NEWSReport No. DC 96-24 ACTION IN DOCKET CASE March 21, 1996 COMMISSION PROPOSES THAT LONG DISTANCE COMPANIES BE RELIEVED OF TARIFF FILING REQUIREMENT AS IT BEGINS REVIEW OF REGULATORY REGIME FOR INTERSTATE, INTEREXCHANGE TELECOMMUNICATIONS SERVICES (CC DOCKET 96-61) In a Notice of Proposed Rulemaking (NPRM) adopted today, the Commission proposes that non-dominant interexchange carriers should no longer file tariffs. Absent the tariff requirement, long distance companies would be free to change prices or offer new services without first filing with the Commission. This NPRM represents the Commission's first exercise of its new forbearance authority under the Telecommunications Act of 1996. The 1996 Act generally authorizes the Commission to forbear from applying any provision of the Communications Act of 1934 or FCC regulations if the Commission finds that certain public interest criteria are met. In the NPRM, the Commission tentatively concludes that it would not permit carriers to file tariffs and that the removal of the tariff filing requirement will promote competition and enable non-dominant carriers to respond quickly to changes in the market. In this NPRM, the Commission also initiated a review of its regulations of interstate, domestic, interexchange telecommunications services, to determine whether and how its policies and rules should be changed, consistent with the goals of the 1996 Act that provide for a procompetitive, deregulatory national telecommunications policy framework. The Commission has also proposed rules to implement the geographic rate averaging and rate integration requirements of the 1996 Act. In addition, in light of the development of substantial competition in both the customer premises equipment (CPE) and the interstate, long-distance markets, the Commission has proposed to eliminate its prohibition against the bundling of CPE with the provision of interexchange services by non-dominant carriers. In the NPRM, the Commission has also asked for comment on several issues relating to: (1) changing the relevant product and geographic market definitions for interstate, interexchange carriers adopted in the 1979 Competitive Carrier proceeding; (2) modifying or eliminating the separation requirements for non-dominant treatment of independent local exchange carrier provision of interstate, interexchange services outside of their local exchange service areas; (over) - 2 - (3) modifying or eliminating the separation requirements for Bell Operating Company (BOC) provision of out-of-region interstate, interexchange services, noting that in a separate proceeding, the Commission has proposed conditions under which BOC provision of interstate, interLATA services originating outside their in-region states, would be subject to non-dominant treatment; and (4) the regulation of contract tariffs and other long-term service arrangements, including the application of the filed rate doctrine and the substantial cause test, and other issues relating to resellers and large businesses. Comments relating to the implementation of the geographic rate averaging and rate integration provisions of the 1996 Act, the definition of relevant product and geographic markets, and the modification of the separation requirements in certain circumstances are due 24 days from the release date of this Notice of Proposed Rulemaking and replies 14 days thereafter. Comments on all other issues are due 30 days from the release date of this Notice of Proposed Rulemaking and replies 30 days thereafter. Action by the Commission March 21, 1996, by Notice of Proposed Rulemaking (FCC 96-123). Chairman Hundt, Commissioners Quello, Barrett, Ness, and Chong, with Commissioners Quello, Barrett, Ness, and Chong issuing separate statements. - FCC - News Media contact: Mindy Ginsburg at (202) 418-1500. Common Carrier Bureau contacts: Melissa Waksman and Christopher Heimann at (202) 418-1580. SEPARATE STATEMENT OF COMMISSIONER JAMES H. QUELLO RE: Policy and Rules Concerning the Interstate Interexchange Marketplace I generally support this item, which begins a review of the regulation of the interstate interexchange marketplace. We have several reasons for instituting this proceeding. Our recent reclassification of AT&T as nondominant, a change brought about by the continued development of competition in the domestic interstate long distance market, was the original reason we determined to begin this rulemaking. The subsequent enactment of the Telecommunications Act of 1996, however, has provided an additional pro-competitive, deregulatory impetus to this rulemaking effort. For the most part, I believe the Notice reflects the intent of the 1996 Telecom Act, and it is for this reason I support it. In one apparently minor respect, it does not. It is this concern that impels my brief statement today. At the conclusion of this generally excellent NPRM, the Commission "encourages" interested parties to raise issues in this proceeding on the voluntary commitments AT&T has made to protect the interests of low-income and low-volume consumers over a three-year period. With all due respects to my colleagues, I see in this call for comment a Commission that appears to ignore what is right under its administrative nose in terms of any problems as well as their potential solutions. This concern impels my separate statement today. Let me be brief. The "voluntary commitments" referred to in the call for comment serve two identified interests: those of low-income consumers, and those of low-volume consumers. With regard to low-income consumers, in the short term AT&T has voluntarily agreed to a three-year plan that should protect the interests of these consumers until the Commission gets its regulatory ducks in a row and determines how, in the long term, the legitimate concerns of low-volume users should be recognized and subsidized. With respect to this long-term solution, the Commission has already asked how the needs of low-income consumers can best be defined and served in our outstanding proceeding on implementing the universal service provisions of the 1996 Act. I supported issuance of this NPRM without reservation, because I believed then, as I do now, that the universal service rulemaking proceeding is the appropriate venue for addressing these concerns. Thus, to the extent the Notice in this docket asks commenters to reiteratively address these same concerns in this proceeding, I question its utility. Now, with regard to a different issue: the low-volume consumers who are also the beneficiaries of AT&T's voluntary three-year plan. This problem is, in a sense, more complex, because I am not aware of any data that ties the fact that some individuals make fewer long distance calls with the price of these calls. Thus, to the extent that low-volume use does not correlate with low income, the fact that there is, indeed, a "problem," much less a "problem" that demands our attention in the context of this proceeding, seems relatively debatable. Moreover, even were I to assume arguendo that this Commission ought now to inquire about the causes, and potential cures, of low-volume use, I could not say that we are bereft of any record guidance on this score. The comment already received in response to last year's Notice on universal service certainly suggests that, to the extent that less price competition for low-volume users currently exists, it results from the fact that our rules currently allocate certain subsidy payments to interexchange carriers based on their number of presubscribed lines rather than on the basis of their revenues. In my judgment, the record already compiled in this pending proceeding would enable decisionmakers to reasonably determine whether or not the current allocation scheme unduly burdens AT&T on the one hand while at the same time allowing competing carriers to "game" the process of competing for low- volume callers. Solving this relatively straightforward problem in the short run, while at the same time implementing the 1996 Telecom Act to increase competition in the long run, should solve any perceived problem" with lack of price competition for low-volume users. Simply put, we have before us a record that gives both a plausible explanation for, as well as a solution for, any "problem" that is perceived to exist with regard to whether low-volume long distance users would benefit from more competition in the offering of discount rates, and why, if they would, that competition does not exist today. We have before us not only a credible description of why the phenomenon exists, but, more importantly, how we can, if we wish, bring about increased price competition for this segment of the market. For this reason, I fail to see what the Commission intends to achieve in any practical sense in calling for more comment on this issue in the context of this docket. Is this a major point? In the normal scheme of things, perhaps not. But I raise it here because I believe that the workload we have been given under the 1996 Act, coupled with what should be our natural instinct to avoid unnecessary work and/or the imposition of unnecessary burdens on the industries we regulate, combine to suggest that it is inconsistent with the deregulatory tenor of the 1996 Act to ask questions in this proceeding that are, at best, reiterative. This having been said, I would state for the record that I too am willing to "monitor closely the areas in which AT&T has made voluntary commitments in order to protect consumers," as the Commission says is the reason for its decision to call for further comment on these issues in this proceeding. But, under the circumstances, I believe that the sacrifice of more trees in the interests of added comment in this proceeding is not the best way of doing this monitoring. For this reason, and because I would be concerned if the Commission's approach to these issues in this Notice were a harbinger of its approach to larger issues in future Telecom Act implementation proceedings, I feel compelled to raise these concerns here. SEPARATE STATEMENT OF COMMISSIONER ANDREW C. BARRETT RE: In the Matter of Policy and Rules Concerning the Interstate, Interexchange Marketplace and Implementation of Section 254(g) of the Communications Act of 1934, as amended By this Notice of Proposed Rulemaking ("Notice"), the Commission takes another significant step towards implementing the provisions of the Telecommunications Act of 1996 ("1996 Act"). The 1996 Act provides a "pro-competitive, de-regulatory national policy framework" for telecommunications and provides the Commission with the tools to achieve the goals of deregulation and competition in telecommunications. For example, new Section 10(a) of the Communications Act of 1934, as amended, requires the Commission to forbear from applying any provision of the Communications Act or our regulations to a telecommunications carrier or telecommunications service, or class thereof, if we make certain specified findings with respect to such provisions or regulations. Pursuant to this grant of authority, we propose in this Notice to adopt a mandatory detariffing policy for domestic services of non-dominant, interexchange carriers. We also propose rules to implement new Section 254(g), which generally requires geographic rate averaging and rate integration. In addition, in light of the passage of the 1996 Act, important changes in the interexchange market, and the reclassification of AT&T as a non-dominant carrier, we propose to review the regulatory regime for interstate, domestic, interexchange telecommunications services. In this regard, we consider whether to reduce or eliminate the separation requirements for non-dominant treatment of local exchange carriers in their provision of certain interstate, interexchange services. We also propose to eliminate the prohibition against bundling customer premises equipment with the provision of interstate, interexchange services by non-dominant interexchange carriers. Finally, we consider whether we should more narrowly focus our definitions of relevant product and geographic markets for interexchange services to reflect current and future market conditions. While I generally agree that changed circumstances in the domestic, interstate, interexchange telecommunications market warrant examination of our oversight of this market, I question the timeliness of the proposed consideration of certain pricing issues raised in the Notice. Specifically, the Notice raises the issue of tacit pricing coordination in the domestic, interstate, interexchange market, which surfaced in our consideration of AT&T's motion to be reclassified as a non-dominant interexchange carrier. In our consideration of that issue, we noted that, while the allegation of tacit pricing coordination did not preclude a determination that AT&T did not possess market power in the domestic, interstate, interexchange market, the evidence in the record concerning tacit pricing coordination was inconclusive and conflicting. We stated that, to the extent this problem actually exists, it would be better addressed by removing regulatory requirements that facilitated such conduct. The reclassification of AT&T as a non-dominant carrier removed one such regulatory requirement -- the longer advance notice period applicable only to AT&T tariff filings. In addition, the 1996 Act removes other regulatory barriers by permitting competitive entry in the interstate, interexchange market by the facilities- based Bell Operating Companies. While we indicated in the AT&T reclassification proceeding that allegations of coordinated pricing in the interexchange market would apply generically to that industry and, therefore, would be more appropriately addressed in a proceeding that would consider "global" market issues, I contend that it is premature for the Commission to now raise this unsubstantiated problem and the alleged effects it may cause for several reasons. First, it was only in October that we reclassified AT&T as non-dominant and released it from advanced notice tariff filing requirements. Second, in this Notice, pursuant to the regulatory forbearance authority provided in the 1996 Act, we propose a mandatory detariffing policy for non-dominant interexchange carriers. Such a policy would make any alleged pricing coordination more difficult. Finally, the 1996 Act allows the Bell Operating Companies, after satisfying several preconditions, to enter the interstate, interexchange market. In short, we have yet to see the competitive effects of these significant actions. While I have not pre-judged these issues, I believe that it would be a better use of scarce Commission resources to raise and consider these issues after allowing a sufficient time for market forces and regulatory reforms to take effect. ----- March 21, 1996 SEPARATE STATEMENT OF COMMISSIONER SUSAN NESS Re: Policy and Rules Concerning the Interstate, Interexchange Marketplace This Notice offers persuasive evidence that the Commission and the Congress are "in sync" regarding the goals of increasing competition and reducing regulation. Contrary to the claims of some critics, this Commission has long recognized the need to deregulate where market conditions permit. During the 1980s, the Commission repeatedly tried to forbear from tariff regulation of nondominant interexchange carriers, but we were struck down by the courts. More recently, we requested -- and Congress granted -- forbearance authority. Now, we are ready to use it. The interexchange market is not yet perfectly competitive, but it is substantially and increasingly so. As a legal matter, I believe interexchange services meet the statutory criteria for forbearance. As a practical matter, it is essential that we focus our limited resources on promoting competition where it does not yet exist rather than on policing competition where it does. The information and analysis I have evaluated to date shows that tariff filing requirements for nondominant interexchange carriers do more harm than good. For this reason, I not only support forbearance but also believe that our detariffing regime should be mandatory, not permissive. Consumers will continue to be protected even after mandatory forbearance is implemented. We trust in competitive market forces to deliver interexchange services at just, reasonable, and nondiscriminatory rates. To the extent that unanticipated problems arise, our complaint process can serve as a backstop. Moreover, in this Notice, we are reaffirming the policies of geographic rate averaging and rate integration, as has now been explicitly required by Congress. And, in the universal service proceeding, we are addressing the special needs of low-income consumers, as has also been explicitly required by Congress. Regarding customer-premises equipment, I am not ready to conclude that the CPE unbundling rule has outlived its usefulness and should be discarded. I may well favor eliminating this rule after I review the comments, but I am not yet aware of evidence that warrants the tentative conclusion presented in the Notice. This rule has worked well for consumers and for industry. While in antitrust terms bundling is a problem only where there is market power in the underlying service, an unbundling requirement may be justified more as a "rule of the road" that should apply (as it has for 15 years ) to all carriers. We must not reduce the ability of consumers to choose from among a wide array of equipment options. Although there are many issues to be addressed regarding bundling, the central issue as I see it is whether the bundling prohibition promotes or hinders the continued growth of competition in both the interexchange and CPE markets. I encourage commenting parties to be as detailed as possible in describing the costs and benefits of maintaining, eliminating, or modifying the existing rule. As we formulate domestic policies in this area, we must also be mindful of the international ramifications of our actions. We need to be careful not to undermine U.S. trade negotiators -- who are encouraging other countries to unbundle equipment from transmission services, so as to create export opportunities for high-tech U.S. manufacturers. More important still, we must not violate any international trade agreements to which we already are a party. I will look with particular interest on comments addressing these issues. Putting aside the one reservation just expressed, I regard today's proposals as 100 percent consistent with the objectives Congress has established. Our job is to promote competition, first and foremost, and then to streamline and deregulate whenever competitive circumstances allow. Our proposal for mandatory forbearance of tariff regulation for nondominant carriers comports fully with these procompetitive and deregulatory objectives. March 21, 1996 SEPARATE STATEMENT OF COMMISSIONER RACHELLE B. CHONG Re: Policy and Rules Concerning the Interstate, Interexchange Marketplace; Implementation of Section 254(g) of the Communications Act of 1934, as amended. CC Docket No. 96-61 By this Notice of Proposed Rulemaking, we embark at last on a process to implement a mandatory detariffing policy for domestic non-dominant interexchange carriers. Although the Commission has long recognized numerous public interest benefits associated with forbearing from tariff filing requirement, we have been prevented from executing such a policy because of statutory constraints imposed by the 1934 Communications Act. Passage of the Telecommunications Act of 1996 ("1996 Act") on February 8, 1996, signalled a new era for telecommunications policy and regulation based on a "pro- competitive, deregulatory national policy framework." In the 1996 Act, Congress granted us long sought authority to further these goals by allowing us to forbear from applying our regulations. In this Notice, we propose to exercise our new forbearance authority for the first time in a market subject to competition. Looking into the future, the competitive benefits of this new forbearance policy appear self-evident. Interexchange carriers no longer burdened with a tariff filing requirement would be free to market their services to meet changing demand without first stopping at a regulatory "checkpoint." Absent the delays that our prior regulatory scheme imposed, more vigorous competition should result. As competition thrives, regulators should get out of the business of price regulation. Market forces will generally determine fair pricing levels. Therefore, if regulators no longer need to regulate prices, we will not need to engage in the resource intensive exercise of allocating costs among various services. I believe that as we continue to strip away unnecessary and burdensome regulations, the market forces we unleash will most assuredly take the place of most regulatory "solutions." Furthermore, the eventual entry of the Bell Operating Companies and other competition into the interstate, interexchange market should provide consumers with a plethora of competitive choices as envisioned by Congress in the 1996 Act. I commend my colleagues and the staff for preparing this Notice expeditiously so that we may take advantage of the new law to quickly enter this era of competition.