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"7>NGI "5OaOb#Xv P7XP##Xv P7XP#annotation tK&7>annotation textGw/ "7>NGI "62c(d2D X' X' yxdddyw Federal Communications Commission`(#E FCC 9838 ă Ê Figure 1 Figure 1 #Xj PynXP#   ă X'`+ Before the Đ X'\ [ FEDERAL COMMUNICATIONS COMMISSION ă  X4 +Washington, D.C. 20554 ă  X4In the Matter of hhCq)  Xv4` ` hhCq) CC Docket No. 97158  X_4Southwestern Bell Telephone Companyq)  XH4` `  hhCq)Transmittal No. 2633  X14Tariff F.C.C. No. 73 hhCq)  X 4  hhCq)  X 4 hhCq)  X 4 \  X '  MEMORANDUM OPINION AND ORDER  X '&W ON RECONSIDERATION Đ\  X4: Adopted: March 13 , 1998; Released: March 13, 1998\ By the Commission: Commissioner FurchtgottRoth concurring and issuing a statement.  X4M: I. INTRODUCTION ă  X4 1.` ` In this Memorandum Opinion and Order, we deny a Petition for Reconsideration (petition) filed by Southwestern Bell Telephone Company (SWBT) of our  X4decision in the SWBT RFP Tariff Rejection Order&[ {O:'ԍSouthwestern Bell Telephone Company Tariff F.C.C. No. 73, Transmittal No. 2633, Order Concluding  {O'Investigation and Denying Application for Review, CC Docket No. 97158 (rel. Nov. 14, 1997) (SWBT RFP  {O'Tariff Rejection Order). We found Transmittal No. 2633 to be unreasonably discriminatory in violation of section 202 of the Communications Act (the Act), 47 U.S.C. section 202(a). rejecting as unreasonably discriminatory SWBT Transmittal No. 2633, in which SWBT sought approval to respond to interstate access  X4service customer requests for proposal (RFPs) with individualized contract offerings.x[ yO'ԍSWBT filed its Petition for Reconsideration (petition) on December 15, 1997. Petition for Reconsideration of Southwestern Bell Telephone Company, (filed Dec. 15, 1997). SWBT and seven other parties filed comments. Two parties filed in support of SWBT's petition: U S WEST, Inc. (U S WEST), and United States Telephone Association (USTA). Five parties filed in opposition: AT&T Corp., GST Telecom, Inc. and KMC Telecom, Inc., who filed jointly, MCI Telecommunications Corp. and Time Warner Communications Holdings Inc. On January 22, 1998, SWBT and U S WEST filed Reply Comments.x  Xg'? II. BACKGROUND Đ\  X942.` ` In its Transmittal No. 2633, SWBT sought to offer access services to individual customers in response to RFPs submitted by those customers at rates below SWBT's other"". 0*((aa" tariffed rates for the same services. Transmittal No. 2633 provided that these lower rates would be available to "any similarly situated customer that submits a RFP requesting the same  X4service in the same quantities and at the same central office(s)."" yOK'ԍSWBT Transmittal No. 2633, Proposed Section 29.2. An incumbent local exchange carrier's (LEC's)  {O'"central office" is where the local loops serving end users interconnect with the LEC's exchange system. See SWBT Tariff F.C.C. No. 73, Section 2.7. The central office contains switches that allow the incumbent LEC to switch, transport, and terminate local and long distance traffic. Although the tariff provided for lower prices for some customers than for others desiring the same services, SWBT argued that any discrimination or departure from averaged rates within a study area was justified  X4under the "competitive necessity doctrine."b {O 'ԍSWBT RFP Tariff Rejection Order at para. 2.b  X_43.` ` Section 202(a) of the Act makes it unlawful for a common carrier to engage in unjust or unreasonable discrimination in its charges, practices, classifications, and services for  X14like communications services.1D yO&'ԍ47 U.S.C.  202(a). The parties did not contest the issue of whether the services involved were "like." The Commission's rules require dominant LECs, i.e., those  X 4that possess market power,{^  {O'ԍSee Hyperion Telecommunications, Inc. Petition Requesting Forbearance, CC Docket 97146,  {Ok'Memorandum Opinion and Order and Notice of Proposed Rulemaking, 12 FCC Rcd 8596, 8608 n.71 (Hyperion  {O5'Order) (defining nondominant carriers as those that do not possess market power).{ to offer interstate access services at rates that are averaged  X 4throughout their individual study areas.^  {O'ԍSee, e.g., 47 C.F.R.  69.3(e)(7). A "study area" ordinarily consists of the entire geographic area served  {Oz'by a particular LEC in a single state. See, e.g., Petition for Waivers Filed by GTE North Incorporated and PTI  {OD'Communications of Michigan, Inc., 12 FCC Rcd 13882 (Acct. & Aud. Div. 1997).  X 44.` ` In the SWBT RFP Tariff Rejection Order, we found that Transmittal No. 2633 was unreasonably discriminatory under section 202(a) of the Act because it unduly limited the availability of its proposed reduced rates. We observed that, under Transmittal No. 2633, a customer seeking the same rates as the customer that initially submitted the RFP must order  X}4the same quantities of service at the same central offices as the original customer.c}  {ON'ԍSWBT RFP Tariff Rejection Order at para. 44.c Thus, in order to be a "similarly situated" customer as defined by Transmittal No. 2633, a subsequent customer would need to have a network configuration nearly identical to that of the original  X84customer, a circumstance we found to be unlikely.c 8 {O#'ԍSWBT RFP Tariff Rejection Order at para. 44.c We found that SWBT had defined "similarly situated" narrowly, and in a way that effectively precluded any subsequent"!D 0*&&aa"  X4customers from obtaining the same rates as the customers that submitted the original RFPs.c  {Oy'ԍSWBT RFP Tariff Rejection Order at para. 44.c We also found that charging different rates to individual customers violated our requirement  X4that incumbent LECs charge averaged rates throughout a study area.c Z {O'ԍSWBT RFP Tariff Rejection Order at para. 18.c  X45.` ` In the SWBT RFP Tariff Rejection Order, we also considered SWBT's argument that the discriminatory features of Transmittal No. 2633 were justified by the competitive necessity doctrine. We reviewed prior Commission decisions in which we had considered application of the competitive necessity doctrine to justify a tariff that was  XJ4otherwise unlawful under section 202(a),g J {O 'ԍSWBT RFP Tariff Rejection Order at paras. 3240.g and found that we had never approved a customer X34specific tariff, i.e., a tariff that is not generally available to similarly situated customers, under  X 4the competitive necessity doctrine.c  ~ {OM'ԍSWBT RFP Tariff Rejection Order at para. 15.c We held that our precedent did not compel us to apply the competitive necessity doctrine to SWBT's transmittal under circumstances such as those of Transmittal No. 2633, where the rates would not be generally available to similarly situated  X 4customers.c  {O'ԍSWBT RFP Tariff Rejection Order at para. 40.c In addition, we found, based on the record, significant potential that SWBT, by offering customerspecific discounts under Transmittal 2633, may be able unreasonably to  X 4foreclose or deter entry into its markets.c  {O'ԍSWBT RFP Tariff Rejection Order at para. 49.c We concluded that, at least until we revisit these issues in the broader context of the rulemaking proceeding, we would not apply the competitive necessity doctrine to dominant local exchange carriers who are proposing customerspecific tariffs because such an application would thwart the public interest of  XO4promoting competition in the local exchange and exchange access markets.gO4  {O4'ԍSee SWBT RFP Tariff Rejection Order at para. 54.g We therefore rejected the transmittal as unreasonably discriminatory under section 202(a) and as violating  X!4our rules requiring averaged rates within a study area.c!  {O 'ԍSWBT RFP Tariff Rejection Order at para. 54.c  X 4  X' III. DISCUSSION  X4  X46.` ` SWBT makes three arguments in support of its petition: first, that applicable precedent supports and does not bar application of the competitive necessity defense to"X 0*&&aaB"  X4SWBT's transmittal;A yOy'ԍPetition at 25.A second, that the weight of economic evidence in the record suggests  X4that market foreclosure will not occur;AX yO'ԍPetition at 56.A and third, that by preventing SWBT from responding to RFPs, the Commission is seeking to protect SWBT's competitors, and that this is  X4confiscatory and denies SWBT equal protection of the law.A yOT'ԍPetition at 67.A Because SWBT's petition raises neither significant new facts nor new arguments, we deny its petition for  X4reconsideration of the SWBT RFP Tariff Rejection Order.  Xa' A. Commission Precedent  X347.` ` In the SWBT RFP Tariff Rejection Order, we reviewed prior decisions in which we had considered the competitive necessity doctrine and found that none of those decisions relied on the competitive necessity doctrine to justify a customerspecific tariff that was  X 4otherwise unlawfully discriminatory and in violation of our rules.g x {O'ԍSee SWBT RFP Tariff Rejection Order at para. 40.g Although these cases do not bar application of the competitive necessity doctrine to SWBT's Transmittal No. 2633, we declined to apply competitive necessity in this instance because the proposed tariff potentially  X 4enabled SWBT to prevent competitive entry.g  {Of'ԍSWBT RFP Tariff Rejection Order at paras. 4954.g On reconsideration, SWBT has failed to raise any significant issues concerning our review of Commission precedent that we did not fully consider in our prior decision. Accordingly, we find SWBT's arguments concerning our discussion of prior Commission precedent do not warrant reconsideration.  X848.` ` We reject SWBT's assertion that our treatment of AT&T's Tariff 15 compels  X!4that we find Transmittal No. 2633 lawful.M! {On'ԍSee Petition at 45. M As the SWBT RFP Tariff Rejection Order states, Tariff 15 took effect by operation of law when the Commission failed to conclude its  X4investigation within the statutory time limit.l.  {O 'ԍSWBT RFP Tariff Rejection Order at para. 38 n. 105. l We never found those tariffs lawful based on competitive necessity or any other ground. In addition, Transmittal No. 2633's geographic restrictions make it distinguishable from Tariff 15 offerings generally. We have consistently  X4rejected tariffs that contain geographic limitations on availability of service,.  {O!%'ԍSee, e.g., AT&T Communications Revisions to Tariff F.C.C. No. 12, CC Docket No. 87568, 4 F.C.C.  {O%'Rcd 4932, 4938, rev'd on other grounds, MCI Telecommunications Corp. v. FCC, 917 F.2d 30 (D.C. Cir. 1990)..  including"0*&&aa("  X4specific Tariff 15 offerings with such restrictions. {Oy'ԍSee, e.g., In the Matter of AT&T Communications Tariff F.C.C. No. 15, Competitive Pricing Plan 22,  {OC'Transmittal No. 3921, 7 F.C.C. Rcd 4636 (Com. Car. Bur. 1992). For this reason, Transmittal No. 2633's geographic limitations on availability would nonetheless render it unlawful, even if we had found Tariff 15 to be a lawful, singlecustomer offering justified by the competitive necessity doctrine.  X49.` ` SWBT argues that we must allow it to establish customer-specific tariffs in  Xv4Transmittal No. 2633 because, it asserts, the May 8, 1997 Universal Service Orderv$ {OK 'ԍIn the Matter of FederalState Joint Board on Universal Service, Report and Order, CC Docket No. 96 {O '45, 12 F.C.C. Rcd 8776 (1997) (Universal Service Order). permits carriers to respond with below tariff rates to customer RFPs from schools, libraries, and rural  XJ4health care providers.DJ yO{'ԍPetition at 5 n. 6.D We reject this argument. The Universal Service Order does not permit customer-specific rates similar to those in Transmittal No. 2633. Rather, the Commission invoked its explicit authority under section 201(b) of the Communications Act to  X 4identify a special class of communications for which different charges may be made.B  {O'ԍSee 47 U.S.C. section 201(b): XX` ` . . . communications by wire . . . subject to this Act may be classified into day, night, repeated, unrepeated, letter, commercial, press, Government and such other classes as the Commission may decide to be just and reasonable, and different charges may be made for the different classes of communications . . .(#` 47 U.S.C. section 201(b). Thus, the Commission stated that "we hereby designate communications to organizations, such as schools and libraries and eligible health care providers, eligible for preferential rates under section 254 as a class of communications eligible for different rates, notwithstanding the  X 4nondiscrimination provisions of section 202(a)."c  {Ov'ԍUniversal Service Order, 12 F.C.C. Rcd 9031.c Such preferential rates are not to be offered on a customer-specific basis, but rather "will be generally available to all members of these  X}4classes under tariffs filed with this Commission."c} {O 'ԍUniversal Service Order, 12 F.C.C. Rcd 9031.c Therefore, the Universal Service Order provides no support for SWBT's argument.  X84 B. The Economic Evidence in the Record "!>0*&&aa"Ԍ X4 10.` `  SWBT also contends that we should grant reconsideration because, contrary to our finding that Transmittal No. 2633 could permit it to foreclose market entry, the weight of  X4economic evidence in the record suggests that market foreclosure will not occur.?  yOK'ԍPetition at 5.? In support  X4of its view, SWBT points to the following: (1) a 1989 law review article by Alexander C.  X4Larson, et al,!XX yO'ԍSWBT Direct Case at Appendix 1 (Alexander C. Larson, Calvin S. Monson, Patricia J. Nobles,  yOu'"Competitive Necessity and Pricing in Telecommunications Regulation," 42 Fed. Comm. L. J. 1 (1989) (the Larson article)). discussing the application of the competitive necessity doctrine in the interexchange market, appended to SWBT's Direct Case; (2) the Affidavit of Robert G. Harris (Harris Affidavit) advocating use of contract tariffs generally, submitted as part of U S WEST's initial comments; and (3) the Affidavit of Douglas R. Mudd (Mudd Affidavit) arguing that SWBT cannot deter market entry, which SWBT submits with its petition.  X 4 11.` ` We are not persuaded that the weight of the evidence in the record at the time  X 4of our decision, or as supplemented by SWBT on reconsideration," x yO.'ԍAs supplemented, this evidence includes maps of competitors' networks in Dallas and Houston submitted by SWBT during an ex parte meeting. shows that we should grant reconsideration. The Larson law review article is unpersuasive as grounds for application of the competitive necessity doctrine here because it analyzes the interexchange market, and relies on that market's low entry barriers to police anti-competitive behavior by  X 4firms.#"  yO*'ԍAlexander C. Larson, 42 Fed. Comm. L. J. at 1112. The authors state: "The success of [strategic pricing] revolves around the difficulty of entering this market. If entry is relatively easy (which is true of the long distance market), predation will not succeed because rivals would enter as soon as prices were raised to  {O'recoup the losses from eliminating the previous rivals." Id.  As we recognized in the SWBT RFP Tariff Rejection Order, the access services  X4market is characterized by high entry barriers,c$  {O'ԍSWBT RFP Tariff Rejection Order at para. 49.c and entrants seeking to compete with SWBT  X}4through unbundled network elements must obtain key inputs from SWBT.c%}L  {Oz'ԍSWBT RFP Tariff Rejection Order at para. 51.c Thus, the Larson article does not persuade us to grant reconsideration.  X84 12.` ` The Harris Affidavit is also unpersuasive. Although Dr. Harris contends that contract tariffs serve the public interest, he also urges that requiring that contract tariffs be available to similarly situated customers will prevent unreasonable discrimination and anti" %0*&&aa"ԫ X4competitive behavior. & {Oy'ԍSee Harris Affidavit at 32 (observing "[t]he law clearly stated that contracts had to be nondiscriminatory and available to all similarly situated customers" before an AT&T contract tariff could be found lawful).  As we explained, however, Transmittal No. 2633's narrow definition of the term "similarly situated" effectively prevents potential customers from obtaining service under the same rates and terms as the original customer submitting the RFP. Thus, regardless of the merits of contract tariffs generally, the Harris affidavit does not support allowing SWBT's customerspecific tariff to take effect.  Xv4 13.` ` Mr. Mudd asserts that we should grant reconsideration because our determination that Transmittal No. 2633 could thwart market entry was incorrect. Mr. Mudd argues that, even if SWBT attempted to forestall entry by reducing prices below profit maximizing levels, competitive entry would nonetheless occur, as efficient competitors recognized that SWBT would not maintain prices below contribution maximizing levels in the  X 4long run.E' " yO'ԍMudd Affidavit at 6.E Attempting to deter market entry by competitors in this way is known as "limit  X 4pricing." As we noted in the SWBT RFP Tariff Rejection Order, however, SWBT's ability to lower prices on a customerspecific basis anywhere in its territory could make this strategy much less costly for SWBT, and would weigh heavily in a new entrant's decision to establish  X 4a facilitiesbased presence in any SWBT geographic market.c(  {O 'ԍSWBT RFP Tariff Rejection Order at para. 50.c Accordingly, the Mudd Affidavit does not persuade us that we should reconsider our decision and permit Transmittal No. 2633 to take effect.  XM' C. Other Arguments  X64  X4 14.` ` We reject SWBT's additional argument that any defects that may be present generally in Transmittal No. 2633 are cured because we will be able to review every  X4individual RFP offering that SWBT files under Transmittal No. 2633.A)D yO'ԍSWBT Reply at 9.A As explained above, Transmittal No. 2633 is unlawful because it discriminates against customers unable to receive discounts and because it violates our rules requiring averaging within study areas. Commission review of individual RFP offerings on a casebycase basis would not address these concerns.  Xg415.` ` We also reject US WEST's argument that we should grant reconsideration  XP4because incumbent LECs lack market power in the access services market.J*P yO$'ԍU S West comments at 46.J The record in"Pd *0*&&aaN" this proceeding is insufficient to warrant a determination that incumbent LECs lack market power in provision of access services.  X'  X4 16.` ` We further reject generalized contentions by SWBT and USTA that we rejected Transmittal No. 2633 to protect SWBT's competitors until they can improve their market  X4position and provide more effective competition to SWBT.W+ yO'ԍSWBT reply at 15; USTA comments at 5.W As explained in our earlier decision, we rejected Transmittal No. 2633 as unlawful under Section 202(a) of the Act for the very specific reasons set forth in that order.  X14 17.` ` We further reject SWBT's contention that preventing it from offering RFP tariffs is confiscatory. SWBT has submitted no evidence showing that its rates, absent the reduced rates that would be permitted under Transmittal No. 2633, affect SWBT's financial integrity and prevent it from raising capital, or fail to compensate SWBT with returns on  X 4investment commensurate with other enterprises having corresponding risks., X {O'ԍSee Illinois Bell Telephone Company v. FCC, 988 F.2d 1254, 1260 (D.C. Cir. 1993) (citing FPC v.  {O'Hope Natural Gas Co., 320 U.S. 591, 603 (1944). For the reasons already set forth in the Order, we again reject SWBT's contention that our action deprives it  X 4of equal protection of the laws.d-  {O 'ԍ SWBT RFP Tariff Rejection Order at para. 52.d  X'  Xy' IV. ORDERING CLAUSE Đ  XK418.` ` Accordingly, IT IS ORDERED that the Petition for Reconsideration of Southwestern Bell Telephone Company IS DENIED. ` `  hhCFEDERAL COMMUNICATIONS COMMISSION   X4 ` `  hhCMagalie Roman Salas ` `  hhCSecretary