7690 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

(9) Vaccine-strain measles viral

infection. This term is defined as a

disease caused by the vaccine-strain that

should be determined by vaccinespecific monoclonal antibody or

polymerase chain reaction tests.

(10) Vaccine-strain polio viral

infection. This term is defined as a

disease caused by poliovirus that is

isolated from the affected tissue and

should be determined to be the vaccinestrain by oligonucleotide or polymerase

chain reaction. Isolation of poliovirus

from the stoll is not sufficient to

establish a tissue specific infection or

disease caused by vaccine-strain

poliovirus.

(11) Early-onset Hib disease. This

term is defined as invasive bacterial

illness associated with the presence of

Hib organism on culture of normally

sterile body fluids or tissue, or clinical

findings consistent with the diagnosis of

epiglottitis. Hib pneumonia qualifies as

invasive Hib disease when radiographic

findings consistent with the diagnosis of

pneumonitis are accompanied by a

blood culture positive for the Hib

organism. Otitis media, in the absence

of the above findings, does not qualify

as invasive bacterial disease. A child is

considered to have suffered this injury

only if the vaccine was the first Hib

immunization received by the child.

(c) Effective date provisions. (1)

Except as provided in paragraph (c)(2)

of this section, the revised Table of

Injuries set forth in paragraph (a) of this

section and the Qualifications and Aids

to Interpretation set forth in paragraph

(b) of this section apply to petitions for

compensation under the Program filed

with the United States Court of Federal

Claims on or after March 24, 1997.

Petitions for compensation filed before

such date shall be governed by section

2114(a) and (b) of the Public Health

Service Act as in effect on January 1,

1995, or by § 100.3 as in effect on March

10, 1995 (see 60 FR 7678, et seq.,

February 8, 1995), as applicable.

(2) The inclusion of hepatitis B, Hib,

and varicella vaccines and other new

vaccines (Items VIII, IX, X, XI and XII

of the Table) will be effective on the

effective date of a tax enacted to provide

funds for compensation paid with

respect to such vaccines. A notice will

be published in the Federal Register to

announce the effective date of such a

tax.

[FR Doc. 97–4088 Filed 2–19–97; 8:45 am]

BILLING CODE 4160–15–M

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.

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

dconway@fcc.gov.

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:
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 7691

Information collection Number of respondents (approx.)

Annual hour burden per response Total annual burden

Third-party disclosure requirement: 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, 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.

7 BOCs .................. 1,200 to 30,000 calls per

BOC per year × 1⁄10th hour

per response = 120 to

3,000 hours.

7 × 120 to 3,000 = 840 to

21,000 burden hours.

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, deregulatory 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
7692 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 ceaseand-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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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
7694 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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 narrowlytailored, 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 NonAccounting 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
7696 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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
7698 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 NonAccounting 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).
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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 cosigning 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.
7700 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 inhouse 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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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.
7702 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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-byservice basis.

109. There is some disagreement

among the BOCs as to those

requirements in section 274(b) that they

deem applicable when providing
7704 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 serviceby-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.
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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 nonelectronic 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.
7706 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 nonelectronic publishing services.

127. While our interpretation could

provide a disincentive for BOCs to offer

electronic publishing and nonelectronic 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
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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 NonAccounting 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
7708 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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
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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 nonaffiliates 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
7710 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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 procompetitive 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
7712 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 factspecific 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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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
7714 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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
7716 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 NonAccounting 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
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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 valueadded 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 NonAccounting 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 ¶§ 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).
7718 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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 VoiceTel’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’’
Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations 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
7720 Federal Register / Vol. 62, No. 34 / Thursday, February 20, 1997 / Rules and Regulations

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]

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