NEWSReport No. CC 97-33   COMMON CARRIER ACTION                June 24, 1997
                                    
       Commission Affirms Interpretation of Non-Accounting Safeguards 
               Provision of the Telecommunications Act of 1996
                           (CC Docket No. 96-149)

       The Commission has affirmed its interpretation of a provision in the
Telecommunications Act of 1996 concerning safeguards for entry into competitive
markets. The separate affiliate, non-discrimination, and cost-allocation requirements
of the 1996 Act generally prescribe the manner in which the Bell Operating
Companies (BOCs) may enter certain new markets, including the in-region
interLATA services market. In an Order released today, the Commission affirmed
that section 272 does not grant BOCs the authority to provide wholesale in-region
interLATA services directly -- i.e., out of the operating company, rather than through
a separate affiliate -- upon receiving approval under section 271 to provide in-region
interLATA services.  Rejecting an interpretation proposed by the BOCs, the
Commission reaffirmed its prior reading, so as to effectuate the considered policy
choice Congress made in imposing a separate affiliate requirement for in-region
interLATA services. The separate affiliate requirement was designed, in the absence
of full competition in the local exchange marketplace, to prohibit anticompetitive
discrimination and improper cost allocation while still giving consumers the benefit
of competition.
       
       Sections 272(a)(1) and 272(a)(2) require that the BOCs conduct certain
activities, including the provision of interLATA telecommunications services, only
through structurally separated affiliates.  Section 272(b)(1) requires that the
interLATA affiliate "operate independently" from the Bell Operating Company.
Section 272(e)(4) states that a BOC "may provide any interLATA or intraLATA
facilities or services to its interLATA affiliate if such services or facilities are made
available to all carriers at the same rates and on the same terms and conditions, and
so long as the costs are appropriately allocated."  

       In its Non-Accounting Safeguards First Report and Order released December
24, 1996, the Commission rejected arguments that section 272(e)(4) constituted a
grant of authority allowing the BOCs to provide in-region interLATA services
directly, as opposed to through a separate affiliate, on a wholesale, carrier-to-carrier
basis.  Rather, the Commission read this provision as a limitation of authority on the
provision of any interLATA or intraLATA facilities or services that the BOC is
otherwise authorized to provide, such as out-of-region services and previously
authorized activities.

       On February 11, 1997, Bell Atlantic and PacTel sought summary reversal of
the Commission's interpretation of this provision in the United States Court of
Appeals for the District of Columbia Circuit.  The Commission responded, among
other things, that some of the statutory arguments that Bell Atlantic and PacTel
advanced before the court had not been clearly presented to the Commission, and
thus the Commission should have an opportunity to reconsider its interpretation in
light of these arguments.  On March 31, 1997, the court granted the Commission's
request and remanded the matter to the Commission.  The Commission subsequently
asked for public comment on specific questions relating to section 272(e)(4).

                In the Order released today, the Commission found that, in light of the overall
text and structure of the statutory framework established in section 271 and section
272, the most sensible interpretation of section 272(e)(4) is that it is a non-
discrimination and cost allocation requirement that applies to interLATA services that
the BOC is otherwise authorized to provide. This interpretation is fully consistent
with Commission precedent with regard to separate affiliate requirements in similar
contexts and the only one that serves the purposes such requirements are intended to
address. The Commission concluded, therefore, that section 272(e)(4) is not an
affirmative grant of authority for an operating company to provide in-region
interLATA services on a wholesale basis to its affiliates or other telecommunications
carriers at the time a BOC receives authority to provide such in-region services
pursuant to section 271 of the 1996 Act.  The Commission emphasized that Congress
did not ignore, nor has the Commission, that there may be efficiencies that result
when a BOC places the design, construction, and operation of its interLATA network
in the operating company.  Indeed, the Commission noted, by providing for the
sunset of the separate affiliate requirement within three years of BOC entry for
telecommunications services unless extended by the Commission, Congress
envisioned that there may well come a point when the benefits to consumers of such
efficiencies come to outweigh any risk of anti-competitive harm.  The Commission
concluded that, in this respect, the BOCs' emphasis on these benefits is not
misguided; it is merely premature.

                Action by the Commission June 20, 1997, by Second Order on
Reconsideration (FCC 97-222).  Chairman Hundt, Commissioners Quello, Ness, and
Chong.
                                    
                                     -FCC-

                News media contact:  Rochelle Cohen at (202) 418-0253.
                Common Carrier Bureau contact:  Carol Mattey or David Ellen at 
                       (202) 418-1580.