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File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ************************************************************************* Before the FEDERAL COMMUNICATIONS COMMISSION FCC 96-339 Washington, D.C. 20554 In the Matter of ) ) Petition of Ameritech ) CWD 95-14 Communications, Inc. for ) Partial Waiver of Section 22.903 ) of the Commission's Rules ) MEMORANDUM OPINION AND ORDER Adopted: August 9, 1996 Released: August 22, 1996 By the Commission: I. INTRODUCTION 1. This Order addresses the Petition for Limited Waiver ("Petition"), filed on October 11, 1995, by Ameritech Communications, Incorporated ("ACI"), seeking a limited waiver of Section 22.903 of the Commission's rules, 47 C.F.R.  22.903, regarding limitations on the provision of cellular service by the Bell Operating Companies ("BOCs"). In the Petition, ACI, a newly-formed affiliate of Ameritech, a BOC, requests that the Commission waive the requirement in Section 22.903(a) that a BOC affiliate that provides cellular service "must not own any facilities for the provision of landline telephone service." In addition, ACI requests a waiver of Section 22.903(e), to the extent that the provision would prohibit ACI from engaging in the sale or promotion of cellular service on behalf of Ameritech's cellular subsidiary, Ameritech Cellular Services ("ACS"). ACI contends that it seeks this limited waiver so that it may resell cellular services, or sell cellular services as a sales agent on behalf of ACS, to ACI customers, and thereby offer those customers one-stop shopping opportunities. ACI further contends that the waiver will not impede the underlying purposes of Section 22.903 and that it is fully consistent with the Commission's public interest goals. 2. In a Public Notice issued October 19, 1995, the Wireless Telecommunications Bureau sought comment on ACI's Petition to determine whether the request is consistent with the waiver criteria set forth in Sections 1.3 and 22.119 of the Commission's rules and whether the request is consistent with the Commission's public interest goals. We received four comments and one reply comment in this proceeding. In this Order, we grant ACI a waiver of Section 22.903(a) and declaratory relief from Section 22.903(e). II. BACKGROUND 3. The ACI Petition seeks a waiver of Section 22.903 of the Commission's rules, which governs the conditions under which BOCs may provide cellular service. Section 22.903 provides, in pertinent part, that: Ameritech Corporation, Bell Atlantic Corporation, BellSouth Corporation, NYNEX Corporation, Pacific Telesis Group, Southwestern Bell Corporation, U.S. West, Inc., their successors in interest and affiliated entities (BOCs) may engage in the provision of cellular service only in accordance with the conditions in this section, unless otherwise authorized by the FCC. BOCs may, subject to other provisions of law, have a controlling or lesser interest in or be under common control with separate corporations that provide cellular service only under the following conditions: (a) Access to landline facilities. BOCs must not sell, lease or otherwise make available to the separate corporation any transmission facilities that are used in any way for the provision of its landline telephone services, except on a compensatory, arm's length basis. Separate corporations must not own any facilities for the provision of landline telephone service. Access to landline exchange and transmission facilities for the provision of cellular service must be obtained by separate corporations on the same terms and conditions as those facilities are made available to other entities. (b) Independence. Separate corporations must operate independently in the provision of cellular service. Each separate corporation must: (1) maintain its own books of account; (2) have separate officers; (3) employ separate operating, marketing, installation and maintenance personnel; and, (4) utilize separate computer and transmission facilities in the provision of cellular services. * * * (e) Promotion. BOCs must not engage in the sale or promotion of cellular service on behalf of the separate corporation. However, this does not prohibit joint advertising or promotional efforts by the landline carrier and its cellular affiliate. 47 CFR  22.903(a), (b) and (e) (emphasis added). 4. The original version of Section 22.903 was adopted as Section 22.901 in 1981, and amended in 1982 to apply only to AT&T and its affiliates. In 1983, the Commission further amended Section 22.901 to apply to the divested Bell Operating Companies. The final revision of the separate subsidiary requirement occurred in the 1994 Part 22 Rewrite Order as part of the comprehensive reorganization of Part 22 of the Commission's rules. In that Order, Section 22.903 was amended to incorporate the provisions of former Sections 22.901(b) and (c). Section 22.903 thus is intended to impose the same restrictions on joint sales and promotions and on access to landline facilities as the predecessor rule. III. CONTENTIONS OF THE PARTIES 5. In its Petition, ACI states that, as a separate affiliate of Ameritech, it seeks authority to provide wireless and wireline services, both long-distance and local, as a facilities-based carrier and through resale on an unseparated basis. ACI has sought authority from various state public utilities commissions to offer local exchange service. ACI requires a waiver of Section 22.903(a), which prohibits BOC affiliates from owning facilities for the provision of landline telephone service, because ACI will need to purchase switching equipment that it will use to switch landline traffic. 6. ACI also seeks a waiver of Section 22.903(e), which prohibits BOC affiliates from engaging in the sale or promotion of cellular services on behalf of the BOC's separate cellular affiliate, because ACI wishes to serve as a sales agent for ACS. In support of its Petition, ACI contends that as a reseller of ACS's service, ACI would stand on the same footing as any other cellular reseller. ACI would procure cellular services from cellular service providers, including ACS, at prices established by ACS (or other carriers) that are generally available to other customers, and package the cellular service with other offerings. 7. In further support of its Petition, ACI asserts that it is a start-up carrier that is structurally separate from the Ameritech Operating Companies ("AOCs") in all material respects. Thus, ACI argues, the Commission's concerns about BOC bottleneck local exchange facilities in large geographic areas providing opportunities for discrimination and cross-subsidization do not apply in ACI's case. The Commission exempted all interexchange carriers, including AT&T, and independent telephone companies, including GTE, from the cellular separation rules. Therefore, ACI maintains that granting the requested waiver would further the public interest by promoting competition and equipping ACI to meet customer needs in order to compete in the marketplace. ACI wishes to compete with future competitors (such as providers of personal communications services ("PCS")) who are not prohibited from offering these services on a bundled basis. 8. Sprint Telecommunications Venture ("STV") argues that the Commission should deny ACI's request because the waiver request is deficient under the Commission's rules. STV claims that: (1) ACI fails to demonstrate unique circumstances that justify grant of a waiver (ACI's reason for requesting relief (i.e., profit motives) do not constitute special circumstances); (2) the public policy issues raised by ACI's request and other recent BOC petitions are too expansive and complex in the context of a waiver; and (3) the Commission should revisit its structural separation rules in the rule making context (the information provided in ACI's petition is not sufficient to allow the Commission to fully assess the impact that grant of the waiver would have on competition and consumers within ACI's area of operation). 9. STV claims that petitions filed by Ameritech with both the Michigan Public Service Commission and the Illinois Commerce Commission requesting permission to provide local service in Michigan and both local and interexchange service in Illinois through ACI provide evidence that Ameritech's regulatory agenda is to achieve virtual deregulation itself though ACI. STV states that the resale relationships among ACI, Ameritech, and ACS are unclear. STV also notes that ACI has a Petition for Nondominant Status pending with the Commission. Thus, STV argues, given the uncertainties arising from these other pending proceedings, grant of the waiver request would be premature and ill-advised. Finally, STV claims that ACI fails to demonstrate that grant of the requested relief would be in the public interest. 10. AT&T Wireless, Inc. ("AT&T") opposes ACI's request unless the waiver is limited to the territories that are the subject of a trial of local exchange competition proposed by the Department of Justice ("DOJ") in order to ensure that actual competition to provide local exchange service exists. AT&T claims that the fact that ACI is structurally separated from Ameritech's operating companies is irrelevant because ACI has the ability to stand in Ameritech's shoes as the local exchange bottleneck. Thus, AT&T reasons, ACI's integration of cellular and landline service would provide Ameritech with significant incentives and opportunities to cross-subsidize and discriminate against its cellular competitors. 11. Cincinnati Bell Telephone ("CBT") argues that the ACI waiver request should be denied to the extent that granting the waiver would permit ACI to bundle cellular service with local exchange service in the Cincinnati market. CBT submits that the potential for anti- competitive behavior exists when a BOC attempts to use its cellular facilities to expand into new local exchange markets. CBT argues that a waiver of Section 22.903 would be unfair because it would give ACI the ability to inappropriately shift costs between its cellular and local exchange operations. In addition, CBT argues that ACI's petition is distinct from the SBMS waiver because, although the Cincinnati market is out-of-region for Ameritech's landline local exchange operations, it is contiguous with Ameritech's Dayton and Columbus local exchange operations. Moreover, CBT claims that the Commission limited its ruling in SBMS to allow SBMS to offer local exchange service only out-of-region and through its independent cellular company. ACI, however, seeks a waiver of Section 22.903 to offer both local exchange service and cellular service through the same entity, both within and outside its region. CBT argues that such far-reaching relief should not be granted without a rule making proceeding. 12. SBC Communications, Inc. ("SBC") supports ACI's petition for waiver and notes that the underlying purpose of the structural separation rule will not be served by denying ACI's petition for waiver. SBC contends that ACI, a start-up carrier, should not be the target of the separate subsidiary rules. In addition, SBC maintains that the perceived concerns about cross-subsidization and interconnection abuses are not warranted because of the limited nature of ACI's request. SBC notes that ACI has met the Section 22.119 public interest criteria for granting a waiver because ACI will provide one-stop shopping, which the Commission has previously determined to benefit the consumer. Moreover, SBC argues that the Commission should grant similar relief to other Bell Companies, such as itself, who may wish to implement LEC operations similar to those of ACI and thus SBC requests similar relief. 13. In its reply comments, ACI asserts that CBT's sole agenda is to prevent ACI from providing competition in the Cincinnati market. ACI notes that CBT is claiming that it should not be required, through a partnership in which CBT maintains a 45 percent interest, to resell cellular services to a new wireless provider and thereby facilitate competitive entry into its own markets. ACI claims that CBT's argument that grant of the waiver would in effect repeal Section 22.903 is frivolous because ACI demonstrates in its petition that it will comply with Section 22.903 in all material respects (e.g., it will be structurally separated from Ameritech's local exchange operations). ACI also disputes AT&T's contention that "[t]he fact that ACI is structurally separated from Ameritech's operating companies is irrelevant because ACI has the ability to stand in Ameritech's shoes as the local exchange bottleneck." ACI reiterates that, to the extent ACI resells Ameritech landline local exchange service, it may obtain such services for resale only under the same tariffed, nondiscriminatory terms and conditions as are available to any other party. ACI argues that contrary to STV's contention, it does demonstrate that a waiver would serve the public interest. ACI reiterates that grant of a waiver would further the Commission's goal of fostering a more competitive telecommunications environment by enabling ACI to offer integrated packages similar to those that ACI's competitors already may offer. ACI also argues that a waiver will enable it to better serve customers. ACI maintains that STV's assertion that the waiver request cannot be fully assessed without evaluating ACI's other regulatory initiatives is absurd because the initiatives have to do with the provision of landline services only. ACI claims that, similar to SBMS, its waiver request is narrow in scope and fully consistent with the underlying purposes of the cellular separation rules. ACI notes the November 9, 1995, United States Court of Appeals for the Sixth Circuit decision in urging the Commission to prevent further delay of the requested relief. IV. DISCUSSION 14. We find, based on the record before us in this proceeding and uncontroverted information supplied in a related submission by ACI that was placed on public notice, that the relationship of ACI to Ameritech and its other affiliates is one of structural separation. Specifically, ACI maintains separate financial, accounting and other records, is a separate corporate entity with separate officers and personnel, is prohibited from pledging the assets of Ameritech's local exchange operations as security for debts and other obligations, and engages in the sharing of facilities with Ameritech's local exchange operations only to the extent that such sharing is consistent with the Commission's Computer II rules, subject to nonstructural cost accounting procedures. Based on this finding, we hold that ACI's relationship with Ameritech's telephone operating companies and holding company parent complies with the basic requirement of Section 22.903 that BOCs provide cellular services through structurally separate subsidiaries. Our further analysis is thus confined to the issues posed by the requested waiver of the particular restrictions on access to landline facilities (Section 22.903(a)) and on joint sales and promotions (Section 22.903(e)). 15. The Commission may exercise its discretion to waive a rule where there is "good cause" to do so, because the particular facts would make strict compliance with the rule inconsistent with the public interest. Requests for waivers of the cellular rules must comply with the Commission's rule which allows the Commission to grant a waiver if the underlying purpose of the rule would not be served or would be frustrated by application to the instant case and a grant of the waiver would be in the public interest, or if, in view of unique or unusual factual circumstances, application of the rule would be inequitable, unduly burdensome or contrary to the public interest, or that the applicant has no reasonable alternative. Waiver thus is appropriate if special circumstances warrant a deviation from the general rule, and such a deviation will better serve the public interest than adherence to the general rule. Further, the Commission's grant of a waiver must be based on articulated, reasonable standards that are predictable, workable, and not susceptible to discriminatory application. We believe that the relief requested by ACI would not undermine competition or otherwise violate the Communications Act. For the reasons stated below, we find that ACI has made the required showing, pursuant to Section 22.119, for waiver of Section 22.903(a). We also find that the Telecommunications Act of 1996 provides us with a statutory basis to grant ACI declaratory relief from Section 22.903(e). 16. Two developments have transpired in the period since ACI filed its petition for waiver of Section 22.903. First, the Telecommunications Act of 1996 was enacted. Section 601(d) of the 1996 Act provides: Notwithstanding Section 22.903 of the Commission's regulations (47 C.F.R. 22.903) or any other Commission regulation, a Bell operating company or any other company may, except as provided in sections 271(e)(1) and 272 of the Communications Act of 1934 as amended by this Act as they related to wireline service, jointly market and sell commercial mobile services in conjunction with telephone exchange service, exchange access, intraLATA telecommunications service, interLATA telecommunications service, and information services." 17. Section 601(d) of the 1996 Act permits ACI to engage in joint marketing and resale of cellular services together with landline services on the terms set forth in ACI's waiver petition. In our CMRS Safeguards NPRM, we are currently examining what safeguards, if any, we should impose with regard to resale and joint marketing. As we tentatively concluded in that Notice, we believe that Section 601(d) does not necessarily undermine the remainder of our current structural separation requirement. Because this issue has not been resolved, in the interim, we will continue to apply fully the other requirements of Section 22.903 to ACI (except Section 22.903(a), which we discuss below) as a condition of the relief we grant here. In addition, "joint sales" or resale by ACI of Ameritech's cellular services together with landline services must involve services acquired on an arm's length basis from ACI's affiliates, consistent with our affiliate transaction accounting rules and with the basic structural separation requirement of Section 22.903. We observe that, because ACI is already established as a structurally separate affiliate, this requirement conforms not only with Section 601(d) but also with ACI's business plan. We thus grant declaratory relief from Section 22.903(e), subject to the conditions discussed above and subject to the outcome of the CMRS Safeguards proceeding. 18. The second development since ACI filed its petition is that the Commission has commenced a comprehensive review of competitive safeguards as they apply to local exchange carrier ("LEC") provision of commercial mobile radio services ("CMRS"), including BOC provision of cellular service. In the CMRS Safeguards Notice of Proposed Rulemaking, we have tentatively concluded that Section 22.903(a) should be amended to permit a BOC cellular affiliate to own landline facilities for the provision of competitive landline local exchange ("CLLE"), but that we should retain the prohibition on ownership of any landline facilities that the incumbent affiliated LEC uses in the provision of landline local exchange services. 19. On the issue of access to landline facilities, CBT argues that, because ACI seeks a waiver of Section 22.903 to offer CLLE through the same entity both within and outside Ameritech's region, the requested relief falls outside the scope of the SBMS Order. We agree. We note however that, unlike SBMS, ACI is not an established cellular subsidiary of its BOC parent, but is instead a newly-formed separate affiliate created for the purpose of providing CLLE and interexchange services. ACI is structurally separate not only from Ameritech's incumbent local exchange activities, but also from ACS (Ameritech's cellular affiliate). Thus, just as we have already waived Section 22.903(a) for ACI's and other BOCs' out-of-region operations for the reasons that we stated in the CMRS Safeguards NPRM, we find that ACI's separation from Ameritech's other affiliates provides a substantial basis for extending this waiver to ACI's in-region operations as well. ACI's separation both from incumbent cellular operations and from incumbent local exchange operations lessens considerably our concerns about the potential for improper cross-subsidization or discriminatory interconnection practices. Therefore, we will permit ACI to provide cellular service with access to ACI's landline facilities used for CLLE (or any facilities not used to provide incumbent local exchange service), on terms that may vary from those dictated by Section 22.903(a), both inside and outside of Ameritech's region, on condition that ACI remain structurally separate from Ameritech's telephone local exchange operating companies and its cellular affiliate. We note that this decision is consistent with our observation in the CMRS Safeguards NPRM that "such relief would benefit the public by enabling a new entrant to the local exchange market, such as ACI, to provide a package of services without the risk of LEC monopoly cross-subsidization or interconnection discrimination." ACI has thus demonstrated that the underlying purpose of Section 22.903(a) would not be served by its application in this case to ACI's operations, and the grant of the waiver requested by ACI would be in the public interest. 20. We believe that CBT's argument that ACI's Petition should be denied because it would permit ACI to bundle cellular and local landline service in the Cincinnati market is without merit. CBT claims that, because Ameritech is a partner in the Cincinnati Partnership, which provides cellular service in Cincinnati, Dayton and Columbus, ACI should not be permitted to provide CLLE in these areas. In addition, CBT maintains that because Cincinnati is contiguous to Ameritech's in-region service areas the Petition can be distinguished from the SBMS Order. We disagree with both of these assertions. Presumably ACI will engage in the resale of cellular service provided by the Cincinnati Partnership, together with CLLE, that will enable ACI to provide one-stop shopping opportunities to customers. CBT has not demonstrated how Ameritech's role in the Cincinnati Partnership creates any potential for anticompetitive abuse springing from such resale arrangements. In addition, we do not believe that the location of the service areas where ACI wishes to provide service has any bearing on our decision on this waiver request because ACI is a newly- formed, structurally separate market entrant and neither an established local exchange carrier nor a facilities-based cellular service provider. 21. Finally, we decline to treat SBC's comments as a waiver request in order to grant SBC identical relief. As previously noted, the nature of a waiver request necessarily includes a description of the special circumstances justifying relief. ACI has presented such a description; SBC has not. We also do not discount the comments of those who urge us to undertake a broader inquiry into the structural safeguards applicable to BOCs, the relationship between our regulation of cellular service and our regulation of PCS, and other similar regulatory issues. These issues and the issue of broader relief for the BOCs from the requirements of Section 22.903 will be addressed in the comprehensive review of competitive safeguards for LEC-provided CMRS which we have recently initiated. We do not agree, however, that granting relief to ACI is premature until all such issues have been resolved. Two primary goals of the Commission are to promote competition in the provision of communications services and to make possible the provision to the public of quality services that they desire at affordable rates. We believe that ACI's provision of services under the terms of the waiver and declaratory relief we grant here will promote those goals in a manner that will not compromise the important policy goals underlying our structural safeguards rules or our review of the safeguards rules we have recently undertaken. V. ORDERING CLAUSES 22. Accordingly, IT IS ORDERED that, pursuant to the authority of Sections 4 and 303 of the Communications Act of 1934, as amended, 47 U.S.C.  154 and 303, and Sections 1.3 and 22.119 of the Commission's rules, 47 C.F.R.  1.3 and 22.119, a waiver of Section 22.903(a), 47 C.F.R.  22.903(a), is GRANTED to Ameritech Communications, Incorporated. 22. IT IS FURTHER ORDERED that, pursuant to the authority of Sections 4 and 303 of the Communications Act of 1934, as amended, 47 U.S.C.  154 and 303, and Section 1.2 of the Commission's rules, 47 C.F.R.  1.2, Ameritech Communications, Inc., IS DECLARED not subject to Section 22.903(e), 47 C.F.R.  22.903(e), subject to the conditions discussed herein. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary