Common carrier services: Local exchange carriers provision of interexchange services; regulatory treatment,

[Federal Register: August 16, 1999 (Volume 64, Number 157)]

[Rules and Regulations]

[Page 44423-44426]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr16au99-14]

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[CC Docket Nos. 96-149 and 96-61; FCC 99-103]

Regulatory Treatment of LEC Provision of Interexchange Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

SUMMARY: This document amends the Commission's rules to allow independent local exchange carriers (LECs) that provide in-region, long distance services solely on a resale basis to do so through a separate corporate division rather than a separate legal entity.

EFFECTIVE DATE: September 15, 1999.

FOR FURTHER INFORMATION CONTACT: Andrea Kearney, Attorney, Common Carrier Bureau, Policy and Program Planning Division, (202) 418-1580.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second Order On Reconsideration adopted May 18, 1999, and released June 30, 1999 (FCC 99-103). The full text of this Order is available for inspection and copying during normal business hours in the FCC Reference Center, 425 12th Street, SW, Washington, D.C. The complete text also may be obtained through the World Wide Web, at http:// www.fcc.gov/Bureaus/Common Carrier/Order/fcc99-103.wp, or may be purchased from the Commission's copy contractor, International Transcription Service, Inc., (202) 857-3800, 1231 20th St., N.W., Washington, D.C. 20036.

Synopsis of Second Order on Reconsideration

1. In this second order on reconsideration, we modify our conclusion in the LEC Classification Order, 62 FR 35974 (July 3, 1997) and allow independent LECs that provide in-region, long distance services solely on a resale basis to do so through a separate corporate division rather than a separate legal entity. The record indicates that this group includes most of the small and mid-sized LECs that currently provide in-region, long distance services. We also clarify the meaning of the term ``interexchange'' to avoid any possibility of unnecessary application of the Commission's separate affiliate requirements. In addition, we affirm our decision relaxing regulation of the BOCs' section 272 interLATA affiliates, i.e., by classifying these affiliates as non-

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   dominant for in-region, long distance services. We also address several other miscellaneous issues raised in the reconsideration petitions. Consistent with the LEC Classification Partial Stay Order, 63 FR 16696 (April 6, 1998) and the relief we grant in this order on reconsideration, any independent LEC that was providing long distance services on an integrated basis through the use or control of its own facilities must form a separate affiliate to provide such services within 60 days of the release of this order on reconsideration. Finally, we act on the Leaco Rural Telephone Cooperative, Inc. (Leaco) Petition for Waiver of the LEC Classification Order requirements.

   5. Supplemental Final Regulatory Flexibility Analysis

2. As required by the Regulatory Flexibility Act (RFA), the Commission issued a Final Regulatory Flexibility Analysis (FRFA) in the LEC Classification Order, in which it certified that the rules adopted in that order would not have a significant impact on a substantial number of small entities. None of the petitions for reconsideration filedin this proceeding specifically addresses, or seeks reconsideration of, that FRFA. This present Supplemental FRFA addresses the potential effect on small entities of the rules we adopt in this order. This Supplemental FRFA incorporates and adds to our FRFA in the LEC Classification Order.

3. Need for and Objectives of this Report and Order and the Regulations Adopted Herein. The need for and objectives of the rules adopted in this order on reconsideration are the same as those discussed in the LEC Classification Order's FRFA. In general, the regulations adopted in the LEC Classification Order are intended to promote increased competition in the interexchange market. In this order on reconsideration, we clarify the LEC Classification Order and grant or deny petitions filedfor reconsideration in order to further the same needs and objectives.

4. Description and Estimates of the Number of Small Entities Affected by this Report and Order. In this FRFA, we consider the impact of this order on two categories of entities, ``small incumbent LECs'' and ``small non-incumbent LECs.'' Consistent with our prior practice, we shall continue to exclude small incumbent LECs from the definition of a small entity for the purpose of this FRFA. Accordingly, our use of the terms ``small entities'' and ``small businesses'' does not encompass ``small incumbent LECs.'' We use the term ``small incumbent LECs'' to refer to any incumbent LECs that arguably might be defined by SBA as ``small business concerns.'' We include ``small non-incumbent LECs'' in our analysis, even though we believe that we are not required to do so.

5. The RFA defines a ``small business'' to be the same as a ``small business concern'' under the Small Business Act, 15 U.S.C. 632, unless the Commission has developed one or more definitions that are appropriate to its activities. Under the Small Business Act, a ``small business concern'' is one that: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional criteria established by the SBA. SBA has defined a small business for Standard Industrial Classification (SIC) category 4813 (Telephone Communications, Except Radiotelephone) to be a small entity when it has fewer than 1,500 employees.

6. Incumbent LECs. SBA has not developed a definition of small incumbent LECs. The closest applicable definition under SBA rules is for telephone communications companies other than radiotelephone (wireless) companies. The most reliable source of information regarding the number of LECs nationwide of which we are aware appears to be the data that we collect annually in connection with the Telecommunications Relay Service (TRS). According to our most recent data, 1,376 companies reported that they were engaged in the provision of local exchange services. Although it seems certain that some of these carriers are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of LECs that would qualify as small business concerns under SBA's definition. Consequently, we estimate that there are fewer than 1,376 small incumbent LECs that may be affected by the decisions and regulations adopted in this order on reconsideration.

7. Non-Incumbent LECs. SBA has not developed a definition of small non-incumbent LECs. For purposes of this order, we define the category of ``small non-incumbent LECs'' to include small entities providing local exchange services that do not fall within the statutory definition in section 251(h), including potential LECs, LECs which have entered the market since the 1996 Act was passed, and LECs that were not members of the exchange carrier association pursuant to Sec. 69.601(b) of the Commission's regulations. We believe it is impracticable to estimate the number of small entities in this category. We believe it is impossible to estimate the number of entities which may enter the local exchange market in the near future. Nonetheless, we will estimate the number of small entities in a subgroup of the category of ``small non-incumbent LECs.'' According to our most recent data, 119 companies identify themselves in the category ``Competitive Access Providers (CAPs) and Competitive LECs (CLECs).'' A CLEC is a provider of local exchange services which does not fall within the definition of ``incumbent LEC'' in section 251(h). Although it seems certain that some of the carriers in this category are CAPs, are not independently owned and operated, or have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of non-incumbent LECs that would qualify as small business concerns under SBA's definition.

8. Summary Analysis of the Projected Reporting, Recordkeeping, and Other Compliance Requirements. In this order on reconsideration, we conclude that independent LECs that are in-region, long distance resellers are permitted to provide such services through a separate division rather than a separate legal entity, subject to the Fifth Report and Order requirements, as modified by the LEC Classification Order. No party to this proceeding suggests that permitting independent LECs to provide long distance resale through a separate division would affect small entities or small incumbent LECs. We determine that compliance with the separate division requirement, rather than a separate legal entity requirement, may require small incumbent LECs to use accounting, economic, technical, legal, and clerical skills.

9. Steps Taken To Minimize Economic Impact on Small Entities and Small Incumbent LECs, and Alternatives Considered. We believe that the modification of the separate legal entity requirement will facilitate entry of independent LECs into the long distance market. We believe that resale is an essential facilitator of competition in the long distance industry because it allows independent LECs, some of which may be small entities, and other providers to enter the market immediately, and add their own facilities when it becomes efficient to do so. The modification of the separate legal entity requirement for independent LEC long distance resellers seems likely to benefit independent LECs, some of which may be small entities, by helping to reduce the cost of entry and of providing service. We reject alternatives to exempt all independent

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   LECs, or small and rural independent LECs, from the separate legal entity requirement, for the reasons stated in Section III of this order on reconsideration.

10. Report to Congress. The Commission shall send a copy of this FRFA, along with this order on reconsideration, in a report to Congress pursuant to the SBREFA, 5 U.S.C. 801(a)(1)(A). A copy of this analysis will also be provided to the Chief Counsel for Advocacy of the Small Business Administration, and will be published in the Federal Register.

    6. Ordering Clauses

11. Accordingly, It is Ordered that pursuant to sections 1, 2, 4, 201, 202, 220, 251, 271, 272 and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. sections 151, 152, 154, 201, 202, 220, 251, 271, 272, and 303(r), the ORDER ON RECONSIDERATION is hereby Adopted, and the requirements contained herein shall be effective 30 days after publication of a summary thereof in the Federal Register. The amendment to the Uniform System of Accounts for Telecommunications Companies, part 32 of the Commission's rules, shall be effective six months after publication in the Federal Register, although affected parties may elect to implement these changes upon adoption.

12. It is further ordered that part 64, subpart T of the Commission's rules, is AMENDED as set forth in the rule changes hereto.

13. It is further ordered that the petitions for reconsideration are granted in part, as described herein, and otherwise are denied.

14. It is further ordered that the Leaco Rural Telephone Cooperative, Inc. Petition for Waiver is rendered moot in part, as described herein, and the remainder is denied.

15. It is further ordered that the Commission's Office of Public Affairs, Reference Operations Division, shall send a copy of this order on reconsideration, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

    List of Subjects in 47 CFR Part 64

    Communications common carriers.

    Federal Communications Commission. LaVera F. Marshall, Chief, Agenda Branch.

    Rule Changes

    For the reasons discussed in the preamble, Federal Communications Commission amends 47 CFR part 64 as follows:

    PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS MATERIALS

1. The authority citation for part 64 continues to read:

   Authority: 47 U.S.C. 10, 201, 218, 226, 228, 332, unless otherwise noted.

2. Section 64.1902 is revised to read as follows:

   Sec. 64.1902 Terms and definitions.

   Terms used in this part have the following meanings:

   Books of Account. Books of account refer to the financial accounting system a company uses to record, in monetary terms, the basic transactions of a company. These books of account reflect the company's assets, liabilities, and equity, and the revenues and expenses from operations. Each company has its own separate books of account.

   Incumbent Independent Local Exchange Carrier (Incumbent Independent LEC). The term incumbent independent local exchange carrier means, with respect to an area, the independent local exchange carrier that:

   (1) On February 8, 1996, provided telephone exchange service in such area; and

   (2) (i) On February 8, 1996, was deemed to be a member of the exchange carrier association pursuant to Sec. 69.601(b) of this title; or

   (ii) Is a person or entity that, on or after February 8, 1996, became a successor or assign of a member described in paragraph (2)(i) of this section. The Commission may also, by rule, treat an independent local exchange carrier as an incumbent independent local exchange carrier pursuant to section 251(h)(2) of the Communications Act of 1934, as amended.

   Independent Local Exchange Carrier (Independent LEC). Independent local exchange carriers are local exchange carriers, including GTE, other than the BOCs.

   Independent Local Exchange Carrier Affiliate (Independent LEC Affiliate). An independent local exchange carrier affiliate is a carrier that is owned (in whole or in part) or controlled by, or under common ownership (in whole or in part) or control with, an independent local exchange carrier.

   In-Region Service. In-region service means telecommunications service originating in an independent local exchange carrier's local service areas or 800 service, private line service, or their equivalents that:

   (1) Terminate in the independent LEC's local exchange areas; and

   (2) Allow the called party to determine the interexchange carrier, even if the service originates outside the independent LEC's local exchange areas.

   Local Exchange Carrier. The term local exchange carrier means any person that is engaged in the provision of telephone exchange service or exchange access. Such term does not include a person insofar as such person is 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 that term.

3. Section 64.1903 is revised to read as follows:

   Sec. 64.1903 Obligations of all incumbent independent local exchange carriers.

   (a) Except as provided in paragraph (c) of this section, an incumbent independent LEC providing in-region, interstate, interexchange services or in-region international interexchange services shall provide such services through an affiliate that satisfies the following requirements:

   (1) The affiliate shall maintain separate books of account from its affiliated exchange companies. Nothing in this section requires the affiliate to maintain separate books of account that comply with Part 32 of this title;

   (2) The affiliate shall not jointly own transmission or switching facilities with its affiliated exchange companies. Nothing in this section prohibits an affiliate from sharing personnel or other resources or assets with an affiliated exchange company; and

   (3) The affiliate shall acquire any services from its affiliated exchange companies for which the affiliated exchange companies are required to file a tariff at tariffed rates, terms, and conditions. Nothing in this section shall prohibit the affiliate from acquiring any unbundled network elements or exchange services for the provision of a telecommunications service from its affiliated exchange companies, subject to the same terms and conditions as provided in an agreement approved under section 252 of the Communications Act of 1934, as amended.

   (b) Except as provided in paragraph (b) (1) of this section, the affiliate required in paragraph (a) of this section shall be a separate legal entity from its affiliated exchange companies. The affiliate may be staffed by personnel of its affiliated exchange companies, housed in existing offices of its affiliated exchange companies, and use its affiliated exchange companies'

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   marketing and other services, subject to paragraph (a)(3) of this section.

   (1) For an incumbent independent LEC that provides in-region, interstate domestic interexchange services or in-region international interexchange services using no interexchange switching or transmission facilities or capability of the LEC's own (i.e., ``independent LEC reseller,'') the affiliate required in paragraph (a) of this section may be a separate corporate division of such incumbent independent LEC. All other provisions of this Subpart applicable to an independent LEC affiliate shall continue to apply, as applicable, to such separate corporate division.

   (2) [Reserved]

   (c) An incumbent independent LEC that is providing in-region, interstate, domestic interexchange services or in-region international interexchange services prior to April 18, 1997, but is not providing such services through an affiliate that satisfies paragraph (a) of this section as of April 18, 1997, shall comply with the requirements of this section no later than August 30, 1999.

   [FR Doc. 99-20887Filed8-13-99; 8:45 am]

   BILLING CODE 6712-01-P