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The following document was electronically retrieved from: Berry Best Services, Ltd. Washington, DC 202-293-4964 --------------------------------------------------------------------- FCC 91-186 38187 July 11, 1991 In the Matter of ) ) Amendments of Part 69 ) of the Commission's Rules ) CC Docket No. 89-79 Relating to the Creation of ) Access Charge Subelements for ) Open Network Architecture ) ) Policy and Rules Concerning Rates ) CC Docket No. 87-313 for Dominant Carriers ) REPORT AND ORDER & ORDER ON FURTHER RECONSIDERATION & SUPPLEMENTAL NOTICE OF PROPOSED RULEMAKING Adopted: June 13, 1991 Released: July 11, 1991 Comment Date: August 26, 1991 Reply Comment Date: September 25, 1991 By the Commission: Table of Contents Paragraph I. Introduction 1 II. Background 2 III. Issues 5 A. Unbundling of Basic Service Elements 7 1. The Scope of Unbundling 9 2. BSAs and the Unbundling of Existing Feature Groups 12 3. Retaining or Abolishing Existing Feature Groups 16 B. Rate Level Constraints 21 1. Applying Price Caps to ONA Services 22 2. Initial Rate Levels 24 3. BSE Rate Structure 49 4. Adjusting Rate Levels Under Price Caps 51 C. The ESP Exemption 54 D. Other Issues 66 1. Jurisdictional Measurement 66 2. Computer III Pricing Rules 69 3. The Impact of ONA on Separations 70 4. Pending Waiver Requests 72 IV. Supplemental Notice of Proposed Rulemaking 74 V. Conclusion 76 VI. Prodedural Matters 77 VII. Ordering Clauses 80 Appendix A: Amendments to the Code of Federal Regulations Appendix B: Lists of Commenters Appendix C: Summary of Filing Requirements I. INTRODUCTION 1. This order amends the Commission's Part 69 access charge rules to enable the Bell Operating Companies (BOCs) to offer unbundled Open Network Architecture (ONA) services, as required by our ONA Orders./1 In addition, this order modifies the LEC Price Cap Order new services test to give additional pricing flexibility to price cap local exchange carriers (LECs), although the pricing rules continue to require price cap LECs to provide detailed cost support for new services, including their initial prices for basic service elements (BSEs). Once initial prices for "new" ONA services become effective and adeaquate historical data have been generated, the services will be brought under price caps, subject to an additional disclosure requirement. In this order we also retain the current enhanced service provider (ESP) exemption in its current form. Finally, we invite comment on the limited issue of the pricing rules that should apply to additional basic service elemants (BSEs) offered by the BOCs in the future, if the BSEs are "restructured" services under the price cap rules./2 ____________ /1 Filing and Review of Open Network Architecture Plans, CC Docket No. 88-2, Phase I, 4 FCC Rcd 1 (1988) (BOC ONA Order) recon., 5 FCC Rcd 3084 (1990) (BOC ONA Reconsideration Order), further order, 5 FCC Rcd 3103 (1990) (BOC ONA Amendment Order) /2 Parties filing comments and reply comments in the Part 69/ONA proceeding are listed in Appendix B. Parties filing comments in the LEC Price Cap proceeding are listed in Appendix C. II. BACKGROUND 2. In the Computer III proceeding,/3 the Commission replaced the structural separation requirements for BOC enhanced service operations with nonstructural safeguards, including ONA. ONA was designed to unbundle basic services provided by the BCCs to prooote efficient and innovative use of the network by ESPs and prevent BOCs from discriminating against independent ESPs in favor of BOC ESP operations. Although various Computer decisions were vacated by the U.S. Court of Appeals for the Ninth Circuit, we subseguently reinstated our CNA requirements -- which were not challenged before the court -- independently of whether we ultimately perrit the BOCs to provide enhanced services on an integrated basis./4 3. In the Phase I Order, the Commission concluded that the provision of unbundled basic service "building blocks" is essential to enable the BOCs/ ESP competitors to compete effectively. Therefore, the Commission required the BOCs to file ONA plans describing their specific proposals for initial sets of BSEs: elements of the network that ESPs could use on an unbundled, equal access basis./5 In the BOC ONA Order, the Commission accepted the BOCs' ONA plans in part and rejected them in part, requiring them to make a number of changes and to submit revised plans in May 1989. The Commission also recognized that it would be necessary to revise the Part 69 access charge rules to permit the BOCs to offer ONA services and issued a Notice of ____________ /3 Amendment of Sections 64.702 of the Commission's Rules and Regulations, Report and Order, CC Docket No. 85-229, 104 FCC 2d 958 (1986) (Phase I Order), reconsideration, 2 FCC Rcd 3035 (1987) (Phase I Reconsideration), further reconsideration, 3 FCC Rcd 1135 (1988) (Phase I Further Reconsideration), second further reconsideration, 4 FCC Rcd 5927 (1989) (Phase I Second Further Reconsideration), Phase I Order and Phase I Reconsideration vacated sub nom. California v. FCC, 905 F.2d 1217 (9th Cir. 1990), appeal pending sub nom. Illinois Bell Telephone Co. v. FCC, No. 88- 1364 (D.C.Cir. pet. for rev. filed May 16, 1988); Phase II Order, CC Docket No. 85-229, Phase II, 2 FCC Rcd 3072 (1987), recon, 3 FCC Rcd 1150 (1988) (Phase II Reconsideration), further recon., 4 FCC Rcd 5927 (1989) (Phase II Further Reconsideration), Phase II Order vacated sub nom. California v. FCC, 905 F.2d 1217 (9th Cir. 1990), appeal pending sub nom. California v. FCC, No. 88-7183 (9th Cir. filed May 13, 1988). /4 Computer III Remand Proceedings, Report and Order, CC Docket No. 90- 368, 5 FCC Rcd 7719 (1990). /5 We are using the term BSE to nean an optional unbundled feature (such as Automatic Number Identification) that an ESP nay require or find useful in configuring an enhanced service. BOC ONA Order, 4 FCC Rcd at 36. Proposed Rulemaking./6 In May 1990, the Commission approved the revised BOC ONA plans./7 4. In September 1990, the Commission adopted the LEC Price Cap Order./8 In the Price Cap proceeding, the Commission solicited comments on how price cap rules might be applied to ONA but deferred resolution of that issue to this proceeding. MCI filed a petition for reconsideration of the LEC Price Cap Order arguing that the Commission should revise the test for new services to provide an upper bound for prices. In the LEC Price Cap Reconsideration Order,/9 we adopted an intern rule for new service pricing, but deferred permanent resolution of that issue to this proceeding to pemrit us to consider the new services issue together with pricing issues raised by the Part 69/ONA Notice. III. ISSUES 5. The Commission initiated this Part 69/ONA proceeding to consider how best to integrate ONA tariffing policies into the listing federal access charge rules. The Notice sought comment on what modifications to the access charge structure were necessary to accomdate the unbundling set forth in the amended BOC ONA plans. The Commission tentatively concluded that the BOCs should offer BSEs as unbundled rate subelements within the existing access elements. The Commission tentatively concluded that it was unnecessary to nake najor modifications to our listing access rules to cement unbundling, but that some modifications to the local switching element were necessary, since many BSEs are switch-related. The Notice also requested coetrnt on any other access elements that might be affected. ____________ /6 Amendments of Part 69 of the Commssion's Rules Relating to the Creation of Access Charge Subelements for Open Network Architecture, Notice of Proposed Rulemaking, CC Docket No. 89-79, 4 FCC Rcd 3983 (1989) Part 69/ONA Notice or Notice). /7 BOC ONA Order, 5 FCC Rcd 3103 (1990). In April 1991, the BOCs filed additional aeendeents to their ONA plans, and these amendments are now being reviewed. /8 Policy and Rules Concerning Pates for Dominant Carriers, CC Docket No. 87-313, Second Report and Order, 5 FCC Rcd 6786 (1990) and Erratum 5 FCC Rcd 7664 (1990) (LEC Price Cap Order), modified on recon. 6 FCC Rcd 2637 (1991), betitions for further recon. pending, appeal docketed, D.C. PSC v. FCC, No. 91-1279 (D.C. Cir. June 14, 1991). /9 Policy and Rules Concerning Rates for Dominant Carriers, CC Docket No. 87-313, Order on Reconsideration, 6 FCC Rcd 2637 (1991) (LEC Price Cap Reconsideration Order), petitions for further recon. pending, appeal, docketed, D.C. PSC v. FCC, No. 91-1279 (D.C. Cir. June 14, 1991). 6. The Notice also tentatively decided to grant the BOCs flexibility in pricing unbundled BSEs within the local switching element, subject to the overall constraints on that element. However, the Notice expressed some concern about BOC incentives to price BSEs in a way that discrininates in favor of the BOC BSPs and against BSP competitors. Therefore, the Commission sought coement on the extent and manner in which BOC flexibility should be constrained. The Notice also proposed to extend the pricing rules adopted for BSEs to other non-ONA rate subelements that the Commission either requires or permits LEC's to offer on an unbundled basis. To maintain a measure of stability in this time of rapid change, the Commission also tentatively concluded that the current ESP exemption should be retained in its current form. Nevertheless, the Notice invited comments on two alternatives to the exemption. A. Unbundling of Basic Service Elements 7. We conclude that, to permit the unbundled offerings of BSEs, we must amend not only the local switching rules, but also the rules for transport and information. In addition, we adopt the approach of the Notice, that the unbundled BSEs and BSA elements should replace the existing feature group offerings, but require that the feature groups continue to be available during a transition period to peerit revision of ordering and billing procedures. 8. Background. Under the "common ONA model," the BOCs distinguish between basic serving arrangements (BSAs) and BSEs./10 The common ONA model is based upon the architecture of the existing BOC local distribution networks, from which unbundled BSEs may be offered to the public. BSAs are the underlying switching and transmission services, for example, trunkside switched access. BSEs are optional unbundled features, for example, Automatic Number Identification (ANI). BSEs are generally software-based features and functions resident in the stored-program-controlled switch located in the carrier's central office. A customer must purchase a BSA to gain access to a BSE. The switched service BSA is essentially a combination of the existing common line, local switching, and transport elements that does not include existing features offered as BSEs. 1. The Scope of Unbundling 9. Proposal. In the Notice, we tentatively concluded that "the BOCs should offer BSEs as unbundled rate subelements within our existing access elements."/11 Because BSEs, for the most part, appeared to be part of the local switching function, we concluded that it would be necessary to amend our local switching rules to permit BSE unbundling. We noted, bowever, thst our current special access rules already pernut such unbundling and, thus, appear to need no modification to accomodate ONA. We also asked for comment ____________ /10 BOC ONA Order, 4 FCC Rcd at 36 paras. 56-57 (1988). See also, Bell Operating Companies, ONA Special Report #5, Issue 2, CNA Services Cross Reference Guide (July 31, 1990) (Special Report #5). /11 Notice, at 3983 para. 1. on whether any other access elements needed to be unbundled to accomodate multiplexing or packet switching./12 10. Comments. No party disagrees with the conclusion in the Notice that we need to modify the local switching rules to accommodate the unbundled BSEs. In addition, all of the parties citing on special access rules agree that no changes to those rules are necessary./13 Three BCCs contend further that no rule changes are necessary to accomodate multiplexing and packet switching./14 BellSouth argues that the existing local transport waiver provides the necessary flexibility with respect to local transport,/15 and GTE suggests that we should amend our rules in this proceeding to give LECs the flexibility provided by the current transport waiver./16 SW Bell, however, states that two of its approved BSEs require that our transport rules be revised,/17 while GTE states that we must revise our rules for the information element to accommodate some BSSs./18 USTA and four BCCs argue that we should amend all switched access rules to permit unbundling in all categories, and not just local switching, without the need for waivers./19 ____________ /12 Multiplexing is the process of combining multiple individual communications between two locations over a single channel by dividing the channel, for instance, into distinctly allocable time segments (time division multiplexing) or frequency bands (frequency division multiplexing). Packet switching is the process of packaging data "messages" in labeled standard- length "packets" and then individually routing those packets, often over different routes, to their comeon destination, where the packets are sorted and reassembled into their original messages. Packet switching can be Are efficient than circuit switching because it does not use or any connection during the idle states between bursts of data communication. /13 Ameritech Comments at 4; Ameritech States Comments at 4; Bell Atlantic Comments at 3 n.5; BellSouth Comments at 5-6; GTE Comments at 12; NYNEX Comments at 2,8. /14 Ameritech Comments at 4; BellSouth its at 6-7; US West Comments at 10 n.23. /15 BellSouth Comments at 6-7. /16 GTE Comments at 10-11. /17 SW Bell its at Exhibit A, indicating that its Alternate Routing and its Expedited Testing BSEs involve transport as well as local switching elements. /18 GTE Comments at 10-11. /19 Ameritech Comments at 5; BellSouth Comments at 7-8; NYNEX Comments at 2, 7, 22; SW Bell Comments at 7, 26; USTA Comments at 8 n.11. MCI Objects, contending that there is a need for on-the-record waiver proceedings, and disputing that any significant delay would be likely./20 11. Decision. We conclude that we should modify our local switching, transport, and information rules to reflect our decision to require BOCs and permit other rate-of-return and price cap LECs to offer unbundled ONA services. Our special access rules require no modification, and we conclude that no additional rule changes are necessary to accommodate multiplexing and packet switching. The Commission proposed to adopt whatever rule changes are necessary to permit the BOCs to offer all of the BSEs that they have set forth in the ONA plans, as amended. At the outset, it appears that there will only be a few subelements outside of local switching, in local transport and perhaps information./21 In this order we adopt the changes to our access charge rules required for the BCCs to tariff BSEs listed in the BOCs, approved ONA plans./22 2. BSAs and the Unbundling of Existing Feature Groups 12. Proposal/Comments. Local exchange access tariffs use the term feature groups to describe the packages of interstate access that are available. These pages curntly include various non-chargeable optional features. For essaple, Feature Group D provides the customer with a trunkside access connection and all eonal access features. The Notice and ____________ /20 MCI Reply at 2-6. /21 The transport elements are, of course, cerntly subject to a waiver that affords exchange carriers considerable flexibility in establishing rate structures within the broader transport category. American Telephone and Telegraph Company, Petition for Waiver of Sections 69.(b), 69.3(e), 69.4(b) (7) and (8), 69.111 and 69.112 of the Commission's Rules and Regulations, 94 FCC 2d 545 (1983); NTS and WATS Market Structure, CC Docket No. 78-72, Phase I, 97 FCC 2d 834, 862 para. 88 (1984); MTS and WATS Market Structure, CC Docket 78-72, 58 RR 2d 917 (1985); Annual 1988 Access Tariff Filing Petitions for Waiver, 2 FCC Rcd 5659, 5660 (1987). This Order modifies that waiver to the extent necessary to enable the unbundled offering of any BSEs that fit within the broader transport category. The pricing of transport BSEs and BSA elements must comply with the pricing requirements described in this order. Although we are adopting amended language for the waived Common Transport and Dedicated Transport rules, we are not requiring implementation of those rules at this time. That question will be resolved in another proceeding. /22 Various states argue that the Commission should not require BSA/BSEs to be federally tariffed. DC Comments at 1,2; Florida Coemnts at 3-4; Iowa Comments at 3; Maryland Comments at 1; NARUC Comments at 1; New Jersey Reply at 2; New York Comments at 4, 7-10; SW Bell Regulators Reply at 4-5; Virginia Coemnts at 1. In the BOC ONA Reconsideration Order we affirmed our decision to require federal tariffing of interstate BSEs. 5 FCC Rcd at 3088-90 (1990). We decline to revisit that issue in this proceeding as we see no new arguments raised. FCC ONA Order presumed that we could classify existing interstate feature groups as BSAs, and the Notice sought comment on that position./23 The LECs strongly support this proposal as logical and appropriate,/24 as do the Ameritech States./25 The ESPs, on the other hand, oppose treating existing interstate access arrangements as BSAs,/26 in apparent preference for a BSA designed especially for them./27 Some LECs oppose the concept of unbundling existing feature groups at all, at least until concrete demand for unbundled BSEs develops. Thus, NYNEX, SW Bell and US West oppose unbundling as a costly, premature, and unnecessary exercise./28 They argue that the Commission should permit, but not require, that new BSEs be offered on an unbundled basis. 13. Decision. We will follow the direction indicated in our BOC ONA Order and the Notice for our treatment of BSAs. Each BOC must offer one lineside switched access BSA and one trunkside switched access BSA. Each switched access BSA will include the portions of local switching, local transport, and common line that are not unbundled. The switched access BSAs will then serve as the basic platforms upon which all switched access customers will build, adding BSSs to create the pages they desire. 14. It is likely that the BSEs offered initially by LECs will be BSEs set forth in one of the approved BOC ONA plans, and we amend our rules to permit LECs to offer these BSEs. However, for BSEs not previously approved by the Commission, we will require LECs to file a description of the BSE with the Common Carrier Bureau. To facilitate the introduction of new BSEs desired by ESPs, we now establish an expidited BSE approval process. Within 45 days after a description of a BSE is filed, the Bureau may request that the carrier file additional information, which may include a petition for waiver of the Part 69 rules. If the Bureau takes no action within 45 days, the BSE will be deemed approved. However, as is the case today, LECs that wish to create an additional switched access BSA, or implement an ____________ /23 Notice at 3984 para. 11. For example, there would be a lineside circuit switched BSA (currently FGA), and a dedicated voice grade BSA (currently voice grade special access). /24 Bell Atlantic Comments at 3 n.4; BellSouth Comments at 4-5; Contel Comments at 2; GTE Comments at 4; NYNEX Comments at 9; SW Bell Comments at 5- 6; USTA Comments at 4; US West Comments at 8-9. /25 Ameritech States Comments at 4. /26 CBEMA Comments at 2-5; Dialcom Comments at 24; ICA Comments at 3-4; Joint Parties Comments at 16-17; McGraw-Hill Reply at 12; Prodigy Comments at 15-16; Telenet Comments at 19-21, 40-41; Tymnet Comments at 8, 30-32. /27 CONAP Comments at 3-6; ICA Comments at 7-8; Joint Parties Comments at 16-18. /28 NYNEX Comments at 9-12, Reply at 2-4; SW Bell Reply at 3-4; US West Comments at 4-9, Reply at 2-3. "unbundling" of the local switching, transport, or information elements other than an unbundling of BSE will have to obtain a Part 69 waiver./29 We limit the waiver requirement to switched access elements because our current special access rules permit carriers to offer new special access services without waivers. We believe that our decision with respect to the necessity of waivers for new BSEs and BSAs strikes a strikes a reasonable balance between permitting LECs to offer new services useful to ESPs in a timely fashion and controlling the LECs' ability to make fundamental and possibly discriminatory rate structure changes. 15. We reiterate that our ONA policy is more then an effort to permit BOCs to offer unbundled new services. Rather, the vision of ONA and the future of the network, which we adopted in our ONA Order, requires that BOCs unbndle BSEs from existing access arrangements,/30 as well as continuing to explore ways of offering new BSEs. We discuss the ESPs' request for a separate BSA in section III.C., below. 3. Retaining or Abolishing Existing Feature Groups 16. Proposal. The Notice contemplated that the existing feature group pages would no longer exist. The Notice stated: "[u]nder the unbundled we propose, bundled Feature Groups (FGs), such as a 'bundled' form of FGD including ANI capability would no longer be available."/31 Access buyers would no longer purchase a bundled package of BSA/BSEs, but rather would have the option of ordering the same group of features they had ordered with the feature groups, or picking only the optional features they wanted and paying only for the BSA and those features. 17. Comments. MCI, Sprint, and somes of the BOCs oppose the abolition of feature groups. Interexchange carriers express concern about the cost of adjusting their ordering and billing systems to handle unbundled elements./32 MCI is also concerned that the replace of feature groups may serve to disadvantage MCI relative to AT&T and the BCCs (for interexchange intra-LATA traffic) by altering the relative prices that each would pay for the ___________ /29 Several BOCs have included previously untariffed Dedicated Network Access Links (DNALs) as BSAs in their ONA Plans and have sought to offer DNALs as part of their Signaling System 7 interstate tariffs. These offerings appear to require Part 69 waivers. /30 ONA Order, 4 FCC Rcd at 145 para. 279. /31 Notice at 3991 n.9. /32 MCI Comments at 34-37; ICTC Comments at 9. See also AT&T Comments at 9-12. combination of services it will purchase./33 GTE complains that the elimination of feature groups would hamper its marketing efforts./34 18. MCI urges that, if this Commission mandates unbundling, we also reguire the bundled feature groups to be maintained for IXCs./35 A number of BCOs argue that retaining the feature groups alongside the unbundled BSA/BSEs would create ana "arbitrage" or "adverse selection" problem./36 BellSouth suggests that dual system might be workable on a temporary basis./37 MCI also stated that it might find the unbundling and abolition of Feature Group D acceptable after the appropriate costing principles are established and the Commission and industry have experience working with them. In ex parte discussions, AT&T, which opposed abolition of the feature groups in its written comments, changed its position to support undbundling, provided that carriers are given sufficient time to adopt new ordering and billing processes./39 19. Decision. ONA is designed to produce "building block" services which all customers can use as components of the services they provide./40 ONA is an extension of the fundamental principle enunciated in the Access Charge Proceeding/41 that access to the network is available on these terms to all, based on the use made of the network rather than the identity of the user. We believe that this approach will foster efficient and innovative usage of the network. Moreover, we believe that the unbundling required by ____________ /33 MCI Comments at 36. /34 GTE Comments at 4 n.4. /35 MCI Comments at 34-36. /36 BellSouth Reply at 11-13; SW Bell Reply at 4. In theory, the problem arises from the opportunity that customers would have to choose from two different prices for the same access services: a bundled package rate or an unbundled set of rates. The BOCs argue that, under this senario, because the price for the feature group is based on averages for calls per month and minutes per call, they would experience a revenue shortfall unless they were permitted to increase the feature group rates as those with below average usage select the unbundled option. /37 BellSouth Reply at 11-13. /38 MCI Comments at 36. /39 AT&T ex parte filing, Feb. 28, 1991. /40 BOC ONA Order, 4 FCC Rcd at 42-43 paras. 70-72. /41 NTS and WATS Market Structure, Memorandum Opinion and Order, 97 FCC 2d 682, 711 (1983). the ONA Order, and reaffirmed today, will help lay the groundwork for more fundamental unbundling./42 20. The fundamental principles of ONA and access argue for requiring the BOCs to replace existing feature groups with unbundled services. However, immediate abolition of the feature groups would appear to be unreasonably disruptive to IXCs, which currently purchase the vast majority of access. Providing a transition period will provide adequate time for IXCs to implement billing and ordering changes before the feature groups are abolished. This transition period will expire at the time the initial ONA services are included under price caps./43 During this transition period, the BOCs will offer existing feature groups as an option and will also offer BSEs and a combination of residual elements as BSAs. This transition period should be sufficiently long to give IXCs time to develop and implement adjustments to their ordering and billing systems, and sufficiently short so that it does not raise serious adverse selection problems. B. Rate Level Constraints 21. In this section, we conclude that ONA services, like most other LEC interstate services, should be regulated under our price cap rules. We also modify the price cap new services test to provide LECs with sufficient flexibility to price efficiently, while protecting against excessive prices and unreasonable discrimination. Finally, we find that additional disclosure requirements are necessary to protect against discrimination with respect to LEC offerings of "new" ONA services. 1. Applying Price Caps to ONA Services 22. Background/Comments. The LEC Price Cap Notice requested comments on the tentative conclusion that ONA and price caps were compatible,/44 and the LEC Price Cap Order deferred the actual decision of whether and how to apply price caps to ONA to this proceeding./45 Many ESPs express concern that the price cap rules would not sufficiently constrain the LECs' ability to manipulate BSE prices, particularly if the prices initially placed under the ____________ /42 See also, Expanded Interconnection with Local Telephone Company Facilities, Notice of Proposed Rulemaking and Notice of Inquiry, CC Docket No. 91-141, 6 FCC Rcd 3259 (1991). /43 If the BOC tariffs are submitted on Nov. 1, 1991 and go into effect 90 days later, the rates in those tariffs will be placed under price caps in July 1993, the effective date of the first annual filing after the required historical data have been accumulated. /44 Price Cap Notice, 4 FCC Rcd 2873, 3286-87 paras. 864-65 (1989). /45 5 FCC Rcd at 6835 para. 395. caps were not set at reasonable, cost-based levels./46 A number of FSPs argue that price caps should not be applied to ONA services at all or, at least not for five to ten years. Many ESPs favor more restrictive rules for ONA services. The BOCs and USTA however, see no incompatibility between price caps and ONA./47 They argue that the rationale that justified price caps generally also supports the application of price cap regulation to ONA services. 23. Discussion, We adopted price caps "to harness the profit-making incentives common to all businesses to produce a set of outcomes that advance the public interest goals of just, reasonable, and non-discriminatory rates, as well as a communications system that offers innovative, high quality services."/48 We believe that price cap regulation can provide the sane public interest benefits for ONA services that it provides for other services, and that we can address the concerns raised by ESPs through the application of the pricing rules discussed below. 2. Initial Rate Levels 24. Background. The price cap rules establish special justification requirements for "new services./49 In the LEC Price Cap ORder, we established a net revenue showing for new services./50 In our LEC Price Cap Reconsideration order we decided, as an intern measure pending completion of this proceeding, to retain our traditional, pre-cap cost showing for new services, in addition to the net revenue showing./51 25. Under our traditional cost support showing, LECs submit engineering studies, time and wage studies, or other cost accounting studies to identify the direct costs incurred. Then the overall cost is computed by adding ____________ /46 API Comments at 6-7; CompuServe Reply at 22-24; CONAP Comments at 47- 49; ETI Study at 55-57; ICA Comments at 6-7; IDCMA Comments at 4; Joint Parties Comments at 25; NBC Reply at 12; IDCMA Users Ccennts at 34-35; Telenet Reply at 29-30. /47 Ameritech Reply at 15-19; Bell Atlantic Reply at 7-8; BellSouth Reply at 32-34; SW Bell Reply at 15-19; USTA Reply at 15-16. /48 LEC Price Cap Order, 5 FCC Rcd at 6787 para. 2. /49 The LEC Price Cap Order defines new services as services that add to the range of options already available to customers. A new service may, but need not, include a new technology or functional capability. 5 FCC Rcd at 6824 para. 314. /50 LEC Price Cap Order, 5 FCC Rcd at 6825 paras. 319-321. /51 LEC Price Cap Reconsideration Order, 6 FCC Rcd 2637, 2694-95 para. 126 (1991). overhead costs./52 Because the existing feature groups will remain available as an option for some t1me after the introduction of the unbundled BSEs and the BSA elements, the price cap rules classify BSEs and the BSA elements as "new services" for purposes of the price cap rules. 26. The Part 69/ONA Notice sought comment on approaches to the pricing of BSE subelements, seeking to give BOCs some flexibility in pricing BSEs while adequately using the potential for excessively high, unjustifiably low, and unreasonably discriminatory prices./53 Because the Notice in this proceeding was issued before the LEC Price Cap Order was adoputed, the Notice was couched chiefly in terms of a rate-of-return environment. Nevertheless, the pricing approaches proposed, which range from substantial pricing flexibility to significant coostraints on pricing, are representative of the range of choices that can be implemented in a price cap as well as a rate-of- return regime. The Notice stated that, should a price cap form of regulation be adopted, the pricing ONA access elements could be modified to harmonize with price cap constraints./54 27. Proposal. The Notice in CC Docket No. 89-79 observed that "in many cases, BSEs will involve relatively minor costs per individual feature" and tentatively concluded that the Commission should permit a flexible approach to the pricing of BSE subelements. However, the Notice acknowledged the desirability of some limitation on this flexibility. Specifically, the Notice tentatively concluded that constraints should be imposed on "[1] uneconomically high rates, which may stifle development of new enhanced services, [and] [2]. . . unjustifiably low rates, which may cause `basic switching' customers to subsidize ONA services." The Commission also sought to limit "the potential for possible discriminatory pricing of services that the BCCs' enhanced service competitors may use." 28. The Notice offered four proposals: Option one, the maximum flexibility alternative, proposed to adhere solely to overall element-level constraints, otherwise permltting discretion over the pricing of individaal BSE subelements. Option two involved the imposition of rules analogous to these developed in the Strategic Pricing Guidelines Order/55 for special access, eluding the use of "cross-over" points to check prices. Options three and four represented variations of a cost-based approach. Option three suggested the use of a costing model, and offered the Bellcore Switching Cost Information System (SCIS) as an example. The Notice stated that SCIS, currently used by most BOCs for rate-setting, is capable of setting minimum prices for most local switching BSE-type features, and could be used in combination with price ceilings from other sources. The Notice _______________ /52 Id. at para. 127. /53 Notice at 3985 paras. 16-18. /54 Notice at 3992 n.45. /55 Investigation of Special Access Tariffs of Local Exchange Carriers, CC Docket No. 85-166, Phase II, Part 1, FCC 88-321, 4 FCC Rcd 4797 (1988). discussed the possibility of using a single, industry-wide model or multiple, individually selected models. Option four proposed requiring BOCs to apply fully distributed cost (FBC) principles to all BSE rate subelements individually. Finally, the Notice proposed to apply the ONA pricing rules we adopted in this proceeding to non-ONA services that LECs may offer in the future as separate subelements in their access tariffs./56 29. In the LEC Price Cap Reconsideration Order, we adopted an interim rule for new services, but concluded that the issues raised on reconsideration overlapped substantially with the pricing issues raised by the Part 69/ONA Notice. Therefore, we deferred final resolution of the issue of new service pricing to this proceeding, and consolidated the records. 30. Comments. The BOCs and other LECs strongly support maximum flexibility (Notice option 1)./57 They argue that they need such discretion to price more efficiently. They seek the flexibility of a competitive market to enable them to introduce new BSEs at incremental cost, and to minimize differences between state and federal tariffs (and thus to discourage tariff shopping). Further, they claim that the combination of: 1) price parity, whereby LECs pay the same price for the same access services they provide to others;/58 2) the BOCs'incentive to stimulate demand; and 3) the tariff review process, will serve to discourage them from unreasonably discriminating against ESP competitors. Non-BOC LECs say that maximum flexibility is essential to their participation in ONA./59 The Ameritech States and Virginia support this option./60 31. Almost all ESPs and users oppose maximum flexibility, arguing that it would permit the LECs to discriminate unlawfully./61 ESPs express concern that BOCs might set their federal rates for BSEs at levels comparable to the _______________ /56 Notice at 3986 para. 26. The Notice listed 800 access and 900 access elements as examples of non-ONA services. Id. at 3992 n.59. /57 Alltel Comments at 4; Ameritech Comments at 11; Bell Atlantic Comments at 4-5; BellSouth Comments at 9-11; Contel Comments at 5-6, 10; GTE Reply at 18-19; ICTC Comments at 4-6; NECA Comments at 3; NYNEX Comments at 13-17; Pacific Comments at 4-7; SW Bell Comments at 4-15; United Comments at 2-5; USTA Comments at 9-12; US West Comments at 12-14, 21-22. /58 BOC ONA Order, 4 FCC Rcd at 177 para. 338. /59 USTA Comments at 1-11; Continental Comments at 2,4,6,10; ICTC Comments at 4-6; NECA Comments at 3; NTCA Reply at 2-4. /60 Ameritech States Comments at 5; Virginia Comments at 4. /61 ADAPSO Comments at 45-47; API Comments at 4; AT&T Comments at 4; CompuServe Comments at 35-37; CONAP Comments at 42-43; EMA Comments at 20; Joint Parties 22-24; McGraw-Hill Reply at 14; MCI Comments at 33; NDC Reply at 11; ONA Users' Reply at 22-24; Telenet Comments at 52; Tymnet Comments at 34. contributory levels that might be used in the states to extract monopoly profits. ESPs and other users do not believe that either price parity or the desire to increase demand for services will prevent BOCs from employing discriminatory pricing. ESPs and others contend that the tariff review process cannot be very effective if those expected to review prices have no access to adequate cost data. Several state commissions and NTIA also oppose maximum flexibility./62 SW Bell Regulators, Florida, and Maryland argue that this option will permit federal rates for BSEs to be set too low, thereby undermining state policies./63 32. Only four parties express any support for rules like the special access strategic pricing guidelines (Notice option 2)./64 Almost all others argue that the rules, premised on the substitutability of elements, are not appropriate for BSEs, which are rarely reasonable substitutes for each other. 33. BOCs and other LECs express substantial and broad support for the cost model concept (Notice option 3), provided that the approach selected gives them sufficient pricing flexibility. ESPs and users favor the cost model for BSE pricing, but propose a different approach for BSA pricing./65 LECs that do not currently use SCIS contend that it would be very expensive to secure access to it, that SCIS would require repeated and burdensome revisions with the introduction of each new BSE, and that SCIS was designed for the major switching systems, not for the older network switches that many smaller LECs still employ. Commenters also state that SCIS is only useful for local switching BSEs and that the proprietary nature of the model itself, as well as the switch cost data used, raises questions regarding proper evaluation. A number of ESPs request more information on SCIS./66 34. In ex parte filings, some ESPs and AT&T have proposed that LECs supplement the cost model with certain cost data in their ONA filings. The ESPs propose a detailed tariff review plan (TRP)-like form, while AT&T requests that the BOCs be required to file certain specific direct ___________ /62 See, DC Comments at 4; NARUC Reply at 2-5; NTIA Comments at 6-7; SW Bell Regulators Reply at 7-8. /63 Florida Comments at 4; Maryland Comments at 2; SW Bell Regulators Comments at 5. /64 Allnet Comments at 4; Ameritech Comments at 9-10; Ameritech States Comments at 5; GTE Comments at 8-9. /65 ADAPSO Comments at 46-47; API Comments at 5; Bell Atlantic Comments at 7-8; CONAP Comments at 46; ETI Report at 54-55; GTE Comments at 15; ONA Users Comments at 33-34; Pacific Comments at 7-8; SW Bell Comments at 18-21; Telenet Comments at 53; Tymnet Comments at 8, 35; United Comments at 4 n.5; USTA Comments at 16-17; US West Comments at 18-19. /66 ADAPSO Comments at 46-47; CONAP Comments at 46-47; EMA Comments at 20-21; McGraw-Hill Reply at 15-16; ONA Users' Comments at 33-34; Telenet Comments at 53; Tymnet Comments at 35. cost/investment and direct cost/price ratios./67 MCI, Telenet, and Tymnet all propose that, since BSE costs are all likely to be small and difficult to detemine, BSEs should all be set at "equal levels," thereby eliminating the cost of individualized determination and eliminating any opportunity for discrimination, and CONAP agrees with those latter commenters, assuming that BSE cost differences are small./68 35. ESPs cite their fear about BOC discrimination in supporting the more restrictive FDC variation (Notice option 4)./69 The option is strongly opposed by the LECs, which complain that it will be unnecessarily burdensome and expensive to implement and will yield arbitrary and uneconomical rates by denying them any real pricing discretion./70 NTIA and the DC PSC also see serious drawbacks to this approach./71 36. In addition, a few parties suggest their own variations of the FDC option: NTIA would allocate all indirect costs to the BSAs, leaving the BSEs priced at incremental direct cost, while AT&T would assign joint and common costs according to a uniform loading factor./72 ESPs offer several methods to develop special rates for a new BSA for ESPs, an option discussed in section III.C., below. Finally, a majority of commenters support applying the pricing rules developed for BSEs to non-ONA services as well./73 ______________ /67 See, Joint ex parte filings by ADAPSO, Bankers, ONA Users, Prodigy, Tymnet (BT North America), et al., Jan. 18, 1991 and May 8, 1991; AT&T ex parte filing, Jan. 29, 1991 proposing that in addition to specifying the unit investment for each BSE, that LECs also provide figures for direct unit cost, unit FDC, and rate, as well as the ratio of each of these three to the unit investment figure. /68 MCI Comments at 29-34; Telenet Comments at 54; Tymnet Comments at 33- 34; CONAP Reply at 23. /69 ADAPSO Comments at 46; CONAP Comments at 46; EMA Comments at 21-22; ETI Report at 53-54; NDC Reply at 12; ONA Users Comments at 32-33; Tymnet Comments at 35. /70 Bell Atlantic Comments at 8-10; BellSouth Comments at 13-15; Contel Comments at 8; GTE Comments at 14-16; NYNEX Comments at 18-20; Pacific Comments at 8-11; SW Bell Comments at 22-24; United Comments at 4; USTA Comments at 18; US West Comments at 19-21. /71 DC Comments at 5; NTIA Comments at 8. /72 NTIA Comments at 2-5; AT&T Comments at 7-9. /73 Ameritech Comments at 14; Ameritech States Comments at 7-8; Bell Atlantic Comments at 11; BellSouth Comments at 7-8, 16-17; Contel Comments at 6; NYNX Comments at 21-22; Pacific Comments at 11-12; SW Bell Comments at 26; USTA Comments at 5; US West Comments at 22-3. NYNEX and Pacific conditioned their support on our approval of their preferred pricing rules, NYNEX Comments at 21-22; Pacific Comments at 11-12. But see CONAP Reply at 37. In its petition for reconsideration of the LEC Price Cap Order, MCI argues that the price cap rules that existed prior to the adoption of the intern services test fail to address the potential for unreasonably high pricing of "new" services. MCI then requests that the Commission let "new" service rates so that LECs do not earn more than the authorized rate of return applicable for rate-of-return carriers on each new service./74 MCI says BOCs could reprice "new" versions of existing capped services to evade the cap. LECs respond that LEC pricing would be constrained by the ability of customers to select the existing version of the service at the capped price./75 LECs also argue that quarterly reporting and other requirements placed on new filings serve to ensure the reasonableness of new service prices./76 MCI replies that a LEC could diminish the substitutability of the existing version of the service by reducing the quality of that service while enhancing the technological capabilities of the new service./77 A number of LECs also complained that an upper bound on new service prices would inhibit innovation./78 NYNEX states that it would not object to a cap on new services, if the cap permitted LECs to secure a reasonable return on total investment and recognized the higher risk associated with revenue producing investments./79 38. Decision. Commenters identify a number of competing interests in selecting a pricing standard. Certainly, we want LECs to have the flexibility to price efficiently and the incentive to innovate. However, we also want to prevent LECs from setting excessively high rates and to protect aginst unreasonably discriminatory pricing. As discussed below, the option that appears to meet these goals best is n flexible cost-based approach to pricing new services. _______________ 40-42; MCI Reply at 3-5; Virginia Comments at 5, expressing concern that, due to the unpredictable nature of future services, this policy would shift the been of proof away from carriers. /74 MCI Recon. Petition at 36-38; MCI Recon. Reply at 47-48. /75 USTA Opposition at 22; BellSouth Opposition at 19; Pactel Opposition at 19. /76 Ameritech ex parte filing, May 13, 1991; BellSouth Oppostion at 19; BellSouth ex parte filing, May 15, 1991; NYNEX Opposition at 14; SW Bell Opposition at 12-13; SW Bell ex parte filing, May 6, 1991; USTA Opposition at 22. /77 MCI Recon. Reply at 44-45. /78 Bell Atlantic ex parte filing, Jun. 5, 1991; SW Bell ex parte filing, May 14, 1991; USTA ex parte May 31, 1991. /79 NYNEX ex parte filing, May 24, 1991. See also GTE ex parte filing, Jun. 4, 1991. 39. Although the price cap system has rules designed to enure that the adjustments of existing prices will be reasonable, prior to the adoption of the interim new services test, it did not provide any specific tariff review showing to ensure that initial prices for "new" services were not unreasonably high. A net revenue test provides assurance that the initial price will not be set at a predatory level, but does not ensure that the initial rate will not be excessive. While no ceiling would be required in a competitive market, in a market where a single firm has monopoly control, a price set initially at an excessive level may remain free from significant competitive pressures indefinitely. Providing LECs with jmaximum flexibility by requiring only a net revenue showing would rely on the sharing mechanism of price caps to control excessive rates. We reject that approach as inadequate, for while sharing may diminish the impact of excessive prices, it was not designed nor does it serve to eliminate the incentive for, or impact of, sustained monopoly pricing of an individaal new offering. 40. Given the need for some form of price constraints, we next tried to identify a "non-cost-based" constraint. Commenters almost unanimously oppose the strategic pricing guidelines option in the Notice, and the record does not reveal any other adequate non-cost-based constraints. We conclude, therefore, that our new services test must be cost-based. The question, then, focuses on whether to require fully distributed cost support or a more flexible approach. 41. Because we believe that the public interest will be served by providing LECs with an adequate incentive to innovate, we conclude that a flexible cost-based approach is the best way of controlling both excessive pricing and discrimination. As NYNEX recognizes, a cost-based upper bound can preserve carriers' incentives to innovate, if it permits them to earn a return on their total new investment commensurate with the risk they assume. 42. Uuder our approach, a LEC introducing new services will be required to submit its engineering studies, time and wage studies, or other cost accounting studies to identify the direct costs of providing the new service, absent overheads, and must also satisfy the net revenue test. LECs may develop their own costing methodologies, but they must use the same costing methodology for all related services. For example, the same methodology must be used for all BSEs unbundled from local switching. Regardless of the cost methodology selected by the carrier, cost support submitted with the tariff must consist of the following information: (1) a study containing a projection of costs for a representative 12-month period, (2) estimates of the effect of the new service on traffic and revenues, including the traffic and revenues of other services; and (3) supporting workpapers for estimates of costs, traffic, and revenues. 43. In addition, local exchange price cap carriers will be permitted to include, as part of their justification for the prices they select, an analysis of any risk premium they believe they need to supplement their rate of return for the particular new service. Thus, LECs will have the opportunity to justify a higher price for a new service if they can show that they are undertaking a particularly risky venture, which would not be economically practical absent the risk premium they requested. Any LEC seeking a risk premium pursuant to this paragraph shall include an explanation of the methodology employed to calculate the premium and the projected overall return for the service. To satisfy their burden of proof, carriers must provide evidence of comparably risky undertakings by firms in relevant industries, together with the cost of capital associated with the undertakings. We will evaluate these showings on a case-by-case basis. LECs should also include an on-the-record showing of the following information: (1) research and development edpense and investment for the new venture; (2) marketing expense; (3) the type and functions of any new technologies employed; (4) an explanation of the method by which projected demand has been derived; and (5) any special elements of risk./80 44. Once the direct costs have been identified, LECs will add an appropriate level of overhead costs to derive the overall price of the new service. To provide the flexibility needed to achieve efficient pricing, we are not mandating unifom loading, but BOCs will be expected to justify the loading methodology they select as well as any deviations from it. We will evaluate the reasonableness of the manner in which overhead costs are loaded onto the cost of the service, including-review of the ratios of direct unit cost to unit investment and direct unit cost to unit price. Therefore, we require the BCCs to include these ratios in their tariff filings./81 45. BSEs. The chief concern raised by commenters opposing the regulation of ONA services under price caps is the heightened danger of discriminatory pricing of BSEs by BOCs who will be competing with the customers who purchase BSEs. We agree that ONA services do present an increased danger of unreasonable discrimination, and we feel that the competitive relationship between the BOCs and ESPs justifies an elevated level of control. To address this concern and help ensure that the BOCs are not discriminating between BSEs used primarily by the BOCs and those used ___________ /80 We describe more fullyY in Appendix C the information that LECs are required to include in this on-the-record showing. /81 In the Part 69/ONA Notice, we proposed to use the same pricing rules for BSEs and for non-ONA services that LECs may offer in the future as separate subelements in their access tariffs. Our decision on the pricing rule for new services offered by price cap carriers subsumes the issue raised in the Part 69/ONA Notice, and we therefore do not address it separately. However, we take this opportunity to clarify our decision in one respect because the comments indicate some confusion. Some carriers expressed an interest in being able to offer new subelements without obtaining a waiver of our Part 69 rate structure rules. Ameritech Comments at 14; BellSouth Comments at 7-8; Contel Comments at 6; NYNEX Comments at 22; PacTel Comments at 11-12; SWBell Comments at 26; USTA Comments at 5. We did not propose to alter the Part 69 rate structure rules for non-ONA services, and we have not done so. Rather, we have revised only the pricing rules that apply to all new services offered by price cap carriers. Therefore, any carrier that wishes to establish a separate rate element for a non-ONA service that conflicts with our Part 69 rules will still be required to obtain a Part 69 waiver. primarily by ESP competitors, we will require the BOCs to "flag" or identify the BSEs that they intend to use in their enhanced service operations at any time during the period before the BSE is placed under price caps. 46. Because this flagging requirement applies to initial prices, BOCs necessarily will be required to predict which BSEs their enhanced service operations will use. We expect, However, that at least some of these predictions will be based on historical demnd, as many of the features that will be provided as BSEs are now available as non chargeable options. We believe that this flagging, in conjunction with our cost-based pricing rules, will assist in forestalling discrimination. For example, if the price of BSEs used priaarily by non-BOC ESPs reflects a much higher proportion of overhead loading than the proportion of loading for BSEs used primarily by BOC ESPs, we would regard this as a sign of possible discrimination. 47. In the future, LECs may unbundle additional BSEs from existing services, and these new BSEs may be considered "restructured" services under price caps. We do not decide today the test that would apply to the initial prices of these "restructured" BSEs, but seek further comment below in a Supplemental Notice of Proposed Rulemaking./82 48. BSAs. When BSEs are established, it will also be necessary to compute a charge for the residual access element that no longer includes the features or functions that are being offered as BSEs. In most cases, local switching will be the only component of access that will need to be repriced, but in some cases the introduction of a BSE will require the repricing of transport or information or special access subelements. The remaining combination of repriced switched or special elements that are not unbundled will be a BSA./83 We wish to ensure that ONA unbundling does not result in higher rates for existing access customers. Therefore, we will ensure revenue neutrality by imposing a constraint comparable to our restructured services test. For BSEs and BSA elements that represent unbundled versions of existing services, we require LECs subject to price caps to recast base period demand for the bundled offering (i.e., the demand specified in the most recent annual price cap filing). LECs are required to demonstrate that the product of the new rate multiplied by the recast (base period) demand is less than or equal to the product of the existing bundled rate multiplied by the aggregate base period demand./84 ______________ /82 See paras. 74-75, infra. /83 This will not be the case if the information element is repriced. /84 The bundled feature group offerings will disappear at the time of the annual access filing in which the unbundled BSE and BSA element rates are placed under caps. To develop base period BSA and BSE demand for that filing, LECs should include both recast base period demand for bundled offerings and the demand for the individual BSEs and BSA elements. 3. BSE Rate Structure 49. Proposal/Comments. The Notice tentatively concluded that, given the large number of BSEs proposed to be introduced, the Commission should not prescribe a rate structure for each one./85 We proposed, instead, to require that the rate structure for each BSE reasonably reflect the varying nature of per-minute, per-call, or per-line costs accrued for each BSE. All but one of the parties commenting on this issue support the Commission's tentative conclusion and reasoning./86 The lone dissenter, Alltel, requests that the Commission press all of the BOCs to emloy the same rate structure for a given element./85 Ameritech argues that the Comission should not require uniform rate structure because such a requirement would force additional tariff filing requirements on LECs that are not reguired to implement ONA and would ignore the non-homogeneous, non-ubiquitous nature of the industry./88 Some ESPs advocate flat rate BSE prices, observing that for many of the low priced BSEs, the administrative cost of metering makes it uneconomical to do so, even when the BSE cost is traffic sensitives./89 GTE and US West argue that usage-sensitive prices for BSEs with usage-sensitive costs are more economically efficient than flat rates./90 Finally, two user groups propose that the Commission reguire the BOCs to offer four-part tariffs for each BSE./91 Each would be available on either a usage basis or at a flat rate (based on average usage) and on either a bill-to-caller or bill-to-called- party basis. Ameritech argues that the flat rate option is not cost causative./92 50. Decision. Economically efficient prices reflect the manner in which costs are incurred. We therefore adopt the tentative conclusions of the Notice and require that BSE rate structures reasonably reflect the nature of the underlying costs. We believe that this decision, without additional requirements, will produce considerable uniformity in BSE rate structures among the BOCs. In addition, the Federal-State ONA Joint Conference is ____________ /85 Notice at 3986 para. 25. /86 AT&T Comments at 9-10 n.**; Ameritech Comments at 13; Ameritech States Comments at 5; Bell Atlantic Comments at 10; BellSouth Comments at 15; GTE Comments at 16-17; NYNEX Comments at 20-21; SW Bell Reply at 11-14; USTA Comments at 19; US West Reply at 7-10. /87 Alltel Comments at 3-5. /88 Ameritech Reply at 18-19. /89 ADAPSO Comments at 47; Tymnet Comments at 33-34. Tymnet suggests that the principal BSE cost may be a software right-to-use fee. Id. /90 GTE Reply at 12-15; US West Reply at 10. /91 CONAP Comments at 37; ONA Users Comments at 31. /92 Ameritech Reply at 25-26. addressing the issue of BSE uniformity. Therefore, we believe that prescribing a rate structure for each BSE is unnecessary, and we forgo the mandated uniformity proposed by Alltel. If our rule does not produce substantial uniformity, and if any lack of uniformity creates difficulties for customers, or in the tariff review process, we can revisit this issue at a later date. 4. Adjusting Rate Levels Under Price Caps 51. Background/Comments. Absent any modifications to the current price cap rules, BOC ONA service rates will be subject to the same price cap formula as other BOC rates, including applicable basket and band limitations. ESPs generally advocate excluding ONA services from price caps,/93 although two ESPs propose that, if price caps are applied, each individual BSE be banded./94 The BOCs and USTA support the current rules with no modifications./95 In the LEC Price Cap proceeding, the IXCs and NARUC favor additional separate banded service categories for new and restructured BSE services;/96 Iowa and Michigan advocate the creation of new service categories for new BSEs/97 while Ohio suggests including ONA elements in the local switching service category./98 Ad Hoc proposes the establishment of separate baskets for transport and switching BSEs./99 In ex parte filings, SW Bell proposes to flag the BSEs that it used/100 and Bell Atlantic agrees that requiring each BOC to report the percentage of total usage that its own use of each BSE represents would be a reasonable procedure./101 52. Decision. As we have discussed above, there is a greater risk of price discrimination in the context of ONA than for basic services generally, given that the BOCs may compete with their ESP customers. As discussed in ________________ /93 CompuServe Reply at 22-24; CONAP Comments at 47-49; ETI Study at 55- 57; ICA Comments at 6-7; IDCMA Comments at 4; Joint Parties Comments at 25; NDC Reply at 12; ONA Users Comments at 34-35. /94 API Comments at 6-7; Telenet Reply at 29-30. /95 Bell Atlantic Reply at 7; BellSouth Reply at 32-34; SW Bell Reply at 15-19; USTA Reply at 15-16. /96 AT&T LECPC at 27 n.*; MCI LECPC at 59-60. Ad Hoc and ICA LECPC reply comments generally support these proposals. See also TCA LECPC reply at 12 and n.25; Colorado LECPC reply at 11; IDCMA LECPC at 8-13; Telenet LECPC at 6. /97 Iowa LECPC at 12; Michigan LECPC at 6. /98 Ohio LECPC at 8-9. /99 Ad Hoc LECPC at 51-53. /100 SW Bell ex parte filing, Feb. 22, 1991. /101 Bell Atlantic ex parte filing, Apr. 11, 1991. Section III.B.1., we seek to adopt pricing rules that constrain the BOCs' ability to discriminate without unduly limiting their ability to price efficiently. Because we expct the price of each of the currently proposed BSEs to be very small relative to the price of the access elements, for which we have created service categories, we decline at this time to increase the number of baskets and service categories established in the LEC Price Cap Order. We conclude that banding each BSE would not produce sufficient benefits to justify the administrative costs and loss in pricing efficiency. In addition, the creation of a special BSE service category for banding purposes would do little to prevent LECs from discriminating against independent ESPs, because LECs would still be able to raise one set of BSE rates (those used primarily by others) and decrease another set of BSE rates (those used primarily by themselves). Instead, we believe that the disclosure requirements discussed below will be adeduate to deal with this concern. We will, however, monitor changes in BSE prices and create additional service categories, if conditions appear to warrant such a step. 53. At this time, we adopt disclosure requirements that should constrain the potential for discrimination by price cap LECs while permitting efficient pricing. We direct that, in their annual price cap filings, in addition to reporting total historical demand for each BSE in the base year, price cap LECs must also indicate the percentage of that total demand represented by their own enhanced services operations. The data necessary to calculate these percentages are already compiled by the BOCs, so this requirement imposes little additional administrative cost. Any significant difference between the adjustments the LECs make to the rates for BSEs used primarily by LEC ESPs and those made to rates of BSEs used primarily by unaffiliated ESPs will be apparent. If the data suggest that rates for the first group are generally decreasing, while the rates for the latter are generally increasing, we will take appropriate action, and the LECs' customers will also be in a position to challenge the LECs' actions. C. Access Charge Treatment of ESPs 54. Background. One of the Commission's primary objectives with respect to the formulation of our access charge rules has been to assess access charges on all users of exchange access, irrespective of their designation as carriers, non-carrier service providers, or private customers./102 Nevertheless, as the Notice explains, the Commission adopted an interim exemption from full access charge treatment for a number of interstate service providers to permit them to avoid service-disrupting "rate shock."/103 We have refrained from applying full access charges to ESPs out of concern ________________ /102 A more detailed discussion of this background is provided in Amendments of Part 69 of the Commission's Rules Relating to enhanced Service Providers, Notice of Proposed Rulemaking, CC Docket No. 87-215, 2 FCC Rcd 4305 (1987) and MTS and WATS Market Structure, Memorandum Opinion and Order, CC Docket No. 78-72, 97 FCC 2d 682, 711, 715 (1983). /103 Notice, 4 FCC Rcd at 3987 paras. 29-30. that the industry has continued to be affected by a number of significant, potentially disruptive, and rapidly changing circumstances./104 55. Proposal. The Notice supported retaining the ESP exemption in its current form to provide "predictability and stability for the enhanced services industry during the transition to ONA."/105 However, we also invited comments on the relative merits of two specific alternatives to the current exemption. Both would have required ESPs to purchase interstate access for their interstate traffic. One would have exemted ESPs from paying the carrier common line charge (CCLC), while the other would have given ESPs an across-the-board discount on all switched access rates. The Notice decided against consideration of a "band-match" option, which would have permitted customers to use a state-tariffed local business line BSA with a federally tariffed BSE. 56. Comments. Comments focus on four aspects of this issue: the retention of the current exemption, the two proposed alternatives to that exemption, the possibility of mix-and-match, and the availability of a specially priced federal BSA for ESPs. All ESPs, many users, NTIA, and many state regulators support retention of the current exemption. ESPs argue that the rates they currently pay cover the costs of services ESPs receive and that current interstate access charges are derived from flawed separations formulas, which inflate interstate charges. They also contend that ESPs are end users and that the "exemption" is not really an exemption. ESPs and others argue that, if the current exemption were eliminated, the resulting rate shock would devastate the fragile emerging ESP industry, without much beneficial Act on the rates of others./106 Indeed, as discussed below, ESPs contend that additional discounted access options are necessary. 57. Many LECs and state regulatory agencies support a phase-out of the exemption. All LECs argue that it is unfair to give ESPs a special preference, and most state that other users absorb the costs not coverd by the ESPs. BellSouth disputes the contention that the ESP industry would be _______________ /104 See Amendments of Part 69 of the Commission's Rules Relating to Enhanced Service Providers, Order, CC Docket No. 87-215, 3 FCC Rcd 2631 (1988). /105 Notice, at 3987 para. 33. /106 See, e.g., ABA Comments at 6-9; ADAPSO Comments at 3-13, 17, 20-29, 38-41; ALA Comments at 1; API Comments at 7; Bankers Comments at 3,4; CONAP Comments at 8-17, 30-33; CompuServe Comments at 9, 17-33; CBEMA Comments at 10, 14-16, 23; Dialcom Comments at 5-15, 27-29; EMA Comments at 8-14; GE Comments at 4-5, 8-18; Joint Parties Comments at 6-13; McGraw-Hill Comments at 5-7; Motorola Comments at 1-4; NDC Comments at 3-7; ONA Users' Comments at 6-19, Reply at 6-14; Prodigy Comments at 5, 8-11; Telenet Comments at 2-9, 12-18, 26-35; Tymnet Comments at 7-9, 14-15, 19-30; Ameritech States Comments at 6; Florida Comments at 7; Iowa Comments at 9; Maryland Reply at 4-5; NARUC Comments at 6; NTIA Comments at 10-13; New Jersey Reply at 2-3. severely damaged by "rate shock" and MCI challenges the ESP claims that the benefit generated for other ratepayers would be trivial./107 58. There is almost no support for the two alternatives to the current exemption described in the Notice. The ESPs argue that neither an exemption from CCLC rates nor an across-the-board discount would compare to the value of their current exemption. The LECs generally contend that both approaches create a more difficult problem with identifying ESPs and thus enforcing the rule. Only MCI supports an across-the-board discount, arguing that a 55% discount, for example, would only increase ESP user rates by 4.5%/108 59. Although ESPs generally oppose the two alternatives described in the Notice, certain ESPs advocate that, in addition to the current exemption, the Commission should create a seecial BSA for ESPs that would be priced lower than BSAs used by IXCs and other access customers. They argue that ESPs will not purchase federal BSA/BSEs unless the costs of those elements are reduced to recognize that ESPs do not use 4-wire trunkside connections, 1+ presubscription, and other standard Feature Group D enhancements. MCI responds that ESPs should focus on unbundling Feature Group A, which they take, rather than Feature Group D, which ESPs generally do not take. Some ESPs propose a lineside BSA priced on the basis of unseparated average common line and traffic sensitive costs and argue that the Commission should begin a Part 36 and Part 69 proceeding to eliminate any subsidies in interstate rates. ESPs generally support a flat rate special BSA for ESPs. BellSouth and US West argue that such flat rated services unreasonably discriminate against the smaller ESPs. Some ESPs also argue vigorously for the opportunity to mix federally tariffed BSAs with satate-tariffed BSEs and dispute the Commission's conclusion that this would create a cost/revenue mismatch. All of the LECs and states that commented oppose the availability of mix-and-match, for the reasons given in the Notice./109 ______________ /107 Alltel Comments at 7, 9; Ameritech Comments at 16-19, 27; Bell Atlantic Comments at 13-15; BellSouth Comments at 20-21, Reply at 24-27; Contel Comments at 3-4, 9-10; DC Comments at 7-8; ICTC Comments at 6-7; MCI Reply at 21-23, 34; NYNEX Comments at 27-30; Pacific Comments at 12; SW Bell Comments at 8-9; SW Bell Regulators Comments at 8; US West Comments at 23-47; USTA Comments at 22-24. /108 See, Allnet Comments at 6; Compuserve Comments at 19 n.49; MCI Comments at 19-20, 24; ONA Users Comments at 30. /109 See, e.g., ADAPSO Comments at 16-20, 37-45; Allnet Comments at 7; Ameritech Comments at 25; Ameritech States Comments at 7; Bell Atlantic Comments at 17-18; BellSouth Comments at 21, Reply at 6 & n.8; CBEMA Comments at 17-19; CompuServe Comments at 24, 35-36; CONAP Comments at 27-30, 37-39; Contel Comments at 10; Dialcom Comments at 23, 27-30; DC Comments at 9; EMA Comments at 17; ETI Report at 6-30; Florida Comments at 7; GE Comments at 11 & n.18, Reply at 8-11, 38-39; ICA Comments at 7; Iowa Comments at 9; Joint Parties' Comments at 11-12, 18-22; Maryland Comments at 2; McGraw-Hill Comments at 6, 8, Reply at 10; MCI Reply at 24-28; NARUC Comments at 6; NDC Reply at 8-9; New Jersey Reply at 3; New York Reply at 7-9; ONA Users Group 60. Decision. We conclude that the best approach is the adoption of the tentative conclusion of the Notice: retention of the current form of the exemption. This approach maintains the status quo and provides stability to ESPs as the BOCs proposed with ONA tariffing./110 Replacing the curent exemption with either of the federal alternatives described in the Notice would disrupt the enhanced services industry during a time of rapid transition, without yielding concomitant benefits./111 61. Although ESPs generally did not endorse the discount alternative described in the Notice, some ESPs do advocate adoption of a sharply discounted federal BSA. First, ESPs contend that interstate access arrangements currently include many features they do not use and for which they should not be required to pay./112 However, as MCI has noted, the ESPs' lists of undesired features are primarily features associated with trunkside access, while ESPs generaIiy take lineside access, which does not include those features. Moreover, we are reguiring LECs to unbundle lineside access, which is already generally less expensive than Feature Group D access. 62. The entirely flat-rate switched BSA proposed by some ESPs is inconsistent with our current rate structure, which requires per minute charges for local switching and carrier common line BSA elements. We see no reason to deviate from these usage-sensitive rate structures for one group of __________ Comments at 29-32; PacTel Comments at 13; Prodigy Comments at 7, 12, 17; SW Bell Comments at 40; SW Bell Regulators Comments at 8; Telenet Comments at 10-11, 18-23, 26-27, 47-48, 55-57; Tymnet at 9-14, 32-33; USTA Comments at 24-25; US West Comments at 8, 42-44; Virginia Comments at 7; Joint ex parte filing by Bankers, ICA, ONA Users, Prodigy, Tymnet (BT North America), et al., Apr. 30, 1991. /110 Some LECs have argued that we should establish a timetable for phasing out the exemption. The Notice proposed simply to retain the exemption in its current form, however, and the enhanced services industry continues to be confronted with a variety of regulatory changes, including the implementation of ONA. We therefore believe it would be premature to set any timetable for phasing out the exemption. /111 See National Ass'n of Regulatory Utility Commission v. FCC, 737 F.2d 1095, 1136 (D.C. Cir. 1984), cert. denied 469 U.S. 1227 (1985) (upholding exemption "to avoid unnecessary customer impact or market displacement"). /112 Some ESPs base their argument on the contention that the separations process results in inflated interstate rates. To the extent that parties argue for a Part 69 or Part 36 proceeding to eliminate "subsidies" in interstate access, such requests are beyond the scope of this proceeding, which has sought to integrate ONA into the existing separations and access charge framework. Thus, we will not require that LECs ignore separations in setting prices for federally tariffed ONA services when they are purchased by ESPs. access users, particularly as a flat rate would favor larger established ESPs over smaller companies. 63. Rather than introducing a special BSA for ESPs, we pursue the underlying concept of ONA by unbundling access, so that customers may select from a basic building block access arrangement, choosing optional additional features and functions and paying only for what they use./113 Towards this end we have pressed the BOCs to ensue that a large number of the BSEs actually requested by ESPs will be available in all regions. We also have sought greater uniformity in ONA services in a variety of forums, including the Information Industry Liaison Committee, and the Federal-State ONA Joint Conference. We have reqired as well that all BSEs be available in interstate tariffs. 64. We have always viewed ONA as an evolutionary process/114 and we will continue to take an active interest in the future of ONA. We will examine further unbundling and other issues related to the future of ONA in the context of other proceedings, such as our review of the BOC ONA Amendments filed April 15, 1991, our Expanded Interconnection proceeding, and the CONAP Petition for Investigation./115 We believe that ESPs and other users may see longer term benefits if further unbundling is reguired by the Commission. 65. Some ESPs have requested that we permit them to mix-and-match federal and state BSAs and BSEs. The Notice explicitly decided against a mix-and-match option and coemnters have presented us with no arguments that would lead us to a different conclusion. We reject mix-and-match for the reasons given in the Notice. We are concerned that mix-and-match could result in a mismatch of BSE costs and revenues, seriously undermine state policies, and create jurisdictional boundary problems. D. Other Issues 1. Jurisdictional Measurement 66. Background/Proposal. The difficulty of measuring interstate and intrastate usage of the network is not a new issue. When the LEC has no reasonable way to measure jurisdictional usage, the federal tariffs have traditionally provided that customers report the percentage of intern usage (PIU). Furthermore, when customers also found it impractical to make precise PIU measurements for Feature Group A and Feature Group B lines, the Joint Board in CC Docket No. 85-124 developed the entry/exit surrogate (EES) method. Under the EES, access customers designate the jurisdictional status ______________ /113 BOC ONA Order, 4 FCC Rcd at 42-43 paras. 70-72. /114 Id. at 43 para. 72. /115 Expanded Interconnection with Local Telephone Company Facilities, Notice of Proposed Rulemaking and Notice of Inquiry, CC Docket 91-141, 6 FCC Rcd 3259 (1991); In re Advanced Intelligent Network, Petition for Investigation, Coalition of Open Network Architecture Parties, Nov. 16, 1990. of a call based on the relationship between the point where a call first enters their network (e.g., their POP) and the terminating number. The BOC ONA Order concluded that since switched BSAs are technically similar to feature groups, no changes needed to be made to the EES method for ONA services./116 The Notice invited comment on any discrete measurent problems. The Notice also suggested that the jurisdictional nature of a BSE should track that of the associated BSA. 67. Comments. Most LECs and USTA support the use of the EES method to compute the PIU for BSA/BSEs./117 Many add that suitable auditing or verification safeguards are needed./118 The states are divided -- SW Bell Regulators and the Ameritech States offer unqualified support for the EES method,/119 while Florida supports the use of EES in the absence of any viable alternative./120 DC urges the Commission to require the BOCs to use Signaling System 7 or otherwise secure actual data to eliminate the need for less accurate customer-reported data./121 Virginia suggests that subdividing local switching into separate segments for BSAs and BSEs would represent a partial solution./122 Two states raise a fundamental question about how calls should be classified./123 Florida states its belief that "the nature of the access should be determined from the point of the call's origination to the point of the ESP's location," but it seeks clarification as to how this Commission defines interstate enhanced service. California states that a Joint Board is needed to resolve jurisdictional measurement issues./124 Most ESPs argue that the EES method is inadequate./125 They argue that neither ESP _______________ /116 4 FCC Rcd 1, 142-45, paras. 275, 278. /117 Ameritech Comments at 14-15; Bell Atlantic Comments at 12; BellSouth Comments at 16-17; NYNEX Comments at 23-24; SW Bell Comments at 26-27; USTA Comments at 20-21; US West Comments at 23. ICTC states that PIU should be extended to the billing of ONA services where jurisdictional measurement capabilities do not exist. ICTC Comments at 7-8. /118 Bell Atlantic Comments at 12; NYNEX Comments at 23-24; USTA Comments at 21; US West Comments at 23. /119 Ameritech States Comments at 5-6; SW Bell Regulators Comments at 6-7. /120 Florida Comments at 7. /121 DC Comments at 6-7. /122 Virginia Comments at 3. /123 Florida Comments at 4-7. See also Maryland Comments at 1. /124 California Comments passim. /125 ADAPSO Comments at 29-37; CompuServe Comments at 33-34; Dialcom Comments at 36-39; GE Comments at 18; Prodigy Comments at 12-15; Telenet Comments at 36-37. customers nor ESPs are able to ascertain accurately which calls are intrastate and which are interstate. They complain that the cost of measuring currently unmeasured traffic would be prohibitive. Allnet appears to advocate separate PIUs for access to basic and enhanced services./126 68. Decsion. The record does not clearly indicate that a new rule is necessary. While minor adjustments or interpretations may be needed for specific usage circumstances, we do not believe the record is sufficient for us to identify those circumstances or attempt to devise new rules. Nor do we believe the record warrants referral to a Joint Board at this time. We also find that when actual BSE measurement is impractical, LECs should apply the jurisdictional usage of the underlying BSA to BSEs associated with that BSA. We believe that, in most circumstances, usage of the BSE will be similar to that of the associated BSA, and we find that this approach is the only feassible procedure for implementing unbundling in the federal access tariffs./127 2. Computer III Pricing Rules 69. The Computer III decision established three pricing rules for basic ONA services. BOCs were required to include an averaged Basic Interconnection Charge (BIC) and an averaged Basic Concentration Charge (BCC) in ONA tariffs and permitted, although not required, to set transmission rates to reflect distance-sensitive costs./128 As explained in the Notice, given that the BOCs all employ parity pricing/129 to minimize transmission costs,/130 these Computer III rules are redundant. Virtually all comments on this issue supported our observation./131 We find it in the public interest _________________ /126 Allnet Comments at 2-3. /127 Florida requests that the Commission clarify its definition of the jurisdictional nature of access. This issue has also been raised in the context of the Petition for Declaratory Ruling that States and the District of Columbia Are Prempteded From Imposing Public Utility Regulations on Enhanced Service Providers, filed Feb. 1, 1991. Therefore, we decline to address the issue in this proceeding. /128 Notice, at 3989-90 paras. 48-49. /129 Telenet argues that BOC parity pricing requirement is merely permissive. Telenet Reply at 30-31. We would have to review and approve any BOC departure from parity pricing, however, because our approval of the BOC ONA plans was premised on the use of parity pricing to satisfy our minimization of transmission-cost requirement. Notice, at 3989 para. 49. /130 Phase I Further Reconsideration, 3 FCC Rcd 1135, 1141 para. 46 (1988); Phase II Reconsideration, 3 FCC Rcd 1150, 1157 para. 49 (1988). /131 Notice at 3989-90 paras. 48-49; Ameritech Comments at 26; Bell Atlantic Comments at 11; BellSouth Comments at 21-2; NYNEX Comments at 28-9; SW Bell Comments at 41-3; US West Comments at 48-9. to pursue our goals of equality and efficiency in this context by relying on parity pricing. We therefore eliminate the BIC, BOC, and distance sensitive Computer III ONA pricing rules. 3. The Impact of ONA on Separations 70. Comments. A number of parties express concerns about the impact of ONA on current separations rules. Five states and NARUC argue that current separations formulas will allocate too large a portion of costs to the state jurisdiction because, in their view: 1) costly new technologies, such as Common Channel Signaling System No. 7 (SS7) will be used primarily, if not exclusively, for interstate services; and 2) the interstate usage of many new federal BSEs will be ignored by current cost allocation formulas./132 These states argue that there will be cost/revenue mismatches between the jurisdictions. Others dispute these claims, contending that, with respect to SS7, the Commission has already found that it is not primarily an interstate service./133 Bell Atlantic also states that the ONA separations issues are already being addressed./134 Most ESPs argue, by contrast, that the current separations rules allocate costs disproportionately to the interstate jurisdiction and that this will have a particularly harmful affect on ONA./135 Bell South contends that the ESP's separations arguments are beyond the scope of this proceeding./136 71. Decision. The Federal-State ONA Joint Conference gathered preliminary information on the extent of any jurisdictional separations problem. The results indicated minimal effects, but the information was subsequently referred to the Joint Board in CC Docket No. 80-286, and the Joint Conference requested that the Joint Board take cognizance of the information in its consideration of related issues./137 Given the Joint Conference survey and the slight impact that ONA will likely have on separations, we feel that it is in the public interest not to delay ONA and _______________ /132 California Comments passim; Florida Comments at 7-8; Iowa Comments at 4-5; Maryland Comments at 2; NARUC Comments at 7-8; Virginia Comments at 3-4. SW Bell Regulators argue for a postponement until the separations issues are resolved. SW Bell Regulators Reply at 5. /133 BellSouth Reply at 30-31; CONAP Reply at 17-19. /134 Bell Atlantic Reply at 8. /135 ESPs argue that the separations rules are so unfair to interstate carriers that ESPs deserve a large special discount on interstate access. This is discussed in section III.C., supra. /136 BellSouth Reply at 32 n.38. /137 As we have previously noted, "CCS7 represents a general network upgrade that will be used for a wide variety of both intrastate and interstate services." Provision of Access for 800 Service, 4 FCC Rcd 2824, para. 73 (1989) recon pending. its expected public benefits until possible separations questions are resolved./138 Any specific issues raised by the implementation of ONA in the Communications Act's regime of dual jurisdiction can be resolved as they arise. 4. Pending Waiver Requests 72. We now address two pendiny requests for waiver of our Part 69 rules. Ameritech requests us to waive our rules to permit it to unbundle its local switching rate element. Southwestern Bell requests a waiver to establish a specialized trunkside "FGK" BSA and two new BSEs: billing number identification and calling number identification. Parties commenting on the waiver request argue that the petitions raise the same issues discussed in the Notice in this proceeding, and that granting waivers would require addressing in a piecemeal fashion issues better resolved in a comprehensive rulemaking. 73. We believe that this order renders moot the need for us to act on either the Ameritech or Southwestern Bell petitions for waiver of our Part 69 rules. Our decisions should permit both BOCs to achieve most, if not all, of what they sought in their waiver requests. Ameritech will be permitted to file tariffs for unbundled BSA/BSEs, subject to our amended rules, and we believe that our decision obviates Southwestern Bell's need to establish a new Feature Group K offering. If either party still feels the need for a waiver of our new rules, it is, of course, free to refile a waiver request based on this order. IV. SUPPLEMENTAL NOTICE OF PROPOSED RULEMAKING 74. We noted above that after this initial tariffing procedure, future unbundled BSEs may be restructured or new services under price cap regulation. In this order we adopt pricing rules for all new services provided by price cap LECs, including BSEs. We believe that those rules, requiring cost support and additional disclosures, are adequate to deal with the greater danger of discrimination inherent in ONA services, which are provided to competitors of the BOC ESP operations. We are concerned, however, that the general rules for restructured services do not provide sufficient protection against unreasonable discrimination. The showing for restructured services requires price cap carriers to recast demand and demonstrate compliance with applicable basket and banding requirements. While we believe that our pricing rules for restructured services are appropriate for most price cap LEC offerings, we are concerned that these rules may not be sufficient to address the increased potential for unreasonable discrimination that arises with ONA services, which are provided to LEN competitors. _______________ /138 We view as beyond the scope of this proceeding suggestions, such as those of ETI, that the Commission begin fundamental separations reform. 75. We tentatively conclude that we should place an additional restriction on future unbundled BSA/BSEs that qualify as restructured under the price cap rules. We seek comment on this conclusion and on possible ways to constrain the potential for discrimination in the least burdensome manner. We could, for instance, require LECs not only to satisfy the restructured services test under price caps, but also to make the new cost support showing for new services that we are adopting above. We seek comment on whether treating restructured ONA services differently from restructured non-ONA services raises any implementation problems. Parties are also invited to comment on whether non-cost-based pricing rules for future restructured ONA services could be developed that would serve to constrain LECs' ability to discriminate without unduly hampering the LECs' ability to price efficiently. Parties arguing for alternatives other than the option set forth above should offer specific proposals. V. CONCLUSION 76. This order amends the Commission's Part 69 access charge rules to enable the Bell Operating Companies (BOCs) to offer Open Network Architecture (ONA) services. The rules adopted in this order enable the BOCs to treat the basic service elements (BSEs) as unbundled, individually priced rate subelements, as required by our BOC ONA Order. In addition, this order modifies the general LEC Price Cap Order new services test to place a flexible upper bound on new service prices. The new rules require the BOCs to provide detailed cost support for their initial BSE prices and for other new services. Once initial BSE and BSA element prices have become effective and adequate historical data have been generated, the services will be brought under price caps, subject to an additional disclosure requirement. The BOCs are required to file tariffs on or before November 1, 1991, on 90 days' notice, to provide the initial ONA offerings. In this Order we retain the current enhanced service provider (ESP) exemption in its current form. We also seek further comment on what pricing rules should apply to BSEs that would be considered "restructured" under the price cap rules. V. PROCEDURAL MATTERS A. Ex Parte 77. This is a non-restricted notice and comment rulemaking. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided they are disclosed as provided in Commission's rules. See generally, 47 C.F.R. Sections 1.1202, 1.1203, and 1.1206(a). B. Regulatory Flexibility Act 78. We certify that the Regulatory Flexibility Act of 1980 does not apply to this rulemaking proceeding because the proposed rule amendments, if promulgated, would not have a significant economic impact on a substantial number of small business entities, as defined by Section 601(3) of the Regulatory Flexibility Act. The Secretary shall send a copy of this Supplemental Notice of Proposed Rulemaking, including the certification, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility. Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. Section 601 et seq (1981). C. Notice and Comment Provision 79. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's Rules, 47 C.F.R. Sections 1.415 and 1.419, interested parties may file comments on or before August 26, 1991, and reply comments on or before September 25, 1991. To file formally in this proceeding, you must file an original and five copies of all comments, reply comments, and supporting comments. If you want each Commissioner to receive a personal copy of your comments, you must file an original plus nine copies. You should send comments and reply comments to the Office of the Secretary, Federal Communications Commission, Washington, D.C. 20554. In addition, parties should file two copies of any such pleadings with the Policy and Program Planning Division, Common Carrier Bureau, Room 544, 1919 M Street, N.W., Washington, D.C. Parties should also file one copy of any documents filed in this docket with the Commission's copy contractor, Downtown Copy Center, 1114 21st Street, N.W., Suite 140, Washington, D.C. 20037. Comments and reply comments will be available for public inspection during regular business hours in the Dockets Reference Room of the Federal Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554. For further information regarding this Supplemental Notice of Proposed Rulemaking contact Mark S. Nadel, Common Carrier Bureau, Policy and Program Planning Division, (202) 632-6363. VII. ORDERING CLAUSES 80. Accordingly, IT IS ORDERED, that, pursuant to Sections 151, 154(i) and (j), 201-205, 303(r), and 405 of the the Communications Act, 47 U.S.C. 151, 154(i) & (j), 201-205, 303(r), and 405, Parts 61 and Part 69 of the Commission's rules, 47 C.F.R. Parts 61 and 69, ARE AMENDED as set forth in Appendix A. 81. IT IS FURTHER ORDERED that the BOCs file tariffs that conform to these rules by November 1, 1991, effective on 90 days' notice. 82. IT IS FURTHER ORDERED that Ameritech's petition for waiver of Part 69 rules concerning local switching, filed on June 26, 1990, is DENIED as moot. 83. IT IS FURTHER ORDERED that Southwestern Bell's petition for waiver of Part 69 of the Commission's rules for feature group K switched access service, filed on SepteMber 6, 1990, is DENIED as moot. FEDERAL COMMUNICATIONS COMMISSION Donna R. Searcy Secretary APPENDIX A AMENDMENTS TO THE CODE OF FEDERAL REGULATIONS Title 47 of the CFR, Parts 61 and 69 are amended as follows: PART 61 -- TARIFFS 1. Section 61.49 is amended by adding a new paragraph (h) to read as follows: 61.49 Supporting information to be submitted with letters of transmittal for tariffs of carriers subject to price cap regulation. * * * * * (h) Each tariff filing by a local exchange carrier that introduces a new service that will later be included in a basket must also be accompanied by (1) The following, including complete explanations of the bases for the estimates. (a) A study containing a projection of costs for a representative 12 month period; and (b) Estimates of the effect of the new tariff on the traffic and revenues from the service to which the new tariff applies, the carrier's other service classifications, and the carrier's overall traffic and revenues. These estimates must include the projected effects on the traffic and revenues for the same representative 12 month period used in paragraph Ch) (1) (a) of this section. (2) Working papers and statistical data. (a) Concurrently with the filing of any tariff change or tariff filing for a service not previously offered, the Chief, Tariff Review Branch must be provided two sets of working papers containing the information underlying the data supplied in response to paragraph (h) (1), of this section, and a clear explanation of how the working papers relate to that information. (b) All statistical studies must be submitted and supported in the form prescribed in 1.363 of the Commission's Rules. * * * * * PART 69 -- ACCESS CHARGES 2. Section 69.2 is amended by adding the following new paragraph (mm) to read as follows: 69.2 Definitions * * * * * (mm) "Basic Service Elements" are optional unbundled features that enhanced service providers may require or find useful in the provision of enhanced services, as defined in Amendments of Part 69 of the Commission's Rules Relating to the Creation of Access Charge subelements for Open Network Architecture, Report and Order, 6 FCC Rcd ____, CC Docket No. 89-79, FCC 91- 186 (1991). 3. Section 69.4 is amended by revising paragraph (b) to read as follows: 69.4 Charges to be filed. * * * * * (b) Except as provided in Subpart C of this Part, in paragraphs 69.4 (c> and (d), and in 69.118, the carrier's carrier charges for access service filed with this Commission shall include charges for each of the following elements: (1) Limited pay telephone; (2) Carrier common line; (3) Local switching; (4) Information; (5) Common transport; (6) Dedicated transport; and (7) Special access. * * * * * 4. Section 69.106 is amended by revising paragraph (a) to read as follows: 69.106 Local switching. (a) Except as provided in 69.118, charges that are expressed in dollars and cents per access minute of use shall be assessed upon all interexchange carriers that use local exchange switching facilities for the provision of interstate or foreign services. * * * * * 5. Section 69.107 is amended by revising paragraphs (a) and (b) to read as follows: 69.107 Equal Access (a) A monthly charge that is expressed in dollars and cents either per Feature Group D trunk, per presubscribed equal access line, or per trunk line that is receiving from a local exchnge switch service that is substantially equivalent to the access provided for MTS or WATS, shall be assessed by telephone companies that implement an Equal Access element as provided in paragraph 69.4(d) upon all interexchange carriers for either the interstate and foreign Feature Group D access service trunks the interexchange carriers uses, the interstate and foreign access service trunk lines receiving service substantially equivalent to the access provided for MTS or WATS from a local exchange switch, or the presubscribed equal access lines the carrier serves. (b) A monthly charge per Feature Group D trunk or per trunk line that is receiving from a local exchange switch service that is substantially equivalent to the access provided for MTS or WATS shall be computed by dividing the projected annual revenue requirement for the Equal Access element by twelve times the projected annual average number of the total of interstate and foreign Feature Group D access service trunks and interstate and foreign access service trunk lines receiving service substantially equivalent to the access provided for MTS or WATS from a local exchange switch. 6. Section 69.109 is amended by revising paragraph (b) to read as follows: 69.109 Information. * * * * * (b) Except as provided in 69.118, if such connections are maintained exclusively by carriers that offer MTS, the projected annual revenue requirement for the formation element shall be divided by 12 to compute the monthly assessment to such carriers. * * * * * 7. Section 69.111 is amended by revising paragraph (a) to read as follows: 69.111 Common transport. (a) Except as provided in 69.118, a charge that is expressed in dollars and cents per access minute shall be assessed upon all interexchange carriers that use (1) switching or transmission facilities that are apportioned to the Common Transport element for purposes of apportioning net investment, or (2) equivalent facilities offered by carriers subject to price cap regulation as the term is defined in 61.3(v) of this chapter. * * * * * 8. Section 69.112 is amended by revising the first two sentences of paragraph (b) to read as follows: 69.112 Dedicated transport. * * * * * (b) Appropriate subelements shall be established for the use of interface arrangements. Except as provided in 69.118, charges for such subelements shall be assessed and computed as follows: * * * * * 9. Section 69.113 is amended by revising paragraph (a) and adding a new paragraph (e) to read as follows: 69.113 Non-premium charges for MTS-WATS equivalent services. (a) Charges that are computed in accordance with this section shall be assessed upon interexchange carriers or other persons that receive access that is not deemed to be premium access (as this term is defined in 69.105(b) (1)) in lieu of carrier charges that are cited in accordance with 69.105, 69.106, 69.111, 69.112 and 69.118. * * * * * (e) The non-premium charge for any BSEs in transport or local switching shall be computed by multiplying the premium charge for the corresponding BSEs by .45. * * * * * 10. New section 69.118 is added to read as follows: 69.118 Traffic sensitive switched services. Notwithstanding 69.4(b), 69.106, 69.109, 69.111, and 69.112, telephone companies subject to the BOC ONA Order, 4 FCC Rcd 1 (1988), shall, and other telephone companies may, establish approved Basic Service Elements as provided in Amendments of Part 69 of the Commission's Rules Relating to the Creation of Access Charge Subelements for Open Network Architecture, Report and Order, 6 FCC Rcd _____, CC Docket No. 89-79, FCC 91-186 (1991). Telephone companies shall take into account revenues from the relevant Basic Service Element Or Elements in computing rates for the Local Switching, Common Transport, Dedicated Transport, and/or Information elements. 11. New section 69.119 is added to read as follows: 69.119 Basic service element expedited approval process. The rules for filing comments and reply comments on requests for expedited approval of new basic service elements are those indicated in 1.45 of the rules, except as specified otherwise. 12. Section 69.205 is amended by revising paragraph (a) to read as follows: 69.205 Transitional premium charges. (a) Charges that are computed in accordance with this section shall be assessed upon interexchange carriers or other persons that receive premium access in lieu of carrier charges that are counted in accordance with 69.106 69.111, 69.112, and 69.118 of this part if any carrier or other person does not receive premium access, as this term is defined in 69.105. APPENDIX B LISTS OF COMMENTERS 1. COMMENTS & REPLY COMMENTS ON ONA/PART 69, CC DOCKET 89-79 a. Initial Comments 1. ADAPSO (ADAPSO Comments) 2. Aeronautical Radio, Inc., Information Industry Association, National Retail Merchants Association, Tele-Communications Association, and Xerox Corporation (Joint Parties Comments) 3. Allnet Communication Services, Inc. (Allnet Comments) 4. Alltel Operating Companies (Alltel Comments) 5. American Bankers Ass'n. (Bankers Comments) 6. American Bar Association (ABA Comments) 7. American Library Ass'n. (ALA Comments) 8. American Petroleum Institute (API Comments) 9. American Telephone & Telegraph Co. (AT&T Comments) 10. Ameritech Operating Companies (Ameritech Comments) 11. The Ameritech States (Ameritech States Comments) 12. Arkansas Public Service Commission, Kansas Corporation Commission, Oklahoma Corporation Commission, Missouri Corporation Commission, Texas PUblic Utility Commission, on Behalf of the Southwestern Bell Regional Regulatory Group (SW Bell Regulators Comments) 13. Bell Atlantic Telephone Cos. (Bell Atlantic Comments) 14. BellSouth Telephone Cos. (BellSouth Comments) 15. People of the State of California and the Public Utilities Commission of the State of California (California Comments) 16. California Bankers Clearing House Association, Committee of Corporate Telecommunications Users, Mastercard International Incorporated New York Clearing House Association and VISA U.S.A., Inc. (ONA Users Group Comments) 17. Coalition of Open Network Architecture Parties, and the Ad Hoc Telecommunications Users Committee (CONAP Comments) 18. Compuserve, Inc. (Compuserve Comments) 19. Computer & Business Equipment Manufacturers Association (CBEMA Comments) 20. Contel Corp. (Contel Comments) 21. Dialcom, Inc. (Dialcom Comments) 22. Public Service Commission of the District of Columbia (DC Comments) 23. Electronic Mail Association (EMA Comments) 24. Florida Public Service Commission (Florida Comments) 25. General Electric Communications & Services (GE Comments) 26. GTE Service Corp. and its affiliated domestic telephone operating companies (GTE Comments) 27. Illinois Consolidated Telephone Co. (ICTC Comments) 28. Independent Data Communications Manufacturers Ass'n. (IDCMA Comments) 29. Integrated Communications Systems, Inc. (ICS Comments) 30. International Communications Ass'n. (IEA Comments) 31. Iowa State Utilities Board (Iowa Comments) 32. Public Service Commission of Maryland (Maryland Comments) 33. McGraw-Hill, Inc. (McGraw-Hill Comments) 34. MCI Telecommunications Corp. (MCI Comments) 35. Motorola, Inc. (Motorola Comments) 36. National Ass'n of Regulatory Utility Commissioners (NARUC Comments) 37. National Data Corp. (NDC Comments) 38. National Exchange Carrier Assn. (NECA Comments) 39. National Telecommunications & Information Administration (NTIA Comments) 40. New York Dept. of Public Service (New York Comments) 41. NYNEX Telephone Cos. (NYNEX Comments) 42. Pacific Bell & Nevada Bell (Pacific Comments) 43. Prodigy Services Co. (Prodigy Comments) 44. Southwestern Bell Telephone Co. (SW Bell Comments) 45. Telenet Communications Corp. (Telenet Comments) 46. Telephone Utilities Exchange Carrier Assoc. (TUECA Comments) 47. Telocator (Telocator Comments) 48. Tymnet-McDonnell Douglas Network Systems Co. (Tymnet Comments) 49. United States Telephone Ass'n (USA Comments) 50. United Telephone Operating Cos. (United Comments) 51. US West (US West Comments) 52. Utilities Telecommunications Council (UTC Comments) 53. Virginia State Corporation Commission (Virginia Comments) b. Reply Comments 1. Aeronautical Radio, Inc., Information Industry Association, National Retail Merchants Association, Tele-Communications Association and Xerox Corporation (Joint Parties Reply) 2. Alarm Industry Communications Committee (AICC Reply) 3. Alltel Telephone Operating Companies (Alltel Reply) 4. American Petroleum Institute (API Reply) 5. Ameritech Operating Companies (Ameritech Reply) 6. Ameritech States (Ameritech States Reply) 7. Association of American Railroads (AAR Reply) 8. Association of Telemessaging Services International, Inc. (ATSI Reply) 9. Bell Atlantic Telephone Companies (Bell Atlantic Reply) 10. BellSouth Telephone Companies (BellSouth Reply) 11. California PUC/People of the State of California (California Reply) 12. California Bankers Clearing House Association, Committee of Corporal Telecommunications Users, Mastercard International Incorporated, New York Clearing House Association and Visa U.S.A., Inc. (ONA Users Group Reply) 13. Coalition of Open Network Architecture Parties and the Ad Hoc Telecommunications Users Committee (CONAP Reply) 14. CompuServe Incorporated (CompuServe Reply) 15. District of Columbia PSC (DC Reply) 16. GTE Service Corporation (GTE Reply) 17. General Electric Communications and Services (GE Reply) 18. Integrated Communication Systems Inc. (ICS Reply) 19. Maryland PSC (Maryland Reply) 20. McGraw-Hill, Inc. (McGraw-Hill Reply) 21. MCI Telecommunications Corporation (MCI Reply) 22. National Association of Regulatory Utility Commissioners (NARUC Reply) 23. National Data Corporation (NDC Reply) 24. National Telephone Cooperative Association (NTCA Reply) 25. New Jersey Board of Public Utilities (New Jersey Reply) 26. New York Department of Public Service (New York Reply) 27. New York Telephone Company and New England Telephone and Telegraph Company (NYNEX Reply) 28. Pacific Bell and Nevada Bell (Pactel Reply) 29. Prodigy Services Caany (Prodigy Reply) 30. Southwestern Bell Regional Regulatory Group (SW Bell Regulators Reply) 31. Southwestern Bell Telephone Company (SW Bell Reply) 32. Telenet Communications Corporation (Telenet Reply) 33. Tymnet-McDonnell Douglas Network Systems Company (Tymnet Reply) 34. United States Telephone Association (USTA Reply) 35. US West, Inc. (US West Reply) 36. Utilities Telecommunications Council (UTC Reply) 37. Virginia State Corporation Commission (Virginia Reply) 2. COMMENTS, REPLY COMMENTS, MCI PETITIONS, ETC. ON PRICE CAPS AND RECONSIDERATION RELATING TO ONA a. Comments on LEC Price Cap Order 1. Ad Hoc Telecommunications Users Committee (Ad Hoc LECPC) 2. American Telephone & Telegraph (AT&T LECPC) 3. Independent Data Communications Manufacturers Ass'n. (IDCMA LECPC) 4. Iowa (Iowa LECPC) 5. MCI (MCI LECPC) 6. Michigan (Michigan LECPC) 7. Ohio (Ohio LECP) 8. Telenet (Telenet LECPC) b. Reply Comments on LEC Price Cap Order 1. Ad Hoc Telecommunications Users Committee (Ad Hoc LECPC Reply) 2. Colorado (Colorado LECPC Reply) 3. International Communications Ass'n (ICA LECPC Reply) 4. Tele-Communications Ass'n. (TCA LECPC Reply) c. Petitions for Reconsideration of LEC Price Cap Order 1. MCI (MCI Recon. Petition) d. Oppositions to Petitions for Reconsideration of LEC Price Cap Order 1. BellSouth (BellSouth Opposition) 2. NYNEX (NYNEX Opposition) 3. Pacific Telephone (PacTel Opposition) 4. Southwestern Bell Telephone (SW Bell Opposition) 5. United States Telephone Ass'n (USTA Opposition) e. Replies to Reconsideration of LEC Price Cap Order 1. MCI (MCI Recon. Reply) 3. COMMENTS ON AMERITECH & SW BELL WAIVER PETITIONS a. Comments on Ameritech Waiver Petition 1. Ad Hoc Telecommunications Users Committee 2. ADAPSO 3. Allnet Communications Services, Inc. 4. Ameritech States 5. BT Tymnet Inc. 6. California PUC 7. MCI 8. NYNEX 9. US Sprint b. Comments and Reply Comments on Southwestern Bell Waiver 1. Ad Hoc Telecommunications Users Committee 2. ADAPSO (Reply) 3. Allnet Communications Services, Inc. 4. BT Tymnet Inc. 5. MCI 6. Southwestern Bell (Reply> 7. Texas PUC 8. US Sprint APPENDIX C SUMMARY OF FILING REQUIREMENTS To assist in the preparation of ONA tariffs, this appendix summarizes the tariff filing requirementsset forth in the text of this Order. The information presented here outlines sequentially the steps that must be taken in the preparation and filing of ONA and new services offerings. References to the textual discussion are included. In case of any inconsistency or ambiguity, the text of the order controls. The Appendix is presented by type of filing. An index of the types of filings summarized is as follows: I. BBC ONA filings: BSEs Included in Any Approved ONA Plan or Otherwise Previously Approved II. BOC ONA Filings: New BSEa Not Previouly Approved III. BOC Anual Filings: Additional Requirements Due to ONA IV. ONA Filings for Non-BOCs V. Other New Service Filings for Price Cap LECs I. BOC ONA Filings: BSEs Included in Any Approved ONA Plan Or Otherwise Previously Approved A. Preliminary to Filing the Tariff Waiver requirement: None (para. 14) B. Tariff Filing 1. Notice: 90 days' notice for the initial ONA filing 45 days' notice for changes or modifications to tariffs in effect until the filing becomes incorporated into price cap indexes 2. Cost support: a. Net revenue showing (paras. 39, 42) b. Regardless of the cost model chosen, cost support must include the following information: a study containing a projection of costs for a representative 12 month period; estimates of the effect of the new service on traffic and revenues, including the traffic and revenue of other services; supporting workpapers for estimates of costs, traffic and revenue (para. 42) c. Cost model to identify direct costs; must be the same model for all related services (para. 42) d. If a risk premium is claimed, an on-the-record risk premium showing that consists of the following: (para. 43) i. Explanation of the methodology employed to calculate the premium, the size of the risk premium, and the projected overall return for the service. ii. Support aerial sufficient to evaluate accuracy of the premium calculation and the return projection iii. The level of research and development expense incurred and projected; the level of marketing expense incurred and projected; the type and functions of any new tecbnologies associated with the new venture; an explanation of the method used to project demand; any special elements of risk the carrier believes will justify the premium e. Add appropriate overhead loadings; must file ratios of direct unit cost to unit investment and direct unit cost to unit price; no uniformity is required in the loadings; must justify methods and any deviation from the method selected (para. 44) 2. Other support/requirements: a. Initial filing includes one switched lineside BSA and one switched trunkside BSA (paras 13, 48) b. Must not abolish Feature Groups until the initial BSEs and BSA elements are folded into price caps (para. 20) c. BOCs must list BSEs that they intend to use in their enhanced service operations (para. 45) d. Filed prices for unbundled versions of existing offerings must be less than or equal to existing prices (para. 48) e. BSE rate structures must reasonably reflect the nature of underlying costs (para. 50) f. Certify that all BSEs have been approved II. BOC ONA Filings. New BSEs That Have Not Previously Been Approved A. Preliminary to Filing the Tariff Waiver requirement: No waiver is required if the carrier is unbundling special access. With respect to switched access, BOCs that wish to implement "unbundIing" of the local switching, transort, or information elements other than unbundling of a BSE will be required to obtain a Part 69 waiver. Expedited Approval Process is used to review new BSEs that will be associated with a circuit-switched BSA and have not been previously approved (para. 14) 1. File a description of the BSE with the Bureau; unless otherwise specified, parties have 10 days to submit comments and the carrier has 5 days to reply 2. If the Bureau does not take action within 45 days, the BSE is automatically approved 3. If the Bureau acts within 45 days, approval is postponed indefinitely Possible actions: Bureau requests additional information or requires carrier to file a request for waiver 4. Waivers are resolved by order B. Tariff Filing 1. Notice: 45 days' notice for additional new BSEs 2. Cost support: If the BSE is a new service, the cost support is the same as for a filing maae for a BSE listed in an approved ONA plan; if the BSE is a restructured service, the requirements depend on the resolution of the Supplemental Notice in CC Docket Nos. 89-79 and 87-313 (paras 74-75) 3. Other support/requirements: a. BOCs must list BSEs they intend to use for their enhanced service operations (para. 45) b. BSE rate structures must reasonably reflect the nature of underlying costs (para. 50) III. BOC Annual Filings Additional Requirements Due to ONA A. Preliminary to Filing the Tariff Not applicable B. Tariff filing 1. Notice: 90 days 2. Cost support: Existing price cap rules apply 3. Other support/requirements: a. Feature Groups are abolished when initial group of ONA services is incorporated into price cap indexes (para. 20) b. Each BOC must indicate its own usage of each individual BSE expressed as a percentage of total demand for that BSE (para. 53) IV. ONA Filings for Non-BOCs A. Preliminary to Filing the Tariff Waiver requirement; No waiver is required if the carrier is unbundling special access. LECs may also offer BSEs listed in approved ONA plans, or otherwise approved by the Commission. LECs that wish to implement an "unbundling" of the local switching, transport, or information elements other than unbundling of a BSE will have to obtain a Part 69 waiver. (para. 14) Expedited Approval Process is used to review new BSEs that will be associated with a circuit-switched BSA and have not previously been approved. (para. 14) 1. File a description of the BSE with the Bureau; unless otherwise specified, parties have 10 days to submit comments, and the carrier has 5 days to reply 2. If the Bureau does not take action within 45 days, the BSE is automatically approved 3. If the Bureau acts within 45 days, approval is postponed indefinitely Possible actions: Bureau requests additional information or requires carrier to file a request for waiver 4. Waivers are resolved by order B. Tariff Filing 1. Notice: ONA filings will be on 45 days' notice. 2. Cost Support: Price cap carriers comply with price cap rules for new or restructured ONA services Rate of return carriers follow existing rate of return requirements 3. Other support/requirements: 1. BSE rate structures must reasonably reflect the nature of underlying costs (para. 50) 2. LECs must list BSEs they intend to use in their enhanced service operations (para. 45) C. Annual Filing 1. Notice: 90 days 2. Cost support: For price cap carriers, existing price cap rules apply, subject to the Commission's decision as a result of the Supplemental Notice in CC Docket Nos. 89-79 and 87-313 (paras. 74-75). Rate of return carriers follow existing rate of return cost support requirements. 3. Other support/requirements: Each price cap LEC must indicate its own usage of each individual BSE expressed as a percentage of total demand for that BSE. (para 53) V. Other New Service Filings For Price Cap LECs A. Tariff Filing 1. Notice: 45 days 2. Cost support: a. Net revenue showing (paras. 39, 42) b. Regardless of the cost model chosen, cost support must include the following information: a study containing a projection of costs for a representative 12 month period; estimates of the effect of the new service on traffic and revenues, including the traffic and revenue of other services; supporting words for estimates of costs, traffic and revenue (para. 42) c. Cost model to identify direct costs; must be the same model for all related services (para. 42) d. If a risk premium is claimed, an on-the-record risk premium showing that consists of the following: (para. 43) i. Explanation of the methodology employed to calculate the premium, the size of the risk premium, and the projected overall return for the service. ii. Support material sufficient to evaluate accuracy of the premium calculation and the return projection iii. The level of research and development expense incurred and projected; the level of marketing expense incurred and projected; the type and functions of any new technologies associated with the new venture; an explanation of the method used to project demand; any special elements of risk the carrier believes will justify the premium e. Add appropriate overhead loadings; must file ratios of direct unit cost to unit investment and direct unit cost to unit price; no uniformity is required in the loadings; must justify methods and any deviation from the method selected (para. 44)