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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Transport Rate Structure and Pricing ) CC Docket No. 91-213 ) Resale, Shared Use and Split Billing ) REPORT AND ORDER Adopted: February 27, 1998 Released: March 5, 1998 By the Commission: I. INTRODUCTION A. Summary 1. Split billing for transport is a billing arrangement pursuant to which an incumbent local exchange carrier (LEC) provides separate bills to different access customers when they share use of the same dedicated entrance facilities or direct-trunked transport facilities. In this Report and Order, we decline, based on the record before us, to require incumbent LECs to offer tariffed split billing arrangements. We find that the affected industries, through cooperative efforts, have taken great strides to obtain the benefits of split billing through various means. We note in particular that the Ordering and Billing Forum (OBF) has developed a split billing model that allows LECs to accommodate a variety of resale and sharing arrangements. Requiring split billing could impose an unnecessary regulatory requirement that could disrupt the various billing arrangements currently in place that address these issues. B. Background 1. LEC Provision of Transport Service 2. LECs provide interstate switched access service so that interexchange carriers (IXCs) and other customers can originate and terminate interstate telecommunications traffic. "Transport" is the portion of interstate switched access service that a LEC provides to transmit traffic between its end office and the access customer's point of presence (POP). The LECs provide transport to a particular IXC through circuits dedicated exclusively to the use of that IXC, or through a combination of dedicated circuits and circuits used in common to carry the traffic of several IXCs. 2. Transition from Equal Charge Rule to Flat Rates 3. Equal Charge Rule. Prior to our 1993 restructuring of local transport rates, LECs recovered their transport costs through a rate structure based on the "equal charge per minute of use" requirement in the Modification of Final Judgment (MFJ). The "equal charge per minute of use" rule required that the Bell Operating Companies charge an equal amount per unit of traffic for delivery or receipt of traffic of the same type between end offices and IXC POPs within an exchange area. This approach essentially required all interstate access service customers to pay averaged rates. The actual type of facilities -- voice grade, DS1, or DS3 -- that were used to transport a customer's traffic between the IXC POP and the LEC serving wire center did not affect the charges that were assessed, because the rates were usage-sensitive and, generally, distance sensitive. Under the terms of the MFJ, the equal charge rule expired on September 1, 1991. At that time, we ordered LECs to maintain the equal charge rate structure pending further agency action. 4. Interim Transport Rate Restructure. In the First Transport Order, we determined that the rate structure under the equal charge rule promoted inefficient use of LEC networks by IXCs and other access customers, causing wasteful use of LEC facilities and higher rates for ratepayers. We reviewed the transport rate structure, seeking to balance three goals: (1) encouraging efficient use of transport facilities by allowing pricing to reflect costs; (2) adopting a rate structure conducive to full and fair interexchange competition; and (3) avoiding interference with the development of interstate access competition. We replaced the equal charge rule with a new rate structure designed to reflect more closely the manner in which the costs of providing transport services are incurred. 5. In the First Transport Order, we established an interim transport rate structure that, inter alia, introduced flat-rated transport charges for dedicated circuits. A flat-rate charge applied to the entrance facilities, which provide dedicated transport from an access customer's POP to the LEC end office serving the customer's POP (serving wire center). A flat-rate charge also applied to direct-trunked transport, which is the service carrying traffic over dedicated interoffice facilities without passing through a tandem switch. 6. Final Transport Rate Restructure. In the Access Reform Order, we established a final rate structure for transport services in which we affirmed our conclusion that both entrance facilities and direct-trunked transport services should be priced on a flat-rated basis. We also concluded that incumbent LECs should implement a cost-based rate structure for tandem switched transport in four stages over a two-year period commencing with incumbent LEC access tariffs effective January 1, 1998. As part of this four step plan, rates are to be recovered using both a flat-rated basis and a usage basis. 7. Through the introduction of flat-rated charges that reflect the manner in which costs are incurred, we sought to promote more efficient use of LEC networks and to encourage access competition. We expressly contemplated that smaller IXCs could reduce their access costs by reselling the services of other IXCs or by utilizing network sharing arrangements with other carriers to terminate interstate calls. We reasoned that IXCs that terminate their traffic through resale would purchase the services of a medium or large IXC whose access costs were lower and then resell the services to other carriers, thereby indirectly benefitting from the larger carrier's access charges. We also noted that "smaller IXCs may choose to aggregate their traffic together and share transmission facilities," observing that IXCs may be able to share a DS3 facility to transport either their originating or terminating traffic, allocating the individual circuits among themselves. 8. Prior to the implementation of the interim transport rate structure, split billing procedures were not necessary to facilitate the sharing of network facilities because switched access was billed on a usage basis. LECs measured the usage for each customer and billed those customers according to the amount of their usage of the overall network. After the restructure, however, LECs had to assess flat-rated charges for certain specific pieces of the network. For example, LECs now identify and bill a single customer of record a flat rate for that customer's use of the dedicated, flat-rated entrance facilities and direct-trunked transport rate elements. The Transport Restructure Orders did not address the possible use of split billing provisions in LEC transport tariffs or their access billing systems. Thus, in cases where multiple access customers decided that they wanted to receive transport service from a single LEC provider by sharing the use of specific flat-rated transport facilities to a particular IXC POP, there were no established access billing arrangements for a LEC to provide each customer with a separate bill for its individual use of a facility that shared with other access customers. 3. Implementing the Transport Rate Restructure 9. Review of Initial LEC Transport Restructure Tariffs. Pursuant to the First Transport Order, LECs were directed to file tariffs implementing the transport rate restructure on September 1, 1993. In the tariff review process, several parties filed petitions raising issues concerning resale, shared use, and split billing of transport facilities. Several petitioners sought provisions in the transport tariffs that would permit split billing so that multiple customers of record could be billed by the LEC for their use of a portion of a high-capacity facility. In addition, although Southwestern Bell and NYNEX did offer tariffed provisions permitting multiple users for higher capacity facilities, CompTel argued that these arrangements were limited in application and held a single IXC liable for unused capacity and the unpaid charges of other entities sharing the facility. 10. LEC Responses. Various LECs opposed a tariffed split billing requirement throughout the tariff review process. They argued that customers who order a particular interface and the associated facility should be billed for the type of interface they use. The LECs were reluctant to bill the ultimate access customers for high capacity entrance facilities as though the facilities were a collection of stand-alone voice grade facilities, because they did not wish to absorb the costs of channels on high capacity facilities that are not sold to access customers. Instead, the LECs wanted to bill the reseller IXC for the cost of the facilities, because they argued that the reseller IXC, as the host customer of record, should absorb the cost of the unused channels. 11. Bureau Tariff Order. In the Transport Tariffs Order, the Common Carrier Bureau (Bureau) stated that split billing by the LECs helps customers obtain maximum benefits from the restructured transport rates. The Bureau noted that, although the Transport Restructure Orders did not permit restrictions upon resale and sharing, the Orders did not make clear how LECs were to facilitate resale and sharing arrangements. The Bureau encouraged LECs to implement arrangements such as those tariffed by NYNEX and Southwestern Bell. The Bureau also directed the LECs to refer the split billing issue to the industry's OBF for resolution and to report back to the Bureau on their progress in resolving the "split billing issue." The Bureau stated that, if those discussions did not produce substantial progress toward resolution, the Commission might consider prescribing a method for providing split billing. II. SUPPLEMENTAL NPRM AND COMMENTS 12. We subsequently released a Supplemental Notice of Proposed Rulemaking as part of the local transport rate restructure proceeding. In the Supplemental Notice, we tentatively concluded that we should require LECs to offer "split billing" on a tariffed basis for their transport service. We reasoned that implementing procedures for common carriers to provide split billing would enable smaller customers to obtain more easily the benefits of, and to contribute to, our goal of more efficient use of network facilities by allowing pricing to reflect costs, by permitting a rate structure conducive to competition, and by encouraging the development of full and fair competition. We sought comments from interested parties on various proposals to stimulate the resale and sharing of network facilities by common carriers through the use of split billing. 13. Ad Hoc, Allnet, AT&T, GTE, MCI, and Sprint supported our proposal to require LECs to offer a tariffed split billing option for their transport services. AT&T, MCI, and Sprint stated that split billing would enable smaller IXCs to reduce their access costs by reselling the services of other carriers, and by utilizing network sharing arrangements. They contended that LECs would not incur additional administrative costs if split billing is required because members of the sharing group would probably be current LEC access customers who would otherwise be billed individually for the LEC facilities they use. MCI and Sprint asserted that split billing would encourage more efficient use of DS3 facilities because members of a sharing group would pay rates that are closer to costs for the facilities they are sharing. 14. The LECs contended that a tariffed split billing requirement is contrary to the public interest because it is burdensome and discriminatory. NECA argued that exchange carriers and consumers would incur additional costs because facilities would be underutilized, even if some small IXCs experience increased savings. The LECs also claimed that mandated split billing would not increase network efficiency. They asserted there is no demand for existing arrangements because other alternatives either already exist or are being planned. For example, both Bell Atlantic and Southwestern Bell already offer or have offered some form of split billing. Bell Atlantic offers a "Shared Network Arrangement," which gives the reseller the option of using Bell Atlantic as its billing agent. Through the "Shared Network Arrangement" Bell Atlantic bills each end user for that user's proportionate amount of traffic over the interoffice network. Southwestern Bell offered an "Interim Split Billing Option" (ISBO), for which it states that demand was practically non-existent. Bell Atlantic and US West contended that split billing would not lead to more efficient use of transport facilities because it could lead to prices that are not cost-based, thereby preventing large purchasers from taking advantage of natural economies of scale. NECA urged us to exempt non-tier 1 exchange carriers from any split billing requirement. 15. In its comments CompTel, one of the original proponents of mandatory split billing, contended that mandatory LEC split billing was no longer necessary because small IXCs have implemented solutions to their transport needs. It argued that replacing those solutions with a mandated split billing requirement would be costly, inefficient, and counterproductive, and that the LECs' resources are now better devoted to other issues. Ad Hoc, however, argued that split billing would still be of value to IXCs and end-users. III. DISCUSSION 16. As contemplated by our transport orders, multiple IXCs may share higher capacity facilities than their own usage, considered alone, would otherwise permit. We conclude that it is not necessary for us to mandate a split billing arrangement primarily because, in response to the Bureau's request, the industry has provided a voluntary solution to the issue of split billing. The OBF has developed a model by incorporating ideas from the LECs and their customers, and the model should, therefore, be suitable for most situations with few, if any, modifications. The model does not contain some of the characteristics of the NYNEX and Southwestern Bell tariffs to which the LECs or the IXCs have objected. For example, unlike the NYNEX tariff, the OBF model is not limited to particular configurations. And, unlike Southwestern Bell's tariff, the OBF model permits more than one customer of record. In the OBF model, a "host customer of record" is the owner of the largest amount of capacity being billed, and a "subsequent customer of record" is a service user that is billed for a fraction of the higher capacity. A subsequent customer who resells part of the capacity for which it is being billed becomes the host customer of record with respect to the resold capacity. Access charges are billed to "host" and "subsequent" customers. The host customer's bill is adjusted each month to account for customers whose services are added to or disconnected from the shared capacity. The billed party is responsible for reporting its percent interstate usage in the usual manner. The model includes paper and billing data tape requirements as well as information requirements for the host and the secondary customer of record. Ad Hoc has argued that we should nevertheless mandate a split billing arrangement because it would still be of some value to IXCs and end-users. Ad Hoc, however, has not provided concrete evidence that such an arrangement would still be beneficial given the voluntary solution developed by the industry. Therefore, in light of the progress made by the industry towards voluntary split billing arrangements, we decline to mandate a tariffed split billing arrangement. 17. Second, the record indicates that a mandated split billing tariff would be costly and burdensome to many small LECs and, based on that record, we conclude that the benefits would not outweigh these costs. OPASTCO states that, although in general LECs may not be affected economically by mandated split billing, small LECs would be more likely to be harmed by non-payment, as well as by having to support the additional administrative costs that would be incurred to supervise the provision of split billing. In the absence of any record which would allow us to conclude that there would be significant benefits to IXCs or end users, we find that the costs associated with a mandated split billing arrangement outweigh the benefits. Based on the industry's voluntary solution to the split billing issue and the possible costs associated with a mandatory split billing arrangement, we decline to require a tariffed split billing arrangement. Instead, we encourage those LECs that find split billing to be economically and technologically feasible to offer, or to continue to offer, split billing on a voluntary basis. IV. REGULATORY FLEXIBILITY ANALYSIS 18. In view of our decision not to make any changes in our policies regarding split billing, we find that there will not be a significant economic impact on a substantial number of small business entities, as defined by  601(3) of the Regulatory Flexibility Act. The Secretary shall send a copy of this Report and Order, including the certification, to the Chief Counsel for Advocacy of the Small Business Administration in Accordance with  605(b) of the Regulatory Flexibility Act, Pub. L. No. 69-354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981). V. ORDERING CLAUSES 19. Accordingly, IT IS ORDERED that the Transport Rate Structure and Pricing, Resale, Shared Use and Split Billing, CC Docket No. 91-213, is TERMINATED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary