Report No. DC95-3          ACTION IN DOCKET CASE            January 4, 1995


             FCC TERMINATES INVESTIGATION INTO GTE OPERATING 
                   COMPANIES' BELOW-BAND TRANSPORT RATES
                          (CC DOCKET NO. 92-141)

     The Commission has terminated its investigation of below-
band transport rates for GTE Operating Companies (GTE California,
Florida, GTE Southwest, and GTE of Washington/Oregon/California
West Coast).  These rates became effective on December 15, 1992.

     In its 1992 annual access tariff filing, the GTE Operating
Companies filed substantially reduced below-bands rates for
transport service in several GTE study areas.  Below-band filings
must include a showing that the rates will cover average variable
costs (AVC), and are otherwise just, reasonable, and
nondiscriminatory.

     Some of GTE's below-band transport rates were lowered to a
level at or near the average variable cost reported in its study. 
GTE's average variable cost showing, however, consisted only of
summary results of incremental cost studies.  Consequently, in
the 1992 Annual Access Order, the FCC's Common Carrier Bureau
concluded that GTE had failed to adequately support its below-
band transport rates, and suspended those rates for five months
pending an investigation to ensure that they were not predatory. 
In order to evaluate the reasonableness of GTE's filings, the
Bureau directed GTE to file a direct case on July 27, 1992.

     The Association for Local Telecommunications Services (ALTS)
filed an opposition to GTE's direct case on August 17, 1992. 
ALTS asked the Commission to clarify that the AVC test requires
an averaging of LEC investment data over the most recent five-
year period to account for distortions caused by "lumpy
investment," for example, GTE's accelerated levels of new
investment in fiber optic facilities. 

     In both the AT&T Price Cap Order and the LEC Price Cap
Order, the Commission made clear that rate reductions are
generally beneficial to consumers,and are more often than not
undertaken for competitive reasons.


                                  (over)



                                    -2-

     Moreover, the Commission has maintained the view that proven
cases of predatory pricing are rare, that below-band reductions
introduced under its price cap system will more likely be
procompetitive than predatory, and that the LEC service basket
structure further lessens the already unlikely occurrence of
predation.  In both Orders, the Commission found that average
variable cost is central to determining whether prices are
predatory for tariff review purposes. 

     In this case, the Commission stated that GTE had
demonstrated that its cost meet or exceed its average variable
cost, and has thus made the showing required for below-band
rates.  The Commission said that GTE had also adequately
addressed ALTS' allegations that it underreported costs and
overestimated service output.  In addition, the Commission stated
that there is nothing else in the record to support a conclusion
that GTE's rates are otherwise unreasonable and unreasonably
discriminatory.  Accordingly, the Commission found that GTE's
rates are lawful.

     Action by the Commission December 23, 1994, by Memorandum
Opinion and Order (FCC 94-349).  Chairman Hundt, Commissioners
Quello, Barrett, Ness, and Chong.

                                   -FCC-

     News Media contact: Patricia A. Chew at (202) 632-5050.
     Common Carrier Bureau contact: Jane Gross at (202) 418-1556
or Roxanne McElvane at (202) 418-1550.