NEWSReport No. DC- 2690ACTION IN DOCKET CASE December 15, 1994 FCC AFFIRMS INTERIM TRANSPORT RATE STRUCTURE (CC DOCKET 91-213) The Commission today has affirmed the interim rate structure and related pricing rules that govern the local telephone companies' provision of transport services. As part of its decision, the Commission addressed all the remaining issues raised in reconsideration petitions filed since the Commission adopted the interim transport rate structure in 1992. The Commission said that it expects American consumers to realize benefits from this action, which is designed to foster more efficient deployment and use of transport networks and to promote access and long-distance competition. Greater efficiency in deploying telecommunications networks should lead to reduced access charges and make it possible for long-distance companies to lower their long-distance rates. These measures, in turn, should benefit consumers, make resources available for productive investment elsewhere in the economy, and stimulate economic growth. Greater competition in the local access market should yield similar benefits. Such competition is likely to create greater opportunities for new service providers, and more importantly, for consumers. * * * * Transport is a service by which local telephone companies carry originating or terminating traffic of long-distance companies to the local telephone companies' end office switches. At the end office, local switching occurs, and the traffic is routed to and from residential and business end-users. The interim transport rate structure and pricing rules are a measured, transitional step toward pro-competitive, cost-based transport rates, because they best balance three goals of the Commission: (over) - 2 - First, the interim rate structure and pricing rules give local telephone companies incentive to deploy transport facilities more efficiently and encourage long- distance companies to use those facilities more efficiently. The rules accomplish this by permitting local telephone companies to offer transport facilities that are dedicated to the use of a single customer at flat, monthly rates. This is the way the costs are incurred by local telephone companies, and this is the way the local telephone companies' competitors price their competitive service offerings. Second, the interim transport rate structure and pricing rules promote access competition by permitting local telephone companies to offer flat-rated transport service in the same economically rational manner as their access competitors. Thus, the transport rules act as a foundation for the Commission's expanded interconnection policies and local access competition. Third, the interim rate structure and pricing rules facilitate interexchange competition by enabling long-distance companies to make their transport networks more efficient. * * * * In today's action, the Commission adopted a Third Memorandum Opinion and Order on Reconsideration addressing the interim rate structure and pricing policies. It did not address the long-term transport rate structure and pricing rules, which are the subject of a pending Further Notice of Proposed Rulemaking. The Commission also issued a Supplemental Notice of Proposed Rulemaking seeking comment on the implementation of "split billing" of certain local exchange carrier (LEC) facilities that are shared by multiple access customers. - 3 - Specifically, the Commission affirmed the interim transport rate structure, as well as the methodology used to establish the LECs' initial restructured transport rates. Under the interim rate structure, the Commission required the LECs to set their initial transport rates based on their existing special access rates, subject to a benchmark requirement. In today's order, the Commission affirmed that special access rates provide a rational framework for setting initial restructured transport rates because special access and transport use similar facilities. Moreover, special access rates have been subject to the discipline of both a certain degree of competition and the tariff review process. The Commission declined to adopt recommendations to upwardly adjust the level of the benchmark ratio, which was based on the relationship between the LECs' high-capacity (DS3) and lower-capacity (DS1) services. The Commission also declined to adopt permanent rate relationships between different transport services, finding that: (1) the benchmark ratios recommended as the basis for such rate relationships are not cost-based; (2) permanent rate relationships contravene the principles of price cap regulation; and (3) permanent rate relationships could interfere with access competition. The Commission retained the structure of the transport-related price cap basket, service categories, and pricing bands, adopted in earlier orders and as amended by the 1994 Second Transport Order. The Commission affirmed that this price cap structure best balances the need for LEC pricing flexibility and the concerns raised regarding anti-competitive LEC pricing. The Commission also affirmed that the burden of proof associated with a mid- course adjustment to the interconnection charge lies with the LECs. In order to prevent double recovery, the Commission retained the requirement that a LEC seeking a mid-course adjustment demonstrate the extent to which that LEC has not been able to reuse facilities no longer needed after reconfiguration. The Commission also retained the requirement that the LECs bear the burden of proving that demand losses resulted from the transport rate restructure rather than competition. It clarified that any mid-course adjustment to the interconnection charge must be based on the period between the effective date of the initial transport tariffs (December 30, 1993) and December 31, 1994. Further, the Commission clarified that the mid-course adjustment permits the recoupment of under-recovered revenues before the effective date of any tariff implementing the adjustment, as well as a permanent adjustment to the level of the interconnection charge. (over) - 4 - The Commission declined to broaden the scope of the requirement that LECs waive non-recurring charges for reconfiguration related to the transport restructure. Non-recurring charges include, for example, installation charges paid when a new circuit is installed. The Commission said that to broaden the waiver to include network reconfiguration not related to the rate restructure would be unfair to the LECs and beyond the scope of this proceeding. The Commission declined to extend the waiver requirement, which expired at the end of June 1994. It also clarified that a significant decrease in the level of non-recurring charges during the initial period of the interim rate structure might serve as a basis for the mid-course adjustment to the interconnection charge. In the Supplemental Notice of Proposed Rulemaking, the Commission sought comments on its tentative conclusion that "split billing" of certain LEC facilities that are shared by multiple access customers is in the public interest. The Commission found that resale and sharing by interexchange carriers (IXCs) of LEC transport facilities would help smaller IXCs and access customers reap maximum benefit from the local transport rate restructure. It observed that for such arrangements to be practical, it is necessary to develop procedures for LECs to provide "split billing" -- that is, billing arrangements that enable multiple customers to share or resell entrance facilities and direct-trunked transport facilities. The Commission also tentatively concluded that it should require LECs to tariff procedures used to offer transport split billing, and sought comment on how best to implement the proposed split billing requirement. Action by the Commission December 15, 1994, by Third Memorandum Opinion and Order on Reconsideration and Supplemental Notice of Proposed Rulemaking (FCC 94-325). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong. - FCC - News Media contact: Susan Lewis Sallet at (202) 418-0500. Common Carrier Bureau contacts with respect to the Third Memorandum Opinion and Order: Matt Harthun at (202) 418-1590 or David Sieradzki at (202) 418- 1576. Common Carrier Bureau contact with respect to the Supplemental Notice of Proposed Rulemaking: Barbara Esbin at (202) 418-1520.