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Y - Second Report also implemented the Budget Act's requirement that the Commission order a
common carrier, pursuant to the provisions of Section 201 of the Act, to establish physical
interconnections with any CMRS provider that requests reasonable interconnection.
Y - x 20. In the CMRS Second Report, we found that there is no distinction between a
LEC's obligation to offer interconnection to cellular carriers and all other CMRS providers,
including PCS providers, and thus we required LECs to provide reasonable and fair
Y c - interconnection for all commercial radio services. Y c
T - ԍ Xx Id. at 149798, para. 230.(#Y We determined that it is in the public
interest to require LECs to provide the type of interconnection reasonably requested by all
CMRS providers. We also applied the same jurisdictional principles to CMRS as we had for
cellular carriers prior to the passage of the Budget Act: we asserted plenary jurisdiction over
the physical plant used in the interconnection of CMRS carriers, but we declined to preempt
state regulation over the rates for intrastate interconnection, unless the charge for the
intrastate component of interconnection was so high that the price effectively precluded
Y - interconnection. \ j
T - ԍ Xx Id. at 1498, para. 231.(#\
Y - x 21. We also established three requirements applicable to LEC provision of reasonable
interconnection to CMRS providers. First, we applied the same principle of mutual
Y f - compensation that we had already adopted for LECcellular interconnection. e f
T # - ԍ Xx Declaratory Ruling, 2 FCC Rcd at 2915.(#e This principle
requires LECs to compensate CMRS providers for the reasonable costs incurred by such
providers in terminating traffic that originates on LEC facilities. Similarly, CMRS providers
are required to provide such compensation to LECs in connection with wirelessoriginated
Y
- traffic terminating on LEC facilities. r
T i - ԍ Xx CMRS Second Report, 9 FCC Rcd at 1498, para. 232. (#r Second, we required LECs to establish reasonable
charges for interstate interconnection provided to CMRS licensees, which should not vary
from the charges established by LECs for interconnection provided to other mobile service
Y - providers. X P
T - ԍ Xx Id. at 1498, para. 233. (#X Third, in determining the type of interconnection that is reasonable for a CMRS
system, we held that the LEC may not deny to a CMRS provider any form of
interconnection arrangement that the LEC makes available to any other carrier or other
customer, unless the LEC meets its burden of demonstrating that the provision of such
interconnection is either not technically feasible or economically reasonable.
Y ; - x 22. In July 1994, we issued a Notice of Proposed Rulemaking and Notice of Inquiry
Y & - to address the interconnection obligations of LECs to CMRS providers and CMRS providers " & 0*((K "
Y - to one another. 2
T y - ԍx Equal Access and Interconnection NPRM and NOI, 9 FCC Rcd 5408 (1994). We also
tentatively concluded that, in concept, equal access obligations should be imposed on cellular
licensees, but that the full panoply of equal access requirements that apply to landline LECs should
not apply to CMRS providers. Accordingly, we sought comment on whether equal access
requirements should be tailored to meet the individual circumstances of particular CMRS providers.
T - Id. at 5411, para. 3.2 Relying on our authority under Section 201(a) of the Communications Act,
we sought comment on whether we should require LECs to offer interconnection to CMRS
providers under tariff pursuant to Section 203, or alternatively, whether we should retain our
current requirement that LECs establish, through good faith negotiations with CMRS
Y - providers, the rates, terms, and conditions of interconnection. N
T - ԍx Id. at 5455, para. 113.N We also sought comment on
whether, in lieu of imposing a tariff filing obligation, we should revise the good faith
negotiation requirement by adding new safeguards against unreasonably discriminatory rates,
terms, and conditions. Specifically, we asked whether we should require that negotiated
interconnection arrangements contain a "most favored nation" clause that would guarantee
that the most favorable terms, conditions, and rates provided by the LEC to one CMRS
provider would be offered to all similarly situated parties, or whether we should require
LECs to file with the Commission all carriertocarrier interconnection agreements so that the
Y
- terms, conditions, and rates are available for public inspection. N
F
T - ԍx Id. at 5457, para. 119.N Early in the summer of
1995, members of the staffs of the Common Carrier Bureau and the Wireless
Telecommunications Bureau convened some informal meetings with pioneers' preference
PCS licensees Cox and APC and the LECs with whom the pioneers preference PCS licensees
will interconnect (NYNEX, Pacific Telesis, and Bell Atlantic). The purpose of these
meetings was to discuss in more detail the interconnection issues raised in the written
comments previously filed by these parties in this proceeding, in particular the appropriate
pricing of interconnection.
Y - x 23. State Proceedings. States have taken a wide variety of actions with regard to
interconnection arrangements between incumbent LECs and competitors, including CMRS
providers. State regulation of interconnection between LECs and CMRS providers varies
widely. In most states, interconnection arrangements are negotiated between the service
provider and the LEC, with virtually no government involvement. In other states, including
California, Connecticut, and New York, CMRS providers and other prospective entrants
must satisfy certain universal service requirements and meet other specified service
Y ~ - obligations to qualify for low interconnection rates. ~
T % - ԍx See, e.g., State of Connecticut, Department of Public Utility Control, Investigation Into
T % - Wireless Mutual Compensation Plans, at 15 (Sept. 22, 1995).
" g d 0*((l " Ԍ
Y - x 24. With respect to state regulation of interconnection arrangements between LECs
and competitive local service providers that predominantly use wireline technology, a large
number of states have removed many of the legal barriers to competition for local services.
Other states are considering allowing competition for LEC services. In the states that allow
competition for local exchange services, there are at least three different systems in place to
allow for interconnection compensation between competing local networks. Many of these
Y v - arrangements are interim pending the establishment of permanent rules. F v
T - ԍx For example, California adopted a bill and keep arrangement for 1 year, Connecticut for 18
months, Texas for 9 months, and Pennsylvania for an unspecified interim period. After these initial
periods, the interconnecting firms will be expected to pay LECs for call termination.F Some states have
adopted mutual compensation policies with rates for termination of traffic subject to tariff
Y H - regulation by the state commission. h H
T
- ԍx For specific examples, see para. 72, infra.h Other states have required "bill and keep"
arrangements, under which neither of the interconnecting carriers recovers any revenues
from the other carrier for terminating the other's traffic, but instead recovers all its costs
from its own end user customers. For example, the Washington Utilities and Transportation
Commission has adopted the bill and keep method for interconnection compensation between
LECs and new entrants as an interim measure, to be replaced by a capacitybased charge
Y - when the details are worked out. "
T ) - ԍx See Washington Utilities and Transportation Commission v. U S West, Docket Nos. UT94146465, UT950146, UT950265, Fourth Supplemental Order Rejecting Tariff Filings and
Ordering Refiling; Granting Complaints, In Part (Oct. 31, 1995)." Third, a substantial number of states have directed LECs
and prospective competing carriers to negotiate arrangements, but have not imposed detailed
regulatory requirements with respect to those agreements.
Y b - J:\POLICY\CMRS\NPRMBACK
J:\POLICY\CMRS\NPRMECON
# &m P 7#{&P# X01 Í Í X01 Í Í # Xw P E37[hXP#
Y K - w/ III. COMPENSATION FOR INTERCONNECTED TRAFFIC
X 5 - o BETWEEN LECS AND CMRS PROVIDERS' NETWORKS ă
X - A.x Overview
Y - wx 25. In the following section, we consider a number of alternative compensation
arrangements that could apply to traffic passing between LECs and CMRS providers'
networks. After summarizing the parties' positions on these twocarrier calls, we discuss
existing compensation arrangements for such interconnection and economic pricing principles
applicable to interconnection compensation arrangements. We tentatively conclude that, to
advance our overriding policies with respect to LECCMRS interconnection arrangements, a
Y O - "bill and keep" approach (i.e., a zero rate for terminating traffic) should be applied with
respect to local switching facilities and connections to end users during an interim period.
We seek comment on whether we should adopt these tentative conclusions as a nonbinding
model for state regulators and/or negotiating parties, or whether we should mandate either "
0*((% " broad, general parameters or specific, detailed prescriptions and we tentatively conclude we
have authority to adopt these approaches.
X - B. Xx Compensation Arrangements (#
X - x 1. ` ` Positions of the Parties (#`
Y _ - x 26. While a few LEC commenters are content with the existing guidelines governing
Y H - LECCMRS interconnection, v H
T - ԍx See, e.g., NYNEX Comments at 6; Pacific Bell Comments at 511.v many wireless carriers urge the Commission to establish more
Y 1 - specific compensation requirements. z `1j
T L - ԍx APC Comments at 45; Columbia PCS Comments at 57; Comcast Comments at 18; Cox
Comments at 23; GCI Reply Comments at 3; MCI Comments at 12; McCaw Comments at 25;
Nextel Comments at 1718; PageNet Comments at 910; PCIA Comments at 1314; Point Comments
at 68; Time Warner Reply Comments at 78; Western Wireless Comments at 7.z Most of these parties argue that the Commission's
existing mutual compensation policy, under which wireless carriers are compensated for
traffic that terminates on their wireless networks on the same terms as LECs are
compensated for traffic terminating on their networks is not being enforced. These parties
suggest three possible approaches for modifying the current mutual compensation policy,
which are described below.
Y - x 27. Reciprocal Compensation. z
T - ԍx The synonymous terms "reciprocal compensation" and "mutual compensation," strictly
speaking, mean only that compensation flows in both directions between interconnecting networks--
the LEC compensates the CMRS provider and the CMRS provider compensates the LEC-- but do not
specify the amount of such compensation in either direction. Many of the parties, however, use these
terms to refer to what we call "symmetrical" compensation arrangements, in which the compensation
T - amount per unit of traffic is equal in both directions. See infra 7881.z Some CMRS providers assert that, although the
Commission has repeatedly affirmed its longstanding policy of "mutual compensation" for
LECcellular interconnection, and extended this to LECCMRS interconnection, the policy is,
Y M - in Comcast's words, "long standing, but largely ignored." Ml
T j - ԍx Comcast Comments at 5; see PCIA Comments at 1314, PageNet Comments at 10. PCIA asserts that, not only have
LECs declined to pay compensation to cellular and paging companies for terminating their
traffic, but some LECs have actually imposed originating access charges on those carriers for
Y - delivering traffic to them. H !
T # - ԍx PCIA Comments at 1314.H Point contends that this lack of reciprocal treatment is
particularly unfair because, Point claims, it is more expensive for a CMRS carrier to
Y - terminate a call than it is for a LEC to terminate a call. E "
T 9' - ԍx Point Comments at 7.E PageNet claims that LECs' refusal " N " 0*(( " to pay compensation is particularly egregious in the context of paging, because a majority of
Y - pages originate on the LECs' facilities and terminate on the paging carriers' facilities. H #
T b - ԍx PageNet Comments at 10.H In
addition, Cox warns that a failure to examine LECCMRS interconnection issues
comprehensively at the outset could hinder the ability of PCS to be a full service substitute
Y - for the local exchange carrier monopoly. C $ h
T - ԍx Cox Comments at 2.C
Y v - x 28. CMRS providers request that the FCC take further action to ensure that they
receive reciprocal compensation for LECCMRS traffic, including both the level of
Y H - compensation for inter-carrier traffic and when it should be paid. % H
T
- ԍx See, e.g., Nextel Comments at 1718; APC Comments at 45; Columbia PCS Comments at
7. They assert that, because
of their relative lack of market power compared with LECs, they do not have the ability to
Y - enforce compensation by LECs for terminating their calls. &
T M - ԍx See, e.g., Century Reply Comments at 1518; Columbia PCS Comments at 6; Point
Comments at 7; Nextel Comments at 17; Western Wireless Comments at 7. PageNet requests that the
Commission require LECs to begin negotiating reciprocal compensation agreements with
Y
- CMRS carriers within 60 days of the order issued in this proceeding. H '
T - ԍx PageNet Comments at 10.H Point and Western
Wireless argue that the Commission must require LECs to compensate CMRS carriers at
rates no less than they receive from CMRS carriers for the traffic originated by CMRS
providers that LECs terminate, and Point also requests compensation from LECs for their
Y - fair proportionate share of the fixed line rates that they are charging CMRS carriers. (
T - ԍx Point Comments at 7; Western Wireless Comments at 7; see PageNet Comments at 910.
Columbia PCS asks the Commission to recognize that the greater leverage that large CMRS
providers have compared to smaller firms enables them to negotiate discriminatory
interconnection agreements. Columbia asserts that the Commission should therefore impose
an "equal charge per minute of use" requirement on all LECs for providing interconnection
Y - to CMRS providers. L ) >
T ! - ԍx Columbia PCS Comments at 78 (describing requirement as "equal per unit of traffic"); Ex
T ! - parte Letter in CC Docket No. 9454 from J.A. Molloy, GO! Communications Corporation
(successor to Columbia PCS, Inc.) to W.F. Caton, Acting Secretary, Federal Communications
Commission (clarifying that terms referred to an "equal charge per minute of use" as contained in the
original Modification of Final Judgment and subsequent Commission rules reflecting that requirement
for all LECs [local transport access service]).L
" ) 0*(( " Ԍ
Y - x 29. CostBased Compensation. Comcast, Cox, and Time Warner all acknowledge
that the mutual compensation model (presumably with symmetrical charges paid by the LEC
and the CMRS provider) works well when there are roughly balanced volumes of traffic
going back and forth between two carriers. They assert, however, that when one party
receives significantly more traffic than the other in this case the LEC in the near term it
can exercise its market power by setting an unreasonably high compensation rate. Citing a
1984 FCC working paper on the exchange of traffic between international carriers as a
comparison, these parties assert that, because the competitive carrier will likely originate
more traffic than it terminates, the monopoly carrier has the incentive and the ability to hold
out for a high mutual compensation rate. They declare that this same rationale will lead
LECs to set artificially high interconnection rates since, for the foreseeable future, there will
Y
- be a substantially greater amount of traffic going to LECs than to PCS carriers. + *
T ~ - ԍx Comcast Comments at 1116; Cox Comments at 610; Time Warner Reply Comments at 8
T V
- (citing Promoting Competition Piecemeal in International Telecommunications, FCC Office of Plans
and Policy Working Paper No. 13, at 26 (1984).+ In addition
to the problem of unbalanced traffic, Cox adds that mutual compensation does not account
for potential discrimination: a LEC could negotiate a high interconnection rate with its
cellular affiliate, since the LEC's shareholders would not care which corporate entity was
accruing the profit. The unaffiliated CMRS firm, however, would be forced to pay the same
high rate and thereby be inhibited from competing with the LEC in its local exchange.
Thus, while Comcast, Cox, and Time Warner maintain that a nondiscriminatory mutual
compensation requirement is a necessary component of any interconnection system, they
argue that it is not sufficient to ensure that CMRS providers will be able to compete with the
Y 6 - LEC in the local service market. + 6
T - ԍx Comcast Comments at 412; Cox Comments at 215; Time Warner Reply Comments at 79.
Y - x 30. Thus, Cox asks the Commission to ensure that interconnection rates are costbased, as well as nondiscriminatory, and that the LECs offer unbundled access to LEC
databases and other network capabilities, as well as termination of traffic. It notes that the
Commission recognized that reasonable interconnection rates were the key to the
development of competition in the interstate access market, but argues that, despite the
Commission's best intentions, LECs' initial expanded interconnection tariffs illustrate the
Y ~ - intransigence of LECs when their position in the market is threatened. , <~
T - ԍx Cox Comments at 10, citing Local Exchange Carrier Rates, Terms and Conditions for
T ! - Expanded Interconnection for Special Access, First Report and Order, 8 FCC Rcd 8344, 8346 ("either
requiring removal of expanded interconnection service because of the LEC's failure to justify their
rates, or alternatively, allowing apparently unreasonably high rates to take effect, would frustrate the
competitive goals of our expanded interconnection proceeding"). Cox and Comcast
argue that the lack of cooperation and compliance by LECs has been effective in delaying the
timing and minimizing the significance of expanded interconnection. Thus, Cox also
proposes that the Commission establish a mechanism for prompt review of LEC " 9
, 0*((= " interconnection rates upon request of a CMRS provider, in order to ensure that the LEC
unbundled its network sufficiently and did not include excessive overhead loadings in its
Y - rates. B -
T K - ԍx Comcast Comments at 9; Cox Comments at 713. Accord, New Par Comments at 22 (LECs
must not charge CMRS providers for elements or services that (i) are not needed or wanted by the
interconnecting CMRS carrier or (ii) are not charged to interconnecting landline LECs).B
Y - x 31. Pacific Bell responds that, at present, interconnection compensation rates are
appropriately based on costs, but that the costs of terminating traffic on CMRS and LEC
networks may well differ and justify different compensation rates. Thus, Pacific concludes
that "traffic imbalance is completely irrelevant" since the issue of appropriate compensation
should be based on costs. It also states that access to databases and other unbundled network
capabilities is being considered in the Advanced Intelligent Network proceeding and is clearly
beyond the scope of our CMRS Equal Access and Interconnection proceeding (CC Docket
Y
- No. 9454). S .
T - ԍx Pacific Reply Comments at 67, 10.S
Y - x 32. Bill and Keep. Comcast, Cox and Time Warner advocate an alternative
compensation model referred to as "Bill and Keep" or "Sender Keep All," under which the
carrier interconnecting and delivering traffic to another would not compensate the terminating
carrier for terminating calls. With its comments, Comcast submits a paper by Dr. Gerald
W. Brock, Director of the Graduate Telecommunication Program, George Washington
University, examining the economic characteristics of a mutual compensation scheme for
LECCMRS interconnection. Brock contends that, when a market is composed of segments
that are monopolized and segments subject to competition, interconnection and compensation
arrangements are critical to the development of effective competition. Brock argues that, if
there are no regulatory controls on compensation for interconnection, the monopolist can
extend its power to the entire market. He states that the level of rates under mutual
compensation is irrelevant only if the level of incoming and outgoing traffic is exactly
balanced, but that this situation rarely, if ever, occurs. Brock adds that the interconnection
rules governing traffic to and from monopoly networks should not be dependent on
Y - technology and should apply to both wireline and wireless services. /
T - ԍx Attachment to Comcast Comments, Gerald W. Brock, "Interconnection and Mutual
Compensation With Partial Competition," at 26 (BrockComcast Paper).
Y g - x 33. Brock states that, although existing policy toward international settlement rates
and theoretical analysis support the goal of costbased compensation rates for jointly provided
services, the actual definition and measurement of costs are not simple tasks. For example,
Brock states that most telecommunications equipment is engineered for peak period usage.
Because most of the cost of service is related to the capacity of the plant rather than the
actual number of minutes used, however, the true cost for peak period usage is much greater " 2 / 0*((
" than the cost for offpeak usage. In fact, Brock states that the cost of carrying offpeak
Y - traffic may be very near zero. N 0
T b - ԍx BrockComcast Paper at 2327.N Based on these findings, Brock recommends two practical
approaches to consider in applying the principle of costbased mutual compensation: (1)
"sender keep all" and (2) "peak usage measurement."
Y - x ! 34. According to Brock, sender keep all is an economically efficient approach as
long as the real cost of terminating traffic is approximately zero. He explains further that,
under this model, each carrier has an incentive to increase the efficiency of its operations and
Y H - reduce its costs so as to maximize the volume of its outgoing traffic. i 1 Hh
T a - ԍx Comcast Comments at 1415; BrockComcast Paper at 2327.i Brock claims that,
although sender keep all departs from the theoretical goal of costbased compensation by
setting belowcost prices for terminating traffic, there is less opportunity for manipulation
than if prices were set above cost because, if traffic is balanced, price is irrelevant.
According to Brock, decreasing the incentives for traffic manipulation will tend to increase
the balance of the traffic and reduce the significance of the difference between the cost and
the zero compensation rate. Thus, Brock contends that, with mutual compensation rates
above cost, the monopolist has an incentive to send as much traffic as possible to its own
affiliate and as little as possible to the competitors of its affiliate. Brock states that, although
under sender keep all the monopolist has no incentive to send traffic to an affiliate, the
monopolist does have an incentive to refuse to accept terminating traffic, but the
interconnection requirement implies an obligation to terminate any traffic that is presented.
Y - x " 35. Brock states that the NYNEXTeleport interconnection agreement provides an
example of a combination of usage charges and sender keep all arrangement. Generally, the
agreement establishes a particular charge for a twoway channel of given capacity between
the two companies. Traffic is measured at the busy hour each month and the relative
measurements are used as an allocation factor for the established channel rate. When traffic
is exactly balanced, the payments to each company cancel out and the established rate is
irrelevant. Brock states that this type of arrangement is essentially a sender keep all
arrangement for nonpeak traffic, because relative traffic is only measured at the peak hour
and thus either company can increase its traffic to the other at nonpeak times without
affecting the charges due. Brock notes that the difference between peak and offpeak traffic
is beneficial for administrative simplicity and economic efficiency: because the incremental
cost of terminating traffic during offpeak periods is virtually zero it is administratively
easier simply to ignore offpeak periods. He asserts that capacity charges, rather than per
minute charges, allow attention to be focused on the cost of service at the peak load, which
Y - is generally the real cost of service. N 2
T % - ԍx BrockComcast Paper at 2327.N Brock concludes that, while the structure of the
NYNEXTeleport agreement is beneficial for equating termination charges to cost during the " 2 0*((! " offpeak period, it does not solve the problem of increasing market power through high
charges.
Y - x # 36. In response to LECs' arguments against bill and keep, Cox states that LEC
arguments that the costs of terminating traffic are higher than the costs of originating traffic
appear to be based on the erroneous assumption that the terminating carrier will route the call
through most of its network, and the originating carrier will transfer the call to the
terminating carrier at the tandem or higher. Cox states, however, that it is asking only that
bill and keep be used for traffic terminated at the end office, where the cost of termination is
Y 1 - de minimis (on average about $0.002 per minute, according to Cox) and that LECs would be
compensated for calls terminated at the tandem. Because the cost of end office termination is
so small, Cox argues that the fact that traffic flows between LECs and CMRS providers may
be imbalanced at the outset of competition is irrelevant. Cox adds that studies using the
LECs' own data reveal that the transaction costs of measuring and charging for terminating
Y - traffic at the end office are probably higher than the de minimis cost of terminating traffic,
Y
- thus making bill and keep for end office termination an economically efficient result. 3
T $ - ԍx Ex parte letter from J.G. Harrington, Counsel for Cox Enterprises, Inc., to Mr. William F.
Caton, Acting Secretary, Federal Communications Commission, October 19, 1995.
Y } - x $ 37. In considering whether a bill and keep approach would constitute a taking for
Fifth Amendment purposes, CTIA contends that such a finding would require that the
property at issue be rendered worthless, that the loss would involve more than merely
anticipated profits, or that a physical invasion occurred, none of which is the circumstance in
this case. CTIA also cites to a recent decision by the Washington Utilities and
Transportation Commission, which ordered bill and keep on an interim basis, to support its
position that bill and keep is not a system of interconnection for "free." CTIA states that bill
and keep is a system of reciprocal exchange of traffic in which each company receives
something of value and can recover the costs for termination from its own end users in flat
Y - monthly charges. ) 4 >B
T - ԍx Ex parte letter from Randall S. Coleman, Vice President for Regulatory Policy and Law,
CTIA, to Ms. Regina Keeney, Chief, Common Carrier Bureau, Federal Communications
T S - Commission, December 8, 1995 (citing Washington Utilities and Transportation Commission v. U S
T - - West, Docket Nos. UT94146465, UT950146, UT950265, Fourth Supplemental Order Rejecting
Tariff Filings and Ordering Refiling; Granting Complaints, In Part (October 31, 1995)).) CTIA adds that bill and keep is fair compensation based on the fact that
it is the dominant practice between adjacent LECs around the country for terminating local
Y - extended area service traffic between adjacent exchanges. x 5 H
T y# - ԍx Id.; see also Cox Ex Parte letter, October 19, 1995, at 3.x
Y R - x % 38. Only NYNEX and Pacific Bell responded in opposition to Comcast's proposal.
NYNEX opposes the proposal on the grounds that the Commission's mutual compensation
policy is designed to ensure that both LECs and CMRS providers receive compensation for " $ 5 0*((- " the reasonable costs incurred in terminating traffic on each other's networks. By contrast,
NYNEX contends, these costs would not be recovered by either party under Comcast's
proposal. NYNEX argues that Comcast has not offered a sound policy basis that would
Y - justify a change in the Commission's mutual compensation policy at this time. K 6
T 4 - ԍx NYNEX Reply Comments at 6.K Pacific Bell
contests the characterization of interconnection charges between affiliates as simple "pocket
to pocket" transfers. Pacific claims that an affiliate desires an appropriate interconnection
rate to the same extent as any other CMRS provider because it will affect the price charged
Y _ - to customers, and too high a price will put the affiliate in a less competitive position. M 7 _h
T x
- ԍx Pacific Reply Comments at 6.M
Finally, Pacific contends generally that the comments provide no basis for changing the
Y 1 - Commission's current policies regarding interconnection. M 8 1
T
- ԍx Pacific Reply Comments at 8.M
X
- x 2. ` ` Discussion (#`
Y - x & 39. In the following sections, we consider what types of compensation arrangements
for interconnection between CMRS networks and LEC networks would best serve the public
interest. First, we discuss existing compensation arrangements and seek additional
information about these arrangements. Second, we consider general principles of cost
causation that we believe should govern LECCMRS interconnection arrangements. We
address the rate structure implications of the different components of network costs, and
explain our belief that the cost of fixed facilities dedicated to a particular party should be
recovered through nontraffic sensitive (NTS) charges to that party, while the costs of certain
shared network facilities should be recovered through prices reflecting parties' use of
network capacity. We also discuss economic theories that optimally should govern rate
levels in LECCMRS interconnection arrangements. Third, we discuss our tentative
Y - conclusions that, during an interim period, "bill and keep" arrangements (i.e., a zero rate)
should apply to the termination of traffic from end offices to endusers, and that flat rates
should apply to dedicated transmission facilities connecting LEC and CMRS networks. We
also seek comment on a number of alternative options that could be used to set LECCMRS
interconnection rates in the near term. We note that our analysis below assumes that LECs
and CMRS providers are likely to continue using existing technical forms of interconnection,
and we seek comment on whether our analysis should change if different technical forms of
interconnection are used. We invite commenting parties to address our analysis of these and
other issues regarding interconnection pricing that are discussed at length below.
X - x ` ` a. Existing Compensation Arrangements (#
Y -
Y - x ' 40. According to the comments received in this proceeding, at present, cellular
carriers typically pay LECs three types of usagesensitive charges for local calls from cellular " ! 8 0*((" "
Y - subscribers to LEC subscribers, regardless of the physical interconnection facility used: 9
T y - ԍx See Equal Access and Interconnection NPRM and NOI, 9 FCC Rcd 5408, 5451, para. 105 for
a description of Type1, Type2A, and Type2B interconnection facilities.
(1)percall charges for call setup; (2)perminute charges for usage; and (3)perminute,
permile charges for transport between the cellular carrier's mobile telephone switching
Y - office (MTSO) and the LEC's tandem or endoffice switch. : B
T - ԍx Ex parte letter from Kathleen Q. Abernathy, Counsel for Air Touch Communications to Mr.
William F. Caton, Acting Secretary, Federal Communications Commission, October 11, 1995, at 4. Some cellular carriers contend
that, notwithstanding our mutual compensation requirement, they typically are forced to pay
LECs these charges for calls originating from cellular customers and terminating to LEC
wireline customers, as well as for calls originating from LEC customers and terminating to
Y _ - cellular customers. W ; _
T
- ԍx Id.; see PCIA Comments at 1314.W Commenters also submit that, typically, substantially more traffic flows
Y H - from cellular carriers to LECs than vice versa. < :H^
T W - ԍx According to Pacific Telesis, 94% of LECCMRS exchange traffic terminates on its network
and 6% terminates on wireless networks, and wireless traffic is growing at about 20% per year in
T - California, although the termination ratio remains about the same. Ex Parte Letter from Alan
Ciamporcero, Vice President, Pacific Telesis, to Michele Farquhar, Chief, Wireless
Telecommunications Bureau, Federal Communications Commission, December 7, 1995. This may be due to cellular customers'
reluctance to give out their wireless telephone numbers, because of charges for cellular air
Y - time, technical limitations on cellular telephones (e.g., limited battery life), or other factors.
On the other hand, for services such as paging, most (or all) of the interconnected traffic
Y
- flows from LECs to CMRS providers, rather than vice versa, because most pager devices are
incapable of originating calls.
Y
- x ( 41. We invite commenting parties to provide more detailed information about
existing LECCMRS interconnection arrangements. Specifically, we are interested in data
regarding the rate structures and price levels in those arrangements. We also request
comment on what facilities and technical arrangements are used in providing LECCMRS
interconnection, what rate elements are applicable to providing the services, and the functions
that are associated with each rate element. To what extent are these arrangements filed in
tariffs before state commissions, or are otherwise publicly disclosed? To what extent do
Y - these arrangements make use of provisions in FCC tariffs? We also seek comment on the
extent of, and reasons for, the imbalance of traffic flowing between LECs and CMRS
providers. Are traffic flows likely to be more balanced in the future for existing commercial
mobile radio services or new services such as PCS? Do LECs' current charges/tariffs differ
depending on the flow of traffic? We also invite parties to submit data on the extent to
which existing LECCMRS interconnection arrangements involve both interstate and
intrastate traffic. In particular, we seek empirical data and analysis on the extent to which
significant levels of interstate wireless traffic are being carried under such arrangements. We " k ` < 0*((l " also seek comment on the extent to which our mutual compensation requirement is not being
observed in the marketplace.
X - vx ` ` b. General Pricing Principles (#
X - x ` ` (1) ` Rate Structure (#
Y _ - x ) 42. In general, we believe that costs should be recovered in a manner that reflects
the way they are incurred. vNetwork providers incur costs in providing two broad categories
of facilities, dedicated and shared. Dedicated facilities are those that are used by a single
party-- either an end user or an interconnecting network. Shared facilities are those that are
used by multiple parties. Shared facilities can be further divided into two subcategories,
those that need to be augmented to increase the network's capacity and those that need not.
In the first such subcategory are facilities, such as switches and multiplexing electronics, for
which incremental investments can increase the volume of traffic that the network can handle
during peak periods. In the second such subcategory are facilities, such as telephone poles
and buildings that house equipment, whose capacity will not restrict the volume of traffic that
the network can handle during peak periods.
Y K - x * 43. The cost of a dedicated facility can be attributed directly to the party ordering the
service that uses that facility. To the extent that the benefits of a dedicated facility accrue to
the party to whom it is dedicated, it is efficient for that party to pay charges that recover the
full cost of the facility. To ensure that the party pays the full fixed cost of the facility, the
Y - cost should be recovered on a nontraffic sensitive (NTS) basis (i.e., without regard to actual
usage). Charging a flat, costbased rate ensures that a customer will pay the full fixed cost
of the facility, and no more; this ensures that the customer will, for example, add additional
lines if and only if the customer believes that the benefits of the additional lines will exceed
their cost. An additional advantage of a flat fee is that it does not distort usage. The
Y ~ - alternative, a usagebased charge, would cause parties with high traffic volumes to overpay
Y g - (i.e., pay more than the fixed cost of the facility), while parties with low traffic volumes
Y R - would underpay (i.e., pay less than the fixed cost of the facility). In addition, a usagebased
charge would give all parties an uneconomic incentive to reduce their traffic volumes or to
avoid connecting with networks that impose such charges. It would also give parties with
low volumes of traffic, who face belowcost prices, an incentive to add lines that they valued
below their cost.
Y - x + 44. The costs of shared facilities whose cost varies with capacity, such as network
switching, should be recovered in a manner that efficiently apportions costs among users.
Since the cost of capacity is a function of the volume of traffic the facilities are able to
handle during peak load periods, we believe, as a matter of economic theory, that network
capacity costs should primarily be recovered through trafficsensitive (TS) rates charged for
peak period traffic, with lower rates for nonpeak usage. The peak load price should be
designed to recover at least the cost of the incremental network capacity added to carry peak
period traffic. Pricing traffic during peak periods based on the cost of the incremental " )' < 0*((P( " capacity needed to handle additional traffic is economically efficient because additional traffic
will be placed on the network if and only if the user or interconnecting network is willing to
pay the cost of the incremental network capacity required to handle this additional traffic.
Such pricing also ensures that a call made during the peak period generates enough revenue
to cover the cost of the facilities expansion it requires, and it thus gives carriers an incentive
to expand and develop the network efficiently. In contrast, offpeak traffic imposes
relatively little additional cost because it does not require any incremental capacity to be
added, and consequently, the price for carrying offpeak traffic should be lower.
Y 1 - x , 45. ` ` We recognize that there may be practical problems in implementing a peak
sensitive pricing system. For example, different parts of a given provider's network may
Y
- experience peak traffic volumes at different times (e.g., in LEC networks, business districts
may experience their peak period between 10:00 and 11:00 a.m., while suburban areas may
have their peak periods between 7:00 and 8:00 p.m.). Moreover, peak periods may change
over time. For instance, charging different prices for calls made during different parts of the
day may cause some customers to shift their calling to the less expensive time periods, which
Y - could potentially shift the peak or create new peaks. - =
T - ԍx Compare United Kingdom Office of Telecommunications, A Framework for Effective
T - Competition: A Consultative Document on the Future of Interconnection and Related Issues, 14.17
T - (Dec. 1994). - We seek comment on whether a
Y { - system with a long peak period (e.g., 8:00 a.m. to 9:00 p.m.) and with peak and offpeak
rates that reflect both the difference in costs across these periods and customers' propensity
to substitute across time periods would improve the utilization rates of the network and
would be administratively simple. We seek comment on this analysis, and on possible
methods for implementing peakload pricing or other schemes to recover shared network
capacity costs. We also seek comment on possible administrative costs associated with peakload pricing or other schemes to recover shared network capacity costs.
Y - x - 46. There are also certain shared facilities, such as land, buildings, and telephone
poles, whose costs do not vary with capacity (or peak period traffic volumes). As we
discuss in the following section on rate levels, there are theoretical and practical problems
associated with recovering these shared costs and overheads. We seek comment on how
these costs should be recovered and, in particular, on whether they should be recovered
entirely through peak rate charges, or through offpeak rates as well. Finally, we note that a
carrier may incur varying costs to provide a given service in different geographic areas. We
seek comment on how this should be taken into account.
"
= 0*(( " Ԍ
X -
x ` ` (2) Rate Levels
X - x ` ` (a)hhLong Run Incremental Costs
Y - x . 47. The long run incremental cost (LRIC) of a service is the theoretical foundation
Y - for efficient pricing of interconnection and other network services. >
T - ԍx We have defined longrun incremental cost as including "the full amount of incremental
investment and expenses which would be incurred by reason of furnishing additional quantities of
service, whether in a new or an existing service category." We added that, in estimating LRIC, one
"determine[s] prospectively the effect on total costs, including the effect on common costs, . . . of
T f
- adding units of service." American Telephone & Telegraph Co., 55 FCC 2d 224, 231 n.18 (1975)
T @ - (citing American Telephone & Telegraph Co., 18 FCC 2d 761, 766 (1969)). Economists generally
agree that prices based on
LRIC reflect the true economic cost of a service and give
appropriate signals to producers and consumers and ensure efficient entry and utilization of
Y H - the telecommunications infrastructure. ? fH
T - ԍx See generally Alfred E. Kahn, I The Economics of Regulation: Principles and Institutions 85
T w - (1970). See also Stephen Breyer, Regulation and Its Reform 52 (1982); Harold Hotelling, "The
General Welfare in Relation to Problems of Taxation and of Railway and Utility Rates, 6
T ) - Econometrica 242 (1938). Since customers will buy a good only if the benefit
to the customer exceeds the price, prices based on LRIC ensure that customers purchase a
good only when the benefit exceeds the cost. Similarly, since firms will offer a service when
the revenue exceeds the cost, prices based on LRIC ensure a firm has an incentive to offer a
service when customers' willingness to pay for the service exceeds the cost of providing it.
Y - x / 48. Pricing at LRIC raises some difficulties, however. First, attempting to determine
the LRIC of a specific service for a particular LEC is likely to raise significant practical and
administrative problems. In addition, given that services are provided over shared facilities
and there are economies of scale and scope, setting the price of each discrete service based
on the LRIC of that service will not recover the total costs of the network. Similarly, where
technological developments are reducing the costs of providing service, setting the price of
discrete services equal to the forwardlooking LRIC of each service is not likely to recover
the historical, embedded costs of the network (or the interstate share of such costs assigned
by our Part36 separations rules). We seek comment on the empirical magnitude of these
cost differentials.
X - x ` ` (b) hhRecovering Costs in Excess of Long Run Incremental
X - Costs (#h
Y | - x 0 49. The fact that pricing based on the LRIC of specific services may not cover all
common costs raises difficult issues for pricing interconnection. In particular, this problem
means that, if all costs are to be recovered, some services must be priced above LRIC,
which will cause some distortions. It is therefore necessary to consider whether terminating " 7
? 0*((. " carriers should be allowed to recover such costs in excess of LRIC, and if so, to address the
method of recovering such costs that would minimize economic distortions and best advance
our goals. We seek comment on how best to deal with this recovery issue and, in particular,
on the following approaches.
Y - x 1 50. One approach would be to allow carriers to set LECCMRS interconnection rates
equal to the LRIC of the individual services associated with interconnection, and to recover
Y _ - common costs by having the rates for other services, such as vertical calling features (e.g.,
call waiting, call forwarding, or caller ID), exceed LRIC. This would clearly benefit those
CMRS and LEC networks that seek to interconnect with one another's network. We seek
comment on whether, and on what basis, LECCMRS interconnection offerings should be
treated differently from a carrier's other service offerings, which generally are priced to
recover some portion of shared costs and overheads.
Y - x 2 51. Another approach would be to allocate shared costs and overhead among services
Y
- in an inverse relationship to the sensitivity of demand for each of the services. @
T " - ԍx The sensitivity of demand is measured by the elasticity of demand, which is defined as the
percentage change in the quantity of a service demanded for a given percentage change in price. Under this
"Ramsey rule," a higher percentage of shared costs and overheads would be allocated to
services for which the quantity demanded declines less as the price increases, than to services
for which demand is more sensitive to changes in price. In theory, this approach has the
advantage that it efficiently minimizes reductions in the quantities of services demanded due
Y 6 - to prices above LRIC. A f6@
T ' - ԍx See Frank P. Ramsey, A Contribution to the Theory of Taxation, 37 Econ. J. 47 (1927); see
T - generally Kenneth E. Train, Optimal Regulation: The Economic Theory of Natural Monopoly 11540
(1992) (discussing efficiency properties of Ramsey prices); Bridger M. Mitchell & Ingo Vogelsang,
T - Telecommunications Pricing: Theory and Practice 4361 (1991) (same). While demand sensitivity is clearly relevant to setting efficient
prices, there is some concern about how Ramsey principles should be applied to markets
subject to actual or potential competition. We recognize that Ramsey pricing principles were
developed in the context of a regulated monopoly and not for markets subject to existing or
Y - potential competition. B <n
T - ԍx Alfred E. Kahn & William B. Shew, Current Issues in Telecommunications Regulation:
T - Pricing, 4 Yale J. on Reg. 191, 248 (1987) ("The standard formula for Ramsey pricing assumes a
monopoly supplier. The competition in telecommunications markets is likely to alter the prices that
satisfy the Ramsey principle. How it alters them will depend on whether regulation is confined to the
incumbent firm or extended to competitive entrants as well."). We seek comment on whether such an approach is desirable for
markets in which competition is developing. We also seek comment on whether such a
pricing rule is in the public interest, given that it may result in imposing the greatest burdens
on those customers who have the fewest alternatives.
" ~ r B 0*((m " Ԍ
Y - x 3 52. A third commonly employed alternative would be to allocate shared costs and
overheads among all services based on some specified allocator. For example, shared costs
and overheads could be allocated among services uniformly in proportion to each service's
Y - LRIC or direct costs, or could be apportioned based on some measure of usage. 8 C
T 4 - ԍx Compare United Kingdom Office of Telecommunications, A Framework for Effective
T - Competition: A Consultative Document on the Future of Interconnection and Related Issues, 4.32
T - (Dec. 1994). 8 The
advantages of these allocators are that they are relatively simple to administer and result in
full recovery of all shared and overhead costs. A principal drawback of this approach,
however, is that it may have undesirable effects on demand for particular services. More
specifically, such allocators do not minimize the distortions in demand caused by divergences
between price and LRIC, and may induce inefficient investment by incumbents and entrants.
In addition, or in the alternative, we could limit the permissible overhead loading factor a
LEC could collect from an interconnecting CMRS provider to the overhead loading factor
that the LEC uses for some comparable service or services that compete with CMRS
Y
- offerings. D Z
T - # Xw P ) 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P * 7#{&P# эx In our Virtual Collocation Order, we reaffirmed that, in the context of expanded interconnection, LECs may include no more than uniform overhead loadings in their interconnection rates
T k - unless they provided justification for a greater loading factor. Expanded Interconnection with Local
T E - Telephone Companies, Memorandum Opinion and Order, 9 FCC Rcd 5154, 5189 (1994) (Virtual
T - Collocation Order), pet. for review pending. Furthermore, in our Virtual Collocation Overhead
T - Prescription Order, we specified that LECs may recover overhead loadings on their virtual collocation
charges as long as these loadings do not exceed the lowest overhead loadings assigned to their
T - comparable DS1 and DS3 services. Local Exchange Carriers' Rates, Terms, and Conditions for
T - Expanded Interconnection Through Virtual Collocation for Special Access and Switched Transport,
T _ - Report and Order, 10 FCC Rcd 6375, 640607 (1995) (Virtual Collocation Overhead Prescription
T 9 - Order).
Y - x 4 53. A fourth approach would be to allow incumbent carriers such as LECs to employ
the "efficient component pricing rule" (ECPR) proposed by economist William Baumol and
Y - others. E f>
T - ԍ See William J. Baumol, Some Subtle Issues in Railroad Deregulation, 10 Int'l J. Trans. Econ.
T Y - 341 (1983); William J. Baumol & Gregory Sidak, Toward Competition in Local Telephony (1994);
T 3 - William Baumol & Gregory Sidak, The Pricing of Inputs Sold to Competitors, 11 Yale J. on Reg. 171
(1994). Under this approach, an incumbent carrier that sells an essential input service, such
as interconnection, to a competing network would set the price of that input service equal to
"the input's direct perunit incremental cost plus the opportunity cost to the input supplier of
Y K - the sale of a unit of input." F Kl
T h% - ԍx William Baumol & Gregory Sidak, The Pricing of Inputs Sold to Competitors, 11 Yale J. on
Reg. at 178. The ECPR essentially guarantees that the incumbent will
recover not only all of its overheads, but also any profits that it would otherwise forego due " 4 F 0*(( " to the entry of the competitor. Proponents of the ECPR argue that the ECPR creates an
incentive for services to be provided by the leastcost provider and that it makes the
incumbent indifferent between selling an input service to a competitor or a final service to an
end user. Critics, however, have shown that these properties only hold in special
Y - circumstances. G
T - ԍx See, e.g., JeanJacques Laffont & Jean Tirole, Access Pricing and Competition, 38 Eur.
Econ. Rev. 1673 (1994). On the other hand, some express concern that the ECPR may inhibit
Y - beneficial entry. H B
T - ԍx JeanJaques Laffont and Jean Tirole, "Creating Competition Through Interconnection: Theory
and Practice," MIT Mimeo at 3 (1994). In addition, because the ECPR would permit an incumbent carrier to
recover its opportunity costs, including any monopoly profits in the sale of the final service,
the use of this rule may prevent competitive entry from driving prices towards competitive
levels. These arguments cast significant doubts on claims that the rule will yield efficient
outcomes. Finally, as an administrative matter, it would be difficult for a regulatory agency
to determine the actual level of a carrier's opportunity cost.
Y
- x 5 54. Finally, we might adopt an approach that permits a range of permissible rates
(and implicitly of overhead allocations). We note, for example, that the Commission has
repeatedly expressed concern about preventing crosssubsidies. Some economists have
defined the following alternative tests for crosssubsidy: (1)the price of each individual
service, and of any group of services, must be less than the standalone cost of that service
Y y - (i.e., the cost of providing that service alone but no other services); or (2)the revenue from
each service and from all subsets of services must exceed the incremental cost of the service
Y M - or the subset of services. I M
T - ԍx William J. Baumol, John C. Panzar & Robert D. Willig, Contestable Markets and the Theory
T - of Industry Structure 35156 (1982). According to these definitions, if either of the two tests is
satisfied, there is no crosssubsidy. This test effectively requires that the revenues generated
by any group of services that share a common facility recover at least the incremental cost of
that facility. We seek comment on this theory, and on whether it reduces the range of
acceptable prices, and hence, implicitly, the range of acceptable allocation schemes.
Y - x 6 55. We seek comment on the foregoing approaches to determining rate levels, how
they might apply in the context of LECCMRS interconnection, the extent to which they are
administratively feasible, and how they will affect rates for other services including intrastate
services. We also seek comment on how these LECCMRS interconnection rate levels could
affect telecommunications network subscribership and universal service. We also ask parties
to address the extent to which these approaches could be implemented in the context of the
specific pricing options discussed in the following section.
X - x ` ` (3) ` Practical Considerations Regarding CostBased Pricing (#
" 6 I 0*((
" Ԍ
Y - x 7 56. LECCMRS interconnection rates could be based on a specific demonstration of
the costs of providing service, much as we do for establishing rates for new services under
our price cap rules. The new services test requires price cap LECs to demonstrate that the
rates for a new service recover the direct costs of that service plus a reasonable share of
Y - overhead loadings. , J
T - # Xw P % 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P & 7#{&P# эx 47C.F.R. 61.49(g)(2). See Telephone CompanyCable Television CrossOwnership Rules,
Memorandum Opinion and Order on Reconsideration, 10FCC Rcd 244, 33947, paras. 205223
T - (1994) (Video Dialtone Reconsideration Order)., We seek comment on whether we should provide guidance with respect
Y - to such a cost showing similar to our interpretation of the new services test in the Video
Y x - Dialtone Reconsideration Order. K dx
T E - # Xw P ' 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P ( 7#{&P# эx In that order, we clarified, inter alia, that the LECs would be expected, in the video dialtone
context, to include in direct costs a reasonable allocation of other costs that are associated with shared
T - plant used to provide video dialtone and other services. Video Dialtone Reconsideration Order,
10FCC Rcd at 34546, paras.21721. In addition, we seek comment on how we should deal
with overhead loadings and whether we should employ any of the alternative approaches
discussed in the previous section. We also note that similar cost justification requirements
could be enforced by state commissions.
Y
- x 8 57. The approaches described in the preceding paragraph have a number of
advantages, in that they result, at least in theory, in costbased rates for particular services.
On the other hand, these approaches have the disadvantage, typically, of requiring
contentious, and timeconsuming administrative proceedings to resolve the complex issues
raised by cost studies.
X } - x ` ` c. Pricing Options (#
X O - x ` ` (1) Interim Approach
Y ! - x 9 58. Any significant delays in the resolution of issues related to LECCMRS
interconnection compensation arrangements, combined with the possibility that LECs could
use their market power to stymie the ability of CMRS providers to interconnect (and may
have incentives to do so), could adversely affect the public interest. We tentatively conclude
that it will better serve the public interest to give providers some degree of certainty, within
a short time, that reasonable interconnection arrangements will be available. Some of the
alternatives described below may approximate the results of cost studies, and thus provide
most of the advantages of the theoretical model described above, but avoid the main
disadvantages-- administrative costs and delays.
Y ; - x : 59. Accordingly, we tentatively conclude that an interim pricing approach should be
adopted that could be implemented relatively quickly and with minimal administrative
burdens on CMRS providers, LECs, and regulators. We plan to move forward expeditiously
so as to have an interim pricing approach in place in the near term. Below, we discuss our " H K 0*(( " tentative conclusion that a bill and keep approach (zero rate for termination of traffic) should
apply with respect to local switching facilities and connections to end users, with the
exception of dedicated transmission facilities linking the two networks. We also set out a
number of alternative approaches. Our preferred approach or the alternative options could be
Y - adopted as interim solutions for some limited period of time. We seek comment on whether
such an approach should apply for a prescribed time period, whether months or years, or
until the occurrence of a specific triggering event. With respect to our preferred approach
and each of the alternative options discussed below, we ask parties to address whether some
combination of these options should be made available, and on the implementation costs for
carriers, as well as the speed with which such options could be implemented. In particular,
we seek comment on the extent to which modifications would be required in the network to
Y
- implement such options (e.g., to collect information necessary for billing and collection), the
cost of such modifications, and who should bear such costs. We also solicit parties' analysis
of the relevant administrative burdens on the Commission caused by the various options, and
the ease with which these options can be enforced. Finally, we seek comment on any
changes to our approaches that would be necessary or advisable if LECs and CMRS
Y - providers were to change current arrangements for recovering costs from end users. L p
T - ԍx For instance, CMRS subscribers currently pay the cost of airtime for terminating calls. The
prospect has been raised that CMRS providers might change this practice, so that LEC customers who
originate calls to CMRS subscribers would pay those costs. If information is made available to the
LEC customer regarding the price of the call before the call is placed, this arrangement, called
"sender pays," should foster economic efficiency because the party who expects to pay for a
telephone call makes the decision whether to complete the call based on his or her consideration of
whether the value of the call exceeds the price. Adoption of such an arrangement might well affect
LECCMRS interconnection rate issues. For instance, if the LEC, rather than the CMRS provider,
collects revenues reflecting the costs of terminating airtime, that might well affect the appropriate
interconnection rates.
X d - x ` ` (a) hhTentative Conclusions (#h
Y 6 - x ; 60. Bill and Keep. We tentatively conclude that a "bill and keep" arrangement
represents the best interim solution with respect to terminating access from LEC end offices
to LEC enduser subscribers, and with respect to terminating access from equivalent CMRS
facilities to CMRS subscribers. Under bill and keep arrangements, neither of the interconnecting networks charges the other network for terminating the traffic that originated on
the other network, and hence the terminating compensation rate on a usage basis is zero.
Instead, each network recovers from its own endusers the cost of both originating traffic
delivered to the other network and terminating traffic received from the other network. Bill
and keep arrangements yield results that are equivalent to the networks charging one another
incremental costbased rates for shared network facilities if the incremental cost of using such
facilities is equal to (or approximates) zero for both networks. We note that several states,
including California, Connecticut, Texas and Pennsylvania, have implemented bill and keep " ;
L 0*(( " arrangements, at least on an interim basis. We tentatively conclude that, as an interim
solution, such bill and keep arrangements should cover both peak and offpeak time periods.
Y - x < 61. Bill and keep arrangements appear to have a number of advantages, especially as
an interim solution. First, such arrangements are administratively simple and would require
Y - the development of no new billing or accounting systems. 3 M
T - ԍx See, e.g., Ex Parte Letter from Randall S. Coleman, Vice President for Regulatory Policy
and Law, CTIA to Regina Keeney, Chief, Common Carrier Bureau, Federal Communications
T - Commission, Attachment at 1, December 8, 1995.3 Second, the bill and keep
approach prevents incumbent LECs that possess market power from charging excessively
high interconnection rates. Third, according to proponents, a bill and keep approach is
economically efficient if either of two conditions are met: (1) traffic is balanced in each
direction, or (2) actual interconnection costs are so low that there is little difference between
a costbased rate and a zero rate. Proponents of bill and keep submit that condition (2) is
satisfied in the case of LECCMRS interconnection because they allege that the average
incremental cost of local termination on LEC networks is approximately 0.2 cents per
Y - minute. N
T - ԍx Id. at 1. See also ex parte letter from Robert F. Roche, CTIA, to Mr. William F. Caton,
Acting Secretary, Federal Communications Commission, filed in CC Docket No. 9454, December 8,
T R - 1995, Gerald W. Brock, The Economics of Interconnection: Incremental Cost of Local Usage (April
1995) (Brock Paper No. 3). Brock acknowledges that this is an average figure. He states that
"[b]ecause the cost is determined by the use [of] peak capacity, the actual cost per minute is much
higher at the peak and is zero at the offpeak." He estimates the cost of peak usage at 2.1 cents per
minute during the busiest hour of each business day.
Y
- x = 62. In view of these advantages, we tentatively conclude that, for terminating access
between the end office (or equivalent CMRS facilities) and the enduser subscriber, a bill and
keep arrangement applied to both peak and offpeak periods represents the best interim
solution. We also tentatively conclude that a requirement that LECs and CMRS providers
not charge one another for terminating traffic from the other network would not violate any
party's legal rights. Specifically, we believe that a bill and keep requirement would not
deprive either LECs or CMRS providers of a reasonable opportunity to recover costs they
incurred to terminate traffic from the other's network, because these costs could be recovered
from their own subscribers. We seek comment on these tentative conclusions. We also seek
comment on the effect that a bill and keep approach is likely to have on traffic flows between
LEC and CMRS networks: is this approach likely to lead to more balanced traffic flows, or
will it create incentives to perpetuate or exacerbate existing traffic imbalances between LEC
and CMRS networks?
Y e - x > 63. Transport Costs between the CMRS and LEC Networks. Brock's analysis of bill
and keep appears not to consider the costs associated with the physical transmission circuits
connecting CMRS MTSOs with LEC end offices. Transmitting calls between CMRS and " 9
N 0*((. " LEC networks can be accomplished through the use of dedicated facilities between CMRS
MTSOs and LEC end offices, or through dedicated facilities between CMRS MTSOs and
LEC tandem switches. When tandem switches are used, additional tandemswitched
transport, consisting of tandem switching and transmission over common transport facilities,
is used to transmit traffic between LEC tandem switches and LEC end offices. These
facilities are generally provided by LECs. With respect to dedicated transport facilities, costcausation principles suggest that the costs of such facilities be recovered from the costcauser
through flat rates. With respect to shared facilities used to provide tandemswitched
transport, costcausation principles suggest trafficsensitive cost recovery, at least during
peak periods.
Y
- x ? 64. LECs' existing interstate access tariffs include flat rates for dedicated transport
(entrance facilities and directtrunked transport) that we have concluded, in general, are
Y - reasonably costbased. ! O @
T N - ԍx See Transport Rate Structure and Pricing, CCDocket No. 91-213, 7FCC Rcd 7006 (1992),
T ( - first recon., 8FCC Rcd 5370 (1993), second recon., 8FCC Rcd 6233 (1993), third recon., 10FCC
T - Rcd 3030 (1994), fourth recon., FCC 95-404 (released Sept.22, 1995), pets. for review pending.
T - See also Local Exchange Carrier Switched Local Transport Restructure Tariffs, 9FCC Rcd 400
(Com. Car. Bur. 1993).! Similar charges are included in many LEC intrastate access tariffs.
These tariffed charges could be applied to CMRS providers relatively rapidly, with virtually
no additional administrative proceedings. Moreover, we believe that the dedicated transport
facilities used to connect LEC and IXC networks are similar or identical to the facilities
connecting LEC and CMRS networks. Accordingly, we tentatively conclude that, when
LECs provide the dedicated transmission facilities between CMRS MTSOs and LEC
networks, they should be able to recover the costs of those facilities from CMRS providers
through appropriate dedicated transport rates found in their existing access tariffs. We seek
comment on this tentative conclusion.
Y - x @ 65. We also seek comment on whether and how LECs should recover from CMRS
providers the costs of tandem switching and common transport between tandem switches and
end offices, in cases where such LECprovided facilities are used. The LECs' interstate
access tariffs include usagesensitive charges for tandemswitched transport, as do many state
tariffs. Should these tandemswitched transport charges be applied to CMRS providers?
Should such charges apply to all minutes, or only to traffic during peak periods?
" e O 0*((? " Ԍ
X -
x ` ` (b)hhOther Options
Y - x A 66. While we tentatively conclude that the proposals outlined above would lead to
LECCMRS interconnection arrangements that best serve our public interest objectives
during an interim period, we also seek comment on a number of alternative approaches. We
seek comment on the relative costs and benefits of our proposals and these options. We also
invite parties to suggest other alternatives or combinations of these options that would
advance our public interest objectives and that could be implemented rapidly and with
minimal administrative costs.
Y - x B 67. Bill and Keep for OffPeak Usage Only. Brock acknowledges that "[i]f
interconnection charges are imposed, they should be assessed at the long run incremental cost
Y
- of adding capacity." [ P
T g
- ԍx Ex parte letter from Robert F. Roche, CTIA to Mr. William F. Caton, Acting Secretary,
Federal Communications Commission, filed in CC Docket No. 9454, December 8, 1995, Gerald W.
T - Brock, The Economics of Interconnection: Price Structure Issues in Interconnection Fees (April 1995)
(Brock Paper No. 1). Brock later asserts that "[i]n a competitive communications market, . . . we
should expect to see interconnection charges based on the cost of capacity required to terminate
T - traffic." Id. at 4.[ He also acknowledges that "the true cost for peak period usage is
Y - much greater than the cost for off peak usage . . . [which] may be near zero," Q f
T . - ԍx Ex parte letter from Robert F. Roche, CTIA, to Mr. William F. Caton, Acting Secretary,
Federal Communications Commission, filed in CC Docket No. 9454, December 8, 1995, Gerald W.
T - Brock, The Economics of Interconnection: Interconnection and Mutual Compensation With Partial
T - Competition, (April 1995), at 13 (Brock Paper No. 2). and that the
cost for peak period usage is much higher than the average incremental cost of local usage,
Y
- which he estimates to be 0.2 cents ($0.002) per minute. H R
T . - ԍx Brock Paper No. 3 at 3.H In light of Brock's comments, we
seek comment on whether a bill and keep approach should be limited to offpeak traffic, with
charges assessed for peakperiod traffic. We seek comment on what charges should apply
for peak period traffic under this approach. For instance, we seek comment on whether
some subset of existing access charges should apply, or whether an incremental capacity cost
for peakperiod traffic should be developed. We also seek comment on the peak periods for
both LEC and CMRS networks, and the appropriate period for a peak capacity charge. In
addition, we seek comment on whether charging different prices for peak and offpeak traffic
has any disadvantages and whether it is likely to result in a shift in the peak period. In
addition, we seek comment on the potential administrative costs and complexity involved in
this approach.
Y - x C 68. Subset of Access Charges. To the extent that LECCMRS interconnection
arrangements are similar to the interconnection arrangements between LECs and IXCs or
other access customers, the rates for LECCMRS interconnection could be based on a subset " i t R 0*((] " of the LECs' existing interstate access charges (or comparable rates from their intrastate
Y - access tariffs). S
T b - ԍx As of August 1995 , the average level for price cap LECs of access rates was: local switching
0.95 cents per minute, tandem switched transport 0.19 cents per minute, and transport
T - interconnection 0.68 cents per minute. USTA Compendium and Roll Up, 1995 Price Cap Tariff
T - Review Plan, August 1995. See also FCC, Com. Car. Bur., Industry Analysis Div., Monitoring
T - Report, CC Docket No. 87339, Table 5.11 (May 1995) (average traffic sensitive charge per access
minute since August 1995 was 1.9 cents per minute). As noted above, LECs could charge existing local transport rates for the
transmission facilities that they provide to link LEC and CMRS networks. Similarly, LECs
could charge CMRS providers existing local switching rates for minutes of use originating on
CMRS networks and terminating on LEC networks. We do not envision that the LECs
would charge CMRS providers the carrier common line (CCL) charge. The CCL charge, in
essence, represents a subsidy from LECs' interstate access customers to reduce the subscriber
line charges (SLC) paid by enduser subscribers for loop facilities that are dedicated to their
use. We do not believe that such a subsidy should be imposed on CMRS providers. Under
this alternative, we are also inclined not to permit LECs to charge CMRS providers the
transport interconnection charge (TIC), given that the extent to which the TIC recovers
transportrelated costs is unclear. We seek comment on what subset of access charges should
apply if we select this option as an interim compensation mechanism. We also seek
comment on whether perminute access charges should be converted into peaksensitive
capacity charges (either perpeak minute or flatrate) in the context of LECCMRS interconnection, and, if so, on how to do so. In addition, we seek comment on whether the
LECs' access charges would be an appropriate framework for LECCMRS interconnection
Y y - once our Access Reform proceeding is completed. T y
T - ԍx As noted above, we intend to address major reforms to our access charge rules in the
upcoming Access Charge Reform NPRM.
Y K - x D 69. Existing Interconnection Arrangements Between Neighboring LECs. In the
alternative, LECCMRS interconnection arrangements could be based on existing
arrangements between neighboring LECs. We seek comment on whether LECs should be
required to disclose publicly the terms of their interconnection arrangements with neighboring
LECs and to offer CMRS providers comparable arrangements. This option could help
ensure that CMRS providers receive interconnection on terms and conditions that are at least
as favorable as neighboring LECs. Neighboring LECs generally are larger and more
established than CMRS providers and thus more likely to have been able to negotiate
reasonable interconnection arrangements. We ask parties for comment on this option. In
particular, we ask parties to describe existing arrangements between neighboring LECs and
to comment on whether these arrangements would be workable in the context of other forms
of LECCMRS interconnection.
Y " - x E 70. Existing Interconnection Arrangements Between LECs and Cellular Carriers.
Another possibility would be to apply the same rates, terms, and conditions in existing LEC "
! T 0*(( " ԫcellular interconnection arrangements to broadband PCS providers, or to other categories of
CMRS providers. Like the previous option, this option could help ensure that CMRS
providers would receive interconnection on terms and conditions that are at least as favorable
as cellular carriers. We seek comment on whether cellular carriers, like neighboring LECs,
are better established than broadband PCS providers and thus are more likely to have
Y - negotiated reasonable interconnection arrangements. z U `
T - # Xw P - 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P . 7#{&P# эx Interconnection arrangements may be particularly beneficial in cases where the cellular carrier
is affiliated with the LEC. On the other hand, some commenters have suggested that a LEC could
negotiate a high interconnection rate with its cellular affiliate, since its shareholders would not care
which entity was accruing the profit.z We ask the parties to describe existing
interconnection arrangements between LECs and cellular carriers and to comment on whether
these arrangements could be extended to other forms of LECCMRS interconnection.
Y 1 - x F 71. Intrastate Interconnection Arrangements Between LECs and New Entrants. In a
few states, LECs have filed tariffs providing for interconnection arrangements with
competing wireline providers of local exchange service. For example, in Illinois, Ameritech
offers reciprocal compensation rates of 0.5 cents per minute of use for endoffice termination
Y - and 0.75 cents per minute of use for tandem termination. ( V
T x - # Xw P / 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P 0 7#{&P# эx Ex parte letter from J.G. Harrington, Counsel for Cox Enterprises, Inc., to Mr. William F.
Caton, Acting Secretary, Federal Communications Commission, October 19, 1995, attachment, "State
by State Status of Compensation and Interconnection," at 3.( In Michigan, Ameritech offers a
Y - reciprocal compensation rate of 1.5 cents per minute for a local switched termination. 5 W B
T - # Xw P 1 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P 2 7#{&P# эx Id. 5 In
New York, NYNEX recently proposed rates for terminating traffic of 1.3 cents per minute,
Y - in addition to a flat rate interconnection charge. @ X
T ' - ԍx Id. at 4.@ Similarly, the Maryland Public Service
Commission recently approved, on an interim basis, an MCI Metro tariff under which the
carrier is charging 2.24 cents per minute for terminating local calls that originate on other
Y M - carriers' networks. : Y M
T - # Xw P 3 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P 4 7#{&P# эx Id. at 3.: In California, Pacific Bell and MFS Communications reached an
interconnection agreement providing for a reciprocal call termination rate of 0.75 cents per
Y - minute for local calls. Z (
T ! - ԍx See Letter from Alan F. Ciamporcero, Vice President, Pacific Telesis, to Reed Hundt,
Chairman, Federal Communications Commission, dated November 21, 1995.
Y - x G 72. We invite parties to comment on the various state approaches described above, in
particular on whether CMRS providers should be eligible for these offerings or whether there
is any technical or economic basis for distinguishing CMRS from wireline interconnection.
We also ask parties to provide us with other relevant information about state regulations in " " Z 0*(( " this area, and to comment on the extent to which state actions in wirelinewireless
interconnection may serve as a model for LECCMRS interconnection. We note that, as part
of broader initiatives to remove the statutory or regulatory barriers to entry into the local
telephone market, several states have initiated proceedings, and in some cases adopted
interim or permanent rules, governing interconnection arrangements between LECs and
competing local carriers. We ask parties to comment on these state regulations and on the
relative costs and benefits of various approaches states have taken in this area.
Y H - x H 73. Measured Local Service Rates. With respect to rates that recover the costs of
shared facilities whose costs vary in proportion to capacity, we seek comment on whether
interconnection rates should be set at some fixed percentage of the measured local service
rates that LECs currently charge their local customers. For example, if a LEC currently
charges its own measured local service customers 5 cents per minute, it could charge an
interconnecting CMRS provider half that amount-- 2.5 cents per minute. This option
essentially would assume that the existing measured service rates are costbased, and that the
LEC's cost in terminating a call placed by a CMRS customer is onehalf (or some other
percentage) of the cost of both originating and terminating a call placed by a LEC customer
to another LEC customer. Under a variant of this option, if a LEC does not offer measured
local service, or if few LEC customers select such service, an imputed perminute rate could
be derived by dividing the LEC's monthly local service rate by the average customer's
number of local minutes originated per month. Both the basic option and the variant
discussed here have the appeal of facilitating competition between CMRS providers and
LECs, by ensuring that CMRS providers never pay more for interconnection than LECs
charge for a complete call. A disadvantage of these options is that they would not
Y - necessarily result in costbased interconnection rates.
Y - x I 74. Uniform Rate. We also seek comment on whether a presumptive uniform perminute interconnection rate should be established for all LECs and CMRS providers. Such a
Y - rate could be developed from generic, forwardlooking studies of LEC network costs. [
T - ԍx See, e.g., Robert M. Pepper, Through the Looking Glass: Integrated Broadband Networks,
T - Regulatory Policy and Institutional Change (FCC, OPP Working Paper Series No. 24, Nov. 1988) at
T - 47 (assuming that marginal cost of local telephone service is one cent per minute); Comcast Ex Parte
Presentation, CC Docket No. 9454, March 27, 1995 ("Incremental Cost of Local Usage," by G.
Brock) (estimating average incremental cost of local usage of LEC networks, using digital technology,
T 7 - to be 0.2 cents per minute). Ā We
invite parties to submit any such studies into the record of this proceeding. A second option
would be to develop such a rate based on one or more (or an average) of the state policy
decisions cited in the preceding paragraph. Interconnection rates that have been ordered or
accepted by state commissions range between 0.5 cents to 2.4 cents per minute, with a
median of around one cent per minute. A third possibility would be to set such a uniform
Y - rate based on the average level of LECs' interstate access charges. J \
T M' - ԍx See supra para. 77.J For example, the per " # H \ 0*(( " ԫminute rate for terminating traffic interconnected at an endoffice (exclusive of flatrate
charges for circuits connecting LEC and CMRS networks and perminute charges for tandem
switched transport) could be set based on the average level of LECs' interstate local
switching charges, but not transport interconnection charges or carrier common line charges.
We seek comment on the advantages and disadvantages of establishing a uniform interconnection rate level, whether establishing such a uniform rate would be lawful, the basis on
which such a rate might be set, and the practical problems of implementing such a rate
scheme. We also seek comment on whether such a rate, instead of being a presumptively
lawful rate, should be a prescription, and on what showing a carrier would need to make to
charge a different rate. In the alternative, we seek comment on whether carriers should
Y - apply different interconnection rate levels in different geographic areas that they serve. ` ] B
T - ԍx Compare the zone density pricing system, initially adopted in Expanded Interconnection with
T m - Local Telephone Company Facilities, 7FCC Rcd 7369, 745157, 17284 (1992) (Special Access
T G
- Expanded Interconnection Order), recon., 8FCC Rcd 127 (1992), recon., 8FCC Rcd 7341, vacated
T ! - in part and remanded sub nom. Bell Atlantic Tel. Cos. v. FCC, 24F.3d 1441 (1994), reaffirmed on
T - remand in pertinent part, 9FCC Rcd 5154, 51925200 (1994).`
Y
- # Xw P E37[hXP# x J 75. Bill and Keep Until a Satisfactory Rate Is Developed. Finally, we seek comment
on whether a bill and keep arrangement should be imposed on a LEC pending the negotiation
of a satisfactory interconnection arrangement between the LEC and a CMRS provider or the
approval of other cost based charges. If the negotiations were to break down, a reasonable
basis for resolving the dispute might be the imposition of a rate equal to the lowest of: (1)
existing interconnection arrangements between the LEC and neighboring LECs; (2) intrastate
interconnection arrangements between the LEC and new entrants; or (3) a subset of LEC
interstate access charges for terminating traffic. A LEC would be allowed, however, to
demonstrate that the lowest of the charges described above does not provide the LEC with a
reasonable opportunity to recover all the costs incurred in terminating CMRS traffic on the
local landline network, and some overhead costs. This approach would preserve the primary
role of negotiations between the parties in reaching interconnection arrangements, but would
limit the LEC's ability to exercise its market power, while simultaneously creating an
incentive for it to negotiate a satisfactory rate expeditiously. We also seek comment on
whether CMRS providers would have an incentive to negotiate under this approach.
X ~ - x ` ` (2) Long Term Approach
Y P - x K 76. We seek comment on what the longterm approach to interconnection pricing
should be, whether one of the interim options outlined above should be the permanent
methodology, or whether interconnection rates should be based on a specific demonstration
of the cost of providing service, much as we require for establishing rates for new services
under our price cap rules. We believe that, in the long term, procompetitive LECCMRS
interconnection arrangements should be developed that advance our public interest objectives.
First, these arrangements should give efficient incentives regarding both consumption and
investment in telecommunications services. To this end, prices should be reasonably cost " !$ ] 0*((" " ԫbased. Costbased prices could be derived through cost studies, or could be based on
potentially reasonable proxies in lieu of developing rates based on complete cost
justifications, possibly including one or more of the interim approaches described above.
Moreover, over time, we believe that price cap regulation and increasing competition will
force interconnection rates toward cost. Ultimately, markets may become sufficiently
competitive that costbased interconnection prices should result without any regulatory
intervention.
Y H - x L 77. Second, functionally equivalent forms of network interconnection arguably should
be available to all types of networks at the same prices, unless there are cost differences or
other policy considerations that justify different rates. Thus, in the long run, if LECs
provide essentially similar interconnection services to CMRS providers and to IXCs, then it
may well be in the public interest for the rates in LECCMRS interconnection arrangements
Y - not to differ from the rates for LECIXC interconnection-- i.e., access charges. We
acknowledge, however, that there may be significant reasons, including our interest in
facilitating the competitive development of CMRS and considerations relating to the Part 36
jurisdictional separations rules, that may necessitate differences in regulatory regimes. We
also recognize that current interstate access charges are problematic, and in the near future
we intend to initiate a comprehensive proceeding to reform the access charge regime. We
also seek comment on the impact of each of the pricing options on universal service
considerations. Finally, we note that substantially different prices for similar forms of
interconnection raise the possibility that parties could seek to deflect traffic from a more
costly form of interconnection to a less costly form. We invite comment on the implications
of this possibility, including methods to prevent such traffic deflection.
X - x ` ` (3) Symmetrical Compensation Arrangements
Y - x M 78. We tentatively conclude that LECCMRS interconnection rates should be
symmetrical-- that is, LECs should pay CMRS providers the same rates as CMRS providers
pay LECs. Most existing interconnection arrangements between LECs and competing
wireline providers of local exchange service require that interconnection rates be
symmetrical.
Y - x N 79. We recognize that symmetrical interconnection rates have certain disadvantages.
Asymmetrical, costbased rates have the benefit of providing each of the carriers (and, if
passed through to them, their customers) incentives to use resources such as interconnection
commensurate with the actual cost of those resources. LEC networks and CMRS networks
use different technologies that may have different costs. (Moreover, even different LEC
networks that use similar technologies, as well as different CMRS networks, may have
different cost characteristics from one another.) If interconnection rates were fully costbased, then a LEC might pay a CMRS provider different interconnection rates than the
CMRS provider would pay the LEC.
" <&% ] 0*((`' " Ԍ
Y - x O 80. On the other hand, symmetrical compensation rates would be administratively
easier to derive and manage than asymmetrical rates based on the costs of each of the
respective networks. Moreover, symmetrical rates could reduce LECs' ability to use their
bargaining strength to negotiate an excessively high termination charge that CMRS providers
would pay LECs and an excessively low termination rate that LECs pay CMRS providers.
Setting asymmetric, costbased rates might require evaluating the cost structure of nondominant carriers, which would be complex and intrusive. Accordingly, we tentatively
conclude that interconnection arrangements should include symmetrical compensation rates,
at least during an interim period. We seek comments on the foregoing analysis.
Commenters should discuss any other reasons why symmetrical or asymmetrical
compensation rates would be in the public interest and the relative merits of these
approaches. We also seek comment on whether we should revisit our existing policy of
forbearing from regulating CMRS providers' rates in order to enforce our interim policies
with respect to the rates CMRS providers charge to LECs.
Y
- x P 81. In addition, we note that, according to a number of parties, many LECs do not
now pay any compensation to CMRS providers for LECoriginated traffic that terminates on
their networks, and that some LECs even impose charges on CMRS providers for such
traffic. Such conduct would appear to violate our existing mutual compensation requirement.
We seek comment on whether such violations are occurring and what methods could and
Y 4 - should be used to enforce this requirement. In the CMRS Second Report, we stated that
CMRS providers may file complaints, under Section 208 of the Act, if a LEC violates the
requirement that they charge the same rates to CMRS providers for interstate interconnection
Y - as they charge other mobile service providers. b ^
T j - # Xw P E 7[hXP# 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) # &m P F 7#{&P# эx CMRS Second Report, 9 FCC Rcd at 1498, para. 233.b Is this avenue for obtaining remedies
sufficient, or should we institute some other procedure or other mechanism to ensure that
LECs comply with our existing rules? For example, should we require LECs to report to us
on the amounts of compensation they are paying to CMRS providers for traffic that
originates on LEC networks and terminates on CMRS networks? Are alternative dispute
resolution procedures necessary?
X g - J:\POLICY\CMRS\NPRMECON
J:\POLICY\CMRS\NPRMIMPL
# Xw P 7[hXP# " g& j ^ 0*((! " Ԍ
X -
+ E
+ E
C. Xx Implementation of Compensation Arrangements (#
X - x + E ` ` 1. Negotiations and Tariffing (#
X - x ` ` a. Positions of the Parties
Y v - x Q 82. LECs are currently required to engage in good faith contractual negotiations over
Y _ - CMRS interconnection arrangements. Q _ _
T - ԍx Id. at 149798, para. 230.Q In the Equal Access and Interconnection NPRM and
Y J - NOI, we sought comment on whether LECs should be required to take any further action,
such as: (1) filing tariffs specifying their CMRS interconnection offerings; (2) filing their
contractual agreements regarding interconnection with CMRS providers for public inspection;
or (3)including a "most favored nation" clause in all CMRS interconnection agreements to
Y
- guarantee that no CMRS provider received more favorable terms than others. S `
j
T - ԍx 9 FCC Rcd at 5457, paras. 119120.S
Y - x R 83. Most LECs, AT&T, and established cellular carriers, as well as some SMR,
paging, and PCS providers, support the existing requirement that LECs engage in good faith
Y - negotiations over interconnection with CMRS providers. a
T O - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx AT&T Comments at 1213; Ameritech Comments at 3; Bell Atlantic Comments at 1314;
BellSouth Comments at 59; GTE Comments at 3745; NYNEX Comments at 1112; Pacific Bell
Comments at 12; SW Bell Comments at 63; CBT Comments at 2; SNET Comments at 12; Rochester
Comments at 8; AirTouch Comments at 12; Alltel Comments at 78; McCaw Comments at 23;
Vanguard Comments at 21; New Par Comments at 2122; Western Comments at 7; Dial Page
Comments at 6; E.F. Johnson Comments at 6; Geotek Comments at 10; OneComm Comments at 20;
RAM Mobile Data Comments at 7; AMTA Comments at 1314; CTIA Comments at 21; OPASTCO
Comments at 5; PCIA Comments at 11; Rural Cellular Comments at 9; PageNet Comments at 8;
APC Comments at 45; Columbia PCS Comments at 5. They argue that contractual
negotiation is superior to tariffed interconnection, because it permits the greater flexibility
needed to respond rapidly to changing interconnection needs. Although many acknowledge
that the process of individually negotiating cellular interconnection agreements initially was
difficult, they contend that the relevant parties now have more experience, and most LECs
and cellular carriers say they are satisfied with the current process. These cellular carriers
now maintain that the process has produced: (1) lower rates than tariffing, due to savings on
the administrative costs of tariffing; (2) service arrangements better tailored to particular
interconnection needs than would have been possible under a tariffed rate structure; and (3)
Y - adequate protection against LEC discriminatory conduct. k b j
T $ - ԍx See, e.g., CTIA Comments at 1522 and Reply at 910.k
Y - x S 84. Prospective local entrants such as MCI and smaller, less established CMRS
providers, as well as GSA and several state commissions, argue that LECs should be " ' b 0*((| "
Y - required to file CMRS interconnection tariffs. . c
T y - ԍx See, e.g., GSA Comments at 46 and Reply at 79; California PUC Comments at 3; New
York DPS Comments at 4; MCI Comments at 1112, Reply at 6; GCI Reply at 3; PRTC Comments
at 23; Point Comments at 5; Nextel Comments at 15; Time Warner Reply at 7.. They agree with the Commission's
observation that tariffing is an established mechanism for ensuring that carriers with market
power do not express it in rates, terms, and conditions that are unreasonable or unreasonably
discriminatory. They contend that tariffing would counter the LECs' incentives to hinder the
development of competition from new CMRS services, such as PCS, particularly in cases
where the LECs are not structurally separate from their own wireless affiliates. The
California PUC also argues that interconnection tariffs would reduce the opportunity for
LECs to favor their affiliates in the wireless market. Nextel contends that opponents of
tariffing want to deny new entrants that opportunity to secure the same favorable
Y 1 - interconnection agreements that the incumbent cellular carriers have already negotiated. D d 1
T
- ԍx Nextel Reply at 11.D
Y - Point argues that small cellular carriers have little bargaining power vis a vis LECs in "good
Y
- faith" negotiations, and that a tariffing requirement would aid smaller carriers. e
T p - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx Point Comments at 5.
Y - x T 85. MCI challenges claims that a tariffing requirement would be administratively
burdensome and lead to increased litigation. First, MCI claims that the resources the LECs
currently devote to tariffing including a host of interconnection tariff filings in the states
are sufficient to handle the filing of CMRS contract tariffs for both existing and new
arrangements. Second, MCI maintains that the publication of tariffs would provide greater
assurances to CMRS carriers that they have been offered reasonable terms and conditions of
interconnection, comparable to those offered other similarly situated parties, thereby
Y 6 - diminishing their incentive to litigate. f 6Z
T A - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx MCI Reply at 9. Third, MCI counters the argument that tariffs are
overly rigid by suggesting that the Commission use the flexible contract tariffs mechanism
Y - described at Section 61.55 of the Commission's rules. g
T - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx Id. at 78 (citing 47 C.F.R. 61.55). MCI asserts that contract tariffs
provide parties with the flexibility to negotiate individual interconnection agreements, and yet
ensure that the terms negotiated are generally available. MCI claims that contract tariffs
would give the Commission greater ability to supervise interconnection arrangements, but
would not require the tariffing of contract details. MCI declares that, by giving CMRS
providers more information, it would enable them to negotiate more economically and
technically efficient interconnection agreements. Finally, MCI submits that the Section 208
complaint and alternative dispute resolution processes are not satisfactory substitutes for LEC
Y P - interconnection tariffs. h P
T ' - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx MCI Reply at 9. " P( < h 0*((k " Ԍ
Y - ԙx U 86. Several CMRS providers, as well as AT&T, Ameritech, and SW Bell, support
requiring LECs to make the interconnection agreements that they negotiate with CMRS
Y - providers available for public inspection. i 8
T K - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx AMTA Comments at 1314; AT&T Comments at 13; Ameritech Comments at 3; Columbia
PCS Comments at 57; Comcast Comments at 58; Cox Comments at 48, 12; Dial Page Comments
at 6; GCI Reply at 3; GO (formerly Columbia PCS) Reply at 45; Point Comments at 6; RAM
Mobile Data Comments at 78; Rural Cellular Comments at 9; SW Bell Comments at 6465 (it might
be preferable to file contracts locally with state regulators); UTC Reply at 56. SW Bell asserts that the same benefits that tariffs
provide by publicly disclosing available terms and conditions would be provided by a less
burdensome filing requirement in combination with a "most favored nation" clause. SW Bell
also suggests that contracts be filed locally, near the relevant market area, with the state
regulatory agency. AT&T agrees that this requirement would facilitate the monitoring of
LEC interconnection agreements with other carriers. PCIA states that it would inhibit
discrimination while preserving flexibility and minimizing regulatory burdens. PCIA also
asks that the requirement not include a filing fee and that state filing requirements be deemed
sufficient to satisfy this federal requirement. Finally, PCIA asks that contracts not be
required to include any information about the particular CMRS provider involved so as not to
Y
- disclose any competitively sensitive information about that carrier. j
T e - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx PCIA Comments at 1213. Parties, primarily
LECs, opposing this filing requirement, regard it as an unwarranted burden in terms of
Y - adding delay, administrative cost, and reducing the LECs' flexibility. k h
T - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx APC Comments at 56; Bell Atlantic Comments at 15 n.12; BellSouth Comments at 11; CBT
Comments at 23; GTE Comments at 45; McCaw Comments at 2324; NYNEX Comments at 12
n.13; SNET Comments at 1213; Waterway Comments at 89.
Y - x V 87. A number of LECs, as well as MCI and PCIA, oppose requiring interconnection
contracts to include a "most favored nation" guarantee, because such a guarantee is already
Y b - provided by statutory requirements against unreasonable discrimination, l b
T - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx APC Comments at 5; Ameritech Comments at 3; BellSouth Comments at 11; CBT Comments
at 3; GTE Comments at 4445; NYNEX Comments at 12 n.13; PCIA Comments at 12; Rochester
Comments at 9; SNET Comments at 13; Waterway Comments at 9. and would spawn
litigation because such guarantees are difficult to interpret and they require discovery to
Y 4 - determine compliance. ' m 4
T ! - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx GTE Comments at 44 and Reply at 36; MCI Reply at 78; PCIA Comments at 12.' BellSouth alleges that it would limit flexibility, because a LEC
willing to compromise on one feature in return for a customer's compromise to forgo a
different feature, could be forced by the customer to provide the second feature because other
Y - customers had received it. n
T H& - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx BellSouth Comments at 11. Supporters of a most favored nation clause, including SW Bell
and several CMRS providers, argue that it would be less burdensome and inflexible than " ) H n 0*(( " tariffing, but a useful safeguard against discrimination by providing an additional recourse
Y - against such conduct. o
T b - 1 1 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a) Ѝx Cox Comments at 12; McCaw Comments at 2324; New Par Comments at 2122; Nextel
Comments at 1617; OneCom Comments at 20; RAM Mobile Data Comments at 78; Rural Cellular
Comments at 9; SW Bell Comments at 6465. Although Cox supports the proposal to require LECs to file
interconnection contracts with the Commission and to include a "most favored nation" clause
in the contracts, it contends that these requirements are still not sufficient to prevent against
unreasonable arrangements resulting from negotiations. Thus, Cox also proposes that the
Commission establish a mechanism for prompt review of LEC interconnection rates upon
request of a CMRS provider, which would ensure that the LEC unbundled its network
sufficiently and did not include excessive overhead loadings in its rates. Cox states that its
proposal preserves the flexibility of a contractbased system, while ensuring that LECs do not
Y 1 - stifle competition. B p 1
T
- ԍx Comcast Comments at 9; Cox Comments at 713. Accord, New Par Comments at 22 (LECs
must not charge CMRS providers for elements or services that (i) are not needed or wanted by the
interconnecting CMRS carrier or (ii) are not charged to interconnecting landline LECs).B
X
- x ` ` b. ` Discussion (#
Y - x W 88. As discussed above, we believe that some involvement in the formation and
administration of interconnection arrangements between LECs and CMRS providers would
help to counter possible abuses of market power and would help ensure that these
Y - arrangements are efficient and advance the public interest. T q j
T - ԍx See paras. 814, supra.T We also have addressed the
Y y - types of compensation arrangements that we believe would best serve the public interest. U r y
T 6 - ԍx See paras. 5981, supra.U
We seek more detailed comment on the type of involvement that would be optimal in light of
our views on the compensation arrangements. In particular, we ask parties to comment on
the interrelationship of the procedural issues addressed in this section to the substantive
policy options regarding compensation arrangements discussed above. Some of the
substantive options discussed above might make some procedural approaches infeasible, or
could make certain protections unnecessary.
Y - x X 89. In considering how to implement our policies regarding interconnection
arrangements, we seek to promote arrangements that foster competition and advance
economic efficiency and our other goals. We also desire to enable LECs and CMRS carriers
to respond rapidly and flexibly to changing interconnection needs. We seek comment on
whether an open process in which a LEC and a CMRS provider freely discuss and negotiate
a wide variety of interconnection options is preferable to a process whereby the LEC presents
the CMRS provider with a limited choice of preset interconnection options. There may be a " 7 *
r 0*((L " useful purpose in some level of intervention to prevent abuse of market power or
unreasonable discrimination. This may be particularly critical in cases in which the parties
are unable to negotiate a satisfactory agreement, but may also be valuable as a "backstop"
measure even when parties can reach agreement, to prevent unreasonable discrimination
against other parties or anticompetitive collusion that might disadvantage consumers.
Y v - x Y 90. If LECs and CMRS providers were to negotiate interconnection arrangements
consistent with the compensation framework discussed above, the public interest would be
served while avoiding the need for intervention. As discussed above, however, we believe
that optimal compensation arrangements are unlikely to result from purely private
negotiations. At least for the near future, there is likely to be an imbalance in negotiating
power between the incumbent LECs, which currently possess monopoly power in local
exchange markets, and new CMRS providers seeking to enter such markets. The LECs may
seek to impose unduly high interconnection rates or other unreasonable conditions that could
reduce CMRS entry. Moreover, there is a significant risk that LECs may not offer new
CMRS carriers interconnection agreements that are as financially advantageous as those that
large and incumbent CMRS providers have already secured. Finally, in cases where LECs
and CMRS providers compete directly against one another, there is a significant risk that
LECs and CMRS providers could engage in collusive behavior and voluntarily agree to
arrangements that would not advance the public interest. Thus, participation in the process
by regulators may be warranted for some period of time.
Y - x Z 91. An alternative would be a requirement that voluntarilynegotiated interconnection
contracts be filed publicly. Such public filing-- either at the Commission (pursuant to
Y - Section 211) D s
T Q - ԍx 47 U.S.C. 211.D or at state commissions-- could reduce the LECs' ability to engage in
unreasonable discrimination among CMRS providers, although we recognize that such a
procedure would not necessarily ensure that arrangements will comply with the substantive
standards discussed above. We also seek further comment on possible ways to minimize the
burden of such disclosure and protect the confidentiality of LECs' and CMRS providers'
proprietary data, while still obtaining disclosure of enough information to advise new entrants
about rates, terms, and conditions. Finally, we seek comment on whether filing at a
regulatory agency is necessary if the carriers themselves were required to make publicly
available relevant, specified information about the agreement upon request.
Y - x [ 92. As noted above, even public disclosure of negotiated agreements may not be
sufficient to prevent anticompetitive behavior by LECs possessing market power and to
ensure that interconnection compensation arrangements are structured in an optimal manner.
A more forceful approach would be to require that interconnection arrangements be filed as
tariffs. The tariff process is a wellestablished mechanism for regulatory commissions to
protect the public interest by rejecting unreasonable provisions in carriers' offerings. On the
other hand, tariffing requirements could entail administrative costs. " h$+ h s 0*((% " Ԍ
Y - ԙx \ 93. We tentatively disagree with the position taken by some of the commenting
parties that any tariffing requirement would automatically preclude flexible interconnection
arrangements. We note that, even in a contractual environment, one party might inflexibly
present a limited number of options and refuse to negotiate alternatives; by contrast, even
under a tariffing requirement, parties can cooperatively negotiate provisions in a flexible
manner. Such provisions can later be incorporated as tariffed options. Thus, tariffed
interconnection arrangements need not be "one size fits all." For example, in the
Y _ - Interexchange Order, t _
T - ԍx Competition in the Interexchange Marketplace, 6 FCC Rcd 5880, 5897 (1991); see 47
C.F.R. 61.5(m). we adopted rules permitting IXCs to offer services pursuant to
individually negotiated contracts, but allowed AT&T, then considered a dominant
interexchange carrier, to offer contract rates only for services found subject to substantial
Y - competition and accorded streamlined regulation. g u B
T - ԍx Of course, we have recently determined that AT&T should be classified as a nondominant
T - carrier with respect to the interstate, domestic, interexchange market. Motion of AT&T Corp. to be
T - Reclassified as a NonDominant Carrier, FCC 95-427 (released Oct.23, 1995).g Such tariffs, consisting of certain
specific information required by our rules, must be made generally available to similarly
Y
- situated customers and do not require cost support. In the Second Further Notice of
Y - Proposed Rulemaking in the LEC price cap performance review proceeding, we invited
comment on whether the rules should be changed to allow price cap LECs to offer contractbased tariffs when a service is subject to substantial competition and accorded streamlined
Y - regulation. v
T - ԍx Price Cap Performance Review for Local Exchange Carriers, Second Further Notice of
Proposed Rulemaking, CC Docket No. 941, FCC 95393 (released Sept. 20, 1995).
Y h - x ] 94. The major difference we see between nontariffed arrangements and
arrangements subject to a contract tariff process is that, in the latter case, the regulator has
additional mechanisms to protect against terms that may be unreasonable or unreasonably
discriminatory, such as issuing an order for investigation pursuant to Section 205 of the Act.
We seek comment on the costs and benefits of amending our rules to permit the use of
contract tariffs to implement LECCMRS interconnection arrangements. We also seek
comment on whether a different form of contract tariffing for LECCMRS interconnection
would better serve the public interest. For instance, should a special notice period apply to
LECCMRS interconnection contracts? Should some level of cost showing be required for
LECCMRS interconnection contracts, unlike contract tariffs generally?
Y k - x ^ 95. In sum, we tentatively conclude that information about interconnection
compensation arrangements should be made publicly available in order to foster competition
and to advance the public interest. As to what form this information should take tariff,
public disclosure or other approach we seek comment from parties as to the costs and " & , v 0*((- " benefits of each option, keeping in mind the goals of promoting economic efficiency through
competition and negotiating flexibility.
X - x ` ` 2. Jurisdictional Issues (#
X - x ` ` a. ` Statutory Background (#
Y _ - x _ 96. In the 1993 Budget Act, P w _
T - ԍx See supra 20 & n.13.P Congress fundamentally changed the regulatory
framework for CMRS. The statutory plan that Congress adopted clearly indicates its
intention to promote an economically vibrant and competitive nationwide market for
commercial mobile radio services. In addition to providing more spectrum and authority to
assign the spectrum rapidly through auctions, Congress also expressed its preference for
Y
- rapid deployment of wireless technologies. x d
j
T - ԍx Budget Act, 6002(a), amending Section 309 of the Communications Act; see Petition of the
People of the State of California and the Public Utilities Commission of the State of California to
T - Retain Regulatory Authority Over Intrastate Cellular Service Rates, Report and Order, 10 FCC Rcd
7486, 749697 (1995). As the House Report states: "The Committee
considers the right to interconnect an important one which the Commission shall seek to
promote, since interconnection serves to enhance competition and advance a seamless
Y
- national network." Y y
T - ԍx House Report on H.R. 2264 at 261 (1993).Y Pursuant to this Congressional directive, we found, in the CMRS
Y - Second Report, that nationwide commercial mobile radio service would likely stimulate
nationwide economic growth and job creation, as well as the health of the U.S. economy.
We also concluded that nationwide development of CMRS would upgrade the nation's
telecommunications infrastructure and help ensure access by all Americans to the nation's
Y 8 - information superhighway. ` z 86
T - ԍx CMRS Second Report, 9 FCC Rcd at 141922.`
Y
- x ` 97. A number of provisions in the Communications Act of 1934, as amended, inter
Y - alia, by the 1993 Budget Act, are relevant to the extent of our jurisdiction over LECCMRS
interconnection. Section 1 declares that the purpose of the Act is "regulating interstate and
foreign commerce in communication by wire and radio so as to make available, so far as
possible, to all the people of the United States a rapid, efficient, Nationwide, and worldwide wire and radio communication service with adequate facilities at reasonable
Y - charges...." = {
T
% - ԍ 47 U.S.C. 151.= Section 2(a) grants the Commission jurisdiction over all interstate communication by wire or radio, while Section 2(b) generally reserves to the states jurisdiction over " m- x { 0*(({ "
Y - intrastate communication service by wire or radio of any carrier. } |
T y - ԍ These provisions generally have been interpreted "to define a national goal of the creation of a
T Q - rapid and efficient phone service, and to enact a dual regulatory system to achieve that goal."
T + - Louisiana Public Service Commission v . FCC, 476 U.S. 355, 370 (1986)(emphasis added).} In the 1993 Budget Act,
Congress added an exception to Section 2(b), so that the section now provides:
Y - Xx X` ` Except as provided in sections 223 through 227, inclusive, and
Y - section 332, and subject to the provisions of section 301 and
title VI, nothing in this Act shall be construed to apply or give
the Commission jurisdiction with respect to (1) charges, classifications, practices, service, facilities, or regulations for or in
connection with intrastate communication service by wire or
radio of any carrier. . . . (Emphasis added.)x `
Section 332(c)(3), also added in 1993, provides in relevant parts:
Xx X` ` Notwithstanding sections 2(b) and 221(b), no State or local
government shall have any authority to regulate the entry of or
the rates charged by any commercial mobile service. . . .
Notwithstanding the first sentence of this subparagraph, a State
may petition the Commission for authority to regulate the rates
for any commercial mobile service . . . . If the Commission
grants such petition, the Commission shall authorize the State to
exercise under State law such authority over rates, for such
periods of time, as the Commission deems necessary . . . . x `
Section 332(c)(1)(B) provides:
Xx X` ` Upon reasonable request of any person providing commercial
mobile service, the Commission shall order a common carrier to
establish physical connections with such service pursuant to the
provisions of section 201 of this Act. Except to the extent that
the Commission is required to respond to such a request, this
subparagraph shall not be construed as a limitation or expansion
of the Commission's authority to order interconnection pursuant
to this Act.x `
X - x ` ` b. Positions of the Parties
Y - x a 98. Many wireless carriers argue that the Commission can and should establish
uniform policies governing all LECCMRS interconnection. McCaw argues that, to ensure
the continued development of a seamless national wireless infrastructure, there needs to be a " ". | 0*((# " single set of rules for physical interconnection and interconnection compensation. New Par
states that, to avoid hindering the rapid deployment of CMRS technologies, the Commission
must now clarify that, with respect to the basic principles of CMRS interconnection, federal
policy preempts all inconsistent state regulation. Columbia PCS asserts that it will be
increasingly difficult to ascertain the jurisdictional nature of traffic given the automatic
roaming capabilities that are being developed. These parties contend that, at a minimum, the
Commission should declare that the principles of reciprocal compensation and "good faith"
Y _ - negotiations apply to intrastate as well as interstate traffic. } _
T - ԍx See, e.g., APC Comments at 4; Columbia PSC Comments at 57; McCaw Comments at 2526; New Par Comments at 2122; Nextel Reply Comments at 13; PCIA Comments at 14; Century
Cellnet Reply Comments at 17.
Y 1 - x b 99. Century Cellnet maintains that the Commission's fundamental holding that
CMRS providers are cocarriers, and as such are entitled to reasonable interconnection
following good faith negotiations, applies without regard to the jurisdictional nature of the
traffic. While Century states that the levels of compensation for intrastate traffic may
generally be left to the states, it insists that, even there, the Commission would have
authority to take action if the compensation levels set served to impede interstate
Y
- interconnection. V ~
T r - ԍx Century Cellnet Reply Comments at 17.V PCIA states that both the CMRS Second Report and the Commission's
implementing regulations affirmatively specify that mutual compensation is required, without
Y { - differentiating between interstate and intrastate traffic. {
T - ԍx PCIA Comments at 1415 (citing CMRS Second Report, 9 FCC Rcd at 1498 232 and App.
A at 1520 (codified at 47 C.F.R. 20.11(b)). PCIA contrasts this to other
sections of the rules and order which explicitly apply only to interstate aspects of
interconnection. It concludes that mutual compensation is an inherent part of reasonable
interconnection and good faith negotiations, which are solely within the Commission's
Y - jurisdiction. N 4
T - ԍx PCIA Comments at 1415.N
Y - x c 100. Both Cox and Comcast strongly argue that the Commission has exclusive
jurisdiction over the rates and terms of both interstate and intrastate interconnection between
CMRS providers and LECs pursuant to the 1993 Budget Act amendments to Section 332(c)
Y - and 2(b) of the Act. C
T 1# - ԍx See Ex Parte Letter from Werner K. Hartenberger, Leonard J. Kennedy and Laura H.
Phillips, Counsel for Cox Communications, to Mr. William F. Caton, Secretary, Federal
T $ - Communications Commission, filed October 16, 1995 ("Cox Memorandum"); Ex Parte Letter from
Leonard J. Kennedy, Laura H. Phillips and Peter A. Batacan, attorneys for Comcast Cellular
Communications, Inc., to William F. Caton, Acting Secretary, Federal Communications Commission,
filed October 19, 1995 ("Comcast Memorandum").C Cox and Comcast state that before these amendments, the " / 0*(( " Commission was denied jurisdiction over intrastate telecommunications that were severable
from the interstate portion or did not conflict with a federal policy, as required under
Y - Louisiana PSC.
T K - ԍx See Louisiana Public Service Commission v. FCC, 476 U.S. 355, 372376 (1986)("Louisiana
T % - PSC"). They contend, however, that the Budget Act amended Sections 332(c) and
Y - 2(b) and superseded Louisiana PSC with respect to state jurisdiction over intrastate CMRS
rates. Moreover, Cox and Comcast argue that Section 2(b), as amended, dictates that the
substantive provisions of Section 332 determine the Commission's jurisdiction over CMRS,
and that this section grants the Commission sole authority to regulate all interstate and
Y c - intrastate rate and entry aspects of CMRS. b cD
T X - ԍx Cox Memorandum at 45, Comcast Memorandum at 78.b According to Cox and Comcast, Congress
inserted a reference to Section 332 (giving the Commission authority over CMRS) into
Section 2(b)'s initial clause, which provides exceptions to Section 2(b)'s general exclusion of
Y - the Commission's jurisdiction over intrastate telecommunications. Cox and Comcast argue
that the statutory design of Section 332(c)(3)(A), which preempts state authority over rate
and entry regulation of CMRS"[n]otwithstanding sections 152(b) and 221(b) . . .", shows
that states are preempted from regulating intrastate CMRS rates and entry without regard to
Y - any residual jurisdiction a state may claim under Section 2(b) of the Act.
T W - ԍx See 47 U.S.C. 332(c)(3)(A). Cox Memorandum at 6, Comcast Memorandum at 9. In addition, Cox
notes that, although Section 332 does allow states to regulate "other terms and conditions" of
CMRS, the legislative history indicates that this phrase refers to customer billing information
and practices and billing disputes and other consumer protection matters, not mutual
compensation or other matters relating to reasonable and nondiscriminatory interconnection,
Y O - over which the Commission retains jurisdiction. O
T - ԍx Cox Memorandum at 6 (citing H.R. Rep. No. 103111, 103rd Cong., 1st Sess., at 260). Comcast also cites the language in the
legislative history of Section 332 which states that the preemption provisions of Section 332
are intended to "foster the growth and development of mobile services that by their nature,
operate without regard to state lines" as support for the proposition that CMRS is a
Y - jurisdictionally interstate service. &
T - ԍx Comcast Memorandum at 1112 (citing H.R. Rep. No. 103111, 103rd Cong., 1st Sess., at
260).
Y - x d 101. Cox and Comcast argue that Section 332, by preempting state rate and entry
authority over CMRS, reserves to the Commission jurisdiction to "occupy the field" of
Y - substantive CMRS regulation. _
T $ - ԍx Cox Memorandum at 7; Comcast Memorandum at 9._ In addition, they submit that Section 332(c)(1)(A), which
authorizes the Commission to forbear from enforcing any provision of Title II (with certain
exceptions) that the Commission determines are not necessary to ensure that the charges and
classifications for CMRS are nondiscriminatory, Section 332(c)(1)(C), which directs the " R0 > 0*((z " Commission to conduct "annual reports" reviewing competitive market conditions regarding
CMRS, and Section 332(d), which delegates to the Commission the authority to define key
terms relating to CMRS, confirm that the overall design of the statute is to vest the
Y - Commission with jurisdiction over CMRS. c
T 4 - ԍx Cox Memorandum at 78, Comcast Memorandum at 910.c These parties add that the Commission's
jurisdiction is also supported by Section 332(c)(3)(A), which they contend grants the
Commission sole authority over CMRS unless and until a state files a petition for rate
Y v - regulation authority and the Commission approves such a petition. d vh
T - ԍx Cox Memorandum at 8, Comcast Memorandum at 9.d
Y H - x e 102. Comcast contends that a review of the Budget Act and legislative history also
confirms the Commission's sole authority over interconnection between CMRS providers and
LECs, because these provisions emphasize the interstate and nationwide nature of the
wireless communications network, and because the rates and conditions of interconnection to
landline LEC networks are essential to the rapid and competitive buildout of the wireless
Y - network. M
T - ԍx Comcast Memorandum at 1213.M Furthermore, Comcast states that, because the Budget Act expressly grants the
Commission sole authority to define the statutory terms "interconnected service" and "public
switched telephone network" ("PSTN"), Section 332(d) shows that Congress intended to
grant the Commission the authority to regulate interconnection between CMRS providers and
Y y - LECs historically known as the gatekeepers to the PSTN. o y
T - ԍx Comcast Memorandum at 13 (citing 47 U.S.C. 332(d)).o
Y K - x f 103. Moreover, Cox and Comcast claim that, even if the purpose of the Budget Act
amendments were not clear, the Commission and the courts have consistently held that
jurisdiction over telecommunications services is to be determined by the nature of the
Y - communications, rather than the physical location of the facilities. = rH
T - ԍx Cox Memorandum at 911; Comcast Memorandum at 1517 (citing Bell System Tariff
Offerings of Local Distribution Facilities for Use by Other Common Carriers, 46 F.C.C. 2d 413, 417
T - (1974)(Commission has exclusive jurisdiction over rates, terms and conditions associated with
interconnection to intrastate facilities when local facilities are an essential link in interstate and foreign
T _ - communications services); Lincoln Tel. & Tel. Co. v. FCC, 659 F.2d 1092 (D.C. Cir.
1981)(facilities or services that substantially affect provision of interstate communication are not
deemed to be intrastate in nature even though they are located or provided within the confines of one
state)); Comcast Memorandum at 14 (citing Public Utility Com'n of Texas v. FCC, 886 F.2d 1325
(D.C. Cir. 1989)(where federal and state regulation conflicts, to avoid duplication of networks and
T $ - equipment for interstate and intrastate use, federal interconnection policies must prevail)).= Because CMRS is part
of an interstate "network of networks," Cox argues that CMRS calls are inherently interstate
and thus subject to exclusive Commission jurisdiction, regardless of any local or intrastate " 1 0*(( "
Y - aspects of LECCMRS interconnection rates. N
T y - ԍx Cox Memorandum at 911.N Thus, Cox and Comcast conclude that the
Y - Commission's conclusion in the CMRS Second Report that Section 332 does not extend the
Commission's jurisdiction to the regulation of local CMRS rates is inaccurate and that this
statement must be clarified to conform with the Commission's actual exclusive jurisdiction to
adopt uniform federal policy governing the rates, terms and conditions associated with CMRS
Y - interconnection. i h
T - ԍx Cox Memorandum at 12; Comcast Memorandum at 1719.i
Y a - x g 104. Willkie Farr and Gallagher ("Willkie Farr") also submitted a memorandum
supporting the argument that the policy goals and preemption provisions of Section 332
provide the Commission with the authority, if not the obligation, to preempt state regulation
Y - of LECCMRS interconnection compensation rates. $
T - ԍx Ex parte Letter from Philip L. Verveer and Jennifer A. Donaldson to Ms. Karen Brinkmann,
Special Counsel for Local Competition, Common Carrier Bureau, Federal Communications
Commission, dated October 27, 1995 ("Willkie Farr Memorandum").$ Specifically, Willkie Farr argues that,
in revising Section 332, Congress intended to promote a uniformlyregulated, efficient and
competitive CMRS market, and thus it charged the Commission with implementing
Y - regulatory policies to achieve these goals. B Z
T - ԍx Id. at 46.B Willkie Farr submits that the language of
Section 332(c)(3)(A), which clearly prohibits state regulation of the rates charged by CMRS
providers and CMRS entry, "by its very nature" comprehends intrastate interconnection
compensation charges negotiated between LECs and CMRS providers, because the rates
charged by CMRS providers for completing LEC traffic are rates charged by a CMRS
Y d - provider. @ d
T - ԍx Id. at 7.@ Willkie Farr adds that states may not directly or indirectly impede entry, either
entirely or partially, such as through added cost or delay, by their regulation of LECCMRS
Y 6 - interconnection compensation rates. : 6
T - ԍx Id.: Willkie Farr contends that Congress' action to
preempt entry regulation for mobile services represents a fundamental shift in policy from
Section 2(b) of the Act, and that, under a strict reading of Section 2(b), states no longer
"retain jurisdiction over purely intrastate calls notwithstanding the economic effect such state
Y - jurisdiction might have on the interstate market." @
T # - ԍx Id. at 7 (citing Nat'l Ass'n of Regulatory Util. Comm'rs v. FCC, 746 F.2d 1492, 1500 (D.C.
Cir. 1984)). As an alternative basis for preemption,
Willkie Farr argues that, under the exception to Section 2(b) of the Act, the Commission
may preempt state regulation that would negate the legitimate exercise of the Commission's " 2 0*(( "
Y - interstate authority.
T y - ԍx Willkie Farr Memorandum at 10, citing e.g., Louisiana Public Service Commission v. FCC,
T S - 476 U.S. 355, 375 n.4 (1986); California v. FCC, 798 F.2d 1515 (D.C. Cir. 1986); Nat'l Assn of
T - - Regulatory Util. Commissioners v. FCC, 880 F.2d 422 (D.C. Cir. 1989)). These cases all allowed
federal preemption based on the physical impossibility of separating interstate and intrastate
components, although Willkie Farr argues that some of these cases did actually involve economic
T - indivisibility as well. See, e.g., Illinois Bell Tel. Co. v. FCC, 883 F.2d 104 (D.C. Cir. 1989). In this case, according to Willkie Farr, the federal objective to be
furthered is the assurance of an efficient, competitive buildout of nationwide wireless
communications infrastructure, which is supported by the Commission's adoption of PCS
service areas based on MTAs and BTAs geographic areas which follow patterns of trade
Y - and do not respect state lines. R
T - ԍx Willkie Farr Memorandum at 1213.R Willkie Farr claims that this federal goal would be
impossible to achieve if systems' architecture and interconnection nodes have to be designed
Y v - to accommodate varying state requirements with respect to interconnection compensation. : vH
T o - ԍx Id.:
Y H - x h 105. In contrast, the New York Commission staff argues that there is no reason that
state and federal policies regarding LECCMRS interconnection cannot coexist. It notes that
the Commission has in the past recognized that cellular service is primarily used to provide
"local, intrastate exchange telephone service," and therefore urges the Commission not to
alter its current model, whereby interconnection arrangements "are properly the subject of
Y - negotiations between the carriers as well as State regulatory jurisdictions."
T p - ԍx NY DPS Comments at 45, citing Equal Access and Interconnection NPRM and NOI, 9 FCC
Rcd at 5453 para. 108. Pacific also
argues that the Commission previously found that LEC rates for interconnection are
severable into interstate and intrastate rates because the costs are severable, and thus the
Communications Act denies the Commission jurisdiction over intrastate interconnection rates.
It maintains that "the extent to which a state regulatory commission desires to regulate
mutual compensation for intrastate interconnection has been and must remain in its sole
Y K - discretion." O Kd
T ` - ԍx Pacific Reply Comments at 89.O NARUC contends that the Budget Act clearly indicates that "other terms and
conditions" concerning CMRS regulation should be left to the states. In addition, NARUC
argues that if the Commission chooses not to impose rules concerning CMRS providers'
rights to provide physical aspects of interconnection, it may not preempt related state
regulatory initiatives, nor should it, since states are in the best position to monitor
interconnection arrangements, and to impose additional obligations when local conditions
Y - warrant. E
T v& - ԍx NARUC Comments at 3.E
" 3 0*(( " Ԍ
Y - x i 106. BellSouth argues that there is no justification for Commission intervention in the
interconnection arrangements between LECs and CMRS providers at this time. BellSouth
states that the current interconnection arrangements between BellSouth and CMRS providers
are based on negotiations between the carriers with state commission oversight and have
Y - resulted in reductions in CMRS interconnection rates of 30% since 1992.
T - ԍx Ex Parte Letter from Ben G. Almond, Executive DirectorFederal Regulatory, Bell South, to
Mr. William F. Caton, Acting Secretary, Federal Communications Commission, December 7, 1995. With respect to
the Commission's authority to regulate the rates charged by LECs to CMRS providers to
terminate mobile originated traffic, BellSouth states that this would require that the statutory
language be rewritten to read, "no State . . . shall have the authority to regulate . . . the
Y H - rates charged to (instead of by) any commercial mobile service . . .," which only Congress
could do. BellSouth also argues that the Commission interpreted Section 332(c)(3) correctly
in a recent decision: "[W]e note that Louisiana's regulation of the interconnection rates
[charged] by landline companies to CMRS providers appears to involve rate regulation only
of the landline companies, not the CMRS providers, and thus does not appear to be
Y - circumscribed in any way by Section 332(c)(3)." ! B
T - ԍx Petition on Behalf of the Louisiana Public Service Commission for Authority to Retain Existing
T - Jurisdiction Over Commercial Mobile Radio Services Offered Within the State of Louisiana, 10 FCC
Rcd 7898, 7908 (1995).! Even assuming, arguendo, that the
Commission has jurisdiction to adopt a national interconnection policy that would encompass
wireless interconnection, BellSouth argues that it should do so in its comprehensive access
reform and interconnection proceeding envisioned for 1996.
X f - x ` ` c. ` Discussion (#
Y 8 - x j 107. We seek comment on three alternative approaches to implementing the
interconnection policies discussed above. We recognize that states share our goals of
stimulating economic growth by promoting the development of CMRS, which would upgrade
the nation's telecommunications infrastructure and would help make available broader access
to communications networks. We also recognize that, as detailed above, some state public
utility commissions have begun to develop their own policies governing interconnection
arrangements. We intend to continue to work cooperatively with state regulators to
formulate interconnection policies that advance our common public interest goals.
Y i - x k 108. One approach to implementing these goals would be to adopt a federal
interconnection policy framework that would directly govern LECCMRS twocarrier
interconnection with respect to interstate services and that would serve as a model for state
commissions considering these issues with respect to intrastate services. Essentially, we
would recommend that states voluntarily follow our guidelines, rather than making them
mandatory requirements. Under this informal model, we would give guidance to the states
while not directing state regulators in interconnection matters. For example, if we were to
affirm our tentative conclusions discussed above regarding bill and keep compensation, we " 4 0*((! " could require LECs and CMRS providers to use that approach with respect to terminating
interstate traffic originating on the other's network, and encourage states to adopt the same
approach with respect to intrastate traffic. On the other hand, there would be no guarantee
that states would adopt our proposed model. We seek comment on this option and whether
there might be some way to supplement it to better achieve the goals discussed above. For
example, would it be beneficial to have an industry group develop specific standards to
govern the terms and conditions for interconnection arrangements, based on our informal
model? If so, should we set a date certain by which such an industry group should develop
these standards?
Y - x l 109. A second approach would be to adopt a mandatory federal policy framework or
set of general parameters to govern interconnection arrangements between LECs and CMRS
providers with respect to interstate and intrastate services, but allow state commissions a
wide range of choices with respect to implementing specific elements of these arrangements.
Thus, although compliance with these policy parameters would be mandatory, state
commissions would have substantial latitude in developing specific arrangements that would
comply with these parameters. One example of a general policy parameter is our existing
mutual compensation requirement which generally requires that there be mutual
compensation between LECs and CMRS providers for the reasonable costs of terminating
each other's traffic without precluding the states from setting the actual interconnection
rates that LECs and CMRS providers charge. We could also adopt more specific policy
parameters, while still preserving a degree of discretion for state commissions. For example,
we could require the use of bill and keep compensation, as discussed above, for all offpeak
traffic, but allow states to decide whether to use bill and keep or some alternative option with
respect to compensation for intrastate traffic during peak periods. The possible benefit of
this approach is that it would provide some greater national uniformity, while still preserving
the state commissions' flexibility to develop specific arrangements that meet their needs. We
seek comment on this option and on whether it would most effectively achieve our goals. If
parties do support the use of mandatory federal policy parameters, we ask that they comment
on what level of detail we should adopt in such parameters that is, whether we should
adopt broad, general parameters on what the appropriate interconnection rates should be or
whether we should adopt a more detailed set of parameters.
Y - x m 110. As a third alternative, we seek comment on our promulgating specific federal
requirements for interstate and intrastate LECCMRS interconnection arrangements. This
approach would place more specific parameters on state action regarding interconnection
rates. For example, if we were to affirm our tentative conclusions discussed above regarding
bill and keep compensation, we could require LECs and CMRS providers to adopt such an
approach with respect to all traffic.
Y h$ - x n 111. We tentatively conclude that the Commission has sufficient authority to
implement these options, including our proposal that interconnection compensation on a bill
and keep basis be adopted on an interim basis. As a preliminary matter, Section 332
explicitly preempts state regulation in this area to the extent that such regulation precludes " #'5 0*((P( "
Y - (or effectively precludes) entry of CMRS providers. J
T y - ԍx 47U.S.C. 332(c)(3).J In addition, to the extent state
regulation in this area precludes reasonable interconnection, it would be inconsistent with the
federal right to interconnection established by Section 332 and our prior decision to preempt
Y - state regulation that prevents the physical interconnection of LEC and CMRS networks. a h
T - ԍx See CMRS Second Report, 9 FCC Rcd at 1498.a
Y - We also believe, contrary to our conclusion in earlier orders, W
T _ - ԍx See, e.g., Id., para.231.W that preemption under
Y - Louisiana PSC may well be warranted here on the basis of inseverability, particularly in light
Y x - of the strong federal policy underlying Section 332 favoring a nationwide wireless network. L x
T - ԍx Louisiana Public Service Commissionv. FCC, 476U.S. 355, 375 n.4 (1986) (Louisiana PSC)
(preemption may be warranted when interstate and intrastate services are inseparable and state
regulations make it impracticable for the Commission to exercise its statutory powers).L
Indeed, in this regard, we note that several entities have argued that Section 332 itself gives
Y J - the Commission exclusive jurisdiction in this area. J
T - ԍx See, e.g., Cox Memorandum at 45; Comcast Memorandum at 78; Willkie Farr
Memorandum at 47.
Y - x o 112. We seek comment on this analysis and also ask parties to submit relevant
factual information on this issue. We seek comment, first, on the inseverability of
interconnection rate regulation. We note that much of the LECCMRS traffic that may
appear to be intrastate may actually be interstate, because CMRS service areas often cross
state lines, and CMRS customers are mobile. For example, if a cellular customer from
Richmond travels to Baltimore and then places a call to Alexandria, the call might appear to
be an intrastate call, placed from a Virginia telephone number to another Virginia number,
but would in fact be interstate because the call originates in Maryland and terminates in
Virginia. Service areas defined as "local" in wireless providers' rate structure do not
coincide with LEC "exchanges" defined by Section 221(b) as subject to state authority, and
Y 6 - often cross state lines. 86x
T _ - ԍx For example, in the WashingtonBaltimore metropolitan area, both cellular carriers and the
pioneers' preference broadband PCS licensee have established local calling areas encompassing areas
stretching from north of Baltimore in Maryland to significantly south of Washington, D.C., in
Virginia. CMRSoriginated calls from anywhere in this area to anywhere in this area are considered
local calls. This is true of many existing cellular providers, and is even more
likely to be true with respect to PCS licensees in major trading areas (MTAs). We request
that commenting parties submit empirical data and analysis on the extent to which existing
LECCMRS interconnection arrangements involve both interstate and intrastate traffic, the
extent to which significant levels of interstate wireless traffic are being carried under such
arrangements, and, most importantly, the extent to which interstate and intrastate traffic can " 6 x 0*(( " be severed for regulatory pricing purposes. We seek comment on whether either the CMRS
or the LEC networks have the technical capability to distinguish whether a wireless call
interconnecting with its network is an interstate or intrastate call. We also seek comment on
whether we should reconsider our recent conclusion, cited by BellSouth, that Section 332
does not circumscribe state regulation of the interconnection rates that LECs charge CMRS
Y - providers. ,
T - ԍx Petition on Behalf of the Louisiana Public Service Commission for Authority to Retain Existing
T - Jurisdiction over Commercial Mobile Radio Services Offered Within the State of Louisiana, 10FCC
Rcd 7898, 7908, para.47 (1995). ,
Y _ - x p 113. We also ask parties to identify what types of state rate regulation, if any,
preclude (or effectively preclude) entry of CMRS providers. We seek specific information
on the types of regulations that are either in effect or have been proposed by state regulators
in the area of LECCMRS interconnection, and seek comment on what impact such state
action has had on interconnection arrangements and on the ability of CMRS providers to
compete in the market. We also request comment on the meaning and relevance of Section
Y - 332(c)(1)(B) to our jurisdictional analysis. M
T - ԍx 47U.S.C. 332(c)(1)(B).M
Y
- x q 114. In determining what the Commission's role should be with respect to
implementation of LECCMRS interconnection policies, we again emphasize our recognition
of the states' legitimate interest in interconnection issues and our intention to work in
coordination with state regulators in this regard. In addition, although we have identified
three possible options to implement our interconnection compensation proposals, and we seek
comment on these options, we also encourage parties to suggest other options, or variations
of our options, regarding implementation. Our goal is to achieve implementation of our
interconnection proposals in the most efficient and effective manner to the collective benefit
of all the parties involved.
Y -
h IV. INTERCONNECTION FOR THE ORIGINATION AND
X - A TERMINATION OF INTERSTATE INTEREXCHANGE TRAFFIC ă
Y } - x r 115. We held in 1984 that radio common carriers and cellular carriers are not IXCs
Y f - and therefore are not required to pay LECs interstate access charges.
f
T ! - ԍx MTS and WATS Market Structure, Third Report and Order, 97FCC 2d 834, 88183 (1984);
T " - FCC Policy Statement on Interconnection of Cellular Systems, 59 RR 2d at 128485, notes 1& 3.
We have never
addressed, however, whether LECs or IXCs should remit any interstate access charges to
Y 8 - CMRS providers when the LEC and the CMRS provider jointly provide access service. 8 8
T !& - ԍx But see CMRS Second Report, 9 FCC Rcd at 147881 (1994)(forbearing from requiring or
permitting CMRS providers to file tariffs for interstate access service). " 8 7
0*((= " For example, when a cellular customer places a longdistance call, the cellular carrier
typically transmits the call to the LEC, which connects the call to the IXC. Similarly, when
longdistance calls are placed to cellular customers, the IXC handling the call typically
transmits the call to a LEC, which, in turn, hands it to the cellular carrier for termination to
Y - the called party. 7
T - ԍx These circumstances commonly prevail whether or not the cellular provider offers its
customers equal access. "Equal access" refers to allowing end user customers to presubscribe to the
IXC of their choice for all interLATA calling. This Notice does not solicit comment on whether
CMRS providers should be required to offer their customers equal access; this issue is already under
T } - consideration based on an earlier Notice. See Equal Access and Interconnection NPRM and NOI, 9
FCC Rcd 5408.7 We have not previously established specific rules or guidelines applicable
to the joint provision of interstate access service by a LEC and a CMRS provider. Until
CMRS providers generate sufficient traffic to warrant direct connections to IXC points of
presence, we believe that most CMRS providers are likely to depend on LECs for interconnection of interexchange traffic to IXCs. Thus, we tentatively conclude that it will be
necessary to apply certain protections to such interconnection arrangements, at least in the
foreseeable future. We seek comment on this analysis and on our tentative conclusion. We
also invite CMRS providers and LECs to describe existing arrangements under which CMRS
providers are compensated for originating and terminating interstate interexchange traffic that
transits a LEC's network.
Y
- x s 116. In the context of the existing access charge regime, we tentatively conclude that
CMRS providers should be entitled to recover access charges from IXCs, as the LECs do
when interstate interexchange traffic passes from CMRS customers to IXCs (or vice versa)
via LEC networks. We propose to require that CMRS providers be treated no less favorably
than neighboring LECs or CAPs with respect to recovery of access charges from IXCs and
LECs for interstate interexchange traffic. We tentatively conclude that any less favorable
treatment of CMRS providers would be unreasonably discriminatory, and would interfere
with our statutory objective and ongoing commitment to foster the development of new
Y - wireless services such as CMRS. d
T B - ԍx See CMRS Second Report, 9 FCC Rcd at 141922.d We seek comment on how to implement this nondiscrimination requirement. For example, should we require that contracts between
neighboring LECs establishing joint arrangements for providing interstate access, as well as
comparable contracts between LECs and CMRS providers, be publicly filed pursuant to
211 of the Act in order to protect against such discrimination? Should such arrangements
be included in LEC interstate access tariffs?
Y N - x t 117. We also seek comment on the basis for CMRS providers' access charges, which
under our proposal would be collected directly or indirectly from IXCs. Should CMRS
providers impose interstate access charges that mirror those of the LECs with which they
connect? Or should they impose their own access charges, as do many independent LECs?
If the latter, should we retain our existing policy of forbearing from regulating CMRS " 8 D 0*(( "
Y - providers' interstate access charges? Q
T y - ԍx Id., 9 FCC Rcd at 147881.Q In the alternative, should we find that, even though
CMRS providers may lack market power with respect to end users, they may have some
market power over IXCs that need to terminate calls to a particular CMRS provider's
customer, or to originate calls (in an equal access context) from such a customer? If we
were to adopt such a conclusion, should we adopt guidelines or some other form of pricing
regulation to govern CMRS providers' interstate access charges? Should we address the
billing arrangements that would apply in this context? Parties are invited to comment on the
issues and proposals discussed herein, and to address the costs and benefits of these and
possible alternative approaches.
X - V. APPLICATION OF THESE PROPOSALS Đ T P
Y
- x u 118. We invite comment on whether the proposals and options considered in this
Notice of Proposed Rulemaking should apply to interconnection arrangements between LECs
and: (1)broadband PCS providers only; (2)broadband PCS, cellular telephone, SMR,
satellite telephony, and other CMRS providers that offer twoway, pointtopoint voice
communications, which could compete with LEC landline telecommunications services; or
(3)all CMRS providers. We solicit comments and analysis on the relative costs and benefits
of broader and narrower approaches, and on any technical or economic similarities or
differences among CMRS services that would warrant similar or different treatment. (We
note that, as a matter of convenience, we refer elsewhere in this notice generically to
"CMRS providers;" this usage is not intended to exclude the possibility of applying our
Y - policies more narrowly.) O j
T ! - ԍx We note that the comments received in this proceeding focused on CMRS providers in
T - general, because that was the focus of the questions asked in the original Notice. See Equal Access
T - and Interconnection NPRM and NOI, 9 FCC Rcd 5408 (1994).O
Y - x v 119. There may be benefits to focusing primarily on broadband PCS or some other
limited group of CMRS services. First, it might be desirable to limit our focus to broadband
PCS because it is a new service. We have assigned the initial broadband PCS licenses
relatively recently and will soon assign more. Fewer issues arise in applying policy changes
to a new service, such as broadband PCS, than to existing services: for example, it is less
likely that we would need to consider problems of displacement, interference with existing
contracts, or transitions from existing interconnection arrangements to new arrangements.
Y - x w 120. Second, we could consider addressing interconnection between LECs and all
types of commercial mobile radio services that support voice telecommunications and could
compete with the local telephone services provided by the LECs. The interconnection
arrangements between this group of CMRS providers and LECs could have a critical effect
on whether these carriers can develop into effective competitors for providing the local links
required for interstate communications. Focusing narrowly either on broadband PCS alone " !9 0*((" " or on this subset of CMRS would allow us to tailor our policies more carefully to the
particular subset of carriers or services involved.
Y - x x 121. Third, there are arguments for applying our proposals more broadly to interconnection between LECs and all CMRS providers because this would enable us to make
improvements in as large a part of the local telephone and CMRS markets as possible.
Moreover, pursuant to Congressional intent, we have taken a number of actions to apply
Y _ - similar regulatory treatment to different types of CMRS providers. x _
T - ԍx See, e.g., CMRS Second Report, 9 FCC Rcd 1411 (1994).x Differential treatment
among CMRS providers in the critical area of interconnection could be interpreted as
inconsistent with our overall policies with respect to CMRS. On the other hand, some of the
proposals in this Notice might not be in the public interest if applied to CMRS providers that
do not compete with LEC services.
Y - VI. PROCEDURAL ISSUES ă
X
- A. Ex Parte Presentations
Y } - x y 122. This is a nonrestricted noticeandcomment rulemaking proceeding. Ex parte
presentations are permitted, except during the Sunshine Agenda period, provided that they
Y Q - are disclosed as provided in the Commission's rules. See generally 47 C.F.R. 1.1202,
1.1203, 1.1206.
X - B. Initial Regulatory Flexibility Analysis
Y - x z 123. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 601612, the
Y - Commission's Initial Regulatory Flexibility Analysis with respect to the Notice of Proposed
Y - Rulemaking is as follows:
Y - x { 124. Reason for Action: The Commission is issuing this Notice of Proposed
Y s - Rulemaking seeking comment on possible changes in the regulatory treatment of interconnection compensation arrangements between LECs and CMRS providers and related
issues.
Y - x | 125. Objectives: The objective of the Notice of Proposed Rulemaking is to provide
an opportunity for public comment and to provide a record for a Commission decision on the
issues stated above.
Y ! - x } 126. Legal basis: The Notice of Proposed Rulemaking is adopted pursuant to
Sections 1, 2, 4, 201205, 215, 218, 220, 303(r) and 332 of the Communications Act of
1934, as amended, 47 U.S.C. 151, 152, 154, 201205, 215, 218, 220, 303(r) and 332;
" |$: j 0*((% " Ԍ
Y - x ~ 127. Description, potential impact, and number of small entities affected: Any rule
changes that might occur as a result of this proceeding could impact entities which are small
business entities, as defined in Section 601(3) of the Regulatory Flexibility Act. After
evaluating the comments in this proceeding, the Commission will further examine the impact
of any rule changes on small entities and set forth findings in the Final Regulatory Flexibility
Y - Analysis. The Secretary shall send a copy of this Notice of Proposed Rulemaking to the
Chief Counsel for Advocacy of the Small Business Administration in accordance with Section
603(a) of the Regulatory Flexibility Act, Pub. L. No. 96354, 94 Stat. 1164, 5 U.S.C.
Y L - 601, et seq. (1981).
Y - x 128. Reporting, recordkeeping and other compliance requirement: None.
Y
- x 129. Federal rules which overlap, duplicate or conflict with the Commission's
Y - proposal: None.
Y
- x 130. Any significant alternatives minimizing impact on small entities and consistent
Y - with stated objectives: The Notice of Proposed Rulemaking solicits comments on a variety of
alternatives.
Y [ - x 131. Comments are solicited: Written comments are requested on this Initial
Regulatory Flexibility Analysis. These comments must be filed in accordance with the same
Y / - filing deadlines set for comments on the other issues in this Notice of Proposed Rulemaking
Y - but they must have a separate and distinct heading designating them as responses to the
Regulatory Flexibility Analysis. The Secretary shall send a copy of the Notice to the Chief
Counsel for Advocacy of the Small Business Administration in accordance with Section
Y - 603(a) of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq.
X - C. Comment Filing Procedures
Y { - x 132. Comments and reply comments should be captioned in CC Docket No. 95185
only. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the
Commission's rules, 47 C.F.R. 1.415, 1.419, interested parties may file comments on or
before February 26, 1996, and reply comments on or before March 12, 1996. To file
formally in this proceeding, you must file an original and four copies of all comments, reply
comments, and supporting comments. If you want each Commissioner to receive a personal
copy of your comments, you must file an original and nine copies. Comments and reply
comments should be sent to Office of the Secretary, Federal Communications Commission,
1919 M Street, N.W., Room 222, Washington, D.C. 20554, with a copy to Janice Myles of
the Common Carrier Bureau, 1919 M Street, N.W., Room 544, Washington, D.C. 20554.
Parties should also file one copy of any documents filed in this docket with the Commission's
copy contractor, International Transcription Services, Inc., 2100 M Street, N.W., Suite 140,
Washington, D.C. 20037. Comments and reply comments will be available for public
inspection during regular business hours in the FCC Reference Center, 1919 M Street,
N.W., Room 239, Washington, D.C. 20554. " 9'; 0*((P( " Ԍ
Y - ԙx 133. In order to facilitate review of comments and reply comments, both by parties
and by Commission staff, we request that such comments be organized in a uniform format.
Specifically, we ask the parties to organize their comments and reply comments in the outline
Y - provided in the footnote.
T 4 - ԍx Our preferred outline for comments and reply comments is as follows:
T - I.x General Comments
T - II. Xx Compensation for Interconnected Traffic between LECs and CMRS Providers' Networks(#
T - x A.` ` Compensation Arrangements
T l - x ` ` 1. Existing Compensation Arrangements
T D
- x ` ` 2. General Pricing Principles
T - x ` ` 3. Pricing Proposals (Interim, Long Term, Symmetrical)
T - x B.` ` Implementation of Compensation Arrangements
T - x ` ` 1. Negotiations and Tariffing
T
- x ` ` 2. Jurisdictional Issues
T | - III. Xx Interconnection for the Origination and Termination of Interstate Interexchange Traffic(#
T T - IV.x Application of These Proposals
T , - V. Xx Responses to Initial Regulatory Flexibility Analysis(#
T - VI.x Other Each new section should begin on a new page, and should be
labeled with the name of the filing party, identification of whether the document is an initial
comment or a reply comment, the docket number, filing date, and number and name of the
outline section addressed (although formal legal headers are unnecessary for section
headings). No pages need be submitted for issues that a party chooses not to address.
Arguments that conceptualize issues in a manner that does not fit into the segments listed
above may be included in the "Other" section.
X
- D. Ordering Clauses
Y - x 134. Accordingly, IT IS ORDERED that, pursuant to Sections 1, 4, 201205, 215,
218, 220, 303(r) and 332 of the Communications Act of 1934, as amended, 47 U.S.C.
151, 154, 201205, 215, 218, 220, 303(r) and 332, a NOTICE OF PROPOSED
RULEMAKING is hereby ADOPTED.
Y b - x 135. IT IS FURTHER ORDERED that, the Secretary shall send a copy of this
NOTICE OF PROPOSED RULEMAKING, including the regulatory flexibility certification, " K< 8 0*(( " to the Chief Counsel for Advocacy of the Small Business Administration, in accordance with
Y - paragraph 603(a) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (1981).
Xx X` ` X X XhhFEDERAL COMMUNICATIONS COMMISSION(#h
x ` ` hhWilliam F. Caton
x ` ` hhActing Secretary
"
= 0*((P
"
H'APPENDIX A:
b Comments filed on the First Notice of Proposed Rulemaking in CC Docket No. 9454
T
.COMMENTS
T
x 1. AirTouch Communications (AirTouch)
x 2. Allnet Communication Services, Inc. (Allnet)
x 3. ALLTEL Mobile Communications, Inc. (ALLTEL)
x 4. American Mobile Telecommunications Association, Inc. (AMTA)
x 5. American Personal Communications (APC)
x 6. Americell PA-3 Limited Partnership (Americell)
x 7. Ameritech
x 8. AMSC Subsidiary Corp. (AMSC)
x 9. AT & T Corporation (AT & T)
Xx 10. Michael B. Azeez d/b/a Deadwood Cellular Telephone Company, Durango
Cellular Telephone Company, Ohio State Cellular Phone Company, Inc., and Trillium
Cellular Corporation (Azeez)(#
x 11. Bell Atlantic Companies (Bell Atlantic)
Xx 12. BellSouth Corporation, BellSouth Telecommunications, Inc., BellSouth Cellular
Corp. (BellSouth)(#
Xx 13. People of the State of California and the Public Utilities of the State of California
(California PUC)(#
x 14. Cellular Service, Inc. and ComTech, Inc. (CSI/ComTech)
x 15. Cellular Telecommunications Industry Association (CTIA)
x 16. Century Cellunet, Inc. (Century Cellunet)
x 17. Cincinnati Bell Telephone (Cincinnati Bell)
x 18. Claircom Communications Group, L.P. (Claircom)
x 19. Columbia PCS, Inc. (Columbia PCS)
x 20. Comcast Corporation (Comcast)
x 21. Cox Enterprises, Inc. (Cox)
x 22. DCR Communications, Inc. (DCR)
x 23. Dakota Cellular, Inc. (Dakota)
x 24. Dial Page, Inc. (Dial Page)
x 25. E.F. Johnson Company (E.F Johnson)
x 26. First Cellular of Maryland, Inc. (First Cellular)
x 27. Florida Cellular RSA Limited Partnership (Florida Cellular)
x 28. General Services Administration (GSA)
x 29. Geotek Communications, Inc. (Geotek)
x 30. Grand Broadcasting Corporation (Grand)
x 31. GTE Service Corporation (GTE)
x 32. Highland Cellular, Inc. (Highland)
x 33. Horizon Cellular Telephone Company (Horizon)
x 34. Lake Huron Cellular Corporation (Lake Huron) " #'> 0*((P( " Ԍ x 35. LDDS Communications, Inc. d/b/a LDDS Metromedia (LDDS)
x 36. Maritel
x 37. McCaw Cellular Communications (McCaw)
x 38. MCI Telecommunications Corporation (MCI)
x 39. Miscellco Communications, Inc. (Miscellco)
x 40. National Association of Business and Educational Radio, Inc. (NABER)
x 41. National Association of Regulatory Utility Commissioners (NARUC)
x 42. National Cellular Resellers Association (NCRA)
x 43. National Telephone Cooperative Association (NTCA)
x 44. New Par
x 45. New York State Department of Public Service (New York DPS)
Xx 46. New York Telephone Company, New England Telephone & Telegraph Company,
and NYNEX Mobile Communications Company (NYNEX)(#
x 47. Nextel Communications, Inc. (Nextel)
x 48. OneComm Corporation (OneComm)
Xx 49. Organization for the Protection and Advancement of Small Telephone Companies
(OPASTCO)(#
x 50. Pacific Bell and Pacific Bell Mobile Services (Pacific Bell)
x 51. Pacific Telecom Cellular, Inc. (PacTel)
x 52. Paging Network, Inc. (PageNet)
x 53. Palmer Communications Incorporated (Palmer)
x 54. Personal Communications Industry Association (PCIA)
x 55. Point Communications Company (Point)
x 56. Puerto Rico Telephone Company (PRTC)
x 57. RAM Mobile Data USA Limited Partnership (RAM Mobile)
x 58. Rand McNally & Company (Rand McNally)
x 59. Rochester Telephone Corporation (Rochester)
x 60. Rural Cellular Association (Rural Cellular)
x 61. Saco River Cellular Telephone Company (Saco River)
x 62. Sagir, Inc. (Sagir)
x 63. Small Market Cellular Operators (SMCO)
x 64. SNET Mobility, Inc. (SNET)
x 65. The Southern Company (Southern Company)
x 66. Southwestern Bell Corporation (SW Bell)
x 67. Telephone and Data Systems, Inc. and United States Cellular Corporation (TDS)
x 68. Triad Cellular
x 69. TRW, Inc. (TRW)
x 70. Union Telephone Company (Union)
x 71. Vanguard Cellular Systems, Inc. (Vanguard)
x 72. Waterway Communications System, Inc. (Waterway)
x 73. Western Wireless Corporation (Western Wireless)
x 74. WilTel, Inc. (WilTel)
" :&? 0*((`' " Ԍ (REPLY COMMENTS
T
x 1. AirTouch Communications (AirTouch), Erratum
x 2. Allnet Communication Services, Inc. (Allnet)
x 3. Amarillo CellTelCo (Amarillo)
x 4. American Mobile Telecommunications Association, Inc. (AMTA)
x 5. American Personal Communications (APC)
x 6. Ameritech
x 7. AT&T Corporation (AT&T)
x 8. Bell Atlantic Companies (Bell Atlantic)
Xx 9. BellSouth Corporation, BellSouth Telecommunications, Inc., BellSouth Cellular
Corp. (BellSouth)(#
x 10. Cellular Communications of Puerto Rico, Inc. (CCPR)
x 11. Cellular Service, Inc. and ComTech, Inc. (CSI/ComTech)
x 12. Cellular Telecommunications Industry Association (CTIA)
x 13. Century Cellunet, Inc. (Century)
x 14. Comcast Corporation
x 15. Competitive Telecommunications Association (CompTel)
x 16. General Communications, Inc. (Gencomm)
x 17. General Services Administration (GSA)
x 18. Geotek Communications, Inc. (Geotek)
x 19. GO Communications Corporation (GO)
x 20. GTE Service Corporation (GTE)
x 21. Horizon Cellular Telephone Company (Horizon)
x 22. Larsen Cellular Communications, Inc. (Larsen)
x 23. LDDS Communications, Inc. d/b/a LDDS Metromedia (LDDS), Erratum
x 24. MCI Telecommunications Corporation (MCI)
x 25. National Association of Business and Educational Radio, Inc. (NABER)
x 26. National Cellular Resellers Association (NCRA)
x 27. New Par
Xx 28. New York Telephone Company, New England Telephone & Telegraph Company,
and NYNEX Mobile Communications Company (NYNEX)(#
x 29. Nextel Communications, Inc. (Nextel)
x 30. OCOM Corporation (OCOM)
x 31. OneComm Corporation (OneComm)
x 32. Pacific Bell, Nevada Bell and Pacific Bell Mobile Services (Pacific Bell)
x 33. Palmer Communications Incorporated (Palmer)
x 34. Personal Communications Industry Association (PCIA)
x 35. Puerto Rico Telephone Company (PRTC)
x 36. Rochester Telephone Corporation (Rochester)
x 37. Rural Cellular Association (RCA)
x 38. RVC Services, Inc. d/b/a Coastel Communications Company (RVC/Coastel)
x 39. Southwestern Bell Corporation and Southwestern Bell Mobile Systems, Inc. (SW
x Bell) " #'@ 0*((P( " Ԍ x 40. Telephone and Data Systems, Inc. and United States Cellular Corporation (TDS)
Xx 41. Time Warner Telecommunications, a division of Time Warner Entertainment,
L.P. (Time Warner)(#
x 42. United States Telephone Association (USTA)
x 43. UTC, The Telecommunications Association (UTC)
x 44. Vanguard Cellular Systems, Inc. (Vanguard)
J:\POLICY\CMRS\NPRMIMPL