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No. 91-35  X -Operator Service Access and hhCq)  X| -Pay Telephone Compensation hhCq)pp ` `  hhCq)  XN-Petition of the Public Telephone hhCq)pp  X7-Council to Treat Bell Operating Companyq)  X -Payphones as Customer PremiseshhCq)  X -Equipment ` `  hhCq)pp ` `  hhCq)  X-Petition of Oncor Communications hhCq)  X-Requesting Compensation for hhCq)pp  X-Competitive Payphone Premises hhCq)  X-Owners and Presubscribed Operator q)  X-Services Providers  hhCq) ` `  hhCq)  XQ-Petition of the California Payphone q)pp  X:-Association to Amend and ClarifyhhC q)pp  X#-Section 68.2(a)of the hhCq)pp  X -Commission's Rules hhCq) ` `  hhCq)  X-Amendment of Section 69.2(m) hhCq)pp  X-and (ee) of the Commission's Rules q)  X-to Include Independent Public hhCq)  X-Payphones Within the "Public hhCq)  X -Telephone" Exemption from End User q)  Xk!-Common Line Access ChargeshhCq)  X&$-@ REPORT AND ORDER \  X%- Adopted: September 20, 1996 Released: September 20, 1996  X&-  ă By the Commission: Commissioner Chong issuing a statement. "(,))JJ`'"Ԍ X-P Table of Contents X-\Topic` `  hhCqpp  )Paragraph No.  X-  X-I. Introduction hhCqpp  ) xxX 1  X-II. Background  hhCqpp  )xxX 9  X-III. Issues` `  hhCqpp  )xxX 11  Xv-The Payphone MarketplacehhCqpp  )xxX 11 (#(#  X_-A. Compensation for Each and Every Completed Intrastate   )xxX   XH- and Interstate Call Originated by Payphonespp  )xxX 20 (#(# ` ` 1. Payphone Calls Subject to this Rulemaking and  X -` ` Compensation Amountqpp  )xxX 21  X -` ` 2. Entities Required to Pay Compensationpp  )xxX 77 (#(#  X -` ` 3. Ability of Carriers to Track Calls from Payphones  )xxX 88   X -` ` 4. Administration of PerCall Compensation  ) 102   X - ` ` 5. Interim Compensation Mechanismpp  ) 117  X -B. Reclassification of LECOwned Payphonespp  ) 127   X-` ` 1. Classification of LEC Payphones as CPE  ) 129    ` ` 2. Transfer of Payphone Equipment to Unregulated Status 152  Xb- ` ` 3. Termination of Access Charge Compensation and Other  XK-` ` SubsidieshhCqpp 173   X4-` ` 4. Deregulation of AT&T Payphonespp  ) 188  C. Nonstructural Safeguards for BOC Provision of Payphone  X- Service hhCqpp  ) 192  D. Ability of BOCs to Negotiate with Location Providers on the  X- Presubscribed InterLATA Carrierpp  ) 208 E. Ability of Payphone Service Providers to Negotiate with  X- Location Providers on the Presubscribed IntraLATA Carrier 253   X-F. Establishment of Public Interest Payphonespp  ) 264   X|-G. Other IssueshhCqpp  ) 287   Xe-` ` 1. Dialing Parity hhCqpp  )xxX 287  XN-` ` 2. Letterless Keypads on Payphonespp  ) 294  X7-` ` 3. Oncor PetitionhhCqpp  )xxX 299  X -IV. Procedural MattershhCqpp  )xxX 300  X -` ` 1. Petitions for Reconsiderationpp  )xxX 300  X-` ` 2. Paperwork Reduction Act Analysispp  )xxX 303  X-` ` 3. Regulatory Flexibility Act Analysispp  )xxX 311  X -V. Conclusion hhCqpp  )xxX 363 (#(# X!-VI. Ordering ClauseshhCqpp  )xxX 364 Appendix A Text of Section 276 Appendix B List of Parties Filing Comments Appendix C List of Parties Filing Replies Appendix D Immediate Rules Adopted by This Order Appendix E Rules Adopted by This Order Appendix F Interim Compensation Obligations"#',^(^(JJ%"Ԍ  X-` `  hhC I. INTRODUCTION  X- z ` ` 1. On June 4, 1996, the Commission adopted a Notice of Proposed  X- d(#!Rulemaking ("Notice") to implement Section 276 of the Communications Act of 1934, as  X- d(#amended by the Telecommunications Act of 1996 ("1996 Act").X yO- v ԍImplementation of the Pay Telephone Reclassification and Compensation Provisions of the  yO- d(# Telecommunications Act of 1996, CC Docket No. 96128, Notice of Proposed Rulemaking, 11 FCC Rcd 6716 (1996)  yO-("Notice"). The complete text of Section 276 is attached as Appendix A. In this Report and Order, the  d(#Commission adopts new rules and policies governing the payphone industry that: (1) establish  d(#=a plan to ensure fair compensation for "each and every completed intrastate and interstate call  XH- d(#using [a] payphone[;]"H yO -ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(A).#x6X@`7pX@#ћ (2) discontinue intrastate and interstate carrier access charge payphone  d(#service elements and payments and intrastate and interstate payphone subsidies from basic  X - d(#exchange services; x yOC-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(B).#x6X@`7pX@#ћ (3) prescribe nonstructural safeguards for Bell Operating Company ("BOC")  X - d(#!payphones;  yO-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(C).#x6X@`7pX@#ћ (4) permit the BOCs to negotiate with payphone location providers on the  X - d(#interLATA carrier presubscribed to their payphones;  yO5-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(D).#x6X@`7pX@#ћ (5) permit all payphone service providers  X - d(#Kto negotiate with location providers on the intraLATA carrier presubscribed to their payphones;t (  yO-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(E).t  d(#and (6) adopt guidelines for use by the states in establishing public interest payphones to be  X -located "where there would otherwise not be a payphone[.]"  yO-ԍ#X\  P6G;P#47 U.S.C.  276(b)(2).#x6X@`7pX@#ј  Xy- z  ` ` 2.  The Telecommunications Act of 1996 fundamentally changes  d(#telecommunications regulation. The 1996 Act erects a "procompetitive deregulatory national  d(#~framework designed to accelerate rapid private sector deployment of advanced  d(#ytelecommunications and information technologies and services to all Americans by opening all  X- d(#telecommunications markets to competition."kH  yO"-ԍS. Conf. Rep. No. 104230, 104th Cong., 2d Sess. 1 (1996).k In this proceeding we advance the twin goals of  d(#Section 276 the Act of "promot[ing] competition among payphone service providers and  d(#/promot[ing] the widespread deployment of payphone services to the benefit of the general  X- d(#ypublic..."K  yOa&-ԍ 47 U.S.C.  276(b)(1).K To this end, we seek to eliminate those regulatory constraints that inhibit the ability  d(#-both to enter and exit the payphone marketplace, and to compete for the right to provide services"h ,^(^(JJ"  d(#to customers through payphones. At the same time, we recognize that a transition period is  d(#necessary to eliminate the effects of some longstanding barriers to full competition in the  d(#payphone market. For this reason, we will continue for a limited time to regulate certain aspects  d(#.of the payphone market, but only until such time as the market evolves to erase these sources of market distortions.  Xv- z ` ` 3. Congress has directed us to take certain actions to effectuate its goals in  d(#jthe payphone area including the removal of subsidy schemes, providing for nondiscriminatory  d(#Maccess to bottleneck facilities, ensuring fair compensation for all calls from payphones, and  d(#allowing all competitors equal opportunity to compete for essential aspects of the payphone  d(#business. In general, we believe that vigorous and unfettered competition is the best way of  d(#achieving Congress' dual objectives. Unfortunately, various barriers regulatory, structural,  d(#jeconomic, and technological stand in the way of having a fully competitive market providing  d(#]payphone services. For example, the lack of an effective percall tracking mechanism is a  d(#technological barrier that prevents market forces from readily achieving Congress' goal of  d(#-ensuring fair compensation to payphone services providers ("PSPs"). Regulatory restrictions on  d(#Mthe placement of payphones, and existing subsidies from other telecommunication services  d(#kavailable to certain competitors but not others are also examples of regulatory inefficiencies affecting competition and the widespread deployment of payphones.  X4- z &` ` 4. In this Report and Order, we take the critical steps necessary to remove  d(#these barriers. Some barriers are removed right away. For example, we establish an immediate  d(#Zplan to ensure that PSPs receive fair compensation, especially for those calls for which PSPs have  d(#not been compensated in the past. We also order that subsidies from basic telecommunications  d(#services paid to some carriers for providing payphone services be terminated as soon as it is  d(#practicable. We condition the competitive entry of these carriers into the nonregulated activity  d(#yof providing payphone services on their termination of these subsidies. Similarly, we allow the  d(#.BOCs to negotiate with the payphone location providers in selecting and contracting with the  d(#telecommunications carriers that provide interLATA service from their payphones, but only after  d(#they have put in place nonstructural safeguards necessary to protect against a BOC from  d(#unlawfully subsidizing its payphone operations from its local exchange services or otherwise engaging in anticompetitive behavior.  X - z &` ` 5. Removing other types of barriers to full competition will take more time.  d(#For example, the ability to track tollfree calls has not been developed fully. Until that  X- d(#functionality is available, as we have specified in this Report and Order, our plan for ensuring  d(# fair compensation will be a proxy that closely resembles the behavior of the marketplace as  d(#demonstrated by the record of this proceeding. To the extent that they exist, removing entry and  d(#jexit restrictions placed upon the provisioning of payphone services will also take time because  d(#Lit requires action by the states. During the interim period before subsidies for LEC payphones  d(#Mare terminated and percall compensation becomes effective, the states should examine and remove those regulations that affect the ability of PSPs to freely enter and exit this business. ":& ,^(^(JJ$"Ԍ X- z T` ` 6. Although we embark in this Report and Order on a new deregulatory  d(#structure for the payphone industry, we take a number of steps to facilitate use of payphones by  d(#consumers. First, we require that each payphone clearly indicate the local coin rate within the  X- d(#informational placard on each payphone. Pursuant to existing requirements,D  yO4-ԍ47 CFR  64.703.D this placard must  d(#provide information on the operator service provider presubscribed to the payphone and the  d(#address of the Commission, to which the consumer may direct complaints regarding operator  d(#services. Second, we require that each payphone provide access, free of charge to the caller, to  d(#emergency calling, telecommunications relay service calls for the hearing disabled, and dialtone generally.  X - z 5` ` 7. In addition, payphones unquestionably serve critical public interests in  X - d(#{health, safety and welfare. It is possible, however, that reliance on the market may fail to  X - d(#.provide adequately for payphones in locations serving important public needs, because s  ome  d(#payphones providing these benefits may not be economically selfsupporting. For example,  d(#<payphones in neighborhoods with low residential phone penetration, or along deserted stretches  d(#of highway, can be essential for public safety but fail to be revenuegenerating for various  d(#reasons, including lack of sufficient traffic, damage from extreme weather conditions, or high  d(#Kmaintenance costs. For these reasons, we establish criteria by which the states may maintain and  d(#fund public interest payphones in locations serving health, safety, and welfare goals, where they  d(#[would not otherwise exist as a result of the operation of the market. Public interest payphones  X4- d(#=will also further our policies on emergency access 4X yO=- v ԍRevision of the Commission's Rules to Ensure Compatibility with Enhanced 911 Emergency Calling  yO-Systems, CC Docket No. 94102, Notice of Proposed Rulemaking, 9 Fcc Rcd 6170 (1994) ("911 Notice). and telecommunications relay service calls  X- d(#[for the hearing disabled.  yO~- v lԍTelecommunications Relay Services and the Americans with Disabilities Act, CC Docket No. 90571,  yOF-Memorandum Opinion and Order, 10 FCC Rcd 10927 (Com. Car. Bur. 1995). But while we grant the states broad discretion in administering and  d(#Lfunding public interest payphone programs, we also require that they do so in a manner which  X- d(#does not upset the competitive balance of the payphone market (i.e., competitively neutral), and that fairly and equitably compensates those entities providing public interest payphones.  X- z q` ` 8. Our ultimate goal is to have a competitive payphone industry that meets  d(#the needs of the public by a wide deployment of payphones. In our view, we can best facilitate  d(#this by putting in place rules and regulations that provide incentives to all the players in the industry to eliminate, as soon as possible, all of the market distorting factors that exist today. " ,^(^(JJ"Ԍ  X-fK II. BACKGROUNDă  X-  X- z  ` ` 9.  As the Commission discussed in the Notice, payphone services have  X- d(#historically been regulated by the states and the Commission.  yO-ԍFor a brief history of the payphone industry, see Notice at paras. 212. To date, the states have regulated  d(#payphones as part of the LEC's networkbased service. Some states have also imposed regulation  d(#on the operator service rates charged at payphones maintained by nonLEC, independent  d(#payphone providers. The Commission has focused on payphones primarily in the context of our  d(#regulation of carriers that provide operatorassisted longdistance service, known as operator  d(#service providers ("OSPs"), and in particular, our implementation of the Telephone Operator  X - d(#Consumer Services Improvement Act ("TOCSIA"). X yO# -ԍ#X\  P6G;P#Pub. L. No. 101-435, 104 Stat. 986 (1990) (codified at 47 U.S.C.  226). Among other things, TOCSIA directed the  d(#xCommission to determine whether independent payphone providers should receive compensation  X - d(#for originating interstate calls to nonpresubscribed OSPs from their payphones.  yO-ԍ#X\  P6G;P#47 U.S.C.  226(e)(2).#x6X@`7pX@#ј The  d(#MCommission's consideration of compensation issues under TOCSIA led to the creation of a  X - d(#jcompensation mechanism that is an antecedent to the one adopted in the instant proceeding.+ x yO- v jԍ#X\  P6G;P#Policies and Rules Concerning Operator Service Access and Pay Telephone Compensation, Report and Order  yO- d(#and Further Notice of Proposed Rulemaking, 6 FCC Rcd 4736 (1991) ("First Report and Order"); Order on  yOw- d(#KReconsideration, 7 FCC Rcd 4355 (1992) ("Subscriber 800 Reconsideration Order"); Second Report and Order, 7  yO?- d(#FCC Rcd 3251, 325253 (1992) ("Second Report and Order"); Order on Reconsideration, 8 FCC Rcd 7151 (1993)  yO- d(#("Reconsideration Order"); remanded for further proceedings, Florida Public Telecommunications Association v. FCC,  yO- d(# 54 F.3d 857, 860 (D.C.Cir. 1995) ("Florida Payphone"); Memorandum Opinion and Order on Further Reconsideration  yO- d(#;and Second Further Notice of Proposed Rulemaking, 10 FCC Rcd 11457 (1995)("Second Further Notice"). Because  yO_- d(#the compensation issues raised in the Second Further Notice have been subsumed into this proceeding, we terminate  yO'-that proceeding. See para. 374, below.+  d(#Currently, there are approximately 1.5 million incumbent local exchange carrier ("LEC")  X-payphonesH  yO- v ԍ#X\  P6G;P#Statistics of Communications Common Carriers, 1994/1995 edition, Common Carrier Bureau, FCC at 159,  yOQ-Table 2.10 (1995) ("Common Carrier Statistics"). and approximately 350,000 competitively provided payphones.| yO-ԍ#X\  P6G;P#Notice at para. 6, n.22.|  Xy- ` `  Xb- z & ` `  10.  As stated in the Notice, Section 276(b)(1)(A) directs the Commission to  XK- d(#establish a compensation plan to ensure "that all payphone service providers are fairly  X4- d(#-compensated for each and every completed intrastate and interstate call" from their payphones. -40 yO%- v ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(A). The provision exempts from compensation emergency calls and  yO%-telecommunications relay service ("TRS") calls for hearing disabled individuals. Id.-  d(#Section 276(b)(1)(B) mandates that the Commission "discontinue the intrastate and interstate",^(^(JJ)"  d(#<carrier access charge payphone service elements and payments ... and all intrastate and interstate  X- d(#subsidies from basic exchange and exchange access revenues."t yOb-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(B).t In addition, Section  d(#276(b)(1)(D) directs the Commission to consider whether BOCs should be granted certain rights  d(#|already available to all other PSPs to participate in the location provider's selection of  d(#=presubscribed interLATA carrier, while Section 276(b)(1)(E) grants certain rights to all PSPs to  X- d(# participate in the selection of presubscribed intraLATA carriers.~X yO-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(B) & (E).~ Together with the other  d(#Ksubsections of Section 276, these three provisions help to establish regulatory parity for all PSPs,  d(#whether independent payphone providers or incumbent LECs (both independents LECs and  XH-BOCs).CXH yO - v ԍIn response to the Notice , the Commission received 87 initial comments and 47 replies. Appendix B lists  d(#the parties filing comments and the abbreviated names this Order uses to refer to them. Similarly, Appendix C lists replies.C  X - bIII. ISSUESă  X -  THE PAYPHONE MARKETPLACE  X -#Xw PE37XP##Xj\  P6G;XP#  X - z C` `  11. According to the record in this proceeding, the payphone industry has the  X - d(#jpotential to be very competitive.X  yO`- v ԍAn industry's competitive structure is generally determined by five factors. These are: (1) level of rivalry  d(#hbetween existing firms; (2) potential new entrants; (3) bargaining power of suppliers; (4) bargaining power of buyers;  yO-and (5) availability of substitutes. See generally M. Porter, Competitive Advantage and Competitive Strategy. Entry into the payphone business appears to be easy. The  d(#ability to purchase a payphone, secure a location contract, obtain a payphone line from the LEC,  d(#and maintain the payphone are, together, the minimal technical requirements to enter into the  Xb- d(#/payphone business. b(  yO;- v ԍAccording to the RBOCs, there are over 15,000 PSPs. Ex Parte Letter of Ben Almond, Executive Director  d(#of Federal Regulatory, to William Caton, Secretary, FCC (August 15, 1996). APCC has stated that fewer than 25  yO- d(#independent payphone providers have more than 1500 payphones. Ex Parte letter from Albert Kramer, Counsel, APCC, to William Caton, Secretary, FCC (September 6, 1996). In addition, payphone lines are part of the tariffed offerings of local  d(#exchange carriers and, in some jurisdictions, only a simple business line is required to the  d(#payphone service. As contracts come up for renewal, or as location providers find it economical  d(#jto put in new payphones, PSPs and interexchange carriers ("IXCs") routinely make themselves available to negotiate new agreements among themselves and the location provider.  X- z ` `  12. A payphone can be removed and used at another location, which facilitates  d(#|entry and exit. If a PSP can easily redeploy its assets, it will be more willing to place a",^(^(JJ"  X- d(#payphone in response to a small increase in price, because the risk of such placement is lower.6  yOy- v ԍSee Department of Justice and Federal Trade Commission Horizontal Merger Guidelines, 4 Trade Reg. Rep.  yOA- d(#(CCH) 13, 104 at para. 1.3 (1992) ("1992 Merger Guidelines") ("A firm viewed as a [market] participant if, in  d(#response to a small but significant and nontransitory price increase, it likely would enter rapidly into production or sale of a market product in the market's area, without incurring significant sunk costs of entry and exit.").6  X- d(#[ In addition, there appear to be no significant scale or scope economies or network externalities  X- d(#that would impede entry of new firms.G yO3-ԍId. at para. 33.G As a result, barriers to entry appear to be very low.{@ X - v ] d\  PC э#X\  P6G;P#The ability to enter and exit easily is generally thought to be evidence of a competitive industry. See  yO -Baumol, Panzar, and Willig, Contestible Market Theory at 466.#_\  P6G;_wP#{  d(#In fact a large number of firms, both large and small, have entered the industry since it was  d(#initially opened to competition in 1984, and those firms have provided competition in at least  X-some segments of the payphone market.|X yO- v [ԍThe record indicates that the average BOC payphone originates about 500 calls per month while the average  d(#independent payphone originates about 700 calls per month. APCC Comments at 5. This suggests that independent PSPs have entered markets in which there is higher than average payphone traffic.|  X_- z ` `  13. The competition we observe today, however, has been significantly  d(#distorted by government regulation of prices, regulatory barriers to entry and exit, as well as by  d(#zsignificant subsidies from other telecommunications services. Regulated prices prevent the  d(#market from operating efficiently to deploy payphone facilities. Moreover, some states currently  d(#]prohibit the provision of payphone service by any entity other than the incumbent LEC.  d(#!Removing these types of entry and exit restrictions is a necessary step toward allowing  d(#zcompetitive forces to guide both the deployment of payphones and the setting of prices for  X -payphone services.  yOH- v 0ԍSee para. 49, below. For example, there are large variations in the number of independent payphone  d(#iproviders in the various states. In BellSouth's ninestate region, there are the following number of certifications:  d(#wAlabama 110; Florida 1016; Georgia 505; Kentucky 293; Louisiana 243; Mississippi 107; North Carolina 491; South  yO- d(#Carolina 1102; Tennessee 387. Ex Parte Letter of Ben Almond, Executive Director of Federal Regulatory, BellSouth, to William Caton, Secretary, FCC (August 15, 1996). " X- z " ` `  14. Even after such regulatory barriers are removed, there are three structural  d(#reasons why, at least initially, the full benefits of competition may not be realized by all  d(#segments of the payphone market. First, independent PSPs currently rely on LECs for basic  d(#payphone services. LEC participation both in providing payphones to the public and also  d(#providing the underlying tariffed payphone services to independent PSPs may give LECs the  d(#incentive and the potential ability to unfairly act to the detriment of their PSP competitors and  d(#yto act in other anticompetitive ways against PSPs. However, by implementing safeguards, we  d(#intend to ensure that LECs cooperate fully in the provision of any necessary payphone services",^(^(JJ"  d(#and do not otherwise restrain competition, as long as LECs remain the monopoly providers of  X-these services.\ yOb-ԍSee generally Section C, below.\  X- z  ` ` 15. Second, there are certain locations where, because of the size of the  d(#location or the caller's lack of time to identify potential substitute payphones, no "off premises"  d(#payphone serves as an adequate substitute for an "on premises" payphone. In such locations, the  d(#Llocation provider can contract exclusively with one PSP to establish that PSP as the monopoly  d(#provider of payphone service. Absent any regulation, this could allow the PSP to charge supra d(#-competitive prices. The location provider would share in the resulting "locational rents" through  d(#Zcommissions paid by the PSPs. To the extent that market forces cannot ensure competitive prices  X - d(#=at such locations, continued regulation may be necessary.L X yO# -ԍSee para. 51, below. L Payphones in many locations are  d(#likely to face a sufficient level of competition from payphones at nearby locations to ensure that  d(#prices are at the competitive level. As a result, we believe that payphones at such locations are unlikely to need additional scrutiny.  X - z s` ` 16. Third, for competitive markets to work properly, it is essential that  d(#consumers have full information concerning the choices available to them. Information on prices  Xy- d(#for payphone service is of primary importance. y yO- v ԍSee e.g., Billed Party Preference for InterLATA 0+ Calls, CC Docket No. 9277, Second Further Notice  yO- d(#of Proposed Rulemaking, 11 FCC Rcd 7274 (1996) ("OSP Reform"). In the OSP Reform proceeding, we have  d(#proposed rules to ensure that operator service providers ("OSPs") inform consumers of their price, or if their price  yOj- d(#will be higher than that charged by the largest OSPs. While OSP Reform is separate from the instant proceeding, the OSP rules we ultimately adopt will benefit those who make calls from payphones. The instant Report and Order concerns two  d(#!different types of consumers who need to be informed of the charges they will face: (1)  XK- d(#lconsumers who choose to use a payphone for local, 0+,r! K yO- v ԍ#X\  P6G;P#A 0+ call occurs when the caller dials "0" plus the called telephone number. 0+ calls include credit card,  yO\- d(#xcollect, and third number billing calls. Second Report and Order, 7 FCC Rcd at 3251, n.4. 0 call transfer service  d(#is a service offered by LECs to OSPs under which LECs transfer a 0 call (when a caller dials only the digit "0" and  yO-then waits for operator intervention) to the OSP requested by the calling party. Id. at 3255, n.44.r or access code calls,b"K  yO|- v ԍThe Second Report and Order defines an "access code" as a "sequence of numbers that, when dialed,  d(#Yconnects the caller to the OSP associated with that sequence, as opposed to the OSP presubscribed to the originating  d(#line. Access codes include 10XXX in equal access areas and "950" Feature Group B dialing (9500XXX or 950 d(#,1XXX) anywhere, where the threedigit XXX denotes a particular IXC. Some OSPs use an 800 number as an access  yO"-code." Id. at 3251, n.1.b and (2)  X4- d(#yconsumers who contract with an IXC for the ability to receive subscriber 800 calls.4# 40 yO%- v ԍ"Subscriber 800 calls" consist of calls to an 800 number assigned to a particular subscriber. Notice at para.  yO%- d(#11, n.37. In the Notice, we stated that, for purposes of this proceeding, "the term 'subscriber 800 calls' includes  d(#.other sequences of numbers that the FCC deems, or may deem in the future, the equivalent of subscriber 800  yOm'-numbers, such as numbers with an '888' code." Notice at para. 15, n.49.4 Although"4 #,^(^(JJ "  d(#we have no evidence in the record that the current disclosure of local coin rates are inadequate,  d(#our past experience requires us to ensure that such disclosures, including, at a minimum, the  d(#/posting of the local coin rate, are effective in communicating necessary cost information to  d(#consumers. We look to the states to review their regulations and modify them to ensure the  X- d(#adequacy of the disclosure.O$ yO-ԍSee paras. 4950, below.O Consumers thus will have the information available to them at the time they decide to make a call from a payphone.  X_- z R` ` 17. As discussed more fully below,K%_X yOh -ԍSee para. 52, below.K the PSP will be permitted to levy a charge  d(#\each time a caller dials a subscriber 800 number. We conclude that the charge must be paid  d(#directly by the IXC, although the carrier may pass it through to the 800 subscriber, either on a  d(#percall basis, or in the form of higher perminute rates. Once it is possible to track subscriber  d(#800 calls, a competitive market may pass these costs along in the same manner as they are  d(#/incurred on a percall basis to the called customer. If charges are not passed on in this  d(#manner, the called party's incentives for accepting or declining a particular call will be distorted.  d(#IXCs also have the option of blocking subscriber 800 calls from payphones, if they do not want  X -to pay the percall payphone compensation charge.K&  yO@-ԍSee para. 49, below.K  Xy- z ` ` 18. Aside from these three structural concerns, we recognize that the payphone  d(#industry has not operated without the entry and exit restrictions and subsidies that currently exist.  d(#kWhen these subsidies are terminated and barriers are removed, other structural problems or  d(#/market imperfections may develop that would mitigate the benefits of a competitive market.  d(#However, our continued monitoring of the marketplace will ensure that the rules we adopt will lead to both competitive prices for payphone service and an efficient supply of payphones.  X- z %` ` 19. One of the goals of Section 276 is the deployment of payphones to benefit  X- d(#the "public health, safety and welfare."J'x yO-ԍ47 U.S.C.  276(b)(1).J The competitive marketplace, however, will not always  d(#jlead to an adequate supply of payphones in areas where they are not economically viable. For  d(#this reason, we conclude that public interest payphones should be maintained, although we define  d(#the term narrowly to exclude those payphones that would be provided through the normal  Xe- d(#workings of the marketplace.(Xe yO#- v ԍSee, e.g., Ex Parte Letter of Garry Mendez, Jr., Executive Director, National Trust for the Development of  d(#,AfricanAmerican Men to William Caton, Secretary, FCC (September 6, 1996) (marketbased rates will help ensure that payphones remain widely available in residential neighborhoods). Our conclusions regarding public interest payphones will ensure  d(#that there will be an efficient supply of payphones, although we recognize that the states are  d(#better equipped to determine where these public interest payphones should be placed. In  d(#addition, by ensuring that PSPs receive the benefits of their payphone investments, these PSPs"  ( (,^(^(JJ"  X- d(#will compete to place additional payphones in a variety of geographic areas.\) yOy-ԍSee generally Section A, below.\ Therefore, public  d(#safety will be enhanced because of requirements that emergency access be available from all  d(#-payphones at no cost the caller. This increased emergency access from payphones is consistent  d(#.with the Commission's proposals to ensure telephone compatibility with enhanced emergency  X- d(#calling systems.B*X yO-ԍ911 Notice.B In sum, we believe that the increased access, free of charge to the caller, to  d(#emergency calling, telecommunications relay service calls for the hearing disabled, and dialtone  d(#[generally, may be one of the most significant benefits of the compensation approach we adopt  X_-in this Report and Order .  XH- #Xj\  P6G;XP#  X - d(#A. COMPENSATION FOR EACH AND EVERY COMPLETED INTRASTATE AND  X - INTERSTATE CALL ORIGINATED BY PAYPHONES  X - z ` ` 20. Section 276 requires that we establish a plan to ensure fair compensation  d(#for all calls. As discussed below, fair compensation can be ensured best when the PSP can track  d(#the calls made from the payphone on a callbycall basis and be assured efficient payment for  d(#those calls; when the market can set a fair rate for the call; and when the caller has the  d(#=information necessary to make an informed choice as to whether to make the call and incur the compensation charge.  X4- #Xj\  P6G;XP#1.  Payphone Calls Subject to this Rulemaking and Compensation Amount  X-` ` a. The Notice  X-  X- z  ` ` 21.  Most calls originated on payphones are within one of the following  d(#categories: (1) coin calls; (2) directory assistance calls; (3) operator service ("0+" and "0") calls;  X- d(#(4) access code calls (using, e.g., "10XXX" codes and "1-800" or "950" carrier access numbers);  d(#=and (5) subscriber 800 calls. Each of these categories can be further subdivided between local,  X|- d(#intraLATA toll, intrastate interLATA, interstate interLATA, and international. In the Notice, the  Xe- d(#Commission sought comment on what constitutes "fair" compensation; whether international calls  d(#should be included in the compensation plan; and whether calls for which the PSP currently  X7- d(#receives compensation should be included in the plan.O+7 yO!-ԍNotice at paras. 16, 18.O The Commission tentatively concluded  X - d(#[that we must at least prescribe standards for determining fair compensation for all access code  X - d(#calls, subscriber 800 and other tollfree number calls, and debit card calls.G, x yO2%-ԍId. at para. 17.G The Commission  d(#=tentatively concluded that it was not necessary to prescribe percall compensation for 0+ calls  d(#originated by payphones, because these calls were compensated pursuant to contracts between" ,,^(^(JJ;"  X- d(#the PSP and the presubscribed IXC.G- yOy-ԍId. at para. 16.G The Commission sought comment on whether intraLATA  d(#j0+ calls carried by the presubscribed intraLATA carrier should be treated differently than local  X-coin calls.G.X yO-ԍId. at para. 22.G  X-  X- z 6 ` ` 22.  With regard to local rates, the Commission stated that there is some  X- d(#evidence that the rate may not necessarily fairly compensate the PSP.M/ yO& -ԍId. at para. 22, n.64.M We sought comment on  Xv- d(#how to fulfill the Act's mandate in this regard. The Commission proposed a range of options  X_- d(#.for ensuring fair compensation for local coin calls. One was to set a nationwide local coin rate  XH- d(#.for all calls originated by payphones.G0Hx yOq-ԍId. at para. 21.G Another was for the Commission to prescribe specific  d(#national guidelines that states would use to establish a local rate to ensure that all PSPs are fairly  X - d(#Lcompensated.:1  yO-ԍId.: A third was for the states to continue to set the coin rates for local payphone  X - d(#Kcalls according to factors within their discretion.G2  yOL-ԍId. at para. 22.G Under each approach, the Commission sought  d(#Zcomment on what specific public interest benefits commenters believe would result from adoption  X -of a particular option.K3 (  yO-ԍId. at paras. 2122.K  X - z ` ` 23. In addition, the Commission tentatively concluded that international calls  d(#originated by payphones should be compensated, because we found no evidence of congressional  Xy- d(#intent to leave these calls uncompensated.G4y  yO-ԍId. at para. 18.G The Commission also sought comment on what  Xb- d(#rules, if any, should be adopted to prevent the improper use of subscriber 800 numbers to  XK-increase compensation, as well as other types of fraud.G5KH  yOD -ԍId. at para. 23.G  X- z  ` ` 24.  Citing the lack of reliable independent payphone provider specific cost data,  X- d(#the Commission tentatively concluded in the Notice that PSPs should be compensated for their  d(#.costs in originating the types of calls for which compensation is deemed appropriate, and that  X- d(#hthese costs should be measured by appropriate costbased surrogates.G6 yOa&-ԍId. at para. 38.G For appropriate costbased  d(#ysurrogates, the Commission sought comment on whether some measure of generic or industry" h6,^(^(JJ%"ԫ d(#zwide costs is available, whether incumbent LECs' costs would be a reasonable surrogate for  d(#=independent payphone providers' costs, and whether some other existing set of rates, such as  X- d(#stateestablished rates for local coin calls, would be a reasonable surrogate.:7 yOK-ԍId.: The Commission  X- d(#also sought comment on whether we should prescribe different percall compensation amounts  d(#=for the different types of calls originated by payphones. The Commission requested comment  d(#on how compensation levels should be permitted to change in the future, and whether some cost  d(#index or price cap system would be appropriate to ensure that compensation levels reflect  X_-expected changes in unit costs over time.:8_X yOh -ԍId.:  XH-  X1-` ` b. Comments  X -` `  i. Compensable Calls  X - z R` ` 25. A wide range of commenters, including IXCs, RBOCs,9  yOn- v ԍUse of the term "RBOCs" in this Report and Order refers to the RBOC Payphone Coalition, which includes six of the seven Bell Operating Companies, but does not include Ameritech. independent LECs,  d(#istates, and independent payphone providers, support the Commission's tentative conclusion that  X - d(#we must at least prescribe standards for determining fair compensation for all access code calls,  X- d(#^subscriber 800 and other tollfree number calls, and debit card calls.L:X@ yO- v ԍSee, e.g., AT&T Comments at 45; GTE Comments at 3; RBOC Comments at 2. MobileMedia argues that  d(#<the Commission should initiate a separate proceeding to evaluate compensation options for subscriber 800 calls. MobileMedia Reply at 1112. L Many of these  d(#commenters also agree with the Commission's tentative conclusion that it is not necessary to  Xb- d(#prescribe compensation for 0+ calls carried by a payphone's presubscribed carrier.;Xb`  yOs- v ԍSee, e.g., Actel Comments at 4; AT&T Comments at 4; Cable & Wireless Comments at 4; California PUC  d(#Comments at 9; CompTel Comments at 4; Florida PSC Comments at 2; GTE Comments at 3; MCI Comments at 2; One Call Comments at 3; Sprint Comments at 45; USTA Comments at 3; WorldCom Comments at 8. They argue  d(#[that compensation agreements between the presubscribed carrier and PSP or location provider  X4- d(#ensure that the PSP will be fairly compensated for these calls.:<4  yOe -ԍId.: CompTel further contends that  d(#zmandating percall compensation for 0+ calls in addition to that provided by contract would  X- d(#overlap with the Commission's intent to address operator service rates for payphones in the OSP  X- d(#Reform proceeding.E= yO$-ԍCompTel Reply at 4. E The RBOCs argue that the Commission need not prescribe compensation  d(#for 0+ calls as a general rule, although the Commission must require OSPs to pay compensation  d(#on all presubscribed calls made on BOC payphones to compensate the BOCs for use of their" =,^(^(JJ"  d(#>payphones when the BOC does not have a contractual relationship with the presubscribed  X- d(#ycarrier.F> yOy-ԍRBOC Comments at 45.F The RBOCs contend that because Section 276(b)(3) expressly grandfathers contracts  d(#{existing before the date of the statute's enactment between the location provider and the  d(#kpresubscribed carrier on many BOC payphones, the BOCs would not otherwise receive any  X- d(#compensation for these 0+ calls.? o yO- v ԍId. Ameritech also contends that, for the RBOCs, two issues are directly linked: (1) compensation for 0+  d(#calls under Section 276(b)(1)(A); and (2) the ability of the RBOCs to participate in negotiation with the location  yOT- d(#provider on the selection of the presubscribed interLATA carrier under Section 276(b)(1)(D). Ameritech Comments at 45. Sprint argues that the Commission should not mandate  d(#<compensation for any calls that make use of a payphone's presubscribed carrier, because any call  Xv- d(#.using the presubscribed carrier would be compensated under the terms of the contract.n@vW yO~ -ԍSprint Comments at 6. See also AT&T Reply at 16.n The  d(#RBOCs contend, however, that the amount of dialaround calls has no relationship to a  d(#payphone's presubscribed carrier, and that the PSP has no authority to block these calls to force  X1- d(#.revenue generating calls.AA1 yO-ԍRBOC Reply at 2.A Conquest argues that the Commission should exempt 0+ calls that  X -make use of an 800 number as a presubscription device, which is transparent to the caller.IB w yOB-ԍConquest Comments at 12.I  X - z p ` ` 26. Other commenters, notably USTA and APCC, argue that the statutory duty  d(#to mandate compensation for "each and every completed intrastate and interstate call" requires  d(#the Commission to mandate a percall compensation rate for 0+ calls, regardless of any  X - d(#ycompensation agreements between the presubscribed carrier and the PSP.C   yO_- v ԍAPCC Comments at 2021; Communications Central Comments at 56; IPTA Comments at 4; USTA Comments at 1. APCC argues that  X- d(#istateimposed rate ceilings on intrastate 0+ calls prevent PSPs from receiving fair compensation.ED_  yO-ԍAPCC Comments at 19.E  d(#.In addition, it contends that 0+ commission payments are for the value to the IXC of receiving  Xb- d(#[the presubscribed traffic and do not address the need for use of the payphone.AEb  yO -ԍId. at 20.A The RBOCs,  d(#Ameritech, and GTE argue that 0+ compensation could be established as a default rate, which  X4-could be eliminated or supplanted through negotiations between the requisite parties.mF4 yOd#-ԍAmeritech Reply at 14; RBOC Reply at 1011; GTE Reply at 4.m  X- z D ` ` 27.  The commenters take varying positions on what action the Commission  d(#jshould take to ensure fair compensation for local coin calls from payphones. The independent"F,^(^(JJE"  X- d(#payphone providers support the Commission's option of a nationwide local coin call rate..GX yOy- v yԍSee, e.g., Actel Comments at 8; APCC Comments at 1319; Communications Central Comments at 8; FPTA  d(#Comments at 4; NJPA Comments at 56; Peoples Comments at 1719; SCPCA Comments at 3; Telaleasing Reply at 34.. They  d(#argue that a nationwide rate is necessary to override inconsistent state rules, to ensure  d(#1predictability of rates for interstate travelers, to break the dependence of PSPs on 0+  X- d(#commissions, and to establish a single, uniform rate for all local coin calls.cH yOT-ԍAPCC Comments at 1319; Peoples Comments at 1719.c APCC contends  d(#that this nationwide rate would serve as the maximum rate that PSPs could receive for a local  d(#coin call, and PSPs would likely respond to competition in local areas by lowering this percall  Xv- d(#rate.AIvx yO -ԍAPCC Reply at 8.A Other parties specifically oppose a nationwide local coin rate.Jv yO/-ԍSee, e.g., California PUC Comments at 12; Maine Comments at 57; SW Bell Reply at 3. They argue that regional  X_- d(#/differences in handling payphone calls make a single nationwide rate impractical.:K_ yO-ԍId.: Several  d(#commenters state that the Commission lacks authority to set local coin rates under both Section  X1- d(#276 and the Act.L1(  yO - v kԍSee, e.g., Bell Atlantic Comments at 1; MPTA Comments at 45; Missouri PSC Reply at 3; contra APCC Reply at 47. They argue that the ability to ensure compensation is different than  d(#jurisdiction over retail rates, and that nothing in Section 276 suggests that Congress intended to  X - d(#yremove local coin rates from the jurisdiction of the states.:M  yO4-ԍId.: APCC contends, however, that the  d(#Commission has the requisite authority to impose a nationwide local coin rate, because Section  X -276's mandate to ensure fair compensation extends to setting local coin rates.CN  yO-ԍAPCC Reply at 47.C  X - z q` ` 28. Other commenters, including USTA, Ameritech, and GTE, argue that the  d(#Commission should adopt federal guidelines that the states would use to adopt local coin rates  Xy- d(#that fairly compensate PSPs for the use of their payphones.Oy yO - v >ԍSee, e.g., Ameritech Comments at 7; Brill Comments at 12; GTE Comments at 4; GVNW Comments at 23; New Jersey DRA Comments at 2; USTA Comments at 4. They argue that the guidelines must  d(#recognize that costs associated with local calls vary and have individual market characteristics,  d(#and that the states must be directed to eliminate all subsidies from other local exchange  X4- d(#operations and from interexchange carriers.:P4 yO%-ԍId.: US West argues that the Commission should not"4P,^(^(JJ"  d(#=require the states to reexamine their respective local coin rates unless the percall rate is below  X-the nationwide predominant rate of $.25.GQ yOb-ԍUS West Comments at 4.G  X- z ` ` 29. Many states argue that the Commission must defer to the states in setting  X- d(#Lthe local coin rates.R X yO- v ԍSee, e.g., Indiana URC Comments at 34; Iowa Comments at 2; Maine Comments at 2; Missouri PSC Reply  d(#at 3; Montana PSC Reply at 2; New York DPS Comments at 4; New York City Comments at 9; Ohio PUC  yO= - d(#,Comments at 5; Oklahoma CC Comments at 3; Texas PUC Comments at 2; Virginia SCC Comments at 2. See also  yO -Cable & Wireless Comments at 5; MCI Comments at 4; MPTA Comments at 1213.  They argue that the states must maintain their wide discretion in setting  X- d(#the specific local coin rates.:S@ yO~ -ԍId.: Florida PSC, Indiana URC, and Tennessee contend that the  d(#Commission should prescribe a nationwide local coin rate or price cap and allow the states to  X_- d(#=petition for a variance.T_ yO- v ԍFlorida PSC Comments at 3; Indiana URC Reply at 3 (only when states do not directly regulate payphone rates); Tennessee Reply at 1. APCC states that it would support a variance approach.BU_(  yO8-ԍAPCC Reply at 10.B Ohio PUC  d(#asserts that it is within its authority to keep local coin rates low by requiring LECs to reduce the  X1- d(#costs of various payphone services to PSPs.GV1  yO-ԍOhio PUC Reply at 24.G California PUC argues that the Commission should  d(#adopt an approach to local coin rates that is a hybrid of setting federal guidelines and deferring  X - d(#to the states.TW H  yO-ԍCalifornia PUC Comments at 1213. T It argues that federal guidelines should allow states maximum participation in  d(#setting rates for payphones generally, and should recognize the interest of states in setting end X -user rates for local calls and directory assistance calls.XX  yO^- v ԍId. California PUC also argues that the Commission's proposed petition process for review of state  d(#determined local rates might raise state constitutional issues, because any review process must depend on state  yO-constitutions and the procedural safeguards developed by those constitutions. Id. at 10.  X - z ` ` 30. The RBOCs argue that the Commission should deregulate local coin rates  X- d(#entirely and allow the market to determine the rate in any particular location.Y yO9"- v ԍRBOC Comments at 20; Ameritech Reply at 7; BellSouth Comments at 5; SW Bell Comments at 3; US West Reply at 56. BellSouth, SW  Xy- d(#yBell, and US West argue that the Commission should deregulate local coin rates immediately.EZyP yOz%-ԍRBOC Comments at 21.E  d(#Bell Atlantic, NYNEX, and Pacific Telesis contend that the Commission should deregulate local"bZ,^(^(JJ"  X- d(#coin rates pursuant to federal standards after a transition period.D[ yOy-ԍId. at 2223.D GTE argues that deregulation  X- d(#of local coin rates would be appropriate after a twoyear transition period.@\X yO-ԍGTE Reply at 5.@ BellSouth contends  d(#jthat the Commission has the requisite authority to review local coin rates during any transition  X-period.I] yOT-ԍBellSouth Comments at 6.I  X- z 4` ` 31. USTA, GTE, WorldCom, and Florida PSC argue that, because PSPs receive  d(#commissions on 0+ intraLATA calls, these 0+ intraLATA calls should be treated like interLATA  X_- d(#{0+ calls for purposes of compensation.^_x yO -ԍFlorida PSC Comments at 4; GTE Comments at 5; USTA Reply at 5; WorldCom Comments at 8. On the other hand, Virginia SCC contends that  XH- d(#intraLATA 0+ calls should be treated in the same manner as local coin calls.L_H yO-ԍVirginia SCC Comments at 2.L CompTel argues  d(#that because intraLATA calls are frequently routed to the LEC, not the presubscribed carrier, for  d(#Lwhich there may not be a commission paid to the PSP or location provider, treating intraLATA  d(#0+ calls as interLATA 0+ calls would require IXCs to pay compensation on calls for which they  X -receive no benefit.G`  yO5-ԍCompTel Comments at 5.G  X - z D` ` 32. The RBOCs and APCC, among others, contend that the Commission, to  d(#ensure compensation for "each and every completed intrastate and interstate call," should mandate  d(#[that callers make a coin deposit or otherwise provide percall compensation for "411" directory  Xy- d(#assistance calls.ay(  yOR-ԍAPCC Comments at 23; Ameritech Comments at 8; RBOC Comments at 5; Telaleasing Reply at 6. They argue that such compensation is necessary to recover the costs associated  Xb- d(#with use of the payphone to make a directory assistance call.:bb  yO-ԍId.: SW Bell believes that percall  d(#compensation for directory assistance calls is appropriate, but it specifies that the end user should  X4- d(#>be required to pay for these calls through a coin deposit.]c4H  yO-!-ԍSW Bell Comments at 9; SW Bell Reply at 67.] Oklahoma CC argues that if the  d(#incumbent LEC charges independent payphone providers for directory assistance calls, then the  d(#jLEC should be required to impute this cost to its own payphones for each directory assistance  X- d(#call.Kd yOx%-ԍOklahoma CC Comments at 2.K Ohio PUC argues that the LEC providing the directory assistance service should not be"hd,^(^(JJE"  d(#mpermitted to charge the PSP for it, and, therefore, percall compensation would not be  X-necessary.He yOy-ԍOhio PUC Comments at 6.H  X- z ` `  33. Because Section 276(b)(1)(A) requires a plan to ensure fair compensation  X- d(#for "each and every completed intrastate and interstate call," some commenters argue that the  d(#ZCommission is obligated to determine what constitutes a "completed" call for purposes of percall  d(#compensation. Several of these commenters further argue that the Commission should define a  X_- d(#"completed call" as a call that is answered by the called party.f_o yO - v ԍSee, e.g., American Express Reply at 5; Cable & Wireless Comments at 68; CompTel Comments at 11; Excel Comments at 5; GTE Comments at 3; ITA Comments at 1718; TRA Comments at 19; Voice Reply at 9. They argue that compensating  d(#unanswered calls will lead to uneconomic rates for payphone users and will be contrary to a  d(#caller's expectations about when a call is billed. On the other hand, some of the independent  d(#ypayphone providers argue that a "completed call" consists of any call that reaches the carrier's  X - d(#-platform, regardless of whether the call ultimately reaches the called party.Wg  yO{-ԍAPCC Reply at 24; Brill Comments at 3.W These independent  d(#payphone providers argue that percall compensation is appropriate for these calls, because the  X -payphone is being used for these calls and is, therefore, unable to earn other revenue.:h W yO-ԍId.:  X - z S` ` !34. Some IXCs provide different definitions of what should be considered a  d(#"completed call." Sprint and MCI argue that a call is completed when it earns revenue for the  Xy- d(#kcarrier.Ziy yO-ԍMCI Comments at 2; Sprint Comments at 13.Z WorldCom contends that an access code call is completed when it is billed, and a  Xb- d(#Zsubscriber 800 call is completed when answer supervision is returned.Kjbw yO-ԍWorldCom Comments at 910.K Other parties argue that,  d(#because it is often difficult for the parties to know whether a call was answered by the called  X4- d(#party, the Commission should use a duration surrogate for completed calls.k4  yO-ԍSee, e.g., Conquest Comments at 11; Intellicall Comments 3334; ITA Reply at 4; One Call Reply at 45. The debit card  d(#providers, in particular, favor a duration surrogate because they estimate that fifty percent of debit  X- d(#card calls are not completed to the called party.Wl  yON!-ԍSee, e.g., ITA Reply at 4.W Under this approach, they argue, any call  d(#[placed from a payphone below a certain duration would be excluded because it would be likely  d(#that the call was not completed to the called party within that time period. The threshold  X- d(#duration proposed by these commenters varies from 42 secondsDm'  yO%-ԍOne Call Reply 45.D to 60 seconds.n yO- v ԍConquest Comments at 11; Intellicall Comments at 3334. Cf. CompTel Comments at 12 (billing a 25 second call as "completed" is an unreasonable practice). The RBOCs" n,^(^(JJ"  X- d(#.argue that a 60second threshold should be used,Io  yO-ԍRBOC Reply at 3. I while APCC believes that the Commission  X- d(#should not rely on any duration threshold.Dp yOJ-ԍAPCC Reply at 28. D The RBOCs argue that multiple calls made through  d(#[use of a payphone's "#" button, even though they require billing information to be dialed only  X-once, should be counted as separate calls for compensation purposes.oq@ yO -ԍRBOC Comments at 17; accord Sprint Comments at 13.o  X- z ` ` "35. Several commenters suggest alternative or supplementary approaches to per d(#call compensation. The RBOCs collectively contend that the Commission should look to  d(#[compensating incoming calls in the future, because Section 276 does not differentiate between  XH- d(#calls originated and received by a payphone.FrH yO-ԍRBOC Comments at 56.F SW Bell and US West, in their individual  d(#Lcapacities, argue that the Commission must ensure fair compensation for incoming calls in this  X -proceeding.^s `  yO+-ԍSW Bell Comments at 9; US West Comments at 5.^  X - z S` ` #36. AT&T, the RBOCs, GTE, USTA, Florida PSC, Indiana URC, and various  X - d(#Mindependent payphone providers agree with the tentative conclusion in the Notice that the  X - d(#Commission should provide compensation for international calls that make use of a payphone.ttX  yO_- v ԍSee, e.g., Actel Comments at 6; Ameritech Comments at 12; AT&T Comments at 5; CPA Comments at 23;  d(#iFlorida PSC Comments at 3 GTE Comments at 3; Indiana URC Comments at 3; NJPA Comments at 5; One Call Comments at 4; RBOC Comments at 2; Telaleasing Reply at 6; USTA Comments at 3.t  d(#These commenters argue that there is no basis to exclude these calls from a compensation  X- d(#mechanism, and that a payphone performs the same functions for all types of calls.:u yOQ-ԍId.: AT&T and  d(#APCC argue that the term "interstate," as used in Section 276(b)(1)(A), includes international  Xb- d(#Lcalls.Vvb yO!-ԍAT&T Comments at 5; APCC Reply at 12.V Sprint, MCI, and other IXCs oppose the Commission's tentative conclusion and argue  d(#that compensation for international calls goes beyond the plain language of the Section 276; that  d(#LCongress would have specified compensation for "international" or "foreign" calls, as it did in  d(#xother provisions of the 1996 Act, if it intended such compensation; and that the Commission does"0v,^(^(JJe"  X- d(#ynot otherwise have authority to impose this compensation obligation.w yOy- v ԍCompTel Comments at 13; Excel Comments at 3; MCI Comments at 3; Sprint Comments at 8; WorldCom Comments at 10. MCI argues that such  d(#compensation for international calls billed to nonU.S. carrier customers is not practicable,  d(#because the Commission does not have the requisite jurisdiction to require the foreign carrier to  X-bill and collect the PSP compensation.Ex  yO-ԍMCI Comments at 34.E  X- z ` ` $37. In response to the Commission's request for comment on how it might  d(#address possible compensation fraud associated with the improper dialing of subscriber 800  d(#numbers to increase compensation payments, a wide range of commenters argue that the  d(#jCommission must take strong enforcement action, including imposing severe penalties, on any  X1- d(#party engaging in such fraud.y1 yO- v ԍSee, e.g., Actel Comments at 6; APCC Reply at 2628; MCI Comments at 5; NJPA Comments at 6; RBOC Reply at 8. These commenters further argue that while the possibility of  X - d(#fraud exists, the Commission cannot refuse to compensate subscriber 800 calls.:z  yO-ԍId.: The RBOCs,  d(#GTE, and Cable & Wireless contend that, in addition to enforcement action by the Commission,  d(#the carrierpayors should be given some latitude to take action and withhold compensation to  X - d(#Lparties who engage in fraud.x{  yO-ԍCable & Wireless Comments at 56; GTE Comments at 56; RBOC Reply at 8.x MCI and American Express argue that the Commission should  d(#!require the LECs to report any suspicious calling patterns with regard to subscriber 800  X - d(#numbers.d| (  yO-ԍMCI Comments at 5; American Express Reply at 1011.d Other parties argue that the "carrier pays" compensation mechanism proposed by the  X- d(#Commission encourages fraud.x}  yO-ԍSee, e.g., Frontier Reply at 56; MobileMedia Reply at 78.x Several parties further argue that requiring the calling party  d(#to deposit coins for subscriber 800 calls would eliminate the incentive to engage in fraudulent  Xb- d(#[calling.~bH  yO[-ԍArch Comments at 5; Intellicall Comments at 27; Page Net Comments at 1011; One Call Comments at 5. Sprint argues that keeping the percall compensation amount at the marginal cost of  XK- d(# the use of the payphone would also reduce fraudulent calling.GK yO!-ԍSprint Comments at 11.G AT&T contends that the  d(#-Commission should use a surrogate setting forth the average number of subscriber 800 calls from  X- d(#ia payphone to calculate the payment of percall compensation for these calls.Eh yO6%-ԍAT&T Comments at 15.E To prevent other",^(^(JJ"  d(#jtypes of potential fraud, Frontier and Sprint argue that the Commission must adopt a definition  X-of "payphone" for compensation purposes.X yOb-ԍFrontier Reply at 6; Sprint Reply at 2.X  X- z ` ` %38. Four states, Maine, New Hampshire, New Mexico, and Vermont, filing  X- d(#joint comments, argue that Section 276 applies only to payphones provided by the RBOCs.GX yO-ԍMaine Comments at 23.G  d(#iThey argue further that the Commission is without authority under Section 276 to adopt rules that  d(#apply to all payphones, including those provided by nonBOC LECs and independent payphone  X_-providers.:_ yO -ԍId.:  X -` ` ii. Compensation Amount  X - z b` ` &39. APCC, AT&T, Sprint, and other commenters argue that the Commission  X - d(#should adopt a national uniform rate that it deems compensable for all calls using a payphone. x yO- v ԍSee, e.g., AirTouch Comments at 7; APCC Comments at 4, 9, 12; AT&T Comments at 10; Sprint Comments at 24.  d(#They contend that uniformity is necessary to avoid imposing undue burdens on carriers that  d(#would result from varying rates. In addition, they assert that the payphones perform identical  X- d(#functions for each type of compensable call.b yO-ԍAT&T Comments at 10; Sprint Comments at 24.b The RBOCs argue that the Commission need not  d(#prescribe a rate for each type of compensable call, and should, instead, let the market dictate the  Xb-appropriate percall rate.Ab`  yOs-ԍRBOC Reply at 1.A  X4- z ` ` '40. Some commenters argue that certain types of calls should receive a  d(#different percall compensation amount than others. WorldCom contends that the amount of  d(#Mcompensation should vary with the duration of the call to the extent that marginal cost also  X- d(#\varies.I  yO!-ԍWorldCom Comments at 20.I Invision and the Inmate Coalition, providers of inmate payphones, assert that the  d(#Commission should adopt a $.90 percall compensation rate that would apply only to calls using  X- d(#inmate payphones located in penal institutions.  yO$- v ԍInmate Coalition Comments at 13; Invision Comments at 5. Ameritech states that it would not oppose a special percall compensation rate for calls using an inmate payphone. Ameritech Reply at 89. They argue that payphone services for inmates  d(#-is a distinct, specialized industry, which is required to provide, at a significant capital investment,  d(#yoperator service, fraud control, extensive call controls, and monitoring services throughout the",^(^(JJ"  d(#<duration of its calls. They argue further that these factors warrant a higher percall compensation  X- d(#rate.l yOb-ԍInmate Coalition Comments at 23; Invision Comments at 5. l Another inmate payphone provider, Gateway, contends that the Commission should not  d(#jadopt a separate, higher rate for inmate payphone calls, because such a rate would give inmate  X- d(#providers double recovery of costs already included in their rates and surcharges.FX yO-ԍGateway Reply at 37.F Gateway also  X- d(#argues that the Commission should defer consideration of a higher rate until after its OSP Reform  d(#proceeding, and that inmate providers should petition the various states for relief from state  Xv- d(#operator services rate caps.:v yO -ԍId.: MCI opposes the provision of percall compensation for calls using  X_- d(#either inmate payphones or semipublic payphones.C_x yO -ԍMCI Comments at 3.C It asserts that semipublic payphones  XH- d(#yalready receive adequate compensation from the premises owners.:H yO-ԍId.: The RBOCs contend that  d(#percall compensation for semipublic payphones is warranted, because there is no statutory basis  d(#to preclude semipublic payphones from receiving compensation, and carriers benefit from dial X -around traffic that originated on semipublic payphones.   yOL- v ԍRBOC Reply at 3. Semipublic payphones are payphones that a LEC typically provides in exchange for  d(#hboth the coin revenue generated by the payphone and a monthly fee, paid by the location provider, discounted from  d(#Ythe rate for a business line. Semipublic payphones tend to be located, at the request of the location provider, where public access is limited and an insignificant amount of calls are made.  X - z ` ` (41. The RBOCs also argue that any percall rate the Commission sets should  X - d(#be regarded as a default rate, which parties would be free to alter by contract.  yO-ԍId. at 1011; RBOC Comments at 12. See also Sprint Comments at 13. MCI and Sprint  d(#Mcontend that the percall amount should be adjusted downward in the future to account for  X- d(#jtechnological advances that will reduce PSP costs. yOQ- v yԍMCI Comments at 15; Sprint Comments at 21. Sprint also argues that the percall compensation rate should be subject to periodic Commission review. Sprint Comments at 24. APCC contends, on the other hand, that  Xy-the percall compensation rate should rise automatically at the same rate as inflation.fyh yO!-ԍAPCC Reply at 34; contra Sprint Comments at 24.f  XK- z  ` ` )42. A number of IXCs and other commenters support the Commission's  d(#Ktentative conclusion that the amount of percall compensation should be based on PSP costs and"4,^(^(JJ"  X- d(#argue that the Commission must adopt a marginal cost standard.3X yOy- v ԍSee, e.g., American Express Reply at 68; CompTel Comments at 16; Frontier Comments at 610; ITA  d(#Reply at 1213; MCI Comments at 13; Oklahoma CC Comments at 2; Sprint Comments at 1718; WorldCom Comments at 1920. 3 They argue that under a  d(#marginal cost standard, a PSP would be allowed to recover the costs associated with the wear on  X- d(#the payphone's keypad and handset, along with additional costs over fixed costs.: yOk-ԍId.: MCI  d(#provides a study authored by the Hatfield Associates, which analyzes the costs of providing  d(#<service for access code calls, and concludes that the appropriate compensation amount would be  X- d(# $.083 for each compensable call.x yO - v ԍMCI Comments at 13. MCI also argues that $.1559 per call is the maximum percall amount that the Commission should consider under a marginal cost standard. MCI Reply at 2. MCI argues that the $.083 per call is fair compensation,  Xv- d(#because PSPs already receive revenues in excess of costs.@v yO-ԍId. at 3.@ Sprint contends that the Commission  d(#should adopt a marginal costbased rate of $.0675 per call, based on its view that the $.25 rate  d(#Kit currently pays for access code calls fairly compensates independent payphone providers for all  X1- d(#calls.UX1`  yOB- v ԍSprint Comments at 23. Sprint also argues that because PSPs are already adequately compensated, the  d(#-Commission should prescribe a percall compensation amount of $0, which it claims would comply with Section  yO-276(b)(1)(A). Id. at 18.U In its analysis, Sprint found that 27% of all nonrevenue generating calls from  d(#^payphones are operator service calls for which 27% of $.25 is the appropriate percall  X - d(#ycompensation amount, i.e., $.0675.DX  yO4- v ԍId. Sprint argues that, in any case, the maximum permissible percall compensation would be $.25, with  yO- d(#a downward adjustment mechanism to take advantage of technological developments that will reduce costs. Id. at 21.D MCI and Sprint further argue that the Commission should  d(#Lconsider anew the $.12 percall compensation amount originally proposed in the Commission's  X - d(# 1991 Notice of Proposed Rulemaking in the access code call compensation proceeding, CC  X - d(#Docket No. 9135, because this rate reflects payphone costs on a percall basis.f  yO-ԍMCI Comments at 1314; Sprint Comments at 21. f AT&T favors  d(#an unspecified compensation amount related to marginal cost and based on the total services  d(#longrun incremental cost ("TSLRIC") method, which would recover the costs of providing and  d(#maintaining the payphone instrument, exclusive of coin collection functions, and the monthly  Xb- d(#SLC and other tariffed LEC services specific to payphones.Fb0 yOC#-ԍAT&T Comments at 68.F AT&T argues that the TSLRIC  d(#Zstandard is "more generous" than a marginalcost standard, because it allows PSPs to recover the  X4-portion of payphone costs that benefit the carriers whose customers initiate calls at payphones.A4 yO&-ԍAT&T Reply at 2.A "P,^(^(JJ"Ԍ X- z %` ` *43. The RBOCs and the independent payphone providers oppose the use of a  X- d(#marginal costbased compensation amount. yOb- v \ԍSee, e.g., APCC Comments at 11; APCC Reply at 3034; IPTA Comments at 56; MICPA Comments at 23; RBOC Reply at 1115; Telaleasing Reply at 67. They argue that fair compensation embraces more  d(#zthan cost recovery, and that marginal cost disregards fixed costs, which are significant for a  X- d(#PSP.B  yO-ԍRBOC Reply at 13.B USTA and GTE argue that AT&T's proposed TSLRICbased compensation is not  d(#Zrelevant to the provision of competitive services where rates should be guided by the market, and  X-it does not permit full recovery of costs.T yO -ԍGTE Reply at 2; USTA Reply at 5, 7.T  X_- z T` ` +44.  The RBOCs and the independent payphone providers argue that the  d(#Commission should adopt a percall compensation standard that looks both to overall PSP costs  d(#[and revenues and to marketbased pricing. The RBOCs and GTE, in particular, advocate a per X - d(#call compensation amount that relies on marketbased proxies.Z @ yO -ԍGTE Comments at 9; RBOC Comments at 811.Z The RBOCs provide a study  d(#that analyzes commission rates paid to PSPs by IXCs generally and commission rates paid by  d(#AT&T and concludes that the appropriate percall compensation amount should be in the range  X -of $.81 to $.90 per call.M  yOV-ԍRBOC Comments at 811.M  X - z ` ` ,45.  APCC contends that the Commission must consider marketbased surrogates  X- d(#in setting a percall compensation amount.H`  yO-ԍAPCC Comments at 3134.H It proposes that the Commission adopt a  d(#Lcompensation amount of $.40 per call, if the Commission extends this rate to local coin calls, or  Xb- d(#-$.80 per call for all nonlocal coin calls that use a payphone.Ab  yO-ԍId. at 31.A APCC argues that these proposed  XK- d(#amounts would fairly compensate PSPs for use of their payphones.DK  yO|-ԍId. at 3134.D Peoples, the largest  d(#independent payphone provider, argues that the Commission should adopt a percall compensation  X- d(#amount of $.45, which would apply to all calls, including local coin calls.K yO"-ԍPeoples Comments at 1415.K Peoples includes  d(#in its comments summaries of data that, it maintains, show that Peoples' average pretax cost per  X- d(#call using its payphones is $.40.E yO@&-ԍId. at 2024.E Other independent payphone providers argue that the"0,^(^(JJE"  X- d(#Commission should adopt percall compensation amounts that range from $.40 to $.55 per call. yOy- v yԍSee, e.g., Actel Comments at 7 ($.50); Communications Central Comments at 910 ($.40); IPTA Comments at 6 ($.55); NJPA Comments at 89 ($.50). AT&T and Sprint disagree with the approach proposed by  X- d(#APCC and the RBOCs and argue that it relies too much on the factors set forth in the Second  X- d(#Report and Order, which they claim are flawed, and on 0+ commissions, which reflect PSP  X- d(#yopportunity costs, a basis for compensation rejected by the Commission in the Second Report  X- d(#Kand Order.[  yO^ -ԍAT&T Reply at 411; Sprint Reply at 1517.[ In addition, they argue that APCC and the RBOCs do not disclose actual costs, but  d(#instead include substantial overhead, advertising, and marketing and sales expenses in their  X_-model.:_ yO -ԍId.:  X1- z p` ` -46. One Call contends that the local coin rate should be used as a surrogate for  X - d(#xa fair percall compensation amount.J @ yO -ԍOne Call Comments at 8. J Conquest argues that the Commission should cap the per X - d(#kcall compensation amount at the rate for a local coin call.K  yO-ԍConquest Comments at 11. K AT&T, MCI, and the RBOCs all  X - d(#joppose use of a local coin rate surrogate to achieve fair compensation for PSPs.h `  yO-ԍAT&T Reply at 11; MCI Comments at 14; RBOC Reply at 16.h They argue  d(#that local coin rates are kept artificially low by regulators and have no relationship to either cost  X -or the market.:  yO_-ԍId.:  X- z D` ` .47. Some commenters contend that the Commission should adopt a percall  Xy- d(#compensation amount that is within the range established by the 1992 Second Report and Order  d(#in the access code call compensation proceeding. NTCA argues that continued use of the $.40  XK- d(#per call rate adopted in the Second Report and Order would not be disruptive and would ensure  X4- d(#ifair compensation for PSPs.D4  yOe -ԍNTCA Comments at 2.D APCC argues that the Second Report and Order sets forth the type  d(#of marketbased surrogates that are appropriate for the Commission to consider in the instant  X- d(#proceeding.B yO#-ԍAPCC Reply at 29.B PageNet argues that the Commission should examine the $6 per month LEC  X- d(#iaccess charge compensation for payphones, as set forth in the Second Report and Order, and use  d(#this amount plus an intrastate recovery element to reach an amount that could be divided by the",^(^(JJ&"  X- d(#average number of compensable calls to equal the appropriate percall rate. yOy- v .ԍPageNet Comments at 18. PageNet also argues that it would not be appropriate for the Commission to rely  yOA-on the surrogates it set forth in the Second Report and Order. Id. at 17. The RBOCs  X- d(#contend, on the other hand, that the $.40 per call amount in the Second Report and Order is out  X- d(#of date and should be higher.E  yO-ԍRBOC Comments at 11.E AT&T and Sprint argue that the factors used in the Second  X- d(#Report and Order are irrelevant for determining fair compensation, because the factors do not  X- d(#jrelate to marginal cost and concern costs that are recovered through other revenue streams.^ yO -ԍAT&T Comments at 6; Sprint Comments at 1920.^  Xv-#Xj\  P6G;XP#  X_-  ` ` c. Discussion  ?H<#x6X@`7pX@#  X- z #Xj\  P6G;XP# ` ` /48. Defining "Fair Compensation". Section 276(b)(1)(A) directs the  d(#0Commission to establish a plan "to ensure that all payphone service providers are fairly  X - d(#Zcompensated for each and every completed intrastate and interstate call using their payphone."@ @ yO- v ԍ47 U.S.C.  276(b)(1)(A). As stated above, this provision exempts from the Commission's mandate  d(#"emergency calls and telecommunications relay services for hearing disabled individuals" and states that such calls  yOc- d(#"shall not be subject to such compensation." Id. Cf. Telecommunications Relay Services, and the Americans with  yO+- d(#Disabilities Act of 1990, Memorandum Opinion and Order, CC Docket No. 90571, 10 FCC Rcd 10927 (Com. Car.  d(#wBur. 1995) (suspending enforcement of TRS coin sentpaid service requirements until August 26, 1997, and adopting  yO- d(#an interim plan wherein, inter alia, local TRS coin sentpaid calls are to be free of charge, and toll TRS coin sent d(#<paid calls are to be chargeable to calling cards or debit cards at rates equivalent to rates for similar coin sentpaid service by nonTRS users).  d(#The 1996 Act does not prescribe a particular course to achieve these goals, other than to specify  d(#that such action shall "promote competition among payphone service providers and promote the  X - d(#/widespread deployment of payphone services to the benefit of the general public[.]"J H  yO-ԍ47 U.S.C.  276(b)(1).J To  X - d(# comply with this mandate, we tentatively concluded in the Notice that we must provide for  d(#compensation only when PSPs are not already "fairly compensated" for a particular type of a call  XX- d(#using a payphone.JX yO-ԍNotice at para. 16.J A number of commenters contend that we must look to all of a payphone's  XA- d(#xpossible revenue streams and ensure that the payphone, as a whole, is fairly compensated.]Ah yOZ"-ԍSee e.g., APCC Comments at 412.] We  d(#-disagree. We conclude that, by ensuring that all calls are fairly compensated, including those for  d(#=which the PSP currently receives no revenue, we will "promote competition" among PSPs and  d(#l"promote the widespread deployment of payphone services to the benefit of the general",^(^(JJV"  X- d(#public[.]"J yOy-ԍ47 U.S.C.  276(b)(1).J The marketplace will necessarily determine whether or not a particular payphone  X-is economically viable.  X- z ` ` 049. We conclude that, once competitive market conditions exist, the most  d(#=appropriate way to ensure that PSPs receive fair compensation for each call is to let the market  d(#set the price for individual calls originated on payphones. It is only in cases where the market  d(#does not or cannot function properly that the Commission needs to take affirmative steps to  d(#[ensure fair compensation, such as in the following situations. First, because TOCSIA requires  d(#all payphones to unblock access to alternative OSPs through the use of access codes (including  d(#800 access numbers), PSPs cannot block access to toll free numbers generally. However,  d(#TOCSIA does not prohibit an IXC from blocking subscriber 800 numbers from payphones,  d(#particularly if the IXC wants to avoid paying the percall compensation charge on these calls.  d(#-This uneven bargaining between parties necessitates the Commission's involvement. Second, as  X - d(#{discussed more fully below,K X yO-ԍSee para. 60, below.K we conclude that each state should, in light of the instant  d(#yproceeding, examine and modify its regulations applicable to payphones and PSPs, particularly  d(#jthose rules that impose market entry or exit requirements, and others that are not competitively  d(#neutral and consistent with the requirements of Section 276 of the Act. We conclude that, for  d(#purposes of ensuring fair compensation through a competitive marketplace, states need only  d(#remove those regulations that restrict competition, and they need not address those regulations  d(#that, on a competitively neutral basis, provide consumers with information and price disclosure.  d(#Third, we conclude that callers should have information in every instance about the price of the  d(#calls they make from payphones. To this end, we require that each payphone clearly indicate the local coin rate within the informational placard on each payphone.  X- z q` ` 150.  While the most appropriate way to ensure fair compensation is to let the  d(#market set the price for individual payphone calls, we conclude that this transition to market d(# based rates should occur in two phases. Because LECs will terminate, pursuant to Section  d(#\276(b)(1)(b), subsidies for their payphones within one year of the effective date of the rules  X|- d(#=adopted in this proceeding,Q| yO-ԍSee paras. 181183, below.Q LECs will not be eligible to receive compensation under Section  d(#276(b)(1)(a) until that termination date. This oneyear period before percall compensation is  d(#effective, as discussed below, will be the first phase of implementing the rules adopted in this  d(#proceeding. During this first phase, states may continue to set the local coin rate in the same  d(#manner as they currently do. States may, however, move to marketbased local coin rates  d(#anytime during this oneyear period. In addition, the states must conduct its examination of  d(#payphone regulations during this oneyear period to review and remove, if necessary, those  d(#@regulations that affect competition, such as entry and exit restrictions. IXCs will pay  d(#compensation for access code calls and subscriber 800 calls on a flatrate basis. In addition, all" x,^(^(JJ"  d(#payphones must provide free access to dialtone, emergency calls, and telecommunications relay service calls for the hearing disabled.  X- z ` ` 251. In the second phase, which will begin one year after the effective date of  d(#krules adopted in this proceeding, LECs will be eligible to receive compensation, and percall  d(#ztracking capabilities will be in place. The carriers to whom payphone calls are routed will be  d(#jresponsible for tracking each compensable call and remitting percall compensation to the PSP.  d(#During this second year, which is the first year of percall compensation (as opposed to flatrate  d(#compensation), the market will be allowed to set the rate for local coin calls, unless the state can  X1- d(#.show that there are market failures within the state that would not allow marketbased rates.K1 yO -ԍSee para. 61, below.K  d(#In addition, during the second phase, which will be the first year of percall compensation (after  d(#the initial year of flatrate compensation), to allow us to ascertain the status of competition in the  X - d(#ypayphone marketplace, we conclude, as discussed below,K X yO-ԍSee para. 72, below.K that IXCs must pay PSPs a default  d(#rate of $.35 for each compensable call, which may be changed by mutual agreement. PSPs will  d(#\be required to post the local coin rate they choose to charge at each payphone. During the  d(#second phase, we may review, at our option, the deregulation of local coin rates nationwide and  d(#determine whether marketplace disfunctions exist, such as locational monopolies caused by the  d(#size of the location with an exclusive PSP contract or the caller's lack of time to identify  d(#-potential substitute payphones, and should be addressed by the Commission. If we find that the  d(#=deregulation of local coin rates warrants a modification of our approach due to market failures,  d(#/we may choose to set a cap on the number of calls subject to compensation from particular  d(#payphones to limit the exercise of locational market power. Absent such a finding, at the  d(#conclusion of the second phase, the marketbased local coin rate at these payphones will be the  d(#default compensation rate for all compensable calls in absence of an agreement between the PSP and the carrierpayor.  X- z &` ` 352.  Ensuring Fair Compensation. Most commenters who address the issue  d(#Lagree with our tentative conclusion that we must provide for compensation for all access code  X|- d(#calls, subscriber 800 and other tollfree number calls, including debit card calls.J| yO-ԍNotice at para. 17.J In keeping  d(#lwith our longterm goal to have the market set the compensation amount, we define "fair  d(#compensation" above as where there is a willing seller and a willing buyer at a price agreeable  d(#-to both. For each of these types of calls, the PSP either receives no revenue for originating these  X - d(# calls (i.e., for subscriber 800 and other tollfree number calls), or it is unable to block callers  d(#Lfrom making such calls (access code calls). The record in this proceeding includes substantial  d(#evidence that the number of these types of calls using payphones has proliferated in the past"x,^(^(JJ<"  X- d(#<several years.U yOy- v ԍSee, e.g., APCC Comments at 56; Communications Central Comments at Attachment B; Peoples Comments  d(#at 910; Telaleasing Reply at 8. For example, Peoples, the largest independent payphone provider, states that  d(#subscriber 800 calls are 13% of the calls (86 calls out of 665 calls total) originated by a typical Peoples payphone,  d(#,while access code calls comprise 6.5% (43 calls). Peoples also states that subscriber 800 calls represent almost 50%  d(#of noncoin calls for which compensation is warranted. Peoples Comments at 910. Other independent payphone  yOa-providers report similar levels of subscriber 800 and access code calling from their payphones. See para. 123, below.U We conclude, therefore, that we must provide for compensation for access code  d(#calls and subscriber 800 and other tollfree number calls, whether they are intrastate or interstate in destination.  X- z E` ` 453.  We tentatively concluded in the Notice that we need not provide for  d(#-compensation for 0+ calls, because independent payphone providers and nonBOC LECs receive  Xv- d(#compensation through individual contracts with the payphone's presubscribed IXC.Jv@ yOg -ԍNotice at para. 16.J We also  X_- d(#Ktentatively concluded that "competition in this area ensures 'fair' compensation for PSPs.":_ yO-ԍId.: The  d(#>RBOCs contend, however, that because Section 276(b)(3) expressly grandfathers contracts  d(#{existing before the date of the statute's enactment between the location provider and the  d(#kpresubscribed carrier on many BOC payphones, the BOCs would not otherwise receive any  X - d(#Lcompensation for 0+ calls.K `  yO-ԍSee para. 25, above.K They argue that the Commission must ensure fair compensation  X - d(#for 0+ calls that use BOC payphones.:  yO-ԍId.: We agree and modify our tentative conclusion so that,  d(#once the BOCs reclassify their payphones and terminate all subsidies, pursuant to Section  X - d(#276(b)(1)(B),Q  yO-ԍSee paras. 181183, below.Q they may receive the percall compensation established by this Order, so long  d(#-as they do not otherwise receive compensation for use of their payphones in originating 0+ calls.  d(#We conclude further that, in the absence of a contract providing compensation to the PSP for  d(#intraLATA 0+ calls, the PSP shall be eligible to collect percall compensation from the carrier  d(#to whom the call is routed. We also conclude that when a caller dials "0" and the payphone  XK- d(#subsequently translates this digit, unbeknownst to the caller, into an 800 access number (i.e., as  d(#a way of presubscribing the payphone to a particular IXC), such a call is not compensable as an  X-access code call, because it does not put the caller into contact with an alternative carrier. yO"-ԍSee Reconsideration Order, 8 FCC Rcd at 7154. See also Conquest Comments at 12.  X- z ` ` 554.  We conclude that PSPs should receive compensation for international calls.  d(#We conclude that we have authority under Sections 4(i) and 201(b) of the Communications Act",^(^(JJ"  X- d(#of 1934, as amended,Q yOy-ԍ47 U.S.C.  4(i), 201(b).Q to ensure that PSPs are fairly compensated for international as well as  d(#interstate and intrastate calls using their payphones in the United States. In addition, as we stated  X- d(#=in the Notice, we find no evidence of congressional intent to leave these calls uncompensated  d(#/under Section 276. We agree with AT&T and other commenters that a payphone performs similar functions, regardless of the destination of the call.  Xv- z #Xj\  P6G;XP#` ` 655.  Local Coin Calls. As outlined above,OvX yO -ԍSee paras. 1119, above.O we believe that full and unfettered  d(#competition is the best way of achieving Congress' dual objectives to promote "competition  d(#among payphone service providers and promote the widespread deployment of payphone services  X1- d(#Mto the benefit of the general public."J1 yO -ԍ47 U.S.C.  276(b)(1).J Competition over time will lead to the more efficient  d(#/placement of payphones, improved payphone service, and lower prices for consumers. To  X - d(#encourage competition in the payphone marketplace, we ensure in this Report and Order that  d(#\PSPs are fairly compensated for "each and every completed intrastate and interstate call[;]"  d(#<terminate certain LEC subsidies for payphones; and permit all PSPs, including BOCs, to negotiate  d(#with the location provider regarding the selection of the presubscribed interLATA and intraLATA carriers.  Xy- z q` ` 756. Once competitive conditions exist, we believe that the market should set  d(#the compensation amount for all payphone calls, including local coin calls. Because we have an  d(#obligation under Section 276 to ensure that the compensation for all local coin calls is fair, we  d(#jconclude that the market should be allowed to set the price for all compensable calls, including  d(#a local coin call. We believe this approach is appropriate because, once PSPs are free to enter  d(#the market, and once callers are free to choose payphones for their calls, the market will  d(#ultimately determine whether a particular payphone is economically viable. According to the  X- d(#Zrecord in this proceeding, five states have already deregulated local coin rates.x yO- v ԍSee Ex Parte Letter of Michael Kellogg, Counsel, RBOCs, to William Caton, Acting Secretary, FCC (August 30, 1996). In four of those  X- d(#states, Iowa, Nebraska, North Dakota, and Wyoming, the marketbased rate is $.35 per call.: yOB -ԍId.:  X-In the other deregulated state, South Dakota, the marketbased rate is $.25 per call.:`  yO"-ԍId.:  X|- z %` ` 857. Historically, however, the rate for the most common type of call the local  d(#"coin call has not been set by the market, but has instead been determined by state"e ,^(^(JJ1"  X- d(#.commissions.q yOy-ԍ#X\  P6G;P#Notice at para. 19.q In the Notice, we stated that Section 276 of the Act requires the Commission  d(#-to ensure that the PSP receives fair compensation for each interstate and intrastate call, including  X- d(#^local coin sentpaid calls.X yO-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш Section 276 also states that "to the extent that any State  d(#requirements are inconsistent with the Commission's regulations, the Commission's regulations  X- d(#jon such matters shall preempt such State requirements." yO= -ԍ#X\  P6G;P#47 U.S.C.  276(c).#x6X@`7pX@#ѕ We sought comment in the Notice  d(#.on how we should exercise our jurisdiction under Section 276, and noted that we have a range  d(#-of options for ensuring fair compensation for local coin calls, including setting a nationwide local  d(#coin rate for all calls originated by payphones, establishing specific national guidelines that states  d(#would use to establish a local rate that would ensure that all PSPs are fairly compensated and  d(#permitting the states to continue setting the coin rates for local payphone calls according to  X -factors within their discretion.M x yOC-ԍNotice at para. 2022.M  X -  X - z p` ` 958. As we stated in the Notice, the Commission recognizes that the states have  d(#long had a traditional and primary role in regulating payphones, including setting local call rates  X - d(#paid by end users.g  yOw-ԍ#X\  P6G;P#Id.g This role, however, has been in the context of LECs providing local  d(#-payphone service as part of their regulated service. Section 276, however, significantly alters the  d(#regulatory landscape by requiring that LEC provision of payphone service be on par with  Xy- d(#independent PSP provision of service. y yO- v ԍSee also Jt. Statement of Managers, S. Conf. Rep. No. 104230, 104th Cong., 2d Sess. (1996) at 43  yO- d(#.("Conference Report"): "In crafting implementing rules, the Commission is not bound to adhere to existing  d(#mechanisms or procedures established for general regulatory purposes in other provisions of the Communications Act." In addition, by mandating that LEC payphones can no  d(#Llonger receive subsidies from basic exchange services, Section 276 greatly changes the way in  d(#=which states set local coin rates. Further, Section 276(b)(1)(A) gives the Commission both the  d(#[jurisdiction to ensure fair compensation for local coin calls and the mandate to establish a plan  X- d(#to compensate PSPs on a percall basis. We also stated our concern in the Notice that "current  d(#local rates may not always 'fairly' compensate the PSP for use of its payphone[,]" because the  X- d(#.caller may use the payphone at "a subsidized local coin rate[.]"P  yO #-ԍNotice at para. 22, n.64.P Based on the record in this  d(#proceeding, we conclude that a deregulatory, marketbased approach to setting local coin rates is appropriate, because existing local coin rates are not necessarily fairly compensatory. ",^(^(JJ"Ԍ X- z E` ` :59. We recognize, however, that the competitive conditions, which are a  d(#kprerequisite to a deregulatory, marketbased approach, do not currently exist and cannot be  d(#achieved immediately. Many states impose regulations on PSPs, including certain requirements  d(#that must be fulfilled before a PSP can enter or exit the payphone marketplace. We conclude  d(#Lthat these state regulations are barriers to a fully competitive payphone market, and, therefore,  d(#K"to the extent that any State requirements are inconsistent with the Commission's regulations, the  Xv- d(#iCommission's regulations on such matters shall preempt such State requirements."Gv yO-ԍ47 U.S.C.  276(c).G In addition,  d(#in some locations, because of the size of the location with an exclusive PSP contract or the  d(#caller's lack of time to identify potential substitute payphones, the PSP may be able to charge  d(#an inflated rate for local calls based on its monopoly, pursuant to an exclusive contract with the  d(#location provider, on all payphones at the location. We conclude that such monopoly arrangements, in the absence of regulatory oversight, could impair competition.  X - z p ` ` ;60. Based on these concerns, we conclude that the overall transition to market X - d(#=based local coin rates should not occur immediately. As discussed below,L X yO-ԍSee para. 181, below.L LECs will not be  d(#required to terminate, pursuant to Section 276(b)(1)(b), certain subsidies associated with their  d(#payphones until April 15, 1997. LECs will not be eligible to receive percall compensation under  d(#>Section 276(b)(1)(a) for one year, when all such subsidies are terminated. For this oneyear  d(#period, the states will be responsible for both ensuring that PSPs are fairly compensated for local  d(#coin calls and protecting consumers from excessive rates. Eventually, when fully competitive  d(#conditions exist, the marketplace will address both concerns. We conclude that, during this one d(#year period before percall, as opposed to flatrate, compensation becomes effective, states may  d(#continue to set the local coin rate in the same manner as they currently do. States may, however,  d(#move to marketbased local coin rates anytime during this oneyear period, and are encouraged  d(#to do so. In addition, we conclude that during the same period, the states should take additional  X- d(#Zaction to ensure that payphone competition is promoted. As discussed above,O yOZ-ԍSee paras. 1119, above.O we believe that  d(#\ease of entry and exit in this market will foster competition and allow the market, rather than  d(#regulation, to dictate the behavior of the various parties in the payphone industry. To this end,  d(#each state should examine and modify its regulations applicable to payphones and PSPs,  d(#removing, in particular, those rules that impose market entry or exit requirements. We conclude  d(#[that, for purposes of ensuring fair compensation through a competitive marketplace, the states  d(#-should remove only those regulations that affect payphone competition; the states remain free at  d(#\all times to impose regulations, on a competitively neutral basis, to provide consumers with  X - d(#=information and price disclosure. x yO2%- v kԍWe note that state regulations and requirements must comply independently with other provisions of the  yO%-Communications. See e.g., 47 U.S.C.  253. In addition, the states at all times must ensure that access"  ,^(^(JJ["  d(#to dialtone, emergency calls, and telecommunications relay service calls for the hearing disabled is available from all payphones at no charge to the caller.  X- z ` ` <61. At the conclusion of this first oneyear period, the market will be allowed  X- d(#to set the price for a local coin call, as discussed more fully above.K yO-ԍSee para. 56, above.K However, we conclude  d(#that we should make an exception to the marketbased approach for states that are able to  d(#demonstrate to the Commission that there are market failures within the state that would not  X_- d(#allow marketbased rates._X yOh - v =ԍThis public interest showing is distinct from state concerns regarding the establishment and funding of public interest payphones, as discussed in Part VI, below. Such a detailed showing could consist of, for example, a detailed  d(#summary of the record of a state proceeding that examines the costs of providing payphone  d(#<service within that state and the reasons why the public interest is served by having the state set  d(#xrates within that market. In addition, under our deregulatory, marketbased approach, when states  d(#have concerns about possible market failures, such as that of payphone locations that charge  d(#Lmonopoly rates, they are empowered to act by, for example, mandating that additional PSPs be  d(#iallowed to provide payphones, or requiring that the PSP secure its contract through a competitive  d(#bidding process that ensures the lowest possible rate for callers. If a market failure persists after  d(#such action, the state should recommend the matter to the Commission for possible  X- d(#investigation.iX yO- v \ԍIn its investigation, the Commission would use an economic and antitrust analysis to evaluate the market  d(#failure and determine whether Commission action was necessary to promote the underlying goals of Section 276 of  yO-the Act. See paras. 2, 1119, above.i In addition, during the second phase, after the initial year of flatrate  d(#compensation, we may review, at our option, the deregulation of local coin rates nationwide and  d(#determine whether marketplace disfunctions, such as locational monopolies where the size of the  d(#Llocation or the caller's lack of time to identify potential substitute payphones, exist and should  d(#be addressed by the Commission. At this point, if we find that the deregulation of local coin  d(#]rates warrants a modification of our approach due to market failures, we may choose, for  d(#example, to set a cap on the number of calls subject to compensation from particular payphones  d(#to limit the exercise of locational market power. Absent such a finding, at the conclusion of the  d(#second phase, the marketbased local coin rate at these payphones will be the default  d(#compensation rate for all compensable calls in absence of an agreement between the PSP and the carrierpayor.  X|- z 6` ` =62. #Xj\  P6G;XP#With regard to "411" directoryassistance calls, we noted that, while  d(#-incumbent LECs in many jurisdictions currently do not charge the payphone caller for "411" calls  d(#.made from their own phones, the LECs charge independent payphone providers for directory d(#assistance calls made from their payphones, and are not always allowed by the state to pass those  X - d(#<charges on to callers.J  yO&-ԍNotice at para. 19.J We conclude that we must ensure fair compensation for "411" and other  d(#[directory assistance calls from payphones by permitting the PSP to charge a marketbased rate" !` ,^(^(JJy"  d(#for this service, although a PSP may decline to charge for this service if it chooses. In addition,  d(#to help ensure that a LEC does not discriminate in favor of its own payphones, we conclude that  d(#if the incumbent LEC imposes a fee on independent payphone providers for "411" calls, then the LEC must impute the same fee to its own payphones for this service.  X- z ` ` >63.  Completed Calls. We agree with the commenters that, because Section  Xv- d(#276(b)(1)(A) mandates compensation for "each and every completed intrastate and interstate call,"  d(#=we must determine what constitutes a "completed" call for purposes of percall compensation.  d(#zWe conclude that a "completed call" is a call that is answered by the called party. We have  d(# previously found that, where an 800 calling card call is routed through an IXC's platform, it  X - d(#.should not be viewed as two distinct calls one to the platform and one to the called party.   yO - v ԍTeleconnect Co. v. Bell Telephone Company of Pennsylvania, 10 FCC Rcd 1626, 1629 (1995). See also Long Distance/USA, Inc. v. Bell Telephone Company of Pennsylvania, 10 FCC Rcd 1634 (1995).   X - d(#/In addition, in Florida Public Telecommunications Ass'n v. FCC, the United States Court of  d(#LAppeals for the District of Columbia Circuit emphasized the onecall nature of a subscriber 800  X - d(#call from the caller's point of view.X  yO-ԍFlorida Payphone, 54 F.3d at 860.X A number of commenters contend that the Commission  d(#should use a duration surrogate for completed calls. We conclude that exempting calls from per X - d(#Mcall compensation because they are not of a requisite duration, whether 25 secondsR  yO-ԍSee CompTel Comments at 12.R or 60  X- d(#seconds,@ yO-ԍSee Conquest Comments at 11; Intellicall Comments at 3334; RBOC Reply at 3. would not be in accordance with Section 276's mandate that "each and every  Xy- d(#completed intrastate and interstate call" be compensated.^y yO-ԍ47 U.S.C.  276(b)(1)(A) (emphasis added).^ In addition, to comply with this  d(#mandate, we conclude that, as argued by the RBOCs, multiple sequential calls made through the  XK-use of a payphone's "#" button should be counted as separate calls for compensation purposes.K`  yO\- v MԍSome IXCs allow a caller to make successive calls, once she dials her calling card information, by pushing the "#" button at the conclusion of each call to regenerate the dialtone.  X- z ` ` ?64. The RBOCs argue that the phrase "call using their payphone" in Section  X- d(#276(b)(1)(A) covers completed calls received by payphones as well as those originated by  X- d(#>payphones.F  yOX"-ԍRBOC Comments at 56.F Bell Atlantic, BellSouth, PacTel, and NYNEX, maintain that the Commission  X- d(#jshould look to compensating incoming calls at some unspecified point in the future.:H  yO$-ԍId.: We do  d(#not agree, however, that Section 276(b)(1)(A) was intended to apply to both incoming and"",^(^(JJ"  X- d(#joutgoing calls.{ yOy-ԍThe legislative history of this provision does not address incoming calls.{ Because PSPs may block incoming calls, they are able to restrict use of their  d(#xpayphones if they are concerned about a lack of compensation. For this reason, we conclude that  d(#incoming calls are not within the purview of Section 276, and we are not required, as a result,  X-to address them in the instant proceeding.  X- z %` ` @65.  Payphone Fraud. The Commission has recognized, since it first addressed  d(#the issue of compensation for subscriber 800 calls in 1991, that a PSP "could attach an autodialer  d(#to a payphone and have it place repeated 800 calls ... to increase the amount of compensation [it]  XH- d(#\receives."aHX yOQ -ԍFirst Report and Order, 6 FCC Rcd at 4746.a Section 227(b)(1) of the Act states that it is unlawful for any person to use an  X1- d(#{autodialer to call "any service for which the called party is charged for the call[.]"J1 yO -ԍ47 U.S.C.  227(b)(1).J We  d(#conclude that this provision bars the use of autodialers to generate payphone compensation by  d(# calling tollfree 800 numbers, which are billed to the called party. A number of commenters  d(#argue that the Commission must take strong enforcement action against those who engage in  d(#autodialer fraud. We agree. We will aggressively take action against those involved in such  X - d(#Mfraud. We have authority under the 1996 Act and our rules to take civil enforcement action  d(#against a payphone provider who deliberately violates the Commission's compensation rules by  d(#=placing toll free calls simply to obtain compensation from the carriers. More importantly, such  Xy- d(#activity may be fraud by wire and subject to criminal penalties.\yx yO-ԍSee, e.g., 18 U.S.C.  1343.\ Should we receive information  d(#/that a PSP is using, or is allowing use of, its facilities in this manner, we will refer the matter  d(#yto the appropriate law enforcement agencies for criminal prosecution. Contrary to suggestions  X4- d(#lby some commenters,K4 yO-ԍSee para. 37, above.K it is not necessary, nor would it be in the public interest, for the  d(#ZCommission to select a particular method of percall compensation, such as a marginal costbased  X- d(#=approach, or a particular compensation amount, i.e. low enough to discourage fraud, simply to avoid the possibility of fraud.  X- z ` ` A66. Both Frontier and Sprint argue that the Commission should adopt a  X- d(#definition of "payphone" for compensation purposes.\ yO!-ԍFrontier Comments at 22; Sprint Reply at 2.\ We have previously adopted a definition  d(#of "payphone" in the access code call compensation proceeding, although the definition is used  X|- d(#.only for purposes of the billing and collection of the compensation in that proceeding.c|(  yOU%-ԍReconsideration Order, 8 FCC Rcd at 715657.c We  d(#kconcluded that payphones appearing on the LECprovided customerowned, coinoperated"e# ,^(^(JJO"  X- d(#telephone ("COCOT") lists were payphones that are eligible for compensation.C yOy-ԍId. at 7156.C If a payphone  d(#provider does not subscribe to an identifiable payphone service, or if its payphone is omitted  d(#from the COCOT list in error, the provider is required to provide alternative verification  X- d(#Kinformation to the IXC paying compensation.X yO-ԍId. at 7157. See also Second Further Notice, 10 FCC Rcd at 11457. We conclude that this definition of "payphone,"  d(#yregardless if the payphone in question is independently or LECprovided, will be sufficient for  d(#the payment of compensation as mandated by Section 276 and the instant proceeding. In  Xv- d(#addition, as discussed below,Kv yO -ԍSee para. 98, below.K all payphones will be required to transmit specific payphone  d(#>coding digits as a part of their automatic number identification ("ANI"), which will assist in  d(#identifying them to compensation payors. Beyond the immediate purposes of paying  d(#compensation, we conclude that a payphone is any telephone made available to the public on a  d(#=feepercall basis, independent of any other commercial transaction, for the purpose of making  d(#.telephone calls, whether the telephone is coinoperated or is activated either by calling collect  X -or using a calling card.r x yO-ԍSee 47 U.S.C.  226(a)(2); 47 CFR 32.2351, 68.3.r  X - z  ` ` B67.  Compensation Amount. In the Notice, we noted that "while we are still  d(#xconfronted in the instant proceeding by the lack of reliable [independent payphone provider] cost  d(#data," we tentatively concluded that "PSPs should be compensated for their costs in originating  Xy- d(#... calls" using their payphones.Jy yO2-ԍNotice at para. 38.J We tentatively concluded further that these costs should be  Xb- d(#measured by appropriate costbased surrogates.:b yO-ԍId.: We sought comment, in particular, on whether  d(#some measure of generic or industrywide costs is available, or whether incumbent LEC costs  X4- d(#would be a reasonable surrogate for the costs of independent payphone providers.:4(  yO -ԍId.: Upon review  X- d(#of the comments submitted in response to the Notice, we find that while few parties provided  d(#cost surrogate data, the RBOCs, Peoples, IPTA, and MCI, among others, present studies on  d(#payphone costs. These studies vary in both their approaches to calculating compensation and  d(#their conclusions on the appropriate percall compensation amount that the Commission should adopt.  X- z 5` ` C68. A number of commenters, notably the IXCs, argue that the Commission  d(#should use the marginal cost of originating a payphone call as the basis for compensating PSPs.  d(#-We conclude that use of a purely incremental cost standard for all calls could leave PSPs without  d(#fair compensation for certain types of payphone calls, because such a standard would not permit"N$ ,^(^(JJ0"  d(#Mthe PSP to recover a reasonable share of the joint and common costs associated with those  X- d(#Lcalls.X yOb- v \ԍCf. Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, First  yO*- d(#iReport and Order, FCC 96325, para. 672703 (rel. Aug. 8, 1996) ("Local Competition Order") (describing total element longrun incremental cost methodology for pricing interconnection and unbundled network elements).  We also reject, for similar reasons, suggestions by commenters that we use local coin  X- d(#rates currently in place as a surrogate for a percall compensation.K yOk-ԍSee para. 46, above.K As we stated in the Notice,  d(#"local coin rates in some jurisdictions may not cover the marginal [incremental] cost of the  X- d(#service."Px yO -ԍNotice at para. 22, n.64.P Therefore, basing the percall compensation amount on current local coin rates,  d(#which are frequently subsidized by state regulators, would not fairly compensate the PSPs. We  d(#also reject use of the $.12 percall compensation amount the Commission first discussed in its  X_- d(#z1991 Notice of Proposed Rulemaking in the access code call compensation proceeding. We  d(#never adopted the $.12 percall amount, and that rate was effectively rejected when the  X1-Commission adopted a $6 flat rate per payphone per month based on a percall rate of $.40.b1 yO-ԍSecond Report and Order, 7 FCC Rcd at 3257.b  X - z ` ` D69.  On the other hand, the RBOCs and the independent payphone providers  d(#Lpropose that the Commission use marketbased surrogates to support a percall compensation  d(#amount. In particular, these commenters provide data on both the average commissions paid to  d(#independent payphone providers by AT&T on 0+ calls and the average commission received by  d(#[independent payphone providers on 0+ calls from all IXCs. Previously, in the access code call  d(#compensation proceeding, we relied upon AT&T 0+ commissions as a measure of the fair value  d(#=of the service provided by independent payphone providers when they originate an interstate  Xb- d(# call.:b yO-ԍId.: We conclude that use of 0+ commission data would tend to overcompensate PSPs,  d(#kbecause these commissions may include compensation for factors other than the use of the  d(#payphone, such as a PSP's promotion of the OSP through placards on the payphone. We,  d(#therefore, reject use of this commission data, as provided by the RBOCs and independent payphone providers, to calculate the percall compensation amount.  X- z  ` ` E70. Because we have established elsewhere in this Report and Order that the  d(#{payphone marketplace has low entry and exit barriers and will likely become increasingly  X- d(#-competitive,O(  yO#-ԍSee paras. 1119, above.O we conclude that the market (or the states, where there are special circumstances)  d(#is best able to set the appropriate price for payphone calls in the long term. We conclude further  d(#that the appropriate percall compensation amount ultimately is the amount the particular  d(#ypayphone charges for a local coin call, because the market will determine the fair compensation  d(#|rate for those calls. For example, if the rate at a particular payphone is $.35, absent an"N% ,^(^(JJ"  d(#agreement between the PSP and the carrierpayor for a different amount, then the PSP should  d(#Lreceive $.35 for each compensable call (access code, subscriber 800, and directory assistance).  d(#[If a rate is compensatory for local coin calls, then it is an appropriate compensation amount for  d(#Zother calls as well, because the cost of originating the various types of payphone calls are similar.  X- d(#Although the Commission tentatively concluded in the Notice that PSPs should be compensated  d(#for their costs in originating calls, as these costs are measured by appropriate costbased  d(#surrogates, we conclude that deregulated local coin rates are the best available surrogates for payphone costs and are superior to the cost surrogate data provided by the commenters.  X1- z R ` ` F71.  We conclude that the percall compensation amount equal to the local coin  d(#[rate, is a default rate that will apply only in the absence of a negotiated agreement between the  d(#parties. PSPs, IXCs, subscriber 800 carriers, and intraLATA carriers may agree on an amount  d(#for some or all compensable calls that is either higher or lower than the local coin rate at a given  d(#payphone. In absence of an agreement, the PSP shall be entitled to receive compensation for  d(#compensable calls at a percall rate equal to its local coin rate, which represents the marketbased rate for a call at the payphone in question.  Xy- z  ` ` G72. Before we move to a local coin call default rate, however, we find it  d(#.necessary to observe over time how the payphone marketplace will function in the absence of  d(#regulation. In particular, consumers facing time constraints may not be able to find, in certain  d(#locations, a reasonable substitute for a payphone located on the premises. In these cases where  d(#the location provider has an exclusive contract with a PSP, the PSP may be able to charge supra d(#-competitive prices. The location provider would share in the resulting "locational rents" through  d(#.commissions paid by PSPs. To the extent that market forces cannot ensure competitive prices  d(#at such locations, we may want to continue regulating, along with the states, the provision of  d(#payphone services generally or in particular types of locations where the size of the location or  d(#the caller's lack of time to identify potential substitute payphones could lead to locational  d(#monopolies. To allow us to ascertain the status of competition in the payphone marketplace, we  d(#yconclude that we should establish the default percall rate for two years before leaving it to the  Xe- d(#market to set rate, absent any changes in our rules. More specifically, as discussed below,We yO-čSee paras. 119126, below.W for  d(#=the first year after the effective date of the rules adopted in this proceeding, IXCs will pay flat d(#rate compensation to PSPs. After the initial year, when percall tracking capabilities will be in  d(#place, we conclude that IXCs will be required to pay a default rate of $.35 per call, which is the  X - d(#local coin rate in four of the five states that have deregulated their local calling rates. X yO"- v ԍSee Ex Parte Letter of Michael Kellogg, Counsel, RBOCs to William Caton, Acting Secretary, FCC (August 30, 1996). We  d(#conclude that the marketbased rate in these states is the best evidence of a percall compensation  d(#amount that will fairly compensate PSPs. Therefore, for the limited purpose of calculating  d(#-compensation for PSPs for the first two years of compensation (one year of flatrate and one year  d(#of percall compensation), we will use a default rate of $.35 per call, which is the rate in the  d(#jmajority of states that have allowed the market to determine the appropriate local coin rate. As""&,^(^(JJ!"  X- d(#>discussed above,K yOy-ԍSee para. 51, above.K the carrierpayor and the PSP may agree to a compensation rate that is  d(#different, and, therefore, the default rate would not apply. For coinless payphones, which by  d(#definition do not have a local coin rate, the default rate will remain $.35 per call for as long as this rate is fairly compensable under Section 276(b)(1)(A).   X- z ` ` H73. Various parties ask us to provide for either upward adjustments in the per Xv- d(#call amount to account for inflation,BvX yO -ԍAPCC Reply at 34.B or downward adjustments to take advantage of  X_- d(#!technological advances.[_ yO -ԍMCI Comments at 15; Sprint Comments at 21.[ We conclude that by making the percall amount subject to  d(#?negotiations, the marketplace will make the appropriate adjustments, whether upward or  d(#downward. We set this compensation rate as a default rate to be applied only if the PSP and the  d(#@IXC are unable to negotiate some other form of compensation for compensable calls.  d(#Negotiations may lead to rates other than the default rate for several reasons. First, because  d(#virtually all of the costs are fixed costs and are not incurred on a per call basis, an IXC and a  d(#PSP might agree to a fixed compensation rate rather than compensation for the monthly number  d(#of calls. Second, there may be locations in which a payphone would not be financially viable  d(#if compensated at only $.35 per compensable call, but would be viable at a higher compensation  d(#rate. If an IXC still found it profitable to carry calls at this higher rate, then it would be in the  d(#mutual interest of the two parties to negotiate a higher rate. Third, the IXCs may choose to pass  d(#on the percall compensation rate to their customers. In the case of 800 subscriber calls, the IXC  d(#could pass on the cost to the called party. If the called party refused to accept calls for which  d(#zit was charged $.35, but was willing to accept calls with a lower charge, the IXC and the PSP  d(#!may find it in their mutual interest to negotiate a percall rate lower than $.35. Fourth, in  d(#[locations where a competing payphone could be placed without the permission of the location  d(#provider, a PSP may be willing to negotiate a lower rate than $.35, rather than give an IXC the incentive to place a competing payphone.  X-  X- z ` ` I74.  Some PSPs argue that they should be entitled to a percall compensation  d(#amount greater than that set for local coin calls. In particular, inmate payphone providers argue  d(#zthat their costs of originating calls are greater than that of other payphone providers, which  Xe- d(#should entitle them to a special compensation rate of $.90 per call.jex yO!-ԍInmate Coalition Comments at 23; Invision Comments at 5.j We conclude at this  d(#jjuncture, however, that mandating a percall amount for inmate payphones, which do not allow  d(#xlocal coin calls, could possibly lead to a double recovery of costs already included in higherthan d(#average operator service rates and special surcharges on enduser phone bills for calls made on  d(#these payphones, as argued by Gateway, an inmate payphone provider that opposes a greater percall amount. "',^(^(JJ;"Ԍ X- z S` ` J75.  MCI argues that semipublic payphones should not receive any percall  X- d(#/compensation.C yOb-ԍMCI Comments at 3.C Section 276(d) states, however, that "in this section, the term 'payphone  d(#service' means the provision of public or semipublic pay telephones...." Pursuant to this  d(#-definition, all subsidies for semipublic payphones are terminated under Section 276(b)(1)(B), just  d(#as they are for public payphones, "in favor of a compensation plan as specified in subparagraph  d(#.(A)[.]" Therefore, we conclude that, contrary to MCI's arguments, semipublic payphones are entitled to receive percall compensation in the same manner as public payphones.  XH- z ` ` K76.  We reject the argument by four states that Section 276 applies only to  X1- d(#payphones provided by the BOCs.1X yO: - v ԍSee Maine Comments at 23. Four states, Maine, New Hampshire, New Mexico, and Vermont, filed comments jointly. For purposes of discussion, we refer to the joint comments as "Maine Comments." While Section 276(a), which the states cite as support for  d(#jtheir argument, applies only to the BOCs, as do Sections 276(b)(1)(C) and Section 276(b)(1)(D),  X - d(#the remainder of Section 276 applies to all payphones, regardless of their provider.D  yOd-ԍ47 U.S.C.  276.D When  d(#Congress intended to limit the scope of a particular provision in Section 276 to the BOCs, it used  X - d(#lthe term "Bell operating company."g @ yO-ԍ47 U.S.C.  276(a), 276(b)(1)(C), 276(b)(1)(D).g Otherwise, it used the term "all payphone service  X - d(#.providers[,]"_  yO?-ԍ47 U.S.C.  276(b)(1)(A), 276(b)(1)(E)._ or simply "payphone service providers."Y `  yO-ԍ47 U.S.C.  276(b)(1), 276(b)(3).Y For example, Section 276(b)(1)(A)  X - d(#states that the percall compensation plan must "ensure that all payphone service providers are  X- d(#fairly compensated[.]"^  yO1-ԍ47 U.S.C.  276(b)(1)(A) (emphasis added).^ In addition, Section 276(b)(1) states that the Commission shall take  d(#action to "promote competition among payphone service providers and promote the widespread  Xb- d(#deployment of payphone services to the benefit of the general public[.]"Jb  yO-ԍ47 U.S.C.  276(b)(1).J Therefore, based on  d(#the plain language of the statute, we conclude that Section 276 grants us the requisite authority  d(#xto adopt rules that apply to all payphones, regardless of their provider, except where the language  d(#clearly applies only to the BOCs. Further, the legislative history of Section 276 refers to both  X-the BOCs and independent payphone service providers.O yO#-ԍConference Report at 43.O  X- 2. Entities Required to Pay Compensation  X- ` ` a. The Notice "(,^(^(JJ"Ԍ X- z  ę ` ` L77.  In the Notice, the Commission stated that either a "carrierpays" system,  d(#.where the IXC who receives the call would be required to pay a percall charge to the provider  d(#of the payphone, or a "set use fee" system, where the tollcarrier would bill and collect from the  X- d(#yend user and then remit payment to the PSP, would satisfy the requirements of the 1996 Act.N yO4-ԍNotice at paras. 2528.N  X- d(#The Commission stated , however, that the carrierpays mechanism is preferable because it would  d(#Kresult in less transaction costs because the tollcarrier could aggregate its payments to payphone  Xv- d(#providers.GvX yO -ԍId. at para. 28.G Under a set use fee, the Commission stated, these payments would be spread among  X_- d(#a vast number of payphone callers through their individual telephone bills.:_ yO -ԍId.: Therefore, the  d(#=Commission tentatively concluded that the appropriate compensation mechanism is a "carrier d(#ipays" mechanism that builds on existing procedures under which IXCs currently pay access code  X - d(#<call compensation.: x yOC-ԍId.: Commenters were encouraged to include data on the transaction costs that  d(#would likely be imposed by either the "carrierpays" or "set use fee" compensation  X -mechanisms. :  yO-ԍId.:  X -` ` b. Comments  X- z  ` ` M78. A wide range of commenters, including AT&T, the RBOCs, GTE, various  d(#,states, and some independent payphone providers, supports the Commission's tentative conclusion  Xb- d(#that a "carrierpays" system for percall compensation should be adopted.'b yO- v LԍSee, e.g., American Express Reply at 10; Ameritech Comments at 8; AT&T Comments at 1213; California  d(#PUC Comments at 13; Florida PSC Comments at 4; GTE Comments at 78; IPTA Comments at 16; ITA Comments  d(#at 1216; MICPA Comments at 45; NJPA Comments at 7; New York DPS Comments at 7; Ohio PUC Comments  d(#Kat 8; Peoples Comments at 25; RBOC Comments at 6; Telaleasing Reply at 11; Teleport Comments at 4; Voice Reply at 2.' They argue that this  d(#Lapproach is the least burdensome, most cost effective, and places the obligation to pay on the  X4- d(#primary economic beneficiary of the calls, the carrier that carries the call.:4H  yO-!-ԍId.: Some parties assert  d(#that under this system, or any other system in which the carrier is responsible for paying  d(#compensation, it is the underlying, facilitiesbased carrier that should be responsible for paying  X- d(#compensation to PSPs.  yOx%- v >ԍAPCC Comments at 2425; GTE Reply at 67; Indiana URC Comments at 4; New York DPS Comments at 7. Two debit card providers argue that IXCs and LECs should not be")0 ,^(^(JJ "  X- d(#permitted to pass on the costs of percall compensation exclusively to 800 subscribers.a  yOy-ԍIntellicall Reply at 12; MobileMedia Reply at 6.a Frontier contends that, under the carrierpays system, LECs as well as  X- d(#LIXCs should be required to pay compensation.L X yO-ԍFrontier Comments at 2021.L Frontier also contends that the Commission  d(#yshould adopt a carrierpays system that is administered by the LECs, who, unlike the IXCs, will  d(#be able to leverage their existing business relationships as billing and collection agents for other  X-carriers.D  yO& -ԍId. at 1214.D  X_- z ` ` N79.  Other commenters, including APCC, MCI, and Sprint, contend that the  d(#yCommission should adopt a "set use fee," which would be collected by the carrier that handles  X1- d(#the call and remitted to the PSP to compensate it for the use of its payphone. 1x yOZ- v .ԍSee, e.g., APCC Comments at 23; CPA Comments at 58; MCI Comments at 6; One Call Comments at 56; Sprint Comments at 12. These  d(#commenters argue that such a governmentmandated fee would give visibility to the costs of  d(#payphone compensation, and would appropriately place these costs on the cost causer and lead  X - d(#to better economic decisions.:  yOm-ԍId.: They also argue that the carrierpays approach involves greater  d(#transaction costs than the set use fee, and that the carrierpays approach is simply a payment of  X - d(#a subsidy to PSPs.: `  yO-ԍId.: Other parties specifically oppose a set use fee on the grounds, among  X - d(#Lothers, that it would make the IXC an involuntary billing agent for the PSPs.  yOH- v ԍSee, e.g., ITA Reply at 910; MICPA Comments at 45; MWAA Reply at 6; New York DPS Comments at 7; Teleport Comments at 3; TRA Comments at 23; WorldCom Comments at 12. With regard to  d(#.subscriber 800 calls, PageNet, a paging service whose customers use subscriber 800 numbers,  d(#contends that charging 800 subscribers a set use fee would be an unjust and unreasonable practice  Xb- d(#\under Section 201(b) of the Act.bH  yO[-ԍPageNet Comments at 8. Cf. MobileMedia Reply at 6 (800 subscriber is wrong compensation payor). In addition, Intellicall, a debit card provider, argues that  d(#imposing fees on 800 subscribers would interfere with existing contracts between carriers and  X4- d(#!debit card providers.K4 yO"-ԍItellicall Comments at 22.K While favoring a "carrierpays" system, PacTel argues that the  d(#/Commission should "grandfather" the existing set use fee imposed at the state level by the  X- d(#California PUC.Ch yO&-ԍPacTel Reply at 2.C The RBOCs further argue that the Commission should grandfather all existing"*,^(^(JJd"  X- d(#/state set use fees.C yOy-ԍRBOC Reply at 67.C On the other hand, Sprint and MWAA argue that the Commission must  d(#preempt all existing state set use fees and that the states must be directed to follow federal  X-compensation models to avoid inconsistent state regulations.ZX yO-ԍMWAA Reply at 46; Sprint Comments at 10.Z  X- z ` ` O80. Various commenters, including small IXCs and paging services, argue that  X- d(#<the Commission should adopt what they call a "callerpays" compensation system.kX yO& - v \ԍSee, e.g., AirTouch Comments at 13; Arch Comments at 4 (for subscriber 800 calls); Excel Comments at  d(#8; Frontier Comments at 1012; MobileMedia Reply at 12, 37; PCIA Comments at 34; PageNet Comments at 1011; Scherers Comments at 34, 67; WorldCom Comments at 1112.k Under this  d(#Lsystem, the calling party would always pay for the call by either depositing a coin or by billing  X_- d(#the charge to a credit card or calling card.:_ yO-ԍId.: For subscriber 800 calls, the calling party would  XH- d(#=always be required to deposit a coin into the payphone.:H yO-ԍId.: These commenters argue all of the  d(#=following: this approach would be no more burdensome than a local coin call; it would reduce  d(#transaction costs; and it would avoid the coinfree approach that is inconsistent with CPE  X - d(#treatment.: (  yO-ԍId.: At least two commenters dispute the Commission's statement in the Notice that  d(#TOCSIA barred the Commission from imposing a coindeposit compensation system for access  X - d(#-code calls.j  yO>-ԍIntellicall Comments at 3233; MobileMedia Reply at 910.j The two commenters argue that the adoption of rate guidelines or a rate cap would  X - d(#not be a prescription of advance payment by callers, as prohibited by TOCSIA.: H  yO-ԍId.: A number of  d(#>parties oppose either a fee imposed on the calling party or the coindeposit requirement for  X- d(#Zcertain types of calls under this system.AX yO- v ԍSee, e.g., Ameritech Comments at 8; Florida PSC Comments at 4; MWAA Reply at 6; New York DPS  d(#KComments at 7; Oklahoma Comments at 2; TRA Comments at 23; Texas PUC Comments at 3 (for access code calls); Virginia SCC Comments at 3.A They argue that the impact on callers should be either  Xy-minimized or transparent.:y yO"#-ԍId.:  XK- z s` ` P81.  Conquest, Intellicall, MobileMedia, and PageNet contend that the  d(#xCommission should recover the funds necessary for percall compensation by raising the monthly"4+,^(^(JJ"  X- d(#subscriber line charge ("SLC") that is paid by all telephone customers. yOy-ԍIntellicall Comments at 21; MobileMedia Reply at 1011; Page Net Comments at 7. They argue that  d(#because payphones are used at one time or another by virtually all telephone customers, they  d(#should collectively bear the cost of percall compensation. In addition, they argue that there are  X-no reliable data that show which segments of the population use payphones more than others.:X yO-ԍId.:  X- z ` ` Q82. Some commenters argue that some parties should either be exempted from  d(#the obligation to pay percall compensation or be allowed to "phasein" their payment obligations.  d(#iTRA and Scherers argue that resellers of interexchange service should not be required to pay per d(#[call compensation, at least on an interim basis, because they are unable to pass on these costs  X1- d(#xwithout severely impacting their business.a 1 yO -ԍScherers Comments at 49; TRA Comments at 512. a TRA, ITA, and American Express further argue that  d(#all existing debit cards should be "grandfathered" and the carriers exempted from having to pay  X - d(#percall compensation on the calls associated with those cards.|! x yO,-ԍAmerican Express Reply at 10; ITA Comments at 2223; TRA Comments at 1516.| ITA and Voice contend that  d(#Mpercall compensation obligations associated with debit cards should be phased in after six  X -months.Y"  yO-ԍITA Comments at 2426; Voice Reply at 3.Y  X -` ` c. Discussion  Xy- z ` ` R83. We agree with those commenters who maintain that the primary economic  Xb- d(#beneficiary of payphone calls should compensate the PSPs.K#b yO-ԍSee para. 77, above.K We conclude that the "carrier d(#pays" system for percall compensation places the payment obligation on the primary economic  d(#Zbeneficiary in the least burdensome, most cost effective manner. The Commission has previously  d(#adopted such an approach in the access code compensation proceeding, and the compensation  X- d(#participants have created a payment system that is an appropriate model for this proceeding.e$(  yO-ԍSecond Report and Order, 7 FCC Rcd at 325760.e  X- d(#We conclude that the carrierpays system also gives IXCs%  yOX"- v /ԍFor purposes of paying compensation for compensable calls and other associated obligations, such as the  d(#tracking of calls, we note that the term "IXC" includes a LEC when it provides interstate, intraLATA toll service.  d(#Currently, because LECs are not the primary carrier for subscriber 800 calls, the relevant toll calls for which LECs  d(#will obligated to pay compensation are those that are made with use of a LECspecific access code. As LECs (both  d(#incumbent and nonincumbent) begin to carry additional toll calls originated by payphones, they will be required to pay percall compensation on those calls. the most flexibility to recover their  d(#own costs, whether through increased rates to all or particular customers, through direct charges",0%,^(^(JJ"  d(#lto access code call or subscriber 800 customers, or through contractual agreements with  d(#=individual customers. Although some commenters would have the Commission limit the ways  X- d(#in which carriers could recover the cost of percall compensation,H& yOK-ԍSee n. 262, aboveH we conclude that the  d(#marketplace will determine, over time, the appropriate options for recovering these costs. In  d(#Kaddition, under the carrierpays system, individual carriers, while obligated to pay a specified per d(#call rate to PSPs, have the option of recovering either a different amount from their customers,  d(#including no amount at all. We conclude further that all IXCs that carry calls from payphones are required to pay percall compensation.  X1- z ` ` S84.  In the Notice, we discussed the option of adopting a "set use fee, " which  d(#/would be collected by the carrier and remitted to the PSP to compensate it for the use of its  X - d(#payphone.J' X yO -ԍNotice at para. 28.J We tentatively concluded that this system involved greater transactions costs than  d(#the carrierpays system, because a set use fee would spread payments among a vast number of  X - d(#payphone callers through their individual telephone bills.:(  yOn-ԍId.: A number of commenters maintain  d(#/that the set use fee would involve fewer transaction costs and that the carrierpays system  X - d(#represents the payment of a subsidy to PSPs.K) x yO-ԍSee para. 79, above.K We disagree and conclude that the Commission's  d(#mandating that a particular set use fee be imposed and collected from callers on millions of  d(#payphone calls would lead to far greater transaction costs than through the carrierpays system,  d(#particularly given the flexibility the carrier has under the carrierpays system to recover the costs of percall compensation as it sees fits.  X- z c` ` T85.  The "callerpays" system advocated by a number of commenters is a  d(#Kvariation of the set use fee under which the caller, as the "cost causer," would always be required  d(#to deposit coins to make a subscriber 800 call, and would have the option of either depositing  d(#coins or receiving a charge through a calling card for placing other types of calls that do not use  X- d(#a payphone's presubscribed carrier.K* yOz-ԍSee para. 79, above.K For reasons similar to those cited for rejecting the set use  d(#Lfee system, we likewise reject the callerpays system. While depositing coins into a payphone  d(#to make, for example, a subscriber 800 call may not be more burdensome than a local coin call  X|- d(#and may involve fewer transaction costs than a billed charge, we found in the Notice that any  d(#payment system that relies upon the deposit of coins "would appear to unduly burden many  d(#transient payphone callers by requiring them to deposit coins in addition to providing callbilling  X7- d(#information."J+7 yO&-ԍNotice at para. 27.J We also noted in the Notice that "TOCSIA expressly prohibits the Commission  d(#from adopting compensation rules for interstate access code calls that require 'advance payment" -( +,^(^(JJ"  X- d(#by consumers.'":, yOy-ԍId.: At least two commenters argue that the Commission could interpret this  d(#statutory prohibition as applying only to the prescription of a specific compensation amount,  d(#Kwhich would not preclude adoption of compensation amount guidelines, including a coindeposit  X- d(#approach,K-X yO-ԍSee para. 80, above.K but we conclude that such an approach would contradict the congressional intent, and  X- d(#zpossibly the plain language, of Section 226(e)(2) of the Act.J. yO= -ԍ47 U.S.C.  226(e)(2).J We also reject the approach  d(#Lsuggested by some commenters that the Commission should increase the monthly SLC, which  d(#compensates a LEC for nontrafficsensitive costs associated with the use of its network, for all  d(#telephone customers to fund the percall compensation system. We conclude that raising the SLC  d(#Zfor this purpose would be contrary to the goals of the Act, because these payments would not be borne by either the primary economic beneficiary of payphone calls or the cost causer.  X - z ` ` U86.  Some commenters, including APCC, GTE, New York DPS, and Indiana  d(#URC, argue that it is the underlying, facilitiesbased carrier that should be required to pay  d(#compensation to the PSP in lieu of a nonfacilitiesbased carrier that resells services, for example,  X - d(#to specific subscribers or to debit card users.K/ x yO-ԍSee para. 81, above.K We agree. Although we have concluded that the  d(#primary economic beneficiary of payphone calls should bear the burden of paying compensation  d(#for these calls, we conclude that, in the interests of administrative efficiency and lower costs,  d(#>facilitiesbased carriers should pay the percall compensation for the calls received by their  Xb- d(#.reseller customers.0b yO- v ԍSee, e.g., ITA Comments at 1216 ("regulatory nightmares" involving excessive network upgrades and transaction costs can be avoided by requiring underlying carrier to pay compensation). Because they do not have their own networks, it would be significantly  d(#=more burdensome for resellers to track calls from payphones. In addition, telecommunications  d(#services are often sold in advance, particularly in the debit card context, and resold more than  d(#once before a caller ultimately uses the service. In such situations, it would be difficult to  d(# identify the party that is liable for the percall compensation. We conclude further that the  d(#[facilitiesbased carriers may recover the expense of payphone percall compensation from their  d(#ireseller customers as they deem appropriate, including negotiating future contract provisions that  d(#would require the reseller to reimburse the facilitiesbased carrier for the actual payphone compensation amounts associated with that particular reseller.  X|- z %` ` V87.  Various commenters, notably resellers and debit card providers, argue that  d(#the Commission should either exempt them on an interim basis from the obligation to pay  d(#compensation, or to "grandfather" debit cards that have already been issued from the  d(#compensation obligation. We conclude that, because Section 276 creates no exceptions for calls  d(#facilitated by resellers or debit card providers, such exemptions from the obligation to pay  d(#-compensation, even on an interim basis, would be contrary to the congressional mandate that we" .` 0,^(^(JJ"  X- d(#ensure fair compensation for "each and every completed intrastate and interstate call."M1 yOy-ԍ47 U.S.C.  276(b)(1)(A).M While  d(#-we have not placed the burden of paying percall compensation directly on resellers or debit card  d(#providers, we conclude that the underlying carrier must begin paying compensation on all  d(#compensable calls facilitated by its reseller and debit card customers and it is, in turn, permitted  X-to impose the payphone compensation amounts on these customers.  Xv-3. Ability of Carriers to Track Calls From Payphones  XH-` ` a. The Notice  X1-  X - z  ` ` W88.  The Commission tentatively concluded, in the Notice, that tracking  d(#kmechanisms and surrogates exist, or might readily be made available, to support the per-call  X - d(#compensation plan mandated by Section 276(b)(1)(A).J2 X yO-ԍNotice at para. 30.J We sought comment on what tracking  d(#options are currently, or may soon be, available. Additionally, we sought further comment on  d(#[the ability of existing IXCbased tracking mechanisms to accommodate all payphone providers  d(#and IXCs. In the event that no standard technology or mechanism available for tracking exists,  X- d(#the Commission sought comment on alternative surrogate methodologies that could be devised.  d(#Finally, we sought comment on which party or parties, whether IXCs, PSPs, or intraLATA  Xb-carriers, should be required to develop and maintain the tracking or surrogate methodologies. :3b yO-ԍId.:  X4- z  ` ` X89.  The Commission also tentatively concluded that IXCs and intraLATA  X- d(#carriers should be required to initiate an annual independent verification of their per-call tracking  d(#functions, to be made available for FCC inspection, to ensure that they are tracking all of the  X- d(#calls for which they are obligated to pay compensation.G4x yO-ԍId. at para. 31.G Additionally, the Commission sought  d(#comment on whether BOCs and other LECs that provide network tracking for their own  d(#payphones should be required to make those tracking services available to independent payphone  X-providers at the same rates, terms, and conditions as they provide themselves. :5 yOc -ԍId.:  X|-` ` b. Comments  XN- z  ` ` Y90.  The RBOCs support the Commission's tentative conclusion that the  X7- d(#requisite technology currently exists for carriers to track calls routed to them from payphones.D67 yO&-ԍRBOC Comments at 7.D  d(#]The RBOCs argue further that no standardized technology for tracking calls needs to be" /( 6,^(^(JJ"  d(#prescribed by the Commission, and that carriers should be permitted to use whatever technology  X- d(#.they prefer to meet their tracking obligations.:7 yOb-ԍId.: They request that, if the Commission requires  d(#the carrier receiving the call to provide the call tracking, then the Commission should not  X- d(#preclude LECs and PSPs from developing their own call tracking capabilities.@8X yO-ԍId. at 8.@ The RBOCs  d(#also contend that the Commission should establish both a timeline for achieving full call tracking  d(#capabilities within 12 months after the effective date of the rules, and interim compensation rates  Xv-based on average calling rates until then.;9v yO -ԍId. ;  XH- z ` ` Z91. The RBOCs, USTA, Sprint, One Call, California PUC, and others argue  d(#that the Commission should require that IXCs that receive the calls from payphones be obligated  X - d(#yto provide the call tracking necessary for compensation.: x yOC- v ?ԍSee, e.g., California PUC Comments at 11; MICPA Comments at 5; One Call Comments at 7; RBOC Comments at 7; Sprint Comments at 13; USTA Reply at 34. These parties argue that only IXCs  d(#can track calls to completion, IXCs are the primary economic beneficiary of these calls, and that  X - d(#nonIXC tracking surrogates are not reliable.d;  yOm-ԍRBOC Comments at 7; Sprint Comments at 1314.d Ameritech argues, on the other hand, that the  X -IXCs should not be required to track calls, except during a brief transition period.M< `  yO-ԍAmeritech Comments at 1112.M  X - z q` ` [92. Other commenters note difficulties that they argue are inherent with IXC  d(#tracking capabilities. MCI and Sprint argue that each payphone should be required to generate  d(#07 or 27 coding digits within the automatic number identification ("ANI") for the carrier to track  Xb- d(#calls.[=b  yO-ԍMCI Comments at 10; Sprint Comments at 16.[ AT&T states that it currently cannot track subscriber 800 calls because it receives only  XK- d(#[the ANI of the terminating telephone.H>K  yO|-ԍAT&T Comments at 1415.H Because it estimates that a percall tracking ability for  d(#subscriber 800 calls will take one year to achieve, AT&T argues that the Commission should use  d(#a surrogate for these calls, which relies on "studies made from a representative weighted sample  X- d(#of centralofficeimplemented payphones."I? yO#-ԍId. at 15. I The RBOCs propose a year phasein period for  d(#tracking subscriber 800 calls, but argue that AT&T's proposed surrogate would rely on central d(#officeimplemented or "dumb" payphones, which are found in low usage areas and, therefore,"0?,^(^(JJ&"  X- d(#would underestimate the volume of subscriber 800 calls.A@ yOy-ԍRBOC Reply at 7.A USTA also supports relying on a  X- d(#[surrogate for subscriber 800 calls for a one year transition period.CAX yO-ԍUSTA Reply at 34.C Some IXCs, such as MCI,  d(#Cable & Wireless, and CompTel, contend that carrier tracking is not practical or appropriate, and  X- d(#=that it would involve substantial new investment.B yOT-ԍSee, e.g., Cable & Wireless Comments at 911; CompTel Comments at 8; MCI Comments at 8. Cable & Wireless estimates that it would  d(#require a $1 million investment to establish a tracking mechanism for all of the calls that its  X- d(#network carries.QCx yO -ԍCable & Wireless Comments at 10.Q Cable & Wireless also contends that requiring IXCs to track calls would lead  d(#to an impossible administrative task on the part of the carriers, because the IXCs would need to  X_-search all of their call records to identify and separate out calls from payphones.CD_ yO-ԍId. at 911.C  X1- z ` ` \93. APCC argues that the Commission has a number of options for mediating  d(#=the percall tracking burden of the small carriers. One option, according to APCC, would be to  X - d(#require the LECs to track calls on behalf of small IXCs.EE  yOL-ԍAPCC Reply at 2021.E A second option, APCC argues,  d(#would be to relieve small carriers of the tracking obligation and have them pay percall  d(#compensation, particularly for subscriber 800 calls, on a flat rate per month according to their  d(#percentage of toll revenue or, if possible, their percentage of overall payphone and nonpayphone  X - d(#y800 service traffic.EF (  yO-ԍAPCC Comments at 27.E The RBOCs contend, on the other hand, that the small carriers should be  d(#required to track individual calls using payphones or contract out the tracking to another party,  d(#because carriers that benefit from being in the market must accept the responsibilities that go  Xb-with it.AGb  yO-ԍRBOC Reply at 9.A  X4- z 4` ` ]94.  Various commenters, particularly some IXCs and Ameritech, argue that the  d(#Commission should place the obligation to track calls using a payphone on LECs, PSPs, or a  d(#combination of both. For example, CompTel argues that LECs should provide the tracking, and  X- d(#the PSPs should pay the LECs for this service.JHH  yO#-ԍCompTel Comments at 910.J MCI and Indiana URC contend that LECs and  X- d(#iPSPs should share the responsibility for tracking calls.^I yOa&-ԍMCI Comments at 8; Indiana URC Comments at 4.^ WorldCom argues that percall tracking"1hI,^(^(JJ&"  X- d(#should be the responsibility of the LECs,LJ yOy-ԍWorldCom Comments at 1415.L while Ameritech and Scherers argue that  X- d(#the PSPs should assume this obligation.bKX yO-ԍAmeritech Comments at 11; Scherers Comments at 5.b These parties contend that LEC or PSPbased  d(#tracking would be superior because those who want payment must keep count of compensable  d(#calls and bill for them, and all payphones will soon be able to obtain call detail information to  X- d(#make this possible.~L yO= -ԍAmeritech Comments at 11; Scherers Comments at 5; WorldCom Comments at 1415.~ Ameritech argues that the Commission should require IXCs to process  X- d(#answer supervision for LECs engaged in tracking.GMx yO -ԍAmeritech Reply at 10.G The RBOCs, GTE, and NECA oppose a  Xv- d(#tracking system that would place the responsibility for tracking calls on LECs.Nv yO/-ԍGTE Reply at 78; NECA Reply at 2; RBOC Reply at 67. See also Puerto Rico Telephone Reply at 6. They argue  d(#both that the Commission should not disproportionately burden the LECs while other parties  d(#jreceive the primary benefit for these calls, and that only IXCs can track calls to completion and  X1- d(#Kdetect multiple calls within a single dialing transaction.:O1 yOz-ԍId.: USTA contends that LECs are not able  X -to track subscriber 800 calls.CP (  yO-ԍUSTA Reply at 34.C  X - z b` ` ^95.  The RBOCs support the Commission's tentative conclusion that carriers  d(#should be required to initiate an annual independent verification of their percall tracking  d(#functions for a period of two years, provided that both the Commission and PSPs be allowed to  X - d(#inspect this verification.DQ  yO-ԍRBOC Comments at 7.D APCC argues that the Commission should require annual independent  d(#-audits of carriers' percall tracking functions and require the carriers to compare their data against  Xy- d(#parallel LEC or smart payphone data.ERyH  yOr-ԍAPCC Comments at 26.E Telaleasing argues that such an audit should occur on  Xb-a quarterly basis.ISb yO -ԍTelaleasing Reply at 11.I  X4-` ` c. Discussion  X- z ` ` _96.  Based on the information in the record, we conclude that the requisite  d(#technology exists for IXCs to track calls from payphones. We recognize, however, that tracking  d(#=capabilities vary from carrier to carrier, and that it may be appropriate, for an interim period, for"2hS,^(^(JJD"  d(#some carriers to pay compensation for "each and every completed intrastate and interstate call" on a flatrate basis until percall tracking capabilities are put into place, as discussed below.  X- z ` ` `97. We conclude further that, as stated in the Notice, it is the responsibility of  d(#>the carrier, whether it provides intraLATA or interLATA services, as the primary economic  X- d(#beneficiary of the payphone calls, to track the calls it receives from payphones,NT yO-ԍNotice at paras. 2931.N although the  d(#>carrier has the option of performing the tracking itself or contracting out these functions to  d(#another party, such as a LEC or clearinghouse. In other words, while we assign the burden of  d(#tracking on the carrier receiving the call from a payphone, parties to a contract may find it  d(#economically advantageous to place this tracking responsibility on another party. We decline to  d(#require LECs or PSPs to perform percall tracking themselves. Neither LECs nor PSPs are the  d(#primary economic beneficiaries of payphone calls. We conclude, however, that LECs, PSPs, and  d(#the carriers receiving payphone calls should be able to take advantage of each other's  d(#technological capabilities through the contracting process. To this end, we agree with the RBOCs  d(#and conclude that no standardized technology for tracking calls is necessary, and that IXCs may  X -use the technology of their choice to meet their tracking obligations.NU X yO-ԍSee RBOC Comments at 7.N  Xy- z  ` ` a98.  MCI and Sprint contend that each payphone should be required to generate  Xb- d(#07 or 27 coding digits within the ANI for the carrier to track calls.[Vb yO-ԍMCI Comments at 10; Sprint Comments at 16.[ We agree. Currently under  d(#our rules, LECs are required to tariff federally originating line screening ("OLS") services that  X4- d(#provide a discrete code to identify payphones that are maintained by nonLEC providers. W4x yO]- v ԍPolicies and Rules Concerning Operator Service Access and Pay Telephone Compensation, CC Docket No.  yO%-9135, Third Report and Order (rel. Apr. 5, 1996) at para. 34 ("OLS Order").  We conclude that LECs should be required to provide similar coding digits for their own payphones.  X- z  ` ` b99.  AT&T states that it currently cannot track subscriber 800 calls because it  d(# receives only the ANI of the terminating telephone, and it estimates that a percall tracking  X- d(#=ability for subscriber 800 calls will take one year to achieve.HX yOB -ԍAT&T Comments at 1415.H Other commenters, such as the  d(#RBOCs and USTA, propose a oneyear transition before carriers are required to track subscriber  d(#j800 calls. In view of the current difficulties in tracking such calls, we conclude that a transition  d(#is warranted for requiring carriers to track compensable calls. Therefore, we require carriers to  d(#0provide for tracking of all compensable calls they receive from payphones, through any  d(#arrangement they choose, as soon as possible, but no later than one year from the effective date"N3` X,^(^(JJ"  X- d(#"of the rules adopted in this proceeding.Y yOy- v ԍAs discussed at para. 49, above, IXCs also have the option of avoiding the obligation to pay percall compensation for subscriber 800 calls by blocking these calls from payphones. Until that date, carriers must pay flatrate  X-compensation, as specified below.QZ  yO-ԍSee paras. 119126, below.Q  X- z  ` ` c100.  We recognize that implementing a percall tracking capability will require  d(#new investments for some carriers, particularly small carriers, but we conclude that the mandate  d(#of Section 276 that we ensure a fair "per call compensation plan" for "each and every completed  d(#jintrastate and interstate call" requires these carriers to provide tracking for calls for which they  d(#receive revenue, even though they previously did not have to compensate the PSP for many of  d(#-these calls. We conclude further that, by permitting carriers to contract out their percall tracking  d(#Lresponsibility, and by allowing a transition for tracking subscriber 800 calls, we have taken the  d(#/appropriate steps to minimize the percall tracking burden on small carriers. In addition, we  d(#=conclude that, to parallel the obligation of the facilitiesbased carrier to pay compensation, the  d(#underlying, facilitiesbased carrier has the burden of tracking calls to its reseller customers, and it may recover that cost from the reseller, if it chooses.  X - z ` ` d101. In the Notice, we tentatively concluded that carriers should be required to  d(#initiate an annual verification of their percall tracking functions to be made available for FCC  d(#inspection upon request, to ensure that they are tracking all of the calls for which they are  d(#Mobligated to pay compensation. We require this verification for a oneyear period, the 1998  d(#jcalendar year, and delegate to the Chief, Common Carrier Bureau, the authority to establish the  d(#form and content, if necessary, of the verification documentation of these percall tracking  d(#capabilities. We conclude that requiring carriers to maintain the appropriate records and certify  d(#<as to the accuracy of both the data and the tracking methodology would facilitate the prompt and  d(#[accurate payment of percall compensation. We also conclude that PSPs should be allowed to  d(#inspect this certification, apart from any proprietary network data. In addition, we expect that  d(#ythe PSPs and carriers performing the tracking will work together to reconcile or explain any PSP  d(#data that are inconsistent with the annual certification. We decline to adopt, however, the  d(#suggestions of some commenters that we require a fullscale independent audit of a carrier's  d(#tracking capability, or mandate that the verification occur on a quarterly basis. A fullscale audit  d(#or a quarterly verification would impose too great of a burden on carriers in an area where we  d(#<have encouraged them to use technology and other arrangements of their choice in implementing a percall tracking capability.  X - 4. Administration of PerCall Compensation  X-` ` a. The Notice  X -  X!- z   ` ` e102.  In the Notice, the Commission tentatively concluded that the directbilling  X"- d(#arrangement established for the payment of compensation from IXCs to PPOs should be used""4Z,^(^(JJ!"  d(#with the simple addition of requiring IXCs, and the intrastate interexchange operations of LECs,  d(#Kto send back to each PSP a statement indicating the number of tollfree and access code calls that  X- d(#each carrier has received from each of that PSP's payphones.N[ yOK-ԍNotice at paras. 3233.N The Commission also proposed  X- d(#to establish a requirement that the carrier responsible for paying compensation file annually a  X- d(#/ brief report with the Common Carrier Bureau listing the total amount of compensation paid,  d(#pursuant to the rules adopted in this proceeding, to PSPs for intrastate, interstate, and  d(#Linternational calls; the number of compensable calls received by the carrier; and the number of  X_- d(#payees.G\_X yOh -ԍId. at para. 33.G Such a requirement would help ensure that the carriers are tracking all of the calls for  XH-which they are obligated to pay compensation.:]H yO -ԍId.:  X - z ` ` f103.  Because the compensation mechanism proposed in the Notice uses the ANI  X - d(#as the basis for tracking calls, the Commission tentatively concluded that minimal regulatory  X - d(#guidelines for the industry should be adopted regarding resolution of disputed ANIs in the per X - d(#xcall compensation context.G^ x yO-ԍId. at para. 34.G Possible guidelines for which the Commission has sought comment  X - d(#are as follows: (1) intraLATA carrier provision of a list of payphone ANIs to IXCs (e.g., each  X - d(#jquarter); (2) verification of disputed ANIs by intraLATA carrier on request; (3) maintenance of  X- d(#yverification data for at least 18 months after the close of a compensation period; (4) acceptance  d(#of compensation claims once an intraLATA carrier makes a positive identification of an installed  Xb- d(#payphone; (5) IXC denial o f payment for compensation claims that are submitted by a PSP over  XK-one year after the end of the period in question.:_K yO-ԍId.:  X-` ` b. Comments  X- z ` ` g104.  APCC argues that the compensation payor should bear the costs associated  X- d(#with the administration of the compensation mechanism.E` yO! -ԍAPCC Reply at 2526.E Various commenters argue that the  d(#Commission should use a directbilling arrangement for the payment of compensation from IXCs  X- d(#.to PSPs that is similar to the one adopted in the access code call compensation proceeding.pa(  yO#-ԍSee, e.g., AT&T Comments at 16; GVNW Comments at 4.p  d(#MCI argues that under the Commission's proposed directbilling arrangement, carriers should be  d(#required to report to the Commission only the total amount of compensation paid to all PSPs"|5 a,^(^(JJn"  X- d(#annually.Db yOy-ԍMCI Comments at 11.D Other commenters, notably the small IXCs, contend that the LECs are better  d(#mequipped than the IXCs and intraLATA carriers to administer the payment of percall  X- d(#compensation.cX yO- v MԍSee, e.g., Cable & Wireless Comments at 1112; CompTel Comments at 1011; Excel Comments at 67; Frontier Comments at 1214; WorldCom Comments at 1718. Some of these commenters argue that PSPadministered compensation would  X- d(#=be preferable to that handled by the carriers receiving the payphone calls.zd yO -ԍCable & Wireless Comments at 13; Excel Comments at 7; MCI Comments at 19.z SDN argues that  X-compensation should be based on a national formula and administered by the individual states.Ce@ yO -ԍSDN Comments at 2.C  Xv- z ` ` h105.  The RBOCs, Sprint, APCC, and Peoples support the Commission's tentative  d(#kconclusion that minimal regulatory guidelines for the industry should be adopted regarding  XH- d(#resolution of disputed ANIs.fH yO-ԍAPCC Comments at 29; Peoples Comments at 26; RBOC Comments at 7; Sprint Comments at 15. They argue that LECs must be given an incentive to provide  X1- d(#accurate and timely verification of ANIs for independently provided payphones.:g1`  yOB-ԍId.: MCI argues  d(#ythat a dispute resolution process is not necessary if payphones are required to transmit certain  X -information digits associated with payphoneoriginated calls.Dh  yO-ԍMCI Comments at 11.D  X - z ` ` i106. The commenters also make a number of suggestions on the possible dispute  X - d(#jresolution guidelines articulated by the Commission in the Notice. GTE argues that mandatory  X - d(#[procedures in this area are not necessary, because of the increased costs they will entail.Ei  yO-ԍGTE Comments at 89.E In  d(#addition, GTE argues that PSPs are able to file a complaint with the Commission when they have  Xy- d(#a dispute regarding compensation.:jy yO:-ԍId.: With regard to the list of payphone ANIs provided each  d(#quarter by the LECs, AT&T argues that it is the LEC that provides the payphone line that must  XK- d(#Kprovide the list, not the intraLATA carrier presubscribed to the payphone.EkK yO"-ԍAT&T Comments at 17.E GVNW argues that  d(#jrequiring LECs to furnish IXCs with a quarterly list of ANIs is too costly and burdensome, and  X- d(#ytechnologybased solutions to tracking problems will eventually make this list unnecessary.Dl0 yO%-ԍGVNW Comments at 3.D "6l,^(^(JJ"  d(#AT&T requests that the Commission require the LECs to submit the ANI list to the IXCs within  X-30 days of the end of a compensation period.Em yOb-ԍAT&T Comments at 17.E  X- z ` ` j107. AT&T and Sprint contend that if the LEC does not provide verification of  X- d(#a disputed payphone ANI, carriers should not be required to pay compensation._nX yO-ԍAT&T Comments at 1718; Sprint Comments at 15._ AT&T further  X- d(#contends that LECs should be required to provide verification in a timely fashion.Eo yO& -ԍAT&T Comments at 17.E MICPA  d(#argues that carriers should not be able to use delays in LEC verification to delay the payment of  X_- d(#compensation to PSPs.Ep_x yO -ԍMICPA Comments at 6.E APCC argues that the Commission should impose a penalty for LECs  XH- d(#that do not make a verification when requested.EqH yO-ԍAPCC Comments at 29.E MCI suggests that if a payphone is  d(#disconnected, the LEC should be required to notify the compensationpaying carriers within 24  X - d(#hours.Dr  yOc-ԍMCI Comments at 12.D NTCA contends that the possible guidelines outlined by the Commission would impose  X - d(#ltoo great of a burden on small LECs.Fs (  yO-ԍNTCA Comments at 56.F MCI argues that the statute of limitations for the  X - d(#payment of compensation should not be tolled while ANIs are being disputed.Dt  yOU-ԍMCI Comments at 12.D Two state  d(#[associations of independent payphone providers argue that the Commission must prohibit the  X -carriers from imposing undue burdens on PSPs before paying compensation.Zu H  yO-ԍIPTA Comments at 19; MICPA Comments at 6.Z  X- z ` ` k108. A number of independent payphone providers argue that the Commission  Xy- d(#Kshould shorten the quarterly compensation period.vy yO -ԍIPTA Comments at 21; MICPA Comments at 6; Peoples Comments at 26; Telaleasing Reply at 11. Peoples and Telaleasing both suggest that  Xb- d(#carriers should pay compensation to PSPs on a monthly basis.awbh yO{"-ԍPeoples Comments at 26; Telaleasing Reply at 11.a MCI argues that it should not  XK- d(#.be required to pay compensation on claims more than three months old.DxK yO$-ԍMCI Comments at 12.D Sprint argues that,  d(#to reduce the administrative burden and costs associated with the payment of compensation,  d(#carriers should be allowed to defer payment to PSPs until the PSP is due to receive a minimum"7x,^(^(JJ"  X- d(#of $10 from that carrier.Gy yOy-ԍSprint Comments at 15.G The RBOCs contend that the Commission should impose a penalty  X- d(#on carriers who demonstrate a wilful failure to pay compensation.DzX yO-ԍRBOC Comments at 7.D APCC argues that PSPs  X- d(#should be allowed to charge interest for payments that have been due for more than 90 days.t{ yOk-ԍAPCC Comments at 30. See also Telaleasing Reply at 11.t  X- z ` ` l109. To facilitate the payment of compensation, CompTel argues that PSPs  Xv- d(#should register with a central resource all payphones for which carriers must pay compensation.|vx yO -ԍCompTel Comments at 11. See also GTE Comments at 78; Oklahoma CC Comments at 3.  d(#It argues that this step would reduce administrative costs for all parties, avoid duplication of  d(#efforts, and negate the risk of multiple payments to separate parties claiming ownership of the  X1- d(#=same payphone.H}1 yO-ԍCompTel Comments at 11.H APCC argues that, to avoid additional payment disputes, each LEC bill for  X -payphone service must affirmatively state that it is for payphone service.E~  yOc-ԍAPCC Comments at 30.E  X -` ` c. Discussion  X - z q` ` m110.  We conclude that we should adopt a directbilling arrangement between  d(#MIXCs and PSPs, once tracking capabilities are in place, that would build on the arrangement  d(#xestablished in the access code call compensation proceeding, with the addition of the requirement  d(#that these carriers must send back to each PSP a statement indicating the number of tollfree and  Xb- d(#zaccess code calls that each carrier has received from each of that PSP's payphones.Nb(  yO;-ԍNotice at paras. 3233.N This  d(#arrangement places the burden of billing and collecting compensation on the parties who benefit  d(#the most from calls from payphones carriers and PSPs. For this reason, we conclude that it  d(#=would not be appropriate to burden LECs with the administration of the percall compensation  d(#.mechanism, because their economic interest in the compensable calls is significantly less than  d(#\that of the IXCs and PSPs. While PSPs could be efficient administrators of a compensation  d(#=mechanism, we conclude that the carriers already responsible for tracking the calls and paying  d(#compensation for them have the greatest ability and incentive to establish the most efficient  d(#kmeans of administering the payment of compensation. As with the tracking of calls, carrier d(#payors are free to use clearinghouses, similar to those that exist for access code call  d(#jcompensation, or to contract out the directbilling arrangement associated with the payment of  d(#compensation. We decline to leave it to the individual states to administer compensation, as"e8 ,^(^(JJO"  X- d(#suggested by SDN,L yOy-ԍSee para. 104, above.L because we believe the parties can agree on a solution more efficient than the likely varying approaches adopted by each of the states.  X- z ` ` n111. We also proposed in the Notice to establish a requirement that the carrier  X- d(#responsible for paying compensation file each year a brief report with the Common Carrier  d(#Bureau listing the total compensation paid to PSPs for intrastate, interstate, and international  Xv- d(#calls; the number of compensable calls carried by the carrier; and the number of payees.JvX yO -ԍNotice at para. 33.J Such  d(#=a requirement would help ensure that the carriers are tracking all of the calls for which they are  d(#obligated to pay compensation. This requirement will apply to calendar year 1998, when tracking  d(#capabilities are in place and compensation is being paid on a percall basis. While MCI argues  d(#Mthat carriers should be required to report only the total amount of compensation to all PSPs  d(#-annually, we conclude that more detailed reporting is necessary to monitor the percall payphone  d(#compensation mechanism in its initial complete calendar year to help ensure that all IXCs are  d(# paying their respective compensation obligations. We conclude further that, once percall  d(#.compensation is routinely paid by IXCs, this reporting requirement will be terminated after the  X - d(#carriers have filed their reports for the 1998 calendar year.N  yO@-ԍId. at para. 33, n. 90.N Carrierpayors should file their  d(#ireports as soon as possible after the end of the calendar year, but no later than the end of the first  d(#quarter of the following year. To implement the reporting requirement, we delegate to the Chief,  d(#Common Carrier Bureau, the authority to establish the form and content, if necessary, of the  d(#[annual report listing the total amount of compensation paid to PSPs, including the authority to extend or limit the scope of this report.  X- z ` ` o112.  While we have elected to burden the LECs only insignificantly in creating  d(#the percall compensation mechanism mandated by Section 276 of the Act, we conclude that we  d(#must establish minimal regulatory guidelines for the payphone industry regarding resolution of  X- d(#disputed ANIs to give LECsx yO- v ԍAs AT&T correctly points out, it is the LEC that provides the payphone line that must provide the list of ANIs, not the intraLATA carrier presubscribed to the payphone. AT&T Comments at 17. a greater incentive to provide accurate and timely verification of  d(#ANIs for independently provided payphones. While any party may file a complaint with the  d(#Commission about disputed ANIs, we conclude that the better practice is for LECs who maintain  d(#=the list of ANIs to work with both carrierpayors and PSPs to resolve disputes more efficiently  d(#and quickly before lodging a complaint with the Commission. We also conclude that we should  d(#require that each LEC must submit to each carrierpayor on a quarterly basis a list of ANIs of  d(#!all payphones in the LEC's service area (called the "COCOT list" in the access code call"79,^(^(JJ"  X- d(#compensation proceeding).X yOy- v ԍSecond Report and Order, 7 FCC Rcd at 3259. LECs are permitted to "recover their reasonable costs in  yOA- d(#generating and producing these lists through direct charges" to the carriers using them. Reconsideration Order, 8 FCC Rcd at 7157. "COCOT" is an acronym for customerowned, coinoperated telephone. We disagree with GVNW's proposal that furnishing the quarterly  d(#list of ANIs is too costly and burdensome for LECs. As stated above, we have attempted to  d(#minimize the burdens on LECs, and no party has shown that there is currently an effective substitute for this list, despite the future promise of technological solutions.  X- z ` ` p113. In response to the various arguments made by commenters, we conclude  d(#that the following guidelines will facilitate the proper verification of payphone ANIs by LECs.  d(#.First, LECs must provide a list of payphone ANIs to carrierpayors within 30 days of the close  d(#kof each compensation period (i.e., each quarter). Second, LECs must provide verification of  d(#disputed ANIs on request, in a timely fashion. Such verification data must be maintained and  d(#\available for at least 18 months after the close of a compensation period. Third, once a LEC  d(#makes a positive identification of an installed payphone, the carrierpayor must accept claims for  d(#that payphone's ANI until the LEC provides information, on a timely basis, that the payphone  d(#.has been disconnected. Fourth, a LEC must respond to all requests for ANI verification, even  d(#=if the verification is a negative response. Carrierpayors are not required to pay compensation  d(#\once the LEC verifies that the particular ANI is not associated with a COCOT line for which  d(#compensation must be paid. Fifth, carrierpayors should be able to refuse payment for  d(#compensation claims that are submitted long after they were due. Carriers should not refuse  d(#payment on timeliness grounds, however, for ANIs submitted by a PSP up to one year after the  d(#end of the period in question. Further, the period for a PSP to bring a complaint to the  d(#Commission based on an ANI disputed by the carrierpayor will not begin to accrue until the carrierpayor issues a final denial of the claim.  X- z ` ` q114.  We conclude that the guidelines, as outlined above, will facilitate the proper  d(#verification of payphones without imposing undue burdens on LECs, PSPs, or carrierpayors.  d(#In adopting these guidelines, we reject a number of proposals by commenters. First, in response  d(#to the argument of AT&T and Sprint that they not be required to pay compensation when a LEC  d(#fails to verify a particular ANI, we conclude that by directing LECs to respond to all requests  d(#=for verification, carriers should be able to avoid payment only when the LEC issues a negative  d(#response to the verification inquiry. Second, we conclude that mandating a penalty on the LEC,  d(#/as urged by APCC, for failing to respond to a verification request in a timely manner, is not  d(#necessary when the Commission's complaint process is available. Similarly, the complaint  d(#process is available to PSPs for instances of a carrier's wilful failure to pay compensation, as  d(#discussed by the RBOCs. We note that we will aggressively take action on such complaints.  d(#Third, we conclude that requiring a LEC to notify all carrierpayors of a payphone disconnection  d(#within 24 hours would be too great a burden to place on LECs, particularly when they are  d(#<required to provide ANI lists only on a quarterly basis. Such notification, however, should occur  d(#on a basis as timely as possible. Fourth, we conclude that, for purposes of bringing a complaint  d(#\before the Commission concerning a carrier's payment of payphone compensation, the time  d(#jperiod for the statute of limitations does not begin to run until after the carrierpayor considers"#:,^(^(JJe""  d(#<a compensation claim and issues a final denial of the claim. To conclude otherwise, as suggested  d(#by MCI, would permit a carrierpayor to delay a denial of the claim to preclude a PSP's complaint remedy before the Commission.  X- z ` ` r115.  Various independent payphone providers argue that we should require  d(#compensation to be paid on a monthly basis. In the access code call compensation proceeding,  d(#[we allowed the parties to determine how and when compensation would be paid, and quarterly  X_- d(#compensation period was adopted by the industry through consensus.b_ yO-ԍSecond Report and Order, 7 FCC Rcd at 3259.b While the industry may  d(#decide upon a similar compensation period for percall compensation, we leave the details  d(#[associated with the administration of this compensation mechanism to the parties to determine  X - d(#jfor themselves through mutual agreement.: X yO# -ԍId.: We disagree, however, with MCI's proposal that  d(#{carriers not be required to pay compensation claims that are more than three months old.  d(#Because a carrierpayor's administrative expenses are presumably reduced through the payment  d(#of compensation on a quarterly, as opposed to monthly, basis, we conclude that the reasonable  X - d(#-tradeoff is that the carrier remains liable, as discussed above,L  yOW-ԍSee para. 113, above.L for compensation claims that are  d(#[submitted within one year of the end of the compensation period in question. The parties may  d(#themselves revisit this issue if they elect a shorter compensation period. Sprint argues that a  d(#carrier should be allowed to defer payments to individual PSPs until the amount due aggregates  d(#to $10 from that carrier to the particular PSP for all of its payphones. We agree and conclude  d(#that such a requirement would reduce the administrative expenses associated with the payment  d(#Mof compensation. If PSPs would like to charge interest on overdue payments from IXCs, as  X- d(#-suggested by APCC,Lx yOF-ԍSee para. 108, above.L they should negotiate such a provision in their compensation agreement with the particular carrier.  X- z ` ` s116. We agree with APCC that the payment of compensation would be  d(#.facilitated and some disputes avoided if LECs were required to state affirmatively on their bills  d(#to PSPs that the bills are for payphone service. We conclude that LECs who have knowledge  d(#<that a particular phone line is used for a payphone, must indicate on that payphone's monthly bill  d(#that the amount due is for payphone service. We also agree with CompTel's suggestion that the  d(#registration of all payphones with a central resource or clearinghouse would reduce administrative  d(#costs for all parties and would avoid duplication of efforts. We decline, however, to mandate  d(#the creation of a central resource or clearinghouse for compensation purposes, and believe that  d(#lthe parties themselves are better able to establish such a resource that would be directly connected to the payment of compensation.  X- 5. Interim Compensation Mechanism ";,^(^(JJ;"Ԍ X- ę` ` a. The Notice  X- z  ` ` t117.  The Commission sought comment on whether independent payphone  X- d(#providers should receive some measure of interim compensation, to be paid until the effective  d(#date of the final rules adopted in this proceeding, for the growing volume of dialaround calls  X- d(#originated from their payphones.J yO-ԍNotice at para. 39.J Those who support such relief were instructed to comment  Xv- d(#on the appropriate interim compensation amount, how such an interim compensation mechanism  d(# could be structured, and the feasibility of implementing an interim plan when final rules are  XH- d(#required to be in place in nine months.GHX yOQ -ԍId. at para. 40.G The Commission also requested comment on the legal  d(#jbasis for, and practical consequences of, making such interim compensation effective as of the  X -release date of the Notice.:  yO-ԍId.:  X -` ` b. Comments  X - z   ` ` u118. Various independent payphone providers and BellSouth argue that the  d(#[Commission should prescribe interim relief for independent payphone providers, retroactive to  X- d(#the date of the Notice and to be paid until the effective date of the rules adopted in this  Xy- d(#proceeding, for the growing volume of dialaround calls originated from their payphones.yx yO- v ԍAPCC Comments at 3440; BellSouth Comments at 67; Communications Central Comments at 1011; NJPA Comments at 910; Peoples Comments at 1011; Telaleasing Reply at 8. They  d(#Zargue that independent payphone providers, unlike the LECs, are uncompensated for the majority  XK- d(#=of coinless calls that use their payphones, and that the quantity of these calls is increasing.cK yO-ԍAPCC Comments at 3437; Peoples Comments at 1011.c  d(#They also argue that delays for unforeseen reasons will likely impact the effective date of the  d(#final rules in this proceeding, which makes an interim relief mechanism a necessity for the  X- d(#survival of their businesses.:`  yO-ԍId.: These commenters suggest compensation amounts that range from  X- d(#$.40 on a percall basisr  yO!-ԍAPCC Comments at 3640; Communications Central Comments at 1011.r to $24,G  yO #-ԍNJPA Comments at 910.G $38.70, yO$-ԍPeoples Comments at 1011, accord BellSouth Reply at 2; Telaleasing Reply at 9. and $40H yO@&-ԍAPCC Comments at 3640.H on a flat rate per phone basis. Intellicall  d(#suggests that the Commission prescribe interim relief through a "callerpays" coin deposit"<0,^(^(JJ"  X- d(#approach.L yOy-ԍIntellicall Comments at 36.L BellSouth also argues that LECowned payphones should be eligible to receive  X- d(#\interim relief once they have removed all subsidies from their payphone operations.FX yO-ԍBellSouth Reply at 2.F The  d(#RBOCs, GTE, AT&T, MCI, Sprint, and One Call all oppose granting interim relief to  X- d(#\independent payphone providers. yOT- v MԍAT&T Comments at 11; GTE Comments at 10; MCI Comments at 15; One Call Comments at 8; RBOC Comments at 1920; Sprint Comments at 25. They argue that such relief would be unadministrable  d(#because it would require parties to participate in two payment systems, and interim relief would  X- d(#be without a statutory basis.:@ yO~ -ԍId.: AT&T states that it does not oppose interim relief for access code  Xv-calls only.Ev yO-ԍAT&T Comments at 11.E  XH-` ` c. Discussion  X - z ` ` v119. Because the IXCs required to pay compensation to PSPs are not required  d(#to track individual compensable calls until one year from the effective date of the rules adopted  d(#=in this proceeding, we conclude that PSPs should be paid monthly compensation on a flat rate  d(#by IXCs with annual toll revenues in excess of $100 million, beginning on the effective date of  X - d(#the rules adopted in this proceeding and ending on October 1, 1997.BX `  yO- v !ԍUnlike the percall compensation mechanism adopted in this Report and Order, the interim flatrate  d(#compensation obligation applies to both facilitiesbased IXCs and resellers that have respective toll revenues of $100 million per year.B This flatrate monthly  d(#compensation will apply proportionally to individual IXCs, based on their respective annual toll  d(#revenues. For reasons of administrative convenience of the parties, we conclude that we should  Xy- d(#model the interim mechanism adopted in this Report and Order on that set forth in the access  Xb- d(#-code call compensation proceeding.b  yO-ԍSee generally Second Report and Order, Reconsideration Order, and Second Further Notice. In the access code compensation proceeding, CC Docket  d(#/No. 9135, we excused several carriers from the obligation to pay flatrate compensation for  d(#.originating access code calls, because they certified that they were not providers of "operator  X- d(#services," as defined by TOCSIA.j yO"-ԍSecond Further Notice, 10 FCC Rcd at 11463. j We note that Section 276's requirement that we ensure fair  d(#compensation for "each and every completed intrastate and interstate call," including access code  d(#Zcalls, supersedes the compensation obligations established in CC Docket No. 9135, including the"=,^(^(JJ'"  X- d(#waivers granted to AT&T and Sprint.fP yOy- v zԍTwo IXCs, AT&T and Sprint, certified to the Commission that they were able to pay compensation on a  yOA- d(#percall basis and petitioned the Commission for approval to pay compensation on that basis. See Policies and Rules  d(#Concerning Operator Service Access and Pay Telephone Compensation, Memorandum Opinion and Order, 10 FCC  yO- d(#Rcd 1590 (Com. Car. Bur. 1994) ("AT&T Waiver"); Memorandum Opinion and Order, 10 FCC Rcd 5490 (Com.  yO- d(#iCar. Bur. 1995) ("Sprint Waiver"). They argued that a percall compensation mechanism would better serve the  d(#Commission's objective to implement a more costbased approach to compensation for calls to nonpresubscribed  d(#-OSPs. The Common Carrier Bureau agreed and granted AT&T and Sprint the right to pay compensation in the  O<amount of $.25 per call in lieu of paying perphone compensation to PPOs. Id.#x6X@`7pX@# f Because Section 276 is the statutory authority for  d(#Mmandating percall compensation for all compensable calls, including access code calls, the  d(#statutory exclusion in TOCSIA for those carriers that are not providers of "operator services" is  d(#no longer a basis for being excused from the obligation to pay either the total flatrate compensation amount established in the instant proceeding, or a portion thereof.  Xv- z  ` ` w120.  In the Notice, we set forth the history of the flatrate compensation  d(#!mechanism we adopted for access code calls. TOCSIA had directed the Commission to  d(#Kdetermine whether independent payphone providers should receive compensation for originating  X1- d(#interstate calls to nonpresubscribed OSPs from their payphones.1 yO-ԍ#X\  P6G;P#47 U.S.C.  226(e)(2).#x6X@`7pX@#ј The Commission concluded  X - d(#in the Second Report and Order that a percall compensation mechanism was preferable because  d(#=it would create greater incentives for PPOs to place their payphones in locations that generate  d(#the most traffic. The Commission concluded, however, that it was not technically feasible to  X - d(#implement such a mechanism at that time. p  yO-ԍ#X\  P6G;P#Second Report and Order, 7 FCC Rcd at 325253. Instead, the Commission adopted flatrate  d(#compensation in the amount of $6 per phone per month (based on average of 15 access code calls at a rate of $.40 per call), on an interim basis.  Xy- z  ` ` x121.  When we adopted a compensation mechanism for interstate access code  d(#calls, the Commission concluded that, because they did not involve use of a "carrierspecific  XK- d(#access code"K  yO- v ԍ#X\  P6G;P#The Second Report and Order defines an "access code" as a "sequence of numbers that, when dialed,  d(#Yconnects the caller to the OSP associated with that sequence, as opposed to the OSP presubscribed to the originating  d(#line. Access codes include 10XXX in equal access areas and "950" Feature Group B dialing (9500XXX or 950 d(#,1XXX) anywhere, where the threedigit XXX denotes a particular IXC. Some OSPs use an 800 number as an access  yO!-code." Id. at 3251 n.1. and were routed directly to an end user, subscriber 800 calls were not within the  X4- d(#class of calls for which TOCSIA directed the Commission to consider compensation.X4 yO#- v !ԍ#Xj\  P6G;XP##X\  P6G;P#First Report and Order, 6 FCC Rcd at 4746 (citing S. Rep. No. 439, 101st Cong., 2d Sess. 19 (1990),  yO]$- d(#reprinted in 1990 U.S. Code Cong. & Ad. News 1577, 1582). "Subscriber 800 calls" consist of calls to an 800  yO%%-number assigned to a particular subscriber. See Florida Payphone, 54 F.3d at 859. The"4>,^(^(JJ "  X- d(#yCommission, therefore, limited compensation to interstate "access code calls."b yOy-ԍ#X\  P6G;P#Id. b In July  d(#1992, in response to a petition for reconsideration by the APCC, the Commission affirmed its  d(#conclusion that subscriber 800 calls were not within the Commission's definition of interstate  X- d(#"access code calls" for which compensation should be paid.9X yO- v !ԍ#X\  P6G;P#Policies and Rules Concerning Operator Service Access and Pay Telephone Compensation, Order on  yO-Reconsideration, 7 FCC Rcd 4355, 4367 (1992) ("Subscriber 800 Reconsideration Order").9 In 1992, after the Commission  d(#affirmed its exclusion of subscriber 800 calls from the class of compensable access code calls,  d(#the Florida Pay Telephone Association ("FPTA") sought judicial review in the United States  Xv- d(#Court of Appeals for the District of Columbia Circuit of this aspect of the First Report and Order  X_- d(#and the Subscriber 800 Reconsideration Order. In its Florida Payphone decision,_ yO -ԍ#X\  P6G;P#Florida Payphone, 54 F.3d at 857. the Court  d(#Kfound no reason to distinguish between the routing of access code calls and subscriber 800 calls.  d(#Therefore, it reversed and remanded the case to the Commission to "consider the need to  d(#prescribe compensation for subscriber 800 calls 'routed to providers of operator services that are  X -other than the presubscribed provider of operator services.'"a @ yO-ԍ#X\  P6G;P#Id.a  X - z ` ` y122. We first reexamine the basis for setting the $.40 percall compensation  X - d(#amount that was aggregated to a flat rate of $6 per month. In the 1992 Second Report and  X - d(#Order, the Commission identified three reasonable compensation approaches that established a  d(#/range of reasonable compensation rates. The three approaches were: (1) as a surrogate for  d(#jindependent payphone provider costs, access charge compensation that a LEC receives for its  d(#=regulated provision of payphones; (2) as a measure of value to OSPs of receiving access code  XK- d(#[calls, charges for a transfer by a LEC live operator to an OSP of the caller's choice ("O transfer  d(#service charges"); and (3) AT&T's federally regulated operator service rates on calls made from  X- d(#payphones presubscribed to AT&T. yO-ԍSee Second Report and Order, 7 FCC Rcd at 325557.#x6X@`7pX@#і We conclude that these three approaches, which are based  d(#on a different standard than that in Section 276, are inapplicable for determining interim  d(#compensation in the instant proceeding. Our focus in the instant proceeding is to let the market  X- d(#set the appropriate compensation amount. As discussed above,K`  yO -ԍSee para. 56, above.K for the limited purpose of  d(#>calculating compensation for PSPs on a flatrate basis until percall compensation becomes  d(#ymandatory we will use a rate of $.35 per call, which is the rate in the majority of states that have allowed the market to determine the appropriate local coin rate.  Xe- z  ` ` z123.  We next reexamine the average number of access code calls originated by  d(#a payphone per month. In 1992, the Commission found that the average was 15 calls. As  d(#summarized below, data on the record in the instant proceeding indicate that the average number"7? ,^(^(JJ"  d(#of access code calls per month is now considerably higher. In addition, similar data show the volume of subscriber 800 calls generated by the average payphone.  X-   X- z ` ` {124.  Various independent payphone providers and the RBOCs submitted data  d(#yon the average number of access code and subscriber 800 calls originated respectively by their  d(#payphones. Together, these data cover payphones located in geographically diverse areas across  d(#the country. Peoples, the largest independent provider, states that each of its payphones  d(#=originates, on average, 43 access code calls and 86 subscriber 800 calls per month (total of 129  XH- d(#compensable calls).H yO - v ԍPeoples Comments at 910. Peoples' estimates are derived from the total number of calls originated by all  yO -of its payphones over a sixmonth period spanning late 1995 to early 1996. Id. Communications Central, another large independent payphone provider,  d(#states that each of its payphones originates an average of 49.5 access code calls and 79.7  X - d(#ysubscriber 800 calls per month (total of 130 compensable calls).  yO - v ԍCommunications Central Comments at Attachment B. Communications Central's estimates are derived from  yO-the total number of calls originated by all of its payphones over a onemonth period in 1996. Id. Telaleasing states that each  d(#of its payphones originates an average of 37 access code calls and 87 subscriber 800 calls per  X - d(#jmonth (total of 124 compensable calls). x yO- v ԍTelaleasing Reply at 8. Telaleasing's estimates are derived from the total number of calls originated by all  yO-of its payphones over a onemonth period in 1996. Id. APCC states that it surveyed approximately 100,000  d(#payphones owned by 20 diverse providers and found that, in a threemonth period in 1996, each  d(#payphone originated an average of 40 access code calls and 100 subscriber 800 calls per month  X - d(#\(total of 140 compensable calls).F  yO(-ԍAPCC Comments at 56.F Data provided by the RBOCs show that the payphones  d(#maintained by five of the seven RBOCs originate, on average, 52 access code calls and 80  Xy-subscriber 800 calls per payphone per month (total of 132 compensable calls).y`  yO- v ԍSee Ex Parte Letter of Michael Kellogg, Counsel, RBOCs, to William Caton, Acting Secretary, FCC (August 23, 1996).  XK- z q` ` |125.  The data on the record from the five PSP sources noted in the preceding  d(#paragraph yield similar average monthly compensable call volumes. Based on the call volume  d(#data provided by the PSPs, we conclude that, for purposes of calculating flatrate compensation,  d(#jthat the average payphone originates a combined total of 131 access code calls and subscriber  X- d(#{800 calls per month.  yOX"- v >ԍThe PSP data tend to show that one third of the total amount of compensable calls are access code calls, while two thirds are subscriber 800 calls. When 131 calls per month is multiplied by the $.35 compensation  d(#amount, the monthly flatrate compensation amount is $45.85. We conclude that this $45.85 flat d(#rate amount must be paid by carriers, proportionally to their annual toll revenues, to PSPs. This  d(#flatrate obligation applies to access code calls and subscriber 800 calls originated on or after the"@,^(^(JJ"  X- d(#jeffective date of the rules adopted in this proceeding.LX yOy- v ԍWe conclude that on the effective date of the interim compensation set forth in this Order, the $6 per  yOA- d(#payphone per month compensation for access code calls, as set forth in CC Docket No. 9135, is terminated. See para. 119, above.L PSPs that are affiliated with LECs will  d(#not be eligible for this interim compensation until the first day of the month following their  d(#reclassification and transfer of payment equipment along with the termination of subsidies, as  X-discussed below.r yOT-ԍSee generally, Part B of this Report and Order.r  X- z ` ` }126. We decline to require that percall compensation be paid retroactive to the  Xv- d(#.date of release of the Notice.# vx yO - v ԍThe independent payphone providers refer to this retroactive compensation as "interim relief." See para.  yOg - d(#117, above. The interim flatrate compensation that we mandate in this Report and Order, pursuant to Section  d(#276(b)(1)(A), is for the first year after the effective date of the rules adopted in this proceeding. The term "interim" refers to the oneyear period before compensation is to be paid on a percall basis.# We conclude that the rules adopted in this Report and Order,  d(#including the requirement that interim flatrate compensation be paid until percall tracking  d(#capabilities are in place, provides compensation to PSPs as soon as practicable. For the same  X1- d(#reasons discussed elsewhere in this Report and Order,L1`  yOB-ԍSee para. 85, above.L we also reject Intellicall's argument that interim compensation be mandated through a "caller pays" coindeposit approach.  X -#XP\  P6QXP# B. RECLASSIFICATION OF INCUMBENT LEC-OWNED PAYPHONES  X - z a` ` ~127. In the foregoing Part, we establish rules and guidelines to ensure that PSPs  d(#are fairly compensated for calls originating at their payphones. For certain PSPs those who  d(#are LECs the new compensation arrangement can be implemented only upon the  d(#discontinuance of the regulatory system under which they now recover their costs of providing  d(#=payphone service. In this Part, we describe the necessary steps for the LECs' transition to the new compensation framework, and set a schedule for the LECs' implementing actions.  X- #` ` 128. Section 276(b)(1)(B) directs the Commission to "discontinue the intrastate  d(#and interstate carrier access charge payphone service elements and payments in effect on such  d(#date of enactment, and all intrastate and interstate payphone subsidies from basic exchange and  X- d(#-exchange access revenues, in favor of a [per-call] compensation plan[.]"t  yOb#-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(B).t Currently, incumbent  d(#LEC payphones, classified as part of the network, recover their costs from Carrier Common Line  d(#>(CCL) charges assessed on those carriers that connect with the incumbent LEC. In order to  d(#Mcomply with Section 276(b)(1)(B) by removing payphone costs from the CCL charge and all  d(#Zintrastate and interstate payphone subsidies from basic exchange and exchange access revenues,"eA ,^(^(JJ"  X- d(#the Notice sought comment on: (1) the prospective classification of incumbent LEC payphones  d(#as Customer Premises Equipment (CPE); (2) the transfer of incumbent LEC payphone equipment  d(#assets from regulated to nonregulated status; (3) the termination of access charge compensation  d(#and all other subsidies for incumbent LEC payphones; and (4) the classification of AT&T payphones.  Xv- 1.  Classification of LEC Payphones as CPE   XH- ` ` a.   The Notice  X - z q  ` ` 129.  In the Notice, we tentatively concluded that incumbent LEC payphones  X - d(#should be treated as nonregulated, detariffed CPE.J  yO| -ԍNotice at para. 42.J We also proposed that incumbent LECs,  d(#whether or not they provide payphone service, must offer individual central office coin  X - d(#Ztransmission services to PSPs under a nondiscriminatory, public, tariffed offering.G X yO-ԍId. at para. 45.G To this end,  X - d(#\we sought comment on both the central office coin services that must be made available by  X - d(#incumbent LECs to the PSPs to achieve this goal , and the type of services and the technological  X- d(#requirements necessary to allow independent payphone providers to use payphones that are  Xy- d(# equivalent to those payphones currently used by LECs. In addition, we sought comment on any  Xb- d(#industry standards that may need to be developed with respect to potential claims regarding any  d(#demonstrable network reliability concerns that may result from PSPs connecting their payphones  X4-that make use of central office coin transmission services.:4 yO-ԍId.:  X- z ` ` 130.  Because the incumbent LECs have used central office coin services in the  d(#past, but have not made these services available to independent payphone providers for use in  d(#their provision of payphone services, we sought comment on whether incumbent LEC provision  X- d(#of coin transmission services on an unbundled basis should be treated as a new service under our  X- d(#price cap rules.Gx yO-ԍId. at para. 46.G Because incumbent LECs may have an incentive to charge their competitors  d(#unreasonably high prices for these services, we tentatively concluded that the new services test  X|- d(#Kis necessary to ensure that central office coin services are priced reasonably.:| yO5"-ԍId.: Additionally, we  d(#Zsought comment on whether incumbent LECs not currently subject to price cap regulation should  d(#be required to submit cost support for their central office coin services, pursuant to Sections  X7-61.38, 61.39, and 61.50(i) of our rules.:7 yO&-ԍId.: " B( ,^(^(JJ"Ԍ X- z ` ` 131.  We also tentatively concluded that Section 68.2(a)(1) of our rules should  X- d(#0be amended to facilitate registration of both instrumentimplemented and centraloffice X- d(#Limplemented payphones and sought comment on this tentative conclusion.G yOK-ԍId. at para. 47.G In addition, we  d(#xtentatively concluded that the demarcation point for all new LEC payphones should be consistent  d(#with the minimum point of entry standards for other wireline services and, in addition, tentatively  d(#concluded that the demarcation point should be the same one as incumbent LECs use for  Xv- d(#independent payphone providers today.:vX yO -ԍId.: Finally, we sought comment on what services (such  d(#as fraud protection, installation and maintenance services, joint marketing opportunities, percall  d(#tracking capabilities, and call validation services) other than those associated with central office  d(#-coin transmission services provided to their own payphones by incumbent LECs, particularly the  d(#BOCs, should be unbundled under the rules to be adopted in this proceeding and made available  X -to PSPs.M  yO-ԍId. at para. 48.M " Cx,^(^(JJ "  X-` ` b. Comments  X- ` `  i. CPE Deregulation  X-` `   X- z C` ` 132.  Most of the parties support reclassifying payphone equipment as CPE and  d(#-generally assert that deregulating payphone equipment is important in establishing a competitive  Xv- d(#payphone market.\v yO- v ԍAT&T Comments at 18; USTA Comments at 5; Ameritech Comments at 13; NJPA Comments at 10;  d(#SCPCA Comments at 2; Sprint Comments at 25; CPA Comments at 1011; MCI Comments at 15; RBOC Comments  d(#at 23; GPCA Comments at 5 [Note: with regard to payphone reclassification and nonstructural safeguards, APCC  yOG - d(#relies on and agrees with GPCA comments. See APCC Comments at 41; APCC Reply at 35]; California PUC Comments at 14; USTA Comments at 5; GTE Reply Comments at 810. \ Ohio PUC, on the other hand, argues that payphones should be detariffed  X_- d(#but not deregulated and a charge should be imputed for LEC payphones.L_x yO -ԍOhio PUC Comments at 910 .L Florida PSC supports  d(#Lderegulating payphones because needed functionalities are available either from the set or the  d(#[network and because deregulation will ensure that payphone service is not subsidized. Florida  d(#PSC argues, however, that smaller LECs should be given a choice whether to deregulate CPE,  X - d(#=because separating costs is burdensome.  yO- v !ԍFlorida PSC Comments at 45. Florida recommends that LECs with less than 100,000 access lines be  yO-allowed to choose whether to deregulate CPE. Id. Ameritech contends that payphone deregulation  d(#yshould apply to all LECs, not just incumbent LECs, because Section 276 (b)(1)(B) is not limited  X -in applicability.L `  yO-ԍAmeritech Comments at 34 .L  X - z b` ` 133.  The RBOCs argue that there should be a twelvemonth transition period  X- d(#to nonregulated status for payphone CPE.E  yO1-ԍRBOC Comments at 30.E Others argue there should be no transition period,  Xy- d(#0or a shorter period than twelve months, for example, 90 days after release of an order.my  yO-ԍInternational Telecard Comments at 2627; GPCA Reply at 15. m  d(#BellSouth argues that it should be able to conduct deregulated operations immediately on the  XK-release of this Report and Order.FK yO !-ԍBellSouth Reply at 8.F  X- z ` ` 134.  GPCA argues that a separate subsidiary should be required for BOCs that  X- d(#Mmerge.D yOW%-ԍGPCA Comments at 4.D Ohio PUC argues that Tier 1 LECs should provide payphones through a separate"D0,^(^(JJ("  X- d(#subsidiary if payphone equipment is deregulated.I yOy-ԍOhio PUC Comments at 13.I Most of the parties, however, do not argue that a separate subsidiary is requiredX yO- v ԍFlorida PSC at 6; NJPA Comments at 1112:SW Bell Reply at 5; USTA Comments at 5; PacTel Reply Comments at 25; Sprint Comments at 25. and  X- d(#lFlorida PSC argues that it should be the option of the LEC.L yO3-ԍFlorida PSC Comments at 6. L The RBOCs argue that the  d(#Commission's accounting safeguards and price cap rules are sufficient to deter cross X- d(#subsidization.E@ yO -ԍRBOC Reply at 2123.E They also argue that a separate subsidiary requirement is against the plain  X- d(#jlanguage of the 1996 Act and that such a requirement was dropped from the Senate version.K yO-ԍRBOC Comments at 40, n.53.K  Xv- d(#PacTel argues that the nonstructural safeguards of Computer III were expressly mandated by  X_-Section 276.E_`  yOp-ԍPacTel Reply at 25.E  X1-` `  ii. Unbundling of Payphone Services ` `  X - z p` ` 135.  The RBOCs and PacTel argue that the Commission should not require more  d(#<unbundling than is necessary to ensure that PSPs and LECs are able to use the same payphones  d(#ԩ standard centraloffice coin line and the alternate (smart set) access line. They also argue that  X - d(#0the unbundling criteria used in Computer III should apply to any further unbundling.Z  yO_-ԍPacTel Reply at 25; RBOC Reply at 2123.Z  d(#California PUC and GTE state that access line and central office transmission services should be  X- d(#tariffed.c  yO-ԍCalifornia PUC Comments at 14; GTE Reply at 810.c Ameritech states that it will offer tariffed coin line service, centralized office based  Xy- d(#xcoin rating, and signaling functionality, or payphone line (like business line).My yO:-ԍAmeritech Comments at 1617.M GPCA argues that  Xb- d(#coin line and alternate access line do not provide all the needed capabilities.Ab yO!-ԍGPCA Reply at 3.A MCI argues that  d(#the BOCs should provide all functionalities used in their delivery of payphone services on a  X4-nondiscriminatory basis, including coin transmission services and other associated services.E40 yO%-ԍMCI Comments at 16. E "E,^(^(JJ"Ԍ X- z ` ` 136.  GVNW argues that the interconnection rules must be flexible for small  X- d(#LECs because small LECs do not implement payphone services in the same way as do the BOCs,  d(#\and that small LECs should only have to provide payphone services to others that they are  X- d(#providing to themselves.F yO4-ԍGVNW Comments at 57.F AT&T states that competitive access providers (CAPs) should not  X- d(#have to offer central office coin service unless they provide payphone service themselves.X yO-ԍAT&T Comments at n. 37; AT&T Reply at n.71. See also NCTA Comments at 5.  d(#.NCTA and OPASTCO argue that LECs should not have to provide a specific set of payphone  d(#services, such as central coin services, that they are not already equipped to provide because of  X_- d(#the significant investment required to upgrade switches.Y_ yO -ԍNCTA Reply at 46; OPASTCO Reply at 23.Y Florida PSC states that all LECs in  XH-Florida tariff payphone blocking, screening, and intercept services.LHx yOq-ԍFlorida PSC Comments at 7.L  X - z ` ` 137.  AT&T argues that LECs should be required to offer under tariff all  d(#functions used in their delivery of payphone services, including: all central office intelligence,  d(#answer supervision, collect refund, far end disconnect, call blocking and screening options, access  X - d(#\to some monitoring and disaggregation routines, and 911 services.^  yO-ԍAT&T Comments at 19, n. 36 & at 22, n. 4243.^ GPCA argues that all  d(#network functions must be unbundled and charges should be imputed for inputs from regulated  d(#services. GPCA also argues that the following functions should be unbundled: answer  d(#supervision, the intercept signal (indicating that the call cannot be completed as dialed), coin  d(#collect and return functionality, and rate schedule functionality. In addition, GPCA asserts that  d(#Kthese functionalities are necessary to provide fraud protection and to ensure that cross subsidies  XK-are eliminated.CK yO-ԍGPCA Reply at 17.C CPA supports GPCA's recommended list of functionalities.MK(  yO$-ԍCPA Reply Comments at 1516.M  X- z C ` ` 138.  AT&T contends that LECs must offer public access line services for resale  X- d(#-at rates that reflect the economic cost of providing the services through TSLRICbased prices,L  yOo!-ԍAT&T Comments at 19, n. 36.L  d(#while SW Bell argues that Section 252 pricing should not apply to Section 276 payphones  X- d(#.services.DH  yO$-ԍSW Bell Reply at 7.D California PUC asserts that LECs should unbundle and provide tariffed payphone  X- d(#iservices and that new services should be justified with cost studies.O yOJ'-ԍCalifornia PUC Comments at 16.O CPA argues that whatever"Fh,^(^(JJ"  X- d(#rates are established for payphone services should be imputed to the LEC payphone operations.D yOy-ԍCPA Reply at 1516.D  d(#The RBOCs, USTA and GTE argue that unbundled payphone services should be tariffed at the  X-state level and therefore not subject to the new services test under the Commission's rules.fX yO-ԍRBOC Comments at 25; USTA Reply at 7; GTE Reply at 9.f  X-  X-` `  iii. Other Payphone Services  Xv- z ` ` 139.  GPCA asserts that other services should be available on an equal access  d(#basis, including fraud protection, special number assignments, installation and maintenance,  d(#billing and collection, validation, per call tracking, and joint marketing. GPCA also argues that  d(#Lif operator services are available in the LEC network, and commissions are paid to the LEC, the  X - d(#commissions should be available to independent payphone providers.D  yO-ԍGPCA Reply at 714.D MCI contends that fraud  d(#protection, installation and maintenance, percall tracking, and call validation services should be  X - d(#available to independent payphone providers.VX x yO- v ԍMCI Comments at 1516. MCI contends that a "cuckoo" tone (which identifies the phone to an operator  d(#Yas a payphone) should be available for fraud protection, rather than specialized phone numbers used for LEC phones  yO-today. Id. at 16.V The RBOCs and Sprint argue that these additional  X -services are not necessary for PSPs to provide service.\  yO-ԍRBOC Comments at 25; Sprint Comments at 26.\pp  X -` `    X -` `  iv. Registration and Demarcation Point for Payphones   X-  Xy- z ` ` 140.  The RBOCs, MCI, and Oklahoma CC assert that Section 68.2(a)(1) of our  d(#rules should be amended to include registration of both instrumentimplemented and central XK- d(#Kofficeimplemented payphones.tK(  yO$-ԍRBOC Comments at 26; MCI Comments at 16; Oklahoma CC Comments at 3.t The RBOCs argue that the embedded, installed base should be  d(#.grandfathered but new sets and refurbished sets (with added functionality) should have to be  X- d(#registered.E  yO -ԍRBOC Comments at 26.E GPCA does not oppose grandfathering the installed base of payphones from Part  X- d(#68 registration, but argues that refurbished payphones should not be grandfathered.AH  yO"-ԍGPCA Reply at 7.A The RBOCs  d(#contend that standards for interconnection should be established by revising Section 68.3 of our"G,^(^(JJ'"  X- d(#rules to include specifications for centralofficeimplemented payphones.K yOy-ԍRBOC Comments at 26, n.28.K Anchorage Telephone  X-suggests that a technical committee should be established to develop interconnection standards.SX yO-ԍAnchorage Telephone Comments at 1.S  X- z E` ` 141.  AT&T, MCI, and Sprint contend that the demarcation point for LEC  X- d(#payphones should be the same as it is today for independent payphone providers.x yO= -ԍAT&T Comments at 18 n.34; MCI Comments at 16; Sprint Comments at 2526.x GPCA  d(#argues that the demarcation point should be applied in a nondiscriminatory manner to all  d(#xpayphones and that LECs should be required to set demarcation points for different types of sites  d(#if the points will vary. GPCA also asserts that embedded inside wire should be available to all  d(#providers on an equal basis and that the demarcation point for embedded and new inside wire  X1- d(#Zshould be the same.K1x yOZ-ԍGPCA Comments at 7, 1011.K The RBOCs argue that the demarcation point should be treated flexibly.E1 yO-ԍRBOC Comments at 27.E  d(#LIn contrast, CPA argues that the demarcation point should not be flexible and should be at the  X -minimum point of entry.G  yOL-ԍCPA Comments at 1011.G   X - ` ` c. Discussion   X -` `  i. CPE Deregulation  X-  Xy- z D ` ` 142.  We conclude that to best effectuate the 1996 Act's mandate that access  d(#charge payphone service elements and payphone subsidies from basic exchange and exchange  d(#access revenues be discontinued, incumbent LEC payphones should be treated as deregulated and  X4- d(#detariffed CPE. The Commission determined in Computer II that CPE should be deregulated and  d(#detariffed to ensure that the costs associated with regulated services are separated from the  X- d(#lcompetitive provision of the equipment used in conjunction with those services.m (  yO- v ԍ#C\  P6QP#Amendment of Section 64.702 of the Commission's Rules and Regulations (Second Computer Inquiry), 77  yO - d(#FCC 2d 384, 445 (1980) (Computer II), modified on recon., 84 FCC 2d 50 (1981), modified on further recon., 88  yOo!- d(#FCC 2d 512 (1981), aff'd sub nom. Computer and Communications Industry Ass'n v. FCC, 693 F.2d 198 (D.C. Cir.  yO7"-1982), cert denied, 462 U.S. 938 (1983).#X\  P6G;P#hhCm The  X- d(#Commission concluded that CPE should be unbundled from its underlying transmission service  X- d(# in order to prevent improper crosssubsidization. yO%-ԍ#C\  P6QP#Computer II, 77 FCC 2d at 4667, 474. Consistent with this prior finding, we  d(#conclude that LEC payphones must be treated as unregulated, detariffed CPE in order to ensure"H,^(^(JJ"  d(#that no subsidies are provided from basic exchange and exchange access revenues or access charge payphone service elements as required by the Act.  X- %` ` 143. In Computer II, the Commission specifically excluded coinoperated  X- d(#Lpayphones from the definition of CPE.p yO-ԍ#C\  P6QP#Id. at 447, n. 57.p The Commission found that, unlike other CPE, which  d(#could be unbundled from basic exchange service, coinoperated payphones were still integrated  d(#with the LECs' network facilities and concluded that payphones owned by LECs and AT&T  X_- d(#Zshould remain part of regulated basic communications service.c_X yOh -ԍ#C\  P6QP#Id. c The Commission later extended  XH- d(#this determination to LEC coinless payphones.QH yO - v ԍ#C\  P6QP#Petition for Declaratory Ruling of Tonka Tools, Inc. and Southern Merchandise Corp. Regarding American  yO -Telephone and Telegraph Company Provision of Coinless Pay Telephones, 58 RR2d 903, 910 (1985) (Tonka Tools).Q Thereafter, the Commission, in the Coin  X1- d(#Registration Order, recognized the right of nonLEC payphone providers to interconnect smart  X - d(#>payphones to the interstate public switched network.  @ yO - v {ԍ#C\  P6QP#See Registration of Coin Operated Telephones, Memorandum Opinion and Order, 49 Fed. Reg. 27763  yO-(1984) (Coin Registration Order).  Following this order allowing the  d(#interconnection of smart payphones, independent payphone providers began to compete with the  d(#jLECs. Currently, there are approximately 1.5 million LEC payphones and approximately 350,000  X - d(#competitively provided payphones.w  yO-ԍ#C\  P6QP#See para. 9, above.w We conclude that the market for payphone CPE is  d(#[competitive and that it is no longer necessary to treat payphone CPE differently by integrating  d(#LEC payphones with the underlying service. Moreover, we conclude that the transient public that  X- d(#uses payphones will best be served by the wide availability of competitive payphones services.  d(#MWe also conclude that it is not in the public interest to continue to treat LEC payphones as  d(#regulated equipment, while treating independent payphones as CPE, and that deregulation of  XK- d(#payphones is consistent with the procompetitive approach set forth in Section 276.pK(  yO$-ԍ#C\  P6QP#47 U.S.C.  276(b)(1)p We have  X4- d(#jrecently deregulated inmate payphones 4  yO- v ԍ#C\  P6QP# Petition for Declaratory Ruling by the Inmate Calling Services Providers Task Force, Declaratory Ruling,  yOe - d(#11 FCC Rcd 7362 (1996) (Inmate Services Order); Petitions for Waiver and Partial Reconsideration or Stay of  yO-!- d(#InmateOnly Payphones Declaratory Ruling, Order, 11 FCC Rcd 8013 (Com. Car. Bur. 1996)(Inmate Services  yO!-Waiver Order).and most of the parties in this proceeding agree that  X- d(# incumbent LEC payphones should also be deregulated and detariffed.% Xn$- v ^#C\  P6QP##XP\  P6QXP#э#C\  P6QP#We discuss at paras. 159, below, the equipment to be deregulated and detariffed and the method of valuation. % Accordingly, we"I,^(^(JJG"  d(#conclude that incumbent LEC payphones must be deregulated, detariffed and classified as CPE  X-for regulatory purposes. Xb- v L#XP\  P6QXP#э#X\  P6G;P#See also para. 190, below, regarding AT&T payphones. Section 255 of the 1996 Act requires manufacturers  d(#of telecommunications equipment and CPE, and telecommunications service providers, to ensure that their equipment  d(#and services are accessible to persons with disabilities, if readily achievable. 47 U.S.C.  255(b)(c). If such access  d(#is not readily achievable, the manufacturer or service provider must ensure that the equipment or service is  d(#Ycompatible with existing peripheral devices or specialized CPE commonly used by persons with disabilities, if readily  yOk-achievable. 47 U.S.C.  255(d). The implementation of Section 255 will be addressed in a separate proceeding.#x6X@`7pX@#  X- z ` ` 144.  We decline to limit the deregulation of payphones to those owned by larger  d(#/LECs, as suggested by the Florida PSC, because Section 276 is not limited in application to  d(#larger LECs. Moreover, we conclude that the benefits we have observed in CPE deregulation apply to payphones and that these benefits apply regardless of the size of the LEC.  XH-  ` ` 145. We decline to require the BOCs or other incumbent LECs to provide their  X1- d(#payphone CPE through a structurally separated affiliate.X1a yOC- v [ԍSee paras. 192207, below, for a discussion of the statutory mandate that we "prescribe a set of nonstructural  d(#Jsafeguards for [BOC] payphone service ... which safeguards shall, at a minimum, include the nonstructural safeguards equal to those adopted in the Computer InquiryIII ... proceeding." 47 U.S.C.  276(b)(1)(C). We discuss below the nonstructural  d(#safeguards we require for BOCs to provide payphone CPE on an integrated basis and decline to  d(#require, as proposed by some commenters, that other incumbent LECs be required to provide  X - d(#CPE through structurally separate affiliates. Section 276 does not require LEC or BOC  d(#provision of payphone service through a separate subsidiary. Although the 1996 Act does not  d(#kspecifically prohibit the Commission from imposing a separation requirement, it requires the  d(#establishment of nonstructural safeguards for the BOCs, a clear statement that nonstructural  X- d(#safeguards, rather than structural separation, are mandated.~  yO-ԍ#C\  P6QP#See 47 U.S.C. 276(b)(1)(C).~ Moreover, Section 276 does not  d(#require even nonstructural safeguards for other LECs. Other sections of the 1996 Act, including  d(#Section 272, BOC provision of interLATA services, and Section 274, BOC provision of  XK- d(#electronic publishing, specifically require structural separation. In addition, in the BOC CPE  X4- d(#Relief Order we removed the structural separation requirements established in Computer II for  d(#.BOC provision of CPE because we concluded that nonstructural safeguards were sufficient to  d(#deter crosssubsidization and discrimination and the high costs of mandatory structural separation  X- d(#>were not in the public interest.'  yO!- v mԍ#C\  P6QP#Furnishing of Customer Premises Equipment by the Bell Operating Telephone Companies and the  yOy"-Independent Telephone Companies, 2 FCC Rcd 143 (1987)(BOC CPE Relief Order). ' This conclusion is also applicable in the context of BOC  X- d(#^provision of payphone CPE. We also note that the Computer II structural separation  X- d(#requirements were not applied to the provision of CPE by other LECs.4i  yO%- v ԍ#C\  P6QP#See Computer II, 77 FCC 2d at 46970.  Structural separation requirements initially imposed on GTE were  yO&-removed on reconsideration. See 84 FCC 2d at 7275. 4#C\  P6QP##XP\  P6QXP# Finally, we note that  d(#nonstructural accounting safeguards applicable to the BOCs' provision of payphone service are"J,^(^(JJp"  X- d(#being established in a separate proceeding.yX yOy- v ԍ#C\  P6QP#See Implementation of the Telecommunications Act of 1996: Accounting Safeguards under the  yOA- d(#.Telecommunications Act of 1996, Notice of Proposed Rulemaking, 11 FCC Rcd 9054 (1996) ("Accounting  yO -Safeguards NPRM").y Accordingly, we do not impose structural  d(#separation requirements for the provision of payphones by the BOCs or other LECs. As we did  X- d(#in the BOC CPE Relief Order, we preempt states' ability to impose structural separation  X- d(#yrequirements on the payphone operations of the BOCs or other LECs. yOT-ԍ#C\  P6QP#BOC CPE Relief Order, 2 #C\  P6QP#FCC Rcd at 143. See 47 U.S.C.  276(c). We do not, however,  d(#Lpreempt the states from imposing on nonBOC LECs nonstructural safeguards that are no more stringent than those we impose on the BOCs.  X_-` `  ii. Unbundling of Payphone Services  XH-  X1- z ` ` 146.  We conclude, pursuant to Computer II, Section 201, 202, and 276 of the  d(#yAct, and previous CPE decisions, that incumbent LECs must offer individual central office coin  d(#transmission services to PSPs under nondiscriminatory, public, tariffed offerings if the LECs  X - d(#provide those services for their own operations. x yO- v ԍComputer II, 77 FCC 2d at 3879; 47 U.S.C. 201, 202, and 276; BOC CPE Relief Order, 2 FCC Rcd at 143. Under Computer II, all carriers must unbundle  X - d(#basic transmission services from CPE.U  yOV-ԍSee 47 C.F.R.  64.702(e).U Moreover, Section 202 of the Act prohibits a carrier  X - d(#?from discriminating unreasonably in its provision of basic service.Q `  yO-ԍSee 47 U.S.C. 202(a).Q We conclude that  d(#{incumbent LECs must provide coin service so competitive payphone providers can offer  d(#payphone services using either instrumentimplemented "smart payphones" or "dumb" payphones  d(#that utilize central office coin services, or some combination of the two in a manner similar to  d(#.the LECs. Because the incumbent LECs have used central office coin services in the past, but  d(#>have not made these services available to independent payphone providers for use in their  d(#yprovision of payphone services, we require that incumbent LEC provision of coin transmission  X- d(#services on an unbundled basis be treated as a new service under the Commission's price cap  d(#rules. Because incumbent LECs may have an incentive to charge their competitors unreasonably  X- d(#-high prices for these services, we conclude that the new services test is necessary to ensure that  X- d(#central office coin services are priced reasonably. Incumbent LECs not currently subject to price  d(#cap regulation must submit cost support for their central office coin services, pursuant to Sections  X- d(#61.38, 61.39, or 61.50(i) of the Commission's rules.c  yOK$-ԍ47 C.F.R.  61.38, 61.39, 61.50(i).c Incumbent LECs must file tariffs with  d(#lthe Commission for these services no later than January 15, 1997. To the extent that this  X|- d(#Lrequirement precludes the BOCs from complying with the Computer II, Computer III, and ONA  d(#network information disclosure requirements, we waive the notice period in order to ensure that"eK ,^(^(JJ1"  d(#Kthese services are provided on a timely basis consistent with the other deregulatory requirements  X- d(#of this order.x yOb- v ԍNetwork disclosure requirements are discussed in Computer II, 2 FCC Rcd at 150151; 3 FCC at 2324;  yO*- d(#and Computer III at 3 FCC Rcd at 116465. The Commission may waive a rule for good cause shown, in whole  yO- d(#or in part, on the Commission's own motion or petition. 47 C.F.R.  1.3. Regarding the waiver standard, see Wait  yO- d(#Radio v. Federal Communications Commission, 418 F.2d 1153 (D.C. Cir. 1969); Northeast Cellular Telephone Co.  yO- d(#v. Federal Communications Commission, 897 F.2d 1164 (D.C. Cir. 1990). See also Inmate Services Waiver Order  d(#Y11 FCC Rcd at 8013 (granting a waiver of the network disclosure notice period to enable the provision of payphone services for inmate payphones before the required notice period). Pursuant to this waiver, network information disclosure on the basic network payphone services must be made by the BOCs by January 15, 1997.  X- ` ` 147. We conclude that tariffs for payphone services must be filed with the  d(#ZCommission as part of the LECs' access services to ensure that the services are reasonably priced  Xv- d(# and do not include subsidies. v yO/- v ԍBOCs have filed payphone service tariffs with the Commission. See e.g., US West Communications, Tariff  d(#FCC No. 5, Pay Telephone SentPaid Services, August 5, 1994; BellSouth Communications Inc., Tariff F.C.C.No.  yO- d(#1, Access Service, Coin Services, January 31, 1992. See 47 U.S.C.  276(c) and  201205 regarding authority to require tariffing of basic payphone services. This requirement is consistent with the Section 276 prescription  d(#that all subsidies be removed from payphone operations. We decline to require, as proposed by  d(#AT&T, that the pricing regime under Sections 251 and 252 apply to all Section 276 payphone  d(#yservices offered by incumbent LECs. Section 276 does not refer to or require the application of  d(#Sections 251 and 252 to LEC payphone services. In addition, the elements and services to be  d(#offered under Sections 251 and 252 are not available to entities that are not telecommunications  X - d(#carriers, and many PSPs are not telecommunications carriers.   yO- v ԍSee Local Competition Order at para. 876 (holding that the services that incumbent LECs offer to PSPs are  d(#retail services provided to end users, and should be available at wholesale rates to telecommunications carriers and  d(#lSection 251(c)(4), but need not be made available at wholesale rates to independent PSPs that are not telecommunications carriers). In addition, Section 276 does  d(#{not refer to or require the application of Sections 251 and 252 to LEC payphone services.  X - d(#^Moreover, Section 276 specifically refers to the application of Computer III and ONA  d(#requirements, at a minimum for BOC provision of payphone services. Accordingly, we conclude  X- d(#that Computer III tariff procedures and pricing are more appropriate for basic payphone services  d(#provided by LECs to other payphone providers. Pursuant to Section 276(c), any inconsistent state requirements with regard to this matter are preempted.  X4- z  ` ` 148.  Parties argue that several other network services and network elements  X- d(#should be unbundled and provided to payphone providers. We decline to impose this requirement  d(#=on all LECs. We do not find that such unbundling is necessary to provide payphone services.  X- d(#In addition, some features require substantial costs to make switch changes. yOx%- v ԍSee ex parte, Michael K. Kellogg to William F. Caton, Secretary, FCC, September 6, 1996 at 3; GVNW Comments at 57. Moreover,  X- d(#pursuant to Computer III and ONA requirements discussed below, BOCs must unbundle"L0,^(^(JJ"  d(#Ladditional network elements when requested by payphone providers based on specific criteria  X- d(#[established in the Computer III and ONA proceedings. In Computer III, we decided that it was  d(#not necessary to apply this requirement to other LECs, and we similarly conclude that it is not  d(#necessary to direct other LECs to unbundle additional services or unbundled elements in this  d(#proceeding because additional services are not necessary to provide payphone services and  X- d(#because other LECs do not represent the same control of payphone facilities as the BOCs.X yO- v ԍSee Computer III Phase II Order at 3101. For example, Congress did not require that Computer III  d(#safeguards, at a minimum be applied to other LECs. See 47 U.S.C.  276(b)(1)(C). Under Section 251, LECs must  yO-provide nondiscriminatory access to unbundled network elements to certain carriers. See Local Competition Order. We  d(#note, however, that any basic transmission services provided by a LEC to its own payphone  X_- d(#operations must be available under tariff to other payphone providers pursuant to Computer II.p_ yO -ԍComputer II, 77 FCC 2d at 3879; 47 C.F.R. 64.702. p  d(#States may impose further payphone service unbundling requirements that are not inconsistent  X1-with Section 276 requirements and requirements established herein.L1x yOZ-ԍSee para. 145, above.L  X -` `  iii. Other LEC Payphone Services  X -  X - z ` ` 149.  We conclude that incumbent LECs should provide certain other services  d(#[to other payphone providers if they provide those services to their own payphone operations.  d(#These services must be made available by the LEC or its affiliate to other payphone providers  d(#on a comparable basis in order to ensure that other payphone providers do not receive  d(#Ldiscriminatory service from the LECs once LEC payphones are deregulated, and to ensure that  d(#Zother payphone providers can compete with LEC payphone operations. Specifically, parties have  d(#indicated the need for the following services to enable them to compete effectively for the  d(#0provision of payphones: fraud protection, special number assignments, installation and  d(#=maintenance, billing and collection, validation, percall tracking, and joint marketing. We have  d(#already addressed above the percall tracking requirements. We conclude that fraud protection,  d(#special numbering assignments, and installation and maintenance of basic payphone services  d(# should be available to other providers of payphone services on a nondiscriminatory basis.  X- d(#Validation services are required by another proceeding.X yOz- v ԍSee Policies and Rules Concerning Local Exchange Carrier Validation and Billing Information for Joint Use  yOB - d(#Calling Cards, Report and Order and Request for Supplemental Comment, CC Docket 91115, 7 FCC Rcd 3528  yO !-(1992); Second Report and Order, 8 FCC Rcd 4478 (1993). We do not require the incumbent  d(#yLECs to joint market the payphone operations of other providers. We have concluded that the  d(#market for payphone CPE is competitive and LECs do not have any specific advantage in  d(#marketing payphone services in a deregulated payphone market. LEC personnel or affiliates will  d(#have to market to payphone location providers in the same manner as other payphone providers  d(#[to obtain payphone locations. Regarding billing and collection services, we conclude that if a  d(#LEC provides basic, tariffed payphone services that will only function in conjunction with billing  d(#and collection services from the LEC, the LEC must provide the billing and collection services" M( ,^(^(JJ"  d(#it provides to its own payphone operations for these services to independent payphone providers  X- d(#on a nondiscriminatory basis. yOb- v ԍSee note 634, below, Computer III proceeding, regarding authority over nonregulated activities like billing and collection and enhanced services. We expect this requirement to apply, for example, in situations  d(#where coin services require the LEC to monitor coin deposits and such information is not  d(# otherwise available to third parties for billing and collection. We adopt this requirement to  d(#ensure that when a LEC has structured its payphone services in a way that they could not operate  d(#lwithout the LECs billing and collection services, those services will be available to other payphone providers on the same basis they are available to the LEC.  XH-  ` `  iv. Registration and Demarcation Point for Payphones  X1-  X - z C` ` 150.  We amend our Part 68 rules to provide for the registration of centraloffice d(#implemented coin payphones to enable independent payphone providers as well as the LECs to  X - d(#utilize "dumb" payphones. Under the Coin Registration Order and current Part 68 rules, only  X - d(#iinstrumentimplemented payphones can be registered for connection to the network.k  yO-ԍ See Coin Registration Order, note 490, above.k Amending  d(#our rules enables independent payphone providers to have the same choices as LECs in providing  X - d(#|payphone services. Parties did not object to proposed Part 68 changes in the Notice.  d(#[Accordingly, we adopt amendments to Section 68.2(a)(1) and Section 68.3 of the Commission's  d(#rules to facilitate registration of both instrumentimplemented and centralofficeimplemented  Xb- d(#\payphones. Consistent with the Commission's prior practice with regard to existing CPE, in  d(#order to avoid unnecessary costs, and because these existing phones do not present potential harm  d(#to the network, we grandfather existing LEC payphones from the our revised Part 68  X- d(#requirements, unless the basic functionality in the payphones is changed. yO~- v ԍ The Commission has previously exempted existing CPE from Part 68 registration requirements. See 47 C.F.R.(b)(h). We require incumbent  d(#<LECs to submit proposed interconnection requirements to effectuate such interconnection within  d(#90 days of the effective date of this order. The California Payphone Association (CPA) filed  d(#before the Commission a Petition for Rule Making requesting that Section 68.2(a)(1) of the rules  d(#be amended to allow for the registration of all coinoperated telephones and that the Commission  d(#=reexamine and clarify its interpretation of Section 68.2(a)(1). We note that our decision herein  X- d(#addresses the relief requested in the CPA petition.  X Our Report and Order also effectively grants  X|- d(#ja petition filed by the Public Telephone Council to treat payphones as CPE,]| yO5"-ԍ3 FCC Rcd 4779 (1988); 4 FCC Rcd 737 (1989).] and resolves the issues raised in RM 8723 regarding exclusion of public payphones from end user access charges.  X7- #` ` 151. Consistent with our objective of treating incumbent LEC and independent  d(#ipayphone providers' payphones in a similar manner, we conclude that the demarcation point must  d(#be the same as incumbent LECs use for independent payphone providers today. Accordingly, " N,^(^(JJy"  d(#the demarcation for all new LEC payphones must be consistent with the minimum point of entry,  X- d(#\demarcation point standards for other wireline services.r yOb-ԍ#X\  P6G;P# 47 C.F.R.  68.3.r The Commission has previously  d(#allowed equipment reclassified as CPE, resulting in a change in the demarcation point, to remain  X- d(#in the same location because of the costs involved in relocating the equipment.AX yO-ԍId. A Accordingly,  d(#Lwe grandfather the location of all existing LEC payphones in place on the effective date of this  d(#Korder because of the difficulty and cost of moving these payphones to meet our new demarcation  d(#point requirements. Similarly, we do not require that network interfaces be placed for existing  d(#LEC payphones unless these payphones are substantially refurbished, for example, upgraded from dumb to smart payphones or replaced.  X - 2. Reclassification or Transfer of Payphone Equipment to Nonregulated Status  X - ` ` a.   The Notice  X - z  ` ` 152.  In the Notice, we sought comment on the specific assets to be transferred,  d(#and tentatively concluded that the assets to be transferred should be defined generally in terms  X- d(#of CPE deregulation.J yO)-ԍNotice at para. 49.J Thus, we tentatively concluded that the assets to be transferred may  d(#include all facilities related to payphone service, including associated deferred income tax  d(#reserves and depreciation, but likely would not include the loops connecting the payphones to the  d(#network, or the central office "coin-service" or operatorservice facilities supporting incumbent  X4- d(#LEC payphones.: 4x yO]-ԍId.: We proposed to transfer the payphone equipment at undepreciated baseline  d(#.cost plus an interest charge based on the authorized interstate rate of return to reflect the time  X- d(#value of money.  yO- v ?ԍBy baseline cost, we mean either the depreciated original cost at the time of the initial assignment or  yO-allocation of existing plant or the original cost of subsequently acquired new plant. Id. We also tentatively concluded that a phasein period for a transfer of  d(#Zpayphonerelated assets is not necessary, because payphone terminal equipment consists of less  X- d(#than one percent of total plant investment for the entire LEC industry.P `  yO -ԍNotice at para. 49.P In the Notice, we also  d(#sought comment on whether our approach to asset transfer is consistent with the 1996 Act's  d(#definition of "payphone service" as the "provision of public or semipublic pay telephones, the  X-provision of inmate telephone service in correctional institutions, and any ancillary services.":   yO4%-ԍId.:"O 0*&&JJo"Ԍ  X-` ` b. Comments  X- z 4` ` 153.  Both USTA and MCI indicate that all public telephone terminal equipment,  d(#including associated assets and depreciation, should be transferred, but not loops or central office  X- d(#coinservice or operatorservice facilities.[  yO-ԍUSTA Comments at 6; MCI Comments at 1516.[ GVNW argues that the assets to be transferred  Xv- d(#should include investment, depreciation, maintenance and overhead.DvX yO -ԍGVNW Comments at 8.D Florida PSC asserts that  X_- d(#loops and central office features should not be deregulated so that they will be available to all.K_ yO -ԍFlorida PSC Comments at 6.K  XH- d(#x GTE argues that only pay station investment should be transferred. CHx yOq-ԍGTE Reply at 810.C The RBOCs list the assets  d(#Kthat should be transferred to include: payphones, enclosures, pedestals, coin counting machines,  X -vehicles, land, and buildings used solely for payphone services.E  yO-ԍRBOC Comments at 30.E   X - n` ` 154. GPCA argues that location contracts associated with payphones should be  d(#assigned an economic value to recover ratepayer equity and achieve competitive equity. GPCA  d(#contends that the Commission can use present value, appraisals, or auctions to value the  X - d(#contracts.  yO-ԍGPCA Comments at 1516; GPCA Reply at 1314; See also CPA Reply at 12; SCPCA at 67. Peoples also argues that the contracts should be valued, noting that it had valued  d(#Kthe location contracts and goodwill at approximately 70 percent in a recent purchase of payphone  Xy- d(#assets.Hy(  yOR-ԍPeoples Reply at 2021.H SDPOA argues that the name brand associated with LEC payphones should also be  Xb- d(#valued in the transfer of assets.Bb  yO-ԍSDPOA Reply at 3.B CPA asserts that LEC payphone assets should be valued at  d(#La going concern value and that a transfer at net book value would give the LECs a competitive  X4- d(#xadvantage.D4H  yO-!-ԍCPA Reply at 1215.D Brill argues that BOCs should not be allowed financial and accounting advantages,  X-and cites other competitive advantages that, it states, the BOCs have in some jurisdictions.E yO#-ԍBrill Comments at 4.E "Ph0*&&JJ"Ԍ X- z ` ` 155.  Ameritech and USTA argue that the accounting treatment for transferred  d(#assets should be governed by Section 32.27(c) of our rules regarding transactions with  X- d(#yaffiliates.] yOK-ԍAmeritech Comments at 14; USTA Reply at 78.] USTA argues that there is no need to alter our Part 64 rules to create cost pools or  X- d(#jto change current accounting practices.DX yO-ԍUSTA Comments at 5.D Ameritech states that Section 32.27(c) requires that  d(#jassets be transferred at the higher of estimated fair market value or net book value and that the  X- d(#cost allocation manual process provides the mechanism for making the asset transfer.N yO& -ԍAmeritech Comments at 1314. N The  d(#RBOCs argue that the payphone assets should be valued at net book value, as the Commission  X_- d(#has done in the past including the recent Inmate Services Order,Q_x yO -ԍSee note 493, above.Q and that the Commission  XH- d(#yshould require LECs to transfer only those assets in their existing regulated accounts. H yO- v {ԍRBOC Reply at 1921. See also SW Bell Reply at 46. The RBOCs assert that in the Inmate Services  d(#proceeding, only payphones were transferred and they were recorded at net book value in Account 32.2351, Public  d(#Telephone Equipment. The RBOCs also note, however, that land and buildings are transferred at appraised value. RBOC Comments at n. 28.  They  d(#assert that location contracts are not in their regulated accounts and are intangibles that have  X - d(#never been recognized in Commission rate proceedings.j  yO-ԍRBOC Comments at 28 & Attachment, Anderson Report at 20. j The RBOCs also argue that  X - d(#establishing market value for payphone assets would be costly and cause delays.E  yO4-ԍRBOC Comments at 28.E AT&T asserts  d(#that payphone assets should be valued at net book value in accordance with the Commission's  X -existing rules.E  yO-ԍAT&T Reply at 2628.E  X -   X - z ` ` 156.  The RBOCs contend that the asset transfer should occur within 12  X- d(#months.F yO-ԍRBOC Comments at 30. F GPCA opposes a delay of up to 12 months for asset transfers and elimination of access  d(#charge elements and subsidies, and argues that these requirements must be completed by  Xb- d(#[November 8, 1996.E b0 yOC#-ԍGPCA Reply at 1517.E GPCA recommends that the Commission implement requirements no later"bQ 0*&&JJ"  X- d(#than 90 days after release of this Report and Order.:! yOy-ԍId.: Ameritech argues that there is no need  X- d(#jfor a phasein period.J"X yO-ԍAmeritech Comments at 14.J MCI does not object to up to 12 months for transition, but argues that  X- d(#jthe Commission should set a specific date.@# yOk-ԍMCI Reply at 9.@ USTA contends that the deregulation should be  X-flash cut in order to eliminate subsidies.D$x yO -ԍUSTA Comments at 8.D  X- ` ` c. Discussion  Xv-  X_- z ` ` 157.  As an initial matter, we have already determined that neither Section 276  d(#jnor our past experience requires the BOCs' competitive provision of payphone services to take  X1- d(#-place on a prospective basis through the use of structurally separate affiliates.%1 yO-ԍ#X\  P6G;P#See para 145, above.#Xj\  P6G;XP#љ Instead, in this  X - d(# Report and Order, we require that, if a BOC does not provide payphone services through a  d(#separate affiliate, it must provide these payphone services using nonstructural safeguards as  X - d(#described in our Computer III Orders and ONA proceedings and consistent with Section 276,  d(#because we conclude that, in the absence of structural separation, our nonstructural safeguards  d(#>provide sufficient protection against the possibility of crosssubsidization of nonregulated  X - d(#activities.Q&  yO-ԍSee paras. 199207, below.Q Those nonstructural safeguards include the cost allocation rules and affiliate  X- d(#transactions rules adopted in the Joint Cost Order.'X(  yOi- v ԍSee Separation of Costs of Regulated Telephone Service From Costs of Nonregulated Activities, 2 FCC Rcd  yO1- d(#Y1298 (1987) (Joint Cost Order), recon., 2 FCC Rcd 6283 (1987) (Joint Cost Reconsideration Order), further recon.,  yO-3 FCC Rcd 6701 (1988), aff'd sub nom., Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C.Cir. 1990). Under those rules, the BOCs and other  d(#incumbent LECs must classify each of their activities as regulated or nonregulated in accordance  Xb- d(#with our requirements.I(bH  yO[-ԍ47 C.F.R.  32.23(a).I We now require that the BOCs and other incumbent LECs, subject to  d(#our joint cost rules, classify their payphone operations as nonregulated for our Part 32 accounting  d(#purposes. We note, however, that the BOCs or other incumbent LECs are free to provide these  X- d(#services using structurally separate affiliates if they choose to do so.T) yO#- v 0ԍ#X\  P6G;P#In the Accounting Safeguards NPRM, we sought comment on what rules should apply to transactions  yOn$-between a LEC and a separate payphone affiliate.  Id. at para. 118.#Xj\  P6G;XP#T Therefore, our discussion"R0)0*&&JJ"  d(#zbelow will address two possible approaches a carrier may take in reclassifying its payphone  d(#jactivities as nonregulated: (1) a carrier may maintain its payphone assets on the carrier's books  d(#xbut treat the assets as nonregulated, or (2) a carrier may transfer its payphone assets to a separate affiliate engaged in nonregulated activities.  X- z ` ` 158.  In the Notice, we sought comment on three primary aspects of the  d(#ireclassification of payphone assets from regulated to nonregulated status. We solicited comment  d(#on the proper accounting treatment for the reclassification or transfer of the payphone assets from  d(#a regulated activity to a nonregulated activity. We also sought comments on the specific assets  X1- d(#to be reclassified or transferred.J*1 yO -ԍNotice at para. 49.J We tentatively concluded that the assets to be transferred  d(#should be defined generally in terms of CPE deregulation and that this would include all facilities  d(#.related to payphone service, including associated depreciation and deferred income taxes, but  d(#[likely would not include the loops connecting the payphones to the network, the central office  X - d(#"coinservice," or operator service facilities supporting incumbent LEC payphones.:+ X yO-ԍId.: We next  d(#<tentatively concluded that a phasein period was not necessary for the reclassification or transfer  X - d(#,of the payphone assets to nonregulated status and sought comment on this tentative conclusion.:,  yO@-ԍId.: We address these questions and tentative conclusions in the sections that follow.  Xb-` ` i. Specific Assets Reclassified or Transferred  X4- z ` ` 159.  We adopt our tentative conclusion, supported by numerous commenters,-4x yO]-ԍSee USTA Comments at 6; MCI Comments at 1516; Florida PSC Comments at 6.  d(#Kthat the payphone assets to be reclassified or transferred include all facilities related to payphone  d(#Lservice, including associated accumulated depreciation and deferred income tax liabilities. We  d(#do not agree with GVNW that related expenses, such as maintenance, should also be reclassified  X- d(#Kand transferredD. yO-ԍGVNW Comments at 8.D because expenses are period costs that should be associated with the status of  d(#the service at the time they were incurred. That is, expenses incurred during the period  d(#payphones were regulated remain as regulated expenses and expenses incurred after payphone  d(#deregulation should be classified as nonregulated expenses. We, however, do not include as  d(#payphone assets to be reclassified or transferred the loops connecting the payphones to the  d(#Knetwork, the central office "coinservice," or operator service facilities supporting incumbent LEC  d(#payphones because these are part of network equipment necessary to support basic telephone services. "7S.0*&&JJ"Ԍ X- z ԙ` ` 160.  In adopting our tentative conclusion, we disagree with commenters such  d(#=as GPCA, Peoples, SDPOA and others who assert that, in all instances, the value of intangible  d(#assets that have not been capitalized on the books of the carrier, such as location contracts and  X- d(#brand names, should be included in the payphone assets reclassified to nonregulated status./ yO4-ԍSee GPCA Comments at 1516; GPCA Reply at 1314; Peoples Reply at 2021; SDPOA Reply at 3.  d(#We note that these assets are not recorded in the carriers' Part 32 accounts and, in fact, are not,  d(#Mwithout some triggering event such as a purchase or sale, required to be recorded by either  d(#/generally accepted accounting principles or our Part 32 accounting rules. We do, however,  d(#zdiscuss these intangible assets in more detail below as they relate to actual payphone asset  d(#ktransfers to separate affiliates or, in certain limited instances, to an operating division of the carrier.  X -` ` ii. Accounting Treatment for Assets Reclassified or Transferred  X -  X - z ` ` 161.  Our tentative conclusion in the Notice called for the transfer of the LECs'  d(#payphone assets to nonregulated operations to take place at the undepreciated baseline costs plus  d(#-interest charges at the authorized rate of return for interstate services. The parties have correctly  d(#\pointed out that this standard only applies in those circumstances where there has been an  d(#underforecasting of demand for nonregulated usage requiring a transfer to compensate ratepayers  Xb- d(#for the additional risks they have borne due to the underforecasting.0bX yOk-ԍ#X\  P6G;P#See Joint Cost Order, 2 FCC Rcd at 170171. Since the issue at hand  d(#does not involve an underallocation of payphone costs between regulated and nonregulated activities, we see no need to consider this approach any further.  X- z ` ` 162.  The parties question whether the carriers should account for the transfer  d(#yor reclassification of the payphone assets from regulated to nonregulated status at "fair market  X- d(#[value" or the net book value of the assets.\1 yOq-ԍSee, e.g., RBOC Reply at 1921.\ While Section 276 provides us with discretion to  X- d(#change our accounting rules to provide safeguards in excess of those provided by Computer III,  d(#zwe believe that our existing rules are sufficient to meet the requirements of Section 276. We  d(#conclude that our existing rules require that this determination be based on whether a carrier  d(#-maintains the assets in its regulated Part 32 accounts or instead transfers the payphone assets to a separate affiliate or an operating division within the carrier that is treated as an affiliate.  X7- z ` ` 163.  Carriers that do not transfer the payphone assets to a separate affiliate make  d(#no reclassification accounting entries to their Part 32 regulated accounts. The reclassification of  d(#these assets to nonregulated status is accomplished instead through the operation of our Part 64" Tx10*&&JJ["  X- d(#cost allocation rules.2 yOy-ԍ47 C.F.R.  64.901904. See also Inmate Services Order, 11 FCC Rcd at 7374. Accordingly, we conclude that payphone investment in Account 32.2351,  d(#Public telephone terminal equipment, and any other assets used in the provision of payphone  d(#.service, along with the associated accumulated depreciation and deferred income tax liabilities  d(#Zshould be directly assigned or allocated to nonregulated activities pursuant to our cost allocation  X- d(#rules.#3X {O- v ԍRBOC Comments at 28, citing Inmate Services Order. See also Letter from Michael K. Kellogg to William  yOw-F. Caton, Secretary dated August 30, 1996 at 9 (RBOC Ex Parte 8/30/96).# LECs should establish whatever Part 64 cost pools4  yO - v ԍInmate Services Order, 11 FCC Rcd at 7374. "Cost pools" are comprised of logical homogeneous groupings  d(#of costs that maximize the extent to which cost causative allocation factors can be used to divide costs between  yO - d(#regulated and nonregulated activities. Implementation of Further Cost Allocation Uniformity, Memorandum Opinion  yO_ -and Order, 8 FCC Rcd 4664 (1993). are needed and should file  d(#revisions to their cost allocations manuals within sixty (60) days prior to the effective date of the  Xv- d(#change.J5v yO-ԍ47 C.F.R.  64.904(b).J This will ensure that the provision of payphone service is separate and distinct from the provision of common carrier services in accordance with our rules.  X1- z ` ` 164.  On the other hand, carriers that transfer their payphone assets to either a  d(#xseparate affiliate or an operating division that has no joint and common use of assets or resources  d(#with the LEC and maintains a separate set of books in accordance with Section 32.23(b) of our  d(#rules must account for the transfer according to the affiliate transactions rules of Section 32.27(c)  d(#which require that the transfer be recorded at the higher of fair market value or cost less all  X - d(#<applicable valuation reserves (net book cost).Z6 *  yO- v ԍ47 C.F.R.  32.23(b), 32.27(c). In applying the affiliate transactions rules to asset transfers to operating  d(#divisions that maintain a separate set of books and do not jointly use assets or resources with the carrier, we have  d(# provided a safeguard to protect against a carrier that attempts to avoid our affiliate transactions rules by  yO- d(#"reincarnating a nonregulated affiliate as an operating division." Joint Cost Reconsideration Order, 2 FCC Rcd at 6296.Z Fair market value has been defined as "the price  d(#[at which the property would change hands between a willing buyer and a willing seller, neither  d(#.being under any compulsion to buy or sell and both having reasonable knowledge of relevant  Xy- d(#facts."7y yO -ԍ26 C.F.R.  1.1701. See also, Accounting Safeguards NPRM at para. 83. We conclude, that in instances when the transfer of payphone assets is governed by  d(#Section 32.27(c), it is appropriate, as argued by CPA, that the going concern value associated  XK- d(#Zwith the payphone business be taken into consideration in determining fair market value.N8Kj yOf#-ԍSee CPA Reply at 1215.N Such  d(#Zgoing concern value should, as asserted by GPCA and Peoples, include intangible assets such as"4U80*&&JJH"  X- d(#Zlocation contracts that add value to the payphone business.-9  yOy- v ԍSee GPCA Comments at 1516; GPCA Reply at 1314; Peoples Reply at 2021. This conclusion is also  yOA- d(#supported by the APCC and GPCA ex parte filing dated September 11, 1996 to the extent that the ex parte filing  d(#relates to transfers to separate affiliates. Letter from Albert H. Kramer, Attorney for APCC and GPCA, to William  yO-F. Caton, Secretary, dated September 11, 1996 (APCC & GPCA Ex Parte 9/11/1996). - These intangible assets would be  d(#considered in the theoretical purchase price negotiated by a willing buyer and seller. We do not  d(#believe, however, that the intangible asset value of BOC or LEC brand names should be included  d(#in the determination of going concern or fair market value because a BOC or a LEC would not transfer the right to use its brand name to a third party willing buyer.  Xv- z ` ` 165. The operation of our cost allocation rules and our affiliate transactions rules  d(#<serve to protect ratepayers from different concerns. The cost allocation rules are used to provide  d(#guidance to carriers as to how joint and common costs are to be allocated among regulated and  d(#nonregulated activities that impact upon regulated activities. These rules are premised on the  d(#\assumption that ratepayers benefit from the economies of scope associated with integrated  d(#operations of regulated and nonregulated activities. Since costs are recorded in regulated  d(#accounts, the Commission retains the ability to scrutinize costs associated with nonregulated  d(#activities. For example, carriers must file cost allocation manuals. These manuals are subject  X - d(#to public comment and must be audited annually by an independent auditor.T:  yO-ԍSee 47 C.F.R.  64.904(a).T The report of the  X - d(#iindependent auditor must also be submitted to the Commission.K; @ yO-ԍ 47 C.F.R.  64.904(b).K These procedures promote fair  d(#cost allocation and protect regulated ratepayers from absorbing the costs of nonregulated  d(#activities. In addition, as assets are retained on the books of the carrier, any resulting gains from  d(#a sale of those nonregulated assets accrue to the carrier and to the benefit of ratepayers and shareholders.  X- z ` ` 166.  Our affiliate transactions rules also afford a level of protection to  d(#ratepayers. These rules first protect ratepayers by requiring that when an affiliate transfers to or  d(#Kperforms a service for the carrier, those assets or services are not charged to regulated ratepayers  d(#at an inflated price. In addition, when the carrier transfers assets to an affiliate, the operation of  d(#xour affiliate transactions rules effectively captures on the carrier's books any appreciation in value  d(#of those assets, thus ensuring that any eventual gains would accrue to the benefit of the ratepayers and shareholders.  Xe- z ` ` 167.  The difference in accounting treatment for payphone assets either  d(#>reclassified as nonregulated pursuant to our Part 64 cost allocation rules or transferred to a  d(#separate affiliate and accounted for in accordance with our Part 32 affiliate transactions rules  d(#stems primarily from the fact that in one instance there is no transfer, only a reallocation of" V;0*&&JJz"  d(#assets to nonregulated status, and in the other instance, there has been an actual transfer. In  d(#Maddition, in the first instance our rules are designed to promote fair cost allocation between  d(#regulated and nonregulated activities; in the second instance, our rules are designed to protect  d(#against crosssubsidies between separate companies by capturing any appreciated value of assets transferred on the books of the carrier.  Xv- z ` ` 168. We note that some parties assert that, based on the holding of the Court  X_- d(#of Appeals for the D.C. Circuit in Democratic Central Committee,<_ yO- v ԍDemocratic Central Committee v. Washington Metropolitan Area Transit Commission, 485 F.2d 786  yO -(D.C.Cir. 1973), cert. denied, 415 U.S. 935 (1974) (Democratic Central Committee). the proper measure of value  d(#for an asset reclassified from regulated to nonregulated status is the asset's economic value,  X1- d(#which would ordinarily be its fair market value.e=1  yO -ԍSee, e.g., GPCA Comments at 1617.e  Democratic Central Committee involved the  d(#/distribution of capital gains realized from the sale to a third party of property that had been  X - d(# transferred out of the rate base. Although Democratic Central Committee provided several  X - d(#general guiding principles on which the Commission fashioned its affiliate transactions rules, we  X - d(#note that the facts in that case did not involve affiliate transactions.k>  yO6-ԍJoint Cost Reconsideration Order, 2 FCC Rcd at 6295.k Accordingly, we do not  d(#ythink that case is directly applicable either to the situation where a carrier retains the payphone  d(#=assets on its books or transfers the payphone assets to a separate affiliate. In both instances, ratepayers are protected by the application of our accounting safeguards.  Xb- z ` ` 169.  One of the primary goals of Section 276 is that a BOC shall not be allowed  d(#ito subsidize its payphone operations directly or indirectly from its telephone exchange operations  d(#Kor its exchange access operations. In order to achieve this goal, Congress required that we adopt  X- d(#at a minimum the nonstructural safeguards of Computer III. In Computer III, the Commission  d(#Nreexamined its regulatory regime for the provision of enhanced services and established  d(#nonstructural safeguards for the provision of enhanced services on an integrated basis. These  d(#safeguards included the cost allocation rules and the affiliate transactions rules the Commission  X- d(#zdeveloped in the Joint Cost Order. These nonstructural safeguards include our Part 64 cost  X- d(#allocation rules and our Part 32 affiliate transactions rules. We also note that the Conference  X-Report states:  X"[t]he BOC payphone operations will be transferred, at an appropriate valuation,  _from the regulated accounts associated with local exchange services to the BOC's  unregulated books. The Commission's implementing safeguards must be at least  X -equal to those adopted in the Commission's Computer III proceedings."O? @ yO%-ԍConference Report at 43.O " W?0*&&JJz"Ԍ X- d(#ԙWe believe that, consistent with Computer III, our cost allocation rules and affiliate transactions  d(#=rules, as discussed above, provide rules for the appropriate valuation of the reclassification or  d(#transfer of payphone assets and we see no compelling argument to deviate from those wellsettled  X-rules at this time.@ yO4- v ԍWe note that in the Accounting Safeguards NPRM, we proposed changes to the affiliate transactions rules  yO-of Section 32.27 of our rules. See Accounting Safeguards NPRM at paras. 7088.   X- z 5` ` 170.  APCC and GPCA argue that the legislative history cited in the previous  Xv- d(#paragraph makes clear that Congress intended that the assets be "transferred."Av  yOG - v ԍEx Parte Letter from Albert Kramer, Counsel, APCC to William Caton, Acting Secretary, FCC (September 11, 1996) at 3. We disagree.  d(#-We have already stated that Section 276 does not require that a BOC establish a separate affiliate  XH- d(#to hold the payphone assets.LBHx yOq-ԍSee para. 145, above.L In fact, the Senate version of Section 276 authorized the  d(#Commission to determine whether to require Bell operating companies "to provide payphone  X - d(#iservice...through a separate subsidiary..."C  yO-ԍS. 652, 104th Cong., 1st Sess.,  265(c) (1995). See also RBOC Comments at 40, n. 53. This authorization was deleted from the final version  d(#of Section 276. If Congress intended that there be a "transfer", we believe that Congress would  d(#have required the BOCs to establish separate affiliates for their payphone operations. Congress  d(#did not do so. Instead, Congress in the very next sentence of the legislative history states that  d(#the Commission's implementing safeguards must, at a minimum, be at least equal to those  X - d(#adopted in the Computer III proceedings. These safeguards include our cost allocation rules.  d(#Our cost allocation rules are applicable when a carrier maintains integrated regulated and  d(#.nonregulated activities. To read congressional intent to require a "transfer" would effectively  d(#eliminate our cost allocation rules from application to payphone operations. This is contrary to  d(#Section 276 which states that the Commission shall prescribe regulations that prescribe a set of  d(#nonstructural safeguards for BOC payphone service which "at a minimum, include[s] the  X- d(#.nonstructural safeguards equal to those adopted in the Computer InquiryIII...proceeding."MD yOf-ԍ47 U.S.C.  276(b)(1)(C).M  X- d(#<Computer III included our cost allocation rules as a part of the nonstructural safeguards and thus  d(#they are applicable to BOC payphone operations. To exclude the cost allocation rules would be contrary to Section 276's intent that they be included.  X- z ` ` 171.  We also agree with the RBOCs that our cost allocation rules only require  X- d(#a reassignment of payphone assets from regulated to nonregulated status.\E(  yOl$-ԍSee RBOC Ex Parte 8/30/96 at 8.\ In reality, carriers"X E0*&&JJQ"  d(#[maintain these assets in regulated Part 32 accounts and do not establish "unregulated books."  d(#-These accounts are considered "regulated" accounts even though a carrier may assign the entire  d(#amount in an account to nonregulated activities. Using regulated accounts serves the public  d(#=interest by allowing Commission scrutiny of nonregulated activities as they potentially impact  d(#Nregulated activities, maintaining a minimal amount of regulatory burden while protecting  d(#regulated ratepayers from crosssubsidies and cost misallocations, and preserving economies of  d(#scope that accrue to ratepayers from integrated operations. We believe regulated ratepayers are  d(#zbetter served by the requirement that carriers account for payphone operations in regulated  d(#accounts than if we required them to account for payphone operations in "nonregulated" accounts or "unregulated books."  X -` ` iii. Other Matters  X -  X - z R ` ` 172.  We require the LECs to reclassify any pay telephone investments recorded  d(#in Account 32.2351, Public telephone terminal equipment, and other assets used in the provision  d(#iof payphone service, along with the associated accumulated depreciation and deferred income tax  d(#liabilities, from regulated to nonregulated status pursuant to our Part 64 and Part 32 rules by  d(#=April 15, 1997 when the associated revised tariffs are effective. We thus agree with Ameritech  Xb-that we should adopt our tentative conclusion that a phasein period is unnecessary.JFb yO-ԍAmeritech Comments at 14.J  X4- 3. Termination of Access Charge Compensation and Other Subsidies  X-  X- ` ` a.   The Notice  X- z  ` ` 173.  In the Notice, we tentatively concluded that  incumbent LECs must reduce  d(#[their interstate CCL charges by an amount equal to the interstate allocation of payphone costs  X- d(#currently recovered through those charges.JGX yO-ԍNotice at para. 51.J LECs subject to the price cap rules would treat this  d(#as an exogenous cost change to the Common Line basket pursuant to Section 61.45(d) of the  X|- d(#Commission's rules.:H| yO-ԍId.: We requested incumbent LECs to identify in their comments all accounts  d(#that contain costs attributable to their payphone operations and sought comment on whether  d(#=specific cost pools and allocators should be used to capture the nonregulated investment and  X7- d(#expenses associated with their payphone operations.:I7x yO`#-ԍId.: We also sought comment on whether a  d(#jtransition period is necessary to move from subsidized compensation to per-call compensation" YI0*&&JJ"  X- d(#Zfor LEC payphones, and how that transition would proceed. :J yOy-ԍId.: We also proposed, in accordance  X- d(#with the mandate of Section 276(b)(1)(B), to require incumbent LECs to remove from their  X- d(#[intrastate rates any charges that recover the costs of payphones.GKX yO-ԍId. at para. 52.G Additionally, we solicited  d(#=comment on whether we should set a deadline and a specific mechanism for elimination of any  d(#intrastate subsidies, or whether it would be consistent with the statute, as well as preferable from  X- d(#=a policy perspective, to permit the states to formulate their own mechanisms for achieving t his  Xv-result within a specific time frame.:Lv yO -ԍId.:  XH- z ` ` 174.  We also tentatively concluded that, to avoid discrimination among PSPs,  d(#Mthe Subscriber Line Charge should apply to subscriber lines that terminate at both LEC and  X - d(#jcompetitive payphones.GM x yOC-ԍId. at para. 53.G We sought comment on whether, to the extent that LECs charge or  d(#<impute to their own payphone operations only the multiline business SLC, which is less than the  d(#ifull interstate cost of the subscriber lines connecting their payphones to the network, and recover  X - d(#the balance of the cost of these lines through the CCL charge, they may, in effect, be subsidizing  X - d(#their payphones with access charge revenues, in violation of Section 276.GN  yOw-ԍId. at para. 54.G We sought comment  d(#on whether LECs in those circumstances should charge or impute to their own payphone  X- d(#operations, as well as to independent payphone providers, an additional monthly charge  d(#representing the difference between the SLC cap and the full interstate cost of these subscriber  Xb- d(#Klines.:Ob yO-ԍId.: We also sought comment on whether comparable changes should be made to incumbent  XK-LECs' intrastate rates.:PK(  yO$-ԍId.:  X-` ` b. Comments  X-` `  i. Carrier Common Line Charge  X-  X- z ` ` 175.  The Florida PSC agrees that LECs must reduce their interstate CCL charge  d(#Mby an amount equal to their interstate allocation of payphone set costs currently recovered"Z P0*&&JJ"  X- d(#/through these charges.KQ yOy-ԍFlorida PSC Comments at 7.K USTA asserts that there is no need for a federallyimposed cost  X- d(#support, create cost pools, or change current accounting procedures.IRX yO-ԍUSTA Comments at 5, n.2.I USTA asserts that  d(#incumbent LECs subject to price caps should remove the costs of payphone operations through  d(#an exogenous cost adjustment to the common line price cap basket price cap index (PCI), and  d(#xthat rateofreturn LECs should adjust regulated rates for the charges in asset and operating costs  X-based on the results of the accounting changes made to assets and expenses.YS yO& -ԍId. at 9; GTE Reply at 810.Y  X_- z q` ` 176.  Ameritech agrees that exogenous treatment is appropriate for transfer of  XH- d(#payphone CPE from regulated to nonregulated status.JTHx yOq-ԍAmeritech Comments at 14.J One Call agrees that the CCL charge  X1- d(#.should be reduced to eliminate both interstate and intrastate subsidies.HU1 yO-ԍOne Call Comments at 9.H MCI argues that all  d(#direct and indirect costs for interstate and intrastate costs should be removed and that Account  X - d(#2351 and associated expenses and additional interstate allocated costs should be removed.EV  yOL-ԍMCI Comments at 17.E  d(#GPCA contends that the payphone providers' enduser common line charges should be in the  X - d(#.carrier common line fund.EW (  yO-ԍGPCA Comments at 17.E AT&T argues that the removal of payphone costs from interstate  d(#access should not be transferred to the Base Factor Portion of the Common Line Basket, but  X -should remain as part of the Part 69 category.HX  yO-ԍAT&T Reply at 27, n.70.H  Xy-  B` ` 177. CPA argues that attempts to extend the period should be rejected.@YyH  yOr-ԍCPA Reply at 8.@ In  d(#contrast, GVNW and Texas PUC assert that a short transition period is necessary to recover  XK- d(#>costs.DZK yO!-ԍGVNW Comments at 8.D The RBOCs argue for a transition period of up to 12 months during which percall  d(#compensation would not be available to the RBOCs, while GPCA argues the there should be no  X- d(#more than a 90day transition period after release of this Report and Order.W[h yO6%-ԍRBOC Comments at 31; GPCA Reply at 15.W NECA asserts that"[[0*&&JJ"  d(#ythe CCL charge should continue until the Commission finalizes decisions on access reform and  d(#[universal service have been made. NECA argues there will be no discrimination because LECs  X-can bill the CCL charge for all interstate calls and the SLC to all payphones.K\ yOK-ԍNECA Comments at 5, n. 19.K  X-` `  ii.  Intrastate Rates  Xv-   X_- z ` ` 178.  Florida PSC asserts that intrastate adjustments vary and that a national  XH- d(#<scheme is impractical. Instead, the Commission could set a date for removal of state subsidies.K]HX yOQ -ԍFlorida PSC Comments at 7.K  d(#California PUC is concerned that, if LECs cannot recover the interstate costs of subscriber lines  d(#because the CCL mechanisms are removed, the state's local phone charges and the state X - d(#/mandated pay station service charge may not fully recover costs .O^  yO-ԍCalifornia PUC Comments at 15.O USTA argues that the  X - d(#payphone line is a common line and should be tariffed at the state level.A_ x yO-ԍUSTA Reply at 7.A USTA also contends  X -that states should be permitted to formulate mechanisms to remove intrastate costs.D`  yO-ԍUSTA Comments at 9.D (#(#  X -` `  iii. Subscriber Line Charge  X-  Xy- z ` ` 179.  Florida PSC and the Ohio PUC argue that access lines terminating at LEC  Xb- d(#payphones should be subject to SLC imputation.eab yO-ԍFlorida PSC Comments at 8; Ohio PUC Comments at 12. e Ameritech and SW Bell argue that a SLC  XK- d(#should be imputed to all payphones.`bK(  yO$-ԍAmeritech Comments at 14; SW Bell Reply at 79.` GPCA opposes application of the SLC to payphones but  d(#if the Commission imposes such a requirement, GPCA also opposes any additional charge in  X- d(#<addition to what is required of other end users.Fc  yO -ԍGPCA Reply at 1719. F USTA also opposes imposition of an additional  d(#charge for the difference between the SLC cap and the full cost of subscriber lines. USTA  d(#[argues that if there are any loop subsidies they will be uniform for all loops, not just payphone  X- d(#kloops.pdH  yO$-ԍUSTA Comments at 10.  See also RBOC Comments at 32.p SW Bell argues that the SLC should apply to payphones because payphones use"\d0*&&JJ"  X- d(#common lines and access the public switched network just like any other common line service.Fe yOy-ԍSW Bell Reply at 78.F  d(#Sprint supports the additional charge to all PSPs including LECs to the extent that the multiline  X-business SLC is less than the full interstate cost of subscriber lines.GfX yO-ԍSprint Comments at 28.G  X-    X-` ` c. Discussion   Xv- z ` ` 180.  In the telephone network, payphones, as well as all other telephones, are  d(#-connected to the local switch by means of a subscriber line. The costs of the subscriber line that  d(#are allocated to the interstate jurisdiction are recovered through two separate charges: a flatrate  d(#iSLC assessed upon the enduser customer who subscribes to local service; and a perminute CCL  d(#charge assessed upon IXCs that recovers the balance of the interstate subscriber line costs not  d(#recovered through the SLC. LEC payphone costs are also included in the CCL charge. The CCL  d(#charge, however, applies to interstate switched access service that is unrelated to payphone  d(#service costs. While independent payphone providers are required to pay the SLC for the loop  d(#[used by each of their payphones, LECs have not been required to pay this charge because the  d(#subscriber lines connected to LEC payphones have been recovered entirely through the CCL charge.  Xb- z c` ` 181.  We conclude that to implement Section 276 (b)(1)(B) of the 1996 Act,  XK- d(#[ incumbent LECs must reduce their interstate CCL charges by an amount equal to the interstate  d(#=allocation of payphone costs currently recovered through those charges. LECs subject to the  d(#price cap rules would treat this as an exogenous cost change to the Common Line basket  d(#pursuant to Section 61.45(d) of the Commission's rules. The incumbent LECs' residential SLC  d(#\is limited to $3.50 per month and their multiline business SLC is currently subject to a $6.00  X- d(#Mper month cap.ng yOq-ԍ#X\  P6G;P#47 C.F.R. 69.104.n Those LECs with interstate subscriber line costs that exceed this amount  d(#Lrecover a portion of the interstate costs of subscriber lines through the CCL charge. The issue  X-of the appropriate interstate SLC has been referred to a FederalState Joint Board.hxx yO- v ԍ#X\  P6G;P#See FederalState Joint Board on Universal Service, NPRM and Order Establishing Joint Board, FCC 9693  yO- d(#at para. 114 (rel. March 8, 1996) ("Joint Board Notice"). We note that pursuant to Section 254 of the Act, we have  d(#-referred to the universal service joint board the matter of how to recover the interstate allocated portion of the  d(#-subscriber loop costs. Federal-State Joint Board on Universal Service, Notice of Proposed Rulemaking and Order  d(#Establishing Joint Board, CC Docket No. 96-45, FCC 96-93 (adopted and released on Mar. 8, 1996). The decision  d(#Lto remove payphone costs from the CCL charge and the decision to impose a SLC to all subscriber lines that terminate at both LEC and competitive payphones was not referred to the universal service joint board.  "] h0*&&JJ3"Ԍ X- z  ` ` 182.  Incumbent LECs today generally recover payphone costs allocated to the  d(#interstate jurisdiction through the per-minute carrier CCL charge they assess on IXCs and other  d(#interstate access customers for originating and terminating interstate calls. The incumbent LEC  d(#assesses the independent payphone provider a SLC (at the multi-line business rate) to recover the  X- d(#payphone common line costs associated with that phone.)i yO- v kԍ#X\  P6G;P#We recently reaffirmed a decision by the Common Carrier Bureau concluding that independent payphone  d(#providers should be classified as "end users" under our rules. C.F. Communications Corp. v. Century Telephone of  yO- d(#Wisconsin, Inc., Memorandum Opinion and Order, 10 FCC Rcd 9775 (1995), petition for review filed, C.F.  yOu- d(#Communications Corp. v. FCC and United States, No. 951563 (D.C. Cir. filed Nov. 6, 1995). Thus, independent  d(#payphone providers are required to pay a SLC for their use of common lines connected to the payphones they serve, but are not assessed a perminute CCL charge. ) In the case of competitive payphones,  d(#an independent payphone provider recovers its payphone costs out of the revenue it receives from  Xv- d(#end users, premises owners, and OSPs to whom its payphones are presubscribed. The 1996 Act  d(#.mandates that the Commission "discontinue the intrastate and interstate carrier access charge  d(#payphone service elements and payments ... and all intrastate and interstate subsidies from basic  X1-exchange and exchange access revenues[.]"tj1@ yO"-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(B).t  X - `` ` 183. Accordingly, we adopt rules that provide for the removal from regulated  X - d(#intrastate and interstate rate structures of all charges that recover the costs of payphones (i.e., the  d(#costs of payphone sets, not including the costs of the lines connecting those sets to the public  d(#=switched network, which, like the lines connecting competitive payphones to the network, will  d(#kcontinue to be treated as regulated). Therefore, we conclude that incumbent LECs must file  d(#revised CCL tariffs with the Common Carrier Bureau no later than January 15, 1997 to reduce  d(#[their interstate CCL charges by an amount equal to the interstate allocation of payphone costs  d(#-currently recovered through those charges, scheduled to take effect April 15, 1997. LECs subject  d(#.to the price cap rules must treat this as an exogenous cost change to the Common Line basket  X4- d(#\pursuant to Section 61.45(d)(1)(v) of our rules.vk4 yO-ԍ#X\  P6G;P#47 C.F.R. 61.45(d)(1)(v).v Incumbent LECs must identify and report  d(#accounts that contain costs attributable to their payphone operations. Incumbent LECs must  d(#identify specific cost pools and allocators that are required to capture the nonregulated investment  d(#Land expenses associated with their payphone operations. LECs must file this information with the Common Carrier Bureau by January 15, 1997.  X- z ` ` 184.  LECs that file tariffs pursuant to Section 61.38 or Section 61.39, rateof d(#return regulation, or Section 61.50, optional incentive regulation, must file tariffs to revise  d(#interstate CCL rates to remove the payphone investment and any other assets used in the  d(#provision of payphone service along with the accumulated depreciation and deferred income tax  d(#<liabilities from the common line costs recovered through those rates. As stated previously, these"N^` k0*&&JJ"  d(#LECs must reclassify payphone assets from regulated to nonregulated activity pursuant to Part  d(#x64 rules. Expenses incurred after payphones are deregulated should be classified as nonregulated  d(#expenses. The CCL rate reduction must account for overhead costs assigned to common line  d(#=costs as a result of payphone investment and expenses. We require these LECs to recalculate  d(#their CCL rates, using the same data and methods they used to develop their current CCL rates, except those calculations should exclude payphone costs.  X_- z ` ` 185.  Price cap LECs are also required to revise their CCL rates, using the  d(#following method to remove payphone costs from their CCL rates. First, price cap LECs should  d(#develop a common line revenue requirement using ARMIS costs for calendar year 1995. Second,  d(#[price cap LECs are required to develop a payphone cost allocator equal to the payphone costs  d(#in Section 69.501(d) divided by total common line costs, based on 1995 ARMIS data. Each LEC  d(#is required to reduce its PCI in the common line basket by this payphone cost allocator minus one.  X - z D  ` ` 186. We require, pursuant to the mandate of Section 276(b)(1)(B), incumbent  d(#LECs to remove from their intrastate rates any charges that recover the costs of payphones.  Xy- d(# Revised intrastate rates must be effective no later than April 15, 1997. Parties did not submit  d(#statespecific information regarding the intrastate rate elements that recover payphone costs.  d(#States must determine the intrastate rates elements that must be removed to eliminate any  X4-intrastate subsidies within this time frame.  X- z ` ` 187.  Finally, we conclude that, to avoid discrimination among payphone  d(#yproviders, the multiline business SLC must apply to subscriber lines that terminate at both LEC  d(#iand competitive payphones. We conclude that the removal of payphone costs from the CCL and  d(#the payment or imputation of a SLC to the subscriber line that terminates at a LEC nonregulated  d(#zpayphone will result in the recovery of LEC payphone costs on a more costcausative basis  X- d(#consistent with the requirements of the 1996 Act.l yO -ԍ#X\  P6G;P#See Ameritech/SW Bell Waiver at para. 25. No action we take today affects the authority  d(#of states to address the state ratemaking implications of reclassification or transfer of payphone assets.  X7-  4. Deregulation of AT&T Payphones   X -  X -` ` a. The Notice  X- z ` ` 188.  In the Notice, we tentatively concluded that payphones provided by AT&T  d(#should be classified as CPE, finding that discontinuing possible subsidies for AT&T payphones  X!- d(#would be congruent with the 1996 Act's requirement that the Commission discontinue subsidies  X"- d(#for other payphones (i.e., those owned by incumbent LECs) and would provide for symmetrical""_Xl0*&&JJ!"  X- d(#regulation of the payphone industry.Jm yOy-ԍNotice at para. 56.J We cited two other reasons why this proposed action is  X- d(#in harmony with the other rules we proposed in this proceeding. First, since Tonka Tools,`nX yO-ԍTonka Tools, note 489, above.`  d(#KAT&T payphones have been subject to the same regulatory treatment as BOC payphones. Once  d(#LEC telephones, including those provided by the BOCs, are declared to be CPE, the basis for  d(#ktreating AT&T payphones as network equipment no longer exists. Second, we believe that  d(#<deregulating AT&T payphones is consistent with our general policy to deregulate nondominant  Xv- d(#carriers. In the Notice, we also tentatively concluded that the bundling of pay telephone  d(#equipment with underlying transmission capacity would be treated pursuant to the rules proposed  XH-in the Interstate, Interexchange Marketplace proceeding.JoH yO -ԍ  Notice at para. 55.J  X1-  X -` ` b .  Comments  X - ` ` 189. Those commenting on AT&T payphones were unanimous in concluding that  X - d(#AT&T payphones should be deregulated.p x yO- v ԍAT&T Reply at 27; RBOC Comments at 32; California PUC Comments at 15; Florida PSC Comments at 8; USTA Comments at 10; MCI Comments at 15. The RBOCs assert that AT&T payphones should be  X - d(#\deregulated in the same manner as LEC payphones.Eq  yO?-ԍRBOC Comments at 32.E AT&T argues, however, that AT&T  d(#payphones should not be treated like LEC CPE but should be removed from all regulation except  X-Part 68 registration and treated like independent payphone providers.rX`  yO- v ԍAT&T Reply at 27. With regard to bundling of AT&T payphones and phones services, MCI suggests that  d(#the Commission review the effect of this proposal after one year. MCI argues, however, that even if the Commission allows bundling, the payphone transmission service should be available separately. MCI Comments at 16.  Xy-  Xb-` ` c.  Discussion  X4- z ` `     190.  We conclude that AT&T payphones must be deregulated, detariffed and  d(#>treated as CPE. As we concluded above, there is a competitive market for payphones, and,  d(#pursuant to Section 276, subsidies must be removed from payphone service. AT&T payphones  X- d(#have been treated like BOC payphones for regulatory purposes.Ts  yO #-ԍTonka Tools, note 489, above.T It would be incongruous to  d(#/deregulate payphone equipment owned by all other carriers except AT&T. We conclude,  d(#ytherefore, that AT&T payphones must be removed from regulation and treated as independent"`s0*&&JJ"  d(#.PSPs' payphones. Accordingly, we require that AT&T follow the same procedures discussed  d(#above for valuing LEC payphone assets and transferring them to nonregulated status. After  d(#deregulation, AT&T payphones will be subject to the same requirements as independent payphone provider payphones.   X- z ` ` 191.  With regard to the issue of bundling of transmission capacity and payphone  Xv- d(#CPE, we note that in the Interstate, Interexchange Marketplace Notice, we stated that we would  d(#consider in this proceeding "the issue of bundling pay telephone equipment with the underlying  XH- d(#transmission capacity."(tH yO - v ԍ Policy and Rules Concerning the Interstate, Interexchange Marketplace, Notice of Proposed Rulemaking,  yO -CC Docket No. 9661 (rel. Mar. 25, 1996) at para. 91 (Interstate, Interexchange Marketplace Notice).( In the Notice, we tentatively concluded that other IXC bundling issues  X1- d(#should be treated under the same rules that we proposed in the Interstate, Interexchange  X - d(#zMarketplace proceeding.Ju  yO -ԍNotice at para. 55.J  We decline to adopt in this proceeding any rules regarding the  X - d(#bundling of payphone CPE with the underlying transmission capacity.ov  yOd-ԍ Interstate, Interexchange Marketplace Notice at para. 91.o We do not have a  d(#sufficient record to revise, with regard to payphone CPE, the Commission's conclusion in the  X - d(#Computer II proceeding that there are public interest benefits in unbundling CPE from the  X - d(#Munderlying transmission service.yw @ yO-ԍComputer II, 77 FCC 2d at 438447; 47 C.F.R.  64.702(e).y The issue of IXC CPE bundling will be addressed in the  X -Interstate, Interexchange Marketplace proceeding.  Xb- d(# C. NONSTRUCTURAL SAFEGUARDS FOR BOC PROVISION OF PAYPHONE   XK-   SERVICE  X- B` ` 192. The foregoing parts establish a compensation arrangement that applies  d(#equally to the payphone operations of the BOCs, other LECs, AT&T and PSPs not affiliated with  d(#/LECs. In this part, we address certain operating requirements that are imposed only on the BOCs' payphone operations.  X-     X- z U` ` 193.  Section 276(b)(1)(C) directs the Commission to "prescribe a set of  d(#nonstructural safeguards for Bell operating company payphone service to implement the  d(#provisions of paragraphs (1) and (2) of subsection (a), which safeguards shall, at a minimum,  d(#include the nonstructural safeguards equal to those adopted in the Computer Inquiry - III (CC  XN- d(#Docket No. 90-623) proceeding[.]"OxN yO$-ԍ47 U.S.C. 276 (b)(1)(C).O As referred to in Section 276(b)(1)(C), Section 276(a)"Na` x0*&&JJ"  d(#Lprovides that a BOC "(1) shall not subsidize its payphone service directly or indirectly from its  d(#<telephone exchange service operations or its exchange access operations; and (2) shall not prefer  X-or discriminate in favor of its payphone service."Hy yOK-ԍ47 U.S.C.  276(a).H  X- 1. The Notice   Xv- z ` ` 194.  In the Notice, we tentatively concluded that all  Computer IIIzz` vX yO - v ԍSee Amendment of Section 64.702 of the Commission's Rules and Regulations (Computer III), CC Docket  yOG - d(#No. 85229, Phase I, 104 FCC 2d 958 (1986) (Phase I Order), recon., 2 FCC Rcd 3035 (1987) (Phase I  yO - d(#iReconsideration Order), further recon., 3 FCC Rcd 1135 (1988) (Phase I Further Reconsideration Order), second  yO - d(#further recon., 4 FCC Rcd 5927 (1989) (Phase I Second Further Reconsideration Order); Phase I Order and Phase  yO - d(#I Reconsideration Order vacated California v. FCC, 905 F.2d 1217 (9th Cir. 1990) (California I); Phase II, 2 FCC  yOg - d(#Rcd 3072 (1987) (Computer III Phase II Order), recon., 3 FCC Rcd 1150 (1988) (Phase II Reconsideration Order),  yO/- d(#hfurther recon., 4 FCC Rcd 5927 (1989) (Phase II Further Reconsideration Order); Phase II Order vacated, California  yO- d(#wI, 905 F.2d 1217 (9th Cir. 1990); Computer III Remand Proceeding, 5 FCC Rcd 7719 (1990) (ONA Remand Order),  yO- d(#recon., 7 FCC Rcd 909 (1992), pets. for review denied, California v. FCC, 4 F.3d 1505 (9th Cir. 1993) (California  yO- d(#II); Computer III Remand Proceedings: Bell Operating Company Safeguards and Tier 1 Local Exchange Company  yOO- d(#Safeguards, 6 FCC Rcd 7571 (1991) (BOC Safeguards Order), BOC Safeguards Order vacated in part and remanded,  yO-California v. FCC, 39 F.3d 919 (9th Cir. 1994) (California III), cert. denied, 115 S.Ct. 1427 (1995).z  d(#nonstructural safeguards must be applied to meet our obligation "to prescribe nonstructural  XH- d(#safeguards for [BOC] payphone service" under the 1996 Act.J{H  yOy-ԍNotice at para. 58.J We also solicited comment on  X1- d(#whether there are other nonstructural safeguards that, while not explicitly specified in Computer  X -III, should be applied to BOC payphones.:|  yO-ԍId.:  X - z T ` ` 195.  To ensure BOC compliance with the Computer III and Open Network  X - d(#Architecture (ONA) requirements, we proposed a requirement that each BOC file, within 90 days  X - d(#of the effective date of this Report and Order, an initial Comparably Efficient Interconnection  d(#(CEI) plan describing how it intends to comply with the CEI equal access parameters and  X-nonstructural safeguards for the provision of payphone services.G} yO-ԍId. at para. 60.G  Xb- z ` ` 196.  Currently, the Commission regulates BOC provision of enhanced services  d(#through CEI and ONA requirements that mandate unbundled nondiscriminatory access to BOC"Kb0}0*&&JJI"  X- d(#xnetwork features and functionalities.~ yOy- v ԍ#X\  P6G;P#Filing and Review of Open Network Architecture Plans, 4 FCC Rcd 1 (1988) (BOC ONA Order), recon.,  yOA- d(#5 FCC Rcd 3084 (1990) (BOC ONA Reconsideration Order); 5 FCC Rcd 3103 (1990) (BOC ONA Amendment  yO - d(#Order), erratum, 5 FCC Rcd 4045, pets. for review denied, California v. FCC, 4 F.3d 1505 (9th Cir. 1993), recon.,  yO- d(#K8 FCC Rcd 97 (1993) (BOC ONA Amendment Reconsideration Order); 6 FCC Rcd 7646, 764950 (1991) (BOC  yO- d(#;ONA Further Amendment Order); 8 FCC Rcd 2606 (1993) (BOC ONA Second Further Amendment Order), pet. for  yOa-review denied, California v. FCC, 4 F.3d 1505 (9th Cir. 1993). Pursuant to these requirements, BOCs must file a service X- d(#jspecific CEI plan before offering any enhanced service on an integrated basis.@ yO-ԍX#X\  P6G;P#Phase I Order, 104 FCC 2d at 964965.(#Ƌ A BOC must  d(#demonstrate in its CEI plan how it would provide competing enhanced service providers with  d(#"equal access" to all basic underlying network services the BOC used to provide its own  X- d(#enhanced services. yO% -ԍ#X\  P6G;P#See Phase I Order, 104 FCC 2d at 1036. Subsequently, the Commission required BOCs to develop and implement  X- d(#ONA plans detailing more fundamental unbundling of their basic network services.yX`  yO- v ԍ#X\  P6G;P#Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services,  yOf- d(#Notice of Proposed Rulemaking, 10 FCC Rcd 8360, 8372, para. 17 (1995) ("Computer III Further Remand  yO.-Proceedings"). y ONA  d(#-requires further unbundling of network elements than under CEI because it is not limited to those  X_- d(# elements associated with specific BOC enhanced services._  yO-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш In 1993, the Common Carrier  d(#Bureau lifted structural separation requirements after each BOC demonstrated that its ONA plan  X1- d(#[complied with the BOC Safeguards Order. 1 yO- v kԍ#X\  P6G;P#See Bell Atlantic's Notice and Petition for Removal of the Structural Separation Requirement and Waiver  yO- d(#of Certain State Tariffing Requirements, CC Docket Nos. 90623 and 882, Phase I, 7 FCC Rcd 3877 (1992) (Bell  yO- d(#Atlantic Order); Southwestern Bell Telephone Company Notice and Petition for Removal of the Structural Separation  d(#wRequirement and Waiver of Certain State Tariffing Requirements, CC Docket Nos. 90623 and 882, Phase I, 7 FCC  yO- d(#Rcd 7294 (1992) (SWBT Order); US West Notice and Petition for Removal of the Structural Separation Requirement  d(#and Waiver of Certain State Tariffing Requirements, CC Docket Nos. 90623 and 882, Phase I, 7 FCC Rcd 3639  yO- d(#y(1992) (US West Order); Ameritech Operating Companies Notice and Petition for Removal of the Structural  d(#KSeparation Requirement and Waiver of Certain State Tariffing Requirements, CC Docket Nos. 90623 and 882,  yO2- d(#Phase I, 7 FCC Rcd 4104 (1992) (Ameritech Order); New York Telephone Company and New England Telephone  d(#Company Notice and Petition for Removal of the Structural Separation Requirement and Waiver of Certain State  yO- d(#Tariffing Requirements, CC Docket Nos. 90623 and 882, Phase I, 7 FCC Rcd 8633 (1992) (NYNEX Order);  d(#,Pacific Bell and Nevada Bell Notice and Petition for Removal of the Structural Separation Requirement and Waiver  yOR!- d(#of Certain State Tariffing Requirements, CC Docket Nos. 90623 and 882, Phase I, 8 FCC Rcd 3982 (1993) (Pacific  yO"- d(#Order); BellSouth Corporation Notice and Petition for Removal of the Structural Separation Requirement and Waiver  d(#jof Certain State Tariffing Requirements, CC Docket Nos. 90623 and 882, Phase I, 8 FCC Rcd 4864 (1993)  yO#-(BellSouth Order). Following the California III court decision,1X yO:%-ԍCalifornia v. FCC, 39 F.3d 919 (9th Cir. 1994) (California III), cert. denied, 115 S.Ct. 1427 (1995). the"1c0*&&JJ"  d(#Commission has continued to require BOCs to file CEI plans for each individual enhanced  X-service they offer in addition to fulfilling the access requirements of its ONA plan. yOb- v /ԍRegarding further proceedings on remand, see Computer III Further Remand Proceedings: Bell Operating Company Provision of Enhanced Services, 10 FCC Rcd 8360 (1995).  X- 2. Comments ` `  X- z ` ` 197.  California PUC, One Call, Ameritech, and USTA support Computer III  Xv- d(#safeguards and CEI.v  yOG - v ԍCalifornia PUC Comments at 17; Ameritech Comments at 15; One Call Comments at 910; USTA Comments at 10. Florida PSC argues that, if nonstructural safeguards are used, specific cost  X_- d(#pools and allocators should be used to identify the existence of subsidies.L_x yO -ԍFlorida PSC Comments at 8.L GPCA supports  XH- d(#the Computer III safeguards and argues that they should be strengthened by requiring that the  d(#BOCs also: (1) provide unbundled specific services such as answer supervision and flexible call  d(#Lrating based on subscribers specifications, and continue to provide dialtone and blocking and  d(#screening; (2) offer volume discounts on a equal basis to aggregators; (3) provide service order  d(#>processing; (4) implement safeguards against interference with letters of agency; (5) follow  d(#Customer Proprietary Network Information (CPNI) restrictions; (6) file CEI plans; (7) conduct  X - d(#independent audits; and (8) maintain publicly available contracts.O  yOw-ԍGPCA Comments at 812, 2325. O  SW Bell argues that there  X - d(#<is no incentive for crosssubsidization with price cap regulation and the elimination of sharing.F  yO-ԍSW Bell Reply at 46.F  d(#Ameritech disagrees with the Commission that a separate proceeding is necessary to develop  Xy- d(#accounting safeguards different than those applied in Computer III.hy(  yOR-ԍAmeritech Comments at 1516; One Call Comments at 910.h Inmate Coalition argues  d(#that additional safeguards should include accounting and fraud control, billing and collection, and  XK- d(#LCPNI availability.QK  yO-ԍInmate Coalition Comments at 22.Q USTA argues that pursuant to Section 276, nonstructural safeguards only  X4- d(#[apply to BOCs.C4H  yO-!-ԍUSTA Reply at 78.C GPCA argues that the Computer III safeguards should apply to other LECs,  d(#particularly those with annual revenues greater than 100 million dollars, including GTE, Sprint  X- d(#[and Alltel, and LECs that service Puerto Rico and the Virgin Islands.W yO$-ԍGPCA Reply at 18; GPCA Comments at 26.W Ohio PUC argues that"dh0*&&JJF"  X- d(#ZComputer III nonstructural safeguards should apply to all LECs if payphones are deregulated and  X-structural separation is not imposed.I yOb-ԍOhio PUC Comments at 13.I   X- z ` ` 198.  AT&T and GPCA support the imposition of CEI plans on the BOC  X- d(#provision of payphone services.]X yO-ԍAT&T Comments at 22; GPCA Comments at 2325.] The RBOCs and PacTel argue that CEI plans are not necessary  X- d(#because these are basic, not enhanced services.E yO& -ԍPacTel Reply at 56.E AT&T contends that CPNI requirements  Xv- d(#Lshould apply to BOC provision of payphones.Kvx yO -ԍAT&T Comments at 23, n.47.K One Call argues that if CPNI is not restricted,  X_- d(#it should be available to all providers.I_ yO-ԍOne Call Comments at 10.I GPCA contends that information about the use of LEC  XH- d(#payphones is CPNI that should be available to any party upon reasonable request.>H yO-ԍ GPCA Comments at 21.> AT&T  d(#supports the network information disclosure requirements established in our implementation of  d(#Section 251 of the 1996 Act, plus the addition of two requirements that BOCs file network  d(#information disclosures with the Commission, and that there be one year notification of network  X -changes.G (  yO-ԍAT&T Comments at 223.G  X -   X -  3. Discussion   X-` ` a. Nonstructural Safeguards   Xb- z 4` ` 199.  In addition to the accounting safeguards that we will adopt with respect to  XK- d(#payphone services in the accounting safeguards proceeding, we conclude that the Computer III  X4- d(#jand ONA nonstructural safeguards will provide an appropriate regulatory framework to ensure  d(#that BOCs do not discriminate or crosssubsidize in their provision of payphone service. The  d(#iCommission and the BOCs have substantial experience in the application of these safeguards that  d(#will facilitate their use in the context of BOC payphone services. We conclude that we do not  X- d(#0have to adopt any additional safeguards beyond Computer III and ONA because of the  d(#-comprehensive nature of that regulatory structure and the lack of a record necessary to conclude  d(#Zthat a more burdensome framework should be adopted and is in the public interest. As discussed  d(#Kabove, we decline to require structural separation requirements. To ensure that the BOCs comply"e 0*&&JJ"  X- d(#with the Computer III and ONA nonstructural separation requirements for the provision of  X- d(#payphone services, we require that, within 90 days after the effective date of this Report and  X- d(#Order, BOCs must file CEI plans describing how they will comply with the Computer III  d(#<unbundling, CEI parameters, accounting requirements, CPNI requirements as modified by Section  d(#222 of the 1996 Act, network disclosure requirements, and installation, maintenance, and quality  X-nondiscrimination requirements.  Xv- #X\  P6G;P# #XP\  P6QXP#  X_- z ` ` 200.  The Computer III nonstructural safeguards currently apply to a BOC's  XH- d(#provision of payphone service if enhanced services are provided through the payphone.EH yO - v Mԍ#X\  P6G;P#See American Telephone and Telegraph Company Petition for Limited Waiver of Comparably Efficient  yO -Interconnection Requirements of Third Computer Inquiry; Report and Order, 8 FCC Rcd 6808 (1993).E Under  X1- d(#[the Computer III and ONA framework, BOCs are permitted to provide enhanced services on an  d(#integrated basis subject to nondiscrimination safeguards. The safeguards the Commission adopted  X - d(#]in Computer III and ONA include: (1) nondiscriminatory access to network features and  d(#functionalities; (2) restrictions on the use of CPNI; (3) network information disclosure rules;  d(#(4) nondiscrimination in the provision, installation, and maintenance of services as well as  X - d(#nondiscrimination reporting requirements; and (5) cost accounting safeguards. We conclude that  X - d(#all Computer III and ONA nonstructural safeguards must be applied to meet our obligation under  X- d(#[the 1996 Act. M  yOa-ԍ47 U.S.C.  276(b)(1)(C).M Pursuant to these requirements, we note that any basic services provided by  d(#Ka BOC to its payphone affiliate must be available on a nondiscriminatory basis to other payphone  d(#.providers and that payphone providers may request additional unbundled payphone services  XK-through the 120 day ONA service request process.K yO- v !ԍSee BOC ONA Order, 4 FCC Rcd at 2056; BOC ONA Amendment Order, 5 FCC Rcd at 3117; BOC  yOt-ONA Further Amendment Order, 6 FCC Rcd at 76546.  X- z ` ` 201.  Except for the Commission's Part 64 cost allocation rules and Part 32  X- d(#affiliate transaction rules, we decline to apply the Computer III nonstructural safeguards to other  X- d(#.LECs. We concluded in the BOC CPE Relief Order that application of those safeguards would  X- d(#;be "unduly burdensome and not necessary to protect against potential anticompetitive conduct."{ yO-ԍ BOC CPE Relief Order, 2 FCC Rcd at 157; See also 3 FCC Rcd 22 (1987).{  X- d(#We similarly, declined to apply Computer III and ONA nonstructural safeguards to other LECs,  X- d(#except GTE.X yO!- v ԍComputer III Phase II Order, 2 FCC Rcd at 3101. In 1994, the Commission decided to apply the Computer  yO"- d(#,III and ONA requirements to GTE Corporation. Application of Open Network Architecture and Nondiscrimination Safeguards to GTE Corporation, CC Docket No. 92256, 9 FCC Rcd 4922 (1994). Moreover, Section 276 specifically directs the Commission to establish"f 0*&&JJR"  d(#nonstructural safeguards for the BOCs, but does not include such a requirement regarding other  X-LECs.G yOb-ԍ 47 U.S.C.  276(b)(1)(C).G  X- ` ` b. BOC CEI Plans   X- z  ` ` 202.  We require that each BOC file, within 90 days of the effective date of this  Xv- d(#kReport and Order, an initial CEI plan describing how it intends to comply with the CEI equal  d(#\access parameters and nonstructural safeguards for the provision of payphone services. In  XH- d(#Computer III, CEI plans have been an integral part of ensuring that BOCs do not discriminate  d(#in providing basic underlying services to enhanced services providers. We likewise require the  d(#filing of CEI plans for payphone services, even though we have traditionally only required such  d(#Lplans for the BOC provision of enhanced services, to ensure that the BOCs provide payphone  X - d(#services in a nondiscriminatory manner and consistent with other Computer III and ONA  d(#requirements. Finally, we conclude that this requirement is consistent with the requirement in  d(#Section 276 that we establish safeguards, at a minimum, "equal to those adopted in the Computer  X -III Inquiry."< X yO-ԍId. <  Xy-  ` ` 203. In a CEI plan, a BOC must describe how it intends to comply with the CEI  d(#L"equal access" parameters for the specific payphone service it intends to offer. The CEI equal  XK- d(#access parameters include: interface functionality; unbundling of basic services; resale; technical  d(#characteristics; installation, maintenance, and repair; end user access; CEI availability;  d(#minimization of transport costs; and availability to all interested customers or enhanced service  X-providers. yO-ԍ#X\  P6G;P#Phase I Order, 104 FCC 2d at 10391043.  X- z q ` ` 204.  In its CEI plan, a BOC must explain how it will unbundle basic payphone  d(#services. Thus, a BOC must indicate how it plans to unbundle, and associate with a specific rate  d(#element in a tariff, the basic services and basic service functions that underlie its provision of  X- d(#payphone service.jx yO-ԍ#X\  P6G;P#Id. at 1040.j Nonproprietary information used by the BOC in providing the unbundled  X|- d(#ybasic services will be made available as part of CEI.a| yO5"-ԍ#X\  P6G;P#Id.a In addition, any options available to the"|g0*&&JJ"  d(#BOC in the provision of such basic services or functions would be included in the unbundled  X-offerings.a yOb-ԍ#X\  P6G;P#Id.a ` `    X- z ` ` 205.  A BOC also must explain in its CEI plan how it will comply with the CPNI  X- d(#[requirements. We have continued to require compliance with the Computer III and ONA CPNI  d(#requirements that are not inconsistent with Section 222 of the 1996 Act, which was immediately  Xv- d(#effective.XvX yO - v ԍ#X\  P6G;P#47 U.S.C.  222. See Implementation of the Telecommunications Act of 1996, Telecommunications  yOG - d(#Carriers' Use of Customer Proprietary Network Information and Other Customer Information, Notice of Proposed  yO -Rulemaking, CC Docket No. 96115 (rel. May 17, 1996) (CPNI NPRM). In the CPNI NPRM, we are currently examining a carrier's obligations under the  X_- d(#CPNI provisions of the 1996 Act.H_x yO -ԍ CPNI NPRM at para. 378.H We disagree with GPCA's contention that pursuant to the  d(#Commission's CPNI requirements, usage of LEC payphones should be treated as aggregate CPNI  X1- d(#that should be made available to any party upon request.FX1 yO- d(#ԍ The statute defines the term "aggregate customer information" as "collective data that relates to a group or  d(#category of services or customers, from which individual customer identities and characteristics have been removed." 47 U.S.C. 222(f)(2).F Under Computer III and ONA BOCs  d(#=must make aggregate CPNI available to third parties if they make it available to BOC personnel  d(#zfor marketing. This requirement does not apply merely upon a third party's request, and the  d(#yrequirement does not apply to LECs other than the BOCs. Moreover, aggregate CPNI includes  X - d(#compilations of CPNI information, not individual locations.f (  yO-ԍComputer III Phase II Order, 2 FCC Rcd at 3097.f We will consider the requirements  X -for LEC provision of aggregate CPNI under Section 222 in the CPNI proceeding. M  yO'-ԍCPNI NPRM at para. 37.M  X- z b ` ` 206.   BOCs must comply with the Computer III and ONA network information  d(#disclosure requirements. The BOCs cannot design new network services or change network  Xb- d(#<technical specifications to the advantage of their own payphones.bH  yO[-ԍ#X\  P6G;P#BOC Safeguards Order, 6 FCC Rcd at 760204. Pursuant to these rules, the  d(#BOCs must disclose information about changes in their networks or new network services at two  X4- d(#different points in time.8 4 yO"- v ԍ#X\  P6G;P#Amendment to Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry),  yO#- d(#Report and Order, 2 FCC Rcd 3072, 308788 (1988). The network information subject to disclosure includes only  yOM$- d(#network changes or new basic services that affect the interconnection of enhanced services with the network. Id. at 3097. These network disclosure rules parallel those for CPE.8 First, disclosure must occur at the "make/buy" point: when a BOC"4h0*&&JJf"  d(#/decides to make for itself, or procure from an unaffiliated entity, any product whose design  d(#affects or relies on the network interface. Second, a BOC must publicly disclose technical  d(#information about a new service 12 months before it is introduced. If the BOC can introduce the  d(#]service within 12 months of the make/buy point, it would make a public disclosure at the  d(#make/buy point. The public disclosure, however, must not occur less than six months before the  X-introduction of the service. yO-ԍ#X\  P6G;P#Computer III, 3 FCC Rcd 1150, 1164 (1988).  X_- z  ` ` 207.   In addition, BOCs must comply with the Computer III and ONA  d(#requirements regarding nondiscrimination in the quality of service, installation, and maintenance.  d(#BOCs must indicate in their CEI plans how they will comply with these requirements. We do  d(#\not impose any new continuing reporting requirement because BOCs are already subject to  X - d(#Lreporting requirements pursuant to Computer III and ONA. X yO -ԍSee BOC ONA Reconsideration Order, 5 FCC Rcd at 3093, 3096, Appendix B. BOCs must report on payphone services as they do for other basic services.  X -  X -D.ABILITY OF BOCs TO NEGOTIATE WITH LOCATION  X-PROVIDERS ON THE PRESUBSCRIBED INTERLATA CARRIER  Xb- z b` ` 208.  Section 276(b)(1)(D) of the 1996 Act directs the Commission to eliminate  d(#the courtordered competitive barrier prohibiting the BOCs from participating in the selection of  d(#Kpresubscribed interLATA carriers to their payphones, unless we find such activity to be contrary  X- d(#=to the public interest. yO-ԍ#]\  PCP#47 U.S.C.  276(b)(1)(D); See United States v. Western Elec. Co., 698 F. Supp. 348, 360 (D.D.C. 1988).#x6X@KpX@# While independent payphone service providers, as well as nonBOC  d(#LECs, may receive a portion of the commissions from IXCs on interLATA operator service calls  d(#using the presubscribed carrier to their payphones, the BOCs do not receive any revenues directly  d(#from these calls. At the same time, BOCs have received subsidies from local access services for  d(#their payphone operations, which have not been available to independent payphone service  X- d(#>providers.Qx yO-ԍSee Section III.B., above.Q Section 276 promotes competition for the provision of payphone services by  X-directing the elimination of both these marketdistorting factors.T yOL!-ԍ47 U.S.C.  276(b)(1)(B) and (D)T "7i0*&&JJ"Ԍ X- 1.` ` Is BOC Ability to Negotiate Presubscription  X-` ` in the Public Interest?   X-` ` a. The Notice   X- z ` ` 209. Under Section 276(b)(1)(D) of the 1996 Act, the Commission is to "provide  d(#for Bell operating company payphone service providers to have the same right that independent  d(#payphone service providers have to negotiate with the location provider on the location provider's  d(#kselecting and contracting with, and, subject to the terms of any agreement with the location  d(#provider, to select and contract with, the carriers that carry interLATA calls from their  d(#payphones, unless the Commission determines in the rulemaking pursuant to this section that it  d(#is not in the public interest." The legislative history of Section 276 states that the location  d(#/provider "has the ultimate decisionmaking authority in determining interLATA services in  X -connection with the choice of payphone providers."Q  yON-ԍS. Conf. Rep. No. 104230 at 44.Q  X - z ` ` 210. In the Notice, the Commission sought comment on whether the BOCs  d(#should be permitted to select and contract with the interLATA carriers that carry interLATA  Xy- d(#ztraffic from BOC payphones.yX yO-ԍ#X\  P6G;P#Notice at para. 71.#x6X@`7pX@#ј The Commission sought comment on whether the ability to  Xb- d(#zselect the interLATA carrier serving their payphones is likely to permit the BOCs to behave  d(#anticompetitively in the payphone market in the absence of safeguards to prevent cost  X4- d(#misallocations and discrimination.4 yO-ԍ#Xj\  P6G;XP##X\  P6G;P#Id. at para. 72.#x6X@`7pX@# Similarly, the Commission sought comment on whether the  d(#structural and accounting safeguards mandated under Sections 271 and 272 of the 1996 Act, and  d(#yany Commission rules implementing these safeguards, are sufficient to prevent anticompetitive  d(#abuses. The Commission also sought comment on to what extent a BOC not authorized to  d(#provide inregion interLATA service under Section 271 of the 1996 Act should be allowed to  X- d(#participate in the selection of the interLATA carrier, especially if the BOC has a nonattributable  X-interest in the interLATA carrier, such as an option to purchase or an agreement to merge.x yO-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш  X|- ` ` b. Comments   XN- r e SS 211.   The RBOCs and Ameritech argue that the Act specifically directs the  X7- (#Commission to allow the BOCs to negotiate presubscription carriers for their payphones unless"7j0*&&JJ"  X- (#ythe Commission makes a finding that such authority is contrary to the public interest.< yOy-ԍ#Xj\  P6G;XP##X\  P6G;P#RBOC Comments at 42; Ameritech Comments at 22.#x6X@`7pX@# Other  (#jcommenters, however, argue that the Commission should grant this authority only if and when  (#0it can affirmatively conclude that allowing the BOCs to negotiate would be in the public  X- (#interest.X< yO-ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., AT&T Comments at 26; Oncor Comments at 23.#x6X@`7pX@# Oncor additionally asserts that consideration of this issue is premature until such time  (#yas the Commission has adopted rules addressing other requirements of the 1996 Act, including  (#0those governing interconnection rights, and the authority of BOCs to provide inregion  Xv-interLATA service.v< yO -ԍ#Xj\  P6G;XP##X\  P6G;P#Oncor Comments at 1113.#Xj\  P6G;XP#Ѿ  XH- SSS 212.  The RBOCs assert that granting them equal rights with the independent  (#PSPs to negotiate presubscription for their payphones promotes the public interest. The RBOCs  (#=argue that an essential assumption underlying the 1996 Act is that competition is in the public  (#{interest, and it is therefore in the public interest to allow the them to compete against the  X - (#independent PSPs with respect to presubscription of their payphones. x< yO-ԍ#X\  P6G;P#RBOC Reply at 25; BellSouth Comments at 8.#x6X@`7pX@#Ѫ The RBOCs assert that  (#such authority is critical to establishing market parity and increasing competition between BOC  X - (#and nonBOC PSPs. < Xw-#Xj\  P6G;XP#э#X\  P6G;P#RB#X\  P6G;P#OC Comments at 4142. See also USTA Comments at 11.#Xj\  P6G;XP# The RBOCs and Ameritech state that under the current rules, they are  (#/at a competitive disadvantage due to the inability to offer "onestop shopping" to location  X- (#=providers who wish to deal with a single entity for equipment, local service and toll service.< yO-ԍ#X\  P6G;P#Ameritech Comments at 20; RBOC Comments at 4142.pp#x6X@`7pX@#ѹ  (#ZThe RBOCs also argue that the existing presubscription restriction denies consumers the benefits  (#of true competition by preventing them from aggregating interLATA and intraLATA traffic in  (#order to negotiate the best possible rates from interLATA carriers, while allowing the independent  X4- (#PSPs to do so.4I < yO.-ԍ#X\  P6G;P#RBOC Comments at 4142.#x6X@`7pX@#і Additionally, the RBOCs and Ameritech contend that if they are denied the  (#equal opportunity to negotiate interLATA carriers, while simultaneously being stripped of existing  (#payphonesupporting subsidies, the public will be harmed by the likely reduction in the number  X- (#Zof payphones they provide. < yOy"-ԍ#X\  P6G;P#Id.; Ameritech Comments at 2122.#x6X@`7pX@#ѧ Finally, the RBOCs and Ameritech assert that granting them equal  (#opportunity to choose the carrier for their payphones would serve to protect consumers from"ki 0*&&JJ"  (#ypricegouging carriers, since they have a strong interest in protecting the reputation and brand  X-name recognition of their payphones.< yOb-ԍ#Xj\  P6G;XP##X\  P6G;P#RBOC Comments at 4243; BellSouth Comments at 78; Ameritech Comments at 21.#x6X@`7pX@#  X-  SS 213.  Other commenters, including state regulatory agencies, agree that increased  (#competition resulting from authorizing the BOCs to negotiate for presubscription of their  X- (#payphones would, standing alone, be in the public interest.HX< yO- v ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., California PUC Comments at 18; Virginia SCC Comments at 34; Florida PSC Comments at 89;  yO^ -SDPOA Reply at 2.#x6X@`7pX@#H Many nonLEC commenters,  (#however, also express concern that such authority would present serious risk of exclusionary  X_-conduct by the BOCs, which would be contrary to the public interest._< yO -ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., AT&T Comments at 2427.#x6X@`7pX@# SS  X1- 5SS 214.   Many of the commenters expressing concern about the BOCs' ability to  (#act anticompetitively if allowed to negotiate presubscription carriers with location providers  (#pointed to the BOCs' 80 percent or greater share of the payphone units in their respective  X - (#regions." @< yO- v .ԍ#X\  P6G;P#APCC Comments at 4243; New Jersey Payphone Comments at 1617; AT&T Comments at 2426; Oncor  yO-Comments at 6; CompTel Comments at 17.#x6X@`7pX@#" These commenters argue that this high share of the payphone market will allow the  (#BOCs to aggregate large volumes of traffic in order to extract concessions from the IXCs (in the  (#form of either lower rates or higher commissions), not available to the independent PSPs, and  X - (#which in turn could be used to extend their share of the payphone market. < yO-ԍ#Xj\  P6G;XP##X\  P6G;P#Id.; See also CompTel Comments at 1721.#x6X@`7pX@# AT&T states that  (#BellSouth, US West and GTE have already contacted AT&T and other IXCs concerning the  (#?possibility of entering into contracts for the delivery of 0+ interLATA service from their  Xb- (#[companies' entire base of payphones.b( < yO;-ԍ#X\  P6G;P#AT&T Comments at 2526.#x6X@`7pX@#і Some of these commenters contend that the ability to  (#aggregate their volumes and direct them to a single carrier would allow the BOCs to exercise a  (#degree of control in the interLATA market prior to being authorized to provide interLATA  X- (#?service pursuant to Section 271 of the 1996 Act. < yO -ԍ#X\  P6G;P#Id. at 24; APCC Comments at 4243; CPA Comments at 20; CompTel Comments at 1721.#x6X@`7pX@# WorldCom also identifies the BOCs'  (#yexclusive control over their linebased 0+ calling cards as an additional basis for leveraging the  X-location providers selection of the presubscribed IXC.H < yO#-ԍ#X\  P6G;P#WorldCom Comments at 22.#x6X@`7pX@#ї "l0*&&JJ"Ԍ X- %SS 215.   Some commenters, including the IXCs, assert that the BOCs should not be  (#allowed to negotiate for presubscription of their payphones at least until they satisfy the  X- (#\requirements for entering the interLATA market pursuant to Section 271 of the 1996 Act.< yOK-ԍ#X\  P6G;P#AT&T Comments at 24; MCI comments at 19; Sprint Comments at 2930; CompTel Comments at 2021.#x6X@`7pX@#  (#jThese commenters argue that until the BOCs face significant competition in the local exchange  (#market, they will be able to subsidize commission payments to location providers with regulated  X- (#service revenue and, thus, behave anticompetitively in the payphone market.X< yO-ԍ#X\  P6G;P#MCI Comments at 19; Oncor Comments at 6.#x6X@`7pX@#ѧ Some commenters  (#Zalso assert that the BOCs could be expected to leverage the market power they currently possess,  (#0both in the payphone market and local telephone markets, to inhibit the development of  XH-competition in the payphone market.H< yO -ԍ#X\  P6G;P#Oncor Comments at 510; One Call Reply at 6.#x6X@`7pX@#ѫ SS  X - pSS 216.  The RBOCs contend that the payphone market is competitive and that they  X - (#=do not, and cannot, exercise market power in the payphone industry. x< yO,-ԍ#X\  P6G;P#RBOC Reply at 2627; BellSouth Comments at Appendix 1, p.1; BellSouth Reply at 3.#x6X@`7pX@# While acknowledging  (#that they have between 60 and 80 percent of the payphone units in their respective regions, the  X - (#RBOCs assert that this is not an appropriate measure of market share or market power. < yO-ԍ#X\  P6G;P#BellSouth Comments at Appendix 1, p. 1416.#x6X@`7pX@#Ѫ  (#BellSouth argues that market share measurements based upon number of payphone units are  (#misleading because a significant portion of the BOC payphones are noncompetitive or semi (#public payphones producing below marketlevel revenues, while the independent PSPs have  Xy- (#targeted high volume locations.y< yO-ԍ#Xj\  P6G;XP##Xj\  P6G;XP##X\  P6G;P#Id.; BellSouth Reply at 34.#x6X@`7pX@# BellSouth asserts that within the most competitive market  Xb- (#segments, market share numbers actually indicate competitive parity.b( < yO;-ԍ#X\  P6G;P#BellSouth Reply at 4 and Exhibit A.#x6X@`7pX@#Ѣ BellSouth submitted  (#<estimated market share data for states within its region stating that, while independent PSPs have  (#only 39 per cent of the payphone units, they have almost 55 per cent of the public payphone  X- (#revenues, compared with BellSouth's 45 per cent. < yO -ԍ#Xj\  P6G;XP##X\  P6G;P#Id. at Exhibit A.#x6X@`7pX@#ѽ GPCA disagrees with the market share data  (#ksubmitted by the BOCs, including their exclusion of semipublic payphones while including  (#;smallbusinessselfsupply payphones (payphone sets which permit small businesses to selfsupply  X-payphone service) in the independent payphone providers' market share.~H < yO$-ԍGPCA Reply at 20 n.7 (referencing BellSouth Comments at Attachment 1, p. 15).~"m0*&&JJ"Ԍ X- TԙSS 217.   The RBOCs also assert that the payphone market has very low entry  X- (#barriers, so that any efforts to exclude competition would be futile.< yOb-ԍ#X\  P6G;P#RBOC Reply at 27; BellSouth Comments at Appendix 1, p. 816.#x6X@`7pX@#ѻ Information submitted by  (#iBellSouth states that, within its region, no state has fewer than 107 certificated independent PSPs,  (#Lwhile two states (Florida and South Carolina) each have more than onethousand independent  X- (#PSPs.X< yO-ԍ#X\  P6G;P#BellSouth Reply at Appendix B.#x6X@`7pX@#ѝ BellSouth and Ameritech contend that existing nonstructural and structural safeguards  (#jare adequate to protect against attempts to leverage market power in local telephone service or  Xv- (#zto engage in discriminatory conduct.v< yO -ԍ#X\  P6G;P#RBOC Comments at 43; Ameritech Comments at 2528.#Xj\  P6G;XP#ѱ BellSouth also argues that until a BOC is allowed to  (#offer inregion interLATA service, interexchange service will be acquired by the BOC PSPs from  XH- (#a separate affiliate, making subsidization easily detected.Hx< yOq-ԍ#X\  P6G;P#RBOC Comments at 43.#x6X@`7pX@#ѓ Ameritech contends that Congress has  (#specifically resolved this issue by both granting BOCs equal rights with nonBOC PSPs to  (#=participate in the selection of carriers for its payphones and granting them the right to provide  (#kinterLATA service themselves. Thus, Ameritech argues, Congress has determined that the  (#{promotion of one's own affiliated interLATA services, whether done by a BOC itself or a  X - (#through a separate pay telephone operation, is not to be condemned as discrimination. < yO-ԍ#X\  P6G;P#Ameritech Comments at 2527.#x6X@`7pX@#ћ  (#BellSouth and Ameritech also assert that the location provider's ultimate control in selecting the  X -PSP will act as a check on a BOC's ability to exercise market power. < yO-ԍ#X\  P6G;P#BellSouth Comments at 7, 9; Ameritech Comments at 19.#x6X@`7pX@#Ѵ  Xy-  SS 218.  Many commenters urging against authorizing BOC presubscription rights  (#also propose options for minimizing the anticompetitive potential should the Commission decide  (#Kto approve that authority. As noted above, several of these comments assert that granting BOCs  (#ythe ability to presubscribe their payphones should be delayed at least until the BOCs are faced  X- (#kwith competition in the intraLATA market.8( < yO- v ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., AT&T Comments at 24; CompTel Comments at 21; MCI Comments at 19; Sprint Comments at  yO-2930. #x6X@`7pX@#8 Other commenters argue that the Commission  (#\should require structural separation between the BOCs' carrier services and their payphone  X- (#services. < yO #-ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., One Call Reply at 67; APCC Comments at 4344; ACTEL Comments at 12.#x6X@`7pX@# Peoples supports giving BOCs the freedom to select the interLATA carrier serving"n0*&&JJ "  X- (#their payphones, but only if they offer payphone service from a structurally separate subsidiary.< yOy-ԍ #X\  P6G;P#Peoples Reply at 2223.#x6X@`7pX@#ї California PUC expresses concern as to whether existing nonstructural safeguards  (#[provide sufficient protection against anticompetitive behavior by the BOCs, but contends that  (#Commission oversight in the form of reporting requirements on the BOCs with respect to  (#implementation of nondiscriminatory payphone service should provide adequate notice of  X- (#anticompetitive abuses.X< yO-ԍ#X\  P6G;P#California PUC Comments at 18; see also Virginia SCC Comments at 34.#x6X@`7pX@# To deter such abuses, California PUC asserts that the states should be  (#given authority to prevent BOCs from giving more favorable interLATA rates to their own  X_-payphone operations or other similar anticompetitive behavior._< yO -ԍ#X\  P6G;P#California PUC Comments at 1819. #x6X@`7pX@##]\  PCP#Also Florida PSC Comments at 9.#x6X@KpX@#  X1- %SS 219.   The RBOCs contend that the Commission need not adopt rules in addition  (#to the structural and accounting safeguards mandated under Sections 271 and 272 of the 1996  (#/Act in order to prevent them from engaging in crosssubsidization or other anticompetitive  X - (#conduct with respect to their payphone activities. x< yO-ԍ#X\  P6G;P#BellSouth Comments at 8; RBOC Comments at 3740; RBOC Reply at 2122, 29.#x6X@`7pX@# Ameritech asserts that the Commission has  (#incorrectly assumed that the nondiscrimination provisions of Section 272 of the 1996 Act will  (#apply to the BOCs' participation in the choice of interLATA carrier at BOC payphones. It  (#argues that it will not be the network part of the BOC that will be selecting the interLATA  (#carrier, but the entity that owns the payphones which by that time will have gone through the  (#nonstructural separation required by Section 276. Ameritech contends that the payphone entity  (#!will not be required to maintain separation from the BOC subsidiary providing inregion  (#interLATA services, and therefore there will be no Section 272 rule against discrimination  X4-applicable as between the payphone operation and the interLATA separate subsidiaries.4< yO-ԍ#X\  P6G;P#Ameritech Comments at 2526.#x6X@`7pX@#ћ  X- SS 220.  Some commenters propose limitations designed to prevent the BOCs from  (# leveraging their high payphone interLATA volume in order to obtain rates not available to  X- (#independent PSPs.P< yO! - v ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., One Call Reply at 67; APCC Comments at 4344; CPA Comments at 2021; ACTEL Comments  yO -at 1112; GPCA Reply at 2022.#x6X@`7pX@#P APCC contends that if the Commission decides to grant the BOCs the  (#ability to presubscribe their payphones, then the Commission should also adopt rules requiring  (#any independent PSPs aggregating at least onethird of the nonLEC payphone volume in a region  X- (#to qualify for the lowest rates made available by a carrier to a competing BOC. < yO4%-ԍ#X\  P6G;P#APCC Comments at 4344.#Xj\  P6G;XP#і CPA and"o 0*&&JJo"  (#GPCA argue that the Commission should consider placing a limit on the volume of calls that  (#must be aggregated to receive an IXC's highest available commission level for 0+ interLATA  X- (#calls.< yOK-ԍ #Xj\  P6G;XP##X\  P6G;P#CPA Comments at 2021; GPCA Comments at 10.#Xj\  P6G;XP# Several other commenters urge the Commission to adopt safeguards that would limit the  (#volume of traffic that a BOC could route to a single interLATA carrier, as well as limit the  X- (#-BOCs' ability to aggregate payphone volume into a single commission agreement.X< yO-ԍ#Xj\  P6G;XP##X\  P6G;P#CPA Comments at 2021; One Call Reply at 67.#x6X@`7pX@# Florida PSC  (#contends that the Commission should adopt rules to prevent the BOCs from giving more  (#^favorable interLATA rates to their own payphone operations than to their payphone  X_-competitors._< yO -ԍ#X\  P6G;P#Florida PSC Comments at 9.#x6X@`7pX@#љ  X1- SS 221.   Some commenters urging limitations on the BOCs' ability to presubscribe  (#their payphones contend that such limitations are only needed until competition sufficiently  X - (#develops to prevent anticompetitive conduct by the BOCs. x< yO,-ԍ#X\  P6G;P#See, e.g., Peoples Comments at 22.#x6X@`7pX@#ѭ Peoples asserts that structural  (#separation would be an appropriate transitional requirement to prevent crosssubsidization and  (#allow the development of full competition in the payphone industry, but could be phased out after  (#[the BOCs have reclassified their payphone assets and removed all of the subsidies out of their  X - (#basic service rates. < yO`-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш Other commenters argue that restrictions should apply to a BOC's ability  (#to presubscribe itself even after being granted authority to offer interLATA service pursuant to  Xy- (#Section 271.y< yO-ԍ#X\  P6G;P#APCC Comments at 44; CompTel Comments at 21.#x6X@`7pX@#ѫ CompTel argues that BOC participation in the presubscription selection process  (#should be delayed at least until after the BOC satisfies the Section 271 competitive checklist.  (#-Even then, CompTel asserts, safeguards will be necessary to prevent anticompetitive conduct by  (#/the BOCs, including (1) limiting the volume of traffic a BOC can route to a single carrier; (2)  (#prohibiting the BOC from presubscribing itself for interLATA calls from it payphones; and/or  X- (#[(3) limiting the number of calls the BOCs can aggregate into a single commission agreement.( < yO-ԍ#X\  P6G;P#CompTel Comments at 21.#Xj\  P6G;XP#і  (#NJPA asserts that once the BOCs are allowed to enter the interLATA market, they will  (#undoubtedly direct all interLATA calls from their payphones to themselves, and accordingly  (#asserts that the Commission should prohibit indefinitely the BOCs from negotiating  X- (#ipresubscription for their payphones. < yO%-ԍ#X\  P6G;P#NJPA Comments at 17.#x6X@`7pX@#ѓ AT&T argues that even after a BOC satisfies the Section"pH 0*&&JJ"  (#/271 requirements, the Commission should not allow a BOC (or other LEC) to negotiate with  (#location providers within its own region until the Commission has individually evaluated how  (#each LEC's control over local exchange facilities and extensive payphone penetration affects its  X-ability to behave anticompetitively.< yO4-ԍ#X\  P6G;P#AT&T Comments at 24. See also Oncor Comments at 7.#x6X@`7pX@#Ѿ  X- SS 222.  The RBOCs assert that any regulatory restrictions which limit the portion  (#of interLATA traffic a BOC can deliver to any particular carrier, or the number of interLATA  (#lcalls that must be aggregated to receive an IXC's highest available commission level, are  XH- (#inefficient, anticompetitive, and unnecessary.HX< yOQ -ԍ#X\  P6G;P#RBOC Reply at 2328.#x6X@`7pX@#ѓ The RBOCs contend that the public interest  (#standard of Section 276 does not require the Commission to delay granting them presubscription  (#\negotiation authority until after they are authorized to provide inregion interLATA service  (#pursuant to Section 271, noting that Congress chose not to link those two section of the 1996  X -Act. < yO-ԍ#X\  P6G;P#BellSouth Comments at 8; RBOC Reply at 29.#x6X@`7pX@#ѩ  X -  SS 223.   Location providers, including airports and hospitals, maintain that  (#\authorizing the BOCs to select the interLATA carrier for their payphones could deprive the  (#.location providers of a significant source of revenues by reducing or eliminating commissions  Xy- (#Lpaid to them for the placement of payphones.gyx< yO- v ԍ#X\  P6G;P#AAAE Comments at 13; ACINA at 35; AHA TelePlan Comments at 1; Cleveland Clinic Foundation  yOj-Comments at 1; NATSO Comments at 23. See also City of Kansas City, Missouri Comments at 13. #x6X@`7pX@#g These location providers assert that the 1996  (#Act establishes that location providers should retain ultimate authority to determine the carriers  (#-serving payphones on their premises, and argue that the Commission should not implement rules  X4- (#zwhich would restrict the location provider's authority in this regard.D4< yO- v ԍ#Xj\  P6G;XP##X\  P6G;P#Id.; Admirals Club Comments at 1; AHA TelePlan Comments at 1; Greyhound Lines, Inc. Comments at  yO}-1; ARVC Comments at 13.#x6X@`7pX@#D Airport and hospital  (#location providers also assert that the commissions they receive from PSPs help reduce the cost  (#of operating these public facilities, thus allowing the BOCs to engage in conduct likely to reduce  X- (#Kthese commission levels would be contrary to the public interest.( < yO -ԍ#X\  P6G;P#AAAE Comments at 13; ACINA Comments at 25; AHA TelePLAN Comments at 1.#Xj\  P6G;XP# Some location providers also  (#contend that they have a reputational interest in both the quality of service from payphones on  X- (#Ktheir premises and in protecting their customers from unfair rates when using such payphones. < yO*$-ԍ#X\  P6G;P#ARVC Comments at 13.#x6X@`7pX@#є  (#Some location providers assert that if the Commission allows the BOCs to negotiate"qH 0*&&JJ"  (#jpresubscription, then the Commission should also make clear that the location providers retain  X- (#xthe ultimate decision concerning interLATA carriers for payphones on their premises.< yOb-ԍ#X\  P6G;P#See, e.g., DFW Comments at 1.#x6X@`7pX@#Ѩ ACINA  (#-states that while it agrees with the tentative conclusion that all PSPs, including the BOCs, should  (#[be authorized to negotiate with location providers concerning the choice of interLATA carrier,  (#the Commission should also make it clear that PSPs may not contract with any carrier over the  X-objection of the location provider.X< yO-ԍ#X\  P6G;P#ACINA Comments at 5; also DFW Comments at 1.#x6X@`7pX@#Ѳ  X_- SS 224.  The RBOCs argue that location providers always retain the ultimate  (#/decisionmaking authority concerning interLATA carriers for payphones on their premises  X1- (#ythrough their choice of payphone service provider.s1< yO -ԍ#X\  P6G;P#RBOC Reply at 26 and n. 25.s Ameritech states that the public interest  (#analysis required under the 1996 Act does not protect the interests of location providers in high  (#commission levels, especially to the extent such commissions are recouped by the carriers  X -through higher rates to consumers. x< yO-ԍ#X\  P6G;P#Ameritech Reply at 15.#x6X@`7pX@#ѕ  X - SS c.  Discussion  X -  X- SSS 225.   Section 276(b)(1)(D) directs the Commission to grant the BOCs the right  (#to negotiate with location providers for the presubscription of interLATA carriers for their  Xb-payphones, unless we determine that such rights would be contrary to the public interest.Mb< yO-ԍ47 U.S.C.  276(b)(1)(D).M  X4-  VSS 226.   Commenters arguing that BOC participation in the selection of  (#presubscribed interLATA carriers for their payphones is contrary to the public interest contend  (#that the BOCs' large share of existing payphone units, as well as their continuing nearmonopoly  (#over local access service, will allow them to engage in anticompetitive conduct in the payphone  X- (#services market if granted unfettered interLATA presubscription rights.w< yO! -ԍSee, e.g., AT&T Comments at 2426; APCC Comments at 4144.w The proponents of this  (#kview make two basic arguments. First, they assert that the BOCs' large share of the existing  (#payphones will enable them to aggregate their payphone volumes, in order to obtain from IXCs  (#llower rates (or higher commission levels) than those available to independent payphone"r( 0*&&JJo"  X- (#providers.:< yOy-ԍId.: This cost advantage would, in turn, allow the BOCs to strengthen their position as  (#ithe dominant players in the provision of payphone services by enabling them to either pay higher  (#commissions to location providers, or to offer lower rates to end users. Second, these  (#commenters argue that the BOCs will be able to use their bottleneck control over local service  X- (#facilities to subsidize or discriminate in favor of their own payphone operations.[X< yO-ԍSee, e.g., MCI Comments at 19.[ We address  (#zeach of these arguments separately below. We conclude, however, that the record does not  (#support a finding that it would be contrary to the public interest to allow the BOCs to negotiate  (#kwith location providers with respect to selecting and contracting for the interLATA carriers presubscribed to their payphones.  X -  pSS 227.   Some commenters arguing against granting the BOCs such presubscription  (#rights assert that the BOCs will be able to solidify, or even expand, their current dominant share  (#of the payphone services market by using their existing size to negotiate lower interexchange  (#rates than are available to nonBOC payphone service providers. Even if we assume that the  (#BOCs will be able to aggregate their traffic to obtain superior deals from the IXCs, however, it  (#>does not necessarily follow that this represents injury to competition or the public interest.  (#Rather, competition is injured only if the BOCs' size somehow allows them to exercise market  Xy-power.+y< yO- v zԍSee, e.g., Ball Memorial Hospital, Inc. v. Mutual Hospital Insurance, Inc., 784 F.2d 1325, 1336 (7th Cir.) (Easterbrook, J.) ("Market share is just a way of estimating market power, which is the ultimate consideration").+ As we stated in Competition in the Interstate Interexchange Marketplace:  z : e` `  The issue is not whether [the dominant competitor] has  `advantages, but, if so, why, and whether any such advantages are  `so great as to preclude the effective functioning of a competitive   `market. . . . Such advantages do not . . . mean that these markets  `are not competitive . . . [or] that it is appropriate for government  `regulators to deny the incumbent the efficiencies its size confers in  X-order to make it easier for others to compete.X@Z yO- v ԍ#X\  P6G;P#Competition in the Interstate Interexchange Marketplace, CC Docket No. 90132, Report and Order, FCC  yOz- d(#91251, 6 FCC Rcd 5880, 589192 (1991). See also Application of McCaw and AT&T, 9 FCC Rcd 5836, 5862 at  yOB -para. 38 (1994).#Xj\  P6G;XP#ѵ  ` `  "s` 0*&&JJR"Ԍ d(#.Volume discounts are common in the business world, and typically represent a recognition by  X- d(#the seller of the economies of scale it realizes from the transaction. yOb- v >ԍ#X\  P6G;P#We note that nothing in our regulations, or the antitrust laws, prevent a group of independent payphone  d(#,service providers which do not possess market power, either individually or jointly, from combining their purchases  yO- d(#-to take advantage of volume discounts. See, e.g., Northwest Wholesale Stationers Inc. v. Pacific Stationery and  yO- d(#iPrinting Co., 472 U.S. 284, 295, 105 S.Ct. 2613, 2620 (1985) (recognizing that group purchasing may facilitate competition by enabling smaller retailers to reduce prices so as to compete more effectively with large retailers). If these volume discounts  d(#are passed through to the end user, consumers benefit. Even if they are not passed on to  d(#consumers, the preexisting level of competition is not injured because prices remain the same  X-to end users. The only resulting injury is to competitors, not competition.Xx yO - v kԍ"It is axiomatic that the antitrust laws were passed for 'the protection of competition, not competitors.'"  yO - d(#Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224, 113 S.Ct. 2578, 2588 (1993)  yO] -(quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521 (1962)).  Xv- z ` ` 228. The issue that we must examine is whether the BOCs will be able to  d(#-exercise market power if allowed to participate in the interLATA presubscription process for their  d(#payphones. We have previously defined "market power" as "the ability to maintain price above  d(#the competitive level without driving away so many customers as to make the increase  X - d(#unprofitable." X  yOc- v ԍ#Xj\  P6G;XP##X\  P6G;P#Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations  yO+- d(#Thereof, CC Docket No. 79252, Fourth Report and Order, FCC 83481, 95 FCC 2d 554, 558 ("Competitive Carrier  yO-Fourth Report and Order") (citing II P. Areeda & D. Turner, Antitrust Law 322 (1978)).  The 1992 Joint Merger Guidelines similarly define market power as "the ability  X - d(#profitably to maintain prices above competitive levels for a significant period of time."p  yOl- v ԍ#X\  P6G;P#1992 Merger Guidelines at  0.1. See also Matsushita Elec. Industries Co., Ltd. v. Zenith Radio Corp., 475  yO4-U.S. 574, 58889 (1986); Brooke Group Ltd., above.#x6X@`7pX@#p There  d(#are two ways in which a competitor may profitably raise and sustain prices above competitive  d(#levels and thereby exercise market power. First, a competitor may be able to raise and sustain  d(#prices by restricting its own output. Second, a company may be able to raise and sustain prices  d(#by increasing its rivals' costs or restricting its rivals' output through its control of an essential output, such as access to bottleneck facilities, that its rivals need to offer their services.  Xb- z 6` ` 229. The commenters arguing that the BOCs will be able to exercise some  d(#degree of market power each start with the assertion that the BOCs control 80 percent or more  X4- d(#of the installed payphone base.4 yO!-ԍ#X\  P6G;P#See, e.g., APCC Comments at 41.#x6X@`7pX@#Ѫ The BOCs, however, have provided information that indicates  d(#that their individual shares of payphone units in their regions range from 6265 percent for  d(#Pacific Bell, BellSouth and US West, to approximately 80 percent for Ameritech and"t0*&&JJ"  X- d(#KSouthwestern Bell. yOy-ԍ#Xj\  P6G;XP##X\  P6G;P#BellSouth Comments at Appendix 1, Table 2.#x6X@`7pX@# These percentage shares do not include semipublic payphones, which the  d(#\BOCs assert do not accurately reflect market power, because they are typically not revenue  d(#generating and are therefore not subject to aggressively competition by the independent payphone  X- d(#jservice providers.X yO-ԍ#Xj\  P6G;XP##X\  P6G;P#Id.#x6X@`7pX@#ѯ The independent payphone service providers dispute these market share  X-figures.F yO= -ԍGPCA Reply at 20 n.7.F  Xv- z R` ` 230.  We first note that these market share figures are relevant only to the BOCs'  d(#.ability to exercise market power in the provision of payphone services not, as contended by  d(#some commenters, to their ability to obtain interexchange rates lower than those available to the  d(#independent payphone service providers. Volume discounts are based on the volume of traffic,  d(#not on the number of phones from which such traffic originates. Thus, a more relevant  d(#examination in this regard would be the volume of traffic generated by BOC payphones, versus  d(#-that of nonBOC payphones. Unfortunately, there is very limited data in the record on this point.  d(#The most pertinent information was submitted by BellSouth, showing that (excluding their semi d(#.public payphones) they currently generate only 45 per cent of the payphone revenues in their  X - d(#=region. x yO-ԍ#X\  P6G;P#BellSouth Reply at Exhibit A.#x6X@`7pX@#ќ It is quite clear, in any event, that the BOCs' share of the payphone market does not  X-allow them to exercise market power with respect to the IXCs. yOI- v ԍ#X\  P6G;P#APCC refers to the BOCs being able to demand "supracompetitive commission levels from carriers." APCC  yO- d(#Comments at 42. This would require the BOCs to exercise monopsonistic market power over the IXCs. See, 1992  d(#Merger Guidelines at  0.1 (explaining that the effects of monopsony power are assessed in a manner analogous to  d(#monopoly power). Since, from a technical perspective, there is no difference between the interexchange facilities  d(#xmade available to residential or business customers and those made available for calls from payphones, the ability  d(#to demand "supracompetitive" prices from the IXCs would require a BOC to have market power in the IXC market  yO- d(#Jas a whole. See Competitive Carrier Fourth Report and Order, 95 FCC 2d at 56264 (viewing interexchange services  yO- d(#as comprising a single market); also, McCaw, above, 9 FCC Rcd. at 5847, para. 14. That is clearly not the case  yO- d(#hhere. See RBOC Reply at 27 n.27 (noting that BOC payphone traffic only accounts for approximately $1.9 billion,  yOQ-or less than 3%, of the approximately $67 billion interexchange market).#x6X@`7pX@#  Xb- z ` ` 231. As to the BOCs' ability to exercise market power in the provision of  d(#payphone services, market share analysis, standing alone, does not tell us the likelihood that the  X4- d(#dominant firm will be able to sustain supracompetitive prices.X4 yO#- v ԍ #X\  P6G;P#In light of the changes taking place in the telecommunications industry, it is important to emphasize that  d(#market share and market concentration data, evaluated alone, may either understate or overstate the likelihood of  d(#firms being able to exercise market power in the future. We recognize that any evaluation of market power based"%0*&&8%"  d(#Kupon current market shares may underestimate the BOCs' potential to exercise some market power if allowed to  d(#engage in presubscription, since even they readily admit that this ability will make them more effective competitors.  d(#At the same time, other changes to the industry which we are undertaking both in this rulemaking and other  d(#rulemakings implementing the 1996 Act, may greatly reduce the BOCs' ability to maintain market share, particularly  yO-in the provision of local service. See, e.g., Local Competition Order, note 508, above. If entry into the market is"4ux0*&&JJ*"  d(#/sufficiently easy, it will prevent the dominant competitor from profitably maintaining prices  X- d(#above competitive levels.}x yO-ԍ#X\  P6G;P#1992 Merger Guidelines at para. 3.0. See also McCaw, supra, 9 FCC Rcd. at 5868, para. 51:  ` `   z  A company's high market share may be inoffensive if the relevant  `market has many potential entrants where, if the company attempted to raise  `price, lower quality, or fail to innovate, a new competitor could enter the market  `promptly, offer competitive prices and quality, and thus frustrate the first company's anticompetitive plan.  ` `    OR< v Mciting, Application of General Electric Co., 4 FCC Rcd 8207, 8209 (1989).#x6X@`7pX@# #X\  P6G;P#See also II P. Areeda & D.  yO*- d(#Turner, Antitrust Law, para. 505 at 328 ("Substantial market power can persist only if there are significant and  yO-continuing barriers to entry").#x6X@`7pX@#} Potential entry will act as a deterrent if it would be timely, likely,  d(#\and sufficient in magnitude, character and scope to counteract the anticompetitive effect of  X- d(#concern. yOT-ԍ#Xj\  P6G;XP##X\  P6G;P#1992 Merger Guidelines at para. 3.0.#Xj\  P6G;XP# In markets where entry meets these requirements, high market share generally does  X-not raise antitrust concerns.:x yO-ԍId.:  Xv- z p` ` 232. We find the record demonstrates that the market for provision of payphone  d(#Mservices has very low barriers to entry, and such entry would act to prevent the BOCs from  d(#sustaining prices above competitive levels if allowed to negotiate with location providers for the  X1- d(#KinterLATA carriers for their payphones.1 yO-ԍ#X\  P6G;P#See, e.g., BellSouth Comments at Attachment 1.#x6X@`7pX@#ѹ In reaching this conclusion, we start with the fact that  X - d(#thousands of competitors are already in the market.  yOc-ԍ#X\  P6G;P#See, e.g., BellSouth Reply at Attachment A.#x6X@`7pX@#Ѷ Most of these companies have very small  d(#operations. Indeed, the largest of these independents, Peoples, has only 40,000 payphones, less  X - d(#[than 3 percent of the national payphone market. ( yO!- v ԍ#X\  P6G;P#Peoples Comments at 4. #Xj\  P6G;XP##X\  P6G;P#See BellSouth Comments at Attachment, p. 15 (stating that there are approximately  yO"-1.5 million payphone stations, excluding semipublic payphones).#Xj\  P6G;XP#ѝ While we understand the arguments of the  d(#yindependent payphone providers that their small size makes them vulnerable to BOC predatory  d(#conduct, the existence of literally thousands of small competitors demonstrates that entry is" v0*&&JJ "  d(#jrelatively easy and does not require investment or scale levels that would deter many potential competitors.  X- z &` ` 233.  We also note that among the nonBOC payphone service providers are  X- d(#MAT&T, MCI and Sprint. yO- v ԍSee, e.g., Ex parte letter from Ben G. Almond, BellSouth, to William Caton, Acting Secretary, FCC, August 15, 1996; Sprint Comments at 2 (noting that Sprint currently has 50,000 payphones).. Although these companies' presence in the payphone market is  d(#currently small, at least relative to the BOCs, these companies certainly have the financial  d(#resources to make an aggressive expansion of their payphone operations. We believe that this  d(#would be particularly likely if, as at least one IXC commenter suggests, the BOCs attempt to use  XH-their current market share to squeeze excessive concessions from the IXC providers.H  yO -ԍ#X\  P6G;P#AT&T Comments at 25. See also 1992 Merger Guidelines at para. 1.32.#x6X@`7pX@#  X - z b` ` 234. We also find that any ability that the BOCs might have to raise prices to  d(#iend users above competitive levels is severely restricted by the ability of end users to dial around  d(#Zthe presubscribed interLATA carrier. TOCSIA requires, and will continue to require, open access  d(#for such calls at payphones. Peoples estimates that 19.4 per cent of the calls originated by its  X - d(#payphones are either access code calls (6.5 per cent) or subscriber 800 calls (12.9 per cent).G  yO-ԍPeoples Comments at 9.G  d(#A sustained effort by the BOCs to pass on monopoly price levels to consumers would certainly  X-induce more end users to take advantage of this alternative.@ yO- v ԍ#X\  P6G;P#For the same reasons, alternative forms of mobile communications, including cellular telephones, are an  yOI- d(#adequate substitute for payphones for many end users. See McCaw, supra, at 5847, para. 14 (finding anecdotal  d(#Yevidence of substitution occurring between interexchange calls from cellular telephones and interexchange operator d(#hassisted and credit card "wireline" calls). Thus, the proliferation of such telephones acts as another constraint on the  yO-ability to sustain supracompetitive prices for payphone services.#x6X@`7pX@#  Xb- z ` ` 235. As noted above, the second way in which a competitor can sustain  d(#supracompetitive prices is through the control of a bottleneck facility. We recognize that for the  d(#immediate future, the BOCs will continue to retain effective control over local access facilities.  d(#yAccordingly, we are concerned about any potential ability the BOCs may have to leverage that market power in favor of their payphone operations.  X- z ` ` 236.  One way in which a BOC might be able to leverage its market power over  d(#local access facilities is by discriminating in favor of its own payphones in the provision of such"w 0*&&JJq"  X- d(#services.&  yOy- v ԍ#X\  P6G;P#See, generally, U.S. v. Western Electric Co., 993 F.2d 1572, 1578 (D.C. Cir.), cert. denied sub nom.  yOA- d(#wConsumer Federation of America v. U.S., 510 U.S. 984 (1993) (examining the BOCs' ability to use monopoly power  d(#over local exchange service in order to raise the costs, and thereby reduce the output, of any rival information services provider).& For example, a BOC could discriminate against its payphone services competitors  d(#by providing them with poorer quality interconnection to the BOC's local network than it  d(#iprovides to its own payphone operations, or could unnecessarily delay satisfying its competitors'  d(#requests to connect to the BOC's local network or with respect to repair services. To the extent  d(#jthat a BOC can thereby raise its rivals' costs of doing business, or damage its rivals' reputation  d(#for quality service, the BOC may be able to raise its own payphone service rates. Alternatively,  d(#=some commenters have asserted that the BOCs will attempt to leverage their control over local  d(#access facilities by subsidizing their payphone operations from basic exchange and exchange  XH- d(#/access revenues.pH yO -ԍSee, e.g., MCI Comments at 19; Oncor Comments at 6.p As addressed above, Section 276(b)(1)(B) of the 1996 Act requires the  X1- d(#elimination of all such subsidies.M1@ yO"-ԍ47 U.S.C.  276(b)(1)(B).M Improper allocation of costs may allow a BOC to recover  d(#costs incurred in its payphone operations from subscribers to the BOC's regulated exchange  d(#services, potentially harming such captive subscribers of local services and providing the BOC's  X -payphone operations with an unfair advantage over its competitors. x  yOm- v ԍFor purposes of market power analysis, we would be concerned that the improper allocation of costs would  yO5- d(#enable the BOC to price its payphone services at predatory levels (i.e. below the cost incurred to provide those  yO- d(#services), drive out its competitors, and then raise prices above competitive levels.  As discussed above, however,  d(#we have determined that ease of entry and other factors make it highly unlikely that a BOC could recoup the costs  yO- d(#of such predation through sustained supracompetitive prices. See paras. 229 232, above. See also Brooke Group  yOU- d(#xLtd., 113 S.Ct. at 2588 ("Recoupment is the ultimate objective of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation").  X - z ` ` 237.  We conclude, however, that the nonstructural and accounting safeguards  d(#kwe are requiring with respect to the BOCs' payphone operations are sufficient to deter such  X- d(#abuses, or to allow the Commission to identify abuses of they occur.W  yOQ-ԍSee 47 U.S.C.  276(b)(1)(C).W As discussed above, we  Xy- d(#.are applying all Computer III and ONA nonstructural and accounting safeguards to the BOCs'  d(#provision of payphone services, and requiring that any basic services provided by a BOC to its  d(#?own payphone operations be available on a nondiscriminatory basis to other payphone  X4- d(#.providers.T 4 yO#-ԍSee para. 199, above. T In particular, we are requiring each BOC to file an initial CEI plan describing how  X- d(#it intends to comply with the Computer III and ONA equal access parameters and nonstructural"x0 0*&&JJ)"  d(#safeguards for the provision of payphone services, including a description of how each BOC will  d(#comply with the requirements for nondiscrimination in the quality of service, installation, and  X- d(#Zmaintenance.S  yOK-ԍSee paras. 202 206, above.S In connection with our discussion of these safeguards, we previously stated our  d(#=conclusion that they provide an appropriate regulatory framework to ensure that BOCs do not  d(#engage in improper subsidization or discriminate in the provision of services required by their  X- d(#payphone competitors. X yO-ԍS#]\  PCP#ee para. 199, above. See also California III, 39 F.3d at 927929.#]\  PCP# We also note that such payphone competitors may file a complaint to  d(#|the Commission if they believe a BOC has failed to satisfy its obligations under these  X_-provisions.;_ yO - v ԍ We also note that these nonstructural safeguards are sufficient, in conjunction with other requirements of  yO - d(#the 1996 Act, to address the concerns raised by California PUC. See California PUC Comments at 1819. See also  yO - d(#Implementation of the NonAccounting Safeguards of Sections 271 and 272 of the Communications Act of 1934,  yOP- d(#as amended, CC Docket No. 96149, Notice of Proposed Rulemaking, FCC 96308 (rel. July 18, 1996) (Non yO- d(#Accounting Safeguards NPRM). Accordingly, we decline to adopt the recommendation of California PUC to grant the states the authority to implement further restrictions.;  X1- z ` ` 238. For the reasons stated above, we decline to adopt the recommendation of  d(#commenters asserting that the risk that the BOCs will seek to leverage their control over local  d(#access facilities requires us to mandate structural separation of the BOCs' payphone operations  X - d(#before allowing them to participate in interLATA presubscription for their payphones.} `  yO-ԍSee, e.g., Peoples Comments at 22; APCC Comments at 4344.} As  X - d(#>discussed, we have previously found that Computer IIIĩtype nonstructural and accounting  d(#safeguards generally to be effective in deterring improper allocation of costs and  X - d(#discrimination.L  yOH-ԍSee para. 237, above.L Moreover, we find that the statutory language clearly reflects a Congressional  d(#determination that structural separation of the BOCs' payphone operations from their core  d(#business is neither necessary nor appropriate. Section 276(b)(1)(C) specifically directs the  d(#xCommission to "prescribe a set of nonstructural safeguards for Bell operating company payphone  d(#-service to implement" the nonsubsidization and nondiscrimination provisions of Section 276(a).  d(#We note that Congress has, where it deemed necessary, prescribed structural separation  X-requirements as a precondition to BOC entry into a line of business.  yON!-ԍ#X\  P6G;P#See, e.g., 47 U.S.C.  271 and 272.#x6X@`7pX@#ѵ  X- z r ` ` 239.  Since we are relying on the nonstructural and accounting safeguards  d(#\established pursuant to Section 276(b)(1)(C) to deter anticompetitive conduct, however, we  d(#believe that it is prudent to ensure that such safeguards are in place before the BOCs are allowed"y0*&&JJ"  d(#.to participate in interLATA presubscription for their payphones. Accordingly, a BOC will not  d(#be allowed to engage in the conduct authorized by Section 276(b)(1)(D) until it has submitted  X- d(#and received approval of an initial CEI plan filed pursuant to Section 276(b)(1)(C).Y yOK-ԍSee paras. 200 205, above.Y We find  d(#that this is a reasonable requirement for meeting our statutory mandate of protecting the public interest in this area.  Xv- z p ` ` 240.  For all of the reasons discussed above, we also decline to place restrictions  d(#]on the BOCs' ability to negotiate for the selecting and contracting of intraLATA carriers  d(#presubscribed to their payphones. Most of the commenters urging such restrictions base their  d(#proposals on the BOCs' ability to exercise market power through the aggregation of interLATA  X - d(#traffic from their payphones.v X yO# -ԍSee, e.g., APCC Comments at 4344; One Call Reply at 67.v Since we find that the BOCs are unlikely to be able to exercise  d(#such market power, any restrictions on their ability to aggregate interLATA volume, or to direct  X -interLATA traffic to a particular carrier, are unwarranted.%  yO- v ԍWe also note that our conclusion here is consistent with the statutory requirement to ensure that payphone  d(#owners are fairly compensated for each and every call made from their payphones. Sec. 276(b)(1)(A). While this  d(#issue is addressed more specifically at paras. 48 through 54, above, the record reflects that a payphone owner's  d(#ability to influence the decision of presubscribed interLATA carrier is a contributing factor to the revenues earned  d(#Yby that payphone owner. Indeed, BOC, IXC and independent payphone provider commenters all recognize that the  yOm- d(#Zability to aggregate payphone traffic strengthens the PSP's ability to negotiate low rates from carriers. See, e.g.,  yO5- d(#RBOC Comments at 42; APCC Comments at 4243; AT&T Comments at 25. See also Ex parte letter from Michael  d(#iKellogg, Counsel, RBOC Coalition, to William Caton, Acting Secretary, FCC, August 29, 1996 at Attachment 1,  d(#p.1 (asserting that "RBOC participation in the selection of the interLATA carrier is critical to the Commission's percall compensation scheme").%  X - z ` ` 241. We are also mindful of the statement in the Conference Report that location  d(#.providers retain "the ultimate decisionmaking authority in determining interLATA services in  X- d(#-connection with the choice of payphone providers."  yO-ԍ#Xj\  P6G;XP##X\  P6G;P#S. Conf. Rep. 104230 at 44.#x6X@`7pX@# We interpret this statement as a mandate  d(#to ensure that strong competition exists in the payphone industry. So long as competition exists  d(#among payphone service providers, location providers will continue to have the ultimate choice  XK- d(#of carrier through their selection of payphone service provider.K yO !-ԍ#X\  P6G;P#See Ameritech Comments at 24.#x6X@`7pX@#Ѣ As to the location providers'  d(#argument that BOC participation in the presubscription process will lead to a reduction in, or  d(#zelimination of, the commissions they receive in connection with placing payphones on their  d(#premises, we find this argument unpersuasive. We find it unlikely that the introduction of  d(#=additional competition would lead to commissions being reduced below competitive levels. In"z0*&&JJ"  d(#this respect, we note that MCI and independent payphone service providers have asserted just the  d(#opposite that the BOCs will attempt to gain market share by offering location providers higher  X- d(#commissions which their competitors will be unable to match. yOK-ԍ#X\  P6G;P#APCC Comments at 42; MCI Comments at 19.#x6X@`7pX@#ѧ We also note that, to the extent  d(#Kthat these commissions are recouped from end users in the form of higher rates, protecting higher  d(#commissions is not a strong public interest concern weighing heavily against granting the BOCs presubscription authority.  X_- z &` ` 242. We conclude that competition in the provision of payphone services is  d(#sufficiently strong to ensure location providers freedom of choice concerning the interLATA  d(#carriers for payphones on their premises. In addition to the conclusions expressed above, we also  d(#jnote that the record indicates that many longterm agreements currently exist between location  d(#=providers and payphone service providers or carriers, concerning the choice of presubscribed  X - d(#interLATA carrier. X yO-ԍ#X\  P6G;P#See BellSouth Comments at 9.#x6X@`7pX@#ѡ Since these agreements will expire over time, the existence of these  d(#Lenforceable agreements will help to ensure the continued availability of choice in the selection  X - d(#of carriers. We emphasize, however, that a location provider's ability to choose should be  d(#protected from unjust and unreasonable practices which seek to foreclose meaningful choice.  d(#Such practices include unreasonable interference with preexisting agreements between location  d(#<providers and payphone service providers or carriers, or conduct which is unduly coercive of the  d(#location provider's right to choose the carrier for payphones on its premises. Such conduct may  d(#violate Section 201 of the Act, which proscribes unjust and unreasonable practices by common  X4-carriers.4 yO-ԍ#X\  P6G;P#47 U.S.C. 201(b).#x6X@`7pX@#є  X- z ` ` 243.  As a final point, we address the argument of some commenters that BOC  d(#participation in the interLATA presubscription of their payphones would constitute the offering  d(#\of interLATA service, without first meeting the requirements of Sections 271 and 272 of the  X- d(#z1996 Act.x yO-ԍ#X\  P6G;P#See, e.g., AT&T Comments at 24; CompTel Comments at 21.#x6X@`7pX@# Section 276 of the 1996 Act, however, provides only that BOCs be given equal  d(#rights with independent payphone providers "to select and contract with, the carriers that carry  X- d(#KinterLATA calls from their payphones . . ." yOL!-ԍ#X\  P6G;P#47 U.S.C.  276(b)(1)(D).#x6X@`7pX@#ћ We interpret the phrase "select and contract with,"  d(#as granting the BOCs no more than the right to participate as a contractual intermediary between  d(#La location provider and a thirdparty interLATA carrier. Such conduct does not amount to the"e{0*&&JJ"  X- d(#Lprovision of interLATA telecommunications service addressed under Sections 271 and 272.: yOy-ԍ#Xj\  P6G;XP##X\  P6G;P#See 47 U.S.C. 153(46). #x6X@`7pX@# #X\  P6G;P#See also NonAccounting Safeguards NPRM.:  d(#/Moreover, we find nothing in the statutory language, or legislative history, to indicate that  d(#LCongress intended the restrictions of Sections 271 and 272 to encompass the specific conduct authorized in Section 276.  X- z ` ` 244. BellSouth, however, has asked us to find that Section 276(b)(1)(D) allows  d(#<the BOCs to engage in reselling, as well as branding, of presubscribed interLATA service to their  X_- d(#payphones.\_X yOh - v kԍ#X\  P6G;P#  See Ex parte letter from, Ben G. Almond, BellSouth, to William F. Caton, Acting Secretary, FCC, filed in  yO0 -CC Docket 96128, August 8, 1996.  #x6X@`7pX@# \ BellSouth asserts that "Section 276 does not reference other sections of the 1996  XH- d(#Act but immediately does away with MFJ interLATA prohibitions (but only for RBOC payphone  d(#!units . . .) unless the FCC finds interLATA rights for RBOC PSPs not to be in the public  X - d(#<interest."  yO{- v >ԍSee Ex parte letter from Ben G. Almond, BellSouth, to William F. Caton, Acting Secretary, FCC, filed in  yOC-CC Docket No. 96128, August 16, 1996, at Attachment p.2.  While we recognize that independent payphone providers have the ability to engage  d(#in the resale and/or branding of presubscribed interLATA service to their payphones, we do not  X - d(#/interpret the language of the 1996 Act to grant this authority to the BOCs.:  yO- v \ԍWe have previously defined "resale" as "an activity wherein one entity subscribes to the communications  d(#services and facilities of another entity and then reoffers communications services and facilities to the public (with  yO5- d(#or without "adding value") for profit." Regulatory Policies Concerning Resale and Shared Use of Common Carrier  yO- d(#Services and Facilities, Docket No. 20097, Report and Order, 60 F.C.C. 2d 261, 271 (1976). Also Interconnection  yO- d(#iand Resale Obligations Pertaining to Commercial Mobile Radio Services, CC Docket No. 9454, First Report and  yO-Order, FCC 96263 (July 12, 1996). : As explained  d(#above, the 1996 Act provides that the BOCs are to be given equal rights with independent  d(#[payphone service providers "to negotiate with the location provider on the location provider's  d(#>selecting and contracting with, and subject to the terms of any agreement with the location  d(#Kprovider, to select and contract with, the carriers that carry interLATA calls from their payphones  Xy- d(#. . ." y  yO-ԍ#X\  P6G;P#47 U.S.C. 276(b)(1)(D).#x6X@`7pX@#њ We interpret this language as envisioning the "carrier" as being someone other than the  Xb- d(#jBOC to whom negotiating rights are being given.!Xb yO# - v ?ԍ#X\  P6G;P#Our conclusion here is underscored by the language of the Conference Report which describes Section  d(#i276(b)(1)(D) as providing the BOCs the same rights as independent payphone providers "in negotiating with the  yO!-interLATA carriers for their payphones." S. Conf. Rep. 104230 at 4344. į We do not find that Congress intended to  d(#zallow BOCs to provide interLATA telecommunications services to its payphone customers,"K|0!0*&&JJg"  X- d(#Zincluding through resale, other than as set forth in Section 271(b).t"  yOy- v ԍ#X\  P6G;P#See 47 U.S.C. 271(a): "Neither a Bell operating company, nor any affiliate of a Bell operating company,  yOA- d(#<may provide interLATA services except as provided in this section." See BellSouth Comments at 9 ("BellSouth  d(#Zrecognizes, of course, that nothing in Section 276 shall act to shortcut the requirements of Section [sic] before a  yO-BOC's long distance affiliate can offer service in a particular state.")#x6X@`7pX@#t In this respect, we note that  d(#the 1996 Act defines telecommunications service as "the offering of telecommunications for a  d(#fee directly to the public, or to such classes of users as to be effectively available directly to the  X- d(#public, regardless of the facilities used."# yO -ԍ#X\  P6G;P# 47 U.S.C. 153(46) (emphasis added). #x6X@`7pX@# IJ We find that, for purposes of Section 276, resale by  d(#a BOC of interLATA service for its inregion presubscribed payphones, which service will  d(#<ultimately be used by consumers of payphone services, lies outside of the specific rights granted  Xv-by Section 276(b)(1)(D) of the 1996 Act.j$Xv@ yOg - v ԍBell Atlantic has filed an ex parte letter which is in agreement with the our conclusion here. See Ex parte  d(#letter from Marie Breslin, Bell Atlantic, to William Caton, Acting Secretary, FCC, filed in CC Docket No. 96128, August 28, 1996.j  XH- 2. Grandfathering of Contracts   X -` ` a. The Notice ` `  X - z 6` ` 245.  Section 276(b)(3) states that "nothing in this section shall affect any  d(#existing contracts between location providers and payphone service providers or interLATA or  d(#intraLATA carriers that are in force and effect as of the date of enactment" of the 1996 Act. We  d(#tentatively concluded that this section of the 1996 Act grandfathers all contracts in existence as  X- d(#of February 8, 1996.%`  yO-ԍ#X\  P6G;P#Notice at para. 73.#x6X@`7pX@#ј In addition, we sought comment on what should be considered a Section  d(#k276(b)(3) contract for purposes of Section 276(b)(1)(D), and we tentatively concluded that a  d(#LSection 276(b)(1)(D) contract must be, at least, a lawful agreement where both parties intended  XK-to be bound. &K  yO-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш  X4-  X-` ` b. Comments   X- z a` ` 246. Each of the commenters agrees with the Commission's tentative conclusion  d(#that contracts between location providers and payphone service providers or interLATA or  d(#intraLATA carriers in force as of February 8, 1996 should be grandfathered and remain in"} &0*&&JJ"  X- d(#effect.' yOy-ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., AT&T Comments at 27; CompTel Comments at 21; RBOC Comments at 45.#x6X@`7pX@# Oncor asserts that contracts entered into subsequent to February 8, 1996 should also  X-be given full effect by the Commission.(X yO-ԍ#X\  P6G;P#Oncor Comments at 1314.#x6X@`7pX@#ї  X- z ` `  247. The RBOCs argue that the Commission should specify that the  d(#grandfathering provision applies only to contracts enforceable by either party and, specifically,  d(#.that a location provider's letter of authorization (which authorizes the IXC to serve a particular  Xv- d(#jpayphone) is not enforceable by the IXC and should therefore not be grandfathered.)v yO -ԍ#X\  P6G;P#RBOC Comments at 45.#x6X@`7pX@#љ Sprint  d(#Zalso asserts that a contract can only be grandfathered if it includes binding obligations applicable  d(#to both parties which would not include letters of authorization that do not require the location  X1-provider to subscribe to the IXC's service for any fixed length of time.*1x yOZ-ԍ#X\  P6G;P#Sprint Comments at 30.#x6X@`7pX@#ѕ  X - z ` ` 248. AT&T maintains that the definition of contract for these purposes should  d(#include all agreements which commit a location owner to select a particular IXC for phones at  X - d(#its premises. AT&T asserts that this would include lawfully executed letters of authorization.+  yO-ԍ#X\  P6G;P#AT&T Comment at 27. See also Oncor Comments at 14.#x6X@`7pX@#Ѿ  d(#yACINA also contends that the Commission should adopt a broad definition of contracts to be  d(#[grandfathered under the 1996 Act, including letters of authorization and term extensions, so as  d(#to not disadvantage location providers that may rely on existing presubscription agreements for  Xy- d(#|a necessary income stream.,y yO-ԍ#X\  P6G;P#ACINA Comments at 4.#x6X@`7pX@#є CompTel also argues that location providers' letters of  d(#authorization constitute contracts that Congress intended to be grandfathered by the 1996 Act,  d(#since such agreements are typically part of mutually binding initial service orders or contracts  X4- d(#with IXCs.-4(  yO -ԍ#X\  P6G;P#CompTel Comments at 22.#x6X@`7pX@#і AT&T urges the Commission to affirm that interference with any existing contract  X-at any time is an unjust and unreasonable practice under Section 201(b)..  yO -ԍ#X\  P6G;P#AT&T Comments at 27.#x6X@`7pX@#ѓ  X- z ` ` 249.  Metropolitan Washington Airports Authority replies that so long as location  d(#Lproviders have decisionmaking authority, it is unnecessary for the Commission to resolve the"~H .0*&&JJ"  X- d(#issue of whether LOAs are binding agreements grandfathered by the 1996 Act.V/ yOy-ԍMetropolitan Washington Reply at 67.V Instead, it  d(#argues that the determination of whether specific LOAs are binding on the parties should be left  X-to applicable state law.:0X yO-ԍId.:  X-   X- ` ` c. Discussion  X-  Xv- z c` ` 250. We affirm our tentative conclusion that the 1996 Act grandfathers all  d(#contracts in force between location providers and payphones service providers or interLATA or  XH- d(#intraLATA carriers which were in force and effect as of February 8, 1996. Since the statutory  d(#language is specifically limited to the date of enactment of the 1996 Act, and because there is  d(#xan insufficient record to evaluate the propriety of extending that provision, we reject the argument  d(#Kthat we extend this grandfathering protection to contracts entered into subsequent to February 8,  X -1996.T1  yO-ԍSee, Oncor Comments at 1314.T  X - z ` ` 251. As the statutory language specifically limits the scope of this provision to  d(#k"contracts," we leave to applicable state law the question of whether a particular agreement  d(#yconstitutes an enforceable contract. We note that the comments reflect a difference of opinion  Xy- d(#as to the legal obligations involved in letters of authorization ("LOAs").2yx yO- v \ԍCompare AT&T Comments at 27; RBOC Comments at 45. See also Metropolitan Washington Reply at 67. It may be that this  d(#disagreement reflects the fact that LOAs may be entered into under differing circumstances,  d(#reflecting various levels of commitment and/or consideration by the parties. Accordingly, we  d(#=express no opinion as to whether particular LOAs would or would not constitute contracts for purposes of this section of the 1996 Act.  X- z ` ` 252. We do find, however, that interference with enforceable agreements  d(#?between a location provider and either a payphone service provider or an interLATA or  d(#intraLATA carrier constitutes an unjust and unreasonable practice in violation of Section 201(b)  X- d(#[of the 1996 Act.3 yO+!-ԍ#X\  P6G;P#47 U.S.C. 201(b).#x6X@`7pX@#є We also find that practices involving undue coercion of location providers  d(#with respect to their choice of interLATA carrier for payphones on their premises may be found  d(#[unjust and unreasonable. Such practices interfere with the efficient operation of the market by restricting choices, and thereby limit the benefits of competition. "N` 30*&&JJ"Ԍ` `  X- E.ABILITY OF PAYPHONE SERVICE PROVIDERS TO NEGOTIATE WITH  X-LOCATION PROVIDERS ON THE PRESUBSCRIBED INTRALATA CARRIER .  X- z 6` ` 253.  Section 276(b)(1)(E) directs the Commission to provide all payphone  d(#service providers with the right to participate in the selection of the intraLATA carriers  Xv- d(#<presubscribed to their payphones.4v yO-ԍ#]\  PCP#47 U.S.C.  276(b)(1)(E).#x6X@KpX@#ћ In implementing this mandate, we seek to eliminate existing barriers upon any payphone service provider's ability to compete on this basis.   X1- 1.` ` The Notice    X - z D` ` 254. Section 276(b)(1)(E) of the 1996 Act directs the Commission to "provide  d(#Kfor all payphone service providers to have the right to negotiate with the location provider on the  d(#location provider's selecting and contracting with, and, subject to the terms of any agreement  d(#with the location provider, to select and contract with, the carriers that carry intraLATA calls  X - d(#.from their payphones." In the Notice, we tentatively concluded that all PSPs, whether LECs or  d(#.independent payphone service providers, should be given the right to negotiate with location  Xy- d(#providers concerning the intraLATA carrier.5yX yO-ԍ#X\  P6G;P#Notice at para. 75.#x6X@`7pX@#ј We also tentatively concluded that the intraLATA  d(#carrier presubscribed to a payphone should be required to meet minimum Commission standards  XK-for the routing and handling of emergency calls.6K yO-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш  X4-  X-2.` ` Comments    X- z ` ` 255. Commenters generally agree with the tentative conclusion that all payphone  d(#service providers should have the ability to negotiate with location providers for the selection of  X- d(#KintraLATA carriers from their payphones.7Xx yO- v ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., AT&T Comments at 28; MCI Comments at 19; ACINA Comments at 4; Florida PSC Comments  d(#iat 9; RBOC Comments at 4344; APCC Comments at 4546; ACTEL Comments at 12; NJPA Comments at 18;  yOz-SCPCA Comments at 8.#x6X@`7pX@#Ѻ Those who commented on the issue also agree with  d(#the our tentative conclusion that minimum standards for the handling and routing of emergency  X-calls should be required of all intraLATA carriers presubscribed to a payphone.E8 yO"- v ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., Florida PSC Comments at 9; APCC Comments at 4546; California PUC Comments at 19; Sprint  yO#-Comments at 31.#x6X@`7pX@#E "| 80*&&JJ2"Ԍ X- z 4` ` 256. Some commenters, including AT&T, MCI and SCPCA, assert that, in order  d(#to ensure effective competition in the intraLATA market, the Commission should specifically  d(#preempt any state requirement mandating the routing of intraLATA calls to the incumbent  X- d(#.LEC.9 yO4-ԍ#X\  P6G;P#AT&T Comments at 28; MCI Comments at 19; SCPCA Comments at 8.#x6X@`7pX@#Ѽ AT&T also argues that the Commission should preempt any other state requirements  d(#that are inconsistent with the provisions of Section 276, including those requiring the inclusion  d(#of ILEC payphones in the presubscription process in states with toll dialing parity orders issued  Xv- d(#=prior to December 15, 1995.:vX yO -ԍ#X\  P6G;P#AT&T Comments at 28.#x6X@`7pX@#ѓ AT&T additionally asserts that the Commission should require  d(#immediate intraLATA presubscription for all BOC payphones located in areas where intraLATA  XH- d(#Zpresubscription is technically feasible.;H yO -ԍ#Xj\  P6G;XP##X\  P6G;P#Id.#x6X@`7pX@#ѯ Florida PSC argues that endusers placing 0 calls often  d(#seek assistance from live operators for emergency purposes, and therefore the Commission should  X -continue to allow 0 traffic to be routed exclusively to the LEC.< x yOC-ԍ#X\  P6G;P#Florida PSC Comments at 9.#x6X@`7pX@#љ  X - z ` ` 257. The RBOCs assert that the Commission should not mandate the adoption  X - d(#of new technologies in order to allow intraLATA presubscription at the central office switch.=  yO-ԍ#X\  P6G;P#RBOC Comments at 4344.#x6X@`7pX@#і  d(#The RBOCs state that such a requirement is neither technically feasible, nor necessary, since  d(#independent payphone service providers can program their "smart" payphones to select a  d(#presubscribed intraLATA carrier without relying on the local exchange carrier's central switching  d(#]programming. Instead, the RBOCs contend that central office based presubscription for  d(#payphones should be addressed at the same time as all other intraLATA presubscription issues  XK-under Section 251 of the 1996 Act. >hK O< v ԍ#X\  P6G;P#Id.#x6X@`7pX@# #X\  P6G;P#See Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC  yOl- d(#;Docket No. 9698, Second Report and Order and Memorandum Opinion and Order, FCC 96333 (rel. Aug. 8, 1996)  yO4-("Local Competition Second Order"). #x6X@`7pX@#    X- z T` ` 258.  ACINA asserts that while all payphone service providers should be  d(#authorized to negotiate with location providers on an equal basis, the Commission should make  d(#-it clear that payphone service providers may not contract with a carrier over the objections of the  X- d(#location provider.?  yOQ#-ԍ#X\  P6G;P#ACINA Comments at 4.#x6X@`7pX@#є Independent payphone service providers also argue that the Commission  d(#[should make explicit that the right to choose an intraLATA carrier includes the right to use the"X ?0*&&JJ"  X- d(#=carrier for local sent and nonsent paid calls.@ yOy-ԍ#X\  P6G;P#APCC Comments at 4546; NJPA Comments at 18.#x6X@`7pX@#ѫ SCPCA also contends that all PSPs should be  d(#Nable to negotiate with location providers for selecting the local operator service for their  X-payphones.AX yO-ԍ#X\  P6G;P#SCPCA Comments at 8.#x6X@`7pX@#ѓ  X- 3.` ` Discussion   X-` `  Xv- z %` ` 259. We affirm our conclusion that all payphone service providers should have  d(#the right to negotiate with location providers concerning the intraLATA carriers presubscribed  d(#Zto their payphones. This conclusion is consistent with both the specific language of Section 276,  X1-as well as with the 1996 Act's goal of bringing competition into this industry segment.BX1 yO - v ԍ#X\  P6G;P#With respect to dialing parity requirements for intraLATA carriers presubscribed to payphones, see paras.  d(#291 293, below (deferring to the Section 251(b) rulemaking on dialing parity with respect to technical and timing requirements concerning dialing parity for payphones).   X - z ` ` 260. We also affirm our tentative conclusion that intraLATA carriers  d(#presubscribed to payphones should be required to meet our minimum standards for routing and  X - d(#handling of emergency calls. We recently addressed this issue in CC Docket 94198, in which  X - d(#we extended to aggregators, including payphone owners, standards for routing emergency calls. KC  yOw- v ԍ#X\  P6G;P#See Amendment of Policies and Rules Concerning Operator Service Providers and Call Aggregators,CC  O?< d(#KDocket No. 94158, Report and Order and Further Notice of Proposed Rulemaking, 11 FCC Rcd 4532 (1996).#x6X@`7pX@# #X\  P6G;P#  d(#These standards require aggregators and operator service providers to ensure immediate connection of emergency  d(# calls to the proper service for the reported location of the emergency, if known, and, if not known, for the originating  O<location of the call.#X\  P6G;P# 47 C.F.R. 64.706#x6X@`7pX@#.K  d(#This conclusion reflects our finding, also discussed in connection with public interest payphones,  X- d(#that payphones often serve a critical role in accessing emergency service.LD  yO-ԍSee para. 277, below.L By mandating the  d(#application of these minimum standards to intraLATA carriers presubscribed to payphones, we  d(# seek to ensure that individuals can receive timely and proper assistance when they rely on  XK-payphones for 0 or 911 emergency calls.EKh  yOd - v >ԍWe are addressing similar concerns in a separate rulemaking regarding enhanced 911 emergency services.  yO,!-See 911 Notice. ` `  X- z ` ` 261.  Because Section 276(b)(1)(E) establishes that all payphone service providers  d(#jare to have the right to negotiate for intraLATA carriers for their payphones, we find that state  d(#regulations which require the routing of intraLATA calls to the incumbent LEC are inconsistent"E0*&&JJ"  d(#mwith the 1996 Act. Section 276(c) specifically states that "to the extent that any State  d(#requirements are inconsistent with the Commission's regulations, the Commission's regulations  X- d(#on such matters shall preempt such State requirements."F yOK-ԍ#Xj\  P6G;XP##X\  P6G;P#47 U.S.C.  276(c)#X\  P6G;P#.#x6X@`7pX@# Since we have found state  d(#jrequirements that mandate the routing of any or all intraLATA calls to an incumbent LEC to be  d(#inconsistent with the requirements of Section 276(b)(1)(E), we conclude that all such state  X-requirements are preempted by the Commission's regulations. :G X yO- v ԍ The Commission also has general authority to preempt state regulation of intrastate communications  d(#Lservices where such regulation would thwart or impede the Commission's exercise of its lawful authority over  d(#winterstate communications services, such as when it is not "possible to separate the interstate and intrastate portions  yO -of the asserted FCC regulation." Louisiana Public Service Commission v. FCC, 476 U.S. 355, 375 n. 4 (1986).:  X_- z &` ` 262. We take particular note, however, of Florida PSC's argument that states  d(#!should be allowed to mandate that 0 calls from payphones be routed exclusively to the  X1- d(#incumbent LEC.H1@ yO"-ԍ#Xj\  P6G;XP##X\  P6G;P#Florida PSC Comments at 9.#x6X@`7pX@# Florida PSC notes that such a requirement is necessary to ensure that  d(#yemergency calls, where the caller simply dials "0" and nothing else, are delivered to a live, local  X - d(#operator. We believe that requiring 0 calls to be initially routed to the LEC is not necessarily  d(#jinconsistent with the provisions of Section 276(b)(1)(E), so long as the state does not mandate  X -that the LEC ultimately carry nonemergency intraLATA calls initiated by dialing "0" only.  X - z ` ` 263. As with the selection of an interLATA carrier, payphone location providers  d(#Kwill have ultimate decisionmaking authority in the selection of intraLATA carriers for payphones  Xy- d(#located on their premises through their selection of a payphone service provider.IXy yO- v ԍ#X\  P6G;P#See S. Conf. Rep. 104230 at 44 (House amendment provided that "[l]ocation providers prospectively also  d(#Khave control over the ultimate choice of interLATA and intraLATA carriers in connection with their choice of  yO-payphone service providers").#x6X@`7pX@#ѫ Obviously  d(#such choice is predicated on the development of competition in the inregion, intraLATA market.  d(#MOnce choice of intraLATA providers becomes available, however, PSPs can be expected to  d(#Zcompete for locations through, among other things, the intraLATA carriers presubscribed to their  d(#ypayphones. As with the selection of interLATA carriers, interference with existing agreements  d(#between location providers and payphone service providers or intraLATA carriers, as well as  d(#undue coercion restricting the location provider's exercise of choice of such carriers, may  X-constitute unjust and unreasonable practices in violation of Section 201(b) of the Act.J  yOy"-ԍ#X\  P6G;P#47 U.S.C. 201(b). See discussion at para. 242, above.#x6X@`7pX@#  X- " J0*&&JJp"  X-F.ESTABLISHMENT OF PUBLIC INTEREST PAYPHONES   X- z ` ` 264.  Section 276(b)(2) of the 1996 Act directs us to determine whether there is  d(#a need for maintaining payphones serving public health, safety, and welfare goals, and, if so, to  X- d(#xensure that such payphones are supported fairly and equitably.K yO-ԍ#]\  PCP#47 U.S.C.  276(b)(2).#x6X@KpX@#ј As noted above, we recognize  d(#Lthe potential that a freely competitive marketplace may not provide for payphones in locations  d(#where they serve important public policy objectives, but which, for various reasons, may not be  d(#economically selfsupporting. To address the potential for such market failure, we establish  d(#guidelines by which the states may ensure the maintenance of payphones serving public interests  d(#in health, safety and welfare, in locations where they would not otherwise be available as a result  X - d(#of the operation of the market.L X yO -ԍ#]\  PCP#See S. Conf. Rep. 104230 at 43.#x6X@KpX@#ѥ Consistent with our primary reliance on the competitive  d(#marketplace, however, these guideline require that the states administer and fund such public  d(#interest payphone programs in a manner which is competitively neutral, and which fairly and equitably compensates entities providing public interest payphones.  X- 1.` ` The Notice  Xb- z ` ` 265. Section 276(b)(2) of the 1996 Act directs the Commission to "determine  d(#xwhether public interest payphones, which are provided in the interest of public health, safety, and  d(#welfare, in locations where there would otherwise not be a payphone, should be maintained, and  d(#if so, ensure that such public interest payphones are supported fairly and equitably." In the  X- d(#Notice, we sought comment on whether it is in the public interest to maintain payphones.M yO-ԍ#X\  P6G;P#Notice at paras. 7778.#x6X@`7pX@#ќ We  X- d(#also sought comments on options for maintaining public interest payphones.Nx yO-ԍ#X\  P6G;P#Id. at paras. 7881.#x6X@`7pX@#џ One option would  X- d(#be for the Commission to prescribe federal regulations for the maintenance of these payphones.  X- d(#-A second option would be for the Commission to establish national guidelines for public interest  X- d(#[payphones. A third option for maintaining public interest payphones would be to defer to the  d(#states to determine, pursuant to their own statutes and regulations, which payphones should be  X|-treated as "public interest payphones.":O| yO5"-ԍId.:  XN- z T` `  266. In the Notice, we also sought comment on whether a "public interest  d(#jpayphone" should be defined as a payphone that both (1) operates at a financial loss, but also"7O0*&&JJ"  d(#Zfulfills some public policy objective, such as emergency access; and (2) even though unprofitable  X- d(#by itself, is not provided for a location provider with whom the PSP has a contract.P yOb-ԍ#X\  P6G;P#Id. at para. 80.#x6X@`7pX@#ѕ Under this  X- d(#definition, many payphones that fulfill important public policy objectives would not be included  d(#because they would be paid for, in the form of lower commission payments, by the entity that  d(#is requesting that a payphone be placed in a particular location to fulfill a public policy  X-objective.QX yO-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш  X_- z q` `  267.  In addition, we sought comment on appropriate mechanisms for meeting  d(#the statutory directive that we ensure public interest payphones are funded "fairly and  X1- d(#equitably."R1 O <ԍ#X\  P6G;P#Id. at para. 82#X\  P6G;P#. See 47 U.S.C.  276(b)(2)#x6X@`7pX@#. We sought comment on whether such a mechanism should be addressed through  d(#federal regulations, federal guidelines for the states, or by the states themselves. We requested  d(#[that those commenters supporting a Commissionmandated funding mechanism detail how the  d(#=mechanism would function, including who would be eligible to receive funding, who would be  X -responsible for paying into the fund, and who would administer the funding mechanism.}S  yO-ԍ#X\  P6G;P#Notice at para. 82.}   X - 2.` ` Comments   Xy- z ` `  268.  Most commenters agree that payphones can serve important public interests  d(#=in health, safety and welfare, and that there is a need to ensure that payphones are maintained  XK- d(#in locations where they may not be selfsupporting.UTK yO- v \ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., New York City Comments at 3; Ohio PUC Comments at 15; CPA Comments at 21; Ameritech  yO-Comments at 29; New Jersey DRA at 3.#x6X@`7pX@#U For example, New York City asserts that,  d(#in the absence of incentives, PSPs are unlikely to place payphones in indispensable locations such  X- d(#as underserved residential neighborhoods and areas with significant emergency demands.MUp  yO>-ԍNew York City Comments at 3.M New  d(#York City states that payphones in such areas serve an important role in providing the public  d(#\with basic communications services, an avenue to obtain information, and access to critical  X- d(#kemergency services.`V  yO"-ԍId.; also Maine PUC Comments at 10.` Idaho PUC states that payphones in rural areas often generate little  X- d(#revenue, but may be the only means of public telephone communication for miles.IW  yO%-ԍIdaho PUC Comments at 1.I New Jersey" W0*&&JJ"  d(#DRA also asserts that public interest payphones provide services to individuals in poor and  d(#<isolated communities who might otherwise not have any access to the exchange network, and are  d(#Zparticularly necessary for assuring that such individuals have access to emergency services such  X- d(#as 911.NX yO4-ԍNew Jersey DRA Comments at 3.N Puerto Rico Telephone states that those who by necessity use payphones as a  d(#substitute for residential telephone service rely on such payphones as their means of access to  d(#=emergency services, as well as their means of communication with family members, employers,  Xv- d(#Kbusinesses and others.UYvX yO -ԍPuerto Rico Telephone Comments at 2.U Many commenters agree that public interest payphones are an integral  X_-part of efforts to achieve universal service.Z_ yO - v ԍSee, e.g., New Jersey DRA Comments at 3; GVNW Comments at 89; Sprint Comments at 3132; MCI Comments at 20; Texas PUC Comments at 5; GTE Comments at 1617.  X1- z a` `  269. A few commenters, however, assert that the Commission need not take any  d(#yaction at this time to ensure the maintenance of public interest payphones. MCI contends that  d(#the issue of public interest payphones is part of the larger question of ensuring that all consumers  d(#have access to telephone service, and should, therefore, be referred to the FederalState Joint  X - d(#Board on Universal Service.[ @ yO-ԍ#X\  P6G;P#MCI Comments at 20#]\  PCP#. See also Sprint Comments at 3132.#o\  PCXP# The Iowa Utilities Board argues that the Commission should  d(#defer to the states with respect to public interest payphones because Iowa has found that it is "not  X -necessary to establish rules requiring public interest payphones" in that state.\  yO(-ԍ#X\  P6G;P#Iowa Utilities Board Comments at 4.#]\  PCP# See also US West Reply at 6.#x6X@KpX@# ` `  Xy- z ` `  270. Most commenters assert that the Commission should leave to the states the  Xb- d(#<primary responsibility for administering public interest payphone programs.]b`  yOs- v ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g.,#]\  PCP# APCC Comments at 47; RBOC Comments at 46; CPA Comments at 22; Maine PUC Comments  yO;-at 1112; New Jersey DRA Comments at 4; AT&T Reply at 28; NTCA Reply at 7.#x6X@KpX@#џ A number of state  d(#[and local regulatory agencies argue that any public interest payphones program should be left  d(#/primarily to the states, because national guidelines could not adequately and economically  d(#jprescribe locations or criteria for such payphones throughout the country. These commenters  d(#emphasize that state and local entities, including police, fire, rescue and public welfare agencies,  X- d(#Zare best situated to evaluate community needs and objectives. ^   yOX"- v ԍ#X\  P6G;P#California PUC Comments at 2021; Maine PUC Comments at 1112; Ohio PUC Comments at 1617;  d(#[Texas PUC Comments at 5; Idaho PUC Comments at 12; New Jersey DRA Comments at 4; New York DPS  yO#- d(#Comments at 8; Virginia SCC Comments at 4; also, New York City Comments at 48; Puerto Rico Telephone  yO$-Comments at 14.#x6X@`7pX@#  Several state agencies note that"^0*&&JJ"  d(#they already have, or are prepared to develop, programs which provide for placing payphones in  X- d(#Zlocations where they might otherwise not exist._ yOb- v ԍ#X\  P6G;P#California PUC Comments at 20; Ohio PUC Comments at 1617; New York City Comments at 57; Texas  yO*-PUC Comments at 5.#x6X@`7pX@# For example, several states comment that they  d(#require incumbent local exchange carriers in their jurisdictions to place at least one payphone in  X-each exchange area.`  yO-ԍ#X\  P6G;P#Ohio PUC Comments at 16; Idaho PUC Comments at 1; Missouri PSC Reply at 3.#x6X@`7pX@#  X- z C` ` 271. One state plan referenced often in the comments is the California Universal  d(#yServices program. California's program requires that LECs maintain "public policy" payphones  X_- d(#at locations where revenues are not sufficient to profitably support a payphone.a_ yO -ԍ#X\  P6G;P#California PUC Comments at 20#x6X@`7pX@#ќ The program  d(#requires that: (1) a selected committee evaluate the need for payphones at locations where they  d(#do not already exist; (2) the LECs install and maintain these payphones with the  d(#.acknowledgement that revenues will not cover costs of installation and operation; (3) all PSPs  d(#support these payphones through a monthly rate charged to connect their payphones to the  d(#xnetwork; and (4) all LECs with payphones support these payphones with a contribution from their  d(#competitive public and semipublic payphones. Thus, the costs of supporting these public interest  d(#Kpayphones are borne not by the general body of ratepayers, but rather by the payphone industry  X - d(#as a whole.b @ yO-ԍ#Xj\  P6G;XP##X\  P6G;P#Id.#x6X@`7pX@#ѯ CPA asserts that this program does not place an undue burden on PSPs because  d(#-the criteria for public interest payphones has been narrowly drawn, resulting in only one per cent  Xy- d(#Mof all payphones in the state being identified as public interest payphones.cy yO-ԍ#X\  P6G;P#CPA Comments at 2124.#x6X@`7pX@#ѕ The RBOCs,  d(#=however, assert that the California plan may not work in other states, particularly in rural areas  d(#where the number of competitive payphones may be small relative to the number of public  X4-interest payphones.d4`  yOE-ԍ#X\  P6G;P#RBOC Comments at 47.#x6X@`7pX@#ѓ ` `  X- z ` ` 272. Several commenters, particularly the BOCs and independent payphone  d(#providers, urge the Commission to adopt national guidelines for state implementation of a public  X- d(#interest payphone program.e  yOy"-ԍ#X\  P6G;P#Id. at 4647; Ameritech Comments at 2931; CPA Comments at 22.#x6X@`7pX@# The RBOCs argue that the 1996 Act requires the Commission to  d(#adopt a narrow definition of what constitutes a public interest payphone in order to limit what" e0*&&JJ"  X- d(#state and local governments can require of payphone providers.f yOy-ԍ#X\  P6G;P#RBOC Comments at 4647.#x6X@`7pX@#і They argue that since the 1996  d(#yAct requires the installation of public interest payphones only "in locations where there would  X- d(#otherwise not be a payphone,"gX yO-ԍ#X\  P6G;P#47 U.S.C.  276(b)(2).#x6X@`7pX@#љ state and local regulators should not be allowed to require the  d(#installation of public interest payphones in locations where a payphone already exists, or on the  X- d(#premises of a location provider who has an existing contract for the placement of a payphone.h yO= -ԍ#X\  P6G;P#RBOC Comments at 4647; Ameritech Comments at 2930.#x6X@`7pX@#ѳ  d(#MAmeritech specifically recommends adoption of guidelines, similar to the existing California  d(#model, which specify that a public interest payphone is one that would not "break even," and  X_- d(#would not exist in the location absent public intervention.i_x yO -ԍ#X\  P6G;P#Ameritech Comments at 2930.#x6X@`7pX@#ћ The RBOCs and Ameritech urge  d(#rules limiting the designation of "public interest payphones" to those requested by state or local  X1- d(#governmental agencies for purposes of ensuring health, safety, and welfare.j1 yO-ԍ#X\  P6G;P#RBOC Comments at 4647; Ameritech Comments at 32.#x6X@`7pX@#Ѱ The RBOCs also  d(#contend that local governmental agencies already provide for the public interest payphones by  d(#<requiring the placement of certain numbers of nonprofitable payphones as part of their contracts  X - d(#with individual payphone service providers for the placement of competitive payphones.k  yO5-ԍ#X\  P6G;P#RBOC Comments at 46.#x6X@`7pX@#ѓ A few  d(#state commenters also stated that it may be appropriate for the Commission to adopt basic  d(#national guidelines in order to ensure the deployment of public interest payphones in critical  X -locations. l (  yO- v ԍ#X\  P6G;P#Oklahoma CC Comments at 4. See also New Jersey DRA Comments at 34; New York DPS Comments  yOH-at 8.#Xj\  P6G;XP#   X- z ` ` 273. Puerto Rico Telephone contends that because of the particularly low level  d(#\of residential telephone service, any definition of public service payphones adopted by the  d(#Commission should include payphones that are used as a substitute for local residential telephone  XK- d(#service.mK  yO|-ԍ#X\  P6G;P#Puerto Rico Telephone Comments at 34.#x6X@`7pX@#ѥ GVNW, which represents small LECs, also recommends a broader definition of public  d(#interest payphones in order to ensure adequate access to payphones in schools, public parks, and  X-other public locations.n yO"-ԍ#X\  P6G;P#GVNW Comments at 810.#x6X@`7pX@#ѕ "n0*&&JJd"Ԍ X- z E` ` 274.  Among the independent payphone providers, APCC argues that the  d(#legislative history indicates that location providers, including state and local governments, having  d(#Kan existing contract with a PSP for the placement of payphones, should be precluded from having  X- d(#public interest payphones located on their premises.o yO4-ԍ#X\  P6G;P#APCC Comments at 5051.#x6X@`7pX@#і CPA argues that the Commission should  X- d(#jset basic national guidelines, while leaving implementation to the states.pX yO-ԍ#X\  P6G;P#CPA Comments at 22.#x6X@`7pX@#ђ It recommends the  d(#/criteria of the California program as a good model for narrowly defining the scope of public  Xv-interest payphones.qv yO -ԍ#X\  P6G;P#Id. at 2223; APCC Comments at 5051.#Xj\  P6G;XP#Ѫ ` `  XH- z ` ` 275. Many commenters, particularly state and local regulators, contend that  X1- d(#xfunding for public interest payphones should also be left to the discretion of the states.qr1x yOZ- v ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., Maine PUC Comments at 11; New York City Comments at 9; Ohio PUC Comments at 17; Texas  yO"-PUC Comments at 5. See also, APCC Comments at 47.#x6X@`7pX@#q Maine  d(#PUC asserts that if the Commission does attempt to prescribe national siting standards, then the  d(#[Commission must also provide the states federal or interstatederived funding to support such  X - d(#=requirements.s  yOm-ԍ#Xj\  P6G;XP##X\  P6G;P#Maine PUC Comments at 12.#Xj\  P6G;XP# Otherwise, it contends, the Commission should not limit the funding options  X - d(#available for state administration of public interest payphone programs.t `  yO-ԍ#Xj\  P6G;XP##X\  P6G;P#Id.#Xj\  P6G;XP#ѯ Other commenters  d(#<argue that to meet the 1996 Act's requirement that public interest payphones be "supported fairly  X - d(#and equitably," such payphones should be paid for by the requesting party.5u  yOH- v ԍ#Xj\  P6G;XP##X\  P6G;P#Id.; Ameritech Comments at 32; also USTA Comments at 11; NTCA Comments at 7; GTE Comments at  yO-1617.#x6X@`7pX@#5 Specifically, the  d(#RBOCs assert that the Commission should require requesting entities, including state and local  d(#\governments, to compensate PSPs in an amount that allows the PSP to recover its costs for  Xb- d(#Kestablishing a public interest payphone, plus a reasonable rate of return.>vbH  yO[- v ԍ#X\  P6G;P#RBOC Reply at 33 (noting, however, that California's existing system should be grandfathered because it  yO# -works due to the state's uniquely competitive factors).#x6X@`7pX@#> The BOCs argue that  d(#any funding mechanism that requires the PSPs to share in the responsibility of providing public  d(#<interest payphones would necessitate a complex analysis of market share or a running tally of the  X- d(#number of payphones each PSP provides in a particular area.w yOn$-ԍ#X\  P6G;P#Id.#x6X@`7pX@#ш Puerto Rico Telephone and"0w0*&&JJe"  d(#-NTCA also contend that, if the Commission determines that public interest payphones should be  d(#jmaintained, then the Commission is also obligated to ensure that such payphones are properly  X- d(#funded.x yOK-ԍ#X\  P6G;P#Puerto Rico Telephone Reply at 45; NTCA Reply at 7. See also NECA Comments at 67.#x6X@`7pX@# They recommend that the Commission establish a fund segregated from other  d(#-universal service support mechanisms, and administered by the NECA, to support public interest  X-payphones. NECA affirms in its comments its ability to implement such a program.yX yO-ԍ#X\  P6G;P#NECA Comments at 67.#x6X@`7pX@#є  Xv- z ` ` 276.  APCC also maintains that the states should be given the discretion to  d(#determine the funding mechanism for public interest payphones, including funding based upon  d(#=surcharges for all PSPs serving the location, or through a universal service mechanism funded  X1- d(#by all rate payers.z1 yO -ԍ#X\  P6G;P#APCC Comments at 4751; also GPCA Reply at 22.#x6X@`7pX@#ѳ While endorsing the funding mechanism adopted in the California plan,  d(#\CPA argues that an alternative funding mechanism would be to allow PSPs to seek subsidy  d(#-support for nonselfsupporting payphones determined to be in the public interest, with award of  d(#the payphone location to the PSP bidding to provide a payphone at that location for the lowest  X - d(#subsidy amount.{ x yO-ԍ#X\  P6G;P#CPA Comments at 24.#x6X@`7pX@#ђ GTE asserts that the Commission should require states to adopt rules for  d(#public interest payphone programs that are competitively neutral, including requiring fair  d(#zcompensation to PSPs providing public interest payphones, and ensuring that all PSPs may  X- d(#Zparticipate in such programs on a voluntary basis.G| yOI-ԍGTE Comments at 1617.G GTE argues that states may establish funds  d(#to ensure that public interest payphone programs are supported fairly, or could support such  Xb- d(#payphones as part of their state universal services fund.:}b yO-ԍId.: SW Bell also urges the Commission  d(#to require the states to adopt competitively neutral funding mechanisms for public interest  d(#payphone programs, including the use of competitive bidding for the right to provide public  X-interest payphones.G~(  yO-ԍSW Bell Comments at 8.G  X- 3.` ` Discussion  X- z % ` ` 277. We conclude that there is a need to ensure the maintenance of payphones  d(#<that serve the public policy interests of health, safety, and welfare in locations where there would" ~0*&&JJ"  X- d(#not otherwise be payphones as a result of the operation of the market. yOy-ԍ#X\  P6G;P#47 U.S.C.  276(b)(2). See S. Conf. Report 104230 at 43.#x6X@`7pX@# As demonstrated by the  d(#comments, all payphones serve the public interest by providing access to basic communications  X- d(#services.X yO-ԍSee, e.g., New Jersey DRA Comments at 34; New York City Comments at 3. We are particularly concerned about the role served by payphones in providing  d(#access to emergency services, especially in isolated locations and areas with low levels of  d(# residential phone penetration. Indeed, in some such areas, payphones are the only readily  X- d(#available means of accessing these critical communications services. yO& - v ԍSee, e.g., New York City Comments at 3; Puerto Rico Telephone Comments at 14; Idaho PUC Comments at 1. Moreover, as several  d(#commenters recognize, some payphones which are most critical for public health, safety and  X_- d(#welfare purposes, are also the least likely to be economically selfsupporting._@ yOP-ԍ#X\  P6G;P#See, e.g., Idaho PUC Comments at 12.#x6X@`7pX@#Ѱ With the  d(#elimination of subsidies which have helped support such payphones in the past, as directed by  d(#the 1996 Act, it is possible that many of these payphones could disappear absent the availability  X -of alternative methods to ensure their existence.W  yO-ԍSee 47 U.S.C.  276(b)(1)(B).W  X - z ` ` 278. Many states have already developed systems for identifying the need for  X - d(#public interest payphones, and developing solutions to address that need. X `  yO- v zԍ#Xj\  P6G;XP##X\  P6G;P#See NTCA Comments at 67 (describing several state requirements for the provision of payphone service  yO- d(#where it might otherwise not exist); also Missouri PSC Reply at 3; Ohio PUC Comments at 1617; California PUC  yOv-Comments at 20; Idaho PUC Comments at 1.#x6X@`7pX@# Indeed, we find that  d(#the states are typically in a superior position to evaluate the need for payphones which serve  d(# community interests in health, safety and public welfare. In particular, the states are better  d(#equipped than the Commission to respond to geographic and socioeconomic factors affecting the  Xy-need for such payphones that are too diverse to be effectively addressed on a national basis.y  yO-ԍ#X\  P6G;P#See, e.g., Idaho PUC Comments at 12; New York DPS Comments at 8; Maine PUC Comments at 11.#x6X@`7pX@#  XK- z %` ` 279. We also find that the existence of a variety of state and local plans already  d(#providing for payphones serving public welfare goals demonstrates that the states are able to  d(#successfully administer such programs. For example, we note the program adopted in California,  d(#which all parties involved appear to view as having successfully provided for public interest"0*&&JJ7"  X- d(#payphones in the most critical locations.C yOy- v >ԍ#Xj\  P6G;XP##X\  P6G;P#See, e.g., California PUC Comments at 2021; CPA Comments at 2224; RBOC Comments at 47, n. 62;  yOA-SDPOA Reply at 3.#x6X@`7pX@#C The California program is funded by the payphone  d(#Kindustry as a whole, yet is endorsed by payphone providers doing business in the state because,  d(#[in part, it narrowly defines the criteria for public interest payphones to locations where there is  X- d(#a true public welfare need not being met by the competitive marketplace.  yO-ԍ#X\  P6G;P#CPA Comments at 2224; SDPOA Comments at 3.#x6X@`7pX@#Ѫ These criteria  d(#include requirements that a public interest payphone not be located on the premises of a person  d(#xreceiving compensation under a contract for the placement of other payphones, that access to the  d(#payphone be unrestricted, and that the payphone be at least a specified distance away from any  X_- d(#other payphones._ yO -ԍ#X\  P6G;P#CPA Comments at 23.#x6X@`7pX@#ђ The experience in California has been that only a very small number of  d(#locations, relative to the overall number of payphones, meet the narrow criteria for public interest  X1- d(#payphones.;1@ yO"- v ԍ#X\  P6G;P#CPA Comments at 2224 (stating that less than 2,000 of the 200,000 payphones in the state, or less than  yO-one percent, were found to have met these criteria).#x6X@`7pX@#; It may be, however, that in other states such a program would not effectively  d(#provide for public interest telephones because there are insufficient numbers of competitive  d(#payphones available to adequately and fairly support the locations meeting the criteria for public  X - d(#interest payphones.   yO5-ԍ#X\  P6G;P#See RBOC Comments at 47, n. 62; US West Reply at 6;#x6X@`7pX@#Ѹ Other states, however, have responded to an identified need for payphones  d(#necessary to satisfy public health, safety, and welfare concerns by requiring LECs to provide at  X - d(#/least one public payphone in each telephone exchange, (  yO-ԍ#X\  P6G;P#See, e.g., Missouri PSC Comments at 3; Ohio PUC Comments at 16.#x6X@`7pX@# or by requiring the placement of  d(#<unprofitable payphones as part of contracts with PSPs for the placement of profitable payphones  X-on public property.  yO-ԍ#X\  P6G;P#RBOC Comments at 46.#x6X@`7pX@#ѓ ` `  Xb- z D` ` 280. The existence of these various and diverse plans confirms both that the  XK- d(#states have the authority to adequately address the need for public interest payphones , and that  d(#any effort to implement a uniform national program is unlikely to be as successful in accounting  d(#for differing conditions among the states. We also believe that any effort by the Commission  d(#to implement such a national program would be beyond our current resource capabilities. For  d(#all of the above reasons, we conclude that the primary responsibility for administering and  X-funding of public interest payphone programs should be left to the states. "H 0*&&JJ"Ԍ X- z ` ` 281. While we leave the administration of public interest payphones to the states,  d(#we believe that the 1996 Act requires us to impose minimum guidelines for establishment of a  d(#public interest payphone program to meet our statutory obligation to ensure the maintenance of  d(#Lsuch payphones. In particular, we believe it is very important to establish a basic definition of  d(#public interest payphones that is narrowly tailored to payphones that are truly needed for the  d(#{public interest reasons enunciated in the statute. The 1996 Act describes public interest  d(#ypayphones as those "which are provided in the interest of public health, safety, and welfare, in  X_- d(#<locations where there would otherwise not be a payphone . . ."_ yO-ԍ#X\  P6G;P#47 U.S.C.  276(b)(2).#x6X@`7pX@#ј The Conference Report further  d(#\explains that "the term does not apply to a payphone located near other payphones, or to a  d(#Lpayphone that, even though profitable by itself, is provided for a location provider with whom  X - d(#ythe payphone provider has a contract." X yO# -ԍ#X\  P6G;P#S. Conf. Rep. 104230 at 43.#x6X@`7pX@#ћ The definition proposed in the Notice encompasses  d(#=both of these statements. We also note that the limitations reflected in the Conference Report  X -are similar to those included in the California program's criteria for "public policy payphones."  yO-ԍ#Xj\  P6G;XP##X\  P6G;P#See CPA Comments at 23.#x6X@`7pX@#  X - z C` ` 282. We adopt as a definition of "public interest payphone," a payphone which  d(#(1) fulfills a public policy objective in health, safety, or public welfare, (2) is not provided for  d(#a location provider with an existing contract for the provision of a payphone, and (3) would not  Xy- d(#otherwise exist as a result of the operation of the competitive marketplace. This definition is  Xb- d(#similar in effect to the one proposed in the Notice. We conclude that the statute and Conference  d(#Report reflect a congressional intent that reliance on the public interest payphone provision is to  d(#be limited to instances where a payphone location serves a strong public interest that would not  d(#be fulfilled by the normal operation of the market. Thus, a state may not require that a public  d(#interest payphone be installed on premises where a location provider already has a contract for  d(#the maintenance of a competitive payphone, even if such contract requires the location provider  X-to pay for the continued maintenance of such payphone.x yO- v ԍ We note that public interest payphones are distinct from some public payphones that are classified by  d(#various states as "semipublic" payphones. Semipublic payphones tend to be payphones placed in locations, at the  yO- d(#request of the premises owner, that do not generate significant amounts of traffic. See RBOC Comments at 4849.  d(#The LEC providing the semipublic payphone typically receives the coin revenues from the payphone, as well as a monthly fee discounted from the rate for a business line.  X- z b` ` 283. The 1996 Act directs the Commission, in the event that we find the need  d(# for public interest payphone programs, to "ensure that such public interest payphones are"( 0*&&JJ3"  X- d(#supported fairly and equitably." yOy-ԍ#X\  P6G;P#47 U.S.C.  276(b)(3).#x6X@`7pX@#ј We find that this provision requires a national guideline that  d(#/companies providing public interest payphones be fairly compensated for the cost of such  d(#services. We leave to the discretion of the states how to fund their respective public interest  d(#payphone programs, so long as the funding mechanism, (1) "fairly and equitably" distributes the  d(#costs of such a program, and (2) does not involve the use of subsidies prohibited by Section  X- d(#276(b)(1)(B) of the 1996 Act. X yO-ԍ#]\  PCP#See 47 U.S.C.  276(b)(1)(B) & (b)(3)#]\  PCP#ѭ Thus, a state may choose to fund public interest payphones  d(#from its general revenues through a process that ensures that companies providing public interest  d(#Kpayphones are fairly compensated and in a manner that does not otherwise affect the competitive  XH- d(#balance of the industry.H yO - v ԍState programs supporting public interest payphones are also subject to the provisions of Section 253(b) of  d(#the 1996 Act which requires that such a program be implemented on a "competitively neutral basis." 47 U.S.C.  d(#w253(b). One means of achieving a competitively neutral process is by choosing the payphone services provider for  yO9- d(#wpublic interest payphone locations through a competitive bidding process, i.e, whereby the location is awarded to the  yO- d(#kPSP bidding to serve the location for the lowest subsidy level. See, e.g., RBOC Comments at 4647; CPA  d(#,Comments at 24 (suggesting an alternative whereby a payphone provider could seek subsidy support for a particular  d(#,location, but only through an auction whereby the right and obligation to provide a payphone at the location would  yOY- d(#be given to the PSP bidding the lowest subsidy amount). Alternatively, a funding program, like California's, which  yO!- d(#relies upon levies on all payphone service providers in the state, may be appropriate to the extent that it treats all  yO- d(#-PSPs, including LECs, in a competitively neutral manner and eliminates subsidies from local access charges. See paras. 269 and 277, above. Similarly, a state or local government may include requirements for  d(#placing nonprofitable payphones as part of a voluntary, contractual agreement with a payphone  X -services provider for the installation of competitive payphones on public property.\ H  yO-ԍSee, e.g., RBOC Comments at 46.\  X - z ` ` 284.  Alternatively, states may address the need for public interest payphones by  d(#iadopting appropriate rules in conjunction with their responsibilities for ensuring universal service  X - d(#zpursuant to Section 254(f) of the 1996 Act.X  yOG-ԍ#X\  P6G;P#Section 254(f) provides:  z  ` `  (f) State Authority. A State may adopt regulations not inconsistent with  `the Commission's rules to preserve and advance universal service. Every   `telecommunications carrier that provides intrastate telecommunications services  `shall contribute, on an equitable and nondiscriminatory basis, in a manner  `determined by the State to the preservation and advancement of universal service  `in that State. A State may adopt regulations to provide for additional definitions  `and standards to preserve and advance universal service within that State only  `to the extent that such regulations adopt additional specific, predictable, and  `6sufficient mechanisms to support such definitions or standards that do not rely on or burden Federal universal service support mechanisms."%0*&&%"Ԍ ` `    yOX-47 U.S.C. 254(f).#X\  P6G;P#  ` `  ` `   We note that issues relating to public interest" 0*&&JJ "  d(#=payphones were not referred to the Universal Services FederalState Joint Board in Docket 96 X- d(#45. yO-ԍSee Joint Board Notice at para. 57, n. 128. Section 254(f), however, provides that states may adopt regulations to preserve and  d(#advance universal service within each state, not inconsistent with the rules we will eventually  X- d(#adopt in that proceeding.mx yO -ԍ47 U.S.C. 254(f).#X\  P6G;P#m Accordingly, any state may adopt regulations to provide for  d(#additional definitions and standards to preserve and advance universal service within that state  d(#[so long as such regulations include additional specific, predictable, and sufficient mechanisms  d(#to support such definitions or standards, and that do not burden or rely on federal universal  X_- d(#service support mechanisms.<_ yO-ԍId. < We note that among the among the criteria established by the  d(#\1996 Act for defining services that are to be supported by a universal services program, are  X1- d(#whether such telecommunications services "are essential to education, public health, or public  X - d(#Ksafety . . . . [and] are consistent with the public interest, convenience, and necessity."  yOe-ԍ47 U.S.C. 254(c)(1)(A) and (D) (emphasis added). See Joint Board Notice at para. 9. We find  d(#Zthat the implementation of a public interest payphone program is consistent with these goals, and  X - d(#=may be a valuable tool in the states' efforts to achieve universal service. (  yO- v ԍSee Maine PUC Comments at 12; New Jersey DRA Comments at 3; Texas PUC Comments at 5; Sprint Comments at 3132; . Therefore, we find  d(#xthat states may establish funding mechanisms for public interest payphones either by meeting the  d(#funding requirements of Section 276(b)(2), as limited by Section 276(b)(1)(B), or in accordance  d(#with state universal service rules adopted pursuant to Section 254(f) in conjunction with Section 276(b)(2) and (b)(1)(B).  Xf- z ` ` 285.  In furtherance of our statutory responsibility under Section 276(b)(2), we  d(#ydirect each state to review whether it has adequately provided for public interest payphones in  X8- d(#Za manner consistent with this Report and Order. In particular, each state should evaluate whether  d(#Lit needs to take any measures to ensure that payphones serving important public interests will  d(#continue to exist in light of the elimination of subsidies and other competitive provisions  d(#!established pursuant to Section 276 of the 1996 Act, and that any existing programs are  d(#yadministered and funded consistent with the requirements described above. This review must  X- d(#Zbe completed by each state within two years of the date of issuance of this Report and Order, and" 0*&&JJ"  d(#may be conducted in conjunction with each state's study of the payphone marketplace which we  X-are requiring in connection with the transition to marketbased payphone compensation.K yOb-ԍSee para. 60, above.K  X- z p` ` 286.  Finally, we do not delegate our entire responsibility under Section 276(b)(2)  X- d(#to "ensure that such public interest payphones are supported fairly and equitably."IX yO-ԍ47 U.S.C  276(b)(2).I If interested  d(#parties believe that a state is not supporting public interest payphones fairly and equitably, such  d(#parties may file a petition with the Commission asserting that the state is not providing for  X_- d(#payphones in accordance with Section 276(b)(2) and the guidelines we adopt in this Report and  XH-Order, as may be amended from time to time.  yO1-    X #]\  PCP#  X - #o\  PCXP#G. OTHER ISSUES  X -  X - 1. Dialing Parity  Xe - ` ` a. The Notice   X7- z  ` ` 287.  We tentatively concluded in the Notice that the benefits of the dialing  X - d(#Lparity requirements to be adopted pursuant to Section 251(b)(3) of the 1996 Act should extend  X - d(#to all payphone location providers.  yO- v ]ԍNotice at para. 84. Section 251(b)(3) states that all LECs have the duty to "provide dialing parity to competing providers of telephone exchange service and telephone toll service." 47 U.S.C. 251(b)(3). We sought comment on this and other methods for  X- d(#/achieving dialing parity for payphone location providers, and users, of payphones that are  d(#mconsistent with the definition of dialing parity under Section 3(15) of the 1934 Act, as  X- d(#amended.h@ yO- v ԍId. See 47 U.S.C. 153(15) ("The term 'dialing parity' means that a person that is not an affiliate of a local  d(#;exchange carrier is able to provide telecommunications services in such a manner that customers have the ability to  d(#route automatically, without the use of any access code, their telecommunications to the telecommunications services  d(#hprovider of the customer's designation among 2 or more telecommunications services providers (including such local exchange carrier)").h As a related matter, we also sought comment on whether we should extend the  X-unblocking requirements established in TOCSIA to all local and long distance calls.P  yON!-ԍNotice at para. 84.P  X- ` ` b. Comments "h 0*&&JJR"Ԍ X- z ` ` 288.  AT&T, MCI, Sprint and the Virginia SCC all agree with the Commission's  d(#tentative conclusion that the benefits of the dialing parity requirements to be adopted pursuant  X- d(#to Section 251(b)(3) of the 1996 Act should extend to all payphone location providers.E yOK-ԍAT&T Comments at 29; MCI Comments at 20; Sprint Comments at 32; Virginia SCC Comments at 4. While  d(#the RBOCs agree with the tentative conclusion, they assert that such benefits should be exercised  d(#indirectly through the PSP's programming of their "smart" payphones to select a presubscribed  d(#intraLATA carrier, as opposed to directly through presubscription at the LEC's central office  Xv- d(#jswitch.HvXE yO -ԍRBOC Comments at 4344.H The Florida PSC contends that a PSP should be able to "program" its payphones to  X_- d(#route 1+ and 0+ toll calls to the preferred carrier.L_E yO -ԍFlorida PSC Comments at 10.L GVNW argues that it is the states who  d(#yshould be given the discretion of determining when and how dialing parity for intraLATA calls  X1-should be applied to payphones.E1xE yOZ-ԍGVNW Comments at 10.E  X - z ` `  289.  AT&T requests that the Commission mandate inclusion of all incumbent  d(#LEC payphones in the presubscription process in the 15 states with toll dialing parity orders  d(#.issued prior to December 15, 1995 as well as immediate intraLATA presubscription for all BOC  X - d(#xpayphones located in territories where intraLATA presubscription is now technically available.J E yOw-ԍAT&T Comments at 28 n.51.J  d(#The RBOCs argue that the Commission should deny AT&T's immediate intraLATA  d(#presubscription request, contending that this request is without basis in Section 276 and cannot  d(#[be implemented for intraLATA payphone calls, apart from intraLATA residential and business  Xb- d(#calls.EbE yO-ԍRBOC Reply at 3132.E According to the RBOCs, intraLATA dialing parity for payphone calls should operate  XK-on the same timetable as for all other calls.:K( E yO$-ԍId.:  X- z %` ` !290.  AT&T and MCI both argue that the Commission should adopt intraLATA  d(#Lunblocking requirements similar to the interLATA carrier unblocking requirements established  X- d(#in TOCSIA.Y E yOX"-ԍAT&T Comments at 29; MCI Comments at 20.Y Sprint argues that the interLATA unblocking requirements established pursuant  X- d(#>to TOCSIA should extend to all local and long distance calls.GH E yO$-ԍSprint Comments at 32.G Ameritech argues that the  d(#existing antiblocking rules promulgated under TOCSIA remain sufficient to prevent aggregators  d(#0from defeating LEC equal access features, so long as all LECs are mandated to continue",=(=(JJ"  X- d(#providing these features.JE yOy-ԍAmeritech Comments at 33.J According to Ameritech, Section 251(b)(3) of the 1996 Act does not  d(#incorporate the full list of equal access features in that it relies on a definition of dialing parity  X- d(#which includes only presubscription and omits mention of 10XXX or other dialed access codes.DXE yO-ԍId. at 3334.D  d(#Therefore, Ameritech argues that because the dialing parity rules of Section 251(b)(3) do not  d(#include an express reaffirmation of the LECs' duty to honor 10XXX and other access codes, the  d(#Commission should expressly articulate such a reaffirmation in its implementation of Section  Xv-251(b)(3).:vE yO -ԍId.:  XH-` ` c. Discussion  X - z ` ` "291.  In our recently issued order implementing the Section 251(b)(3) dialing  d(#>parity requirements, we concluded that dialing parity was an important element in fostering  d(#vigorous local exchange and long distance competition "by ensuring that each customer has the  d(#=freedom and the flexibility to choose among different carriers for different services without the  X - d(#>burden of dialing access codes."X xE yO- v zԍLocal Competition Second Orde, at para. 9. We also noted in that Order that Section 251(b)(3) creates a  d(#hduty to provide dialing parity with respect to all telecommunications services, and does not limit the types of traffic  yOw-or services for which dialing parity must be provided. Id. at para. 12. We believe that this statement is equally applicable to  d(#=fostering vigorous competition in the payphone industry, and accordingly affirm our tentative  d(#conclusion that the benefits of dialing parity requirements adopted pursuant to Section 251(b)(3) of the 1996 Act should extend to all payphone location providers.  XK- z ` ` #292. We also conclude that the technical and timing requirements established  X4- d(#Lpursuant to Section 251(b)(3), and Section 271(c)(2)(B), should apply equally to payphones.Y@4E yO}- v ԍSee Id. at 25, 1445. In general, we adopted in that order a dialing parity schedule that requires each LEC,  d(#-including a BOC, to implement toll dialing parity no later than February 8, 1999; requires each LEC, including a  d(#BOC, to provide toll dialing parity throughout a state coincident with its provision of inregion, interLATA or in d(#region, interstate toll service in that state. We also require all LECs, other than BOCs, that are either already  d(#offering or plan to begin to provide inregion, interLATA or inregion, interstate toll service before August 8, 1997,  d(#to implement toll dialing parity by August 8, 1997. We also note in that Order that Section 271 of the 1996 Act  d(#requires BOCs to provide intraLATA dialing parity throughout a state coincident with the exercise of their authority  yO!-to offer interLATA services originating within the state. See 47 U.S.C. 271(e)(2)(A). Y  d(#We find that burden on the LECs in requiring them to provide dialing parity for payphones, prior  d(#to all other phones, outweighs any competitive benefit that might result. In this respect, we note  d(#that independent payphone service providers' "smart payphones" can adequately create dialing parity within the payphone unit pending the implementation of true dialing parity. ",=(=(JJ"Ԍ X- z %` ` $293.  Finally, we conclude that the unblocking of carrier access codes mandated  d(#by TOCSIA and our rules for interstate calls should also apply to intrastate (including local)  d(#access code calls. This may already be normal within the industry, and no party objected to our  d(#proposal. Allowing unrestricted access to a caller's preferred carrier is an essential feature of  d(#creating a competitive payphone industry, and we have created a mechanism that ensures that the  d(#kPSP will receive compensation for all access code calls, including intrastate calls. Given the  d(#existence of compensation and the procompetitive purpose of Section 276 of the 1996 Act, and  X_- d(#Zin the absence of any technical limitations, we find that unblocked access for all access code calls from payphones is required.  X1-  4!ZrE X- "DRAFT: 3 1, 4 %8:%90" rՂ  XX 4!ZZA X<X` hp x (#%'0*,.8135@8:bE yO-ԍ Oncor Petition at 1.> The Commission invited comment on Oncor's petition by Public Notice  d(#released September 12, 1995. We deny Oncor's request. As commenters note, the presubscribed  d(#OSP incurs no costs when a consumer makes an access code call from a payphone, and it would  d(#Lbe inequitable to require any party to compensate the OSP because the caller chose not to use  X- d(#it.xE yO/-ԍ See MCI Comments on Oncor's Petition at 23; Comments of APCC on Oncor's Petition at 2. Moreover, there is no need for us to prescribe compensation for premises owners. The  X- d(#rules that we adopt in this Report and Order will ensure that PSPs are fairly compensated for  d(#calls that originate on their facilities, and market forces will ensure that the PSPs fairly compensate premises owners.  X|-R' IV. PROCEDURAL MATTERS ă  XN- 1. Petitions for Reconsideration  and  Ex Parte Presentations   X - z  ` ` +300.  P arties must file any petitions for reconsideration of this Report and Order  d(#{within 30 days from release of this document. We hereby waive, on our own motion, the  d(#requirements of Section 1.4 of our rules to establish this new date of public notice in light of the  d(#=deadline established in the 1996 Act to complete this proceeding. Parties may file oppositions",=(=(JJ;"  d(#Mto the petitions for reconsideration pursuant to Section 1.106(g) of the rules, except that we  d(#require that oppositions to the petitions be filed within seven (7) days after the date for filing the  d(#jpetitions for reconsideration. The Commission will not issue a separate notice of any petitions  d(#for reconsideration; this paragraph serves as notice to all interested parties of the due dates for  d(#petitions and oppositions. In addition, the Commission hereby waives Section 1.106(h) of the  d(#.rules and will not accept reply comments in response to oppositions. We conclude that these  d(#actions are necessary to complete all Commission action in this proceeding, which involves issues  d(#concerning the Commission's expedited implementation of the 1996 Act, by the statutory  d(#"deadline of November 8, 1996. We will consider all relevant and timely petitions and oppositions before final action is taken in this proceeding.  X - z  ` ` ,301. To file a petition for reconsideration in this proceeding parties must file an  d(#Zoriginal and ten copies of all petitions and oppositions. Petitions and oppositions should be sent  d(#to the Office of the Secretary, Federal Communications Commission, Washington, DC 20554.  d(#If parties want each Commissioner to have a personal copy of their documents, an original plus  d(#zfourteen copies must be filed. In addition, participants should submit two additional copies  d(#directly to the Common Carrier Bureau, Enforcement Division, Room 6008, 2025 M Street NW,  d(#=Washington, D.C. 20554. The petitions and oppositions will be available for public inspection  d(#{during regular business hours in the Dockets Reference Room (Room 230) of the Federal  d(#Communications Commission, 1919 M Street, NW, Washington, DC 20554. Copies of the  d(#petition and any subsequently filed documents in this matter may be obtained from ITS, Inc., 2100 M Street, NW, Suite 140, Washington, DC 20037, (202) 8573800.  X- A ` ` -302. Petitions for reconsideration must comply with Sections 1.106 and 1.49 and  X- d(#all other applicable sections of the Commission's rules.XE yOQ- v ԍ#X\  P6G;P#See 47 C.F.R.  1.49. We require, however, that a summary be included with all comments, although a  d(#summary that does not exceed three pages will not count toward the page limits. The summary may be paginated  yO-separately from the rest of the pleading (e.g., as "i, ii"). Id. Petitions also must clearly identify the  X- d(#specific portion of this Report and Order for which relief is sought. If a portion of a party's  X- d(#arguments does not fall under a particular topic listed in the outline of this Report and Order,  d(#such arguments should be included in a clearly labelled section at the beginning or end of the  X|- d(#filing. Parties may not file more than a total of ten (10) pages of ex parte submissions, excluding  Xe- d(#Mcover letters. This 10 page limit does not include: (1) written ex parte filings made solely to  XN- d(#disclose an oral ex parte contact; (2) written material submitted at the time of an oral presentation  d(#to Commission staff that provides a brief outline of the presentation; or (3) written material filed  X - d(#[in response to direct requests from Commission staff. Ex parte filings in excess of this limit will not be considered as part of the record in this proceeding.  X-  2. Final Paperwork Reduction Act Analysis   X!- z ` ` .303. The decision herein has been analyzed with respect to the Paperwork  d(#Reduction Act of 1995, Pub. L. 10413, and several of its requirements have been approved in"",=(=(JJ!"  d(#accordance with the provisions of that Act. The Office of Management and Budget ("OMB") made several suggestions for our proposals:  X- z ` ` /304. Report of Local Exchange Companies of Cost Accounting Studies. OMB  X- d(#suggested that the description and justification for this requirement be clarified.E yO-ԍ Notice of Office of Management and Budget Action, (OMB No. 30600721) (Released September 8, 1996). The rules  d(#krequire incumbent LECs to offer individual central office coin transmission services to PSPs  d(#under a nondiscriminatory, public tariffed offering if the LECs provide those services for their  d(#-own operations. Because the incumbent LECs may have an incentive to charge their competitors  d(#unreasonably high prices for these services, we require them to submit cost support for their  d(#<central office coin services, on a onetime basis. This will ensure that the services are reasonably priced and do not include subsidies.  X - z ` ` 0305. Report of Bell Operating Companies of Initial Comparably Efficient  X - d(#Interconnection Plans. OMB requested that we provide revised cost and burden hour estimates. XE yO-ԍ Notice of Office of Management and Budget Action, (OMB No. 30600722) (Released August 26, 1996). The cost and burden hour estimates have not changed.  X- z  ` ` 1306.  Annual Filing of Nondiscrimination Reports by Bell Operating Companies.  Xy- d(#KOMB requested that we provide revised cost and burden hour estimates.yE yO-ԍ Notice of Office of Management and Budget Action, (OMB No. 30600725) (Released August 26, 1996). The cost and burden hour estimates have not changed.  XK-  X4- z r` ` 2307.  Quarterly Report of IntraLATA Carriers Listing Payphone Automatic  X- d(#NNumber Identification (ANIs). OMB suggested that we allow interLATA carriers to use  d(#Minnovative approaches to provide ANIs, such as posting the information on the Internet or  X- d(#.distributing the information via electronic mail.xE yO-ԍ Notice of Office of Management and Budget Action, (OMB No. 30600719) (Released August 26, 1996). We have not specified the manner in which  d(#\interLATA carriers must supply carrierpayors with the list of payphone ANIs. InterLATA  X- d(#carriers are free to use any technologies at their disposal to distribute the necessary information.  X- z S` ` 3308.  Public Disclosure of Network Information by Bell Operating Companies.  d(#OMB suggested that we weigh the reporting and notification burden of this requirement, as well  d(#as consider shortening the period of public disclosure from a minimum of six months, so as not  XN- d(#to unfairly burden BOCs by delaying technical modifications to their systems.NE yO$-ԍ Notice of Office of Management and Budget Action, at 2 (OMB No. 30600723) (Released August 29, 1996). We agree with  d(#OMB that we should choose the least burdensome method to accomplish our goal of prohibiting  d(#ythe BOCs from discriminating in the provision of payphone service. We believe, however, that  d(#a minimum sixmonth period of public disclosure prior to the introduction of a new service is" ,=(=(JJ"  d(#>vital to ensure that BOCs do not design new network services or change network technical specifications to the advantage of their own payphones.  X-  X- z ` ` 4309.  Annual Report of Interexchange Carriers Listing the Compensation Amount  X- d(#kPaid to Payphone Providers and the Number of Payees. OMB suggested that we weigh the  X- d(#burden imposed by the payment and information mechanism contained in this requirement.E yO-ԍ Notice of Office of Management and Budget Action, at 2 (OMB No. 30600724) (Released August 29, 1996).  d(#KWe agree with OMB that we should choose the least burdensome method to accomplish our goal  d(#of ensuring that all IXCs are paying their respective compensation obligations. Therefore we  d(#/conclude that this reporting requirement will be terminated after the carriers have filed their  d(#reports for the 1999 calendar year. In addition, for further flexibility, we delegate to the Chief,  d(#<Common Carrier Bureau, the authority to establish the details, as necessary, of this annual report, including the authority to extend or limit the scope of this report.  X - z ` ` 5310.  Quarterly Report of Interexchange Carriers Listing the Number of Dial  X - d(#<Around Calls for Which Compensation is Being Paid to Payphone Owners. OMB suggested that  d(#we weigh the burden imposed by the payment verification mechanism contained in this  X- d(#requirement.XE yO-ԍ Notice of Office of Management and Budget Action, at 2 (OMB No. 30600726) (Released August 29, 1996). We agree with OMB that we should choose the least burdensome method to  d(#.accomplish our goal of ensuring that billing and collection are as efficient as possible. In fact,  d(#we weighed several alternatives to achieve optimum efficiency and the least burdensome  d(#approach, before imposing this requirement. This requirement is imposed on the IXCs because  d(#<they have the greatest ability and incentive to establish the most efficient means of administering the payment of compensation.  X- 3. Final Regulatory Flexibility Act Analysis  X-  X- z  ` ` 6311. As required by Section 603 of the Regulatory Flexibility Act (RFA), 5  X- d(#U.S.C. 603, an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice.  X- d(#The Commission sought written public comment on the proposals in the Notice, including  X|- d(#comment on the IRFA.O|E yO-ԍNotice at paras. 95102.O The Commission's Final Regulatory Flexibility Analysis (FRFA) in  d(#[this Order conforms to the RFA, as amended by the Contract With America Advancement Act  XN-of 1996 (CWAAA), Pub.L. No. 104121, 110 Stat. 847 (1996).NxE yOw"- v OԍSubtitle II of the CWAAA is "The Small Business Regulatory Enforcement Fairness Act of 1996"  yO?#-("SBREFA"), codified at 5 U.S.C.  601 et seq.  X7-  X - A.` ` Need for and Objectives of this Report  X -` ` and Order and the Rules Adopted Herein  X-",=(=(JJZ"Ԍ X- z  ` ` 7312. The Commission, in compliance with Section 276 of the Communications  d(#Act of 1934, as amended by the Telecommunications Act of 1996 (the 1996 Act), promulgates  d(#>the rules in this Order to promptly implement Section 276 of the 1996 Act, which directs the  d(#Commission, among other things, to adopt rules that: (1) establish a plan to ensure fair  d(#compensation for "each and every completed intrastate and interstate call using [a]  X- d(#payphone[;]"UE yO-ԍX47 U.S.C.  276(b)(1)(A).(#U (2) discontinue intrastate and interstate carrier access charge payphone service  d(#elements payments and intrastate and interstate payphone subsidies from basic exchange  X_- d(#services;U_XE yOh -ԍX47 U.S.C.  276(b)(1)(B).(#U (3) prescribe nonstructural safeguards for Bell Operating Company (BOC)  XH- d(#payphones;UHE yO -ԍX47 U.S.C.  276(b)(1)(C).(#U (4) permit the BOCs to negotiate with payphone location providers for the  X1- d(#intraLATA carriers presubscribed to their payphones;U1xE yOZ-ԍX47 U.S.C.  276(b)(1)(D).(#U (5) permit all payphone providers to  d(#|negotiate with the location provider for the intraLATA carriers presubscribed to their  X - d(#>payphones;U E yO-ԍX47 U.S.C.  276(b)(1)(E).(#U and (6) adopt guidelines for use by the states in establishing public interest  X -payphone programs.R E yO5-ԍX47 U.S.C.  276(b)(2).(#R  X - z C ` ` 8313.  The objective of the rules adopted in this Order is "to promote competition  d(#among payphone service providers and promote the widespread deployment of payphone services  X- d(#to the benefit of the general public."R( E yOi-ԍX47 U.S.C.  276(b)(1).(#R In doing so, we are mindful of the balance that Congress  d(#<struck between this goal of bringing the benefits of competition to consumers and its concern for the impact of the 1996 Act on small businesses.  XK-  X4- B.` ` Analysis of Significant Issues  X-` ` Raised in Response to the IRFA  X- P ` ` 9314. Summary of the Initial Regulatory Flexibility Analysis (IRFA). In the IRFA,  d(#the Commission found that the rules we proposed to adopt in this proceeding may have a  d(#significant impact on a substantial number of small business as defined by section 601(3) of the  d(#RFA. The IRFA solicited comment on alternatives to our proposed rules that would minimize  d(#the impact on small entities consistent with the objectives of this proceeding. The Commission  d(#received one comment on the potential impact on small business entities, which the Commission  d(#considered in promulgating the rules in this Order. Frontier commented generally that the  XP- d(#compensation scheme advanced in the NPRM was "unnecessarily onerous and inefficient" and"P ,=(=(JJ0"  X- d(#"in conflict with the goals of the .... Regulatory Flexibility Act."VE yOy-ԍXFrontier Comments at 2.(#V Frontier did not comment  d(#yspecifically on what aspect of the compensation scheme would have economic impact on small  d(#business entities. We disagree with Frontier's general assertion that the compensation scheme  d(#is in conflict with the Regulatory Flexibility Act. Our rules are designed to facilitate the  d(#development of competition, which benefits many small business entities. The rules will ensure  d(#that payphone services providers, many of whom may be small business entities, receive fair  d(#.compensation. Our rules provide significant flexibility to permit the affected parties, including  d(#small business entities, to structure procedures that would minimize their burdens. For example,  d(#the rules require IXCs and intraLATA carriers, as primary economic beneficiary of payphone  d(#calls, to track the calls they receive from payphones. The carrier has the option of performing  d(#@the function itself or contracting out these functions to another party, such a LEC or  d(#Lclearinghouse. We also provide a transition period. We believe that our rules are designed to  d(#yeffectively optimize the efficiency and minimize the burdens of the compensation scheme on all parties, including small entities.  X - C.` ` Description and Estimates of the Number of  X-` ` Small Entities Affected by this Report and Order   Xb- z ` ` :315.  For the purposes of this Order, the RFA defines a "small business" to be  d(#the same as a "small business concern" under the Small Business Act, 15 U.S.C.  632, unless  X4- d(#the Commission has developed one or more definitions that are appropriate to its activities.4XE yO=- v ԍSee 5 U.S.C.  601(3) (incorporating by reference the definition of "small business concern" in 5 U.S.C. 632).  d(#\Under the Small Business Act, a "small business concern" is one that: (1) is independently  d(#owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional  X- d(#criteria established by the Small Business Administration (SBA).E yOP- v ԍ15 U.S.C.  632. See, e.g., Brown Transport Truckload, Inc. v. Southern Wipers, Inc., 176 B.R. 82 (N.D.Ga. 1994). SBA has defined a small  d(#business for Standard Industrial Classification (SIC) category 4813 (Telephone Communications,  X-Except Radiotelephone) to be a small entity when it has fewer than 1,500 employees.HE yOz-ԍ13 C.F.R. 121.201.H  X- z   ` ` ;316.  We have found incumbent LECs to be "dominant in their field of  X|- d(#operation" since the early 1980s, and we consistently have certified under the RFAP|E yO#-ԍSee 5 U.S.C.  605(b).P that  d(#zincumbent LECs are not subject to regulatory flexibility analyses because they are not small"e( ,=(=(JJ"  X- d(#businesses. E yOy- v ԍSee, e.g., Expanded Interconnection with Local Telephone Company Facilities, Supplemental Notice of  yOA- d(#Proposed Rulemaking, 6 FCC Rcd 5809 (1991); MTS and WATS Market Structure, Report and Order, 2 FCC Rcd  yO - d(#x2953, 2959 (1987) (citing MTS and WATS Market Structure, Third Report and Order, 93 F.C.C.2d 241, 33839 (1983)). We have made similar determinations in other areas.4E yOa- v ԍSee, e.g., Implementation of Sections of the Cable Television Consumer Protection Act of 1992: Rate  yO)-Regulation, Sixth Report and Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393, 7418 (1995).4 However, in the Local  X- d(#Competition proceeding, several parties, including the SBA, commented that we should have  X- d(#included small incumbent LECs in the IRFA pertaining to that order. E yO - v 0ԍThe Small Business Administration (SBA), the Rural Telephone Coalition (Rural Tel. Coalition), and  d(#-CompTel maintain that the Commission violated the RFA when it failed to include small incumbent LECs in its  yO - d(#KIRFA without first consulting SBA to establish a definition of "small business." See  Local Competition Order at paras. 13281330.  We recognize SBA's  d(#special role and expertise with regard to the RFA, and intend to continue to consult with SBA  d(#Loutside the context of this proceeding to ensure that the Commission is fully implementing the  d(#RFA. Although we are not fully persuaded that our prior practice has been incorrect, we will,  d(#nevertheless, include small incumbent LECs in this FRFA to remove any possible issue of RFA  d(#compliance. Consistent with our prior practice, we shall continue to exclude small incumbent  d(#LECs from the definition of a small entity for the purpose of this FRFA. Nevertheless, as  d(#Lmentioned above, we include small incumbent LECs in our FRFA. Accordingly, our use of the  d(#terms "small entities" and "small businesses" does not encompass "small incumbent LECs." We  d(#use the term "small incumbent LECs" to refer to any incumbent LECs that arguably might be  X -defined by SBA as "small business concerns."] E yO-ԍSee 13 C.F.R. 121.210 (SIC 4813).]   X -` `  Telephone Companies (SIC 4813)  X- z ` ` <317.  Total Number of Telephone Companies Affected. Many of the decisions  d(#>and rules adopted herein may have a significant effect on a substantial number of the small  d(#telephone companies identified by the SBA. The United States Bureau of the Census (the Census  d(#LBureau) reports that, at the end of 1992, there were 3,497 firms engaged in providing telephone  X4- d(#-services, as defined therein, for at least one year.4 E yOe - v ԍUnited States Department of Commerce, Bureau of the Census, 1992 Census of Transportation,  yO-!-Communications, and Utilities: Establishment and Firm Size, at Firm Size1-123 (1995) (1992 Census). This number encompasses a broad category  d(#which contains a variety of different subsets of carriers, including local exchange carriers,  d(#interexchange carriers, competitive access providers, cellular carriers, mobile service carriers,  d(#Koperator service providers, pay telephone operators, PCS providers, covered SMR providers, and  d(#resellers. It seems certain that some of those 3,497 telephone service firms may not qualify as  X- d(#?small entities or small incumbent LECs because they are not "independently owned and",=(=(JJq"  X- d(#operated."RE yOy-ԍX15 U.S.C.  632(a)(1).(#R For example, a PCS provider that is affiliated with an interexchange carrier having  d(#more than 1,500 employees would not meet the definition of a small business. It seems  d(#yreasonable to conclude, therefore, that fewer than 3,497 telephone service firms are small entity  d(#{telephone service firms or small incumbent LECs that may be affected by this Order. We  d(#estimate below the potential small entity telephone service firms or small incumbent LECs that may be affected by this Order by service category.  X_- ` ` =318. Wireline Carriers and Service Providers. The SBA's definition of small  d(#entities for telephone communications companies, other than radiotelephone (wireless) companies,  X1- d(#is one employing fewer than 1,500 persons.~1XE yO: -ԍ13 C.F.R.  121.201, Standard Industrial Classification (SIC) Code 4812. ~ The Census Bureau reports that, there were 2,321  X - d(#ysuch telephone companies in operation for at least one year at the end of 1992.d E yO-ԍ1992 Census, supra, at Firm Size1-123.d All but 26 of  d(#ithe 2,321 nonradiotelephone companies listed by the Census Bureau were reported to have fewer  d(#jthan 1,000 employees. Thus, even if all 26 of those companies had more than 1,500 employees,  d(#there would still be 2,295 nonradiotelephone companies that might qualify as small entities or  d(#"small incumbent LECs. Although it seems certain that some of these carriers are not  d(#independently owned and operated, we are unable at this time to estimate with greater precision  d(#the number of wireline carriers and service providers that would qualify as small business  d(#concerns under SBA's definition. Consequently, we estimate that there are fewer than 2,295  d(#Ksmall entity telephone communications companies other than radiotelephone companies that may be affected by the decisions and rules adopted in this Order.  X- z ` ` >319.  Local Exchange Carriers. Neither the Commission nor SBA has developed  d(#]a definition of small providers of local exchange services (LECs). The closest applicable  d(#idefinition under SBA rules is for telephone communications companies other than radiotelephone  d(#j(wireless) companies (SIC 4813). The most reliable source of information regarding the number  d(#of LECs nationwide of which we are aware appears to be the data that we collect annually in  X- d(#connection with the Telecommunications Relay Service (TRS).7xE yO- v ԍXAll carriers that provide interstate service are required to pay into the TRS Fund, which provides access to  yO-Telecommunications Device for the Deaf (TDD). See generally, 47 C.F.R.  64.601 et seq.(#7 According to our most recent  d(#data, 1,347 companies reported that they were engaged in the provision of local exchange  X|- d(#services.mX|E yO"- v ԍFederal Communications Commission, CCB, Industry Analysis Division, Telecommunications Industry  yO#- d(#Revenue: TRS Fund Worksheet Data, Tbl. 21 (Average Total Telecommunications Revenue Reported by Class of  yO$-Carrier) (Feb.1996) (TRS Worksheet). m Although it seems certain that some of these carriers are not independently owned  d(#and operated, or have more than 1,500 employees, we are unable at this time to estimate with  d(#-greater precision the number of LECs that would qualify as small business concerns under SBA's"N ,=(=(JJ"  d(#definition. Consequently, we estimate that there are fewer than 1,347 small incumbent LECs that may be affected by the decisions and rules adopted in this Order.  X-  X- z ` ` ?320.  Interexchange Carriers. Neither the Commission nor SBA has developed  d(#a definition of small entities specifically applicable to providers of interexchange services (IXCs).  d(#LThe closest applicable definition under SBA rules is for telephone communications companies  d(#other than radiotelephone (wireless) companies (SIC 4813). The most reliable source of  d(#=information regarding the number of IXCs nationwide of which we are aware appears to be the  d(#data that we collect annually in connection with TRS. According to our most recent data, 97  X1- d(#companies reported that they were engaged in the provision of interexchange services.:1E yO -ԍId.:  d(#-Although it seems certain that some of these carriers are not independently owned and operated,  d(#or have more than 1,500 employees, we are unable at this time to estimate with greater precision  d(#the number of IXCs that would qualify as small business concerns under SBA's definition.  d(#Consequently, we estimate that there are fewer than 97 small entity IXCs that may be affected by the decisions and rules adopted in this Order.   X- z  ` ` @321.  Competitive Access Providers. Neither the Commission nor SBA has  d(#developed a definition of small entities specifically applicable to providers of competitive access  d(#services (CAPs). The closest applicable definition under SBA rules is for telephone  d(#communications companies other than radiotelephone (wireless) companies (SIC 4813). The  d(#most reliable source of information regarding the number of CAPs nationwide of which we are  d(#aware appears to be the data that we collect annually in connection with the TRS. According  d(#to our most recent data, 30 companies reported that they were engaged in the provision of  X- d(#competitive access services.:XE yO-ԍId.: Although it seems certain that some of these carriers are not  d(#independently owned and operated, or have more than 1,500 employees, we are unable at this  d(#time to estimate with greater precision the number of CAPs that would qualify as small business  d(#jconcerns under SBA's definition. Consequently, we estimate that there are fewer than 30 small entity CAPs that may be affected by the decisions and rules adopted in this Order.  Xe- z ` ` A322.  Operator Service Providers. Neither the Commission nor SBA has  d(#jdeveloped a definition of small entities specifically applicable to providers of operator services  d(#z(OSPs). The closest applicable definition under SBA rules is for telephone communications  d(#companies other than radiotelephone (wireless) companies (SIC 4813). The most reliable source  d(#of information regarding the number of operator service providers nationwide of which we are  d(#aware appears to be the data that we collect annually in connection with the TRS. According  d(#to our most recent data, 29 companies reported that they were engaged in the provision of  X - d(#operator services.: E yO]&-ԍId.: Although it seems certain that some of these companies are not  d(#independently owned and operated, or have more than 1,500 employees, we are unable at this"!x,=(=(JJ "  d(#/time to estimate with greater precision the number of operator service providers that would  d(#-qualify as small business concerns under SBA's definition. Consequently, we estimate that there  d(#=are fewer than 29 small entity operator service providers that may be affected by the decisions and rules adopted in this Order.  X- z ` ` B323. Pay Telephone Operators. Neither the Commission nor SBA has developed  d(#\a definition of small entities specifically applicable to pay telephone operators. The closest  d(#applicable definition under SBA rules is for telephone communications companies other than  d(#kradiotelephone (wireless) companies. The most reliable source of information regarding the  d(#number of pay telephone operators nationwide of which we are aware appears to be the data that  d(#Nwe collect annually in connection with the TRS. According to our most recent data, 197  X - d(#companies reported that they were engaged in the provision of pay telephone services.: E yO| -ԍId.:  d(#-Although it seems certain that some of these carriers are not independently owned and operated,  d(#or have more than 1,500 employees, we are unable at this time to estimate with greater precision  d(#the number of pay telephone operators that would qualify as small business concerns under  d(#SBA's definition. Consequently, we estimate that there are fewer than 197 small entity pay telephone operators that may be affected by the decisions and rules adopted in this Order.  Xb- z  ` ` C324.  Resellers (including debit card providers). Neither the Commission nor  d(#SBA has developed a definition of small entities specifically applicable to resellers. The closest  d(#yapplicable definition under SBA rules is for all telephone communications companies (SIC 4812  d(#and 4813). The most reliable source of information regarding the number of resellers nationwide  d(#of which we are aware appears to be the data that we collect annually in connection with the  d(#TRS. According to our most recent data, 206 companies reported that they were engaged in the  X- d(#resale of telephone services.:XE yO-ԍId.: Although it seems certain that some of these carriers are not  d(#independently owned and operated, or have more than 1,500 employees, we are unable at this  d(#time to estimate with greater precision the number of resellers that would qualify as small  d(#business concerns under SBA's definition. Consequently, we estimate that there are fewer than 206 small entity resellers that may be affected by the decisions and rules adopted in this Order.  XN- z ` ` D325.  800Subscribers. Neither the Commission nor SBA has developed a  d(#definition of small entities specifically applicable to 800subscribers. The most reliable source  d(#of information regarding the number of 800subscribers of which we are aware appears to be the  X - d(#[data we collect on the number of 800numbers in use. E yO#- v ԍFederal Communications Commission, CCB, Industry Analysis Division, FCC Releases, Study on Telephone  yOj$-Trends, Tbl. 20 (May 16, 1996). According to our most recent data, at  d(#the end of 1995, the number of 800numbers in use was 6,987,063. Although it seems certain  d(#that some of these subscribers are not independently owned and operated businesses, or have  d(#>more than 1,500 employees, we are unable at this time to estimate with greater precision the" @,=(=(JJ"  d(#<number of 800subscribers that would qualify as small business concerns under SBA's definition.  d(#[Consequently, we estimate that there are fewer than 6,987,063 small entity 800subscribers that may be affected by the decisions and rules adopted in this Order.  X- z ` ` E326.  Location Providers. Neither the Commission nor SBA has developed a  d(#definition of small entities specifically applicable to location providers. A location provider is  d(#Zthe entity that is responsible for maintaining the premises upon which the payphone is physically  d(#located. Due to the fact that location providers do not fall into any specific category of business  XH- d(#entity, it is impossible to estimate with any accuracy the number of location providers. Using  X1- d(#>several sources, however, we have derived a figure of 1,850,000 payphones in existence.51E yO - d(#ԍ There are approximately 1.5 million LEC payphones. Statistics of Communications Common  d(#ZCarriers,1994/1995 edition, Common Carrier Bureau, FCC at 159, Table 2.10 (1995). There are approximately  yO: - d(#350,000 competitively provided payphones. See Ex Parte Letter of Michael Benson, Senior Product Manager, PPO  d(#Compensation Clearinghouse, Cincinnati Bell to Michael Carowitz, Attorney, Common Carrier Bureau, FCC (April  d(#24, 1996). Cincinnati Bell, as the payphone compensation paying agent for three interexchange carriers, states that  yO-it receives quarterly bills from PPOs for more than 350,000 competitively provided payphones. Id. 5  d(#Although it seems certain that some of these payphones are not located on property owned by  d(#klocation providers that are small business entities, nor does the figure take into account the  d(#possibility of multiple payphones at a single location, we are unable at this time to estimate with  d(#greater precision the number of location providers that would qualify as small business concerns  d(#zunder SBA's definition. Consequently, we estimate that there are fewer than 1,850,000 small entity location providers that may be affected by the decisions and rules adopted in this Order.  Xy- z p` ` F327.  Wireless (Radiotelephone) Carriers (including paging services). The SBA's  d(#definition of a small business radiotelephone company is one employing fewer than 1,500  XK- d(#persons.~K@E yO<-ԍ13 C.F.R.  121.201, Standard Industrial Classification (SIC) Code 4812. ~ The Census Bureau reports that there were 1,176 such companies in operation for at  X4- d(#least one year at the end of 1992.4E yO- v ԍUnited States Department of Commerce, Bureau of the Census, 1992 Census of Transportation,  yO}-Communications, and Utilities: Establishment and Firm Size, at Firm Size1-123 (1995) (1992 Census). The Census Bureau also reported that 1,164 of those  d(#radiotelephone companies had fewer than 1,000 employees. Thus, even if all of the remaining  d(#12 companies had more than 1,500 employees, there would still be 1,164 radiotelephone  d(#companies that might qualify as small entities if they are independently owned are operated.  d(#-Although it seems certain that some of these carriers are not independently owned and operated,  d(#-we are unable at this time to estimate with greater precision the number of radiotelephone carriers  d(#and service providers that would qualify as small business concerns under SBA's definition.  d(#Consequently, we estimate that there are fewer than 1,164 small entity radiotelephone companies that may be affected by the decisions and rules adopted in this Order.   XN- z  ` ` G328.  Cellular Service Carriers (including paging services). Neither the  d(#Commission nor SBA has developed a definition of small entities specifically applicable to  d(#providers of cellular services. The closest applicable definition under SBA rules is for telephone" ( ,=(=(JJz"  d(#communications companies other than radiotelephone (wireless) companies (SIC 4813). The  d(#[most reliable source of information regarding the number of cellular service carriers nationwide  d(#of which we are aware appears to be the data that we collect annually in connection with the  d(#TRS. According to our most recent data, 789 companies reported that they were engaged in the  X- d(#provision of cellular services.:E yO-ԍId.: Although it seems certain that some of these carriers are not  d(#independently owned and operated, or have more than 1,500 employees, we are unable at this  d(#jtime to estimate with greater precision the number of cellular service carriers that would qualify  d(#as small business concerns under SBA's definition. Consequently, we estimate that there are  d(#fewer than 789 small entity cellular service carriers that may be affected by the decisions and rules adopted in this Order.  X - z ` ` H329.  Mobile Service Carriers (including paging services). Neither the  d(#Commission nor SBA has developed a definition of small entities specifically applicable to  d(#mobile service carriers, such as paging companies. The closest applicable definition under SBA  d(#xrules is for telephone communications companies other than radiotelephone (wireless) companies.  d(#The most reliable source of information regarding the number of mobile service carriers  d(#nationwide of which we are aware appears to be the data that we collect annually in connection  d(#with the TRS. According to our most recent data, 117 companies reported that they were  Xb- d(#engaged in the provision of mobile services.:bXE yOk-ԍId.: Although it seems certain that some of these  d(#ycarriers are not independently owned and operated, or have more than 1,500 employees, we are  d(#.unable at this time to estimate with greater precision the number of mobile service carriers that  d(#jwould qualify under SBA's definition. Consequently, we estimate that there are fewer than 117  d(#small entity mobile service carriers that may be affected by the decisions and rules adopted in this Order.  X- z ` ` I330.  Broadband PCS Licensees (including paging services). The broadband PCS  d(#spectrum is divided into six frequency blocks designated A through F. As set forth in 47 C.F.R.  d(# 24.720(b), the Commission has defined "small entity" in the auctions for Blocks C and F as  d(#a firm that had average gross revenues of less than $40 million in the three previous calendar  d(#zyears. Our definition of a "small entity" in the context of broadband PCS auctions has been  XN- d(#approved by SBA.NE yO - v ԍSee Implementation of Section 309(j) of the Communications Act Competitive Bidding, PP Docket  yO!-No.93253, Fifth Report and Order, 9 FCC Rcd 5532, 558184 (1994). The Commission has auctioned broadband PCS licenses in Blocks A, B,  d(#-and C. We do not have sufficient data to determine how many small businesses bid successfully  d(#for licenses in Blocks A and B. There were 90 winning bidders that qualified as small entities" @,=(=(JJz"  X- d(#in the Block C auctions.RXE yOy-ԍXThe FCC's Personal Communications Services (PCS) Entrepreneurs' Block (C Block) auction began on (#  d(# December 18, 1995 and closed on May 6, 1996. The reauction for 18 defaulted PCS C Block licenses commenced on July 3, 1996 and was completed on July 16, 1996. R Based on this information, we conclude that the number of  d(#jbroadband PCS licensees affected by the decisions in this Order includes, at a minimum, the 90 winning bidders that qualified as small entities in the Block C broadband PCS auction.  X- z '` ` J331. At present, no licenses have been awarded for Blocks D, E, and F of  d(#broadband PCS spectrum. Therefore, there are no small businesses currently providing these  d(#yservices. However, a total of 1,479 licenses will be awarded in the D, E, and F Block broadband  d(#PCS auctions, which are scheduled to begin on August 26, 1996. Of the 153 qualified bidders  XH- d(#\for the D, E, and F Block PCS auctions, 105 were small businesses.HE yO - v kԍSee Auction of Broadband Personal Communications Service (D, E, and F Blocks), Public Notice, DA 961400 (rel. Aug. 20, 1996). Eligibility for the 493  d(#F Block licenses is limited to entrepreneurs with average gross revenues of less than $125  X - d(#million.X @E yO - v ԍAmendment of Parts 20 and 24 of the Commission's Rules Broadband PCS Competitive Bidding and the  yO- d(#Commercial Mobile Radio Service Spectrum Cap, WT Docket No. 9659, Amendment of the Commission's  yO-Cellular/PCS CrossOwnership Rule, Report and Order, GN Docket No. 90314, 11 FCC Rcd 7874 (1996). There are 114 eligible bidders for the F Block. ` E yO+- v kԍSee Auction of Broadband Personal Communications Service (D, E, and F Blocks), Public Notice, DA 961400 (rel. Aug. 20, 1996). We cannot estimate, however, the  d(#=number of these licenses that will be won by small entities under our definition, nor how many  d(#ksmall entities will win D or E Block licenses. Given that nearly all radiotelephone companies  X - d(#jhave fewer than 1,000 employees E yO>-ԍX1992 Census, Table 5, Employment Size of Firms: 1992, SIC Code 4812.(#ƃ and that no reliable estimate of the number of prospective  d(#D, E, and F Block licensees can be made, we assume for purposes of this FRFA, that all of the  d(#/licenses in the D, E, and F Block Broadband PCS auctions may be awarded to small entities under our rules, which may be affected by the decisions and rules adopted in this Order.   Xb- z 6` ` K332.  SMR Licensees (including paging services). Pursuant to 47 C.F.R.   d(#M90.814(b)(1), the Commission has defined "small entity" in auctions for geographic area 800  d(#yMHz and 900 MHz SMR licenses as a firm that had average annual gross revenues of less than  d(#$15 million in the three previous calendar years. This definition of a "small entity" in the  X- d(#=context of 800 MHz and 900 MHz SMR has been approved by the SBA.HH E yO"- v lԍSee Amendment of Parts 2 and 90 of the Commission's Rules to Provide for the Use of 200 Channels  d(#Outside the Designated Filing Areas in the 896901 MHz and the 935940 MHz Bands Allotted to the Specialized  yO$- d(#iMobile Radio Pool, PR Docket No. 89583, Second Order on Reconsideration and Seventh Report and Order, 11  yOW%- d(#MFCC Rcd 2639, 2693702 (1995); Amendment of Part 90 of the Commission's Rules to Facilitate Future  yO&- d(#Development of SMR Systems in the 800 MHz Frequency Band, PR Docket No. 93144, First Report and Order,  yO&-Eighth Report and Order, and Second Further Notice of Proposed Rulemaking, 11 FCC Rcd 1463 (1995).H The rules adopted",=(=(JJ"  d(#.in this Order may apply to SMR providers in the 800 MHz and 900 MHz bands that either hold  d(#geographic area licenses or have obtained extended implementation authorizations. We do not  d(#.know how many firms provide 800 MHz or 900 MHz geographic area SMR service pursuant to  d(#extended implementation authorizations, nor how many of these providers have annual revenues  d(#?of less than $15 million. We assume, for purposes of this FRFA, that all of the extended  d(#implementation authorizations may be held by small entities, which may be affected by the decisions and rules adopted in this Order.   XH- z %` ` L333. The Commission recently held auctions for geographic area licenses in the  d(#900 MHz SMR band. There were 60 winning bidders who qualified as small entities in the 900  d(#MHz auction. Based on this information, we conclude that the number of geographic area SMR  d(#licensees affected by the rule adopted in this Order includes these 60 small entities. No auctions  d(#Nhave been held for 800 MHz geographic area SMR licenses. Therefore, no small entities  d(#currently hold these licenses. A total of 525 licenses will be awarded for the upper 200 channels  d(#|in the 800 MHz geographic area SMR auction. However, the Commission has not yet  d(#determined how many licenses will be awarded for the lower 230 channels in the 800 MHz  d(#geographic area SMR auction. There is no basis, moreover, on which to estimate how many  d(#small entities will win these licenses. Given that nearly all radiotelephone companies have fewer  d(#than 1,000 employees and that no reliable estimate of the number of prospective 800 MHz  d(#licensees can be made, we assume, for purposes of this FRFA, that all of the licenses may be awarded to small entities who, thus, may be affected by the decisions in this Order.  X-   D.` ` Description of Projected Reporting, Recordkeeping, and Other Compliance  Requirements, and Steps Taken by Agency to Minimize Significant Economic   Impact on Small Entities and Small Incumbent LECs, consistent with Stated  X-Objectives (#`  X- z ` ` M334.  Structure of the Analysis. In this section of the FRFA, we analyze the  d(#jprojected reporting, recordkeeping, and other compliance requirements that may apply to small  Xe- d(#entities and small incumbent LECs as a result of this Order.SeE yO-ԍSee 5 U.S.C. 604(a)(4).S As a part of this discussion, we  d(#Lmention some of the types of skills that will be needed to meet the new requirements. We also  d(#describe the steps taken to minimize the economic impact of our decisions on small entities and  X -small incumbent LECs, including the significant alternatives considered and rejected.S XE yO)!-ԍSee 5 U.S.C. 604(a)(5).S  X-' FAIR COMPENSATION FOR EACH AND EVERY COMPLETED  X -INTRASTATE AND INTERSTATE CALL ORIGINATED BY PAYPHONES "!,=(=(JJ "Ԍ X- z ` ` N335.  Summary of Projected Reporting, Recordkeeping and other Compliance  X- d(#<Requirements. Section 276(b)(1)(A) directs the Commission to "establish a per call compensation  d(#plan to ensure that all payphone service providers are fairly compensated for each and every  X- d(#completed intrastate and interstate call using their payphone...."ME yO4-ԍ47 U.S.C.  276(b)(1)(A).M To implement Section  d(#276(b)(1)(A), this Order requires: (1) that the market set the price for local coin calls originated  d(#by payphones; (2) the appropriate percall compensation amount for the service provided by  d(#independent payphone providers (PSPs) when they originate an interstate call should be the same  d(#amount the particular payphone provider charges for a local coin call; (3) the adoption of the  d(#"carrier pays" compensation system, which essentially places the payment obligation of percall  d(#compensation on the primary economic beneficiary of payphone calls; (4) that the carrier, as the  d(#primary economic beneficiary of payphone calls, perform the tracking of calls it receives from  d(#ypayphones; (5) that carriers initiate an annual independent verification of their percall tracking  d(#functions for a period of two years, to ensure that they are tracking all of the calls for which they  d(#are obligated to pay compensation, (6) a direct billing arrangement between IXCs and intraLATA  d(#carriers and PSPs; (7) that LECs, who maintain the list of ANIs, have the burden of resolving  d(#disputed ANIs; and (8) that an interim compensation mechanism be set up under which PSPs are  d(#=paid compensation at a flat monthly rate. Compliance with these requirements may require the use of engineering, technical, operational, accounting, billing, and legal skills.  XK- z ` ` O336. The payphone industry appears to have the potential of being a very  d(#Zcompetitive industry once the significant subsidies and entry/exit restrictions which are presently  X- d(#distorting the competition are removed.PXE yO&-ԍ See paras. 1119, above.P However, we perceive five potential areas that could  d(#have significant economic impact on small businesses and small incumbent LECs: (1) the amount  d(#<of compensation paid to PSPs; (2) the "carrier pays" compensation system; (3) the administration  d(#of percall compensation; (4) the direct billing arrangement between carriers and PSPs; and (5) the interim compensation mechanism.  X-  X- z ` ` P337.  Steps Taken to Minimize Significant Economic Impact on Small Entities  X|- d(#]and Small Incumbent LECs, and Alternatives Considered: Amount of compensation: By  d(#irequiring that the market set the price for individual coin calls originated by payphones we ensure  d(#{that PSPs, many of whom may be small business entities, receive fair compensation. We  d(#considered different options in deciding upon this alternative. We reject proposals for adopting  d(#0a national uniform rate of compensation for all calls using a payphone because a single,  d(#nationwide rate could jeopardize the financial viability of a majority of payphones. Rejection  d(#of this option allows for accounting for the significant variation in payphones in order to ensure  X- d(#the incentives to place and maintain phones in a variety of geographic areas.\E yOt%-ԍSee paras. 4951, 5561, above.\ We also reject  d(#Zproposals that certain types of calls should receive a different percall compensation amount than  d(#^others. We decline to interfere in marketplace transactions by providing for different"!x,=(=(JJ "  d(#compensation amounts for different types of calls, in instances where marketplace failures are  X- d(#limited or would have minimal impact on consumer welfare.WE yOb-ԍSee para. 49, above.W We do not perceive the need to intervene in an apparently structurally competitive industry.  X- z ` ` Q338. Many commentators, notably the IXCs, contend that marginal cost of  d(#joriginating a payphone call should be used as the basis for compensating PSPs. We conclude  d(#=that use of a marginal cost standard or any closely related TSLRIC standard would leave PSPs  d(#junder compensated, because such cost standards do not permit the recovery of any of a PSPs'  d(#Nfixed costs, which make up the bulk of a PSP's costs. We also reject, for similar reasons,  d(#suggestions that current local coin rates be used as a surrogate for percall compensation. Local  d(#coin rates are not necessarily fairly compensatory. Local coin rates in some jurisdictions may not cover the marginal cost of service and therefore, would not fairly compensate the PSPs.  X - z %` ` R339. This "market sets the price" approach provides flexibility. Some PSPs may  d(#find it advantageous to set coin rates as low as $.10 per call in select locations, perhaps as  d(#=promotions to enhance their brand names. PSPs in other locations may choose to set the coin  X- d(#rate higher, e.g. $.35 or $.40 per call.QXE yO-ԍSee para. 51, above.Q We expect our action to minimize regulatory burdens,  d(#expedite and simplify negotiations, and minimize economic impacts through lower transaction costs.  X4- z ` ` S340. We reject the proposal of the BOCs and some independent payphone  d(#providers to use AT&T O+ commissions as a measure of fair value of the service provided by  d(#<independent payphone providers when they originate an interstate call. These commissions may  d(#include compensation for factors other than the use of the payphone, such as a PSP's promotion  d(#Lof the OSP through placards on the payphone. In the absence of reliable data, the appropriate  d(#percall compensation amount is whatever amount the particular payphone charges for a local  d(#coin call. PSPs, IXCs, subscriber 800 carriers, and intraLATA carriers, many of whom may be  d(#small business entities, may find it advantageous to agree on an amount for some or all  d(#kcompensable calls that is either higher or lower than the local coin rate at a given payphone  d(#because it will grant parties in the payphone industry some flexibility and allow them to take advantage of technological advances.  X - z ` ` T341.  Payment of compensation: Various commenters, including small IXCs and  X - d(#paging services, proposed that the Commission should adopt the "carrierpays" system.U E yO#-ԍSee paras. 78,83, above.U We  d(#reject proposals to adopt "callerpays" and "set use fee" systems, because we believe that they  d(#would involve greater transaction costs which can pose particular burdens for small businesses.  d(#We considered various alternatives to adopt the "carrier pays" system for percall compensation  d(#because it places the payment obligation on the primary economic beneficiary in the least"!x,=(=(JJ "  d(#\burdensome, most costeffective manner. All carriers that receive calls from payphones are  X- d(#required to pay percall compensation, whether they are IXCs or intraLATA carriers.QE yOb-ԍSee para. 83, above.Q The  d(#"carrier pays" system gives the carriers the broadest latitude on how to recover the costs of  d(#payphone compensation, whether through increased rates to all or particular customers, through  d(#xdirect charges to access code call or subscriber 800 customers, or through contractual agreements  d(#with individual customers, thereby involving fewer transaction costs. In addition, under the  d(#.carrier pays system, individual carriers have the option of recovering either a different amount from their customers or no amount at all.  X1- z ` ` U342. However, in the interests of administrative efficiency and lower costs, we  d(#.require that facilities based carriers should pay the percall compensation for calls received by  d(#\their reseller customers. This would permit competitive facilities based carriers to negotiate  d(# contract provisions that would require the reseller to reimburse the carrier. We believe our  d(#actions will expedite and simplify negotiations, minimize regulatory burdens and the impact of our decisions for all parties, including small entities.  X- z ` ` V343.  Administration of percall compensation: We considered various proposals  Xy- d(#to determine who should provide call tracking. This Order requires IXCs and intraLATA  d(#jcarriers, as primary economic beneficiary of payphone calls, to track the calls they receive from  d(#payphones. The carrier has the option of performing the function itself or contracting out these  d(#functions to another party, such a LEC or clearinghouse. We recognize that tracking capabilities  d(#vary from carrier to carrier and it may be appropriate for some carriers to pay compensation at  d(#ja flat rate basis until percall tracking capabilities are put into place. Neither LECs nor PSPs are  d(#primary economic beneficiaries of payphone calls and PSPs do not universally have calltracking  d(#capabilities. However, LECs, PSPs, and carriers receiving payphone calls should be able to take  X-advantage of each others' technological capabilities through the contracting process.QXE yO-ԍSee para. 97, above.Q  X- z ` ` W344.  In view of current difficulties in tracking such calls, we conclude that a  X|- d(#transition period is warranted.Q|E yO-ԍSee para. 99, above.Q By permitting carriers to contract out their percall tracking  d(#kresponsibility, and by allowing a transition period for tracking subscriber 800 calls, we have  d(#taken appropriate steps to minimize the percall tracking burden on small carriers. In addition,  d(#to parallel the obligation to pay compensation, the underlying, facilitiesbased carrier has the  d(#=burden of tracking calls to its reseller customers, and it may recover that cost from the reseller,  X -if it chooses.R xE yO2%-ԍSee para. 100, above.R ",=(=(JJZ"Ԍ X- z d` ` X345. We conclude that carriers should be required to initiate an annual  d(#jindependent verification of their percall tracking functions for a period of two years, to ensure  d(#that they are tracking all of the calls for which they are obligated to pay compensation. This  d(#[would facilitate the prompt and accurate payment of all percall compensation. We believe our  d(#actions will foster opportunities for small entities to gain access to such information without requiring investigation or discovery proceedings, and reduce delay and transaction costs.  X_- z ` ` Y346. To establish minimal regulatory guidelines for the payphone industry  XH- d(#regarding resolution of disputed ANIs, we conclude that LECs who maintain the list of ANIs  d(#must work with both carrierpayors and PSPs to resolve disputes more efficiently and quickly for  d(#all parties concerned. This provides LECs with the incentive, which they do not currently have,  d(#kto provide accurate and timely verification of ANIs for independently provided payphones.  X - d(#-Additionally, no other party has the information more readily available.W E yOe -ԍSee paras. 112113, above.W We expect this action  d(#to assist all parties, including small entities, expedite and simplify negotiations, and help equalize bargaining power.  X- z ` ` Z347. Each time a caller dials a subscriber 800 number, the PSP will also levy  d(#a charge which may be paid directly by the IXC, but will eventually be passed through to the 800  d(#jsubscriber, either on a percall basis or in the form of higher per minute rates. Establishment of  d(#.the requirement that PSPs inform these subscribers of the price of the call they are deciding to  d(#accept, provide subscribers with the opportunity to accept or decline to accept the call based on  d(#the cost. Without the requirement, the PSP would have the ability to charge a high amount in  d(#the face of the subscriber's lack of information. We expect our action to facilitate good faith  d(#negotiations, and minimize regulatory burdens and the impact of our decisions for all parties, including small entities.  X- z T` ` [348. While incumbent LECs in many jurisdictions currently do not charge  X- d(#payphone callers for "411" calls made from their own payphones, the LECs charge independent  d(#PSPs for directory assistance calls made from their phones. The PSPs are not always allowed  d(#by the state to pass those charges on to callers, which can pose particular burdens for them. In  d(#<this Order we conclude that, to ensure fair compensation for "411" and other directory assistance  d(#calls from payphones, a PSP is permitted to charge a marketbased rate for the service, although  d(#the PSP may decline to charge for this service if it chooses. In addition, we conclude that if the  d(#incumbent LEC imposes a fee on independent payphone providers for "411" calls, then the LEC  X- d(#.must impute the same fee to its own payphones for this service.QXE yO"-ԍSee para. 62, above.Q We believe our action will  X-facilitate the development of competition. q ` `  hhCq  X!- z ` ` \349. The direct billing arrangement between IXCs and intraLATA carriers and  d(#PSPs adopted in this Order places the burden of billing and collecting information on the parties"",=(=(JJ!"  d(#who benefit the most from calls from payphones: carriers and PSPs. Carriers must send to each  d(#PSP a statement indicating the number of tollfree and access code calls received from that PSP's  d(#payphones. The carrierpayor has the option of using clearinghouses, similar to those that exist  d(#Lfor access code call compensation, or to contract out the directbilling arrangement associated  X- d(#jwith the payment of compensation.LE yO-ԍSee para. 110, above.L We expect our action will foster opportunities for small  d(#!entities to gain access to such information without requiring investigation or discovery proceedings.  XH- z r` `  ]350.  Interim compensation mechanism: We considered various proposals  d(#[regarding the feasibility of implementing an interim compensation mechanism before final rules  d(#go into effect. Because IXCs and intraLATA carriers are not required to track individual calls  d(#until October 1, 1997, we conclude that PSPs should be paid monthly compensation on a flat  d(#monthly rate. We expect that the flat rate obligation will be of administrative convenience for all parties involved, including small businesses.  X -;  RECLASSIFICATION OF LECOWNED PAYPHONES Đ\  Xy- 3 ` ` ^351. Summary of Projected Reporting, Recordkeeping and Other Compliance  Xb- d(#Requirements. Section 276(b)(1)(B) directs the Commission to "discontinue the intrastate and  d(#<interstate carrier access charge payphone service elements and payments ... and all intrastate and  d(#interstate payphone subsidies from basic exchange and exchange access revenues, in favor of a  X- d(#[percall] compensation plan."UXE yO&-ԍX47 U.S.C.  276(b)(1)(B).(#U Currently, incumbent LEC payphones, classified as part of the  d(#network, recover their costs from Carrier Common Line (CCL) charges assessed on those carriers  d(#[that connect with the incumbent LEC. This Order requires incumbent LECs to (1) classify their  X- d(#payphones as detariffed and deregulated CPE;ZE yOq-ԍXSee para. 142, above.(#Z (2) provide to PSPs nondiscriminatory access  d(#to unbundled central office coin transmission services and certain other services the LECs provide  d(#to their own payphones, and must file tariffs for central office coin services and those incumbent  d(#LECs that are not subject to price cap regulation must submit cost support for their central office  X|- d(#coin service;a|xE yO -ԍXSee paras. 146148, above. (#a (3) transfer their payphone assets to unregulated accounts or affiliates at the  d(#market value of the "payphone going concern," by April 15, 1997, and obtain independent  d(#appraisal of the fair market value to submit to the Common Carrier Bureau within 180 days of  X7- d(#the effective date of this Order;_7E yO$-ԍXSee paras. 161169, above.(#_ and (4) reduce their interstate CCL charges by an amount  d(#equal to the interstate allocation of payphone costs currently recovered through those charges," ,=(=(JJ"  X- d(#and file revised CCL tariffs reflecting the changed rate structures.YE yOy-ԍXSee paras. 179185, above.(#Y Compliance with these  d(#requirements may necessitate the use of engineering, technical, operational, accounting, billing, and legal skills.  X- z ` ` _352. Some of the smaller incumbent LECs may find difficult the administrative  d(#burdens of reclassifying payphones as CPE, transferring payphone assets to unregulated accounts,  d(#and filing new tariffs. Therefore, if a requesting carrier, which may be a small entity, seeks  d(#access to an incumbent LEC's unbundled elements, the requesting carrier is required to compensate the incumbent LEC for any costs incurred to provide such access.  X - z ` ` `353.  Steps Taken to Minimize Significant Economic Impact on Small Entities  X - d(#yand Small Incumbent LECs, and Alternatives Considered. The deregulation of LEC payphones  d(#[is essential to promoting competition in the payphone industry. We reject several alternatives  d(#in making this determination, including proposals suggesting that the Commission (1) should  X - d(#[allow smaller LECs to choose whether or not to deregulate their payphones;Z XE yO-ԍXSee para. ___, above.(#Z and (2) should  X - d(#<impose a structural separation requirement for incumbent LEC payphones.Z E yO@-ԍXSee para. 145, above.(#Z The establishment  d(#xof minimum national requirements for discontinuation of payphone subsidies from basic exchange  d(#and exchange access revenues should facilitate negotiations and reduce regulatory burdens and  d(#uncertainty for all parties, including small entities and small incumbent LECs. National  d(#?requirements may also allow new entrants, including small entities, to take advantage of economies of scale.  X- ` ` a354. By requiring the incumbent LECs to offer individual central office coin  d(#transmission services to PSPs on a nondiscriminatory, public, tariffed offering, new entrants,  d(#[which may include small entities, should have access to the same technologies and economies  d(#of scale and scope that are available to incumbent LECs. This will permit competitive payphone  d(#providers, some of whom are small business entities, to offer payphone services using either  d(#instrument implemented "smart payphones" or "dumb" payphones that utilize central office coin  d(#services. We reject the proposal suggesting that the Commission require incumbent LECs to  d(#=provide on a nondiscriminatory basis all the services that they provide to their own payphone  d(#operations or require incumbent LECs to perform joint marketing of the payphone operations of  X7- d(#other providers.E7xE yO`#-ԍ See para. 148, above.E Instead, we require only that the incumbent LEC offer the following services  d(#on a nondiscriminatory basis if it provides such services to its own payphone operations: fraud  d(#protection, special numbering assignments, and installation and maintenance of basic payphone  d(#services. Rejection of this alternative will allow small incumbent LECs to distinguish certain  d(#Mservices from services offered by other payphone providers. Our actions in this area could",=(=(JJ;"  d(#.decrease entry barriers for small business entities and provide reasonable opportunities for all payphone service providers to provide service.  X- ABILITY OF PAYPHONE SERVICE PROVIDERS TO NEGOTIATE WITH LOCATION PROVIDERS ON THE PRESUBSCRIBED INTRALATA CARRIER  X- \  Xv- 3` ` b355. Summary of Projected Reporting, Recordkeeping and Other Compliance  X_- d(#Requirements. Section 276(b)(1)(E) directs the Commission to "provide for all payphone service  d(#providers to have the right to negotiate with the location provider on the location provider's  d(#>selecting and contracting with, and subject to the terms of any agreement with the location  d(#provider, to select and contract with, the carriers that carry intraLATA calls from their  X - d(#-payphones."U E yO| -ԍX47 U.S.C.  276(b)(1)(E).(#U This Order grants to all payphone service providers, including incumbent LECs,  d(#the right to negotiate with location providers concerning the intraLATA carriers presubscribed  X - d(#lto their payphones.S XE yO-ԍXSee para. 220 above.(#S We also preempt any state regulations mandating the routing of  X - d(#\intraLATA calls to the incumbent LEC.Y  E yOW-ԍXSee para. 222 above.(#Y Compliance with these requirements should not  d(#lnecessitate the use of additional skills, since such skills are already used in negotiations concerning the interLATA carriers presubscribed to payphones.   Xb- z ` ` c356. Allowing all payphone service providers to negotiate with location  d(#providers concerning the intraLATA carriers presubscribed to their payphones could have a  d(#positive economic impact on payphone providers who are small business entities by allowing  d(#them flexibility to create favorable contract terms. Small incumbent LECs may suffer some  d(#Lnegative economic impact because intraLATA calls will no longer be routinely routed to them.  X- n` ` d357. Steps Taken to Minimize Significant Economic Impact on Small Entities and  X- d(#Small Incumbent LECs, and Alternatives Considered. State regulations that require routing of  d(#yintraLATA calls to the incumbent LEC are preempted by this Order, thereby creating a national  d(#rule allowing all payphone service providers to negotiate with location providers concerning the  d(#intraLATA carriers presubscribed to their payphones. A national rule should facilitate  d(#negotiations and reduce regulatory burdens and uncertainty for all parties, including small entities  d(#.and small incumbent LECs. Our actions in granting to all payphone providers the same ability  d(#yto negotiate with location providers on the selection of the intraLATA carrier presubscribed to the payphone will facilitate the development of competition.  X- REQUIRING LECS TO PROVIDE DIALING PARITY FOR PAYPHONES ă  X - `` ` e358. Summary of Projected Reporting, Recordkeeping, and Other Compliance  X!- d(#Requirements. The Order concludes that the dialing parity requirements of Section 251(b)(3)"!x ,=(=(JJ "  d(#should extend to all payphone location providers and that the interLATA carrier unblocking  X- d(#requirements established in TOCSIA should be extended to all local and longdistance calls._ E yOb-ԍXSee paras. 249, 251 above.(#_  d(#.The Order requires that the technical and timing requirements established pursuant to Section  X- d(#<251(b)(3) and Section 271(c)(2)(B) should apply equally to payphones.S XE yO-ԍXSee para. 250 above.(#S Compliance with these requirements may require the use of engineering, technical, and operational skills.  Xv- z a` ` f359. Requiring the LECs to extend dialing parity to payphone location providers may burden some small LECs.  X1- z ` ` g360.  Steps Taken to Minimize Significant Economic Impact on Small Entities  X - d(#and Small Incumbent LECs, and Alternatives Considered. While this requirement may burden  d(#ksome small LECs, such burdens are far outweighed by the benefits gained from competition  d(#among local exchange and long distance carriers, many of whom are small business entities. We  d(#reject several alternatives in making this determination, including (1) a proposal suggesting that  d(#the states be given discretion to determine when and how dialing parity for intraLATA calls  d(#Mshould be applied to payphones; (2) a proposal requiring LECs to provide dialing parity for  d(#=payphones prior to all other phones; and (3) not altering the existing antiblocking rules under  d(#TOCSIA. Rejection of these alternatives helps to ensure that small LECs will not be  d(#unnecessarily burdened. Furthermore, establishing a national rule should facilitate negotiations  d(#and reduce regulatory burdens and uncertainty for all parties, including small entities and small incumbent LECs.  X-  E.` ` Commission's Outreach Efforts to Learn of and Respond to the Views of  X-Small Entities Pursuant to 5 U.S.C.  609  X-  X- z ` ` h361.  Our staff has conducted several ex parte meetings with numerous outside  d(#parties and their counsel, several of whom may qualify as small business entities, during the  d(#pendency of this rulemaking to identify and discuss various aspects of the implementation of  X|- d(#Section 276. For example, we have received ex parte suggestions and comments from the  d(#>American Public Communications Council, a trade association that represents independent  d(#Lpayphone providers, many of whom qualify as small business entities. We have attempted, to  d(#the furthest possible extent, to take into account as many of these concerns as possible in  X -promulgating the rules contained in this Order.  pp  X-  F.` ` Report to Congress   X -  ` ` i362. The Commission shall send a copy of this FRFA, along with this Order, in  d(#a report to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of"! ,=(=(JJ "  d(#!1996, 5 U.S.C.  801(a)(1)(A). A copy of this FRFA will also be published in the Federal Register.  X-  X-#Xj\  P6G;XP#  X` hp x (#%'0*,.8135@8:PARTIES FILING COMMENTS X-\  X-1American Association of Airport Executives ("AAAE")  Xv-2ACTEL, Inc. ("ACTEL")  X_-3Admiral's Club  XH-4AHA TelePLAN  X1-5Aid Association for Lutherans  X -6Air Touch Paging ("Air Touch")  X -7Airports Council International North America ("ACINA")  X -8American Hotel & Motel Association ("AHMA")  X -9Ameritech  X -10Anchorage Telephone Utility ("Anchorage Telephone")  X -11American Public Communications Council ("APCC")  X-12Arch Communications Group, Inc. ("Arch")  Xy-13AT&T Corp. ("AT&T")  Xb-14Bell Atlantic  XK-15Bell South Corporation ("Bell South")  X4-16Robert M. Brill, Esquire ("Brill")  X-17Cable and Wireless, Inc. ("Cable & Wireless")  X-18California Association of Long Distance Telephone Companies ("CALTEL")  X-19California Payphone Association ("CPA")  X-20People of the State of California and the Public Utilities Commission of the State of (#(#California ("California PUC")  X-21Call West Communications, Inc. ("Call West")  X-22Cleveland Clinic Foundation ("Cleveland Clinic")  X|-23Communications Central, Inc. ("Communications Central")  Xe-24Competitive Telecommunications Association ("CompTel")  XN-25ConQuest Long Distance Corp. ("ConQuest")  X7-26Dallas/Fort Worth International Airport ("DFW")  X -27Excel Telecommunications, Inc. ("Excel")  X -28Florida Public Service Commission ("Florida PSC")  X-29Florida Public Telecommunications Association, Inc. ("FPTA")  X-30Flying J Inc. ("Flying J")  X -31Frontier Corporation ("Frontier")  X!-32Georgia Public Communications Association ("GPCA")  X"-33Greyhound Lines, Inc. ("Greyhound")  X#-34GTE Service Corporation ("GTE")  Xh$-35GVNW Inc./Management ("GVNW")  XQ%-36Idaho Public Utilities Commission ("Idaho PUC")  X:&-37Illinois Public Telecommunications Association ("IPTA")  X#'-38Independent Technologies, Inc. ("Independent Technologies")"#' ,=(=(JJ%"Ԍ X-39Indiana Utility Regulatory Commission ("Indiana URC")  X-40Inmate Calling Services Providers Coalition ("Inmate")  X-41Intellicall Companies ("Intellicall")  X-42International Telecard Association ("ITA")  X-43InVision Telecom, Inc. ("InVision")  X-44Iowa Utilities Board  Xv-45City of Kansas City, Missouri ("Kansas City")  X_-46Kampgrounds Of America, Inc. ("KOA")  XH-47Lubbock County Sheriff's Office ("Lubbock County Sheriff")  X1-48State of Maine Public Utilities Commission, State of New Hampshire Public Utilities (#(# X -Commission, State of New Mexico State Corporation Commission, State of Vermont (#(#Public Service Board and Department of Public Service ("Maine PUC")  X -49MCI Telecommunications Corporation ("MCI")  X -50Michigan Pay Telephone Association ("MPTA")  X -51Midwest Independent Coin Payphone Association ("MICPA")  X -52National Association of RV Parks and Campgrounds ("ARVC")  X-53National Exchange Carrier Association, Inc. ("NECA")  Xy-54NATSO, Inc. ("NATSO")  Xb-55New Jersey Payphone Association ("NJPA")  XK-56New Jersey Division of the Ratepayer Advocate ("New Jersey DRA")  X4- v ?57New York City Department of Information Technology and Telecommunications ("New York City")  X-58New York State Department of Public Service ("New York DPS")  X-59National Telephone Cooperative Association ("NTCA")  X-60Public Utilities Commission of Ohio ("Ohio PUC")  X-61Oklahoma Corporation Commission ("Oklahoma CC)  X-62Oncor Communications, Inc. ("Oncor")  X-63One Call Communications, Inc. d/b/a Opticom ("One Call")  X|-64Paging Network, Inc. ("PageNet")  Xe-65Personal Communications Industry Association ("PCIA")  XN-66Pennsylvania Public Utility Commission ("Pennsylvania PUC")  X7-67Peoples Telephone Company, Inc. ("Peoples")  X -68Promus Hotel Corporation ("Promus")  X -69Puerto Rico Telephone Company ("Puerto Rico Telephone")  X-70RBOC Payphone Coalition ("RBOC")  X-71Scherers Communications Group, Inc. ("Scherers")  X -72SDN Users Association, Inc. ("SDN Users")  X!-73South Carolina Public Communications Association ("SCPCA")  X"-74Southwestern Bell Telephone Company ("SW Bell")  X#-75Sprint Corporation ("Sprint")  Xh$-76Tarrant County, Texas ("Tarrant County")  XQ%-77Telecommunications Resellers Association ("TRA")  X:&-78Teleport Communications Group Inc. ("Teleport")  X#'-79Public Utility Commission of Texas ("Texas PUC")"#' ,=(=(JJ%"Ԍ X-80Truckstops of America  X-81United States Telephone Association ("USTA")  X-82US Satellite Corp. ("US Satellite")  X-83US WEST, Inc. ("US WEST")  X-84Virginia State Corporation Commission ("Virginia SCC")  X-85Wisconsin Public Communications Association ("WPCA")  Xv-86WorldCom, Inc. d/b/a LDDS WorldCom ("WorldCom")  X_-87Yuma County Airport Authority, Inc. ("Yuma County Airport") "H ,=(=(JJ"  X-] APPENDIX C   X-  PARTIES FILING REPLY COMMENTS \  X-1Air Touch Paging ("Air Touch")  Xv-2American Express Telecommunications, Inc. ("American Express")  X_-3Ameritech  XH-4American Public Communications Council ("APCC")  X1-5Arch Communications Group, Inc. ("Arch")  X -6AT&T Corp. ("AT&T")  X -7Bell Atlantic  X -8Bell South Corporation ("Bell South")  X -9Robert M. Brill, Esquire ("Brill")  X -10California Payphone Association ("CPA")  X -11People of the State of California and the Public Utilities Commission of the State of (#(#California ("California PUC")  Xy-12Communications Central, Inc. ("Communications Central")  Xb-13Competitive Telecommunications Association ("CompTel")  XK-14Frontier Corporation ("Frontier")  X4-15Gateway Technologies, Inc. ("Gateway")  X-16Georgia Public Communications Association ("GPCA")  X-17GTE Service Corporation ("GTE")  X-18Indiana Utility Regulatory Commission ("Indiana URC")  X-19Inmate Calling Services Providers Coalition ("Inmate")  X-20Intellicall Companies ("Intellicall")  X-21International Telecard Association ("ITA")  X-22MCI Telecommunications Corporation ("MCI")  X|-23Medeco  Xe-24Metropolitan Washington Airports Authority ("Metropolitan Washington")  XN-25Michigan Pay Telephone Association ("MPTA")  X7-26Missouri Public Service Commission ("Missouri PSC")  X -27MobileMedia Communications, Inc. ("MobileMedia")  X -28Montana Public Service Commission ("Montana PSC")  X-29National Exchange Carrier Association, Inc. ("NECA")  X-30National Telephone Cooperative Association ("NTCA")  X -31Public Utilities Commission of Ohio ("Ohio PUC")  X!-32One Call Communications, Inc. d/b/a Opticom ("One Call")  X"-33Organization for the Promotion and Advancement of Small Telecommunications (#(#Companies ("OPASTCO")  Xh$-34Pacific Telesis Group ("PacTel")  XQ%-35Personal Communications Industry Association ("PCIA")  X:&-36Peoples Telephone Company, Inc. ("Peoples")  X#'-37Puerto Rico Telephone Company ("Puerto Rico Telephone")"#' ,=(=(JJ%"Ԍ X-38RBOC Payphone Coalition ("RBOC")  X-39San Diego Payphone Owners Association ("SDPOA")  X-40Southwestern Bell Telephone Company ("SW Bell")  X-41Sprint Corporation ("Sprint")  X-42Telaleasing Enterprises, Inc. ("Telaleasing")  X-43Telecommunications Resellers Association ("TRA")  Xv-44Tennessee Regulatory Authority  X_-45United States Telephone Association ("USTA")  XH-46US WEST, Inc. ("US WEST")  X1-47Voice Telephone Company ("Voice")  X -48Wisconsin Public Communications Association ("WPCA") " ,=(=(JJ "  X- ` `  hhCq ]APPENDIX D  X-  RULES AMENDED (IMMEDIATE ) Part 64 of Title 47 of the Code of Federal Regulations is amended as follows: 1. The authority citation for Part 64 is revised to read as follows:  X1- d(#9! AUTHORITY: Sec. 4, 48 Stat. 1066, as amended: 47 U.S.C. 154, unless otherwise noted.  d(#!Interpret or apply secs. 201, 218, 226, 228, 276, 48 Stat. 1070, as amended; 47 U.S.C. 201,  X -218, 226, 228, 276 unless otherwise noted. 2. The heading of Subpart M of Part 64 is revised to read as follows: Subpart M Payphone Compensation 3. The first sentence of Section 64.1301(a) is revised to read as follows:  d(#(a) Each payphone service provider eligible to receive compensation shall be paid $45.85 per payphone per month for originating access code and tollfree calls. 4. Section 64.1301(b) is revised to read as follows:  d(#(b) This compensation shall be paid by interexchange carriers (IXCs) that earn annual toll  d(#revenues in excess of $100 million, as reported in the FCC staff report entitled "Long Distance  d(#Market Shares." Each individual IXC's compensation obligation shall be set in accordance with  d(#its relative share of toll revenues among IXCs required to pay compensation. For example, if  d(#total toll revenues of IXCs required to pay compensation is $50 billion, and one of these IXCs had $5 billion of total toll revenues, the IXC must pay $4.585 per payphone per month. 5. Section 64.1330 is added to read as follows:  X - d(# 64.1330 State Review of Payphone Entry and Exit Regulations and Public Interest Payphones.  X - v  (a) Each state must review and remove any of its regulations applicable to payphones and payphone service providers that impose market entry or exit requirements.  X#- v (b)Each state must ensure that access to dialtone, emergency calls, and telecommunications  d(#relay service calls for the hearing disabled is available from all payphones at no charge to the caller.  X#'- v ^(c) Each state must review its rules and policies to determine whether it has provided for"#' ,=(=(JJ%"  d(#public interest payphones consistent with applicable Commission guidelines, evaluate whether it  d(#needs to take measures to ensure that such payphones will continue to exist in light of the  d(#kCommision's implementation of Section 276 of the Communications Act, and administer and  d(#fund such programs so that such payphones are supported fairly and equitably. This review must be completed by September 20, 1998. 6. Section 64.1340 is added to read as follows:  X1- 64.1340 Right to Negotiate  X - v  Unless prohibited by Commission order, payphone service providers have the right to  d(#negotiate with the location provider on the location provider's selecting and contracting with, and,  d(#subject to the terms of any agreement with the location provider, to select and contract with, the carriers that carry interLATA and intraLATA calls from their payphones.  d(#7. Section 64.703(b) is revised by removing the "and" at the end of subsection (2); by renumbering subsection (3) as (4); and adding a new subsection (3) as follows: (3) In the case of a pay telephone, the local coin rate for the pay telephone location; and " ,=(=(JJ7"  X-^ APPENDIX E  X- #RULES AMENDED (DEFERRED) ă Part 64 of Title 47 of the Code of Federal Regulations is amended as follows: 1. The authority citation for Part 64 continues to read as follows:  X - d(#9! AUTHORITY: Sec. 4, 48 Stat. 1066, as amended: 47 U.S.C. 154, unless otherwise noted.  d(#!Interpret or apply secs. 201, 218, 226, 228, 276, 48 Stat. 1070, as amended; 47 U.S.C. 201,  X -218, 226, 228, 276 unless otherwise noted. 2. Section 64.1301 is deleted. 3. Section 64.1300 is added to read as follows:  Xb- 64.1300 Payphone Compensation Obligation.  d(#(a) Except as provided herein, every carrier to whom a completed call from a payphone is routed  d(#shall compensate the payphone service provider for the call at a rate agreed upon by the parties by contract.  d(#(b) The compensation obligation set forth herein shall not apply to calls to emergency numbers,  d(#jcalls by hearing disabled persons to a telecommunications relay service or local calls for which the caller has made the required coin deposit.  d(#(c) In the absence of an agreement as required by subsection (a) herein, the carrier is obligated  d(#to compensate the payphone service provider shall do so at a percall rate equal to its local coin rate at the payphone in question.  X - v o(d)For the initial oneyear period during which carriers are required to pay percall  d(#=compensation, in the absence of an agreement as required by subsection (a) herein, the carrier  d(#is obligated to compensate the payphone service provider at a percall rate of $.35 per call. After this initial oneyear period of percall compensation, subsection (c) herein will apply. 4. Section 64.1310 is added to read as follows:  X#- 64.1310 Payphone Compensation Payment Procedures.  d(#(a) It is the responsibility of each carrier to whom a compensable call from a payphone is routed  d(#/to track, or arrange for the tracking of, each such call so that it may accurately compute the compensation required by Section 64.1300(a)."#' ,=(=(JJ%"Ԍ d(#kԙ(b) Carriers and payphone service providers shall establish arrangements for the billing and collection of compensation for calls subject to Section 64.1300(a).  d(#L(c) Local Exchange Carriers must provide to carriers required to pay compensation pursuant to  d(#[Section 64.1300(a) a list of payphone numbers in their service areas. The list must be provided  d(#on a quarterly basis. Local Exchange Carriers must verify disputed numbers in a timely manner, and must maintain verification data for 18 months after close of the compensation period.  d(#(d) Local Exchange Carriers must respond to all carrier requests for payphone number  d(#jverification in connection with the compensation requirements herein, even if such verification is a negative response.  d(#(e) A payphone service provider that seeks compensation for payphones that are not included  d(#Mon the Local Exchange Carrier's list satisfies its obligation to provide alternative reasonable verification to a payor carrier if it provides to that carrier:  v (1) A notarized affidavit attesting that each of the payphones for which the payphone  d(#service provider seeks compensation is a payphone that was in working order as of the last day of the compensation period; and  v (2) Corroborating evidence that each such payphone is owned by the payphone service  d(#.provider seeking compensation and was in working order on the last day of the compensation  d(#period. Corroborating evidence shall include, at a minimum, the telephone bill for the last month of the billing quarter indicating use of a line screening service. 5. Section 64.1320 is added to read as follows:  X- 64.1320 Payphone Compensation Verification and Reports.  d(#(a) Carriers subject to payment of compensation pursuant to Section 64.1300(a) shall conduct  d(#an annual verification of calls routed to them that are subject to such compensation and file a  d(#report with the Chief, Common Carrier Bureau within 90 days of the end of the calendar year,  d(#provided, however, that such verification and report shall not be required for calls received after December 31, 1998.  d(#[(b) The annual verification required in this section shall list the total amount of compensation  d(#jpaid to payphone service providers for intrastate, interstate and international calls, the number of compensable calls received by the carrier and the number of payees. 6. The authority citation for Part 68 continues to read as follows:  XQ%- d(#" Authority: Secs. 1, 4, 5, 2015, 215, 218, 226, 227, 303, 313, 314, 403, 404, 410, 602 of the  d(#7#Communications Act of 1934, as amended, 47 U.S.C. 151, 154, 155, 2015, 208, 215, 218, 226,  X#'-227, 303, 313, 314, 403, 404, 410, 602. "#' ,=(=(JJ%"Ԍ  X- X X` hp x (#%'0*,.8135@8:@DCEGLJLNTQS101  + 0.15% +DB0.0689597    p  +  TOTAL  67,153  d100.00% \45.85     X -#Xj\  P6G;XP# " 0*%%JJL "  X-#Xxjp P7>XP#  @--@=#XP\  P6QXP##Xxjp P7>XP##XP\  P6QXP#` `  qpp   )September 20, 1996  X-*B Separate Statement of 9Commissioner Rachelle B. Chong  X_-  V1-Re:XIn the Matter of Implementation of the Pay Telephone Reclassification and Compensation Provisions of the Telecommunications Act of 1996, CC Docket No. 96128; Policies and Rules Concerning Operator Service Access and Pay Telephone Compensation, CC Docket No. 9135.(#  X -In the Telecommunications Act of 1996,*  `n [7- v 1ԍ#Xxjp P7>XP#Telecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56 to be codified at  [#-47 U.S.C.  151 et. seq. (1996 Act).#x6X@`7pX@#* Congress mandated twin goals for a restructuring of our nation's payphone industry. Congress directed the Commission to establish rules that "promote competition among payphone service providers and promote the  Xy-widespread deployment of payphone services to the general public."q ye`n [-ԍ#Xxjp P7>XP#47 U.S.C.  276(b)(1).q In this order, we effectuate Congress' intent by putting in place a new marketoriented scheme governing payphones. Thus, competition now becomes the new coin of the realm for the payphone industry. I write separately to show my strong support for the new policies we unanimously adopt today. In my view, these innovative policies will strip away outmoded regulations, unleash competitive forces upon all segments of the payphone industry, and put in place a mechanism to preserve the continuing availability of payphones that serve the public interest.  The payphone industry is one in which competition with its attendant consumer benefits can easily thrive. However, our current payphone regulations were not crafted in a way that promoted regulatory parity between the market players or put a high premium on consumer protection. Under the statutory and regulatory framework that was in place prior to the 1996 Act, payphone providers were subject to different regulations whose application mainly depended upon whether an entity providing payphone service was a local exchange company or an independent payphone provider. For example, local exchange companies traditionally had the ability to subsidize their payphone operations with telephone service revenues and were restricted from choosing long distance providers on their payphones. In contrast, independent payphone providers had to support their operations mainly from revenues received at payphone stations and through commission arrangements with operator service providers. This disparate treatment created certain incentives and distortions in the market that, during the past decade, resulted in supracompetitive rates at certain payphones"# =0*0*0*" " and in consumer confusion. As the rest of the telecommunications industry moves swiftly into a new procompetitive, deregulatory era, our payphone regulations cried out for revision. In this order, we dismantle the existing regulatory system by putting in place rules that in essence will establish a new competitive payphone industry. These rules are designed to remove existing subsidies, provide for nondiscriminatory access to bottleneck facilities, ensure fair compensation for all calls originated on payphones, and allow all competitors equal opportunity to compete for essential aspects of the payphone business. At the heart of our new policies is that we have agreed that the best way to ensure fair compensation for payphone service is to let the market set the price for individual payphone calls. In this order, we establish a twostage process as a transition to marketbased rates. During stage one, or during the first year after this order becomes effective, local exchange companies are required to terminate subsidies for their payphones and are not be eligible to receive compensation for noncoin calls made on their payphones until such subsidies are terminated. Independent payphone providers, however, will begin to receive compensation for access code calls and subscriber 800 calls on a flatrate basis. In addition, during this first stage, the states may continue to set the local coin rate but may move to marketbased local coin rates at any time during this oneyear period. The states are asked to conduct an examination of payphone regulations to review and remove any regulations that affect competition. In stage two, which will commence one year after this order becomes effective, carriers to whom payphone calls are routed must have in place a percall tracking capability and are required to remit percall compensation to payphone providers, including local exchange carriers. In this stage, the market will set the rate for local coin calls and we establish a $.35 default compensation rate that interexchange carriers will pay to payphone providers for each compensable call. After the conclusion of the second stage, the marketbased local coin rate at these payphones will be the default compensation rate for all compensable calls in the absence of an agreement between the payphone provider and the carrierpayor. Thus, in two years, with certain limited exceptions, we can look forward with confidence to competition rather than regulation determining calling and compensation rates in the payphone industry. We also retain the discretion to review the deregulation of local coin rates nationwide and determine whether marketplace disfunctions in certain locational monopoly areas such as airports or train stations exist and should be addressed. If a problem arises, we will stand ready to step in and resolve any problems. In deciding to rely on market forces, however, we have also refocused on consumers. I am pleased that we have put in place several safeguards to ensure their protection. We do"h$ 0*%%JJ(# " so in light of the fact that payphones serve an important role in allowing people to place calls when they are away from home or the office. We require that all payphones must provide free access to dialtone. Further, our new rules require that payphone providers must prominently display the local coin rate they choose to charge at each payphone, so that consumers will have full information about the charges and can make an informed choice to use the payphone. Payphones located in isolated or remote areas also serve as critical links to help when a person is faced with an unexpected emergency. In circumstances where the free market may not adequately encourage the deployment of payphones in locations that would serve public health, safety, and welfare needs, we establish guidelines by which the states may maintain and fund such public interest payphones. Under our order, states will be able to use their knowledge of local conditions to ensure that the public has access to telecommunications by requiring the maintenance of payphones at locations, such as along remote stretches of a rural road or on a county beach, that may not be economically selfsupporting in the free market. Our order also requires that every payphone provide free access to both emergency services and to telecommunications relay service (TRS) calls for the hearing disabled. I believe it is appropriate for the states to take the lead on public interest payphones in their states. I look forward to their good work in this area that is so fundamental to Congress' second goal in Section 276 the "widespread deployment of payphone services to the general  X-public."} [-#Xxjp P7>XP#эX47 U.S.C. Section 276(b)(1).(#}