Opinion ID: 169513
Heading Depth: 3
Heading Rank: 1

Heading: The 1996 Telecommunications Act and the FCC's Payphone Orders

Text: The telecommunications industry is regulated by Chapter 5 of the Federal Communications Act of 1934, as amended by the Telecommunications Act of 1996, codified at 47 U.S.C. § 151 et seq. Prior to 1996, LECs, which owned payphone lines used by all PSPs, routinely subsidized and discriminated in favor of their own payphone services. See New Eng. Pub. Commc'ns Council, Inc. v. FCC, 334 F.3d 69, 71 (D.C.Cir.2003). In 1996, in an effort to increase competition in the payphone industry and ensure widespread access to payphones, Congress prohibited BOCs from subsidizing their own payphone services with revenues from their other operations and from discriminating in favor of their own payphone services. See 47 U.S.C. § 276(b), (a). [6] Section 276(a) reflects congressional intent to replace a state-regulated monopoly system with a federally facilitated, competitive market. New Eng. Pub. Commc'ns Council, 334 F.3d at 77. In § 276(b)(1)(C), Congress directed the FCC to adopt nonstructural safeguards to implement § 276(a) by preventing BOCs from cross-subsidization of their payphone services. In essence, a BOC must place its own payphones on equal footing with those that PSPs operate, and it must not obtain a profit from PSP payphones. Nw. Pub. Commc'ns Council v. Pub. Util. Comm'n, 196 Or.App. 94, 100 P.3d 776, 779 (Or.Ct.App.2004) (Wolheim, J., concurring). The instrument the FCC chose to implement § 276(b)(1)(C) is the so-called New Services Test (NST), which mandates that tariff rates should be based solely on a carrier's overhead costs. See 47 C.F.R. § 61.49(g)(2). [7] The FCC explained the process by which LECs should demonstrate NST compliance in a series of orders known collectively as the Payphone Orders, issued under Common Carrier Bureau Docket Number 96-128, entitled In the Matter of Implementation of Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996. See Davel Commc'ns, Inc. v. Qwest Corp., 460 F.3d 1075, 1081 (9th Cir. 2006); New Eng. Pub. Commc'ns Council, 334 F.3d at 71-72. Although the FCC's initial order directed all PAL tariffs to be filed with the FCC itself, Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 20541, 20614-16 ¶¶ 146-48, 1996 WL 547458 (1996) ( Initial Payphone Order ), its Order on Reconsideration directed LECs to file their intrastate payphone tariffs with state utility commissions. Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 11 F.C.C.R. 21233, 21307-08 ¶¶ 162-163, 1996 WL 658824 (1996) ( Order on Reconsideration ). In the Order on Reconsideration, the Commission explained more thoroughly the application of the NST. It indicated states should evaluate LECs' PAL tariffs to ensure they were (1) cost-based; (2) consistent with the requirements of Section 276 with regard, for example, to the removal of subsidies from exchange and exchange access services; and (3) nondiscriminatory. Id. at 21308 ¶ 163. All tariffs were required to be filed by January 15, 1997, and effective by April 15, 1997. Id. The FCC clarified that the tariff filings were to be accompanied by supporting cost data as provided for in 47 C.F.R. § 61.49(g)(2). See id. at 21308 ¶ 163 & n. 492. The Commission further provided that, where LECs had already filed intrastate tariffs for PAL rates and other unbundled services, the states were permitted, after considering the requirements of this order, [to] conclude: 1) that existing tariffs are consistent with the [Initial Payphone] report and order as revised herein; and 2) that in such case no further filings are required. Id. at 21308. [8] Finally, the Commission explicitly retained jurisdiction over intrastate tariffs in the event a state was unable to review intrastate tariffs for NST compliance. Id. at 21308 ¶ 163. In a separate section of the Order on Reconsideration, the FCC addressed the special requirements an LEC must satisfy to recover costs for connecting calls from its payphones to long distance service providers. [9] Id. at 21293 ¶ 131. To promote compliance with the requirements of paragraph 163, the Commission ordered that an LEC which itself owns and operates payphones would not be permitted to recover per-call compensation (also frequently referred to as dial-around compensation) for allowing calls from its payphones to be connected to long distance carriers until the LEC was able to certify it had completed paragraph 163's requirements for implementing the § 276 regulatory scheme. Id. at 21293 ¶ 131. As part of its certification obligation, an LEC would have to certify its tariff rates were NST compliant, i.e., that they reflect[ed] the removal of charges that recover the costs of payphones and any intrastate subsidies. Id. A further order issued by the Common Carrier Bureau of the FCC eleven days prior to the April 15, 1997, effective date for NST-compliant tariffs again emphasized the link between NST compliance and an LEC's qualification to recover per-call compensation. See Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, 12 F.C.C.R. 20997, 21011 ¶¶ 29-30, 1997 WL 159904 (1997) ( Bureau Waiver Order ) (emphasizing that BOCs must meet the Order on Reconsideration's state tariffing requirements before being eligible to receive per-call payphone compensation).