Ham Radio/Ham Radio CD-ROM (Emerald Software) (1995).ISO/fcc/rules91/rules91.txt

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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, [phone].

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)