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Y0 X   L  Y0 #XP\  P6Q[hXP# Federal Communications Commission DA 97320  yxdddy Lsk #c P7P#Before the "Federal Communications Commission  yO0jEWashington, D.C. 20554 #Xw P7[hXP#у  Yb0  YK0)  Y40 4@@ In the Matter of hhCq)  Y0 ` `  hhCq)pp  )  Y0Alascom, Inc., Cost Allocation hhCq)pp    )  Y0Plan for the Separation of Bush hhCq) pp  )AAD 94119 (#(#  Y0and NonBush Costs hhC q)  Y 0) X` hp x (#%'0*,.8135@8:  III. COMMENTS AND DISCUSSION  Y0 \  X0 A. Identification of Bush and NonBush Locations  X_0 1. Comments   Y10 p ` ` 7. In its Petition, GCI argues that the distinction between bush and nonbush  Y 0 %0 locations approved by the Bureau in the CAP Approval Order conflicts with previous  Y 0 % Commission orders.Q Z xP0ԍ GCI Petition at 24; GCI Comments at 2.Q GCI argues that the definition of bush locations grows out of a finding  %`! of mutual exclusivity between applicants for authority to construct and operate a satellite earth  Y 0 %! station for the same individual Alaska communities.E  xPr0ԍ GCI Petition at 312.E It contends that the term "bush" applies  %" only to situations involving mutually exclusive Alaska earth station applications for communities  Y 0 % of fewer than 1,000 persons.V z xP0ԍ GCI Petition at 10; GCI Comments at 4.V In support of its argument, GCI describes the evolution of the  %0 Commission's earth station ownership policy, and the relationship of this policy to the term  Y{0 % "bush."D{  xP60ԍ GCI Petition at 39.D GCI states that, in the 1984 Final Decision,{ xP0 %Ѝ Policies Governing the Ownership and Operation of Domestic Satellite Earth Stations in the Bush  zP0Communities in Alaska, Final Decision, 96 FCC 2d 522, 534 (1984) ("1984 Final Decision"). the Commission determined that  % duplicate interstate message telephone service ("MTS") earth stations in bush locations would  YO0 %p not be in the public interest.DO  xP0ԍ GCI Petition at 89.D GCI maintains that, for purposes of Commission policy, bush  %! locations are those locations where interexchange carriers other than Alascom are not permitted  Y!0to build or operate earth stations, and nonbush locations are all other locations.W!  xPV!0ԍ GCI Petition at 10; GCI Comments at 4.W  Y0 p ` ` 8. GCI asserts that Alascom's CAP distorts the Commission's definitions by  %! redefining bush locations as those locations where facilities competition does not exist and non Y0 %! bush locations as those locations where facilities competition does exist.Y xP&0ԍ GCI Petition at 1011; GCI Comments at 4.Y GCI further asserts",,(,([[ "  %@! that the Bureau's acceptance and endorsement of Alascom's interpretation violates Commission  Y0 % precedent.4 zPb0ԍ Id. 4 GCI maintains that this interpretation allows Alascom to recategorize each  %@ community in Alaska from bush to nonbush based on the entrance of a competitor into that  % market even though the cost of serving a location does not depend on the presence or absence  Y0 %! of a competitor.XZ zP0ԍ  GCI Petition at 11; GCI Comments at 45.X In its Reply, GCI contends that the Bureau should reverse its order approving  %@ the CAP and require Alascom to correct the invalid definitions for bush and nonbush  Yv0 %! locations.9v xP 0ԍ GCI Reply at 1.9 In its Comments, GCI contends that the Bureau should, likewise, reject Alascom's  Y_0revised CAP.<_| xP 0ԍ GCI Comments at 1.<  Y10 p ` ` 9. MCI also asserts that the Commission should direct Alascom to amend  Y 0 %0" its CAP to correct the definition of bush and nonbush locations.B  xP0ԍ MCI Comments at 1. B MCI contends that, consistent  % with the Joint Board's and the Commission's longstanding policy, the only locations where a  %! facilities monopoly has been prescribed are those communities of fewer than 1,000 persons in  Y 0 %p which an earth station has already been installed.9  zP"0ԍ Id. at 3.9 MCI argues that Alascom's definition  %`! provides Alascom with a substantial degree of pricing flexibility not contemplated by the Joint  %`! Board or the Commission because it allows Alascom to define cost pools based on the presence  Y0or absence of competition, which allows it to shift costs between those pools.> .  zPo0ԍ Id. at 35. >    Yb0 p ` ` 10. In its Reply, MCI maintains that the Commission should grant GCI's  %! Petition because Alascom has not explained why its CAP departs from the Joint Board's and the  Y40 %! Commission's decision with respect to the definition of bush areas in the Alaska market.;!4  xP0ԍ MCI Reply at 12.; MCI  % argues that in the absence of express language authorizing Alascom to take liberties with the  %P definition of bush, or explicit precedent authorizing Alascom to reclassify markets based on  %` whether Alascom believes it faces competition, Alascom has no basis for the type of self Y0regulation it seeks in its CAP.;"P  zP$0ԍ Id. at 23.;  Y0 p ` ` 11. In its Opposition, Alascom states there is no basis for GCIs claim that its"",,(,([[ "  Y0 %" definition of bush and nonbush locations is inconsistent with Commission precedent.B# xPy0ԍ Alascom Opposition at 1.B Alascom  % contends that its definition of bush and nonbush locations is consistent with the rationale  Y0 %! underlying the Final Recommended Decision and the Market Structure Order, which created the  Y0 %@ two rate zones.]$X zP0ԍ Id. at 3. See also Alascom Reply at 7.] Alascom maintains the rationale underlying the Joint Board recommended  %p! decision and Commission order is that Alascom's rates in monopoly areas should be costbased,  % and that the required distinction will be made by specifically identifying the locations where  %0 carriers have an opportunity to choose among transport suppliers and those locations where  Ya0carriers have no choice of suppliers.B%a xP 0ԍ Alascom Opposition at 5.B  Y30 p@ ` ` 12. Alascom also maintains that GCI's contention that the term "bush" has a  %! particular meaning is untrue because the definition of the Commission's earth station policy for  %" bush locations was never "cast in stone," but was an effort to accommodate the rules to practical  Y 0 %! realities.9& z zP0ԍ Id. at 4.9 Alascom states that even though the Commission, in its earth station policy, referred  %! to the bush as communities with fewer than 1,000 persons, it excepted communities that were  Y 0 %! not isolated and thus not considered to be located in the Alaska bush.2'  zP}0 %pЍ Id. See Policies Governing the Ownership and Operation of Domestic Satellite Earth Stations in the Bush  zPG0Communities in Alaska, Tentative Decision, 92 FCC 2d, 736, 757 (1982) ("1982 Tentative Decision"). 2 Also, Alascom contends  Y 0 %@ that the state of Alaska defines "bush" differently.r(X h  xP0 %Ѝ Alascom Opposition at 4. By regulation, Alaska identifies specific locations where intrastate interexchange  %facilities construction is permitted and provides that all other locations are subject to a facilities monopoly. Alaska does not use the terms bush and nonbush (3 AAC 52.355).r Moreover, Alascom asserts that it is  %P! reviewing and revising its CAP to increase the number of nonbush locations to approximately  %! thirty to include all locations for which there is actual facilitiesbased competition as required  Yd0under the CAP Approval Order.)d  xP0 %Ѝ Alascom Opposition at 1 & 3. In its revised CAP, filed on November 13, 1995, Alascom increased the  zPe0number of nonbush locations from 14 to 33. See para. 5, supra. ` `   ` ` 13. In its Reply, Alascom states that GCI's definition of "bush" is inconsistent  %P with the Joint Board's goal of promoting competition because, under GCI's definition, costs  %" would inappropriately shift from the bush to the nonbush cost category resulting in higher rates  Y0 % at locations where Alascom competes with GCI and other carriers.?* xP%0ԍ Alascom Reply at 23.? Alascom contends that  % higher rates are contrary to the public interest because they create an "artificial incentive" for"r*,,(,([["  Y0 %@ other carriers to bypass Alascom's facilities thereby limiting Alascom's ability to compete.?+ xPy0ԍ Alascom Reply at 45.?  %! Alascom argues that GCI's definition of nonbush as communities where competition is allowed  % does not reflect market conditions because it would include, in the nonbush category, 24  %! communities in which Alascom has remained the monopoly provider even though GCI has been  Y0 %! allowed to construct earth stations.,X xP0 %ԍ Alascom Reply at 7. Alascom claims that approximately 5 years ago GCI was permitted to construct MTS earth stations in approximately 46 locations, but GCI deployed earth stations in only 22 of those locations. Further, Alascom argues that GCI's definition would also  Y0 %! include, in the nonbush category, 50 additional locations7-$ xP 0 % ԍ On January 30, 1996, the International Bureau granted GCI a partial waiver of the 1982 policy on ownership  %0and operation of domestic earth stations. The waiver allows GCI to construct up to 50 earth stations in locations  zP~ 0 % that were previously served only by Alascom. See Petition of General Communications, Inc., for a Partial Waiver  zPH 0of the Bush Earth Station Policy, 11 FCC Rcd 2535 (1996) ("Bush Earth Station Policy Waiver").7 for which GCI has recently received  % permission to construct earth stations, but for which Alascom is currently the monopoly  Y_0provider.?._ xP0ԍ Alascom Reply at 78.?  X10 2. Discussion  Y 0 p ` ` 14. GCI and MCI argue that the terms "bush" and "nonbush" used by the  Y 0 % Joint Board in the Final Recommended Decision and the Commission in the Market Structure  Y 0 %! Order are based on the Commission's 1984 Final Decision, in which the Commission stated that  Y 0 % its earth station policy prohibits duplicate earth station facilities in bush communities./ ,  zP0ԍ GCI Petition at 910; MCI Comments at 3, citing the 1984 Final Decision, 96 FCC 2d at 534 & 541.  %`! Specifically, GCI and MCI argue that the Commission must apply the standard contained in the  Y0 %! summary of its discussion on bush and nonbush in the Final Recommended Decision; that non % bush locations would exist "where facilities competition is allowed;" and bush locations exist  Yh0 % "where a facilities monopoly is prescribed."0h  zP0ԍ GCI Petition at 3; MCI Comments at 3, citing the Final Recommended Decision, 9 FCC Rcd at 22067. GCI and MCI maintain that the only monopoly  %" facilities that have been prescribed in Alaska are earth stations located in rural bush communities  %0 and that this strict interpretation must be applied to define into which of the two rate zones  Y#0 %0" created under the Market Structure Order a specific community falls.R1#P  xP$"0ԍ GCI Petition at 910; MCI Comments at 3.R Under this interpretation,  %0! only communities that have fewer than 1,000 persons and one earth station would be included  %P! in the bush rate zone. All other communities would automatically be included in the nonbush  %" rate zone, including approximately 170 small rural communities that are served only by Alascom"1,,(,([["  Y0with microwave facilities instead of earth stations.2 xPy0 %Pԍ In a letter to Kent Nilsson, dated December 6, 1996, GCI provided a list of approximately 170 locations served by microwave facilities which it believes should be included in the nonbush zone.  Y0 p@ ` ` 15. The Commission's Market Structure Order states that the locations  Y0 %" Alascom serves would be divided into two categories; "locations subject to facilities competition  Y0 %  (nonbush) and ... locations where Alascom has a facilities monopoly (bush)"Z3  zPw0ԍ Market Structure Order, 9 FCC Rcd at 3023.Z (emphasis  Y0 %0 added). The Market Structure Order clearly does not repeat the phrase from the Final  Yz0 %@ Recommended Decision, "where a facilities monopoly is prescribed," that GCI argues is the  Ye0 %`! definitive definition of bush. We recognize that the language in the Market Structure Order is  %@! ambiguous since the phrase "subject to facilities competition" could include locations at which  % competition has been authorized by the grant of a license or permit to a competitor but where  Y" 0 %! it does not yet actually exist. We believe that the better reading of this language is to interpret  Y 0 %`! it to refer to locations where competition actually exists. Such reading is more consistent with  % the Joint Board's goals of preventing crosssubsidization of locations at which facilitiesbased  %" competition is present and recognizes the cost differences between Alascom's bush and nonbush  Y 0 % rate zones as expressed in the Final Recommended Decision.Q4  zP)0ԍ  See para. 16, infra. Q The Commission, in adopting  Y 0 %! the Final Recommended Decision, concurred with "the (Joint) Board's evaluation of the record,  Y0 %  and the legal and policy analyses and recommendations that are presented in the Final  Y0 % Recommended Decision."a5D zP|0ԍ Market Structure Order, 9 FCC Rcd at 3024. a Because the language in the Market Structure Order is subject to  Yr0 %" several reasonable interpretations, we turn to the Final Recommended Decision that was adopted  Y]0 %! by the Market Structure Order to determine what standard should be used to assign locations to either the bush and nonbush rate zone cost categories.  Y0 p ` ` 16. We believe that the Joint Board, in adopting the Final Recommended  Y0 % Decision, meant to assign locations at which Alascom faces competition to the nonbush rate  % zone cost category and locations at which Alascom is the monopoly provider to the bush rate  Y0 %" zone cost category. There is ample language in the Final Recommended Decision to support this  %@! view. A footnote defines the rate zones by stating that "[i]n this order we will generally refer  %" to geographic rate zones as the difference in rate schedules for services associated with locations  % where Alascom holds a facilities monopoly (bush) and services for all other locations (non Y0 %! bush)."f6 zP$0ԍ Final Recommended Decision at 2206, n.74. f The Joint Board further states that the Alascom CAP shall be designed to separate and  % ! identify the costs "for Alascom's monopoly Bush area operations, as distinct from those for its"hh 6,,(,([["  Y0 % competitive, nonBush operations."=7 zPy0ԍ Id. at 2206. = In another section, the order describes the tariff as  % containing "two geographic rate zones based on the respective costs of its facilities monopoly  Y0 % and competitive operations."D8Z zP0ԍ Id. at 2217. D The best indicator, however, of how the Joint Board intended  %! to assign locations to one of these two rate zone cost categories is its discussion of the purposes  %! for adopting this unique market structure and the goals that it believed such a structure would  Y0 %P! accomplish.=9 zP* 0ԍ Id. at 2206. = The Joint Board expressed its concern that Alascom was in a position to engage  % in discrimination or crosssubsidization by assigning costs from its facilitiescompetitive areas  %" to its monopoly areas. The Board stated that it had two goals for its proposed bush and nonbush  YH0 % market structure, as implemented through Alascom's CAP: (1) to prevent Alascom from  %p assigning excessive costs to its bush services and (2) to recognize the apparent differences in costs within Alascom's network between its bush and nonbush geographic rate zones.     Y 0 p ` ` 17. GCI contends that the Final Recommended Decision and the Market  Y 0 %! Structure Order require that Alascom define bush locations using the bush earth station policy  Y 0 % criteria.=: ~ xP0ԍ GCI Petition at 10.= GCI therefore maintains that "competition is allowed everywhere in Alaska except  %` those locations having fewer than 1,000 persons served by a preexisting earth station. GCI  %! contends that in such communities, competition is not allowed under Commission precedent and  Y}0 %P! thus monopoly is prescribed."o;} zP<0ԍ Id. at 10, citing 1984 Final Decision, 96 FCC Rcd at 541.o GCI quotes language in the Final Recommended Decision that purports to summarize the definition of the rate zones by stating:     [I]n summary, we recommend that there be two geographic rate zones under  ` Alascom's Common Carrier Service tariff: one zone for services associated with  Y 0  locations where facilities competition is allowed and another zone for services  Y0   involving the locations where the facilities monopoly is prescribed (emphasis  Y0added).<} zP/ 0ԍ Id. at 3, citing Final Recommended Decision, 9 FCC Rcd at 220607.      Y0 % GCI's petition ignores all of the language cited in paragraph 15, supra, and the apparent  % inconsistency between the "facilities monopoly is prescribed" language it relies on and the  % definitions and the discussion that precede that language. GCI, therefore, rests its entire  Ym0 % argument on one phrase in the Final Recommended Decision, while failing to deal with  % inconsistent language or to examine whether the use of the bush earth station policy would  YA0 % accomplish the goals the Joint Board established when it adopted the Final Recommended"A 2 <,,(,([["  W0Decision.   Y0  Y0 pp ` ` 18. As a first step in assessing the validity of GCI's arguments regarding the  % ! meaning of "bush," we look at the history of the Commission's bush earth station policy. The  %! term "bush" has been previously used in a variety of contexts in reference to the Alaska market.  Y0 %`! In the 1982 Tentative Decision, the Commission defined "Bush communities" as "small villages  % in rural Alaska that are isolated from the larger cities by rugged terrain and harsh weather  Ya0 %! conditions.";=Za zP0 %Ѝ 1982 Tentative Decision, 92 FCC 2d at 736, n.1 and 756 ("Our joint ownership policy is intended to apply  %@only to those small isolated communities traditionally thought to comprise part of the Alaskan Bush rural population.").; In that proceeding, Alascom and the state of Alaska each had filed applications  % for earth station licenses to provide MTS service to 35 bush communities. In finding that the  %! applications were mutually exclusive and granting only one earth station license per community,  % the Commission stated that, for economic reasons, the public interest would not be served by  Y 0 % ! the grant of both licenses.;>  zP0ԍ Id. at 737.; In the 1984 Final Decision, the Commission affirmed its previous  %p decision and stressed its limited nature by noting that the decision did not apply to toll  Y 0 %" interconnect facilities, including terrestrial microwave,^? | zP0ԍ 1984 Final Decision, 96 FCC Rcd at 528, n.10. ^ other than the Alaska bush earth station  Y 0 %  network, and that it excluded a category of earth stations designated as "midroute."@  zP0 %ԍ Id. at 541. Alascom uses the term "midroute" to describe earth stations that were constructed initially to provide services beyond basic bush telephone service, such as those that switch MTS.  % Additionally, the Commission indicated that its finding was limited in time by stating that  Y0 %! "duplicative MTS facilities must be avoided for now if basic telephone service is to be provided  Y}0 % economically to these bush communities" (emphasis added).3A}h  zP0ԍ Id.3 Finally, the Commission noted  %0! that the bush earth station policy would be limited to competing applications for earth stations  YO0 % providing MTS within a community of fewer than 1,000 persons.9BO  zP0ԍ Id.9 We note that the  % International Bureau has recently granted GCI a temporary waiver of the bush earth station  % policy to allow GCI to construct and operate up to 50 earth stations at locations previously  Y 0 % " designated as bush. C   xPG"0 % Ѝ On January 30, 1996, the International Bureau granted GCI a partial waiver of the 1982 policy on ownership  zP#0and operation of domestic earth stations. See n. 45 supra.  A careful examination of the bush earth station policy decisions, therefore,  %! demonstrates that the doctrine was intended to deal with specific problems in the Alaskan earth  %" station market at the time the doctrine was adopted and was not a definition of the terms "bush" and "nonbush" for all purposes. " C,,(,([["Ԍ Y0 p@ ` ` 19. In the Tentative Recommendation,D\ zPy0 %@ Ѝ See Integration of Rates and Services for the Provision of Communications by Authorized Common Carriers  %Between the Contiguous States and Alaska, Hawaii, Puerto Rico, and the Virgin Islands, Alaska Joint Board  zP 0Tentative Recommendation, 8 FCC Rcd 3684 (1993) (Tentative Recommendation). the Joint Board expressed concern that  % costs incurred in competitive locations might be recovered through rates applied to monopoly  Y0 %0" locations if separate rates were established.<E zPq0ԍ Id. at 3688.< The Joint Board therefore tentatively recommended  Y0 %p! that rates for common carrier service should be averaged statewide.4F~ zP 0ԍ Id. 4 In their comments on the  Y0 % Tentative Recommendation, both GCI and MCI supported statewide averaged rates.bG zPg 0ԍ See Final Recommended Decision, 9 FCC Rcd at 2205.b They  %` argued that, if rates were not averaged statewide, Alascom could shift costs to its monopoly  %! areas in order to lower its costs in locations where facilities competition was permitted and that  Yc0 %! the Commission's tariff review process was insufficient to prevent this cost shifting.3Hc zP0ԍ  Id.3 Alascom,  % AT&T, the State of Alaska, and United Utilities, Inc., on the other hand, either opposed or  Y50 % expressed concern about statewide average rates.3I54  zP0ԍ Id.3 These parties argued that averaging rates  %! statewide would encourage AT&T to abandon Alascom's facilities because Alascom would be  %! required to average the higher costs of bush locations, where it has a monopoly, with the lower  Y 0 %! costs of locations where it competes with other interexchange carriers.3J  zPg0ԍ Id.3 Alascom argued that  %`! if it were required to set rates based on statewide average costs, GCI would gain a competitive  %@! advantage because GCI was not similarly obligated to set rates based on average costs and was  Y 0not required to serve the high cost, rural areas of the state.5K X  zP0ԍ Id. 5  Y}0 p ` ` 20. In the Final Recommended Decision, the Joint Board stated that it was  %` persuaded that it was highly likely that a significant disparity exists in the cost of service  %" between the bush and nonbush areas of Alaska, and that costs of service are significantly higher  Y:0 %p in lowvolume bush locations.4L: zP"0ԍ Id. 4 It also stated that Alascom would be moving from a market  %@" structure that isolated it from the full effects of competition to a market where it would compete  Y 0 %! on equal footing.3M | zP9&0ԍ Id.3 In support of its assessment, the Joint Board stated that "Alascom's principal  % competitor to date, GCI, has built extensive facilities throughout large portions of Alaska and" M,,(,([[@"  Y0 %p! is wellpositioned to compete in the Alaska common carrier service market."4N zPy0ԍ Id. 4 The Joint Board  %p! was persuaded that mandatory statewide averaged rates would have required Alascom to price  %0" its services above cost in competitive locations thus providing a disincentive for AT&T and other  Y0 %! interexchange carriers to use Alascom's network in those locations.<OZ zP0ԍ Id. at 2206.< The Joint Board therefore  Y0recommended that Alascom's operations be divided into two geographic rate zones.P xPA 0 %Ѝ  In reaching the recommendation to create two rate zones, the Joint Board stated that it did not intend to  %@handicap Alascom in the interexchange market by requiring averaged rates, but that it remained concerned that  %PAlascom could potentially shift costs from its competitive locations to its monopoly locations. In order to address  % this concern, the Joint Board recommended that Alascom be required to operate under certain accounting safeguards  zPa 0in the form of a CAP that would be filed with, and approved by, the Commission.  Id.  Yv0 pP ` ` 21. The practical effect of applying the bush earth station policy advocated  % by GCI may be affected by changing circumstances such as the recent International Bureau  %0 decision to promote competition by granting a waiver of the bush earth station policy. The  % waiver granted by the International Bureau permits GCI to license up to 50 additional earth  Y 0 % stations in communities that are currently classified as bush.kQ  zPi0ԍ  Bush Earth Station Policy Waiver, 11 FCC Rcd at 2537.k Interpreting the Commission's  Y 0 % Market Structure Order to require use of the bush earth station policy to classify locations as  %! bush or nonbush under the CAP could compel inclusion in the nonbush category of up to 170  %p rural locations served by microwave and in which an Alascom facilities monopoly currently  %P exists, as well as up to 50 additional rural earth station locations now served exclusively by  % Alascom and for which GCI has received a waiver of the bush earth station policy. GCI and  %! MCI advocated a statewide average costing methodology in their comments to the Joint Board  Y{0 % and that approach was specifically rejected in the Final Recommended Decision.^R{0  zP\0ԍ Final Recommended Decision, 9 FCC Rcd at 2206.^ The  %! application of the bush earth station policy would achieve an effect similar to that of rates based  % on statewide cost averaging because, contrary to the intent of the Joint Board, it likely would  Y80 %`! include lowercost urban areas with highercost rural locations in the nonbush cost category.SZ8  xP0 % ԍ In the Joint Board proceeding Alascom claimed that its bush costs were $.406 per minute while its nonbush  %costs were $.106 and that its intrastate dedicated transport rates for rural wholesale services were ten times higher  zP;!0than those for urban wholesale services. Id. at 2205 citing Alascom's Comments (July 12, 1993) at 50.   Y 0 p ` ` 22. Application of the bush earth station policy would also frustrate the Joint  %`" Board's goal of recognizing the difference in service costs between locations included in the bush  % and non-bush cost categories. Only locations with fewer than 1000 persons, served by earth  %! station facilities, would be included in the bush category while comparable locations that share" S,,(,([["  Y0similar cost and demand characteristics would be included in the non-bush category.RTX xPy0 %p ԍ For example, under such an approach both small rural (bush) communities of fewer than 1000 persons served  %`by microwave facilities and bush communities with slightly more than 1000 persons, served by one earth station, would be included in the non-bush category. R  Y0 p ` ` 23. We reject the approach advocated by GCI and MCI as inconsistent with  % the Joint Board's objectives in recommending, and the Commission's objectives in adopting, a  %! market structure with two rate zones. The Commission's bush earth station policy is a limited  % doctrine intended to address only earth station licensing issues; it does not extend to other  %@ network facilities, including terrestrial microwave facilities, that are an essential part of  %P Alascom's network. In the present case, the Bureau is faced with the much broader issue of  %! how to allocate properly the costs of Alascom's entire network, including elements not covered  Y10by the 1984 Final Decision.  Y 0 p ` ` 24. We find therefore that the definition of bush and nonbush advocated by  %` GCI would improperly assign small, presumably highcost bush locations to the nonbush  Y 0 %@ category. GCI's definition is inconsistent with the Bureau's approach in the CAP Approval  Y 0 %! Order and the Commission's approach in the Market Structure Order.[U  zP[0ԍ CAP Approval Order, 10 FCC Rcd at 982627. [ Accordingly, we affirm  % our earlier approval of Alascom's CAP and approve Alascom's revised CAP subject to the conditions and other qualifications included herein.  Yh0 p` ` ` 25. We believe, however, that GCI and MCI have raised a valid concern about  %! the reassignment of Alaska locations between Alascom's rate zones based solely on the presence  %P" or absence of competition in providing interexchange service to those locations. The new market  %P! structure that gave rise to these rate zones is intended to promote competition by establishing a  % competitive rate zone that includes locations in which more than one interexchange carrier  %` competes for business. We assume that locations that attract additional carriers are likely to  % share certain characteristics such as greater populations with greater demand and lower costs  % than locations where Alascom has a facilities monopoly. As explained in the next paragraph,  Y0 % ! however, t he process of reclassifying locations between rate zones based only on the presence of a competitor may actually discourage competition.  Yk0 pP ` ` 26. In the Final Recommended Decision, the Joint Board stated that there  %@ appears to be a large disparity in costs of serving the bush and nonbush areas of Alaska. It  % noted that Alascom claimed in that proceeding that its bush costs are $.406 per minute and its  Y(0 %0! nonbush costs are $.106 per minute.dV(z zPS$0ԍ Final Recommended Decision, 9 FCC Rcd at 2205.d Alascom attributed the higher cost per minute for bush  Y0 %! locations in part to low traffic volumes in those locations.9W  zP&0ԍ Id.9 With such a large disparity in costs" W,,(,([[`! "  % between the two rate zones, transferring a location from one zone to the other, based only on  %! the presence of a competitor in that location, without a basis for finding that costs had radically  %! changed, could frustrate efforts to promote competition. For example, a prospective competitor  %! could decide to offer service to a bush location at a lower rate than Alascom's bush rate. Upon  % entering the market, the presence of the competitor would cause Alascom to reclassify that  %! location from bush to nonbush. Alascom could then charge at that location the lower nonbush  %! rate, which is based on the average of all its competitive locations and not on the actual service  % costs for that location. The prospective competitor would become frustrated because it could  %p not set competitive prices based on locationspecific service costs but would be forced to set  % prices to compete with Alascom's nonbush rate. While temporary benefit could accrue to  %p ratepayers, such a rate reduction could cause the competitor to withdraw from that location.  %P! With the abandonment of the location by the prospective competitor, Alascom could reclassify  %@! the location back to the bush category and increase the rates to a level that reflects the average  %P costs for all bush locations. The International Bureau's recent grant of a waiver of the bush  % earth station policy to allow GCI to apply for licenses to serve up to 50 locations formerly  %! classified as bush increases the possibility that locations formerly served only by Alascom may,  %p in the future, experience competition and, as a result, be reclassified from bush to nonbush.  %` It is also possible that such a competitive location could become a monopoly location if GCI withdrew from providing service to that location. " Y40  "27.` ` We are concerned that Alascom's periodic reclassification of locations based on  % commencement or termination of competitive services at particular locations could deter  %! competitors from beginning, or continuing, to provide service at those locations. In this way,  %`" these reclassifications could inhibit the introduction of new technologies and competitive services  %! in such locations, which would not be in the public interest. We have reviewed the locations  %p! Alascom identified in its revised CAP and are satisfied that it has properly classified its service  %`! locations as bush and nonbush and that Alascom's costs are, therefore, reasonably apportioned  %p between its monopoly bush area operations and its competitive, nonbush operations. No  %`! commenters disagreed with Alascom's classification of locations to the nonbush cost category.  %! Our review of the 33 locations classified as nonbush in Alascom's revised CAP indicates that  %! competition is sufficiently entrenched for those locations and that reclassifications are unlikely.  % It is likely however that one or more carrier(s) will commence competitive service at some of  %" the 280 locations currently classified as bush, which would trigger a reclassification to nonbush  Y 0 %`! under the definition in the Final Recommended Decision. According to Alascom's most recent  Y0 %! tariff filing,X zPm!0 %ԍ Alascom's latest tariff filing is based on its revised CAP which includes 33 nonbush locations. See Alascom, Inc. Transmittal No. 852 (filed December 20, 1996), Table 5, at 8. the 33 nonbush locations Alascom identifies in its revised CAP account for more  % than half of its service costs and approximately 84 percent of its service demand, while  %p! Alascom's 280 bush locations account for less than half of its service costs and only 16 percent  Y!0 % of its demand.Y!" xP&0 % ԍ In this Order we are requiring that Alascom revise its method of allocating Satellite costs, which should result in a substantial shift of satellite costs to the nonbush cost category. Included in these nonbush service costs are approximately 84 percent of"!zY,,(,([[ % "  % ! Alascom's network costs that, under the CAP, are apportioned between bush and nonbush on  % the basis of relative network demand. Because significant costs and demand are already  %! associated with existing nonbush locations, shifting additional bush locations to the nonbush  % category would produce negligible incremental changes to nonbush costs. For example, if  % Alascom shifted all of its remaining 280 bush locations to the nonbush, the resulting shift in  %! network demand would shift only the remaining 16 percent of its network costs to the nonbush  %P category. We believe that continuing to reclassify locations based solely on the arrival of a  %p competitor does not further the Joint Board's goals and would not materially affect the costs  % already included in the bush and nonbush cost categories. We find therefore that Alascom's  %! revised CAP achieves the goals set forth by the Joint Board and, consequently, will not allow  % Alascom to reclassify its existing bush and nonbush locations. While we believe that future  %! reclassifications will not materially affect the costs included in the two cost categories, we will  % entertain waivers upon a showing that reclassification of one or more location(s) materially affects the costs contained in the bush and nonbush categories.     Y 0 p ` ` 28. In its Final Recommended Decision, the Joint Board stated that the proper  % development of rates within the two cost categories would be a matter for the Commission's  Y{0 % tariff review process.<Z{ zP0ԍ Id. at 2206.< The Joint Board's Final Recommended Decision, as adopted by the  Yf0 %" Market Structure Order, affirmed the importance of the tariff review process in the development  YQ0 %! of appropriate rates and rate structures in Alaska.3[QZ zP\0ԍ Id.3 Recognizing the importance of that process  %! to achieving the Joint Board's goals, the Commission is currently investigating Alascom's initial  Y#0interexchange service tariff.\# zP0ԍ Alascom, Inc. Tariff F.C.C. No.11, 11 FCC Rcd at 3703 (1995) ("Suspension Order").  X0 B. Alleged Deficiencies in the CAP.  X0  X01. Explanation of Cost Apportionment Procedures  Y0 p ` ` 29. GCI contends, that in the CAP Rejection Order, the Bureau directed  %P! Alascom to explain in detail its cost apportionment procedures and define each term used in its  YV0 % CAP, but that Alascom merely expanded its explanations and failed to provide more clarity.]V~ xP"0 %pЍ GCI Petition at 12. Attached to its Petition, GCI provides a copy of the original CAP and the revised CAP with revisions highlighted. GCI provides no explanation why these revisions fail to provide clarification.  %@ GCI also contends that Alascom should have provided details concerning the cost allocation  Y(0 %  model it uses to implement its CAP.S^( xP&0ԍ GCI Petition at 1213; GCI Comments at 5.S In its Comments, GCI includes a description of an"(f ^,,(,([[ "  Y0 %P alternative CAP it filed in the original CAP proceeding.x_ xPy0ԍ GCI Comments at 6, n. 14, citing its Comments (October 11, 1994) at Attach D. x In response, Alascom asserts that  Y0 %0" GCI's allegations that the Alascom CAP is unclear are without merit and factually unsupported.W`X xP0ԍ Alascom Opposition at 6; Alascom Reply at 13.W  % Alascom further asserts that several of the alleged deficiencies in Alascom's CAP are actually  % complaints about Alascom's Common Carrier Services tariff and states that its responses to  % GCI's tariff claims are set forth in its reply to GCI's Petition to Reject Alascom's FCC Tariff  Y0 %P! F.C.C. No. 11, Transmittal No. 790, filed October 23, 1995.a zP& 0ԍ Id. at 12. Alascom's reply in the tariff proceeding is incorporated herein by reference. In its Reply, Alascom contends  %0! that GCI's alternative CAP is flawed because it fails to recognize costcausative principles and  Y_0is not location specific.>b_z xP 0ԍ Alascom Reply at 12.>  YH0  Y10 p ` ` 30. In response to the deficiencies addressed in the CAP Rejection Order,  %0 Alascom revised its explanations by adding considerable detail about its cost apportionment  %! procedures; the Bureau found that those revisions sufficiently explained the procedures Alascom  Y 0 % will use to apportion service costs between bush and nonbush rate zones.Yc  zP0ԍ CAP Approval Order, 10 FCC Rcd at 98256.Y We do not agree  %! with GCI's contention that a cost model Alascom developed to implement the CAP should have  % ! been provided as part of the CAP. The cost model is not part of the market structure plan. In  Y 0 %@ fact, the Bureau did not receive a copy of the cost model until after it had released the CAP  Y0 %! Approval Order and did not review the model or rely upon it in rendering that decision.dZ xP0 %Ѝ The Bureau was informed of the existence of the cost model by Alascom in its Request for Waiver  %Extending Time to File Tariffs, filed on August 24, 1995. At the Bureau's informal request, AT&T provided the  zPq0cost model on October 30, 1995, approximately six week s after release of the CAP Approval Order. In  Y0 %! the CAP Approval Order, we determined that Alascom's CAP was acceptable and in this Order,  %` we find, subject to certain revisions, that Alascom's revised CAP complies with the Joint  YS0 %@! Board's recommendations.KeS  zP0ԍ See para. 40, infra. K We did not rely on the cost model in approving the revised CAP  % and therefore did not require that the cost model be disclosed. GCI's alternative CAP was  %! reviewed when it was originally filed and was found unacceptable because it fails to recognize  % costcausative principles and does not specifically apportion network service costs to each  % location. GCI's Comments merely summarize the methodology it proposes in its alternative CAP and offers no compelling reason to reverse our earlier finding. "P e,,(,([["  X0 2. Costs Associated With Nonregulated Activities  X0  Y0 p`  ` ` 31. MCI asserts that, in the CAP Rejection Order, the Bureau required  % Alascom to demonstrate that costs associated with nonregulated activities are segregated from  % those associated with regulated activities and that Alascom has failed to make the required  Yx0 %! demonstration.>fx xP0ԍ MCI Comments at 67.> MCI contends that the Bureau, in the CAP Rejection Order, found Alascom  % ! may have assigned nonregulated costs to regulated services because the original CAP included  YL0 %0! a nonregulated investment account, Account 1406.XgLX zPU 0ԍ CAP Rejection Order, 10 FCC Rcd at 4965.X MCI maintains that the Bureau therefore  %! required Alascom to demonstrate that all nonregulated costs are excluded from Alascom's cost  %! apportionment processes and argues that a statement in the original CAP that "unregulated costs  %@! are removed prior to the cost apportionment procedures" does not constitute the demonstration  Y 0 %" intended by the Bureau.?h  xP0ԍ MCI Comments at 67. ? GCI and MCI aver that the Bureau had no basis to determine whether  %0! Alascom's assertions regarding nonregulated costs were true and therefore lacked a reasonable  Y 0 %` basis on which to approve the CAP.ni z zP0ԍ Id. See also GCI Petition at 14 and GCI Comments at 5. n GCI further contends that the Joint Board developed  % information showing Alascom systematically assigned costs of providing military private line  % services to its MTS regulated accounts and that these private line service costs are improperly  Y}0assigned to regulated services under the CAP.Pj}  xP:0ԍ GCI Petition at 13; GCI Comments at 5.P  YO0 pP ` ` 32. In response to GCI, Alascom asserts there is no basis for allegations that  %p the CAP improperly assigned nonregulated costs to Alascom's regulated Common Carrier  % Services because, prior to implementing the CAP, it removed all nonregulated investment and  %0" expense in accordance with Part 64 of the Commission's rules, including the amounts in Account  Y0 %! 1406, Nonregulated investment and Account 7990, Nonregulated income.Ck xP@0ԍ Alascom Opposition at 14.C Alascom maintains  % that the costs of regulated private line services were separated prior to calculating rates for  Y0Alascom's Common Carrier Service tariff.Bl,  zP"0ԍ Id. at 7, n. 13. B  Y0 p  ` ` 33. The Bureau initially believed that nonregulated costs might be included in  % the CAP because Alascom included Account 1406, Nonregulated investment, in the Master" l,,(,([["  Y0 %@! Apportionment Tables of its CAP.am zPy0ԍ See Alascom CAP, Section IV, Apportionment Table.a At meetings with Commission staff concerning proposed  % revisions to the CAP, Alascom provided additional explanations of its costing procedures and  % explained that Account 1406 was inadvertently included in the Master Apportionment Table because it was a Part 32 account. Account 1406 was removed in the revised CAP.  Y0 p ` ` 34. As a dominant interexchange carrier, Alascom is required to comply with  % the procedures for apportioning regulated and nonregulated costs mandated by Part 64 of the  Y_0 % Commission's rules.Dn_Z xPj 0ԍ 47 C.F.R. 64.901.904.D As to GCI's allegations that nonregulated services are crosssubsidized  %P" by regulated service, the Bureau is unaware of any information developed by the Joint Board that  % would suggest that Alascom recovers nonregulated costs through rates for regulated services.  % " GCI's allegations regarding possible crosssubsidization between military private line service and MTS service are unsubstantiated and are misplaced here because both services are regulated.  X 0 3. Direct Assignment of Costs  X 0   Y 0 p  ` ` 35. GCI contends that the CAP Rejection Order directed Alascom to revise its  % apportionment procedures to increase the level of costs directly assigned and that the Bureau  Y{0 %! approved the revised CAP despite Alascom's failure to increase the level of direct assignment.Po{ xP0ԍ GCI Petition at 14; GCI Comments at 6.P  % In response, Alascom asserts that a very high percentage of the costs identified in the CAP  YM0 %P results from directly tracking costs to bush and nonbush locations.WpMz xPx0ԍ Alascom Opposition at 7; Alascom Reply at 14.W In the CAP Rejection  Y80 % Order, the Bureau directed Alascom to increase direct assignment or include in the CAP a  Y#0 %! detailed explanation of why its allocation process produces limited direct assignment.hq#  zP0ԍ See CAP Rejection Order, 10 FCC Rcd at 4966.h In its  %! revised CAP, Alascom significantly revised its explanation of the methodology for apportioning  % costs between bush and nonbush embodied in the CAP. It included a new section describing  %" how Alascom uses location codes to track costs of service by location or function, a new section  %0" describing how Part 32 account balances are categorized by similar costcausative characteristics,  Y0 %! and additional information regarding its cost categories.xr zP!0ԍ See Alascom CAP, Section III, Methodology of Cost Apportionment. x Based on the additional information  %p in the revised CAP, we are satisfied that the CAP maximizes direct assignment and direct  Y0attribution of costs to bush and nonbush locations.nsX.  xPa%0 %0 Ѝ Direct assignment occurs when the costs or resources are incurred to provide either bush service exclusively  %p or nonbush service exclusively. Direct attribution occurs when common costs are allocated between bush and nonbush activities based on direct measures of cost causation. n"N s,,(,([[ "Ԍ X0ԙ 4. Satellite Costs hhC  Y0 p  ` ` 36. GCI and MCI contend that Alascom's CAP overallocates satellite costs  Y0 % to bush locations.Ut xP40ԍ GCI Petition at 1516; MCI Comments at 78.U GCI estimates that three out of 16 transponders are used to support bush  %! locations, which would yield an allocation factor of approximately 19 percent if GCI's estimate  Y0 %! is correct.SuX xP0ԍ GCI Petition at 1516; GCI Comments at 6.S According to Alascom's CAP, the satellite costs are directly attributed on the basis  Yv0 % of the ratio of bush versus nonbush earth stations supported by the satellite.Vvv xP 0ԍ Alascom Revised CAP at III5, IV4 and VI4.V This  %P methodology allocates over 90 percent of the satellite costs to the bush. Alascom states that  % portions of 70 percent of the transponders on the satellite are used to provide MTS service to  Y10 %" the bush, and over 40 percent of all transponder use is dedicated to bush locations.Zw1x xPZ0ԍ Alascom Opposition at 7; Alascom Reply at 1112.Z Moreover,  % Alascom states that the satellite's primary purpose is to support bush communities because 27  Y 0out of 33 nonbush locations are supported by terrestrial facilities.>x  xP0ԍ Alascom Reply at 11.>  X 0  Y 0 p@  ` ` 37. We have reviewed the technical characteristics of satellites and earth  %! stations and find that an allocation factor measured in terms of use of the satellite's transponders  %" provides a more appropriate basis for apportioning satellite costs because it reflects the rules and  % more accurately apportions satellite costs to the cost causer. Alascom's method of allocating  %@ satellite costs based on the number of bush/nonbush earth stations served does not properly  % recognize relative use of the satellite for bush and nonbush services. The transponders on  YK0 %0 Alascom's satellites use older "dedicated channel" technology.y K zP0 %pԍ As recently as August 1995, GCI and Alascom commented on Alascom's older satellite technology. See  %Petition of General Communication, Inc. for a Partial Waiver of the Bush Earth Station Policy at 3, filed on June  %23, 1995 (GCI in contrasting its newer Demand Assigned Multiple Access (DAMA) satellite technology with  %Alascom's older technology states that "the system eliminates the double hops between rural locations that exist in  %`the present network."), Alascom's Opposition at 34 filed on August 11, 1995 (Alascom contending that it plans  %to introduce newer technology states that "Alascom has also investigated the application of DAMA technology for  %P many years and, AT&T Alascom's current plans for deploying DAMA technology include initial installations later  %this year."), and the GCI Reply at 89, filed on August 24, 1995 (GCI contending that Alascom has, in various proceedings, claimed to study DAMA for twenty years, and has also periodically promised to install it.).  Under this technology,  % Alascom divides the available bandwidth on each transponder into voice channels which it  %" dedicates to specific earth stations. Because bush locations typically have lower traffic volumes,  % relatively few channels need to be dedicated to each bush earth station. The total number of  %`! channels dedicated to bush earth stations, therefore, is a relatively small percentage of the total  % number of channels used to support all earth stations, bush and nonbush. Although there are  %P fewer nonbush locations, they account for a disproportionate share of the traffic and,"jy,,(,([["  %! presumably, the number of dedicated channels assigned. Any allocation mechanism that assigns  %" satellite costs strictly on the basis of number of bush and nonbush locations would tend to over % ! allocate costs to the bush cost category. As described in paragraph 40 below, Alascom's CAP  Y0 % is modeled on the Commission's Part 64 cost allocation rulesGz xP40ԍ 47 C.F.R.  64.901 .904.G which provide procedures for  Y0 % separating regulated from nonregulated costs. In the Commission's Joint Cost Order,{X xP0 %ԍ Separation of costs of regulated telephone service from costs of nonregulated activities, 2 FCC Rcd 1298 (1987) ("Joint Cost Order").  the  %@ Commission adopted cost allocation standards for carriers to use to apportion costs between  Yx0 %@! regulated and nonregulated activities. The Joint Cost Order determined that the basic standard  % for apportioning central office equipment and outside plant costs is relative regulated and  YL0nonregulated usage.G|L zP 0ԍ Id. at 1318, para. 161.G   Y 0 p ` ` 38. Alascom fails to provide a rational basis for allocating over 90 percent of  %P! its satellite costs to bush locations; it merely states that 40 percent of the satellite's transponder  Y 0 % use is dedicated to bush locations.I} B xP0ԍ Alascom Opposition at 7. I Assuming Alascom's estimate of transponder use is  Y 0 %" correct, the allocation factor in the CAP allocates over 125 percent~   xP\0 %`Ѝ The allocation factor described in the CAP allocates over 90 percent of transponder use to bush locations.  %0Alascom, however, states that 40 percent of its transponder capacity is used to support bush locations. Based on  %use, Alascom's allocation factor appears to overallocate costs to the bush category by 125 percent ((0.90 0.40)  0.40 = 1.25).  more satellite costs to bush  %! locations than would be allocated using Alascom's estimate of usage. On reconsideration, we  %0! find that to apply the Commission's Part 64 rules correctly, Alascom's satellite costs should be  %! allocated based on usage as measured by the number of channels dedicated to bush and nonbush  %! locations. Accordingly, we require Alascom to revise its CAP to reflect an allocation factor for satellite costs based on bush versus nonbush use of the satellite's channels.  Y80 C. CostBased Rates  Y 0 p  ` ` 39. GCI contends that because the cost support materials filed in Alascom's  %P! proposed Common Carrier Services tariff contain only generalized references to gross cost and  Y0 % demand, GCI cannot determine whether the rates are costbased.@  xPH#0ԍ GCI Petition at 1617.@ GCI asserts that it should  Y0 % have been given access to a cost model Alascom developed\J  xP%0 %`Ѝ The Commission, in ruling on petitions for review of a Bureau decision on a GCI FOIA request, ordered  zP&0 %disclosure of portions of Alascom's cost model and held that other portions were exempt from disclosure. See  zPS'0 % General Communications, Inc. on Request for Inspection of Records, Memorandum Opinion and Order, FCC 96191"S',,(,('" (April 30, 1996).  to implement its CAP and"X,,(,([[ "  % maintains that the errors and anomalies in the tariff strongly indicate that the plan used to  Y0 % produce the tariff is fundamentally defective.=X xP0ԍ GCI Petition at 17.= In response, Alascom argues that GCI should  %! not have access to its cost model because the model contains competitivelysensitive demand and  Y0 %! financial data.` xPT0ԍ Alascom Opposition at 78; Alascom Reply at 13, n. 15.` In its Reply, Alascom questions GCI's contentions regarding high bush rates  Y0because, as of the date of its filing, GCI had not purchased any common carrier service. x xP 0 %0 ԍ Alascom Reply at 910. Although it anticipates that GCI will eventually purchase Common Carrier Service  %`at bush locations, Alascom projects revenues of only approximately three percent of GCI's total cost of sales.  %Alascom avers that even though it is the monopoly provider for a number of rural locations in Alaska, carriers are able to serve those locations by using offerings other than Alascom's Common Carrier Service.  Yv0 pP ` ` 40. The Joint Board recommended that Alascom's CAP be modeled on  Y_0 % procedures described in the Computer III Remand Order_`  zPp0 %@ԍ See Computer III Remand Proceedings: Bell Operating Company Safeguards and Tier 1 Local Exchange  zP:0Company Safeguards, 6 FCC Rcd 7571 (1991) ("Computer III Remand Order"). for segregating regulated and  YJ0 % nonregulated costs and on the Part 64 cost allocation rules.GJ  xP0ԍ 47 C.F.R.  64.901 .904.G The Bureau has reviewed  %! Alascom's CAP and its revised CAP and found that both the CAP and the revised CAP comply  Y 0 %@ with procedures described in Part 64 of the Commission's rules.ZX L  xP0 %Ѝ Bureau's staff reviewed the cost model to ensure that the cost apportionment methodology used in the cost  %model reflected the cost apportionment methodology described in the CAP. This review of the cost model did not influence the Bureau's approval of the CAP. Z Alascom's tariff and the  % related projected costs and demand figures are the subject of an investigation and questions  Y 0 % relating to them will be resolved there._ l zP 0ԍ See Suspension Order, 11 FCC Rcd at 3703._ To the extent that GCI wishes to address issues  %! relating to the costs and demand projections provided in support of Alascom's Common Carrier Services tariff, it should do so in the tariff investigation proceeding.  X0 D. Audit of Alascom's CAP  X{0  Yd0 p  ` ` 41. GCI argues that the Joint Board required that the CAP be subject to an  YM0 %" independent audit and that the Commission failed to complete the audit.@M xP$0ԍ GCI Petition at 2122.@ Alascom argues that"M,,(,([[ "  Y0 % an audit of Alascom's cost and CAP data was not mandated by the Final Recommended  Y0 %! Decisionp zPd0ԍ See Final Recommended Decision, 9 FCC Rcd at 2216. p but rather such information would be "subject to" an independent audit.FZ xP0ԍ Alascom Opposition at n. 14.F The Joint  Y0 %! Board in its Final Recommended Decision stated that Alascom's cost of service data and the data  Y0 %p" supporting the CAP would be reviewed and would be subject to an independent audit.n zP\0ԍ See Final Recommended Decision, 9 FCC Rcd at 2217.n Neither  Y0 % the Final Recommended Decision nor the Market Structure Order adopting it imposed any requirement, explicitly or implicitly, that approval of the CAP was contingent on an audit.  Yg0 E. Effect of the 1996 Act +g| zP 0 %ԍ Telecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56, codified at 47 U.S.C.  151 et. seq.  zP^0(1996 Act). All citations to the 1996 Act will be as codified in the United States Code. +  Y:0 p` ` ` 42. The Telecommunications Act of 1996 amended the Communications Act  Y# 0 % of 1934P#  zP0ԍ 47 U.S.C.  151, et. seq.P after the Final Recommended Decision had recommended and the Commission had  %@ required that Alascom create a CAP dividing its service locations into two rate zone cost  Y 0 %" categories.= j  xP0ԍ 9 FCC Rcd at 2206. = We find this requirement to be consistent with the changes to the Communications  Y 0 %P! Act, made by the 1996 Act. The 1996 Act adds only one section that might appear to apply to  % Alascom's CAP requirement, Section 254(g). Section 254(g) requires that IXCs average rates  %! by providing that "the rates charged by a provider of interexchange telecommunications service  Y0 %! to subscribers in rural and high cost areas shall be no higher than the rates charged by each such  Y0 % provider to its subscribers in urban areas (emphasis added)."   xP30 % ԍ 47 U.S.C.  254(g). This section of the statute also requires that carriers "integrate" their rates by charging rates to its subscribers in one state at rates no higher than the rates charged to its subscribers in any other state.  The legislative history of this  % section indicates that Congress intended for the Commission to codify its pre-existing policies  % of rate averaging and rate integration, and to apply these policies to all carriers. The Joint  % Explanatory Statement states that "[n]ew section 254(g) is intended to incorporate the policies  % of geographic rate averaging and rate integration of interexchange services in order to ensure  %0" that subscribers in rural and high cost areas throughout the Nation are able to continue to receive  %`! both intrastate and interstate interexchange services at rates no higher than those paid by urban  Y0subscribers.""R  zP$0 %ԍ S. Rep. No. 230, 104th Cong., 2d Sess. 1 (1996) (Joint Explanatory Statement) at 132; see also S. Rep.  % No. 23, 104th Cong., 1st Sess. 30 (1995) (this section "simply incorporates in the Communications Act the existing  %practice of geographic rate averaging and rate integration for interexchange, or long distance, telecommunications  %rates to ensure that rural customers continue to receive such service at rates that are comparable to those charged"F',,(,('" to urban customers.") (Senate Commerce Committee report to accompany S.652)."X,,(,([[ "Ԍ Y0 p0 ԙ` ` 43. Alascom's rates include, for the bush and nonbush cost categories, two  %! transport rates and a switching rate. One transport rate, IntraAlaska transport, recovers from  %! IXCs, the costs of transporting calls between Alascom's interconnection points with IXCs and  % Alascom's interconnection points with LECs located in Alaska. The second transport rate,  %@ Alaska/CONUS transport, recovers from IXCs, the costs of transporting calls between  % Alascom's Anchorage, Alaska switch and its Portland, Oregon switch. The switching rate  Yv0 %`! recovers, from IXCs, Alascom's switching costs associated with transporting calls.vX zP 0 %ԍ See Description and Justification attached to Alascom Transmittal No. 790, Revisions to Tariff F.C.C. No. 11, filed September 22, 1995, at 3. The only  %! services Alascom provides under the CAP are switching and transport services provided to, and  %! paid for by, IXCs. The Commission has a longstanding policy of rate integration under which  Y10 % dominant IXCs are required to average rates for domestic interstate interexchange services.1 zP0 %` ԍ See Policy and Rules Concerning Rates for Dominant Carriers, Report and Order and Second Further Notice of Proposed Rulemaking, 4 FCC Rcd 2873, 3132 (1989) (AT&T Price Cap Order).  Y 0 %P! The Commission codified that policy to apply to all IXCs.TZ  xP0 % ԍ The Commission's policy regarding rate integration was codified in a Report and Order, released on August  zP0 %P7, 1996. See Policy and Rules Concerning the Interstate, Interexchange Marketplace, 11 FCC Rcd 9564 (1996). See also 47 C.F.R.  64.1801.T Under our preexisting policy and  % under the current rule, subscribers to interexchange services in Alaska's bush and nonbush  % locations pay the same rates for the same interstate interexchange services. Under the Joint  %P Board's market structure plan, Alascom charges IXCs two sets of rates based on the  %p! classification of the location served. For IXCs, these rates are business costs which in addition  Y 0 % ! to other costs are recovered from their subscribers through averaged rates. The 1996 Act thus  Y0 %! compels no alteration of the rate zone cost categories recommended by the Final Recommended  Y}0Decision and approved in the Market Structure Order.  Yh0  Y:0. IV. ORDERING CLAUSES Ã  Y$0  Y 0 p  ` ` 44. IT IS ORDERED that, pursuant to Sections 0.91 and 0.291 of the  % Commission's Rules, 47 C.F.R.  0.91 & 0.291, the Petition for Reconsideration filed by  % General Communication, Inc., is GRANTED to the extent indicated herein, and otherwise DENIED.  Y0 p ` ` 45. IT IS FURTHER ORDERED that, pursuant to Sections 0.91 and 0.291  %! of the Commission's Rules, 47 C.F.R.  0.91 & 0.291, that the revised CAP filed by Alascom,  Yl0Inc. on November 13, 1995, is APPROVED except to the extent indicated in paragraph 46 infra. "W. ,,(,([[`"  Y0 p  ` ` 46. IT IS FURTHER ORDERED that, pursuant to Sections 0.91 and 0.291  % of the Commission's Rules, 47 C.F.R.  0.91 & 0.291, Alascom revise its CAP to reflect the  % new allocation factor for satellite costs based on the relative number of channels used by the  % satellite's transponders and shall submit its revised CAP within 60 days of the release date of  Y0this order. ` `   ` `  hhCqFEDERAL COMMUNICATIONS COMMISSION ` `  hhCqRegina M. Keeney ` `  hhCqChief, Common Carrier Bureau