[Federal Register: November 21, 2003 (Volume 68, Number 225)]
[Proposed Rules]
[Page 65665-65667]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21no03-15]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 53
[WC Docket No. 03-228; FCC 03-272]
Section 272(b)(1)'s ``Operate Independently'' Requirement for
Section 272 Affiliates
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: This document initiates an inquiry regarding the Commission's
rules implementing section 272(b)(1) of the Communications Act of 1934,
as amended, (the Act) seeking comment on whether the Commission should
modify the rules adopted to implement section 272(b)(1)'s ``operate
independently'' requirement. Specifically, the Commission seeks comment
on whether the operating, installation, and maintenance (OI&M) sharing
prohibition is an overbroad means of preventing cost misallocation or
discrimination by Bell operating companies (BOCs) against unaffiliated
rivals. It also seeks comment on whether the prohibition against joint
ownership by BOCs and their section 272 affiliates of switching and
transmission facilities, or the land and buildings on which such
facilities are located, should be modified or eliminated.
DATES: Comments are due December 8, 2003, and Reply Comments are due
December 16, 2003.
FOR FURTHER INFORMATION CONTACT: Christi Shewman, Attorney-Advisor,
Wireline Competition Bureau, at (202) 418-1686 or via the Internet at christi.shewman@fcc.gov.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rulemaking (NPRM) in WC Docket No. 03-228, FCC 03-272,
adopted November 3, 2003, and released November 4, 2003. The complete
text of this NPRM is available for inspection and copying during normal
business hours in the FCC Reference Information Center, Portals II, 445
12th Street, SW., Room CY-A257, Washington, DC 20554. This document may
also be purchased from the Commission's duplicating contractor, Qualex
International, Portals II, 445 12th Street, SW., Room CY-B402,
Washington, DC 20554, telephone 202-863-2893, facsimile 202-863-2898, or via e-mail qualexint@aol.com. It is also available on the
Commission's Web site at http://www.fcc.gov.
Synopsis of the Notice of Proposed Rulemaking (NPRM)
1. In this proceeding, the Commission seeks comment on whether the
Commission should modify or eliminate its rules implementing the
``operate independently'' requirement of section 272(b)(1) of the Act.
The Commission's seven years of experience in implementing the
Telecommunications Act of 1996 leads it to re-examine the rules
designed to ensure that section 272 affiliates ``operate
independently'' as required by the statute. The Commission seeks to
determine whether these rules continue to strike an appropriate balance
between allowing the BOCs to achieve efficiencies within their
corporate structures and protecting ratepayers against improper cost
allocation and competitors against discrimination.
2. Background. Sections 271 and 272 establish a comprehensive
framework governing BOC provision of ``interLATA service.'' Pursuant to
section 271, neither a BOC nor a BOC affiliate may provide in-region,
interLATA service prior to receiving section 271(d) authorization from
the Commission. Section 272 requires BOCs, once authorized to provide
in-region, interLATA services in a state under section 271, to provide
those services through a separate affiliate until the section 272
separate affiliate requirement sunsets for that particular state.
Section 272 imposes structural and transactional requirements on
section 272 separate affiliates, including the requirement under
section 272(b)(1) to ``operate independently'' from the BOC.
3. In the Non-Accounting Safeguards Order, (62 FR 2927, January 21,
1997), the Commission concluded that the ``operate independently''
language of section 272(b)(1) imposes requirements
[[Page 65666]]
on section 272 separate affiliates beyond those detailed in section
272(b)(2) through (b)(5). As a result, the Commission adopted rules to
implement the ``operate independently'' requirement that prohibits a
BOC and its section 272 affiliate from (1) jointly owning switching and
transmission facilities or the land and buildings on which such
facilities are located; and (2) providing OI&M services associated with
each other's facilities. Specifically with regard to sharing OI&M
functions, the Commission's rules prohibit a section 272 affiliate from
performing OI&M functions associated with the BOC's facilities.
Likewise, they bar a BOC or any BOC affiliate, other than the section
272 affiliate itself, from performing OI&M functions associated with
the facilities that its section 272 affiliate owns or leases from a
provider other than the BOC with which it is affiliated. At the time of
the Non-Accounting Safeguards Order, the Commission reasoned that
allowing joint ownership of facilities and sharing of OI&M functions
between BOCs and their 272 affiliates would create opportunities for
improper cost allocation and discrimination that the separate affiliate
requirement was intended to prevent. At the same time, the Commission
recognized that restrictions on sharing of facilities and services
impose costs, including inefficiencies within the BOCs' corporate
structures, and that the economies of scale and scope inherent to
integration produce economic benefits to consumers. The Commission
explained that it was ``strik[ing] an appropriate balance between
allowing the BOCs to achieve efficiencies within their corporate
structures and protecting ratepayers against improper cost allocation
and competitors against discrimination.''
4. Operating, Installation, and Maintenance Functions. The
Commission seeks comment on whether the cost data suggest that the
costs of the OI&M sharing prohibition outweigh the benefits. It seeks
comment on whether eliminating the prohibition on sharing OI&M
functions would materially increase the BOCs' ability or incentive to
discriminate against unaffiliated rivals in the long distance market.
The Commission also seeks comment on whether it would diminish the
ability of the Commission to monitor and enforce compliance with the
Act.
5. The Commission seeks comment on whether the potential savings to
be gained by BOC operations and the potential for increased interLATA
competition outweigh any benefits from continuing to apply the OI&M
sharing prohibition. It seeks comment on whether the OI&M sharing
prohibition imposes inefficiencies and what the extent of those
inefficiencies is. The Commission also seeks comment on the benefits to
consumers of allowing more integrated OI&M operations between BOCs and
their section 272 affiliates and on the magnitude of the risks and
adverse consequences of possible anti-competitive conduct facilitated
by OI&M sharing. Parties are asked to address in their comments the
effectiveness of non-structural safeguards alone, rather than
maintaining the OI&M sharing prohibition, to prevent and detect cost
misallocation and discrimination.
6. Joint Facilities Ownership. In addition to the OI&M sharing
prohibition, the Commission adopted a rule to implement section
272(b)(1) that prohibits joint ownership of switching and transmission
facilities or the land and buildings on which such facilities are
located. Although the Commission reaches no tentative conclusion with
regard to this restriction, it seeks comment on whether it is needed to
prevent cost misallocation and discrimination. Parties are asked to
identify both the costs and benefits of maintaining or eliminating the
joint facilities ownership restriction. The Commission seeks comment on
whether existing non-structural safeguards are adequate to serve the
purpose that the joint facilities ownership restriction was intended to
serve. Parties are also asked to discuss whether any new safeguards may
be needed in the event that the joint facilities ownership restriction
is eliminated. Finally, commenters should address how a conclusion by
the Commission to eliminate both the joint facilities ownership
restriction and the OI&M sharing prohibition would relate to the
Commission's conclusion in the Non-Accounting Safeguards Order that the
``operate independently'' language of section 272(b)(1) imposes
separate and independent requirements on section 272 separate
affiliates beyond those detailed in section 272(b)(2) through (b)(5).
Initial Paperwork Reduction Act Certification
7. This NPRM may contain a new or modify an existing information
collection. As part of our 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 possible
changes in information collection contained in the NPRM, as required by
the Paperwork Reduction Act of 1995, Public Law 104-13. Public and
agency comments are due 60 days from the date of publication of this
NPRM in the Federal Register. Comments should address: (1) Whether the
possible changes in the collections of information are necessary for
the proper performance of the functions of the Commission, including
whether the information will have practical utility; (2) the accuracy
of the Commission's burden estimates; (3) ways to enhance the quality,
utility, and clarity of any information collected; and (4) ways to
minimize the burden of any collection of information on the
respondents, including the use of automated collection techniques or
other forms of information technology.
Initial Regulatory Flexibility Certification
8. The Regulatory Flexibility Act of 1980, as amended (RFA),
requires that an initial regulatory flexibility analysis be prepared
for notice-and-comment rule making proceedings, unless the agency
certifies that ``the rule will not, if promulgated, have a significant
economic impact on a substantial number of small entities.'' The RFA
generally defines the term ``small entity'' as having the same meaning
as the terms ``small business,'' ``small organization,'' and ``small
governmental jurisdiction.'' In addition, the term ``small business''
has the same meaning as the term ``small business concern'' 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) satisfies any additional criteria established by the
Small Business Administration (SBA).
9. In this NPRM, the Commission seeks comment on whether it should
modify or eliminate the rules adopted to implement the ``operate
independently'' requirement of section 272(b)(1) of the Act.
Specifically, it seeks comment on whether the OI&M sharing prohibition
is an overbroad means of preventing cost misallocation or
discrimination by BOCs against unaffiliated rivals. The Commission also
seeks comment on whether the prohibition against joint ownership by
BOCs and their section 272 affiliates of switching and transmission
facilities, or the land and buildings on which such facilities are
located, should be modified or eliminated. The rules under
consideration in this NPRM apply only to BOCs and their section 272
affiliates. Neither the Commission nor the SBA has developed a small
business size standard specifically applicable to providers of
incumbent local exchange service and interexchange services. The
[[Page 65667]]
closest applicable size standard under the SBA rules is for Wired
Telecommunications Carriers. This provides that such a carrier is small
entity if it employs no more than 1,500 employees. None of the four
BOCs that would be affected by amendment of these rules meets this
standard. The Commission next turns to whether any of the section 272
affiliates may be deemed a small entity. Under SBA regulation
121.103(a)(4), ``SBA counts the * * * employees of the concern whose
size is at issue and those of all its domestic and foreign affiliates *
* * in determining the concern's size.'' In that regard, although
section 272 affiliates operate independently from their affiliated
BOCs, many are 50 percent or more owned by their respective BOCs, and
thus would not qualify as small entities under the applicable SBA
regulation. Moreover, even if the section 272 affiliates were not
``affiliates'' of BOCs, as defined by SBA, as many are, the Commission
estimates that fewer than fifteen section 272 affiliates would fall
below the size threshold of 1,500 employees. Particularly in light of
the fact that Commission data indicate that a total of 261 companies
have reported that their primary telecommunications service activity is
the provision of interexchange services, the fifteen section 272
affiliates that may be small entities do not constitute a ``substantial
number.'' Because the proposed rule amendments directly affect only
BOCs and section 272 affiliates, based on the foregoing, the Commission
concludes that a substantial number of small entities will not be
affected by our proposal.
10. Accordingly, for the reasons set forth above, the Commission
certifies that the proposals in this NPRM, if adopted, will not have a
significant economic impact on a substantial number of small entities.
The Commission will send a copy of the Notice, including a copy of this
Initial Regulatory Flexibility Certification, to the Chief Counsel for
Advocacy of the SBA. This initial certification will also be published
in the Federal Register.
Ordering Clauses
11. Accordingly, pursuant to the authority contained in sections 2,
4(i)-(j), 272, and 303(r) of the Communications Act of 1934, as
amended, 47 U.S.C. 152, 154(i)-(j), 272, 303(r), this Notice of
Proposed Rulemaking is Adopted.
12. The Commission's Consumer and Governmental Affairs Bureau,
Reference Information Center, shall Send a copy of this Notice of
Proposed Rulemaking, including the Initial Regulatory Flexibility
Certification, to the Chief Counsel for Advocacy of the Small Business
Administration, in accordance with the Regulatory Flexibility Act.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 03-29054 Filed 11-20-03; 8:45 am]
BILLING CODE 6712-01-P