Opinion ID: 757345
Heading Depth: 2
Heading Rank: 4

Heading: Unitary Rate Structure

Text: 61 The IXC petitioners next challenge the FCC's decision to eliminate the unitary rate option for tandem-switched transport as arbitrary and capricious in that it imposes inconsistent distance measurements for similar transmission services. According to the IXC petitioners, both tandem-switched transport and direct-trunked transport services generally follow the same transmission paths and therefore should be subjected to the same rates. In the Order, the FCC left the distance-sensitive rate structure for direct-trunked transport unaltered, but eliminated the likewise distance-sensitive unitary rate option for tandem-switched transport. Under the unitary rate option, long-distance carriers paid for tandem-switched transport in the same manner they paid for direct-trunked transport: through an end-to-end charge, with mileage measured as airline mileage from the LEC's wire center to the end office. See Order pp 158, 159. With the imposition of the new three-part rate structure, tandem-switched service is broken down into its component parts and rates are applied as follows: (1) a per-minute charge for transmission from the end office to the tandem; (2) a per-minute charge for the tandem switching function itself; and (3) a flat-rated charge for transport over dedicated transport facilities from the tandem to the serving wire center. Id. p 175. The charges for transmission from the end office to the tandem and from the tandem to the serving wire center remain distance-sensitive, although they are not computed on an end-to-end basis. The IXC petitioners contend that by allowing the LECs to charge separately for each of the three legs of the transmission, the LECs will route this traffic inefficiently in order to increase artificially the distance involved in completing the transmission, thereby inflating the costs to tandem-switched transport customers. 62 The FCC justified its elimination of the unitary rate option because it does not accurately reflect the manner in which LECs incur costs in providing tandem-switched transport and, therefore, does not provide maximum incentive for IXCs to use transport facilities efficiently. Id. p 178. Furthermore, the unitary rate option inhibits the development of competitive alternatives to incumbent LEC tandem-switched transport. Id. p 179. The Commission concluded that the three-part rate structure most closely reflects the manner in which LECs incur the costs of each component of the overall tandem-switched transport service. Id. p 181. As the IXC petitioners recognize, purchasers of direct-trunked transport purchase transport capacity between two end points from the LEC. Tandem-switched transport customers, on the other hand, purchase use of the tandem switch to route traffic to their point of presence and specifically obligate the LEC to transport their traffic between the serving wire center and the tandem serving a particular end office. Because they cause the incumbent LEC to incur the costs of transmitting their traffic between the serving wire center and the tandem, tandem-switched transport customers should, as a matter of cost-causation, pay the costs of reaching the tandem. Order p 182. While the incumbent LEC may choose to route direct-trunked traffic through the tandem office based on its own assessment of whether it is economically efficient to do so, tandem-switched traffic must be routed to the tandem office, and so should bear the costs reaching the tandem. Id. p 186. The IXCs' contention that LECs would circuitously route tandem-switched traffic in order to increase distances and artificially inflate rates was addressed by the Commission in the Order and dismissed as unlikely since such behavior would place greater costs on the LEC in an environment that is designed to encourage competition. See id. pp 183-84. 63 We conclude that the FCC's decision to eliminate the unitary rate option for tandem-switched transport was neither arbitrary nor capricious. The Commission reasonably concluded that the three-part rate structure would encourage efficient use of transport facilities by allowing pricing that reflects the way costs are incurred, id., p 177, and permit the fullest development of competitive alternatives for each distinct element of tandem-switched transport, id. p 179.