Establishing Just and Reasonable Rates for Local Exchange Carriers, 64179-64185 [E7-22342]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 72, Number 220 (Thursday, November 15, 2007)]
[Proposed Rules]
[Pages 64179-64185]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-22342]


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FEDERAL COMMUNICATIONS COMMISSION

[WC Docket No. 07-135; FCC 07-176]

47 CFR Parts 61 and 69


Establishing Just and Reasonable Rates for Local Exchange 
Carriers

AGENCY: Federal Communications Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: In the Notice of Proposed Rulemaking (NPRM), the Federal 
Communications Commission (Commission) initiates a proceeding to 
examine whether its existing rules governing the setting of tariffed 
rates by local exchange carriers (LECs) provide incentives and 
opportunities for carriers to increase access demand endogenously with 
the result that the tariff rates are no longer just and reasonable. The 
Commission tentatively concludes that it must revise its tariff rules 
so that it can be confident that tariffed rates remain just and 
reasonable even if a carrier experiences or induces significant 
increases in access demand. The Commission seeks comment on the types 
of activities that are causing the

[[Page 64180]]

increases in interstate access demand and the effects of such demand 
increases on the cost structures of LECs. The Commission also seeks 
comment on several means of ensuring just and reasonable rates going 
forward. The NPRM invites comment on potential traffic stimulation by 
rate-of-return local exchange carriers (LECs), price cap LECs, and 
competitive LECs, as well as other forms of intercarrier traffic 
stimulation.

DATES: Comments are due on or before December 17, 2007. Reply comments 
are due on or before December 31, 2007.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Douglas Slotten, Wireline Competition 
Bureau, Pricing Policy Division, (202) 418-1572.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking in WC Docket No. 07-135, adopted on October 2, 
2007, and released on October 2, 2007. The complete text of this Notice 
of Proposed Rulemaking is available for public inspection Monday 
through Thursday from 8 a.m. to 4:30 p.m. and Friday from 8 a.m. to 
11:30 a.m. in the Commission's Consumer and Governmental Affairs 
Bureau, Reference Information Center, Room CY-A257, 445 12th Street, 
SW., Washington, DC 20554. The complete text is available also on the 
Commission's Internet site at www.fcc.gov. Alternative formats are 
available for persons with disabilities by contacting the Consumer and 
Governmental Affairs Bureau, at (202) 418-0531, TTY (202) 418-7365, or 
at fcc504@fcc.gov. The complete text of the decision may be purchased 
from the Commission's duplicating contractor, Best Copying and 
Printing, Inc., Room CY-B402, 445 12th Street, SW., Washington, DC 
20554, telephone (202) 488-5300, facsimile (202) 488-5563, TTY (202) 
488-5562, or e-mail at fcc@bcpiweb.com.

Synopsis of Notice of Proposed Rulemaking

    1. In the Notice of Proposed Rulemaking (NPRM), the Commission 
initiates a rulemaking proceeding to examine whether its existing rules 
governing the setting of tariffed rates by local exchange carriers 
(LECs) provide incentives and opportunities for carriers to increase 
access demand endogenously with the result that the tariff rates are no 
longer just and reasonable. Several interexchange carriers (IXCs) have 
filed complaints, either with the Commission or with United States 
federal district courts pursuant to sections 206-209 of the Act, 
alleging that such increases in access traffic have caused the involved 
LECs to earn a rate of return grossly in excess of the maximum allowed 
rate of return. The Commission tentatively concludes that it must 
revise its tariff rules so that it can be confident that tariffed rates 
remain just and reasonable even if a carrier experiences or induces 
significant increases in access demand.
    2. The Commission observes that recent increases in switched access 
traffic appear to have been caused by the deployment of chat lines, 
conference bridges, or other similar high call volume operations in the 
service areas of certain rate-of-return or competitive LECs. Users of 
these services make interstate calls to the services and the LECs 
assess interstate access charges on the IXCs that deliver the calls. 
The applicable per minute access charge rates are often high because 
many of the carriers involved in these arrangements are small carriers 
whose rates were set based on higher than average costs and a low 
volume of traffic based on historical levels. It is alleged that the 
LECs experiencing or creating this access growth share the access 
revenues they receive with the service providers whose services are 
generating the demand growth. As a direct result of the increase in 
traffic volume, the LECs are alleged to be earning returns on these 
access services that are substantially above the maximum rate of return 
authorized by the Commission.
    3. The Commission seeks to establish a more complete record as to 
the activities that are occurring, how the services are provided, and 
how compensation occurs between the involved parties. The Commission 
invites parties to comment on the prevalence of these types of 
operations and to describe in detail how each type of service is 
provisioned. The Commission asks parties to explain what fees, 
including both interstate and intrastate fees, the service provider 
pays to the LEC. The Commission also asks parties to describe what 
monies or other benefits the LEC provides to the provider of the 
stimulating activity, including, for example, direct payments, revenue 
sharing, commissions, or free services. The Commission asks that 
carriers complaining about the access stimulation arrangements explain 
how they provide each of the above mentioned services, including what 
charges they assess on the provider, whether access charges are 
assessed on such calls, and what compensation, if any, is paid to such 
provider.
    4. The Commission observes that, if the average revenue per minute 
remains constant as demand grows, but the average cost per minute falls 
(which occurs if the marginal cost per minute is less than the average 
cost per minute), then profits (or return) will rise. In such 
circumstances, when a carrier experiences significant increases in 
access traffic, its realized rates of return are likely to exceed the 
authorized rate of return and thus the tariffed rates become unjust and 
unreasonable at some point. The Commission invites parties to comment 
on this analysis. It asks parties to identify and quantify the 
projected increase in investment and plant-related expenses associated 
with increases in switched access minutes.
    5. Noting allegations that some LECs involved in access stimulation 
activities have been sharing revenues or paying some other form of 
compensation to the entity stimulating the terminating traffic, the 
Commission observes that, if compensation costs are included in a LEC's 
operating expense and thus bundled with access costs, the IXCs are 
paying for the costs of the stimulating service through the higher 
access charges assessed by the exchange carrier. The Commission 
tentatively concludes that a rate-of-return carrier that shares 
revenue, or provides other compensation to an end user customer, or 
directly provides the stimulating activity, and bundles the costs of 
such sharing, other compensation, or direct provisioning with its 
exchange access costs as part of its revenue requirement is engaging in 
an unreasonable practice that violates section 201(b) and the prudent 
expenditure standard. On its face, the compensation paid by the 
exchange carrier to the entity stimulating the traffic is unrelated to 
the provision of exchange access. The Commission invites parties to 
comment on this tentative conclusion. The Commission also asks parties 
to comment on whether, if the costs are not included in revenue 
requirements, the Commission has satisfied its obligation to ensure 
that just, reasonable, and non-discriminatory rates are maintained, or 
whether the payments may be an unlawful rebate.
    6. The Commission tentatively concludes that average per minute 
switching costs do not increase proportionately to average per minute 
revenues as access demand increases, and that, as a result, rates that 
may be just and reasonable given a specific level of access demand may 
not be just and reasonable at a higher level of access demand. The type 
of increased demand under consideration in this proceeding occurs after 
the tariffs

[[Page 64181]]

become effective and was not included in the development of the 
carrier's filed switched access charges. Thus, the pre-review of the 
filed tariff may not enable the Commission to identify, prior to the 
time the tariff becomes effective, those cases in which significant 
increases in access demand will occur after the effective date of the 
tariff and will result in unreasonable rates. In these circumstances, 
the deemed lawful provisions of the Communications Act would be 
protecting rates that are unjust and unreasonable rather than 
protecting customers. The Commission tentatively concludes that it 
should have the opportunity to review the relationship between rates 
and average costs through the filing of a revised tariff when a section 
61.38 or 61.39 carrier experiences significant increases in traffic to 
ensure that just and reasonable rates are maintained. Accordingly, the 
Commission tentatively concludes that section 61.38 and 61.39 carriers 
that file their own tariffs should be required to include language in 
their traffic-sensitive tariffs to the effect that, if their monthly 
local switching minutes exceed a given percent of the local switching 
demand of the same month of the preceding year, the carriers will file 
revised local switching and transport tariff rates to reflect this 
increased demand within a stated period of time. The Commission invites 
parties to comment on whether this conceptual approach is adequate to 
address the problems identified, or whether another approach would be 
more effective. The Commission seeks comment on whether any additional 
or revised reporting is necessary. Recognizing that establishing a 
tariffed trigger to require a new tariff filing is unlikely to address 
any cases of access stimulation by carriers participating in the 
National Exchange Carrier Association (NECA) pooling process, given the 
higher access demand of the NECA traffic-sensitive pool, the Commission 
invites parties to comment on the incentives of carriers in the NECA 
traffic-sensitive pool to engage in traffic stimulation and the methods 
they could employ to realize the benefits of the stimulation. Parties 
are also invited to address what steps, if any, should be adopted to 
address possible traffic stimulation by carriers in the NECA traffic-
sensitive pool.
    7. The Commission invites parties to comment on the traffic growth 
rate that should require a carrier to make a new tariff filing and on 
how the demand should be measured, e.g., over what period of time and/
or should the demand level vary by the size of the carrier. The 
Commission asks parties to comment on whether the Commission should 
adopt a rule requiring carriers to file revised tariffs whenever they 
enter into an arrangement that would have the effect of stimulating 
switched access traffic by some percentage. If such a rule is adopted, 
parties should address whether the Commission should forbear from 
applying deemed lawful status to the new tariff rates. Finally, parties 
should address how the proposals contained in this order can be applied 
to carriers who are engaged in access stimulation activities today, or 
how such proposals can be adapted to address that situation.
    8. The Commission invites parties to comment on the appropriate 
period of time within which a carrier should be required to file a 
revised tariff after it learns it has exceeded the growth trigger. The 
Commission also asks parties to address what cost support materials 
should be required of section 61.38 carriers to ensure that the 
Commission will have the data necessary to prescribe just and 
reasonable rates, if that becomes necessary. Parties should comment on 
what additional data would be necessary if they believe that 
incremental cost factors will be necessary to establish revised rates 
that will be just and reasonable. Parties should also comment on how 
the demand estimates used in the revised tariff filing should be 
determined.
    9. The Commission also asks about the tariff support materials that 
should be required of a section 61.39 carrier using historical average 
schedule demand. The formulas are developed based on an examination of 
the costs and demand of comparably sized cost companies and are 
designed to produce disbursements to an average schedule company that 
simulate the disbursements that would be received by a cost company 
that is representative of the average schedule company. The Commission 
tentatively concludes that the average schedule formulas can only yield 
reasonable estimates of an average schedule carrier's cost when the 
demand is within the range used to develop the formulas. The Commission 
invites parties to comment on the validity of this tentative conclusion 
with respect to both section 61.39 average schedule carriers and to 
average schedule carriers in the NECA traffic-sensitive pool that 
experience increased traffic that is beyond the demand observed in 
establishing the average schedule formulas. If parties believe that the 
average schedule formulas produce an incorrect estimate of an average 
schedule carrier's costs when demand has increased dramatically over 
some baseline period, they should suggest ways the Commission could 
revise section 61.39 or other rules to address average schedule 
carriers in the NECA traffic-sensitive pool. Parties should also 
comment on the extent to which historical and prospective demand should 
be used in establishing revised rates.
    10. Parties are also invited to comment on two alternatives for 
establishing rates for section 61.39 average schedule carriers or 
average schedule carriers in the NECA traffic-sensitive pool that 
experience significant increases in demand. First, the Commission could 
require NECA, as part of its development of the average schedule 
formulas, to define the range over which the formulas were valid. Once 
a carrier's demand reached the top of the range, it would be presumed 
to have recovered all of its costs. The carrier's settlement would be 
set at the amount produced by the formula at that demand level. That 
amount would then be used to calculate the carrier's switched access 
rates. Alternatively, the Commission could require NECA to extend the 
range of the formulas in a manner that addressed the reduced 
incremental costs of increased traffic.
    11. The Commission also seeks comment on proposals that section 
61.39 carriers be required to certify as part of their tariff filing 
that they are not currently stimulating traffic and will not do so 
during the tariff period. The Commission invites parties to comment on 
this idea, either as a stand-alone proposition, or as part of a broader 
package of rule revisions. Alternatively, the Commission could make 
clear that by filing a tariff, a carrier is making certain 
representations. For example, the Commission could adopt a rule 
providing that by filing under section 61.39, a carrier is certifying 
that its use of historical average schedule settlement data to 
establish its rates is in fact a reasonable proxy for its future costs. 
More broadly, the Commission could establish an ongoing requirement 
that carriers bring to the Commission's attention all significant 
operational changes that could materially affect the reasonableness of 
their rates. Parties should comment on the need for requirements such 
as these and should provide rule language that would specify the extent 
of a carrier's obligation. The Commission contemplates that a finding 
that a carrier had failed to disclose any required information could be 
the basis for denying deemed lawful status to the carrier's rates.
    12. Without reasonable and reliable methods of establishing new 
cost and

[[Page 64182]]

demand levels, the Commission could be unable to determine whether 
revised switched access rates filed based on a higher demand will be 
just and reasonable. Parties should address whether it would be 
appropriate for the Commission, on its own motion, to forbear from 
enforcing the deemed lawful provision of section 204(a)(3) for the 
remainder of the two-year tariff period if a mid-course tariff filing 
is triggered by a sufficient increase in demand. The Commission also 
asks whether it should forbear from enforcing the deemed lawful 
provision of section 204(a)(3) with respect to a carrier's rates if it 
fails to file a revised tariff when required. Each of these approaches 
would have the effect of excluding such tariffs from the streamlined 
filing process. Parties are also asked to comment on what reporting 
requirements, if any, should be established for any carrier whose rates 
may no longer be deemed lawful if the Commission adopts this proposal.
    13. If the Commission was to forbear from deemed lawful in these 
limited circumstances, carriers may be subject to refunds because 
deemed lawful would not apply to their tariffed rates. Parties should 
comment on what approach the Commission should use in determining 
whether section 61.38 and 61.39 carriers should be required to make a 
refund and how to determine the amount of any such refund. In addition, 
commenters are encouraged to suggest alternative means besides 
forbearance to eliminate the prohibition on refunds resulting from 
deemed lawful. For example, parties should comment on the possibility 
of requiring carriers to file revised tariffs on a notice period such 
that deemed lawful status would not apply, rather than forbearing from 
its application.
    14. Section 61.39(b)(2)(ii) requires the use of the ``most recent 
average schedule formulas approved by the Commission.'' This language 
may be ambiguous in its reference to the appropriate formula to use and 
does not mention demand at all. To clarify the application of this 
rule, the Commission invites parties to comment on when a carrier 
should switch from one year's formula to the next. Parties should also 
consider whether a calendar year should be used as the period for 
measurement in order to get more recent historical data.
    15. The IXCs allege that the section 61.39 carriers have exhibited 
a pattern of exiting the NECA traffic-sensitive pool when their demand 
is low, thus establishing a high rate for the two-year effective period 
of the tariff. The IXCs further allege that, after a single two-year 
period as a section 61.39 carrier, the carriers reenter the NECA 
traffic-sensitive pool to avoid basing rates for the next two years on 
the high demand realized while they were not in the NECA pool. To 
address this, the Commission could make the section 61.39 election one-
way, could require that carriers remain out of the NECA traffic-
sensitive pool for a stated number of tariff cycles, or could eliminate 
the section 61.39 option altogether. The Commission invites parties to 
comment on these and other options the Commission has to ensure that 
rates remain just and reasonable and that section 61.39 does not itself 
provide incentives for carriers to engage in regulatory arbitrage.
    16. Although the complaints to date about access stimulation have 
generally been directed at section 61.38 and 61.39 carriers, the 
Commission is interested in understanding the full breadth of possible 
access stimulation activities. The Commission, therefore, invites 
parties to indicate the extent to which price cap carriers have an 
incentive to engage in or are engaging in access stimulation. If price 
cap carriers are engaging, or can economically engage in access 
stimulation, the Commission invites parties to address what actions it 
should take to ensure that their rates are just and reasonable.
    17. Finally, the Commission addresses the potential for access 
stimulation by competitive LECs. Competitive LECs may file access 
tariffs if their rates comply with the benchmarking requirements of 
section 61.26. That section allows competitive LECs to file tariffs if 
the rates are no higher than those charged by the incumbent LEC serving 
the same area, or, in the case of rural competitive LECs competing 
against a non-rural incumbent LEC, to charge a rate no higher than 
NECA's access rate, assuming the highest band for local switching. 
Under these rules, a competitive LEC has the same incentive to 
stimulate access traffic as does an incumbent LEC.
    18. The Commission invites parties to comment on several proposals 
for addressing the incentives for and abilities of competitive LECs to 
engage in access stimulation activities, including requiring a 
competitive LEC relying on the rural exemption to file quarterly 
reports of interstate access minutes and modify its tariffs if it 
exceeds defined volume thresholds. The Commission asks parties to 
comment on how competitive LEC access traffic should be measured and 
how such traffic measures could be verified. The Commission asks 
parties to comment on whether a competitive LEC should be subject to 
any of the other remedies on which comment is sought in the NPRM when a 
competitive LEC enters into an access stimulation arrangement. Parties 
should also address how the proposals contained in this order can be 
applied to competitive LECs who are engaged in access stimulation 
activities today, or how such proposals could be adapted to address 
that situation. The Commission also invites parties to address whether 
special rules are necessary when the competitive LEC is affiliated with 
an incumbent LEC. Finally, a competitive LEC may be benchmarking to the 
rates of an incumbent LEC that has stimulated traffic and been required 
to file a revised tariff or take some other action to reduce its rates. 
Parties should comment on whether a competitive LEC that benchmarks 
against an incumbent LEC should be affected by any of the changes in 
the incumbent LEC's tariffs that are the result of the incumbent LEC's 
access stimulation activities.
    19. Finally, while the previous sections have addressed stimulation 
in the context of access charges, the Commission is also interested in 
understanding the full breadth of possible traffic stimulation 
activities. The Commission, therefore, invites parties to address 
whether carriers are adopting traffic stimulation strategies with 
respect to forms of intercarrier compensation other than interstate 
access charges. The Commission asks parties to identify situations in 
which this is occurring and to explain the physical provisioning and 
compensation arrangements that make these strategies work. Parties 
should also address what remedies may be available to the Commission to 
address such activities.

Ex Parte Presentations

    20. This proceeding shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentations must contain summaries of the substance 
of the presentations and not merely a listing of the subjects 
discussed. More than a one- or two-sentence description of the views 
and arguments presented is generally required. Other rules pertaining 
to oral and written presentations are set forth in Section 1.1206(b) of 
the Commission's rules as well.

Comment Filing Procedures

    21. Pursuant to Sections 1.415 and 1.419 of the Commission's rules, 
47 CFR 1.415, 1.419, interested parties may file comments and reply 
comments on or

[[Page 64183]]

before the dates indicated on the first page of this document. All 
filings related to this Notice of Proposed Rulemaking should refer to 
WC Docket No. 07-135. Comments may be filed using: (1) The Commission's 
Electronic Comment Filing System (ECFS), (2) the Federal Government's 
rulemaking Portal, or (3) by filing paper copies. See Electronic Filing 
of Documents in Rulemaking Proceedings, 63 Fed. Reg. 24121 (1998).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://www.fcc.gov/cgb/ecfs 
or the Federal eRulemaking Portal: https://www.regulations.gov. Filers 
should follow the instructions provided on the Web site for submitting 
comments.
    [cir] For ECFS filers, if multiple dockets or rulemaking numbers 
appear in the caption of this proceeding, filers must transmit one 
electronic copy of the comments for each docket or rulemaking number 
referenced in the caption. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, 
and the applicable docket or rulemaking number. Parties may also submit 
an electronic comment by Internet e-mail. To get filing instructions, 
filers should send an e-mail to ecfs@fcc.gov, and include the following 
words in the body of the message, ``get form.'' A sample form and 
directions will be sent in response.
     Paper Filers: Parties who choose to file by paper must 
file an original and four copies of each filing. If more than one 
docket or rulemaking number appears in the caption of this proceeding, 
filers must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail (although the Commission continue to experience delays in 
receiving U.S. Postal Service mail). All filings must be addressed to 
the Commission's Secretary, Office of the Secretary, Federal 
Communications Commission.
    [cir] The Commission's contractor will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing 
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be 
held together with rubber bands or fasteners. Any envelopes must be 
disposed of before entering the building.
    [cir] Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
    [cir] U.S. Postal Service first-class, Express, and Priority mail 
must be addressed to 445 12th Street, SW., Washington, DC 20554.
    22. Comments and reply comments and any other filed documents in 
this matter may be obtained from Best Copy and Printing, Inc., in 
person at 445 12th Street, SW., Room CY-B402, Washington, DC 20554, via 
telephone at (202) 488-5300, via facsimile at (202) 488-5563, or via e-
mail at fcc@bcpiweb.com. The pleadings will also be available for 
public inspection and copying during regular business hours in the FCC 
Reference Information Center, Room CY-A257, 445 12th Street, SW., 
Washington, DC 20554, and through the Commission's Electronic Comment 
Filing System (ECFS) accessible on the Commission's Web site, https://
www.fcc.gov/cgb/ecfs.
    23. To request materials in accessible formats for people with 
disabilities (braille, large print, electronic files, audio format), 
send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental 
Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (TTY).
    24. Commenters who file information that they believe should be 
withheld from public inspection may request confidential treatment 
pursuant to Section 0.459 of the Commission's rules. Commenters should 
file both their original comments for which they request 
confidentiality and redacted comments, along with their request for 
confidential treatment. Commenters should not file proprietary 
information electronically. Even if the Commission grants confidential 
treatment, information that does not fall within a specific exemption 
pursuant to the Freedom of Information Act (FOIA) must be publicly 
disclosed pursuant to an appropriate request. See 47 CFR 0.461; 5 
U.S.C. 552. The Commission may grant requests for confidential 
treatment either conditionally or unconditionally. As such, The 
Commission has the discretion to release information on public interest 
grounds that does fall within the scope of a FOIA exemption.

Initial Paperwork Reduction Act of 1995 Analysis

    25. The NPRM discusses potential new or revised information 
collection requirements. The reporting requirements, if any, that might 
be adopted pursuant to this NPRM are too speculative at this time to 
request comment from the OMB or interested parties under section 
3507(d) of the Paperwork Reduction Act, 44 U.S.C. 3507(d). Therefore, 
if the Commission determines that reporting is required, it will seek 
comment from the OMB and interested parties prior to any such 
requirements taking effect. Nevertheless, interested parties are 
encouraged to comment on whether any new or revised information 
collection is necessary, and if so, how the Commission might minimize 
the burden of any such collection.

Initial Regulatory Flexibility Analysis

    26. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared the present Initial 
Regulatory Flexibility Analysis (IRFA) of the possible significant 
economic impact on small entities that might result from this Notice. 
Written public comments are requested on this IRFA. Comments must be 
identified as responses to the IRFA and must be filed by the deadlines 
for comments on the Notice provided above. The Commission will send a 
copy of the Notice, including this IRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration. In addition, the Notice 
and IRFA (or summaries thereof) will be published in the Federal 
Register.

Need for, and Objectives of, the Proposed Rules

    27. In the Notice, the Commission initiates a rulemaking proceeding 
to consider whether the current rules governing the tariffing of 
traffic-sensitive switched access services by local exchange carriers 
(LECs) are ensuring that rates remain just and reasonable, as required 
by section 201(b). In particular, the Commission focuses on allegations 
that substantial growth in terminating access traffic may be causing 
carriers' rates to become unjust and unreasonable because the increased 
demand is increasing carriers' rates of return to levels significantly 
higher than the maximum allowed rate. In the Notice, the Commission 
seeks comment on the causes for the increased terminating access demand 
and the effect that the increase in demand has on a carrier's cost of 
providing switched access service. The Commission also tentatively 
concludes that average per minute switching costs do not increase 
proportionately to average per minute revenues as access demand 
increases, and that, as a result, rates that may be just and reasonable 
given a specific level of access demand may not be just and reasonable 
at a higher level of access demand.
    28. We tentatively conclude that a rate-of-return carrier that 
shares revenue

[[Page 64184]]

with, or provides other compensation to, an end user customer that is 
engaged in access stimulating activity, or itself provides the access 
stimulating activity, and bundles the costs of obtaining or providing 
an access stimulating activity with its costs for access is engaging in 
an unreasonable practice that violates section 201(b). The Commission 
tentatively concludes that to ensure that just and reasonable rates are 
maintained, the Commission should have the opportunity to review the 
relationship between rates and average costs through the filing of a 
revised tariff when a section 61.38 or 61.39 carrier experiences 
significant increases in traffic. The Commission seeks comment on 
whether tariff language should be included in a tariff that would 
require a carrier to file a revised tariff if a specified increase in 
traffic occurs, the level of increased demand that should trigger any 
such filing, when that filing should be made, and whether revised 
tariff support should be required. The Commission also seeks comment on 
whether it would be appropriate for the Commission to forbear from 
enforcing the deemed lawful provision of section 204(a)(3) if a mid-
course tariff filing is triggered by a sufficient increase in demand, 
or if a carrier fails to file a revised tariff when required. The 
Commission also seeks comment on whether carriers should be required to 
certify that they are not, and do not intend to, stimulate traffic, or 
whether some general rules should be adopted regarding a carrier's 
representations as to the reasonableness of the historical data 
submitted in support of its tariff filings. The Notice also seeks 
comment on whether section 61.39(b)(2)(ii) should be clarified.
    29. We also invite comment on whether price cap LECs and 
competitive LECs have an incentive to stimulate access traffic and what 
steps should be taken if they do have such incentives. The Commission 
invites comment on a variety of means of ensuring that access charges 
of competitive LECs remain just and reasonable if access stimulation 
occurs. These include establishing growth triggers that would require a 
competitive LEC to refile a tariff, and redefining the benchmark rate 
that competitive LECs can target.

Legal Basis

    30. The legal basis for any action that may be taken pursuant to 
the Notice is contained in sections 1, 4(i), 4(j), and 201-205 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i)-(j), 201-
205.

Description and Estimate of the Number of Small Entities to Which the 
Proposed Rules May Apply

    31. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules. The RFA generally defines the term 
``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one which: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA).
    32. Small Businesses. Nationwide, there are a total of 
approximately 22.4 million small businesses, according to SBA data.
    33. Small Organizations. Nationwide, there are approximately 1.6 
million small organizations.
    34. Small Governmental Jurisdictions. The term ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, towns, 
townships, villages, school districts, or special districts, with a 
population of less than fifty thousand.'' Census Bureau data for 2002 
indicate that there were 87,525 local governmental jurisdictions in the 
United States. The Commission estimates that, of this total, 84,377 
entities were ``small governmental jurisdictions.'' Thus, the 
Commission estimates that most governmental jurisdictions are small.
    35. We have included small incumbent local exchange carriers in 
this present RFA analysis. As noted above, a ``small business'' under 
the RFA is one that, inter alia, meets the pertinent small business 
size standard (e.g., a telephone communications business having 1,500 
or fewer employees), and ``is not dominant in its field of operation.'' 
The SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent local exchange carriers are not dominant in their field of 
operation because any such dominance is not ``national'' in scope. The 
Commission has therefore included small incumbent local exchange 
carriers in this RFA analysis, although the Commission emphasizes that 
this RFA action has no effect on Commission analyses and determinations 
in other, non-RFA contexts.
    36. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a small business size standard 
specifically for incumbent local exchange services. The appropriate 
size standard under SBA rules is for the category Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,307 carriers have reported that they are engaged in the 
provision of incumbent local exchange services. Of these 1,307 
carriers, an estimated 1,019 have 1,500 or fewer employees and 288 have 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of incumbent local exchange service are small businesses 
that may be affected by the Commission's action.
    37. Competitive Local Exchange Carriers, Competitive Access 
Providers (CAPs), ``Shared-Tenant Service Providers,'' and ``Other 
Local Service Providers.'' Neither the Commission nor the SBA has 
developed a small business size standard specifically for these service 
providers. The appropriate size standard under SBA rules is for the 
category Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. According 
to Commission data, 859 carriers have reported that they are engaged in 
the provision of either competitive access provider services or 
competitive local exchange carrier services. Of these 859 carriers, an 
estimated 741 have 1,500 or fewer employees and 118 have more than 
1,500 employees. In addition, 16 carriers have reported that they are 
``Shared-Tenant Service Providers,'' and all 16 are estimated to have 
1,500 or fewer employees. In addition, 44 carriers have reported that 
they are ``Other Local Service Providers.'' Of the 44, an estimated 43 
have 1,500 or fewer employees and one has more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
competitive local exchange service, competitive access providers, 
``Shared-Tenant Service Providers,'' and ``Other Local Service 
Providers'' are small entities that may be affected by the Commission's 
action.

Description of Projected Reporting, Recordkeeping and Other Compliance 
Requirements

    38. Should the Commission decide to adopt any regulations to 
address access stimulation by LECs, the associated rules potentially 
could modify the reporting and recordkeeping requirements of LECs. The 
Commission could, for instance, require LECs to make additional reports 
on switched access traffic demand, or provide

[[Page 64185]]

additional supporting materials with their tariff filings. These 
proposals may impose additional reporting or recordkeeping requirements 
on entities. The Commission seeks comment on the possible burden these 
requirements would place on small entities. Also, the Commission seeks 
comment on whether a special approach toward any possible compliance 
burdens on small entities might be appropriate. Entities, especially 
small businesses, are encouraged to quantify the costs and benefits of 
any reporting requirement that may be established in this proceeding.

Steps Taken To Minimize Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered

    39. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include (among others) the following four alternatives: (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    40. The Commission's primary objective is to develop a framework 
for ensuring that rates remain just and reasonable, as required by 
section 201(b). The Commission seeks comment here on the effect the 
various proposals described in the Notice will have on small entities, 
and on what effect alternative rules would have on those entities. The 
Commission invites comment on ways in which the Commission can achieve 
its goal of protecting consumers while at the same time imposing 
minimal burdens on small entities.

Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    41. None.

Ordering Clauses

    42. Accordingly, It is ordered, pursuant to Sections 4(i), 160, 
201-204, and 254(g) of the Communications Act of 1934, as amended, 47 
U.S.C. 154(i), 160, 201-204, and 254(g), that this Notice of Proposed 
Rulemaking is adopted.
    43. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Notice of Proposed Rulemaking, including the Initial 
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of 
the Small Business Administration.
    44. It is further ordered that pursuant to applicable procedures 
set forth in Sections 1.415 and 1.419 of the Commission's rules, 47 CFR 
1.415, 1.419, interested parties may file comments on this Notice of 
Proposed Rulemaking on or before December 17, 2007 and reply comments 
on or before December 31, 2007.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. E7-22342 Filed 11-14-07; 8:45 am]
BILLING CODE 6712-01-P