*Pages 1--7 from Microsoft Word - 14819.doc* Federal Communications Commission DA 02- 318 Before the Federal Communications Commission Washington, D. C. 20554 In the Matter of Sprint Petition For Pricing Flexibility For Special Access and Dedicated Transport Services ) ) ) ) ) CCB/ CPD No. 01- 022 MEMORANDUM OPINION AND ORDER Adopted: February 11, 2002 Released: February 12, 2002 By the Chief, Common Carrier Bureau: I. INTRODUCTION 1. On November 16, 2001, the Sprint local telephone companies (Sprint) 1 filed a petition seeking pricing flexibility in the provision of certain interstate access services. 2 As detailed below, the Commission established the parameters for granting pricing flexibility for special access and dedicated transport services in its Pricing Flexibility Order. 3 In doing so, the Commission recognized the importance of granting pricing flexibility to incumbent local exchange carriers (LECs) as competition develops in the market for interstate access services “to ensure that our regulations do not unduly interfere with the operation of those markets.” 4 For the reasons that follow, we now grant Sprint’s petition. II. BACKGROUND 2. To recover the costs of providing interstate access services, incumbent LECs charge interexchange carriers (IXCs) and end users for access services in accordance with the 1 The Sprint local telephone companies are: Sprint- Florida, Inc., Carolina Telephone and Telegraph Company, and Sprint/ United Telephone of Pennsylvania. 2 See Pleading Cycle Established for Sprint Petition for Pricing Flexibility for Special Access and Dedicated Transport Services, CCB/ CPD No. 01- 22, Public Notice, DA 01- 2665 (November 20, 2001). No comments or oppositions were received in response to the petition. 3 See Access Charge Reform, CC Docket No. 96- 262, Fifth Report and Order, 14 FCC Rcd. 14221 (1999) (Pricing Flexibility Order), aff’d, WorldCom, Inc. v. FCC, 238 F. 3d 449 (D. C. Cir. 2001). The Pricing Flexibility Order also addressed flexibility for switched services, but those services are not at issue in Sprint’s petition. 4 Pricing Flexibility Order, 14 FCC Rcd. at 14224. 1 Federal Communications Commission DA 02- 318 2 Commission’s Part 69 access charge rules. 5 In the Access Charge Reform First Report and Order, the Commission adopted a market- based approach to access charge reform, pursuant to which it would relax restrict ions on incumbent LEC pricing as compet ition emerges. 6 At that time, the Commission deferred resolution of the specific timing and degree of pricing flexibility to a future order. 7 Subsequently, in the Pricing Flexibility Order, the Commission provided detailed rules for implementing the market- based approach. 8 In that order, the Commission established a framework for granting price cap LECs greater flexibility in the pricing of interstate access services once they make a competitive showing, or satisfy “triggers,” to demonstrate that market conditions in a particular area warrant the relief they seek. 9 Pricing flexibility for special access and dedicated transport services 10 is available in two phases, based on an analysis of competitive conditions in individual metropolitan statistical areas (MSAs). 11 3. Phase I Pricing Flexibility. A price cap LEC that obtains Phase I relief is allowed to offer, on one day’s notice, contract tariffs 12 and volume and term discounts for qualifying 5 47 C. F. R. Part 69. Part 69 establishes two basic categories of access services: special access services and switched access services. Compare 47 C. F. R. § 69. 106 with 47 C. F. R. § 69. 114. Special access services employ dedicated facilities that run directly between the end user and an IXC point of presence (POP) -- the physical plant where an IXC connects its network with the LEC network. Charges for special access services generally are divided into channel termination charges and channel mileage charges. Channel termination charges recover the costs of facilities between the customer’s premises and the LEC end office and the costs of facilities between the IXC POP and the LEC serving wire center. See 47 C. F. R. §§ 69. 703( a)-( b). Channel mileage charges recover the costs of facilities (also known as interoffice facilities) between the LEC serving wire center and the LEC end office serving the end user. See Pricing Flexibility Order, 14 FCC Rcd. at 14226- 27. 6 Access Charge Reform, CC Docket No. 96- 262, First Report and Order, 12 FCC Rcd. 15982 (1997) (Access Charge Reform First Report and Order). 7 Id. at 15989. 8 Pricing Flexibility Order, 14 FCC Rcd. at 14225 (citing Access Charge Reform First Report and Order, 12 FCC Rcd. at 15989, 16094- 95). 9 The Commission instituted price cap regulation for the Regional Bell Operating Companies (RBOCs) and GTE in 1991 and permitted other LECs to adopt price cap regulation voluntarily, subject to certain conditions. Policy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87- 313, Second Report and Order, 5 FCC Rcd. 6786, 6818- 20 (1990). The Pricing Flexibility Order applies only to LECs that are subject to price cap regulation. Access reform for LECs that are subject to rate- of- return regulation is being addressed in a separate proceeding. See Multi- Association Group (MAG) Plan for Regulation of Interstate Services of Non- Price Cap Incumbent Local Exchange Carriers and Interexchange Carriers, Second Report and Order and Further Notice of Proposed Rulemaking in CC Docket No. 00- 256; Fifteenth Report and Order in CC Docket No. 96- 45; and Report and Order in CC Docket Nos. 98- 77 and 98- 166, FCC 01- 304 (rel. November 8, 2001). 10 For purposes of pricing flexibility proceedings, “dedicated transport services” refer to services associated with entrance facilities, direct- trunked transport, and the dedicated component of tandem- switched transport. Pricing Flexibility Order, 14 FCC Rcd. at 14234. These services are defined in 47 C. F. R. § 69. 2( qq) (entrance facilities), § 69. 2( oo) (direct- trunked transport) and § 69. 2( ss) (tandem- switched transport). 11 See 47 C. F. R. § 22. 909( a) (definition of MSA). 12 A contract tariff is a tariff based on an individually negotiated service contract. See 47 C. F. R. § 61. 3( o); see also 47 C. F. R. § 61. 55 (describing required composition of contract- based tariffs). 2 Federal Communications Commission DA 02- 318 3 services, so long as the services provided pursuant to contract are removed from price caps. 13 To protect those customers that may lack competitive alternatives, a price cap LEC receiving Phase I flexibility must maintain its generally available price cap constrained tariffed rates for these services. 14 To obtain Phase I relief, a price cap LEC must meet triggers designed to demonstrate that competitors have made irreversible, sunk investments in the facilities needed to provide the services at issue. In particular, to receive pricing flexibility for dedicated transport and special access services (other than channel terminations to end users), a price cap LEC must demonstrate that unaffiliated competitors have collocated in at least 15 percent of the LEC’s wire centers within an MSA, or have collocated in wire centers accounting for 30 percent of the LEC’s revenues from these services within an MSA. 15 In both cases, the price cap LEC also must show, with respect to each wire center, that at least one collocator is relying on transport facilities provided by a transport provider other than the incumbent LEC. 16 4. Higher thresholds apply for obtaining Phase I pricing flexibility for channel terminations between a LEC end office and an end user customer. A competitor collocating in a LEC end office continues to rely on the LEC’s facilities for the channel termination between the end office and the customer premises, at least initially, and thus is more susceptible to exclusionary pricing behavior by the LEC. 17 As a result, a price cap LEC must demonstrate that unaffiliated competitors have collocated in at least 50 percent of the LEC’s wire centers within an MSA, or have collocated in wire centers accounting for 65 percent of the LEC’s revenues from these services within an MSA. 18 Again, the LEC also must demonstrate, with respect to each wire center, that at least one collocator is relying on transport facilities provided by a transport provider other than the incumbent LEC. 19 5. Phase II Pricing Flexibility. A price cap LEC that receives Phase II relief is allowed to offer dedicated transport and special access services free from the Commission’s Part 69 rate structure and Part 61 price cap rules. The LEC, however, is required to file, on one day’s notice, generally available tariffs for those services for which it receives Phase II relief. 20 To obtain Phase II relief, a price cap LEC must meet triggers designed to demonstrate that competition for the services at issue within the MSA is sufficient to preclude the incumbent from exploiting any individual market power over a sustained period. To obtain Phase II relief for dedicated transport and special access services (other than channel terminations to end users), a price cap LEC must demonstrate that unaffiliated competitors have collocated in at least 50 13 Pricing Flexibility Order, 14 FCC Rcd. at 14287. 14 Id. at 14234- 35. 15 Id. at 14274, 14277- 81; 47 C. F. R.§ 69. 709( b). 16 47 C. F. R. § 69. 709( b). 17 Pricing Flexibility Order, 14 FCC Rcd. at 14279. 18 Pricing Flexibility Order, 14 FCC Rcd. at 14280- 81; 47 C. F. R.§ 69. 711( b). 19 47 C. F. R. § 69. 711( b). 20 Id. at 14299- 14301; 47 C. F. R. § 69. 727( b)( 3). 3 Federal Communications Commission DA 02- 318 4 percent of the LEC’s wire centers within an MSA, or have collocated in wire centers accounting for 65 percent of the LEC’s revenues from these services within an MSA. 21 Higher thresholds apply for obtaining Phase II pricing flexibility relief for channel terminations between a LEC end office and an end user customer. To obtain such relief, a price cap LEC must demonstrate that unaffiliated competitors have collocated in at least 65 percent of the LEC’s wire centers within an MSA, or have collocated in wire centers accounting for 85 percent of the LEC’s revenues from these services within an MSA. 22 Once again, the LEC also must demonstrate, with respect to each wire center, that at least one collocator is relying on transport facilities provided by a transport provider other than the incumbent LEC. 23 III. DISCUSSION 6. Sprint seeks Phase I and Phase II pricing flexibility in five MSAs for the dedicated transport and special access services, including channel terminations to end users, listed in its petition and set forth in Appendix A of this order. 24 As noted above, pricing flexibility may be granted upon the satisfaction of certain competitive showings. An incumbent LEC bears the burden of proving that it has satisfied the applicable triggers for the pricing flexibility it seeks for each MSA. 25 7. For special access and dedicated transport services, the Commission established two means of satisfying this requirement. In the first, the incumbent must show: (1) the total number of wire centers in the MSA; (2) the number and location of the wire centers in which competitors have collocated; (3) the name, in each wire center on which the incumbent bases its petition, of at least one collocator that uses transport facilities owned by a provider other than the incumbent to transport traffic from that wire center; and (4) that the percentage of wire centers in which competitors have collocated and use competitive transport satisfies the trigger the Commission adopted with respect to the pricing flexibility sought by the incumbent LEC. 26 Alternatively, the incumbent must show: (1) the total base period 27 revenues generated by the services for which the incumbent seeks relief in the MSA for which the incumbent seeks relief; (2) the name, in each wire center on which the incumbent bases its petition, of at least one collocator that uses transport 21 Pricing Flexibility Order, 14 FCC Rcd. at 14299; 47 C. F. R. § 69.709( c). 22 Pricing Flexibility Order, 14 FCC Rcd. at 14235; 47 C. F. R. § 69.711( c). 23 47 C. F. R. §69.711( c). 24 See Petition of the Sprint Local Telephone Companies for Pricing Flexibility for Special Access and Dedicated Transport Services, Attachment E (filed November 16, 2001) (“ Sprint Petition”). See also infra Appendix A. Sprint seeks Phase I and Phase II relief for dedicated transport and special access services (other than end user channel terminations) for the following MSAs: Ocala, FL; Fayetteville, NC; Harrisburg, PA; Pittsburgh, PA; York, PA. For end user channel terminations, Sprint seeks Phase I relief for the same five MSAs and Phase II relief for two of the five MSAs (Fayetteville, NC and York, PA). See Sprint Petition, Attachment C. 25 Pricing Flexibility Order, 14 FCC Rcd. at 14309. 26 47 C. F. R. §§ 1. 774( a)( 3)( i)-( iv)( A). 27 For price cap LECs, the “base period” is the 12- month period (i. e., the calendar year) ending 6 months before the effective date of the LECs’ annual access tariffs. 47 C. F. R. § 61.3( g). 4 Federal Communications Commission DA 02- 318 5 facilities owned by a provider other than the incumbent to transport traffic from that wire center; and (3) that the wire centers in which competitors have collocated and use competitive transport account for a sufficient percentage of the incumbent’s base period revenues generated by the services at issue within the relevant MSA to satisfy the trigger the Commission adopted with respect to the pricing flexibility sought by the incumbent LEC. 28 8. In order to identify wire centers with collocation, Sprint examined its billing records to determine those customers that were billed for recurring charges for collocation floor space and other applicable collocation rate elements. 29 Sprint then performed a physical inventory to validate the accuracy of the billing information and that the collocation was operational. 30 To confirm that the competitors were using transport facilities owned by a transport provider other than Sprint, Sprint used information supplied previously by the customer or physically verified that the competitor had transport facilities owned by a non- Sprint provider. 31 In accordance with our rules, Sprint served a copy of its petition on each of the collocating carriers upon which it relied, including, for each collocator, the information about that party upon which Sprint relied in its petition. 32 9. To ascertain revenue associated with special access and dedicated transport services, Sprint gathered data for the twelve- month period ending December 31, 2000, from its internal databases. 33 Sprint states that it complied with the Commission’s rules regarding allocation of revenues to particular wire centers. 34 In particular, for records that identified a single Sprint wire center, or identified two wire centers of which only one was a Sprint office, Sprint allocated one hundred percent of associated revenue to the Sprint wire center. 35 For records that identified two Sprint wire centers, Sprint allocated fifty percent of associated revenue to each wire center. 36 Sprint states that it differentiated revenues associated with local channels provided to end users from other special access and dedicated transport revenues. 37 Sprint then determined the 28 47 C. F. R. §§ 1. 774( a)( 3)( i)-( iii), (iv)( B). 29 Sprint Petition, Attachment B at 2. 30 Sprint Petition, Attachment B at 2. 31 Sprint Petition, Attachment B at 2. 32 Sprint Petition, Certification of Jessica Joyce; see also 47 C. F. R. § 1.774( e)( 1)( ii). 33 The billing systems used for this process were the Customer Access Support System (CASS), which contains current customer records, and the Carrier Access Information Management System (CAIMS), which contains the historical billing records. Sprint Petition, Attachment B at 3. 34 See 47 C. F. R. § 69. 725( a)-( b). 35 Sprint Petition, Attachment B at 3. 36 Sprint Petition, Attachment B at 3 37 Sprint Petition, Attachment B at 4. Sprint’s billing system contains circuit location information. Circuit location “1” is associated with channel terminations between the serving wire center and another carrier’s point of presence. Circuit locations other than “1” are associated with end user channel terminations. Id. 5 Federal Communications Commission DA 02- 318 6 percentage of total base period revenues generated by services at issue in the relevant MSA in wire centers with collocation and whether this percentage met the applicable trigger. 38 10. No comments or oppositions were received in response to Sprint’s petition. After reviewing Sprint’s revenue allocation methods, as described in its petition, together with the data provided in the public and confidential versions of its petitions, we conclude that Sprint has met its burden of demonstrating that it has satisfied the applicable triggers for the services and MSAs for which it requests relief. IV. ORDERING CLAUSES 11. Accordingly, IT IS ORDERED, pursuant to Section 1.774 of the Commission's Rules, 47 C. F. R. § 1. 774, and the authority delegated by Sections 0.91 and 0.291( j) of the Commission's Rules, 47 C. F. R. §§ 0. 91 and 0.291( j), and the Pricing Flexibility Order, that the petition filed by the Sprint local telephone companies IS GRANTED to the extent detailed herein. FEDERAL COMMUNICATIONS COMMISSION Dorothy T. Attwood Chief, Common Carrier Bureau 38 Sprint Petition, Attachment B at 4- 7 and Attachment D. 6 Federal Communications Commission DA 02- 318 A- 1 APPENDIX A SERVICES QUALIFYING FOR PRICING FLEXIBILITY Trunking Basket Voice Grade DS1 DS3 OptiPoint CCS/ SS7 Interconnection Special Access Basket Voice Grade Program Audio Video Digital Data DS1 (1. 544Mbps) Fractional DS1 (128.0 kbps) Fractional DS1 (256.0 kbps) Fractional DS1 (384.0 kbps) DS3 (44.736 Mbps) OptiPoint Shared Sonet Ring Service Gateway Sonet Ring Service Sprint Sonet Ring Service 7