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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** FCC 98-45 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. ) In the Matter of ) ) New York Telephone Company and ) New England Telephone and ) Telegraph Company, Nonrecurring ) Charges for Reconfiguration of Circuits ) ) Applications for Review and ) Petition for Reconsideration ) ) Petition for Indefinite Extension ) of Waiver ) ) MEMORANDUM OPINION AND ORDER Adopted: March 20, 1998; Released: March 20, 1998 By the Commission: Commissioner Tristani issuing a separate statement. I. INTRODUCTION 1. On April 19, 1995, the Association for Local Telecommunications Services (ALTS) and Teleport Communications Group, Inc. (Teleport) filed applications for review, and MCI Telecommunications Corporation (MCI) filed a petition for reconsideration, of an Order issued by the Commission's Common Carrier Bureau (Bureau) granting the New York Telephone Company and New England Telephone and Telegraph Company (NYNEX) a waiver of the Commission's policy governing assessment of nonrecurring reconfiguration charges. We deny the applications for review and petition for reconsideration for the reasons discussed below, and we extend the Bureau's waiver indefinitely, subject to any applicable rules on pricing flexibility adopted in the Access Reform rulemaking proceeding. II. BACKGROUND 2. In the Special Access Expanded Interconnection Order, the Commission required most Tier 1 local exchange carriers (LECs) to permit their competitors and access customers to terminate their own special access transmission facilities at LEC central offices and to interconnect with LEC special access services. In attempting to facilitate efficient competition in the interstate access service market, the Commission instituted numerous safeguards to ensure that LECs and interconnectors can compete fairly for interstate access customers. One of these safeguards relates to the assessment of nonrecurring reconfiguration charges. Reconfiguration of central office circuits is necessary when a customer replaces its LEC-provided access service with an interconnector-provided access service (or vice versa), or when a LEC customer obtains a higher bit rate access service from the LEC. While LECs may assess upon access customers a nonrecurring charge (NRC) to recover the cost of reconfiguration, the Special Access Expanded Interconnection Order requires that LECs apply such charges in a neutral manner. That is, the amount charged must be the same regardless of whether the customer chooses to use interconnector or LEC facilities for access services, unless there are specific, identifiable cost differences. 3. In the Second Reconsideration Order, the Commission stated that the presumption of reasonableness applicable to other within-band, below-cap rate changes would not apply to revisions to NRCs associated with access reconfigurations. All LECs that had tariffed access NRCs that were inconsistent with the non-discrimination requirement were ordered to revise their tariffs to come into compliance on or before October 18, 1993. The Commission stated that it would consider waiving the nondiscriminatory NRC requirement only if a LEC could demonstrate that any differential treatment would not undermine competition or otherwise violate the Communications Act of 1934, as amended (Act). 4. On March 20, 1995, the Bureau granted a petition filed by NYNEX requesting a waiver of the standards governing reconfiguration NRCs for expanded interconnection services. The waiver was limited to NYNEX's Zone 1 central offices in New York State and was granted for one year. The waiver permitted NYNEX to impose NRCs on a customer shifting from a NYNEX access service to an interconnector's access service, while waiving NRCs when a customer shifts from an interconnector's service to a NYNEX service or when a NYNEX customer obtains a higher bit rate service from NYNEX. NYNEX was permitted to recover its reconfiguration costs from customers that shift from an interconnector's service to NYNEX's service through recurring charges assessed for as long as the customer continues to obtain service from NYNEX. As a condition of the waiver, the Bureau required NYNEX to permit access customers shifting from NYNEX's service to an interconnector's service to pay NRCs over a 12- month period, which the Bureau determined would be more comparable to NYNEX's recurring charge schedule than the six month period originally proposed by NYNEX. 5. The Bureau found that NYNEX had sufficiently demonstrated that it faced special circumstances relating to the extent of competition in the access market served by NYNEX's Zone 1 central offices in New York State. The Bureau also found that NYNEX's proposed NRC rate structure was not likely to undermine this competition. The Bureau concluded that, if NYNEX desired to continue to recover its reconfiguration costs through recurring charges after the expiration of the waiver, it had to obtain another waiver by showing that competition in its region had not been undermined by its NRC rate structure. 6. ALTS and Teleport filed applications for review, and MCI filed a petition for reconsideration, of the Bureau's decision in the NRC Waiver Order. NYNEX filed an opposition to these applications and petition, and no replies were filed. In the First NRC Waiver Extension Order, the Bureau referred MCI's petition for reconsideration to the Commission for further action. 7. In March 1996 and March 1997, the Bureau granted one-year extensions of the waiver. In each case, the Bureau determined that the waiver's operation had not undermined competition in the access market served by NYNEX's New York State Zone 1 central offices during the previous year. The Bureau declined to grant an indefinite extension of the waiver, however, because it found that the record failed to show that the special access and switched transport markets served by NYNEX's Zone 1 central offices in New York State were fully competitive. In both orders, the Bureau stated that the extension of the waiver was subject to the Commission's resolution of the applications for review and petition for reconsideration of the NRC Waiver Order. On January 30, 1998, the Bell Atlantic Telephone Companies (Bell Atlantic) filed a petition for indefinite extension of the waiver. MCI and American Telephone and Telegraph Corporation (AT&T) filed oppositions to the Bell Atlantic petition for extension of waiver, and Bell Atlantic filed a reply. III. PLEADINGS A. ALTS Application for Review 8. ALTS alleges that the Bureau placed too much reliance on a geographical approach in determining the presence of competition faced by NYNEX. ALTS maintains that the Bureau should also have considered whether NYNEX has implemented structural changes in the local exchange services market, such as full number portability. ALTS notes that, prior to the passage of the Telecommunications Act of 1996, the Department of Justice had recommended that the U.S. District Court for the District of Columbia require certain structural changes in the local exchange services market before granting Ameritech an experimental waiver of the Modification of Final Judgment (MFJ) restriction on interexchange service provided by the Bell Operating Companies (BOCs). Such structural changes had included the availability of full number portability, resale of local facilities, reciprocal compensation agreements, and interLATA dialing parity. ALTS recognizes that the waiver of the Commission's reconfiguration NRC policy granted by the Bureau to NYNEX in the NRC Waiver Order is narrower than the waiver of MFJ restrictions sought by Ameritech in the proceeding before the U.S. District Court for the District of Columbia. Nevertheless, ALTS maintains that the Bureau should have relied on a structural analysis because the Bureau created a precedent that might affect its consideration of future waiver requests. 9. ALTS also argues that NYNEX failed to submit cost studies showing that NYNEX recovers its nonrecurring reconfiguration costs through recurring rates. ALTS recommends that NYNEX be required to report separately in its annual access filings any recovery of nonrecurring costs through recurring rates. In addition, ALTS claims that the NRC Waiver Order failed to establish a "reasonable standard that is predictable, workable, and not susceptible to discriminatory application," in violation of the Northeast Cellular standard. B. Teleport Application for Review 10. Teleport argues that the NRC Waiver Order did not follow the waiver standard articulated by the Commission in the Second Reconsideration Order. That standard requires a LEC requesting a waiver of the reconfiguration NRC policy to demonstrate that any differential treatment resulting from the waiver would not undermine competition or otherwise violate the Act. Teleport contends that the Bureau erroneously based the grant of NYNEX's waiver request in the NRC Waiver Order on whether NYNEX faced "special circumstances." 11. Teleport also argues that NYNEX has failed to show that competition would not be undermined by a waiver of the Commission's reconfiguration NRC policy. Teleport states that NYNEX's evidence in support of its petition for waiver lacks crucial information, including the precise market segment in which NYNEX lost customers and the technical and economic hurdles that competitors still must surmount. Teleport contends that, in fact, competition will be severely undermined by the grant to NYNEX of a waiver of the Commission's reconfiguration NRC policy. Teleport argues that NYNEX is the dominant service provider in Zone 1 and possesses the ability to control the progress of its rivals by a variety of devices, such as the imposition of excessive collocation charges. Furthermore, Teleport maintains that NYNEX does not need a waiver of the Commission's reconfiguration NRC policy to compete in the access market because NYNEX already possesses considerable pricing flexibility with which to respond to competition. 12. Teleport also asserts that the Bureau mistakenly concluded that NYNEX recovers reconfiguration costs from its own customers through recurring rates. Teleport contends that NYNEX has the ability to absorb nonrecurring reconfiguration costs, rather than recover them through recurring rates, because NYNEX has substantial pricing flexibility under the Commission's price cap regulations and is not required to show that its access rates are cost- based. In contrast, Teleport states that NYNEX imposes steep reconfiguration NRCs on interconnectors' customers. Teleport argues that, consequently, the difference between NYNEX's method for recovering nonrecurring reconfiguration costs from interconnectors' customers and NYNEX's method for recovering those costs from its own customers will not be minimal, as the Bureau concluded, but rather discriminatory in violation of Section 202(a) of the Communications Act. 13. Finally, Teleport maintains that the one-year limit placed on the waiver is not sufficient to prevent NYNEX from undermining competition because customers could agree to long-term contracts with NYNEX during that period. C. MCI Petition for Reconsideration 14. MCI argues that NYNEX has not provided adequate cost support information to show the extent to which its nonrecurring reconfiguration costs are recovered through recurring rates. MCI states that NYNEX should be required to provide detailed cost information that illustrates exactly how much of its recurring rate is overhead, what percentage of the overhead is actually recovering direct cost for reconfiguration, and how this relationship changes over time. MCI also argues that NYNEX's DS3 rates should decline after it has recovered its nonrecurring costs, and claims that NYNEX has not shown that this will be the case. Furthermore, MCI recommends that the Bureau require NYNEX to report any recovery of nonrecurring costs through recurring rates separately in its annual access filings in order to help "ensure that interexchange access rates remain cost-based." 15. MCI also argues that, if the level of NYNEX's recurring rates is not high enough to recover NYNEX's nonrecurring reconfiguration costs, NYNEX is foregoing revenue that would otherwise be reported in its trunking basket and that might trigger sharing obligations. MCI suggests requiring NYNEX to "add back" any such revenue shortfall to the trunking basket for purpose of calculating NYNEX's sharing obligation. In addition, MCI contends that in the NRC Waiver Order the Bureau did not address MCI's argument that any efficiency gains that result when customers move from DS1 to DS3 service should be passed on to access customers in the form of lower rates. Finally, MCI claims that in the NRC Waiver Order the Bureau did not clearly define the conditions that a LEC must meet in order to obtain a waiver of the Commission's reconfiguration NRC policy. D. NYNEX Opposition and Supplemental Information 16. NYNEX contends that it has demonstrated that it faces a significant level of competition in its New York region. For example, NYNEX asserts that, as of the third quarter of 1994, interconnectors had gained 47.5 percent of the high capacity special access market in New York LATA 132 central offices in which they are located. NYNEX also claims that, as of July 1994, interconnectors had physical collocation arrangements in 10 of 11 central offices below 59th Street in Manhattan. 17. In addition, NYNEX contends that competition has increased in its New York region during the operation of the waiver. NYNEX states that, since the initial grant of the waiver, the number of NYNEX's New York State Zone 1 central offices with collocation arrangements has increased from 12 to 18. NYNEX also submits that the number of collocation nodes at those central offices has increased from 22 to 70, with an additional 45 currently under construction. Moreover, NYNEX maintains that the number of DS1 special access channel terminations connected to collocated facilities in NYNEX's New York State Zone 1 central offices has increased from 2376 to 4450 and the number of DS3 special access channel terminations connected to these collocated facilities has increased from 52 to 431. According to NYNEX, these statistics demonstrate that competition has increased in NYNEX's New York region since the initial grant of the waiver. 18. In response to Teleport's argument that the one-year limit placed on the waiver is not sufficient to prevent NYNEX from undermining competition because customers could agree to long-term contracts with NYNEX during that period, NYNEX claims that its tariff permits customers to terminate multi-year contracts with very little penalty. NYNEX also contends that, contrary to Teleport's assertion, the charges it imposes on interconnectors are not excessive, and that its DS1 cross-connect charge is the lowest among all of the BOCs. In addition, NYNEX claims that it has made more progress than any other BOC in removing impediments to competition. 19. As for MCI's contention that the Commission should monitor whether NYNEX reduces its recurring charges once the nonrecurring reconfiguration costs have been recovered, NYNEX argues that the Commission's price cap rules do not require that access rates reflect fully distributed costs. NYNEX states that, under price cap regulation, rates that are below the price cap limits and within the service category band limits are presumed reasonable without regard to the costs of any particular rate element. 20. Finally, NYNEX contends that a party seeking a waiver must identify the particular facts that would make strict compliance with the rules inconsistent with the public interest, or the unique circumstances that would make the rule unjust as applied to that party. NYNEX asserts that, because it faces "unique competition" in its region, the Bureau was justified in permitting it to waive nonrecurring charges as interconnectors are permitted to do. NYNEX also maintains that none of the parties has shown that the waiver granted by the Bureau would adversely affect the public interest. E. Record on Bell Atlantic's January 30, 1998, Petition for Extension 21. In its opposition to Bell Atlantic's January 30, 1998 petition for an indefinite extension of the waiver, AT&T asserts that in the past several years Bell Atlantic has slowed the pace of reductions to its base pricing for special access services, and that Bell Atlantic's special access prices in New York continue to be equal to, or higher than, Bell Atlantic's prices in New England. AT&T argues that these observations indicate that Bell Atlantic is not responding to the competition that it allegedly faces in New York. Bell Atlantic replies that it has responded to competition by offering customers deeply discounted term and volume plans, which have substantially reduced Bell Atlantic's revenues per line. Bell Atlantic also argues that its ability to reduce basic month-to-month rates is limited because it must recover its nonrecurring reconfiguration costs over a period of time that is potentially much shorter than the time period available for cost recovery under long-term contracts. In addition, AT&T asserts that an indefinite extension of the reconfiguration NRCs waiver would be inappropriate because Bell Atlantic has not demonstrated that: (1) the special access and switched transport markets in New York are "fully competitive;" (2) an indefinite extension of the waiver will not violate Bell Atlantic's non-discrimination obligation under Section 251(c)(3) of the Telecommunications Act; and (3) an indefinite extension of the waiver will not disadvantage other carriers in the event that Bell Atlantic receives authority under Section 271 of the Telecommunications Act to provide in- region interLATA service in New York. Bell Atlantic replies that none of these findings are required in this proceeding, and that the Bureau only has to find that an indefinite extension of the reconfiguration NRCs waiver would not undermine competition in those markets. Finally, MCI argues that the Bureau should not grant an indefinite extension of the waiver at this time because the Commission is currently considering significant changes to the rules that govern LEC pricing flexibility. Bell Atlantic states that an indefinite extension of the waiver is justified at this time and that the extension would be subject to any applicable rules that are adopted in the pricing flexibility rulemaking. IV. DISCUSSION A. Standard for Waiver 22. Under Section 1.3 of the Commission's rules, the Commission may exercise its discretion to waive a rule if "good cause" for a waiver is shown. Judicial interpretation of the Commission's authority to waive its rules has established the following principles: 1) the Commission may grant a waiver only if special circumstances warrant a deviation from the general rule and such a deviation will serve the public interest better than adherence to the general rule; and 2) the Commission's decision to grant a waiver must be based on articulated, reasonable standards that are predictable, workable, and not susceptible to discriminatory application. In evaluating whether waiver of the Commission's reconfiguration NRC policy would be in the public interest, the Commission stated in the Second Reconsideration Order that it would consider waiving its reconfiguration NRC policy only if a LEC could demonstrate that any differential treatment resulting from the waiver would not undermine competition or otherwise violate the Act. 23. As explained below, the Bureau's decision in the NRC Waiver Order, and our decision here to affirm and extend the waiver, are consistent with these waiver standards articulated by the Commission and the U.S. Court of Appeals for the District of Columbia. We find that the limited waiver of the Commission's reconfiguration NRC policy has not undermined, and will not undermine, competition in the access market served by NYNEX's New York State Zone 1 central offices or otherwise violate the Act because: 1) NYNEX's access service faces a significant level of competition from interconnectors' service in NYNEX's Zone 1 central offices in New York State and this level of competition has increased during the time period in which the waiver has been in effect; and 2) NYNEX recovers nonrecurring reconfiguration costs over time from NYNEX's access customers and interconnectors' access customers. We find that these two factors represent a reasonable, predictable, and workable standard that is not susceptible to discriminatory application. Applying this standard to the record before us results in granting NYNEX a limited waiver that provides it with the same ability as its competitors to recover nonrecurring costs through recurring charges from its access customers. B. Justification for Waiver 1. Level of Competition 24. Teleport argues that NYNEX's evidentiary showing in support of its claim that competition would not be undermined by the waiver lacks crucial information, such as the precise market segment in which NYNEX lost customers. To the contrary, we find that NYNEX has offered sufficient evidence of significant competition in the market for access service originating from NYNEX's Zone 1 central offices in New York State. The record indicates that interconnectors have been operating in the NYNEX region for a substantial period of time. Interconnectors in NYNEX's region also appear to have more collocation nodes and to have achieved higher market penetration than interconnectors in any other region of the country. The record shows that interconnectors have gained at least 40 percent of the high capacity special access market in the New York City central offices in which they are located, which are generally Zone 1 central offices, and that interconnectors are located in 10 of the 11 central offices below 59th Street in Manhattan. 25. Furthermore, the record indicates that competition has in fact increased in the access market served by NYNEX's Zone 1 central offices in New York State during the operation of the waiver. Since the initial grant of the waiver, the number of NYNEX's New York State Zone 1 central offices with collocation arrangements has increased from 12 to 18. The number of collocation nodes at those central offices has increased from 22 to 70, with an additional 45 nodes currently under construction. Moreover, the record shows that the number of DS1 special access channel terminations connected to collocated facilities in NYNEX's New York State Zone 1 central offices has increased from 2376 to 4450 and the number of DS3 special access channel terminations connected to these collocated facilities has increased from 52 to 431. 26. The Bureau's finding in the NRC Waiver Order that NYNEX faces a significant level of competition in the access market served by NYNEX's New York State Zone 1 central offices is consistent with the Commission's observations in the NYNEX USPP Order regarding the level of competition in NYNEX's LATA 132. In the NYNEX USPP Order, the Commission granted NYNEX a limited waiver of certain aspects of the Commission's access charge rules because it found that special circumstances related to competition exist in LATA 132. Specifically, the Commission found that interconnectors have constructed extensive networks in LATA 132 and are providing service in New York City and many other portions of LATA 132. In addition, the Commission observed that the high volume of traffic in lower Manhattan enables interconnectors to carry a substantial amount of telecommunications traffic using relatively few facilities and presents special opportunities for the development of competition. 27. We do not find, as ALTS contends, that the Bureau should have considered whether NYNEX had implemented structural changes in the local exchange services market before the Bureau determined in the NRC Waiver Order that competition would not be undermined by this limited waiver of the Commission's reconfiguration NRC policy. The market characteristics on which the Bureau relied, and on which we rely in this Order -- the number of wire centers with collocation arrangements, the number of collocation nodes, and the number of channel terminations connected to collocated facilities -- are all important indicators of the level of competition in the access market served by NYNEX's New York State Zone 1 central offices. We find, as explained above, that these market characteristics demonstrate that the level of competition in the access market served by NYNEX's New York State Zone 1 central offices is sufficient to warrant the limited waiver granted in the Bureau's NRC Waiver Order. The implementation of the structural changes that ALTS discusses, i.e., full number portability, resale of local facilities, reciprocal compensation agreements, and interLATA dialing parity, are necessary steps to ensure full competition in the local exchange services market. The Bureau did not make a finding of full competition in the local exchange services market in the NRC Waiver Order, however, and the standard articulated in the Second Reconsideration Order for granting a waiver of the Commission's reconfiguration NRC policy does not require such a finding to justify a waiver of the type at issue here. Rather, this standard only requires a finding that the operation of the waiver will not undermine existing competition in the access services market. 28. Even if it were necessary to consider structural changes in the local exchange services market, we find that the evidence of such changes in NYNEX's New York State Zone 1 central offices supports extension of the NRC waiver. At the time the Bureau granted NYNEX a waiver of the Commission's reconfiguration NRC policy in 1995, NYNEX had made progress in removing barriers to competition in New York. At that time, NYNEX was offering the following services: physical collocation; unbundled access to business and residence links and ports; interconnection of competitors' local exchange networks; access to poles and conduits under NYNEX's control; resale of NYNEX services; reciprocal compensation and meet point billing arrangements; interim local number portability and implementation of an industry-wide New York trial of a permanent database solution for local number portability; cooperative engineering, operational, maintenance and administrative practices; and interLATA presubscription. In addition, since the initial grant of the waiver, the Telecommunications Act of 1996 and the Local Competition Order will remove other barriers to entry by requiring LECs to provide, among other things, access to unbundled network elements and retail services available at wholesale rates. Moreover, the recent Bell Atlantic-NYNEX Merger Order required Bell Atlantic and NYNEX, as a condition of the merger, to take a number of steps that will allow competitors to enter and compete more easily in the combined Bell Atlantic and NYNEX regions. These steps include the offering of interconnection, unbundled network elements, and transport and termination at rates based on forward-looking economic costs. 29. Teleport maintains that the one-year limit placed on the waiver is not sufficient to prevent NYNEX from undermining competition because customers could agree to long-term contracts with NYNEX during the one-year waiver period. We find, however, that the records in the First NRC Waiver Extension Order and Second NRC Waiver Extension Order demonstrate that neither the initial grant of the waiver in 1995, nor the two subsequent waiver extensions, diluted the significant competition that had taken hold in the market for access service originating from NYNEX's New York State Zone 1 central offices. We also find that the record before us does not indicate that this situation is likely to change in the near future. Accordingly, we find that any long-term contracts formed during the initial one-year waiver period have not had the effect of undermining competition in the access market served by NYNEX's New York State Zone 1 central offices. 30. Finally, Teleport contends that NYNEX does not need a waiver of the Commission's reconfiguration NRC policy to respond to any competition in the market for access service originating from NYNEX's New York State Zone 1 central offices because NYNEX already possesses considerable pricing flexibility under price cap regulation and can engage in zone density pricing. We acknowledge that NYNEX and other LECs have pricing flexibility under price cap regulation, but we conclude that the significant level of competition in the access market served by NYNEX's New York State Zone 1 central offices warrants the additional pricing flexibility afforded by the waiver of the Commission's reconfiguration NRC policy. 31. Accordingly, we affirm the Bureau's finding in the NRC Waiver Order and the extension orders that NYNEX faces a level of competition in the access market served by its New York State Zone 1 central offices that is sufficient to warrant a waiver of the Commission's reconfiguration NRC policy. We also find that, based on the record before us, this level of competition is sufficient to warrant an indefinite extension of the waiver granted by the Bureau in the NRC Waiver Order. We delegate authority to the Chief, Common Carrier Bureau, to continue to monitor the development of competition in the access market served by NYNEX's New York State Zone 1 central offices and, if the extension we now grant results in differential treatment that undermines competition or otherwise violates the Communications Act, to limit or rescind this extension. We also note that the extension that we now grant will be subject to any applicable rules on pricing flexibility adopted in the Access Reform proceeding 32. Nor do we find that our conclusions here are undermined by arguments made by AT&T and MCI in response to Bell Atlantic's recent petition for extension of the waiver. We disagree with AT&T's assertion that the trend in Bell Atlantic's base pricing for special access service over the past several years indicates that Bell Atlantic has not been affected by any competitive market pressures in New York. Although the reduction in Bell Atlantic's base pricing for special access service appears to have leveled off in the past several years, Bell Atlantic has offered deeply discounted term and volume plans in order to retain its access customers. We also disagree with the assertion by AT&T and MCI that an indefinite extension of the waiver is warranted only if Bell Atlantic can demonstrate that the special access and switched transport markets in New York are fully competitive. Under the waiver standard adopted by the Commission for this proceeding, Bell Atlantic is not required to demonstrate that the New York access service markets are fully competitive, but rather that any differential treatment resulting from a waiver would not undermine competition or otherwise violate the Act. As discussed above, we find that Bell Atlantic has made this requisite showing. In addition, we reject AT&T's argument that Bell Atlantic must justify an indefinite extension of the reconfiguration NRCs waiver under Sections 251(c)(3) and 271 of the Telecommunications Act. Section 251's requirements for access to unbundled network elements do not govern the process of taking expanded interconection service pursuant to the Section 201 tariffing process, and thus do not govern our waiver decision here. Similarly, Section 271, which establishes prerequisites to BOC entry into the in-region, interLATA service market, does not apply to this proceeding. 2. Comparability of NYNEX's Methods for Recovering Nonrecurring Reconfiguration Costs 33. In the NRC Waiver Order, the Bureau required NYNEX to permit customers of interconnectors to pay reconfiguration NRCs over a 12-month period, which the Bureau determined would be comparable to NYNEX's method of recovering reconfiguration NRCs from its own access customers. We agree with the Bureau's findings. As the Bureau noted, although NYNEX does not impose reconfiguration NRCs on its own access customers, NYNEX recovers reconfiguration costs from these customers over time through revenues it receives from recurring rates. As a result of the condition imposed on NYNEX by the Bureau, NYNEX also permits customers of interconnectors to pay NRCs over a 12-month period. 34. We reject Teleport's contention that the difference in NYNEX's methods of recovering nonrecurring reconfiguration costs constitutes unreasonable discrimination in violation of section 202(a) of the Act. Section 202(a) of the Act prohibits unjust or unreasonable discrimination in charges, practices, classifications, and services by common carriers in connection with any "like" communications services. In examining whether NYNEX's charges for reconfigurations are unreasonably discriminatory, we must determine: 1) whether the services at issue are "like" communications services, which is based on whether they are the "functional equivalent" of each other; 2) whether there is a difference in charges or treatment; and 3) whether the difference is reasonable. While the waiver of the Commission's reconfiguration NRC policy permits NYNEX to use slightly different rate structures for apparently equivalent services, we find that the difference between the reconfiguration charges that NYNEX imposes on its own access customers and the reconfiguration charges it imposes on interconnectors' access customers is reasonable. NYNEX must apply NRCs to recover reconfiguration costs from access customers that switch to an interconnector's service because NYNEX loses those customers and therefore receives no ongoing recurring revenues from them. Although NYNEX recovers reconfiguration costs from its own customers through recurring rates rather than through NRCs, we find, as discussed above, that the difference in cost recovery methods is minimal because interconnectors' customers can pay the NRC over a 12-month period. As a condition of our extension of NYNEX's waiver, we require NYNEX to continue to permit interconnectors' customers to pay the reconfiguration NRC over a 12-month period. C. Other Arguments 35. Those parties opposing the grant of the waiver make a number of other arguments that are without merit and are not directly relevant to the waiver issue. MCI and ALTS argue that NYNEX should be required to report any recovery of nonrecurring costs through recurring rates separately in its annual access filings in order to "help ensure that interexchange access rates remain cost-based." We disagree. When carriers subject to price cap regulation submit proposed rates for existing services that are within the applicable service bands and those rates result in an actual price index (API) value equal to or less than the applicable price cap index (PCI), the carriers are only required to file supporting materials sufficient to establish compliance with applicable service bands and sufficient to calculate the necessary adjustments to the affected PCI, API, and service band index (SBI). Our price cap rules do not require LECs submitting proposed rates that meet the criteria listed above, such as recurring rates for access service, to file supporting materials demonstrating that the rates are cost-based. The suggestion by MCI and ALTS to require LECs to report any nonrecurring costs recovered through recurring rates separately in their annual access filings is inconsistent with these rules. 36. MCI also argues that, if NYNEX does not recover all its nonrecurring reconfiguration costs through its recurring rates, NYNEX's sharing obligation under price caps might be reduced. MCI suggests that the Commission require NYNEX to "add back" any such revenue shortfall to the trunking basket for purposes of calculating NYNEX's sharing obligation. We decline to do so. As an initial matter, we note that in the LEC Price Cap Fourth Report and Order the Commission eliminated sharing obligations for all price cap LECs beginning with the 1997-98 tariff year. Thus, MCI has no basis for concern that the waiver granted to NYNEX would reduce NYNEX's sharing obligation on a going-forward basis. Furthermore, as discussed above, we find that NYNEX does recover reconfiguration costs from its own access customers over time through revenues it receives from recurring rates, and that such revenues would be reflected in NYNEX's trunking basket. Consequently, the waiver's operation from March 1995 until the 1997-98 tariff year would not have reduced any potential sharing obligation for NYNEX. 37. MCI next contends that the Bureau erred by failing to address MCI's argument that any efficiency gains that result when NYNEX customers move from DS1 to DS3 services should be passed on to access customers in the form of lower recurring rates, in addition to the waiver of reconfiguration NRCs. We find, however, that the Bureau properly decided not to consider this issue as a factor when it granted NYNEX a waiver of the Commission's reconfiguration NRC policy in the NRC Waiver Order. The only issue in this proceeding is whether granting NYNEX a waiver of our reconfiguration NRC policy would undermine competition or otherwise violate the Act. For the reasons discussed above, we conclude that the waiver has not produced, and will not produce, these untoward results. Whether NYNEX passes through to its customers any efficiency gains that result when customers move from DS1 to DS3 services is not relevant to this determination. Although we recognize that NYNEX could have encouraged its customers to move from DS1 to DS3 services by lowering rates in addition to waiving reconfiguration NRCs, MCI's preference for more encouragement does not warrant denial of NYNEX's waiver petition in this proceeding. V. ORDERING CLAUSES 38. Accordingly, IT IS ORDERED that the applications for review filed by the Association for Local Telephone Services and Teleport Communications Group, Inc., and the petition for reconsideration filed by MCI Telecommunications Corporation, ARE DENIED. 39. IT IS FURTHER ORDERED that the petition by the Bell Atlantic Telephone Companies for an INDEFINITE EXTENSION of the waiver granted by the Bureau in the NRC Waiver Order for Bell Atlantic's Zone 1 central offices in New York State IS GRANTED, subject to the conditions specified herein. 40. IT IS FURTHER ORDERED that authority is delegated to the Chief, Common Carrier Bureau, to continue to monitor the development of competition in the access market served by Bell Atlantic's New York State Zone 1 central offices and, if the extension we now grant results in differential treatment that undermines competition or otherwise violates the Communications Act, to limit or rescind this extension. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary March 20, 1998 Separate Statement of Commissioner Gloria Tristani Re: New York Telephone Company and New England Telephone and Telegraph Company, Nonrecurring Charges for Reconfiguration of Circuits, Applications for Review and Petition for Reconsideration, Petition for Indefinite Extension of Waiver, Memorandum Opinion and Order This Order grants NYNEX a waiver of our policy concerning the imposition of nonrecurring charges (NRCs) for the reconfiguration of access circuits. The waiver permits NYNEX to bundle these NRCs into its rates for access service. Bundling of NRCs in this way permits NYNEX to compete more effectively for access customers. While I support this Order, I would have been more comfortable with a waiver of the sort adopted by the Commission in the NYNEX USPP Order and the Ameritech Customers First Order. There, the Commission granted waivers of the access rules based on showings of competition in limited geographic areas. Those proceedings established the important principle that waivers of our access charge rules are justified only in locations where there is a clear showing of competition. Nonetheless, because the record contains some evidence of access competition outside of LATA 132, I am willing to support the statewide relief sought by NYNEX in this instance. This Order, and our recent Orders concerning Southwestern Bell's requests for greater pricing flexibility, highlight the need for a comprehensive approach to LEC pricing flexibility. As competition develops, incumbent LECs should be relieved of restrictions that artificially constrain their ability to compete. At the same time, I believe we must be wary of relaxing rules in a way that permits anticompetitive behavior by incumbents. Striking that balance will be difficult, but competition in the access market continues to develop, that effort is best undertaken sooner rather than later.