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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** FCC 97-247 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of) ) Access Charge Reform )CC Docket No. 96-262 ) Price Cap Performance Review)CC Docket No. 94-1 for Local Exchange Carriers) ) Transport Rate Structure)CC Docket No. 91-213 and Pricing) ) End User Common Line Charges)CC Docket No. 95-72 ) ORDER ON RECONSIDERATION Adopted: July 10, 1997 Released: July 10, 1997 By the Commission: 1. On May 7, 1997, we adopted the First Report and Order in this proceeding and the Report and Order in our related Universal Service proceeding. On our own motion, and upon further consideration of some of the issues addressed in our Access Reform Order, we take this opportunity to revise or clarify certain of our actions. I.DEM Weighting, Long Term Support, and Local Switching 2. DEM Weighting. In our Universal Service Order, among other actions, we provided that, on January 1, 1998, eligible rural telephone company study areas with fewer than 50,000 lines would begin receiving local switching support from the new universal service support mechanisms in an amount equal to the implicit support they formerly received from dial equipment minute-of-use (DEM) weighting. We did not make clear in the Access Reform Order, however, how the switching rates for both incumbent LECs subject to price cap regulation and those that are not subject to price cap regulation would be affected by the new universal service mechanisms. The obvious solution is to permit rural incumbent LECs to recover these switching costs either from universal service support mechanisms or from interstate access charges, but not to permit recovery of these costs from both sources duplicatively. 3. The rules adopted to implement our Access Reform Order provide that the per-minute local switching charge to be imposed by incumbent LECs not subject to price cap regulation "shall be computed by dividing the projected annual revenue requirement for the Local Switching element by the projected annual access minutes of use for all interstate or foreign services that use local exchange switching facilities." 4. On further consideration of our revisions to section 69.106, we recognize that, absent further clarification, rural incumbent LECs not subject to price cap regulation may have the opportunity to recover twice a portion of their local switching costs. DEM weighting increases the interstate local switching revenue requirement when costs are separated in Part 36 between the intrastate and interstate jurisdictions. Although the Universal Service Order established a new mechanism for providing to carriers the amount of support that was formerly received from DEM weighting, it preserved the use of DEM weighting in assigning local switching revenue requirement to the interstate jurisdiction. Thus, if a rural incumbent LEC were to use the entire DEM-weighted interstate component of the Part 36 local switching revenue requirement in setting access charges for local switching under section 69.106, it would have the opportunity to recover twice that portion of the interstate revenue requirement attributable to DEM-weighting. Specifically, the rural incumbent LEC would receive compensation for the DEM-weighted component of local switching from universal service support mechanisms, and also would be able to continue to set the local switching element of its access charges to recover the portion of its interstate revenue requirement attributable to DEM-weighting. Clearly, we did not intend our rules to permit such a result. 5. On our own motion, therefore, we take this opportunity to reconsider this issue and revise section 69.106. We clarify that, in setting its per-minute access charge for local switching under section 69.106, each rural incumbent LEC not subject to price cap regulation must exclude from its local switching interstate revenue requirement any high-cost support attributable to DEM weighting. 6. Similarly, to the extent that any price cap LEC receives high-cost support attributable to DEM-weighting under section 54.301, we require such price cap LEC, in its access tariff filed reflecting its receipt of support under section 54.301, to make a downward exogenous adjustment to its traffic sensitive basket price cap index (PCI) and to its common line basket PCI to reflect the recovery of this amount from the new high-cost support mechanism. These exogenous adjustments must be made after the exogenous adjustments required when the price cap LEC reallocates the costs of line ports to the common line basket in accordance with the Access Reform Order. The exogenous downward adjustment to each basket must be in proportion to the local switching costs contained within that basket. For example, if a price cap LEC makes exogenous adjustments to reallocate 30 percent of its local switching costs contained within the traffic sensitive basket to the common line basket, reflecting the costs of its line ports, it must then make a downward exogenous adjustment to the common line basket in an amount equal to 30 percent of the support it receives under section 54.301 and a downward exogenous adjustment to the traffic sensitive basket in an amount equal to the remaining 70 percent. 7. Long Term Support. We also modify the language of section 69.502(c) to clarify the per-line support amount that carriers should use in making deductions from the base factor portion of the common line element. In the Universal Service Order, we did not adopt the Joint Board's recommendation that, for the three years beginning January 1, 1998, high-cost support be calculated for rural incumbent LECs based on historic high-cost loop support, DEM weighting, and long term support (LTS) amounts. Instead, consistent with the recommendation of the State High Cost Report and of many commenters, high-cost support attributable to the former LTS mechanism may increase based on changes in the nationwide average loop cost. We therefore replace the phrase "frozen per-line support" in section 69.502 with the phrase "per-line support." 8. Other Local Switching Issues. In the Access Reform Order, we directed incumbent LECs to set per-minute rates for the transmission component of tandem-switched transport using "the total actual voice-grade minutes of use, geographically averaged on a study-area-wide basis, that the incumbent [LEC] experiences based on the prior year's annual use," or averaged on a zone-wide basis where the incumbent LEC has implemented density pricing zones. In new section 69.111(l), however, we directed incumbent LECs to develop per-minute charges for the shared multiplexers used on the end office side of the tandem switch, using as a denominator "the projected annual access minutes of use calculated for purposes of recovery of common transport costs in paragraph (c) of this section." We will delete the word "projected" from this sentence of our rules. Paragraph (c) does not require a projection, but instead calls for the use of the prior year's historical data. For clarity, we also delete the extraneous phrase "by the serving wire center side of the tandem switch" from this section. II.TIC Reduction for Non-Price Cap Incumbent LECs 9. In our Access Reform Order, we took steps to adopt a cost-based transport rate structure and to comply with the remand order issued by the United States Court of Appeals for the District of Columbia Circuit in Competitive Telecommunications Ass'n v. FCC (CompTel). In complying with the CompTel remand, we took steps to eliminate or substantially reduce the transport interconnection charge (TIC), which we originally created as part of our interim transport rate structure. 10. We reassigned portions of the TIC to other rate elements, some of which were created in the Access Reform Order only for price cap carriers. In creating the new rate elements established for multiplexers used at the tandem switch, we "direct[ed] incumbent LECs to establish separate rate elements for the multiplexing equipment on each side of the tandem switch." This language potentially may be unclear, especially in light of subsequent language directing only "price cap LECs [to] reallocate revenues" to these rate elements. As an initial matter, therefore, we here clarify that these rate elements apply only to price cap incumbent LECs. 11. We specifically directed carriers to reassign certain TIC amounts to newly created rate elements for trunk ports and multiplexers used at the tandem switch and for DS1/voice grade multiplexers used at the local switch. Because these rate elements were created only for price cap carriers, however, we take this opportunity to clarify the application of this section of our Access Reform Order with respect to incumbent LECs not subject to price cap regulation. 12. In access tariffs filed to become effective January 1, 1998, incumbent LECs not subject to price cap regulation should assign TIC amounts attributable to trunk ports and multiplexers used at the tandem switch to the tandem switching rate element. Even though the specific rate elements created for these amounts do not yet exist for non-price cap carriers, the amounts involved relate broadly to the use of the tandem switch. Similarly, in access tariffs filed to become effective January 1, 1998, incumbent LECs not subject to price cap regulation should assign TIC amounts attributable to DS1/voice grade multiplexers used at analog local switches to the local switching rate element for recovery. Even though the specific rate elements created for these amounts do not yet exist for non-price cap carriers, the amounts involved relate broadly to the use of analog local switches. We will consider whether these amounts should be further reallocated to individual rate elements in our upcoming rulemaking proceeding addressing access charge reform for rate-of-return carriers. III.Reallocation of Tandem Switching Costs 13. Section 69.1(c) of our rules limits the extent to which certain Part 69 pricing rules apply to incumbent LECs subject to price cap regulation. Under the terms of section 69.1(c), while a price cap LEC uses these Part 69 rules, inter alia, to set initial charges for new rate elements, the price cap LEC thereafter has discretion to vary these charges, subject to the limitations of the relevant price cap index and any applicable service category banding constraints. 14. Section 69.111(g) governs the reallocation by all carriers of tandem switching amounts currently being recovered through the TIC to the tandem switching rate element. As our rules are currently constructed, section 69.1(c) limits the extent to which section 69.111(g)(1) applies to price cap carriers, as described above, but sections 69.111(g)(2) and 69.111(g)(3) are not so limited. We therefore revise section 69.1(c) to clarify that sections 69.111(g)(2) and 69.111(g)(3) apply to price cap carriers only to the same extent as section 69.111(g)(1). To reallocate tandem switching amounts as described in section 69.111(g), price cap LECs must make downward exogenous adjustments to the interconnection charge service band index (SBI) and corresponding upward exogenous adjustments to the tandem-switched transport SBI at the times and in the amounts prescribed in sections 69.111(g)(1-3). Thereafter, they may vary the tandem-switching charge in accordance with the Part 61 price cap rules. IV.Common Line Issues 15. In the Access Reform Order, we directed each price cap carrier to calculate its subscriber line charge (SLC) based on the full average per-line interstate allocation of the common line revenue requirement, until its primary interexchange carrier charge (PICC) assessed on multi-line business (MLB) lines no longer recovers any common line revenues. At that time, we directed the price cap carrier to begin calculating the SLC based on average per-line common line revenues permitted under our price cap rules. In certain situations, when the MLB PICC no longer recovers common line revenues, recalculation of the SLC may in turn create a common line residual to be recovered by the MLB PICC, making it impossible for the price cap LEC to develop a proper rate. Accordingly, we reconsider this aspect of our PICC rules, and take this opportunity to revise the triggering point at which a price cap carrier should begin calculating its SLC based on average per-line common line revenues permitted under the price cap rules. A price cap carrier should make this change in its SLC calculation when the maximum PICC assessed on primary residential lines, plus the maximum SLC on those lines, recovers the full amount of its per-line common line price cap revenues. V.General Support Facilities 16. We also here reinstate portions of section 69.307(c), relating to general support facilities (GSF), that were erroneously deleted in the Access Reform Order. We will address GSF cost allocation issues in a future order in this proceeding. VI. Final Regulatory Flexibility Analysis 17. In the Access Reform Order, we conducted a Final Regulatory Flexibility Analysis, as required by section 603 of the Regulatory Flexibility Act, as amended by the Contract With America Advancement Act of 1996, Pub. L. No. 104-121, 110 Stat. 847 (1996). The changes we adopt in this Order do not affect that analysis. VII.Ordering Clauses 18. Accordingly, IT IS ORDERED, pursuant to Sections 1-4, 201-205, 251, 254, 303, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151-154, 201-205, 251, 254, 303 and 405, and pursuant to section 1.108 of the Commission's rules, 47 C.F.R.  1.108, that this Order on Reconsideration IS ADOPTED. 19. IT IS FURTHER ORDERED that section 69.307(c) of the Commission's rules, 47. C.F.R.  69.307(c) IS AMENDED as set forth in the Appendix, effective 30 days after date of publication in the Federal Register. 20. IT IS FURTHER ORDERED that sections 69.1(c), 69.106(b), 69.111(g)(4), 69.111(l)(1), 69.152(b), and 69.502(c) of the Commission's rules, 47 C.F.R.  69.1(c), 69.106(b), 69.111(g)(4), 69.111(l)(1), 69.152(b), and 69.502(c), ARE AMENDED as set forth in the appendix. 21. IT IS FURTHER ORDERED that, except as otherwise specified herein, the policies and rules adopted here shall be effective January 1, 1998. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX -- Final Rules AMENDMENTS TO THE CODE OF FEDERAL REGULATIONS Part 69 -- ACCESS CHARGES 1. The authority citation for Part 69 continues to read as follows: Authority: 47 U.S.C.  154(i) and (j), 201, 202, 203, 205, 218, 254, and 403. 2. Section 69.1(c) is revised to read as follows:  69.1 Application of access charges. * * * * * (c) The following provisions of this part shall apply to telephone companies subject to price cap regulation only to the extent that application of such provisions is necessary to develop the nationwide average carrier common line charge, for purposes of reporting pursuant to  43.21 and 43.22 of this chapter, and for computing initial charges for new rate elements:  69.3(f), 69.106(b), 69.106(f), 69.106(g), 69.109(b), 69.110(d), 69.111(c), 69.111(g)(1), 69.111(g)(2), 69.111(g)(3), 69.111(l), 69.112(d), 69.114(b), 69.114(d), 69.125(b)(2), 69.301 through 69.310, and 69.401 through 69.412. The computation of rates pursuant to these provisions by telephone companies subject to price cap regulation shall be governed by the price cap rules set forth in part 61 of this chapter and other applicable Commission Rules and orders. 3. Section 69.106(b) is revised to read as follows:  69.106Local Switching. * * * * * (b) The per minute charge described in paragraph (a) of this section shall be computed by dividing the projected annual revenue requirement for the Local Switching element, excluding any local switching support received by the carrier pursuant to  54.301 of this chapter, by the projected annual access minutes of use for all interstate or foreign services that use local exchange switching facilities. * * * * * 4. Sections 69.111(g)(4) and (l)(1) are revised to read as follows:  69.111Tandem Switched Transport and Tandem Charge. * * * * * (g) * * * (4) A local exchange carrier that is subject to price cap regulation as that term is defined in  61.3(x) of this Chapter shall calculate its tandem switching revenue requirement as used in this paragraph by dividing the tandem switching revenue requirement that was included in the original interconnection charge by the original interconnection charge, and then multiplying this result by the annual revenues recovered through the interconnection charge, described in  69.124, as of June 30, 1997. A local exchange carrier that is subject to price cap regulation as that term is defined in  61.3(x) of this Chapter shall then make downward exogenous adjustments to the service band index for the interconnection charge service category (defined in  61.43(e)(2)(vi) of this chapter) and corresponding upward adjustments to the service band index for the tandem-switched transport service category (defined in  61.43(e)(2)(v) of this chapter) at the times and in the amounts prescribed in paragraphs (g)(1) through (g)(3) of this section. * * * * * (l) * * * (1) Local exchange carriers must establish a traffic-sensitive charge for DS3/DS1 multiplexers used on the end office side of the tandem switch, assessed on purchasers of common transport to the tandem switch. This charge must be expressed in dollars and cents per access minute of use. The maximum charge shall be calculated by dividing the total costs of the multiplexers on the end office-side of the tandem switch by the annual access minutes of use calculated for purposes of recovery of common transport costs in paragraph (c) of this section. A similar charge shall be assessed for DS1/voice-grade multiplexing provided on the end-office side of analog tandem switches. * * * * * 5. Section 69.152(b) is revised to read as follows:  69.152End user common line for price cap local exchange carriers. * * * * * (b) Except as provided in paragraphs (d) through (i) of this section, the maximum single line rate or charge shall be computed: (1) by dividing one-twelfth of the projected annual revenue requirement for the End User Common Line element by the projected average number of local exchange service subscriber lines in use during such annual period, only so long as a per-minute carrier common line charge is assessed or the maximum PICC assessed on primary residential lines, plus the maximum end user common line charge for primary residential lines, does not recover the full amount of its per-line common line price cap revenues. (2) by dividing one-twelfth of the projected annual revenues permitted for the common line basket under the Commission's price cap rules, as set forth in Part 61 of this chapter, by the projected average number of local exchange service subscriber lines in use during such annual period, if no per-minute carrier common line charge is assessed and the maximum PICC assessed on primary residential lines, plus the maximum end user common line charge for primary residential lines, recovers the full amount of its per-line common line price cap revenues. * * * * * 6. Section 69.307(c) is added to read as follows:  69.307General support facilities. * * * * * (c) All other General Support Facilities investments shall be apportioned among the interexchange category, the billing and collection category, and Common Line, Local Switching, Information, Transport, and Special Access elements on the basis of Central Office Equipment, Information Origination/Termination Equipment, and Cable and Wire Facilities, combined. 7. Section 69.502(c) is revised to read as follows:  69.502Base factor allocation. * * * * * (c) The portion of per-line support that carriers receive pursuant to  54.303.