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"  " ? ?" ? ?" ? ?" " ? ?  ?? ?  ?  ? ?!?!?!??!~???!?!????????????|??? ??  ???? ? ? ???????8?x?x? ? ??? ?? ?? ? ?? ? ? ?  ? ? ?  ??  ?  ?? 0? ?? 8 ?? 8?? ?? ??? ???   @ ? ? ? ! ?!$$?$?$??#??#?8?##?# ??# ?# ?% %~&''?''?'?'''?'*)*?*p*|*~*?*?*?À**?----CCC C ?C ?C E E E ?E E E ?EEEE?EDEEEG?GGG G G ?8 6 6 6 ?6? ?5 5 7 7 7       ?   ?  ?  ? ?? ?  ? ?  ? ?  ?? ??  ?? ??  ?? ??  ?? ?  ??   ?   ?   ?          ǀ      ?              ?  ? ? ?  ?? ? À8 ? ?         ?  ? ?   ?       ?  ?À   À      ??    ? ?? ?   ?    ?  ?  À    ??    ?  ?   ? ?           ?      ? ?        ?     >   ??       ?  ?          ?     ?   ?   ?            ?? ? ??  ? ?   ?            ?        ??  ?  ?    &  '  '        ?       ?            ??  ??  ? ? ?   ?    ?                        ?   ??   ?   ? ?ǀ   ?ǀ  ? ?À  ? ?À   ?À   ?À   ?         ?         ?  ?  π       ?   ?            ?  À ?        ? ? ?      ?    8?       ? ? ~  ?  ? ?  ? ?  ?    ?  ? ??  ?   ?   ? ??  ?   ?  ? ? ? ? ? ? ? ? ?  ? ?   ?   ?   ?  ?  ? ?? ? ? ??? ~?   ? ? ? ?? ? ??  ? ? ??  ?  ?  ?À? ? ?? ?? ?? ? ? ? ?? ?? ??? ? ?? ?? ? ? ?? ? ?? ??  ??  ???  ?  ?  ? ?? ??  ?  ?  >?  ?  ?? - ?: 9 4ǀ? ?4 4 4? 4 4 4 4 5? 5 4 ?4 ?4 5 5 5 ?1? ?1 ?1 ?1 ?0 1x 1 / /? ?/π / / / .? ??.? ?. <. - - - --,,?,,-?----?+?* ??* ?+,>,,,?,?,?,--.?.?.?.%?À%%%%%%?%%?%?%?%&&'''?'?'?''?'())))x)?)?)?))*+++ǀX? π? ? ??? ##?&#&#? %#0%#x?%#?x%#?|%#?%#?%#?%#?%#%#%#%# ?%# $# ?$#?$# $# ?$# $#$#$#$#$#$#$#$###??####?##?##?#$ ?#$'$?'$'*'*'+'++XC S-     Figure 1  Figure 1 c? a ?<  `$$v#K2pPG;#у ` $News media Information 202 / 4180500 `$FaxOnDemand 202 / 4182830 `$Internet: http://www.fcc.gov  f@R`c!$0 ftp.fcc.gov#&h2pPG;r&#у Federal Communications Commission 1919 M Street, N.W. Washington, D. C. 20554  #^2pPG;#y: 0 dddy  M8i#^2pPG;##,92pPG;J,#This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).   y: Rdddhy  M8 i U 1  1  Figure 1  Figure 1 y!HHhh@Uddfcclogo.wpgHHy!  Xdd8u  H#S2pPG;h# PUBLIC NOTICE c  X` hp x (#%'0*,.8135@8:Commission failed to provide a reasonable justification for an interim rate based on $.35 per call. As  xdiscussed above, the court remanded the decision to set compensation for subscriber 800 calls and access  xcode calls at the deregulated local coin rate. The court concluded that the Commission "must now set a  S - xnew interim rate and decide what is to happen once the interim period is over."n  {O-#X\  P6G;qP#эxId. at 17.n Second, the court held  xthat the Commission acted arbitrarily and capriciously because it required payments only from IXCs with  x!over $100 million in toll revenues for the first year of the interim plan. The court concluded that  xadministrative convenience was an insufficient justification for an interim plan that exempts all but large  S- xIXCs from paying for the costs of services received.Z {O-#X\  P6G;qP##X\  P6G;qP#эxId. In addition, the court found that the Commission  xdid not adequately justify why it based its interim plan on total toll revenues, "as it did not establish a  xnexus between total toll revenues and the number of payphone-originated calls." The court concluded that  xMthe Commission could decide that the new interim rate is an appropriate default rate after the interim  SB-period and that, through negotiations, PSPs and IXCs could be left free to depart from the default rate. B {O-#X\  P6G;qP#эx#X\  P6G;qP#Id#d6X@`7x@#.  S-x1.  Compensation for Subscriber 800 and Access Code Calls During the Interim Period  S-  S-  {x In response to the court's conclusion that the Commission had not justified setting the interim flat  xMrate compensation level on the basis of $0.35 per call (which we had multiplied by an estimate of the  xnumber of monthly compensable calls), we seek comment on the proper aggregate amount of  xcompensation PSPs should receive per payphone during the period before per call compensation becomes available.   "xWe also seek comment on the proper allocation of a flatrate compensation obligation, if any,  xjamong providers of interexchange service. The Commission currently does not have specific toll revenue  xldata or market share data for IXCs with toll revenues under $100 million. Consequently, we seek  xcomment on how the Commission could establish the relative compensation obligations of such smaller":~ 0*(&(&(( "  xIXCs, if such carriers were to be included in the interim compensation mechanism. We also seek  xcomment on whether annual toll revenues are the appropriate basis for allocating flatrate compensation  xobligations among all of the IXCs, regardless of their annual toll revenues, or whether some other basis  xis more appropriate. If parties argue that another basis is appropriate for allocating flatrate compensation,  S`- xthey should also discuss how differences in the amount of interim compensation obligations would be  xaccounted for, given that the existing interim mechanism continues to be in effect. We also seek comment  xon whether the Commission should include LECs that carry toll traffic among the carriers required to pay  S-interim compensation, and, if so, the data we would use to ascertain their respective obligations. l SP-  #&a\  P6G; /&P#Ѝx# X\  P6G;qP#LECs are currently excluded from interim obligations because of "... administrative practicality and because  {O( - xMLECs, on an individual basis, currently do not carry a significant volume of compensable calls." Order on  {O -Reconsideration, 11 FCC Rcd at 21291, para. 126.  S-x2. Compensation for 0+ Calls During the Interim Period  SH -  0x The Payphone Orders do not provide compensation for any calls that are compensated pursuant  xto a contract between the PSP and a presubscribed carrier. The interim compensation mechanism provides  S - x=compensation only for subscriber 800 calls and access code calls,  {O-#X\  P6G;qP#эxPayphone Order, 11 FCC Rcd at 2060304, paras. 12425. which are the most significant classes  S - xof calls currently not compensated pursuant to contract.  The court found that the Commission's "failure  x/to provide interim compensation for 0+ calls is patently inconsistent with  276's command that fair  S - x>compensation be provided for 'each and every completed ... call.'"  {O-#X\  P6G;qP#эxIllinois Public Telecomm., No. 961394, slip op. at 19. As the Commission noted in the  SZ- xPayphone Order, a significant number of payphones maintained by the BOCs are not subject to a contract  xbetween the PSP and the presubscribed IXC, due to the previous restrictions imposed by the Modification  S - xof Final Judgment.    {O-  >#X\  P6G;qP#эxSee United States v. Western Elec. Co., 698 F. Supp. 348, 360(D.D.C. 1988) (MFJ). The BOCs were not  x[compensated for these calls through contracts with IXCs like other PSPs. The Commission included percall  xJcompensation for 0+ plus calls made from BOC payphones and inmate payphones so long as they do not otherwise  xreceive compensation for originating 0+ calls. The Commission did not, however, provide for such compensation  {O-during the first year of the interim period.  Order on Reconsideration, 11 FCC Rcd at 2125960, para. 52.  Because the court's statement is made in response to an argument made by the  xLBOCs, it appears that the court's concern about a lack of compensation for 0+ calls in the interim period  xis limited to situations where such compensation is not paid pursuant to a contract. We seek comment  xon this interpretation. Further, we seek comment on how the BOCs, and any other similarly situated PSP,  xshould be compensated during the interim period for 0+ calls for which they do not receive compensation  xby contract. More specifically, because the presubscribed carrier on a particular payphone receives the  x0 + calls from that payphone and often pays a commission on such calls to the location provider, we seek  xcomment on whether it would be appropriate to have the presubscribed carrier pay the default percall  xLcompensation amount to the PSP for each such call. The concerns that the Commission expressed when  xzit deferred percall tracking and percall compensation are not implicated in this situation, because the  xLpresubscribed carrier is already keeping track of these calls. The presubscribed carrier could simply pay  xthe PSP for the number of calls it has received from the payphone multiplied by the default rate. We seek"T 0*(&(&(("  xcomment on this option, and any other options parties may suggest for responding to the court's concerns.  S-x3.44Compensation for Inmate Calls During the Interim Period(#4 Xx,44(#4  S`-  x In the Payphone Orders, the Commission decided that inmate payphones would not be eligible  xfor interim flat-rate compensation because such payphones are not capable of originating either access  S- xcode or subscriber 800 calls, the only types of calls for which interim compensation was provided. {Oz-#X\  P6G;qP#эx#X\  P6G;qP#Order on Reconsideration, 11 FCC Rcd at 2125921260, para. 52.#x6X@`7QSX@# The  xCommission found that virtually all calls originated by inmate payphones are 0+ calls, which tend to be  S- xcompensated pursuant to a contract between the PSP or location provider and the presubscribed IXC.bZ {O -#X\  P6G;qP#эxId. b  x0The court remanded this issue because it held that Section 276 requires the Commission to adopt  xregulations that will ensure that PSPs receive fair compensation for every call using their payphone as  SJ - xrequired by the Act.J  {O-#X\  P6G;qP#эxIllinois Public Telecomm., No. 961394, slip op. at 1920. As with its discussion of interim compensation for 0+ calls, the court's statements  xwere made in response to arguments made by the BOCs. Thus, as we discussed above, it appears that the  xjcourt's concern about a lack of compensation for inmate calls in the interim period is limited to situations  xwhere such compensation is not paid pursuant to a contract. We seek comment on this interpretation.  xFurther, we seek comment on how the BOCs, and any other similarly situated PSP, should be  x>compensated for inmate payphone calls during the interim period. We specifically seek comment on  xLwhether it would be appropriate to have the presubscribed carrier pay the default percall compensation  x=amount to the PSP for each inmate payphone call for which compensation is not provided pursuant to a  x=contract with the PSP. Again, the Commission's concerns absent tracking and percall compensation are not implicated in this situation, because the presubscribed carrier is already keeping track of the calls.  S-x4. Retroactive Adjustments to Interim Compensation Levels and Obligations   ]xAs noted at the outset of the Public Notice, the Commission may impose retroactive adjustments  xto the payment obligations and compensation levels that are incurred under our existing rules during the  xkperiod before the Commission completes action on remand. We seek comment on whether, how, and  x.under what authority any such retroactive adjustments should be made. Parties should specify the time  S- xperiod covered by such potential adjustments, e.g., the entire first year of interim compensation (beginning  S|-in October 1996), or from the date of the court's remand in Illinois Public Telecomm. Ass'n.   S.-C. Asset Valuation  S-  ~x In order to implement the Section 276 requirement to remove subsidies from payphone"~0*(&(&((."  S- xoperations,' Sh-  #&a\  P6G; /&P#э# &a\  P6G; /&P#x# X\  P6G;qP#Section 276(a)(1) provides that "any Bell operating company that provides payphone service shall not  xsubsidize its payphone service directly or indirectly from its telephone exchange service operations or its exchange  xKaccess operations." 47 U.S.C.  276(a)(1). Subsection (b) of  276 requires the Commission to issue "regulations  xthat ... discontinue ... all intrastate and interstate payphone subsidies from basic exchange and exchange access  {O-revenues." Id. U.S.C.  276(b)(1)(B).#&a\  P6G; /&P#' the Commission required deregulation of payphone assets. {O*-#X\  P6G;qP#эxSee Payphone Order, 11 FCC Rcd at 20621, para. 142145.#Xj\  P6G;߈XP##X\  P6G;qP# Upon deregulation of payphone  xassets, LECs are allowed either to maintain the assets in their books of account but reclassify the assets  S- xas nonregulated, or to transfer the payphone assets to a structurally separate affiliate.\ {Ol -  ?#X\  P6G;qP#эx47 C.F.R.  32.27(b). See Payphone Order, 11 FCC Rcd at 20621, para. 157. The court rejected the  yO6 - xpetitioners' argument that  276 requires that a BOCs payphone assets be transferred to its unregulated books.  {O -Illinois Public Telecomm., No. 961394, slip op. at 28.   In the Payphone  S- xOrder, the Commission stated that LECs that elect not to transfer their payphone assets to a separate  xaffiliate may maintain their assets on the books at net book value. The Commission further stated that,  xunder the its affiliate transactions rules, if a LEC transfers its payphone assets to either a separate affiliate  xor an operating division that has no joint and common use of assets or resources with the LEC and  x.maintains a separate set of books, the LEC must record the transfer of assets at the higher of fair market  S- xvalue or net book value. The Commission concluded that fair market valuation will capture any  xappreciation in value of those assets, "thus ensuring that any eventual gains would accrue to the benefit  St-of the ratepayers and shareholders."t@  {OT-#X\  P6G;qP#эxPayphone Order, 11 FCC Rcd at 2062320625, paras. 163166.  S$ -  x The court held that the Commission's valuation methodology with respect to the onetime transfer  S - xof assets mandated by industry reform was arbitrary and capricious and contrary to precedent.  {On-#X\  P6G;qP#эxIllinois Public Telecomm., No. 961394, slip op. at 28. The  S - xcourt concluded that the Commission failed to recognize that the court's test in Democratic Central, which  xjthe Commission declined to apply, was designed to protect not only the interests of ratepayers, but also  S - x.the competing interests of shareholders.c d  {O-  l#X\  P6G;qP#эxId. at 26, citing Democratic Cent. Comm. of the Dist. of Columbia v. Washington Metro. Area Transit  {OT-Comm'n, 485 F.2d 785, 806 (D.C. Cir. 1973), cert. denied, 415 U.S. 935 (1974) (Democratic Central). c The court found inappropriate under Democratic Central the  xkCommission's valuation methodology, because the court held that the Commission was attempting to  xLtransfer the increase in the value of the payphone operations from the LECs' shareholders to ratepayers.  S- x[The court held that, under Democratic Central, as a result of the Commission's price cap rules, investors  S- xrather than ratepayers have borne the risk of loss on payphone assets. Therefore, the court concluded that  S- xinvestors should reap the benefit of increases in the value of such assets.h {O$#-#X\  P6G;qP#эxId. at 27.h The court stated that in  S- xSouthwestern Bell Corp. v. FCC, while upholding the Commission's affiliate transactions rules, specifically  Sv- x"noted Democratic Central's continued applicability to 'onetime' transfers mandated by industry reform." "vR0*(&(&(("  S- xZThe court held that the transfer of payphone assets pursuant to Section 276 fell within this category. {Oh-#X\  P6G;qP##X\  P6G;qP#эxId., citing Southwestern Bell Corp. v. FCC, 896 F.2d 1378, 1382 (D.C. Cir. 1990). The  xkcourt rejected upon similar analysis a challenge by other petitioners to the net book valuation method  xrequired by the Commission with respect to the reclassification of payphone assets as nonregulated within  S-the same corporate entity.Z {O-#X\  P6G;qP#эxIllinois Public Telecomm., No. 961394, slip op. at 28.ě  S8-  xWe seek comment on how the asset valuation requirements for the transfer of payphone assets  S- xestablished in the Payphone Orders should be revised to respond to the concerns raised by the court. The  x court appears to hold that net book value must be used for onetime transfers mandated by industry  xLreform, which would apply to payphone asset transfers. If other approaches are recommended, parties  S-should address how such approaches comply with the court's Democratic Central analysis.  0  St-   SL - x44` `  III.  Ex Parte Presentations  S% -  S -  x This Public Notice is a "permitbutdisclose proceeding and subject to the "permitbutdisclose"  xyrequirements under Section 1.1206(b) of the rules, 47 C.F.R.  1.1206(b), as revised. Persons making oral  S - xlex parte presentations are reminded that memoranda summarizing the presentation must contain a  xsummary of the substance of the presentation and not merely a listing of the subjects discussed. More  xthan a one or two sentence description of the views and arguments presented is generally required. See  x47 C.F.R. 1.1206 (b)(2), as revised. Other rules pertaining to oral and written presentations are set forth  xin Section 1.1206 (b), as well. The Commission requires all written ex parte presentations or summaries  S-of oral ex parte presentations in this proceeding to be served on all parties to this proceeding.  S-  S- x44` `  IV. Comment Filing Dates  Sq-  SI-   x Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's rules,  xj47 C.F.R.  1.415, 1.419, interested parties may file comments with the Office of the Secretary, Federal  xCommunications Commission, Room 222, 1919 M St. N.W., Washington, D.C. 20554 on or before  S- x August 26, 1997 , and reply comments on or before September 9, 1997 from the release of this public  x]notice. To file formally in this proceeding, participants must file an original and four copies of all  xcomments, reply comments, and supporting comments. In addition, parties should file two copies of any  xsuch pleadings with the Chief, Enforcement Division, Common Carrier Bureau, Stop 1600A, Room 6008,  x2025 M Street, N.W., Washington, D.C. 20554. Parties should also file one copy of any documents filed  x-in this docket with the Commission's copy contractor, International Transcription Services, Inc., 1231 20th  xStreet, N.W., Washington, D.C. 20036. Comments and reply comments will be available for public  xinspection during regular business hours in the FCC Reference Center (Room 239), 1919 M Street, N.W.,  S-Washington, DC.  Si-  xlFor further information, contact Michael Carowitz, Rose Crellin, or Greg Lipscomb, Enforcement Division, Common Carrier Bureau, 202/4180960.