In the Matter of Implementation of the Local Competition
               Provisions in the Telecommunications Act of 1996;
              Interconnection between Local Exchange Carriers and
                   Commercial Mobile Radio Service Providers

                   CC Docket No. 96-98; CC Docket No. 95-185

                       FEDERAL COMMUNICATIONS COMMISSION

                              1996 FCC LEXIS 4312

                           RELEASE-NUMBER: FCC 96-325

                August 8, 1996 Released; Adopted August 1, 1996

             ACTION:   [*1]   FIRST REPORT AND ORDER [PART 5 OF 5]

JUDGES:
   By the Commission: Chairman Hundt and Commissioners Quello, Ness, and Chong
issuing separate statements.

OPINION:
   1280. There is also significant disagreement regarding whether final-offer
arbitration should be the arbitration model adopted by the Commission in the
event the Commission must conduct the arbitration itself. A broad range of
parties argue that final offer arbitration would result in reasonable
recommendations to the arbitrator. n3144 Vanguard argues that the "final offer"
method of arbitration should permit post-offer negotiation by the parties and
allow the parties to tailor counter-proposals. n3145 Under this approach, the
Commission would permit negotiation to continue after arbitration offers are
exchanged in order to promote negotiated settlements. n3146

   n3144 See, e.g., Teleport comments at 88; USTA comments at 94-95; SBC
comments at 103;

   n3145 Vanguard comments at 39-40.

   n3146 Id. at 40.

   1281. Many competitors oppose a "final offer" arbitration standard. n3147
Sprint, for example, argues that "final-offer" arbitration works well when there
is a single, narrowly defined issue on the table, but, where there are numerous
[*2]   complex technical and economic issues, confronting the arbitrator with an
"either/or" choice leaves insufficient flexibility to achieve a result that
comports with section 251. n3148 In addition, Sprint asserts that, because
arbitration proceedings have a public interest component that sets them apart
from mere private disputes, neither party's offer might serve the public
interest. n3149 Some parties recommend an "open-ended" arbitration system, n3150
while California is in favor of a hybrid between the two. n3151

   n3147 See, e.g., MCI comments at 95-96; Sprint reply at 47; Time Warner
comments at 111; Competitive Policy Institute reply at 21-22; GCI reply at 5.

   n3148 Sprint reply at 47.



   n3149 Id.

   n3150 See, e.g., Time Warner comments at 111.

   n3151 California Commission comments at 50. The California Commission's
procedures for resolving interconnection disputes is based on a four-step
expedited dispute resolution process for resolving disputes between parties who
cannot agree on the terms of interconnection. Step 1 is informal resolution
without state intervention. Step 2 provides for dispute resolution with
mediation by the Administrative Law Judge (ALJ). Step 3 calls for the parties to
submit short pleadings to the ALJ who shall use the state commission's
"preferred outcomes" approach as a guideline in resolving dispute. Step 4 allows
for a party to challenge an ALJ ruling by filing an expedited complaint.  [*3]

   1282. SBC contends that Congress did not intend for arbitration to be binding
to the extent that parties are not legally obligated to enter into an agreement
after the arbitrator issues a decision. n3152 SBC argues that parties are bound
by the arbitrator's decision only if they decide to enter into an agreement.
Vanguard responds that SBC's proposal is contrary to the statute, which does not
give parties the opportunity to reject the results of arbitration and which does
not provide for de novo review. n3153

   n3152 SBC comments at 99.

   n3153 Vanguard reply at 18-20; accord Competition Policy Institute reply at
18-19.

   3. Discussion

   1283. After careful review of the record, we are convinced that establishing
regulations to carry out our obligations under section 252(e)(5) will provide
for an efficient and fair transition from state jurisdiction should we have to
assume the responsibility of the state commission under Section 252(e)(5). The
rules we establish in this section with respect to arbitration under section 252
apply only to instances where the Commission assumes jurisdiction under section
252(e)(5); we do not purport to advise states on how to conduct arbitration
[*4]   when the Commission has not assumed jurisdiction. The rules we establish
will give notice of the procedures and standards the Commission would apply to
mediation and arbitration, avoid delay if the Commission had to arbitrate
disputes in the near future, and may also offer guidance the states may, at
their discretion, wish to consider in implementing their own mediation and
arbitration procedures and standards. We decline to adopt national rules
governing state arbitration procedures. We believe the states are in a better
position to develop mediation and arbitration rules that support the objectives
of the 1996 Act. States may develop specific measures that address the concerns
of small entities and small incumbent LECs participating in mediation or
arbitration.


   1284. The rules we adopt herein are minimum, interim procedures. Adopting
minimum interim procedures now will allow the Commission to learn from the
initial experiences and gain a better understanding of what types of situations
may arise that require Commission action. We note that the Commission is not
required to adopt procedures and standards for mediation and arbitration within
the six-month statutory deadline and that,   [*5]   by adopting minimum interim
procedures, the Commission can better direct its resources to more pressing
matters that fall within the six-month statutory deadline.

   1285. Regarding what constitutes a state's "failure to act to carry out its
responsibility under" section 252, n3154 the Commission was presented with
numerous options. The Commission will not take an expansive view of what
constitutes a state's "failure to act." Instead, the Commission interprets
"failure to act" to mean a state's failure to complete its duties in a timely
manner. This would limit Commission action to instances where a state commission
fails to respond, within a reasonable time, to a request for mediation or
arbitration, or fails to complete arbitration within the time limits of section
252(b)(4)(C). n3155 The Commission will place the burden of proof on parties
alleging that the state commission has failed to respond to a request for
mediation or arbitration within a reasonable time frame. We note the work done
by states to date in putting in place procedures and regulations governing
arbitration and believe that states will meet their responsibilities and
obligations under the 1996 Act. n3156

   n3154 47 U.S.C. @ 252(e)(5).  [*6]

   n3155 47 U.S.C. @ 252(b)(4)(C).

   n3156 See, e.g., In the Matter of the Implementation of the Mediation and
Arbitration Provisions of the Federal Telecommunications Act of 1996, Case No.
96-463-TP-UNC, Ohio Commission, (May 30, 1996); Illinois Commerce Commission On
Its Own Motion Adoption of 83 Ill. Adm. Code 761 to Implement the Arbitration
Provisions of Section 252 of the Telecommunications Act of 1996, Docket No.
96-0297, Illinois Commission (June 14, 1996).

   1286. We agree with the majority of commenters that argue that our authority
to assume the state commission's responsibilities is not triggered when an
agreement is "deemed approved" under section 252(e)(4) due to state commission
inaction. Section 252(e)(4) provides for automatic approval if a state fails to
approve or reject a negotiated or arbitrated agreement within 90 days or 30
days, respectively. Rules of statutory construction require us to give meaning
to all provisions and to read provisions consistently, where it is possible to
do so. We thus conclude that the most reasonable interpretation is that
automatic approval under section 252(e)(4) does not constitute a failure to act.

   1287. We also believe that  [*7]   we should establish interim procedures for
interested parties to notify the Commission that a state commission has failed
to act under section 252. We believe that parties should be required to file a
detailed written petition, backed by affidavit, that will, at the outset, give
the Commission a better understanding of the issues involved and the action, or
lack of action, taken by the state commission. Allowing less detailed
notification increases the likelihood that frivolous requests will be made. With
less detailed notification, the Commission's investigations would be broader and
more burdensome. A detailed written petition will facilitate a decision about
whether the Commission should assume jurisdiction based on section 252(e)(5).


   1288. The moving party should submit a petition to the Secretary of the
Commission stating with specificity the basis for the petition and any
information that supports the claim that the state has failed to act, including,
but not limited to the applicable provision(s) of the Act and the factual
circumstances which support a finding that a state has failed to act. The moving
party must ensure that the applicable state commission and the parties
[*8]   to the proceeding or matter for which preemption is sought are served
with the petition on the same date the party serves the petition on the
Commission. The petition will serve as notice to parties to the state proceeding
and the state commission who will have fifteen days from the date the petition
is filed with the Commission to comment. Under section 252(e)(5), the Commission
must "issue an order preempting the state commission's jurisdiction of that
proceeding or matter" no later than 90 days from the date the petition is filed.
n3157 If the Commission takes notice, as section 252(e)(5) permits, that a state
commission has failed to act, it will, on its own motion, issue a public notice
and provide fifteen days for interested parties to submit comment on whether the
Commission should assume responsibility under section 252(e)(5).

   n3157 47 U.S.C. @ 252(e)(5).

   1289. If the Commission assumes authority under section 252(e)(5), the
Commission must also decide whether it retains authority for that proceeding or
matter. We agree with those parties who argue that, once the Commission assumes
jurisdiction of a proceeding or matter, it retains authority for that proceeding
or matter.   [*9]   For example, if the Commission obtains jurisdiction after a
state commission fails to respond to a request for arbitration, the Commission
maintains jurisdiction over the arbitration proceeding. Therefore, once the
proceeding is before the Commission, any and all further action regarding that
proceeding or matter will be before the Commission. We note that there is no
provision in the Act for returning jurisdiction to the state commission;
moreover, the Commission, with significant knowledge of the issues at hand,
would be in the best position efficiently to conclude the matter. Thus, as both
a legal and policy matter, we believe that the Commission retains jurisdiction
over any matter and proceeding for which it assumes responsibility under Section
252(e)(5).

   1290. We reject the suggestion by some parties that, once the Commission has
mediated or arbitrated an agreement, the agreement must be submitted to the
state commission for approval under state law. We note that section 252(e)(5)
provides for the Commission to "assume the responsibility of the State
commission under this section with respect to the proceeding or matter and act
for the State commission." n3158 This includes  [*10]   acting for the state
commission under section 252(e)(1), which calls for state commission approval of
"any interconnection agreement adopted by negotiation or arbitration." n3159 We,
therefore, do not read section 252(e)(1) or any other provision as calling for
state commission approval or rejection of agreements mediated or arbitrated by
the Commission. In those instances where a state has failed to act, the
Commission acts on behalf of the state and no additional state approval is
required.

   n3158 47 U.S.C. @ 252(e)(5).

   n3159 47 U.S.C. @ 252(e)(1).


   1291. Requirements set forth in section 252(c) for arbitrated agreements
would apply to arbitration conducted by the Commission. We see no reason, and no
party has suggested a policy or legal basis, for not applying such standards
when the Commission conducts arbitration. Thus, arbitrated agreements must: (1)
meet the requirements of section 251, including regulations prescribed by the
Commission pursuant to section 251; (2) establish any rates for interconnection,
services, or network elements according to section 252(d); and (3) provide a
schedule for implementation of the terms and conditions by the parties to the
agreement.   [*11]   n3160 We reject the suggestion made by some parties that,
if the Commission steps into the state commission role, it is bound by state
laws and standards that would have applied to the state commission. While states
are permitted to establish and enforce other requirements, these are not binding
standards for arbitrated agreements under section 252(c). Moreover, the
resources and time potentially needed to review adequately and interpret the
different laws and standards of each state render this suggestion untenable.
Finally, we conclude that it would not make sense to apply to the Commission the
timing requirements that section 252(b)(4)(c) imposes on state commissions. The
Commission, in some instances, might not even assume jurisdiction until nine
months (or more) have lapsed since a section 251 request was initiated.

   n3160 47 U.S.C. @ 252(c).

   1292. Based on the comments of the parties, we conclude that a "final offer"
method of arbitration, similar to the approach recommended by Vanguard, would
best serve the public interest. n3161 Under "final offer" arbitration, each
party to the negotiation proposes its best and final offer and the arbitrator
determines which of the proposals  [*12]   become binding. The arbitrator would
have the option of choosing one of the two proposals in its entirety, or the
arbitrator could decide on an issue-by-issue basis. Each final offer must: (1)
meet the requirements of section 251, including the Commission's rules
thereunder; (2) establish rates for interconnection, services, or network
elements according to section 252(d); and (3) provide a schedule for
implementation of the terms and conditions by the parties to the agreement.
n3162 If a final offer submitted by one or more parties fails to comply with
these requirements, the arbitrator would have discretion to take steps designed
to result in an arbitrated agreement that satisfies the requirements of section
252(c), including requiring parties to submit new final offers within a time
frame specified by the arbitrator, or adopting a result not submitted by any
party that is consistent with the requirements in section 252(c).

   n3161 Vanguard comments at 39-40.

   n3162 47 U.S.C. @ 252(c).


   1293. The parties could continue to negotiate an agreement after they submit
their proposals and before the arbitrator makes a decision. Under this approach,
the Commission will encourage   [*13]   negotiations, with or without the
assistance of the arbitrator, to continue after arbitration offers are
exchanged. Parties are not precluded from submitting subsequent final offers
following such negotiations. We believe that permitting post-offer negotiations
will increase the likelihood that the parties will reach consensus on unresolved
issues. In addition, permitting post-offer negotiations will increase
flexibility and will allow parties to tailor counter-proposals after arbitration
offers are exchanged. To provide an opportunity for final post-offer
negotiation, the arbitrator will not issue a decision for at least 15 days after
submission of the final offers by the parties. In addition, the offers must be
consistent with section 251, including the regulations prescribed by the
Commission. We reject SBC's suggestion that an arbitrated agreement is not
binding on the parties. Absent mutual agreement to different terms, the decision
reached through arbitration is binding. We conclude that it would be
inconsistent with the 1996 Act to require incumbent LECs to provide
interconnection, services, and unbundled elements, impose a duty to negotiate
in good faith and a right to arbitration,   [*14]   and then permit incumbent
LECs to not be bound by an arbitrated determination. We also believe that,
although competing providers do not have an affirmative duty to enter into
agreements under section 252, a requesting carrier might face penalties if, by
refusing to enter into an arbitrated agreement, that carrier is deemed to have
failed to negotiate in good faith. n3163 Such penalties should serve as a
disincentive for requesting carriers to force an incumbent LEC to expand
resources in arbitration if the requesting carrier does not intend to abide by
the arbitrated decision.

   n3163 See 47 U.S.C. @ 252(b)(5) (requiring parties to negotiate in good faith
in the course of arbitration).

   1294. Adopting a "final offer" method of arbitration and encouraging
negotiations to continue allows us to maintain the benefits of final offer
arbitration, giving parties an incentive to submit realistic "final offers,"
while providing additional flexibility for the parties to agree to a resolution
that best serves their interests. To the extent that these procedures encourage
parties to negotiate voluntarily rather than arbitrate, such negotiated
agreements will be subject to review pursuant   [*15]   to section 252(e)(2)(A),
which would allow the Commission to reject agreements if they are inconsistent
with the public interest. This approach also addresses the argument that under
"final offer" arbitration neither offer might best serve the public interest,
because it allows the parties to obtain feedback from the arbitrator on public
interest matters.

   1295. We believe that the arbitration proceedings generally should be limited
to the requesting carrier and the incumbent local exchange provider. This will
allow for a more efficient process and minimize the amount of time needed to
resolve disputed issues. We believe that opening the process to all third
parties would be unwieldy and would delay the process. We will, however,
consider requests by third parties to submit written pleadings. This may, in
some instances, allow interested parties to identify important public policy
issues not raised by parties to an arbitration.

B. Requirements of Section 252(i)

   1. Background

   1296. Section 251 requires that interconnection, unbundled element, and
collocation rates be "nondiscriminatory" and prohibits the imposition of
"discriminatory conditions" on the resale of telecommunications  [*16]
services. n3164 Section 252(i) of the 1996 Act provides that a "local exchange
carrier shall make available any interconnection, service, or network element
provided under an agreement approved under [section 252] to which it is a party
to any other requesting telecommunications carrier upon the same terms and
conditions as those provided in the agreement." n3165 In the NPRM, we expressed
the view that section 252(i) appears to be a primary tool of the 1996 Act for
preventing discrimination under section 251, and we sought comment on whether we
should adopt national standards for resolving disputes under section 252(i) in
the event that we must assume the state's responsibilities pursuant to section
252(e)(5). In addition, because we may need to interpret section 252(i) if we
assume the state commission's responsibilities, we sought comment on the meaning
of section 252(i).



   n3164 47 U.S.C. @@ 251(c)(2)(D) (interconnection rates, terms, and
conditions); 251(c)(3) (unbundled network elements rates, terms, and
conditions); 251(c)(6) (collocation rates, terms, and conditions); and
251(c)(4)(B) (resale). Section 252(d)(1) also requires nondiscriminatory
interconnection and network element charges. 47 U.S.C. @ 252(d)(1).  [*17]

   n3165 47 U.S.C. @ 252(i).

   1297. We also sought comment in the NPRM on whether section 252(i) requires
that only similarly-situated carriers may enforce against incumbent LECs
provisions of agreements filed with state commissions, and, if so, how
"similarly-situated carrier" should be defined. In particular, we asked whether
section 252(i) requires that the same rates for interconnection must be offered
to all requesting carriers regardless of the cost of serving that carrier, or
whether it would be consistent with the statute to permit different rates if the
costs of serving carriers are different. We also asked whether the section can
be interpreted to allow incumbent LECs to make available interconnection,
services, or network elements only to requesting carriers serving a comparable
class of subscribers or providing the same service (i.e., local, access, or
interexchange) as the original parties to the agreement. In the NPRM, we
tentatively concluded that the language of the statute appears to preclude such
differential treatment among carriers.

   1298. Additionally, we sought comment in the NPRM on whether section 252(i)
permits requesting telecommunications carriers to choose  [*18]   among
individual provisions of publicly-filed interconnection agreements or whether
they must subscribe to an entire agreement. We also sought comment regarding
what time period an agreement must remain available for use by other requesting
telecommunications carriers.

   2. Comments

   1299. Two state commissions and SBC believe that implementation of section
252(i) should be left to the states, n3166 while Time Warner favors national
standards. n3167 CompTel argues that we should adopt expedited procedures
whereby carriers may complain to the Commission when incumbent LECs refuse to
make agreements available to them in alleged violation of section 252(i). n3168

   n3166 Pennsylvania Commission comments at 43; Louisiana Commission comments
at 28-29; SBC Comments at 24.

   n3167 Time Warner comments at 112.

   n3168 CompTel comments at 107.


   1300. New entrants generally support the view that section 252(i) does not
require that requesting carriers seeking to avail themselves of a prior
negotiated or arbitrated agreement be "similarly situated" with respect to the
original party who negotiated the agreement. n3169 They argue that such a
limitation would be contrary to Congress's intent,   [*19]   n3170 or that it
could invite perpetual dispute over which carriers are similarly situated and
what cost differences are real and material. n3171 Winstar questions whether
states could implement a "similarly situated" carrier requirement without
unintentionally creating a vehicle for incumbent LECs to discriminate against
competitive entrants. n3172 LDDS specifically agrees with the NPRM's tentative
conclusion that section 252(i) prohibits incumbent LECs from limiting the
availability of agreements to a carrier based on the class of customers the
carrier serves or the type of service it provides. n3173 The Telecommunications
Resellers Ass'n believes section 252(i) prohibits discrimination on the basis of
the cost of serving a carrier, and claims its members have been, and continue to
be, denied preferred service offerings and price points in the interexchange
market under the guise of a "similarly situated" criterion. n3174

   n3169 WinStar comments at 18-19; CompTel comments at 106; LDDS comments at
88; Time Warner comments at 113; ACSI reply at 23-24; Telecommunications
Resellers Ass'n comments at 50.

   n3170 CompTel comments at 106; LDDS comments at 88; Time Warner comments at
113. CompTel also asserts that, subject to cost-based deviations, no carrier
should pay more than any other carrier when it purchases the same service or
facility from the same incumbent LEC, nor should agreements include language
regarding the nature of the carrier who may subsequently enter into the same
agreements. CompTel comments at 106.  [*20]

   n3171 Telecommunications Resellers Ass'n comments at 50-51.

   n3172 WinStar comments at 18-19.

   n3173 LDDS comments at 88.

   n3174 Telecommunications Resellers Ass'n comments at 50-51.

   1301. WinStar suggests we assign to the incumbent LEC a heavy burden of
proving that a new carrier is substantially different from the original parties
to an agreement, and that we require the incumbent LEC to provide service to the
new entrant according to the individual terms of an agreement while the dispute
is pending. WinStar asserts that, absent such requirements, the incumbent LEC
could use alleged technological differences to create barriers to entry. n3175

   n3175 WinStar comments at 19 n.14. WinStar further suggests that the LEC
should be required to adjust the arrangement to account for differences in
technology employed by the new entrant, without revising material terms of the
arrangement. Id.

   1302. GTE, PacTel, USTA, BellSouth, and the Ohio Consumers' Counsel believe
the statute contemplates drawing distinctions between carriers, n3176 such as,
for instance, where the incumbent LEC faces different costs in serving different
carriers. n3177 According to GTE and PacTel,   [*21]   carriers must be
"similarly situated" because the subsequent carrier's technical requirements may
be incompatible with the incumbent LEC's network. n3178 GTE asserts that
providing service under an agreement to carriers that are not similarly situated
with respect to the technical feasibility and costs of interconnection and
transport and termination would be inconsistent with the 1996 Act's requirements
that interconnection be technically feasible and offered at cost-based rates.
n3179

   n3176 GTE comments at 82-83; PacTel comments at 101; USTA comments at 95-96;
BellSouth comments at 80-81; Ohio Consumers' Counsel comments at 51.



   n3177 GTE comments at 82-83; Municipal Utilities comments at 14; USTA
comments at 96.

   n3178 GTE comments at 82-83; PacTel comments at 101.

   n3179 GTE comments at 83.

   1303. Incumbent LECs also generally oppose the view that section 252(i)
permits competitive carriers to choose among provisions in a publicly-filed
interconnection agreement. n3180 For instance, BellSouth contends that the text
of section 252(i) supports its view, and that the legislative history reference
cited in the NPRM casts no light on Congress' intent because the House  [*22]
did not recede to the Senate's language. n3181 GTE urges the Commission to treat
the availability of agreements under section 252(i) the same way it treats AT&T
Tariff 12 and Contract Tariff offerings. n3182 Ameritech, GTE and SBC also
contend that section 252(i)'s requirement that a requesting carrier take service
upon the same terms and conditions as the original carrier precludes unbundled
availability. n3183 USTA argues unbundled availability of agreement provisions
will skew the individualized nature of negotiations, magnify the importance of
each individual term of an agreement, and encourage incumbent LECs to offer only
standardized, relatively high-cost packages. n3184

   n3180 See, e.g., Ameritech comments at 98-99; BellSouth comments at 81; Bay
Springs et al comments at 19; GTE comments at 83; SBC comments at 24; USTA
comments at 96-97.

   n3181 BellSouth comments at 81.

   n3182 GTE comments at 83; see also BellSouth comments at 81; USTA comments at
97.

   n3183 Ameritech comments at 99; GTE comments at 83; SBC comments at 24.

   n3184 USTA comments at 96.


   1304. New entrants, joined by the Ohio Commission, support the view that the
statute makes individual provisions  [*23]   of agreements available to
carriers. n3185 They argue that this comports with the statutory language and
legislative history, n3186 and that requiring requesting carriers to take an
entire agreement will cause delay n3187 and foster discrimination by enabling
incumbent LECs to fashion agreements so that no subsequent carrier may benefit
from them. n3188 MCI argues that, although this approach may make incumbents
less likely to compromise, the effect on negotiations will be small. n3189 The
SBA asserts allowing entrants to utilize individual provisions of agreements
will lead to increased competition, which, in turn, will drive prices towards
the most economically efficient levels, and that these benefits outweigh any
additional burden that such unbundling may place upon incumbents in negotiating
agreements. n3190 SBA further argues that failure to permit unbundling of
agreements would deter entry by smaller competitors that are unable or unwilling
to pay for all of the elements contained in a an agreement negotiated by a
larger competitor. n3191 CompTel asks that we rule that an incumbent LEC may not
insist upon the observance of any term or condition that is not reasonable in
the  [*24]   context of the requesting carrier. n3192
   n3185 See, e.g., ALTS comments at 54-55; LDDS comments at 89; Jones
Intercable comments at 36; Sprint reply at 48; CompTel reply at 45; AT&T
comments at 89-90; NEXTLINK comments at 36-37; MFS comments at 90-91; Time
Warner reply at 45-46; Telecommunications Resellers Ass'n comments at 51; Ohio
Commission comments at 84. Teleport argues that, if the FCC does not adopt its
"preferred outcomes" paradigm for negotiations, it should allow carriers to pick
and choose among provisions, asserting that without the ability to pick and
choose among provisions, unequal bargaining conditions between LECs and
competitive LECs will make meaningful negotiations impossible. Teleport comments
at 54-55.

   n3186 WinStar comments at 17-18; MCI comments at 96; Jones Intercable
comments at 36; SBA comments at 17; Time Warner reply at 46.

   n3187 WinStar comments at 18.

   n3188 See, e.g., Telecommunications Resellers Ass'n comments at 51; Sprint
reply at 48; AT&T comments at 90 n.139; MFS comments at 90-91.

   n3189 MCI comments at 96.

   n3190 SBA comments at 18.

   n3191 SBA comments at 16-17; see also R. Koch comments at 3.

   n3192 CompTel comments at 107.  [*25]

   1305. ALTS suggests that we permit unbundled availability to the level of the
individual paragraphs and sections of section 251, with the exception of network
elements provided pursuant to section 251(c)(3), which ALTS believes should be
provided individually to non-parties on a disaggregated basis. n3193 ALTS argues
such a rule would reduce concern that unbundled availability would slow the
negotiation process by magnifying the importance of individual terms. n3194
Jones Intercable requests that we clarify that the statute permits so-called
"most favored nation" provisions, which allow a new entrant with an
interconnection agreement in place with an incumbent LEC to modify such an
agreement to substitute the preferable terms included in a later agreement that
the incumbent LEC enters with a subsequent new entrant. n3195

   n3193 ALTS comments at 54-55.

   n3194 Id.

   n3195 Jones Intercable comments at 36.


   1306. Parties' suggestions for the length of time agreements should remain on
file pursuant to section 252(i) range from a reasonable period, n3196 until
changes in the network adopted for independent reasons make it no longer
feasible to provide interconnection under an  [*26]   agreement, n3197 to as
long as the agreement remains in operation. n3198 Out of concern that incumbent
LECs might force competitors to renegotiate agreements at unreasonably short
intervals, the SBA argues that there should be no arbitrary limit on the
duration of agreements. n3199
   n3196 BellSouth comments at 81-82. GTE suggested agreements remain publicly
available for a reasonable period, as Commission requires for AT&T's Tariff 12.
GTE comments at 83.

   n3197 MCI comments at 97.

   n3198 Telecommunications Resellers Ass'n comments at 51-52; Time Warner
comments at 114; Lincoln Tel. comments at 25-26.

   n3199 SBA comments at 18.

   1307. Several new entrants also raise issues concerning the filing of
agreements pursuant to section 252(i). Jones Intercable urges us to require that
incumbent LECs file copies of all negotiated agreements at the FCC, as well as
at state commissions. n3200

   n3200 Jones Intercable comments at 20.

   1308. AT&T and the Telecommunications Resellers Ass'n believe section 252(i)
requires that interconnection agreements negotiated prior to enactment of the
1996 Act be available for use by requesting telecommunications carriers, n3201
while F. Williamson  [*27]   opposes this view. n3202 MFS, NCTA and WinStar urge
us to find that section 252(i) applies to interconnection agreements between
adjacent, non-competing LECs. n3203 BellSouth is opposed. n3204

   n3201 AT&T comments at 89; Telecommunications Resellers Ass'n comments at 52.

   n3202 F. Williamson comments at 5 (arguing that nothing in the 1996 Act
requires that existing agreements be submitted or resubmitted to a state
commission for approval). F. Williamson further comments that the statute does
not permit one party to an existing agreement compel renegotiation (and/or
arbitration) under the procedures in section 252. Id.

   n3203 MFS comments at 86; NCTA reply at 13; WinStar reply at 19.

   n3204 BellSouth comments at 64; see also Rural Tel. Coalition comments at
15-16 (asserting sections 251-252 do not apply to agreements between adjacent,
non-competing carriers).

   3. Discussion

   1309. We conclude that it will assist the carriers in determining their
respective obligations, facilitate the development of a single, uniform legal
interpretation of the Act's requirements and promote a procompetitive, national
policy framework to adopt national standards to implement section 252(i).
[*28]   Issues such as whether section 252(i) allows requesting
telecommunications carriers to choose among provisions of prior interconnection
agreements or requires them to accept an entire agreement are issues of law that
should not vary from state to state and are also central to the statutory scheme
and to the emergence of competition. National standards will help state
commissions and parties to expedite the resolution of disputes under section
252(i).


   1310. We conclude that the text of section 252(i) supports requesting
carriers' ability to choose among individual provisions contained in publicly
filed interconnection agreements. As we note above, section 252(i) provides that
a "local exchange carrier shall make available any interconnection, service, or
network element provided under an agreement . . . to which it is a party to any
other requesting telecommunications carrier upon the same terms and conditions
as those provided in the agreement." n3205 Thus, Congress drew a distinction
between "any interconnection, service, or network element[s] provided under an
agreement," which the statute lists individually, and agreements in their
totality. Requiring requesting carriers to elect  [*29]   entire agreements,
instead of the provisions relating to specific elements, would render as mere
surplusage the words "any interconnection, service, or network element."

   n3205 47 U.S.C. @ 252(i).

   1311. We disagree with BellSouth regarding the significance of the
legislative history quoted in the NPRM. The Conference Committee amended section
251(g), S. 652's predecessor to section 252(i), and changed "service, facility,
or function" to "interconnection, service, or element." The House of
Representatives' bill did not contain a version of section 252(i). n3206 We find
that section 252(i)'s language does not differ substantively from the text of
the Senate bill's section 251(g). The Senate Commerce Committee stated its
provision, section 251(g), was intended to "make interconnection more efficient
by making available to other carriers the individual elements of agreements that
have been previously negotiated." n3207

   n3206 Although H.R. 1555's section 244(d) contained similar ideas, its
language and structure are sufficiently different from that of section 252(i)
that we do not consider section 244(d) to be a prior version of section 252(i).

   n3207 Report of the Committee on Commerce, Science, and Transportation on S.
652, S. Rpt. 104-23, 104th Cong., 1st Sess. (1995) at 21-22.  [*30]

   1312. We also find that practical concerns support our interpretation. As
observed by AT&T and others, failure to make provisions available on an
unbundled basis could encourage an incumbent LEC to insert into its agreement
onerous terms for a service or element that the original carrier does not need,
in order to discourage subsequent carriers from making a request under that
agreement. In addition, we observe that different new entrants face differing
technical constraints and costs. Since few new entrants would be willing to
elect an entire agreement that would not reflect their costs and the specific
technical characteristics of their networks or would not be consistent with
their business plans, requiring requesting carriers to elect an entire agreement
would appear to eviscerate the obligation Congress imposed in section 252(i).


   1313. We also choose this interpretation despite concerns voiced by some
incumbent LECs that allowing carriers to choose among provisions will harm the
public interest by slowing down the process of reaching interconnection
agreements by making incumbent LECs less likely to compromise. In reaching this
conclusion, we observe that new entrants, who   [*31]   stand to lose the most
if negotiations are delayed, generally do not argue that concern over slow
negotiations would outweigh the benefits they would derive from being able to
choose among terms of publicly filed agreements. Unbundled access to agreement
provisions will enable smaller carriers who lack bargaining power to obtain
favorable terms and conditions -- including rates -- negotiated by large IXCs,
and speed the emergence of robust competition. n3208
   n3208 See Regulatory Flexibility Act, 5 U.S.C. @@ 601 et seq.

   1314. We conclude that incumbent LECs must permit third parties to obtain
access under section 252(i) to any individual interconnection, service, or
network element arrangement on the same terms and conditions as those contained
in any agreement approved under section 252. We find that this level of
disaggregation is mandated by section 252(a)(1), which requires that agreements
shall include "charges for interconnection and each service or network element
included in the agreement," and section 251(c)(3), which requires incumbent LECs
to provide "non-discriminatory access to network elements on an unbundled
basis." In practical terms, this means that a carrier may  [*32]   obtain access
to individual elements such as unbundled loops at the same rates, terms, and
conditions as contained in any approved agreement. We agree with ALTS that such
a view comports with the statute, and lessens the concerns of carriers that
argue that unbundled availability will delay negotiations.

   1315. We reject GTE's argument that section 252(i)'s statement, that
requesting carriers must receive individual elements "upon the same terms and
conditions" as those contained in the agreement, precludes unbundled
availability of individual elements. GTE's argument fails to give meaning to
Congress's distinction between agreements and elements, and ignores the 1996
Act's prime goals of nondiscriminatory treatment of carriers and promotion of
competition. Instead, we conclude that the "same terms and conditions" that an
incumbent LEC may insist upon shall relate solely to the individual
interconnection, service, or element being requested under section 252(i). For
instance, where an incumbent LEC and a new entrant have agreed upon a rate
contained in a five-year agreement, section 252(i) does not necessarily entitle
a third party to receive the same rate for a three-year commitment.   [*33]
Similarly, that one carrier has negotiated a volume discount on loops does not
automatically entitle a third party to obtain the same rate for a smaller amount
of loops. Given the primary purpose of section 252(i) of preventing
discrimination, we require incumbent LECs seeking to require a third party agree
to certain terms and conditions to exercise its rights under section 252(i) to
prove to the state commission that the terms and conditions were legitimately
related to the purchase of the individual element being sought. By contrast,
incumbent LECs may not require as a "same" term or condition the new entrant's
agreement to terms and conditions relating to other interconnection, services,
or elements in the approved agreement. Moreover, incumbent LEC efforts to
restrict availability of interconnection, services, or elements under section
252(i) also must comply with the 1996 Act's general nondiscrimination
provisions. See Section VII.d.3.

   1316. We further conclude that section 252(i) entitles all parties with
interconnection agreements to "most favored nation" status regardless of whether
they include "most favored nation" clauses in their agreements. Congress's
command under   [*34]   section 252(i) was that parties may utilize any
individual interconnection, service, or element in publicly filed
interconnection agreements and incorporate it into the terms of their
interconnection agreement. This means that any requesting carrier may avail
itself of more advantageous terms and conditions subsequently negotiated by any
other carrier for the same individual interconnection, service, or element once
the subsequent agreement is filed with, and approved by, the state commission.
We believe the approach we adopt will maximize competition by ensuring that
carriers' obtain access to terms and elements on a nondiscriminatory basis.



   1317. We find that section 252(i) permits differential treatment based on the
LEC's cost of serving a carrier. We further observe that section 252(d)(1)
requires that unbundled element rates be cost-based, and sections 251(c)(2) and
(c)(3) require incumbent LECs to provide only technically-feasible forms of
interconnection and access to unbundled elements, while section 252(i) mandates
that the availability of publicly-filed agreements be limited to carriers
willing to accept the same terms and conditions as the carrier who negotiated
the original  [*35]   agreement with the incumbent LEC. We conclude that these
provisions, read together, require that publicly-filed agreements be made
available only to carriers who cause the incumbent LEC to incur no greater costs
than the carrier who originally negotiated the agreement, so as to result in an
interconnection arrangement that is both cost-based and technically feasible.
However, as discussed in Section VII regarding discrimination, where an
incumbent LEC proposes to treat one carrier differently than another, the
incumbent LEC must prove to the state commission that that differential
treatment is justified based on the cost to the LEC of providing that element to
the carrier.

   1318. We conclude, however, that section 252(i) does not permit LECs to limit
the availability of any individual interconnection, service, or network element
only to those requesting carriers serving a comparable class of subscribers or
providing the same service (i.e., local, access, or interexchange) as the
original party to the agreement. In our view, the class of customers, or the
type of service provided by a carrier, does not necessarily bear a direct
relationship with the costs incurred by the LEC to interconnect  [*36]   with
that carrier or on whether interconnection is technically feasible. Accordingly,
we conclude that an interpretation of section 252(i) that attempts to limit
availability by class of customer served or type of service provided would be at
odds with the language and structure of the statute, which contains no such
limitation.

   1319. We agree with those commenters who suggest that agreements remain
available for use by requesting carriers for a reasonable amount of time. Such a
rule addresses incumbent LEC concerns over technical incompatibility, while at
the same time providing requesting carriers with a reasonable time during which
they may benefit from previously negotiated agreements. In addition, this
approach makes economic sense, since the pricing and network configuration
choices are likely to change over time, as several commenters have observed.
Given this reality, it would not make sense to permit a subsequent carrier to
impose an agreement or term upon an incumbent LEC if the technical requirements
of implementing that agreement or term have changed.

   1320. We observe that section 252(h) expressly provides that state
commissions maintain for public inspection copies   [*37]   of interconnection
agreements approved under section 252(f). We therefore decline Jones
Intercable's suggestion that we require carriers to file agreements at the FCC,
in addition to section 252(h)'s filing requirement. However, when the Commission
performs the state's responsibilities under section 252(e)(5), parties must file
their agreements with the Commission, as well as with the state commission.
n3209

   n3209 We note section 22.903(d) of our rules, which remains in effect,
requires the BOCs to file with us their interconnection agreements with their
affiliated cellular providers. 47 C.F.R. @ 22.903(d).



   1321. We further conclude that a carrier seeking interconnection, network
elements, or services pursuant to section 252(i) need not make such requests
pursuant to the procedures for initial section 251 requests, but shall be
permitted to obtain its statutory rights on an expedited basis. We find that
this interpretation furthers Congress's stated goals of opening up local markets
to competition and permitting interconnection on just, reasonable, and
nondiscriminatory terms, and that we should adopt measures that ensure
competition occurs as quickly and efficiently as possible.   [*38]   We conclude
that the nondiscriminatory, pro-competition purpose of section 252(i) would be
defeated were requesting carriers required to undergo a lengthy negotiation and
approval process pursuant to section 251 before being able to utilize the terms
of a previously approved agreement. Since agreements shall necessarily be filed
with the states pursuant to section 252(h), we leave to state commissions in the
first instance the details of the procedures for making agreements available to
requesting carriers on an expedited basis. Because of the importance of section
252(i) in preventing discrimination, however, we conclude that carriers seeking
remedies for alleged violations of section 252(i) shall be permitted to obtain
expedited relief at the Commission, including the resolution of complaints under
section 208 of the Communications Act, in addition to their state remedies.

   1322. We conclude as well that agreements negotiated prior to enactment of
the 1996 Act must be available for use by subsequent, requesting carriers.
Section 252(i) must be read in conjunction with section 252(a)(1), which clearly
states that "agreement" for purposes of section 252, "includes any
interconnection  [*39]   agreement negotiated before the date of enactment . . .
." n3210 We conclude that this language demonstrates that Congress intended
252(i) to apply to agreements negotiated prior to enactment of the 1996 Act and
approved by the state commission pursuant to section 252(e), as well as those
approved under the section 251/252 negotiation process. Accordingly, we find
that agreements negotiated prior to enactment of the 1996 Act must be disclosed
publicly, and be made available to requesting telecommunications carriers
pursuant to section 252(i).

   n3210 47 U.S.C. @ 252(a)(1).

   1323. We also find that section 252(i) applies to interconnection agreements
between adjacent, incumbent LECs. We note that section 252(i) requires a local
exchange carrier to make available to requesting telecommunications carriers
"any interconnection service, or network element provided under an agreement
approved under this section . . . ." n3211 The plain meaning of this section is
that any interconnection agreement approved by a state commission, including one
between adjacent LECs, must be made available to requesting carriers pursuant to
section 252(i). Requiring availability of such agreements will   [*40]   provide
new entrants with a realistic benchmark upon which to base negotiations, and
this will further the Congressional purpose of increasing competition. As stated
in Section III of this Order, adjacent, incumbent LECs will be given an
opportunity to renegotiate such agreements before they become subject to section
252(i)'s requirements. In Section III, we also consider, and reject, the Rural
Tel. Coalition's argument that making agreements between adjacent, noncompeting
LECs available under section 252 will have a detrimental effect on small, rural
carriers. See Section III, supra.

   n3211 47 U.S.C. @ 252(i) (emphasis supplied).



   XV.

   FINAL REGULATORY FLEXIBILITY ANALYSIS

   1324. As required by Section 603 of the Regulatory Flexibility Act (RFA), 5
U.S.C. @ 603, an Initial Regulatory Flexibility Analysis (IRFA) was incorporated
in the NPRM. The Commission sought written public comment on the proposals in
the NPRM. The Commission's Final Regulatory Flexibility Analysis (FRFA) in this
Order conforms to the RFA, as amended by the Contract With America Advancement
Act of 1996 (CWAAA), Pub. L. No. 104-121, 110 Stat. 847 (1996). n3212

   n3212 Subtitle II of the CWAAA is "The Small Business Regulatory Enforcement
Fairness Act of 1996" (SBREFA), codified at 5 U.S.C. @ 601 et seq.  [*41]

   A. Need for and Objectives of this Report and Order and the Rules Adopted
Herein

   1325. The Commission, in compliance with section 251(d)(1) of the
Communications Act of 1934, as amended by the Telecommunications Act of 1996
(the 1996 Act), promulgates the rules in this Order to ensure the prompt
implementation of sections 251 and 252 of the 1996 Act, which are the local
competition provisions. Congress sought to establish through the 1996 Act "a
pro-competitive, de-regulatory national policy framework" for the United States
telecommunications industry. n3213 Three principal goals of the telephony
provisions of the 1996 Act are: (1) opening local exchange and exchange access
markets to competition; (2) promoting increased competition in
telecommunications markets that are already open to competition, particularly
long distance services markets; and, (3) reforming our system of universal
service so that universal service is preserved and advanced as local exchange
and exchange access markets move from monopoly to competition.

   n3213 S. Conf. Rep. No. 230, 104th Cong., 2d Sess. 1 (1996).

   1326. The rules adopted in this Order implement the first of these goals --
opening local   [*42]   exchange and exchange access markets to competition. The
objective of the rules adopted in this Order is to implement as quickly and
effectively as possible the national telecommunications policies embodied in the
1996 Act and to promote the development of competitive, deregulated markets
envisioned by Congress. n3214 In doing so, we are mindful of the balance that
Congress struck between this goal of bringing the benefits of competition to all
consumers and its concern for the impact of the 1996 Act on small incumbent
local exchange carriers, particularly rural carriers, as evidenced in section
251(f) of the 1996 Act.

   n3214 Id.

   B. Analysis of Significant Issues Raised in Response to the IRFA


   1327. Summary of the Initial Regulatory Flexibility Analysis (IRFA). In the
NPRM, the Commission performed an IRFA. n3215 In the IRFA, the Commission found
that the rules it proposed to adopt in this proceeding may have a significant
impact on a substantial number of small business as defined by section 601(3) of
the RFA. The Commission stated that its regulatory flexibility analysis was
inapplicable to incumbent LECs because such entities are dominant in their field
of operation. The Commission  [*43]   noted, however, that it would take
appropriate steps to ensure that the special circumstances of smaller incumbent
LECs are carefully considered in our rulemaking. The Commission also found that
the proposed rules may overlap or conflict with the Commission's Part 69 access
charge and Expanded Interconnection rules. Finally, the IRFA solicited comment
on alternatives to our proposed rules that would minimize the impact on small
entities consistent with the objectives of this proceeding.

   n3215 NPRM at paras. 274-287.

   1. Treatment of Small LECs

   1328. Comments. The Small Business Administration (SBA), the Rural Telephone
Coalition (Rural Tel. Coalition), and CompTel maintain that the Commission
violated the RFA when it failed to include small incumbent LECs in its IRFA
without first consulting SBA to establish a definition of "small business."
n3216 Rural Tel. Coalition and CompTel also argue that the Commission failed to
explain its statement that "incumbent LECs are dominant in their field of
operation" or how that finding was reached. n3217 Rural Tel. Coalition states
that such an analysis of the market power of incumbent LECs is necessary because
incumbent LECs are now facing  [*44]   competition from a variety of sources,
including wireline and wireless carriers. Rural Tel. Coalition recommends that
the Commission abandon its determination that all incumbent LECs are dominant,
and perform regulatory flexibility analysis for incumbent LECs having fewer than
1500 employees. n3218

   n3216 SBA RFA comments at 3-5; Rural Tel. Coalition reply at 38-39; CompTel
reply at 46.

   n3217 Rural Tel. Coalition reply at 39; CompTel reply at 46.

   n3218 Rural Tel. Coalition reply at 40.

   1329. Discussion. In essence, SBA and Rural Tel. Coalition argue that we
exceeded our authority under the RFA by certifying all incumbent LECs as
dominant in their field of operation, and concluding on that basis that they are
not small businesses under the RFA. SBA and Rural Tel. Coalition contend that
the authority to make a size determination rests solely with SBA and that, by
excluding a group (small incumbent LECs) from coverage under the RFA, the
Commission made an unauthorized size determination. n3219 Neither SBA nor Rural
Tel. Coalition cites any specific authority for this latter proposition.

   n3219 SBA RFA comments at 4-5 (citing 15 U.S.C. @ 632(a)(2)); Rural Tel.
Coalition reply at 38.  [*45]

   1330. We have found incumbent LECs to be "dominant in their field of
operation" since the early 1980's, and we consistently have certified under the
RFA n3220 that incumbent LECs are not subject to regulatory flexibility analyses
because they are not small businesses. n3221 We have made similar determinations
in other areas. n3222 We recognize SBA's special role and expertise with regard
to the RFA, and intend to continue to consult with SBA outside the context of
this proceeding to ensure that the Commission is fully implementing the RFA.
Although we are not fully persuaded on the basis of this record that our prior
practice has been incorrect, in light of the special concerns raised by SBA and
Rural Tel. Coalition in this proceeding, we will, nevertheless, include small
incumbent LECs in this FRFA to remove any possible issue of RFA compliance.

We, therefore, need not address Rural Tel. Coalition's arguments that incumbent
LECs are not dominant. n3223

   n3220 See 5 U.S.C. @ 605(b).

   n3221 See, e.g., Expanded Interconnection with Local Telephone Company
Facilities, Supplemental Notice of Proposed Rulemaking, 6 FCC Rcd 5809 (1991);
MTS and WATS Market Structure, Report and Order, 2 FCC Rcd 2953, 2959 (1987)
(citing MTS and WATS Market Structure, Third Report and Order, 93 F.C.C.2d 241,
338-39 (1983)).  [*46]

   n3222 See, e.g., In the Matter of Implementation of Sections of the Cable
Television Consumer Protection Act of 1992: Rate Regulation, Sixth Report and
Order and Eleventh Order on Reconsideration, 10 FCC Rcd 7393, 7418 (1995).

   n3223 Rural Tel. Coalition reply at 39-40.

   2. Other Issues

   1331. Comments. Parties raised several other issues in response to the
Commission's IRFA in the NPRM. SBA and CompTel contend that commenters should
not be required to separate their comments on the IRFA from their comments on
the other issues raised in the NPRM. n3224 SBA maintains that separating RFA
comments and discussion from the rest of the comments "isolates" the regulatory
flexibility analysis from the remainder of the discussion, thereby handicapping
the Commission's analysis of the impact of the proposed rules on small
businesses. n3225 SBA further suggests that our IRFA failed to: (1) give an
adequate description of the projected reporting, recordkeeping, and other
compliance requirements of the proposed rules, including an estimate of the
classes of small entities that will be subject to the requirement and the
professional skills necessary to prepare such reports or records;   [*47]
n3226 and (2) describe significant alternatives that minimize the significant
economic impact of the proposal on small entities, including exemption from
coverage of the rule. n3227 SBA also asserts that none of the alternatives in
the NPRM is designed to minimize the impact of the proposed rules on small
businesses.

   n3224 SBA RFA comments at 2-3, CompTel reply at 46.

   n3225 Id.

   n3226 SBA RFA comments at 5-6, citing 5 U.S.C. @ 603(b)(4).

   n3227 SBA RFA comments at 7-8, citing 5 U.S.C. @ 603(c).

   1332. The Idaho Commission argues that the Commission's rules will be devised
for large carriers and therefore will be "de facto burdensome" to Idaho's
incumbent LECs and probably to potential new entrants, which may be small
companies. n3228 Therefore, Idaho requests that state commissions be permitted
flexibility to address the impacts of our rules on smaller incumbent LECs.

   n3228 Idaho Commission comments at 15.


   1333. The Small Cable Business Association (SCBA) contends that the
Commission's IRFA is inadequate because it does not state that small cable
companies are among the small entities affected by the proposed rules. n3229 In
its comments on the IRFA, SCBA refers  [*48]   to its proposal that the
Commission establish the following national standards for small cable companies:
(1) the definition of "good faith" negotiation; (2) the development of less
burdensome arbitration procedures for interconnection and resale; (3) the
designation of a small company contact person at incumbent LECs and state
commissions; and (4) the application of section 251(f) of the 1996 Act. n3230

   n3229 SCBA RFA comments at 1.

   n3230 Id. at 1-2.

   1334. Discussion. We disagree with SBA's assessment of our IRFA. Although the
IRFA referred only generally to the reporting and recordkeeping requirements
imposed on incumbent LECs, our Federal Register notice set forth in detail the
general reporting and recordkeeping requirements as part of our Paperwork
Reduction Act statement. n3231 The IRFA also sought comment on the many
alternatives discussed in the body of the NPRM, including the statutory
exemption for certain rural telephone companies. n3232 The numerous general
public comments concerning the impact of our proposal on small entities in
response to the NPRM, including comments filed directly in response to the IRFA,
n3233 enabled us to prepare this FRFA. Thus, we conclude  [*49]   that the IRFA
was sufficiently detailed to enable parties to comment meaningfully on the
proposed rules and, thus, for us to prepare this FRFA. We have been working
with, and will continue to work with SBA, to ensure that both our IRFAs and
FRFAs fully meet the requirements of the RFA.

   n3231 NPRM, at para. 283 (rel. Apr. 19, 1996), summarized at 61 Fed. Reg.
18311, 18312 (Apr. 25, 1996).

   n3232 47 U.S.C. @ 251(f).

   n3233 SBA RFA comments; Rural Tel. Coalition reply at 38-41; Idaho Commission
comments at 15; SCBA RFA comments; CompTel reply at 45-46.

   1335. SBA also objects to the NPRM's requirement that responses to the IRFA
be filed under a separate and distinct heading, and proposes that we integrate
RFA comments into the body of general comments on a rule. n3234 Almost since the
adoption of the RFA, we have requested that IRFA comments be submitted under a
separate and distinct heading. n3235 Neither the RFA nor SBA's rules prescribe
the manner in which comments may be submitted in response to an IRFA n3236 and,
in such circumstances, it is well established that an administrative agency can
structure its proceedings in any manner that it concludes will enable it to
[*50]   fulfill its statutory duties. n3237 Based on our past practice, we find
that separation of comments responsive to the IRFA facilitates our preparation
of a compulsory summary of such comments and our responses to them, as required
by the RFA. Comments on the impact of our proposed rules on small entities have
been integrated into our analysis and consideration of the final rules. We,
therefore, reject SBA's argument that we improperly required commenters to
include their comments on the IRFA in a separate section.

   n3234 SBA RFA comments at 2.


   n3235 See, e.g., Inquiry into the Development of Regulatory Policy in Regard
to Direct Broadcast Satellites, Notice of Proposed Policy Statement and
Rulemaking, 86 F.C.C.2d 719, 755 (1981).

   n3236 See 5 U.S.C. @ 603 (IRFA requirements).

   n3237 See Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense
Council, Inc., 435 U.S. 519, 524-25 (1978), citing FCC v. Schreiber, 381 U.S.
279, 290 (1965) and FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 138
(1940).

   1336. We also reject SBA's assertion that none of the alternatives in the
NPRM is designed to minimize the impact of the proposed rules on small
businesses. For  [*51]   example, we proposed that incumbent LECs be required to
offer competitors access to unbundled local loop, switching, and transport
facilities. n3238 These proposals permit potential competitors to enter the
market by relying, in part or entirely, on the incumbent LEC's facilities.
Reduced economic entry barriers are designed to provide reasonable opportunities
for new entrants, particularly small entities, to enter the market by minimizing
the initial investment needed to begin providing service. In addition, we
believe section 251(f) and our rules provide states with significant flexibility
to "deal with the needs of individual companies in light of public interest
concerns," as requested by the Idaho Commission. With regard to the potential
burdens on small entities other than incumbent LECs, we believe our rules permit
states to structure arbitration procedures, for example, in ways that minimize
filing or other burdens on new entrants that are small entities.

   n3238 NPRM paras. 94-97.

   1337. We also disagree with SCBA's assertion that the IRFA was deficient
because it did not identify small cable operators as entities that would be
affected by the proposed rules. The IRFA   [*52]   in the NPRM states: "Insofar
as the proposals in this Notice apply to telecommunications carriers other than
incumbent LECs (generally interexchange carriers and new LEC entrants), they may
have a significant impact on a substantial number of small entities." n3239 The
phrase "new LEC entrants" clearly encompasses small cable operators that become
providers of local exchange service. The NPRM even identifies cable operators as
potential new entrants. n3240

   n3239 NPRM para. 277.

   n3240 NPRM para. 6.

   1338. We agree with SCBA's argument that the Commission should identify
certain minimum standards to provide guidance on the requirement that parties
negotiate in good faith. n3241 As discussed in Section III.B, we conclude that
we should establish minimum standards that will offer parties guidance in
determining whether they are acting in good faith. We believe that these minimum
standards address SCBA's assertion that federal guidelines for good faith
negotiations may be particularly important for small entities because
unreasonable delays in negotiations could represent an entry barrier for small
entities.

   n3241 This good faith requirement is found in 47 U.S.C. @ 251(c)(1).  [*53]


   1339. We also agree with SCBA's recommendation that we should establish
guidelines for the application of section 251(f) regarding exemptions,
suspensions, and modifications of our rules governing interconnection with rural
carriers. As discussed in section XII.B, we find that a rural incumbent LEC
should not be able to obtain an exemption, suspension, or modification of its
obligations under section 251 unless it offers evidence that the application of
those requirements would be likely to cause injury beyond the financial harm
typically associated with efficient competitive entry. We are also persuaded by
the suggestion of SCBA and others that incumbent LECs should bear the burden of
showing that they should be exempt pursuant to section 251(f)(1) from national
interconnection requirements. We believe that this finding is consistent with
the pro-competitive goals of the 1996 Act and our determination in Section XII
that Congress did not intend to withhold from consumers the benefits of local
telephone competition that could be provided by small entities, such as small
cable operators.

   1340. We do not adopt SCBA's proposal to establish abbreviated arbitration
procedures. n3242   [*54]   Most commenters oppose adoption of federal rules to
govern state mediation and arbitration proceedings. As set out in Section XIV.A,
we conclude that state commissions are better positioned to develop rules for
mediation and arbitration that support the objectives of the 1996 Act. The rules
we adopt in Section XIV.A apply only where the Commission assumes a state
commission's responsibilities pursuant to section 252(e)(5). States may develop
specific measures that address the concerns of small entities participating in
mediation or arbitration, as suggested by SCBA. In addition, although we do not
specifically incorporate SCBA's request that the Commission designate a "small
company contact person at incumbent LECs and state commissions," n3243 we find
that a refusal throughout the negotiation process to designate a representative
with authority to make binding representations on behalf of the party, and
thereby significantly delay resolution of issues, would constitute failure to
negotiate in good faith. Therefore, we conclude that the potential benefits of
SCBA's proposal are achieved by our determination that the failure of an
incumbent LEC to designate a person authorized to bind  [*55]   his or her
company in negotiations is a violation of the good faith obligation of section
251.

   n3242 SCBA RFA comments at 1-2.

   n3243 SCBA RFA comments at 2.

   C. Description and Estimates of the Number of Small Entities Affected by this
Report and Order


   1341. For the purposes of this Order, the RFA defines a "small business" to
be the same as a "small business concern" under the Small Business Act, 15
U.S.C. @ 632, unless the Commission has developed one or more definitions that
are appropriate to its activities. n3244 Under the Small Business Act, a "small
business concern" is one that: (1) is independently owned and operated; (2) is
not dominant in its field of operation; and (3) meets any additional criteria
established by the Small Business Administration (SBA). n3245 SBA has defined a
small business for Standard Industrial Classification (SIC) categories 4812
(Radiotelephone Communications) and 4813 (Telephone Communications, Except
Radiotelephone) to be small entities when they have fewer than 1,500 employees.
n3246 We first discuss generally the total number of small telephone companies
falling within both of those SIC categories. Then, we discuss the number of
small  [*56]   businesses within the two subcategories, and attempt to refine
further those estimates to correspond with the categories of telephone
companies that are commonly used under our rules.

   n3244 See 5 U.S.C. @ 601(3) (incorporating by reference the definition of
"small business concern" in 5 U.S.C. @ 632).

   n3245 15 U.S.C. @ 632. See, e.g., Brown Transport Truckload, Inc. v. Southern
Wipers, Inc., 176 B.R. 82 (N.D. Ga. 1994).

   n3246 13 C.F.R. @ 121.201.

   1342. Consistent with our prior practice, we shall continue to exclude small
incumbent LECs from the definition of a small entity for the purpose of this
FRFA. Nevertheless, as mentioned above, we include small incumbent LECs in our
FRFA. Accordingly, our use of the terms "small entities" and "small businesses"
does not encompass "small incumbent LECs." We use the term "small incumbent
LECs" to refer to any incumbent LECs that arguably might be defined by SBA as
"small business concerns." n3247

   n3247 See 13 C.F.R. @ 121.210 (SIC 4813).

   1. Telephone Companies (SIC 481)

   1343. Total Number of Telephone Companies Affected. Many of the decisions and
rules adopted herein may have a significant effect on a substantial number
[*57]   of the small telephone companies identified by SBA. The United States
Bureau of the Census ("the Census Bureau") reports that, at the end of 1992,
there were 3,497 firms engaged in providing telephone services, as defined
therein, for at least one year. n3248 This number contains a variety of
different categories of carriers, including local exchange carriers,
interexchange carriers, competitive access providers, cellular carriers, mobile
service carriers, operator service providers, pay telephone operators, PCS
providers, covered SMR providers, and resellers. It seems certain that some of
those 3,497 telephone service firms may not qualify as small entities or small
incumbent LECs because they are not "independently owned and operated." n3249
For example, a PCS provider that is affiliated with an interexchange carrier
having more than 1,500 employees would not meet the definition of a small
business. It seems reasonable to conclude, therefore, that fewer than 3,497
telephone service firms are small entity telephone service firms or small
incumbent LECs that may be affected by this Order.

   n3248 United States Department of Commerce, Bureau of the Census, 1992 Census
of Transportation, Communications, and Utilities: Establishment and Firm Size,
at Firm Size 1-123 (1995) (1992 Census).  [*58]

   n3249 15 U.S.C. @ 632(a)(1).


   1344. Wireline Carriers and Service Providers. SBA has developed a definition
of small entities for telephone communications companies other than
radiotelephone (wireless) companies. The Census Bureau reports that, there were
2,321 such telephone companies in operation for at least one year at the end of
1992. n3250 According to SBA's definition, a small business telephone company
other than a radiotelephone company is one employing fewer than 1,500 persons.
n3251 All but 26 of the 2,321 non-radiotelephone companies listed by the Census
Bureau were reported to have fewer than 1,000 employees. Thus, even if all 26 of
those companies had more than 1,500 employees, there would still be 2,295
non-radiotelephone companies that might qualify as small entities or small
incumbent LECs. Although it seems certain that some of these carriers are not
independently owned and operated, we are unable at this time to estimate with
greater precision the number of wireline carriers and service providers that
would qualify as small business concerns under SBA's definition. Consequently,
we estimate that there are fewer than 2,295 small entity telephone
communications  [*59]   companies other than radiotelephone companies that may
be affected by the decisions and rules adopted in this Order.

   n3250 1992 Census, supra, at Firm Size 1-123.

   n3251 13 C.F.R. @ 121.201, Standard Industrial Classification (SIC) Code
4812.

   1345. Local Exchange Carriers. Neither the Commission nor SBA has developed a
definition of small providers of local exchange services (LECs). The closest
applicable definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies. The most reliable source of
information regarding the number of LECs nationwide of which we are aware
appears to be the data that we collect annually in connection with the
Telecommunications Relay Service (TRS). According to our most recent data, 1,347
companies reported that they were engaged in the provision of local exchange
services. n3252 Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees, we are
unable at this time to estimate with greater precision the number of LECs that
would qualify as small business concerns under SBA's definition. Consequently,
we estimate that there  [*60]   are fewer than 1,347 small incumbent LECs that
may be affected by the decisions and rules adopted in this Order.

   n3252 Federal Communications Commission, CCB, Industry Analysis Division,
Telecommunications Industry Revenue: TRS Fund Worksheet Data, Tbl. 21 (Average
Total Telecommunications Revenue Reported by Class of Carrier) (Feb. 1996) (TRS
Worksheet).

   1346. Interexchange Carriers. Neither the Commission nor SBA has developed a
definition of small entities specifically applicable to providers of
interexchange services (IXCs). The closest applicable definition under SBA rules
is for telephone communications companies other than radiotelephone (wireless)
companies. The most reliable source of information regarding the number of IXCs
nationwide of which we are aware appears to be the data that we collect annually
in connection with TRS. According to our most recent data, 97 companies reported
that they were engaged in the provision of interexchange services. n3253
Although it seems certain that some of these carriers are not independently
owned and operated, or have more than 1,500 employees, we are unable at this
time to estimate with greater precision the number of IXCs that  [*61]   would
qualify as small business concerns under SBA's definition. Consequently, we
estimate that there are fewer than 97 small entity IXCs that may be affected by
the decisions and rules adopted in this Order.

   n3253 Id.


   1347. Competitive Access Providers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to providers of
competitive access services (CAPs). The closest applicable definition under SBA
rules is for telephone communications companies other than radiotelephone
(wireless) companies. The most reliable source of information regarding the
number of CAPs nationwide of which we are aware appears to be the data that we
collect annually in connection with the TRS. According to our most recent data,
30 companies reported that they were engaged in the provision of competitive
access services. n3254 Although it seems certain that some of these carriers are
not independently owned and operated, or have more than 1,500 employees, we are
unable at this time to estimate with greater precision the number of CAPs that
would qualify as small business concerns under SBA's definition. Consequently,
we estimate that there are fewer than  [*62]   30 small entity CAPs that may be
affected by the decisions and rules adopted in this Order.

   n3254 Id.

   1348. Operator Service Providers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to providers of
operator services. The closest applicable definition under SBA rules is for
telephone communications companies other than radiotelephone (wireless)
companies. The most reliable source of information regarding the number of
operator service providers nationwide of which we are aware appears to be the
data that we collect annually in connection with the TRS. According to our most
recent data, 29 companies reported that they were engaged in the provision of
operator services. n3255 Although it seems certain that some of these companies
are not independently owned and operated, or have more than 1,500 employees, we
are unable at this time to estimate with greater precision the number of
operator service providers that would qualify as small business concerns under
SBA's definition. Consequently, we estimate that there are fewer than 29 small
entity operator service providers that may be affected by the decisions and
rules adopted in  [*63]   this Order.

   n3255 Id.

   1349. Pay Telephone Operators. Neither the Commission nor SBA has developed a
definition of small entities specifically applicable to pay telephone operators.
The closest applicable definition under SBA rules is for telephone
communications companies other than radiotelephone (wireless) companies. The
most reliable source of information regarding the number of pay telephone
operators nationwide of which we are aware appears to be the data that we
collect annually in connection with the TRS. According to our most recent data,
197 companies reported that they were engaged in the provision of pay telephone
services. n3256 Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees, we are
unable at this time to estimate with greater precision the number of pay
telephone operators that would qualify as small business concerns under SBA's
definition. Consequently, we estimate that there are fewer than 197 small entity
pay telephone operators that may be affected by the decisions and rules adopted
in this Order.

   n3256 Id.


   1350. Wireless (Radiotelephone) Carriers. SBA has developed a definition
[*64]   of small entities for radiotelephone (wireless) companies. The Census
Bureau reports that there were 1,176 such companies in operation for at least
one year at the end of 1992. n3257 According to SBA's definition, a small
business radiotelephone company is one employing fewer than 1,500 persons. n3258
The Census Bureau also reported that 1,164 of those radiotelephone companies
had fewer than 1,000 employees. Thus, even if all of the remaining 12 companies
had more than 1,500 employees, there would still be 1,164 radiotelephone
companies that might qualify as small entities if they are independently owned
are operated. Although it seems certain that some of these carriers are not
independently owned and operated, we are unable at this time to estimate with
greater precision the number of radiotelephone carriers and service providers
that would qualify as small business concerns under SBA's definition.
Consequently, we estimate that there are fewer than 1,164 small entity
radiotelephone companies that may be affected by the decisions and rules adopted
in this Order.

   n3257 United States Department of Commerce, Bureau of the Census, 1992 Census
of Transportation, Communications, and Utilities: Establishment and Firm Size,
at Firm Size 1-123 (1995) (1992 Census).  [*65]

   n3258 13 C.F.R. @ 121.201, Standard Industrial Classification (SIC) Code
4812.

   1351. Cellular Service Carriers. Neither the Commission nor SBA has developed
a definition of small entities specifically applicable to providers of cellular
services. The closest applicable definition under SBA rules is for telephone
communications companies other than radiotelephone (wireless) companies. The
most reliable source of information regarding the number of cellular service
carriers nationwide of which we are aware appears to be the data that we collect
annually in connection with the TRS. According to our most recent data, 789
companies reported that they were engaged in the provision of cellular services.
n3259 Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees, we are
unable at this time to estimate with greater precision the number of cellular
service carriers that would qualify as small business concerns under SBA's
definition. Consequently, we estimate that there are fewer than 789 small entity
cellular service carriers that may be affected by the decisions and rules
adopted in this Order.

   n3259 Id.  [*66]

   1352. Mobile Service Carriers. Neither the Commission nor SBA has developed a
definition of small entities specifically applicable to mobile service carriers,
such as paging companies. The closest applicable definition under SBA rules is
for telephone communications companies other than radiotelephone (wireless)
companies. The most reliable source of information regarding the number of
mobile service carriers nationwide of which we are aware appears to be the data
that we collect annually in connection with the TRS. According to our most
recent data, 117 companies reported that they were engaged in the provision of
mobile services. n3260 Although it seems certain that some of these carriers are
not independently owned and operated, or have more than 1,500 employees, we are
unable at this time to estimate with greater precision the number of mobile
service carriers that would qualify under SBA's definition. Consequently, we
estimate that there are fewer than 117 small entity mobile service carriers that
may be affected by the decisions and rules adopted in this Order.

   n3260 Id.


   1353. Broadband PCS Licensees. The broadband PCS spectrum is divided into six
frequency blocks designated  [*67]   A through F. As set forth in 47 C.F.R. @
24.720(b), the Commission has defined "small entity" in the auctions for Blocks
C and F as a firm that had average gross revenues of less than $ 40 million in
the three previous calendar years. Our definition of a "small entity" in the
context of broadband PCS auctions has been approved by SBA. n3261 The Commission
has auctioned broadband PCS licenses in Blocks A, B, and C. We do not have
sufficient data to determine how many small businesses bid successfully for
licenses in Blocks A and B. There were 90 winning bidders that qualified as
small entities in the Block C auction. Based on this information, we conclude
that the number of broadband PCS licensees affected by the decisions in this
Order includes, at a minimum, the 90 winning bidders that qualified as small
entities in the Block C broadband PCS auction.

   n3261 See Implementation of Section 309(j) of the Communications Act --
Competitive Bidding, PP Docket No. 93-253, Fifth Report and Order, 9 FCC Rcd
5532, 5581-84 (1994).

   1354. At present, no licenses have been awarded for Blocks D, E, and F of
broadband PCS spectrum. Therefore, there are no small businesses currently
providing  [*68]   these services. However, a total of 1,479 licenses will be
awarded in the D, E, and F Block broadband PCS auctions, which are scheduled to
begin on August 26, 1996. Eligibility for the 493 F Block licenses is limited to
entrepreneurs with average gross revenues of less than $ 125 million. n3262 We
cannot estimate, however, the number of these licenses that will be won by small
entities under our definition, nor how many small entities will win D or E Block
licenses. Given that nearly all radiotelephone companies have fewer than 1,000
employees n3263 and that no reliable estimate of the number of prospective D, E,
and F Block licensees can be made, we assume for purposes of this FRFA, that all
of the licenses in the D, E, and F Block Broadband PCS auctions may be awarded
to small entities under our rules, which may be affected by the decisions and
rules adopted in this Order.

   n3262 Amendment of Parts 20 and 24 of the Commission's Rules -- Broadband PCS
Competitive Bidding and the Commercial Mobile Radio Service Spectrum Cap, WT
Docket No. 96-59, Amendment of the Commission's Cellular/PCS Cross-Ownership
Rule, Report and Order, GN Docket No. 90-314, FCC 96-278 (rel. June 24, 1996).
[*69]

   n3263 1992 Census, Table 5, Employment Size of Firms: 1992, SIC Code 4812.

   1355. SMR Licensees. Pursuant to 47 C.F.R. @ 90.814(b)(1), the Commission has
defined "small entity" in auctions for geographic area 800 MHz and 900 MHz SMR
licenses as a firm that had average annual gross revenues of less than $ 15
million in the three previous calendar years. This definition of a "small
entity" in the context of 800 MHz and 900 MHz SMR has been approved by the SBA.
n3264 The rules adopted in this Order may apply to SMR providers in the 800 MHz
and 900 MHz bands that either hold geographic area licenses or have obtained
extended implementation authorizations. We do not know how many firms provide
800 MHz or 900 MHz geographic area SMR service pursuant to extended
implementation authorizations, nor how many of these providers have annual
revenues of less than $ 15 million. We assume, for purposes of this FRFA, that
all of the extended implementation authorizations may be held by small entities,
which may be affected by the decisions and rules adopted in this Order.


   n3264 See Amendment of Parts 2 and 90 of the Commission's Rules to Provide
for the Use of 200 Channels Outside the Designated Filing Areas in the 896-901
MHz and the 935-940 MHz Bands Allotted to the Specialized Mobile Radio Pool, PR
Docket No. 89-583, Second Order on Reconsideration and Seventh Report and Order,
11 FCC Rcd 2639, 2693-702 (1995); Amendment of Part 90 of the Commission's Rules
to Facilitate Future Development of SMR Systems in the 800 MHz Frequency Band,
PR Docket No. 93-144, First Report and Order, Eighth Report and Order, and
Second Further Notice of Proposed Rulemaking, 11 FCC Rcd 1463 (1995).  [*70]

   1356. The Commission recently held auctions for geographic area licenses in
the 900 MHz SMR band. There were 60 winning bidders who qualified as small
entities in the 900 MHz auction. Based on this information, we conclude that the
number of geographic area SMR licensees affected by the rule adopted in this
Order includes these 60 small entities. No auctions have been held for 800 MHz
geographic area SMR licenses. Therefore, no small entities currently hold these
licenses. A total of 525 licenses will be awarded for the upper 200 channels in
the 800 MHz geographic area SMR auction. However, the Commission has not yet
determined how many licenses will be awarded for the lower 230 channels in the
800 MHz geographic area SMR auction. There is no basis, moreover, on which to
estimate how many small entities will win these licenses. Given that nearly all
radiotelephone companies have fewer than 1,000 employees and that no reliable
estimate of the number of prospective 800 MHz licensees can be made, we assume,
for purposes of this FRFA, that all of the licenses may be awarded to small
entities who, thus, may be affected by the decisions in this Order.

   1357. Resellers. Neither the Commission  [*71]   nor SBA has developed a
definition of small entities specifically applicable to resellers. The closest
applicable definition under SBA rules is for all telephone communications
companies. The most reliable source of information regarding the number of
resellers nationwide of which we are aware appears to be the data that we
collect annually in connection with the TRS. According to our most recent data,
206 companies reported that they were engaged in the resale of telephone
services. n3265 Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees, we are
unable at this time to estimate with greater precision the number of resellers
that would qualify as small business concerns under SBA's definition.
Consequently, we estimate that there are fewer than 206 small entity resellers
that may be affected by the decisions and rules adopted in this Order.

   n3265 Id.

   2. Cable System Operators (SIC 4841)

   1358. SBA has developed a definition of small entities for cable and other
pay television services, which includes all such companies generating less than
$ 11 million in revenue annually. This definition includes  [*72]   cable
systems operators, closed circuit television services, direct broadcast
satellite services, multipoint distribution systems, satellite master antenna
systems and subscription television services. According to the Census Bureau,
there were 1,323 such cable and other pay television services generating less
than $ 11 million in revenue that were in operation for at least one year at the
end of 1992. n3266

   n3266 1992 Census, supra, at Firm Size 1-123.


   1359. The Commission has developed its own definition of a small cable system
operator for the purposes of rate regulation. Under the Commission's rules, a
"small cable company," is one serving fewer than 400,000 subscribers nationwide.
n3267 Based on our most recent information, we estimate that there were 1,439
cable operators that qualified as small cable system operators at the end of
1995. n3268 Since then, some of those companies may have grown to serve over
400,000 subscribers, and others may have been involved in transactions that
caused them to be combined with other cable operators. Consequently, we estimate
that there are fewer than 1,468 small entity cable system operators that may be
affected by the decisions and   [*73]   rules adopted in this Order.

   n3267 47 C.F.R. @ 76.901(e). The Commission developed this definition based
on its determination that a small cable system operator is one with annual
revenues of $ 100 million or less. Implementation of Sections of the 1992 Cable
Act: Rate Regulation, Sixth Report and Order and Eleventh Order on
Reconsideration, 10 FCC Rcd 7393.

   n3268 Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on
figures for Dec. 30, 1995).

   1360. The Communications Act also contains a definition of a small cable
system operator, which is "a cable operator that, directly or through an
affiliate, serves in the aggregate fewer than 1 percent of all subscribers in
the United States and is not affiliated with any entity or entities whose gross
annual revenues in the aggregate exceed $ 250,000,000." n3269 There were
63,196,310 basic cable subscribers at the end of 1995, and 1,450 cable system
operators serving fewer than one percent (631,960) of subscribers. n3270
Although it seems certain that some of these cable system operators are
affiliated with entities whose gross annual revenues exceed $ 250,000,000, we
are unable at this time to estimate with greater  [*74]   precision the number
of cable system operators that would qualify as small cable operators under the
definition in the Communications Act.

   n3269 47 U.S.C. @ 543(m)(2).

   n3270 Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996 (based on
figures for Dec. 30, 1995).

   D. Summary Analysis of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements and Steps Taken to Minimize the Significant Economic
Impact of this Report and Order on Small Entities and Small Incumbent LECs,
Including the Significant Alternatives Considered and Rejected

   1361. Structure of the Analysis. In this section of the FRFA, we analyze the
projected reporting, recordkeeping, and other compliance requirements that may
apply to small entities and small incumbent LECs as a result of this Order.
n3271 As a part of this discussion, we mention some of the types of skills that
will be needed to meet the new requirements. We also describe the steps taken to
minimize the economic impact of our decisions on small entities and small
incumbent LECs, including the significant alternatives considered and rejected.
n3272 Due to the size of this Order, we set forth our analysis separately for
[*75]   individual sections of the item, using the same headings as were used
above in the corresponding sections of the Order.

   n3271 See 5 U.S.C. @ 604(a)(4).



   n3272 See 5 U.S.C. @ 604(a)(5).

   1362. We provide this summary analysis to provide context for our analysis in
this FRFA. To the extent that any statement contained in this FRFA is perceived
as creating ambiguity with respect to our rules or statements made in preceding
sections of this Order, the rules and statements set forth in those preceding
sections shall be controlling.

   Summary Analysis of Section II

   SCOPE OF THE COMMISSION'S RULES

   1363. Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements. As discussed in Section II.E, a common carrier, which may be a
small entity or a small incumbent LEC, may be subject to an action for relief in
several different fora if a party believes that small entity or incumbent LEC
violated the standards under section 251 or 252. Should a small entity or a
small incumbent LEC be subjected to such an action for relief, it will require
the use of legal skills.

   1364. Steps Taken to Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs,   [*76]   and Alternatives Considered. We believe that
our actions establishing minimum national rules will facilitate the development
of competition in the local exchange and exchange access markets for the reasons
discussed in Sections II.A and II.B above. For example, national rules may: help
equalize bargaining power; minimize the need for duplicative marketing
strategies and multiple network configurations; lower administrative costs;
lessen the need to re-litigate the same issue in multiple jurisdictions; and
reduce delay and transaction costs, which can pose particular burdens for small
businesses. In addition, our rules are designed to accommodate differences among
regions and carriers, and the reduced regulatory burdens and increased certainty
produced by national rules may be expected to minimize the economic impact of
our decisions for all parties, including any small entities and small incumbent
LECs. As set forth in Section II.A above, we reject suggestions to adopt more,
or fewer, national rules than we ultimately adopt in this Order. We reject the
arguments that we should establish "preferred outcomes" from which parties could
deviate upon an adequate showing, or that we establish  [*77]   a process by
which state commissions could seek a waiver from the Commission's rules, for the
reasons set forth in Section II.B above.


   1365. We believe that our determination that there are multiple methods for
bringing enforcement actions against parties regarding their obligations under
sections 251 and 252 will assist all parties, including small entities and small
incumbent LECs, by providing a variety of methods and fora for seeking
enforcement of such obligations. (Section II.E - Authority to Take Enforcement
Action.) Similarly, our conclusion that Bell Operating Company (BOC) statements
of generally available terms and conditions are governed by the same national
rules that apply to agreements arbitrated under section 252 should ease
administrative burdens for all parties in markets served by BOCs, which may
include small entities, because they will not need to evaluate and comply with
different sets of rules. (Section II.F - BOC Statements of Generally Available
Terms.) Finally, we decline to adopt different requirements for agreements
arbitrated under section 252 and BOC statements of generally available terms and
conditions for the reasons set forth in section II.F above.   [*78]
   Summary Analysis of Section III

   DUTY TO NEGOTIATE IN GOOD FAITH

   1366. Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements. Incumbent LECs, including small incumbent LECs that receive
requests for access to network elements and/or services pursuant to sections 251
and 252 of the Act will be required to negotiate in good faith over the terms of
interconnection agreements. This Order identifies several practices as
violations of the duty to negotiate in good faith, including: (1) a party's
seeking or entering into an agreement prohibiting disclosure of information
requested by the FCC or a state commission, or supplied in support of a request
for arbitration pursuant to section 252(b)(2)(B); (2) seeking or entering into
an agreement precluding amendment of the agreement to account for changes in
federal or state rules; (3) an incumbent's denial of a reasonable request for
cost data during negotiations; and (4) an entrant's failure to provide to the
incumbent LEC information necessary to reach agreement. Complying with the
projected requirements of this section may require the use of legal skills. In
addition, incumbent LECs and new entrants having interconnection  [*79]
agreements that predate the 1996 Act must file such agreements with the state
commission for approval under section 252(e).

   1367. Steps Taken to Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered. As set forth above, we
believe our decision to establish national rules and a review process concerning
parties' duties to negotiate in good faith are designed to facilitate good faith
negotiations, which should minimize regulatory burdens and the economic impact
of our decisions for all parties, including small entities and small incumbent
LECs. (Section III.A - Advantages and Disadvantages of National Rules.) We also
expect economic impacts to be minimized for small entities seeking to enter into
agreements with incumbent LECs as a result of the decision that incumbent LECs
may not impose a bona fide request requirement on carriers seeking agreements
pursuant to sections 251 and 252. (Section III.B - Specific Practices that may
Constitute a Violation of Good Faith Negotiation.) For the reasons set forth in
Section III.B above, we also find that certain additional practices are not
always violations of the duty to negotiate in good  [*80]   faith, including the
suggested alternative that all nondisclosure agreements violate the good faith
duty.

   1368. We do not require immediate filing of preexisting interconnection
agreements, including those involving small incumbent LECs and small entities.
We set an outer time period of June 30, 1997, by which preexisting agreements
between Class A carriers must be filed with the relevant state commission. This
decision will ensure that third parties, including small entities, are not
prevented indefinitely from reviewing and taking advantage of the terms of
preexisting agreements. It also limits burdens that a national filing deadline
might impose on small carriers. In addition, the determination that preexisting
agreements must be filed with state commissions seems likely to foster
opportunities for small entities and small incumbent LECs to gain access to such
agreements without requiring investigation or discovery proceedings or other
administrative burdens that could increase regulatory burdens. (Section III.C -
Applicability of Section 252 to Preexisting Agreements). For the reasons set
forth in Section III.C above, we reject the alternative of not requiring certain
agreements  [*81]   to be filed with state commissions.



   Summary Analysis of Section IV

   INTERCONNECTION

   1369. Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements. Incumbent LECs, including small incumbent LECs, are required by
section 251(c) to provide interconnection to all requesting telecommunications
carriers for the transmission and routing of telephone exchange service and
exchange access service. Such interconnection must be: (1) provided at any
technically feasible point; (2) at least equal in quality to that provided to
the incumbent LEC itself and to any other parties with interconnection
agreements; and (3) provided on rates, terms, and conditions that are "just,
reasonable, and nondiscriminatory . . . ." n3273 We conclude that
interconnection refers solely to the physical linking of networks for the mutual
exchange of traffic, and identify a minimum set of technically feasible points
of interconnection. The minimum points at which an incumbent LEC, which may be a
small incumbent LEC, must provide interconnection are: (1) the line side of a
local switch; (2) the trunk side of a local switch; (3) the trunk
interconnection points for a tandem switch; (4) central  [*82]   office
cross-connect points; and (5) out-of-band signaling facilities. In addition, the
points of access to unbundled elements (discussed below) are also technically
feasible points of interconnection. Compliance with these requests may require
the use of engineering, technical, operational, accounting, billing, and legal
skills.

   n3273 47 U.S.C. @ 251(c)(2).

   1370. To obtain interconnection pursuant to section 251(c)(2),
telecommunications carriers must seek interconnection for the purpose of
transmitting and routing telephone exchange traffic, or exchange access traffic,
or both. (Section IV.D. - Definition of "Technically Feasible.") This will
require new entrants to provide either local exchange service or exchange access
service to obtain section 251(c)(2) interconnection. A requesting carrier will
be required to bear the additional costs imposed on incumbent LECs as a result
of interconnection. (Section IV.E. - Technically Feasible Points of
Interconnection.) Carriers seeking interconnection, including small entities,
may be required to collect information to refute claims by incumbent LECs that
the requested interconnection poses a legitimate threat to network reliability.
[*83]   (Id.)


   1371. Steps Taken to Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered. The decision to adopt
clear national rules in this section of the Order is also intended to help
equalize bargaining power between incumbent LECs and requesting carriers,
expedite and simplify negotiations, and facilitate comprehensive business and
network planning. This could decrease entry barriers and provide reasonable
opportunities for all carriers, including small entities and small incumbent
LECs, to provide service in markets for local exchange and exchange access
services. (Section IV.B. - National Interconnection Rules). National rules
should also facilitate the consistent development of standards and resolution of
issues, such as technical feasibility, without imposing additional litigation
costs on parties, including small entities and small incumbent LECs. We
determine that successful interconnection at a particular point in a network
creates a rebuttable presumption that interconnection is technically feasible at
other comparable points in the network. (Section IV.E - Definition of
"Technically Feasible.") We also identify minimum   [*84]   points of
interconnection where interconnection is presumptively technically feasible: (1)
the line side of a switch; (2) the trunk side of a switch; (3) trunk
interconnection points at a tandem switch; (4) central office cross-connect
points; and (5) out-of-band signaling facilities. (Section IV.F - Technically
Feasible Points of Interconnection.) These decisions may be expected to
facilitate negotiations by promoting certainty and reducing transaction costs,
which should minimize regulatory burdens and the economic impact of our
decisions for all parties, including small entities and small incumbent LECs. We
decline, however, to identify additional points where interconnection is
technically feasible for the reasons set forth in section IV.F above.

   1372. The ability to enter local markets by offering only telephone exchange
service or only exchange access service may minimize regulatory burdens and the
economic impact of our decisions for some entrants, including small entities. We
decline, however, to interpret section 251(c)(2) as requiring incumbent LECs to
provide interconnection to carriers seeking to offer only interexchange services
for the reasons set forth in section IV.C  [*85]   above. In addition, we
determine that an incumbent LEC may refuse to interconnect on the grounds that
specific, significant, and demonstrable network reliability concerns may make
interconnection at a particular point sufficiently infeasible. We further
determine that the incumbent LEC must prove such infeasibility to the state
commission. (Section IV.E - Definition of "Technically Feasible.")

   1373. Competitive carriers, many of whom may be small entities, will be
permitted to request interconnection at any technically feasible point, and the
determination of feasibility must be conducted without consideration of the cost
of providing interconnection at a particular point. (Section IV.D. - Definition
of "Technically Feasible.") Consequently, our rules permit the party requesting
interconnection, which may be a small entity, and not the incumbent LEC to
decide the points that are necessary to compete effectively. (Section IV.E. -
Definition of Technically Feasible). We decline, however, to impose reciprocal
terms and conditions for interconnection on carriers requesting interconnection.
Our decision that an party requesting interconnection must pay the costs of
interconnecting should  [*86]   minimize regulatory burdens and the economic
impact of our interconnection decisions for small incumbent LECs. Similarly,
regulatory burdens and the economic impact of our decisions may be minimized
through the decision that, while a requesting party is permitted to obtain
interconnection that is of higher quality than that which the incumbent LEC
provides to itself, the requesting party must pay the additional costs of
receiving the higher quality interconnection. (Section IV.H - Interconnection
that is Equal in Quality.)

   Summary Analysis of Section V

   ACCESS TO UNBUNDLED NETWORK ELEMENTS


   1374. Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements. Under section 251(c), incumbent LECs are required to provide
nondiscriminatory access to unbundled network elements. We identify a minimum
set of network elements: (1) local loops; (2) local and tandem switches; (3)
interoffice transmission facilities; (4) network interface devices; (5)
signaling and call-related database facilities; (6) operations support systems
and functions; and (7) operator and directory assistance facilities. (Section
V.J - Specific Unbundling Requirements.) Incumbent LECs are required  [*87]
to provide nondiscriminatory access to operations support systems and
information by January 1, 1997. States may require incumbent LECs to provide
additional network elements on an unbundled basis. Incumbent LECs must perform
the functions necessary to combine unbundled elements in a manner that allows
requesting carriers to offer a telecommunications service, and the incumbent LEC
may not impose restrictions on the subsequent use of network elements.
Compliance with these requests may require the use of engineering, technical,
operational, accounting, billing, and legal skills.

   1375. If a requesting carrier, which may be a small entity, seeks access to
an incumbent LEC's unbundled elements, the requesting carrier is required to
compensate the incumbent LEC for any costs incurred to provide such access. For
example, in the case of operation support systems functions, such work may
include the development of interfaces for competing carriers to access incumbent
LEC functions for pre-ordering, ordering, provisioning, maintenance and repair,
and billing. Requesting carriers may also have to deploy their own operations
support systems interfaces, including electronic interfaces, in order  [*88]
to access the incumbent LEC's operations support systems functions. The
development of interfaces may require new entrants, including small entities, to
perform engineering work. (Section V.J.5 - Operations Support Systems
Unbundling.)

   1376. Steps Taken to Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered. The establishment of
minimum national requirements for unbundled elements should facilitate
negotiations and reduce regulatory burdens and uncertainty for all parties,
including small entities and small incumbent LECs. National requirements for
unbundling may allow new entrants, including small entities, to take advantage
of economies of scale in network design, which may minimize the economic impact
of our decision. As set forth in Section V.B, above, we reject several
alternatives in making this determination, including proposals suggesting that
the Commission should: (1) not identify any required elements; (2) allow the
states exclusively to identify required elements; or (3) adopt an exhaustive
list of elements.

   1377. As set forth above, the 1996 Act defines a network element to include
"all facilities or equipment  [*89]   used in the provision of a
telecommunications service," and all "features, functions, and capabilities that
are provided by means of such facility or equipment, including subscriber
numbers, databases, signaling systems and information sufficient for billing and
collection or used in the transmission, routing or other provision of a
telecommunications service." (Section V.C - Access to Unbundled Elements.) As a
result, new entrants, which may include small entities, should have access to
the same technologies and economies of scale and scope that are available to
incumbent LECs. In reaching our determination, we reject for the reasons set
forth in Section V.C above, the following alternatives: (1) that we should not
adopt a method for identifying elements beyond those identified in the 1996 Act;
and (2) that features sold directly to end users as retail services are not
network elements. Finally, we reject the argument that requesting carriers,
which may include small entities, are required to provide all services typically
furnished by means of an element they purchase. (Id.) Our rejection of this last
alternative may reduce burdens for some small entities by permitting them to
offer  [*90]   some, but not all, of the services provided by the incumbent LEC.



   1378. We conclude that the requirement to provide "access" to unbundled
network elements is independent of the interconnection duty imposed by section
251(c)(2), and that such "access" must be provisioned under the rates, terms and
conditions applicable to unbundled network elements. We believe these
conclusions may provide small entities seeking to compete with incumbent LECs
with the flexibility to offer other telecommunications services in addition to
local exchange and exchange access services. (Section V.D. - Access to Unbundled
Elements.) For the reasons set forth above in Section V.D, we reject the
argument that incumbent LECs are not required to provide access to an element's
functionality, and that "access" to unbundled elements can only be achieved by
interconnecting under the terms of section 251(c)(2). See Section V.C. above.

   1379. As set forth above, we conclude that an incumbent LEC, which may be a
small incumbent LEC, may decline to provide a network element beyond those
identified by the Commission where it can demonstrate that the network element
is proprietary, and that the competing provider could  [*91]   offer the
proposed telecommunications service using other nonproprietary elements within
the incumbent's network. (Section V.E - Access to Unbundled Elements.) This
should minimize regulatory burdens and the economic impact of our decisions for
incumbent LECs, including small incumbent LECs, by permitting such entities to
retain exclusive use of certain proprietary network elements.

   1380. We conclude that incumbent LECs: (1) cannot impose restrictions,
requirements or limitations on requests for, or the sale or use of, unbundled
network elements; (2) must provide requesting carriers with all of the
functionalities of a particular element so that requesting carriers can provide
any telecommunications services that can be offered by means of that element;
(3) must permit new entrants to combine network elements which new entrants
purchase access to, if so requested; (4) must prove to a state commission that
they cannot combine elements that are not ordinarily combined within an their
network, or that are not ordinarily combined in that manner, because such
combination is not technically feasible or it would impair the ability of other
carriers to access unbundled elements and interconnect  [*92]   with the
incumbent LEC; and (5) must provide the operational and support systems
necessary to purchase and combine network elements. As a result of these
conclusions, many small entities should face significantly reduced barriers to
entry in markets for local exchange services. (Section V.F - Access to Unbundled
Elements.) For the reasons set forth in section V.F, we reject the following
alternatives: (1) that incumbent LECs, in all instances, must combine elements
that are not ordinarily combined in their networks; and (2) that incumbent LECs
are not obligated to combine elements for requesting carriers.


   1381. By establishing minimum national rules concerning nondiscriminatory
access to unbundled network elements, requesting carriers, including small
entities, may face reduced transaction and regulatory costs in seeking to enter
local telecommunications markets. Among these minimum rules are: (1) access and
elements which new entrants receive are to be equal in quality between carriers;
(2) incumbent LECs must prove technical infeasibility; (3) the rates, terms and
conditions established for the provisioning of unbundled elements must be equal
between all carriers, and where applicable,   [*93]   between requesting
carriers and the incumbent LEC itself, and they must provide efficient
competitors with a meaningful opportunity to compete; and (4) incumbent LECs
must provide carriers purchasing unbundled elements with access to electronic
interfaces if incumbents use such functions themselves in provisioning
telecommunications services. (Section V.G - Nondiscriminatory Access to
Unbundled Network Elements.)

   1382. As set forth above, we conclude that section 251(c)(3) does not require
new entrants to own or control their own local exchange facilities in order to
purchase and use unbundled network elements and, thus, new entrants can provide
services solely by recombining unbundled network elements. (Section V.H - Access
to Unbundled Elements.)

   1383. As discussed in Section V.J above, we adopt a minimum list of required
unbundled network elements that incumbent LECs, including small incumbent LECs,
must make available to requesting carriers. In adopting this list, we sought to
minimize the regulatory burdens and economic impact for small incumbent LECs.
For example, we declined to adopt a detailed list including many additional
elements, as set forth in Section V.B. We also   [*94]   provided for the fact
that certain LECs may possess switches that are incapable of performing
customized routing for competitors, as discussed in Section V.J.2.(c).(ii).

   Summary Analysis of Section VI

   METHODS OF OBTAINING INTERCONNECTION AND ACCESS TO UNBUNDLED NETWORK ELEMENTS

   1384. Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements. We conclude that Section 251(c)(6) requires incumbent LECs,
including small incumbent LECs, to provide for any technically feasible method
of interconnection or access to unbundled network elements, including physical
collocation, virtual collocation, and meet-point interconnection. With certain
modifications, we adopt some of the requirements concerning physical and virtual
collocation that we adopted in the Expanded Interconnection proceeding.
Compliance with these requests may require the use of engineering, technical,
operational, accounting, billing, and legal skills.

   1385. In a meet-point arrangement the new entrant will build out facilities
to the agreed-upon point, which will likely entail the use of engineering and
installation personnel as well as the acquisition of equipment. We allow
incumbent LECs to impose  [*95]   reasonable restrictions on the warehousing of
space by collocators. Therefore, small entities collocating equipment may be
required to use the provided space for the collocation of equipment necessary
for interconnection or access to unbundled network elements or risk losing the
right to use that space. (Section VI.B.1.e - Allocation of Space.) To take
advantage of its right to collocate equipment on an incumbent LEC's premises,
competitive entrants, which may include small entities, will be required to
build or lease transmission facilities between their own equipment, located
outside of the incumbent LECs' premises, and the collocated space. (Section
VI.B.1.f - Leasing Transport Facilities.) We allow incumbent LECs to require
reasonable security arrangements to separate an entrant's collocation space from
the incumbent LEC's facilities. Small entities collocating equipment may
therefore be required to pay for such security arrangements. (Section VI.B.1.h -
Cage Construction.)


   1386. Steps Taken to Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered. By readopting our
Expanded Interconnection terms and conditions, which allow  [*96]   competitors
to collocate equipment for interconnection with the incumbent LEC, regulatory
burdens have likely been reduced because the terms and conditions for
collocation have already been established. (Section VI.B.1.b - Readoption of
Expanded Interconnection Terms and Conditions.) This seems likely to benefit all
parties, including small entities and small incumbent LECs, since it should
reduce the time and expense of negotiation, and reduce the costs of adapting to
new terms and conditions for collocation.

   1387. Due to our conclusion that requesting carriers may choose any method of
technically feasible interconnection or access to unbundled elements, new
entrants, including small entities, should have the flexibility to obtain
interconnection or access in the manner that best suits their needs. (Section
VI.A. - Methods of Obtaining Interconnection and Access to Unbundled Elements.)
In particular, as discussed in Section VI.A.3, we recognize that carriers,
including small entities, may find virtual collocation or meet-point
arrangements more efficient than physical collocation in certain circumstances,
particularly if they lack the resources to collocate physically in a large
[*97]   number of incumbent LEC premises.

   1388. We adopt a broad definition of the term "premises," which should allow
carriers, including small entities, to collocate equipment for interconnection
and access to unbundled network elements at a range of incumbent LEC locations.
(Section VI.B.1.c - The Meaning of the Term "Premises.") For the reasons set
forth in Section VI.B above, we interpret the term "premises" broadly to include
incumbent LEC central offices, serving wire centers and tandem offices, as well
as all buildings or similar structures owned or leased by the incumbent LEC that
house incumbent LEC facilities. However, as set forth above, we reject the
suggestion that security measures be provided only at the request of the
entrant, which should minimize regulatory burdens and the economic impact of our
decisions for small incumbent LECs (Id.)

   1389. We interpret the statute broadly to allow collocation of any equipment
used for interconnection or access to unbundled network elements. (Section
VI.B.1.d - Collocation Equipment.) This standard should offer all competitors,
including small entities, flexibility in collocating equipment they need to
interconnect their networks to   [*98]   those of incumbent LECs. Incumbent LECs
will also be required to make space available to requesting carriers on a
first-come, first-served basis, and collocators seeking to expand their
collocated space should be allowed to use contiguous space where available.
(Section VI.B.1.e - Allocation of Space.) These provisions should minimize
regulatory burdens and economic impacts for small entity entrants by reducing
opportunities for discriminatory treatment based on the size of the requesting
carrier. We decline, however, to require incumbent LECs to file reports on the
status, planned increase, and use of space for the reasons set forth in Section
VI.B.1. above, which will reduce the regulatory burdens and economic impact of
our decisions for small incumbent LECs.

   1390. We conclude that a competitive entrant should be permitted to lease
transmission facilities from the incumbent LEC. (Section VI.B.1.f - Leasing
Transport Facilities). This provision will allow small entities to lease
transmission facilities from incumbent LECs to transmit traffic between the
collocated space and their own networks, which may be comparatively less
burdensome for small entities than the alternative of bringing  [*99]   their
own facilities to the collocated equipment on the incumbent LEC's premises. We
also require incumbent LECs to permit two or more carriers that are collocating
at the incumbent LEC's premises to interconnect their networks. (Section
VI.B.1.g - Co-Carrier Cross-Connect.) This requirement should make it easier for
new entrants to interconnect their networks with those of competitors.



   1391. We require incumbent LECs to provide the relevant state commissions
with detailed floor plans or diagrams of any premises where the incumbent LEC
alleges that there are space constraints. (Section VI.B.1.i. - Allowing Virtual
Collocation in Lieu of Physical). This requirement may reduce burdens for all
parties, including small entities and small incumbent LECs, by aiding state
commissions with their evaluation of incumbent LEC refusals to allow physical
collocation on the grounds of space constraints. For the reasons set forth in
Section VI.B.1 above, however, we decline to require incumbent LECs to lease
additional space or provide trunking at no cost where they have insufficient
space for physical collocation, which should minimize the regulatory burdens and
economic impact of our decisions  [*100]   for incumbent LECs, including small
incumbent LECs.

   Summary Analysis of Section VII

   PRICING OF INTERCONNECTION AND UNBUNDLED NETWORK ELEMENTS

   1392. Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements. Pursuant to sections 251(c) and 252(d) of the 1996 Act, incumbent
LECs must provide interconnection and access to unbundled network elements on
rates, terms, and conditions that are just, reasonable, and nondiscriminatory.
In Section VII above, we adopt a methodology for setting arbitrated prices for
interconnection and unbundled elements on the basis of forward-looking economic
cost studies prepared in conformance with a methodology prescribed by the
Commission. Until states utilize economic studies to develop cost-based prices,
they must use default proxies established by the Commission. Small incumbent
LECs may be required, therefore, to prepare economic cost studies. In addition,
small entities seeking arbitration for rates for interconnection or unbundled
elements may find it useful to prepare economic cost studies or prepare
critiques of cost studies prepared by incumbent LECs and others. In both cases,
this may entail the use of economic experts,   [*101]   legal advice, and
possibly accounting personnel.

   1393. Steps Taken to Minimize Significant Economic Impact on Small Entities
and Small Incumbent LECs, and Alternatives Considered. Our conclusion that
prices for interconnection and unbundled elements should be set at
forward-looking long-run economic cost, including a reasonable share of
forward-looking joint and common costs, should permit new entrants, including
small entities, to interconnect with, and acquire unbundled elements from,
incumbent LECs at prices that replicate, to the extent possible, those in a
competitive market. (Section VII.B.2 - Pricing of Interconnection and Unbundled
Elements, Cost-Based Pricing Methodology, Rate Levels.) Our forward-looking
economic cost methodology for determining prices is designed to permit incumbent
LECs to recover their economic costs of providing interconnection and unbundled
elements, which should minimize the economic impact of our decisions on small
incumbent LECs.


   1394. Our conclusion that embedded costs, opportunity costs and universal
service subsidies may not be included in the rates for interconnection and
unbundled elements is intended, in part, to avoid distortions in investment
[*102]   decisions, which should lead to more efficient allocation of resources,
thereby reducing regulatory burdens and economic impacts for some small entities
and small incumbent LECs. (Section VII.B.2 - Pricing of Interconnection and
Unbundled Elements, Cost-Based Pricing Methodology, Rate Levels.) We reject
proposals that would have permitted incumbent LECs to recover their embedded
costs in prices for interconnection and unbundled elements as discussed above in
Section VII.B.2.a.(3)(b). As discussed in Section VII.B.2.a.(3)(b), we reject
the use of the efficient component pricing rule (ECPR) to set prices for
interconnection and unbundled elements.

   1395. Our conclusion that forward-looking common costs should be allocated in
a reasonable manner should ensure that the prices of network elements that are
least likely to be subject to competition are not artificially inflated by large
allocations of common costs. This, in turn, may also produce more efficient
allocations of resources, thereby minimizing regulatory burdens and economic
effects for many parties, including small entities and small incumbent LECs.
(Section VII.B.2 - Pricing of Interconnection and Unbundled Elements, Cost-Based
[*103]   Pricing Methodology, Rate Levels.) We permit, but do not require,
states to impose peak-sensitive pricing systems for shared facilities as
discussed in Section VII.B.3.b.

   1396. We conclude that incumbent LECs should not recover access charges from
entrants that use unbundled network facilities to provide access services to
customers that they win from incumbent LECs. We do, however, permit incumbent
LECs to impose on purchasers of unbundled local switching the carrier common
line charge and a charge equal to seventy-five percent of the transport
interconnection charge for an interim period that shall end no later than June
30, 1997, as discussed in Section VII.B.2.a.(3)(b). As further explained in that
section, this mechanism should serve to reduce any short-term disruptive impact
of our decisions on incumbent LECs, including small incumbent LECs.

   1397. We conclude that the Act requires rates for interconnection and
unbundled elements to be geographically deaveraged, using a minimum of three
geographic zones, in a manner that appropriately reflects the costs of the
underlying elements. (Section VII.B. 3 - Geographic/Class-of-Service Averaging.)
We also conclude that distinctions  [*104]   between the rates charged to
requesting carriers for network elements should not vary based on the classes of
service that the requesting carriers provide to their to customers. We expect
these decisions to lead to increased competition and a more efficient allocation
of resources.

   1398. The default proxies we adopt for rates for interconnection and
unbundled elements, which states may use to establish prices, are designed to
approximate prices that will enable efficient competitors, including small
entities, to enter local exchange markets. (Section VII.C. - Default Proxy
Prices and Ceilings.) We reject the use of rates in interconnection agreements
that predate the 1996 Act as proxy-based ceilings for interconnection and
unbundled element rates as discussed in Section VII.C.1. We also decline to
adopt a generic cost model at this time, as discussed in Section VII.C.3.

   1399. We determine that the nondiscrimination provisions in the Act prohibit
price differences that are not based on cost differences. This should permit
small entities to obtain the same terms and conditions of agreements reached by
larger carriers that possess greater bargaining power without having to incur
the  [*105]   costs of