NOTICE ********************************************************* NOTICE ********************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file pnmc5021. File pnmc5021 (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $// R&O, Ariz. Corp. Comm., Petn for CMRS Rate Reg'n, PR Dkt. 94-104, FCC 95-190 //$ $/ 300.332 Mobile services /$ $/ 20.13 State petitions for authority to regulate rates /$ FCC 95-190 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. In the Matter of) ) Petition of Arizona Corporation Commission, ) PR Docket No. 94-104 To Extend State Authority Over ) Rate and Entry Regulation of All ) Commercial Mobile Radio Services ) And In the Matter of) ) Implementation of Sections 3(n) and 332 of ) GN Docket No. 93-252 the Communications Act) ) Regulatory Treatment of Mobile Services) Report and Order and Order on Reconsideration Adopted: May 4, 1995; Released: May 19, 1995 By the Commission: I. INTRODUCTION 1. On August 8, 1994, the Arizona Corporation Commission (``Arizona'' or ``ACC''), on behalf of that State, petitioned to retain state regulatory authority over the rates of intrastate commercial mobile radio services and the entry of commercial mobile radio service providers, within Arizona. Sixteen parties filed pleadings opposing the petition, and one party, the National Cellular Resellers Association, filed a pleading supporting it. By this action, we deny the petition because it fails to satisfy the statutory standard Congress established for extending state regulatory authority over CMRS rates. II. BACKGROUND 2. In 1993, Congress amended the Communications Act (``Act'') to revise fundamentally the statutory system of licensing and regulating wireless (i.e., radio) telecommunications services. Among other things, Congress: (1) established new classifications of ``commercial'' and ``private'' mobile radio services (``CMRS'' and ``PMRS,'' respectively) in order to enable similar wireless services to be regulated symmetrically in ways that promote marketplace competition; (2) reallocated up to 200 megahertz of spectrum from government to private use so as to expand opportunities for innovative utilization of spectrum by the private sector; and (3) authorized competitive bidding as a means of improving licensing efficiency within the context of the Act's public interest goals, which include promoting investment in new and innovative wireless telecommunications technologies. 3. Congress also provided that, as of August 10, 1994, no state or local government shall have authority to regulate ``the entry of or the rates charged'' for CMRS and PMRS services, although states are permitted to regulate the ``other terms and conditions'' of CMRS. As an exception to this general rule, Congress also provided that, if a State had ``any regulation'' concerning the rates for any commercial mobile radio service in effect as of June 1, 1993, it could retain its rate regulation authority by petitioning the Commission no later than August 9, 1994, and demonstrating that either: (1) ``market conditions with respect to such services fail to protect subscribers adequately from unjust and unreasonable rates or rates that are unjustly or unreasonably discriminatory;'' or (2) ``such market conditions exist and such service is a replacement for land line telephone exchange service for a substantial portion of the telephone land line exchange service within such State.'' 4. In our proceeding to implement OBRA, we concluded that, since Congress intended generally to preempt state and local rate and entry regulation of CMRS, a state seeking to retain regulatory authority must ``clear substantial hurdles'' in demonstrating that continued regulation is warranted. We also determined that the nature of a state's burden of proof is delineated generally by the statute itself. Specifically, we found that: [I]n implementing the preemption provisions of the new statute, we have provided that states must, consistent with the statute, clear substantial hurdles if they seek to continue or initiate rate regulation of CMRS providers. While we recognize that states have a legitimate interest in protecting the interests of telecommunications users in their jurisdictions, we also believe that competition is a strong protector of these interests and that state regulation in this context could inadvertently become as [sic] a burden to the development of this competition. Our preemption rules will help promote investment in the wireless infrastructure by preventing burdensome and unnecessary state regulatory practices that impede our Federal mandate for regulatory parity. 5. We also concluded that, while a state should have discretion to submit whatever evidence it believes is persuasive, a petition to retain regulatory authority must be grounded on demonstrable evidence. In that regard, we adopted Section 20.13 of our Rules as a guide to the kinds of evidence and information that we would consider to be pertinent and helpful to our consideration of a state petition. Moreover, in addition to the evidence, information, and analysis that a state must submit, we determined that a petitioning state also is required to identify and provide a detailed description of the specific existing or proposed rules that it would continue or establish if we were to grant its petition. We noted that the standards for preemption established in Louisiana PSC do not apply to petitions submitted under Section 332 of the Act, nor to Section 20.13 of our Rules. In Louisiana PSC the Supreme Court found that Section 2(b) of the Communications Act prohibits the Commission from exercising Federal jurisdiction with respect to ``charges, classifications, practices, services, facilities, or regulations for or in connection with intrastate communications services.'' Here, Congress has explicitly amended the Communications Act to preempt state and local rate and entry regulation of commercial mobile radio services without regard to Section 2(b). III. DECISIONAL FRAMEWORK A. Pleadings 6. CTIA asserts that states must prove with evidence of market conditions that rate regulation is necessary to protect against market failure within that state. The Association contends that this burden is difficult, if not impossible, to carry in light of competitive forces in the marketplace. Century asserts that the statute imposes a heavy burden on petitioners. GTE argues that Congress preempted state regulation of rates and market entry except in very limited circumstances. GTE asserts that forbearance from regulation is warranted where the cost of complying with regulatory burdens exceeds the benefit to be derived from adherence to those requirements. GTE states that this Commission found in the CMRS Second Report and Order that forbearance from Federal tariffing requirements was warranted because the cellular marketplace is sufficiently competitive to outweigh the benefits of compliance with those rules. GTE concludes that states seeking to continue regulating CMRS rates must satisfy a heavy burden of proof. A state's showing, GTE contends, must be sufficient to overcome this Commission's finding that the CMRS marketplace is competitive and capable of producing just and reasonable rates. B. Discussion 7. In order to prevail on the merits, the ACC must sustain its statutory burden of demonstrating that ``market conditions with respect to [commercial mobile radio] services fail to protect subscribers adequately from unjust and unreasonable rates or rates that are unjustly or unreasonably discriminatory.'' A question arises as to what showing is necessary to sustain this burden. Although we addressed this issue in the CMRS Second Report and Order, we revisit it in view of the parties' debate in this record. As explained more fully below, we do not agree that our decision to forbear from regulating interstate CMRS under certain provisions of Title II makes it impossible to grant a state's petition. At the same time, we conclude that a state must do more than merely show that market conditions for cellular service have been less than fully competitive in the past. In order to retain regulatory authority, a state must show that, given the rapidly evolving market structure in which mobile services are provided, the conduct and performance of CMRS providers ill-serve consumer interests by producing rates that are not just and reasonable, or are unreasonably discriminatory. 8. Since the Budget Act does not explicitly construe or elaborate on the phrase ``market conditions ... fail to protect subscribers adequately from unjust and unreasonable rates or rates that are unjustly or unreasonably discriminatory,'' we look to the ``design of the statute as a whole and its object and policy'' to give that phrase meaning. We begin that task by reference to other Sections of the Communications Act, such as Section 201, which also speak of just and reasonable rates. We have generally described the measure of reasonableness under these Sections in terms of rates that reflect or emulate competitive market operations. The more formal description, however, is whether rates fall within a ``zone of reasonableness'' that is bounded at one end by the ``investor interest in maintaining financial integrity and access to capital markets'' and at the other by the ``consumer interest in being charged non-exploitative rates.'' Regardless of how the test is characterized, it is well established that determinations whether rates fall within this zone are not dictated by reference to carriers' costs and earnings, but may take account of non-cost considerations such as whether rates further the public interest by tending to increase the supply of the item being produced and sold. These principles define basic components of a state's demonstration under Section 332. Specifically, a state must show that market conditions fail to produce rates that fall within a ``zone of reasonableness,'' which is defined by reference to investor and consumer interests viewed in the context of relevant public policy considerations. 9. We also consider the meaning of the relevant language in the statute in the context of the overarching command of Section 332(c)(3), which is: ``no State ... shall have any authority to regulate'' CMRS rates. As we concluded in the CMRS Second Report and Order, that provision, as well as the title of Section 332(c)(3) (``State Preemption''), express an unambiguous congressional intent to foreclose state regulation in the first instance. Moreover, OBRA reflects a general preference in favor of reliance on market forces rather than regulation. Section 332(c), for example, empowers the Commission to reduce CMRS regulation, and it places on us the burden of demonstrating that continued regulation will promote competitive market conditions. 10. Unlike some of the opponents of the ACC Petition, we do not view the statutory preference for market forces rather than regulation in absolute terms. If Congress had desired to foreclose state and Federal regulation of CMRS entirely, it could have done so easily. It chose instead to delineate the circumstances in which such regulation might be applied. Tellingly, it did so in the context of a broad statutory framework with several other principal components. Under the OBRA: (1) substantial amounts of spectrum reserved for Federal government use are to be identified and transferred to commercial and public safety uses; (2) this and other available spectrum, if allocated to commercial telecommunications uses, are to be licensed ``rapidly'' through the use of competitive bidding systems to promote the development and deployment of new technologies, products, and services, with the goal of stimulating economic opportunity and competition; and (3) in contemplation of the deployment of spectrum to commercial wireless services, and to promote regulatory parity, Congress also articulated definitional criteria for determining common carrier status consistently so success in the marketplace will not be determined by regulatory strategies but by technological innovation, service quality, competition-based pricing decisions, and responsiveness to consumer needs. 11. Viewing all three components together, the statutory plan is clear. Congress envisioned an economically vibrant and competitive market for CMRS services. It understood that such a market was still evolving, and it provided the resources (e.g., additional spectrum) and administrative authority (e.g., licensing through competitive bidding) to accelerate that process. Finally, Congress delineated its preference for allowing this emerging market to develop subject to only as much regulation for which the Commission and the states could demonstrate a clear-cut need. The public interest goal of this Congressional plan is readily discernable. Congress intended to promote rapid deployment of a wireless telecommunications infrastructure. Robust investment is a prerequisite to achieving that goal. Thus, in implementing the statute, we have attempted to facilitate the achievement of this goal by ensuring that regulation creates positive incentives for efficient investment -- rather than burdening entrepreneurial activities -- and by establishing a stable, predictable regulatory environment that facilitates prudent business planning. 12. We emphasize the important impact on our decisionmaking of these fundamental elements of the OBRA statutory framework, which have no counterparts in other sections of the Communications Act. They are devoted exclusively to wireless telecommunications services, and to CMRS in particular. Our analysis of ``market conditions'' in the context of Section 332(c)(3) necessarily is governed by that framework. 13. Section 332(c)(3) must be interpreted in this context; it is an exception to the general prohibition against state regulation. We conclude that Arizona, or any other state, should not be allowed to continue regulating CMRS overall, or cellular service in particular, merely by demonstrating that the market for cellular service has been less than fully competitive. Such a standard would effectively allow an exception permitting regulation to nullify a general prohibition against it, because it is commonly understood that such conditions have in the past adhered in the cellular marketplace. On numerous occasions since the Commission established the two-carrier cellular market structure in 1982, we have acknowledged that such a structure provided less than optimal competitive opportunities. Other Federal agencies have taken similar positions. One year prior to adoption of the Budget Act, the General Accounting Office (GAO) -- the investigatory arm of Congress -- examined the industry and reported that ``[w]hile GAO found no evidence of anticompetitive or collusive behavior in the course of its work, the two-carrier (duopoly) market system that the FCC created may provide only limited competition in cellular telephone markets.'' It strains credulity to assert that Congress was blind to these conditions in 1993 when it broadly prohibited state regulation of CMRS. Thus, we reject a reading of the statute that allows continued rate regulation merely on a showing of duopoly conditions, because it is not plausible to conclude that Congress adopted a self-defeating statutory scheme. 14. It also is worth noting that this Agency's recognition of imperfect cellular market conditions has been matched by our commitment to rectify those conditions as quickly as possible by strengthening and expanding cellular competition rather than by resorting to heavy-handed regulation. For example, we have attempted to heighten cellular competition at the retail level by prohibiting restrictions on the resale of cellular services, except in narrow circumstances where we determined that restrictions intensify competition between the two licensees in each local market. We also have retooled policies initially tailored to promote competition in the wireline market upon determining that they were unlikely to have that effect in the unique setting of wireless telecommunications. Most especially, we have chosen to address the structural infirmity of the cellular market by vastly expanding the amount of spectrum available for two-way wireless voice communications and other innovative wireless services and technologies. 15. The framework of our CMRS regulatory policy -- moderate regulation, symmetrical regulation of all services as appropriate, and a preference for curing market imperfections by lowering entry barriers in order to encourage competition rather than by regulating existing licensees -- aligns closely with the principal building blocks of OBRA. Indeed, that statute is in a very real sense a validation of our approach. As the legislative history of OBRA makes plain, Congress intended those building blocks to establish a national regulatory policy for CMRS, not a policy that is balkanized state-by-state. 16. That intention informs our review of petitions filed by states under Section 332(c)(3). Put simply, Congress intended such petitions to be evaluated in light of a general preference for allowing the policies embodied in OBRA to have an opportunity to work. With regard to the statutory prohibition on state regulation in Section 332(c)(3) in particular, the legislative history leaves no room for doubt on this point by providing that: [i]n reviewing [state] petitions . . . the Commission also should be mindful of the Committee's desire to give the policies embodie[d] in section 332(c) an adequate opportunity to yield the benefits of increased competition and subscriber choice anticipated by the Committee. 17. In deference to the states, with whom we have and will continue to share telecommunications jurisdiction under the dual regulatory system of the Communications Act, we have not presumed to establish a rigid blueprint for the demonstration required under Section 332(c)(3). Moreover, unlike many opponents of the petition before us, we do not agree that a state's burden is so great that it is impossible to carry. For example, our decision to forbear from most CMRS regulation is not dispositive of the question whether states may initiate or continue rate regulation of such services. We think it unlikely that Congress would have established two separate statutory procedures -- one to govern our forbearance, and another to govern states' petitions -- if it intended our decisions under the former procedure to control automatically the outcomes under both of them. Instead, we conclude that the exemption in Section 332(c)(3) is designed to permit a state to demonstrate that market conditions in that state warrant a departure from national OBRA policies. 18. Such a demonstration begins but does not end with a showing of less than fully competitive market conditions. Almost all markets are imperfectly competitive, and such conditions can produce good results for consumers. In particular, as noted previously, Congress was aware of the duopoly cellular structure when it generally proscribed state regulation of CMRS. If a showing of less than perfect competition in the past could justify granting a state petition, regulation might be imposed in a great many circumstances. Nothing on this record convinces us that Congress intended that result. 19. Instead, we believe that a state must establish the existence of an environment of unjust and unreasonable, or unreasonably discriminatory, rates, given the dynamic and evolving structure in which CMRS is provided. When we implemented the Section 332(c)(3) state petition process in the CMRS Second Report and Order, we adopted a rule designed to elicit the information needed to make such a showing. Such information permits us to perform a Structure-Conduct-Performance (``SCP'') analysis, which is a standard paradigm of modern industrial organization analysis. This paradigm, as applied to the mobile telecommunications industry, holds that market structure is impacted by basic conditions such as the number of licenses issued by the Commission and the state of technology. Conduct, in turn, depends on the structure of the market, e.g., on the number of competitors, the cost structure, and the degree of integration with other wireless providers. Performance, in turn, depends on the conduct of providers and other industry participants with regard to activities such as pricing, inter-firm coordination, and technical standards. Such an analysis permits an evaluation of the degree of rivalry within a particular industry structure and allows us to determine whether and how consumer interests are being served by such activity. 20. Nothing in our rule governing the state petition process suggests that merely showing the existence of a cellular duopoly structure is enough to support a petition. In the first instance, the rule signals our insistence that a petition must be based on demonstrable evidence of anticompetitive activity, or unjust and unreasonable, or unreasonably discriminatory, rates. For example, in order to determine whether an anticompetitive environment presently exists within a state, we requested that a petitioning state produce ``specific allegations of fact,'' to be supported by a sworn affidavit of an individual with personal knowledge thereof, regarding ``anticompetitive or discriminatory practices or behavior by commercial mobile radio service providers.'' We also requested ``[e]vidence, information and analysis demonstrating with particularity instances of systematic unjust and unreasonable rates ... [or a] pattern of such rates, that demonstrates the inability of the commercial mobile radio service marketplace in the state to produce reasonable rates through competitive forces,'' and we indicated that we would consider such evidence ``especially probative.'' 21. In order to assess present market conditions so as to predict the future effectiveness of market forces within the state, we requested information on the number and type of CMRS providers in the state as well as their respective customers, and ``an assessment of the extent to which services offered by the commercial mobile radio service providers the state proposes to regulate are substitutable for services offered by other carriers in the state.'' We also requested information and complaint statistics revealing customer satisfaction with CMRS providers within the state. In addition to this information, and as a further aid in projecting CMRS growth rates and other trends within the state, we also requested information on ``trends'' in each commercial radio provider's rates and customer base and on ``opportunities for new providers to enter into the provision of competing services'' as well as ``an analysis of any barriers to such entry.'' In short, although states have the discretion to adduce such evidence in support of continued rate regulation as they see fit, the comprehensive list of anticipated documentation in Section 20.13 gives states guidance concerning the evidence of structure, conduct, and performance that we would find persuasive in evaluating their petitions. 22. The purposes to which such evidence must be put also are straightforward. For example, with regard to industry structure, while a state seeking to regulate two-way mobile voice services may draw attention to the cellular duopoly, it is incumbent on that state to consider factors that have a direct and substantial impact on that structure. In particular, in evaluating a cellular-oriented petition, we will look with disfavor on any petition that fails to consider the immediate and near-term impact of PCS. Given the general statutory purpose of facilitating PCS-type services, it would be difficult to ignore or downplay the importance of fundamental structural changes when considering Section 332(c) petitions. 23. While PCS is not yet available to the public, it is an accepted antitrust principle that a firm may be considered in competitive analysis if it could enter the market in question. Under the caselaw potential entry must be reasonably prompt, a typical period being two years from the present in order to expect a significant impact on existing competitors, and there is little doubt that PCS licensees will enter the market for CMRS in competition with cellular providers within this timeframe. We recently concluded an auction designed to license rapidly two additional competitive providers of wireless two-way voice and data communications in every local market in the country. As shown in the table below, the winning bidders in markets encompassing Arizona have committed to pay substantial sums for the right to operate wireless systems in that state. Having done so, it is reasonable to conclude they will deploy the facilities necessary to become operational as quickly as possible so as to begin recouping their investment. Broadband PCS Auction Results Arizona MTA # Freq. Blk. State Market Winning Bidder Winning Bid M027 A Arizona Phoenix AT&T Wireless PCS Inc. $78,347,000 M027 B Arizona Phoenix WirelessCo, L.P. $75,608,434 M039 A New Mexico El Paso- Alberquerque Western PCS Corporation $8,634,030 M039 B New Mexico El Paso- Alberquerque Pacific Telesis Mobile Services $8,634,000 M002 A California Los Angeles- San Diego Cox Communications, Inc. $251,918,526 M002 B California Los Angeles- San Diego Pacific Telesis Mobile Services $493,500,000 24. The nature of this impending competitive entry bears emphasis. Unlike the typical ``ease of entry'' case, where entry by new competitors is hypothetical or may occur only at an industry's margin, PCS activity is undeniably real. It is not something that ``may'' occur, or that will occur only sporadically. It is happening, and it is happening on a nationwide scale. As the recently-completed auction demonstrates, some of this entry is being mounted by large, well-financed entities with long experience and success in the telecommunications business. That field of competitors will be strengthened further upon completion of additional spectrum auctions in the near future. Available evidence indicates that cellular companies, faced with the near-term entry of PCS, have reacted by preparing for impending competition, i.e., by lowering prices and adopting new technologies. For example, there are reports that observable declines in cellular prices are attributable in part to cellular carriers' knowledge that reasonably soon they will face new competition from PCS licensees. The advent of PCS also appears unambiguously to be having an impact on the present marketplace; it is repeatedly cited as a precipitating factor in major mergers and joint ventures in the wireless industry. Thus, the available evidence indicates strongly that such entry is not speculative. Instead, all evidence suggests that it is empirically real and in the very near term will be substantial and pervasive. This warrants our consideration when evaluating a state petition to regulate rates under Section 332(c)(3). 25. Evidence of industry conduct and performance is also relevant. For example, a state might demonstrate specific instances of collusive behavior on the part of licensees. A state also might demonstrate that the statutory purposes of OBRA were not coming to fruition in that state, or were not likely to do so. We would find highly relevant any evidence that demand for CMRS services in general and cellular service in particular is too low to promote market entry by the number of licensees needed to ensure that facilities-based competition will occur at a level adequate to warrant reliance on market forces, rather than rate regulation, as a means of protecting consumer interests. 26. Moreover, a very strong indication that industry conduct and performance are failing to serve consumer interests adequately would be evidence of a lack of investment on the part of licensees in CMRS facilities, or a failure by licensees to deploy adequately new facilities, technologies, and services. Such a showing might support a conclusion that licensees were restricting the output of a service solely to increase its price, and such activity might warrant an appropriate regulatory response. Of course, a successful showing of this nature requires more than evidence that a licensee is earning economic rents (i.e., pricing above cost). It is readily conceivable that economic rents earned in the cellular industry also might advance important public policies, such as if they were applied in furtherance of the statutory goal of promoting investment in the cellular infrastructure. In that event, the rates underlying such profits would have been paid by those who ultimately benefit from reinvestment in cellular facilities. Specifically, as a cellular carrier adds large numbers of customers, it must expand capacity so that the quality of service to existing and new customers is not degraded. Thus, an analysis of economic performance must place great weight on reinvestment of profits in this high-growth industry, for, without such reinvestment, consumers might receive less value for their money. In short, the significance of economic rents under our Section 332(c)(3) analysis is found not simply in their existence in the first instance but in their subsequent application. 27. Finally, we note that SCP evidence typically may be segregated into two categories: static factors and dynamic factors. For example, prices or rates of return in a given year are static factors. Growth and investment are dynamic factors. In addition, a dynamic analysis views price and other static factors at a given point in time in their relationship to static factors such as price in the future. Thus, a rate of return that looks high today may be fair and reasonable when looked at in terms of its impact on future prices. Furthermore, static factors are, as the name implies, static, or even temporary, whereas the long-term impact of dynamic factors is more important because their effects are cumulative and more permanent. Thus, we believe that evidence concerning dynamic factors is a more persuasive market indicator than evidence concerning static factors. Given the rapidly changing nature of the market in which wireless services are provided and the statutory purposes of OBRA, we conclude that evidence of where a market is going is more relevant than evidence of where it has been. 28. No single factor, standing alone, necessarily would tip the balance for or against a particular state petition. The statute allows the states flexibility to make their showings in the best manner they see fit, and it is conceivable that we might find a showing based primarily on one factor to be persuasive. Those demonstrations that are tied most closely to the statutory scheme are, of course, the most determinative. Our decisions in this proceeding and similar proceedings are based on the totality of the evidence. IV. ARIZONA PETITION 29. On August 9, 1994, the Arizona Corporation Commission filed a petition requesting authority to continue regulating the rates and entry of providers offering commercial mobile radio services within Arizona. According to Arizona, its authority to regulate CMRS offerings derives from its state Constitution, which grants the ACC powers including the authority to prescribe just and reasonable classifications, rates and charges, and other reasonable rules governing ``public service corporations'' for services rendered and business transacted within the State, and to prescribe the forms of contracts and the systems of keeping accounts of such corporations, subject to local supervision including local regulation of rates and charges. The Arizona Constitution defines ``public service corporations'' as including ``[a]ll corporations other than municipal engaged . . . in transmitting messages or furnishing public telegraph or telephone service, and all corporations other than municipal, operating as common carriers . . . .'' 30. The ACC notes that it deregulated mobile radio common carrier services in 1987, except for cellular services. The ACC requires that all wholesale rates, services, contracts, and classifications of cellular service offered in Arizona be approved by the ACC prior to implementation. In addition, Arizona regulates entry of wholesale cellular carriers by conducting an evidentiary hearing and subsequently issuing a certificate authorizing service, and upon occasion establishing conditions to govern special circumstances. 31. Although Arizona does not identify any specific commercial mobile radio service that it seeks to regulate, aside from cellular, its request to retain regulatory authority extends to all CMRS, including cellular. V. CASE ON THE MERITS A. Rate Regulation 1. Non-Cellular Services a. Comments 32. AMTA, AMSC, E.F. Johnson, MTel, Nextel, PageMart, PageNet, PCIA, and Pittencrieff contend that Arizona's petition must be denied, at least with regard to the apparent request to regulate services that are not public cellular services. MTel, for example, states that Arizona provides examples of what it calls excessive and anti-competitive rates, but every example involves only cellular rates. MTel and Pittencrieff assert that Arizona does not provide any evidence which substantiates the need for rate regulation for any CMRS other than cellular. MTel asserts that the ACC therefore has failed to sustain the burden of proof required to meet the ``market conditions'' standard for paging and narrowband PCS. Moreover, MTel asserts, the paging industry is highly competitive, as evidenced by both the high number of providers and the low rates for services available today. MTel states that competition for paging services in CMRS is increasing even more due to the addition of private paging carriers that were recently authorized to have exclusive use of their frequencies. The very recent allocation of spectrum for narrowband PCS, MTel contends, is expected to heighten competition for existing paging companies as well as to assure a competitive PCS marketplace from the inception of service. 33. AMTA, describing the high degree of competition among rates of private land mobile systems which have been reclassified as CMRS, opposes any state regulation of the entry or rates of such systems. AMTA asserts that the petition is silent regarding intent to include reclassified private services within its regulatory framework, and the state provides no evidence that market conditions in this segment of the CMRS industry do not adequately protect subscribers. 34. Nextel asserts that Arizona has not demonstrated that regulation of intrastate rates of non-dominant CMRS is necessary to protect subscribers. Rate regulation, Nextel states, would further inhibit the ability of emerging wireless providers to compete with cellular incumbents and would only benefit dominant cellular carriers. Nextel points out that this Commission has recognized that the cellular marketplace is not fully competitive, and has acknowledged that all CMRS providers, other than cellular licensees, currently lack market power. Nextel asserts that these characterizations provide the basis for distinguishing among classes of CMRS providers in preempting state regulation. Continued regulation of cellular service providers may be necessary in order to prevent anticompetitive practices that will stifle development of the wireless market, according to Nextel, but Arizona makes no showing that regulation of non-dominant carriers is necessary, nor could it, since wide area SMR and PCS are not duopolists, nor do they command a transmission bottleneck. If the potential future CMRS marketplace, with six different competitors, were the reality now, Nextel asserts, there would be no basis for state regulation at all. PageNet opposes the Arizona Petition to the extent that the state seeks to regulate non-cellular CMRS, and asserts that the statutory standard has not been met. PCIA argues that Arizona does not even attempt to justify continued regulation of paging services and, therefore, that the ACC's Petition should be denied with regard to such services. 35. BAMMC, CTIA, GTE, Mohave, the Rural Cellular Association, and US West New Vector contend, on the other hand, that it would be unfair to permit regulation of cellular services but not non-cellular services. These commenters assert that differential regulation of different services would be inconsistent with the concept of regulatory parity, and could permit non-cellular service providers to gain a competitive edge over cellular service providers. b. Discussion 36. The OBRA provides that a state must have been exercising rate regulation authority as of June 1, 1993, in order to petition this Commission under Section 332 for continuance of that authority. Arizona apparently deregulated common carrier mobile services other than cellular services in 1987, based largely on its conclusion that non-cellular CMRS market conditions do not warrant regulation. Thus, Arizona's Petition must be denied with regard to such services because the State has not met the threshold statutory filing requirement. In any event, Arizona has not met the statutory standard for granting a petition on its merits. The Arizona Petition presents no evidence that market conditions concerning non-cellular CMRS fail to adequately protect consumers against unjust, unreasonable, or unreasonably discriminatory rates for such services. 37. Arizona's failure to demonstrate that rate regulation of non-cellular CMRS is warranted does not preclude us from granting the ACC authority to rate regulate cellular services. We have determined in other proceedings that, while regulatory parity is an important policy that can yield important pro-competitive and pro-consumer benefits when appropriately applied, parity for its own sake is not required by any provision of the Act. Indeed, the Act allows us to adopt a flexible regulatory scheme that treats certain CMRS in a streamlined fashion. Congress recognized that market conditions might warrant differential regulatory treatment of CMRS, and it explicitly granted us the authority to forbear from applying certain provisions of the Act. That Congress intended such forbearance might be exercised selectively is not in doubt. As the OBRA Conference Report states in explaining our forbearance authority: The purpose of this provision is to recognize that market conditions may justify differences in the regulatory treatment of some providers of commercial mobile services. While this provision does not alter the treatment of all commercial mobile services as common carriers, this provision permits the Commission some degree of flexibility to determine which specific regulations should be applied to each carrier. Nothing in the record of this proceeding demonstrates that Congress intended to deny states similar flexibility with regard to the exercise of their CMRS regulatory authority. 2. Cellular Services a. Universal Service (1) Comments 38. Arizona states that it is contemplating streamlining and expediting its regulation governing competitive telecommunications services and companies. To this end, the ACC asserts that it has been examining alternative regulatory frameworks to govern the telecommunications industry. The ACC expects that the standards and rules that it adopts based on this analysis will facilitate ease of market entry and exit and will allow greater pricing flexibility. It also expects to address preservation of universal service in the increasingly competitive telecommunications marketplace. 39. The ACC asserts that one factor contributing to the erosion of local exchange carriers' revenues is the increasing substitution of cellular service for basic land line service. Increasing competition, Arizona claims, thus threatens wireline telephone companies' ability to continue providing basic telephone service at reasonable rates. According to the ACC, industry participants have suggested that it should therefore require all telecommunications service providers, including cellular, to help fund universal service. The ACC says that it is likely that a universal service funding mechanism will be implemented through the rate structures of intrastate providers. Therefore, Arizona asserts, Commission preemption of state rate regulatory authority over CMRS will jeopardize the ACC's ability to ensure that universal service objectives are attained. If state rate regulation is preempted, the ACC believes that there will be no practicable means for it to require that all telecommunications service providers make equitable contributions to universal service funding. 40. BAMMC notes that the Budget Act permits states to impose requirements ``necessary to ensure the universal availability of telecommunications service at affordable rates'' where CMRS is a substitute for wireline service for a substantial portion of the customers within the state. Regardless of rate regulation, BAMMC asserts, a state may require carriers to contribute to universal service funds as long as the obligations are evenhanded. Mohave agrees that the state can require universal service fund payments under Section 332 without rate regulation. (2) Discussion 41. The Arizona Commission's concern centers around its intent to exact universal service funding from wireless telecommunications providers by regulating the rates of intrastate service providers. In this regard, the statute provides that: Nothing in this subparagraph [preempting State rate regulation of CMRS] shall exempt providers of commercial mobile services (where such services are a substitute for land line telephone exchange service for a substantial portion of the communications within such State) from requirements imposed by a State commission on all providers of telecommunications services necessary to ensure the universal availability of telecommunications service at affordable rates. 47 U.S.C.  332(c)(3). Since the statute permits a state to institute universal service requirements under appropriate circumstances notwithstanding the general statutory proscription of CMRS rate regulation, it is not reasonable to conclude that Congress contemplated that a state might demonstrate a need for rate regulation by arguing that such authority is required to ensure universal service. We reject Arizona's attempt to do so here. b. Market Conditions (1) Comments 42. Arizona contends that market conditions for CMRS fail to protect subscribers adequately from unjust and unreasonable rates. Arizona asserts first that the potential for monopoly abuses remains strong in the state, and notes that in two of its six Rural Service Areas (RSAs), although two cellular carriers provide cellular roaming service, only the wireline licensee provides basic cellular service through retail affiliates. (Arizona has two MSAs and six RSAs). Thus, the ACC states, there is no effective competition in these RSAs, especially at the retail level. In addition, Arizona emphasizes that the sole operating retailer in each of these two market areas is affiliated with the wireline licensee, which has the advantage of existing network and interconnection facilities and an incumbent customer base. Thus, Arizona asserts, effective competition does not exist in these areas. 43. The ACC also asserts that barriers to entry will arise in an unregulated market where the dominant provider exercises monopoly power. The state asserts that the potential for discriminatory activity, such as favoring an affiliated retailer or raising other entry barriers to non-affiliates, may be especially acute in less populated states such as Arizona. The ACC notes that in all six of the Arizona RSAs, the wholesalers' only retail customers are their own retail affiliates. 44. Arizona also describes several allegedly anticompetitive activities that it has deterred in order to provide for a competitive market and ensure just and reasonable rates for consumers. First, it discusses a tariff provision on roaming that allegedly preferred the affiliated retailer over non-affiliates. Second, it states that it has prevented cellular carriers from implementing ``calling party pays'' service, which would require local wireline customers to pay for calls to cellular telephones. Finally, Arizona asserts that carriers have attempted to establish excessively large number blocks for resale. 45. In response to Arizona's claims of a lack of competition for cellular service at the retail level, carriers assert that such arguments are irrelevant even if true. For example, BAMMC argues that the lack of competition among retailers is irrelevant because Arizona regulates only wholesale rates. Sharon Megdal, economist and a former Commissioner of the ACC, asserts on behalf of BAMMC that cellular providers set wholesale prices according to general market conditions. Retail rates, Megdal asserts, are set by retail market conditions. BAMMC argues that wholesale rate regulation does not help end users, and points out that rates in RSA AZ21 are similar to those in other RSAs. Mohave contends that in fact there are two cellular carriers providing basic cellular and roaming services in RSA 1, which is one of the markets where Arizona asserted only one provider offers basic cellular service. Furthermore, Mohave and others argue that competition with cellular in such areas is provided by SMR and paging service providers. 46. BAMMC argues that Arizona's claim of ineffective competition must fail because it is based in part on the existence of the duopoly cellular licensing structure, and such structure is the same in Arizona as in any other state. Economist Stanley Besen, on behalf of GTE, asserts that competition occurs within the duopoly cellular market framework and that competition between cellular operators is, in fact, vigorous. 47. Regarding the alleged advantage of wireline-affiliated cellular carriers over their competitors, BAMMC asserts that there is no wireline advantage in Arizona. According to BAMMC, RSAs 1 and 2 have two operating carriers, although only one of those carriers offers local service. In four out of the six RSAs, the non-wireline carrier was certificated first. At any rate, the carrier states, the B Block provider's affiliation with a wireline carrier is a nationwide phenomenon. Megdal contends on behalf of BAMMC that continued rate regulation of wholesale cellular services in Arizona is not warranted because market forces will discipline the pricing behavior of both wireline and non-wireline cellular providers. US West New Vector asserts that in every cellular service area in Arizona, the non-wireline carrier has coverage generally equal to and in some cases greater than the wireline carrier. Moreover, US West New Vector argues, annual reports submitted to the ACC document that non-wireline carriers enjoy a sizable market presence in each Arizona cellular serving area. 48. With respect to the ACC's allegations regarding barriers to entry and favoritism of affiliated retailers, Megdal asserts that because Commission rules prohibit discrimination against resellers, discontinuing regulation would not leave resellers unprotected from unjust and unreasonable rates. Besen contends on behalf of GTE that, with rapid technological innovation, there may be gains from aggressive pricing. Newcomers to an industry have strong incentives to compete aggressively to attract market shares from existing firms, Besen states. Aggressive pricing can be expected from PCS entrants as they seek to increase their shares of the mobile services market. Besen also states that CMRS is emerging as a highly dynamic and competitive marketplace, as evidenced by the decline in costs of owning and using cellular phones and the increase in numbers of subscribers. 49. The carriers address individually the state's specific allegations regarding anticompetitive and discriminatory activity. Regarding the roaming tariff provision that allegedly preferred the affiliated retailer over non-affiliates, BAMMC contends that the state provides no proof that the provision was preferential and that the tariff was, at any rate, revised. As for the allegation concerning ``calling party pays'' service, commenting carriers assert that the lack of notice of potential charges could be remedied through advance notification to wireline customers, and that the issue was addressed years ago between cellular carriers and the wireline telephone company -- companies that the ACC will continue to regulate regardless of the outcome of the instant petition. Finally, addressing resale block sizing, BAMMC contends that the establishment of large minimum resale block sizes was not intended by carriers to disadvantage resale and is, at any rate, irrelevant to consumer prices. 50. The cellular carriers also argue generally that CMRS competition in Arizona is robust and that the ACC has failed to demonstrate any need for rate regulation. For example, US West NV, BAMMC, and CTIA assert generally that the ACC provides no evidence showing that market conditions fail to protect Arizona cellular subscribers from unjust or unreasonable prices. Mohave similarly contends that Arizona fails to present evidence of lack of competition, and Century notes that the Petition itself in fact refers to the increasingly competitive telecommunications market in Arizona. CTIA asserts that state regulation is unnecessary in view of competitive forces in the marketplace. 51. The carriers argue that Arizona rate levels are competitive. CTIA claims that cellular rates in states that regulate are 5 to 15 percent higher than in nonregulating states. It contends that regulation, not lack of competition, may explain higher rates. CTIA also asserts that economic analysis leads to the conclusion that in large, regulated MSAs, prices are higher, penetration is lower, and demand levels are lower. At any rate, Arizona cellular carriers assert that intrastate cellular rates are declining. BAMMC states that over the past year it both increased its discounts and dropped the tariffed maximum rates against which those discounts apply. Besen asserts on behalf of GTE that, between December 1992 and December 1993, the number of cellular subscribers increased almost 50 percent. Also, Besen contends, customers have enjoyed a steady decline in the costs of owning and using cellular phones. The cost of owning a cellular phone in 1991 was only 44 percent of its cost in 1983, Besen asserts. He states that this general pattern of declining real prices also holds for cellular systems owned or controlled by GTE. Mohave asserts that Arizona cellular rates are below national average rates. The national average charge is 39 cents per peak minute, for example, but Mohave's rate is 33 cents per peak minute. US West New Vector asserts that the state has presented no evidence that market conditions fail to protect Arizona cellular subscribers from unjust or unreasonable prices. 52. Commenters generally assert that the cellular industry is competitive whether considered in a vacuum or together with other current and future mobile telecommunications services. BAMMC and other cellular interests contend that the ACC fails to note the increasing development of competitive wireless services in Arizona. BAMMC identifies, for example, 46 paging and 78 SMR service providers in Arizona. Mohave notes that it currently competes with 12 unregulated SMR systems, the A Block cellular licensee, and three neighboring cellular carriers whose service areas extend into Mohave's service area and notes that PCS entry is impending. CTIA asserts that CMRS providers competing with cellular include providers of SMR, wide area SMR, PCS, wireless cable, radio, mobile satellite, BETRS, wireless facsimile, and broadband video services. Century similarly alleges that Arizona's cursory analysis of mobile services competition ignores other services with which cellular increasingly competes, such as SMR, wide area SMR, conventional 2-way radio and PCS. The Rural Cellular Association asserts that cellular licensees are or will be subject to competition from cellular resellers and from providers of SMR services and PCS. NCRA, on the other hand, draws a distinction between current service providers and future competitors. It asserts that the states correctly believe that until effective competition arrives, perhaps in the form of PCS and wide area SMR, continued rate regulation is necessary to restrain the dominating market power of cellular duopolists. 53. CTIA cites a Charles River Associates study finding that wide area SMR and certain PCS applications can be deemed competitive substitutes for cellular. GTE asserts that the ACC erred in not including PCS in its definition of the relevant market. GTE states that PCS will expand competition, which will lead to more options and lower rates for consumers. GTE contends that PCS operators may offer either traditional cellular telephony or newer, value-added services. According to GTE, the CMRS marketplace supports substantial supply-side substitutability, so that all mobile telecommunications licensees can provide the same range of services, and therefore all should be considered in the same antitrust market. 54. GTE notes that the advent of PCS will increase the capacity of the industry by adding 120 MHz of spectrum. Thus, GTE asserts, prices should decline whether or not the incumbent firms are behaving competitively. CTIA contends that the new competition from wide area SMR and PCS will assure cost-based prices for CMRS service. CTIA asserts that in a 1994 court affidavit (not attached), economist Jerry Hausman found that since PCS began operating in the United Kingdom in 1993, prices have dropped by 20 to 33 percent. The current inter-industry churn rate, according to CTIA, is 16 percent, which buttresses the carriers' claims that the industry is competitive. GTE asserts that the cellular industry already occupies a competitive marketplace and industry concentration will decrease greatly with the advent of the use of PCS and wide area SMR technologies. GTE asserts that we are about to enter an era in which the number of firms supplying mobile telecommunications service will more than double, effective industry capacity will increase by more than fourfold, measured industry concentration will decline by more than half and the share of the effective capacity of the industry licensed to each of the two current cellular providers will decline by more than two thirds. 55. In contrast to the cellular carriers, cellular service resellers contend that cellular licensees have market power and exercise it. NCRA notes that the Department of Justice, after conducting extensive investigations into the cellular industry, concluded that cellular exchange markets are not competitive, cellular duopolists have substantial market power and cellular carriers exercise bottleneck control over their licensed facilities. NCRA asserts that the state Petitions are motivated by states' desire to protect consumers from deleterious conditions whose existence was acknowledged by this Commission when it classified cellular carriers as dominant common carriers during the 1980s and reaffirmed that classification last year. NCRA contends that the FCC should grant the Petitions in order to allow the states to maintain their existing regulatory authority as well as to initiate monitoring proceedings. (2) Discussion 56. Section 332(c)(3) provides that a state petition shall be granted if it ``demonstrate[s]'' that market conditions for the service at issue fail to protect subscribers adequately from unjust, unreasonable, or unreasonably discriminatory rates. On this record we conclude that Arizona has not made such a demonstration and, accordingly, we deny its Petition. 57. The basis for this conclusion is straightforward. First, unrebutted evidence shows that cellular rates in Arizona are declining. Second, the ACC Petition does not address the direct and fundamental changes to the duopoly cellular market structure that are being realized by PCS and other services, such as wide area SMR. Third, the ACC presents no evidence of systematically collusive or other anticompetitive practices concerning the provision of any CMRS. Fourth, the ACC does not present evidence showing widespread consumer dissatisfaction with CMRS providers in Arizona, or discuss what specific rate regulations are needed to address whatever level of dissatisfaction may exist. Fifth, the ACC fails to present any analysis regarding the critical issue of investment by cellular licensees (or by any other CMRS providers). 58. Another shortcoming of the ACC's Petition is that it views any evidence of market imperfection as proof of a need for continued rate regulation, while all countervailing evidence is attributed to its regulatory oversight. Even assuming such an argument is reasonable in theory, the ACC has not established that the scrutiny it presently exercises over cellular rates can or does account for the absence of evidence of unjust, unreasonable, or unreasonably discriminatory cellular rates in Arizona. On this record, we cannot conclude that the ACC systematically prescribes cellular rate levels, even maximum rates, or requires conformance with any particular formula for developing rates. Although the state constitution appears to grant the ACC authority to take such actions, and rates apparently are reviewed by the ACC prior to taking effect, the rates appear to be carrier-initiated, and there is little evidence that the ACC routinely alters them as a result of the review process. Given this light- handed exercise of available existing authority, we are not persuaded by Arizona's implicit argument that rates would fall outside the ``zone of reasonableness'' absent continuation of rate regulation by the ACC. 59. The evidence cited by the ACC as proof that market conditions are inadequate and that continued rate regulation authority is needed to ensure just and reasonable CMRS rates is not persuasive. The first example provided by the ACC, involving a situation in which it ordered changes to the structure of a cellular tariff upon determining that the tariff as initially proposed unreasonably restricted resale, is not described in detail. However, even assuming the ACC acted in that situation to address a potential problem with a tariff provision, one instance does not establish a pattern of anticompetitive conduct or failed market conditions in Arizona's cellular industry. The second example involved a situation in which the ACC intervened in a matter concerning ``calling party pays'' customer billing. Under the Communications Act, however, billing practices are considered ``other terms and conditions'' of CMRS offerings, not rates, and the ACC retains authority to regulate such practices. Regulatory activity concerning such practices is not justification for continued rate regulation authority. 60. The cellular carriers provide plausible rebuttals to other specific actions Arizona asserts represent anticompetitive activity, and we cannot conclude that these isolated incidents constitute a pattern of anticompetitive practices that might warrant continued state rate regulation. Indeed, the ACC does not buttress its allegations in this regard with affidavits of persons with knowledge of the incidents it describes, nor does it attach its decision rejecting the roaming tariff provision, or other evidence that might lend evidentiary value to its allegations or show actual anticompetitive intent on the part of the carriers. For these reasons and the reasons stated above, we deny Arizona's Petition. c. Cellular as a Replacement for Landline Telephone Exchange Service 61. Section 332(c)(3)(A) of the Communications Act provides that states may retain rate regulation authority by making one of two alternative demonstrations. As discussed above, the first is that CMRS market conditions fail to protect subscribers adequately from unjust, unreasonable, or unreasonably discriminatory rates. The second is that ``such market conditions exist and such service is a replacement for landline telephone exchange service for a substantial portion of the telephone land line exchange service'' within a State. Arizona argues that CMRS should be regarded as an essential service, replacing landline service, from two perspectives: (1) as a substitute for traditional, basic landline telephone service; and (2) as a connecting link to the landline network for the purpose of mobile communications. Thus, although Arizona does not assert that its Petition is filed pursuant to the second, alternative prong of Section 332(c)(3)(A), as a courtesy to the ACC we will consider its filing in accordance with that statutory subsection. (1) Comments 62. The ACC notes that six of the eight cellular service markets in Arizona are RSAs. It asserts that many rural households have gone without telephone service due to the costs of extending cable facilities, and states that cellular has provided a substitute for basic telephone service in those areas. Arizona therefore contends that it has a compelling public interest in ensuring that cellular mobile radio services are provided at reasonable rates, and under reasonable terms and conditions. Particularly in rural areas, it believes, these objectives cannot be achieved without regulation. 63. Second, discussing the role of cellular in providing connections to the landline network, the ACC states that cellular technology has made commonplace the ability of travelers to connect to landlines, and that many aspects of commerce, safety and personal communications therefore now depend on access to the cellular network at reasonable prices and under reasonable terms and conditions. Arizona asserts that the reasonableness of these aspects of interconnection cannot be guaranteed without regulation. 64. Commenters generally assert that Arizona has failed to meet its burden with regard to the demonstration required under Section 332(c)(3)(A)(ii). For example, Bell Atlantic and Mohave state that the ACC has not offered evidence or attempted to show that cellular service has ever replaced wireline service in any part of the State, much less for the requisite ``substantial portion'' of the state's residents. In the RSA that it serves, Mohave asserts, no rural customers are served at home by a cellular system rather than the landline network. BAMMC argues that Arizona is not the only state that may have low wireline penetration levels. BAMMC and US West NewVector note that 94.1 percent of the population in Arizona has telephones, as compared to 93.9 percent of the population nationwide. Bell Atlantic asserts that if cellular is the only choice in some RSAs, the ACC should have explained how it would apply regulation there and determine when it is no longer necessary. It contends that the ACC should not seek to subject the entire cellular industry in Arizona to regulation if it is warranted only in portions of the state. (2) Discussion 65. Section 332(c)(3)(A)(ii) provides a two-part test for states seeking to continue CMRS rate regulation. Under the first part, a state must demonstrate that the ``market conditions'' delineated in Section 332(c)(3)(A)(i) exist (i.e., market conditions fail to protect consumers adequately against unjust, unreasonable, or unreasonably discriminatory rates). Under the second part, a state must demonstrate that CMRS is a replacement for landline telephone exchange service in a substantial portion of that state. In the CMRS Second Report and Order we concluded that the plain language of the statute requires a state to satisfy both parts of the test in order to secure CMRS rate regulation authority. The Pennsylvania Public Utility Commission (``Pennsylvania PUC'') has sought reconsideration of that determination, based principally on an argument that it renders Section 332(c)(3)(A)(ii) superfluous. We address the Pennsylvania PUC's request here in order to provide guidance to all states that might seek CMRS rate authority under Section 332(c)(3)(A)(ii), and to resolve Arizona's pending Petition. For the reasons discussed in the following paragraph, we hereby grant the Pennsylvania PUC's reconsideration petition with respect to this issue. 66. We agree with the Pennsylvania PUC that a literal reading of Section 332(c)(3)(A)(ii) would make it superfluous because any state that could establish the existence of failed market conditions would be entitled to grant of its petition under Section 332(c)(3)(A)(i). Since such a reading yields an absurd result, we reject it. That determination, however, does not require us to write out of the statute the language in Section 332(c)(3)(A)(ii) requiring a demonstration that market conditions fail to protect subscribers adequately against unjust, unreasonable, and unreasonably discriminatory rates. Rather, we conclude that by requiring a demonstration of ``such market conditions'' and a showing that CMRS is a replacement for landline telephone exchange service, Congress merely intended to remove the presumption embodied in Section 332(c)(3)(A)(i) that extant market forces are to be preferred over regulation as a means of ensuring just, reasonable, and non-discriminatory CMRS rates. Put another way, where CMRS is the only available exchange telephone service, we construe Section 332(c)(3)(A)(ii) to mean that Congress' interest in promoting universal telephone service outweighs its interest in permitting the market for CMRS to develop in the first instance unfettered by regulation. As a practical matter, all this means is that concerns about anticompetitive conditions in the market for CMRS will be given greater weight where a state can show that such service is the sole means of obtaining telephone exchange service in a substantial portion of a state. 67. Arizona has not made an adequate demonstration under this standard. The ACC has failed to adduce evidence that identifies either: (1) the number of individuals in that State for whom CMRS is the only available telephone exchange service; or (2) whether CMRS service is available to such consumers at just, reasonable and non-discriminatory rates. Indeed, the record evidence tends to run counter to the type of showing that is required under Section 332(c)(3)(A)(ii). For example, Arizona appended to its Petition testimony offered by an employee of the state's largest landline exchange service provider to the effect that ``there is little evidence that cellular service is actually replacing traditional wireline service. . . .'' Moreover, the ACC concedes that, to the extent areas of the state currently lack landline telephone exchange service, this is due to the ``extreme and prohibitive costs involved in extending cable facilities.'' Under such circumstances, it is reasonable to conclude that the question whether CMRS rates in such areas are just, reasonable and not unreasonably discriminatory should be measured against the cost of extending facilities to such areas. The ACC has failed to provide any evidence in this regard. Against this background, we conclude that the ACC has failed to demonstrate circumstances that might warrant granting its petition under Section 332(c)(3)(A)(ii). 68. Arizona also fails to demonstrate that market conditions are unreasonable in the two RSAs in that state where only one cellular licensee apparently provides regular (non- roaming) service. Essentially, Arizona is arguing that conditions in single-provider markets are unreasonable per se. We do not agree. The bare fact that a market is served by a single entity does not necessarily say very much about conditions in that market when, as here, competitive entry not only is feasible but appears to be relatively easy. As Arizona concedes, the other licensee in each of the two RSAs in question already provides roaming service there. Nothing in the record suggests that those licensees would confront significant barriers to entering the market to provide regular (non-roaming) service. Thus, at least in theory, it is readily conceivable that only one licensee in these RSAs offers regular service because the other licensee believes it could not offer such service profitably. B. Entry Regulation 69.Arizona currently regulates entry by requiring a cellular service applicant to obtain a Certificate of Public Convenience and Necessity prior to instituting service. Arizona routinely requires cellular applicants to submit information including: (1) delineation of the initial service territory of each cellular wholesale provider; (2) notice of any subsequent changes in service area; and (3) interconnection agreements. In addition, it has upon occasion imposed conditions on service provision as warranted by unique circumstances. For example, in one case the ACC required the filing of descriptions of the type of interconnection to the wireline local exchange network, and in another situation it imposed conditions to protect against cross-subsidization by the wireline service provider. In its Petition, Arizona seeks to retain its authority to regulate CMRS entry as well as rates. It asserts that its entry regulation has worked to benefit Arizona subscribers, for example by ensuring that customers have information about prices and service conditions before making purchase decisions. 1. Comments 70. Bell Atlantic, Century, Mohave, and US West NewVector assert that the State's request to continue entry regulation is invalid because Congress has preempted the states entirely from entry regulation. BAMMC notes that Arizona still has not eliminated its certification requirement, and states that the certification requirement and the Arizona tariff review process are preventing Bell Atlantic from offering service in the AZ-2 RSA, even though this Commission authorized BAMMC to acquire the A-side license from the current licensee in that area in June 1994. Mohave asserts that the state has never denied certification to an applicant that had properly obtained FCC licenses and authority. 2. Discussion 71. We agree with the commenters' assertions. Section 332 of the Communications Act clearly preempts state regulation of CMRS entry: [N]o State or local government shall have any authority to regulate the entry of or the rates charged by any commercial mobile service or any private mobile service, except that this paragraph shall not prohibit a State from regulating the other terms and conditions of commercial mobile services. This Section took effect on August 10, 1994. The statute specifically provides opportunities for states to submit petitions for authority to institute or retain regulation of CMRS rates. It does not provide any opportunity for states to petition for authority to regulate CMRS entry. We interpret this specific opportunity for state regulation of rates, coupled with silence regarding an opportunity to retain regulatory authority over entry, as a clear preemption of continued state regulation of CMRS entry. Accordingly, Arizona's Petition, insofar as it seeks to preclude CMRS providers from entering the marketplace, is denied. Thus, regarding Bell Atlantic's assertion that Arizona is holding up BAMMC's initiation of service provision to RSA AZ-2, we note that any state entry requirements have been unauthorized as of August 10, 1993. VI. REGULATION OF OTHER TERMS AND CONDITIONS 72. Prior to OBRA, Section 332 prohibited the states from imposing ``rate ... regulation'' upon certain wireless telecommunications carriers. This prohibition was construed broadly to preclude almost all state regulatory activity. As revised by OBRA, Section 332(c)(3) now prohibits states from regulating ``the rates charged'' for CMRS, but it expressly reserves to them the authority to regulate the ``other terms and conditions of commercial mobile services.'' Although there is no definition of the term ``the rates charged'' in the statute or its legislative history, there is legislative history regarding the ``other terms and conditions'' language. We believe it is sufficient to allow us to comment in a preliminary manner on what regulatory activities the ACC is entitled to continue, despite our denial of its Petition. 73. The House of Representatives Committee on Energy and Commerce, reporting on the House bill that was incorporated into the amended Section 332, noted that even where state rate regulation is preempted, states nonetheless may regulate other terms and conditions of commercial mobile radio services. The Committee stated: By ``terms and conditions,'' the Committee intends to include such matters as customer billing information and practices and billing disputes and other consumer protection matters; facilities siting issues (e.g., zoning); transfers of control; the bundling of services and equipment; and the requirement that carriers make capacity available on a wholesale basis or such other matters as fall within a state's lawful authority. This list is intended to be illustrative only and not meant to preclude other matters generally understood to fall under ``terms and conditions.'' 74. Establishing with particularity a demarcation between preempted rate regulation and retained state authority over terms and conditions requires a more fully developed record than is presented by the ACC Petition and related comments. Thus, we will not expound at any length on this matter. The legislative history largely speaks for itself. It is possible to extrapolate certain findings from the legislative history, however, and we do so here in the interest of minimizing future proceedings directed at this issue. 75. First, although the ACC may not prescribe, set, or fix rates in the future because it has lost authority to regulate ``the rates charged'' for CMRS, it does not follow that its complaint authority under state law is entirely circumscribed. Complaint proceedings may concern carrier practices, separate and apart from their rates. In consequence, it is conceivable that matters might arise under state complaint procedures that relate to ``customer billing information and practices and billing disputes and other consumer matters.'' We view the statutory ``other terms and conditions'' language as sufficiently flexible to permit the ACC to continue to conduct proceedings on complaints concerning such matters, to the extent that state law provides for such proceedings. 76. Second, under the same logic, we also conclude generally that several other aspects of a state's existing regulatory system may fall outside the statutory prohibition on rate regulation. For example, a requirement that licensees identify themselves to the public utility commission, or whatever other agency the state decides to designate, does not strike us as rate regulation, so long as nothing more than standard informational filings is involved. Moreover, nothing in OBRA indicates that Congress intended to circumscribe a state's traditional authority to monitor commercial activities within its borders. Put another way, we believe Arizona retains whatever authority it possesses under state law to monitor the structure, conduct, and performance of CMRS providers in that state. We expect that, to the extent any interested party seeks reconsideration on this issue, it will specify with particularity the provisions of Arizona regulatory practice at issue. VII. ORDERING CLAUSES 77. Accordingly, pursuant to Section 332(c)(3) of the Communications Act, 47 U.S.C.  332(c)(3), IT IS ORDERED that the Petition of the Arizona Corporation Commission To Extend State Authority Over Rate and Entry Regulation of All Commercial Mobile Radio Services IS DENIED for the reasons set forth above. 78. IT IS FURTHER ORDERED, that the Petition for Reconsideration of the Second Report and Order in the proceeding captioned Implementation of Sections 3(n) and 332 of the Communications Act, Regulatory Treatment of Mobile Services, GN Docket No. 93-252, 9 FCC Rcd 1411 (1994), filed by the Pennsylvania Public Utility Commission, IS GRANTED to the extent set forth above. 79. IT IS FURTHER ORDERED, pursuant to Sections 1.4(b), 1.4(b)(2), and 1.106(f) of the Commission's Rules, that any petition for reconsideration of this order SHALL BE FILED within thirty days of the day after the day on which public notice of this action is given. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary A PPENDIX A P R Docket No. 94-104 (Arizona) P arties Filing Comments or Replies American Mobile Telecommunications Association (AMTA) AMSC Subsidiary Corporation (AMSC) Bell Atlantic Metro Mobile Companies (BAMMC) Cellular Telecommunications Industry Association (CTIA) Century Cellunet, Inc. (Century or CCI) E.F. Johnson Co. (E.F. Johnson) GTE Services Corp. (GTE) Mobile Telecom. Technologies Corp. (MTel) Mohave Cellular Ltd. Partnership (Mohave) National Cellular Resellers Assn. (NCRA) Nextel Communications, Inc. (Nextel) PageMart, Inc. (PageMart) Paging Network, Inc. (PageNet) Personal Communications Industry Assn. (PCIA) Pittencrieff Communications, Inc. (Pittencrieff) Rural Cellular Association US WEST New Vector (US West or US West NV)