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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 ) ) In the Matter of ) ) Pacific Bell's Petition for Expedited Waiver) of Section 36.380 of the ) AAD No. 97-114 Commission's Rules ) ) ORDER Adopted: December 16, 1997 Released: December 17, 1997 By the Chief, Common Carrier Bureau: I. INTRODUCTION 1. On June 13, 1997, Pacific Bell filed a petition for Expedited Waiver of Section 36.380 of the Commission's rules that prescribe the procedures incumbent local exchange carriers (LECs) use to allocate Other Billing and Collecting (OB&C) expenses between the intrastate and interstate jurisdictions. On June 30, 1997, the Commission issued a Public Notice soliciting comment on Pacific Bell's Petition. No comments were filed. For the reasons set forth below, we deny Pacific Bell's Petition. II. BACKGROUND 2. Incumbent LECs incur OB&C expenses by preparing and rendering end user customer bills for themselves as well as interexchange carriers (IXCs). They also incur OB&C expenses by accounting for revenues generated by those bills. Prior to 1986, incumbent LECs recovered OB&C expenses through interstate access charges. In 1986, the Commission detariffed interstate billing and collecting services. As a result, most OB&C expenses are allocated to nonregulated activities and recovered from IXCs through untariffed charges for billing and collection services provided by incumbent LECs. The exception to this rule is the cost of billing and collecting the federal subscriber line charge (SLC). Pursuant to our Part 69 rules, this regulated OB&C cost is recovered through the common line access rate element. 3. On February 3, 1997, the Commission issued an order modifying the way in which carriers separate regulated OB&C costs between the intrastate and interstate jurisdictions. Specifically, the Commission adopted the Joint Board's recommendation that the OB&C expenses subject to the separations rules be divided equally among three services: interstate toll; intrastate toll; and local exchange. Under the new rule, two thirds of the OB&C expenses are allocated to the state jurisdiction and one third is allocated to the interstate jurisdiction. In cases in which an incumbent LEC provides no interstate billing and collecting for any IXC, the Commission adopted the Joint Board's recommendation to automatically reduce the interstate assignment of OB&C expenses to five percent to cover the cost of billing the SLC. III. PACIFIC BELL'S PETITION FOR WAIVER 4. Pacific Bell argues that it is uniquely and adversely affected by the new OB&C allocation rules because of the calling patterns in its service area and regulation in the state of California. Specifically, Pacific Bell argues that its ratio of interstate billed messages to total billed messages is smaller than that of other companies because of the large traffic volumes between the numerous major metropolitan areas within its California operation. Pacific Bell alleges that because of the large intrastate traffic volumes, implementation of the new separations rules would have an extremely adverse impact on Pacific Bell. It states that its interstate allocation of OB&C costs would increase from 7% to 33%. Pacific Bell further argues that theses rules would shift approximately $54 million of OB&C costs to the interstate jurisdiction, of which $13 million is allocated to interstate access charges and $41 million is allocated to the detariffed Billing and Collection category in Part 69. Pacific Bell alleges that this increase is particularly burdensome because to recover its full costs, it must dramatically increase prices to its nontariffed billing customers, many of whom have negotiated long-term pricing agreements that can not be altered for several years. Therefore, Pacific Bell argues that the additional $41 million will have to be recovered by a very small percentage of its third party billing and collection customers, leading these carriers to look elsewhere for billing and collection service. 5. Furthermore, Pacific Bell alleges that its unique circumstances are aggravated by rules established by the California Public Utilities Commission (CPUC) requiring mandatory adjustments to state price cap rates to reflect Part 36 rule changes. It argues that, as a result of the new OB&C allocation rules, the CPUC requires Pacific Bell to reduce permanently its intrastate rates to reflect the shift in costs to the interstate jurisdiction. Pacific Bell also notes that the CPUC's rules do not provide for service specific adjustments due to separations changes but, instead, distribute price reductions among exchange, toll services and access via surcharges based on a proportionate share of revenue. Therefore, Pacific Bell argues that, as a result of California's unique regulations, IXCs will be responsible for shouldering 100% of the revenue requirement increase in the interstate jurisdiction but will only receive a small share of the benefits associated with the mandatory intrastate price reductions. 6. In addition to its Petition for Waiver, Pacific Bell concurrently sought an increase to its price cap indexes to reflect the change in the OB&C allocation in its 1997 annual access tariff filing. IV. DISCUSSION 7. A petition for waiver of the Commission's rules may be granted for good cause shown. The Commission may exercise its discretion to waive a rule where particular facts would make strict compliance inconsistent with the public interest. The Court of Appeals for the D.C. Circuit has stated that a waiver may permit a more rigorous adherence to an effective regulation by allowing the agency to take into account considerations of hardship, equity, or more effective implementation of overall policy on an individualized basis, while also emphasizing that "[a]n applicant for waiver faces a high hurdle even at the starting gate." In WAIT Radio, the court explained that "[t]he very essence of a waiver is the assumed validity of the general rule. . ." Waiver is thus appropriate if special circumstances warrant a deviation from the general rule and such deviation will better serve the public interest than adherence to the general rule. Therefore, the test for whether Pacific Bell may be granted a waiver is whether it has shown special circumstances such as individualized hardship or inequity that warrants deviation from our new OB&C allocation rules. 8. We deny Pacific Bell's request for waiver of the new OB&C jurisdictional separations rules because we find that Pacific Bell has not shown, through reliable data, that it is uniquely affected and will be unduly burdened by the new rules. In response to Pacific Bell's Petition and its request to increase its price cap indexes by $13 million, the Commission initiated an investigation to determine whether the revenue impact of the new OB&C allocation rules would, in fact, increase Pacific Bell's total interstate revenue requirement by $54 million. The investigation indicated that Pacific Bell incorrectly computed its interstate factor by miscounting its billed toll messages and miscounting the number of users of message toll service. Revised submissions by Pacific Bell also produced unexplained anomalies and data problems that cast doubt on the reliability of Pacific Bell's argument. Because Pacific Bell failed to explain these anomalies adequately or provide required information, the Commission concluded that it could not reasonably rely on any of the data submitted in support of Pacific Bell's argument. Without reliable data, Pacific Bell's Petition for Waiver of the OB&C allocation rules leaves its underlying arguments largely unsupported. We, therefore, find no merit in Pacific Bell's allegation that the new OB&C rules dramatically increase prices to its nontariffed billing customers because the data submitted by Pacific Bell is inherently unreliable. 9. Furthermore, we find that the CPUC's regulations do not create unique circumstances supporting a waiver of the new OB&C rules. In fact, we find the CPUC's regulations requiring a reduction in state price cap indices to reflect a reduction in intrastate allocation factors to be sound regulatory policy that not only reinforces fundamental principles of cost recovery, but is common practice in other state jurisdictions. The CPUC's requirement that separations rule changes are reflected in state rates ensures that carriers do not recover the same costs in both the interstate and intrastate jurisdictions. This fundamental principle of cost recovery is one of the primary reasons why carriers are required to perform jurisdictional separations. 10. In addition, any adverse impact the new OB&C rules may have on smaller IXCs and their customers is largely mitigated by the availability of alternative providers of billing and collection services. Moreover, the Commission previously has addressed the claim that IXCs would stop using Pacific Bell as a billing agent simply because of the increase in the interstate allocation of OB&C costs. As the Commission noted in its Report and Order adopting the new OB&C rules, "IXC's must bill their customers in some manner...[and] sharing the OB&C expense with the incumbent LECs, rather than bearing the entire billing expense themselves, would continue to be an attractive option for cost-conscious and highly competitive IXCs." In response to concerns raised by incumbent LECs that they would not be able to recover the increased OB&C expenses, the Commission adopted the Joint Board's reasoning that incumbent LECs could renegotiate contracts with IXCs, and that any losses incumbent LECs might endure as a result of the one-third allocation to the interstate jurisdiction would cause only a temporary decline in the profitability of some incumbent LECs' billing operations. Therefore, given the likelihood that cost-conscious IXC's will not want to shoulder the entire cost of billing and collection services, plus the temporary nature of any potential loss in billing revenues, we find Pacific Bell's argument that it will not be able to recover the increased OB&C expenses allocated to the interstate jurisdiction unpersuasive. V. ORDERING CLAUSE 11. Accordingly, IT IS ORDERED that, pursuant to sections 4(i), 219 and 220 of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 219 and 220, Pacific Bell's Petition for Expedited Waiver is denied. FEDERAL COMMUNICATIONS COMMISSION A. Richard Metzger, Jr. Chief, Common Carrier Bureau