NEWSReport No. DC 96-113ACTION IN DOCKET CASE December 24, 1996 COMMISSION INITIATES PROCEEDING TO REFORM INTERSTATE ACCESS CHARGES (CC Docket No. 96-262; CC Docket No. 94-1; CC Docket No. 91-213; CC Docket No. 96-263) The Commission today commenced a proceeding to reform its system of interstate access charges to make that system compatible with the pro-competitive deregulatory framework established by the Telecommunications Act of 1996. The Commission stated that the fundamental changes in the structure and dynamics of the telecommunications industry required by the 1996 Act now necessitate a review of the existing access charge regulations to ensure that they are compatible with the 1996 Act's far-reaching changes. In a Notice of Proposed Rulemaking (NPRM) and Notice of Inquiry (NOI) released today, the Commission begins the third in a trilogy of actions that collectively are intended to foster and accelerate the introduction of efficient competition in all telecommunications markets, pursuant to the mandate of the 1996 Act. In August 1996, the Commission adopted policies to implement the local competition provisions of the Act and in November 1996, the Federal-State Universal Service Joint Board issued its recommendations to the Commission for reforming the existing system of universal service so that universal service is preserved and advanced, in a manner that permits local telephone markets to move from monopoly to competition. The Notices released by the Commission today recognize the industry-wide consensus that the Commission should begin to undertake a comprehensive review of its access charge regime. The Commission's existing access charge policies were adopted at the time of the divestiture of AT&T. These policies were designed primarily to promote competition in the interstate, interexchange market by ensuring that all long distance companies would be able to originate and terminate their traffic over incumbent local exchange carrier (LEC) networks at just, reasonable, and non-discriminatory rates. While these policies contemplated long distance competition, they did not attempt to address the potential effects of local competition. The Commission today begins a review of its Part 69 interstate access charge rules, together with its Part 61 price cap rules, to establish fair rules of competition for both the local and long distance markets and determine the extent to which it must revise these rules in light of: the local competition and Bell Operating Company entry provisions of the 1996 Act and state actions to open local networks to competition; the effects of potential and actual competition on incumbent LEC pricing for interstate access; and the impact of the Act's mandate to preserve and enhance universal service. The NPRM released today includes several proposals for reform of the Commission's existing access charge rate level policies. The Commission outlines two possible approaches for addressing claims that existing access charge levels are excessive, for establishing a transition to access charges that more closely reflect economic costs, and for deregulating incumbent LEC exchange access services as competition develops in the local exchange and exchange access markets. The first approach is a market-based approach under which the Commission would rely on potential and actual competition from new facilities-based providers and entrants purchasing unbundled network elements to drive prices for interstate access services toward economic cost. Under this approach, the Commission would gradually relax and ultimately remove existing Part 69 federal access rate structure requirements and Part 61 price caps restrictions on rate level changes as competition develops. Under the market-based approach, the Commission proposes three phases, each of which would require an incumbent LEC to show that certain circumstances exist in order to obtain greater pricing flexibility than the current rules permit. At the first phase, an incumbent LEC would have to show that its local market has been opened to competition and potential rivals are able to enter through any of the three avenues mandated by the 1996 Act - - interconnection, unbundled network elements, and resale. At the second phase, the incumbent LEC would have to show that it faces actual competition in the local exchange marketplace. The final phase occurs when an incumbent LEC's access services are subject to substantial competition. It is at this phase, according to the proposal, that the LEC's access services would be deregulated on a service-by-service basis. The second approach is a prescriptive one under which the Commission would specify the nature and timing of the changes to the existing rate levels. Under the proposal for a more prescriptive approach, the Commission seeks comment on whether it should require incumbent LECs to move prices for interstate access to more economically-efficient levels pursuant to Commission rules. Under this approach, the Commission questions whether marketplace forces alone are sufficient to drive access rates to forward-looking economic costs. The Commission sought comment on whether either approach should be used, either singly or combined. Under either approach, the overriding goal is the same -- adopt policies that will foster competition for these services and eventually enable marketplace forces to eliminate the need for price regulation. In addition to exploring general approaches to access charge reform, the NPRM also sought comment on the existing rate structures for access charges. The NPRM includes several proposals for a series of reforms to the existing access charge rate structure rules that are designed to eliminate economic inefficiencies. The proposals are intended to result in access charge rate structures that a competitive market for access services would produce. The Commission tentatively concluded that several provisions of its Part 69 rules compel incumbent LECs to impose charges for access services in a manner that does not accurately reflect the way those LECs incur the costs of providing service. In the NPRM the Commission invited comment on rate structure changes for common line, local switching, and transport. The Commission also sought comment on a number of proposals for phasing out the transport interconnection charge and on establishing rate structure rules for SS7 signalling services. In the NPRM released today, the Commission tentatively concluded that information service providers should not be subject to interstate access charges as currently constituted. The Commission recognized, however, that the development of the Internet and other information services raises many critical questions that go beyond the interstate access charges that are the primary focus of the NPRM. These questions concern the future of the public switched telephone network in a world of digitalization and the growing importance of data technologies. The Commission's existing policies have been designed for traditional circuit-switched voice networks, and thus, may impact the development of emerging packet-switched data networks used by the information service providers. The Commission determined that it must identify those policies that would best facilitate the development of the high-bandwidth data networks of the future, while preserving efficient incentives for investment and innovation in the underlying voice network. Consequently, the Commission today issued an NOI to seek comment on whether it should, in addition to access charge reform, consider actions relating to interstate information services and the Internet. In particular, in light of concerns raised over congestion on the public switched network, the Commission sought comment on how it can most effectively create incentives for the deployment of services and facilities to allow more efficient transport of data traffic to and from end users. Finally, the Commission issued a Report and Order implementing changes to the LEC price cap rules that were proposed in the Second Further Notice of Proposed Rulemaking in the price cap proceeding released by the Commission in September 1995. The changes to the price cap rules made today include eliminating the price caps lower service band indices, and substantially easing the requirements necessary for the introduction of new services. These changes are adopted in order to remove obstacles to lower access prices, and to allow incumbent LECs to recover their costs in a manner consistent with the way that costs are incurred. Action by the Commission December 23, 1996, by Notice of Proposed Rulemaking, Third Report and Order, and Notice of Inquiry (FCC 96-488). Chairman Hundt, Commissioners Quello, Ness, and Chong. - FCC - News Media contact: Mindy J. Ginsburg at (202) 418-1500. Common Carrier Bureau contact: Jane Jackson (202) 418-1520.