NEWSReport No. CC 97-18 COMMON CARRIER ACTION April 18, 1997 Commission Revises Regulatory Treatment of Local Exchange Carrier Provision of Domestic Long Distance Services and International Services (CC Docket Nos. 96-149, 96-61) The Commission has adopted an Order revising its regulatory treatment of Bell Operating Companies' (BOCs') and independent local exchange carriers' (LECs') provision of domestic, interstate, long distance services and international services. This action taken by the Commission will further the pro-competitive, deregulatory objectives of the Telecommunications Act of 1996 (1996 Act) by eliminating unnecessary regulation that is currently imposed on BOCs and, in certain circumstances, on independent LECs. As an initial matter, the Order revises the Commission's approach to defining product and geographic markets so as to be more in accord with the 1992 Department of Justice/Federal Trade Commission Horizontal Merger Guidelines. This approach to market definition may be used by the Commission, as it is in this Order, in determining whether a carrier possesses market power with respect to particular services. The Order classifies the BOCs' long distance affiliates as "non-dominant" in the provision of interstate, domestic, long distance services that originate in the areas in which a BOC provides local telephone services. In reaching this determination, the Commission concluded that regulating BOC long distance affiliates as dominant carriers generally would not help to prevent the BOCs or their affiliates from engaging in anticompetitive conduct to disadvantage their long distance competitors. The Commission also concluded that other statutory safeguards and regulations applicable to the BOCs and their long distance affiliates will address concerns of anticompetitive conduct in a less burdensome manner. The classification of the BOC long distance affiliates as non-dominant with respect to in-region, interstate, domestic, long distance services will allow these carriers to avoid more stringent regulations that would apply if they were classified as "dominant." With this action, the Commission has taken another step toward establishing the regulatory conditions and safeguards that will apply to BOCs that obtain Commission approval to provide in-region, long distance services through a long distance affiliate. Currently, none of the BOCs have received such approval. The 1996 Act conditions the BOCs' entry into in-region, long distance services on their compliance with certain provisions of section 271 of the Communications Act, including the accounting and non- accounting safeguards recently adopted by the Commission pursuant to section 272 of the Communications Act. The Order also classifies independent LECs as non-dominant in the provision of in- region, interstate, domestic, long distance services. The Commission concluded, however, that the independent LECs' control of local telephone facilities potentially enables them to engage in anticompetitive conduct against long distance rivals. The Commission therefore has required the independent LECs to provide their in-region, interstate, domestic, interexchange services through separate affiliates that satisfy certain separation requirements. In addition, the Order adopts the same regulatory treatment of the BOCs' and independent LECs' affiliates in the provision of in-region, international services, as it adopts for their provision of in-region, domestic, long distance services. Specifically, the Order classifies each BOC or independent LEC long distance affiliate as non-dominant in the provision of in-region, international services, unless it (or its parent) is affiliated with a foreign carrier that controls bottleneck facilities in a foreign market. Finally, the Order classifies the BOCs and independent LECs as non-dominant in the provision of interstate, domestic, long distance services that originate outside of the areas in which they provide local telephone services, and it eliminates the requirement that the BOCs and independent LECs provide those out-of-region services through separate affiliates. Action by the Commission April 17, 1997 by Second Report and Order and Third Report and Order (FCC 97-142). Chairman Hundt, Commissioners Quello, Ness, and Chong, with Commissioner Ness issuing a separate statement. - FCC - News Media contact: Rochelle Cohen (202) 418-0253. Common Carrier Bureau contact: Craig Brown (202) 418-1580. April 18, 1997 Separate Statement of Commissioner Susan Ness Re: Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC's Local Service Area; Policy and Rules Concerning Interstate, Interexchange Marketplace Good government requires knowing when to intervene, and when to step back. Today, we step back from a market segment where active regulation would do more harm than good. Our order today clarifies the circumstances under which the interstate interexchange services of local exchange carriers will be treated as "nondominant." We specify the conditions under which the local telephone companies, including the Bell companies, can provide interstate, interexchange services free of requirements for cost support data, advance review of tariff changes, and other trappings of dominant carrier regulation. In making our determination of nondominance, we are not blinking at the market power possessed by local exchange carriers. To the contrary, we will continue to focus our rules and our regulatory resources on controlling, and ultimately dissipating, that market power. That means directing our attention to the services and facilities where the LECs possess market power -- i.e., local exchange and exchange access services -- and policing the relationship between the operating companies and their interexchange affiliates. So long as these matters are properly attended to, as contemplated by our interconnection and structural separation rules, dominant carrier regulation of the interexchange services themselves would be unnecessary and possibly counterproductive.