Special Access for Price Cap Local Exchange Carriers; AT&T Corporation Petition for Rulemaking To Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services, 2600-2614 [2013-00277]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 78, Number 8 (Friday, January 11, 2013)]
[Proposed Rules]
[Pages 2600-2614]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00277]



Federal Register / Vol. 78, No. 8 / Friday, January 11, 2013 / 
Proposed Rules

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 69

[WC Docket No. 05-25; RM-10593; FCC 12-153]


Special Access for Price Cap Local Exchange Carriers; AT&T 
Corporation Petition for Rulemaking To Reform Regulation of Incumbent 
Local Exchange Carrier Rates for Interstate Special Access Services

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Commission seeks comment on: A market 
analysis that the Commission intends to undertake in the coming months 
to assist in evaluating competition in the market for special access 
services; possible changes to the Commission's pricing flexibility 
rules after the Commission conducts its market analysis; and the 
reasonableness of terms and conditions offered by incumbent LECs in the 
special access market.

DATES: Comments for sections IV.A and IV.C are due on or before 
February 11, 2013. Reply comments for sections IV.A and IV.C are due on 
or before March 12, 2013. Comments for section IV.B are due on or 
before August 19, 2013. Reply comments for section IV.B are due on or 
before September 30, 2013.

FOR FURTHER INFORMATION CONTACT: Jamie Susskind, Wireline Competition 
Bureau, Pricing Policy Division, (202) 418-1520 or (202) 418-0484 
(TTY), or via email at Jamie.Susskind@fcc.gov.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Further Notice of Proposed Rulemaking (FNPRM) in WC Docket No. 05-25, 
RM-10593, FCC 12-153, adopted on December 11, 2012, and released on 
December 18, 2012. This summary should be read with its companion 
document, the Report and Order summary published elsewhere in this 
issue of the Federal Register. The summary is based on the public 
redacted version of the document, the full text of which is available 
electronically via the Electronic Comment Filing System at https://fjallfoss.fcc.gov/ecfs/ or may be downloaded at https://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-12-153A1.pdf. The full 
text of this document is also available for public inspection during 
regular business hours in the Commission's Reference Center, 445 12th 
Street SW., Room CY-A257, Washington, DC 20554. The complete text may 
be purchased from Best Copy and Printing, Inc., 445 12th Street SW., 
Room CY-B402, Washington, DC 20554. To request alternate formats for 
persons with disabilities (e.g. Braille, large print, electronic files, 
audio format, etc.) or reasonable accommodations for filing comments 
(e.g. accessible format documents, sign language interpreters, CARTS, 
etc.), send an email to fcc504@fcc.gov or call the Commission's 
Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice) or 
(202) 418-0432 (TTY).

I. Further Notice of Proposed Rulemaking

    1. We now commence a process to more effectively determine where 
relief from special access regulation is appropriate and otherwise 
update our special access rules to ensure that they reflect the state 
of competition today and promote competition, investment, and access to 
services used by businesses across the country. In Section I.A, below, 
we propose and seek comment on a market analysis that we intend to 
undertake in the coming months to assist the Commission in evaluating 
whether the pricing flexibility rules result in just and reasonable 
special access rates and what regulatory changes may be needed. We 
anticipate that the analysis will be a one-time assessment of the 
competitive conditions in the special access market; however, we do not 
foreclose the possibility that further analyses may be needed in the 
future.
    2. Our proposed market analysis is only one step in our process. 
Once the data are collected and analyzed, we may modify the existing 
pricing flexibility rules or adopt a new set of rules that will apply 
to requests for special access pricing flexibility. In section I.B 
below, we seek comment on how the special access pricing flexibility 
rules might change after we conduct our market analysis. We also seek 
comment on what steps the Commission should take where relief has been 
provided under our existing rules and where the data and our analysis 
demonstrate that competition is not sufficient to discipline the 
marketplace. Finally, we seek in section I.C data and information on 
the terms and conditions offered by incumbent LECs for special access 
services to facilitate our understanding of competition in the special 
access market and our ability to craft rules that properly address the 
state of the marketplace.

A. Approach To Analyzing Special Access

1. Background
    3. In the Analytical Framework Public Notice, the Bureau sought 
comment on a methodology that could be employed to evaluate the 
efficacy of the special access regulatory regime. The Bureau requested 
that parties propose an analytic framework capable of assessing whether 
the Commission's price cap and pricing flexibility rules ensure just 
and reasonable rates, as well as just and reasonable terms and 
conditions in special access tariffs and contracts. The Bureau noted 
that once the Commission adopted

an analytical approach enabling a systematic determination of 
whether or not the current regulation of special access services is 
ensuring rates, terms, and conditions that are just and reasonable 
as required by the Act, [the Commission] c[ould] determine what, if 
any, specific problems there are with the current regime and 
formulate specific solutions as necessary.

    4. The Bureau subsequently held a staff workshop to gather further 
input on the analytic framework proposals raised in the record and any 
associated data collection that would be required to implement such 
proposals. In response to the Analytical Framework Public Notice, as 
well as through the staff workshop, commenters set forth several 
proposals for an analytic framework that the Commission could implement 
to evaluate the current special access rules.
2. Proposals in the Record
    5. Several parties recommend that the Commission adopt a market 
power analytic framework in lieu of the Pricing Flexibility Order's 
competitive showing rules. In the past, the Commission has defined 
market power as the power to control price. The U.S. antitrust agencies 
have also expanded their definition of market power to include the 
ability to ``reduce output, diminish innovation, or otherwise harm 
customers as a result of diminished competitive constraints or 
incentives.'' A market power analysis commonly evaluates separately 
``competition for distinct services, for example differentiating among 
the various retail services purchased by residential and small, medium, 
and large business customers, and the various wholesale services 
purchased by other carriers'' in a distinct geographic area. A market 
power analysis also typically involves the consideration of providers' 
market shares, supply and demand elasticity, and carriers' cost 
structures, size, and access to resources.

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    6. Commenters voicing support for adoption of a market power 
framework state that it will ensure that, going forward, the 
Commission's evaluation of competition for special access is a 
comprehensive, economically sound, and data-driven means of 
understanding where and what kinds of regulatory relief are justified. 
Other commenters raise concerns about a market power framework, 
stating, for example, that the questions at the heart of a traditional 
market power analysis used in transaction review, such as how to define 
markets or analyze demand and supply responsiveness, have been made 
irrelevant by competition; that such an approach is not an 
administratively workable way to address individual petitions for 
pricing flexibility; that it is impractical to determine whether a firm 
has market power where baseline prices are regulated; and that a market 
power framework is inconsistent with the Commission's goals for the 
deregulation of telecommunications services.
    7. Another analytic framework proposed in the record involves 
comparing actual purchase prices for special access to specific 
benchmarks, such as rates for reasonably similar services (e.g., rates 
for UNEs, retail broadband services such as DSL or cable modem service, 
or rates in price cap areas as compared to pricing flexibility areas), 
the costs associated with providing special access services (e.g., 
forward-looking costs), or rate-of-return estimates (e.g., ARMIS rates-
of-return). Commenters assert that where special access prices are 
higher than such benchmarks, the Commission should find that the 
competitive showings adopted in the Pricing Flexibility Order are 
insufficient to ensure just and reasonable rates. Incumbent LECs, on 
the other hand, assert that the proposed benchmarks are neither 
necessary--because special access rates have already been ``set'' by 
the competitive marketplace--nor do they provide a reasonable proxy for 
special access rates. Such carriers do, however, state that the 
Commission may be better positioned to develop its own cost benchmark 
after collecting data on special access prices and the presence of 
competition in specific geographic markets.
    8. Some commenters recommend that the Commission adopt a framework 
that would facilitate deregulating quickly in anticipation of future 
competition. For example, AT&T recommends that, rather than perform a 
more granular analysis of individual petitions for pricing flexibility, 
the Commission extend blanket Phase I relief to all special access 
services, fully de-regulate OCn and packet-based services, and extend 
Phase II relief to areas where the existing competitive showing 
requirements do not fully detect the extent of competitive entry. 
Another analytic framework proposed by AT&T would examine whether the 
price cap rules are producing the marketplace benefits expected under 
incentive regulation. In particular, where evidence suggests that 
``carriers are investing to become more efficient and innovative, that 
carriers are working to provide better services at the same or lower 
prices, that competitors are responding with increased entry, and that 
output is increasing,'' the Commission should conclude that pricing 
flexibility is operating properly in its current form. Competitive 
carriers, on the other hand, disagree that expectations of future 
competition warrant quick deregulation. They raise concerns that, 
particularly in Phase II markets, incumbent carriers have increased 
special access rates to supracompetitive levels. They assert that the 
Commission must adopt a regulatory framework that curtails this 
practice. Ad Hoc and Sprint, for example, propose a ``hybrid 
approach,'' in which carriers may obtain unlimited ``downward pricing 
flexibility'' in combination with price caps in all markets.
    9. Incumbent carriers also propose that the Commission adopt a 
framework for analyzing requests for pricing flexibility that takes 
into account both actual and potential competition, such as competition 
from non-collocating providers or those competitors who could quickly 
enter the market in the near term. For example, AT&T and Verizon 
propose that the Commission permit pricing flexibility in areas where 
the competitive showing requirements are not met but carriers can point 
to sources of actual or potential competition, such as the existence of 
alternative fiber in the area served by specific wire centers or 
facilities-based competitors providing service in wire centers where 
there is no collocation. Verizon also argues that the Commission should 
modify the criteria for Phase II relief to allow price cap LECs to make 
a prima facie case that the competitive showings are satisfied by 
introducing evidence of competitive facilities in an MSA where 
insufficient competitive collocation exists to meet the competitive 
showing requirements. Some commenters, however, such as Public 
Knowledge and Time Warner Telecom, raise questions about the extent to 
which potential competition is germane to an analysis of special access 
market conditions.
    10. Finally, several commenters, in particular incumbent LECs, 
recommend that, prior to implementing a new framework for special 
access pricing flexibility, the Commission collect additional data to 
assess whether the current competitive showing rules are a reasonably 
accurate proxy for the presence of competition. For example, during the 
2010 staff workshop, one economist suggested that the Commission

[l]ook at areas with different degrees of competition and across 
such areas compare prices and measures of competition and other 
terms and conditions controlling for relative factors such as 
density, access lines, customer characteristics, and then use 
statistical analysis to see what you can say about the relationship 
between prices and measures of competition controlling for other 
costs or demand-based factors.

In his view, such findings could potentially be used to evaluate the 
existing pricing flexibility rules and craft new or modified rules if 
the data indicate that the existing rules are deficient. Incumbent LECs 
assert that further data collection is necessary because competitive 
carriers did not provide sufficient data in response to the two 
voluntary data requests issued by the Commission in 2010 and 2011. Some 
competitive carriers, however, argue that it is not necessary for the 
Commission to collect additional data prior to adopting a new 
regulatory scheme for special access pricing flexibility.
3. A One-Time, Multi-Faceted Market Analysis
    11. Based on our review of the record, we propose to conduct as one 
step in our proceeding a one-time, multi-faceted market analysis to 
obtain a more accurate picture of competition for special access. In 
combination with the comprehensive data collection described in the 
above Report and Order, we expect that the market analysis we propose 
will best assist the Commission in evaluating market conditions for 
special access services and determining what regulatory changes, if 
any, are warranted in light of that analysis.
    12. We propose to perform a one-time, multi-faceted market analysis 
of the special access market designed to determine where and when 
special access prices are just and reasonable, and whether our current 
special access regulations help or hinder this desired outcome. We do 
not propose to conduct a simple market share or market concentration 
analysis. Rather, we will

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use the data we are collecting in this Report and Order to identify 
measures of actual and potential competition that are good predictors 
of competitive behavior, for example, by demonstrating that prices tend 
to decline with increases in the intensity of various competition 
measures, holding other things constant. In undertaking that analysis 
we will consider evidence as to what leads firms, including competitive 
providers, to undertake infrastructure investments. In so doing, we 
will consider whether our current regulatory regime may be hindering, 
for example, by keeping prices low, competitive investments that would 
reduce or obviate the need for regulation. The analysis will seek to 
control for factors that could reasonably be expected to affect prices 
and competitive investment, such as actual and potential competition 
from services that are substitutes for special access (regardless of 
technology), the nature of the services supplied, demand intensity, 
historical proximity and state and federal regulation. The one-time, 
multi-faceted market analysis will help the Commission determine 
whether any market participants have market power and, if so, where 
such market power exists. This will better allow us to determine the 
sources of such market power, the likely extent to which it is 
sustainable over time, and how to construct (where required) targeted 
regulatory remedies. In addition, the analysis should help the 
Commission determine what barriers inhibit investment and delay 
competition, including regulatory barriers, and any other barriers, and 
what steps the Commission could take to remove such barriers to promote 
a robust competitive market and permit the competitive determination of 
price levels.
    13. As part of our one-time, multi-faceted market analysis we 
propose to conduct panel regressions designed to determine how the 
intensity of competition (or lack thereof), whether actual or 
potential, affects prices, controlling for all other factors that 
affect prices. Specifically, we propose to undertake econometric 
modeling to estimate the effect of competition from facilities-based 
providers, among other things, on the prices of special access 
services. The modeling would develop panel regressions of the prices 
for special access on characteristics such as: (1) The number of 
facilities-based competitors (both actual and potential); (2) the 
availability of, pricing of, and demand for best efforts business 
broadband Internet access services; (3) the characteristics of the 
purchased service; and (4) other factors that influence the pricing 
decisions of special access providers, including cost determinants 
(e.g., density of sales) and factors that deliver economies of scale 
and scope (e.g., level of sales). The panel regressions (and our 
analysis more generally) would seek to control for the fact that firms 
set prices and make competitive investment decisions taking into 
account a variety of factors, including existing and expected prices, 
investments (including as informed by advertised offerings), and 
regulatory rules (e.g., whether the incumbent has received pricing 
flexibility and for what services). In particular, we expect to control 
for the fact that prices, which regulation impacts, likely play a role 
in entry decisions. The precise form of econometric modeling we conduct 
will be dependent, in large part, on the nature and the quality of the 
data produced in response to the Order. We expect that the output of 
such panel regressions will assist us in delineating both relevant 
product and geographic markets. In conjunction with data on providers' 
business rules, it will also help us predict where and how potential 
competition will occur, as noted above.
    14. There are three key reasons for our proposal to undertake a 
one-time, multi-faceted market analysis. First, a data-intensive market 
analysis will enable us to determine more precisely where, and to what 
extent, actual and potential competition for special access is likely 
to constrain prices as well as the factors that drive investment and 
competition, as described above. At this time there is insufficient 
evidence in the record upon which to base general or categorical 
conclusions as to the competitiveness of the special access market. 
Likewise, the record provides an insufficient basis for us to identify 
reliable competitive showing rules for granting pricing flexibility in 
defined geographic areas going forward. As a result, we believe that a 
one-time, multi-faceted market analysis, performed in conjunction with 
a comprehensive data collection, will aid the Commission in developing 
better tests for regulatory relief to replace the collocation-based 
standards.
    15. Second, a one-time, multi-faceted market analysis will benefit 
special access providers and purchasers by facilitating a thorough 
assessment of competitive conditions. For example, a wide range of 
commenters, including incumbent providers, competitive providers, and 
other interested parties, state that the Commission cannot gauge the 
extent of competition based on a single market characteristic, such as 
purchase prices, carrier revenues, or market share. We agree, and we 
believe that the Commission must conduct a more comprehensive analysis 
of the state of competition prior to replacing the rules by which 
incumbent LECs may obtain regulatory relief in the provision of special 
access services. We propose to conduct a nuanced market analysis that 
incorporates a variety of factors, as detailed above, to assess the 
effect of competition on special access prices.
    16. Third, a one-time, multi-faceted market analysis supplements a 
structural market analysis with econometrically sound panel 
regressions. The Commission has repeatedly undertaken structural market 
analyses to assess competition for telecommunications services and 
determine whether deregulation is warranted. Historically, the 
Commission's structural analysis--which focused on certain ``clearly 
identifiable market features,'' including a carrier's market share, 
number and size distribution of competing firms, the nature of 
competitors' barriers to entry, the availability of reasonably 
substitutable services, the level of demand elasticity, and whether the 
firm controlled bottleneck facilities--was designed to identify where 
competition is sufficient to constrain carriers from charging unjust or 
unreasonable rates, or from acting in an otherwise anticompetitive 
manner. The one-time, multi-faceted market analysis follows this 
precedent by incorporating a structural market analysis, but it also 
goes further by supplementing the analysis with econometrically sound 
panel regressions to determine how the intensity of competition (or 
lack thereof), whether actual or potential, affects prices, controlling 
for all other factors that affect prices.
4. Request for Comment on One-Time, Multi-Faceted Market Proposed 
Analysis
    17. We seek comment on this one-time, multi-faceted market 
analysis. In contrast to the approach of our pricing flexibility rules, 
which are currently suspended, we anticipate that this analysis is 
likely to identify all significant current and potential market 
participants, and consider their effect when assessing the level of 
competition in a market. We seek comment on this conclusion. Are there 
significant competitors who would not be easily accounted for under the 
proposed analysis, such as firms who self-supply their own special 
access? Is such an approach likely to show whether a specific provider 
is a probable source of competition in a given geographic area, i.e., 
that its presence could reasonably

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be found to constrain special access prices?
    18. Will the proposed one-time, multi-faceted market analysis 
facilitate a comprehensive, forward-looking evaluation of competitive 
conditions? Should certain factors be weighted more or less heavily in 
our analysis? How can we balance the need for an analysis that is 
forward-looking with the importance of relying on non-speculative data?
    19. Does the one-time, multi-faceted market analysis effectively 
address concerns regarding use of a traditional structural analysis in 
this context? For example, incumbent LECs assert that special access 
pricing flexibility should not be treated as akin to the dominance/non-
dominance analyses undertaken by the Commission in the Competitive 
Carrier proceeding. They argue that a dominance/non-dominance analysis 
is inappropriate in the special access context because ``[t]he pricing 
flexibility rules are merely an incremental measure within the context 
of dominant carrier regulation.'' Does the one-time, multi-faceted 
market analysis with panel regressions address these concerns?
    20. Will the market analysis we propose facilitate a useful 
examination of potential barriers to broadband deployment and 
investment? AT&T recently argued that the Commission's special access 
rules have hindered carriers' transition to IP-based services, and that 
they encourage reliance on legacy services. How can we structure our 
analysis to appropriately take into account the fact that some carriers 
may be transitioning away from legacy services toward IP-enabled 
services? How can we structure our analysis to account for all services 
that enterprise customers view as substitutable, including services 
used by small- and medium-sized businesses? How should we analyze the 
markets to determine the effect that various federal regulations have 
on the pricing and deployment decisions of providers as well as the 
purchasing decisions of customers?
    21. Specifically, how should our analysis account for ``best 
efforts'' services? To the extent best efforts services are potential 
substitutes for special access services, how should the price of such 
services inform our analysis of the justness and reasonableness of 
special access pricing?
    22. Finally, we seek comment on how best to balance the need for 
analytic rigor with the requirement that our analysis be 
administratively feasible. We note that commenters have raised concerns 
about the administrative feasibility of a market analysis, in 
particular with respect to proposals to require individual market 
analyses on an ongoing basis in lieu of the competitive showing rules 
adopted in the Pricing Flexibility Order. We seek comment on whether, 
because we will be analyzing many facets of the market only one time, 
our analysis will give rise to the administrative burdens raised by 
some commenters in the record.
    23. We note that the analysis we propose conducting here is a one-
time analysis. We are mindful of the importance of balancing the 
accuracy of our analysis with the need for administrative efficiency. 
The record makes clear that we are unlikely to be able to conduct a 
comprehensive market analysis--and thus are unlikely to be able to 
evaluate the impact of the suspended rules on the reasonableness of 
special access rates, terms and conditions or develop improved ones--
without the data similar to that described above and a more detailed 
review of competitive conditions in the special access market than has 
been possible to date. However, we anticipate that the one-time, multi-
faceted market analysis will allow us to identify reliable new proxies 
for special access competition, which could be employed going forward 
to evaluate petitions for pricing flexibility in a consistent, 
streamlined manner. The goal of the proposed market analysis is to gain 
a fulsome picture of competition in the special access market, so that 
we can develop rules to more precisely provide regulatory relief where 
it is justified. In subsection I.B., below, we seek comment on possible 
changes to our pricing flexibility rules that we might adopt after we 
collect the data specified above and conduct the proposed market 
analysis.
    24. To the extent that commenters assert that a one-time, multi-
faceted market analysis is not necessary or appropriate at this time, 
we urge such commenters to propose alternate actions that the 
Commission could take in the near future to obtain a more complete 
understanding of competitive conditions for special access services. 
Commenters are also encouraged to submit data to support their 
assertions, particularly those arguments concerning special access 
market conditions.

B. Possible Changes to Pricing Flexibility Rules After Proposed One-
Time, Multi-Faceted Market Analysis

    25. As discussed above, our market analysis is intended to provide 
a more complete picture of special access competition. The 
comprehensive data request described in the Report and Order above will 
identify and require submission of the data needed to implement any 
market analysis we adopt, including the specific analysis proposed in 
this Further Notice. Once the data are collected and analyzed, we may 
modify the existing pricing flexibility rules or adopt a new set of 
rules that will apply to requests for special access pricing 
flexibility. As a general matter, however, we propose to adopt rules 
that will allow for the relaxation or even the elimination of price cap 
regulation where we find the presence of actual or potential 
competition sufficient to ensure that rates, terms and conditions for 
special access services remain just and reasonable. To that end, we 
seek comment on how the special access pricing flexibility rules might 
change after we conduct the market analysis proposed above. We also 
seek comment below on what steps the Commission should take where 
relief has been provided under our existing rules and where the data 
and our analysis demonstrate that competition is not sufficient to 
discipline the marketplace.
    26. Factors Demonstrating Competition. Our proposed analysis may 
enable us to identify specific factors that could serve as a proxy for 
the presence or absence of special access competition in an identified 
geographic area. The competitive showing rules adopted in the 1999 
Pricing Flexibility Order were intended to serve such a purpose; 
however, as the Commission noted in the Special Access Pricing 
Flexibility Suspension Order, those rules were not an effective proxy 
for special access competition as predicted in the Pricing Flexibility 
Order. We seek comment on the viability of proxies as a means of 
measuring special access competition going forward. Should we replace 
our MSA- and collocation-based competitive showing rules with proxy 
rules based on specific factors identified by our analysis? Or is it 
preferable to evaluate competition on a case-by-case approach? 
Alternatively, should our rules incorporate elements of both a proxy-
based and a case-by-case approach?
    27. For those commenters who advocate a case-by-case approach as 
opposed to proxy-based rules for pricing flexibility, we request input 
on how such a process could operate. Should the Commission, for 
example, perform a market analysis in response to individual petitions 
for pricing flexibility? If so, who should be eligible to submit such 
petitions? How might we reduce the potential administrative burdens 
associated with such a process?
    28. For those commenters who advocate a proxy-based approach, we

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seek comment on what appropriate proxies for special access competition 
are. For example, in the Special Access Pricing Flexibility Suspension 
Order, we used business establishment density as one means of measuring 
business density within an MSA. Could business establishment density be 
an appropriate proxy for special access competition? Again, we expect 
that our data collection and proposed regression analysis will prove 
informative on this issue. However, in light of the suspension of the 
collocation-based triggers in the Special Access Pricing Flexibility 
Suspension Order, we welcome feedback on what a more accurate proxy 
might be. How could we craft rules to enable us to easily but 
effectively identify the existence of competition in a given geographic 
area?
    29. We also seek particular comment on how to evaluate potential 
competition. How might the rules incorporate the factors identified by 
our analysis in determining where competition is likely to occur in the 
future? Conversely, how might the rules be crafted to account for areas 
where competition may decline in the future?
    30. Nature of Relief. Our market analysis may indicate that 
different levels of competition warrant various levels of relief from 
regulation. We seek comment on what the appropriate level of relief is 
for various types of competition. For example, is it still appropriate 
to grant Phase I and Phase II pricing flexibility and, if so, what 
factors should guide the level of relief granted? Or are there some 
other variations of pricing deregulation we should adopt? Is it 
appropriate, as incumbent LECs such as AT&T assert, to remove all 
dominant carrier regulations from those areas we deem competitive? Are 
there other approaches? For example, should Phase I or Phase II relief 
only be available to those providers whose special access prices meet 
specific cost benchmarks, as proposed by a subset of special access 
purchasers? What rules should we adopt in those areas which our data, 
and a sound market analysis, show are likely to be competitive in the 
future?
    31. Updating Competition Data. We seek comment on whether and how 
the competitive information derived from the regression analysis should 
be updated. If so, how often should the data be updated? What process 
could the Commission employ to provide for recurrent updates of the 
competition data?
    32. Geographic Area. In addition to providing information on the 
issues described above, the regression analysis proposed in this 
Further Notice may help identify with geographic precision those areas 
that are subject to actual and potential special access competition 
today. For example, the analysis may enable the Commission to create a 
map of the United States that details the extent of competition with 
respect to special access services, including potential competition, in 
different areas of the country. We seek comment on whether and how the 
Commission could use a granular geographic analysis of competition to 
modify its existing regulatory treatment of special access services. In 
particular, in addition to any proxies adopted to grant special access 
relief on a forward-going basis, should the Commission relieve 
incumbent LEC special access providers from price cap regulations in 
geographic areas that the analysis identifies as subject to 
competition? Should the Commission adopt a presumption that pricing 
flexibility is warranted in such areas? If so, should the Commission 
presume that Phase I relief or Phase II relief, or a combination of 
both, is appropriate?
    33. Conversely, what should the Commission do if the analysis 
indicates that areas in which incumbent LECs have been granted pricing 
flexibility are not subject to competition? Some parties have suggested 
that the Commission should require incumbent LEC special access 
providers to automatically revert to price caps in areas without 
competition, while others have asserted that such a conversion would be 
impractical, unlawful, and unsupported by the record. We seek comment 
on these proposals, and other potential approaches. Should the 
Commission require parties to prove harm, i.e., that rates, terms and/
or conditions are unjust and unreasonable, before changing the rules 
applicable to an area that where Phase I or Phase II relief has 
previously been granted? The Commission previously has sought comment 
on how to validate or rebut assertions that the current price cap rules 
are ensuring just and reasonable rates. Parties should include any new 
information or arguments that may be relevant to the Commission's 
consideration of what action, if any, may be appropriate with respect 
to modifying or updating our price cap rules.
    34. Should the Commission incorporate a petition process by which a 
party can rebut a presumption that competition does or does not exist 
in a given geographic area? If so, who should be permitted to file such 
petitions and what showing should they be required to make? 
Alternatively, should the Commission adopt a petition process that 
requires carriers or others to supplement the results of our analysis 
to support specific requests for changes in regulatory treatment? If 
geographic areas are subject to regulatory adjustment based on such a 
petition process, who should be eligible to submit such petitions and 
how will they obtain access to the data they need to evaluate the 
existence of competition? Which regulatory changes should be covered by 
the petition process (e.g., removal of price caps, reversion to price 
caps, change in status from Phase I to Phase II regulatory relief and 
vice versa)? If the Commission were to adopt any of the changes 
proposed above, what would be an appropriate transition period for such 
regulatory changes to take effect? What steps should we take to ensure 
that regulatory changes occur smoothly and predictably?
    35. Our record contains a great deal of discussion about the 
appropriate geographic market to measure special access competition for 
the purposes of evaluating requests for pricing flexibility. Commenters 
have suggested, for example, that the Commission assess special access 
competition at the MSA level, at the wire center level, and on a 
building-by-building or a route-specific basis. We seek to refresh the 
record on this issue based on the additional data that will be 
collected. What geographic area would be the most appropriate for us to 
employ in new or modified special access rules? How can we balance the 
potential administrative costs of a more granular review with the 
possible concerns associated with applying our pricing flexibility 
rules to large geographic areas? How could the results of our proposed 
regression analysis be incorporated into new or modified pricing 
flexibility rules? For instance, how should the Commission utilize a 
competition map, as described above, to select an appropriate 
geographic area for measuring special access competition? How could our 
rules account for likely variance in network footprints among classes 
of providers (for example, cable companies may have a nationwide 
footprint, while incumbent LECs and competitive LECs more often offer 
service on a regional basis).

C. Terms and Conditions

    36. To more fully understand competition in the special access 
market and appropriately craft rules for regulatory relief, we will 
also seek data and information on the terms and conditions offered by 
incumbent LECs for special access services. The Special Access NPRM 
initiated a broad examination of what regulatory framework to apply to 
price cap LECs' interstate special access services

[[Page 2605]]

following the expiration of the CALLS plan. In addition to asking 
whether to maintain or modify the Commission's pricing flexibility 
rules, the Commission sought comment on whether any of the terms and 
conditions under which incumbent LECs provide special access are 
exclusionary and unreasonable. The Bureau subsequently sought data and 
information on this issue in the Special Access Competition Data Public 
Notice. The record would benefit from additional, specific, and 
detailed discussion of terms and conditions which are alleged to be 
unjust or unreasonable.
    37. The reasonableness of terms and conditions has triggered a 
significant amount of debate in the last two years. Purchasers allege 
that to provide a viable retail service they must enter into volume and 
term commitment plans with incumbent LECs to obtain price discounts and 
circuit portability benefits that are critical to their ability to 
remain competitive. Purchasers further allege these plans are subject 
to shortfall, overage, and early termination penalties that, combined 
with the potential loss of a discount for failing to meet the requisite 
commitment level, effectively lock-in demand and deter market entry by 
preventing purchasers from switching to a competing provider. Parties 
also allege that incumbent LECs are engaging in anticompetitive tying 
arrangements that give purchasers benefits for services purchased in 
areas where the incumbent has market power in exchange for the purchase 
of services in more competitive markets. Incumbent LECs vigorously 
dispute these allegations.
    38. In light of this record, we seek data and information related 
to this issue in the comprehensive data request described above, and 
seek comment on these allegations. What specific terms and conditions 
do commenters find unjust or unreasonable, and in what contexts? Are 
there terms and conditions that are unjust or unreasonable only when 
imposed in areas where a provider has market power? If so, is the 
analysis we propose above sufficient to allow us to identify areas 
where market power exists, and thus to determine whether a particular 
term or condition is unreasonable in a given area or that 
anticompetitive tying between competitive and non-competitive areas is 
occurring? If so, what would be the most effective remedy or remedies?

II. Procedural Matters

A. Paperwork Reduction Act Analysis

    39. This document does not contain proposed information collection 
requirements subject to the Paperwork Reduction Act of 1995, Public Law 
104-13. In addition, therefore, it does not contain any proposed 
information collection burden ``for small business concerns with fewer 
than 25 employees,'' pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

B. Initial Regulatory Flexibility Analysis

    40. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this present Initial 
Regulatory Flexibility Analysis (IRFA) of the possible significant 
economic impact on a substantial number of small entities by the 
policies and rules proposed in the FNPRM. 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 FNPRM 
provided in section V.C of the item. The Commission will send a copy of 
the FNPRM, including this IRFA, to the Chief Counsel for Advocacy of 
the Small Business Administration (SBA). In addition, the FNPRM and 
IRFA (or summaries thereof) will be published in the Federal Register.
1. Need for, and Objectives of, the Proposed Rules
    41. In this FNPRM we commence a process to more effectively 
determine where relief from special access regulation is appropriate 
and otherwise update our special access rules to ensure that they 
reflect the state of competition today and promote competition, 
investment, and access to dedicated communications services businesses 
across the country rely on every day to deliver their products and 
services to American consumers. In Section I.A we propose and seek 
comment on a market analysis that we intend to undertake in the coming 
months to assist the Commission in evaluating whether the pricing 
flexibility rules result in just and reasonable special access rates 
and what regulatory changes may be needed. In section IV.B we seek 
comment on how the special access pricing flexibility rules might 
change after we conduct our market analysis. We also seek comment on 
what steps the Commission should take where relief has been provided 
under our existing rules and where the data and our analysis 
demonstrate that competition is not sufficient to discipline the 
marketplace. Finally, we seek in section IV.C comment on the terms and 
conditions offered by incumbent LECs for special access services to 
facilitate our understanding of competition in the special access 
market and our ability to craft rules for regulatory relief that 
properly address the state of the marketplace.
2. Legal Basis
    42. This rulemaking action is supported by sections 1, 4(i), 4(j), 
5, 201-205, 211, 215, 218, 219, 303(r), 332, 403, and 503 of the 
Communications Act of 1934, as amended.
3. Description and Estimate of the Number of Small Entities to Which 
the Notice Will Apply
    43. 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, if adopted. 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 SBA. SBA 
restated its concerns in its comments filed in 2007.
    44. Small Businesses. Nationwide, there are a total of 
approximately 27.5 million small businesses, according to the SBA.
    45. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    46. Local Exchange Carriers (LECs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to local exchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to

[[Page 2606]]

Commission data, 1,307 carriers reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of local 
exchange service are small entities that may be affected by the rules 
and policies proposed in the Order.
    47. Incumbent Local Exchange Carriers (incumbent LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to incumbent local exchange 
services. The closest applicable size standard under SBA rules is for 
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 reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 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 
rules adopted pursuant to the Order.
    48. We have included small incumbent LECs 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 LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. We have therefore included 
small incumbent LECs in this RFA analysis, although we emphasize that 
this RFA action has no effect on Commission analyses and determinations 
in other, non-RFA contexts.
    49. Competitive Local Exchange Carriers (competitive LECs), 
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, 1,442 carriers reported that they were 
engaged in the provision of either competitive local exchange services 
or competitive access provider services. Of these 1,442 carriers, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. In addition, 17 carriers have reported that they are 
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 
or fewer employees. In addition, 72 carriers have reported that they 
are Other Local Service Providers. Of the 72, seventy have 1,500 or 
fewer employees and two have 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 rules adopted pursuant to the Order.
    50. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 359 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 359 companies, an 
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
interexchange service providers are small entities that may be affected 
by rules adopted pursuant to the Order.
    51. Prepaid Calling Card Providers. Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
prepaid calling card providers. The appropriate size standard under SBA 
rules is for the category Telecommunications Resellers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 193 carriers have reported that they are 
engaged in the provision of prepaid calling cards. Of these, an 
estimated all 193 have 1,500 or fewer employees and none have more than 
1,500 employees. Consequently, the Commission estimates that the 
majority of prepaid calling card providers are small entities that may 
be affected by rules adopted pursuant to the Order.
    52. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 213 carriers have reported 
that they are engaged in the provision of local resale services. Of 
these, an estimated 211 have 1,500 or fewer employees and two have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of local resellers are small entities that may be affected by 
rules adopted pursuant to the Order.
    53. Toll Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 881 carriers have reported 
that they are engaged in the provision of toll resale services. Of 
these, an estimated 857 have 1,500 or fewer employees and 24 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of toll resellers are small entities that may be affected by 
rules adopted pursuant to the Order.
    54. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to Other Toll Carriers. This category includes toll carriers that do 
not fall within the categories of interexchange carriers, operator 
service providers, prepaid calling card providers, satellite service 
carriers, or toll resellers. The closest applicable size standard under 
SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 284 companies reported that their primary 
telecommunications service activity was the provision of other toll 
carriage. Of these, an estimated 279 have 1,500 or fewer employees and 
five have more than 1,500 employees. Consequently, the Commission 
estimates that most Other Toll Carriers are small entities that may be 
affected by the rules and policies adopted pursuant to the Order.
    55. 800 and 800-Like Service Subscribers. Neither the Commission 
nor the SBA has developed a small business size standard specifically 
for 800 and 800-like service (toll free) subscribers. The appropriate 
size standard under SBA rules is for the category Telecommunications 
Resellers. Under that size standard, such a business is small if it has 
1,500 or fewer employees. The most reliable source of information 
regarding the number of these service subscribers appears to be data 
the Commission collects on the 800, 888, 877, and 866 numbers in use.

[[Page 2607]]

According to our data, as of September 2009, the number of 800 numbers 
assigned was 7,860,000; the number of 888 numbers assigned was 
5,588,687; the number of 877 numbers assigned was 4,721,866; and the 
number of 866 numbers assigned was 7,867,736. We do not have data 
specifying the number of these subscribers that are not independently 
owned and operated or have more than 1,500 employees, and thus are 
unable at this time to estimate with greater precision the number of 
toll free subscribers that would qualify as small businesses under the 
SBA size standard. Consequently, we estimate that there are 7,860,000 
or fewer small entity 800 subscribers; 5,588,687 or fewer small entity 
888 subscribers; 4,721,866 or fewer small entity 877 subscribers; and 
7,867,736 or fewer small entity 866 subscribers.
    56. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the SBA has recognized wireless firms within this new, broad, 
economic census category. Prior to that time, such firms were within 
the now-superseded categories of Paging and Cellular and Other Wireless 
Telecommunications. Under the present and prior categories, the SBA has 
deemed a wireless business to be small if it has 1,500 or fewer 
employees. For this category, census data for 2007 show that there were 
1,383 firms that operated for the entire year. Of this total, 1,368 
firms had employment of 999 or fewer employees and 15 had employment of 
1000 employees or more. Similarly, according to Commission data, 413 
carriers reported that they were engaged in the provision of wireless 
telephony, including cellular service, Personal Communications Service 
(PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these, 
an estimated 261 have 1,500 or fewer employees and 152 have more than 
1,500 employees. Consequently, the Commission estimates that 
approximately half or more of these firms can be considered small. 
Thus, using available data, we estimate that the majority of wireless 
firms can be considered small.
    57. Broadband Personal Communications Service. The broadband 
personal communications service (PCS) spectrum is divided into six 
frequency blocks designated A through F, and the Commission has held 
auctions for each block. The Commission defined ``small entity'' for 
Blocks C and F as an entity that has average gross revenues of $40 
million or less in the three previous calendar years. For Block F, an 
additional classification for ``very small business'' was added and is 
defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years. These standards defining ``small entity'' in the 
context of broadband PCS auctions have been approved by the SBA. No 
small businesses, within the SBA-approved small business size standards 
bid successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40 
percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the 
Commission re-auctioned 347 C, E, and F Block licenses. There were 48 
small business winning bidders. In 2001, the Commission completed the 
auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35 
winning bidders in this auction, 29 qualified as ``small'' or ``very 
small'' businesses. Subsequent events, concerning Auction 35, including 
judicial and agency determinations, resulted in a total of 163 C and F 
Block licenses being available for grant. In 2005, the Commission 
completed an auction of 188 C block licenses and 21 F block licenses in 
Auction 58. There were 24 winning bidders for 217 licenses. Of the 24 
winning bidders, 16 claimed small business status and won 156 licenses. 
In 2007, the Commission completed an auction of 33 licenses in the A, 
C, and F Blocks in Auction 71. Of the 14 winning bidders, six were 
designated entities. In 2008, the Commission completed an auction of 20 
Broadband PCS licenses in the C, D, E and F block licenses in Auction 
78.
    58. Advanced Wireless Services. In 2008, the Commission conducted 
the auction of Advanced Wireless Services (``AWS'') licenses. This 
auction, which as designated as Auction 78, offered 35 licenses in the 
AWS 1710-1755 MHz and 2110-2155 MHz bands (``AWS-1''). The AWS-1 
licenses were licenses for which there were no winning bids in Auction 
66. That same year, the Commission completed Auction 78. A bidder with 
attributed average annual gross revenues that exceeded $15 million and 
did not exceed $40 million for the preceding three years (``small 
business'') received a 15 percent discount on its winning bid. A bidder 
with attributed average annual gross revenues that did not exceed $15 
million for the preceding three years (``very small business'') 
received a 25 percent discount on its winning bid. A bidder that had 
combined total assets of less than $500 million and combined gross 
revenues of less than $125 million in each of the last two years 
qualified for entrepreneur status. Four winning bidders that identified 
themselves as very small businesses won 17 licenses. Three of the 
winning bidders that identified themselves as a small business won five 
licenses. Additionally, one other winning bidder that qualified for 
entrepreneur status won 2 licenses.
    59. Narrowband Personal Communications Services. In 1994, the 
Commission conducted an auction for Narrowband PCS licenses. A second 
auction was also conducted later in 1994. For purposes of the first two 
Narrowband PCS auctions, ``small businesses'' were entities with 
average gross revenues for the prior three calendar years of $40 
million or less. Through these auctions, the Commission awarded a total 
of 41 licenses, 11 of which were obtained by four small businesses. To 
ensure meaningful participation by small business entities in future 
auctions, the Commission adopted a two-tiered small business size 
standard in the Narrowband PCS Second Report and Order. A ``small 
business'' is an entity that, together with affiliates and controlling 
interests, has average gross revenues for the three preceding years of 
not more than $40 million. A ``very small business'' is an entity that, 
together with affiliates and controlling interests, has average gross 
revenues for the three preceding years of not more than $15 million. 
The SBA has approved these small business size standards. A third 
auction was conducted in 2001. Here, five bidders won 317 (Metropolitan 
Trading Areas and nationwide) licenses. Three of these claimed status 
as a small or very small entity and won 311 licenses.
    60. Paging (Private and Common Carrier). In the Paging Third Report 
and Order, we developed a small business size standard for ``small 
businesses'' and ``very small businesses'' for purposes of determining 
their eligibility for special provisions such as bidding credits and 
installment payments. A ``small business'' is an entity that, together 
with its affiliates and controlling principals, has average gross 
revenues not exceeding $15 million for the preceding three years. 
Additionally, a ``very small business'' is an entity that, together 
with its affiliates and controlling principals, has average gross 
revenues that are not more than $3 million for the preceding three 
years. The SBA has approved these small business size standards. 
According to Commission data, 291 carriers have reported that they are 
engaged in Paging or Messaging Service.

[[Page 2608]]

Of these, an estimated 289 have 1,500 or fewer employees, and two have 
more than 1,500 employees. Consequently, the Commission estimates that 
the majority of paging providers are small entities that may be 
affected by our action. An auction of Metropolitan Economic Area 
licenses commenced on February 24, 2000, and closed on March 2, 2000. 
Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies 
claiming small business status won 440 licenses. A subsequent auction 
of MEA and Economic Area (``EA'') licenses was held in the year 2001. 
Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-
two companies claiming small business status purchased 3,724 licenses. 
A third auction, consisting of 8,874 licenses in each of 175 EAs and 
1,328 licenses in all but three of the 51 MEAs, was held in 2003. 
Seventy-seven bidders claiming small or very small business status won 
2,093 licenses. A fourth auction, consisting of 9,603 lower and upper 
paging band licenses was held in the year 2010. Twenty-nine bidders 
claiming small or very small business status won 3,016 licenses.
    61. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. Phase I licensing was conducted 
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized 
to operate in the 220 MHz band. The Commission has not developed a 
small business size standard for small entities specifically applicable 
to such incumbent 220 MHz Phase I licensees. To estimate the number of 
such licensees that are small businesses, we apply the small business 
size standard under the SBA rules applicable to Wireless 
Telecommunications Carriers (except Satellite). Under this category, 
the SBA deems a wireless business to be small if it has 1,500 or fewer 
employees. The Commission estimates that nearly all such licensees are 
small businesses under the SBA's small business size standard that may 
be affected by rules adopted pursuant to the Order.
    62. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. The Phase II 220 MHz service is 
subject to spectrum auctions. In the 220 MHz Third Report and Order, we 
adopted a small business size standard for ``small'' and ``very small'' 
businesses for purposes of determining their eligibility for special 
provisions such as bidding credits and installment payments. This small 
business size standard indicates that a ``small business'' is an entity 
that, together with its affiliates and controlling principals, has 
average gross revenues not exceeding $15 million for the preceding 
three years. A ``very small business'' is an entity that, together with 
its affiliates and controlling principals, has average gross revenues 
that do not exceed $3 million for the preceding three years. The SBA 
has approved these small business size standards. Auctions of Phase II 
licenses commenced on September 15, 1998, and closed on October 22, 
1998. In the first auction, 908 licenses were auctioned in three 
different-sized geographic areas: three nationwide licenses, 30 
Regional Economic Area Group (EAG) Licenses, and 875 Economic Area (EA) 
Licenses. Of the 908 licenses auctioned, 693 were sold. Thirty-nine 
small businesses won licenses in the first 220 MHz auction. The second 
auction included 225 licenses: 216 EA licenses and 9 EAG licenses. 
Fourteen companies claiming small business status won 158 licenses.
    63. Specialized Mobile Radio. The Commission awards small business 
bidding credits in auctions for Specialized Mobile Radio (``SMR'') 
geographic area licenses in the 800 MHz and 900 MHz bands to entities 
that had revenues of no more than $15 million in each of the three 
previous calendar years. The Commission awards very small business 
bidding credits to entities that had revenues of no more than $3 
million in each of the three previous calendar years. The SBA has 
approved these small business size standards for the 800 MHz and 900 
MHz SMR Services. The Commission has held auctions for geographic area 
licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was 
completed in 1996. Sixty bidders claiming that they qualified as small 
businesses under the $15 million size standard won 263 geographic area 
licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper 
200 channels was conducted in 1997. Ten bidders claiming that they 
qualified as small businesses under the $15 million size standard won 
38 geographic area licenses for the upper 200 channels in the 800 MHz 
SMR band. A second auction for the 800 MHz band was conducted in 2002 
and included 23 BEA licenses. One bidder claiming small business status 
won five licenses.
    64. The auction of the 1,053 800 MHz SMR geographic area licenses 
for the General Category channels was conducted in 2000. Eleven bidders 
won 108 geographic area licenses for the General Category channels in 
the 800 MHz SMR band qualified as small businesses under the $15 
million size standard. In an auction completed in 2000, a total of 
2,800 Economic Area licenses in the lower 80 channels of the 800 MHz 
SMR service were awarded. Of the 22 winning bidders, 19 claimed small 
business status and won 129 licenses. Thus, combining all three 
auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR 
band claimed status as small business.
    65. In addition, there are numerous incumbent site-by-site SMR 
licensees and licensees with extended implementation authorizations in 
the 800 and 900 MHz bands. We do not know how many firms provide 800 
MHz or 900 MHz geographic area SMR pursuant to extended implementation 
authorizations, nor how many of these providers have annual revenues of 
no more than $15 million. One firm has over $15 million in revenues. In 
addition, we do not know how many of these firms have 1,500 or fewer 
employees. We assume, for purposes of this analysis, that all of the 
remaining existing extended implementation authorizations are held by 
small entities, as that small business size standard is approved by the 
SBA.
    66. Broadband Radio Service and Educational Broadband Service. 
Broadband Radio Service systems, previously referred to as Multipoint 
Distribution Service (``MDS'') and Multichannel Multipoint Distribution 
Service (``MMDS'') systems, and ``wireless cable,'' transmit video 
programming to subscribers and provide two-way high speed data 
operations using the microwave frequencies of the Broadband Radio 
Service (``BRS'') and Educational Broadband Service (``EBS'') 
(previously referred to as the Instructional Television Fixed Service 
(``ITFS'')). In connection with the 1996 BRS auction, the Commission 
established a small business size standard as an entity that had annual 
average gross revenues of no more than $40 million in the previous 
three calendar years. The BRS auctions resulted in 67 successful 
bidders obtaining licensing opportunities for 493 Basic Trading Areas 
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small 
business. BRS also includes licensees of stations authorized prior to 
the auction. At this time, we estimate that of the 61 small business 
BRS auction winners, 48 remain small business licensees. In addition to 
the 48 small businesses that hold BTA authorizations, there are 
approximately 392 incumbent BRS licensees that are considered small 
entities. After adding the number of small business auction licensees 
to the number of incumbent licensees not already counted, we find

[[Page 2609]]

that there are currently approximately 440 BRS licensees that are 
defined as small businesses under either the SBA or the Commission's 
rules. The Commission has adopted three levels of bidding credits for 
BRS: (i) A bidder with attributed average annual gross revenues that 
exceed $15 million and do not exceed $40 million for the preceding 
three years (small business) is eligible to receive a 15 percent 
discount on its winning bid; (ii) a bidder with attributed average 
annual gross revenues that exceed $3 million and do not exceed $15 
million for the preceding three years (very small business) is eligible 
to receive a 25 percent discount on its winning bid; and (iii) a bidder 
with attributed average annual gross revenues that do not exceed $3 
million for the preceding three years (entrepreneur) is eligible to 
receive a 35 percent discount on its winning bid. In 2009, the 
Commission conducted Auction 86, which offered 78 BRS licenses. Auction 
86 concluded with ten bidders winning 61 licenses. Of the ten, two 
bidders claimed small business status and won 4 licenses; one bidder 
claimed very small business status and won three licenses; and two 
bidders claimed entrepreneur status and won six licenses.
    67. In addition, the SBA's Cable Television Distribution Services 
small business size standard is applicable to EBS. There are presently 
2,032 EBS licensees. All but 100 of these licenses are held by 
educational institutions. Educational institutions are included in this 
analysis as small entities. Thus, we estimate that at least 1,932 
licensees are small businesses. Since 2007, Cable Television 
Distribution Services have been defined within the broad economic 
census category of Wired Telecommunications Carriers; that category is 
defined as follows: ``This industry comprises establishments primarily 
engaged in operating and/or providing access to transmission facilities 
and infrastructure that they own and/or lease for the transmission of 
voice, data, text, sound, and video using wired telecommunications 
networks. Transmission facilities may be based on a single technology 
or a combination of technologies.'' The SBA defines a small business 
size standard for this category as any such firms having 1,500 or fewer 
employees. The SBA has developed a small business size standard for 
this category, which is: all such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were a total 
of 955 firms in this previous category that operated for the entire 
year. Of this total, 939 firms had employment of 999 or fewer 
employees, and 16 firms had employment of 1000 employees or more. Thus, 
under this size standard, the majority of firms can be considered small 
and may be affected by rules adopted pursuant to the Order.
    68. Lower 700 MHz Band Licenses. The Commission previously adopted 
criteria for defining three groups of small businesses for purposes of 
determining their eligibility for special provisions such as bidding 
credits. The Commission defined a ``small business'' as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues not exceeding $40 million for the preceding three years. 
A ``very small business'' is defined as an entity that, together with 
its affiliates and controlling principals, has average gross revenues 
that are not more than $15 million for the preceding three years. 
Additionally, the Lower 700 MHz Band had a third category of small 
business status for Metropolitan/Rural Service Area (``MSA/RSA'') 
licenses, identified as ``entrepreneur'' and defined as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues that are not more than $3 million for the preceding 
three years. The SBA approved these small size standards. The 
Commission conducted an auction in 2002 of 740 Lower 700 MHz Band 
licenses (one license in each of the 734 MSAs/RSAs and one license in 
each of the six Economic Area Groupings (EAGs)). Of the 740 licenses 
available for auction, 484 licenses were sold to 102 winning bidders. 
Seventy-two of the winning bidders claimed small business, very small 
business or entrepreneur status and won a total of 329 licenses. The 
Commission conducted a second Lower 700 MHz Band auction in 2003 that 
included 256 licenses: 5 EAG licenses and 476 Cellular Market Area 
licenses. Seventeen winning bidders claimed small or very small 
business status and won 60 licenses, and nine winning bidders claimed 
entrepreneur status and won 154 licenses. In 2005, the Commission 
completed an auction of 5 licenses in the Lower 700 MHz Band, 
designated Auction 60. There were three winning bidders for five 
licenses. All three winning bidders claimed small business status.
    69. In 2007, the Commission reexamined its rules governing the 700 
MHz band in the 700 MHz Second Report and Order. The 700 MHz Second 
Report and Order revised the band plan for the commercial (including 
Guard Band) and public safety spectrum, adopted services rules, 
including stringent build-out requirements, an open platform 
requirement on the C Block, and a requirement on the D Block licensee 
to construct and operate a nationwide, interoperable wireless broadband 
network for public safety users. An auction of A, B and E block 
licenses in the Lower 700 MHz band was held in 2008. Twenty winning 
bidders claimed small business status (those with attributable average 
annual gross revenues that exceed $15 million and do not exceed $40 
million for the preceding three years). Thirty three winning bidders 
claimed very small business status (those with attributable average 
annual gross revenues that do not exceed $15 million for the preceding 
three years). In 2011, the Commission conducted Auction 92, which 
offered 16 Lower 700 MHz band licenses that had been made available in 
Auction 73 but either remained unsold or were licenses on which a 
winning bidder defaulted. Two of the seven winning bidders in Auction 
92 claimed very small business status, winning a total of four 
licenses.
    70. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and 
Order, the Commission revised its rules regarding Upper 700 MHz band 
licenses. In 2008, the Commission conducted Auction 73 in which C and D 
block licenses in the Upper 700 MHz band were available. Three winning 
bidders claimed very small business status (those with attributable 
average annual gross revenues that do not exceed $15 million for the 
preceding three years).
    71. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, 
we adopted a small business size standard for ``small businesses'' and 
``very small businesses'' for purposes of determining their eligibility 
for special provisions such as bidding credits and installment 
payments. A ``small business'' is an entity that, together with its 
affiliates and controlling principals, has average gross revenues not 
exceeding $40 million for the preceding three years. Additionally, a 
``very small business'' is an entity that, together with its affiliates 
and controlling principals, has average gross revenues that are not 
more than $15 million for the preceding three years. An auction of 52 
Major Economic Area (MEA) licenses commenced on September 6, 2000, and 
closed on September 21, 2000. Of the 104 licenses auctioned, 96 
licenses were sold to nine bidders. Five of these bidders were small 
businesses that won a total of 26 licenses. A second auction of 700 MHz 
Guard Band licenses commenced on February 13, 2001 and closed on 
February 21, 2001. All eight of the licenses auctioned were sold to 
three bidders. One of these bidders was a

[[Page 2610]]

small business that won a total of two licenses.
    72. Cellular Radiotelephone Service. Auction 77 was held to resolve 
one group of mutually exclusive applications for Cellular 
Radiotelephone Service licenses for unserved areas in New Mexico. 
Bidding credits for designated entities were not available in Auction 
77. In 2008, the Commission completed the closed auction of one 
unserved service area in the Cellular Radiotelephone Service, 
designated as Auction 77. Auction 77 concluded with one provisionally 
winning bid for the unserved area totaling $25,002.
    73. Private Land Mobile Radio (``PLMR''). PLMR systems serve an 
essential role in a range of industrial, business, land transportation, 
and public safety activities. These radios are used by companies of all 
sizes operating in all U.S. business categories, and are often used in 
support of the licensee's primary (non-telecommunications) business 
operations. For the purpose of determining whether a licensee of a PLMR 
system is a small business as defined by the SBA, we use the broad 
census category, Wireless Telecommunications Carriers (except 
Satellite). This definition provides that a small entity is any such 
entity employing no more than 1,500 persons. The Commission does not 
require PLMR licensees to disclose information about number of 
employees, so the Commission does not have information that could be 
used to determine how many PLMR licensees constitute small entities 
under this definition. We note that PLMR licensees generally use the 
licensed facilities in support of other business activities, and 
therefore, it would also be helpful to assess PLMR licensees under the 
standards applied to the particular industry subsector to which the 
licensee belongs.
    74. As of March 2010, there were 424,162 PLMR licensees operating 
921,909 transmitters in the PLMR bands below 512 MHz. We note that any 
entity engaged in a commercial activity is eligible to hold a PLMR 
license, and that any revised rules in this context could therefore 
potentially impact small entities covering a great variety of 
industries.
    75. Rural Radiotelephone Service. The Commission has not adopted a 
size standard for small businesses specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio System (``BETRS''). In the present 
context, we will use the SBA's small business size standard applicable 
to Wireless Telecommunications Carriers (except Satellite), i.e., an 
entity employing no more than 1,500 persons. There are approximately 
1,000 licensees in the Rural Radiotelephone Service, and the Commission 
estimates that there are 1,000 or fewer small entity licensees in the 
Rural Radiotelephone Service that may be affected by the rules and 
policies proposed herein.
    76. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground 
Radiotelephone Service. We will use SBA's small business size standard 
applicable to Wireless Telecommunications Carriers (except Satellite), 
i.e., an entity employing no more than 1,500 persons. There are 
approximately 100 licensees in the Air-Ground Radiotelephone Service, 
and we estimate that almost all of them qualify as small under the SBA 
small business size standard and may be affected by rules adopted 
pursuant to the Order.
    77. Aviation and Marine Radio Services. Small businesses in the 
aviation and marine radio services use a very high frequency (VHF) 
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator 
transmitter. The Commission has not developed a small business size 
standard specifically applicable to these small businesses. For 
purposes of this analysis, the Commission uses the SBA small business 
size standard for the category Wireless Telecommunications Carriers 
(except Satellite), which is 1,500 or fewer employees. Census data for 
2007, which supersede data contained in the 2002 Census, show that 
there were 1,383 firms that operated that year. Of those 1,383, 1,368 
had fewer than 100 employees, and 15 firms had more than 100 employees. 
Most applicants for recreational licenses are individuals. 
Approximately 581,000 ship station licensees and 131,000 aircraft 
station licensees operate domestically and are not subject to the radio 
carriage requirements of any statute or treaty. For purposes of our 
evaluations in this analysis, we estimate that there are up to 
approximately 712,000 licensees that are small businesses (or 
individuals) under the SBA standard. In addition, between December 3, 
1998 and December 14, 1998, the Commission held an auction of 42 VHF 
Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and 
161.775-162.0125 MHz (coast transmit) bands. For purposes of the 
auction, the Commission defined a ``small'' business as an entity that, 
together with controlling interests and affiliates, has average gross 
revenues for the preceding three years not to exceed $15 million 
dollars. In addition, a ``very small'' business is one that, together 
with controlling interests and affiliates, has average gross revenues 
for the preceding three years not to exceed $3 million dollars. There 
are approximately 10,672 licensees in the Marine Coast Service, and the 
Commission estimates that almost all of them qualify as ``small'' 
businesses under the above special small business size standards and 
may be affected by rules adopted pursuant to the Order.
    78. Fixed Microwave Services. Fixed microwave services include 
common carrier, private operational-fixed, and broadcast auxiliary 
radio services. At present, there are approximately 22,015 common 
carrier fixed licensees and 61,670 private operational-fixed licensees 
and broadcast auxiliary radio licensees in the microwave services. The 
Commission has not created a size standard for a small business 
specifically with respect to fixed microwave services. For purposes of 
this analysis, the Commission uses the SBA small business size standard 
for Wireless Telecommunications Carriers (except Satellite), which is 
1,500 or fewer employees. The Commission does not have data specifying 
the number of these licensees that have more than 1,500 employees, and 
thus is unable at this time to estimate with greater precision the 
number of fixed microwave service licensees that would qualify as small 
business concerns under the SBA's small business size standard. 
Consequently, the Commission estimates that there are up to 22,015 
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the 
microwave services that may be small and may be affected by the rules 
and policies adopted herein. We note, however, that the common carrier 
microwave fixed licensee category includes some large entities.
    79. Offshore Radiotelephone Service. This service operates on 
several UHF television broadcast channels that are not used for 
television broadcasting in the coastal areas of states bordering the 
Gulf of Mexico. There are presently approximately 55 licensees in this 
service. The Commission is unable to estimate at this time the number 
of licensees that would qualify as small under the SBA's small business 
size standard for the category of Wireless Telecommunications Carriers 
(except Satellite). Under that SBA small business size standard, a 
business is small if it has 1,500 or fewer employees. Census data for 
2007, which supersede

[[Page 2611]]

data contained in the 2002 Census, show that there were 1,383 firms 
that operated that year. Of those 1,383, 1,368 had fewer than 100 
employees, and 15 firms had more than 100 employees. Thus, under this 
category and the associated small business size standard, the majority 
of firms can be considered small.
    80. 39 GHz Service. The Commission created a special small business 
size standard for 39 GHz licenses--an entity that has average gross 
revenues of $40 million or less in the three previous calendar years. 
An additional size standard for ``very small business'' is: an entity 
that, together with affiliates, has average gross revenues of not more 
than $15 million for the preceding three calendar years. The SBA has 
approved these small business size standards. The auction of the 2,173 
39 GHz licenses began on April 12, 2000 and closed on May 8, 2000. The 
18 bidders who claimed small business status won 849 licenses. 
Consequently, the Commission estimates that 18 or fewer 39 GHz 
licensees are small entities that may be affected by rules adopted 
pursuant to the Order.
    81. Local Multipoint Distribution Service. Local Multipoint 
Distribution Service (``LMDS'') is a fixed broadband point-to-
multipoint microwave service that provides for two-way video 
telecommunications. The auction of the 986 LMDS licenses began and 
closed in 1998. The Commission established a small business size 
standard for LMDS licenses as an entity that has average gross revenues 
of less than $40 million in the three previous calendar years. An 
additional small business size standard for ``very small business'' was 
added as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years. The SBA has approved these small business size 
standards in the context of LMDS auctions. There were 93 winning 
bidders that qualified as small entities in the LMDS auctions. A total 
of 93 small and very small business bidders won approximately 277 A 
Block licenses and 387 B Block licenses. In 1999, the Commission re-
auctioned 161 licenses; there were 32 small and very small businesses 
winning that won 119 licenses.
    82. 218-219 MHz Service. The first auction of 218-219 MHz spectrum 
resulted in 170 entities winning licenses for 594 Metropolitan 
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by 
entities qualifying as a small business. For that auction, the small 
business size standard was an entity that, together with its 
affiliates, has no more than a $6 million net worth and, after federal 
income taxes (excluding any carry over losses), has no more than $2 
million in annual profits each year for the previous two years. In the 
218-219 MHz Report and Order and Memorandum Opinion and Order, we 
established a small business size standard for a ``small business'' as 
an entity that, together with its affiliates and persons or entities 
that hold interests in such an entity and their affiliates, has average 
annual gross revenues not to exceed $15 million for the preceding three 
years. A ``very small business'' is defined as an entity that, together 
with its affiliates and persons or entities, that hold interests in 
such an entity and its affiliates, has average annual gross revenues 
not to exceed $3 million for the preceding three years. These size 
standards will be used in future auctions of 218-219 MHz spectrum.
    83. 2.3 GHz Wireless Communications Services. This service can be 
used for fixed, mobile, radiolocation, and digital audio broadcasting 
satellite uses. The Commission defined ``small business'' for the 
wireless communications services (``WCS'') auction as an entity with 
average gross revenues of $40 million for each of the three preceding 
years, and a ``very small business'' as an entity with average gross 
revenues of $15 million for each of the three preceding years. The SBA 
has approved these definitions. The Commission auctioned geographic 
area licenses in the WCS service. In the auction, which was conducted 
in 1997, there were seven bidders that won 31 licenses that qualified 
as very small business entities, and one bidder that won one license 
that qualified as a small business entity.
    84. 1670-1675 MHz Band. An auction for one license in the 1670-1675 
MHz band was conducted in 2003. The Commission defined a ``small 
business'' as an entity with attributable average annual gross revenues 
of not more than $40 million for the preceding three years and thus 
would be eligible for a 15 percent discount on its winning bid for the 
1670-1675 MHz band license. Further, the Commission defined a ``very 
small business'' as an entity with attributable average annual gross 
revenues of not more than $15 million for the preceding three years and 
thus would be eligible to receive a 25 percent discount on its winning 
bid for the 1670-1675 MHz band license. One license was awarded. The 
winning bidder was not a small entity.
    85. 3650-3700 MHz band. In March 2005, the Commission released a 
Report and Order and Memorandum Opinion and Order that provides for 
nationwide, non-exclusive licensing of terrestrial operations, 
utilizing contention-based technologies, in the 3650 MHz band (i.e., 
3650-3700 MHz). As of April 2010, more than 1270 licenses have been 
granted and more than 7433 sites have been registered. The Commission 
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, we estimate 
that the majority of these licensees are Internet Access Service 
Providers (ISPs) and that most of those licensees are small businesses.
    86. 24 GHz--Incumbent Licensees. This analysis may affect incumbent 
licensees who were relocated to the 24 GHz band from the 18 GHz band, 
and applicants who wish to provide services in the 24 GHz band. For 
this service, the Commission uses the SBA small business size standard 
for the category ``Wireless Telecommunications Carriers (except 
satellite),'' which is 1,500 or fewer employees. To gauge small 
business prevalence for these cable services we must, however, use the 
most current census data. Census data for 2007, which supersede data 
contained in the 2002 Census, show that there were 1,383 firms that 
operated that year. Of those 1,383, 1,368 had fewer than 100 employees, 
and 15 firms had more than 100 employees. Thus under this category and 
the associated small business size standard, the majority of firms can 
be considered small. The Commission notes that the Census' use of the 
classifications ``firms'' does not track the number of ``licenses.'' 
The Commission believes that there are only two licensees in the 24 GHz 
band that were relocated from the 18 GHz band, Teligent and TRW, Inc. 
It is our understanding that Teligent and its related companies have 
less than 1,500 employees, though this may change in the future. TRW is 
not a small entity. Thus, only one incumbent licensee in the 24 GHz 
band is a small business entity.
    87. 24 GHz--Future Licensees. With respect to new applicants in the 
24 GHz band, the size standard for ``small business'' is an entity 
that, together with controlling interests and affiliates, has average 
annual gross revenues for the three preceding years not in excess of 
$15 million. ``Very small business'' in the 24 GHz band is an entity 
that, together with controlling interests and affiliates, has average 
gross revenues not exceeding $3 million for the preceding three years. 
The SBA has approved these small business size standards. These size 
standards will apply to a future 24 GHz license auction, if held.
    88. Satellite Telecommunications. Since 2007, the SBA has 
recognized

[[Page 2612]]

satellite firms within this revised category, with a small business 
size standard of $15 million. The most current Census Bureau data are 
from the economic census of 2007, and we will use those figures to 
gauge the prevalence of small businesses in this category. Those size 
standards are for the two census categories of ``Satellite 
Telecommunications'' and ``Other Telecommunications.'' Under the 
``Satellite Telecommunications'' category, a business is considered 
small if it had $15 million or less in average annual receipts. Under 
the ``Other Telecommunications'' category, a business is considered 
small if it had $25 million or less in average annual receipts.
    89. The first category of Satellite Telecommunications ``comprises 
establishments primarily engaged in providing point-to-point 
telecommunications services to other establishments in the 
telecommunications and broadcasting industries by forwarding and 
receiving communications signals via a system of satellites or 
reselling satellite telecommunications.'' For this category, Census 
Bureau data for 2007 show that there were a total of 512 firms that 
operated for the entire year. Of this total, 464 firms had annual 
receipts of under $10 million, and 18 firms had receipts of $10 million 
to $24,999,999. Consequently, we estimate that the majority of 
Satellite Telecommunications firms are small entities that might be 
affected by rules adopted pursuant to the Order.
    90. The second category of Other Telecommunications ``primarily 
engaged in providing specialized telecommunications services, such as 
satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing Internet services or 
voice over Internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry.'' 
For this category, Census Bureau data for 2007 show that there were a 
total of 2,383 firms that operated for the entire year. Of this total, 
2,346 firms had annual receipts of under $25 million. Consequently, we 
estimate that the majority of Other Telecommunications firms are small 
entities that might be affected by our action.
    91. Cable and Other Program Distribution. Since 2007, these 
services have been defined within the broad economic census category of 
Wired Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: all such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were a total 
of 955 firms in this previous category that operated for the entire 
year. Of this total, 939 firms had employment of 999 or fewer 
employees, and 16 firms had employment of 1000 employees or more. Thus, 
under this size standard, the majority of firms can be considered small 
and may be affected by rules adopted pursuant to the Order.
    92. Cable Companies and Systems. The Commission has developed its 
own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have fewer than 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small and may be affected by rules 
adopted pursuant to the Order.
    93. Cable System Operators. The Act also contains a size standard 
for small cable system operators, which is ``a cable operator that, 
directly or through an affiliate, serves in the aggregate less 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.'' The Commission has determined that an 
operator serving fewer than 677,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual 
revenues of all its affiliates, do not exceed $250 million in the 
aggregate. Industry data indicate that, of 1,076 cable operators 
nationwide, all but ten are small under this size standard. We note 
that the Commission neither requests nor collects information on 
whether cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, and therefore we are unable to 
estimate more accurately the number of cable system operators that 
would qualify as small under this size standard.
    94. Open Video Services. The open video system (``OVS'') framework 
was established in 1996, and is one of four statutorily recognized 
options for the provision of video programming services by local 
exchange carriers. The OVS framework provides opportunities for the 
distribution of video programming other than through cable systems. 
Because OVS operators provide subscription services, OVS falls within 
the SBA small business size standard covering cable services, which is 
``Wired Telecommunications Carriers.'' The SBA has developed a small 
business size standard for this category, which is: all such firms 
having 1,500 or fewer employees. According to Census Bureau data for 
2007, there were a total of 955 firms in this previous category that 
operated for the entire year. Of this total, 939 firms had employment 
of 999 or fewer employees, and 16 firms had employment of 1000 
employees or more. Thus, under this second size standard, most cable 
systems are small and may be affected by rules adopted pursuant to the 
Order. In addition, we note that the Commission has certified some OVS 
operators, with some now providing service. Broadband service providers 
(``BSPs'') are currently the only significant holders of OVS 
certifications or local OVS franchises. The Commission does not have 
financial or employment information regarding the entities authorized 
to provide OVS, some of which may not yet be operational. Thus, again, 
at least some of the OVS operators may qualify as small entities.
    95. Internet Service Providers. Since 2007, these services have 
been defined within the broad economic census category of Wired 
Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: all such firms having 1,500 or fewer 
employees. According to

[[Page 2613]]

Census Bureau data for 2007, there were 3,188 firms in this category, 
total, that operated for the entire year. Of this total, 3144 firms had 
employment of 999 or fewer employees, and 44 firms had employment of 
1000 employees or more. Thus, under this size standard, the majority of 
firms can be considered small. In addition, according to Census Bureau 
data for 2007, there were a total of 396 firms in the category Internet 
Service Providers (broadband) that operated for the entire year. Of 
this total, 394 firms had employment of 999 or fewer employees, and two 
firms had employment of 1000 employees or more. Consequently, we 
estimate that the majority of these firms are small entities that may 
be affected by rules adopted pursuant to the Order.
    96. Internet Publishing and Broadcasting and Web Search Portals. 
Our action may pertain to interconnected VoIP services, which could be 
provided by entities that provide other services such as email, online 
gaming, web browsing, video conferencing, instant messaging, and other, 
similar IP-enabled services. The Commission has not adopted a size 
standard for entities that create or provide these types of services or 
applications. However, the Census Bureau has identified firms that 
``primarily engaged in (1) publishing and/or broadcasting content on 
the Internet exclusively or (2) operating Web sites that use a search 
engine to generate and maintain extensive databases of Internet 
addresses and content in an easily searchable format (and known as Web 
search portals).'' The SBA has developed a small business size standard 
for this category, which is: all such firms having 500 or fewer 
employees. According to Census Bureau data for 2007, there were 2,705 
firms in this category that operated for the entire year. Of this 
total, 2,682 firms had employment of 499 or fewer employees, and 23 
firms had employment of 500 employees or more. Consequently, we 
estimate that the majority of these firms are small entities that may 
be affected by rules adopted pursuant to the Order.
    97. Data Processing, Hosting, and Related Services. Entities in 
this category ``primarily * * * provid[e] infrastructure for hosting or 
data processing services.'' The SBA has developed a small business size 
standard for this category; that size standard is $25 million or less 
in average annual receipts. According to Census Bureau data for 2007, 
there were 8,060 firms in this category that operated for the entire 
year. Of these, 7,744 had annual receipts of under $ $24,999,999. 
Consequently, we estimate that the majority of these firms are small 
entities that may be affected by rules adopted pursuant to the Order.
    98. All Other Information Services. The Census Bureau defines this 
industry as including ``establishments primarily engaged in providing 
other information services (except news syndicates, libraries, 
archives, Internet publishing and broadcasting, and Web search 
portals).'' Our action pertains to interconnected VoIP services, which 
could be provided by entities that provide other services such as 
email, online gaming, web browsing, video conferencing, instant 
messaging, and other, similar IP-enabled services. The SBA has 
developed a small business size standard for this category; that size 
standard is $7.0 million or less in average annual receipts. According 
to Census Bureau data for 2007, there were 367 firms in this category 
that operated for the entire year. Of these, 334 had annual receipts of 
under $5.0 million, and an additional 11 firms had receipts of between 
$5 million and $9,999,999. Consequently, we estimate that the majority 
of these firms are small entities that may be affected by our action.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    99. The analysis addressed in this Initial Regulatory Flexibility 
Analysis will be performed on data collected as described in the Report 
and Order section of this document. There are no reporting requirements 
associated with the proposals in this Further Notice of Proposed 
Rulemaking. A Final Regulatory Flexibility Analysis of that data 
collection is addressed in Appendix B.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    100. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its approach, which may 
include the following four alternatives, among others: (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.
    101. The proposals in this Further Notice of Proposed Rulemaking 
address the analysis of data. It does not address the collection of 
that data. The data collection is addressed in the Report and Order and 
the Final Regulatory Flexibility Analysis at Appendix B. Therefore, 
there are no reporting requirements considered in this Further Notice 
of Proposed Rulemaking and no burdens imposed on small entities.
    102. Section IV.B of the Further Notice of Proposed Rulemaking 
seeks comment on possible changes to the Commission's pricing 
flexibility rules after it conducts the one-time, multi-faceted market 
analysis discussed in Section IV.A of the Further Notice of Proposed 
Rulemaking. Section IV.C seeks comment on the reasonableness of terms 
and conditions offered by incumbent LECs in the special access market. 
As SBA observed, changes in special access prices may have an impact on 
small carriers, including small competitive carriers. Once the data 
described in the Report and Order is collected and analyzed, we may 
modify the existing pricing flexibility rules or adopt a new set of 
rules that will apply to requests for special access pricing 
flexibility, and/or adopt remedies when we identify areas where market 
power exists, and determine whether a particular term or condition is 
unreasonable in a given area or that anticompetitive tying between 
competitive and non-competitive areas is occurring. Any such actions 
will accrue to the benefit of all carriers, including small competitive 
carriers, as it they will ensure the availability of special access 
services at just and reasonable rates.
6. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules
    103. None.

C. Ex Parte Presentations

    104. The proceeding shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making ex parte presentations must file a copy of any written 
presentation or a memorandum summarizing any oral presentation within 
two business days after the presentation (unless a different deadline 
applicable to the Sunshine period applies). Persons making oral ex 
parte presentations are reminded that memoranda summarizing the 
presentation must (1) list all persons attending or otherwise 
participating in the meeting at which the ex parte presentation was 
made, and (2) summarize all data presented and arguments made during 
the presentation. If the presentation

[[Page 2614]]

consisted in whole or in part of the presentation of data or arguments 
already reflected in the presenter's written comments, memoranda or 
other filings in the proceeding, the presenter may provide citations to 
such data or arguments in his or her prior comments, memoranda, or 
other filings (specifying the relevant page and/or paragraph numbers 
where such data or arguments can be found) in lieu of summarizing them 
in the memorandum. Documents shown or given to Commission staff during 
ex parte meetings are deemed to be written ex parte presentations and 
must be filed consistent with Sec.  1.1206(b). In proceedings governed 
by Sec.  1.49(f) or for which the Commission has made available a 
method of electronic filing, written ex parte presentations and 
memoranda summarizing oral ex parte presentations, and all attachments 
thereto, must be filed through the electronic comment filing system 
available for that proceeding, and must be filed in their native format 
(e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this 
proceeding should familiarize themselves with the Commission's ex parte 
rules.

D. Comment Filing Procedures

    105. Pursuant to Sec. Sec.  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 before the dates indicated on the first page of 
this document. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS). See Electronic Filing of Documents in 
Rulemaking Proceedings, 63 FR 24121 (1998).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: https://apps.fcc.gov/ecfs/.
     Paper Filers: Parties who choose to file by paper must 
file an original and one copy 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. All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission.
    [cir] All hand-delivered or messenger-delivered paper filings for 
the Commission's Secretary must be delivered to FCC Headquarters at 445 
12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 
8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes and boxes 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.
    106. People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to fcc504@fcc.gov or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
    107. For further information, contact Jamie Susskind in the Pricing 
Policy Division, Wireline Competition Bureau at (202) 418-1520.

III. Ordering Clauses

    108. It is further ordered that pursuant to sections 1, 4(i), 4(j), 
5, 201-205, 211, 215, 218, 219, 303(r), 332, 403, and 503 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 154(j), 
155, 201, 202, 203, 204, 205, 211, 215, 218, 219, 303(r), 332, 403, 
503, and section 706 of the Telecommunications Act of 1996, 47 U.S.C. 
1302, this Further Notice of Proposed Rulemaking, with all attachments, 
is adopted.
    109. It is further ordered that pursuant to applicable procedures 
set forth in Sec. Sec.  1.415 and 1.419 of the Commission's rules, 47 
CFR 1.415, 1.419, interested parties may file comments on the Further 
Notice of Proposed Rulemaking for sections IV.A and IV.C February 11, 
2013 and for section IV.B on or before August 19, 2013, and reply 
comments for Sections IV.A and IV.C on or before March 12, 2013 and for 
section IV.B on or before September 30, 2013.
    110. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Further Notice of Proposed Rulemaking, including the Final 
Regulatory Flexibility Analysis and Initial Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration.

List of Subjects in 47 CFR Part 69

    Communications common carriers; Reporting and recordkeeping 
requirements; Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2013-00277 Filed 1-10-13; 8:45 am]
BILLING CODE 6712-01-P