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/ ***************************************************************** ******** FCC 96-160 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of) ) Regulation of International ) CC Docket No. 90-337 Accounting Rates) Phase II THIRD REPORT AND ORDER AND ORDER ON RECONSIDERATION Adopted: April 9, 1996 Released: May 20, 1996 By the Commission: Introduction 1. In this Order we conclude that there is no evidence that the interconnection of end user private lines at U.S. carriers' central offices has had an adverse impact on our international settlements policies. We therefore decline to extend our equivalency requirement for international resale to the interconnection of end user international private lines to the public switched network (PSN) at U.S. carriers' central offices. Instead, we require any carrier that interconnects on behalf of an end user an international private line to the PSN at the central office to report on an annual basis its arrangements for such interconnection. This decision reaffirms our longstanding policy of allowing end users to interconnect their international private lines to the public switched network for their own use, while enabling us to better monitor the effects of our resale rules. Background 2. Our December 1991 International Resale Order authorized the resale of international private lines to provide switched services. However, we recognized that "one- way" resale of international private lines would tend to divert International Message Telephone Service (IMTS) traffic from the settlements process and increase the U.S. net settlements deficit. We accordingly required U.S. carriers to permit resale of their international private lines only to those countries that afford U.S.-based resellers "equivalent" resale opportunities. Our international resale policy, however, did not alter our policy of allowing end users to attach their private lines to the U.S. PSN for their own use. 3. AT&T sought reconsideration of the International Resale Order, asking us to extend the equivalency requirement to apply not only to resale carriers, but also to any interconnections a U.S. carrier makes for end users at its central office. Although we denied AT&T's petition for reconsideration, we acknowledged that end user private line interconnections at a U.S. carrier's central office might divert U.S.-destined switched traffic to private lines. We concluded, however, the record did not demonstrate that the negative impact on U.S. settlements would justify the imposition of an equivalency requirement on the interconnection of end user private lines at U.S. carriers' central offices. We therefore sought comment on this issue. We also asked for comment on whether an AT&T proposed filing and notification requirement, or some alternative approach, would be the appropriate means of implementing such an equivalency requirement. 4. Finally, we clarified in the Order and Third Further Notice that Section 43.51(a)(3) requires U.S. carriers to file a notification of any intercarrier agreement for the interconnection of an international private line to the U.S. PSN at the carrier's central office, whether on behalf of a reseller or an end user. We asked any parties opposing AT&T's proposed equivalency requirement to comment on whether the Section 43.51(a)(3) notification requirement should also apply to agreements entered into by a U.S. carrier and an end user to interconnect the end user's private line at the U.S. carrier's central office. 5. In response to the Order and Third Further Notice, we received comments and/or replies from four U.S. carriers, four television networks two user representatives, an individual user and a Swiss company. AT&T's proposals are opposed by all other parties. CITU also filed a Petition for Clarification, or in the alternative, Partial Reconsideration ("CITU Petition for Reconsideration") arguing that U.S. carriers should fulfill their obligations under Section 43.51(a)(3) by filing redacted versions of their intercarrier agreements (deleting commercially sensitive or proprietary information), or alternatively, requesting that we reconsider our decision to apply Section 43.51(a)(3) to interconnection agreements entered into by carriers on behalf of end users. Discussion A. Equivalency Requirement and the ISP Filing and Notification Process 1. AT&T's Proposal. 6. Under AT&T's proposed equivalency requirement, a U.S. carrier seeking to interconnect an end user private line originating from a foreign country to the U.S. PSN at its central office would have to show that an end user has an equivalent opportunity to interconnect a private line originating in the United States to the foreign PSN at the foreign carrier's central office. Under AT&T's proposed ISP filing and notification process, a U.S. carrier interconnecting the end user private line at its central office would file only a notice of such interconnection if equivalency has previously been determined. If equivalency had not been determined, the U.S. carrier would need to file a request for a waiver of the ISP, and show that either (i) the foreign country affords equivalent interconnection opportunities or (ii) there are public interest reasons to allow the end user interconnection regardless of equivalency. The interconnection could occur on the twenty-second day after the ISP filing, provided no one has objected and the Commission staff has not notified the carrier that grant of the waiver may not serve the public interest. Although carriers would be required to notify the Commission of interconnections at their central office at the time of such a rule change, the interconnections would remain in place during the ISP review. 7. AT&T asserts that, absent equivalency, the one-way interconnection of end user private lines at U.S. carriers' central offices raises the same concerns of traffic diversion that the Commission addressed in the International Resale Order. Specifically, AT&T argues: 1) one-way interconnection of end user private lines deprives U.S. carriers of settlement revenues for those inbound minutes that would have otherwise been switched thereby increasing U.S. carriers' net settlements outpayments, and 2) this increase in settlements outpayments will inevitably cause higher rates for U.S. customers. AT&T thus asserts that an equivalency requirement on end user international private lines is necessary to place downward pressure on high foreign IMTS collection rates. 8. AT&T also argues that an equivalency requirement for all interconnections (whether for end users or resellers) at U.S. carriers' central offices would eliminate the incentive to evade our equivalency requirement through end user interconnections. It argues that this requirement would relieve U.S. carriers and the Commission of the need to police or investigate whether such end user interconnections are being used for unauthorized resale, and that a broader equivalency requirement would encourage the world-wide liberalization of telecommunications markets while protecting the U.S. public interest against further exacerbation of the U.S. settlements deficit. 9. All other commenters disagree with AT&T's proposal. Several parties argue that AT&T introduces no new evidence or specific data to support a change in our policy of allowing end users to interconnect their private lines to the PSN. 10. Sprint asserts that AT&T has shown neither that the current regulatory regime actually causes significant harm, nor that the proposed equivalency requirement and notification process would yield significant public interest benefits. GTE acknowledges that large end users may have an economic incentive to bypass the settlements process through central office interconnections. It argues, however, that imposing an equivalency requirement may simply create incentives for end users to find other means to interconnect their private lines to the U.S. PSN through their customer premises systems. The Networks argue that broadcasters should be exempted from any new equivalency policy because of the unique need to expeditiously implement control and coordination circuits for international television transmissions. 11. Most commenters maintain that imposing an equivalency requirement would, in effect, prohibit virtually all interconnections of end user private lines at U.S. carriers' central offices. They argue that such a result would seriously harm U.S. businesses' ability to compete globally without any countervailing public interest benefits, and would also harm the competitiveness of small international private line carriers. 12. We agree that imposing the proposed equivalency requirement would harm U.S. businesses' ability to compete globally. The record indicates that such a requirement would harm end users by causing disruption or forced downgrading of their existing networks and operations. End users would be required to move their traffic either to private lines interconnected on their own premises, to switched lines, or to virtual private networks. MotorColumbus observes that an equivalency requirement which restricts end users' ability to interconnect at the carriers' central offices may discriminate unfairly against those smaller end users unable to afford a Private Branch Exchange (PBX) or without sufficient traffic volumes to afford a virtual private network. Additional losses in operating efficiencies and economies could result from delays and uncertainties associated with showing the requisite equivalency. Furthermore, the routing of end user traffic to switched lines would subject that traffic to high foreign collection rates and to the varying qualities of service and efficiency available on foreign PSNs. 13. We also agree with those parties which contend that an equivalency requirement may harm small U.S. international private line carriers. If the proposed equivalency requirement prohibits most central office private line interconnections, international private line customers with sufficient international traffic volumes may switch to virtual private network (VPN) offerings. However, these VPN offerings are switched services, provided under switched operating agreements. Typically, only the larger U.S. carriers are able to negotiate operating agreements for the provision of switched services with their foreign correspondents. Therefore, smaller international private line carriers could lose these customers to the larger U.S. carriers. 14. Finally, AT&T's assertion that the one-way interconnection of end user private lines is increasing U.S. carriers' net settlements outpayments is unsubstantiated. We find no evidence in the record showing that current interconnections of end user private lines at carriers' central offices are pervasive and are having a significant adverse impact on our international settlements policies. IDB, one of the largest U.S. international private line service providers, submitted information in 1993 indicating that only 3.7 percent of its international private lines (64-kbps equivalent circuits) are interconnected to the U.S. PSN at the central office. WorldCom, Inc. recently submitted data indicating that presently only 3.2% of its international private lines are interconnected to the U.S. PSN at its central office. WorldCom also cites the Commission's estimate that in 1993 international private line revenues constituted only 4.3% of total international revenues, and asserts that if one assumes arguendo that 3.2% central office interconnections is an industry average, then international private lines interconnected to the PSN at the carrier's central office account for less than .14% of the total international service revenues for 1993. In addition, CITU views the use of carrier central offices to interconnect private lines to the PSN as an exception rather than the rule. AT&T's response that these type of interconnections are "growing in number " is without evidentiary support. We do not find it persuasive. 15. As many commenters point out, end user private line traffic that is being terminated in the U.S. PSN at a carrier's central office is not necessarily traffic that otherwise would be subject to the settlements process. Some end users that would be precluded from interconnecting their private lines at the U.S. carrier's central office may move their traffic to private lines interconnected on their own premises, or may simply reduce their U.S. inbound calls rather than pay high foreign collection rates. In its reply to these comments, AT&T suggests that the Commission should assess end user interconnections at the PBX and, if necessary, take steps to minimize any artificial incentives to bypass existing IMTS networks. We decline to revisit our policy of permitting end users to interconnect their private lines to the PSN through a PBX. Prohibiting such interconnection is likely to harm U.S. businesses' ability to compete globally in the same manner as prohibiting interconnection at the carrier's central office. Further, in neither instance is there any evidence demonstrating an adverse impact on U.S. consumer prices as a result of our policy allowing this type of interconnection. 16. We also disagree with AT&T's argument that an equivalency requirement on end user international private lines is necessary to place downward pressure on high foreign IMTS collection rates. Other measures such as call back services, country direct services and the introduction of private line services that compete with switched service offerings, impose more direct pressure on the high foreign collection rates. 17. While AT&T's proposal could reduce the need to investigate instances of unauthorized resale, this administrative benefit does not outweigh the burden that would be imposed on end users if we were to prohibit interconnection of their private lines at a carrier's central office. We also agree with the other parties that allowing the interconnection of end user private lines may promote greater liberalization in the international regulation of private line interconnections, consistent with the intent of the U.S.-led CCITT Recommendation D.1, Article 4.1 which encourages countries to permit the interconnection of international private lines. Thus, we conclude that the record does not justify imposing an equivalency requirement or an ISP filing and notification process on the interconnection of end user international private lines to the U.S. PSN at a carrier's central office. B. Notification of Private Line Interconnection 1. Modification of Section 43.51(a)(3) 18. In our Order and Third Further Notice we said that under the International Resale Order, whenever a U.S. carrier agrees with another carrier to interconnect an international private line to the U.S. PSN at its central office, (whether for a resale carrier or an end user) it must notify the Commission under Section 43.51(a)(3) of the rules. We specified that the notification include a copy of the interconnection agreement. In the Order and Third Further Notice we also requested comment on whether to extend this notification requirement to interconnection agreements between a U.S. carrier and an end user. 19. CITU filed a Petition for Reconsideration of the Order and Third Further Notice requesting that: 1) we clarify our notification requirement and allow carriers to file redacted versions of intercarrier agreements entered into on behalf of an end user; or 2) we eliminate our requirement that U.S. carriers notify us of and file carrier-to-carrier agreements for interconnection of end user private lines to the PSN at the carrier's central office. CITU is concerned that the notification requirement could result in the disclosure of commercially sensitive business information of end users. Parties commenting on our proposal to extend this notification requirement to agreements between a U.S. carrier and an end user expressed similar concern that such a requirement could result in the disclosure of commercially sensitive information such as customer identity, routing information, network configurations, the location and nature of the interconnection, customer specific tariff information and network equipment. 20. In an ex parte filing, WorldCom recommends that we permit carriers to submit aggregate data on international private lines which are interconnected to the U.S. PSN at the carrier's central office, or that we at least keep the country of origin confidential. WorldCom fears that public disclosure of the country of origin of the private lines might encourage foreign regulatory authorities or carriers to restrict such practices. It also is concerned that competing carriers might be able to identify specific customers from such data. WorldCom also argues that international private lines to Canada, the United Kingdom, and any other countries which the Commission finds satisfy its equivalency standard should be exempted from any such notification requirement. WorldCom contends that an equivalency finding obviates the need for such data. Finally, it recommends that we clarify which carrier is responsible for reporting this type of interconnection by specifying that any U.S. carrier that interconnects an international private line to the U.S. PSN at its switch is to notify the Commission of such interconnection. WorldCom argues that only the switch-based carrier operating the entry switch into the United States will know whether the international private line is interconnected to the U.S. PSN at its central office. 21. Section 43.51 now requires that carriers notify us of all intercarrier private line interconnection agreements, whether entered into on behalf of an end user or a reseller. We hereby amend Section 43.51 to also require that carriers notify us of all such interconnection agreements entered into directly between a U.S. carrier and an end user. Based on the record before us, we see no reason to distinguish between intercarrier interconnection agreements entered into on behalf of end users, and interconnection agreements entered into directly by the end users themselves. We are mindful, however, of commenters' concerns over the potential disclosure of commercially sensitive information. Therefore, we also modify 47 C.F.R  43.51 to require only certain limited information. Specifically, we will require carriers interconnecting an international private line to the U.S. PSN to report on the country of origin and the number and type (e.g., 64-kbps circuit) of private lines interconnected for each customer (whether a reseller or end user). The identity of the customer need not be reported. In recognition of commenters' concerns over the disclosure of the country of origin, we will treat the country of origin information as confidential. Further, we only require that this information be reported on an annual basis. We clarify that the carrier that we require to report the interconnection is the carrier that is itself making the physical interconnection at its switch, including any switch in which the carrier obtains capacity, whether by lease or otherwise. 22. We believe that this data will assist us in reviewing the impact, if any, that end user private line interconnections have on our international settlements policies, and will also enhance the ability of the Commission and interested parties to monitor for unauthorized resale, thus preserving the integrity of our international resale policy. We further conclude that, by requiring interconnecting carriers to file only this limited information, and by keeping the country of origin confidential, we address the commenting parties' concern that we not require the disclosure of commercially sensitive or proprietary information. We believe that this policy strikes the proper balance between our need for such data and the need to protect against the unnecessary disclosure of such data. Finally, we agree with WorldCom that, because the equivalency of such markets obviates the need for such data, interconnections of international private lines to Canada, the United Kingdom, and any other countries which we find to satisfy our equivalency standard need not be reported. We exempt private lines to these points from this requirement. 23. By making these changes to Section 43.51 we grant in part CITU's Petition for Reconsideration. Rather than require that carriers file copies of their intercarrier agreements for private line interconnection, we require only that carriers file certain limited information. This change responds to CITU's concern that we permit carriers to file redacted versions of interconnection agreements. It is also less burdensome than requiring that the actual interconnection agreement be filed. While CITU's Petition appeared concerned primarily with disclosure of proprietary information of end users, as opposed to resellers, we find no reason on reconsideration to require copies of any agreements for private line interconnection to be filed. Conclusion 24. In this Third Report and Order and Order on Reconsideration we determine that the record before us does not justify the imposition of an equivalency requirement to interconnections of end user private lines at U.S. carriers' central offices, nor does it justify subjecting these type of interconnections to an ISP filing and notification requirement. Second, we amend 47 C.F.R.  43.51 to require that any carrier that interconnects an international private line to the U.S. PSN to report on an annual basis all of their arrangements for the interconnection of such private lines. However, we require these carriers to fulfill their Section 43.51 notification requirements by filing only information on the country of origin, and number and type of private lines interconnected for each customer during the reporting period. Procedural Matters; Ordering Clauses 25. The analysis pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. S 608 (1995), is contained in Appendix B. 26. Accordingly, IT IS ORDERED that pursuant to authority contained in Sections 1, 4, 201-205, 211, 214, 218-220, and 303 of the Communications Act of 1934, as amended, 47 U.S.C. Sections 151, 154, 201-205, 211, 214, 218-220, and 303, Part 43 of the Commission's Rules, 47 C.F.R. Part 43 IS AMENDED as set forth in Appendix A. 27. IT IS FURTHER ORDERED that the policies, rules, and requirements set forth herein ARE ADOPTED. 28. IT IS FURTHER ORDERED that CITU's Petition for Clarification and in the Alternative for Partial Reconsideration IS GRANTED in part and DENIED in part as set forth herein. 29. IT IS FURTHER ORDERED that the policies, rules, and requirements adopted herein, except those needing OMB approval, WILL BECOME EFFECTIVE thirty days after publication in the Federal Register 30. Matters subject to OMB approval, pursuant to the Paperwork Reduction Act of 1995, Pub. L. No. 104-13, WILL BECOME EFFECTIVE upon such approval. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A Part 43 of Title 47 of the Code of Federal Regulations is amended as follows: Part 43 -- Reports of Communication Common Carriers and Certain Affiliates 1. The authority citation for Part 43 continues to read as follows: Authority: Sec. 4, 48 Stat. 1066, as amended; 47 U.S.C. 154, unless otherwise noted. Interpret or apply secs. 211, 219, 220, 48 Stat. 1073, 1077, as amended; 47 U.S.C. 211, 219, 220. 2. In 43.51, paragraph (a) (3) is removed, paragraph (4) is redesignated as paragraph (3), paragraph (d) is redesignated as paragraph (e), and new paragraph (d) is added to read as follows:  43.51 Contracts and concessions. * * * * * (d) any U.S. carrier that interconnects an international private line to the U.S. Public Switched Network, at its switch, including any switch in which the carrier obtains capacity either through lease or otherwise, shall file annually with the Chief of the International Bureau a certified statement containing the number and type (e.g., 64- kbps circuits) of private lines interconnected in such a manner. The certified statement shall specify the number and type of interconnected private lines on a country specific basis. The identity of the customer need not be reported, and the Commission will treat the country of origin information as confidential. Carriers need not file their contracts for such interconnections, unless they are specifically requested to do so. These reports shall be filed on a consolidated basis on February 1 (covering international private lines interconnected during the preceding January 1 to December 31 period) of each year. International private lines to countries which we find to satisfy our equivalency standard at any time during a particular reporting period are exempt from this requirement. * * * * * APPENDIX B FINAL REGULATORY FLEXIBILITY ANALYSIS Pursuant to Section 603 of Title 5, United States Code 5 U.S.C.  603, an initial Regulatory Flexibility Analysis, was incorporated in the Notice of Proposed Rule Making in CC Docket No. 90-337. Written comments on the Notice, including the Regulatory Flexibility Analysis were requested. A. NEED AND PURPOSE OF RULES With this Order we decline to extend our equivalency requirement for international private line resale to the interconnection of end user international private lines to the public switched network (PSN) at U.S. carriers' central offices. Instead, we modify Section 43.51 of our Rules to require any carrier that interconnects an international private line to the U.S. PSN to report all such interconnections on an annual basis. We are requiring only certain limited information, however, such as the country of origin and the number and type of circuits for each customer. This reporting requirement enhances our ability to monitor and assess the impact of end user interconnections on our international settlements policies, while also being sensitive to end users' reluctance to disclose commercially sensitive, or proprietary information. B. ISSUES RAISED BY THE PUBLIC IN RESPONSE TO THE INITIAL ANALYSIS In this proceeding we sought comment on whether we should extend our equivalency requirement to any interconnections a U.S. carrier makes for end users at its central office. We also asked for comment on whether a filing and notification requirement, or some alternative approach, would be the appropriate means of implementing such an equivalency requirement. Finally, we asked parties opposing the proposed equivalency requirement to comment on whether the Section 43.51 (a)(3) notification requirements should apply not only to inter-carrier interconnection agreements, but also to agreements entered into between a U.S. carrier and an end user to interconnect the end user's private line at the U.S. carrier's central office. Many commenters opposed extension of the equivalency requirement arguing that such a requirement would, in effect, prohibit virtually all interconnections of end user private lines at U.S. carriers' central offices. They were further concerned that this result would harm both U.S. business' ability to compete globally and would also harm the competitiveness of small international private line carriers. Additionally, commenters also requested that we clarify our current notification requirements, protect from disclosure commercially sensitive business information of end users, and exempt from the notification requirement interconnections of private lines to countries found to offer equivalent resale opportunities. C. SIGNIFICANT ALTERNATIVES CONSIDERED We have attempted to balance all of the commenters' concerns with our public interest mandate under the Act. We declined to extend our equivalency requirement for the resale of international private lines to the interconnection of end user international private lines to the PSN for their private use . Based on the record, we do not believe that current interconnections of this kind are having a negative impact on settlements payments. Additionally, such a requirement could detrimentally effect U.S. businesses. We modify Section 43.51 to require that carriers notify us of all private line interconnection agreements. Based on the record before us, we see no reason to distinguish between intercarrier interconnection agreements entered into on behalf of end users, and interconnection agreements entered into directly on behalf of end users themselves. We modify this section, however, to require notification only on an annual basis and to require only certain limited information, such as the country of origin and the number and type of private lines interconnected for each customer. Additionally, we will treat the country of origin as confidential, and exempt from the scope of Sec. 34.51 private lines to countries that we find to satisfy our equivalency standard. These modifications will reduce unnecessarily burdensome filing requirements and responds to carriers' concerns over disclosing commercially sensitive information.