costs can be deducted when

determining the rate for a noncoin call.

85. Teleport contends that costs

associated with coin calls—collection,

maintenance, and cost of transporting a

call—on a per call basis are de minimis,

and further that the opportunity costs

associated with noncoin calls offset the

de minimis difference in cost. TEI

argues that the Commission should

include a cost for the time value of

money used in collecting the

compensation should the Commission

not prescribe collection tools for the

PSP, and further, suggests that the

Commission impose a stated interest

rate on late payers of per-call

compensation.237

86. ANI ii. APCC contends that the

Commission should not explicitly rule

that such charges incurred in

restructuring the LEC networks to

provide a unique screening digit for

dumb payphone lines may be assessed

on PSPs. However, APCC contends, if

LECs are allowed to assess such charges

on PSPs, then PSPs are entitled to

recover those charges from IXCs dialaround compensation as part of the cost

of originating dial-around calls.238 The

Coalition contends that requiring PSPs

to pay LEC tariffs for ANI ii digits would

add $0.05 to $0.08 to the per call rate,

and Peoples supports attributing this

cost to subscriber 800 and access code

calls.239 AT&T, Excel, Sprint, and GCI

argue that the PSPs are not entitled to

recover any costs for Flex ANI.240 Excel

and RCN state that IXCs should not be

required to pay for ANI information

provided by the PSPs, because the PSPs

are the beneficiary of the information.241

87. Depreciation/ Overhead. CWI,

PageNet, and CompTel contend that percall compensation should not include

depreciation costs or interest.242 LCI,

CompTel, and CWI argue that

administrative and overhead costs are

not attributable to noncoin calls.243

88. CCI and TEI argue that overhead,

depreciation, amortization, and interest

are attributable to coin and noncoin

calls.244 Peoples contends that overhead

costs are attributable to all calls made

from payphones, and argues that the

IXCs do not justify why such costs

should not be included.245

89. Other. In its estimate, AT&T

included an 11.25 percent interest on

capital factor, maintenance/warehouse/

part costs and added averaged costs for

the basic line and other related

charges.246 AT&T admits that some costs

such as overhead, general and

administrative expenses and taxes are

appropriate in the computation of the

cost of a noncoin call. According to

AT&T, these costs are approximately

$0.012 per call.247 CCI includes taxes

and the return on invested capital in the

calculation of the costs of the per-call

rate.248

90. CPI contends that subscriber 800

and access code calls are generally

shorter in duration than coin calls.

Therefore, the longer duration of local

calls could allow for opportunity costs

since few local calls displace shorter

long distance calls.249 TRA contends

that per-call rates should not include

embedded or opportunity costs.250 Excel

argues that coin rating costs should not

be included in determining per-call

compensation.

2. Discussion

91. As discussed above, we conclude

in this order that an adjusted marketbased local coin rate is the appropriate

surrogate for the default per-call rate for

subscriber 800 and access code calls. In

this section, we explain our reasons for

rejecting the proposals of various parties

that we derive a default per-call rate for

such calls based on cost estimates

submitted in the record of this

proceeding.

a. Problems with the Proposed

Methodologies for Deriving Payphone

Compensation.

92. A number of commenters, notably

the IXCs, argue that the Commission

should use the marginal cost of

originating a payphone call as the basis

for compensating PSPs.251 Most of the

parties, however, estimate marginal

costs based on the incremental cost of

an individual coinless call. Thus, as the

Coalition explains, setting the rate at

marginal or incremental costs means

that joint and common costs could not

be recovered.252 We conclude that the

use of a purely incremental cost

standard for each type of call could

leave PSPs without fair compensation

for payphone calls, because such a

standard would not permit the PSP to

recover a reasonable share of the joint

and common costs associated with those

calls.253 We also reject, for similar

reasons, suggestions by commenters that

we use local coin rates currently in

place as a surrogate for per-call

compensation. As we stated in the

NPRM, ‘‘local coin rates in some

jurisdictions may not cover the marginal

[incremental] cost of the service.’’ 254

Therefore, basing the per-call

compensation amount on current local

coin rates, which are frequently
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58675

255OSP Second Report and Order, 57 FR 21038

(August 29, 1992); 7 FCC Rcd at 3257.

256Order on Reconsideration, 61 FR 65341

(December 12, 1996); 11 FCC Rcd at 21,266, para.

66.

257See infra para. 119.

258See Order on Reconsideration, 61 FR 65341

(December 12, 1996); 11 FCC Rcd at 21,240–43,

21,268, paras. 11–19, 70 (noting that the payphone

industry is likely to become increasingly

competitive). See also Implementation of the Local

Competition Provisions in the Telecommunications

Act of 1996, First Report and Order, 61 FR 45476

(August 29, 1996); 11 FCC Rcd 15,499 (1996), Order

on Reconsideration, 61 FR 52706 (October 8, 1996);

11 FCC Rcd 13,042 (1996), Second Order on

Reconsideration, 61 FR 66931 (December 19, 1996);

11 FCC Rcd 19,738 (1996), further recon pending,

aff’d in part and vacated in part sub nom., CompTel

v. FCC, 11 F.3d 1068 (8th Cir. 1997), aff’d in part

and vacated in part sub nom. Iowa Utilities Bd. v.

FCC and consolidated cases, 120 F.3d 753 (8th Cir.

1997).

259We also note that it would be particularly

burdensome to impose a TELRIC-like costing

standard on independent payphone providers, who

have not had previous experience with any costing

systems. 260 47 U.S.C. § 276(b)(1)(A).

261As explained above, market forces in a

competitive market (including both marginal cost

and demand differences) determine how joint and

common costs are recovered from different services.

We determined, however, that we lacked adequate

elasticity information to determine whether access

code and subscriber 800 calls would recoup more

or less joint and common costs per call than would

local coin service.

subsidized by state regulators, would

not fairly compensate the PSPs. In the

Payphone Orders, we rejected the use of

the $0.12 per-call compensation amount

the Commission first discussed in its

1991 Notice of Proposed Rulemaking in

the access code call compensation

proceeding. We noted that we never

adopted the $0.12 per-call amount, and

that rate was effectively rejected when

the Commission adopted a $6 flat rate

per payphone per month based on a percall rate for access code calls of $0.40.255

93. We determined in the Order on

Reconsideration that reliance on cost

studies, in general, could reduce the

revenue recovered by the PSPs, and

therefore, might reduce the number of

payphones deployed.256 We reaffirm

that decision here. Adopting a per-call

compensation scheme that did not

‘‘promote the widespread deployment of

payphone services’’ would be

inconsistent with Congressional

intent.257

94. We also affirm our conclusion in

the Report and Order that the cost-based

TELRIC standard that the Commission

relied upon in the local competition

proceeding is inapplicable here, because

the payphone industry is not a

bottleneck facility that is subject to

regulation at virtually all levels.258 The

TELRIC pricing principles adopted in

the local competition proceeding were

designed to reflect the long run cost of

an element or physical facility. Since

there are relatively few common costs

between separate facilities, TELRIC

compensation will compensate a carrier

for virtually all costs associated with

providing (the services of) that facility.

With the addition of a share of the

relatively small common costs, the firm

will be able to cover its total costs.259

95. Additionally, we conclude that

Congress’ use of the phrase ‘‘* * *

payphone service providers are fairly

compensated for each and every

completed interstate and intrastate call

* * *’’ 260 is a different standard than

the cost-based standard articulated for

the compensation for interconnection

and unbundled elements. We conclude

that the PSP will be providing a

competitive service (payphone use) and

should therefore receive compensation

equal to the market-determined rate for

providing this service. In the Local

Competition Order, we concluded that

the cost-based interconnection standard,

on the other hand, compensates a carrier

for the long run incremental cost of

providing interconnection or the long

run incremental cost of providing an

unbundled element plus a reasonable

share of the common costs. Because the

local exchange is not yet competitive,

we could not rely on the market to set

competitive rates for unbundled

elements. In the case of payphones, the

presence of multiple PSPs already

operating in many markets, and the

structure of the industry that allows

relatively easy entry and exit, leads us

to conclude that we can rely on market

forces to provide for efficient pricing of

these services in the near future.

96. In this proceeding commenters

also argue that we should apply a

TSLRIC cost standard to only a subset

of services (i.e., subscriber 800 and

access code calls) provided by a facility

(payphone). In general, when several

services are provided by the same

facility, the incremental cost of

providing any one service is very small

and the common cost among these

services is very large. Thus, a TSLRIC

standard under which a carrier is

compensated only for the incremental

cost of each service individually

without a reasonable allocation of

common costs, as suggested by

commenters, would not allow the

carrier to recover the total costs of

providing all of the services. A TSLRIC

standard that yields prices that recover

a reasonable share of joint and common

costs would require the difficult

allocation of those (large) costs among

the different types of calls made from

payphones.

97. We also reject suggestions that use

of a market-based compensation

standard, in lieu of one that is costbased, will overcompensate PSPs. The

marketplace will ensure, over time, that

PSPs are not overcompensated. Carriers

have significant leverage within the

marketplace to negotiate for lower percall compensation amounts, regardless

of the local coin rate at particular

payphones, and to block subscriber 800

calls from payphones when the

associated compensation amounts are

not agreeable to the carrier.

98. Previously, in the access code call

compensation proceeding, we relied

upon AT&T 0+ commissions as a

measure of the fair value of the service

provided by independent payphone

providers when they originate an

interstate call. Data presented above,

however, suggest that the 0+

commission rate exceeds the market rate

for local coin calls while the costs of

access code and subscriber 800 calls are

less than the costs of local coin calls.

Furthermore, commissions may include

compensation for factors other than the

use of the payphone, such as a PSP’s

promotion of the Operator Service

Provider (OSP) through placards on the

payphone. Accordingly, we conclude

that a market rate based on 0+

commissions would result in a default

rate that overcompensates payphone

providers for access code and subscriber

800 calls. Moreover, our approach is

based on the costs of a low traffic

location that does not support

commission payments.

b. Analysis of Record Evidence of

Payphone Costs

99. Although we reject suggestions

that we set the default rate based on the

long run costs of providing service, our

analysis of the record evidence indicates

that an estimate of the long run costs of

providing access code and subscriber

800 service, including an equal per call

share of joint and common costs, 261 is

not significantly less than the marketbased rate determined above. Over time,

the marginal cost associated with new

entry (adding a payphone) may be an

important determinant of the market

rate for access compensation. For

comparison, we estimated costs of the

installation and operation of a payphone

at a low traffic location; that is, at a

location that would be expected to

generate sufficient calls so that the

payphone provider could earn only a

normal return on investment and could

not pay commissions to the premises

owner.

100. We calculated a rate for access

code and subscriber 800 calls by

estimating the cost of a typical multi-use

payphone that is capable of being
58676 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

262Peoples estimated total maintenance and coin

collection costs per month of $41.66, 38% of which

was for coin collection costs. Peoples Comments at

10–12. Dividing the maintenance portion by the low

traffic number of calls (542) gives the estimate of

4.8 cents per call. This estimate probably includes

some incremental maintenance caused by coins

being deposited in Peoples payphones.

263 $19.62 for maintenance divided by 542 calls.

Sprint Reply, Exhibit 1 at 2.

264Based on an average call volume of 720 calls,

CCI estimated that it spent $0.05 per call for

maintenance, exclusive of any costs solely due to

coin collection and maintenance. CCI Comments at

9. We concluded above, however that this figure

was probably biased high. Multiplying by 720 calls

and dividing by the low traffic number of calls (542)

gives an estimate of 6.6 cents per call.

265Robinson estimates that the monthly cost of

maintenance plus repair parts for a coinless

telephone is $13.35 and for a smart coin telephone

is $21.70. AT&T Comments, Robinson at 13.

Divided by 542, the low traffic location number of

calls, yields estimated costs of 2.5 and 4.0 cents per

call. Some of the increased cost of a coin telephone

would be attributable to the coin mechanism.

266Teleport filed a return on investment analysis

partially based on hypothetical information from a

study by John S. Bain (Teleport Ex. Parte). This

analysis is not sufficient to support a direct

estimation of either the costs directly attributable to

coin calls or total joint and common costs.

267The Sprint data may not be representative of

costs that would be incurred by independent pay

telephone providers. We select 4.0 cents as the low

estimate of maintenance costs per call by selecting

the highest value based on AT&T data. We select

a figure between the Peoples and the CCI based

estimates, 5.0 cents, as the high estimate. This

amount is below the average of the estimates in

recognition of possible biases in the Peoples and

CCI estimates.

268Peoples filed $59.54 of total line charges

including message charges per month of $27.69.

Peoples Comments at 10–12. The difference, $31.85,

represents joint and common line costs. This

amount, divided by the low traffic number of calls

(542) equals 5.9 cents per call.

269CCI estimates joint and common line costs of

$0.06 per call, compared with $0.08 per call for

coin calls, based on 720 calls per payphone per

month. CCI Comments at 9. Multiplying $0.06 times

720 calls and dividing by the low traffic number of

calls (542) equals 7.9 cents per call.

270 $43.22 for line charges divided by 542 calls.

Sprint Reply, Exhibit 1 at 2.

271AT&T estimated a monthly line charge for a

smart coin telephone of $27.73, a subscriber line

charge of $5.83, and other line costs of $1.84 for a

total cost of $35.40. See AT&T Comments, Robinson

at 12. This amount, divided by the number of low

traffic number of calls (542) equals 6.5 cents per

call.

272As explained above, different line costs for

different PSPs may simply reflect the fact that they

have payphones located in different areas. Sprint,

for example, may have higher joint and common

line costs than others that filed data because Sprint

cannot take advantage of potentially lower cost

measured service options. We estimated a likely

range for average PSPs by adjusting the high and

low estimates of the carriers by approximately half

a cent.

273Peoples estimated sales and general

administrative expenses of $25.27 per line as well

as billing costs and bad debts of $4.02 per line per

month. See Peoples Comments at 10. We do not

have sufficient information to estimate a higher or

lower billing and bad debt cost for access code and

consumer 800 calls compared with other payphone

calls. The total, $29.29, divided by the low traffic

number of calls (542) equals 5.4 cents per call.

274CCI estimated expenses of $0.04 per minute

based on 720 calls per telephone. See CCI

Comments at 10. Multiplying by 720 calls and

dividing by the low traffic number of calls (542)

equals 5.3 cents per call.

275 ($2.78 sales salaries + $4.31 sales commissions

+ $1.42 G&A) divided by 542 calls. Sprint Reply,

Exhibit 1 at 2.

276Robinson accepts CCI and Peoples estimate of

a total of $0.04 per call for SG&A. See AT&T

Comments, Robinson at 6. He considers $0.02 of

this to be attributable to coinless calls, implying

that the total would be higher than $0.04 per call

for coin calls. Robinson, however, does not

adequately explain why so much of SG&A should

be solely attributable to coin operations and not

treated as joint and common.

277Some capital items, such as intangible assets

and good will, would not need to be increased if

the company added a payphone at a low traffic

location.

278The Coalition notes that some coinless

telephones cost significantly more than the basic

coinless sets used in the Robinson study. See

Coalition Reply at 27. The Coalition filed a study

by Carl R. Geppert estimating that the AT&T Public

Phone 2000, which incorporates a nine-inch color

monitor, a dataport for laptop or fax

communications, built in keyboards for access to email and on-line weather services, cost between

$2000 and $4000. See Coalition Ex. Parte, Oct. 1,

1997 at 3. This information, however, does not bear

on how much of the costs of a new smart coin

telephone are due to the coin mechanism. The

typical new smart coin telephone does not

incorporate these features.

279 AT&T Comments, Robinson at 5.

280 APCC Reply at 14; Coalition Reply at 29.

281 $65.067 million of net plant and property

divided by 40,239 payphones.

placed outdoors. We then subtracted all

costs directly attributable to coin and

access code calls to determine the

amount of joint and common costs

associated with a multi-use phone. We

then determined the amount of joint and

common costs attributable to each call

by dividing these costs by an estimate

of the number of calls placed at a

location where a payphone will earn a

normal return on investment. Three

parties, Peoples, CCI and AT&T

provided relatively consistent cost data

that could be used to estimate joint and

common costs. The following subsections summarize our category-bycategory estimation of costs.

101. Maintenance. Data presented by

Peoples indicates maintenance cost of

4.8 cents per call.262 Sprint suggests 3.6

cents per call.263 CCI data suggest 6.6

cents per call 264 and Robinson’s data for

AT&T suggest a total of between 2.5 and

4.0 cents per call.265 Based on the

information presented by the parties, 266

we estimate that joint and common

maintenance costs at a low traffic

location would amount to between 4.0

and 5.0 cents per call.267

102. Line costs. Data for Peoples

suggests line costs of 5.9 cents per

call.268 Data for CCI suggests line costs

of 7.9 cents per call.269 Sprint suggest

8.0 cents per call.270 Robinson’s study

suggests line costs of 6.5 cents per

call.271 We estimate that joint and

common line costs at a low traffic

location would amount to between 6.5

and 7.5 cents per call.272

103. Sales, General & Administrative.

Data for Peoples suggests SG&A of 5.4

cents per call.273 Data for CCI indicates

SG&A costs of 5.3 cents per call.274

Sprint suggests 1.57 for SG&A.275 Sprint,

as a LEC and an IXC, has a significantly

different organizational structure and

payphone base from that of independent

payphone providers. Accordingly, little

weight was given to Sprint data for

SG&A. Robinson did not develop an

independent estimate of SG&A.276

Accordingly, we use the estimates based

on data for Peoples and CCI as the high

and low estimates, respectively. We

conclude that joint and common SG&A

at a low traffic location would amount

to between 5.3 and 5.4 cents per call.

104. Capital and Equipments Costs.

Most parties recognize that payphone

providers should have an opportunity to

recover depreciation costs and earn a

return on investment. Joint and common

investments for a new payphone should

include not only the costs of purchasing

and installing a payphone, but also a

normal increase in leasehold

improvements, spare parts and

inventory, and cash working capital.277

105. Robinson estimated the average

outlay associated with adding a new

smart coin telephone as $1,050 for the

instrument,278 $300 for a pedestal and

enclosure, $395 for installation of the

telephone, pedestal and enclosure, and

$150 in local exchange carrier

connection charges, for a total

investment of $1,895.279 Some PSPs

claim that Robinson underestimated

pedestal and enclosure and related

installation charges.280 The Robinson

estimates do not include other

investments, such as maintenance

vehicles and office equipment, needed

to support a payphone business. Several

PSPs estimated average capital costs per

call, but did not provide sufficient detail

to allow these estimates to be used to

estimate the direct capital costs of

adding a payphone.

106. We estimate joint and common

equipment costs by: (a) estimating the

amount of assets that are likely to be

added when a payphone is added; (b)

subtracting the amount attributable to

the coin mechanism; (c) calculating a

monthly cost for the balance; and (d)

dividing the monthly cost per payphone

by the low traffic location number of

calls. Peoples 10K data indicate that

Peoples depreciable net investment per

payphone amounted to $1,617 as of

December 1996.281 CCI’s 10K data

indicate that CCI’s depreciable net

assets per payphone amounted to $1,704
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58677

282 $73.263 million of gross property, plant and

equipment plus $1.595 of gross leasehold

improvements, less $29.922 of accumulated

depreciation and amortization, divided by 26,377

payphones.

283Based on an assumed ratio of depreciation

reserve to net plant of 50% ($1,615 net plant and

equipment per phone divided by .5).

284CCI’s 10K depreciation reserve is 40% of gross

depreciable net investment. The new investment

per added payphone is $1,649 average net plant and

equipment per payphone, divided by 60%, plus $60

average leasehold improvements per payphone.

(Leasehold improvements are a joint and common

cost for all payphone. The addition of one

payphone would not necessarily cause any specific

investment but rather, would result in a general

increase in the size of the business. Thus, CCI

would add an average amount of net leasehold

improvements as opposed to the specific amount of

investment for the instrument, the pedestal, etc.).

285Calculated as equal monthly payments to

depreciate the investment over 10 years and earn

a return of 11.25% on net investment, allowing for

federal income taxes a the 34% statutory rate.

286Peoples reports $2.665 million of pre-paid

expenses and $2.412 million of inventory. Peoples

10K at 39.

287CCI’s 10K shows prepaid expenses of $0.708

million and inventory and uninstalled equipment of

$1.438 million. See CCI 10K at 44. 288See supra paras. 59, 62.

290AT&T Comments at 2; AT&T Reply at 2; Arch

Reply at 9. AT&T and ARCH state that this rate is

based on the actual costs of an efficient PSP to

originate access code and subscriber 800 calls. Note,

however, that the Coalition challenges this estimate,

arguing that AT&T’s cost study merely reflects a

hypothetical, not real, PSP, and links the costs to

a coinless, not coin phone. The Coalition argues

that adjusting AT&T’s rate to reflect proper data

would yield a rate of approximately $0.41 per-call.

Thus, if the Commission relies on costs, it should

rely on the costs of an actual payphone. Coalition

Reply at 31.

291AT&T Comments at 10–11; AT&T Reply at 14.

292AT&T Comments at 13; MCI Reply at 3.

293AT&T Reply at 13.

294 Id. at 14.

as of December 1996.282 Firms, however,

add new assets rather than depreciated

assets. Adjusting for depreciation, we

estimate new depreciable investment

per payphone of $3,234 for Peoples 283

and $2,799 for CCI.284 As explained

above, we impute $710 of new

investment per payphone directly to

coin calls. Accordingly, we calculate

new joint and common investment per

payphone of $2,524 and $2,089,

respectively. These amounts of new

investment would result in monthly

investment costs of $43.94 and $37.07,

respectively.285 The carriers would also

expect to earn a return on some other

assets on the books—pre-paid expenses

and inventory. These items add $1.79 286

and $2.01 287 in investment costs per

month, respectively. Summing the

investment costs and dividing the low

traffic location number of calls results in

estimates of total investment costs of 7.2

cents per call and 8.4 cents per call,

which we use as the likely range.

107. Other Costs. We concluded above

that it was reasonable to include $0.01

in adjusting the market rate for a local

coin call to account for the cost of ANI

ii deployment by the LECs, passed

through to PSPs in the form of higher

access line charges, and include that

figure in our analysis here. We also

concluded that carriers would receive

access code and consumer 800 access

compensation approximately 3 months

later than they would receive coin

revenues, and thus included interest,

based on an 11.25% annual cost of

capital the long run cost estimate. We

use that same figure in our analysis

here. In addition, we explained earlier

the positions regarding including

commissions as a cost-factor, and thus

conclude that those costs are excluded

properly from a cost-based

analysis.288–289

108. Total Long Run Cost. The

preceding analysis suggests that total

long run cost of access code and

consumer 800 calls would range from

24.7 cents per call (based on a sum of

the low estimates) to 28.1 cents per call

(based on the sum of the high

estimates).

Low estimateHigh estimate

Maintenance .............. 4.0 5.0

Line costs .................. 6.5 7.5

SG&A ........................ 5.3 5.4

Capital costs ............. 7.2 8.4

ANI ii ......................... 1.0 1.0

Interest ...................... .7 .8

Total ................... 24.7 28.1

109. Sprint’s Motion. On September

16, 1997, Sprint filed a Motion asking

that the Commission require Bell

Atlantic to submit a copy of the NET

cost study filed before the

Massachusetts DPU and supporting

papers to the Commission and to all

parties of record in this proceeding. On

September 26, 1997, Bell Atlantic filed

an opposition to Sprint’s motion to

require production of a confidential cost

study and conditional cross-motion for

production of payphone cost data from

Sprint and AT&T. Bell Atlantic argues

that Sprint’s motion should be rejected

because: (1) The study was prepared for

the Massachusetts DPU and Sprint

should seek relief from that agency; (2)

there is no justification for requiring the

production of the study because the

study examines incremental costs,

which, Bell Atlantic argues, the

Commission has rejected; and (3) the

information is confidential.

110. We deny Sprint’s motion and

decline to require Bell Atlantic to

submit a copy of NET’s cost analysis.

We are not persuaded that the NET cost

study, which Sprint indicates was

submitted to the Massachusetts DPU on

a confidential basis, is necessary for us

to reach a decision in this proceeding.

Furthermore, we note that there are

differences of opinion regarding the

NET methodology. The NET study as

well as other confidential studies filed

in other states are not before us. We

further note that as Bell Atlantic states,

the information is confidential, and

therefore, should we require Bell

Atlantic to make such a filing, Bell

Atlantic likely would require that we

treat the study as confidential. Were we

to agree, the information would not be

available to the parties. We note,

moreover, information on the record

provides deregulated coin rates for

several states. Because we are denying

Sprint’s motion, we need not address

Bell Atlantic’s conditional motion for

production of documents.

D. Per-Call Compensation Rate

111. In this section, we conclude that

the default market-based per-call rate for

subscriber 800 and access code calls is

$0.284, which reasonably accounts for

the payphone costs that are incurred

solely in connection with local coin

calls and costs that are specific to access

code and subscriber 800 calls.

1. Comments

112. Parties filed comments that

varied considerably, primarily

depending on whether they relied on a

market-based or derived rate

methodology. AT&T and ARCH argue

that the compensation rate should be

$0.11 per-call, based on the costs of

providing a subscriber 800 or access

code call.290 AT&T arrives at this rate by

estimating a cost of $76.85 per month

for a payphone divided by an average of

700 calls per phone per month.291 AT&T

contends that this rate is consistent with

NYNEX’s local coin rate of $0.167.

Alternatively, AT&T and MCI argue that

if the Commission adopts a rate based

on an offset from the local rate, then the

offset should be at least 50%.292 AT&T

further argues that even using a adjusted

market approach as suggested by the

Coalition results in payphone

compensation in the amount of $0.1067

cents per call, which is in line with the

rate that AT&T has calculated for

coinless calls based on its estimated

monthly costs of a payphone.293 AT&T

further states that even if adjustments

have to be made for depreciation,

overhead, general and administrative

expenses and taxes, the per-call cost for

coinless calls would only increase to

12.2 cents per call.294 AT&T maintains

that $0.35 is not the appropriate
58678 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

295See id. at 22–23; see also CFA Reply at 7;

MIDCOM Comments at 5; RCN Comments at 4; TRA

Comments at 21; Excel Reply at 9 (stating that the

four states that have deregulated rates account for

only two percent of the nation’s payphones).

296See, e.g., Excel Reply at 10 (stating that a

Massachusetts proceeding determined that the rate

there is $.25).

297CompTel Reply at i, 8.

298 Id. at 14.

299Frontier Comments at 9.

300Frontier Reply at ii, 2 (arguing that a rate

higher than $0.11 per call would harm consumers).

301 ITA Comments at 7 (basing the upper number

on the $0.17 rate identified for a local coin call by

the Massachusetts DPU for NYNEX minus the cost

of coin collection ($0.02) and further stating that the

$0.35 rate results in increased cost of a typical

prepaid phone card call by over fifty percent per

call).

302MCI Comments at 3.

303MIDCOM Reply at 6. In its comments,

MIDCOM argued that the rate should be between

$0.067 to $0.25 per call. Seest MIDCOM Comments

at 7.

304Sprint Reply at 4.

305TRA Comments at 21 (arguing that the costs

associated with making a coinless call are

significantly less than those associated with a coin

call).

306Excel Comments at 2.

307Coalition Comments at 13–14.

308 Id.

309APCC Comments at 15 (explaining that

coinless calls generate additional costs such as

ANI).

310See IPTA Reply at 5, 11; see also TEI

Comments at 10; TEI Reply at 2 (arguing that a

lower figure could result in the removal of

payphones).

311CCI Comments at 2, 10 (arguing that total cost

plus return on invested capital is $0.37 per call for

a coin call, and $0.34 per call for a coinless call).

312See, e.g., CWI Comments at 10–11; CWI Reply

at i, 1, 12 (stating that the Commission should not

start per-call compensation until thirty days after

the release of an order on remand so that carriers

will have ample time to recover per-call amount in

their tariffed charges); LCI Comments at 8, n.14;

MCI Comments at 5; RCN Comments at 4; Sprint

Reply at 21; WorldCom Comments at 4 (stating that

a national rate would enable IXCs to fulfill tracking

and payment obligations and that this rate could be

eligible for periodic adjustment based on changes

in TSLRIC costs).

313CWI Reply at 12 (stating that it could cost

carriers-payers perhaps up to 300 percent above the

cost of administering a uniform compensation rate);

AT&T Comments at ii, 16–17 (stating that a

‘‘floating’’ rate could cost carriers ‘‘hundreds of

millions of dollars to track and block calls from

excessively-priced payphones and would be

virtually impossible, and extremely costly to

administer.’’); MCI Comments at 5 (stating that it

would be costly due to administrative costs, switch

software upgrades, and call processing systems

development); LCI Comments at 8–9 (stating that

the Commission should establish a uniform,

national compensation rate for access code and

subscriber 800 calls and that a uniform rate will

allow the necessary business certainty and will

reduce call blocking due to a carrier’s lack of

information concerning the rate to be charged);

Sprint Reply at 21 (arguing that there is no basis

for a mechanism to periodically adjust the rate

upward because if the Commission bases the rate

on costs that include fixed costs of the PSPs, then

as traffic volumes grow, unit costs should decline).

314CWI Comments at 10–11; CWI Reply at 12.

315MCI Comments at 5; MCI Reply at 12.

316APCC Reply at 32.

317The Commission has the authority to employ

different methodologies and/or regulatory models to

arrive at a particular rate. See Permian Basin Area

Rate Cases, 390 U.S. 747, 767 (1968). We note that

as discussed above, parties have argued for a range

of from $0.03 to $0.63. While determining an

appropriate rate, we have kept in mind that

Congress specifically stated that ‘‘[c]arriers and

customers that benefit from the availability of a

payphone should pay for the service they receive

when a payphone is used to place a call.’’ House

Report at 88. See supra paras. 23–28, 63.

318See infra para. 121.

unregulated coin rate because it was

based on a small and unrepresentative

sample of rural states, and the cost in

those states could be higher than in

other areas.295 The Commission ignored

the deregulated rate in other rural states,

where the rate is $0.25, which, AT&T

asserts, also is the dominant rate where

the majority of payphones are

located.296 Borden suggests a rate of

approximately $0.133 per call, and

Champion suggests a rate between $0.08

and $0.11.

113. CompTel argues that a fair

compensation amount based on

incremental costs is between $0.03 to

$0.05 per call,297 and that even under a

direct cost approach, compensation

should not exceed $0.10 per call.298

Frontier argues that a cost-based rate

should be approximately $0.10 per

call,299 but no higher than $0.11 per

call.300 ITA argues that the rate should

be between $0.08 and $0.15 per call.301

MCI argues that the per-call rate for

access code calls is $0.083 per call, and

that the number for subscriber 800 calls

should be even lower.302

114. MIDCOM states that the rate

should be $0.057. 303 Sprint argues that

on a fully allocated approach to costs,

using an efficient bellwether provider,

the default rate per call should be

$0.06. 304 TRA argues that the 35 cent

rate is too high.305 Excel argues that the

Court decision demonstrates that we

cannot set the rate for subscriber 800

and access code calls at the same level

as the local coin rate, and thus the

Commission must reduce the $0.35

rate.306

115. The Coalition states that, to truly

reflect the market, the local coin rate

needs to be adjusted from $0.35 upward

to $0.42 or $0.43 per call. 307 In a fully

realized market, the Coalition states,

noncoin calls would be carrying a

greater portion of the payphone costs

than coin calls, and therefore should be

priced at a higher rate. 308 APCC alleges

that the average per-call local coin rate

is $0.41, not $0.35. 309 IPTA and TEI

state that the record supports a

compensation level of no less than $0.35

per call. 310 CCI requests that the

Commission set the per-call

compensation rate at $0.35. 311

116. The majority of the IXCs argue

that there should be one national

rate, 312 because a varying rate would be

nearly impossible to administer, and

could increase the costs to carrierpayers of administering per-call

compensation. 313 Furthermore, CWI

argues that because not all carriers can

block calls, the Commission should not

create a situation where carriers must

block calls because they are unaware of

the rate to be charged. 314 MCI argues

that if the Commission does not adopt

one uniform rate, then it should set

parameters such as notifying carriers of

the coin rate in advance and changing

the coin rate not more than once per

year. 315 APCC argues that the

Commission should not adopt a uniform

compensation rate, and although the

costs associated with a non-uniform rate

may be higher, the benefits of directly

market-based compensation are worth

the extra costs. 316

2. Discussion

117. We conclude from our analysis

in Section B, that the market-based rate

for access code and subscriber 800 calls,

adjusted for cost differences is

$0.284.317 We further conclude that the

market-based rate we establish herein as

a default rate for per-call compensation

promotes the goals of Section 276 of the

Act, fair compensation, the deployment

of payphones, and competition, and is

a rate that is reasonably related to the

market-based local coin rate. As

discussed below, we conclude that the

$0.284 default rate for per-call

compensation rate, absent negotiations,

should be in effect for two years to

enable LECs, PSPs and IXCs additional

time to transition efficiently and

without disruptions to the deregulated

payphone market structure created in

the Payphone Orders.318 Furthermore,

we conclude that after the two year percall compensation rate period, ‘‘fair

compensation’’ for access code and

subscriber 800 calls pursuant to Section

276 and an analysis of the record is the

deregulated market rate for the local

coin call adjusted for costs as discussed

herein. Accordingly, the default rate for

the first two years of per-call

compensation is $0.284; after the first

two years, the default rate is the marketbased local coin rate minus $0.066 per

call. We conclude that the default percall rate falls within a zone of

reasonableness that will provide fair

compensation for subscriber 800 and

access code calls as required by Section

276, while allowing the market to
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58679

319We note that the Illinois Commerce

Commission adopted a rate of $0.30 for retail 1–800

calls (which are synonymous with access code

calls) when it deregulated payphones. The Illinois

proceeding raised many of the same concerns as

those raised in this proceeding. See IPTA

Comments, July 1, 1996, Appendix B, Order of the

Illinois Commerce Commission, 92–0400 at 18–19,

24. We also note that the rate that AT&T negotiated

with PSPs for access code calls was $0.25. The rate

we adopt herein falls within the range of these

rates. See AT&T Reply at 12–13.

320 FCC v. WNCN Listeners Guild, 450 U.S. 582,

593, 596 (1981).

321See, e.g., Nader v. FCC, 520 F.2d 182 (D.C. Cir.

1975) (stating that there is a zone of reasonableness

within which a rate will be upheld and that the

Commission must identify the boundaries of such

a zone); National Cable Television v. Copyright

Royalty Tribunal, 724 F.2d 176 (D.C. Cir. 1983)

(stating that rulings need not rest on precise

mathematical calculations and that a ruling will be

upheld if it lies within the zone of reasonableness);

Bell Atlantic Tel. Co. v. FCC, 79 F.3d 1195, 1202

(D.C. Cir. 1996) (stating that the Commission is not

required to include all data when determining a

rate, and that the Commission has the authority to

exclude suspicious data or statistical outliers).

322 In Illinois Public Telecomm., the court stated

that ‘‘a market-based approach is as much a

compensation scheme as a rate-setting approach.

117 F.3d at 563.

323 In deriving a default per-call compensation

rate based on the long run costs indicated in the

record data, we do not adopt this approach on a

going-forward basis but continue to rely instead on

the market-based approach adjusted for cost

differences. To do otherwise would lead to our

continuing review of the costs associated with

providing per-call compensation for subscriber 800

and access code calls and provide disincentives to

PSPs and IXCs to negotiate market based rates for

these services. Moreover, market-based rates lead to

efficient allocation of resources and avoid the

pitfalls of regulating rates for firms that use

common facilities to produce both non-regulated

and regulated services. 324See supra para. 3.

develop, and PSPs who desire, to

negotiate a different rate.319

118. In adopting an adjusted marketbased rate approach, we note that the

Commission has the authority to rely on

market forces, and further, that ‘‘market

predictions are within the institutional

competence of the Commission.’’ 320 In

adopting this approach, we are

confident that market forces will keep

payphone prices at competitive levels,

and that our default rate is in

accordance with prevailing market

conditions adjusted for costs. Courts

have upheld rates established by

regulatory agencies that lie within a

‘‘zone of reasonableness,’’ 321

particularly, in the context of

ratemaking. While we do not consider

the development of the default rate

established herein to be ratemaking,

because market imperfections currently

exist within the evolving competitive

payphone market, we have set a default

rate to ensure competition.322

119. As discussed above, in response

to the claims of parties on the record

that only a rate derived from cost data

submitted in the record will provide a

valid per-call rate, we have also

performed an analysis of those data for

purposes of comparison with the

market-based per-call rate we establish

in this order. In setting the default rate

for per-call compensation at $0.284

based on our market-based analysis, we

have also considered the results of our

analysis of the record information

concerning the long run costs of

payphone service. We have calculated

the long run costs per-call for a provider

to install a payphone to be in the range

of $0.247 per call to $0.281 cents per

call.323 An estimate compiled under this

long run costs approach must be

considered a lower bound when

establishing a default rate. The rate

derived in this manner, by definition,

just covers the cost of installing and

operating a payphone at a marginal

location. As such, it will not encourage

either the deployment of additional

payphones or an incentive for IXCs to

negotiate with PSPs. Such minimal

incentives are contrary to the goals of

promoting competition among

payphone service providers and

promoting the widespread deployment

of payphone services. Accomplishing

these goals requires that we ensure that

the default rate, in addition to covering

cost, provide sufficient incentives for

PSPs to deploy additional payphones

and tangible incentives for IXC and

PSPs to negotiate. Thus, the default rate

we adopt for subscriber 800 and access

code calls based on the market-based

local coin rate adjusted for costs

differences is appropriately and

reasonably at the high end of the range

compiled from the long run cost

analysis.

120. We deny requests that we should

mandate a uniform and fixed per-call

compensation rate for each compensable

call. A fixed rate would not promote the

statutory goals of Section 276, because

it would not encourage negotiations

between IXCs and PSPs. It is our

expectation that IXCs and PSPs will

build business relationships and create

operating procedures to provide

compensation in an efficient manner.

Given that we have adopted a

deregulatory approach in this order, we

conclude that we should not establish

those procedures. Under the approach

we established in the Report and Order,

(61 FR 52307 (October 7, 1996)) the

market is allowed to set the

compensation amount for calls

originated by each payphone. The court

did not vacate that part of the Report

and Order. For market-based pricing to

function effectively, it is not

unreasonable that there be some

variation in compensation amounts

from location to location. We also

decline to delay the effective date of this

order as requested by CWI. As we

discussed previously, we conclude that

it is in the public interest to make this

order effective immediately. 324

121. In this order, we extend the percall interim compensation period

subject to a default rate established in

the Payphone Orders for an additional

year. Thus, the per-call compensation

period during which the default rate is

$0.284 begins on October 7, 1997, and

ends on October 6, 1999. We established

the interim compensation plan in the

Payphone Orders in order to ease the

transition to market-based rates. We

stated that it was necessary to observe

over time how the payphone

marketplace would function in the

absence of regulation. We noted that

market imperfections had led us to

establish a default rate. On this record,

we conclude that additional time is

required to ease the transition to marketbased rates and that continuing the

applicability of the default rate for an

additional year is in the public interest.

As we have summarized in this order,

we have received comments from LECs,

PSPs, and IXCs regarding the problems

and issues they face in transitioning to

the payphone market compensation

structure we established in the

Payphone Orders. For example, IXCs

and their customers allege that after the

first year of per-call compensation

established in the Payphone Orders,

when the default rate will be the

deregulated coin rate adjusted for cost

differences, PSPs will raise the coin rate

in a manner that will raise substantially

the per-call rate for access code and

subscriber 800 calls. They indicate that

their systems are not adequately

prepared to respond to such situations.

In addition, LECs have indicated

problems in providing the payphonespecific coding digits required to

respond to calls from payphones on a

real-time basis for some payphones in

their serving areas.

122. Although we conclude in this

order that the marketplace, based on

negotiations between IXCs and PSPs, is

where compensation decisions should

be determined and that the default rate

after the per-call transition period

should be the market-based local coin

rate adjusted for cost difference, we

believe that this two year per-call

compensation period subject to the

default rate is necessary to afford IXCs,

PSPs and LECs the opportunity to adjust

to and adequately prepare for the
58680 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

325We establish a default rate because certain call

blocking capabilities are not yet available to

participants in the provision of access code and

subscriber 800 calls from a payphone, and thus the

market is not yet free of impediments that interfere

with the competitive negotiated process. In the

Payphone Orders we concluded that, once

competitive market conditions exist, the most

appropriate way to ensure that PSPs receive fair

compensation for each call is to let the market set

the price for individual calls originated on

payphones. It is only in cases where the market

does not or cannot function properly that the

Commission needs to take affirmative steps to

ensure fair compensation. For example, because

TOCSIA requires all payphones to unblock access

to alternative OSPs through the use of access codes

(including 800 access numbers), PSPs cannot block

access to 800 numbers generally. However, TOCSIA

does not prohibit an IXC from blocking subscriber

800 numbers from payphones, particularly if the

IXC wants to avoid paying the per-call

compensation charge on these calls. We concluded

in the Payphone Orders that this uneven bargaining

between parties necessitates the Commission’s

involvement.

326AirTouch Reply at 5.

327PageNet Reply at 10; PCIA Reply at 7.

328PageMart Reply 8.

329See, e.g., AirTouch Reply at 8–9 (arguing that

the average paging call lasts approximately 20

seconds, as compared to the Coalition data stating

that the typical duration of a call from a payphone

lasts 3.22 to 3.42 minutes); PageNet Reply at ii, 14–

15 (stating that it should be charged rates that

reflect its individual called party characteristics,

because subscriber 800 calls are shorter in duration

and generate less revenue than access code calls).

330AirTouch Reply at 5; PageNet Reply at i, 7

(arguing that a calling-party pays mechanism allows

the calling party to seek out a lower priced

payphone and thus exerts pressure on the PSPs to

charge competitive rates and further, that the

mechanism upon which the market scheme was

established, call blocking, is not in place). PageNet

further argues that a calling party pays system

avoids FCC determination of payphone costs and

the extent to which commissions paid to location

owners should be included in these payphone

costs. See PageNet Reply, supra. See also PageMart

Reply at 3; PCIA Reply at 7; Arch Reply at 9.

331PCIA Reply at 2.

332APCC Reply at 23–32.

333 Id. at 30.

334 Id.

335AirTouch Reply at 5.

336AirTouch Comments at 8; AirTouch Reply at

4.

337PageMart Comments at 2.

338MCI Comments at 4. See PageMart Reply at 4

(stating that a system that encourages call blocking

does not further the Commission’s goal of providing

telecommunications services to the greatest possible

number of consumers).

339PageNet Reply at i, 3, 6 (arguing that the

mechanism under which the Commission adopted

a carrier party pays scheme-rates determined on

real time basis’is not available); PageMart Reply at

3; PCIA Reply at 3.

340 GCI Comments at 3.

341Arch Reply at 5.

342CPI Reply at 4.

343Sprint Comments at 6; AT&T Comments at 17;

CWI Comments at 10–11.

344Coalition Reply at 8–9.

345CWI Reply at 14–15.

346ACTA Comments at 4 (stating that if pass

through billing is permitted, then requirements

deregulatory market-based structure we

adopted pursuant to Section 276. 325

E. Other

1. Comments

123. AirTouch Plan. AirTouch

suggests that the Commission explore a

new method to resolve the

compensation issue due to the wide

divergence of views expressed in the

replies, and its concern that call

blocking options do not exist. AirTouch

argues that the Commission should

adopt a method that does not rely on

call tracking or call blocking to place

checks on the imposition of excessive

charges by payphone service

providers.326 AirTouch proposes that

the Commission adopt a unique 8XX

approach that would be toll-free for long

distance charges, but could be accessed

from a payphone only if the caller

deposits coins (presumably at a fraction

of the local coin rate). PageNet and PCIA

support AirTouch’s unique 8XX

approach and state that it merits further

investigation.327 PageMart argues that if

the Commission does not adopt a callerpays approach, then it should consider

AirTouch’s modified approach.328

Several of the paging companies argue

that they should pay less than other

carriers due to the short duration of the

calls used to initiate pages.329

124. Reconsider Use of Caller Pays.

AirTouch, PageNet, PageMart, Arch, and

PCIA argue that the Commission should

adopt a caller-pays system, because

such a system, they argue, is the only

true surrogate for market-based

compensation. 330 PCIA argues that the

Commission should reconsider the

caller-pays system because IXCs have a

limited ability to block calls and thus

have a check on excessive payphone

rates. 331

125. APCC contends that the paging

industry’s recommendation that the

Commission should adopt a caller pays

approach is without merit. 332 APCC

contends that the information needed to

block calls from PSPs that charge ‘‘too

much’’ is located within a database, not

the screening digits. 333 APCC contends

that it is not necessary to implement

this database until per-call

compensation is tied to individual

providers’ prices in October 1998. 334

126. Call Blocking. AirTouch

reiterates its concern that call blocking

options do not exist, and therefore

suggests the proposal enumerated

above, because the proposal does not

rely on call tracking or call blocking to

place checks on the imposition of

excessive charges by payphone service

providers.335 AirTouch further states

that paging companies should not have

to pass through the $0.35 charge until

targeted call blocking is available for

payphone calls,336 and PageMart

contends that call blocking technology

is an integral part of the development of

a competitive PSP market.337 MCI argues

that Congress did not intend for carriers

to have to block calls, and furthermore,

carriers will not be able to selectively

block calls until the third quarter of

1998.338

127. PageNet, PageMart, and PCIA

contend that without call blocking

capability, the 800 subscriber does not

have any leverage to negotiate for lower

rates for calls placed from payphones,

therefore, these carriers argue, a marketbased compensation scheme cannot

work. 339 GCI contends that as a small

carrier operating primarily in Alaska, it

is not in a position to negotiate with

payphone providers around the country

to get a better rate and furthermore, it

does not want to block calls from

payphone locations. 340

128. Arch requests that if the

Commission maintains a carrier-pays

approach, it should either order all 800

carriers to deploy blocking capability so

that each 800 customer has the option

to block, or apply notions of costcausation so payphone costs are instead

paid by the cost-causer, the payphone

user.341 Champion argues that a call

blocking option must be provided,

because it does not want to be liable for

calls from places such as prisons or

other non-business related locations.

CPI contends that the cost of tracking

individual payphones and blocking

calls may be cost prohibitive such that

blocking does not necessarily give IXCs

any leverage to negotiate with PSPs to

constrain the compensation rate.

Furthermore, CPI contends that

customers do not benefit when calls are

blocked, and call blocking will not

result in a price that is market based.342

Several of the IXCs argue that call

blocking technology is extremely costly,

and that they do not currently have this

technology in place.343

129. The Coalition contends that the

argument that market-based prices may

lead to call blocking is without merit,

because PSPs have an interest in seeing

calls completed— a blocked call does

not generate compensation.344

130. Other. CWI argues that the

Commission should clarify that

payphones that do not transmit

payphone specific coding digits are not

eligible for compensation, and requests

that the Commission clarify that the

‘‘07’’ coding digit does not identify a

call from a payphone.345

131. ACTA argues that pass-through

billing of an IXCs reseller customer

should not be permitted until a new

compensation scheme is in place.346
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need to be established to ensure fair and accurate

billing).

347Bureau Waiver Order, DA 97–2162 (rel. Oct. 7,

1997).

348See 5 U.S.C. § 603. The RFA, see 5 U.S.C. § 601

et. seq., has been amended by the Contract With

America Advancement Act of 1996, Pub. L. No.

104–121, 110 Stat. 847 (1996) (CWAAA). Title II of

the CWAAA is the Small Business Regulatory

Enforcement Fairness Act of 1996 (SBREFA).

349 Implementation of Pay Telephone

Reclassification and Compensation Provisions of

the Telecommunications Act of 1996, CC Docket

No. 96–128, Notice of Proposed Rulemaking, 61 FR

31481 (June 6, 1996); 11 FCC Rcd 6716 (1996)

(‘‘NPRM’’).

350See 5 U.S.C. § 604.

351 47 U.S.C. § 276(b)(1).

352 Frontier Comments in response to the IRFA

at 2.

353See 5 U.S.C. § 601(3) (incorporating by

reference the definition of ‘‘small business concern’’

in 5 U.S.C. § 632).

354 15 U.S.C. § 632. See, e.g., Brown Transport

Truckload, Inc. v. Southern Wipers, Inc., 176 B.R.

82 (N.D. Ga. 1994).

355 13 CFR § 121.201.

356See 5 U.S.C. § 605(b).

357See, e.g., Expanded Interconnection with Local

Telephone Company Facilities, Supplemental

Notice of Proposed Rulemaking, 56 FR 52496

(October 21, 1991); 6 FCC Rcd 5809 (1991); MTS

and WATS Market Structure, Report and Order, 52

FR 21536 (June 8, 1987); 2 FCC Rcd 2953, 2959

(1987) (citing MTS and WATS Market Structure,

Third Report and Order, 48 FR 10319 (March 11,

1983); 93 F.C.C.2d 241, 338–39 (1983)).

2. Discussion

132. We decline to address in this

proceeding issues related to the

implementation of the per-call

compensation structure beyond the percall compensation rate. The above

issues were raised by parties in response

to the Notice, despite its limited scope.

In this order, we do not revisit the issue

of who is responsible for paying

compensation and whether carriers can

block, issues already addressed in the

Payphone Orders, and upheld by the

court. We also decline to evaluate at this

time, a new proposal relating to the

tracking of calls, or that we establish a

compensation scheme on a per-minute

rather than per-call basis, which could

substantially delay the beginning of the

per-call compensation scheme. To the

extent that we decide to revisit any of

these issues, such review will be

addressed in a subsequent proceeding.

133. We decline to grant CWI’s

request that we clarify the payphonespecific coding digit requirements set

forth in the Payphone Orders, because

the purpose of this order is to establish

a default per-call compensation rate. We

plan to address payphone-specific

coding digit issues in a subsequent

order. As discussed above, we note that

the Bureau has granted a waiver until

March 9, 1998, for PSPs to comply with

payphone-specific coding digit

requirements. Pursuant to that waiver,

IXCs must pay compensation to PSPs

including those with payphones that

cannot transmit payphone-specific

coding digits.347

IV. Procedural Matters

A. Final Paperwork Reduction Act

Analysis

134. The decision herein has been

analyzed with respect to the Paperwork

Reduction Act of 1995, Pub. L. 104–13,

and does not contain new and/or

modified information collections subject

to Office of Management and Budget

review. The information and collection

requirements in this item are contingent

upon approval by the Office of

Management and Budget.

B. Final Regulatory Flexibility Act

Analysis

135. As required by the Regulatory

Flexibility Act (RFA),348 an Initial

Regulatory Flexibility Analysis (IRFA)

was incorporated in the Notice of

Proposed Rulemaking.349 The

Commission sought written public

comment on the proposals in the NPRM,

including comment on the IRFA. This

present Final Regulatory Flexibility

Analysis (FRFA) conforms to the

RFA.350

1. Need for, and Objectives of, the

Second Report and Order

136. The objective of the rules

adopted in this order is ‘‘to promote

competition among payphone service

providers and promote the widespread

deployment of payphone services to the

benefit of the general public.’’ 351 In

doing so, the Commission is mindful of

the balance that Congress struck

between this goal of bringing the

benefits of competition to consumers

and its concern for the impact of the

1996 Telecommunications Act on small

businesses.

2. Summary of Significant Issues Raised

by Public Comments in Response to the

IRFA

137. Summary of the Initial

Regulatory Flexibility Analysis (IRFA).

In the IRFA, the Commission solicited

comment on alternatives to our

proposed rules that would minimize the

potential impact on small entities

consistent with the objectives of this

proceeding. The Commission received

one comment on the potential impact on

small business entities, which the

Commission considered in

promulgating the rules in this Order.

Frontier commented generally that the

compensation scheme advanced in the

NPRM was ‘‘unnecessarily onerous and

inefficient’’ and ‘‘in conflict with the

goals of the * * * Regulatory Flexibility

Act.’’ 352 Frontier did not comment

specifically on what aspect of the

compensation scheme would have

economic impact on small business

entities. We disagree with Frontier’s

general assertion that the compensation

scheme is in conflict with the

Regulatory Flexibility Act. Our rules are

designed to facilitate the development

of competition, which benefits many

small business entities. The rules will

ensure that payphone services

providers, many of whom may be small

business entities, receive fair

compensation. Our rules provide

significant flexibility to permit the

affected parties, including small

business entities, to structure

procedures that would minimize their

burdens. For example, the rules require

IXCs and intraLATA carriers, as primary

economic beneficiaries of payphone

calls, to track the calls they receive from

payphones. These carriers have the

option of performing these functions

themselves or contracting out these

functions to another party, such a LEC

or clearinghouse. We also provide a

transition period. We believe that our

rules are designed to effectively

optimize the efficiency and minimize

the burdens of the compensation

scheme on all parties, including small

entities.

3. Description and Estimate of the

Number of Small Entities to Which

Rules Will Apply

138. For the purposes of this order,

the RFA defines a ‘‘small business’’ to

be the same as a ‘‘small business

concern’’ under the Small Business Act,

15 U.S.C. § 632, unless the Commission

has developed one or more definitions

that are appropriate to its activities.353

Under the Small Business Act, a ‘‘small

business concern’’ is one that: (1) Is

independently owned and operated; (2)

is not dominant in its field of operation;

and (3) meets any additional criteria

established by the Small Business

Administration (SBA).354 SBA has

defined a small business for Standard

Industrial Classification (SIC) category

4813 (Telephone Communications,

Except Radiotelephone) to be a small

entity when it has no more than 1,500

employees.355

139. We have found incumbent LECs

to be ‘‘dominant in their field of

operation’’ since the early 1980s, and

we consistently have certified under the

RFA 356 that incumbent LECs are not

subject to regulatory flexibility analyses

because they are not small

businesses.357 We have made similar
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358See, e.g., Implementation of Sections of the

Cable Television Consumer Protection Act of 1992:

Rate Regulation, Sixth Report and Order and

Eleventh Order on Reconsideration, 60 FR 10534

(February 27, 1995); 10 FCC Rcd 7393, 7418 (1995).

359The Small Business Administration (SBA), the

Rural Telephone Coalition (Rural Tel. Coalition),

and CompTel maintain that the Commission

violated the RFA when it failed to include small

incumbent LECs in its IRFA without first consulting

SBA to establish a definition of ‘‘small business.’’

See Local Competition Order at paras. 1328–30.

360See 13 CFR § 121.210 (SIC 4813).

361United States Department of Commerce,

Bureau of the Census, 1992 Census of

Transportation, Communications, and Utilities:

Establishment and Firm Size, at Firm Size 1–123

(1995) (‘‘1992 Census’’).

362 15 U.S.C. § 632(a)(1).

363 13 CFR § 121.201, Standard Industrial

Classification (SIC) Code 4812.

364 1992 Census, supra, at Firm Size 1–123.

365All carriers that provide interstate service are

required to pay into the TRS Fund, which provides

access to Telecommunications Device for the Deaf

(TDD). See generally 47 CFR §§ 64.601 et seq.

366Federal Communications Commission, CCB,

Industry Analysis Division, Telecommunications

Industry Revenue: TRS Fund Worksheet Data, Tbl.

21 (Average Total Telecommunications Revenue

Reported by Class of Carrier) (Feb. 1996) (‘‘TRS

Worksheet’’).

367 Id.

368 Id.

determinations in other areas.358

However, in the Local Competition

proceeding, several parties, including

the SBA, commented that we should

have included small incumbent LECs in

the IRFA pertaining to that order.359 We

recognize SBA’s special role and

expertise with regard to the RFA, and

intend to continue to consult with SBA

outside the context of this proceeding to

ensure that the Commission is fully

implementing the RFA. Although we are

not fully persuaded that our prior

practice has been incorrect, we will,

include small incumbent LECs in this

FRFA, while continuing to hold that the

terms ‘‘small entities’’ and ‘‘small

businesses’’ does not encompass ‘‘small

incumbent LECs.’’ We use the term

‘‘small incumbent LECs’’ to refer to any

incumbent LECs that arguably might be

defined by SBA as ‘‘small business

concerns.’’ 360

140. Total Number of Telephone

Companies Affected. The United States

Bureau of the Census (the Census

Bureau) reports that, at the end of 1992,

there were 3,497 firms engaged in

providing telephone services, as defined

therein, for at least one year.361 This

number encompasses a broad category

which contains a variety of different

subsets of carriers, including local

exchange carriers, interexchange

carriers, competitive access providers,

cellular carriers, mobile service carriers,

operator service providers, pay

telephone operators, PCS providers,

covered SMR providers, and resellers. It

seems certain that some of those 3,497

telephone service firms may not qualify

as small entities or small incumbent

LECs because they are not

‘‘independently owned and

operated.’’ 362 For example, a PCS

provider that is affiliated with an

interexchange carrier having more than

1,500 employees would not meet the

definition of a small business. It seems

reasonable to conclude, therefore, that

fewer than 3,497 telephone service firms

are small entity telephone service firms

or small incumbent LECs that may be

affected by this Order. We estimate

below the potential small entity

telephone service firms or small

incumbent LECs that may be affected by

this Order by service category.

141. Wireline Carriers and Service

Providers. The SBA’s definition of small

entities for telephone communications

companies, other than radiotelephone

(wireless) companies, is one employing

no more than 1,500 persons.363 The

Census Bureau reports that, there were

2,321 such telephone companies in

operation for at least one year at the end

of 1992.364 All but 26 of the 2,321 nonradiotelephone companies listed by the

Census Bureau were reported to have

fewer than 1,000 employees. Thus, even

if all 26 of those companies had more

than 1,500 employees, there would still

be 2,295 non-radiotelephone companies

that might qualify as small entities or

small incumbent LECs. Although it

seems certain that some of these carriers

are not independently owned and

operated, we are unable at this time to

estimate with greater precision the

number of wireline carriers and service

providers that would qualify as small

business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 2,295 small

entity telephone communications

companies other than radiotelephone

companies that may be affected by the

decisions and rules adopted in this

Order.

142. Local Exchange Carriers. Neither

the Commission nor SBA has developed

a definition of small providers of local

exchange services (LECs). The closest

applicable definition under SBA rules is

for telephone communications

companies other than radiotelephone

(wireless) companies (SIC 4813). The

most reliable source of information

regarding the number of LECs

nationwide of which we are aware

appears to be the data that we collect

annually in connection with the

Telecommunications Relay Service

(TRS).365 According to our most recent

data, 1,347 companies reported that

they were engaged in the provision of

local exchange services.366 Although it

seems certain that some of these carriers

are not independently owned and

operated, or have more than 1,500

employees, we are unable at this time to

estimate with greater precision the

number of LECs that would qualify as

small business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 1,347 small

incumbent LECs that may be affected by

the decisions and rules adopted in this

Order.

143. Interexchange Carriers. Neither

the Commission nor SBA has developed

a definition of small entities specifically

applicable to providers of interexchange

services (IXCs). The closest applicable

definition under SBA rules is for

telephone communications companies

other than radiotelephone (wireless)

companies (SIC 4813). The most reliable

source of information regarding the

number of IXCs nationwide of which we

are aware appears to be the data that we

collect annually in connection with

TRS. According to our most recent data,

97 companies reported that they were

engaged in the provision of

interexchange services.367 Although it

seems certain that some of these carriers

are not independently owned and

operated, or have more than 1,500

employees, we are unable at this time to

estimate with greater precision the

number of IXCs that would qualify as

small business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 97 small entity

IXCs that may be affected by the

decisions and rules adopted in this

Order.

144. Competitive Access Providers.

Neither the Commission nor SBA has

developed a definition of small entities

specifically applicable to providers of

competitive access services (CAPs). The

closest applicable definition under SBA

rules is for telephone communications

companies other than radiotelephone

(wireless) companies (SIC 4813). The

most reliable source of information

regarding the number of CAPs

nationwide of which we are aware

appears to be the data that we collect

annually in connection with the TRS.

According to our most recent data, 30

companies reported that they were

engaged in the provision of competitive

access services.368 Although it seems

certain that some of these carriers are

not independently owned and operated,

or have more than 1,500 employees, we

are unable at this time to estimate with

greater precision the number of CAPs

that would qualify as small business

concerns under SBA’s definition.

Consequently, we estimate that there are
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369 Id.

370 Id.

371 Id.

372Federal Communications Commission, CCB,

Industry Analysis Division, FCC Releases, Study on

Telephone Trends, Tbl. 20 (May 16, 1996).

373There are approximately 1.5 million LEC

payphones. Statistics of Communications Common

Carriers, 1994/1995 edition, Common Carrier

Bureau, FCC at 159, Table 2.10 (1995). There are

approximately 350,000 competitively provided

payphones. See Ex Parte Letter to Michael

Carowitz, Attorney, Common Carrier Bureau, FCC

from Michael Benson, Senior Product Manager,

PPO Compensation Clearinghouse, Cincinnati Bell

(Apr. 24, 1996). Cincinnati Bell, as the payphone

compensation paying agent for three interexchange

carriers, states that it receives quarterly bills from

PPOs for more than 350,000 competitively provided

payphones. Id.

374 13 CFR 121.201, Standard Industrial

Classification (SIC) Code 4812.

375United States Department of Commerce,

Bureau of the Census, 1992 Census of

Transportation, Communications, and Utilities:

Establishment and Firm Size, at Firm Size 1–123

(1995) (‘‘1992 Census’’).

fewer than 30 small entity CAPs that

may be affected by the decisions and

rules adopted in this Order.

145. Operator Service Providers.

Neither the Commission nor SBA has

developed a definition of small entities

specifically applicable to providers of

operator services (OSPs). The closest

applicable definition under SBA rules is

for telephone communications

companies other than radiotelephone

(wireless) companies (SIC 4813). The

most reliable source of information

regarding the number of operator service

providers nationwide of which we are

aware appears to be the data that we

collect annually in connection with the

TRS. According to our most recent data,

29 companies reported that they were

engaged in the provision of operator

services.369 Although it seems certain

that some of these companies are not

independently owned and operated, or

have more than 1,500 employees, we are

unable at this time to estimate with

greater precision the number of operator

service providers that would qualify as

small business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 29 small entity

operator service providers that may be

affected by the decisions and rules

adopted in this Order.

146. Payphone Operators. Neither the

Commission nor SBA has developed a

definition of small entities specifically

applicable to pay telephone operators.

The closest applicable definition under

SBA rules is for telephone

communications companies other than

radiotelephone (wireless) companies.

The most reliable source of information

regarding the number of payphone

operators nationwide of which we are

aware appears to be the data that we

collect annually in connection with the

TRS. According to our most recent data,

197 companies reported that they were

engaged in the provision of payphone

services.370 Although it seems certain

that some of these carriers are not

independently owned and operated, or

have more than 1,500 employees, we are

unable at this time to estimate with

greater precision the number of

payphone operators that would qualify

as small business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 197 small

entity payphone operators that may be

affected by the decisions and rules

adopted in this Order.

147. Resellers (including debit card

providers). Neither the Commission nor

SBA has developed a definition of small

entities specifically applicable to

resellers. The closest applicable

definition under SBA rules is for all

telephone communications companies

(SIC 4812 and 4813). The most reliable

source of information regarding the

number of resellers nationwide of which

we are aware appears to be the data that

we collect annually in connection with

the TRS. According to our most recent

data, 206 companies reported that they

were engaged in the resale of telephone

services.371 Although it seems certain

that some of these carriers are not

independently owned and operated, or

have more than 1,500 employees, we are

unable at this time to estimate with

greater precision the number of resellers

that would qualify as small business

concerns under SBA’s definition.

Consequently, we estimate that there are

fewer than 206 small entity resellers

that may be affected by the decisions

and rules adopted in this Order.

148. 800-Subscribers. Neither the

Commission nor SBA has developed a

definition of small entities specifically

applicable to 800-subscribers. The most

reliable source of information regarding

the number of 800-subscribers of which

we are aware appears to be the data we

collect on the number of 800-numbers

in use.372 According to our most recent

data, at the end of 1995, the number of

800-numbers in use was 6,987,063.

Although it seems certain that some of

these subscribers are not independently

owned and operated businesses, or have

more than 1,500 employees, we are

unable at this time to estimate with

greater precision the number of 800-

subscribers that would qualify as small

business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 6,987,063

small entity 800-subscribers that may be

affected by the decisions and rules

adopted in this Order.

149. Location Providers. Neither the

Commission nor SBA has developed a

definition of small entities specifically

applicable to location providers. A

location provider is the entity that is

responsible for maintaining the

premises upon which the payphone is

physically located. Due to the fact that

location providers do not fall into any

specific category of business entity, it is

impossible to estimate with any

accuracy the number of location

providers. Using several sources,

however, we have derived a figure of

1,850,000 payphones in existence.373

Although it seems certain that some of

these payphones are not located on

property owned by location providers

that are small business entities, nor does

the figure take into account the

possibility of multiple payphones at a

single location, we are unable at this

time to estimate with greater precision

the number of location providers that

would qualify as small business

concerns under SBA’s definition.

Consequently, we estimate that there are

fewer than 1,850,000 small entity

location providers that may be affected

by the decisions and rules adopted in

this Order.

150. Wireless (Radiotelephone)

Carriers (including paging services). The

SBA’s definition of a small business

radiotelephone company is one

employing fewer than 1,500 persons.374

The Census Bureau reports that there

were 1,176 such companies in operation

for at least one year at the end of

1992.375 The Census Bureau also

reported that 1,164 of those

radiotelephone companies had no more

than 1,000 employees. Thus, even if all

of the remaining 12 companies had

more than 1,500 employees, there

would still be 1,164 radiotelephone

companies that might qualify as small

entities if they are independently owned

and operated. Although it seems certain

that some of these carriers are not

independently owned and operated, we

are unable at this time to estimate with

greater precision the number of

radiotelephone carriers and service

providers that would qualify as small

business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 1,164 small

entity radiotelephone companies that

may be affected by the decisions and

rules adopted in this Order.

151. Cellular Service Carriers

(including paging services). Neither the

Commission nor SBA has developed a

definition of small entities specifically

applicable to providers of cellular

services. The closest applicable

definition under SBA rules is for
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376 Id.

377 Id.

378See Implementation of Section 309(j) of the

Communications Act—Competitive Bidding, PP

Docket No. 93–253, Fifth Report and Order, 59 FR

37566 (July 22, 1994); 9 FCC Rcd 5532, 5581–84

(1994).

379The FCC’s Personal Communications Services

(PCS) Entrepreneurs’ Block (C Block) auction began

on December 18, 1995 and closed on May 6, 1996.

The reauction for 18 defaulted PCS C Block licenses

commenced on July 3, 1996 and was completed on

July 16, 1996.

380See Auction of Broadband Personal

Communications Service (D, E, and F Blocks),

Public Notice, DA 96–1400 (rel. Aug. 20, 1996).

381Amendment of Parts 20 and 24 of the

Commission’s Rules—Broadband PCS Competitive

Bidding and the Commercial Mobile Radio Service

Spectrum Cap, WT Docket No. 96–59, Amendment

of the Commission’s Cellular/PCS Cross-Ownership

Rule, Report and Order, GN Docket No. 90–314, 61

FR 33859 (July 1, 1996); 11 FCC Rcd 7824 (1996).

382See Auction of Broadband Personal

Communications Service (D, E, and F Blocks),

Public Notice, DA 96–1400 (rel. Aug. 20, 1996).

383 1992 Census, Table 5, Employment Size of

Firms: 1992, SIC Code 4812.

384See Amendment of Parts 2 and 90 of the

Commission’s Rules to Provide for the Use of 200

Channels Outside the Designated Filing Areas in

the 896–901 MHz and the 935–940 MHz Bands

Allotted to the Specialized Mobile Radio Pool, PR

Docket No. 89–583, Second Order on

Reconsideration and Seventh Report and Order, 60

FR 48913 (September 21, 1995); 11 FCC Rcd 2639,

2693–702 (1995); Amendment of Part 90 of the

Commission’s Rules to Facilitate Future

Development of SMR Systems in the 800 MHz

Frequency Band, PR Docket No. 93–144, First

Report and Order, Eighth Report and Order, and

Second Further Notice of Proposed Rulemaking, 61

FR 6212 (February 16, 1996); 11 FCC Rcd 1463

(1995).

telephone communications companies

other than radiotelephone (wireless)

companies (SIC 4813). The most reliable

source of information regarding the

number of cellular service carriers

nationwide of which we are aware

appears to be the data that we collect

annually in connection with the TRS.

According to our most recent data, 789

companies reported that they were

engaged in the provision of cellular

services.376 Although it seems certain

that some of these carriers are not

independently owned and operated, or

have more than 1,500 employees, we are

unable at this time to estimate with

greater precision the number of cellular

service carriers that would qualify as

small business concerns under SBA’s

definition. Consequently, we estimate

that there are fewer than 789 small

entity cellular service carriers that may

be affected by the decisions and rules

adopted in this Order.

152. Mobile Service Carriers

(including paging services). Neither the

Commission nor SBA has developed a

definition of small entities specifically

applicable to mobile service carriers,

such as paging companies. The closest

applicable definition under SBA rules is

for telephone communications

companies other than radiotelephone

(wireless) companies. The most reliable

source of information regarding the

number of mobile service carriers

nationwide of which we are aware

appears to be the data that we collect

annually in connection with the TRS.

According to our most recent data, 117

companies reported that they were

engaged in the provision of mobile

services.377 Although it seems certain

that some of these carriers are not

independently owned and operated, or

have more than 1,500 employees, we are

unable at this time to estimate with

greater precision the number of mobile

service carriers that would qualify

under SBA’s definition. Consequently,

we estimate that there are fewer than

117 small entity mobile service carriers

that may be affected by the decisions

and rules adopted in this Order.

153. Broadband PCS Licensees

(including paging services). The

broadband PCS spectrum is divided into

six frequency blocks designated A

through F. As set forth in 47 CFR

§ 24.720(b), the Commission has defined

‘‘small entity’’ in the auctions for Blocks

C and F as a firm that had average gross

revenues of less than $40 million in the

three previous calendar years. Our

definition of a ‘‘small entity’’ in the

context of broadband PCS auctions has

been approved by SBA.378 The

Commission has auctioned broadband

PCS licenses in Blocks A, B, and C. We

do not have sufficient data to determine

how many small businesses bid

successfully for licenses in Blocks A

and B. There were 90 winning bidders

that qualified as small entities in the

Block C auctions.379 Based on this

information, we conclude that the

number of broadband PCS licensees

affected by the decisions in this Order

includes, at a minimum, the 90 winning

bidders that qualified as small entities

in the Block C broadband PCS auction.

154. At present, no licenses have been

awarded for Blocks D, E, and F of

broadband PCS spectrum. Therefore,

there are no small businesses currently

providing these services. However, a

total of 1,479 licenses will be awarded

in the D, E, and F Block broadband PCS

auctions, which are scheduled to begin

on August 26, 1996. Of the 153 qualified

bidders for the D, E, and F Block PCS

auctions, 105 were small businesses.380

Eligibility for the 493 F Block licenses

is limited to entrepreneurs with average

gross revenues of less than $125

million. 381 There are 114 eligible

bidders for the F Block.382 We cannot

estimate, however, the number of these

licenses that will be won by small

entities under our definition, nor how

many small entities will win D or E

Block licenses. Given that nearly all

radiotelephone companies have fewer

than 1,000 employees 383 and that no

reliable estimate of the number of

prospective D, E, and F Block licensees

can be made, we assume for purposes of

this FRFA, that all of the licenses in the

D, E, and F Block Broadband PCS

auctions may be awarded to small

entities under our rules, which may be

affected by the decisions and rules

adopted in this Order.

155. SMR Licensees (including paging

services). Pursuant to 47 CFR

§ 90.814(b)(1), the Commission has

defined ‘‘small entity’’ in auctions for

geographic area 800 MHz and 900 MHz

SMR licenses as a firm that had average

annual gross revenues of less than $15

million in the three previous calendar

years. This definition of a ‘‘small entity’’

in the context of 800 MHz and 900 MHz

SMR has been approved by the SBA.384

The rules adopted in this Order may

apply to SMR providers in the 800 MHz

and 900 MHz bands that either hold

geographic area licenses or have

obtained extended implementation

authorizations. We do not know how

many firms provide 800 MHz or 900

MHz geographic area SMR service

pursuant to extended implementation

authorizations, nor how many of these

providers have annual revenues of less

than $15 million. We assume, for

purposes of this FRFA, that all of the

extended implementation

authorizations may be held by small

entities, which may be affected by the

decisions and rules adopted in this

Order.

156. The Commission recently held

auctions for geographic area licenses in

the 900 MHz SMR band. There were 60

winning bidders who qualified as small

entities in the 900 MHz auction. Based

on this information, we conclude that

the number of geographic area SMR

licensees affected by the rule adopted in

this Order includes these 60 small

entities. No auctions have been held for

800 MHz geographic area SMR licenses.

Therefore, no small entities currently

hold these licenses. A total of 525

licenses will be awarded for the upper

200 channels in the 800 MHz

geographic area SMR auction. However,

the Commission has not yet determined

how many licenses will be awarded for

the lower 230 channels in the 800 MHz

geographic area SMR auction. There is

no basis, moreover, on which to

estimate how many small entities will

win these licenses. Given that nearly all

radiotelephone companies have fewer
Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58685

385 47 U.S.C. § 276(b)(1)(A).

386Additionally, by adopting a rate that is less

than the $0.35 initially proposed, we are mindful

of the concerns of small businesses that the $0.35

rate is too high. 387See supra paras. 126, 132.

388The Commission finds, for the reasons set

forth in para .3, supra, that good cause exists for

Continued

than 1,000 employees and that no

reliable estimate of the number of

prospective 800 MHz licensees can be

made, we assume, for purposes of this

FRFA, that all of the licenses may be

awarded to small entities who, thus,

may be affected by the decisions in this

Order.

4. Description of Projected Reporting,

Recordkeeping, and Other Compliance

Requirements.

157. This order results in no

additional filing requirements.

5. Steps Taken to Minimize Significant

Economic Impact on Small Entities and

Significant Alternatives Considered.

158. Section 276(b)(1)(A) directs the

Commission to ‘‘establish a per call

compensation plan to ensure that all

payphone service providers are fairly

compensated for each and every

completed intrastate and interstate call

using their payphone. * * * ’’ 385 To

implement Section 276(b)(1)(A), this

Second Report and Order establishes a

market-based per-call compensation rate

of $0.284 to be paid to the independent

payphone service providers (PSPs) for

services rendered in connection with

originating noncoin calls from

payphones. The payphone industry

appears to have the potential of being a

very competitive industry once the

significant subsidies and entry/exit

restrictions which are presently

distorting the competition are removed.

However, we perceive two potential

areas that could have an economic

impact on small businesses and small

incumbent LECs: (1) the amount of

compensation paid to PSPs, and (2) the

administration of per-call

compensation.

159. Amount of compensation: By

adopting a market-based local coin rate

adjusted for coin differences, we ensure

that PSPs, many of whom may be small

business entities, receive fair

compensation for subscriber 800 and

access code calls. By tying the per-call

compensation to the market-based local

coin rate, adjusted for cost differences,

we further ensure that PSPs receive fair

compensation for each and every

completed call made from a

payphone.386

160. Many commentators, notably the

IXCs, contend that marginal cost of

originating a payphone call should be

used as the basis for compensating

PSPs. We conclude that use of a

marginal cost standard or any closely

related TSLRIC standard would leave

PSPs under compensated, because such

cost standards do not permit the

recovery of any of a PSPs’ fixed costs,

which make up the bulk of a PSP’s

costs. We also reject, for similar reasons,

suggestions that current local coin rates

be used as a surrogate for per-call

compensation. Local coin rates are not

necessarily fairly compensatory. Local

coin rates in some jurisdictions may not

cover the marginal cost of service and

therefore, would not fairly compensate

the PSPs.

161. We reject the proposal of the

BOCs and some independent payphone

providers to use AT&T O+ commissions

as a measure of fair value of the service

provided by independent payphone

providers when they originate an

interstate call. These commissions may

include compensation for factors other

than the use of the payphone, such as

a PSP’s promotion of the OSP through

placards on the payphone. In the

absence of reliable data, the appropriate

per-call compensation amount is

whatever amount the particular

payphone charges for a local coin call.

PSPs, IXCs, subscriber 800 carriers, and

intraLATA carriers, many of whom may

be small business entities, may find it

advantageous to agree on an amount for

some or all compensable calls that is

either higher or lower than the local

coin rate at a given payphone because

it will grant parties in the payphone

industry some flexibility and allow

them to take advantage of technological

advances.

162. Payment of compensation:

Various commenters, including small

IXCs and paging services, proposed that

the Commission reconsider the use of a

‘‘caller-pays’’ system.387 We decline to

revisit a caller-pays approach on

remand, because the caller-pays system

adopted in the Report and Order was

upheld by the court in Illinois Public

Telecomm, and reiterate that those

approaches would involve greater

transaction costs that can pose

particular burdens for small businesses.

163. However, in the interests of

administrative efficiency and lower

costs, we require that facilities based

carriers should pay the per-call

compensation for calls received by their

reseller customers. This would permit

competitive facilities based carriers to

negotiate contract provisions that would

require the reseller to reimburse the

carrier. We believe our actions will

expedite and simplify negotiations,

minimize regulatory burdens and the

impact of our decisions for all parties,

including small entities.

164. Report to Congress. The

Commission will send a copy of the

Second Report and Order, including

this 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 Second Report and Order and this

FRFA (or summary 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.

V. Conclusion

165. We conclude in this order that as

of October 7, 1997, IXCs must

compensate PSPs for all coinless

payphone calls not otherwise

compensated pursuant to contract,

including subscriber 800 and access

code calls, 0+ and inmate calls, at the

rate of $0.284 per call. We base this

decision on the conclusion that the

default rate for per-call compensation

for these calls is the deregulated local

coin rate adjusted for cost differences.

The rate of $0.284 will serve as the

default per-call compensation rate for

coinless payphone calls for the first two

years of per-call compensation. After the

first two years of per-call compensation,

the market-based local coin rate

adjusted for net avoided costs is the

surrogate for the default per-call rate for

coinless calls.

VI. Ordering Clauses

166. Accordingly, pursuant to

authority contained in Sections 1, 4,

201–205, 226, and 276 of the

Communications Act of 1934, as

amended, 47 U.S.C. §§ 151, 154, 201–

205, 215, 218, 219, 220, 226, and 276,

It is ordered that the policies, rules, and

requirements set forth herein are

adopted.

167. It is further ordered that this

order is effective upon publication in

the Federal Register.

168. It is further ordered that the

September 10, 1997 Motion of the

American Public Communications

Council For Leave To File Reply

Comments One Day Late, and the

September 10, 1997 Motion of MCI For

Leave To File An Erratum Are Granted.

169. It is further ordered that the

September 16, 1997 Motion of Sprint

Corporation to Require Production of A

Cost Study Is Denied.

170. It is further ordered, that 47 CFR

Part 64 Is amended as set forth below,

effective upon publication in the

Federal Register.388
58686 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations

the effective date to be less than 30 days after

publication in the Federal Register.

389The following parties have submitted letters to

the Commission, which are treated as informal

comments and considered part of the record in this

proceeding: Borden, Champion, and Sitel.

171. It is further ordered that the

Commission’s Office of Managing

Director SHALL SEND a copy of this

Second Report and Order, including the

Final Regulatory Flexibility Analysis, to

the Chief Counsel for Advocacy of the

Small Business Administration.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

List of Subjects in 47 CFR Part 64

Communications common carriers,

Operator service access, Payphone

compensation, Telephone.

Rule Changes

Part 64 of Title 47 of the Code of

Federal Regulations is amended as

follows:

1. The authority citation for Part 64

continues to read as follows:

Authority: Sec. 4, 48 Stat. 1066, as

amended: 47 U.S.C. 154, unless otherwise

noted. Interpret or apply secs. 201, 218, 226,

228, 276, 48 Stat. 1070, as amended; 47

U.S.C. 201, 218, 226, 228, 276 unless

otherwise noted.

2. Section 64.1300 (c) and (d) are

revised to read as follows:

§ 64.1300 Payphone compensation

obligation.

* * * * *

(c) In the absence of an agreement as

required by paragraph (a) of this section,

the carrier is obligated to compensate

the payphone service provider at a percall rate equal to its local coin rate less

$0.066 at the payphone in question.

(d) For the initial two-year period

during which carriers are required to

pay per-call compensation, in the

absence of an agreement as required by

paragraph (a) of this section, the carrier

is obligated to compensate the

payphone service provider at a per-call

rate of $0.284. After this initial two-year

period of per-call compensation,

paragraph (c) of this section will apply.

Note: This attachment will not be

published in the Code of Federal Regulations.

Attachment B—Parties Filing Comments in

Response to Payphone Remand Public

Notice

1. Air Touch Paging (‘‘AirTouch’’)

2. American Public Communications Council

(‘‘APCC’’)

3. America’s Carriers Telecommunications

Association (‘‘ACTA’’)

4. AT&T Corp. (‘‘AT&T’’)

5. Cable and Wireless, Inc. (‘‘CWI’’)

6. Communications Central, Inc. (‘‘CCI’’)

7. Competition Policy Institute (‘‘CPI’’)

8. Competitive Telecommunications

Association (‘‘CompTel’’)

9. Excel Telecommunications, Inc. (‘‘Excel’’)

10. Frontier Corporation (‘‘Frontier’’)

11. General Communication, Inc. (‘‘GCI’’)

12. Inmate Calling Services Providers

Coalition (‘‘Inmate’’)

13. International Telecard Association

(‘‘ITA’’)

14. LCI International Telecom Corp. (‘‘LCI’’)

15. MCI Telecommunications Corporation

(‘‘MCI’’)

16. MIDCOM Communication, Inc.

(‘‘MIDCOM’’)

17. NATSO, Inc. (‘‘NATSO’’)

18. PageMart Wireless, Inc. (‘‘PageMart’’)

19. Paging Network, Inc. (‘‘PageNet’’)

20. Peoples Telephone Company, Inc.

(‘‘Peoples’’)

21. Personal Communications Industry

Association (‘‘PCIA’’)

22. RBOC/GTE/SNET Payphone Coalition

(‘‘RBOC’’)

23. RCN Telecom Services, Inc. (‘‘RCN’’)

24. Software Defined Network Users

Association (‘‘SDN’’)

25. Sprint Corporation (‘‘Sprint’’)

26. Telaleasing Enterprises, Inc. (‘‘TEI’’)

27. Telecommunications Resellers

Association (‘‘TRA’’)

28. Teleport Communications Group Inc.

(‘‘Teleport’’)

29. United States Telephone Association

(‘‘USTA’’)

30. WorldCom, Inc. d/b/a LDDS WorldCom

(‘‘WorldCom’’)

Note: This attachment will not be

published in the Code of Federal Regulations.

Attachment C—Parties Filing Reply

Comments to Payphone Remand Public

Notice 389

1. Air Touch Paging (‘‘AirTouch’’)

2. American Public Communications Council

(‘‘APCC’’)

3. America’s Carriers Telecommunications

Association (‘‘ACTA’’)

4. Arch Communications Group (‘‘Arch’’)

5. AT&T Corp. (‘‘AT&T’’)

6. Cable and Wireless, Inc. (‘‘CWI’’)

7. Competition Policy Institute (‘‘CPI’’)

8. Competitive Telecommunications

Association (‘‘CompTel’’)

9. Consumer Federation of American and

Consumer Action (‘‘CFA’’)

10. Excel Telecommunications, Inc. and

Telco Communications Group, Inc.

(‘‘Excel’’)

11. Frontier Corporation (‘‘Frontier’’)

12. GE Capital Communications Services

Corporation (‘‘GECCS’’)

13. General Communication, Inc. (‘‘GCI’’)

14. Illinois Public Telecommunications

Association (‘‘IPTA’’)

15. Inmate Calling Services Providers

Coalition (‘‘Inmate’’)

16. International Telecard Association

(‘‘ITA’’)

17. IPSP Ad Hoc Committee for Consumer

Choice (‘‘IPSP’’)

18. MCI Telecommunications Corporation

(‘‘MCI’’)

19. MIDCOM Communication, Inc.

(MIDCOM)

20. Oncor Communications (‘‘Oncor’’)

21. PageMart Wireless, Inc. (‘‘PageMart’’)

22. Paging Network, Inc. (‘‘PageNet’’)

23. Peoples Telephone Company, Inc. and

Communications Central, Inc. (‘‘Peoples’’)

24. Personal Communications Industry

Association (‘‘PCIA’’)

25. RBOC/GTE/SNET Payphone Coalition

(‘‘Coalition’’)

26. RCN Telecom Services, Inc. (‘‘RCN’’)

27. Sprint Corporation (‘‘Sprint’’)

28. Telaleasing Enterprises, Inc. (‘‘TEI’’)

29. United States Telephone Association

(‘‘USTA’’)

30. WorldCom, Inc. d/b/a LDDS WorldCom

(‘‘WorldCom’’)

[FR Doc. 97–28614 Filed 10–29 97; 8:45 am]

BILLING CODE 6712–01–p

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 64

[CC Docket 96–128; DA 97–2214]

Pay Telephone Reclassification and

Compensation Provisions of the

Telecommunications Act of 1996

AGENCY: Federal Communications

Commission.

ACTION: Notice of partial waiver of

regulations.

SUMMARY: On October 7, 1997, the

Common Carrier Bureau granted, on its

own motion, a limited waiver of five

months, until March 9, 1998, to those

local exchange carriers and payphone

service providers that cannot provide

payphone-specific digits as required by

orders in this proceeding. This limited

waiver applied to the requirement that

local exchange carriers provide

payphone-specific coding digits to

payphone service providers, and that

payphone service providers provide

coding digits from their payphones

before they can receive per-call

compensation from interexchange

carriers for subscriber 800 and access

code calls, and 0+ and inmate calls (47

CFR 64.1300–64.1340). The limited

waiver recognized that three parties had

filed petitions for waiver of the

payphone-specific coding digit

requirements. This document seeks

comment on those waiver requests.

DATES: The partial waiver of 47 CFR

64.1300–64.1340 is effective October 7,

1997 until March 9, 1998. Comments are

due on or before October 30, 1997, and

reply comments are due on or before

November 6, 1997.

ADDRESSES: Federal Communications

Commission, Room 222, 1919 M St.,

Washington, DC 20554.