NEWSReport No. DC- 95-30 ACTION IN DOCKET CASE February 7, 1995 COMMENTS SOUGHT ON ISSUES RAISED IN COMPUTER III COURT REMAND (CC DOCKET 95-20) The Commission today adopted a Notice of Proposed Rulemaking in response to the Ninth Circuit Court's "California III" remand of certain aspects of the Commission's rules governing the provision of enhanced services by the Bell Operating Companies (BOCs). The Commission noted that it continues to monitor the competitiveness in the enhanced services marketplace and that it will look at both the specific issues remanded by the court as well as the more general issues suggested by various parties regarding opportunities for discrimination. In today's Notice, the Commission seeks further comment on whether existing nonstructural safeguards, including the level of network unbundling in the approved BOC Open Network Architecture (ONA) plans, offer sufficient protection against access discrimination, given the benefits of full structural relief. The Commission also expressed its intent to consider, broadly, whether nonstructural safeguards should be retained or whether some form of structural separation requirements should be reimposed on BOC provision of enhanced services. The Commission asked parties to provide evidence about the effectiveness of the nonstructural safeguards adopted in the Commission's Computer III proceedings, and about the level of competition in the enhanced services marketplace. The Notice does not prejudge these issues, but solicits comment so that the Commission can make an informed decision about how to foster competition and ensure the widest availability of enhanced services to consumers. In its Computer III docket, the Commission adopted a regime of nonstructural safeguards to promote competition in the enhanced services industry, permitting the BOCs to take advantage of certain efficiencies on an integrated basis while protecting subscribers to regulated telecommunications services from potential anticompetitive behavior by the BOCs. In response to the California III decision, which remanded certain portions of the Commission's 1991 BOC Safeguards Order, the Commission has asked for comments on the effectiveness of that regime of nonstructural safeguards. (over) - 2 - Computer III determined, among other things, that BOCs could offer enhanced services on an integrated basis as long as there were systems in place to ensure that all enhanced service providers (ESPs) had equal access to the BOCs' facilities so ESPs could compete with the BOCs. Nonstructural separation allows BOCs to benefit from efficiencies in providing enhanced services and the lifting of structural separation has coincided with rapid expansion of BOC enhanced services, and with continued growth in the availability of enhanced services. In the first stage of implementation of Computer III, the Commission permitted the BOCs to provide enhanced services on an integrated basis after receiving approval of service- specific Comparably Efficient Interconnection (CEI) plans. Under CEI, BOCs were required to give competing enhanced service providers equal access to the same basic services that the BOCs used for their own enhanced services. During the second stage of implementation, the BOCs were required to develop and implement ONA plans describing the network services they would provide to competing enhanced service providers, and how they would comply with certain nonstructural safeguards. ONA requires BOCs to unbundle elements of their networks and allow ESPs to purchase specific services that are useful for their enhanced services. After the BOCs filed and received approval of their ONA plans, the Common Carrier Bureau approved the lifting of remaining structural separation requirements for individual BOCs, and those decisions were subsequently upheld by the Commission. In 1990, the Court of Appeals for the Ninth Circuit vacated and remanded the initial three Computer III orders on the grounds they did not provide adequate protection against improper cross-subsidization of BOC enhanced services, and that the Commission's preemption of state and local regulation in this area was overbroad. The Commission responded with the 1991 BOC Safeguards Order, which strengthened the safeguards of Computer III, and concluded that removal of structural separation requirements would serve the public interest. In the California III decision, the Ninth Circuit upheld the nonstructural safeguards against cross-subsidization and the preemption aspects of that order. It held, however, that the Commission did not adequately explain its conclusion that totally removing structural separation requirements was in the public interest, given that the FCC's ONA requirements no longer call for "fundamental unbundling" of the BOC networks. The court therefore vacated the Commission's decision to move from a service-specific CEI plan regime to full structural relief. On January 11, 1995, the Common Carrier Bureau issued an order clarifying the regulatory regime that would apply after the California III decision and granting the BOCs a limited interim waiver for the duration of the remand proceedings, in order to avoid possible service disruptions and customer confusion. Action by the Commission February 7, 1995, by Notice of Proposed Rulemaking (FCC 95-48). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong. -FCC- News Media contact: Susan Lewis Sallet at (202) 418-1500. Common Carrier Bureau contacts: Kevin Werbach at (202) 418-1580 and Carol Mattey at (202) 418-1580.