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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CC 97-50COMMON CARRIER ACTION September 26, 1997

FCC Preempts Facilities Build-out Requirements In Texas; Upholds State Commission's Pro-Competitive Interpretations of Other Texas Requirements

In response to petitions for preemption, the FCC announced today that it had preempted the facilities build-out requirements and two other provisions of the Texas Public Utility Regulatory Act of 1995 (PURA95) that are inconsistent with the Communications Act, as amended by the Telecommunications Act of 1996. Relying in many cases on certain pro-competitive interpretations and actions by the Public Utilities Commission of Texas (Texas Commission), however, the FCC denied the petitioners' requests to preempt several other provisions of the Texas statute.

In its Memorandum Opinion and Order, the FCC made clear its support for the pro-competitive efforts of the Texas Commission, and noted the efforts of the Texas Commission to interpret and apply the PURA95 so as not to conflict with the Communications Act. In cases where the Texas Commission was not able to so interpret the challenged state requirements, the FCC preempted the offending measures. This action will facilitate competition in the Texas local telecommunications market by ensuring that new entrants may provide service through the means of their choice, including the resale of services provided by incumbent local exchange carriers (incumbent LECs), the purchase of unbundled network elements, the construction of their own facilities, or any combination thereof.

In May 1995, the Texas legislature enacted PURA95. Among other things, the Texas statute established two new types of certificates under which a new entrant may provide local telecommunications services in competition with an incumbent LEC. The first, a Certificate of Operating Authority (COA), is intended for facilities-based providers. COA holders are authorized to provide local telecommunications services subject to specific facilities build-out requirements. Significantly, these build-out requirements effectively restrict a COA holder's ability to provide service through resale of incumbent LEC services or use of incumbent LEC unbundled network elements.

The second type of certificate, a Service Provider Certificate of Operating Authority (SPCOA), authorizes the holder to engage in resale of incumbent LEC services. Under Texas law, the three largest long distance carriers, AT&T, MCI, and Sprint, are effectively prohibited from obtaining a SPCOA.

The FCC preempted the COA build-out requirements pursuant to section 253 of the Communications Act, which generally bars State and local governments from imposing legal requirements that prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications services. The FCC concluded that the build-out requirements violate section 253 because they restrict the means (i.e., resale, unbundled network elements) by which COA holders may provide telecommunications services. The FCC further concluded that the costs associated with meeting the COA build-out requirements "prohibit or have the effect of prohibiting" the ability of COA holders to provide telecommunications services.

The FCC, however, did not preempt the SPCOA provision that effectively limits the ability of AT&T, MCI, and Sprint to engage in resale of incumbent LEC services. Given the FCC's decision to preempt the COA facilities build-out requirements, new entrants are no longer precluded from providing service via resale or the purchase of access to unbundled network elements and may now provide any interstate or intrastate telecommunications service under a COA through the means of their choice.

In addition, the FCC preempted the Texas statute's prohibition on granting a COA for the provision of service by a competitor in an exchange of an incumbent LEC serving fewer than 31,000 access lines. The FCC also preempted a 1994 Texas Commission decision approving certain restrictions on resale of Southwestern Bell Telephone Company centrex services. The Commission, however, did not preempt numerous other challenged statutory provisions, regulations, or legal requirements because in many cases it found that those requirements do not violate section 253 or otherwise unlawfully conflict with federal law.

The FCC, for example, declined to preempt the Texas statute's prohibition on the provision of telecommunications services by municipalities. The FCC concluded that the Texas prohibition is an exercise of the Texas legislature's power to define the contours of the authority delegated to the state's political subdivisions.

The FCC also did not preempt the Texas statutory provision that makes available for resale to SPCOA holders the local exchange service of incumbent LECs at a five percent discount from the retail rate specified in the state tariff. The FCC based its decision on the Texas Commission's representation that the five percent resale discount is not a fixed maximum discount, but rather, a minimum discount available to SPCOA holders upon request. Under the Texas Commission's interpretation, nothing in the Texas law prohibits a new entrant from taking full advantage of the negotiation and arbitration procedures set forth in sections 251 and 252 of the federal Act to obtain a higher discount for services it obtains for resale. Indeed, the FCC noted that the Texas Commission has approved arbitrated agreements which include discounts of as much as about 22 percent.

Finally, as stated above, the FCC's decision not to preempt a number of provisions of the Texas statute is based explicitly on the Texas Commission's pro-competitive interpretations of those provisions. The FCC noted that several of the Texas Commission's pro-competitive actions are subject to pending challenges in state court filed by incumbent LECs. The FCC emphasized that it would preempt in the future if the Texas Commission or a Texas court adopted different interpretations of the Texas statute that violate section 253 or otherwise unlawfully conflict with federal law.

Action by the Commission September 26, 1997 by Memorandum Opinion and Order (FCC 97-346). Chairman Hundt, Commissioners Quello, Ness and Chong, with Chairman Hundt and Commissioner Ness issuing separate statements.


News media contact: Rochelle Cohen at (202) 418-0253. Common Carrier Bureau contacts: Raelynn Tibayan Remy at (202) 418-2698 or Steven Teplitz at (202) 418-2692.