Before the 
FEDERAL COMMUNICATIONS COMMISSION 
Washington D.C. 20554 
FCC 96-331 
Policy and Rules Concerning the 
Interstate, Interexchange Marketplace 
) 
) 
) 
) 
) 
CC Docket No. 96-61 
Implementation· of Section 254(g) of the 
Communications Act of 1934, as amended 
REPORT AND ORDER 
Adopted: August 7, 1996 Released: August 7, 1996 
By the Commission 
' 
TABLE OF CONTENTS 
Section Paragraph 
I. INTRODUCTION 1 
II. THE 1996 ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 
III. IMPLEMENTING RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 
A. Rate Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 
1. General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 
2. Contract Tariffs, Tariff 12 Offerings, Optional Calling Plans, Discounts, 
Promotions, and Private Line Services . . . . . . . . . . . . . . . . . . . . . . . . . 13 
3. Forbearance in Competitive Conditions .......... , . . . . . . . . . . . . . 31 
B. State Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 
C. Rate Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7 
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1. General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 7 
2. U.S. Territories and Possessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 
D. AT&T's Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 
IV. FINAL REGULATORY FLEXIBILITY ANALYSIS . . . . . . . . . . . . . . . . . . . 79 
V. FINAL PAPERWORK REDUCTION ANALYSIS . . . . . . . . . . . . . . . . . . . . . 88 
VI. ORDERING CLAUSES 89 
APPENDIX A -- Commenters 
APPENDIX B -- Rules 
I. INTRODUCTION 
1. On February 8, 1996, the "Telecommunications Act of 1996" (1996 Act) 
became law.1 This legislation. makes sweeping changes affecting all consumers and 
telecommunications service providers. The intent of this legislatjon is "to provide for a pro­
competitive, de-regulatory national policy framework designed to accelerate rapidly private 
sector deployment of advanced telecommunications and information technologies and services 
to all Americans by opening all telecommunications markets to competition."2 Section lOl(a) 
of the 1996 Act adds Section 254(g) of the Communications Act of 1934 to require 
interexchange carriers to integrate and average the rates they charge for service. 3 In our 
March 25, 1996, Notice of Proposed Rulemaking (NPRM), we proposed rules to implement 
Section 254(g).4 In this Report and Order we establish those rules. 
II. THE 1996 ACT 
2. Section 254(g) provides that within six months of enactment: 
the Commission shall adopt rules to require that the rates charged by providers of 
1The Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996). 
2S. REP. No. 230, 104th Cong., 2d Sess. 1 (1996) (Joint Explanatory Statement). 
3See Telecommunications Act of 1996, sec. lOl(a), § 254(g). 
4See Jn re Policy and Rules Concerning the Interstate, Interexchange Marketplace, NPRM, CC Docket No. 
96-61, FCC 96-123, ,, 64-79 (rel. March 25, 1996). 
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interexchange telecommunications services to subscribers in rural and high cost areas 
shall be no higher than the rates charged by each such provider to its subscribers in 
urban areas. Such rules shall also require that a provider of interstate interexchange 
services shall provide such services to its subscribers in each State at rates no higher 
than the rates charged to its subscribers in any other State. s 
3. The legislative history of this section indicates that Congi;ess intended for us to 
codify our pre-existing policies of rate averaging and rate integration, and to apply these 
policies to all carriers. The Joint Explanatory Statement states that 
[n]ew section 254(g) is intended to incorporate the policies of geographic rate 
averaging and rate integration of interexchange services in order to ensure that 
subscribers in rural and high cost areas throughout the Nation are able to continue to 
receive both intrastate and interstate interexchange services at rates no higher than 
those paid by urban subscribers.6 
4. In the Joint Explanatory Statement, the conferees also said that they 
are aware that the Commission has permitted interexchange carriers to offer 
non-averaged rates for specific services in limited circumstances (such as 
services offered under Tariff 12 contracts), and intend th~t the Commission, 
where appropriate, could continue to authorize limited exceptions to the general 
geographic rate averaging policy using the [forbearance] authority provided by 
new section 10 of the Communications Act. Further, the conferees expect that 
the Commission will continue to require that any geographically averaged and 
integrated services, and any services for which an exception is granted, be 
generally available in the area served by a particular provider. In addition, the 
conferees do not intend that this subsection would require the renegotiation of 
existing contracts for the provision of telecommunications services. 7 
5. The Joint Explanatory Statement indicates that the "States shall continue to 
547 U.S.C. § 254(g), as amended. The Communications Act of 1934 defines "State" to include the District 
of Columbia as well as U.S. territories and possessions, such as Guam, the Commonwealth of the Northern 
Mariana Islands, and American Samoa. 47 U.S.C. § 153(40). 
6Joint Explanatory Statement at 132; see also S. REP. No. 23, 104th Cong., 1st Sess. 30 (1995) (this section 
"simply incorporates in the Communications Act the existing practice of geographic rate averaging and rate 
integration for interexchange, or long distance, telecommunications rates to ensure that rural customers continue 
to receive such service at rates that are comparable to those charged to urban customers.") (Senate Commerce 
· Committee report to accompany S.652). 
7Joint Explanatory Statement at 132. 
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be responsible for enforcing this subsection with respect to intrastate interexchange services, 
so long as the State rules are not inconsistent with Commission rules and policies on rate 
averaging. "8 The Joint Explanatory Statement also makes clear that Congress intended 
Section 254(g) "to incorporate the policies contained in the Commission's proceeding entitled 
'Integration of Rates and Services for the Provision of Communications by Authorized 
Common Carriers between the United States Mainland and the Offshore Points of Hawaii, 
Alaska and Puerto RicoNirgin Islands' (61 FCC 2d 380 (1976))."9 
III. IMPLEMENTING RULES 
A. RATE AVERAGING 
I. General Rules 
a. Background 
6. The Commission has a long and well-established policy of supporting 
geographic rate averaging for domestic interstate interexchange services. We set forth the 
benefits of the policy in 1989: 
Geographic rate averaging redounds to the benefit. of rural ratepayers, 
and customers of high cost local exchange carriers. First, geographic 
rate averaging ensures that interexchange rates for rural areas, or areas 
served by high cost companies, will not reflect the disproportionate 
burdens that may be associated with common line recovery costs in 
these areas. Thus, geographic rate averaging furthers our goal of 
providing a universal nationwide telecommunications network. Second, 
geographic rate averaging ensures that ratepayers share in the benefits of 
nationwide interexchange competition. If prices are falling due to 
competition in the corridors carrying the most traffic, prices will also 
fall for rural Americans. 10 
In the AT&T Reclassification Order, we noted that, although we have consistently endorsed a 
policy of geographic rate averaging, we have not formally issued a rule requiring carriers to 
81d. at 129. 
9/d at 132; see Jn re Integration of Rates and Services, Memorandum Opinion, Order and Authorization, 61 
FCC 2d 380 (1976). 
10 Jn re Policy and Rules Concerning Rates for Dominant Carriers, Report and Order and Second Further 
Notice of Proposed Rulemaking, 4 FCC Red 2873, 3132 (1989) (AT&T Price Cap Order). 
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geographically average rates. 11 
7. In the NPRM, we proposed to implement Section 254(g) by adopting a rule 
stating that "the rates charged by providers of interexchange telecommunications services to 
subscribers in rural and high cost areas shall be no higher than the rates charged by each such 
provider to its subscribers in urban areas." 12 We noted that the 1996 Act applies to all 
providers of intrastate and interstate interexchange telecommunications services. 13 
b. Comments 
8. As discussed in subsequent. sections of this Report and Order, most commenters 
focus on issues concerning possible exceptions to the Commission's proposed general rate 
averaging rule, such as forbearance issues. The few commenters who directly address the 
Commission's proposed rate averaging rule support it. 14 Several interexchange carriers (IX Cs) 
argue that the 1996 Act gives the Commission broad authority and flexibility to implement its 
existing policy consistent with the Act's procompetitive and deregulatory goals. 15 MCI and 
AT&T suggest that only residential telecommunications services are subject to the rate 
averaging requirement. 16 Hawaii argues that the statute unambiguously applies geographic 
rate averaging to all services.17 AT&T also argues that the Commission should specify that 
IXCs may continue to assess surcharges to recover state-specific gross-receipts taxes. 18 
c. Discussion 
9. We adopt our proposed rule that "the rates charged by all providers of 
11 /n re Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carner, Order, 11 FCC Red 3271, 
3349 (1995) (AT&T Non-Dominance Order). 
12NPRM, 67. 
14See, e.g., CompTel Comments at 7; Cable & Wireless Inc. Comments at 4; Ohio Consumers' Counsel 
Comments at 3-4; TDS Comments at 2. 
15 AT&T Comments at 31-33; Sprint Comments at 14; Telecommunications Resellers Association Comments 
at 27; MCI Reply Comments at 19. 
16MCI Comments at 32 n.50; cf AT&T Comments at 39. 
17Hawaii Reply Comments at 4-5; see Rural Telephone Coalition Reply Comments at 3-5 (noting legislative 
history that Congress removed modifier limiting rate averaging to residential services). 
18AT&T Comments at 33. 
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interexchange telecommunications services to subscribers in rural and high cost areas shall be 
no higher than the rates charged by each such provider to its subscribers in urban areas." 19 
The Joint Explanatory Statement makes clear that Congress intended Section 254(g) to 
continue the Commission's existing geographic rate averaging policy.20 Accordingly, our rule 
codifies our existing geographic rate averaging policy. As required under the 1996 Act, our 
rule will apply to all providers of interexchange telecommunications services and to all 
interexchange "telecommunications services," as defined in the Act.21 This definition does not 
create any exception for nonresidential services. We, therefore, reject the contention by 
AT&T and MCI that Section 254(g) applies only to residential services. 
10. We do not believe it necessary at this time, nor have commenters urged us, to 
define the terms "rural," "urban," or "high-cost" area as they appear in our rules 
implementing Section 254(g). Indeed, the traditional method of implementing geographically 
averaged rates -- identical mileage-banded interstate rates available throughout the country22 - ­
requires no specific definitions at all. If carriers choose alternative means of implementing 
the statutory requirement, we will permit them, at least initially, to use reasonable definitions 
of these terms. We urge carriers to implement our rule concerning rural and urban areas in a 
way that will fully meet the intent of Congress. Carriers additionally remain subject to the 
requirements of sections 201 and 202 of the Act, 23 pursuant to which we can take action 
against any unreasonable discrimination for, or against, any class of customers. Carriers will 
also be subject to complaints filed pursuant to Section 20824 for .violations of our rate · 
19NPRM 167. 
20Joint Explanatory Statement at 132. 
21
"The tenn 'telecommunications service,"' as defined in the statute, "means the offering of 
telecommunications for a fee directly to the public, or to such classes of users as to be effectively available 
directly to the public, regardless of the facilities used." 47 U.S.C. § 153(46). "Telecommunications," in turn, is 
defined as "the transmission, betWeen or among points specified by the user, of information of the user's 
choosing, without change in the form or content of the information as sent and received." 47 U.S.C. § 153(43). 
22See, e.g., Jn re Referral of Questions from General Communications Inc. v. Alascom Inc., Memorandum 
Opinion and Order, 2 FCC Red 6479, 6481 (1987) (describing "the uniform mileage rate pattern"). 
23See 47 U.S.C. § 20l(b) ("All charges, practices, classifications, and regulations for and in connection with 
[interstate] communication service, shall be just and reasonable, and any such charge, practice, classification, or 
regulation that is unjust or unreasonable is hereby declared to be unlawful"); 47 U.S.C. § 202(a) ("It shall be 
unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, 
classifications, regulations, facilities, or services for or in connection with like communication service, directly or 
indirectly, by any means or device, or to make or give undue or unreasonable preference or advantage to any 
particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to 
any undue or unreasonable prejudice or disadvantage."). 
2447 u.s.c. § 208. 
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averaging rule. 25 
11. We recognize that provisions of Section 254 other than subsection (g) also refer 
to "rural," "urban," and "high-cost" areas,26 and that the Universal Service Federal-State Joint 
Board is examining in a separate proceeding how best to implement these provisions of 
Section 254.27 For the reasons stated above, we see no need now to define these terms for 
purposes of Section 254(g). We believe that this conclusion does not constrain the Joint 
Board's discretion in defining these terms for purposes of the other provisions in Section 254; 
we find nothing in the legislative history of Section 254 that requires that the "rural" areas 
entitled to receive geographically averaged rates under Section 254(g) be identical to the 
"rural" areas entitled to receive rates and access to services pursuant to explicit universal 
service support mechanisms established under the other provisions of Sections 254. After the 
Commission establishes universal service rules in CC Docket No. 96-45, we can revisit our 
initial implementation of Section 254(g) with respect to the definitions of these terms if 
necessary. 
12. Different rate structures may satisfy our rule. For instance,_ we believe that 
carriers that offer their customers rates based on reasonable differences in duration, time of 
day, and mileage bands will satisfy their obligations under Section 254(g) to provide 
geographically averaged rates between subscribers in rural and high-cost areas and subscribers 
in urban areas. This is the pricing structure that AT&T, both b~fore and after divestiture, and 
other carriers, have used to satisfy our geographic rate averaging policy.28 Although we do 
25We defer consideration of what enforcement mechanisms, if any, may be necessary to support geographic 
averaging and rate integration until later in this proceeding, when the Commission considers detariffing of 
interexchange services. Cf America's Carriers Telecommunications Association Comments at 9 (arguing that any 
decision regarding compliance by tariff or certification would be premature, as the Commission is still 
considering comments on detariffing). 
26See, e.g., 47 U.S.C. § 254(b)(3) ("Consumers in all regions of the Nation, including low-income consumers 
and those in rural, insular, and high-cost areas, should have access to telecommunications and information 
services ... that are reasonably comparable to those services provided in urban areas and that are available at rates 
that are reasonably comparable to rates charged for similar services in urban areas."); 47 U.S.C. § 254(h)(l)(A) 
("A telecommunications carrier shall ... provide telecommunications services which are necessary for the 
provision of health care services in a State ... to any public or nonprofit health care provider that serves persons 
who reside in rural areas in that State at rates that are reasonably comparable to rates charged for similar services 
in urban areas in that State."). 
21See In re Federal-State Joint Board on Universal Service, NPRM and Order Establishing Joint Board, CC 
Docket No. 96-45, FCC 96-93 (rel. March 8, 1996). 
28See, e.g., In re Referral of Questions from General Communications Inc. v. Alascom Inc., Memorandum 
Opinion and Order, 2 FCC Red 6479, 6481 (1987) (describing the "uniform rate schedule based upon averaged 
costs and rates" used by AT&T). 
9570 
not specify any particular alternative approaches, we believe there may be other rate schemes 
that are consistent with the statute's geographic rate averaging requirement. We do not 
believe that Section 254(g) requires carriers to assess geographically averaged state and local 
gross-receipts taxes. Accordingly, we will permit carriers to recover on a deaveraged basis 
state-specific gross-receipts taxes applicable to interexchange services. 
2. Contract Tariffs, Tariff 12 Offerings, Optional Calling Plans, Discounts, 
Promotions, and Private Line Services 
a. Background 
13. Over the last decade, the Commission has reviewed extensively tariffs for 
interstate interexchange services offered by AT&T, the only dominant IXC until it was 
recently declared nondominant.29 In the tariff review process for AT&T, we have permitted 
AT&T to offer discounted contract tariffs, Tariff 12 offerings, and optional calling plans, as 
long as they are generally available to similarly situated customers throughout the nation. 30 
We have also permitted AT&T to offer temporary discounts and promotions that are restricted 
to customers in one geographic area, as long as the basic service package is available 
throughout the service area.31 The Commission has not heretofore explicitly applied similar 
restrictions to nondominant IXCs in the tariff process or otherwise. We have also permitted 
AT&T to offer private line services on a geographically deaveraged basis. We have not 
required AT&T to advertise an offering throughout the nation. · 
14. We noted in the NPRM that parties to the AT&T Reclassification proceeding 
had asserted that some nondominant carriers do not offer discount rate plans throughout their 
service areas, so that some rural and high-cost customers are forced to pay the carrier's higher 
basic rates while customers in other areas can take advantage of the carrier's discount plans. 32 
In the NPRM we asked whether a carrier's failure to make a discount plan available, or to 
advertise its availability, in its entire service area constitutes geographic deaveraging. 33 
29See In re Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, 11 FCC Red 3271, 
3348-49 (1995) (AT&T Non~Dominance Order). 
3
°The Commission, however, has not required carriers to offer discounts in areas where Local Exchange 
Carrier (LEC) switches and/or billing capabilities do not make this possible. 
31See, e.g., AT&T Tariff F.C.C. No. 2, Transmittal No. 7856 (effective date Dec. 24, 1994) (discount from 
December 24, 1994 to January 31, 1995 for calls from Hawaii), cited in In re Policy and Rules Concerning Rates 
for Dominant Carriers, Further Notice of Proposed Rulemaking, IO FCC Red 7854, 7856-57 & n.37 (1995). 
32NPRM at if 72. 
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b. Comments 
15. IXCs unanimously urge the Commission to permit carriers to offer several 
types of promotions and discounts even if they are not available throughout a carrier's service 
area.34 Specifically, IXCs believe the Commission should exempt from rate averaging all 
customer-specific contracts and contract tariffs,35 optional calling plans,36 promotional 
discounts,37 and private line services.38 These IXCs argue that the Commission's existing 
policy permits them to offer promotions and discounts.39 Some IXCs also believe that the Act 
requires them to charge averaged rates for basic service only, allowing them to apply 
nonaveraged rates for other service options.40 
16. MCI contends that we should adopt a rule that: (a) requires carriers to 
establish standard service rates that are available to all similarly situated customers throughout 
the carriers' service areas; (b) requires carriers to make contract tariffs and optional calling 
plans available to all similarly situated customers regardless of their geographic location; (c) 
permits carriers to adjust rates to address special competitive situations; and ( d) permits 
carriers to offer promotions that sometimes are "geographically limited," provided that the 
promotions are temporary, confer only a nominal economic benefit on the recipients, and the 
resulting discrimination is not sufficiently significant to warrant regulatory action.41 The 
Rural Telephone Coalition (RTC), similarly, would allow "market-specific promotions from 
34AT&T Comments at 35-39; MCI Comments at 34-35; Sprint Comments at !5; LOOS WorldCom 
Comments at 15; Cable & Wireless Inc. Comments at 5; Frontier Comments at 9; Telecommunications Resellers 
Association Comments at 29-30. 
35Telecommunications Resellers Association Comments at 30; AT&T Comments at 37-38; MCI Comments at 
30-31; LOOS WorldCom Comments at 13-14; Sprint Comments at 14-15; Frontier Comments at 9; see also 
General Services Administration Reply Comments at 6-8 (federal government contract services not 
geographically averaged). 
36Comptel Comments at 8-9; Frontier Comments at 9; MCI Comments at 31. 
37AT&T Comments at 33; MCI Comments at 35; Frontier Comments at 9; Telecommunications Resellers 
Association Comments at 29. 
38AT&T Comments at 33, 36 (citing geographically-specific tariffs for private line services filed by Wiltel, 
Sprint, MCI, and AT&T). 
39CompTel Comments at 7; Telecommunications Resellers Association Comments at 28-29; AT&T 
Comments at 31-33; MCI Comments at 30-31; Cable & Wireless Inc. Comments at 3-5; Frontier Comments at 9. 
4
°Comptel Comments at 8-9; Cable & Wireless Inc. Comments at 5. 
41 MCI Comments at 32, 34-35. 
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time to time that are sufficiently limited in duration and terms. "42 
17. IX Cs argue that consumers will be harmed if the Commission does not allow 
them to offer promotions and discounts to some but not all their customers.43 AT&T notes 
that it offers "geographically targeted promotions" to introduce a service in a new area and 
spur localized interest in particular services, and that these promotions offer lower prices to 
consumers.44 AT&T further asserts that because temporary price changes do not have a 
significant impact on the market as a whole, restricting such pricing "would more likely injure 
than protect consumers."45 Sprint argues that, if IXCs have to offer discounts universally, 
they will withdraw them from the market to the detriment of consumers.46 Cable and 
Wireless claims that requiring carriers to offer discounts throughout. their service areas would • 
result in "less competition and fewer c;onsumer choices, rather than more, for rural and high 
cost areas. "47 
18. Alaska, Hawaii, and the RTC argue that the 1996 Act requires rural and urban 
customers to pay the same rates for similar services, and does not provide for any exceptions 
for discounts or contract tariffs.48 The RTC further claims that it is "premature" for the 
42RTC Reply Comments at 8-9; RTC Comments at 13-14 (Optional calling plans, however, must b~ offered 
ubiquitously); see also Telecommunications Resellers Association Comments at 29 (rate averaging requirements 
should not "be extended to promotional or other temporary offerings."). But see Hawaii Reply Comments at 20 
(until promotional discounts are defined with "more precision, it is impossible to grant relief without running the 
risk of violating 254(g) and 202(a)"); Alaska Comments at 7 (if discounts are not.offered throughout a carrier's 
service area, rate averaging will be "an empty promise"); Ameritech Reply Comments at 23, 24 (promotions 
should not be permitted to be so widely available that they become a vehicle for end-running the r:ate averaging 
requirement; permanent promotions should be prohibited). 
43AT&T Comments at 38; Sprint Comments at 15-16; Cable and Wireless Comments at 4-5. 
44AT&T Comments at 36-37. 
4s Id. at 37-38. 
Misprint Comments at 16. 
47Cable and Wireless Comments at 4-5. 
48Alaska Reply Comments at 6-9; Hawaii Reply·Comments at 4-6; RTC Reply Comments at 3-5; see also 
Missouri Public Service Commission Comments at 4 (customers in rural areas should pay rates comparable to 
rates urban customers pay for similar services); John Staurulakis, Inc. Comments at 4 (IXCs circumvent rate 
averaging by not offering discounts to their rural customers); Pennsylvania Public Utility Commission Comments 
at 16-17 (no exceptions in statute though Joint Explanatory Statement is ambiguous); Pennsylvania Office of 
Consumer Advocate Comments at 6-7 (Congress intended that carriers average the rates users actually pay and 
not the undiscounted rate); Alabama Public Service Commission Comments at 8 (must offer discounts in rural 
areas). 
9573 
Commission to consider granting exceptions to statutory requirements so recently enacted.49 
Hawaii, Alaska, the RTC, and the Ohio Consumers' Counsel (OCC) argues that the 
Commission's sole authority to grant exceptions is the forbearance authority in Section 10,50 
and that the IXCs have not attempted, and will not be able, to demonstrate that forbearance 
will not lead to discrimination against rural customers and is in the public interest. 51 
19. The OCC and the RTC strongly urge the Commission to require carriers to 
make available and advertise promotional plans throughout their service areas. 52 The . 
Telecommunications Resellers Association (TRA) opposes such~ requirement.53 
c. Discussion 
20. As discussed above, Section 254(g) and our geographic rate averaging rule will 
require carriers to charge subscribers in rural and high-cost areas rates for telecommunications 
services that are no higher than rates offered to urban subscribers. The Commission's current 
policy as reflected in AT&T tariffs, however, has permitted AT&T to offer contract tariffs, 
Tariff 12 offerings, optional calling plans, and temporary promotions, subject to some 
limitations. Contract tariffs and Tariff 12 offerings generally involve discounts from basic 
rate schedules. Optional calling plans offer customers discounts from basic rate schedules, 
subject to terms and conditions specified in the optional calling plan. Temporary promotions 
involve discounts from basic rate schedules as well as limited sign-up periods for the · 
promotional discount rates. As noted, we have also permitted AT&T to offer private line 
services at geographically deaveraged rates. AT&T rates for private line services vary from 
LATA (Local Access and Transport Area) to LATA, continuing pri~ing practices that AT&T 
has historically used in setting rates for private line services. 54 
21. The legislative history of Section 254(g) states that Congress intended that 
section to "incorporate" our existing policy concerning geographic rate averaging, and "that 
49RTC Reply Comments at 7. 
5047 U.S.C. § 160(a). 
51Alaska Comments at S ("without actual experience under the new statutory scheme, the Commission cannot 
reasonably make the findings necessary to forbear from enforcing geographic rate averaging"), Reply Comments 
at 2; Hawaii Comments at 12-13, Reply Comments at 11; RTC Reply Comments at 7; United States Telephone 
·Association Reply Comments at 2-3; OCC Comments at 4 n.4. 
520CC Comments at S; RTC Comments at 14. 
53TRA Comments at 29-30. 
54See, e.g., AT&T Tariff FCC No. 11, 3d revised page 23 (eff. April 23, 1994). 
9574 
the Commission, where appropriate, could continue to authorize iimited exceptions to the 
general geographic rate averaging policy using the [forbearance] authority provided by new 
section 10 of the Communications Act. "55 Therefore,· we will conduct a forbearance analysis 
to determine whether we should permit IXCs to depart from geographic rate averaging where 
we have permitted them to do so under current policy. 
22. We do not believe that our current policy of allowing carriers to offer contract 
tariffs and Tariff 12 options conflicts with geographic averaging because we require that these 
offerings be available to similarly situated customers throughout the carrier's service area. 
The legislative history to Section 254(g), however, indicates that the conferees viewed 
contract tariffs and Tariff 12 offerings, at least to some extent, as permissible exceptions to 
geographic rate averaging that could be authorized through forbearance.56 Accordingly, our 
forbearance analysis will encompass contract tariffs and Tariff 12 offerings to ensure that our 
requirements implementing Section 254(g) are consistent with congressional intent. 
23. Section 10 requires the Commission to forbear from applying any provision of 
the Act if we find that: 
(1) enforcement of such regulation or provision is not necessary to ensure 
that the charges, practices, classifications, or regulations, by, for, or in 
connection with that telecommunications carrier or telecommunications service . 
are just and reasonable and are not unjustly or unreasonably discriminatory; 
(2) enforcement of such regulation or provision is not nec_essary for the 
protection of consumers; and 
(3) forbearance from applying such provision or regulation is consistent 
~th the public interest. 57 
In addition, the Commission, in making its public interest determination, must "consider 
whether forbearance from enforcing the provision . . . will promote competitive market 
conditions, including the extent to which such forbearance will enhance competition among 
55Joint Explanatory Statement at 132. 
56See id ("The conferees are aware that the Commission has permitted interexchange carriers to offer non­
averaged rates for specific services in limited circumstances (such as services offered under Tariff 12 contracts), 
and intend that the Commission, where appropriate, could continue to authorize limited exceptions to the general 
geographic rate averaging policy using the [forbearance] authority provided by new section 10 of the 
Communications Act [codified at 47 U.S.C. § 160]."). 
57The Communications Act of 1934, § lO(a), 47 U.S.C. § 160(a). 
9575 
providers of telecommunications services. "58 
24. We do not believe that permitting carriers to depart from geographic rate 
averaging to the extent necessary to offer contract tariffs, Tariff 12 offerings, optional calling 
plans, temporary promotions, and private line services in accordance with our current policy 
will subject rural and high-cost area customers to unjust or unreasonable, or unjustly or 
unreasonably discriminatory, rates because: (1) we will continue to require carriers to make 
these services generally available under our current rules (e.g., contract tariffs and Tariff 12 
offerings must be available to similarly situated customers) regardless of their geographic 
location, and (2) the only "geographically-specific" discounts that carriers may offer are 
temporary promotions. Thus, except for temporary promotions and private line services, 
interexchange telecommunications service offerings will be available on the same terms 
throughout a carrier's service area. In addition, we do not believe based on the record that 
allowing geographically deaveraged private line rates will produce unjust or unreasonable or 
unjustly or unreasonably discriminatory rates, as it is our current practice and has not raised 
such concerns. Thus, we find that enforcement of the geographic rate-averaging requirement 
for contract tariffs, Tariff 12 offerings, optional· calling plans, temporary promotions, and 
private line services is not necessary to ensure that charges, practices, and classifications are 
just and reasonable and not unjustly and unreasonably discriminatory. 
25. Enforcement of the geographic rate-averaging requirement for these sel"Vices is 
also not necessary to protect consumers because these service offerings are generally 
beneficial to consumers. For example, promotions, optional calling plans, and discounts 
facilitate introduction of new and beneficial services to consumers. Indeed, we are 
particularly concerned that carriers will cease to offer such service offerings, to the clear 
detriment of all consumers, unless carriers are permitted to offer them for a limited time on a 
narrower scale than throughout their entire service areas. We believe that the limited scope 
and· nature of promotions offered on a geographically specific basis will protect consumers 
and that, to the extent that these service offerings promote new services, consumers will 
benefit, including rural customers. We also believe that it is not necessary to apply 
geographic averaging to private line services, contract tariffs, and Tariff 12 offerings to 
protect residential consumers because these services· are normally provided to businesses. 
Business consumers benefit from these services because in many cases the services are 
provided at discounted rates. Thus, we conclude that enforcement of the geographic rate­
averaging requirement for contract tariffs, Tariff 12 options, optional calling plans, temporary 
promotions, and private line services is not necessary to protect consumers. 
26. Finally, we believe that forbearance from applying the geographic rate 
averaging requirement to the extent permitted under our rules is consistent with the public 
interest. We come to this conclusion because we believe that allowing deaveraged rates, such 
58/d. at§ IO(b), 47 U.S.C..§ 160(b). 
9576 
as for temporary promotions, will ultimately benefit consumers by encouraging widespread 
offerings of new services. Moreover, it has been our practice to allow these exceptions to our 
existing policy, and we have no reason to believe this current practice is contrary to the public 
interest. In addition, excepting these specific types of service offerings from the geographic 
rate averaging requirement will continue to stimulate competition for customers among 
interexchange carriers. Limited departures from geographic rate averaging, such as for private 
line services and temporary promotions available only in some areas, are often designed to 
spur, or respond to, competition. For example, interexchange carriers often offer promotional 
discounts as a response to competition within the interexchange market.59 For these reasons, 
we conclude that limited forbearance from applying the geographic rate averaging requirement 
to contract tariffs, Tariff.}2 offerings, temporary promotions, and private line services is 
consistent with the public interest. · 
27. Accordingly, we forbear from applying Section 254(g), consistent with the 
intent of Congress, to the extent necessary to permit carriers to depart from geographic rate 
averaging to offer contract tariffs, Tariff 12 offerings, optional calling plans, temporary 
promotions, and private line services in accordance with our policy as previously applied to 
AT&T. As with current policy, we will require carriers to offer the same basic service 
package to all customers in their service areas, and permit carriers to offer contract tariffs, 
Tariff 12 offerings, and optional calling plans provided they are available to all similarly 
situated customers, regardless of their geographic location. We will permit carriers to offer 
promotions that may be "geographically limited," provided that the promotions are temporary, 
as discussed further below. 
28. These requirements are fully consistent with the Commission's past practices. 
Contrary to the claims of some IXCs, we have not in the past exempted from our geographic 
rate averaging policy entire groups of services, such as contract tariffs, negotiated 
arrangements, or optional calling plans, where carriers offer discounted rates on a permanent 
or long-term basis. The record is clear, in fact, that we have required optional calling plans 
to be generally available throughout a carrier's service area and prohibited geographic 
restrictions in contract tariffs because a service package that is available to only one customer 
"unreasonably discriminates among similarly situated customers," and is therefore unlawful.60 
The only type of geographic restriction in a contract tariff that we have permitted is one that 
is necessary because of technical limitations imposed by a LEC's switching equipment or 
59See In re Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, I I FCC Red 327I, 
33 I2, iJ 78' ( 1995) (AT&T Non-Dominance Order) ("MCI and Sprint frequently initiate new discount plans and ... 
AT&T responds."). 
60/n re AT&T Communications, Memorandum Opinion and Order, 4 FCC Red 4932, 4938 (1989), rev'd and 
remanded on other grounds, MCI Telecommunications Corp. v. FCC, 917 F.2d 30 (D.C. Cir. 1990); see also In 
re Competition in the Interstate Interexchange Marketplace, Report and Order, 6 FCC Red 5880, 5901 (1991). 
9577 
billing capabilities, or where the underlying basic service is limited.61 
29. As stated, we believe that temporary promotions benefit consumers because 
they facilitate the introduction of new services. We have permitted temporary promotions in 
the past for these reasons, and believe that Congress intended.us to continue to do so. We 
conclude, however, that "temporary" promotions should, in fact, be temporary and not the 
basis for repeated offerings by carriers. Before AT&T was found nondominant for purposes 
of interexchange service, 62 we proposed· to keep promotional rates outside of price caps as 
long as they were offered for no longer than 90 days.63 Further, we find that a 90-day period 
in which customers may receive discounted rates as part of a promotion is sufficient time for 
a targeted promotional offering to attract interest in new or revised services, but not so long 
as to undermine our geographic rate averaging requirement. Accordingly, even though AT&T 
has tariffed longer promotions in the past, 64 we believe this length of time for temporary 
promotions not available throughout a carrier's service area best implements the statutory 
mandate for geographic averaging. Further, rather than specifying a range of permissible 
combinations of sign-up and discount periods, we believe that specifying a single time period 
for promotional discqunts will facilitate administration of Section 254(g) and our 
implementing rules. 
30. We will therefore permit carriers, as part of temporary promotions not available· 
throughout a carrier's service area, to offer discounted promotional rates for no more than 90 
days.65 We will not at this time establish limits on the duration of sign-up periods for 
promotions, but we expect them to be relatively brief. We can review at a later time specific 
carriers' practices in this regard if necessary. We also expect that carriers' temporary 
promotions will not, when viewed over a number of years, reflect a pattern of undue 
discrimination against rural or high-cost areas. Thus, we expect that, viewed over time, 
temporary promotions will be offered in rural and high-cost areas, as well as to urban 
customers. We find it unnecessary to adopt advertising requirements concerning discounts 
61See, e.g., In re AT&T Communications, 4 FCC Red at 4938. 
62See AT&T Non-Dominance Order, 11 FCC Red 3271. 
63See, e.g., In re Policy and Rules Concerning Rates for Dominant Carriers, Further Notice of Proposed 
Rulemaking, 10 FCC Red 7854, 78651 53 (1995). 
64See, e.g., Tariff 1, § 8.1.1.745 (3-month discount period); Tariff 27, § 21.1.1.A.99 {6-month discount 
period); Tariff27, § 21.1.1.B.43 (9-month discount period); Tariff 27, § 21.1.1.A.85 (discount periods ranging 
from 3 to 12 months); Tariff I,§§ 8.1.1.747, 8.1.1.979 (12-month discount period); Tariff27, § 21.1.l.A.24 (24-
month discount period). 
65Carriers that wish to provide promotions that effectively last more than 90 days must seek a waiver under 
Section 1.3 of our rules. 
9578 
and promotions. We believe that consumers will be protected as long as long-term discounts 
and promotions are available to all similarly situated customers throughout a carrier's service 
area. 
3. Forbearance in Competitive Conditions 
a. Background 
31. The NPRM sought comments on whether the Commission should forbear from 
enforcing geographic rate averaging in certain "competitive conditions," such as in low-cost 
regions where nationwide providers of interexchange service could be at a competitive 
disadvantage with an RBOC unless they are permitted to offer regional discounts. 66 
32. As explained above, Section 10 of the 1934 Act requires the Commission to 
forbear from applying any regulation or provision of the Communications Act if the 
Commission determines that: 
( 1) enforcement of such regulation or provision is not necessary to 
ensure that the charges, practices, classifications, or regulations by, for, 
or in connection with that telecommunications carrier or service are just 
and reasonable and are not unreasonably discriminatory; (2) enforcement 
of such regulation or provision is not necessary for the protection of 
consumers; and (3) forbearance from applying such provision or 
regulation is consistent with the public interest. 67 
b. Comments 
33. All commenting IXCs and one LEC (BellSouth) urge the Commission to 
forbear from applying its proposed rate averaging rules in competitive conditions. 68 Several 
IXCs argue that the Commission should forbear from enforcing rate averaging with respect to 
~RM 1[ 69 and n.154. 
6747 u.s.c. § 160. 
68AT&T Comments at 28-32, 33; MCI Comments at 29-30; Sprint Comments at 10-14; LDDS WorldCom 
Comments at 14; BellSouth Comments at 5-8; see also America's Carriers Telecommunications Association 
Comments at 8 (supports forbearance to ensure that "no carrier will be required to provide averaged pricing 
where its costs are not also averaged."); TRA Comments at 30 (competitive considerations argue against an 
"overly broad interpretation" of rate averaging, but not specifically urging forbearance); Florida Public Service 
Commission Comments at 14 (Commission's rate averaging proposal should be narrowed). 
9579 
all nondominant carriers in the interstate interexchange market.69 IXCs assert that the 
Commission's rigid enforcement of its rate averaging policy will lessen competition.70 They 
contend that forbearance for nondominant carriers is justified, if not required. 71 
34. IXCs, BellSouth, and the Florida Public Service Commission (PSC) argue that 
a nationwide carrier will be unable to compete with a BOC in a regional market characterized 
by low-cost interexchange services unless the Commission forbears with respect to geographic 
rate averaging, i.e., permits the IXC to offer a price that is below the national average. 72 
AT&T notes that because access charges in some regions are approximately 10 percent below 
the national average, a LEC offering interexchange service from such a low-cost region. would 
have a substantial market advantage.73 AT&T argues that it would be unable to compete with· 
a LEC in a low-cost area.74 Thus, AT&T concludes that rigid rate averaging would force 
nationwide IXCs (and their customers) to make a difficult and unfair choice: "either the 
carrier must abandon high cost areas in order to compete effectively against regional IXCs in 
low cost areas, or abandon low cost areas and charge higher prices to customers in rural and 
high cost areas. Either way, each group of customers faces less competition and higher 
69See AT&T Comments at 33-34; Cable and Wireless Comments at 5 n.9; LDDS WorldCom Reply 
Comments at 12. MFS Communications more narrowly urges the Commission to exempt from rate avei:aging 
carriers with less than 5 percent of the sum total of access lines and presubscribed lines nationwide, because such 
providers often serve select, high-cost areas and lack the nationwide base that larger providers can use to recoup 
these costs. MFS Comments at 9. 
70Sprint Comments at 13; AT&T Reply Comments at 20-21; see also TRA Comments at 30 ("IXCs which 
operate nationally would be unable to compete effectively in that RBOC region under a strict geographic 
averaging/rate integration regime because they could not lower their prices to match the RBOCs without pricing 
below-market elsewhere."). 
11See, e.g., AT&T Comments at 31-34 & n.58. 
12/d. at 29-30, 40; Sprint Comments at 11-14; LDDS WorldCom Comments at 14; MCI Comments at 30 
n.47, 32; BellSouth Comments at 5-6 (averaging rules would prohibit a legitimate competitive response, such as 
lowering prices); Florida PSC Comments at 14 (rate averaging should be based on the LECs "in-region" area to 
permit IXCs to take advantage of lower access rates that may be offered in a particular region). 
73AT&T Comments at 30 n.55; see also MCI Comments at 27-28 n.42 (access charges in some regions were _ 
47 cents per minute while MCI's highest tariffed rate was 33 cents per minute). But see NYNEX Reply 
Comments at 15 (LECs lowered access charges but AT &T's rates rose; thus, access charges are irrelevant to rate 
averaging). AT&T urges the Commission to delay issuing this rulemaking until it is able to overhaul its access 
charge mechanisms completely and achieve lower and more uniform rates. AT&T Comments at 34-35. Alaska 
responds that Congress adopted Section 254(g) knowing that access costs varied among regions, and argues that 
"the Commission simply does not have the authority to do what these parties suggest." Alaska Reply Comments 
at 9. 
74A T &T Comments at 30. 
9580 
prices."75 America's Carriers Telecommunication Association (ACTA) and MFS also ask us 
to forbear in competitive conditions, arguing that small regional providers of interexchange 
service in high-cost areas would be unable to compete with nationwide carriers that can 
charge lower rates by spreading their costs over a larger customer base. 76 
35. Alaska, Hawaii, the United States Telephone Association (USTA), the RTC, 
and the OCC strongly oppose forbearance based on the existence of competitive conditions. n 
Hawaii and the RTC argue that, since all IXCs are nondominant, if the Commission exemp~ 
nondominant carriers, no carriers would be required to average interexchange rates -- a result 
that Congress could not have intended. 78 
36. Hawaii and Alaska also argue that a competitive conditions exemption would 
be contrary to the Act's intent; which was to balance the goal of promoting competition with 
other goals such as universal service.79 Hawaii and Alaska further claim that AT&T . 
overstates the threat of regional competition. 80 They argue that large nationwide carriers are 
unlikely to give up their national markets or fail to compete in regional markets because the 
IXCs have economies of scale and other incentives that offset any regional differences in 
access charges. 81 Hawaii questions whether AT&T would abandon high-cost markets, given 
the potential loss of the goodwill that AT&T now gains from offering nationwide service. 82 
75/d 
76See ACTA Comments at 7-9 (arguing that the access charges interexchangeproviders pay vary, that rate 
averaging would disproportionately burden smaller carriers serving high-cost areas, and that the Commission 
should account ·for these concerns in its rules, require access charges and other provider costs to be averaged, or 
forbear); MFS Communications Comments at 8-10 (arguing that the Commission should forbear from applying 
rate .averaging requirements to carriers with less than S percent of the nation's access and presubscribed lines 
because such carriers have smaller customer bases over which to spread their costs, which are often higher than 
those of larger carriers, frequently because of high access charges in low-volume markets). 
77 Alaska Comments at 4-5, Reply Comments at 2; Hawaii Comments at 12-13, Reply Comments at 10-11; 
USTA Reply Comments at 2-4; RTC Comments at 8-11, Reply Comments at 5-7; OCC Comments at 4 n.4, 
Reply Comments at 9. 
71Hawaii Reply Comments at 22-23; RTC Reply Comments at 2-3 ("this preposterous suggestion would 
necessarily negate section 254(g), treating the ~andate as if Congress had irrationally enacted it only to have it 
abandoned without implementation."). 
79Hawaii Reply Comments at 14; Alaska Reply Comments at 3-4. 
80Hawaii Reply Comments at 14-15; Alaska Reply Comments at 5-6. 
81Alaska Reply Comments at S; Hawaii Reply Comments at 15. 
82Hawaii Reply Comments at IS. 
9581 
Supporters of rate averaging also claim that exempting IXCs on a regional basis would create 
a loophole that would effectively nullify Section 254(g). 83 
37. Hawaii and USTA further argue that the Commission would not be able to 
justify forbearance under the three-part analysis required by Section 10 of the 1934 Act. 84 
Hawaii asserts that "competition is only one of several considerations under Section IO's 
forbearance test, and in no case can broad claims about promoting competition alone justify 
forbearance in these circumstances. "85 TDS Telecommunications Corporation argues that 
forbearance from rate averaging "would fly in the face of the Act's universal service 
principles and rate averaging policy and ignore the bidding of Congress. "86 UST A contends 
that Congress would not share the IXCs' apparent view that the public interest would be 
served by permitting interexchange carriers to discriminate against rural consumers by 
charging them higher rates.87 
c. Discussion 
38. We are not persuaded that we showd establish an exception to our general rate 
averaging rule based on the existence of competing regional carriers that may be able to offer 
lower rates for interexchange services because of lower access charges or other costs. To 
establish such an exception we would need to forbear under Section 10 of the 1934 Act. As 
noted previously, we must forbear from applying any provision of the 1934 Act, as amended, 
when (1) enforcement of that provision is unnecessary to ensure ·that the relevant charges and 
practices are just and reasonable and not unjustly or unreasonably discriminatory; (2) 
enforcement of that provision is unnecessary to protect consumers; and (3) forbearance from 
applying the provision is consistent with the public interest. 
83 Id at 22 ("it is difficult to imagine how the Commission could define a competitive situation so precisely 
that exceptions based on such situations would not begin to swallow the rule"); OCC Reply Comments at 9. 
84Hawaii Reply Comments at 3-4; UST A Reply Comments at 2-4. 
85Hawaii Reply Comments at 3; se~ also Alaska Reply Comments at 4 ("if competition was the 'be all and 
end all' of telecommunications policy, there would be no section 254(g), there would be no universal service 
provisions in the Telecommunications Act, and there would be no need for the Commission to do anything other 
than allocate spectrum."). 
86TDS Telecommunications Corporation Comments at 5; see OCC Reply Comments at 9 (deaveraging would 
"deprive rural and high cost customers of the assurances mandated by Congress.") 
87USTA Reply Comments at 3; see also RTC Comments at 9-10 (deaveraging would dramatically harm rural 
consumers because calls to doctors, emergency services, and schools are often long-distance calls); John 
Staurulakis Inc. Comments at 2-3 (OPASTCO study concluded that deaveraging would increase rural customers' 
monthly charges by $7.44 for interstate toll calls and by $10.99 for intrastate calls). 
9582 
39. Commenters have failed to justify this exception under Section 10 because they 
have based their claims entirely on generalized assertions of the alleged need for a 
competitive exception to geographic averaging requirements. With respect to the first prong 
of the forbearance test, we believe that establishing a broad exception to Section 254(g) for 
low-cost regions entails a substantial risk that many subscribers in rural and high cost areas 
may be charged more than subscribers in other areas. Accordingly, we cannot conclude that 
enforcing our rate averaging requirements is unnecessary to ensure just and reasonable and 
nondiscriminatory charges for subscribers. We also see no basis in the record to conclude that 
it is unnecessary to enforce Section 254(g) to ensure protection of consumers. We_are 
concerned that widespread deaveraged rates for interexchange services could produce 
unreasonably high rates for some subscribers. Further, commenters. have not made a 
persuasive case that our geographic rate averaging requirement may compel them to abandon 
service in some areas. Finally, we believe that, as part of our initial implementation of 
Section 254(g), it is not in the public interest to create the broad exception urged by 
commenters. Accordingly, we conclude that commenters have not justified forbearance to 
create a competitive exception to geographic rate averaging. We also will not forbear from 
enforcing our rate av~raging policy against nondominant carriers. We note that Congress 
knew at the time the 1996 Act was passed that all IXCs were nondominant and we find that 
Congress would not have required us to adopt rules to implement geographic rate averaging if 
it had intended us to abandon this policy with respect to all IXCs so soon after enactment. 
40. We are also not persuaded that we should forbear for smaller carriers serving 
high-cost areas on the grounds that they might have difficulty competing against nationwide 
carriers. These carriers have provided only conclusory allegations of harm and have not 
shown that they will be unable to compete with larger carriers in a rate-averaged environment, 
much less that they have satisfied all three of the requirements set forth in Section 10 for 
exercise of our forbearance authority. Thus, these carriers, like the nationwide carriers, have 
failed to justify forbearance on this record. 
41. We also reject AT&T's suggestion that we delay implementing Section 254(g) 
until access charges are lower and more cost based. We believe that Congress was fully 
aware of geographic differences in access charges when it adopted Section 254(g), and 
intended us to require geographic rate averaging even under these conditions.ss Moreover, 
nothing in the text or legislative history of Section 254(g) suggests that the Congress intended 
to delay implementation of the geographic rate averaging requirement. 
88The Commission recognizes tl:te importance of access charge reform and is committed to completing a 
proceeding on that issue by the first part of 1997, consistent with the statutory deadlines established for the 
Section 254 Universal Service rulemaking. See Jn re Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, Report & Order, CC Docket No. 96-98, at Section VII (adopted Aug. I, 
1996). 
9583 
B. STATE AUTHORITY 
1. Background 
42. We noted in the NPRM that, although the statute requires the Commission to 
adopt rules to require geographic rate averaging for intrastate and interstate interexchange 
services, the statute does not appear to foreclose consistent state action in this area. 89 We 
noted that the Senate Report states that "States shall continue to be responsible for enforcing 
[intrastate geographic rate averaging], so long as the State rules are not inconsistent with" the 
regulations the Commission adopts.90 
2. Comments 
43. The Alabama PSC, Florida PSC, Louisiana PSC, Missouri PSC, Pennsylvania 
Public Utility Commission (PUC), and Washington Utilities and Transportation Commission 
(UTC) support the Commission's proposal to preempt state laws requiring geographic rate 
averaging only to the extent they are inconsistent with regulations the Commission may 
adopted regarding geographic rate averaging.91 The National Association of Regulatory 
Utility Commissioners (NARUC) believes that the issuance of a preemptive Commission rule 
is not required by the express terms of the statute.92 NARUC asserts, however, that to the 
extent the Commission does mandate preemption, the statute do~s not foreclose consistent 
state action in this area.93 MCI states that the Commission's proper role is to issue guidelines 
for the states and "preserve the federal approach if any state action is inconsistent therewith. "94 
44. AT&T argues that states should not be prohibited from requiring rate averaging 
89NPRM 168. 
90S. REP~ No. 23, 104th Cong., 1st Sess. 30 (1995) (Senate Commerce Committee report to accompany 
S.652). 
91Alabama PSC Comments at 8 (intrastate rates would have to be consistent with the Commission's rate 
averaging policy); Florida PSC Comments at 13-14 (States should have the flexibility to execute state policies 
designed to meet the spirit of the Act); Louisiana PSC Comments at 2-4; Missouri PSC Comments at I (States 
retain jurisdiction over intrastate matters); Pennsylvania PUC Comments at 14-16; Washington UTC Comments 
at 3 (requires statewide toll averaged rates). 
92NARUC Comments at 3. 
93/d; see also GTE Comments at 14-15; Sprint Comments at 17 n.7; TCA Comments at 3 (FCC preemption 
is not necessary "as long as state rules require toll rate averaging"). 
94MCI Comments at 29 (noting also that Congress did not amend the Commission's jurisdiction under 47 
U.S.C. § 152, which is limited to "all interstate. and foreign communication"). 
9584 
"on a less than statewide basis," so that the states may establish "multiple contiguous 'rate 
zones' that associate urban and rural areas which have logical relationships with each other."95 
The New York Department of Public Service (New York DPS) agrees.96 
45. LDDS WorldCom argues that the Commission's rules should "prevent the 
appearance of an untenable patchwork of inconsistent state requirements. "97 The RTC claims 
that if States do not adopt rate averaging requirements within the same deadline imposed by 
Congress on the Commission, "the Commission's rules should also act as the intrastate 
averaging requirement for IX Cs operating in that state. "98 
3. Discussion 
46. We conclude that Congress did not intend in Section 254(g) to eliminate state 
authority over intrastate rates. To the contrary, we conclude that Congress intended the states 
to play an active role in enforcing Section 254(g) with respect to intrastate geographic rate 
averaging. States have a role in ensuring that rates for intrastate interexchange calls offered 
to rural and high-cost customer are no higher than those paid by urban customers. We 
believe that intrastate rate structures that are based on reasonable mileage bands will meet this 
requirement because that is the method traditionally used by carriers to offer geographically 
averaged rates. Thus, for example, carriers offering intrastate interexchange service may 
charge different intrastate rates for a call of 100 miles in Texas than for a call of the same 
distance in Virginia, pursuant to individual state decisions. Further, we find, as proposed in 
the NPRM, that states are free to establish intrastate rates, as long as they are not inconsistent 
with the rules we adopt in this proceeding. We will not, however, permit states to establish 
special rate zones within states because we believe that would result in geographically 
deaveraged rates in violation of Section 254(g). Section 254(g) requires that rates be no 
higher in any rural or high-cost area than they are in any urban area. To the extent that 
AT&T proposes to associate some, but not all, rural areas with certain urban areas, we 
presume that some rural areas will experience higher rates than some urban areas, in violation 
of the statute. Because AT&T has not addressed this apparent flaw in its proposal for rate 
"zones," we reject the proposal. We also conclude that, because the Joint Explanatory 
Statement provides that states may not adopt rules that are inconsistent with the rules we 
establish in this proceeding, states will not be able to permit deaveraged rates in special rate 
zones absent forbearance by the Commission. 
95AT&T Comments at 42 & n.74. 
96New York DPS Reply Comments at I. 
97LDDS WorldCom Comments at 13. But see OCC Reply Comments at 8 n.9 (Act is "not intended to 
require that intrastate interexchange rates be uniform between states"); GTE Comments at 15-17. 
98RTC Comments at 14-15. 
9585 
C. RATE INTEGRATION 
1. General Rule 
a. Background 
47. As noted, Section 254(g) requires that "a provider of interstate interexchange 
services shall provide such services to its subscribers in each State at rates no higher than the 
rates charged to its subscribers in any other State." This is referred to as rate integration. 
The Commission has a well-established policy of rate integration. Since 1972, the 
Commission has required any carrier that provides domestic interstate interexchange service 
between the contiguous forty-eight states and various offshore points to integrate its rates 
pursuant to a plan to integrate the carrier's rates and services for offshore points with its rates 
for similar services on the mainland.99 In 1976, the Commission required carriers that offered 
message toll, private line, and specialized services to or from Alaska, Hawaii, Puerto Rico, 
and the Virgin Islands to integrate their rates for those services into the rate structures and 
.uniform mileage rate patterns applicable to the mainland. 100 This policy required IXCs to 
lower their rates in the newly integrated areas to levels comparable to those prevailing in the 
mainland for interexchange calls of similar distance, duration, and time of day.1°1 We 
reaffirmed our commitment to rate integration as recently as the AT&T Reclassification 
Order, stating that: 
[t]he Commission has long supported the polic[y] of ... rate integration 
between the contiguous forty-eight states and various noncontiguous 
9? In re Establishment of Domestic Communications-Satellite Facilities, Second Report and Order, 35 FCC 2d 
844, 856-66 ,, 35-36 (1972) (conditioning domestic satellite authorization for message telephone service on 
integration of Alaska, Hawaii and Puerto Rico into the uniform milage rate pattern of the contiguous states, 
perhaps by extending the last mileage step to reach those distances, or by creating a new mileage step with a 
proportionate increase in rates), aff'd on recon., Memorandum Opinion and Order, 38 FCC 2d 665, 695-96 
(1972), aff'd sub nom. Network Project v. FCC, 511 F.2d 786 (D.C. Cir. 1975). 
100/n re Integration of Rates and Services, Memorandum Opinion, Order and Authorization, 61 FCC 2d 380, 
392 (1976) (ordering AT&T to implement full rate and service integration for all services it provides Hawaii, 
Alaska, Puerto Rico and the Virgin Islands); Jn re Integration of Rates and Services, Memorandum Opinion, 62 
FCC 2d 693, 695 (1976) (declining to limit rate integration requirements to certain services); In re Application 
of GTE Corp. and Southern Pac. Co. for Consent to Transfer Control of Southern Pac. Satellite Co., 
Memorandum Opinion and Order, 94 FCC 2d 235, 262-63 (1983) (conditioning GTE's acquisition of Southern 
Pacific Satellite Co. upon integration of Hawaii). 
101/n re Referral of Questions from General Communications Inc. v. Alascom Inc., Memorandum Opinion 
·and Order, 2 FCC Red 6479, 6481 (1987) ("The rate integration policy was developed to provide, in phased 
reductions, interstate MTS and WA TS service to and from Alaska at rates comparable to those prevailing in the 
contiguous states for calls of similar distance, duration, and time of day."). 
9586 
U.S. regions, including Alaska, Hawaii, Puerto Rico and the U.S. Virgin 
Islands. We remain committed to [that] polic[y]. 102 
48. Jn the NPRM, we noted that the legislative history of the 1996 Act indicates 
that Congress intended us to incorporate into our rules the policy contained in the 1976 
Integration of Rates and Services Order. 103 We proposed to implement Section 254(g) by 
adopting a rule stating that "a provider of interstate interexchange telecommunications services 
shall provide such services to its subscribers in each State at rates no higher than the rates 
charged to its subscribers in any other State. 11104 
b. Comments 
49. Alaska and Hawaii contend that the 1996 Act codifies the Commission's 
established rate integration policy and applies it to all interexchange carriers and services. 105 
They argue that the Commission should promulgate rules formalizing its prior 
pronouncements on rate integration. 106 They also contend that the Commission should not 
forbear in any respect from enforcing rate integration.107 
50. IXCs urge the Commission to forbear from applying rate integration to 
nondominant IXCs, or to IXCs in competitive conditions.108 AT&T, for example, argues that 
the Commission should maintain flexible integration rules with exceptions, or should forbear 
from requiring rate integration in certain circumstances. 109 Spriiit argues the Commission 
should move cautiously before issuing its rate integration policy to ensure that the new rules 
do not inhibit competition or cause IXCs to withdraw services. 110 If the Commission chooses 
not to forbear, Sprint contends that integration rules should only reqUire carriers to integrate 
102See In re Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, 11 FCC Red 3271, 
3330 (1995) (AT&T Non-Dominance Order). 
103NPRM , 76. 
105Alaska Comments at ii, 8-9; Hawaii Comments at iii, 1-2, 6-7. 
106 Alaska Comments at ii, 8-9; Hawaii Comments at iii, 1-2. 
107Alaska Comments at IO; Hawaii Reply Comments at 18. 
108AT&T Comments at 33-42; Sprint Comments at 25; MCI Reply comments at 21-22. 
109AT&T Comments at 32-42. 
110Sprint Comments at 24. 
9587 
"offshore" points into at least one unified rate structure for a particular service, perhaps by 
adding one or more mileage bands. 111 ACTA, Columbia Long Distance Services Inc. (CLDS), 
GTE, and IT &E urge the Commission to forbear from applying rate integration to small 
providers of interexchange service in high-cost areas, arguing that they would be unable to 
compete with nationwide carriers that can charge lower rates by spreading their costs over a 
larger customer base. 112 · 
51. American Mobile Satellite Carriers Subsidiary Corp. (AMSC) points out that 
the Commission permitted it to charge higher rates for mobile satellite services to Alaska and 
Hawaii than for similar services in the mainland U.S. because the costs of mobile satellite 
service vary, unlike fixed satellite costs, and that it should be permitted to continue ~o do 
so. 113 
c. Discussion 
52. To implement the statutory requirements of Section 254(g), we will adopt our 
proposed rule that "a .provider of interstate interexchange telecommunications services shall 
provide such services to its subscribers in each State at rates no higher than the rates charged 
to its subscribers in any other State." As with geographic rate averaging, this rule will 
incorporate our existing policies. This rule will apply to all domestic interstate interexchange 
telecommunications services as defined in the 1996 Act, and all _providers of such services. 
As with our geographic rate averaging policy, carriers may comply with this rule by 
establishing reasonable mileage bands for calls. We are not persuaded that we must forbear 
from requiring carriers to comply with rate integration, either generally or in competitive 
conditions, f9r the same reasons discussed with respect to geographic rate averaging. Our rate 
integration policy has integrated offshore points into the domestic interstate interexchange rate 
structure so that the benefits of growing competition for interstate interexchange 
telecommunications services, as well as regulatory and other developments concerning 
interstate services, are available throughout our nation. Furthermore, absent forbearance, the 
statute requires us to incorporate our 1976 Integration of Rates and Services Order requiring 
111/d at 25-26. 
112See ACTA Comments at 10-11 (stating that rate integration would disproportionately burden smaller 
carriers serving high-cost areas, and that the Commission should account for these concerns in its rules or 
forbear); CLOS Comments at 7-9 (arguing that integration's below-cost rates would discourage new carriers from 
entering the Guam and Northern Marianas markets); GTE Comments at 21 (arguing that small regional carriers 
with a limited calling base and high costs would have difficulty competing under integration against carriers with 
lower costs and larger customer bases over which to spread these costs); IT&E Comments at 20-21 (arguing that 
larger carriers can spread the costs for service to Guam and the Northern Marianas among their customers 
nationwide, but smaller carriers will be unable to subsidize below-cost rates mandated by rate integration). 
113AMSC Comments at 2-3 (citing In re AMSC Subsidiary Corp., Order, 8 FCC Red 2871 (1993)). 
9588 
geographic rate integration. 
53. We are also not persuaded that we should forbear from applying rate 
integration to smaller carriers serving high-cost areas on the grounds that they might have 
difficulty competing against nationwide carriers. These carriers have provided only 
conclusory allegations of harm and have not shown that they will be unable to compete with 
larger carriers in a rate-integrated environment, much less that they have satisfied all three of 
the requirements set forth in Section 10 for exercise of our forbearance authority. Thus, these 
carriers have failed to make a showing on this record justifying forbearance. 114 
54. We believe that AMSC is rc;:quired by the plain terms of the 1996 Act to 
integrate the rates charged for its offshore service into the rate structure for its mainland rates: 
Further, as with rate averaging, we interpret Section 254(g) to extend to all providers of 
interexchange service the rate integration policy that previously was applied only to AT&T.m 
AMSC' s services would appear to fall within the definition of interstate interexchange 
telecommunications services subject to Section 254(g). The decision referred to by AMSC 
was a Bureau decision that permitted an AMSC tariff to take effect without any finding of 
lawfulness. 116 It did not establish any policy of excluding AMSC services from rate 
integration. Accordingly, we reject AMSC' s arguments on this issue. 
2. U.S. Territories and Possessions 
a. Background 
55. In the NPRM, we noted that "State" is defined in the Communications Act to 
include all U.S. territories and possessions.117 Thus, we noted that the 1996 Act extends rate 
integration to U.S. territories and possessions, including Guam and the Northern Marianas, 
because rate integration obligations apply to providers of interexchange services between 
"states." 118 We proposed "to adopt a rule requiring that 'a provider of interstate interexchange 
114See 47 U.S.C. § 160. 
1150ur rate integration policy also had applied to carriers that served offshore points such as GTE and 
Alascom. See, e.g., In re Application of GTE Corp., 94 FCC 2d 235, 258-60 & 263 (1983); In re Application of 
Alascom Inc., 11 FCC Red 732, 743-48 (1995). 
1161n re AMSC Subsidiary Corp., Order, 8 FCC Red 2871 (1993). 
117NPRM ~ 77 (citing 47 U.S.C. § 153(40)) . 
. 
111U.S. territories and possessions are: Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Marianas, 
American Samoa, Baker Island, Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, the Midway 
Atoll, Navassa Island, the Palmyra Atoll, and Wake Island. As U.S. territories and possessions, they fall within 
9589 
telecommunications services shall provide such services to its subscribers in each State at rates 
no higher than the rates charged to its subscribers in any other State."t1 19 We sought 
comment on appropriate mechanisms to implement rate integration to U.S. Territories and 
possessions that currently are not subject to our rate integration policy. 120 In addition, on June 
5, 1996, the Chief of the Common Carrier Bureau requested the governors of Guam, the 
Northern Marianas, and American Samoa, as well as all carriers who provide interexchange 
service to those locations, to submit within two weeks a plan for implementing Section 254(g) 
with respect to those locations. 121 
b. Comments, Responses to Bureau Letters. and the Working Group 
56. IXCs who offer services primarily, or exclusively, in Guam and the Northern 
Marianas generally support the Commission's proposed rate integration rule, but urge the 
the definition of "state" in the Communications Act of 1934, as amended, and carriers that serve those points are 
required under Section 254(g) and our rules to do so on a rate-integrated basis with service provided to other 
states. Of these locations, Puerto Rico and the U.S. Virgin Islands are already rate integrated. See In re 
Integration of Rates and Services, Memorandum Opinion, Order and Authorization, 61 FCC 2d 380, 392 (1976) 
(ordering AT&T to implement full rate and service integration for all services it provides to Hawaii, Alaska, 
Puerto Rico and the Virgin Islands). Of the other U.S. territories and posses~ions, only Guam, the Northern 
Marianas, and American Samoa have more than de minimis interstate interexchange telecommunications traffic 
that originates or terminates in the 50 states or other U.S. territories and possessions. See INDUSTRY ANALYSIS 
DIVISION, FCC, 1994 SECTION 43.61: INTERNATIONAL TELECOMMUNICATIONS DATA tbl. Al (1996). 
Starting in 1947, the United States administered the United Nations Trust Territories of the Pacific 
Islands, consisting of the Republic of Palau, the Federated States of Micronesia, the Republic of the Marshall 
Islands, and the Northern Marianas. In negotiations over the last decade concerning the future status of these 
political entities, the Northern Marianas elected commonwealth status as a territory of the United States. The 
Marshall Islands, Micronesia, and Palau became independent, sovereign nations on October 21, 1986, November 
3, 1986, and October l, 1994, respectively, electing to enter into a Compact of Free Association with the United 
States. See 48 U.S.C.A. Ch. 14, refs. & annos.; Temengil v. Trust Territory of the Pacific Islands, 881 F.2d 647, 
650-51 (9th Cir. 1989). Thus, Palau, the Federated States of Micronesia, and the Marshall Islands are not 
"states" within the meaning of that term in the Communications Act of 1934 to which carriers would be required 
to provide service on a rate-integrated basis. 
119NPRM at 'if 76 (quoting 47 U.S.C. § 254(g), as amended). 
120/d at 'if 77. 
121See Letters from Regina M. Keeney, Common Carrier Bureau Chief, to Mark Sisk, Counsel to the 
Governor of American Samoa; Robert F. Kelley Jr., Advisor to the Governor of Guam; Thomas K. Crowe, 
Counsel for the Commonwealth of the Northern Mariana Islands; David W. Carpenter, Counsel to AT&T Corp.; 
Raul R. Rodriguez; Counsel to CLOS.; Gail L. Polivy, Senior Attorney for GTE Services Corp.; Margaret L. 
Tobey, Counsel to IT&E Overseas Inc.; Donna N. Lampert, Counsel to JAMA Corp.; Donald J. Elardo, Director 
of Regulatory Law for MCI Telecommunications Corp.; Eric Fishman, Counsel to PCI Communications Inc.; and 
Leon M. Kestenbaum, Vice President of Regulatory Affairs for Sprint Corp. (June 5, 1996.) 
9590 
Commission to delay implementing rate integration for a variety of reasons. 122 IT &E, for 
example, urges a delay until Guam and the Commonwealth of Northern Mariana Islands are 
served by domestic satellites, rather than as now by INTELSAT, which costs almost four 
times as much as domestic satellites. 123 GTE contends that rate integration must be 
implemented slowly because its wholly owned affiliate, the Micronesian Telecommunications 
Company (MTC), cannot compete with nationwide providers of interexchange service that 
can off er lower prices by spreading their costs over a larger customer base. 124 CLDS asserts 
that rate integration for Guam and the Northern Marianas is "fundamentally inconsistent" with 
the Commission's rationale for requiring rate integration to Alaska, Hawaii, Puerto Rico, ana 
the Virgin Islands, which CLDS says was the availability of domestic satellite service to those 
points. 125 
57. The Governor of Guam and the Guam Telephone Authority (OTA), in 
comments filed jointly, ·and the Governor of the Northern Marianas, claim that the 
Commission is required by statute to mandate rate integration for Guam and the Northern 
Marianas and may not forbear from implementing that mandate. 126 Guam also rejects 
CLDS 's claim that rate integration should not be extended to Guam and the Northern 
Marianas because these territories are not served by domestic satellites. Guam asserts that 
"nothing in the [1996 Act] limits [rate integration] only to those points that can be reached by 
domestic satellite."127 The Northern Marianas further notes that, although the Commission has 
stated that the availability of domestic satellites was a "catalyst" for integrating rates to 
Hawaii and Alaska, the Commission explicitly held that "implementation of rate integration 
does not, and cannot, depend on the actual use of domestic satellite facilities." 128 Hence, the 
Northern Marianas argues, the Commission has made clear that distance insensitivity is not a 
mGTE Comments at 13-14, 21-22; IT&E Comments at 1-2, 14-15; JAMA Corp. Comments at 2-3. 
1231T&E Comments at 15-20; GTE Comments at 20 (monthly charges for INTELSAT are $35,880 while 
similar rate for domestic satellite service is $9,920). 
124See, e.g., GTE Comments at 21. 
125CLDS Comments at 4-7. 
126Guam and the GTA Joint Reply Comments at 4-5 (Guam Joint Reply); Northern Marianas Reply 
Comments at 9-13; see also Guam PUC Comments at 2 (rate integration critical for Guam). The Northern 
Marianas also notes that the Commission did not propose to forbear or seek comment on forbearance with 
respect to rate integration. Northern Marianas Reply Comments at 9 n.20. 
127Guam Joint Reply Comments at 6. Guam also notes that, in fact, Intelsat satellites provide distance 
insensitive service to Guam. Guam Joint Reply Comments at 7. 
128Northem Marianas Reply Comments at 8 (quoting Jn re Integration of Rates and Services, Memorandum 
Opinion, 62 FCC 2d 693, 695 (1976)). 
9591 
prerequisite for the implementation of rate integration. 129 
58. IXCs also argue that rate integration should apply only to the standard 
interexchange service package.130 Guam and the Northern Marianas oppose this proposal. 131 
The Northern Marianas argue that the 1996 Act unambiguously requires all services provided 
by an IXC to be subject to rate integration.132 Guam claims that carriers are required to 
provide MTS and private line services at integrated and averaged rates, and, although carriers 
may offer promotions and discounts, carriers should not exclude Guam from any service that 
is offered on a nationwide basis. 133 
59. In response to the Bureau's request for rate integration plans, Guam Gointly 
with the GT A) and the Northern Marianas propose that the Commission adopt rate integration 
rules that would take effect immediately but permit providers of interexchange service to 
implement rate integration after Guam and the Northern Marianas become part of the North 
American Nµmbering Plan (NANP) and are provided Feature Group D's "l+" equal access 
dialing.134 Guam also suggests that integration take place concurrently with GTA's adoption of 
cost-based interstate access charges. 135 All three events are scheduled to occur by July 1, 
1997. 136 Guam also proposes allowing carriers to offer integrated rates by expanding existing 
mileage bands, creating new mileage bands, or using postalized rates. 137 Furthermore, Guam 
suggests that the Commission designate Comsat, as well as carriers providing domestic 
interstate service on non-Intelsat facilities, as eligible telecommunications carriers so that they 
can receive universal service support funding. 138 American Samoa believes that its "people 
129/d. at 7-8. 
13
°Cable and Wireless Comments at 5-6; Frontier Comments at 8-9; TRA Comments at 29. 
131Guam Joint Reply Comments at 8; Northern Marianas Reply Comments at 17-18. 
132Northern Marianas Reply Comments at 17. 
133Guam Joint Reply Comments at 8. 
134See Letter from the Governor of Guam and the GT A to Regina M. Keeney, Chief of the Common Carrier 
Bureau 3-4 (June 20, 1996); Letter from Thomas K. Crowe, Counsel for the Commonwealth of the Northern 
Mariana Islands, to Regina M. Keeney, Chief of the Common Carrier Bureau 3 (June 19, 1996). 
135Letter from the Governor of Guam, at 3-4. 
136See id. at 3 (June 20, 1996); Letter from Thomas K. Crowe, at 3 (June'l9, 1996). 
137See Letter from the Governor of Guam, at 2 (June 20, 1996). 
138See id at 6-7. 
9592 
enjoy excellent long distance service at reasonable rates," and did not submit a plan because it 
has "concluded that [it has] already achieved the benefits of rate integration." 139 
60. In response to the Common Carrier Bureau's request for rate integration plans, 
none of the interexchange service providers presents detailed integration plans. 140 AT&T states 
that it cannot do so because Guam and the Northern Marianas are not yet part of the North 
American Numbering Plan, and because it has not decided whether to add a new mileage 
band or extend its longest existing rate band. 141 MCI states that it cannot yet provide a plan 
detailing exact rates and services because it does not want to disclose proposed rates to 
potential competitors. 142 PCI and IT &E argue that the request for a rate proposal is 
premature because the Commission has not yet adopted rate averaging and rate integration 
rules. 143 
61. Sprint, MCI, and IT &E state they would integrate Guam and the Northern 
Marianas into their existing interstate interexchange rate structures after July 1997, when 
Guam and the Northern Marianas are scheduled to become part of NANP. 144 Sprint states it 
will include Guam and the Northern Marianas by creating one or two additional mileage 
bands. 145 Sprint states that it expects to offer service at rates significantly lower than existing 
rates offered by other carriers, provided that the GT A lowers its access charges to levels 
n9Letter from A.P. Lutali, Governor of American Samoa, to Regina M. Keeney, Chief of the Common 
Carrier Bureau 1-2 (June 12, 1996). 
•4-0see Letter from R. Gerard Salemme, Vice President of Government Affairs for AT&T, to Regina M. 
Keeney, Chief of the Common Carrier Bureau (June 19, 1996); Letter from Raul R. Rodriguez and David S. 
Keir, Counsel to CLOS, to Regina M. Keeney, Chief of the Common Carrier Bureau (June 21, 1996); Letter 
from Gail Polivy, Attorney for GTE Service Corp., to Regina M. Keeney, Chief of the Common Carrier Bureau 
(June 20, 1996); Letter from Margaret L. Tobey and Phuong N. Pham, attorneys for IT&E Overseas Inc., to 
Regina M. Keeney, Chief of the Common Carrier Bureau (June 19, 1996); Letter from Donald J. Elardo, 
Director of Regulatory Law for MCI, to Regina M. Keeney, Chief of the Common Carrier Bureau (June 19, 
1996); Letter from Eric Fishman, Counsel for PCI Communications Inc., to Regina M. Keeney, Chief of the 
Common Carrier Bureau (June 19, 1996); Letter from Leon M. Kestenbawn, Vice President of Regulatory 
Affairs for Sprint, to Regina M. Keeney, Chief of the Common Carrier Bureau (June 19, 1996). 
141See Letter from R. Gerard Salemme, at 2. 
142Letter from Donald J. Elardo, at 2. 
143Letter from Eric Fishman, at n. l; Letter from Margaret L. Tobey, at I. 
144Letter from Leon M. Kestenbaum, at 2; Letter from Donald J. Elardo, at 1-2; Letter from Margaret L. 
Tobey, at 2-3 (June 19, 1996). 
145Letter from Leon M. Kestenbaum, Vice President of Regulatory Affairs for Sprint, to Regina M. Keeney, 
Chief of the Common Carrier Bureau 2 (June 19, 1996). 
9593 
comparable to those of similar LECs that serve subscribers on the U.S. mainland. 146 MCI 
states it will either extend its longest existing band or create a new band to include Guam and 
the Northern Marianas. 147 PCI and IT &E contend that they are not subject to Section 254(g) 
because the statute applies only to national carriers that provide service to subscribers in 
multiple states. 148 PCI and IT &E also argue that in any event their current rate schedules are 
fully integrated because they originate services only from Guam and the Northern Marianas. 149 
62. GTE asserts that the existing rate structure of its affiliate, MTC, already 
complies with rate integration because it only originates traffic from the Northern Matjanas 
and bases its rates on the cost of routing calls through expensive international satellites.150 
GTE further argues that the statutory language requiring "each such provider" to integrate 
rates for "its subscribers" does not give the Commission authority to require MTC to integrate 
its rates with other affiliates of GTE. 151 Instead, according to GTE, each affiliate constitutes a 
separate provider within the meaning of the statute. 152 
63. AT&T opposes reclassifying service to Guam, the Northern Marianas, and 
American Samoa as "domestic" rather than "international" ·because it could lead foreign 
carriers to claim that these locations are entry points for calls to subscribers in the United 
States, thereby increasing AT&T's costs for delivering those calls to destinations on the U.S. 
mainland. 153 · 
64. On July 8 and 9, 1996, the Guam/Northern Marianas Working Group on Rate 
Integration, consisting of representatives of the Governors of Guam and the Northern 
146Letter from Leon M. Kestenbaum, at 3. 
147Letter from Donald J. Elardo, Director of Regulatory Law for MCI, to Regina M. Keeney, Chief of the 
Common Carrier Bureau 1-2 (June 19, 1996). 
148Letter from Eric Fishman, Counsel for PCI Communications Inc., to Regina M. Keeney, Chief of the 
Common Carrier Bureau 2 (June 19, 1996); Letter from Margaret L. Tobey and Phuong N. Pham, attorneys for 
IT &E Overseas Inc., to Regina M. Keeney, Chief of the Common Carrier Bureau 4 (June 19, 1996). 
149Letter from Eric Fishman, at 2; Letter from Margaret L. Tobey, at 4. 
150Letter from Gail Polivy, Attorney for GTE Service Corp., to Regina M. Keeney, Chief of the Common 
Carrier Bureau 7 (June 20, 1996). 
151/d at 2-3. 
· 153See Letter from R. Gerard Salemme, Vice President of Government Affairs for AT&T, to Regina M. 
Keeney, Chief of the Common Carrier Bureau 3 (June 19, 1996). 
9594 
Marianas, and the carriers that provide interexchange service to those points, met in 
Washington, D.C., to discuss the implementation of Section 254(g) for services provided to 
Guam and the Northern Marianas. 154 The Working Group adopted seven substantive 
resolutions that it believes should guide rate integration for these ~ffshore points: 
Rate integration should involve the incorporation of Guam and 
the Northern Marianas into the domestic rate pattern for message 
telephone service (MTS). Each provider of interstate 
interexchange telecommunications services should establish rates 
consistent with its rate-making methodology used for that service 
elsewhere in the United States, in. compliance with the Act; · 
As far as practicable, implementation of rate integration should 
be contingent upon the inclusion of Guam and the Northern 
Marianas within the North American Numbering Plan and 
conversion to equal access and cost-based interstate access tariffs 
(currently anticipated on or about 1 July 1997); 
- -
It is not possible to determine at this time whether support 
mechanisms for rate integrated services will be required to meet 
the goals of the [1996 Telecommunications] Act. Accordingly, 
if required, support mechanisms should be addressed after the 
release of the FCC ruling on rate integration and in the context 
of the notice of proposed rulemaking and order establjshing the 
Universal Service Joint Board (CC Docket No. 96-45); 
Each provider of interstate interexchange telecommunications 
services, other than MTS, to the extent those services are offered 
between Guam or the Northern Marianas and any other state, 
should establish rates consistent with its rate-making 
methodology used for those services elsewhere in the United 
States, in compliance with the Act; 
The implementation of rate integration should not discourage 
flexibility and competitive responses among interstate 
154See Letter from Robert F. Kelley, Advisor to the Governor of Guam, and Dave Ecret, Special Assistant to 
the Governor of the Northern Mariana Islands, to William F. Caton, Secretary to the Federal Communications 
Commission, at Appendix A (July 9, 1996). Present were representatives from the Northern Marianas, Guam, 
PCI Communications Inc., the GTA, NECA, Sprint, Sprint Guam, MCI, IT&E Overseas Inc., Coopers & 
Lybrand, GTE/MTC, and the Guam Public Utilities Commission. Id at Appendix A. Although invited, AT&T 
was not present. Id. Commission staff also attended the meetings as observers. 
9595 
telecommunications providers serving Guam or the Northern 
Marianas; 
Optional calling plans, promotions, or discounts will be offered 
to subscribers in Guam and the Northern Marianas in compliance 
with the Act; 
None of these Resolutions shall supersede any provisions· of the 
Act, or limit or restrict the authority of the Federal 
Communications Commission under the Act. 155 
65. The Working Group plans to meet again in late August to continue to work 
towards rate integration in light of requirements adopted by the Commission to. implement 
Section 254(g). 156 
c. Discussion 
66. In making the Section 254(g) rate integration provision applicable to interstate 
interexchange services provided between "states," as defined in the Communications Act, 157 
Congress made rate integration applicable to interexchange services provided to U.S. 
possessions and territories, including Guam, the Northern Marianas, and American Samoa. 
Further, rate integration applies to all interstate interexchange telecommunications services as 
defined in the Communications Act. 158 Accordingly, under our rate integration rule 
implementing 254(g), providers of interexchange service to these points must do so on an 
integrated basis with services they provide to other states. -
67. We believe that the resoh1tions the Working Group adopted regarding rate 
integration for Guam and the Northern Marianas provide a reasonable framework to guide 
carriers towards implementing rate integration. Thus, a carrier should establish rates for 
services provided to Guam and the Northern Marianas consistent with the rate methodology it 
employs for services it provides to other states. Similarly, to the extent that a provider of 
interexchange service offers optional calling plans, contract tariffs, discounts, promotions, and 
private line services to its subscribers on the mainland, it should use the same ratemaking 
methodology and rate structure when offering those services to its subscribers in Guam or the 
iss Id at Appendix 8. 
IS6/d at 2. 
151See 47 U.S.C. § 153(40). 
158See 47 U.S.C. § 153(22), as amended (defining "interstate communication"), and § 153(46), as amended 
{defining "telecommunication service"). 
9596 
Northern Marianas. In addition, we do not view rate integration as inconsistent with 
flexibility and competitive responses by carriers, although carriers must continue to comply 
with rate integration requirements for these offshore points. We also agree with the Working 
Group that cost support and universal service issues should be addressed in the first instance 
by the Universal Service Joint Board. 159 Guam has specifically raised these issues in CC 
Docket No. 96-45. 160 Accordingly, we will address those issues in the context of any Joint 
Board recommendation. For purposes of our decision today, however, we do not view 
establishment of cost-support mechanisms as a precondition of rate integration. Nor have they 
been justified on the present record. Thus, we reject requests that we establish, or further 
consider, any cost-support mechanisms in this docket. 
68. The Working Group resolutions urge that rate integration for services provided 
to Guam and the Northern Marianas should take place concurrently with, or shortly after, the 
inclusion of Guam and the Northern Marianas into the NANP, the implementation of Feature 
Group D service, and the GTA's revision to its access charge structure. All three events are 
expected to occur by July 1, 1997. We do not view these developments as preconditions for 
rate integration of services provided to these points. Rather, the stati.lte requires rate 
integration regardless of whether these developments occur. However, we believe that these 
developments will facilitate rate integration. Inclusion of Guam and the Northern Marianas in 
the NANP will help carriers integrate them into their nationwide service plans. 
Implementation of Feature Group D will provide subscribers with high-quality equal access to 
providers of interexchange service serving Guam. Revision of access charges by GT A will 
help providers of interexchange service set final rate schedules for service to and from Guam. 
Accordingly, we require providers of interexchange service to integrate services offered to 
subscribers in Guam and the Northern Marianas with services offered in other states no later 
than August 1, 1997. We additionally require that carriers submit preliminary plans to 
achieve rate integration no later than February l, 1997, and final plans no later than June l, 
1997. These plans will permit the Corn.mission to review progress toward achieving rate 
integration, as required by the 1996 Act. The preliminary plans need not include rates, but at 
a minimum should resolve service and rate-band issues. Final plans shall include a rate 
schedule. Carriers may integrate these points by expanding mileage bands, adding mileage 
bands, offering postalized rates, or other means that achieve rate integration. We also require 
that any rate changes between the adoption date of this Report and Order and August l, 1997, 
must be consistent with achieving rate integration by August 1, 1997. We also believe that it 
would facilitate resolution of any further regulatory issues concerning rate integration for 
these points if the Common Carrier Bureau addresses them in the first instance. Accordingly, 
159See Letter from Robert F. Kelley, Advisor to the Governor of Guam, and Dave Ecret, Special Assistant to 
the Governor of the Northern Mariana Islands, to William F. Caton, Secretary to the Federal Communications 
Commission, at Appendix B (July 9, 1996). 
160Guam Reply Comments in CC Docket No. 96-45, at 5-7. 
9597 
we will delegate to the Chief, Common Carrier Bureau, authority to resolve any issues 
concerning carriers' plans for rate integration for these offshore points. 
69. We reject GTE's view that Section 254(g) does not require MTC to integrate 
rates with other GTE affiliates. The statute mandates that the Commission require rate 
integration among all states, territories, and possessions, and this goal is best achieved by 
interpreting "provider" to include parent companies that, through affiliates, provide service in 
more than one state. Moreover, nothing in the record supports a finding that Congress 
intended to allow providers of interexchange service to avoid rate integration by establishing 
or using their existing subsidiaries to provide service in limited areas. Thus, we determine 
that GTE, for the purposes of Section 254(g), constitutes a "provider" of interexchange 
services within the meaning of that section, and that it must integrate rates across affiliates. 
Accordingly, we require GTE to comply with the same timetable and requirements as the 
other carriers serving the Northern Marianas and Guam. 
70. We reject the contentions of PCI and IT &E that they are not subject to the 
rate-integration obligation. As noted, Section 254 applies to all providers of interexchange 
service. Therefore, PCI & IT &E must provide Guam and the Northern Marianas service on a 
rate-integrated basis. Based on the present record, however, there is insufficient evidence to 
evaluate whether PCI's and IT&E's rates for service originating in Guam and the Northern 
Marianas comply with Section 254(g). Consequently, we will also require PCI and IT&E to 
abide by the same timetable and requirements as the other carriers serving the Northern 
Marianas and Guam. They may demonstrate with more particularity that their current rates 
comply with rate integration when they submit their plans. 
71. Although carriers serving American Samoa are required to provide service on a 
rate-integrated basis, American Samoa has stated that it believes .that rates for services 
provided to American Samoa are already rate integrated. Nevertheless, we will also direct 
providers of interexchange service serving American Samoa to submit plans for American 
Samoa in order to ensure that they will comply with the statute. To the extent services are 
provided to other U.S. possessions and territories by carriers subject to Section 254(g), the 
record does not reflect what carriers serve some of these points, such as Wake Island and 
Midway Island, or whether service is provided in special ways, such as in cooperation with 
military authorities, that might affect provision of service on a rate-integrated basis to these 
points. Accordingly, we are directing the Common Carrier Bureau to investigate service 
arrangements for these points and to take such steps as are necessary to assure compliance 
with Section 254(g) by August 1, 1997. 
72. We also believe that AT&T's concerns about termination of foreign traffic in 
Guam, the Northern Marianas; and American Samoa do not justify delaying rate integration. 
Our decision to extend rate integration to Guam is intended to benefit U.S. consumers. We 
do not by this decision, however, affect the classification or treatment of the underlying costs 
9598 
of facilities between these offshore points and other U.S. points for purposes of 
interconnection arrangements with foreign carriers. 
73. Our requirement that carriers implement rate integration by August 1, 1997, 
complies with Section 254(g). That section requires us to adopt rules requiring rate 
integration for Guam, the Northern Marianas and American Samoa by August 8, 1996. We 
do not read this provision as mandating rate integration for all points by that date. Instead, 
we interpret the statute to permit a reasonable transition period for the offshore points to 
which our rate integration policy is being applied for the first time. 
D. AT&T'S COMMITMENTS 
1. Background 
74. In the 1995 AT&T Reclassification proceeding, AT&T committed, for three 
years, to give five days' advance notice before adopting new geographically deaveraged tariffs 
for interstate residential direct dial services.161 AT&T also committed that it would continue 
to comply with Commission orders regarding rate integration between the contiguous forty­
eight states and Alaska, Hawaii, Puerto Rico, and the Virgin Islands. 162 The NPRM proposed 
that AT&T would be subject to the new rules adopted by the Commission and released from 
its commitments when the new rules are adopted. 
2. Comments 
75. AT&T believes that the rules adopted in this proceeding "will supersede 
AT&T's existing commitments in those areas."163 AT&T also notes that, although its rate 
integration commitments with respect to Alaska "would technically continue in effect, AT&T 
assumes that the policy adopted here will also apply in Alaska."164 MCI believes that AT&T 
should not be bound by any commitments "other than those that may arise from this 
proceeding and apply equally to all non-dominant carriers."165 
76. Hawaii argues that AT&T's commitment to provide five days' notice is not the 
161See In re Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, 11 FCC Red 3271, 
3333-34, 3349 (1995) (AT&T Non-Dominance Order). : 
162See id. 
163 AT&T Comments at 28 n.52. 
164/d 
165MCI Comments at 36. 
9599 
issue. 166 Instead, the State asserts that because Congress reaffirmed the goal of universal 
service, AT&T cannot be relieved of its commitment to offer geographically averaged 
residential direct dial service to Hawaii. 167 Alaska, too, claims that the question of whether 
AT&T's commitments continue in effect is not significant. Rather, the more important issue 
is that providers of interexchange service should not be permitted to deaverage their rates 
"regardless of how much notice is given."168 
77. The Northern Marianas argues that AT&T should be required to comply with 
the 1996 Act, which requires integration with Guam and the Northern Marianas, rather than 
with the commitments, which do not commit AT&T to integrate rates with Guam and the 
Northern Marianas.169 
3. Discussion 
78. The rules we adopt in this proceeding will require AT&T to provide 
interexchange service at geographically averaged and integrated rates. We believe these 
requirements incorporate the Commission's existing rate averaging and rate integration 
policies and, thus, should supersede the commitments AT&T made in the AT&T 
Reclassification proceeding concerning rate averaging and rate integration. Accordingly, we 
release AT&T from its commitments to continue to comply with the Commission's orders 
regarding rate integration and to file any tariff containing a geographically deaveraged ·rate on 
five business days' notice. We do not release AT&T from its more specific commitments 
concerning Hawaii and Alaska. 170 Nonetheless, AT&T is affirmatively bound by the rules we 
establish in this Report and Order, and by our prior opinions, rules and orders on geographic 
rate averaging and rate integration, which the rules incorporate. 
IV. FINAL REGULATORY FLEXIBILITY ANALYSIS 
79. As required by Section 603 of the Regulatory Flexibility Act, 5 U.S.C. § 603 
(RF A), we incorporated an Initial Regulatory Flexibility Analysis (IRF A) in the Notice of 
Proposed Rulemaking in this proceeding (NPRM). The Commission sought written public 
comments on the proposals in the NPRM, including on the IRFA. The Commission's Final 
166Hawaii Comments at 13-14. 
167/d 
168 Alaska Comments at 8. 
169Northem Marianas Comments at 13-14. 
110See, e.g., In re Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, 11 FCC Red 
3271, 3333-34 & n. 329 (1995) (AT&T Non-Dominance Order). 
9600 
Regulatory Flexibility Analysis (FRF A) in this Report and Order conforms to the RF A, as 
amended. by the Contract With America Advancement Act of 1996, Pub. L. No. 104-121, 110 
Stat. 84 7 ( 1996). 171 
80. Need for and pumoses of this action: The Commission promulgates the rules in 
this Report and Order to implement Section 254(g) of the Communication Act of 1934, as 
amended by the Telecommunications Act of 1996. In accordance with Section 254(g), our 
implementing rules will: 
require that the rates charged by providers of interexchange telecommunications 
services to subscribers in rural and high cost areas shall be no higher than the rates 
charged by each such provider to its subscribers in urban areas. Such rules shall also 
require that a provider of interstate interexchange services shall provide such services 
to its subscribers in each State at rates no higher than the rates charged to its 
subscribers in any other State. 172 
The objective of these rules is "to incorporate the policies of geographic rate averaging and 
rate integration of interexchange services in order to ensure that subscribers in rural and high 
cost areas throughout the Nation are able to continue to receive both intrastate and interstate 
interexchange services at rates no higher than those paid by urban subscribers."173 
81. Description and estimate of small entities affected: The Regulatory Flexibility 
Act defines "small entity" to include the definition of "small business concern" under the 
Small Business Act, 15 U.S.C. § 632.174 Under the Small Business Act, a "small business 
concern" is one that (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). 175 Our geographic averaging and rate integration rules will apply to all 
providers of interexchange service. The SBA has not developed a definition of small entities 
specifically applicable to providers of interexchange service. The closest applicable definition 
under SBA rules is for telephone communications companies other than radiotelephone 
171 Subtitle II of the CWAAA is "The Small Business Regulatory Enforcement Fairness Act of 1996" 
(SBREFA), codified at 5 U.S.C. § 601 et seq. 
112/n re Policy and Rules Concerning the Interstate, lnterexchange Marketplace, NPRM, CC Docket No. 96-
61, FCC 96-123 (rel. March 25, 1996). 
173See H.R. REP. No. 458, 104th Cong., 2d Sess. 132 (1996) (joint explanatory statement). 
114See S U.S.C. § 601(6) (incorporating by reference the definition of "small business concern" in 5 U.S.C. § 
. 632). 
175See 15 u.s.c. § 632(1)(a). 
9601 
(wireless) companies. According to SBA regulations, a telephone communications company 
other than a radiotelephone company is a small business concern if it has fewer than 1,500 
employees.176 
82. The most relevant employee data available from the SBA does not enable us to 
make a meaningful estimate of the number of providers of interexchange service that are 
small entities because it is based upon a 1992 Census of Transportation, Communications, and 
Utilities survey from which we can only calculate the average number of people employed by 
various-sized telephone entities other than radiotelephone companies. m Based on a 
Commission staff report entitled Long Distant Market Shares: Fourth Quarter, 1995, 
however, we estimate that approximately 500 carriers provide interexchange service. 178 Some 
of these carriers are not independently owned and operated, or have more than 1,500 
employees. Consequently, we estimate that our geographic averaging and rate integration 
rules will apply to less than 500 "small entities." We are unable on the present record to 
estimate with more particularity how many of these entities would be considered small for the 
purposes of the Regulatory Flexibility Act. 
83. Summary of public comments on the Initial Regulatory Flexibility Analysis: No 
comments specifically addressed the Commission's initial regulatory flexibility analysis. 
However, a number of associations that represent, at least to some extent, the interests of 
small telecommunications providers, generally supported the Commission's proposed rules to 
implement geographic averaging and rate integration.179 Other commenters asserted that these 
rules would harm small regional providers of interexchange service in high-cost areas, arguing 
that such providers would be unable to compete with nationwide carriers that can charge 
lower rates by spreading their costs over a larger customer base. 180 A few suggested that 
176See 13 C.F.R. § 121.201, Standard Industrial Classification (SIC) Code 4813. 
171See BUREAU OF THE CENSUS, U.S. DEPARTMENT OF COMMERCE, 1992 CENSUS OF TRANSPORTATION, 
COMMUNICATIONS, AND UTILITIES: ESTABLISHMENT AND FIRM SIZE, tbl. 4 (I 995) (Revenue Size of Finns: 
1992, SIC Code 4813). 
178See INDUSTRY ANALYSIS DMSION, FEDERAL COMMUNICATIONS COMMISSION, LONG DISTANCE MARKET 
SHARES: FOURTH QUARTER 1995, at 3 (I 996). 
179See CompTel Comments at 7; RTC Comments at 3; TRA Comments at 29; see also USTA Comments at 
2-4 (expressing support for codification of the Section 254(g)'s language on rate averaging, but not discussing 
rate integration). 
l80See ACT A Comments at 7-9 (arguing that the access charges interexchange providers pay vary, that rate 
averaging would disproportionately burden smaller carriers serving high-cost areas, and that the Commission 
should account for these concerns in its rules, require access charges and other provider costs to be averaged, or 
forbear); MFS Communications Comments at 8-10 (arguing that the Commission should forbear from applying 
rate averaging requirements to carriers with less than 5 percent of the nation's access and presubscribed lines 
9602 
subsidies or other support mechanisms might alleviate their concerns. 181 The record in this 
proceeding does not show that small interexchange service providers will be 
disproportionately harmed by implementation of rate integration. The practical impact of our 
rules will be to require all providers of interexchange service, including those that are small 
entities, to set rates on a geographically averaged and rate-integrated basis. 
84. Summary of reporting. recordkeeping and other compliance requirements: To 
comply with this Report and Order, carriers must charge rural and high-cost area customers 
for interexchange service no more than they charge urban customers, 182 and must charge 
customers for such services in one state no more than they charge customers in any other 
state. 183 The NPRM proposed requiring providers of interexchange telecommunications 
services to file certifications that they were complying with these requirements in the event 
the Commission decides to mandate permissive detariffing of interexchange services. 184 We 
will consider later in this proceeding what enforcement mechanisms may be necessary to 
support geographic averaging and rate integration when the Commission addresses the 
detariffing issue. We have proposed a requirement that AT&T, Sprint, MCI, IT&E, GTE, 
and PCI submit preliminary plans no later than February 1, 1997, to achieve rate integration 
of Guam, the Northern Marianas, American Samoa, and other offshore points, and final plans 
no later than June 1, 1997. 185 The preliminary plans need not include rates, but at a minimum 
should resolve service and rate-band issues. Final plans shall include a rate schedule. 
Carriers already have in place their own individualized rate schedules, which they have 
because such carriers have smaller customer bases over which to spread their costs, which are often higher than 
those of larger carriers, frequently because of high access charges in low-volume markets.); ACTA Comments at 
10-11 (incorporating its geographic averaging comments, on the contention that rate integration raises nearly 
identical concerns for smaller carriers); CLOS Comments at 7-8 (arguing that integration's below-cost rates 
would discourage new carriers from entering the Guam and Northern Mariana markets); GTE Comments at 21 
(arguing that small regional carriers with a limited calling base and high costs would have difficulty competing 
under integration against carriers with lower costs and larger customer bases over which to spread these costs); 
IT&E Comments at 20-22 (arguing that larger carriers can spread the costs for service to Guam and the Northern 
Marianas among their customers nationwide, but smaller carriers will be unable to subsidize below-cost rates 
mandated by rate integration). 
181See IT&E Comments at 20-22 & n.40; Letter from the Governor of Guam and the GTA to Regina M. 
Keeney, Chief of the Common Carrier Bureau 6-7 (June 20, 1996). · 
182See supra tt 2, 9. 
msee supra~~ 2, 47, 52. 
184/n re Policy and Rules Concerning the Interstate, Interexchange Marketplace, NPRM, CC Docket No. 96-
61, FCC 96-123, at~ 70 (rel. Mar. 25, 1996). 
185See supra~~ 68-70. 
9603 
presumably tailored to the areas they provide service. Consequently, carriers' staff preparing 
the preliminary and final plans will likely need no special skills other than general familiarity 
with the new rate schedules that these entities are planning, or have chosen, to adopt to 
comply with the rate averaging and rate integration requirements. 
85. Steps taken to minimize. consistent with statutory objectives. impact on small 
businesses: Section 254(g) reflects a congressional determination that the country's higher­
cost, lower-volume markets should share in the technological advances and increased 
competition characteristic of the nation's telecommunications indl.µitry as a whole, and that 
interexchange rates should be provided throughout the nation on a geographically averaged 
and rate- integrated basis. As noted above, we have decided that the statutory objectives of 
Section 254(g) require us to apply our rules to all providers of interexchange service, 
including small ones.186 We have chosen, however, to allow carriers to offer private line 
service and temporary promotions on a deaveraged basis. 187 In so doing, we have minimized 
the impact our rules might otherwise have had, and enable carriers to use such devices to 
enter new markets. 
86. Significant alternatives considered and reiected: The Commission considered 
and rejected several significant alternatives. We could have reduced burdens on small carriers 
by exempting them from compliance through forbearance. However, we do not believe that 
forbearing at this time would be consistent with the congressional goals that underlie Section 
254(g).188 We could also have reduced burdens on small carriers by establishing cost-support 
mechanisms. However, the present record does not justify any such cost-support 
mechanisms.189 Accordingly, we decline to adopt these alternative qieasures for small carriers. 
87. Report to Congress: The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this Report and Order, in a report to Congress pursuant to the 
Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. § 801(a)(l)(A). A 
copy of this FRF A will also be published in the Federal Register. 
V. FINAL PAPERWORK REDUCTION ANALYSIS 
88. We have decided to require AT&T, Sprint, MCI, IT&E, GTE, and PCI to 
submit preliminary and final plans to achieve rate integration of Guam, the Northern 
186See supra,, 3, 9, 38-40, 52-54, 66, 69-70. 
181See supra,, 21-30. 
188See supra,, 31-32, 38-40, 52-53. 
189See supra, 67. 
9604 
Marianas, and American Samoa by August 1, 1997. 190 The requirement of these plans 
constitutes a new "collection of information," within the meaning of the Paperwork Reduction 
Act of 1995, 44 U.S.C. §§ 3501-3520. Implementation of these requirements will be subject 
to approval by the Office of Management and Budget as prescribed by the Paperwork 
Reduction Act. 
VI. ORDERING CLAUSES 
89. Accordingly, IT IS ORDERED that pursuant to authority contained in sections 
1, 4(i), 10, 201-205, 214(e), 215 and 254(g) of the Communications Acrof 1934, as amended, 
47 U.S.C. §§ 151, 154(i), 160, 201-205, 214(e) and 254(g), Part 64 of the Commission's 
rules are Amended as set forth in Appendix B hereto. 
90. IT IS FURTHER ORDERED that the policies, rules and requirements set forth 
herein ARE ADOPTED. -- -- - - -· 
91. IT IS FURTHER ORDERED that the policies, ruies and feqwrements adopted 
herein SHALL BE EFFECTIVE 30 days after publicatfoi:dn the_Federal Register. 
92. IT IS FURTHER ORDERED that with respect to interexchange services 
provided between any U.S. state, territory or, possession and GU?ffi, the Northern Marianas, or 
American Samoa, AT&T, GTE, MCI, Sprint, PCI, and IT&E shall: 
(1) submit to the Commission no later than February 1, 1997, preliminary plans to 
achieve rate integration by August 1, 1997, with respect to those points; and 
(2) submit to the Commission no later than June 1, 1997, final plans to achieve 
rate integration by August 1, 1997, with respect to those points. 
93. IT IS FURTHER ORDERED that AT&T is released from the commitments it 
made in the AT & T Reclassification proceeding concerning rate averaging and rate integration, 
as described herein. 
94. IT IS FURTHER ORDERED that the Chief, Common Carrier Bureau, is 
delegated authority to resolve any regulatory issues concerning implementation of rate 
integration for offshore points consistent with this Report and Order. The Common Carrier 
Bureau is directed to investigate service arrangements for offshore points, as discussed in 
paragraph 71, and to take such steps as are necessary to ensure compliance with Section 
254(g), by August 1, 1997, for such offshore points. 
190See supra,, 68-70. 
9605 
9606 
Federal Communications_ Commission 
William F. Caton 
Acting Secretary 
Appendix A - List of Parties 
(CC Docket No. 91-61) 
Comments filed on or before April 19, 1996 
in response to Notice of Proposed Rulemaking 
Alabama Public Service Commission (Alabama PSC) 
Alaska 
America's Carriers Telecommunication Association (ACTA) 
American Petroleum Institute 
American Public Communications Council 
Ameritech 
American Mobile Satellite Carriers Subsidiary Corp. (AMSC) 
AT&T 
Bell Atlantic. 
BellSouth Corp. 
Cable & Wireless Inc. 
Collins, Frank 
Columbia Long Distance Services Inc. (CLDS) 
Competitive Telecommunicatio~ Association (CompTel) 
Florida Public Service Commission (Florida PSC) 
Frontier Corp. 
General Communications Inc. 
General Services Administration 
GTE Service Corp. 
Guam, Governor of, and the Guam Telephone Authority (GTA), jointly 
Guam Public Utilities Commission (Guam PUC) 
Hawaii 
Hunter, Gerald 
Iowa Utilities Board 
IT &E Overseas Inc. 
JAMA Corp. 
John $taurulakis Inc. 
LDDS Worldcom Inc. 
Lee, Paul 
Loflin, Kevin 
MCI 
W'S Communications Co. 
Missouri Public Service Commission (Missouri PSC) 
National Association of Regulatory Utility Commissioners (NARUC) 
Northern Mariana Islands 
NYNEX 
9607 
Ohio, Public Utilities Commission of (Ohio PUC) 
Ohio Consumers' Counsel (OCC) 
Orlic, Peggy 
Pacific Telesis Group 
Pennsylvania Office of Consumer Advocate 
Rural Telephone Coalition (RTC) 
SBC Communications Inc. 
Scherers Communications Group 
Southern New England Telephone Co. 
Sprint Corp. 
Stark, Kristine 
Sussman, Michael 
TCA Inc. 
TDS Telecommunications Corp. 
Telecommunications Resellers Association (TRA) 
United States Telephone Association (USTA) 
US West Inc. 
Vanguard Cellular Systems Inc. 
Ward, Harvey William 
Washington Utilities and Transportation Commission (Washington UTC) 
Zankle Worldwide Telecom 
Late-filed Comments 
Louisiana Public Service Commission (Louisiana PSC) (filed April 22, 1996) 
Pennsylvania Public Utility Commission (Pennsylvania PUC) (filed April 22, 1996) 
Reply Comments filed 
on or before May 3, 1996 
Alaska 
ALL TEL Corporate Services Inc. 
Ameritech 
. AT&T 
Bell Atlantic 
BellSouth Corp. 
Citizens Utilities Co. 
Competitive Telecommunications Association (CompTel) 
General Communications Inc. 
General Services Administration 
GTE Service Corp. 
Guam, Governor of, and the Guam Telephone Authority (GTA), jointly 
9608 
Guam Public Utility Commission (Guam PUC) 
Hawaii 
IT &E Overseas Inc. 
LDDS WorldCom Inc. 
MCI 
MFS Communications Co. 
New York Department of Public Service (New York DPS) 
Northern Mariana Islands 
NYNEX Telephone Cos. 
Ohio Consumers' Counsel (OCC) 
PCI Communications Inc. 
Rural Telephone Coalition (RTC) 
SBC Communications Inc. 
Sprint Corp. 
United States Telephone Association (USTA) 
US West Inc. 
Vanguard Cellular Systems Inc. 
Late-rtled Reply Comments 
Telecommunications Resellers Association (TRA) (May 6, 1996) 
9609 
Appendix B 
Amendments to the Code of Federal Regulations 
Part 64 of Title 47 of the Code of Federal Regulations is amended as follows: 
PART 64 -- MISCELLANEOUS RULES RELATING TO COMMON CARRIERS 
1. The authority citation for Part 64 continues to read as follows: 
Authority: Sec. 4, 48 Stat. 1066, as amended; 47 U.S.C. 154, unless otherwise 
noted. Interpret or apply secs. 201, 218, 226, 228, 48 Stat. 1070, as amended, 1077;47 
U.S.C. 201, 218, 226, 228, unless otherwise noted. 
2. Subpart R is Added to Part 64 to read as follows: 
Subpart R - Geographic Rate Averaging aiid Rate "Integration 
§ 64.1801 Geographic rate averaging and rate integration. 
Authority: 47 U.S.C. §§ 151, 154(i), 201-205, 214(e), 215 and 254(g) 
Subpart R - Geographic Rate Averaging and Rate Integration 
§ 64.1801 Geographic rate averaging and rate integration. 
(a) The rates charged by providers of interexchange telecommunications services to. 
subscribe~s in rural and high-cost areas shall be no higher than the rates charged by each such 
provider to its subscribers in urban areas. 
(b) A provider of interstate interexchange telecommunications services shall 
provide such services to its subscribers in each U.S. state at rates no higher than the rates 
charged to its subscribers in any other state. 
9610