WPC3 2BTJ Courier ?<Ԋ  =#x6X@K?X@#CG Timeset 4M (PCL)in Rm 518 lpt2)HPLA4MP0.PRSx  @\9aX@26F Z#|xCG TimesCourierCG Times Bold =#x6X@KpX@#CG TimesCouriererTimes Roman BoldHP LaserJet 4M (PCL)in Rm 518 lpt2)HPLA4MP0.PRSXwLP  P7\9aP2{ XK/KK/ 28wC;,EpCpC(ccpJJpp||JcCt~~{{~~܇8Y~=n7\{1{{p{CG TimesCourierCG Times BoldTimes New Roman2C28dddddddddd88qqqYzoCNzoozzC8C^dCYdYdYCdd88d8ddddCN8ddddY`(`lC2CC!CCCCCCCCCCd8YYYYYYzYzYzYzYC8C8C8C8ddddddddddYdddddodYYYYYYdzYzYzYzYdddddddCdCdCCCdNCdz8zCzCzCz8dddddCCCoNoNoNoNzCzCzCdddddzYzYNF2[dCYddddd7>d<d<$YYdCCddooCYppppppppppJJpСWpӡ|ߡJ>JpJp|c|cJp|>J|>|p||cWJ|pppcX1XtJ8JJ%JJJJJJJJJJ|>pppppߡcccccW>W>W>W>|pppp||||pp|pppp|ppcccc|ccccppppp||W|W|WJW|pJ|>JJJ>|||ppߡccc|W|W|W|WJJJ||||ߡpccNN8ypJppppppCJpCpC>pppJJpp||JpCt{{܇8Y=n7\{1{{|{"S^:N_uu¶NNNu:N:AuuuuuuuuuuAAhרN[ϨܨNANmuNhuhuhNuuAAuAuuuuN[Auuuuhp/p~N:NN'NNNNNNNNNNuAhhhhhϜhhhhhNANANANAuuuuuuuuuuhuuuuuuhhhhhhuhhhhuuuuuuuNuNuNNNu[NuANNNAuuuuuϨNNN[[[[NNNuuuuܨuhhNR:juNhuuuuu@HuFuF*hhuNNuuNhFt捍:]@s:`1u28wC;,><q*"xxxxWWxxxWWkkxxxof Proposed Rulemaking, 2 FCC Rcd 5208 (1987), Further Notice of Proposed Rulemaking, 3  X-  yFCC Rcd 3195 (1988) (Further Notice), Report and Order and Second Further Notice, 4 FCC Rcd  X-2873 (1989) (AT&T Price Cap Order), Erratum, 4 FCC Rcd 3379 (1989). The new   + regulatory regime creates incentives for AT&T to improve its efficiency and introduce innovative   services, while reducing AT&T's incentive to shift costs from more to less competitive service   offerings. Under this system, prices are capped rather than profits. Thus, the plan gives AT&T   ,the incentive to earn higher profits by operating more efficiently, for example, by reducing its   costs. To implement the price cap system, the Commission divided AT&T's services into three  Y -  iclassifications called baskets and established a price cap index ("PCI") for each basket.m 4$ X$-  #o\  PCXP#э The three baskets contain, respectively, (1) residential and small business services (Basket   [1); (2) "800" number services (Basket 2); and (3) other business services (Basket 3). A number  X&-  of AT&T services are excluded from price cap regulation. See 47 C.F.R.  61.42(c) for a list   of excluded services. For the most part, the Commission has deregulated the services in Baskets  X(-2 and 3.  See note 57, infra.m The"  =0*0*0*"   PCI imposes a price ceiling for the services in that basket. In order for the Commission to   ,determine whether rate levels exceed the PCI, AT&T must compute and file for each basket an   actual price index ("API") that represents a weighted average of the actual prices of the services   within the basket. AT&T may change rates for services within each basket if the weighted  Y-  xaverage of all prices remain below the cap, or PCI.y  X4-#o\  PCXP#э Further Notice, 3 FCC Rcd at 3440.y The baskets are further subdivided into   service categories, with bands for each service category. The rates for each service band are   established by the service band index (SBI). The SBI limits the range within which AT&T may   raise or lower prices for individual rate elements in the category each year and still receive   streamlined tariff scrutiny. A presumption of lawfulness attaches to rate changes that are below  YH-the PCI and within their service categories' bands.Hy  Xr -#o\  PCXP#э  AT&T Price Cap Order, 4 FCC Rcd at 3095.  Y -  ^2.` ` An integral part of the price cap plan is a periodic review to determine whether   the plan is functioning as we intended and in accordance with the Communications Act of 1934,   as amended ("Act"). Accordingly, the Commission adopted a program that combined ongoing   : monitoring with a formal review of the price cap plan that would be completed during the fourth   Kyear. The review was to consist of a comprehensive examination of the effects of price cap   regulation, one that considered all available measures of market and carrier performance, such  Y-as actual prices, achieved rate of return, quality of service and technological advances.o*  Xk-#o\  PCXP#э Id. at 3143.o  Yb-  3.` ` The Commission undertook the first performance review of AT&T, as scheduled,  YK-  in 1992. K  X-  #o\  PCXP#э Price Cap Performance Review for AT&T, Notice of Inquiry, CC Docket No. 92134, 7  X-FCC Rcd 5322 (1992) (Notice).  On July 23, 1993, the Commission issued a Report on AT&T's performance under  Y4-  price caps.4u  XZ-#o\  PCXP#э Report, CC Docket No. 92134, 8 FCC Rcd 5165 (1993) (AT&T Performance Review). Based on the record in the AT&T Performance Review, the Commission   determined that, while overall the price cap plan for AT&T is achieving the goals it is designed   =to meet, some adjustments to the plan would enhance its effectiveness. Accordingly, the   Commission initiated this proceeding to determine whether the price cap plan should be revised   in four specific areas and also sought additional information from AT&T concerning its   Equipment Blockage and Failure ("EB&F") Reports. These reports measure call blockages and  Y-failures for AT&T's services.I&  X#-  ]#o\  PCXP#э Revisions to Price Cap Rules for AT&T, CC Docket No. 93197, Notice of Proposed  Xj$-  Rulemaking, 8 FCC Rcd 5205 (1993) (NPRM). See para. 42 infra, for further discussion of the EB&F Reports.I Six parties filed comments or replies in this proceeding. H  X-  #o\  PCXP#э Comments were filed by AT&T, Sprint Communications Company LP (Sprint),   Aeronautical Radio, Inc. (ARINC), WilTel, Inc. (WilTel), and the Competitive   Telecommunications Association (CompTel). Reply comments were filed by AT&T, WilTel,   Sprint, Pacific Bell and Nevada Bell (Pacific Companies), and the staff of the Bureau of   .Economics of the Federal Trade Commission (FTC). The Bureau of Economics of the FTC also   filed a motion for leave to file reply comments out of time. The pleading states that the views   Mcontained in the pleading are that of a staff member of the Bureau of Economics and do not represent the views of the full FTC. We will grant the motion and accept the reply comments. " 0*(("Ԍ Y-  ԙ4.` ` In the NPRM, the Commission set out the following four issues for comment:  Y-  ,(1) whether to remove commercial services from Basket 1;   Xr -  \#o\  PCXP#э AT&T first raised the issue of whether to remove commercial services from price caps   in a petition for waiver filed on September 1, 1992. The Commission decided to ask for  XD -  comment on the issues raised by that petition in this proceeding. See AT&T Performance  X--Review, 8 FCC Rcd at 5166 n.9. (2) whether to revise the price cap   treatment of the 800 directory assistance service remaining in Basket 2 and the analog private  Y-  line services remaining in Basket 3; (3) whether to remove optional calling plans (OCPs) from   Basket 1; and (4) whether to clarify or revise the required monitoring and reports of AT&T's service quality and network reliability, including its EB&F Report.  Y_-  "5.` ` This Order removes commercial services from price cap regulation and initiates   streamlined regulation for those services. We do not, however, remove either analog private   jline services or 800 directory assistance service from price cap regulation at this time. In   addition, we defer a decision on OCPs to further proceedings in this docket and a related docket   on AT&T's promotions (CC Docket No. 87313). Finally, we find that AT&T has responded   iadequately to our questions concerning its EB&F Reports, and conclude that revisions to the   procedures used by AT&T to compile the reports do not appear necessary at this time. We will   continue to review the semiannual EB&F Reports to ensure that they provide an accurate measure of AT&T's service quality and network reliability trends and performance.  Y-  Yy- N II. COMMERCIAL SERVICES ă  YL-A. The NPRM  Y-  6.` ` The NPRM addressed AT&T's petition for waiver to remove commercial services   hfrom price caps. According to AT&T, adopting streamlined regulation for commercial services   would complete the process of streamlining competitivelyprovided outbound commercial  Y-  services that was begun in the Interexchange Proceeding.< D  X$-  \#o\  PCXP#э Competition in the Interexchange Marketplace, Notice of Proposed Rulemaking, 5 FCC  X%-  0Rcd 2627 (1990) (NPRM), Report and Order, 6 FCC Rcd 5880, 5908 (1991) (Interexchange  X&-  Proceeding), recon., 6 FCC Rcd 7569 (1991), further recon., 7 FCC Rcd 2677 (1992), Second  X'-Report and Order, 8 FCC Rcd 3668 (1993), recon., 8 FCC Rcd 5046 (1993).< Several parties commenting on" 0*(("   .AT&T's waiver request question the market data upon which AT&T relied to support its  Y-  position. In the NPRM, the Commission stated that adopting AT&T's request to streamline  Y-  commercial services could encourage competition in this market, while continued price cap  Y-  regulation might inhibit such competition. The Commission noted, however, that AT&T's market data may not justify the relief that AT&T has requested.   Yv-  `7.` ` Accordingly, the Commission raised a number of issues that it intended to   Mconsider in determining whether to remove commercial services from price caps. The   iCommission questioned whether AT&T properly identified commercial services as a class of   service distinct from residential services. The Commission also expressed concern that AT&T   might offer new and restructured services only to its business customers. The Commission   Ystated that AT&T's proposed classification of commercial services does not make clear whether   it would bar resale of services designated as commercial to residential customers. Finally, the   Commission asked for comment on how streamlining tariff review on rates for commercial long distance services would affect the rate levels and structure for these services. B. Comments  Yb-  ^8.` ` In its comments in response to the NPRM, AT&T argues that it is appropriate to   Yclassify commercial service as a separate class of service and price it accordingly. AT&T notes   that Section 201(b) of the Act expressly provides for a separate "commercial" service  Y-  <classification.|   X-#o\  PCXP#э 47 U.S.C.  201(b); AT&T Comments at 14.| AT&T also contends that the Commission's Rules provide for a commercial   service classification, citing, for example, the fact that Sections 69.104(g) and (h) of the   Commission's Rules establish separate end user common line charges for residential and multi Y-  line business subscribers. y  X-#o\  PCXP#э 47 C.F.R.  69.104 (g), (h); AT&T Comments at 16. AT&T defines commercial long distance services as domestic and   Yinternational "Dial Station calls originated on a line for which the subscriber pays a rate that is   Zdescribed as a business or commercial rate in the applicable local exchange service tariff for  Y-switched services."*  Xn-#o\  PCXP#э  Id. at 13, citing AT&T Tariff F.C.C. No. 1, Section 6.20.   Ye-  9.` ` In addition, AT&T states that in July and August 1992, it filed tariff revisions to   Zcreate separate commercial and residential basic schedules in Basket 1. Those tariffs did not   change any rate levels and became effective without opposition in September 1992. The first   Kpermanent rate changes differentiating commercial and residential rates were filed in March  Y -1993, and took effect, again without opposition, on July 1, 1993.a   X%-#o\  PCXP#э Id. at 12.a "0*(( "Ԍ Y-  ^ 10.` ` In response to the Commission's concerns regarding the possible introduction of   wrestrictions on resale, AT&T asserts that it will not restrict the use or resale of commercial long   xdistance service. According to AT&T, a commercial AT&T customer remains free under the   ktariff to resell commercial long distance service. AT&T further states that rates for its   commercial long distance service will be determined by market forces after commercial services are streamlined and that it cannot speculate on what those charges will be in the future.  Yv-  Y_-   11.` ` WilTel, CompTel, and Sprint oppose removing commercial services from price   caps. Sprint contends that AT&T's market share has not changed sufficiently to warrant   removing commercial services from price caps. WilTel, a small interexchange carrier, is   concerned that AT&T will engage in unreasonable pricing practices if its commercial services  Y -  Zare moved out of price caps.f  X| -#o\  PCXP#э WilTel Comments at 3.f WilTel asserts that AT&T continues to have a major share of   the interexchange market and that competition has not developed in the long distance market.  Y -  , As a result, WilTel contends that AT&T's services should continue to be regulated under price  Y -caps to prevent AT&T from engaging in unreasonable pricing practices.i y  X-#o\  PCXP#э Id. at 23.i   Y-  @ 12.` ` CompTel opposes removal of commercial services from price caps for a number   Kof reasons. It claims that AT&T's market share is essentially the same now as it was several  Yb-  [years ago when the Commission concluded in the Interexchange Proceeding that AT&T's  YK-  commercial services should remain in Basket 1.K*  X&-#o\  PCXP#э CompTel Comments at 2, citing Interexchange Proceeding, 6 FCC Rcd at 5908. CompTel states that commercial services   should not be streamlined because removing regulatory restraints on AT&T's prices would   neither be beneficial to consumers nor encourage competition in the long distance market.   According to CompTel, AT&T would be able to offset any rate decreases implemented for its   competitive commercial services with rate increases for its less competitive residential MTS  Y-services.b  Xd-#o\  PCXP#э Id. at 45.b  Y-   13.` ` In its reply, AT&T disputes the commenters' claims that the Commission found  Y-  in the Interexchange Proceeding that the level of competition for Basket 1 services did not   warrant streamlined regulation. According to AT&T, in that Order the Commission deferred  Ye-  a decision on whether these services should be streamlined because there were "unresolved  YN-  issues and insufficient information" about the competitiveness of Basket 1 services.N  X$-#o\  PCXP#э AT&T Reply, citing Interexchange Proceeding, 6 FCC Rcd at 5908. Moreover,  Y7-  AT&T contends, the Commission made no specific findings about commercial services in that   proceeding because the classification did not exist at that time. AT&T also asserts that the   Commission's analysis of competition in the interexchange market was based on data from 1989." = 0*((;"   AT&T claims that, contrary to the contentions of the opposing parties, there have been  Y-  significant changes in the market since that time. AT&T maintains that the market analyses   submitted by AT&T in this proceeding demonstrate that its share of the commercial long   ;distance market, as measured by minutes of use, has fallen by 15 percentage points since 1989.   AT&T asserts that no party submitted reliable, empirical data in this proceeding to refute this   .showing. AT&T also states that the record in this proceeding shows that its share of the   combined commercial long distance and small business optional calling plan customer base  Y_-  jdecreased by 24 percentage points, as measured by minutes of use, since 1989.e_  X-#o\  PCXP#э AT&T Comments at 21.e Finally,  YH-AT&T asserts that it will not restrict the use or resale of commercial long distance service.Hy  Xr -#o\  PCXP##o\  PCXP#э AT&T Reply at 57.  Y -   14.` ` WilTel argues in its reply that AT&T should not be permitted to create a   commercial class of service because that will enable AT&T to segment the interexchange market   between residential and commercial customers. It contends that this market segmentation will   allow AT&T to raise prices for its less competitive MTS services while lowering prices for its  Y -  relatively more competitive commercial services.+ *  X-  #o\  PCXP#э WilTel Reply at 4. The Pacific Companies, in their reply, made general comments   yopposing any changes to price cap regulation for AT&T until the interexchange market is truly competitive.+ Sprint contends that AT&T provides no   support for its claim that it no longer possesses market power in the provision of commercial  Y-services that would warrant streamlining that service.c  X-#o\  PCXP#э Sprint Reply at 1.c C. Discussion   Y4-1. Introduction  Y-   15.` ` The commercial services classification was created by AT&T pursuant to Section   201(b) of the Communications Act, which permits the creation of specific classifications of   services, including commercial. Commercial services refers to services used by AT&T's   customers who are classified as business or commercial customers by local telephone companies. We find that these services should be removed from price cap regulation.  Y|-  n16.` ` AT&T demonstrates both in its comments and through additional information   submitted in the record of this proceeding that there is sufficient evidence to conclude that   AT&T's commercial long distance services are subject to substantial competition. As discussed   ,more fully below, our analysis rests on considerations of market share, demand responsiveness   and supply responsiveness. As a result of this analysis, we conclude that AT&T lacks the ability   to exercise unilateral market power in the provision of these services and that there is sufficient" ^ 0*((,"   competition among providers to justify moving AT&T's commercial services from price caps to streamlined regulation.  Y- 2. Market Share and Concentration  Y-  Y-  17.` ` As evidence of its lack of market power, AT&T claims that its share of the   woverall minutes of use of commercial long distance services decreased from 54 percent in 1987  Y_-  to 39 percent in 1991.]_  X-  #p\  PChP##o\  PCXP##o\  PCXP##o\  PCXP#э AT&T Reply at 6, citing AT&T Petition for Waiver of Price Cap Regulations for New Commercial Long Distance Service Classification at 1415.] By 1993, however, AT&T's market share increased somewhat to 44  YH-percent.Hb  X[ -  #o\  PCXP##o\  PCXP##o\  PCXP#э In the NPRM, the Commission stated that whether or not resellers were included in the   computation of market share data would not alter the amount of AT&T's market share. CompTel   raises this argument again in its comments in response to the NPRM. CompTel Comments at 3.   xAT&T states in its comments that resellers are not included in market shares of the carriers whose services are resold. AT&T Comments at 19.  No party has offered any data to rebut these figures.  Y -  18.` ` The slight increase in AT&T's market share does not preclude us from finding  Y -  Zthat AT&T does not possess market power. In the Interexchange Proceeding, we found that   jAT&T's 50 percent share of the Basket 3 business services market was "a level that is not   Jincompatible with a highly competitive market" and, hence, does not by itself demonstrate that  Y -  a firm possesses market power.   X&-#o\  PCXP#э Interexchange Proceeding, 6 FCC Rcd at 5890 (footnote omitted). Here, AT&T's market share is even lower. Moreover, the   fluctuation in AT&T's market share indicates the considerable willingness of commercial long   distance customers to shift between longdistance service providers. This is further evidence that   AT&T lacks unilateral market power. In comparison to AT&T's 44 percent share, MCI   Telecommunications Corporation's (MCI) share of this market in 1993 was 21 percent, Sprint's   share was 13 percent and all other long distance providers had a combined market share of 20  Y4-  percent.4h  XM-#o\  PCXP##o\  PCXP#э Ex parte from E.E. Estey, AT&T, to Secretary, FCC, dated July 22, 1994. The size of the competitors relative to AT&T suggests they have capacity to service   Ka significant portion of AT&T's customers, should these customers desire to switch carriers. Our analysis of the carriers' capacity, discussed below, further supports this finding.  Y-  Y-  19.` ` Market share is only one factor to be considered in determining the level of   competition in a given market. Relying solely on AT&T's market share at a given point in time   to make this determination would be too static and one dimensional. While we have considered" 0*(("   market share data in our determination, it has been considered in conjunction with other  Y-important factors, as described below.   Xb-  #o\  PCXP#э This is consistent with the approach we have followed in prior proceedings. See, e.g.,  XK-Interexchange Proceeding, 6 FCC Rcd at 588790.    Y-  Y-  Y-3. Demand Responsiveness of AT&T Customers  Yv-  20.` ` Demand responsiveness is the propensity of AT&T's customers to switch carriers   or otherwise change the amount of services they purchase from AT&T in response to relative  YH-  changes in price and quality. AT&T presents evidence that commercial customers will switch   carriers in order to obtain price savings and desired features. According to AT&T, its principal   competitors provide a number of services that are comparable to those offered by AT&T. For   Jexample, Allnet's Solution I and II, Pacesetter and Pacesetter Plus, Cable and Wireless' Longer   Distance and Focus, Focus II and Focus III, MCI's Prism Plus, Preferred and Friends of the  Y -  Firm and Sprint's The Most for Business and Clarity are all alternative commercial long distance  Y -services. b  X-#o\  PCXP##o\  PCXP##o\  PCXP#э Ex parte from E.E. Estey, AT&T, to Secretary, FCC, dated July 25, 1994.  Y-  @21.` ` Moreover, there are indications that customers are well aware of, and make use  Yy-  of, these alternative suppliers.y  X=-#o\  PCXP##o\  PCXP##o\  PCXP#э Id. For example, AT&T submitted a chart showing that between  Yb-  ,April and July of 1994, 150,000 AT&T commercial customers per month switched either from  YK-  AT&T to another long distance provider or from another provider to AT&T. K  X-  0#o\  PCXP##o\  PCXP#э  Id. See also FTC Bureau of Economics Staff Reply at 178, that concurred with the  X-  Commission's findings in the Interexchange Proceeding that the commercial long distance market   exhibits high demand elasticity and that customers will switch carriers in order to obtain pricing savings and desired features. If this level of  Y4-  wcustomer churn continued over a year, it would amount to approximately 1.8 million customers  Y-  switching either to or from AT&T out of a customer base of approximately eight million AT&T  Y-  commercial long distance customers.!0  X -#o\  PCXP##o\  PCXP##o\  PCXP#э Ex parte from James Spurlock, AT&T, to Secretary, FCC, dated December 30, 1994. This amounts to approximately a 23 percent annual churn   ;in AT&T's total customer base of commercial long distance customers, which is strong support   Jfor the argument that AT&T lacks market power over its customers. The evidence of customer   churn that customers are significantly sensitive to price and quality changes is corroborated   by the fluctuations in AT&T's market share described above. These factors buttress our   conclusions that AT&T cannot exercise unilateral market power in the provision of commercial   wlong distance services and that AT&T's commercial services should be removed from price caps and subjected to streamlined regulation."e !0*(({"Ԍ Y-ԙ4. Supply Responsiveness of AT&T's Competitors  Y-  Y-  22.` ` Another important factor that we believe is indicative of the level of competition   in the interstate long distance market is the apparently high elasticity of supply of AT&T's   competitors. Supply elasticity refers to the ability of competitors in a market to meet additional   demand. In the long distance market, supply elasticity depends to a large extent on the capacity   ;of the networks of AT&T's competitors. Even if one company has a high market share, it will  Y_-  be constrained from raising its price if its customers are willing to switch providers and its  YH-  competitors are willing and able to serve those customers at current price levels."H  X -#o\  PCXP##o\  PCXP#э Interexchange Proceeding, 6 FCC Rcd at 5888. We note that  Y1-  hcompetitors must be willing and able to serve a significant portion of AT&T's commercial long   -distance traffic in response to a price increase, but by no means all of its traffic, in order to  Y -deter a price increase.# y  X--  #o\  PCXP#э Id. The Commission made a similar finding with respect to AT&T's competitors' ability to absorb its Basket 3 business services.  Y - 23. In the Interexchange Proceeding, we noted the impact that excess capacity has on   the interstate telecommunications market because it enables firms with relatively small market   shares to be wellpositioned to capture large numbers of their competitors' customers if their  Y-  =competitors chose to price above competitive rates.$  XT-#o\  PCXP##o\  PCXP##o\  PCXP#э  Id. AT&T's competitors appear to have   sufficient network capacity to serve a significant portion of AT&T's commercial long distance   .traffic. Much of the network capacity owned by the long distance carriers is fiber optic   <technology, which is capable of expansion to serve increasingly larger amounts of traffic at   relatively low cost. In 1993, AT&T owned 47 percent of the total fiber miles while serving 60   ,percent of the minutes of use of the interexchange market. In contrast, all other interexchange   carriers owned 53 percent of the totalfiber miles while serving 40 percent of the interexchange   <market. It therefore appears that AT&T's competitors have a greater supply of unused fiber capacity than AT&T.  Y-  24.` ` In addition, it appears that the interexchange carriers' network expansion has kept  Y-  Kpace with the growth in the market.  Our report on 1993 fiber deployment indicates that all   Jmajor interexchange carriers have expanded their facilities and appear ready to provide service  Ye-  to additional customers. The total number of fibermiles owned by all interexchange carriers  YN-  at the end of 1993 was 2,547.5 million miles.%N  X#-  #o\  PCXP##o\  PCXP#э FCC Report: Fiber Deployment UpdateEnd of Year 1993, Table 2, released May 13, 1994 (FCC Report). Between 1990 and 1993, AT&T increased its"N ^ %0*((M"   fiber miles from 935,700 to approximately 1.2 million miles, MCI increased its fiber miles from  Y-388,000 to 555,500 and Sprint increased its fiber miles from 453,400 to 467,200.3&  Yb-ԍ Id.3   Y-  }25.` ` The relative size of potential demand compared to available supply is another   himportant indicator of whether AT&T's competitors have sufficient capacity to serve customers  Y-  that wish to switch from AT&T to another carrier. In 1993, AT&T had 3.16 billion commercial   long distance minutes of use. In the same year, its competitors had approximately 73.8 billion   <switched minutes of use. AT&T's commercial long distance minutes, therefore, represented   only 4.3 percent of the total switched minutes of use of all other carriers. From these numbers,   it is evident that AT&T's commercial long distance traffic represents a small portion of the  Y -  overall switched traffic and that other carriers could absorb all of AT&T's traffic.g' y  YD -ԍ#o\  PCXP# FCC Report at Chart 2.g We find   Zthat the amount of capacity held by the various long distance carriers is so high as to reduce greatly the probability of sustained monopoly pricing by any one participant.  Y -5. Conclusion   Y-  126.` ` We find that there are adequate competitive alternatives to AT&T's commercial  Yy-  long distance services to constrain AT&T's exercise of monopoly power for these services. We  Yb-  recognize that there is a potential problem that the largest interexchange carriers might engage  YK-  in oligopolistic coordination resulting in prices above competitive levels in this market.-(K+  X'-  #o\  PCXP##o\  PCXP#э In an oligopolistic market, there are so few participants that the action of any one of them will materially affect price and have a significant impact upon competitors.- We  Y4-  believe, however, that several factors will operate to deter such a result.  As discussed above,   because the networks of the interexchange carriers have significant capacity, the cost of serving   additional traffic is very low and, conversely, the cost savings associated with a traffic reduction   are also quite low. Thus, these carriers have great incentive to protect their substantial   investment in these facilities by keeping their prices low to attract and keep customers. Also,   =the possibility of oligopolistic coordination to raise prices is limited by the demonstrated   \willingness and ability of commercial long distance customers to move among various commercial long distance services offered by the numerous interexchange carriers.  Ye-  27.` ` We believe that moving commercial services into the category of services subject   to streamlined regulation should encourage more vigorous competition for these services. As  Y7-  we noted in the Interexchange Proceeding, price cap regulation imposes costs on consumers to   the extent it denies AT&T the pricing flexibility it needs to react to market conditions and  Y -  jcustomer demands.)   X&-#o\  PCXP#э Interexchange Proceeding, 6 FCC Rcd at 5895. We also find that the Commission's rationale in that proceeding for   instituting streamlined regulation for business services in Basket 3 is applicable here. The" v)0*(( "   Commission concluded in that decision that "permitting business service tariffs to go into effect  Y-  on fourteen days notice will result in a substantially more dynamic and proactive market without  Y-  presenting an undue risk of undetected and unremedied anticompetitive action."*  XK-#o\  PCXP##o\  PCXP##o\  PCXP#э Interexchange Proceeding, 6 FCC Rcd at 5895 (footnote omitted). We also note   wthat permitting AT&T to offer these services under streamlined regulation will enable AT&T to  Y-  kenter into contracts with customers for these services. We found in the  Interexchange  Y-  Proceeding that "[o]ne important benefit of contract carriage is that it will increase the ability  Yv-  of customers to negotiate service arrangements that best address their particular needs."<+vy  Y -ԍ Id. at 5899.< By   [increasing the number of pricing options, contract carriage also reduces the likelihood of oligopolistic coordination.  Y -  Q28.` ` In addition, protection to ratepayers is afforded by the fact that tariffs for   commercial long distance service remain subject to Title II of the Communications Act. If the   Commission finds that any tariff filing by the interexchange carriers conflicts with the Act or   the Commission's Rules, the filing can be rejected on that basis or suspended and investigated  Y -pursuant to Section 204 of the Communications Act., *  X-  #o\  PCXP##o\  PCXP##o\  PCXP#э 47 U.S.C.  204. See Interexchange Proceeding, 6 FCC Rcd at 5894 & n.121   (presumption of lawfulness under streamlining does not change the substantive standard to be used in evaluating a tariff in a complaint proceeding or tariff investigation).  Y-  29.` ` Accordingly, we will remove commercial long distance services from Basket 1    effective thirty days after publication of this Order in the Federal Register. We also will require   ;AT&T to remove revenues associated with commercial long distance services from the revenue   base used to calculate the various price cap indexes (API and SBIs) in Basket 1 from that date forward.  Y-  @30.` ` Under our rules, removal of services and their associated revenues from Basket  Y-  1, by itself, does not cause any of the various indexes to change.-  XM-  #o\  PCXP#э See Sections 61.46 and 61.47 of the Commission Rules, 47 C.F.R.  61.46 and 61.47 for a description of the formulas used for calculating the API and SBI, respectively. This is because AT&T is  Y-  -only required to update the PCI as either part of the annual price cap filing or to reflect the   Yeffect of midyear access and exogenous cost changes. Also, AT&T is only required to update   ithe API and relevant SBIs in connection with price cap tariff filings proposing rate changes.   This Order does not require any such rate changes to be made. When AT&T files a rate change   X after the effective date of this Order, however, the rate change will affect the indexes differently   than would have been the case if AT&T's commercial long distance services had not been   removed from Basket 1. This is because the API and SBI formulas require that the price   indexes be calculated, in part, by multiplying filed rate changes by their base period revenue"7 G -0*((L"   weights. With the removal of commercial long distance services as required by this Order, the  Y-base period revenue weights of services remaining in Basket 1 will change..  Xb-  #o\  PCXP#э See Section 61.46 (a) of the Commission Rules, 47 C.F.R.  61.46 (a) for a description of revenue weights.   Y-  31.` ` While we conclude that commercial services should be removed from price caps,   Kwe will not permit AT&T to place restrictions on the use and resale of commercial services.  Y-  The Commission has a longstanding policy of prohibiting restrictions on resale of services./vb  X -  #o\  PCXP##o\  PCXP##o\  PCXP#э Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and  X -  lFacilities, 60 FCC 2d 261 (1976), modified on recon., 62 FCC 2d 588 (1977), aff'd, AT&T v.  Xr -  FCC, 572 F.2d 17 (2d Cir.), cert. den., 439 U.S. 875 (1978). We recognize that there are a   number of pending complaints that raise allegations that AT&T is placing restrictions on the   resale of its commercial services. We will address those allegations within the context of the complaint proceedings.   Yv-If we see evidence of such restrictions, we will take rigorous enforcement action. 0v  X-  #o\  PCXP##o\  PCXP#э The Commission recently exercised its enforcement authority by issuing a Notice of   Apparent Liability for Forfeiture and Order to Show Cause against AT&T for its failure to   jprovide communications service under Contract Tariff 383. AT&T Communications, Apparent Liability for Forfeiture and Order to Show Cause, FCC 94359, released January 4, 1995.   Y_- ` `   YH-b III. PRODUCTIVITY OFFSET ă  Y -  32.` ` When it adopted price cap regulation for AT&T, the Commission included in the   ;price cap formula a productivity offset, which measures the amount by which overall inflation   for the economy has exceeded changes in AT&T's rates, to ensure that carrier productivity  Y -  Mresults in lower prices for telecommunications services.1   X-#o\  PCXP##o\  PCXP#э AT&T Price Cap Order, 4 FCC Rcd at 2989. The Commission found that   ,productivity in the telephone industry has on average exceeded that of the overall economy by   i2.5 percent per year. Nevertheless, because the Commission intended that ratepayers should   benefit from the adoption of price caps and should share in the additional efficiency gains   Yproduced by carriers as a result of the new regulatory regime, the Commission decided that the   productivity offset should be set at a level that exceeded the industry's historical productivity   offset level. Accordingly, the Commission added a 0.5 percent "Consumer Productivity   Dividend" to the historical productivity offset level to ensure that AT&T customers benefited from productivity gains expected under price cap regulation. " 10*(("Ԍ Y-   33.` ` In the AT&T Performance Review, the Commission declined to revise the 3  Y-  percent productivity offset that applies, after adjustments for inflation and exogenous costs,|2  Xb-  #o\  PCXP#э Exogenous costs are costs that change due to changes in laws, regulations, rules, or other   administrative, legislative, or judicial decisions beyond a carrier's control and are not reflected  X4-by the inflation adjustment. Id. at 3002. | to  Y-  ;each of AT&T's price cap baskets.3K  X-#o\  PCXP#э AT&T Performance Review, 8 FCC Rcd at 5168. AT&T now seeks to reopen this issue.4  X -#o\  PCXP##o\  PCXP#э AT&T Comments at 710. It maintains that   the productivity offset is no longer needed to protect consumers against excessive earnings from   AT&T's Basket 1 services because prices have remained low for the first three years of price  Y-  cap regulation.h5  X -#o\  PCXP#э Id. at 9 & n.20. h AT&T also asserts that there is no reason to believe that the productivity   factor, which is currently used for all of AT&T's interstate services, is the correct measure of   ,productivity for the basic schedule switched residential services that will remain in Basket 1 if   ;commercial services are removed. AT&T reasons that the Commission has two options: either   compute a new productivity factor based on the revised composition of Basket 1 or eliminate the  Y -productivity factor. AT&T supports the elimination of the productivity factor.c6 ^  X)-#o\  PCXP#э Id. at 810.c  Y -  @!34.` ` AT&T has not substantiated its contentions that the Basket 1 productivity factor  Y -  must be recomputed or eliminated if commercial services are removed from the basket.[7   X-#o\  PCXP#э Id. [   Removing commercial services from the basket gives AT&T greater flexibility in setting rates   for those services, while reducing its regulatory costs. If anything, those changes should enable   ZAT&T to increase its productivity for what to date have been Basket 1 services. AT&T also   asserts that it incurs different, often higher costs to provide commercial services. We believe   that removal of these costs from the basket should make it easier for AT&T to meet the  YK-productivity factor for the services that remain.f8K  X-#o\  PCXP#э Id. at 16 n.33.f  Y-  "35.` ` AT&T has not submitted any information to demonstrate that the productivity  Y-  factor that has been consistently applied to all Basket 1 services should be modified as a result   of our removing commercial services from Basket 1. It has not provided, for example, cost data   (other than the generally higher costs it claims for commercial services), or other information   that demonstrate that it cannot continue to match or exceed the 3 percent productivity gains in   <providing basic schedule services. AT&T, of course, has sole access to the information that   I would support such a finding. On the present record, we find no substantial evidence that would" q80*(("   justify modification or elimination of the 3 percent productivity factor for the services remaining   xin Basket 1. Should the Commission make other major changes to the composition of Basket  Y-1, we will consider whether modification of the productivity factor is warranted at that time. "80*(("  X-bIV. ANALOG PRIVATE LI NE AND 800 DIRECTORY ASSISTANCE SERVICES ă   Y-A. The NPRM  Y-  #36.` ` Basket 2 now contains only 800 directory assistance service, while Basket 3  Y-  ycontains only analog private line service.9H  X-  #o\  PCXP#э Basket 2 originally contained all 800 services. Basket 3 was established for large business   =customers and contained the following services: Pro America I, II, and III; WATS; Megacom;   SDN; other switched; voice grade private line and lines of a lower quality not suitable for voice   and data transmission; and other private line services, such as analog private line offerings, which  X -  =include analog voice grade private line and terrestrial television transmission services. AT&T  X -  !Price Cap Order, 4 FCC Rcd at 3064. In 1991, the Commission streamlined all of AT&T's   \Basket 2 services except 800 Directory Assistance and all of its Basket 3 services except for  Xe -analog private line services. Interexchange Proceeding, 6 FCC Rcd at 589395, 5905. The Commission sought comment on whether   regulation of those baskets should be changed. In particular, the Commission sought comment   on whether 800 directory assistance and analog private line services should be removed from   =price cap regulation. These services generate relatively low revenues when compared to   AT&T's total interstate operations or the services originally included in Baskets 2 and 3.   Therefore, the Commission noted that application of the usual price cap index calculations to   xthese baskets may not be in the public interest. For example, the Commission suggested that   jthe 3 percent productivity factor, which is used for all price cap calculations, may not be  Y -appropriate for a basket that contains only one service.:   X^-#o\  PCXP##o\  PCXP#э NPRM, 8 FCC Rcd at 5208. B. Comments  Yy-  $37.` ` AT&T argues that the Commission should no longer apply the price cap   productivity factor to the remaining services in Baskets 2 and 3. According to AT&T, the price  YK-  icap productivity factor, based on historic, total interstate productivity improvements, has no   Jlogical relationship to the productivity improvements that can be expected for the Basket 2 and  Y-  3 services.e;  XW-#o\  PCXP#э AT&T Comments at 24.e AT&T states that the analog private line services remaining in Basket 3 are being   replaced by digital services. AT&T further contends that the 800 directory assistance service   is unlike any of the communications services on which we based the productivity factor because   it provides information, not transport of communications between end users. AT&T opposes   the Commission's alternative proposal to combine Baskets 2 and 3 into a single basket. AT&T  Y-  sees no benefit in continued price cap regulation of these services either in separate baskets or  Y-in one basket.a<:  X~&-#o\  PCXP#э Id. at 25.a "| <0*((|"Ԍ Y-  %38.` ` ARINC, an association representing airline carriers that make extensive use of   analog private line services, opposes the removal of these services from price cap regulation.  Y-  ZARINC contends that after the Commission removed all but analog services from Basket 3,=  XK-#o\  PCXP#э See Interexchange Proceeding, 6 FCC Rcd. at 589596.   AT&T raised the rates for analog services dramatically. ARINC contends that consumers need   + the protection afforded by price cap regulation to prevent AT&T from increasing rates for analog   private line services and to prevent crosssubsidization. ARINC recommends that the   Commission place each rate element in AT&T's analog private line tariff in a separate service   category and permit AT&T to raise or lower prices for each element no more than 5 percent per  YH-  year to prevent further price increases by AT&T.>vHy  Xr -  #o\  PCXP#э ARINC Comments at 34. ARINC filed a petition for reconsideration and clarification  X[ -  of the portion of the Report and Order in the Interexchange Proceeding that dealt with regulation   of analog private line services under price caps. This Report and Order addresses the issues   raised by ARINC in its petition and, accordingly, its petition is moot. The reconsideration orders  X-  jin the Interexchange Proceeding, cited in note 11, supra, do not address the issue of regulation of analog private line services.  No party filed comments concerning 800  Y1-directory assistance service. C. Discussion  Y -  `&39.` ` We decline to make any changes in Baskets 2 and 3. In the Interexchange  Y -  Proceeding, we stated that we would not make any changes to 800 services in Basket 2 until 800  Y -  number portability became generally available.?   X-#o\  PCXP#э Interexchange Proceeding, 6 FCC Rcd at 5906 & n.233. 800 numbers became portable on May 1, 1993  Y-  with the implementation of a "data base" system of 800 access@h  X-  \#o\  PCXP#э Provision of Access for 800 Service, Report and Order, 4 FCC Rcd 2824 (1989), recon.,  X-  ]6 FCC Rcd 5421 (1991), Secon d Report and Order, 8 FCC Rcd 907 (1993), further recon., 8  X{-FCC Rcd 1038 (1993). Ą and shortly thereafter the   \Commission removed 800 services from Basket 2, with the exception of 800 directory   yassistance. The Commission stated that because 800 number portability would not enable   -competing providers to offer 800 directory assistance, AT&T would continue to be the sole   provider of this service. Accordingly, the Commission retained 800 directory assistance in   Basket 2, but removed service bands and recalibrated the PCI and API for Basket 2 to reflect  Y-  the elimination of all services other than 800 directory assistance from the basket.kA  X#-  !#o\  PCXP#э See Interexchange Proceeding, Second Report and Order, 8 FCC Rcd at 3671, for a   zdiscussion of the adjustments made to the price cap rules for Basket 2 services because 800 directory assistance is the only service remaining in that basket.k 800   -directory assistance remains a monopoly service and therefore it is necessary to regulate the   price for this service to protect consumers. The current system of price cap regulation has been"nA0*(("   shown to be an effective method for maintaining rates at reasonable levels. As noted in  Y-  Lparagraph 1, supra, this regulatory regime caps AT&T's prices instead of its profits. We   conclude that the rates for 800 directory assistance should continue to be subject to this   <regulatory scheme in order to protect captive customers of that service against unreasonable  Y-  .prices. We also find that the lack of competition for these two services lowers the costs  Y-  associated with price cap regulation and further supports our decision to keep them in price caps at this time.   YH-  m'40.` ` The record in this proceeding indicates that analog private line service offerings   will continue to disappear. As we noted in the Report and Orders issued in both the  Y -  Interexchange ProceedingB  X -#o\  PCXP#э Interexchange Proceeding, 6 FCC Rcd at 5893. and the AT&T Performance Review,C y  XD -#o\  PCXP#э AT&T Performance Review, 8 FCC Rcd at 5170. analog private line customers  Y -  yare migrating to digital and virtual private line services. The Commission declined in the  Y -Interexchange Proceeding to remove analog private line services from price caps because:  Xelimination of the price cap restraints for analog private line service could lead  to higher prices for these services. While many customers would likely respond  to higher prices by switching to digital service, adequate substitutes using digital  Yy- 0technology are not currently available to all users of analog private line services.Dy*  XT-#o\  PCXP#э Interexchange Proceeding, 6 FCC Rcd at 5895.    The Commission concluded that the market for these services was not as competitive as the   ;markets for other services offered by AT&T, and therefore required continued oversight under   Jprice caps. None of the parties has presented any evidence that the situation has changed since  Y-the Commission's 1991 decision in the Interexchange Proceeding.  Y-  (41.` ` In addition, we deny AT&T's request that we no longer apply the productivity   factor to the analog private line services in Basket 3 or to the 800 directory assistance services  Y-  ,in Basket 2. In the Interexchange Proceeding, we declined to eliminate the productivity factor   when we removed all services except analog private line services from Basket 3. We found that   the small demand for these services did not justify the administrative expense of establishing a   Knew productivity factor. In addition, we concluded that "we have no reason to believe that  Y7-  [AT&T will not be able to meet the productivity goal embedded in the PCI."oE7  X#-#o\  PCXP#э  Id. at 5896 n.133.o AT&T has   presented no new evidence in this proceeding that would require us to modify our prior   conclusions. Nor has it provided any data to support adopting an alternative productivity factor.   Therefore, there is no reason to revise our current regulatory protections for customers or   Zremove them from Basket 3 at this time. Furthermore, AT&T has provided no evidence that"E0*(( "   the current productivity factor results in unreasonable 800 directory assistance rates. Therefore,   800 directory assistance services will remain in Basket 2 until directory services are available from other suppliers, or AT&T proposes a more effective regulatory approach.  X-q( V. MONITORING OF SERVICE QUALITY AND NETWORK RELIABILITY  Y-lU  Yv-A. The NPRM  YH-  o)42.` ` In the NPRM, the Commission addressed a number of issues relating to its  Y1-  monitoring of AT&T's service quality that have arisen since the NOI was issued in the AT&T  Y -  Performance Review in 1992.nF  X -#o\  PCXP#э NOI, 7 FCC Rcd at 5323.n The Commission expressed concern that price cap regulation  Y -  might create undesirable incentives for AT&T to permit the quality of its service offerings to   <deteriorate. As a result of this concern, the Commission required AT&T to file semiannual   JEB&F Reports that track its performance in relation to an index that measures the frequency of   xcall blocking. Call blocking occurs when calls are not completed due to equipment failures.   The index for the EB&F Reports was set initially at 100, which established the baseline for   comparison with any future deviations in service quality. The base period to be used for future   comparisons was defined to be the first six months of 1989, which was the sixmonth period that   himmediately preceded the effective date of AT&T's initial price caps tariff. The EB&F Reports   documented the blocking rate for successive sixmonth periods. The EB&F index is related  Y4-  positively to the blocking rate. That is, if the index exceeds 100, it means that a higher   percentage of calls were blocked during the reporting period than were blocked during the base   period. For example, a tenpoint increase in the index would mean that 10 percent more calls   were blocked during the reporting period than during the base period. The figures are reported   separately for blockage associated with AT&T's network and blockage caused by all factors,  Y-  hincluding blockage attributable to the facilities of local exchange companies terminating AT&T  Y-long distance calls.iGy  X-#o\  PCXP#э Id. at 5325.i  Y|-  *43.` ` In 1992, AT&T made certain corrections to the 1989 base period, the blockage  Ye-  data that provided the reference point for all subsequent index calculations. It informed the  YN-  hCommission of this change by letter in January 1993.HN*  X)!-  /#o\  PCXP#э Letter from P.J. Aduskevicz, AT&T, to Chief, Industry Analysis Division, FCC, dated January 26, 1993. AT&T concluded that these corrections   were necessary to compensate for a computer programming error it had discovered in the pre  price cap baseline data used to set the index. AT&T found that improperly programmed   switches had caused a number of the calls to be erroneously classified as EB&F calls when they" H0*(("  Y-  Kshould have been classified as completed calls.AI  Xy-  #o\  PCXP#э AT&T Comments, Exhibit A at 4. Additional information regarding the computer errors  Xb-  was provided by AT&T. Ex parte from Agnes Cashman, AT&T, to Secretary, FCC, dated August 4, 1994. A Because of this programming error, AT&T  Y-  contends, data for the first three months of the preprice cap period were incorrect and could   not be reconstructed. No accurate data had been collected and there was no means to recalculate   how many of the calls made during that time were completed. Therefore, AT&T recomputed   the index using data from the last three months of the preprice cap period, which AT&T asserts  Y-are correct. AT&T's EB&F scores improved under the revised index.pJK  X -#o\  PCXP#э NPRM, 8 FCC Rcd at 5207. p   Y_-  +44.` ` In 1992, AT&T also informed the Commission that starting with its report for the   first six months of 1993, it began to use a new method of computing EB&F. Before the   wCommission required the public submission of EB&F rates, AT&T had included calls to Canada   and the Caribbean within its domestic calling measurements for its own internal purposes. In  Y -  ;January 1993, AT&T began to exclude calls to and from Canada and the Caribbean, except for  Y -  the U.S. Virgin Islands and Puerto Rico, from its internal calculations in order to evaluate   domestic call characteristics more accurately. AT&T stated that these changes make  Y -  comparisons with earlier reporting periods impossible. As a result of this change, AT&T has   adjusted its domestic EB&F monitoring system to exclude calls to Canada and parts of the   Caribbean to reflect the actual domestic calling patterns. AT&T contends that these changes will   Znot interfere with the Commission's ability to identify trends in the level of AT&T's service  Yb-quality and network reliability.qKb  X-#o\  PCXP#э AT&T Comments at 27.q  Y4-  Q,45.` ` In the NPRM, the Commission stated that these changes to AT&T's EB&F  Y-  ,Reports raised concerns about the effectiveness of the reports as a tool for monitoring AT&T's   service quality and network reliability under price caps, the very reason for requiring the  Y-  ;reports. As a result, the Commission ordered AT&T to commission and submit an independent   audit of all EB&F data. The audit report and the audited EB&F data series were to be submitted   as part of AT&T's initial comments in this proceeding. The Commission also requested   Zcomment on whether its service quality and network reliability monitoring requirements for  Y-AT&T should be revised or clarified.xL  X!-#o\  PCXP#э NPRM, 8 FCC Rcd at 520708.x B. Comments and Discussion  Y7-  -46.` ` AT&T filed the information requested in the NPRM relating to its service quality   =and network reliability. This information includes an independent audit prepared by the   accounting firm of Coopers & Lybrand. AT&T also furnished additional information concerning" ^ L0*((,"  Y-  its EB&F reports in a series of ex parte filings. None of the other parties to the proceeding commented on this issue.   Y-  .47.` ` Based on the AT&T audit report and its ex parte filings, it appears that AT&T   had made errors in its baseline EB&F Report and that the corrections undertaken by AT&T were   reasonable. We find that AT&T's revisions to the EB&F data are acceptable and will not impair   the purpose of the EB&F Reports, which is to provide a reliable measure of AT&T service   quality and network reliability performance that is consistent over time. Statistical analysis of   the changes in the EB&F Report's coverage arising from the elimination of calls to or from  Y1-  Canada and parts of the Caribbean, indicate that the change will have a de minimis effect on the  Y -  ;number of equipment failures and blockages reportedM  X -  0#o\  PCXP#э Ex partes from Charles L. Ward, AT&T, to the Secretary, FCC, dated June 14 & 24, 1994. because of the statistically insignificant  Y -  number of calls to those areas in relation to the number of domestic calls completed by AT&T.N b  X-#o\  PCXP#э Ex parte from Charles L. Ward, AT&T, to Secretary, FCC, dated June 24, 1994.   Based on the record developed in this proceeding, we conclude that the EB&F Reports, as revised by AT&T, provide a reliable and valuable tool for monitoring AT&T's service quality.  X - F  VI. CONCLUSION AND ORDERING CLAUSES ă  Yy-  /48.` ` For the foregoing reasons, we conclude that it is in the public interest to remove   xcommercial services from price cap regulation and to streamline regulation of these services.   In addition, we expect that this decision will foster lower prices and expanded service offerings   for customers of commercial services. Accordingly, we order these services removed from   Basket 1 and adopt conforming changes to Sections 61.42(a)(1), (b)(1)(vi) and (2)(c), 47 C.F.R.  Y-  [ 61.42(a)(1) and (2)(c), as indicated in Appendix A, infra. AT&T is ordered to remove  Y-  hcommercial services, as defined in this Order, from Basket 1 in a single filing effective no later   than 30 days after publication of this Order in the Federal Register. As indicated above, we are   not changing the productivity factor in the price cap formula. We also conclude that there is no   basis for changing the current rules and policies governing both 800 directory assistance and   analog private line services under price cap regulation. Finally, AT&T has responded to our  Y|-  xconcerns, as set out in the NPRM, regarding the accuracy of its EB&F Reports. We will, as indicated above, continue to review future EB&F Reports.  XN-  Y7-   049.` ` Accordingly, IT IS ORDERED that the petition to file reply comments out of time filed by the Federal Trade Commission IS GRANTED.  Y-  150.` ` IT IS FURTHER ORDERED that, pursuant to Sections 4(i), 201205, 303(r), and   h403 of the Communications Act, 47 U.S.C.  151(i), 201205, 303(r), and 403, Section 61.42   of the Commission's Rules is amended as follows: references to small business services in the" N0*((!"   list of services included in Basket 1 shall be deleted and commercial services shall be added to  Y-the list of services AT&T shall exclude from its price cap baskets (See Appendix A).  Y-  m251.` ` IT IS FURTHER ORDERED that this Report and Order and the rule amendment   adopted in this Order shall be effective 30 days after the publication of this rule change in the Federal Register.  Y1- ` ` hh,FEDERAL COMMUNICATIONS COMMISSION ` ` hh, ` `  hh,William F. Caton  Y -` ` hh,Acting Secretarypp  xx- X " N0*(("  X- >APPENDIX A ă Part 61 of Title 47 of the Code of Federal Regulations is amended as follows:l PART 61 TARIFFS 1. The authority citation for Part 61 continues to read as follows:   ZAUTHORITY: Sec. 4, Stat. 1066, as amended; 47 U.S.C. 154. Interpret or apply Sec. 203, 48 Stat. 1070; 47 U.S.C. 203.   Z2. In Section 61.42, paragraphs (a) (1) and (b) (1) are amended by removing the words "and   small business" and paragraph (c) is amended by redesignating paragraph (c) (17) as paragraph (c) (18) and adding a new paragraph (c) (17) to read as follows: Section 61.42 Price cap baskets and service categories. * * * * * (c) * * * (17) Commercial services. * * * * *