******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the FCC 97-8 FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Policies and Rules Concerning ) Local Exchange Carrier Validation ) CC Docket No. 91-115 and Billing Information for Joint ) Use Calling Cards ) ) MEMORANDUM OPINION AND ORDER ON RECONSIDERATION Adopted: January 9, 1997 Released: January 17, 1997 By the Commission: I. INTRODUCTION 1. In the LEC Calling Card Order, the Commission reviewed local exchange carrier (LEC) calling card practices and required that all LECs provide nondiscriminatory access to LEC joint use card-validation data and LEC screening data. That Order also required that any LEC entering into an agreement with one interexchange carrier (IXC) to honor its calling card must also agree to honor calling cards from any other IXCs requesting such an agreement. In addition, the LEC Calling Card Order amended Part 69 of the Commission's rules to establish a new switched access rate element with two subelements for a new service called "validation database query service." The Ameritech Operating Companies; Southwestern Bell Telephone Companies; Bell Atlantic Telephone Companies; and, Elkhart Telephone Company, Inc., Bay Springs Telephone Company, Inc., and United Telephone Association, Inc. filed petitions for clarification or partial reconsideration of the LEC Calling Card Order. For the reasons set forth below, we affirm our decisions in the LEC Calling Card Order. We make minor modifications to Part 69 of the Commission's rules, however, to clarify the extent to which the line-information database (LIDB) access charge rules apply to carriers subject to regulation under price caps. II. BACKGROUND 2. The LIDB is a series of interconnected databases created by the LECs to enable them to share validation and screening data on a per-call basis with each other and with the IXCs. The LECs insert calling card account numbers into their LIDBs, or remove the numbers from the databases, depending on the current status of the cardholder's local exchange service. When a caller uses the card account number to place a call, the IXC or LEC operating the network over which the call will be transported "queries" the validation database about the particular account number. In the LEC Calling Card Order, the Commission found that the LECs' generation and maintenance of validation for LEC joint use cards, and screening data for collect and third-party calls, are inevitable by-products of the LECs' common carrier operations. The Commission also found that access to this information is a prerequisite for the placement of interstate collect, third-party, and LEC calling card calls. 3. The Commission further determined in the LEC Calling Card Order that validation and screening services are incidental to the LECs' provision of local exchange access service. Therefore, the Commission reasoned, such services are communication by wire within the meaning of Section 3(a) of the Communications Act of 1934, as amended, and are properly considered a communications service. We also concluded that the LECs' validation and screening services are common carrier services within the meaning of the Act. 4. The Commission further held in the LEC Calling Card Order that all LECs must provide nondiscriminatory access to LEC joint use card-validation data and LEC screening data, and that a LEC that agrees to enter into an agreement with one IXC to accept its calling card for LEC services and to query that IXC's database to validate the card, must, upon request, provide such services on a non-discriminatory basis to all IXCs. We further observed that the tariffed LIDB service would be an adequate vehicle to enable both large and small LECs to discharge their Title II obligations. We indicated that the larger LECs own and operate the LIDB systems and that the smaller LECs may participate in the system by loading their data into the LIDB system maintained by the larger LECs or by third-party providers. Additionally, the Commission amended Part 69 of the rules to establish a new switched access rate element for LIDB access, which is composed of separate components for transmission and database "look up." Finally, we concluded that the costs associated with the LIDB rate element should be recovered on a per-query basis. III. BELL ATLANTIC, SOUTHWESTERN BELL, AND AMERITECH PETITIONS FOR RECONSIDERATION A. Petitions 5. In their petitions for reconsideration, SWB, Ameritech, and Bell Atlantic request that the Commission either eliminate the LIDB "cost element" or clarify in the Part 69 cost rules that price cap LECs are exempt from rules prescribing the method for allocating costs to a LIDB cost element. SWB states that, under rate-of-return regulation, interstate costs were traditionally derived using a fully-distributed cost methodology and that such costs were recovered through charges paid by customers for the rate elements to which those costs were allocated by the Part 69 cost allocation rules. SWB asserts that price cap regulation broke the link between fully-distributed costs, identified pursuant to the Part 69 rules, and access rates. SWB contends that Part 69 cost allocations for price cap LECs are now virtually irrelevant. Bell Atlantic argues that the establishment of new LIDB cost elements is inconsistent with one of the fundamental objectives of price cap regulation -- to eliminate the complex system of cost allocation rules required under rate- of-return regulation. Ameritech and SWB argue that the separate allocation and reporting of fully- distributed costs for LIDB by price cap LECs is unnecessary and inappropriate because LIDB rates for price cap LECs were not established based on fully-distributed costs, and would create unnecessary administrative costs. SWB also contends that the Commission's existing reporting requirements for price cap LECs ensure that the necessary jurisdictional separations and allocations are made correctly. 6. Additionally, SWB argues that the Commission failed to seek comment on the changes to Part 69. SWB and Ameritech also request the Commission to clarify that the provision of costs associated with the new LIDB element will not become an Automated Reporting Management Information System (ARMIS) reporting requirement in the future. B. Comments 7. US West, BellSouth, and USTA filed comments in support of the above petitions. US West and BellSouth agree with the petitioners that the creation of new cost allocations for LIDB access is inconsistent with the principles of price cap regulation and imposes unnecessary administrative burdens on price cap LECs. US West contends that the LECs have developed their LIDB rates in conformity with the price cap rules for new services and, therefore, the application of the prescribed LIDB cost element, and the related cost allocation procedures, is illogical and serves no useful regulatory purpose. 8. MCI filed comments in opposition to the Bell Atlantic, Ameritech, and SWB petitions. MCI asks the Commission to deny the petitions filed by SWB, Bell Atlantic, and Ameritech, and specifically to deny the requests to eliminate the amendments to the Part 69 Rules establishing the new LIDB cost allocations. MCI argues that the LECs' complaints about the LIDB Part 69 cost allocations are outweighed by two important factors. First, MCI contends that LIDB is one of many LEC services that have evolved out of signalling system seven (SS7) technology and involve the use of a database, and it is important that the LECs do not double-recover for the SS7 services. According to MCI, the only safeguard to prevent double recovery is an explicit requirement that each service recover only the specific costs incurred in the provision of the service. 9. Second, MCI argues that LECs have the potential to manipulate the cost-recovery rules to cross-subsidize their services and recover certain costs for LIDB through another service. MCI contends that Ameritech failed to allocate any computer investment to the LIDB, although there are some computer costs associated with the provision of the LIDB, and thus Ameritech is recovering those costs through another service. MCI contends that the only way to ensure that each SS7 service recovers its specific costs, and that cross-subsidization does not occur, is through codification of the specific LIDB costs in the Part 69 rules. C. Replies 10. In its reply, Bell Atlantic argues that adding new Part 69 cost allocations would not prevent double recovery because the Part 69 cost elements are not the basis of the price cap carrier's rates. Ameritech contends that rates for new services are not based upon Part 69 fully-distributed costs, and, therefore, a requirement to report such costs provides no protection or useful data concerning rates for price cap new services. Ameritech further argues that MCI did not contend that its cost study violated the Commission's price cap services costing rules. 11. Finally, Ameritech contends that MCI incorrectly asserts that LECs have the potential to manipulate the price cap new services pricing rules to cross-subsidize their LIDB services. With respect to MCI's claim regarding computer investment, Ameritech asserts that the costs of computer systems supporting LIDB are properly identified in Ameritech's tariff filing and are recovered in the LIDB rates; the costs associated with service control point processors are properly allocated to LIDB; the expenses associated with updating and maintaining the computers were identified in the tariff filing and included in the rate element as annualized unit expense; and the capital investment for the computers, not incremental to LIDB, was properly excluded from its LIDB cost study. D. Discussion 12. In the LEC Calling Card Order, the Commission amended Part 69 of our rules to establish a new switched access element, with two subelements for LIDB access. The Commission observed that without the new unbundled subelements, the users of the LIDB would be required to take both the transmission and the database look-up components of the LIDB query service. The Commission noted that the establishment of separate transmission and database look-up elements would provide a rate structure with sufficient flexibility to respond to future developments. Finally, the Commission concluded that the costs associated with these two subelements should be recovered on a per-query basis. 13. SWB argues that the Commission failed to seek comment on the changes to Part 69. We disagree. The Commission's Notice of Proposed Rulemaking in this docket proposed rules to establish the LECs' obligation under Title II of the Act to provide access to certain information and services for both LEC and IXC joint use calling cards. The Commission specifically sought comment on these access requirements for calling card-validation services, on feasible methods for implementing the access requirements, and on the rate structure it should prescribe for the LIDB tariffs. 14. SWB and Ameritech seek clarification that price cap LECs are not required to add a separate cost allocation category to the ARMIS (Automated Reporting Management Information System) reports for LIDB costs. The LEC Calling Card Order does not add a separate cost allocation category to the ARMIS reports for LIDB costs. To remove any possibility of uncertainty on this point, however, we hereby clarify that the LEC Calling Card Order created no new ARMIS reporting requirements. 15. SWB and Ameritech request that the Commission clarify in Part 69 that price cap LECs are exempt from rules requiring the allocation of costs to the transmission and database look- up elements that the Commission established in the LEC Calling Card Order. That Order established cost allocation requirements for LECs under rate of return regulation in Sections 69.305, 69.306, and 69.307. 16. Price cap LECs must tariff LIDB services using the elements established in the LEC Calling Card Order. However, consistent with other access charge rules for price cap LECs, the costs recovery requirements for the LIDB elements do not apply to price cap carriers. As specified in Section 69.1(c) of the Commission's rules, the provisions of Part 69 apply to price cap LECs only for limited purposes. The LEC Calling Card Order did not revise Section 69.1(c), or any other provision of our rules, to change the LEC price cap regulation. Therefore, Sections 69.305, 69.306, and 69.307 continue to be inapplicable to price cap LECs. 17. To further clarify this issue, and to eliminate any ambiguity that may arise from the establishment of the rate elements for LIDB, we will amend Sections 69.1(c) and 69.120 of the Commission's rules in this Order. First, we segregate the portion of Section 69.120 that discusses the costs that are to be recovered by the rate elements in Subsections (a) and (b) of Section 69.120, and place the cost-recovery language in a new subparagraph (2) in each of those subsections. Second, we shall add Sections 69.120(a)(2) and 69.120(b)(2) to the list of provisions that have limited applicability to price cap LECs contained in Section 69.1(c). These rule changes should make it clear that the cost allocations for LIDB set out in the LEC Calling Card Order do not apply to price cap LECs. 18. Finally, we are unpersuaded by MCI's argument that double recovery or cost misallocation is possible unless the LECs are subject to the cost allocation requirements set out in Sections 69.305, 69.306 and 69.307 of the Commission's rules. In essence, MCI is arguing that the Commission should abandon price cap regulation in favor of rate-of-return regulation. The price cap plan is a movement away from the cost-plus system of regulation. Separate allocation and reporting of fully-distributed costs for LIDB by price cap LECs is unnecessary and inappropriate because LIDB rates for price cap LECs were not established on a fully-distributed cost basis. By grouping services with common characteristics, such as similar functions and levels of competition, price cap regulation is designed to give LECs pricing flexibility with respect to comparable services and to restrict the ability of LECs to offset rate increases for some services with rate decreases for dissimilar services. The price cap system creates incentives for LECs to set prices for services at lower, more efficient levels than rate-of-return regulation. We, therefore, reject MCI's argument. IV. INDEPENDENT TELCOS PETITION FOR RECONSIDERATION AND CLARIFICATION A. Petition 19. In its petition for reconsideration and clarification, the Independent Telcos ask the Commission to state that Sections 69.120(a) and (b) of the rules require only IXCs to pay for LIDB access service. The Independent Telcos argue that Section 69.5(b) provides that a carrier's carrier charges shall be computed and assessed upon all interexchange carriers that use local exchange switching facilities for the provision of interstate or foreign telecommunications services. The Independent Telcos contend that IXCs, not LECs, should pay access charges for access to the LIDB. 20. The Independent Telcos further argue that Section 69.4(b)(8) could be interpreted as requiring that all LECs add LIDB service to their access tariffs, and that a LEC must obtain a waiver of this rule if its access tariff does not contain all the switched access elements. The Independent Telcos contend that incorporating the LIDB rate element into their access tariffs would be unreasonable and economically impractical. The Independent Telcos ask the Commission to modify the rules to provide that small independent LECs are not required to add the LIDB rate elements to their interstate access tariffs. B. Comments 21. SWB and Ameritech argue that independent LECs should not be exempt from paying for the LIDB validation service. Ameritech explains that, if an independent LEC has its own Operator Service Switch, it may incur charges for access to the various LIDBs to validate a call either directly or through a network of interconnecting carriers. In that case the independent LEC will be billed through the interconnecting network owner for the LIDB access charges. Alternatively, an independent LEC may contract with another LEC for operator services support for calls originated in the former LEC's franchise area, and the contract rate paid by the independent LEC would include the costs of providing the operator services and LIDB access charges. SWB also explains that it recovers the cost of the LIDB access service through charges to end user customers, through operator services provided to independent telephone companies, and also from the local exchange and interexchange carriers that have made arrangements with SWB for LIDB validation service. Ameritech, Bell Atlantic, and SWB argue that the independent carriers are beneficiaries of the LIDB validation service, and therefore should pay their share of the LIDB validation service expenses. 22. Ameritech, Bell Atlantic, and SWB agree that, if an independent LEC does not own and operate a LIDB, and the owner of the LIDB used by the independent has filed a tariff for the validation service it provides for itself and others, the independent LEC should not be required to add LIDB services to its interstate access tariffs. Ameritech also contends that third-party database owners can provide LIDB service but are not required to file tariffs. Ameritech thus maintains that it is not clear how a Title II tariff requirement is discharged by a LEC that has stored the validation data in a database belonging to a third-party. Ameritech states that LECs could avoid tariffing requirements by using non-LEC third-party database owners. C. Reply 23. The Independent Telcos reply comments contend that Part 69 was designed to determine the rates that interexchange carriers and end users pay for access to the local telephone facilities used to complete interstate offerings. Therefore, they argue, the independent LECs should not be required to pay the LIDB access charges. Additionally, the Independent Telcos argue that because Ameritech previously advised the Commission that its tariff provides LIDB access to IXCs, only IXCs should pay for LIDB access. D. Discussion 24. In the LEC Calling Card Order, the Commission held that the LIDB calling card-validation service, offered to IXCs, must be provided under tariff, and that all the LECs must either maintain a LIDB or lease space from another LEC for this purpose. Validation for calling card, collect, and third-party calls can only occur if the card issuer provides access to the relevant information in its database. In other words, all LECs must establish non-discriminatory means of access to validation data for their joint use cards, and they must all establish non-discriminatory access to screening data. Only this procedure allows all carriers, both local exchange carriers and interexchange carriers, to query the validation database about a particular account number when a calling card, collect, or third-party call is placed. 25. With respect to the Independent Telcos' first request -- that only IXCs should have to pay for LIDB service -- we agree with the Independent Telcos that, for the most part, Part 69 determines the rates that interexchange carriers and end users pay for access to the local telephone facilities used to complete interstate offerings. Access services are to be made available to any customer that chooses to subscribe to the services for interstate purposes. We note that under certain circumstances an independent telephone company might subscribe to another LEC's LIDB service. In this instance, the independent telephone company would be a customer of the other LEC and subject to the LIDB charges. Section 69.120(a) specifically provides that a per-query charge shall be assessed upon all carriers that access validation information from a LEC database to recover the costs of the transmission facilities between the LEC's signalling transfer point and the database, and the signalling transfer point facilities dedicated to the termination of the transmission facilities connecting the database to the exchange carrier's signalling network. Similarly, Section 69.120(b) provides that a per-query charge shall be assessed upon all carriers that access validation information from a LEC line-information database to recover the costs of the database. Therefore, we find that the rule anticipates charges being assesed upon all carriers using this service, including LECs and IXCs, and we reject the Independent Telcos' argument that only IXCs are required to pay for the LIDB service. 26. The LECs providing the validation service recover the cost of that service from their customers through their LIDB charges. Any customer that queries the LIDB must pay for the service it receives. The benefits of LIDB validation service do not depend on the status of the user. We conclude that the public interest requires that carriers that are similarly situated with respect to LIDB access should be treated alike. We therefore deny the Independent Telcos' petition for reconsideration of this requirement. 27. The Independent Telcos also express a concern that small independent LECs not be required to add the LIDB rate element to their access tariffs. We note that if an independent LEC does not own and operate a LIDB, and does not choose to offer a LIDB validation service, the independent LEC need not file a LIDB query charge. Section 69.4(b) of the Commission's rules is not a mandatory requirement to establish rates for all the listed elements. To the extent the LEC offers the service it should file the appropriate rate. If it does not offer the service, it does not have to obtain a waiver not to establish the rate element. V. BELL ATLANTIC PETITION FOR CLARIFICATION A. Petition 28. In its petition for clarification or partial reconsideration, Bell Atlantic argues that the LEC Calling Card Order must be clarified because note 50 in that Order could be interpreted as contradicting this Commission's earlier finding that billing is a "financial and administrative service" and that "carrier billing or collection for the offering of another unaffiliated carrier is not a communication service for purposes of the Communications Act." Bell Atlantic contends that the Commission's decision in the LEC Calling Card Order, that access to validation information is a communications service, does not require the reclassification of exchange carrier billing. B. Comments 29. CNSI filed comments in opposition to Bell Atlantic's petition for clarification or partial reconsideration. CNSI contends that Bell Atlantic's "confusion" over whether billing and collection is a communications service arises from an incomplete quotation from the Billing and Collection Report and Order in Bell Atlantic's petition. According to CNSI, Bell Atlantic misquoted the Billing and Collection Report and Order by deleting "Title II" from the statement describing billing and collection as a communications service. CNSI observes that the Commission found that, although billing and collection services may not be a Title II communications service, it is a communications service subject to Title I of the Act. It notes that the issue of whether billing and collection is a communications service has been reviewed and affirmed by the Commission in Public Service Commission of Maryland. CNSI also observes that the conclusion -- that billing and collection service is incidental to the transmission of wire communications and thus is properly considered a communications service under Section 3(a) of the Act -- is fully consistent with the Commission's prior decisions and is not a reclassification of exchange carrier billing. C. Reply 30. In its reply, Bell Atlantic essentially reiterates its previous arguments and points out that it is only asking the Commission to confirm that it did not intend the LEC Calling Card Orderto change prior Commission policy. D. Discussion 31. Initially, we note that Bell Atlantic does not disagree with the findings made in our LEC Calling Card Order; it merely takes issue with the wording of that Order. First, Bell Atlantic argues that, in note 50 of the LEC Calling Card Order, the Commission incorrectly suggested that billing and collection is properly considered a communications service, and that the Billing and Collection Report and Order was cited as supporting the erroneous statement. We find that this argument has no merit. In the Billing and Collection Report and Order, the Commission found that, although billing and collection for a communications service that a carrier offers individually or as a joint offering with other carriers is an incidental part of that communications service, carrier billing or collection for the offering of another unaffiliated carrier is not a communications service for purposes of Title II of the Act, i.e., it is not a comon carrier communication service. We also observed that billing and collection is a financial and administrative service. We find that these conclusions were accurately quoted in note 50 of the LEC Calling Card Order, and therefore we deny Bell Atlantic's petition for clarification with regard to this issue. 32. We also disagree with Bell Atlantic's other argument -- that the Commission erred in stating that the Billing and Collection Report and Order contained a finding that billing and collection is "incidental to transmission" under Section 3(a) of the Act. As we discussed in the LEC Calling Card Order, the Commission found in Billing and Collection Report and Order that billing and collection is incidental to the transmission of wire communication. Therefore, we concluded, it is properly considered a communications service under Title I, but remains outside the scope of Title II because it is not a common carrier service. We also note that this discussion of Title I and II jurisdiction was reiterated by the Commission in Public Service Commission of Maryland, which was also cited in note 50 of the LEC Calling Card Order. Thus, we find no need for clarification of our discussion of this issue. VI. CONCLUSION 33. We have reviewed the petitions, comments, and replies filed in this matter and are not persuaded that reconsideration of the LEC Calling Card Order is necessary. We also reject the petitioners' proposals that independent LECs be exempt from paying for the validation service. We do agree, however, that the LEC Calling Card Order and our rules could be more clear regarding the extent to which they apply to price cap carriers. To clarify that issue, we are making minor modifications to Part 69 of the Commission's rules. Therefore, we partially grant these petitions for clarification or partial reconsideration of the LEC Calling Card Order. VII. ORDERING CLAUSES 34. Accordingly, IT IS ORDERED that the petitions for clarification or partial reconsideration of the LEC Calling Card Order filed by Ameritech Operating Companies, Southwestern Bell Telephone Companies, Bell Atlantic Telephone Companies, and Elkhart Telephone Company, Inc., Bay Springs Telephone Company, Inc., and United Telephone Association, Inc., ARE GRANTED to the extent indicated herein, and otherwise ARE DENIED. 35. IT IS FURTHER ORDERED that the Commission's rules ARE HEREBY AMENDED as set forth in Appendix B, below. These rules changes shall be effective 30 days after FEDERAL REGISTER publication. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A Petitions for Reconsideration Ameritech Operating Companies (Ameritech) Bell Atlantic Telephone Companies (Bell Atlantic) Elkhart Telephone Company, Inc., Bay Springs Telephone Company, Inc., and United Telephone Association, Inc. (collectively, the Independent Telcos) Southwestern Bell Telephone Companies (SWB) Oppositions/Comments Ameritech Bell Atlantic BellSouth Telecommunications Inc. (BellSouth) Capital Network System, Inc. (CNSI) MCI Telecommunications Corporation (MCI) SWB United States Telephone Association (USTA) US West Communications, Inc. (US West) Replies Ameritech Bell Atlantic Independent Telcos APPENDIX B AMENDMENTS TO THE CODE OF FEDERAL REGULATIONS PART 69--ACCESS CHARGES 1. The authority citation for Part 69 continues to read as follows: Authority: Sec. 4, 201, 202, 203, 205, 218, 403, 48 Stat 1066, 1070, 1072, 1094, as amended, 47 U.S.C. 154, 201, 202, 203, 205, 218, 403. 2. Section 69.1(c) is amended to read as follows: 69.1 Application of access charges. ***** (c) The following provisions of this part shall apply to telephone companies subject to price cap regulation only to the extent that application of such provisions is necessary to develop the nationwide average carrier common line charge, for purposes of reporting pursuant to  43.21 and 43.22 of this chapter, and for computing initial transport rates:  69.3(f), 69.105(b)(4), 69.105(b)(5), 69.106(b), 69.107(b), 69.107(c), 69.109(b), 69.110(d), 69.11(c), 69.111(g), 69.112(d), 69.114(b), 69.114(d), 69.120(a)(2), 69.120(b)(2), 69.125(b)(2), 69.205(e), 69.301 through 69.310, and 69.401 through 69.412. The computation of rates pursuant to these provisions by telephone companies subject to price cap regulation shall be governed by the price cap rules set forth in Part 61 of this chapter and other applicable Commission Rules and orders. 3. Section 69.120 is amended to read as follows:  69.120 Line-information database. (a)(1) A charge that is expressed in dollars and cents per-query shall be assessed upon all carriers that access validation information from a local exchange carrier database. (2) Such per-query charge shall recover the costs of: (i) the transmission facilities between the local exchange carrier's signalling transfer point and the database; and (ii) the signalling transfer point facilities dedicated to the termination of the transmission facilities connecting the database to the exchange carrier's signalling network. (b)(1) A charge that is expressed in dollars and cents per-query shall be assessed upon all carriers that access validation information from a local exchange carrier line-information database. (2) Such per-query charge shall recover the costs of the database.