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FCC Lifts Unneeded Telecom Rules and Proposes Further Streamlining

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Released: May 17, 2013

Federal Communications Commission

FCC 13-69

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of
)
)

Petition of USTelecom for Forbearance Under 47
)
WC Docket No. 12-61
U.S.C. § 160(c) from Enforcement of Certain
)
Legacy Telecommunications Regulations
)
)

Review of Wireline Competition Bureau Data
)
WC Docket No. 10-132
Practices
)
)

Petition of Cincinnati Bell Telephone Company
)
WC Docket No. 09-206
LLC for Waiver from Application of the Equal
)
Access Scripting Requirement
)
)

Petition of United States Telecom Association for
)
WC Docket No. 08-225
Waiver from Application of the Equal Access
)
Scripting Requirement
)
)

Service Quality, Customer Satisfaction,
)
WC Docket No. 08-190
Infrastructure and Operating Data Gathering
)
)

Petition of Verizon for Forbearance, 47 U.S.C.
)
WC Docket No. 07-273
§ 160(c) from Enforcement of Certain of the
)
Commission’s Recordkeeping and Reporting
)
Requirements
)
)

Petition of Qwest Corporation for Forbearance
)
WC Docket No. 07-204
from Enforcement of the Commission’s ARMIS
)
and 492A Reporting Requirements Under 47
)
U.S.C. § 160(c); Petition of the Embarq Local
)
Operating Companies for Forbearance Under 47
)
U.S.C. § 160(c) from Enforcement of Certain of
)
ARMIS Reporting Requirements; and Petition of
)
Frontier and Citizens ILECs for Forbearance
)
Under 47 U.S.C. § 160(c) from Enforcement of
)
Certain of the Commission’s ARMIS Reporting
)
Requirements
)
)

Petition of AT&T Inc. for Forbearance Under 47
)
WC Docket No. 07-139
U.S.C. § 160(c) from Enforcement of Certain of
)
the Commission’s ARMIS Reporting
)
Requirements
)
)

Petition of AT&T Inc. for Forbearance Under 47
)
WC Docket No. 07-21
U.S.C. § 160(c) from Enforcement of Certain of
)
the Commission’s Cost Assignment Rules
)
)

Petition of BellSouth Telecommunications, Inc.
)
WC Docket No. 05-342
for Forbearance Under 47 U.S.C. § 160 from
)

Federal Communications Commission

FCC 13-69

Enforcement of Certain of the Commission’s Cost )
Assignment Rules
)
)

Notice of Inquiry Concerning a Review of the
)
CC Docket No. 02-39
Equal Access and Nondiscrimination Obligations
)
Applicable to Local Exchange Carriers
)
)

2000 Biennial Regulatory Review
)
CC Docket No. 00-175
Separate Affiliate Requirements of Section
)
64.1903 of the Commission’s Rules
)
)

Computer III Further Remand Proceedings: Bell
)
CC Docket Nos. 95-20, 98-10
Operating Company Provision of Enhanced
)
Services; 1998 Biennial Regulatory Review –
)
Review of Computer III and ONA Safeguards and )
Requirements
)

MEMORANDUM OPINION AND ORDER AND

REPORT AND ORDER AND

FURTHER NOTICE OF PROPOSED RULEMAKING AND

SECOND FURTHER NOTICE OF PROPOSED RULEMAKING

Adopted: May 10, 2013

Released: May 17, 2013

Comment Date: [30 days after date of publication of the Further Notice of Proposed Rulemaking
and Second Further Notice of Proposed Rulemaking in the Federal Register]

Reply Comment Date: [60 Days after date of publication of the Further Notice of Proposed
Rulemaking and Second Further Notice of Proposed Rulemaking in the Federal Register]

By the Commission: Chairman Genachowski issuing a statement; Commissioner Pai approving in part,
concurring in part and issuing a statement; Commissioner McDowell not participating.

TABLE OF CONTENTS

Heading
Paragraph #
I. INTRODUCTION.................................................................................................................................. 1
II. BACKGROUND.................................................................................................................................... 5
A. The USTelecom Petition.................................................................................................................. 5
B. Forbearance Standard....................................................................................................................... 7
III. DISCUSSION ........................................................................................................................................ 8
A. General Arguments .......................................................................................................................... 8
B. Rules Addressed in This Order ...................................................................................................... 11
1. Equal Access Scripting Requirement ...................................................................................... 11
2. BOC ONA, CEI, Structural Separation and All-Carrier Computer Inquiry Rules.................. 18
3. Cost Assignment Rules ........................................................................................................... 30
4. Part 32 Uniform System of Accounts...................................................................................... 56
5. Property Record Rules............................................................................................................. 78
6. Part 42 Recordkeeping Requirements ..................................................................................... 93
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7. ARMIS Report 43-01 (“Annual Summary Report”)............................................................. 101
8. Annual Revenue and Total Communications Plant Reporting.............................................. 110
9. Rules Governing Notice of Network Changes ...................................................................... 116
10. Service Discontinuance Approval Requirements.................................................................. 126
11. Structural Separation Requirements for Independent ILECs ................................................ 135
12. “Cash Working Capital Allowance” Requirement................................................................ 163
13. Rules Governing Extension of Unsecured Credit for Interstate and Foreign
Communications Services to Candidates for Federal Office................................................. 167
14. Recording of Telephone Conversations with Telephone Companies.................................... 171
15. Prepaid Calling Card Reporting Requirements (§ 64.5001).................................................. 176
IV. REPORT AND ORDER IN WC DOCKET NO. 10-132................................................................... 188
A. CEI/ONA Notice and Background ............................................................................................... 188
B. Discussion.................................................................................................................................... 190
V. COMPUTER III FURTHER NOTICE OF PROPOSED RULEMAKING ....................................... 194
A. Introduction.................................................................................................................................. 194
B. Background.................................................................................................................................. 195
C. Discussion.................................................................................................................................... 199
VI. SECOND FURTHER NOTICE OF PROPOSED RULEMAKING.................................................. 211
A. Introduction.................................................................................................................................. 211
B. Background.................................................................................................................................. 214
1. Section 64.1903 of the Commission’s Rules......................................................................... 214
2. Historical Regulation of Independent ILEC Long Distance Services................................... 215
3. Related Proceedings .............................................................................................................. 223
4. Marketplace Developments................................................................................................... 230
C. Discussion.................................................................................................................................... 237
1. Analyzing Potential for Cost Misallocation .......................................................................... 238
2. Analyzing Potential for Unlawful Non-Price Discrimination and Price Squeezes ............... 241
3. Costs and Benefits of the Separate Affiliate Requirements of Section 64.1903 ................... 242
VII. PROCEDURAL MATTERS............................................................................................................. 244
A. Memorandum Opinion and Order................................................................................................ 244
B. Report and Order in WC Docket No. 10-132 .............................................................................. 245
1. Final Paperwork Reduction Act Analysis ............................................................................. 245
2. Congressional Review Act .................................................................................................... 246
3. Final Regulatory Flexibility Analysis ................................................................................... 247
C. Computer III Further Notice ........................................................................................................ 250
1. Paperwork Reduction Act Analysis....................................................................................... 250
2. Initial Regulatory Flexibility Analysis .................................................................................. 251
3. Ex Parte Presentations........................................................................................................... 253
4. Comment Filing Procedures.................................................................................................. 254
D. Second Further Notice of Proposed Rulemaking......................................................................... 256
1. Paperwork Reduction Act Analysis....................................................................................... 256
2. Initial Regulatory Flexibility Analysis .................................................................................. 257
3. Ex Parte Presentations........................................................................................................... 272
4. Comment Filing Procedures.................................................................................................. 273
VIII.
ORDERING CLAUSES .............................................................................................................. 275
Appendix A – Comments, Oppositions, & Replies
Appendix B – Forbearance Granted in this Order
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I.

INTRODUCTION

1.
In this Memorandum Opinion and Order (Order), we address the outstanding portions of
a petition for forbearance filed by the United States Telecom Association (USTelecom) pursuant to
section 10 of the Communications Act of 1934, as amended (the Act).1 The USTelecom Petition seeks
forbearance from 17 different categories of rules, which USTelecom argues are “legacy
telecommunications regulations” that are unnecessary and outdated.2 On February 19, 2013, the
Commission granted USTelecom’s request with respect to Category 11 (Traffic Damage Claims), a
portion of Category 13 (Extension of Unsecured Credit for Communications Services to Candidates for
Federal Office), and Category 14 (Furnishing of Facilities to Foreign Governments for International
Communications).3
2.
With this Order, combined with the USTelecom Short Order, we grant forbearance from
126 of the approximately 141 rules and requirements covered by USTelecom’s petition.4 In so doing, we
further our commitment to eliminate burdens on industry and promote innovation while ensuring our
statutory objectives are met.5 We grant forbearance to the full extent supported by the record. Where we
cannot forbear from a requirement completely, we in several instances reduce burdens by granting partial
or conditional forbearance. This allows us to modernize our rules by removing outmoded requirements,
while preserving requirements that remain essential to our fundamental mission to ensure competition,
consumer protection, universal service, and public safety. However, we emphasize that nothing in this
Order is intended to preempt any state or local requirements adopted under state law. Nothing in this
Order prevents states from enforcing existing state requirements and/or lawfully adopting new provisions
similar or equivalent to any of those from which we forbear here based on authority they have under state
law.
3.
The Commission is committed to removing unnecessary requirements to reflect new
technologies and changing market conditions. Nevertheless, decisions about eliminating or removing
regulations must be based on record evidence regarding each requirement. In instances where

1 Petition of USTelecom for Forbearance Pursuant to 47 U.S.C. § 160(c) from Enforcement of Certain Legacy
Telecommunications Regulations, WC Docket No. 12-61 (filed Feb. 16, 2012) (USTelecom Petition). On February
7, 2013, pursuant to § 10(c) of the Act, the Wireline Competition Bureau (Bureau) extended until May 17, 2013, the
date on which the USTelecom Petition shall be deemed granted in the absence of a Commission decision that the
petition fails to meet the standard for forbearance under § 10(a) of the Act. See Petition of USTelecom for
Forbearance Pursuant to 47 U.S.C. § 160(c) from Enforcement of Certain Legacy Telecommunications Regulations
,
WC Docket No. 12-61, Order, 28 FCC Rcd 1077 (Wireline Comp. Bur. 2013).
2 USTelecom Petition at 1; see also Pleading Cycle Established for Comments on United States Telecom Association
Petition for Forbearance from Certain Telecommunications Regulations
, WC Docket No. 12-61, Public Notice, 27
FCC Rcd 2326 (Wireline Comp. Bur. 2012) (USTelecom Forbearance PN). In some instances, USTelecom seeks
forbearance for all telecommunications carriers, and in other instances only for a subset of telecommunications
carriers.
3 Petition of USTelecom for Forbearance Pursuant to 47 U.S.C. § 160(c) from Enforcement of Certain Legacy
Telecommunications Regulations
, WC Docket No. 12-61, Order, 28 FCC Rcd 2605 (2013) (USTelecom Short
Order
).
4 These rules include those from which we granted forbearance in the USTelecom Short Order and rules we grant
partial or conditional forbearance from in this Order. Id.; see also Appendix B.
5 Since 2009, the Commission has eliminated 219 regulations and developed a plan for retrospective analysis of its
rules. Final Plan for Retrospective Analysis of Existing Rules, at 3 (rel. May 18, 2012) (FCC Plan), available at
http://http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-314166A1.pdf.
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USTelecom has not substantiated its forbearance request, and the record or information otherwise
available to the Commission does not support forbearance, we deny forbearance.
4.
However, to reduce existing burdens and explore whether, on a more fulsome record, we
could determine that certain regulations are no longer needed or could be modified to be less burdensome,
we take additional actions. First, we adopt a Report and Order in WC Docket No. 10-132 (Reporting
Requirement Order
), relieving the Bell Operating Companies (BOCs) of legacy reporting obligations
associated with the Computer Inquiry requirements.6 Second, in the attached Further Notice of Proposed
Rulemaking (FNPRM) in CC Docket Nos. 95-20 and 98-10, we examine whether to retain, modify, or
eliminate the comparably efficient interconnection (CEI) and open network architecture (ONA)
requirements as well as the “All Carrier Rule.”7 Finally, we grant USTelecom’s petition for forbearance
from the separate affiliate requirement, 47 C.F.R. § 64.1903, for independent incumbent local exchange
carriers (LECs) that are subject to price cap regulation, and adopt a Second Further Notice of Proposed
Rulemaking (NPRM) to consider whether we should modify or eliminate the separate affiliate
requirement for independent incumbent LECs that are subject to rate-of-return regulation.

II.

BACKGROUND

A.

The USTelecom Petition

5.
As noted above, we previously granted USTelecom’s request with respect to three
categories enumerated in the USTelecom Petition.8 The remaining categories of rules from which
USTelecom seeks forbearance, and which we address in this Order, are:

Category 1: Equal Access Scripting Requirement;

Category 2: Open Network Architecture and Comparably Efficient Interconnection
Requirements, Enhanced Services Structural Separation Rule (47 C.F.R. § 64.702), and All-
Carrier Computer Inquiry Rules;

Category 3: Cost Assignment Rules;

Category 4: Part 32 Uniform System of Accounts (47 U.S.C. § 220(a)(2), 47 C.F.R. §§ 32.1-
32.9000);

Category 5: Property Record Rules (47 C.F.R. §§ 32.2000(e), (f));

Category 6: Part 42 Recordkeeping Requirements (47 C.F.R. §§ 42.4, 42.5, 42.7, 42.10(a));

Category 7: Automated Reporting Management Information System (ARMIS) Report 43-01;

Category 8: Annual Revenue and Total Communications Plant Reporting (47 C.F.R.
§ 43.21(c);

Category 9: Rules Governing Notices of Network Changes (47 C.F.R. §§ 51.329(a)(2),
51.333(a)-(f), 52.333(b));

Category 10: Service Discontinuance Approval Requirements (47 U.S.C. § 214, 47 C.F.R.
§§ 63.30, 63.61, 63.62, 63.63, 63.71(a)(5), 63.71(c), 63.90(a)(8));

Category 12: Structural Separation Requirements for Independent ILECs (47 C.F.R.
§ 64.1903);

Category 13: Rules Governing Extension of Unsecured Credit for Interstate and Foreign
Communications Services to Candidates for Federal Office (47 C.F.R. §§ 64.801, 64.804(a)-
(f));

Category 15: “Cash Working Capital Allowance” Requirement (47 C.F.R. § 65.820(d));

6 USTelecom did not seek forbearance from these requirements. See infra n.59.
7 See Section V, infra.
8 See USTelecom Short Order (granting forbearance from application of 47 C.F.R. §§ 64.1, 64.301, and 64.801(g)).
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Category 16: Rules Governing Recording of Telephone Conversations with Telephone
Companies (47 C.F.R. § 64.501); and

Category 17: Prepaid Calling Card Reporting Requirements (47 C.F.R. § 64.5001).9
6.
USTelecom generally claims that the rules from which it seeks forbearance are based on
outdated assumptions about technologies and business models that do not reflect the current
communications industry.10 USTelecom asserts that these regulations no longer serve any regulatory
purpose or provide the Commission with information necessary to perform its regulatory functions.11
USTelecom further states that the regulations at issue impose undue costs and burdens and impose an
unwarranted competitive disadvantage on incumbent local exchange carriers (ILECs) or a small subset of
ILECs because other competitors, including cable operators, wireless carriers, and Voice over Internet
Protocol (VoIP) providers are not subject to these rules.12 USTelecom argues that these regulations
adversely affect competition and are therefore detrimental to consumers, and that the elimination of the
legacy telecommunications regulations at issue is necessary to realize the pro-competitive goals of the
1996 Act.13

B.

Forbearance Standard

7.
The Commission is required to forbear from any statutory provision or regulation if it
determines that: (1) enforcement of the regulation is not necessary to ensure that the telecommunications
carrier’s charges, practices, classifications, or regulations are just, reasonable, and not unjustly or
unreasonably discriminatory; (2) enforcement of the regulation is not necessary to protect consumers; and
(3) forbearance from applying such provision or regulation is consistent with the public interest.14 In
determining whether forbearance is consistent with the public interest, the Commission also must
consider “whether forbearance from enforcing the provision or regulation will promote competitive
market conditions.”15 Forbearance is warranted under section 10(a) only if all three elements of the
forbearance criteria are satisfied.16 In a forbearance proceeding, the petitioner has the burden of proof,
including both the burden of production and the burden of persuasion.17 Finally, as the D.C. Circuit has

9 See USTelecom Forbearance PN.
10 USTelecom Petition at 2-3.
11 Id. at 3.
12 Id. at 5.
13 Id.
14 47 U.S.C. § 160(a).
15 47 U.S.C. § 160(b) (providing that, in making the determination under § 10(a)(3), the Commission shall consider
whether forbearance will promote competitive market conditions).
16 See Cellular Telecomms. & Internet Ass’n v. FCC, 330 F.3d 502, 509 (D.C. Cir. 2003) (explaining that the three
prongs of § 10(a) are conjunctive and that the Commission could properly deny a petition for failure to meet any one
prong).
17 Petition to Establish Procedural Requirements to Govern Proceedings for Forbearance Under Section 10 of the
Communications Act of 1934, as Amended
, WC Docket No. 07-267, Report and Order, 24 FCC Rcd 9543 (2009)
(Forbearance Procedures Order). Thus, in addition to the burden of production of stating a prima facie case in the
petition, “the petitioner’s evidence and analysis must withstand the evidence and analysis propounded by those
opposing the petition for forbearance” (i.e., the burden of persuasion). Id. at 9556, para. 21.
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held, section 10 “imposes no particular mode of market analysis or level of geographic rigor,” but rather
“allow[s] the forbearance analysis to vary depending on the circumstances.”18

III.

DISCUSSION

A.

General Arguments

8.
The Bureau sought comment on USTelecom’s petition.19 The majority of filers addressed
only certain of the 17 categories of rules raised in USTelecom’s petition. In addition, some commenters
opposed USTelecom’s petition generally, contending that USTelecom has not properly sought
forbearance relief under section 10(c) because it is not a “telecommunications carrier,” and because it
seeks relief for a class of carriers without demonstrating that all members of the class are members of
USTelecom.20 We rejected these arguments in the USTelecom Short Order and found that the filing
appropriately is considered a petition for forbearance under section 10(c).21
9.
In the USTelecom Short Order, we also rejected arguments that USTelecom’s petition
was not “complete as filed” as required by our rules, and found that, on its face, the petition satisfied that
forbearance procedural rule for the three categories of rules in that Order.22 We reach the same
conclusion for the remaining categories of rules from which USTelecom seeks forbearance addressed in
this Order, and find that USTelecom provides the minimum information necessary to satisfy the
“complete as filed” requirement in our forbearance procedural rules.23
10.
We reject the general argument by a number of commenters that USTelecom overall has
not met its evidentiary burden.24 In particular, we disagree with commenters that we should deny or
dismiss the petition for USTelecom’s failure to meet its burden of proof as applied to its entire request. In
evaluating whether a forbearance petitioner has met its burden of proof, we look at the totality of the

18 EarthLink Inc. v. FCC, 462 F.3d 1, 6 (D.C. Cir. 2006) (using the Chevron framework to review the Commission’s
forbearance analysis, under which the court “will uphold the FCC’s interpretation as long as it is reasonable, even if
‘there may be other reasonable, or even more reasonable views’” (quoting AT&T Corp. v. FCC, 220 F.3d 607, 621
(D.C. Cir. 2000)); see also Petition of Qwest Phoenix for Forbearance Pursuant to 47 U.S.C. § 160(c) in the
Phoenix, Arizona Metropolitan Statistical Area
, WC Docket No. 09-135, Report and Order, 25 FCC Rcd 8622,
8632-33, at para. 21 (2010) (Qwest Phoenix Forbearance Order) (the Commission used a competitive analysis that
defines the relevant product and geographic markets).
19 USTelecom Forbearance PN.
20 See, e.g., COMPTEL Comments at 2-3; Broadview et al. Opposition at 2; Michigan PUC Reply at 2-3.
21 USTelecom Short Order, 28 FCC Rcd at 2607-08, paras. 6-7.
22 Id. at 2607 n.17. Full Service Network made a general argument asserting that the Petition lacks adequate
information to provide a basis to analyze its impact on consumers, competition and the public interest, and is
therefore not “complete as filed.” See, e.g., Full Service Reply at 2; Ad Hoc Comments at 2-5. The Commission
has defined “complete as filed” to mean that a petition explicitly states the scope of the relief requested, addresses
each prong of the statute as it applies to the rules or provisions from which the petitioner seeks relief, identifies any
other proceedings pending before the Commission where the petitioner speaks to the relevant issues and complies
with format requirements. Forbearance Procedures Order, 24 FCC Rcd at 9553-54, paras.16-19.
23 We reject the Ad Hoc Telecommunications Users Committee’s request to dismiss or deny USTelecom’s petition
in its entirety. See Ad Hoc Comments and Request for Summary Dismissal. We address whether the forbearance
criteria have been met, individually, for each of the categories of rules from which USTelecom requests forbearance.
24 See, e.g., Pennsylvania PUC Reply at 13; Michigan PSC Comments at 3. The burden of proof is on the petitioner
in forbearance proceedings.
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record before us.25 On that basis, and in light of our authority to make predictive judgments, we are able
to grant forbearance from enforcement of many of the requirements addressed in USTelecom’s petition.
Although we reject requests to dismiss USTelecom’s petition in its entirety for failing to satisfy its burden
of proof, we find, as set forth herein, that USTelecom did not meet its burden in all instances. While the
Commission must forbear from applying a regulation or statutory provision when the statutory
forbearance criteria are met, in a petition for forbearance “it is for the petitioner to convince the
Commission to make those determinations in the petitioner’s favor.”26 For certain categories of rules,
USTelecom does not address each rule individually. As explained below, this approach is persuasive
where its arguments and evidence apply to the entire category of rules, but is not persuasive when
forbearance may only be appropriate for individual rules within the category. In these instances, and
where USTelecom has failed to support its argument with the necessary data and there is not a sufficient
basis in the record to justify forbearance, we find that USTelecom has not met its burden of proof, and we
conclude that forbearance is not warranted.

B.

Rules Addressed in This Order

1.

Equal Access Scripting Requirement

a.

USTelecom’s Request

11.
USTelecom requests forbearance from application of the Equal Access Scripting
Requirement (EA Scripting Requirement) to all ILECs that remain subject to the rule.27 The EA Scripting
Requirement mandates that the ILEC (1) inform customers calling to obtain new local exchange service
that they may obtain stand-alone, presubscribed, long distance service from other carriers, and (2) upon
request, read customers a list of carriers offering such long distance service. USTelecom argues that there
is no justification to continue the EA Scripting Requirement.28 GCI and California PUC opposed
elimination of the rule in certain areas where the ILEC is the only provider of wireline local exchange
telephone service.29 There are several other proceedings that address equal access issues, including the
EA scripting requirement, currently pending before the Commission.30

25 Forbearance Procedures Order, 24 FCC Rcd at 9557, para. 21.
26 Id. at 9557, para. 22.
27 USTelecom Petition at 21; see also USTelecom Forbearance PN, 27 FCC Rcd 2326. This requirement still
applies to the independent ILECs, although in 2007, the Commission forbore from applying it to the Bell Operating
Companies (BOCs) and waived the requirement for their independent ILEC affiliates. See, e.g., Section 272(f)(1)
Sunset of the BOC Separate Affiliate and Related Requirements; 2000 Biennial Regulatory Review Separate Affiliate
Requirements of Section 64.1903 of the Commission’s Rules; Petition of AT&T Inc. for Forbearance Under 47
U.S.C. § 160(c) with Regard to Certain Dominant Carrier Regulations for In-Region, Interexchange Services
, WC
Docket Nos. 02-112, 06-120, CC Docket No. 00-175, Report and Order, 22 FCC Rcd 16440, 16501-02, paras. 125-
26 (2007) (Section 272 Sunset Order) (forbearing from the EA scripting requirement for Verizon, Qwest, and
AT&T, and waiving the requirement for their non-BOC affiliates).
28 USTelecom Petition at 23.
29 See generally CPUC Comments at 2-7; GCI Comments at 1-3; but see ACS Reply at1-5.
30 The Commission launched a broad Inquiry in 2002 to address all equal access and nondiscrimination
requirements, including the EA scripting requirement. Review of the Equal Access and Nondiscrimination
Obligations Applicable to Local Exchange Carriers
, CC Docket No. 02-39, Notice of Inquiry, 17 FCC Rcd 4015
(2002) (Equal Access NOI). In 2008, USTelecom asked the Commission to waive the EA Scripting Requirement as
applied to its small and midsized members. USTelecom Petition for Waiver, WC Docket No. 08-225, at 1, 4.
Cincinnati Bell subsequently filed a petition asking the Commission for waiver of the EA Scripting Requirement.
Cincinnati Bell Petition for Waiver, WC Docket No. 09-206 (filed Sept. 11, 2009); see also Wireline Competition
(continued....)
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b.

Background

12.
The EA Scripting Requirement grew out of the 1982 AT&T Divestiture.31 Divestiture
opened up opportunities for new companies other than AT&T to offer long distance service that could
compete more effectively with AT&T.32 The federal district court handling the Divestiture required all of
the BOCs to “inform . . . customers . . . of their options with respect to the various interexchange
carriers.”33 The Commission subsequently addressed this issue34 and stated that:
LEC personnel taking the verbal order should provide new customers with the names
and, if requested, the telephone numbers of the IXCs and should devise procedures to
ensure that the names of IXCs are provided in random order.35
The Commission later applied this requirement to ILECs beyond the BOCs.36 The Commission limited
the scope of the EA Scripting Requirement in several subsequent decisions.37
(Continued from previous page)
Bureau Seeks Comment on Petition of Cincinnati Bell Telephone Company LLC for Waiver from Application of the
Equal Access Scripting Requirement
, WC Docket No. 09-206, Public Notice, 24 FCC Rcd 13877 (Wireline Comp.
Bur. 2009).
31 Modification of Final Judgment, U.S. v. Western Elec. Co., 552 F. Supp. 131 (D.D.C. 1982) (requiring completion
of AT&T’s reorganization within 18 months of release of the order).
32 Prior to the implementation of equal access, competitive long distance carriers could not provide mass market
long distance service that was comparable in quality to that provided by AT&T. The implementation of equal
access changed this and allowed customers to choose a carrier other than AT&T as their presubscribed long distance
carrier.
33 U.S. v. Western Elec. Co., 578 F. Supp. 668, 676 (D.D.C. 1983).
34 See Investigation of Access and Divestiture Related Tariffs, CC Docket No. 83-1145, Memorandum Opinion and
Order, 101 FCC 2d 911, 912-13, paras. 3-5 (1985) (Access and Divestiture Tariffs Order). The Commission
required that the LECs implement a balloting system that allowed their customers to choose among interexchange
carriers. See id. at 928-30, App. B at paras. 4-8. The Commission stated, “[n]ew customers are to be handled by the
Business Office according to the LEC’s new customer presubscription procedures. These procedures should provide
new customers with an opportunity to obtain a ballot and make an interexchange carrier selection.” See id. at 931,
App. B at para. 22.
35 Investigation of Access and Divestiture Related Tariffs: Allocation Plan Waivers and Tariffs, CC Docket No. 83-
1145, Memorandum Opinion and Order, 101 FCC 2d 935, 950, para. 40 (1985).
36 The Commission stated that this plan applies to “Bell Operating Companies pursuant to the Modification of Final
Judgment, GTE pursuant to its Consent Decree, Independent Companies pursuant to Commission Order, and all
local exchange companies that provide equal access on a voluntary basis.” See Access and Divestiture Tariffs
Order
, 101 FCC 2d at 928, App. B, para. 1. The EA Scripting Requirement is preserved by § 251(g) of the Act,
which requires that carriers provide wireline services in compliance with pre-existing equal access and non-
discrimination requirements until the requirements are explicitly superseded by subsequent Commission action. 47
U.S.C. § 251(g).
37 In 1997, the Commission held that “a BOC, during an inbound telephone call, should be allowed to recommend its
own long distance affiliate, as long as it contemporaneously states that other carriers also provide long distance
service and offers to read a list of all available interexchange carriers in random order.” Application of BellSouth
Corp., et al. Pursuant to Section 271 of the Communications Act of 1934, as amended, to Provide In-Region,
InterLATA Services in South Carolina
, Memorandum Opinion and Order, 13 FCC Rcd 539, 670-72, paras. 237, 239
(1997) (BellSouth South Carolina Section 271 Order) (emphasis added). Later, the Commission concluded that the
EA Scripting Requirement applied only to calls from customers seeking “new service” and did not apply to calls
from existing customers requesting an additional line. See AT&T Corp v. New York Tel. Co., File No. EB-00-MD-
011, Memorandum Opinion and Order, 15 FCC Rcd 19997, 19998, para. 5 (2000) (Bell Atlantic Order). The
(continued....)
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13.
In the 2007 EA Scripting Forbearance Order, the Commission forbore from application
of the EA Scripting Requirement to Verizon, Qwest, and AT&T, and waived the rule for their
independent ILEC affiliates.38 In reaching its decision, the Commission noted that the services customers
use to make long distance calls have changed, and concluded that there was “significant evidence the
stand-alone long distance market [was] becoming a fringe market.”39 The Commission recognized that
“the stand-alone long distance competition that the EA Scripting Requirement was designed to protect has
largely given way to competition between service bundles.”40 The Commission also noted that
“[w]ireless telephone subscribers . . . regularly use their ‘any distance’ minutes for long distance
calling.”41 In addition, the Commission found that “all residential customers also have the option of
making long distance calls using transaction services, such as prepaid calling cards.”42 The Commission
found that the EA Scripting Requirement could confuse customers because it identified only one
competitive option – stand-alone, presubscribed long distance service.43 Based on this and other analysis,
the Commission concluded that the EA Scripting Requirement was no longer needed in the BOC service
areas.44 However, the Commission declined to extend forbearance to the independent ILECs out of
concern that the market circumstances in their service areas may differ from those in the BOC service
areas.45
c.

Discussion

14.
While the EA Scripting Requirement originally served an important purpose in making
consumers aware of new competitive options and fostering the development of nascent competition in the
provision of pre-subscribed stand-alone long distance service,46 we find that it is no longer necessary.
First, the market has changed dramatically in the more than 25 years since the requirement was
established. When the Commission granted forbearance from the EA Scripting Requirement for the
BOCs in 2007, it stated that stand-alone long distance service was becoming a fringe market, adding that
stand-alone long distance competition had largely given way to competition between service bundles that
included both local and long distance calling.47 These trends appear to have continued in the intervening
years. Thus, we can see minimal if any public interest benefit in requiring ILECs to inform customers
(Continued from previous page)
Commission specified that “new service” referred only to situations in which “customers . . . either (1) receive
service from Bell Atlantic for the first time, or (2) move to another location within Bell Atlantic’s area.” Id. at
20003, para. 15.
38 Section 272 Sunset Order, 22 FCC Rcd at 16501-02, paras. 125-26.
39 Id. at 16499, para. 121.
40 Id.
41 Id. at 16499-500, para. 121.
42 Id. at 16500, para. 122.
43 Id.
44 Id. at 16501-02, paras. 125-26.
45 Id. at 16501, para. 125.
46 See id. at 16499, para. 120; CenturyLink et al. Comments, WC Docket No. 08-225, at 3-4 (“This new policy was
designed to help allow a competitive long distance market to develop, by providing consumers information about
alternatives to AT&T’s dominant long distance service.”); TWC Comments, WC Docket No. 08-225, at 2-3.
47 Section 272 Sunset Order, 22 FCC Rcd at 16452-54, para 23, 16499, para. 121.
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about options for stand-alone long distance service.48 Second, consumers today can obtain information on
options for satisfying their voice communications needs, including long distance calling needs, in ways
that did not exist when the Commission imposed the EA Scripting Requirement. In particular, such
information is available on the Internet. Third, the EA Scripting Requirement provides consumers with
information about only one competitive alternative—stand-alone long distance service. It does not reflect
options involving bundled offerings, nor does it remind consumers of the availability of over-the-top
VoIP services, dial-around long distance services, and calling cards. By focusing on stand-alone long
distance service options, the EA Scripting Requirement is likely to distort, rather than illuminate,
competitive choices.
15.
The arguments raised by GCI and the California PUC do not justify retention of the EA
Scripting Requirement in areas where the ILEC is the only provider of wireline local exchange service.49
We recognize that stand-alone long distance service may represent a more significant competitive
alternative in these areas, but we do not conclude that this warrants retention of the requirement. Even
where the ILEC is the only local exchange carrier, consumers can find information about service options,
including information on stand-alone long distance service, in other ways, including on the Internet. And
even in these areas, the EA Scripting Requirement does not notify consumers of other competitive calling
options such as calling cards, dial-around service or over-the-top VoIP.
16.
For the reasons discussed above, we conclude that continued application of the EA
Scripting Requirement is not necessary to ensure that the charges, practices, and classifications, or
regulations by, for, or in connection with independent ILECs’ mass market long distance calling services
are just and reasonable and are not unjustly or unreasonably discriminatory pursuant to section 10(a)(1) of
the Act.50 In today’s telecommunications marketplace, the EA Scripting Requirement does little to foster
competition, as it only addresses the availability of stand-alone long distance service, which has become a
fringe market.51 Thus, advising customers of the availability of stand-alone long distance service is
unlikely to ensure that independent ILEC rates, terms and conditions for long distance service are just and
reasonable and not unjustly or unreasonably discriminatory. For the same reasons, we conclude that
retention of the EA Scripting Requirement is not “necessary for the protection of consumers” pursuant to
Section 10(a)(2) of the Act.52
17.
We also conclude, pursuant to section 10(a)(3) of the Act, that forbearance from
enforcement of the EA Scripting Requirement “is consistent with the public interest”53 because the costs

48 The fact that customers typically purchase local and long distance services in a bundle does not address whether
the ILEC is likely to have market power over the bundled offering.
49 GCI does not posit that the EA Scripting Requirement should be retained in areas served by multiple LECs. GCI
Opposition at 2 (“GCI agrees, however, that scripting is not required where the ILEC does not assert a 251(f)(1)
rural exemption for the purposes of negotiation of an interconnection and traffic exchange agreement, permits
collocation in conjunction with interconnection, and the ILEC has entered into interconnection agreements with a
CLEC or unaffiliated CMRS provider.”) (footnotes omitted).
50 47 U.S.C. § 160(a)(1).
51 The Commission noted that this market was becoming a fringe market in 2007. See Section 272 Sunset Order, 22
FCC Rcd at 16501, para. 123. MCI and AT&T stopped providing presubscribed, stand-alone, long distance service
in 2004. See id. at 16463, para. 44.
52 47 U.S.C. § 160(a)(2).
53 47 U.S.C. § 160(a)(3). 47 U.S.C. § 160(b) states that, when considering the public interest evaluation called for in
47 U.S.C. § 160(a)(3), the Commission “shall consider whether forbearance from enforcing the provision or
regulation will promote competitive market conditions, including the extent to which such forbearance will enhance
competition among providers of telecommunications services.”
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associated with this requirement exceed the benefits. For the reasons described above, we conclude that
the EA Scripting Requirement provides de minimis, if any, benefits. At the same time, it imposes costs
on independent ILECs. Their customer service representatives must spend time advising customers that
they can obtain stand-alone long distance service and be prepared to read lists of carriers that can provide
such service if customers request this. Given the lack of benefits generated by this requirement, we also
conclude that its removal would foster competition by removing regulatory requirements and the resulting
costs that affect only ILECs subject to the rule and not their competitors. We therefore forbear from the
requirement for all ILECs that have not previously been granted forbearance.54 In reaching this decision,
we emphasize that customers will retain the right to select a presubscribed long distance carrier other than
the ILEC or a provider affiliated with the ILEC,55 and that the ILECs must ensure that their customer
service representatives accurately answer any questions in this regard.
2.

BOC ONA, CEI, Structural Separation and All-Carrier Computer Inquiry

Rules

a.

USTelecom’s Request

18.
USTelecom seeks forbearance for the BOCs from application of the “substantive CEI and
ONA requirements and the structural separation requirements in section 64.702 of the Commission’s
rules.”56 It also requests forbearance from “applying to all covered carriers the legacy All-Carrier
Computer Inquiry rule.”57 USTelecom asserts that we should forbear from enforcing these substantive

54 In the interest of administrative simplicity, we include in this grant of forbearance the independent ILEC affiliates
of the BOCs (also referred to as the non-BOC affiliates) that were granted waivers of this requirement as part of the
Commission decision to forbear from application of this requirement to the Bell Operating Companies. See Section
272 Sunset Order
, 22 FCC Rcd at 16502, para. 126.
55 Id. at 16501, para. 124 (“Even without the EA Scripting Requirement, the BOCs’ local customers will retain the
right to obtain long distance service from a long distance carrier other than the BOC.”).
56 USTelecom Petition at 25 (citing Computer III Further Remand Proceedings: Bell Operating Company Provision
of Enhanced Services
, CC Docket No. 95-20; 1998 Biennial Regulatory Review—Review of Computer III and ONA
Safeguards and Requirements
, CC Docket No. 98-10, Report and Order, 14 FCC Rcd 4289, 4308-09, para. 29
(1999) (Computer III Further Remand Order)). See infra n.63. The Commission has explained that the BOCs have
previously obtained significant relief from Computer III requirements. See, e.g., Petitions of the Verizon Telephone
Companies for Forbearance Pursuant to 47 U.S.C. § 160(c) in the Boston, New York, Philadelphia, Pittsburgh,
Providence, and Virginia Beach Metropolitan Statistical Areas
, WC Docket No. 06-172, Memorandum Opinion and
Order, 22 FCC Rcd 21293, 21318, para. 45 (2007) (Verizon 6 MSA Forbearance Order); Petitions of Qwest
Corporation for Forbearance Pursuant to 47 U.S.C. § 160(c) in the Denver, Minneapolis-St. Paul, Phoenix, and
Seattle Metropolitan Statistical Areas
, WC Docket No. 07-97, Memorandum Opinion and Order, 23 FCC Rcd
11729, 11760, para. 44 (2008) (Qwest 4 MSA Forbearance Order) (citing Appropriate Framework for Broadband
Access to the Internet over Wireline Facilities
, CC Docket No. 02-33, Report and Order and Notice of Proposed
Rulemaking, 20 FCC Rcd 14853, 14875-76, para. 41 (2005), aff’d, Time Warner Telecom v. FCC, No. 05-4769 (and
consolidated cases) (3rd Cir. 2007); Petition of AT&T, Inc. for Forbearance Under 47 U.S.C. § 160(c) from Title II
and Computer Inquiry Rules with Respect to its Broadband Services; Petition of BellSouth Corporation for
Forbearance 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect to its Broadband Services
,
WC Docket No. 06-125, Memorandum Opinion and Order, 22 FCC Rcd 18705, 18733-35, paras. 52-58 (2007)
(granting forbearance from application of BOC-specific Computer Inquiry rules to the extent that AT&T offers
information services in conjunction with its existing non-time division multiplexing (TDM)-based, packet-switched
broadband services or its existing non-TDM-based, optical transmission services). USTelecom currently seeks relief
from the remaining Computer III requirements that apply to narrowband service offerings. USTelecom Petition at
24-31.
57 USTelecom Petition at 28 (citing Amendment of Section 64.702 of the Commission’s Rules and Regulations
(Computer II)
, 77 FCC 2d 384, 474-75, para. 231 (1980) (Computer II Final Decision), recon., 84 FCC 2d 50
(continued....)
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Computer Inquiry requirements because they have no utility in the current marketplace and are
unnecessary to ensure just, reasonable, and non-discriminatory rates or to protect consumers.58
USTelecom’s petition requests the broadest possible, nationwide elimination of all non-structural and
structural safeguards,59 and we find that it has not satisfied the section 10 standard at this time. However,
we find that it is appropriate to examine the rules as they are currently structured.
19.
We grant the BOCs permanent relief in the Reporting Requirement Order from the
legacy reporting obligations associated with the Computer III requirements, thereby eliminating the
companies’ costs and burdens associated with filing thousands of pages of yearly compliance reports that
are no longer necessary. We find that the burdens associated with these monitoring and compliance
requirements outweigh the benefits and that eliminating them furthers our goal of improving the way we
collect, use, and disseminate data, including by altering or eliminating collections that are no longer
useful or necessary to carry out our statutory responsibilities.60 We also seek comment in the FNPRM on
whether we should eliminate or substantially reduce remaining narrowband requirements.
b.

Background

20.
In the Computer II and Computer III proceedings, the Commission established safeguards
for the provision of enhanced services by the BOCs. In Computer II, the Commission promulgated
section 64.702 of its rules, which required AT&T (and, subsequently, the BOCs) to offer unregulated
enhanced services through structurally separate subsidiaries.61 The Commission also adopted the “All-
Carrier Rule,” which required other facilities-based common carriers to provide the basic transmission
services underlying their enhanced services on a nondiscriminatory basis, pursuant to tariffs governed by
Title II of the Act. These carriers must offer the underlying basic service at the same prices and on the
(Continued from previous page)
(1980), further recon., 88 FCC 2d 512 (1981), affirmed sub nom. Computer and Communications Industry Ass’n v.
FCC
, 693 F.2d 198 (D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983)).
58 USTelecom Petition at 28-31. USTelecom notes that the Commission has proposed eliminating all narrowband
reporting requirements for CEI and ONA services and states that it requests relief from the underlying substantive
CEI and ONA obligations in its petition. Id. at 28 (citing Review of Wireline Competition Bureau Data Practices,
Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services; 1998
Biennial Regulatory Review – Review of Computer III and ONA Safeguards and Requirements
, Notice of Proposed
Rulemaking, WC Docket No. 10-132, CC Docket Nos. 95-20, 98-10, 25 FCC Rcd 1579 (2011) (CEI/ONA Notice)).
The Wireline Competition Bureau on its own motion waived the reporting requirements pending resolution of the
Notice. Review of Wireline Competition Bureau Data Practices, Computer III Further Remand Proceedings: Bell
Operating Company Provision of Enhanced Services; 1998 Biennial Regulatory Review – Review of Computer III
and ONA Safeguards and Requirements
, Notice of Proposed Rulemaking, WC Docket No. 10-132, CC Docket Nos.
95-20, 98-10, 26 FCC Rcd 11280 (2011) (CEI/ONA Reporting Waiver).
59 The petition asks for forbearance from the “substantive CEI and ONA requirements.” USTelecom Petition at 25.
USTelecom states, “[i]n proposing to eliminate the outdated and meaningless narrowband reporting obligations
associated with the CEI and ONA requirements, the Commission recognized that these reports suffer from a ‘lack of
continuing relevance and utility.’ The same is true for the substantive CEI and ONA requirements and the structural
separation rule, to which only the BOCs and none of their competitors remain subject and which have no utility
whatsoever in today’s marketplace.” Id. at 28 (citing CEI/ONA Notice, 26 FCC Rcd at 1579, para. 1; 2010 Biennial
Review of Telecommunications Regulations
, WC Docket No. 10-272, Public Notice, 26 FCC Rcd 16943, 16945
(Wireline Comp. Bur. 2011)).
60 See Pleading Cycle Established for Comments on Review of Wireline Competition Bureau Data Practices, WC
Docket No. 10-132, Public Notice, 25 FCC Rcd 8213 (Wireline Comp. Bur. 2010) (WCB Data Innovation Initiative
Public Notice
).
61 Computer II Final Decision, 77 FCC 2d at 386-87, 417-35, 457-87, paras. 2-7, 86-132, 190-264.
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same terms and conditions to all enhanced service providers (ESPs), including their own enhanced
services operations.62 Subsequently, the Commission implemented CEI and ONA requirements in the
Computer III proceedings. CEI and ONA are non-structural safeguards that permit the BOCs to compete
in the unregulated enhanced services market while preventing them from using local exchange market
power to engage in improper cost allocation and unlawful discrimination against enhanced service
competitors.63 The BOCs’ CEI and ONA plans offer nondiscriminatory interconnection to basic
transmission services that competitors purchase to provide enhanced services, primarily to customers that
use narrowband telephone technology.64 Examples of narrowband enhanced services that use CEI and
ONA include voicemail, store and forward services, data processing, alarm monitoring, and dial-up
gateways to on-line databases.65 BOCs must comply with CEI and ONA requirements in order to offer

62 Id. at 474-75, para. 231. The Commission granted nondominant carriers permissive detariffing of interstate
interexchange access services, and non-incumbent local exchange carriers need not offer the basic transmission
services underlying their enhanced services pursuant to tariff. See Hyperion Telecommunications, Inc. Petition
Requesting Forbearance, Time Warner Communications Petition for Forbearance, Complete Detariffing for
Competitive Access Providers and Competitive Exchange Carriers
, CCB/CPD Nos. 96-3, 96-7, CC Docket No. 97-
146, Memorandum Opinion and Order and Notice of Proposed Rulemaking, 12 FCC Rcd 8596 (1997).
63 Amendment of Section 64.702 of the Commission’s Rules and Regulations, CC Docket No. 85-229, Phase I, 104
FCC 2d 958 (1986) (Computer III Phase I Order), recon., 2 FCC Rcd 3035 (1987) (Computer III Phase I
Reconsideration Order
), further recon., 3 FCC Rcd 1135 (1988) (Computer III Phase I Further Reconsideration
Order
), second further recon., 4 FCC Rcd 5927 (1989) (Computer III Phase I Second Further Reconsideration
Order
); Phase I Order and Phase I Recon. Order vacated sub nom. California v. FCC, 905 F.2d 1217 (9th Cir.
1990) (California I); CC Docket No. 85-229, Phase II, 2 FCC Rcd 3072 (1987) (Computer III Phase II Order),
recon., 3 FCC Rcd 1150 (1988) (Computer III Phase II Reconsideration Order), further recon., 4 FCC Rcd 5927
(1989) (Phase II Further Reconsideration Order); Phase II Order vacated, California I, 905 F.2d 1217 (9th Cir.
1990); Computer III Remand Proceeding, CC Docket No. 90-368, 5 FCC Rcd 7719 (1990) (ONA Remand Order),
recon., 7 FCC Rcd 909 (1992), pets. for review denied sub nom. California v. FCC, 4 F.3d 1505 (9th Cir. 1993)
(California II); Computer III Remand Proceedings: Bell Operating Company Safeguards and Tier 1 Local
Exchange Company Safeguards
, CC Docket No. 90-623, 6 FCC Rcd 7571 (1991) (BOC Safeguards Order), BOC
Safeguards Order vacated in part and remanded sub nom. California v. FCC
, 39 F.3d 919 (9th Cir. 1994)
(California III), cert. denied, 514 U.S. 1050 (1995); Computer III Further Remand Proceedings: Bell Operating
Company Provision of Enhanced Services
, CC Docket No. 95-20, Notice of Proposed Rulemaking, 10 FCC Rcd
8360 (1995) (Computer III Further Remand Notice), Further Notice of Proposed Rulemaking, 13 FCC Rcd 6040
(1998) (Computer III FNPRM); Computer III Further Remand Order, 14 FCC Rcd 4289, recon., 14 FCC Rcd
21628 (1999) (Computer III Further Remand Reconsideration Order); see also Further Comment Requested to
Update and Refresh Record on Computer III Requirements
, CC Docket Nos. 95-20, 98-10, Public Notice, 16 FCC
Rcd 5363 (2001) (collectively referred to as Computer III).
64 The Commission defined basic services as the offering of “a pure transmission capability over a communications
path that is virtually transparent in terms of its interaction with customer supplied information.” Computer II Final
Decision
, 77 FCC 2d at 415-16, para. 83, 420, para. 96. Enhanced services, in turn, were defined as services that
“combine[] basic service with computer processing applications that act on the format, content, code, protocol or
similar aspects of the subscriber’s transmitted information, or provide the subscriber additional, different, or
restructured information, or involve subscriber interaction with stored information.” Id. at 387, para. 5. In other
words, an “enhanced service is any offering over the telecommunications network which is more than a basic
transmission service.” Id. at 420, para. 97.
65 Computer III FNPRM, 13 FCC Rcd at 6042, para. 1 (examining the continued application of the CEI and ONA
non-structural safeguards after the passage of the Telecommunications Act of 1996). In 1999, the Commission
addressed certain CEI requirements but did not reach other issues raised in the FNPRM, which remains pending.
Computer III Further Remand Order, 14 FCC Rcd at 4291-92 n.11 (listing examples of enhanced services); Bell
Operating Companies Joint Petition for Waiver of Computer II Rules
, Order, 10 FCC Rcd 13758, 13768-70, paras.
68-75 (1995) (CEI Plan Order) (discussing alarm monitoring services as enhanced services).
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these enhanced services on an “integrated” basis (i.e., through the regulated telephone company) instead
of through a structurally separate affiliate, as required by section 64.702 of the Commission’s rules.66
21.
The BOCs’ CEI plans detail how they provide unaffiliated enhanced services providers
with interconnection to basic transmission services on the same terms and conditions that the BOCs use
for their own enhanced services offerings.67 The BOCs originally filed their CEI plans on paper and
needed approval from the Commission before the plans could take effect. In 1999, the Commission
streamlined the CEI process, permitting the companies to post their plans on the Internet and then notify
the Bureau at the time of the postings with no pre-approval required.68 The BOCs’ ONA plans offer
competitive enhanced services providers unbundled access to basic transmission services, regardless of
whether the BOCs’ affiliated enhanced services offerings use the same components.69
c.

Discussion

22.
Although we recognize that the market has changed dramatically since the Commission
first imposed the Computer Inquiry requirements, USTelecom has not demonstrated that market
conditions warrant the broad forbearance it requests. As we stated above, USTelecom is required to
substantiate its request with record evidence, and it has not done so. We thus deny forbearance.
However, we have identified a path toward potential relief from these legacy requirements. This path will
modernize our regulations in a way that is consistent with the public interest and protects consumers who
still rely on narrowband services, while also eliminating unnecessary burdens on carriers. The first step
on the path is the permanent elimination of the BOCs’ obligation to file reports regarding CEI and ONA.70
The second step is a rulemaking to gather data that will help the Commission make a reasoned, fact-based
decision about whether to retain, modify, or eliminate the CEI and ONA requirements and the All-Carrier
Rule.71 Although we conclude that USTelecom has not met its burden of proof with respect to its request
for nationwide forbearance, we recognize that parties might be able to demonstrate that relief is warranted
in specific locations, or for particular services, given the competitive circumstances.
23.
The Commission historically has evaluated requests for forbearance by reviewing record
evidence of actual and potential competition to determine if competition is sufficient to satisfy the section
10 criteria.72 When addressing previous requests for forbearance from the Computer Inquiry
requirements, the Commission explained that it adopted the structural and non-structural safeguards for
BOC provision of enhanced services in order to prevent the BOCs from using “exclusionary market
power” arising from their control over ubiquitous local telephone networks to impede competition in the
enhanced services market.73 The Commission stated that exercise of market power could lead to

66 47 C.F.R. § 64.702.
67 CEI/ONA Notice, 26 FCC Rcd at 1580, para. 3 (listing nine CEI parameters); Computer III Further Remand
Order
, 14 FCC Rcd at 4291, para. 4; Computer III Further Remand Reconsideration Order, 14 FCC Rcd at 21629,
para. 6; see Computer III Phase I Order, 104 FCC 2d at 1039-42, paras. 155-65.
68 Computer III Further Remand Order, 14 FCC Rcd at 4297, paras. 11-12.
69 CEI/ONA Notice, 26 FCC Rcd at 6050, para. 11; Computer III Phase I Order, 104 FCC 2d at 1064, para. 214;
Computer III FNPRM, 13 FCC Rcd at 6050, para. 11.
70 See infra Section IV.B.
71 See infra Section V.
72 See, e.g., Qwest Phoenix Forbearance Order, 25 FCC Rcd at 8645-8647, paras. 41-45.
73 See, e.g., Verizon 6 MSA Forbearance Order, 22 FCC Rcd at 21318, para. 45; Qwest 4 MSA Forbearance Order,
23 FCC Rcd at 11760, para. 44.
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“charges, practices, classifications, or regulations . . . for[] or in connection with the [the BOCs’ services]
that are unjust, unreasonable, or unjustly or unreasonably discriminatory” and could harm consumers.74
Here, USTelecom seeks the immediate and nationwide elimination of all narrowband Computer Inquiry
requirements. It seeks this sweeping relief without providing any evidence of what alternative network
inputs would be available for narrowband enhanced services, where they would be available, or on what
terms they might be available from other competitive network platforms. We therefore cannot determine
on this record that enforcement of the regulation is unnecessary to ensure that the telecommunications
carrier’s charges, practices, classifications, or regulations are just, reasonable, and not unjustly or
unreasonably discriminatory under section 10(a)(1).
24.
USTelecom asserts generally that competitive conditions have changed, and narrowband
CEI and ONA offerings have no utility in the current marketplace.75 It argues that the incumbent LEC
platform is no longer the only platform available to ESPs, and that the CEI and ONA safeguards are no
longer required because competitors do not have to rely anywhere in the country on narrowband facilities
from the BOCs or from incumbent LECs subject to the All-Carrier Rule.76 USTelecom argues generally
that cable providers and broadband network platforms could offer alternative sources of inputs for
competitive ESPs.77 However, USTelecom does not address the fact that many residential and business
consumers still use narrowband telephone services that could include enhanced service features and
functions.78 We know that ESPs are purchasing access to the BOCs’ legacy network to serve some of
these consumers using ONA service inputs. ONA reports from as recently as 2011 contain data for
reporting categories, such as business and Centrex-based services, for which it appears that the BOCs are
provisioning tens of thousands of orders for unaffiliated ESPs.79 Despite specific requests from Bureau
staff, USTelecom has failed to offer any data to show that substitutes from other providers are available
ubiquitously or on competitive terms. The Pennsylvania PUC points out that it is concerned about the
impact of eliminating CEI and ONA on interconnection obligations and on other requirements for non-
discriminatory access to the incumbent LECs’ network facilities. It states that USTelecom has not made
clear what ONA elements its members will provide and under what conditions.80 USTelecom has failed

74 Qwest 4 MSA Forbearance Order, 23 FCC Rcd at 11760-61, para. 44.
75 USTelecom Petition at 25, 28-31.
76 USTelecom Petition at 29-30; USTelecom Reply at 17-18; Letter from Glenn T. Reynolds, USTelecom, to
Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-61, Att. at 11-12 (filed Aug. 29, 2012); Letter from Robert
W. Quinn, Jr., AT&T, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-61, et al., Att. at 2 (filed Aug. 30,
2012) (stating that the Commission should facilitate the retirement of legacy TDM services and eliminate
“regulatory underbrush/superstructure” such as “residual CEI/ONA” that accompanies those services).
77 USTelecom Reply at 17-18.
78 The Commission’s most recent local telephone data states that there were 84,746,000 retail switched access lines
provided by incumbent LECs as of December 31, 2011 (48,364,000 residential lines and 36,382,000 business lines).
FEDERAL COMMUNICATIONS COMMISSION, WIRELINE COMPETITION BUREAU, INDUSTRY ANALYSIS AND
TECHNOLOGY DIVISION, Local Telephone Competition: Status as of December 31, 2011, at 5, Fig. 4. (Jan. 2013),
available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0114/DOC-318397A1.pdf.
79 See, e.g., Qwest Corporation ONA Nondiscrimination Report, CC Docket No. 88-2, Phase 1, CC Docket No. 96-
128 (filed Aug. 1, 2011) (showing 62,135 business line orders provisioned for unaffiliated ESPs in its second quarter
ONA installation detail report); Installation and Maintenance Nondiscrimination Reports for Southwestern Bell
Telephone, L.P., Ameritech, Pacific Bell, Nevada Bell, and BellSouth Telecommunications, CC Docket No. 88-2,
Phase I (filed July 29, 2011) (showing 220,944 business lines and 144,434 Centrex lines provisioned for unaffiliated
ESPs in second quarter ONA parity report).
80 Pennsylvania PUC Reply at 8-9.
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to demonstrate that the flash cut elimination of Computer Inquiry safeguards would not cause consumers
to lose service because ONA inputs are either no longer technically available or because they are no
longer available at non-discriminatory rates, thereby impacting ancillary features on which consumers
rely.
25.
We seek to avoid stranding narrowband consumers who may rely on any type of
enhanced service provided by competitors. The record contains evidence for specific enhanced services
that could be impacted by an immediate elimination of ONA inputs. The record contains, in particular,
evidence that the immediate elimination of ONA inputs would have a detrimental impact on alarm
monitoring and voice mail services. The Alarm Industry Communications Committee (AICC) states that
its members, many of which provide security services to government facilities, power plants, dams, and
banking operations, rely on the availability of narrowband network elements to provide enhanced
services, and they urge the Commission to maintain the substantive ONA and CEI requirements.81 AICC
asserts that it is still heavily dependent on narrowband voice grade services to provide life and safety
alarm services for large scale commercial as well as residential customers.82 It further states that
narrowband ONA elements are not available on broadband platforms.83 The Michigan PSC states that it
is concerned about the effect in its state of eliminating CEI and ONA services for customers who require
access to the telephone network for alarm and home security services and maintains that USTelecom has
provided no technical analysis to demonstrate the consumer impact of eliminating the requirement.84 Full
Service Network LP (FSN) states that it relies heavily on ONA basic service offerings to provide
voicemail, directory assistance, and operator services.85 It asserts that, if the BOCs are no longer required
to offer non-discriminatory access to ONA service elements, competitors will be impeded in their ability
to offer resold local exchange service packaged with enhanced service features requested by customers.86
26.
To the extent that there are cable and broadband entities that offer alternatives to allow
competitive ESPs to bypass the legacy narrowband networks, USTelecom has not demonstrated where, or
on what terms, such alternatives are available. Other than referencing some general alarm monitoring
services advertised by cable companies and VoIP providers, USTelecom has not shown that competitive
ESPs have viable alternatives to connect to end users.87 The Commission has required carriers seeking

81 AICC Comments in WC Docket No. 10-132, at 1, 4; AICC Committee Reply in WC Docket No. 10-132, at 2-3.
82 AICC Comments at 2; Letter from Benjamin H. Dickens, Jr., Counsel for AICC, to Marlene H. Dortch, Secretary,
FCC, WC Docket No. 12-61, at 3-5 (filed Apr. 3, 2013) (stating that the alarm industry depends on copper-based
narrowband ONA services to provide line security, which is a functionality employed in high-security installations
to detect a break or cut in a line between a protected premise and alarm monitoring station, and that alternative
platforms, such as wireless transmission, complement rather than replace existing BOC services AICC requires);
Letter from Benjamin H. Dickens, Jr. and Salvatore Taillefer, Jr., Counsel for AICC, and James C. Falvey, Counsel
for Full Service Network LP, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-61, at 1 (filed May 6,
2013) (AICC/FSN May 6 Ex Parte Letter)
83 AICC Reply at 4.
84 Michigan PSC Reply at 6-7.
85 FSN Comments at 4-6.
86 Letter from James C. Falvey, Counsel for FSN, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-61 at
2-3 (filed Mar. 29, 2013) (stating that FSN uses ONA voicemail inputs for 70-75% of its resold lines in the
Pittsburgh metro area and that, if FSN could not also offer operator services through the use of ONA inputs, it would
immediately face a significant increase in its cost of resale services in Pennsylvania); AICC/FSN May 6 Ex Parte
Letter at 1-2.
87 USTelecom Petition at 29; USTelecom Reply at 17-18.
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forbearance from wholesale obligations in other contexts, such as loop unbundling, to demonstrate that
there is sufficient competition to ensure that, if we provide the requested relief, the carriers will be unable
to raise prices, discriminate unreasonably, or harm consumers.88 The Commission has found in some
cases that competitors, including cable companies, may not provide wholesale connections to end users
and that their networks, even if extensive in residential areas, may reach fewer office buildings or
commercial facilities.89 USTelecom has not provided any evidence regarding which ONA elements the
BOCs would eliminate or to what extent the BOCs would offer the elements outside of the Computer III
context or in transition or grandfathering arrangements, for example, through contractual offers.
CenturyLink states that ONA inputs may be available as generally tariffed service offerings, unless a
particular service has been deregulated at the state or federal level.90 While tariffed offerings might offer
an alternative, this vague claim does not offer customers transparent information about what services and
functionalities the BOCs would immediately discontinue in their long-standing ONA plans. They also
have not addressed what facilities-based carriers subject to the All-Carrier Rule would offer in terms of a
transition plan, or the extent to which there are competitive narrowband options available in their service
territories. We are therefore unable to find that enforcement of the Computer Inquiry regulations as they
apply to narrowband competitive enhanced service offerings throughout the country is unnecessary to
ensure that charges, practices, and classifications are just and reasonable and are not unjustly or
unreasonably discriminatory. Because BOCs must comply with the Computer III CEI and ONA
requirements in order to avoid providing enhanced service through a Computer II structurally separate
affiliate under section 64.702 of the Commission’s rules, the Computer II and Computer III regulatory
regimes are interrelated (i.e., a BOC choosing not to comply with Computer III would need to follow
Computer II). We therefore deny USTelecom’s request for relief from both the substantive CEI and ONA
requirements and section 64.702 of the rules.
27.
For these reasons, we cannot find, based on the record presented, that enforcement of the
Computer Inquiry regulations is unnecessary for the protection of consumers, or that forbearance from
application of the requirements is consistent with the public interest. USTelecom asserts that Computer
Inquiry
safeguards have no continued utility. But the BOCs themselves use their legacy facilities to
provide their own enhanced services, suggesting that these enhanced services are still valuable.91 While
we cannot on the current record determine that the underlying inputs need not be provided to other ESPs
pursuant to the rules, the FNPRM seeks information that will allow us to make that determination. A
primary goal of CEI and ONA unbundling and the All-Carrier Rule is to ensure the efficient and
transparent availability of inputs that the carriers use to provide their own retail enhanced services and
what competitors may purchase. Such transparency serves the public interest by preventing unreasonable
discrimination against competitors and increasing consumers’ choice.

88 Qwest Phoenix Forbearance Order, 25 FCC Rcd at 8658-62, paras. 70-74.
89 See id. at 8658-61, paras. 69-73.
90 Letter from Timothy M. Boucher, CenturyLink, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-61 at
4-5, 7 (filed Apr. 12, 2013) (CenturyLink April 12 Ex Parte Letter).
91 See, e.g., April 15, 2011 Annual ONA Report of Qwest Corporation, Filing and Review of Open Network
Architecture Plans, CC Docket No. 88-2, at 8-11 (filed Apr. 15, 2011) (showing that Qwest is using an extensive list
of ONA basic service elements in the provisioning of its enhanced services, including service elements for
audiotext, electronic messaging, enhanced facsimile, on-line database access, and voice messaging services); 2011
Verizon East Annual ONA Report, CC Docket No. 88-2, at Att. A-11 (filed Mar. 30, 2011) (listing many basic
service elements Verizon uses in provisioning its own enhanced services in the former NYNEX region).
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28.
USTelecom and the BOCs argue that complying with the substantive CEI and ONA
requirements imposes “cost and complexity” on their development of new narrowband services.92 They
argue that they have to undertake a resource-intensive “compliance review before any new service can be
deployed.”93 CenturyLink asserts that costs of ONA compliance are difficult to determine, but that it
estimates that it had between 55 and 60 employees who worked on CEI/ONA compliance activities in the
last year.94 As we stated above, USTelecom and the BOCs may be able to demonstrate that the targeted
elimination of the requirements is warranted, which will reduce costs. The Commission has already taken
significant steps to lower compliance costs. For example, for CEI, the Commission found, when it
modified the CEI filing requirements to eliminate pre-approval requirements and allow Internet posting of
the plans, that it had removed the “chief burdens” associated with CEI requirements.95 In addition, our
decision in the Reporting Requirement Order to eliminate CEI and ONA reporting requirements reflects
our commitment to eliminating unnecessary regulatory costs.96 Moreover, the attached FNPRM is a
further effort to eliminate unnecessary regulatory burdens.
29.
In summary, although we deny USTelecom’s request for nationwide forbearance from
the Computer Inquiry safeguards, we agree that there have been substantial changes to the enhanced
services market. Today, competitors and consumers likely use different enhanced service offerings from
different providers in different places, and it may no longer be necessary to require unbundled access to
basic network services under the complex CEI/ONA regime.97 We look forward to reviewing the record
in our FNPRM in the Computer III docket to find ways to streamline or eliminate requirements where
possible.
3.

Cost Assignment Rules

a.

USTelecom’s Request

30.
USTelecom requests forbearance from the Cost Assignment Rules for all price cap
carriers substantially the same as that already granted to AT&T, Qwest, and Verizon in previous

92 Verizon Comments at 3.
93 USTelecom Reply at 19.
94 CenturyLink April 12 Ex Parte Letter at 5. Despite staff requests for data, the record does not provide specific
information on other carriers’ costs of compliance.
95 Computer III Further Remand Order, 14 FCC Rcd at 4297, para. 12.
96 The BOCs are not currently required to comply with CEI and ONA narrowband annual, semi-annual, and
quarterly reporting requirements because the Bureau has waived them pending resolution of the CEI/ONA Notice to
eliminate them permanently. The BOCs, therefore, have not had compliance costs associated with those
requirements since 2011. See supra n.58.
97 The Commission has sought comment on a petition by AT&T urging, among other things, that the Commission
consider conducting trials regarding the technology transition from TDM to IP and wireline to wireless. AT&T
Petition to Launch a Proceeding Concerning TDM-to-IP Transition, GN Docket No. 12-353 (filed Nov. 7, 2012)
(AT&T Petition); Pleading Cycle Established on AT&T and NTCA Petitions, GN Docket No. 12-353, Public Notice,
27 FCC Rcd 15766 (Wireline Comp. Bur. 2012). AT&T states that the Commission could use such a trial to
determine if forbearance from CEI and ONA regulations is appropriate. AT&T Petition at 20. See Technology
Transitions Policy Task Force Seeks Comment on Potential Trials
, GN Docket No. 13-5, Public Notice, DA 13-
1016 (rel. May 10, 2013), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-13-1016A1.pdf.
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forbearance orders.98 USTelecom argues that the Commission’s prior forbearance analysis “applies with
equal force to any carrier subject to price cap regulation.”99
b.

Background

31.
The Cost Assignment Rules generally require carriers to assign costs to build and
maintain the network and revenues from services provided to specific categories. Categories include non-
regulated or regulated service, the intrastate or interstate jurisdiction, and specific access services, such as
local switching or common line.100 The Cost Assignment Rules also govern the accounting treatment of
transactions between a carrier and its affiliate, such as the sale or transfer of assets between regulated and
nonregulated affiliates.101 In addition, the rules include certain reporting requirements, which depend on
the availability of data produced by the Cost Assignment Rules.102
32.
As part of the accounting process, carriers first record their costs, including investments
and expenses, into various accounts in accordance with the Uniform System of Accounts (USOA)
prescribed by Part 32 of the Commission’s rules.103 Next, using the Cost Assignment Rules in Part 64,
carriers directly assign, or allocate if direct assignment is not possible, the costs and revenues associated
with their regulated and nonregulated activities.104 After costs and revenues are divided between those
that are regulated and nonregulated, interstate and intrastate costs and revenues are separated as provided
in Part 36.105 The federal and state regulatory jurisdictions apply their own ratemaking processes to the
amounts assigned to each jurisdiction.106 Finally, the access charge rules in Part 69 require carriers to

98 USTelecom Petition at 31-34. (“USTelecom uses the term ‘Cost Assignment Rules’ to refer collectively to the
same statutory provisions and Commission rules from which AT&T requested and the Commission granted
forbearance.”). Id. at 32 n.65 and App. A (listing the rules and specifically citing Att. 1 of the underlying AT&T
Forbearance Petition in the Petition of AT&T Inc. for Forbearance under 47 U.S.C. § 160 from Enforcement of
Certain of the Commission’s Cost Assignment Rules
, WC Docket Nos. 07-21, 05-342, Memorandum Opinion and
Order, 23 FCC Rcd 7302, para. 1 n.2 (2008) (AT&T Cost Assignment Forbearance Order), pet. for recon. pending,
pet. for review pending, NASUCA v. FCC, Case No. 08-1226 (D.C. Cir. filed June 23, 2008) (“Attachment 1 of the
AT&T Petition lists each rule from which Legacy AT&T seeks forbearance”). We therefore define the scope of
USTelecom’s requested relief in the same manner as that requested by AT&T in the AT&T Cost Assignment
Forbearance Order
. See Petition of AT&T, Inc. for Forbearance Under 47 U.S.C. § 160(c) From Enforcement of
Certain of the Commission’s Cost Assignment Rules, WC Docket No. 07-21 (filed Jan. 25, 2007) (AT&T Petition).
99 USTelecom Reply at 20.
100 See 47 C.F.R. Parts 36, 64, 69.
101 See 47 C.F.R. § 32.27.
102 These reports include the ARMIS 43-04, the Rate-of-Return Monitoring Report (FCC Form 492), the Reg/Non-
Reg Forecast Report (FCC Form 495A) and the Reg/Non-Reg Actual Usage Report (FCC Form 495B). See AT&T
Cost Assignment Forbearance Order
, 23 FCC Rcd at 7307-08, para. 12.
103 See 47 C.F.R. Part 32.
104 See 47 C.F.R. §§ 64.901-64.905.
105 See 47 C.F.R. Part 36.
106 See Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, WC Docket Nos. 05-
271, 04-242, CC Docket Nos. 02-33, 01-337, 95-20, 98-10, Report and Order and Notice of Proposed Rulemaking,
20 FCC Rcd 14853, 14925, para. 129 (2005) (Wireline Broadband Order), aff’d, Time Warner Telecom v. FCC, 507
F.3d 205 (3rd Cir. 2007).
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separate regulated interstate costs into interexchange costs and access costs, and then apportion the latter
among specific access categories or elements.107
33.
The Commission adopted the Cost Assignment Rules to help ensure just and reasonable
rates and to protect consumers by requiring ILECs to divide their costs and revenues in a specified
manner. For example, as telecommunications technology advanced, the Commission adopted Part 64
because it was concerned with the opportunities for carriers with market power to subsidize the
development of new technologies and services with increased rates for noncompetitive services.108 As a
result, Part 64 rules sought to ensure that carriers do not impermissibly “impos[e] on ratepayers for
regulated interstate services the costs and risks of nonregulated ventures” and “that ratepayers would
share in any savings achieved through the integrated provision of regulated and nonregulated
activities.”109
34.
The Commission adopted the Cost Assignment Rules prior to 1991 when all ILECs were
subject to rate-of-return regulation, so that it could set rates targeted to levels that allowed carriers to
recover their costs and earn a specific return on their regulated investment. However, after that time, the
Commission moved away from rate-of-return regulation for the larger ILECs.110 In its place, it adopted
price cap regulation, a form of incentive regulation that seeks to “harness the profit-making incentives
common to all businesses to produce a set of outcomes that advance the public interest goals of just,
reasonable, and nondiscriminatory rates, as well as a communications system that offers innovative, high
quality services.”111 Since the adoption of price cap regulation, certain carriers have moved from rate-of-
return regulation to price cap regulation.112
35.
In 2008, the Commission granted AT&T conditional forbearance from the Cost
Assignment Rules.113 The Commission conditioned the forbearance on, among other things, requiring
AT&T to retain Part 32 Uniform System of Accounts data and submit a compliance plan describing in
detail how it would fulfill its statutory and regulatory requirements.114 The Commission granted similar

107 See 47 C.F.R. § 69.4(b) (including the following elements: common line, local switching, information, tandem-
switched transport, direct-trunked transport, special access, line information database, entrance facilities, and
recovery of contributions to universal service support mechanisms by ILECs).
108 See Separation of Costs of Regulated Telephone Service from Costs of Nonregulated Activities, CC Docket No.
86-111, Report and Order, 2 FCC Rcd 1298, 1300, para. 10 (Joint Cost Order), recon. 2 FCC Rcd 6283 (1987),
further recon. 3 FCC Rcd 6701 (1988)), aff'd sub nom. Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C. Cir.
1990).
109 Joint Cost Order, 2 FCC Rcd at 1299, para. 1; Wireline Broadband Order, 20 FCC Rcd at 14925, para. 131.
110 Policy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313, Second Report and Order, 5
FCC Rcd 6786, para. 2 (1990) (Price Cap Order), aff’d, National Rural Telecom Ass’n v. FCC, 988 F.2d 174 (D.C.
Cir. 1993).
111 Id.
112 See, e.g., Windstream Petition for Conversion to Price Cap Regulation and for Limited Waiver Relief, WC
Docket No. 07-171, Order, 23 FCC Rcd 5294 (2008); CenturyTel, Inc., Petition for Conversion to Price Cap
Regulation and Limited Waiver Relief,
WC Docket No. 08-191, Order, 24 FCC Rcd 4677 (2009); Frontier Petition
for Limited Waiver Relief upon Conversion of Global Valley Networks, Inc., to Price Cap Regulation
, WC Docket
No. 08-18, Order, 23 FCC Rcd 7353 (2008); Joint Petition of Price Cap Holding Companies for Conversion of
Average Schedule Affiliates to Price Cap Regulation and for Limited Waiver Relief,
WC Docket No. 12-63, Order,
27 FCC Rcd 15753 (2012).
113 See generally AT&T Cost Assignment Forbearance Order, 23 FCC Rcd 7302.
114 See id. at 7314, para. 21, 7319-20, para. 31.
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conditional forbearance from the Cost Assignment Rules to Verizon and Qwest.115 Subsequently, Qwest,
Verizon, and AT&T obtained conditional forbearance from certain financial reporting requirements that
relied on the Cost Assignment Rules.116 Specifically, the forbearance from financial reporting
requirements was conditioned on approval of a compliance plan and continued filing of certain pole
attachment data publicly with the Commission.117 The Bureau approved the compliance plans filed by all
three carriers.118
c.

Discussion

36.
We grant forbearance from the Cost Assignment Rules for all price cap carriers, subject
to four conditions set forth below.119 The conditions are necessary to ensure that charges and practices are

115 Service Quality Customer Satisfaction, Infrastructure and Operating Data Gathering, Petition of AT&T Inc. for
Forbearance Under 47 U.S.C. § 160(c) from Enforcement of Certain of the Commission’s ARMIS Reporting
Requirements et. al.,
WC Docket Nos. 08-190, 07-139, 07-204, 07-273, 07-21, Memorandum Opinion and Order and
Notice of Proposed Rulemaking, 23 FCC Rcd 13647 (ARMIS Forbearance Order) pet. for recon. pending, pet. for
review pending
, NASUCA v. FCC, Case No. 08-1353 (D.C. Cir. filed Nov. 4, 2008). In this Order, the Commission
granted Qwest and Verizon the same conditional forbearance from the Cost Assignment Rules it granted to AT&T.
However, in addition, the Commission conditioned relief on requiring the carriers to describe in their compliance
plans how they will maintain and provide accounting data in study areas where the carriers receive rural high-cost
universal service support. See id. at 13663, para. 30. The Order also granted conditional forbearance from ARMIS
Reports 43-05, 43-06, 43-07 and 43-08 for all carriers (not just Verizon and Qwest). See id. at 13652, para. 7.
116 Petition of Qwest Corporation for Forbearance from Enforcement of the Commission’s ARMIS and 492A Reporting
Requirements Pursuant to 47 U.S.C. § 160(c),et al.,
Memorandum Opinion and Order, WC Docket Nos. 07-204, 07-
273, 23 FCC Rcd 18483, 18484, para 1., 18487, para. 8 (2008) (Qwest ARMIS Forbearance Order). The reports, for
which conditional forbearance was granted, are ARMIS Reports 43-01, 43-02, and 43-03 (collectively, the ARMIS
Financial Reports). We discuss the importance of the pole attachment data in Section III.B.4 infra.
117 Id. at 18490, para. 13.
118 Wireline Competition Bureau Approves Compliance Plans, WC Docket Nos. 07-21, 07-204, 07-273, Public
Notice, 23 FCC Rcd 18417 (2008). Two applications for review are pending. Application for Review of Action
Taken Pursuant to Delegated Authority filed by the AdHoc Telecommunications Users Committee and COMPTEL,
WC Docket Nos. 07-21, 07-204, 07-273 (filed Jan. 30, 2009); and Application for Review of the Wireline
Competition Bureau Approval of the Compliance Plans of AT&T, Verizon and Qwest, filed by the National
Association of State Utility Consumer Advocates and the New Jersey Division of Rate Counsel, WC Docket No. 07-
21 (filed Jan. 30, 2009).
119 We grant forbearance here, subject to conditions, from the same statutory provision and Commission rules,
(subject to the three exceptions listed below) which AT&T requested in its original forbearance petition and which
we granted in the AT&T Cost Assignment Forbearance Order. AT&T Cost Assignment Forbearance Order, 23 FCC
Rcd at 7303, para. 1 n.2; see also supra n.98. This includes limited forbearance from section 220(a)(2) of the Act to
the extent that this provision contemplates separate accounting of nonregulated costs. 47 U.S.C. § 220(a)(2). We
also grant forbearance from various Commission rules or portions thereof including the following: section 32.23
(nonregulated activities); section 32.27 (transactions with affiliates); section 32.5280 (nonregulated operating
revenue); Part 64 Subpart I, including the requirement to file Cost Allocation Manuals (CAMs) (allocation of costs);
Part 36 (jurisdictional separations procedures); Part 69, Subparts D and E (cost apportionment). See, e.g., 47 C.F.R.
§§ 32.23, 32.27, 32.5280, Part 64 Subpart I, Part 36, Part 69 Subparts D and E. The AT&T Forbearance Petition
underlying the AT&T Cost Assignment Forbearance Order lists each rule from which Legacy AT&T and Legacy
BellSouth were granted forbearance. See Petition of AT&T Inc. For Forbearance Under 47 U.S.C. § 160(c) From
Enforcement of Certain of the Commission’s Cost Assignment Rules, WC Docket No. 07-21 (filed Jan. 25, 2007),
Attach. 1. Though we grant forbearance for most of the same rules, sections 1.795 and 43.21(d) and (f) in AT&T’s
petition are only applicable to AT&T, Qwest, and Verizon. Therefore, there is no need to grant forbearance from
those rules to the other price cap carriers in this proceeding because they are not affected by these rules. To the
extent that there are any inconsistencies between this Order and the Appendix, the Order controls.
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just, reasonable, and not unjustly or unreasonably discriminatory; to protect consumers; and to protect the
public interest.120 We agree with USTelecom that much of the reasoning in our earlier decisions to grant
the BOCs forbearance from the Cost Assignment Rules applies equally to all price cap carriers.121
37.
USTelecom contends that the rules are “inextricably tied” to rate-of-return regulation,
and that once a carrier has transitioned to price cap regulation, the Cost Assignment Rules serve “no
continuing purpose in assuring just and reasonable rates.”122 As discussed above, the Cost Assignment
Rules were developed when the ILECs’ interstate rates and many of their intrastate rates were set under
rate-based, cost-of-service regulation.123 The Commission has explained that, “because price cap
regulation severs the direct link between regulated costs and prices, a carrier is not able automatically to
recoup misallocated non-regulated costs by raising basic service rates,” thus reducing incentives to shift
non-regulated costs to regulated services.124 To the extent incentives remain, we find that price cap
regulation in combination with the protections provided by the implementation of conditions as reflected
in carrier compliance plans will continue to protect consumers from unjust, unreasonable, and unjustly or
unreasonably discriminatory charges, practices, classifications, and regulations post-forbearance.125 We
disagree with commenters that assert that the Cost Assignment Rules remain necessary in order for the
Commission to complete its work with respect to special access and intercarrier compensation reforms.126
We are convinced that a more targeted, less onerous set of conditions will be adequate to meet our
ongoing needs in these and other proceedings.
38.
We cannot rule out all “possible future need for cost data” even under price cap
regulation.127 And there are several instances in which we have a specific need for some data related to
costs for price cap carriers in order to ensure just and reasonable rates, protect consumers and serve the
public interest.128 Given this continued need for some of the data currently available through our Cost
Assignment Rules, we find that forbearance is appropriate only subject to the conditions set forth herein,

120 Because the price cap carriers that are granted forbearance relief in this Order include Frontier, Windstream, and
the operating companies formerly owned by Embarq, the pending petition for reconsideration filed by these carriers
seeking this relief is moot and hereby dismissed. See Service Quality, Customer Satisfaction, Infrastructure and
Operating Data Gathering, et al
., WC Docket Nos. 08-190, 07-139, 07-204, 07-273, 07-21, Petition for
Reconsideration of Embarq, Frontier, and Windstream (filed Oct. 6, 2008).
121 USTelecom Petition at 33; see generally AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7302.
122 USTelecom Petition at 33.
123 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7311, para. 17.
124 See Wireline Broadband Order, 20 FCC Rcd at 14925-26, para. 133. We note that the fact that price cap rates
cannot be raised automatically does not mean that the relationship between costs and prices is entirely eliminated.
While the direct link between costs and price cap carriers’ access rates no longer exists, costs still have an impact on
other rates price cap carriers charge. See infra Section III.B.4.c.(i) for examples of the continued relevance of cost
to price cap carriers’ rates; see also Special Access Rates for Price Cap Local Exchange Carriers; AT&T Petition
for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access
Services
, WC Docket No. 05-25, RM-10593, Order and Notice of Proposed Rulemaking, 20 FCC Rcd 1994, 1999,
at para. 12 (2005) (2005 Special Access NPRM) (“Although price cap regulation diminished the direct link between
changes in allocated accounting costs and change in prices, it did not sever the connection between accounting costs
and prices entirely.”).
125 See infra Section III.B.3.(i).
126 Sprint Opposition at 3; see also Consumer Advocates Comments at 27.
127 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7312, para. 18.
128 See infra Section III.B.4.c.(i).
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which generally mirror those we required from the BOCs in 2008. As we explained in the 2008 AT&T
Cost Assignment Forbearance Order
, there is no reason to impose on price cap carriers cost assignment
requirements that were “designed to parallel the level of detail in the cost-of-service calculations that
LECs performed to develop their rates for interstate access services.”129
39.
The conditions we adopt today, along with continued price cap regulation, permit us to
forbear from the Cost Assignment Rules under the three prongs of the statutory forbearance analysis.
First, subject to the conditions described below, enforcement of the Cost Assignment Rules is not
necessary to ensure just, reasonable and not unjustly or unreasonably discriminatory charges, practices,
classifications, and regulations. Second, the rules are not needed for the protection of consumers; as
conditioned, consumers will remain protected from unjust, unreasonable, and unjustly or unreasonably
discriminatory rates, practices, classifications, and regulations. Third, this conditioned forbearance is
consistent with the public interest. The Commission adopted the Cost Assignment Rules in part to help
protect consumers from improper cross-subsidization of competitive services provided on an integrated
basis with noncompetitive services by dominant providers with individual market power.130 We find that
we can achieve these same public interest benefits through conditional forbearance.
40.
Likewise, we find that continued enforcement of the Cost Assignment Rules is not
necessary to protect consumers with respect to support from the Universal Service Fund. Specifically, the
Commission recently froze price cap carriers’ universal service support with the intention of transitioning
distribution of that support to mechanisms based on a combination of a forward-looking cost model and
competitive bidding.131 This reform removes, for most purposes, the need to provide evidence of
historical cost to justify support levels.132 As a result, we find that conditional forbearance is consistent
with the public interest.
41.
Finally, section 10(b) requires the Commission to consider, as part of its analysis of the
public interest prong, whether forbearance will promote competitive market conditions. USTelecom and
other commenters contend that forbearance will enhance competition.133 While the record does not offer

129 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7311 para. 17.
130 See, e.g., Wireline Broadband Order, 20 FCC Rcd at 14925, para. 131 (explaining that the purpose of the cost
allocation rules “was to ensure that telephone ratepayers would continue to receive reasonable protections against
improper cross-subsidization in the event the BOCs provided enhanced service on an integrated basis, rather than
through separate subsidiaries”).
131 Connect America Fund, A National Broadband Plan for Our Future, Establishing Just and Reasonable Rates for
Local Exchange Carriers, High-Cost Universal Service Support, Developing an Unified Intercarrier Compensation
Regime, Federal-State Joint Board on Universal Service, Lifeline and Link-Up, Universal Service Reform —
Mobility Fund
, WC Docket No. 10-90, GN Docket No. 09-51, WC Docket No. 07-135, WC Docket No. 05-337, CC
Docket No. 01-92, CC Docket No. 96-45, WC Docket No. 03-109, WT Docket No. 10-208, Report and Order and
Further Notice of Proposed Rulemaking, 26 FCC rcd 17663, 17725, para. 156 (2011) (USF/ICC Transformation
Order), pets. for review pending sub nom. In re: FCC
, No. 11-9900 (10th Cir. filed Dec. 8, 2011).
132 Cost accounting data will continue to be necessary in some circumstances. The Commission’s grant of
forbearance from the Cost Assignment Rules for Verizon and Qwest was conditioned on their providing in their
compliance plans the cost data and calculations necessary to continue to calculate the cost-based high cost support
they received at that time. USTelecom’s request here includes other price cap carriers that formerly received
universal service support based on their embedded costs. We note, however, that in the USF/ICC Transformation
Order
, the Commission froze all price cap carriers’ universal service support and plans to transition distribution of
that support to mechanisms based on a model or competitive bidding. Given that these reforms eliminate the need
for cost-based data and calculations to determine universal service support, we decline to impose this condition here
and no longer require price cap carriers to include this specific commitment in their compliance plans.
133 USTelecom Petition at 42; Verizon Comments at 10.
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concrete evidence of how competition will be enhanced, we agree as a general matter that eliminating
unnecessary regulation will generally reduce providers’ costs and, in turn, benefit consumers through
lower rates and/or more vibrant competitive offerings and promotes competition by providing a more
level playing field because other providers of similar services are not subject to the rules. Moreover, as
noted above, we find that, as conditioned, sufficient protections remain in place to prevent anti-
competitive cross-subsidization.
(i)

Conditions

42.
We adopt four conditions to our forbearance from the Cost Assignment Rules. These
generally mirror the conditions we imposed on the BOCs in 2008, with a few modifications to reflect
changes in our universal service and intercarrier compensation rules since that time. Following the same
procedures as we did previously, we establish a less burdensome framework and require a price cap
carrier seeking to take advantage of this relief to explain in a compliance plan how it will comply with
these conditions. This plan should also include a schedule of how the carrier will transition to the new
framework. As USTelecom notes, compliance plan requirements such as these reduce “the burdens of
maintaining this intricate system of regulatory accounting.”134
43.
First, we require price cap carriers to continue complying with the Part 32 Uniform
System of Accounts rules, and to provide Part 32 data on request by the Commission for use in
rulemakings, adjudications, or for other regulatory purposes.135 As commenters note, Part 32 USOA data
are the underlying raw data used in the Cost Assignment Rules, such as Part 36 separations and Part 64
allocation rules.136 Requiring the retention and submission of the underlying raw data gives the
Commission the tools to reconstruct the information necessary to gauge whether improper cost
accounting has occurred, should it need to do so. This enables the Commission to ensure charges,
practices, classifications, or regulations are just, reasonable, and not unjustly or unreasonably
discriminatory. This condition is consistent with precedent, and we emphasize that it requires the
submission of Part 32 USOA data, upon request by the Commission.
44.
Second, we require independent price cap carriers seeking to take advantage of this relief
to file access imputation plans similar to those previously filed by the BOCs if the independent price cap
carriers plan to provide in-region long distance service without a section 64.1903 separate affiliate.137
They must also ensure that any BOC properties they purchased or purchase in the future continue to
satisfy the applicable section 272 access charge imputation requirements.138 These price cap carriers need

134 USTelecom May 3, 2012 Ex Parte Letter at 2.
135 See infra Part III.B.4 (denying forbearance from the Part 32 Uniform System of Accounts rules but committing to
open a proceeding to streamline those rules). This is the same conditional Cost Assignment Rules forbearance relief
that was granted to AT&T, Qwest and Verizon. See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd 7314
at para. 21; see also ARMIS Forbearance Order, 23 FCC Rcd at 13663, para. 28. We disagree with USTelecom’s
characterization that Part 32 accounting was not required by the AT&T Cost Assignment Forbearance Order. See
USTelecom Petition at 36-37. USTelecom is attempting to draw a distinction without a difference. Forbearance
was expressly premised on the continued availability of Part 32 accounting and the filing of compliance plans
consistent with that condition. AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7314, para. 21 (“USOA
account data will continue to be maintained and available to the Commission on request”). All three carriers filed
compliance plans that detailed their commitment to continue to maintain Part 32 accounting. The Commission
approved the plans on that basis.
136 See Landis Comments at 3 (noting that Part 32 provides the underlying data required for performing separations).
137 See infra Section III.B.11 (Structural Separation Requirements for Independent ILECs).
138 We note that the BOCs are to continue complying with their existing imputation requirements under section
272(e)(3) and their compliance plans. 47 U.S.C. § 272(e)(3); Wireline Competition Bureau Approves Compliance
(continued....)
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not file another imputation compliance plan for their BOC properties if one has already been approved by
the Commission. This requirement is similar to the condition imposed on AT&T, Qwest, and Verizon
when they were granted forbearance from the Cost Assignment Rules.139 Section 272(e)(3) requires each
BOC to charge its section 272 separate affiliates, or “impute to itself (if using the access for its provision
of its own services), an amount for access to its telephone exchange service and exchange access that is
no less than the amount charged to any unaffiliated interexchange carriers for such service.”140 This
condition prevents anticompetitive cross-subsidization and is consistent with precedent.141
45.
Third, we require price cap carriers to certify, on an annual basis, that they have complied
with section 254(k) of the Act, and will maintain and provide any requested cost accounting information
necessary to prove such compliance in the event of an administrative action, investigation, or audit.142
This condition is necessary to ensure compliance with the language of the Act that prohibits a
telecommunications provider from “us[ing] services that are not competitive to subsidize services that are
subject to competition.”143 This condition is consistent with precedent.144
46.
Fourth, we condition this forbearance for each price cap carrier on Bureau approval of its
compliance plan describing in detail how it will continue to fulfill its statutory and regulatory obligations,
including sections 272(e)(3), 254(k), and the conditions outlined above. The relief granted in this section
of this Order will not become effective with respect to a price cap carrier unless and until the Office of
Management and Budget approves any information collections associated with these conditions in
accordance with the Paperwork Reduction Act and the Bureau approves that price cap carrier’s
compliance plan.145
47.
We delegate authority to the Chief of the Wireline Competition Bureau to prescribe the
administrative requirements for the filing of the compliance plans and to approve the plans when the
Bureau is satisfied that the plans fulfill the requirements set forth in this Order.146 This delegation of
(Continued from previous page)
Plans, WC Docket Nos. 07-21, 07-204, 07-273, Public Notice, 23 FCC Rcd 18417 (2008). These requirements also
apply to any non-BOC affiliate of a BOC that was granted a waiver of the separate affiliate requirement. Section
272 Sunset Order
, 22 FCC Rcd at 16483-84, paras. 87-88. We note that if an independent price cap carrier elected
not to be subject to forbearance relief from the Cost Assignment Rules and desired to provide in-region long
distance service through a separate affiliate, it would be subject to those rules and not be required to file imputation
plans.
139 See, e.g., AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7317-19, paras. 26-29, 31.
140 47 U.S.C. § 272(e)(3).
141 See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7318-19, paras. 28-29; ARMIS Forbearance
Order,
23 FCC Rcd at 13662, para 27, 13664, para. 32. Subsequent forbearance from the requirement to provide
ARMIS financial reports was also expressly conditioned on the filing and approval of the compliance plans required
by these two previous orders. Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18489-90, para. 12.
142 This is similar to the conditional forbearance granted to AT&T, Verizon and Qwest. See, e.g., AT&T Cost
Assignment Forbearance Order,
23 FCC Rcd at 7319, para. 30. These certification and record-retention obligations
qualify as an “information collection” subject to the approval of the Office of Management and Budget under the
terms of the Paperwork Reduction Act of 1995.
143 47 U.S.C. § 254(k).
144 See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7319, para. 30.
145 Obligations associated with the third and fourth conditions of this forbearance are “information collections” as
defined by the Paperwork Reduction Act and must be approved by the Office of Management and Budget.
Paperwork Reduction Act of 1995, Pub. L. No. 104-13, 109 Stat. 163.
146 The Bureau will release a public notice or notices announcing the approval of the plans as it approves them.
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authority to the Bureau is consistent with delegations in previous analogous forbearance orders147 and
with our rules.148
(ii)

Other Concerns

48.
Separations. We also note that subsequent regulatory events may give us reason to
modify this forbearance with respect to Part 36 separations rules. The on-going work by the Federal–
State Joint Board on Separations has a broad referral from the Commission, and may recommend reforms
to the jurisdictional separations process.149 Section 10 of the Act does not permit us to defer forbearance
decisions by reference to a different regulatory process, as some commenters have requested.150 We
highlight, however, that the scope of separations reform and its applicability to price cap or other carriers
is a subject for the Joint Board to address in its recommended decision. In taking any subsequent action,
such as in a rulemaking to implement the Joint Board’s recommendations on separations reform, the
Commission may reach different decisions.151
49.
State Need for Cost Assignment Rules. We disagree with commenters contending that
forbearance should be denied, or corresponding conditions should be adopted, solely on the basis of
states’ need for the Cost Assignment Rules.152 As the Commission explained in the AT&T Cost
Assignment Forbearance Order
, “we do not in this Order preempt any state accounting requirements
adopted under state authority.”153 Similarly here, we do not preempt states’ ability to establish intrastate
cost allocations for its own purposes, and our forbearance from the Cost Assignment Rules does not
otherwise affect a state’s ability to do so.154 In the AT&T Cost Assignment Forbearance Order, the
Commission stated that “[w]e believe that AT&T, working cooperatively with the state commissions in

147 See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7319-20, para. 31; ARMIS Forbearance Order,
23 FCC Rcd at 13661, para. 24.
148 The Chief of the Bureau has delegated authority to “[d]evelop and administer rules and policies relating to
incumbent local exchange carrier accounting.” 47 C.F.R. §§ 0.91(e), 0.291.
149 See, e.g., Jurisdictional Separations and Referral to the Federal–State Joint Board, CC Docket No. 80-286,
Report and Order, 27 FCC Rcd 5593 (2012).
150 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7309, para. 13; CPUC Comments at 8; Larry S.
Landis Comments at 3; Pennsylvania PUC Reply at 11.
151 The Commission may reach certain decisions with respect to implementing the Joint Board’s recommendations
on separations reform, notwithstanding comments to the contrary in the record. See AT&T Reply at 24 n.57 (“But
in any event, any jurisdictional separations reforms currently being considered would not apply to carriers, such as
AT&T, that have secured forbearance from the Commission’s jurisdictional separations rules.”). As the D.C.
Circuit has pointed out, the Commission remains free to revisit its forbearance decisions, including grants. See
Earthlink, Inc. v. FCC
, 462 F.3d 1, 12 (D.C. Cir. 2006).
152 See, e.g., Consumer Advocates Comments at 23-26.
153 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7321, para. 33.
154 See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7320-22, paras. 32-35. The Commission
explained it does not have the authority under sections 2(a) and 10 of the Act to maintain federal regulatory
requirements that meet the three-prong forbearance criteria for interstate services in order to maintain regulatory
burdens that may produce information helpful to state commissions for intrastate regulatory purposes solely without
a federal purpose. Id. at 7321, para. 32. At the same time, we expect that, similar to the precedent set with AT&T,
price cap carriers will work with state commissions so that they will be able to obtain intrastate revenue data and all
cost accounting information from the carriers needed for state regulatory purposes following forbearance from the
Cost Assignment Rules. See id. at 7321-22, para. 34. Moreover, as noted above, forbearance does not prevent states
from obtaining such data pursuant to state law.
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its region, can develop methods of separating costs, satisfying any remaining need states have for
jurisdictional separations information.”155 AT&T confirmed that this arrangement has worked since
2008.156 We also recognize that some price cap carriers have operating companies that are regulated on a
rate-of-return basis on the state level or for whom alternative regulation periodically requires cost-based
accounting data.
50.
We likewise disagree with commenters contending the Cost Assignment Rules are
necessary to support a federal role in intrastate ratemaking, such as with respect to UNE and resale
pricing under section 251, which we noted in the AT&T Cost Assignment Forbearance Order.157 Thus,
we reiterate our conclusion that denying forbearance from the Cost Assignment Rules based solely on
state needs would be inappropriate. However, we remind price cap carriers that section 251 of the Act
requires such carriers “to continue to provide to state commissions, on request, any accounting data that
states need to implement our pricing methodologies.”158 We emphasize that forbearance adopted herein
does not impact the states’ ability to require carriers to submit such data.
51.
Other Relief Using Cost Assignment Data. We note that there still may be instances in
which a price cap carrier seeks relief from the Commission that requires supporting cost assignment
data. In such instances, the burden is on the carrier to retain data sufficient to make the required showing
to the Commission in support of such a carrier-initiated request. For example, a separations study would
be required if carriers seek additional support under our Total Cost and Earnings Review (TCER) waiver
process adopted in the USF/ICC Transformation Order.159 Under the TCER process, ILECs may request
a waiver and seek additional support beyond that already provided by the existing recovery mechanism.
Thus, price cap carriers that request a TCER must retain the records needed to undergo a separations
study consistent with the terms of the USF/ICC Transformation Order.160
(iii)

Petitions for Reconsideration

52.
We deny three petitions requesting that the Commission reconsider its decisions to grant
forbearance from the Cost Assignment Rules to AT&T, Qwest, and Verizon.161 We agree with

155 Id. at 7316-17, para. 25.
156 AT&T Reply at 23 (“Indeed, since that order, AT&T has fully cooperated with the handful of state commissions
that have requested information and has been able to fulfill their regulatory needs.”).
157 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7322, para. 35; see, e.g., Consumer Advocate
Comments at 21-22.
158 Id.
159 USF/ICC Transformation Order, 26 FCC Rcd at 17996-18002, paras. 924-32.
160 We note that USTelecom has not requested forbearance from the TCER waiver standard. With respect to the
separations study, the USF/ICC Transformation Order noted: “Although this is a burdensome requirement, it is not
unduly so given the importance of protecting consumers and the universal service fund.” Id. at 18002, para. 932.
We note that, as a condition of forbearance from the Cost Assignment Rules, AT&T, Qwest and Verizon filed
compliance plans to satisfy the Commission’s requirement to provide accounting and cost allocated data if the
Commission determines such data are necessary for federal regulatory rules. See, e.g., AT&T Compliance Plan at
11-13.
161 Two of these petitions request that the Commission reconsider its decision in the ARMIS Forbearance Order
granting forbearance from the Cost Assignment Rules to Qwest and Verizon. See AdHoc Telecommunications
Users Committee Petition for Reconsideration, WC Docket Nos. 08-190, 07-139, 07-204, 07-273 and 07-21 (filed
Oct. 6, 2008) (AdHoc Oct. 26 Petition); see also Sprint Nextel Corporation, COMPTEL, tw telecom inc., and One
Communications Corp. Petition for Reconsideration, WC Docket Nos. 07-21, 07-204 and 07-273 (filed Oct. 6,
2008) (Joint Oct. 26 Petition). The third petition requests that the Commission reconsider its decision in the AT&T
(continued....)
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commenters that petitioners have not presented any new or compelling arguments that persuade us to
reconsider those decisions.162 After reviewing the petitions, we find that petitioners raise issues that the
Commission addressed in the 2008 Cost Assignment Forbearance Orders and also elaborates on
elsewhere in this Order.
53.
Although generally mirroring the conditions the Commission adopted in the AT&T Cost
Assignment Forbearance Order, this Order provides additional explanations of the protections that are
afforded by the Commission’s conditional requirement that carriers retain their Part 32 Uniform System
of Accounts, which applies to AT&T, Qwest, and Verizon as well as the other price cap carriers that are
granted forbearance from the Cost Assignment Rules.163 The Commission thus ensures its ability to
obtain the underlying data necessary to reconstruct information to determine whether improper cost
accounting has occurred or to make determinations about just and reasonable rates where the Commission
finds competition is not constraining rates, should it need to do so in the absence of the Cost Assignment
Rules.
54.
In particular, the Commission has considered and responded to petitioners’ claims that,
contrary to the Commission’s findings, the Cost Assignment Rules are necessary for several reasons,
including guarding against possible exercise of market power;164 complying with the Section 272 Sunset
Order
;165 adjusting rates subject to price cap regulation, including special access;166 evaluating exogenous
cost relief and jurisdictional and intercarrier compensation reform;167 aiding state regulatory functions;168
enforcing section 208 complaints,169 and ensuring compliance with section 254(k).170
(Continued from previous page)
Cost Assignment Forbearance Order granting forbearance from these same rules to AT&T. Sprint Nextel
Corporation, COMPTEL, AdHoc Telecommunications Users Committee, and Time Warner Telecom Inc. Petition
for Reconsideration, WC Docket Nos. 07-21 and 05-342 (filed May 27, 2008) (Joint May 27 Petition). All three
petitions for reconsideration raise essentially the same or related issues.
162 See, e.g., Opposition of Verizon to Petition for Reconsideration, WC Docket Nos. 07-21, -05-342 (filed June 11,
2008).
163 See infra Section III.B.4.
164 See, e.g., Joint May 27 Petition at 5; AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7314-17, paras.
21-26; see also infra Section III.B.4.
165 See, e.g., Joint May 27 Petition at 12-15; AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7317-19,
paras. 26-29; see also infra Section III.B.4.
166 See, e.g., Joint May 27 Petition at 6-10; AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7312-13,
paras. 18-19, and 7326-27, para. 45; see also infra Section III.B.4.
167 Joint May 27 Petition at 11-12; AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7326-27, para. 45;
see also supra para. 51.
168 See, e.g., Joint May 27 Petition at 12; AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7320-22,
paras. 32-35; see also infra para 63.
169 See, e.g., Joint May 27 Petition at 22-24; AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7311-12,
paras. 16-18, and 7315, para. 22; see also infra Section III.B.4. Petitioners express concerns that the Commission’s
decisions will adversely affect the public availability of information needed for parties to bring a section 208
complaint challenging a rate under section 201. Joint May 27 Petition at 23-24. We emphasize that our formal
complaint and discovery rules are designed to ensure that parties acting in good faith are not denied the ability to file
complaints. 47 C.F.R. §§ 1.720-1.736.
170 See, e.g., Joint May 27 Petition at 16-18; AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7319, para.
30; see also infra Section III.B.4.
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55.
In conditionally forbearing from the Cost Assignment Rules, the Commission carefully
balanced its obligation to remove costly, overly broad, and outmoded requirements and burdens in
response to changes in markets and regulatory needs, against preserving requirements or creating a less
costly and administratively burdensome alternative that enables it to ensure just and reasonable rates,
protect consumers, and act in the public interest. Contrary to petitioners’ assertions, the conditions and
safeguards, which were implemented in compliance plans subject to the Commission’s approval, enable
us to properly strike this balance and are responsive to petitioners’ concerns.171 In sum, we believe the
modified regulatory framework created by the conditions imposed by the Commission sufficiently
address the issues petitioners have raised. Accordingly, we affirm the Commission’s decisions granting
conditional forbearance from the Cost Assignment Rules to AT&T, Qwest, and Verizon.
4.

Part 32 Uniform System of Accounts

a.

USTelecom’s Request

56.
USTelecom requests forbearance from the Part 32 Uniform System of Accounts (USOA)
for all price cap carriers.172 USTelecom claims that “there is no clear use for or relevance to the Part 32
information being collected; [it] imposes requirements that in some cases duplicate and in other cases
conflict with GAAP; and [it] distorts competition by being applicable only to one subset of service
providers.”173 USTelecom also asserts that “Part 32 requirements serve no regulatory purpose.”174
b.

Background

57.
The USOA was adopted pursuant to section 220 of the Act, which requires the
Commission to “prescribe a uniform system of accounts for use by telephone companies.”175 It was
originally adopted in 1935 as Parts 31 and 33 of the Commission’s rules and was subsequently replaced
with the current Part 32 USOA in 1986.176 The current USOA is “a historical financial accounting system
that reports the results of operational and financial events in a manner which enables both management
and regulators to assess these results.”177 The USOA provides a consistent framework for recording and
reporting a company’s balance sheet, revenues, and expenses.

171 Contrary to petitioners’ assertions, the Commission has fully explained, in the AT&T Cost Assignment
Forbearance Order
as well as elsewhere in this Order, why the compliance plans can be relied upon to replace the
Cost Assignment Rules.
172 USTelecom Petition at 34-43. Specifically, USTelecom requested forbearance for all price cap carriers from
§ 220(a)(2) of the Act, Part 32 subparts A-G of the Commission’s rules, and the prior approval requirement of
changes in statistical sampling processes. USTelecom Petition, App. A at A-8, A-9. Given our determination
elsewhere in this Order to forbear conditionally from the Commission’s Cost Assignment Rules for price cap
carriers not previously granted forbearance, including sections 32.23 and 32.27 of our accounting rules (see supra
Section III.B.3), we exempt these sections from our review of Part 32 here.
173 Id. at 35.
174 Id. at 37.
175 47 U.S.C. § 220(a)(2).
176 Revision of the Uniform System of Accounts and Financial Reporting Requirements for Class A and Class B
Telephone Companies (Parts 31, 33, 42, and 43 of the FCC’s Rules
), CC Docket No. 78-196, Report and Order, 60
RR2d 1111 (1986).
177 47 C.F.R. § 32.1.
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c.

Discussion

58.
As an initial matter, USTelecom argues that “the Commission ‘shall forbear’ from the
continued application of rules that are ‘not necessary for a current, federal need.’”178 We note that in
determining whether forbearance is warranted under section 10, we perform the analysis specified by the
terms of that statutory provision. The Commission previously has considered whether there must be a
current need to determine that a rule is “necessary” under the first two prongs of the three-part section 10
forbearance test.179
59.
For the reasons discussed below, we find that USTelecom has not demonstrated that Part
32 is not necessary to ensure that charges and practices are just and reasonable, that Part 32 is not
necessary for the protection of consumers, and that forbearance from Part 32 would be consistent with the
public interest. Therefore, we find that forbearance from the Part 32 Uniform System of Accounts is not
warranted under the section 10 criteria.
60.
A uniform accounting system has historically been the linchpin of the Commission’s
ability to ensure reasonable rates for residential and business services and to perform a number of other
statutory responsibilities. The Commission has previously stated that “protecting ratepayers from unjust
and unreasonable interstate rates . . . is the purpose behind all of our accounting . . . rules.”180 The Part 32
USOA has been the necessary precondition for previous forbearance grants, including our conditional
grants of forbearance from the Cost Assignment Rules for the BOCs in 2008.181 Despite the considerable
changes that have taken place in Commission regulations in recent years, our review of the record in this
proceeding leads us to conclude that retaining a uniform accounting system remains important to the
Commission’s ability to conduct its oversight, investigatory, and regulatory responsibilities.182
(i)

Section 10(a)(1): Just and Reasonable Rates

61.
Under the first prong of our forbearance analysis, section 10(a)(1) requires the
Commission to determine whether the Part 32 accounting rules are “necessary to ensure that the charges,
practices, classifications or regulations by, for, or in connection with [price cap carriers] are just and
reasonable and are not unjustly or unreasonably discriminatory.”183 USTelecom contends that “Part 32

178 USTelecom April 18, 2013 Ex Parte Letter at 2 (“[N]one of those purported justifications constitutes a ‘current
federal need’ for the rules in question, which is the standard adopted by the Commission in applying the section 10
forbearance test.”).
179 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7313-14, para. 20 (concluding that a rule is not
“necessary” under section 10(a)(1) where there is not a current need, and citing Cellular Telecommunications &
Internet Ass’n v. FCC
, 330 F.3d 502, 512 (2003), which was interpreting the term “necessary” in the context of
section 10(a)(2)). As explained in this section, the Commission has “ongoing needs” for the regulations in question;
we therefore disagree with USTelecom that there is no current need. See generally USTelecom April 18, 2013 Ex
Parte
Letter.
180 Separation of Costs of Regulated Telephone Service from Costs of Nonregulated Activities; Amendment of Part
31, the Uniform System of Accounts for Class A and Class B Telephone Companies to Provide for Nonregulated
Activities and to Provide for Transactions Between Telephone Companies and their Affiliates
, CC Docket No. 86-
111, Report and Order, 2 FCC Rcd 1298, at 1303, para. 37 (1987), petition for review denied, Southwestern Bell
Corp. v. FCC
, 896 F.2d 1378 (D.C. Cir. 1990).
181 See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7314, para. 21; ARMIS Forbearance Order, 23
FCC Rcd at 13662, para. 27, n.82.
182 See Consumer Advocates Comments at 21 (“Consistent and uniform reports are essential tools for diverse
regulatory purposes.”).
183 47 U.S.C. § 160(a)(1).
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requirements are unnecessary to ensure that price cap carriers charge just, reasonable, and
nondiscriminatory rates.”184 Other commenters, however, underscore the continued importance of Part 32
accounting rules.185
62.
We recognize that, in certain respects, price cap regulation and our reform of universal
service and intercarrier compensation have altered the manner in which accounting data may be used.
USTelecom has not, however, offered evidence to show that those reforms have eliminated the need for
Part 32 accounting data. We identify below, consistent with the first prong of our forbearance analysis, a
variety of current circumstances for which the Commission relies on Part 32 accounting to ensure just and
reasonable rates.186 Given these uses and the benefits of Part 32 rules in general, including providing
uniformity and continuity in the Commission’s accounting data,187 we find that USTelecom has not shown
that the data are unnecessary or that there are less burdensome alternatives to accomplish these
responsibilities.
63.
Pole Attachments. The Commission regulates pole attachment rates under section 224 of
the Act and depends on data developed from Part 32 accounts to calculate and verify the reasonableness
of pole attachment rates.188 These data are routinely relied on by parties both in private negotiation of
pole attachment rates and in pole attachment complaint filings.189 For example, the Commission’s rules
require a party filing a pole attachment rate complaint to include cost data “based on historical or original
cost methodology” and “derived from ARMIS . . . or other reports filed with state or federal regulatory
agencies.”190 The cost data for pole attachment rates come from various Part 32 accounts (e.g., gross pole
investment, gross plant investment, accumulated depreciation—poles, maintenance expense—poles,

184 USTelecom Petition at 37 (“Part 32 has no bearing on the rates charged by price cap carriers.”). Several
commenters echo these assertions. AT&T Reply at 22 (“These rules were designed for a rate-of-return era that has
long since passed.”); CenturyLink Comments at 5 (“Many of the rules covered by the Petition are holdovers from
the long-past days when rate-of-return regulation was the norm in the telecommunications industry, including Part
32.”); ACS Comments at 5; Cincinnati Bell Comments at 9; USTelecom Reply at 21; Verizon Comments at 13 (“It
is now apparent that Part 32 information is not needed by the Commission to conduct its routine business.”).
185 Sprint Opposition at 4 (“[I]t is critical that the Commission retain the ability to review the cost and other
information currently recorded and reported by ILECs in order to fulfill its statutory obligation of ensuring that
customers obtain service at just and reasonable rates.”); CCIA Reply at 3-4; NCTA Comments at 3; NARUC April
22, 2013 Ex Parte Letter at 3-4 (“A number of State commissions and a State public utility commissioner have
timely and actively opposed USTA’s request for the elimination of the Part 32 USOA requirements for price cap
ILECs.”).
186 USTelecom asserts that the Commission has not requested the data maintained in the 2008 compliance plans.
See, e.g., USTelecom Petition at 37. As we detail in this section, however, the Commission has had a number of on-
going uses for the Part 32 data the carriers committed to maintain.
187 See infra para. 72.
188 47 U.S.C. § 224. Certain states have asserted jurisdiction over pole attachment rates pursuant to section 224(c).
See 47 U.S.C. § 224(c). As noted in Section III.B.7 infra, price cap carriers are generally not required to submit to
the Commission pole attachment data for those states. See infra para. 109; see also Qwest ARMIS Forbearance
Order
, 23 FCC Rcd at 18491, para. 14.
189 Under the Commission’s rules, pole attachment rates are set in the first instance through private negotiation using
cost data reported by carriers. In the event that negotiations are unsuccessful, attaching parties may file a complaint
with the Commission based on the same cost data. See 47 C.F.R. Part 1, Subpart J.
190 47 C.F.R. § 1.1404(g)(2).
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etc.).191 When the Commission granted forbearance to three price cap carriers from filing ARMIS Report
43-01, which contains cost data for rate calculations required by its pole attachment rules, it did so on the
condition that those carriers continue to publicly file the relevant revenue and expense data.192 Without
ongoing access to the data derived from Part 32 accounts, neither the Commission nor interested parties
could ascertain or verify that pole attachment rates based on the Commission’s rate formula reflect actual
costs, or that these calculations produce just and reasonable rates in accordance with our rules.193
64.
Moreover, the Commission has used Part 32 data to modify the formula by which
telecom rates for pole attachments are calculated. Specifically, in the 2010 Pole Attachment Order and
NPRM
, which implemented recommendations of the National Broadband Plan, the Commission sought to
modify the telecom rate for pole attachments. In so doing, the Commission sought comment on a specific
rate proposal based on an analysis of incumbent LEC pole attachment rates that was calculated using
publicly filed Part 32 account cost-related data.194 The Commission ultimately adopted a modified form
of its proposal as the new telecom rate for pole attachments the following year.195
65.
USTelecom contends that the Commission’s pole attachment rules do not require the use
of Part 32.196 However, we expressly conditioned forbearance from our ARMIS financial reporting
requirements on “the continued annual public filing . . . of the pole attachment cost data currently filed as
part of ARMIS Report 43-01.”197 In that proceeding, the Commission considered whether that “data in
alternative forms filed with the Commission would be sufficient” but concluded that “[t]he record does
not reveal other sources of such data that would meet that standard [set by our rules] and could be used
today in the absence of the ARMIS data.”198 Similarly, in this proceeding, the record contains no

191 In 2000 and 2001, the Commission established the Part 32 accounts used in calculating pole attachment rental
rates for poles owned by local exchange carriers. See Amendment of Commission’s Rules and Policies Governing
Pole Attachments
; Implementation of Section 703(e) of the Telecommunications Act of 1996, CS Docket Nos. 97-98,
97-151, Consolidated Partial Order on Reconsideration, 16 FCC Rcd 12103, 12122-27, paras. 32-42, 12155-59,
paras. 108-15 (2001).
192 Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18490-91, para. 13. See, e.g., Letter from Linda Vandeloop,
Director-Federal Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 07-204 (filed Apr. 2,
2012).
193 See NCTA Comment at 3-4. USTelecom concedes this need elsewhere in its petition by expressly conditioning
its request for forbearance from ARMIS 43-01 reporting requirements “subject to the same conditions as adopted in
the Qwest Forbearance Order.” USTelecom Petition at 52. That Order conditioned forbearance on the “continued
annual public filing, without any assertion of confidentiality, of the pole attachment cost data currently filed as part
of ARMIS Report 43-01 in WC Docket No. 07-204.” Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18490-91,
para. 13.
194 Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, WC Docket No. 07-245,
GN Docket No. 09-51, 25 FCC Rcd 11864, 11923, para. 140 n.378 (2010) (2010 Pole Attachment Order and
NPRM
) (explaining the calculation and analysis in App. A).
195 Implementation of Section 224 of the Act; A National Broadband Plan for Our Future, WC Docket No. 07-245,
GN Docket No. 09-51, 26 FCC Rcd 5240, 5298-5305, paras. 135-52 and n.456 (2011) (2011 Pole Attachment
Order
) (referencing the Commission’s rate calculations using Part 32 data from ARMIS that formed the basis of its
telecom rate proposal).
196 USTelecom April 18, 2013 Ex Parte Letter at 4-6.
197 Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18490-91, para. 13.
198 Id.
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reference to alternative sources of pole attachment data that would meet the standard set by our rules.199
USTelecom’s suggestion that price cap carriers could provide the same expense information using GAAP
accounting would actually alter the rates price cap carriers charge for pole attachments since GAAP
treatment of certain pole attachment expenses differs from that of Part 32.200
66.
Section 272(e)(3) Imputation. Section 272(e)(3) of the Act requires a BOC that offers
integrated interexchange service to “impute to itself . . . an amount for access to its telephone exchange
service and exchange access that is no less than the amount charged to any unaffiliated interexchange
carriers for such service.”201 In the Section 272 Sunset Order, the Commission permitted BOCs to offer
interexchange and exchange access services on a vertically integrated basis, contingent on those carriers’
compliance with cost allocation rules that would prevent improper cost shifting, and on their inclusion of
section 272 imputation charges in the relevant Part 32 account.202 Though the Commission subsequently
relieved the BOCs from compliance with the Cost Assignment Rules, that forbearance was conditioned
on the carriers’ continued maintenance of Part 32 accounting and continued imputation as required by
section 272(e)(3) using data from the relevant Part 32 accounts to ensure against the threat of cross
subsidization identified in the statute.203
67.
Section 254(k) Compliance. Section 254(k) of the Act prohibits a telecommunications
provider from “us[ing] services that are not competitive to subsidize services that are subject to
competition.”204 As discussed above, we condition our forbearance from the Cost Assignment Rules on a
requirement for price cap carriers to certify, on an annual basis, that they have complied with section
254(k) of the Act, and will maintain and provide any requested cost accounting information necessary to
prove such compliance in the event of an administrative action, investigation, or audit.205 Absent
continued retention of Part 32 data, the Commission would be unable to verify the accuracy of that data.
68.
We note further that we have relied on the continuing application of the Part 32
accounting rules to justify reducing or eliminating other requirements in this Order and in prior

199 The flexibility that our rules allow was intended to facilitate compliance with our rules by non-ILECs that are not
subject to the requirements of Part 32. See 47 C.F.R. §§ 1.1404(g)(2), (h)(2).
200 See USTelecom May 3, 2013 Ex Parte Letter at 4. USTelecom cites “(1) depreciable lives; (2) accounting for
retirement of equipment and other facilities, including obsolescence, cost of removal and salvage; (3) capitalization
limits and (4) the tax effects of these differences” as “areas that give rise to significant Part 32/GAAP differences.”
Id. We will explore more fully the suggestions USTelecom makes in its ex parte regarding possible modification of
GAAP pole attachment data in the context of a future NPRM on Part 32. See infra para. 77.
201 47 U.S.C. § 272(e)(3).
202 Section 272 Sunset Order, 22 FCC Rcd at 16486-87, para. 94, 16491-92, para. 104 (2007).
203 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7318-19, para. 29 (“AT&T ‘will continue to
journalize revenue to Account 5280’ as required by section 32.5280(a) of the Commission’s rules.”). We decline
USTelecom’s proposal that we replace this familiar and commonly understood accounting requirement with a
commitment to create an ill-defined “annual subaccount/identifier or other record” to account for these transactions.
USTelecom April 18, 2013 Ex Parte Letter at 7. We extend this requirement to all price cap carriers as a condition
of granting forbearance from the Cost Assignment Rules. See supra Section III.B.3.
204 47 U.S.C. § 254(k).
205 See supra para. 45. This is similar to the conditional forbearance granted to AT&T, Verizon and Qwest. See,
e.g., AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7319, para. 30. This certification and record-
retention obligation qualifies as an “information collection” subject to the approval of the Office of Management
and Budget under the terms of the Paperwork Reduction Act of 1995.
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forbearance orders.206 If we were to forbear from the Part 32 rules, we would need to consider the impact
of such forbearance on the protections such conditions were imposed to address in those decisions. For
example, when the Commission granted forbearance from the Cost Assignment Rules and ARMIS
reporting requirements, it made clear that it would not have granted that forbearance absent the existence
of our Part 32 accounting rules and the data they generate.207 Indeed, we rely on compliance plans filed
by each carrier that obtained relief to explain the transition process it would undertake without the Cost
Assignment Rules and ARMIS rules to “maintain its accounting procedures and data in a manner that will
allow it to provide usable information on a timely basis if requested by the Commission” for regulatory
purposes.208 The Commission concluded that there may be a “federal need for this accounting
information in the future to adjust our existing price cap regime or in our consideration of reforms moving
forward.”209 Additionally, it asserted that the Commission “will have continuing responsibilities under
the Act to ensure that rates are just and reasonable, and not unjustly or unreasonably discriminatory, and
we need the tools, possibly including accounting data, to accomplish our statutory responsibilities.”210
Accordingly, the Commission “expressly condition[ed]” forbearance “on the provision by AT&T of
accounting data on request by the Commission. . . . Thus, this USOA account data will continue to be
maintained and available to the Commission on request.”211
69.
As discussed above, the Commission has various ongoing needs for Part 32 accounting
data to ensure just, reasonable, and nondiscriminatory charges, practices, classifications, and regulations,
which USTelecom has failed adequately to address. 212 We thus find that USTelecom has not met its
burden of establishing that Part 32 accounting rules as a whole are not necessary to ensure that price cap
carriers’ rates are just and reasonable and are not unjustly or unreasonably discriminatory.
(ii)

Section 10(a)(2): Protection of Consumers

70.
Section 10(a)(2) of the Act also requires the Commission to determine whether the
enforcement of its Part 32 accounting rules for price cap carriers is “not necessary for the protection of

206 See supra Section III.B.3; infra Section III.B.7; supra n.186.
207See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7325, para. 41 (discussing the Commission’s
significant reliance on Part 32 USOA as a condition for granting forbearance from the Cost Assignment Rules), and
id. at 7326, para. 44 (referencing “the modification of our regulatory framework” in conjunction with “compliance
with our remaining rules and conditions”); see also Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18490-91,
paras. 12, 15.
208 See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7319-20, para. 31; see also, e.g., Verizon
Compliance Plan at 2-3.
209 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7313, para. 19. Even under price cap regulation,
allegations of unjust, unreasonable, or unreasonably discriminatory rates can arise. In anticipation, the original
Price Cap Order emphasized the Commission’s section 208 enforcement responsibilities (“our investigation and
complaint processes will remain important tools in ensuring just, reasonable, and non-discriminatory rates”). Price
Cap Order
, 5 FCC Rcd at 6836, para. 406. The requisite accounting data could be necessary to evaluate such
allegations. Such assertions have been made, for example, with regard to certain special access rates. See, e.g.,
2005 Special Access NPRM; Special Access for Price Cap Local Exchange Carriers; AT&T Corporation Petition
for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access
Services
, WC Docket No. 05-25, RM 10593, Report and Order, 27 FCC Rcd 10557 (2011) (Pricing Flexibility
Suspension Order
).
210 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7314, para. 21.
211 Id.
212 See supra paras 61-72.
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consumers.”213 USTelecom asserts that price cap regulation provides sufficient protection for consumers
in the absence of Part 32 accounting rules, stating that “as the Commission has found, any remaining
concerns about such cross-subsidization are adequately addressed by price cap regulations.”214 We
disagree. In the same order cited by USTelecom, the Commission found that price cap regulation alone is
insufficient to protect consumers, noting that “[w]e can only reach our conclusion that the three-prong
forbearance test is satisfied because we impose conditions that mitigate factors that would otherwise lead
us to conclude that the Cost Assignment Rules remain necessary under section 10.”215 Those conditions
included the continued maintenance of Part 32 accounting.216
71.
USTelecom asserts that other accounting systems and safeguards, such as GAAP, the
Sarbanes-Oxley Act (Sarbanes-Oxley), and the Foreign Corrupt Practices Act (FCPA) that price cap
carriers would remain subject to would “adequately protect” consumers if the Commission forbears from
the Part 32 accounting requirements.217 Based on the record before us here, we disagree. First, while
GAAP accounting, for example, provides important protections to investors and assists federal agencies
like the Securities and Exchange Commission in executing its financial oversight responsibilities, it is not
designed to protect ratepayers, particularly from unjust and unreasonable rates. GAAP accounting is
based on the central premise that notice and transparency are sufficient to protect investors.218 The
Commission’s statutory duties to protect consumers are broader,219 and USTelecom does not demonstrate
why other accounting systems such as those mandated by GAAP, Sarbanes-Oxley, or the FCPA are
sufficient to meet those broader duties. Second, other accounting systems such as GAAP, Sarbanes-
Oxley, or the FCPA do not provide the same level of disaggregation of costs and geographic specificity

213 47 U.S.C. § 160(a)(2).
214 USTelecom Reply at 22.
215 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7314, para. 21.
216 The AT&T Cost Assignment Forbearance Order relied on the continued maintenance of Part 32 accounting as a
premise for granting forbearance: “AT&T states . . . its revenue can be identified by jurisdiction through the Part 32
accounts. Thus, this USOA account data will continue to be maintained and available to the Commission on
request.” Id.
217 USTelecom Petition at 40; see also Verizon Reply at 13. But see Michigan PSC Reply at 10-11 (“But, the
Petitioners neglect to mention that they have had great success in the individual states, and other jurisdictions, in
reducing their reporting and regulatory requirements by arguing that the USOA accounting information is all
reported at the federal level.”).
218 “The objective of general purpose financial reporting is to provide financial information about the reporting
entity that is useful to existing and potential investors, lenders, and other creditors. . . .” Statement of Financial
Accounting Concepts No. 8, Conceptual Framework for Financial Reporting (Financial Accounting Standards
Board, 2010) at 1 (OB2) (FASB Conceptual Framework). “Other parties, such as regulators . . . also may find
general purpose financial reports useful. However, those reports are not primarily directed to these other groups.”
Id. at 3 (OB10).
219 The purpose of the Act is to regulate “interstate and foreign commerce in communication by wire and radio so as
to make available . . . to all the people of the United States . . . a rapid, efficient, Nation-wide, and world-wide wire
and radio communication service with adequate facilities at reasonable charges, for the purpose of the national
defense, for the purpose of promoting safety of life and property through the use of wire and radio, and for the
purpose of securing a more effective execution of this policy by centralizing authority . . . and by granting additional
authority with respect to interstate and foreign commerce in wire and radio communication.” 47 U.S.C. § 151.
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that Part 32 provides.220 The USOA is uniquely tailored to provide the financial data regarding telephone
companies necessary for the Commission to fulfill its statutory obligations and protect consumers by
ensuring that the rates consumers pay for telecommunications services are just and reasonable.
72.
Moreover, Part 32 ensures uniformity of accounting in a way that other accounting
systems such as those required by GAAP, Sarbanes-Oxley, or the FCPA do not. For example, GAAP
accounting requires conformity to a set of principles but does not require uniform treatment of plant-
specific assets as required by Part 32 (e.g., aerial, underground and buried cable, central office switching,
etc.). Uniformity in regulatory accounting is essential to conduct consistent, industry-wide analysis and
oversight. For example, without uniform accounting data, the process of developing a forward looking
cost model could be more complicated.221 Additionally, the Commission will need a uniform accounting
system to the extent it is to revisit price cap carriers’ special access rates based on the CALLS Plan, which
expired in 2005 but continues to govern such rates.222 In contrast, the Financial Accounting Standards
Board (FASB) identifies “comparability” as one of the core principles of GAAP accounting but distances
itself from uniformity (“Comparability is not uniformity.”).223 Continuing to require compliance with Part
32 accounting rules also ensures data continuity, which enables industry analysis based on historical
trends. We conclude, therefore, that USTelecom has failed to establish that Part 32 accounting rules are
not “necessary for the protection of consumers.”224
(iii)

Section 10(a)(3): Public Interest

73.
Section 10(a)(3) of the Act requires us to determine whether forbearance from Part 32
requirements is consistent with the public interest.225 We conclude that forbearance from Part 32 is not in
the public interest.
74.
USTelecom alleges that forbearance from Part 32 will eliminate unnecessary regulatory
costs that burden only a few competitors and would therefore be in the public interest. It asserts that,
“forbearance from Part 32 would allow price cap carriers to . . . avoid incurring unnecessary costs
associated with accounting rules that serve no regulatory purpose and to which only a limited number of

220 For example, we are not aware of any GAAP requirement to disaggregate the various types of cable plant (aerial,
underground, buried, etc.) nor are we aware of any GAAP requirement to report data according to study area, the
basis on which tariffs are typically filed.
221 See Consumer Advocates Comments at 26.
222 Access Charge Reform, Price Cap Performance Review for Local Exchange Carriers, CC Docket Nos. 96-262
and 94-1, Sixth Report and Order, Low-Volume Long Distance Users, CC Docket No. 99-249, Report and Order,
Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Eleventh Report and Order, 15 FCC Rcd
12962 (2000) (CALLS Order), aff’d in part, rev’d in part, and remanded in part, Texas Office of Public Util.
Counsel et al. v. FCC
, 265 F.3d 313 (5th Cir. 2001), cert. denied, National Ass’n of State Utility Consumer
Advocates v. FCC
, 535 U.S. 986 (2002); on remand, Access Charge Reform; Price Cap Performance Review for
LECs; Low-Volume Long Distance Users; Federal-State Joint Board on Universal Service
, CC Docket Nos. 96-262,
94-1, 99-249 and 96-45, Order on Remand, 18 FCC Rcd 14976 (2003) (CALLS Order on Remand).
223 FASB Conceptual Framework at 19 (QC23).
224 47 U.S.C. § 160(a)(2). USTelecom proposed that if the Commission were to forbear from Part 32, individual
price cap carriers that elected that forbearance would commit to (1) retain the ability to map their GAAP accounting
data to Part 32 accounts for five years and (2) produce data from the two calendar years immediately preceding a
request by the Commission. USTelecom May 3, 2013 Ex Parte Letter at 2-3. We find, as discussed in para. 77, that
a better approach is to undertake a rulemaking to examine on a full record what changes to Part 32 will meet the
Commission’s long term needs.
225 47 U.S.C. § 160(a)(3).
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competitors are subject, which would serve the public interest.”226 Several price cap commenters
generally cite the costs they incur in complying with Part 32, but there is little quantitative evidence in the
record to estimate with any accuracy the costs that are attributable to compliance with Part 32 beyond
normal GAAP accounting.227 For example, USTelecom asserts a high-level estimate of burden for one
carrier without providing the additional information necessary to enable us to assess the relevance of that
estimate for the industry as a whole.228 We are thus unable to objectively assess the overall burdens of our
Part 32 rules. Moreover, USTelecom has not demonstrated that the costs saved by forbearing from this
rule would outweigh the important uses described above, or that the savings would have any effect on
competition.
75.
Section 10 also requires us to determine whether forbearance from Part 32 accounting
requirements will “promote competitive market conditions,” including whether forbearance “will enhance
competition among providers of telecommunications services.”229 Some price cap carriers contend that
these additional costs impair price cap carriers’ competitiveness, noting they are the only carriers to bear
this burden in a competitive marketplace. Cincinnati Bell, for example, states that “only a handful of
companies remain subject to these unique regulations” and that forbearance would place price cap carriers
“on a more equal footing with their competitors who are not subject to these rules.”230 Other commenters,
however, contend that Part 32 is essential to preserving certain pro-competitive aspects of our rules. For
example, Consumer Advocates states, “[e]ffective competition depends on rivals’ ability to obtain access
to essential wholesale facilities at economically efficient, cost-based rates.”231 We have identified above
how the Commission relies on the Part 32 rules to ensure that cable providers and other non-ILEC
telecommunications service providers have access to ILECs’ poles—network facilities that are key to
these providers’ ability to provide competition—at reasonable, cost-based rates.232 We do not have
enough evidence in the record to address these purposes, or demonstrate that these pro-competitive
protections can otherwise be achieved if we forbear from the requirements. We thus find, on balance, that
the Part 32 rules enhance competition which, in turn, benefits the public.
76.
Although we are conscious of our obligation to reduce administrative burdens when
possible, such decisions must be based on record evidence, which is lacking here. Accordingly, we

226 USTelecom Petition at 42.
227 The attempts that were made to quantify costs were insufficient. For example, Cincinnati Bell estimates that over
13% of its annual accounting budget is spent on personnel and systems to “maintain several legacy accounting
systems solely to comply with Part 32, cost allocation, and property records rules.” Cincinnati Bell Comments at
10. This estimate does not provide a financial context for this assertion, such as how much of the operating budget
this affects, nor does it compare this cost to the total interstate costs of the company. ACS states that its “cost of
maintaining two sets of books, one for financial and another for regulatory purposes, is extraordinarily high—as
much as $1 million per year,” but does not identify what fraction of these costs are incurred to maintain its
regulatory accounts. ACS Comments at 4. See also USTelecom Petition at 46 (offering only general assertions
about alleged efficiencies of VoIP and wireless providers). Thus, we cannot determine what any cost saving might
be, much less whether it would be substantial or significant, or what effect it might have on allowing a carrier to
compete more effectively.
228 USTelecom April 18, 2013 Ex Parte Letter at 13.
229 47 U.S.C. § 160(b).
230 Cincinnati Bell Comments at 10.
231 Consumer Advocates Comments at 22.
232 See supra paras. 63-65.
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conclude that the benefit of maintaining Part 32 accounting rules outweighs their cost, making
forbearance of Part 32 rules inconsistent with the public interest. 233
77.
As we recognize above, in certain respects, price cap regulation and our reform of
universal service and intercarrier compensation have altered the manner in which accounting data may be
used.234 While we conclude that those reforms have not eliminated the need for accounting data, we
acknowledge that further streamlining of our rules is likely appropriate. Accordingly, we intend to
initiate a Notice of Proposed Rulemaking within 90 days and thereby conduct a comprehensive review of
the Part 32 Uniform System of Accounts, as it applies to price cap carriers, and to evaluate the continuing
role these rules play in fulfilling our statutory and regulatory obligations. This proceeding will give the
Commission flexibility to consider ways to minimize the compliance burdens of our regulations while
ensuring our continued access to the relevant financial information necessary to fulfill our duties.235
5.

Property Record Rules

a.

USTelecom’s Request

78.
USTelecom seeks forbearance for price cap carriers from a specific set of rules within the
Part 32 USOA containing basic and continuing property record requirements in sections 32.2000(e) and
(f).236 USTelecom asserts that these requirements cause excessively detailed and unnecessary record-
keeping.237 USTelecom’s petition initially requests relief only for price cap carriers.238 USTelecom
clarified subsequently that its request includes rate-of-return carriers.239 Finally, the petition’s appendix

233 Our forbearance in Section III.B.7 of this Order from requiring mid-sized ILECs to file ARMIS Report 43-01 is
consistent with and in part premised on our denial of forbearance from Part 32 here. Forbearing from a discrete
reporting requirement is an altogether different matter than forbearing from the requirement that carriers keep
consistent, uniform accounting data. Moreover, in the Qwest ARMIS Forbearance Order, we expressly premised
forbearance from filing ARMIS Reports 43-01, 43-02 and 43-03 on the continued availability of Part 32 and other
accounting data. Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18489-90, para. 12. (“Qwest, AT&T, and
Verizon remain subject to the Part 32 USOA requirements. Thus, this USOA account data will continue to be
maintained and available to the Commission on request. Moreover, the Commission also expressly conditioned the
forbearance granted in the AT&T Cost Assignment Forbearance Order and the ARMIS Forbearance Order on the
provision by Qwest, AT&T, and Verizon of accounting data on request by the Commission”).
234 See infra para. 62.
235 We distinguish the review we announce here from the current 2012 Biennial Review. See Commission Seeks
Public Comment in 2012 Biennial Review of Telecommunications Regulations
, CG Docket No. 13-29, EB Docket
No. 13-35, IB Docket No. 13-30, ET Docket No. 13-36, PS Docket No. 13-31, WT Docket No. 13-32, WC Docket
No. 13-29, Public Notice, 28 FCC Rcd 1556 (2013). That review is mandated by section 11 of the Act, which
establishes a narrower standard by which the Commission is to review its rules (“determine whether any such
regulation is no longer necessary in the public interest as a result of meaningful economic competition between
providers of such service”). 47 U.S.C. § 11(a)(2).
236 USTelecom Petition at 43-47, App. A at A-9 (seeking forbearance from basic and continuing property record
(CPR) requirements in § 32.2000(e) and (f)).
237 Id. at 43-47.
238 “Regardless of whether the Commission forbears from applying its Part 32 to price cap carriers, the Commission
should forbear from application to price cap carriers of its property record requirements.” Id. at 43.
239 “Even for carriers that continue to operate under rate-of-return regulation, the Commission’s property record
rules are unnecessary.” Id. at 44.
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requests relief for all carriers.240 Accordingly, we take the opportunity here to address the application of
these rules to rate-of-return carriers as well as price cap carriers.241
b.

Background

79.
Under these requirements, carriers maintain property records that include: (1) a
description of the property; (2) its specific location; (3) the identification of the work order under which
the unit was installed; (4) the year of installation; and (5) any other information necessary to determine
the original cost of the property.242 The rules also prescribe standards for establishing and maintaining
continuing property records.243 The requirements provide that the property be described in sufficient
detail that the property may be spot-checked for physical verification of its existence.244
c.

Discussion

80.
We grant forbearance to price cap carriers from applying the property record
requirements in section 32.2000(e) and (f) of the Commission’s rules subject to certain conditions. We
deny forbearance for rate-of-return carriers but seek to refresh the record in the open rulemaking related
to property records in order to allow appropriate rule changes to reduce the burdens of property records
rules on rate-of-return carriers.245
81.
Price Cap Carriers. Property records serve an important purpose for rate-of-return and
price cap carriers. We find, however, that we can “eliminate regulations that are ‘outmoded’ and
‘excessively burdensome’”246 here where the regulatory purpose of property records for price cap carriers
may be achieved in a less burdensome, more targeted manner, given the differences between price cap
and rate-of-return regulation. Thus, we take affirmative steps to reduce the burden of property record
requirements for price cap carriers by granting conditional forbearance. These conditions provide the
necessary assurances that will enable the Commission to meet its statutory responsibilities and enable
price cap carriers to satisfy the forbearance standard. Accordingly, we grant forbearance subject to the
condition that price cap carriers demonstrate in compliance plans that, in the absence of sections
32.2000(e) and (f), they will track their substantial assets and investment in an accurate, auditable manner
that enables them to verify account balances in their Uniform System of Accounts and make such
property record information available to the Commission upon request for regulatory purposes.

240 Id. App. A at A-9.
241 Forbearance Procedures Order, 24 FCC Rcd at 9553, para 16 (“In particular, the petition must state the
following with specificity: . . . each carrier, or group of carriers, for which forbearance is sought. . . .”). In a
subsequent filing, USTelecom noted that it requested forbearance from CPR rules “on behalf of all incumbent local
exchange carriers.” USTelecom April 18, 2013 Ex Parte Letter at 1.
242 47 C.F.R. § 32.2000(e); Ameritech Corporation Telephone Operating Companies’ Continuing Property Records
Audit
, CC Docket No. 99-117, Notice of Inquiry, 14 FCC Rcd 7019, 7020, para. 2 (1999).
243 47 C.F.R. § 32.2000(f).
244 See 47 C.F.R. § 32.2000(e), (f).
245 2000 Biennial Regulatory Review, Comprehensive Review of the Accounting Requirements and ARMIS Reporting
Requirements for Incumbent Local Exchange Carriers: Phase 2; Amendments to the Uniform System of Accounts for
Interconnection, Jurisdictional Separations Reform and Referral to the Federal-State Joint Board, Local
Competition and Broadband Reporting,
CC Docket Nos. 00-199, 97-212, 80-286, 99-301, Report and Order in CC
Docket Nos. 00-199, 97-212, and 80-286, Further Notice of Proposed Rulemaking in CC Docket Nos. 00-199, 99-
301, and 80-286, 16 FCC Rcd 19911, 19987, para. 212 (2001) (Property Records FNPRM)).
246 USTelecom May 3, 2013 Ex Parte Letter at 1; see also USTelecom Petition at 35.
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82.
Property records allow companies to track and account for their assets, although the detail
of these records may vary depending on the purpose for which they are required.247 Our USOA rules
provide specific requirements for recording investment in property plant and equipment and for the
underlying support the Commission needs in property record.248 The continuing property records
requirements of sections 32.2000(e) and (f) assure the Commission that amounts reflected in its Part 32
accounting system are accurate and auditable, and provide the Commission with certainty and uniformity
of how accounting information is maintained.249
83.
USTelecom does not argue that there is no need at all for property records but requests
that price cap carriers be relieved of the degree of record-keeping detail required by the present rule.250 It
asserts that, in the absence of these requirements, price cap carriers could provide the Commission with
the record-keeping it needs under other accounting systems, such as GAAP, Sarbanes-Oxley, or the
FCPA.251 USTelecom does not, however, sufficiently identify what these requirements are. GAAP, for
example, provides only general accounting principles and concepts, and USTelecom has not explained
how carriers would maintain their records, what information they would contain, or what would otherwise
replace the present rule if forbearance is granted.252 Neither does USTelecom address how it will be able
to verify Part 32 USOA accounts.
84.
Although we disagree with USTelecom’s generalized assertions that other accounting
safeguards, including GAAP, are sufficient to provide property records that ensure just and reasonable
rates or protect consumers, we nevertheless believe that the property record requirements in sections
32.2000(e) and (f) are overly broad for purposes of regulating price cap carriers and not necessary to
ensure just and reasonable rates.253
85.
As explained below, property records for rate-of-return carriers provide the data
necessary to validate and determine the costs of providing interstate telecommunications service, which
enables the Commission to set just and reasonable rates.254 The rates of price cap carriers, however, are
constrained by the Commission’s price cap methodology that, in combination with other protections,
protects against the ability of price cap carriers to raise rates inappropriately.255 Because price cap
carriers’ rates are generally not directly tied to costs reflected in the rate base in the same manner as the

247 GAAP, for example, provides general accounting principles and does not address specific accounting procedures
and record-keeping. See, e.g., supra Section III.B.4.
248 Companies are required to account for investment in property, plant, and equipment in the 2000 series of
accounts in Part 32. The requirements for maintaining basic property records and CPR are contained in,
respectively, 47 C.F.R. § 32.2000(e) and (f).
249 See, e.g., 47 C.F.R. § 32.2000(e)(2).
250 USTelecom Petition at 44 (“Under price cap regulation, there is no need for a carrier to document the costs that
make up its plant asset base to the extreme detail mandated by the Commission’s rules.”).
251 Id. at 17, 44; USTelecom April 18, 2013 Ex Parte Letter at 14-15.
252 In addition, the FCPA requires internal controls that allow companies to validate their assets but does not address
specific requirements as to how these are to be implemented.
253 See, e.g., USTelecom Petition at 44.
254 See infra para. 90.
255 See, e.g., 47 C.F.R. §§ 61.41-61.47.
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rates of rate-of-return carriers, we recognize that it is not necessary to document those costs that make up
the plant asset base of price cap carriers in the same degree of detail in property records.256
86.
We thus grant forbearance to price cap carriers from the property record requirements,
subject to certain conditions. We find that forbearance from sections 32.2000(e) and (f) is warranted
subject to the ability of price cap carriers to demonstrate in compliance plans, to be approved by the
Bureau, how they will maintain the records necessary to track substantial assets and investment in an
accurate, auditable manner that enables them to verify account balances in their Part 32 Uniform System
of Accounts, make such property information available to the Commission upon request, and ensure
maintenance of such data.257 This provides carriers with an opportunity to demonstrate precisely how, for
example, “GAAP-compliant financial accounting would be available to provide such records,” and will
enable carriers to propose in their compliance plans what property constitutes substantial assets and
investment and what does not for purposes of keeping records, verifying the accuracy of their Part 32
accounts, and complying with GAAP.258 In addition, to the extent carriers propose to rely on
requirements in the FCPA, Sarbanes-Oxley, or other accounting requirements as they have asserted,
carriers should identify in their plans what specific rules and requirements they propose to replace which
specific requirements in section 32.2000(e) and (f).
87.
The relief granted in this Order will not become effective with respect to a price cap
carrier unless and until the Office of Management and Budget approves any information collections
associated with these conditions in accordance with the Paperwork Reduction Act259 and the Bureau
approves that price cap carrier’s compliance plan. We delegate authority to the Chief of the Wireline
Competition Bureau to prescribe the administrative requirements for the filing of the compliance plans
and to approve the plans when the Bureau is satisfied that the plans fulfill the requirements set forth in
this Order.260 This delegation of authority to the Bureau is consistent with delegations in previous
analogous forbearance orders261 and with our rules.262 Accordingly, we find that price cap carriers satisfy
the first prong of the forbearance test as long as they satisfy these conditions.
88.
We also find that the property record rules for price cap carriers are not necessary to
protect consumers as long as carriers comply with these conditions. These conditions form the basis of an
alternative framework for property records that, in the absence of the rules, helps the Commission protect
consumers from unjust and unreasonable rates and practices.
89.
Additionally, we find that forbearance serves the public interest. We find the rules are
overly broad for price cap carriers, and the burden of the rules outweighs the benefits. Similar to the

256 As we have explained above, price cap regulation reduces incentives to shift non-regulated costs to regulated
services, and to the extent incentives remain, price cap regulation in combination with the protections provided by
conditions in carrier compliance plans subject to the Commission’s approval will continue to ensure just and
reasonable rates. See supra Section III.B.3.c.
257 We note that our grant of conditional forbearance from sections 32.2000(e), (f) does not affect obligations by
carriers to comply with other rules related to property records.
258 USTelecom April 18, 2013 Ex Parte at 14.
259 Paperwork Reduction Act of 1995, Pub. L. No. 104-13, 109 Stat. 163.
260 The Bureau will release a public notice or notices announcing the approval of the plans as it approves them.
261 See AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7320, para. 31; ARMIS Forbearance Order, 23
FCC Rcd at 13661, para. 24.
262 The Chief of the Bureau has delegated authority to “[d]evelop and administer rules and policies relating to
incumbent local exchange carrier accounting.” 47 C.F.R. §§ 0.91(e), 0.291.
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Commission’s forbearance from the Cost Assignment Rules, we are able here to craft a less burdensome
and more focused approach to accomplish the regulatory goals of requirements that were developed under
rate-of-return regulation and needed to be updated. For example, the new framework allowing the
carriers to identify the records necessary to accurately audit substantial assets and investments should
provide greater flexibility in record-keeping.263 As we also have found, this new framework ensures just
and reasonable rates and protects consumers. For these reasons, we conclude that conditional forbearance
from applying sections 32.2000(e) and (f) to price cap carriers is in the public interest.
90.
Rate-of-Return Carriers. We find that USTelecom’s forbearance request for rate-of-
return carriers fails to establish that the property record requirements in question are not necessary to
ensure just and reasonable and nondiscriminatory rates. With regard to rate-of-return carriers, the
property record requirements provide the data necessary to validate and determine the costs of providing
interstate telecommunications service, which enables the Commission to set just and reasonable rates.264
Under rate-of-return regulation, these records provide information used to determine the costs of
telecommunications networks and facilities that are considered to be interstate and allowable in the rate
base.265 In other words, the prices rate-of-return carriers are allowed to charge are directly tied to their
costs, and verifying the accuracy of a rate-of-return carrier’s reported costs thus directly impacts the
reasonableness of the rates charged by rate-of-return carriers. The record here does not explain why the
property record requirements are no longer necessary to meet these needs.266 Thus, these records, like the

263 USTelecom April 18, 2013 Ex Parte Letter at 14-15.
264 The USOA accounts reflect total plant in service. See 47 C.F.R. § 32.2000(j) (listing various types of total plant
investment, such as land, buildings, switching equipment, and cable and wire facilities). Property records provide
the underlying information that validates certain financial accounts recorded in the Part 32 USOA. See 47
C.F.R.§ 32.2000(e) and (f) (requiring certain information to be provided in property records, including identifying
what the property is and its vintage, location, and original cost). Using Part 64 rules, the total plant investment is
divided between how much is used to provide regulated (as opposed to non-regulated) service. See 47 C.F.R. Part
64. Then, using Part 36 rules, the regulated plant investment is divided into how much is used to provide interstate
(as opposed to intrastate) service. See 47 C.F.R. Part 36. The interstate portion of the plant investment goes into the
interstate rate base, upon which a rate-of-return carriers’ revenue requirement and rates are determined. See 47
C.F.R. §§ 65.800, 65.820.
265 For example, the property records may be analyzed to determine detailed cost allocations of facilities in a
network—like cable and wire facilities (Account 2410)—that are used to provide regulated services. See, e.g., 47
C.F.R. § 36.151(b) (“For separations purposes, it is necessary to analyze the cable and wire facilities classified in
subordinate records in order to determine their assignment.”). These records are required under § 32.2000(e)(4) and
include the property records that provide detailed information about the accounts underlying Telecommunications
Plant in Service (Account 2001), such as Cable and Wire Facilities (Account 2410), that are used for setting
interstate rates. Section 32.2000(j) lists facilities and equipment that comprise the plant in service category of
property records, including cable and wire in the above example. 47 C.F.R. § 32.2000(j). In addition, the Part 36
rules cite to location information contained in the CPR, 47 C.F.R. § 32.2000(e)(1)(i), (e)(2), that is used to perform
the separations process for certain investments. 47 C.F.R. § 36.1(b).
266 In its petition, USTelecom asserts that property records required by GAAP should replace Part 32 CPR but fails
to identify what these property records are. See USTelecom Petition at 46. In a subsequent ex parte filing,
USTelecom also argues that Part 32 CPR “far exceeds the record keeping necessary to verify the existence of plant
assets and support the asset balances presented in financial statements” and notes only a few examples to compare
property records under GAAP to Part 32. USTelecom April 18, 2013 Ex Parte Letter at 14-15. We find that
USTelecom’s attempt to justify its request by listing a few examples is insufficient evidence upon which to grant the
broad relief requested. Moreover, USTelecom does not cite to specific property record or GAAP rules, and
Commission staff has been unable to identify property record requirements pursuant to GAAP. Given the technical
nature of these rules, USTelecom’s general assertions are insufficient to allow us to conduct the kind of analysis
(continued....)
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other accounting data in the USOA, are important to enable the Commission to determine what costs a
rate-of-return carrier may recover from its customers, and thereby what interstate rates it is allowed to
charge.267
91.
For these same reasons, we find that USTelecom has not shown that these requirements
are not necessary to protect consumers of rate-of-return carriers nor that forbearing from section
32.2000(e) and (f) for rate-of-return carriers would be in the public interest.268 On the latter point,
USTelecom asserts that the property records rule is burdensome because “compliance requires an
unnecessary investment of resources by only a few competitors among many, which distorts
competition.”269 As is the case for USTelecom’s request to forbear from the other Part 32 Uniform
System of Account rules, there is insufficient evidence in the record by USTelecom or other parties to
show or quantify what costs are directly attributable to maintaining property records, again despite staff
requests for such data. Given this, we cannot properly evaluate whether any costs saved by eliminating
this rule would outweigh the several important uses described above, or whether the savings would have
any effect on competition.
92.
USTelecom asserts that burdens associated with the cost of maintaining property records
related to capitalizing low-cost assets are too high and believes carriers should be allowed greater
flexibility such as that provided under GAAP.270 Although USTelecom has not demonstrated that
forbearance from application of the property record requirements meets the forbearance test, we agree
that continuing to apply the property record rules of 32.2000(e) and (f) may be more burdensome than
necessary.271 Accordingly, we find that it is appropriate to examine further whether there are changes we
can make to our property records rules that would reduce record-keeping burdens for rate-of-return
carriers by focusing on substantial assets and investments while maintaining sufficiently detailed records
for the Commission’s needs. The Commission has an open rulemaking on these issues. Comments were
last filed in 2002, and significant regulatory and marketplace changes have occurred since that time. So
that we may move forward on a full record on this issue, we seek updated comments and replies on the
issues concerning changes to the property records rules raised in the open rulemaking on property
records.272 Comments will be due 30 days after and replies will be due 45 days after publication of the
accompanying Report and Order in the Federal Register.273 To ensure appropriate notice of our request to
refresh the record, the Bureau will release a Public Notice restating this request to refresh the record and
announcing the comment and reply dates once they have been established.
(Continued from previous page)
required under section 10 to find the forbearance criteria are satisfied with regard to the entire set of property record
rules for rate-of-return carriers.
267 See, e.g., 47 C.F.R. § 65.800.
268 USTelecom Petition at 44-6.
269 Id. at 46.
270 USTelecom April 18, 2013 Ex Parte Letter at 16.
271 Note that we make no finding here of what constitutes substantial assets and investment for rate-of-return carriers
but instead look forward to reviewing comments on that topic through the rulemaking process.
272 Property Records FNPRM, 16 FCC Rcd 19911.
273 See infra Section IV.
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6.

Part 42 Recordkeeping Requirements

a.

USTelecom’s Request

93.
USTelecom requests forbearance for all carriers from several rules that impose record-
keeping obligations. Specifically, USTelecom seeks forbearance from sections 42.4, 42.5, 42.7 and
42.10(a) of the Commission’s rules.274 USTelecom argues that these rules “impose inefficient
recordkeeping and storage requirements.”275 USTelecom states that, “[w]hile it is important to maintain
accurate records and to make sufficient information available to the Commission and the public, the rules
in question refer to the maintenance of physical records or copies in obsolete formats.”276
b.

Background

94.
Section 42.4 requires each carrier to maintain at its operating company headquarters a
master index of records.277 The rule predates the routine use of computerized recordkeeping, and thus
appears to require maintenance of physical documents at a specific location. Section 42.5 sets forth
requirements about how a carrier may “use a retention medium of its choice to preserve records in lieu of
original records.”278 The rule sets forth options for how carriers may reproduce records.279 Section 42.7
specifies how long records listed in the master index must be retained and when records must be added to
the index.280 Section 42.10(a) requires nondominant interexchange carriers (IXCs) to make information
about their current rates, terms, and conditions available in at least one location during business hours.281
Section 42.10(b) (from which USTelecom does not seek forbearance) requires that this information be
made available on the IXC’s website, if it maintains one.282
c.

Discussion

95.
We grant the forbearance requested regarding part 42 of our rules, except that we
condition forbearance from section 42.10(a) as set forth below. Section 42.4 requires each carrier to
maintain a master index of the records it keeps. The rule does not require carriers to maintain specific
records. We find no need to continue the maintenance of a master index, in hard copy or any other form.

274 USTelecom further clarifies that it is “seeking forbearance from any obligation to maintain the ‘master index of
records’ required under these rules, whether in paper or electronic format.” Letter from Bennett L. Ross, Counsel
for USTelecom, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 12-61, at 1 (filed Jan. 31, 2013). No party
specifically opposed this request.
275 USTelecom Petition at 47; see also CenturyLink Comments at 3-4; Sprint Comments at 7-8 (both supporting
USTelecom’s petition for forbearance from these Part 42 rules). No party makes a specific argument against
forbearance from these rules.
276 USTelecom Petition at 47.
277 47 C.F.R. § 42.4.
278 47 C.F.R. § 42.5(a).
279 47 C.F.R. § 42.5.
280 Section 42.7 requires carriers to retain records identified in the master index for the period established therein. It
also requires “records pertaining to complaint proceedings” and records “that a carrier is directed to retain as the
result of a proceeding or inquiry by the Commission” to be included in the master index of records. 47 C.F.R.
§ 42.7.
281 47 C.F.R. § 42.10(a).
282 47 C.F.R. § 42.10(b).
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In the event that the Commission wants to know what records a carrier has, or obtain copies of a
particular record, it has various means of doing so.283
96.
We further find that, because we are no longer requiring carriers to maintain a master
index, there is no longer a need for a rule specifying how long records listed in the master index must be
retained and when records must be added to the index. Therefore, we also forbear from section 42.7 (the
basic retention rule).
97.
Section 42.5 addresses how records may be reproduced. USTelecom argues that this rule
is no longer relevant because most records are currently created in, rather than copied to, an electronic
format, and requiring certifications for every electronic record would waste resources and provide no
corresponding benefit.284 We agree with USTelecom that advances in technology have made these
requirements outmoded, and that the rule does not reflect current practices. We thus forbear from
application of section 42.5. Again, we emphasize that forbearance from these storage requirements does
not relieve carriers of obligations to retain records as required by other sections of our rules.
98.
We conclude that forbearance from application of section 42.10(a) is warranted for IXCs
that maintain an Internet website, subject to one condition. Specifically, we condition this grant on a
requirement that IXCs maintain and make available on their websites the information about the rates,
terms, and conditions of their services.285 IXCs that do not maintain Internet websites are required to
continue to make this information available at physical locations consistent with section 42.10(a). In
granting this conditional forbearance, however, we remind IXCs that some consumers do not have access
to the Internet. Therefore, those carriers should facilitate and accommodate consumer requests when a
consumer does not have Internet access. It is important to ensure that consumers continue to have access
to this information to enable them to select services that meet their needs and to ensure compliance with
the Act.286 This condition is consistent with USTelecom’s stated rationale for forbearance that
eliminating the physical location element of the rule is appropriate because the same information is
available through easier-to-access online websites.287 It is also consistent with Sprint’s
recommendation.288
99.
The Commission adopted the public disclosure rule to ensure that nondominant IXCs
provide complete information about their rates, terms, and conditions, so customers would have sufficient
information to choose calling plans that best meet their needs and enable them to bring potential
violations of the Act to the Commission’s attention.289 As CenturyLink points out, the requirement that

283 See 47 U.S.C. §§ 154(i), 218-220. We are not modifying or forbearing from any underlying obligation to retain
records. Rather, we are forbearing from the requirement to maintain an index of any records the carrier is required
to keep or keeps in the ordinary course of business.
284 USTelecom Petition at 50. CenturyLink supports forbearance from this rule. CenturyLink Comments at 4, n.4.
285 As written, § 42.10(b) only requires that such information be posted if the nondominant IXC maintains a website;
the rule does not require the IXC to maintain a website. 47 C.F.R. § 42.10(b).
286 See, e.g., Policy and Rules Concerning the Interstate, Interexchange Marketplace; Implementation of Section
254(g) of the Communications Act of 1934, as amended
, CC Docket No. 96-61, Second Order on Reconsideration
and Erratum, 14 FCC Rcd 6004, 6009-10, at para. 9 (1999) (IXC Second Order on Reconsideration).
287 USTelecom Petition at 51.
288 Sprint Comments at 7-8 (“the Commission should require records that previously were kept in a physical
location . . . to be posted online where they will be more easily accessible to the public”).
289 IXC Second Order on Reconsideration, 14 FCC Rcd at 6009-10, para. 9 (citing Policy and Rules Concerning the
Interstate, Interexchange Marketplace
; Implementation of Section 254(g) of the Communications Act of 1934, as
(continued....)
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providers maintain rate information about services at their offices arose before advances in electronic
recordkeeping and more widespread Internet adoption.290 For example, in 1999, when the rule was
adopted, the Commission reported that broadband service, which provides high-speed access to the
Internet, was in the early stages of deployment to residential customers, with only a .4 percent residential
penetration rate.291 The nation has made significant progress since that time, expanding broadband
Internet access to approximately 94 percent of the population, with the Commission, other government
agencies, and private industry taking steps to promote broadband deployment to those who still lack
access.292 These trends lend support to USTelecom’s contention that customers are likely to obtain
relevant information about an IXC’s rates, terms and conditions from the IXC’s Internet website rather
than traveling to an IXC’s office location.293 The conditional forbearance we adopt here provides the
public with more convenient means by which to access the same information.
100.
We find that forbearance from the recordkeeping requirements as described and
conditioned above is warranted under section 10. First, requiring carriers to maintain a master index,
retain records in obsolete formats, and requiring IXCs to provide information in hard copy at their offices
does not reflect current storage or consumer practices. It is not necessary to ensure just and reasonable
rates, terms, and conditions for telecommunications services, subject to the conditions above. For the
same reasons, under the second prong of our forbearance analysis, we find that these rules are not
necessary to protect consumers, subject to the conditions noted.294 Under the third prong of our
forbearance analysis, we find that forbearance (from sections 42.4, 42.5 and 42.7) and conditional
forbearance (from section 42.10(a)) is also in the public interest. In the circumstances here, where a
petitioner has demonstrated that a requirement has become outdated by technology, we find the potential
costs of maintaining such requirements are inconsistent with competitive market conditions and outweigh
any potential benefits. As CenturyLink noted, “[u]nnecessary reporting and record keeping requirements
(Continued from previous page)
amended, CC Docket No. 96-61, Second Report and Order, 11 FCC Rcd 20730, 20745-46, at para. 25 (1996) (IXC
Second Report and Order
)).
290 CenturyLink Comments at 3; see also USTelecom Petition at 48.
291 Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a
Reasonable and Timely Fashion and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the
Telecommunications Act of 1996
, CC Docket No. 98-146, Report, 14 FCC Rcd 2398, 2446, at para. 91 (1999).
292 Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a
Reasonable and Timely Fashion and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the
Telecommunications Act of 1996
, GN Docket No. 11-121, Eighth Broadband Progress Report, 27 FCC Rcd 10342,
10370, para. 46 (2012) (Eighth Broadband Progress Report) (finding that about 6% of the population lacks access to
fixed broadband service at threshold speeds). Businesses and consumers have also shown an increased reliance on
the Internet as an important source of business and information since the rule was adopted in 1999. Between 2002
and 2011, e-commerce sales have more than tripled. See, e.g., U.S. E-COMMERCE SALES GROWTH FROM 2002 TO
2011 (2013), available at www.statista.com (showing an increase in e-commerce sales from $72 billion to $256
billion). The Internet has surpassed newspapers as the primary source of information for most consumers, to the
point where 91% of online searchers say they always or most of the time find the information they are seeking when
they use search engines. Id.; see also PEW INTERNET AND AMERICAN LIFE PROJECT REPORT, WHERE PEOPLE GET
INFORMATION ABOUT RESTAURANTS AND OTHER LOCAL BUSINESSES (2012), available at
http://pewinternet.org/Reports/2011/Local-business-info/Overview.aspx (stating that people looking for information
about local businesses rely on the Internet ahead of any other source); KRISTEN PURCELL, JOANNA BRENNER AND
LEE RAINIER, PEW INTERNET AND AMERICAN LIFE PROJECT, SEARCH ENGINE USE 2012, 3 (2013), available at
http://www.pewinternet.org/Reports/2012/Search-Engine-Use.aspx.
293 USTelecom Petition at 51.
294 47 U.S.C. § 160(a).
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add to the expense of providing telecommunications services . . . [and] consume resources that could
otherwise be invested in the network.”295 The conditional forbearance we grant promotes the wide
availability of information to consumers, which is beneficial to competitive markets.296 We therefore
forbear from sections 42.4, 42.5, and 42.7. We forbear from section 42.10(a), subject to the conditions
described above.
7.

ARMIS Report 43-01 (“Annual Summary Report”)

a.

USTelecom’s Request

101.
USTelecom requests forbearance from the filing requirement for ARMIS Report 43-01,
the “Annual Summary Report.”297 USTelecom notes that smaller carriers are not required to file ARMIS
reports, and forbearance has been granted to the BOCs, so only mid-size price cap carriers remain subject
to this filing requirement.298 USTelecom asserts that forbearance for these carriers is warranted.299
b.

Background

102.
ARMIS Report 43-01 contains a highly aggregated and comprehensive view of the
carrier’s financial data, as well as a summary of demand in minutes of use and billable access lines. Since
the adoption of price cap regulation in 1990, many carriers, including Qwest, AT&T, and Verizon, have
moved from rate-of-return regulation to price cap regulation, and the Commission has modified its
regulation of price cap carriers over time to reflect changing circumstances. The Commission has found
that when interstate rates are regulated under price caps, the ARMIS Financial Reports are unnecessary.300
The Commission has granted requests from AT&T, Verizon, and Qwest to forbear from the requirement
to file ARMIS Report 43-01.301 The Commission found that this Report, as well as ARMIS Reports 43-
02 and 43-03, is not “‘necessary to ensure that the charges, practices, classifications or regulations by, for,
or in connection with that telecommunications carrier . . . are just and reasonable and are not unjustly or
unreasonably discriminatory’” or to protect consumers.302
103.
The Commission concluded that the Report imposed burdens on AT&T, Verizon, and
Qwest, and the information collected no longer served any federal purpose, so forbearance was consistent

295 CenturyLink Comments at 4.
296 See, e.g., IXC Second Order on Reconsideration, 14 FCC Rcd at 6013, para. 15.
297 USTelecom Petition at 51-53.
298 Id. at 52.
299 Id.
300 See generally ARMIS Forbearance Order, 23 FCC Rcd 13647. We address forbearance from related Cost
Assignment Rules in section III.B.3 supra.
301 Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18484, para. 1.
302 Id. at 18487-88, paras. 9-10 (quoting 47 U.S.C. § 160(a)(1)). We note that this grant of forbearance was
conditioned on the filing of compliance plans to ensure the Commission will be able to obtain this information if
necessary. See supra para. 68. We also note that the fact that price cap rates cannot be raised automatically does not
mean that the relationship between costs and prices is entirely eliminated. While the direct link between costs and
price cap carriers’ access rates no longer exists, costs still have an impact on other rates price cap carriers charge.
See, e.g., supra paras. 63-68 for examples of the continued relevance of cost to price cap carriers’ rates; see also
2005 Special Access NPRM
, 20 FCC Rcd at 1999, para. 12 (“Although price cap regulation diminished the direct
link between changes in allocated accounting costs and change in prices, it did not sever the connection between
accounting costs and prices entirely.”).
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with the public interest, subject to certain conditions.303 The Commission conditioned this relief on
approval of a compliance plan describing in detail how each carrier will continue to fulfill certain
statutory and regulatory obligations, and on carriers continuing to file pole attachment data with the
Commission.304
c.

Discussion

104.
We find that forbearance from this requirement is warranted under section 10, subject to
the same conditions imposed on the BOCs. We agree with USTelecom’s claims that the Commission’s
justifications for granting forbearance to the BOCs apply equally to all price cap carriers – namely,
“ARMIS Report 43-01 is unnecessary in determining whether the carrier’s rates are just, reasonable, and
nondiscriminatory, . . . price cap regulation of that carrier’s rates will remain in place to protect
consumers, [and] there are sufficient sources of necessary data other than the ARMIS reports that provide
accounting information that may be needed by the Commission.”305
105.
Sprint argues that the information in this Report may be required as part of the
Commission’s intercarrier compensation and special access inquiries.306 The Consumer Advocates note
that the Commission may need access to detailed accounting data to assess cost models to be used for
distribution of Phase II broadband subsidies.307 We find that these issues can be addressed through less
burdensome measures, including data that carriers are required to retain with respect to our Part 32
rules.308 If we do need these data, “the Act provides the Commission with ample authority [to require
carriers] to produce any accounting data that the Commission needs for regulatory purposes, including
rulemakings or adjudications, in the future.”309
106.
The Michigan PSC, the Pennsylvania PUC, and Consumer Advocates argue that the
Commission should not grant forbearance because some states still rely on this information, and it should
remain a resource for state and federal regulators.310 While we find that forbearance is warranted under
section 10 of the Act, nothing in this Order should be construed as preempting or otherwise limiting the
independent authority of any state to collect this information.
107.
For the same reasons that we granted forbearance to AT&T, Verizon, and Qwest, we find
that forbearing from requiring all price cap carriers to file ARMIS Report 43-01 meets the requirements
of Section 10.311 Under the first two prongs of our forbearance analysis, the data is not needed to ensure

303 Qwest ARMIS Forbearance Order at 18492, para. 16.
304 Id. at 18484, para. 1.
305 USTelecom Petition at 53 (citations omitted). Cincinnati Bell and CenturyLink support USTelecom’s request
and agree that the information contained in Report 43-01 is unnecessary under price cap regulation. Cincinnati Bell
Comments at 11; CenturyLink Comments at 7.
306 Sprint Opposition at 5-6.
307 Consumer Advocates Comments at 26.
308 See supra Section III.B.4.
309 Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18489, para. 12 (footnote omitted).
310 Michigan PSC Reply at 12-13; Pennsylvania PUC Reply Comments at 10-11; Consumer Advocates at 23-25.
311 Our forbearance from ARMIS Report 43-01 encompasses forbearance from applying the codified rule imposing
that filing requirement, 47 C.F.R. § 43.21(e)(2), to all price cap carriers. The Commission is not aware of any
carrier that currently files ARMIS Report 43-01 that is still subject to rate-of-return regulation. However, if any
such company exists, it would continue to be required to file this Report.
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just and reasonable rates, terms, and conditions or to protect consumers. As we have previously
concluded, price cap regulation, in combination with the protections provided by the compliance plan312
and the continued maintenance of Part 32 accounting data,313 is sufficient to “protect consumers from
unjust, unreasonable, and unjustly or unreasonably discriminatory charges, practices, classifications and
regulations.”314 Requiring carriers to compile and submit a report containing information that can be
obtained through less burdensome means is not in the public interest.315 Imposing these costs on some
competitors but not others may undermine competition.
108.
We agree with COMPTEL that we should condition the grant of forbearance on the same
conditions as those imposed on the BOCs.316 Those conditions include filing a data compliance plan with
the Commission and continued public filing of certain pole attachment data. As we have done previously,
we condition this forbearance on a carrier’s receiving Commission approval of a compliance plan, as
outlined in the AT&T Cost Assignment Forbearance Order,317 and each carrier’s continued annual public
filing with the Commission of the pole attachment cost data currently submitted in ARMIS Report 43-01.
109.
The Commission regulates pole attachments pursuant to section 224 of the Act, except
for those states that certify to the Commission that they regulate pole attachments. Because pole
attachment data contained in ARMIS Report 43-01 may be needed to address complaints regarding pole
attachment rates318 and the Commission is not aware of any other source for these data,319 we condition
our grant of forbearance for pole attachment data upon the continued annual public filing, without any
assertions of confidentiality, of the pole attachment cost data currently filed as part of ARMIS Report 43-
01 in WC Docket No. 07-204. For those states that have certified that they will regulate pole attachments
themselves (and thus where the Commission no longer has jurisdiction), filing of pole attachment cost
data with the Commission is no longer necessary on an ongoing basis. If states that adjudicate pole
attachment complaints believe they need access to annual data for their own use, we expect that they may
exercise their regulatory authority to require carriers to file data in those states. In order to give states
affected by this Order time to implement their own regulations, if they so choose, our forbearance
condition requires that any carriers affected by this Order file pole attachment data for all states in the
next annual filing after approval of their compliance plan, but subsequent filings with the Commission
need not include data for those states that have certified to regulation of pole attachments.

312 See supra para. 47.
313 Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18489, para. 12 (“Qwest, AT&T and Verizon remain subject
to the Part 32 USOA requirements. Thus, this USOA account data will continue to be maintained and available to
the Commission on request.” (footnote omitted)).
314 Id. at 18488, para. 10 (footnote omitted). Sprint, Consumer Advocates, and New Networks argue that
eliminating ARMIS Report 43-01 would have a negative effect on rates. Sprint Comments at 4; Consumer
Advocates Comments at 26-27; New Networks Comments at 1-2. We disagree. Because price cap regulation, while
not eliminating entirely the relationship between costs and prices, “severs the direct link between regulated costs and
prices,” and given that the Commission has otherwise assured itself of sufficient access to data to meet its
obligations, ARMIS Report 43-01 no longer serves any purpose. Qwest ARMIS Forbearance Order, 23 FCC Rcd at
18488, para. 10 (quoting AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7305-06, para. 8).
315 CenturyLink notes that there are costs associated with preparing these reports. CenturyLink Comments at 3.
316 COMPTEL Comments at 22-23.
317 AT&T Cost Assignment Forbearance Order, 23 FCC Rcd at 7319-20, para. 31.
318 Qwest ARMIS Forbearance Order, 23 FCC Rcd at 18490, para. 13.
319 See supra paras. 63-64.
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8.

Annual Revenue and Total Communications Plant Reporting

a.

USTelecom’s Request

110.
USTelecom requests forbearance for all carriers from section 43.21(c) of the
Commission’s rules, which requires that common carriers with revenue exceeding a certain threshold
provide the Bureau with a letter showing: (1) operating revenues; and (2) the value of the carrier’s total
communications plant.320 USTelecom argues that these requirements are outdated for carriers subject to
price cap regulations because information regarding a carrier’s revenues and costs has no relevance to
rates.321 In addition, USTelecom claims that this information is already available to the Commission, such
as through Form 499-A, which requires similar revenue information as Section 43.21(c).322 Further,
USTelecom states that information regarding the revenues and assets of publicly-traded
telecommunications companies is available in those carriers’ filings with the Securities and Exchange
Commission (SEC).323
111.
CenturyLink supports USTelecom’s request for forbearance, arguing that the reports
required by section 43.21(c) are outdated and “rarely read.”324 The Michigan PSC agrees that “aspects of
the rule are outdated” but argues that USTelecom did not meet its burden of proof.325 The Michigan PSC
claims that the information required by section 43.21(c) is still relevant for regulators because total plant
value is still used for cost studies, and that the requirement imposes minimal burdens on the carriers.326
b.

Background

112.
The requirement for common carriers to report revenue and capital amounts has been in
effect since the 1930s, and originally required monthly filings.327 Since that time, the Commission has
modified the rule to require annual filings, and increased the price threshold for carriers subject to the
filing requirements.328 The Commission has also adopted another requirement that captures similar
information. Form 499-A allows the Commission to calculate contributions to the universal service
support mechanisms; the telecommunications relay services support mechanism; the cost recovery
mechanisms for numbering administration; Interstate Telecommunications Service Provider (ITSP)

320 USTelecom Petition at 54; 47 C.F.R. § 43.21(c).
321 USTelecom Petition at 54-55.
322 Id. at 55.
323 Id.
324 CenturyLink Comments at 3 (footnote omitted).
325 Michigan PSC Reply at 4.
326 Id. at 4-5.
327 These filings were previously required by 47 C.F.R. § 43.31. See 28 Fed. Reg. 13214 (Dec. 5, 1963).
328 See Elimination of Part 34, Uniform System of Accounts for Radiotelegraph Carriers, and Part 35, Uniform
System of Accounts for Wire-Telegraph and Ocean-Cable Carriers, of the Commission’s Rules and Regulations, and
Elimination of Annual Reports Form R, for Radio-Telegraph Carriers, and Form O, for Wire-Telegraph and Ocean-
Cable Carriers and Amendment of Part 1 and Part 43 of the Commission’s Rules
, CC Docket No. 92-145, Report
and Order, 8 FCC Rcd 4318 (1993).
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regulatory fees; and the cost recovery mechanism for shared costs of long-term number portability.329
Those entities required to complete and file Form 499-A must provide detailed revenue information.330
c.

Discussion

113.
We find that forbearance from the requirement that carriers file operating revenues is
warranted because carriers are filing equivalent information with the Commission in other contexts. We
agree with USTelecom that similar revenue information is filed annually at the Commission as part of
Form 499-A, which, with few exceptions, is required of all intrastate, interstate, and international
providers of telecommunications in the United States.331 We do not find, nor did any other party provide,
any reason why the Commission should continue to require duplicative submission of this information.
114.
We also find that conditional forbearance from the requirement that carriers file
information regarding the value of their total communications plant is warranted. As USTelecom noted,
information regarding the value of a publicly-traded carrier’s total communications assets is included in
carriers’ SEC filings.332 For carriers that meet the revenue threshold for submission of this information
but that are not publicly traded (and therefore not required to file similar information with the SEC),
forbearance is conditioned on those carriers providing the value of total communications plant to the
Commission in a timely manner if the Commission requests this information to conduct an investigation.
With this condition, forbearance is in the public interest, as it relieves carriers from the burden of filing
this information with the Commission while ensuring that the Commission still has access to the
information. If Michigan or other states require total communications plant information for their cost
studies, this Order does not preempt or otherwise prevent them from adopting provisions pursuant to state
law to collect this information.
115.
We conclude that forbearance from application of section 43.21(c), as conditioned above,
is warranted under the section 10 criteria. USTelecom’s argument that the Commission can obtain this
information from other required Commission filings or SEC filings convinces us that these rules are not
necessary to ensure that the charges, practices, classifications, or regulations are just, reasonable, and not
unjustly or unreasonably discriminatory; that these rules are no longer needed to protect consumers; and
that continued enforcement would not serve the public interest. We find that forbearing from enforcing
these rules will promote competitive market conditions and promote competition among providers of
telecommunications services because it removes duplicative obligations that only apply to certain
carriers.333 These rules are duplicative of other requirements imposed on these carriers, and duplicative
filings do not serve the public interest. Therefore, forbearing from the rules will lift unnecessary burdens

329 2013 Instructions to the Telecommunications Reporting Worksheet, Form 499-A, at 2 (available at
http://www.fcc.gov/document/form-499-instructions) (2013 499A Instructions).
330 Id. at 13-29.
331 2013 499A Instructions at 2. “All telecommunications carriers providing interstate telecommunications services,
interconnected VoIP providers that provide interstate telecommunications, providers of interstate
telecommunications that offer interstate telecommunications for a fee on a non-common carrier basis, and payphone
providers that are aggregators to contribute to the universal service fund (USF) and file Form 499-Q on February 1,
May 1, August 1, and November 1 each year.” Wireline Competition Bureau Releases 2013 Telecommunications
Reporting Worksheets and Accompanying Instructions
, WC Docket No. 06-122, Public Notice, DA 13-306, at 1 n.2
(Wireline Comp. Bur. rel. Mar. 1, 2013). Generally, carriers whose universal service contribution would be less
than $10,000 in any given year are not required to file Form 499-Q. See 47 C.F.R. § 54.708.
332 Under Regulation S-K, Part 10, public companies are required to annually and quarterly submit balance sheets
for the prior two years, income statements for three years, and cash flow for three years. 17 C.F.R. § 210.1-01.
333 47 U.S.C. § 160(b).
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from the carriers, which in turn will reduce their costs of providing service and ensure that competing
providers face a level playing field. We therefore forbear from section 43.21(c), subject to carriers
providing the value of total communications plant to the Commission in a timely manner if the
Commission requests this information.
9.

Rules Governing Notice of Network Changes

a.

USTelecom’s Request

116.
USTelecom requests that the Commission forbear for all carriers from application of
portions of Part 51 of the Commission’s rules.334 USTelecom specifically seeks forbearance from
sections 51.329(a)(2), 51.329(c)(2), and 51.333(a)-(f) to the extent that these provisions require the
Commission to issue a public notice before network changes can be implemented.335 USTelecom claims
that the Commission’s rules currently require “multiple duplicative public filings and involve unnecessary
delay and uncertainty.”336
b.

Background

117.
Section 251(c)(5) of the Act requires that an incumbent local exchange carrier “provide
reasonable public notice of changes in the information necessary for the transmission and routing of
services using that local exchange carrier’s facilities or networks, as well as of any other changes that
would affect the interoperability of those facilities and networks.”337 The Commission has adopted rules
to implement this statutory requirement, and has concluded that “[r]equiring disclosure about network
changes promotes open and vigorous competition contemplated by [the Act].”338 The Commission has
further concluded that widespread “availability of pertinent network change information effectively
removes potential barriers to entry, which could otherwise frustrate the efforts of new competitors.”339
118.
The Commission’s rules describe how ILECs should provide notice.340 Carriers can use a
wide variety of methods to disclose the necessary information, including public notice through industry
fora, industry publications, and the Internet. The Commission also functions as a “backstop” source of

334 USTelecom Petition at 56.
335 Id. at 57-58, n.90. USTelecom seeks forbearance from the public notice requirement only in situations when the
carrier has provided notice on its Internet website, served the appropriate interconnecting service providers, and filed
with the Commission. See also USTelecom Reply at 28-29 (seeking only to eliminate the Commission’s public
notice requirement so that the clock for the effective date of changes runs from the date of compliance with an
ILEC’s remaining requirements to post notice on its publicly accessible Internet site and to serve relevant service
providers).
336 USTelecom Petition at 56-57.
337 47 U.S.C. § 251(c)(5).
338 See 47 C.F.R. §§ 51.325-51.335; see also Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996
, CC Docket Nos. 96-98, 95-185, 92-237, Second Report and Order and
Memorandum Opinion and Order, 11 FCC Rcd 19392, 19471, para. 171 (1996) (Local Competition Second Report
and Order
).
339 Id., 11 FCC Rcd at 19483, para. 199.
340 The Commission’s rules state that ILECs generally should provide public notice of planned network changes at
the “make/buy point” or at least 12 months before implementation of the network change. See 47 C.F.R.
§ 51.331(a). The Commission recognizes, however, that many changes subject to disclosure under § 251(c)(5) can
be implemented less than 12 months after the make/buy point. As a result, the rules still allow for ILECs to provide
public notice without additional safeguards as long as the notice is provided at least six months before
implementation. See 47 C.F.R. § 51.331(a)(1).
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information by alternatively allowing ILECs to file network change information directly with the
Commission.341 ILECs that choose to provide public notice by methods other than filing notice with the
Commission can simply file a certification with the Commission that, among other things, identifies the
location of the change information and indicates that public notice has been provided in accordance with
the Commission’s rules.342
119.
The rules differ depending on when the ILEC provides notice of the proposed change and
implementation date, and whether the change involves retirement and replacement of copper loops or
subloops with fiber-to-the-home (FTTH) loops or fiber-to-the-curb (FTTC) loops. In instances of
network changes six or more months before a proposed implementation date, changes may occur without
the need for comment from potentially affected parties. However, the Commission has determined that
additional safeguards are necessary for more potentially disruptive changes, such as those involving short-
term notice given less than six months before a proposed implementation date, and those involving the
retirement and replacement of copper loops or subloops with FTTH loops or FTTC loops.343 The
Commission’s rules require that any ILEC that plans to make these kinds of changes must assure
disclosure to affected parties by serving a copy of its public notice on providers that directly interconnect
with the ILEC’s network, and by including a certificate with its Commission filing to demonstrate
compliance with this notice requirement.344 In addition, the effective date of these kinds of changes is
subject to comment from those information service providers or telecommunications service providers
that directly interconnect with the ILEC’s network, and changes shall not be deemed final or approved
until a certain time after the Commission’s release of a public notice seeking comment on the proposed
change(s).345
c.

Discussion

120.
USTelecom has not satisfied the statutory standard for forbearance from the
Commission’s network change disclosure rules as requested in its application. USTelecom asserts that
the Commission’s public notice requirements are duplicative and cause unnecessary delay and
uncertainty; however, USTelecom does not acknowledge or address the fact that the Commission’s public

341 Local Competition Second Report and Order, 11 FCC Rcd at 19483, para. 199; see also 47 C.F.R. § 51.329(a).
342 See 47 C.F.R. §§ 51.329(a)(2), (c)(2).
343 47 C.F.R. § 51.333; see Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange
Carriers
, CC Docket No. 01-338, Implementation of the Local Competition Provisions of the Telecommunications
Act of 1996
, CC Docket No. 96-98, Deployment of Wireline Services Offering Advanced Telecommunications
Capability
, CC Docket No. 98-147, Report and Order and Order on Remand and Further Notice of Proposed
Rulemaking, 18 FCC Rcd 16978, 17146-17148, paras. 281-84 (2003) (subsequent history omitted) (Triennial
Review Order
) (establishing additional safeguards under the network change disclosure rules to govern the
replacement of copper loops or subloops with FTTH loops); Review of the Section 251 Unbundling Obligations of
Incumbent Local Exchange Carriers
, CC Docket No. 01-338, Implementation of the Local Competition Provisions
of the Telecommunications Act of 1996
, CC Docket No. 96-98, Deployment of Wireline Services Offering Advanced
Telecommunications Capability
, CC Docket No. 98-147, Order on Reconsideration, 19 FCC Rcd 20293 (2004)
(subsequent history omitted) (Triennial Review FTTC Reconsideration Order) (amending several Commission rules,
including the rules for notice of network changes, in order to allow replacement of copper with FTTC loops to be
treated similarly to replacement of copper with FTTH loops under the rules).
344 See 47 C.F.R. § 51.333(a).
345 See 47 C.F.R. § 51.333(b)-(c) (indicating that objections may be filed no later than the ninth business day, short
term notices will be deemed final on the tenth business day, and notices of replacement of copper loops or copper
subloops with FTTH loops or FTTC loops will be deemed approved on the 90th day after the release of the
Commission’s notice, unless objections are filed).
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notices serve several purposes that are distinct from the notice that the ILEC provides. First, the
Commission’s public notices provide information about the opportunity to comment and establish a clear
time frame for doing so. We agree with COMPTEL and state commenters that the Commission’s public
notices inform competitive service providers of their right to file an objection and of the appropriate
timing and method for filing objections.346 Second, the broader notice provided by the Commission’s
public notices promotes the widespread availability of pertinent network change information and helps
ensure that a carrier has given adequate and consistent notice to all potentially interested parties.347 In
addition to notifying directly interconnected service providers, this public notice may also alert interested
parties that have no reason to check the ILEC’s website and that are not entitled to service of notice of the
proposed change. Finally, the public notice process enables the Commission to monitor industry changes
and identify the extent to which such changes concern other service providers.
121.
The record does not demonstrate that the Commission’s public notices cause unnecessary
delay.348 The date used to determine whether the ILEC is implementing a long- or short-term change is
the date on which the ILEC provides adequate notice of the change.349 The public notice requirement for
long-term network change notices does not trigger any comment period or alter the ILEC’s
implementation date. For short-term notices, the changes can be implemented within the ILEC’s
preferred time frame, as long as the ILEC provides sufficient advance notice of the change (i.e., allowing
a reasonable amount of time for the Commission to review the filing and release a public notice at least
ten (or, as applicable, 90) days before the proposed implementation date) and no comments are
received.350 USTelecom submits that in practice there is often a delay between the date when a carrier

346 See COMPTEL Comments at 15; CACTC Comments at 5 (stating that USTelecom’s petition is requesting that
the Commission eliminate “the only backstop currently available to competitive carriers to object to [changes], and
attempt to accommodate and make other arrangements for, service to affected end-user customers.”); CPUC
Comments at 10-11 (indicating that the Commission’s rules allow competitors to file objections in order to allow
time for a smooth transition, especially with the retirement of copper facilities, and also disagreeing with
USTelecom’s assertion that the Commission’s rules require multiple duplicative public filings and involve
unnecessary delay and uncertainty); DC PSC Reply at 2 (noting that issuance of the Commission’s public notice
commences the period for affected telecommunications carriers to file objections to proposed copper loop
retirements, and stating that it is unclear whether there would be an opportunity to object to such retirements in the
absence of this notice); Michigan PSC Reply at 13 (echoing COMPTEL’s statements that the Commission’s public
notice provides critical information not included on the carrier’s web postings).
347 See supra para. 117.
348 USTelecom and some commenters submit that the filings and public notice required under certain network
change provisions of Part 51 are unnecessarily redundant, and that the Commission’s public notices are “not
necessary to ensure that carrier charges, practices, or classifications are just and reasonable because they do not
improve the quality or scope of the notice given.” USTelecom Petition at 56-58; see also ACS Comments at 6;
AT&T Reply at 4-5; Verizon Comments at 8-10 (also suggesting “there is no reason why the Commission cannot
rely on the carrier’s notice, instead of a Bureau-initiated notice, to act as the trigger to start any necessary waiting
periods or related obligations”).
349 The date on which the Commission issues its public notice then determines when comments (if required) should
be filed; the notice is released in time to allow for implementation of the change on the requested date unless
comments are filed in opposition.
350 The required comment period for short term notices of network changes and for notices of network changes
involving the retirement and replacement of copper loops or subloops with FTTH loops or FTTC loops is 9 business
days. In the absence of objections, short-term notices of network change will be deemed final on the 10th business
day, and notices of network changes involving the retirement and replacement of copper loops or subloops with
FTTH loops or FTTC loops will be deemed approved on the 90th day after release of the Commission’s PN. 47
C.F.R. § 51.333(c) & 51.333(b). See, e.g., Wireline Competition Bureau Short Term Network Change Notification
(continued....)
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posts notice online and the date when the Commission releases a public notice announcing the change.351
USTelecom has provided no data to support the suggestion that any such delay has led to delay in the
actual implementation of proposed network changes. The Commission prioritizes release of public
notices according to the implementation dates proposed in ILEC filings; USTelecom has provided no
evidence that the Commission’s rules have delayed implementation of network changes.
122.
USTelecom also asserts that these rules cause unnecessary uncertainty, but the record
does not offer any support for this claim. In fact, the process provides certainty by setting forth a
standardized process and a clear deadline by which interested parties must comment. The ILEC controls
when it provides notice.
123.
USTelecom asserts that there is “no countervailing public interest that would justify
delaying implementation” of proposed network changes and upgrades, in light of the other process
requirements the Commission has in place.352 We, however, find that the public notice and comment
period allowed under the Commission’s current rules is necessary to ensure the public interest and the
interest of competing providers in maintaining interoperability between networks. As the Commission
has noted, the inability to maintain a high level of interoperability could degrade the quality of
transmission between networks or, in a worse case, could interrupt service between providers.353 The
rules thus also serve to protect consumers from possible service interruptions or outages.354 We also are
not persuaded that reasonable public notice can be presumed to occur when an ILEC simply announces it
is making a short-term network change without at least an opportunity for providers potentially affected
by the change to provide input regarding difficulties. The Commission’s rules thus provide an
opportunity to comment on proposed network changes that would occur in less than six months, or that
involve retirement and replacement of copper loops or subloops with FTTH loops or FTTC loops.
124.
For the reasons stated above, we conclude that USTelecom has failed to demonstrate that
the Commission’s applicable network change disclosure rules are unnecessary to ensure that carrier
charges, practices, or classifications are just and reasonable, or to protect consumers. USTelecom has
also failed to demonstrate that forbearance from these rules would be in the public interest. We find that
the widespread availability of network change information, which these rules ensure, is an important
factor in removing potential barriers to competition. Widespread access to network change information
helps ensure continuous interoperability between networks, which benefits the public and competing
providers. We find that the Commission’s current network change disclosure rules provide an appropriate
(Continued from previous page)
Filed By CenturyLink (Qwest), Report No. NCD-2258, Public Notice (WCB rel. March 13, 2013); Wireline
Competition Bureau Short Term Network Change Notification Filed By Verizon Florida LLC
, Report No. NCD-
2207, Public Notice (Wireline Comp. Bur. rel. Aug. 31, 2012).
351 USTelecom Petition at 57; see also AT&T Reply at 20, Verizon Comments at 9.
352 USTelecom Petition at 59; see also AT&T Reply at 20-21; Verizon Reply at 7.
353 See Local Competition Second Report and Order, 11 FCC Rcd at 19491, para. 216. The Commission has noted,
for example, that changes that affect transmission, signaling standards, call routing, network configuration, logical
elements, electronic interfaces, data elements, and transactions that support ordering, provisioning, maintenance, and
billing would trigger public disclosure obligations. See id. at 19476, para. 182.
354 See id. at 19495, para. 227 (stating that the “primary concern reflected in § 251(c)(5) is continued interconnection
and interoperability.”). See also Wireline Competition Bureau Short Term Network Change Notification Filed By
CenturyLink
, Report No. NCD-1996, Public Notice (Wireline Comp. Bur. rel. June 23, 2011) (CenturyLink
announced the retirement of copper facilities in Illinois and the movement of all working services to a fiber fed
digital loop carrier system. Competitive LEC customer, NTS Services Corp., filed an objection in this proceeding
expressing its need for more time to adjust to the changes in order to continue providing services to twenty-three
customers, and CenturyLink was able to accommodate this request).
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balance between all of these interests as the record does not convince us that the rule imposes significant
burdens on ILECs. We therefore deny USTelecom’s request for forbearance from the provisions of Part
51 discussed above.
125.
Several commenters also suggest that the Commission should not grant USTelecom’s
request for forbearance while broader issues related to the transition from the copper PSTN to IP
networks are under consideration.355 While we need not address those arguments here, given our
conclusion that the broad forbearance from these rules that USTelecom requests is unwarranted, we agree
that that proceeding could provide an opportunity for a more detailed look at our current requirements.
10.

Service Discontinuance Approval Requirements

a.

USTelecom’s Request

126.
USTelecom requests forbearance from section 214 of the Act and the Commission’s
associated rules requiring a carrier to obtain Commission approval prior to discontinuing “legacy”
offerings where that carrier offers IP broadband services as “replacement services” (at least 4 Mbps
download, 1 Mbps upload).356 USTelecom asserts that, under these circumstances, customers are not
losing service but are instead receiving new broadband or IP services via a new, more technologically
advanced platform—the IP network. USTelecom further submits that, under these circumstances,
forbearance is in the public interest, and that requiring Commission approval prior to the discontinuance
of legacy services is unnecessary to protect consumers and unnecessary to ensure just, reasonable, and
nondiscriminatory rates and practices.357 USTelecom maintains that forbearance is consistent with the
Commission’s desire to promote broadband and accelerate the transition from circuit-switched to IP
networks, and USTelecom emphasizes that nothing in its petition is intended to disturb the requirement
that carriers provide notice to customers.358
b.

Background

127.
Section 214(a) of the Act states in part that “[n]o carrier shall discontinue, reduce, or
impair service to a community, or part of a community, unless and until there shall first have been
obtained from the Commission a certificate that neither the present nor future public convenience and
necessity will be adversely affected thereby.”359 This statutory requirement is implemented under Part 63
of the Commission’s rules to ensure that customers of domestic telecommunications and interconnected

355 See Broadview, et al. Comments at 11 (urging the Commission to deny USTelecom’s request for forbearance
while the Commission’s Technical Advisory Council is considering related issues regarding the transition from the
PSTN to IP networks); CACTC Comments at 3, 7-15 (submitting that petitions for rulemaking in RM-11358
requested additional safeguards regarding ILEC copper loop retirement under the same rules, and that USTelecom,
AT&T and Verizon have all filed comments and ex partes in that proceeding).
356 USTelecom Petition at 59. USTelecom uses the term “legacy” offerings but does not define it. For purposes of
this section of the forbearance order, we understand legacy offerings to mean narrowband voice offerings.
USTelecom lists 47 U.S.C. § 214 and 47 C.F.R. §§ 63.60, 63.61, 63.62, 63.63, 63.71(a)(5), 63.71(c) and 63.90(a)(8),
but does not otherwise reference any other specific Commission rules under its discussion of service discontinuance
approval requirements. See also ACS Comments at 8-10 (suggesting that forbearance should likewise apply for
competing providers once broadband service is offered in a service area by any provider); AT&T Reply at 2-4;
Verizon Comments at 5-8.
357 USTelecom Petition at 60-62.
358 Id. at 59 and 62.
359 47 U.S.C. § 214(a). The discontinuance, reduction or impairment of service to a community will be generally
referred to herein as a discontinuance unless otherwise specified.
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VoIP services receive sufficient notice of planned discontinuances of service, and have an opportunity to
inform the Commission of any anticipated difficulties before the Commission approves the proposed
discontinuance.360 The Commission’s rules require that providers inform customers of a proposed
discontinuance, and further require that providers include specific language in their notice in order to
assure that customers are aware of their right to object to the proposed discontinuance of service.361
Providers also are required to notify and submit a copy of their section 214 application to the public
utility commission and Governor of each state in which the discontinuance is proposed, and to the
Secretary of Defense.362
128.
Providers must file a section 214 application with the Commission on or after the date on
which notice has been given to affected customers.363 The application must contain: the information
provided in the notice to customers, as well as a brief description of the dates and methods of notice to
customers; a statement regarding the provider’s status as a dominant or nondominant provider with
respect to the services to be discontinued; and any other information the Commission may require.364 The
public notice that the Commission releases then announces receipt of the provider’s complete application,
provides more specific information about how and where interested parties may file comments on the
proposed discontinuance, and sets the deadline for comments and the date by which the application will
be deemed automatically approved unless the Commission notifies the applicant otherwise.365
c.

Discussion

129.
We find that USTelecom has failed to demonstrate that forbearance from the
Commission’s discontinuance rules is warranted. Section 214(a) of the Act specifically requires the
Commission to determine whether the present or future public convenience and necessity would be
adversely affected by any carrier’s discontinuance, reduction, or impairment of service to a community.
USTelecom and some commenters suggest that the public interest safeguards under section 214 and
related rules are not necessary when a carrier discontinues legacy services as long as it provides
“replacement” broadband services.366

360 See 47 C.F.R. §§ 63.60-63.601; see also Policy and Rules Concerning Rates for Competitive Common Carrier
Services and Facilities Authorizations Therefor
, CC Docket No. 79-252, First Report and Order, 85 FCC 2d 1
(1980) (Competitive Carrier First Report and Order); Implementation of Section 402(b)(2)(A) of the
Telecommunications Act of 1996, Petition for Forbearance of the Independent Telephone & Telecommunications
Alliance
, CC Docket No. 97-11, Report and Order and Second Memorandum Opinion and Order, 14 FCC Rcd
11364 (1999); Biennial Regulatory Review of Regulations Administered by the Wireline Competition Bureau, WC
Docket No. 02-313, Report and Order, 21 FCC Rcd 9937 (2006); IP-Enabled Services, WC Docket No. 04-36,
Report and Order, 24 FCC Rcd 6039 (2009). For purposes of the Commission’s discontinuance rules at §§ 63.60-
63.90, the term “carrier” is defined to include interconnected VoIP providers when used to refer either to all
telecommunications carriers or more specifically to nondominant telecommunications carriers. See 47 C.F.R.
§ 63.60(a).
361 See 47 C.F.R. § 63.71(a).
362 Id.
363 See 47 C.F.R. § 63.71(b).
364 Id.
365 Unless the Commission notifies a provider otherwise, discontinuance applications for dominant and nondominant
providers will be automatically granted on the 60th and 31st day, respectively, after the Commission’s release of a
public notice for the application. See 47 C.F.R. § 63.71(c).
366 USTelecom Petition at 60; ACS Comments at 8-9; Verizon Comments at 5-6; AT&T Reply at 2-4; USTelecom
Reply at 30-31; Verizon Reply at 3.
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130.
The Commission has recognized that “broadband is becoming a necessity of modern life,
and [that] the benefits of broadband are immense and growing rapidly” including enabling users to
“originate and receive high-quality voice, data, graphics, and video telecommunications.”367 As the
Commission previously noted, “[b]roadband can drive local and national economic growth, as well as
improve education, healthcare, and energy efficiency.”368 The question of whether specific broadband
services are a replacement for particular legacy services, however, has no general answer.369 For purposes
of our analysis here, we need only conclude that application of the discontinuance rules remains necessary
and in the public interest.
131.
The discontinuance rules are designed to ensure that the Commission is fully informed of
any public interest concerns during an orderly transition to alternative services.370 Commenters are able to
inform the Commission of concerns with the existence of reasonable alternatives or concerns with the
proposed timing of the discontinuance. Notice and opportunity to comment prior to service
discontinuance provide important consumer protections.371 USTelecom has not demonstrated that the

367 See Eighth Broadband Progress Report, 27 FCC Rcd at 10349, para 7, 10394, para. 120 (2012).
368 See Acceleration of Broadband Deployment: Expanding the Reach and Reducing the Cost of Broadband
Deployment by Improving Policies Regarding Public Rights of Way and Wireless Facilities Siting,
WC Docket No.
11-59, Notice of Inquiry, 26 FCC Rcd 5384, para. 1 (2011).
369 See, e.g., FCC Announces First Technology Transitions Policy Task Force Workshop, GN Docket No. 13-5,
Public Notice, 28 FCC Rcd 1150 (Wireline Comp. Bur. 2013) (announcing March 18, 2013 workshop to gather data
and analysis in order to establish a factual baseline understanding of important transitions including the market’s
transition to new technologies); Pleading Cycle Established On AT&T And NTCA Petitions, GN Docket No. 12-353,
Public Notice, 27 FCC Rcd 15766 (Wireline Comp. Bur. 2012) (announcing the filing of AT&T’s Petition
requesting that the Commission open a proceeding “to facilitate the ‘telephone’ industry’s continued transition from
legacy transmission platforms and services to new services based fully on the Internet Protocol); FCC Announces
Technological Advisory Council Meeting
, Public Notice, 26 FCC Rcd 15290 (2011) (announcing December 20,
2011 meeting to explore, inter alia, public safety, disability access, and other matters that might be affected by a
move to an all-IP network).
370 We agree with commenters who assert that the Commission’s discontinuance rules permit fact-specific review of
a LEC’s plans to withdraw services from the market, which allows for a more detailed examination of the consumer
and public interest impact of each proposed withdrawal and replacement of service. See Full Service Reply at 5.
371 The NY PSC asserts that an opportunity for comment and Commission review are especially important for low
income customers receiving Lifeline services because it is not yet clear that service providers would offer Lifeline
services over broadband networks. NY PSC Comments at 1-4; see also DC PSC Reply at 4 (concurring with the
NY PSC regarding Lifeline services and also submitting that an opportunity for comment and Commission approval
are still important because replacement broadband services are not regulated by state Commissions); Michigan PSC
Reply at 16-17; Pennsylvania PUC Reply at 3-7 (stating that USTA’s forbearance request also could impact the
basic Carrier of Last Resort (COLR) obligations that protect end-user customers and are administered by the FCC
and state commissions). But see USTelecom Reply at 31 (maintaining that the Commission should not “dis-incent
the deployment of broadband IP-based networks” to low income customers by denying forbearance and thus
refusing to permit carriers to transition services to these networks). As discussed below, we find that the prior
approval requirements of the Commission’s discontinuance rules are consistent with the Commission’s other
interests in promoting broadband services. See infra para. 132. We note that the Commission is currently
conducting a pilot program to test different approaches to increasing broadband adoption among low-income
Americans. See Lifeline and Link Up Reform and Modernization, WC Docket No. 11-42, Order, 27 FCC Rcd 15842
(Wireline Comp. Bur. 2012) (announcing the selection of 14 projects for the broadband adoption Lifeline pilot
program).
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notice requirement is no longer necessary to address these policy interests or that it imposes substantial
burden or delay in introducing new services.372
132.
USTelecom asserts that forbearance from the Commission’s discontinuance rules would
be consistent with the Commission’s other “initiatives to promote broadband” and its desire to “accelerate
the transition from circuit-switched to IP networks.”373 According to USTelecom, requiring prior
approval under the rules when a carrier seeks to discontinue legacy services and replace them with
broadband services would cause a delay for both broadband providers and consumers in the delivery and
receipt of new broadband services.374 The Commission’s rules, however, do not prevent service providers
from introducing broadband services, even before obtaining approval to discontinue legacy services.375
Moreover, the discontinuance rules do not dictate the time when carriers may introduce new broadband
services or the time when customers may choose to subscribe to new broadband offerings.376 Although
USTelecom suggests that the discontinuance process may include a delay between the receipt of a
discontinuance application and the release of a public notice after Commission review, USTelecom fails
to demonstrate that any such delay has occurred or presents a significant threat of delay in the future.377
133.
USTelecom also maintains that forbearance when a carrier plans to discontinue legacy
services and replace them with broadband services would be consistent with the forbearance previously
granted to CMRS providers.378 When the Commission granted forbearance from the discontinuance
requirements for CMRS providers, they were offering relatively new wireless services, and the

372 See Full Service Reply at 11-12; see also Broadview, et al. Comments at 21-22 (noting that USTelecom seeks
forbearance that would also apply to the discontinuance of wholesale services and submitting that USTelecom
nevertheless fails to explain how forbearance under these circumstances would be in the public interest);
Pennsylvania PUC Reply at 5 & 7 (agreeing that USTA’s forbearance request does not sufficiently distinguish
between retail and wholesale services and that it has the potential for adversely impacting wholesale access service
obligations and interconnection).
373 USTelecom Petition at 59.
374 USTelecom suggests that there would be a potential for delay in the introduction of new services under the
discontinuance rules due to the fact that applications are not deemed filed until the Commission releases public
notice of the filing, and because the Commission can release public notice weeks after receiving an application. Id.
at 60-61; see also Verizon Comments at 8.
375 See Michigan PSC Reply at 14-15 (submitting that the Commission’s stated goal of encouraging a transition to a
modern IP-network can still be accomplished without eliminating public comment and Commission oversight under
the discontinuance rules).
376 See COMPTEL Comments at 11-12.
377 See Michigan PSC Reply at 15-16 (submitting that USTelecom has failed to demonstrate actual harm caused by
the general discontinuance timeframes and suggesting that applicants should account for the approval process in
their planning).
378 USTelecom Petition at 61 (citing to Implementation of Sections 3(n) and 332 of the Communications Act,
Regulatory Treatment of Mobile Services
, Second Report and Order, 9 FCC Rcd 1411, 1481, para. 182 (1994); 47
C.F.R. § 20.15(b)(3) for CMRS § 214 forbearance). USTelecom specifically refers to the Commission
determination there that a discontinuance application was unnecessary to protect consumers given the presence of
adequate and abundantly available substitute services.
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Commission recognized the abundant availability of existing alternatives.379 We thus do not find that
decision analogous to the forbearance request here.380
134.
We find that USTelecom has not demonstrated that forbearance from the discontinuance
rules is justified. Enforcement of these rules is necessary to ensure that charges, practices, classifications,
or regulations are just and reasonable, and not unjustly or unreasonably discriminatory. The
Commission’s rules implementing this requirement strike a balance between a provider’s interest in
discontinuing services and the important consumer protection interests central to section 214(a) of the
Act.381 For the reasons set forth above, we find that USTelecom has failed to satisfy the statutory
standards necessary to merit forbearance from the requirements regarding service discontinuance.
11.

Structural Separation Requirements for Independent ILECs

a.

USTelecom’s Request

135.
USTelecom requests that the Commission forbear from application of the section 64.1903
separate affiliate requirement for independent ILEC provision of in-region, interstate interexchange
services and in-region, international interexchange services (in-region long distance service). It also
requests forbearance from application of dominant carrier regulation of in-region long distance service by
independent ILECs in the absence of a separate affiliate.382 USTelecom asserts that “[i]n light of the
dramatic changes in the competitive landscape in the intervening 15 years since [r]ule 64.1903 was
adopted, there is no longer any justification for the rule, and the Commission should forbear from its
continued application.”383 USTelecom asserts that “there are no dominant IXCs, and ILECs currently face

379 See also Broadview, et al., Comments at 18-19 (stating that the Commission’s decision with respect to
forbearance for CMRS providers was also based on extensive market analysis and a determination that CMRS
providers generally lack market power).
380 The USTelecom Petition seeks authority for existing participants in the marketplace to discontinue legacy
services without obtaining prior section 214 authority, which is in contrast to the Commission grant of forbearance
for newly-competitive CMRS providers. We note that when the Commission granted forbearance for CMRS
providers, it relied on the record established in response to its NPRM and found that § 214 barriers to exit could
deter potential entrants from entering the marketplace. We agree with Broadview, et al. that the Commission has
not done the same market analysis or reached the same conclusions regarding the competitive marketplace for
legacy services. Broadview, et al. Comments at 18.
381 In the Competitive Carrier First Report and Order, the Commission explained that Congress added the 214
discontinuance requirements in 1943, in part, due to concerns that discontinuance (by the only carrier serving a
market) could leave the public without adequate communications service. The Commission also noted that in a
competitive marketplace, ease of exit is essential. Nevertheless, the Commission concluded that § 63.71 strikes a
good balance between the need to reduce regulatory barriers to exit from competitive markets and the Commission’s
responsibility to ensure that the public is given a reasonable period of time to make other service arrangements.
Competitive Carrier First Report and Order, 85 FCC 2d at 49.
382 USTelecom Petition at 64-67. Throughout this subsection, paras. 135-162, we use the term “integrated basis” to
mean providing long distance services without complying with structural separations requirements contained in
section 64.1903. We note that USTelecom subsequently clarified that it believes that, under the best reading of
relevant precedent, independent ILECs by default would not be subject to dominant carrier regulation even when
providing long distance service on an integrated basis, although it argues that forbearance would be warranted if the
Commission disagreed with that interpretation. See, e.g., Letter from Bennett L. Ross, Wiley Rein, LLP, Counsel to
USTelecom, to Marlene H. Dortch, Secretary, FCC, Docket No. 12-61, at 3-6 (filed Mar. 28, 2013) (USTelecom
Mar. 28, 2013 Ex Parte Letter).
383 USTelecom Petition at 66.
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robust competition for all-distance services.”384 In Appendix B of its filing, USTelecom argues that “[t]he
Commission’s legacy telecommunications regulations are largely predicated on the historical assumption
that a telephone line from an [ILEC] was the only means for a consumer to communicate[,]” and that
“[t]his assumption is not valid in today’s marketplace where consumers . . . can choose from telephony
services provided by Competitive Local Exchange Carriers (‘CLECs’), cable operators, and fixed and
mobile wireless providers.”385
b.

Background

136.
Section 64.1903 of the Commission’s rules requires that independent ILECs providing
long distance service in whole or in part over their own switching or transmission facilities do so through
an affiliate that is a separate legal entity from the local exchange company.386 The separate affiliate must:
(1) maintain books of account separate from those of the independent ILEC; (2) not jointly own
transmission or switching facilities with the independent ILEC; and (3) purchase tariffed services from
the independent ILEC only pursuant to the independent ILEC’s tariffs.387 Independent ILECs that provide
in-region long distance service exclusively through resale may do so through an affiliate that is a separate
corporate division rather than a separate legal entity. 388 Independent ILECs have been classified as
nondominant in their provision of in-region long distance services,389 and therefore they are not required
to file tariffs for these services.390
137.
Section 64.1903 was adopted in the 1997 LEC Classification Order, although it has its
origins in the Commission’s Competitive Carrier Proceedings.391 In the LEC Classification Order, the

384 Id.
385 Id., App. B at 1. “USTelecom estimates that ILEC switched access lines accounted for approximately 45% of
U.S. telephone households as of year-end 2010.” Id., App. B at 2 & n.5. USTelecom states that “[a]s of this same
time period, approximately 32% of U.S. households with a telephone were wireless only” and that “approximately
19% were served by cable telephony, and approximately 3% utilized ‘over the top’ interconnected VoIP service.”
Id. at nn.5-8. USTelecom also states that “more than 99% of the country’s rural population is covered by at least
one wireless provider, and approximately 97% is covered by at least two providers.” Id. at 5 & n.17. USTelecom
further notes that “more than 93% of U.S. homes [are] passed by cable high-speed broadband infrastructure.” Id. at
8. USTelecom also cites the availability of other competitive offerings, including Skype, Facebook and Google. Id.
at 8-10.
386 47 C.F.R. § 64.1903 (b).
387 Id. § 64.1903(a)(1)-(3). The separate affiliate also may acquire UNEs and exchange services pursuant to an
approved interconnection agreement. Id. § 64.1903(a)(3).
388 An independent ILEC provides in-region long distance services exclusively through resale if it provides those
services without using its own “interexchange switching or transmission facilities or capability.” Id.
§ 64.1903(b)(1).
389 Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC’s Local Exchange
Area and Policy and Rules Concerning the Interstate, Interexchange Marketplace
, CC Docket Nos. 96-149, 96-61,
Second Report and Order in CC Docket No. 96-149 and Third Report and Order in CC Docket No. 96-61, 12 FCC
Rcd 15756, 15763, para. 7 (1997) (LEC Classification Order), recon. denied, Second Order on Reconsideration and
Memorandum Opinion and Order, 14 FCC Rcd 10771 (1999) (LEC Classification Second Reconsideration Order).
390 47 C.F.R. § 61.19 (mandatorily detariffing all nondominant carrier interstate and international, long distance
services, other than dial-around 1+ services, certain LEC-initiated services during the first 45 days of service,
international inbound collect calls, and certain on-demand mobile satellite services).
391 See Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations
Therefor
, CC Docket No. 79-252, Fourth Report and Order, 95 FCC 2d 554, 575-76, para. 31 (1983) (Competitive
Carrier Fourth Report and Order
); Policy and Rules Concerning Rates for Competitive Common Carrier Services
(continued....)
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Commission found that the independent ILECs did not possess “classical” market power in the provision
of in-region long distance services, and therefore could not raise the prices of these services above
competitive levels.392 On this basis, the Commission classified independent ILECs “as nondominant in
the provision of in-region, interstate, domestic, interexchange services.”393 Despite this classification of
nondominance, however, the Commission remained concerned with the independent ILECs’ control over
local bottleneck facilities, which theoretically gave them the ability to exercise “exclusionary” market
power in order to raise rivals’ costs.394 The Commission concluded that independent ILECs had the
incentive to engage in cost misallocation between local and long distance operations; unlawful, non-price
discrimination involving inputs used by long distance competitors; and price squeezes.395 Accordingly,
notwithstanding its conclusion to classify independent ILECs as nondominant, the Commission adopted
the current regulatory framework requiring the provision of long distance service through a separate
affiliate that “would aid in the detection and prevention of such anticompetitive conduct.”396
138.
Beginning in 2007, the Commission permitted the BOCs to provide long distance service
without a section 272 separate affiliate, i.e., on an integrated basis or through an affiliate other than a
section 272 affiliate, subject to nondominant carrier regulation.397 However, the Commission applied a
set of alternative safeguards to the BOCs’ provision of in-region long distance services outside of a
section 272 affiliate. These safeguards included: (1) special access performance metrics to monitor for
(Continued from previous page)
and Facilities Authorizations Therefor, CC Docket No. 79-252, Fifth Report and Order, 98 FCC 2d 1191 1195-
1201, paras. 3-12 (1984) (Competitive Carrier Fifth Report and Order). Prior to the LEC Classification Order, it
was clear that an independent ILEC had a “choice” between offering in-region long distance service through a
separate affiliate or being regulated as a dominant carrier. Competitive Carrier Fifth Report and Order, 98 FCC 2d
at 1198-99, para. 9 (“Interstate services provided directly by exchange telephone companies (not through affiliates)
are regulated as dominant.”); LEC Classification Order, 12 FCC Rcd at 15767-68, para. 14 (“In the Competitive
Carrier Fourth Report and Order
, the Commission determined that interexchange carriers affiliated with
independent ILECs would be regulated as nondominant interexchange carriers. . . . . The Commission [in the
Competitive Carrier Fifth Report and Order] added that any interstate, interexchange services offered directly by an
independent LEC (rather than through a separate affiliate) or through an affiliate that did not satisfy the specified
conditions would be subject to dominant carrier regulation.”). As discussed infra paras. 154-162, the Commission
subsequently removed, in the LEC Classification Order, the independent ILECs’ ability to “choose” between the
separate affiliate structure or dominant carrier regulation.
392 See LEC Classification Order, 12 FCC Rcd at 15847-8, paras. 157-58. The Commission stated that “classical”
(or “Stiglerian”) market power refers to “the ability of a firm profitably to raise and sustain its price above the
competitive level by restricting its own output.” Id. at 15847-48, para. 156.
393 Id., 12 FCC Rcd at 15763, para. 7; see also id. at 15840-41, para. 143 (“We therefore, classify independent
ILECs as nondominant in the provision of these [in-region long distance services.]”); id. at 15855, para. 171 (“As
previously stated, we conclude that we should not apply dominant carrier regulation to independent ILECs.”); LEC
Classification Second Reconsideration Order
, 14 FCC Rcd at 10777, para. 8 (“Similarly, the Commission found that
independent ILECs should be classified as nondominant because they do not have the ability profitably to raise and
sustain prices of in-region, interstate, domestic, interexchange services by restricting output, but that such LECs
should be required to provide these services subject to the Competitive Carrier Fifth Report and Order separation
requirements in order to prevent and detect cost misallocation, access discrimination, and price squeeze.”).
394 Exclusionary (or Bainian) market power refers to “the ability of a firm profitably to raise and sustain its price
significantly above the competitive level by raising its rivals’ costs and thereby causing the rivals to restrain their
output.” LEC Classification Order, 12 FCC Rcd at 15803, para. 83 n.214.
395 Id. at 15848-49, paras. 159-60, and 15654, para. 171.
396 Id. at 15859, para. 163.
397 See Section 272 Sunset Order, 22 FCC Rcd at 16488-92, paras. 95-105.
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non-price discrimination against competitors; (2) imputation requirements for access charges to guard
against the use of access pricing to impede long distance competition; and (3) two consumer protection
measures to address the needs of customers with low long distance calling volumes.398
c.

Discussion

139.
We grant in part, subject to the conditions described below, USTelecom’s request for
forbearance from the requirement that an independent ILEC provide in-region long distance services
through the use of a separate affiliate. We conclude that forbearance from section 64.1903 is warranted
for independent ILECs subject to price cap regulation. We find that forbearance from this requirement
for independent ILECs subject to rate-of-return regulation is not warranted due to the continuing potential
for cost misallocation.399 In the attached Second Further Notice of Proposed Rulemaking, we seek
comment, though, on potential alternatives that would reduce regulatory burdens while accomplishing the
same objectives as the current requirements.
140.
We need not formally grant USTelecom’s separate request for forbearance from
dominant carrier regulation when in-region long distance services are provided by an independent ILEC
on an integrated basis because we conclude that those requirements do not apply in the first instance
under existing precedent. As discussed below, we hold that the Commission’s prior classification of
independent ILECs as nondominant in their provision of in-region long distance services applies
regardless of whether we amend, eliminate, or forbear from the application of section 64.1903.
(i)

Forbearance from Separate Affiliate Requirement

141.
When the Commission adopted the separate affiliate requirement, it identified three
reasons for prohibiting independent ILECs from providing long distance service on an integrated basis:
concerns about cost misallocation, non-price discrimination, and price squeezes – all related to the
exercise of exclusionary market power.400 The Commission subsequently concluded in the Section 272
Sunset Order
that BOC exclusionary market power should be addressed through non-structural safeguards
rather than structural safeguards such as a separate affiliate. We follow this paradigm in analyzing
USTelecom’s request for forbearance from the separate affiliate requirement for the independent ILECs.
USTelecom has not demonstrated that independent ILECs either individually or collectively lack
exclusionary market power within their service areas. We therefore have no evidence to use as a basis for
determining that they lack exclusionary market power in their respective areas.401 Nonetheless, as we
have held previously for the BOCs, we find that the original concerns are not significant in the case of
price cap carriers (cost misallocation) or can be addressed through measures less burdensome than
requiring a separate affiliate (non-price discrimination and price squeezes). As explained below, we
cannot make the same finding, based on this record, for rate-of-return carriers.

398 Id. at 16487-94, paras. 95-108.
399 Rate-of-return carriers include both cost companies and average schedule companies. Establishing Just and
Reasonable Rates for Local Exchange Carriers
, WC Docket No. 07-135, Notice of Proposed Rulemaking, 22 FCC
Rcd 17989, 17992, para. 6 (2007). “Average schedule” companies are those ILECs that receive compensation for
use of their interstate common carrier services on the basis of formulas that are designed to simulate the
disbursements that would be received by a cost company that is representative of average schedule companies. See
Federal-State Joint Board on Universal Service
, CC Docket No. 96-45, Order, 25 FCC Rcd 7252, 7256 (2010).
400 See supra para.138; LEC Classification Order, 12 FCC Rcd at 15848-49, paras. 159-60, 15654, para. 171.
401 This approach is consistent with Commission precedent. See Section 272 Sunset Order, 22 FCC Rcd at 16473,
para. 64.
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142.
Price Cap Carriers. The Commission has recognized that the separate affiliate
requirement imposes significant cost and non-cost burdens on carriers and the Commission.402 The
Commission also noted that the requirement to provide long distance service using a separate affiliate
may impair a carrier’s ability to compete.403 The Commission previously found, with respect to the
BOCs, that an array of nonstructural safeguards could obviate the need for the separate affiliate rule,
while imposing fewer costs and burdens. We find that a similar set of safeguards would be equally
effective to curtail the potential exercise of exclusionary market power by independent price cap carriers.
Specifically, we will forbear from section 64.1903 for price cap carriers if they (1) submit and obtain
Bureau approval of special access performance metrics, and (2) satisfy imputation requirements,
including the submission of an imputation plan for review and approval by the Bureau. In addition,
independent ILECs subject to price cap regulation remain subject to a number of legal obligations that
will limit their ability to exercise exclusionary market power. In particular, the independent ILECs
remain subject to: dominant carrier regulation, Part 32 accounting rules, equal access obligations under
longstanding Commission precedent and section 251(g) of the Act;404 section 251 obligations;405 and the
continuing general obligation to provide service on just, reasonable, and not unreasonably discriminatory
rates, terms, and conditions pursuant to sections 201 and 202 of the Act.406
143.
Special Access Performance Metrics. As a condition of the relief it granted in the Section
272 Sunset Order, the Commission required the BOCs and their independent incumbent LEC affiliates to
implement special access performance metrics addressing the order taking, provisioning, and maintenance
and repair of those carriers’ DS0, DS1, DS3, and OCN services.407 This was designed in part to
implement the requirement for the non-discriminatory provisioning of wholesale services by the BOCs
that is contained in section 272(e)(1) of the Act.408 The Commission also required the BOCs and their
independent incumbent LEC affiliates to provide the Commission with their performance measurement
results on a quarterly basis.409 The Commission reasoned that these metrics and the associated filing
requirement were necessary to monitor whether the BOCs and their independent incumbent LEC affiliates
engaged in non-price discrimination in the provision of special access services to unaffiliated entities.410

402 Section 272 Sunset Order, 22 FCC Rcd at 16480, para. 82, 16482, para. 85.
403 Id. at 16481, para. 82.
404 47 U.S.C. § 251(g); Section 272 Sunset Order, 22 FCC Rcd at 15855-56, para. 172; see MTS and WATS Market
Structure, Phase III
, Docket No. 78-72, Report and Order, 100 FCC 2d 860 (1985); Investigation into the Quality of
Equal Access Services
, Memorandum Opinion and Order, 60 Rad. Reg. 2d (P&F) 417, 419, 1986 WL 291752
(1986).
405 47 U.S.C. § 251.
406 47 U.S.C. §§ 201, 202.
407 Section 272 Sunset Order, 22 FCC Rcd at 16488-89, paras. 97-98.
408 47 U.S.C. § 272(e)(1) (requiring a BOC and an affiliate that is subject to the requirements of section 251(c) to
“fulfill any requests from an unaffiliated entity for telephone exchange service and exchange access within a period
no longer than the period in which it provides such telephone exchange service and exchange access to itself or to its
affiliates”).
409 Id. at 16488, para. 98.
410 Id. at 16488-89, paras. 97-98 (“The information that AT&T, Qwest and Verizon record and report to the
Commission under these metrics will provide the Commission and other interested parties with reasonable tools to
monitor each BOC’s performance in providing these special access services to itself and its competitors. . . . We
conclude that the metrics and the associated reporting requirements that we impose in this Order adequately address
commenters’ concerns about the BOCs’ and their independent incumbent LEC affiliates’ incentives and ability to
(continued....)
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144.
For reasons similar to those set forth in the Section 272 Sunset Order, we find that
implementation of these metrics is needed to monitor whether price cap independent ILECs engage in
anticompetitive non-price discrimination in the provision of special access services to unaffiliated entities.
We therefore require, as a condition of the relief granted in this Order, that each price cap independent
ILEC submit a plan to measure special access performance, and receive Bureau approval of that plan,
prior to providing long distance service on an integrated basis.411 In addition, the price cap independent
ILEC must then implement these metrics and file its performance results, on a quarterly basis, with the
Commission. An independent ILEC taking advantage of this relief shall implement these metrics to the
extent that it provides one or more of the covered special access services to itself, to any affiliate, or to
third parties. The reports are intended to provide the Commission and other interested parties with
reasonable tools to monitor the independent ILEC’s performance in providing these special access
services to itself and its competitors, and evaluating whether any disparities in performance are
statistically significant.412
145.
Imputation. As a separate condition of the relief it granted in the Section 272 Sunset
Order, the Commission required the BOCs and their independent ILEC affiliates to impute access charges
to themselves for access services that the LECs would be using in the provision of their own services (and
that were previously being purchased by the long distance separate affiliate). This was designed to
implement the requirement for access charge imputation by the BOCs that is contained in section
272(e)(3) of the Act.413
146.
For reasons articulated in the Section 272 Sunset Order, we find that a similar
requirement is necessary to provide transparency regarding whether price cap independent ILECs engage
in anticompetitive discrimination in the provision of access services to unaffiliated entities. To help
protect against possible cost misallocation and price squeezes, each price cap independent ILEC taking
advantage of this relief must impute to itself its highest tariffed rate for access, including access provided
over joint-use facilities, with regard to the independent ILEC’s provision of access for any in-region,
interstate and international, long distance services that it provides directly.414 We also require each such
(Continued from previous page)
engage in non-price discrimination in their provisioning of special access services in order to impede competition in
the market for in-region, interstate, long distance services.”).
411 When the Commission granted relief to the BOCs from the structural separations requirement, the BOCs had
“implemented special access performance metrics designed to help ensure that they refrain from non-price
discrimination in their provision of special access services,” and the Commission had approved those metrics.
Section 272 Sunset Order, 22 FCC Rcd at 16487, paras. 96-97. Here, the independent ILECs have not yet
developed or received approval of such performance metrics.
412 We note that these non-price performance metrics involve issues distinct from the special access pricing
flexibility matters also before the Commission, and in no way reflect a pre-judgment of those distinct issues.
413 47 U.S.C. § 272(e)(3) (requiring a BOC and an affiliate that is subject to the requirements of section 251(c) to
“charge the affiliate . . . or impute to itself (if using the access for its provision of its own services), an amount for
access to its telephone exchange service and exchange access that is no less than the amount charged to any
unaffiliated interexchange carriers for such service”).
414 See Section 272 Sunset Order, 22 FCC Rcd at 16490, para. 100 (imposing an identical requirement on the BOCs’
independent incumbent LEC affiliates). Imputation is an accounting and regulatory device that is used in
recognizing intra-company transactions. In the context of access services, this Commission and state commissions
have long recognized the potential for incumbent LECs to use their control over their local networks to impede
competition in services for which local network access is a needed input. Imputation requirements address this
concern by requiring the incumbent LEC to recognize for accounting and other regulatory purposes charges for local
network access equal to the amounts that an unaffiliated third party would pay for comparable access. See, e.g., id.
at 16489-90, para. 287; Application of Access Charges to the Origination and Termination of Interstate, IntraLATA
(continued....)
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price cap independent ILEC to charge any non-rule 64.1903 separate affiliate through which it provides
in-region, interstate or international, long distance services the same amount for access that it would have
charged itself.415 These requirements will assure that the degree of protection against improper cost
shifting does not vary with the independent ILEC’s choice of corporate structure for the provision of
in-region, interstate and international, long distance services.416
147.
In order to implement this requirement, we also require, as a condition of the relief
granted in this Order, that price cap independent ILECs submit access imputation plans similar to those
filed by the BOCs and receive Bureau approval of such plans, prior to providing long distance service on
an integrated basis.417
148.
We find that granting relief from the separate affiliate requirement, subject to these
conditions, is consistent with our prior decisions. In light of the safeguards we adopt in this order, we
conclude that enforcement of the separate affiliate requirement for the provision of in-region long
distance service by independent ILECs subject to price cap regulation is not necessary to ensure that the
charges, practices, classifications, or regulations by, for, or in connection with in-region long distance
service are just and reasonable and are not unjustly or unreasonably discriminatory. In particular, we are
limiting relief to price cap carriers, which have little if any incentive to engage in cost misallocation, and
we are applying safeguards designed to address price squeezes and non-price discrimination. For the
same reasons, we conclude that retention of the separate affiliate requirement for the provision of in-
region long distance service by independent ILECs operating under price cap regulation is not necessary
for the protection of consumers. We also find that the above conditions will ensure that independent
ILECs subject to price cap regulation provide long distance service on an integrated basis in a manner that
is consistent with the public interest. The relief granted in this Order from the separate affiliate
requirement will not become effective unless and until the Office of Management and Budget approves
any information collections associated with these conditions in accordance with the Paperwork Reduction
Act and the Bureau approves the price cap carrier’s plans.418
149.
Rate-of-return Carriers. We find that USTelecom has not met its burden of showing that
it is appropriate to forbear from the separate affiliate requirement for carriers that are not subject to price
cap regulation. As a preliminary matter, we note that, when the Commission granted the BOCs relief
(Continued from previous page)
Services and Corridor Services, Memorandum Opinion and Order, FCC 85-172, 57 RR2d (P&F) 1558, 1985 FCC
Lexis 3510, para. 9 & n.22 (Apr. 12, 1985) (Corridor Services Order) (requiring that LECs impute access charges to
themselves in calculating their interstate, intraLATA toll rates); see also 1998 Biennial Regulatory Review – Part 61
of the Commission’s Rules and Related Tariffing Requirements
, CC Docket No. 98-131, Report and Order and First
Order on Reconsideration, 14 FCC Rcd 12293, 12312, para. 53 (1999) (requiring that price cap LECs offering
interexchange services impute to themselves the same access charges that they impose on interexchange carriers).
415 See Section 272 Sunset Order, 22 FCC Rcd at 16490, para. 100.
416 See id.
417 We note that in the section of this Order addressing forbearance from the Commission’s cost assignment rules,
we require price cap independent ILECs to file imputation plans showing how they would comply with the access
imputation requirement in the absence of the cost assignment rules. See supra Section III.B.3, Cost Assignment
Rules.
418 Obligations associated with the conditions of this forbearance order are information collections as defined by the
Paperwork Reduction Act and must be approved by the Office of Management and Budget. Paperwork Reduction
Act of 1995, Pub. L. No. 104-13, 109 Stat. 163.
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from the structural separation requirement, the BOCs were subject to price cap regulation, and our
analysis was premised on that fact.419
150.
The ability and incentive of independent ILECs to misallocate costs between their
interexchange and exchange access services was one of the major concerns underlying adoption of the
separate affiliate requirement in the Commission’s 1997 LEC Classification Order.420 Price cap
regulation “severs the direct link between regulated costs and prices,” and “a carrier is not able
automatically to recoup misallocated non-regulated costs by raising basic service rates thus reducing
incentives to shift non-regulated costs to regulated services.”421 Independent ILECs providing service
pursuant to price cap regulation thus are unlikely to engage in cost misallocation because their interstate
access rates and compensation are not tied to cost allocations.422 In particular, misallocating costs from
their long distance service operations to their interstate access offerings will not allow them to increase
charges for their interstate access services.
151.
In contrast, cost misallocation is still a concern for independent ILECs that operate under
rate-of-return cost regulation because a portion of their interstate access charge compensation and
universal service support is based on their costs of providing service. This gives them an incentive to
engage in cost misallocation and facilitate a price squeeze. The Commission’s 2011 intercarrier
compensation rules cap or reduce interstate switched access charges, but allow increases in common line
and special access rates. Thus, these changes in the access charge rules reduce, but do not eliminate, the
incentives for cost misallocation and potential access charge rate increases.423 We find that it would be
unwise to forbear from the separate affiliate requirement for rate-of-return independent ILECs subject to
cost regulation. To do so would potentially further increase opportunities for cost misallocation at a time
when the Commission has just embarked on a significant transformation of intercarrier compensation and
universal service.424 Accordingly, we do not forbear from application of the separate affiliate requirement
to rate-of-return independent ILECs subject to cost-based regulation.
152.
We recognize that independent ILEC cost companies participating in the National
Exchange Carrier Association (NECA) pools may have somewhat less incentive to misallocate costs than
such companies that have their own access tariffs. The NECA pool access rates are based on the average
costs for all companies that participate in the NECA pools. While those companies have less direct
ability to increase access rates and engage in a price squeeze than do cost companies that file individual
tariffs, USTelecom has not shown that they lack any ability or incentive to misallocate costs. To the
contrary, they still have an incentive to misallocate costs because disbursements from the NECA pools for
services other than switched access are based on participating companies’ costs, and cost misallocation
would allow them to underprice competitive long distance service. In light of these concerns, and the fact
that USTelecom has not specifically addressed the appropriate treatment of these companies, we will treat
them like other cost companies.

419 See, e.g., Section 272 Sunset Order, 22 FCC Rcd at 16484, para. 90 (noting that the BOCs “remain subject to
price cap regulation of exchange access services”).
420 Id.
421 See Wireline Broadband Order, 20 FCC Rcd at 14925-26.
422 See generally Special Access for Price Cap Local Exchange Carriers: AT&T Corp. Petition for Rulemaking to
Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services,
WC Docket
No 05-25 & RM-10593, Report and Order, 27 FCC Rcd 10557, 10562-64, paras. 8-12 (2012).
423 See USF/ICC Transformation Order, 26 FCC Rcd at 17936, para. 804.
424 Id. at 17667, para. 1.
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153.
As described above, rate-of-return carriers subject to cost regulation continue to have
incentives and the potential ability to misallocate costs from their long distance operations to their access
services, to increase rates for access services that are not capped or being phased down, and to engage in
price squeezes. In light of this, we cannot find that the separate affiliate requirement is not necessary to
ensure that the charges, practices, classifications, or regulations by, for, or in connection with these
carriers’ telecommunications services are just and reasonable and not unjustly or unreasonably
discriminatory.425
(ii)

Dominant Carrier Regulation

154.
We conclude that we do not need to formally grant USTelecom’s related request for
forbearance from dominant carrier treatment of its long distance services that are provided other than in
compliance with section 64.1903 because the Commission has already classified the independent ILECs
as nondominant in the provision of these services. The practical consequence of this is that once the
Commission has forborne from the section 64.1903 requirements for a class of independent ILECs, there
is no requirement under existing precedent to file tariffs for such services or otherwise comply with
dominant carrier regulation of those services as a result of providing long distance services on an
integrated basis. 426
155.
As a general matter, a carrier that has been classified as dominant is subject to dominant
carrier regulation of its services unless the Commission classifies the carrier as nondominant for a
particular service or class of services or forbears from dominant carrier treatment under section 10.427
USTelecom asserts that the Commission has already largely addressed the issue of dominant carrier
regulation for the independent ILECs in the LEC Classification Order: “after analyzing ‘traditional

425 Rate-of-return carriers include a small number of average schedule companies. USTelecom has not met its
burden of demonstrating that these companies should be granted relief from the separate subsidiary requirement. In
light of this and the issues discussed below, we treat the average schedule carriers like other rate-of-return carriers.
At the outset, we note that average schedule companies appear to have limited incentives to misallocate costs as long
as they continue to use the average schedules for access compensation. However, such companies can convert to
cost-based regulation without Commission approval. Thus, an average schedule company could provide in-region
long distance service without a separate affiliate, and then convert to cost-based regulation. At that point, the
Commission could require the company to change its operations and provide in-region long distance service through
a separate affiliate, which would be administratively burdensome, and create an artificial incentive for carriers to
remain on the average schedules when they would otherwise convert to cost-based regulation. We do not believe
that this is a desirable result. Nor do we find on this record that it is desirable to allow average schedule companies
to convert to cost and continue the provision of in-region long distance service without an affiliate.
426 As the LEC Classification Order made clear, section 63.10 of the Commission’s rules continues to apply with
respect to a carrier being classified as dominant or nondominant for the provision of particular international
communications services on particular routes, e.g., based on an affiliation with a foreign carrier. LEC Classification
Order,
12 FCC Rcd at 15863, para. 189; see 47 C.F.R. § 63.10.
427 See, e.g., Competitive Carrier First Report and Order, 85 FCC 2d at 65 (classifying independent incumbent
LECs as dominant with respect to both interstate access services and interstate long distance services); Motion of
AT&T Corp. to be Reclassified as a Nondominant Carrier,
CC Docket No. 79-252, Order, 11 FCC Rcd 3271, 3357,
para. 169 (1995) (reclassifying AT&T as a nondominant carrier in the market for interstate, domestic, interexchange
telecommunications services); Petition of the Embarq Local Operating Companies for Forbearance under 47 U.S.C.
§ 160(c) from Application of Computer Inquiry and Certain Title II Common-Carriage Requirements; Petition of
the Frontier and Citizens ILECs for Forbearance under Section 47 U.S.C. § 160(c) from Title II and Computer
Inquiry Rules with Respect to their Broadband Services
, WC Docket No. 06-147, Memorandum Opinion and Order,
22 FCC Rcd 19478 (2007) (forbearing from application of dominant carrier requirements to certain special access
services of particular dominant carriers).
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market power factors—market share, supply and demand substitutability, cost structure, size, and
resources—,’ the Commission concluded that ‘independent ILECs do not have the ability to raise prices
by restricting their own output.’”428 While there is some ambiguity in the Commission’s precedent, we
agree that the better reading of the LEC Classification Order is that the Commission classified
independent ILECs as nondominant in their provision of long distance services generally and was not
only describing the provision of long distance services through a separate affiliate structure.429 We
recognize that the intervening precedent has not always been clear in this regard, so we explain our
interpretation.
156.
First, the LEC Classification Order examined independent ILECs’ ability to exercise
market power. Instead of simply referencing prior Competitive Carrier orders in which it had previously
classified long distance services provided by independent ILECs, the independent ILEC section of the
LEC Classification Order noted that the Commission was newly considering the types of information that
it traditionally looked at when engaging in classification of carriers as dominant or nondominant: market
shares, supply and demand substitutability, among others. We interpret this as demonstrating that the
Commission was taking a fresh look at the provision of these services and the applicability of dominant
carrier treatment on a more general basis. Moreover, in applying this analytical approach, the text of the
LEC Classification Order treats as distinct the classification finding and the imposition of separate
affiliate requirements. For example, in that Order, the Commission stated generically that “[w]e also
classify the independent ILECs as nondominant in the provision of in-region, interstate, domestic,
interexchange services, because the independent ILECs do not have the ability profitably to raise and
sustain prices of in-region, interstate, domestic, interexchange services above competitive levels by
restricting their own output of these services.”430 The Commission then went on to “conclude, however,
that the independent ILECs’ control of local exchange and exchange access facilities potentially enables
them to misallocate costs from their in-region, interexchange services, discriminate against rivals of their
interLATA affiliates, and engage in other anticompetitive conduct,” and this “therefore require[d] the
independent ILECs to provide their in-region, interstate, domestic, interexchange services through
separate affiliates that satisfy the separation requirements adopted in the Competitive Carrier Fifth Report
and Order
.”431 By distinguishing between these two sets of issues—the ability to raise prices to supra-

428 USTelecom Mar. 28, 2013 Ex Parte Letter at 3 (quoting LEC Classification Order, 12 FCC Rcd at 15847, para.
157).
429 See, e.g., Competitive Carrier Fifth Report and Order, 98 FCC 2d at 1198, para. 9 (“Interstate services provided
directly by exchange telephone companies (not through affiliates) are regulated as dominant.”).
430 LEC Classification Order, 12 FCC Rcd at 15763, para. 7. In discussing dominant carrier regulation, the
Commission noted that there are two ways in which a carrier can profitably raise and sustain prices above
competitive levels and thereby exercise market power: “First, a carrier may be able to raise prices by restricting its
own output (which usually requires a large market share); second, a carrier may be able to raise prices by increasing
its rivals' costs or by restricting its rivals' output through the carrier's control of an essential input, such as access to
bottleneck facilities, that its rivals need to offer their services.” Id. at 15802-03, para. 83. Dominant carrier
regulation addresses the first concern. Id. at 15846, para. 156 (“[D]ominant carrier regulation is generally designed
to prevent a carrier from raising prices by restricting its own output of interexchange services.”). The separate
affiliate requirement addresses the second concern. Id. at 15852, para. 167 (finding continued imposition of the
Fifth Report and Order separation requirements was “necessary to prevent and detect any anticompetitive conduct
that may arise as a result of an independent LEC's control of bottleneck facilities.”).
431 Id. at 15763, para. 7; see also, e.g., id. at 15847, para. 157 (similarly treating as distinct the classification decision
and the separate affiliate requirements); id. at 15854-55, para. 171 (reiterating the general holding that “we should
not apply dominant carrier regulation to independent ILECs” and explaining that such regulation is not needed to
address the types of concerns that were the target of the separate affiliate requirement).
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competitive levels and the ability to engage in anti-competitive conduct—the text of the LEC
Classification Order
reinforces our interpretation that the Commission’s nondominant classification for
independent ILECs’ provision of long distance services was not tied to their use of a separate affiliate.432
157.
Second, the Commission certainly knew how to specify a conditional classification—
such as classifying a service as subject to nondominant treatment only when provided through a separate
affiliate—as it had done earlier in the Competitive Carrier Fourth Report and Order and the Competitive
Carrier Fifth Report and Order
, but did not do so for independent ILECs in the LEC Classification
Order
.433 In fact, the BOC portion of the same LEC Classification Order was itself clear that the
classification it was making regarding nondominant treatment did not pertain to the BOCs themselves, but
only to the BOCs’ long distance affiliates. 434 The contrast between that discussion for the BOCs and the
language used in the LEC Classification Order with respect to independent ILECs reinforces our
interpretation.435
158.
Third, it certainly would have been rational for the Commission in 1997 to have treated
the BOCs and independent ILECs differently on the question of dominant carrier treatment, given that
some of the factors it had considered in its market power analysis of the independent ILECs were “cost
structure, size and resources.”436 It also would have been consistent with the Telecommunications Act of

432 See id. at 15804, para. 85 (finding that dominant carrier regulations are generally designed to prevent a carrier
from raising prices by restricting its output rather than to prevent a carrier from raising its prices by raising its rivals'
costs, such regulations were adopted at a time when AT&T was essentially a monopoly provider of domestic long
distance services, and application of these regulations to a carrier that does not have the ability to raise long distance
prices by restricting its own output could lead to incongruous results).
433 Id. at 15767-68, para. 14 (“The Commission [in the Competitive Carrier Fifth Report and Order] added that any
interstate, interexchange services offered directly by an independent LEC (rather than through a separate affiliate) or
through an affiliate that did not satisfy the specified conditions would be subject to dominant carrier regulation.”);
Competitive Carrier Fifth Report and Order, 98 FCC 2d at 1198-99, para. 9 (“Interstate services provided directly
by exchange telephone companies (not through affiliates) are regulated as dominant.”); Competitive Carrier Fourth
Report and Order
, 95 FCC 2d at 575-79, paras. 31-37 (concluding that interexchange carriers affiliated with
independent ILECs would be regulated as nondominant interexchange carriers).
434 Compare LEC Classification Order, 12 FCC Rcd at 15835, para. 134 (“We emphasize that our decision to accord
non-dominant treatment to the BOCs' provision of in-region, interLATA services is predicated upon their full
compliance with the structural, transactional, and nondiscrimination requirements of section 272 and our
implementing rules.”), with id. at 15842, para. 145 (noting that in an NPRM leading up to the LEC Classification
Order,
“[w]e suggested that, regardless of our determination of whether independent LECs should be classified as
dominant or non-dominant, some level of separation may be necessary between an independent LEC's interstate,
domestic, interexchange operations and its local exchange operations to guard against cost misallocation, unlawful
discrimination, or a price squeeze”).
435 Compare id. at 15763, para. 7 (“We classify the independent ILECs as nondominant in the provision of in-region,
interstate, domestic, interexchange services, because the independent ILECs do not have the ability profitably to
raise and sustain prices of in-region, interstate, domestic interexchange services above competitive levels by
restricting their own output of these services.”); id. at 15840-41, para. 143 (“We, therefore, classify independent
ILECs as nondominant in the provision of these [long distance] services.”); id. at 15855, para. 171 (“As previously
stated, we conclude that we should not apply dominant carrier regulation to independent ILECs.”), with id. at 15786,
para. 50 (evaluating product market definitions for “BOC interLATA affiliates or independent ILECs”); id. at
15799, para. 76 (“In evaluating whether BOC interLATA affiliates and independent ILECs possess market power in
the interstate, domestic, long distance market, we conclude that we generally will follow the approach proposed in
the Non-Accounting Safeguards NPRM.”).
436 Id. at 15847, para. 157.
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1996 and Commission precedent distinguishing between the BOCs and smaller independent ILECs for
purposes of dominant carrier regulation.437 Furthermore, it made sense for the Commission in the LEC
Classification Order
to assess the classical market power of “BOC affiliates” and “independent ILECs” in
1997 because, with respect to the BOCs, only BOC affiliates would be permitted to provide long distance
service for a period of years under section 271/272 requirements in the Telecommunications Act of 1996,
whereas with respect to the independent ILECs, both independent ILECs and their affiliates could
provide, and in fact were providing, long distance services at that time.438
159.
Although there are some references in the LEC Classification Order that arguably could
be viewed as tying the conclusion about whether the independent ILECs are dominant for long distance
services to the existence of the separate affiliate requirement, we find that those references appear to be
focused on the potential for a price squeeze and other concerns about exclusionary behavior rather than
the question of dominance based on classical market power concerns such as high market shares and
supply and demand elasticities.439 In the preceding section, we describe how, for price cap carriers, these
concerns are adequately addressed with alternative safeguards that are less burdensome than structural
separation.
160.
In addition, certain Commission decisions, including some following shortly after the
LEC Classification Order, support our interpretation of that decision. For example, the Commission
previously has characterized the LEC Classification Order as having “classified independent incumbent
LECs and their affiliates as nondominant in the provision of interstate, interexchange services,”
indicating that the nondominant classification extended to the independent ILECs themselves.440 In
another order, the Commission likewise interpreted the LEC Classification Order as finding “that
independent ILECs should be classified as nondominant because they do not have the ability profitably to
raise and sustain prices of in-region, interstate, domestic, interexchange services by restricting output, but
that,” notwithstanding that general finding, “such LECs should be required to provide these services
subject to the Competitive Carrier Fifth Report and Order separation requirements in order to prevent and
detect cost misallocation, access discrimination, and price squeeze,” consistent with the LEC
Classification Order
’s textual distinction between those two sets of issues discussed above.441 We

437 See, e.g., 47 U.S.C. § 251(f).
438 LEC Classification Order, 12 FCC Rcd at 15856, para. 173 (discontinuing the ability of independent ILECs to
choose whether to be regulated as a dominant carrier when providing in-region, interstate, domestic interexchange
services or provide such services through the separate affiliate structure). See id. at 15835, para. 134 n.391 (noting
significant uncertainty about how competition would develop and what types of safeguards would be necessary and
appropriate for the BOCs upon expiration of the section 272 safeguards that were subject to a sunset date).
439 See, e.g., id. at 15840-41, para. 143 (“[W]e conclude that the requirements established in the Fifth Report and
Order
, together with other existing rules, sufficiently limit an independent LEC's ability to exercise its market power
in the local exchange and exchange access markets so that the LEC cannot profitably raise and sustain the price of
in-region, interstate, domestic, interexchange services by restricting its own output. We, therefore, classify
independent ILECs as nondominant in the provision of these services.”); id. at 15848-49, para. 158 (“We noted in
the Non-Accounting Safeguards NPRM that an independent LEC may be able to use its control over local exchange
and exchange access services to disadvantage its interexchange competitors to such an extent that it will quickly
gain the ability profitably to raise the price of in-region, interstate, interexchange services above competitive levels. .
. . . We find, as we did with regard to the BOCs, that independent ILECs providing in-region, interstate,
interexchange services do not have the ability to engage in these actions to such an extent that they would have the
ability to raise prices by restricting output.”).
440 Policy and Rules Concerning the Interstate, Interexchange Marketplace, Further Notice of Proposed
Rulemaking, 13 FCC Rcd 21562, 21544-45, para. 24 (1998).
441 LEC Classification Second Reconsideration Order, 14 FCC Rcd at 10777, para. 8.
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acknowledge that certain other, more recent decisions could be read to suggest that, under the LEC
Classification Order
, independent ILECs would be subject to dominant carrier regulation of long distance
services that were not provided using the section 64.1903 separate affiliate structure. For instance, in a
2010 bureau order waiving section 64.1903 requirements for Puerto Rico Telephone Company, Inc.
(PRT), the Bureau stated that “[a] straightforward application of precedent dictates that PRT should be
classified as dominant in the provision of in-region, interstate and international, long distance services in
the event it provides them through an entity other than a rule 64.1903 separate affiliate.”442 The fact that
the Bureau said it was making a “straightforward application of precedent” indicates that there may have
been some doubt about whether it was making the correct interpretation and it was choosing the most
conservative approach. To resolve uncertainty regarding the proper interpretation of the LEC
Classification Order
arising from the mixed precedent, we expressly overrule the interpretations reflected
in the Bureau’s PRTC Order and any other intervening interpretations of the LEC Classification Order
insofar as they could be read as contrary to our interpretation in this section regarding dominant carrier
treatment of independent ILECs’ long distance services.
161.
Having found that lack of compliance with the section 64.1903 requirements for
independent ILECs no longer results in dominant carrier treatment of their long distance services, as it did
prior to the LEC Classification Order, we also are not required to affirmatively take up that issue
ourselves to resolve USTelecom’s forbearance petition. We do note, however, that based on this record
we see no need to revisit that Order’s classification of such services at this point in time. Although we
certainly could revisit such classification of telecommunications services at any time if the marketplace
developed in ways that were adverse to consumers’ interests, we do not find reason to do so today based
on the following considerations: (1) an increase in facilities-based alternatives for voice services from
cable operators and wireless service providers since 1997;443 (2) the development of broadband services
enabling VoIP services (e.g., Vonage, Skype) to be provided over the broadband service provider’s

442 Petition of Puerto Rico Telephone Company, Inc. and Puerto Rico Telephone Larga Distancia, Inc. for Waiver of
Section 64.1903 of the Commission’s Rules
, WC Docket No. 10-52, Memorandum Opinion and Order, 25 FCC Rcd
17704, 17713, para. 18 (Wireline Comp. Bur. 2010) (granting a temporary waiver of section 64.1903 and deferring
application of dominant carrier regulation until PRT filed an interstate tariff or made a showing that it should be
classified as nondominant in the provision of in-region long distance services on an integrated basis); see also, e.g.,
Section 272 Sunset Order, 22 FCC Rcd at 16476, para. 72 (finding the BOCs’ independent ILEC affiliates to be
nondominant in the provision of in-region, long distance services either directly or through affiliates that are not
§ 64.1903 separate affiliates); Review of Regulatory Requirements for Incumbent LEC Broadband
Telecommunications Services
, CC Docket No. 01-337, Notice of Proposed Rulemaking, 16 FCC Rcd 22745, 22753-
54, para. 16 (2001) (“[T]he Commission determined that BOC affiliates and independent incumbent LEC affiliates
should be classified as nondominant in the provision of in-region, interstate, domestic, long distance services”).
443 By the end of 2011, non-ILECs’ share of residential voice service connections had grown to approximately 37
percent. 2013 Local Competition Report at Table 10 (30.5 million is approximately 37 percent of 83.0 million). As
of December 2011, only 3.7 million of the 30.5 million non-ILEC residential voice service connections were
reported to be switched access lines. Id. Cable-based connections constituted 51 percent of non-ILEC connections.
Id. at Table 6 (27.8 million cable-based connections is approximately 51 percent of 54.1 million non-ILEC
connections.). There also has been an increase in households subscribing to mobile wireless services. For example,
the National Center for Health Statistics estimates that between 2003 and 2012, the percentage of households
subscribing to mobile wireless services grew from approximately 46 percent to 88 percent, and the percentage of
households subscribing only to a mobile wireless service increased from 3.2 percent to 35.8 percent. Stephen J.
Blumberg and Julian V. Luke, National Center for Health Statistics, Centers for Disease Control, Wireless
substitution: Early release of estimates from the National Health Interview Survey
, January–June 2012 at Table 1
(Dec. 2012), available at http://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless201212.pdf (CDC Wireless
Survey).
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facilities;444 (3) an absence of record evidence of complaints in regulatory filings about long distance
prices for any type of ILEC in the more than 15 years since the LEC Classification Order adopted
nondominant treatment of long distance services; and (4) an absence of record evidence of complaints
regarding BOC long distance prices in the more than five years since the BOCs have been providing long
distance services on a nondominant basis without the use of a separate affiliate. Further, as the
Commission recognized in the Section 272 Sunset Order, other continuing legal obligations remain in
place to help address potential concerns, including the continued regulation of special access services,
substantive equal access obligations, section 251 requirements, and carriers’ obligations under sections
201 and 202 of the Act.445 In addition to the continuing legal obligations cited in the Section 272 Sunset
Order
, the rate averaging and rate integration requirements of section 254(g) and the Commission’s
implementing rules also will continue to apply to these carriers.
162.
Finally, we note that one price cap carrier, PRTC, is operating under a temporary waiver
of the separate affiliate requirement in section 64.1903, which expires on May 17, 2013.446 PRTC is an
independent incumbent LEC serving the Commonwealth of Puerto Rico. During 2008, PRTC converted
its interstate access services from rate-of-return regulations to price cap regulations.447 Thus, PRTC is
now covered by the forbearance from section 64.1903 that is granted to price cap carriers in this Order
and will be treated as nondominant, consistent with our interpretation of Commission precedent above.
12.
“Cash Working Capital Allowance” Requirement
a.

USTelecom’s Request

163.
USTelecom requests forbearance from section 65.820(d), the cash working capital
allowance rule, for price cap carriers.448 USTelecom argues that the rule is not useful for ratemaking
purposes and serves no regulatory purpose.449
b.

Background

164.
The term “cash working capital” means “[t]he average amount of investor-supplied
capital needed to provide funds for a carrier’s day-to-day interstate operations” and is part of a carrier’s
regulated rate base.450 The cash working capital rule derives from traditional rate-of-return regulation.451

444 Eighth Broadband Progress Report, 27 FCC Rcd 10342 (2012).
445 See, e.g., Section 272 Sunset Order, 22 FCC Rcd at 16484, para. 90.
446 Petition of Puerto Rico Telephone Company, Inc. and Puerto Rico Telephone Larga Distancia, Inc. for Waiver of
Section 64.1903 of the Commission's Rules
, WC Docket No. 10-52, Order, 28 FCC Rcd 1072, 2496, para. 4
(Wireline Comp. Bur. 2013).
447 See Petition of Puerto Rico Telephone Company, Inc. for Election of Price Cap Regulation and Limited Waiver
of Pricing and Universal Service Rules; Consolidated Communications Petition for Conversion to Price Cap
Regulation and for Limited Waiver Relief; Frontier Petition for Limited Waiver Relief upon Conversion of Global
Valley Networks, Inc., to Price Cap Regulation
, WC Docket Nos. 07-292, 07-291, 08-18, Order, 23 FCC Rcd 7353
(Wireline Comp. Bur. 2008)).
448 47 C.F.R. § 65.820(d); USTelecom Petition at 68-69, App. A at A-12.
449 USTelecom Petition at 68.
450 47 C.F.R. § 65.820(d). Telecommunications companies, as other businesses, have day-to-day expenses that have
to be met, and as a result they are required to have a source of funds – working capital – in order to pay these
obligations. JAMES C. BONBRIGHT, ALBERT L. DANIELSEN & DAVID R. KAMERSCHEN, PRINCIPLES OF PUBLIC
UTILITY RATES 243 (Public Utilities Reports, Inc. 1988). Cash working capital may be described as an estimate of
investor-supplied cash used to finance operating costs during the time lag before revenues are collected. Id. at 244.
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Rate-of-return carriers are allowed to include the working capital allowance in the rate base, upon which
these carriers are allowed the opportunity to earn a rate of return.452 The rule provides that larger carriers
may calculate the cash working capital allowance either by performing a lead-lag study of interstate
revenue and expense items or by using a specified formula, and that smaller carriers, in lieu of using these
methods, may make this calculation using a standard established by the Commission.453 Currently, price
cap carriers other than AT&T, Qwest, and Verizon are required under section 65.600 to file the annual
Price-Cap Regulation Rate-of-Return Monitoring Report (FCC Form 492A), which includes a cash
working capital calculation.454 To the extent that price cap carriers meet the conditions for forbearance
from our Cost Assignment Rules, set forth above, that report will no longer be required for regulatory
purposes because that rule is part of the Cost Assignment Rules.455
c.

Discussion

165.
We grant USTelecom’s request to forbear from the application of this rule to price cap
carriers, with one exception described below. USTelecom asserts that “this calculation is detailed, time
consuming, and resource-intensive,” but is not required for any regulatory or ratemaking purpose for price
cap carriers.456 We agree in general that the rule does not continue to be necessary for price cap carriers,
whose rates are not set so as to earn a particular rate of return on rate base; instead, these carriers’ rates
are constrained by the Commission’s price cap methodology.457
166.
We maintain the rule for price cap carriers, however, to the extent they seek relief based
on a rate-of-return methodology. Under our rules, price cap carriers may seek relief – such as a TCER –
that is based on a rate-of-return methodology and thus requires a cash working capital calculation to
determine a carrier’s cost in that case.458 If a price cap carrier seeks such relief, it must comply with the
methodology as provided in the rule.459 Otherwise, however, we conclude that the requirement is not
necessary to ensure just and reasonable rates as it is not generally used in regulating price cap carriers’
(Continued from previous page)
451 See Letter from Glenn T. Reynolds, Vice President, Policy, USTelecom, to Marlene Dortch, Secretary, FCC, WC
Docket No. 12-61, at 26 (filed June 5, 2012).
452 For rate-of-return carriers, an allowance for cash working capital is included in the rate base so that investors are
compensated for capital they have supplied to a utility. CHARLES F. PHILLIPS, JR., THE REGULATION OF PUBLIC
UTILITIES 348 (Public Utilities Reports, Inc. 1993).
453 47 C.F.R. § 65.820(d).
454 47 C.F.R. § 65.600. In its petition, USTelecom asserted the calculation was required for certain annual reports
that are filed. USTelecom Petition at 68. In a subsequent filing, however, it indicated that this calculation was not
included in carrier reports filed with the Commission. Letter from Glenn Reynolds, Vice President, Policy,
USTelecom, to Marlene Dortch, Secretary, FCC, WC Docket No. 12-61 (filed March 8, 2013).
455 USTelecom Petition, App. A at A-7; see also AT&T Cost Assignment Order, 23 FCC Rcd at 7308, para. 12;
ARMIS Forbearance Order, 23 FCC Rcd at 13662, para. 27, n.82. We note that the cash working capital calculation
was also required for ARMIS Report 43-01, but we grant conditional forbearance from that report elsewhere in this
Order. See supra Section III.B.7.
456 USTelecom Petition at 68.
457 See, e.g., 47 C.F.R. §§ 61.41-.47.
458 See, e.g., USF/CC Transformation Order, 26 FCC Rcd at 17997, para. 924 (Total Cost and Earnings Review).
459 The Michigan PSC is the only party that opposes USTelecom’s request to forbear from this rule. It argues that
USTelecom did not sufficiently support its claim that the cash working capital calculation serves no regulatory
purpose for price cap carriers. Michigan PSC Reply at 5. We disagree consistent with our finding that the
calculation is not necessary, subject to the condition we adopt here.
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rates. We also find that the cash working capital requirement is not necessary to protect consumers and
that forbearance is consistent with the public interest.
13.

Rules Governing Extension of Unsecured Credit for Interstate and Foreign
Communications Services to Candidates for Federal Office

a.

USTelecom’s Request

167.
USTelecom seeks forbearance for all relevant carriers from 47 C.F.R. §§ 64.801 and
64.804, which require certain carriers to file periodic reports with the Commission detailing the terms of
any unsecured credit extended by the carrier to, or on behalf of, a candidate for federal office.460 Carriers
must extend unsecured credit on substantially equal terms to all candidates or persons on the candidate’s
behalf.461 USTelecom argues that, since these provisions were adopted, numerous laws have been enacted
governing campaign finance, gifts to government officials or candidates, and credit arrangements that
obviate the need for our rules. There were no objections or comments filed in the record regarding these
rules or contradicting USTelecom’s claims.
b.

Background

168.
This reporting requirement was established pursuant to the Commission’s authority under
the Act and Section 401 of the Federal Election Campaign Act of 1971, and was intended to serve as a
check on implied contributions by carriers to candidates for Federal office.462 The regulations were
adopted in response to congressional concerns regarding substantial outstanding balances remaining on
1968 campaign accounts.463 The Commission concluded that inadequate credit practices and procedures,
laxity in the administration of the carriers’ then-current credit practices and procedures, failure to monitor
the candidates’ accounts, delays in billing, and lack of appropriate collection efforts were among the
major factors contributing to the unpaid balances accrued during the 1968 political campaign.464 By 1972,
when the rules were first proposed, the Commission noted that the major carriers had already revised their
credit, billing and collection practices and procedures, and commented, “we would expect that adherence
to these revised practices and procedures would help to prevent a recurrence of the unpaid balances that
occurred during the 1968 campaign. Nevertheless, we are of the view that the rules we propose herein
will act as additional safeguards against a repetition of the 1968 experience
and will assure equality of
treatment among qualified candidates.”465
c.

Discussion

169.
In the USTelecom Short Order, we agreed with USTelecom that these rules were ripe for
forbearance, but declined to forbear from application of all provisions in Subpart H due to the
requirement of the Federal Election Campaign Act of 1971, as amended, that the Commission “maintain[]

460 USTelecom Petition at 67; see also 47 C.F.R. §§ 64.801-64.804.
461 47 C.F.R. § 64.804(b).
462 See Amendment of Part 64 of the Rules to Provide for Regulations Covering the Extension of Credit to
Candidates for Federal Office
, Docket No. 19476, Report and Order, 34 FCC 2d 768, 771 (1972) (citing “sections
4(i), 201(b), 202(a), 203, 218 and 219 of the Communications Act of 1934, as amended, and § 401 of the Federal
Election Campaign Act of 1971” as authority for the regulations).
463 Amendment of Part 64 of the Rules to Provide for Regulations Covering the Extension of Credit to Candidates
for Federal Office
, Docket No. 19476, Notice of Proposed Rulemaking, 33 FCC 2d 999 (1972).
464 Id.
465 Id. at 1000 (emphasis added).
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its own regulations with respect to the extension of credit, without security” by regulated entities.466 We
read this provision of the statute as requiring the Commission to maintain a codified and effective rule on
the subject of carriers’ extensions of unsecured credit to candidates for federal office. However, we do
find that some additional forbearance relief is warranted. The Commission acknowledged as early as
1972 that changes to carrier practices were likely on their own to prevent a recurrence of the problems
Congress sought to address through section 401. Some 41 years later, we find no evidence that carriers’
billing and collections procedures have reverted to the level of laxity found in 1968.467
170.
In addition to our earlier grant of forbearance from the reporting requirement in
§ 64.804(g) of our rules, we grant USTelecom’s request for forbearance with respect to the recordkeeping
and collection action requirements of § 64.804(c)-(f).468 Given changes in both technology and carriers’
practices, these rules are not necessary to ensure that charges, practices, classifications, or regulations are
just, reasonable, and not unjustly or unreasonably discriminatory; are no longer needed to protect
consumers; and continued enforcement of these requirements would not serve the public interest.
However, we deny USTelecom’s request with respect to the nondiscrimination requirements
encompassed in § 64.804(a)-(b) of the rules. Section 64.804(a) provides that, while carriers are under no
obligation to extend unsecured credit for communications services to candidates for federal office, if they
choose to do so, they must comply with the remaining requirements of section 64.804.469 In the event a
carrier does extend unsecured credit to any candidate, section 64.804(b) requires the carrier to extend
unsecured credit on substantially equal terms and conditions to all candidates.470 The record does not
suggest that the obligation to extend credit on substantially equal terms creates any burden or is
unnecessary to protect the public interest. Moreover, we find that retaining this rule is consistent with the
directive to maintain regulations pursuant to the Federal Election Campaign Act of 1971 while imposing
minimal burdens on carriers.
14.

Recording of Telephone Conversations with Telephone Companies

a.

USTelecom’s Request

171.
USTelecom requests forbearance for all carriers from rules governing the recording of
telephone conversations between a telephone company and the public.471 USTelecom argues that section
64.501 “has been rendered moot by the development of a robust body of privacy laws at the federal and
state level,” and relies on the Federal Wiretap Act in support of that argument. It further asserts that there
is no reason to treat telephone companies differently from other companies when it comes to rules

466 2 U.S.C. § 451; USTelecom Short Order at para. 12.
467 We have not found evidence of any carrier reports filed with the Commission pursuant to § 64.804(g) regarding
federal candidates’ unpaid balances for communications services resulting from the extension of unsecured credit.
To the contrary, at least one carrier reports that neither it nor its wholly-owned affiliates extend unsecured credit for
communications services to any candidates for Federal office. See Letter from Victoria Carter-Hall, Manager-
Federal Regulatory, AT&T, to Julie Veach, Bureau Chief, Wireline Competition Bureau, FCC, Re: Unsecured
Political Accounts, dated January 29, 2013.
468 47 C.F.R. § 64.804(c)-(f). Although we are forbearing from applying the recordkeeping rules of this section, we
remind carriers that we still retain authority under the Act to seek information regarding their practices with regard
to any unsecured credit they might extend to a candidate for federal office. See, e.g., 47 U.S.C. §§ 220, 405.
469 47 C.F.R. § 64.804(a). To be clear, if a carrier chooses to extend such unsecured credit, the obligation in
subsection (b) will apply, but the obligations in subsections (c) through (g) will not.
470 47 C.F.R. § 64.804(b).
471 USTelecom Petition at 70; see also 47 C.F.R. § 64.501.
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governing the recording of conversations with customers, and also claims that the rule represents an
obligation imposed unnecessarily on only a subset of competitors in the communications marketplace.472
b.

Background

172.
Section 64.501 is the present-day iteration of rules first promulgated in 1947 to govern
the recording of telephone conversations between telephone companies and members of the public.473
The Commission instituted a proceeding investigating the use of recording devices in connection with toll
telephone service and facilities in 1945, due to the conflict between carriers’ then-existing tariff
provisions prohibiting such use and the demand for such use that became apparent during and after World
War II.474 At that time, the carriers themselves raised privacy concerns with respect to allowing such
recordings, and the need for adequate notice to the parties that their conversations were being recorded.475
173.
The California PUC (CPUC) opposes eliminating this rule, contending that it has not
been rendered moot by the Federal Wiretap Act, which provides less stringent protection to consumers, or
by state laws.476 The CPUC further argues that it is appropriate to treat telephone companies differently
from other companies because telephone companies control the network over which communications are
sent.477
c.

Discussion

174.
As USTelecom acknowledges, businesses routinely announce that a call “may be
recorded for quality control or training purposes.”478 Thus, we question whether the rule imposes a
substantial burden. Nonetheless, for carriers that operate exclusively in jurisdictions that permit one
caller to record the call without the other party’s knowledge, the rule does impose burdens. Moreover, we
agree that, since we initiated the rule more than 60 years ago, the Federal Wiretap Act, as well as State
laws, have addressed the same issue in a more comprehensive fashion. Notwithstanding the CPUC’s
arguments, we are not convinced that a telephone company’s position as its customers’ network provider
puts it in a different position when speaking to its customers than any other business.479 That is, we see

472 USTelecom Petition at 70-71.
473 See Use of Recording Devices in Connection with Telephone Service, Docket No. 6787, Report, 11 FCC 1033
(1947).
474 Id. (“[T]his matter became acute because of the widespread use of such devices during and since World War II.
The Bell System companies withheld enforcement of the pertinent tariff regulations during the war since it was
indicated that the recording devices were being used in war activities. With the termination of hostilities, however,
the question of the status of these devices is presented.”)
475 In its 1947 order, the Commission said, “[t]he telephone companies submit that the fundamental principle in
solving the problem of the use of recorders in connection with telephone service is that any use without the full
knowledge and consent of all parties to the conversation must be prohibited.” Id. The Commission agreed, noting
that it was “keenly appreciative of the importance and desirability of privacy in telephone conversations. Such
conversations should be free from any listening-in by others that is not done with the knowledge and authorization
of the parties to the call . . . .” Id.
476 California PUC Comments at 11-12. The CPUC notes that the Commission rule requires consent of all parties to
the conversation, whereas the Federal Wiretap Act only requires one party to have knowledge that the call is being
recorded, and only 12 states, including California, require all parties to consent to interception or recording when
that interception is done by a private party not under the color of law.
477 Id. at 12-13.
478 USTelecom Petition at 70.
479 Our decision to forbear from applying § 64.501 should not be construed as preferring a single-party consent rule.
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no reason that a telephone company should be subject to different requirements with respect to its
recording of conversations with its customers than should other businesses.480
175.
We find that enforcement of this rule is not necessary to ensure that charges, practices,
classifications or regulations are just and reasonable, and not unjustly or unreasonably discriminatory, nor
is enforcement of the rule necessary to ensure the public interest, in light of other pertinent rules regarding
recording of telephone conversations. Competitive market conditions will not be harmed, and might be
enhanced, by relieving telephone companies of this burden. We thus conclude that forbearance from this
rule is warranted. However, we emphasize that our decision here is not intended to preempt any state
requirements regarding such recordings, nor does it preclude any state from adopting rules, like those in
California and other states, that require all parties to consent to recording.
15.

Prepaid Calling Card Reporting Requirements (§ 64.5001)

a.

USTelecom’s Request

176.
USTelecom requests forbearance from section 64.5001, which establishes reporting and
certification requirements for prepaid calling card providers.481 USTelecom argues that there is no need
for any of these requirements.482
b.

Background

177.
Sections 64.5001(a) and (b) require prepaid calling card providers to report to their
transport providers specific information, including percentage of interstate usage (PIU) factors and call
volumes for which these factors were calculated.483 Section 64.5001(c) requires that the officer of each
prepaid calling card provider submit a quarterly certification to the Commission stating: (1) the
percentage of intrastate, interstate, and international calling card minutes for the reporting period;484
(2) the percentage of total prepaid calling card revenue attributable to interstate and international calls for
the reporting period;485 (3) that the provider “is making the required Universal Service Fund
contribution”;486 (4) that this contribution is “based on the reported information”;487 and (5) that the
prepaid calling card provider has complied with the reporting requirements as to carriers from which it
purchases transport services.488

480 The rule governs the telephone company’s conversations with customers, and does not address the very different
issue of recording third-party conversations.
481 USTelecom Petition at 72. Prepaid calling card providers are treated as telecommunications carriers and are
subject to the Act and the Commission’s rules. Regulation of Prepaid Calling Card Services, WC Docket No. 05-
68, 21 FCC Rcd 7290, 7293, 7298, paras. 10, 21 (2006) (Prepaid Calling Card Services Order).
482 USTelecom Petition at 72.
483 47 C.F.R. § 64.5001(a), (b).
484 Id. § 64.5001(c)(1).
485 Id. § 64.5001(c)(2).
486 Id. § 64.5001(c)(3).
487 Id. § 64.5001(c)(3); see also Prepaid Calling Card Services Order, 21 FCC Rcd at 7298, para. 22 (stating that
“prepaid calling card providers must contribute to the federal USF based on interstate and international
telecommunications revenues”); id. at 7304, para. 38.
488 47 C.F.R. § 64.5001(c)(4) (requiring the certification by the calling card provider to include a statement that it
has complied with the reporting requirements in § 64.5001(a)).
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c.

Discussion

178.
We grant USTelecom’s request for forbearance from the reporting and certification
requirements in this rule, except for one provision in section 64.5001(c)(3) as it applies to certain prepaid
calling card providers. The provision for which we deny forbearance in part requires an officer of a
prepaid calling card provider to certify it “is making the required Universal Service Fund contribution
based on the reported information” to the Commission.489 For that provision, we grant forbearance only
to those prepaid calling card providers that have a two-year track record of timely filing required annual
and quarterly Telecommunications Reporting Worksheets (FCC Forms 499-A and 499-Q). Once a
prepaid calling card provider has established that track record, it need not comply further with section
64.5001(c)(3).490
179.
The Commission adopted section 64.5001 on an interim basis for two reasons. First, the
Commission adopted this rule to establish “certification and reporting requirements that compel the
prepaid calling card provider to share the necessary information with the carriers that it uses to transport
traffic.”491 Second, it adopted the rule to address the potential for evasion of universal service
contributions that arose from the difficulty in determining whether prepaid calling card calls were used to
provide interstate or intrastate traffic.492
180.
With respect to the first and second prongs of our forbearance analysis, we find that the
requirements in rule 64.5001 related to reporting and certifying prepaid calling card traffic for the purpose
of distinguishing minutes of use between interstate and intrastate jurisdictions are no longer necessary to
ensure just and reasonable rates or to prevent unreasonable or unjust discrimination.493 As USTelecom
explains, and no commenter disputes, “[c]arriers have established business practices for exchanging
required data” in the absence of these requirements.494 Thus, continued enforcement of rules to force that
information exchange to ensure just and reasonable rates or to prevent unreasonable or unjust
discrimination are no longer necessary.
181.
For the same reasons, under the second prong of our analysis, we find that these
provisions are not necessary to protect consumers, and note recent consumer protection efforts by the
Commission involving the prepaid calling card industry.495 Because these requirements are no longer

489 47 C.F.R. § 64.5001(c)(3). The rule requires the calling card provider to file a certified “statement that it is
making the required Universal Service Fund contribution based on the reported information.” Id. (emphasis added).
As a result of our forbearance grant, the “based on the reported information” requirement is no longer applicable.
490 We note prepaid calling card providers are not required to pay USF contributions on revenue generated from
prepaid calling cards sold by, to, or pursuant to contract with the Department of Defense, as a result of the
Commission’s prior forbearance decision. Prepaid Calling Card Services Order, 21 FCC Rcd at 7299, para. 25.
The grant of forbearance from rule 64.5001(c)(2) does not affect this universal service fund exemption.
491 Prepaid Calling Card Services Order, 21 FCC Rcd at 7300, para. 29.
492 Id. at 7293, 7300-01, paras. 8, 29.
493 Specifically, we refer to subsections 64.5001(a), (b), (c)(1), (c)(2), and (c)(4). See 47 C.F.R. § 64.5001 (a), (b),
(c)(1), (c)(2), (c)(4).
494 See USTelecom Petition at 72.
495 The Commission has found that unfair and deceptive marketing practices are a violation of section 201(b) of the
Act, see, e.g., Business Discount Plan, Inc., Order of Forfeiture, 15 FCC Rcd 14461 (2000), and has issued Notices
of Apparent Liability (NALs) against prepaid calling card providers with respect to such activity. See, e.g., STi
Telecom Inc. (formerly Epana Networks, Inc.),
Notice of Apparent Liability for Forfeiture, 26 FCC Rcd 12808,
12810-11, paras. 6-7 (2011) (finding that the marketing materials used to sell prepaid calling cards were misleading
and deceptive regarding the rates and charges applicable to the service and therefore apparently violated Section
(continued....)
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necessary to ensure just and reasonable rates or to prevent unreasonable or unjust discrimination, and are
not necessary to protect consumers, we also find forbearance here to be in the public interest. As
discussed above, the industry has established business practices to achieve the same purposes, and it is in
the public interest to remove duplicative, outmoded and unnecessary requirements in response to the
marketplace. We find that elimination of these unnecessary requirements will foster competition by
removing regulatory burdens and the resulting costs.
182.
We also grant in part, under our three-part forbearance analysis, USTelecom’s request to
forbear from 47 C.F.R. 64.5001(c)(3), the provision of the rule requiring an officer of each prepaid calling
card provider to certify quarterly to the Commission, under penalty of perjury, that the provider “is
making the required Universal Service Fund contribution.”496 We grant forbearance only to those prepaid
calling card providers that have a two-year track record of complying with their obligations to file annual
and quarterly Telecommunications Reporting Worksheets, FCC Forms 499-A and 499-Q.497 A provider
will be treated as complying with those obligations if it receives a waiver from the Commission or USAC
for an untimely filing. In establishing eligibility for forbearance, the two-year period extends backwards
from the due date of each quarterly certification under section 64.5001(c)(3). Thus, for the next quarterly
certification, due August 1, 2013, the period will extend back to August 1, 2011. For the subsequent
quarterly certification, due November 1, 2013, the period will extend back to November 1, 2011. This
will allow a provider that does not currently meet the condition for full forbearance from section
64.5001(c)(3) to meet that condition through compliance with Form 499-A and 499-Q filing obligations
for any two-year period. Once a prepaid calling card provider has established that track record, it need
not comply further with section 64.5001(c)(3).
183.
Forms 499-A and 499-Q, which are used to calculate USF contribution assessments,
provide historical and projected data on filers’ telecommunications revenues, including prepaid calling
card revenues. We find that prepaid calling card providers who have submitted their Forms 499-A and
499-Q in a timely manner over a two-year period have sufficiently guaranteed, by virtue of having their
executive officers certify as to the truth and accuracy of the underlying reporting,498 that enforcement of
the rules is no longer necessary to ensure just and reasonable rates and practices, and not unjustly or
unreasonably discriminatory rates and practices or to protect consumers. For the same reason, we also
find that retaining that certification requirement for those “compliant” providers would not serve the
public interest.
184.
We deny forbearance from the USF-related certification in section 64.5001, however, for
those prepaid calling card providers that lack a track record. The Commission explained that “preserving
(Continued from previous page)
201(b)); see also Locus Telecommunications, Inc., Notice of Apparent Liability for Forfeiture, 26 FCC Rcd 12818,
12820-21, paras. 7-8 (2011) (same); Lyca Tel, LLC, Notice of Apparent Liability for Forfeiture, 26 FCC Rcd 12827,
12829, paras. 6-7 (2011) (same), Touch-Tel USA, LLC, Notice of Apparent Liability for Forfeiture, 26 FCC Rcd
12836, 12838, paras. 6-7 (2011) (same); Simple Network, Inc., Notice of Apparent Liability for Forfeiture, 26 FCC
Rcd 16669, 16671-72, paras. 6-7 (2011) (same); NobelTel, LLC, Notice of Apparent Liability for Forfeiture, 27 FCC
Rcd 11760, 11762-63, paras. 6-7 (2012) (same).
496 47 C.F.R. § 64.5001(c). The forbearance we grant applies to all of the data reporting obligations, including those
in section 64.5001(c)(3) requiring certification that the Universal Service Fund contribution be “based on the
reported information,” (i.e., “[t]he percentages of intrastate, interstate, and international calling card minutes for that
reporting period”). See 47 C.F.R. § 64.5001(a), (c)(1).
497 See Letter from Glenn Reynolds, Vice President, Policy, USTelecom, to Marlene H. Dortch, Secretary, FCC, WC
Docket No. 12-61, at 1 (filed Apr. 18, 2013).
498 47 C.F.R. § 54.711(a) (“an executive officer of the contributor must certify to the truth and accuracy” of the
information report on Forms 499-A and 499-Q).
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and advancing universal service” was a primary purpose of adopting section 64.5001.499 Prepaid calling
card providers that fail to file required Forms 499-A and 499-Q also have a history of not contributing
fully to the USF.500 Retaining the USF-related certification requirement for those prepaid calling card
providers should help ensure that each of them makes “an equitable and nondiscriminatory” contribution
to support universal service in compliance with section 254(d) and the Commission’s USF contribution
rules.501 Thus, we cannot find that this certification requirement, established to protect the federal
universal service program, is not still necessary to ensure that the practices of these noncompliant prepaid
calling card providers are just and reasonable in this regard.
185.
More specifically, making an officer of each prepaid calling card provider that lacks a
two-year record of compliance with required filings of Forms 499-A and 499-Q directly accountable for
the provider’s adherence to the USF contribution rules increases the likelihood of compliance.502 In
addition to requiring each such prepaid calling provider to evaluate in the first instance whether it must
contribute to the USF, the need to recertify quarterly should induce the responsible officer to evaluate
whether a prepaid calling card provider that has previously been a de minimis carrier for USF contribution
purposes now must contribute. 503
186.
We also note that universal service supports services for the benefit of consumers, by
reducing retail rates for low-income consumers in the Lifeline program, by reducing the costs of
broadband-capable networks in high-cost, rural areas, and by ensuring that school, libraries, and health
care providers have access to the communications services they need at affordable rates. To the extent a
provider does not comply with universal service contribution rules, it increases the burden on other
carriers to contribute, which burden is passed on to consumers in their bills. We thus conclude that the
certification requirement for prepaid calling card providers lacking a history of Form 499-A and 499-Q
compliance is necessary to protect consumers.
187.
Lastly, we deny in part USTelecom’s request to forbear from this universal service
certification requirement because we also find, for the reasons explained above, that retaining this part of
the rule for providers lacking a history of Form 499-A and 499-Q compliance is consistent with the public
interest. Furthermore, the filing itself only requires a one-page certified report to the Commission.504

499 See Prepaid Calling Card Services Order, 21 FCC Rcd at 7314, para. 70.
500 See, e.g., ADMA Telecom, Inc., Forfeiture Order, 26 FCC Rcd 4152, 4162, para. 28 (2011) (forfeitures totaling
$361,835 assessed against prepaid calling card provider for failing to file required Forms 499-A and 499-Q and for
failing to make required USF contributions); see also Kajeet, Inc. and Kajeet/Airlink, LLC, Notice of Apparent
Liability for Forfeiture and Order, 26 FCC Rcd 16684, 16695-96, paras. 25–26 (2011) (proposing to assess a
$455,185 forfeiture against a provider of prepaid calling card services and other telecommunication services for
failing to timely and fully contribute to USF; provider also had failed to timely file Form 499 documents); Compass
Global, Inc.
, Notice of Apparent Liability for Forfeiture, 23 FCC Rcd 6125, 6138 (2008) (proposing to assess a
$519,503 forfeiture against a prepaid calling card provider for failing to make required USF contributions; provider
also had failed to timely file Form 499 documents).
501 47 U.S.C. § 254(d).
502 Cf. Lifeline and Link Up Reform and Modernization et al., WC Docket Nos. 12-23, 11-42, 03-109, CC Docket
No. 96-45, Report and Order and Further Notice of Proposed Rulemaking, 27 FCC Rcd 6656, 6714, paras. 125-28
(Lifeline Reform Order) (requiring that eligible telecommunications officers certify to compliance with certain
Lifeline program rules).
503 See 47 C.F.R. § 54.708.
504 See, e.g., Clear Choice Telecom, Inc. Quarterly Report of Prepaid Calling Card Service Providers, WC Docket
No. 05-68 (filed Jan. 24, 2013) (certifying by an officer of the corporation, among other things, that Clear Choice is
making all required USF contributions based on the reported information).
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Indeed, in adopting section 64.5001, the Commission rejected additional reporting and certification
requirements because it sought to minimize the burden on carriers.505 We conclude that the benefits of the
continued certification described above outweigh the costs associated with this requirement, particularly
in light of the steps we have taken here to significantly reduce the burdens of this rule and make it
administratively simple. We therefore find that, going forward, it is in the public interest for each prepaid
calling card provider lacking a two-year history of timely Form 499-A and 499-Q compliance to certify
quarterly that “it is making the required Universal Service Fund contribution,” which must reflect full
compliance with Commission rules.506

IV.

REPORT AND ORDER IN WC DOCKET NO. 10-132

A.

CEI/ONA Notice

and Background
188.
On February 8, 2011, the Commission proposed eliminating the legacy CEI/ONA
narrowband reporting requirements required under the Computer III safeguards “due to a lack of
continuing relevance and utility.”507 It explained that, since it raised the issue in the 2006 and 2008
Biennial Review proceedings, no commenter opposed eliminating the reporting requirements or
advocated retaining them.508 The CEI/ONA Notice stated that the Commission does not rely on any of the
submissions in the course of its decision making.509 On August 11, 2011, the Bureau granted on its own
motion a waiver of the CEI/ONA narrowband reporting requirements pending resolution of the CEI/ONA
Notice
.510 The Bureau stated that, while it did not prejudge the outcome of the rulemaking, the record
suggested that the reports are of limited utility and did not justify the burden and expense of preparing
them.511 No commenter to the CEI/ONA Notice supports retaining the reporting requirements.
189.
The CEI/ONA Notice sought comment on eliminating the BOCs’ annual, semi-annual,
quarterly, and non-discrimination reporting requirements. Prior to the waiver described above, the BOCs
filed annual reports containing projected deployment schedules for ONA services by type of service and
percentage of access lines and by market area; disposition of individual requests for ONA services,

505 See, e.g., Prepaid Calling Card Services Order, 21 FCC Rcd at 7301-02, para. 31; id. at 7314, para. 70 (“In
weighing these alternatives we tried to balance our desire not to unduly burden small entities (small prepaid card
providers, as well as small LECs and small IXCs) with our goals of ensuring regulatory certainty, preserving and
advancing universal service, and avoiding market disruption during the pendency of other rulemakings. The Order
we adopt achieves this balance.”).
506 47 C.F.R. § 64.5001(c)(3).
507 Review of Wireline Competition Bureau Data Practices, Computer III Further Remand Proceedings: Bell
Operating Company Provision of Enhanced Services; 1998 Biennial Regulatory Review – Review of Computer III
and ONA Safeguards and Requirements
, Notice of Proposed Rulemaking, WC Docket No. 10-132, CC Docket Nos.
95-20, 98-10, Notice of Proposed Rulemaking, 25 FCC Rcd 1579 (2011) (CEI/ONA Notice).
508 Id. at 1583, para. 9 (and citations therein).
509 Id.
510 Review of Wireline Competition Bureau Data Practices, Computer III Further Remand Proceedings: Bell
Operating Company Provision of Enhanced Services; 1998 Biennial Regulatory Review – Review of Computer III
and ONA Safeguards and Requirements
, Notice of Proposed Rulemaking, WC Docket No. 10-132, CC Docket Nos.
95-20, 98-10, 26 FCC Rcd 11280, 11280-81, para. 3 (2011) (CEI/ONA Reporting Waiver).
511 Id. The Bureau stated that it found good cause to waive the reporting rules as it would allow the BOCs to avoid
or at least delay incurring the expense of preparing reports that the Commission had proposed to eliminate, and that
temporarily waiving the reporting requirements would preserve BOC and Commission resources and thus would
serve the public interest. This waiver applies to all BOCs subject to these requirements. Id.
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including action on requests deemed technically infeasible; information about ONA services that were
offered through technologies that were new at the time the Commission adopted the requirements, such as
Signaling System 7 and Integrated Services Digital Network systems; information about operations
support services and billing; and extensive lists of services that the BOC used for its own enhanced
services operations.512 The BOCs were also required to file semi-annual reports containing a consolidated
nationwide matrix of ONA services and corresponding state and federal tariff descriptions, computer
diskettes and printouts of all tariffs, information on 118 categories of network capabilities requested by
ESPs, and the BOC’s “ONA Services User Guide,” all on paper and diskette.513 They filed non-
discrimination reports or affidavits, most on a quarterly basis, that published intervals for installation,
repair dates, trouble reports, and timelines for BOC operations as compared to BOC provisioning of
service to competitors.514 For CEI, the Commission permits the BOCs to post their substantive CEI plans
on the Internet and then notify the Bureau at the time of the postings. The BOCs are no longer required to
obtain Commission pre-approval before posting the plans, but CEI reporting obligations required the
BOCs to file paper reports demonstrating compliance with certain nondiscrimination standards.515

B.

Discussion

190.
We eliminate the CEI/ONA narrowband reporting requirements. As we stated in the
CEI/ONA Notice, the Commission no longer relies on any of the reports in the course of its decision
making, and there is nothing in the record indicating that the reports contain information that remains
useful to competitive ESPs.516 As we explained above, while certain commenters emphasize that they still
rely on narrowband CEI and ONA services, they do not object to eliminating these reports.517 No
commenter has indicated that it uses the reported data.518

512 Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services, CC
Docket No. 95-20; 1998 Biennial Regulatory Review – Review of Computer III and ONA Safeguards and
Requirements
, CC Docket No. 98-10, 13 FCC Rcd 6040, 6095-99, paras. 103-11 (1998) (Computer III FNPRM).
See generally Filing and Review of Open Network Architecture Plans, CC Docket No. 88-2, Memorandum Opinion
and Order, 6 FCC Rcd 7646 (1991) (ONA Reporting Order) (establishing reporting requirements for ONA services).
In 1994, the Commission extended to GTE Corporation the Commission’s requirements regarding ONA unbundling,
ONA reporting, and other Computer III requirements. Application of Open Network Architecture and
Nondiscrimination Safeguards to GTE Corporation
, CC Docket No. 92-256, Report and Order, 9 FCC Rcd 4922
(1994).
513 Computer III FNRPM, 13 FCC Rcd at 6095-99, paras. 103-11; ONA Reporting Order, 6 FCC Rcd at 7678-79,
App. B.
514 Computer III FNPRM, 13 FCC Rcd at 6099-6103, paras. 112-16 (citing Amendment of Section 64.702 of the
Commission’s Rules and Regulations (Computer II)
, CC Docket No. 85-229, Phase II, 2 FCC Rcd 3072 (1987)).
515 Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services, CC
Docket No. 95-20; 1998 Biennial Regulatory Review – Review of Computer III and ONA Safeguards and
Requirements
, CC Docket No. 98-10, Report and Order, 14 FCC Rcd 4289, 4297, paras. 11-12 (1999) (Computer III
Further Remand Order
); Amendment of Section 64.702 of the Commission’s Rules and Regulations, CC Docket No.
85-229, Phase I, 104 FCC 2d 958, 964, para. 4 (1986) (Computer III Phase I Order) (subsequent citations omitted).
516 In 1998, the Commission stated that a number of years had passed since the Commission imposed the reporting
requirements and said some of the information required to be disclosed “may no longer be useful, relevant, or
related to either the safeguard or competition functions” and began an inquiry to determine if the reporting
requirements should be eliminated or modified. Computer III FNPRM, 13 FCC Rcd at 6093-94, para. 100.
517 See supra para. 25.
518 CEI/ONA Notice, 26 FCC Rcd at 1583, para. 9.
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191.
The narrowband reporting requirements are outdated in many respects. For example, the
BOCs are required to report on installation and maintenance intervals for detailed categories of ONA
service that the Commission established in 1990.519 Those reporting categories were based on service
codes that were in use by the BOCs’ provisioning systems during the 1980s.520 Recent ONA reports
contain data for reporting categories that are still active, such as business and Centrex-based services, but
many of the original category codes contain no provisioning data.521
192.
The BOCs argue that the reports increased their costs of providing service.522
CenturyLink states that, for each semi-annual report, which was over 500 pages and filed in older file
formatting technology, it incurred internal costs plus the cost of outside consultants to prepare the
reports.523 It further states that it incurred costs associated with having to prepare the reports jointly with
other BOCs.524 The Commission itself has identified inefficiencies associated with requiring each BOC to
file its own ONA information even though some of this information does not vary among providers. For
example, each BOC reported on the network capabilities it used to provide basic narrowband services
even if the capabilities did not vary in the industry.525 In addition, the Commission has previously
inquired about whether the annual and semi-annual reports required redundant information on ONA
service availability, some of which is already delineated in state and federal tariffs filed by the BOCs.526
Overall, the record in the CEI/ONA Notice contains no evidence that continuing the reports would provide
useful information, and we are convinced that the costs and burdens of preparing them outweigh the
benefits. The Commission has stated that it must “collect the data it needs, and only the data it needs to
carry out its statutory responsibilities.”527 Unnecessary filing and reporting requirements impose
administrative costs on carriers that can lead to increased rates for consumers and are not in the public
interest.528
193.
In light of these conclusions, we find that continued application of the narrowband CEI
and ONA reporting requirements is no longer necessary. Since the Bureau waived the requirements in
2011, no commenters have indicated that the elimination of the required reports has impeded their

519 Filing and Review of Open Network Architecture Plans, CC Docket No. 88-2 Phase I, Memorandum Opinion and
Order and Order on Reconsideration, 5 FCC Rcd 3084, 3093, paras. 73-80 and App. B (1990).
520 Id. at 3093, para. 77.
521 See, e.g., Qwest Corporation ONA Nondiscrimination Report, CC Docket No. 88-2, Phase 1; CC Docket No. 96-
128 (filed Aug. 1, 2011); Installation and Maintenance Nondiscrimination Reports for Southwestern Bell Telephone,
L.P., Ameritech, Pacific Bell, Nevada Bell, and BellSouth Telecommunications, CC Docket No. 88-2, Phase I (filed
July 29, 2011).
522 CEI/ONA Reporting Waiver, 26 FCC Rcd at 11280, para. 2.
523 CenturyLink Comments, WC Docket No. 10-132, at 2-3. See Verizon Comments, WC Docket No. 10-132, at 7-
10.
524 CenturyLink Comments, WC Docket No. 10-132, at 2-3.
525 Computer III FNPRM, 13 FCC Rcd at 6098-99, paras. 108-11.
526 Id. at 6099, para. 110.
527 Reporting Requirements for U.S. Providers of International Telecommunications Services, Amendment of Part 43
of the Commission's Rules
, IB Docket No. 04-112, First Report and Order and Further Notice of Proposed
Rulemaking, 26 FCC Rcd 7274, 7275, para. 1 (2011).
528 Id. at 7282-85, paras. 17-27 (eliminating multiple reporting requirements that were outdated, no longer served a
useful purpose, and otherwise did not justify the burden of preparing them); CEI/ONA Notice, 26 FCC Rcd at 1583,
para. 9.
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enhanced service offerings or otherwise prevented them from obtaining non-discriminatory access to
CEI/ONA services. We find that it is more efficient to detect possible access discrimination by looking at
specific, focused information in the context of an individual complaint proceeding under section 208 of
the Act than through these outdated monitoring reports.

V.

COMPUTER III FURTHER NOTICE OF PROPOSED RULEMAKING

A.

Introduction

194.
In this Further Notice, we seek comment on how we should streamline or eliminate
legacy regulations contained in the Computer Inquiry proceedings. We seek data on the changing market
for narrowband enhanced services, in particular, the extent to which ESPs continue to need access to the
BOCs’ basic network transmission services offered through CEI and ONA services. We propose
eliminating CEI requirements and seek comment on whether we should retain only limited ONA inputs
that ESPs require in areas where there are no competitive alternatives. We also seek comment on the
need for the continuing application of the All-Carrier Rule that requires non-BOC incumbent LECs to
offer non-discriminatory access to basic network services for unaffiliated ESPs. We undertake this
examination of legacy telephone regulations as part of our commitment to adapt requirements that may no
longer be necessary as the nation transitions from TDM- to Internet Protocol (IP)-based networks. The
Further Notice also advances our efforts to “conduct a data-driven review and provide recommendations
to modernize the Commission’s policies in a process that encourages the technological transition,
empowers and protects consumers, promotes competition, and ensures network resiliency and
reliability.”529

B.

Background

195.
In its Computer II proceedings, the Commission required AT&T (and subsequently the
BOCs) to offer enhanced services through structurally separate subsidiaries.530 In the subsequent
Computer III proceedings, the Commission determined that the benefits of structural separation were
outweighed by the costs and that non-structural safeguards could protect competing ESPs from improper
cost allocation and discrimination by the BOCs while avoiding the inefficiencies of structural
separation.531 The Commission adopted CEI and ONA as non-structural safeguards that require the BOCs

529 FCC Chairman Julius Genachowski Announces Formation of ‘Technology Transitions Policy Task Force,’ News
Release (Dec. 10, 2012), available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2012/db1210/DOC-
317837A1.pdf.
530 Amendment of Section 64.702 of the Commission’s Rules and Regulations (Computer II Final Decision), 77 FCC
2d 384 (1980), recon., 84 FCC 2d 50 (1980), further recon., 88 FCC 2d 512 (1981), affirmed sub nom. Computer
and Communications Industry Ass’n v. FCC
, 693 F.2d 198 (D.C. Cir. 1982), cert. denied, 461 U.S. 938 (1983). The
Commission required other facilities-based common carriers to provide the basic transmission services underlying
their enhanced services on a nondiscriminatory basis pursuant to tariffs governed by Title II of the Act, referred to as
the All-Carrier Rule. Computer II, 77 FCC 2d at 474-75, para. 231. These carriers must offer the underlying basic
service at the same prices, terms, and conditions to all ESPs, including their own enhanced services operations. The
Commission ordered mandatory detariffing of interstate interexchange access services, and competitive local
exchange carriers (LECs) need not offer the basic transmission services underlying their enhanced services pursuant
to tariff. Policy and Rules Concerning the Interstate, Interexchange Marketplace; Implementation of Section 245(g)
of the Communications Act of 1934
, CC Docket No. 96-61, Second Report and Order, 11 FCC Rcd 20730 (1996)
(adopting mandatory detariffing of most domestic interstate, interexchange services); Order on Reconsideration, 12
FCC 15014 (1997); Second Order on Reconsideration and Erratum, 14 FCC Rcd 6004 (1999), aff'd, MCI
WorldCom, Inc. v. FCC
, 209 F.3d 760 (D.C. Cir. 2000).
531 Amendment of Section 64.702 of the Commission’s Rules and Regulations, CC Docket No. 85-229, Phase I, 104
FCC 2d 958 (1986) (Computer III Phase I Order), recon., 2 FCC Rcd 3035 (1987) (Computer III Phase I
(continued....)
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to offer nondiscriminatory interconnection to basic transmission services that competitors purchase to
provide enhanced services, primarily to end users that use narrowband telephone technology.532 The
Commission has identified examples of narrowband enhanced services as voice mail, store and forward
services, fax, data processing, alarm monitoring, and dial-up gateways to on-line databases.533 BOCs
must comply with CEI and ONA requirements in order to offer enhanced services on an “integrated”
basis (i.e., through the regulated telephone company) instead of through a structurally separate affiliate as
required by section 64.702 of the Commission’s rules.534
196.
The BOCs’ CEI plans detail how they provide unaffiliated ESPs with interconnection to
basic transmission services on the same terms and conditions that the BOCs use for their own enhanced
services offerings.535 The BOCs’ ONA plans, based on the architecture of the BOCs’ networks as they
(Continued from previous page)
Reconsideration Order), further recon., 3 FCC Rcd 1135 (1988) (Computer III Phase I Further Reconsideration
Order
), second further recon., 4 FCC Rcd 5927 (1989) (Computer III Phase I Second Further Reconsideration
Order
); Phase I Order and Phase I Recon. Order vacated sub nom. California v. FCC, 905 F.2d 1217 (9th Cir.
1990) (California I); CC Docket No. 85-229, Phase II, 2 FCC Rcd 3072 (1987) (Computer III Phase II Order),
recon., 3 FCC Rcd 1150 (1988) (Computer III Phase II Reconsideration Order), further recon., 4 FCC Rcd 5927
(1989) (Phase II Further Reconsideration Order); Phase II Order vacated, California I, 905 F.2d 1217 (9th Cir.
1990); Computer III Remand Proceeding, CC Docket No. 90-368, 5 FCC Rcd 7719 (1990) (ONA Remand Order),
recon., 7 FCC Rcd 909 (1992), pets. for review denied sub nom. California v. FCC, 4 F.3d 1505 (9th Cir. 1993)
(California II); Computer III Remand Proceedings: Bell Operating Company Safeguards and Tier 1 Local
Exchange Company Safeguards
, CC Docket No. 90-623, 6 FCC Rcd 7571 (1991) (BOC Safeguards Order), BOC
Safeguards Order vacated in part and remanded sub nom. California v. FCC
, 39 F.3d 919 (9th Cir. 1994)
(California III), cert. denied, 514 U.S. 1050 (1995); Computer III Further Remand Proceedings: Bell Operating
Company Provision of Enhanced Services
, CC Docket No. 95-20, Notice of Proposed Rulemaking, 10 FCC Rcd
8360 (1995) (Computer III Further Remand Notice), Further Notice of Proposed Rulemaking, 13 FCC Rcd 6040
(1998) (Computer III FNPRM); Report and Order, 14 FCC Rcd 4289 (1999) (Computer III Further Remand Order),
recon., 14 FCC Rcd 21628 (1999) (Computer III Further Remand Reconsideration Order); see also Further
Comment Requested to Update and Refresh Record on Computer III Requirements
, CC Docket Nos. 95-20, 98-10,
Public Notice, 16 FCC Rcd 5363 (2001) (collectively referred to as Computer III).
532 The Commission defined basic services as the offering of “a pure transmission capability over a communications
path that is virtually transparent in terms of its interaction with customer supplied information.” Computer II Final
Decision
, 77 FCC 2d at 415-16, para. 83, 420, para. 96. Enhanced services, in turn, were defined as services that
“combine[] basic service with computer processing applications that act on the format, content, code, protocol or
similar aspects of the subscriber's transmitted information, or provide the subscriber additional, different, or
restructured information, or involve subscriber interaction with stored information.” Id. In other words, an
“enhanced service is any offering over the telecommunications network which is more than a basic transmission
service.” Id. at 420, para. 97. The Commission has concluded that the services the Commission has considered
“enhanced services” are “information services” as defined in the Communications Act. See Implementation of the
Non-Accounting Safeguards of Section 271 and 272 of the Communications Act of 1934, as amended,
CC Docket
No. 96-149, First Report and Order and Further Notice of Proposed Rulemaking, 11 FCC Rcd 21905, 21955, para.
102 (1996); 47 U.S.C. § 153(24). This Further Notice generally addresses legacy Computer Inquiry requirements
and uses the term “enhanced services.”
533 Computer III FNPRM, 13 FCC Rcd at 6042, para. 1; Computer III Further Remand Order, 14 FCC Rcd at 4291-
92, n.11 (listing examples of enhanced services); Bell Operating Companies Joint Petition for Waiver of Computer
II Rules
, Order, 10 FCC Rcd 13758, 13768-70, paras. 68-75 (1995) (CEI Plan Order) (discussing alarm monitoring
services as enhanced services).
534 47 C.F.R. § 64.702.
535 Review of Wireline Competition Bureau Data Practices, Computer III Further Remand Proceedings: Bell
Operating Company Provision of Enhanced Services; 1998 Biennial Regulatory Review – Review of Computer III
and ONA Safeguards and Requirements
, Notice of Proposed Rulemaking, WC Docket No. 10-132, CC Docket Nos.
(continued....)
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existed in the late 1980s, offer ESPs unbundled, tariffed access to basic transmission services regardless
of whether the BOCs’ affiliated enhanced services offerings use the same components.536
197.
The Commission has had in place a long-standing examination of the substantive
Computer III structure and what safeguards are appropriate to ensure the continued competitiveness of the
enhanced services market. In 1998, the Commission sought comment on what safeguards for BOC
provision of enhanced services made sense in light of technological, market, and legal conditions,
particularly the passage of the market opening provisions in the Telecommunications Act of 1996 (1996
Act), such as the section 251 unbundling requirements.537 The Commission stated that it wanted to strike
a balance between the goal of reducing or eliminating regulatory requirements when competition
supplants the need for such requirements and a recognition that, until full competition is realized,
safeguards may be necessary.538 Among other items, the Commission sought comment on whether the
ONA model offers ESPs sufficient network functionalities they need, whether the model requires ESPs to
purchase unnecessary services or functionalities embedded within the BOCs’ networks, and whether
(Continued from previous page)
95-20, 98-10, Notice of Proposed Rulemaking, 25 FCC Rcd 1579, 1580, para. 3 and n.9 (2011) (CEI/ONA Notice)
(listing nine CEI parameters); Computer III Further Remand Order, 14 FCC Rcd at 4291, para. 4; Computer III
Further Remand Reconsideration Order
, 14 FCC Rcd at 21629, para. 6; see Computer III Phase I Order, 104 FCC
2d at 1039-42, paras. 155-65.
536 CEI/ONA Notice, 26 FCC Rcd at 6050, para. 11; Computer III Phase I Order, 104 FCC 2d at 1064, para. 214;
Computer III FNPRM, 13 FCC Rcd at 6050, para. 11. Under ONA, ESPs obtain access to various unbundled ONA
services, termed Basic Service Elements (BSEs), through access links described as Basic Service Arrangements
(BSAs). Examples of narrowband BSAs include line side and trunk side circuit switched service. BSAs must be
included in a BOC’s interstate access tariff, as well as tariffed at the state level. ESPs use BSEs to configure their
services. Other ONA elements include Complementary Network Services (CNSs), which are optional unbundled
basic service features (such as stutter dial tone) that an end user may obtain from carriers in order to obtain access to
or receive enhanced services, and Ancillary Network Services (ANSs), which are non-Title II services, such as
billing and collection. Filing and Review of Open Network Architecture Plans, CC Docket No. 88-2, Phase I,
Memorandum Opinion and Order, 4 FCC Rcd 1, 116, 143-44, paras. 226, 276 (1988) (BOC ONA Order)
(subsequent citations omitted). In the Computer III proceeding, the Commission also adopted, as a non-structural
safeguard, a framework governing dominant carrier use of customer proprietary network information to prevent
anticompetitive uses of customers' local and long distance services information. The pre-1996 Act CPNI framework
was eliminated when the Commission implemented section 222 of the Act. See Implementation of the
Telecommunications Act of 1996: Telecommunications Carriers' Use of Customer Proprietary Network Information
and Other Customer Information
, CC Docket No. 96-115, Second Report and Order and Further Notice of Proposed
Rulemaking, 13 FCC Rcd 8061, 8184-93, paras. 176-89 (1998) (CPNI Order), on recon., 14 FCC Rcd 14409 (1999)
(CPNI Reconsideration Order), vacated sub nom. U.S. West v. FCC, 182 F.3d 1224 (10th Cir. 1999), cert. denied,
530 U.S. 1213 (2000); see also Implementation of the Telecommunications Act of 1996, Telecommunications
Carriers’ Use of Customer Proprietary Network Information and Other Customer Information
, CC Docket No. 96-
115; Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of
1934, as Amended
, CC Docket No. 96-149; 2000 Biennial Regulatory Review—Review of the Policies and Rules
Concerning Unauthorized Changes of Consumers’ Long Distance Carriers
, CC Docket No. 00-257, Third Report
and Order and Third Further Notice of Proposed Rulemaking, 17 FCC Rcd 14860, 14894-96, paras. 79-82 (2002)
(affirming previous determinations that the Tenth Circuit vacated only the specific portion of the Commission’s
CPNI rules relating to the opt-in mechanism). In 1994, the Commission extended to GTE Corporation the
Commission’s requirements regarding ONA unbundling, ONA reporting, and other Computer III requirements.
Application of Open Network Architecture and Nondiscrimination Safeguards to GTE Corporation, CC Docket No.
92-256, Report and Order, 9 FCC Rcd 4922 (1994).
537 Computer III FNPRM, 13 FCC Rcd at 6042-48, paras. 1-8.
538 Id. at 6406, para. 7.
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ESPs have other means of obtaining such services to enable offerings to their customers.539 For CEI, the
Commission sought comment on streamlining steps it could take to eliminate outdated requirements.540
198.
Since 1998, the Commission has modified or eliminated many of the Computer III non-
structural separation requirements. In 1999, it streamlined the CEI requirements.541 In 2005, the
Commission granted the BOCs significant relief from Computer III requirements for wireline broadband
Internet access services.542 It stated that these requirements were “adopted based on assumptions
associated with narrowband services, single purpose network platforms, and circuit-switched
technology,” and that broadband platforms had emerged that would generally exert competitive pressure
for BOC services.543 The Commission has also granted forbearance from application of Computer Inquiry
rules to the extent that the carriers offer other broadband services.544 In light of these changes, the
Computer III requirements currently apply only to the provision of enhanced services using narrowband
telephone technology. Above, we have permanently eliminated for the BOCs the requirement that they
file annual, semi-annual, quarterly, and non-discrimination compliance reports for CEI and ONA service
offerings.545

C.

Discussion

199.
In order to determine how we may streamline or eliminate the remaining legacy
Computer III obligations, we seek comment on the continued viability of the substantive CEI and ONA
narrowband requirements. Recognizing that the enhanced services provider industry may continue to use
the BOCs’ narrowband networks to serve customers, we seek comment on how we might simplify and

539 Id. at 6085-89, paras. 78-91.
540 Id. at 6076-79, paras. 60-65.
541 Computer III Further Remand Order, 14 FCC Rcd at 4297, paras. 11-12. A BOC must file paper reports to
demonstrate that it is complying with the CEI nondiscrimination standards. Computer III Phase I Order, 104 FCC
2d at 964, para. 4.
542 Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, CC Docket No. 02-33,
Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 14853, 14875-76, para. 41 (2005) (WBIAS
Order
), aff’d, Time Warner Telecom v. FCC, 507 F.3d 205 (3rd Cir. 2007).
543 WBIAS Order, 20 FCC Rcd at 14876-86, paras. 42-64.
544 See, e.g., Petitions of the Verizon Telephone Companies for Forbearance Pursuant to 47 U.S.C. § 160(c) in the
Boston, New York, Philadelphia, Pittsburgh, Providence, and Virginia Beach Metropolitan Statistical Areas
, WC
Docket No. 06-172, Memorandum Opinion and Order, 22 FCC Rcd 21293, 21318, para. 45 (2007) (Verizon 6 MSA
Forbearance Order
); Petitions of Qwest Corporation for Forbearance Pursuant to 47 U.S.C. § 160(c) in the
Denver, Minneapolis-St. Paul, Phoenix, and Seattle Metropolitan Statistical Areas
, WC Docket No. 07-97,
Memorandum Opinion and Order, 23 FCC Rcd at 11729, 11760, para. 44 (2008) (Qwest 4 MSA Forbearance
Order
) (citing WBIAS Order, 20 FCC Rcd at 14875-76, para. 41); Petition of AT&T, Inc. for Forbearance Under 47
U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect to its Broadband Services; Petition of
BellSouth Corporation for Forbearance 47 U.S.C. § 160(c) from Title II and Computer Inquiry Rules with Respect
to its Broadband Services
, WC Docket No. 06-125, Memorandum Opinion and Order, 22 FCC Rcd 18705, 18733-
35, paras. 52-58 (2007); Verizon Telephone Companies' Petition for Forbearance from Title II and Computer
Inquiry
Rules with Respect to their Broadband Services Is Granted by Operation of Law, WC Docket No. 04-440,
News Release (rel. Mar. 20, 2006); Petition of the Verizon Telephone Companies for Forbearance under 47 U.S.C.
§ 160(c) from Title II and Computer Inquiry Rules with Respect to Their Broadband Services
, WC Docket No. 04-
440, Order, 20 FCC Rcd 20037 (2004); Qwest Petition for Forbearance Under 47 U.S.C. § 160(c) from Title II and
Computer Inquiry Rules with Respect to Broadband Services
, WC Docket No. 06-125, Memorandum Opinion and
Order, 23 FCC Rcd 12260 (2008).
545 See supra paras. 192-95.
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modernize efficient access to service elements that competitors still need while at the same time
eliminating services that are no longer necessary. Below, we propose to eliminate CEI requirements and
seek comment on a specific streamlined process we might adopt to review BOC requests to eliminate or
modify their ONA offerings. As explained above, the BOCs requested forbearance from enforcement of
all CEI and ONA requirements—relief that would have resulted in an immediate, universal elimination of
wholesale access to their narrowband networks for ESPs.546 We have denied the immediate relief that the
BOCs requested because the record in that proceeding did not support granting relief.547 We expect that
this Further Notice will provide data that may allow us to grant some relief from these legacy regulations
in an efficient and comprehensive manner.
200.
The Commission made clear when it adopted the Computer III requirements that a
“major goal of ONA is to increase opportunities for ESPs to use the BOCs’ regulated networks in highly
efficient ways, enabling ESPs to expand their markets for their present services and develop new
offerings as well, all to the benefit of consumers.”548 The Commission intended the ONA framework to
evolve. It did not prescribe a specific network design for ONA services and stated that the BOCs, with
input from the enhanced services industry, should implement ONA in a way that matched the capabilities
of their networks, “both current and future, with needs of the ESPs.”549 The Commission intended
originally that CEI plans would be an interim measure until the BOCs fully implemented ONA.550
Referring to CEI as a “first phase,” the Commission intended CEI to provide ESPs with interconnection
to the BOCs’ networks that was substantially equivalent to the interconnection the BOCs provided for
their own enhanced services until the BOCs fully unbundled their networks to ESPs through ONA.551
Although the Commission eliminated formal approval of CEI plans in the Computer III Further Remand
Order
, we have continued to require the BOCs to maintain their CEI plans and post them on the Internet.
201.
We propose to eliminate the requirement that BOCs maintain and post their CEI plans on
the Internet. CEI plans were always intended to be an interim measure, designed to bridge the gap
between the Commission's decision to lift structural separation in Computer III and the implementation of
ONA.552 In light of the changing market for narrowband enhanced services, we expect that CEI plans are
not necessary to protect against access discrimination. We seek comment on this proposal. ONA has
provided ESPs a greater level of protection against access discrimination than CEI. Under ONA, not only
must the BOCs offer network services to competing ESPs in compliance with the nine CEI “equal access”
parameters,553 but they must also unbundle and tariff key network service elements beyond those they use

546 See supra paras. 22-29.
547 Id.
548 ONA Remand Order, 5 FCC Rcd at 7720, paras. 7, 11.
549 BOC ONA Order, 4 FCC Rcd at 11, para. 3.
550 See Computer III FNPRM, 13 FCC Rcd at 6077, para. 61.
551 Id. at 6049, para. 10.
552 See id. at 6077, para. 61.
553 A CEI plan details how a BOC would comply with nine CEI “equal access” parameters with respect to the
provision of a specific enhanced service. These parameters include: (1) interface functionality; (2) unbundling of
basic services; (3) resale; (4) technical characteristics; (5) installation, maintenance, and repair; (6) end user access;
(7) CEI availability as of the date the BOC offers its own enhanced service to the public; (8) minimization of
transport costs; and (9) availability to all interested ESPs. See Computer III Phase I Order, 104 FCC 2d at 1039-42,
paras. 154-66.
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to provide their own enhanced services offerings.554 To the extent that we find it necessary to retain any
limited ONA requirements, we expect that ESPs will have adequate access to the BOCs’ legacy network
through those arrangements.
202.
In light of the time that has passed since the Computer III FNPRM, we seek current
information on whether ONA offerings continue to be an effective means of providing competitive ESPs
with access to unbundled network services they need to structure efficient service offerings. To the extent
that the requirements or offerings are ineffective, we request that commenters cite to specific instances to
support their claims. The Commission is now examining the technological transition of legacy networks
and protocols toward modern networks and services in several contexts.555 ONA requirements are legacy
regulations aimed at giving competitors wholesale access to narrowband technologies for the provision of
enhanced services, and we are therefore interested in whether competitors are using narrowband ONA
offerings to offer new services or whether they are transitioning away from narrowband products. We
seek comment on that question. We also ask the BOCs to provide information on specific narrowband
ONA offerings that they currently provision for unaffiliated ESPs. In particular, we seek information
about specific service inputs that ESPs may still require from the BOCs to serve narrowband customers
and on whether we should eliminate all other services.
203.
We seek comment on the extent to which the BOCs themselves continue to provide
narrowband enhanced services and whether there are sufficient alternatives such that the BOCs are
prevented, at least in some areas, from engaging in harmful discrimination against unaffiliated ESPs. We
seek data on the alternatives available and the specific markets in which such alternatives are available.
Do ESPs still rely primarily on narrowband ONA services, or do they use other means to obtain services?
We are interested in whether enhanced service competitors use a combination of inputs from different
providers.
204.
The Commission originally required the BOCs to maintain a sufficient level of
uniformity among their ONA services, in part so that ESPs could market national offerings.556 Is this
requirement still necessary today for narrowband offerings or do ESPs seek more tailored arrangements
based on their customer base? Commenters should identify what other network platforms, such as cable
or broadband, offer viable options for re-structuring existing enhanced services that customers still use
and whether ESPs would have access to those options in the areas in which their customers are located,
including in rural areas. If alternatives are available, do they enable functionalities that ESPs require for
specific narrowband products, such as alarm monitoring services or voice mail? Commenters should
explain whether ESPs use ONA offerings for any public safety related offerings. In addition, we seek
comment on whether ESPs obtain from the BOCs unbundled network elements under section 251 of the

554 Computer III FNPRM, 13 FCC Rcd at 6077, para. 61 (citing Computer III Phase I Order, 104 FCC 2d at 1019-
20, para. 113; Computer III Further Remand Proceedings, 10 FCC Rcd at 8373, para. 18).
555 See, e.g., Pleading Cycle Established for AT&T and NTCA Petition, GN Docket No. 12-353, Public Notice, 27
FCC Rcd 15766 (rel. Dec. 14, 2012) (seeking comment on AT&T and National Telecommunications Cooperative
Association petitions to open proceedings on the transition from TDM to IP networks); FCC Chairman Julius
Genachowski Announces Formation of “Technology Transitions Policy Task Force
,” News Release (Dec. 10,
2012); Technology Transitions Policy Task Force Seeks Comment on Potential Trials, GN Docket No. 13-5, Public
Notice, DA 13-1016 (rel. May 10, 2013), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-13-
1016A1.pdf.
556 BOC ONA Order, 4 FCC Rcd at 13-16, 95-110, paras. 6, 9, 15, 185-213.
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Act if the providers are also telecommunications carriers or if they can obtain basic services from
competitive telecommunications providers.557
205.
The ONA framework consists of multiple requirements in addition to the tariffing of
basic service offerings. These include the ONA amendment process under which a BOC that seeks to
offer an enhanced service that uses a new basic service element, or otherwise uses different configurations
of underlying basic services than those in its approved ONA plan, must amend its ONA plan at least 90
days before it offers the new enhanced service.558 In addition, an ESP can request a new ONA basic
service from the BOC and must receive a response from the BOC within 120 days regarding whether the
BOC will provide the service. The BOC must evaluate and justify its response using specific factors,
including market area demand, utility to ESPs as perceived by the providers themselves, and cost and
technical feasibility.559 We are interested in obtaining information about how often the BOCs received a
request under the 120 day process, including the date of the most recent request, and the outcome of the
request. The BOCs should also address the last time they amended their ONA plans. ESPs should
address whether the 120 day process continues to be of value and whether they contemplate using it in the
future. We seek comment on the extent to which the narrowband ONA obligations may increase the
BOCs’ costs of providing enhanced services. Commenters should identify costs with specificity
wherever possible. We also ask commenters to address whether there are continuing benefits associated
with the obligations that justify the costs.
206.
At the beginning of the ONA implementation process, the Commission found that it
would not be reasonable for BOCs to withdraw any services listed in their approved ONA plans and that
it would not look favorably on requests for withdrawal.560 It did, however, outline a process for BOCs to
withdraw ONA services. It stated that, once an ONA service element was federally tariffed, the BOC
must request and receive advance approval in writing before filing tariff revisions to discontinue offering
of that service.561 The Commission, acting through the Bureau, has granted such approvals in a few
limited circumstances, each involving an extended proceeding. In those proceedings, the Bureau
evaluated the reasonableness of the withdrawal request to see if circumstances justified the elimination of
specific ONA services. It reviewed criteria including whether the BOC had existing customers for the
service and whether suitable alternative services existed. It also accepted BOC proposals that existing
customers should have an opportunity to continue to purchase the withdrawn ONA service element on a
grandfathered basis.562 We seek comment on what type of simplified process might now be feasible for

557 The Commission has explained that section 251 requires incumbent LECs to offer physical facilities of the
network to telecommunications providers while unbundling under ONA is, in contrast, the unbundling of basic
services, not the substitution of underlying facilities. ONA unbundling also does not mandate interconnection of
facilities. Computer III FNPRM, 13 FCC Rcd at 6090-91, para. 93.
558 Computer III Phase I Order, 104 FCC 2d at 1068, para. 221; see Filing and Review of Open Network
Architecture Plans
, CC Docket No. 88-2, Phase I, Memorandum Opinion and Order, 6 FCC Rcd 7646, 7654-55,
paras. 14-19 (1991) (BOC ONA Further Amendment Order).
559 BOC ONA Order, 4 FCC Rcd at 205-08, paras. 205-08; BOC ONA Further Amendment Order, 6 FCC Rcd at
7654-555, paras. 14-19.
560 BOC ONA Further Amendment Order, 6 FCC Rcd at 7652-53, para. 10.
561 Id.
562 See BellSouth Open Network Architecture Plan Amendment, CC Docket No. 88-2, Memorandum Opinion and
Order, 18 FCC Rcd 15844, 15847-48, para. 5 (Wireline Comp. Bur. 2003); Qwest Petition for Permission to
Withdraw ONA Services
, WC Docket No. 02-355, Memorandum Opinion and Order, 19 FCC Rcd 7164, 7167, para.
6 (Wireline Comp. Bur. 2004).
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BOCs to use to withdraw ONA service elements that they assert are no longer useful or for which there
are alternative offerings. Should we use the same criteria the Bureau relied upon in reviewing past
requests? We seek comment on how precisely a BOC should define the service area in which it requests
to eliminate services. By requiring BOCs to demonstrate with specificity which ONA services they seek
to retire and what alternatives are available, we can move toward an orderly and efficient process for
eliminating services that may no longer be necessary.
207.
We seek comment on what type of process would be most efficient for us to review
requests to reduce or eliminate ONA service offerings that are included in the BOCs’ ONA plans and
tariffs. Because the elimination of basic narrowband service elements currently available under the ONA
plans could impact ESPs that have limited alternatives for these services, we seek comment on adopting a
discontinuance process that allows for comments, a notice period, and affirmative action by the
Commission. This would allow more time for ESPs to transition to other arrangements whether from the
BOCs, themselves, or alternative providers. We seek comment on adopting a process that is similar to the
standard streamlined process for service discontinuance applications under section 214 of the Act.563
Under the section 214 process, a dominant carrier such as a BOC that seeks to discontinue, reduce, or
impair service must notify affected customers and file an application with the Commission.564 The
application is automatically granted on the 60th day after its filing unless the Commission has notified the
applicant that the grant will not automatically be effective.565 Specifically, we seek comment on the
following proposal:
A BOC that seeks to withdraw and discontinue narrowband Open Network Architecture (ONA)-
related services shall be subject to the following procedures:

The BOC shall notify all affected customers of the planned withdrawal and discontinuance in
writing. The notification shall include the name and address of the carrier, date of planned
service withdrawal and discontinuance, points of geographic areas of service affected, and a
brief description of the type of service affected. The notification shall also include a statement to
customers as follows:

The FCC will normally authorize this proposed withdrawal and discontinuance of
service unless it is shown that customers would be unable to receive service or a
reasonable substitute from another carrier or that the public convenience and
necessity is otherwise adversely affected. If you wish to object, file your comments
as soon as possible, but no later than 30 days after the Commission releases public
notice of the proposed withdrawal or discontinuance. Comments should include
specific information about the impact of this proposed withdrawal and
discontinuance on you or your company, including any inability to acquire
reasonable substitute service. Comments must be filed electronically using the
Internet through the Commission’s Electronic Comment Filing System (ECFS) and
reference the proceeding number on the public notice. ECFS is accessible at
http://apps.fcc.gov/ecfs/.

The BOC shall file with this Commission, on or after the date on which it has given notice to all
affected customers, an application which shall contain the name and address of the carrier, date


563 47 U.S.C. § 214.
564 47 C.F.R. § 63.71.
565 47 C.F.R. § 63.71(c).
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of planned service withdrawal and discontinuance, points of geographic areas of service affected,
brief description of the type of service affected, brief description of the dates and methods of
notice to all affected customers, or a statement that no customers are currently using the service,
and any other supplemental information the Commission may require.

The application to withdraw and discontinue ONA services shall be automatically granted on the
60th day after its filing with the Commission without any notification to the applicant unless the
Commission has notified the applicant that the grant will not be automatically effective. For
purposes of this section, an application will be deemed filed on the date the Commission releases
public notice of the filing
.
208.
Such a process would set a threshold showing for a BOC to withdraw an ONA service
and allow ESPs an orderly notice and comment process to object to the withdrawal. We seek comment
on whether we should permit BOCs to include multiple services in a single notice for a particular
geographic area. The process would also allow affected ESPs the opportunity to address whether they
would be unable to serve customers without access to the service.
209.
Because we propose to eliminate CEI and seek comment on streamlining or eliminating
ONA requirements, it is important for ESPs to have sufficient detail to understand the impact of any
possible reduction in availability. BOCs should comment on what types of transition arrangements might
be possible to ensure that ESPs can still serve their narrowband customers. We seek comment on whether
BOCs would continue to make CEI and ONA service offerings and network functionalities available
through alternative means, including through the use of other tariffed services. Would they be available
through a transition to unbundled network elements or resold services? We seek information from the
BOCs on whether grandfathering arrangements would be available based on existing prices, terms, and
conditions. Should we require BOCs to grandfather existing customers for a period of time (e.g., three
years), and if so, what would be an appropriate time limit?
210.
Non-BOC facilities-based common carriers must provide the basic transmission services
underlying their enhanced services on a nondiscriminatory basis pursuant to tariffs under the All-Carrier
Rule.566 The rule requires common carriers to provide basic transmission services at the same prices,
terms, and conditions to all ESPs, including themselves.567 We seek comment on the extent to which
ESPs continue to rely on these tariffed transmission services to provide narrowband services to customers
and whether there are alternative providers available. In particular, we seek comment on whether we
should retain network access requirements under the All-Carrier Rule beyond the time that CEI and ONA
may sunset. Would ESPs, including those offering certain services such as alarm monitoring, continue to
require access to incumbent LEC networks in non-BOC territory because there are more limited
alternatives in those areas, or do cable, wireless, and VoIP platforms offer ESPs viable alternatives? We
also seek comment on whether the incumbent carriers themselves continue to provide narrowband
enhanced services such that is important to retain the All-Carrier Rule to prevent discriminatory conduct
against unaffiliated ESPs.
VI.

SECOND FURTHER NOTICE OF PROPOSED RULEMAKING

A.

Introduction

211.
In furtherance of our commitment to revisit “rules that may be outmoded, ineffective,
insufficient, or excessively burdensome,” while continuing to promote competition and consumer

566 Computer II Final Decision, 77 FCC 2d at 474-75, para. 231.
567 Id.
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protection consistent with the Act,568 we evaluate in this Second Further Notice of Proposed Rulemaking
(Second FNPRM) the structural separation requirements of section 64.1903 of the Commission’s rules,569
as they apply to rate-of-return carriers providing facilities-based in-region, interexchange, interstate long
distance services (in-region long distance services).570 Through this proceeding, we intend to modernize
our rules to reflect the competitive and marketplace realities for long distance service—at one time an
expensive service, today one frequently offered on an unlimited basis by numerous facilities-based
providers.
212.
Section 64.1903, as written, requires independent ILECs providing long distance services
using their own facilities to do so through a separate corporate subsidiary that does not jointly own
transmission or switching equipment with the local exchange company.571 The Commission promulgated
section 64.1903 against a regulatory backdrop in which local telephone service, interstate long distance,
and intrastate long distance were distinct services, for which consumers often chose separate providers.572
Since the codification of section 64.1903 more than fifteen years ago, we have seen transformative
marketplace and regulatory changes, calling into question whether the current rule is the least burdensome
way to ensure that our goals of competition and consumer protection are met. The Commission has
acknowledged these changes,573 and in 2007 granted relief to the Bell Operating Companies (BOCs) from
a regulatory framework with similar structural separation requirements as section 64.1903.574

568 See Exec. Order No. 13,579, Regulation and Independent Regulatory Agencies, 76 Fed. Reg. 41587 (2011)
(Executive Order 13,579).
569 47 C.F.R. § 64.1903.
570 We use the term “in-region long distance service” to refer collectively to the telecommunications services that
this Second FNPRM addresses. This term encompasses the in-region, domestic, interstate, interexchange
telecommunications services and the in-region, international telecommunications services that independent ILECs
are required to provide only through section 64.1903 separate affiliates or divisions. See 47 C.F.R. § 64.1903.
These services include both traditional voice services and broadband telecommunications services.
571 Id. Independent ILECs providing services exclusively through resale may do so through a separate corporate
division. 47 C.F.R. § 64.1903(b)(1).
572 See, e.g., Section 272(f)(1) Sunset of the BOC Separate Affiliate and Related Requirements, 2000 Biennial
Regulatory Review Separate Affiliate Requirements of Section 64.1903 of the Commission’s Rules; Petition of AT&T
Inc. for Interexchange Services,
WC Docket Nos. 02-112, 06-120, CC Docket No. 00-175, Report and Order and
Memorandum Opinion and Order, 22 FCC Rcd 16440, 16455, paras. 26-27, 16500, para.121 (2007) (Section 272
Sunset Order
).
573 Between September 2001 and May 2003, the Commission released three notices of proposed rulemaking that
raised the question of what safeguards, if any, independent ILECs and BOCs should be subject to in their provision
of in-region long distance services. See 2000 Biennial Regulatory Review Separate Affiliate Requirements of
Section 64.1903 of the Commission’s Rules
, CC Docket No. 00-175, Notice of Proposed Rulemaking, 16 FCC Rcd
17270 (2001) (Independent Incumbent LEC Separate Affiliate NPRM) (asking whether structural safeguards should
apply to independent ILEC provision of in-region long distance services); Section 272(f)(1) Sunset of the BOC
Separate Affiliate and Related Requirements
, WC Docket No. 02-112, Notice of Proposed Rulemaking, 17 FCC Rcd
9916 (2002) (Section 272 Sunset NPRM) (asking whether structural safeguards should apply to BOC provision of in-
region, interLATA telecommunications services); Section 272(f) Sunset of the BOC Separate Affiliate and Related
Requirements
, WC Docket No. 02-112, Further Notice of Proposed Rulemaking, 18 FCC Rcd 10914 (2003) (BOC
and Independent Incumbent LEC FNPRM
) (asking whether the Commission should classify the independent ILECs
and BOCs as dominant in the provision of in-region long distance services in the event those carriers were allowed
to provide those services outside of separate affiliates).
574 See Section 272 Sunset Order, 22 FCC Rcd at 16442, para. 2; see also 47 U.S.C. § 272.
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213.
Today, the Commission adopts, above, the USTelecom Forbearance Order,575 which,
among other things, grants the request of the United States Telecom Association (USTelecom) for
forbearance from section 64.1903 as it applies to price cap carriers that comply with certain conditions.576
Based on the record in that proceeding, however, the USTelecom Forbearance Order denies similar relief
to independent ILECs subject to rate-of-return regulation “due to the continuing potential for cost
misallocation.”577 In this Second FNPRM, we take the next steps toward modernizing our rules for the
non-BOC ILECs. Considering developments in today’s marketplace, we seek comment on the costs and
benefits of continuing to apply section 64.1903 to rate-of-return carriers, and whether such carriers
continue to have the ability and incentive to engage in anticompetitive behavior.

B.

Background

1.

Section 64.1903 of the Commission’s Rules

214.
Section 64.1903 of the Commission’s rules sets forth the structural requirements that
apply to an independent ILEC’s provision of in-region long distance services.578 That rule as written
requires every independent ILEC providing those services using its own switching or transmission
facilities to do so only through a separate affiliate that: (1) maintains books of account separate from
those the independent ILEC maintains; (2) does not jointly own transmission or switching facilities with
its independent ILEC; and (3) purchases tariffed services from the independent ILEC only pursuant to the
ILEC’s tariffs, except that the separate affiliate also may acquire unbundled network elements (UNEs)
and exchange services pursuant to an approved interconnection agreement.579 Independent ILECs that
provide long distance service exclusively through resale, however, may do so through a separate
corporate division rather than an entirely separate company.580
2.

Historical Regulation of Independent ILEC Long Distance Services

215.
In the 1980s and 1990s, the Commission developed a regulatory framework to ensure that
ILECs could not unduly extend their market power in the local market to the provision of long distance
services. When those regulations were created, local telephone service, interstate long distance, and
intrastate long distance were distinct services, for which consumers often chose separate carriers. The
long distance marketplace has changed dramatically since then, warranting a review of these rules.
216.
Competitive Carrier Proceedings. Section 64.1903 is rooted in the Competitive Carrier
proceeding.581 In a series of orders that began in 1979, the Commission distinguished between carriers

575 In this Second FNPRM, we refer to the Order above (paras. 1-187) as the USTelecom Forbearance Order. The
relevant section of the USTelecom Forbearance Order corresponding to this Second FNPRM is section III.B.11,
“Structural Separation Requirements for Independent ILECs,” supra paras. 135-162; see also infra para. 228.
576 See infra paras. 227-228.
577 USTelecom Forbearance Order, supra at para. 139.
578 47 C.F.R. § 64.1903.
579 Id.
580 An independent ILEC provides in-region long distance services exclusively through resale if it provides those
services without using its own “interexchange switching or transmission facilities or capability.” 47 C.F.R.
§ 64.1903(b)(1).
581 Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations
Therefor
, CC Docket No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308 (1979); Policy Rules
Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor
, CC Docket
No. 79-252, First Report and Order, 85 FCC 2d 1 (1980) (Competitive Carrier First Report and Order); Policy and
Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor
, CC
(continued....)
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with individual market power (dominant carriers) and those without market power (nondominant
carriers).582 The Commission found it appropriate to continue subjecting dominant carriers to full
regulation under Title II of the Act.583 The Commission further found that because nondominant carriers
lacked market power, it was appropriate to reduce their regulatory obligations.584
217.
In the Competitive Carrier First Report and Order, the Commission classified
independent ILECs as dominant with respect to both interstate access services and interstate long distance
services.585 As competition emerged in the long distance marketplace, the Commission began
reexamining whether it should apply dominant carrier regulation to the interstate long distance services
provided by independent ILECs. In the Competitive Carrier Fourth Report and Order, the Commission
concluded that interexchange carriers affiliated with independent ILECs would be regulated as
nondominant interexchange carriers.586 In the Competitive Carrier Fifth Report and Order, the
Commission adopted requirements for these separate affiliates that, with minor modifications, are now
codified in section 64.1903.587 In that order, the Commission did not require that every independent ILEC
provide interstate long distance services through a separate affiliate.588 If, however, such a carrier did not
provide service through an affiliate, the independent ILEC would be subject to dominant carrier
regulation in its provision of domestic, interstate, interexchange services.589
218.
LEC Classification Order and Second Reconsideration Order. In the LEC Classification
Order, the Commission classified all in-region long distance services provided by an incumbent ILEC as
(Continued from previous page)
Docket No. 79-252, Further Notice of Proposed Rulemaking, 84 FCC 2d 445 (1981); Policy and Rules Concerning
Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor
, CC Docket No. 79-252,
Second Further Notice of Proposed Rulemaking, FCC 82-187, 47 Fed. Reg. 17308 (1982); Policy and Rules
Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor
, CC Docket
No. 79-252, Second Report and Order, 91 FCC 2d 59 (1982); Policy and Rules Concerning Rates for Competitive
Common Carrier Services and Facilities Authorizations Therefor
, CC Docket No. 79-252, Order on
Reconsideration, 93 FCC 2d 54 (1983); Policy and Rules Concerning Rates for Competitive Common Carrier
Services and Facilities Authorizations Therefor
, CC Docket No. 79-252, Third Further Notice of Proposed
Rulemaking, 48 Fed. Reg. 28292 (1983); Third Report and Order, 48 Fed. Reg. 46791 (CCB 1983); Policy and
Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefor
, CC
Docket No. 79-252, Fourth Report and Order, 95 FCC 2d 554 (1983) (Competitive Carrier Fourth Report and
Order
), vacated, AT&T v. FCC, 978 F.2d 727 (D.C. Cir. 1992), cert. denied, MCI Telecomm Corp. v. AT&T, 509
U.S. 913 (1993); Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities
Authorizations Therefor
, CC Docket No. 79-252, Fifth Report and Order, 98 FCC 2d 1191 (1984) (Competitive
Carrier Fifth Report and Order
); Policy and Rules Concerning Rates for Competitive Common Carrier Services and
Facilities Authorizations Therefor
, CC Docket No. 79-252, Sixth Report and Order, 99 FCC 2d 1020 (1985),
vacated, MCI Telecomm Corp. v. FCC, 765 F.2d 1186 (D.C. Cir. 1985), aff’d, MCI Telecomm Corp. v. AT&T, 512
U.S. 218 (1994) (MCI v. AT&T) (collectively, the Competitive Carrier proceeding); see 47 C.F.R. § 61.3(q), (y).
582 See, e.g., Competitive Carrier First Report and Order, 85 FCC 2d at 10-11, paras. 25-27.
583 Id. at 10-11, para. 26.
584 Id. at 11, para. 27.
585 Id. at 24-25, para. 65.
586 Competitive Carrier Fourth Report and Order, 95 FCC 2d at 575-79, paras. 31-37.
587 Competitive Carrier Fifth Report and Order, 98 FCC 2d at 1198, para. 9.
588 Id.
589 Id. at 1198-99, para. 9 (“Interstate services provided directly by exchange telephone companies (not through
affiliates) are regulated as dominant.”).
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nondominant.590 In its discussion of whether to apply dominant carrier regulation, the Commission
focused on the difference between classical (or Stiglerian) market power, which refers to “the ability of a
firm profitably to raise and sustain its price above the competitive level by restricting its own output,”591
and exclusionary (or Bainian) market power, which refers to “the ability of a firm profitably to raise and
sustain its price significantly above the competitive level by raising its rivals’ costs and thereby causing
the rivals to restrain their output.”592 The Commission found that dominant carrier regulation was
generally designed to address classical, rather than exclusionary, market power.593
219.
In analyzing classical market power, the Commission found that independent ILECs did
not have the ability to raise the prices of those services above competitive levels by restricting their own
output.594 The Commission also found that the independent ILECs would be unable to use their control of
bottleneck local exchange and exchange access facilities to such an extent that they would have the ability
to raise prices by restricting their own output.595 The Commission therefore held that dominant carrier
regulation of the independent ILECs’ long distance services would be “inappropriate.”596
220.
Despite that classification decision, the Commission was concerned about independent
ILECs’ ability to exercise exclusionary market power. The Commission suggested that an independent
ILEC could allocate the costs of its long distance services to monopoly local exchange and exchange
access services, an action that the Commission believed could, under certain circumstances, give the
independent ILEC an unfair advantage over its long distance competitors.597 Further, the Commission
indicated that the independent ILEC could gain an unfair advantage over those competitors by
discriminating against them in the provisioning of exchange and exchange access services.598 Finally, the

590 Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC’s Local Exchange
Area and Policy and Rules Concerning the Interstate, Interexchange Marketplace
, CC Docket Nos. 96-149, 96-61,
Second Report and Order in CC Docket No. 96-149 and Third Report and Order in CC Docket No. 96-61, 12 FCC
Rcd 15756, 15763, para. 7 (1997) (LEC Classification Order) recon. denied, Second Order on Reconsideration and
Memorandum Opinion and Order, 14 FCC Rcd 10771 (1999) (LEC Classification Second Reconsideration Order);
see also supra paras. 154-62.
591 LEC Classification Order, 12 FCC Rcd at 15803, para. 83, n.214.
592 Id.
593 Id. at 15847, para. 156.
594 Id. at para. 157.
595 Id. at 15848, para. 158.
596 Id. The Commission also found that independent ILECs were unlikely to be able unilaterally to raise the prices
of in-region long distance services except with regard to international routes where the ILECs have market power as
a result of affiliations with foreign carriers having bottleneck control in the foreign destination market. Id. at 15862-
63, paras. 188-89. The Commission therefore classified independent ILECs as nondominant in the provision of in-
region long distance services except with regard to those international routes. Id. at 15863, para. 189. The
Commission also classified the independent ILECs as nondominant in the provision of out-of-region, interstate,
interexchange services. Id. at 15873-77, paras. 206-11. We note that an independent ILEC that is classified as
dominant on an international route because of an affiliation with a foreign carrier is not subject to the tariffing and
many of the other requirements that otherwise apply to dominant interstate and international, long distance carriers.
That independent ILEC, however, must comply with a different set of requirements set forth in section 63.10(c)
through (e) of the Commission’s rules, 47 C.F.R. § 63.10(c)-(e).
597 LEC Classification Order, 12 FCC Rcd at 15848, para. 159.
598 Id. at 15849, para. 160.
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Commission found that the independent ILEC could potentially initiate a price squeeze to increase its
long distance market share.599
221.
The Commission determined that the section 64.1903 requirements would “aid in the
prevention and detection of such anticompetitive conduct” 600 and would be more effective than dominant
carrier regulation in doing so.601 Although the Commission recognized that those requirements would
impose some burdens on independent ILECs, it found that these burdens were reasonable relative to the
resulting protections against cost misallocation, unlawful non-price discrimination, and price squeezes.602
The Commission thus mandated that facilities-based, independent ILECs provide long distance services
only through section 64.1903 separate affiliates.603
222.
In the LEC Classification Second Reconsideration Order, the Commission relaxed its
requirement for the use of a separate affiliate and allowed independent ILECs providing long distance
services exclusively on a resale basis to do so through a separate corporate division.604 The Commission
concluded that independent ILEC long distance resellers were less likely than facilities-based providers to
be able to engage in anti-competitive behavior in connection with their long distance services.605 The
Commission determined, however, that these resellers still possessed some ability to engage in anti-
competitive behavior.606 The Commission therefore required that the resellers’ separate divisions
maintain separate books of account and take services from the parent corporation pursuant to tariff or on
the same basis as requesting carriers that have negotiated interconnection agreements pursuant to section
251 of the Act.607
3.

Related Proceedings

223.
2001 and 2003 NPRMs. Between September 2001 and May 2003, the Commission
released three NPRMs that raised the question of what safeguards, if any, independent ILECs and BOCs
should be subject to in their provision of in-region long distance services.608 In the 2001 Independent

599 Id. at para. 161.
600 Id. at 15850, para. 163.
601 Id. at 15854, para. 170.
602 Id. at 15852, para. 167.
603 Id. at 15856, para. 173. Because it found that structural requirements were not necessary to prevent the
independent ILECs from engaging in anticompetitive conduct in relation to out-of-region, interstate, interexchange
services, the Commission did not require those LECs to comply with section 64.1903 in providing those services.
Id. at 15878, para. 213.
604 See LEC Classification Second Reconsideration Order, 14 FCC Rcd at 10789-90, para. 25; 47 C.F.R.
§ 64.1903(b)(1).
605 LEC Classification Second Reconsideration Order, 14 FCC Rcd at 10787-88, para. 22.
606 Id. at 10788-90, paras. 24-25.
607 Id. at 10790-91, paras. 25-26. The Commission also required that transactions between the separate divisions and
the LEC operations comply with its affiliate transactions rules. Id. at 10789-90, para. 26 (citing 47 C.F.R. § 32.27).
The Commission rejected proposals for removing the separate affiliate requirement for all rural telephone companies
or for all LECs with fewer than two percent of the nation’s subscriber lines. Id. at 10784-85, para. 17; Petition for
Forbearance of the Independent Telephone and Telecommunications Alliance
, AAD File No. 98-43, Third
Memorandum Opinion and Order, 14 FCC Rcd 10816, 10822-28, paras. 8-16 (1999) (denying forbearance from
application of the independent ILEC separate affiliate requirements to rural telephone companies and LECs with
fewer than 2 percent of the nation’s subscriber lines).
608 See supra n.573.
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Incumbent LEC Separate Affiliate NPRM, the Commission sought to develop a record on whether the
benefits of the independent ILEC separate affiliate requirements outweighed their costs and whether
alternative safeguards would provide the same benefits but impose fewer costs.609 In the 2002 Section
272 Sunset NPRM
, the Commission undertook a similar cost-benefit analysis regarding the requirements
in section 272 of the Act and the Commission’s implementing rules regarding the BOCs’ in-region,
interLATA telecommunications services.610 In the 2003 BOC and Independent LEC Further NPRM, the
Commission set out to define and analyze the markets in which the BOCs and independent ILECs provide
long distance services, and determine whether these LECs should be classified as dominant in the
provision of any of those services that they provided outside of section 272 or section 64.1903 separate
affiliates.611 The 2003 BOC and Independent LEC Further NPRM also invited comment on whether the
Commission should adopt alternative safeguards to detect or deter any anticompetitive conduct by
independent ILECs in the provision of long distance services.612
224.
Section 272 Sunset Order. In the LEC Classification Order, the Commission concluded
that, so long as the BOCs provided in-region long distance services through section 272 separate
affiliates, these affiliates should be treated as nondominant in the provision of such services.613 The
Commission stated that it could not predict how competition would develop once the BOCs received in-
region interLATA authority or what safeguards, if any, would be needed after the section 272 safeguards
sunset.614 Subsequently, the Commission made clear that, following sunset of the section 272 safeguards,
to the extent a BOC chose to provide in-region long distance services either directly or through an
affiliate that is not a section 272 separate affiliate, it would be subject to dominant carrier regulation.615
225.
In 2007, the Commission comprehensively addressed the long distance services provided
by the BOCs and their independent ILEC affiliates. Rather than applying structural safeguards or
traditional dominant carrier regulation to these services, the Commission adopted a new framework
focusing on targeted safeguards including, among other things, requiring BOCs to provide: (1) special
access performance metrics designed to prevent non-price discrimination in the provision of special
access services,616 (2) imputation requirements to help monitor the provision of access services for
possible price discrimination,617 (3) low-volume calling plans intended to prevent customers from having
to purchase expensive, high-volume calling plans that were replacing metered long distance calling,618 and
(4) monthly usage information intended to allow subscribers to choose long distance plans that fit their

609 Incumbent LEC Separate Affiliate NPRM, 16 FCC Rcd at 17270, para 1.
610 Section 272 Sunset NPRM, 17 FCC Rcd at 9922, para. 17.
611 BOC and Independent Incumbent LEC FNPRM, 18 FCC Rcd at 10918-36, paras. 8-43.
612 Id. at 10936-38, paras. 45-49.
613 LEC Classification Order, 12 FCC Rcd at 15834-35, paras. 133-34.
614 Id. at 15835, para. 134 n.391.
615 Section 272(f)(1) Sunset of the BOC Separate Affiliate and Related Requirements, WC Docket No. 02-112,
Memorandum Opinion and Order, 17 FCC Rcd 26869, 26870, paras. 1-2, nn.5, 8 (2002) (citing LEC Classification
Order
, 12 FCC Rcd at 1576, para. 4 n.12); see also Competitive Carrier Fifth Report and Order, 98 FCC 2d at
1198-99, para. 9 n.23 (determining that the Commission would classify the BOCs as dominant in the provision of
interstate, interLATA telecommunications services until it determined what safeguards, if any, would be necessary
for the BOCs or their affiliates to qualify for nondominant treatment).
616 Section 272 Sunset Order, 22 FCC Rcd at 16487-89, paras. 97-98.
617 Id. at 16489-16492, paras. 99-105.
618 Id. at 16492-93, paras. 106-07.
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calling patterns.619 The Commission concluded that these alternative safeguards, as well as other
continuing statutory and regulatory obligations,620 would sufficiently address any concerns regarding the
BOCs’ and their independent ILEC affiliates’ exclusionary market power and would adequately protect
consumers who make relatively few interstate long distance calls, while imposing fewer costs than either
structural safeguards or dominant carrier regulation.621 The Commission therefore allowed the BOCs and
their independent ILEC affiliates to provide long distance services free of structural requirements and
subject to nondominant carrier regulation, as long as they complied with certain targeted safeguards and
continuing statutory and regulatory obligations.622 The Section 272 Sunset Order applies exclusively to
the BOCs and their independent ILEC affiliates,623 and does not address the regulatory framework under
which other independent ILECs provide long distance services.
226.
Puerto Rico Telephone Company Waiver Order. In December 2010, in response to a
waiver request, the Wireline Competition Bureau (Bureau) temporarily waived application of section
64.1903 to allow the Puerto Rico Telephone Company (an independent ILEC) and its affiliate Puerto Rico
Telephone Larga Distancia (together, PRT) to provide long distance services without doing so through a
separate affiliate.624 The Bureau also deferred application of dominant carrier regulation to PRT in order
to give PRT time to file an interstate tariff or make a showing that nondominant carrier regulation of its
long distance services is appropriate.625 These actions were conditioned on PRT’s compliance with
certain safeguards patterned after those applied in the Section 272 Sunset Order.626 PRT subsequently
made a timely filing purporting to demonstrate that it is nondominant.627 PRT’s temporary waiver from

619 Id. at 16493-94, para. 108.
620 In the Section 272 Sunset Order, the Commission noted that, in the absence of structural separations requirements
contained in section 272, the BOCs remained subject to a number of statutory and regulatory measures designed to
detect and deter anticompetitive behavior. These measures include: (1) dominant carrier regulation of interstate
exchange access services; (2) equal access obligations under longstanding Commission precedent and section 251(g)
of the Act; (3) section 251 obligations; (4) the obligation to provide service on just, reasonable, and not unreasonably
discriminatory rates, terms, and conditions pursuant to sections 201 and 202 of the Act. See id. at 16484-87, paras.
90-94. The Commission also noted that the Commission’s section 208 complaint process may also be used in the
event it is believed that an independent ILEC violated the Act or the Commission’s rules. Id. at 16497, para. 115.
621 Id. at 16494-95, paras. 109-11.
622 Id. at 16488-92, paras. 95-105.
623 AT&T’s Southern New England Telephone Company (SNET) and Woodbury Telephone Company (Woodbury)
affiliates and Verizon’s former GTE LECs are classified as independent ILECs because they are ILECs that fall
outside the definition of “BOC’ in section 3(4) of the Communications Act. See 47 U.S.C. § 153(4).
624 Petition of Puerto Rico Telephone Company, Inc. and Puerto Rico Telephone Larga Distancia, Inc. for Waiver of
Section 64.1903 of the Commission’s Rules
, WC Docket No. 10-52, Memorandum Opinion and Order, 25 FCC Rcd
17704, 17711-12, paras. 14-16 (Wireline Comp. Bur. 2010). This waiver was based on findings that compliance
with section 64.1903 had reduced PRT’s operational efficiency and ability to maintain and expand telephone
subscribership throughout Puerto Rico and that alternative safeguards would provide sufficient protection against
possible cost misallocation, unlawful discrimination, and price squeezes. Id. at 17711-12, paras. 15-16.
625 Id. at 17704-05, para. 1.
626 Id. at 17717-18, paras. 29-32. The temporary deferral was also conditioned on PRT’s not increasing existing
rates for the services at issue during the deferral period. Id. at 11714, para. 21.
627 Letter from Bennett L. Ross, Counsel for PRT, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 10-52
(filed Mar. 23, 2011).
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the separate affiliate requirement contained in section 64.1903 expires on May 17, 2013.628 PRT is an
independent incumbent LEC serving the Commonwealth of Puerto Rico. During 2008, PRTC converted its
interstate access services from rate-of-return regulations to price cap regulations.629 In the USTelecom
Forbearance Order
, above, we hold that “PRT is now covered by the forbearance from section 64.1903
that is granted to price cap carriers in this Order, and will be treated as nondominant consistent with our
interpretation of Commission precedent above.”630
227.
USTelecom Forbearance Order. On February 16, 2012, USTelecom filed a petition for
forbearance.631 Among other things, USTelecom asked the Commission to forbear from applying the
structural separation requirements of section 64.1903 and forbear from applying dominant carrier
regulation for long distance services offered on an integrated basis by independent ILECs.632 USTelecom
asserted that “[i]n light of the dramatic changes in the competitive landscape in the intervening 15 years
since section 64.1903 was adopted, there is no longer any justification for the rule, and the Commission
should forbear from its continued application.”633 The primary assumption underlying USTelecom’s
forbearance request was that “there are no dominant IXCs, and ILECs currently face robust competition
for all-distance services.”634
228.
Above, in the USTelecom Forbearance Order, we relieve independent ILECs subject to
price caps of the separate affiliate requirements in section 64.1903.635 Based on the record, however, we
deny relief from section 64.1903 for independent ILECs subject to rate-of-return regulation “due to
continuing potential for cost misallocation.”636 Specifically, we hold that “cost misallocation is still a
concern for independent ILECs that operate under rate-of-return cost regulation because a portion of their
interstate access charge compensation and universal service support is based on their costs of providing
service. This gives them an incentive to engage in cost misallocation, increase certain access charges, and
facilitate a price squeeze.”637 We also hold that there was no reason to formally grant USTelecom’s
related request for forbearance from dominant carrier treatment of its long distance services that are
provided other than in compliance with section 64.1903 because “the Commission has already classified
the independent ILECs as nondominant in the provision of these services.” 638 We conclude that “the

628 Petition of Puerto Rico Telephone Company, Inc. and Puerto Rico Telephone Larga Distancia, Inc. for Waiver of
Section 64.1903 of the Commission's Rules
, WC Docket No. 10-52, Order, 28 FCC Rcd 1072, 1073, para. 4 (2013).
629 See Petition of Puerto Rico Telephone Company, Inc. and Puerto Rico Telephone Larga Distancia, Inc. for
Election of Price Cap Regulation and Limited Waiver of Pricing and Universal Service Rules
, WC Docket No. 07-
292, Order, 23 FCC Rcd 7353 (2008).
630 USTelecom Forbearance Order, supra at para. 162.
631 See USTelecom Petition at 1.
632 USTelecom subsequently clarified that it believes that, under the best reading of relevant precedent, independent
ILECs by default would not be subject to dominant carrier regulation even when providing long distance service on
an integrated basis, although it argues that forbearance would be warranted if the Commission disagreed with that
interpretation. See, e.g., Letter from Bennett L. Ross, Wiley Rein, LLP, Counsel to USTelecom, to Marlene H.
Dortch, Secretary, FCC, Docket No. 12-61, at 3-6 (filed Mar. 28, 2013).
633 USTelecom Petition at 65.
634 Id. at 66.
635 USTelecom Forbearance Order, supra at para. 139.
636 Id.
637 Id. at para. 151.
638 Id. at para. 154.
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practical consequence of this is that once the Commission has forborne from the section 64.1903
requirements for a class of independent ILECs, there is no requirement under existing precedent to file
tariffs for such services or otherwise comply with dominant carrier regulation of those services as a result
of providing long distance services on an integrated basis.”639
229.
USTelecom Petition for Declaratory Ruling. On December 19, 2012, USTelecom filed a
petition seeking a declaratory ruling by the Commission that ILECs—BOCs as well as independents—
should no longer be presumptively dominant when providing interstate mass market and enterprise
switched services.640 USTelecom argues that dominant carrier regulation is inappropriate because the
public switched telephone network no longer constitutes a monopoly platform for the delivery of voice
services.641 In support, USTelecom offers data stating that, “the number of switched access lines has
fallen at least 50% and continues to decline; and ILEC switched access minutes of use have dropped by
more than 70%, all despite an increased population.”642 USTelecom further asserts that wireless and
voice over Internet Protocol (VoIP) connections are responsible for this marketplace shift; that only
“about one-third of American households purchase an ILEC switched access service”; and that
“approximately 40% have ‘cut the cord’ and rely totally on wireless for their voice service.”643 This
matter is pending before the Commission.644
4.

Marketplace Developments

230.
A number of significant marketplace changes have taken place since the Commission
adopted section 64.1903 in 1997. Those changes call into question whether this rule remains the best
alternative for promoting competition and protecting consumers in the long distance market.
a.

Decline in Interexchange Revenues

231.
In the 13 years following the breakup of AT&T, the revenues of reporting long distance
carriers more than doubled, from $38.8 billion in 1984 to $82.0 billion in 1996, while the (primarily
intrastate) long distance service revenues of local exchange companies declined slightly, from $12.4
billion in 1984 to $11.2 billion in 1996.645 By 1997, the long distance services market was dominated by
four major long distance carriers: AT&T Corp., MCI, WorldCom, and Sprint.646 With combined revenues

639 Id.
640 United States Telecom Association Petition for Declaratory Ruling, WC Docket No. 13-3, at 9 (filed Dec. 19,
2012).
641 Id. at ii-iii.
642 Id. at iii.
643 Id. But see Stephen J. Blumberg and Julian V. Luke, National Center for Health Statistics, Centers for Disease
Control, Wireless substitution: Early release of estimates from the National Health Interview Survey, January–June
2012 at Table 1 (Dec. 2012), available at http://www.cdc.gov/nchs/data/nhis/earlyrelease/wireless201212.pdf (CDC
Wireless Survey) (reporting approximately 35.8% of homes with only wireless phones).
644 See Wireline Competition Bureau Seeks Comment on United States Telecom Ass’n Petition for Declaratory
Ruling that Incumbent Local Exchange Carriers are Non-Dominant in the Provision of Switched Access Services
,
WC Docket No. 13-3, Public Notice, 28 FCC Rcd 107 (Wireline Comp. Bur. 2013) (comment cycle closed on Mar.
12, 2013).
645 See Trends in Telephone Service, Federal Communications Commission, Common Carrier Bureau, Industry
Analysis and Technology Division at Table 11.2 (Sept. 1999), available at
http://transition.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/trend299.pdf.
646 Competition also increased significantly, with AT&T’s share of total (intrastate and interstate) long distance
revenues plummeting from 68 percent in 1984 to 39 percent in 1997. Id. at Table 11.4. Among the carriers
(continued....)
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(including intrastate and interstate toll) of $71.2 billion, these four companies held 71 percent of the total
long distance marketplace,647 while ILECs and their affiliates had a combined total of $10.2 billion toll
revenues, accounting for 10 percent of the long distance marketplace.648 At that time, ILECs and their
affiliates provided intraLATA toll service but were the presubscribed, or “+1”, carrier for interLATA
long distance service for only about 2 percent of ILEC switched access lines.649 From 1999 through 2003,
however, the BOCs acquired authority under section 271 to provide interstate, in-region, interLATA
services, which permitted them to enter the long distance markets in full.650 By December 2011, affiliates
of ILECs—including the BOCs—were the “+1” long distance carrier for 61 percent of ILEC switched
access lines.651
232.
While the ILECs’ share of traditional long distance service lines increased dramatically
by 2011, the amount of traditional long distance calling declined. In particular, interstate telephone traffic
passing through ILEC switches (“interstate switched access minutes of use”) declined by 58 percent from
1997 through 2011.652 Similarly, between 1997 and 2009, toll service revenues (including both interstate
and intrastate toll, often now provided as part of a bundle, which can include unlimited long distance
calling) declined from 47 percent of total retail (end user) telecommunications revenues reported to the
Commission in 1997 ($89 billion out of a total $189 billion) to 19 percent in 2009 ($43 billion out of a
total $225 billion).653 We note that these declines occurred while overall telecommunications revenues
(Continued from previous page)
providing primarily long distance service at that time, AT&T’s revenue share dropped even more sharply, from 90
percent in 1984 to 44 percent in 1997. Id. at Table 11.3.
647 Id. at Table 11.2.
648 Id. Additionally, long distance carriers other than the largest four held about 19 percent of total toll revenues and
competitive local exchange carriers held less than 1 percent. Id.
649 Compare Historical Patterns of Entry into Long Distance by Local Exchange Carriers, Federal Communications
Commission, Common Carrier Bureau, Industry Analysis and Technology Division at Table 5 (Sept. 1998),
available at http://transition.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/ilec-ld.pdf (reporting
four million lines presubscribed to ILECs at the end of 1996) with Trends in Telephone Service, Federal
Communications Commission, Industry Analysis and Technology Division at Table 7.1 (Sept. 2010), available at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-301823A1.pdf (2010 Trends in Telephone Service)
(reporting 165 million ILEC access lines in 1996).
650 See Section 271 Applications Filed with FCC, at http://transition.fcc.gov/Bureaus/Common_Carrier/in-
region_applications/.
651 Local Telephone Competition: Status as of December 31, 2011, Federal Communications Commission, Wireline
Competition Bureau, Industry Analysis and Technology Division at Table 7 (Jan. 2013), available at
http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0114/DOC-318397A1.pdf (2013 Local
Competition Report
). Through industry consolidation in the past decade, RBOC successor entities AT&T, Inc. (the
successor to AT&T Corp. and SBC Communications, Inc.) and Verizon Communications, Inc. are now included
among the five companies reporting the most toll service revenue. See 2010 Trends in Telephone Service at Table
9.1.
652 Interstate switched access minutes of use declined 6% a year, on average, from 1997 through 2011, with the 2011
level (209 billion minutes) being only 42% of the 1997 level (497 billion minutes). 2012 Universal Service
Monitoring Report
, CC Docket No. 98-202, at 5-2, 5-3, Chart 5.1, Table 5.1 (2013), available at
http://transition.fcc.gov/Daily_Releases/Daily_Business/2013/db0403/DOC-319744A1.pdf.
653 Telecommunications Industry Revenues: 2009, Federal Communications Commission, Wireline Competition
Bureau, Industry Analysis and Technology Division at Table 1 (May 2011), available at
http://transition.fcc.gov/wcb/iatd/lec.html. Toll services are telecommunications services—wireline, wireless, or
interconnected VoIP services—that enable customers to communicate outside local exchange calling areas. Toll
service revenues include revenues from intrastate, interstate, and international long distance services. Id. at 6.
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reported to the Commission (including both end user and carrier’s carrier—provided for resale—
revenues) increased, from $231 billion in 1997 to $281 billion in 2009.654
b.

Increased Subscription to Cable-Based Local Services and Mobile
Wireless Services

233.
During the same period described above, consumers increasingly turned to providers
other than their ILEC for their voice service needs. As of December 2005, coaxial cable lines constituted
only 16 percent of reported non-ILEC voice service lines,655 and only 13 percent of residential lines were
provided by non-ILECs.656 By the end of 2011, non-ILECs’ share of residential voice service connections
had grown to approximately 37 percent,657 and cable-based connections constituted 51 percent of non-
ILEC connections.658 By 2011, many cable-based services were interconnected VoIP—a generally “all
distance” service with no differentiation in price based on calls within the United States.659
234.
There also has been an increase in households subscribing to mobile wireless services.
For example, the National Center for Health Statistics estimates that between 2003 and 2012, the
percentage of households subscribing to mobile wireless services grew from approximately 46 percent to
88 percent, and the percentage of households subscribing only to a mobile wireless service increased from
3.2 percent to 35.8 percent.660 When combined with households that subscribe to both landline and
mobile services but rely primarily on their mobile service, the total percentage of households relying
primarily or exclusively on wireless rises to 51.7 percent.661
c.

The Rise of Bundled Local and Long Distance Subscription

235.
The Commission has recognized that stand-alone long distance marketed to U.S.
consumers is becoming a fringe market,662 and that today, “consumers predominantly purchase local and

654 Id.
655 Local Telephone Competition: Status as of December 31, 2005, Federal Communications Commission, Wireline
Competition Bureau, Industry Analysis and Technology Division at Table 5 (July 2006), available at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266595A1.pdf.
656 Id. at Table 6 (13.9 million is approximately 13 percent of 108.3 million).
657 2013 Local Competition Report at Table 10 (30.5 million is approximately 37% of 83.0 million). As of
December 2011, only 3.7 million of the 30.5 million non-ILEC residential voice service connections were reported
to be switched access lines. Id. These figures include all over the top interconnected VoIP residential connections.
In staff’s judgment, non-ILECs’ share of residential connections is approximately 35%, excluding staff estimates of
non-cable based over the top services such as Vonage. See id. at Tables 6, 8-11, Figures 6, 7.
658 Id. at Table 6 (27.8 million cable-based connections is approximately 51% of 54.1 million non-ILEC
connections.).
659 Compare, for example, the 23.9 million interconnected VoIP connections provided to cable Internet customers in
December 2011 to the 1.9 million non-ILEC cable based switched access lines reported. Id. at Figures 6, 7.
660 CDC Wireless Survey at Table 1.
661 Id. at 1 (reporting 35.8% of homes with only wireless phones plus 15.9% of homes that received all or almost all
calls on wireless phones despite also having a landline phone). See also supra n.643.
662 See, e.g., Verizon Communications Inc. and MCI, Inc. Applications for Approval of Transfer of Control, WC
Docket No. 05-75, Memorandum Opinion and Order, 20 FCC Rcd 18433, 18483, para. 92 (2005) (Verizon/MCI
Merger Order
); SBC Communications Inc. and AT&T Corp. Applications for Approval of Transfer of Control, WC
Docket No. 05-65, Memorandum Opinion and Order, 20 FCC Rcd 18290, 18342, para. 91 (2005) (AT&T/SBC
Merger Order
); AT&T Inc. and Bellsouth Corp. Application for Transfer of Control, WC Docket No. 06-74,
Memorandum Opinion and Order, 22 FCC Rcd 5662, 5715, para. 97 (2007); Section 272 Sunset Order, 22 FCC Rcd
(continued....)
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long distance services from a single provider. Evidence suggests that this trend is continuing as the stand-
alone wireline long distance market is steadily declining relative to the bundled services market.”663
Between 2008 and 2011, the proportion of residential switched access lines and interconnected VoIP
subscriptions with “+1” access to the local provider’s long distance services increased from 75 to 80
percent.664
236.
In 2011, the Commission noted in the USF/ICC Transformation Order that many
providers no longer distinguish between local and long distance usage.665 As a result, the Commission
concluded that it was appropriate to eliminate the distinction between such services for purposes of
supported services and instead to “describe the core functionalities of the supported services as ‘voice
telephony service.’”666 More recently, the Commission revised the Lifeline rules and determined that
“ETCs are not required to offer toll limitation service to low-income consumers if the Lifeline offering
provides a set amount of minutes that do not distinguish between toll and non-toll calls.”667 The
Commission reached this decision because “[m]any carriers no longer distinguish between toll and non-
toll calls in how they price voice telephony.”668

C.

Discussion

237.
The Commission adopted section 64.1903 based on the findings in the LEC
Classification Order emphasizing the need to protect against the exercise of exclusionary market power
by independent ILECs—the ability to raise rivals’ costs of providing competitive services, including the
misallocation of costs (for example misallocating costs from nonregulated to regulated services), non-
price discrimination (for example, lower quality wholesale services provided to a competitor), and a price
squeeze based on inputs that long distance competitors need, such as access services (for example, raising
(Continued from previous page)
at 16452, para. 23; Petition of Qwest Communications International Inc. for Forbearance from Enforcement of the
Commission’s Dominant Carrier Rules As They Apply After Section 272 Sunsets
, WC Docket No. 05-333,
Memorandum Opinion and Order, 22 FCC Rcd 5207, 5217, para. 16 (2007).
663 Verizon/MCI Merger Order, 20 FCC Rcd at18485-86, para. 96; AT&T/SBC Merger Order, 20 FCC Rcd at
18344, para. 95.
664 See 2013 Local Competition Report at Tables 8, 10; Local Telephone Competition: Status as of December 31,
2008
, Federal Communications Commission, Wireline Competition Bureau, Industry Analysis and Technology
Division, at Tables 7, 9 (June 2010), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-
299052A1.pdf. (The percentage is calculated by adding together residential presubscribed switched access lines,
ILEC residential interconnected VoIP subscriptions, and non-ILEC residential interconnected VoIP subscriptions,
and dividing the resulting sum by total residential switched access lines and interconnected VoIP subscriptions.)
665 See Connect America Fund, A National Broadband Plan for Our Future, Establishing Just and Reasonable Rates
for Local Exchange Carriers, High-Cost Universal Service Support, Developing an Unified Intercarrier
Compensation Regime, Federal-State Joint Board on Universal Service, Lifeline and Link-Up, Universal Service
Reform — Mobility Fund
, WC Docket No. 10-90, GN Docket No. 09-51, WC Docket No. 07-135, WC Docket No.
05-337, CC Docket No. 01-92, CC Docket No. 96-45, WC Docket No. 03-109, WT Docket No. 10-208, Report and
Order and Further Notice of Proposed Rulemaking, 26 FCC Rcd 17663, 17691-92, para. 76 (2011) (USF/ICC
Transformation Order), pets. for review pending sub nom. In re: FCC
, No. 11-9900 (10th Cir. filed Dec. 8, 2011).
666 Id. at 17692, para. 77.
667 Lifeline and Link Up Reform and Modernization, Lifeline and Link Up, Federal-State Joint Board on Universal
Service, Advancing Broadband Availability Through Digital Literacy Training
, WC Docket Nos. 11-42, 03-109, 12-
23, CC Docket No. 96-45, Report and Order and Further Notice of Proposed Rulemaking, 27 FCC Rcd 6656, 6679,
para. 49 (2012).
668 Id. at 6756, para. 229.
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prices for access services, including both switched and special access, or reducing prices for retail
services).669 In light of the market changes described above, we consider whether the rule continues to
offer benefits and whether the benefits justify the regulatory burdens and costs of compliance for rate-of-
return ILECs. We also recognize that market conditions alone might justify eliminating the separate
affiliate requirement, at least for some independent ILECs subject to rate-of-return regulation, and seek
comment on the relevant market characteristics and how they should affect our evaluation of the
continued need for the separate affiliate rule.
1.

Analyzing Potential for Cost Misallocation

238.
The USTelecom Forbearance Order granted forbearance from section 64.1903 to
independent ILECs subject to price cap regulation but denied this relief to such carriers subject to rate-of-
return regulation, including both independent ILECs subject to average schedules670 and cost
companies.671 Rate-of-return regulation, which preceded price cap regulation, focuses on an ILEC’s costs
and fixes the profits an ILEC may earn based on those costs.672 A rate-of-return ILEC may recover only
its costs plus a prescribed return on investment.673 Unlike price cap carriers, rate-of-return carriers are
typically small, rural telephone companies concentrated in one area.674 Also unlike price cap carriers,
non-average schedule rate-of-return independent ILEC has the ability and incentive to over allocate costs
to common line and special access services because its interstate compensation for those services remains
based directly on company-specific costs.675 We seek comment on this view. The Commission’s 2011
reforms to intercarrier compensation rules cap and/or reduce interstate switched access charges, but allow
increases in common line and special access rates.676 Thus, we believe that these changes in the access

669 See, e.g., LEC Classification Order, 12 FCC Rcd at 15847-57, paras. 158-75 (describing the incentives, ability,
and means for an incumbent LEC to improperly allocate costs, engage in price and non-price discrimination, and
engage in a price squeeze).
670 USTelecom Forbearance Order, supra at n.425.
671 Id. at para. 151.
672 Special Access for Price Cap Local Exchange Carriers, WC Docket No. 05-25, Report and Order and Further
Notice of Proposed Rulemaking, 27 FCC Rcd 16318, 16320, para. 2 (2012).
673 Special Access for Price Cap Local Exchange Carriers Order, WC Docket No. 05-25, Report and Order, 27 FCC
Rcd 10557, 10562, para. 8 (2012).
674 Multi-Association Group (MAG) Plan for Regulation of Interstate Services of Non-Price Cap Incumbent Local
Exchange Carriers and Interexchange Carriers
, CC Docket Nos. 00-256, 96-45, 98-77, 98-166, Second Report and
Order and Further Notice of Proposed Rulemaking, 16 FCC Rcd 19613, 19617, para. 4 (2001).
675 Matter of Computer III Remand Proceedings: Bell Operating Company Safeguards and Tier 1 Local Exchange
Company Safeguards
, CC Docket No. 90–623, Report and Order, 6 FCC Rcd 7571, 7596, para. 55 (1991); see also
Matter of 2000 Biennial Regulatory Review— Comprehensive Review of the Accounting Requirements and ARMIS
Reporting Requirements for Incumbent Local Exchange Carriers: Phase 2, Amendments to the Uniform System of
Accounts for Interconnection, Jurisdictional Separations Reform and Referral to the Federal-State Joint Board,
Local Competition and Broadband Reporting
, Report and Order in CC Docket Nos. 00-199, 97-212, and 80-286,
Further Notice of Proposed Rulemaking in CC Docket Nos. 00-199, 99-301, and 80-286, 16 FCC Rcd 19911,
19946, para. 85 (2001).
676 See USF/ICC Transformation Order, 26 FCC Rcd at 17936, para. 805. In the USTelecom Forbearance Order
we note that “[t]he Commission’s 2011 intercarrier compensation rules freeze or reduce most interstate access
charges, but allow increases in common line and special access rates. Thus, these changes in the access charge rules
reduce, but do not eliminate, the incentives for cost misallocation and potential access charge rate increases. We
find that it would be unwise to forbear from the separate affiliate requirement for rate-of-return independent ILECs
subject to cost regulation. To do so would potentially further increase opportunities for cost misallocation at a time
(continued....)
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charge rules reduce, but may not eliminate, incentives for cost misallocation and potential access charge
rate increases. We seek comment on this view and on the interplay between section 64.1903 and our
intercarrier compensation and universal service reforms. We seek comment on whether we could address
concerns about cost misallocation equally well, and in a less burdensome manner, in ways other than
requiring that service be provided through a separate affiliate.
239.
The Commission has previously recognized that concerns about cost misallocation are
strongest when carriers provide long distance services in whole or in part through their own switching or
transmission facilities.677 When these carriers provide long distance service exclusively through resale,
the risk of cost misallocation is reduced, and they operate pursuant to a lesser safeguard—a separate
corporate division rather than a separate subsidiary.678 We seek comment on the extent to which rate-of-
return independent ILECs provide long distance service using their own facilities. Could we deter and
detect cost misallocation by requiring that independent ILECs offering long distance over their own
facilities provide those services through a separate corporate division?
240.
We also seek comment on whether we can reduce the burdens on average schedule
carriers. Average schedule carriers are a subset of rate-of-return carriers that receive access compensation
and universal service support through the use of “average schedules” to avoid the difficulties and
expenses involved with conducting company-specific cost studies.679 Average schedule companies appear
to have limited incentives to misallocate costs as long as they continue to use the average schedules for
access compensation. However, these companies are permitted to convert to cost-based regulation
without Commission approval. Thus, an average schedule company could, in theory, provide in-region
long distance service without a separate affiliate, and then convert to cost-based regulation. We seek
comment on how we could grant relief from the separate affiliate requirement for average schedule
companies and also prevent them from misallocating costs in the future. We could condition relief from
section 64.1903 on a commitment not to convert to rate-of-return regulation, or require them to reinstitute
a separate affiliate if they do so. We seek comment on these and alternative suggestions. How should the
Commission treat cost companies participating in NECA pools? Do these companies possess the ability
and incentive to misallocate costs because disbursements from the NECA pools are based on participating
(Continued from previous page)
when the Commission has just embarked on a significant transformation of intercarrier compensation and universal
service. Accordingly, we do not forbear from application of the separate affiliate requirement to rate-of-return
independent ILECs subject to cost-based regulation.” USTelecom Forbearance Order, supra at para. 151.
677 LEC Classification Second Reconsideration Order, 14 FCC Rcd at 10787-88, para. 22 (concluding that
independent ILEC resellers were less likely than facilities-based providers to be able to engage in anti-competitive
behavior in connection with their long distance services).
678 47 C.F.R. § 64.1903(b)(1).
679 See National Exchange Carrier Association, Inc., 2013 Modification of Average Schedule Universal Support
Formula
, WC Docket No. 05-337, Order, 27 FCC Rcd 15178, 15179, para. 5 (Wireline Comp. Bur. 2012) (2013
Modification Order
). Average schedule carriers “have been assumed, because of their small size, not to have
sufficient financial resources or expertise to justify a requirement that they perform jurisdictionally separated cost
studies for determining their compensation in originating and terminating interstate telecommunications services.”
MTS and WATS Market Structure: Average Schedule Companies, CC Docket No. 78-72, Report and Order, 103
FCC2d 1017, 1018-19 (1986). “These formulas are developed by NECA using data from a sample group of average
schedule carriers and from similarly situated companies that file cost data, and are used to determine support
amounts for all average schedule carriers.” 2013 Modification Order, 27 FCC Rcd at 15179, para. 5. Thus, average
schedule carriers charge rates that are not directly tied to their costs but are tied to the average costs of similarly
situated companies. Average schedule companies, however, may easily move back and forth between average
schedules and cost-based rate-of-return regulation.
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companies’ costs?680 In the USTelecom Forbearance Order, we grant relief to price cap carriers if they:
(1) submit and obtain Bureau approval of special access performance metrics, and (2) satisfy imputation
requirements, including the submission of an imputation plan for review and approval from the Bureau.681
Will such nonstructural safeguards obviate the need for section 64.1903, while imposing fewer costs and
burdens, for rate-of-return carriers? How should our analysis for rate-of-return carriers differ, if any,
from our analysis for price cap carriers?
2.

Analyzing Potential for Unlawful Non-Price Discrimination and Price
Squeezes

241.
Section 64.1903 was intended to prevent unlawful non-price discrimination and price
squeezes.682 Do these concerns remain relevant in light of changes in the market, including the prevalence
of bundled local, intrastate long distance, and interstate long distance services? Is the separate affiliate
requirement an effective, cost-effective way to prevent these anticompetitive practices? Could the
Commission effectively address these concerns through ex-post facto investigations, such as under a
section 208 complaint process? Are existing statutory and regulatory safeguards sufficient to deter these
anticompetitive practices?683
3.

Costs and Benefits of the Separate Affiliate Requirements of Section 64.1903

242.
How many independent ILECs use separate affiliates pursuant to section 64.1903? What
costs, if any, would be saved if we eliminate section 64.1903 for independent ILECs subject to rate-of-
return regulation? Would the same savings be realized if the independent ILEC were required instead to
provide long distance services through a separate division? For example, what incremental costs does an
independent ILEC incur in maintaining separate books of account for its long distance services, as
opposed to including those costs and revenues in the accounts for its LEC operations? How does that
differ depending on whether the separate books of account are for a separate division versus a separate
corporation? We particularly seek empirical data on costs and burdens from independent ILECs that have
experience providing long distance service through a separate corporate affiliate or a separate division so
that we can analyze the differences between these structures.

680 We recognize that independent ILEC cost companies participating in the NECA pool may have somewhat less
incentive to misallocate costs than such companies that have their own access tariffs. The NECA pool access rates
are based on the average costs for all companies that participate in the NECA pools. See Investigations of Certain
2007 Annual Access Tariffs
, WC Docket No. 07-184, WCB Pricing No. 07-10, Order Designating Issues for
Investigation, 22 FCC Rcd 16109, 16110, para. 4 (2007). While these companies have less ability to increase access
rates and engage in a price squeeze, they still theoretically retain an incentive to misallocate disbursements from the
NECA pools, which are based on a company’s costs.
681 USTelecom Forbearance Order at paras. 145-148; We also note in the USTelecom Forbearance Order that “[i]n
addition, independent ILECs subject to price cap regulation remain subject to a number of legal obligations that will
limit their ability to exercise exclusionary market power.” USTelecom Forbearance Order at para. 142; see also
infra
n.683.
682 See supra para. 237.
683 ILECs are subject to a number of statutory and regulatory measures designed to detect and deter anticompetitive
behavior. These include: (1) dominant carrier regulation of interstate exchange access services; (2) equal access
obligations under longstanding Commission precedent and section 251(g) of the Act; (3) section 251 obligations;
and (4) the obligation to provide service on just, reasonable, and not unreasonably discriminatory rates, terms, and
conditions pursuant to sections 201 and 202 of the Act. See Section 272 Sunset Order, 22 FCC Rcd at 16484-87,
paras. 90-94. The Commission’s section 208 complaint process may also be used in the event it is believed that an
independent ILEC has violated the Act or the Commission’s rules. Id. at 16497, para. 115.
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243.
What effect, if any, does the prohibition against joint ownership of switching and
transmission equipment have on an independent ILEC’s operational efficiency and ability to offer
innovative services? Does that prohibition significantly limit the independent ILEC’s opportunities to
take advantage of economies of scope and scale associated with integrated operations? Does the
prohibition make it more difficult for an independent ILEC to transform its network from a traditional
Time-Division Multiplexing (TDM) network to an all-Internet Protocol (all-IP) network?684 If so, how?
Does section 64.1903 reduce independent ILECs’ ability to increase telephone subscribership or extend
broadband services to additional areas? If ILECs transition to offering only VoIP services, should section
64.1903 continue to apply? Finally, we seek comment on whether complying with nonstructural
safeguards such as special access performance metrics and imputation requirements adequately address
issues of non-price discrimination and/or price squeezes.685 We ask commenters to provide detailed
information on the overall costs and burdens of the section 64.1903 requirements on independent ILECs
and their customers.

VII.

PROCEDURAL MATTERS

A.

Memorandum Opinion and Order

244.
This document contains new information collection requirements subject to the
Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the Office of
Management and Budget (OMB) for review under Section 3507 of the PRA, 44 U.S.C. § 3507. Prior to
submission to OMB, the Commission will publish a notice in the Federal Register seeking public
comment on the information collection requirement. In addition, that notice will also seek comment on
how the Commission might “further reduce the information collection burden for small business concerns
with fewer than 25 employees” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law
107-198, see 44 U.S.C. § 3506(c)(4). The information collection contained in this Memorandum Opinion
and Order will not go into effect until OMB approves the collection and the Commission has published a
notice in the Federal Register announcing the effective date of the information collection.

B.

Report and Order in WC Docket No. 10-132

1.

Final Paperwork Reduction Act Analysis

245.
This Report and Order does not contain new or modified information collection
requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. 686 In addition,
therefore, it does not contain any new or modified information collection burden for small business
concerns with fewer than 25 employees, pursuant to the Small Business Paperwork Relief Act of 2002,
Public Law 107-198, see 44 U.S.C. § 3506(c)(4).
2.

Congressional Review Act

246.
The Commission will send a copy of this Report and Order to Congress and the
Government Accountability Office pursuant to the Congressional Review Act.687

684 See Pleading Cycle Established on AT&T and NTCA Petitions, Public Notice, GN Docket No. 12-353, 27 FCC
Rcd 15766 (Wireline Comp. Bur. 2012) (requesting comments on petitions concerning the transition of telephone
networks and services to Internet Protocol); Technology Transitions Policy Task Force Seeks Comment on Potential
Trials
, GN Docket No. 13-5, Public Notice, DA 13-1016 (rel. May 10, 2013), available at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-13-1016A1.pdf.
685 See supra paras. 225, 241; see also USTelecom Forbearance Order, supra paras. 143-148.
686 Pub. L. No. 104-13; 44 U.S.C. §§ 3501-3520.
687 5 U.S.C. § 801(a)(1)(A).
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3.

Final Regulatory Flexibility Analysis

247.
Final Regulatory Flexibility Certification. The Regulatory Flexibility Act of 1980, as
amended (RFA),688 requires that a regulatory flexibility analysis be prepared for rulemaking proceedings,
unless the agency certifies that “the rule will not have a significant economic impact on a substantial
number of small entities.”689 The RFA generally defines “small entity” as having the same meaning as the
terms “small business,” “small organization,” and “small governmental jurisdiction.”690 In addition, the
term “small business” has the same meaning as the term “small business concern” under the Small
Business Act.691 A small business concern is one which: (1) is independently owned and operated; (2) is
not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small
Business Administration (SBA).692
248.
This Report and Order eliminates CEI/ONA narrowband reporting requirements that
have been in place to monitor the BOCs’ compliance with access and interconnection services that they
must offer to competitive ESPs. It finds that the Commission does not rely on any of the reports in the
course of its decision making, and there is nothing in the record indicating that the reports contain
information that is currently useful to competitive ESPs. In addition, no commenter to the proceeding
indicated that we should retain the reports.693 The underlying substantive requirements associated with
CEI and ONA with which the BOCs must comply will remain in effect.
249.
SBA defines small telecommunications entities as those with 1,500 or fewer
employees.694 This proceeding pertains to the BOCs, which, because they would not be deemed a “small
business concern” under the Small Business Act and have more than 1,500 employees, do not qualify as
small entities under the RFA. Therefore, we certify that the requirements of this Report and Order will
not have a significant economic impact on a substantial number of small entities. The Commission will
send a copy of the Report and Order including a copy of this final certification in a report to Congress
pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996.695 In addition, the Report
and Order
and this certification will be sent to the Chief Counsel for Advocacy of the Small Business
Administration, and will be published in the Federal Register.696

688 The RFA, see 5 U.S.C. § 601 et seq., has been amended by the Contract With America Advancement Act of
1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the CWAAA is the Small Business
Regulatory Enforcement Fairness Act of 1996 (SBREFA).
689 5 U.S.C. § 605(b).
690 5 U.S.C. § 601(6).
691 5 U.S.C. § 601(3) (incorporating by reference the definition of “small business concern” in Small Business Act,
15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies “unless an
agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity
for public comment, establishes one or more definitions of such term which are appropriate to the activities of the
agency and publishes such definition(s) in the Federal Register.
692 Small Business Act, 15 U.S.C. § 632.
693 See supra paras. 8-11.
694 See generally 13 C.F.R. § 121.201, NAICS Code 517110, Wired Telecommunications Carriers.
695 See 5 U.S.C. § 801(a)(1)(A).
696 See 5 U.S.C. § 605(b).
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C.

Computer III

Further Notice

1.

Paperwork Reduction Act Analysis

250.
This document contains proposed new or modified information collection requirements.
The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public
and the Office of Management and Budget (OMB) to comment on the information collection
requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public
Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-
198, see 44 U.S.C. § 3506(c)(4), we seek specific comment on how we might further reduce the
information collection burden for small business concerns with fewer than 25 employees.
2.

Initial Regulatory Flexibility Analysis

251.
The Regulatory Flexibility Act of 1980, as amended (RFA),697 requires that an initial
regulatory flexibility analysis be prepared for notice-and-comment rulemaking proceedings, unless the
agency certifies that “the rule will not, if promulgated, have a significant economic impact on a
substantial number of small entities.”698 The RFA generally defines the term “small entity” as having the
same meaning as the terms “small business,” “small organization,” and “small governmental
jurisdiction.”699 In addition, the term “small business” has the same meaning as the term “small business
concern” under the Small Business Act.700 A “small business concern” is one which: (1) is independently
owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria
established by the Small Business Administration (SBA).701 SBA defines small telecommunications
entities as those with 1,500 or fewer employees.702 This proceeding pertains to the BOCs, which, because
they would not be deemed a “small business concern” under the Small Business Act and have more than
1,500 employees, do not qualify as small entities under the RFA. Therefore, we certify that the proposals
in this Further Notice, if adopted, will not have a significant economic impact on a substantial number of
small entities.
252.
The Commission will send a copy of the Notice, including a copy of this Initial
Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the SBA.703 This initial
certification will also be published in the Federal Register.704

697 See 5 U.S.C. § 603. The RFA, see 5 U.S.C. §§ 601-612, has been amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
698 5 U.S.C. § 605(b).
699 5 U.S.C. § 601(6).
700 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small Business
Act, 15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies “unless an
agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity
for public comment, establishes one or more definitions of such term which are appropriate to the activities of the
agency and publishes such definition(s) in the Federal Register.”
701 15 U.S.C. § 632.
702 See generally 13 C.F.R. § 121.201, NAICS Code 517110, Wired Telecommunications Carriers.
703 5 U.S.C. § 605(b).
704 Id.
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3.

Ex Parte

Presentations

253.
This proceeding shall be treated as a “permit-but-disclose” proceeding in accordance with
the Commission's ex parte rules.705 Persons making ex parte presentations must file a copy of any written
presentation or a memorandum summarizing any oral presentation within two business days after the
presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral
ex parte presentations are reminded that memoranda summarizing the presentation must (1) list all
persons attending or otherwise participating in the meeting at which the ex parte presentation was made,
and (2) summarize all data presented and arguments made during the presentation. If the presentation
consisted in whole or in part of the presentation of data or arguments already reflected in the presenter’s
written comments, memoranda or other filings in the proceeding, the presenter may provide citations to
such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant
page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them
in the memorandum. Documents shown or given to Commission staff during ex parte meetings are
deemed to be written ex parte presentations and must be filed consistent with rule 1.1206(b). In
proceedings governed by rule 1.49(f) or for which the Commission has made available a method of
electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations,
and all attachments thereto, must be filed through the electronic comment filing system available for that
proceeding, and must be filed in their native format (e.g., .doc, .xml, .ppt, searchable .pdf). Participants in
this proceeding should familiarize themselves with the Commission’s ex parte rules.
4.

Comment Filing Procedures

254.
Pursuant to sections 1.415 and 1.419 of the Commission’s rules, 47 CFR §§ 1.415, 1.419,
interested parties may file comments and reply comments on or before the dates indicated on the first
page of this document. All pleadings are to reference CC Docket Nos. 95-20, 98-10. Comments may be
filed using the Commission’s Electronic Comment Filing System (ECFS). See Electronic Filing of
Documents in Rulemaking Proceedings
, 63 FR 24121 (1998).

Electronic Filers: Comments may be filed electronically using the Internet by accessing the
ECFS: http://fjallfoss.fcc.gov/ecfs2/.

Paper Filers: Parties who choose to file by paper must file an original and one copy of each
filing. If more than one docket or rulemaking number appears in the caption of this proceeding,
filers must submit two additional copies for each additional docket or rulemaking number.

Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-
class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission’s
Secretary, Office of the Secretary, Federal Communications Commission.

All hand-delivered or messenger-delivered paper filings for the Commission’s Secretary must
be delivered to FCC Headquarters at 445 12th St., SW, Room TW-A325, Washington, DC
20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
with rubber bands or fasteners. Any envelopes and boxes must be disposed of before
entering the building.

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail)
must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

705 47 C.F.R. §§ 1.1200 et seq.
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U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th
Street, SW, Washington DC 20554.
255.
People with Disabilities: To request materials in accessible formats for people with
disabilities (braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call
the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

D.

Second Further Notice of Proposed Rulemaking

1.

Paperwork Reduction Act Analysis

256.
This document contains proposed new or modified information collection requirements.
The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public
and the Office of Management and Budget (OMB) to comment on the information collection
requirements contained in this document, as required by the Paperwork Reduction Act of 1995, Public
Law 104-13. In addition, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-
198, see 44 U.S.C. § 3506(c)(4), we seek specific comment on how we might further reduce the
information collection burden for small business concerns with fewer than 25 employees.
2.

Initial Regulatory Flexibility Analysis

257.
As required by the Regulatory Flexibility Act of 1980, as amended (RFA),706 the
Commission has prepared this Supplemental Initial Regulatory Flexibility Analysis (Supplemental IRFA)
of the possible significant economic impact on a substantial number of small entities by the policies
proposed in this Second NPRM. Written comments are requested on this Supplemental IRFA.
Comments must be identified as responses to the Supplemental IRFA and must be filed by the deadlines
for comments on the Second FNPRM. The Commission will send a copy of the Second FNPRM,
including this Supplemental IRFA, to the Chief Counsel for Advocacy of the Small Business
Administration (SBA).707 In addition, the Second FNPRM and Supplemental IRFA (or summaries
thereof) will be published in the Federal Register.708
(i)

Purpose of the Proposed Rules

258.
In the Second FNPRM, we explore the costs and benefits of continuing to apply the
structural separation requirements contained in section 64.1903 of the Commission’s rules, 47 C.F.R.
§ 64.1903, to independent incumbent local exchange carriers (ILECs) subject to rate-of-return regulation
and providing in-region, interexchange, interstate long distance services (in-region long distance services)
in today’s marketplace.
259.
In the Second FNPRM, we seek comments addressing marketplace changes such as the
decline of stand-alone long distance services, the rise of facilities-based “all-distance services”
competition from cable and wireless, and the role of bundles in today’s long distance market. We
therefore seek comment addressing whether incentives for anticompetitive behavior exist for independent
ILECs subject to rate-of-return regulation, and whether granting relief from section 64.1903 is
appropriate.

706 See 5 U.S.C. § 603. The RFA, see 5 U.S.C. §§ 601-612, has been amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
707 See 5 U.S.C. § 603(a).
708 See id.
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(ii)

Legal Basis

260.
The legal basis for any action that may be taken pursuant to the Second Further NPRM is
contained in sections 4(i), 4(j), 10, 201-204, 214, 220(a), and 303(r) of the Communications Act of 1934,
as amended, 47 U.S.C. §§ 154(i), 154(j), 160, 201-204, 214, 220(a), and 303(r).
(iii)

Description and Estimate of the Number of Small Entities to Which
the Proposed Rules Will Apply

261.
The RFA directs agencies to provide a description of and, where feasible, an estimate of
the number of small entities that may be affected by the proposed rules, if adopted.709 The RFA generally
defines the term “small entity” as having the same meaning as the terms “small business,” “small
organization,” and “small governmental jurisdiction.”710 In addition, the term “small business” has the
same meaning as the term “small-business concern” under the Small Business Act.711 A small-business
concern” is one which: (1) is independently owned and operated; (2) is not dominant in its field of
operation; and (3) satisfies any additional criteria established by the SBA.712
262.

Small Businesses

. Nationwide, there are a total of approximately 27.5 million small
businesses, according to the SBA.713
263.

Wired Telecommunications Carriers

. The SBA has developed a small business size
standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or
fewer employees. According to Census Bureau data for 2007, there were 3,188 firms in this category,
total, that operated for the entire year.714 Of this total, 3144 firms had employment of 999 or fewer
employees, and 44 firms had employment of 1000 employees or more.715 Thus, under this size standard,
the majority of firms can be considered small.
264.

Incumbent Local Exchange Carriers (ILECs)

. Neither the Commission nor the SBA
has developed a size standard for small businesses specifically applicable to incumbent local exchange
services. The closest applicable size standard under SBA rules is for Wired Telecommunications
Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees.716
According to Commission data, 1,307 carriers reported that they were incumbent local exchange service
providers.717 Of these 1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 301 have

709 See 5 U.S.C. § 603(b)(3).
710 See 5 U.S.C. § 601(6).
711 See 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small
Business Act, 15 U.S.C. § 632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies
“unless an agency, after consultation with the Office of Advocacy of the Small Business Administration and after
opportunity for public comment, establishes one or more definitions of such term which are appropriate to the
activities of the agency and publishes such definition(s) in the Federal Register.”
712 See 15 U.S.C. § 632.
713 See SBA, Office of Advocacy, “Frequently Asked Questions,” http://www.sba.gov/advo/stats/sbfaq.pdf
(accessed Jan. 2012).
714 U.S. Census Bureau, 2007 Economic Census, Subject Series: Information, Table 5, “Establishment and Firm
Size: Employment Size of Firms for the United States: 2007 NAICS Code 517110” (issued Nov. 2010).
715 See id.
716 See 13 C.F.R. § 121.201, NAICS code 517110.
717 See Trends in Telephone Service, Federal Communications Commission, Wireline Competition Bureau, Industry
Analysis and Technology Division at Table 5.3 (Sept. 2010) (Trends in Telephone Service).
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more than 1,500 employees.718 Consequently, the Commission estimates that most providers of
incumbent local exchange service are small businesses that may be affected by rules adopted pursuant to
the Second FNPRM.
265.
We have included small incumbent LECs in this present RFA analysis. As noted above,
a “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its
field of operation.”719 The SBA’s Office of Advocacy contends that, for RFA purposes, small incumbent
LECs are not dominant in their field of operation because any such dominance is not “national” in
scope.720 We have therefore included small incumbent LECs in this RFA analysis, although we
emphasize that this RFA action has no effect on Commission analyses and determinations in other, non-
RFA contexts.
266.

Interexchange Carriers (IXCs)

. Neither the Commission nor the SBA has developed a
size standard for small businesses specifically applicable to interexchange services. The closest
applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.721 According to Commission data,
359 companies reported that their primary telecommunications service activity was the provision of
interexchange services.722 Of these 359 companies, an estimated 317 have 1,500 or fewer employees and
42 have more than 1,500 employees.723 Consequently, the Commission estimates that the majority of
interexchange service providers are small entities that may be affected by rules adopted pursuant to the
Order.
(iv)

Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities

267.
In this Second FNPRM, the Commission proposes additional or modified information
collections that would impose reporting and recordkeeping on current independent ILECs subject to rate-
of-return regulation, including small entities. Specifically, the Second FNPRM invites comment on
whether the Commission should replace its legacy framework for the provision of in-region, interstate
long distance services provided by independent ILECs subject to rate-of-return regulation with a
framework more closely tailored to the needs of consumers and competitors in today’s marketplace. The
central feature of this proposal is to amend or eliminate the application of section 64.1903 to independent
ILECs subject to rate-of-return regulation.
268.
Based on these questions, the Commission anticipates that a record will be developed
concerning actual burdens and alternative ways in which the Commission could lessen the burdens on
small entities subject to these requirements throughout the nation.

718 See id.
719 5 U.S.C. § 601(3).
720 See Letter from Jared W. Glover, Chief Counsel for Advocacy, SBA, to William E. Kennard, Chairman, FCC
(May 27, 1999). The Small Business Act contains a definition of “small business concern,” which the RFA
incorporates into its own definition of “small business.” See 15 U.S.C. § 632(a); see also 5 U.S.C. § 601(3). SBA
regulations interpret “small business concern” to include the concept of dominance on a national basis. See 13
C.F.R. § 121.102(b).
721 See 13 C.F.R. § 121.201, NAICS code 517110.
722 See Trends in Telephone Service at Table 5.3.
723 See id.
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(v)

Steps Taken to Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered

269.
The RFA requires an agency to describe any significant, specifically small business,
alternatives that it has considered in reaching its proposed approach, which may include the following
four alternatives (among others): “(1) the establishment of differing compliance or reporting requirements
or timetables that take into account the resources available to small entities; (2) the clarification,
consolidation, or simplification of compliance and reporting requirements under the rules for such small
entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of
the rule, or any part thereof, for such small entities.”724
270.
The overall objective of this proceeding is to reduce regulatory burdens on independent
ILECs to the extent consistent with the public interest, and is part of the Commission’s ongoing efforts
under Executive Order 13,579 to revisit “rules that may be outmoded, ineffective, insufficient, or
excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has
been learned.” The Second FNPRM seeks specific proposals as to which existing regulations might be
removed or streamlined in their application to provision of in-region, interstate and international
interexchange services by independent ILECs subject to rate-of-return regulation absent current
safeguards, and asks parties to comment on whether such independent ILECs should continue to be
classified as nondominant in the provision of such services if section 64.1903 is repealed. The Second
FNPRM also asks parties to discuss whether, and to what extent, dominant carrier regulation is aptly
suited to achieving the Commission’s objectives to promote competition and to deter anticompetitive
behavior by independent ILECs subject to rate-of-return regulation. The Second FNPRM seeks comment
on these matters, especially as they might affect small entities subject to the rules.
(vi)

Federal Rules that May Duplicate, Overlap, or Conflict with the
Proposed Rules

271.
None.
3.

Ex Parte

Presentations

272.
This proceeding shall be treated as a “permit-but-disclose” proceeding in accordance with
the Commission's ex parte rules.725 Persons making ex parte presentations must file a copy of any written
presentation or a memorandum summarizing any oral presentation within two business days after the
presentation (unless a different deadline applicable to the Sunshine period applies). Persons making oral
ex parte presentations are reminded that memoranda summarizing the presentation must (1) list all
persons attending or otherwise participating in the meeting at which the ex parte presentation was made,
and (2) summarize all data presented and arguments made during the presentation. If the presentation
consisted in whole or in part of the presentation of data or arguments already reflected in the presenter’s
written comments, memoranda or other filings in the proceeding, the presenter may provide citations to
such data or arguments in his or her prior comments, memoranda, or other filings (specifying the relevant
page and/or paragraph numbers where such data or arguments can be found) in lieu of summarizing them
in the memorandum. Documents shown or given to Commission staff during ex parte meetings are
deemed to be written ex parte presentations and must be filed consistent with rule 1.1206(b). In
proceedings governed by rule 1.49(f) or for which the Commission has made available a method of
electronic filing, written ex parte presentations and memoranda summarizing oral ex parte presentations,
and all attachments thereto, must be filed through the electronic comment filing system available for that

724 5 U.S.C. § 603(c)(1)-(c)(4).
725 47 C.F.R. §§ 1.1200 et seq.
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proceeding, and must be filed in their native format (e.g., .doc, .xml, .ppt, searchable .pdf). Participants in
this proceeding should familiarize themselves with the Commission’s ex parte rules.
4.

Comment Filing Procedures

273.
Pursuant to sections 1.415 and 1.419 of the Commission’s rules, 47 CFR §§ 1.415, 1.419,
interested parties may file comments and reply comments on or before the dates indicated on the first
page of this document. All pleadings are to reference CC Docket No. 00-175. Comments may be filed
using the Commission’s Electronic Comment Filing System (ECFS). See Electronic Filing of Documents
in Rulemaking Proceedings
, 63 FR 24121 (1998).

Electronic Filers: Comments may be filed electronically using the Internet by accessing the
ECFS: http://fjallfoss.fcc.gov/ecfs2/.

Paper Filers: Parties who choose to file by paper must file an original and one copy of each
filing. If more than one docket or rulemaking number appears in the caption of this proceeding,
filers must submit two additional copies for each additional docket or rulemaking number.

Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-
class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission’s
Secretary, Office of the Secretary, Federal Communications Commission.

All hand-delivered or messenger-delivered paper filings for the Commission’s Secretary must
be delivered to FCC Headquarters at 445 12th St., SW, Room TW-A325, Washington, DC
20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
with rubber bands or fasteners. Any envelopes and boxes must be disposed of before
entering the building.

Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail)
must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743.

U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th
Street, SW, Washington DC 20554.
274.
People with Disabilities: To request materials in accessible formats for people with
disabilities (braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call
the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty).

VIII.

ORDERING CLAUSES

275.
Accordingly, IT IS ORDERED, pursuant to section 10(c) of the Communications Act of
1934, as amended, 47 U.S.C. § 160(c), that USTelecom’s petition for forbearance IS GRANTED IN
PART, to the extent described above, and conditioned on fulfillment of the obligations set forth herein,
AND DENIED IN PART, to the extent described above, AND IS OTHERWISE DENIED.
276.
IT IS FURTHER ORDERED, pursuant to sections 1, 4(i) and 4(j), 47 U.S.C. §§ 151,
154(i) and 154(j), that USTelecom’s Petition for Waiver in WC Docket No. 08-225 and Cincinnati Bell’s
Petition for Waiver in WC Docket No. 09-206 ARE DISMISSED as moot, in light of the relief granted
herein.
277.
IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 4(j), and 405 of the
Communications Act, as amended, 47 U.S.C. §§ 151, 154(i), 154(j), and 405, that the Petition for
Reconsideration of Embarq, Frontier, and Windstream in WC Docket Nos. 08-190, 07-139, 07-204, 07-
273, and 07-21 IS DISMISSED as moot, in light of the relief granted herein.
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278.
IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 4(j), and 405 of the
Communications Act, as amended, 47 U.S.C. §§ 151, 154(i), 154(j), and 405 that the Petition for
Reconsideration by Sprint Nextel Corporation, AdHoc Telecommunications Users Committee,
COMPTEL, and Time Warner Telecom Inc. in WC Docket Nos. 07-21 and 05-342 filed on May 27, 2008
in WC Docket Nos. 07-21 and 05-342; the Petition for Reconsideration by AdHoc Telecommunications
Users Committee, filed on October 6, 2008 in WC Docket Nos. 08-190, 07-139, 07-204, 07-273, and 07-
21; and the Petition for Reconsideration by Sprint Nextel Corporation, COMPTEL, tw telecom inc., and
One Communications Corp., filed on October 6, 2008 in WC Docket Nos. 08-190, 07-139, 07-204, 07-
273, are DENIED.
279.
IT IS FURTHER ORDERED that, pursuant to Sections 1, 2, 4, 11, 201-205, 251, 272,
274-276, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 152, 154, 161,
201-205, 251, 272, 274-276, and 303(r) this Report and Order in WC Docket No. 10-132 IS ADOPTED.
The requirements of this Report and Order shall become effective 30 days after publication in the Federal
Register.
280.
IT IS FURTHER ORDERED that the Commission’s Consumer and Governmental
Affairs Bureau, Reference Information Center, SHALL SEND a copy of this Report and Order in WC
Docket No. 10-132, including the Final Regulatory Flexibility Certification, to the Chief Counsel for
Advocacy of the Small Business Administration.
281.
IT IS FURTHER ORDERED that, pursuant to Sections 1, 2, 4, 11, 201-205, 251, 272,
274-276, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 152, 154, 161,
201-205, 251, 272, 274-276, and 303(r) this Further Notice of Proposed Rulemaking in CC Docket Nos.
95-20 and 98-10 IS ADOPTED.
282.
Accordingly, IT IS ORDERED that, pursuant to Sections 1, 2, 4(i), 4(j), 201-205, 220(a),
251, 272, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 152, 154(i),
154(j), 201-205, 220(a), 251, 272, and 303(r) this Second Further Notice of Proposed of Rulemaking in
CC Docket No. 00-175 IS ADOPTED.
283.
IT IS FURTHER ORDERED that the Commission’s Consumer and Governmental
Affairs Bureau, Reference Information Center, SHALL SEND a copy of this Further Notice of Proposed
Rulemaking in CC Docket Nos. 95-20 and 98-10 and this Second Further Notice of Proposed Rulemaking
in CC Docket No. 00-175, including the Initial Regulatory Flexibility Certifications, to the Chief Counsel
for Advocacy of the Small Business Administration.
284.
IT IS FURTHER ORDERED, pursuant to section 10 of the Communications Act of
1934, as amended, 47 U.S.C. § 160, and section 1.103(a) of the Commission’s rules, 47 U.S.C.
§ 1.103(a), that this decision SHALL BE EFFECTIVE upon release. Pursuant to sections 1.4 and 1.13 of
the Commission’s rule, 47 C.F.R. §§ 1.4, 1.13, the time for appeal SHALL RUN from the release date of
this Order.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
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APPENDIX A

Comments, Oppositions, & Replies

Comments

Ad Hoc Telecommunications Users Committee (Ad Hoc)
Alarm Industry Communications Committee (AICC)
Alaska Communications Systems Group, Inc. (ACS)
California Association of Competitive Telecommunications Companies (CACTC)
California Public Utilities Commission (CPUC)
CenturyLink
Cincinnati Bell Telephone Company LLC (Cincinnati Bell)
General Communication, Inc. (GCI)
Larry S. Landis
Michigan Public Service Commission (Michigan PSC)
NASUCA, Maine Office of the Public Advocate, and New Jersey Rate Counsel (Consumer Advocates)
National Cable & Telecommunications Association (NCTA)
New York Public Service Commission (NY PSC)
Verizon
Vermont Public Service Board (Vermont PSB)

Oppositions

Broadview Networks, MegaPath Corp., and XO Communications (Broadview, et al.)
COMPTEL
Full Service Network LP (Full Service)
New Networks Institute (New Networks)
Maneesh Pangasa
Sprint Nextel Corporation (Sprint)

Reply Comments

Alarm Industry Communications Committee (AICC)
Alaska Communications Systems Group, Inc. (ACS)
AT&T
Computer & Communications Industry Association (CCIA)
Frontier Communications (Frontier)
Full Service Network LP (Full Service)
Michigan Public Service Commission (Michigan PSC)
National Telecommunications Cooperative Association (NTCA)
Pennsylvania Public Utility Commission (Pennsylvania PUC)
Public Service Commission of the District of Columbia (DC PSC)
SureWest Telephone (SureWest)
United States Telecom Association (USTelecom)
Verizon
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APPENDIX B

Forbearance Granted in this Order

Category of Rule

Applicable C.F.R. or U.S.C. sections

Scope of

Conditions

Forbearance

Equal Access
Not applicable
All
No
Scripting
Cost Assignment
47 C.F.R. § 32.23
Price cap
Yes
Rules726
47 C.F.R. § 32.27(a)-(e)
carriers only
47 C.F.R. § 32.5280(b)-(c)
47 C.F.R. §§ 36.1-36.2
47 C.F.R. §§ 36.3(a)-(d)
47 C.F.R. §§ 36.101-36.102
47 C.F.R. § 36.111
47 C.F.R. § 36.112(a)
47 C.F.R. §§ 36.121-36.124
47 C.F.R. §§ 36.125(a), (b), (g)-(j)
47 C.F.R. § 36.126
47 C.F.R. §§ 36.141-36.142
47 C.F.R. §§ 36.151-36.153
47 C.F.R. §§ 36.154(a)-(c), (e)-(g)
47 C.F.R. §§ 36.155-157
47 C.F.R. §§ 36.161-36.162
47 C.F.R. § 36.171
47 C.F.R. § 36.172(a), (b)
47 C.F.R. §§ 36.181-36.182
47 C.F.R. § 36.191
47 C.F.R. §§ 36.201-2
47 C.F.R. §§ 36.211-36.216
47 C.F.R. §§ 36.221-36.225
47 C.F.R. §§ 36.301-36.302
47 C.F.R. §§ 36.310-36.311
47 C.F.R. § 36.321
47 C.F.R. § 36.331
47 C.F.R. § 36.341
47 C.F.R. §§ 36.351-36.354
47 C.F.R. § 36.361
47 C.F.R. §§ 36.371-36.382
47 C.F.R. §§ 36.391-36.392
47 C.F.R. §§ 36.411-36.412
47 C.F.R. § 36.421
47 C.F.R. §§ 36.501-36.507
Appendix to Title 47 Part 36
47 C.F.R. §§ 64.901-64.904

726 See supra n. 119. To the extent that there are any inconsistencies between this Appendix and the Order, the
Order controls.
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47 C.F.R. § 65.600
47 C.F.R. §§ 69.301-69.306
47 C.F.R. §§ 69.307(a), (b), (d)
47 C.F.R. §§ 69.309-69.310
47 C.F.R. §§ 69.401-69.409
47 C.F.R. §§ 69.411-69.414
47 U.S.C. § 220(a)(2) (limited to the extent that
this provision contemplates separate accounting of
nonregulated costs)
Part 42 Recording
47 C.F.R. §§ 42.4-42.5
All
Yes;
keeping
47 C.F.R. § 42.7
forbearance
Requirements
47 C.F.R. § 42.10(a)
from 47
C.F.R.
§ 42.10(a)
applies
only to
IXCs that
maintain a
website
ARMIS Report 43-
47 C.F.R. § 43.21(e)(2)
Price cap
Yes
01
carriers only
Annual Revenue
47 C.F.R. § 43.21(c)
All
Yes
and Total
Communications
Plant Reporting-
Cash Working
47 C.F.R. § 45.820(d)
Price cap
Yes
Capital Allowance”
carriers only
Requirement
Recording of
47 C.F.R. § 64.501
All
No
Telephone
Conversation with
Phone companies

Partial Forbearance Granted in this Order

Category of Rule

Applicable C.F.R. or U.S.C. Sections

Scope of

Conditions

Forbearance

Property Record
47 C.F.R. §§ 32.2000(e) and (f)
Price cap
Yes
Rules
carriers only
Structural
47 C.F.R. § 64.1903
Price cap
Yes
Separation
carriers only
Requirement for
Independent ILECs
Rules Governing
47 C.F.R. § 64.804(c)-(f)
All
No
Extension of
unsecured Credit
for Interstate and
Foreign
Communications
Services to
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Candidates for
Federal Office
Prepaid Calling
47 C.F.R. § 64.5001(a), (b), (c)(1), (c)(2), c(4)
47 C.F.R.
No
Card Reporting
§ 64.5001
Requirements
(c)(3) only
applies to
certain
providers
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STATEMENT OF

CHAIRMAN JULIUS GENACHOWSKI

Re:
Petition of USTelecom for Forbearance Under 47 U.S.C. § 160(c) from Enforcement of Certain
Legacy Telecommunications Regulations et al.,
WC Docket Nos. 12-61, 10-132, 09-206, 08-225,
08-190, 07-273, 07-204, 07-139, 07-21, 05-342, CC Docket Nos. 02-39, 00-175, 95-20, 98-10
With today’s Order and accompanying rulemakings, the Commission takes another step forward
in our ongoing efforts to retool the agency for the digital age and to remove barriers to private investment,
innovation and job creation.
We live in a world imagined by Steve Jobs, Bill Gates, Marc Andreessen and other visionaries,
but too many of the FCC rules and processes we inherited were built for the world of Alexander Graham
Bell.
That’s why I made agency reform a top priority when I arrived in 2009. One of my first acts was
to appoint a special counsel for FCC reform, and I directed her to lead an agency-wide effort to look hard
and honestly at our rules, to propose eliminating ones that don’t make sense or have outlived their
usefulness, and to make sure that the benefits of any rule we adopt outweigh the costs.
I also welcomed President Obama’s Executive Order calling on all executive departments and
agencies to review rules and regulations to ensure they are designed “in a cost-effective manner consistent
with the goals of promoting economic growth, innovation, competitiveness, and job creation” – and we
have done just that here at the FCC, even as an independent agency not covered by the Order.
These efforts have yielded results. Since January 2010, the Commission has eliminated more
than 300 outdated regulations and eliminated dozens of reporting requirements. We have also
streamlined data collections, reduced backlogs, and sped processing times. For example, we’ve cut the
time to review routine wireless transactions by more than half, and we’ve almost entirely eliminated our
satellite space station licensing backlog – cutting it from 90 applications in June 2009 to just seven in
April 2013.
In every case, we’ve preserved or strengthened vital protections for consumers and competition,
as well as the Commission’s access to the data it genuinely needs, even while eliminating rules and
reports that no longer make sense.
We brought this same approach to today’s Order. Last year, USTelecom, on behalf of its member
telephone companies, sought broad forbearance relief from dozens of regulatory requirements in 17
different categories. In February, the Commission granted forbearance from three categories of rules that
were unnecessary or outdated.
Today, the Commission removes the majority of burdens identified by USTelecom and grants
forbearance from an additional 123 regulations in 11 categories covered by USTelecom’s petition. For
example: We forbear from prepaid calling card reporting requirements that required over 15,000 hours of
compliance work each year. We eliminate requirements that phone companies keep certain paper records,
which make little sense in the age of digital databases. And we streamline requirements for companies’
property records, which previously required a level of detail that has not been used by the Commission in
over a decade. With 126 regulations removed, we’re talking about millions of dollars in savings, which
will ultimately result in a more dynamic, competitive market and lower prices for consumers.
Even where USTelecom failed to show that forbearance is appropriate under the statute, the
Commission is taking steps on its own, through Notices of Proposed Rulemaking or Public Notices
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refreshing the record, to examine more deeply whether some of the remaining requirements may be
streamlined or reduced.
At the same time, today’s order unanimously preserves those requirements that remain essential
to our fundamental mission to ensure competition, consumer protection, universal service, and public
safety, and rejects requests that would short-circuit the ongoing work of the Technology Transitions Task
Force. For example, we protect consumers’ right to notice when services are being eliminated, a vital
protection as we move forward on trials of wireline to wireless, TDM to IP, and copper to fiber
technology transitions.
Likewise, even as we eliminate reporting and recordkeeping requirements, it remains critical that
the Commission have access to timely, relevant data to drive smart decisionmaking, particularly as we
move to broadband all-IP networks. Which is why the kind of relief we grant in today’s Order goes hand
in hand with the essential work we’re doing to strengthen the Commission’s broadband data, on
initiatives like the National Broadband Map, Form 477 reform, the Measuring Broadband America report,
and our business broadband data collection in the special access proceeding.
I thank my colleagues for their contributions, which have helped improve this item. And I
particularly thank the excellent teams in the Wireline and Enforcement Bureaus and the Office of General
Counsel for many long hours and late nights in getting today’s detailed and comprehensive Order and
NPRMs over the finish line.
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STATEMENT OF

COMMISSIONER AJIT PAI

APPROVING IN PART AND CONCURRING IN PART

Re:
Petition of USTelecom for Forbearance Under 47 U.S.C. § 160(c) from Enforcement of Certain
Legacy Telecommunications Regulations et al.,
WC Docket Nos. 12-61, 10-132, 09-206, 08-225,
08-190, 07-273, 07-204, 07-139, 07-21, 05-342, CC Docket Nos. 02-39, 00-175, 95-20, 98-10
It’s amazing (and somewhat disturbing) what you can find when you crack open Title 47 of the
U.S. Code of Federal Regulations. Take the Commission’s rules on basic property records and
continuing property records.727 These rules require a company to label each and every piece of central
office equipment, from a million-dollar switch down to a $10 plug-in circuit board, to track how much it
cost to buy, and to detail exactly where it’s located (with specificity, meaning where on what shelf in
which room in which building). If the $10 plug-in circuit board lasts 30 years, the company has to keep
records for 30 years and update them each time the plug-in circuit board moves.728 The only silver lining?
These rules burden only a subset of companies (i.e., incumbent local exchange carriers) and cover only
regulated assets (i.e., plant for the public switched telephone network).
Or ponder Commission rule 64.1903, which requires a telephone company that offers long-
distance service to do so through a separate affiliate—the old structural separation requirement crafted in
the 1980s.729 Of course, it doesn’t apply if a company entered the telephone business after 1996. Or is a
reseller. Or a cable operator. Or a commercial mobile radio service provider. Or a mobile satellite
service provider. Or an interconnected Voice-over-Internet-Protocol service provider. Or one of the three
Bell operating companies. In other words, we still have structural separation requirements, but only for
the independent companies that encompass a fraction of the market and were never part of Ma Bell in the
first place.
Or consider the comparably efficient interconnection (CEI) requirements, a regulatory penumbra
around rule 64.702 created by the Computer Inquiry III orders of the late 1980s. Under this regime, when
a telephone company wants to “enhance” its basic telephone service, such as by letting customers dial *98
to access voicemail,730 it must post a CEI plan that goes through a multi-step checklist designed to protect
non-facilities-based narrowband competitors. Although the Commission intended the filing of CEI plans
to be an interim measure731 designed to protect the then-nascent enhanced services industry, the
requirement remains on our books over two decades later. And while independent voicemail, facsimile
services, and the like may be worthwhile services, one can only wonder why the Commission should
spend its limited resources protecting these narrowband, legacy industries in the era of ubiquitous
broadband and mobile apps.

727 47 C.F.R. § 32.2000(e), (f).
728 See Letter from Bennett L. Ross, Counsel for United States Telecom Association, to Marlene H. Dortch,
Secretary, FCC, WC Docket No. 12-61, at 15 (Apr. 18, 2013).
729 47 C.F.R. § 64.1903.
730 See, e.g., Amendment to Comparably Efficient Interconnection Plan for Voice-Mail Services for AT&T Inc.’s
Operating Companies, available at https://ebiznet.att.com/cei/plans/amendment_vm_plan_star98_113012.doc.
731 Amendment of Section 64.702 of the Commission’s Rules and Regulations, CC Docket No. 85-229, Further
Notice of Proposed Rulemaking, 13 FCC Rcd 6040, 6077, para. 61 (1998).
126

Federal Communications Commission

FCC 13-69

No more—or at least not much longer. Today we establish a process to relieve carriers of some
of these outdated rules so long as they draw up, file, and get FCC approval of a compliance plan that
better matches the Commission’s needs with the carrier’s obligations. We also launch several
rulemakings aimed at repealing and streamlining other rules.
I will be the first to admit that I wish we had gone further, faster. For example, much sooner than
fifteen months after the petition was filed, I would have granted the same relief to independent carriers
that we previously afforded AT&T, Verizon, and Qwest—especially as no one opposed that part of the
petition.
But today’s order is a product of bipartisan compromise, an important first step that holds out the
hope for continuing reform. As the proverb goes, “a journey of a thousand miles begins with a single
step.” I look forward to continuing to working with my colleagues as we continue this journey.
Finally, I want to thank the Commission staff who spent countless hours working on this item,
including Julie Veach, Claude Aiken, Eric Bash, Michele Berlove, Bill Dever, Lisa Gelb, Victoria
Goldberg, Kalpak Gude, Athula Gunaratne, Paul Hartman, Sherry Herauf, Diane Griffin Holland, John
Hunter, Alex Johns, William Kehoe, Christopher Killion, Doug Klein, Robert Krinsky, Greg Kwan, Sean
Lev, Travis Litman, Marcus Maher, Carol Mattey, Jodie May, Rodney McDonald, Betsy McIntyre,
Claudia Pabo, Wesley Platt, Jennifer Prime, Marv Sacks, Deena Shetler, Chris Sova, Steve Steckler,
Jamie Susskind, Suzanne Tetreault, Matthew Warner, Rodger Woock, Suzanne Yelen, David Zesiger, and
Cathy Zima. Your dedication to rigorous analysis and the public interest will be all the more necessary as
the Commission proceeds with the rulemakings we launch today to reform our accounting systems. But
take heart; as a sage government employee once said, “It ain’t government work if you don’t have to do it
twice.”732

732 Jerry Gergich, Parks and Recreation (ep. 418, 2012).
127

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