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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) ) Jurisdictional Separations Reform and ) CC Docket No. 80-286 Referral to the Federal-State Joint Board ) NOTICE OF PROPOSED RULEMAKING Adopted: October 2, 1997 Released: October 7, 1997 Comment Date: December 10, 1997 Reply Date: January 26, 1998 By the Commission: TABLE OF CONTEN TS Page I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 II. BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 III. CHANGES THAT AFFECT THE SEPARATIONS PROCESS. . . . . . . . . . . . 7 A. Legislative Changes . . . . . . . . . . . . . . . . . . . . . . 7 B. Technological Changes . . . . . . . . . . . . . . . . . . . . . 9 C. Market Changes. . . . . . . . . . . . . . . . . . . . . . . . . 11 IV. SEPARATIONS REFORM. . . . . . . . . . . . . . . . . . . . . . . . . 12 A. Criteria for Evaluating the Separations Process . . . . . . . . 13 B. Is There a Need For a Separations Process?. . . . . . . . . . . 17 1. The Legal Basis for Separations. . . . . . . . . . . . . . 17 2. Is There a Need for Separations Under Price Caps?. . . . . 19 C. Industry Separations Proposals. . . . . . . . . . . . . . . . . 22 1. NYNEX Proposal . . . . . . . . . . . . . . . . . . . . . . 23 2. BellSouth Proposal . . . . . . . . . . . . . . . . . . . . 24 3. Southwestern Bell Proposal . . . . . . . . . . . . . . . . 25 4. Request for Comments . . . . . . . . . . . . . . . . . . . 25 D. Review of Existing Separations Procedures . . . . . . . . . . . 26 1. Defining Study Area. . . . . . . . . . . . . . . . . . . . 27 2. Defining Cost Categories . . . . . . . . . . . . . . . . . 28 3. Apportioning Costs to Categories . . . . . . . . . . . . . 30 a. Direct Assignment to Categories . . . . . . . . . . . 31 b. Categorization Based on Usage Measurements. . . . . . 32 c. Categorization Based on Fixed Factors . . . . . . . . 35 4. Apportioning Categorized Costs to Jurisdictions. . . . . . 35 a. Direct Assignment to Jurisdictions. . . . . . . . . . 36 b. Allocation Based on Usage Measurements. . . . . . . . 36 c. Allocation Based on Fixed Factors . . . . . . . . . . 39 E. Impact on Prices and Revenue Requirements . . . . . . . . . . . 40 F. Separation of the Costs Associated with Interconnection . . . . 42 G. Separations of Universal Service Contributions and Support. . . 43 1. Universal Service Contributions. . . . . . . . . . . . . . 45 2. High Cost Support. . . . . . . . . . . . . . . . . . . . . 45 3. Low-Income Support . . . . . . . . . . . . . . . . . . . . 46 4. Schools, Libraries, and Health Care Providers Support. . . 48 H. Separations of the Costs of Assisting Law Enforcement . . . . . 49 V. PROCEDURAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 50 A. Ex Parte. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 B. Initial Regulatory Flexibility Analysis . . . . . . . . . . . . 51 C. Paperwork Reduction Act . . . . . . . . . . . . . . . . . . . . 52 D. Comment Filing Procedures . . . . . . . . . . . . . . . . . . . 53 VI. ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . . . . . . . . 54 I. INTRODUCTION 1. The Telecommunications Act of 1996 became law on February 8, 1996, making sweeping changes that affect all consumers and telecommunications service providers. The intent of the 1996 Act is "to provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition." 2. In this Notice of Proposed Rulemaking ("Notice"), we initiate a proceeding with the goal of reviewing comprehensively our Part 36 jurisdictional separations procedures to ensure that they meet the objectives of the 1996 Act, and to consider changes that may need to be made to the jurisdictional separations process in light of changes in the law, technology, and market structure of the telecommunications industry. Jurisdictional separations is the process of apportioning regulated costs between the intrastate and interstate jurisdictions. Carriers apportion the interstate regulated costs among their interexchange services and rate elements that form the cost basis for their exchange access tariffs. 3. Separations procedures have been performed by incumbent local exchange carriers ("ILECs") since the Supreme Court found the "separation of intrastate and interstate property, revenues and expenses" to be "essential to the appropriate recognition of the competent governmental authority in each field of regulation." Maintaining a jurisdictional separations system that distinguishes between dozens of cost categories is a difficult task that has been a high priority for the Commission throughout the years. One of the primary purposes of this process is to prevent ILECs from recovering the same costs in both the interstate and intrastate jurisdictions. In Smith v. Illinois, the Supreme Court stated that "the proper regulation of rates can be had only by maintaining the limits of state and federal jurisdiction." Therefore, to the extent that rates are subject to distinct jurisdictional limits, we seek comment in this Notice on whether some form of separations must exist under the 1930 Smith v. Illinois decision, or whether statutory, regulatory and market changes since that decision have been so pronounced and persuasive as to make its holding inapplicable in our new deregulatory environment. We also seek comment on how the separations rules should be reformed and whether the Commission is required by statute or case law to continue to prescribe such rules. 4. Section II of this Notice briefly describes our current separations procedures. We seek comment in Section III on the changes in law, technology, and market structure of the telecommunications industry affecting the separations process. Section IV of this Notice addresses comprehensive aspects of separations reform. In that Section, we initially seek comment on the criteria that should be used to evaluate the existing separations process and proposals to reform the process in light of the goals of our comprehensive review of the separations process. Next, we seek comment on whether separations rules are still needed during the transition period from a regulated to a competitive marketplace. We then seek comment on industry proposals to replace the existing Part 36 separations rules. Next, we evaluate our existing separations procedures. In addition, we seek comment on how various separations reform options would affect prices and revenue requirements. We also seek comment on whether and how to separate the costs associated with interconnection. Finally, we request comment regarding changes to the separations rules that may be necessary as a result of the Universal Service Order and the Communications Assistance for Law Enforcement Act ("CALEA"). 5. Pursuant to section 410(c), we refer the issues raised in this Notice to the Federal-State Joint Board established in CC Docket No. 80-286 ("Separations Joint Board") for preparation of a recommended decision on these matters. We specifically defer issues relating to the jurisdictional treatment of long-term number portability costs to a future proceeding in this docket. II. BACKGROUND 6. Jurisdictional separations is the third step in a four-step regulatory process that begins with an incumbent local exchange carrier's accounting system and ends with the establishment of tariffed rates for the ILEC's interstate and intrastate regulated services. First, carriers record their costs into various accounts in accordance with the Uniform System of Accounts ("USOA") prescribed by Part 32 of our rules. Second, carriers divide the costs in these accounts between regulated and nonregulated activities in accordance with Part 64 of our rules. We require this division to ensure that the costs of nonregulated activities will not be recovered in regulated interstate service rates. Third, carriers separate the regulated costs between the intrastate and interstate jurisdictions in accordance with our Part 36 separations rules. Finally, carriers apportion the interstate regulated costs among the interexchange services and rate elements that form the cost basis for their exchange access tariffs. For carriers subject to rate-of-return regulation, this apportionment is performed in accordance with Part 69 of our rules. 7. Since 1930, the costs and revenues associated with facilities used to provide both intrastate and interstate telecommunications services generally have been allocated between the interstate and intrastate jurisdictions. Cooperative efforts and studies undertaken by the industry, state regulatory agencies through NARUC, and the Commission beginning in 1941, were incorporated into what was popularly known as the NARUC-FCC Separations Manual in 1947. Section 221(c) authorizes the Commission to prescribe a method for determining what property "shall be considered as used in interstate" service. The Commission exercised that authority in 1969 by adopting a set of formal separations procedures that are now set forth in Part 36 of our rules and are used by approximately 700 carriers. 8. The Commission substantially revised the separations rules in 1987 to make them consistent with revisions made to the Part 32 Uniform System of Accounts, but the traditional costing methodologies underlying most of the separations procedures have changed little since our separations rules were first adopted in 1969. Jurisdictional separations is currently based on the relative use of the telecommunications plant for interstate and for intrastate services. The first step in the current separations process requires carriers subject to the rules to apportion regulated costs among categories of plant and expenses. Costs are sometimes further disaggregated among service categories. In the second step of the current separations process, the costs in each category are apportioned between the intrastate and interstate jurisdictions. In both steps of the current separations process, most apportionments are based upon either direct assignment or a relative use factor. In some cases, however, carriers may choose between direct assignment and a prescribed allocation factor. For apportioning regulated costs among categories of plant, direct assignment is generally prescribed by the Part 36 separations rules because the costs of most telecommunications facilities are relatively easy to attribute to broad plant categories. For apportioning costs between the intrastate and interstate jurisdictions, however, the separations rules generally prescribe allocation factors based on usage measurements because costs usually are not dedicated to intrastate or interstate services. III. CHANGES THAT AFFECT THE SEPARATIONS PROCESS 9. Due to statutory, technological, and market changes in the telecommunications industry, today's network architecture and service offerings differ in many important ways from the network and services used to define the cost categories appearing in our current Part 36 separations rules. In addition, the separations process that was ultimately codified into the Part 36 rules evolved during a time when common carrier regulation presumed that intrastate and interstate telecommunications services must be provided through a regulated monopoly. In this Section, we discuss the legislative, technological, and market changes that require our comprehensive review of the Part 36 separations rules. A. Legislative Changes 10. Several provisions in the 1996 Act reflect Congress' intent "to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition." Section 251(d)(1) instructs the Commission to "establish regulations to implement the requirements of [section 251]" which include the obligations of ILECs to provide interconnection and access to unbundled network elements. In addition, the 1996 Act states that any federal universal service support provided to eligible carriers should be explicit, specific and predictable, and recovered on an equitable and nondiscriminatory basis from all telecommunications carriers providing interstate telecommunications service. Moreover, section 254(k) states that "a telecommunications carrier may not use services that are not competitive to subsidize services that are subject to competition." 11. We note that this proceeding is one of a number of interrelated proceedings through which we intend to advance competition, reduce regulation in telecommunications markets and, at the same time, preserve and advance universal service to all Americans. In the Local Competition Order and related proceedings, the Commission adopted rules to implement the pro-competitive, deregulatory, national policy framework envisioned by the 1996 Act. Similarly, the Universal Service Order released by the Commission on May 8, 1997, adopted rules that create a universal service support system that will be sustainable in an increasingly competitive marketplace. In addition, the Commission adopted the Access Charge Reform Order as a companion item to the Universal Service Order in order to foster and accelerate the introduction of competition into all telecommunications markets. We ask commenters responding to this Notice to bear in mind the relationship among these parallel proceedings when developing and explaining their proposals for separations reform. B. Technological Changes 12. The telephone network has changed substantially since the jurisdictional separations rules were first established in 1947. At that time, virtually all services were voice-grade and the network was entirely analog. Today, almost all telephone switching facilities, as well as interoffice transmission, have been converted from analog to digital. The transition to digital technologies has resulted in the provision of voice and data services over the same network facilities. In addition, carriers have been deploying alternative network architectures, such as synchronous optical network ("SONET") rings, in order to improve the efficiency and reliability of their networks. We request comment on how the differences between today's network architecture and the network used to define the cost and service categories in the Part 36 rules should influence the Joint Board's review of the existing Part 36 separations rules. 13. The introduction of new network control technologies changes the way services are delivered and thus calls into question the validity of service distinctions specified in the separations rules. For example, some private line services, which traditionally have been delivered over unswitched circuits that are dedicated to individual subscribers can be distinguished from switched message services (such as message telecommunications service), which are delivered over switched circuits that are not dedicated to individual subscribers. Increasingly, however, the provision of private line service is accomplished through the creation of virtual private lines that actually involve a switched transmission path, transporting private line service calls together with switched service calls. Modern switches can provide subscribers with switched virtual private line service that, from the subscribers' perspective, is indistinguishable from traditional unswitched private line service. Accordingly, it may be unnecessary for our separations rules to distinguish between virtual private line services and switched message services that use the same transmission paths and switches. We seek comment on whether these and other technological changes and network improvements have blurred the service distinctions specified in the separations rules and require modifications to Part 36. 14. Not only are traditional services being provided in technically new ways but recent developments in technology have also resulted in many new telecommunications services. For example, consumer demand for high-capacity services, such as integrated services digital network ("ISDN") service, has grown dramatically. In addition, many ILECs have packet-switched networks, separate from, but overlaying, the older circuit- switched networks. The former are used, among other things, to transport signaling messages outside the talk path, i.e., on circuits that are separate from those used by voice calls. In addition, the use of separate signaling circuits, called common channel signaling, enables carriers to provide a host of new services, including ISDN, Toll-Free Data Base, and CLASSTM services. We seek comment on how the introduction of new telecommunications services has affected the utility of the Part 36 separations rules. 15. Many new services have usage characteristics that raise doubts about the continued validity of the usage-based separations procedures established for older services. For example, older services such as voice transmission engage specific facilities for the duration of a call. As a result, our existing separations rules generally allocate equipment used for such services based on relative usage factors, such as relative minute-of-use measurements. Some newer services, such as caller identification, however, engage facilities only during the call set-up period. As a result, an allocation factor based solely on call- duration measurements may not yield reasonable separations results when applied to equipment used to provide such newer services. We seek comment on the continued utility of the usage-based separations procedures in our current Part 36 rules. 16. Further, the growth in the number of services offered, often using the same facilities, makes an increasingly larger share of telecommunications costs joint or common. This suggests that separations procedures may need to place increased emphasis on the allocation of joint or common costs. We seek comment on whether the currently prescribed allocation procedures for joint and common costs should be superseded by procedures that better reflect the increased number, and wider variety, of services using shared facilities, and, if so, what those new procedures should be. C. Market Changes 17. Implementation of the 1996 Act, together with technological developments, is likely to accelerate competition in many telecommunications markets. Section 251 mandates that ILECs open their networks to competition by providing interconnection, offering access to unbundled elements of their networks, and making their retail services available at wholesale rates so that they can be resold. 18. As a result of the changes required by the Act, and the rapid development of technology, individual carriers may, increasingly, provide interstate and intrastate long distance service as well as local exchange service. In fact, in some cases, these carriers may choose to market their services on a bundled basis, without respect to their jurisdictional nature. In addition, because some of these carriers may be required to comply with our separations rules while others will not, this dichotomy may have a competitive effect in the telecommunications marketplace. 19. We therefore seek comment on whether the existing separations process may hinder competition, especially when carriers that are subject to our separations rules compete with carriers that are not subject to our separations rules. For example, our separations rules may hinder an ILEC's ability to compete by limiting its flexibility to recover costs according to market demand. While a competitive LEC is free to recover costs according to market demand, an ILEC subject to our jurisdictional separations rules may only attempt to recover costs classified as interstate through charges for interstate services, and costs classified as intrastate through charges for intrastate services. We also seek comment on whether our current separations rules may create incentives for such ILECs to improperly allocate costs to the jurisdiction in which they may have a greater opportunity to recover those costs through charges for less competitive services. We seek comment on other ways in which the existing separations process may hinder competition. We also seek comment on how proposed revisions to the separations process could address these concerns and promote the pro- competitive objectives of the 1996 Act. IV. SEPARATIONS REFORM 20. In this Section, we request comment on issues related to separations reform. As an initial matter we seek comment on the criteria that should be used to evaluate the existing separations process and proposals to reform the process in light of the goals of our comprehensive review of the separations process. Next, we seek comment on whether separations rules are still needed during the transition from a regulated to a competitive marketplace. We then seek comment on industry proposals to replace the existing Part 36 separations rules. Next, we evaluate our existing separations procedures. In addition, we seek comment on how various separations reform options would affect prices and revenue requirements. In addition, we seek comment on whether and how to separate the costs associated with interconnection. Finally, we seek comment on any changes to the separations rules that may be necessary as a result of the Universal Service Order and CALEA. 21. Those commenters advocating reform of the separations rules should submit proposed separations rules and identify amendments or deletions to our existing separations rules that would be necessary if their proposals were adopted. In addition, we also request comment on how our Part 36 rules should be amended to eliminate provisions that have become obsolete. We also request that parties address whether a transition plan for separations reform is needed and propose any transitional measures that should be used. Finally, we contemplate that following our receipt and analysis of the parties' initial and reply comments, we will issue a further NPRM that will more specifically focus on identifying proposed modifications to the separations rules. We invite the state members of the Joint Board to develop a report setting forth their analysis of the parties' comments and identifying issues and subjects to address in the further NPRM. A. Criteria for Evaluating the Separations Process 22. The purpose of the separations process is to divide an ILEC's regulated costs into two jurisdictional categories (intrastate and interstate). Once those costs are identified, regulators in each jurisdiction can begin the process of determining just and reasonable rates. As discussed above, the goals of this proceeding are to review our Part 36 jurisdictional separations procedures to ensure that they meet the objectives of the 1996 Act, especially the goal of promoting competition, and to consider changes that may need to be made to the separations process in light of changes in the law, technology, and market structure of the telecommunications industry. 23. In order to evaluate whether our current separations rules and proposals to reform those rules meet the objectives of the 1996 Act and address the statutory, technological and market changes discussed in Section III, we propose that our existing separations rules and any proposals to reform our rules achieve a reasonable balance among the following criteria: (a) competitive neutrality; (b) administrative simplicity; and (c) principles of cost causation. We seek comment on whether these criteria should be applied to our review of the separations process, and, if so, how they should influence separations reform. We also invite commenters to propose additional or alternative criteria that further the goals of our comprehensive review of the separations process. 24. Competitive neutrality. We seek comment on whether, to promote competition, we should ensure that the separations process is competitively neutral. Competitive neutrality would require that separations rules not favor one telecommunications provider over another or one class of providers over another class. It would not, however, preclude carriers in dissimilar situations from being treated differently. In addition, the principle of competitive neutrality encompasses the concept of technological neutrality. We seek comment on whether competitive neutrality is consistent with the goals of our review of the separations process. Moreover, we seek comment on how we can assess whether the separations process allocates costs in a manner that is competitively neutral. 25. Administrative simplicity. We tentatively conclude that the principle of administrative simplicity, which calls for the elimination of unnecessary regulatory costs and burdens, is consistent with the goals of our review of the separations process. Interested parties proposing changes to the separations rules should consider how any changes would lessen the regulatory burden on both carriers and the Commission in furtherance of the 1996 Act's deregulatory national policy framework. We recognize that simplified separations procedures may, as a practical matter, allow subject carriers to maintain less-detailed cost data. This could reduce our ability to evaluate whether separations procedures are, in fact, attributing costs in conformance with the principles of cost causation, described below. Accordingly, we ask how best to achieve administrative simplicity in light of principles of cost causation, as well as any other proposed criteria. 26. Principles of cost causation. Generally, economic principles of cost causation dictate that costs should be attributed to their source whenever possible. The ability to attribute costs in a cost-causative manner depends on whether the costs are incremental, joint, or common. When costs are incremental with respect to particular classes of services, a cost-causative relationship exists between costs and the individual service classes. Accordingly, the principle of cost causation would require that separations rules directly attribute such costs to individual service classes based on direct analysis of the origin of the cost whenever possible, or indirectly attribute these costs based on indirect, but cost- causative, links to the service classes. When costs are joint or common among several services, however, cost causation alone does not yield a unique allocation of such costs across these services. In a competitive market, costs that are joint and common between two services are borne more heavily by the service that is less price sensitive (more price inelastic). In practice, our separations rules allocate joint and common costs among service classes on some basis, such as relative-use measurements, or fixed factors that are relative-use surrogates and ignore price elasticity. 27. Because ILEC costs are predominantly joint and common between intrastate and interstate services, an important issue is how to separate joint and common costs. Economists have addressed this issue by comparing incremental cost to "stand-alone cost," defined as the forward-looking cost that an efficient entrant would incur in providing a service or group of services. In the context of jurisdictional separations, stand-alone cost thus represents the total cost of constructing and operating facilities dedicated to a specific class of services. In order to avoid cross-subsidization and the resulting inefficient investment incentives, the cost attributed to a given service class should be less than or equal to the stand-alone cost but greater than or equal to the incremental cost of that class. Hence, these two measures of cost are the upper and lower bounds within which cost apportionment should fall. Costs of a service class may include incremental costs and any portion of joint and common costs that are allocated to that service class. Accordingly, economic efficiency requires that the amount of joint and common costs allocated to a given service class not exceed the difference between incremental and stand-alone cost. 28. This requirement likely would not be very limiting, however, when applied to the separations process. For interstate (or intrastate) services as a whole, the gap between incremental and stand-alone costs often equals approximately half of the total cost incurred to provide those services by a typical ILEC because a large portion of an ILEC's cost of providing interstate services is the cost of facilities that are common to the provision of both interstate and intrastate services. Accordingly, when state and federal regulators use separations results only for evaluating an ILEC's overall level of earnings in each jurisdiction, as generally is the case for ILECs under price cap regulation, economic principles of cost causation can play only a minor role. 29. Such principles may be more useful, however, when state and federal regulators use separations results for evaluating an ILEC's earnings for each of several broad categories of services, e.g., common line, transport, and switched services. In such cases, a determination of cost causation may play an important role in separations reform because a service category could include costs that are predominantly traffic-sensitive (TS) and, hence, largely incremental to the group of services provided in each jurisdiction. If so, the large size of incremental costs relative to joint and common costs would mean that a relatively narrow range of acceptable allocation factors could be identified by the efficiency requirement, because the gap between incremental and stand-alone costs would be small. Moreover, the use of an allocation factor reflecting cost causation could have important pricing implications. Because regulators evaluate earnings at the level of broad service categories in this situation, a misallocation of costs to the category having TS costs would affect its earnings. This change in costs and earnings would affect prices only where a link exists between costs, earnings, and prices, as occurs under rate-of-return regulation. Where that form of regulation is used, the cost change could affect the category's general price level, resulting in a loss of economic efficiency if some customers are charged prices below incremental cost or above stand-alone costs. Even under price cap regulation, such a change could affect prices if regulators were to decide that a rebalancing of prices is warranted. Under the Commission's current form of price cap regulation, for example, separations changes could affect prices through low-end adjustments. We seek comment on our discussion of the principles of cost causation and ask whether parties share our views or have alternative or supplemental views to offer on our discussion of economic theory. 30. We also seek comment on whether principles of cost causation are consistent with the goals of this proceeding. If so, we seek comment on how we can assess whether the separations process attributes costs in a cost-causative manner. We further seek comment on how best to incorporate these principles into the separations process in conjunction with the criteria discussed in this Section, as well as any other proposed criteria. 31. Other Criteria. We also seek comment on any other criteria that could be reasonably employed in the separations process. In this regard, we seek comment on other regulatory principles or standards (such as relative-use measurements and fixed factors) that may offer a viable means of allocating costs between the interstate and intrastate jurisdictions in situations in which cost causation does not lead to a unique allocation of joint and common costs. B. Is There a Need For a Separations Process? 32. The most fundamental question in this proceeding is whether separations rules are still necessary during the transition from a regulated to a competitive marketplace. Specifically, we must determine whether the Smith doctrine is still applicable with the advent of competition or whether regulatory and market changes since that case was decided have so eroded the factual predicate of that decision that it is no longer pertinent. If there is still a need to allocate costs between jurisdictions, we must determine whether the Commission must prescribe the specific methodology for allocating costs, or whether the Commission could adopt a rule that would allow the carriers themselves to develop their own methods of separating costs under more relaxed regulatory supervision. In addition, we must determine whether companies regulated under federal price cap regulation should continue to perform jurisdictional separations. If the Commission and the Joint Board determine that the current form of separations does not comport with today's regulatory structure and technology, alternative methods of defining jurisdictional boundaries for costs and expenses must be developed so long as rates remain regulated. 1. The Legal Basis for Separations 33. Commenters advocating the elimination of separations rules entirely should specify how such an approach would be consistent with the Supreme Court's holding in Smith v. Illinois. In that decision, the Court stated that "proper regulation of rates can be had only by maintaining the limits of state and federal jurisdiction" to determine whether rates are confiscatory. The Court held that when distinct jurisdictional limits exist as to the determination of reasonable rates, some form of jurisdictional separations must occur. The Court also stated that "extreme nicety is not required" in such allocations. The Court, however, established that "reasonable measures [are] essential" and indicated that such measures should not "ignore altogether the actual uses to which the property is put." In light of this holding of the Court, we seek comment on whether some form of allocation of costs is necessary when there are distinct jurisdictional limits to ensure that regulated rates are not confiscatory or excessive. We also seek comment on whether the holding in Smith v. Illinois is still relevant with the advent of competition, or whether market conditions have changed so drastically since that decision as to make its holding inapplicable in our new competitive environment. 34. Commenters addressing the elimination of separations rules should also address whether, and if so, how, the Commission could fulfill its duties under sections 201 through 205 of the Act in the absence of any separations process that would identify the jurisdictional costs for which a carrier may seek recovery. Commenters should also specify whether, and if so, how, in the absence of separations rules, the Commission could ensure that carriers do not seek to recover the same costs in both the interstate and intrastate jurisdictions. Commenters should also address whether the absence of separations might have any implications for anti-competitive pricing. 35. In addition, we seek comment on whether the Commission is required by Smith v. Illinois or any other authority to prescribe jurisdictional separations. We note that section 221(c) of the Act states that "the Commission may classify the property...used for wire telephone communication, and determine what property of said carrier shall be considered as used in interstate...service." We tentatively conclude that while the state and federal jurisdictions are responsible for ensuring that rates are not confiscatory, the Commission is not required to prescribe a specific methodology for allocating costs between the jurisdictions. We seek comment on whether the Commission has authority to adopt alternatives to prescribing a specific methodology for allocating costs and whether such alternatives would likely yield, in both the interstate and intrastate jurisdictions, just and reasonable rates. 36. We also seek comment on whether Smith v. Illinois would permit the Commission to adopt a rule allowing carriers to determine on an individual basis how to allocate all or a portion of their regulated costs between the jurisdictions. For example, we seek comment on whether the Commission could adopt a rule allowing ILECs to determine on an individual basis how to allocate joint and common costs. Under this approach, the Commission would prescribe a specific methodology for separating only those costs that are incremental to the intrastate and interstate jurisdictions. The ILEC could propose its own methodology to separate the balance of its regulated costs which are joint and common. 37. Commenters that support a less prescriptive approach to jurisdictional separations should consider how such proposals would affect the recovery of joint and common costs through carriers' rates, and whether some form of regulatory oversight would be necessary to ensure that joint and common costs are allocated in a manner that produces rates that are just and reasonable. In particular, we seek comment on whether a rule allowing ILECs to separate joint and common costs on an individual basis should be contingent on an ILEC's showing that competition exists in the local markets for which they seek relaxed separations regulation. If such a showing is required, we also seek comment on what level of competition would be required and what indicators should be used to measure the levels of competition in local markets, to ensure that joint and common costs are allocated in a manner that produces just and reasonable rates. 2. Is There a Need for Separations Under Price Caps? 38. Some companies claim that our prescribed jurisdictional separations process is no longer necessary because of federal price cap regulation that applies to a large share of exchange access services. These companies contend that under price cap regulation the reasonableness of rates for new or established interstate services generally are not based on separations results. Approximately 70 ILECs, including all the Bell and GTE operating companies, are now subject to federal price cap regulation. These "price cap ILECs" serve at least 92 percent of total industry access lines and handle more than 94 percent of total industry access minutes. 39. At present, however, price cap ILECs use the separations rules for several different purposes. First, some price cap ILECs use the separations rules to determine whether their interstate earnings are sufficiently low to qualify for a "low end adjustment." Under our Part 61 rules, a price cap ILEC is entitled under certain conditions to raise its price cap indices when its rate of return falls below a certain level, i.e., the "low end" of a specified range of earnings levels. 40. Second, price cap ILECs are required to adjust their price cap indices to reflect cost changes that generally are beyond their control and for which the price cap formula does not otherwise account. Carriers may also file adjustments to their price cap indices to reflect cost increases that generally are beyond their control and for which the price cap formula does not otherwise account. Our rules define such cost changes as "exogenous" and specify that they include, among other things, changes resulting from revisions to the jurisdictional separations rules. To the extent that such cost changes have an effect on regulated services, price cap ILECs must separate the costs associated with the exogenous event. Furthermore, an interstate cost change that can be attributed to changes in our jurisdictional separations rules could be factored into the price cap formula, thereby affecting interstate service rates. Although the price cap indices of ILECs may be relatively unaffected by normal year-to-year variations in separations results, any significant changes in the way costs are separated resulting from this proceeding, under current price cap rules, would likely result in an exogenous change to the price cap formula. 41. In addition, our current rules require price cap ILECs to perform separations for the purpose of reporting their annual interstate earnings to the Commission. Moreover, ILECs that are subject to federal price cap regulation and state rate-of-return regulation use separations results to identify those costs subject to state regulation that enable the state commissions to assess the level of the ILECs' earnings on intrastate services. In addition, states that have implemented price cap regulation may have included features in which reported earnings are relevant. We seek comment and discussion on whether there is a continued need to prescribe separations rules for ILECs operating under the existing price cap rules as modified by the Access Reform Order and the Price Cap Fourth Report and Order. 42. Rate-of-Return ILECs. More than 1200 ILECs (operating in approximately 1400 study areas) provide eight percent of the nation's access lines and remain under rate-of- return regulation. These carriers concur in tariffs, administered by NECA, that are subject to federal rate-of-return regulation. Approximately half of these ILECs use our Part 36 rules to separate their costs between intrastate and interstate operations because they settle with NECA on a cost basis; the remaining half do not directly use the rules because they settle with NECA based on average schedules. The Part 36 rules are taken into consideration, however, when NECA develops the average schedules. Hence, our separations rules are used directly or indirectly by the more than 1200 ILECs under rate-of- return regulation. Accordingly, we seek comment on whether there is a continued need to prescribe separations rules for ILECs operating under rate-of-return regulation. C. Industry Separations Proposals 43. A number of parties have criticized the Part 36 rules as being unnecessarily complex and burdensome, and several parties have proposed procedures to replace our current Part 36 rules. In this Section, we seek comment on the relative merits of several industry separations proposals. 1. NYNEX Proposal 44. On May 2, 1996, NYNEX filed a petition for forbearance under section 10 of the Act in which NYNEX advocated that all costs for each ILEC study area be jurisdictionally separated based on a single, frozen, interstate allocation factor. Under this proposal, the frozen interstate factor would be the average percentage of total investment for that study area that had been allocated to the interstate jurisdiction during the period 1993- 95. NYNEX argues that this simple methodology is especially appropriate for price cap ILECs because the Commission's use of price cap regulation has broken the direct linkage between costs and prices, making the traditional separations process unnecessarily complex. NYNEX also argues that the growth of competition has diminished the significance of separated costs in pricing. Moreover, NYNEX contends that its proposal comports well with legal precedent, including Smith v. Illinois. NYNEX asserts that a fixed factor based on interstate investment is consistent with Smith v. Illinois because the Court did not require an exact apportionment reflecting use, and that its proposal "reasonably and practically apportions amounts between the jurisdictions." 45. NYNEX states that the current separations rules have produced fairly consistent results in recent years. In particular, NYNEX observes that nationwide interstate usage between 1991 and 1993 changed only five basis points, decreasing from 14.37 percent to 14.32 percent. Nonetheless, NYNEX contends that future separations results may not be so stable and predictable because selective competitive losses in one jurisdiction could cause costs to shift to the other jurisdiction as a declining demand for services in the first jurisdiction alters the relative-use factors that are used as a basis of allocation under the current rules. According to NYNEX, these jurisdictional shifts would be undesirable because their magnitude and direction would be unpredictable. NYNEX further contends that many of the costs that are separated based on relative-use factors (and, hence, are likely to shift jurisdictionally as demand changes) are joint and common costs that are not directly related to the service lost to competitors. 46. Moreover, NYNEX asserts that an examination of several expense and investment-related separations factors revealed that, in the aggregate, the combined result of using multiple factors did not differ significantly from the result of using the single fixed factor it proposes. NYNEX estimates that, if its proposal were applied to all the ILECs filing ARMIS reports with the Commission, less than $80 million (only 0.3 percent of a base of $24.2 billion) would be shifted to the interstate jurisdiction. Accordingly, NYNEX concludes that the use of a single factor simplifies the separations process without yielding significant differences in the separations results. 2. BellSouth Proposal 47. Similar to NYNEX, BellSouth Corporation and BellSouth Telecommunications, Inc., ("BellSouth") propose separations rules that rely entirely on frozen interstate allocation factors. While supporting NYNEX's objective of simplifying the separations process, BellSouth states that the single-factor approach proposed by NYNEX would not be the best solution for all price cap ILECs. BellSouth suggests that a two-factor approach, using separate factors for investment and expenses in each state, may be more appropriate for some carriers because its implementation would result in a smaller shift in costs between the intrastate and interstate jurisdictions. 3. Southwestern Bell Proposal 48. Southwestern Bell Telephone Company ("Southwestern Bell") proposes a separations procedure that consolidates the several dozen plant and service categories in our existing separations rules into four cost categories: loop; trunk; switching; and operator systems. Under this proposal, expenses and taxes would be apportioned among the four categories, making additional categories unnecessary for those costs. According to Southwestern Bell, this approach provides more meaningful cost detail than the single-factor approach proposed by NYNEX and represents more clearly the relative use of primary facilities by the intrastate and interstate jurisdictions. Southwestern Bell does not suggest a specific allocation procedure for jurisdictionally separating the costs in any of the four categories. Southwestern Bell does suggest, however, that the allocation factor for each category be frozen after its approach has been used long enough for jurisdictional allocations to stabilize. 4. Request for Comments 49. We seek comment on the industry separations proposals described above. Specifically, we ask whether any of these proposals achieve the goals of this proceeding and meet the criteria discussed in Section IV.A. or other proposed criteria. We request comment on whether any of these proposals should be used as a general separations proposal applied to all ILECs or, perhaps, only to the price cap ILECs. In particular, we ask commenters to consider how costly and burdensome any of these industry separations proposals would be for small carriers. We specifically invite comment on NYNEX's claim that fixed allocation factors could play a far more significant role in the separations process without resulting in unreasonable rates because many costs that are now separated based on relative-use factors are joint and common costs that are not related to service usage. Moreover, we invite comment on whether freezing existing interstate allocation factors based on current separations allocators, as proposed by NYNEX and BellSouth, would adequately reflect the goals of this proceeding and would meet the criteria discussed in Section IV.A. or other proposed criteria. In addition, we ask whether freezing existing allocation factors would adequately reflect changing use of the telecommunications network, such as increased Internet use. 50. We invite commenters to suggest other approaches to separations. One alternative is a separations procedure that freezes carriers' overall jurisdictional allocation factors at the existing levels, as in the NYNEX proposal, and applies multiple frozen factors in each study area, thus allowing a study area's overall interstate assignment to vary in response to changes in the relative share of total cost that is attributed to various facilities or operations. Another alternative is a separations procedure that initially freezes carriers' overall jurisdictional allocation factors at the existing levels, as in the NYNEX proposal, but then adjusts those allocation factors in subsequent periods to reflect changes in relative intrastate and interstate usage or changes in intrastate and interstate revenues. We seek comment on the relative merits of other separations proposals in light of the goals of this proceeding and the criteria discussed in Section IV.A. or other proposed criteria. D. Review of Existing Separations Procedures 51. In this Section, we review our existing separations procedures. First, we seek comment on whether the current definition of "study areas" should be revised. Second, we seek comment on how our Part 36 cost categories should be defined. Third, we seek comment on how costs should be apportioned among Part 36 cost categories. Fourth, we seek comment on how the categorized costs should be separated between the jurisdictions. We ask that commenters discuss whether and how our existing separations procedures and any proposed changes to those procedures achieve the goals of this proceeding and meet the criteria discussed in Section IV.A. or other proposed criteria. We also request that commenters consider how costly and burdensome any proposed changes to our separations rules would be for small carriers. 1. Defining Study Area 52. We seek comment on whether to change the current definition of "study area." A study area is a geographical region generally composed of a telephone company's exchanges within a single state. There are instances, however, where telephone companies own and operate more than one study area within a single state. The definition of a study area is significant for Part 36 separations purposes because ILECs calculate their costs and perform jurisdictional separations at the study area level. 53. The Separations Joint Board recommended, and the Commission adopted, a freeze of telephone companies' study area boundaries as they existed on November 15, 1984. The Commission took that action primarily to prevent companies from subdividing study areas in a way that would create isolated high cost areas and increase the high cost support provided under Part 36. Another effect of the freeze, however, has been to prevent changes in study areas for other reasons, such as the sale of local exchanges, unless a waiver of the study area definition is obtained. This has led to numerous waiver requests which, in turn, raise the question of whether the Commission's 1984 decision continues to serve the public interest. 54. We seek comment on whether a revised definition of study area would eliminate the need for study area waivers. We tentatively conclude that changing the definition of study area from the current frozen study area as of November 15, 1984, to "the common carrier operations of affiliated companies within a single state" would eliminate the need for such waivers. Under this proposal, a carrier's study area boundaries would change automatically as exchanges are bought and sold. We seek comment on the above tentative conclusion and on any other proposal to change the current definition of study area. We also seek comment on whether an ILEC that expands its territory to compete with another carrier in the same state should calculate its costs based on two separate study areas, one for the area where the carrier is the incumbent and one for the area in which the carrier is a new competitive entrant. If a carrier were to calculate its costs based on two separate study areas, we seek comment on how costs that are common to both areas should be separated. We also seek comment on whether any revisions to the study area definition would significantly shift costs between the jurisdictions and what impact such revisions would have on revenues. 2. Defining Cost Categories 55. If we continue to require separations but modify the current rules, a fundamental issue is whether the existing set of plant, expense, and service categories should be revised to reflect more accurately the manner in which plant costs and expenses are incurred in providing the wide variety of services carriers provide today. The purpose of the separations rules is to distribute costs between the federal and state jurisdictions, not to individual services. This implies that there may be no need to disaggregate the costs in a plant category further into several service categories if the rule applied to separate these costs is the same for each service category. 56. The current rules for categorizing cable and wire facilities ("C&WF") costs, for example, require exchange line costs to be disaggregated between voice-grade and wideband services but do not require exchange trunk costs to be disaggregated in this manner. The exchange line costs must be divided between these two service classes because their separations treatments differ. Whereas the exchange line costs attributed to voice-grade services are jurisdictionally separated based on a fixed factor, the costs attributed to wideband services are either directly assigned or allocated based on relative minutes-of-use measurements. Exchange trunk costs, however, are not divided between these two services, because the current separations treatment is the same regardless of whether such costs can be attributed to voice-grade or wideband services. 57. Presently, a "wideband channel" is defined as "a communication channel of a bandwidth equivalent to twelve or more voice-grade channels." The distinction between wideband services and voice-grade services in our separations procedures was jointly established by the Commission and NARUC in the 1947 Separations Manual long before the advent of digital services. Since that time, the telephone network has evolved significantly. Today, almost all telephone switching equipment and interoffice transmission is digital and, as already noted, consumer demand for high-capacity services has grown, with DS1, DS3, and ISDN service being prime examples. 58. In view of these changes, we seek comment on whether the distinction for analog wideband services in our current separations procedures promotes the goals of this proceeding and meets the criteria discussed in Section IV.A. or other proposed criteria. Commenters should discuss whether the current distinction, described above, is sufficiently precise to distinguish analog wideband services providing a capacity of twelve voice-grade channels from digital services providing a capacity several hundred times as great. Commenters asserting that the current distinction is inadequate should suggest definitions of "high-capacity services" to replace the references to "wideband" in our rules. These commenters should also discuss, for example, whether there is a digital signal rate, e.g., 64 kbps, that unambiguously distinguishes voice-grade from high-capacity channels. Commenters recommending definitions should explain how their definitions would apply to current services and facilities and how they might accommodate future offerings. 59. In addition, we seek comment on whether the distinction between exchange and interexchange services, used in separating circuit equipment and C&WF costs, promotes the goals of this proceeding and meets the criteria discussed in Section IV.A. or other proposed criteria. We recognize that carriers find it difficult to divide costs between these two service classes in the separations process and therefore ask whether this distinction should be eliminated. Commenters advocating the elimination of this distinction should propose new categories to replace the current categories for these costs. We also ask the same questions regarding the distinction between loops and trunks that is used in separating C&WF and circuit equipment costs. 60. Further, we ask parties to discuss whether the distinction between private line and message services should be modified or eliminated. Under the current separations rules, the costs in several plant categories are apportioned between these two service classes because, historically, these services have not engaged all facilities in the same way. As we explained earlier, however, network improvements resulting from new technologies have enabled ILECs to create virtual private line networks that blur the distinction between private line and message telecommunications service required by the separations rules. We therefore ask commenters to discuss whether these two service categories should be consolidated. In addition, we seek comment on whether the consolidation of any other Part 36 categories would further the goals of this proceeding and meet the criteria discussed in Section IV.A. or other proposed criteria. 61. A proper review of the separations rules must consider the need not only for consolidation but also for disaggregation. We therefore ask whether the costs in any existing category should be further disaggregated into subcategories in order to permit different separations treatment for different costs in that category. Parties favoring such a change should discuss what criterion or criteria should be used to apportion costs among these new subcategories. Parties should also discuss how their suggestions promote the goals of this proceeding and meet the criteria discussed in Section IV.A. or other proposed criteria. 3. Apportioning Costs to Categories 62. The separations rules require carriers to apportion costs among categories before apportioning costs between jurisdictions. As explained earlier, carriers generally are required to assign costs directly to categories because most costs are easily attributed to the prescribed plant, expense, and service categories. Yet, when direct assignment is not feasible, the rules require carriers to allocate costs among categories based on relative-use factors. Those allocation factors are based on measurements of relative usage if such measurements are practicable. We encourage interested parties to discuss whether these procedures for apportioning costs among existing cost categories should be revised. Commenters advocating the creation of new cost categories or consolidation of existing cost categories should explain how costs would be apportioned to those categories. a. Direct Assignment to Categories 63. There are two types of situations for which direct assignment for categorizing costs is relatively easy to perform and verify: first, when plant costs can be attributed to plant categories based on accounting and engineering records; and second, when plant costs can be attributed to service categories based on operating records demonstrating that the facilities are fully dedicated to services in those categories. 64. There are situations, however, where direct assignment is not easily performed or where it would not produce results that are easily verifiable. Newer technologies increasingly permit a single cable to be used for a mix of services. For example, a local loop providing voice-grade service may also provide video service. The technological changes that enable carriers to use the same facilities to deliver multiple services (e.g., voice, video, and data) may make direct assignment of a facility to a particular service category increasingly difficult for carriers to perform and for regulators to verify. In addition, ILECs likely will use outside plant for an increasing number of new services as the local competition provisions of the Act open telecommunications markets to competition. We therefore ask interested parties to comment on whether these changes in the use of outside plant will make direct assignment increasingly impractical as a categorization tool. 65. Where our separations rules require carriers to apportion a group of costs among multiple categories, our rules may require carriers to directly assign as much of the costs as possible to several categories based upon accounting or engineering records while allowing carriers to assign the unassigned costs to the remaining category. Under this practice the remaining category becomes a "residual" category. For example, carriers are required to apportion outside plant costs among four separations cost categories. On average, carriers directly assign 15 percent of outside plant costs based on accounting and engineering records while the remaining 85 percent of outside plant costs are assigned to the residual category, non-wideband loops. As direct assignment becomes increasingly difficult due to the technological advances allowing provision of multiple services over the same facilities and statutory changes permitting the use outside plant for an increasing number of new services, however, the residual method of direct assignment of costs may become increasingly arbitrary. We therefore invite comment on whether our separations rules should continue to allow the residual method of direct assignment. We also invite comment on whether the direct assignment of costs to residual categories overassigns or underassigns costs to any other categories. Finally, we ask whether alternative approaches may better achieve the goals of this proceeding and meet the criteria discussed in Section IV.A. or other proposed criteria. b. Categorization Based on Usage Measurements 66. The procedures that Part 36 prescribes for allocating costs to service categories are generally based on relative-use measurements that today are performed and recorded by sophisticated computer software programs. One important issue is whether these programs are now so complex that the usage measurements no longer can be verified easily by regulators. Another important issue is whether these measurements still reflect accurately the way that facilities are, in fact, used. Usage-based measurements are most reasonable for allocating costs when all of the traffic across a facility share the same characteristics. If that is the case, facility costs might be allocated reasonably among service categories based on only one type of usage measurement, such as minutes of use or number of call attempts. 67. The usage characteristics of video services, for example, may differ significantly from those of voice-grade services. These two services do not always engage or use facilities in the same way. Today, video services generally constitute one-way communications for periods of several hours; voice-grade services predominantly constitute two-way communications for much shorter periods of time. Because of these different usage characteristics, circuit equipment and many other facilities must be "full duplex" (i.e., capable of transmitting and receiving simultaneously) for voice-grade services but not for video services. In addition, the transmission speeds of video services dramatically exceed those of voice services. These differences in the utilization of facilities may not be reflected in existing allocation factors that are based on duration measurements or circuit counts. 68. We therefore seek comment on the extent to which usage measurements should play a role in the cost-categorization process, given our goals and criteria identified above. For unswitched services, we ask whether there are reasonable surrogates for usage measurements. For switched services, we ask what type of usage measurement would best quantify the traffic share or occupancy of a certain facility attributable to the various services. Further, we ask how we and the state commissions would be able to verify usage measurements that are recorded by sophisticated software programs. 69. We also ask whether our rules now apply any of the prescribed relative-use factors to costs that are largely unaffected by the type of usage measured by the allocation factor. With respect to circuit equipment costs, for example, commenters should discuss whether costs are closely related to the relative use of the total circuit capacity created by that equipment. If so, a circuit having ten times the capacity of another circuit may incur ten times the cost. This will not be true, however, if circuit equipment cost is more closely tied to the number of times that a signal is split by the circuit equipment. An allocation factor based on the relative use of total circuit capacity would not lead to apportionments reflecting cost causation if costs depend upon the number of circuits used, regardless of the capacity of those circuits. 70. Another issue on which we invite comment is whether we should consider changing the apportionment procedure used for distributing the costs of spare network facilities among categories. Our separations rules generally require carriers to apportion the cost of such facilities among categories on the basis of working network facilities. Thus, if an ILEC assigns 60 percent of the costs of the working facilities in a trunk to the narrowband loop category, 60 percent of the spare facilities in that trunk also is assigned to narrowband loop. This procedure did not raise significant cost allocation issues in the past because networks were designed primarily to carry voice-grade services over copper cables, and the engineering designs for those services called for relatively small amounts of spare facilities. As telecommunications networks evolve to provide more high-capacity services over fiber cables, however, the deployment of spare facilities appears to be increasing. Indeed, ILECs have deployed approximately twice as much spare fiber as they have working fiber. Further, the growth of competition in the local services market, particularly for high-capacity services, is creating incentives for ILECs to assign a greater share of the costs of spare facilities to separations categories encompassing less competitive services. This is an important issue because a significant portion of both fiber and copper loops and interoffice trunks represent spare facilities, and the costs associated with those facilities are substantial. According to the most recent ARMIS data, large ILECs have a total of $125 billion invested in C&WF, with a significant percentage of that investment associated with spare facilities: 68 percent for fiber and 30 percent for copper loops. Because the C&WF investment is not reported separately for metallic and nonmetallic cable, it is difficult to determine the total amount of spare in C&WF investment. Nonetheless, by applying the more conservative spare percentage---30 percent---to the $125 billion total, the ILECs' investment in spare C&WF likely exceeds $37.5 billion. 71. We tentatively conclude that ratepayers of voice-grade services, over which ILECs still exert market power, should not be paying for the spare facilities that eventually will be used for more competitive services. This could occur, for example, if spare facilities intended for competitive high-capacity services are assigned to residual categories of plant reserved for voice-grade telephone services. This could also occur if spare capacity of working facilities, deployed for eventual use by competitive high-capacity services, is allocated based on current usage of those facilities and thus is distributed entirely to existing voice-grade services. We therefore ask whether the current practice of apportioning spare facility costs on the basis of working facility costs should be replaced by another apportionment procedure. For example, spare facility costs could be allocated based on the expected use of the spare facilities, a procedure currently prescribed by our Part 64 cost allocation rules for determining the allocation of central office equipment and outside plant investment costs between regulated and nonregulated activities. c. Categorization Based on Fixed Factors 72. As services become more diverse, the use of fixed factors for allocating costs to categories may help ensure that separations is administratively simple. We therefore seek comment on whether fixed factors should play a larger role in categorizing costs and, if so, what those factors should be and which costs should be allocated based on such factors. We ask commenters to discuss this issue in light of the goals of this proceeding and the criteria discussed in Section IV.A. or other proposed criteria. Commenters supporting the use of fixed factors as a method for allocating costs to categories should also comment on whether fixed factors should be applied to all costs--joint, common, and incremental--or only to particular types of cost. We also seek comment regarding whether a fixed allocation approach should be prescribed for all ILECs or only for ILECs operating under price cap regulation. 73. Proponents of fixed allocation factors should also address the basis for setting these fixed factors. For example, if a proposed factor is based on how the category was assigned during a historical period, commenters should identify the specific years to be used in deriving the fixed factors and explain why use of data for those years is appropriate. Commenters also should discuss whether these factors should be revised periodically and, if so, how frequently revision should occur or what event should trigger the revision. 4. Apportioning Categorized Costs to Jurisdictions 74. Like the rules for distributing costs to categories, the rules for distributing the categorized costs between jurisdictions rely on two fundamental procedures, direct assignment and allocation. As explained above, carriers generally are required to allocate costs between jurisdictions because most costs within a category are joint or common with respect to intrastate and interstate services, thus making direct assignment difficult. We encourage interested parties to discuss whether revising these jurisdictional allocation procedures would help to achieve the goals of this proceeding and the criteria discussed in Section IV.A. or other proposed criteria. Additionally, commenters advocating the creation of new cost categories or consolidation of existing categories should explain how the costs in those categories would be apportioned between the jurisdictions. a. Direct Assignment to Jurisdictions 75. Under our existing separations rules, some costs are directly assigned to the interstate and intrastate jurisdictions. We invite comment on whether there are any additional costs that should be directly assigned to the jurisdictions but which are currently allocated to the jurisdictions based on relative-use measurements or fixed factors. Parties are encouraged to comment, for example, on whether a significant number of the unswitched high-capacity services are jurisdictionally pure. If so, we ask for comment on how ILECs would identify the jurisdictional nature of such services. Commenters should address how opening of markets to competition, as required by the local competition provisions of the Act, will affect the number of jurisdictionally pure services. We also ask how state and federal regulators could verify that a carrier had accurately assigned the facilities to the intrastate or interstate jurisdiction. b. Allocation Based on Usage Measurements 76. When our rules prohibit the direct assignment of specific costs to a jurisdiction, they generally require that those costs be allocated between jurisdictions based on measurements of the relative use by intrastate and interstate services. Usage-based measurements are most reasonable to allocate costs when all of the traffic across a facility exhibits identical characteristics. 77. Local switching costs, for example, are allocated between the jurisdictions based on a usage measurement called dial equipment minutes ("DEM"). Traditional analog and digital switches set up a circuit for each call. The circuit is maintained for the duration of the call, making part of the switch unavailable for other transmissions during that period. The newer technologies, however, operate much differently. Packet switches, including frame relay and asynchronous transfer mode ("ATM") used to provide services offering different capacities on demand, do not dedicate a circuit to each communication throughout its duration. An important issue thus may be whether call duration, which serves as the basis for separating costs between the jurisdictions in traditional switches, is a reasonable basis for allocating the costs of packet switches between jurisdictions. Perhaps the cost of these switches is more closely related to other forms of traffic measurement, e.g., number of packets, than to call duration. We ask parties to discuss whether other allocation factors should be used to separate the costs of packet or traditional switching equipment, and if so, what factors would be most appropriate for various types of traffic. 78. In the Access Charge Reform Order, the Commission concluded that the costs of the line side port (including the line card, protector, and main distribution frame), and trunk-side cards and ports dedicated to a particular access customer, are non-traffic sensitive ("NTS"). The current separations process does not distinguish NTS port costs from the TS costs of the local switch. Accordingly, another important issue is whether a usage-based allocator is appropriate for the portion of local switching costs that is NTS and does not vary with use. We request that commenters discuss these issues in light of the goals of this proceeding and the criteria discussed in Section IV.A. or other proposed criteria. 79. Another important issue, assuming that costs of switched and unswitched services should continue to be categorized separately, is whether the usage measurements of switched services should be used as surrogate relative-use factors to jurisdictionally separate the costs imposed by unswitched services, such as DS1 and DS3 services, for which usage measurements are unavailable. For incremental costs that are TS, such an approach may be more consistent with principles of cost causation than the use of a fixed allocation factor that cannot respond to changes in jurisdictional usage. We therefore seek comment on the relative merits of this approach. 80. More generally, we seek comment on whether the ratio of intrastate to interstate usage for voice-grade services differs significantly from the ratio of intrastate to interstate usage for high-capacity services. If these differences are significant, we seek comment on how, if at all, these differences will be affected by the opening of local exchange markets to competition. For example, would a reduction in prices in certain services, as a result of increased competition, increase or decrease the difference between the existing ratios? Commenters should address whether such differences, now or in the future, would produce a jurisdictional allocation of costs inconsistent with the goals of this proceeding and the criteria discussed in Section IV.A. or other proposed criteria if the current usage-based allocation methods were retained. Commenters endorsing relative-use methodologies should explain the mechanics of usage measurements they recommend and how regulators can verify the accuracy of carrier measurements. 81. In addition, we seek comment on whether the goals of this proceeding and the criteria discussed in Section IV.A. or other proposed criteria would be better met if our separations rules no longer required the allocation factor for interexchange trunk costs to be weighted to reflect the length of trunks. Under our current rules, when direct assignment is not feasible, interexchange trunk costs are allocated between the state and federal jurisdictions based on the conversation-minute-kilometers attributable to intrastate and interstate services. This means that allocation is based partly on trunk usage and partly on trunk length. Because overall trunk costs are significantly reduced with the ILECs' increased use of fiber and radio technologies, there may no longer be a measurable link between trunk length and cost causation. We therefore invite parties to discuss whether technological advances have obviated the need for this allocation procedure to be based, in part, on trunk length. 82. We also seek comment on whether the allocation factor for marketing expenses should be revised to satisfy the goals of this proceeding and the criteria set forth in Section IV.A. Under the current Part 36 rules, marketing expenses are allocated between the jurisdictions on the basis of current billing for local and toll services (excluding certain billings for non-affiliated companies and those performed in connection with intercompany settlements). We seek comment on whether the costs associated with marketing expenses could be allocated in a more cost-causative manner. Because marketing expenses generally are incurred in connection with promoting the sale of retail services, those expenses for the most part should be recovered from ILEC retail services, which are found predominantly in the intrastate jurisdiction. We therefore tentatively conclude that ILECs' marketing costs that are not related to the sale or advertising of interstate switched access services are not appropriately allocated to the interstate jurisdiction. We seek comment on this tentative conclusion. In addition, we seek comment on allocation factors that are not revenue-based, or that may incorporate weighted factors. In addition, we seek comment on whether there may be a need for a transition period or a phase-in approach if we adopt a new allocation factor for marketing expenses. c. Allocation Based on Fixed Factors 83. Our rules prescribe fixed factors for allocating certain ILEC costs between the jurisdictions. A fixed factor of 25 percent, for example, is prescribed for identifying the interstate portion of costs associated with subscriber lines that are joint or common with respect to local exchange, intrastate toll, and interstate toll services. Our current separations rules generally require the use of a fixed factor, rather than a factor based on usage measurements of line traffic, when costs are considered to be NTS. With the introduction of new technology, however, portions of the network that were once considered NTS may become sensitive to traffic. Accordingly, we seek comment on whether the usefulness of fixed factors in the separations process may need to be re-examined in light of the goals of this proceeding and the criteria discussed in Section IV.A. or other proposed criteria. We also seek comment on whether fixed factors are a reasonable basis for allocating joint and common costs that cannot be allocated on a cost-causative basis or for allocating incremental costs that are difficult to attribute to intrastate and interstate operations. E. Impact on Prices and Revenue Requirements 84. If we determine that modifications to our separations rules are necessary, it will be important to know how those modifications would affect (a) the overall level of prices paid by consumers, (b) the way costs are recovered in the intrastate and interstate jurisdictions, and (c) jurisdictional revenue requirements. 85. Price Level. If an ILEC is regulated under price caps in the interstate jurisdiction and rate-of-return regulation in the intrastate jurisdiction, the allocation of costs between jurisdictions could potentially affect the overall level of revenue collected by the ILEC. To the extent that price cap regulation breaks the link between costs and prices while rate-of-return regulation maintains such dependence, the assignment of a cost that is expected to fall over time to the interstate jurisdiction could lead to a greater revenue recovery for the ILEC than the assignment of that cost to the intrastate jurisdiction. We seek comment on the extent to which an ILEC's overall revenues (and by implication the overall rates paid by consumers) are affected by any proposed changes to our separations rules. 86. Pricing Structure. In our recent Access Charge Reform Order, the Commission restructured interstate access charges so that ILECs will recover significantly more and eventually all, NTS costs using flat rates and TS costs using usage sensitive rates. We seek comment on whether proposed changes to our separations rules should reflect any differences in the way costs are recovered in the intrastate jurisdiction. 87. Revenue Requirement. Information about how modifications to our separations rules would affect jurisdictional revenue requirements will enable us to avoid adopting rules that would cause a sudden and severe mismatch between cost allocation and revenues that could deny carriers a reasonable opportunity to recover their costs. Such information also will enable us to determine whether the expected jurisdictional shift in revenue requirements would be large enough to warrant a transition mechanism. The Commission has found such information useful in the past when developing transition mechanisms. For example, when the Commission established the 25 percent fixed factor for allocating NTS costs between the state and federal jurisdictions, it used such information to determine that many companies were allocating an unusually high percentage of their NTS costs to the interstate jurisdiction. To prevent dramatic cost shifts between jurisdictions that a "flash cut" to the fixed allocator would otherwise have caused, the Commission ordered a gradual transition period from the existing rules to the new 25 percent fixed factor for allocating NTS costs. We therefore ask commenters to estimate, for any proposed modification to our separations rules, the expected shift of costs between the intrastate and interstate jurisdictions. Additionally, commenters should discuss whether such modifications to our separations rules would disproportionately affect specific types of carriers or ratepayers. F. Separation of the Costs Associated with Interconnection 88. Section 251 of the Act establishes the general duty of all telecommunications carriers "to interconnect directly or indirectly with the facilities and equipment of other telecommunications carriers," to "provide...nondiscriminatory access to network elements on an unbundled basis," and to "offer for resale at wholesale rates any telecommunications service that the carrier provides at retail to subscribers who are not telecommunications carriers." In a companion NPRM that we issue today, we propose rules for the accounting treatment of transactions related to interconnection. Specifically, we propose new revenue accounts for amounts ILECs receive for providing interconnection, expense accounts for amounts paid to obtain interconnection and subsidiary recordkeeping categories for the costs of providing interconnection. In addition, we tentatively conclude that the amounts to be assigned to those subsidiary recordkeeping categories should be based on the revenues from interconnection and unbundled network elements and that the apportionment of the costs should be consistent with cost studies underlying the charges for these services and elements. The rules proposed in our companion NPRM are designed to provide the Commission with data it needs to monitor the development of local exchange and exchange access competition and the deployment of advanced telecommunications services by eligible telecommunications carriers during the transition to a competitive market. 89. In the Local Competition Order, we sought to implement a separate framework for pricing interconnection that would rely on the combined oversight of federal and state regulation. Our pricing rules were vacated by the 8th Circuit Court of Appeals. The Court concluded that the local competition provisions were "fundamentally intrastate in character." 90. In this NPRM, we propose two alternatives for allocating the costs of providing interconnection between the state and federal jurisdiction. Our first alternative is for the costs, once identified in Part 32 as proposed in the companion item, to be removed entirely from the separations process and allocated through a process designed to apply exclusively to these costs. Commenters supporting this proposal should explain how such a procedure would work and whether removing these costs from the separations process would promote the goals and criteria of this proceeding. 91. We propose as a second alternative that the costs of interconnection, once identified in Part 32, be separated through the current separations process. We seek comment on whether new categories should be created or whether existing categories could be used in the first step of the separations process. We tentatively conclude that in order to promote efficiency and reduce the administrative burden placed on ILECs subject to the separations rules, new categories should be created to segregate the costs associated with unbundled network elements from the costs associated with the provision of all other local exchange services. We seek comment on this tentative conclusion. In addition, with respect to this alternative, we tentatively conclude that all costs associated with interconnection would be directly assigned to the intrastate jurisdiction. We seek comment on this tentative conclusion. 92. We also seek comment on the pertinence of the holding in Iowa Utilities Board v. FCC to the assignment of costs associated with the provision of local exchange service to the intrastate jurisdiction. We seek comment on whether the holding in the Iowa Utilities Board decision requires the assignment of all costs associated with the provision of local exchange service to the intrastate jurisdiction. Commenters are encouraged to address whether the Court's decision requires review and modification of the current separations allocator of 25% of the loop costs to the interstate jurisdiction. Commenters should also explain how their position would affect the regulation of access charges as well as the recently initiated federal universal service program. G. Separations of Universal Service Contributions and Support 93. As directed by the Act, the Commission adopted a plan that satisfies the statutory requirements of section 254 and establishes a universal service support system that 94.will be sustainable in an increasingly competitive marketplace. In particular, the Universal Service Order creates a support system for assisting carriers that provide certain telecommunications services to consumers in rural, insular, and high cost areas based on forward-looking economic costs. The Universal Service Order also modifies the existing Lifeline and Link Up programs for low income consumers. The federal Lifeline support amount was increased, the state matching requirement was modified, and the program was expanded to be available in every state, territory, and commonwealth. In addition, the contributions and distributions of low-income support overall will be provided on a competitively neutral basis. The Universal Service Order also allows all eligible schools and libraries to receive discounts of between 20 percent and 90 percent on all telecommunications services, Internet access, and internal connections provided by telecommunications carriers. Finally, the Universal Service Order adopts a program to provide universal service support for all public and not-for-profit health care providers located in rural areas. 95. We ask that commenters propose changes to our separations rules to account for changes in the universal service support mechanisms discussed in this Section, as well as any other changes in the universal service system that may require modifications to our separations rules. We also ask commenters to discuss how costly and burdensome any proposed changes to our separations rules would be for small carriers. 1. Universal Service Contributions 96. In the Universal Service Order, the Commission modified the funding methods for the existing federal universal service support mechanisms so that such support is not generated entirely through charges imposed on long distance carriers. Consistent with the 1996 Act, the Commission will require equitable and nondiscriminatory contributions from all providers of interstate telecommunications service. A carrier's contributions for the high cost and low-income programs will be assessed based on the contributor's interstate end-user telecommunications revenues. Contributions to support eligible schools, libraries, and health care providers will be assessed based on contributors' interstate and intrastate end-user revenues. While the bases for assessing contributions to these universal service programs differ, the Commission determined that carriers may recover their contributions to all of the programs through interstate rates. 97. We tentatively conclude that, in order for contributing ILECs to recover universal service contributions through interstate rates, the expense of the contributions should be directly assigned to the interstate jurisdiction. We request comment on this tentative conclusion. In the event that ILECs subject to our separations rules are required to contribute to a state universal service fund, we request comment on whether the expense of such contributions should, similarly, be directly assigned to the intrastate jurisdiction. 2. High Cost Support 98. The Commission determined that the federal universal service mechanism for rural, insular, and high cost areas will provide assistance for the interstate portion of the difference between the forward-looking economic costs of providing service and a nationwide revenue benchmark. As discussed in the Universal Service Order, the interstate portion of providing high cost support will be 25 percent because that percentage currently defines the interstate portion of loop costs, which is the predominant cost that varies between high cost and non-high cost areas. In the Access Charge Reform Order, the Commission directed that the federal support received by ILECs should be used to satisfy the interstate revenue requirements that are otherwise collected through interstate access charges. 99. While non-rural carriers will begin to receive support based on forward-looking economic cost on January 1, 1999, rural carriers will gradually shift to a forward-looking economic cost methodology after further review by the Commission, but in no event sooner than January 1, 2001. Beginning on January 1, 1998, rural carriers will receive high cost loop support, DEM weighting, and LTS benefits for each line based on modifications to the existing mechanism. The final rules released in the Universal Service Order include changes to our separations rules that implement these modifications to support for rural areas. 100. Consistent with the Universal Service Order, federal support received by ILECs for service to rural, insular, and high cost areas would be directly assigned to the interstate jurisdiction because it is only intended to support the federal share of the costs of providing high cost service, and because such support is intended to offset ILECs' interstate revenue requirement. We request comment on this proposal. 3. Low-Income Support 101. Lifeline. In the Universal Service Order, the Commission made the Lifeline program that assists qualified low-income consumers part of the federal universal service mechanisms by requiring all eligible telecommunications carriers to offer Lifeline service. Under the new universal service mechanism, low-income consumers will benefit from federal support in the amount of $3.50 as well as additional support, if the state approves, of $1.75 (for total federal support of $5.25 per month). A qualified consumer's bill can be reduced further if the state provides matching funds. 102. We tentatively conclude that the $3.50 of baseline federal support received by any ILEC through the Lifeline program should be directly assigned to the interstate jurisdiction because the amount is intended to offset the subscriber line charge ("SLC"). In addition, we tentatively conclude that additional federal support above this amount should be directly assigned to the intrastate jurisdiction because it is intended to lower the intrastate rates paid by low-income consumers. We seek comment on these tentative conclusions. 103. Link Up. The Link Up program is intended to help low-income subscribers initiate telephone service. To ensure that Link Up support is available on a competitively- neutral basis, the Universal Service Order eliminated the requirement that the installation charges eligible for support be filed in a state tariff. Any eligible telecommunications carrier may draw from the new Link Up support mechanism "if that carrier offers to qualifying low-income consumers a reduction of its service connection charges equal to one half of the carrier's customary connection charge or $30.00, whichever is less." 104. Under the current Link Up program, the provision of federal assistance is achieved through an expense adjustment in the separations process that allocates costs from the intrastate jurisdiction to the interstate jurisdiction, thereby reducing the intrastate revenue requirement. We tentatively conclude that support received by ILECs under the new Link Up support mechanism should be directly assigned to the intrastate jurisdiction in order to reduce the intrastate revenue requirement. We seek comment on this tentative conclusion. 4. Schools, Libraries, and Health Care Providers Support 105. Section 254(h)(1)(B) requires that telecommunications services and any additional services designated by the Commission be provided to schools and libraries at a discount. The discount shall result in "rates less than the amounts charged for similar services to other parties," and shall be sufficient to ensure affordable access to and use of such services. The Commission and the states will determine the levels of the discounts schools and libraries receive for interstate and intrastate services, respectively. Telecommunications service providers will receive this support as either an offset to their universal service contribution obligations or as a payment from the universal service administrator. 106. Section 254(h)(1)(A) requires that those telecommunications services and any additional services designated by the Commission that are necessary for the provision of health care be provided to health care providers in rural areas at rates that are reasonably comparable to urban rates for similar services. Telecommunications carriers will receive universal service support for the amount of the reduction in rates. A carrier will treat the support amount as an offset against the carrier's universal service contribution obligation for the year in which the costs were incurred. To the extent that a carrier's support exceeds that carrier's obligation, calculated on an annual basis, the carrier may receive a payment from the universal service administrator. 107. Through reimbursement by either a direct payment by the universal service administrator, or by an offset of their universal service obligation, carriers will receive the same amount of revenue for the provision of supported services to eligible schools, libraries, and health care providers as they would receive for the provision of those same services to other customers. For a payment received from the administrator, an ILEC will record such revenue in its Part 32 accounts in the same manner as revenue received from the provision of those same services to other customers. For an offset of a universal service obligation, an ILEC may record the offset in its Part 32 accounts as both an expense (as a contribution) and a revenue (as payment for the provided services). We tentatively conclude that this universal service support may be properly recorded in the existing Part 32 accounts, whether ILECs are reimbursed through a direct payment from the administrator or through an offset of their universal service obligation. We therefore tentatively conclude that universal service support for eligible schools, libraries, and health care providers does not require independent separations treatment. We request comment on this tentative conclusion. H. Separations of the Costs of Assisting Law Enforcement 108. CALEA was enacted on October 24, 1994, and requires telecommunications carriers to modify and design their equipment, facilities, and services to support the electronic surveillance needed by federal, state, and local law enforcement agencies. As directed by the Act, we are convening the Federal-State Joint Board established in CC Docket No. 80-286 to "recommend appropriate changes to part 36 of the Commission's rules with respect to recovery of costs pursuant to charges, practices, classifications, and regulations under the jurisdiction of the Commission." 109. Section 103 of CALEA requires telecommunications carriers to ensure that their facilities enable law enforcement officials, pursuant to authorization, to intercept calls and access call-identifying information that is reasonably available to the carrier ("assistance capability requirements"). Section 104 of CALEA requires that carriers comply with capacity requirements established by the Attorney General ("capacity requirements"). These capacity requirements will aid telecommunications carriers in developing and deploying solutions to meet the assistance capability requirements of section 103. The effective date for complying with the assistance capability requirements is October 25, 1998. 110. Sections 109 and 104(e) grant the Attorney General authority, subject to the availability of appropriations, to reimburse a telecommunications carrier for the reasonable costs associated with compliance of the assistance capability and capacity requirements. We seek comment on how to separate the costs a carrier may incur and the reimbursements (revenues) a carrier may receive in establishing the capabilities and capacity necessary to comply with sections 103 and 104. Specifically, we seek comment on whether the costs incurred should be allocated to a single category identified as CALEA-related expenses, or whether the costs associated with compliance should be allocated to the existing separations categories or subcategories within them. Commenters that support allocating the costs to the existing separations categories should consider whether, and if so, how, the associated revenues received from the Attorney General could be allocated to ensure that revenues follow their associated costs to a particular jurisdiction. We further seek comment on whether, in order to be consistent with administrative simplicity, revenues could be allocated to the jurisdictions based on relative-use factors derived from the relative electronic surveillance requirements of federal, state, and local law enforcement agencies. V. PROCEDURAL MATTERS A. Ex Parte 111. This is a permit-but-disclose notice and comment rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided they are disclosed as provided in the Commission's rules. B. Initial Regulatory Flexibility Analysis 112. This NPRM seeks comment on the extent to which separations rules are required, what standards should be used to evaluate separations proposals, and what changes should be made to our existing separations rules. The NPRM states that we want to adopt rules that are easily interpreted and that will minimize any regulatory burdens on affected parties. Section 603 of the Regulatory Flexibility Act (RFA), as amended, requires an initial Regulatory Flexibility Act Analysis in notice-and-comment rulemaking proceedings unless we certify that "the rule will not, if promulgated, have a significant economic impact on a significant number of small entities." 113. Section 603 of the Regulatory Flexibility Act ("RFA") requires an initial regulatory flexibility analysis that describes the impact of the proposed rule on small entities for rulemakings that are required to have public notice and comment. We have determined that the RFA is inapplicable to this proceeding insofar as it pertains to the Bell Operating Companies and other incumbent local exchange carriers. The RFA defines a "small business" to be the same as a "small business concern" under the Small Business Act. Under the Small Business Act, a "small business concern" is one that: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional criteria established by the Small Business Administration ("SBA"). Section 121.201 of the Small Business Administration regulations defines a small telecommunications entity in SIC code 4813 (Telephone Companies Except Radio Telephone) as any entity with 1,500 or fewer employees at the holding company level. Because our proposals concerning the Part 36 separations process will affect all incumbent local exchange carriers providing interstate services, some entities employing fewer than 1500 employees at the holding company level may be affected by the proposals made in this NPRM. However, we do not consider such entities to be "small entiites" under the RFA because they are either affiliates of large corporations or dominant in their field of operations. Therefore, we do not believe that the proposed rules will affect a substantial number of small entities. Even if small ILECs were "small entities" under the SBA, however, we would still certify that no regulatory flexibility analysis is necessary here because none of the proposals in this NPRM, if adopted, would have a significant economic impact (as such term is used in the RFA) on the carriers which must comply with our accounting rules. One of the primary objectives of this proceeding is to seek comment on proposals to simplify the current separations process in an effort to lessen the regulatory burden on carriers in furtherance of a deregulatory national policy framework. 114. We therefore certify, pursuant to section 605(b) of the RFA, that the rules proposed in this NPRM will not have a significant economic impact on a substantial number of small entities. The Commission will publish this certification in the Federal Register and will provide a copy of the certification to the Chief Counsel for Advocacy of the SBA. The Commission will also include this certification in the report to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act. C. Paperwork Reduction Act 115. This Notice contains either a proposed or modified information collection. 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 collections contained in this Notice, as required by the Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments are due at the same time as other comments on this Notice; OMB comments are due 60 days from date of publication of this Notice in the Federal Register. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. 116. Written comments by the public on the proposed or modified information collection are due on or before December 10, 1997 and reply comments on or before January 26, 1998. Written comments must be submitted by the Office of Management and Budget (OMB) on the proposed or modified information collections on or before 60 days after date of publication in the Federal Register. In addition to filing comments with the Secretary, a copy of any comments on the information collection contained herein should be submitted to Judy Boley, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington, DC 20554, or via the Internet to dconway@fcc.gov and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 17th Street, N.W., Washington, DC 20503 or via the Internet to fain_t@al.eop.gov. D. Comment Filing Procedures 117. We invite comment on the issues set forth above. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's rules, interested commenters may file comments on or before December 10, 1997, and reply comments on or before January 26, 1998. Comments will be limited to 25 pages, not including appendices. Reply comments will be limited to 20 pages, not including appendices. 118. To file formally in this proceeding, interested parties must file an original and six copies of all comments, reply comments, and supporting comments. If interested parties want each Commissioner to receive a personal copy of comments, an original plus eleven copies must be filed. Interested parties should send comments and reply comments to Office of the Secretary, Federal Communications Commission, Washington, D.C. 20554 with a copy to Connie Chapman of the Common Carrier Bureau's Accounting and Audits Division, 2000 L Street, N.W., suite 200M, Washington, D.C. 20554. Parties must also serve comments on the Federal-State Joint Board in accordance with the service list. Commenters should also provide one copy of any documents filed in this proceeding to the Commission's copy contractor, International Transcription Service ("ITS"), 2100 M Street, N.W., Suite 140, Washington, D.C., 20037. Comments and reply comments will be available for inspection during regular business hours in the FCC Reference Center, Room 239, 1919 M Street, N.W., Washington, D.C. 20554. For further information contact Connie Chapman at (202) 418-0885. 119. Parties are also asked to submit comments and reply comments on diskettes. Such diskette submissions would be in addition to and not a substitute for the formal filing requirements addressed above. Parties submitting diskettes should submit them to Connie Chapman, Common Carrier Bureau, Accounting and Audits Division, 2000 L Street, N.W., Suite 200M, Washington, D.C. 20554. Such a submission should be on a 3.5 inch diskette formatted in an IBM compatible form using, if possible, WordPerfect 5.1 for Windows software. The diskette should be submitted in "read only" mode. The diskette should be clearly labelled with the party's name, proceeding, type of pleading (comment or reply comment) and date of submission. The diskette should be accompanied by a cover letter. VI. ORDERING CLAUSES 120. Accordingly, IT IS ORDERED that, pursuant to sections 1, 2, 4, 201-205, 215, 218, 220, 229, 254, and 410 of the Communications Act of 1934, as amended, 47 U.S.C.  151, 152, 154, 201-205, 215, 218, 220, 229, 254 and 410 that NOTICE IS HEREBY GIVEN of proposed amendments to Part 36 of the Commission's rules, 47 C.F.R. Part 36, as described in this NOTICE OF PROPOSED RULEMAKING. 121. IT IS FURTHER ORDERED that, pursuant to section 410(c) of the Communications Act of 1934, 47 U.S.C.  410(c), the proposals set forth in the Notice of Proposed Rulemaking are hereby referred to the Federal-State Joint Board established in CC Docket No. 80-286 for preparation of a recommended decision. 122. IT IS FURTHER ORDERED, that a copy of all filings in this proceeding shall be served on each of the appointees and staff personnel on the attached service list. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary