[Federal Register Volume 62, Number 34 (Thursday, February 20, 1997)]
[Rules and Regulations]
[Pages 7690-7720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4020]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Chapter I

[CC Docket No. 96-152; FCC 97-35]


Implementation of the Telecommunications Act of 1996: 
Telemessaging, Electronic Publishing, and Alarm Monitoring Services

AGENCY: Federal Communications Commission.

ACTION: Final rule; Clarification and interpretation.

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SUMMARY: The First Report and Order (Order), released February 7, 1997, 
implements the non-accounting requirements prescribed by Congress in 
sections 260 and 274 of the Telecommunications Act of 1996 (the Act), 
which respectively govern the provision of telemessaging and electronic 
publishing services. The Order promotes the pro-competitive and 
deregulatory objectives of the Act.

EFFECTIVE DATE: March 24, 1997. The information collections in this 
Order will not become effective until at least May 1, 1997.

FOR FURTHER INFORMATION CONTACT: Lisa Sockett, Attorney, Common Carrier 
Bureau, Policy and Program Planning Division, (202) 418-1580. For 
additional information concerning the information collections contained 
in this Order contact Dorothy Conway at (202) 418-0217, or via the 
Internet at <a href="/cdn-cgi/l/email-protection#f490979b9a83958db4929797da939b82"><span class="__cf_email__" data-cfemail="9ffbfcf0f1e8fee6dff9fcfcb1f8f0e9">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
adopted February 6, 1997, and released February 7, 1997. The full text 
of this Order is available for inspection and copying during normal 
business hours in the FCC Reference Center, 1919 M St., NW., Room 239, 
Washington, DC. The complete text also may be obtained through the 
World Wide Web, at http://www.fcc.gov/Bureaus/Common Carrier/Orders/
fcc9735.wp, or may be purchased from the Commission's copy contractor, 
International Transcription Service, Inc., (202) 857-3800, 2100 M St., 
NW., Suite 140, Washington, DC 20037.
    This Order contains new or modified information collections subject 
to the Paperwork Reduction Act of 1995 (PRA). It has been submitted to 
the Office of Management and Budget (OMB) for review under the PRA. 
OMB, the general public, and other federal agencies are invited to 
comment on the proposed or modified information collections contained 
in this proceeding.

Regulatory Flexibility Certification

    As required by the Regulatory Flexibility Act, the Order contains a 
Final Regulatory Flexibility Certification which is set forth in the 
Order. A brief description of the certification follows.
    The Commission certifies, pursuant to 5 U.S.C. 605(b), that the 
clarification and interpretation adopted in this Order will not have a 
significant economic impact on a substantial number of ``small 
entities,'' as this term is defined in 5 U.S.C. 601(6). The Commission 
therefore is not required to prepare a final regulatory flexibility 
analysis of the clarification and interpretation adopted in this Order. 
This certification and a statement of its factual basis are set forth 
in the Order, as required by 5 U.S.C. 605(b).

Paperwork Reduction Act

    This Order contains either a new or modified information 
collection. The Commission, as part of its continuing effort to reduce 
paperwork burdens, invites the general public and OMB to comment on the 
information collections contained in this Order, as required by the 
Paperwork Reduction Act of 1995, Public Law No. 104-12. Written 
comments by the public on the information collections are due March 24, 
1997. OMB notification of action is due April 21, 1997. Comments should 
address: (a) Whether the new or modified collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents including the use of automated 
collection techniques or other forms of information technology.

OMB Approval Number: 3060-0738

    Title: Implementation of the Telecommunications Act of 1996: 
Telemessaging, Electronic Publishing, and Alarm Monitoring Services, CC 
Docket No. 96-152.
    Form No.: N/A.
    Type of Review: Revision.
    Respondents: Business or other for profit.
    Public reporting burden for the collection of information is 
estimated as follows:

[[Page 7691]]



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                                           Number of respondents       Annual hour burden                       
       Information collection                    (approx.)                per response       Total annual burden
----------------------------------------------------------------------------------------------------------------
Third-party disclosure requirement:   7 BOCs........................  1,200 to 30,000       7  x  120 to 3,000 =
 To the extent a BOC refers a                                          calls per BOC per     840 to 21,000      
 customer to a separated affiliate,                                    year  x  \1/10\th     burden hours.      
 electronic publishing joint venture                                   hour per response =                      
 or affiliate during the normal                                        120 to 3,000 hours.                      
 course of its telemarketing                                                                                    
 operations, it must refer that                                                                                 
 customer to all unaffiliated                                                                                   
 electronic publishers requesting                                                                               
 the referral service. In                                                                                       
 particular, the BOC must provide                                                                               
 the customer the names of all                                                                                  
 unaffiliated electronic publishers                                                                             
 requesting the referral service, as                                                                            
 well as affiliated electronic                                                                                  
 publishers, in random order.                                                                                   
----------------------------------------------------------------------------------------------------------------

    Total Annual Burden: 3,000 burden hours.
    Estimated Costs Per Respondent: $0.
    Needs and Uses: The attached item imposes a third-party disclosure 
requirement on BOCs in order to implement the nondiscrimination 
requirement of section 274(c)(2)(A) of the Act.

Synopsis of First Report and Order

I. Introduction

    1. In February 1996, the ``Telecommunications Act of 1996'' became 
law. The intent of the 1996 Act is ``to provide for a pro-competitive, 
de-regulatory national policy framework designed to accelerate rapidly 
private sector deployment of advanced telecommunications and 
information technologies and services to all Americans by opening all 
telecommunications markets to competition.''
    2. On July 18, 1996, the Commission released a Notice of Proposed 
Rulemaking. 61 FR 39385 (July 29, 1996), (``NPRM'') regarding 
implementation of sections 260, 274, and 275 of the Communications Act 
addressing telemessaging, electronic publishing, and alarm monitoring 
services, respectively. This Order implements the non-accounting 
requirements of sections 260 and 274. We address in separate 
proceedings the alarm monitoring provisions of section 275 and the 
enforcement issues related to sections 260, 274, and 275. In addition, 
the accounting safeguards required to implement sections 271 through 
276 and section 260 are addressed in a separate proceeding.
    3. The 1996 Act opens local markets to competing providers by 
imposing new interconnection, unbundling, and resale obligations on 
existing providers of local exchange services. In enacting sections 260 
and 274, Congress recognized that the local exchange market will not be 
fully competitive immediately. Congress therefore imposed requirements 
applicable to local exchange carriers' (LECs') provision of 
telemessaging services in section 260, and a series of requirements 
applicable to Bell Operating Companies' (BOCs') provision of electronic 
publishing services in section 274. Collectively, these requirements 
are designed to prevent, or facilitate the detection of, improper cost 
allocation, discrimination, or other anticompetitive conduct.
    4. Section 260 permits incumbent LECs (including BOCs) to provide 
telemessaging service subject to certain nondiscrimination safeguards. 
Section 274 allows a BOC to provide electronic publishing service 
disseminated by means of its basic telephone service only through a 
``separated affiliate'' or an ``electronic publishing joint venture'' 
that meets the separation, joint marketing, and nondiscrimination 
requirements in that section. BOCs that were offering electronic 
publishing services at the time the 1996 Act was enacted must comply 
with section 274 by February 8, 1997. As noted in part VII, infra, the 
requirements of this Order will become effective 30 days after 
publication of a summary in the Federal Register. In addition, the 
collection of information contained in this Order is contingent upon 
approval by the Office of Management and Budget (OMB). Accordingly, we 
do not anticipate taking any enforcement action based on these 
requirements until they become effective. The requirements under 
section 274 expire on February 8, 2000.
    5. In this proceeding, our goal is to implement the non-accounting 
requirements in sections 260 and 274 in a manner that is consistent 
with the fundamental goal of the 1996 Act--to open all 
telecommunications markets to robust competition. By fostering 
competition in these markets, we seek to produce maximum benefits for 
consumers of telemessaging and electronic publishing services.

II. Scope of the Commission's Authority

A. Electronic Publishing

1. Background
    6. In the NPRM, we sought comment on the extent to which section 
274 grants the Commission authority over the intrastate provision of 
electronic publishing services. We noted that section 274(b)(4) 
specifically refers to ``such regulations as may be prescribed by the 
Commission or a State commission'' for the valuation of BOC assets. We 
therefore tentatively concluded that the Commission may not have 
exclusive jurisdiction over all aspects of intrastate services provided 
pursuant to section 274.
    7. In addition, apart from any intrastate jurisdiction conferred by 
section 274 itself, we sought comment on the extent to which the 
Commission may have the authority to preempt inconsistent state 
regulations with respect to matters addressed by section 274.
2. Comments
(Parties that filed comments and replies are listed in the Attachment 
below.)

    8. AT&T contends that section 274 covers both interstate and 
intrastate provision of electronic publishing services, and that this 
section confers on the Commission general jurisdiction over the 
provision of intrastate electronic publishing services. In support of 
its position, AT&T points to several sections that, in its view, refer 
to Commission authority over intrastate electronic publishing, 
including: (1) Section 274(e), which authorizes the Commission to hear 
complaints for violations of section 274; (2) section 274(f), which 
requires all separated BOC affiliates engaged in electronic publishing 
to file reports with the Commission; and (3) section 274(c)(2)(C), 
which grants the Commission the authority to determine whether the BOCs 
may be authorized to have a greater financial control of a joint 
venture with small, local electronic publishers. AT&T further maintains 
that the reference to valuation of BOC assets by state commissions in 
section 274(b)(4) does not restrict the Commission's general regulatory 
authority to establish rules, but merely indicates that, if a state 
commission has its own accounting rules, those rules

[[Page 7692]]

should be applied to the extent they are not inconsistent with the 
Commission's rules.
    9. NAA contends that, because section 274 is silent with respect to 
whether it covers interstate or intrastate, and interLATA or intraLATA 
electronic publishing, and because electronic publishing services are 
not regulated telecommunications services, the Commission's authority 
under section 274 is limited to enforcing BOC compliance with the 
section's requirements that BOCs operate through a separated affiliate 
or electronic publishing joint venture and make various filings and 
reports. NAA further asserts that the Commission has authority to 
adjudicate complaints and requests for cease and desist orders with 
respect to violations of section 274, whether interstate or intrastate, 
but that states are not precluded from also enforcing this law. NAA 
also contends that states should be allowed to continue to use their 
cost allocation procedures for intrastate purposes.
    10. A number of BOCs and state commissions, on the other hand, 
argue that section 274 does not give the Commission authority over 
intrastate electronic publishing services. Some of these commenters 
argue that section 274 covers such intrastate services, but that this 
section does not divest the states of their authority over intrastate 
services under section 2(b) of the Communications Act. These latter 
commenters argue that section 274 contains new requirements that state 
commissions will implement in their traditional role of regulating 
intrastate electronic publishing services.
    11. These BOCs and state commissions also argue that section 2(b) 
of the Communications Act and section 601(c) of the 1996 Act bar the 
Commission from exercising authority under section 274 with respect to 
intrastate electronic publishing services absent an express grant of 
authority from Congress. PacTel and Ameritech contend that such a grant 
of authority is provided in section 274 in limited circumstances, 
including receiving BOC filings, prescribing regulations to value BOC 
asset transfers, and acting on complaints and applications for cease-
and-desist orders. The California Commission argues that, although 
section 274(e) clearly supports our jurisdiction over complaints 
alleging violations of section 274, that section does not preclude 
states from trying to resolve disputes prior to the filing of a 
complaint or lawsuit in the federal arena. BellSouth disputes even this 
limited grant of authority over intrastate electronic publishing 
services, arguing that section 274(e) does not give the Commission 
either explicit or implicit statutory jurisdiction over intrastate 
electronic publishing services.
    12. Several BOCs and state commissions claim that the Commission 
may preempt state regulations and exercise jurisdiction over intrastate 
electronic publishing only to the extent that such services are 
inseparably mixed interstate-intrastate communications, pursuant to the 
standard set forth in Louisiana PSC. The New York and California 
Commissions further argue that the Commission currently has no basis to 
make the showing necessary to preempt state regulation of intrastate 
electronic publishing.
    13. AT&T and MCI contend that the Commission retains the authority 
to preempt state regulatory requirements relating to electronic 
publishing that are inconsistent with its policies and rules. AT&T 
further argues that, because the interstate and intrastate aspects of 
electronic publishing cannot be separated, the Commission's 
jurisdiction over interstate electronic publishing services extends to 
such intrastate services as well.
3. Discussion
    14. As discussed above, in the NPRM, we tentatively concluded that 
the Commission may not have exclusive jurisdiction over all aspects of 
intrastate services provided pursuant to section 274, based on the 
language of section 274(b)(4). This section provides that BOCs and 
their separated affiliates or electronic publishing joint ventures must 
``value any assets that are transferred * * * and record any 
transactions by which such assets are transferred, in accordance with 
such regulations as may be prescribed by the Commission or a State 
commission to prevent improper cross subsidies.'' After examining the 
language of the statute and the comments filed in this proceeding, we 
conclude, for the reasons set forth below, that the Commission's 
authority under section 274 applies to the provision of intrastate as 
well as interstate electronic publishing services. We conclude, 
therefore, that while states may impose regulations with respect to BOC 
provision of electronic publishing services, those regulations must not 
be inconsistent with section 274 and the Commission's rules thereunder. 
We emphasize, however, that the scope of the Commission's authority 
under section 274 extends only to matters covered by that section.
    15. Thus, we agree with AT&T and Bell Atlantic that section 274 
applies not only to the provision of interstate electronic publishing 
services, but also to such services when they are provided on an 
intrastate basis. The language in section 274 expressly demonstrates 
that Congress intended this section to reach intrastate electronic 
publishing services. For example, section 274(c)(2)(C) expressly limits 
the permissible participation of a BOC or affiliate in electronic 
publishing joint ventures to an interest of 50 percent or less, but 
also provides that, ``[i]n the case of joint ventures with small, local 
electronic publishers, the Commission for good cause shown may 
authorize [a BOC] or affiliate to have a larger equity interest.'' 
Notwithstanding the local nature of small, local electronic publishers, 
which suggests that they provide intrastate services, this section 
confers authority on the Commission to determine whether BOCs may have 
a greater interest in electronic publishing joint ventures with such 
electronic publishers.
    16. In addition, section 274 requires that a BOC or BOC affiliate 
engage in the provision of electronic publishing services disseminated 
by means of that BOC or its affiliate's ``basic telephone service'' 
only through a ``separated affiliate'' or an electronic publishing 
joint venture.'' The statute defines ``basic telephone service'' to 
mean ``any wireline telephone exchange service, or wireline telephone 
exchange service facility * * *.'' The term ``telephone exchange 
service,'' as defined in section 3(47), is a primarily intrastate 
service. As we noted in the Accounting Safeguards Order (62 FR 2918 
(January 21, 1997)), these references to primarily intrastate services 
clearly indicate that the scope of section 274 encompasses intrastate 
matters.
    17. We further conclude that, given the jurisdiction granted by 
section 274, the Commission also has jurisdiction under the 
Communications Act to establish rules applicable to intrastate 
electronic publishing services. Sections 4(i), 201(b), and 303(r) of 
the Act authorize the Commission to adopt any rules it deems necessary 
or appropriate in order to carry out its responsibilities under the 
Act, so long as those rules are not otherwise inconsistent with the 
Act. Nothing in section 274 bars the Commission from clarifying and 
implementing the requirements of section 274. Moreover, courts 
repeatedly have held that the Commission's general rulemaking authority 
is ``expansive'' rather than limited. In addition, it is well-
established that an agency has the authority to adopt rules to 
administer congressionally mandated requirements.
    18. Our conclusion that the Commission has jurisdiction under the

[[Page 7693]]

Communications Act to establish rules applicable to the full scope of 
section 274, including intrastate electronic publishing services, is 
particularly appropriate where, as here, the Commission is authorized 
to adjudicate complaints alleging violations of section 274. Section 
274(e) provides a private right of action to any person claiming that 
an act or practice of a BOC, affiliate, or separated affiliate has 
violated any requirement of section 274. Under section 274(e)(1), such 
person may file a complaint with the Commission or bring suit in a U.S. 
District Court as provided in section 207. In addition to damages, 
section 274(e)(2) permits an aggrieved person to apply to the 
Commission for a cease-and-desist order or to a U.S. District Court for 
an injunction or an order compelling compliance. We find that it serves 
the public interest for us to clarify in advance the section 274 
requirements imposed on the BOCs that parties may ask us to enforce 
later. Such clarification of the requirements will reduce uncertainty, 
aid BOCs and their affiliates in complying with the requirements of 
section 274, and facilitate the prompt resolution of compliance 
disputes that may be presented in complaint proceedings.
    19. We reject the argument that section 2(b) of the Communications 
Act requires the conclusion that section 274, and the Commission's 
authority thereunder, apply only to the provision of interstate 
electronic publishing services. As demonstrated, for example, by 
section 274(c)(2)(C)'s grant of authority to the Commission to alter 
the maximum interest that a BOC may hold in electronic publishing joint 
ventures with small, local electronic publishers, Congress gave the 
Commission intrastate jurisdiction without amending section 2(b). Thus, 
we find that, in enacting section 274 after section 2(b), and squarely 
addressing therein the issues before us by using the statutory language 
discussed above, Congress intended for section 274 to take precedence 
over any contrary implications based on section 2(b).
    20. We similarly are not persuaded that section 601(c) of the 1996 
Act evinces an intent by Congress to preserve states' authority over 
intrastate matters arising under section 274. Section 601(c) of the 
1996 Act provides that the Act and its amendments ``shall not be 
construed to modify, impair, or supersede Federal, State, or local law 
unless expressly so provided in such Act or amendments.'' As discussed 
above, we conclude that section 274 expressly modifies federal law, and 
the Commission's statutory authority thereunder, to reach intrastate 
electronic publishing services.

B. Telemessaging

1. Background
    21. In the NPRM, we sought comment on the extent to which section 
260 grants the Commission statutory authority over the intrastate 
provision of telemessaging services. We stated that telemessaging is an 
information service that, when provided by a BOC or its affiliate on an 
interLATA basis, is subject to the requirements of section 272 in 
addition to the requirements of section 260. We also noted that, in the 
Non-Accounting Safeguards NPRM (61 FR 39397 (July 29, 1996)), we 
tentatively concluded that the Commission's authority under sections 
271 and 272 applies to interstate and intrastate interLATA information 
services provided by BOCs or their affiliates. Further, we pointed out 
that section 260 applies not only to BOCs and their affiliates, but 
also to all incumbent LECs. Finally, apart from any intrastate 
jurisdiction conferred by section 260 itself, we sought comment in the 
NPRM on the extent to which the Commission may have the authority to 
preempt inconsistent state regulations with respect to matters 
addressed by section 260.
2. Comments
    22. AT&T, ATSI, and Voice-Tel contend that section 260, and the 
Commission's authority thereunder, apply to all telemessaging services 
provided by incumbent LECs, including interstate and intrastate, as 
well as interLATA and intraLATA, telemessaging services. ATSI contends 
that any attempt to limit the applicability of section 260 would deny 
providers of telemessaging a remedy against anticompetitive practices 
that Congress intended to provide them. AT&T further contends that 
section 260 is an independent grant of authority to the Commission and 
is not restricted in any way by sections 271 and 272. Rather, AT&T 
contends that sections 271 and 272 complement section 260 by imposing 
additional requirements on the BOCs.
    23. Some BOCs and state commissions, on the other hand, argue that 
section 2(b) of the Communications Act and section 601(c) of the 1996 
Act bar the Commission from exercising authority under section 260 with 
respect to any intrastate telemessaging services absent an express 
grant of authority from Congress. Some of these commenters contend that 
nothing in section 260 gives the Commission authority over any 
intrastate telemessaging services. Ameritech argues that section 260 
grants the Commission limited jurisdiction over both interLATA and 
intraLATA telemessaging services, but only to the extent necessary to 
adjudicate complaints by other telemessaging providers that an 
incumbent LEC has improperly subsidized its telemessaging services or 
discriminated against other telemessaging services in violation of 
section 260. BellSouth argues that, although sections 271 and 272 give 
the Commission limited reach over intrastate interLATA telemessaging 
services, such jurisdiction is not comprehensive and does not reach 
intrastate intraLATA telemessaging services.
    24. Several BOCs and state commissions claim that the Commission 
may preempt state regulations and exercise jurisdiction over intrastate 
telemessaging services only subject to the Louisiana PSC exception for 
inseparably mixed interstate-intrastate communications. The New York 
Commission and BellSouth further argue that the Commission currently 
has no basis to make the showing necessary to preempt state regulation 
of intrastate telemessaging services.
    25. AT&T, MCI, and Voice-Tel contend that the Commission has 
authority to preempt state regulatory requirements relating to 
telemessaging services that are inconsistent with its policies and 
rules. Voice-Tel and AT&T further argue that, because the interstate 
and intrastate aspects of telemessaging services cannot be separated, 
the Commission's jurisdiction over interstate telemessaging services 
extends to such intrastate services as well.
    26. Cincinnati Bell argues that the Commission should preempt state 
regulations that restrict the ability of small and mid-sized incumbent 
LECs to provide telemessaging services on an integrated basis.
3. Discussion
    27. For the reasons set forth below, we conclude that section 260, 
and the Commission's authority thereunder, apply to the provision of 
intrastate as well as interstate telemessaging services. Consequently, 
we find that section 2(b) of the Communications Act does not bar the 
Commission from establishing regulations to clarify and implement the 
requirements of section 260 that apply to intrastate services. We 
conclude, therefore, that the rules we may establish to implement 
section 260 are binding on the states, and that the states may not 
impose regulations with respect

[[Page 7694]]

to incumbent LEC provision of telemessaging services that are 
inconsistent with section 260 and the Commission's rules thereunder.
    28. In the Non-Accounting Safeguards Order (62 FR 2927 (January 21, 
1997)), we concluded that telemessaging is an information service that, 
when provided by a BOC or its affiliate on an interLATA basis, is 
subject to the requirements of section 272. We further concluded that 
section 272 applies to both intrastate and interstate interLATA 
information services. We have therefore already concluded that the 
Commission has jurisdiction over certain aspects of intrastate 
telemessaging services.
    29. Section 260 not only imposes additional obligations on BOCs to 
prevent unlawful subsidization, and discrimination in favor, of its 
telemessaging service, but also extends its requirements beyond BOCs 
and their affiliates to all incumbent LECs. We conclude that section 
260 applies to the provision of all telemessaging services by incumbent 
LECs, whether interstate or intrastate, and for BOCs, whether interLATA 
or intraLATA. This conclusion is supported by the terms of the statute. 
Specifically, section 260 prohibits an incumbent LEC from, among other 
things, subsidizing its telemessaging service from its ``telephone 
exchange service or its exchange access.'' ``Telephone exchange 
service,'' as defined in section 3(47), is a primarily intrastate 
service. As we noted in the Accounting Safeguards Order, this reference 
to a primarily intrastate service clearly indicates that the scope of 
section 260 encompasses intrastate matters.
    30. We reject BellSouth's argument that section 260 does not apply 
to intrastate intraLATA services. As discussed below, section 260, 
unlike section 272, does not make a distinction between interLATA and 
intraLATA services. Moreover, the terms in section 260 encompass both 
interLATA and intraLATA services.
    31. We further conclude that, given the jurisdiction granted by 
section 260, the Commission also has jurisdiction under the 
Communications Act to establish rules applicable to intrastate 
telemessaging services. As noted above, sections 4(i), 201(b), and 
303(r) of the Act authorize the Commission to adopt any rules it deems 
necessary or appropriate to carry out its responsibilities under the 
Act, so long as those rules are not otherwise inconsistent with the 
Act. Nothing in section 260 bars the Commission from clarifying and 
implementing the requirements of this section.
    32. Our conclusion that the Commission has jurisdiction to 
establish rules applicable to intrastate telemessaging services is 
particularly appropriate where, as here, the Commission exercises an 
adjudicatory function. Section 260(b) requires that the Commission 
establish expedited procedures for the receipt and review of complaints 
alleging violations of the nondiscrimination provisions in section 
260(a), or regulations adopted pursuant thereto, that result in 
``material financial harm'' to a provider of telemessaging service. As 
in our discussion of section 274 above, we find that it serves the 
public interest for us to clarify in advance the section 260 
requirements that are imposed on incumbent LECs and that parties may 
ask us to enforce later. Such clarifications will reduce uncertainty, 
aid incumbent LECs in complying with the requirements of section 260, 
and facilitate the prompt resolution of compliance disputes that may be 
presented in complaint proceedings.
    33. We reject the argument that section 2(b) of the Communications 
Act requires the conclusion that section 260, and the Commission's 
authority thereunder, apply only to the provision of interstate 
telemessaging services. Rather, as discussed above with respect to 
electronic publishing under section 274, we find that, in enacting 
section 260 after section 2(b), and squarely addressing therein the 
issues before us, Congress intended for section 260 to take precedence 
over any contrary implications based on section 2(b).
    34. We similarly are not persuaded that section 601(c) of the 1996 
Act evinces an intent by Congress to preserve states' authority over 
intrastate matters arising under section 260. Section 601(c) of the 
1996 Act provides that the Act and its amendments ``shall not be 
construed to modify, impair, or supersede Federal, State, or local law 
unless expressly so provided in such Act or amendments.'' As discussed 
above, we conclude that section 260 expressly modifies federal law, so 
that both federal law, and the Commission's authority thereunder, apply 
to both interstate and intrastate provision of telemessaging services.

C. Constitutional Issues

    35. BellSouth and U S WEST raise constitutional concerns with 
respect to our implementation of sections 260 and 274. BellSouth 
contends that the Commission must be ``circumspect'' in its 
construction of sections 260 and 274 because both the separate 
affiliate requirement of section 272 that we proposed applying to BOCs' 
interLATA telemessaging services and the separated affiliate 
requirement of section 274 ``impose impermissible prior restraints on 
BOCs' speech activities,'' in violation of the First Amendment. 
Further, it maintains that sections 260 and 274, as well as other 
sections of the Act, are unconstitutional ``bills of attainder'' to the 
extent they single out BOCs by name and impose restrictions on them 
alone. Recognizing that we have no discretion to ignore Congress' 
mandate to apply sections 260 and 274, BellSouth urges us to construe 
these sections, and others, narrowly. U S WEST concurs with BellSouth 
and urges the Commission not to adopt any structural rules beyond the 
express terms of the statute.
    36. NAA, in reply, dismisses BellSouth's constitutional arguments. 
It rejects as frivolous the argument that the electronic publishing 
safeguards are an unconstitutional prior restraint on BOCs' speech 
activities. It further states that the separated affiliate requirement 
(1) is a ``reasonable approach to detecting and preventing cross-
subsidy and discrimination that does not unnecessarily burden the BOCs' 
right to speak;'' (2) does not violate the First Amendment because it 
expires four years after enactment of the Act and serves important 
government interests; and (3) is not a bill of attainder because BOCs 
are only singled out for ``temporary, narrowly-focused, economic 
regulation.''
    37. Although decisions about the constitutionality of congressional 
enactments are generally outside the jurisdiction of administrative 
agencies, we have an obligation under Supreme Court precedent to 
construe a statute ``where fairly possible to avoid substantial 
constitutional questions'' and not to ``impute to Congress an intent to 
pass legislation that is inconsistent with the Constitution as 
construed by the [Supreme Court].'' As BellSouth concedes, we have no 
discretion to ignore Congress' mandate respecting these sections or any 
other sections of the Act. Nevertheless, we find BellSouth's argument 
to be without merit.
    38. With respect to section 274, we reject the argument that 
requiring BOCs to provide electronic publishing services through a 
separated affiliate violates the First Amendment. BellSouth bases its 
argument on an assertion that, as ``content-related'' services, 
electronic publishing services are commercial speech entitled to First 
Amendment protection. We conclude that, to the extent that BOC 
provision of electronic publishing services constitutes speech for 
First Amendment

[[Page 7695]]

purposes, the section 274 separated affiliate requirement neither 
prohibits the BOCs from providing such services, nor places any 
restrictions on the content of the information the BOCs may provide. 
Instead, the section 274 separated affiliate requirement is a content-
neutral restriction on the manner in which BOCs may provide electronic 
publishing services that are disseminated by means of a BOC's basic 
telephone service. These restrictions address the important 
governmental interest of protecting against improper cost allocation 
and discrimination by the BOCs, and they do so in a narrowly-tailored, 
content-neutral manner. Thus, we conclude that the separated affiliate 
requirement imposed by section 274 on BOC provision of electronic 
publishing services does not violate the First Amendment.
    39. Similarly, we reject BellSouth and U S WEST's argument that 
section 274 is an unconstitutional ``bill of attainder'' because the 
statute singles out BOCs by name and imposes restrictions on them 
alone. We conclude that section 274 is not an unconstitutional bill of 
attainder simply because it applies only to the BOCs. Rather, judicial 
precedent teaches that, in determining whether a statute amounts to an 
unlawful bill of attainder, we must consider whether the statute 
``further[s] nonpunitive legislative purposes,'' and whether Congress 
evinced an intent to punish. As noted above, the section 274 
restrictions on BOC provision of electronic publishing services are 
temporary requirements aimed at protecting against improper cost 
allocation and discrimination by the BOCs. Moreover, we find no 
evidence, and BellSouth and US WEST have offered none, that would 
support a finding that Congress enacted section 274 to punish the BOCs. 
In fact, in enacting the 1996 Act, Congress freed BOCs from the terms 
of an antitrust consent decree. Thus, we conclude that the section 274 
restrictions imposed on BOCs do not violate the Bill of Attainder 
Clause.
    40. With respect to section 260, BellSouth raises constitutional 
issues in this proceeding regarding the tentative conclusion in the 
Non-Accounting Safeguards NPRM that, under section 272, BOCs must 
provide interLATA telemessaging services through a separate affiliate. 
We find no merit in BellSouth's arguments for the same reasons 
discussed above and in the Non-Accounting Safeguards Order.

III. BOC Provision of Electronic Publishing--Section 274

A. Definition of Electronic Publishing

1. Electronic Publishing Services Under Section 274(h)
a. Background
    41. Section 274(h)(1) defines ``electronic publishing'' as: the 
dissemination, provision, publication, or sale to an unaffiliated 
entity or person, of any one or more of the following: news (including 
sports); entertainment (other than interactive games); business, 
financial, legal, consumer, or credit materials; editorials, columns, 
or features; advertising; photos or images; archival or research 
material; legal notices or public records; scientific, educational, 
instructional, technical, professional, trade, or other literary 
materials; or other like or similar information.
    Section 274(h)(2) also lists specific services that are excluded 
from the definition of electronic publishing. These excepted services 
include, among other things, common carrier provision of 
telecommunications service, information access service, information 
gateway service, voice storage and retrieval, electronic mail, certain 
data and transaction processing services, electronic billing or 
advertising of a BOC's regulated telecommunications services, language 
translation or data format conversion, ``white pages'' directory 
assistance, caller identification services, repair and provisioning 
databases, credit card and billing validation for telephone company 
operations, E 911 and other emergency assistance databases, and video 
programming and full motion video entertainment on demand.
    42. In the NPRM, we sought comment on how to distinguish the 
services that are properly included in the definition of electronic 
publishing in section 274(h)(1) from those services that are excluded 
under 274(h)(2). We asked parties to identify any enhanced services 
that BOCs currently provide that appear to meet the definition of an 
electronic publishing service under section 274. To the extent it is 
unclear whether a particular service, or a particular group of 
services, is encompassed by the statutory definition of electronic 
publishing, we invited parties to identify the basis for the ambiguity 
and to make recommendations on how the service, or services, should be 
classified. For example, we cited the Non-Accounting Safeguards NPRM, 
which sought comment on whether we should classify as ``electronic 
publishing'' services those services for which the carrier ``controls, 
or has a financial interest in, the content of the information 
transmitted by the service.''
    43. In addition, we observed in the NPRM that, although electronic 
publishing is specifically included in the definition of information 
services, BOC provision of electronic publishing is explicitly exempted 
from the separate affiliate and nondiscrimination requirements of 
section 272 that apply to BOC provision of interLATA information 
services. We noted that, in contrast to section 272, which applies only 
to BOC provision of interLATA information services, section 274 does 
not distinguish between the intraLATA and interLATA provision of 
electronic publishing services. We sought comment, therefore, on 
whether section 274 applies to BOC provision of both intraLATA and 
interLATA electronic publishing services.
b. Comments
    44. NAA asserts that the definition of electronic publishing in 
section 274(h) is clear and detailed; therefore, it contends, there is 
no need to anticipate ambiguous services at this time. Other commenters 
agree that the definition of electronic publishing in section 274(h)(1) 
is clear, but suggest that Commission clarification of some of the 
exceptions to electronic publishing in section 274(h)(2) would be 
appropriate. For example, several parties ask us to clarify that the 
``gateway'' exception in section 274(h)(2)(C) includes access to a home 
page that electronically links selected Internet sites or other home 
pages. Similarly, they contend that introductory information regarding 
an Internet service provider's services and electronic linkage to these 
services should also be included in the ``gateway'' exception. In 
addition, they contend that software browsers should be considered 
``navigational systems,'' which are also excluded from the definition 
of electronic publishing under section 274(h)(2)(C). AT&T notes, 
however, that, even where particular BOC services are exempt from the 
requirements of section 274, the separate affiliate requirements of 
section 272 may still apply.
    45. Some commenters also ask us to clarify that BOC transmission of 
information that falls within the definition of electronic publishing 
under section 274(h)(1) does not make the BOC's transmission of such 
information subject to the requirements of section 274 unless the BOC 
has control of, or a financial interest in, the content of the 
information transmitted. Those situations where a BOC merely

[[Page 7696]]

provides access to another entity's content, they argue, should not be 
considered electronic publishing.
c. Discussion
    46. We find, as the commenters indicate, that electronic publishing 
services may include services provided through the Internet or through 
proprietary data networks. We also find that, although the definition 
of electronic publishing in section 274(h) is quite detailed, 
clarification of the ``gateway'' exception of section 274(h)(2)(C) is 
appropriate. Section 274(h)(2)(C) provides that electronic publishing 
shall not include:
    The transmission of information as part of a gateway to an 
information service that does not involve the generation or alteration 
of the content of information, including data transmission, address 
translation, protocol conversion, billing management, introductory 
information content, and navigational systems that enable users to 
access electronic publishing services, which do not affect the 
presentation of such electronic publishing services to users.
    We conclude, consistent with the comments on this issue, that a 
BOC's provision of access to introductory World Wide Web home pages, 
other types of introductory information, and software (such as 
browsers) does not constitute the provision of electronic publishing 
services under section 274(h)(2)(C). We find that, as long as a BOC 
merely provides access to a home page, or an initial screen that does 
not include any of the enumerated content types in section 274(h)(1), 
it is engaged in the provision of ``gateway'' services that section 
274(h)(2)(C) excludes from the definition of electronic publishing 
services. Further, the statute expressly excludes ``introductory 
information content'' from the definition of electronic publishing 
services. Similarly, we find that end user software products, such as 
World Wide Web browsers, to the extent they enable users ``to access 
electronic publishing services'' and do not themselves incorporate the 
content types listed in section 274(h)(1), constitute ``navigational 
systems'' that are excepted from the definition of electronic 
publishing. Further, we conclude that hypertext ``links,'' and other 
pointers, from any gateway or navigational system to electronic 
publishing content are similarly ``navigational'' systems and thus are 
not electronic publishing services under section 274(h)(1).
    47. Moreover, we find that, to the extent BOCs engage in activities 
that are excluded from the definition of electronic publishing under 
section 274(h), they are not subject to the joint marketing 
restrictions of section 274(c) with respect to those activities. We 
find, however, that certain activities that are excluded from the 
definition of electronic publishing may still be information services 
subject to the separate affiliate, nondiscrimination, and joint 
marketing requirements of section 272. For example, although 
``gateway'' services, as discussed above, are generally excluded from 
the definition of electronic publishing services, in the Non-Accounting 
Safeguards Order we found that certain BOC-provided Internet access 
services may be interLATA information services subject to the 
requirements of section 272.
    48. As to services that are neither expressly included nor excluded 
from the definition of electronic publishing, or services whose proper 
classification may be otherwise ambiguous, it would be speculative for 
us to determine at this time whether such services are electronic 
publishing services. Rather, we find that the appropriate 
classification of an ambiguous service will necessarily involve a fact-
specific analysis that is best performed on a case-by-case basis. 
Moreover, we decline to adopt NAA's proposal that we rely solely on 
whether such service involves ``the generation or alteration of the 
content of information.'' Although we recognize that Congress used this 
language in describing several exceptions to the definition of 
electronic publishing, we do not find this fact to be dispositive in 
itself. There is no indication in section 274 or its legislative 
history that Congress intended the ``generation or alteration'' 
language to be the controlling factor in determining the nature of 
ambiguous services. We may, nevertheless, take it into consideration in 
any determination we make concerning the classification of an ambiguous 
service.
    49. As to the electronic publishing services described in section 
274(h)(1), we conclude, for the reasons discussed below, that a BOC 
must control, or have a financial interest in, the content of 
information transmitted over its basic telephone service in order to be 
subject to the requirements of section 274. We therefore agree with 
those parties that argue that a BOC is not subject to section 274 
requirements merely because it provides the transmission component of 
an electronic publishing service offered by an unaffiliated entity to 
end users. We find support for our conclusion in two of the exceptions 
to the definition of electronic publishing--section 274(h)(2)(B), which 
excepts from the definition of electronic publishing ``[t]he 
transmission of information as a common carrier,'' and section 
274(h)(2)(M), which excludes ``[a]ny other network service of a type 
that is like or similar to these network services and that does not 
involve the generation or alteration of the content of information.'' 
We note further that this ``control or financial interest'' test is 
consistent with the definition of electronic publishing in the 
Modification of Final Judgment (MFJ). The MFJ, among other things, 
prohibited AT&T from engaging in electronic publishing over its own 
transmission facilities. It defined ``electronic publishing'' as the 
``provision of any information which AT&T or its affiliates has, or has 
caused to be, originated, authored, compiled, collected, or edited, or 
in which it has a direct or indirect financial or proprietary interest, 
and which is disseminated to an unaffiliated person through some 
electronic means.'' See United States v. Western Electric, 552 F. Supp. 
131, 180-81 (D.D.C. 1982) (emphasis added), aff'd sub nom. Maryland v. 
United States, 460 U.S. 1001 (1983). As discussed below, however, 
because we received very few comments on the exact meaning of 
``control'' and ``financial interest,'' we are seeking additional 
comment on this issue in a Further Notice of Proposed Rulemaking 
(``FNPRM'').
    50. Finally, we conclude that section 274 applies to a BOC's 
provision of both intraLATA and interLATA electronic publishing 
services. Nothing in the statute or its legislative history suggests 
that Congress intended to distinguish between intraLATA and interLATA 
electronic publishing services. We therefore agree with those 
commenters that argue that, if Congress had intended to distinguish 
between intraLATA and interLATA electronic publishing as it did in 
describing information services subject to section 272, it would have 
done so.
2. Dissemination by Means of ``Basic Telephone Service''
a. Background
    51. Section 274 prescribes the terms under which a BOC may offer 
electronic publishing. Section 274(a) states that no BOC or BOC 
affiliate ``may engage in the provision of electronic publishing that 
is disseminated by means of such [BOC's] or any of its affiliates' 
basic telephone service, except that nothing in this section shall 
prohibit a separated affiliate or electronic publishing joint venture 
operated in accordance with

[[Page 7697]]

this section from engaging in the provision of electronic publishing.'' 
In the NPRM, we tentatively concluded that a BOC or BOC affiliate may 
engage in the provision of electronic publishing services disseminated 
by means of a BOC or its affiliate's basic telephone service only 
through a ``separated affiliate'' or an ``electronic publishing joint 
venture.''
b. Comments
    52. No commenters disagree with our tentative conclusion that a BOC 
or BOC affiliate may engage in the provision of electronic publishing 
services disseminated by means of a BOC or its affiliate's basic 
telephone service only through a ``separated affiliate'' or an 
``electronic publishing joint venture.'' The majority of BOCs point 
out, however, that electronic publishing not disseminated via the basic 
telephone service of a BOC or its affiliate is not subject to the 
requirements of section 274. For example, PacTel maintains that a BOC 
or its affiliate may engage in the provision of electronic publishing 
service disseminated by means of telephone exchange service or 
facilities provided by a competitive wireline telephone service 
provider without having to create a separated affiliate or electronic 
publishing joint venture under section 274(a).
    53. Similarly, Ameritech asserts, and SBC agrees, that if a BOC 
only provides exchange access, and not basic telephone service, it is 
not subject to section 274 requirements. For example, Ameritech 
contends that, if a BOC originates or terminates a toll call 
disseminating electronic publishing information, the BOC is providing 
``exchange access,'' not exchange service. In response, AT&T asserts 
that ``basic telephone service'' under section 274 extends to any 
electronic publishing disseminated by means of either the BOC or its 
affiliate's local exchange service or local exchange facilities. This 
definition, AT&T argues, would include the exchange access service of a 
BOC or its affiliate.
c. Discussion
    54. We affirm our tentative conclusion that, pursuant to the plain 
language of section 274(a), a BOC or BOC affiliate may engage in the 
provision of electronic publishing services disseminated by means of a 
BOC or its affiliate's basic telephone service only through a 
``separated affiliate'' or an ``electronic publishing joint venture.'' 
Moreover, in reading section 274(a) together with the definition of 
``basic telephone service'' in section 274(i)(2), we conclude that a 
BOC or BOC affiliate is not required to provide electronic publishing 
services through a separated affiliate or electronic publishing joint 
venture if it disseminates its electronic publishing via the basic 
telephone service of a competing wireline local exchange carrier or 
commercial mobile radio service provider. We find that dissemination 
via the basic telephone service of competing, unaffiliated providers 
significantly reduces the ability of the BOC to allocate costs 
improperly and to discriminate in favor of its affiliate. We therefore 
decline to apply the requirement that a BOC provide electronic 
publishing services through a separated affiliate or electronic 
publishing joint venture where Congress did not. We also conclude that, 
with respect to electronic publishing services provided through the 
Internet, ``dissemination'' means the transmission of information via a 
BOC or its affiliate's basic telephone service to the Internet, rather 
than the transmission of information to the end user. Thus, a BOC that 
is providing Internet access services to end users, and nothing more, 
is not engaged in the provision of electronic publishing pursuant to 
section 274.
    55. We reject Ameritech's assertion, however, that a BOC's 
dissemination of electronic publishing services through its exchange 
access service is exempt from the requirements of section 274. Pursuant 
to section 274(a), BOCs that provide electronic publishing services 
disseminated via their own ``basic telephone service'' must do so 
through a separated affiliate or electronic publishing joint venture. 
Section 274(i)(2) defines ``basic telephone service'' as ``any wireline 
telephone exchange service, or wireline telephone exchange service 
facility, provided by a [BOC] in a telephone exchange area.'' We find 
that, when a BOC provides exchange access service, it uses its 
telephone exchange service facilities. Indeed, ``exchange access'' is 
defined in section 153(16) as ``the offering of access to telephone 
exchange services or facilities for the purpose of the origination or 
termination of telephone toll services.'' Since the definition of 
``basic telephone service'' in section 274(i)(2) encompasses both the 
telephone exchange service and the exchange service facility, the use 
of exchange access service, which in turn uses the BOC's telephone 
exchange service facilities, for the dissemination of electronic 
publishing falls within this definition and must be provided in 
accordance with the requirements of section 274. This conclusion is 
appropriate as a matter of policy, too, since the BOCs' near-monopoly 
over exchange access service as well as local exchange service gives 
them an incentive to allocate costs improperly and discriminate against 
unaffiliated electronic publishing entities.
    56. We conclude therefore that, to be engaged in the provision of 
electronic publishing services subject to section 274, the BOC must 
disseminate the information via its basic telephone service (as defined 
by 274(i)(2)) and have control of, or a financial interest in, the 
content of the information being provided. Similarly, we also conclude 
that control of, or a financial interest in, the content of the 
information alone, without BOC dissemination of information, is not 
electronic publishing under section 274.
    57. We note that, to the extent a BOC disseminates electronic 
publishing services through the facilities of a competing wireline 
local exchange carrier, or commercial mobile service provider, and thus 
is not required to provide such services through a separated affiliate 
or electronic publishing joint venture, it may still be subject to the 
joint marketing prohibition of section 274(c)(1)(B). As discussed 
below, this section contemplates situations in which a BOC affiliate is 
involved in the provision of services that are ``related to'' the 
provision of electronic publishing, but does not provide electronic 
publishing services disseminated by means of a BOC or its affiliate's 
basic telephone service.

B. ``Separated Affiliate'' and ``Electronic Publishing Joint Venture'' 
Requirements of Section 274

1. The ``Operated Independently'' Requirement of Section 274(b)
a. Background
    58. Section 274(b) states that a separated affiliate or electronic 
publishing joint venture established to provide electronic publishing 
services pursuant to section 274(a) shall be ``operated independently'' 
from the BOC. Subsections 274(b) (1)-(9) then list nine structural 
separation and transactional requirements that apply to the separated 
affiliate or electronic publishing joint venture. In the NPRM we 
addressed only the structural separation requirements of section 274(b) 
and only those requirements are addressed herein. Subsections 274(b) 
(1), (3), (4), (8), and (9) are transactional requirements that are 
addressed in the Accounting Safeguards Order. We observed in the NPRM 
that the structural separation requirements of section 274(b) do not 
refer, in all

[[Page 7698]]

instances, to both separated affiliates and electronic publishing joint 
ventures. We, therefore, sought comment on whether Congress intended 
the phrase ``operated independently'' to have a different meaning for 
separated affiliates and for electronic publishing joint ventures. We 
also sought comment in the NPRM on whether the Commission should adopt 
additional regulatory requirements to ensure compliance with the 
``operated independently'' requirement of section 274(b).
b. Comments
    59. Several commenters argue that Congress intended the phrase 
``operated independently'' to have the same meaning for separated 
affiliates and electronic joint publishing ventures when subsections 
274(b) (1)-(9) refer to both separated affiliates and electronic 
publishing joint ventures. They note, however, that some of the 
requirements of section 274(b) do not apply to electronic publishing 
joint ventures. Where the statutory language does not refer to both 
separated affiliates and electronic publishing joint ventures, these 
commenters maintain that the phrase ``operated independently'' should 
not be read to render all the requirements in subsections (b)(1)-(9) 
applicable to both separated affiliates and electronic publishing joint 
ventures; they contend, for example, that sections 274(b)(5) and 
274(b)(7) are inapplicable to electronic publishing joint ventures 
since those subsections refer only to separated affiliates. Other 
commenters argue that the language ``operated independently'' compels 
us to apply all of the section 274(b) requirements to separated 
affiliates and electronic publishing joint ventures.
    60. As to the issue of whether we should adopt regulatory 
requirements to ensure compliance with the ``operated independently'' 
requirement of section 274(b), BOCs and several trade associations 
argue that the structural and transactional safeguards of section 274 
are clear, self-executing and comprehensive. They assert that Congress 
could have expressly provided for additional requirements had it deemed 
them necessary to ensure the operational independence of BOCs from 
their separated affiliates and electronic publishing joint ventures. 
They further assert that the phrase ``operated independently'' is not a 
separate substantive restriction, as their competitors maintain, but 
that subsections 274(b) (1)-(9) reflect Congress' determination of the 
requirements necessary to achieve operational independence. Several of 
these commenters observe that this position is consistent with the 
Commission's interpretation of the same language in Computer II and the 
cellular separation rules, where ``operate independently'' is not given 
an independent meaning. Finally, several commenters assert that 
Congress did not grant the Commission authority to adopt additional 
regulations in section 274(b).
    61. Other commenters contend that the inclusion of the phrase 
``operated independently,'' in addition to the requirements in 
subsection 274(b) (1)-(9), supports the conclusion that we are 
authorized to and should adopt additional regulations to ensure 
compliance with section 274(b). They maintain that the ``operated 
independently'' language is a separate substantive requirement from 
those restrictions in subsections 274(b) (1)-(9). These commenters urge 
us to read the ``operated independently'' language as authorizing us to 
adopt additional rules such as those adopted in Computer II. 
Specifically, they urge us to adopt regulations precluding the 
separated affiliated or joint venture from: (1) Leasing or sharing 
physical space collocated with regulated transmission facilities used 
to provide basic service; (2) sharing computer facilities with the 
local exchange carrier; (3) developing software jointly with the 
regulated entity; and (4) marketing any other equipment or services to 
any affiliate. Time Warner further proposes that we adopt regulations 
precluding the separated affiliate or electronic publishing joint 
venture from constructing, owning or operating its own transmission 
facilities, thereby requiring the separated affiliate or joint venture 
to purchase its capacity from the regulated carrier under tariff and 
ensuring ``that local exchange monopoly power is not leveraged into the 
provision of electronic publishing.''
c. Discussion
    62. We conclude that the ``operated independently'' requirement of 
section 274(b) obligates a separated affiliate to comply with all the 
requirements of subsections 274(b) (1)-(9). We further conclude that an 
electronic publishing joint venture, to comply with the ``operated 
independently'' requirement of section 274(b), need only satisfy the 
requirements of subsections 274(b) (1)-(4), (6), and (8)-(9), since 
subsections 274(b)(5) and 274(b)(7) specifically refer to separated 
affiliates and not to electronic publishing joint ventures. We discuss 
more fully below the structural separation requirements of section 
274(b), i.e., subsections 274(b) (2), and (5)-(7). As noted above, the 
transactional requirements of section 274(b), i.e., subsections 274(b) 
(1), (3), (4), (8), and (9), are discussed in the Accounting Safeguards 
Order.
    63. We reject the arguments made by certain commenters that the 
phrase ``operated independently'' is a separate substantive restriction 
that requires us to apply subsections 274(b) (1)-(9) to both separated 
affiliates and electronic publishing joint ventures even where the 
statute refers only to a separated affiliate. We see no reason for 
Congress to have expressly referred in section 274(b)(5) and section 
274(b)(7) to separated affiliates if the restrictions in those 
subsections were intended to apply to both separated affiliates and 
electronic publishing joint ventures.
    64. We also reject the similar argument that the phrase ``operated 
independently'' is a separate substantive restriction authorizing us to 
adopt additional restrictions beyond those in subsections 274(b) (1)-
(9). There is no evidence in the statute or its legislative history 
that Congress intended the restrictions in section 274(b) merely to be 
a list of minimum requirements that need to be supplemented by 
additional rules to be imposed on separated affiliates or electronic 
publishing joint ventures. We find, therefore, that the ``operated 
independently'' requirement in section 274(b) is satisfied if a BOC and 
its separated affiliate or electronic publishing joint venture comply 
with the applicable restrictions in subsections 274(b) (1)-(9), as 
noted above. While we decline to adopt additional restrictions beyond 
those in subsections 274(b) (1)-(9), we reject the argument that 
Congress did not grant the Commission the authority to do so.
    65. This interpretation of the ``operated independently'' 
requirement in section 274(b) is not inconsistent with our 
determination in the Non-Accounting Safeguards Order that the section 
272(b)(1) ``operate independently'' provision imposes requirements 
beyond those contained in subsections 272(b)(2)-(5). The ``operated 
independently'' requirement in section 274(b) is followed by nine 
substantive restrictions that we read as the criteria to be satisfied 
to ensure operational independence between a BOC and its electronic 
publishing entity created pursuant to section 274(a). In contrast, the 
``operate independently'' provision in section 272 appears in 
subsection 272(b)(1), which is one of five separate substantive 
requirements in section 272(b).

[[Page 7699]]

2. Section 274(b)(2)
a. Background
    66. Section 274(b)(2) provides that a separated affiliate or 
electronic publishing joint venture and the BOC with which it is 
affiliated shall ``not incur debt in a manner that would permit a 
creditor of the separated affiliate or joint venture upon default to 
have recourse to the assets of the [BOC].'' We sought comment in the 
NPRM on the types of activities a BOC, a separated affiliate, or an 
electronic publishing joint venture are precluded from engaging in 
under section 274(b)(2). We tentatively concluded that a BOC may not 
cosign a contract, or any other instrument, with a separated affiliate 
or an electronic publishing joint venture by which it would incur debt 
in violation of section 274(b)(2). We also sought comment on: whether 
this subsection affects a separated affiliate differently than an 
electronic publishing joint venture because of their different 
corporate relationships to the BOC, and whether we should establish 
specific requirements regarding the types of activities contemplated by 
section 274(b)(2).
b. Comments
    67. A number of commenters generally agree with our tentative 
conclusion that section 274(b)(2) prohibits a BOC from cosigning with a 
separated affiliate or an electronic publishing joint venture a 
contract, or any other instrument, that allows a creditor, upon 
default, to have recourse to the assets of the BOC. AT&T and MCI 
maintain that we should also interpret section 274(b)(2) to prohibit a 
BOC's parent holding company from co-signing a debt of a separated 
affiliate or electronic publishing joint venture. The BOCs, in reply, 
assert that interpreting section 274(b)(2) to preclude a BOC's parent 
company from cosigning a contract or any other instrument with a BOC's 
separated affiliate or electronic publishing joint venture is neither 
supported by the statutory language nor public policy. They further 
state that there is no need for additional regulations to effectuate 
section 274(b)(2).
c. Discussion
    68. As stated in the NPRM, we find that the intent of section 
274(b)(2) is to protect BOC local exchange and exchange access service 
subscribers from bearing the cost of default by BOC affiliates. We 
adopt our tentative conclusion that section 274(b)(2) prohibits a BOC 
from cosigning with a separated affiliate or an electronic publishing 
joint venture a contract, or any other instrument, that would incur 
debt in a manner that grants the creditor recourse, upon default, 
against the assets of a BOC. Consistent with this conclusion, we 
further conclude that a BOC's parent is precluded from cosigning a 
contract or other instrument for a BOC's separated affiliate or 
electronic publishing joint venture, if the effect is to provide its 
creditor with recourse, upon default, to a BOC's assets. We reject, 
however, the arguments urging us to extend the restrictions in section 
274(b)(2) to preclude a BOC's section 274 separated affiliate or 
electronic publishing joint venture from incurring debt in a manner 
that would permit a creditor, upon default, to have recourse to the 
assets of a BOC's parent holding company, provided that this recourse 
does not effectively result in recourse to the assets of the BOC. The 
text of the statute does not support the proposed restriction. 
Moreover, it would leave section 274 separated affiliates and 
electronic publishing joint ventures at a disadvantage as compared with 
other electronic publishing companies that are permitted to rely upon 
the credit of their parent corporations.
    69. We decline to apply this section differently as to separated 
affiliates and electronic publishing joint ventures. No arguments were 
advanced supporting the need for different treatment with respect to 
these alternate vehicles for providing electronic publishing services, 
and we see no evidence at this time indicating that this subsection 
affects these entities differently. In this regard we agree with SBC 
that ``no useful purpose would be served by * * * speculating as to 
whether the subsection might affect a separated affiliate differently 
than a joint venture,'' and that we should proceed on a case-by-case 
basis, rather than adopt a ``one size fits all'' rule.
    70. We reject AT&T's proposal that we require contracts or other 
instruments through which a separated affiliate or electronic 
publishing joint venture obtains credit to provide expressly that the 
creditor has no recourse either to the assets of a BOC or to the assets 
of the parent holding company of a BOC. As stated above, we do not read 
section 274(b)(2) to preclude a creditor of a separated affiliate or 
electronic publishing joint venture from having recourse, upon default, 
to the assets of a BOC parent holding company. Further, given the 
clarity of section 274(b)(2), we see no need to adopt a rule at this 
time requiring contracts through which a separated affiliate or 
electronic publishing joint venture obtains credit to provide expressly 
that the creditor has no recourse to the assets of a BOC. BOCs, 
nevertheless, may include such a provision in their contracts, if they 
so choose.
3. Section 274(b)(5) and Shared Services
a. Background
    71. Section 274(b)(5) provides that a separated affiliate and a BOC 
shall ``(A) have no officers, directors, and employees in common after 
the effective date of this section; and (B) own no property in 
common.'' We tentatively concluded in the NPRM that, since this 
subsection does not specifically refer to electronic publishing joint 
ventures, BOCs are not precluded from sharing officers, directors, and 
employees with an electronic publishing joint venture. We also 
tentatively concluded in the NPRM that section 274(b)(5) does not 
preclude a BOC from owning property in common with an electronic 
publishing joint venture.
    72. We also sought comment on the extent of the separation between 
a BOC and a separated affiliate required by section 274(b)(5)(A). We 
noted, for example, ``that section 274(c)(2) permits joint marketing 
activities between a BOC and either a separated affiliate or electronic 
publishing joint venture under certain conditions.'' With respect to a 
BOC and a separated affiliate, we sought comment on ``whether, to the 
extent that they are engaged in permissible joint marketing activities, 
the separated affiliate may share marketing personnel with the BOC.'' 
We further sought comment on ``how BOCs may engage in joint marketing 
activities with a separated affiliate pursuant to section 274(c)(2)(A) 
if they cannot share marketing personnel.''
    73. We invited comment on the types of property encompassed by the 
phrase ``property in common.'' We tentatively concluded that section 
274(b)(5)(B) prohibits a BOC and its separated affiliate from jointly 
owning goods, facilities, and physical space. We also tentatively 
concluded that it prohibits the joint ownership of telecommunications 
transmission and switching facilities, one of the separation 
requirements we adopted for independent LECs in the Competitive Carrier 
Fifth Report and Order (49 FR 34824 (September 4, 1984)). Finally, we 
sought comment on whether the section 274(b)(5) prohibition on joint 
ownership of property between a BOC and its separated affiliate also 
precludes a BOC and a separated affiliate from sharing the use of 
property owned by one entity or the other and from jointly leasing any 
property.

[[Page 7700]]

b. Comments
    74. Applicability of Section 274(b)(5) to Electronic Publishing 
Joint Ventures. The BOCs and NAA agree with our tentative conclusion 
that section 274(b)(5) does not preclude a BOC from having officers, 
directors, or employees in common with an electronic publishing joint 
venture. These parties also agree with our tentative conclusion that 
this section does not bar a BOC from owning property in common with its 
electronic publishing joint venture. Other commenters disagree with our 
tentative conclusions. MCI and Time Warner maintain that section 
274(b)(5) should apply to both separated affiliates and electronic 
publishing joint ventures and that interpreting this section to apply 
only to BOCs and their separated affiliates would undermine what they 
consider to be the separate substantive ``operate independently'' 
requirement of section 274(b). AT&T recognizes that section 274(b)(5), 
on its face, does not prohibit a BOC from sharing common personnel or 
owning property in common with an electronic publishing joint venture, 
but argues that we have authority to proscribe such sharing 
arrangements or ownership under section 274(b)(5), if necessary to 
ensure compliance with the ``operated independently'' language.
    75. Extent of the Separation Required Between a BOC and a Separated 
Affiliate. Several BOCs state that section 274(b)(5)(A) should not be 
interpreted to act as a limitation upon the permissible joint marketing 
activities in section 274(c)(2). They contend that it is not necessary 
for a BOC and its separated affiliate to have employees in common to 
engage in the joint marketing activities permitted by section 
274(c)(2). According to these commenters, employees of one entity may 
perform inbound telemarketing or referral services permitted under 
section 274(c)(2)(A) and (B) for the other entity.
    76. SBC argues that a BOC and a separated affiliate, to the extent 
they engage in permissible joint marketing activities, should be 
allowed to employ individuals in common. Specifically, it states that 
``where there is a conflict between the authority conferred by 
[s]ection 274(c)(2) and the general operational independence 
requirements of Section 274(b), the former, more specific provisions 
should control.''
    77. AT&T states that section 274(b)(5) ``prohibit[s] BOC personnel 
from participating in the operation, planning, marketing or other 
activities of the separated affiliate, and vice versa * * *.'' MCI 
states that a BOC should only be allowed to provide telemarketing 
services pursuant to nondiscriminatory, publicly disclosed contracts.
    78. ``Property in Common.'' No commenters oppose and some 
commenters agree with our tentative conclusion that section 
274(b)(5)(B) prohibits a BOC and its separated affiliate from jointly 
owning goods, facilities, and physical space. They further agree that 
this section prohibits the joint ownership of telecommunications 
transmission and switching facilities.
    79. Shared Use or Joint Leasing of Property. The BOCs argue that 
section 274(b)(5)(B) does not prohibit a BOC and its separated 
affiliate from sharing the use of property owned by one of the 
entities, or from jointly leasing property. They maintain that section 
274(b)(5)(B) pertains only to ownership of property. Several BOCs note 
that potential concerns arising from shared use of property are 
addressed by the requirements of section 274(b)(3). AT&T and Time 
Warner, on the other hand, urge us to interpret section 274(b)(5)(B) to 
prohibit a BOC and its separated affiliate both from sharing property 
owned by one of the entities and from jointly leasing property. MCI 
does not address whether this section permits joint leasing of 
property. It states, however, that joint use of property would invite 
the improper allocation of costs against which the separated affiliate 
requirement is intended to protect. MCI and Time Warner specifically 
contend that a separated affiliate should not be permitted to collocate 
its equipment with BOC local exchange and exchange access equipment or 
to share computer facilities.
    80. Sharing of Services. NYNEX and Ameritech argue that neither the 
Act nor its legislative history can be read to prohibit a BOC and its 
separated affiliate from utilizing the administrative and corporate 
governance functions provided by their parent holding company. AT&T 
argues that we should prohibit, pursuant to section 274(b)(5), a BOC 
from establishing a second affiliate to perform services or own 
property for both the BOC and its separated affiliate. MCI, in reply to 
the BOCs' comments, states that we should preclude the sharing of in-
house functions, either by having one entity perform such functions for 
the other or by having another affiliate, or the parent, perform them 
for both a BOC and its separated affiliate.
    81. Other Activities. AT&T argues that we ``should prohibit the 
BOCs from using any compensation system that directly or indirectly 
bases the compensation of BOC officers, directors, or other employees 
on the performance of the affiliate, or vice versa.'' The BOCs 
generally reply that there is no statutory basis for such a 
requirement, which would effectively preclude BOCs from offering stock 
options, other forms of deferred compensation, and bonuses which are 
commonly used in industry and frequently are based, in part, upon the 
performance of entities within a corporate family.
c. Discussion
    82. Applicability of Section 274(b)(5) to Electronic Publishing 
Joint Ventures. We adopt our tentative conclusion that section 
274(b)(5)(A) does not preclude a BOC from having officers, directors, 
and employees in common with an electronic publishing joint venture. We 
also adopt our tentative conclusion that section 274(b)(5)(B) does not 
preclude a BOC from owning property in common with an electronic 
publishing joint venture. Congress expressly limited the scope of these 
restrictions to a BOC's separated affiliate. Moreover, we find no basis 
in this record for extending these restrictions to a BOC's electronic 
publishing joint venture. This determination is consistent with our 
finding above that the phrase ``operated independently'' in section 
274(b) is not a separate substantive restriction and, therefore, does 
not provide a basis for making section 274(b)(5) applicable to 
electronic publishing joint ventures.
    83. Extent of the Separation Required Between a BOC and a Separated 
Affiliate. We find that section 274(b)(5)'s provision barring a BOC and 
its separated affiliate from having ``officers, directors, and 
employees in common'' does not limit the permissible joint activities 
set forth in section 274(c)(2). As certain commenters note, it is not 
necessary for a BOC and its separated affiliate to have employees in 
common to engage in the joint activities permitted under section 
274(c)(2). For this reason, we reject those comments urging us to read 
section 274(c)(2) as allowing a BOC and its separated affiliate to have 
personnel in common for the purpose of engaging in permissible joint 
activities. Such an exception to the prohibition in section 274(b)(5) 
is not necessary to give effect to sections 274(b)(5) and 274(c)(2) and 
is not supported by the statutory language. While our interpretation of 
the interplay between section 274(b)(5) and section 274(c)(2) may 
result in some reduced efficiency in engaging in the joint activities 
permitted under section 274(c)(2), we are not convinced that it will be 
substantial enough to warrant our reading into section 274(b)(5) an

[[Page 7701]]

exception where none exists in the statutory language.
    84. ``Property in Common.'' We adopt our tentative conclusion that 
section 274(b)(5) prohibits a BOC and its separated affiliate from 
jointly owning goods, facilities, and physical space, including 
telecommunications transmission and switching facilities. The 
prohibition against joint ownership of goods, facilities and physical 
space is clear on the face of the statute. Moreover, none of the 
commenters disagree with this tentative conclusion.
    85. Shared Use or Joint Leasing of Property. We agree with the BOCs 
that the statutory prohibition in section 274(b)(5) does not preclude a 
BOC and its separated affiliate from either sharing the use of property 
owned by either a BOC or its separated affiliate or jointly leasing 
property. For example, we find that section 274(b)(5) permits a 
separated affiliate to collocate its equipment in end offices or on 
other property owned or controlled by the BOC, as long as such 
collocation agreements satisfy section 274(b)(3). We also find that 
this section permits a BOC and its separated affiliate to contract with 
each other for the use of joint transmission and switching equipment, 
again subject to the requirements of section 274(b)(3). Those 
commenters arguing for an expanded interpretation of ``own'' to include 
a prohibition against shared use of property and joint leasing of 
property offer no statutory support for their position. We are 
unwilling to assume that Congress intended the prohibition against 
ownership of property in section 274(b)(5) to include leaseholds and 
the shared use of property owned by either a BOC or its separated 
affiliate. Further, we find that allowing shared use of property and 
joint leases between a BOC and its separated affiliate enables the BOC 
to take advantage of economies of scale and scope. Concerns about 
anticompetitive behavior can be addressed through the transactional 
requirements of section 274(b)(3), the nondiscrimination requirements 
of section 274(d), and the Commission's affiliate transaction rules.
    86. Sharing of Services. The prohibition in section 274(b)(5)(A) 
against a BOC and its separated affiliate having ``officers, directors, 
and employees in common'' is worded slightly differently from the 
requirement in section 272(b)(3) that a BOC and its separate affiliate 
have ``separate officers, directors, and employees.'' We interpret, 
however, these two provisions to have the same substantive meaning. 
Both sections 272 and 274 preclude the same person from serving 
simultaneously as an officer, director, or employee of both a BOC and 
its section 272 or 274 affiliate, respectively. Thus, an individual may 
not be on the payroll of both entities. Based on the record before us, 
we decline to read section 274(b)(5)(A) to prohibit a BOC and its 
separated affiliate from utilizing the administrative and corporate 
governance functions provided by their parent holding company or 
another BOC affiliate. Section 274 does not address whether the parent 
company of a BOC and its separated affiliate or another BOC affiliate 
is permitted to perform functions for both a BOC and its separated 
affiliate. There is no basis in the record for concluding that 
administrative and corporate governance functions provided to a BOC and 
its separated affiliate by a parent company or another BOC affiliate 
would result in the BOC and its separated affiliate violating section 
274(b)(5)(A)'s prohibition on having ``officers, directors, and 
employees in common.'' Further, a parent company that performs services 
for both a BOC and its section 274 separated affiliate must fully 
document and properly apportion the costs incurred in furnishing such 
services.
    87. Other Activities. We reject AT&T's request that we interpret 
section 274(b)(5)(A) to prohibit compensation schemes that base the 
level of remuneration of BOC officers, directors, and employees on the 
performance of the section 274 separated affiliate, or vice versa. We 
find that tying the compensation of an employee of a section 274 
separated affiliate to the performance, for example, of the BOC's 
parent holding company and all of its enterprises as a whole, including 
the performance of the BOC, does not make that individual an employee 
of the BOC for purposes of section 274(b)(5)(A). Nor does such a 
compensation arrangement for a BOC employee make that individual an 
employee of the section 274 separated affiliate. Further, we agree with 
those commenters stating that such a scheme would effectively preclude 
BOCs from offering stock options, other forms of deferred compensation, 
and bonuses, which are commonly used in industry and frequently are 
based, in part, upon the performance of entities within a corporate 
family. Indeed, as PacTel notes, ``[i]t is common for corporations to 
have compensation systems that base a portion of compensation, 
especially for officers and directors, on the performance of the 
corporation as a whole. This is consistent with the fiduciary duty of 
corporate officers and directors * * * .''
4. Section 274(b)(6)
a. Background
    88. Section 274(b)(6) states that a separated affiliate or 
electronic publishing joint venture and the BOC with which it is 
affiliated shall ``not use for the marketing of any product or service 
of the separated affiliate or joint venture, the name, trademarks, or 
service marks of an existing [BOC] except for names, trademarks, or 
service marks that are owned by the entity that owns or controls the 
[BOC].'' We tentatively concluded that this provision is sufficiently 
precise as to make unnecessary the adoption of implementing 
regulations.
b. Comments
    89. Time Warner asks us to clarify that the prohibition in section 
274(b)(6) prevents a BOC from sharing a name, trademark, or service 
mark with the Regional Bell Holding Company (``RBOC''). It argues that 
the exception in section 274(b)(6) permitting the separated affiliate 
or electronic publishing joint venture to use the name, trademark, or 
service mark of the RBOC would ``vitiate the general prohibition 
against cross-labeling if the BOC affiliates or joint ventures were 
permitted to use names, trademarks, or service marks that are shared by 
an operating company and the [RBOC].''
    90. The BOCs and YPPA, in reply, state that Time Warner's 
suggestion is unsupported by the statutory language and would eliminate 
the express statutory exception Congress created in section 274(b)(6).
c. Discussion
    91. We adopt our tentative conclusion that section 274(b)(6) does 
not require the adoption of implementing regulations. We find that Time 
Warner's suggestion is contradicted by the statutory language and 
legislative history that expressly allow a separated affiliate or 
electronic publishing joint venture to use ``the names, trademarks, or 
service marks that are owned by the entity that owns or controls the 
[BOC].'' We agree with BellSouth that the adoption of Time Warner's 
suggestion ``would require the Commission to assume that Congress was 
unaware that four of the seven [RBOCs] share their names with their BOC 
subsidiaries.'' We decline to make this assumption.

[[Page 7702]]

5. Section 274(b)(7)
a. Background
    92. Section 274(b)(7) states that a BOC is not permitted ``(A) to 
perform hiring or training of personnel on behalf of a separated 
affiliate; (B) to perform the purchasing, installation, or maintenance 
of equipment on behalf of a separated affiliate, except for telephone 
service that it provides under tariff or contract subject to the 
provisions of this section; or (C) to perform research and development 
on behalf of a separated affiliate.'' Since this subsection does not 
specifically refer to electronic publishing joint ventures, we 
tentatively concluded that BOCs are permitted to perform these 
functions on behalf of an electronic publishing joint venture. In 
addition, we sought comment on whether, ``[t]o the extent that a BOC 
and a separated affiliate are engaged in permissible joint marketing 
activities,'' a BOC may perform the hiring or training of marketing 
personnel on behalf of its separated affiliate under section 
274(b)(7)(A). We also sought comment on the type of ``equipment'' 
encompassed by section 274(b)(7)(B). We asked, for example, whether a 
BOC providing telephone service to a separated affiliate under tariff 
or contract subject to the requirements of section 274 is permitted 
under section 274(b)(7)(B) to purchase, install, and maintain 
transmission equipment for the separated affiliate.
    93. With respect to section 274(b)(7)(C), we asked whether there 
are any circumstances under which a BOC may share its research and 
development with its separated affiliate. Specifically, we sought 
comment on whether this provision simply limits a BOC's ability to 
perform research and development for the sole and exclusive use of a 
separated affiliate, or whether it requires a BOC to refrain from 
performing any research and development that may be potentially useful 
to a separated affiliate. We also asked about other ways in which this 
provision may limit a BOC's ability to perform research and development 
for the separated affiliate.
b. Comments
    94. Applicability of Section 274(b)(7) to Electronic Publishing 
Joint Ventures. The BOCs and NAA agree with our tentative conclusion 
that BOCs are permitted to perform the functions in section 274(b)(7) 
on behalf of an electronic publishing joint venture. Time Warner and 
AT&T disagree with our tentative conclusion. They maintain, consistent 
with their argument respecting section 274(b)(5), that section 
274(b)(7) should apply to both a separated affiliate and an electronic 
publishing joint venture. They state that this interpretation is 
necessary to give effect to what they consider a separate substantive 
requirement that a BOC be ``operated independently'' from its 
electronic publishing joint venture.
    95. Relationship Between Section 274(b)(7)(A) and Section 
274(c)(2). Several commenters argue that there is no exception in 
section 274(b)(7) for permissible joint marketing activities in section 
274(c)(2) and, therefore, we should not permit a BOC, when engaged in 
permissible joint marketing with its separated affiliate, to perform 
the hiring or training of marketing personnel on behalf of the 
separated affiliate. SBC, however, argues that we should allow a BOC to 
hire and train marketing personnel to carry out the permissible joint 
marketing activities in section 274(c)(2). It states that this approach 
is not anticompetitive because teaming or other business arrangements 
entered into by a BOC pursuant to section 274(c)(2)(B) must be 
conducted on a nondiscriminatory basis.
    96. The Type of ``Equipment'' Encompassed by Section 274(b)(7)(B). 
The majority of commenters agree that section 274(b)(7)(B) permits a 
BOC to purchase, install, and maintain transmission equipment for its 
separated affiliate if the BOC is providing telephone service to the 
separated affiliate under tariff or contract. Bell Atlantic urges us to 
differentiate between ``provision of a service that uses equipment 
owned by the BOC, an arrangement specifically permitted under this 
subsection, from the purchasing, installation, and maintenance of 
equipment 'on behalf of' the affiliate, which is barred.'' The 
distinction, according to Bell Atlantic, is that in the latter 
situation, the equipment would be owned by the separated affiliate. U S 
WEST similarly states that this section prohibits a BOC from providing 
any depreciable equipment to be used by its separated affiliate in 
conducting the affiliate's business, but that it does not prohibit a 
BOC from providing services to its section 274 affiliate operation. 
Several other BOCs argue that the provision of telephone services 
includes purchasing, installation, or maintenance of transmission 
equipment, and any other equipment necessary or incidental to providing 
such service. They note that section 274(b)(3) ensures that there are 
ample safeguards that such transactions are conducted at arm's length. 
Other commenters state only that section 274(b)(7)(B) requires BOCs to 
provide telephone service pursuant to section 274(d). Time Warner 
specifically urges us to require BOCs to provide unaffiliated 
electronic publishers with the same access to wireline telephone 
exchange services that they provide to their in-region separated 
affiliate or electronic publishing joint venture.
    97. Limitations on Research and Development. The BOCs, NAA, and 
USTA generally argue that section 274(b)(7)(C) only limits their 
ability to perform research and development for the sole and exclusive 
use of the separated affiliate. They contend that it would be against 
public policy to restrict BOCs from performing research and development 
simply because the results might, at some later date, be applied to 
electronic publishing. Time Warner argues that the statutory language 
of section 274(b)(7)(C) should lead us to prohibit BOCs, under any 
circumstances, from sharing any research and development work or 
results with their in-region electronic publishing affiliates. It 
further states that we should adopt the Computer II rules that preclude 
specific research and development by the regulated entity on behalf of 
the competitive affiliate. AT&T, in reply to the BOCs' comments, states 
only that we ``should reject the BOCs' attempts to circumvent the 
prohibition in [s]ection 274(b)(7)(C) against BOC research and 
development on behalf of a separated affiliate through hypertechnical 
constructions.''
c. Discussion
    98. Applicability of Section 274(b)(7) to Electronic Publishing 
Joint Ventures. We adopt our tentative conclusion that section 
274(b)(7) does not preclude a BOC from performing the activities in 
section 274(b)(7) on behalf of an electronic publishing joint venture. 
The reasons supporting this determination are the same as those 
supporting our determination that section 274(b)(5) is inapplicable to 
electronic publishing joint ventures.
    99. Relationship Between Section 274(b)(7)(A) and Section 
274(c)(2). We agree with those commenters asserting that the 
restrictions in section 274(b)(7)(A) on a BOC performing the hiring or 
training of personnel on behalf of a separated affiliate apply even 
when the BOC is engaged in permissible joint activities pursuant to 
section 274(c)(2). Reading an exception into section 274(b)(7)(A) for 
the joint activities permitted under section 274(c)(2) is neither 
supported by the statutory language, nor necessary to give effect to 
that section and section 274(c)(2). Thus, a BOC may not perform the 
hiring or training of personnel on behalf of its separated affiliate, 
even though it may

[[Page 7703]]

be engaged in permissible joint activities under section 274(c)(2), 
such as providing inbound telemarketing services or engaging in 
nondiscriminatory teaming or business arrangements, as discussed below.
    100. The Type of ``Equipment'' Encompassed by Section 274(b)(7)(B). 
We find that section 274(b)(7)(B) prohibits a BOC from purchasing, 
installing, or maintaining equipment on behalf of its separated 
affiliate, except for the telephone service that it provides under 
tariff or contract. We agree with the position of several commenters 
that the provision of telephone service includes purchasing, 
installing, and maintaining equipment necessary or incidental to 
providing such service. As long as the equipment providing the 
telephone service is owned by a BOC, and not its separated affiliate, 
such activities are permissible under this section. We note, as some 
commenters suggest, that, even when engaging in permissible activities 
under section 274(b)(7), BOCs remain subject to the nondiscrimination 
requirements in section 274(d).
    101. Limitations on Research and Development. We conclude that the 
prohibition in section 274(b)(7)(C) on a BOC performing research and 
development ``on behalf of'' its separated affiliate precludes a BOC, 
at a minimum, from performing research and development for the sole and 
exclusive use of the separated affiliate. We also find that it 
precludes a BOC from performing research and development for the use or 
benefit of its section 274 separated affiliate together with other 
affiliates. We further conclude, however, that the prohibition in 
section 274(b)(7)(C) on a BOC performing research and development ``on 
behalf of'' its separated affiliate, as interpreted herein, does not 
limit a BOC's ability to perform research and development simply 
because the results might, at a future date, be applied to electronic 
publishing. We agree with those commenters arguing that such an 
interpretation ``would not serve the public's continued desire for new 
and different communications solutions'' and would be ``antithetical to 
the public interest and national policy under Section 7 of the 
Communications Act.'' We also find that it would be impractical for a 
BOC to anticipate all potential uses of research and development 
activities it might undertake. We recognize that these principles may 
not address all of the possible scenarios that may arise. Such 
determinations are fact specific and will need to be made on a case-by-
case basis.
    102. Further, we disagree with Time Warner that prohibiting a BOC 
from sharing any research and development work or results with its 
separated affiliate is supported by the statutory language. Time Warner 
and AT&T fail to offer any persuasive statutory or policy arguments in 
support of their position.
6. Comparison with ``Separate Affiliate'' Requirement of Section 272
a. Background
    103. We sought comment in the NPRM on the interrelationship between 
the requirements for a ``separate affiliate'' in section 272(b) and the 
requirements for a ``separated affiliate'' and ``electronic publishing 
joint venture'' in section 274(b). To the extent that certain BOCs 
currently are providing all of their information services on an 
integrated basis, we sought comment on what modifications these BOCs 
would have to make to their current provision of service in order to 
provide electronic publishing services in compliance with the separated 
affiliate or electronic publishing joint venture requirements of 
section 274.
    104. We also sought comment on whether a BOC may provide electronic 
publishing services through the same entity or affiliate through which 
it provides in-region interLATA telecommunications services, 
manufacturing activities, and interLATA information services. In 
addition, we sought comment on whether a BOC providing any or all of 
its section 272 services and its section 274 electronic publishing 
services through the same entity would have to comply with the 
requirements of section 272, section 274, or both.
b. Comments
    105. There were few comments on the interrelationship between the 
requirements in sections 272(b) and 274(b). Ameritech states that the 
requirements of section 272(b) are a subset of those found in section 
274(b), but that section 274(b) imposes additional requirements beyond 
those in section 272(b). It notes that another principal difference 
between the separation requirements of the two sections is that a 
section 272 separate affiliate may own or be owned by a BOC as long as 
the separation requirements of that section are satisfied; however, a 
section 274 separated affiliate may not own or be owned by the BOC 
entity. NYNEX states that sections 272 and 274 deal with considerably 
different affiliate activities and should be construed to be 
independent of each other. PacTel states that, to the extent there are 
similarities in the requirements specified in sections 272(b) and 
274(b), those requirements should be interpreted consistently.
    106. AT&T also notes that several of the requirements in the two 
sections overlap, but, like Ameritech states, that section 274(b) 
imposes additional requirements having no counterpart in section 
272(b). AT&T further asserts that all interLATA electronic publishing 
services should be subject to the requirements of section 272, and that 
section 274 merely supplements the requirements of section 272. In 
reply, Bell Atlantic and YPPA state that a section 274 separated 
affiliate need not also comply with section 272, even if the electronic 
publishing services are interLATA. They maintain that Congress, in 
enacting section 272(a)(2)(C), expressly exempted interLATA electronic 
publishing services from the requirements of section 272.
    107. All of the commenters agree that a BOC may provide electronic 
publishing services through the same entity or affiliate through which 
it provides section 272 services. They disagree, however, on whether an 
affiliate providing both section 272 and section 274 services must 
comply with all of the requirements of both sections. AT&T, MCI and 
Time Warner state that a BOC offering electronic publishing services 
and section 272 services through the same affiliate must comply with 
all of the requirements of sections 272 and 274, i.e., the structural 
separation and transactional requirements, as well as the joint 
marketing and nondiscrimination provisions of both sections.
    108. The BOCs and YPPA disagree with the other commenters. They 
argue that a BOC providing electronic publishing services through the 
same entity or affiliate through which it provides section 272 services 
must comply with the separation requirements in both sections 272(b) 
and 274(b) on a service-by-service basis. Specifically, they maintain 
that the entity providing both section 272 services and electronic 
publishing services must comply only with the requirements of each 
section relevant to the particular service (i.e., a section 272 service 
or electronic publishing services) being provided. They further argue 
that a BOC need only comply with the joint marketing and 
nondiscrimination restrictions of sections 272 and 274 on a service-by-
service basis.
    109. There is some disagreement among the BOCs as to those 
requirements in section 274(b) that they deem applicable when providing

[[Page 7704]]

section 272 and section 274 services through the same entity. Several 
BOCs assert that the separation requirements unique to either section 
272 or section 274 would apply only to those services specified in 
their respective sections, e.g., because section 272 does not prohibit 
the hiring and training of personnel, section 274(b)(7)(A) would only 
apply with respect to the entity's electronic publishing activities. U 
S WEST categorizes those requirements that the entity must comply with 
in sections 272(b) and 274(b) as structural separation requirements, 
arguing that compliance with the ``transactional'' requirements of 
either section is necessitated on a service-by-service basis. It 
categorizes section 274(b)(7)(A) as an example of a transactional 
requirement. YPPA, too, distinguishes between the structural separation 
requirements and the affiliate transaction requirements of sections 
272(b) and 274(b), arguing that the latter need only be complied with 
on a service-by-service basis. It cites sections 272(b)(5) and 
274(b)(3) as examples of affiliate transaction requirements that need 
only be complied with on a service-by-service basis.
c. Discussion
    110. We conclude that a BOC may provide electronic publishing 
services and section 272 services through the same entity or affiliate. 
Nothing in the Act or its legislative history suggests otherwise. We 
further conclude that the BOC or the entity providing both section 272 
and section 274 services, as applicable, must comply with the 
requirements of both these sections, including: (1) all of the 
requirements of section 272(b) and section 274(b); (2) all applicable 
requirements of section 272(g) and section 274(c); and (3) all 
applicable requirements of section 272(c) and section 274(d). To the 
extent there is a conflict between the provisions of sections 272 and 
274, the BOC or the entity providing both section 272 and 274 services, 
as applicable, must comply with the more stringent requirement of 
either section. These conclusions are discussed more fully below. We 
specifically reject AT&T's contention that electronic publishing 
services are subject to the section 272 separate affiliate 
requirements, pursuant to section 272(a)(2)(B), which imposes a 
separate affiliate requirement on interLATA telecommunications 
services. Electronic publishing services are included within the 
statutory definition of information services in section 153(20). They 
are specifically excluded, however, from the section 272 separate 
affiliate requirement pursuant to section 272(a)(2)(C).
    111. Section 272(b) and Section 274(b) Requirements. We agree with 
those commenters asserting that a BOC providing electronic publishing 
services through the same entity or affiliate through which it provides 
section 272 services must comply with all of the requirements of both 
section 272(b) and section 274(b). Allowing the BOCs to comply with the 
requirements of sections 272(b) and 274(b) on a service-by-service 
basis is likely to lead to ad hoc determinations as to those 
requirements in both sections 272(b) and 274(b) with which the entity 
must comply.
    112. We find that allowing the entity performing section 272 and 
section 274 services to determine how to comply with the section 272(b) 
and section 274(b) requirements creates the potential for 
administrative and enforcement problems. As a practical matter, 
however, requiring the entity providing both section 272 and section 
274 services to comply with all the requirements of sections 272(b) and 
274(b) will not be substantially more onerous than requiring the entity 
to comply with only those provisions of one section or the other. We 
determined in the Non-Accounting Safeguards Order that the ``operate 
independently'' requirement of section 272(b)(1) imposes requirements 
beyond those listed in subsections 272(b)(2)-(5). We therefore adopted 
additional requirements in our rules to implement section 272(b) to 
ensure operational independence between a BOC and its section 272 
affiliate; several of these are parallel to provisions in section 
274(b). Thus, BOCs providing section 272 and section 274 services are 
already required to comply with many of the same requirements; and to 
the extent these services are combined the complications of complying 
with both sections 272(b) and 274(b) will be few.
    113. Joint Marketing and Nondiscrimination Provisions in Sections 
272 and 274. As noted above, while a BOC may provide both section 272 
services and electronic publishing services through the same entity, it 
must comply with the applicable joint marketing and nondiscrimination 
provisions in both sections 272 and 274. With respect to the joint 
marketing provisions, if a BOC chooses to provide section 272 services 
together with its electronic publishing services, it must comply with 
the joint marketing restrictions of section 274(c)(1)(A) and section 
272(g). Section 274(c)(1)(A) precludes the BOC from carrying out any 
``promotion, marketing, sales, or advertising for or in conjunction 
with a separated affiliate.'' An entity established by a BOC to provide 
section 272 services and electronic publishing services is a section 
274 ``separated affiliate'' for purposes of section 274(c)(1)(A), as it 
will be a ``corporation * * * that engages in the provision of 
electronic publishing services.'' The BOC, therefore, must comply with 
all the section 274 joint marketing provisions pertaining to its 
``separated affiliate.'' In addition, since the entity is also 
providing section 272 services, the joint marketing provisions in 
section 272(g) would apply as well.
    114. The statutory language in sections 272(c) and 274(d) also 
requires that a BOC providing both section 272 services and electronic 
publishing services together in one entity comply with the 
nondiscrimination provisions in both sections 272 and 274. To the 
extent that a BOC under ``common ownership or control with a separated 
affiliate or electronic publishing joint venture'' provides ``network 
access and interconnections for basic telephone service to electronic 
publishers,'' it must do so subject to the nondiscrimination 
requirements in section 274(d). In addition, section 272(c) imposes 
certain nondiscrimination safeguards on a BOC's dealings with an 
affiliate providing section 272 services. The nondiscrimination 
safeguards of section 272(c) thus pertain to the BOC's dealings with an 
entity or affiliate providing both section 272 services and electronic 
publishing services.
    115. In sum, we find that a BOC may provide both section 272 and 
section 274 services through the same entity, but in doing so, must 
comply with the applicable joint marketing and nondiscrimination 
requirements in each of those sections. We find that the express 
statutory language in each of those sections compels this result. As 
noted above, to the extent there is a conflict between the provisions 
of sections 272 and 274, the BOC or the entity providing both section 
272 and 274 services, as applicable, must comply with the more 
stringent requirement of either section. For example, if a BOC is 
permitted to engage in a joint marketing activity under section 272(g), 
but that activity is barred under section 274(c)(1)(A), the latter 
provision would preclude the BOC from engaging in that activity.

[[Page 7705]]

C. Joint Marketing

1. Restrictions on Joint Marketing Activities--Section 274(c)(1)
a. Scope of Section 274(c)(1)(B)
(1) Background
    116. Section 274(c)(1) of the Act establishes several restrictions 
on joint marketing activities in which a BOC may engage with either a 
``separated affiliate'' or an ``affiliate.'' In particular, section 
274(c)(1)(A) provides that ``a [BOC] shall not carry out any promotion, 
marketing, sales, or advertising for or in conjunction with a separated 
affiliate.'' Section 274(c)(1)(B) states that ``a [BOC] shall not carry 
out any promotion, marketing, sales, or advertising for or in 
conjunction with an affiliate that is related to the provision of 
electronic publishing.''
    117. In the NPRM, we observed that the clause ``that is related to 
the provision of electronic publishing'' in section 274(c)(1)(B) may be 
interpreted to modify either the ``promotion, marketing, sales, or 
advertising'' activities that are circumscribed by that section, or the 
word ``affiliate.'' We also noted that the definition of ``affiliate'' 
in section 274 expressly excludes a ``separated affiliate.'' We 
therefore sought comment on the proper interpretation of section 
274(c)(1)(B).
(2) Comments
    118. Several commenters argue that section 274(c)(1)(B) of the Act 
should be interpreted to prohibit a BOC from carrying out joint 
marketing activities for or in conjunction with an affiliate if the 
activities of the BOC relate to the provision of electronic publishing. 
In particular, BellSouth argues that section 274(c)(1)(B) is intended 
to address situations in which a BOC affiliate offers electronic 
publishing services or services related to electronic publishing, and 
non-electronic publishing services, i.e., an affiliate that provides 
print directory services as well as electronic publishing services. 
BellSouth contends that, by omitting the word ``separated'' in 
subsection (c)(1)(B), Congress clarified that some activities of a BOC 
affiliate that is engaged in the provision of electronic publishing 
services may be unrelated to electronic publishing. According to 
BellSouth, a BOC therefore may engage in joint marketing activities 
with its directory affiliate so long as such activities ``relate to the 
traditional directory products of the directory affiliate rather than 
any electronic directory products.'' SBC argues that section 
274(c)(1)(B) does not apply if a BOC performs services for an affiliate 
that are unrelated to the provision of electronic publishing.
    119. U S WEST, in contrast, argues that the phrase ``that is 
related to the provision of electronic publishing'' modifies 
``affiliate'' because such an interpretation provides BOCs with greater 
flexibility in organizing their businesses and is consistent with 
congressional intent. For example, U S WEST contends that, if we adopt 
this interpretation, a BOC choosing to provide electronic publishing 
services through a section 272 affiliate would be subject to the joint 
marketing provisions of section 274(c)(1)(B), rather than section 272.
(3) Discussion
    120. We conclude that the phrase ``that is related to the provision 
of electronic publishing'' modifies the ``promotion, marketing, sales, 
or advertising'' activities that are circumscribed by section 
274(c)(1)(B). As such, we interpret section 274(c)(1)(B) of the Act to 
prohibit a BOC from carrying out any promotion, marketing, sales or 
advertising activities with an affiliate, if such activities ``relate 
to'' the provision of electronic publishing. As an initial matter, we 
find that the joint marketing prohibition in section 274(c)(1)(B) is 
intended to address situations that are not otherwise covered by 
section 274(c)(1)(A). Consequently, we conclude that section 
274(c)(1)(B) contemplates situations in which a BOC affiliate is 
involved in the provision of services that are in some manner ``related 
to'' the provision of electronic publishing, but does not provide 
electronic publishing services disseminated by means of a BOC's or any 
of its affiliates' basic telephone service. Because a BOC or BOC 
affiliate may engage in the provision of electronic publishing that is 
disseminated by means of such BOC's or any of its affiliates' basic 
telephone service only through a separated affiliate or an electronic 
publishing joint venture, a BOC ``affiliate'' that falls under section 
274(c)(2)(B) of the Act, by definition, must not engage in such 
provision of electronic publishing. A BOC affiliate that provides 
electronic publishing services by means of its basic telephone service 
would constitute a ``separated affiliate'' subject to the joint 
marketing restriction in section 274(c)(1)(A).
    121. Consequently, section 274(c)(2)(B) addresses situations in 
which a BOC may have, for example, an affiliated holding company that, 
in turn, holds an ownership interest in a separated affiliate. Such a 
BOC would be precluded from carrying out any promotion, marketing, 
sales or advertising activities for or in conjunction with that 
affiliated holding company if and to the extent that such activities 
are ``related to the provision of electronic publishing.'' A BOC, 
however, would not be prohibited from engaging in marketing activities 
with the affiliated holding company that are unrelated to the provision 
of electronic publishing. This interpretation of section 274(c)(1)(B) 
effectively would prevent the BOCs from indirectly promoting, 
marketing, selling, or advertising the electronic publishing services 
of a separated affiliate.
    122. We reject U S WEST's contention that section 274(c)(1)(B) 
prohibits a BOC from carrying out marketing activities for or with an 
affiliate that is related to the provision of electronic publishing. 
Given the definition of ``separated affiliate,'' which contemplates the 
provision of electronic publishing services by such entity, it is 
difficult to conceive of an affiliate ``related to the provision of 
electronic publishing'' that would not otherwise constitute a separated 
affiliate, and thus be subject to the joint marketing restriction in 
section 274(c)(1)(A). We also reject BellSouth's contention that 
section 274(c)(1)(B) of the Act is intended to address situations in 
which a BOC provides electronic publishing and non-electronic 
publishing services through one affiliate. As noted above, a BOC 
affiliate that provides electronic publishing services through the 
BOCs' or any of its affiliates' basic telephone service would 
constitute a ``separated affiliate'' that would be subject to the joint 
marketing prohibition in section 274(c)(1)(A).
b. Scope of Section 274(c)(1)(A)
(1) Background
    123. We sought comment in the NPRM on whether a BOC can carry out 
both section 272 and section 274 activities through one entity or 
affiliate, and, if so, whether the affiliate would have to comply with 
the requirements of section 272, section 274, or both. We conclude in 
this Order that a BOC may provide both section 272 and section 274 
services through the same affiliate. In so doing, however, a BOC must 
comply with the structural and transactional requirements of both 
sections 272(b) and 274(b). We also conclude that a BOC providing 
section 272 and section 274 services through the same affiliate must 
comply with the applicable joint marketing provisions and 
nondiscrimination provisions of both those sections.

[[Page 7706]]

    124. Some parties raised the issue of whether and to what extent 
the joint marketing restrictions of section 274 apply in cases where a 
BOC provides through the same affiliate electronic publishing services 
and non-electronic publishing services, i.e., print directory services, 
that do not fall under section 272 of the Act. Because BOCs currently 
may be providing electronic publishing and such non-electronic 
publishing services through one affiliate, or may wish to provide such 
services through one entity in the future, we address that issue in 
this Order.
(2) Comments
    125. U S WEST and BellSouth argue that, if a BOC provides 
electronic publishing services and non-electronic publishing services, 
such as print directory services, through the same affiliate, the joint 
marketing restrictions of section 274 would apply only to the 
electronic publishing activities of the affiliate. U S WEST argues, 
inter alia, that Congress, in adopting the prohibitions in section 
274(c)(1) of the Act, intended to circumscribe, for a limited time, 
joint marketing activities between a BOC and its section 274 separated 
affiliate because such affiliate would use the BOC's basic telephone 
service to disseminate its electronic publishing services. U S WEST 
argues that the section 274 joint marketing prohibitions thus were 
intended to restrict the BOCs' ability to ``leverage those basic 
services to favor its electronic publishing services which use [such] 
services.'' U S WEST maintains therefore that, absent a connection 
between a publishing activity and the BOC's network operations, there 
is no indication that Congress meant to impede commercial speech 
activities engaged in by a BOC corporate enterprise.
(3) Discussion
    126. We conclude that, while a BOC may provide through the same 
affiliate both electronic publishing services and non-electronic 
publishing services, such as print directory services, which do not 
fall under section 272 of the Act, it must comply with the joint 
marketing requirements of section 274. The plain language of section 
274(c)(1)(A) states that ``a [BOC] shall not carry out any promotion, 
marketing, sales, or advertising for or in conjunction with a separated 
affiliate.'' Section 274(c)(1)(A), therefore, precludes a BOC from 
engaging in certain activities with a separated affiliate as a 
corporate entity, even in connection with non-electronic publishing 
services.
    127. While our interpretation could provide a disincentive for BOCs 
to offer electronic publishing and non-electronic publishing services 
through the same affiliate, as U S WEST points out, the unambiguous 
statutory language requires this interpretation. We thus conclude that 
section 274(c)(1)(A) prohibits marketing and sales-related activities 
carried out by a BOC for or in conjunction with a separated affiliate, 
irrespective of whether such affiliate provides both electronic 
publishing services and non-electronic publishing services, such as 
print directory services, that do not fall under section 272 of the 
Act.
c. Activities Prohibited under Section 274(c)(1)
(1) Background
    128. In the NPRM, we observed that the activities proscribed by 
section 274(c)(1) include the ``promotion, marketing, sales, or 
advertising'' by a BOC for or with an affiliate. We tentatively 
concluded that such activities ``encompass prohibitions on advertising 
the availability of local exchange or other BOC services together with 
the BOC's electronic publishing services, making those services 
available from a single source and providing bundling discounts for the 
purchase of both electronic publishing and local exchange services.'' 
We sought comment on that tentative conclusion and on whether any other 
types of prohibitions were contemplated.
(2) Comments
    129. Ameritech, AT&T and NAA generally agree with our tentative 
conclusion regarding the types of activities that are prohibited under 
sections 274(c)(1)(A) and (B) of the Act. Ameritech also argues, 
however, that the only prohibited marketing activities are those that 
``involve the BOC and the electronic publishing affiliate working 
together,'' and therefore nothing precludes unilateral marketing, 
promotion, or sales activities by either the BOC or its separated 
affiliate. In addition, Ameritech contends that bundling discounts may 
be offered in all cases of permissible joint marketing activities. 
According to Ameritech, ``while the BOC requires regulatory authority 
to discount regulated services, the electronic publisher is free to set 
its unregulated price--and any promotional discounts--as it sees fit.'' 
AT&T disputes Ameritech's contention that section 274(c)(1) of the Act 
permits a BOC to market the electronic publishing services of its 
separated affiliate so long as it does not ``coordinate'' its 
promotional activities with such affiliate.
    130. U S WEST generally agrees that the activities prohibited under 
sections 274(c)(1)(A) and (B) of the Act include making local exchange 
or other BOC services available together with electronic publishing 
services, but states that this prohibition is subject to the inbound 
telemarketing exception in section 274(c)(2)(A) of the Act. PacTel 
argues that a separated affiliate, electronic publishing joint venture, 
teaming or other business entity is not precluded from purchasing the 
telecommunications services of a BOC and then advertising such services 
with electronic publishing services, making the services available from 
a single entity, and providing bundled discounts.
    131. A number of parties contend that sections 274(c)(1)(A) and (B) 
of the Act prohibit only the BOCs from carrying out certain joint 
marketing activities, and that the provisions should not be interpreted 
to restrict the joint marketing activities that may be carried out by 
either a ``separated affiliate'' under section 274(c)(1)(A), or an 
``affiliate'' under section 274(c)(1)(B). SBC specifically argues that 
the statute should not be interpreted to impose any restrictions on a 
separated affiliate's ability ``to market and sell services or products 
of the BOC, or those of any other affiliate or an unrelated party.'' 
Bell Atlantic similarly contends that an affiliate is not prohibited 
under the statute ``from marketing the BOC's services and products or 
acting as a single point of contact for the customer.''
    132. NYNEX and YPPA argue that permitting a separated affiliate to 
market jointly its electronic publishing services with BOC 
telecommunications services would allow customers to realize the 
benefits of one-stop shopping. In addition, NYNEX and PacTel maintain 
that imposing marketing restrictions on a BOC separated affiliate that 
do not also apply to such affiliate's competitors would place the 
separated affiliate at a competitive disadvantage. A number of parties 
also contend that nothing in the Act prohibits a BOC affiliate from 
carrying out joint marketing activities as an agent for either or both 
the BOC and the separated affiliate.
    133. Conversely, AT&T and Time Warner argue that the marketing 
prohibitions in section 274(c)(1) should not be construed to apply only 
to the marketing activities of the BOC. According to AT&T, allowing a 
separated affiliate to market jointly its electronic publishing 
services with BOC telecommunications services would

[[Page 7707]]

allow the BOC to ``move its entire marketing department into the 
separated affiliate'' in violation of the statutory prohibition against 
a BOC carrying out any marketing in conjunction with' a separated 
affiliate. Time Warner similarly states that interpreting section 
274(c)(1) to apply only to the BOCs would allow the BOCs to circumvent 
the joint marketing restrictions of section 274.
(3) Discussion
    134. As an initial matter, we conclude that the prohibitions in 
section 274(c)(1) apply only to activities carried out by a BOC. 
Sections 274(c)(1)(A) and (B) of the Act only proscribe BOC activities. 
We also find that neither a separated affiliate under section 
274(c)(1)(A), nor an affiliate under section 274(c)(1)(B), is 
prohibited from marketing its services together with BOC 
telecommunications services, so long as such marketing activity is 
performed unilaterally by the separated affiliate or affiliate, 
respectively. Thus, a separated affiliate or affiliate is permitted 
under sections 274(c)(1)(A) and (B) to market its electronic publishing 
services with basic telephone service purchased from the BOC. We 
conclude that this type of marketing, in which a separated affiliate or 
affiliate unilaterally markets BOC local exchange service as an input 
to its electronic publishing services, is not prohibited under sections 
274(c)(1)(A) or (B). We specify that marketing by the separated 
affiliate or affiliate must be unilateral not because section 274(c)(1) 
directly imposes any marketing restrictions on such entities, but, as a 
practical matter, because section 274(c)(1) bars a BOC from carrying 
out ``marketing . . . for or in conjunction with'' such separated 
affiliates or affiliates.
    135. We reject AT&T's and Time Warner's contention that permitting 
a separated affiliate to market BOC telecommunications services would 
allow a BOC to circumvent the restrictions of section 274. As noted 
above, section 274(c)(1), by its terms, applies only to activities 
carried out by a BOC. While AT&T's and Time Warner's arguments pertain 
only to a ``separated affiliate,'' we have no basis for concluding that 
Congress intended to apply the restrictions in sections 274(c)(1)(A) 
and (B) to either separated affiliates or affiliates, respectively. 
Moreover, based on the plain language of sections 274(c)(1)(A) and (B), 
which prohibits a BOC from carrying out any ``promotion, marketing, 
sales, or advertising for or in conjunction with'' a separated 
affiliate or affiliate, a BOC would be precluded from, for example, 
``moving its entire marketing department into the separated affiliate'' 
in order to circumvent the section 274(c)(1) restrictions.
    136. Based on the above analysis, we also find that a BOC affiliate 
may carry out ``promotion, marketing, sales, or advertising'' 
activities as an agent for either a ``separated affiliate'' under 
section 274(c)(1)(A), or another ``affiliate'' under section 
274(c)(1)(B). Because neither a separated affiliate nor an affiliate is 
subject to the restrictions in sections 274(c)(1)(A) and (B) of the 
Act, a BOC affiliate that acts as an agent for such separated affiliate 
or affiliate also is not subject to those restrictions. As in the case 
of a separated affiliate or affiliate, however, the scope of the 
agent's activities may be limited, as a practical matter, by the legal 
bar on a BOC carrying out promotion, marketing, sales or advertising 
activities ``for or in conjunction with'' such affiliates. We conclude, 
however, that because section 274(c)(1)(A) applies to activities 
carried out by BOCs, a BOC affiliate is prohibited from acting as an 
agent for the BOC in performing marketing and sales-related activities 
under that section, contrary to arguments raised by some parties. We 
also note that, under the definition of ``Bell operating company'' in 
section 274(i)(10), a BOC includes ``any entity or corporation that is 
owned or controlled by'' such BOC. As such, the section 274(c)(1) joint 
marketing prohibitions applicable to BOCs also would apply to entities 
that are owned or controlled by a BOC, such as an entity that acts as 
an agent for a BOC.
    137. We also conclude, based on their language, that sections 
274(c)(1)(A) and (B) of the Act prohibit a BOC or BOC agent from 
advertising local exchange or other BOC services together with 
electronic publishing services, making those services available from a 
single point of contact and providing bundling discounts for the 
purchase of both electronic publishing and local exchange services, 
except as permitted under section 274(c)(2) of the Act. Since section 
274 only proscribes BOC activities, however, we conclude, consistent 
with our discussion above, that these activities may be carried out by 
a separated affiliate or affiliate, subject only to the practical 
limitation that a BOC may not participate owing to the legal bar on its 
ability to carry out promotion, marketing, sales or advertising 
activities ``for or in conjunction with'' a separated affiliate or an 
affiliate.
    138. In our Non-Accounting Safeguards Order implementing sections 
271 and 272 of the Act, we recognized that ``bundling'' contemplates 
the offering of BOC resold local exchange services and interLATA 
services as a package under an integrated pricing schedule. As a 
result, we concluded that the concept of ``bundling'' includes 
``providing a discount if a customer purchases both interLATA services 
and BOC resold local services, conditioning the purchase of one type of 
service on the purchase of the other, and offering both interLATA 
services and BOC resold local services as a single combined product.''
    139. Based on the definition of ``bundling'' in our Non-Accounting 
Safeguards Order, we conclude that ``bundling'' refers to the offering 
by a BOC or BOC agent of BOC local exchange and electronic publishing 
services as a package under an integrated pricing schedule. This 
restriction flows not only from section 274(c)(1), but from the fact 
that a BOC is forbidden by section 274(a) to engage in the provision of 
electronic publishing disseminated by means of its basic telephone 
service except through a separated affiliate or an electronic 
publishing joint venture. By providing such bundled services, the BOC 
or its agent would be engaged in the provision of electronic publishing 
in contravention of section 274(a). We further find, consistent with 
the Non-Accounting Safeguards Order, that sections 274(c)(1)(A) and (B) 
of the Act prohibit a BOC or BOC agent from providing customer 
discounts for the purchase of local exchange and electronic publishing 
services, conditioning the purchase of one type of service on the 
other, or offering both electronic publishing and local exchange 
services as one product. Moreover, we conclude, based on the explicit 
language of section 274(c)(1), that sections 274(c)(1)(A) and (B) of 
the Act prohibit a BOC or BOC agent not only from offering for sale 
both local exchange and electronic publishing services, but also from 
advertising those services in a single advertisement, and from selling 
both services through a single point of contact, e.g., a single sales 
agent, except as permitted under section 274(c)(2). We find that 
Congress intended to proscribe those activities in adopting sections 
274(c)(1)(A) and (B) of the Act.
d. Interplay Between Section 274 Joint Marketing Provisions and Other 
Provisions of the Act
(1) Background
    140. In the NPRM, we sought comment on whether and to what extent

[[Page 7708]]

the joint marketing provisions in section 272(g) and the customer 
proprietary network information (CPNI) provisions in section 222 of the 
Act affect implementation of section 274.
(2) Comments
    141. NYNEX argues that, because the marketing provisions in 
sections 272 and 274 of the Act apply to different services, the 
restrictions in section 274 should not be applied to the services and 
facilities provided under section 272. PacTel maintains that sections 
272(g) and 222 of the Act do not affect implementation of section 274. 
U S WEST maintains that, based on implied consent gleaned from either 
the business relationship or customer notification, CPNI may be used by 
the BOC in marketing a separated affiliate's electronic publishing 
offerings. U S WEST also contends that, under section 222(d)(3) of the 
Act, a BOC could use CPNI on an inbound telemarketing call for both 
telecommunications and electronic publishing services of the BOC and 
third parties, provided the customer consented to such use on the call.
(3) Discussion
    142. As discussed above, we conclude that, while a BOC may provide 
through the same affiliate both section 272 and section 274 services, 
it must comply with the applicable joint marketing restrictions of both 
those sections. We decline to address arguments raised in this 
proceeding regarding the interplay between section 274 and section 222 
of the Act, relating to privacy of customer information. The Commission 
has pending a proceeding to implement section 222 of the Act. Until the 
completion of that proceeding, we defer any decision on the extent, if 
any, that section 222 of the Act affects implementation of section 274. 
As noted in the CPNI NPRM (61 FR 26483 (May 28, 1996)), the CPNI 
requirements the Commission previously established in the Computer II 
and Computer III proceedings remain in effect pending the outcome of 
the CPNI proceeding, to the extent that they do not conflict with 
section 222 of the Act.
2. Permissible Joint Activities--Section 274(c)(2)
a. Joint Telemarketing--Section 274(c)(2)(A)
(1) Background
    143. As we observed in the NPRM, section 274(c)(2) of the Act 
permits three types of joint activities between a BOC and a separated 
affiliate, electronic publishing joint venture, affiliate, or 
unaffiliated electronic publisher under specified conditions. Under 
section 274(c)(2)(A) of the Act, a BOC may provide ``inbound 
telemarketing or referral services related to the provision of 
electronic publishing for a separated affiliate, electronic publishing 
joint venture, affiliate or unaffiliated electronic publisher: 
[p]rovided, [t]hat if such services are provided to a separated 
affiliate, electronic publishing joint venture, or affiliate, such 
services shall be made available to all electronic publishers on 
request, on nondiscriminatory terms.''
    144. We stated in the NPRM that the statute is silent as to the 
specific obligations section 274(c)(2)(A) imposes on a BOC. We noted 
that the term ``inbound telemarketing'' is defined in section 274(i)(7) 
as ``the marketing of property, goods, or services by telephone to a 
customer or potential customer who initiated the call.'' The term 
``referral services,'' however, is not defined in the statute. As we 
discussed in the NPRM, the Joint Explanatory Statement states that the 
Conference Committee adopted the provisions of the House bill relating 
to electronic publishing, with some modifications relating to sunset of 
the section 274 requirements and use of BOC trademarks by separated 
affiliates and electronic publishing joint ventures. The provision of 
the House bill relating to electronic publishing joint ventures was 
identical to the provision ultimately adopted by the Conference 
Committee.
    145. The Committee Report accompanying H.R. 1555 states that:

    Subsection (c)(2)(A) permits a BOC to provide inbound 
telemarketing or referral services related to the provision of 
electronic publishing, if the BOC provides the same service on the 
same terms and conditions, and prices to non-affiliates as to its 
affiliates. The term `inbound telemarketing or referral services' is 
defined . . . to mean `the marketing of property, goods, or services 
by telephone to a customer or potential customer who initiated the 
call.' Thus, a BOC may refer a customer who seeks information on an 
electronic publishing service to its affiliate, but must make sure 
that the referral service is available to unaffiliated providers. No 
outbound telemarketing or similar activity, under which the call is 
initiated by the BOC or its affiliate or someone on its behalf, is 
permitted.

    In the NPRM, we sought comment on whether the conditions imposed on 
inbound telemarketing discussed in the House Report should be adopted, 
and whether we should adopt any regulations pertaining to outbound 
telemarketing.
(2) Comments
    146. AT&T argues that we should adopt the conditions on inbound 
telemarketing discussed in the House Report, i.e., that a BOC may offer 
inbound telemarketing services to its affiliate only if it makes those 
services available to unaffiliated providers of electronic publishing 
services on the same terms, conditions and prices. In addition, it 
contends that a BOC should be prohibited from engaging in outbound 
telemarketing, consistent with the House Report. AT&T argues that 
section 274(c)(2)(A) should not be construed as an ``open-ended 
authorization for the BOCs to market the electronic publishing services 
of their separated affiliates'' because such an interpretation would 
result in the exception swallowing the rule. While NAA agrees that we 
should adopt the conditions on inbound telemarketing discussed in the 
House Report, it also argues that a BOC may provide outbound 
telemarketing services to an electronic publishing joint venture under 
section 274(c)(2)(C).
    147. Conversely, the BOCs generally contend that they are permitted 
to engage in a broader range of marketing activities under section 
274(c)(2)(A). In particular, Ameritech argues that section 274(c)(2)(A) 
expressly authorizes a BOC to handle all aspects of the electronic 
publisher's sales process while on an inbound telephone call. NYNEX 
similarly maintains that section 274(c)(2)(A) does not restrict in any 
way the inbound telemarketing services that a BOC may provide to a 
separated affiliate, electronic publishing joint venture or affiliate, 
except to require the BOC to make such services available to all 
electronic publishers ``on request, on nondiscriminatory terms.'' In 
addition, SBC argues that section 274(c)(2)(A) allows a BOC not only to 
refer a customer who requests information regarding an electronic 
publishing service to its affiliate, but also permits a BOC to market 
electronic publishing services to customers who inquire about them. SBC 
also argues that section 274(c)(2)(A) ``allow[s] a separated affiliate 
or a BOC to advertise a BOC call-in number to which potential customers 
might choose to initiate a call.'' BellSouth argues that section 
274(c)(2)(A) of the Act is clear on its face, and therefore ``no 
further elucidation'' of that section is necessary.
    148. PacTel argues that section 274(c)(2)(A)'s requirement that 
inbound telemarketing or referral services ``be made available to all 
electronic publishers on request, on nondiscriminatory terms'' means 
that

[[Page 7709]]

the terms of the service must be generally available to all similarly 
situated electronic publishers. U S WEST argues that the requirement 
should be construed to apply only to services that are of ``like 
kind.'' PacTel contends that section 274(c)(2)(A), like section 202(a) 
of the Act, allows reasonable discrimination. Conversely, Time Warner 
argues that nothing in the Act indicates that Congress intended to 
limit the provision of inbound telemarketing or referral services 
required by section 274(c)(2)(A) to competing electronic publishers 
offering services ``comparable'' to those offered by a BOC separated 
affiliate.

(3) Discussion

    149. We conclude that a BOC may, pursuant to section 274(c)(2)(A), 
both provide ``referral services'' and ``market'' property, goods, or 
services related to the provision of electronic publishing by telephone 
to a customer or potential customer who initiated the call. This is 
consistent with the plain language of the statute, including the 
definition of ``inbound telemarketing'' in section 274(i)(7), and with 
the legislative history interpreting section 274(c)(2)(A). We also 
conclude, however, consistent with the clear language of the statute 
and with the House Report, that, to the extent a BOC provides inbound 
telemarketing or referral services for a separated affiliate, 
electronic publishing joint venture, or affiliate, it must make 
available ``such services . . . to all electronic publishers on 
request, on nondiscriminatory terms.'' Consistent with the legislative 
history, this means that the BOC must offer ``the same service on the 
same terms and conditions, and prices to non-affiliates as to its 
affiliates.''
    150. A BOC may choose to provide inbound telemarketing or referral 
services either pursuant to a contractual arrangement or during the 
normal course of its inbound telemarketing operations. To the extent a 
BOC chooses either or both of these approaches in providing inbound 
telemarketing or referral services to a separated affiliate, electronic 
publishing joint venture or affiliate, we conclude, based on the 
nondiscrimination proviso in section 274(c)(2)(A), that it must make 
available the same approach to unaffiliated electronic publishers.
    151. With regard to inbound telemarketing or referral services 
provided by a BOC to its separated affiliate, electronic publishing 
joint venture, or affiliate pursuant to a contractual arrangement, we 
find that the BOC must make available the same terms, conditions, and 
prices for such services to unaffiliated electronic publishers, except 
to the extent legitimate price differentials may exist. For example, 
such price differentials may reflect differences in cost, or may 
reflect the fact that an unaffiliated electronic publisher has 
requested superior or less favorable treatment in exchange for paying a 
higher or lower price to the BOC. As we stated in the First 
Interconnection Order (61 FR 45476 (August 29, 1996)), where costs 
differ, rate differences that accurately reflect those differences are 
not unlawfully discriminatory. We similarly conclude that price 
differences, ``when based upon legitimate variations in costs, are 
permissible under the 1996 Act when justified.'' PacTel's argument that 
the ``nondiscriminatory'' requirement in section 274(c)(2)(A) means 
that the terms of the service must be generally available to all 
``similarly situated'' electronic publishers, therefore, has merit to 
the extent that price differences among electronic publishers reflect 
legitimate differences in cost.
    152. The statute requires that, to the extent a BOC markets 
property, goods or services related to the provision of electronic 
publishing to a customer, or refers a customer to a separated 
affiliate, electronic publishing joint venture or affiliate during the 
normal course of its telemarketing operations, it must provide such 
marketing or referral services to all unaffiliated electronic 
publishers requesting such services, on nondiscriminatory terms. Thus, 
to the extent that a BOC provides referral service if a customer has 
not initially independently requested a specific referral to the BOC 
affiliate, a BOC must provide the names of all such unaffiliated 
electronic publishers, as well as its own affiliated electronic 
publishers, in random order, to the customer. A similar standard may 
also be appropriate for particular inbound telemarketing activities. We 
find that our interpretation is consistent with the intent of section 
274(c)(2)(A) to ensure that a BOC providing inbound telemarketing or 
referral services to a separated affiliate provides such services on a 
nondiscriminatory basis to all unaffiliated electronic publishers.
    153. We reject U S WEST's argument that imposing such a requirement 
on the BOCs with respect to referral services would be overly 
burdensome. We note, for example, that BOCs currently are subject to 
similar requirements in cases where a new local exchange customer of 
the BOC requests information regarding interexchange service. In such 
cases, BOCs are required, inter alia, to provide customers with the 
names and, if requested, the telephone numbers of carriers offering 
interexchange services. As part of this requirement, a BOC must ensure 
that the names of the interexchange carriers are provided in random 
order.
    154. We disagree with U S WEST's contention that a BOC's obligation 
to provide inbound telemarketing or referral services under section 
274(c)(2)(A) applies only with respect to services that are 
``comparable'' to those of its separated affiliate. We conclude that a 
BOC's obligation under section 274(c)(2)(A) to make available inbound 
telemarketing and referral services on a nondiscriminatory basis 
requires that a BOC make available to unaffiliated electronic 
publishers the same services it provides to an affiliated electronic 
publisher, regardless of whether the unaffiliated electronic publishers 
offer services that are ``comparable'' to those of the BOC. Nothing in 
the statute or its legislative history indicates that a BOC must make 
available inbound telemarketing and referral services only to 
electronic publishing entities providing services ``comparable'' to 
those of the BOC's affiliate. To the extent that a BOC's agreement with 
its affiliated electronic publisher is limited to certain types of 
marketing or referral services, however, the BOC is then only obligated 
to make the same types of marketing or referral services available to 
unaffiliated electronic publishers.
    155. With respect to AT&T's concern that interpreting section 
274(c)(2)(A) to allow BOCs to ``market'' the electronic publishing 
services of their separated affiliates would circumvent the joint 
marketing prohibitions in section 274(c)(1), we find that the 
unambiguous statutory definition of ``inbound telemarketing'' in 
section 274(i)(7), and the fact that the general prohibition in section 
274(c)(1) applies ``except as provided in paragraph (2) [274(c)(2)],'' 
requires this interpretation. We note that the statutory language 
allows BOCs to provide such marketing services only on 
nondiscriminatory terms, as discussed above. In addition, while our 
interpretation of the nondiscrimination requirement may serve as a 
disincentive for certain BOCs to market the services of an affiliated 
electronic publisher on an inbound call, we find that the statutory 
language compels this interpretation.
    156. Finally, we conclude that section 274(c)(2)(A) prohibits 
outbound telemarketing or similar activities in which a call is 
initiated by a BOC, its affiliate, or someone on its behalf. Because 
section 274(c)(2)(A), by its terms, applies only to ``inbound 
telemarketing'' or referral services

[[Page 7710]]

related to the provision of electronic publishing, we believe that 
Congress did not intend to permit BOCs to engage in outbound 
telemarketing activities in adopting section 274(c)(2)(A). To the 
extent that the statutory language leaves any ambiguity on this 
question, the House Report supports our interpretation that a BOC is 
prohibited under section 274(c)(2)(A) from engaging in outbound 
telemarketing. We also believe that allowing a BOC to engage in 
outbound telemarketing activities to promote the electronic publishing 
services of its separated affiliate would eviscerate the general 
prohibition on BOC joint marketing activities in section 274(c)(1)(A) 
of the Act.
b. Teaming Arrangements--Section 274(c)(2)(B)
(1) Background
    157. In the NPRM, we observed that, in addition to certain joint 
telemarketing activities, a BOC is permitted to engage in ``teaming'' 
or ``business arrangements'' to provide electronic publishing services 
under certain conditions pursuant to section 274(c)(2)(B). Section 
274(c)(2)(B) specifically states that a ``[BOC] may engage in 
nondiscriminatory teaming or business arrangements to engage in 
electronic publishing with any separated affiliate or with any other 
electronic publisher if (i) the [BOC] only provides facilities, 
services, and basic telephone service information as authorized by this 
section, and (ii) the [BOC] does not own such teaming or business 
arrangement.''
    158. We sought comment in the NPRM on what types of arrangements 
are encompassed by the terms ``teaming'' or ``business arrangements,'' 
and on the significance of section 274(c)(2)(B)'s placement under the 
``Joint Marketing'' provisions in section 274(c). We also sought 
comment on what regulations, if any, are necessary to ensure that the 
arrangements in which BOCs engage pursuant to section 274(c)(2)(B) are 
``nondiscriminatory,'' and on how the provision of ``basic telephone 
service information'' under that section relates to the requirements in 
section 222 for access to and use of CPNI.
(2) Comments
    159. Ameritech, NAA, NYNEX, and PacTel generally argue that the 
terms ``teaming'' or ``business arrangements'' in section 274(c)(2)(B) 
contemplate a broad range of permissible activities. Ameritech argues 
that, so long as all the conditions under section 274(c)(2)(B) are met 
and the requirements of section 274 are otherwise satisfied, a BOC 
should be free to enter into a teaming or business arrangement with a 
separated affiliate or electronic publishing joint venture to jointly 
market electronic publishing services. NYNEX contends that teaming 
arrangements provide another form of ``one-stop shopping'' for 
consumers and present minimal risk of anticompetitive behavior. PacTel 
argues that the language of section 274(c)(2)(B) is so broad that it 
includes any activity other than the provision of electronic publishing 
itself, including promotion, marketing, sales and advertising 
activities. SBC argues that section 274(c)(2)(B) should be interpreted 
to permit a BOC and its separated affiliate jointly to promote, market, 
sell, and advertise their respective services pursuant to any form of 
business arrangement.
    160. Bell Atlantic argues that the term ``teaming or business 
arrangements'' as used in section 274(c)(2)(B) encompasses myriad 
arrangements which include, but are not limited to, marketing proposals 
in which a BOC and an electronic publisher each prepares its portion of 
a joint bid to a customer. BellSouth contends that a teaming or 
business arrangement is more substantial than a coordinated joint 
marketing or sales campaign or joint bid preparation arrangement, given 
the statute's reference to BOC ownership in section 274(c)(2)(B). YPPA 
argues that teaming arrangements, which it asserts were permissible 
under the MFJ, are any arrangements whereby ``two businesses act 
independently to provide related products or services, but coordinate 
their activities so that the customer obtains a `complete' package of 
the desired products or services.'' According to YPPA, ``teaming'' may 
include joint sales activities (including joint planning for sales 
calls), through advertising, premise visits or telemarketing.''
    161. Conversely, Time Warner argues that section 274(c)(2)(B) 
permits a BOC to engage in a non-BOC owned teaming or business 
arrangement to provide its electronic publishing affiliate with the 
necessary facilities and telephone service for electronic publishing, 
provided that such facilities and services are offered on a 
nondiscriminatory basis pursuant to tariffed rates and conditions.
    162. Bell Atlantic argues that, by placing section 274(c)(2)(B) 
under the ``Joint Marketing'' provisions in section 274(c), Congress 
intended to clarify that ``teaming or business arrangements'' are not 
to be considered joint marketing activities. PacTel argues that 
``teaming arrangements'' are included under the heading of ``Joint 
Marketing'' because such arrangements are one of the three categories 
of exceptions listed under that heading.
    163. PacTel argues that the nondiscrimination requirement for 
teaming and other business arrangements relates to how a BOC provides 
facilities, services and basic telephone service information to 
electronic publishers, not to a BOC's choice of teaming partners. Even 
if the nondiscrimination requirement were interpreted to apply to a 
BOC's choice of teaming partners, PacTel argues, a BOC nevertheless 
would retain discretion to team only with electronic publishers that 
met its reasonable standards. BellSouth similarly contends that the 
nondiscrimination obligation of section 274(c)(2)(B) precludes a BOC 
from giving preference to the teaming or business arrangement in the 
conduct of its regulated common carrier activities, but does not impose 
on the BOC an obligation to invest in a particular entity. SBC argues 
that the nondiscrimination requirement in section 274(c)(2)(B) 
``provide[s] evenhandedness in the BOCs' provision of marketing and 
other services to [unaffiliated] electronic publishers.'' YPPA argues 
that the nondiscrimination requirement means that a teaming arrangement 
between a BOC and its separated affiliate ``cannot be markedly 
different'' from teaming arrangements made available to other 
electronic publishers.
    164. NAA argues that, if a BOC uses its CPNI to provide ``basic 
telephone service information'' as part of a teaming arrangement, it is 
subject to the privacy requirements in section 222 for access to and 
use of the CPNI. PacTel states that section 274(c)(2)(B) allows a BOC 
to use CPNI as part of a teaming arrangement, consistent with section 
222 of the Act. PacTel therefore argues that ``BOCs can use CPNI with 
the type of telecommunications service from which the information was 
derived, and with customer authorization can use it with any service.'' 
PacTel maintains that, to the extent that ``basic telephone service 
information'' is also CPNI, section 222 of the Act and any implementing 
regulations the Commission adopts govern the use of such information. 
To the extent such information is not CPNI, but network information, 
PacTel argues that a BOC is required to share such information with all 
electronic publishers with which the BOC teams. SBC argues that, where 
information qualifies as both ``basic telephone service information'' 
under section 274(i)(3) as well as CPNI under

[[Page 7711]]

section 222(f)(1), the terms of section 274 should prevail over the 
general terms in section 222 of the Act. SBC points out that section 
274 of the Act contains no ``approval'' requirement as a precondition 
for using, disclosing, or accessing basic telephone service 
information. As such, SBC argues, a BOC should be permitted to use such 
information without first obtaining approval under section 222(c)(1) 
when engaged in permissible teaming or business arrangements.
(3) Discussion
    165. We decline at this time to adopt specific regulations 
clarifying the types of arrangements that are contemplated by the terms 
``teaming or business arrangements'' in section 274(c)(2)(B) of the 
Act. We conclude that those terms, which are not defined in the 
statute, may encompass a broad range of permissible marketing 
activities because section 274(c)(2)(B) imposes no explicit marketing 
limitations. At the same time, however, this provision contains no 
language that operates to remove business or teaming arrangements from 
the scope of the prohibitions in section 274(c)(1). We thus find that 
Congress, in including the general terms ``teaming or business 
arrangements'' in section 274(c)(2)(B), did not intend to limit or 
expand the types of marketing activities in which BOCs could engage 
under that section other than those specifically restricted or 
authorized elsewhere in section 274 (e.g., in section 274(c)(1)).
    166. Under section 274(c)(2)(B), therefore, a BOC providing 
telecommunications services and the electronic publishing provider with 
which it teams are limited to marketing their respective services. This 
interpretation is supported by the plain language of section 
274(c)(2)(B), which generally provides that a BOC may engage in teaming 
or business arrangements if such BOC ``only provides facilities, 
services, and basic telephone service information as authorized by 
[section 274].'' Under this interpretation, a BOC is permitted to 
market only the facilities, services and basic telephone service 
information that section 274(c)(2)(B) permits the BOC to provide. This 
interpretation also is supported by a comparison of the text in section 
274(c)(2)(B) with the text of sections 274(c)(2)(A) and (C), relating 
to inbound telemarketing and electronic publishing joint ventures, 
respectively. Unlike section 274(c)(2)(C), section 274(c)(2)(B) does 
not specifically permit the authorized entity to engage in joint 
marketing activities otherwise prohibited to the BOC by section 
274(c)(1), i.e., promotion, marketing, sales, and advertising 
activities. In addition, unlike section 274(c)(2)(A), section 
274(c)(2)(B) contains no language that explicitly addresses marketing. 
We therefore conclude that a BOC participating in a teaming arrangement 
may not market the electronic publishing services of an electronic 
publishing provider with which it teams. In addition, the restrictions 
specifically set forth in section 274(c)(2)(B) would apply, i.e., that 
such BOC only provide facilities, services and basic telephone service 
information as authorized by section 274, that the BOC not ``own'' the 
teaming or business arrangement, and that the teaming arrangement be 
``nondiscriminatory.''
    167. As noted above, a few commenters provide examples of the types 
of activities they believe are permissible under section 274(c)(2)(B) 
as a ``teaming or business arrangement.'' Bell Atlantic, for example, 
contends that such arrangements include, but are not limited to, 
marketing proposals in which a BOC and an electronic publisher each 
prepares its portion of a joint bid to a customer. In addition, YPPA 
argues that a teaming arrangement is any arrangement whereby ``two 
businesses act independently to provide related products or services, 
but coordinate their activities so that the customer obtains a 
`complete' package of the desired products or services.'' YPPA states, 
for example, that a BOC may engage in a teaming arrangement with a 
separated affiliate whereby the BOC provides a customer with regulated 
telephone service and the separated affiliate provides the same 
customer with electronic publishing services. We conclude that nothing 
in the statute prohibits a BOC from engaging in the types of activities 
proposed by these commenters, so long as all of the requirements of 
section 274, including section 274(c)(2)(B), are satisfied. To the 
extent issues arise in the future as to whether certain other 
activities are permissible under section 274(c)(2)(B) as ``teaming or 
business arrangements,'' we intend to address those issues on a case-
by-case basis.
    168. We also conclude that section 274(c)(2)(B)'s requirement that 
a BOC only engage in teaming or business arrangements that are 
``nondiscriminatory'' means that a BOC may provide to the teaming 
arrangement the necessary facilities, services and basic telephone 
service information for electronic publishing, provided that such 
facilities, services and information are offered on a nondiscriminatory 
basis both to other teaming arrangements and to unaffiliated electronic 
publishers. Under this interpretation, for example, a BOC would be 
prohibited from favoring a teaming arrangement with a separated 
affiliate over an arrangement with an unaffiliated electronic 
publishing provider in the provision of the BOC's facilities, services 
and basic telephone service information under section 274(c)(2)(B). We 
agree with PacTel and BellSouth that section 274(c)(2)(B) of the Act 
does not require a BOC to participate in a teaming arrangement with, or 
to invest in, an electronic publishing provider. Given that a ``teaming 
arrangement'' under section 274(c)(2)(B) contemplates that a BOC may 
hold less than a 10 percent interest in such arrangement, we believe 
that Congress did not intend to compel a BOC to acquire such an 
interest in other arrangements simply because the BOC has chosen to 
participate in a teaming arrangement with an electronic publisher of 
its choice. In addition, we find that such an interpretation would 
provide a disincentive for BOCs to engage in teaming arrangements in 
contravention of the plain language of section 274(c)(2)(B) and the 
pro-competitive goals of the 1996 Act.
    169. We defer to our pending CPNI proceeding the question of 
whether the term ``basic telephone service information'' as defined in 
section 274(i)(3) of the Act includes CPNI as defined in section 222 of 
the Act. Based on the definition of ``basic telephone service 
information'' in section 274(i)(3), however, we conclude that the term 
includes network information of the BOC. We also defer to our CPNI 
proceeding the issue of whether section 222 requires a BOC engaged in 
permissible marketing activities under section 274(c)(2) to obtain 
customer approval before using, disclosing, or permitting access to 
CPNI. In particular, we defer to that proceeding the issue of whether 
or to what extent section 274(c)(2)(B) of the Act imposes any 
obligations on BOCs that use, disclose, or permit access to CPNI 
pursuant to a teaming arrangement. As noted above, however, the CPNI 
requirements the Commission previously established in the Computer II 
and Computer III proceedings remain in effect, pending the outcome of 
the CPNI proceeding, to the extent that they do not conflict with 
section 222 of the Act. Because we conclude that ``basic telephone 
service information'' under section 274(i)(3) includes network 
information, BOCs that provide network information as part of a teaming 
arrangement are required to provide such information to other teaming 
arrangements on a

[[Page 7712]]

nondiscriminatory basis pursuant to section 274(c)(2)(B).
c. Electronic Publishing Joint Ventures--Section 274(c)(2)(C)
(1) Permissible Level of BOC Ownership Interest in Electronic 
Publishing Joint Venture and Waiver for ``Good Cause''
(a) Background
    170. Section 274(c)(2)(C) of the Act expressly permits a BOC or 
affiliate to ``participate on a nonexclusive basis in electronic 
publishing joint ventures with entities that are not a [BOC], 
affiliate, or separated affiliate to provide electronic publishing 
services.'' The BOC or affiliate, however, may not hold more than a 50 
percent direct or indirect equity interest (or the equivalent thereof) 
or the right to more than 50 percent of the voting control over the 
joint venture. In addition, officers and employees of a BOC or 
affiliate participating in an electronic publishing joint venture may 
hold no greater than 50 percent of the voting control over the joint 
venture. The House Report clarifies that this restriction prohibits 
officers and employees of a BOC from ``collectively having more than 50 
percent of the voting control of the venture.'' In the NPRM, we 
tentatively concluded that a BOC is deemed to ``own'' an electronic 
publishing joint venture ``if it holds greater than a 10 percent but 
not more than a 50 percent direct or indirect equity interest in the 
venture, or has the right to greater than 10 percent but not more than 
50 percent of the venture's gross revenues.'' We sought comment on that 
tentative conclusion.
    171. Section 274(c)(2)(C) also provides that, ``[i]n the case of 
joint ventures with small, local electronic publishers, the Commission 
for good cause shown may authorize [a BOC] or affiliate to have a 
larger equity interest, revenue share, or voting control but not to 
exceed 80 percent.'' As we observed in the NPRM, although the term 
``small, local electronic publisher'' is not defined in the statute, 
the House Report indicates that the term was intended to apply to 
publishers serving communities of fewer than 50,000 persons. We sought 
comment in the NPRM on how we should determine the service area of a 
``small, local electronic publisher'' for the purpose of applying the 
80 percent threshold. In addition, we sought comment on whether it 
would be consistent with congressional intent to adopt additional 
standards for determining which electronic publishers are subject to 
the 80 percent threshold, and, if so, what such standards should be. We 
also sought comment on how we should define ``local'' under section 
274(c)(2)(C).
    172. With regard to section 274(c)(2)(C)'s provision allowing 
waiver of the 50 percent equity interest and revenue share limitation 
in the case of joint ventures with small, local electronic publishers 
for ``good cause shown,'' we sought comment on the ``good cause'' 
showing that is required under that provision, and whether any 
additional regulations are necessary to implement the provision.
(b) Comments
    173. The Joint Parties agree that a minimum 10 percent equity 
interest or gross revenue share by a BOC is sufficient to constitute 
ownership of an electronic publishing joint venture. NAA states that a 
BOC must ``own'' an electronic publishing joint venture, which means it 
must hold greater than a 10 percent direct or indirect equity interest 
in the venture, or have the right to greater than 10 percent of the 
venture's gross revenues. NAA also points out that, except for joint 
ventures with small, local electronic publishers, a BOC is limited to a 
minority stake in the electronic publishing joint venture. NAA argues 
that we should not adopt any standards at this time for determining 
what constitutes a ``small, local electronic publisher'' under section 
274(c)(2)(C), but instead should address the issue in the context of 
specific waiver applications. NAA maintains that, in such cases, the 
``good cause'' showing that is required under section 274(c)(2)(C) 
would be satisfied by demonstrating that greater participation by the 
BOC ``is needed to enable the [electronic publishing] service to be 
provided to the public.''
(c) Discussion
    174. We conclude that a BOC may hold greater than a 10 percent but 
not more than a 50 percent direct or indirect equity interest in an 
electronic publishing joint venture under section 274(c)(2)(C) of the 
Act, or may have the right to greater than 10 percent but not more than 
50 percent of the venture's gross revenues. Therefore, while a BOC may 
``own'' an electronic publishing joint venture, it is limited to a 50 
percent stake in such venture. Our interpretation is consistent with 
the definition of ``electronic publishing joint venture'' in section 
274(i)(5) of the Act, which contemplates a degree of ownership by a BOC 
or affiliate, the definition of ``own'' in section 274(i)(8), and with 
the plain language of section 274(c)(2)(C), which restricts a BOC's 
ownership or revenue share interest in an electronic publishing joint 
venture to 50 percent.
    175. We decline at this time to adopt any standards for determining 
which entities constitute ``small, local electronic publishers'' for 
the purpose of applying the 80 percent threshold in section 
274(c)(2)(C) of the Act. While the House Report indicates that the term 
was intended to apply to publishers serving communities of fewer than 
50,000 persons, it is difficult from a practical standpoint to define 
the service area of such publishers, given that electronic publishing 
services, by definition, contemplate the dissemination of information 
to the general public. Moreover, the term ``small'' may be defined 
based on a variety of standards, including the size of the community 
served, the gross revenues of the electronic publishing entity, or 
other factors. Given the difficulties with establishing standards at 
this time for determining what constitutes a ``small, local electronic 
publisher'' under section 274(c)(2)(C), we conclude that it is best to 
clarify this phrase on a case-by-case basis.
    176. With regard to the ``good cause'' showing that is required for 
a BOC to hold a greater interest in an electronic publishing joint 
venture with a small, local electronic publisher under section 
274(c)(2)(C) of the Act, one factor we may consider in determining 
whether a BOC has satisfied this standard is whether increased 
investment by the BOC is necessary to enable the joint venture to 
provide electronic publishing services. In adopting section 
274(c)(2)(C), we believe that Congress intended, inter alia, to 
encourage market participation by small, local electronic publishing 
entities in the provision of electronic publishing services by allowing 
a BOC to hold a greater ownership interest in electronic publishing 
joint ventures with such entities. We emphasize, however, that this is 
only one factor we may consider in determining whether a BOC satisfies 
the ``good cause'' standard under section 274(c)(2)(C), and that other 
circumstances may exist that militate for or against a finding of 
``good cause.'' We thus conclude that the issue of what constitutes 
``good cause'' under section 274(c)(2)(C) should be addressed on a 
case-by-case basis in the context of fact-specific waiver applications.
(2) BOC Participation on a ``Nonexclusive'' Basis
(a) Background
    177. In the NPRM, we also sought comment on what regulations, if 
any, are necessary to ensure that a BOC

[[Page 7713]]

participates in an electronic publishing joint venture on a 
``nonexclusive'' basis. We noted that this provision appears to 
prohibit arrangements whereby a BOC participates in an electronic 
publishing joint venture with an electronic publishing entity to the 
exclusion of all other such entities. We also sought comment on whether 
the provision prohibits contracts between a BOC and an electronic 
publisher whereby the electronic publisher is committed to purchase 
basic transmission services necessary to provide electronic publishing 
exclusively from such BOC, or whether the provision contemplates other 
types of prohibitions.
(b) Comments
    178. BellSouth, NAA, and NYNEX argue that the ``nonexclusive'' 
requirement in section 274(c)(2)(C) precludes a BOC from entering into 
an electronic publishing joint venture with one entity to the exclusion 
of all others. PacTel similarly states that a BOC and its affiliate are 
prohibited under the provision from entering into an agreement that 
either prohibits other parties from participating in the joint venture 
or precludes the BOC or its affiliate from participating in other 
electronic publishing joint ventures with other parties. BellSouth 
states, however, that a BOC is not obligated to participate in more 
than one electronic publishing joint venture. BellSouth and NAA also 
argue that the provision does not preclude a BOC from insisting, as a 
condition of its participation in the electronic publishing joint 
venture, that the joint venture purchase basic transmission services 
exclusively from the BOC in order to provide electronic publishing 
services. NAA and PacTel contend that the provision does not require an 
electronic publishing joint venture to be open to all, nor does it 
prelude a BOC from exercising its business judgment regarding its joint 
venture partners.
(c) Discussion
    179. We conclude that the section 274(c)(2)(C) requirement that a 
BOC or affiliate participate in an electronic publishing joint venture 
on a ``nonexclusive'' basis prohibits a BOC or affiliate from entering 
into an agreement with its joint venture partner that precludes either 
entity from participating in other such ventures with other parties. 
The ``nonexclusive'' requirement in section 274(c)(2)(C) protects 
against the potential that a BOC could place competing local exchange 
providers at a competitive disadvantage by preventing its joint venture 
partners from aligning with such providers in other electronic 
publishing joint ventures. We note, however, that while section 
274(c)(2)(C) of the Act proscribes these types of exclusive 
arrangements, it does not prevent a BOC from agreeing with its joint 
venture partner to exclude other parties from that particular venture. 
In addition, we find that section 274(c)(2)(C) does not require that an 
electronic publishing joint venture be open to any and all potential 
venture participants, nor does it preclude a BOC from exercising its 
business judgment regarding its joint venture partners. As noted above, 
because an ``electronic publishing joint venture'' as defined in 
section 274(i)(5) of the Act, contemplates some degree of BOC 
ownership, a BOC should be allowed to retain discretion regarding its 
joint venture partners. Requiring a BOC to take an ownership interest 
in a joint venture in which it was not free to select its partner would 
discourage BOCs from participating in such ventures and restrict 
competition in the provision of electronic publishing services.
    180. We also find that the ``nonexclusive'' requirement in section 
274(c)(2)(C) of the Act does not require a BOC or BOC affiliate to 
participate in more than one electronic publishing joint venture. As 
BellSouth points out, such an interpretation could be viewed as 
precluding a BOC from consummating an electronic publishing joint 
venture arrangement with its joint venture partner until the BOC had 
located and negotiated with another partner with whom to establish a 
joint venture. A BOC thus may refuse to participate in a second 
electronic publishing joint venture that is proposed to it after it has 
entered into an electronic publishing joint venture with another 
unaffiliated entity. Given that Congress, in adopting section 274 of 
the Act, sought to promote competition in the provision of electronic 
publishing services by allowing BOCs to provide such services subject 
to certain safeguards, we conclude that section 274(c)(2)(C) was not 
intended to require a BOC to participate in more than one electronic 
publishing joint venture. Such a requirement could restrict competitive 
entry into the provision of electronic publishing services by hampering 
BOC participation in electronic publishing joint ventures.
    181. We also conclude that section 274(c)(2)(C) does not preclude a 
BOC from requiring an electronic publishing joint venture to purchase 
basic transmission services exclusively from the BOC as a condition of 
the BOC's participation in the joint venture. The express language of 
section 274(a) of the Act contemplates the provision by an electronic 
publishing joint venture of electronic publishing services that are 
disseminated by means of the BOC or BOC affiliate's basic telephone 
service. Moreover, nothing in section 274(a) indicates that Congress 
intended to prohibit a BOC participating in an electronic publishing 
joint venture from requiring that the joint venture purchase basic 
telephone service exclusively from the BOC.
(3) Interplay Between Section 274(c)(1)(B) and Section 274(c)(2)(C)
(a) Background
    182. We noted in the NPRM that the joint marketing prohibitions in 
section 274(c)(1) of the Act appear not to apply to an electronic 
publishing joint venture. We also sought comment on the extent to which 
section 274(c)(2)(C), which allows a BOC to participate in electronic 
publishing joint ventures under certain conditions, permits a BOC to 
market jointly with an electronic publishing joint venture in light of 
other provisions in section 274 that prohibit certain marketing 
activities. We noted, for example, that section 274(b)(6) prohibits an 
electronic publishing joint venture from using the ``name, trademark, 
or service marks of an existing [BOC]'' for the marketing of any 
product or service, while section 274(c)(2)(A) permits a BOC to provide 
inbound telemarketing services for, among other things, an electronic 
publishing joint venture, but only under certain conditions. In 
addition, we sought comment in the NPRM on the distinction, if any, 
between the term ``carry out'' in sections 274(c)(1)(A) and (B), which 
set forth the general marketing prohibitions on BOCs, and the term 
``provide'' in section 274(c)(2)(C).
(b) Comments
    183. A number of commenters argue that section 274(c)(2)(C) is an 
exception to the general joint marketing prohibitions in section 
274(c)(1) of the Act and thus permits a BOC to provide promotion, 
marketing, sales and advertising services to an electronic publishing 
joint venture. SBC argues that, because section 274(c)(2)(C) authorizes 
a BOC participating in an electronic publishing joint venture to 
``provide promotion, marketing, sales, or advertising personnel and 
services,'' the venture itself may be staffed by BOC marketing and 
sales personnel. Ameritech argues that joint marketing activities 
otherwise prohibited under section 274(c)(1) are permitted to the 
extent they come under one of the three

[[Page 7714]]

categories of permissible joint marketing activities in section 
274(c)(2) of the Act. NAA argues that section 274(c)(2)(C) permits a 
BOC to market jointly with an electronic publishing joint venture 
subject to the restrictions in section 274(b)(6) on use of names and 
trademarks. In addition, NAA contends that the use of the terms ``carry 
out'' in section 274(c)(1) and ``provide'' in section 274(c)(2)(C) was 
not intended to limit the services a BOC may perform for an electronic 
publishing joint venture.
    184. Conversely, Time Warner argues that a BOC is prohibited from 
jointly marketing its local exchange services with the electronic 
publishing services of an electronic publishing joint venture, and vice 
versa. According to Time Warner, if a joint venture were permitted to 
jointly market its electronic publishing services with the BOC's local 
exchange services, ``the ability to leverage the BOC's local exchange 
monopoly into the electronic publishing market would remain.''
    185. Bell Atlantic contends that sections 274(b)(6) and (c)(2)(A) 
of the Act do not affect the right of a BOC to provide marketing 
services for an electronic publishing joint venture. According to Bell 
Atlantic, the statute prohibits the joint venture, not the BOC, from 
using the BOC's name, trademark or service marks. To the extent the BOC 
is providing services to the joint venture, Bell Atlantic argues, it is 
free to use its own name, trademark and service marks. Bell Atlantic 
also maintains that it is subject to the conditions on inbound 
telemarketing in section 274(c)(2)(A) of the Act to the extent it 
performs inbound telemarketing activities for a joint venture.
(c) Discussion
    186. We conclude that section 274(c)(2)(C) provides an exception to 
the general joint marketing prohibitions imposed on BOCs in section 
274(c)(1) of the Act. As some commenters point out, the introductory 
clause in section 274(c)(1) of the Act indicates that subsections 
(c)(1)(A) and (B) prohibit BOCs from carrying out certain types of 
joint marketing activities ``[e]xcept as provided in [section 
274(c)(2)].'' Therefore, while section 274(c)(1)(B) of the Act might 
otherwise be interpreted to prohibit a BOC from carrying out joint 
marketing activities with an electronic publishing joint venture, 
section 274(c)(2)(C) provides a clear exception that allows a BOC to 
engage in such activities. In particular, section 274(c)(2)(C) of the 
Act expressly permits a BOC participating in an electronic publishing 
joint venture to provide ``promotion, marketing, sales or advertising 
personnel and services'' to such joint venture.
    187. Given the plain language of section 274(c)(2)(C), which allows 
a BOC participating in an electronic publishing joint venture to 
provide ``promotion, marketing, sales or advertising personnel and 
services'' to such joint venture, we agree with SBC that an electronic 
publishing joint venture may be staffed by BOC marketing and sales 
personnel. Moreover, we agree with NAA that use of the terms ``carry 
out'' in section 274(c)(1) and ``provide'' in section 274(c)(2)(C) was 
not intended to limit the services a BOC may perform for an electronic 
publishing joint venture. To the contrary, based on the more specific 
language of the statute, which allows BOC provision of marketing 
personnel as well as services, we conclude that section 274(c)(2)(C) 
contemplates a broader range of BOC marketing activities than those 
proscribed in section 274(c)(1) of the Act.
    188. We also conclude that section 274(c)(2)(C) does not override 
the general prohibition in section 274(b)(6) of the Act on the use of 
``name, trademarks, or service marks of an existing [BOC]'' by an 
electronic publishing joint venture and a BOC for the marketing of any 
product or service of the joint venture. Nothing in section 274 of the 
Act indicates that Congress intended section 274(c)(2)(C) to provide an 
exception to the broad restriction in section 274(b)(6) on the use of 
an existing BOC's name, trademarks and service marks. As such, to the 
extent a BOC engages in marketing activities permissible under section 
274(c)(2)(C) of the Act, it must still comply with section 274(b)(6), 
as well as all other applicable provisions in section 274. For example, 
we agree with Bell Atlantic that a BOC is subject to the conditions in 
section 274(c)(2)(A) of the Act to the extent it performs inbound 
telemarketing activities for an electronic publishing joint venture.

D. Nondiscrimination Safeguards

1. Background
    189. Section 274(d) requires a BOC ``under common ownership or 
control with a separated affiliate or electronic publishing joint 
venture [to] provide network access and interconnections for basic 
telephone service to electronic publishers at just and reasonable rates 
that are tariffed (so long as rates for such services are subject to 
regulation) and that are not higher on a per-unit basis than those 
charged for such services to any other electronic publisher or any 
separated affiliate engaged in electronic publishing.'' Prior to the 
Act, electronic publishing services were regulated as enhanced services 
and were subject to the nondiscrimination requirements established 
under the Commission's Computer II and Computer III regimes. Under 
Computer III and Open Network Architecture, BOCs have been permitted to 
provide enhanced services on an integrated basis. Moreover, BOCs have 
been required to provide at tariffed rates nondiscriminatory 
interconnection to unbundled network elements used to provide enhanced 
services.
    190. We concluded in the NPRM that the Computer III/ONA 
requirements should continue to apply to the extent that such 
requirements are not inconsistent with the Act. We sought comment on 
whether the requirements of Computer III/ONA are consistent with the 
nondiscrimination requirements of section 274(d). To the extent that 
commenters argue that the Computer III/ONA requirements are 
inconsistent, we sought comment on whether and to what extent 
regulations are necessary to implement section 274(d).
    191. We also tentatively concluded in the NPRM that section 274(d) 
prohibits BOCs under common ownership or control with a separated 
affiliate or electronic publishing joint venture from providing volume 
discounts, term discounts, or other preferential rates for basic 
telephone service to electronic publishers. In reaching this tentative 
conclusion, we reasoned that any such discount would be unlawful 
because section 274(d) prohibits BOCs from providing basic telephone 
services to some electronic publishers at rates that are ``higher on a 
per-unit basis'' than rates charged to other electronic publishers. We 
also tentatively concluded that section 274(d) does not require BOCs to 
file tariffs for services that no longer are subject to tariff 
regulation. Finally, we sought comment on the meaning of the 
requirement that access and interconnection be provided to electronic 
publishers ``at just and reasonable rates that are tariffed (so long as 
rates for such services are subject to regulation).''
2. Comments
    192. The parties generally agree that the language of section 
274(d) is sufficiently clear and that there is no need for the 
Commission to adopt additional rules to implement this provision of the 
statute. If the Commission nonetheless adopts rules to implement 
section 274(d), Cincinnati Bell would exempt ``any LEC with less

[[Page 7715]]

than 2% of the nation's access lines.'' MCI contends that the BOCs, in 
complying with section 274(d), must provide competitors with 
``functional equality or service of equal quality relative to the 
services the BOCs provide their affiliates.''
    193. In addition, the commenters generally agree that the Computer 
III/ONA nondiscrimination requirements are consistent with section 
274(d), but they disagree on whether we should continue to apply these 
requirements to BOC intraLATA electronic publishing services. Some of 
the BOCs argue that application of the Computer III/ONA requirements is 
unnecessary because section 274 imposes a separate affiliate 
requirement on BOCs that is similar to the structural separation 
requirements of Computer II. Ameritech supports elimination of the 
Computer III/ONA requirements, claiming that they ``were, and are, 
simply a solution in search of a problem.'' Other commenters, in 
contrast, support retaining the Computer III/ONA requirements. Time 
Warner argues that, although the Computer III/ONA requirements ``have 
not been useful to enhanced service providers,'' these requirements 
will be more effective if combined with the structural separation and 
nondiscrimination requirements of section 274. MCI and AT&T observe 
that there is no evidence that Congress intended to displace the 
Computer III/ONA requirements for electronic publishing services, 
although MCI states that the requirements are ``inadequate to prevent 
discrimination.''
    194. With regard to preferential rates, AT&T and Time Warner agree 
with our tentative conclusion that section 274(d) prohibits BOCs under 
common ownership or control with a separated affiliate or electronic 
publishing joint venture from providing volume and term discounts for 
network access and interconnections for basic telephone service to 
electronic publishers. They contend that, because the rates charged to 
one electronic publisher must not be higher on a ``per-unit basis'' 
than the rates charged to other electronic publishers, the statute 
requires uniform rates for such services. A number of BOCs, on the 
other hand, argue that volume and term discounts are permitted so long 
as the BOC offers the same discount to other electronic publishers on 
the same terms and conditions.
    195. PacTel also argues that Congress did not define the term 
``units'' for purposes of calculating per-unit rates. PacTel notes that 
it provides transport in units such as DS0, DS1, and DS3, which are 
priced differently based on its cost savings. PacTel further asserts 
that a group of minutes of use, when sold together as a block, could 
constitute a unit, which presumably would cost less than buying the 
minutes of use individually. It thus asserts that BOCs may continue to 
create reasonable units or groups of services, and must only offer such 
units to all electronic publishers at the same price.
    196. Time Warner also argues that the requirement that rates be 
just and reasonable and nondiscriminatory should apply independently of 
any decision to reduce or eliminate tariff filing requirements. In 
order to enforce this requirement in the event of detariffing, Time 
Warner contends that the Commission should require BOCs to file with 
the Commission, and furnish to any electronic publisher upon request, a 
list of rates charged to electronic publishers. Several BOCs, on the 
other hand, argue that filing a rate list is unnecessary because, under 
section 274(b)(3)(B), if a particular service is not subject to 
tariffing requirements, the transaction must be reduced to writing and 
made publicly available. Moreover, some commenters note that, since 
section 274(d) does not require BOCs to file tariffs for services that 
are no longer subject to tariff filing requirements, a separate rate 
list requirement would be both inconsistent with the statute and overly 
regulatory.
    197. PacTel and YPPA further argue that, once the rates for basic 
telephone service are no longer subject to regulation, section 274(d) 
is no longer applicable. These commenters contend that the Commission 
detariffs services when it determines that competition will keep rates 
just and reasonable, and therefore that the market, rather than tariff 
filings or other regulatory requirements, will ensure that rates are 
just and reasonable.
3. Discussion
    198. We decline to adopt rules to implement section 274(d), based 
on the record before us; we will reconsider this decision if 
circumstances warrant. We find that the language of section 274(d) is 
sufficiently clear to ensure that BOCs provide unaffiliated electronic 
publishers with network access and interconnections for basic telephone 
service that are equal in quality, and at nondiscriminatory terms, 
relative to those it provides to electronic publishers affiliated with 
the BOC. We reject MCI's contention, however, that section 274(d) is a 
guarantee of functional equivalence for unaffiliated electronic 
publishers. We find that neither the statute nor its legislative 
history supports such an interpretation.
    199. We also conclude that the Computer III/ONA requirements are 
consistent with the requirements of section 274(d). The parties have 
not indicated that there is any inconsistency between the 
nondiscrimination requirements of Computer III/ONA and section 274(d). 
Section 274(d), moreover, does not repeal or otherwise affect the 
Computer III/ONA requirements.
    200. We recognize, however, that section 274(b) imposes certain 
structural separation requirements on BOC provision of electronic 
publishing services. Under our current regulatory regime, a BOC must 
comply fully with the Computer II separate subsidiary requirements in 
providing an information service to be relieved of the obligation to 
file a Comparably Efficient Interconnection (CEI) plan to provide that 
service on an integrated basis pursuant to Computer III. The record in 
this proceeding, however, is insufficient to support a finding, as 
NYNEX proposes, that BOC electronic publishing services that are 
offered through a section 274 separated affiliate satisfy all the 
relevant requirements of Computer II. Instead, we will consider this 
issue, as well as issues raised regarding the revision or elimination 
of the Computer III/ONA requirements, in the context of the Computer 
III Further Remand proceeding. We conclude, therefore, that Computer 
II, Computer III, and ONA requirements continue to govern the BOCs' 
provision of intraLATA electronic publishing services. We also note 
that the nondiscrimination requirements of section 274(d) apply to the 
BOCs' provision of both intraLATA and interLATA electronic publishing 
services.
    201. We further conclude that section 274(d) prohibits preferential 
rates, including volume or term discounts. This section expressly 
requires that a BOC under common ownership or control with a separated 
affiliate or electronic publishing joint venture must provide other 
electronic publishers network access and interconnections for basic 
telephone service at rates ``that are not higher on a per-unit basis 
than those charged for such services'' to its own affiliates or other 
competing electronic publishers. We conclude from the plain language of 
the statute that Congress intended that BOCs under common ownership or 
control with a separated affiliate or electronic publishing joint 
venture must charge electronic publishers a uniform per-unit rate for a 
service. We find further support for this interpretation in a floor 
statement that Congressman Hyde made regarding the

[[Page 7716]]

purpose of the amendment that contained the ``not higher on a per-unit 
basis'' language:

    In the development of the manager's amendment to be offered by 
Chairman Bliley, the Judiciary Committee has worked closely with the 
Commerce Committee to improve H.R. 1555 in areas that are of 
particular concern to, and under the jurisdiction of the Judiciary 
Committee. * * * Under the manager's amendment, the Bell companies 
will be required to provide services to small electronic publishers 
at the same per-unit prices that they give to larger publishers. 
This will allow the small newspapers and other electronic publishers 
to bring the information superhighway to rural areas that might 
otherwise be passed by.

141 Cong. Rec. H8292-93 (daily ed. Aug. 2, 1995) (statement of Rep. 
Hyde, Chairman of the House Committee on the Judiciary) (emphasis 
added)
    202. We conclude, however, that section 274(d) only prohibits 
discounts for network access and interconnections for basic telephone 
service used in the provision of electronic publishing services. Thus, 
under this section, BOCs may offer discounts for the provision of such 
services to an electronic publisher for use in any of its other non-
electronic publishing activities. Otherwise, an entity that engages in 
electronic publishing as well as other activities would be prohibited 
from obtaining a volume discount or term discount for any basic 
telephone service it purchases for any of its activities, whether or 
not related to its electronic publishing services. There is no 
indication that Congress intended to prohibit such discounts for an 
electronic publisher's non-electronic publishing activities, thereby 
putting such electronic publisher at a competitive disadvantage vis-a-
vis its non-electronic publishing competitors.
    203. Moreover, we find that section 274(d) does not require a BOC 
under common ownership or control with a separated affiliate or 
electronic publishing joint venture to charge electronic publishers the 
same per-unit price for different services, particularly when those 
services use different facilities and impose different costs on the 
BOCs. Ignoring such cost disparities for providing different services 
would remove the incentive to use the most efficient service and could 
increase costs for all electronic publishers as well as hamper 
competition in the electronic publishing market.
    204. We agree with PacTel that the statute does not define the term 
``units,'' for purposes of calculating per-unit rates. BOCs, therefore, 
may charge a flat rate or, in the alternative, a rate based on usage 
for a service, each of which would have a different base unit. We 
reject, however, PacTel's argument that a group of minutes of use, for 
example, could constitute a unit, unless such a group of minutes is 
both the smallest unit of minutes offered to electronic publishers and 
accommodates the needs of small electronic publishers. In this manner, 
such a group of minutes would neither constitute a volume discount nor 
disadvantage small electronic publishers.
    205. We also adopt our tentative conclusion that section 274(d) 
does not require BOCs to file tariffs for services that are not subject 
to rate regulation. Section 274(d) is clear that BOCs subject to the 
requirements in this section file tariffs for services only ``so long 
as rates for such services are subject to regulation.'' No commenter 
disagrees with this conclusion.
    206. In addition, we reject the argument that, because competition 
will be sufficient to ensure that a detariffed service's rates are just 
and reasonable, section 274(d) is inapplicable to such services. We 
find that the ``just and reasonable'' and ``per-unit'' requirements in 
section 274(d) are independent of the requirement that rates be 
tariffed ``so long as rates for such services are subject to 
regulation.'' Thus, the section 274(d) nondiscrimination requirements 
will continue to apply, regardless of whether the service is tariffed 
or no longer subject to regulation, until the sunset date of this 
provision in February, 2000.
    207. We decline at this time to address Time Warner's argument that 
the Commission should require BOCs to file rates for network access and 
interconnections for basic telephone service provided to electronic 
publishers even after elimination of tariff filing requirements. We 
note that BOCs currently are required to file state and federal tariffs 
for ONA services, which are the tariffed services generally used by 
enhanced service providers, such as electronic publishers, to provide 
their services to customers. The Commission will determine whether 
additional filing or regulatory requirements are necessary if and when 
a service that is currently subject to tariff filing requirements is 
detariffed. Further, several BOCs stated that section 274(b)(3)(B) 
eliminates the need for additional regulatory requirements because 
under that section, if a particular service is not subject to tariffing 
requirements, the transaction between a BOC and its separated affiliate 
or joint venture must be pursuant to a written contract that is 
publicly available. As discussed below, we are issuing a Further NPRM 
in this proceeding to seek additional comments on the meaning of 
section 274(b)(3)(B).

IV. Telemessaging

A. Application of Sections 260 and 272 to BOC InterLATA Telemessaging 
Services

1. Background
    208. We stated in our NPRM that section 260 sets forth various 
requirements for the provision of telemessaging service by LECs subject 
to the requirements of section 251(c), i.e., incumbent LECs. The 
Commission's current rules permit BOCs to provide telemessaging 
services on an integrated basis, subject to the Computer III/ONA 
requirements. Other LECs have been permitted to provide telemessaging 
services subject only to the requirements of sections 201 and 202, 
which apply to all common carriers, including the BOCs. The NPRM also 
recognized that section 260 does not distinguish between intraLATA and 
interLATA provision of telemessaging services. We therefore sought 
comment on whether section 260 applies to BOC provision of 
telemessaging services, both on an intraLATA and interLATA basis. We 
also noted that, in the Non-Accounting Safeguards NPRM, we tentatively 
concluded that telemessaging is an information service subject to the 
separate affiliate and nondiscrimination requirements of section 272 
and, therefore, we tentatively concluded that BOC provision of 
interLATA telemessaging services is subject to the requirements of 
section 272 in addition to the requirements of section 260. We sought 
comment on whether, if we decided not to adopt this tentative 
conclusion, BOCs providing telemessaging services on either an 
intraLATA or interLATA basis would be subject only to the requirements 
of section 260.
2. Comments
    209. Commenters generally agree that section 260 applies to all 
incumbent LEC provision of telemessaging, both on an intraLATA and 
interLATA basis. Commenters disagree, however, on whether BOC provision 
of interLATA telemessaging services is subject to both sections 272 and 
260. MCI, U S WEST, and Voice-Tel state that BOC provision of interLATA 
services is subject to both sections 272 and 260, because telemessaging 
service is an ``information service'' and thus falls within the terms 
of section 272(a)(2)(C). BellSouth and PacTel agree with this point, 
but argue that Congress, in enacting a separate provision for 
telemessaging services, did not intend BOC provision of interLATA

[[Page 7717]]

telemessaging services to be subject to the requirements of section 
272.
3. Discussion
    210. We conclude that section 260 applies to all incumbent LEC 
provision of telemessaging services, both on an intraLATA and interLATA 
basis. We find that neither the statute nor its legislative history 
evinces an intent by Congress to distinguish between BOCs and other 
LECs, or between intraLATA and interLATA services. Moreover, because we 
concluded in the Commission's Non-Accounting Safeguards Order that 
telemessaging service is an ``information service,'' BOC provision of 
telemessaging service on an interLATA basis is subject to the 
requirements of section 272 in addition to the requirements of section 
260.

B. Definition of ``Telemessaging Service''

1. Background
    211. Section 260(c) defines ``telemessaging service'' as ``voice 
mail and voice storage and retrieval services, any live operator 
services used to record, transcribe, or relay messages (other than 
telecommunications relay services), and any ancillary services offered 
in combination with these services.'' We sought comment in the NPRM on 
whether rules are necessary to clarify any ambiguities in this 
definition. We also sought comment on the types of services 
contemplated by the term ``ancillary services.''
2. Comments
    212. None of the commenters identifies any ambiguities in the 
definition of ``telemessaging service'' in section 260(c). Some 
commenters state generally that the language of section 260 is clear 
and that no rules are needed to implement this provision. ATSI states 
that ``ancillary services'' are ``all value-added services in addition 
to those primary [telemessaging] services, offered by telemessagers to 
the communications customer.'' ATSI lists specific examples, but 
recommends against establishing a comprehensive list of primary or 
ancillary telemessaging services, since new services are created as 
technology and consumer demands change.
3. Discussion
    213. We conclude that the definition of ``telemessaging service'' 
in section 260(c) is sufficiently clear and therefore decline to 
establish an exclusive list of ``telemessaging services'' or 
``ancillary services.'' We note that BellSouth asks us to clarify that 
live operator services do not fall within the Commission's definition 
of ``enhanced'' services, because they do not employ ``computer 
processing applications.'' See BellSouth at 26. We concluded in the 
Non-Accounting Safeguards Order that live operator services ``are an 
example of one area in which the `information service' definition is 
broader than that of `enhanced services.' '' Non-Accounting Safeguards 
Order at para.Sec. 145 n.342. We will determine whether any individual 
service is a ``telemessaging service'' or ``ancillary service'' as 
necessary on a case-by-case basis. We note that BellSouth asks us to 
clarify that live operator services do not fall within the Commission's 
definition of ``enhanced'' services, because they do not employ 
``computer processing applications.'' See BellSouth at 26. We concluded 
in the Non-Accounting Safeguards Order that live operator services 
``are an example of one area in which the `information service' 
definition is broader than that of `enhanced services.' ''

C. Nondiscrimination Requirements

1. Section 260(a)(2) and Sections 201 and 202
a. Background
    214. Section 260(a)(2) provides that an incumbent LEC ``shall not 
prefer or discriminate in favor of its telemessaging service operations 
in its provision of telecommunications services.'' We sought comment in 
the NPRM on the extent to which section 260(a)(2) imposes greater 
obligations on LECs providing telemessaging services than currently 
exist under sections 201 and 202 of the Act.
b. Comments
    215. Some commenters assert that section 260(a)(2) imposes greater 
obligations on LECs providing telemessaging services than currently 
exist under sections 201 and 202 of the Act, based on the broad, 
unqualified language in section 260(a)(2). Some of the BOCs, however, 
disagree, asserting that section 260(a)(2) merely duplicates the 
requirements of sections 201 and 202 for incumbent LEC provision of 
telemessaging services. Voice-Tel contends that, in complying with 
section 260(a)(2), ``it is not sufficient for the interconnections 
offered to be comparable if the result is that the competitor is put at 
any disadvantage.''
c. Discussion
    216. As noted above, section 260(a)(2) states that an incumbent LEC 
``shall not prefer or discriminate in favor of its telemessaging 
service operations in its provision of telecommunications services.'' 
Section 202(a), in contrast, prohibits ``any unjust or unreasonable 
discrimination * * *, or * * * any undue or unreasonable preference or 
advantage'' by common carriers providing interstate communications 
services. Because the section 260(a)(2) nondiscrimination bar, unlike 
that of section 202(a), is not qualified by the terms ``unjust and 
unreasonable,'' we conclude that Congress did not intend section 
260(a)(2) to be synonymous with the nondiscrimination standard in 
section 202(a), but intended a more stringent standard. This conclusion 
is consistent with our interpretation of similar language in sections 
251(c)(2) and 272(c)(1). We therefore reject claims that section 
260(a)(2) merely duplicates the nondiscrimination bar of section 202(a) 
for the provision of telemessaging services by incumbent LECs.
    217. We also conclude that section 260(a)(2) is not a guarantee of 
functional equivalence for unaffiliated telemessaging providers, as 
Voice-Tel contends. We find that neither the statute nor its 
legislative history supports such an interpretation. We note that the 
Joint Explanatory Statement states only that section 260(a)(2) 
prohibits incumbent LECs ``from discriminating against nonaffiliated 
entities with respect to the terms and conditions of any network 
services they provide to their own telemessaging operations.'' To the 
extent that competitors require different telecommunications services 
than the LEC provides to its own telemessaging operations, we note that 
other nondiscrimination requirements in the Act and analogous state 
nondiscrimination laws may apply to such requests. In addition, the 
Commission's ONA rules require the BOCs and GTE to unbundle network 
services useful to enhanced service providers.
2. Section 260(a)(2) and Computer III/ONA Requirements
a. Background
    218. We concluded in the NPRM that the nondiscrimination 
requirements of Computer III/ONA should continue to apply to the extent 
they are not inconsistent with section 260(a)(2). We sought comment on 
whether the nondiscrimination provisions of Computer III/ONA are 
consistent with section 260(a)(2), and whether these provisions should 
be applied only to the BOCs or to all incumbent LECs to fulfill the 
requirements of section 260(a)(2).

[[Page 7718]]

b. Comments
    219. Most commenters agree that the Computer III/ONA 
nondiscrimination requirements are consistent with section 260(a)(2) 
and assert that these requirements should continue to apply to BOC 
intraLATA telemessaging services. MCI and AT&T observe that there is no 
evidence that Congress intended to displace the Computer III/ONA 
requirements for telemessaging services. Similarly, ATSI asserts that 
``[s]ection 260 is not limited by existing rules or other provisions of 
the Act.'' The commenters disagree, however, on whether the current 
scope of the Computer III/ONA requirements should be extended to 
include all incumbent LECs, not just the BOCs. Cincinnati Bell asserts 
that the Computer III/ONA requirements should not be extended beyond 
their current scope, while PacTel and U S WEST argue that they should 
be extended to include all incumbent LECs. AT&T would extend the 
Computer III/ONA requirements to all incumbent LECs ``possess[ing] 
substantial market power as a result of [their] bottleneck control over 
local exchange facilities in a significant service area (e.g., SNET, 
GTE, and other Tier I LECs),'' while USTA would exempt small and mid-
sized LECs from these requirements.
    220. Several commenters argue that the Computer III/ONA 
requirements should be revised or eliminated. Although MCI supports 
continued application of the Computer III/ONA requirements, it states 
that they ``are inadequate to prevent access discrimination.'' 
Ameritech supports elimination of the Computer III/ONA requirements, 
claiming that they ``were, and are, simply a solution in search of a 
problem.'' Bell Atlantic argues that the Computer III/ONA rules are 
unnecessary, given that price caps and sections 202(a) and 251 ``fully 
protect against discrimination.''
c. Discussion
    221. We conclude that the Computer III/ONA requirements are 
consistent with the requirements of section 260(a)(2). We affirm our 
conclusion, therefore, that Computer III/ONA requirements continue to 
govern the BOCs' provision of intraLATA telemessaging services. In 
addition, we note that the Commission's Computer II requirements also 
continue to govern BOC provision of intraLATA information services, 
including telemessaging. We also note that the nondiscrimination 
requirements of section 260(a)(2) apply to the BOCs' provision of both 
intraLATA and interLATA telemessaging services, as well as other 
incumbent LECs' provision of telemessaging services. The parties have 
not indicated that there is any inconsistency between the 
nondiscrimination requirements of Computer III/ONA and section 
260(a)(2). Section 260(a)(2), moreover, does not repeal or otherwise 
affect the Computer III/ONA requirements. We will consider in the 
Commission's Computer III Further Remand proceeding whether the 
Computer III/ONA requirements need to be revised or eliminated. For the 
same reason, we also decline to extend the Computer III/ONA 
requirements to entities other than BOCs, as recommended by some 
commenters.
3. Section 260(a)(2) and Adoption of Rules
a. Background
    222. We sought comment in the NPRM on whether and what types of 
specific regulations may be necessary to implement section 260(a)(2).
 b. Comments
    223. The BOCs argue that the language of section 260(a)(2) is 
sufficiently clear and thus there is no need for the Commission to 
adopt rules to implement this provision. ATSI and Voice-Tel, on the 
other hand, argue that the Commission should adopt rules to implement 
section 260(a)(2). Voice-Tel states that Commission rules will ensure 
that complaints of discrimination are treated consistently and will 
help the Commission administer the Act efficiently. SBC argues that any 
rules adopted by the Commission must apply to all incumbent LECs, while 
Cincinnati Bell would exempt any LEC with less than two percent of the 
nation's access lines.
    224. Voice-Tel argues that the ``broad language'' of the 
nondiscrimination requirement in section 260(a)(2) ``makes any 
discrimination in pricing or other behavior unlawful,'' including the 
marketing of voice messaging services. Some BOCs, on the other hand, 
argue that the scope of section 260(a)(2) is limited to the provision 
of ``telecommunications services,'' which, as defined in section 3(46) 
of the Act, does not include marketing-related activities.
    225. Voice-Tel also would require all incumbent LECs to establish a 
separate affiliate to provide telemessaging services, in order to 
ensure that incumbent LECs comply with section 260(a)(2). Voice-Tel 
claims that nothing in the Act prevents the Commission from imposing 
this measure. The BOCs argue, in contrast, that, if Congress had 
intended to establish a separate affiliate requirement, it would have 
expressly said so, as it did for certain information services in 
section 272 and for electronic publishing services in section 274.
c. Discussion
    226. We conclude that no rules are necessary to implement section 
260(a)(2), based on the record before us; we will reconsider this 
decision if circumstances warrant. We therefore decline to adopt the 
specific rules proposed by certain commenters.
    227. In particular, we decline to impose a separate affiliate 
requirement on all incumbent LECs providing telemessaging services. We 
find that the safeguards expressly established by Congress in section 
260 are sufficient to guard against discriminatory behavior by 
incumbent LECs in favor of their own telemessaging operations. In 
addition, we find it significant that Congress limited the separate 
affiliate requirement in section 272 to BOC provision of interLATA 
information services (including interLATA telemessaging services), 
interLATA telecommunications services, and manufacturing, and in 
section 274 to BOC provision of electronic publishing services.
    228. Further, we conclude that the scope of section 260(a)(2) is 
limited, by its terms, to the provision of ``telecommunications 
services,'' which, as defined in section 3(46) of the Act, does not 
include marketing-related activities. Accordingly, we reject Voice-
Tel's argument that marketing is included within the scope of 
260(a)(2).

V. Final Regulatory Flexibility Certification

    229. The Commission certified in the NPRM that the conclusions it 
proposed to adopt would not have a significant economic impact on a 
substantial number of small entities because the proposed conclusions 
did not pertain to small entities. No comments were submitted in 
response to the Commission's request for comment on its certification. 
For the reasons stated below, we certify that the conclusions adopted 
herein will not have a significant economic impact on a substantial 
number of small entities. This certification conforms to the Regulatory 
Flexibility Act (RFA), as amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (SBREFA).
    230. The RFA provides that the term ``small business'' has the same 
meaning as the term ``small business concern''

[[Page 7719]]

under the Small Business Act. The Small Business Act defines a ``small 
business concern'' as one that is independently owned and operated; is 
not dominant in its field of operation; and meets any additional 
criteria established by the Small Business Administration (SBA). SBA 
has not developed a definition of ``small incumbent LECs.'' The closest 
applicable definition under SBA rules is for Standard Industrial 
Classification (SIC) code 4813 (Telephone Communications, Except 
Radiotelephone). The SBA has prescribed the size standard for a ``small 
business concern'' under SIC code 4813 as 1,500 or fewer employees.
    231. The conclusions we adopt in this Order to implement section 
274 apply only to the BOCs which, because they are large corporations 
that are dominant in their field of operation and have more than 1,500 
employees, do not fall within the SBA's definition for a ``small 
business concern.'' The conclusions we adopt pursuant to section 260, 
however, apply to all incumbent LECs. Some of these incumbent LECs may 
have fewer than 1,500 employees and thus meet the SBA's size standard 
to be considered ``small.'' Because such incumbent LECs, however, are 
either dominant in their field of operations or are not independently 
owned and operated, consistent with our prior practice, they are 
excluded from the definition of ``small entity'' and ``small business 
concerns.'' Accordingly, our use of the terms ``small entities'' and 
``small businesses'' does not encompass small incumbent LECs. Out of an 
abundance of caution, however, for regulatory flexibility analysis 
purposes, we will consider small incumbent LECs within this analysis 
and use the term ``small incumbent LECs'' to refer to any incumbent 
LECs that arguably might be defined by SBA as ``small business 
concerns.''
    232. With respect to section 260, 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). According to our most 
recent data, 1,347 companies reported that they were engaged in the 
provision of local exchange services. 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 conclusions adopted in this Order.
    233. The Commission adopts the conclusions in this Order to ensure 
the prompt implementation of sections 260 and 274 of the Act. Section 
260 permits incumbent LECs, including the BOCs, to provide 
telemessaging service subject to certain nondiscrimination safeguards. 
We certify that although there may be a substantial number of small 
incumbent LECs affected by the conclusions adopted in this Order to 
implement section 260, these conclusions will not have a significant 
economic impact on those affected small incumbent LECs.
    234. We decline to elaborate on the definition of ``telemessaging 
service'' prescribed by Congress or to establish a list of services 
that fall within section 260(c), for the reasons set forth in Part 
IV.B. Because we take no action pursuant to section 260(c) in this 
Order, there will be no significant economic impact on a substantial 
number of small entities.
    235. Our conclusion that section 260(a)(2) imposes a more stringent 
standard for determining whether discrimination is unlawful than that 
which already exists under sections 201 and 202 and applies to all 
incumbent LECs will not have a significant economic impact on small 
incumbent LECs. Incumbent LECs, including small incumbent LECs, are 
subject to other nondiscrimination requirements in the Act and state 
law and therefore already are required to respond to complaints of 
discriminatory behavior or limit their participation in discriminatory 
activities. We therefore find that the impact on incumbent LECs, 
including small incumbent LECs, of the more stringent standard of 
section 260(a)(2) will most likely be minimal.
    236. Our decision not to extend the Computer III/ONA 
nondiscrimination requirements to all incumbent LECs, as well as our 
decision not to adopt rules implementing the nondiscrimination 
requirement of section 260(a)(2), as noted in Section IV.C, will 
prevent any significant economic impact on incumbent LECs, particularly 
small incumbent LECs. Thus, although their conduct will be subject to 
the requirements of section 260, small incumbent LECs will be spared 
the regulatory burdens and economic impact of complying with additional 
rules.
    237. Section 274 of the Act allows BOCs to provide electronic 
publishing service disseminated by means of its basic telephone service 
only through a ``separated affiliate'' or an ``electronic publishing 
joint venture'' that meets the separation, joint marketing, and 
nondiscrimination requirements prescribed by that section. BOCs that 
were offering electronic publishing services at the time the 1996 Act 
was enacted have until February 8, 1997, to meet those requirements, 
which expire on February 8, 2000. Because section 274 applies only to 
BOCs, which, as noted above, do not fall within the SBA's definition 
for a ``small business concern,'' the conclusions we adopt in this 
Order implementing this section have no significant economic impact on 
a substantial number of small entities.
    238. The Commission shall send a copy of this certification, along 
with this Order, in a report to Congress pursuant to the SBREFA, 5 
U.S.C. 801(a)(1)(A). A copy of this certification will also be provided 
to the Chief Counsel for Advocacy of the Small Business Administration, 
and will be published in the Federal Register.

VI. Final Paperwork Reduction Analysis

    239. As required by the Paperwork Reduction Act of 1995, Public Law 
104-13, the NPRM invited the general public and the OMB to comment on 
proposed changes to the Commission's information collection 
requirements contained in the NPRM. Specifically, the Commission 
proposed to extend various reporting requirements, which apply to the 
BOCs under Computer III, to all incumbent LECs pursuant to section 
260(a)(2). OMB approved all of the proposed changes to the Commission's 
information collection requirements in accordance with the Paperwork 
Reduction Act. In approving the proposed changes, OMB ``encourage[d] 
the [Commission] to investigate the potential for sunsetting these 
requirements as competition and other factors allow.''
    240. In this Order, the Commission adopts none of the changes to 
our information collection requirements proposed in the NPRM. We 
therefore need not address the OMB's comment, although we note that our 
decision is consistent with the OMB's recommendation.
    241. We conclude, however, that to the extent a BOC refers a 
customer to a separated affiliate, electronic publishing joint venture 
or affiliate during the normal course of its telemarketing operations, 
the BOC must refer that customer to all unaffiliated electronic 
publishers requesting the referral service, on nondiscriminatory terms. 
As part of this requirement, BOCs must provide the names of all such 
unaffiliated electronic publishers, as well as its own affiliated 
electronic

[[Page 7720]]

publishers, in random order, to the customer. Implementation of this 
requirement is subject to OMB approval as prescribed by the Paperwork 
Reduction Act.

VII. Ordering Clauses

    242. Accordingly, It is ordered that pursuant to sections 1, 2, 4, 
201, 202, 260, 274 and 303(r) of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 152, 154, 201, 202, 260, 274, and 303(r), the 
Report and Order is Adopted, and the clarification and interpretation 
contained herein will become effective March 24, 1997. The collection 
of information contained within is contingent upon approval by the OMB.
    243. It is further ordered that the Secretary shall send a copy of 
this Report and Order, including the final regulatory flexibility 
certification, to the Chief Counsel for Advocacy of the Small Business 
Administration, in accordance with paragraph 605(b) of the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq.

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

    Note: This Attachment will not appear in the Code of Federal 
Regulations.

Attachment--List of Commenters in CC Docket No. 96-152

Alarm Detection Systems, Inc.
Alarm Industry Communications Committee
Alert Holding Group, Inc.
Ameritech
Association of Directory Publishers (ADP)
Association of Telemessaging Services International (ATSI)
AT&T Corporation (AT&T)
Atlas Security Service, Inc.
Bell Atlantic Telephone Companies (Bell Atlantic)
BellSouth Corporation (BellSouth)
Checkpoint Ltd.
Cincinnati Bell Telephone (Cincinnati Bell)
Commercial Instruments & Alarm Systems, Inc.
Commonwealth Security Systems, Inc.
ElectroSecurity Corporation
Entergy Technology Holding Company
George Alarm Company, Inc.
Information Industry Association (IIA)
Joint Parties (Bell Atlantic and Newspaper Association of America)
MCI Telecommunications Corporation (MCI)
Merchant's Alarm Systems
Midwest Alarm
Morse Signal Devices
National Security Service
New York State Department of Public Service (New York Commission)
Newspaper Association of America (NAA)
NYNEX Corporation (NYNEX)
Pacific Telesis Group (PacTel)
Peak Alarm
People of the State of California/California PUC (California 
Commission)
Per Mar Security Services
Post Alarm Systems
Rodriguez, Francisco
Safe Systems
Safeguard Alarms, Inc.
SBC Communications, Inc. (SBC)
SDA Security Systems, Inc.
Security Systems by Hammond, Inc.
Sentry Alarm Systems of America, Inc.
Sentry Protective Systems
Smith Alarm Systems
Superior Monitoring Service, Inc.
SVI Systems, Inc.
Time Warner Cable (Time Warner)
United States Telephone Association (USTA)
U S West, Inc. (U S WEST)
Valley Burglar & Fire Alarm Co., Inc.
Vector Security
Voice-Tel
Wayne Alarm Systems
Yellow Pages Publishers Association (YPPA)

[FR Doc. 97-4020 Filed 2-19-97; 8:45 am]
BILLING CODE 6712-01-P


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