[Federal Register Volume 78, Number 113 (Wednesday, June 12, 2013)]
[Proposed Rules]
[Pages 35191-35195]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-13976]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64
[CC Docket No. 00-175, FCC 13-69]
2000 Biennial Regulatory Review, Separate Affiliate Requirements
of the Commission's Rules
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In this document, the Commission seeks comment on the
structural separation requirements of the Commission's rules, as they
apply to rate-of-return carriers providing facilities-based in-region,
interexchange, interstate long distance services. Specifically, the
Commission seeks comment on the costs and benefits of continuing to
apply requirements to rate-of-return carriers, and whether such
carriers continue to have the ability and incentive to engage in
anticompetitive behavior.
DATES: Comments are due on or before July 12, 2013 and reply comments
are due on or before August 12, 2013.
ADDRESSES: Interested parties may submit comments, identified by CC
Docket No. 00-175, by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Federal Communications Commission's Web site: http://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting
comments.
People with Disabilities: Contact the FCC to request
reasonable accommodations (accessible format documents, sign language
interpreters, CART, etc.) by email: [email protected] or phone: (202) 418-
0530 or TTY: (202) 418-0432.
For detailed instructions for submitting comments and additional
information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: Gregory Kwan, Attorney Advisor, at
202-418-1191, Competition Policy Division, Wireline Competition Bureau.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second
Notice of Proposed Rulemaking (Second FNPRM) in CC Docket No. 00-175,
released on May 17, 2013. The full text of this document, which is part
of the Commission's Memorandum Opinion and Order and Report and Order
and Further Notice of Proposed Rulemaking and Second Further Notice of
Proposed Rulemaking, is available for public inspection during regular
business hours in the FCC Reference Center, Room CY-A257, 445 12th
Street SW., Washington, DC 20554, and may also be purchased from the
Commission's copy contractor, BCPI, Inc., Portals II, 445 Twelfth
Street SW., Room CY-B402, Washington, DC 20554. Customers may contact
BCPI, Inc. via their Web site, http://www.bcpi.com, or call 1-800-378-
3160. This document is available in alternative formats (computer
diskette, large print, audio record, and Braille). Persons with
disabilities who need documents in these formats may contact the FCC by
email: [email protected] or phone: 202-418-0530 or TTY: 202-418-0432.
Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 CFR
1.415, 1.419, interested parties may file comments and reply comments
on or before the dates indicated on the first page of this document.
All pleadings are to reference CC Docket No. 00-175. Comments may be
filed using the Commission's Electronic Comment Filing System (ECFS).
See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR
24121 (1998).
Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/.
[[Page 35192]]
Paper Filers: Parties who choose to file by paper must
file an original and one copy of each filing. If more than one docket
or rulemaking number appears in the caption of this proceeding, filers
must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by
commercial overnight courier, or by first-class or overnight U.S.
Postal Service mail. All filings must be addressed to the Commission's
Secretary, Office of the Secretary, Federal Communications Commission.
All hand-delivered or messenger-delivered paper filings
for the Commission's Secretary must be delivered to FCC Headquarters at
445 12th St., SW., Room TW-A325, Washington, DC 20554. The filing hours
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
with rubber bands or fasteners. Any envelopes and boxes must be
disposed of before entering the building.
Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9300 East Hampton
Drive, Capitol Heights, MD 20743.
U.S. Postal Service first-class, Express, and Priority
mail must be addressed to 445 12th Street SW., Washington DC 20554.
People with Disabilities: To request materials in
accessible formats for people with disabilities (braille, large print,
electronic files, audio format), send an email to [email protected] or
call the Consumer & Governmental Affairs Bureau at 202-418-0530
(voice), 202-418-0432 (tty).
Synopsis of Second Further Notice of Proposed Rulemaking
1. In furtherance of our commitment to revisit rules that may be
outmoded, ineffective, insufficient, or excessively burdensome, while
continuing to promote competition and consumer protection consistent
with the Act, we evaluate in this Second FNPRM the structural
separation requirements of section 64.1903 of the Commission's rules,
as they apply to rate-of-return carriers providing facilities-based in-
region, interexchange, interstate long distance services (in-region
long distance services). Through this proceeding, we intend to
modernize our rules to reflect the competitive and marketplace
realities for long distance service--at one time an expensive service,
today one frequently offered on an unlimited basis by numerous
facilities-based providers.
2. Section 64.1903, as written, requires independent ILECs
providing long distance services using their own facilities to do so
through a separate corporate subsidiary that does not jointly own
transmission or switching equipment with the local exchange company.
The Commission promulgated section 64.1903 against a regulatory
backdrop in which local telephone service, interstate long distance,
and intrastate long distance were distinct services, for which
consumers often chose separate providers. Since the codification of
section 64.1903 more than fifteen years ago, we have seen
transformative marketplace and regulatory changes, calling into
question whether the current rule is the least burdensome way to ensure
that our goals of competition and consumer protection are met. The
Commission has acknowledged these changes, and in 2007 granted relief
to the Bell Operating Companies (BOCs) from a regulatory framework with
similar structural separation requirements as section 64.1903.
3. Today, the Commission adopts the USTelecom Forbearance Order,
which, among other things, grants the request of the United States
Telecom Association (USTelecom) for forbearance from section 64.1903 as
it applies to price cap carriers that comply with certain conditions.
Based on the record in that proceeding, however, the USTelecom
Forbearance Order denies similar relief to independent ILECs subject to
rate-of-return regulation ``due to the continuing potential for cost
misallocation.'' In this Second FNPRM, we take the next steps toward
modernizing our rules for the non-BOC ILECs. Considering developments
in today's marketplace, we seek comment on the costs and benefits of
continuing to apply section 64.1903 to rate-of-return carriers, and
whether such carriers continue to have the ability and incentive to
engage in anticompetitive behavior.
4. The Commission adopted section 64.1903 based on the findings in
the LEC Classification Order emphasizing the need to protect against
the exercise of exclusionary market power by independent ILECs--the
ability to raise rivals' costs of providing competitive services,
including the misallocation of costs (for example misallocating costs
from nonregulated to regulated services), non-price discrimination (for
example, lower quality wholesale services provided to a competitor),
and a price squeeze based on inputs that long distance competitors
need, such as access services (for example, raising prices for access
services, including both switched and special access, or reducing
prices for retail services). In light of the market changes described
above, we consider whether the rule continues to offer benefits and
whether the benefits justify the regulatory burdens and costs of
compliance for rate-of-return ILECs. We also recognize that market
conditions alone might justify eliminating the separate affiliate
requirement, at least for some independent ILECs subject to rate-of-
return regulation, and seek comment on the relevant market
characteristics and how they should affect our evaluation of the
continued need for the separate affiliate rule.
5. Analyzing Potential for Cost Miscalculation. The USTelecom
Forbearance Order granted forbearance from section 64.1903 to
independent ILECs subject to price cap regulation but denied this
relief to such carriers subject to rate-of-return regulation, including
both independent ILECs subject to average schedules and cost companies.
Rate-of-return regulation, which preceded price cap regulation, focuses
on an ILEC's costs and fixes the profits an ILEC may earn based on
those costs. A rate-of-return ILEC may recover only its costs plus a
prescribed return on investment. Unlike price cap carriers, rate-of-
return carriers are typically small, rural telephone companies
concentrated in one area. Also unlike price cap carriers, non-average
schedule rate-of-return independent ILEC has the ability and incentive
to over allocate costs to common line and special access services
because its interstate compensation for those services remains based
directly on company-specific costs. We seek comment on this view. The
Commission's 2011 reforms to intercarrier compensation rules cap and/or
reduce interstate switched access charges, but allow increases in
common line and special access rates. Thus, we believe that these
changes in the access charge rules reduce, but may not eliminate,
incentives for cost misallocation and potential access charge rate
increases. We seek comment on this view and on the interplay between
section 64.1903 and our intercarrier compensation and universal service
reforms. We seek comment on whether we could address concerns about
cost misallocation equally well, and in a less burdensome manner, in
ways other than requiring that service be provided through a separate
affiliate.
6. The Commission has previously recognized that concerns about
cost misallocation are strongest when carriers provide long distance
services in whole or in part through their own switching or
transmission facilities. When these carriers provide long
[[Page 35193]]
distance service exclusively through resale, the risk of cost
misallocation is reduced, and they operate pursuant to a lesser
safeguard--a separate corporate division rather than a separate
subsidiary. We seek comment on the extent to which rate-of-return
independent ILECs provide long distance service using their own
facilities. Could we deter and detect cost misallocation by requiring
that independent ILECs offering long distance over their own facilities
provide those services through a separate corporate division?
7. We also seek comment on whether we can reduce the burdens on
average schedule carriers. Average schedule carriers are a subset of
rate-of-return carriers that receive access compensation and universal
service support through the use of ``average schedules'' to avoid the
difficulties and expenses involved with conducting company-specific
cost studies. Average schedule companies appear to have limited
incentives to misallocate costs as long as they continue to use the
average schedules for access compensation. However, these companies are
permitted to convert to cost-based regulation without Commission
approval. Thus, an average schedule company could, in theory, provide
in-region long distance service without a separate affiliate, and then
convert to cost-based regulation. We seek comment on how we could grant
relief from the separate affiliate requirement for average schedule
companies and also prevent them from misallocating costs in the future.
We could condition relief from section 64.1903 on a commitment not to
convert to rate-of-return regulation, or require them to reinstitute a
separate affiliate if they do so. We seek comment on these and
alternative suggestions. How should the Commission treat cost companies
participating in NECA pools? Do these companies possess the ability and
incentive to misallocate costs because disbursements from the NECA
pools are based on participating companies' costs? In the USTelecom
Forbearance Order, we grant relief to price cap carriers if they: (1)
submit and obtain Bureau approval of special access performance
metrics, and (2) satisfy imputation requirements, including the
submission of an imputation plan for review and approval from the
Bureau. Will such nonstructural safeguards obviate the need for section
64.1903, while imposing fewer costs and burdens, for rate-of-return
carriers? How should our analysis for rate-of-return carriers differ,
if any, from our analysis for price cap carriers?
8. Analyzing Potential for Unlawful Non-Price Discrimination and
Price Squeezes. Section 64.1903 was intended to prevent unlawful non-
price discrimination and price squeezes. Do these concerns remain
relevant in light of changes in the market, including the prevalence of
bundled local, intrastate long distance, and interstate long distance
services? Is the separate affiliate requirement an effective, cost-
effective way to prevent these anticompetitive practices? Could the
Commission effectively address these concerns through ex-post facto
investigations, such as under a section 208 complaint process? Are
existing statutory and regulatory safeguards sufficient to deter these
anticompetitive practices?
9. Costs and Benefits of the Separate Affiliate Requirements of
Section 64.1903. How many independent ILECs use separate affiliates
pursuant to section 64.1903? What costs, if any, would be saved if we
eliminate section 64.1903 for independent ILECs subject to rate-of-
return regulation? Would the same savings be realized if the
independent ILEC were required instead to provide long distance
services through a separate division? For example, what incremental
costs does an independent ILEC incur in maintaining separate books of
account for its long distance services, as opposed to including those
costs and revenues in the accounts for its LEC operations? How does
that differ depending on whether the separate books of account are for
a separate division versus a separate corporation? We particularly seek
empirical data on costs and burdens from independent ILECs that have
experience providing long distance service through a separate corporate
affiliate or a separate division so that we can analyze the differences
between these structures.
10. What effect, if any, does the prohibition against joint
ownership of switching and transmission equipment have on an
independent ILEC's operational efficiency and ability to offer
innovative services? Does that prohibition significantly limit the
independent ILEC's opportunities to take advantage of economies of
scope and scale associated with integrated operations? Does the
prohibition make it more difficult for an independent ILEC to transform
its network from a traditional Time-Division Multiplexing (TDM) network
to an all-Internet Protocol (all IP) network? If so, how? Does section
64.1903 reduce independent ILECs' ability to increase telephone
subscribership or extend broadband services to additional areas? If
ILECs transition to offering only VoIP services, should section 64.1903
continue to apply? Finally, we seek comment on whether complying with
nonstructural safeguards such as special access performance metrics and
imputation requirements adequately address issues of non-price
discrimination and/or price squeezes. We ask commenters to provide
detailed information on the overall costs and burdens of the section
64.1903 requirements on independent ILECs and their customers.
Paperwork Reduction Act
11. This NPRM seeks comment on a potential new or revised
information collection requirement. If the Commission adopts any new or
revised information collection requirement, the Commission will publish
a separate notice in the Federal Register inviting the public to
comment on the requirement, as required by the Paperwork Reduction Act
of 1995, Public Law 104-13 (44 U.S.C. 3501-3520). In addition, pursuant
to the Small Business Paperwork Relief Act of 2002, Public Law 107-198,
see 44 U.S.C. 3506(c)(4), the Commission seeks specific comment on how
it might ``further reduce the information collection burden for small
business concerns with fewer than 25 employees.''
Initial Regulatory Flexibility Analysis
12. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Commission has prepared this Supplemental Initial
Regulatory Flexibility Analysis (Supplemental IRFA) of the possible
significant economic impact on a substantial number of small entities
by the policies proposed in this Second NPRM. Written comments are
requested on this Supplemental IRFA. Comments must be identified as
responses to the Supplemental IRFA and must be filed by the deadlines
for comments on the Second FNPRM. The Commission will send a copy of
the Second FNPRM, including this Supplemental IRFA, to the Chief
Counsel for Advocacy of the Small Business Administration (SBA). In
addition, the Second FNPRM and Supplemental IRFA (or summaries thereof)
will be published in the Federal Register.
13. Purpose of the Proposed Rules. In the Second FNPRM, we explore
the costs and benefits of continuing to apply the structural separation
requirements contained in section 64.1903 of the Commission's rules, 47
CFR 64.1903, to
[[Page 35194]]
independent incumbent local exchange carriers (ILECs) subject to rate-
of-return regulation and providing in-region, interexchange, interstate
long distance services (in-region long distance services) in today's
marketplace.
14. In the Second FNPRM, we seek comments addressing marketplace
changes such as the decline of stand-alone long distance services, the
rise of facilities-based ``all-distance services'' competition from
cable and wireless, and the role of bundles in today's long distance
market. We therefore seek comment addressing whether incentives for
anticompetitive behavior exist for independent ILECs subject to rate-
of-return regulation, and whether granting relief from section 64.1903
is appropriate.
15. Legal Basis. The legal basis for any action that may be taken
pursuant to the Second FNPRM is contained in sections 4(i), 4(j), 10,
201 through 204, 214, 220(a), and 303(r) of the Communications Act of
1934, as amended, 47 U.S.C. 154(i), 154(j), 160, 201 through 204, 214,
220(a), and 303(r).
16. Description and Estimate of the Number of Small Entities to
Which the Proposed Rules Will Apply. RFA directs agencies to provide a
description of and, where feasible, an estimate of the number of small
entities that may be affected by the proposed rules, if adopted. The
RFA generally defines the term ``small entity'' as having the same
meaning as the terms ``small business,'' ``small organization,'' and
``small governmental jurisdiction.'' In addition, the term ``small
business'' has 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 SBA.
17. Small Businesses. Nationwide, there are a total of
approximately 27.5 million small businesses, according to the SBA.
18. Wired Telecommunications Carriers. The SBA has developed a
small business size standard for Wired Telecommunications Carriers,
which consists of all such companies having 1,500 or fewer employees.
According to Census Bureau data for 2007, there were 3,188 firms in
this category, total, that operated for the entire year. Of this total,
3144 firms had employment of 999 or fewer employees, and 44 firms had
employment of 1000 employees or more. Thus, under this size standard,
the majority of firms can be considered small.
19. Incumbent Local Exchange Carriers (ILECs). Neither the
Commission nor the SBA has developed a size standard for small
businesses specifically applicable to incumbent local exchange
services. The closest applicable size standard under SBA rules is for
Wired Telecommunications Carriers. Under that size standard, such a
business is small if it has 1,500 or fewer employees. According to
Commission data, 1,307 carriers reported that they were incumbent local
exchange service providers. Of these 1,307 carriers, an estimated 1,006
have 1,500 or fewer employees and 301 have more than 1,500 employees.
Consequently, the Commission estimates that most providers of incumbent
local exchange service are small businesses that may be affected by
rules adopted pursuant to the Second FNPRM.
20. We have included small incumbent LECs in this present RFA
analysis. As noted above, a ``small business'' under the RFA is one
that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer
employees), and ``is not dominant in its field of operation.'' The
SBA's Office of Advocacy contends that, for RFA purposes, small
incumbent LECs are not dominant in their field of operation because any
such dominance is not ``national'' in scope. We have therefore included
small incumbent LECs in this RFA analysis, although we emphasize that
this RFA action has no effect on Commission analyses and determinations
in other, non-RFA contexts.
21. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to interexchange services. The closest applicable size
standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such a business is small if it has 1,500 or
fewer employees. According to Commission data, 359 companies reported
that their primary telecommunications service activity was the
provision of interexchange services. Of these 359 companies, an
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500
employees. Consequently, the Commission estimates that the majority of
interexchange service providers are small entities that may be affected
by rules adopted pursuant to the Order.
22. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities. In this Second FNPRM, the
Commission proposes additional or modified information collections that
would impose reporting and recordkeeping on current independent ILECs
subject to rate-of-return regulation, including small entities.
Specifically, the Second FNPRM invites comment on whether the
Commission should replace its legacy framework for the provision of in-
region, interstate long distance services provided by independent ILECs
subject to rate-of-return regulation with a framework more closely
tailored to the needs of consumers and competitors in today's
marketplace. The central feature of this proposal is to amend or
eliminate the application of section 64.1903 to independent ILECs
subject to rate-of-return regulation.
23. Based on these questions, the Commission anticipates that a
record will be developed concerning actual burdens and alternative ways
in which the Commission could lessen the burdens on small entities
subject to these requirements throughout the nation.
24. Steps Taken to Minimize the Significant Economic Impact on
Small Entities, and Significant Alternatives Considered. The RFA
requires an agency to describe any significant, specifically small
business, alternatives that it has considered in reaching its proposed
approach, which may include the following four alternatives (among
others): ``(1) the establishment of differing compliance or reporting
requirements or timetables that take into account the resources
available to small entities; (2) the clarification, consolidation, or
simplification of compliance and reporting requirements under the rules
for such small entities; (3) the use of performance rather than design
standards; and (4) an exemption from coverage of the rule, or any part
thereof, for such small entities.''
25. The overall objective of this proceeding is to reduce
regulatory burdens on independent ILECs to the extent consistent with
the public interest, and is part of the Commission's ongoing efforts
under Executive Order 13,579 to revisit ``rules that may be outmoded,
ineffective, insufficient, or excessively burdensome, and to modify,
streamline, expand, or repeal them in accordance with what has been
learned.'' The Second FNPRM seeks specific proposals as to which
existing regulations might be removed or streamlined in their
application to provision of in-region, interstate and international
interexchange services by independent ILECs subject to rate-of-return
regulation absent current safeguards, and asks parties to comment
[[Page 35195]]
on whether such independent ILECs should continue to be classified as
nondominant in the provision of such services if section 64.1903 is
repealed. The Second FNPRM also asks parties to discuss whether, and to
what extent, dominant carrier regulation is aptly suited to achieving
the Commission's objectives to promote competition and to deter
anticompetitive behavior by independent ILECs subject to rate-of-return
regulation. The Second FNPRM seeks comment on these matters, especially
as they might affect small entities subject to the rules.
26. Federal Rules that May Duplicate, Overlap, or Conflict with the
Proposed Rules. None.
Ex Parte Presentations
27. This proceeding shall be treated as a ``permit-but-disclose''
proceeding in accordance with the Commission's ex parte rules. Persons
making ex parte presentations must file a copy of any written
presentation or a memorandum summarizing any oral presentation within
two business days after the presentation (unless a different deadline
applicable to the Sunshine period applies). Persons making oral ex
parte presentations are reminded that memoranda summarizing the
presentation must (1) list all persons attending or otherwise
participating in the meeting at which the ex parte presentation was
made, and (2) summarize all data presented and arguments made during
the presentation. If the presentation consisted in whole or in part of
the presentation of data or arguments already reflected in the
presenter's written comments, memoranda or other filings in the
proceeding, the presenter may provide citations to such data or
arguments in his or her prior comments, memoranda, or other filings
(specifying the relevant page and/or paragraph numbers where such data
or arguments can be found) in lieu of summarizing them in the
memorandum. Documents shown or given to Commission staff during ex
parte meetings are deemed to be written ex parte presentations and must
be filed consistent with section 1.1206(b). In proceedings governed by
section 1.49(f) or for which the Commission has made available a method
of electronic filing, written ex parte presentations and memoranda
summarizing oral ex parte presentations, and all attachments thereto,
must be filed through the electronic comment filing system available
for that proceeding, and must be filed in their native format (e.g.,
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding
should familiarize themselves with the Commission's ex parte rules.
Ordering Clauses
28. Accordingly, it is ordered that, pursuant to Sections 1, 2,
4(i), 4(j), 201 through 205, 220(a), 251, 272, and 303(r) of the
Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i),
154(j), 201 through 205, 220(a), 251, 272, and 303(r) this Second
Further Notice of Proposed of Rulemaking in CC Docket No. 00-175 is
adopted.
29. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Second Further Notice of Proposed Rulemaking in CC Docket
No. 00-175, including the Initial Regulatory Flexibility
Certifications, to the Chief Counsel for Advocacy of the Small Business
Administration.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2013-13976 Filed 6-11-13; 8:45 am]
BILLING CODE 6712-01-P