NEWSReport No. DC 95-117 ACTION IN DOCKET CASE September 14, 1995 COMMISSION PROPOSES LEC PRICE CAP CHANGES TO ADAPT TO AND ENCOURAGE LOCAL EXCHANGE COMPETITION (CC DOCKET NOS. 94-1(PHASE III), 93-124, 93-197) The Commission has proposed changes to the local exchange carrier (LEC) price cap plan to reflect and encourage emerging competition in the local exchange and exchange access services markets and to establish a glide path toward deregulation of LECs. The proposed changes are intended to permit LECs to lower prices more quickly in response to competition where and as it emerges, spur efficient investment and innovation, and reduce inefficient and unnecessary regulation. The Commission proposed a framework that is designed to adapt LEC price cap regulation to the emergence of competition for local exchange and exchange access services and eventually eliminate price cap regulation for services subject to substantial competition. The framework includes a series of proposed revisions to the current price cap rules that would permit LECs to move prices to more economically efficient levels and speed the introduction of new services. The Commission also proposed new rules for determining when and how LEC services subject to substantial competition may be removed from price cap regulation. The Commission outlined a plan for ultimately declaring LECs nondominant when they no longer possess market power for certain services. The Commission also sought comment on whether the AT&T price cap plan should be modified to treat any changes in the access rates charged by LECs' competitors as exogenous costs. The proposed revisions to the existing price cap rules fall into three basic categories: (1) modifications to the Commission's tariff filing requirements for price cap LECs; (2) amendments that would permit greater downward pricing flexibility; and (3) changes to the structure of the price cap baskets and service categories. (over) - 2 - In the initial Notice of Proposed Rulemaking in CC Docket No. 94-1, the Commission asked for comment on several questions concerning the manner in which the current LEC price cap plan should be further modified in order to adapt the system to the emergence of competition in local exchange and exchange access services markets. In the First Report and Order, the Commission acknowledged the emergence of competition for certain LEC interstate services, and granted the LECs greater pricing flexibility, expanding the lower pricing limits from five percent to ten percent for most of the service categories within the traffic sensitive and trunking baskets, and from 10 percent to 15 percent for those that apply to density pricing zones. The Commission found that the record was insufficient to support any further changes to the price cap plan at that time and deferred consideration of additional changes to further proceedings. In today's Further Notice, the Commission asked for comment on whether its new service rules for LEC price cap services should be relaxed by reducing the notice and cost support requirements to facilitate the introduction of some new services. It also asked whether it should replace the requirement that a LEC obtain a waiver of Part 69 of the rules before introducing new switched access services with a more streamlined procedure for introducing new switched access rate elements. The Commission also asked whether the lower service band index limit should be eliminated and whether it should permit any other additional downward pricing flexibility. In addition, the Commission asked for comments on whether any revisions to the price cap baskets should be made, and whether any service categories could be consolidated. The Commission also consolidated the Price Cap Performance Review docket with another proceeding, Treatment of Operator Services Under Price Cap Regulation (CC Docket 93- 124), and asked for comment on whether operator services or call completion services should be placed in separate service categories or combined with another new or pre-existing service category. The Commission also asked for comment on whether any or all of its proposals for relaxed regulatory treatment and additional pricing flexibility should be conditioned on a demonstration that barriers to entry to the local exchange market have been removed, and if so, what showing should be required. In addition, it invited parties to comment on the appropriate product and geographic markets that should be used for any such assessment of competitive conditions. It also asked what impact these changes might have on interstate toll rates. - 3 - The Commission next sought comment on the requirements for removing LEC interstate access services from price caps and placing them under streamlined regulation. It asked whether LEC services should be removed from price cap regulation and made subject to streamlined regulation upon the same standard as AT&T services, and whether the Commission should consider the same factors -- demand responsiveness, supply responsiveness, pricing history and market share -- in evaluating whether that standard has been met. In addition, the Commission asked whether LECs should be permitted to offer contract carriage for services that are subject to streamlined regulation, subject to the same conditions as AT&T. The Commission sought comment on whether it should adopt rules now that would define the conditions price cap LECs must meet to be considered nondominant, what those conditions should be and whether a LEC should be regulated as nondominant certain for services or within certain geographic markets, but not for others. Finally, the Commission asked for comments on whether changes in access prices charged by competitive access providers (CAPs) should receive exogenous cost treatment under the AT&T price cap plan, as such changes by price cap LECs do now. Action by the Commission September 14, 1995, by Third Further Notice of Proposed Rulemaking in CC Docket 94-1, Further Notice of Proposed Rulemaking in CC Docket 93- 124, and Second Further Notice of Proposed Rulemaking in CC Docket No. 93-197 (FCC 95-393). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong with Commissioner Barrett issuing a separate statement. - FCC - News Media contact: Susan Lewis Sallet at (202) 418-1500. Common Carrier Bureau contacts: Karen Brinkmann at (202) 418-1505 and Les Selzer at (202) 418-1548.