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                            Before the
                FEDERAL COMMUNICATIONS COMMISSION
                      Washington D.C. 20554
     DA No. 97-1628

   Policy and Rules Concerning the )
  Interstate, Interexchange Marketplace)
      )CC Docket No. 96-61
  Implementation of Section 254(g) of the )
  Communications Act of 1934, as amended)


                   MEMORANDUM OPINION AND ORDER


     Adopted:July 30, 1997Released:July 30, 1997


By the Deputy Chief, Common Carrier Bureau:


                        I.   INTRODUCTION

        1. In this Memorandum Opinion and Order, we review plans submitted by MCI
Telecommunications Corporation ("MCI"), PCI Communications, Inc. ("PCI"), AT&T, Sprint
Communications Company, L.P. ("Sprint"), GTE Service Corporation ("GTE"), and IT&E
Overseas, Inc. ("IT&E") for implementing rate integration for interstate interexchange services
provided to, or from, Guam, the Commonwealth of the Northern Mariana Islands ("CNMI"), and
American Samoa as required by the Commission in the Rate Averaging and Rate Integration
Report & Order.  We find that Sprint's proposal does not achieve rate integration for service
offered between Guam and CNMI, and between Puerto Rico and the U.S. Virgin Islands, and
other U.S. points, and direct it to implement rate integration for such services by September 1,
1997.  We find that IT&E's plan does not address private line services.  We will require it to
integrate private line services by September 1, 1997, and to file a plan by August 15, 1997, to do
so.  We find that GTE's submissions are inadequate to determine whether its offerings of prepaid
calling cards and calling cards in Guam and CNMI are integrated with those offerings in other
states.  Accordingly, we require GTE to demonstrate that it has integrated rates for provision of
these services in Guam and CNMI and to submit a plan for doing so on or before August 15,
1997, and to implement rate integration for these services on or before September 1, 1997.  We
additionally set for comment issues concerning rate integration for services offered in American
Samoa.  We suspend the obligation of interexchange carriers (IXCs) to implement rate
integration for American Samoa pending further order of the Common Carrier Bureau
("Bureau").  We further determine that no further steps are necessary to ensure implementation of
rate integration for U.S. territories or possessions other than Guam, CNMI, and American
Samoa.

                         II.  BACKGROUND

        2. The Commission has a well-established policy of rate integration.  Beginning in
1972, the Commission required interstate interexchange carriers to integrate the rates for the
forty-eight contiguous states.  It extended this policy to Alaska, Hawaii, Puerto Rico, and the
Virgin Islands in 1976, requiring IXCs to lower their rates for services provided to, or from,
these areas to levels comparable to those prevailing in the mainland for interexchange calls of
similar distance, duration, and time of day.  Congress codified the Commission's rate integration
policy in the Telecommunications Act of 1996 ("1996 Act") by adding section 254(g) to the
Communications Act of 1934, as amended (the "Act").  Section 254(g) states that "a provider of
interstate interexchange telecommunications services shall provide such services to its
subscribers in each State at rates no higher than the rates charged to its subscribers in any other
State."  

        3. In the Rate Averaging and Rate Integration Report & Order, the Commission
adopted a rate integration rule that mirrors the text of section 254(g).  The Commission stated
that this rule would incorporate its existing rate integration policy, and would apply to all
interstate interexchange services, as defined in the Act, and to all providers of these services. 
Because the Act defines "state" to include all U.S. territories and possessions, the Commission
concluded that providers of interexchange services to offshore points, including Guam, CNMI,
and American Samoa, must do so on an integrated basis with services they provide to other
states.  The Commission directed that IXCs implement these requirements by August 1, 1997. 
In order to permit it to review progress toward achieving rate integration, the Commission
directed AT&T, GTE, MCI, Sprint, PCI, and IT&E to submit by February 1, 1997, preliminary
plans to achieve rate integration, and final plans, including rates, by June 1, 1997.  The
Commission delegated to the Chief, Common Carrier Bureau, authority to resolve any issues
concerning these plans for rate integration for offshore points.  Pursuant to the Report & Order,
MCI, PCI, AT&T, GTE, Sprint, and IT&E filed initial and final rate integration plans on or
before February 3, 1997 and June 2, 1997, respectively.  

        4. Concerning U.S. territories and possessions other than Guam, CNMI, and
American Samoa, the Report & Order directed the Common Carrier Bureau to investigate
service arrangements for these points to ensure compliance with Section 254(g) for these points
by August 1, 1997.  These points are:  Baker Island, Howland Island, Jarvis Island, Johnston
Atoll, Kingman Reef, Midway Atoll, Navassa Island, Palmyra Atoll, and Wake Island.

                                
                  III.  RATE INTEGRATION PLANS

        5. AT&T proposes to comply with rate integration requirements by expanding its
longest current mileage band to include calls to Guam and CNMI.  For services that have rate
bands that name specific termination points, such as Puerto Rico and the US Virgin Islands,
AT&T proposes to include Guam and CNMI in the most distant band.  AT&T also proposes to
make calls to Guam and CNMI eligible for inclusion in all of AT&T's domestic optional calling
plans and/or volume discount programs.  With respect to private line services, AT&T proposes
to adopt the same rate-making methodology for services to these offshore points as for other
domestic services.  AT&T does not propose to implement rate integration for American Samoa. 
It states that American Samoa has been invited to participate in the North American Numbering
Plan ("NANP"), but has declined.  AT&T states that it will be unable to integrate rates for
American Samoa into its domestic systems for rating toll calls until American Samoa participates
in the NANP.

        6. In its proposal, Sprint states that it will integrate Guam and CNMI into its existing
Dial-1 interstate interexchange time, time of day, and distance sensitive rate structure by adding
two additional mileage bands.  Sprint states that these rates will apply to calls made between
the U.S. Mainland and Guam, and between the U.S. Mainland and the CNMI, irrespective of
whether the call originates in Guam/CNMI or on the U.S. Mainland.  Sprint also states that
"calls between Guam and the CNMI will not be integrated into the Dial 1 rate structure until
certain facilities issues involving the CNMI are resolved."  Sprint asserts that access charges of
the Micronesian Telephone Company (MTC), the incumbent local exchange carrier in the CNMI,
are considerably higher than the rates which the Guam Telephone Authority is likely to charge as
a member of the National Exchange Carrier Association, and that the lease rates which MTC has
offered for capacity on the Guam-CNMI fiber cable are also higher than Sprint anticipated.

        7. GTE proposes to introduce a distance-sensitive rate schedule.  GTE states that its
proposed schedule will ensure that a customer in one state will pay the same rate as a customer in
another state for calls of the same distance (e.g., the rate for a call in mileage band 0-3500 will be
the same regardless of the originating point of the call).  GTE states that it will keep the same
Initial/Additional Minute/Peak and Off Peak Periods as the existing structure.

        8. PCI states that it will achieve rate integration by using postalized rates for its
interstate interexchange services offered in Guam and the CNMI.  Its proposed plan will offer
rates that are uniform for Guam and CNMI subscribers for service between Guam, CNMI, and
other domestic points.  PCI states that it will continue to offer optional calling plans, discounts
and other promotional offerings to its subscribers on Guam and CNMI on the same terms and
conditions, without regard to geographic location.

        9. IT&E, an IXC that provides outgoing interstate interexchange service from Guam
and CNMI to other U.S. points, states that it will eliminate any differential between rates charged
to subscribers on Guam and rates charged to subscribers on CNMI for domestic interstate
interexchange services by charging postalized rates for calls to the US Mainland.  IT&E also
states that it will offer separate, different rates for calls from Guam and the CNMI to other U.S.
offshore locations, such as Alaska, Puerto Rico, the Virgin Islands, and American Samoa, that
vary based on the location to which the call is terminated.  The rate for calls to a specific
location will be the same for its subscribers regardless of whether the call originates in Guam or
CNMI.  It contends that this is not prohibited by the Commission's rules because, according to
IT&E, the rules only prohibit charging different rates based on the geographic location of the
subscriber.  IT&E also states that it reserves the right to offer temporary promotions and private
line services on different terms and conditions to different groups of subscribers.  IT&E states
that it plans to discontinue its 800/888 "paid" access service.  The plan states that IT&E's rates
from Guam to CNMI will be the same as the rates from CNMI to Guam.

        10. MCI states that it will move Guam and CNMI from its international rate schedule
to its domestic rate schedule, and states that it will implement rate integration by treating Guam
and CNMI in a manner consistent with the current treatment accorded Puerto Rico and the U.S.
Virgin Islands.  It submitted proposed rates for its interstate interexchange services offered in
CNMI and Guam.  MCI states that it does not propose to integrate services to American Samoa
because American Samoa has stated that it does not want rate integration and has repudiated any
rights under section 254(g).
       
                                
                         IV.  COMMENTS

        11. CNMI contends that Sprint's proposal disregards the clear language of the Report
& Order, and of the 1996 Act, because Sprint's proposed rate schedule does not integrate its rates
for interexchange calls between CNMI and Guam.  CNMI rejects Sprint's argument that higher
costs justify its exclusion of these charges from its integrated rates offered to mainland areas, and
notes that the Commission has previously rejected this argument.  Furthermore, CNMI argues
that Sprint's refusal to integrate its rates between CNMI and Guam constitutes a discriminatory
practice in violation of section 202(a) of the Act since Sprint has integrated its rates for calls
between other offshore points such as Puerto Rico and the US Virgin Islands. 

        12. In its response to CNMI, Sprint argues that the Report & Order does not require
Sprint's other subscribers, through rate integration, to subsidize calls between Guam and CNMI. 
According to Sprint, if required to integrate Dial-1 rates for calls between Guam and CNMI, it
will lose money on every call, due in part to high access rates allegedly charged by MTC. 
Sprint contends that, in a competitive environment, averaging is only required when costs of
serving certain customers or routes are not widely divergent and when competition permits such
averaging.  Sprint contends that the Commission has previously determined that it was not in
the public interest to impose upon a large group of subscribers substantial expenses benefitting
only a specialized group of users.  Sprint urges an investigation into allegedly excessive access
charges assessed by MTC.  Finally, Sprint cautions that a requirement that carriers provide
services at rates that do not recover expenses will lead to poor service, withdrawal from the
market, and less competition, contrary to the results that rate integration is intended to produce.

        13. The State of Alaska ("Alaska") argues that Sprint's position would effectively
eliminate rate averaging and rate integration, and would contradict the clear intent of Congress
when it enacted Section 254(g).  Alaska asserts that high cost areas are precisely the locations
that Congress sought to protect in enacting section 254(g).  According to Alaska, Congress
decided that interexchange services are sufficiently important that they must be provided at
averaged and integrated rates even in markets where competition exists.  
        
        14. CNMI alleges that GTE's rate integration plan fails to include rates for additional
services, including calling card services, private line services, and operator-assisted calls. 
CNMI requests that the Commission take any action necessary to ensure full compliance by GTE
with the Report & Order.  In a letter response to CNMI's comments, GTE states that its
affiliates will assess on domestic interexchange switched message telecommunications traffic a
uniform surcharge of $4.50 for operator assisted person-to-person calls and $2.20 for all other
operator handled traffic.  With respect to private line services, GTE contends that the
Commission's Report & Order requires only that carriers integrate their services by using the
same ratemaking methodology and rate structure.  With respect to credit card calls, GTE states
only that prepaid calling card offerings vary and are not tied to basic rates.
       
        15. CNMI also points out that none of the carriers proposes to integrate its rates for
calls to, or from, American Samoa.  CNMI states that the Report and Order requires that rates
for services provided to American Samoa be integrated.  CNMI adds that this requirement cannot
be repudiated by American Samoa, as suggested by MCI, and does not carry the precondition of
participation in the North American Numbering Plan ("NANP"), as suggested by AT&T. 
CNMI requests that the Commission ensure that all carriers providing service from CNMI to
American Samoa include American Samoa within their integrated, domestic rates.

        16. On June 26, 1997, American Samoa Acting Governor Togiola T.A Tulafono
asked that the FCC provide American Samoa sixty days in which to formulate a position on rate
integration.  On July 1, 1997, Governor Tauese P.F. Sunia submitted a letter stating that the
government of American Samoa supports rate integration and believes that the benefits of rate
integration have been achieved with respect to outbound calls.  The letter states that, contrary to
the representations made by some carriers, the government of American Samoa does not see any
obstacle to the implementation of rate integration for inbound calls to American Samoa.  The
letter states that American Samoa is in the process of discussing this matter with carriers, and
that it is confident that a mutually satisfactory resolution will be reached."  

        17. MCI requests additional time to address new, complex issues regarding
implementation of rate integration for calls terminating in American Samoa.  MCI states that it
relied on previous statements by the American Samoan government that it did not wish to be
affected by this proceeding.  MCI further states that, given American Samoa's intention to
continue to operate outside the North American Numbering Plan, which means that inbound calls
are routed as international traffic, MCI and other carriers are faced with a need to implement
substantial changes to their systems to accommodate rate integration for American Samoa. 
GTE states its willingness to cooperate with American Samoa to establish rate integration for
American Samoa.   

                         VI.  DISCUSSION

        18. Sprint proposes not to integrate rates for calls between Guam and the CNMI with
its rate structure for service offered to other states because of allegedly higher costs of service
between Guam and CNMI.  As recently noted by the Commission, however, higher costs do not
generally justify a departure from the rate integration requirements of section 254(g). 
Moreover, the Commission, in the First Reconsideration, rejected the identical claim by IT&E
that it should not be required to offer services between Guam and CNMI on a rate integrated
basis.  Therefore, Sprint's proposal not to integrate rates for calls between Guam and CNMI
violates the statute and the Commission's rules.  Accordingly, we direct Sprint to achieve rate
integration for calls between Guam and CNMI on or before September 1, 1997, and to file a plan
for doing so, with proposed rates, by August 15, 1997.  In addition, we note that Sprint's rates for
service between Puerto Rico and the U.S. Virgin Islands and other points in the United States are
not presently rate integrated, and its plan does not propose integration of these services.  We
direct Sprint to integrate its rates for services provided to, and from, these points on or before
September 1, 1997, and to file a plan for doing so, with proposed rates, by August 15, 1997.  If it
has already integrated rates for these services before August 15, 1997, it may, on that date,
submit a description and justification explaining that it has done so.

        19. We reject IT&E's view that it may implement a uniform rate schedule containing
rates that vary based on the location to which a call is terminated.  This approach would permit
a carrier to charge its subscribers in every state a higher rate for calls destined for one state than
the carrier assessed for calls of the same distance and duration to other states.  This is directly
contrary to the goals of rate integration for offshore points and would permit carriers to charge
excessive rates for calls to specific offshore points.  In the Joint Explanatory Statement,
Congressional conferees made clear that section 254(g) was intended to incorporate the
Commission's existing rate integration policy.  The Commission's rate integration policy
historically has required IXCs to incorporate individual states, such as Alaska, into an entire
nationwide rate regime, and not just into an originating rate regime.  Therefore, we conclude that
IT&E's view violates the Commission's rate integration policy and section 254(g).  IT&E has not
explained or supported its view that it may offer temporary promotions and private line services
on different terms and conditions to different groups of subscribers.  Nor has it specifically
proposed any such offerings.  Nor does IT&E's plan address whether it will provide private line
services on a rate integrated basis.  Accordingly, we will not directly address this view.  We note,
however, that specific offerings must comply with section 254(g) and the Commission's rules. 
Moreover, the Commission determined in the Report & Order that, to the extent a provider of
interexchange service offers optional calling plans, contract tariffs, discounts, promotions and
private line services to its subscribers in one area, it must use the same ratemaking methodology
and rate structure when offering those services to its subscribers in each other area where it
provides services.  Because IT&E's plan does not address private line services, we will require
it to integrate private line services by September 1, 1997, and to file a plan by August 15, 1997 to
do so.

        20. As noted, the rate integration requirements of section 254(g) apply to all interstate
interexchange services.  Therefore, carriers are required to integrate interstate interexchange
offerings of private line services, operator services, prepaid calling card services, and calling card
offerings.  In order to offer these services on an integrated basis, carriers must use the same rate
structure and rate making methodology in every state in which they offer these services.  Based
on the current record, we find that GTE's proposal satisfies the Commission's rate integration
requirements for operator-handled calls and private line services.  GTE's submissions are
inadequate, however, to determine whether its offerings of prepaid calling cards and calling cards
in Guam and CNMI are integrated with those offerings in other states.  Accordingly, we require
GTE to demonstrate that it has integrated rates for provision of these services to Guam and
CNMI and to submit a plan for doing so on or before August 15, 1997, and to implement rate
integration for these services on or before September 1, 1997.  

        21. Based in part on continuing discussions over the last year between industry and
the government of American Samoa regarding the implementation of rate integration in the
Western Pacific, none of the carriers proposes specific rate integration steps for American
Samoa.  In the past few weeks, however, the government of American Samoa has indicated its
active interest in implementing rate integration and has continued discussions with the relevant
carriers toward that end.  We note that there are several measures that could be implemented in
American Samoa that likely would facilitate the ability of interexchange carriers to integrate their
service offerings to American Samoa with their interstate offerings to the mainland and other
offshore points.  These steps include participation in the North American Numbering Plan,
provision of access services to IXCs on a basis comparable to that of LECs in other parts of the
U.S. (such as by offering National Exchange Carrier Association access rates), and provision of
Feature Group D service if requested by IXCs.  Thus, inclusion of American Samoa in the
NANP would help carriers integrate American Samoa into their nationwide service plans, billing
systems, and switching mechanisms.  Implementation of Feature Group D service would provide
subscribers with high-quality equal access to providers of interexchange service serving
American Samoa.  Provision of access services by American Samoa to interexchange carriers on
a basis more comparable to such services provided in other parts of the U.S. could help
interexchange carriers set rates at integrated levels.  Further, these measures could promote the
provision of competitive services to American Samoa and stimulate introduction of new services. 


        22. The record, however, does not indicate the extent to which the government of
American Samoa, as the provider of local service and of interconnection to interstate long
distance service providers in American Samoa, may plan to take any of these steps.  In order to
make further determinations on these issues on the basis of a more complete record, we are
establishing a comment period for the purpose of determining the extent to which these and other
steps should be taken to integrate American Samoa into the pattern for provision of interstate
communications services that exists elsewhere in the U.S.  We encourage American Samoa to
submit a complete plan for taking these and any other measures that could help to integrate
provision of communications services to American Samoa.  On the basis of the resulting record,
we will determine whether any regulatory action is necessary.  The Commission has jurisdiction
over provision of interstate communication to, and from, American Samoa, including those
provided by the government of American Samoa.  Pending resolution of this issue, we
temporarily suspend the obligation of carriers to provide services on an integrated basis to
American Samoa.

        23. Pursuant to the Commission's direction in the Report & Order, the Bureau has
conducted an informal investigation of U.S. territories and possessions to assure compliance with
rate integration requirements for these points by August 1, 1997.  As indicated, these other U.S.
territories and possessions are Baker Island, Howland Island, Jarvis Island, Johnston Atoll,
Kingman Reef, Midway Atoll, Navassa Island, Palmyra Atoll, and Wake Island.  Of these, only
Wake Island, Johnston Atoll, Midway Atoll, and Palmyra Atoll are permanently inhabited. 
Communications services to Wake Island and Johnston Atoll are provided pursuant to special
arrangements by U.S. military authorities under which callers on these points pay rates as if calls
were placed from Hawaii.  Similarly, callers to those points are charged as if the calls
terminated in Hawaii.  Section 254(g) does not require termination or revision of these types of
special military communications arrangements.  Palmyra Island maintains a permanent
population of fewer than four persons.  There are currently no permanent telecommunications
facilities on the island.  Midway Atoll has recently been converted from a naval installation to a
national wildlife refuge administered by the U.S. Fish and Wildlife Service.  The U.S. Fish and
Wildlife Service has entered into an operating agreement with Midway Phoenix Corporation
("Midway Phoenix") through which limited telecommunications services are provided to the
island's employees and visitors.  Reportedly, Midway Phoenix will operate a cellular system and
customers will be charged flat rated per minute charges for calls within the island and to other
U.S. points.  Midway Phoenix does not currently offer telecommunications services from any
other points.  We require Midway Phoenix to comply with Section 254(g) with respect to any
services offered from Midway and any other services it may offer in the future from other points. 
Accordingly, we conclude that no further steps are required with respect to these points in order
to assure compliance with Section 254(g) by August 1, 1997.

                      VII.  ORDERING CLAUSES

        24. Accordingly, IT IS ORDERED that Sprint SHALL SUBMIT by August 15, 1997,
a plan to implement rate integration by September 1, 1997, for interstate interexchange services
provided between Guam and CNMI, and for services provided between Puerto Rico and the U.S.
Virgin Islands, and other U.S. points as discussed in  16.

        25. IT IS FURTHER ORDERED that IT&E SHALL SUBMIT by August 15, 1997, a
plan to integrate its offering of private line services by September 1, 1997.  

        26. IT IS FURTHER ORDERED that GTE SHALL SUBMIT by August 15, 1997, a
plan to integrate rates for provision of prepaid calling cards and calling cards in Guam and CNMI
by September 1, 1997.  

        27. IT IS FURTHER ORDERED that interexchange carriers providing interexchange
service to, and from, American Samoa may submit comments on the issues discussed in  21-22
by August 18, 1997, and that American Samoa and other interested parties may submit
responsive comments by September 5, 1997.

        28. IT IS FURTHER ORDERED that the obligation of interexchange carriers to
implement rate integration for American Samoa IS TEMPORARILY SUSPENDED pending
further order of the Common Carrier Bureau.



       FEDERAL COMMUNICATIONS COMMISSION

 


       A. Richard Metzger, Jr.
                      Deputy Chief, Common Carrier Bureau