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File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $// MO&O; NYNEX - Petition for Waiver; DA 96-389 //$ $/ Section 0.291 Delegated Authority /$ TRANSMITTED FOR FCC RECORD ONLY Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) DA 96-389 ) New York Telephone Company and ) New England Telephone and ) Telegraph Company ) ) Petition for Extension of Waiver ) MEMORANDUM OPINION AND ORDER Adopted: March 19, 1996 Released: March 19, 1996 By the Chief, Common Carrier Bureau: I. INTRODUCTION 1. In the Special Access Expanded Interconnection Order, the Commission required most Tier 1 local exchange carriers (LECs) to permit competitors and access customers to terminate their own special access transmission facilities at LEC central offices and to interconnect with LEC special access services. In attempting to facilitate competition in this market, the Commission instituted numerous safeguards to ensure that LECs and interconnectors can compete fairly for interstate access customers. One of these safeguards is the Commission's requirement that LECs apply nonrecurring reconfiguration charges in a neutral manner that does not differentiate charges based on whether a customer chooses to use interconnector or LEC facilities for access services unless there are specific, identifiable cost differences. Reconfiguration charges are imposed when a customer shifts between DS1 access service and DS3 service, or replaces its LEC-provided access service with a service provided by an interconnector. In the Second Reconsideration Order, the Commission clarified that nonrecurring charges (NRCs) that a LEC imposes upon a customer when the customer shifts from the LEC's service to an interconnector's service must be set no higher than cost-based levels. In addition, any difference between the NRCs applicable when a customer shifts to an interconnector's services and those applicable when a customer reconfigures its service, but remains on the LEC network, must be cost-based. The presumption of reasonableness applicable to other within-band, below-cap rate changes would not apply to revisions to NRCs associated with access reconfigurations. All LECs who had tariffed access NRCs that were inconsistent with these requirements were ordered to file revised NRCs on or before October 18, 1993. The Commission stated that it would consider waiving the nondiscriminatory NRC requirement only if a LEC could demonstrate that any differential treatment would not undermine competition or otherwise violate the Communications Act. 2. On March 20, 1995, the Common Carrier Bureau granted a petition filed by New York Telephone Company and New England Telephone and Telegraph Company (together, NYNEX) requesting a waiver of the standards governing reconfiguration NRCs for expanded interconnection services. Specifically, the Bureau permitted NYNEX to impose NRCs on a customer shifting from a NYNEX service to an interconnector's service, while waiving NRCs when a customer shifts from an interconnector's service to a NYNEX service or when a NYNEX customer obtains a higher NYNEX bit rate service. NYNEX was permitted to recover its reconfiguration costs from customers that shift among NYNEX services through imposing recurring charges. The Bureau found that NYNEX sufficiently demonstrated that it faced special circumstances relating to the extent of competition in its region and that it had shown good cause for a waiver of the Commission's rules governing NRCs for expanded interconnection services. The Bureau also found that NYNEX's proposed nonrecurring rate structure was not likely to undermine competition. This waiver was limited to NYNEX's Zone 1 central offices in New York City and was granted for one year. The Bureau concluded that if NYNEX desired to continue to recover its reconfiguration costs through recurring charges after the expiration of the waiver, it must obtain another waiver and show that competition in its region has not been undermined by its NRC rate structure. 3. Pursuant to this directive, NYNEX filed a petition on January 11, 1996, requesting the Bureau to extend indefinitely the waiver of the Commission's rules governing NRCs for expanded interconnection services. Five parties filed oppositions to or comments on NYNEX's petition, and NYNEX filed a reply. For reasons discussed in this Order, we grant in part NYNEX's petition, subject to the conditions specified below. II. PL EADINGS A. Petition 4. In arguing for an indefinite extension of the waiver, NYNEX states that many interconnectors have become full service providers (i.e., competitive LECs) and currently hold approximately 50 percent of the high capacity market in New York City. NYNEX also maintains that new competitors, including several large interexchange carriers, have established collocation facilities in NYNEX's New York Zone 1 offices. In addition, NYNEX states that four additional wire centers have had collocation facilities established in the past year and 12 collocation nodes are currently being expanded to accommodate additional interconnected facilities in NYNEX's Zone 1. Further, NYNEX notes that ten of the eleven central offices in Manhattan south of 59th Street still have collocation facilities and that collocation facilities have been ordered for the eleventh office. Moreover, NYNEX contends that it is currently in the process of disconnecting 32 percent of NYNEX-provided switched access trunks in Manhattan south of 59th Street and that this provides additional evidence of competition that is faced by NYNEX's Zone 1 central offices. 5. NYNEX also claims that, in the last year, the number of channel terminations connected to collocated facilities has grown by more than 40 percent, the number of exchanged minutes has increased over 45 percent, and the number of interconnected trunks has increased by more than 35 percent. NYNEX argues that these data clearly indicate that competition is thriving and has not been undermined by the NRC rate structure. B. Comments 6. Standards for Waiver. Several parties argue that the information submitted by NYNEX fails to satisfy or even address the Commission's waiver requirements. MCI, TW, MFS and Teleport argue that NYNEX has failed to demonstrate how an extension would be in the public interest and how the waiver granted on March 20, 1995 has not damaged competition in the NYNEX region. TW and Teleport further contend that the data presented by NYNEX fail to demonstrate the alleged existence of intense competition. They also argue that NYNEX does not substantiate its assertion that the competitive pressures it presently faces in the Zone 1 New York City central offices are significant enough to warrant an extension of the waiver. 7. ALTS believes that in granting NYNEX's original waiver, the Bureau relied almost exclusively on the perceived extent of competition for high-cap services in the region south of 59th Street. ALTS also contends that the absence of any weighing among the different factors or "intelligible paradigms" makes it impossible to understand how future waiver requests and the current renewal request should be handled. 8. Extent of Competition. TW argues that although the data submitted by NYNEX show some form of competition, NYNEX fails to address the issue of whether the present competition is less than the competition that would have existed in the absence of the waiver. TW believes that after nine months of operating pursuant to the waiver, NYNEX should be able to demonstrate that the waiver has not affected the development of competition in the region at issue. TW also contends that these data fail to demonstrate that the waiver granted on March 20, 1995 did not place NYNEX at a competitive advantage. To the contrary, TW claims that the information submitted by NYNEX indicates that NYNEX has been able to delay the onset of competition. For instance, TW states that while NYNEX had "received orders to disconnect 32 percent of its switched access trunks below 59th Street," it has yet to do so. 9. MFS contends that while NYNEX shows that the number of circuits used by its competitors has increased, it offers no comparative information about the growth of the market or the number of circuits provided by NYNEX and, therefore, it is difficult to determine whether the competitor's growth rate implies competitive success. MFS believes that the data relating to local exchange service competition are skewed by the reporting period used by NYNEX. MFS explains that as competitors were just beginning to operate as local exchange co-carriers in early 1995, the statistics would inevitably show growth in this market and in the months immediately following, regardless of any NYNEX action or inaction. 10. MCI believes that NYNEX's waiver should be rescinded immediately because it threatens to harm competition by allowing NYNEX to charge unreasonable, excessive, and discriminatory NRCs to access customers selecting CAP services. MCI states that the NRC Waiver Order permits NYNEX to charge its access customers $284.59 for each DS1 that is moved to an alternative provider. MCI explains that "if an access customer has a DS3 terminating on NYNEX's facilities which is muxed down to the DS1 level, and the access customer elects to move an entire DS3 to an alternative provider, the access customer must pay NYNEX $7,968 ($284.59 times 28 for each DS3 moved)." Even if spread over 12 months, MCI argues that the monthly payments of $664.00 are enough to damage competition, thereby making it uneconomical for access customers to move circuits to an alternative provider. MCI further contends that under one of its term-payment plans, NYNEX currently charges $1,941 per month for a DS3 with no mileage. MCI states that if an alternative provider were to charge its access customer five percent less than NYNEX, the alternative provider would be required to pay NYNEX 36 percent of its gross revenues solely for these NRCs. MCI claims that this result would reduce the margins of the new entrant and damage the ability for the new entrant to compete with the incumbent LEC. Finally, MCI argues that if the Bureau grants NYNEX's waiver for another year, NYNEX should be required to demonstrate that its proposed NRCs are cost-based. 11. Teleport argues that NYNEX continues to dominate the Zone 1 market to an extraordinary degree. Teleport states that the data submitted by NYNEX are deceptive because they indicates increases in channel terminations, minutes of use and various types of links terminating at collocation spaces that NYNEX attributes to competition, implying that competitors are achieving significant growth at the expense of NYNEX. Teleport also claims that with the exception of some transport links, almost all other facilities and minutes of use terminating at those collocation spaces reflect facilities that CAPs purchase from NYNEX and resell. Thus, Teleport contends that the data submitted by NYNEX do not reflect any real loss of circuits and revenues because NYNEX is retaining almost all of the revenues it professes to attribute to CAPs. 12. Further, Teleport argues that it is disingenuous for NYNEX to assert that the waiver should be granted on the ground that competitors waive NRCs and that NYNEX would recover its NRCs through its recurring charges. Teleport explains that in waiving NRCs, competitors make a considerable financial sacrifice because they cannot recoup lost revenues from monopoly customers as NYNEX can when it waives NRCs. Teleport maintains that NYNEX enjoys such inherent advantages and pricing flexibility that waiving NRCs is not necessary in order for it to compete successfully. Teleport adds that there is no evidence that NYNEX would recover its waived NRCs through recurring charges as it claims. Rather, Teleport contends that because of the pricing flexibility afforded NYNEX, it can surreptitiously recover NRCs from customers who may not have incurred them, including competitors purchasing interconnection facilities. Teleport argues that by denying the waiver, the Commission would ensure that NYNEX would recover its NRCs from those customers responsible for the costs. 13. Teleport further contends that NYNEX has abused its market power in the Zone 1 market. For example, according to Teleport, NYNEX refuses to permit the CAPs' interexchange carrier customers to order, and be billed for, both the cross-connections linking a CAP's collocated facility with NYNEX's facilities and NYNEX's switched and special access services used by those customers. Teleport believes that a waiver would provide NYNEX with an anti-competitive weapon that both discourages customers from shifting to CAPs and burdens CAPs that absorb NYNEX's NRCs in order to attract customers. 14. Indefinite Waiver. Several parties argue that the Bureau should not consider extending the limited waiver indefinitely while the lawfulness of the original decision has not yet been resolved. The parties state that because two applications for review and one petition for reconsideration of the original order granting the limited waiver remain unresolved, it would be unfair for the Commission to address NYNEX's professed competitive concerns without settling the pending grievances. 15. In addition, MCI and TW argue that the Bureau should not grant an indefinite waiver when the competitive environment and rules that govern it could drastically change. TW claims that an indefinite waiver would effectively create a new policy without adherence to the procedural requirements of the Communications Act or the Administrative Procedure Act. TW also states that an indefinite waiver is not in the public interest because NYNEX cannot and does not support its assertions that the situation it faces in New York is unique or exceptional. 16. In the alternative, MCI and MFS state that if the Bureau grants NYNEX's Petition, it should only do so for another limited period. MCI states that the Commission should, at most, grant NYNEX's petition for a one-year period and require NYNEX to justify that its proposed NRC rates are cost-based. MFS states that the Commission should renew the waiver for only 18 to 24 months, subject to the same conditions that currently exist. Both parties believe that a limited waiver would give the Commission a more realistic period of time in which to determine the actual effects of NYNEX's practices on the development of competition in New York. MFS also states that NYNEX's unique circumstances do not exist elsewhere and that the Commission should caution that any extension of NYNEX's waiver should not be construed as an invitation for other LECs to file similar waiver requests. C. Reply 17. NYNEX notes that the parties opposing the waiver argue that it should: (1) provide data comparing its growth rate with that of its competitors to determine whether competitors are lagging; (2) show data regarding total market share, including competitor services that bypass NYNEX's network; (3) show what its competitors' market shares would have been absent the waiver; (4) show that competition is well established and that competitors could absorb the NYNEX nonrecurring rollover charges; and (5) show that NYNEX has lost circuits and revenue. NYNEX argues, however, that information on its competitors' total market share could be obtained if the Commission adopts the proposed Telecommunications Access Provider Survey. Moreover, NYNEX claims that the data the parties opposing the waiver deem necessary are not relevant to this proceeding. 18. NYNEX states that, in addition to providing the same data elements on which the Commission relied in granting the original waiver, it has included new data to show that competition in Manhattan south of 59th Street has grown. For instance, NYNEX states that between March 1995 and November 1995, the number of DS1 equivalent circuits in LATA 132 reached 2,882, an increase of only 7 percent, while the number of DS1 equivalent circuits terminated to collocation nodes reached 2,355, an increase of more than 85 percent. Moreover, NYNEX claims that TW incorrectly asserts that the growth rate of interconnected trunks is only 12 percent. NYNEX argues that after converting the number of DSOs, DS1s, and DS3s into DS1 equivalents, the actual growth rate is approximately 35 percent. NYNEX also asserts that there is no merit to MFS's and TW's suggestions that NYNEX is providing poor service to interconnecting carriers because it is still processing orders to disconnect 32 percent of NYNEX's switched access trunks below 59th Street. According to NYNEX, the process of disconnecting such a large number of switched access trunks is complex and time consuming and, given the number of requests for modifications, additions, and deletions of the facilities to be rolled over, it is not surprising that it is still in the process of implementing these orders. Moreover, in an ex parte filing, NYNEX states that between January 1, 1995 and January 1, 1996, it processed nearly 1,000 disconnection orders for switched transport DS1 equivalent cross-connects. NYNEX states that these disconnections represent a loss of 21 percent of its DS1 equivalent switched transport services. 19. In addition, NYNEX disputes MCI's claim that it is not appropriate to require a customer to pay $7,968 when it shifts from a NYNEX-provided DS3 circuit to an alternative provider. NYNEX argues that where a customer requests that NYNEX roll over 28 DS1 circuits that were multiplexed down from a DS3, it is appropriate to charge a reconfiguration NRC for each of the 28 DS1 circuits because it must physically disconnect and connect each of the 28 DS1 circuits. NYNEX states, however, that where a customer requests NYNEX to roll over a DS3 without multiplexing these circuits down to 28 DS1s, the NRC for this reconfiguration is only $407.37. Further, NYNEX states that the requested waiver does not give NYNEX any competitive advantage over the CAPs because it allows NYNEX like CAPs to waive upfront NRCs as an inducement to use its services. In sum, NYNEX maintains that the unique competition it faces in Manhattan south of 59th Street, coupled with the fact that CAPs routinely waive NRCs for installation of special access circuits, warrants deviation from the Commission's rules. III. DISCUSSION 20. As we noted in granting NYNEX the initial waiver, it is well established that the Commission may exercise its discretion to waive a rule where there is "good cause" to do so, and where the particular facts surrounding the waiver request would make strict compliance inconsistent with the public interest. In the Second Reconsideration Order, the Commission identified the circumstances that would warrant a waiver of the Commission's policy on reconfiguration NRCs for customers that shift from a LEC to an interconnector. The Commission stated that it would consider waiving the reconfiguration NRC standard only if the differential treatment resulting from the waiver would not undermine competition or otherwise violate the Communications Act. 21. We note that Applications for Review and a Petition for Reconsideration have been filed in response to the Bureau's decision in the initial NRC Waiver Order. Pursuant to Section 1.106(a)(1) of the Commission's rules, we refer the Petition for Reconsideration to the Commission for further action. We recognize that the Commission may review the record in this proceeding and subsequently decide to reverse or modify the Bureau's NRC Waiver Order. In the interim, however, we will extend NYNEX's instant waiver request for one year because the circumstances that provided the basis for the original waiver have not significantly changed. 22. Our decision to extend the waiver is based on our application of the waiver standard that was applied when we granted the original waiver. We have decided to extend the waiver for one year because we have examined the record and have determined that competition has not been undermined during the past year. As we found in the NRC Waiver Order, for example, interconnectors have been operating in the NYNEX region for a longer period of time than any other region of the country. Moreover, interconnectors in the NYNEX region appear to have more collocation nodes than in any other region of the country and to have achieved higher market penetration. We also note that NYNEX submits that, in Manhattan south of 59th Street, ten of NYNEX's eleven central offices continue to provide collocation facilities. Further, the record indicates that, during the past year, interconnectors' market share of the high capacity special access market in Manhattan south of 59th Street has increased from 40 percent to over 50 percent. It should be noted that no parties to this proceeding have challenged the accuracy of any of this information. We recognize that parties opposing the extension of the waiver have raised other arguments that we do not directly address in this Order. However, we find that these arguments concern whether we should have granted NYNEX the original waiver and we believe that these arguments should be addressed when Commission acts upon the Applications for Review and Petition for Reconsideration. 23. Accordingly, we will extend NYNEX's waiver of the Commission's standards governing nonrecurring reconfiguration charges for one additional year until March 20, 1997, unless the Commission either reverses or modifies our NRC Waiver Order. This waiver will also be conditioned on NYNEX continuing to permit CAP customers to pay the CAP rollover NRC over a 12 month period. 24. Furthermore, we deny NYNEX's request for an indefinite extension of the waiver. We do not believe such an extension is appropriate at this juncture because the Applications for Review and Petition for Reconsideration remain pending. Moreover, since the special access and switched transport market in NYNEX's Zone 1 is not yet fully competitive, we believe that it is necessary for the Bureau to examine the effects of this waiver again in one year to determine whether NYNEX's recurring charge rate structure has not undermined competition. With a waiver of limited duration, we can continue to observe how competition in NYNEX's region develops and whether the extension we now grant has a negative impact. If this waiver of the nondiscriminatory NRC requirement results in differential treatment that undermines competition or otherwise violates the Communications Act, we will further limit or rescind NYNEX's extension to reduce the risk of any serious damage to competition. IV. ORD ERING CLAUSES 25. Accordingly, IT IS ORDERED, pursuant to Section 1.3 of the Commission's Rules, 47 C.F.R.  1.3, that the petition for extension of waiver filed by New York Telephone Company and New England Telephone and Telegraph Company IS GRANTED IN PART AND DENIED IN PART as indicated above. 26. IT IS FURTHER ORDERED, pursuant to Section 1.106(a)(1) of the Commission's Rules, 47 C.F.R.  1.106, the Petition for Reconsideration of the NRC Waiver Order, filed by MCI Telecommunications Corporation, is referred to the Commission for further action. FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, Common Carrier Bureau