The Commission today took action to remove statutory, regulatory, and operational barriers to local telephone services competition. In an Order adopted today, one week before the August 8 deadline, the Commission established a framework of minimum, national rules that will enable the states and the Commission to begin implementing the local competition provisions of the Telecommunications Act of 1996.
The Commission's Order relies heavily on the states to develop the specific rates and procedures, consistent with the Commission's general rules.
Today's decision reflects the experiences of those states that have already endeavored to promote local competition. The experience of these states helped the Commission determine that a flexible policy framework was the best approach, leaving up to the individual states the application of our national rules, with appropriate discretion to accommodate the special characteristics of their regions and needs of their local markets.
Under the 1996 Act, incumbent local telephone companies and new entrants may voluntarily agree to terms and conditions without regard to the Commission's rules. If parties cannot reach agreement, however, the Commission has put in place a baseline of terms and conditions for all arbitrated agreements between local telephone companies and new entrants. Establishing certain rights that are available, through arbitration, to all requesting carriers will help inform new entrants of their rights, and will simplify the arbitration process for the states. The Commission's rules will reduce delay in arbitrations and lower transaction costs. The Commission believes that its rules are consistent with the pro-competitive actions already taken by many states, and indeed, many of the Commission's decisions are based directly on existing state commission actions.
Today's Order addresses the three paths of entry into the local telephone market enumerated by the 1996 Act. These three methods of entry are full facilities-based entry, purchasing of unbundled network elements from the incumbent local exchange carrier (LEC) and resale of the incumbent's retail services. As described in greater detail below, the Commission prescribes certain minimum points of interconnection necessary to permit competing carriers to choose the most efficient points at which to interconnect with the incumbent LEC's network. In addition, the Commission adopts a minimum list of unbundled network elements that incumbent LECs must make available to new entrants, upon request. The Commission also sets forth a methodology for states to use when applying the statute's "avoided cost standard" for setting wholesale prices with respect to retail services.
In addition, the Commission sets forth a methodology for states to use in establishing rates for interconnection and the purchase of unbundled elements. Actual prices will be set by the states. The Commission concludes that a cost-based pricing methodology based on forward-looking economic costs is most consistent with the goals of the 1996 Act. The Commission sets forth principles and methodologies that are to be used by parties, arbitrators, and states in connection with the creation and review of "Total Service Long-Run Incremental Cost" (TSLRIC) studies that will serve as the basis for state establishment of rates for interconnection and unbundled elements. Because the TSLRIC studies are for network elements, the Commission calls them "Total Element Long Run Incremental Cost" (TELRIC) studies. Prices are to be set at TELRIC plus a reasonable share of forward- looking joint and common costs. For those states that do not elect to apply this methodology in time for their arbitration process, the Commission also establishes default proxies that a state commission may use to resolve arbitrations that must be completed prior to a TELRIC study.
States and the parties may seek further interpretive rulings from the Commission as they implement our rules.
The Commission's decision today is the first part of a trilogy of actions that will bring competition to the telecommunications market. The second and third parts are universal service and access charge reform. Pursuant to the requirements of the 1996 Act, both federal and state regulators must develop a new system of funding universal service that is explicit, predictable, sufficient, and competitively neutral. A competitive telecommunications market requires that access charges be moved closer to more economically efficient levels. To avoid undue disruption of incumbent LECs' ability to support universal service, new entrants purchasing unbundled elements will continue to pay a portion of certain access charges, as described in greater detail below, until no later than June 30, 1997.
Interconnection
Section 251(c)(2) of the 1996 Act requires incumbent LECs to provide interconnection
to any requesting telecommunications carrier at any technically feasible point. The
interconnection must be at least equal in quality to that provided by the incumbent LEC to
itself or its affiliates, and must be provided on rates, terms, and conditions that are just,
reasonable, and nondiscriminatory.
The term "interconnection" under section 251(c)(2) refers only to the physical linking of two networks for the mutual exchange of traffic.
The Commission identifies a minimum set of "technically feasible" points of interconnection at local and tandem switches.
The Commission states that telecommunications carriers may request interconnection under section 251(c)(2) to provide telephone exchange service or exchange access service, or both. If the request is for such purposes, the incumbent LEC must provide interconnection in accordance with section 251(c)(2) and the Commission's rules thereunder to any telecommunications carrier, including interexchange carriers and commercial mobile radio service (CMRS) providers.
Access to Unbundled Elements
Section 251(c)(3) requires incumbent LECs to provide requesting telecommunications
carriers nondiscriminatory access to network elements on an unbundled basis at any
technically feasible point on rates, terms, and conditions that are just, reasonable, and
nondiscriminatory.
The Commission identifies a minimum set of network elements that incumbent LECs must provide under this section. States may require incumbent LECs to provide additional network elements on an unbundled basis.
The Commission identified the seven following network elements:
Incumbent LECs must provide requesting carriers nondiscriminatory access to operations support systems and information.
The Order requires incumbent LECs to provide access to network elements in a manner that allows requesting carriers to combine such elements as they choose. Incumbent LECs may not impose restrictions upon the use of network elements.
Methods of Obtaining Interconnection and Access to Unbundled Elements
Section 251(c)(6) requires incumbent LECs to provide physical collocation of
equipment necessary for interconnection or access to unbundled network elements at the
incumbent LEC's premises, except that the incumbent LEC may provide virtual collocation if
it demonstrates to the state commission that physical collocation is not practical for technical
reasons or because of space limitations.
Incumbent LECs are required to provide any technically feasible method of interconnection or access requested by a telecommunications carrier, including physical collocation, virtual collocation, and interconnection at meet points.
The Commission adopts, with certain modifications, the physical and virtual collocation requirements it adopted earlier in the Expanded Interconnection proceeding. The Commission also establishes rules interpreting the requirements of section 251(c)(6).
Pricing Methodologies
The 1996 Act requires the states to set prices for interconnection and unbundled
elements that are cost-based, nondiscriminatory, and may include a reasonable profit. To
help the states accomplish this, the Commission has concluded that the state commissions
should set arbitrated rates for interconnection and access to unbundled elements pursuant a
forward-looking economic cost pricing methodology. The Commission has concluded that
the prices that new entrants pay for interconnection and unbundled elements should be based
on the local telephone companies Total Element Long-Run Incremental Cost (TELRIC) of
providing a particular network element, plus a reasonable share of forward-looking joint and
common costs. States will determine, among other things, the appropriate risk-adjusted cost
of capital and depreciation rates.
If states are unable to conduct a cost study and apply an economic costing methodology within the statutory time frame for arbitrating interconnection disputes, the Commission has established default ceilings and ranges for the states to apply, on an interim basis, to interconnection arrangements. The Commission establishes a default range of 0.2- 0.4 cents per minute for switching, plus access charges as discussed below. For tandem switching, the Commission establishes a default ceiling of 0.15 cents per minute. The Order also will establish default ceilings for the other unbundled network elements. These default provisions might provide an administratively simpler approach for state establishment of prices, for a limited interim period, and states, in the exercise of their discretion, select the specific price within that range, or subject to that ceiling.
Access Charges for Unbundled Switching
Nothing in the Commission's Order alters the collection of access charges paid by an
interexchange carrier under Part 69 of the Commission's rules, when the incumbent LEC
provides exchange access service to an interexchange carrier, either directly or through
service resale. Because access charges are not included in the cost-based prices for
unbundled network elements, and because certain portions of access charges currently support
the provision of universal service, until the access charge reform and universal service
proceedings have been completed, the Commission is continuing to provide for access charge
recovery with respect to use of an incumbent LEC's unbundled switching element, for a
defined period of time. This will minimize the possibility that the incumbent LEC will be
able to "double recover," through access charges, the facility costs that new entrants have
already paid to purchase unbundled elements, while preserving the status quo with respect to
subsidy payments.
Under this Order, incumbent LECs will recover from interconnecting carriers the carrier common line charge and a charge equal to 75% of the transport interconnection charge for all interstate minutes traversing the incumbent LECs local switches for which the interconnecting carriers pay unbundled network element charges. This aspect of the Order expires at the earliest of: 1) June 30, 1997; 2) issuance of final decisions by the Commission in the universal service and access reform proceedings; or 3) if the incumbent LEC is a Bell Operating Company (BOC), the date on which that BOC is authorized under section 271 of the Act to provide in-region interLATA service, for any given state.
Resale
The 1996 Act requires all incumbent LECs to offer for resale any telecommunications
service that the carrier provides at retail to subscribers who are not telecommunications
carriers. Resale will be an important entry strategy both in the short term for many new
entrants as they build out their own facilities and for small businesses that cannot afford to
compete in the local exchange market by purchasing unbundled elements or by building their
own networks.
The 1996 Act's pricing standard for wholesale rates requires state commissions to identify what marketing, billing, collection, and other costs will be avoided or that are avoidable by incumbent LECs when they provide services wholesale, and calculate the portion of the retail rates for those services that is attributable to the avoided and avoidable costs. To define clearly a wholesale service, the Commission has identified certain avoided costs. The application of this definition is left to the states. If a state elects not to implement the methodology, it may elect, on an interim basis, a discount rate from within a default range of discount rates established by the Commission. The Commission establishes a default discount range of 17-25% off retail prices, leaving the states to set the specific rate within that range, in the exercise of their discretion.
Transport and Termination
The 1996 Act requires that charges for transport and termination of traffic be cost-
based. The Commission concludes that state commissions, during arbitrations, should set
symmetrical prices based on the local telephone company's forward-looking costs. The state
commissions would also use the TELRIC methodology when establishing rates for transport
and termination. The Commission establishes a default range of 0.2-0.4 cents per minute for
end office termination for states which have not conducted a TELRIC cost study. The
Commission finds significant evidence in the record in support of the lower end of the
ranges. In addition, the Commission finds that additional reciprocal charges could apply to
termination through a tandem switch. The default ceiling for tandem switching is 0.15 cents
per minute, plus applicable charges for transport from the tandem switch to the end office.
Each state opting for the default approach for a limited period of time, may select a rate
within that range.
Commercial Mobile Radio Service
In the Order, the Commission concludes that CMRS providers are telecommunications
carriers, and therefore are entitled to reciprocal compensation arrangements under section
251(b)(5). The Commission also concludes that under section 251(b)(5) a LEC may not
charge a CMRS provider, including a paging company, or any other carrier for terminating
LEC-originated traffic. The Commission also states that CMRS providers (specifically
cellular, broadband PCS, and covered specialized mobile radio (SMR) providers) offer
telephone exchange services, and such providers therefore may request interconnection under
section 251(c)(2). The Commission determines that CMRS providers should not be classified
as LECs at this time.
In this decision, the Commission applied sections 251 and 252 to LEC-CMRS interconnection. The Commission acknowledges that section 332 is also a basis for jurisdiction over LEC-CMRS interconnection, but declined to define the precise extent of that jurisdiction at this time.
Access to Rights of Way
The Commission also amends its rules to implement the pole attachment provisions of
the 1996 Act. Specifically, the Commission establishes procedures for nondiscriminatory
access by cable television systems and telecommunications carriers to poles, ducts, conduits,
and rights-of-way owned by utilities or LECs. The Order includes several specific rules as
well as a number of more general guidelines designed to facilitate the negotiation and mutual
performance of fair, pro-competitive access agreements without the need for regulatory
intervention. Additionally, an expedited dispute resolution is provided when good faith
negotiations fail, as are requirements concerning modifications to poles, ducts, conduits, and
rights-of-way and the allocation of the costs of such modifications.
Exemptions, Suspensions, and Modifications of Section 251 Requirements for Rural and
Small Telephone Companies
Section 251(f)(1) of the 1996 Act provides for exemption of the requirements in
section 251(c) for rural telephone companies (as defined by the 1996 Act) under certain
circumstances. Section 251(f)(2) permits LECs with fewer than 2 percent of the nation's
subscriber lines to petition for suspension or modification of the requirements in sections
251(b) or (c).
States are primarily responsible for interpreting the provisions of section 251(f) through rulemaking and adjudicative proceedings, and are responsible for determining whether a LEC in a particular instance is entitled to exemption, suspension, or modification of section 251 requirements.
The Commission establishes a very limited set of rules interpreting the requirements of section 251(f):
- FCC -
News Media contact: Mindy J. Ginsburg
Common Carrier Bureau contacts: Richard Welch (202) 418-1580 or Jim Schlichting (202)
418-1520.
Re: Interconnection Report and Order
Today the Commission completed our effort to write part one of three part trilogy scripted for us by the Congress. This is the 32nd time since passage of the Telecommunications Act of 1996 that the Commission has beaten its statutory deadline -- and this time we beat it by a full week.
The decisions we adopt today do not bring telecommunications reform to an end. It is not even the beginning of the end. But we can say is that we have reached the end of the beginning.
Re: Interconnection Report and Order
Today marks the end of the pre-competitive era in local telephone service. By our vote today the Commission implements rules that will introduce competition into this last monopoly telecommunications market.
Our Report and Order refers to these rules as the first part of a trilogy that also includes future universal service and access charge reform. This is, to be sure, true. But I must confess that I also see today's action as not the first, but rather the third and final part, of a different trilogy -- one whose first two parts were the introduction of competition into the long-distance telephone market and the divestiture of the Bell Operating Companies from AT&T. These first two events made local telephone competition inevitable; today we usher it in.
Any Commissioner would be privileged to have served during one of these events. I have been lucky enough to have seen all three. From this perspective, then, I would offer several thoughts to the parties most immediately affected by today's decision.
First, to the public, I would say: unparalleled changes in the array of telecommunications services available to you, as well as in the companies that provide them, are going to occur. As competition proliferates and prices fall, economic growth will also occur, and that too will benefit all of us. This is the vision of the 1996 Act, and it is the goal of the rules we adopt today.
To those companies that seek to offer competitive local telephone service, I would say: the rules we adopt today attempt to provide the regulatory assistance you need to enter a market in which your competitor not only possesses a monopoly, but also controls the facilities upon which you must depend to compete. But even so, our rules are pro-competition, not pro-competitor. They are intended to make it possible for you to enter the market on fair and equitable terms, but not to so alter the market that entry occurs even where it otherwise might not. We have opened the door, but we have not paved the way.
To the wireless communications providers, I would say: we have heard and understand your concerns regarding the differences in your technical and market configurations and have, therefore, expressly reserved federal jurisdiction under Section 332. Nevertheless, it is important that our decisions implementing competition be technology-neutral and provide an opportunity for negotiations under the comprehensive interconnection regime embodied by Congress in Section 251. We will presume good faith negotiations by all but stand ever vigilant to consider and resolve instances of discriminatory treatment.
To our state commission counterparts, I would say: with today's action, we effectively pass you the pen. It is now your responsibility to write the rules and set the prices and terms that will make Congress's vision of competition a reality. To provide added flexibility and to make this process administratively easier, we have also provided ranges of proxy prices that can be used until, or even instead of, state-specific rates are set. Our decision today borrows from and builds on the experience of those of you who are grappling with statewide competition issues. This has, in sum, been a collaborative process. It must continue to be a collaborative process if we are collectively to succeed.
To small telephone companies, I would say: our Report and Order relies largely on state commissions to implement the provisions of the law that ensure that competition will be introduced in a way that is sensitive to your unique circumstances. We cannot, and indeed would not want to, perpetuate what one small company has called a "reasonable, investment-backed expectation to hold competitive advantages over new market entrants." But while we will not guarantee your current profit margins, we are also confident that state decisions will assure that competition in your service areas will take hold in a reasonable manner.
To the Bell Operating Companies and other large independent local telcos, I would say: these rules will bring about competition. You will open your markets to competitors, and in return you will become competitors in other markets. The rules we adopt today will enable you to do both things. What they will not enable you to do is avoid the first, but obtain the second. These rules will bring change, not catastrophe; they will bring opportunity, not oblivion. It will be a different world, but one in which you will continue to play a vital role.
Finally, I must acknowledge that this day would not have come without the tireless dedication and tremendous talents of Gina Keeney and her gifted Common Carrier Bureau staff. The Chairman will, I am sure, commend each of you at length, and I will leave that privilege to him. For my part I want to express my thanks to the entire CCB "Dream Team," and especially to its captain, Richard Metzger. This job could literally not have been done this well in such short time without you, and for that you have my profound respect and appreciation.
Re: Interconnection Report and Order
Today we are fulfilling one of the most important responsibilities assigned to us by the Telecommunications Act of 1996 -- writing the rules that will achieve the vision of fair and robust competition in all telecommunications markets. We are doing so with utmost fidelity to the letter and the spirit of the statute.
We are striking a careful balance between competing values of uniformity and flexibility. We are prescribing the rules that are necessary to ensure that competition has an opportunity to develop, but, consistent with the statute, we have left significant responsibilities to the states. The vanguard states remain free to continue their procompetitive course, just as Congress intended. Other states are being given the tools to accelerate their progress.
The process of introducing competition where monopoly now reigns can be likened to a relay race. The first leg was run by Congress, the second by the FCC, the third by the states, and the fourth by the market. But the ultimate winners will be American consumers.
There are bound to be unexpected consequences, and bumps in the road, and efforts to game the process. We will need to be vigilant, to ensure continued progress.
Competition will take time to emerge. It won't come easy. It will take a lot of work -- by everyone involved. The FCC will not shrink from taking the steps necessary to reach the legislative goal.
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