FCC 96-454
Before the
FEDERAL COMMUNICATIONS COMMISSION 
Washington, D.C. 20554
In the Matter of )
)Policy 
and Rules Concerning ) CC Docket No. 87-313 
Rates for Dominant Carriers )
) Revisions to Price Cap Rules 
) CC Docket No. 93-197
for AT&T )
ORDER
Adopted: November 21, 1996; Released: November 26, 1996 
By the Commission:
I. INTRODUCTION
1. In this order, we terminate as moot proceedings concerning the treatment of 
AT&T Corp.'s (AT&T) offerings of promotions and optional calling plans (OCPs) under price 
cap regulation1 in light of our determination that AT&T is non-dominant and the resultant 
removal of AT&T's services from price cap regulation.2
H. BACKGROUND
2. In 1989, the Commission replaced traditional rate of return regulation with an
1 Policy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313, Order and Notice of 
Proposed Rulemaking, 8 FCC Red 3715 (1993) (Promotions NPRM); Revisions to Price Cap Rules for AT&T, 
CC Docket No. 93-197, Notice of Proposed Rulemaking, 8 FCC Red 5205 (1993) (OCP NPRM); Policy and 
Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313, and Revisions to Price Cap Rules for 
AT&T, CC Docket No. 93-197, Further Notice of Proposed Rulemaking, 10 FCC Red 7854 (1995) (Further 
Notice).
2 Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, 11 FCC Red 3271 (1995) (AT&T 
Reclassification Order), recon. pending. In a subsequent order, the Commission removed AT&T's remaining 
price cap services, international services, from price cap regulation. Motion of AT&T Corp. to be Declared 
Non-Dominant for International Service, Order, FCC 96-209 (rel. May 14, 1996).
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incentive-based system of regulation, called price caps, for most of AT&T's services.3 To 
implement the price cap system, the Commission defined three categories of AT&T services, 
or baskets, and defined a price cap index (PCI) for each basket.4 The basket structure was 
designed so that AT&T would not be able to raise prices for services in one basket in order to 
lower prices for dissimilar services in another basket. Therefore, a change in rates in one 
basket or in services outside of price caps would not affect either the PCI or the actual price 
index (API)5 for the other baskets.
3. The Commission was silent in the AT&T Price Cap Order as to the treatment 
of promotional rates under price caps.6 After the Commission adopted the price cap rules, 
AT&T filed tariffs for a significant number of promotions in which it treated the rates 
associated with these offerings as rate reductions for purposes of API calculations. MCI 
Telecommunications Corporation (MCI) and Sprint Communications Company LP (Sprint) 
sought reconsideration of the AT&T Price Cap Order, requesting clarification of the price cap 
treatment of promotions. In the AT&T Price Cap Reconsideration Order, the Commission 
decided to exclude promotions from the price cap index prospectively. It reasoned that 
including promotional rates in price caps would give AT&T a greater degree of flexibility 
than warranted to offset the discounted promotional rates with increases in residential and 
small business rates within Basket 1.7
4. AT&T sought judicial review of the AT&T Price Cap Reconsideration Order. 
The United States Court of Appeals for the District of Columbia Circuit found that the 
Commission's decision to exclude promotional tariffs from the price cap index was not a 
reasoned decision supported by the record. The court remanded the AT&T Price Cap 
Reconsideration Order to the Commission with instructions either to show that its action was 
a clarification of the original AT&T Price Cap Order, or to "offer a reasoned explanation of 
why promotional rates should be treated differently from other rates."8
3 Policy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313, Notice of Proposed 
Rulemaking, 2 FCC Red 5208 (1987); Further Notice of Proposed Rulemaking, 3 FCC Red 3195 (1988); Report 
and Order and Second Further Notice of Proposed Rulemaking, 4 FCC Red 2873 (1989) (AT&T Price Cap 
Order); Erratum, 4 FCC Red 3379 (1989); Memorandum Opinion and Order on Reconsideration, 6 FCC Red 665 
(1991) (AT&T Price Cap Reconsideration Order), remanded sub nom. AT&Tv. FCC, 974 F.2d 1351 (D.C.Cir. 
1992) (Remand Order). Those services that are not under price cap regulation are subject to streamlined 
regulation, which reduces their regulatory obligations under Part 61 of the Commission's rules.
4 See Further Notice, 10 FCC Red at 7855-56, for an explanation of how the price cap index is 
calculated.
5 The API represents a weighted average of actual prices of the services within the basket. Id
6 Id. at 7857.
7 AT&T Price Cap Reconsideration Order at 671.
8 Remand Order, 974 F.2d at 1355.
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5. In response, the Commission vacated its prior decision on this issue and issued 
the Promotions NPRM in Docket 87-313.9 In the Promotions NPRM, the Commission 
tentatively concluded that promotions should be excluded from price cap regulation 
prospectively. The Commission found that AT&T was able to insulate itself from revenue 
losses created by promotional discounts by raising its rates for other residential services in 
Basket I. 10 The Commission relied upon evidence that AT&T had taken advantage of any 
downward price flexibility generated by promotions to raise other rates in Basket 1, thereby 
keeping aggregate rates at the price cap maximum. According to the Commission, 
"[permitting promotional offerings to be used as a basis for raising basic schedule rates, 
without limitation, would strongly encourage the proliferation of excessive promotional 
offerings and undercut the efficiency incentives of the price cap program."11 As an 
alternative, the Commission sought comment on whether to treat promotions as either new or 
restructured services.12
6. In the OCP NPRM, the Commission tentatively concluded that the ReachOut 
category of services (i.e., most domestic MTS OCPs) should be removed from Basket 1 
because there is substantial competition among providers of discounted residential services. 13 
The Commission sought comment on whether the treatment of OCPs under the AT&T price 
cap plan should be changed, and, if so, in what manner. Specifically, the Commission sought 
comment on whether it should adjust the API or the PCI for Basket 1 to reflect the removal 
of OCPs from Basket 1. As an alternative to removal of OCPs from price cap regulation, it 
asked for comment on whether OCPs should remain subject to price cap regulation, but be 
placed in a separate basket. 14
9 Promotions NPRM, 8 FCC Red 3715.
'  Id. at 3716.
11 Id.
12 Id. at 3717. Under price cap regulation, a service is classified as new if it provides an additional option 
to a service, but does not replace the existing service. A service is classified as a restructured offering if it 
replaces an existing service. See Sections 61.44(g), 61.46(b), and 61.47(b) of the Commission's rules, 47 C.F.R. 
§§ 61.44(g), 61.46(b), and 61.47(b).
13 OCP NPRM, 8 FCC Red at 5205-6. -The price cap system's treatment of OCPs differs from that 
accorded promotions. OCPs are included in a separate service category (the ReachOut service category) from the 
basic MTS service categories within Basket 1, whereas promotions are included in the applicable MTS service 
categories. Changes in OCP rates, therefore, are not subject to the same limitations on rate changes as the basic 
schedule service categories. Further Notice, 10 FCC Red at 7859.
14 The Commission also proposed a number of other changes to the price cap rules in the OCP NPRM, 
including whether to remove commercial, 800 Directory Assistance, and analog private line services from price 
caps. In the Report and Order in CC Docket No. 93-197, rO -FCC Red 3009 (1995) (Commercial Services Price 
Cap Order), the Commission resolved these issues, removed commercial services from price cap regulation, and 
deferred the question of the regulatory treatment of OCPs to this proceeding.
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7. Because the issues presented in determining the regulatory treatment of 
promotions and OCPs were closely related, we consolidated these issues in a Further Notice 
of Proposed Ruiemaking.'5 In the Further Notice, we made several tentative conclusions. We 
determined that Basket 1 domestic MTS promotions, domestic MTS OCPs, and basic schedule 
MTS offerings exhibit significant cross-elasticities of demand and are generally offered to the 
same class of customers, i.e., residential customers, following the removal of AT&T's 
domestic commercial services from price cap regulation. 16 If we removed domestic MTS 
OCPs and promotions from price caps, the result would be that some of AT&T's offerings of 
domestic MTS for residential customers would be streamlined while retaining price cap 
regulation for similar offerings to the same class of customers. We declined to take this step 
and determined that the issue of further streamlining of OCPs and promotions might be better 
considered together with AT&T's motion for non-dominant status in a separate proceeding. 
We did propose, however, a number of related modifications to AT&T's price cap plan. 
Specifically, we recommended that, because promotions and OCPs are simply different ways 
of pricing the same service, they should be redefined as alternative pricing plans (APPs) for 
domestic, residential MTS, which co-exist with the basic domestic MTS rate schedule. 17
8. On October 23, 1995, we released an order granting AT&T's motion to be 
reclassified as a non-dominant carrier. 18 The Commission defined the relevant product and 
geographic market for AT&T, under the Competitive Carrier paradigm,19 as the interstate, 
domestic, interexchange market.20 We then decided that the appropriate standard to evaluate 
AT&T's reclassification request was whether AT&T possessed market power in the overall 
relevant market, even if AT&T has the ability to control the prices of one or more services. 
Applying this standard to the record, the Commission concluded that the market structure
15 Further Notice, 10 FCC Red 7854.
16 Id at 7861.
17 Id at 7862.
18 AT&T Reclassification Order, \ 1 FCC Red 3271.
" Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities 
Authorizations Therefor, CC Docket No. 79-252, Notice of Inquiry and Proposed Ruiemaking, 77 FCC 2d 308 
(1979); First Report and Order, 85 FCC 2d 1 (1980); Further Notice of Proposed Ruiemaking, 84 FCC 2d 445 
(1981); Second Further Notice of Proposed Ruiemaking, FCC 82-187, 47 Fed.Reg. 17,308 (1982); Second 
Report and Order, 91 FCC 2d 59 (1982); Order on Reconsideration, 93 FCC 2d 54 (1983); Third Further Notice 
of Proposed Ruiemaking, 48 Fed.Reg. 28,292 (1983); Third Report and Order, 48 Fed.Reg. 46,791 (1983); 
Fourth Report and Order, 95 FCC 2d 554 (1983), vacated, AT&Tv. FCC, 978 F.2d 727 (D.C.Cir. 1992), cert, 
denied, MCI Telecommunications Corp. v. AT&T, 113 S.Ct. 3020 (1993); Fourth Further Notice of Proposed 
Ruiemaking, 96 FCC 2d 922 (1984); Fifth Report and Order, 98 FCC 2d 1191 (1984); Sixth Report and Order, 
99 FCC 2d 1020 (1985), vacated, MCI Telecommunications Corp. v. FCC, 765 F.2d 1186 (D.C.Cir. 1985) 
(collectively referred to as the Competitive Carrier proceeding).
20 AT&T Reclassification Order, 11 FCC Red at 3292.
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characteristics and the indicia of market conduct and performance all indicate that AT&T 
lacks market power in the interstate, domestic, interexchange market.21
9. The Commission noted that the rectification of AT&T as a non-dominant 
carrier would free AT&T from price cap regulation for its residential, operator, 800 directory 
assistance, and analog private line services.22 By subsequent order, we removed AT&T's 
international services from price cap regulation as well, thus completing the process of ending 
price cap regulation of AT&T.23
in. DISCUSSION
10. In the AT&T Reclassification Order, we granted AT&T's motion to be 
reclassified as a non-dominant carrier.24 The reclassification of AT&T as a non-dominant 
carrier resulted in the end of price cap regulation for AT&T's residential, operator, 800 
directory assistance, and analog private line services. Since AT&T's domestic MTS, 
including promotions and OCPs, is no longer subject to price caps, the issues raised in our 
tentative conclusions and proposals in the Further Notice concerning whether to remove 
promotions and OCPs from price cap regulation are now moot. Similarly, the issues raised by 
the D.C. Circuit in the Remand Order in CC Docket No. 87-313 are moot. Accordingly, we 
will terminate as moot CC Docket Nos. 87-313 and 93-197.
IV. ORDERING CLAUSE
11. Accordingly, IT IS ORDERED that CC Docket Nos. 87-313 and 93-197 ARE 
TERMINATED as moot.
FEDERAL COMMUNICATIONS COMMISSION
William F. Caton 
Acting Secretary
21 Id at 3347.
22 Mat 3281.
23 Motion of AT&T Corp. to be Declared Non-Dominant for International Service, Order, FCC 96-209 
(rel. May 14, 1996).
24 AT&T Reclassification Order, 11 FCC Red 3271.
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