******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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 ) ) Amendment of the Commission's Rules to)WT Docket No. 96-162 Establish Competitive Service Safeguards for) Local Exchange Carrier Provision of ) Commercial Mobile Radio Services ) ) Implementation of Section 601(d) of the ) Telecommunications Act of 1996 ) REPORT AND ORDER Adopted: September 30, 1997Released: October 3, 1997 By the Commission (Commissioner Quello issuing a separate statement): TABLE OF CONTENTS Paragraph no. I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . 5 III. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 A. Safeguards Under Section 22.903 for BOC Provision of Cellular Service 6 B. Section 22.903 Separate Affiliate Not Required for LEC Provision of PCS and SMR . . . . . . . . . . . . . . . . . . . . . . . . . 8 C. Cincinnati Bell . . . . . . . . . . . . . . . . . . . . . . . 9 D. Waivers of Section 22.903 . . . . . . . . . . . . . . . . . 10 E. Notice of Proposed Rulemaking and PacTel Plan . . . . . . . . 15 IV. COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 V. DISCUSSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 A. General Issues Regarding Incumbent LEC Provision of CMRS. . . 27 B. Separate Affiliate Requirements for In-Region Incumbent LEC Provision of CMRS . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . 37 2. Applicability of Safeguards to Out-of-Region CMRS Operations 39 3. Applicability of Safeguards to All Broadband CMRS Services and All In-Region Incumbent LECs . . . . . . . . . . . . 45 4. Basis for Level of Safeguards. . . . . . . . . . . . . . 57 5. Differences between In-Region Incumbent LEC-CMRS Safeguards and Current BOC Cellular Safeguards . . . . . . . . . . . . . 64 C. In-Region Safeguards Applicable to Rural and Certain Mid-Sized Incumbent LECs. . . . . . . . . . . . . . . . . . . . . . . . . . . 69 D. Joint Marketing . . . . . . . . . . . . . . . . . . . . . . . 78 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . 78 2. Comments . . . . . . . . . . . . . . . . . . . . . . . . 80 3. Discussion . . . . . . . . . . . . . . . . . . . . . . . 82 E. Resale. . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . 86 2. Comments . . . . . . . . . . . . . . . . . . . . . . . . 87 3. Discussion . . . . . . . . . . . . . . . . . . . . . . . 89 F. Customer Proprietary Network Information. . . . . . . . . . . 92 1. Overview . . . . . . . . . . . . . . . . . . . . . . . . 92 2. Comments . . . . . . . . . . . . . . . . . . . . . . . . 94 3. Discussion . . . . . . . . . . . . . . . . . . . . . . . 95 G. Network Information Disclosure. . . . . . . . . . . . . . . . 96 VI. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 VII. PROCEDURAL ISSUES . . . . . . . . . . . . . . . . . . . . . . . . .100 A. Regulatory Flexibility Analysis . . . . . . . . . . . . . . .100 B. Paperwork Reduction Act Analysis. . . . . . . . . . . . . . 101 C. Paperwork Reduction Act Comment Filing Procedures . . . . . 102 D. Ordering Clauses. . . . . . . . . . . . . . . . . . . . . . .103 APPENDIX A List of Commenters APPENDIX B Final Rules APPENDIX C Final Regulatory Flexibility Analysis I. INTRODUCTION 1. In this Report and Order, we review our existing regulatory safeguards for the provision of broadband commercial mobile radio services (CMRS) by incumbent local exchange carriers (incumbent LECs) and their affiliates. We set forth a framework for such safeguards that, for the first time, treats incumbent LEC provision of all broadband CMRS consistently, and that is narrowly tailored to address specific concerns about potential anticompetitive use by the incumbent LECs of market power derived from their control of "bottleneck" wireline local exchange facilities. We adopt these safeguards to address concerns that recent developments in the CMRS market -- such as direct competition among telecommunications carriers facilitated by the 1996 amendments to the Communications Act, increased competition in the CMRS marketplace, and the development of fixed wireless services -- may increase the incentive for anticompetitive behavior by incumbent LECs. We believe that incumbent LECs and broadband CMRS operators are increasingly likely to be direct competitors. The competitive pressure brought to bear on the local exchange market by broadband CMRS providers could increase the incentive for incumbent LECs to engage in anticompetitive practices, such as discriminatory interconnection, cost-shifting, and anticompetitive pricing practices. Consistent with the pro-competitive, deregulatory objectives of the Telecommunications Act of 1996, we establish safeguards that will help to ensure fair rules of competition, while doing so in the least burdensome manner possible that directly addresses the potential for anticompetitive behavior. 2. The order we adopt today responds directly to the Sixth Circuit's Cincinnati Bell Telephone Co. v. FCC decision, in which that court remanded to the Commission its previous decision to maintain structural safeguards for Bell Operating Company (BOC) provision of cellular services under Section 22.903 of the Commission's rules, but to permit BOCs to provide broadband PCS services under a plan of nonstructural safeguards. In addition, we are adopting rule changes necessary to implement those provisions of the 1996 Act that govern joint marketing of CMRS and landline services, and network information disclosure. 3. In the Notice of Proposed Rulemaking (Notice) in this docket, the Commission proposed two options for LEC provision of broadband CMRS: (1) retain the structural safeguards of Section 22.903 for BOC provision of in-region cellular service, but sunset the restrictions for a particular BOC when that BOC receives authorization to provide interLATA service originating in any in-region state; or (2) eliminate the structural safeguards of Section 22.903 immediately in favor of uniform safeguards for all Tier 1 LECs offering broadband CMRS. In this proceeding the Commission seeks to implement further the mandate of the 1993 Budget Act to promote regulatory symmetry among commercial mobile radio services. In addition, we are examining whether Section 22.903, and the disparate treatment of cellular compared with other broadband CMRS services, is still necessary or if changed circumstances have obviated the need for Section 22.903 structural separations for BOC provision of cellular. 4. For the reasons discussed in this Order, we adopt the second option proposed in the Notice, with some modifications, and modify our current Part 22 requirement that BOCs must provide cellular service through a separate corporation that meets the structural separation requirements of Section 22.903 (e.g., separate officers and personnel, separate computer and transmission facilities in the provision of cellular services.) Except for rural telephone companies, all incumbent LECs -- BOCs and independent LECs -- will be required to provide in-region broadband CMRS, including cellular services, through a CMRS affiliate, subject to the accounting and affiliate transactions rules in Parts 32 and 64 of the Commission's rules. Such CMRS affiliates, however, will not be subject to the full panoply of structural separations requirements currently provided for in Section 22.903. Rural telephone companies will be exempt from the requirement of providing CMRS through a separate affiliate; however, a competing carrier, interconnected with the rural carrier, may petition the Commission to remove the exemption, or the Commission may do so on its own motion, where the rural telephone company has engaged in anticompetitive conduct, such as discrimination. Companies serving fewer than two percent of the nation's subscriber lines that seek to provide broadband CMRS may petition the Commission for suspension or modification of the requirement that broadband CMRS be provided through a separate affiliate. We believe that the Commission's accounting rules, price cap regulation, interconnection requirements, and the separate CMRS affiliate requirements adopted in this Report and Order will curb the ability and incentive of incumbent LECs and their CMRS affiliates to engage in anticompetitive behavior and help the Commission to detect and deter discrimination. II. EXECUTIVE SUMMARY 5. In this Order, we make the following modifications to our rules and procedures regarding incumbent LEC provision of broadband CMRS services.  With regard to incumbent LECs, including BOCs, that continue to have the incentive and ability to use control of "bottleneck" local exchange facilities to engage in anticompetitive behavior, we require such incumbent LECs to provide in-region broadband CMRS through a separate CMRS affiliate.  Specifically, incumbent LECs subject to our CMRS affiliate requirements must establish a separate corporation for in-region broadband CMRS operations. This separate affiliate must: (1) maintain separate books of account; (2) not jointly own transmission or switching facilities with its affiliated LEC that the LEC uses for the provision of local exchange services in the same in-region market; and (3) acquire any services from the affiliated LEC on a compensatory arm's length basis pursuant to our affiliate transaction rules. Title II common carrier services or services, facilities, or network elements provided pursuant to Sections 251 and 252 that are acquired from the affiliated LEC must be available to all other carriers, including CMRS providers, on the same terms and conditions. The CMRS affiliate and the LEC may share officers, directors, and other personnel. In addition, the CMRS affiliate may own its own landline facilities and offer competitive landline local exchange (CLLE) service without restriction on technology.  We conclude that we should not impose any structural separation requirements for incumbent LECs where they have little incentive and ability to use the control of "bottleneck" local exchange facilities to affect competition. Accordingly, we do not require a separate affiliate for the CMRS service area outside the incumbent LEC's wireline service territory. We believe it is appropriate to apply "in-region" CMRS structural safeguards only to an incumbent LEC whose wireline service area substantially overlaps its CMRS license area to a significant degree, i.e., we require a separate affiliate for in-region CMRS only when at least 10 percent of the total population of the CMRS licensed service area is within the incumbent LEC's wireline service area.  Rural telephone companies are exempt from the separate affiliate requirement. A competing carrier, interconnected with the rural carrier may petition the Commission to remove the exemption, or the Commission may do so on its own motion, where the rural telephone company has engaged in anticompetitive conduct, such as discrimination.  Companies serving fewer than two percent of the nation's subscriber lines may petition the Commission for suspension or modification of the separate affiliate requirement.  Except for subsection 22.903(f) (discussed below), we eliminate the specific subsections of Section 22.903 governing provision of cellular service by the BOCs.  Pending the outcome of our separate proceeding regarding Section 222 of the Communications Act, we retain the requirement of Section 22.903(f) that BOCs must not provide to their wireless affiliates any customer proprietary network information (CPNI) unless such information is publicly available on the same terms and conditions.  Section 601(d) of the 1996 Act permits a BOC, or any other company, to jointly market and sell wireless and wireline services. This Order provides that, when engaging in joint marketing, all incumbent LECs, other than LECs exempt from the separate affiliate requirement, must adhere to the Commission's affiliate transactions rules, reduce their agreements to writing, and make copies of such agreements publicly available (as defined in the Accounting Safeguards Order).  The separate affiliate requirement will sunset on January 1, 2002, unless the Commission determines that the competitive conditions in the local exchange market are such that continuation of these safeguards is in the public interest. III. BACKGROUND A. Safeguards Under Section 22.903 for BOC Provision of Cellular Service 6. Under our existing rules, we regulate BOC provision of cellular service differently from both non-BOC provision of cellular service and BOC and non-BOC provision of broadband CMRS other than cellular. The original version of Section 22.903 was adopted as Section 22.901 in 1981, when the Commission amended Part 22 of the rules to provide for the authorization of two cellular licensees in each market -- one wireline carrier and one non- wireline carrier. To preserve the competitive potential of the non-wireline cellular provider, the Commission required the wireline carrier to provide its cellular service through a structurally separate affiliate, i.e., an independent corporation with separate officers, separate books of account, and separate operating, marketing, installation and maintenance personnel. The Commission also prohibited the wireline carrier's cellular affiliate from owning facilities for the provision of landline telephone service. These structural separation requirements were intended to prevent wireline carriers from using their market power in the local exchange market to engage in anticompetitive practices, such as improper cost allocation between the wireline carrier and its cellular affiliate and discrimination by the wireline carrier in favor of its cellular affiliate. 7. Section 22.903 comprises two principal parts: the requirement that BOCs provide cellular service through a structurally separate corporation; and a series of restrictions on the separate affiliate, including restrictions on use and ownership of landline transmission facilities and requirements for the independent operation of the separate cellular affiliate through separate books of account, officers, operating, marketing, installation and maintenance personnel and utilization of separate computer and transmission facilities in the provision of cellular service. In addition, subsection (d) requires that all transactions between the BOC and the cellular affiliate be reduced to writing and that a copy of all agreements (other than interconnection agreements) between such entities be kept available for inspection upon reasonable request by the Commission. It also requires that all affiliate contracts with respect to cellular/landline interconnection be filed with the Commission, although that requirement does not apply to transactions governed by an effective state or federal tariff. Subsection (e) prohibits BOCs from engaging in the sale or promotion of cellular service on behalf of their cellular affiliates. This prohibition does not extend to joint advertising or promotions by the landline carrier and the affiliate. Finally, the rule prohibits the provision of BOC CPNI to the cellular affiliate, unless such CPNI is made publicly available on the same terms and conditions. B. Section 22.903 Separate Affiliate Not Required for LEC Provision of PCS and SMR 8. Section 22.903 applies only to BOC provision of cellular service. Structural safeguards are not required for LEC, including BOC, provision of other CMRS, such as broadband PCS. In addition, non-BOC LECs may provide cellular service without structural safeguards. In the Broadband PCS Second Report and Order, we concluded that the record was not adequate to determine whether to eliminate Section 22.903 requirements for BOC cellular operations. We note that when SMR service was established in 1974, wireline common carriers were ineligible to hold SMR licenses in order to ensure that the provision of SMR service would be available to small entrepreneurs and to reduce incentives for wireline common carriers to engage in discriminatory interconnection practices; wireline common carriers were eventually permitted to acquire SMR licenses in 1995. C. Cincinnati Bell 9. In Cincinnati Bell, the Sixth Circuit found that the Commission had failed to justify adequately the conclusion in the Broadband PCS Second Report and Order that the record was insufficient to repeal Section 22.903. The Court held that, in light of our decision that all LECs, including BOCs, could provide broadband PCS without establishing a structurally separate affiliate, we were required -- but had failed -- to give a reasoned explanation for the disparate treatment of BOC provision of cellular and PCS, as well as the disparity in BOC and non-BOC provision of cellular service. The Court ordered the Commission to reexamine whether changed circumstances have either obviated the need for the Section 22.903 structural separation requirements, or rendered them contrary to the public interest. That is the examination that we conduct today. D. Waivers of Section 22.903 10. A number of BOCs have asked for waivers of the requirements of Section 22.903. On October 23, 1995, we granted the request of Southwestern Bell Mobile Systems (SBMS) to provide integrated cellular and CLLE service outside of Southwestern Bell Telephone Company's (SWBT) local exchange service area. We concluded that the waiver would encourage local loop competition, avoid duplicative costs, and promote increased efficiency. We also found that rigid application of Section 22.903 to out-of-region cellular and landline services would not serve the public interest objectives of the rule, and would impose a significant and unnecessary regulatory burden on a potentially valuable service. US West and Bell Atlantic/NYNEX Mobile, Inc. (BANM) subsequently sought similar waivers, and in the Notice we concluded that waiving the rule for out-of-region cellular service would promote competition. We therefore granted all BOCs a waiver of the requirements of Section 22.903 with respect to the provision of out-of-region cellular service. 11. In the Notice, we observed that our treatment of BOC out-of-region cellular services could be reconciled with our interim treatment of BOC out-of-region, interstate, interexchange services, in which we permitted nondominant carrier regulation only if such services are provided through a separate affiliate that complies with our Competitive Carrier Fifth Report and Order rules. We concluded that the difference in treatment could be justified by the differing natures of the services and markets at issue. Section 271(b) of the Communications Act authorized BOCs to provide interLATA services originating outside their in-region states; thus, the BOCs have only just begun to enter out-of-region interLATA markets. Interexchange carriers, the BOCs' competitors for interexchange service, are also customers of the BOCs' in-region access services. Out-of-region cellular activities, on the other hand, do not need such a regulatory approach because cellular calls seldom entail operations both outside and inside a BOC's exchange access service area, and out-of-region unaffiliated cellular carriers (the BOCs' competitors) normally do not have a need for access to the BOCs' in-region local exchange network, and therefore are not the BOCs' customers. 12. On August 25, 1995, BellSouth sought authorization to engage in in-region resale of cellular service without the structural separations required by Section 22.903. BellSouth's goal in doing so was to provide integrated landline local exchange, cellular, and PCS through its incumbent LEC, BellSouth Telecommunications, Inc. (BST), by reselling the cellular and PCS service of its own affiliates, as well as that of unaffiliated providers. BellSouth later withdrew its request. 13. On October 11, 1995, Ameritech Communications, Inc. (ACI), a structurally separate subsidiary of Ameritech Corporation, requested a waiver of Section 22.903 to provide integrated in-region local exchange, long distance, and cellular service. ACI's waiver request was limited to the provisions of Section 22.903 that (1) prohibit a BOC-affiliated cellular carrier from owning landline facilities, and (2) prohibit a BOC from engaging in the sale and promotion of cellular service on behalf of its affiliate. In August 1996, the Commission concluded that ACI's status as a structurally separate subsidiary of Ameritech, separate from Ameritech's cellular operations, considerably alleviated any concerns regarding improper cost allocation or discrimination and granted ACI a waiver that permitted it to own landline facilities in-region. This aspect of the Ameritech waiver is discussed in greater detail in Section IV.D, infra. With respect to joint sale and promotion, the Commission concluded that the joint marketing and resale activities outlined by ACI in its waiver petition were permitted by Section 601(d) of the 1996 Act and accordingly included a declaratory ruling to that effect. 14. On April 17, 1996, the Wireless Telecommunications Bureau allowed US West to provide cellular service on a temporary basis directly to local exchange customers awaiting installation of landline service (i.e., such service did not have to be provided via a structurally separate affiliate). The Bureau concluded that grant of the waiver was in the public interest because it permitted subscribers experiencing delays in obtaining landline telephone service to gain access to the public switched network via temporary cellular service. It also found that US West demonstrated special circumstances because the waiver involved a small number of customers who would otherwise not be connected to the public switched network. The Bureau further concluded that US West would gain no anticompetitive advantage in the provision of cellular service. As a condition of the waiver, the Bureau required US West to file changes in its Cost Allocation Manual (CAM), required under Part 64 of the Commission's Rules, to reflect as "below the line" all expenses generated by US West's resale of cellular service. The waiver was granted for a period of one year, and US West was required to provide a quarterly report detailing participation in the cellular loaner program. On June 27, 1996, Ameritech similarly requested a waiver of Section 22.903 to permit it to make free temporary local cellular service available from its landline telephone exchange service operations in Ohio to landline residential customers who are experiencing service interruptions. That request remains pending. E. Notice of Proposed Rulemaking and PacTel Plan 15. In the Broadband PCS Second Report and Order, the Commission declined to impose additional cost-accounting rules on LECs that provide broadband PCS service other than those rules already contained in Parts 32 and 64 of the Commission's rules. The Commission also declined to impose a structural separation requirement on BOCs or other LECs providing PCS. Instead, the Commission stated that commencement of broadband PCS operations by LECs would be contingent on the LECs' implementing an acceptable plan for nonstructural safeguards against discrimination and cross-subsidization. Following those requirements, PacTel filed and received approval for a safeguards plan to offer broadband PCS. The main elements of the PacTel plan were (1) establishing a separate PCS affiliate for accounting purposes, (2) complying with Parts 32 and 64 of the Commission's rules, and (3) complying with the Computer III CPNI and network disclosure rules. The 1996 Act, which was enacted after PacTel filed its plan, imposes additional requirements with respect to CPNI, network disclosure rules, and interconnection. 16. In the Notice,we observed that the BOCs currently retain market power in the local exchange market because they control bottleneck facilities and serve the vast majority of customers within their service areas, and other carriers must seek interconnection from the BOC. To address this issue, we proposed two options as alternatives to the existing structural safeguards for BOC cellular operations, and asked commenters to submit information regarding the costs of the structural separation requirement: (1) to retain the structural separations requirements of Section 22.903 for BOC provision of in-region cellular service, but sunset the restrictions for a particular BOC when that BOC receives authorization to provide interLATA service originating in any in-region state; or (2) to eliminate the structural safeguards of Section 22.903 immediately in favor of uniform safeguards for all Tier 1 LEC provision of broadband CMRS. With respect to both options, we proposed to replace Section 22.903 with safeguards similar to those adopted by the Commission in the Competitive Carrier Fifth Report and Order. In that order, the Commission concluded that, in order to qualify for treatment as a nondominant carrier, an independent local exchange company must provide interstate interexchange services through a separate affiliate that (1) has separate books of account; (2) does not jointly own transmission or switching facilities with that local exchange company; and (3) acquires any services from the affiliated local exchange carrier at tariffed rates, terms, and conditions. In addition, the Commission subjected the affiliate to the Commission's joint cost and affiliate transaction rules. In the Notice, we proposed a similar framework of safeguards for Tier 1 LECs providing in-region broadband CMRS based on the PacTel Plan for provision of broadband PCS. Specifically, we proposed that Tier 1 LECs providing broadband PCS and other broadband CMRS file with the Commission for approval a safeguards plan that includes the following elements: (1) A description of a separate affiliate for the provision of CMRS; (2) A description of planned compliance with our Part 64 and Part 32 accounting rules, with copies of the relevant cost accounting manual (CAM) changes attached; (3) A description of planned compliance with all outstanding interconnection obligations; (4) A description of compliance with all outstanding network disclosure rules; and (5) A description of planned compliance with the CPNI requirements in new Section 222 of the 1996 Act. IV. COMMENTS 17. The BOCs and GTE argue that Section 22.903 should be eliminated because there is no evidence of anticompetitive conduct to justify continued or expanded structural separation, and that price cap regulation, and the interconnection, resale, and unbundling obligations imposed by the 1996 Act provide sufficient protection against potential anticompetitive conduct. Several commenters contend that LECs cannot cross-subsidize wireless services because the market will not permit the incumbent LECs to raise rates for basic local exchange service, and under price caps, the concept of cross-subsidy is meaningless because rates are not dependent on underlying costs. Ameritech argues that, with the continuing entry of competitive providers of local exchange and access services, and especially with the ability of competing carriers to obtain interconnection and access to unbundled network elements at cost-based rates, incumbent LECs are limited in their ability to implement a cross-subsidization scheme that involves raising rates for basic local and exchange access services. Additionally, Bell Atlantic/NYNEX argues that Section 272(a) of the Communications Act permits BOCs to offer CMRS without employing a structurally separate affiliate. 18. On the other hand, several non-BOC commenters argue that Section 22.903 should be retained because the BOCs continue to have the ability and incentive to allocate costs improperly, discriminate against the affiliate's competitors, and engage in predatory price squeezes and other anticompetitive conduct. Commenters argue that price cap regulation cannot eliminate the ability or incentive for such cross-subsidization because the current price caps framework is not a "pure" price cap scheme. Commenters argue that the sharing mechanism, low end adjustment, and the periodic readjustment of the productivity factor creates additional incentives to allocate costs improperly. Commenters also contend that the Part 32 and 64 cost allocation rules do not provide a mechanism to assure that costs are properly allocated. They also note that, while the BOCs claim that a structural separation requirement imposes costs, none of the BOCs quantifies those costs. In addition, several commenters offer examples of alleged anticompetitive conduct by the BOCs as evidence that the structural safeguards should be retained. In reply comments, the BOCs deny the alleged improprieties. 19. With respect to regulatory symmetry, both among like providers and among like services, the BOCs and GTE contend that Section 22.903 cannot be justified because it restricts only the BOCs, but not other LECs, and regulates only the provision of cellular services even though other wireless services compete with and are substitutes for cellular. BOC commenters argue that any rule establishing safeguards must promote regulatory symmetry; otherwise the Commission must justify disparate regulation. They further contend that the costs and inefficiencies imposed on the BOCs due to structural separation are not borne by other CMRS providers, and that any such costs or inefficiencies due to regulation should be the same for all CMRS providers. Pacific Bell contends that it has integrated its PCS operations with its wireline business, and that separating the two would be expensive. BOC commenters further observe that cellular and PCS are subject to the same interconnection policies, offer similar features and functionalities to customers, compete on the basis of price, quality and services, and that the only fundamental difference between the two services is the frequency band on which they operate. Non-BOC commenters, agreeing that regulatory symmetry is appropriate, argue that Cincinnati Bell does not require the elimination of structural safeguards and that the Commission should instead extend structural safeguards to BOC provision of all CMRS. 20. Independent LECs vigorously oppose the imposition of a separate affiliate requirement. GTE notes that it is not now required to have a separate affiliate for the provision of CMRS and that imposition of such a requirement would be contrary to the deregulatory spirit of the 1996 Act. GTE argues that there are significant distinctions between independent LECs and the BOCs; independent LECs are much less geographically concentrated than the BOCs, serve less densely populated areas and offer fewer access lines than the BOCs. GTE further submits that an independent LEC is dependent on interconnection with other LECs for a substantial portion of its affiliated CMRS systems, in contrast to a BOC, which has a significantly higher level of CMRS/LEC coverage overlap and extensive networks interconnection points within its service area. GTE further notes that the structural separation requirements included in the in-region, interLATA provisions of Sections 271 and 272 of the 1996 Act apply only to the BOCs and not to other independent LECs, and it suggests that this is evidence of Congressional intent to treat independent LECs and the BOCs differently. On the other hand, BellSouth argues that the non-BOC, Class A LECs are the sole incumbent LECs in their franchise areas, and that other CMRS providers must obtain interconnection from incumbent LECs in a market regardless of whether that LEC is a BOC. 21. Several commenters contend that the separate affiliate requirement should not be extended to non-Class A and rural LECs. These commenters contend that there is no basis for imposing additional regulatory burdens on small and rural LECs who seek to provide CMRS, and that the costs of such additional regulation would be significant. NTCA and RTG argue that structural separation could deter rural telephone companies from participating in the wireless market, and deny rural Americans access to wireless technology. RCA observes that rural telephone companies serve smaller geographic and less densely populated areas, and that it is less likely that their wireless service areas would correspond directly with their wireline service areas. 22. Independent LECs contend that, if a separate affiliate requirement is imposed on them, the Commission should use some dividing line other than the Tier 1/Tier 2 (i.e., Class A/Class B) distinction. ALLTEL, CBT, and ITTA contend that, instead of using the Tier 1 definition as a cutoff point, the Commission should exempt LECs with fewer than two percent of the nation's access lines because these carriers lack the anticompetitive potential to retard competition. ITTA argues that there is no support in the record for the proposition that LECs with fewer than two percent of the subscriber lines have used their bottleneck facilities to engage improperly in anticompetitive behavior. ITTA suggests, alternatively, that the Commission only apply separate affiliate requirements if the CMRS provider has at least 10 MHz of spectrum, or 10 percent of the available licensed spectrum. PUCO argues that smaller Class A LECs might not have the resources to comply with nonstructural safeguards, and lack the market power of the BOCs or other Class A LECs to hinder emerging competition. BellSouth counters that the percentage of access lines a particular company has nationwide provides no basis for deciding whether that company has the ability and incentive to engage in discriminatory pricing, interconnection abuse, cross-subsidization, or leveraging of local exchange market power in specific markets. GTE similarly argues that the two percent benchmark is an arbitrary cutoff point. 23. While the BOCs do not discuss extensively the LEC/CMRS safeguards proposed in the Notice, some of them contend that filing a safeguards plan is not necessary to guard against anticompetitive behavior. For example, Bell Atlantic/NYNEX, SBC, and Pacific Bell contend that a nonstructural safeguards plan whereby the LEC would describe how it intended to comply with Part 32 and Part 64 accounting rules, CPNI, interconnection, and network disclosure obligations would merely force the LEC to describe obligations they are already required to meet and would therefore not provide any additional protection. In ex parte comments, some BOCs urge the Commission not to adopt a separate affiliate requirement. 24. GTE contends that regardless of whether Section 22.903 is retained for the BOCs, the rule should not be extended to independent LECs because there are material distinctions between the independent LECs and the BOCs. CMT counters that the obligation for regulatory symmetry extends only to similarly situated entities, and that, by virtue of their size and monopoly status as providers of local exchange services, Class A LECs are uniquely situated. CMT contends that the underlying rationale for regulatory symmetry can be furthered only by applying regulatory safeguards, such as structural separation, to remove substantial competitive advantages that Class A LECs would otherwise possess. 25. The commenters that addressed the option of establishing a sunset period for Section 22.903 contend that structural safeguards should remain in effect for a particular BOC as long as the BOC is dominant in the provision of telephone exchange service in its market. Radiofone suggests revisiting the issue of sunsetting structural safeguards after 10 years. On the other hand, BellSouth disagrees with the proposal to continue structural separations until a BOC has been authorized under Section 271(d) to provide in-region interLATA service. It contends that the competitive checklist was designed to address the ability of the BOC to provide long distance and manufacturing services and has nothing to do with whether the BOC should be able to provide cellular service without structural separation. 26. Several commenters discussed the extent to which CMRS affiliates of LECs should be permitted to own landline local exchange facilities. AT&T Wireless and MCI contend that the Commission should prohibit a BOC affiliate from owning both cellular and landline local exchange facilities, just as the BOC itself cannot own both types of plant. AT&T Wireless argues that a BOC affiliate is not a new entrant for the provision of competitive landline local exchange service (CLLE), but is an arm of the affiliated BOC, with concomitant monopoly power and incentives to act in an anticompetitive manner. MCI contends that the safeguards of Sections 271 and 272 will be worthless if BOCs are permitted to circumvent the safeguards by providing in-region interLATA services and local exchange services through the same affiliate. MCI argues that, if the Commission amends Section 22.903(a) to permit BOC cellular services to be provided on an unseparated basis with CLLE services, the affiliate providing such services should be prohibited from owning any landline facilities for the provision of interLATA services or engaging in the provision of landline interLATA services in any way in the BOC's local service region. GTE, on the other hand, contends that permitting LECs to jointly own transmission and switching facilities is critical to competition, given the emergence of hybrid technologies and the development of multi- purpose switching architecture. V. DISCUSSION A. General Issues Regarding Incumbent LEC Provision of CMRS 27. The safeguards of Section 22.903 were originally implemented to protect the cellular market from three potential anticompetitive practices: improper cost allocation, interconnection abuses, and unfair "price squeezes," each of which is described below. Although Section 22.903 was intended to apply only to cellular service, the anticompetitive practices it was meant to address are by their nature not unique to cellular service, but can occur any time a competing service provider requests interconnection with a local exchange network. That is because LECs that own CMRS subsidiaries have the incentive to engage in such anticompetitive practices in order to benefit their own CMRS subsidiaries and to protect their local exchange monopolies from wireless competition. At the same time, LEC control of bottleneck local exchange facilities -- upon which competing CMRS providers must rely -- gives LECs the opportunity to engage in anticompetitive behavior. 28. Improper cost allocation occurs when a LEC shifts costs from its CMRS subsidiary to its regulated local exchange service. Cost shifting has the effect of both subsidizing the LEC's CMRS subsidiary, thus giving the subsidiary a substantial competitive advantage over non-LEC affiliated CMRS providers, and of raising the costs borne by the LEC's captive local exchange ratepayers. 29. Discrimination results when a LEC uses its control over bottleneck local exchange facilities to discriminate against competitors to the LEC's CMRS subsidiary by providing inferior interconnection services. Such discrimination can take many forms, such as providing inferior quality interconnection, providing fewer lines (thus reducing the capacity of the competing system to complete calls), delaying the fulfillment of requests for interconnection services, delaying repairs to competitors' interconnection facilities, and providing inferior quality repair services. 30. A "price squeeze" can occur in two ways. First, the LEC can raise the price that it charges for interconnection to all CMRS providers (including the LEC-owned provider), forcing competing carriers either to raise their retail prices or accept a reduction in their profit margins. As a result, the LEC has a competitive advantage: if CMRS competitors raise their prices, the LEC CMRS affiliate can keep its prices low to attract greater market share, while the parent company reaps offsetting profits as the result of the higher interconnection fees. If competitors do not raise their prices, they will reap lower profits, while the LEC as a whole enjoys greater interconnection revenue. In the second type of price squeeze, the LEC does not raise interconnection prices but relies on the fact that the price for interconnection is greater than the economic cost of providing the service. In that situation, the LEC-owned CMRS provider may set its end-user CMRS rates below those of its competitors while remaining profitable on a company-wide basis. This may arise because the LEC, in setting CMRS end-user rates, considers the actual economic cost of interconnection, while for CMRS competitors, the cost of interconnection is the interconnection rates the incumbent LEC charges. Thus, non-cost based pricing of interconnection enables the LEC-owned CMRS provider to increase its market share at the expense of its non-LEC competitors. 31. As discussed more fully below, requiring LECs to create a separate affiliate for the provision of CMRS services helps deter the LECs' incentive and ability to engage in the foregoing anticompetitive practices and facilitates their detection. Arm's length transactions between LECs and their CMRS affiliates and the requirement that agreements be reduced to writing will help the Commission and competing CMRS providers to detect -- and then to address -- competitive abuses. Ease of detection will, in turn, deter a LEC from engaging in such abuses in the first place. 32. We note that the 1996 amendments to the Communications Act include new requirements for structural safeguards for certain other services that rely on interconnection with LEC exchange facilities. For example, Section 272(a) permits a BOC (including any affiliate) that is an incumbent local exchange carrier to manufacture equipment, originate in- region interLATA telecommunications services, other than incidental and previously authorized interLATA services, and provide certain interLATA information services only if it does so through one or more separate affiliates. Each of the separate affiliates must operate independently from the BOC, maintain separate books, records, and accounts in the manner prescribed by the Commission, have separate officers, directors, and employees from the BOC, and conduct all transactions with the BOC on an arm's length basis, with all such transactions reduced to writing and available for public inspection. In its dealings with its separate affiliate, the BOC must also account for all transactions in accordance with accounting principles designated or approved by the Commission. By imposing such requirements, Congress has indicated its view that structural separation remains a useful tool in certain cases to combat competitive abuses by market participants that control bottleneck facilities. 33. We recognize that, in the past, we have applied structural separation requirements in the wireless context only to BOC provision of cellular service. In the PCS and CMRS dockets, we concluded that nonstructural accounting safeguards were sufficient to protect against improper cost allocations and interconnection discrimination by LECs providing PCS or other CMRS. The accounting safeguards prescribe the way incumbent LECs, including BOCs, must account for transactions with their affiliates and allocate costs incurred in the provision of regulated and unregulated services. These safeguards can be divided into the two broad categories of affiliate transactions rules and cost allocation rules. The Commission's affiliate transactions rules, included in Section 32.27 of the Commission's rules, govern how companies should record for accounting purposes such transactions as a transfer of assets or provision of service between a LEC and a LEC affiliate. The cost allocation rules, included in Parts 32 and 64 of the Commission's rules, provide a basic framework for separating costs between the LEC's regulated activities (such as provision of local exchange service) and nonregulated activities (such as provision of wireless service). 34. Not only did the Commission, prior to divestiture, apply structural separation in the wireless context only to cellular service, but in formulating rules for cellular service, we decided to apply the structural separation rules only to the BOCs, and not to the non-BOC LECs in the provision of cellular service. The Commission determined at the time that the benefits of structural separation did not outweigh the costs that such a requirement would impose on LECs other than AT&T. After divestiture, that decision was subsequently extended to BOC provision of cellular services. 35. Commenters in this proceeding argue that disparate treatment among CMRS providers is contrary to the congressional intent of the 1993 Budget Act and the 1996 Act. They also note that the Cincinnati Bell decision requires that our rules treat similar services and similar service providers consistently. Commenters argue that cellular and PCS are subject to the same interconnection policies, offer similar features and functionalities to customers, compete on the basis of price, quality and services, and that the only fundamental difference between the two services is the frequency band on which they operate. We agree that our rules should treat similar services consistently and that any structural separation requirements should be uniform to avoid disparate treatment. Our choices for achieving regulatory symmetry are either to extend the Section 22.903 structural safeguards for BOC provided cellular service to all LECs and all CMRS services, or to eliminate Section 22.903 in favor of less restrictive safeguards applicable to the provision of all broadband CMRS. 36. We also note that significant developments have occurred in the CMRS market, such as the potential for fixed wireless technology to offer a competitive alternative to the incumbent LEC network, that may increase the incentive for anticompetitive behaviors such as discriminatory interconnection. We believe that in the wake of the development of fixed wireless services, incumbent LECs and CMRS operators are increasingly likely to be direct competitors. The competitive pressure brought to bear on the local exchange market by CMRS providers could increase the incentive for LECs to engage in discriminatory and other anticompetitive practices. B. Separate Affiliate Requirements for In-Region Incumbent LEC Provision of CMRS 1. Overview 37. Anticompetitive interconnection practices, particularly discriminatory behavior, pose a substantial threat to full and fair competition in the CMRS marketplace, and all LECs, not just the BOCs, have the ability and incentive to engage in anticompetitive behavior. Indeed, the increased competition in the CMRS market and the possibility that CMRS in the future may substitute for wireline local loops may actually increase LECs' incentive to discriminate against unaffiliated CMRS providers. At the same time, however, there are ways to lessen the threat of discrimination, predatory price squeezes, and cost misallocation that are less burdensome than the requirements currently imposed by Section 22.903. For example, as we recognized in the Dom/Nondom Order and in the Access Charge Report and Order, accounting safeguards, Section 251 of the Communications Act and related interconnection rules, and price cap regulation all serve to protect local exchange ratepayers from bearing the costs and risks of the telephone companies' other nonregulated activities and reduce the likelihood that LECs will raise interconnection rates in order to effect a predatory price squeeze. Such mechanisms do not, however, eliminate the possibility of interconnection discrimination. In this Order, we therefore strike a new balance by replacing Section 22.903 as it currently exists with a less restrictive separation requirement. Although the new rules will be substantially less restrictive than Section 22.903, they will apply to all LECs, except as described in section V.C, below, not just BOCs, and will apply to all types of broadband CMRS rather than just cellular. 38. Specifically, we require that incumbent LECs offering in-region broadband CMRS services must do so through a separate corporate affiliate. The CMRS affiliate must: (1) maintain separate books of account, and must maintain the books, records, and accounts in accordance with generally accepted accounting principles (GAAP); (2) not jointly own transmission or switching facilities with the affiliated LEC that the affiliated LEC uses for the provision of local exchange services in the same in-region market; and (3) acquire any services from the affiliated LEC on a compensatory arm's length basis, as required by our affiliate transactions rules. LEC transactions with the CMRS affiliate will be subject to the Commission's joint cost and affiliate transaction rules. Title II common carrier services or services, facilities, or network elements provided pursuant to Sections 251 and 252 that are acquired from the affiliated LEC must be made available to all other carriers, including CMRS providers, on the same rates, terms, and conditions. 2. Applicability of Safeguards to Out-of-Region CMRS Operations 39. As we recognized in the Notice in this proceeding, our competitive concerns regarding incumbent LEC provision of CMRS services extend only to the provision of "in- region" CMRS services because concerns regarding discrimination in interconnection arrangements are not present outside of an incumbent LEC's wireline service territory. In addition, the geographic separation between an incumbent LEC's in-region service area and out-of-region CMRS mitigates the potential for undetected improper allocation of costs. With regard to interconnection, the lack of control of "bottleneck" local facilities means that an incumbent LEC providing CMRS "out-of-region" is similar to any other provider of CMRS. 40. Because the same can be said with respect to all out-of-region LEC provision of CMRS, we will not require any LEC to provide out-of-region CMRS offerings through a separate affiliate. We do not agree with AT&T Wireless and the Public Utilities Commission of Ohio that a separate affiliate requirement is necessary for out-of-region broadband CMRS. Those parties do not contend that an incumbent LEC can discriminate in favor of its affiliate outside its wireline service territory, and they offer no evidence to support their contention that cost misallocation and cross-subsidization cannot be sufficiently addressed through accounting requirements and other non-structural safeguards. To the extent there is potential for incumbent LECs that provide out-of-region CMRS to engage in anticompetitive behavior or cost misallocations we believe that such potential is adequately addressed through accounting requirements and other non-structural safeguards. 41. We also recognize that CMRS license areas and incumbent LEC wireline service areas are not generally congruent. CMRS licensees typically have a well-defined geographic service area (e.g., major trading area (MTA), basic trading area (BTA)) under our rules. Given this environment, commenters have indicated that there should be a clear line delineating when a LEC has a sufficient ability to leverage anticompetitively its market power arising from its control of bottleneck facilities to warrant requiring a separate affiliate. We share this view and believe that the issue of incongruent LEC-CMRS territories presents issues no different than our "out-of-region" decision above. 42. Just as an incumbent LEC lacks the incentive and ability to use its own bottleneck facilities to discriminate or otherwise act anticompetitively against its affiliate's rivals when that affiliate is operating out-of-region, the incumbent LEC's incentives and ability to act anticompetitively are significantly attenuated where the area served by its bottleneck wireline facilities is a small fraction of the area served by its wireless operations. Indeed, in situations where there is de minimis overlap between the incumbent's wireline service area and its CMRS license area, that incumbent LEC is close to offering "out-of-region" services. Therefore, we believe it is appropriate to apply "in-region" CMRS structural safeguards only to an incumbent LEC whose wireline service area overlaps its CMRS license area to a significant degree. In delineating the degree of geographic overlap necessary for an incumbent LEC to be considered "in-region," we have examined other instances where we have applied similar geographic overlap rules. For example, Section 20.6 of the Commission's Rules, 47 C.F.R.  20.6 (which prohibits a single entity from holding more than 45 MHz of CMRS spectrum in the same area) determines geographic overlap of commonly- owned CMRS services via a population-based standard. "Significant overlap" of two CMRS services occurs when at least 10 percent of the population of one service's licensed service area is within another service's licensed service area. 43. More recently, the Commission ruled in the LMDS Second Report and Order that incumbent LECs should not be eligible to obtain LMDS licenses "in region." In that proceeding the Commission found that a 10 percent population overlap would be sufficiently substantial to trigger the ownership restriction Given that the LMDS spectrum offers unique capabilities to increase competition in the local telephone market, the Commission concluded that the presence of incentives for inefficient use of spectrum could impede the development of local exchange competition. The Commission noted that in the case of cellular and PCS providers an overlap of less than 10 percent of the population is sufficiently small that the potential for exercise of undue market power by the operator is slight. The Commission observed that the rule for LMDS should conform with the overlap rule used in conjunction with the CMRS spectrum cap, and as a general matter that it is preferable to have rules for wireless spectrum that are as consistent as possible for the sake of overall simplicity, ease of compliance, and administrative efficiency. Therefore, the Commission concluded that an incumbent LEC or cable company is "in-region" if 10 percent or more of the population of the BTA is within the LEC's authorized telephone service area or the cable company's franchised service area. We believe that the overlap concern articulated in the LMDS Report and Order is similar to the overlap concern we have with regard to LEC provision of CMRS. Therefore, we will define "in-region" CMRS to be a CMRS offering where 10 percent or more of the population covered by the CMRS service area is within the incumbent LEC's wireline service area. We note that in recent proceedings, we have authorized CMRS licensees to geographically partition their licenses. Partitioning, therefore, gives incumbent LECs the ability to reduce the overlap between their wireline and CMRS operations to below 10 percent population overlap threshold. 44. We also believe it is appropriate for us to define the level of beneficial ownership between an incumbent LEC and an in-region CMRS operation that causes competitive concerns. Section 3 of the Communications Act provides that one company is an "affiliate" of another if that company has an ownership interest of more than 10 percent of the equity (or the equivalent thereof) of the other company. We believe that this level of beneficial ownership accurately reflects the level of beneficial ownership which implicates our competitive concerns regarding the incumbent LEC's incentive to discriminate in favor of its CMRS affiliate. We recognize that our CMRS spectrum cap rules (Section 20.6 of our rules) establish a higher attribution threshold, an ownership interest of 20 percent or more in order to determine whether two licenses are commonly-owned. In the CMRS spectrum cap context, the Commission explicitly selected the higher threshold "in order to encourage capital investment and business opportunities in CMRS." Our concerns here are different and center upon the possible anticompetitive consequences of a beneficial ownership relationship between an incumbent LEC and an in-region CMRS licensee. As a result, in this context we believe that the standard 10 percent attribution criteria should apply. 3. Applicability of Safeguards to All Broadband CMRS Services and All In- Region Incumbent LECs 45. Except as provided in section V.C., below, the separate affiliate rules we adopt today should apply to all in-region LEC broadband CMRS operations because all incumbent LECs have the incentive and ability to discriminate against unaffiliated broadband CMRS providers of every type -- not just cellular operators -- where there is sufficient overlap between the incumbent LEC's wireline service area and the CMRS service area. Thus, limited safeguards applicable to all in-region incumbent LECs for all broadband CMRS services are necessary to promote competitive communications markets and to achieve regulatory symmetry. 46. The wireless telecommunications landscape has undergone dramatic changes since Section 22.903 was adopted in 1981. At that time, not only was the divestiture of the BOCs from AT&T two or three years away, but it was questionable whether cellular telephone service would be a commercially viable service. In the ensuing 16 years, however, cellular service has grown to a mass-market commercial service, and PCS, SMR and other services have begun to compete with cellular service. Currently, each licensed geographic area may have, in addition to two cellular licensees, three broadband PCS licensees with 30 MHz licenses and three broadband PCS licensees with 10 MHz licenses. Broadband PCS licensees have initiated service in 29 MTAs, and there are eight major cities with two competing PCS operators providing service. This new and increased competition and convergence of services in the CMRS market has heightened the need for regulatory symmetry among commercial mobile radio services and among different kinds of CMRS providers. As the Cincinnati Bell court observed, the disparate treatment imposed on the BOCs affects their ability to compete in the ever-evolving wireless communications market. In this respect, we agree with commenters that have argued that any rule we establish today must promote regulatory symmetry, and that any costs imposed should apply to all CMRS providers. 47. Some commenters have argued that the reference to commercial mobile services in Section 271(g)(3) limits our authority to retain Section 22.903 or similar safeguards. These commenters argue that, by including commercial mobile services in the definition of "incidental interLATA services" (which are explicitly exempted from the structural separation requirements of Section 272), Congress intended to preclude the Commission from imposing safeguards on broadband CMRS. Similarly, Bell Atlantic argues that the Communications Act does not give the Commission authority to impose a separate affiliate requirement for the provision of services other than those listed in Section 272(a). We disagree with these arguments. We believe that simply because Congress did not impose structural separation on BOC provision of interLATA CMRS does not limit the Commission's authority to impose a different level of regulatory requirements and separation on the provision of CMRS by a different class of carriers (in-region incumbent LECs). We note that Section 271(g)(3) only applies to the "interLATA provision" of CMRS service by BOCs and there is no indication that Congress intended this "incidental interLATA service" to include all forms of CMRS offered by all incumbent LECs. As to Bell Atlantic's argument that Section 272(a)(2) limits the areas over which we may impose a separate affiliate requirement, we note that Section 272(f)(3) states that we maintain authority to impose safeguards under other sections of the Act. The Commission has traditionally used its general authority under the Communications Act to impose separate affiliate requirements. Section 601(c)(1) of the 1996 Act also provides that we are not to presume that Congress intended to supersede our existing regulations unless expressly so provided. Consequently, we conclude here, as we have in the past, that we have the authority to impose the separate affiliate and related requirements for services other than those listed in Section 272. 48. In applying a separate affiliate requirement to all in-region incumbent LEC provision of CMRS and not just BOC provision of cellular service, we recognize that we are imposing certain costs on, and limiting flexibility for, independent LECs, which were not previously subject to these requirements or to any of the other requirements of Section 22.903. In that regard, we have carefully considered the arguments of independent LECs that across-the-board imposition of structural safeguards would be inconsistent with the aim of Congress and the Commission to decrease regulation and to increase telecommunications providers' flexibility in designing their service offerings. Nevertheless, the competitive concerns regarding the ownership and control of bottleneck facilities are significant so long as there is a substantial geographic overlap between the incumbent LEC's wireline local telephone service area and the LEC's CMRS service area. When that overlap passes the 10 percent overlap threshold, we conclude that the benefits of preventing the competitive harm inherent in the incumbent LEC-CMRS relationship significantly outweigh the costs imposed by these safeguards. 49. The record supports our conclusion that the costs imposed on independent LECs by the separate affiliate requirement will not be so significant as to outweigh their benefits. Indeed, we note that PacTel has chosen to provide PCS through a separate affiliate even though it is not required to do so. In addition, the BOC provision of cellular service has prospered and proliferated even under the significantly more restrictive regulations of Section 22.903. For incumbent LECs that already have established a separate affiliate to provide in- region CMRS services for business reasons, the requirements we adopt today will not impose significant additional costs. To the extent that incumbent LECs are concerned that imposition of a separate affiliate requirement will impair their ability to offer integrated wireline and wireless services, our rules do permit the creation of certain bundled and integrated service packages, either through an incumbent LEC's offering facilities and services to the CMRS affiliate on nondiscriminatory terms, or solely through the CMRS affiliate that is able to offer competitive local exchange service. 50. Particularly with respect to interconnection, we believe a separate affiliate requirement is a very effective way to afford the requisite degree of "transparency" to enable competitors and the Commission to detect discrimination in interconnection. Without a separate affiliate requirement, non-affiliated CMRS providers would have greater difficulty determining whether their interconnection arrangements with the LEC are comparable to those between the LEC and its affiliated CMRS provider. 51. We recognize that this decision represents a departure from our prior decisions addressing broadband PCS, CMRS, cellular, and SMR. We previously declined to adopt structural safeguards for broadband PCS providers affiliated with LECs, for LECs with CMRS affiliates, for LECs other than AT&T (and subsequently the BOCs) and the LECs with SMR licenses. In those decisions the Commission decided that the potential economies of scope achieved by dispensing with structural safeguards outweighed the potential risks of anticompetitive behavior and that existing accounting safeguards were sufficient to protect against cross-subsidization. With regard to broadband PCS, as discussed above, the Commission thought compliance with Parts 32 and 64 of the Commission's rules and conditioning commencement of operations on implementation of plans for nonstructural safeguards against discrimination and cross-subsidization would be sufficient. The Commission reached the same conclusion with regard to CMRS. Similarly, with regard to cellular, it decided that the benefits of structural separation did not outweigh the costs that such a requirement would impose on independent LECs. Finally, in addressing SMR, the Commission concluded that the existing regulatory safeguards were sufficient to prevent possible discrimination and cross-subsidization. 52. Our decision today strikes a different balance between our interest in fostering efficient provision of CMRS and our commitment to prevent unlawful discrimination and other anticompetitive practices by incumbent LECs than our earlier decisions discussed above. Our earlier decisions were not based on a full analysis of the competitive harms that might result from LEC provision of SMR, PCS, and cellular, particularly with respect to discrimination against unaffiliated competitors requesting interconnection. In part, our interest in ensuring that PCS was a viable service may well have caused us to underestimate the real and substantial incentives and ability of incumbent LEC's discriminating against unaffiliated CMRS providers. 53. In the Broadband PCS Second Report and Order the Commission anticipated that the new PCS industry would compete with the existing cellular industry. In addition, subsequent to our PCS and CMRS decisions, changes in the telecommunications marketplace and in its regulatory environment have occurred that have helped to focus our attention on, and heighten our awareness of, the problem of discriminatory interconnection, as discussed above. Significant developments have occurred in the CMRS market since adoption of Broadband PCS Second Report and Order, CMRS Second Report and Order, and Cellular Reconsideration Order that may increase the incentive for anticompetitive behaviors such as discriminatory interconnection. For one, the 1996 Act seeks to facilitate direct competition against all incumbent LECs from a variety of sources -- including, among others, CMRS and long distance carriers. Second, as discussed above, CMRS competition has also increased substantially. With increased competition in the CMRS marketplace, the incentive for anticompetitive behaviors, particularly discrimination against CMRS competitors requesting interconnection, may well increase. Prior to the development of PCS, each BOC competed almost entirely against a single licensee in duopolistic cellular markets. 54. Third, fixed wireless technology has developed to the point where it has the potential to provide a competitive alternative to the incumbent LEC network. The Commission has also determined that fixed wireless services can be offered on CMRS spectrum. In the wake of the development of fixed wireless services, incumbent LECs and CMRS operators are increasingly likely to be direct competitors, and wireless carriers can no longer appropriately be regarded as merely providers of adjunct services. The competitive pressure brought to bear on the local exchange market by CMRS providers could increase the incentive for LECs to engage in discriminatory and other anticompetitive practices. 55. In addition, the Commission has recently expressed in several contexts its concern that incumbent LECs have an incentive to engage in price and nonprice discrimination in their wireline local service areas. In several of these proceedings, we have found various structural and accounting safeguards to be useful in identifying and deterring anticompetitive conduct by incumbent LECs that control bottleneck facilities. In the Dom/Nondom Order and in the Non-Accounting Safeguards Order, we recognized the potential for an incumbent LEC to use its market power in the provision of local exchange and exchange access services to discriminate against its interstate (or interLATA) interexchange affiliate's competitors to gain an advantage for its interexchange or interLATA affiliate, and imposed regulation to deter such behavior. Similarly, in the Local Competition NPRM, we recognized that "[an incumbent] LEC may have the incentive and the ability to prevent or reduce the demand for interconnection with a prospective local competitor, such as a CMRS provider, below the efficient level by denying interconnection or setting interconnection rates at excessive levels." In implementing the local competition provisions of Sections 251 and 252 of the Communications Act, the Commission was required to examine issues regarding fair and non- discriminatory interconnection for all telecommunications carriers, including CMRS providers. 56. In light of these developments, we have attempted to strike the appropriate balance in adopting our regulations today. On the one hand, some commenters have argued that there is, and historically has been, little evidence of anticompetitive behaviors in the provision of CMRS by BOC and non-BOC LECs. On the other hand, as discussed above, other commenters have argued that anticompetitive behaviors persist, and we are sensitive to the rapidly changing nature of the CMRS marketplace, which may create even larger incentives for anticompetitive conduct. With these various concerns in mind, we have sought to eliminate the prohibitions of Section 22.903 that are overly burdensome and that are not effective in constraining anticompetitive practices of LECs in their provision of CMRS, or that, in light of other regulations we adopt today, or other regulations already in place, may no longer be necessary. Instead, we have sought to impose upon all LECs what we believe are less burdensome and more narrowly tailored safeguards designed to restrain LEC anticompetitive behavior, particularly discrimination in the provision of interconnection to unaffiliated CMRS providers. 4. Basis for Level of Safeguards 57. The structural safeguards we adopt today are substantially similar to those we recently adopted with regard to independent LEC provision of in-region interstate, domestic, interexchange service, and are similar to the separate affiliate requirements the Commission adopted in the Competitive Carrier Fifth Report and Order. As described above and in the Notice, we conclude that these safeguards are appropriate to ensure that an incumbent LEC does not anticompetitively favor its in-region CMRS operations with regard to interconnection charges and practices. We believe that these safeguards provide an adequate measure of transparency between an incumbent LEC's wireline and in-region CMRS operations so as to prevent improper cost allocations and to ensure that competing CMRS providers are receiving nondiscriminatory treatment. 58. We are persuaded that less-stringent CMRS affiliate requirements than those currently in place for BOC provision of cellular service will be sufficient for the Commission and competitors to detect cost-shifting, discrimination, and other anticompetitive behavior by incumbent LECs. Our affiliate transactions rules and the requirement of separate books of account are useful to both the Commission and competitors to detect and address potential misallocation of costs and/or assets between a LEC and its CMRS affiliate. Any transaction between the incumbent LEC and its CMRS affiliate becomes subject to the Commission's affiliate transactions rules, which serve to prevent cost misallocation. 59. Some commenters contend that our price cap regulations reduce the risk of improper cost allocations or other anticompetitive activity and therefore eliminate the need for more stringent safeguards. Other commenters contend that price cap regulation cannot eliminate the ability or incentive for cross-subsidization because the current price caps framework is not a "pure" price cap scheme, as it still has a sharing element and low end adjustment, and the periodic readjustment of the productivity factor creates additional incentives to improperly adjust costs. We conclude that, while price cap regulation may reduce the incentive for misallocation of costs of the nonregulated wireless services, it does not entirely eliminate that incentive. 60. The Commission recently revised its price caps regime, which governs, among other things, the provision of local exchange access services by the BOCs and certain other LECs, to eliminate the sharing mechanism. This revision substantially reduces, but does not eliminate entirely the BOC's incentive to misallocate costs, since the price caps regime still retains a rate-of-return aspect in the low-end adjustment mechanism. Furthermore, periodic performance reviews to update the X-factor could replicate the effects of rate-of- return regulation, if based on a particular carrier's interstate earnings rather than industry-wide productivity growth. Price cap regulation alone, however, does not eliminate entirely the incentive for cost-misallocation, and we believe our affiliate transaction rules will also help prevent cost misallocations. 61. We also believe that the safeguards we adopt today ensure the minimum necessary level of transparency to police the price and nonprice discrimination concerns discussed above. Our requirement that certain services, facilities, and network elements provided by the incumbent LEC to its CMRS affiliate must also be available to independent CMRS operators on the same prices, terms, and conditions ensures that these transactions between the incumbent and its CMRS affiliate will be arms-length transactions. We anticipate that interconnection arrangements between the incumbent LEC and its CMRS affiliate will be undertaken pursuant to tariff or through Section 251 negotiated or arbitrated interconnection agreements that are available to all CMRS carriers. As discussed more fully below, the prohibition on joint ownership of incumbent LEC landline transmission and switching facilities provides further assurance that the incumbent LEC will not be able to misallocate costs or discriminate against the affiliate's competitors. We note that this restriction does not prevent an incumbent LEC or its CMRS affiliate from offering bundled telecommunications services, provided that similar functionality is available to independent CMRS providers. These protections also do not prevent the CMRS affiliate from building integrated wireless-wireline networks, as the CMRS affiliate is free to construct (or accept from the incumbent LEC under nondiscriminatory terms and conditions) wireline local facilities. 62. In addition, we do not believe that more stringent safeguards are necessary to prevent an anticompetitive price squeeze by an incumbent LEC. A price squeeze could occur if, for example, an incumbent LEC raises its interconnection prices or somehow makes it more expensive for its in-region CMRS rivals to obtain access to an essential production input, i.e., interconnection to the BOC's landline network, and this action by the LEC requires the competing CMRS carriers to raise their retail rates, accept a degradation in service quality (and lose market share to the LEC's CMRS affiliate in either case) or accept lower profit margins. We do not believe that price squeezes will be more likely without Section 22.903 because of the new interconnection obligations imposed on LECs in the 1996 Act. Incumbent LECs must make interconnection available to CMRS providers offering telephone exchange service and exchange access service in conformity with the terms of Sections 251(c) and 252, including offering rates, terms, and conditions that are just, reasonable, and nondiscriminatory. Section 252 requires incumbent LECs to negotiate interconnection agreements, and also provides for mediation and arbitration by the state commissions. We find that Sections 251 and 252, together with our affiliate transactions rules, reduce the risk of such price squeezes. With regard to the current Section 22.903 restrictions on joint personnel and officers, we believe that the approach we recently adopted in the Dom/Nondom Order strikes the appropriate balance with regard to the discrimination and price squeeze concerns that arise from such arrangements. Given our requirement of arms-length dealing between the incumbent LEC and the CMRS affiliate, we do not believe that the additional Section 22.903 requirements for separate personnel and officers are necessary to protect CMRS competitors from these harms. 63. Similarly, we do not believe more stringent safeguards are necessary to prevent the other type of price squeeze in which the CMRS affiliate might set its rates below those of its CMRS competitors, while the incumbent LEC parent remains profitable on a company- wide basis. If this reduction in rates by the CMRS affiliate causes other CMRS providers to match those reductions, this situation could, in the extreme, drive independent CMRS operators from the market, thereby presenting a competitive risk in the CMRS market and also the possible loss of a significant class of potential local exchange competitors. We conclude however, that, although the incumbent LEC may have the incentive to engage in such conduct, we have in place adequate safeguards against such conduct. The structural safeguards we adopt today aid in the prevention and detection of this strategy. We also note that LEC-CMRS affiliates could only successfully engage in this type of predatory strategy if they are able to drive independent CMRS competitors from the market, a result we do not believe to be likely, given the presence of multiple broadband CMRS licensees in every market. Given this condition, we believe the proliferation of CMRS providers in today's marketplace would make this strategy particularly difficult to execute. We note that antitrust laws also offer a measure of protection against this variety of price squeeze. Finally, we recognize that the approach we are adopting today differs from the nonstructural safeguards approach the Commission took in the Computer III proceeding with respect to the provision of enhanced services by the BOCs and GTE. We note that a remand proceeding in Computer III is pending before us, and we will address the safeguard issues with respect to enhanced services by BOCs and GTE in that proceeding. 5. Differences between In-Region Incumbent LEC-CMRS Safeguards and Current BOC Cellular Safeguards 64. In two critical respects, the requirements we adopt today are much less stringent than the current restrictions placed on BOC cellular through Section 22.903. First, we do not require the CMRS separate affiliate to have officers and employees separate from the incumbent LEC. We do not believe that this restriction is necessary to prevent anticompetitive discrimination and cost misallocation, especially given the other requirements that we adopt. For instance, given that any services the incumbent LEC provides its CMRS affiliate are subject to the affiliate transaction rules, the CMRS affiliate must account for the time and cost of any employees that may in effect work for both the CMRS affiliate and the incumbent LEC operation. We are persuaded by commenters that a flat ban on common employees will unnecessarily impose an efficiency cost upon incumbent LECs, and that eschewing these efficiencies is not outweighed by any competitive benefit from such a ban. 65. Second, unlike the BOC cellular affiliate requirements of Section 22.903, we permit the CMRS separate affiliate to own its own wireline local exchange facilities, and the CMRS affiliate may operate as a competitive local exchange carrier in its region. The only restriction on the wireline LEC activities of the CMRS affiliate is that the affiliate may not jointly own transmission and switching facilities that the affiliated LEC uses for the provision of local exchange service in the region. This safeguard is generally consistent with the proposal we made in the Notice. We note that this position is also consistent with our recent Non-Accounting Safeguards Order, released after the Notice. 66. We believe it is important to permit the incumbent LEC's CMRS affiliate to own facilities for the provision of competitive landline local exchange service, including obtaining access to unbundled network elements from its incumbent LEC affiliate, so that the CMRS affiliate will have the ability to provide consumers with an integrated package of CMRS and local exchange services. Indeed, we see no sound economic or other public interest reason to prevent the CMRS affiliate from acquiring and deploying its own landline local exchange facilities and therefore becoming a competitive LEC in its region. At the same time, the prohibition on an affiliate's joint ownership of the LEC's local exchange facilities remains appropriate because common ownership poses a considerable risk that a LEC will allocate costs improperly and discriminate in favor of its affiliate. The potential for improper cost allocation and discrimination would be difficult to detect if the facilities were commonly owned. This approach is fully consistent with our decision in the Non-Accounting Safeguards Order to permit a BOC long distance affiliate to resell local exchange services and to obtain interconnection and access to unbundled network elements from the BOC for the purpose of the affiliate creating its own local exchange service offerings, including bundled packages. 67. Our decision today does not preclude the CMRS affiliate from using the affiliated incumbent LEC's central office, switch, roof space or other facilities -- the incumbent LEC and the CMRS affiliate are merely precluded from jointly owning such facilities. Indeed, the rule we adopt today does not preclude the affiliate from jointly using the LEC's landline facilities to provide integrated service (subject to applicable interconnection and other regulations). Such transactions between the CMRS affiliate and the incumbent LEC for joint use would be subject to the affiliate transaction rules, requiring arm's length dealing, and the requirement that any Title II common carrier services, or service, facilities, or network elements acquired by the affiliate pursuant to tariff or Sections 251 and 252 be made available to independent CMRS operators on the same rates, terms, and conditions. 68. Our decision to establish this safeguard also is consistent with our August 1996 decision to grant Ameritech Communications, Inc. (ACI), a structurally separate Ameritech affiliate, a waiver of Section 22.903(a) to permit it to own landline facilities. In seeking the waiver, ACI stated that its goal was to be able to provide wireless and wireline services as a facilities-based carrier and through resale on an unseparated basis. ACI noted that potential competitors, such as interexchange carrier affiliates and PCS providers, were not prohibited from making bundled service offerings. In the ACI Waiver Order, we concluded that ACI's status, as a structurally separate subsidiary of Ameritech that is also separate from Ameritech's incumbent cellular operations, considerably alleviated any concerns regarding potential improper cost allocation or discrimination. We granted the waiver with respect to both in- region and out-of region operations, on the condition that ACI remain structurally separate from Ameritech's local exchange companies and its cellular affiliate. C. In-Region Safeguards Applicable to Rural and Certain Mid-Sized Incumbent LECs 69. As discussed above, we impose a set of structural and nonstructural safeguards where the incumbent LEC has the incentive and ability to act anticompetitively to the benefit of its own CMRS operations and against CMRS competitors, and in general conclude that the benefits of these safeguards in helping us to detect and prevent anticompetitive conduct, especially discrimination, outweigh any costs of separation. As discussed in section V.B above, where the incumbent LEC lacks this incentive and ability, we do not require separation (e.g., out-of-region and de minimis overlap). Consistent with these actions, we agree with the concern of some commenters that, for certain incumbent LECs, the costs imposed by separation may outweigh our interest in promoting competition and preventing anticompetitive conduct. This is especially true for incumbent LECs that Congress itself found should be exempt from key pro-competitive provisions of the Communications Act pending a bona fide request for interconnection and action by the state commission. 70. We agree with the comments of independent incumbent LECs that we should use some distinction other than the Class A/Class B classification for imposing a separate affiliate requirement on incumbent LECs. In the 1996 Act Congress expressed particular concern about burdens placed on small and rural LECs. In determining where to draw the appropriate balance between concerns about burdens on LECs other than the largest LECs, Congress, in Section 251 of the Communications Act, excluded two groups of LECs from the same good faith negotiation, interconnection, unbundling, resale, network disclosure and physical collocation requirements imposed on other LECs. First, a rural telephone company is exempt from the above-referenced Section 251 requirements until such company receives a bona fide request for interconnection and the state commission acts to terminate the exemption. Second, local exchange carriers with fewer than two percent of the nation's subscriber lines installed in the aggregate nationwide may petition a state commission for suspension or modification of requirements in Section 251(b) and (c). 71. We find that it is appropriate and equitable, in the first instance, to exempt rural telephone companies from the separate affiliate requirement. A competing carrier, interconnected with the rural carrier, however, may petition the Commission to remove the exemption, or the Commission may do so on its own motion, where the rural telephone company has engaged in anticompetitive conduct, such as discrimination. We also find, consistent with Congress's treatment of LECs in Section 251, that incumbent LECs with fewer than two percent of the nation's subscriber lines, may petition this Commission for suspension or modification of the separate affiliate requirement. The Commission will grant such a petition where petitioner can show that suspension or modification of the separate affiliate requirement is necessary to avoid a significant adverse economic impact on users of telecommunications services generally, or to avoid a requirement that would be unduly economically burdensome. In addition, petitioners must demonstrate that suspension or modification of the requirement is consistent with the public interest, convenience and necessity. Suspension or modification would be appropriate, for example, where the carrier with less than two percent of the nation's subscriber lines can show that it lacks the incentives and ability to use bottleneck facilities to act anticompetitively, such as where the percentage of overlap exceeds the 10 percent standard for de minimis overlap, but is still not significant. 72. We conclude that these provisions for exemption for rural telephone companies, and for suspension and modification with respect to local exchange companies with fewer than two percent of the nation's subscriber lines, from the separate affiliate requirements are appropriate notwithstanding our conclusion in the Dom/Nondom Order that neither a carrier's size nor the geographic characteristics of its service area, will by themselves affect the incentives or ability to discriminate against rivals, or to engage in other anticompetitive activity. It is possible, for example, that the wireline and CMRS service areas of a rural telephone company or a carrier having fewer than two percent of the nation's subscriber lines could overlap 100 percent. The fact that the number of lines within the service territory may be less than two percent of nationwide subscriber lines does not by itself say anything about the carrier's degree of market power or its incentives or ability to use bottleneck facilities -- the wireline network -- to act anticompetitively toward rivals. For this same reason, we disagree with ITTA's suggestion that the Commission only apply separate affiliate requirements if the CMRS provider has at least 10 MHz of spectrum, or 10 percent of the available licensed spectrum. The amount of spectrum possessed by the CMRS provider does not address its ability to use its control over bottleneck incumbent LEC facilities to engage in anticompetitive conduct. 73. We agree with BellSouth and PUCO, however, that some LECs, especially rural telephone companies, might not have the resources to comply with our separate affiliate safeguards and still provide CMRS. Broadband CMRS may, for example, be more costly in rural areas, where there are fewer potential subscribers over which to spread the fixed costs of deployment. By reducing the regulatory burden on rural LECs we will encourage the development of wireless services in areas where otherwise there may be no wireless service at all. We also believe that rural LECs may find it economical to use CMRS licenses to provide fixed wireless services in remote areas as an alternative means of extending the local exchange network to unserved or hard to serve areas, and we are concerned that the costs of maintaining a separate affiliate for CMRS could deter rural telephone companies from using wireless as a means of extending service. Additionally, we observe that, in many instances, wireless service areas will likely be larger than the wireline service area of the rural incumbent LEC. In such situations, even where the area of overlap exceeded ten percent the rural telephone company's incentive and ability to engage in discrimination and other anticompetitive conduct would be attenuated by the lack of overlap. 74. Moreover, under Section 309(j)(3) of the Communications Act the Commission is required to promote the development and rapid deployment of new technologies, products, and services for benefit of the public, including those residing in rural areas, and to disseminate licenses among a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women. Thus, foregoing a separate affiliate requirement for rural incumbent LECs and allowing these carriers to minimize any additional costs and reporting requirements promotes the goals set by Congress in Section 309(j). For all these reasons, we believe that, on balance, the public interest would not be served by requiring rural telephone companies to maintain separate affiliates to provide CMRS. 75. These factors also distinguish the provision of CMRS by rural telephone companies from the provision of long distance services. In our Dom/Nondom Order, the Commission declined to exempt rural carriers from the requirement of providing long distance through a separate affiliate. In that case, however, there was no suggestion in the record that a separate affiliate requirement could result in long distance services not being offered to subscribers in rural areas. Similarly, because long distance is a complement and not a substitute to local wireline service, there were no issues concerning the use of a substitute technology to extend service. 76. For similar reasons, we will permit carriers serving fewer than two percent of the nation's subscriber lines to petition the Commission for suspension or modification of the separate affiliate requirement. These carriers are also likely to have fewer resources such that the balance between the pro-competitive benefits of requiring provision of CMRS through a separate affiliate, in particular cases, may be outweighed by other factors, including the extension of the network in rural areas, or disincentives to any CMRS deployment. The incentives and ability to engage in anticompetitive practices may also be attenuated by a substantial lack of overlap between wireline and wireless service areas or other market conditions. 77. We disagree with GTE's and BellSouth's argument that the two percent benchmark is an arbitrary point of delineation. We note that the structure of eligibility for exemptions and for suspension and modification of the separate affiliate requirement parallels the benchmarks Congress established in Section 251(f). In that section, Congress recognized that it would be appropriate to treat rural telephone companies and companies serving less than two percent of the nation's subscriber lines differently from other incumbent LECs. Incumbent LECs that are exempt or that obtain a suspension or modification under Section 251(f) are not subject to core interconnection, unbundling, resale, network disclosure and physical collocation requirements pending state action, while other incumbent LECs were required immediately to comply with all of the requirements of Section 251. The distinctions Congress drew in Section 251(f) are particularly significant here because Congress was itself balancing the cost of imposing particular, significant pro-competitive rules on such companies against the benefits of competition. We have sought to strike a similar balance between the benefits of policing discrimination and other anticompetitive conduct in an increasingly competitive environment, and the costs of structural separation particularly for rural telephone companies and companies serving fewer than two percent of the nation's subscriber lines. D. Joint Marketing 1. Overview 78. Section 601(d) of the 1996 Act provides: Notwithstanding section 22.903 of the Commission's regulations (47 C.F.R. 22.903) or any other Commission regulation, a Bell operating company or any other company may, except as provided in sections 271(e)(1) and 272 of the Communications Act of 1934 as amended by this Act as they relate to wireline service, jointly market and sell commercial mobile services in conjunction with telephone exchange service, exchange access, intraLATA telecommunications service, interLATA telecommunications service, and information services. In the Notice, we observed that this provision is self-executing and thus nullified Section 22.903(e), which prohibited BOCs from engaging in the sale or promotion of cellular service on behalf of their separate cellular affiliates. We also tentatively concluded, however, that we retain authority and responsibility for determining the scope of Section 601(d) with respect to joint marketing of wireless and wireline services as well as a LEC's resale of CMRS provided by its wireless affiliate. In addition, the Notice postulated that the newly granted authority for BOCs to jointly market and sell CMRS and landline services under Section 601(d) raises the question of how CPNI should be treated in a "one-stop-shopping" type of environment. These issues, along with the propriety of requiring network information disclosure, are discussed in greater detail below. 79. In the Notice, we tentatively concluded that the public interest in preventing and permitting easy detection of cross-subsidization requires that such joint marketing be done on behalf of the CMRS affiliate, subject to the affiliate transaction rules and classified as a nonregulated activity, on a compensatory, arms-length basis. In addition, we proposed that all transactions be reduced to writing and be made available for public inspection. 2. Comments 80. In general, the non-BOC commenters agree with our proposal that joint marketing be done on behalf of the CMRS affiliate, subject to the affiliate transaction rules and classified as a nonregulated activity, on a compensatory, arm's-length basis. Additionally, AT&T Wireless proposes that a BOC and affiliate that intend to market jointly should be required to announce the availability and terms of any such arrangement at least three months before implementation to prevent the affiliate from having an unfair advantage over unaffiliated carriers. AT&T Wireless also suggests that the Commission require public disclosure of the terms and conditions upon which such services are provided. Comcast and Radiofone propose that all such joint marketing transactions be reduced to writing and made available for public inspection. PUCO disagrees with the proposal to permit joint marketing of PCS and landline services on a compensatory arm's-length basis, subject to Part 64 cost allocation and affiliate transaction rules because it believes that the Part 64 rules will not eliminate the carrier's ability to shift PCS costs to regulated operations. 81. BOC commenters contend that no rules for joint marketing are required to implement Section 601(d) of the 1996 Act. These commenters argue that non-BOC wireless providers such as AT&T, Sprint, MCI and others have been aggressively marketing one-stop shopping. They contend that imposing joint marketing rules would distort the market by conferring an unfair advantage on these competitors while limiting the BOCs' ability similarly to offer one-stop shopping. BellSouth disagrees with the suggestion that the sales and marketing arrangements between a LEC and a cellular affiliate must be reduced to writing, because Section 601(d) does not provide for such a requirement. 3. Discussion 82. As we stated in the Notice, while we find that Section 601(d) negates Section 22.903(e), we believe that we retain authority to determine the permissible scope of LEC/CMRS joint marketing, including the rules to define the relationship between the affiliated entities engaged in such joint marketing. Section 601(d) expressly permits a BOC to market jointly and sell CMRS in conjunction with several types of landline services. Nothing in the plain language of Section 601(d) prohibits or circumscribes the Commission from imposing conditions on, or defining the permissible scope of, such joint marketing. Indeed, the authority to engage in joint marketing and sale of landline and CMRS services is expressly made subject to the provisions of Section 272, which include separate affiliate requirements. 83. Moreover, nothing in the legislative history provides or suggests that the Commission lacks authority to impose certain conditions on joint marketing of landline and CMRS services. As we pointed out in the Notice, the Joint Explanatory Statement of the Conference Committee contains no reference to, nor explanation of, the purpose or scope of Section 601(d). There is a reference to Section 601(d) in the House of Representatives floor debate in the statement of Representative Burr regarding the purpose of the "Manager's Amendment" that included the addition of Section 601(d) to proposed H.R. 1555. But the statement of Rep. Burr merely indicates that Section 601(d) was designed to permit the BOCs to jointly market and resell the cellular services of their cellular affiliates and to provide the BOCs with sufficient relief from existing rules to permit them to offer one-stop shopping of local exchange services and cellular services. 84. We do not believe that it would be inconsistent with either Section 601(d) or the goal of permitting one-stop shopping for telecommunications services to impose minimal safeguards on incumbent LECs engaging in such joint marketing. As we discussed, in the Notice, these safeguards are intended to facilitate the easy detection and prevention of improper cost allocation. Accordingly, we will require that all incumbent LECs, other than LECs exempt from our separate affiliate rules, engaging in joint marketing of local exchange and exchange access and CMRS services, do so subject to the affiliate transactions rules (i.e., governing the transaction between the company's wireline and wireless affiliates). Such CMRS activity will be classified as nonregulated under our accounting rules, and must be conducted on a compensatory, arm's-length basis. These agreements must be reduced to writing and must be made available for public inspection upon request. Pursuant to the procedures set forth in the Accounting Safeguards Order concerning making agreements available for public inspection, we require the CMRS affiliate, at a minimum, to provide a detailed written description of the terms and conditions of the transaction on the Internet within 10 days of the transaction through the company's home page. The broad access of the Internet will increase the availability and accessibility of this information to interested parties, while imposing a minimum burden. We also require that the description of the terms and conditions of the transaction be sufficiently detailed to allow us to evaluate compliance with our accounting rules. This information must also be made available for public inspection at the principal place of business of the parties, and must include a certification statement identical to the certification statement currently required to be included with all Automated Reporting and Management Information Systems (ARMIS) reports. We believe these safeguards will make any attempted cost misallocation easier to detect and should reduce the potential for such abuses. Commenters did not address in any detail our proposed definition of joint marketing. We note that Section 22.903 has been in effect for approximately fifteen years without such a definition. We therefore see no reason to explicitly define this term in this proceeding. 85. We do not accept the argument of several commenters that imposing conditions on joint marketing would distort the market by conferring an unfair advantage on competitors, such as AT&T, Sprint, MCI and others that are pursuing "one-stop shopping efforts." First we note that we are not prohibiting "one-stop shopping," and the conditions we have placed on joint marketing should not impede incumbent LECs' efforts to engage in one-stop shopping. Second, we note that to the extent the competitors identified here attempt to jointly market local exchange, interexchange and CMRS services, they must comply with Section 271(e)(1), and accompanying joint marketing safeguards. Rather, we believe that these minimal requirements will provide consumers, the Commission, and competitors with sufficient information to evaluate whether an incumbent LEC is improperly allocating costs, and to make it easier to detect any improper allocation of costs that may occur. E. Resale 1. Overview 86. In addition to permitting joint marketing of wireline and CMRS services, Section 601(d) of the 1996 Act expressly permits a BOC to resell CMRS in conjunction with wireline service. In the Notice, we sought comment on whether we should impose conditions implementing the resale authority of Section 601(d) and whether we should mandate public disclosure of rates, terms and conditions of service in cases where the LEC is reselling its cellular affiliate's service. We specifically asked whether we should prohibit "one-of-a-kind" volume discounts for cellular service sold by the cellular affiliate to the affiliated telephone company for resale to the end user. We also sought comment on how implementation of Section 601(d) should affect potentially related joint marketing and sale activities that are currently prohibited under Section 22.903, such as joint installation, maintenance, and repair of BOC cellular and landline local exchange services. We also sought comment on the effect of Section 601(d) on activities such as billing and collection. 2. Comments 87. Bell Atlantic/NYNEX, GTE, and Pacific Bell contend that there should be no restrictions on a LEC's resale of CMRS, nor should a LEC be required to set up a separate affiliate for this purpose because a LEC that purchases CMRS for resale has no market power in the resale of CMRS. Bell Atlantic/NYNEX also contends that the Commission should not mandate public disclosure of terms and conditions of service where resale is involved, because that would discourage vigorous price competition, remove the carrier's ability to make rapid, efficient responses to market conditions, and risk collusion, price-signalling and other anticompetitive conduct. Bell Atlantic/NYNEX contends that no additional rules are needed to govern the costs of joint billing and collection, installation, maintenance and repair, and argues that the existing accounting, billing and collection rules are adequate to ensure that costs of operations are properly allocated. GTE similarly contends that there is no need to impose special safeguards when a LEC resells CMRS services, or to establish unique obligations on the LEC or CMRS providers affiliated with a Class A LEC to disclose the CMRS rates, terms, and conditions. GTE contends that the purchase for resale presents no competitive risks or concerns that are not already addressed by the Commission's general resale policies and requirements. Conversely, CMT and Radiofone contend that rates, terms and conditions of service should be disclosed in cases where the LEC is reselling its cellular affiliate's service. 88. With respect to volume discounts, Bell Atlantic/NYNEX and Pacific Bell contend that volume discounts offered by CMRS providers to LECs should not be restricted so long as the discounts are non-discriminatory. Bell Atlantic/NYNEX observes that the Commission has enacted a CMRS rule that affirms a CMRS provider's obligation to offer all resellers service on nondiscriminatory terms and conditions. Pacific Bell submits that the affiliate transaction guidelines would govern the purchase of service from an affiliate and would require that CMRS be sold to the LEC at the market rate (Section 37.27(d)), so any volume discounts would be at the level reflected in market prices. Radiofone, on the other hand, contends that the Commission should prohibit "one-of-a-kind" volume discounts for cellular service sold by the cellular affiliate of the LEC for resale to the end user. 3. Discussion 89. Our analysis with respect to our authority to impose conditions on resale is similar to our analysis of our authority with respect to joint marketing. Section 601(d) clearly permits LECs to resell CMRS provided by their wireless affiliates, and as discussed above, we retain authority to place conditions on, or define the scope of, resale of wireline and CMRS services. However, we agree with commenters that argued against imposing restrictions or qualifications upon incumbent LEC resale of CMRS provided by its CMRS affiliate. As discussed above, there is a considerable amount of broadband CMRS spectrum capacity available in the open market. In addition, broadband CMRS providers (including LEC affiliates) are prohibited by our CMRS Resale Order from restricting resale of their services or discriminating against resellers. In this environment, we do not believe that there is any reason to be particularly concerned about the terms and conditions in which the CMRS affiliate makes available CMRS to its incumbent LEC parent for resale. The competitive concerns and safeguards we address above focus upon the terms and conditions in which the incumbent LEC provides interconnection and other services to all in-region CMRS providers (including its CMRS affiliate) -- in this context, we are appropriately concerned that the incumbent LEC will utilize its market power in the local exchange to unduly advantage its CMRS operations or reduce competition to its wireline operations. These discrimination concerns are absent when the CMRS affiliate provides goods and services to its incumbent LEC parent, and our affiliate transaction rules will protect against any possible cost misallocation issues that would arise from these transactions. Therefore, we do not believe that it is appropriate to impose any further regulation upon incumbent LEC resale of its CMRS affiliate's CMRS, aside from other Commission rules such our accounting and affiliate transaction rules. 90. As articulated in the Notice, our concern was, for example, that a LEC-affiliated CMRS provider could tailor a volume discount offering for its affiliated LEC, who would in this case be acting as a CMRS reseller, by requiring a volume commitment that might not be attainable for other, non-affiliated, resellers. Without an abundant supply of CMRS spectrum capacity in each market, such a relationship could indeed present competitive issues for competitive LECs, who would not be able to "match" that bundled product offering. However, given the amount of CMRS spectrum capacity now licensed, competitive LECs have other sources of CMRS supply that would enable them to create bundled LEC-CMRS service offerings. Since the market does not require competitive LECs to deal with the incumbent LEC's CMRS affiliates in order to provide this bundled service package, we do not believe that regulation in this area is necessary. Therefore, we agree with commenters who argue that we should not mandate public disclosure of terms and conditions of service where resale is involved because such disclosure would discourage price competition, and risk collusion, price-signalling and other anticompetitive conduct. We note that this decision is consistent with our position in the IXC Detariffing Order, where we determined that public disclosure of rate information can have serious anticompetitive effects. 91. There was very limited comment with respect to joint billing and collection, which is not currently prohibited under Section 22.903, and other collateral activities that are currently prohibited under Section 22.903, including joint installation, maintenance, and repair for BOC cellular and wireline local exchange services. Upon consideration of these issues, we believe that these collateral services advance the goal of "one-stop shopping" and we do not intend to impose any restriction on their implementation at this time, except that carriers must adhere to other applicable Commission rules such as our accounting and affiliate transactions rules. To the extent such transactions present competitive concerns, the safeguards we adopt above require that incumbent LECs must offer the same services at the same terms and conditions to other CMRS providers as it offers to its CMRS affiliate. We believe that it would be inconsistent with our elimination of some of the structural separation requirements of Section 22.903 to retain restrictions on joint installation, maintenance, and repair activities, particularly since we are allowing wireline and wireless affiliates to share personnel and to jointly use facilities. Moreover, with respect to billing and collection, we adopt the tentative conclusion of the Notice that our Part 64 rules as they apply to affiliate transactions adequately address any concern over improper cross-shifting through joint billing. F. Customer Proprietary Network Information 1. Overview 92. Section 22.903(f) of our rules states that BOCs must not provide to their cellular separate affiliate any customer proprietary information, unless such information is publicly available on the same terms and conditions. The 1996 amendments to the Communications Act address telecommunications carriers' use, disclosure and permission of access to Customer Proprietary Network Information (CPNI) in general. Specifically, Section 222(c)(1) provides: PRIVACY REQUIREMENTS FOR TELECOMMUNICATIONS CARRIERS.-- Except as required by law or with the approval of the customer, a telecommunications carrier that receives or obtains customer proprietary network information by virtue of its provision of a telecommunications service shall only use, disclose, or permit access to individually identifiable customer proprietary network information in its provision of (A) the telecommunications service from which such information is derived, or (B) services necessary to, or used in, the provision of such telecommunications service, including the publishing of directories. Section 222(c)(2) provides that, "[a] telecommunications carrier shall disclose customer proprietary network information, upon affirmative written request by the customer, to any person designated by the customer." Section 222(c)(3) allows a local exchange carrier to use, disclose, or permit access to aggregate customer information for purposes other than those described in Section 222(c)(1) only if the LEC provides such information to other carriers or persons on reasonable and nondiscriminatory terms and conditions upon reasonable request. 93. We observed in the Notice that we recently initiated a separate proceeding to consider the formulation of CPNI regulations pursuant to Section 222 that would apply to all telecommunications carriers. We sought comment on whether Section 22.903(f) is inconsistent with Section 222 of the Communications Act. We also sought comment on whether we should eliminate Section 22.903(f) even if the rule is consistent with Section 222, on the grounds that Section 22.903(f) is superfluous in light of Section 222. 2. Comments 94. The non-BOC carriers generally contend that Section 22.903(f) should be retained in order to prevent a BOC's CMRS affiliate from gaining a competitive advantage through using CPNI obtained during the BOC's former monopoly exchange franchise. Some of these commenters contend that Section 22.903(f) should extend to all Class A LECs, and to all their CMRS offerings. They argue that, unless such competitively valuable CPNI is made available to non-LEC-affiliated competitors, its use by LECs would disadvantage other wireless carriers and undermine competition. The BOC commenters and GTE argue that Section 22.903(f) should be eliminated and that there should be no special rules for CPNI relating to wireless services. Instead, they contend, Section 222 should govern CPNI in the context of all telecommunications services offered by a carrier, including cellular and other CMRS offerings. 3. Discussion 95. Based on the record, the ability to use CPNI obtained from the wireline monopoly service for marketing purposes is clearly a competitive advantage the BOC CMRS providers would be very interested in utilizing, and other carriers are equally anxious to obtain. So that we do not prejudge any aspect of our CPNI rulemaking, however, we defer to CC Docket No. 96-115 for the appropriate interpretation of the scope of Section 222's CPNI protections. Accordingly, pending our decision in the CPNI proceeding, we will not eliminate Section 22.903(f) at this time, nor will we expand Section 22.903(f) to non-BOC LECs and to all CMRS as suggested by some commenters. We will take appropriate action regarding Section 22.903(f) upon resolution of our Section 222 proceeding. G. Network Information Disclosure 96. In the Notice we stated that Section 251(c)(5) of the Communications Act imposes a duty on incumbent LECs to provide reasonable public notice of changes to the network necessary for the transmission and routing of services using that LEC's facilities or networks, as well as any other changes that would affect the interoperability of those facilities and networks. We tentatively concluded that no specific Part 22 rule pertaining to network information disclosure by the BOCs would be necessary or appropriate due to the requirement in Section 251(c)(5). Only two commenters addressed this issue. BellSouth and AT&T Wireless agree that no CMRS-specific network disclosure requirements should be imposed because they are fully addressed in Section 251. 97. We agree with the commenters that incumbent LECs are required to "provide public notice of changes in the information necessary for the transmission and routing of services" using the incumbent LEC's CMRS facilities or networks, pursuant to Section 251(c)(5). The Communications Act imposes on incumbent LECs the duty to provide reasonable public notice of changes in the information needed to transmit and route services using a LEC's facilities or networks. Incumbent LECs must provide reasonable public notice of any other changes that would affect the interoperability of those facilities or networks. The Commission has specified how these public notices must be made in the Second Local Competition Order. Moreover, Section 51.325(c) provides that until public notice has been given, an incumbent LEC may not disclose information about planned network changes to "separate affiliates, separated affiliates, or unaffiliated entities." We accordingly adopt the conclusion in the Notice that no specific Part 22 rule pertaining to network information disclosure by the BOCs is needed. VI. CONCLUSION 98. In this proceeding, we have attempted to modify our rules to reflect the Congressionally mandated goal of consistent treatment of like services and to afford telecommunications providers flexibility in structuring service offerings in response to changing consumer demand. In so doing, we have considered the increasing convergence of regulated wireline services and nonregulated wireless services and consumer demand for "one- stop shopping" for telecommunications customers. At the same time, we are mindful of concerns that incumbent wireline providers, seeking to offer wireless services, may take advantage of their wireline market power to allocate costs improperly, discriminate against competitors, or engage in a predatory price squeeze, all to the detriment of consumers. We believe that the approach we have adopted in this Report and Order, including requiring incumbent LECs to offer in-region broadband CMRS through a separate CMRS affiliate, appropriately balances the LECs' need for flexibility in an evolving marketplace with competitors' concerns regarding the incentive for anticompetitive behavior by incumbent LECs. Further, we believe that the goals of Section 22.903 are fulfilled through the separate CMRS affiliate requirement and through other factors in the marketplace, including increasing competition and convergence, our accounting safeguards, price cap regulation, new interconnection requirements and other existing rules. Rural telephone companies are exempt from the separate affiliate requirement, and companies serving fewer than two percent of the nation's subscriber lines that seek to provide broadband CMRS without forming a separate affiliate may petition the Commission for suspension or modification of that requirement. 99. The separate affiliate requirement will sunset on January 1, 2002, unless the Commission determines that the competitive conditions in the local exchange market are such that continuation of these safeguards is in the public interest. VII. PROCEDURAL ISSUES A. Regulatory Flexibility Analysis 100. The Final Regulatory Flexibility Analysis pursuant to the Regulatory Flexibility Act, 5 U.S.C.  604, is contained in Appendix C. B. Paperwork Reduction Act Analysis 101. This Report and Order contains a modified information collection. As part of its continuing effort to reduce paperwork burdens, we invite the general public and the Office of Management and Budget (OMB) to take this opportunity to comment on the information collections contained in this Report and Order, as required by the Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments are due 30 days from date of publication of this NPRM in the Federal Register; OMB comments are due 60 days from date of publication of this Report and Order in the Federal Register. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. C. Paperwork Reduction Act Comment Filing Procedures 102. Written comments by the public on the proposed and/or modified information collections are due on or before 30 days after date of publication in the Federal Register. Written comments must be submitted by the Office of Management and Budget (OMB) on the proposed and/or modified information collections on or before 60 days after date of publication in the Federal Register. In addition to filing comments with the Secretary, a copy of any comments on the information collections contained herein should be submitted to Judy Boley, Federal Communications Commission, Room 234, 1919 M Street, N.W., Washington, DC 20554, or via the Internet to jboley@fcc.gov and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 - 17th Street, N.W., Washington, DC 20503 or via the Internet to fain_t@al.eop.gov. D. Ordering Clauses 103. Accordingly, IT IS ORDERED that, pursuant to Sections 4(i) and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 303(r), this Report and Order is hereby ADOPTED, and Section 20.20 of the Commission's Rules, 47 C.F.R.  20.20, IS ADDED and Section 22.903 of the Commission's Rules, 47 C.F.R.  22.903, IS AMENDED as set forth in Appendix B, effective 70 days after publication of a summary in the Federal Register. The information collections contained in these rules become effective 70 days after publication in the Federal Register, following OMB approval, unless a notice is published in the Federal Register stating otherwise. 104. IT IS FURTHER ORDERED that the Secretary shall send a copy of this REPORT AND ORDER, including the final regulatory flexibility analysis, to the Chief Counsel for Advocacy of the Small Business Administration, in accordance with paragraph 605(b) of the Regulatory Flexibility Act, 5 U.S.C.  601 et seq. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary APPENDIX A List of Commenters Initial Comments 1. AirTouch Communications, Inc. (AirTouch) 2. ALLTEL Corporation 3. Ameritech 4. AT&T Wireless Services, Inc. (AT&T Wireless) 5. Bell Atlantic Corporation and NYNEX Corporation (Bell Atlantic/NYNEX) 6. BellSouth Corporation 7. Cincinnati Bell Telephone Company (CBT) 8. CMT Partners (CMT) 9. Comcast Cellular Communications, Inc. (Comcast) 10. Cox Communications, Inc. (Cox) 11. GTE Service Corporation (GTE) 12. MCI Telecommunications Corporation (MCI) 13. National Telephone Cooperative Association (NTCA) 14. Pacific Bell, Nevada Bell, Pacific Bell Mobile Services and Pacific Telesis Mobile Services (Pacific Bell) 15. Public Utilities Commission of Ohio (PUCO) 16. Radiofone, Inc. 17. Rural Cellular Association (RCA) 18. Rural Telecommunications Group (RTG) 19. SBC Communications, Inc. (SBC) 20. US West, Inc. Reply Comments 1. ALLTEL Corporation 2. Ameritech 3. AT&T Wireless 4. Bell Atlantic/NYNEX 5. BellSouth Corporation 6. Comcast 7. Cox 8. CMT 9. GTE 10. MCI 11. Pacific Bell 12. Radiofone, Inc. 13. US West, Inc. Ex Parte Comments Bell Atlantic/NYNEX, November 4, 1996 BellSouth, January 27, 1997 GTE, January 30, 1997 Independent Telephone & Telecommunications Alliance (ITTA), May 12, 1997 Pacific Bell, December 4, 1996 US West, November 19, 1996 and December 20, 1996 APPENDIX B Final Rules AMENDMENTS TO THE CODE OF FEDERAL REGULATIONS 1. Part 20 of Title 47 of the Code of Federal Regulations is amended as follows PART 20 -- COMMERCIAL MOBILE RADIO SERVICES 2. The authority citation for Part 20 continues to read as follows: AUTHORITY: Secs. 4, 251-52, 303, and 332, 48 Stat. 1066, 1062, as amended; 47 U.S.C. 154, 251-52, 303, and 332 unless otherwise noted. 3. Section 20.20 is added to read as follows:  20.20 Conditions applicable to provision of CMRS service by Incumbent Local Exchange Carriers (a) Separate affiliate. An incumbent LEC providing in-region broadband CMRS shall provide such services through an affiliate that satisfies the following requirements: (1) The affiliate shall maintain separate books of account from its affiliated incumbent LEC. Nothing in this section requires the affiliate to maintain separate books of account that comply with Part 32 of this chapter; (2) The affiliate shall not jointly own transmission or switching facilities with its affiliated incumbent LEC that the affiliated incumbent LEC uses for the provision of local exchange service in the same in-region market. Nothing in this section prohibits the affiliate from sharing personnel or other resources or assets with its affiliated incumbent LEC; and (3) The affiliate shall acquire any services from its affiliated incumbent LEC for which the affiliated incumbent LEC is required to file a tariff at tariffed rates, terms, and conditions. Other transactions between the affiliate and the incumbent LEC for services that are not acquired pursuant to tariff must be reduced to writing and must be made on a compensatory, arm's length basis. All transactions between the incumbent LEC and the affiliate are subject to Part 32 of this chapter, including the affiliate transaction rules. Nothing in this section shall prohibit the affiliate from acquiring any unbundled network elements or exchange services for the provision of a telecommunications service from its affiliated incumbent LEC, subject to the same terms and conditions as provided in an agreement approved under section 252 of the Communications Act of 1934, as amended. (b) Independence. The affiliate required in paragraph (a) of this section shall be a separate legal entity from its affiliated incumbent LEC. The affiliate may be staffed by personnel of its affiliated incumbent LEC, housed in existing offices of its affiliated incumbent LEC, and use its affiliated incumbent LEC's marketing and other services, subject to paragraphs (a)(3) and (c) of this section. (c) Joint marketing. Joint marketing of local exchange and exchange access service and CMRS services by an incumbent LEC shall be subject to Part 32 of this chapter. In addition, such agreements between the affiliate and the incumbent LEC must be reduced to writing and made available for public inspection upon request at the principle place of business of the affiliate and the incumbent LEC. The documentation must include a certification statement identical to the certification statement currently required to be included with all Automated Reporting and Management Information Systems (ARMIS) reports. The affiliate must also provide a detailed written description of the terms and conditions of the transaction on the Internet within 10 days of the transaction through the affiliate's home page. (d) Exceptions. (1) Rural Telephone Companies. Rural telephone companies are exempted from the requirements set forth in paragraphs (a), (b) and (c) of this section. A competing telecommunications carrier, interconnected with the rural telephone company, however, may petition the FCC to remove the exemption, or the FCC may do so on its own motion, where the rural telephone company has engaged in anticompetitive conduct. (2) Incumbent LECs with fewer than 2 percent of subscriber lines. Incumbent LECs with fewer than 2 percent of the nation's subscriber lines installed in the aggregate nationwide may petition the FCC for suspension or modification of the requirements set forth in paragraphs (a), (b) and (c) of this section. The FCC will grant such a petition where the incumbent LEC demonstrates that suspension or modification of the separate affiliate requirement is (A) necessary to avoid a significant adverse economic impact on users of telecommunications services generally or to avoid a requirement that would be unduly economically burdensome, and (B) consistent with the public interest, convenience, and necessity. (e) Definitions. Terms used in this section have the following meanings: Affiliate. "Affiliate " means a person that (directly or indirectly) owns of controls, is owned or controlled by, or is under common ownership with, another person. For purposes of this section, the term "own" means to own and equity interest (or the equivalent thereof) of more than 10 percent. Broadband Commercial Mobile Radio Service (Broadband CMRS). For the purposes of this section, "broadband CMRS" means Domestic Public Cellular Radio Telecommunications Service (Part 22, Subpart H of this chapter), Specialized Mobile Radio (Part 90, Subpart S of this chapter), and broadband Personal Communications Services (Part 24, Subpart E of this chapter). Incumbent Local Exchange Carrier (Incumbent LEC). "Incumbent LEC" has the same meaning as that term is defined in  51.5 of this chapter. In-region. For the purposes of this section, an incumbent LEC's broadband CMRS service is considered "in-region" when 10 percent or more of the population covered by the CMRS affiliate's authorized service area, as determined by the 1990 census figures, is within the affiliated incumbent LEC's wireline service area. Rural Telephone Company. "Rural Telephone Company" has the same meaning as that term is defined in  51.5 of this chapter. (f) Sunset. This section will no longer be effective after January 1, 2002. 4. Subpart H, of Part 22 of Title 47 of the Code of Federal Regulations is amended as follows: Subpart H -- Cellular Radiotelephone Service 5. The authority citation for Part 22 continues to read as follows: AUTHORITY: 47 U.S.C. 154, 303, unless otherwise noted. 6. Section 22.903 is amended as follows:  22.903 Conditions applicable to former Bell Operating Companies Ameritech Corporation, Bell Atlantic Corporation, BellSouth Corporation, NYNEX Corporation, Pacific Telesis Group, Southwestern Bell Corporation, U.S. West Inc., their successors in interest and affiliated entities (BOCs) may engage in the provision of cellular service only in accordance with the conditions in this section and section 20.20, unless otherwise authorized by the FCC. BOCs may, subject to other provisions of law, have a controlling or lessor interest in or be under common control with separate corporations that provide cellular service only under the following conditions: (a) Reserved. (b) Reserved. (c) Reserved. (d) Reserved. (e) Reserved. (f) Proprietary information. BOCs must not provide to any such separate corporation any customer proprietary information, unless such information is publicly available on the same terms and conditions. (g) Reserved. APPENDIX C FINAL REGULATORY FLEXIBILITY ANALYSIS As required by the Regulatory Flexibility Act, 5 U.S.C.  603 (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking (Notice) in WT Docket No. 96-162. The Commission sought written comments on the proposals in the Notice, including the IRFA. The Commission's Final Regulatory Flexibility Analysis for the Report and Order conforms to the RFA, as amended by the Contract With America Advancement Act of 1996. A. Need for and purpose of the action The Report and Order in this docket sets forth a consistent regulatory framework for the provision of commercial mobile radio services (CMRS) by incumbent local exchange carriers (LECs) and their affiliates. This framework will treat all broadband CMRS, including cellular services, uniformly and is narrowly tailored to address specific concerns about potential anticompetitive use of bottleneck wireline local exchange facilities. B. Issues raised in response to the IRFA The Commission sought comment generally on the IRFA. No comments were submitted specifically in response to the IRFA. C. Description and estimates of the number of small entities to which the rules adopted in this Report and Order will apply The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that will be affected by our rules. The RFA defines the term "small entity" as having the same meaning as the terms "small business," "small organization," and "small governmental jurisdiction," and the same meaning as the term "small business concern" under the Small Business Act, unless the Commission has developed one or more definitions that are appropriate to its activities. Under the Small Business Act, a "small business concern" is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) meets any additional criteria established by the Small Business Administration (SBA). The SBA has defined a small business for Standard Industrial Classification (SIC) category 4813 (Telephone Communications, Except Radiotelephone) to be small entities having fewer than 1,500 employees. This FRFA discusses generally the total number of small telephone entities potentially affected by this Report and Order. The rules adopted in this Report and Order apply to all incumbent LECs offering in- region broadband CMRS. Incumbent LEC is defined in Section 251(h)(1) of the Communications Act of 1934, as amended (Communications Act), 47 U.S.C.  251(h)(1), with respect to an area, as "the local exchange carrier that (A) on the date of enactment of the Telecommunications Act of 1996, provided local exchange service in such area; and (B)(i) on such date of enactment, was deemed to be a member of the exchange carrier association pursuant to Section 69.601(b) of the Commission's regulations (47 C.F.R. 69.601(b)); or (ii) is a person or entity that, on or after such date of enactment, became a successor or assign of a member described in clause (i)." Rural telephone companies are exempt from the structural safeguards imposed in this Report and Order; however, a competing carrier, interconnected with the rural telephone company, may petition the Commission to remove the exemption, or the Commission may do so on its own motion, where the rural telephone company has engaged in anticompetitive conduct. In addition, companies serving fewer than two percent of the nation's subscriber lines may petition the Commission for suspension or modification of the separate affiliate requirement. Small incumbent LECs subject to these rules are either dominant in their field of operation or are not independently owned and operated, and, consistent with our prior practice, they are excluded from the definition of "small entity" and "small business concerns." Out of an abundance of caution, however, for regulatory flexibility analysis purposes, we will consider small incumbent LECs within this analysis and use the term "small incumbent LECs" to refer to any incumbent LECs that arguably might be defined by the SBA as "small business concerns." The United States Bureau of the Census ("the Census Bureau") reports that at the end of 1992 there were 3,497 firms engaged in providing telephone services, as defined therein, for at least one year. This number contains a variety of different categories of carriers, including local exchange carriers, interexchange carriers, competitive access providers, wireless carriers, operator service providers, pay telephone operators, and resellers. It seems certain that some of the 3,497 telephone service firms may not qualify as small incumbent LECs because they are not incumbent LECs or they are not independently owned and operated. It seems reasonable to conclude that fewer than 3,497 telephone service firms would qualify as small incumbent LECs that may be affected by this Report and Order. The SBA has developed a definition of small entities for telecommunications companies other than radiotelephone (Telephone Communications, Except Radiotelephone). The Census Bureau reports that there were 2,321 such telephone companies in operation for at least one year at the end of 1992. According to the SBA's definition, a small business telephone company other than a radiotelephone company is one employing fewer than 1,500 persons. Of the 2,321 non-radiotelephone companies listed by the Census Bureau, 2,295 were reported to have fewer than 1,000 employees. Thus, at least 2,295 non-radiotelephone companies might qualify as small entities or small incumbent LECs based on these statistics. As it seems certain that some of these carriers are not independently owned and operated, this figure necessarily overstates the actual number of non-radiotelephone companies that would qualify as small businesses under the SBA definition. Consequently, the Commission estimates that using this methodology there are fewer than 2,295 small entity telephone communications companies (other than radiotelephone companies) that may be affected by the proposed decisions and rules adopted in this Report and Order. Neither the Commission nor the SBA has developed a definition of small providers of local exchange services. The closest applicable definition under the SBA rules is for telephone communications companies other than radiotelephone companies. The most reliable source of information regarding the number of LECs nationwide of which the Commission is aware appears to be the data collected annually in the TRS Worksheet. According to the most recent data, 1,347 companies reported that they were engaged in the provision of local exchange services. As some of these carriers have more than 1,500 employees, we are unable at this time to estimate with greater precision the number of LECs that would qualify as small business concerns under the SBA's 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 Report and Order. D. Reporting, recordkeeping, and other compliance requirements: The rule adopted in this Report and Order requires incumbent LECs offering in-region broadband CMRS services to do so through a separate corporate affiliate. The CMRS affiliate must: (1) maintain separate books of account; (2) not jointly own transmission or switching facilities with the affiliated LEC that the affiliated LEC uses for the provision of local exchange services in the same in-region market; and (3) acquire any services from the affiliated LEC on a compensatory arm's length basis, as required by our affiliate transactions rules. The affiliate will be subject to the Commission's joint cost and affiliate transaction rules. Services acquired from the affiliated LEC must be made available to all CMRS providers on the same rates, terms, and conditions. This rule may require incumbent LECs to have additional reporting and recordkeeping with respect to transactions with the CMRS affiliate. Affiliate transactions. Some incumbent LECs may now be required to comply with the affiliate transactions rules in Part 32 of the Commission's rules if they offer broadband CMRS through a separate affiliate and conduct transactions with the CMRS affiliate. Prior to the adoption of the rule in this Report and Order, the Commission required the Bell Operating Companies (BOCs) to establish a separate affiliate for provision of cellular services, otherwise a separate affiliate was not required for LEC provision of broadband CMRS. Therefore, LECs that previously did not have a separate affiliate for broadband CMRS, and thus did not have affiliate transactions, will now have to establish a separate affiliate and comply with the Commission's affiliate transactions rules. Joint marketing agreements. The rule adopted in this Report and Order requires all incumbent LECs and the CMRS affiliates engaging in joint marketing of local exchange and exchange access and CMRS to reduce all such agreements to writing and make the agreements available for public inspection upon request at the principle place of business of the affiliate and the incumbent LEC. The documentation also must include a certification statement identical to the certification statement currently required to be included with all Automated Reporting and Management Information Systems (ARMIS) reports. The affiliate must also provide a detailed written description of the terms and conditions of the transaction on the Internet within ten days of the transaction through the affiliate's home page. E. Steps taken to minimize burdens on small entities and significant alternatives considered The Commission sought to minimize burdens on small entities by providing an exemption for rural telephone companies. Rural telephone companies are exempted from the separate affiliate requirement; however, a competing local exchange carrier, interconnected with the rural telephone company, may petition the Commission to remove the exemption, or the Commission may do so on its own motion, if the rural telephone company has engaged in anticompetitive conduct. The Commission sought to minimize burdens on small entities by permitting incumbent LECs with fewer than two percent of the nation's subscriber lines to petition the Commission for suspension or modification of the separate affiliate requirement. The Commission will grant such a petition if the incumbent LEC can demonstrate that suspension or modification of the separate affiliate requirement is necessary to avoid a significant adverse economic impact on users of telecommunications services generally or to avoid a requirement that would be unduly burdensome, and consistent with the public interest, convenience, and necessity. The Commission considered and rejected the proposals in the Notice: (1) to retain, but sunset, Section 22.903 of the Commission's rules, or (2) to require all Tier 1 (or Class A) LECs providing in-region broadband CMRS to file a safeguards plan similar to the plan filed by PacTel. Neither of the proposals in the Notice would impose additional regulation on Class B LECs. The Commission instead decided to impose structural separation regulations on all incumbent LECs providing broadband CMRS because anticompetitive interconnection practices, particularly discriminatory behavior, pose a substantial threat to full and fair competition in the CMRS marketplace, and all incumbent LECs have the ability and incentive to engage in anticompetitive behavior. The Commission observed that increased competition in the CMRS market and the possibility that CMRS in the future may substitute for wireline local loops may actually increase incumbent LECs' incentive to discriminate against unaffiliated CMRS providers. The Commission concluded that it was appropriate to apply structural safeguards to all incumbent LECs. As described above, however, we have considered, and have taken measures to address, the additional burdens these requirements might have on rural telephone companies and on those entities serving two percent of the nations' subscriber lines. G. Report to Congress The Commission shall send a copy of this Final Regulatory Flexibility Analysis with this Report and Order in a report to Congress pursuant to Section 251 of the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.  801(a)(1)(A). A copy of this Regulatory Flexibility Analysis will also be published in the Federal Register. Separate Statement of Commissioner James Quello Re: Amendment of the Commission's Rules to Establish Competitive Service Safeguards for Local Exchange Carrier Provision of Commercial Mobile Radio Service, WT Docket No. 96- 162 October 1, 1997 I support the decision to modify our rules concerning the provision of commercial mobile radio service (CMRS) by incumbent LECs. As the CMRS market becomes more competitive, incumbent LECs may have an incentive to tilt the CMRS playing field in their favor. Our response in this Report and Order is to establish several safeguards that minimize the opportunity for incumbent LECs to recover their CMRS costs from local telephone customers. Local telephone customers should pay for local telephone service, not for CMRS service. Importantly, this Report and Order also addresses the Sixth Circuit's decision in Cincinnati Bell. In that case, the court criticized the Commission's unequal treatment of similar services (cellular versus PCS) and similar providers (BOCs versus other incumbent LECs). This Report and Order fully responds to the court's concerns. First, we modify our rules to treat similar services in a similar manner. We do this by requiring incumbent LECs to provide both cellular service and PCS through structurally separate affiliates. Second, we adopt rules that treat similar carriers in a similar manner. We do this by requiring all incumbent LECs, not just BOCs, to comply with the competitive safeguards when they provide CMRS. It is necessary to apply competitive safeguards to all incumbent LECs, and not just BOCs, because all incumbent LECs have the incentive to engage in anti-competitive conduct in providing in-region CMRS. I remain concerned, however, about the costs of imposing competitive safeguards on those incumbent LECs that previously were not subject to these requirements. I supported this aspect of the Report and Order only after careful consideration of the legal and policy implications. In the end, I placed great importance on the principle of treating BOCs and other incumbent LECs equally. I hope that the benefits of vigorous CMRS competition, especially lower prices for end users, will justify applying the competitive safeguards to non- BOC LECs. I also believe that other steps taken in this Report and Order -- including narrowing the competitive safeguards, exempting smaller LECs, and sunsetting the safeguards -- demonstrate our commitment to adopting rules that go no further than necessary to protect local telephone customers and promote competition in the CMRS market. # # #