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X-x` `  hh@ha)pphppa5Neil's Levelsqb X-x` `  (1) hhhha7Neil's LevelsG X-x` `  hh@i)hh@ha3Neil's Levels^ZG X-x` ` 1. ` `  2[= la6Neil's Levelsz X-x` `  hh(a)@hh@"5^%=77n\%%7?%7777777777%%???7fOIOOICVV+7VIhOVCVO=IOOnOOI%%@7%7=1=1%7=%=\=7==1+%=7O771++9%%%%,%7=O7O7O7O7O7nOO1I1I1I1I1++++O=V7V7V7V7O=O=O=O=O7O7O=V7V7O7O7C=O7O7O7O1O1I1I1I1V7V7V7V=V=,=+=+%+=7V7nO=+N&;7%777777!$RR7!RR7R!%%777n%%77nn%7n%!N%<<?,??77?%=77n\%%7?%7777777777%%???7fOIOOICVV+7VIhOVCVO=IOOnOOI%%@7%7=1=1%7=%=\=7==1+%=7O771++9N%77n77%n=%n%%77&7n%n+%OO%77777%R!7?%R7,   Technical[1]C^iTechnical Document StyleCC -2( -Ct )B4?$@     Technical[7]C^iTechnical Document StyleCC -2( -Ct )B&AB  . 2 41}r22w3Technical[8]C^iTechnical Document StyleCC -2( -Ct )B&CD  . Paragraph[1]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )B$ab Paragraph[2]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )B/cd` ` ` Paragraph[3]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )B:ef` ` `  26<44576Paragraph[4]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )BEgh` ` `  Paragraph[5]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )BPij` ` ` hhh Paragraph[6]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )B[kl Paragraph[7]C^i1. a. i. (1) (a) (i) 1) a)C -2( -Ct )Bfmn 2(7= S'X` hp x (#%'0*,.8135@8:).?"z0*&&PP"Ԍ S' e ԙ 11.` ` The Commission's goal, and that of the Congress that passed the Telecommunications Act  xof 1996, is to bring to all Americans the benefits of a robust and competitive communications marketplace.  xSince passage of the Act, competition has created greater choice and value for many consumers. Some  xcustomers of longdistance service, however, are now paying additional flat charges that IXCs claim  xQrecover some of the costs that the customers were previously paying in perminute charges under the old  xaccess charge regime. A number of factors the Commission did not anticipate have affected consumers who make few interstate longdistance calls.  S' e  12.` ` First, AT&T, MCI, and Sprint each charge their residential customers with a single  xMpresubscribed line a flat, averaged, monthly PICC passthrough charge of $1.51, $1.07, and 85 cents,  Sp' xZrespectively.OZpz {O' " ԍSee AT&T Tariff FCC No. 27, 3rd Rev. P. 24555, at  24.1.18.C (eff. July 1, 1999); MCI Tariff FCC No.  x< 1, 14th Rev. P. 16.3, at  C.1.061111 (eff. July 1, 1999); Sprint Tariff FCC No. 1, 4th Rev. P. 38.2, at  3.11.10 (eff. Oct. 17, 1998).O In the Access Charge Reform Order, the Commission did not prohibit IXCs from using  xsuch charges to recover their PICC costs. The Commission did, however, take steps intended to make  xcit more likely that any such charges would be modest in size. Specifically, as discussed above, we  x*decided to phase the PICC in gradually, setting the initial pricecap LEC ceiling for the charge on primary  xresidential lines at 53 cents. Notwithstanding these prudent steps, we recognize that access reform requires  xthe Commission to unravel and rationalize an entrenched, complex web of implicit subsidies, all at a time  xIwhen competition and technological innovation are making unprecedented changes to the industry.  xReforms of this magnitude and complexity will sometimes yield unanticipated effects, regardless of how  S2' xcareful we are to avoid them. Second, since the Access Charge Reform Order, AT&T and MCI have  xinitiated monthly minimum usage charges for their basicrate residential customers, which their customers  xmust pay even if they make no longdistance calls in a month. AT&T residential customers are subject  S' xto a $3.00 minimum. {O' "u ԍSee AT&T Tariff FCC No. 27, 1st Rev. P. 47.3, at  4.1.1.N (eff. June 15, 1999); 1st Rev. P. 2457.39, at  24.1.1.U.2 (eff. Sept. 5, 1998). Residential customers who subscribed to an MCI calling plan before January 3,  x1998, are subject to a $5.00 minimum; thereafter, customers who subscribed to any MCI residential service  Sl' xare subject to a $3.00 minimum.l  {O ' "' ԍSee MCI Tariff FCC No. 1, 140th Rev. P. 19.1, at  C.3.021211 (eff. Feb. 1, 1999); 3rd Rev. P. 19.183,  yO 'at  C.3.421 (eff. Jan. 3, 1998). Third, AT&T also has chosen to recover some of its contribution to  xDthe Universal Service Fund through a flat charge of 99 cents per month on its residential customers, even  S' xthough its contributions are not calculated as a flat charge.P  {O $'ԍSee AT&T Tariff No. 27, 3rd Rev. P. 24555, at  24.1.18.D (eff. July 1, 1999) . Thus, a residential customer with a single  x^telephone line who selects AT&T as her presubscribed carrier, but who makes no interstate longdistance"0*&&PPT"  S' xtelephone calls in a particular month, may pay $5.50 to AT&T that month. yOh' "c ԍWe acknowledge that AT&T has argued, since at least 1995, that its basic schedule residential rates were  {O0' x below cost for low volume users.  See Motion of AT&T Corp. to be Reclassified as a NonDominant Carrier, Order,  xV 11 FCC Rcd. 3271, 3314 (1995) (AT&T Reclassification Proceeding). We also recognize that certain of the  {O' x commitments AT&T made in the AT&T Reclassification Proceeding were intended to protect lowvolume residential  {O' x customers, including a commitment not to raise basic schedule rates above a specified level. Id. at 331517. Finally,  x we note that AT&Ts imposition of a $3.00 minimum usage requirement followed the expiration of its threeyear  {O'commitments made in the AT&T Reclassification Proceeding. An MCI customer with the  xsame calling pattern will pay $6.07 or $4.07, depending on how recently the customer signed up for  xservice. Previously, such customers would have paid nothing to their presubscribed IXCs in a month in  S'which they made no longdistance calls.  S8' e  13.` ` In light of these significant developments, we wish to inquire whether the flat charges  ximposed on consumers who make few longdistance calls are appropriate. We emphasize our continued  xcommitment to implementing needed access charge and universal service reforms. Thus, we do not mean  xto signal a change in our intention to phase in an economically rational common line rate structure, to  xeliminate perminute common line charges, and to reduce the support burden on highvolume longdistance  xand business customers. At the same time, however, we want to ensure that all customers"including low xvolume residential and singleline business consumers"share the benefits of a rational rate structure in  xDan equitable manner. We intend to do so consistent with the procompetitive, deregulatory framework of the 1996 Act. Thus, we seek comment on a number of issues.  S ' e  14.` ` Longdistance companies have alleged that some of the charges that have appeared on end  xgusers bills are justified. For example, AT&T, MCI, and Sprint originally argued that they collected an  xaveraged PICC passthrough charge because the bills they receive from price cap LECs do not enable them  xto determine which of their customers have primary residential lines and which have nonprimary lines.  xtWe have since addressed that issue, however, by requiring price cap LECs to provide IXCs with more  S' xdetail about the status of customers' lines. {O' " ԍSee Access Charge Reform, Second Order on Reconsideration and Memorandum Opinion and Order, 12  xQ FCC Rcd 16606, 16610 (1997) (requiring price cap LECs to provide IXCs with customerspecific information about  xU the PICCs they assess on them); MCI Emergency Petition for Prescription, Memorandum Opinion and Order, 13 FCC  x Rcd 11127, 11127 (Common Carrier Bur. 1998) (requiring price cap LECs to include a class of customer indicator on Customer Account Record Exchange (CARE) transactions for new customer notifications). Some IXCs argue that the minimum usage charges are  S' xMdesigned to recover the costs they incur maintaining account and billing records for their customers.  yO' " ԍIn an attempt to alleviate such costs, some IXCs have indicated an intention to move some lowvolume consumers to bimonthly, or even quarterly, billing schedules.  xSome also claim that the Universal Service Fund (USF) charges they assess are designed to recover not  x^only their USF contributions, but also the contributions of some incumbent LECs, which have themselves  xsought to recover USF contributions from the IXCs. Thus, as a threshold matter, we seek comment on  x7the validity of these arguments. Commenters evaluating these arguments and the amounts being imposed  xshould do so with specificity, including whatever data or calculations are necessary to support or refute  xthese arguments. We also seek comment on whether, for purposes of assessing the impact of carriers  xactions on consumers, we should consider consumers as a whole, or lowvolume consumers relative to"0*&&PP"  x"highvolume consumers. In addition, we seek comment on whether the impacts on any subset of  xconsumers, or consumers generally, are sufficiently significant, unanticipated, inequitable and/or uneconomic to warrant regulatory intervention.  S`' e 15.` ` Commenters should address the nature of any other fixed costs that IXCs incur in serving  xlowvolume presubscribed users. Commenters should also address whether the introduction of flat rate  xcharges or minimum usage requirements is the result of competitive market dynamics, and whether it is  xlreasonable to assume that implicit subsidies could be eliminated and competition introduced into  xpreviously regulated markets without some customers (those previously subsidized) paying more. We also  xQinvite commenters to address whether the introduction of minimum charges has caused an adverse effect on telephone subscribership.  S ' e 16.` ` We also seek comment on the extent to which the Commission should rely on competition  xto provide services suitable to the needs of lowvolume residential customers. We note that a telephone  xcustomer is not required to have a presubscribed interexchange carrier in order to place longdistance calls.  x*A customer who chooses not to presubscribe will pay the PICC directly to the LEC, but may not have to  xpay marked up, minimumusage, or universalservice charges. That customer will not be able to make  xa longdistance call simply by dialing "1+area code+number," but will be able to "dial around" by first  x^dialing a seven digit code (typically "1010XXX"). Dialaround carriers advertise heavily, and some have  xplans that feature favorable perminute rates without additional monthly or percall charges. We seek  xMcomment on whether the availability of dialaround services means that we do not need to take special  xtmeasures to protect lowvolume users. We also seek comment on what evidence of consumer choice  xkwould be sufficient to indicate that customers have adequate alternatives to calling plans that include these  xtypes of nonusage sensitive charges. For example, would a decline in the number of customers subscribing to a particular carrier's basic plan be evidence that the market is providing alternatives?  S' e =17.` ` We also observe that, as mentioned above, some of the costs presubscribed IXCs claim  xusers impose on them even when they make no calls may be attributable to account and billing  xmaintenance. The customers' LECs, on the other hand, already incur that kind of cost in providing local  xexchange service to the customers, and would presumably experience little incremental costs if they  xbecame the customers' presubscribed IXCs as well. We seek comment, therefore, on whether the entry  xtof Bell Operating Companies (BOCs) into the longdistance market will mitigate the problems currently  xexperienced by lowvolume longdistance users. We also seek comment on whether any changes to our  xrules, or forbearance from enforcing any part of the Act, would be necessary to ensure that lowvolume  xusers receive the fullest benefits possible from BOC entry into the longdistance market, pursuant to  S'section 271 of the 1934 Act, as amended.N {O'ԍSee 47 U.S.C.  271.N  S8' e  18.` ` In the event we determine based on the record that regulatory intervention is warranted  xto protect consumers from some of the actions described above, we seek comment on the scope, method,  xand our jurisdiction for such intervention. Are there measures we can take that do not require direct  x^regulation of IXCs, but that would give this Commission greater control over the manner in which access  xcharges and universal service assessments are passed on to consumers? Specifically, should we require""Z0*&&PP]!"  S' xLECs to bill the residential PICC directly to the end user, rather than bill it to the IXC? {Oh'ԍSee, e.g., MCI Petition for Prescription, CC Docket No. 97250, at 8 (Feb. 24, 1998). Would such  xa requirement help ensure that singleline customers do not pay an averaged residential PICC? Similarly,  xDshould we stop allowing LECs to recover their universal service contributions from IXCs through the so xcalled "flowback" mechanism and instead require LECs to recover those payments from their own end  xusers, at the same percentage rate at which the universal service contribution is assessed to the LEC?  xWould this action help ensure that residential consumers do not pay a disproportionate share of universal  xservice support? Would such measures help ensure that end users, not just IXCs, benefit from any  xZdecrease in LEC contributions to universal service caused by increased participation of other interstate  xtelecommunications service providers? We also seek comment on whether efforts by the Commission,  xstates, and consumer groups to educate consumers regarding choices they can exercise in the  xmarketplace"choices which could minimize the impacts on consumers of these sorts of actions by  xcarriers"could be used to reduce or eliminate the need for additional regulation to accomplish the same  xpurpose. We also seek comment on whether, and the extent to which, government intervention despite  xgthe availability of competitive choices may be in tension with the deregulatory emphasis of the Act. In addition, we seek comment on any opportunity costs associated with these potential government actions.  S ' e 919.` ` We also seek comment on the relationship between the impact of access reform and  xuniversal service charges on low volume consumers and our universal service obligations pursuant to section 254 of the Act. In particular, we seek comment on:  S'` ` a. whether a correlation exists between income and longdistance telephone usage;(#  S' iXX` ` b.X whether the concept of universal service should include some amount of affordable interstate interexchange service for lowvolume users;(#  S' iXX` ` X ` ` \` ` c. whether the definition of "affordability" under section 254 should allow a  ircustomer who ordinarily makes few longdistance calls to avoid minimum use charges or unreasonably high usage rates;(#  Sx' i` ` d.X whether the affordability of longdistance service is adequately addressed by other  SP'policies, such as rate integration;QPZ {OJ'ԍSee 47 U.S.C.  254(g).Q(#  S'  iXX` ` e.X whether lowering offpeak access charges or implementing capacitybased access charges would ameliorate some of the concerns regarding lowvolume users;(#  S' i` ` f.X ` ` \` `  whether, if it is demonstrated that IXCs are recovering more than their universal  S`' iservice or access charge contributions (e.g., PICCs) through enduser charges, the Commission can and should correct such overrecovery and, if so, how;(#  S ' iXX` ` g.X whether the Commission can, consistent with the objectives of universal service  iand access reform, prohibit IXCs and LECs from recovering charges associated"!0*&&PP "   iBwith those reforms through flat charges, or require any such recovery to be on a  i5percentage basis that mirrors the manner in which the contributions are assessed upon the carriers.(#  S`' e 20.` ` Commenters addressing these issues should assess both the advantages and disadvantages  xxof these proposals, both generally and in relationship to the principle, which we reaffirm here, that the Act  xcrequires that we phase in an economically rational common line rate structure, eliminate per minute  xcommon line charges, and reduce the support burden on highvolume longdistance and business  xtcustomers. We further seek comment on the extent to which some or all of these questions should be  xanswered in consultation with the Joint Board, including whether there are jurisdictional or other reasons why consultation would be appropriate.  S ' e h21.` ` In addition, we seek comment on whether, consistent with the continued treatment of IXCs as non-dominant carriers, the Commission should require all or some subset of IXCs:  S ' iXX` ` a.X to maintain rate plans that do not include a minimum monthly charge, to the extent they have not done so voluntarily;(#  S0' iXX` ` b.X to pass through a specific portion of interstate switched access charge reductions to a basic rate plan;(#  S'  iXX` ` c.X to pass through a PICC calculated as a percentage of the bill, capped at a certain dollar level;(#  S@' iXX` ` d.X to include consumer education inserts with their bills detailing alternative ways consumers can obtain longdistance service.(#  S' e 22.` ` To the extent commenters contend that these actions would not be consistent with  xnon-dominant treatment, we seek comment on the advantages and disadvantages of taking these actions  x7nonetheless. In particular, we note the many competitive benefits associated with our deregulation of the  xlongdistance market (expanded consumer choice, new products and services, and overall lower prices),  xand we seek comment on whether the opportunity costs associated with taking the above actions outweigh the benefits of doing so.  S' e 23.` ` We note that some of the federally regulated charges are reduced or eliminated for  S' xkqualifying lowincome consumers eligible under our Lifeline program, {O'ԍSee 47 C.F.R.  36.711, 52.33, 54.400, 54.401, 54.403, 54.405, 54.409. and IXCs sometimes exempt low S`' xincome consumers from certain of their charges or minimums.""`Z {OZ"' "_ ԍSee, e.g., AT&T Tariff FCC No. 27, 2nd Rev. P. 319.5, at  3.5.12.C (eff. June 15, 1999) (exempting low x& income subscribers from AT&T's PICC charge), 2nd Rev. P. 319.6, at  3.5.12.D (eff. July 1, 1999) (exempting  x lowincome subscribers from AT&T's USF charge); MCI Tariff FCC No. 1, 140th Rev. P. 19.3, at  C.3.021212 (eff. Feb. 1, 1999) (exempting customers subscribed to a lowincome program from the monthly minimum charge)." Thus, lowincome consumers taking  xadvantage of these exemptions may not be adversely affected by the IXC minimum charges, PICC pass"8 D0*&&PP*"ԫ xthroughs, and flat charges to collect contributions for the Universal Service Fund. Should we create  xQsimilar protections for lowvolume residential consumers not qualified under our Lifeline program? Is the Lifeline program not reaching certain groups of consumers?  S`' e 24.` ` As we have stated, in addition to seeking comment on the consumer impact of charges  xassociated with access and universal service reform, we also would like suggestions on how best to  x7understand and manage the impact on consumers of charges attributable to procompetitive actions other  xthan access and universal service reform. For example, to eliminate a barrier to local market entry, section  S' xk251(b)(2) of the Act requires that incumbent LECs provide local number portability.J yO( 'ԍ47 U.S.C.  251(b)(2).J The Act also states  S' xthat carriers shall bear the costs of this procompetitive reform in a competitively neutral manner.JX yO 'ԍ47 U.S.C.  251(e)(2).J The  xCommission has implemented its obligation to provide for such cost recovery, in part, by allowing carriers  SH ' xto assess perline charges on their customers. H  {O'ԍSee Telephone Number Portability, Third Report and Order, 13 FCC Rcd 11701 (1998). The Commission has reviewed these charges to ensure that  S 'carriers recover only costs directly attributable to local number portability.!  z {O:' "R ԍSee LongTerm Telephone Number Portability Tariff Filings, CC Docket No. 9935, Reconsideration of  x Decision to Suspend and Investigate Tariff Filings of Sprint Local Telephone Companies, DA 99475 (Common  yO' xH Carrier Bureau Competitive Pricing Div. rel. March 8, 1999); Reconsideration of Decision to Suspend and Investigate  x Tariff Filings of Bell Atlantic Local Telephone Companies, DA 99707 (Common Carrier Bur. Competitive Pricing  {O\' x Div. rel. April 15, 1999); Reconsideration of Decision to Suspend and Investigate Tariff Filings of BellSouth  x Telecommunications Inc, DA 991157 (Common Carrier Bur. Competitive Pricing Div. rel. June 14, 1999);  x Memorandum Opinion and Order, FCC 99158 (rel. July 16, 1999) (addressing filings of Ameritech, GTE, Pacific  x^ Bell, and Southwestern Bell); Memorandum Opinion and Order, FCC 99169 (rel. July 16, 1999) (addressing filings  yO~'of U S WEST).Ď  S ' e 425.` ` In addressing the consumer impact of charges associated with access charge and universal  xservice reform on consumers, should the Commission consider the impact of end user charges resulting  xfrom other reforms, such as number portability? Should the Commission consider requiring carriers to  xcombine charges associated with all of our procompetitive reforms into a single line item or allow carriers  xto identify these charges in some other way? On what statutory authority could the Commission rely if  xxit were to adopt such a oneline requirement? Moreover, should the Commission assess the overall cost  x&impact of all of our procompetitive reforms on consumers in a single proceeding or in the context of  xseparate proceedings? Which proceeding or timeframe is best suited for assessing the cost impacts of our  xvarious reforms on consumers? We seek comment on these questions. Commenters addressing these questions should do so with specificity, making detailed proposals where appropriate.  S' e J26.` ` We also seek comment on whether providers in other industries impose minimum usage  xrequirements or flat rate charges that apply regardless of usage. Are there other examples of such charges  x7in the communications industry? Is there any reason for the Commission to object to flat rate pricing for  xall long distance services? Should the Commission intervene if a customer chooses such a plan, and the  xlCommission later determines that a usage rate plan would result in a nominally lower bill for the"x N !0*&&PP" consumer?   S'NZ` IV. Procedures \  S`' e 27.` ` Pursuant to Sections 1.415, 1.419, and 1.430 of the Commission's rules, 47 C.F.R.   xg`1.415, 1.419, 1.430, interested parties may file comments no later than September 20, 1999, and reply  x*comments no later than October 20, 1999+&P[xxx 30 days from comments xxx]+. Interested parties may file using the Commission's Electronic  S' xComment Filing System (ECFS) or by filing paper copies. See Electronic Filing of Documents in  xMRulemaking Proceedings, 63 Fed. Reg. 24,121 (1998). All filings should reference the CC Docket No. 99-249.  SJ ' e 28.` ` Parties submitting pleadings through the ECFS can send their comments and replies as  xelectronic files via the Internet to . Generally, interested parties need  xMto file only one copy of an electronic submission. If multiple docket or rulemaking numbers appear in  xthe caption of this proceeding, however, interested parties must transmit one electronic copy of the  xtpleading to each docket or rulemaking number referenced in the caption. In completing the transmittal  x*screen, interested parties should include their full name, postal service mailing address, and the applicable  x8docket or rulemaking number. Interested parties may also file by Internet e-mail. To get filing  xinstructions for e-mail submission, interested parties should send an e-mail message to ecfs@fcc.gov, and  xshould include the following words in the body of the message: "get form ." A sample form and directions will be sent in reply.  S' e 29.` ` Interested parties who choose to file by paper must file an original and four copies of each  x7filing. If more than one docket or rulemaking number appear in the caption of this proceeding, interested  xZparties must submit two additional copies for each additional docket or rulemaking number. All filings  xmust be sent to the Commission's Secretary, Magalie Roman Salas, Office of the Secretary, Federal  xCommunications Commission, 445 12th Street, S.W., Counter TWA 325, Washington, D.C. 20554.  x^Filings are no longer accepted at the Commission's facilities located at 1919 M Street, N.W., Washington,  x*D.C. 20554. Subject to the provisions of 47 C.F.R.  1.1203 concerning "Sunshine Period" prohibitions,  Sz' xthis proceeding is exempt from ex parte restraints and disclosure requirements, pursuant to 47 C.F.R.   x^1.1204(b)(1). For additional information regarding this proceeding, contact Neil Fried at (202) 418-1530; TTY: (202) 4180484.   S'/ pV. ORDERING CLAUSE   S' e \30.` ` Accordingly, IT IS ORDERED that, pursuant to sections 20105, 208, 254, and 403 of the Communications Act, 47 U.S.C.  20105, 208, 254, and 403, this Notice of Inquiry IS ADOPTED.  ` `  hhCqFederal Communications Commission ` `  hhCqMagalie Roman Salas ` `  hhCqSecretaryp"t# !0*&&PP:""  S'   BSeparate Statement of +Commissioner Susan Ness  S' \  Q`'Re: LowVolume LongDistance Users (CC Docket No. 99249)  "[Today, most consumers are reaping the benefits of thriving competition in the long distance  xtmarket"choice is abundant, innovation is rampant, and perminute rates are the lowest they have ever  xbeen. But some consumers are being left behind. Lowvolume consumers, in particular, are facing an  xDarray of new lineitem charges that may exceed the offsetting benefits of per minute rate reductions. For some unknown number of consumers, the most important line"the bottom line"is increasing.   "lRates are being restructured in part because of the market segmentation that naturally occurs in  x@a substantially competitive and unregulated market. Additional causes of rate changes are the ongoing  x3changes in interstate access charges and universal service support. What remains to be determined is  xwhether some of the charges that are being imposed are attributable to marketplace imperfections, or  xdistortions, and whether the operation of market forces alone can reasonably be expected to correct any consumer abuses that may be occurring.   "I continue to believe the Commission was right in looking to competition, rather than entry, exit,  xand price regulation, as the primary mechanism for disciplining behavior in the long distance market. I  xalso believe that the Commission has generally followed the appropriate path in reforming the collection  xof universal service support revenues and in allowing local exchange carriers to recover a greater share  xof their fixed costs through non-traffic sensitive charges to interexchange carriers. These developments  x@are consistent with the Telecommunications Act of 1996; they are fair to all parties; and they promote increased economic efficiency, which should benefit all consumers.   "But it is entirely appropriate to examine how these decisions are being implemented in the  xmarketplace. There is anecdotal evidence that some consumers are being charged monthly fees that  xrepresent more than their allocated share of any associated universal service support payments or  x^ presubscribed interexchange carrier charges and are, in addition, being assessed monthly minimum fees  xkwhose reasonableness has yet to be established. Are lowvolume consumers paying their fair share of the  x.costs of interstate access, universal service, and carriers costs of maintaining accounts"or more than their  xfair share? If the latter, we need explore what corrective actions might be taken"by this Commission, by our colleagues on state commissions, by the carriers, or by consumers themselves.   "'In short, we have a responsibility to assess the cumulative impact of our orders, and of the  xcarriers billing practices, on consumers as well as on competitors. Through this notice of inquiry, we are  S ' x<presenting these issues for discussion. I underscore that this is a notice of inquiry, not a notice of  S ' xproposed rulemaking. We must understand market conditions and carriers practices before we can  xproperly conclude that there is a problem, much less determine how it should be fixed. This is precisely  xthe right manner in which to proceed, cautiously, with open minds, and a willingness to understand the situation before we decide what should or should not be done."t# !0*((PPG""  S'  ; !Dissenting Statement of  Commissioner Harold FurchtgottRoth \  Q`' Re:XLowVolume LongDistance Users (CC Docket No. 99249) (#  "I respectfully dissent from this Notice of Inquiry regarding the impact of flatrated and minimum  xZusage charges on lowvolume users. I write to express my ardent opposition to this inquiry because I  xbelieve that the mere suggestion of reregulating a competitive market is antithetical to the  xTelecommunications Act of 1996. Moreover, the scope of this inquiry greatly exceeds what I believe is  xnecessary to meet the stated goal of this proceeding and cannot be justified. Finally, I am concerned about the use of limited Commission resources on an exercise driven by questionable motives.  S ' I. This Notice of Inquiry is Antithetical to the Telecommunications Act.  "The Telecommunications Act of 1996 was landmark legislation. Historically, telecommunications  x*markets were micromanaged by both federal and State regulation and were largely closed to competition.  xThroughout the Telecommunications Act's various statements of objectives, the concepts of competition  xand deregulation for telecommunications markets are often repeated. The message from Congress is clear: federal regulators must refrain from intruding in competitive markets.  "8The Commission has long recognized that the market for long distance services is substantially  S' xcompetitive.wR yO' " ԍIn 1991, the Commission found that certain business and tollfree services had become substantially  {O' xD competitive. See Competition in the Interexchange Marketplace, CC Docket No. 90132, Report and Order, 6 FCC  x Rcd 5880 (1991). By 1995, the Commission had concluded that most major segments, and the vast majority, of  xU longdistance services were subject to substantial competition. Motion of AT&T Corp. to be Reclassified as a NonDominant Carrier, Order, FCC 95427, 11 FCC Rcd 3271 (1995).w In reclassifying AT&T as a nondominant carrier, the Commission noted "intense rivalry"  xin the long distance market, and found that no long distance carrier had the ability to control prices in the  S@' xmarket.K@zR {OZ'ԍId. at para. 26, 72.K On numerous subsequent occasions, the Commission has acknowledged that the long distance  S' xmarket is substantially competitive. R {O' "/ ԍSee, e.g., Report in Response to Senate Bill 1768 and Conference Report on H.R. 3579, 13 FCC Rcd 11810,  x. Report to Congress, FCC No. 9885 (1998)(Commission stating that, because long distance markets are substantially  xo competitive, it would expect long distance companies to pass through access charge reductions to their customers.);  {O ' x see also Policy and Rules Concerning the Interstate, Interexchange Marketplace; Implementation of Section 254(g)  x of the Communications Act of 1934, as amended, CC Docket No. 96-61, Second Report and Order, 11 FCC Rcd  x 20730 (1996) recon. pending. (the development of a substantially competitive market for interstate interexchange  xx services enables the Commission to seek to eliminate tariffs for non-dominant interexchange carriers); Regulatory  xM Treatment of LEC Provision of Interexchange Services Originating in the LEC's Local Exchange Area, Second  x@ Report and Order, FCC No. 97142 (1997) ("Because we previously have found that markets for long distance  x^ services are substantially competitive in most areas, marketplace forces should effectively deter carriers that face competition from engaging in the practices that Congress sought to address through the section 214 requirements."). Indeed, in announcing this inquiry to the press, the Commission" p0*((PP"  S'acknowledged "the competitive nature of the long distance industry in this country." yOh'ԍ"FCC to Ensure that All Consumers Benefit from Competition," Commission Press Statement, July 16, 1999.  "Despite the unambiguous mandate from Congress to refrain from regulating competitive markets,  x@like the one for long distance services, the majority insists on suggesting the possibility of "regulatory  xintervention." Today's Notice of Inquiry is replete with suggestions of federal government intrusion into  S8' x the competitive long distance market. "8X {O0' "N ԍSee, e.g., LowVolume LongDistance Users, Notice of Inquiry, CC Docket No. 99249, at paras. 14  x (whether conditions "warrant regulatory intervention"), 18 (what scope of regulatory intervention is warranted), 19  x (whether the Commission can prohibit long distance carriers from recovering charges through flat charges), 21 (whether the Commission should require long distance carriers to maintain certain rate plans).  Inquiries about whether the pricing decisions made by market  xkparticipants "are appropriate" or whether their charges "are justified" are vestiges of costbased regulation.  xHow can it be that the Commission must still ask "whether, and the extent to which, government  xintervention despite the availability of competitive choices may be in tension with the deregulatory  S' xemphasis of the Act."GB {Oz'ԍId. at para. 18.G Opening this type of inquiry will undoubtedly have a chilling effect in this  xcompetitive industry. I find it impossible to reconcile the mere suggestion of reregulation of this market with the deregulatory objectives of the Telecommunications Act.  S ' II. X The Scope of this Inquiry Exceeds What is Necessary to Reach Its Stated Goal (#  S ' "I If the majority's true concern is to protect lowvolume users, the scope of this inquiry far exceeds  xwhat is necessary. There are certainly long distance carriers in the market today that offer service without  x&flatrated or minimum charges. In fact, in a recent press release Chairman Kennard made the entirely  xZrational suggestion to consumers that, if they "see higher flat fees [on their long distance bills] without  x&reduced per-minute rates, they may want to shop around for another long-distance company, or even  S' xconsider not having a presubscribed long-distance company at all." yOT'ԍ"FCC to Ensure that All Consumers Benefit from Competition," Commission Press Statement, July 16, 1999. It seems the Chairman recognizes  xQthat consumers are well suited to help themselves in a competitive market. In any event, the Commission  xcould satisfy its stated goal by simply considering whether to collect and to disseminate information  xregarding the flatrated and minimum charging policies of each market participant. Make no mistake, I  xdo not believe that this is the proper role of a government agency, nor do I believe that the  xCommunications Act directs the Commission to take such action. Private entities are better suited to serve  xthis function. I merely note that the inquiries in today's item go far beyond this narrow topic. This  xinquiry indicates that the majority will, at a minimum, consider a return to the methods of micromanagement of pricing decisions that Congress has rejected.  Sx'  SP'III. The Inquiry Cannot Be Justified. q  S' " The majority justifies this inquiry on the emergence of a number of factors "it did not anticipate"  x^resulting from its access and universal service reform proceedings. Specifically, the Commission cites as  x"significant developments:" (1) the decision of three competitive long distance providers to charge a flat,"d 0*&&PP"  xaveraged, monthly PICC passthrough charge; (2) the decision of two competitive long distance providers  xto initiate monthly minimum usage charges for basisrate customers; and (3) the decision of one  xcompetitive long distance provider to recover some of its universal service contribution through a flat  S'charge. yO'ԍLowVolume LongDistance Users, Notice of Inquiry, CC Docket No. 99249, at para. 12.  "As an initial matter, I am deeply disturbed by the suggestion that a government agency should  xregulate based on any "anticipated factors" other than those which one would expect in a competitive  S' xenvironment. X yO ' "/ ԍI explain below why these socalled unanticipated factors were entirely predictable given the competitive nature of the long distance market. The public should have full confidence that we, as regulators, have no preconceptions about  xMthe results of our decisions other than the belief that a competitive outcome is the best that can occur.  xThe notion of unanticipated factors affecting regulatory action is, at its core, an archaic and anticonsumer  xconcept that suggests a belief that federal bureaucrats, through omniscience and omnipotence, make better  xdecisions than consumers in a competitive market. It is similar bureaucratic arrogance that leads some  xto believe that government can concoct models to consider every conceivable factor to reach a perfect  x outcome. When government says that a model can do as well as a market in terms of efficiency, the government is engaging in selfdeception.  "'In any event, it is disingenuous to suggest that the decision of a participant in a competitive  xmarket to pass along its costs to its customers is "unanticipated." In fact, this was not unanticipated. For  xmonths, I have explained that, in a competitive market, prices are determined by costs. Competitive  x!businesses take prices as given by costs, not by the wishes of outside spectators. Simple economics dictate  S' xthat competitive businesses must pass along new costs, including new taxes, to their customers.  {O0' " ԍSee, e.g., Dissenting Statement of Commissioner Harold FurchtgottRoth, FederalState Joint Board on Universal Service, FCC 98120. I  x&certainly did not invent this idea. It is one that any college freshman taking a basic economics course  xcould repeat. In fact, the Commission relied on this basic economic principle in touting that recent access  Sh' xcharge reductions, i.e., reductions in the costs faced by participants in a competitive market, were likely  SB' xto lower prices.w B  yO' " ԍ"Access Charges Cut Lower Long Distance Rates Should Follow," Commission Press Statement, June  x 29, 1999 ("'Consumers should be the ultimate beneficiaries of these reductions,' said [FCC] Chairman William E.  {O|' xg Kennard.); see also Report in Response to Senate Bill 1768 and Conference Report on H.R. 3579 (Commission  x stating that, because long distance markets are substantially competitive, it would expect long distance companies to pass through access charge reductions to their customers).w It seems that the Commission is comfortable with long distance carriers passing through  x*their cost savings, but uncomfortable when those same carriers pass through their fixed costs and newly imposed taxes.  "I support the Commission's regulatory reforms designed to eliminate implicit subsidies.  xRecovering nontrafficsensitive costs on a usagesensitive basis creates an implicit subsidy from high xVvolume users to lowvolume users. I agree that these implicit subsidies have a disruptive effect on  x7competition. To the extent the Commission's reforms remove this subsidy, we must now let competitive"* 0*&&PPd"  xforces work. I do not believe that eliminating regulatory barriers to competition can ever be the impetus  xfor further regulatory action by this agency. We must not intervene in a competitive market whether it be for the "protection" of consumers or for any other reason.  "4The majority maintains that its inquiry is designed to ensure that lowvolume residential and  xsingleline business consumers share in the benefits of universal service and access charge reform. Three  xmembers of this same majority, however, weeks ago raised the erate tax on these same customers' bills  x<by $1 billion roughly $10 per household per year to pay for an excessive schools and libraries program. Where was their concern for consumers then?  Sp' IV. The Commission's True Motivation  S ' " This overlybroad inquiry leads me to question the motives of the Commission in adopting this  xZitem. First, I believe that the timing of this Notice is designed to coincide, at least approximately, with  xthe decrease in access charges and the exorbitant increase in funding of the schools and libraries program.  x Moreover, I am deeply concerned that, yet again, the Commission has taken regulatory action for the  x7purpose of distancing itself from the taxes that they established, and because they are angry with carriers  xwho have informed consumers about the tax. I am concerned about the use of limited Commission resources on an exercise driven by questionable motives.  Q'Timing of the Notice of Inquiry   "The Commission has engaged in a public relations campaign to convince the Washington political  xestablishment that massive increases in the erate tax could be offset by access charge reductions and that  xthe American consumer need not ever know about either the access charge reduction or the increased e xrate tax. In this way, the Commission can claim that its new tax is not responsible for increased rates.  xDThe Commission's campaign, however, does not ring true for at least one set of consumers: lowvolume  xusers. I have repeatedly pointed out the fallacy in the connection between access charge reductions and  x3increased universal service fund contributions; namely, there is no assurance that the consumers who  xbenefit from access charge reductions will be the same consumers who will bear the new universal service  xburden. The issue should not be whether, despite massive tax increases that may offset decreases in  x&federal access fees and charges, IXCs have no net differences in costs. The issue is whether, absent  xmassive tax increases, consumers would be better off. Today's inquiry seeks to assuage those consumers from whom the Commission is unable to hide its erate tax increase.  Q'Another Attempt to Conceal the Erate Tax  "From its inception, the Commission has attempted to conceal the erate tax from consumers. It  x^has done so through a series of actions, both formal and informal, to coerce long distance companies into  xhiding the tax. First, it employed behindthescenes threats and pressure. When that was unsuccessful,  xthe Commission made its threats public by adopting unconstitutional "truthinbilling" rules ostensibly  x"designed to penalize "deceptive" billing practices that, in fact, limit how long distance carriers may  xidentify erate tax line items on their bills. Now, the Commission is unholstering its biggest threat of all: the power to reregulate the long distance industry.  "RThis story begins with the Commission's development of the schools and libraries program. In"% 0*&&PP$"  xa May 1997 Order, the Commission "requir[ed] phone companies [to] make . . .[a universal service]  x'contribution' for the social good of wiring schools and libraries to the internet. . . . [T]he companies will  S' xhave to hand over $2.25 billion in extra charges for the wiring cause." New Phone Tax, Wall Street  S'Journal, December 9, 1997.   "In December of 1997, I first noted my concern that the Commission was pressuring carriers not  S' xto place lineitems for these charges on their consumers' bills.  yOz' "< ԍFederal-State Joint Board on Universal Service, Third Order on Reconsideration, CC Docket No. 96-45, 12 FCC Rcd. 22801, 22814 (1997) (Dissenting Statement of Commissioner FurchtgottRoth). At the time, it was widely reported that  S' xthe "Commission prefers that [universal service costs] be rolled into rates,"_   {O 'ԍMonday December 8, Communications Daily._ and that the FCC was irate with companies that planned to pass this tax through to consumers:  XThe FCC is angry at companies that plan to disclose those costs to customers as a line  item on the monthly bill. "They don't want us to call it a tax," [said one industry representative]. "But that's what it is."   S 'A New Tax for the New Year, The Washington Post, December 2, 1997.  "_I objected to the Commission's efforts to hide this tax from consumers, making clear that "I do  xnot share such a preference or endorse such efforts. . . . No carrier should have its billing information  S4' xrestricted or limited by the Commission."4 yO' "< ԍFederal-State Joint Board on Universal Service, Third Order on Reconsideration, CC Docket No. 96-45, 12 FCC Rcd. 22801, 22814 (1997) (Dissenting Statement of Commissioner FurchtgottRoth). Indeed, I believe that consumers have a right to know when  xthey are paying federal charges; the Commission should not discourage companies from placing federal  xcuniversal service charges on their bills. Line items for new taxes are a means of letting customers  xunderstand why rates are not lower than they would have been absent the new taxes. These line items  xare not a means of promoting "hidden rate increases," as some have called it. To the contrary, the only "hidden rate increases" here are those that result from obscured and unexplained taxes.  "Despite the benefits of fully informing consumers about governmentmandated charges, "[t]he  xadministration, which has touted the [schools and libraries] program as the centerpiece of President  S' xClinton's education goals, would rather that customers not know." Itemized list of phone fees hotly  S' xdebated, USA Today December 15, 1997 at B12. So, it was reported, "the FCC . . . had been pushing  xhard to get major longdistance carriers to agree not to put lineitem charges on residential phone bills at  SX' xleast until July." FCC Postpones Ruling on Internet Connections, Washington Post, December 13, 1997  xat F9. These efforts were designed to "mask [the tax] for a while, to take some pressure off from the  S ' xHill." Id. For the first few months of the program, the Commission even "decided to reduce the [initial  xguniversal service] charges after the carriers said the fee could lead to higher rates and after AT&T and  S' xMCI threatened to specify the charge on the bills they send to customers." Fund to Aid Technology in  S' xSchools Facing Big FCC Cuts, New York Times, December 15, 1997 at D1. Apparently, "the agency  xworried that if millions of Americans began seeing such fees on their bills, popular support for"p 0*&&PPg"  S' x^deregulating the telecommunications industry could begin to erode." Id. At this point, most large carriers  xbegan to place the line items only on bills for commercial customers, declining to specify the charges on bills for residential customers.  "Last spring, the general issue of line items for schools and libraries "contributions" arose again  xwhen the Commission began to consider raising the funding level for the schools and libraries program.  xQBy then, many carriers had announced that they would recover these costs through separate line items on  xindividual consumers, such as residential customers. Again, these announcements angered some at the  S' xCommission. See, e.g., Statement of Chairman William E. Kennard on AT&T Long Distance  S' x*Announcement, May 28, 1998 ("AT&T's announcement is premature, unwarranted and inconsistent with  xtheir own public proposals to the FCC. This announcement suggests that AT&T will raise rates to pay  SN ' xQfor universal service."); "AT&T adding surcharges; FCC Furious," USA Today, May 29, 1998 at 2 ("The  S( 'FCC is livid.").|(  {O ' "& ԍSee also FCC Caught in Middle on Rate Rise, June 11, 1998 at C3 ("The FCC had hoped that long distance  x carriers would absorb the costs of the program, . . . But AT&T Corp., MCI Communications Corp. and other  {O"' x  carriers plan to levy new charges, . . . "). See generally, Some MCI Customers Seeing Surge in Phone Bills,  xk Washington Post, January 31, 1998 at page H3 ("FCC officials are upset about being blamed by MCI for the new  x charges. The agency maintains that the universal service fees are technically charged to local phone companies, .  x^ . . which are authorized to seek compensation from long distance carriers. It's up to MCI and other longdistance companies to decide how to pay, the FCC contends.").  "Immediately after carriers announced their intent to place line items on residential bills, the  S ' x Commission announced its plan to initiate a socalled "truthinbilling" proceeding. Schools, Libraries,  S ' xHealth Care Discounts Program Faces More Scrutiny, Washington Report, June 15, 1998 (Commissioners  x"said they plan to adopt a notice of proposed rulemaking to help clear up consumer confusion about new rates and fees attributed to the discount programs").  "Even worse, in the view of some at the Commission, opponents of the tax were blaming not just  xZthe Commission for the imposition new consumer charges, but also the current Administration, which strongly supported the schools and libraries program. As one news magazine reported:  =X[The Vice President's] biggest hightech achievement to date is a program to wire every  classroom and library in the country. . . . But right now the program is under assault  from congress as an out of control entitlement engineered by an outofcontrol  bureaucracy. Which does not do much for Gore's reputation as the architect of  ,reinventing government. Even more ominous is another threat: starting this summer  Wphone companies that were ordered to pay for the program are threatening to add a new  charge to the long distance bills of residential consumers. Critics are already calling it the Gore Tax.   S' xTIME, Karen Tumulty & John Dickerson, Gore's Costly High Wire Act, at 52, May, 25 1998.\F  {O$' " ԍSee also, id. ("The blame inevitably finds its way to Gore, whose hands many see in virtually everything  {OZ%' x the FCC does."); A New Tax for the New Year, The Washington Post, December 2, 1997, ("The Internet inthe x schools idea was hatched by Vice President Gore and his friend Reed Hundt, the recently departed FCC chairman. "$&0*&&0&"  {O' x They consistently tout the benefits of the program, but not its costs."); Senators tell FCC "Gore tax" too costly, The  x Washington Times, June 11, 1998 at B9 ("Lawmakers said the FCC overreached its mandate by setting up a $2.25  x billion fund to wire schools and libraries, which critics have dubbed the "Gore tax" because of Vice President Al  x Gore's vigorous support of the program. The issue came to a head this week after longdistance companies said they  {O' x@ would start adding about $1 a month to consumers' bills to fund the program."); Phone Wars leave FCC in a  {O|' xo Political Combat Zone, The New York Times, August 13, 1998 at D1 ("When a dispute arose over the commission's  x^ plan to raise money to subsidize internet connections for schools and libraries, the fees were immediately labeled the "Gore tax" on Capital Hill."). Others"0*&&PP"  xeven claimed the schools and libraries program had been initiated in order to enhance the chances of possible presidential candidates, arguing that it was  Xnothing less than a stealth campaign to enhance Gore's presidential prospects. "This was  not to be a political cashgrant program so that Al Gore can run for President, [one  S8'Congressman] complain[ed]."    S'Id. at 55.  "cToward the end of 1998, an investigation by the United States House of Representatives confirmed the Commission's attempt to prevent carriers from associating the federal government with these charges:  XIt is clear that the FCC pressured and threatened long distance carriers in an inappropriate  ,manner from taking action regarding how long distance carriers would recover their  contributions to universal service from their telephone subscribers. The FCC was  qapparently motivated to exert such pressure to fulfill the Administration's political agenda  Jto connect every classroom in the United States to the Internet by the Year 2000, and to do so while hiding the costs of their agenda from the American public.   S ' xHill Report Finds FCC Threats, political Acts Against AT&T and MCI, Communications Daily, November 30, 1998.  "` In the "TruthinBilling" proceeding, the Commission adopted "standardized labeling"  xrequirements that, when fully implemented, will prohibit any line items that indicate that the universal  xservice charge is federallymandated or federallyimposed. As I explained at the time the rules were  S'adopted, I believe they raise serious concerns under the First Amendment. {O' " ԍSee TruthinBilling and Billing Format, CC Docket 98170, First Report and Order and Further Notice of Proposed Rulemaking (Dissenting Statement of Commissioner Harold FurchtgottRoth).  "In initiating this Notice of Inquiry, the majority has sent another message to the long distance  xindustry. In paragraph 18, the Commission asks: "Are there measures we can take that do not require  S|' xdirect regulation of IXCs, but that would give this Commission greater control over the manner in which  SV' xZaccess charges and universal service assessments are passed on to consumers?" I am troubled by what  xappears to be another attempt to control the long distance companies' attempts to inform consumers about the erate tax. "0 0*&&PP"Ԍ "At bottom, I fear that this agency has only opened this inquiry because many carriers went  S' x*"against the FCC's wishes and itemiz[ed] the phone tax." New Phone Tax, Wall Street Journal, December 9, 1997. That is not a legitimate reason for regulation."0*&&PP"  S'  B Separate Statement of  S' Commissioner Michael K. Powell, Concurring \  Q`'X\Re:Notice of Inquiry, LowVolume LongDistance Users (CC Docket No. 99249).(#  S' ""I write separately, both to express the degree to which I support this Notice and to highlight some  xtimportant concerns I believe we should always bear in mind as we study this and similar issues related to the consumer impact of our pro-competitive reforms.  Sr' "To the extent this Notice stands for the proposition that we should be conscious of the impact of  x!our reforms on consumers, I vigorously support it. The 1996 Act reflects Congress fundamental judgment  xthat markets are more likely than traditional regulation to enhance consumer welfare. To effect this  xtransition to competitive markets, we must impose requirements designed to eliminate the vestiges of the  xold monopoly system and its tangled web of implicit subsidies. Yet, try as we might, we regulators can  xnever impose these requirements in a way that leads to fully predictable results for consumers. Thus, it  xis prudent that we monitor the impact of our reforms on consumers in an effort to ensure that such impacts are not inconsistent with the goals of the reforms or the Act more generally.  "EAs we monitor these impacts, however, we must continue to resist the temptation to substitute  xDpolitics for policy. That is, we must remain aware that some of our pro-competitive reforms may arouse  xpassions in the public not so much because they harm consumers in any legitimate sense, but simply  x^because these reforms involve change. One way that we can stay vigilant in this regard is to keep always  xin the backs of our minds two critical questions: (1) are these reforms necessary to promote competition;  xand (2) are these reforms fair? I look forward to examining these and related questions in the context of  xthis proceeding. Even at this early stage, however, I firmly believe in the possibility that we can answer  xpboth of these questions resoundingly in the affirmative, while remaining true to our core mission of  xZdelivering on the Acts promise of competition for all consumers. I begin to explore the bases for this strong belief below.  ST' X\I.Access Charge and Universal Service Reforms Are Necessary to Promote Competition(#  S,'  "So, are our access charge and universal service reforms necessary to promote competition? This  xquestion has been asked, answered and affirmed repeatedly by this Commission and our predecessors, and  xI see no evidence on the horizon that would undermine that fundamental judgment. This is not a subjective or ideological preference but a conclusion borne of economics.  "I applaud the Commissions stated commitment to reforming universal service to make those  xsubsidies more explicit and portable. This reform will encourage new entrants to compete more vigorously  xfor many consumers by undermining the advantage incumbent LECs have traditionally enjoyed by virtue of their exclusive access to implicit universal service subsidies.  "RSimilarly, I applaud the Commissions ongoing recognition that in order to create incentives for  xeconomically efficient entry by competing exchange access providers, we will need to allow access charges  xZto more properly reflect the manner in which access costs are incurred. Thus, costs that increase the  x^longer one is on the phone might properly be recovered through per minute pricing. Moreover, costs that  xremain about the same, regardless of how many calls one makes, or how long any one call is, should be  S'' xDrecovered by flat charges. As the Notice indicates, however, the artificially high per minute long distance"'0*((PPd&"  x8rates resulting from traditional subsidies of low volume consumers distorted competitive entry.  xCompetitors realized that high volume consumers and businesses were paying rates well above cost and  xkthus seized on the opportunity to serve them and thereby maximize profits. Conversely, competitors have  xbeen slow to embrace low volume residential customers under the old system, because these firms are less  xlikely to be able to recoup the costs of serving those customers, relative to serving high volume customers.  xDHigh per minute long distance rates also have discouraged all consumers from using this valuable service.  xZOur access charge reforms sought to correct these problems by ensuring that flat costs are recovered through flat fees and per minute costs through per minute fees.   "IThus, both our access charge and universal service reforms are necessary to promote competition  x because they remove policies that tend to make some customers, particularly low volume customers,  xMunattractive prospects for new entrants. Without these reforms, all consumers, including low volume consumers, would be much less likely to receive the benefits of competition.  S ' X\II.Access Charge and Universal Service Reforms Do Not Appear to Be Unfair to Consumers(#  S '  S ' A.` ` Low Volume Consumers as a Protected Class  "pNext we must ask whether our access charge and universal service reforms are fair to consumers. But what does it mean to be fair with respect to these reforms?  "Of course, some suggest (as, regrettably, the focus of this item appears to) that because of some  ximpediment or dysfunction suffered by low volume consumers, it is unfair to deny those consumers the  x@benefit of being subsidized by their higher volume friends and neighbors. This notion is both untested and analytically weak.  "<Although I support watching to see if there are unanticipated impacts of our reforms, I worry that  S' xthis Notice almost prejudges the issue whether low volume consumers constitute some type of protected  xclass. As a threshold matter, a bit of caution is in order about whom such consumers may be. One might  xDbe misled to believe that low volume consumers are poor, elderly or rural individuals. In some cases yes,  xbut by no means does low volume necessarily correlate with these groupings for which the government  x@often accepts some social responsibility. Low volume simply means less long distance calling. Thus,  xwealthy parents whose kids and family live locally may be low volume consumers. Similarly, businesses  xthat operate only locally are low volume with respect to long distance calling, as are high techtypes who  xuse email and Internet communications (via their local internet service provider, or ISP) instead of the  xphone. Conversely, there may be sympathetic high volume consumers who may seem equally deserving  Sb' xof special consideration (e.g., poor immigrant families who make numerous long distance calls home to  x"their families, rural customers isolated by distance and geography, working class families who are struggling to pay for their kids college and stay in touch with them at the same time).  "NBut even if we later determine that low volume consumers include constituencies for which  xgovernment sometimes expresses sympathy, there is little evidence to suggest that low volume consumers  xQare trapped in that status. To the contrary, the long distance industry constantly bombards all consumers  xwith competitive pricing options through the mass media. Some of these options may ameliorate the  ximpact of flat charges on consumers. In light of such competitive choices, it would seem overregulatory  x! and, indeed, paternalistic ! to take steps to minimize impacts on consumers before at least attempting"%0*&&PP$"  S' xto educate them on how they may protect themselves in the marketplace. For example, customers can  xkmake use of dial around services that allow the customer to by pass the costs charged by a presubscribed  xcarrier. In addition, customers can switch to rate plans that offer greater value through lower long distance  xkrates. In sum, I am not yet persuaded that the competitive choices available to consumers are insufficient  x@to afford them adequate opportunity to protect themselves against the potential harms described in the  S:'Notice.P: yO' "V ԍ And even if we must resort to additional regulation, I would submit that we should first attempt measures  xQ that do not amount to direct regulation of a competitive industry, such as requiring LECs to bill the PICC directly  x to end users. In any event, I feel strongly that we should be cautious about imposing new regulation on long distance  x or other carriers, recognizing that any such requirements may weaken the vigor of competition in the telecommunications industry.P  "I believe we must continue to resist the temptation to favor certain consumers over others unless  xDthere is a welldocumented and compelling reason to do so. Rather, we must look beyond poorly defined  S' xgroups of consumers to assess the impact of our reforms on all consumers. We also must recognize that,  x@in the competitive paradigm, our primary role as regulators is to ensure that anti-competitive behavior,  xEfraud and other competitive abuses do not hinder consumers freedom to obtain services in the  xmarketplace. At this early stage of the proceeding, I would note only that many of the potential impacts  S 'on consumers addressed in the Notice do not implicate this primary role.   S ' e cXX` ` \ B.` ` The Fairness of CostCausative Rates and Removing Implicit Subsidies Among  S 'Consumers (#`  "I also question whether our reforms have resulted in low volume consumers paying more than  xtheir fair share of network costs as part of their long distance service. Some significant portion of the cost  xof serving a customer is the cost of having a telephone line to ones home"one that is always available  xZand highly reliable. This cost generally does not vary no matter how much the customer uses his line.  xBoth a customers local company and its long distance company use that common line to provide that  xcustomer service. Consequently, some portion of the common lines cost is attributable to each carrier  xZand will be reflected in the customers bill. We traditionally have allowed carriers to recover these flat  xcosts through per minute charges, which had the effect of inflating the rates of consumers who make many  xlong distance calls. By ensuring that flat costs are recovered through flat fees and that per minute costs  x7are recovered through per minute fees, however, our access charge reforms arguably have made the rate  xstructure more fair by making consumers more responsible for the costs they cause, including the flat cost of having a common line.   "Further, as indicated, our access charge reforms were designed to correct implicit subsidy flows  xfrom high volume to low volume users that artificially made the price of long distance service more  S' xexpensive and impeded the development of competitive choices for all consumers. In that sense, flat  x*charges on consumers long distance bills may represent the price consumers should pay for adoption of  xZa more pro-competitive rate structure. This is an especially important and ironic point for low volume  xconsumers, as the very implicit subsidies that were designed to favor them under the old system also made  xthem less attractive to competitors and thus doomed them to fewer opportunities for competitive choice.  xThus, to the extent that access charge and similar reforms help promote competition for all consumers," x0*&&PP"  xincluding low volume consumers, it is difficult to conclude that these reforms are somehow unfair. It also  xdoes not seem unfair to free high volume consumers from the burden of subsidizing low volume consumers.   S`' C.` ` The Difference Between Consumer Value and Harm  S8'   "EThis is not to say that high and low volume customers facing similar common line costs obtain  S' xthe same value in exchange for paying those costs. Flat rates have one inherent characteristic. If the rate  xDis flat, you will get more value from your service if you use it a lot. For example, Internet service is now  S' x"almost universally priced as a flat rate"e.g., $19.95 per month for unlimited use is common. If I  xsubscribe to this service and only surf the Net 2 hours a week, I will get less value out of the service  xthan my retired neighbor who spends 100 hours a week on the Net planning his next trip to some exotic  xMdestination. It would be a mistake, however, to say that I am harmed because I am a low volume  xuser. I have the same potential to get as much value from my service as my neighbor if I chose or needed  xto do so. Moreover, I assure you that my ISP is making up for my relative lack of use through my neighbors extensive use. Thus, we should not confuse consumer value with harm.  S\' D.` ` Managing Consumer Expectations Developed Under Monopoly  "One final note on fairness: some will urge us to define fairness based on what consumers came  xto expect under the old monopoly system of implicit subsidies. Consumers have been conditioned to  S' xtbelieve that they should only have to pay long distance carriers for the time they are on the phone, i.e.,  xsolely through per minute charges. Indeed, the government bears much responsibility for that expectation,  xgiven the manner and method by which it regulated cost recovery. Some will urge us to find the effects  xof our reforms fair only to the extent that these expectations remain satisfied. But consumers expectations  S' xthat they would not be charged flat rates developed not because the traditional pricing structure was  xtinherently fair or reflective of the underlying cost of service, but simply by virtue of rules developed in  xa largely monopolistic environment. Thus, in assessing whether the impact of our pro-competitive reforms  xon consumers is fair, we must look beyond consumers own expectations regarding how they obtained  xservice under the old monopoly regime. It takes some courage to do so, but such a transition is clearly  xZrequired if there is to be any hope of effecting Congress vision of competition and its recognition that implicit subsidies are anathema to that vision.  S' III.Conclusion: A Plea for Avoiding ReRegulation of Competitive Markets  S'  "Thus, there may be many reasons to conclude that our access charge and universal service reforms  xare both necessary to promote competition and fair to consumers. In particular, we must recognize that  xit may be impossible to achieve any economically efficient price structure (or free high volume consumers  xfrom the burden of subsidizing low volume consumers) if we step in and regulate to protect low volume  xconsumers from the impact of flat charges. This looming impossibility makes it especially disturbing to  S!'suggest, as some of the questions in the Notice do, that regulation of rates is the solution.Z! {O0$' " ԍ Specifically, I am uncomfortable with the extent to which the Notice seeks comment on whether the  x7 Commission should mandate certain retail rate structures or constrain the manner in which long distance carriers  x recover universal service and access charge contributions. At the very least, requests for such comment seem"%0*&&%" premature. "!X0*&&PP "Ԍ "lԙThe long distance industry is highly competitive and has created greater choice and value for all  S' xconsumers. Further, overall long distance rates have continued to decline, as the Notice properly indicates.  xThis increasingly competitive environment has been spurred on, in recent years, by the previous  xCommissions wise decision to declare these companies non-dominant, thereby freeing them from some of our more burdensome, demandstifling, innovationsapping regulations.  "I remain open to analyzing and addressing any significant and inequitable consumer effects of our  xreforms through regulatory means in the event (which, at present, I find unlikely) that these impacts cannot  xbe addressed through marketbased approaches. I would urge only, in evaluating the options before us,  xthat we be hesitant to sacrifice the very pro-competitive reforms that I continue to believe will result in greater consumer welfare than our regulations ever could.