[Federal Register: March 30, 2004 (Volume 69, Number 61)]
[Rules and Regulations]
[Page 16494-16496]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30mr04-11]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 53
[WC Docket No. 03-228; FCC 04-54]
Section 272(b)(1)'s ``Operate Independently'' Requirement for
Section 272 Affiliates
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: This document adopts rules eliminating the Commission's
Operating, Installation, and Maintenance (OI&M) sharing prohibition.
The Commission finds that, in light of the other existing section 272
non-structural requirements, eliminating the OI&M sharing prohibition
would neither materially increase Bell operating companies' (BOCs)
abilities or incentives to misallocate costs or discriminate against
unaffiliated rivals, nor would it diminish the ability of the
Commission to monitor and enforce compliance with the Act. The
Commission finds that there is sufficient evidence to show that the
OI&M sharing prohibition has increased the section 272 affiliates'
operating costs, and that the elimination of the OI&M sharing
prohibition would likely result in substantial cost savings to the
affiliates and enable the affiliates to compete more effectively in the
interexchange market. Therefore, the Commission concludes that the OI&M
sharing prohibition poses significant adverse consequences that
outweigh any potential benefits of enforcing structural separation of
OI&M services, given the protections afforded to consumers and
competitors by section 272's other non-structural safeguards.
DATES: Effective March 30, 2004.
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 Report
and Order (R&O) in WC Docket No. 03-228, FCC 04-54, adopted March 11,
2004 and released March 17, 2004. The complete text of this R&O 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 Report and Order
1. Background. Sections 271 and 272 of the Communications Act, as
amended, 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. In addition, section 272 imposes structural
and transactional requirements on section 272 separate affiliates,
including the requirement to ``operate independently'' from the BOC.
2. Section 272(b)(1) directs that the separate affiliate required
pursuant to section 272(a) ``shall operate independently from the
[BOC].'' In 1996, the Commission adopted rules to implement the
``operate independently'' requirement that prohibit 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. 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.
On November 3, 2003, the Commission adopted the Notice of Proposed
Rulemaking (68 FR 65665, November 21, 2003) in this proceeding to seek
comment on whether it should modify or eliminate the rules adopted to
implement section 272(b)(1)'s ``operate independently'' requirement,
including the OI&M sharing prohibition.
3. ``Operate Independently.'' In this Order, the Commission rejects
arguments that it must retain both the OI&M sharing prohibition and the
joint facilities ownership restriction in order to give meaning to
section 272(b)(1)'s ``operate independently'' language. The Commission
reaffirms the conclusion of the previous Commission that section
272(b)(1) is ambiguous. An agency is free to modify its interpretation
of an ambiguous statutory provision when other reasonable
interpretations may exist, provided that it acknowledges its change of
course and provides a rational basis for its shift in policy. In fact,
a reexamination of rules is particularly appropriate where, as here,
the Commission has gained more experience over time and new ways of
achieving regulatory goals have developed. In the instant situation,
the Commission has chosen to reexamine the rules adopted to implement
section 272(b)(1) in light of its eight years of experience in
implementing the 1996 Act (including applicable cost allocation and
nondiscrimination rules), its additional experience with monitoring
section 272 affiliates, and, more generally, the growth of competition
in all telecommunications markets. Thus, the Commission concludes that
it should eliminate the OI&M sharing prohibition but retain the joint
facilities ownership restriction under section 272(b)(1), consistent
with its obligation to implement the statutory directive that the
section 272 affiliate and the BOC ``operate independently.''
4. Operating, Installation, and Maintenance Services. The
Commission finds that the OI&M prohibition is an overbroad means of
preventing anti-competitive conduct and poses significant costs that
outweigh any potential benefits. Because the prohibition on OI&M
sharing is not directly compelled by section 272(b)(1), the Commission
eliminates sections 53.203(a)(2) through (a)(3) of its rules. The
Commission concludes that the remaining section 272 requirements,
together with its other non-structural safeguards, will continue to
serve as effective protections against anticompetitive conduct by BOCs
following elimination of the OI&M sharing prohibition. In the context
of OI&M functions, the Commission concludes that the existing non-
structural safeguards are well-tailored and sufficient to provide
effective and efficient protections against cost misallocation and
discrimination by BOCs. Based on the record in this proceeding, the
Commission does not expect that eliminating the OI&M sharing
prohibition will materially increase BOCs' abilities or incentives to
misallocate costs or discriminate against unaffiliated rivals in price
or performance. Nor will eliminating the
[[Page 16495]]
prohibition diminish the ability of the Commission to monitor and
enforce compliance with the Act in light of non-structural safeguards.
Following elimination of the OI&M sharing prohibition, the Commission
will be able to effectively monitor the performance of BOC provision of
OI&M functions through application of (1) the other section 272
requirements and (2) the Commission's affiliate transactions and cost
allocation rules.
5. Costs of the OI&M Sharing Prohibition. The Commission finds that
there is sufficient evidence in the record to show that the OI&M
sharing prohibition has increased the section 272 affiliates' operating
costs, and that the elimination of the OI&M sharing prohibition will
likely result in substantial cost savings to the affiliates and enable
the affiliates to compete more effectively in the interexchange market.
It recognizes that, at the time the OI&M sharing prohibition was
adopted, the Commission acknowledged that structural separation may
sacrifice economies of scale and scope. The Commission, nonetheless,
concluded that the benefits of the OI&M sharing prohibition outweighed
these costs. It now finds, however, that, when the historical and
projected costs of the OI&M sharing prohibition against protections
afforded by our structural and non-structural safeguards are
considered, the costs of the rule exceed the likely benefits of
maintaining the rule. Moreover, the Commission finds that the likely
savings to the section 272 affiliates by elimination of the rule, in
conjunction with the BOCs' adherence to our structural and non-
structural rules, including the cost allocation rules, supports a
finding for the elimination of the OI&M sharing prohibition at this
time. The Commission further finds that the evidence supports BOCs'
claims that the OI&M sharing prohibition imposes inefficiencies that
prevent BOCs from competing more effectively in the interexchange
market.
6. Joint Facilities Ownership. The joint facilities ownership
restriction was adopted concurrently with the OI&M sharing prohibition
to implement the ``operate independently'' requirement of section
272(b)(1). The joint facilities ownership restriction, codified in
section 53.203(a)(1) of the Commission's rules, provides that ``[a]
section 272 affiliate and the BOC of which it is an affiliate shall not
jointly own transmission and switching facilities or the land and
buildings where those facilities are located.'' In adopting this
restriction, the Commission believed that joint ownership of facilities
could facilitate cost misallocation and discrimination. Based on the
record presented in this proceeding, the Commission continues to
believe that, unlike the OI&M sharing prohibition, the costs of
maintaining separate ownership of facilities does not outweigh the
benefits the rule provides against cost misallocation and
discrimination. In making this determination, the Commission is mindful
that the record support for eliminating the joint facilities ownership
restriction is much more limited and inconclusive than the record that
has been presented on the OI&M sharing prohibition. Therefore, the
Commission retains the joint facilities ownership restriction to ensure
that BOCs and their affiliates continue to operate independently.
Final Regulatory Flexibility Certification
7. The Regulatory Flexibility Act of 1980, as amended (RFA),
requires that an initial regulatory flexibility analysis be prepared
for notice-and-comment rulemaking 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).
8. In the Notice, the Commission sought comment generally on
whether we should modify or eliminate the rules adopted to implement
the ``operate independently'' requirement of section 272(b)(1) of the
Act. Specifically, it sought 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
sought 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.
9. The Order eliminates the OI&M sharing prohibition, under
sections 53.203(a)(2) through (a)(3) of the Commission's rules, because
the Commission finds that it is an overbroad means of preventing cost
misallocation or discrimination by BOCs against unaffiliated rivals.
Further, the Order retains 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, under section 53.203(a)(1) of the Commission's rules.
10. The rules adopted in this Order 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 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, it is noted that, 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 rule amendments
directly affect only BOCs and section 272 affiliates, based on the
foregoing, we conclude that a substantial number of small entities will
not be affected by the rules.
11. Therefore, the Commission certifies that the requirements of
the Order will not have a significant economic impact on a substantial
number of small entities. The Commission will send a copy of the Order,
including a copy of this Final Regulatory Flexibility Certification, in
a
[[Page 16496]]
report to Congress pursuant to the Congressional Review Act. In
addition, the Order and this final certification will be sent to the
Chief Counsel for Advocacy of the SBA, and will be published in the
Federal Register.
Final Paperwork Reduction Act Analysis
12. This Report and Order does not contain information
collection(s) subject to the Paperwork Reduction Act of 1995 (PRA),
Pub. L. 104-13.
Ordering Clauses
13. Pursuant to 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), the Report and Order is adopted.
14. Pursuant to sections 1.103(a) and 1.427(b) of the Commission's
rules, 47 CFR 1.103(a), 1.427(b), that this Report and Order and
Memorandum Opinion and Order shall be effective upon publication of the
Report and Order in the Federal Register.
15. The Commission's Consumer and Governmental Affairs Bureau,
Reference Information Center, shall send a copy of this Order,
including the Final Regulatory Flexibility Certification, to the Chief
Counsel for Advocacy of the Small Business Administration.
List of Subjects in 47 CFR Part 53
Telecommunications, Special Provisions concerning Bell operating
companies.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
0
For the reasons discussed in the preamble, the Federal Communications
Commission amends 47 CFR part 53 as follows:
PART 53--SPECIAL PROVISIONS CONCERNING BELL OPERATING COMPANIES
0
1. The authority citation for part 53 continues to read as follows:
Authority: Sections 1-5, 7, 201-05, 218, 251, 253, 271-75, 48
Stat. 1070, as amended, 1077; 47 U.S.C. 151-55, 157, 201-05, 218,
251, 253, 271-75, unless otherwise noted.
0
2. In Sec. 53.203, revise paragraph (a)(1) to read as follows:
Sec. 53.203 Structural and transactional requirements.
(a) * * * (1) A section 272 affiliate and the BOC of which it is an
affiliate shall not jointly own transmission and switching facilities
or the land and buildings where those facilities are located.
* * * * *
[FR Doc. 04-6946 Filed 3-29-04; 8:45 am]
BILLING CODE 6712-01-P