[Federal Register Volume 63, Number 124 (Monday, June 29, 1998)]
[Rules and Regulations]
[Pages 35150-35161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17076]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 52

[CC Docket No. 95-116; FCC 98-82]


Telephone Number Portability

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: On May 12, 1998, the Commission released a Third Report and 
Order in CC Docket No. 95-115, adopting measures to distribute the 
costs of long-term number portability among telecommunications 
carriers. In this order, the Commission decides that telecommunications 
carriers shall pay for the shared costs of the number portability 
regional databases based on each telecommunications carrier's end-user 
telecommunications revenues in each region, telecommunications carriers 
shall bear their own carrier-specific costs directly related to 
providing number portability, incumbent LECs have the option to recover 
their carrier-specific costs directly related to providing number 
portability through a five-year end user charge, as well as through 
number portability query charges to other carriers, and unregulated 
carriers may recover their carrier-specific costs directly related to 
providing number portability in any lawful manner. This Third Report 
and Order ensures that all telecommunications carriers bear the costs 
of number portability in a competitively neutral manner.

EFFECTIVE DATE: July 29, 1998, except for Secs. 52.32(b) and 
52.33(a)(1), which contain information collection requirements that are 
not effective until approved by the Office of Management and Budget. 
The Commission will publish a document in the Federal Register 
announcing the effective date for those sections.

FOR FURTHER INFORMATION CONTACT: Lloyd Collier at (202) 418-2712, or 
Neil Fried at (202) 418-1865, Competitive Pricing Division, Common 
Carrier Bureau.

SUPPLEMENTARY INFORMATION: This summarizes the Commission's Third 
Report and Order in CC Docket No. 95-116, In the Matter of Telephone 
Number Portability, FCC 98-82, RM 8535, adopted May 5, 1998, and 
released May 12, 1998. The file in its entirety is available for 
inspection and copying during the weekday hours of 9 a.m. to 4:30 p.m. 
in the Commission's Reference Center, room 239, 1919 M St., N.W., 
Washington D.C., or copies may be purchased from the Commission's 
duplicating contractor, ITS, Inc. 1231 20th St., N.W., Washington, D.C. 
20036, phone (202) 857-3800.

[[Page 35151]]

ANALYSIS OF PROCEEDING

I. Background

A. The Provision of Long-Term Number Portability

    The Telecommunications Act of 1996 amends the 1934 Act to provide 
for a pro-competitive, de-regulatory national policy framework designed 
to accelerate rapidly private sector deployment of advanced 
telecommunications and information technologies and services to all 
Americans by opening all telecommunications markets to competition. 
Congress added section 251(b)(2) to the 1934 Act, which requires all 
LECs, both incumbents and new entrants, ``to provide, to the extent 
technically feasible, number portability in accordance with 
requirements prescribed by the Commission.'' In light of Congress' 
number portability mandate, the Commission released a combined First 
Report and Order (Order) & Further Notice of Proposed Rulemaking 
(Further Notice) (61 FR 38605, July 25, 1996) in July 1996 to begin 
implementing number portability. Without number portability, customers 
ordinarily cannot change their local telephone companies unless they 
change telephone numbers. Under the existing network architecture and 
the North American Numbering Plan (NANP), a telephone number functions 
like an address: every number is associated with an individual switch 
operated by a particular local telephone company in a specific 
geographic area. The area code, also called the Numbering Plan Area 
(the NPA), identifies the general geographic area within which the 
switch provides service. The next three digits of the telephone number 
(the NXX) identify the switch that serves the customer. The last four 
digits identify the specific telephone line serving the customer's 
location. Carriers use this ten-digit number to connect a telephone 
call to the called party. Thus, if a customer changes local telephone 
companies and receives service at the same location from a different 
telephone company providing service from a different switch, the 
customer's new local telephone company typically must assign the 
customer a new seven-digit number (NXX code plus line number) 
associated with the new switch and new telephone line.
    2. Number portability technology allows customers to retain their 
telephone numbers when changing local service providers. Although the 
Commission did not mandate a specific long-term number portability 
method, most carriers intend to provide long-term number portability 
through a location routing number (LRN) architecture. Under an LRN 
architecture, each switch is assigned a unique ten-digit LRN, the first 
six digits of which identify the location of that switch. Each 
customer's telephone number is matched in a regional database with the 
LRN for the switch that currently serves that telephone number. Each 
database serves an area that corresponds to one of the original 
regional Bell Operating Company (RBOC) service territories. Neutral 
third parties, called local number portability administrators (LNPAs), 
will administer these regional databases.
    3. When a customer changes from one LEC to another, the carrier 
that wins the customer will ``port'' the customer's number from the 
former carrier by electronically transmitting (uploading) the new LRN 
to the administrator of the relevant regional database. This will pair 
the customer's original telephone number with the LRN for the switch of 
the new carrier, allowing the customer to retain the original telephone 
number. The regional database administrators will then electronically 
transmit (download) LRN updates to carrier-operated local service 
management systems (LSMSs). Each carrier will distribute this 
information to service control points (SCPs) or signal transfer points 
(STPs) that the carrier will use to store and process data for 
providing number portability.
    4. For a carrier to route an interswitch telephone call to a 
location where number portability is available, the carrier must 
determine the LRN for the switch that serves the terminating telephone 
number of the call. Once number portability is available for an NXX, 
carriers must ``query'' all interswitch calls to that NXX to determine 
whether the terminating customer has ported the telephone number. 
Carriers will accomplish this by sending a signal over the SS7 network 
to retrieve from an SCP or STP the LRN associated with the called 
telephone number. The industry has proposed, and the Commission has 
endorsed, an ``N minus one'' (N-1) querying protocol. Under this 
protocol, the N-1 carrier will be responsible for the query, where 
``N'' is the entity terminating the call to the end user, or a network 
provider contracted by the entity to provide tandem access. Thus the N-
1 carrier (i.e. the last carrier before the terminating carrier) for a 
local call will usually be the calling customer's local service 
provider; the N-1 carrier for an interexchange call will usually be the 
calling customer's interexchange carrier (IXC). An N-1 carrier may 
perform its own querying, or it may arrange for other carriers or third 
parties to provide querying services on its behalf.
    5. To route a local call under this system, the originating local 
service provider will examine the seven-digit number that its customer 
dialed, for example ``456-7890.'' If the called telephone number is on 
the originating switch (i.e. an intraswitch call), the originating 
local service provider will simply complete the call. If the call is 
interswitch, the originating local service provider will compare the 
NXX, ``456,'' with its table of NXXs for which number portability is 
available. If ``456'' is not such an NXX, the originating local service 
provider will treat the call the same as it did before the existence of 
long-term number portability. If it is an NXX for which portability is 
available, the originating local service provider will add the NPA, for 
instance ``123,'' to the dialed number and query ``(123) 456-7890'' to 
an SCP containing the LRNs downloaded from the relevant regional 
database. The SCP will return the LRN for ``(123) 456-7890'' (which 
would be ``(123) 456 XXXX'' if the customer has not changed carriers, 
or something like ``(123) 789-XXXX'' if the customer has changed 
carriers), and use the LRN to route the call to the appropriate switch 
with an SS7 message indicating that it has performed the query. The 
terminating carrier will then complete the call. To route an 
interexchange call, the originating local service provider will hand 
the call off to the IXC and the IXC will undertake the same procedure.

B. Prior Commission Decisions

    6. The Order, as modified by the First Memorandum Opinion and Order 
on Reconsideration (First Reconsideration Order) ( 62 FR 18280, April 
15, 1997), requires LECs to implement long-term number portability: (1) 
in Chicago, Philadelphia, Atlanta, New York, Los Angeles, Houston, and 
Minneapolis--the largest metropolitan statistical area (MSA) in each of 
the seven RBOC regions'between October 1, 1997, and March 31, 1998; (2) 
in the rest of the 100 largest MSAs in quarterly stages between January 
1, 1998, and December 31, 1998; and (3) thereafter in switches outside 
the 100 largest MSAs, within six months of a request by a 
telecommunications carrier. A number of carriers have received 
extensions of the March 31, 1998, implementation deadline for certain 
areas ranging from two to five months.
    7. The Commission explained that the statutory definition of number 
portability requires LECs to implement

[[Page 35152]]

number portability in such a way that LEC customers can keep their 
telephone numbers when they switch to any other telecommunications 
carrier, including, therefore, when they switch to a commercial mobile 
radio services (CMRS) provider. The Commission also required in the 
Order that certain types of CMRS providers be able by December 31, 
1998, to route calls to any ported numbers and be able by June 30, 
1999, to allow their own customers to take their telephone numbers to 
other carriers. By its language, section 251(b)(2) requires only that 
LECs provide number portability, and the 1934 Act, as amended, excludes 
from the definition of ``local exchange carrier'' those entities 
engaged in the provision of a commercial mobile service under section 
332(c), except to the extent that the Commission finds that such 
service should be included in the definition of such term. Although the 
Commission declined in the Order to address whether CMRS providers are 
LECs, the Commission exercised authority under sections 1, 2, 4(i), and 
332 to require three categories of CMRS providers'cellular providers, 
broadband personal communications service (PCS) providers, and covered 
specialized mobile radio (SMR) providers'to provide number portability. 
The Commission concluded that requiring these CMRS providers to provide 
number portability would serve the public interest by promoting 
competition between and among local wireless and wireline carriers, as 
well as among providers of interstate access service.
    8. In the Order, the Commission exempted some CMRS providers from 
the obligation to provide number portability: paging and other 
messaging service providers, private paging service providers, business 
radio service providers, providers of land mobile service on 220-222 
MHz, public coast stations, public land mobile service providers, 800 
MHz air-ground radio-telephone service providers, offshore radio 
service providers, mobile satellite service providers, narrowband PCS 
service providers, local SMR licensees, and local multipoint 
distribution service (LMDS) providers. The Commission reasoned that 
such carriers currently have little impact on competition for local 
service.
    9. In the First Reconsideration Order, the Commission concluded 
that within the 100 largest MSAs, LECs must provide number portability 
only in switches for which another carrier has specifically and 
reasonably requested the provision of number portability. The 
Commission reasoned that such an approach allows carriers to focus 
their resources where competitors plan to enter, which is where number 
portability is likely to have the most impact in the short run on the 
development of competition for local services. Structuring 
implementation in this fashion reduces costs, eases the demands on 
software vendors, and encourages efficient deployment, network 
planning, and testing. The Commission emphasized, however, that all 
carriers, even those operating portability-incapable switches, are 
still responsible for properly routing calls to telephone numbers in 
locations where number portability is available. Carriers can meet that 
responsibility either by routing the call to one of their switches that 
is capable of performing the necessary database query, or by arranging 
for another carrier or a third party to query the database or route the 
call.
    10. In the Second Report and Order (62 FR 48774, September 17, 
1997), the Commission determined that if an N-1 carrier arranges with 
another entity to perform queries on the carrier's behalf, that other 
entity may charge the N-1 carrier in accordance with requirements to be 
established in this Third Report and Order. The Commission also noted 
that when an N-1 carrier fails to ensure that a call is queried, the 
call might inadvertently be routed by default to the LEC that 
originally served the telephone number. If the number was ported, the 
LEC incurs costs in redirecting the call. This could happen, for 
example, if there is a technical failure in the N-1 carrier's ability 
to query, or if the N-1 carrier fails to ensure that its calls are 
queried, either through its own query capability or through an 
arrangement with another carrier or third-party. The Commission 
determined in the Second Report and Order that if a LEC performs 
queries on default-routed calls, the LEC may charge the N-1 carrier in 
accordance with requirements to be established in this Third Report and 
Order. The Commission determined further that it would allow LECs to 
block default-routed calls, but only in specific circumstances when 
failure to do so is likely to impair network reliability. The 
Commission also said that it would require LECs to apply this blocking 
standard to calls from all carriers on a nondiscriminatory basis.

II. The Statutory Framework

A. Federal/State Jurisdiction

    11. We conclude that section 251(e)(2) requires the Commission to 
ensure that carriers bear the costs of providing long-term number 
portability on a competitively neutral basis for both interstate and 
intrastate calls. In reaching this conclusion, we note that section 
251(e)(2) expressly and unconditionally grants the Commission authority 
to ensure that carriers bear the costs of providing number portability 
on a competitively neutral basis.
    12. Consequently, we find that section 251(e)(2) authorizes the 
Commission to provide the distribution and recovery mechanism for all 
the costs of providing long-term number portability. We conclude that 
an exclusively federal recovery mechanism for long-term number 
portability will enable the Commission to satisfy most directly its 
competitive neutrality mandate, and will minimize the administrative 
and enforcement difficulties that might arise were jurisdiction over 
long-term number portability divided. Further, such an approach 
obviates the need for state allocation of the shared costs of the 
regional databases, a task that would likely be complicated by the 
databases' multistate nature. Under the exclusively federal number 
portability cost recovery mechanism, incumbent LECs' number portability 
costs will not be subject to jurisdictional separations. Instead, we 
will allow incumbent LECs to recover their costs pursuant to 
requirements we establish in this Third Report and Order.

B. Scope of Section 251(e)(2)

    13. We interpret the terms of section 251(e)(2) in ways that will 
best implement its goals. The 1996 Act amended the 1934 Act to provide 
for a pro-competitive, de-regulatory national policy framework and to 
open all telecommunications markets to competition. Section 251(b)(2) 
furthers those congressional goals by requiring all LECs to provide 
number portability so that subscribers of local telephone service can 
retain their telephone numbers when changing carriers. At the same 
time, by requiring the Commission to ensure that all telecommunications 
carriers bear on a competitively neutral basis the costs of providing 
number portability, section 251(e)(2) seeks to prevent those costs from 
themselves undermining competition.
    14. We conclude that ``the cost[s] of establishing `` number 
portability'' to be borne on a competitively neutral basis include the 
costs that LECs incur to meet the obligations imposed by section 
251(b)(2), as well as the costs other telecommunications carriers'such 
as IXCs and CMRS providers'incur for the industry-wide solution to 
local number portability. <SUP>1</SUP> The Act defines number

[[Page 35153]]

portability as the ability of users of telecommunications services to 
retain, at the same location, existing telecommunications numbers 
without impairment of quality, reliability, or convenience when 
switching from one telecommunications carrier to another. Thus, ``the 
costs of number portability'' are the costs of enabling 
telecommunications users to keep their telephone numbers without 
degradation of service when they switch carriers. Such costs include 
the costs a carrier incurs to make it possible to transfer a telephone 
number to another carrier, as well as the costs involved in making it 
possible to route calls to customers who have switched carriers (i.e., 
the costs involved in making the N-1 querying protocol possible). IXCs 
and CMRS providers, as well as LECs, incur these costs.
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    \1\ Under the N-1 protocol recommended by the industry under the 
auspices of the NANC, and the Commission's requirements for the 
provision of long-term number portability, almost all 
telecommunications carriers'including LECs, IXCs, and CMRS 
providers'will incur costs of number portability.
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    15. We also adopt the tentative conclusion in the Further Notice 
that costs not directly related to providing number portability, as 
defined further below, are not costs of providing number portability. 
Consequently, such costs need not ``be borne by all telecommunications 
carriers on a competitively neutral basis'' under section 251(e)(2). 
Section 251(e)(2) requires that the costs of providing number 
portability be borne on a competitively neutral basis. Costs not 
directly related to providing number portability encompass a wide range 
of costs that carriers incur to provide telecommunications functions 
unrelated to number portability. We find no indication that Congress 
intended to place such costs within the scope of the competitive 
neutrality requirement of section 251(e)(2). Because costs not directly 
related to providing number portability are not subject to 251(e)(2), 
the Commission is not obligated under that section to create special 
provisions to ensure that they are borne on a competitively neutral 
basis.
    16. We also conclude that section 251(e)(2) requires the Commission 
to ensure that number portability costs are distributed among, as well 
as recovered by, carriers on a competitively neutral basis. Despite the 
Commission's tentative conclusion that section 251(e)(2) only applies 
to the distribution of number portability costs, we now find ambiguous 
the scope of the language requiring that costs ``be borne * * * on a 
competitively neutral basis.'' We find further that reading section 
251(e)(2) as applying to both distribution and recovery best achieves 
the congressional goal of ensuring that the costs of providing number 
portability do not restrict the local competition that number 
portability is intended to encourage. Because the manner in which 
carriers recover the costs of providing number portability could affect 
their ability to compete, we cannot ensure that number portability 
costs are ``borne by all telecommunications carriers on a competitively 
neutral basis'' unless we address both distribution and recovery. If 
the Commission ensured the competitive neutrality of only the 
distribution of costs, carriers could effectively undo this 
competitively neutral distribution by recovering from other carriers. 
For example, an incumbent LEC could redistribute its number portability 
costs to other carriers by seeking to recover them in increased access 
charges to IXCs. Therefore, we find that section 251(e)(2) requires the 
Commission to ensure that both the distribution and recovery of 
intrastate and interstate number portability costs occur on a 
competitively neutral basis.

C. Competitive Neutrality

    17. We adopt the Commission's tentative conclusion to apply to 
long-term number portability the Order's definition of competitive 
neutrality as requiring that the cost of number portability borne by 
each carrier does not affect significantly any carrier's ability to 
compete with other carriers for customers in the marketplace. Applying 
this definition will ensure that the cost of implementing number 
portability does not undermine the goal of the 1996 Act to promote a 
competitive environment for the provision of local communications 
services.
    18. We also adopt the Commission's tentative conclusion to apply to 
long-term number portability the two-part test the Commission developed 
to determine whether carriers will bear the interim costs of number 
portability on a competitively neutral basis. Under this test, the way 
carriers bear the costs of number portability: (1) must not give one 
service provider an appreciable, incremental cost advantage over 
another service provider when competing for a specific subscriber, and 
(2) must not disparately affect the ability of competing service 
providers to earn a normal return.
    19. Accordingly, we adopt for purposes of long-term number 
portability the Order's definition of competitive neutrality as 
requiring that the cost of number portability borne by each carrier 
does not affect significantly any carrier's ability to compete with 
other carriers for customers in the marketplace. We also adopt the two-
part test for determining whether this definition is met. We apply this 
interpretation of competitive neutrality to the shared costs of 
providing number portability below. We find it unnecessary to address 
whether to apply our competitive neutrality principles to states that 
opt out of the regional database plan because no state elected to opt 
out by the July 1, 1997, deadline. We apply the interpretation of 
competitive neutrality to the carrier-specific costs directly related 
to providing number portability below.

III. Categorization of Costs

    20. We adopt the Commission's tentative conclusion to divide the 
costs raised by this proceeding into three categories: (1) shared 
costs; (2) carrier-specific costs directly related to providing number 
portability; and (3) carrier-specific costs not directly related to 
providing number portability. The division of costs between shared 
costs and carrier-specific costs directly related to providing number 
portability recognizes that some costs of providing number portability 
are incurred by regional database administrators, while others are 
incurred by carriers in the first instance. The division between 
carrier-specific costs directly related to providing number portability 
and carrier-specific costs not directly related to providing number 
portability recognizes that some component of the costs carriers incur 
will provide carriers with benefits unrelated to number portability.
    21. We adopt the Commission's tentative definition of shared costs 
as costs incurred by the industry as a whole, such as those incurred by 
the third-party administrator to build, operate, and maintain the 
databases needed to provide number portability. We also conclude that 
once the shared costs are allocated they are attributable to specific 
carriers, at which point we will treat them as carrier-specific costs 
directly related to providing number portability.
    22. We also adopt the Commission's tentative subcategorization of 
the shared costs into nonrecurring costs, recurring costs, upload 
costs, and download costs. We clarify, however, that the shared upload 
and download costs include only the costs that the database 
administrators incur to process uploads and downloads; the costs that 
the carriers incur individually to process uploads and downloads are 
carrier-specific costs directly related to providing number 
portability.

[[Page 35154]]

    23. We further conclude that query costs are not shared costs 
initially incurred by the regional database administrators, but are 
carrier-specific costs directly related to providing number 
portability. At the time of the Further Notice, the Commission's 
understanding had been that the regional administrators might perform 
queries for carriers. In that case, query costs might have constituted 
shared costs because the database administrators would have incurred 
costs for the industry as a whole, and the costs would need to be 
allocated among individual carriers. The industry has chosen, however, 
not to adopt this approach to number portability. Instead, the N-1 
carrier will incur all querying costs individually in the first 
instance, either by querying its own copy of data downloaded from the 
regional databases, or by arranging for the querying of such a database 
copy maintained by another carrier or other third party. Because the 
regional database administrators will not perform queries on behalf of 
carriers, query costs are more appropriately considered carrier-
specific costs directly related to providing number portability.
    24. We conclude that carrier-specific costs directly related to 
providing number portability are limited to costs carriers incur 
specifically in the provision of number portability services, such as 
for the querying of calls and the porting of telephone numbers from one 
carrier to another. Costs that carriers incur as an incidental 
consequence of number portability, however, are not costs directly 
related to providing number portability.
    25. We reject the requests of some commenters that we classify the 
entire cost of an upgrade as a carrier-specific cost directly related 
to providing number portability just because some aspect of the upgrade 
relates to the provision of number portability. Carriers incur costs 
for software generics, switch hardware, and OSS, SS7 or AIN upgrades to 
provide a wide range of services and features. Consequently, only a 
portion of such joint costs are carrier-specific costs directly related 
to providing number portability. Thus, we will consider as subject to 
the competitive neutrality mandate of section 251(e)(2) all of a 
carrier's dedicated number portability costs, such as for number 
portability software and for the SCPs and STPs reserved exclusively for 
number portability. We will also consider as carrier-specific costs 
directly related to the provision of number portability that portion of 
a carrier's joint costs that is demonstrably an incremental cost 
carriers incur in the provision of long-term number portability. 
Apportioning costs in this way will further the goals of section 
251(e)(2) by recognizing that providing number portability will cause 
some carriers, including small and rural LECs, to incur costs that they 
would not ordinarily have incurred in providing telecommunications 
service. At the same time, this approach recognizes that some upgrades 
will enhance carriers' services generally, and that at least some 
portion of such upgrade costs are not directly related to providing 
number portability.
    26. Because carrier-specific costs directly related to providing 
number portability only include costs carriers incur specifically in 
the provision of number portability, carriers may not use general 
overhead loading factors in calculating such costs. Carriers already 
allocate general overhead costs to their rates for other services, and 
allowing general overhead loading factors for long-term number 
portability might lead to double recovery. Instead, carriers may 
identify as carrier-specific costs directly related to providing long-
term number portability only those incremental overheads that they can 
demonstrate they incurred specifically in the provision of long-term 
number portability.
    27. As discussed below, we are permitting incumbent LECs to recover 
their number portability costs in federally tariffed end-user charges 
and query services. To facilitate determination of the portion of joint 
costs carriers shall treat as carrier-specific costs directly related 
to providing number portability, and to facilitate evaluation of the 
cost support that carriers will file in their federal tariffs, we are 
requesting that carriers and interested parties file comments by August 
3, 1998 proposing ways to apportion the different types of joint costs. 
Carriers and interested parties may file reply comments by September 
16, 1998. We will delegate authority to the Chief, Common Carrier 
Bureau, to determine appropriate methods for apportioning joint costs 
among portability and nonportability services, and to issue any orders 
to provide guidance to carriers before they file their tariffs, which 
are to take effect no earlier than February 1, 1999.
    28. We decline to create special cost categories for the number 
portability costs of small and rural carriers. The Commission's 
definitions of carrier-specific costs directly and not directly related 
to providing number portability will enable all carriers, including 
small and rural carriers, as well as carriers providing Extended Area 
Service, to identify the costs subject to section 251(e)(2). The three 
cost categories the Commission has created account for all potential 
number portability costs and provide workable distinctions for the 
purposes of implementing section 251(e)(2).
    29. Creating unique cost categories for wireless carriers is also 
unnecessary at this time. The Commission's definitions are not tied to 
unique technological constraints of wireline communications, and 
nothing in the record leads us to conclude that the three cost 
categories are too narrow to apply to the number portability costs of 
wireless carriers. Wireless carriers, like wireline carriers, will 
depend upon the regional databases, and the record does not suggest 
that the costs of the regional databases are disproportionately 
affected by any one industry segment.

IV. Costs of the Regional Databases

A. Distribution of Shared Costs: Allocation v. Usage-Based Rates

    30. We require telecommunications carriers to pay for the database 
administrators' nonrecurring, recurring, upload, and download costs 
pursuant to an allocator, which we select below, rather than on a 
usage-sensitive basis. We have used the two-prong competitive 
neutrality test to ensure that the allocator we choose distributes 
these costs on a competitively neutral basis. Once these shared costs 
are distributed to telecommunications carriers, we treat each carrier's 
portion of the costs as a carrier-specific cost directly related to 
providing number portability. Because telecommunications carriers will 
recover these costs as carrier-specific costs directly related to 
providing number portability, which we discuss below, we need not 
address their recovery here.
    31. Distributing the shared costs among telecommunications carriers 
in proportion to database use would shift these costs to 
telecommunications carriers that win more customers because such 
carriers will perform more uploads. At the outset of number 
portability, these carriers are more likely to be competitive LECs. 
Consequently, usage-sensitive distribution of the shared costs could 
give one service provider an appreciable, incremental cost advantage 
over another service provider when competing for a specific subscriber, 
as well as disparately affect the ability of competing service 
providers to earn a normal return. Although the record does not show 
conclusively that usage-based charges would hamper materially a 
carrier's ability to compete for subscribers, we

[[Page 35155]]

believe it prudent at this early stage in the deployment of number 
portability to minimize such risk.
    32. Moreover, assessing shared costs on a usage-sensitive basis 
could discourage carriers from performing uploads and downloads, or at 
least penalize those carriers that do so more frequently. The entire 
industry benefits from the maintenance of reliable regional databases 
for providing number portability: unless carriers download data, they 
will be unable to terminate traffic to the appropriate end-user; unless 
carriers upload ported numbers to the databases, the databases will be 
inaccurate, making downloads useless for current and future database 
participants alike. Thus, all carriers that port telephone numbers and 
all carriers that terminate calls to portability-capable NXXs depend on 
the timely uploading and downloading of information to and from the 
regional databases to ensure an accurate database and the proper 
routing of telephone calls. Furthermore, all telecommunications 
carriers that depend on the availability of telephone numbers will 
benefit from number portability because it allows subscribers to retain 
their telephone numbers when changing local service providers, and 
because it facilitates the conservation of telephone numbers through 
number pooling.
    33. We will not adopt a separate distribution methodology for 
wireless carriers. The record indicates that wireless carriers will use 
the regional databases in the same manner as wireline carriers. 
Consequently, we see no reason to treat wireless carriers differently 
than wireline carriers with respect to the distribution of the shared 
costs.

B. The Allocator

    34. As part of its management duties under Sec. 52.26 of the 
Commission's Rules, the LNPA of each regional database must collect 
sufficient revenues to fund that database. We will require the LNPA of 
each regional database to do this by allocating the costs of each 
regional database among carriers in proportion to each carrier's 
intrastate, interstate, and international end-user telecommunications 
revenues attributable to that region. The Commission adopted end-user 
telecommunications revenues in the Universal Service Order (62 FR 
32862, June 17, 1997) as the assessment base for determining 
contributions to universal support mechanisms. We will require carriers 
to include intrastate, interstate, and international revenues in 
calculating end-user revenues because number portability will affect 
all such services. An end-user telecommunications revenue allocator is 
similar to a retail-revenues allocator in that both are based on 
telecommunications revenues that carriers collect from end-users. 
Unlike retail-revenues, however, end-user telecommunications revenues 
includes revenues derived from subscriber line charges 
(SLCs).<SUP>2</SUP> End-user telecommunications revenues also include 
revenues collected from carriers that purchase telecommunications 
services for their own internal use.
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    \2\ The SLC is a flat monthly per-line rate that the end user 
pays.
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    35. The end-user telecommunications revenue allocator meets the 
two-prong competitive neutrality test. First, the allocator will not 
give one service provider an appreciable, incremental cost advantage 
when competing for a subscriber. Because the end-user 
telecommunications revenue allocator will distribute the shared costs 
of the regional databases to each carrier in proportion to that 
carrier's end-user revenues, it will cost carriers approximately the 
same increase in shared costs to win a specific subscriber. For 
example, if one of two LECs wins a third LEC's subscriber, whichever of 
the two LECs wins the subscriber will win the end-user revenue that 
subscriber generates, which will increase its allocated portion of the 
shared costs. Because the subscriber is likely to use approximately the 
same amount of local service regardless which of the two competing LECs 
provides service to the subscriber, the incremental shared cost one of 
the two LECs would experience if it had won the subscriber would be 
about the same as the incremental shared cost the other would 
experience if it won the subscriber. This increase would also 
approximately equal the decrease in shared costs the third carrier 
would experience, having lost the subscriber. These amounts may not be 
exactly the same because each of the three carriers may have different 
rates and may not collect exactly the same revenue from that 
subscriber. The difference, however, will not be significant enough to 
create an appreciable, incremental cost disadvantage. Furthermore, any 
difference will not be caused by providing number portability, but by 
differences in the underlying efficiency, services, and rates of each 
of the carriers. Thus we believe the allocator will not itself create 
an appreciable, incremental cost advantage that was not already present 
even absent number portability.
    36. Second, allocating shared costs in proportion to end-user 
revenues will prevent the shared costs from disparately affecting the 
ability of carriers to earn a normal return. Because carriers' 
allocations of the shared costs will vary directly with their end-user 
revenues, their share of the regional database costs will increase in 
proportion to their customer base. Thus, no carrier's portion of the 
shared costs will be excessive in relation to its expected revenues, 
and its allocated share will only increase as it increases its revenue 
stream. Consequently, the end-user revenues allocator will not 
disparately affect competing carriers' abilities to earn a normal 
return. An end-user revenues allocator will also be easy to administer 
because carriers already track their sales to end-users for billing 
purposes, and will be familiar with the end-user revenues allocator 
from its use for universal service support contributions. Although an 
end-user revenues allocator will relieve pure wholesalers, which have 
no end-user revenue, from directly bearing shared costs, the end-user 
method does not exclude wholesale revenues from the revenue base that 
determines carriers' shared costs. As the Commission explained in the 
Universal Service Order, wholesale charges are built into retail rates, 
and thus the allocator still reflects wholesale revenue. This is 
competitively neutral because it avoids double-counting revenues, and 
because wholesale carriers are not competing with retail carriers for 
end users in the marketplace.

C. Carriers Required To Share the Costs of the Regional Databases

    37. We will require allocation of the shared costs among all 
telecommunications carriers because section 251(e)(2) states that 
``[t]he cost of establishing * * * number portability shall be borne by 
all telecommunications carriers on a competitively neutral basis.'' Our 
end-user revenues allocator, by its nature, does not reach carriers, 
such as pure wholesalers, that do not have end-user revenues. Because 
section 251(e)(2) requires all carriers to bear the costs of number 
portability on a competitively neutral basis, we will require carriers 
that do not have end-user revenues to pay $100 per year per region as 
their statutory share of the shared costs. We believe that $100 
represents a fair contribution for carriers that do not have end-user 
revenues, but can revisit this issue should it become necessary. This 
fee will not give any such carriers an appreciable, incremental cost 
advantage when competing for a

[[Page 35156]]

subscriber because such carriers do not compete for end-user customers. 
Moreover, this charge will be the same for all such carriers. Thus, it 
will not create any disadvantage to the extent these carriers are 
competing with each other. This fee is also not likely to disparately 
affect the ability of competing carriers to earn a normal return 
because such a nominal charge is unlikely to affect a carrier's return 
and, again, because all such carriers will face the same charge. 
Consequently, such a fee is competitively neutral.

D. Regional v. National Allocation of Regional Database Costs

    38. We will require telecommunications carriers to bear the shared 
costs on a regional basis because such a plan is most consistent with 
the regional nature of the databases, and because a national approach 
would require designation of a national administrator. As part of its 
duties established in Sec. 52.26 of the Commission's Rules,<SUP>3</SUP> 
each local number portability administrator of a regional database 
shall collect sufficient revenues from all telecommunications carriers 
providing telecommunications service in areas that regional database 
serves to fund the operation of that regional database. Thus, after 
subtracting the charges it collects from telecommunications carriers 
with no end-user revenues, each database administrator shall distribute 
the remaining shared costs based upon each remaining telecommunications 
carrier's proportion of the end-user revenues collected by all 
telecommunications carriers in that region. To apply the end-user 
revenues allocator, administrators may request regional end-user 
revenues data from telecommunications carriers once a year. We direct 
telecommunications carriers to comply with such requests. One of the 
objectives of the biennial review of our regulations required under the 
Communications Act is to consider ways to reduce filing burdens on 
carriers. The Commission may further consider in the biennial review or 
other proceedings how best to administer the allocation of the shared 
costs.
---------------------------------------------------------------------------

    \3\ These duties include all management tasks required to run 
the regional databases.
---------------------------------------------------------------------------

    39. We are aware that some carriers have already begun paying their 
regional database administrators based on temporary agreements 
negotiated by the regional LLCs. We will permit, but not require, each 
regional administrator and LLC to adjust prospectively through a 
reasonable true-up mechanism the future bills of those carriers that 
participated in such agreements so that the shared costs each such 
carrier will have contributed approaches what those carriers would have 
paid had an end-user telecommunications revenue allocator been in place 
when carriers started paying the regional administrators. Permitting 
the regional administrators and LLCs to perform such true-ups ensures 
that costs are recovered from carriers in a manner consistent with our 
rules, while accounting for the period prior to the effective date of 
our rules and recognizing that agreements may have been reasonable 
mechanisms to recover regional database costs on a temporary basis 
pending this Third Report and Order.

V. Carrier-Specific Costs Directly Related to Providing Number 
Portability

    40. We will allow but not require incumbent LECs subject to rate-
of-return or price-cap regulation to recover their carrier-specific 
costs directly related to providing number portability through a 
federal charge assessed on end-users. As noted, we recognize consumers' 
sensitivity to end-user charges. Under the circumstances before us, 
however, we conclude that allowing carriers to recover number 
portability costs in this manner will best serve the goals of the 
statute. The Commission has only two sources from which it may allow 
carriers to recover costs in the federal jurisdiction: charges IXCs pay 
LECs for exchange access, and end-user charges. Because number 
portability is not an access-related service and IXCs will incur their 
own costs for the querying of long-distance calls, we will not allow 
LECs to recover long-term number portability costs in interstate access 
charges. Nor would it likely be competitively neutral to do so. We note 
further that, like long-term number portability, the advent of equal 
access and 800 number portability required carriers to incur 
significant costs to modify their networks, although these costs were 
not recovered in federal end-user charges. These improvements led to 
increased competition and substantial long-term benefits to consumers. 
We anticipate a similarly positive effect for consumers with respect to 
the impact of number portability, namely the increased choice and lower 
prices that result from the competition that number portability helps 
make possible. We also note that number portability will facilitate 
number pooling, which will help forestall telephone-number 
exhaust.<SUP>4</SUP>
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    \4\ Until now, local service providers had to be assigned entire 
NXXs, even if they did not need all 10,000 of the NXX's telephone 
numbers. With the advent of number portability, carriers can share 
NXXs and pool unused telephone numbers, which results in more 
efficient allocation of telephone numbers and reduces the need for 
measures such as area-code overlays to combat telephone number 
exhaust.
---------------------------------------------------------------------------

    41. Carriers not subject to rate regulation--such as competitive 
LECs, CMRS providers, and non-dominant IXCs--may recover their carrier-
specific costs directly related to providing number portability in any 
lawful manner consistent with their obligations under the 
Communications Act.<SUP>5</SUP> Requiring incumbent LECs to bear their 
own carrier-specific costs of providing number portability and allowing 
them to recover those costs from their own customers, while leaving 
other carriers unregulated, meets our competitive neutrality standard 
that number portability cost distribution and recovery mechanisms: (1) 
not give one service provider an appreciable, incremental cost 
advantage over another service provider when competing for a specific 
subscriber, and (2) not disparately affect the ability of competing 
service providers to earn a normal return.
---------------------------------------------------------------------------

    \5\ Although generally not rate regulated, competitive LECs, 
CMRS providers, and IXCs--as telecommunications carriers--remain 
subject to the Communications Act and Commission rules.
---------------------------------------------------------------------------

    42. Requiring incumbent LECs to bear their own carrier-specific 
costs directly related to providing number portability will not 
disadvantage any telecommunications carrier because under an LRN 
implementation of long-term number portability a carrier's costs should 
vary directly with the number of customers that carrier serves. Our 
examination of the present record and cost data that some carriers have 
provided indicates that incumbent LECs, competitive LECs, and CMRS 
providers competing in the local service market are likely to have 
approximately the same long-run incremental number portability cost of 
winning a subscriber. Incumbent LECs will likely have large absolute 
costs because of their large networks, but they also will have a large 
customer base over which to spread those costs; competitive LECs and 
CMRS providers will likely incur fewer absolute costs because of their 
smaller networks, but they will also likely have smaller customer bases 
over which to spread those costs.
    43. Some small LECs and CMRS providers may find that their smaller 
customer bases make adding number portability capability in their own

[[Page 35157]]

networks uneconomical. Such carriers can benefit from economies of 
scale similar to those of incumbent LECs, however, by arranging for 
another carrier or third-party provider to provide number portability 
functionality for them, as it appears that a market for number 
portability services may develop. Similarly, they may enter into 
cooperative agreements with other small carriers. Conversely, such 
carriers might install number portability in their networks and sell 
any excess number portability capacity to other carriers. Because 
resellers will simply be reselling the number portability capability of 
a facilities-based carrier, we would expect that resellers will also 
have comparable incremental number portability costs. Similarly, we 
would expect that carriers competing for interexchange customers will 
bear the costs of providing number portability associated with N-1 
queries in rough proportion to the number of interexchange customers 
they serve; the more customers they win, the more queries they must 
perform to terminate those customers' calls. IXCs and CMRS providers 
can either query interexchange calls themselves or arrange for other 
carriers or third-party providers to provide querying service for them.
    44. Regulating the recovery of number portability costs by 
incumbent LECs, but not by competitive LECs, CMRS providers, and IXCs, 
also will not place any carrier at a competitive disadvantage. Creating 
an optional end-user charge for incumbent LECs ensures that such 
carriers have a reasonable opportunity to recover their costs and at 
the same time allows carriers to forego some or all of such charges if 
they deem it necessary to compete in the local service market. 
Similarly, unregulated carriers may recover their costs in end-user 
charges if they choose to do so. Regulating incumbent LEC recovery 
should not disadvantage incumbent LECs as compared to competitive LECs 
because competitive LECs also have number portability costs under LRN. 
If a customer does switch to a competitive LEC, that customer may have 
to pay end-user charges or service rates that recover the competitive 
LEC's portability costs. Thus, the customer's incentive to leave the 
incumbent LEC is offset by the fact that the customer would then have 
to pay charges that recover the competitive LEC's number portability 
costs. Therefore, incumbent LECs are unlikely to have a material 
disadvantage in competing for subscribers under our recovery mechanism.
    45. We also observe that under LRN-based long-term number 
portability the LEC serving the customer who places a local call will 
generally be responsible for the query. Thus, winning a customer shifts 
responsibility for the queries needed to complete that customer's local 
calls from the original carrier to the acquiring carrier. Similarly, 
the IXC serving the customer who places an interexchange call will be 
responsible for any query needed. Consequently, under the LRN approach 
to number portability, query costs follow customers, and requiring each 
carrier to bear its own carrier-specific costs directly related to 
providing number portability is competitively neutral.
    46. Under the requirements we adopt today, an incumbent LEC may 
recover its carrier-specific costs directly related to providing long-
term number portability to end users by establishing a monthly, number 
portability charge in tariffs filed with the Commission. We determine, 
however, that recovery from end users should be designed so that end 
users generally receive the charges only when and where they are 
reasonably able to begin receiving the direct benefits of long-term 
number portability. To achieve this, we will allow the monthly number-
portability charge to begin no earlier than February 1, 1999, on a date 
the incumbent LEC carrier selects, and to last no longer than five 
years. We choose this start date for the federal end-user charge 
because by the end of 1998, under the implementation schedule the 
Commission has mandated for number portability, a large proportion of 
customers will reside in areas where number portability is available: 
the largest 100 MSAs. <SUP>6</SUP> In contrast, if the end-user charge 
were permitted to start immediately, substantially fewer customers 
would be in areas where number portability is available. Thus, the 
February 1, 1999, start date will better tailor recovery to areas where 
customers can receive number portability than would an earlier start 
date for recovery. We choose February 1, 1999, rather than January 1, 
1999, to provide a brief additional time-period to ensure that number 
portability has been implemented before customers incur charges, and 
because carriers will also be filing tariff revisions to take effect 
January 1, 1999, to implement PICC and SLC adjustments.
---------------------------------------------------------------------------

    \6\ The top 100 MSAs comprise approximately 61.1% of all 
subscriber lines, a conservative estimate, based on our calculation 
that approximately 61.1% of the United States population resides in 
the 100 largest MSAs. We calculated this percentage from population 
estimates of the United States Census Bureau.
---------------------------------------------------------------------------

    47. In addition, we will allow an incumbent LEC to assess the 
monthly charge only on end users it serves in the 100 largest MSAs, and 
end users it serves outside the 100 largest metropolitan statistical 
areas from a number-portability-capable switch. Because carriers may 
make any switch number-portability capable, this approach will 
encourage carriers to install number portability and help ensure that 
end-users are assessed number portability charges only where they are 
reasonably likely to be benefitting from number portability. If a 
carrier receives an extension past February 1, 1999, for one of the 100 
largest MSAs, the carrier may not assess the monthly charge in that MSA 
until it begins providing long-term number portability in the MSA. The 
incumbent local exchange carrier shall levelize <SUP>7</SUP> the 
monthly number-portability charge over five years by setting a rate for 
each charge at which the present value of the revenue recovered by the 
charge equals the present value of the cost being recovered. The 
carriers shall use a discount rate equal to the rate of return on 
investment which the Commission has authorized for regulated interstate 
access services pursuant to Part 65 of the Commission's Rules. 
Currently, this rate is 11.25 percent. We require levelization of the 
monthly charge to protect consumers from varying rates. Incumbent LECs 
may collect less than the maximum allowable charge, or decline to 
collect the charge, from some or all of their customers so long as they 
do so in a reasonable and nondiscriminatory manner. Thus we will not, 
for example, allow incumbent LECs to offset such lower charges by 
collecting higher charges in areas where no competitive carriers are 
present.
---------------------------------------------------------------------------

    \7\ A levelized rate is one that is calculated to remain 
constant over a recovery period and is set at the level at which the 
discounted present value of the stream of payments is equal to the 
discounted present value of the stream of costs over the period.
---------------------------------------------------------------------------

    48. We choose the five-year period for the end-user charge because 
it will enable incumbent LECs to recover their portability costs in a 
timely fashion, but will also help produce reasonable charges for 
customers and avoid imposing those charges for an unduly long period. A 
longer period would increase the total charges consumers pay because, 
as discussed, carriers' unrecovered capital investment will be subject 
to an 11.25 percent return, while a shorter period would increase the 
monthly charge to consumers. We find that a five-year period 
effectively balances these concerns. After a carrier

[[Page 35158]]

establishes its levelized end-user charge in the tariff review process 
we do not anticipate that it may raise the charge during the five-year 
period unless it can show that the end-user charge was not reasonable 
based on the information available at the time it was initially set. 
Furthermore, once incumbent LECs have recovered their initial 
implementation costs, number portability will be a normal network 
feature, and a special end-user charge will no longer be necessary to 
ensure that incumbent LECs recover their number portability costs on a 
competitively neutral basis. Carriers can recover any remaining costs 
through existing mechanisms available for recovery of general costs of 
providing service.
    49. We will allow incumbent LECs to assess one monthly number-
portability charge per line, except that one PBX trunk shall receive 
nine monthly number-portability charges and one primary rate interface 
integrated services digital network line (PRI ISDN line) shall receive 
five monthly number-portability charges. As the Commission observed in 
the access charge reform proceeding, a PBX trunk provides on average 
the equivalent service capacity of nine Centrex lines. See In re Access 
Charge Reform, Second Order on Reconsideration and Memorandum Opinion 
and Order (62 FR 56120, October 29, 1997). We set the PBX charge at 
nine times the level of the ordinary charge because Centrex and PBX 
arrangements are functionally equivalent. To do otherwise could 
encourage a large customer to choose one of these arrangements over the 
other because of the number portability charge, and thus would not be 
competitively neutral. Similarly, the access charge reform proceeding 
set a five to one equivalency ratio for PRI ISDN lines, and we apply 
that equivalency ratio here. To further our goals for the Lifeline 
Assistance Program, carriers may not impose the monthly number-
portability charge on customers in that program.
    50. The incumbent LEC may assess the monthly charge on resellers of 
the incumbent LEC's local service, as well as on purchasers of 
switching ports as unbundled network elements under section 251 of the 
Communications Act, because the incumbent LEC will be providing the 
underlying number portability functionality even though the incumbent 
LEC will no longer have a direct relationship with the end user. Thus, 
it appears that the reseller and the purchaser of the unbundled switch 
port will receive all their number portability functionality through 
these arrangements. Consequently, allowing the incumbent LEC to assess 
the charge will be competitively neutral because the reseller and the 
purchaser of the switch port will incur the charge in lieu of costs 
they would otherwise incur in obtaining long-term number portability 
functionality elsewhere. The unregulated reseller and purchaser of the 
switch port may recover in any lawful manner the charges the incumbent 
LEC assesses on them. The incumbent local exchange carrier may not 
assess the monthly number-portability charge on carriers that purchase 
the incumbent local exchange carrier's local loops as unbundled network 
elements under section 251. We do not allow the incumbent LEC to assess 
such a charge because the unbundled loop does not contain the number 
portability functionality. The purchaser of the unbundled loop will 
still be responsible for providing such functionality, and thus 
incurring elsewhere the corresponding cost. Congress has directed the 
Commission to provide for the recovery of number portability costs. 
Because we have so provided in this proceeding, we presume that state 
commissions will not include the costs of number portability when 
pricing unbundled network elements.
    51. Local service providers may query calls for other carriers by 
arrangement, or may receive unqueried, default-routed traffic when the 
N-1 carrier has not performed the query. Thus we also will allow 
incumbent LECs to recover from N-1 carriers in a federally tariffed 
query-service charge their carrier-specific costs directly related to 
providing prearranged and default query services. Other carriers 
required or permitted to file federal tariffs may also tariff query 
services. Carriers shall indicate in the cost support section of their 
tariffs the portion of their carrier-specific costs directly related to 
providing number portability attributable to the number portability 
services they provide end users, and that portion attributable to the 
number portability query services they provide on behalf of other 
carriers.
    52. All the RBOCs and GTE have submitted, and periodically revised, 
estimates of the costs they will incur in implementing LRN number 
portability. In reviewing the record, we observe a wide variation among 
companies' estimated costs and their categorization of those costs as 
directly related or not directly related to providing number 
portability. We remind the incumbent LECs that only costs directly 
related to providing number portability are recoverable through the 
long-term number portability cost recovery mechanism we establish in 
this Third Report and Order. As discussed above, the Chief, Common 
Carrier Bureau, will further consider methods of identifying the 
portion of joint costs that incumbent LECs should treat as carrier-
specific costs directly related to providing number portability.

VI. Regulatory Flexibility Act Analysis

    53. As required by section 603 of the Regulatory Flexibility Act 
(RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Further Notice. The Commission sought written 
public comments on the proposals in the Further Notice, including on 
the IRFA. The Commission's Final Regulatory Flexibility Analysis (FRFA) 
in this Third Report and Order is as follows:
    54. Need for and Objectives of Rules: The Commission, in compliance 
with sections 251(b)(2), 251(d)(1), and 251(e)(2) of the Communications 
Act of 1934, as amended by the Telecommunications Act of 1996, adopts 
rules and procedures intended to ensure the implementation of telephone 
number portability with the minimum regulatory and administrative 
burden on telecommunications carriers. In implementing the statute, the 
Commission has the responsibility to adopt rules that will implement 
most quickly and effectively the national telecommunications policy 
embodied in the Act and to promote the pro-competitive, deregulatory 
markets envisioned by Congress. Congress has recognized that number 
portability will lower barriers to entry and promote competition in the 
local exchange marketplace. To prevent the cost of number portability 
from itself becoming a barrier to local competition, however, section 
251(e)(2) requires that ``[t]he cost of establishing telecommunications 
numbering administration arrangements and number portability shall be 
borne by all telecommunications carriers on a competitively neutral 
basis as determined by the Commission.''
    55. Summary of Significant Issues Raised by the Public in Response 
to the IRFA: There were no comments submitted specifically in response 
to the IRFA. However, in their general comments, some commenters assert 
that if competition is to emerge in the local exchange market the 
regulatory standards adopted by the Commission to recover the cost of 
implementing long-term number portability should not disproportionately 
burden small entities, especially new entrants. In the Third Report and 
Order, we adopt rules and regulations to ensure that the way

[[Page 35159]]

all telecommunications carriers, including small entities, bear the 
costs of number portability does not significantly affect any carrier's 
ability to compete with other carriers for customers in the 
marketplace.
    56. Description and Estimate of Number of Small Businesses to Which 
Rules Will Apply: The Regulatory Flexibility Act generally defines the 
term ``small business'' as having 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 Small Business Administration 
(SBA). According to the SBA's regulations, entities engaged in the 
provision of telephone service may have a maximum of 1,500 employees in 
order to qualify as a small business concern. This standard also 
applies in determining whether an entity is a small business for 
purposes of the RFA.
    57. Our rules governing long-term number portability cost recovery 
apply to all telecommunications carriers, including incumbent LECs, new 
LEC entrants, and IXCs, as well as cellular, broadband PCS, and covered 
SMR providers. Small incumbent LECs subject to these rules are either 
dominant in their field of operations or are independently owned and 
operated, and, consistent with the Commission's prior practice, are 
excluded from the definition of ``small entities'' 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 the SBA as ``small business 
concerns.''
    58. Insofar as our rules apply to all telecommunications carriers, 
they may have an economic impact on a substantial number of small 
businesses, as well as on small incumbent LECs. The rules may have an 
impact upon new entrant LECs and small incumbent LECs, as well as 
cellular, broadband PCS, and covered SMR providers. Based upon data 
contained in the most recent census and a report by the Commission's 
Common Carrier Bureau, we estimate that 2,100 small entities could be 
affected. We have derived this estimate based on the following 
analysis:
    59. According to the 1992 Census of Transportation, Communications, 
and Utilities, there were approximately 3,469 firms with under 1,000 
employees operating under the Standard Industrial Classification (SIC) 
category 481--Telephone. See U.S. Dept. of Commerce, Bureau of the 
Census, 1992 Census of Transportation, Communications, and Utilities 
(issued May 1995). Many of these firms are the incumbent LECs and, as 
noted above, would not satisfy the SBA definition of a small business 
because of their market dominance. There were approximately 1,350 LECs 
in 1995. Industry Analysis Division, FCC, Carrier Locator: Interstate 
Service Providers at Table 1 (Number of Carriers Reporting by Type of 
Carrier and Type of Revenue) (December 1995). Subtracting this number 
from the total number of firms leaves approximately 2,119 entities 
which potentially are small businesses which may be affected. This 
number contains various categories of carriers, including small 
incumbent LECs, competitive access providers, cellular carriers, 
interexchange carriers, mobile service carriers, operator service 
providers, pay telephone operators, PCS providers, covered SMR 
providers, and resellers. Some of these carriers--although not 
dominant--may not meet the other requirement of the definition of a 
small business because they are not ``independently owned and 
operated.'' See 15 U.S.C. Sec. 632(a)(1). For example, a PCS provider 
which is affiliated with a long distance company with more than 1,500 
employees would not meet the definition of a small business. Another 
example would be if a cellular provider is affiliated with a dominant 
LEC. Thus, a reasonable estimate of the number of ``small businesses'' 
affected by this Order would be approximately 2,100.
    60. Description of Projected Reporting, Recordkeeping and Other 
Compliance Requirements of the Rules: The Third Report and Order 
concludes that the costs raised in this proceeding should be divided 
into three categories: shared costs, carrier-specific costs directly 
related to number portability, and carrier-specific costs not directly 
related to number portability. Shared costs are those costs incurred on 
behalf of the industry as a whole, such as the costs of the regional 
database administrator to build, operate, and maintain the databases 
needed to provide number portability. The Third Report and Order 
concludes that all telecommunications carriers with end-user revenues 
are required to pay an allocated portion of the shared costs incurred 
by the regional database administrator in proportion to that carrier's 
international, interstate, and intrastate end-user telecommunications 
revenues for that region. While carriers already track their sales to 
end-users for billing purposes, they will need to identify their 
regional end-user revenues. That information, along with periodic 
updates, must be provided to the regional database administrator for 
the appropriate allocation of shared costs.
    61. The Third Report and Order requires incumbent LECs to maintain 
records that detail both the nature and specific amount of those 
carrier-specific costs that are directly related to number portability, 
and those carrier-specific costs that are not directly related to 
number portability. The Third Report and Order directs carriers and 
interested parties to file comments by August 3, 1998, and reply 
comments by September 16, 1998, proposing ways to apportion the 
different types of joint costs between portability and nonportability 
services. The Third Report and Order requires incumbent LECs that 
choose to recover their carrier-specific costs directly related to 
providing number portability to use federally-tariffed end-user 
charges.
    62. Steps Taken to Minimize Impact on Small Entities Consistent 
with Stated Objectives: The record in this proceeding indicates that 
the need for customers to change their telephone numbers when changing 
local service providers is a barrier to local competition. Requiring 
number portability, and ensuring that all telecommunications carriers 
bear the costs of number portability on a competitively neutral basis, 
will make it easier for competitive providers, many of which may be 
small entities, to enter the market. We have attempted to keep 
regulatory burdens on all local exchange carriers to a minimum to 
ensure that the public receives the benefits of the expeditious 
provision of service provider number portability in accordance with the 
statutory requirements. For example, the Third Report and Order 
concludes that all telecommunications carriers with end-user revenues 
are required to pay an allocated portion of the shared costs incurred 
by the regional database administrator in proportion to that carrier's 
international, interstate, and intrastate end-user telecommunications 
revenues for the region. Apportioning shared costs in this way will 
further the statutory purpose of ensuring that carriers bear the costs 
of number portability on a competitively neutral basis. Furthermore, 
the Third Report and Order concludes that regulated

[[Page 35160]]

carriers may identify that portion of their joint costs that is 
demonstrably an incremental cost that they incurred in the provision of 
long-term number portability. Allowing such identification recognizes 
that number portability will cause some carriers, including small 
entities, to incur costs that they would not ordinarily have incurred 
in providing telecommunications services. The Third Report and Order 
also concludes that non-dominant carriers, such as competitive LECs, 
CMRS providers, and IXCs--some of which will be small entities--are not 
subject to extensive regulation and may recover their number 
portability costs in any manner otherwise consistent with Commission 
rules and the Communications Act.
    63. Report to Congress: The Commission shall send a copy of this 
FRFA, along with this Third Report and Order, in a report to Congress 
pursuant to the Small Business Regulatory Enforcement Fairness Act of 
1996. A copy of the Third Report and Order and this FRFA (or summaries 
thereof) will also be published in the Federal Register and will be 
sent to the Chief Counsel for Advocacy of the Small Business 
Administration.

VII. Paperwork Reduction Act

    64. This Third Report and Order concludes that the costs raised in 
this proceeding should be divided into three categories: shared costs, 
carrier-specific costs directly related to number portability, and 
carrier-specific costs not directly related to number portability. 
Shared costs are those costs incurred on behalf of the industry as a 
whole, such as the costs of the regional database administrator to 
build, operate, and maintain the databases needed to provide number 
portability. The Third Report and Order concludes that all 
telecommunications carriers with end-user revenues are required to pay 
an allocated portion of the shared costs incurred by the regional 
database administrator in proportion to that carrier's international, 
interstate, and intrastate end-user telecommunications revenues for the 
region. While carriers already track their sales to end-users for 
billing purposes, they will need to identify their regional end-user 
revenues. That information, along with periodic updates, must be 
provided to the regional database administrator for the appropriate 
allocation of shared costs. The Third Report and Order also requires 
incumbent LECs to maintain records that detail both the nature and 
specific amount of those carrier-specific costs that are directly 
related to number portability, and those carrier-specific costs that 
are not directly related to number portability. The Third Report and 
Order requires incumbent LECs that choose to recover their carrier-
specific costs directly related to providing number portability to use 
federally-tariffed end-user charges. These information collection 
requirements are contingent upon approval of the Office of Management 
and Budget (OMB).

VIII. Ordering Clauses

    65. Accordingly, it is ordered that pursuant to authority contained 
in sections 1, 2, 4(i), 201-205, 215, 251(b)(2), 251(e)(2), and 332 of 
the Communications Act of 1934, as amended, 47 U.S.C. Secs. 151, 152, 
154(i), 201-205, 215, 251(b)(2), 251(e)(2), and 332, Part 52 of the 
Commission's rules is amended as set forth.
    66. It is further ordered that the policies, rules and requirements 
set forth herein are adopted.
    67. It is further ordered that the policies, rules and requirements 
adopted herein shall be effective on July 29, 1998, except for 
Secs. 52.32(b) and 52.33(a)(1), which contain information collection 
requirements that are not effective until approved by the Office of 
Management and Budget. The Commission will publish a document in the 
Federal Register announcing the effective date for those sections.
    68. It is further ordered that the Commission's Office of Public 
Affairs, References Operations Division, shall send a copy of this 
Third Report and Order, including the Final Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration.
    69. It is further ordered that incumbent local exchange carriers 
may file tariffs to take effect no earlier than February 1, 1999, 
setting out the monthly number portability charge they intend to 
collect from their end users, in accordance with this Order.
    70. It is further ordered that pursuant to authority contained in 
section 5(c)(1) of the Communications Act of 1934, as amended, 47 
U.S.C. 155(c)(1), the Chief, Common Carrier Bureau, is delegated 
authority to determine appropriate methods for apportioning joint costs 
among portability and nonportability services, and to issue any orders 
to provide guidance to incumbent LECs before they file their tariffs, 
which are to take effect no earlier than February 1, 1999. To 
facilitate determination of the portion of joint costs carriers shall 
treat as carrier-specific costs directly related to providing number 
portability, and to facilitate evaluation of the cost support that 
carriers will file in their federal tariffs, carriers and interested 
parties may file comments by August 3, 1998 proposing ways to apportion 
the different types of joint costs. Carriers and interested parties may 
file reply comments by September 16, 1998.

List of Subjects in 47 CFR Part 52

    Carrier-specific costs, Communications common carriers, Long-term 
number portability cost recovery, Number portability, Regional 
databases, Shared costs.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Accordingly, part 52 of Title 47 of the Code of Federal Regulations 
is amended to read as follows:

PART 52--NUMBERING

    1. The authority for part 52 continues to read as follows:

    Authority: Sec. 1, 2, 4, 5, 48 Stat. 1066, as amended; 47 U.S.C. 
Sec. 151, 152, 154, 155, 251 unless otherwise noted. Interpret or 
apply secs. 3, 4, 201-05, 207-09, 218, 225-27, 251-52, 271 and 332, 
48 Stat. 1070, as amended, 1077; 47 U.S.C. 153, 154, 201-05, 207-09, 
218, 225-27, 251-52, 271 and 332 unless otherwise noted.

    2. Add Sec. 52.32 to read as follows:


Sec. 52.32  Allocation of the shared costs of long-term number 
portability

    (a) The local number portability administrator, as defined in 
Sec. 52.21(h), of each regional database, as defined in Sec. 52.21(1), 
shall recover the shared costs of long-term number portability 
attributable to that regional database from all telecommunications 
carriers providing telecommunications service in areas that regional 
database serves. Pursuant to its duties under Sec. 52.26, the local 
number portability administrator shall collect sufficient revenues to 
fund the operation of the regional database by:
    (1) Assessing a $100 yearly contribution on each telecommunications 
carrier identified in paragraph (a) introductory text that has no 
intrastate, interstate, or international end-user telecommunications 
revenue derived from providing telecommunications service in the areas 
that regional database serves, and
    (2) Assessing on each of the other telecommunications carriers 
providing telecommunications service in areas that regional database 
serves, a charge that recovers the remaining shared costs of long-term 
number portability attributable to that regional database in proportion 
to the ratio of:
    (i) The sum of the intrastate, interstate, and international end-
user

[[Page 35161]]

telecommunications revenues that such telecommunications carrier 
derives from providing telecommunications service in the areas that 
regional database serves, ii) to the sum of the intrastate, interstate, 
and international end-user telecommunications revenues that all 
telecommunications carriers derive from providing telecommunications 
service in the areas that regional database serves.
    (b) The local number portability administrator for a particular 
regional database may require the telecommunications carriers providing 
telecommunications service in the areas served by the regional database 
to provide once a year that data necessary to calculate, pursuant to 
paragraph (a)(1) or (a)(2) of this section, those carriers' portions of 
the shared costs of long-term number portability attributable to that 
regional database. All such telecommunications carriers shall comply 
with any such requests.
    (c) Once a telecommunications carrier has been allocated, pursuant 
to paragraph (a)(1) or (a)(2) of this section, its portion of the 
shared costs of long-term number portability attributable to a regional 
database, the carrier shall treat that portion as a carrier-specific 
cost directly related to providing number portability.
    3. Add Sec. 52.33 to read as follows:


Sec. 52.33  Recovery of carrier-specific costs directly related to 
providing long-term number portability.

    (a) Incumbent local exchange carriers may recover their carrier-
specific costs directly related to providing long-term number 
portability by establishing in tariffs filed with the Federal 
Communications Commission a monthly number-portability charge, as 
specified in paragraph (a)(1), and a number portability query-service 
charge, as specified in paragraph (a)(2).
    (1) The monthly number-portability charge may take effect no 
earlier than February 1, 1999, on a date the incumbent local exchange 
carrier selects, and may end no later than five years after that date.
    (i) An incumbent local exchange carrier may assess each end user it 
serves in the 100 largest metropolitan statistical areas, and each end 
user it serves from a number-portability-capable switch outside the 100 
largest metropolitan statistical areas, one monthly number-portability 
charge per line except that:
    (A) One PBX trunk shall receive nine monthly number-portability 
charges.
    (B) One PRI ISDN line shall receive five monthly number-portability 
charges.
    (C) Lifeline Assistance Program customers shall not receive the 
monthly number-portability charge.
    (ii) An incumbent local exchange carrier may assess on carriers 
that purchase the incumbent local exchange carrier's switching ports as 
unbundled network elements under section 251 of the Communications Act, 
and resellers of the incumbent local exchange carrier's local service, 
the same charges as described in paragraph (a)(1)(A) of this section, 
as if the incumbent local exchange carrier were serving those carriers' 
end users.
    (iii) An incumbent local exchange carrier may not assess a monthly 
number-portability charge for local loops carriers purchase as 
unbundled network elements under section 251.
    (iv) The incumbent local exchange carrier shall levelize the 
monthly number-portability charge over five years by setting a rate for 
the charge at which the present value of the revenue recovered by the 
charge does not exceed the present value of the cost being recovered, 
using a discount rate equal to the rate of return on investment which 
the Commission has prescribed for interstate access services pursuant 
to Part 65 of the Commission's Rules.
    (2) The number portability query-service charge may recover only 
carrier-specific costs directly related to providing long-term number 
portability that the incumbent local exchange carrier incurs to provide 
long-term number portability query service to carriers on a prearranged 
and default basis.
    (b) All telecommunications carriers other than incumbent local 
exchange carriers may recover their number portability costs in any 
manner consistent with applicable state and federal laws and 
regulations.

[FR Doc. 98-17076 Filed 6-26-98; 8:45 am]
BILLING CODE 6712-01-U