Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33059

1The Commission also requests, but does not

require, that commenters submit an electronic copy

Continued

accordance with section 408(e) of

FFDCA.

Interested persons are invited to

submit written comments on the

proposed regulation. Comments must

bear a notation indicating the docket

number, [PP 5E4472/P667].

A record has been established for this

rulemaking under docket number [PP

5E4472/P667] (including comments and

data submitted electronically as

described below). A public version of

this record, including printed, paper

versions of electronic comments, which

does not include any information

claimed as CBI, is available for

inspection from 8 a.m. to 4:30 p.m.,

Monday through Friday, excluding legal

holidays. The public record is located in

Room 1132 of the Public Response and

Program Resources Branch, Field

Operations Division (7506C), Office of

Pesticide Programs, Environmental

Protection Agency, Crystal Mall #2,

1921 Jefferson Davis Highway,

Arlington, VA.

Electronic comments can be sent

directly to EPA at:

opp-docket@epamail.epa.gov

Electronic comments must be

submitted as an ASCII file avoiding the

use of special characters and any form

of encryption.

The official record for this

rulemaking, as well as the public

version, as described above will be kept

in paper form. Accordingly, EPA will

transfer all comments received

electronically into printed, paper form

as they are received and will place the

paper copies in the official rulemaking

record which will also include all

comments submitted directly in writing.

The official rulemaking record is the

paper record maintained at the Virginia

address in ‘‘ADDRESSES’’ at the

beginning of this document.

The Office of Management and Budget

has exempted this proposed rule from

the requirements of section 3 of

Executive Order 12866.

This action does not impose any

enforceable duty, or contain any

‘‘unfunded mandates’’ as described in

Title II of the Unfunded Mandates

Reform Act of 1955 (Pub. L. 104–4), or

require prior consultation as specified

by Executive Order 12875 (58 FR 58093,

October 28, 1993), entitled Enhancing

the Intergovernmental Partnership, or

special consideration as required by

Executive Order 12898 (59 FR 7629,

February 16, 1994). Pursuant to the

requirements of the Regulatory

Flexibility Act (5 U.S.C. 601–612), the

Administrator has determined that

regulations establishing new tolerances

or raising tolerance levels or

establishing exemptions from tolerance

requirements do not have a significant

economic impact on a substantial

number of small entities. A certification

statement explaining the factual basis

for this determination was published in

the Federal Register of May 4, 1981 (46

FR 24950).

List of Subjects in 40 CFR Part 180

Environmental protection,

Administrative practice and procedure,

Agricultural commodities, Pesticides

and pests, Reporting and recordkeeping

requirements.

Dated: June 12, 1996.

Stephen L. Johnson,

Director, Registration Division, Office of

Pesticide Programs.

Therefore, it is proposed that 40 CFR

part 180 be amended as follows:

PART 180—[AMENDED]

1. The authority citation for part 180

continues to read as follows:

Authority: 21 U.S.C. 346a and 371.

2. In § 180.1001 the table in paragraph

(d) is amended by adding alphabetically

the inert ingredient Copper 8-

quinolinolate (CAS Reg. No. 10380–28–

6), to read as follows:

§ 180.1001 Exemptions from the

requirements of a tolerance.

* * * * *

(d) * * *

Inert Ingredients Limits Uses

* * * * * * *

Copper 8-quinolinolate (CAS Reg. No. 10380–28–6) ... Not to exceed 4% by weight of

pesticide formulation.

Preservative in pesticidally treated paper.

* * * * * * *

* * * * *

[FR Doc. 96–16334 Filed 6–25–96; 8:45 am]

BILLING CODE 6560–50–F

FEDERAL MARITIME COMMISSION

46 CFR Part 540

[Docket No. 94–06]

Financial Responsibility Requirements

for Nonperformance of Transportation

AGENCY: Federal Maritime Commission.

ACTION: Further notice of proposed

rulemaking.

SUMMARY: The Federal Maritime

Commission proposes to remove its

current $15 million coverage ceiling for

nonperformance of transportation by

passenger vessel operators. The

Commission would replace the ceiling

with sliding-scale coverage

requirements keyed to passenger vessel

operators’ financial rating, length of

operation in United States trades and

satisfactory explanation of claims for

nonperformance of transportation. For

self-insuring passenger vessel operators,

the Commission proposes to reestablish

a working capital requirement and to

require third-party coverage for 25

percent of unearned passenger revenue.

In order to clarify that the escrow

agreement is for the exclusive benefit of

passengers’ deposits and prepaid fares,

the Commission proposes revising the

form escrow agreement it publishes as a

guideline for the industry. The

Commission also proposes to require

applications for Certificates

(Performance) to be filed at least 90 days

in advance of the arranging, offering,

advertising or providing of water

transportation or tickets in connection

therewith, unless good cause is shown.

Finally, the Commission again solicits

suggestions for other alternatives to

consider under its Public Law 89–777

program, as well as suggestions for

scheduling the phasing-in of the

proposed rule’s revised coverage

requirements. These changes are

deemed necessary to enhance the

travelling public’s protection against

nonperformance of transportation.

DATES: Comments due on or before

August 26, 1996.

ADDRESSES: Send comments (original

and 15 copies) to: 1 Joseph C. Polking,
33060 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

of their comments in ASCII, WordPerfect or

Microsoft Word format.

2For the purposes of section 3, a PVO is any

person in the United States that arranges, offers,

advertises or provides passage on a vessel having

berth or stateroom accommodations for fifty or more

passengers and which is to embark passengers at

United States ports.

3Section 3 provides, in pertinent part:

(a) No person in the United States shall arrange,

offer, advertise, or provide passage on a vessel

having berth or stateroom accommodations for fifty

or more passengers and which is to embark

passengers at United States ports without there first

having been filed with the Federal Maritime

Commission such information as the Commission

may deem necessary to establish the financial

responsibility of the person arranging, offering,

advertising, or providing such transportation, or, in

lieu thereof, a copy of a bond or other security, in

such form as the Commission, by rule or regulation,

may require and accept, for indemnification of

passengers for nonperformance of the

transportation.

4UPR is defined under 46 CFR 540.2(i) as:

* * * passenger revenue received for water

transportation and all other accommodations,

services, and facilities relating thereto not yet

performed.

5The Commission, in Docket No. 92–19, Revision

of Financial Responsibility Requirements for NonPerformance of Transportation, amended 46 CFR

Part 540, Subpart A, to (1) institute this sliding

scale formula for determining the amount of

financial responsibility coverage required for

operators meeting certain requirements; (2) exclude,

under certain conditions, revenue from ‘‘wholeship’’ arrangements from being considered UPR;

and (3) publish a suggested form escrow

arrangement as a guideline for the industry (57 FR

51887 (September 14, 1992)).

6 46 CFR 540.9(h) provides, in pertinent part:

Every person who has been issued a Certificate

(Performance) must submit to the Commission a

semiannual statement of any changes that have

taken place with respect to the information

contained in the application or documents

submitted in support thereof. Negative statements

are required to indicate no change. Such statements

must cover every 6-month period of the fiscal year

immediately subsequent to the date of the issuance

of the Certificate (Performance), and include a

statement of the highest unearned passenger

revenue accrued for each month in the 6-month

reporting period. In addition, the statement will be

due within 30 days after the close of every such 6-

month period.

7 59 FR 15149 (March 31, 1994).

8 Docket No. 90–1, Security for the Protection of

the Public, Maximum Required Performance

Amount; Proposed Rule, 55 FR 1850 (January 19,

1990); Final Rule, 55 FR 34564 (August 23, 1990);

Correction, 55 FR 35983 (September 4, 1990).

Fact Finding Investigation No. 19, Passenger

Vessel Financial Responsibility Requirements,

Order of Investigation, 55 FR 34610 (August 23,

1990).

Secretary, Federal Maritime

Commission, 800 North Capitol St.,

NW., Washington, DC 20573, (202) 523–

5725.

FOR FURTHER INFORMATION CONTACT:

Bryant L. VanBrakle, Director, Bureau of

Tariffs, Certification and Licensing,

Federal Maritime Commission, 800

North Capitol St., NW., Washington, DC

20573, (202) 523–5796.

SUPPLEMENTARY INFORMATION:

I. Introduction

The Federal Maritime Commission

(‘‘Commission’’ or ‘‘FMC’’) administers

section 3, Public Law 89–777, 46 U.S.C.

app. 817e (‘‘section 3’’). Section 3

requires certain passenger vessel

operators (‘‘PVOs’’) 2 to establish

financial responsibility for

nonperformance of transportation.3 The

Commission’s regulations implementing

section 3 (46 CFR 540, Subpart A)

generally provide that a PVO may

evidence financial responsibility by one

or more of the following methods: A

guaranty, escrow arrangement, surety

bond, insurance or self-insurance. The

Commission requires coverage of at least

110 percent of a PVO’s highest unearned

passenger revenue (‘‘UPR’’) 4 over a twoyear period. However, the maximum

coverage amount currently required is

$15 million. Also, non-self-insuring

PVOs that can evidence a minimum of

five years operation in U.S. trades with

a satisfactory explanation of any claims

for nonperformance of transportation

are entitled to reduced coverage

requirements under the following

sliding scale: 5

Unearned passenger revenue

(‘‘UPR’’) Required coverage

$0–$5,000,000 .......................................................................................... 100% of UPR up to $5,000,000.

$5,000,001 to $15,000,000 ....................................................................... $5,000,000 plus 50% of excess UPR over $5,000,000 subject to an

overall maximum of $5,000,000 per vessel.

$15,000,001 to $35,000,000 ..................................................................... $10,000,000 plus 25% of excess of UPR over $15,000,000 subject to

an overall maximum of $5,000,000 per vessel and a $15,000,000

overall maximum.

Over $35,000,000 ..................................................................................... $15,000,000 overall maximum.

Under the Commission’s present

rules, self-insuring PVOs are required to

demonstrate, among other things, net

worth equal to at least 110 percent of

their UPR. At an earlier stage of this

proceeding, as discussed below, the

Commission had proposed to phase out

self-insurance except for PVOs which

are state and Federal entities.

The Commission monitors activity of

PVOs who are subject to Public Law 89–

777 and by rule requires semiannual

UPR reports.6 Additionally, the

Commission periodically surveys PVOs’

future U.S. cruise schedules and fare

structures.

II. Background

A. Docket No. 94–6

These proceedings were instituted

with a March 1994 Notice of Proposed

Rulemaking (‘‘1994 NPR’’ or ‘‘1994

Proposed Rule’’).7 The 1994 NPR

addressed the Commission’s concerns

about the adequacy of its coverage

requirements in the light of several

recent developments, including $700

million in uncovered UPR, the

voluntary bankruptcy of one PVO and

the dislocation of a self-insured carrier’s

operations as a result of the 1993 floods

in the Mississippi River system. The

1994 NPR therefore proposed:

(1) removing the current $15 million

UPR coverage ceiling;

(2) revising the current UPR sliding

scale to require coverage of 110 percent

of UPR up to $25 million per operator,

with coverage of 90 percent of UPR for

amounts exceeding $25 million (the

NPR also put forth an alternative

proposal which would require coverage

of 110 percent of UPR up to $25 million

per operator; 75 percent of UPR between

$25 million and $50 million per

operator; and 50 percent coverage for

UPR over $50 million per operator); and

(3) removing self-insurance as an

option for section 3 coverage (except for

state or federal entities). Existing selfinsured commercial operators would be

provided one year following the

effective date of any final rule in this

matter to obtain other evidence of

financial responsibility.

The 1994 NPR drew twelve

comments. There was virtually

unanimous support for the

Commission’s existing coverage

requirements, and widespread

questioning of the need for the 1994

Proposed Rule. Many commenters drew

attention to the Commission’s earlier

series of proceedings in this area,8 and
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33061

Docket No. 91–32, Passenger Vessel Financial

Responsibility Requirements for Indemnification of

Passengers for Nonperformance of Transportation—

Advance Notice of Proposed Rulemaking and

Notice of Inquiry, 56 FR 40586 (August 15, 1991).

Docket No. 92–19, Revision of Financial

Responsibility Requirements for Nonperformance of

Transportation; Proposed Rule, 57 FR 19097 (May

4, 1992); Final Rule, 57 FR 41887 (September 14,

1992).

Docket No. 92–50, Financial Responsibility

Requirements for Nonperformance of

Transportation—Revision of Self-Insurance

Qualification Standards; Proposed Rule, 57 FR

47830 (October 20, 1992); Final Rule, 57 FR 62479

(December 31, 1992).

9 59 FR 52133 (October 26, 1994).

10 In this connection, the Commission noted its

approach in Docket No. 92–37, Financial

Responsibility for Non-Vessel-Operating Common

Carriers, Final Rule, 58 FR 5618 (January 22, 1993),

which permits groups or associations of non-vesseloperating common carriers (‘‘NVOCCs’’) to

collectively issue bonds to meet financial

responsibility coverage requirements imposed upon

NVOCCs by the Shipping Act of 1984. Because this

approach had proven successful with respect to

NVOCCs, a purpose of the 1994 Inquiry was to

consider its applicability and adaptability to PVO

requirements under Pub. L. 89–777.

11The Shipping Act of 1984, 46 U.S.C. app. 1701,

11The Shipping Act of 1984, 46 U.S.C. app. 1701,

(‘‘1984 Act’’) governs concerted ocean common

carrier activity in the U. S. foreign waterborne

trades. The Shipping Act, 1916, 46 U.S.C. app. 801,

(‘‘1916 Act’’) governs concerted activity of common

carriers by water in interstate commerce in the

transportation by water of passengers on the high

seas or the Great Lakes on regular routes from port

to port between one U.S. State, Territory, District

or possession and any other U.S. State, Territory,

District or possession or between places in the same

Territory, District or possession. Effective

September 30, 1996, the ICC Termination Act of

1995, Pub. L. No. 104–88, 109 Stat. 803, repeals

among other things the 1916 Act provisions

applicable to agreements.

12The Commission previously required the

maintenance of working capital and net worth, each

equal to 110 percent of the operator’s UPR. This

standard provided that the Commission could, for

good cause shown, waive the requirement as to the

amount of working capital.

13 59 FR 54878 (November 2, 1994).

14The Surety Association of America (‘‘Surety

Association’’) is a trade association that represents

650 surety companies that provide 95% of the

surety bonds written in the United States.

15The International Council of Cruise Lines

(‘‘ICCL’’) states that its members have the vast

majority of the cruise industry berth capacity. Its

letterhead lists Carnival Cruise Lines; Celebrity

Cruise Lines; Commodore Cruise Line; Costa Cruise

Lines NV; Crown Cruise Line; Crystal Cruises;

Cunard Line Ltd.; Dolphin Cruise Line; Epirotiki

Lines; Fantasy Cruise Lines; Holland America Line;

Majesty Cruise Line; Norwegian Cruise Line;

Premier Cruise Lines, Ltd.; Princess Cruises;

Regency Cruises, Inc. (‘‘Regency’’); Royal Caribbean

Cruises, Ltd.; Royal Cruise Line; Royal Viking Line;

Seabourn Cruise Line; Sun Line Cruises, Inc.; and

Windstar Cruises.

16The Transportation Institute stated in its NPR

comments that it represents 140 U.S.-flag shipping

companies engaged in foreign and domestic trades,

including American Classic Voyages Co. The U.S.-

flag PVOs under the Commission’s section 3

program presently consist of American Classic

Voyages, Alaska Sightseeing/Cruise West, Clipper

Cruise Line, Special Expeditions, Alaska Marine

Highway, and American Canadian Caribbean Line.

17Carnival Corporation (‘‘Carnival’’). Carnival’s

comments are filed on behalf of Carnival Cruise

Lines, Holland America Lines and Windstar

Cruises. Carnival is an ICCL member.

18American Classic Voyages Co. (‘‘AMCV’’).

AMCV is the corporate parent of The Delta Queen

Steamboat Co. (‘‘Delta Queen’’) and Great Hawaiian

Cruise Line, Inc. (‘‘American Hawaii’’). AMCV is a

section 3 self-insurer.

asserted that there have been no

industry changes warranting this

proposal. Positions ranged from strong

Congressional and U.S.-flag PVO

opposition to any further changes to

current coverage requirements, to

conditional support of a modified

version of the 1994 Proposed Rule by

foreign-flag interests. There was no

support for the 1994 Proposed Rule

outright; however, a foreign-flag PVO

supported the 1994 Proposed Rule’s

coverage requirements for those PVOs

unable to meet that PVO’s self-insurance

proposal.

B. Docket No. 94–21

Given the concerns expressed in the

industry comments to the 1994 NPR, the

Commission determined to hold it in

abeyance pending a formal Inquiry

under Docket No. 94–21, Inquiry into

Alternative Forms of Financial

Responsibility for Nonperformance of

Transportation (‘‘1994 Inquiry’’).9 The

1994 Inquiry’s purpose was to

determine whether an acceptable

alternative could be fashioned to both

address the industry’s concerns with the

1994 NPR and ensure appropriate

protection for passengers. The 1994

Inquiry therefore solicited comment on

covering UPR liability through:

(1) voluntary association(s) (such

association(s) would be in addition to

the current individual methods of

evidencing financial responsibility for

non-performance); 10 and

(2) retained but strengthened selfinsurance requirements.

In general terms, the association(s)

envisioned by the 1994 Inquiry would

accept liability for all or a part of a

PVO’s section 3 liability, using a

Commission-approved surety bond or

guaranty in an amount equal to the

combined UPR of the two members

having the highest amount of UPR

during the past two years. Because these

associations would necessarily involve

concerted carrier activity, comments

were also invited on whether this

approach could present issues under the

antitrust laws, to the extent such

activity is not immunized under

Shipping Act agreements.11

The reinforced self-insurance

approach envisioned by the 1994

Inquiry would have worked in a manner

whereby the Commission would restore

its former standard,12 but require

prospective self-insurers to provide

alternative coverage for a percentage

(e.g., 50% or 25%) of their uncovered

UPR, through either a traditional

guaranty, surety, escrow agreement or

lien or other security instrument, or

through participation in a coverage

association along the above-described

lines. This approach would, however,

still require qualifying assets to be

located in the United States.

The 1994 Inquiry was subsequently

revised to clarify that the Commission

was also seeking comment on accepting

liens, mortgages or other security

instruments as evidence of financial

responsibility.13

Five comments on the 1994 Inquiry

were submitted by three trade

associations (one representing surety

interests,14 one representing foreign-flag

vessel operators 15 and one representing

U.S.-flag vessel operators)16, a foreignflag vessel operator 17 and a U.S.-flag

vessel operator.18

All of the 1994 Inquiry’s commenters

had also commented on the NPR, and

indicate that their comments on the

1994 Inquiry supplement or incorporate

by reference those earlier comments,

which generally opposed the 1994

Proposed Rule and urged retaining

current regulations. Many commenters

express appreciation for the

Commission’s efforts to arrive at

creative solutions to the financial

responsibility issue. At the same time,

they reiterate their NPR comments that

current requirements are working well,

and that no passengers have lost any

money.

The commenters’ general opposition

to the NPR carried over to the

alternatives proffered under the 1994

Inquiry: virtually all foresee problems of

one sort or another with the voluntary

association approach, ranging from

skepticism about the availability of the

large bonds necessary, to a number of

difficult risk management and

competitive factors. No commenter

offers outright support for the vessel

lien concept, for a number of reasons

generally based on opposition to a

requirement that qualifying assets be

located in the U.S. Commenters urge the

Commission not to change its current

self-insurance standards, or to

discontinue the requirement that

qualifying assets be based in the U.S.

1. Voluntary Associations

The comments opposing the 1994

Inquiry’s voluntary association proposal

suggest that, although this general

approach seems to be viable for

NVOCCs, it may not be feasible for

PVOs. In particular, these comments

address the operational and fiscal
33062 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

19 In this regard, the comments point out that P&I

Clubs, which are mutual insurance associations,

were developed initially to provide mutual

insurance for casualty and other losses. Thus, they

are structured on the assumption that a member

will survive a casualty, and the P&I mechanism is

designed to eventually recover casualty losses from

the member suffering that loss. (P&I Clubs issue

performance guaranties only as an accommodation

to the membership, and then only on a fullycollateralized basis.) The NVOCC industry uses

commercial instruments and does not have mutual

associations similar to P&I Clubs.

20The Surety Association advises that, depending

on the actual make-up and financial strength of the

passenger vessel associations, some associations

may find it extremely difficult to qualify for a group

surety bond and some may not be able to qualify

at all.

21AMCV described the undesirability of PVOs

becoming exposed to liability for other PVOs’

nonperformance; fiduciary risks to PVO

management for assuming liability for events within

the sole control of its competitors; the difficulties

of allocating the levels of risk involved and the

narrowness of the base upon which that risk would

be shared; and the inherent susceptibility of weaker

members to termination—either for competitive

reasons or because of normal operational risks

inherent in a seasonal industry that is ultimately

dependent upon discretionary income for all of its

revenues.

22Those PVOs subject to the 1984 Act could avail

themselves of agreement immunity to protect

themselves from whatever exposure such concerted

activity would cause under antitrust laws. Thus, the

Shipping Act’s antitrust exemption could result in

uneven antitrust exposure as between those PVOs

entitled to the wide scope of 1984 Act agreement

antitrust exemption (transportation between U.S.

and foreign locations), which would obtain either

with the filing or regulatory exemption of the

Association agreement(s); and those purely

domestic PVOs (transportation solely within the

U.S.), which may not be entitled to any Shipping

Act antitrust exemption at all. (The immunity

afforded by the 1916 Act is repealed September 30,

1996, by virtue of the ICC Termination Act of 1995,

Pub. L. 104–88, 109 Stat. 803.)

23Please refer to footnote 5, infra.

24Although Carnival has proposed that selfinsuring PVOs assent to U.S. jurisdiction in

disputes with passengers over UPR and that PVOs

designate agents for service of process, we do not

believe that these measures would be sufficient for

a passenger to attach a carrier’s foreign-based assets.

Moreover, this would not add anything new

because section 3 UPR is already protected by U.S.

Law (Pub. L. 89–777) and all section 3 applicants

are required to appoint agents for service of process

before they are certificated. Also, the Commission’s

concern is not limited to disputes between viable

PVOs and passengers over UPR; rather, the

Commission is concerned with a failing PVO’s

ability to indemnify passengers for

nonperformance, which goes well beyond U.S.

jurisdiction over simple disputes.

* Docket No. 92–19, Notice of Proposed

Rulemaking, p. 9.

Docket No. 92–50, Financial Responsibility

Requirements for Nonperformance of

Transportation—Revision of Self-Insurance

Qualification Standards, 57 FR 47830 (October 20,

1992), Final Rule, 57 FR 62480 (December 31,

1992).

distinctions between the NVOCC and

the PVO industries and make a credible

argument as to why in this particular

case a mechanism which works for one

industry might not for another.19

In short, the comments contend that

an association approach would not work

at the coverage levels contemplated

under the NPR (either the original

proposal or the alternative), due to the

concentrated capital structures,

operational diversity and competitive

considerations inherent in the

contemporary cruise industry.20 Also,

ICCL comments that the nature of the

cruise business does not lend itself to

the mutuality inherent in the

association approach, which seems to be

borne out by AMCV’s explanation of the

drawbacks it sees in the association

approach.21 It therefore appears unlikely

that the market could support the

magnitude of risk exposure inherent in

the sort of voluntary association

envisioned by the 1994 Inquiry.

Another material difference between

these two industries is prepayment:

NVOCCs do not require their customers

to fully prepay for their services

anywhere from two to six weeks (or, in

some cases, eight or more weeks) before

they are performed, as is the practice

with PVOs. It is this practice which

accounts for the approximately $700

million shortfall in uncovered UPR that

prompted these proceedings. The

shortfall’s size more than anything else

would appear ultimately to render the

voluntary association approach

unworkable.

With regard to possible antitrust

issues under this approach, AMCV

notes that an association attempting to

limit membership to financially sound

PVOs could be subject to antitrust

claims by excluded PVOs, and that there

is an inherent potential for detrimental

disclosure of confidential information.22

In view of the foregoing

considerations, the Commission has

determined not to pursue a voluntary

association approach for the purposes of

its Pub. L. 89–777 program.

2. Self-Insurance

The self-insurance requirements

currently in place were established by

the Commission’s Final Rule in Docket

No. 92–50, which became effective

February 1, 1993. Previously, selfinsurers needed to demonstrate net

worth and working capital each equal to

110% of the PVO’s UPR—the standard

the 1994 Inquiry suggested that the

Commission might restore.

Current self-insurance standards

provide that PVOs demonstrating a

minimum of five years’ operation in

U.S. trades, with a satisfactory

explanation of any claims for

nonperformance of transportation, need

only demonstrate net worth equal to

110% of their UPR to qualify for selfinsurance. Self-insurers are not,

however, entitled to the sliding scale

UPR coverage requirements that had

been adopted in the Final Rule in

Docket No. 92–19,23 and qualifying

assets still must be located in the U.S.

The comments on the 1994 Inquiry

urge the Commission not to repeal selfinsurance for private operators. AMCV

has offered a rationale why the

Commission should neither terminate

self-insurance for commercial PVOs, as

proposed in the NPR, nor implement the

1994 Inquiry’s suggested restoration of

the Commission’s former and more

rigorous standard.

Foreign-flag operators take a different

tack, urging repeal of the U.S.-based

asset requirement. Carnival proposes a

standard that would not only repeal the

U.S.-based asset requirement but also

provide for self-insurance qualification

for PVOs which either (1) have earned

investment grade ratings by the bonding

rating agencies; or (2) meet both (a) a

three times tangible net worth test and

(b) a liquidity test (cash, short term

investments and undrawn lines of credit

equal to at least 100% UPR).

The foreign-flag operators, and

Carnival in particular, seek a system

that appears to be well suited for

assessing a company’s investment risk.

However, Carnival’s ‘‘investment risk’’

test may not be appropriate for a statute

that contemplates indemnification of

passengers in the event a carrier does

not fulfill its obligations.

In this regard, we note that Carnival’s

proposed test is conditioned upon the

Commission removing the U.S.-based

asset requirement. We believe this

requirement is critical to the self

insurance standard. Unless passengers

have the ability to attach a defaulting

carrier’s assets, self insurance under any

standard is problematic.24 As the

Commission remarked in its Final Rule

in Docket 92–50:

Although AHC and ICCL have requested

the Commission to relax the requirement that

the assets used to qualify as a self-insurer be

physically located in the United States, the

final rule herein continues existing

requirements for the location of those assets.

The Commission remains concerned that

passengers may not have the ability or

resources to pursue foreign-domiciled assets,

and that such efforts would not be costeffective in the majority of instances.*

Moreover, as noted in the NPR, ‘‘selfinsurance presents a greater risk of loss to the

travelling public than do other forms of

coverage that are backed by independent

interests holding sums of money for the

protection of the public.’’

On the other hand, AMCV’s

comments appear to provide a basis to

ameliorate some of the concerns that

originally prompted the Commission to

propose withdrawing self-insurance as
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33063

25AMCV also suggested that the widespread use

of credit cards and the protection offered by the

Truth-in-Lending Laws and private travel insurance

programs, act to buttress any shortfalls in the

Commission’s self-insurance options. While this

may or may not be true, the Commission

nevertheless has an independent obligation to make

certain that PVOs have established their financial

responsibility to indemnify passengers for

nonperformance of transportation. Accordingly, we

do not believe that the statutes or programs referred

to by AMCV obviate the need for the Commission

to fulfill its statutory responsibilities.

26Although AMCV may have addressed some of

the Commission’s concerns with respect to selfinsurance, it did not address other potential

payables that may have priority over passengers

claims, e.g., employee salaries, benefits, legal fees.

However, the proposed restoration of the former

working capital standard, together with the

additional requirement suggested below, should

suffice to establish the requisite level of financial

responsibility.

27The proposed reduced coverage sliding scale

would require 100 percent coverage for a PVO’s first

$15 million in UPR and phase in this revised

coverage requirement in three increments:

First, effective March 1, 1997, it would require 60

percent coverage for UPR between $15 and $25

million; 20 percent coverage for amounts between

$25 and $50 million and 10 percent coverage for

amounts over $50 million.

Second, effective March 1, 1998, it would require

60 percent coverage for UPR between $15 and $35

million; 20 percent coverage for amounts between

$35 and $75 million and 10 percent coverage for

amounts over $75 million.

Finally, effective March 1, 1999, it would require

60 percent coverage for UPR between $15 and $50

million; 20 percent coverage for amounts between

$50 and $100 million; and 10 percent coverage for

amounts over $100 million.

28The proposed rule would phase in this revised

coverage requirement in three increments:

First, effective March 1, 1997, it would require

100 percent coverage for UPR up to $25 million; 75

percent coverage for amounts between $25 and $35

million; and 25 percent coverage for amounts over

$35 million.

Second, effective March 1, 1998, it would require

100 percent coverage for UPR up to $35 million; 75

percent coverage for amounts between $35 and $50

Continued

an available option for commercial

PVOs.25 AMCV explains that traditional

maritime liens and preferred mortgages,

which have priority over passenger

claims, are first deducted prior to

calculating net worth under the existing

rule; therefore, the resultant net worth

used to qualify for section 3 selfinsurance has already accounted for

those liabilities.26

After further consideration, the

Commission has determined to

withdraw its proposal to discontinue

self-insurance for commercial operators.

Instead, the Commission proposes to

continue self-insurance, but with

revised criteria. To this end, the

proposed rule herein would revise Part

540 to permit PVOs other than state or

Federal instrumentalities to qualify for a

Performance Certificate using U.S.-

based net worth and working capital

each equal to or greater than their

outstanding UPR, plus an additional

cushion of 25% of UPR backed by a

traditional guaranty, surety bond,

insurance or escrow account. Such an

approach would permit commercial

operators, like AMCV, to continue to

use the self-insurance option currently

set forth in the Commission’s rules,

provided they also can evidence

working capital equal to their

outstanding UPR and can acquire a

guaranty, surety bond, insurance or

escrow account for 25% of their

outstanding UPR.

3. Liens, Mortgages and Other Security

Instruments

This aspect of the 1994 Inquiry drew

no support in the comments. In fact,

commenters provided sound reasons

why it should not be pursued further.

Accordingly, the Commission intends to

take no further action with respect to

this option.

III. Discussion

Notwithstanding the industry’s

general position that changes are not

necessary, the Commission’s concern

about the adequacy of its financial

responsibility standards has, if

anything, increased. Subsequent to the

close of the comment period in the 1994

Inquiry, three additional passenger

vessel operators have sought protection

under the Bankruptcy Code:

—In late December 1994, Gold Star

Cruises ceased operations and filed

for Chapter 7 bankruptcy.

—As of October 29, 1995, Regency

Cruises ceased operations. It

subsequently filed for Chapter 11

protection on November 7, 1995.

—On October 30, 1995, Palm Beach

Cruises filed for Chapter 11 protection

to reorganize.

In each of these cases, there appear to

be sufficient funds set aside to

indemnify passengers scheduled to

embark at U.S. ports. At the same time,

it should be noted that there was some

concern regarding Regency because its

unearned passenger revenue had from

time to time exceeded the current

ceiling; however, Regency ceased

operations at a time when its unearned

passenger revenue was below the

ceiling.

Accordingly, in light of the foregoing

the Commission believes that it must

now proceed to revise its coverage

requirements to narrow the gap between

coverage and UPR as a means of

enhancing protection for the public.

A. Revised Coverage Requirements

1. Coverage Levels

As aforementioned, the Commission

remains concerned about the increased

exposure to risk of the travelling

public’s deposits and prepaid fares in

the event that a PVO holding UPR levels

above the current ceiling defaults,

possibly leaving passengers unprotected

and subject to financial losses. The

Commission therefore proposes to

remove the $15 million ceiling in 46

CFR 540.9(j). Adjustments will also be

proposed to the sliding scale and

eligibility requirements currently set

forth in 540.5(e). The Commission also

proposes to introduce a new sliding

scale coverage table that would apply to

all operators.

a. Reduced Coverage Scale. The

revised sliding scale in 46 CFR 540.5(e)

would continue to be available to

passenger vessel operators that can

provide evidence of at least five years’

operation in United States trades, with

a satisfactory explanation of any claims

for nonperformance of transportation.

Operators opting to use this reduced

coverage sliding scale would, in

addition, have to demonstrate that their

debt is rated ‘‘Aa’’ or better by Moody’s

Investors Service. For those who

qualify, this reduced coverage sliding

scale would require 100 percent

coverage for UPR up to $15 million and,

when fully phased in, 60 percent

coverage for UPR between $15 and $50

million; 20 percent coverage for

amounts between $50 and $100 million;

and 10 percent for amounts over $100

million. The reduced coverage sliding

scale would be phased in over a 3-year

period to minimize the impact of the

new coverage requirements.27

The Commission believes that this

approach would give more weight to

third-party, marketplace assessments of

a PVO’s financial strength in

determining its section 3 risk. Moreover,

this approach relies, albeit indirectly,

upon foreign-based assets as urged by

foreign-flag PVOs in connection with

the self-insurance standards.

b. Standard Coverage Scale. The new

standard coverage sliding scale would

be available to all PVOs, regardless of

the extent of their operational

experience, their financial standing or

their explanations for instances of

nonperformance. When fully phased in,

the standard coverage sliding scale

would ultimately require 100 percent

coverage for UPR up to $50 million; 75

percent coverage for amounts between

$50 and $100 million; and 25 percent

coverage for amounts over $100 million.

The standard coverage sliding scale

would be phased in over a 3-year period

to minimize the impact of the new

coverage requirements.28
33064 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

million; and 25 percent coverage for amounts over

$50 million.

Finally, effective March 1, 1999, it would require

100 percent coverage for UPR up to $50 million; 75

percent coverage for amounts between $50 and

$100 million; and 25 percent coverage for amounts

over $100 million.

29The Commission also proposes restoring the

procedure to waive, for good cause shown, the

requirement as to the amount of working capital

appearing in the former § 540.5(d).

2. Self-Insurance

The Commission has determined to

propose the restoration of self-insurance

for private PVOs that can demonstrate

both U.S.-based net worth and working

capital each equal to their outstanding

UPR,29 with an additional cushion of

25% of UPR backed by a traditional

guaranty, surety bond, insurance or

escrow account.

3. Effective Date

While the Commission wishes to

revise section 3, Public Law 89–777,

requirements at the earliest practicable

date, it does not wish to do so in a

manner that unnecessarily disrupts the

passenger vessel industry. In this

connection, the Commission

acknowledges the widespread practice

of P&I Clubs to require members to fully

countersecure their section 3, Public

Law 89–777, guaranties as well as the

P&I Club practice of renewing coverages

during February of each year. Therefore,

the proposed rule herein would phase

in the revised coverage requirements

over a 3-year period beginning March 1,

1997, and ending March 1, 1999.

B. Revision of Part 540’s Escrow

Agreement Guideline

In a recent bankruptcy involving a

PVO that had used an escrow agreement

to meet its section 3, Public Law 89–777

financial responsibility requirements,

the question arose as to whether the

escrow’s assets should be considered

debtor’s property. The escrow

agreement at issue contained language

that the Commission has changed in

other escrow agreements it has since

approved so as to address this issue.

Therefore, we are proposing a change to

paragraph 12 to require language that

makes clear that escrow funds are not

debtor’s property and should be made

available to passengers.

C. Filing Deadline

Section 540.4(b) requires that an

application for a Certificate

(Performance) shall be filed at least 60

days in advance of the arranging,

offering, advertising, or providing of any

water transportation or tickets in

connection therewith. Late filing of the

application is permitted only for good

cause shown. With the growth of the

passenger vessel industry over the years

since this requirement was first

promulgated, together with the

industry’s increasing reliance on

complex financial responsibility

proposals requiring case-by-case

assessment by the Commission, a 60-day

period can be insufficient. Accordingly,

this is being changed to a 90-day period,

absent good cause shown.

The Federal Maritime Commission

certifies, pursuant to section 605(b) of

the Regulatory Flexibility Act, 5 U.S.C.

605(b), that this proposed rule, if

adopted, will not have a significant

economic impact on a substantial

number of small entities, including

small businesses, small organizational

units, and small governmental

organizations. The passenger vessel

operators impacted by the rule are

generally not small businesses.

The collection of information

requirements contained in this rule have

been submitted to the Office of

Management and Budget for review

under section 3507 of the Paperwork

Reduction Act of 1995. The annual

public reporting and recordkeeping

burden for this collection of information

is estimated to average 14.91 hours per

response. Burden means the total time,

effort, or financial resources expended

by persons to generate, maintain, retain,

or disclose or provide information to or

for a Federal agency. This includes the

time needed to review instructions;

develop, acquire, install, and utilize

technology and systems for the purposes

of collecting, validating, and verifying

information, processing and

maintaining information, and disclosing

and providing information; adjust the

existing ways to comply with any

previously applicable instructions and

requirements; train personnel to be able

to respond to a collection of

information; search data sources;

complete and review the collection of

information; and transmit or otherwise

disclose the information.

Written comments are invited on: (a)

Whether the proposed collection of

information is necessary for the proper

performance of the functions of the

agency, including whether the

information shall have practical utility;

(b) the accuracy of the agency’s

estimates of the burden (including hours

and cost) of the proposed collection of

information; (c) ways to enhance the

quality, utility, and clarity of the

information to be collected; and (d)

ways to minimize the burden of the

collection of information on

respondents, including through the use

of automated collection techniques or

other forms of information technology.

Send comments concerning the

information collection requirements of

this rule within 60 days of this notice

to Bruce A. Dombrowski, Deputy

Managing Director, Federal Maritime

Commission, Washington, D.C. 20573

and to the Office of Information and

Regulatory Affairs, Office of

Management and Budget, Attention:

Desk Officer for the Federal Maritime

Commission, Washington, D.C. 20503.

List of Subjects in 46 CFR Part 540

Insurance, Maritime carriers,

Penalties, Reporting and recordkeeping

requirements, Surety bonds,

Transportation.

Therefore, pursuant to 5 U.S.C. 553;

section 3, Pub. L. 89–777, 80 Stat. 1356–

1358 (46 U.S.C. app. 817e); section 43

of the Shipping Act, 1916 (46 U.S.C.

app. 841a); and section 17 of the

Shipping Act of 1984 (46 U.S.C. app.

1716), the Federal Maritime

Commission proposes to amend Part

540 of Title 46 of the Code of Federal

Regulations as follows:

PART 540—[AMENDED]

1. The authority citation to Part 540

continues to read:

Authority: 5 U.S.C. 552, 553; secs. 2 and

3, Pub. L. 89–777, 80 Stat. 1356–1358 (46

U.S.C. app. 817e, 817d); sec. 43 of the

Shipping Act, 1916 (46 U.S.C. app. 841a); sec

17 of the Shipping Act of 1984 (46 U.S.C.

app. 1716).

§ 540.4 [Amended]

2. In section 540.4(b), the reference to

‘‘60 days’’ in the first sentence is

amended to read ‘‘90 days.’’

3. Section 540.5 is amended by

revising the introductory text, the

introductory text of paragraph (d),

paragraph (d)(6), and (e) to read as

follows:

§ 540.5 Insurance, guaranties, escrow

accounts, and self-insurance.

Except with regard to escrow accounts

and self-insurers, the amount of

coverage required under this section

and § 540.6(b) shall be in an amount

determined by the Commission to be no

less than 100 percent of the unearned

passenger revenue of the applicant on

the date within the 2 fiscal years

immediately prior to the filing of the

application which reflects the greatest

amount of unearned passenger revenue,

subject to the following schedule:
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33065

Unearned passenger revenue

(‘‘UPR’’) Required coverage

Effective March 1, 1997:

$0–$25,000,000 ................................................................................. 100% of UPR.

$25,000,001–$35,000,000 ................................................................. $25,000,000 plus 75% of excess UPR over $25,000,000.

Over $35,000,000 .............................................................................. $32,500,000 plus 25% of excess UPR over $35,000,000.

Effective March 1, 1998:

$0-$35,000,000 .................................................................................. 100% of UPR.

$35,000,001–$50,000,000 ................................................................. $35,000,000 plus 75% of excess UPR over $35,000,000.

Over $50,000,000 .............................................................................. $46,250,000 plus 25% of excess UPR over $50,000,000.

Effective March 1, 1999:

$0-$50,000,000 .................................................................................. 100% of UPR.

$50,000,001–$100,000,000 ............................................................... $50,000,000 plus 75% of excess UPR over $50,000,000.

Over $100,000,000 ............................................................................ $87,500,000 plus 25% of excess UPR over $100,000,000.

The Commission, for good cause shown,

may consider a time period other than

the previous 2-fiscal-year period

requirement in this section or other

methods acceptable to the Commission

to determine the amount of coverage

required. Evidence of adequate financial

responsibility for the purposes of this

subpart may be established by one or a

combination (including § 540.6 Surety

Bonds) of the following methods:

* * * * *

(d) Filing with the Commission for

qualification as a self-insurer such

evidence acceptable to the Commission

as will demonstrate continued and

stable passenger operations over an

extended period of time in the foreign

or domestic trade of the United States.

In addition, applicants other than state

or Federal entities must demonstrate

financial responsibility by maintenance

of working capital and net worth, each

in an amount no less than 100 percent

of the unearned passenger revenue of

the applicant on the date within the 2

fiscal years immediately prior to the

filing of the application which reflects

the greatest amount of unearned

passenger revenue. The Commission

will take into consideration all current

contractual requirements with respect to

the maintenance of such working capital

and/or net worth to which the applicant

is bound. Evidence must be submitted

that the working capital and net worth

required above are physically located in

the United States. This evidence of

financial responsibility shall be

supplemented by evidence

demonstrating that twenty-five percent

of applicant’s unearned passenger

revenue is covered by one or a

combination of the following: evidence

of insurance pursuant to § 540.5(a);

evidence of an escrow account pursuant

to § 540.5(b); a guaranty pursuant to

§ 540.5(c); or a surety bond pursuant to

§ 540.6. This evidence of financial

responsibility shall be supported by and

be subject to the following which are to

be submitted on a continuing basis for

each year or portion thereof while the

Certificate (Performance) is in effect;

* * * * *

(6) A list filed semiannually of all

contractual requirements or other

encumbrances (and to whom the

applicant is bound in this regard)

relating to the maintenance of working

capital and net worth;

* * * * *

(e) (1) The following schedule may be

applied to determine the minimum

coverage required for indemnification of

passengers in the event of

nonperformance of water transportation

for those operators who have not elected

to qualify by an escrow account or selfinsurance; and can provide evidence (in

the form of an affidavit by the operator’s

Chief Executive Officer or other

responsible corporate officer) that

applicant’s debt is rated by Moody’s

Investors Service at Aa or higher; and of

a minimum of five years of operation in

United States trades with a satisfactory

explanation of any claims for

nonperformance of transportation.

Unearned passenger revenue

(‘‘UPR’’) Required coverage

$0–$15,000,000 ........................................................................................ 100% of UPR.

Effective March 1, 1997:

$15,000,001–$25,000,000 ................................................................. $15,000,000 plus 60% of excess UPR over $15,000,000.

$25,000,001–$50,000,000 ................................................................. $21,000,000 plus 20% of excess UPR over $25,000,000.

Over $50,000,000 .............................................................................. $26,000,000 plus 10% of excess UPR over $50,000,000.

Effective March 1, 1998:

$15,000,001–$35,000,000 ................................................................. $15,000,000 plus 60% of excess UPR over $15,000,000.

$35,000,001–$75,000,000 ................................................................. $27,000,000 plus 20% of excess UPR over $35,000,000.

Over $75,000,000 .............................................................................. $35,000,000 plus 10% of excess UPR over $75,000,000.

Effective March 1, 1999:

$15,000,001–$50,000,000 ................................................................. $15,000,000 plus 60% of excess UPR over $15,000,000.

$50,000,001–$100,000,000 ............................................................... $36,000,000 plus 20% of excess UPR over $50,000,000.

Over $100,000,000 ............................................................................ $46,000,000 plus 10% of excess UPR over $100,000,000.

(2) The qualifications of applicants

seeking consideration under the

coverage requirements of this paragraph

shall be supported by and subject to the

following which are to be submitted on

a continuing basis for each year or

portion thereof while the Certificate

(Performance) is in effect:

(i) A report filed semiannually

evidencing that Moody’s Investors

Service rates applicant’s debt at Aa or

higher; and

(ii) Such additional evidence of

financial responsibility as the

Commission may deem necessary in

appropriate cases.
33066 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

1Telecommunications Act of 1996, Public Law

No. 104–104, 110 Stat. 56 (1996).

2 47 U.S.C. 151 et seq.

3 47 U.S.C. 257(a).

4 47 U.S.C. 257(b).

5 47 U.S.C. 257(c).

6 47 U.S.C. 309(j).

7See, e.g., 47 U.S.C. § 214 (Commission must

certify that public convenience or necessity requires

construction or extension of lines); 47 CFR § 303

(Commission must regulate radio as public interest,

convenience or necessity requires); 47 U.S.C. 307(a)

(Commission must grant radio licenses that serve

the public convenience, interest, or necessity).

8The Congressional Record provides:

[W]hile we should all look forward to the

opportunities presented by new, emerging

technologies, we cannot disregard the lessons of the

past and the hurdles we still face in making certain

that everyone in America benefits equally from our

country’s maiden voyage into cyberspace. I refer to

the well-documented fact that minority and

women-owned small businesses continue to be

extremely under represented in the

telecommunications field. * * * Underlying this

amendment [Section 257] is the obvious fact that

diversity of ownership remains a key to the

competitiveness of the U.S. telecommunications

marketplace.

142 Cong. Rec. H1141 at H1176–77 (daily ed. Feb.

1, 1996) (statement of Rep. Collins).

§ 540.9 [Amended]

5. In section 540.9, paragraph (j) is

removed, and paragraph (k) is

redesignated as paragraph (j).

Appendix A to Subpart A—[Amended]

6. The following sentence is added at

the end of Paragraph 12 of Appendix A

to subpart A—Example of Escrow

Agreement for Use Under 46 CFR

540.5(b):

The Operator and/or Ticket Issuer are not

entitled to, nor have any interest in, any

funds payable from this account to the extent

such funds represent unearned passenger

revenue, as that term is defined in subpart A

of part 540 of title 46, Code of Federal

Regulations.

* * * * *

By the Commission.

Joseph C. Polking,

Secretary.

[FR Doc. 96–16210 Filed 6–25–96; 8:45 am]

BILLING CODE 6730–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Chapter I

[General Docket No 96–113; FCC 96–216]

Identifying and Eliminating Market

Entry Barriers for Small Businesses

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule; notice of inquiry.

SUMMARY: The attached Notice of

Inquiry (NOI) commences a proceeding

to examine barriers to small business

entry into the telecommunications

marketplace. Section 101 of the

Telecommunications Act of 1996 (1996

Telecommunications Act) adds new

Section 257 to the Communications Act,

which requires the Commission, within

15 months after enactment, to complete

a proceeding to identify and eliminate

market entry barriers for entrepreneurs

and other small businesses in the

provision and ownership of

telecommunications services and

information services, or in the provision

of parts or services to providers of

telecommunications services and

information services. Through this NOI,

the Commission initiates an omnibus

Section 257 proceeding and will

undertake specific initiatives that

further the objective of reducing market

entry barriers for small businesses. The

record developed in connection with

these intiatives also will, assist us in

achieving our mandate under Section

309(j) of the Communications Act of

1934 to disseminate licenses for

auctionable spectrum-based services to

small businesses, rural telephone

companies, and businesses owned by

women and minorities, as well as in

fulfilling our general obligation to serve

the public interest.

DATES: Comments must be submitted on

or before July 24, 1996 and reply

comments are due on or before August

23, 1996.

ADDRESSES: Comments and reply

comments may be mailed to the Office

of the Secretary, Federal

Communications Commission,

Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT:

Linda L. Haller, Office of General

Counsel, at (202) 418–1720 or S. Jenell

Trigg, Office of Communications

Business Opportunities, at (202) 418–

0990.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Notice of

Inquiry which was adopted on May 10,

1996, and released on May 21, 1996.

The complete text of this NOI is

available for inspection and copying

during normal business hours in the

FCC Reference Center (room 239), 1919

M Street, N.W., Washington, D.C., online at the Office of Communications

Business Opportunities’ web site via the

FCC’s Internet Home Page at

www.fcc.gov., and may also be

purchased from the Commission’s copy

contractor, International Transcription

Service (202) 857–3800, 2100 M Street,

N.W., Suite 140, Washington, D.C.

20037.

I. Introduction

1. Section 101 of the

Telecommunications Act of 1996 (1996

Telecommunications Act),1 adds new

Section 257 to the Communications Act

of 1934.2 Section 257 requires the

Commission, within 15 months after

enactment, to complete a proceeding

‘‘for the purpose of identifying and

eliminating, by regulations pursuant to

its authority under this Act * * *

market entry barriers for entrepreneurs

and other small businesses in the

provision and ownership of

telecommunications services and

information services, or in the provision

of parts or services to providers of

telecommunications services and

information services.’’ 3 In

implementing Section 257, the

Commission must ‘‘promote the policies

and purposes of this Act favoring

diversity of media voices, vigorous

economic competition, technological

advancement, and promotion of the

public interest, convenience and

necessity.’’ 4 Every three years following

the completion of the market entry

barriers proceeding, the Commission

must report to Congress on regulations

that have been issued to eliminate

barriers and any statutory barriers that

the Commission recommends be

eliminated.5

2. This Notice of Inquiry (NOI)

commences the Commission’s omnibus

Section 257 proceeding. We also will

undertake specific initiatives that

further the objective of Section 257 to

reduce market entry barriers for small

businesses. The record developed in

connection with these initiatives also

will assist us in achieving our mandate

under Section 309(j) of the Act 6 to

disseminate licenses for auctionable

spectrum-based services to small

businesses, rural telephone companies,

and businesses owned by women and

minorities, as well as in fulfilling our

general obligation to serve the public

interest.7

3. We also inquire whether small

businesses owned by minorities or

women face unique entry barriers. We

explore this area because the legislative

history of Section 257 suggests that

Congress was concerned about the

underrepresentation of minority or

women-owned small businesses in the

telecommunications market and sought

to increase competition by diversifying

ownership.8 In addition, Section 309(j)

specifically requires that we further

opportunities for businesses owned by

women and minorities in the provision

of spectrum-based services, because a

portion of small telecommunications

businesses under Section 257 are owned

by women and minorities, and because