Report No. DC-2625 ACTION IN DOCKET CASE July 14, 1994 FCC REAFFIRMS AND MODIFIES ITS EXPANDED INTERCONNECTION POLICY (CC DOCKET NO. 91-141) The FCC today reaffirmed its commitment to its expanded interconnection policy, which creates new opportunities for competitive provision of access services that the local telephone companies traditionally have provided on a monopoly basis. The Commission acted in response to the June 10, 1994 decision of the U.S. Court of Appeals for the D.C. Circuit in Bell Atlantic Telephone Companies v. FCC. In that case, the court said it would vacate in part, and otherwise remand, the first two of the Commission's expanded interconnection orders, on the grounds that the agency lacked authority to require the telephone companies to provide expanded interconnection for special access through physical collocation. In the order adopted today, the Commission directed the local telephone companies to provide expanded interconnection through virtual collocation. The Commission concluded that, although its earlier orders found that physical collocation would be the optimal means to achieve the public interest benefits of expanded interconnection, virtual collocation also produces these benefits. The Commission found that it had legal authority to require virtual collocation. The FCC exempted telephone companies from the mandatory virtual collocation requirement at central offices in which they choose to offer physical collocation subject to non-streamlined regulation by the Commission as a communications common carrier service. By acting expeditiously before the court issues its mandate, the FCC said that it sought to avoid the disruption to competition that might result if its expanded interconnection policy lapsed. The Commission said that this quick response to the court's decision would give affected parties clear guidance on their rights and obligations and preserve the public interest benefits of expanded interconnection. The carriers are required to file virtual collocation tariffs on September 1, 1994, scheduled to become effective on December 15, 1994. By requesting a stay of the issuance of the court's mandate until December 15, 1994, the Commission is seeking to ensure that there will be no lapse in the expanded interconnection requirement before the new regulations and tariffs take effect. The FCC concluded that local telephone companies with operational expanded interconnection arrangements under the Commission's new policies will be eligible for additional pricing flexibility. The FCC also affirmed its "fresh look" policy, which limits the termination liabilities for customers that had entered long-term special access arrangements with telephone companies before the adoption of the first expanded inter- connection order, but want to terminate those arrangements to take service from a competitor once expanded interconnection is available. The Commission said the increased competition generated by expanded interconnection should lead to lower access charges, which in turn would make it possible for long-distance companies to offer service at lower rates. Competition also creates incentives for telephone companies and their competitors to invest in advanced telecommunications technologies, develop innovative services, give users a greater range of choices in telecommunications services, and provide existing services more efficiently. Action by the Commission July 14, 1994, by Memorandum Opinion and Order (FCC 94-190). Chairman Hundt, Commissioners Quello, Barrett, Ness, and Chong, with Commissioners Quello, Barrett and Chong issuing separate statements. -FCC- News Media contact: Audrey Spivack and Patricia A. Chew at (202) 418-0500. Common Carrier Bureau contact: David L. Sieradzki at (202) 418-1576 or Suzanne M. Tetreault at (202) 418-1596. ATTACHMENT: Additional Information on the FCC's Expanded Interconnection Decision Background -- Definitions Expanded interconnection is a local exchange carrier (LEC) offering that enables parties, by interconnecting their circuits with those of the LEC at the LEC central office, to compete with certain interstate switched and special access services that the LECs traditionally have provided on a monopoly basis. Physical collocation, under the Commission's definition, is an offering that enables an interconnector to locate its own transmission equipment in a segregated portion of a LEC central office. The interconnector pays a tariffed charge for the use of that central office space, and may enter the central office to install, maintain, and repair the collocated equipment. Virtual collocation, as defined by the Commission in this proceeding, is a service in which the LEC provides central office transmission equipment that terminates interconnectors' circuits. The LEC owns and exercises exclusive physical control over this equipment, but the equipment is dedicated to the interconnector's use. The interconnector has the right to designate its choice of central office equipment, and to monitor and control the equipment remotely. Collocation Architecture Requirements In response to the court's decision in Bell Atlantic Telephone Companies v. FCC, the FCC reaffirmed that expanded interconnection, through collocation in LEC central offices of equipment used by interconnectors, is necessary to promote competition and is in the public interest. The Commission concluded that virtual collocation produces these benefits and is within the scope of the agency's authority under Section 201 and other relevant provisions of the Communications Act of 1934, as amended. The FCC also found that mandatory virtual collocation is not a taking. Under the order adopted today, the larger LECs are required to offer expanded interconnection through virtual collocation to any party that orders this service. The FCC exempted LECs from the mandatory virtual collocation requirement at any specific central offices in which they offer physical collocation subject to regulation by the Commission as a communications common carrier service. Although the FCC is moving forward with a mandatory virtual collocation regime now in response to the court's order, the Commission said that it would remain open to alternative inter- connection arrangements proposed by telephone companies in waiver petitions if those proposals satisfy the public interest objectives achieved by virtual collocation. In addition, once LECs satisfy the basic requirement of tariffing a virtual collocation offering, or physical collocation under an exemption, they could negotiate additional arrangements with inter- connectors. Such arrangements would have to be made available to other similarly situated parties. The LECs must file tariffs offering virtual collocation on September 1, 1994, scheduled to be effective on December 15, 1994. LECs that wish to be exempted at that time from the virtual collocation requirement need not file revisions to their physical collocation tariffs, except to the extent necessary to comply with modified rules adopted by the Commission. The existing rules requiring LECs to provide expanded interconnection for special access and switched transport through physical collocation will remain in effect until December 15, 1994. The Office of the General Counsel intends to petition the court for a stay of the issuance of the mandate in Bell Atlantic v. FCC to prevent any lapse in the expanded interconnection requirements before the new regulations and tariffs take effect. Standards Under the Commission's virtual collocation policy, inter- connectors have the right to select the type of central office equipment dedicated to their use. The LECs' virtual collocation tariffs will be required to specify rates for use of a specific list of virtual collocation equipment that interconnectors will identify. After the tariffs take effect, interconnectors will continue to have the right to specify additional types of virtual collocation equipment. The LECs will be required to provide installation, maintenance, and repair services equivalent to those performed on other comparable LEC equipment. If a LEC generally permits outside service representatives to install, maintain, or repair its equipment, it will be required to permit such representatives to provide these services on the equipment dedicated to inter- connectors' use under virtual collocation. This will avoid the cost of training LEC employees to service equipment with which they are unfamiliar, and will relieve the LEC of certain responsibilities. The LEC will be permitted, but not required, to select interconnectors to perform these functions if inter- connectors meet the general standards that apply to outside service representatives. The FCC also instituted a broader information collection program than it had in earlier orders. This will allow the Commission to collect more information about the development of competition in the access marketplace. The order delegates authority to the Chief, Common Carrier Bureau to specify the format, content, and timing of the monitoring reports. Because the implementation of mandatory virtual collocation creates a potential for more disputes than arose under the physical collocation regime, the Commission delegated authority to the Chief, Common Carrier Bureau, to develop special dispute resolution mechanisms, possibly including the designation of a Commission representative to mediate disputes. The Commission generally reaffirmed its rules regarding the rate structures and levels for expanded interconnection offerings. The Commission said that the LECs must establish reasonable, disaggregated subelements for connection charges pursuant to rate structures that (1) reflect cost-causation principles, (2) are unbundled to ensure that interconnectors are not forced to pay for services that they do not need, and (3) establish a cross-connect element that applies uniformly to both physical and virtual collocation. In addition, the rate structures chosen by the LECs must be clear and easy to understand. Regardless of a LEC's individual choice of rate structure, the facilities and services provided under each rate element should be clear on the face of the tariff, and the tariff support information should identify the specific costs that are recovered by each rate element. In addition, each rate element should logically relate to the service function provided under that rate element. Pricing Flexibility The FCC denied Teleport Communications Group's petition for declaratory ruling, which had sought to eliminate the pricing flexibility granted to the LECs in earlier orders unless those companies voluntarily provide expanded interconnection through physical collocation. The Commission concluded that the need for additional LEC pricing flexibility does not hinge upon the choice between virtual collocation and physical collocation. The FCC said that in adopting a mandatory virtual collocation policy, it intended to ensure the availability of a reasonable expanded interconnection offering that gives interconnectors a realistic opportunity to provide access services in competition with the LECs. The Commission found that the current pricing flexibility rules, which allow for density zone pricing for special access and switched transport, as well switched transport volume and term discounts when certain requirements related to interconnector use of expanded interconnection arrangements are met, continue to be reasonable under a mandatory virtual collocation regime. The Commission said that substantial changes in the LECs' expanded interconnection offerings are likely, however, in light of the Bell Atlantic v. FCC decision and the mandatory virtual collocation policy adopted today. Accordingly, the Commission modified somewhat the application of its pricing flexibility rules. For purposes of the mandatory virtual collocation policy, the fact that an interconnector subscribed to expanded interconnection prior to implementation of the new rules would not qualify a LEC for pricing flexibility if all existing inter- connection arrangements in a study area are terminated, and no new interconnector takes service after the mandatory virtual collocation rules are implemented. The FCC said this change will give the LECs an incentive to cooperate in providing expanded interconnection pursuant to the new policy, and will ensure that, under the new rules, inter- connectors have a realistic opportunity to compete with the LECs before LECs may engage in pricing flexibility. Other Matters The Commission reaffirmed its "fresh look" policy for special access expanded interconnection. In general, this policy makes it easier for an incumbent provider's established customers to consider taking service from a new entrant. In the initial order in this proceeding, the Commission concluded that obligations under long-term special access arrangements may prevent customers from obtaining the benefits of the new, more competitive access environment. For that reason, the Commission adopted a "fresh look" policy that limited the termination liabilities that may be assessed upon customers with long-term special access arrangements entered into on or before September 17, 1992. The Commission concluded that fresh look continues to be necessary to give customers a reasonable chance to take advantage of new competitive opportunities made possible by expanded interconnection. Fresh look does not place an unreasonable burden on the LECs, since the LECs will obtain the compensation in their tariffs for the term actually taken by the customer. The Commission concluded that it properly imposed the fresh look requirement. In most other respects, the Commission concluded that its decisions in earlier orders on other standards, tariffing, rate structure, pricing, and other aspects of the expanded inter- connection policy should apply with equal force under the new mandatory virtual collocation regime. -FCC-