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File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $// Order, Pacific Telesis Mobile Services, DA 95-1413//$ $/ 309(d)(2) Action Upon Applications/$ RECORD ONLY DA 95-1413 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Application of ) File No. 00002-CW-L-95 Pacific Telesis Mobile Services ) Call Sign KNLF 205 for a License to Provide Broadband PCS ) Service on Block B in the Los Angeles ) -San Diego Major Trading Area (M002) ) ) ORDER Adopted: June 23, 1995 Released: June 23, 1995 By the Chief, Wireless Telecommunications Bureau: I. INTRODUCTION 1. On March 13, 1995, the Commission announced Pacific Telesis Mobile Services ("PTMS") as the auction winner for a broadband Personal Communications Services ("PCS") Block B license for the Los Angeles-San Diego Major Trading Area ("MTA"). On April 12, 1995, the FCC Form 600 (long-form application) of PTMS was accepted for filing. On May 12, 1995, Cox Enterprises, Inc. ("Cox") filed a petition to deny or to condition the grant of Pacific Telesis's PCS license. Cox's subsidiary, Cox Communications, Inc., received the Block A PCS license for the Los Angeles MTA on December 14, 1994. As such, Cox will become a direct competitor with PTMS in California and Nevada, which establishes its standing as a petitioner under Section 309(d) of the Communications Act of 1934, as amended ("the Act"). II. CONTENTIONS OF THE PARTIES 2. Cox argues that the Commission's existing non-structural safeguards, such as the Part 32 and Part 64 cost accounting rules, will not deter PTMS's landline affiliate, Pacific Telesis ("PacTel"), from cross-subsidizing PTMS's PCS services to the disadvantage of its wireline ratepayers and the PCS competitors of PTMS. Specifically, Cox contends that the Part 64 cost allocation and affiliate transaction rules and the Part 32 Uniform System of Accounts rules do not apply to allocate joint costs of operating an integrated Local Exchange Carrier ("LEC") landline/PCS network. This is so, Cox argues, because Part 64 requires allocation of costs only between "regulated" and "non-regulated" services; and in this case, both wireline service and PCS service are "regulated" services, as they are subject to Title II regulation. Thus, Cox argues, it is unclear whether the non-structural safeguards that the Commission relied on to ensure fair participation of LECs in PCS apply in the manner in which the Commission anticipated. Cox therefore urges the Commission to impose conditions on PacTel's license grant to clarify that the accounting safeguards adopted in the Joint Cost proceeding apply to PacTel's provision of PCS. 3. Cox also points out that in a petition for clarification or reconsideration of the Second Report and Order in GN Docket 93-252 ("Second CMRS Report and Order"), PacTel has contended that Part 64 and Part 32 do not and should not apply to PCS because it is a "regulated" Commercial Mobile Radio Service ("CMRS"). Cox argues that PacTel's position contradicts its position in response to the 1992 PCS Notice of Proposed Rule Making, that the Part 64 rules were an effective means of ensuring that ratepayers have sufficient protection from cross-subsidy. 4. Cox also contends that, without some baseline requirements applicable to PacTel's integrated operations, there will be no way for the Commission, the California Public Utilities Commission, Cox, or any PCS competitor to know whether PacTel is charging itself the same rate for interconnection or monopoly network functions that it is charging its PCS competitors. Specifically, Cox suggests that the Commission require that PacTel file information on the scope of its subsidiaries' involvement in PCS construction, operation, and management. For example, Cox argues that the reference in PTMS's PCS application to the services that will be provided by another PacTel subsidiary, Pacific Bell Mobile Services, is too generic, and requests the disclosure of the nature and cost allocation of those types of services. Cox also wants PacTel to file publicly and update regularly a description of its physical and financial interconnection arrangements with its PCS affiliates, so that the Commission can assess the degree of discrimination, if any, between interconnection charges to itself and to its competitors. Cox suggests that the Commission remain sensitive to the potential of PacTel to use various means to prevent direct competition to its landline services. 5. Cox also requests that the Commission require the structural separation of PacTel's PCS activities from its landline operations, in accordance with the most recent Computer III Ninth Circuit case that determined that non-structural safeguards were ineffective in preventing access discrimination by the Bell Operating Companies ("BOCs") in providing enhanced services. Cox cites the Department of Justice, the Court of Appeals for the D.C. Circuit which administers the Modification of Final Judgment, Congress, and the Administration as supporting structural separation requirements for BOCs entering into competitive markets. 6. PacTel responds that it now believes that it is subject to the Part 64 and Part 32 cost allocation rules, because subsequent to its filing for clarification of the Second CMRS Report and Order, the Commission made clear in a separate proceeding that services like PCS, which never have been subject to rate regulation, are considered non-regulated services for federal accounting safeguard purposes. Thus, PacTel commits to complying with all applicable accounting safeguards and to provide services to an affiliate at tariffed rates or, in the alternative, fully distributed costs unless a prevailing price can be established. PacTel argues that these issues are not properly the subject of a petition to deny, but rather, should be considered in a rule making proceeding. PacTel argues that, if Cox is concerned that PacTel will not comply with the rules, it may raise objections to PacTel's Plan of Non- Structural Safeguards, which will be filed pursuant to the Second Broadband PCS Order. With respect to Cox's argument that the Commission should only grant PTMS's license on the condition that PacTel not provide it with more favorable interconnection or better access to network information than competing PCS providers, PacTel responds that it will comply with all applicable interconnection rules and that, in any event, this is not a proper subject matter for a petition to deny. PacTel also argues that Cox's call for structural separation is a misplaced motion for reconsideration of the Commission's determination not to apply structural separations in the Second Broadband PCS Order. 7. Cox replies that, without license conditions, PacTel can structure its PCS offerings and corporate arrangements to gain an unfair competitive advantage over its PCS competitors. Cox also notes that PacTel has not withdrawn its petition for reconsideration/clarification of the Second CMRS Report and Order, which Cox contends demonstrates that PacTel is still attempting to exploit the purported ambiguity between the classification of "regulated" and "non-regulated" services in Part 64 and the Commission's declaration that existing non-structural safeguards would apply to LECs providing PCS. Cox notes that, although PacTel has agreed to abide by the Commission's cost allocation rules, PacTel makes no commitment to account for costs already incurred in PCS deployment efforts, and that its license therefore should be conditioned upon a commitment to do so. Cox also takes issue with PacTel's commitment to allow its PCS affiliate to purchase interconnection services under the same terms and conditions that PacTel makes available to other CMRS providers. Cox contends that without further information regarding PacTel's relationships with its PCS affiliate and its physical and financial inter-corporate interconnection arrangements with third parties, including competing CMRS providers, the California Public Utilities Commission, and the Commission will have no way to detect discriminatory treatment. According to Cox, interconnection arrangements may be reflected in private negotiated terms between the parties, which are not reflected in a contractual or tariffed arrangement. Moreover, Cox argues, PacTel has not committed to impute all relevant charges to PTMS or to refrain from using its interconnection arrangements and costs that were developed for PTMS as an excuse to charge the same anti-competitive rate to other CMRS providers. Thus, Cox urges the Commission to condition PTMS's license on the recognition of mutual compensation arrangements between LECs and other PCS providers regarding interconnection. 8. With respect to structural separation, Cox asserts that the Commission should reconsider its decision not to impose structural safeguards in the PCS context in light of the Computer III Further Remand proceeding, in which the Commission is reconsidering the effectiveness of non-structural safeguards to prevent access discrimination by the BOCs in the provision of enhanced services. Cox concludes that PTMS's license should be conditioned on either the imposition of structural separation of PCS from PacTel's landline service or on the outcome of the Computer III Further Remand proceeding. III. DISCUSSION 9. Under Section 309(d) of the Act, parties filing a petition to deny an application must make specific allegations of fact sufficient to show that a grant of the application would be prima facie inconsistent with the public interest, convenience, and necessity. The Commission bases its threshold determination on an evaluation of the petition and supporting affidavits. Once the Commission determines whether the petitioner has made a prima facie case under Section 309(d)(1), the Commission must determine whether the petitioner has presented a substantial and material question of fact upon which relief may be granted. If no such question is raised, the Commission will deny the petition and grant the application if it otherwise serves the public interest, convenience, and necessity. Based on the pleadings and supporting materials before us, we find that Cox has not raised substantial and material questions of fact and, therefore, we will deny its petition. 10. The Commission's accounting rules require the separate accounting of costs incurred by a LEC in its regulated activities from those incurred by its non-regulated affiliates and accounting for LEC transactions with affiliates. The Commission adopted these rules in the Joint Cost Order to help ensure that wireline ratepayers would not bear the costs of a LEC's non-regulated activities. In fashioning such rules, the Commission determined that the accounting classification would relate directly to the scope of regulation under Title II of the Act. Specifically, the Commission stated that all activities that are classified as common carrier communications for Title II purposes, whether or not they are tariffed services, are classified as regulated activities for purposes of the accounting rules and non-regulated activity cost allocation rules. Cox argues that the Commission's determination in the Joint Cost Order that a "non-regulated" service is one that is not subject to Title II regulation prevails in this context, and that PCS therefore is not subject to these safeguards. 11. The issue raised by Cox is in essence a request for clarification of whether Parts 64 and 32 apply to LECs whose affiliates provide PCS service. The applicability of Parts 64 and 32 to CMRS services (including PCS) is an issue that has been raised expressly in petitions for reconsideration of the Second CMRS Report and Order, which is under current consideration by the Commission. Any decision made in that proceeding will be binding on PacTel and PTMS. We therefore conclude that that proceeding is the proper forum for resolving this issue. To the extent that Cox has raised the issue here, we will consider its pleadings as ex parte filings in the CMRS reconsideration, and herewith incorporate all pleadings into the record of the CMRS reconsideration proceeding, as they relate to this issue. 12. We also reject Cox's argument that the Commission should condition PTMS's license on the outcome of the Computer III Further Remand proceeding. The case cited by Cox, State of California v. FCC, addressed only the limited issue of whether the Commission sufficiently supported its decision not to impose structural separation rules on LECs that offer enhanced services. The issue of whether the structural separation rules will apply to LECs whose affiliates offer PCS has already been decided by the Commission in the Second Broadband PCS Order, as well as the Second CMRS Report & Order. If, in the context of a future rule making proceeding, the Commission decides to apply structural separation rules or impose additional safeguards, PCS licensees will become subject to those requirements. With respect to Cox's arguments concerning interconnection filings and affiliate filings, the Commission specifically decided in the Second CMRS Report and Order not to impose such requirements. If the Commission decides otherwise on reconsideration of that proceeding, PacTel will become subject to those requirements. 13. Further, Cox's allegation of potential anti-competitive conduct by PacTel is based on policy positions taken by PacTel before the California Public Utilities Commission and the FCC on LEC issues, not on incidents of past or present anti-competitive conduct. Moreover, PacTel states that it is committed to providing fair interconnection to all PCS providers, and that Cox has mischaracterized its position on the applicability of mutual compensation to LECs with respect to interstate traffic. Without evidence of a strong likelihood that PacTel will engage in anti-competitive conduct through its affiliate PTMS, Cox's allegation does not raise a substantial and material question of fact as to whether a grant of PTMS's application, without conditions, would serve the public interest. If the potential for anti-competitive conduct by PacTel or any other carrier exists, the Commission will deal with those issues in a separate rule making context, or upon complaint. IV. CONCLUSION 14. Cox's arguments as to non-structural safeguards, structural separation, interconnection filings, affiliate filings, and potential anti-competitive conduct do not raise substantial and material questions of fact, and therefore, we will deny its petition under Section 309(d)(2). Having reviewed the application and the pleadings filed in this matter, we conclude that grant of the subject application will serve the public interest, convenience, and necessity, and that the petitioner has not sufficiently alleged facts establishing that grant of the application would be inconsistent with the public interest, convenience, and necessity. V. ORDERING CLAUSES 15. Accordingly, IT IS ORDERED that, pursuant to Section 309(d)(2) of the Act, the "Petition to Deny Or to Condition License Grant," filed by Cox Enterprises, Inc., IS HEREBY DENIED. 16. IT IS FURTHER ORDERED that all pleadings filed by Cox Enterprises, Inc., in response to the application of Pacific Telesis Mobile Services for a Broadband Personal Communications Services license for the Los Angeles-San Diego MTA (File No. 00002-CW-L-95, Call Sign KNLF 205) ARE HEREBY INCORPORATED into the record of the reconsideration of the CMRS Second Report and Order and will be considered ex parte filings, to the extent that they address the question of accounting safeguards. FEDERAL COMMUNICATIONS COMMISSION Regina M. Keeney Chief, Wireless Telecommunications Bureau