WPC{" 2BVT 3|m )GmCBXdXmP`  P mQXPArrus Blk BT (TT)cript_230_1HPLAS4.WRSSx  @,, YX@2[@ ZP(.3|wHP LaserJet 4/4MScript_230_1HPLAS4.WRSSXw P7,, YXP Figure 1  Figure 1 Arrus Blk BT (TT)BernhardMod BT (TT)ble)2X@ GGmCBXdXmP`  P mQXP:OC7X:XOl P,QXPl;[87X{[P`  P mQPoptelscl.696H<!, ,< P7,PI.PRSx  @HG ~X@ C <"5@^7Zi51c2la_]EGAhSuYURddd7dd!ddBRddhWWWWW}RRRRRJ5J5J5J5laaaahhhh|UWdaa|Ua_dddRdRRddZddZiiJhdhddJhdc|2|RlldȕERGGNv7dp<`RRnnnAInIyI00RRd00pp0RDItDnnyy2Bi7cRRnCzihcnonvyXzXshn~|yxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx7Zi51c2la_]EGAhSuYURdddxxx0nRppd0xxxx00RRvddG0xx|7><q*"xxxxWWxxxWWkkxxxA.SSxSSJJSJSSSSSS8SSSSSSSSS.xJxJxJxJxJorJiJiJiJiJ8.8.8.8.{SxSxSxSxS{S{S{S{SxSxJ{SxSxSxS{S`SxSxSxSrSrSrS{SiSiSiSiSxSxSxSxSxS{S{SS.SSSSz]SSuSiSiSk2g/a{S{SxSxSxoSoSZ?YSYSiSiSiS{S{S{S{SxxSkI8SS888WxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNxxxSSS8JDDSSSSSS;SSSS;88VVS++SSffSSxSc]]8VS;"xxSxWxxS唔S88xfxxxxxxxxxxx8SxS]SxoS8SxJS`xlxxxxxxxxxxMxxxxxxofxGcxxxxxxxSxxxxxxxJxxxxJxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx8xxx8xxx8xxx8xxxxxxxxxxxxxxfi]f]oJiAlJ{SxJ8.uJo]]{JoSxJxf`SfSSiJxJofx]fffxi{8SxxxfJffff88SSSSx{SSSxxxf8`SJ8"Sh5^!.22YN!!!2Y!!!!2222222222!!dYd,YH?EJ?;HJ!'F?[JH9HC6?JH^HHA!!!22!,2,2,!222N2222%'22H22,,2,d222222!222222222H,H,H,H,H,YCE,?,?,?,?,!!!!J2H2H2H2H2J2J2J2J2H2H,J2H2H2H2J292H2H2H2E2E2E2J2?2?2?2?2H2H2H2H2H2J2J222222I822F2?2?2@>:J2J2H2H2YHC2C26&6262?2?2?2J2J2J2J2^HH2@,!22!!!WddddddddddddddddddddddddddddddddddddddddddddddddxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHHH222!,))22X222YY2#2222Y#!!442Ydd22==Ld2d2H2;SS88Y!42^x#"ddddHHddd2Hdd4HHYYddd2YYddd Y2!!dddddH=dYHHHHHHHHHHx!d2H282YdHdC2!2H,29HNAddHHHHHHHHHHddddd.dHHHHdddddddddddddddddddHHddddddSC=NdHddd+;HHHHddddddHHH2HHdHHdddHHH,HHHH,HHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH!HHH!HHH!HHH!HHHHHHHHHHHHHH=?8=8C,?'A,J2H,!F,C8[8J,C2H,H=92=22?,H,C=H8N===H?J!2HHH=,====!!2222HJ222HHH=!92,!d"H^BCF$TTdBJB7FFcZZT7Tdd|krRxLJJblWwvrdddBddddBdd|||||krrrrZLZLZLZLv|v|||kkrrrxxxZdddZdlNvBdmCckk]cWyWFFvvd==ddFvJWNJBxkkxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxBCF$TTdBJB7FFcZZT7Tdd|krRxLJJblWwvrdddxxxFvddd=xxxxFFvvvddl=xxBCydmd]kJdBWWdxdBdWckcZZZZ||||||krrrrLLLLv2y" hAԊ#XP P:XP#  #c P7{P#X01Í ÍX01Í Í#Xw P7dXP#` `  hhCqpp  *FCC 96288  [4c##XP P:XP# Before the  [4 FEDERAL COMMUNICATIONS COMMISSION  [44Washington, D.C. 20554 Đ  \  [_4In the Matter of  hhCq) ` `  hhCq)  [14Bell Operating CompanyhhCq)CC Docket No. 9621  [ 4Provision of OutofRegionhhCq)pppp  [ 4Interstate, Interexchange ServiceshhCq)  [ 44 REPORT AND ORDER ă  [4Adopted:` ` June 28, 1996 hhCqReleased:July 1, 1996xxX By the Commission:  [44 M Table of Contents ăpp  *xxX`(#xParagraph ` `  hhCqpp  *xxX` (#Number  [4X` hp x (#%'0*,.8135@8:-  9621, FCC No. 9659 (rel. Feb. 14, 1996) (BOC OutofRegion NPRM or Notice). A summary of the Notice appears at 61 Fed. Reg. 6607 (Feb. 21, 1996). (#s in which the Commission proposed an interim regime to govern the BOCs'  Y -provision of outofregion domestic,2X p xP-  {ԍXxAs some commenters have correctly noted, this proceeding does not include international, interexchange   1services. The appropriate regulation of a BOC's provision of international services will be addressed separately.(#2 interstate, interexchange service. The Notice addressed all "outofregion" interstate, interexchange services (including interLATA and intraLATA  Y -services). Eighteen parties filed comments and thirteen parties filed reply comments.o p xPq$-ԍXxSee Appendix A for a list of commenting parties.(#o  Yz-x2.` ` Under our existing rules, BOC provision of outofregion, interstate, interexchange services is subject to dominant carrier regulation. In order to facilitate the"c0*((:" efficient and rapid provision of outofregion, domestic, interstate, interexchange services by the BOCs, as contemplated by the 1996 Act, while still protecting ratepayers and competition in the interexchange market, we remove dominant regulation for BOCs that provide outofregion, interstate, interexchange services through an affiliate that complies with certain safeguards. These safeguards are the same as those that have applied for more than ten years  Y-to affiliates of independent local exchange companies (LECs)p xP-ԍXxBy "independent LECs" we refer to exchange telephone companies, including GTE, other than the BOCs.(#Ɯ that are regulated as non  Yv-dominant interexchange carriers under the rules established in the Competitive Carrier  Y_-proceeding.k( _Xp xPh -  ԍXxPolicy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations  xP0 -  Therefor, CC Docket No. 79252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979);  xP -  2First Report and Order, 85 FCC 2d 1 (1980) (First Report and Order); Further Notice of Proposed  xP -  Rulemaking, 84 FCC 2d 445 (1981) (Further NPRM); Second Further Notice of Proposed Rulemaking,   FCC 82187, 47 Fed. Reg. 17,308 (1982); Second Report and Order, 91 FCC 2d 59 (1982); Order on   Reconsideration, 93 FCC 2d 54 (1983); Third Further Notice of Proposed Rulemaking, 48 Fed. Reg.   28,292 (1983); Third Report and Order, 48 Fed. Reg. 46,791 (1983); Fourth Report and Order, 95 FCC  xP-  2d 554 (1983) (Fourth Report and Order), vacated AT&T v. FCC, 978 F.2d 727 (D.C. Cir. 1992), cert.  xP-  denied, MCI Telecommunications Corp. v. AT&T, 113 S. Ct. 3020 (1993); Fourth Further Notice of  xPp-  OProposed Rulemaking, 96 FCC 2d 1191 (1984); Fifth Report and Order, 98 FCC 2d 1191 (1984) (Fifth  xP8-  Report and Order); Sixth Report and Order, 99 FCC 2d 1020 (1985), vacated MCI Telecommunications  xP-  _Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985) (collectively referred to as the Competitive Carrier proceeding).(#k The safeguards require that the affiliate: (1) maintain separate books of  YH-account from the LEC; HH p xPA-  !ԍXxAs explained infra at  23, we do not require that the interexchange affiliate maintain separate books of   laccount that comply with our Part 32 rules. Instead, the separate books of account requirement refers to   the fact that, as a separate corporation, the affiliate must maintain its own books of account as a matter of course. (#ƺ (2) not jointly own transmission or switching facilities with the LEC; and (3) take any tariffed services from the affiliated LEC pursuant to the terms and conditions of the LEC's generally applicable tariff. We also conclude that a BOC affiliate providing outofregion, domestic, interstate, interexchange services should be treated, for purposes of the BOCs' accounting, as a nonregulated affiliate under the Commission's joint  Y -cost and affiliate transactions rules,  0p xP-  ԍXxSee 47 C.F.R.  32.27, 64.901904; Separation of Costs of Regulated Telephone Service from Costs of  xP~-  Nonregulated Activities, First Report and Order, 2 FCC Rcd 1298 (1987), recon., 2 FCC Rcd 6283  xPF -  |(1987), further recon., 3 FCC Rcd 6701 (1988), aff'd sub nom. Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C. Cir. 1990).(# just as independent LEC affiliates are now treated.  Y -x3. ` ` We emphasize that the regime we adopt today is expressly designed as an interim measure to facilitate the BOCs' prompt provision of outofregion, domestic, interstate, interexchange services. In March 1996, the Commission sought comment in a Notice of Proposed Rulemaking on whether to modify or eliminate these affiliate requirements as a condition for nondominant treatment of independent LEC provision of out"K 0*(( "  Y-ofregion, interstate, interexchange services.^ Xp xPy-  !ԍXxPolicy and Rules Concerning the Interstate, Interexchange Marketplace and Implementation of Section  xPA-  254(g) of the Communications Act of 1934, CC Docket No. 9661, FCC 96123 (rel. March 25, 1996)  xP -(Interexchange NPRM).(#^ We also sought comment on whether, if we modify or eliminate these requirements for independent LECs, we should also eliminate or modify our treatment of BOC outofregion, interstate, interexchange services. We will establish final rules for BOC outofregion, interstate, interexchange services in that proceeding.  Xv- II. BACKGROUND ă  YH-xA. ` ` The Competitive Carrier Proceeding T  Y -x4.` ` Between 1979 and 1985, the Commission conducted the Competitive Carrier proceeding, in which it examined how its regulations should be adapted to reflect and facilitate the increasing competition in telecommunications markets. In a series of orders, the Commission distinguished between carriers with market power (dominant carriers) and  Y -those without market power (nondominant carriers).  p xPW-  NԍXxSee 47 C.F.R.  61.3(o) ("Dominant carrier" is defined as "[a] carrier found by the Commission to have  xP-market power (i.e., power to control prices)").(# The Commission gradually relaxed its regulation of nondominant carriers because it concluded that nondominant carriers lacked the incentive and ability to engage in conduct that might be anticompetitive or otherwise  Yy-inconsistent with the public interest.l y@p xPj-ԍXxFirst Report and Order, 85 FCC 2d at 2021. (#l @  YK-x5. ` ` Nondominant carriers are not subject to price cap regulation, and their tariff filings are presumed to be lawful. In addition, tariff filings of nondominant carriers take  Y-effect on one day's noticeip xP-  0ԍXxIn the First Report and Order, the Commission required nondominant carriers to file tariffs on 14 days'  xPf-  ^notice. 85 FCC 2d at 35. The Commission later shortened the notice period to one day. Tariff Filing  xP.-  Requirements for Nondominant Common Carriers, CC Docket No. 9336, Memorandum Opinion and  xP-  Order, 8 FCC Rcd 6752 (1993) (Nondominant Filing Order), vacated on other grounds, Southwestern Bell  xP-  ^Corporation v. FCC, 43 F.3d 1515 (D.C. Cir. 1995). In its decision vacating the Nondominant Filing  xP -  Order, the court found that the range of rates provision adopted in that order violated Section 203(a) of the  xPN!-  Communications Act. Southwestern Bell Corporation v. FCC, 43 F.3d at 1520. The Commission   subsequently eliminated the range of rates provision and reinstated the other tariff filing requirements,  xP"-  including the oneday notice period, adopted in the Nondominant Filing Order. Tariff Filing Requirements  xP#-for Nondominant Common Carriers, CC Docket No. 9336, Order, 10 FCC Rcd 13,653 (1995).(#i and do not require cost support data.ghp xP6%-ԍXxFirst Report and Order, 85 FCC 2d at 34.(#g Nondominant carriers also are subject to streamlined Section 214 procedures for the construction, extension or"0*((" operation of new transmission facilities, as well as for the proposed reduction or  Y-discontinuance of service.zp xPb-  ԍXxSee id. at 3949. We note that, pursuant to Section 402(b)(2)(A) of the 1996 Act (to be added as a note   Nto 47 U.S.C.  214), the Commission is required to "permit any common carrier . . . to be exempt from   !the requirements of section 214 of the Communications Act of 1934 for the extension of any line." We   will address the implementation of Section 402(b)(2)(A), including the issue of what constitutes an  xP-"extension of any line," in an upcoming proceeding. (#z  Y-x6. ` ` In contrast, our rules subject dominant interexchange carriers as specified by  Y-Commission order to price cap regulation,Zxp xP -ԍXxSee 47 C.F.R.  61.41. (#Z and tariff notification periods of 14, 45 or 120  Y-days' notice.^p xPF -ԍXxSee id. at  61.58(c).(#^ Dominant carriers that are subject to price caps are also required to file cost support data for abovecap and outofband tariff filings, and additional information for new  Y_-service offerings.s_p xP-ԍXxSee id. at  61.38, 61.4161.44, 61.49.(#s Moreover, under our rules, dominant carriers must obtain prior Commission approval to construct a new line, to extend a line, or to acquire, lease or operate  Y1-any line,1( p xP -  ԍXxId. at  63.01 et seq. A dominant carrier may file an annual "blanket" Section 214 application for  xP-  !construction planned for the year. Id. at  63.06. Any additional, unplanned project costing more than  xP-  $2 million requires a separate formal application. Id. at  63.01. With certain, limited exceptions, for   /unplanned construction projects under $2 million, dominant carriers may file an informal application under  xP*-which the addition is presumed lawful. Id. at  63.0263.03. (# as well as to discontinue, reduce or impair service.X1p xP-ԍXxSee 47 C.F.R.  63.62.(#X  Y -x7. ` ` In its First Report and Order, the Commission classified AT&T and its thenaffiliated local exchange companies as well as independent local exchange companies as dominant carriers and concluded that these dominant carriers should be subject to the "full  Y -panoply" of Title II regulation.l hp xP-ԍXxFirst Report and Order, 85 FCC 2d at 2224. (#l Recently, in light of increasing competition in the interstate, domestic, interexchange telecommunications market, and evidence that AT&T no longer possesses the ability to control prices unilaterally, the Commission reclassified AT&T  Yy-as a nondominant carrier in that market.yp xP"#-  ԍXxMotion of AT&T Corp. to be Classified as a NonDominant Carrier, 11 FCC Rcd 3271 (1995) (AT&T  xP#-Reclassification Order), petitions for reconsideration pending.(# "bP0*((I"Ԍ Y-x8. ` ` In its Fourth Report and Order, the Commission considered how it should  Y-regulate the provision of interstate, interexchange services by independent LECs.kp xPb-ԍXxFourth Report and Order, 95 FCC 2d at 557. (#k Because  Y-the Modification of Final JudgmentXp xP-  ^ԍXxUnited States v. Western Elec. Co., 552 F. Supp. 131 (D.D.C. 1982), aff'd. sub nom., Maryland v.  xP-United States, 460 U.S. 1001 (1983).(# prohibited BOCs from offering interLATA services, the  Y-Fourth Report and Order addressed only the interstate, interexchange offerings of independent LECs. The Commission determined that interexchange carriers affiliated with  Y-independent LECs would be regulated as non-dominant carriers.lp xP -ԍXxFourth Report and Order, 95 FCC 2d at 57579.(#l In the Fifth Report and  Yv-Order, the Commission explained its definition of the term "affiliate"WXv@p xPg -   ԍXxThe Commission defined a carrier affiliated with an independent LEC as "a carrier that is owned (in whole   or in part) or controlled by, or under common ownership (in whole or in part) or control with, an exchange telephone company." 98 FCC 2d at 1198. (#W and identified three separation requirements that the affiliate must meet in order to qualify for nondominant  YH-treatment. These requirements are that the affiliate: (1) maintain separate books of account; (2) not jointly own transmission or switching facilities with the LEC; and (3) if it uses the  Y -LEC's services, it should acquire them via the LEC's tariffs.i ` p xP+-ԍXxFifth Report and Order, 98 FCC 2d at 1198.(#i The Commission further concluded that, if the LEC provided interstate, interexchange services directly, rather than  Y -through an affiliate, those services would be subject to dominant carrier regulation.N p xP-ԍXxId. at 119899.(#N  Y -x9. ` ` The Fifth Report and Order also addressed the regulation of the BOCs' provision of interLATA services: XxX` ` The BOCs currently are barred by the [Modification of Final Judgment] from providing interLATA services. . . . If this bar is lifted in the future, we would regulate the BOCs' interstate, interLATA services as dominant until we determined what degree of separation, if any, would be necessary for the BOCs  Y-or their affiliates to qualify for nondominant regulation. p xP7"-ԍXxId. at 119899 n.23 (citing United States v. Western Electric Co., 552 F. Supp. 131 (D.D.C. 1982)).(#ƨx` "0*(("Ԍ Y-vxB. The 1996 Act and the BOC OutofRegion Notice of Proposed Rulemaking  Y-x10. ` ` Section 271(b)(2), added by the 1996 Act, provides: XxX` ` A Bell operating company, or any affiliate of that Bell operating vcompany, may provide interLATA services originating outside its inregion States after the date of enactment of the  Y_-Telecommunications Act of 1996, subject to subsection (j). _p xP-  ԍXxAs noted, Section 271(j) provides that "a Bell operating company application to provide 800 service, private   line service, or their equivalents that . . . terminate in an inregion State of that Bell operating company,   Mand . . . allow the called party to determine the interLATA carrier, shall be considered an inregion service subject to the requirements of subsection (b)(1)." 47 U.S.C.  271(j).(#x` Thus, the 1996 Act does not require a BOC to obtain Commission authorization prior to offering outofregion, interstate, interLATA services. The 1996 Act, however, does not  Y -modify the Commission's determination in the Fifth Report and Order that BOC provision of interstate, interLATA services initially would be subject to dominant carrier regulation.  Y -x11. ` ` Immediately after the 1996 Act became law, we issued the BOC OutofRegion  Y -NPRM, in which we proposed, under certain conditions, to remove dominant carrier regulation of the BOCs' provision of outofregion, interstate, interexchange services. In our Notice, we tentatively concluded that, as an interim measure, if a BOC creates an affiliate to provide outofregion, interstate, interexchange services (including interLATA and intraLATA services), and if the affiliate satisfies the minimal separation requirements set  Y4-forth in the Fifth Report and Orderw 4p xP-ԍXxSee Fifth Report and Order, 98 FCC 2d at 1198. (#w that apply to the interexchange affiliates of independent LECs, then the BOC affiliate's provision of those interexchange services would be regulated on a nondominant basis. We also noted that LECs providing interexchange services through  Y-affiliates pursuant to the Fifth Report and Order treat those affiliates as nonregulated  Y-affiliates under the Commission's joint cost rules! @p xP-  ԍXxSee 47 C.F.R.  64.901904; Separation of Costs of Regulated Telephone Service from Costs of  xP-  Nonregulated Activities, First Report and Order, 2 FCC Rcd 1298 (1987), recon., 2 FCC Rcd 6283  xPY-  |(1987), further recon., 3 FCC Rcd 6701 (1988), aff'd sub nom. Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C. Cir. 1990).(# and affiliate transactions rulesY"( p xP!-ԍXxSee 47 C.F.R.  32.27.(#Y for exchange carrier accounting purposes. In our Notice, we sought comment on whether a BOC affiliate providing outofregion, interstate, interexchange services also should be treated as a nonregulated affiliate for BOC accounting purposes. Finally, we tentatively concluded that, at least for now, if a BOC provides outofregion, interstate, interexchange services directly, or through an affiliate that fails to comply with these minimal separation requirements, then dominant carrier regulation would be retained for those services."N "0*((M"Ԍ Y-ԙ III. DISCUSSION ă  Y-xA. ` ` The Purpose of the Interim Rules  Y-x12.` ` This proceeding is necessary to enable the BOCs to begin competing in an outofregion area in the interexchange market on a nondominant basis. Currently, BOC provision of interstate, interexchange service is subject to dominant carrier regulation until  Y`-we determine the degree of separation, if any, necessary for nondominant treatment.0#`p xP-  ԍXxSee Fifth Report and Order, 98 FCC 2d at 1198, n. 23. Cf. Fourth Report and Order, 95 FCC 2d at 557,  xP -n. 6 (BOC interstate, intraLATA services subject to dominant carrier regulation). (#0 Thus, BOC outofregion services would be subject to dominant regulation, whether those services were offered directly by the BOC or through another entity, no matter how  Y -structurally separate from the BOC.^$ p xP -  ԍXxWe take no position in this proceeding on whether the structural separation requirements, other safeguards   established by the 1996 Act, and our existing regulations that would apply to BOC provision of inregion   services are sufficient to allow us to relax dominant carrier regulation for the separate subsidiaries through  xPD-  which the BOCs must provide inregion, interLATA services. See 47 U.S.C.  272. We will address that issue in a separate proceeding.(#^  Y -x13. ` ` In our Notice, we tentatively concluded that we could remove dominant carrier regulation of BOC outofregion, interstate, interexchange services by applying to the BOCs the same rules that have worked well for independent LECs. These rules were specifically  Y -designed to impose minimal burdens on the smaller, independent LECs,o% p xP)-ԍXxFifth Report and Order, 98 FCC 2d at 1198 n. 23.(#o and thus are less  Y-stringent than the structural separation required under our Computer II regime,&x` p xP-  ԍXxAmendment of Section 64.702 of the Commission's Rules and Regulations (Computer II), 77 FCC 2d 384  xPj-  (1980) (Final Order), recon., 84 FCC 2d 50 (1980) (Reconsideration Order), further recon., 88 FCC 2d  xP2-  0512 (1981) (Further Recon. Order), aff'd. sub nom., Computer and Communications Industry Ass'n v.  xP-  FCC, 693 F.2d 198 (D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983). Computer II required AT&T    to provide CPE and enhanced services through fully separate corporate entities with separate books, officers   /and employees, operating facilities, computer facilities, and physical location, as well as separate operating, marketing, installation and maintenance personnel. Joint marketing was also prohibited.(# and contain fewer restrictions than imposed by the 1996 Act for BOC provision of inregion, interLATA  Yc-services.'Xcp xP!-  ԍXxCompare Fifth Report and Order, 98 FCC 2d at 1198 (identifying separation requirements for independent  xP|"-  LEC interexchange affiliates) with 47 U.S.C.  272(b)(1)(5) (identifying structural and transactional requirements for BOC inregion, interexchange affiliates).(#Ƃ At the same time, the Commission found in the Fifth Report and Order that these separation requirements provided some protection against anticompetitive abuses that could  Y5-arise from the LECs' control over local bottleneck facilities.l(5p xP&-ԍXxFifth Report and Order, 98 FCC 2d at 119598.(#l "P(0*(( "Ԍ Y-x14. ` ` Because we believe that we should move expeditiously in order to advance the goals of the 1996 Act, we specifically stated in the Notice that the actions we take in this proceeding would be interim. By applying the wellestablished rules applicable to independent LECs as an interim measure, we are able to: remove dominant carrier regulation for BOC outofregion, interstate, interexchange services, thereby facilitating prompt and competitive entry by the BOCs into those services; have the same level of assurance of protecting competition and ratepayers as we have with independent LECs and their interexchange affiliates; and avoid engaging in a protracted proceeding. We have already issued a Notice in which we initiate a more comprehensive review of the rules that are applicable to both independent LECs and the BOCs in the provision of outofregion,  Y -interstate, interexchange services. In the Interexchange NPRM, we sought comment on whether it may be appropriate to modify or eliminate the minimal separation requirements applied to independent LEC affiliates providing interstate, interexchange services originating outside of their local exchange areas. We also sought comment on whether, if we do modify or eliminate such requirements for independent LECs, we should apply the same  Y -requirements to BOC provision of outofregion, interstate, interexchange services.^) p xP -ԍXxInterexchange NPRM, at  61.(#^ We will finalize our rules governing both BOC and independent LEC provision of outofregion, interstate, interexchange services in that proceeding.  YK-xB.` ` Nondominant Classification for BOC Affiliates  Y-x15. ` ` The record does not dissuade us from proceeding on an interim basis as proposed in the Notice. NYNEX and Pactel support, as an interim measure, adoption of the  Y-BOC OutofRegion NPRM's tentative conclusions, including use of the Commission's joint cost and affiliate transactions rules. NYNEX contends that the proposed rules are "an excellent first regulatory step that the Commission can take promptly to enable BOC entry  Y-into the long distance service markets."Q*Xp xP-ԍXx NYNEX Comments at 2. (#Q Pactel supports the rules as a method of ensuring regulatory parity among all exchange companies, BOCs and independent LECs, even though  Y|-Pactel disputes that the BOCs have market power in the interexchange market.P+|p xP-ԍXxPactel Comments at 45.(#P  YN-x16. ` ` The remaining BOCs,Nxp xPw"-  1ԍXxAlthough the comments were filed by the seven Regional Bell companies, not by the individual Bell operating companies, we will refer to those comments as BOC comments.(# object to removing dominant regulation only for  Y7-affiliates meeting the Fifth Report and Order requirements and contend that outofregion, interstate, interexchange services should be regulated as nondominant even if provided on an"  ,0*((<"  Y-unseparated basis.-p xPy-  ԍXxAmeritech Comments at 8; Bell Atlantic Comments at 2; BellSouth Comments at 5; SBC Comments at 2; U S West Comments at 35.(# These commenters raise essentially three arguments: (1) BOCs do not  Y-have market power in the interexchange market under the criteria, such as market share,.  p xP-  ԍXxSome BOCs contend that, as new entrants starting with zero market share competing against well  established carriers such as AT&T and MCI, BOCs must be found to lack market power in the   interexchange market. Therefore, the Commission cannot, even on an interim basis, subject to dominant regulation BOCs that wish to provide outofregion interexchange services directly. (#  Y-established in the Competitive Carrier proceeding and those applied in reclassifying AT&T as a nondominant interexchange carrier; (2) BOCs have neither the ability nor the incentive to leverage their control over local facilities to impede competition in the interexchange market, especially given current regulations and the provisions of the 1996 Act that are designed to open the local market to competition; and (3) the proposed separation requirements for outofregion interexchange services are inconsistent with the 1996 Act.  Y1-x17. ` ` BellSouth additionally argues that, by proposing to regulate BOCs as dominant if they directly provide outofregion, interexchange services based on their market power in the provision of local services, we are resurrecting the "all services" approach. BellSouth  Y -states that, in the Competitive Carrier orders, the Commission adopted an "all services" approach under which a finding that a carrier was dominant in the provision of one service subjected a carrier to dominant regulation of all services. BellSouth argues that, under this "all services" approach, the Commission ruled that bottleneck facilities were prima facie  Y-evidence of dominance in all markets.S/p xPI-ԍXxBellSouth Comments at 59.(#S BellSouth maintains that the Commission rejected  Yy-this approach in the AT&T Reclassification Order.B0yp xP-ԍXxId.(#B We reject this analysis. The "all  Yb-services" question addressed in the AT&T Reclassification Order was whether the Commission could find AT&T nondominant only if "AT&T lacks the ability to control the  Y4-price of every tariffed service in the relevant market."14( p xP -ԍXxAT&T Reclassification Order, 11 FCC Rcd at 3290 (emphasis added).(#ƀ A very different question is posed by the BOCs entry into outofregion, interstate, interexchange services: whether a firm with market power in one relevant market (the local exchange and exchange access market) can leverage that power to gain market power or an unfair advantage in another, related market (the interexchange market).  Y-x18. ` ` As for the nonBOC commenters, MCI and TRA argue that, given the potential for the BOCs to engage in anticompetitive conduct, the BOC affiliate should be  Y|-regulated as dominant.2| p xP&-  !ԍXxMCI Comments at 1012; TRA Comments at 2. MCI further argues that the BOCs should be permitted to provide outofregion interexchange services only through an affiliate. (# Almost all of the other nonBOC commenters support nondominant"| 20*((" regulation of BOC outofregion services if provided through a separate affiliate, but contend that the safeguards proposed in the Notice are insufficient to protect against abuses by the  Y-BOCs.3 p xPK-  ԍXxSee, e.g., CWI Comments at 23; Comptel Comments at 2; Excel Comments at 12; PUCO Comments   at 34; Sprint Comments at 3; LDDS WorldCom Reply at 23. UTC and Vanguard support the rules as   proposed without additional safeguards, although Vanguard argues that the Commission would be justified in adopting additional safeguards if it so desired. UTC Comments at 1; Vanguard Comments at 1.(# Specifically, these parties claim that without these additional safeguards the BOCs could use their control over local exchange facilities to unfairly discriminate in pricing or service quality against competing interexchange carriers or could crosssubsidize their long distance operations by shifting costs to the local exchange and exchange access operations. They urge the Commission, therefore, to impose full structural separation on the outofregion affiliate, including the separations imposed by section 272 on the inregion  YH-interexchange affiliate.4Hp xP -ԍXxSee, e.g., Comptel Comments at 9; Excel Comments at 6; Sprint Comments at 3; MCI Reply at 14.(#ƣ They also seek to bar joint marketing of local and outofregion  Y1-services or, at least, require that marketing personnel and operations be separated.51@p xP"-  ԍXxSee, e.g., AT&T Comments at 78; ALTS Comments at 4; Excel Comments at 67; Comptel Comments at 610; LDDS Worldcom Reply at 9; CWI Comments at 34.(# Some ask the Commission to require that the BOC provide all Title II services to its affiliate at the generally applicable tariffed rates and that all nonTitle II services and access to information obtained by the BOC by virtue of its provision of local exchange service be provided on a  Y -nondiscriminatory basis or that such information not be shared at all.`6X p xP-  !ԍXxSee, e.g., AT&T Comments at 7; Comptel Comments at 6,10; CWI Comments at 4; PUCO Comments   at 6; TRA Comments at 21. Comptel argues that the Title II services should include database queries, calling card validation information, and BNA information. (#` Finally, nonBOC commenters dispute claims that the Notice's proposals are inconsistent with the 1996 Act.  Y-x19. ` ` We adopt here the interim rules proposed in the Notice, at least until  Yy-completion of our broader rulemaking proceeding, the Interexchange NPRM.$7y p xP-  !ԍXxPolicy and Rules Concerning the Interstate, Interexchange Marketplace and Implementation of Section  xP-254(g) of the Communications Act of 1934, CC Docket No. 9661, FCC 96123 (rel. March 25, 1996). (#$ The Fifth  Yb-Report and Order safeguards we adopt herein on an interim basis have worked relatively well since 1984 to protect against potential abuses by the independent LECs in their provision of interexchange services and we believe that they will provide adequate interim protection as the BOCs begin providing outofregion interexchange services. As the Commission noted in  Y-the Fifth Report and Order, these safeguards provide some protection against "costshifting  Y-and anticompetitive conduct."i8p xP$-ԍXxFifth Report and Order, 98 FCC 2d at 1198.(#i These safeguards have been applied to independent LEC provision of interexchange services originating in and out of their regions and should provide sufficient interim safeguards for BOC provision of solely outofregion services. Additionally, these safeguards will be supplemented with the application of our cost" 80*((" allocation and affiliate transaction rules, as explained below, which provide further protection against cost misallocations. Moreover, no party has presented persuasive evidence to show that, at this time, these rules will not be effective interim measures.  Y-x20. ` ` At the same time, we believe that these minimal requirements should be in place pending further analysis of these issues. Not only has the Commission adopted an NPRM to address these specific issues, but we also have launched various proceedings, and are in the process of issuing further rulemakings, relating to the implementation of various aspects of the 1996 Act. These proceedings touch upon issues raised in this proceeding, such  Y1-as the proper market definition and the scope of various safeguards.9 1p xP -  ԍXxSee, e.g., Interexchange NPRM, at  4048 (proposing revised market definitions);  In the Matter of   Implementation of the Telecommunications Act of 1996: Telecommunications Carriers' Use of Customer  xP: -  lProprietary Network Information and other Customer Information, CC Docket No. 96115, FCC No. 96221 (rel. May 17, 1996).(# We believe it is prudent to assess the record in those proceedings in order to assist us in adopting a comprehensive and cohesive framework that addresses the myriad issues involving BOC provision of services that the BOCs previously have been barred from offering.  Y -x21. ` ` Thus we reject AT&T's argument that the proposed rules should not be adopted because, AT&T contends, they improperly depart from the use of a single, nationwide, interexchange market without submarkets without providing a reasoned  Yy-explanation.N:yp xP-ԍXxAT&T Comments at 45.(#N The Notice proposed to apply, on an interim basis, the same rules to BOC outofregion services that we apply to independent LECs. We do not find that AT&T has presented persuasive reasons to depart from this prior precedent for purposes of these interim rules. Moreover, in the Notice, we explicitly proposed to address only BOC provision of outofregion, interstate, interexchange services. At the same time, we made clear that we were planning to adopt these rules on an interim basis, pending a future proceeding to consider more fully the longterm issues raised by BOC entry into outofregion, interstate,  Y-interexchange services. We note that on March 25, 1996, we released the Interexchange  Y-NPRM initiating that proceeding. In proposing to look only at BOC provision of outofregion, interstate, interexchange service here, we sought to balance the goal of the 1996 Act to allow swift BOC entry into the interexchange market, subject to interim safeguards, with the need for a comprehensive review of our rules. We believe it is within our discretion to conduct our proceedings in such a manner as to accommodate these twin purposes. x  Y7-x22. ` ` We find that our interim plan of removing dominant carrier regulation for  Y -BOC affiliates meeting the Fifth Report and Order separation requirements and retaining dominant regulation for BOCs that provide outofregion services directly will not impose an unreasonable burden on the BOCs. Initially, we believe it is important to clarify the scope of  Y-the Fifth Report and Order separation requirements. Most commenters refer to the Fifth  Y -Report and Order requirements as structural separation. This is true only in the sense that" @:0*((!" the BOC or LEC nondominant interexchange affiliate is a separate legal entity. In no other  Y-sense do we require "structural separation." Indeed, in the Fifth Report and Order, the Commission specifically rejected arguments that structural separation requirements should be imposed between an independent LEC and its interexchange affiliate because the Commission found that structural separation would impose unreasonable burdens on smaller, independent  Y-LECs.W;p xP-ԍXx98 FCC 2d at 1195, 1198 n. 23.(#W The Commission specifically sought to avoid imposing excessive burdens and noted that the LEC affiliate qualifying for nondominant treatment "is not necessarily structurally  Y_-separated from the exchange telephone company in the sense ordered in the Second  YH-Computer Inquiry . . . (e.g., fullyseparated personnel and marketing are not necessary for  Y1-nondominant treatment)."K<1Xp xP: -ԍXx98 FCC 2d at 1198.(#K Thus, except for the ban on joint ownership of transmission and switching facilities, a restriction which we believe should pose little, if any, burden on the provision of outofregion, interstate, interexchange services, the BOC and the interexchange affiliate will be able to share personnel and other resources or assets. The affiliate may be staffed by BOC personnel, housed in existing BOC offices, and use BOC marketing or other services. Providing interexchange services through such an affiliate will not impede the BOCs' ability to realize efficiencies gained through the use of joint resources. To help ensure that the BOCs properly allocate the costs of any services provided to the interexchange affiliate, however, we require that the BOC treat this affiliate for accounting purposes as a nonregulated affiliate and therefore subject to our cost allocation and affiliate  YK-transactions rules.=Kp xP-ԍXx47 C.F.R.  32.27, 64.901904. See also discussion below at  3540.(#Ƙ  Y-x23. ` ` Additionally, we clarify the separate books of account requirement and the requirement that to the extent the affiliate obtains BOC services it do so under the terms of the BOC's tariff. We do not require that the interexchange affiliate maintain separate books of account that comply with our Part 32 rules. Instead, the separate books of account requirement refers to the fact that, as a separate legal entity, the affiliate must maintain its  Y-own books of account as a matter of course.f>xp xP-  NԍXxBooks of account refer to the financial accounting system a company uses to record, in monetary terms,   lthe basic transactions of a company. These books of account reflect the company's assets, liabilities, and   |equity, and the revenues and expenses from operations. Each company has its own separate books of   account. The Commission's Part 32 rules, the Uniform System of Accounts (USOA), prescribe the books   of account for the telephone companies. The Part 32 USOA, however, is not required to be kept by   affiliates of a telephone company. These affiliates maintain their own separate books of account. We note   that, if a telephone company decides to conduct outofregion, interstate, interexchange service within the   telephone company without using a separate affiliate, this activity would be reflected in the telephone company's USOA accounts, because the USOA reflects the telephone company's total operations.(#f This is consistent with the current accounting treatment of the interexchange affiliates of independent LECs. As to the tariff requirement, we clarify that this provision applies only to services for which the BOC is required to file a"| H >0*((|" tariff, not to detariffed services such as billing and collection. The provision also only applies when the affiliate obtains tariffed services from its affiliated BOC.  Y-x24. ` ` Parties have offered no credible evidence to support contentions that the Fifth  Y-Report and Order separation requirements constitute burdensome regulation. Indeed, the entry of interexchange carriers affiliated with independent LECs over the past decade serves as evidence that these conditions will not prevent the BOCs from competing effectively. Moreover, we note that several BOCs have already established, or plan to establish, subsidiaries through which they will provide interexchange services that meet or exceed these  Y1-separation requirements.?1p xP -  0ԍXxNYNEX Comments at 45; Pactel Comments at 6. We note that prior to passage of the 1996 Act, SBC,   !which opposes the separation requirements, stated that it was prepared to offer outofregion, interstate,   interexchange services under substantially more stringent separation requirements, including structural   separation requirements, provided that its subsidiary would be regulated as a nondominant carrier.   Southwestern Bell Communications Services, Inc. Petition to be Classified as a NonDominant Carrier, at 57 (filed Nov. 22, 1995).(#Ʊ We believe that separation requirements designed to accommodate the resources of small independent LECs will not impose an unreasonable burden on the much larger regional Bell companies, particularly on an interim basis.  Y -x25. ` ` Finally, we conclude, as an interim measure, that if a BOC chooses to offer outofregion interstate interexchange services directly, it will be subject to dominant carrier regulation and to price cap regulation. Specifically, we require that the BOCs include such  Y-services in the price cap Basket for interexchange services.^@@p xP-ԍXxSee 47 C.F.R.  61.42(d)(4).(#^  Yb-xC. ` ` Consistency With the 1996 Act  Y4-x26. ` ` Several BOC commenters argue that the separate affiliate requirement, even  Y-as an interim measure, is inconsistent with the provisions of the 1996 Act.Ap xP-   ԍXxAmeritech Comments at 78; Bell Atlantic Comments at 45; BellSouth Comments at 24; SBC Comments at 46; U S West Comments at 4.(# They contend that the 1996 Act specifically excluded outofregion services from the separate affiliate  Y-requirement contained in new section 272.B( p xP -ԍXxAmeritech Comments at 7; Bell Atlantic Comments at 4; BellSouth Comments at 2; SBC Comments at 5.(#ƚ Some further argue that, because dominant  Y-regulation is so onerous,dC p xPA#-ԍXxSee, e.g., SBC Comments at 24.(#d conditioning nondominant treatment on complying with the separation requirements effectively requires BOCs to establish a separate affiliate to provide  Y-outofregion interstate, interexchange services in contravention of the 1996 Act.DH p xP&-ԍXxSee, e.g., Ameritech Comments at 7. See also, BellSouth Comments at 2; SBC Comments at 26.(#ƭ They also"D0*((" argue, more generally, that the proposed rules are inconsistent with the overall deregulatory  Y-emphasis of the new legislation.fEp xPb-ԍXxSee, e.g, BellSouth Comments at 3(#f  Y-x27. ` ` Bell Atlantic contends that the proposed separation requirements are inconsistent with the 1996 Act for two reasons: (1) section 272(f) contains a sunset provision for the inregion affiliate whereas the proposed separation requirements are openended; and (2) a BOC interexchange affiliate providing outofregion services would be barred from jointly owning transmission and switching facilities with its operating company affiliate, whereas Section 272 contains no such restriction for the inregion separate affiliate. Bell Atlantic concludes that it would have to establish two subsidiaries, one for inregion and one  Y -for outofregion services.WF Xp xP# -ԍXxBell Atlantic Comments at 45.(#W  Y -x28. ` ` NonBOC commenters dispute these arguments. Some argue that, because the 1996 Act is silent as to the type of regulatory regime that the Commission should impose on the BOCs' provision of outofregion interexchange services, the statute contemplates that the  Y -Commission may apply its existing dominant/nondominant regulatory regime.GX p xP@-  ԍXxMCI Reply at 23. See also TRA Reply at 11. In support of this contention, MCI cites Section 601(c)(1)   which provides that "[t]his Act and the amendments made by the Act shall not be construed to modify, impair or supersede Federal . . . law unless expressly so provided in such Act or amendments."(#Ƒ These parties further point out that the separate subsidiary provisions of the 1996 Act contain a savings clause which states that "[n]othing in this subsection shall be construed to limit the authority of the Commission under any other section of this Act to prescribe safeguards consistent with  YK-the public interest, convenience and necessity."HXKp xP-  lԍXxMCI Reply at 3 (quoting Section 272(f)(3)). See also Vanguard Reply at 23 (arguing that nothing in the   Act or the Conference Agreement suggests that Congress intended to repeal the Commission's existing authority to impose safeguards for BOC provision of interexchange services, citing Section 272(f)). (#ƙ Vanguard contends that the BOCs are essentially arguing that the 1996 Act repealed the Commission's existing statutory authority to apply its dominant carrier rules to BOC interexchange affiliates by implication. Vanguard asserts that a statutory construction that would repeal an agency's authority by implication is "highly disfavored" by the courts except where there is an irreconcilable conflict between the two statutes or where there is compelling evidence that Congress intended to repeal the prior  Y-statute.MI( p xP"-ԍXxVanguard Reply at 3.(#M Sprint and others contend that the proposed safeguards are less burdensome than the statutory separate subsidiary requirement and note that, while the 1996 Act mandates a separate subsidiary to provide inregion services, the Commission's proposal permits the BOCs to offer outofregion services through an affiliate or directly. "e I0*(({"Ԍ Y-x29. ` ` We reject the contention that section 272(a)(2) prohibits us from retaining the dominant/nondominant regulatory framework which the Commission has applied to interexchange carriers prior to passage of the 1996 Act for BOC provision of outofregion, interstate, interexchange services. More specifically, we do not agree that, by excluding outofregion services from those services that a BOC must provide through a structurally separate affiliate, section 272(a)(2) bars the Commission from according nondominant regulation of BOC outofregion, interstate, interexchange services only to BOC affiliates that comply with the separation requirements we adopt in this Order. Section 272(a)(2), relied upon by the BOC commenters, provides in pertinent part that: XxThe services for which a separate affiliate is required by paragraph (1) are: ` ` . . .  XxX` ` (B) Origination of interLATA telecommunications services, other than x` x` ` . . . XxX` ` X (ii) outofregion services described in section 271(b)(2).   Yb-As noted by MCI,JXbp xP-  ԍXxMCI Reply at 23. See also TRA Reply at 11. In support of this contention, MCI cites Section 601(c)(1)   which provides that "[t]his Act and the amendments made by the Act shall not be construed to modify, impair or supersede Federal . . . law unless expressly so provided in such Act or amendments."(#Ƒ the legislation is silent on the issue of dominant/nondominant regulation of BOC interLATA services. We conclude that Congress did not intend by implication to repeal our authority to impose dominant or nondominant regulatory treatment as we deem necessary to protect the public interest consistent with our statutory mandates. To the contrary, Section 601(c) of the 1996 Act provides that we are not to presume that Congress  Y-intended to supersede our existing regulations unless expressly so provided.Kp xP-ԍXxSection 601(c) provides as follows:(# XxX` ` (c) Federal, State and Local Law.x`  XxX` `  (1) No Implied Effect. This Act and the amendments made by this Act  ` 7shall not be construed to modify, impair, or supersede Federal, State, or local law unless expressly so provided in such Act or amendments.x` ƹ  Y-x30.` ` Nor is there any inconsistency between the separation requirements we adopt by this Order as an interim measure and the 1996 Act. We do not mandate that the BOCs provide outofregion, interstate, interexchange services through a separate affiliate. Instead, this Order concludes that, on an interim basis, BOCs will continue to be subject to dominant carrier treatment if they offer outofregion interstate, interexchange services directly. The same requirement has applied to all independent LECs since 1984. This order, in effect, offers the BOCs a choice of providing outofregion, interstate, interexchange services under dominant regulation if they wish to furnish those services directly or under nondominant" K0*((" regulation if they wish to offer those services through a separate affiliate that meets the  Y-separation requirements.Lp xPb-ԍXxLDDS WorldCom Reply at 6; Sprint Reply at 34; TRA Reply at 11; Vanguard Reply at 34.(#Ə  Y-x31. ` ` We also note that the 1996 Act's provisions for the structurally separate inregion subsidiary contain more restrictions than those that will apply to the BOC affiliates' provision of outofregion, interstate, interexchange services as a nondominant carrier. For example, the 1996 Act requires that the separate subsidiary that must be established to  Y_-provide inregion interLATA services must have separate officers, directors, and employees,  YH-and may not obtain credit under any arrangement that would permit recourse to the BOC.OMHXp xPQ -ԍXx47 U.S.C.  272(b).(#O None of these requirements applies to the BOCs' outofregion affiliate.  Y -x32.` ` Bell Atlantic contends, however, that our proposed separation conditions are, in fact, more rigorous than those established by the 1996 Act for inregion services because we have not suggested a sunset date and have barred joint ownership of transmission and  Y -switching facilities. We are seeking comment in the Interexchange NPRM on whether to modify or eliminate the separation requirements for independent LECs in their provision of  Y-outofregion, interstate, interexchange service as a condition for nondominant treatment.^Np xP)-ԍXxInterexchange NPRM, at  61.(#^ We are also seeking comments on whether, if we modify or eliminate these separation requirements for independent LECs, we should apply the same treatment to BOC provision of outofregion, interstate, interexchange service. Bell Atlantic's argument is more appropriately addressed in that proceeding. During the interim period that will be covered by the rules we promulgate today, a prohibition on joint ownership of switching and transmission facilities should cause no hardship on the BOC provision of outofregion services because, as the BOCs maintain, they initially will be using other carriers' facilities  Y-and because of the geographic separation of inregion facilities and outofregion services.Oxp xP-ԍXxSee Ameritech Reply at 9; BellSouth Reply at 56; Pactel Comments at 5; Bell Atlantic Comments at 6.(#ƣ Additionally, the fact that the 1996 Act contains a sunset provision for certain restrictions is not a basis for concluding that our interim rules for BOC outofregion, interstate, interexchange services are inconsistent with the 1996 Act.  Ye-x FF  FF D. ` ` Proposed Mergers x  Y7-x33. ` ` After the record in this proceeding closed, SBC Communications Inc., and FF  FF  Pacific Telesis Group announced, on April 1, 1996, an agreement to merge their operations. Three weeks later, on April 21, 1996, Bell Atlantic and NYNEX announced that they had reached an agreement to merge. We believe that mergers such as these raise concerns with respect to the provision of outofregion services during the pendency of the merger. "O0*(( !" Specifically, they raise the concern that, in the period prior to a merger's consummation, one partner to the merger may act in ways to favor those outofregion services of its merger partner that originate in the first partner's service territory. For example, BOC A may favor BOC B's long distance services originating in BOC A's territory because BOC A may eventually share in BOC B's profits. We do not believe that the record in this proceeding provides an adequate basis on which to address the specific concerns raised by such pending mergers. Accordingly, we exclude from the services covered by this Order, those outofregion services that originate in the inregion states of a merger partner during the period prior to the consummation of the merger. Given the interim nature of the rules we are establishing in this Order, and the fact that we are not aware of plans by any of the potential merger partners to provide outofregion services originating in their respective partners' service territories, we believe that this approach likely will not impose any burdens on the affected parties. Should such parties determine, however, to provide such services, those parties should request the Commission, on an individual case basis, for a determination of whether such services can be provided on a nondominant basis. Because our concern relates to the incentives of one party to favor the operations of the other party during the pendency of the merger, should an announced merger not be consummated, the interim rules established in this Order for outofregion services shall apply to all outofregion services provided by the parties to the proposed merger.  Y4-x34. ` ` Nothing in this section on proposed mergers should be construed as indicating the Commission's position with respect to mergers in other sectors of the telecommunications industry or outside of this particular and unusual context. A unique confluence of circumstances lead us to conclude that it is both reasonable and prudent to postpone our determination of the appropriate regulatory treatment for BOC outofregion services originating in a potential merger partner's territory. These unique circumstances include: (1) the announcement of mergers, following the closure of the record in this proceeding, involving four of the seven regional Bell companies that would be subject to the rules established in this proceeding; (2) the concern that a BOC, through its position in the local telephone exchange market and its bottleneck control over inputs into the interexchange market, may have the ability, along with the incentive, to favor the outofregion interexchange services operations of a potential merger partner; (3) the interim nature of these rules; and (4) the 1996 Act's authorization for BOCs to begin providing outofregion services upon enactment. Given these unique circumstances, we emphasize that this action is limited to the facts and circumstances set forth in this discussion of proposed mergers.  Y -x FF  FF E. ` ` Joint Cost and Affiliate Transactions Rules  Y"-x35.` ` In the BOC OutofRegion NPRM, we stated that independent LECs providing FF  FF   Y#-interexchange services through affiliates pursuant to the Fifth Report and Order treat those affiliates as nonregulated affiliates under the Commission's joint cost and affiliate  YQ%-transactions rules for exchange carrier accounting purposes. The BOC OutofRegion NPRM"Q%O0*((p&" sought comment on whether BOC outofregion, interstate, interexchange services should be  Y-treated as nonregulated services for BOC accounting purposes.OPp xPb-ԍXxNPRM at  13.(#O  Y-x36.` ` AT&T, Pactel, NYNEX, Comptel and Vanguard support the treatment of BOC outofregion affiliates as nonregulated for accounting purposes. AT&T and Comptel believe such rules are necessary to constrain the BOCs' ability to crosssubsidize and to ensure that local monopoly assets are not used unfairly to advantage long distance  Y_-operations.^Q_Xp xPh -ԍxAT&T Comments at 89; Comptel Comments at 11.^ Vanguard asserts that the rules would not impose a burden because BOCs account for certain services on this basis already and because such treatment would merely  Y1-entail setting up the initial account for service, not changing existing procedures.PR1p xP -ԍXxVanguard Comments at 7.(#P NYNEX states that these rules have been effective as applied to independent LECs, and thus would  Y -not be unreasonable to apply to BOCs providing similar services.NS xp xP,-ԍXxNYNEX Comments at 10.(#N AT&T and Comptel also contend that some type of independent audit should be performed periodically to certify that  Y -long distance affiliates retain their financial independence.gT p xP-ԍXxAT&T Comments at 89; Comptel Comments at 11.(#g Pactel supports application of  Y -the affiliate transaction rules as an interim measure.PU p xP-ԍXxPactel Comments at 78.(#P  Y-x37.` ` Ameritech opposes application of the affiliate transactions rules to BOC  Yy-interexchange affiliates.QVy( p xPR-ԍXxAmeritech Comments at 8.(#Q It contends that the joint cost and affiliate transactions rules are designed to allocate costs between regulated and nonregulated activities, not between two regulated services and that, in any event, application of those rules would be unnecessary  Y4-because the Part 69 rules already require BOCs to identify separately interexchange costs.QW4 p xP-ԍXxAmeritech Comments at 8.(#Q At a minimum, Ameritech argues that the rules should not apply to any BOC subject to pure  Y-price cap regulation at the state and federal level.QXH p xP"-ԍXxAmeritech Comments at 9.(#Q The Public Utilities Commission of Ohio (PUCO) also opposes treating the affiliate as nonregulated because they contend that accounting abuses are better detected by treating the affiliate's services as regulated. "X0*(("Ԍ Y-x38.` ` Our existing accounting safeguards for affiliate transactions were developed in  Y-the Joint Cost Order and are codified in Parts 32 and 64 of our Rules.?Y p xPb-  ԍXxSeparation of Costs of Regulated Telephone Service from Costs of Nonregulated Activities, Report and  xP*-  Order, CC Docket No. 86111, 2 FCC Rcd 1298 (1987) (Joint Cost Order) recon., 2 FCC Rcd 6283  xP-  (1987) (Joint Cost Reconsideration Order), further recon., 3 FCC Rcd 6701 (1988), aff'd sub nom.  xP-Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C.Cir. 1990); 47 C.F.R. Parts 32 and 64.(#? The Part 64 cost allocation rules prescribe how carriers separate the costs of regulated activities from the costs of nonregulated activities, where the nonregulated activities are performed directly by the  Y-carrier rather than through an affiliate.PZp xP -ԍxSee 47 C.F.R. 64.901.P The Part 32 affiliate transactions rules prescribe the way costs are recorded, for Title II accounting purposes, when a regulated carrier does  Yv-business with its nonregulated affiliates.W[v@p xPg -ԍXxSee 47 C.F.R. 32.27.(#W These rules are designed to prevent local exchange carriers from imposing the costs and risks of their competitive ventures on local telephone ratepayers. These rules do not require carriers or their affiliates to charge any particular prices for assets transferred or services provided; rather, they require carriers to use certain specified valuation methods in determining the amounts to record in their Part 32 accounts,  Y -regardless of the prices charged.w\ p xP-ԍXxSee Joint Cost Order, 2 FCC Rcd at 1313,  115.(#w  Y -x39.` ` Because the cost allocation and affiliate transactions rules are an important component of our accounting safeguards, we find that these rules should apply to BOCs providing outofregion, interstate, interexchange services through a separate affiliate. Even though interLATA services are regulated services under Title II, under the rules we adopt herein, the BOCs, for accounting purposes, will treat the services as nonregulated, so as to make applicable our cost allocation and affiliate transaction rules. The fact that interLATA services are regulated services in and of itself does not eliminate the potential for cost misallocation between the BOCs competitive (interLATA) and noncompetitive (local exchange and exchange access) services. Thus, we believe that application of our cost allocation and affiliate transaction rules is necessary to minimize the possibility that a BOC could improperly shift the costs of its interstate, interexchange operations to its regulated local exchange and exchange access ratepayers. We also note that this requirement is consistent with the current practice of independent LECs that treat their affiliates providing interexchange services as nonregulated for exchange carrier accounting purposes.  Y|-x40.` ` We find that requiring BOCs to treat affiliates providing outofregion services as nonregulated will not be unduly burdensome. BOCs currently have systems in place to  YN-account for transactions between their nonregulated affiliates (i.e. for transactions between a BOC and any of its information services which are not regulated under Title II). Such a requirement will not entail extensive modification of existing company procedures for the" ` \0*((<" provision of interexchange services because, prior to the passage of the 1996 Act, BOCs were prohibited from providing interstate, interexchange services.  X- IV. ADDITIONAL ISSUES ă  Y_-xA. ` ` Regulation of CMRSRelated InterLATA Services   Y1-x41.` ` The BOC OutofRegion NPRM stated that "BOC provision to commercial mobile radio service customers, of interstate, interLATA services originating outside any of the BOC's inregion states, is included in the outofregion services addressed in this  Y -proceeding."^] p xPe -ԍXxBOC OutofRegion NPRM, at n.2.(#^  Y -x42.` ` BellSouth argues that the language in the Notice is susceptible to two interpretations. According to Bell South, it may apply to: (1) the sale of outofregion, interexchange service by a BOC to unaffiliated commercial mobile radio service (CMRS) customers; or (2) the provision of outofregion, interexchange CMRS service by a BOC. BellSouth believes that the Commission intended the first of these interpretations BOCs offering outofregion long distance to unaffiliated CMRS customers on a stand alone basis, not in conjunction with the BOC's provision of CMRS and BellSouth opposes applying the Notice's proposed rules to this service for all of the same reasons it opposes any separation  Y-requirements for outofregion services.U^Xp xP-ԍXxBellSouth Comments at 1819.(#U BellSouth contends that the other interpretation BOC's offering interexchange, CMRS constitutes "incidental" CMRS interLATA services and is beyond the scope of this proceeding. To the extent that a CMRS provider offers interexchange services in conjunction with its provision of CMRS, the interexchange service is itself incidental CMRS, and thus exempted from section 272 separate affiliate  Y-requirements, according to BellSouth.O_p xP,-ԍXxBellSouth Reply at 12.(#O Bell Atlantic and SBC also oppose any restrictions on BOC provision of incidental interLATA services, including CMRS, because most of these  Ye-services were excluded from the separate subsidiary requirement of 272.f`exp xP!-ԍXxBell Atlantic Reply at 9; SBC Reply at 1113.(#f  Y7-x43.` ` MCI contends that the scope of Section 272 is irrelevant because the 1996 Act  Y -does not prevent the Commission from imposing its own separation requirements.Ja p xP%-ԍXxMCI Reply at 46.(#J Vanguard supports the proposed separation requirements on the assumption that they will be" a0*((;" applied to BOC provision of interLATA services to the customers of its affiliated cellular  Y-companies..bop xPy-  ԍXxVanguard Comments at 45 (noting as an example that NYNEX can now offer long distance services to   Bell Atlantic NYNEX mobile customers outside of NYNEX's region subject only to the safeguards of this proceeding). (#. Vanguard argues that the interest that a BOC has in its cellular operations increases the incentives to engage in anticompetitive conduct because such conduct can  Y-benefit both its long distance operations and its cellular operations.Pcp xPk-ԍXxVanguard Comments at 5.(#P Comptel urges the Commission to apply to all incidental interLATA services the same rules applied to outofregion interexchange services because they raise the same concerns about discrimination and  Yv-crosssubsidization.Pdvp xP -ԍXxComptel Comments at 14.(#P x  YH-x44.` ` BellSouth's interpretation of our reference to CMRS in footnote two of the  Y1-BOC OutofRegion NPRM is correct. Our statement in the BOC OutofRegion NPRM was intended to clarify that a BOC offering outofregion long distance service to unaffiliated CMRS customers on a stand alone basis would be considered "outofregion" services for purposes of this rulemaking. BOC provision of interexchange services to its affiliated CMRS customers is beyond the scope of this proceeding. We also reject as beyond the scope of this proceeding Comptel's request to apply the separation requirements to all "incidental" services established under section 272(g).  Yy-xB. ` ` Definition of Certain Services as InRegion Services  YK-x45.` ` Section 271(j) provides that certain calls that originate outofregion will be deemed inregion traffic. Specifically, this section provides that "a [BOC] application to provide 800 service, private line service, or their equivalents that terminate in an inregion State of that [BOC], and allow the called party to determine the interLATA carrier, shall be  Y-considered an inregion service subject to the requirements of subsection (b)(1)."Oep xP-ԍXx47 U.S.C.  271(j).(#O  Y-x46.` ` Comptel argues that the Commission should declare collect and third party billed calls to numbers terminating in the BOC's region and BOC calling card calls to inregion numbers as "equivalent" services and thus be deemed inregion services. Comptel's rationale is that, like 800 number and private line services, the party paying for the call selects the interLATA carrier and thus is subject to the BOCs' local power. Comptel states that the Commission should therefore prohibit the BOC outofregion affiliate from completing collect calls, thirdparty billed calls, or BOC calling card calls to terminating  Y -numbers located within the BOC's region.Sf p xP&-ԍXxComptel Comments at 1314.(#S Ameritech opposes Comptel's interpretation, and asserts that calling card, collect and third party calls that are placed from outofregion" ? f0*((;" do not fall within 271(j) because the calling party, not the called party, determines the long distance carrier. Ameritech states that the calling party decides whether to complete the call on a 0+ basis or use access codes, and if access codes are used, the calling party decides  Y-which carrier to use.gp xP4-ԍXxAmeritech Reply at 1617; see also Bell Atlantic Reply at 89. (#Ƅ  Y-x47.` ` The key factor in determining whether a service falls within the scope of  Yv-section 271(j) as "equivalent" to 800 or private line service is whether the called party determines the interLATA carrier that is used. As Ameritech notes, calling card, collect and third party billed calls that originate outofregion and terminate inregion do not fall within  Y1-the scope of section 271(j) because it is the calling party, not the called party, that determines the interLATA carrier. Because the called party does not determine the interLATA carrier that is used, there is no justification for treating such calls as inregion services. Thus, we reject Comptel's proposal that we add calling card, collect and third party calls to those services classified as "inregion" under section 271(j).  Y - V. PROCEDURAL ISSUES ă  Yz-xA.` ` Regulatory Flexibility Act Analysis  YL-x48. ` ` We certify that the Regulatory Flexibility Act is not applicable to the interim rules we are adopting in this proceeding. These interim rules will not result in a significant economic impact on a substantial number of small business entities, as defined by Section 601(3) of the Regulatory Flexibility Act. Entities subject to the rule changes are generally large corporations, affiliates of large corporations, or are dominant in their fields of  Y-operation, and, thus, are not "small entities" as defined by the Act.ThXp xP-Ѝx15 U.S.C.  632(a)(1).T We are nevertheless committed to reducing the regulatory burdens on small communications services companies whenever possible, consistent with our other public interest responsibilities. The Secretary shall send a copy of this Report and Order to the Chief Counsel for Advocacy of the Small Business Administration in accordance with Section 605(b) of the Regulatory Flexibility Act,  Yf-5 U.S.C. 601, et seq. (1981). hh  Y8-x` ` B. Paperwork Reduction Act  Y -x49. ` ` The record keeping requirements in this item are contingent upon approval of the Office of Management and Budget. "h0*(( "Ԍ Y-w= VI. ORDERING CLAUSE ă  Y-x50.` ` Accordingly, IT IS ORDERED that, pursuant to Sections 1, 4, 201205, 215, 218, 220, and 271 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154, 201205, 215, 218 and 220, the REPORT AND ORDER is hereby ADOPTED. The wrequirements adopted in this Report and Order shall be effective 30 days after publication in the Federal Register. x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhWilliam F. Caton x` `  hhActing Secretary" h0*(( "  Y-& APPENDIX A  X-Comments Ameritech The Association for Local Telecommunications Services (ALTS) AT&T Corp. (AT&T) Bell Atlantic Communications, Inc. (Bell Atlantic) BellSouth Corp. (BellSouth) Cable & Wireless, Inc. (CWI) The Competitive Telecommunications Association (Comptel) Excel Communications, Inc. (Excel) MCI Telecommunications Corp. (MCI) NYNEX Corporation (NYNEX) Pacific Telesis Group, Inc. (Pactel) Public Utilities Commission of Ohio (PUCO) SBC Communications Inc. (SBC) Sprint Communications Company, L.P. (Sprint) The Telecommunications Resellers Association (TRA) U S West Inc. (U S West) The Telecommunications Association (UTC) Vanguard Cellular Systems, Inc. (Vanguard)  X- Reply Comments Ameritech AT&T Corp. (AT&T) Bell Atlantic Communications, Inc. (Bell Atlantic) BellSouth Corp. (BellSouth) MCI Telecommunications Corp. (MCI) NYNEX Corporation (NYNEX) Pacific Telesis Group, Inc. (Pactel) SBC Communications Inc. (SBC) Sprint Communications Company, L.P. (Sprint) The Telecommunications Resellers Association (TRA) U S West Inc. (U S West) Vanguard Cellular Systems, Inc. (Vanguard) Worldcom, Inc d/b/a LDDS WorldCom (LDDS WorldCom)