[Federal Register Volume 83, Number 145 (Friday, July 27, 2018)]
[Proposed Rules]
[Pages 35582-35590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16040]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 36

[WC Docket No. 80-286; FCC 18-99]


Jurisdictional Separations and Referral to the Federal-State 
Joint Board

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Commission proposes to extend the freeze 
of jurisdictional separations category relationships and cost 
allocation factors for 15 years. The Commission also proposes to 
provide rate-of-return carriers who elected to freeze their category 
relationships a time limited opportunity to opt out of that freeze. The 
Commission invites comment on these proposals, on whether it should 
modify any other aspects of the separations freeze, and on whether it 
should alter the scope of its referral to the Federal State Joint Board 
on Jurisdictional Separations (Joint Board) regarding comprehensive 
separations reform.

DATES: Comments are due on or before August 27, 2018. Reply comments 
are due on or before September 10, 2018.

ADDRESSES: You may submit comments identified by WC Docket 80-286, by 
any of the following methods:
    <bullet> Federal Communications Commission's Website: http://apps.fcc.gov/ecfs//. Follow the instructions for submitting comments.
    <bullet> People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by email: <a href="/cdn-cgi/l/email-protection#edabaeaed8ddd9ad8b8e8ec38a829b"><span class="__cf_email__" data-cfemail="c88e8b8bfdf8fc88aeababe6afa7be">[email protected]</span></a> or phone: (202) 418-
0530 or TTY: 888-835-5322.

For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Marvin Sacks, Wireline Competition 
Bureau, Pricing Policy Division at (202) 418-2017 or via email at 
<a href="/cdn-cgi/l/email-protection#e885899a9e8186c69b898b839ba88e8b8bc68f879e"><span class="__cf_email__" data-cfemail="016c607377686f2f7260626a72416762622f666e77">[email protected]</span></a>.

[[Page 35583]]


SUPPLEMENTARY INFORMATION: This is summary of the Commission's Further 
Notice of Proposed Rulemaking (Further Notice), FCC 18-99, released 
July 18, 2018. A full-text version of the document can be obtained at 
the following internet address: https://www.fcc.gov/document/fcc-proposes-extend-jurisdictional-separations-freeze.

I. Background

A. The Jurisdictional Separations Process

    1. Rate-of-return incumbent local exchange carriers (LECs) use 
their networks and other resources to provide both interstate and 
intrastate services. To help prevent the recovery of the same costs 
from both the interstate and intrastate jurisdictions, the Commission's 
rules require that rate-of-return incumbent LECs divide their costs and 
revenues between the respective jurisdictions. These ``jurisdictional 
separations'' rules were designed to ensure that rate-of-return 
incumbent LECs apportion the costs of their regulated services between 
the interstate or intrastate jurisdictions in a manner that reflects 
the relative use of their networks to provide interstate or intrastate 
services.
    2. Jurisdictional separations is the third step in a four-step 
regulatory process. First, a rate-of-return carrier records its costs 
and revenues in various accounts using the Uniform System of Accounts 
prescribed by the Commission's part 32 rules. Second, the carrier 
divides the costs and revenues in these accounts between regulated and 
nonregulated activities in accordance with the Commission's part 64 
rules, a step that helps ensure that the costs of nonregulated 
activities will not be recovered through regulated interstate rates. 
Third, the carrier separates the regulated costs and revenues between 
the interstate and intrastate jurisdictions using the Commission's part 
36 jurisdictional separations rules. Finally, the carrier apportions 
the interstate regulated costs among the interexchange services and the 
rate elements that form the cost basis for its exchange access tariffs. 
Carriers subject to rate-of-return regulation perform this 
apportionment in accordance with the Commission's part 69 rules.
    3. Rate-of-return incumbent LECs perform annual cost studies that 
include jurisdictional separations. The jurisdictional separations 
analysis begins with the categorization of the incumbent LEC's 
regulated costs and expenses, requiring the incumbent LEC to assign the 
regulated costs and revenues recorded in its part 32 accounts to 
various investment, expense, and revenue categories. The incumbent LEC 
then allocates the costs or revenues in each category between the 
interstate and intrastate jurisdictions. Amounts in categories that are 
used exclusively for interstate or intrastate communications are 
directly assigned to the appropriate jurisdiction. Amounts in 
categories that support both interstate and intrastate services are 
allocated between the jurisdictions using relative use factors or fixed 
allocators.
    4. The vast majority of the jurisdictional separations rules were 
last updated more than 30 years ago and reflect the mix of services and 
the marketplace circumstances of that time. In 1997, the Commission 
initiated a proceeding to comprehensively reform those rules to ensure 
that they reflected the statutory, technological, and marketplace 
changes that had affected the telecommunications industry. In the 2001 
Separations Freeze Order, the Commission, pursuant to a Joint Board 
recommendation, froze the part 36 separations rules for a five-year 
period beginning July 1, 2001, or until the Commission completed 
comprehensive separations reform, whichever came first (``the 
separations freeze'').
    5. More specifically, the Commission adopted a freeze of all part 
36 category relationships and allocation factors for price cap 
carriers, and a freeze of all allocation factors for rate-of-return 
carriers. It also gave rate-of-return carriers a one-time option to 
freeze their category relationships, enabling each of these carriers to 
determine whether such a freeze would be beneficial ``based on its own 
circumstances and investment plans.'' The election deadline to opt into 
the category relationships freeze was June 30, 2001.
    6. In adopting the separations freeze, the Commission concluded 
that several issues, including the separations treatment of internet 
traffic, should be addressed in the context of comprehensive 
separations reform. The Commission further concluded that the freeze 
would provide stability and regulatory certainty for incumbent LECs by 
minimizing any impacts on separations results that might occur due to 
circumstances not contemplated by the Commission's part 36 rules, such 
as growth in local competition and the adoption of new technologies. 
The Commission also found that a freeze of the separations process 
would reduce regulatory burdens on incumbent LECs during the transition 
from a regulated monopoly to a deregulated, competitive environment in 
the local telecommunications marketplace.
    7. The Commission has since granted price cap carriers forbearance 
from the part 36 jurisdictional separations rules. As a result, the 
separations freeze applies only to rate-of-return carriers, all of whom 
have frozen allocation factors. Those rate-of-return carriers that 
chose to freeze their category relationships in 2001 assign investment 
and expenses within their part 32 accounts to categories using their 
separations category relationships from 2000, and allocate their 
categorized costs between the interstate and intrastate jurisdictions 
using their allocation factors from 2000. This use of ``frozen'' 
category relationships and allocation factors frees carriers from 
conducting separations studies for the duration of the freeze.

B. Declining Applicability of Jurisdictional Separations Results

    8. Over the years, the Commission has undertaken initiatives that 
reduce the role a carrier's costs play in the regulation of rates and 
in the distribution of high-cost universal service support. 
Consequently, the significance of jurisdictional separations results 
has declined. The first of these initiatives was the application of 
price cap regulation to the largest local exchange carriers, a step 
that eventually severed the link between separations results and 
interstate rates for those carriers. Subsequently, as noted above, the 
Commission forbore from application of the jurisdictional separations 
rules to price cap incumbent LECs, leaving rate-of-return incumbent 
LECs as the only carriers required to comply with the separations 
rules. More recent Commission reforms have eliminated the need for cost 
data for large portions of rate-of-return carriers' operations as well. 
Specifically, in 2011, as part of comprehensive reform and 
modernization of the universal service and intercarrier compensation 
systems, the Commission adopted rate caps (including a transition to 
bill-and-keep for certain rate elements) for switched access services 
for rate-of-return carriers, thereby severing the relationship between 
cost and switched access rates. In addition, in 2016, the Commission 
gave rate-of-return carriers the option of receiving high-cost 
universal service support based on the Alternative-Connect America Cost 
Model (A-CAM). More than 200 carriers opted to receive A-CAM support, 
which eliminated the need for those carriers to perform cost studies 
that required jurisdictional separations to quantify the amount of 
high-cost support for their common line offerings.
    9. As a result of these reforms, rate-of-return carriers now use 
separations

[[Page 35584]]

cost results only for the following limited purposes: (a) Establishing 
their business data services (special access) rates; (b) calculating 
interstate common line support for those carriers that have not elected 
A-CAM support; and (c) calculating subscriber line charge (SLC) levels 
for the minority of carriers whose SLCs are below the maximum level. 
The Universal Service Administrative Company (USAC) uses categorization 
results for calculating high-cost loop support, but without applying 
jurisdictional allocations. States also use separations results to 
determine the amount of intrastate universal service support and to 
calculate regulatory fees, and some states perform rate-of-return 
ratemaking using intrastate costs.
    10. The Commission expects that the use of jurisdictional 
separations will continue to decline. For example, earlier this year, 
the Commission adopted a Notice of Proposed Rulemaking that seeks 
comment on migrating additional rate-of-return carriers to model-based 
support. In a more recent Notice of Proposed Rulemaking, the Commission 
proposed to allow A-CAM carriers to transition their business data 
services offerings from rate-of-return to incentive-based regulation.

C. Procedural History

    11. The Commission has extended the separations freeze seven times, 
with the most recent extension set to expire on December 31, 2018. In 
adopting and extending the freeze, the Commission has reasoned that the 
freeze would stabilize and simplify the separations process while the 
Joint Board and the Commission continued to work on separations reform. 
In its most recent freeze extension order, the Commission also 
explained that an extension until December 31, 2018, would provide the 
Joint Board with sufficient time to consider what effects the 
Commission's most recent reforms to the high-cost universal service 
program and intercarrier compensation should have on the separations 
rules.
    12. Since the Commission initiated this proceeding in 1997, the 
Joint Board--comprised of both state and federal members--has been 
attempting to develop recommendations for comprehensive reform. In 
response to the Commission's initial referral, the State Members of the 
Joint Board filed a report identifying issues they believed should be 
addressed. Over the years, the State Members filed policy papers 
setting out options for reform, the Commission or the Joint Board 
sought comment, and the Joint Board held hearings and meetings to 
consider the various proposals. Nevertheless, despite the Commission's 
repeated extensions of the separations freeze to provide the Joint 
Board with additional time to issue a Recommended Decision, the Joint 
Board has not recommended comprehensive reforms.
    13. The Commission has twice waived the category relationships 
freeze to allow individual carriers to adjust the amounts assigned to 
separations categories to reflect network upgrades. In 2010, the 
Commission waived that freeze to allow Gila River Telecommunications, 
Inc., a tribally owned carrier that had upgraded its local loop plant 
in order to increase the telephone penetration rate in its extremely 
high-cost service territory, to increase the high-cost loop support it 
received from the Universal Service Fund (USF) consistent with prior 
waivers of other universal service rules for carriers serving tribal 
lands. In 2012, the Wireline Competition Bureau (Bureau) also waived 
the category relationships freeze to allow Eastex Telephone 
Cooperative, Inc. (Eastex), a rural cooperative that had upgraded its 
network with soft switches and fiber to improve its broadband services, 
to increase its settlements from the National Exchange Carrier 
Association, Inc. (NECA) special access pool, reducing Eastex's 
reliance on the USF.

II. Discussion

    14. The Commission views jurisdictional separations reform, and the 
question of whether to extend the separations freeze, in light of its 
ongoing efforts to transition from rate-of-return to incentive 
regulation and to eliminate or avoid imposing any unnecessary burdens 
on carriers. After weighing the likely benefits of extending the freeze 
against the likely costs of allowing it to end on December 31, 2018, 
the Commission proposes to extend the separations freeze for 15 years 
and to provide a time-limited opportunity for carriers that elected the 
category relationships freeze to opt out of that freeze. The Commission 
invites comment on these proposals and on the proposed rule changes set 
forth in Appendix A. The Commission also invites comment on whether it 
should modify any other aspects of the separations freeze if it adopts 
the proposal to extend it.

A. Further Extending the Separations Freeze

    15. Completion of comprehensive separations reform by the 
expiration of the freeze on December 31, 2018 is highly unlikely. Most 
fundamentally, the Commission would prefer not to move forward on 
separations reform without a Joint Board recommendation on an approach 
to such reform, and the Board is not close to reaching a 
recommendation. As Commissioner Michael O'Rielly, Chairman of the Joint 
Board, recently observed, ``the viewpoints'' within the Joint Board 
``are so vastly different on this complex issue that finding 
commonality is not going to [be] possible in the near term.'' Moreover, 
even if the Joint Board were to offer a recommendation for the 
Commission's consideration, the Commission would then likely seek 
comment on that recommendation before issuing an order revising the 
separations rules. Therefore, as a practical matter, the Commission 
must choose between extending the separations freeze and allowing long-
unused separations rules to take effect on January 1, 2019.
    16. The Commission has previously found that letting the freeze 
expire and allowing largely outmoded separations rules to be reinstated 
would impose significant burdens on rate-of-return carriers and create 
undue instability. In extending the freeze in 2017, the Commission 
explained that reinstating the separations rules would require 
substantial training and investment by rural incumbent LECs, and could 
cause significant disruptions in regulated rates, cost recovery, and 
other operating conditions. The Commission found that the ``clear 
benefits that will result from granting a further extension'' of the 
freeze outweighed any possible harms. It concluded that requiring 
carriers to reinstate their separations systems ``would be unduly 
burdensome when there is a significant likelihood that there would be 
no lasting benefit to doing so.''
    17. The Commission finds its prior analysis compelling and, 
similarly, that the benefits of an additional extension of the freeze 
likely would far outweigh any potential harms. The Commission therefore 
proposes to extend the separations freeze and to direct rate-of-return 
incumbent LECs to continue to use the same frozen jurisdictional 
allocation factors. The Commission invites comment on this proposal and 
on the relative costs and benefits of continuing the separations 
freeze.
    18. In view of these circumstances, the Commission proposes to 
extend the freeze for 15 years and invites comment on this proposal. 
The Commission also invites comment on whether a shorter extension 
would be preferable. The Commission asks that commenters discuss the 
advantages and disadvantages of a long or short extension period, and 
provide specific reasons in support of their

[[Page 35585]]

recommended timeframes. What effect, if any, would particular extension 
periods have on ratepayers? Is the Commission's choice of an extension 
period likely to distort rate levels? Commenters supporting relatively 
short extension periods should also take into account the time 
necessary for the Commission and the industry to implement any 
separations decisions and rule changes.
    19. In this regard, the Commission recognizes that the issues 
before the Joint Board are extremely complex, and the Federal and State 
members of the Joint Board have not issued a Recommended Decision on 
comprehensive separations reform in the two decades since the 
Commission originally proposed such reform. As such, how likely is it 
that the Joint Board will issue a Recommended Decision on comprehensive 
separations reform within a relatively short extension period? If 
consensus within that timeframe is unlikely, should the Commission 
adopt a relatively long extension? Or should the Commission permanently 
extend the separations freeze, as USTelecom suggests? Would a 
relatively long or permanent extension be inconsistent with section 
201(b) of the Act's prohibition on unjust and unreasonable charges?
    20. The Commission also seeks comment on whether it should change 
the scope of the issues referred to the Joint Board. In April 2017, the 
Joint Board issued a public notice seeking comment to refresh the 
record on issues related to comprehensive, permanent separations 
reform. Several commenters in response to that public notice recognized 
the steadily diminishing role of separations results in federal and 
state regulation, and argued that the Commission should not undertake 
comprehensive separations reform at the present time because it would 
be premature, disruptive, and counterproductive. In view of that 
opposition, should the Commission find that any separations reform in 
the foreseeable future should be narrowly targeted and change the scope 
of the issues referred to the Joint Board accordingly? If so, how 
should the Commission modify the referral to the Joint Board?

B. Allowing Carriers That Elected the Category Relationships Freeze an 
Opportunity To Change Their Elections

    21. The Commission proposes to provide a one-time opportunity for 
carriers that opted to freeze their category relationships in 2001 to 
opt out of that freeze, so that they can categorize their costs based 
on current circumstances rather than their circumstances in 2000. 
Presently, rate-of-return carriers in approximately 45 study areas 
operate under the category relationships freeze. When the Commission 
granted rate-of-return carriers the opportunity to elect the category 
relationships freeze, it specified that the freeze would be an interim, 
``transitional measure'' lasting no more than five years. But the 
freeze has now lasted 17 years, and carriers that elected it are 
prohibited from withdrawing from their elections. Many of these 
carriers have since invested in network upgrades or are considering 
future upgrades. As a result of the category relationships freeze, 
these carriers may be unable to recover the costs of those investments 
from the ratepayers that will benefit from those upgrades, or from the 
USF. Consequently, these carriers may lack incentives to improve 
service and deploy advanced technologies like broadband for their 
customers. The Commission therefore proposes and invites comment on 
allowing carriers to opt out of the category relationships freeze. What 
are the costs and benefits of this proposal?
    22. In the past, commenters have urged the Commission to allow 
carriers that elected the category relationships freeze to unfreeze 
those relationships. For example, ITTA points out that the Commission 
originally allowed rate-of-return carriers the flexibility to decide 
whether or not to freeze their category relationships because those 
carriers' size and investment patterns vary widely. ITTA argues that 
the Commission should provide these carriers with the flexibility to 
unfreeze their category relationships for similar reasons. ITTA 
explains that some carriers with frozen category relationships ``will 
embrace the opportunity to more accurately allocate their investment,'' 
while others ``will find reinstating their separations systems unduly 
burdensome.'' Moss Adams, NTCA, WTA, and USTelecom argue that 
unfreezing category relationships will allow carriers to assign costs 
in a manner that reflects how they offer services today and will enable 
carriers to take greater advantage of universal service funds that 
support broadband deployment. The Commission invites commenters to 
elaborate on why the Commission should allow carriers to unfreeze their 
category relationships. The Commission also seeks input from any 
commenters that oppose such action. The Commission seeks input on the 
costs and benefits of permitting carriers to unfreeze their category 
relationships--both from carriers that believe they may benefit from an 
unfreeze and from carriers, if applicable, that believe unfreezing 
category relationships would not be beneficial for them.
    23. In the years since 2000, many, and perhaps all, carriers 
subject to the category relationships freeze have made substantial 
investments to modernize their networks and to improve and expand their 
service offerings. In at least some instances, these investments are 
more weighted toward business data services, and away from switched 
access and common line categories, than the carriers' investments were 
as of 2000. If that is the case, under the category relationships 
freeze, disproportionate percentages of those carriers' investments are 
currently assigned to the common line and switched access categories. 
Are carriers that elected the category relationships freeze 
consequently unable to recover the costs of network upgrades from their 
business data services customers and from NECA's special access pool? 
If so, how does that circumstance impact their switched access rates? 
How many carriers subject to the category relationships freeze face 
these conditions, and how many would benefit from opting out of that 
freeze?
    24. The Commission asks commenters to specifically describe their 
current network investments compared to their investments in 2000 and 
to specify how their category relationships would change without a 
freeze. The Commission invites comment on what effect allowing carriers 
to opt out of the category relationships freeze would have on future 
investment. For example, would lifting the category relationships 
freeze promote greater investment in newer technologies and increased 
broadband deployment, and if so, how? The Commissions also seeks input 
on what impact unfreezing category relationships would have on how 
carriers recover their costs. For example, if carriers are allowed to 
update their network cost assignments to more accurately reflect the 
services they provide today, how would the pricing of services--
particularly business data services--be affected? Would carriers seek 
to better align their rates for specific services with the underlying 
costs of those services? Would opting out of the freeze result in more 
efficient pricing, and how would it affect consumers in terms of 
service and pricing?
    25. Allowing carriers to opt out of the category relationships 
freeze will necessarily shift costs between jurisdictions and among 
access elements, and may affect the universal

[[Page 35586]]

service funding the carrier receives. The Commission asks parties to 
describe the direction of these changes and, where possible, to 
quantify them. More specifically, to what extent would unfreezing 
carriers' category relationships shift costs from the intrastate 
jurisdiction to the interstate jurisdiction, and from common line to 
special access? In the event of such shifts, what would be the effect 
on the carriers' receipt of CAF BLS and other universal service 
funding?
    26. The Commission seeks comment on whether it should impose 
measures to prevent carriers that opt out of the category relationships 
freeze from double-recovering costs through end-user charges and 
Connect America Fund intercarrier compensation (CAF ICC) support. If 
so, what specific measures should it adopt? For example, in the Eastex 
Waiver Order, the Bureau addressed the concern that a rate-of-return 
carrier might receive an inappropriate amount of universal service 
funding or double-recover its costs when its category relationships 
were unfrozen. This situation could occur because, under the USF/ICC 
Transformation Order, a carrier can in certain situations recover its 
reduced intercarrier compensation revenue through CAF ICC support based 
on a cost recovery mechanism that is tied to a carrier's interstate 
switched access revenue requirement for October 1, 2010 through 
September 30, 2011 (FY2011). Thus, there is a risk that, as a carrier 
moves costs from the interstate switched access category into different 
categories, it could double-recover the same costs--once through CAF 
ICC support and again through special access rates and related NECA 
settlements.
    27. To prevent such a double recovery, in granting a waiver of the 
category relationships freeze to Eastex, the Bureau required Eastex to 
recalculate its 2011 Rate-of-Return Carrier Base Period Revenue (BPR) 
using actual, unfrozen categories and to file a revised interstate 
switched access revenue requirement. The Bureau expected that the 
recalculation would reduce the interstate switched access revenue 
requirement included in Eastex's BPR and shift costs from interstate 
common line to interstate special access. The Bureau concluded that 
removing ``an amount representative of the FY2011 interstate revenue 
attributable to the investment being shifted from interstate switched 
access to other categories'' from possible recovery though CAF ICC 
support would protect consumers and the USF.
    28. Consistent with this precedent, should the Commission require 
any carrier that opts out of the category relationships freeze to 
recalculate its BPR using unfrozen category relationships and to file a 
revised interstate switched access revenue requirement with the 
Commission? If the Commission requires carriers that are allowed to 
unfreeze their category relationships to recalculate their BPRs, it 
proposes to use 2011 cost study data because those are the most recent 
data that do not reflect the effects of the USF/ICC Transformation 
Order. The Commission invites parties to comment on this approach. 
While some carriers may have the necessary data to perform the study, 
others may not. For those that do not, the Commission invites parties 
to propose an alternative means of estimating the BPR adjustment that 
should be made.
    29. To the extent that a carrier's BPR is adjusted by the preceding 
calculations, should the Commission require that the carrier adjust its 
interstate switched access rate cap by a percentage amount equal to the 
adjustment made to the interstate projected revenue requirement 
component of the BPR? The carrier would then revise its rates to 
reflect the transitions mandated by the USF/ICC Transformation Order as 
of the date of the next annual access tariff filing. The Commission 
invites parties to comment on this approach and on whether it would 
provide a reasonable method for eliminating potential double recoveries 
resulting from unfreezing category relationships.
    30. In the interest of simplicity, the Commission proposes to allow 
carriers subject to the category relationships freeze a single 
opportunity to unfreeze their frozen category relationships. The 
Commission seeks comment on that approach. If the Commission provides 
this one-time opportunity, should it require that carriers electing to 
unfreeze their category relationships make conforming changes to their 
tariffs effective on July 1, 2019? If so, should it require that 
carriers with frozen categories notify the Commission and NECA (if a 
carrier participates in NECA's special access pool) by March 1, 2019 of 
their decisions to opt out of the category relationships freeze? Would 
a July 1, 2019 effective date provide carriers with sufficient time to 
implement any changes needed to update category relationships?
    31. In the alternative, should the Commission allow carriers 
subject to the category relationships freeze to unfreeze their category 
relationships at any date they choose in the future? What would be the 
benefits and drawbacks of such an approach? Should the Commission allow 
a carrier presently subject to the category relationships freeze that 
opts to unfreeze its category relationships to refreeze those 
relationships at some future date? What would be the costs and benefits 
of this approach?
    32. Instead of allowing carriers the option of unfreezing their 
category relationships, should the Commission require all rate-of-
return carriers that currently operate under the category relationships 
freeze to unfreeze their category relationships? What would be the 
impact of lifting the category relationships freeze for all carriers 
that elected the relationships freeze in 2001? Would it significantly 
increase the accuracy of separations results and, if so, would any 
benefits from that increased accuracy outweigh any costs that a 
mandatory unfreeze would impose?
    33. In adopting the separations freeze in 2001, the Commission 
anticipated that its ``waiver process [would] provide a mechanism for 
relief when special circumstances warrant a deviation from the 
freeze.'' The Commission previously granted two petitions for waiver to 
allow carriers to withdraw from the category relationships freeze and 
have two waiver requests pending. If the Commission does not allow all 
affected carriers to unfreeze their category relationships in this 
rulemaking, would other carriers subject to this relationships freeze 
feel the need to seek relief of the freeze through the waiver process? 
Are there particular facts or circumstances that the Commission should 
consider in assessing whether a carrier has demonstrated sufficient 
``good cause'' to justify a waiver under the Commission's rules that 
would allow a carrier to unfreeze its category relationships?
    34. The Commission also seeks input on whether there is any reason 
to allow carriers not currently subject to the category relationships 
freeze to elect to freeze their categories. The Commission asks 
carriers to provide detailed information about any costs they encounter 
in categorizing their regulated costs and revenues as well as 
information on how their category relationships have changed over time. 
These carriers should address whether the benefits from eliminating 
those administrative costs would outweigh any loss in the accuracy of 
separations results that would arise from freezing their category 
relationships. Further, the Commission seeks input on what base period 
of data carriers should use for their calculations if it allows them to 
elect to freeze their category relationships.

[[Page 35587]]

    35. If the Commission allows carriers not currently subject to the 
category relationships freeze to elect to freeze their categories, what 
opportunities should the Commission provide for unfreezing them going 
forward? What procedures should the Commission adopt if it decides to 
allow changes in elections? For instance, should the Commission allow 
carriers to change their elections on a periodic basis--for example, 
every three years? Finally, the Commission seeks comment on whether it 
should allow carriers that opt to unfreeze their category relationships 
the option to update those category relationships and then refreeze 
them immediately or at some later date. What would be the costs and 
benefits to the carriers and to the public of allowing carriers to 
unfreeze and then refreeze their category relationships?

C. Changes to Other Aspects of the Separations Freeze

    36. If the Commission adopts its proposal to extend the separations 
freeze, are there any other aspects of the freeze it should modify? The 
Commission asks commenters to identify any specific problems with the 
freeze as well as potential solutions.
    37. In the 2001 Separations Freeze Order, the Commission required 
that all rate-of-return incumbent LECs apportion their categorized 
costs using their allocation factors for the year 2000. Should the 
Commission allow, or require, rate-of-return LECs to reset their 
jurisdictional allocation factors using current data? The Commission 
asks commenters to describe in detail the benefits and costs of such 
actions. The Commission invites comment on whether the Commission 
should allow, or require, carriers to refreeze their jurisdictional 
allocation factors once they are reset. The Commission also seeks 
comment on how any reset of jurisdictional allocation factors should be 
implemented, including providing information regarding timeframes, 
deadlines, period of data to be used, and any other related details.

D. Effect on Small Entities

    38. The Commission seeks comment on the effect that its proposals 
to extend the separations freeze and to allow rate-of-return carriers 
to opt out of the category relationships freeze would have on small 
entities, and whether any rules that the Commission adopts should apply 
differently to small entities. The Commission seeks comment on the 
costs and burdens of these proposals on small incumbent LECs and 
whether these proposals would disproportionately affect specific types 
of carriers or ratepayers. The Commission also seeks input on the 
effect, if any, on small entities of any other aspects of the 
separations freeze that it inquires about in this Further Notice.

III. Procedural Matters

A. Deadlines and Filing Procedures

    39. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, 47 CFR 1.415, 1.419, interested parties may file comments and 
reply comments on or before the dates indicated on the first page of 
this document in CC Docket No. 80-286. Comments may be filed using the 
Commission's Electronic Comment Filing System (ECFS).
    <bullet> Electronic Filers: Comments may be filed electronically 
using the internet by accessing the ECFS: http://apps.fcc.gov/ecfs/.
    <bullet> Paper Filers: Parties who choose to file by paper must 
file an original and one copy of each filing. If more than one docket 
or rulemaking number appears in the caption of this proceeding, filers 
must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail. All filings must be addressed to the Commission's Secretary: 
Office of the Secretary, Federal Communications Commission.
    <bullet> All hand-delivered or messenger-delivered paper filings 
for the Commission's Secretary must be delivered to FCC Headquarters at 
445 12th St. SW, Room TW-A325, Washington, DC 20554. The filing hours 
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together 
with rubber bands or fasteners. Any envelopes and boxes must be 
disposed of before entering the building.
    <bullet> Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9050 Junction Drive, 
Annapolis Junction, MD 20701.
    <bullet> U.S. Postal Service first-class, Express, and Priority 
mail must be addressed to 445 12th Street SW, Washington, DC 20554.
    <bullet> People with Disabilities: To request materials in 
accessible formats for people with disabilities (braille, large print, 
electronic files, audio format), send an email to <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="b2d4d1d1878286f2d4d1d19cd5ddc4">[email protected]</a> or 
call the Consumer & Governmental Affairs Bureau at 202-418-0530 
(voice), 202-418-0432 (TTY).
    40. Ex Parte Requirements. This proceeding shall be treated as a 
``permit-but-disclose'' proceeding in accordance with the Commission's 
ex parte rules. Persons making ex parte presentations must file a copy 
of any written presentation or a memorandum summarizing any oral 
presentation within two business days after the presentation (unless a 
different deadline applicable to the Sunshine period applies). Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentation must (1) list all persons attending or 
otherwise participating in the meeting at which the ex parte 
presentation was made, and (2) summarize all data presented and 
arguments made during the presentation. If the presentation consisted 
in whole or in part of the presentation of data or arguments already 
reflected in the presenter's written comments, memoranda or other 
filings in the proceeding, the presenter may provide citations to such 
data or arguments in his or her prior comments, memoranda, or other 
filings (specifying the relevant page and/or paragraph numbers where 
such data or arguments can be found) in lieu of summarizing them in the 
memorandum. Documents shown or given to Commission staff during ex 
parte meetings are deemed to be written ex parte presentations and must 
be filed consistent with rule 1.1206(b). In proceedings governed by 
rule 1.49(f) or for which the Commission has made available a method of 
electronic filing, written ex parte presentations and memoranda 
summarizing oral ex parte presentations, and all attachments thereto, 
must be filed through the electronic comment filing system available 
for that proceeding, and must be filed in their native format (e.g., 
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding 
should familiarize themselves with the Commission's ex parte rules.

B. Initial Regulatory Flexibility Analysis

    41. Pursuant to the Regulatory Flexibility Act (RFA), the 
Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the possible significant economic impact on small entities of 
the policies and actions considered in this Further Notice. The text of 
the IRFA is set forth in Appendix B of the Further Notice. Written 
public comments are requested on this IRFA. Comments must be identified 
as responses to the IRFA and must be filed by the deadlines for comment 
provided in the Further Notice. The Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, will send a 
copy of

[[Page 35588]]

this Further Notice of Proposed Rulemaking, including the IRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration (SBA).

C. Paperwork Reduction Act

    42. This document may contain proposed new or modified information 
collection requirements. The Commission, as part of its continuing 
effort to reduce paperwork burdens, invites the general public and the 
Office of Management and Budget to comment on the information 
collection requirements contained in this document, as required by the 
Paperwork Reduction Act of 1995, Public Law 104-13. In addition, 
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 
107-198, the Commission seeks specific comment on how it might further 
reduce the information collection burden for small business concerns 
with fewer than 25 employees.

IV. Initial Regulatory Flexibility Analysis

A. Need for, and Objectives of, the Proposed Rules

    43. The vast majority of the part 36 jurisdictional separations 
rules were last updated more than 30 years ago. In 1997, the Commission 
initiated a proceeding to comprehensively reform those rules in light 
of the statutory, technological, and marketplace changes that had 
affected the telecommunications industry. In 2001, the Commission, 
pursuant to a recommendation by the Federal-State Joint Board on 
Jurisdictional Separations (Joint Board), froze the part 36 separations 
rules for a five-year period beginning July 1, 2001, or until the 
Commission completed comprehensive separations reform, whichever came 
first.
    44. The Commission has extended the freeze seven times, with the 
most recent extension set to expire on December 31, 2018. The 
Commission would prefer not to move forward on separations reform 
without a Joint Board recommendation on an approach to such reform, and 
the Board is not close to reaching a recommendation. Therefore, as a 
practical matter, completion of comprehensive separations reform by the 
expiration of the freeze on December 31, 2018 is highly unlikely, and 
the Commission must choose between extending the separations freeze and 
allowing long-unused separations rules to take effect on January 1, 
2019.
    45. Because the Commission expects that the benefits of further 
extending the jurisdictional separations freeze likely outweigh the 
costs of allowing it to end, the Commission in this Further Notice 
proposes to extend the freeze for 15 years, and invites comment on 
whether a shorter extension would be preferable. The Commission also 
seeks comment on whether it should alter the scope of the referral to 
the Joint Board regarding comprehensive separations reform. The 
Commission also proposes to permit rate-of-return carriers that elected 
to freeze their category relationships in 2001 to opt out of this 
freeze, and it seeks comment on that proposal.

B. Legal Basis

    46. The legal basis for the Further Notice is contained in sections 
1, 4(i) and (j), 205, 220, 221(c), 254, 303(r), 403, and 410 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i) and (j), 
205, 220, 221(c), 254, 303(r), 403, 410, and section 706 of the 
Telecommunications Act of 1996, as amended, 47 U.S.C. 1302.

C. Description and Estimate of the Number of Small Entities to Which 
Rules May Apply

    47. The RFA directs agencies to provide a description of, and, 
where feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A ``small business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the SBA. 
Nationwide, there are 28.8 million small businesses, according to the 
SBA.
    48. Incumbent Local Exchange Carriers. Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
providers of incumbent local exchange services. The closest applicable 
size standard under the SBA rules is for Wired Telecommunications 
Carriers. Under the SBA definition, a carrier is small if it has 1,500 
or fewer employees. According to the FCC's Telephone Trends Report 
data, 1,307 incumbent local exchange carriers (LECs) reported that they 
were engaged in the provision of local exchange services. Of these 
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. Consequently, the Commission 
estimates that most incumbent LECs are small entities that may be 
affected by the rules and policies addressed in this Further Notice.
    49. The Commission has included small incumbent LECs in this RFA 
analysis. As noted above, a ``small business'' under the RFA is one 
that, inter alia, meets the pertinent small business size standard 
(e.g., a telephone communications business having 1,500 or fewer 
employees), and ``is not dominant in its field of operation.'' The 
SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. Because the Commission's 
proposals concerning the Part 36 separations process will affect all 
rate-of-return incumbent LECs providing interstate services, some 
entities employing 1,500 or fewer employees may be affected by the 
proposals made in this Further Notice. The Commission has therefore 
included small incumbent LECs in this RFA analysis, although it 
emphasizes that this RFA action has no effect on the Commission's 
analyses and determinations in other, non-RFA contexts.

D. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    50. If a rate-of-return carrier were allowed to opt out of the 
category relationships freeze, it would be able to update its Part 36 
category relationships annually by doing new cost studies and then 
adjusting its rates. The Further Notice elicits comment on whether 
rates based on the updated relationships should take effect with the 
July 1, 2019 tariff filing. If so, as part of that filing, rate-of-
return carriers will need to explain the new studies in the Description 
& Justification section and submit the results of these studies in 
their tariff review plans.

E. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    51. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance and reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from

[[Page 35589]]

coverage of the rule, or part thereof, for small entities.
    52. The jurisdictional freeze has eliminated the need for all 
incumbent LECs, including incumbent LECs with 1,500 employees or fewer, 
to complete certain annual separations studies that otherwise would be 
required by the Commission's rules. Thus, an extension of this freeze 
would avoid increasing the administrative burden of regulatory 
compliance for rate-of-return incumbent LECs, including small incumbent 
LECs.
    53. Presently, rate-of-return carriers in about 45 study areas 
operate under a category relationships freeze. When the Commission 
granted rate-of-return carriers the opportunity to elect the category 
relationships freeze, it specified the freeze would be an interim, 
``transitional measure'' lasting no more than five years. But, the 
freeze has now lasted 17 years, and carriers that elected it are 
prohibited from withdrawing from that election. The Commission proposes 
to grant these carriers the opportunity to opt out of this freeze. The 
Commission recognizes that the size and investment patterns of these 
carriers vary widely, and implementation of this proposal would enable 
an individual carrier to decide for itself if the economic benefits of 
unfreezing its category relationships outweigh any costs.
    54. The Commission seeks comment on the effect of its proposals on 
small entities, and whether any rules that the Commission adopts should 
apply differently to small entities. The Commission directs commenters 
to consider the costs and burdens of these proposals on small incumbent 
LECs and whether the proposals would disproportionately affect specific 
types of carriers or ratepayers.

F. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    55. None.

V. Ordering Clauses

    56. Accordingly, it is ordered, pursuant to sections 1, 4(i) and 
(j), 205, 220, 221(c), 254, 303(r), 403, and 410 of the Communication 
Act of 1934, as amended, 47 U.S.C. 151, 154(i) and (j), 205, 220, 
221(c), 254, 303(r), 403, 410, and section 706 of the 
Telecommunications Act of 1996, as amended, 47 U.S.C. 1302, that this 
Further Notice of Proposed Rulemaking is adopted.
    57. It is further ordered, pursuant to section 220(i) of the 
Communications Act, 47 U.S.C. 220(i), that notice be given to each 
state commission of the above rulemaking proceeding, and that the 
Secretary shall serve a copy of this Further Notice of Proposed 
Rulemaking on each state commission.
    58. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Further Notice of Proposed Rulemaking, including the 
Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects for CFR Part 36

    Reporting and recordkeeping requirements, Telephone, Uniform system 
of accounts.

Federal Communications Commission.
Marlene Dortch,
Secretary, Office of the Secretary.

Proposed Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission proposes to amend 47 CFR part 36 as follows:

PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES 
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, 
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES

0
1. The authority citation for part 36 is revised to read as follows:

    Authority: 47 U.S.C. 151, 154(i) and (j), 205, 220, 221(c), 254, 
303(r), 403, 410, and 1302 unless otherwise noted.

0
2. Amend Sec.  36.3 by revising paragraph (b) to read as follows:


Sec.  36.3  Freezing of jurisdictional separations category 
relationships and/or allocation factors.

* * * * *
    (b) Effective July 1, 2001, through December 31, 2033, local 
exchange carriers subject to price cap regulation, pursuant to Sec.  
61.41 of this chapter, shall assign costs from the part 32 accounts to 
the separations categories/sub-categories, as specified herein, based 
on the percentage relationships of the categorized/sub-categorized 
costs to their associated part 32 accounts for the twelve month period 
ending December 31, 2000. If a part 32 account for separations purposes 
is categorized into more than one category, the percentage relationship 
among the categories shall be utilized as well. Local exchange carriers 
that invest in types of telecommunications plant during the period July 
1, 2001, through December 31, 2033, for which it had no separations 
category investment for the twelve month period ending December 31, 
2000, shall assign such investment to separations categories in 
accordance with the separations procedures in effect as of December 31, 
2000. Local exchange carriers not subject to price cap regulation, 
pursuant to Sec.  61.41 of this chapter, may elect to be subject to the 
provisions of paragraph (b) of this section. Such election must be made 
prior to July 1, 2001. Any local exchange carrier that elected to be 
subject to paragraph (b) of this section may withdraw from that 
election by notifying the Commission prior to March 1, 2019 of its 
intent to withdraw from that election, and that withdrawal will be 
effective as of July 1, 2019. Any local exchange carrier choosing to 
withdraw from its election under paragraph (b) of this section that 
participates in an Association tariff, pursuant to Sec.  69.601 et 
seq., also shall notify the Association prior to March 1, 2019, of such 
intent. Subject to that one exception, local exchange carriers that 
previously elected to become subject to paragraph (b) shall not be 
eligible to withdraw from such regulation for the duration of the 
freeze.
* * * * *


Sec.  36.126  [Amended]

0
2. Amend Sec.  36.126(b)(5) by removing the date ``June 30, 2014'' and 
adding in its place ``December 31, 2033.''


Sec. Sec.  36.3, 36.123, 36.124, 36.125, 36.126, 36.141, 36.142, 
36.152, 36.154, 36.155, 36.156, 36.157, 36.191, 36.212, 36.214, 36.372, 
36.374, 36.375, 36.377, 36.378, 36.379, 36.380, 36.381, and 
36.382  [Amended]

0
3. In 47 CFR part 36, remove the date ``December 31, 2018'' and add in 
its place everywhere it appears the date ``December 31, 2033'' in the 
following places:
0
a. Section 36.3(a), (c), (d) introductory text, and (e);
0
b. Section 36.123(a)(5) and (6);
0
c. Section 36.124(c) and (d);
0
d. Section 36.125(h) and (i);
0
e. Section 36.126(b)(6), (c)(4), (e)(4), and (f)(2);
0
f. Section 36.141(c);
0
g. Section 36.142(c);
0
h. Section 36.152(d);
0
i. Section 36.154(g);
0
j. Section 36.155(b);
0
k. Section 36.156(c);
0
l. Section 36.157(b);
0
m. Section 36.191(d);
0
n. Section 36.212(c);
0
o. Section 36.214(a);
0
p. Section 36.372;
0
q. Section 36.374(b) and (d);
0
r. Section 36.375(b)(4) and (5);
0
s. Section 36.377(a) introductory text, (a)(1)(ix), (a)(2)(vii), 
(a)(3)(vii), (a)(4)(vii); (a)(5)(vii), and (a)(6)(vii);

[[Page 35590]]

0
t. Section 36.378(b)(1);
0
u. Section 36.379(b)(1) and (2);
0
v. Section 36.380(d) and (e);
0
w. Section 36.381(c) and (d); and
0
x. Section 36.382(a)

[FR Doc. 2018-16040 Filed 7-26-18; 8:45 am]
BILLING CODE 6712-01-P


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