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This rate will continue to be the default rate for coinless payphones absent a  xKnegotiated rate. Interexchange carriers (IXCs) must pay this percall amount to payphone service providers  S- x(PSPs) for access code and subscriber 800 calls beginning October 7, 1997, as required by the Payphone  S- xOrders. 0 0 {OZ- xiԍ The Payphone Orders state that LEC PSPs are entitled to be paid percall compensation by IXCs for access  {O$- xcode and subscriber 800 calls when they have complied with the requirements of the Payphone Orders and will  {O- xycertify to that effect. Order on Reconsideration, 11 FCC Rcd at 21,29394, paras. 13032. We note that the  xiCommission did not establish a requirement that LEC PSPs obtain a formal certification of compliance from the  {O-Commission or the states to receive percall compensation pursuant to the Payphone Orders.  After the first two years of percall compensation, the marketbased local coin rate adjusted for  Sd-certain costs is the surrogate for the default percall rate for subscriber 800 and access code calls. d0 yO- xiԍ As determined in this order, the difference between the percall rate for subscriber 800 and access code calls and the local coin rate is $0.066.  S- px` ` 2. The compensation amount we adopt in this Second Report and Order is applicable,  xjas Section 276(d) provides, to "[t]he provision of public or semipublic pay telephones, the provision of  S- xinmate telephone service in correctional institutions, and any ancillary services."g @0 yO-#X\  P6G;P#э 47 U.S.C.  276(d). g We previously have  S- xzdeclined to treat 0+ and calls from inmate payphones differently from other payphone calls, 0 {O- xK#X\  P6G;P#э See Report and Order, 11 FCC Rcd at 20,579, para. 74; Order on Reconsideration, 11 FCC Rcd at 21,259,  xpara. 52. A 0+ call occurs when the caller dials "0" plus the called telephone number. 0+ calls include credit card,  {O- xJcollect, and third number billing calls. See OSP Second Report and Order, 7 FCC Rcd at 3251 n.4.  0 calls are calls  xin which the caller dials only the digit "0" and then waits for operator intervention. 0 transfer service is a service  {O2- xoffered by LECs to OSPs under which LECs transfer a 0 call to the OSP requested by the calling party. See OSP  {O-Second Report and Order, 7 FCC Rcd at 3255 n.44. and we  xreaffirm that decision here. As of October 7, 1997, PSPs must be compensated for all payphone calls not otherwise compensated pursuant to contract, including 0+ and inmate calls.  S - px` ` 3. The immediate implementation of the rule provisions adopted herein is crucial to  xthe Commission's efforts to ensure fair compensation for PSPs, encourage the deployment of payphones," P 0*&&99 "  S- x/and enhance competition among payphone providers, as mandated by Section 276 of the Act. \0 yOh- xԍ The normal period until effectiveness in a rulemaking is thirty days after publication of the changed rules in  {O0- x\the Federal Register, but we accelerate that period here for good cause, pursuant to Section 553(d) of the  {O-Administrative Procedure Act. See 5 U.S.C.  553(d). The  S- xCommission's Payphone Orders require that percall compensation for certain payphone calls begin by  S- x October 7, 1997. To meet this obligation, we must revise those rules vacated by the court in Illinois  S- x[Public Telecomm. that relate to the implementation of a percall compensation scheme and commence on  Sf- x\October 7, 1997. The Report and Order, released September 20, 1996, informed parties that percall  S@- xcompensation would commence on October 7, 1997.@0 {O - xԍ This requirement established in the Report and Order becomes effective October 7, 1997, one year after publication in the Federal Register, 61 FR 52,307 (1996). Therefore, parties affected by this rule change have  xhad notice since the release of that order that they would be subject to certain obligations beginning  xOctober 7, 1997. Making this order effective immediately minimizes disruption within the payphone  xindustry by eliminating disputes about payment obligations and enhances the general availability of payphone services to the public.  SP - px` ` 4. This order does not address other issues vacated and remanded by the court or  S( - xotherwise alter the requirements of the Payphone Orders. Other requirements remanded in Illinois Public  S - xTelecomm., including the compensation obligations applicable during the period from November 1996,  xthrough October 6, 1997, will be addressed in a subsequent order in this proceeding. We tentatively  xconclude in this regard that the $0.284 percall rate we are adopting as a default rate on a going forward  xbasis should also govern compensation obligations during the period ending October 6, 1997. We also  xtentatively conclude that PSPs are entitled to compensation for all of their access code and subscriber 800  xcalls during this period. We plan to address the manner in which the total payment obligation for that period will be calculated and allocated among IXCs in a subsequent order.  S- px` ` 5. We note that the Common Carrier Bureau (Bureau) has granted a limited waiver,  xuntil March 9, 1998, for those payphones that cannot provide payphonespecific digits as required by the  St- xPayphone Orders.tF0 {OZ- xԍ Order on Reconsideration, 11 FCC Rcd at 21,27879, paras. 9395. See Bureau Waiver Order, DA 972162 (rel. Oct. 7, 1997). This limited waiver applies to the requirement that local exchange carriers (LECs)  xZprovide payphonespecific coding digits to PSPs, and that PSPs provide coding digits from their payphones  xbefore they can receive percall compensation from IXCs for subscriber 800 and access code calls. This  x=limited waiver was granted by the Bureau to afford LECs, IXCs, and PSPs an extended transition period  xzfor the provision of payphonespecific coding digits without further delaying the payment of percall  xycompensation as required by Section 276 of the Act and this order. The Bureau made this limited waiver  xeffective immediately in order to ensure that PSPs receive percall compensation beginning October 7, 1997.  S6-T T"0*&&99M" II. BACKGROUND  S-T P  S- px` ` 6. In the Payphone Orders,0 {O-ԍ Report and Order, 11 FCC Rcd at 20,541; Order on Reconsideration, 11 FCC Rcd at 21,233. the Commission adopted new rules and policies  xMgoverning the payphone industry to implement Section 276 of the Act. Those rules and policies: (1)  xestablish a plan to ensure fair compensation for "each and every completed intrastate and interstate call  S:- xusing [a] payphone[;]"E:Z0 yO4-ԍ 47 U.S.C.  276(b)(1)(A).E (2) discontinue intrastate and interstate carrier access charge service elements and  xpayments in effect on such date of enactment, and all intrastate and interstate payphone subsidies from  S- xbasic exchange services;E0 yOt -ԍ 47 U.S.C.  276(b)(1)(B).E (3) prescribe nonstructural safeguards for Bell Operating Company ("BOC")  S- xKpayphones;Ez0 yO -ԍ 47 U.S.C.  276(b)(1)(C).E (4) permit the BOCs to negotiate with payphone location providers on the interLATA carrier  S- x[presubscribed to their payphones;E20 yOl-ԍ 47 U.S.C.  276(b)(1)(D).E (5) permit all payphone service providers to negotiate with location  Sr- xproviders on the intraLATA carriers that presubscribed to their payphones;Er0 yO-ԍ 47 U.S.C.  276(b)(1)(E).E and (6) adopt guidelines for  xuse by the states in establishing public interest payphones to be located "where there would otherwise not  S" -be a payphone[.]"B" R 0 yO-ԍ 47 U.S.C.  276(b)(2).B  S - px` ` 7. In the Report and Order, the Commission noted that the 1996 Act erects a  xj"procompetitive deregulatory national framework designed to accelerate rapid private sector deployment  xof advanced telecommunications and information technologies and services to all Americans by opening  S\- x[all telecommunications markets to competition."Y\ 0 yO-ԍ S. Conf. Rep. No. 104230, 104th Cong. 1 (1996).Y Thus, we sought to advance the twin goals of Section  x 276 of the Act of "promot[ing] competition among payphone service providers and promot[ing] the  S - xwidespread deployment of payphone services to the benefit of the general public . . . ,"B r 0 yO-ԍ 47 U.S.C.  276(b)(1).B by eliminating  xjthe effects of some longstanding barriers to full competition in the payphone market. To effectuate this  x.objective, we concluded that we would continue to regulate certain aspects of the payphone market, but  S-only until such time as the market evolves to erase these sources of market distortions.&Z0 yO6"- xYԍ A number of parties subsequently filed petitions requesting that the Commission reconsider or clarify the rules  {O"- xthe Commission adopted in the Report and Order. In the Order on Reconsideration, we substantially affirmed the  {O#- xrules adopted in the Report and Order. We denied all but two of the requested reconsiderations; those exceptions  {O$- xKare not at issue here. In the Order on Reconsideration, the Commission modified: (1) the requirements for LEC"$0*&&$"  xtariffing of payphone services and unbundled network facilities; and (2) the requirements for LECs to remove  xunregulated payphone costs from the carrier common line charge and to reflect the application of multiline subscriber  {O -line charges to payphone lines. See Order on Reconsideration, 11 FCC Rcd at 21,234, para. 3."0*&&99"Ԍ S- pԙx` ` 8. Section 276(b)(1)(A) of the Act directs the Commission to establish a plan to  S- xensure that all PSPs are fairly compensated for every completed call.\0 {Ob- xԍ See 47 C.F.R.  276(b)(1)(A) (directing the Commission to establish a plan "to ensure that all payphone  xservice providers are fairly compensated for each and every completed intrastate and interstate call using their  {O-payphone"). See also Report and Order, 11 FCC Rcd at 20,566, para. 48. We defined "fair compensation"  S- xas the amount to which a willing seller (i.e. PSP) and a willing buyer (i.e. customer, or IXC) would agree  xfor the completion of a payphone call. For certain calls, the PSP received no revenue for originating  Sb- x>certain calls (i.e., for subscriber 800 and other tollfree number calls) and could not block callers from  S<- xjmaking such calls (access code calls). Based on evidence in the record, we noted in the Report and Order  xthat the number of these types of calls completed from payphones had proliferated in the past several  S- xyears,p0 {O -ԍ See Report and Order, 11 FCC Rcd at 20,568, para. 52 n.187.p and we concluded that PSPs must be compensated for access code, subscriber 800, and other toll S-free number calls, whether they are jurisdictionally intrastate or interstate.K0 {O.-ԍ See id. at 20,568, para. 52.K  Sv- pSx` ` 9. In the Report and Order, we concluded that the payphone marketplace has low  SP - xentry and exit barriers and likely will become increasingly competitive,KP Z 0 {OJ-ԍ See id. at 20,547, para. 11.K and that the market generally  S( - xis best able to set the appropriate price for payphone calls, including local coin calls, in the long term.Y( 0 {O-ԍ See id. at 20,567, 20,577, paras. 49, 70. Y  x.Therefore, because we have an obligation under Section 276 to ensure that the compensation for all local  xcoin calls is fair, we concluded that the local market should be allowed to set the price for all compensable  xcalls unless a state demonstrated that competition would not constrain prices; for example, payphones at  xcertain locations would be priced at monopoly rates. This approach is appropriate, because once PSPs are  xfree to enter the market, and once callers are free to choose payphones for their calls, the market  xlultimately will determine whether a particular payphone is economically viable. Therefore, in the  S- x.Payphone Orders, we concluded that the appropriate percall compensation amount, in the absence of a  xnegotiated agreement, ultimately is the amount the particular payphone charges for a local coin call,  xbecause the market will determine the fair compensation rate for those calls. We further concluded that  xif a rate is compensatory for local coin calls, then it is an appropriate compensation amount for other calls  xas well, because we found the costs of originating various types of payphone calls such as access code  SJ-and subscriber 800 calls to be similar to the costs incurred when initiating a local coin call.J~ 0 {Oh"-ԍ Id. at 20,57778, para. 70; Order on Reconsideration, 11 FCC Rcd at 21,26869, para. 71.  S-  pSx` `  10. Before we moved to a local coin call default rate, however, we found that it was  x-necessary to observe over time how the payphone marketplace would function in the absence of regulation. "0*&&99"  x/In particular, we concluded that consumers facing time constraints may not be able to find, in certain  x.locations, a reasonable substitute for a payphone located on the premises. We stated that in these cases  xwhere the location provider has an exclusive contract with a PSP, the PSP may be able to charge supra x!competitive prices. The location provider would share in the resulting "locational rents" through  xcommissions paid by PSPs. We concluded that to the extent that market forces cannot ensure competitive  xprices at such locations, we may want to continue regulating, along with the states, the provision of  xpayphone services generally or in particular types of locations where the size of the location or the caller's  xjlack of time to identify potential substitute payphones could lead to locational monopolies. To allow us  xto ascertain the status of competition in the payphone marketplace, we concluded that we should establish the default percall rate before leaving it to the market to set the rate, absent any changes in our rules.  SH - pFx` `  11. We recognized that competitive conditions, which are a prerequisite to a  xderegulatory marketbased approach, did not exist yet, and would not be achieved instantaneously.  x=Therefore, we established an interim compensation plan to ease the transition to marketbased local coin  xrates and ensure fair compensation for coin and noncoin calls. In particular, we established a two phase  xinterim plan to address coin calls. During the first year (phase) the states would be responsible for  x.ensuring that PSPs were fairly compensated for local coin calls as well as for protecting consumers from  xexcessive rates. We concluded that states could continue to set the local coin rate during the year prior  xto marketbased percall compensation. During the second phase, beginning October 7, 1997, we stated  xthat the market would set the price for the local coin call, absent particular state concerns, and the need  S-for modification. 0 {OH- xԍ See Report and Order, 11 FCC Rcd at 20,572, para. 60 (further stating that states are empowered to act where concerns exist about market failures, and that the Commission could address such market concerns if necessary).  S- px` `  12. Additionally, in the Payphone Orders, the Commission established a twoyear  xinterim plan for payphone compensation for subscriber 800 and access code calls based on a rate of $0.35  xper call that began November 7, 1996. For the first year after the effective date of the rules adopted in  xthis proceeding, we required that IXCs pay flatrate compensation to PSPs. More specifically, under the  xfirst year of the interim plan, IXCs with annual toll revenues in excess of $100 million were required to  xypay, collectively, a flat-rate compensation of $45.85 per payphone per month in shares proportionate to  xtheir share of total market long distance revenues. During the second year of the interim plan, which is  xthe first year of percall compensation, all IXCs were required to pay $0.35 per subscriber 800 call or  SR-access code call unless they contracted with the PSP to pay a different amount.!"R"0 yO- xԍ We noted that $0.35 was the local coin rate in four of the five states where the local coin rate had been  x>deregulated and concluded that the marketbased rate in those states was the best evidence of the percall  {O- xcompensation amount for PSPs for the first two years of interim compensation. See Letter to William Caton, Acting  yOn - xSecretary, FCC from Michael Kellogg, Counsel, Coalition (Aug. 30, 1996) (noting that the local coin rate is $0.35  xin four of the five states that have deregulated the local coin rate). The Coalition is comprised of the Bell Operating  xxCompanies ("BOCs")"Ameritech, the Bell Atlantic Telephone Companies, BellSouth Corporation, Pacific Bell,  xyNevada Bell, Southwestern Bell Telephone Company, and US West"together with GTE Service Corporation  {O#- x("GTE") and Southern New England Telephone Company ("SNET"). See also Report and Order, 11 FCC Rcd at  xx20,578, para. 72. As we noted above, we believed the costs to originate access code and subscriber 800 calls were  x,similar to those incurred when initiating a local coin call, and thus established a default rate based on the deregulated" % 0*&&%"  yO- xlocal coin rate. We note that of seven states that now have deregulated local coin rates, in five states (Michigan,  xIowa, Nebraska, North Dakota and Wyoming) the rate is $0.35, and in two states (Montana and South Dakota) the  {O - xhrate is $0.25. See Ex Parte Presentation to FCC from Michael Kellogg, Counsel, Coalition (Sept. 26, 1997). In this order, the one year percall compensation period subject to the $0.284 default rate is extended to two years. "R!0*&&99m"Ԍ S- pԙx` `  13. Numerous parties filed petitions in federal court seeking review of the Payphone  S- xOrders. In Illinois Public Telecomm, the court affirmed important parts of the Commission's rules  xjimplementing Section 276, but also vacated and remanded certain other aspects of those rules. The court  S- xoverturned our determination in the Payphone Orders regarding: (1) the interim and permanent  xzcompensation rates established for access code and subscriber 800 calls; (2) the requirement that only  xthose IXCs with annual toll revenues over $100 million pay PSPs for these calls during the first year of  xthe interim period; (3) the failure to provide any interim compensation to BOC PSPs for "0+" calls and  xcalls made from inmate payphones; and (4) the use of fair market value for payphone assets transferred  S-from a BOC to a separate affiliate.["0 {O -ԍ Illinois Public Telecomm., 117 F.3d at 558. [  Sv- px` `  14. By Public Notice released August 5, 1997, we sought comment on the issues  SN - xremanded by the court.#N D0 {O2- xԍ See Pleading Cycle Established for Comment on Remand Issues in the Payphone Proceeding, CC Docket No.  {O- x96128, DA 971673, rel. Aug. 5, 1997 (Notice). In the Notice we indicated that we placed the industry on notice  xJthat payphone compensation obligations, or the absence of such obligations, incurred by providers of interexchange  xhservices, and compensation levels paid or received under our existing rules pending action on remand, may be subject  {OV- x;to retroactive adjustment. Id. at 1. With regard to the interim compensation plan, we specifically sought comment  x/on compensation for subscriber 800, access code, and 0+ calls, and on retroactive adjustments to interim  {O-compensation levels and obligations. See id.Ī We sought comment on the differences in costs to the PSP of originating  S& - xsubscriber 800 and access code calls as compared to local coin calls.<$& 0 {OR-ԍ See id. at 2.< We sought comment on whether  S - x=these potential differences in costs should affect a market based compensation amount, and if so, how.3% 0 {O-ԍ Id. 3  xzWe sought comment on whether the local coin rate"subject to an offset for expenses unique to those  xicalls"is an appropriate percall compensation rate for calls that are not compensated pursuant to a contract  S - xor other arrangement, such as subscriber 800 calls and access code calls.3& 0 {O-ԍ Id. 3 We stated that parties should  xrespond specifically to concerns raised by the court in setting forth their views on the appropriate percall  S6-compensation amount.8'6B0 {O"-ԍ Id. at 3.8  S- pTx` ` 15. This order addresses only the amount of default percall compensation. We  xdecline to address in this order other issues related to the implementation of the percall compensation"'0*&&99"  S- xstructure.H(0 {Oh-ԍ See infra paras. 12333. H Because the court vacated and remanded the percall compensation rate for access code and  xsubscriber 800 calls, we have sought to act expeditiously to reevaluate the default percall rate. We  xconclude, because of the exigency of the situation wherein PSPs are not receiving percall compensation  xas required by Congress in Section 276, that we must address quickly and efficiently the most urgent issue  xԩ the per call compensation amount to be paid by IXCs to PSPs beginning on October 7, 1997, the  S8-beginning of percall compensation. x` `  S-F III. PERCALL COMPENSATION ĐTP  S-A. xThe Standard for Determining PerCall Compensation   SH - px` ` 16. In the Notice, we sought comment on whether the marketbased local coin  xrate"subject to an offset for expenses unique to those calls"is an appropriate percall compensation rate  xfor calls that are not compensated pursuant to a contract or other arrangement, such as subscriber 800 and  S - xaccess code calls.H) Z0 {O-ԍ See Notice at 23. H In Illinois Public Telecomm., the court in particular concluded that the Commission  S - xdid not adequately justify "tying the default rate [for percall compensation] to local coin rates."~* 0 {O8-ԍ Illinois Public Telecomm. 117 F. 3d at 564.~ The  xcourt found evidence in the record that the costs of coin calls are higher than those for coinless calls  x>because: (1) additional costs are incurred for equipment and coin collection; and (2) the PSP pays for  S4- xoriginating and terminating local calls, while for coinless calls the PSP only pays for originating the calls.=+4~0 {OR-ԍ Id. at 56364.=  xTherefore, the court stated that setting the percall compensation for subscriber 800 calls and access code  xcalls at the deregulated local coin rate of $0.35 was not justified, and vacated and remanded the issue to  S-the Commission for further consideration.},0 {Ol-ԍ See id.; Illinois Public Telecomm., Supplemental Opinion, slip op. at 2.} " ,0*&&99"  S-x1.` ` Comments- 0 yOh- xԍ Abbreviations for parties are listed in Appendices A and B. The following section includes the analyses of the  xcomments and reply comments submitted in this proceeding. Although for presentation the comments are  xisummarized generally by subject area, we consider these comments and replies in reaching our decisions wherever the comment and reply comments are appropriate. x` `  S- p5x` ` 17.  APCC asserts that Illinois Public Telecomm. affirms the Commission's market S- xbased approach to determine compensation and does not mandate an analysis of costs.j.0 {O-ԍ See APCC Comments at 23; see also CCI Comments at 5.j According to  xAPCC, the court also affirmed the Commission's finding that the payphone marketplace is competitive,  S<- xeven if market forces do not yet operate freely for dialaround calling.>/<B0 yO -ԍ APCC Comments at 23.> APCC further argues that the  xcourt did not preclude the Commission from relying on marketbased surrogates, such as the local coin  x]rate, or require the Commission to calculate an exact cost differential to be reflected in the percall  S- xcompensation figure.:00 {O6-ԍ Id. at 34.: The Commission, APCC asserts, could exclude consideration of cost evidence  S- xLaltogether and focus solely on market price indicators.31d 0 {O-ԍ Id. 3 APCC contends that the court objected only to  St- xkthe Commission's attempt to compare the costs of dialaround calls and local coin calls.:2t 0 yO -ԍ APCC Reply at 5. : Only if the  xCommission continues to rely on cost comparisons as a factor in the application of a marketbased  S$ - xapproach, must the Commission adhere to the reasoning issues raised by the court, states APCC.83$ 0 {OJ-ԍ Id. at 6.8 Parties  S - xfurther contend that a marketbased approach will fulfill the requirements of the statute, i.e., provide rates  xkthat "fairly compensate" PSPs and "promote competition among payphone service providers and the  S - xwidespread deployment of payphone services."4 0 {Of-ԍ APCC Comments at 2 (citing 47 U.S.C.  276(b)(1), (1)(A)). See Coalition Reply at iv, 2, 5. APCC alleges that the IXCs do not provide any  x]arguments for rejecting a marketbased approach, and challenges the arguments that there are local  S^- xpayphone provider monopolies that prevent the payphone market from being competitive.95^0 yO-ԍ APCC Reply at 7.9 Peoples adds  xthat PSPs are not monopoly providers because Commission rules require PSPs to unblock access code  xycalls, giving every caller the option to dial around a PSP's presubscribed service provider or to use a debit  S-card to reach a carrier of their choice.<6:0 yO#-ԍ Peoples Reply at 4.< " 60*&&99 "Ԍ S- p&x` ` 18.  The Coalition argues that the court did not question the Commission's decision  S- xto rely on marketdetermined prices rather than regulatory accounting procedures.]70 yO@-ԍ Coalition Reply at 6; Coalition Comments at 1113. ] The Coalition asserts  xthat the court did not require the Commission to abandon its marketbased proxies, but instead required  x[the Commission to consider appropriate differences, such as originating costs, between coin and coinless  S`-calls.28`X0 {OX-ԍ Id.2  S- px` ` 19.  AT&T asserts that the court found that the Commission acted unlawfully in  xestablishing an assumed market rate for coinless calls, because the Commission ignored record evidence  S- xon the cost differences between coin and coinless calls.p90 {OJ -ԍ AT&T Reply at 2; see also ACTA Comments at 3, CWI Comments at 11.p Because of this error, AT&T states, the court  xfound that there was no rational basis for the Commission's conclusion that percall compensation should  xbe set at the assumed deregulated market price, and therefore, that the Commission's compensation rate  SH -could not stand.>:H |0 yOd-ԍ AT&T Comments at 34.>  S - px` ` 20. Frontier similarly argues that the court did not endorse the Commission's market S - xbased approach,?; 0 yO|-ԍ Frontier Reply at 34.? and further, that the court found the Commission's conclusion that the local coin rate  S -represents the best surrogate of the costs of completing local calls unjustified.< 0 {O- xԍ Id. (stating that the "court plainly tied its assessment of what constitutes reasonable compensation to the costs of completing coinless calls").  SX- px` ` 21.  Sprint asserts that although the Commission used a marketbased approach to  xdetermine local coin rates, the Commission never purported to use a marketbased approach for percall  S- xcompensation for access code and subscriber 800 calls.== 0 yO-ԍ Sprint Reply at 14. = Instead, Sprint contends that the Commission  xhas viewed costs as the appropriate approach from the outset, and has sought surrogates for originating  S-costs while rejecting non costbased market surrogates.<> 0 {O-ԍ Id. at 1415.<  Sh- px` ` 22.  PageMart and CPI argue that the great disparity in the record between the market  S@- xLrates and costs demonstrates that the payphone market is not yet competitive,?@0 yO#- xԍ CPI Comments at 3 (arguing that a marketbased rate is inappropriate because the payphone industry is not competitive, and because PSPs are monopolies or near monopolies). because price in a truly"@ p?0*&&99"  S- x]competitive market would have been driven closer to cost.=@0 yOh-ԍ PageMart Reply at 7.= PageNet argues that market rates are  S- xmisleading, because, as consumers, IXCs cannot decline a sale, i.e., block incoming payphone calls, and  S- xthus have a weakened market power.'A$X0 {O- xԍ See PageNet Comments at 911; PageNet Reply at 5, 7. See also Section D infra (discussing reconsideration  xof caller pays and the paging carriers arguments that only a calling party pays system would result in a true market  {O<- x,rate); see also WorldCom Comments at 34 (arguing that the rates being proposed by the LECs and PSPs"between $0.42 and $0.63 per call"would not be accepted if the consumer paid them directly).' WorldCom asserts that marketbased rate would be more arbitrary  S-and artificial than rates based on objective and verifiable costs.=BD0 yOn -ԍ WorldCom Reply at 3.=  S:-x2.` ` Discussion  S- px` ` 23. Despite a careful review, we find no statement in the court's decision that  xprecludes us from relying on marketbased surrogates, or requires us to determine a rate based on cost data  xsubmitted by incumbent LECs, independent PSPs, and other parties to determine the new percall rate.  x>The court did not reject the concept of linking the marketbased local coin rate to the percall rate for  xjaccess code and subscriber 800 calls based on the similarity in costs, nor conclude that our approach was  x\irrational. Rather, the court concluded that the Commission had not responded to information on the  xrecord regarding the cost disparities between the cost of providing coin calls and subscriber 800 and access  xcode calls. Therefore, the court concluded that adoption of the default rate without further explanation was  S -arbitrary and capricious.BC 0 {O -ԍ See supra para. 13.B  S\-  px` ` 24. The 1996 Act does not prescribe a particular course to ensure that all PSPs are  S4- xfairly compensated for each and every call.BD4f 0 yO:-ԍ 47 U.S.C.  276(b)(1).B Nothing on the record in response to the Notice persuades  S- xus to change the deregulatory scheme established in the Payphone Orders. Based on the record in this  S- xyproceeding, we affirm our decision in the Payphone Orders to use a marketbased default rate for percall  xcompensation for subscriber 800 and access code calls. We conclude for the reasons stated there that a  xmarketbased rate best responds to the competitive marketplace for payphones consistent with the  Sr- xderegulatory scheme we adopted in the Payphone Orders for the provision of payphone services pursuant  xto Section 276, and also will effectively advance the statutory goals of encouraging competition and promoting the deployment of payphones.  S- p%x` ` 25. As discussed above, because of market imperfections such as the inability of PSPs  S- xto block access code and subscriber 800 calls, we concluded in the Payphone Orders that a default rate  xwas necessary to ensure that PSPs received fair compensation during the transition to a deregulated  xmarket. We also concluded in those orders, as we conclude here, that the default rate should be market xbased. The method we use in this order to estimate a reasonable default percall compensation rate"6 D0*&&99"  S- xaddresses the court's concerns as well as those raised on the record in response to the Notice by LECs, IXCs, and PSPs. Specifically, our approach continues to rely on a marketbased rate (the local coin rate).  S- pbx` ` 26.  We, however, adjust the marketbased local coin rate for differences in the costs  x]of coin and coinless operation, reducing the marketbased local coin rate for coinrelated costs and  xincreasing the marketbased local coin rate to reflect costs that are related to access code and subscriber  xj800 calls. In addition, in response to the arguments of parties in this proceeding that a marketbased rate  x[would be unreasonable and that we must establish a rate based on cost data submitted by the parties, we  xalso have performed an analysis of those cost data to test the reasonableness of the selected percall  xmarketbased rate. As discussed below, we find based on this analysis that the adjusted marketbased rate  xOis reasonable. Accordingly, we conclude that the deregulated local coin rate, adjusted for cost  xconsiderations, is a reasonable marketbased surrogate for determining the default percall compensation  xrate and specifically responds to the court's concerns that cost differences between coin calls and coinless  x=access and subscriber 800 calls be explained. Furthermore, we conclude that the percall rate established  S -in this order will further the goals of Section 276 and is in the public interest.  S - pqx` ` 27. The record on remand supports our prior conclusion that percall compensation  xshould be set by the marketplace and that full and unfettered competition is the best mechanism to achieve  S2- xCongress' dual policy objectives.BE20 yO-ԍ 47 U.S.C.  276(b)(1).B Competition over time will lead to the more efficient placement of  xpayphones, improved payphone service, and lower prices for consumers. To encourage competition in  S- xythe payphone marketplace, we ensure in this Second Report and Order that PSPs are fairly compensated for "each and every completed intrastate and interstate call."  Sl- p&x` ` 28. We conclude that because we make the percall amount subject to negotiations,  xthe marketplace will make the appropriate adjustments in the percall rate. We established the percall  xdefault rate to be applied only if the PSP and the IXC are unable to negotiate some other rate of  xcompensation for compensable calls. Negotiations may lead to rates other than the default rate for several  xreasons. First, because virtually all of the costs are fixed costs and are not incurred on a percall basis,  xan IXC and a PSP might agree to a flatrated charge rather than a usagebased compensation rate. Second,  x/there may be locations where a payphone would not be viable financially if compensated at only the  xzdefault rate per compensable call, but would be viable at a higher compensation rate. If an IXC found  xjit profitable to carry calls at this higher rate, it would be in the mutual interest of the two parties to agree  xon a higher rate. Third, IXCs may choose to pass on the percall compensation rate to their customers.  xjIn the case of 800 subscriber calls, the IXC could pass on the cost to the called party. If the called party  x\refused to accept calls for which it was charged the default rate, but was willing to accept calls with a  xlower charge, the IXC and the PSP may find it in their mutual interest to negotiate a percall rate lower  x than the default rate. Fourth, in locations where a competing payphone could be placed without the  xpermission of the location provider, a PSP may be willing to negotiate a lower rate than the default rate, rather than give an IXC the incentive to place a competing payphone.  S - "! XE0*&&997#"  S-B.xMarketBased Compensation Analysis  S- px` ` 29. As discussed above, we conclude that the appropriate rate of percall compensation  xfor access code and subscriber 800 calls is the marketbased local coin rate adjusted for costs. In setting  xthe percall compensation rate for the first two years of percall compensation, we begin with the $0.35  S8- xmarketbased local coin rate established in the Payphone Orders and adjust that rate to remove coinrelated costs and add costs specific to subscriber 800 and access code calls. x  S-x1.` ` Comments x` `  St- px` ` 30. Market Rate. APCC, the Coalition, Peoples, and CCI request that the Commission  xadopt a marketbased percall compensation rate, and furthermore, assert that the underlying costs  S$ - x-attributable to both coin and noncoin calls are similar.F$ 0 {O - xYԍ See APCC Comments at 4; APCC Reply at 10 (stating that the Commission adopted a marketbased approach  {OV - xin the Payphone Orders, and that the Commission should apply that approach in the instant proceeding); Peoples  {O - x[Comments at 8 (stating that the cost of a dial around call is similar to the deregulated market rate). See also  xCoalition Reply at 23 (stating that once the cost analyses provided by the IXCs are corrected for costs that should be included, the cost of a call reaches, and in some cases exceeds, the market rate).  APCC contends that any marketbased ratesetting  S - x.mistakes are selfcorrective, because the market will demonstrate the mistake.BG ~0 yO-ԍ APCC Comments at 5.B APCC further contends  xthat contrary to the IXCs position, the market will prevent PSPs from gaining any long term windfall, and  S - xwould force any such "windfall," to be passed on to consumers.;H 0 yOZ-ԍ APCC Reply at 14. ; APCC contends that marketbased rates  S -are more objective than the subjective components of costbased rates.<I 0 yO-ԍ APCC Comments at 6.< x` `  S4- px` ` 31. The Coalition further maintains that the market will reflect variations from region  S - xto region and payphone to payphone.J . 0 {O-ԍ Coalition Reply at 6 (citing Order on Reconsideration, 11 FCC Rcd at 21,26869, para. 71). The Coalition urges that the market rate be the local coin rate  S- xladjusted to reflect the relative elasticities of demand of the various types of calls.BK 0 yOD-ԍ Coalition Comments at 22.B The Coalition  xcontends that under market conditions sellers will tend to load costs onto services for which prices are less  S- xLlikely to fluctuate, i.e., that have a lower elasticity of demand, than onto services that have a higher price  xsensitivity. The Coalition further argues that the elasticity of demand for local coin calls is higher than  xfor long distance calls. In other words, the Coalition argues, customers of local calls will respond more  S- xquickly to price changes than customers of 0+, subscriber 800 and dialaround calls.9LP 0 {O$-ԍ Id. at 23.9 Thus, the Coalition  xjcontends, the price of long distance calls should be the local call rate adjusted upward to reflect the lower"L0*&&99C"  xelasticity of demand and the greater proportion of costs, relative to local calls, that such calls will carry  S-under true market conditions.YM0 {O@-ԍ Id. at 1214; Coalition Reply at 4, 1415.Y  S- ppx` ` 32. CCI, an independent payphone provider, argues that the Commission should adopt  xa marketbased surrogate, and contends that there are few differences between the costs of a local coin  S8- xNcall and a subscriber 800 or access code call.;N8Z0 yO2-ԍ CCI Comments at 2.; CCI argues, however, that even under a costbased  S-approach, the cost of a local coin call and a dial around call is approximately $0.35.=O0 {O -ԍ See id.=  S-  px` `  33. Several of the IXCs assert that the retail price for local coin calls is not an  xappropriate surrogate for the costs of a noncoin call, because there are substantial cost differences between  Sp- xthese two types of calls.P"p|0 {O- xԍ See, e.g., AT&T Comments at 4, 6; AT&T Reply at 4 (stating that marketbased compensation is unrelated  yOV- xYto and in excess of costs to originate coinless calls); Excel Reply at 1; MIDCOM Comments at 46 (stating that any  xJalleged market rate would be distorted by the binding contracts to which the majority of payphone locations already are subject). AT&T and MCI assert that if the Commission develops a rate based on an  SH - xjoffset from the local coin rate, the offset should be at least fifty percent,WQH f 0 {ON-ԍ See AT&T Comments at 13; MCI Reply at 3.W or based on the rate negotiated  S - x[between AT&T and APCC in 1994 for dialaround access code calls.R 0 {O- xԍ See AT&T Reply at 1213 (explaining that since AT&T negotiated the 25 cent rate, the average price of a dial around call has declined). MCI asserts that a marketbased  xrate, being higher than a costbased rate, would lead to increased blocking by 800 subscribers, as those  S - xLsubscribers try to avoid having to pay IXCs for unduly high payphone charges.=S R 0 yO-ԍ MCI Comments at 4. = MCI also asserts that  S - xmarketbased rates are artificially driven up by location owners holding out for the highest bidding PSP.9T 0 yO*-ԍ MCI Reply at 10.9  xThese higher, marketbased rates will lead to an unwarranted income transfer from consumers to payphone  x providers, MCI contends, because excessively high rates will encourage PSPs to place payphones in  S0- xincreasingly marginal locations.3U0r0 {OB!-ԍ Id. 3 The Coalition disputes MCI's assertion that a marketbased rate would  xlead to increased blocking arguing that PSPs have an interest in seeing calls completed, which call  S-blocking would defeat, and an acceptable market rate would result in more completed calls.@V0 yO$-ԍ Coalition Reply at 89.@ "V0*&&99"Ԍ S-  prԙx` ` !34.  Local Coin Rate as Surrogate. Several of the PSPs argue that if the local coin  xcalling rate is used, no significant adjustment for cost differences between the coin rate and dialaround  S-calls is required, because any cost differences are minimal.W\0 {O- xԍ See APCC Comments at 1115 (arguing that fixed payphone costs do not change with the presence of dial {O- xharound calls, and further that there are no major differences in the variable costs); see also TEI Comments at 2; CCI Comments at 68 (arguing that the deregulated coin rate of $.35 per call is an appropriate surrogate). x  S`- px` ` "35. Peoples argues that a single, flat default rate would simplify procedures, much as  S8- xa firstclass postage stamp covers mail that goes various distances.?X80 yO -ԍ Peoples Comments at 7.? Peoples further argues that the local  S- xcoin rate is such a flat rate, because it is used to originate all types of calls from a payphone.2Y|0 {O, -ԍ Id.2 Moreover,  xjPeoples argues, coinless calls alone do not justify installing a payphone; payphones are installed for coin  S-calls, thus, the local coin rate is a good market measure for all of the calls that originate from it.:Z0 {On-ԍ Id. at 67.:  Sp-  px` ` #36. Several of the IXCs oppose the use of the local coin rate as a surrogate, but state  x=that if the Commission uses the local coin rate, then the Commission should reduce the local coin rate so  S - xthat it reflect only expenses unique to access code and subscriber 800 calls.[ 0 yO`-ԍ CWI Comments at 9 n.7; CompTel Comments at 14 n.7; LCI Comments at 8; RCN Reply at 1. CPI objects to the use of  xthe local coin rate as a starting point because the coin rate does not represent the result of a competitive  S - xmarket.;\ 0 0 yO-ԍ CPI Comments at 7.; TRA says that using the local coin rate will lead to a grossly inflated default rate.<] 0 yO0-ԍ TRA Comments at 20.< Frontier  xstates that the coin rate bears little relationship to the costs of completing a coin call, much less a coinless  S -call.=^ P 0 yOp-ԍ Frontier Reply at 5.= x  S0- px` ` $37.  Other Surrogates. APCC requests that the Commission consider other surrogates  S- x!for the market rate, such as 0+ commissions, 0 transfer rates and sentpaid toll call surcharges.A_0 yO -ԍ APCC Comments at 810. A  xLAccording to APCC, the 0+ call commissions are the only known instance where carriers and PSPs meet  xin the marketplace to negotiate a price for routing a call from the payphone to the carrier, and therefore,"p_0*&&99"  S- xthe Commission should reconsider 0+ commissions.`\0 {Oh- xԍ Id. at 78 (arguing that the Commission erroneously rejected 0+ commissions in its Report and Order in this  xproceeding, but accepted them as a benchmark in CC Docket No. 9135). The midrange level of these commissions,  {O-according to APCC's 1996 data, is $0.62 per call. See id.Ć APCC further contends that sentpaid tolls are  S- xanother reasonable indicator of the market price.pa\0 {Od- xiԍ Id. at 910 (explaining that the sentpaid toll call surcharge is the amount, above the standard transmission  xcharge, that a PSP charges for the convenience of making a toll call from a payphone). The middlerange price of  {O-such a call is $1.40 per call. See id.p Additionally, APCC contends that the 0 transfer rates  x/are a reasonable surrogate, because these rates indicate the minimum price IXCs are willing to pay to  S- x=obtain telephone traffic.b0 {O8 -ԍ Id. at 9 (stating that the average price of a completed 0 transfer call is $0.41). APCC concludes that the most appropriate marketbased surrogates are local  xcoin calls, operatorassisted call commissions and sentpaid toll surcharges, because these three surrogates  xare based on prices actually charged in the marketplace for origination of payphone calls. APCC states  S-that a weighted average price for these three charges is $0.45 per call.9c0 {OR-ԍ Id. at 10.9  S-  px` ` %38. Several of the IXCs argue that 0+ commissions cannot be used as a market guide  xbecause these commissions include factors unrelated to the use of payphones for the use of access code  Sp- xand subscribers 800 calls.dp4 0 {OD- xԍ See, e.g., AT&T Reply at 35; CWI Reply at 24; CompTel Reply at i, 23; RCN Reply at 78, Sprint Reply  xat 17; WorldCom Comments at 4; Excel Reply at 7 (arguing that these surrogates do not overcome the uncompetitive  xcharacteristic of the current payphone market by virtue of the fact that payphone callers are a captive audience);  xFrontier Comments at 3 (arguing that commissions paid on 0+ calls include monopoly rents and locational  xmonopolies); ITA Comment at 67 (arguing that compensation for 0+ calls includes other compensation factors, such  xas the PSP's promotion of the operator service provider through payphone placards, and that market surrogates in  xgeneral include costs not incurred in PSP origination of dialaround calls, such as LEC line costs, premise owner  xcommissions, and billing and collection charges); PageNet Reply at 11 (arguing that 0 transfer rates include  {O- xcompensation for operator assistance services that subscriber 800 calls do not use). See infra para. 62 for a more thorough discussion regarding commissions. Furthermore, carriers argue, sentpaid calls are not a reliable surrogate,  xbecause these charges cover such services as a payphone's capability to track time and amount, and  S - xrecognize types of coins, services not needed for 800 subscriber calls.@e 0 yO-ԍ PageNet Reply at 1112.@ MCI argues that these surrogates  S - xare not representative because they are narrowly tailored to specific types of calls.f `0 yO - xԍ MCI Reply at 6 (arguing that the 0+ commission represents the value to the IXC of being a payphone's presubscribed carrier). Moreover, MCI  S - xcontends, some of socalled surrogates apply to calls from telephones that are not even payphones.3g 0 {O($-ԍ Id. 3  xSprint argues that the only truly reliable indicator of the market for subscriber 800 and access code calls" Jg0*&&99 "  x[is what the market provided to PSPs for such calls prior to the imposition of the Commission's orders in  S- x[CC Docket No. 9135.=h0 yO@-ԍ Sprint Reply at 18. = At that time there was no compensation to PSPs for these calls, and therefore,  S-Sprint contends, the market price was zero.2iX0 {O-ԍ Id.2  S`- ` x` ` &39. Excel argues that the Commission should start with a local coin rate at $0.25,jX`0 yO- xԍ Excel Reply at 3, 9 (arguing that setting the default rate at the highest deregulated rate in the country is  xcontrary to competition, and further that the proceeding before the Massachusetts DPUC regarding NYNEX's payphone rates demonstrates that the market rate for local coin calls should not be higher than $0.25 per call). then  xsubtract those costs unique to the local coin service ! coin equipment and collection, coin rating,  S- xoriginating and terminating access from the local coin rate.=k 0 yO -ԍ Excel Comments at 4.= AT&T, CompTel, and CWI argue that the  x=Commission should not rely on avoided costs in establishing the default compensation rate, because this  xmethod inappropriately compares the price of coin calls with the costs of coinless calls and may  xovercompensate PSPs. Nonetheless, if the Commission adopts this method, AT&T argues, the  xCommission must set the local coin rate at $0.25 and determine the actual avoided costs related to coinless  SH - x/calls,lH 0 yO- xԍ AT&T Reply at 24 (stating that no charges should be added to this rate such as ANI or completion costs for local coin calls). and CompTel and CWI argue that the Commission should subtract the costs of tracking and  S - x billing compensation.Dm 0 yO-ԍ CompTel Comments at 14 n.7.D MCI argues that if the Commission adopts a topdown approach, it should  xcalculate the default rate by subtracting the coin specific costs from the cost of a coin call, not from the  S - x\market rate.;n 0 yO-ԍ MCI Comments at 3.; RCN argues that the Commission should determine a nationwide default rate and then  S -subtract those costs that are unique to coin calls.o 0 yOZ-ԍ RCN Comments at 4 (stating that the percall rate should not exceed the marketbased local coin rate).  SX- pCx` ` '40. The Coalition argues that the avoided cost methodology will not produce a percall  x|compensation rate lower than the deregulated coin rate, and in fact, will increase the amount of  S- xcompensation owed to the PSPs.p0 yOJ!- xԍ Coalition Reply at 1315 (arguing that an avoided cost methodology not only requires the deduction of certain costs, but also the addition of costs that PSPs must incur for a noncoin call). Furthermore, the Coalition argues, avoided cost methodology will not  xproduce competitive outcomes, because joint and common costs are a significant portion of the total costs,"p0*&&99"  S-and the market does not price goods or services on costs alone.tq0 {Oh-ԍ Id. at 14. See infra paras. 6467 regarding demand elasticity.t x` `  S-x2.` ` Discussion  Sb-  px` ` (41. In the Payphone Orders, we found that the market rate for a local coin call is  x.$0.35 and we stated that this is also the rate for access code and subscriber 800 calls for the first year of  xpercall compensation. In response to the court's concern that there may be differences in cost between  xMproviding local coin calls and subscriber 800 and access code calls, we have evaluated the evidence on  xNthe record to develop a default rate for access code and subscriber 800 calls that reflect those cost  xdifferences. On the record, parties discuss several cost factors suggesting that compensation for access  St- xcode and subscriber 800 calls should be either above or below the market price for coin calls.mrZtZ0 {On - xԍ See, e.g., AT&T Comments at 11 (percall compensation should be lower than the default rate); Sprint  xhComments at 9; APCC Comments at 8; Coalition Comments at 3033 (stating that percall compensation should be above the local coin rate to account for implementing ANI and other costs). m In section  x(a) we conclude that based on differences in costs, a market rate for access code and subscriber 800 calls  xlikely would be between 5.9 and 7.3 cents lower than the market rate for a local coin call, resulting in a  xrate of $0.284. In section (b) we conclude that the parties failed to provide sufficient information to adjust  xthe default dial access and subscriber 800 rate to reflect differences in the elasticities of access code and  xsubscriber 800 calls compared with local coin service. Thus, we do not make any adjustment for elasticity differences.  S4-x` ` a. Adjustments to the local coin market rate based on cost differences  S-x` `  i.General approach  S-  px` ` )42. Our general approach is to start with the market rate for local coin service ($0.35),  xand subtract costs directly attributable to coin calls and add costs specific to access code and subscriber  xM800 calls. The majority of the costs associated with a payphone are joint and common costs that are  xshared by the different types of calls made by means of the payphone. These costs do not increase or  xdecrease as the number or composition of calls changes at a particular location. By making no adjustment  xto the coin rate for these costs, we conclude that each call placed at a payphone should bear an equal share of joint and common costs.  SX- pcx` ` *43. The long distance and paging companies argue that we should limit the costs  x attributed to access code and subscriber 800 calls to the costs that would be incurred from providing  xaccess at a coinless payphone; coinrelated costs should not be included. Under this theory, all other costs  xthat are incurred to support a payphone coin call would be attributed to coin calls and either removed from  S- xyany marketbased rate or excluded from any other type of cost estimate.s|0 yO#- xԍ AT&T Comments, Analysis of Economist David Robinson at 6 [hereinafter AT&T Comments, Robinson]; MCI Comments at 3. PSPs, however, maintain that"s0*&&99"  S- x/few locations could support a coinless instrument.It0 {Oh-ԍ See Peoples Comments at 7.I Instead, they explain that most payphones are  S-installed to handle both coin and coinless calls.uZ0 yO- xJԍ Coalition Comments, Analysis of Economist Jerry A. Hausman, Ph.D. at 9 [hereinafter Coalition Comments, Hausman].  S- p4x` ` +44.  We agree with the IXCs, and paging companies, that costs directly associated with  xthe coin mechanism should be borne by coin calls. Under their general approach, however, compensation  xLfor subscriber 800 and access code calls would not fairly contribute to the recovery of joint and common  xcosts of payphone service that would occur, even if the payphone is used solely to place such calls. In  xMour view, such joint and common costs are not "additional" costs occurred to provide local coin calls.  xHence, compensation for subscriber 800 and access code calls should contribute to the recovery of such  xcosts. Our calculation assumes that each call will contribute to a multiuse payphone's joint and common costs.  S - px` ` ,45. We reject AT&T's contention that using a coinless payphone results in a percall  xlcompensation rate of 11 cents per call and that this rate should be the basis for selecting a percall  xMcompensation rate. We note that AT&T divided its monthly costs to install, operate, and maintain a  S - x-coinless payphone ($76.85) by the number of calls at a coin payphone estimated by APCC.Gv 0 yO-ԍ AT&T Comments, Robinson at 12.G The APCC  xstudy showed that the average payphone carried 713 calls per month, and that 511 of these calls were coin  SX- xLcalls and 202 of these calls were coinless calls.JwXB0 yO:-ԍ APCC Comments, Attachment 4 at 2.J It is more reasonable to assume that you would divide  xAT&T's estimated monthly costs for a coinless payphone ($76.85) by 202, the number of coinless calls.  x[This calculation results in a cost of 38 cents per call, rather than the 11 cents estimated by AT&T. If the  xnumber of calls at coinless payphone were adjusted for a marginal location as we do in our analysis  xbelow, the percall cost would be even greater. Thus, we conclude that the 11 cent rate obtained by  x<AT&T in its analysis would not be an appropriate percall compensation rate for subscriber 800 and access  Sh-code calls.xh0 yO- xԍ Other parties believe that AT&T's estimated monthly cost of a coinless telephone is too low. Coalition Reply at 29. x  S- pbx` ` -46. Selecting the number of calls to represent a low traffic location. Any analysis of  x[the costs incurred for a call from a payphone must be based on a particular number of calls. Most of the  xjparties presented cost information based on coin payphones serving locations with an average amount of  xcalling. We believe, however, that it is appropriate to analyze cost for a location with less than average  xcalling. Prices in competitive markets tend to be set at the marginal cost of production. For payphone  xservice, the marginal unit of production is the installation of a payphone at a low traffic location. If prices  xjfor payphone calls increased, providers would be willing to install more payphones; however, customers  xwould likely place fewer calls. At the equilibrium price for payphone calls, newly installed payphones"* x0*&&99k"  x=would be expected to generate just sufficient calls to earn only a normal return on investment. Thus, we  x[believe that setting a default compensation rate to achieve fair and reasonable compensation requires that  xa payphone operator be able to cover costs at a low traffic location. A single instrument would be  xrequired to provide both coin and coinless calls at such a location, with neither class of calls, by itself, sufficient to justify installation of a payphone.  S-  px` ` .47. We select the number of calls to represent a low traffic location by estimating the  x|number of calls that could cover all of the costs of operating a payphone with the exception of  x>commissions paid to location owners. This number represents the lowest number of calls at which a  xpayphone could be operated without requiring a subsidy. Most of the costs associated with a payphone  xdo not vary with the number of calls made at an individual payphone. Thus an individual call must cover  xits own marginal costs as well as a share of the nonvarying costs. The contribution made by an  xindividual call is the price of the call less the marginal costs of the call. If the price of calls remains  xconstant, each additional call adds a fixed amount of contribution. If the number of calls is high enough,  xthe total of this contribution will exceed the total of nonvarying costs, including a normal return on  xinvestment. The amount by which total revenue exceeds total cost is referred to as economic rent. In the  xlong run, premises owners will be able to extract any economic rent from payphone owners through  SX- xcommissions.yX0 yO- xԍ Several PSPs suggested that commissions should be included in the cost of providing access code and  {O-subscriber 800 calls. See infra para. 62. If a location generates only enough traffic to support the installation and upkeep of a  xpayphone, however, there will not be any commission payments. Some PSPs may choose to pay  S- xzstandardized commission amounts.EzJ0 {O-ԍ See TEI Comments at 8.E These companies will not serve as wide a mix of locations. All  xthings being equal, the owner of a high traffic location would seek out the potential profits by choosing  xthe PSP that is willing to pay the highest commissions. On the other hand, if the owner of a low traffic  xlocation insisted on a commission, no PSP would be willing to install a new payphone at that location  Sh- xbecause no PSP could pay the commission and generate a sufficient return on its new investment.{h0 yO- xwԍ Existing LECs require premises owners to pay for placement of payphones, rather than receive a commission, if there is a sufficiently low volume of coin traffic at a location.  xAccordingly, a marginal location is a location where traffic just covers costs other than premises owner commissions.  S- p4x` ` /48.  Based on the data provided by the commenters, it is necessary to complete several  xsteps to determine the appropriate number of calls needed to sustain a payphone at a marginal location.  Sx- xAs explained more thoroughly below, we rely on APCC cost data, because these data are representative  xof the payphone industry as a whole. However, APCC did not provide a breakdown of the 689 calls that  S(- x.it reported as the average per payphone when it collected the cost data. Therefore, we first used APCC  xdata from the call type study"which provided data based on an average of 713 calls"to determine the  xproportion of access code and subscriber 800, coin and other calls for the 689 calls reported in the cost  x?study. Second, using these derived call numbers, we estimated the amount of coin and other calls  x[necessary to generate commission payments, and subtract those calls to yield the number of calls needed to sustain the marginal payphone. "`4{0*&&99"ԌXx` ` (#  S-  px` ` 049. We use APCC data to estimate the number of calls per month that an average PSP  S- xwould need at a location to cover costs other than commissions.3|0 yO- xԍ APCC submitted data from two different studies; one pertaining to cost, and one pertaining to call type  {O- xvolumes. See APCC Comments, Attachment 3 ("Weighted Average of Cost and Call Volume Data from 46  xKPayphone Companies"), Attachment 4 ("Results of APCC's 1996 Survey of Payphone Call Volumes"). For this  xianalysis we needed the following information: average cost per payphone; average commissions paid to premises  xowners per payphone; average number of calls per payphone; the marginal cost per coin call; and breakdown of  xaverage call types per payphone. APCC and CCI provided a breakdown by call type; in relying on APCCs data,  xwe note that other commenters supplied APCC's call type data in their comments as representative of the payphone  {O - xxindustry, and further, that CCI's call data is similar to that of APCC. See, e.g.,ĠCWI Comments, LCI Comments,  x,CompTel Comments. APCC and several other commenters, such as Peoples and CCI, provided cost data; however, we selected the APCC data because it is the most thorough and representative of the payphone industry averages. 3 APCC reported $242 monthly cost per  S- x=payphone, including $45 in commissions, based on an average of 689 calls of all types.O}d 0 {O -ԍ See APCC Comments, Attachment 3.O Until October  x1996, $6 of the monthly cost per payphone was met from dial around compensation and the balance of  xthe monthly cost per payphone had to be met with coin revenues and revenues from 0+, 0, and 00  S- xcalls.b~ 0 {O-ԍ See OSP Second Report and Order, 7 FCC Rcd at 3251.b To determine the amount of revenue that the average coin, 0+, 0, and 00 call had to produce  xjso that the average number of calls would cover total costs, we had to determine the total number of each  x=such call type. Therefore, we used the data in the APCC call distribution study, which produced a total  xjof 713 calls of all call types"152 access code and subscriber 800 calls and 561 coin and other calls"and  xapplied this breakdown to the 689 calls in the cost study to develop a call distribution. Applying the  xrepresentative percentages of the call types resulted in the following distribution: 147 access code and  S - xsubscriber 800 calls, 494 coin calls, and 48 other calls. 0 {OH- xwԍ See APCC Comments, Exhibit 4 (providing specific amount of numbers of each call type). The APCC survey  x<found $242 per month total cost based on an average of 689 calls per month. The APCC call distribution study  x(APCC Comments, Exhibit 4) showed 713 total calls, comprised of 152 access code and subscriber 800 calls (21%),  xand 561 coin and other calls (79%)). We applied this breakdown to 689 calls to estimate 147 access code and  xsubscriber 800 calls and 542 coin and other calls. The 542 coin and other calls includes 411 and 555 calls that we treated as coin calls for our analyses. Thus, to recover the $242 in monthly costs at  xan average location, the PSPs surveyed by APCC had to collect an average of 43.5 cents per call in  S -revenue from coin and other calls.c 0 yOr- x-ԍ The quantity ($242 less $6 dial around compensation) divided by (542 calls) results in 43.5 cents per call.  xZThe $6 in dial around compensation is based on historic data. We have used historic data rather than the default  xcompensation rate times projected access code and subscriber 800 calls in order both to meet the concern that the  xcompensation rate be fair to existing payphone providers and also because it is difficult to forecast the future number of access code and subscriber 800 calls. c  S - p7x` ` 150. The APCC data illustrate that PSPs pay an average of $45 per month in  xcommissions. For the purposes of this analysis, we impute the number of calls at a low traffic location"X0*&&99<"  xby taking the number of calls at an average location, and subtract the number of coin and other calls that  xwould produce marginal revenue of $45. As explained above, to break even at an average location, PSPs  xMmust have generated 43.5 cents per call from an average number of coin and other calls. This revenue  S- xNper call, however, is offset by about 4.8 cents of marginal cost per call,0 yO- xԍ We find below that the marginal collection, maintenance, and lines costs of a coin call are between 4.6 and  x6.0 cents per call. The APCC usage study shows that if access code and subscriber 800 calls are omitted, about  x91% of the remaining calls are strictly coin (i.e., excluding 411 and 555 calls). To determine an average cost for  xJcoin and other call types, we used an average marginal cost for a coin call multiplied by the percentage of coin calls.  xThis translated to 5.3 cents of marginal cost for a coin call [(4.6+6.0)/2] multiplied by the percentage of coin calls (91%), which results in 4.8 cents per average coin and other call. meaning that payphone  x?providers must realize about 38.7 cents in average net revenue per call. Dividing $45, the average  xcompensation to premises owners, by 38.7 cents, which is the marginal revenue per call, results in 116  xcoin and other calls. In other words, if the number of coin and other calls is decreased by 116, all other  xthings being equal, the PSP's net revenue would be reduced by $45 (116 calls times 38.7 cents per call).  xAssuming a proportionate reduction in all calls, a break even or low traffic location would have 116 fewer  S- xcoin and other calls and 31 fewer access code and subscriber 800 calls.HX@0 yOx- xԍ Since our default compensation rate will cover more joint and common costs than the $6 per month  xcompensation rate in effect through October 6, 1996, payphones will become economically viable at more locations, satisfying one of the goals of the 1996 Act.H Using the total number of all  xcalls from the cost study (689), we subtracted 116"the number of coin and other calls that would generate  x$45 in commissions. This resulted in 573 calls. We also expect that the number of access code and  xLsubscriber 800 calls at a marginal payphone location would be less. As noted above, we determined that  xL147 of the 689 calls at an average location would be subscriber 800 and access code calls. To reduce that  xlamount (147) by the decrease in access code and subscriber 800 calls that would be originated at a  xmarginal location, we then determined how many of the remaining calls were subscriber 800 and access  xcode calls. Comparing the numbers from the APCC call volume study, we determined that the number  SX- xkof coin and other calls (excluding subscriber 800 and access code calls) was approximately 21.4% less  S0- xin the cost study.# 0` 0 yO0- xԍ Using the number 116 calls, we divided 116 coin and other calls (excluding subscriber 800 and access code  xcalls) by 542 total coin and other calls (again excluding subscriber 800 and access code calls). This resulted in a  xreduction of 21.4%. This percentage does not indicate that the type of calls declined, but rather, is a percentage used to develop the relative proportions of the various call types from the call volume study to the cost study. # Assuming that the subscriber 800 and access code calls also would decrease  S- xMproportionately, we determined that there would be 31 fewer subscriber 800 and access code calls.hXH 0 yO- xԍ This assumes that access code and subscriber 800 calls also would decline by the same percentage as would  x<coin and other calls. 116 coin and other calls times (152 average access code and subscriber 800 calls / 561 coin and other) equals 31 fewer access code and subscriber 800 calls. h  xThus, we subtracted 31 from 573, which results in 542 calls. Accordingly, we use this number, 542, as  S-the total number of calls that would be made from a low traffic location.h0 yO#- xZԍ We use the 542 number of calls at a low traffic payphone location in the following sections of the market based analysis: coin mechanism capital costs; line savings (in part); and ANI ii. "0*&&99"Ԍx` `  S-x` `  ii.Estimate of avoided and added costs.  S- psx` ` 251. The parties submitted data on avoided and added costs of dial access and  xsubscriber 800 calls compared with local coin calls. Different parties have different costs by category due  xto differences in the type of location served and differences in accounting treatments. Line charges, for  xexample, vary from state to state. One party may treat a specific cost as overhead while another party  xmight include the same sort of cost a direct cost of maintenance. It is not possible to fully reconcile  xdifferences in cost estimates by analyzing the data filed on the record. Accordingly, we have used the  xinformation submitted by the parties along with information from Securities and Exchange Commission  x10K filings to develop ranges within which cost for an average PSP might reasonably be expected to  SJ -fall.GJ 0 {O - xԍ Bell Atlantic Telephone Companies v. FCC, 79 F.3d 1195, 120204 (stating that the Commission is not  xhrequired to include all data when determining a rate, and that the Commission has the authority to exclude suspicious data or statistical outliers).G x` `  S - px` ` 352. Coin Mechanism Capital Costs. While a single payphone may be installed to  x.handle both coin and coinless traffic, the direct costs of the coin mechanism should be recovered by coin  xcalls. After installation, the capital costs of a payphone become fixed. Because we are looking at the long  x>run, where all costs are avoidable, we consider the decision made by the PSP at the time the phone is  xLinstalled. When a payphone provider considers installing a telephone at a new location, it must consider  xzwhether the additional coin traffic at that location would justify the additional cost of installing a coin  x]telephone. The PSP would not install a coin payphone instead of a coinless payphone unless the  xadditional coin traffic would at least cover the additional costs of a coin mechanism. Therefore we  x.conclude that costs directly associated with the coin mechanism should be attributed to coin traffic. We  xassume that the market rate for local coin calls recovers these costs and therefore conclude these costs should be removed from the adjusted market rate.  S- px` ` 453. David Robinson, in a study submitted by AT&T, provided the most detailed  xinformation on the costs of purchasing and installing different types of telephones. Independent PSPs  xjtypically use smart payphones. Robinson estimated that new smart coin payphones cost about $900 to  S- xk$1200 per unit compared with $200 to $250 per unit for coinless units.F0 yOT-ԍ AT&T Comments, Robinson at 3.F The differences in cost are  Sz- xprimarily due to equipment used to accept, count, and hold coins.;Bz0 {O- xiԍ See Coalition Comments, Report of Arthur Andersen on percall compensation and cost calculations, Carl  x,Geppert at 8 (Aug. 26, 1997). Local exchange carriers, in contrast, have an installed base that typically consists of  xY"dumb" payphones that must rely on telephone company central offices for functionality. The Coalition submitted  xa study by Carl Geppert for Arthur Andersen citing New England Telephone data for New Hampshire to show that  xthe average costs of coin and coinless telephones were similar. Other parties have presented information to the effect  xthat a coin mechanism by itself would cost less than $100. Stronger, theftproof housing, however, also is required  xxif a coin mechanism is to be included. We conclude that the best information is the current prices of comparable telephones with and without coin mechanisms and that the Robinson data is most suitable for this comparison. ; Some cost differences, however, may  xbe due to quality features that allow the payphone to be used in harsher environments. We selected the"R 0*&&99"  x$900 figure for smart coin telephones as an amount that would be suitable for general locations instead  x]of the $1200 figure, because the latter figure likely included additional features that go beyond the  xzstandard smart coin telephone that would not be necessary at the general location. We determine that  x$250 is an appropriate amount for the coinless phone operated in a general location, to reflect some quality  xfeatures, and further, because there is not a significant difference in the capabilities among the coinless  xphones and the difference between the estimates ($200 to $250) is not significant. The difference in price,  xNfrom $900 to $250, $650 per telephone, would be due to added costs associated with coin traffic.  xRobinson also estimates that a smart coin telephone requires $60 more for installation than does a coinless  S- xtelephone due to additional testing and programming for the coin rating and collection functions.F0 yO( -ԍ AT&T Comments, Robinson at 3.F Thus,  S- xwe estimate a total investment cost of $710 per payphone that is related to coin functions.cZX0 {O - xԍ In reviewing costs infra, we use data from Peoples and CCI's 10K reports to estimate that the total new  xJinvestment for a payphone would be about $3000, including support facilities. Thus, the $710 in coin related costs represents about a quarter of the total new investment.c This equates  Sp- xto $12.36 in investment costs per month for a coin telephone.pz0 yO- xԍ Equal monthly payments of $12.36 would depreciate $710 over a 10 year life and earn a return of 11.25%  xon net plant, allowing for the statutory federal income tax rate of 34%. We selected a 10 year life consistent with  {O- xAT&T and Peoples. See AT&T Comments, Robinson at 5; Peoples 1996 10K at 31 (using a 10 year straight line  {O- xdepreciation rate for public payphones. Cf. CCI Comments at 10 (using a 7 year life). See also infra para. 59 for further explanation of interest rates.  Thus, we impute that the market rate for  xlocal coin service includes 3.1 cents per coin call at a low usage location and that this amount represents  S -an avoided cost for dial around and subscriber 800 calls.X . 0 yO- xhԍ This is not a marginal cost per coin call. Rather, it represents the amount included in the market rate of local  xcoin calls to recover the costs of equipment attributed to coin service. For this purpose, the market rate was assumed to be based on a low traffic location, meaning 542 total calls, including a total of 399 coin, 411, and 555 calls.   S - px` ` 554. Line Savings. In some areas, all payphones are charged permessage or per minute  x?charges for all local calls. In other areas, all payphones use unmeasured lines. In still other areas,  xpayphone providers can choose between using some form of measured service and unlimited calling. PSPs  xtaking measured service pay message charges for local coin calls, but not for access code or 800  x=subscriber calls. This represents a marginal cost difference of coin versus coinless service. Based on the  S-record, we conclude that the average cost savings for line charges is about 2.5 to 3.0 cents per call.  BN 0 {O- xԍ See Coalition Comments, Andersen at 4 ($0.02); CCI Comments at 9 ($0.02); Peoples Comments at 11  x($0.04). We note, however, that six of the eight Coalition members reported no measured service lines, and further,  xthat the line savings per call was $0.07 and $0.08 for the other two. In a deregulated environment, LECs will have  xincentives to select measured service lines for payphones when such lines would be the low cost alternative.  xwAccordingly, the LEC data is not representative of costs for the PSPs. The Peoples estimate contains some avoided  xtoll costs in addition to avoided coin collection costs. Peoples did not provide sufficient information to separate this  {O#- xpart of the costs. Accordingly, that amount is too high to serve as a high range for estimates. See also AT&T  xComments at 4 ($0.029) (deriving this figure as total billing cost, $15.03 local usage for a smart phone divided by  x511 coin calls as represented in the APCC study, Attachment 4 at 2). Telaleasing data was excluded because its":%0*&&%"  xwestimates are radically different from the estimates filed by any other party and because its data could not be verified  {OX- xby parent company 10K filing. See Telaleasing Comments at 7; Davel 10K at 19. Also, all of Sprint's payphones  xappeared to be in nonmeasured service areas, which is not representative of the industry average, so we did not use  xKSprint's line cost data when determining line savings. Sprint Reply, Exhibit 1 at 2. Line costs are dependent on  xlocal exchange carrier rates which vary by community. We do not believe that the industry average would be much  x;higher than the figure derived from AT&T data. Accordingly, we select 3.0 cents per call for the high call estimate  x(slightly higher figure than that derived from AT&T data). We select 2.5 cents per call as the low estimate, based on an average of the AT&T and CCI data. "0*&&99"Ԍ S- pԙx` ` 655. Collection and Maintenance Savings. The parties concur that coin collection costs  x=are related to coin calls, that coin telephones have higher maintenance costs than coinless telephones and  S- xthat maintenance costs increase as the number of coin calls increases.W0 {O" -ԍ See, e.g., AT&T Comments, Robinson at 7.W It is difficult to separate  xmaintenance from coin collection costs, however, because some coin collection and routine maintenance  S`- x[may occur at the same time.`d 0 yOd- xԍ This would more likely be the case at a low traffic location than a high traffic location, since more coin pickups are scheduled for high traffic locations. Not all maintenance is related to coin calls.H` 0 yO-ԍ Peoples Comments at 13. H For example, key pads and  xhandsets are used for both coin and noncoin calls and vandalism may be directed against the phone or  xthe enclosure as well as targeted against the coin box. Based on the record, we conclude that the average  S-savings from coin collection and maintenance is 2.1 to 3.0 cents per call., L 0 yO- xԍ Coalition Comments, Andersen at 4 ($0.02 attributed to collection and maintenance); CCI Comments at 9  x($0.01 based on comparing the collection and maintenance cost of a coin call of $0.06 and maintenance cost of an  {Od- xaccess code call of $0.05) This probably considers most, if not all, maintenance costs as joint and common. See  {O.- xalso Peoples Comments at 13 ($0.03 attributed to collection and some avoided maintenance); AT&T Comments,  xwRobinson at 7 (maintenance: $.018 = $7 difference in coin vs. coinless monthly maintenance divided by 399). Note  xthat the coinless phones Robinson studied might have had lower maintenance expense than the coin phones in his  xstudy not because of coin induced wear, but rather because the coinless phones were in sheltered locations. AT&T  x-Comments at 9 (collection: $0.047 based on $13.50 collection costs per $100 of coins times 35 cents per call).  xRobinson's collection costs represent the cost of collections if performed on a stand alone basis. PSPs often perform  xmaintenance and collections at the same time and much of the combined cost should be considered joint and common  xto all calls, rather than solely attributable to coin calls. Accordingly, we selected 2.1 cents as the low estimate (the  xCoalition estimate allowing for slightly higher cost per call at a low traffic location) and 3.0 cents as the high estimate (the Peoples estimate with no adjustment).   S- pDx` ` 756. Bad Debt / Collection Charges. Peoples identifies some collection and bad debt  xexpenses that it attributes solely to compensation for access code and subscriber 800 calls. Under the  xinterim compensation plan, Peoples was unable to collect from IXCs approximately $4.02 per payphone"H @0*&&99 "  S- xper month, which translates to $0.03 per access code and subscriber 800 call.Vx0 yOh- x;ԍ Peoples' 1996 Form 10K indicates that Peoples financial books for 1995 included approximately one million  xhdollars in additional bad debt reserves related to both the inmate and payphone operations. Peoples 1996 10K at 29  x(filed with the Securities and Exchange Commission Mar. 31, 1997). This translates to about $2 per payphone per  xmonth. Since there was no change in the FCC's payphone compensation plan in 1995, this increase is not  x;attributable to access code and subscriber 800 calls. Thus, some, if not most, of the $4.02 per payphone per month  x,cited by Peoples should not be viewed as an increased cost attributable solely to access code and subscriber 800 calls. Peoples Comments at 13. V Conversely, CompTel  S- xalleges that Peoples' bad debt expenses arose primarily from operator service operations.=0 yO -ԍ CompTel Reply at 13.= CWI opposes  xincluding any allowance for increased collection costs of access calls, arguing this is not a cost of access  S- xand that the IXCs also bear such costs.90 yO -ԍ CWI Reply at 11.9 Furthermore, AT&T notes that collection costs should decrease  S`- xksteadily with the implementation of ANI and other Commission requirements.G`( 0 yO(-ԍ AT&T Reply, Robinson at 1112.G CWI and CompTel  S8- x.contend that percall compensation should not include billing or bad debt costs.N8 0 yO-ԍ CWI Reply at 11; CompTel Reply at 11.N Neither the Coalition  x[nor the other PSPs included specific estimates of increased collection and bad debts. As such, we do not have sufficient information to attribute an amount to bad debt and/or collection charges.  S- px` ` 857. ANI ii. The Commission's rules require that LECs provide certain automatic  xnumber identification information (ANI ii) to the IXC with each call. These digits provide IXC's with  xautomated information that enables them to bill, block, and track calls. On the record, the parties disagree  S - xabout the costs associated with the provision of ANI ii digits, and further, who should bear those costs.+ H 0 {O- x;ԍ See, e.g., Coalition Comments at 19 (stating that the implementation of the Commission's ANI requirements  xfor the provision of payphone specific coding digits might ultimately add $0.05 to $0.08 to the cost of a access code  x;and subscriber 800 call); AT&T Reply at 2728 (arguing that less expensive alternatives exist to the plan promoted  xby USTA); Excel Reply at 5; RCN Reply at 6. The Coalition based its figure on USTA estimates that LEC  xxinvestments would increase by about $1.035 billion dollars to implement ANI, that all of the cost would be borne  {O- xby PSPs, and that such costs should be attributed entirely to access code and 800 subscriber calls. See Coalition  yO- xComments at 17. Sprint points out that most of the cost cited by USTA would arise from modifying all switches  xKin non equal access areas. However, Sprint points out that many switches would not need to be modified because  xthere are only 10,000 payphones in nonequal access areas compared with 3400 exchanges that lack equal access.  {O -See Sprint Reply at 8.+  xUSTA estimated the cost of providing ANI ii digits through hardcoding and through FLEX ANI. The  xjestimated total capital cost for hard coding the digits was about $1.035 billion of which $558 million was  S - x/for upgrading all non-equal access switches and $477 million was for hard coding switches. 0 yO.$- xԍ Letter to Michael Carowitz, Common Carrier Bureau, from Keith Townsend, USTA, CC Docket 96128, at 5 (July 28, 1997); USTA Petition for Waiver, CC Docket No. 96128, Exhibit 1, 5 (Sept. 30, 1997). Sprint" >0*&&99 "  x[notes that the USTA figure assumes equipment upgrades for every nonequal access switch, while many  S- xjof these switches do not support any payphones.;0 yO@-ԍ Sprint Reply at 8.; Given that not all non-equal access switches would  xbe upgraded, and that the upgrade would benefit all users of the switches, it seems unlikely that all the  xupgrade expense would be attributed to payphone service. For the purpose of translating the USTA cost  xestimates into additional pay telephone costs, we assume that $600 million of additional LEC investment  xwould be recovered from increased payphone line rates. $600 million in increased investment recovered  S- xover 10 years would require increased monthly line charges of $5.65.X0 yO - xԍ $5.65 is the levelized monthly amount per payphone that would depreciate $600 million over 10 years and earn an 11.25% return on net investment, allowing for income taxes at the statutory rate of 34%. Divided by the low traffic location number of calls, 542, would equal approximately $0.01 per call. x` `  S- px` ` 958. AT&T notes that less expensive alternatives to the plan advanced by USTA  Sp- xexist.yp0 {O -ԍ See AT&T Reply at 2728. See also Excel Reply at 5; RCN Reply at 6.y The Coalition indicates that if LECs are allowed to use a combination of FLEX ANI or original  SH - x line screening technology, payphone digit identification costs may be as low as $0.01 per call.RH j0 {OR-ԍ Coalition Ex parte, Sept. 26, 1997.R As  xdiscussed above, we have evaluated the data supplied by the USTA, the Coalition, AT&T, and Sprint, and we estimate a cost of $0.01 per call.  S - px` ` :59. Interest. Several payphone providers note that they have the use of coin receipts  S - xalmost immediately while they must wait to collect compensation on access calls.c 0 yO-ԍ APCC Comments at 15; CCI Comments at 910; TEI Reply at 5.c Peoples, for example,  x[collected payphone compensation for access calls completed between October 8 and December 31, 1996  S0- xMin April 1997.@00 yO\-ԍ Peoples Comments at 13.@ Accordingly, we conclude that the delay in receipt of compensation for access calls  x.represents an additional cost of providing access code and subscriber 800 service calls that would not be included in the market rate for local coin calls.  S- px` ` ;60. AT&T uses 11.25% as the interest rate and the return requirement for payphone  Sh- xinvestment.Fh 0 yO$-ԍ AT&T Comments, Robinson at 5.F APCC claims that the appropriate interest rate for many payphone providers would exceed  S@- xKthat rate significantly.:@ 0 yO!-ԍ APCC Reply at 14.: Peoples used a 10% interest rate in its calculations.@@< 0 yO#-ԍ Peoples Comments at 10.@ Most payphones, however,  xare owned by large local exchange carriers, whose authorized interstate rate of return has been 11.25%"0*&&99q"  S- xrepresenting a weighted average of debt and equity costs.0 {Oh- x<ԍ Representing the Authorized Rate of Return for Interstate Services of Local Exchange Carriers, 5 FCC Rcd 7507 (1990). Accordingly, we conclude that 11.25% is the  xappropriate cost of capital for payphone providers in this context. Thus, the delayed receipt of  xcompensation for access code and subscriber 800 calls justifies an upward adjustment of .8 cents (11.25% for 3 months times the market rate adjusted for other costs).  S8- p%x` ` <61. Opportunity Costs. Teleport contends that the Commission should recognize the  S- x[opportunity costs associated with use of a payphone for noncoin calls.QX"0 yO - xԍ Teleport Reply at 6. Teleport Comments at 3, 6 (arguing that whatever cost differences may exist are  xeliminated by the opportunity costs associated with noncoin calls because coin paying customers cannot use a payphone if it is being used by a noncoin customer). Q This cost theoretically arises  xLbecause the payphone provider does not have the opportunity to realize coin or 0+ commission revenue  xywhenever its payphone is being utilized for an access code or subscriber 800 call. Sprint, however, notes  xthat the payphone will be available for 0+ and coin calls 98.2% of the time based on average amounts of  xaccess code and subscriber 800 calling. Sprint also states that when a given phone is not available,  SH - x[another phone from the same company may be available, so the call is not necessarily lost.;H B0 yO*-ԍ Sprint Reply at 4.; Therefore, we make no adjustments to the local coin rate based on opportunity costs.  S -x  S - pqx` ` =62. Commissions. Several IXCs argue that commissions paid to location owners on  S - xM0+ and 1+ calls should not be attributed to percall compensation rate. 0 {O- xԍ See, e.g., CWI Comments at 9, n.7; CWI Reply at 9; CompTel Comments at 14; CompTel Reply at 11; Excel  {O- x;Reply at 4; LCI Comments at 8. See ITA Reply at 2, 4 (requesting that the Commission adopt an incremental cost  xapproach, and that such a rate should not include premise owner commissions); Sprint Reply at 7 (stating that pre xexisting commission payments are recovered from local coin and 0+ calls); Frontier Comments at 3 (arguing that  xxcommissions cannot be included in computing the percall compensation amount because compensation based on commissions paid on 0+ calls would allow monopoly rents for locational monopolies). CompTel argues that these  x.commissions have been paid on 0+, 1+, and local calls, and recovered through these revenues. CompTel  SX- xand RCN argue that there is no assurance that these commissions are just and reasonable.XN 0 yOF- xhԍ CompTel Reply at 12; RCN Reply at 5 (arguing that without safeguards, PSPs have no incentive to keep rates low). WorldCom  xyargues that 0+ commissions should not be included as a cost in computing percall compensation because  xLthese commissions reflect the value of being selected as the default 0+ provider and as such are unrelated  xto the costs of providing subscriber 800 and access code calls. The Coalition and the independent PSPs  xpropose that percall compensation default be set on the basis of the average commission received by"0*&&99"  S- xindependent payphone providers on 0+ calls to set the rate for access code and subscriber 800 calls.kz0 yOh- x,ԍ APCC Comments at 13 (stating that commissions are unlikely to vary except in relation to the price of calls  xand that location owners demand and receive commissions on every form of revenue derived from a payphone  xyincluding subscriber 800 and access code calls); CCI Comments at 9 (stating that commissions must be paid to  xilocation owners so that payphones can be placed for public use). CCI treated the costs as equal for coin calls and  xsubscriber 800 and access code calls while noting that some marginal differences exist in the commission levels paid  {OP- xto coin as compared with noncoin calls. See also Peoples Reply at 11 (stating that commissions will not result in increased costs for the consumer).k  S- xzCompTel and RCN argue that there is no assurance that these commissions are just and reasonable. 0 yO - xhԍ CompTel Reply at 12; RCN Reply at 5 (arguing that without safeguards, PSPs have no incentive to keep rates low). Accordingly, we do not need to make any adjustments to reflect commission costs.  S`- px` ` >63. Total Adjustments to MarketBased Rate. The preceding analysis suggests that  xcosts associated with coin equipment, line, coin collection and maintenance are not directly attributable  xto provision of access code or subscriber 800 call. We estimate that in total, between 7.7 cents and 9.1  xcents per call are directly attributable to local coin calls, and thus should be subtracted from the market  x=rate. There are uncertainties with the estimates but we found no evidence to suggest a preponderance of  xeither high or low biases. On the other hand, we adjust the local coin market rate upward by 1.0 cent to  xaccount for additional costs to PSPs resulting from ANI ii implementation to identify payphone originated  xcalls for the benefit of IXCs, and 0.8 cents for interest attributable to the delay in compensation for access  xLcode and subscriber 800 calls. These additions and subtractions produce an adjusted marketbased range  xof $0.277 to $0.291. The midpoint of that range is $0.284. Thus, we conclude that the surrogate or adjusted market default price is $0.284 per access code and subscriber 800 call.  S -x` ` b. Adjustments to the Local Coin MarketRate Based on Demand Differences  SZ-  S2-  px` ` ?64. The Coalition filed a study by Dr. Hausman that adjusts the local coin market rate  xfor differences in demand. Dr. Hausman explains that in an industry with a significant amount of joint  xand common costs, competitive firms take into account demand conditions and competitive conditions as  S- xwell as costs when setting price.Lb 0 yO-ԍ Coalition Comments, Hausman at 45.L A competitive firm recovers joint and common costs through markups  xover marginal costs. Dr. Hausman states that the markups are set so that the firms recover total costs.  xDr. Hausman then asserts that services, where the demand is relatively price elastic, compared to other  SB- xservices provided over the joint facility, would receive lower markups.9B 0 {O -ԍ Id. at 11.9 Dr. Hausman uses several  xmethods to translate relative elasticities into relative prices for coin calls versus access code and subscriber  S- x800 calls. 0 yO$- xԍ Given the relative elasticities presented in the paper, these methods generally would produce market rates below $0.35 for local coin telephone calls. Dr. Hausman uses derived elasticities to show that access code and subscriber 800 services"0*&&99"  S- xare less elastic than local coin calling.0 yOh- xԍ Hausman estimates that the local coin rate elasticity is about -.663. (Coalition Comments, Hausman at 11)  xHausman estimates a derived elasticity for dial around calls by multiplying an elasticity for interstate calls (-.723)  xtimes the percentage that a $0.35 access cost would add to a dial around toll call, reported to have an average price  xof $2.16. Hausman makes a similar calculation using an elasticity of -.77 and an average call price of $0.50 for  xsubscriber 800 calls. He calculates that the weighted average of these two derived elasticities is -.398, significantly less elastic than his estimated local coin call elasticity.  His analysis concludes that the Commission should set the  S-default compensation rate at the local coin rate plus approximately $0.07 to $0.08 per call.K@0 yO-ԍ Coalition Comments, Hausman at 28.K  S- ppx` ` @65. AT&T replies with a study by Dr. WarrenBoulton, who contends that the derived  xelasticities presented by Dr. Hausman significantly underestimate true elasticities. Dr. WarrenBoulten  xnotes that customers faced with a $0.35 increase in toll rates at payphones likely would substitute toll  S- xservices that did not increase in price, rather than simply deciding not to make the calls.I0 yO-ԍ AT&T Reply, WarrenBoulton at 4.I This view is  xsupported by MCI's comment that many 800 customers are interested in blocking subscriber 800 calls  S- xfrom payphones to avoid paying the compensation charge.;` 0 yO-ԍ MCI Comments at 4.; MCI, however, suggests that the demand  S- xfor coin calls is significantly less elastic than Dr. Hausman suggests.Q 0 {O(-ԍ MCI ex parte at 15 (Oct. 2, 1997).Q These customers may anticipate  xLthat at least some potential callers subsequently would make a subscriber 800 call from another location.  S - px` ` A66. Dr. Hausman's derived elasticities are sensitive to several of his underlying  xassumptions. He based the average price of an access code call on historic AT&T data. These data  xprobably overstate the current average price for an access code call because many firms exclusively  S - xoperate by providing prepaid calling cards, which do not include a surcharge,H 0 {O-ԍ See ITA Comments at 8. H and because there have  x[been significant decreases in some interstate and international toll rates. Furthermore, Dr. Hausman uses  xthe overall toll elasticity as the elasticity for dial around access calls. Customers placing access code calls,  S0- xas opposed to 0+, 0, and 00 calls, have already made choices based on perceived price differences.00 yO- xԍ For example, 0+ calls incorporate commission of $0.62 per call and toll calls that customers pay for by depositing coins incorporate commissions of about $1.40 per call. APCC Comments at 8-10.  xyThese customers therefore may be much more price sensitive than average toll customers, and may be far  xmore willing to forego or delay calls than indicated by Hausman's derived elasticity. We conclude that  xthe demand for access code and subscriber 800 calls are significantly more responsive to price than Dr. Hausman suggests.  S@- p x` ` B67. We conclude that while differences in demand elasticities for access may prove"@l0*&&99"  x>useful to some firms in setting prices, the information presented in the current record evidences wide  xMvariations in assumed elasticities and the results are inadequate to determine whether access code and  xsubscriber 800 service or local coin service is the more price elastic service. Because we do not have  xconfidence in the elasticity analyses in the record given the variation in results, we decline to adjust the marketbased default percall compensation rate for differences in demand.  S-C.xAlternatives to a MarketBased Compensation Rate  S-  S- pbx` ` C68. As noted above, some commenters request that we establish the default percall  xjcompensation rate based on cost information filed by the parties in this proceeding. We decline to adopt  xthis approach, but we have assessed the record evidence on this matter and have calculated a costbased  SH -default rate below to validate that our marketbased adjusted percall rate is reasonable.H 0 {O - xԍ See supra paras. 3040 for specific cost components discussed in the comments. These costs were discussed previously in determining for what costs the marketbased rate should be adjusted, and are incorporated herein.  S -x1.` ` Comments x  S -x` ` a. Costing Methodologies  S\- ptx` ` D69. Several of the commenters argue that the Commission should derive a  S4- xcompensation rate based on the costs that are incurred to originate coinless calls.D4"0 {O- xԍ See, e.g., ACTA Reply at 6 (arguing that any compensation scheme should focus the recovery on the PSPs  x;forward looking direct costs associated with the origination of coinless calls). AT&T Comments at 2; AT&T Reply  x,at 2 (including the following costs: maintaining the payphone instrument, excluding coinrelated functions and coin  xcollection costs; basic line costs, excluding coin rating functionalities but including the monthly subscriber line charge  xhand tariffed screening and blocking service from the LEC; and other reasonable expenses such as touch tone and 911  xcharges). AT&T and MCI argue that the Commission should adopt a costbased compensation scheme based on a  {O- xPSP's actual efficient costs to originate access code and subscriber 800 calls. See AT&T Comments at 2; MCI  yOr-Comments at i.  Several of the IXCs  S - xMrequest that the Commission adopt a bottomup methodology to calculate percall compensation.$ . 0 yO- xYԍ CPI Reply at 6. WorldCom Reply at 4. WorldCom cites the rates set forth in AT&T's comments ($0.11 per  xcall), MCI's comments ($0.083 cents per call), and Sprint's Comments ($0.057 cents per call), and states that the  {Oj- xiCommission should adopt one of these approaches or a blended approach using several methods. See WorldCom  {O4-Reply at 45.  x{AT&T argues that a rate computed in this manner will be sufficient to provide for the widespread  S- x-deployment of payphones, and would not require the Commission to engage in lengthy cost proceedings.A0 yOv!-ԍ AT&T Reply at 10, 1718.A  xAT&T argues that its analysis is based on TELRIC, which, AT&T argues, is the most appropriate" 0*&&99"  S- x=methodology in the circumstances. Borden, Champion, and Sitel0 yOh- xԍ Sitel Reply (stating that $0.35 cents per call is too high and that such a rate could adversely effect small business due to increased telecommunications costs). argue that the fair compensation rate  xmust be based on a PSP's actual costs for handling 800 calling card calls. SDN supports a national rate  xbased on verifiable long range incremental costs for all PSPs. Excel argues that the Commission should  xadopt a rate that reflects the actual costs incurred by an efficient PSP for delivering subscriber 800 and  S`-access code calls.?` 0 yO -ԍ Excel Comments at 34.?   S- px` ` E70. CompTel and ITA argue that the Commission should base compensation for  S- xsubscriber 800 and access code calls on the PSPs' incremental cost of originating these calls. X0 yO8 - x,ԍ CompTel Reply at 67 (stating that the rate should be based on the costs of an efficient provider to originate  xsubscriber 800 and access code calls and noting that other call types would be compensated by market pricing); ITA Comments at 2 (stating that the rate should be based on economic costs including a reasonable profit for the PSPs). ITA  xcontends that the Commission should use the cost of a payphone call as determined by Massachusetts  S- xDepartment of Public Utilities (Massachusetts DPU) and adjust that number downward.;0 yO-ԍ ITA Reply at 2, 5.; Sprint and  x=AT&T also argue that the Commission should use the coin rate filed by New England Telephone (NET)  xwith the Massachusetts DPU indicating a percall local coin rate of $0.167 as the point at which we should  S - xjbegin our analysis of a rate adjusted for costs related to coin calls.\ ` 0 yO -ԍ Sprint Comments at 811; AT&T Comments at 15 n.12. \ The Coalition argues, however, that  S - x.this cost study is not an appropriate basis for establishing percall rate in this proceeding.> 0 yO-ԍ Coalition Reply at 2.> CWI, LCI,  xCompTel, and Sprint argue that the incremental costs to be included are the additional or marginal costs  xcreated by access code and subscriber 800 callsadditional maintenance and wear and tear for increased  xusage, and the per minute usage charges, if any, imposed by a LEC for originating access code or  SX-subscriber 800 calls.X 0 yOx- xԍ CWI Comments at 5; LCI Comments at 5 (stating that the only costs that are relevant are additional  xZmaintenance and wear and tear for usage attributed to access code and subscriber 800 calls); Sprint Reply at 3 n.5  xZ(stating that although CWI, LCI, and CompTel raise the possibility that local usage charges should be included in  x;marginal costs, Sprint is not aware that any LEC imposes such usage related costs for subscriber 800 and access code  x=calls. Instead, Sprint states, the IXC carrying the call pays the LEC's access charges for the use of the LEC's  xnetwork for call origination.). Sprint and CompTel also state that this method is appropriate because access code  xiand subscriber 800 calls are byproducts of payphone installation, not its primary purpose. Thus, the decision to  xinstall a payphone, Sprint and CompTel argue, is driven by the revenues the PSP anticipates from other types of calls such as 0+ and coin calls. Sprint Reply at 3; Comptel Comments at 1013.  S- px` ` F71. Alternatively, Sprint argues that if the Commission takes a fully allocated approach"!P0*&&99"  x[to costs, then the rate should be based on the most efficient "bellwether" PSP's costs minus costs related  S- x/to coin functionality, local call completion and premises owner commissions from a local coin call.?0 yO@-ԍ Sprint Reply at 6. ?  xSprint rejects Dr. Hausman's view that costs of the least efficient (or marginal) provider should be used  xNas the default rate to prevent the removal of payphones, arguing that this approach overlooks the  xCommission's policy that inefficiency should not be rewarded in a multiprovider market and that rates  S8- xshould be based on the costs of an efficient provider to promote competition.8X0 yO0- xYԍ Sprint Reply at 5 (also arguing that the public is protected through the mandate for public interest payphones in the Act). The Coalition and APCC  xcontend that Sprint's "bellwether" approach is flawed, because large, fixed joint and common costs that  S- xshould be included as costs, were omitted;R0 yO8 -ԍ Peoples Comments at 67; APCC Reply at 9.R relying on incremental costs only is inappropriate because  S- x[the PSP cannot recover the total costs of providing the service;@0 {O-ԍ Coalition Comments at 2123 (citing Reconsideration Order, 11 FCC Rcd at 21,268, para. 69). and cost estimates for a single state are  S-not representative.30 {O -ԍ Id. 3 X` hp x (#%'0*,.8135@8:#-ԍ CWI Comments at 8.; Several of the IXCs argue that coin equipment costs"#0*&&99b"  S- xshould be excluded when determining percall compensation.x yOh- xԍ MCI Comments at 3; RCN Comments at 4 (arguing that this cost is unique to the local coin rate and should  xbe subtracted from a true rate that PSPs would provide as a deregulated local coin service on a nationwide basis).  xCompTel Comments at 13; CompTel Reply at 8 (CompTel argues that data is not available specifically for  xKmaintenance costs, but the cost for maintenance less coin capability is about $0.029 per call, thus the maximum  xincremental costs would be approximately between $0.01 to $0.02 per call); LCI Comments at 56 (requesting that  x-the Commission adopt a default rate based on marginal costs and stating that costs associated with installing and maintaining a payphone should not be considered when determining percall compensation). PageNet argues that coin related costs  xsuch as maintenance, repair and replacement for coin functions should not be included in determining per S-call compensation.@ yOX -ԍ PageNet Comments at 14.@  S`- px` ` L77. The Coalition contends that equipment costs are attributable to both coin and  xnoncoin calls. Teleport contends that the fixed costs associated with installing a coin operated payphone,  xsuch as the cost of the payphone, the enclosure, the cable plant, and supporting network infrastructure, are  S- x!attributable to both coin and noncoin calls.@ yO -ԍ Teleport Comments at 4.@ APCC states that most payphone costs, including  x>purchasing, installing, and maintaining equipment, are fixed and should be attributed to both coin and  S-noncoin calls.(  yO`- xYԍ APCC Comments at 11(further stating that payphone equipment costs which include coin and coinless calling capabilities must be incurred by coin and noncoin calls); APCC Reply at 12.  SH -  ppx` ` M78. CCI contends that monthly direct costs such as the telephone bill (6 cents per call),  xlocation owner commissions ($0.05 per call), maintenance and collection ($0.05 per call), parts and supply  xare properly attributable to both coin and noncoin calls. CCI, however, discounts the telephone bill costs  x($0.02 per call) and maintenance and collection costs ($0.01 per call) to deduct local measured usage  S -charge and the costs associated with dial around collection.;  yO-ԍ CCI Comments at 9.; x` `  SX- px` ` N79. Payphone Lines. APCC states that local exchange line charges represent a small  S0- xdifferential between coin and noncoin callson average, about 3 cents per call.=0 yO-ԍ APCC Comments at 13.= AT&T argues that  x=tariffed screening and blocking service from the LECs as well as other reasonable expenses such as touch  x.tone and 911 charges should be included in the cost of a call when computing the appropriate amount of  S- x[percall compensation. yO"- xԍ AT&T Comments at 9: CompTel Reply at 11, 14 (stating that some PSPs' basic payphone line charges include line cost categories such as network costs, which should not be included). CompTel argues that the line charge should be no more than $0.046 per call.C yO-ԍ CompTel Reply at 11, 14.C "$X0*&&99"  xCWI contends that basic phone line plus usage charges, if any, for subscriber 800 and access code calls  S-should be included in computing percall compensation.X yO- xxԍ CWI Comments at 8 (arguing that these costs should be considered proportionately based on relative usage for access code and subscriber 800 calls).  S- px` ` O80. Several of the IXCs contend that the costs associated with terminating local calls  S`- xshould not be used to compute percall compensation.\` {O - xԍ See, e.g., CWI Comments at 9; LCI Comments at 7; MCI Comments at 3; Sprint Reply at 6; Excel Comments  {Oz - xat 3 (also arguing that originating access should not be included in the percall compensation amount). See AT&T Comments at 9 (stating that local usage charges should not be included in the cost of a noncoin call). CompTel argues that perminute usage charges,  S8- x=if any, imposed by a LEC for originating access code or subscriber 800 calls are appropriate.:X8 yO - xԍ CompTel Comments at 13; CompTel Reply at 8 (stating that it does not object to applying the average per xcall usage charge in areas where usage is employed, about $0.02$0.03 per call, citing APCC Comments at 13 and Coalition Comments at 16).: PageNet  x[argues that line charges should not be included because nonPSP carriers already pay the LEC for the use  S-of the payphone line through originating access charges.=  yO|-ԍ PageNet Reply at 20.=  S- px` ` P81. Peoples argues that line charges are attributable to coin and noncoin calls. Peoples  xargues that there is a minimum fixed line charge, and that in some states, there is an additional usage  SH - x/charge.H  yO- x;ԍ Peoples Comments at 1112 (arguing that at a minimum 50% of the line charge is fixed and that the variable portion that would be related to coin calls only is less than $0.04 per call). Peoples further argues, however, that as more states require fixed charges, there will be no  S -difference between line charges for coin and noncoin calls.9  {O-ԍ Id. at 12.9  S - px` ` Q82. The Coalition contends that the Commission should not impose an offset for the  xlocal usage charge because in many cases payphone lines are flatrated and PSPs do not recover  xtermination or local usage charges. The Coalition contends, however, that if there is an offset, it should  xznot be greater than $0.02 per call, which reflects the average local termination cost across all Coalition  S0-members.E0 yOf -ԍ Coalition Comments at 1417.E CCI does not include local usage charges in calculating per call compensation amount.;0& yO!-ԍ CCI Comments at 9.;  S- p4x` ` R83. Coin/Noncoin Collections. The Coalition contends that the cost of coin collection,  xcounting, and related equipment accounts for approximately $0.02 of the total cost of a local coin, but"%0*&&99"  xargues that this rate may be inflated because it allocates coin collection costs among coin calls based on  S- xLcoin volumes, not the number of coins deposited.B yO@-ԍ Coalition Comments at 16.B APCC argues that the differences between coin and  xnoncoin calls in the area of coin collection are limited because coin collection is generally combined with  xgeneral maintenance visits to the payphone, about $0.03. APCC further argues that coinless collection  S`- xcosts are likely to increase and may actually be $0.05$0.06, thus higher than coin calls.`X yOX-ԍ APCC Comments at 1415 (estimating the costs of dialaround compensation to be about 56 cents per call). Peoples  xcontends that coinless collection costs are greater than coin call collection costs, and further that in the  S- xpast six months, coin related maintenance accounted for only 38% of all maintenance visits.C yO -ԍ Peoples Comments at 1213.C Peoples  xestimates that coin collection related costs are approximately $0.03 per call, and that coin collection costs  S- xare slightly lower than the cost involved in collecting for noncoin compensation.9x {O -ԍ Id. at 13.9 Peoples contends that  S- xdial around collection costs are approximately $0.05$0.06 per call.<  yOB-ԍ Peoples Reply at 8.< CCI argues that it does not include  Sp- xcoin collection costs of dial around calls in computing the appropriate amount of percall compensation,=p yO-ԍ CCI Comments at 68.=  xybut argues, however, that the costs associated with noncoin calls may increase due to additional expenses  S -for collecting and auditing such compensation.< *  {O-ԍ Id. at 2, 10.<  S - pDx` ` S84. CPI and CompTel contend that PSPs experience lower costs for subscriber 800  xjand access code calls than for coin calls because it is more costly to maintain a coin phone than a coinless  S - xphone.z  yO- x[ԍ CPI Comments at 5 (arguing that only a keypad capable of originating dialing codes and electronics to  xKidentify the phone is needed and that PSPs do not incur costs of visiting a payphone and collecting and handling  x<coins for subscriber 800 and access code calls); CompTel Reply at 11, 13. CompTel notes that Peoples argues a  x,coin phone costs $41.66 per month to operate, but a coinless phone (as reported by AT&T) costs only $25.10 per  xmonth, and argues that coin phones are more costly, because a coin phone requires more frequent service and coin  xcollection visits, and additional equipment that can be broken or vandalized. CompTel further argues that Peoples'  {O-cost figures for maintenance should be reduced by at least 50%. Comptel Reply, supra. AT&T, CWI, Excel, Frontier, MCI, PageNet, RCN, and ITA state that coin collection costs  SX- x=should not be included in the rate of percall compensation."XX {O!- xԍ See AT&T Comments at 9; CWI Comments at 9; MCI Comments at 3; PageNet Comments at 14 (arguing  xthat the majority of features and functions as well as maintenance and repairs provisions of payphones are related  xto the acceptance and handling of coins, and that such costs are not properly attributable to subscriber 800 and access  {OP$- xicode calls); PageNet Reply at 19. See also Frontier Comments at 78 (stating that $0.043 is attributable to coin  {O%- x collection costs); ITA Comments at 67 (stating that in the Report and Order, at para. 44, the Commission estimated"%0*&&M%"  xthe cost of coin collection to be $0.02 per call); RCN Comments at 3 (stating that the PSP does not incur coin  xcollection costs when originating a subscriber 800 or access code call, and therefore, the default rate of $0.35 must be reduced)." TEI states that some service costs can be"X&0*&&99i" deducted when determining the rate for a noncoin call.  S-  px` ` T85. Teleport contends that costs associated with coin calls"collection, maintenance,  x[and cost of transporting a call"on a per call basis are de minimis, and further that the opportunity costs  xassociated with noncoin calls offset the de minimis difference in cost. TEI argues that the Commission  xshould include a cost for the time value of money used in collecting the compensation should the  xCommission not prescribe collection tools for the PSP, and further, suggests that the Commission impose  S-a stated interest rate on late payers of percall compensation.8 yOp -ԍ TEI Reply at 6.8  S- px` ` U86. ANI ii. APCC contends that the Commission should not explicitly rule that such  xcharges incurred in restructuring the LEC networks to provide a unique screening digit for dumb payphone  xlines may be assessed on PSPs. However, APCC contends, if LECs are allowed to assess such charges  xLon PSPs, then PSPs are entitled to recover those charges from IXCs dialaround compensation as part of  S - xthe cost of originating dialaround calls.: x yO-ԍ APCC Reply at 23.: The Coalition contends that requiring PSPs to pay LEC tariffs  x[for ANI ii digits would add $0.05 to $0.08 to the per call rate, and Peoples supports attributing this cost  S - xzto subscriber 800 and access code calls.V  yOP-ԍ Coalition Comments at 18; Peoples Reply at 8.V AT&T, Excel, Sprint, and GCI argue that the PSPs are not  S - xentitled to recover any costs for Flex ANI.v  yO-ԍ AT&T Reply at 2728; Excel Reply at 5; GCI Reply at 3; Sprint Reply at 810.v Excel and RCN state that IXCs should not be required to  SX-pay for ANI information provided by the PSPs, because the PSPs are the beneficiary of the information.JX(  yO -ԍ Excel Reply at 5; RCN Reply at 5.J  S- prx` ` V87. Depreciation/ Overhead. CWI, PageNet, and CompTel contend that percall  S- xcompensation should not include depreciation costs or interest.  yO8- xԍ CWI Reply at 11; CompTel Reply at 11, 14 (stating, however, that if these costs are included, then the cost per call should be only $0.011). LCI, CompTel, and CWI argue that  S-administrative and overhead costs are not attributable to noncoin calls.{ yOh!-ԍ LCI Comments at 8; CWI Comments at 9, n.7; CWI Reply at 9; CompTel Comments at 14.{  Sh- px` ` W88. CCI and TEI argue that overhead, depreciation, amortization, and interest are"h'0*&&99"  S- xyattributable to coin and noncoin calls.SZ yOh- xԍ CCI Comments at 10. CCI attributes $0.04 to overhead, $0.03 to depreciation, $0.02 to amortization, and  {O0- xw$0.02 to interest. CCI notes that these costs relate only to their payphones, but reflect the payphone industry. See  {M-id.S Peoples contends that overhead costs are attributable to all calls  S-made from payphones, and argues that the IXCs do not justify why such costs should not be included.= yOb-ԍ Peoples Reply at 10.=  S- px` ` X89. Other. In its estimate, AT&T included an 11.25 percent interest on capital factor,  S`- xmaintenance/warehouse/part costs and added averaged costs for the basic line and other related charges.=`z yOz -ԍ AT&T Comments at 10.=  xAT&T admits that some costs such as overhead, general and administrative expenses and taxes are  xappropriate in the computation of the cost of a noncoin call. According to AT&T, these costs are  S- x[approximately $0.012 per call.:  yO-ԍ AT&T Reply at 14.: CCI includes taxes and the return on invested capital in the calculation  S-of the costs of the percall rate.< yO-ԍ CCI Comments at 10.<  Sp- px` ` Y90. CPI contends that subscriber 800 and access code calls are generally shorter in  xduration than coin calls. Therefore, the longer duration of local calls could allow for opportunity costs  S - xsince few local calls displace shorter long distance calls.; *  yO-ԍ CPI Comments at 6.; TRA contends that percall rates should not  S - xinclude embedded or opportunity costs.<  yOR-ԍ TRA Comments at 19.< Excel argues that coin rating costs should not be included in determining percall compensation.  S -x2.` ` Discussion  S2- px` ` Z91. As discussed above, we conclude in this order that an adjusted marketbased local  xycoin rate is the appropriate surrogate for the default percall rate for subscriber 800 and access code calls.  xIn this section, we explain our reasons for rejecting the proposals of various parties that we derive a default percall rate for such calls based on cost estimates submitted in the record of this proceeding.  Sj-x` ` a. Problems with the Proposed Methodologies for Deriving Payphone Compensation.(#  SD-x` `  S- pSx` ` [92. A number of commenters, notably the IXCs, argue that the Commission should  S- xuse the marginal cost of originating a payphone call as the basis for compensating PSPs.J  {O$-ԍ See CWI Comments at 5; Comptel Comments at 10; LCI Comments at 5; Sprint Comments at 34. Most of the"(0*&&99C"  x/parties, however, estimate marginal costs based on the incremental cost of an individual coinless call.  xThus, as the Coalition explains, setting the rate at marginal or incremental costs means that joint and  S- xjcommon costs could not be recovered.I yO-ԍ Coalition Comments at 28 n.16. I We conclude that the use of a purely incremental cost standard  xfor each type of call could leave PSPs without fair compensation for payphone calls, because such a  xstandard would not permit the PSP to recover a reasonable share of the joint and common costs associated  S8- x[with those calls.\8X {O0-  ԍ Cf. Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, First Report  {O-  and Order, 11 FCC Rcd 15,499, 15,84456 (1996) ("Local Competition Order") (describing total element longrun incremental cost methodology for pricing interconnection and unbundled network elements).  We also reject, for similar reasons, suggestions by commenters that we use local coin  S- xrates currently in place as a surrogate for percall compensation. As we stated in the NPRM, "local coin  S- xrates in some jurisdictions may not cover the marginal [incremental] cost of the service."K| {O -ԍ NPRM at para. 22 n.64.K Therefore,  xbasing the percall compensation amount on current local coin rates, which are frequently subsidized by  S- x.state regulators, would not fairly compensate the PSPs. In the Payphone Orders, we rejected the use of  St- xthe $0.12 percall compensation amount the Commission first discussed in its 1991 Notice of Proposed  SN - xjRulemaking in the access code call compensation proceeding. We noted that we never adopted the $0.12  xpercall amount, and that rate was effectively rejected when the Commission adopted a $6 flat rate per  S -payphone per month based on a percall rate for access code calls of $0.40.^  {O-ԍ OSP Second Report and Order, 7 FCC Rcd at 3257.^  S - pSx` ` \93. We determined in the Order on Reconsideration that reliance on cost studies, in  S - xgeneral, could reduce the revenue recovered by the PSPs, and therefore, might reduce the number of  Sd- x=payphones deployed.hd {O-ԍ Order on Reconsideration, 11 FCC Rcd at 21,266, para. 66.h We reaffirm that decision here. Adopting a percall compensation scheme that  x0did not "promote the widespread deployment of payphone services" would be inconsistent with  S-Congressional intent.I2  {O-ԍ See infra para. 119.I   S- px` ` ]94. We also affirm our conclusion in the Report and Order that the costbased  xTELRIC standard that the Commission relied upon in the local competition proceeding is inapplicable  xhere, because the payphone industry is not a bottleneck facility that is subject to regulation at virtually all  SN- xlevels.N  {O!- xԍ See Order on Reconsideration, 11 FCC Rcd at 21,24043, 21,268, paras. 1119, 70 (noting that the payphone  {O|"- x industry is likely to become increasingly competitive). See also Implementation of the Local Competition Provisions  {OF#- xin the Telecommunications Act of 1996, First Report and Order, 11 FCC Rcd 15,499 (1996), Order on  {O$- xReconsideration, 11 FCC Rcd 13,042 (1996), Second Order on Reconsideration, 11 FCC Rcd 19,738 (1996), further  {O$- xrecon pending, aff'd in part and vacated in part sub nom., CompTel v. FCC, 11 F.3d 1068 (8th Cir. 1997), aff'd in"$0*&& %"  {O-part and vacated in part sub nom. Iowa Utilities Bd. v. FCC and consolidated cases, 120 F.3d 753 (8th Cir. 1997).  The TELRIC pricing principles adopted in the local competition proceeding were designed to"N)Z0*&&99r"  S- xreflect the long run cost of an element or physical facility . Since there are relatively few common costs  x{between separate facilities, TELRIC compensation will compensate a carrier for virtually all costs  xassociated with providing (the services of) that facility. With the addition of a share of the relatively small  S-common costs, the firm will be able to cover its total costs.WZ yO- xԍ We also note that it would be particularly burdensome to impose a TELRIClike costing standard on  yOJ-independent payphone providers, who have not had previous experience with any costing systems.#d6X@`7 :@## Xj\  P6G;XP#W  S8- px` ` ^95. Additionally, we conclude that Congress' use of the phrase "... payphone service  S- x>providers are fairly compensated for each and every completed interstate and intrastate call..."E yOb -ԍ 47 U.S.C.  276(b)(1)(A).E is a  xdifferent standard than the costbased standard articulated for the compensation for interconnection and  xunbundled elements. We conclude that the PSP will be providing a competitive service (payphone use)  xyand should therefore receive compensation equal to the marketdetermined rate for providing this service.  Sp- xjIn the Local Competition Order, we concluded that the costbased interconnection standard, on the other  xjhand, compensates a carrier for the long run incremental cost of providing interconnection or the long run  xNincremental cost of providing an unbundled element plus a reasonable share of the common costs.  xBecause the local exchange is not yet competitive, we could not rely on the market to set competitive rates  xfor unbundled elements. In the case of payphones, the presence of multiple PSPs already operating in  xkmany markets, and the structure of the industry that allows relatively easy entry and exit, leads us to  xconclude that we can rely on market forces to provide for efficient pricing of these services in the near future.  S - p&x` ` _96. In this proceeding commenters also argue that we should apply a TSLRIC cost  S- xkstandard to only a subset of services (i.e., subscriber 800 and access code calls) provided by a facility  x(payphone). In general, when several services are provided by the same facility, the incremental cost of  xproviding any one service is very small and the common cost among these services is very large. Thus,  xa TSLRIC standard under which a carrier is compensated only for the incremental cost of each service  xindividually without a reasonable allocation of common costs, as suggested by commenters, would not  xallow the carrier to recover the total costs of providing all of the services. A TSLRIC standard that yields  x.prices that recover a reasonable share of joint and common costs would require the difficult allocation of those (large) costs among the different types of calls made from payphones.  S|- pqx` ` `97. We also reject suggestions that use of a marketbased compensation standard, in  xlieu of one that is costbased, will overcompensate PSPs. The marketplace will ensure, over time, that  xjPSPs are not overcompensated. Carriers have significant leverage within the marketplace to negotiate for  xlower percall compensation amounts, regardless of the local coin rate at particular payphones, and to  x[block subscriber 800 calls from payphones when the associated compensation amounts are not agreeable to the carrier. x` `  Sd- pTx` ` a98. Previously, in the access code call compensation proceeding, we relied upon"d*B0*&&99"  x=AT&T 0+ commissions as a measure of the fair value of the service provided by independent payphone  x>providers when they originate an interstate call. Data presented above, however, suggest that the 0+  x=commission rate exceeds the market rate for local coin calls while the costs of access code and subscriber  xy800 calls are less than the costs of local coin calls. Furthermore, commissions may include compensation  xfor factors other than the use of the payphone, such as a PSP's promotion of the Operator Service Provider  x(OSP) through placards on the payphone. Accordingly, we conclude that a market rate based on 0+  xcommissions would result in a default rate that overcompensates payphone providers for access code and  xsubscriber 800 calls. Moreover, our approach is based on the costs of a low traffic location that does not support commission payments. x` `  Sp-x` ` b. Analysis of Record Evidence of Payphone Costs  S" -  px` ` b99. Although we reject suggestions that we set the default rate based on the long run  xcosts of providing service, our analysis of the record evidence indicates that an estimate of the long run  xcosts of providing access code and subscriber 800 service, including an equal per call share of joint and  S - xcommon costs,   yO- xԍ As explained above, market forces in a competitive market (including both marginal cost and demand  xdifferences) determine how joint and common costs are recovered from different services. We determined, however,  xthat we lacked adequate elasticity information to determine whether access code and subscriber 800 calls would recoup more or less joint and common costs per call than would local coin service. is not significantly less than the marketbased rate determined above. Over time, the  xmarginal cost associated with new entry (adding a payphone) may be an important determinant of the  xmarket rate for access compensation. For comparison, we estimated costs of the installation and operation  x[of a payphone at a low traffic location; that is, at a location that would be expected to generate sufficient  xkcalls so that the payphone provider could earn only a normal return on investment and could not pay commissions to the premises owner.  S- px` ` c100. We calculated a rate for access code and subscriber 800 calls by estimating the  x-cost of a typical multiuse payphone that is capable of being placed outdoors. We then subtracted all costs  xMdirectly attributable to coin and access code calls to determine the amount of joint and common costs  xassociated with a multiuse phone. We then determined the amount of joint and common costs attributable  x/to each call by dividing these costs by an estimate of the number of calls placed at a location where a  xzpayphone will earn a normal return on investment. Three parties, Peoples, CCI and AT&T provided  xrelatively consistent cost data that could be used to estimate joint and common costs. The following subsections summarize our categorybycategory estimation of costs.  S*- px` ` d101. Maintenance. Data presented by Peoples indicates maintenance cost of 4.8 cents  S- xper call.  yOR!- xԍ Peoples estimated total maintenance and coin collection costs per month of $41.66, 38% of which was for  xYcoin collection costs. Peoples Comments at 1012. Dividing the maintenance portion by the low traffic number of  xcalls (542) gives the estimate of 4.8 cents per call. This estimate probably includes some incremental maintenance caused by coins being deposited in Peoples payphones. Sprint suggests 3.6 cents per call.t yO:%-ԍ $19.62 for maintenance divided by 542 calls. Sprint Reply, Exhibit 1 at 2.t CCI data suggest 6.6 cents per call (  yO- x<ԍ Based on an average call volume of 720 calls, CCI estimated that it spent $0.05 per call for maintenance,  xexclusive of any costs solely due to coin collection and maintenance. CCI Comments at 9. We concluded above,  xhowever that this figure was probably biased high. Multiplying by 720 calls and dividing by the low traffic number of calls (542) gives an estimate of 6.6 cents per call. and Robinson's data"+0*&&99/"  S- xfor AT&T suggest a total of between 2.5 and 4.0 cents per call.   yOP- xYԍ Robinson estimates that the monthly cost of maintenance plus repair parts for a coinless telephone is $13.35  xand for a smart coin telephone is $21.70. AT&T Comments, Robinson at 13. Divided by 542, the low traffic  xlocation number of calls, yields estimated costs of 2.5 and 4.0 cents per call. Some of the increased cost of a coin telephone would be attributable to the coin mechanism. Based on the information presented  S- xby the parties,s X yO - xԍ Teleport filed a return on investment analysis partially based on hypothetical information from a study by  xJohn S. Bain (Teleport Ex. Parte). This analysis is not sufficient to support a direct estimation of either the costs directly attributable to coin calls or total joint and common costs. s we estimate that joint and common maintenance costs at a low traffic location would  S-amount to between 4.0 and 5.0 cents per call.%    yO- xԍ The Sprint data may not be representative of costs that would be incurred by independent pay telephone  xhproviders. We select 4.0 cents as the low estimate of maintenance costs per call by selecting the highest value based  xon AT&T data. We select a figure between the Peoples and the CCI based estimates, 5.0 cents, as the high estimate. This amount is below the average of the estimates in recognition of possible biases in the Peoples and CCI estimates.%  S`-  px` ` e102. Line costs. Data for Peoples suggests line costs of 5.9 cents per call.Z X` yO- xԍ Peoples filed $59.54 of total line charges including message charges per month of $27.69. Peoples Comments  xYat 1012. The difference, $31.85, represents joint and common line costs. This amount, divided by the low traffic number of calls (542) equals 5.9 cents per call.Z Data for  S8- xzCCI suggests line costs of 7.9 cents per call.x X8 yO- x-ԍ CCI estimates joint and common line costs of $0.06 per call, compared with $0.08 per call for coin calls,  yO`- xbased on 720 calls per payphone per month. CCI Comments at 9. Multiplying $0.06 times 720 calls and dividing by the low traffic number of calls (542) equals 7.9 cents per call.x Sprint suggest 8.0 cents per call.u8 yO-ԍ $43.22 for line charges divided by 542 calls. Sprint Reply, Exhibit 1 at 2.u Robinson's study  S- xsuggests line costs of 6.5 cents per call.Zp yO - xԍ AT&T estimated a monthly line charge for a smart coin telephone of $27.73, a subscriber line charge of  {O- x $5.83, and other line costs of $1.84 for a total cost of $35.40. See AT&T Comments, Robinson at 12. This amount, divided by the number of low traffic number of calls (542) equals 6.5 cents per call. We estimate that joint and common line costs at a low traffic  S-location would amount to between 6.5 and 7.5 cents per call.9 yO"- xԍ As explained above, different line costs for different PSPs may simply reflect the fact that they have  xpayphones located in different areas. Sprint, for example, may have higher joint and common line costs than others  x=that filed data because Sprint cannot take advantage of potentially lower cost measured service options. We  xestimated a likely range for average PSPs by adjusting the high and low estimates of the carriers by approximately half a cent.9",B0*&&99"Ԍ S-x` `   S- pbx` ` f103. Sales, General & Administrative. Data for Peoples suggests SG&A of 5.4 cents  S- xper call.*" yO- xԍ Peoples estimated sales and general administrative expenses of $25.27 per line as well as billing costs and  {O- xbad debts of $4.02 per line per month. See Peoples Comments at 10. We do not have sufficient information to  xestimate a higher or lower billing and bad debt cost for access code and consumer 800 calls compared with other payphone calls. The total, $29.29, divided by the low traffic number of calls (542) equals 5.4 cents per call.* Data for CCI indicates SG&A costs of 5.3 cents per call.  {O- xKԍ CCI estimated expenses of $0.04 per minute based on 720 calls per telephone. See CCI Comments at 10. Multiplying by 720 calls and dividing by the low traffic number of calls (542) equals 5.3 cents per call.  Sprint suggests 1.57 for SG&A.  yO\ - x<ԍ ($2.78 sales salaries + $4.31 sales commissions + $1.42 G&A) divided by 542 calls. Sprint Reply, Exhibit 1 at 2.  xSprint, as a LEC and an IXC, has a significantly different organizational structure and payphone base from  x[that of independent payphone providers. Accordingly, little weight was given to Sprint data for SG&A.  S8- xRobinson did not develop an independent estimate of SG&A."8d  {O<- xԍ Robinson accepts CCI and Peoples estimate of a total of $0.04 per call for SG&A. See AT&T Comments,  xhRobinson at 6. He considers $0.02 of this to be attributable to coinless calls, implying that the total would be higher  xthan $0.04 per call for coin calls. Robinson, however, does not adequately explain why so much of SG&A should be solely attributable to coin operations and not treated as joint and common.   Accordingly, we use the estimates based  x/on data for Peoples and CCI as the high and low estimates, respectively. We conclude that joint and common SG&A at a low traffic location would amount to between 5.3 and 5.4 cents per call.  S- px` ` g104. Capital and Equipments Costs. Most parties recognize that payphone providers  x>should have an opportunity to recover depreciation costs and earn a return on investment. Joint and  x.common investments for a new payphone should include not only the costs of purchasing and installing  xa payphone, but also a normal increase in leasehold improvements, spare parts and inventory, and cash  S -working capital. N  yO- x-ԍ Some capital items, such as intangible assets and good will, would not need to be increased if the company added a payphone at a low traffic location.  S - pDx` ` h105. Robinson estimated the average outlay associated with adding a new smart coin  S - x.telephone as $1,050 for the instrument,n|  yO- xԍ The Coalition notes that some coinless telephones cost significantly more than the basic coinless sets used  {O- xin the Robinson study. See Coalition Reply at 27. The Coalition filed a study by Carl R. Geppert estimating that  xthe AT&T Public Phone 2000, which incorporates a nine-inch color monitor, a dataport for laptop or fax  xcommunications, built in keyboards for access to e-mail and on-line weather services, cost between $2000 and $4000.  {O!- xSee Coalition Ex. Parte, Oct. 1, 1997 at 3. This information, however, does not bear on how much of the costs of  x.a new smart coin telephone are due to the coin mechanism. The typical new smart coin telephone does not incorporate these features.n $300 for a pedestal and enclosure, $395 for installation of the  xtelephone, pedestal and enclosure, and $150 in local exchange carrier connection charges, for a total"X-0*&&99-"  S- xMinvestment of $1,895.F yOh-ԍ AT&T Comments, Robinson at 5.F Some PSPs claim that Robinson underestimated pedestal and enclosure and  S- x0related installation charges.SX yO-ԍ APCC Reply at 14; Coalition Reply at 29. S The Robinson estimates do not include other investments, such as  xmaintenance vehicles and office equipment, needed to support a payphone business. Several PSPs  xestimated average capital costs per call, but did not provide sufficient detail to allow these estimates to be used to estimate the direct capital costs of adding a payphone.  S- pqx` ` i106. We estimate joint and common equipment costs by: a) estimating the amount of  xassets that are likely to be added when a payphone is added; b) subtracting the amount attributable to the  xcoin mechanism; c) calculating a monthly cost for the balance; and d) dividing the monthly cost per  xpayphone by the low traffic location number of calls. Peoples 10K data indicate that Peoples depreciable  Sp- x[net investment per payphone amounted to $1,617 as of December 1996.op yO -ԍ $65.067 million of net plant and property divided by 40,239 payphones.o CCI's 10K data indicate that  SH - xCCI's depreciable net assets per payphone amounted to $1,704 as of December 1996.H x yO`- xԍ $73.263 million of gross property, plant and equipment plus $1.595 of gross leasehold improvements, less $29.922 of accumulated depreciation and amortization, divided by 26,377 payphones. Firms, however,  xadd new assets rather than depreciated assets. Adjusting for depreciation, we estimate new depreciable  S - xinvestment per payphone of $3,234 for Peoples  yOh- xԍ Based on an assumed ratio of depreciation reserve to net plant of 50% ($1,615 net plant and equipment per phone divided by .5). and $2,799 for CCI. (  yO- xԍ CCI's 10K depreciation reserve is 40% of gross depreciable net investment. The new investment per added  x<payphone is $1,649 average net plant and equipment per payphone, divided by 60%, plus $60 average leasehold  ximprovements per payphone. (Leasehold improvements are a joint and common cost for all payphone. The addition  xof one payphone would not necessarily cause any specific investment but rather, would result in a general increase  xin the size of the business. Thus, CCI would add an average amount of net leasehold improvements as opposed to the specific amount of investment for the instrument, the pedestal, etc.).  As explained above, we impute  x$710 of new investment per payphone directly to coin calls. Accordingly, we calculate new joint and  xcommon investment per payphone of $2,524 and $2,089, respectively. These amounts of new investment  S - xywould result in monthly investment costs of $43.94 and $37.07, respectively.  yO- xԍ Calculated as equal monthly payments to depreciate the investment over 10 years and earn a return of 11.25% on net investment, allowing for federal income taxes a the 34% statutory rate. The carriers would also  xexpect to earn a return on some other assets on the books prepaid expenses and inventory. These items  S0- xadd $1.790 yO"-ԍ Peoples reports $2.665 million of prepaid expenses and $2.412 million of inventory. Peoples 10K at 39. and $2.010 yOX$- xԍ CCI's 10K shows prepaid expenses of $0.708 million and inventory and uninstalled equipment of $1.438  {O %-million. See CCI 10K at 44. in investment costs per month, respectively. Summing the investment costs and"0.0*&&99,"  xjdividing the low traffic location number of calls results in estimates of total investment costs of 7.2 cents per call and 8.4 cents per call, which we use as the likely range. x` `  S- pcx` ` j107. Other Costs. We concluded above that it was reasonable to include $0.01 in  xadjusting the market rate for a local coin call to account for the cost of ANI ii deployment by the LECs,  xpassed through to PSPs in the form of higher access line charges, and include that figure in our analysis  x.here. We also concluded that carriers would receive access code and consumer 800 access compensation  xapproximately 3 months later than they would receive coin revenues, and thus included interest, based on  xan 11.25% annual cost of capital the long run cost estimate. We use that same figure in our analysis here.  x.In addition, we explained earlier the positions regarding including commissions as a costfactor, and thus  Sp-conclude that those costs are excluded properly from a costbased analysis.G p {O -ԍ See supra paras. 59, 62.G  S - px` ` k108. Total Long Run Cost. The preceding analysis suggests that total long run cost  xof access code and consumer 800 calls would range from 24.7 cents per call (based on a sum of the low  S -estimates) to 28.1 cents per call (based on the sum of the high estimates).n!@ Z yO-ԍx` `  low estimate@hhigh estimate  yO-xmaintenance  4.0@h 5.0  yOZ-xline costs  6.5@h 7.5  yO"-xSG&A` `   5.3@h 5.4  yO-xcapital costs  7.2@h 8.4  yO-xANI ii` `   1.0@h 1.0  yOz-xinterest` `    .7 @h .8   yOB-xTotal 24.7 28.1 n  S - pSx` ` l109.  Sprint's Motion. On September 16, 1997, Sprint filed a Motion asking that the  xCommission require Bell Atlantic to submit a copy of the NET cost study filed before the Massachusetts  S0- xDPU and supporting papers to the Commission and to all parties of record in this proceeding. On  xSeptember 26, 1997, Bell Atlantic filed an opposition to Sprint's motion to require production of a  x-confidential cost study and conditional crossmotion for production of payphone cost data from Sprint and  xjAT&T. Bell Atlantic argues that Sprint's motion should be rejected because: (1) the study was prepared  xfor the Massachusetts DPU and Sprint should seek relief from that agency; (2) there is no justification for  x[requiring the production of the study because the study examines incremental costs, which, Bell Atlantic argues, the Commission has rejected; and (3) the information is confidential.  S-  px` ` m110.  We deny Sprint's motion and decline to require Bell Atlantic to submit a copy of  x<NET's cost analysis. We are not persuaded that the NET cost study, which Sprint indicates was submitted  xto the Massachusetts DPU on a confidential basis, is necessary for us to reach a decision in this  Sx- x=proceeding. Furthermore, we note that there are differences of opinion regarding the NET methodology.  xThe NET study as well as other confidential studies filed in other states are not before us. We further  S(- xMnote that as Bell Atlantic states, the information is confidential, and therefore, should we require Bell  xAtlantic to make such a filing, Bell Atlantic likely would require that we treat the study as confidential. "/b !0*&&99>"  x[Were we to agree, the information would not be available to the parties. We note, moreover, information  x[on the record provides deregulated coin rates for several states. Because we are denying Sprint's motion, we need not address Bell Atlantic's conditional motion for production of documents.  S`-D.xPerCall Compensation Rate  S- px` ` n111. In this section, we conclude that the default marketbased percall rate for  xsubscriber 800 and access code calls is $0.284, which reasonably accounts for the payphone costs that are  xincurred solely in connection with local coin calls and costs that are specific to access code and subscriber  S-800 calls. ` `  SH -x1.` ` Comments  S - px` ` o112. Parties filed comments that varied considerably, primarily depending on whether  x1they relied on a marketbased or derived rate methodology. AT&T and ARCH argue that the  xcompensation rate should be $0.11 percall, based on the costs of providing a subscriber 800 or access  S - x[code call."  yO- xԍ AT&T Comments at 2; AT&T Reply at 2; Arch Reply at 9. AT&T and ARCH state that this rate is based  xion the actual costs of an efficient PSP to originate access code and subscriber 800 calls. Note, however, that the  xCoalition challenges this estimate, arguing that AT&T's cost study merely reflects a hypothetical, not real, PSP, and  xlinks the costs to a coinless, not coin phone. The Coalition argues that adjusting AT&T's rate to reflect proper data  xwould yield a rate of approximately $0.41 percall. Thus, if the Commission relies on costs, it should rely on the costs of an actual payphone. Coalition Reply at 31. AT&T arrives at this rate by estimating a cost of $76.85 per month for a payphone divided  SZ- x by an average of 700 calls per phone per month.R#Z@ yO:-ԍ AT&T Comments at 1011; AT&T Reply at 14.R AT&T contends that this rate is consistent with  xNYNEX's local coin rate of $0.167. Alternatively, AT&T and MCI argue that if the Commission adopts  S - x\a rate based on an offset from the local rate, then the offset should be at least 50%.M$  yOz-ԍ AT&T Comments at 13; MCI Reply at 3.M AT&T further  x>argues that even using a adjusted market approach as suggested by the Coalition results in payphone  xcompensation in the amount of $0.1067 cents per call, which is in line with the rate that AT&T has  S- xcalculated for coinless calls based on its estimated monthly costs of a payphone.:%`  yO-ԍ AT&T Reply at 13.: AT&T further states  x=that even if adjustments have to be made for depreciation, overhead, general and administrative expenses  SB- xNand taxes, the percall cost for coinless calls would only increase to 12.2 cents per call.9&B  {O -ԍ Id. at 14.9 AT&T  x/maintains that $0.35 is not the appropriate unregulated coin rate because it was based on a small and"0 &0*&&99D"  S- xyunrepresentative sample of rural states, and the cost in those states could be higher than in other areas.A'Z {Oh- xYԍ See id. at 2223; see also CFA Reply at 7; MIDCOM Comments at 5; RCN Comments at 4; TRA Comments  xat 21; Excel Reply at 9 (stating that the four states that have deregulated rates account for only two percent of the nation's payphones).A  xjThe Commission ignored the deregulated rate in other rural states, where the rate is $0.25, which, AT&T  S- xjasserts, also is the dominant rate where the majority of payphones are located.( {O:-ԍ See, e.g., Excel Reply at 10 (stating that a Massachusetts proceeding determined that the rate there is $.25). Borden suggests a rate of approximately $0.133 per call, and Champion suggests a rate between $0.08 and $0.11.  S8- p5x` ` p113. CompTel argues that a fair compensation amount based on incremental costs is  S- x=between $0.03 to $0.05 per call,?)| yO, -ԍ CompTel Reply at i, 8.? and that even under a direct cost approach, compensation should not  S- xjexceed $0.10 per call.9*  {O-ԍ Id. at 14.9 Frontier argues that a costbased rate should be approximately $0.10 per call,@+ yO&-ԍ Frontier Comments at 9.@  S- x>but no higher than $0.11 per call.,.  yO-ԍ Frontier Reply at ii, 2 (arguing that a rate higher than $0.11 per call would harm consumers). ITA argues that the rate should be between $0.08 and $0.15 per  S- xcall.|-  yO- xԍ ITA Comments at 7 (basing the upper number on the $0.17 rate identified for a local coin call by the  xMassachusetts DPU for NYNEX minus the cost of coin collection ($0.02) and further stating that the $0.35 rate results in increased cost of a typical prepaid phone card call by over fifty percent per call).| MCI argues that the percall rate for access code calls is $0.083 per call, and that the number for  Sp-subscriber 800 calls should be even lower.;.p yO-ԍ MCI Comments at 3.;  S - pqx` ` q114. MIDCOM states that the rate should be $0.057./  yOV- xԍ MIDCOM Reply at 6. In its comments, MIDCOM argued that the rate should be between $0.067 to $0.25  {O-per call. See MIDCOM Comments at 7. Sprint argues that on a fully  x allocated approach to costs, using an efficient bellwether provider, the default rate per call should be  S - x^$0.06.;0  yO`-ԍ Sprint Reply at 4.; TRA argues that the 35 cent rate is too high.1  yO - xJԍ TRA Comments at 21 (arguing that the costs associated with making a coinless call are significantly less than those associated with a coin call). Excel argues that the Court decision  x=demonstrates that we cannot set the rate for subscriber 800 and access code calls at the same level as the  S -local coin rate, and thus the Commission must reduce the $0.35 rate.=2  yO$-ԍ Excel Comments at 2.=" 1h20*&&99"Ԍ S-  pbԙx` ` r115.  The Coalition states that, to truly reflect the market, the local coin rate needs to  S- xMbe adjusted from $0.35 upward to $0.42 or $0.43 per call.E3 yO@-ԍ Coalition Comments at 1314.E In a fully realized market, the Coalition  xstates, noncoin calls would be carrying a greater portion of the payphone costs than coin calls, and  S- x>therefore should be priced at a higher rate.24X {O-ԍ Id.2 APCC alleges that the average percall local coin rate is  S`- x$0.41, not $0.35.5` yO-ԍ APCC Comments at 15 (explaining that coinless calls generate additional costs such as ANI). IPTA and TEI state that the record supports a compensation level of no less than  S8-$0.35 per call.68z {OR - xZԍ See IPTA Reply at 5, 11; see also TEI Comments at 10; TEI Reply at 2 (arguing that a lower figure could result in the removal of payphones). CCI requests that the Commission set the percall compensation rate at $0.35.78 yO - xhԍ CCI Comments at 2, 10 (arguing that total cost plus return on invested capital is $0.37 per call for a coin call, and $0.34 per call for a coinless call).  S- px` ` s116. The majority of the IXCs argue that there should be one national rate,8,  {O- x;ԍ See, e.g., CWI Comments at 1011; CWI Reply at i, 1, 12 (stating that the Commission should not start per xcall compensation until thirty days after the release of an order on remand so that carriers will have ample time to  x;recover percall amount in their tariffed charges); LCI Comments at 8, n.14; MCI Comments at 5; RCN Comments  xat 4; Sprint Reply at 21; WorldCom Comments at 4 (stating that a national rate would enable IXCs to fulfill tracking  xand payment obligations and that this rate could be eligible for periodic adjustment based on changes in TSLRIC costs). because  x[a varying rate would be nearly impossible to administer, and could increase the costs to carrierpayers of  S- xadministering percall compensation.,9 yO- xԍ CWI Reply at 12 (stating that it could cost carrierspayers perhaps up to 300 percent above the cost of  xadministering a uniform compensation rate); AT&T Comments at ii, 1617 (stating that a "floating" rate could cost  xZcarriers "hundreds of millions of dollars to track and block calls from excessivelypriced payphones and would be  xvirtually impossible, and extremely costly to administer."); MCI Comments at 5 (stating that it would be costly due  xto administrative costs, switch software upgrades, and call processing systems development); LCI Comments at 89  x(stating that the Commission should establish a uniform, national compensation rate for access code and subscriber  x<800 calls and that a uniform rate will allow the necessary business certainty and will reduce call blocking due to a  xxcarrier's lack of information concerning the rate to be charged); Sprint Reply at 21 (arguing that there is no basis  xfor a mechanism to periodically adjust the rate upward because if the Commission bases the rate on costs that include fixed costs of the PSPs, then as traffic volumes grow, unit costs should decline)., Furthermore, CWI argues that because not all carriers can block  xcalls, the Commission should not create a situation where carriers must block calls because they are  SH - xunaware of the rate to be charged.P:H > yO&#-ԍ CWI Comments at 1011; CWI Reply at 12.P MCI argues that if the Commission does not adopt one uniform rate,  xthen it should set parameters such as notifying carriers of the coin rate in advance and changing the coin" 2:0*&&99 "  S- xrate not more than once per year.L; yOh-ԍ MCI Comments at 5; MCI Reply at 12.L APCC argues that the Commission should not adopt a uniform  xjcompensation rate, and although the costs associated with a nonuniform rate may be higher, the benefits  S-of directly marketbased compensation are worth the extra costs.:<X yO-ԍ APCC Reply at 32.:  S`-x2.` ` Discussion  S- px` ` t117. We conclude from our analysis in Section B, that the marketbased rate for access  S- x\code and subscriber 800 calls, adjusted for cost differences is $0.284.= yOr - xԍ The Commission has the authority to employ different methodologies and/ or regulatory models to arrive at  {O: - x;a particular rate. See Permian Basin Area Rate Cases, 390 U.S. 747, 767 (1968). We note that as discussed above,  xparties have argued for a range of from $0.03 to $0.63. While determining an appropriate rate, we have kept in mind  xthat Congress specifically stated that "[c]arriers and customers that benefit from the availability of a payphone should  {O- xZpay for the service they receive when a payphone is used to place a call." House Report at 88. See supra paras. 2328, 63.  We further conclude that the  xmarketbased rate we establish herein as a default rate for percall compensation promotes the goals of  x=Section 276 of the Act, fair compensation, the deployment of payphones, and competition, and is a rate  xthat is reasonably related to the marketbased local coin rate. As discussed below, we conclude that the  x$0.284 default rate for percall compensation rate, absent negotiations, should be in effect for two years  xto enable LECs, PSPs and IXCs additional time to transition efficiently and without disruptions to the  S - xderegulated payphone market structure created in the Payphone Orders.M> d  {O-ԍ See infra para. 121. M Furthermore, we conclude that  xjafter the two year percall compensation rate period, "fair compensation" for access code and subscriber  xy800 calls pursuant to Section 276 and an analysis of the record is the deregulated market rate for the local  xcoin call adjusted for costs as discussed herein. Accordingly, the default rate for the first two years of  xpercall compensation is $0.284; after the first two years, the default rate is the marketbased local coin  xrate minus $0.066 per call. We conclude that the default percall rate falls within a zone of reasonableness  xthat will provide fair compensation for subscriber 800 and access code calls as required by Section 276,  S-while allowing the market to develop, and PSPs who desire, to negotiate a different rate.?  yOz- xKԍ We note that the Illinois Commerce Commission adopted a rate of $0.30 for retail 1800 calls (which are  xsynonymous with access code calls) when it deregulated payphones. The Illinois proceeding raised many of the same  {O - xconcerns as those raised in this proceeding. See IPTA Comments, July 1, 1996, Appendix B, Order of the Illinois  xCommerce Commission, 920400 at 1819, 24. We also note that the rate that AT&T negotiated with PSPs for  {O - xKaccess code calls was $0.25. The rate we adopt herein falls within the range of these rates. See AT&T Reply at 1213.   S-x` `   S- p%x` ` u118. In adopting an adjusted marketbased rate approach, we note that the Commission  xhas the authority to rely on market forces, and further, that "market predictions are within the institutional"l3r?0*&&99"  S- xcompetence of the Commission."j@ {Oh-ԍ FCC v. WNCN Listeners Guild, 450 U.S. 582, 593, 596 (1981).j In adopting this approach, we are confident that market forces will  xMkeep payphone prices at competitive levels, and that our default rate is in accordance with prevailing  xmarket conditions adjusted for costs. Courts have upheld rates established by regulatory agencies that lie  S- xwithin a "zone of reasonableness,"AZ {O- xԍ See, e.g., Nader v. FCC, 520 F.2d 182 (D.C. Cir. 1975) (stating that there is a zone of reasonableness within  {OL- xwhich a rate will be upheld and that the Commission must identify the boundaries of such a zone); National Cable  {O- xTelevision v. Copyright Royalty Tribunal, 724 F.2d 176 (D.C. Cir. 1983) (stating that rulings need not rest on precise  {O- xmathematical calculations and that a ruling will be upheld if it lies within the zone of reasonableness); Bell Atlantic  {O - xTel. Co. v. FCC, 79 F.3d 1195, 1202 (D.C. Cir. 1996) (stating that the Commission is not required to include all data when determining a rate, and that the Commission has the authority to exclude suspicious data or statistical outliers). particularly, in the context of ratemaking. While we do not consider  xzthe development of the default rate established herein to be ratemaking, because market imperfections  xzcurrently exist within the evolving competitive payphone market, we have set a default rate to ensure  S-competition.B {O - xԍ In Illinois Public Telecomm., the court stated that "a marketbased approach is as much a compensation scheme as a ratesetting approach. 117 F.3d at 563.  S-  S-  pSx` ` v119. As discussed above, in response to the claims of parties on the record that only  xa rate derived from cost data submitted in the record will provide a valid percall rate, we have also  xperformed an analysis of those data for purposes of comparison with the marketbased percall rate we  xestablish in this order. In setting the default rate for percall compensation at $0.284 based on our market xbased analysis, we have also considered the results of our analysis of the record information concerning  xthe long run costs of payphone service. We have calculated the long run costs percall for a provider to  S - xjinstall a payphone to be in the range of $0.247 per call to $0.281 cents per call.tCx ^  yO- xԍ In deriving a default percall compensation rate based on the long run costs indicated in the record data, we  xdo not adopt this approach on a goingforward basis but continue to rely instead on the marketbased approach  yO^- xadjusted for cost differences.  To do otherwise would lead to our continuing review of the costs associated with  xYproviding percall compensation for subscriber 800 and access code calls and provide disincentives to PSPs and IXCs  xto negotiate market based rates for these services. Moreover, marketbased rates lead to efficient allocation of  xresources and avoid the pitfalls of regulating rates for firms that use common facilities to produce both nonregulated and regulated services.t An estimate compiled  xunder this long run costs approach must be considered a lower bound when establishing a default rate.  xyThe rate derived in this manner, by definition, just covers the cost of installing and operating a payphone  xat a marginal location. As such, it will not encourage either the deployment of additional payphones or  xan incentive for IXCs to negotiate with PSPs. Such minimal incentives are contrary to the goals of  xpromoting competition among payphone service providers and promoting the widespread deployment of  xpayphone services. Accomplishing these goals requires that we ensure that the default rate, in addition  x to covering cost, provide sufficient incentives for PSPs to deploy additional payphones and tangible  x=incentives for IXC and PSPs to negotiate. Thus, the default rate we adopt for subscriber 800 and access  xcode calls based on the marketbased local coin rate adjusted for costs differences is appropriately and  S@-reasonably at the high end of the range compiled from the long run cost analysis. xx "4C0*&&995"Ԍ S- px` ` w120. We deny requests that we should mandate a uniform and fixed percall  x compensation rate for each compensable call. A fixed rate would not promote the statutory goals of  xSection 276, because it would not encourage negotiations between IXCs and PSPs. It is our expectation  xthat IXCs and PSPs will build business relationships and create operating procedures to provide  xLcompensation in an efficient manner. Given that we have adopted a deregulatory approach in this order,  xwe conclude that we should not establish those procedures. Under the approach we established in the  S- x>Report and Order, the market is allowed to set the compensation amount for calls originated by each  S- x>payphone. The court did not vacate that part of the Report and Order. For marketbased pricing to  xfunction effectively, it is not unreasonable that there be some variation in compensation amounts from  xlocation to location. We also decline to delay the effective date of this order as requested by CWI. As  xwe discussed previously, we conclude that it is in the public interest to make this order effective  SL -immediately.ADL  {O -ԍ See supra para. 3.A  S - px` ` x121. In this order, we extend the percall interim compensation period subject to a  S - xdefault rate established in the Payphone Orders for an additional year. Thus, the percall compensation  xperiod during which the default rate is $0.284 begins on October 7, 1997, and ends on October 6, 1999.  S - xWe established the interim compensation plan in the Payphone Orders in order to ease the transition to  xmarketbased rates. We stated that it was necessary to observe over time how the payphone marketplace  xwould function in the absence of regulation. We noted that market imperfections had led us to establish  xa default rate. On this record, we conclude that additional time is required to ease the transition to market xbased rates and that continuing the applicability of the default rate for an additional year is in the public  x[interest. As we have summarized in this order, we have received comments from LECs, PSPs, and IXCs  xregarding the problems and issues they face in transitioning to the payphone market compensation  Sp- xstructure we established in the Payphone Orders. For example, IXCs and their customers allege that after  SJ- xLthe first year of percall compensation established in the Payphone Orders, when the default rate will be  xthe deregulated coin rate adjusted for cost differences, PSPs will raise the coin rate in a manner that will  xraise substantially the percall rate for access code and subscriber 800 calls. They indicate that their  xsystems are not adequately prepared to respond to such situations. In addition, LECs have indicated  xproblems in providing the payphonespecific coding digits required to respond to calls from payphones on a realtime basis for some payphones in their serving areas.  S4- p&x` ` y122.  Although we conclude in this order that the marketplace, based on negotiations  xjbetween IXCs and PSPs, is where compensation decisions should be determined and that the default rate  x[after the percall transition period should be the marketbased local coin rate adjusted for cost difference,  xwe believe that this two year percall compensation period subject to the default rate is necessary to afford  x=IXCs, PSPs and LECs the opportunity to adjust to and adequately prepare for the deregulatory market Sl-based structure we adopted pursuant to Section 276. E"|lZ yOf"- xZԍ We establish a default rate because certain call blocking capabilities are not yet available to participants in  xjthe provision of access code and subscriber 800 calls from a payphone, and thus the market is not yet free of  {O#- ximpediments that interfere with the competitive negotiated process. In the Payphone Orders we concluded that, once  x: competitive market conditions exist, the most appropriate way to ensure that PSPs receive fair compensation for each"$D0*&&$"  xcall is to let the market set the price for individual calls originated on payphones. It is only in cases where the  xKmarket does not or cannot function properly that the Commission needs to take affirmative steps to ensure fair  xYcompensation. For example, because TOCSIA requires all payphones to unblock access to alternative OSPs through  xthe use of access codes (including 800 access numbers), PSPs cannot block access to 800 numbers generally.  xxHowever, TOCSIA does not prohibit an IXC from blocking subscriber 800 numbers from payphones, particularly  {Ox- xif the IXC wants to avoid paying the percall compensation charge on these calls. We concluded in the Payphone  {OB-Orders that this uneven bargaining between parties necessitates the Commission's involvement.  "l5 E0*&&99"Ԍ S-ԙE.xOther  S-x1.` ` Comments  Sd- pSx` ` z123. AirTouch Plan. AirTouch suggests that the Commission explore a new method  xto resolve the compensation issue due to the wide divergence of views expressed in the replies, and its  xzconcern that call blocking options do not exist. AirTouch argues that the Commission should adopt a  x.method that does not rely on call tracking or call blocking to place checks on the imposition of excessive  S- xcharges by payphone service providers.=F  yOp-ԍ AirTouch Reply at 5.= AirTouch proposes that the Commission adopt a unique 8XX  xapproach that would be tollfree for long distance charges, but could be accessed from a payphone only  xif the caller deposits coins (presumably at a fraction of the local coin rate). PageNet and PCIA support  SL - x.AirTouch's unique 8XX approach and state that it merits further investigation.NGL  yO-ԍ PageNet Reply at 10; PCIA Reply at 7.N PageMart argues that  xif the Commission does not adopt a callerpays approach, then it should consider AirTouch's modified  S - xapproach.:H ,  yO-ԍ PageMart Reply 8.: Several of the paging companies argue that they should pay less than other carriers due to  S -the short duration of the calls used to initiate pages.*I"  {O0- xԍ See, e.g., AirTouch Reply at 89 (arguing that the average paging call lasts approximately 20 seconds, as  x compared to the Coalition data stating that the typical duration of a call from a payphone lasts 3.22 to 3.42 minutes);  xPageNet Reply at ii, 1415 (stating that it should be charged rates that reflect its individual called party characteristics, because subscriber 800 calls are shorter in duration and generate less revenue than access code calls).*  S - px` ` {124.  Reconsider Use of Caller Pays. AirTouch, PageNet, PageMart, Arch, and PCIA  x.argue that the Commission should adopt a callerpays system, because such a system, they argue, is the  S4- xKonly true surrogate for marketbased compensation.#J4 yOz - xԍ AirTouch Reply at 5; PageNet Reply at i, 7 (arguing that a callingparty pays mechanism allows the calling  x-party to seek out a lower priced payphone and thus exerts pressure on the PSPs to charge competitive rates and  xYfurther, that the mechanism upon which the market scheme was established, call blocking, is not in place). PageNet  xwfurther argues that a calling party pays system avoids FCC determination of payphone costs and the extent to which  {O#- xcommissions paid to location owners should be included in these payphone costs. See PageNet Reply, supra. See  {Od$-also PageMart Reply at 3; PCIA Reply at 7; Arch Reply at 9.# PCIA argues that the Commission should reconsider  x{the callerpays system because IXCs have a limited ability to block calls and thus have a check on" 6"J0*&&99"  S-excessive payphone rates.9K yOh-ԍ PCIA Reply at 2.9  S- px` ` |125.  APCC contends that the paging industry's recommendation that the Commission  S- x[should adopt a caller pays approach is without merit.=LX yO-ԍ APCC Reply at 2332.= APCC contends that the information needed to  S`- x>block calls from PSPs that charge "too much" is located within a database, not the screening digits.9M` {O-ԍ Id. at 30.9  x[APCC contends that it is not necessary to implement this database until percall compensation is tied to  S-individual providers' prices in October 1998.2Nz {O* -ԍ Id.2  S- pDx` ` }126.  Call Blocking. AirTouch reiterates its concern that call blocking options do not  xexist, and therefore suggests the proposal enumerated above, because the proposal does not rely on call  xtracking or call blocking to place checks on the imposition of excessive charges by payphone service  SH - xproviders.=OH  yO-ԍ AirTouch Reply at 5.= AirTouch further states that paging companies should not have to pass through the $0.35  S - xcharge until targeted call blocking is available for payphone calls,UP  yO\-ԍ AirTouch Comments at 8; AirTouch Reply at 4.U and PageMart contends that call  S - xblocking technology is an integral part of the development of a competitive PSP market.@Q ,  yO-ԍ PageMart Comments at 2.@ MCI argues  xthat Congress did not intend for carriers to have to block calls, and furthermore, carriers will not be able  S -to selectively block calls until the third quarter of 1998..RZ  {O- xԍ MCI Comments at 4. See PageMart Reply at 4 (stating that a system that encourages call blocking does not  xfurther the Commission's goal of providing telecommunications services to the greatest possible number of consumers)..  SX- px` ` ~127.  PageNet, PageMart, and PCIA contend that without call blocking capability, the  x800 subscriber does not have any leverage to negotiate for lower rates for calls placed from payphones,  S- x=therefore, these carriers argue, a marketbased compensation scheme cannot work. S yO - xxԍ PageNet Reply at i, 3, 6 (arguing that the mechanism under which the Commission adopted a carrier party pays scheme!rates determined on real time basis!is not available); PageMart Reply at 3; PCIA Reply at 3.  GCI contends that  xas a small carrier operating primarily in Alaska, it is not in a position to negotiate with payphone providers  xaround the country to get a better rate and furthermore, it does not want to block calls from payphone"76S0*&&99"  S-locations.;T yOh-ԍ GCI Comments at 3.;  S- pCx` ` 128.  Arch requests that if the Commission maintains a carrierpays approach, it should  xkeither order all 800 carriers to deploy blocking capability so that each 800 customer has the option to  x>block, or apply notions of costcausation so payphone costs are instead paid by the costcauser, the  S8- xpayphone user.9U8X yO0-ԍ Arch Reply at 5.9 Champion argues that a call blocking option must be provided, because it does not want  xto be liable for calls from places such as prisons or other nonbusiness related locations. CPI contends  xthat the cost of tracking individual payphones and blocking calls may be cost prohibitive such that  xblocking does not necessarily give IXCs any leverage to negotiate with PSPs to constrain the  xcompensation rate. Furthermore, CPI contends that customers do not benefit when calls are blocked, and  Sp- xjcall blocking will not result in a price that is market based.8Vp yO -ԍ CPI Reply at 4.8 Several of the IXCs argue that call blocking  SH -technology is extremely costly, and that they do not currently have this technology in place.jWH x yO`-ԍ Sprint Comments at 6; AT&T Comments at 17; CWI Comments at 1011.j  S - p5x` ` 129.  The Coalition contends that the argument that marketbased prices may lead to  x\call blocking is without merit, because PSPs have an interest in seeing calls completed a blocked call  S -does not generate compensation.@X  yOP-ԍ Coalition Reply at 89.@ x  SX- pSx` ` 130.  Other. CWI argues that the Commission should clarify that payphones that do  xnot transmit payphone specific coding digits are not eligible for compensation, and requests that the  S-Commission clarify that the "07" coding digit does not identify a call from a payphone.<Y yO@-ԍ CWI Reply at 1415.<  S- pSx` ` 131. ACTA argues that passthrough billing of an IXCs reseller customer should not  S-be permitted until a new compensation scheme is in place.Z(  yOX- xԍ ACTA Comments at 4 (stating that if pass through billing is permitted, then requirements need to be established to ensure fair and accurate billing).pp  Sh-  S@-x2.` ` Discussion x  S- pSx` ` 132. We decline to address in this proceeding issues related to the implementation of  xthe percall compensation structure beyond the percall compensation rate. The above issues were raised  S- xby parties in response to the Notice, despite its limited scope. In this order, we do not revisit the issue  xof who is responsible for paying compensation and whether carriers can block, issues already addressed"|8 Z0*&&99" in the Payphone Orders, and upheld by the court. We also decline to evaluate at this time,  xa new proposal relating to the tracking of calls, or that we establish a compensation scheme on a per xminute rather than percall basis, which could substantially delay the beginning of the percall  xcompensation scheme. To the extent that we decide to revisit any of these issues, such review will be  Sh4addressed in a subsequent proceeding.hhC  S4 i$` ` 133. We decline to grant CWI's request that we clarify the payphonespecific coding  S4 xdigit requirements set forth in the Payphone Orders, because the purpose of this order is to establish  xIa default percall compensation rate. We plan to address payphonespecific coding digit issues in a  xsubsequent order. As discussed above, we note that the Bureau has granted a waiver until March 9, 1998,  x<for PSPs to comply with payphonespecific coding digit requirements. Pursuant to that waiver, IXCs  xtmust pay compensation to PSPs including those with payphones that cannot transmit payphonespecific  S(4coding digits.c[(I yO#'ԍ Bureau Waiver Order, DA 972162 (rel. Oct. 7, 1997).c ` ` ":` [0*&&99"Ԍ S4%5 IV. PROCEDURAL MATTERS ă  S4A.XFinal Paperwork Reduction Act Analysis(#  S`4 i` ` 134. The decision herein has been analyzed with respect to the Paperwork Reduction  xAct of 1995, Pub. L. 10413, and does not contain new and/or modified information collections subject  xto Office of Management and Budget review. The information and collection requirements in this item are contingent upon approval by the Office of Management and Budget.  S4B.XFinal Regulatory Flexibility Act Analysis(#  SH 4 i]` ` 135. As required by the Regulatory Flexibility Act (RFA),\XH I yO ' x#]\  PC)P#э See 5 U.S.C.  603. The RFA, see 5 U.S.C.  601 et. seq.#x6X@KX@##]\  PC)P#, has been amended by the Contract With America  x Advancement Act of 1996, Pub. L. No. 104121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). an Initial Regulatory  S 4 xFlexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking.E] I yO' x#]\  PC)P#э Implementation of Pay Telephone Reclassification and Compensation Provisions of the Telecommunications  yOp'Act of 1996, CC Docket No. 96128, Notice of Proposed Rulemaking, 11 FCC Rcd 6716 (1996) ("NPRM").E The Commission  S 4 x/sought written public comment on the proposals in the NPRM, including comment on the IRFA. This  S 4present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.o^ @I yO'#]\  PC)P#э See 5 U.S.C.  604. o   S 4  S 41.` ` Need for, and Objectives of, the Second Report and Order(#`  SX4  S04 i5` ` 136. The objective of the rules adopted in this order is "to promote competition among  xpayphone service providers and promote the widespread deployment of payphone services to the benefit  S4 xVof the general public."B_I yOP'ԍ 47 U.S.C.  276(b)(1).B In doing so, the Commission is mindful of the balance that Congress struck  xbetween this goal of bringing the benefits of competition to consumers and its concern for the impact of the 1996 Telecommunications Act on small businesses.  S@42.` ` Summary of Significant Issues Raised by Public Comments in Response to the IRFA.(#` ` `  S4 ia` ` 137. Summary of the Initial Regulatory Flexibility Analysis (IRFA). In the IRFA, the  xCommission solicited comment on alternatives to our proposed rules that would minimize the potential  xZimpact on small entities consistent with the objectives of this proceeding. The Commission received one  xRcomment on the potential impact on small business entities, which the Commission considered in  xpromulgating the rules in this Order. Frontier commented generally that the compensation scheme  x3advanced in the NPRM was "unnecessarily onerous and inefficient" and "in conflict with the goals of the"(;` _0*&&99"  S4 x.... Regulatory Flexibility Act."^`I yOh'ԍ Frontier Comments in response to the IRFA at 2.^ Frontier did not comment specifically on what aspect of the  xcompensation scheme would have economic impact on small business entities. We disagree with  xFrontier's general assertion that the compensation scheme is in conflict with the Regulatory Flexibility  x<Act. Our rules are designed to facilitate the development of competition, which benefits many small  xbusiness entities. The rules will ensure that payphone services providers, many of whom may be small  xlbusiness entities, receive fair compensation. Our rules provide significant flexibility to permit the  xVaffected parties, including small business entities, to structure procedures that would minimize their  xburdens. For example, the rules require IXCs and intraLATA carriers, as primary economic beneficiaries  xcof payphone calls, to track the calls they receive from payphones. These carriers have the option of  xperforming these functions themselves or contracting out these functions to another party, such a LEC  xor clearinghouse. We also provide a transition period. We believe that our rules are designed to  xMeffectively optimize the efficiency and minimize the burdens of the compensation scheme on all parties, including small entities.  S 4X3.X` ` Description and Estimate of the Number of Small Entities to which Rules will Apply. (#`   S 4  i` ` 138. For the purposes of this order, the RFA defines a "small business" to be the same  xas a "small business concern" under the Small Business Act, 15 U.S.C.  632, unless the Commission has  S04 xZdeveloped one or more definitions that are appropriate to its activities.a0XI yO('ԍ See 5 U.S.C.  601(3) (incorporating by reference the definition of "small business concern" in 5 U.S.C. 632). Under the Small Business Act,  xa "small business concern" is one that: (1) is independently owned and operated; (2) is not dominant  xin its field of operation; and (3) meets any additional criteria established by the Small Business  S4 xAdministration (SBA).bI yO@' xhԍ 15 U.S.C.  632. See, e.g., Brown Transport Truckload, Inc. v. Southern Wipers, Inc., 176 B.R. 82 (N.D.Ga. 1994). SBA has defined a small business for Standard Industrial Classification (SIC)  xcategory 4813 (Telephone Communications, Except Radiotelephone) to be a small entity when it has no  Sh4more than 1,500 employees.@ch@I yOH'ԍ 13 C.F.R. 121.201.@  S4 i` ` 139. We have found incumbent LECs to be "dominant in their field of operation" since  S4 xthe early 1980s, and we consistently have certified under the RFAHdI yO`'ԍ See 5 U.S.C.  605(b).H that incumbent LECs are not subject  S4 xto regulatory flexibility analyses because they are not small businesses.eX` I yO!' xԍ See, e.g., Expanded Interconnection with Local Telephone Company Facilities, Supplemental Notice of Proposed  yO"' xlRulemaking, 6 FCC Rcd 5809 (1991); MTS and WATS Market Structure, Report and Order, 2 FCC Rcd 2953, 2959 (1987)  yOX#'(citing MTS and WATS Market Structure, Third Report and Order, 93 F.C.C.2d 241, 33839 (1983)). We have made similar"< e0*&&99O"  S4 xdeterminations in other areas.,fI yOh' x ԍ See, e.g., Implementation of Sections of the Cable Television Consumer Protection Act of 1992: Rate  yO0'Regulation, Sixth Report and Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393, 7418 (1995)., However, in the Local Competition proceeding, several parties, including  x3the SBA, commented that we should have included small incumbent LECs in the IRFA pertaining to that  S4 xorder.g  I yOp' xԍ The Small Business Administration (SBA), the Rural Telephone Coalition (Rural Tel. Coalition), and CompTel  xmaintain that the Commission violated the RFA when it failed to include small incumbent LECs in its IRFA without  yO' xfirst consulting SBA to establish a definition of "small business." See Local Competition Order at paras. 132830.  We recognize SBA's special role and expertise with regard to the RFA, and intend to continue  xlto consult with SBA outside the context of this proceeding to ensure that the Commission is fully  x3implementing the RFA. Although we are not fully persuaded that our prior practice has been incorrect,  xwe will, include small incumbent LECs in this FRFA, while continuing to hold that the terms "small  xentities" and "small businesses" does not encompass "small incumbent LECs." We use the term "small  xincumbent LECs" to refer to any incumbent LECs that arguably might be defined by SBA as "small  S4business concerns."UhI yOh'ԍ See 13 C.F.R. 121.210 (SIC 4813).U  Sp4 i` ` 140. Total Number of Telephone Companies Affected. The United States Bureau of the  xCensus (the Census Bureau) reports that, at the end of 1992, there were 3,497 firms engaged in providing  S 4 xltelephone services, as defined therein, for at least one year."i I yOX' xԍ United States Department of Commerce, Bureau of the Census, 1992 Census of Transportation,  yO 'Communications, and Utilities: Establishment and Firm Size, at Firm Size1-123 (1995) ("1992 Census")." This number encompasses a broad  xcategory which contains a variety of different subsets of carriers, including local exchange carriers,  xinterexchange carriers, competitive access providers, cellular carriers, mobile service carriers, operator  xservice providers, pay telephone operators, PCS providers, covered SMR providers, and resellers. It seems  xcertain that some of those 3,497 telephone service firms may not qualify as small entities or small  SX4 xincumbent LECs because they are not "independently owned and operated."BjX I yO'ԍ 15 U.S.C.  632(a)(1).B For example, a PCS  xcprovider that is affiliated with an interexchange carrier having more than 1,500 employees would not  x<meet the definition of a small business. It seems reasonable to conclude, therefore, that fewer than  xZ3,497 telephone service firms are small entity telephone service firms or small incumbent LECs that may  xZbe affected by this Order. We estimate below the potential small entity telephone service firms or small incumbent LECs that may be affected by this Order by service category.  S@4 e ` ` 141. Wireline Carriers and Service Providers. The SBA's definition of small entities for  x telephone communications companies, other than radiotelephone (wireless) companies, is one employing  S4 xRno more than 1,500 persons.vk I yO$'ԍ 13 C.F.R.  121.201, Standard Industrial Classification (SIC) Code 4812. v The Census Bureau reports that, there were 2,321 such telephone"=k0*&&99r"  S4 xcompanies in operation for at least one year at the end of 1992.\lI yOh'ԍ 1992 Census, supra, at Firm Size1-123.\ All but 26 of the 2,321 non xradiotelephone companies listed by the Census Bureau were reported to have fewer than 1,000 employees.  xThus, even if all 26 of those companies had more than 1,500 employees, there would still be 2,295 non xradiotelephone companies that might qualify as small entities or small incumbent LECs. Although it  x3seems certain that some of these carriers are not independently owned and operated, we are unable at  xthis time to estimate with greater precision the number of wireline carriers and service providers that  xwould qualify as small business concerns under SBA's definition. Consequently, we estimate that there  xare fewer than 2,295 small entity telephone communications companies other than radiotelephone companies that may be affected by the decisions and rules adopted in this Order.  Sp4 i` ` 142. Local Exchange Carriers. Neither the Commission nor SBA has developed a  xdefinition of small providers of local exchange services (LECs). The closest applicable definition under  xVSBA rules is for telephone communications companies other than radiotelephone (wireless) companies  x(SIC 4813). The most reliable source of information regarding the number of LECs nationwide of which  xwe are aware appears to be the data that we collect annually in connection with the Telecommunications  S 4 x8Relay Service (TRS).&m XI yO' xԍ All carriers that provide interstate service are required to pay into the TRS Fund, which provides access to  yOh'Telecommunications Device for the Deaf (TDD). See generally 47 C.F.R.  64.601 et seq.& According to our most recent data, 1,347 companies reported that they were  S 4 xengaged in the provision of local exchange services.anX I yO' x_ԍ Federal Communications Commission, CCB, Industry Analysis Division, Telecommunications Industry Revenue:  xJTRS Fund Worksheet Data, Tbl. 21 (Average Total Telecommunications Revenue Reported by Class of Carrier)  yO`'(Feb.1996) ("TRS Worksheet"). a Although it seems certain that some of these  xcarriers are not independently owned and operated, or have more than 1,500 employees, we are unable  x&at this time to estimate with greater precision the number of LECs that would qualify as small business  xconcerns under SBA's definition. Consequently, we estimate that there are fewer than 1,347 small incumbent LECs that may be affected by the decisions and rules adopted in this Order.  S4 i` ` 143. Interexchange Carriers. Neither the Commission nor SBA has developed a  xdefinition of small entities specifically applicable to providers of interexchange services (IXCs). The  xclosest applicable definition under SBA rules is for telephone communications companies other than  x}radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the  xcnumber of IXCs nationwide of which we are aware appears to be the data that we collect annually in  xconnection with TRS. According to our most recent data, 97 companies reported that they were engaged  S4 xin the provision of interexchange services.8oI yO!'ԍ Id.8 Although it seems certain that some of these carriers are  x3not independently owned and operated, or have more than 1,500 employees, we are unable at this time  xto estimate with greater precision the number of IXCs that would qualify as small business concerns  xunder SBA's definition. Consequently, we estimate that there are fewer than 97 small entity IXCs that may be affected by the decisions and rules adopted in this Order.">` o0*&&99"Ԍ S4 iٙ` ` 144. Competitive Access Providers. Neither the Commission nor SBA has developed  xIa definition of small entities specifically applicable to providers of competitive access services (CAPs).  x3The closest applicable definition under SBA rules is for telephone communications companies other than  x}radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the  xnumber of CAPs nationwide of which we are aware appears to be the data that we collect annually in  xVconnection with the TRS. According to our most recent data, 30 companies reported that they were  S4 x3engaged in the provision of competitive access services.2pI yOx'ԍ Id.2 Although it seems certain that some of these  xcarriers are not independently owned and operated, or have more than 1,500 employees, we are unable  x&at this time to estimate with greater precision the number of CAPs that would qualify as small business  xconcerns under SBA's definition. Consequently, we estimate that there are fewer than 30 small entity CAPs that may be affected by the decisions and rules adopted in this Order.  S 4 i` ` 145. Operator Service Providers. Neither the Commission nor SBA has developed a  xpdefinition of small entities specifically applicable to providers of operator services (OSPs). The closest  xapplicable definition under SBA rules is for telephone communications companies other than  x}radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the  x@number of operator service providers nationwide of which we are aware appears to be the data that we  x@collect annually in connection with the TRS. According to our most recent data, 29 companies reported  S04 x that they were engaged in the provision of operator services.2q0XI yO('ԍ Id.2 Although it seems certain that some of  xthese companies are not independently owned and operated, or have more than 1,500 employees, we are  xcunable at this time to estimate with greater precision the number of operator service providers that  xwould qualify as small business concerns under SBA's definition. Consequently, we estimate that there  xare fewer than 29 small entity operator service providers that may be affected by the decisions and rules adopted in this Order.  S4 i` ` 146. Payphone Operators. Neither the Commission nor SBA has developed a definition  xof small entities specifically applicable to pay telephone operators. The closest applicable definition  xunder SBA rules is for telephone communications companies other than radiotelephone (wireless)  x_companies. The most reliable source of information regarding the number of payphone operators  xnationwide of which we are aware appears to be the data that we collect annually in connection with the  xTRS. According to our most recent data, 197 companies reported that they were engaged in the provision  S(4 xVof payphone services.2r(I yO'ԍ Id.2 Although it seems certain that some of these carriers are not independently  xowned and operated, or have more than 1,500 employees, we are unable at this time to estimate with  xgreater precision the number of payphone operators that would qualify as small business concerns under  xESBA's definition. Consequently, we estimate that there are fewer than 197 small entity payphone operators that may be affected by the decisions and rules adopted in this Order.  S84 i1` ` 147. Resellers (including debit card providers). Neither the Commission nor SBA has"8?xr0*&&99"  xdeveloped a definition of small entities specifically applicable to resellers. The closest applicable  x&definition under SBA rules is for all telephone communications companies (SIC 4812 and 4813). The most  xreliable source of information regarding the number of resellers nationwide of which we are aware  x"appears to be the data that we collect annually in connection with the TRS. According to our most  S`4 xrecent data, 206 companies reported that they were engaged in the resale of telephone services.2s`I yO'ԍ Id.2  xAlthough it seems certain that some of these carriers are not independently owned and operated, or have  xmore than 1,500 employees, we are unable at this time to estimate with greater precision the number  xof resellers that would qualify as small business concerns under SBA's definition. Consequently, we  x@estimate that there are fewer than 206 small entity resellers that may be affected by the decisions and rules adopted in this Order.  SH 4 ie` ` 148. 800Subscribers. Neither the Commission nor SBA has developed a definition of  xsmall entities specifically applicable to 800subscribers. The most reliable source of information  xregarding the number of 800subscribers of which we are aware appears to be the data we collect on  S 4 xthe number of 800numbers in use.t XI yO' x'ԍ Federal Communications Commission, CCB, Industry Analysis Division, FCC Releases, Study on Telephone  yO'Trends, Tbl. 20 (May 16, 1996). According to our most recent data, at the end of 1995, the  xZnumber of 800numbers in use was 6,987,063. Although it seems certain that some of these subscribers  xare not independently owned and operated businesses, or have more than 1,500 employees, we are unable  x"at this time to estimate with greater precision the number of 800subscribers that would qualify as  xpsmall business concerns under SBA's definition. Consequently, we estimate that there are fewer than  x6,987,063 small entity 800subscribers that may be affected by the decisions and rules adopted in this Order.  S4 i>` ` 149. Location Providers. Neither the Commission nor SBA has developed a definition  xIof small entities specifically applicable to location providers. A location provider is the entity that is  xresponsible for maintaining the premises upon which the payphone is physically located. Due to the fact  xlthat location providers do not fall into any specific category of business entity, it is impossible to  xestimate with any accuracy the number of location providers. Using several sources, however, we have  S4 xderived a figure of 1,850,000 payphones in existence.6uI yO' xqԍ There are approximately 1.5 million LEC payphones. Statistics of Communications Common Carriers,  xq1994/1995 edition, Common Carrier Bureau, FCC at 159, Table 2.10 (1995). There are approximately 350,000  yO' xRcompetitively provided payphones. See Ex Parte Letter to Michael Carowitz, Attorney, Common Carrier Bureau, FCC  xhfrom Michael Benson, Senior Product Manager, PPO Compensation Clearinghouse, Cincinnati Bell (Apr. 24, 1996).  xRCincinnati Bell, as the payphone compensation paying agent for three interexchange carriers, states that it receives  yO!'quarterly bills from PPOs for more than 350,000 competitively provided payphones. Id. 6 Although it seems certain that some of these  xZpayphones are not located on property owned by location providers that are small business entities, nor  xdoes the figure take into account the possibility of multiple payphones at a single location, we are unable  xat this time to estimate with greater precision the number of location providers that would qualify as  xpsmall business concerns under SBA's definition. Consequently, we estimate that there are fewer than  xt1,850,000 small entity location providers that may be affected by the decisions and rules adopted in this"@( u0*&&99" Order.  S4  i` ` 150. Wireless (Radiotelephone) Carriers (including paging services). The SBA's  S4 x@definition of a small business radiotelephone company is one employing fewer than 1,500 persons.vvI yO'ԍ 13 C.F.R.  121.201, Standard Industrial Classification (SIC) Code 4812. v The  xCensus Bureau reports that there were 1,176 such companies in operation for at least one year at the  S84 xend of 1992."w8XI yO0' xԍ United States Department of Commerce, Bureau of the Census, 1992 Census of Transportation,  yO'Communications, and Utilities: Establishment and Firm Size, at Firm Size1-123 (1995) ("1992 Census")." The Census Bureau also reported that 1,164 of those radiotelephone companies had no  xmore than 1,000 employees. Thus, even if all of the remaining 12 companies had more than 1,500  xIemployees, there would still be 1,164 radiotelephone companies that might qualify as small entities if  x they are independently owned are operated. Although it seems certain that some of these carriers are  xnot independently owned and operated, we are unable at this time to estimate with greater precision the  xnumber of radiotelephone carriers and service providers that would qualify as small business concerns  xunder SBA's definition. Consequently, we estimate that there are fewer than 1,164 small entity radiotelephone companies that may be affected by the decisions and rules adopted in this Order.   S 4 i` ` 151. Cellular Service Carriers (including paging services). Neither the Commission nor  xSBA has developed a definition of small entities specifically applicable to providers of cellular services.  x3The closest applicable definition under SBA rules is for telephone communications companies other than  x}radiotelephone (wireless) companies (SIC 4813). The most reliable source of information regarding the  xpnumber of cellular service carriers nationwide of which we are aware appears to be the data that we  xcollect annually in connection with the TRS. According to our most recent data, 789 companies reported  S4 xthat they were engaged in the provision of cellular services.2xI yO0'ԍ Id.2 Although it seems certain that some of  xthese carriers are not independently owned and operated, or have more than 1,500 employees, we are  xgunable at this time to estimate with greater precision the number of cellular service carriers that would  xqualify as small business concerns under SBA's definition. Consequently, we estimate that there are  x/fewer than 789 small entity cellular service carriers that may be affected by the decisions and rules adopted in this Order.  S4 i1` ` 152. Mobile Service Carriers (including paging services). Neither the Commission nor  xcSBA has developed a definition of small entities specifically applicable to mobile service carriers, such  x3as paging companies. The closest applicable definition under SBA rules is for telephone communications  xcompanies other than radiotelephone (wireless) companies. The most reliable source of information  xregarding the number of mobile service carriers nationwide of which we are aware appears to be the data  xMthat we collect annually in connection with the TRS. According to our most recent data, 117 companies  S4 xreported that they were engaged in the provision of mobile services.2y@I yO#'ԍ Id.2 Although it seems certain that  x some of these carriers are not independently owned and operated, or have more than 1,500 employees,"Ay0*&&99Z"  xtwe are unable at this time to estimate with greater precision the number of mobile service carriers that  x<would qualify under SBA's definition. Consequently, we estimate that there are fewer than 117 small entity mobile service carriers that may be affected by the decisions and rules adopted in this Order.  S`4 i` ` 153. Broadband PCS Licensees (including paging services). The broadband PCS  xRspectrum is divided into six frequency blocks designated A through F. As set forth in 47 C.F.R.   x24.720(b), the Commission has defined "small entity" in the auctions for Blocks C and F as a firm that  xMhad average gross revenues of less than $40 million in the three previous calendar years. Our definition  S4 xof a "small entity" in the context of broadband PCS auctions has been approved by SBA. zI yO( ' xԍ See Implementation of Section 309(j) of the Communications Act Competitive Bidding, PP Docket No.93 yO '253, Fifth Report and Order, 9 FCC Rcd 5532, 558184 (1994).  The  xgCommission has auctioned broadband PCS licenses in Blocks A, B, and C. We do not have sufficient data  x to determine how many small businesses bid successfully for licenses in Blocks A and B. There were 90  SH 4 x4winning bidders that qualified as small entities in the Block C auctions.A{XH I yO'ԍ The FCC's Personal Communications Services (PCS) Entrepreneurs' Block (C Block) auction began on  x+December 18, 1995 and closed on May 6, 1996. The reauction for 18 defaulted PCS C Block licenses commenced on July 3, 1996 and was completed on July 16, 1996. A Based on this information, we  xconclude that the number of broadband PCS licensees affected by the decisions in this Order includes,  x"at a minimum, the 90 winning bidders that qualified as small entities in the Block C broadband PCS auction.  S 4  i>` ` 154. At present, no licenses have been awarded for Blocks D, E, and F of broadband  xPCS spectrum. Therefore, there are no small businesses currently providing these services. However,  x<a total of 1,479 licenses will be awarded in the D, E, and F Block broadband PCS auctions, which are  xscheduled to begin on August 26, 1996. Of the 153 qualified bidders for the D, E, and F Block PCS  S4 x3auctions, 105 were small businesses.|@I yO' xԍ See Auction of Broadband Personal Communications Service (D, E, and F Blocks), Public Notice, DA 961400 (rel. Aug. 20, 1996). Eligibility for the 493 F Block licenses is limited to entrepreneurs  S4 x@with average gross revenues of less than $125 million.}XI yO' xԍ Amendment of Parts 20 and 24 of the Commission's Rules Broadband PCS Competitive Bidding and the  yO' xCommercial Mobile Radio Service Spectrum Cap, WT Docket No. 9659, Amendment of the Commission's Cellular/PCS  yO'CrossOwnership Rule, Report and Order, GN Docket No. 90314, 11 FCC Rcd 7824 (1996). There are 114 eligible bidders for the F Block.~ I yO' xԍ See Auction of Broadband Personal Communications Service (D, E, and F Blocks), Public Notice, DA 961400 (rel. Aug. 20, 1996).  x@We cannot estimate, however, the number of these licenses that will be won by small entities under our  xdefinition, nor how many small entities will win D or E Block licenses. Given that nearly all  S@4 xlradiotelephone companies have fewer than 1,000 employeess@I yO#'ԍ 1992 Census, Table 5, Employment Size of Firms: 1992, SIC Code 4812.s and that no reliable estimate of the  xnumber of prospective D, E, and F Block licensees can be made, we assume for purposes of this FRFA,"B0*&&99"  xthat all of the licenses in the D, E, and F Block Broadband PCS auctions may be awarded to small entities under our rules, which may be affected by the decisions and rules adopted in this Order.   S4 i$` ` 155. SMR Licensees (including paging services). Pursuant to 47 C.F.R.  90.814(b)(1),  xcthe Commission has defined "small entity" in auctions for geographic area 800 MHz and 900 MHz SMR  x&licenses as a firm that had average annual gross revenues of less than $15 million in the three previous  xcalendar years. This definition of a "small entity" in the context of 800 MHz and 900 MHz SMR has been  S4 xapproved by the SBA.RI yOP' xԍ See Amendment of Parts 2 and 90 of the Commission's Rules to Provide for the Use of 200 Channels Outside  xythe Designated Filing Areas in the 896901 MHz and the 935940 MHz Bands Allotted to the Specialized Mobile Radio  yO ' xAPool, PR Docket No. 89583, Second Order on Reconsideration and Seventh Report and Order, 11 FCC Rcd 2639,  yO ' x_2693702 (1995); Amendment of Part 90 of the Commission's Rules to Facilitate Future Development of SMR Systems  yOp ' xin the 800 MHz Frequency Band, PR Docket No. 93144, First Report and Order, Eighth Report and Order, and Second  yO8 'Further Notice of Proposed Rulemaking, 11 FCC Rcd 1463 (1995).R The rules adopted in this Order may apply to SMR providers in the 800 MHz and  x"900 MHz bands that either hold geographic area licenses or have obtained extended implementation  xauthorizations. We do not know how many firms provide 800 MHz or 900 MHz geographic area SMR  xservice pursuant to extended implementation authorizations, nor how many of these providers have  xgannual revenues of less than $15 million. We assume, for purposes of this FRFA, that all of the extended  x}implementation authorizations may be held by small entities, which may be affected by the decisions and rules adopted in this Order.   S 4 i` ` 156. The Commission recently held auctions for geographic area licenses in the 900  xMHz SMR band. There were 60 winning bidders who qualified as small entities in the 900 MHz auction.  xBased on this information, we conclude that the number of geographic area SMR licensees affected by  xtthe rule adopted in this Order includes these 60 small entities. No auctions have been held for 800 MHz  xgeographic area SMR licenses. Therefore, no small entities currently hold these licenses. A total of 525  x_licenses will be awarded for the upper 200 channels in the 800 MHz geographic area SMR auction.  xHowever, the Commission has not yet determined how many licenses will be awarded for the lower 230  xchannels in the 800 MHz geographic area SMR auction. There is no basis, moreover, on which to estimate  xVhow many small entities will win these licenses. Given that nearly all radiotelephone companies have  xfewer than 1,000 employees and that no reliable estimate of the number of prospective 800 MHz licensees  xVcan be made, we assume, for purposes of this FRFA, that all of the licenses may be awarded to small entities who, thus, may be affected by the decisions in this Order.  S44.` ` Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements. (#`  SP4` ` 157.   This order results in no additional filing requirements. ` `   S4 e 5.` ` Steps Taken to Minimize Significant Economic Impact on Small Entities and Significant  S4Alternatives Considered.(#`  S`4 i` ` 158. Section 276(b)(1)(A) directs the Commission to "establish a per call compensation"`C@0*&&99"  xgplan to ensure that all payphone service providers are fairly compensated for each and every completed  S4 xintrastate and interstate call using their payphone...."EI yO@'ԍ 47 U.S.C.  276(b)(1)(A).E To implement Section 276(b)(1)(A), this Second  S4 xReport and Order establishes a marketbased percall compensation rate of $0.284 to be paid to the  xindependent payphone service providers (PSPs) for services rendered in connection with originating  xVnoncoin calls from payphones. The payphone industry appears to have the potential of being a very  xcompetitive industry once the significant subsidies and entry/exit restrictions which are presently  xdistorting the competition are removed. However, we perceive two potential areas that could have an  xeconomic impact on small businesses and small incumbent LECs: (1) the amount of compensation paid to PSPs, and (2) the administration of percall compensation. ` `  Sp4 ie` ` 159.  Amount of compensation: By adopting a marketbased local coin rate adjusted  x<for coin differences, we ensure that PSPs, many of whom may be small business entities, receive fair  xcompensation for subscriber 800 and access code calls. By tying the percall compensation to the  xImarketbased local coin rate, adjusted for cost differences, we further ensure that PSPs receive fair  S 4compensation for each and every completed call made from a payphone. XI yO' xlԍ Additionally, by adopting a rate that is less than the $0.35 initially proposed, we are mindful of the concerns  yO'of small businesses that the $0.35 rate is too high.   S 4 ie` ` 160.  Many commentators, notably the IXCs, contend that marginal cost of originating  xa payphone call should be used as the basis for compensating PSPs. We conclude that use of a marginal  xcost standard or any closely related TSLRIC standard would leave PSPs under compensated, because such  xcost standards do not permit the recovery of any of a PSPs' fixed costs, which make up the bulk of a  xPSP's costs. We also reject, for similar reasons, suggestions that current local coin rates be used as a  xVsurrogate for percall compensation. Local coin rates are not necessarily fairly compensatory. Local  x/coin rates in some jurisdictions may not cover the marginal cost of service and therefore, would not fairly compensate the PSPs. ` `  S4 i` ` 161. We reject the proposal of the BOCs and some independent payphone providers to  xuse AT&T O+ commissions as a measure of fair value of the service provided by independent payphone  xproviders when they originate an interstate call. These commissions may include compensation for  x&factors other than the use of the payphone, such as a PSP's promotion of the OSP through placards on  xRthe payphone. In the absence of reliable data, the appropriate percall compensation amount is  xwhatever amount the particular payphone charges for a local coin call. PSPs, IXCs, subscriber 800  xMcarriers, and intraLATA carriers, many of whom may be small business entities, may find it advantageous  xto agree on an amount for some or all compensable calls that is either higher or lower than the local  xcoin rate at a given payphone because it will grant parties in the payphone industry some flexibility and allow them to take advantage of technological advances.  S`4 i` ` 162. Payment of compensation: Various commenters, including small IXCs and paging"`D0*&&99"  S4 xservices, proposed that the Commission reconsider the use of a "callerpays" system.II yOh'ԍ See supra paras. 126, 132.I We decline to  S4 xrevisit a callerpays approach on remand, because the callerpays system adopted in the Report and  S4 xOrder was upheld by the court in Illinois Public Telecomm, and reiterate that those approaches would involve greater transaction costs that can pose particular burdens for small businesses.  S84 i` ` 163. However, in the interests of administrative efficiency and lower costs, we require  xpthat facilities based carriers should pay the percall compensation for calls received by their reseller  xcustomers. This would permit competitive facilities based carriers to negotiate contract provisions that  xcwould require the reseller to reimburse the carrier. We believe our actions will expedite and simplify  xgnegotiations, minimize regulatory burdens and the impact of our decisions for all parties, including small entities.  S 4  i` ` 164.  Report to Congress. The Commission will send a copy of the Second Report and  S 4 xZOrder, including this FRFA, in a report to be sent to Congress pursuant to the Small Business Regulatory  S 4 xEnforcement Fairness Act of 1996, see 5 U.S.C.  801(a)(1)(A). A copy of the Second Report and OrderĄ  S 4 xand this FRFA (or summary thereof) will also be published in  the Federal Register, see 5 U.S.C.  604(b),  S 4and will be sent to the Chief Counsel for Advocacy of the Small Business Administration.   S04  S4WV. CONCLUSION   S4  i\` ` 165. We conclude in this order that as of October 7, 1997, IXCs must compensate PSPs  xtfor all coinless payphone calls not otherwise compensated pursuant to contract, including subscriber 800  xMand access code calls, 0+ and inmate calls, at the rate of $0.284 per call. We base this decision on the  xconclusion that the default rate for percall compensation for these calls is the deregulated local coin  x}rate adjusted for cost differences. The rate of $0.284 will serve as the default percall compensation  x<rate for coinless payphone calls for the first two years of percall compensation. After the first two  xyears of percall compensation, the marketbased local coin rate adjusted for net avoided costs is the  S4surrogate for the default percall rate for coinless calls. pp  SP4  X(4?WVI. O#o\  PC}XP#RDERING CLAUSES Đ\  X4 in` ` 166. Accordingly, pursuant to authority #f\  PCg&P#contained in Sections 1, 4, 201205, 226,  xand 276 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154, 201205, 215, 218, 219, 220, 226, and 276, IT IS ORDERED that the policies, rules, and requirements set forth herein ARE ADOPTED.  S4 ` `  Sk4 i-` ` 167. IT IS FURTHER ORDERED that this order is effective upon publication in the Federal Register.  S!4 i` ` 168. IT IS FURTHER ORDERED, that the September 10, 1997 Motion of the American  xPublic Communications Council For Leave To File Reply Comments One Day Late, and the September 10,""EX0*&&99e#" 1997 Motion of MCI For Leave To File An Erratum ARE GRANTED.  S4 i\` ` 169. IT IS FURTHER ORDERED that the September 16, 1997 Motion of Sprint Corporation to Require Production of A Cost Study IS DENIED.  S84  i` ` 170. IT IS FURTHER ORDERED, that 47 C.F.R. Part 64 IS AMENDED as set forth in  S4Appendix C, effective upon publication in the Federal Register.I yOx' xԍ The Commission finds, for the reasons set forth in para .3, supra, that good cause exists for the effective date to be less than 30 days after publication in the Federal Register. ` ` "F 0*&&99"  S4 i` ` 171.  IT IS FURTHER ORDERED that the Commission's Office of Managing Director SHALL  S4 xSEND a copy of this Second Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. ` `  XXhhCXqFEDERAL COMMUNICATIONS COMMISSION(#  XX` ` X XXhhC(#h XX` ` X XXhhCXqWilliam F. Caton(#  Sp4XX` ` X XXhhCXqActing Secretary (#  S 4 " G0*&&99 "  S4ePAppendix A   S4 PARTIES FILING COMMENTS IN RESPONSE TO Đ S4\ PAYPHONE REMAND PUBLIC NOTICE Đ S`4\` `  hhC  S841.Air Touch Paging ("AirTouch")  S42.American Public Communications Council ("APCC")  S43.America's Carriers Telecommunications Association ("ACTA")  S44.AT&T Corp. ("AT&T")  S45.Cable and Wireless, Inc. ("CWI")  Sp46.Communications Central, Inc. ("CCI")  SH 47.Competition Policy Institute ("CPI")  S 48. Competitive Telecommunications Association ("CompTel")  S 49. Excel Telecommunications, Inc. ("Excel")  S 410.Frontier Corporation ("Frontier")  S 411.General Communication, Inc. ("GCI")  S 412.Inmate Calling Services Providers Coalition ("Inmate")  SX413.International Telecard Association ("ITA")  S0414LCI International Telecom Corp. ("LCI")  S415.MCI Telecommunications Corporation ("MCI")  S416. MIDCOM Communication, Inc. ("MIDCOM")  S417.NATSO, Inc. ("NATSO")  S418.PageMart Wireless, Inc. ("PageMart")  Sh419.Paging Network, Inc. ("PageNet")  S@420.Peoples Telephone Company, Inc. ("Peoples")  S421.Personal Communications Industry Association ("PCIA")  S422.RBOC/GTE/SNET Payphone Coalition ("RBOC")  S423.RCN Telecom Services, Inc. ("RCN")  S424.Software Defined Network Users Association ("SDN")  Sx425.Sprint Corporation ("Sprint")  SP426.Telaleasing Enterprises, Inc. ("TEI")  S(427.Telecommunications Resellers Association ("TRA")  S428.Teleport Communications Group Inc. ("Teleport")  S429.United States Telephone Association ("USTA")  S430.WorldCom, Inc. d/b/a LDDS WorldCom ("WorldCom") " H0*&&99 "  S4Kd Appendix B ă  S4 PARTIES FILING REPLY COMMENTS TO  S`4PAYPHONE REMAND PUBLIC NOTICE`Y yO' xԍ The following parties have submitted letters to the Commission, which are treated as informal comments and considered part of the record in this proceeding: Borden, Champion, and Sitel. փ S84  S4 I. A. 1. a.(1)(a) i) a) 1. a. i.(1)(a)(i) 1) a)1.Air Touch Paging ("AirTouch")  S42American Public Communications Council ("APCC")  S43. America's Carriers Telecommunications Association ("ACTA")  S44.Arch Communications Group ("Arch")  Sp45.AT&T Corp. ("AT&T")  SH 46.Cable and Wireless, Inc. ("CWI")  S 47. Competition Policy Institute ("CPI")  S 48.Competitive Telecommunications Association ("CompTel")  S 49.Consumer Federation of American and Consumer Action ("CFA")  S 410.Excel Telecommunications, Inc. and Telco Communications Group, Inc. ("Excel")  S 411.Frontier Corporation ("Frontier")  SX412.GE Capital Communications Services Corporation ("GECCS")  S0413. General Communication, Inc. ("GCI")  S414.Illinois Public Telecommunications Association ("IPTA")  S415.Inmate Calling Services Providers Coalition ("Inmate")  S416.International Telecard Association ("ITA")  S417.IPSP Ad Hoc Committee for Consumer Choice ("IPSP")  Sh418.MCI Telecommunications Corporation ("MCI")  S@419. MIDCOM Communication, Inc. (MIDCOM)  S420.Oncor Communications ("Oncor")  S421. PageMart Wireless, Inc. ("PageMart")q  S422. Paging Network, Inc. ("PageNet")  S423. Peoples Telephone Company, Inc. and Communications Central, Inc. ("Peoples")  Sx424.Personal Communications Industry Association ("PCIA")  SP425.RBOC/GTE/SNET Payphone Coalition ("Coalition")  S(426. RCN Telecom Services, Inc. ("RCN")  S427.Sprint Corporation ("Sprint")  S428. Telaleasing Enterprises, Inc. ("TEI")  S429.United States Telephone Association ("USTA")  S430.WorldCom, Inc. d/b/a LDDS WorldCom ("WorldCom")  S84 "8I 0*&&99"  S4A APPENDIX C  S4~RULES ADDED ă Part 64 of Title 47 of the Code of Federal Regulations is amended as follows: 1. The authority citation for Part 64 continues to read as follows:  S4 !"' AUTHORITY: Sec. 4, 48 Stat. 1066, as amended: 47 U.S.C. 154, unless otherwise noted. Interpret or apply  !"'secs. 201, 218, 226, 228, 276, 48 Stat. 1070, as amended; 47 U.S.C. 201, 218, 226, 228, 276 unless otherwise  SH 4noted. 3. Section 64.1300 (c) and (d) are added to read as follows:  S 4 64.1300 Payphone Compensation Obligation.  !"(c) In the absence of an agreement as required by subsection (a) herein, the carrier is obligated to  !compensate the payphone service provider at a percall rate equal to its local coin rate less $0.066 at the payphone in question.  S4 x(d)For the initial twoyear period during which carriers are required to pay percall compensation,  !in the absence of an agreement as required by subsection (a) herein, the carrier is obligated to  !compensate the payphone service provider at a percall rate of $0.284. After this initial twoyear period of percall compensation, subsection (c) herein will apply. "J0*&&99O"  S4j  Separate Statement of Commissioner James Quello c  S4 !In Re Implementation of the Pay Telephone Reclassification and Compensation Provisions of the  S4Telecommunications Act of 1996  xWhile I support today's Report and Order on payphone compensation, I am concerned that the  !}Commission has not received additional information from the industry on the ability of interexchange  !carriers (IXCs) to block calls from individual payphone service providers (PSPs). As discussed in our  !cpayphone orders last year, the Commission will rely primarily on private negotiation to set rates that  !4IXCs will pay PSPs for dialaround and tollfree calls. Fundamental to the success of private  !negotiations is the threat that an IXC will block calls coming from a PSP that proposes to charge the IXC  !lan excessive percall rate. The record developed following the court's remand of this proceeding  !regrettably contains little information on progress toward the deployment of callblocking technology.  x8At this point, I do not second guess our judgment that callblocking technology will be deployed  !and more balanced private negotiations will be possible. As payphone deregulation moves forward,  !however, I urge the Commission to carefully monitor the progress of IXCs in deploying callblocking  !technology. If it becomes clear that IXCs are making insufficient progress toward this goal, the Commission should revisit its decision to rely on market forces to set percall compensation rates.  x[Finally, I would hope that the Commission will assess the impact of the flat percall approach  !@on parties that may ultimately bear a disproportionate share of payphone costs, such as paging carriers  !<and their subscribers. Congress directed the Commission to adopt a percall compensation plan for  !certain types of payphone calls, and we have done that. If the present plan has the effect of diminishing   'the availability of paging services to the public, I hope the Commission will consider modifying its rules to maximize the availability of both payphones and paging services. ` `  ,hhh# # #"xK0*&&99 "  S4     S4b  Separate Statement of Commissioner Susan Ness w  S`4Re:Implementation of the Pay Telephone Reclassification and Compensation Provisions of  S84the Telecommunications Act of 1996   $BThe Telecommunications Act of 1996 charts a course that is "procompetitive" and   'c"deregulatory." These principles are reflected, to varying degrees, in numerous provisions of the law. They have been front and center throughout our proceedings on payphone compensation.   $[Beginning October 7, 1997, and consistent with the goals of competition and deregulation, the   'rates charged for coin calls at payphones throughout the nation were deregulated. The expectation is  'Mthat deregulation of coin rates will promote widespread deployment of payphones, while competition will put downward pressure on prices.   $NI hope marketplace forces will ensure that the rates charged are fair, both to consumers and   'gto payphone service providers. But it is entirely foreseeable that there will be abuses in some locations,   'such as at airports or highway rest stops where the choice is not between one pay phone provider and   'another, but between using the pay phone that is available and foregoing (or delaying) the opportunity   'Zto communicate. Location owners may choose to prevent the payphone service providers from imposing   'excessive charges in these situations, but in any case the state commissions and the FCC are prepared   'Ito take corrective action if necessary. In fact, we have asked the states to review the status of the   '}payphone markets during this next year of transition and to identify any situations that may require corrective measures.   $8As the statute clearly specifies, payphone service providers are entitled to be fairly compensated   'not only for coin calls, but also for coinless calls (i.e., access card calls and 800subscriber calls). I   'Zsupport our determination today regarding the rate to be charged to interexchange carriers for coinless   ' calls. This rate represents our best possible judgment, based on the record evidence, of the difference   'in the costs incurred by payphone service providers as between coin and coinless calls. But, importantly, the reasonableness of the rate is also demonstrated by a "bottomup" analysis of costs.   $I am concerned, however, that the price charged for coinless payphone calls may rise   'Eprecipitously once that charge is permitted to "float" in relation to the coin rate charged at any   'particular phone. Therefore, I am pleased that we have extended the period during which the coinless   'compensation rate will be frozen at the level we are setting today. The additional period is needed   'cbecause the results of our experiment with deregulation with coin phone rates will not be known for   'gsome time, and the ability of the "market" to discipline the compensation rates for coinless calls is even less certain.   $RIn the case of coinless calls, the calling party does not directly pay indeed, has no immediate  'knowledge of the payphone compensation. The "marketplace" solution to excessive payphone charges   'is for interexchange carriers to block calls from all payphones, or to block all calls for which payphone   '3charges exceed a predetermined rate. That, unfortunately, can leave the consumer unable to complete" %L0*&&99%"   'a needed call, or compelled to use the operator service provider with whom the payphone service  'provider has contracted. Clearly, neither approach optimally meets the immediate needs of the consumer.   $RNor is the public interest served by establishing a coinless call compensation system that creates   'artificial incentives for payphone service providers to raise the coin rates that consumers pay, so as to  'enable them to extract higher compensation rates from interexchange carriers for coinless calls.   'Workable marketplace solutions to such situations may well be devised, but at present I am more   'comfortable with keeping the coinless rates in check for two years, while experience is gained with (1)   'the evolution of a competitive, deregulated market for coin phones and (2) the emergence of new  'Mrelationships between callers, payphone service providers, interexchange carriers, and subscribers to 800 service.   $Our actions in this proceeding affect many parties payphone service providers, location   'owners, interexchange carriers, 800 service subscribers, and their customers. We owe fair treatment to  S 4  '}all of them. But the ultimate measure of our success is how well our decisions serve the interests of  S 4  '3consumers. I intend to monitor marketplace developments carefully over the coming months and years to ensure that their interests are safeguarded.