NOTICE ********************************************************* NOTICE ********************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file how2ftp. File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $// MO&O; ALTS, et.al., App. for Rev.; ZDPP; CC Dkt. 91-141; FCC 96-107 //$ $/ 47 C.F.R. - Section 32.11 /$ TRANSMITTED FOR FCC RECORD ONLY FCC 96- 107 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D. C. In the Matter of) Association for Local ) Telecommunications Services, and ) Teleport Communications Group, Inc. ) CC Docket No. 91-141 ) Applications for Review ) of Bureau Orders Approving ) Zone Density Pricing Plans ) of Local Exchange Carriers ) MEMORANDUM OPINION AND ORDER Adopted: March 12, 1996; Released: April 3, 1996 By the Commission: I. INTRODUCTION 1. Two parties, the Association for Local Telecommunications Services (ALTS) and Teleport Communications Group, Inc. (TCG), filed applications for review of four Orders issued by the Common Carrier Bureau (Bureau). The four Orders, collectively, approved the zone density pricing plans filed by 13 local exchange carriers (LECs). In this Order, we deny those applications for review for the reasons discussed below. We also deny a motion, filed by the Bell Atlantic Telephone Companies, to dismiss one of these applications for review. II. BACKGROUND 2. In the Special Access Physical Collocation Order, the Commission granted all Tier 1 LECs, implementing special access expanded interconnection, additional pricing flexibility for their DS1 and DS3 special access services, in order to bring their special access rates in line with their costs. The Commission concluded that the availability of special access expanded interconnection, in conjunction with the grant of increased pricing flexibility for LEC special access services, would establish an equitable regulatory framework for promoting competition in the interstate special access marketplace. A LEC that elected to take advantage of the additional pricing flexibility was required to establish pricing zones within each of its study areas, subject to Commission approval. The Commission directed the LECs to assign each of their central offices to one of the pricing zones, and to demonstrate that the assignment of each central office was based primarily on criteria reflecting cost-related characteristics. The Commission also stated that a LEC could assign a central office to a pricing zone in order to reflect exchange area boundaries or communities of interest, although those considerations were of secondary importance to the cost-related characteristics of the office. Once the plans were approved, the LECs were permitted to file tariffs establishing different rates in each zone. 3. On June 9, 1993, the Bureau partially suspended the special access physical collocation tariffs filed by 16 LECs, initiated an investigation into the lawfulness of those tariffs, and imposed an accounting order. On June 18, 1993, the Bureau released an Order approving the zone density pricing plans of six LECs and on August 4, 1993, released an Order approving the plans of four other LECs. On September 28 and November 30, 1993, the Bureau released Orders approving the zone density pricing plans of three more LECs. The Bureau found in each of these Orders that the zone plans reflected cost-related characteristics based on traffic density, as the Commission intended in the Special Access Physical Collocation Order. The Bureau thus concluded that the zone plans reasonably implemented the zone density pricing scheme that the Commission envisioned in the Order. 4. On July 19, 1993, ALTS and TCG each filed an application for review of the First Zone Density Order. These same parties filed an application for review of the Second Zone Density Order on September 3, 1993. On September 20, 1993, Bell Atlantic filed a motion to dismiss ALTS' application for review. Finally, ALTS filed an application for review of the Third Zone Density Order on October 28, 1993, and on December 30, 1993, sought review of the Fourth Zone Density Order. III. BELL ATLANTIC MOTION TO DISMISS 5. Bell Atlantic urges dismissal of the ALTS application for review of the Second Zone Density Order, which approved Bell Atlantic's zone density pricing plan. Bell Atlantic contends that ALTS was not a party to the zone density proceeding. It asserts that ALTS cannot participate in the proceeding because its application does not contain a statement justifying its earlier lack of participation, as required by Section 1.115(a) of the Commission's rules. Bell Atlantic argues that ALTS did not participate directly in the zone density proceeding, but asserts that other ALTS members, like TCG, could file their own applications for review. Contrary to Bell Atlantic's assertions, however, ALTS is a party to the zone density proceeding. ALTS actively participated in an earlier phase of the Commission's expanded interconnection proceeding, CC Docket No. 91-141. It is this docketed proceeding that established the framework for the filing of zone density pricing plans. We see no reason to deny ALTS' participation in this phase of a proceeding in which it has already been active. We therefore deny Bell Atlantic's motion to dismiss the ALTS application for review. IV. APPLICATIONS FOR REVIEW 6. In their applications for review of the Bureau's four zone density Orders, both ALTS and TCG make the same general arguments. A. Whether the Bureau Erred by Prematurely Approving the LECs' Zone Density Pricing Plans. 1. Pleadings 7. Applications for Review. ALTS and TCG contend that the Bureau erred by approving prematurely the LECs' zone density pricing plans. They claim that the Commission intended to grant the LECs greater pricing flexibility through the use of zone density plans provided that the LECs first filed collocation tariffs that would encourage the development of local exchange competition. ALTS and TCG argue that the collocation tariffs filed by the LECs in fact will not engender viable competition because the tariffs allegedly do not offer reasonable, cost-based rates and terms to interconnectors. They assert that the Bureau's suspension of the LECs' collocation tariffs substantiates their position. ALTS and TCG further contend that the Bureau should have known that the collocation tariffs, as filed, would not fulfill the Commission's intent to "reduce the barriers to competitive entry in the interstate special access market." 8. Oppositions. Ameritech, GTE, and NYNEX argue that the Commission found that current market conditions justified granting them greater pricing flexibility. Several other LECs claim that the Commission required LECs to file and obtain approval of their zone plans prior to filing changes to their zone tariffs, which could take effect only after expanded interconnection becomes operational. United/Centel asserts that the Commission permits LECs filing zone plans to implement zone density pricing only as a response to competition. Still other LECs argue that there are more appropriate administrative procedures other than an application for review by which a party can seek to correct any alleged inconsistencies with the Commission's policies that may exist in the LECs' collocation tariffs. 9. Replies. ALTS and TCG contend that a delay in approving the zone density plans is essential to correcting the alleged regulatory imbalance that the LECs created by filing unreasonable collocation tariffs. TCG asserts that the Commission did not want the zone plans to take effect prior to the existence of final, rather than interim, collocation tariffs that are fully operational. TCG further claims that the Commission defined a tariff to be "operational" when an interconnector takes the cross-connect element from a final, not an interim, collocation tariff. It contends that the tariffs are not yet "operational" because the LECs' cross-connect elements are part of the collocation tariff investigation. ALTS similarly argues that the Bureau's approval of the LECs' zone density plans prior to the implementation of collocation tariffs containing rates that would facilitate increased local competition was contrary to the Commission's intent. 10. ALTS further asserts that the Bureau possesses delegated authority to carry out Commission policies, but does not have authority to implement those policies in a manner that produces results that are inconsistent with the Commission's policy objectives. It contends that its application for review is entitled to consideration because the Commission's rules permit an application for review to be based on a need for a policy revision, an erroneous finding, or an incorrect application of relevant facts. 2. Discussion 11. The Special Access Physical Collocation Order directed LECs to file and obtain approval of their zone density pricing plans before filing tariffs to implement those plans. After their plans were approved, the LECs' "zone tariffs" could contain different rates in each zone for the LECs' high capacity DS1 and DS3 service offerings. A LEC was allowed to file its zone tariff, however, only after the Bureau approved its zone plans and only after its collocation tariff was "operational" -- that is, after at least one interconnector subscribed to the cross-connect element in the LEC's collocation tariff. As we stated in the Special Access Physical Collocation Order, permitting implementation of additional LEC pricing flexibility at this point was reasonable, since an interconnector would be able to compete to serve a LEC's customers by subscribing to the cross-connect element. 12. The Bureau followed this sequence in approving the zone density pricing plans at issue in these applications for review. The Bureau first approved the zone density plans of 13 LECs, finding that the proposed plans reflected cost-related characteristics based on traffic density. The Bureau thus concluded that the zone plans reasonably implemented the zone density pricing scheme that the Commission envisioned in the Special Access Physical Collocation Order. Several of these LECs then filed tariffs containing different DS1 and DS3 service rates in each zone established in their plans; these zone tariffs subsequently took effect with no formal opposition. 13. We conclude that the Bureau's approval of the zone density pricing plans conformed to the sequence of events established in the Special Access Physical Collocation Order. We therefore deny the claims of TCG and ALTS that the Bureau prematurely approved the LECs' zone density pricing plans. In the Special Access Physical Collocation Order, we did not require the Bureau to delay approval of the LECs' zone density pricing plans, pending completion of the investigation of the special access collocation tariffs. Rather, we stated that the LECs could not file their tariffs implementing their zone density pricing plans until (1) after their zone density pricing plans have been approved and (2) after at least one interconnector subscribed to the cross-connect element in each of the LECs' operational collocation tariffs. In fact, in order to facilitate review of zone density pricing plans, the Commission stated that LECs that intended to file zone density pricing plans should do so no later than the date it filed expanded interconnection tariffs. Therefore, the Commission contemplated that the Bureau would begin reviewing and approving zone density pricing plans of some LECs before an interconnector had subscribed to the cross-connect element of an "operational" physical collocation tariff. 14. TCG has also misinterpreted our "operational tariff" requirement. In the Special Access Physical Collocation Order, we stated that "an expanded interconnection offering will be deemed to be operational for this purpose [implementing traffic-density-related rate zones] when an interconnector has taken the expanded interconnection cross-connect element." While we stated, as TCG argues, that purchase of a cross-connect from an "interim" tariff did not satisfy our "operational tariff" requirement, we also clearly defined "interim" tariffs to be those we required of LECs that had existing intrastate expanded interconnection tariffs in effect when the Special Access Physical Collocation Order was adopted. B. Whether the Bureau Erred by Approving Plans That Were Not Cost-Based. 1. Pleadings 15. Applications for Review. ALTS argues that the Bureau erred by approving the LECs' zone density pricing plans because the plans were not cost-based, as the Commission intended. ALTS contends that the Bureau instead relied on evidence that the plans were "primarily traffic density based." It claims the Bureau erroneously approved plans that proposed higher rates for offices that have less traffic and lower rates for offices that have more traffic. ALTS further alleges that the Bureau's decision permitted LECs to shift central offices among zones on the basis of "competitive" criteria, rather than using cost-based criteria alone. 16. Oppositions. Several of the LECs respond that the Bureau properly found their plans met the Commission's requirement that the plans be cost-based. They claim that the Commission required the LECs to use traffic density data as a surrogate for cost data. Pacific argues that the Commission's Special Access Physical Collocation Order reasoned that higher traffic density results in lower per-unit costs, because the costs are largely non-traffic sensitive. It adds that "competitive criteria" were not used; rather, geographic contiguity and community of interest were permitted considerations, albeit to a lesser extent than traffic density. 2. Discussion 17. In the Special Access Physical Collocation Order, we found traffic density significantly affects the cost of providing special access services. The Commission stated, for example, that traffic density is greater, and costs per unit of traffic are lower, in most areas containing large concentrations of high volume customers and on routes that involve a high level of traffic aggregation. We also required the LECs to show in their zone density plans that the assignment of central offices to each zone reflects "cost-related characteristics, such as traffic density or some measure of traffic through each office." LECs were not instructed to use "competitive criteria." Rather, when assigning central offices to a pricing zone, a LEC was permitted to assign an office to the same pricing zone as the central office adjacent if the assignment reflected exchange area boundaries, or if both offices shared similar, non-cost based characteristics. These conditions, however, were permitted only as minor considerations. 18. In its zone density plan Orders, the Bureau described the process by which the LECs' plans were developed as follows. First, the LECs developed a unit measure of traffic density through each central office or wire center. This measurement was based on historical data reflecting the amount of interstate traffic that passed through each of these central offices or wire centers. Next, after ranking each central office or wire center in order of decreasing traffic density, the LECs divided the offices into three groups. These groups were designated zones one, two, and three, with zone one containing the wire center group having the highest traffic density. Finally, to reflect communities of interest or exchange area boundaries, some LECs moved some central offices to zones that were higher or lower than the zone to which the offices were originally assigned. 19. The Bureau's analyses of the LECs' zone density plans are consistent with the criteria we set forth in the Special Access Physical Collocation Order. After analyzing the LECs' assignment methodology, the Bureau properly concluded that the LECs had assigned central offices to each zone using "cost-related characteristics, such as traffic density." Therefore, ALTS is incorrect in arguing that, because the Bureau relied on traffic density evidence, it approved plans that were not cost-based. ALTS' contention that the Bureau approved zone density plans that assigned central offices to zones on the basis of "competitive" criteria also lacks merit. The Bureau concluded that the LECs shifted certain central offices from one zone to another on the basis of geographic contiguity. The Special Access Physical Collocation Order expressly authorized LECs to take into account the geographic location of central offices as a secondary factor in assigning central offices to particular zones. 20. Finally, ALTS' contention that the Bureau approved plans that proposed higher rates for offices with less traffic and lower rates for offices with more traffic mischaracterizes the Bureau's action in the orders under review, because the zone plans did not contain rates. LECs were permitted to file tariffs establishing different rates in each zone only after the plans were approved. The rate levels proposed in these tariff filings are subject to the tariff review process, and ALTS and other parties were free to file petitions opposing such tariff filings pursuant to our procedures for tariff review. In sum, we find that the Bureau correctly applied the criteria established by the Commission in the Special Access Physical Collocation Order in evaluating and approving the zone density pricing plans proposed by the 13 LECs. C. The Commission Should Revise the "Trigger Point" for Zone Plan Approval To Ensure Viable Competition Exists When Zone Tariffs Take Effect. 1. Pleadings 21. Applications for Review. ALTS argues that the Commission should revise the effective competition "trigger point" to ensure that there will be actual competitive opportunity when the LEC zone tariffs take effect. ALTS and TCG argue that intervening facts since the Special Access Physical Collocation Order require the Commission on its own motion to revisit the "trigger point" for effective competition. They contend that effective competition cannot be assumed from the ordering of a single interconnection element by one carrier, particularly when the carrier is an interexchange carrier, that has no plans to offer local competition. 22. Oppositions. Several LECs urge the Commission to dismiss the ALTS and TCG applications on this issue as belated requests for reconsideration of the Special Access Physical Collocation Order. Pacific contends that the Commission established the proper "trigger point" for zone density pricing flexibility. United/Centel claims that ALTS is merely attempting to prolong the pricing umbrella created by the LECs' use of averaged rates throughout a single study area, despite lower costs of providing service in urban areas. 2. Discussion 23. These objections by ALTS and TCG raise an issue that is unrelated to our determination of whether the Bureau erred in approving the LECs' zone density plans. Their arguments attempt to revisit a decision made in the Special Access Physical Collocation Order and are thus untimely requests for reconsideration of our earlier Order. Alternatively, they could have raised their concerns in a request for reconsideration of the Commission's Virtual Collocation Order. In either event, these arguments are irrelevant to our review of the Bureau orders before us in this proceeding. Accordingly, we do not consider those arguments here. V. CONCLUSION 24. In this Order, we have reviewed the ALTS and TCG applications for review, the oppositions, and the replies. We find that the Bureau properly evaluated and approved the zone density pricing plans in a timely manner. We also find that the Bureau correctly applied the standards established in the Special Access Physical Collocation Order for using traffic density criteria as a surrogate for costs. Finally, we reject the argument raised by ALTS and TCG that the Commission should revisit the "trigger point" for approval of the zone plans as an untimely reconsideration request. We therefore deny the applications for review of the Bureau's four Orders approving the LECs' zone density pricing plans and affirm the Bureau's approval of those plans. VI. ORDERING CLAUSES 25. IT IS ORDERED that the motion filed by the Bell Atlantic Telephone Companies to dismiss the Association for Local Telecommunications Services application for review of the Common Carrier Bureau's June 18, 1993 Order IS DENIED. 26. IT IS FURTHER ORDERED that the applications for review of the Common Carrier Bureau's June 18, 1993 Order, filed by the Association for Local Telecommunications Services and Teleport Communications Group, Inc., ARE DENIED. 27. IT IS FURTHER ORDERED that the applications for review of the Common Carrier Bureau's August 4, 1993 Order, filed by the Association for Local Telecommunications Services and Teleport Communications Group, Inc., ARE DENIED. 28. IT IS FURTHER ORDERED that the application for review of the Common Carrier Bureau's September 28, 1993 Order, filed by the Association for Local Telecommunications Services, IS DENIED. 29. IT IS FURTHER ORDERED that the application for review of the Common Carrier Bureau's November 30, 1993 Order, filed by the Association for Local Telecommunications Services, IS DENIED. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary