WPC9 2MBERKZ3|x X-#Xj\  P6G;ynXP#"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+999999S9S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""2"2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""t@@  Adopted: November 21, 1996; Released: November 26, 1996TP By the Commission:  X-M I. INTRODUCTION  X-TPx1.` ` In this order, we terminate as moot proceedings concerning the treatment of AT&T Corp.'s (AT&T) offerings of promotions and optional calling plans (OCPs) under price  X-cap regulationJ yO -#X\  P6G;ɒP#эxPolicy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87313, Order and Notice of  {O-Proposed Rulemaking, 8 FCC Rcd 3715 (1993) (Promotions NPRM); Revisions to Price Cap Rules for AT&T,  {O-CC Docket No. 93197, Notice of Proposed Rulemaking, 8 FCC Rcd 5205 (1993) (OCP NPRM); Policy and  yOh-Rules Concerning Rates for Dominant Carriers, CC Docket No. 87313, and Revisions to Price Cap Rules for  {O0-AT&T, CC Docket No. 93197, Further Notice of Proposed Rulemaking, 10 FCC Rcd 7854 (1995) (Further  {O-Notice). in light of our determination that AT&T is nondominant and the resultant  X|-removal of AT&T's services from price cap regulation.%$|HJ {Ou!-#X\  P6G;ɒP#эxMotion of AT&T Corp. to be Reclassified as a NonDominant Carrier, 11 FCC Rcd 3271 (1995) (AT&T  {O?"-Reclassification Order), recon. pending. In a subsequent order, the Commission removed AT&T's remaining  yO #-price cap services, international services, from price cap regulation. Motion of AT&T Corp. to be Declared NonDominant for International Service, Order, FCC 96209 (rel. May 14, 1996).%  XN-g II. BACKGROUND  X7-TP  X - x2.` ` In 1989, the Commission replaced traditional rate of return regulation with an" 4 0*0*0*\"  X-incentivebased system of regulation, called price caps, for most of AT&T's services.i yOy-#X\  P6G;ɒP#эxPolicy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313, Notice of Proposed Rulemaking, 2 FCC Rcd 5208 (1987); Further Notice of Proposed Rulemaking, 3 FCC Rcd 3195 (1988); Report  {O -and Order and Second Further Notice of Proposed Rulemaking, 4 FCC Rcd 2873 (1989) (AT&T Price Cap  {O-Order); Erratum, 4 FCC Rcd 3379 (1989); Memorandum Opinion and Order on Reconsideration, 6 FCC Rcd 665  {O-(1991) ( AT&T Price Cap Reconsideration Order), remanded sub nom. AT&T v. FCC, 974 F.2d 1351 (D.C.Cir.  {Og-1992) (Remand Order). Those services that are not under price cap regulation are subject to streamlined  yO1-regulation, which reduces their regulatory obligations under Part 61 of the Commission's rules.  To implement the price cap system, the Commission defined three categories of AT&T services,  X-or baskets, and defined a price cap index (PCI) for each basket.i {O -#X\  P6G;ɒP#эxSee Further Notice, 10 FCC Rcd at 785556, for an explanation of how the price cap index is  {O] -calculated.   The basket structure was designed so that AT&T would not be able to raise prices for services in one basket in order to lower prices for dissimilar services in another basket. Therefore, a change in rates in one basket or in services outside of price caps would not affect either the PCI or the actual price  Xv-index (API)vl i {O-#X\  P6G;ɒP#эxThe API represents a weighted average of actual prices of the services within the basket.  Id. for the other baskets.  XH-x3.` ` The Commission was silent in the AT&T Price Cap Order as to the treatment  X3-of promotional rates under price caps.z3 i {O-#X\  P6G;ɒP#эxId. at 7857.z After the Commission adopted the price cap rules, AT&T filed tariffs for a significant number of promotions in which it treated the rates associated with these offerings as rate reductions for purposes of API calculations. MCI Telecommunications Corporation (MCI) and Sprint Communications Company LP (Sprint)  X -sought reconsideration of the AT&T Price Cap Order, requesting clarification of the price cap  X -treatment of promotions. In the AT&T Price Cap Reconsideration Order, the Commission decided to exclude promotions from the price cap index prospectively. It reasoned that including promotional rates in price caps would give AT&T a greater degree of flexibility than warranted to offset the discounted promotional rates with increases in residential and  Xh-small business rates within Basket 1.h i {O-#X\  P6G;ɒP#эxAT&T Price Cap Reconsideration Order at 671.  X:-x4.` ` AT&T sought judicial review of the AT&T Price Cap Reconsideration Order. The United States Court of Appeals for the District of Columbia Circuit found that the Commission's decision to exclude promotional tariffs from the price cap index was not a  X-reasoned decision supported by the record. The court remanded the AT&T Price Cap  X-Reconsideration Order to the Commission with instructions either to show that its action was  X-a clarification of the original AT&T Price Cap Order, or to "offer a reasoned explanation of  X-why promotional rates should be treated differently from other rates.""i {O'-#X\  P6G;ɒP#эxRemand Order, 974 F.2d at 1355."0*((p"Ԍ X-ԙx5.` ` In response, the Commission vacated its prior decision on this issue and issued  X-the Promotions NPRM in Docket 87-313. i {Ob-#X\  P6G;ɒP#эxPromotions NPRM, 8 FCC Rcd 3715. In the Promotions NPRM, the Commission tentatively concluded that promotions should be excluded from price cap regulation prospectively. The Commission found that AT&T was able to insulate itself from revenue losses created by promotional discounts by raising its rates for other residential services in  X-Basket 1.z Zi {O-#X\  P6G;ɒP#эxId. at 3716.z The Commission relied upon evidence that AT&T had taken advantage of any downward price flexibility generated by promotions to raise other rates in Basket 1, thereby keeping aggregate rates at the price cap maximum. According to the Commission, "[p]ermitting promotional offerings to be used as a basis for raising basic schedule rates, without limitation, would strongly encourage the proliferation of excessive promotional  X -offerings and undercut the efficiency incentives of the price cap program."k  i {O-#X\  P6G;ɒP#эxId.k As an alternative, the Commission sought comment on whether to treat promotions as either new or  X -restructured services.  $ ~i {O-#X\  P6G;ɒP#эxId. at 3717. Under price cap regulation, a service is classified as new if it provides an additional option to a service, but does not replace the existing service. A service is classified as a restructured offering if it  {O-replaces an existing service. See Sections 61.44(g), 61.46(b), and 61.47(b) of the Commission's rules, 47 C.F.R.  61.44(g), 61.46(b), and 61.47(b).   X -  X - x6.` ` In the OCP NPRM, the Commission tentatively concluded that the ReachOut category of services (i.e., most domestic MTS OCPs) should be removed from Basket 1  X-because there is substantial competition among providers of discounted residential services. j i {O-#X\  P6G;ɒP#ЍxOCP NPRM, 8 FCC Rcd at 52056. The price cap system's treatment of OCPs differs from that accorded promotions. OCPs are included in a separate service category (the ReachOut service category) from the basic MTS service categories within Basket 1, whereas promotions are included in the applicable MTS service categories. Changes in OCP rates, therefore, are not subject to the same limitations on rate changes as the basic  {O-schedule service categories.  Further Notice, 10 FCC Rcd at 7859. The Commission sought comment on whether the treatment of OCPs under the AT&T price cap plan should be changed, and, if so, in what manner. Specifically, the Commission sought comment on whether it should adjust the API or the PCI for Basket 1 to reflect the removal of OCPs from Basket 1. As an alternative to removal of OCPs from price cap regulation, it asked for comment on whether OCPs should remain subject to price cap regulation, but be  X -placed in a separate basket. i {O#-#]\  PCɒP#эxThe Commission also proposed a number of other changes to the price cap rules in the OCP NPRM, including whether to remove commercial, 800 Directory Assistance, and analog private line services from price  {Ok%-caps. In the Report and Order in CC Docket No. 93-197, 10 FCC Rcd 3009 (1995) (Commercial Services Price  {O5&-Cap Order), the Commission resolved these issues, removed commercial services from price cap regulation, and deferred the question of the regulatory treatment of OCPs to this proceeding." 0*(("Ԍ X- Ù x7.` ` Because the issues presented in determining the regulatory treatment of promotions and OCPs were closely related, we consolidated these issues in a Further Notice  X-of Proposed Rulemaking.i {OK-#X\  P6G;ɒP#ЍxFurther Notice, 10 FCC Rcd 7854. In the Further Notice, we made several tentative conclusions. We determined that Basket 1 domestic MTS promotions, domestic MTS OCPs, and basic schedule MTS offerings exhibit significant crosselasticities of demand and are generally offered to the  X-same class of customers, i.e., residential customers, following the removal of AT&T's  Xz-domestic commercial services from price cap regulation.zzZi {O -#X\  P6G;ɒP#эxId. at 7861.z If we removed domestic MTS OCPs and promotions from price caps, the result would be that some of AT&T's offerings of  XL-domestic MTS for residential customers would be streamlined while retaining price cap regulation for similar offerings to the same class of customers. We declined to take this step and determined that the issue of further streamlining of OCPs and promotions might be better considered together with AT&T's motion for nondominant status in a separate proceeding. We did propose, however, a number of related modifications to AT&T's price cap plan. Specifically, we recommended that, because promotions and OCPs are simply different ways of pricing the same service, they should be redefined as alternative pricing plans (APPs) for  X -domestic, residential MTS, which coexist with the basic domestic MTS rate schedule. i {OH-#X\  P6G;ɒP#эxId. at 7862.  X}-  x8.` ` On October 23, 1995, we released an order granting AT&T's motion to be  Xf-reclassified as a nondominant carrier.f~i {O-#X\  P6G;ɒP#эxAT&T Reclassification Order, 11 FCC Rcd 3271. The Commission defined the relevant product and  XO-geographic market for AT&T, under the Competitive Carrier paradigm,@Oi yO-#X\  P6G;ɒP#ЍxPolicy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor, CC Docket No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979); First Report and Order, 85 FCC 2d 1 (1980); Further Notice of Proposed Rulemaking, 84 FCC 2d 445 (1981); Second Further Notice of Proposed Rulemaking, FCC 82-187, 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);  {O-Fourth Report and Order, 95 FCC 2d 554 (1983), vacated, AT&T v. FCC, 978 F.2d 727 (D.C.Cir. 1992), cert.  {O-denied, MCI Telecommunications Corp. v. AT&T, 113 S.Ct. 3020 (1993); Fourth Further Notice of Proposed Rulemaking, 96 FCC 2d 922 (1984); Fifth Report and Order, 98 FCC 2d 1191 (1984); Sixth Report and Order,  {O!-99 FCC 2d 1020 (1985), vacated, MCI Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C.Cir. 1985)  {O!-(collectively referred to as the Competitive Carrier proceeding).@ as the interstate,  X:-domestic, interexchange market.:xi {Oc$-#X\  P6G;ɒP#эxAT&T Reclassification Order, 11 FCC Rcd at 3292. We then decided that the appropriate standard to evaluate AT&T's reclassification request was whether AT&T possessed market power in the overall relevant market, even if AT&T has the ability to control the prices of one or more services. Applying this standard to the record, the Commission concluded that the market structure" 0*((" characteristics and the indicia of market conduct and performance all indicate that AT&T  X-lacks market power in the interstate, domestic, interexchange market.i {Ob-#X\  P6G;ɒP#эxId. at 3347.  X-x9.` ` The Commission noted that the reclassification of AT&T as a nondominant carrier would free AT&T from price cap regulation for its residential, operator, 800 directory  X-assistance, and analog private line services.Zi {O-#X\  P6G;ɒP#эxId. at 3281. By subsequent order, we removed AT&T's international services from price cap regulation as well, thus completing the process of ending  X_-price cap regulation of AT&T._i yO -#X\  P6G;ɒP#эxMotion of AT&T Corp. to be Declared NonDominant for International Service, Order, FCC 96209 (rel. May 14, 1996).  XH-T  X1-III. DISCUSSION TP  X -x 10.` ` In the AT&T Reclassification Order, we granted AT&T's motion to be  X -reclassified as a nondominant carrier. Di {O-#X\  P6G;ɒP#эxAT&T Reclassification Order, 11 FCC Rcd 3271. Ģ The reclassification of AT&T as a nondominant carrier resulted in the end of price cap regulation for AT&T's residential, operator, 800 directory assistance, and analog private line services. Since AT&T's domestic MTS, including promotions and OCPs, is no longer subject to price caps, the issues raised in our  X-tentative conclusions and proposals in the Further Notice concerning whether to remove promotions and OCPs from price cap regulation are now moot. Similarly, the issues raised by  Xf-the D.C. Circuit in the Remand Order in CC Docket No. 87313 are moot. Accordingly, we will terminate as moot CC Docket Nos. 87313 and 93197.  X:-T  X#-TH IV. ORDERING CLAUSE T  X-TPx 11.` ` Accordingly, IT IS ORDERED that CC Docket Nos. 87313 and 93197 ARE TERMINATED as moot. x  X-  X- x` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhWilliam F. Caton x` `  hhActing Secretary