Regulation of Business Data Services for Rate-of-Return Local Exchange Carriers, 22923-22938 [2018-10338]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 83, Number 96 (Thursday, May 17, 2018)]
[Proposed Rules]
[Pages 22923-22938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10338]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 1, 32, 51, 61, and 69

[WC Docket No. 17-144; FCC 18-46]


Regulation of Business Data Services for Rate-of-Return Local 
Exchange Carriers

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Commission proposes to allow rate-of-
return carriers receiving universal service support under the 
Alternative Connect America Cost Model (A-CAM) to voluntarily migrate 
their lower speed circuit-based business data service (BDS) offerings 
to incentive regulation. It also seeks comment on whether to remove ex 
ante pricing regulation from these carriers' higher speed BDS offerings 
and on whether further regulatory relief is warranted for these 
carriers' lower-speed circuit-based BDS in areas deemed competitive by 
a potential competitive market test. Additionally, the document 
proposes to allow other rate-of-return carriers receiving fixed support 
to opt into the same incentive regulation proposed for A-CAM carriers. 
Finally, the Commission seeks comment on proposed rule changes that 
would implement the proposals made in this document, including 
corrections to inaccuracies contained in its current rules.

DATES: Comments are due on or before June 18, 2018; reply comments are 
due on or before July 2, 2018. Parties that believe this document may 
contain new or modified information collection requirements may submit 
written Paperwork Reduction Act (PRA) comments to the Office of 
Management and Budget (OMB), and other interested parties on or before 
July 16, 2018.

ADDRESSES: You may submit comments, identified by WC Docket No. 17-144, 
by any of the following methods:
     Federal Communications Commission's Website: https://apps.fcc.gov/ecfs//. Follow the instructions for submitting comments.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by email: [email protected] or phone: 202-418-
0530 or TTY: 888-835-5322.
    For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Justin Faulb, Wireline Competition 
Bureau, Pricing Policy Division at 202-418-1589 or via email at 
[email protected].
    For additional information concerning any potential information 
collection requirements contained in this document, send an email to 
[email protected] or contact Nicole Ongele at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking (NPRM), WC Docket No. 17-144; FCC 18-46, adopted 
on April 17, 2018 and released on April 18, 2018. The full-text of this 
document may be found at the following internet address: https://apps.fcc.gov/edocs_public/attachmatch/FCC-18-46A1.doc.
    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 in Dockets WC 17-144. Comments may be filed using the 
Commission's Electronic Comment Filing System (ECFS).
     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.
     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.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9050 Junction Drive, 
Annapolis Junction, MD 20701.
     U.S. Postal Service first-class, Express, and Priority 
mail must be

[[Page 22924]]

addressed to 445 12th Street SW, Washington, DC 20554.
    People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (TTY).

Synopsis

I. Introduction

    1. The Commission has long recognized that, because it promotes 
efficiency and reduces regulatory burdens, incentive regulation is 
preferable to rate-of-return regulation. Therefore, in a series of 
steps over the last three decades, the Commission provided incentives 
to encourage incumbent local exchange carriers (LECs) to move from 
rate-of-return regulation to incentive regulation. In this NPRM, we 
take more steps along that path by proposing to allow rate-of-return 
carriers that receive universal service support under the Alternative 
Connect America Cost Model (A-CAM) to voluntarily migrate their lower 
speed business data services (BDS) offerings to incentive regulation. 
Because A-CAM carriers that elect to move away from rate-of-return 
regulation for their BDS offerings (electing A-CAM carriers) will no 
longer need to provide cost-based justification for their rates, we 
propose to relieve them of burdensome cost-based pricing regulation, 
including the obligation to conduct cost studies for purposes of 
ratemaking. At the same time, because we recognize that ex ante pricing 
regulation is of limited use--and often harmful--in a dynamic and 
increasingly competitive market, we seek comment on identifying areas 
served by electing A-CAM carriers that are sufficiently competitive 
that their lower speed BDS offerings should be relieved of ex ante 
pricing regulation, and we seek comment on whether to relieve electing 
A-CAM carriers' higher speed BDS offerings from ex ante pricing 
regulation. And, because there are other rate-of-return carriers that 
receive model-based or fixed support, and would benefit from less 
burdensome regulation, we propose to provide the same relief to those 
carriers as we propose to provide to A-CAM carriers. Taken together we 
expect these actions will spur entry, innovation, and competition in 
the affected BDS markets.

II. Background

    2. We start from the premise that incentive regulation encourages 
carriers to be efficient by granting them at least a share of profits 
obtained from cost reductions and allowing them to more aggressively 
serve consumers (including by reducing prices) in the face of 
competitive pressures. By contrast, rate-of-return regulation provides 
incentives for firms to ``pad'' their rate base and to make 
inefficiently high use of capital inputs. Additionally, rate-of-return 
regulation requires carriers to account for the costs they incur in 
providing service to justify their rates and universal service support 
and thus unavoidably involves substantial regulatory burdens.
    3. In 1990, the Commission began the process of shifting away from 
cost-based regulation by adopting price cap rules that govern how the 
largest incumbent LECs establish their interstate access charges. Price 
cap regulation was intended to avoid the counterproductive incentives 
of rate-of-return regulation in part by divorcing the annual rate 
adjustments from the actual costs of each individual LEC, and in part 
by adjusting the cap based on actual industry productivity experience. 
In more recent years, a number of midsize carriers have voluntarily 
converted from rate-of-return to price cap regulation.
    4. In 2011, as part of comprehensive reform and modernization of 
the universal service and intercarrier compensation systems, the 
Commission adopted rate caps for switched access services for rate-of-
return carriers, thereby removing switched access services from rate-
of-return regulation. In 2016, the Commission gave rate-of-return 
carriers the option of receiving forward looking model-based support 
from the high-cost universal service support program, the A-CAM, 
designed to estimate the cost of operating and maintaining an efficient 
modern network. More than 200 carriers opted to receive A-CAM support 
which eliminated the need for those carriers to conduct cost studies to 
quantify the amount of high-cost support they receive. The Commission 
observed that ``the election of model-based support places those 
carriers in a different regulatory paradigm'' and that ``[e]ffectively, 
the carriers that choose to take the voluntary path to the model are 
electing incentive regulation for common line offerings.'' As a result, 
rate-of-return carriers that elected the A-CAM support option are 
currently subject to rate-of-return regulation and the attendant 
requirement to conduct cost studies only for their BDS offerings.
    5. In 2017, ITTA and USTelecom (together, Petitioners) filed a 
joint petition requesting that the Commission allow A-CAM carriers and 
other rate-of-return carriers that receive model-based support to opt 
into the regulatory framework for BDS that the Commission recently 
adopted for price cap carriers. The Petition explains that for such 
carriers, ``continued compliance with rate-o[f]-return-based rate 
regulation . . . entails significant costs.'' It further explains that 
because carriers that receive universal service support based on a cost 
model no longer have cost-based switched access charges, ``the need to 
perform annual cost studies now applies only with respect to BDS.'' It 
also claims that rate-of-return regulation deters investment in 
networks and harms competition. The Wireline Competition Bureau 
(Bureau) sought and received comment on the Petition. A number of 
commenters support the Petition, arguing that cost savings and lighter 
touch pricing regulation of model-based carriers' BDS would spur 
competition, incentivize investment, benefit consumers, and eliminate 
unnecessary administrative burdens. Other commenters expressed 
concerns, including whether sufficient competition exists in A-CAM 
study areas to justify reduced regulation.
    6. In addition to facilitating rate-of-return carriers' move to 
incentive regulation, the Commission has taken major steps to reduce 
regulation for carriers that face competition. Given the inherent 
inefficiencies of regulation, the Commission relies on competition to 
the extent possible to ensure carriers' rates and practices are just 
and reasonable. In 1999, the Commission granted pricing flexibility to 
price cap carriers that provided service in areas where carriers could 
demonstrate threshold levels of deployment by competitive providers. 
The Pricing Flexibility Order adopted competitive triggers designed to 
measure the extent to which competitors had made irreversible, sunk 
investment in collocation and transport facilities. The Commission gave 
price cap carriers that satisfied those triggers the flexibility to 
offer BDS at unregulated rates through generally available and 
individually negotiated tariffs. In addition, starting in 2007, upon 
finding that competitive providers for BDS services existed in the 
relevant price cap areas, the Commission granted a number of price cap 
incumbent LECs forbearance from dominant carrier regulation, including 
tariffing and price cap regulation, for their newer packet-based 
broadband services. These forbearance orders concluded that a number of 
competing providers exist for broadband BDS. They also concluded that 
forbearance from burdensome regulations when competition exists

[[Page 22925]]

increases the amount of competition in the marketplace, ensuring that 
rates and practices for services are just, reasonable, and not 
unreasonably discriminatory.
    7. The BDS Order the Commission adopted last year took another step 
toward reducing regulation in response to the growth of competition. In 
that order, the Commission found that reducing government intervention 
and allowing market forces to continue working would further spur 
entry, innovation, and competition in BDS markets served by price cap 
carriers. The Commission applied ex ante rate regulation ``only where 
competition is expected to materially fail to ensure just and 
reasonable rates'' and stated its preference to rely ``on competition 
rather than regulation, wherever purchasers can realistically turn to a 
supplier beyond the incumbent LEC.'' Based on the record before it, the 
Commission found that, on balance, competition was sufficient to ensure 
just and reasonable rates for packet-based business data services, TDM 
transport services, and higher bandwidth (i.e. above DS3) TDM services 
(including OCn services) in areas served by price cap carriers. It also 
adopted a competitive market test for TDM end user channel terminations 
in price cap areas and refrained from ex ante pricing regulation of 
those services in areas deemed competitive by that test.

III. Path Forward For Lower Speed Services

    8. We seek comment on a regulatory framework that would provide 
electing A-CAM carriers a path to allow a move from rate-of-return 
regulation to a more efficient system of incentive regulation for their 
TDM transport and end user channel terminations at speeds at or below a 
DS3. In so doing, we propose to require that each A-CAM carrier's 
decision about whether to move their BDS offerings out of rate-of-
return regulation be made on an all-or-nothing basis for all of an A-
CAM carrier's study areas that receive A-CAM support. We also invite 
comment on what would be an appropriate market analysis for these lower 
speed services and on a competitive market test that would allow us to 
distinguish between markets that are sufficiently competitive so as not 
to warrant the burdens of ex ante pricing regulation from those that 
are not. Although the sections below focus on A-CAM carriers, because 
we are proposing to allow other rate-of-return carriers that receive 
model-based or other types of fixed support the opportunity to elect 
the same or similar lighter-touch BDS regulation that we propose for A-
CAM carriers, we also seek comment on providing a path forward for 
regulating such carriers' BDS offerings. As commenters respond to the 
requests for comment below, we encourage discussion of how such a path 
forward could work for other such rate-of-return carriers.

A. Incentive Regulation for Lower Capacity TDM Transport and End User 
Channel Termination Services

    9. We propose to allow electing A-CAM carriers to convert their 
lower capacity TDM BDS offerings to an incentive regulatory approach 
modelled on the rules the Commission adopted for price cap carriers' 
lower speed BDS in noncompetitive areas, while still allowing such 
carriers to be subject to the switched access rate transition and the 
Eligible Recovery rules applicable to rate-of-return carriers. We 
propose to allow conversion to incentive regulation for TDM transport 
and end user channel termination services offered at speeds at or below 
a DS3, as well as other generally lower speed non-packet-based services 
that are commonly considered special access services. Are there other 
special access offerings by rate-of-return carriers that we should 
include in the incentive regulation option for A-CAM carriers? For 
example, are there any telecommunications service components associated 
with either residential digital subscriber line services or dedicated 
internet access services that would qualify as special access services 
that we should also allow to migrate to incentive regulation? We 
anticipate that this approach will encourage competition for BDS in 
areas served by electing A-CAM carriers and reduce unnecessary 
regulatory burdens on electing A-CAM carriers. We seek comments on this 
proposal, including on the benefits and costs of this approach.
    10. The Commission has consistently acknowledged that incentive 
regulation can foster appropriate incentives for carriers to be 
efficient and to innovate. Under price cap regulation, as opposed to 
cost-based regulation, carriers have the incentive to become more 
efficient, to reduce costs, and to innovate as a means of increasing 
their profits. Moreover, an appropriate X-factor and periodic review by 
the Commission can ensure that carriers share some or all of these 
efficiencies with their customers. We invite parties to identify with 
specificity any short-comings in the proposal and to suggest 
alternatives that could achieve the objectives more efficiently. Given 
the well-recognized benefits of incentive regulation, we also seek 
comment on whether we should make this election mandatory for all A-CAM 
carriers.
1. Relieving Electing A-CAM Carriers of Rate-of-Return Regulation for 
Their Lower Speed TDM BDS Offerings
    11. We propose to relieve electing A-CAM carriers of a variety of 
regulatory obligations that pertain to rate-of-return regulation, 
including the obligation to perform cost studies. Rate-of-return 
carriers are required by our rules to perform relatively burdensome 
cost studies to support their rate development. Petitioners and other 
commenters identify elimination of cost studies as a primary benefit of 
allowing A-CAM carriers to elect incentive regulation. We invite 
parties to quantify the burdens of preparing cost studies (including 
costs and/or hours of labor) and comment on whether cost studies impose 
any special burdens on smaller carriers. We also seek comment on 
whether data from A-CAM carriers' cost studies are necessary in the 
performance of any Commission regulatory function. If so, will the 
benefits of the data collected from electing A-CAM carriers' cost 
studies outweigh the burden of requiring them to continue to provide 
that data when they are no longer offering cost-based services? Are 
there other, less burdensome ways of collecting the relevant data from 
electing A-CAM carriers that we should explore? Are there other issues 
we need to address before relieving A-CAM carriers of the burden of 
cost studies? If so, how shall we address them?
    12. We also propose to allow electing A-CAM carriers pricing 
flexibility for their lower capacity TDM services similar to that 
granted by the Commission in the BDS Order to price cap carriers in 
their provision of lower capacity TDM services in counties deemed 
noncompetitive by the competitive market test we adopted for price cap 
carriers. We propose to allow electing A-CAM carriers to offer term and 
volume discounts and contract-based services for their TDM transport 
and end user channel termination services offered at speeds at or below 
a DS3. Electing A-CAM carriers would be required to maintain generally 
available tariffed rates subject to incentive regulation for these 
lower speed TDM transport and end user channel terminations, and other 
special access services included in their tariffs. We seek comment on 
these proposals.
    13. We also propose to allow electing A-CAM carriers to remain in 
the NECA traffic-sensitive tariff for switched access services, and to 
continue to be subject to the switched access rate cap provisions of 
section 51.909 and the

[[Page 22926]]

Eligible Recovery rules in section 51.917 of the Commission's rules. We 
propose to require electing A-CAM carriers to remove their special 
access services from the NECA traffic-sensitive tariff. We seek comment 
on these proposals.
    14. We recognize that our proposed approach for electing A-CAM 
carriers treats TDM transport differently than the BDS Order does for 
price cap carriers. While the Commission found TDM transport to be 
competitive in price cap areas generally, here we propose to allow 
electing A-CAM carriers to convert lower speed TDM transport services 
to incentive regulation but not to immediately eliminate ex ante 
pricing regulation for them. We propose this different approach given 
that competition for such services may not be as robust in the less 
dense, more rural areas that A-CAM carriers typically serve. We seek 
comment on this aspect of our proposal, and on what data exist to 
confirm or invalidate our assumption. The Commission observed in the 
BDS Order that competitive transport services are typically deployed at 
locations where sufficient demand is aggregated to enable a competitor 
to justify investment. To what extent is there sufficient aggregated 
demand in A-CAM areas to justify the deployment of competitive 
transport? Are there instances where demand for TDM transport services 
may be increasing, creating the precondition for competitive entry in 
the future? Alternatively, has the overall decline in demand for TDM 
services also affected the demand for lower speed TDM transport 
services in A-CAM areas? Finally, we seek comment on allowing 
additional regulatory relief for A-CAM carriers' TDM transport offered 
at speeds at or below a DS3 in areas deemed competitive by a 
competitive market test we seek comment on below.
    15. We do not propose to transition electing A-CAM carriers to 
incentive regulation for switched access services. The transition 
provisions for switched access rates and Eligible Recovery rules for 
rate-of-return carriers adopted by the USF/ICC Transformation Order are 
well established, have been upheld on appeal, and have been partially 
implemented; disrupting these transitions would likely impose 
additional costs and increase uncertainty, deterring investment and 
deployment. We also seek comment on the benefits and costs of our 
proposed approach. The Petition sought an ``exception'' to Sec.  61.41 
of the Commission's rules (the so-called ``all or nothing'' rule), 
which requires all of a price cap carrier's study areas and rates, 
including those of affiliates and carriers it purchases or merges with, 
to be subject to price cap regulation. We propose to amend Sec.  61.41 
to create an exception for the alternative regulatory structure we 
propose in this NPRM, and we seek comment on this proposal. Are there 
any other rules we should consider waiving or amending in the context 
of this proceeding?
2. Implementing Optional Incentive Regulation for Lower Capacity TDM 
Services
    16. In this section, we make specific proposals regarding the terms 
of the incentive regulation we propose to adopt for electing A-CAM 
carriers and seek comment on these proposals.
a. Election
    17. We propose to require carriers that elect to move off rate-of-
return regulation for their BDS services to move to incentive 
regulation at the holding company level for study areas in all states 
that elected to receive A-CAM support rather than electing on an 
individual carrier or study area basis, as proposed by Petitioners. 
Requiring election at the holding company level will ensure cost 
savings from the elimination of annual cost studies to be realized by 
all affiliated carriers electing A-CAM support. Carriers have already 
had the opportunity to elect between A-CAM and cost-based support at a 
state-wide level. Allowing A-CAM carriers to elect regulatory treatment 
at a more disaggregated level would appear to be inconsistent with the 
underlying premise of price caps, which assumed a broad representation 
of carrier operations to provide a basis for establishing an industry-
wide productivity factor. Currently, there are 262 A-CAM companies when 
calculated at the state level and 207 when calculated at the holding 
company level. We invite parties to comment on the proposed level of 
election. Parties believing the proposed holding company level is too 
high should explain why a more disaggregated level would be in the 
public interest. Any explanation should include concrete examples of 
why the proposed level would preclude a significant number of A-CAM 
carriers from electing incentive regulation. Parties should address 
whether other aspects of the proposal could be modified to make the 
proposed level of election more acceptable.
    18. We propose to make incentive regulation for electing A-CAM 
carriers effective on the July 1st following adoption of an order in 
this proceeding, which is the deadline for the annual access tariff 
filing. Using July 1st will simplify the tariffing process for 
implementing any change and is consistent with the price cap rules' use 
of the prior calendar-year demand data for their price cap 
calculations. We invite parties to comment on this proposal, and to 
suggest other timing options that may work, identifying the benefits 
and drawbacks of such proposals. The proposals should address the 
periods for determining cost and demand for electing A-CAM carriers. We 
also invite parties to comment on whether we should allow a one-time 
opportunity to elect, or whether additional election opportunities 
should be allowed. If more than one opportunity to elect is offered, 
what should the timing be for any additional election opportunities?
    19. We have recently proposed making a second A-CAM offer. In the 
event that additional rate-of-return carriers become A-CAM carriers, we 
propose that they may elect to adopt incentive regulation at the next 
annual tariff filing date that follows their election. We also propose 
to allow the new electing A-CAM carriers to adopt the other lighter 
touch regulatory options that are available to electing A-CAM carriers 
at that time. We invite parties to comment on these proposals.
b. Initial Rate Levels
    20. We propose to allow electing A-CAM carriers that currently file 
their own tariffed rates for BDS offerings to use their existing rates 
to set their initial BDS rates under incentive regulation. The 
Commission used this method when allowing rate-of-return carriers 
filing their own rates to convert to price cap regulation. The demand 
to be used for the incentive regulation calculations would be that of 
the previous calendar year. The carrier would then apply the prescribed 
X-factor and the inflation factor, two variables in the Commission's 
existing formula for the price cap index (PCI), which would result in 
the proposed rates in the first year of incentive regulation, and each 
year thereafter. We invite parties to comment on this proposal. We ask 
that any party disagreeing with this approach submit a detailed 
proposal for setting initial rates, including an explanation of why its 
preferred approach would be equal to or better than the approach we 
propose.
    21. Establishing initial BDS rates for electing A-CAM carriers 
participating in the NECA traffic-sensitive pool is more complicated 
because they are charging a pooled rate, which does not reflect the 
actual costs of the pooling carrier. The NECA pool BDS rates are

[[Page 22927]]

therefore not the proper rates to use as initial BDS rates. We 
therefore propose that each electing A-CAM carrier in the pool 
establish its initial BDS rates by multiplying the NECA pool rate the 
carrier has been charging by a net contribution/recipient factor. Thus, 
an A-CAM carrier with more BDS revenues than the BDS settlements it 
receives from the pool would have its pool rate reduced commensurately. 
The opposite would occur for an electing A-CAM carrier that received 
more BDS settlements than the BDS revenues it produced. The carrier 
would then apply the prescribed X-factor and the inflation factor, 
which would result in the proposed rates in the first year of incentive 
regulation, and each year thereafter. This approach avoids the 
necessity of doing new cost studies for each study area of the electing 
A-CAM carriers. We invite parties to comment on this approach. 
Alternatively, commenters may suggest other approaches, such as doing 
cost studies for the preceding calendar year, or other twelve-month 
period. Parties making such alternative proposals should address the 
manner in which the alternative time period data would be incorporated 
into the incentive regulation calculations.
    22. Are there other approaches we should take in determining how 
electing A-CAM carriers should establish initial BDS rates? Are there 
other adjustments that we should make to our proposed initial rate 
setting process? For example, should the initial rates be lower than 
current rates because of the cost savings electing carriers will 
realize by moving to incentive regulation? If so, how much should be 
shared with consumers and how should such amount be determined? In a 
2012 waiver petition seeking to move from rate-of-return to price cap 
status, FairPoint Communications, Inc., proposed reducing its special 
access rates by a percentage of the anticipated cost savings. We invite 
parties to comment on these issues and to suggest how such amounts 
should be determined, especially if another cost study is to be 
avoided.
c. Special Access Basket, Categories and Subcategories
    23. Consistent with the BDS Order, we propose to retain the special 
access basket, categories and subcategories, and the attendant rules 
governing the allowed annual adjustments. We propose to require each 
electing A-CAM carrier to initialize its PCI for the special access 
basket and associated service band indices (SBIs) at 100 and to use the 
rate adjustment rules for price cap carriers contained in sections 
61.45-48 of our rules, as appropriate, to reflect the prescribed 
productivity factor, the inflation factor, and any required exogenous 
cost adjustment in the PCI, to ensure that the Actual Price Index (API) 
does not exceed the PCI, and that the SBIs for each category or 
subcategory do not exceed their upper limits. The category and sub-
category requirements are designed to limit the degree to which a 
carrier can raise rates in any given year in an effort to avoid anti-
competitive pricing. We invite parties to comment on this proposal. Are 
there other approaches we should take? Are there other categories or 
sub-categories needed for A-CAM carriers that were not necessary for 
price cap carriers? We request that parties recommending that we modify 
the categories or sub-categories explain why such a change would 
improve the functioning of the incentive regulation plan and/or the BDS 
market and produce benefits for consumers.
d. Productivity Factor and Measure of Inflation
    24. Consistent with the BDS Order, we also propose to adopt an X-
factor of two percent to reflect the productivity growth that electing 
A-CAM carriers are likely to experience in the provision of these 
services relative to productivity growth in the overall economy in the 
foreseeable future and to use Gross Domestic Product-Price Index (GDP-
PI) as the measure of inflation that electing A-CAM carriers will use 
in their PCI calculations. We do not propose to incorporate a consumer 
productivity dividend (CPD) adjustment into this X-factor. Based on the 
industry-wide analysis provided in the BDS Order and Petitioners' 
proposal that we use a two percent X-Factor, we believe an X-factor of 
two percent will ensure just and reasonable rates for BDS offered by 
electing A-CAM carriers, and that use of the GDP-PI is appropriate. We 
seek comment on this proposal.
    25. Are there reasons we should use a different productivity factor 
for electing A-CAM providers than we use for price cap carriers? We 
request that any party proposing a different productivity factor or 
measure of inflation factor describe with specificity how their 
proposed X-Factor is derived and why it would be a better forecast of 
the expected pattern of growth than what we propose herein.
    26. We also seek comment on the extent to which the voluntary 
nature of the election interacts with the appropriate level of the X-
Factor. For example, are there relationships between different factors 
that could warrant that the Commission increase or decrease the X-
Factor? Should the level of the X-Factor be affected by whether the 
carrier election is for all A-CAM study areas, or made on a more 
disaggregated level?
e. Exogenous Costs
    27. We seek comment on the treatment that should be accorded 
exogenous costs if we allow A-CAM carriers to elect to move to 
incentive regulation. Exogenous costs are those costs that are beyond 
the control of the carrier, as determined by the Commission. Section 
61.45(d) of our rules provides for an exogenous cost adjustment for 
price cap carriers to be apportioned on a cost-causative basis between 
price cap services as a group, and excluded services as a group. 
Exogenous cost changes attributed to price cap services are recovered 
from services other than those used to calculate the average traffic-
sensitive charge. A-CAM carriers have been removed from rate-of-return 
regulation for universal service purposes and for interstate access 
services other than BDS. We invite parties to address how the principle 
of cost causation should be applied in determining the amount of any 
exogenous costs to be assigned to the BDS basket for electing A-CAM 
carriers. We propose that exogenous costs be allocated based on a ratio 
of BDS revenues to total revenues from all regulated services and A-CAM 
universal service support payments. We invite parties to address 
whether some other basis would be preferable, including the rationale 
for the alternative approach.
f. Low-End Adjustment
    28. Consistent with the BDS Order, we propose to adopt a low-end 
adjustment mechanism to provide an appropriate backstop to ensure that 
electing A-CAM carriers are not subject to protracted periods of low 
earnings. Failure to include any adjustment for such circumstances 
could harm customers as well as shareholders of such a carrier as a 
below-normal rate-of-return over a prolonged period could threaten the 
carrier's ability to raise the capital necessary to provide modern, 
efficient services to customers. The low-end adjustment mechanism would 
permit a one-time adjustment to a single year's BDS rates to avoid 
back-to-back annual earnings below a set benchmark. If an electing A-
CAM carrier's BDS earnings fall below the low-end adjustment mark in a 
base year period, it would be entitled to adjust its rates upward to 
target earnings to the benchmark. We propose that, consistent with past

[[Page 22928]]

practice, the low-end adjustment benchmark should be set 100 basis 
points below the authorized rate of return for rate-of-return carriers. 
We propose that electing A-CAM carriers that exercise downward pricing 
flexibility (for example, by entering into a contract tariff with a 
customer), or elect the option to use generally accepted accounting 
practices (GAAP) rather than the Part 32 Uniform System of Accounts as 
set forth in our recent Part 32 Accounting Order, will be ineligible 
for a low-end adjustment.
    29. We invite interested parties to comment on the proposal to 
adopt a low-end adjustment mechanism. We ask parties to comment on 
whether this measure will ensure that electing A-CAM carriers have the 
opportunity to attract sufficient capital. We note that an A-CAM 
carrier would have to present cost data to support a claim for a low-
end adjustment. Because eliminating the need for cost studies is one of 
the driving objectives behind Petitioners' proposal, we ask parties to 
comment on whether there are alternative ways to make the required 
determinations short of performing a full cost study. Parties offering 
suggestions should explain the proposed mechanism in sufficient detail 
that a comparison to the results of a cost study can be made. We also 
seek comment on the appropriateness of setting the benchmark for the 
low-end adjustment at 100 basis points below the authorized rate of 
return for rate-of-return carriers. We note that this proposal would 
allow the benchmark to track the gradual reduction in the authorized 
rate-of-return as it transitions down.
g. Cost Assignment and Jurisdictional Separations Rules
    30. Pursuant to section 10 of the Act, and to implement our new 
incentive regulation for those A-CAM carriers that elect incentive 
regulation, we propose to forbear from application of our cost 
assignment rules, including jurisdictional separations requirements. 
Consistent with our previous forbearance orders for price cap carriers, 
we propose to define cost assignment rules to include the rules 
governing the assignment of costs and revenues by carriers. We seek 
comment on our proposed definition.
    31. In providing similar forbearance to price cap carriers, the 
Commission observed that such rules ``were developed when the ILECs' 
interstate rates and many of their intrastate rates were set under 
rate-based, cost-of-service regulation. The Commission has explained 
that `because price cap regulation severs the direct link between 
regulated costs and prices, a carrier is not able automatically to 
recoup misallocated non-regulated costs by raising basic service 
rates,' thus reducing incentives to shift non-regulated costs to 
regulated services.'' Does the same reasoning for forbearance apply to 
A-CAM carriers electing incentive regulation? Will the operation of the 
incentive regulation rules we propose make enforcement of the cost 
assignment and separations rules unnecessary to ensure just, reasonable 
and not unjustly or unreasonably discriminatory charges, practices, 
classifications, and regulations, or make enforcement of those rules 
unnecessary to protect consumers from unjust, unreasonable, and 
unjustly or unreasonably discriminatory rates, practices, 
classifications, and regulations? Is enforcement of such regulations 
unnecessary to protect consumers? Would forbearance be consistent with 
the public interest and would the reduction of regulatory burdens 
improve market competitiveness?
    32. We further propose to condition any grant of forbearance from 
application of the cost assignment and jurisdictional separations rules 
for an electing A-CAM carrier that froze their separations category 
relationships on its conducting a cost study for the preceding calendar 
year. The A-CAM carrier would then adjust the initialized BDS rates 
determined pursuant to the procedures described above by the results of 
the cost study. We invite parties to comment on this proposal and to 
identify any constraints that should be placed on application of the 
cost study results to the development of revised access charges, 
including BDS rates. For example, should a carrier be limited in the 
extent it may adjust the relative price relationships between business 
data services that may be established?
    33. Above, we propose procedures for electing A-CAM carriers to use 
in establishing initial BDS rates under incentive regulation that 
assume other factors remained unchanged. Forbearing from cost 
allocation and jurisdictional separations requirements for A-CAM 
carriers electing incentive regulation, however, would change one of 
the controlled factors. We invite comment on what adjustments, if any, 
we should allow an A-CAM carrier that elects to freeze its category 
relationships to make to its rates to ensure that its BDS rates are 
just and reasonable pursuant to section 201 of the Act.
h. GAAP Accounting
    34. We propose to allow electing A-CAM carriers to use GAAP for 
keeping their accounts, should they choose to do so. The Commission 
recently revised the Part 32 rules to allow price cap LECs to elect to 
use GAAP in recording and reporting their financial data, subject to 
two targeted accounting requirements. Electing carriers may either (a) 
calculate an Implementation Rate Difference between the attachment 
rates calculated by the price cap carrier under the Uniform System of 
Accounts (USOA) and under GAAP as of the last full year preceding the 
carrier's initial opting-out of Part 32 USOA accounting requirements; 
or (b) comply with GAAP accounting for all purposes other than those 
associated with setting pole attachment rates while continuing to use 
the Part 32 accounts and procedures necessary to establish and evaluate 
pole attachment rates. Electing carriers must adjust their annually 
computed GAAP-based rates by the Implementation Rate Difference for a 
period of 12 years after the election. This frees price cap carriers 
from having to maintain two sets of books: One for financial reporting 
purposes consistent with GAAP and one for regulatory reporting purposes 
consistent with the accounting requirements of Part 32. For the same 
reasons, we propose to allow electing A-CAM carriers to have the option 
to use GAAP. We propose to require electing A-CAM carriers that choose 
to use GAAP accounting to be subject to the same data provisioning 
requirements as price cap carriers, including the requirements relating 
to the calculation of pole attachment rates. As a result, such carriers 
will have to determine an Implementation Rate Difference to apply in 
calculating their pole attachment rates. We seek comment on this 
proposal. Are there other issues with allowing electing A-CAM carriers 
to use GAAP accounting that we should consider?

B. Providing a Path To Relieve Electing A-CAM Carriers of Ex Ante 
Pricing Regulation for Lower Speed End User Channel Terminations and 
TDM Transport in Competitive Areas

    35. We seek comment on whether we should adopt a competitive market 
test (CMT) to assess the availability of actual and likely competitive 
options in the provision of transport and last-mile services in areas 
served by electing A-CAM carriers and to remove from ex ante pricing 
regulation DS1 and DS3 end user channel terminations, TDM transport at 
speeds at or below a DS3, and other generally lower speed BDS

[[Page 22929]]

provided (or some subset of these services) by electing A-CAM carriers 
in areas that the CMT finds competitive. If so, what should be the 
elements of such a test and what are the costs and benefits of adopting 
such a test? We also seek comment on whether we should use different 
metrics and/or different tests to measure the competitiveness of lower 
speed end user channel terminations as compared to lower speed TDM 
transport services.
    36. If we adopt a CMT for electing A-CAM carriers, should we use 
the CMT the Commission adopted in the BDS Order for price cap carriers 
(the existing CMT) as a starting point? The existing CMT features two 
prongs, based on data from price cap study areas. The first measures 
whether 50 percent of the locations with BDS demand in a county are 
within a half-mile of a location that was served by a competitive 
provider, based on the 2015 Collection. The second uses Form 477 data 
to measure whether a cable operator offers a minimum of 10/1 Mbps 
broadband service in 75 percent of the census blocks in the county. If 
either prong is satisfied, that county is deemed competitive for price 
cap carriers' BDS. Below, we seek comment on several options for a CMT 
for electing A-CAM carriers, some of which include the use of the 
existing CMT. Beside the options we offer below, are there other 
options we should consider if we choose to adopt a CMT? What are the 
costs and benefits of each?
1. CMT Options
a. Rerun the Second Prong of the Existing CMT Using 477 Data for A-CAM 
Areas
    37. First, we seek comment on adopting a CMT that uses only a 
version of the second prong of the existing CMT using data from areas 
served by A-CAM carriers. Under this approach, we would rerun the 
second prong of the existing CMT using FCC Form 477 data only from 
electing A-CAM carriers' study areas. We would then deem competitive, 
for purposes of relieving electing A-CAM carriers' lower speed TDM BDS 
services from ex ante pricing regulation, any county where a cable 
operator or other competitive provider offers a minimum of 10/1 Mbps 
broadband service in 75 percent of the census blocks in the portion of 
the county served by an electing A-CAM carrier. This approach has the 
benefit of simplicity. It would allow us to use FCC Form 477 data that 
we regularly collect and would identify areas served by electing A-CAM 
carriers that competitors or potential competitors already serve. 
Because we would not be using the first prong of the existing CMT, 
there would be no need to conduct a BDS data collection for A-CAM 
carriers akin to the 2015 Collection. For a variety of reasons, we are 
not inclined to adopt an approach that would require another such 
large-scale data collection. The burdens associated with such a data 
collection would be substantial for A-CAM carriers and other providers 
of data, and could significantly delay Commission action without 
corresponding benefits. However, we invite comment on this issue. 
Because of the lack of cable service in many rate-of-return study 
areas, we recognize that this test will likely result in very few A-CAM 
counties being deemed competitive. Does that suggest this test is 
accurate in identifying competition in A-CAM areas? Are there other 
costs and benefits to this approach that we should consider?
b. Use the Results of the Existing CMT
    38. Petitioners propose that we apply the existing CMT to electing 
A-CAM carriers' BDS offerings. Under this proposal, an electing A-CAM 
carrier's lower speed TDM BDS offerings would be relieved of ex ante 
pricing regulation in those counties that have already been deemed 
competitive by the existing CMT. Petitioners recognize that there are 
78 purely rate-of-return counties that were not analyzed by the 
existing CMT. They propose to use the second prong of the existing CMT 
to determine whether those counties should be considered competitive. 
Petitioners argue that this approach would involve minimal 
administrative and compliance burdens and would avoid the need for 
revising and re-running the CMT for electing A-CAM carriers or 
analyzing any additional data.
    39. We seek comment on Petitioners' proposed approach. The existing 
CMT was developed for price cap carriers' service areas and involved 
analysis of competition only in price cap areas. The Commission did not 
consider competition in A-CAM markets. Is an analysis of existing or 
potential competition in price cap areas of a county an appropriate way 
to determine whether competition or potential competition exists in 
areas of that county served by an electing A-CAM carrier? Is it likely 
to result in deregulating lower speed TDM-based BDS services offered by 
electing A-CAM carriers in counties where such carriers will not face 
competitive pressure in pricing those services? Are there other 
benefits or drawbacks to this approach that we should consider?
c. Apply a Modified Two-Prong CMT to Areas Served by Electing A-CAM 
Carriers
    40. Another option would be to adopt a CMT for electing A-CAM 
carriers using prongs similar to those of the existing CMT, but using 
data specific to areas served by electing A-CAM carriers. We seek 
comment on this approach. We recognize that for purposes of the first 
prong of the new CMT, this approach would require a data collection 
sufficient to allow us to identify for each county served by an 
electing A-CAM carrier whether 50 percent of the locations with BDS 
demand in that part of the county are within a half-mile of a location 
that was served by a competitive provider. Such a collection could be 
limited to electing A-CAM carriers and their competitors. Nonetheless, 
we have reservations about the relative costs and benefits of 
conducting such a data collection. And, the current record is split on 
whether we should consider a new data collection. We seek comment on 
how to most efficiently collect relevant data and on whether the 
burdens of such a data collection outweigh the benefits. We also seek 
comment on other benefits and drawbacks to this option.
d. Adopt a CMT Based on a Market Analysis Specific to Areas Served by 
A-CAM Carriers
    41. A fourth option is to create a whole new CMT based on a 
competitive market analysis specific to BDS services in areas served by 
electing A-CAM carriers. Petitioners argue that the BDS market analysis 
conducted in the BDS Order with respect to price cap areas applies 
equally to rate-of-return areas served by A-CAM carriers. We seek 
comment on Petitioners' argument.
    42. In the BDS Order, the Commission conducted a broad, data-
driven, multi-faceted market analysis based on a comprehensive data 
collection to evaluate the extent of competition for BDS in price cap 
areas. The Commission's market analysis was informed by, but not 
limited to, traditional antitrust principles, such as the market power 
analysis performed by U.S. antitrust agencies. The Commission analyzed 
the product market, geographic market, barriers to entry, and other 
characteristics of price cap BDS markets.
    43. If we conduct a new market analysis, should it be similar to 
the market analysis conducted by the Commission in the BDS Order as a 
precondition to determining whether competition is sufficient to 
warrant lighter touch regulation in certain BDS

[[Page 22930]]

markets? If we do conduct a new market analysis, we propose to consider 
product and geographic markets, competitive entry, and other market 
attributes to ascertain the extent to which nearby potential BDS 
competitors are likely to temper price, resulting in reasonably 
competitive prices over the short- to medium-term (i.e., up to three to 
five years). Would this be the right approach to assessing the level of 
competition for BDS in A-CAM areas? What other approaches should we 
consider taking? How should we analyze transport under our market 
analysis? Would a competitive market analysis give us sufficient basis 
to go beyond the incremental deregulation of lower speed transport that 
we propose above? We ask commenters to support their positions with 
data that would help us determine whether markets are sufficiently 
competitive to warrant deregulatory treatment.
    44. Data for a Market Analysis. If we conduct a market analysis, 
what relevant data are available and what are the potential utility and 
limitations of the available data? Should we review FCC Form 477 data 
on mass market broadband service to determine the extent to which they 
serve as evidence of the presence of network facilities capable of 
delivering reasonably competitive BDS over the short- to medium-term 
(three to five years) in A-CAM areas? We seek comment on the data, 
methodologies, and modeling used to develop the A-CAM study area 
boundaries, including state-level location density data, the A-CAM 
model, and geocoded location data submitted to USAC and the extent they 
can assist us in analyzing the BDS market in A-CAM areas.
    45. To the extent the Commission's existing data sources are 
insufficient, we seek data from commenters on facilities-based BDS 
providers serving A-CAM areas that would help us to ascertain markets 
with reasonably competitive conditions to justify lighter touch 
regulatory treatment. Are there existing data similar to data collected 
as part of the 2015 Collection that would help us better understand or 
estimate the location of BDS demand in A-CAM areas, including consumers 
and business locations served (or readily served) by BDS, as well as 
data on market structure, demand, pricing, and competitive pressures in 
those areas? Does similar data exist that could identify BDS demand for 
transport in A-CAM areas? If we have to collect new data, what data 
should we collect and what is the most efficient way to collect it? 
Does the cost of conducting and analyzing such a data collection 
outweigh the benefits of conducting an A-CAM specific market analysis?
    46. Product Market. If we conduct a new market analysis, should we 
use the same analysis to define the product market for lower speed TDM 
end user channel terminations and transport in A-CAM areas as we used 
to define the product market for BDS in price cap areas in the BDS 
Order? We anticipate that the product market for BDS in A-CAM areas 
will closely resemble the BDS product market delineated in the BDS 
Order for price cap areas and seek comment on this belief and on 
potential differences that may exist between the two types of markets. 
Despite these similarities, we recognize that there may be differences 
between price cap areas and A-CAM areas that may affect the BDS product 
markets in these areas. Are there products that were marketed or 
supplied to BDS customers in price cap areas that are not in demand, 
marketed, or otherwise supplied in A-CAM areas as a BDS substitute, and 
to what extent do products that are not in the same BDS product market 
nonetheless exert competitive pressure on prices for BDS in A-CAM 
areas?
    47. Geographic Market. In the BDS Order, the Commission defined the 
geographic market in terms of ``the area to which consumers can 
`practically turn for alternative sources,' and within which providers 
can reasonably compete.'' Consistent with the BDS Order, should we 
define the geographic market as an area where customers have medium-
term competitive choices for BDS based on customer locations within a 
half mile of a location served over the facilities of at least one non-
incumbent competitive provider? We encourage commenters to provide data 
and analysis to support their positions.
    48. Competitive Entry. As part of our analysis, and consistent with 
the BDS Order, should we consider how varying market characteristics 
impact entry by non-incumbent competing BDS providers in A-CAM areas, 
along with evidence of entry barriers being overcome by traditional and 
non-traditional competing providers? We seek comment on identifiable 
market features in A-CAM areas, including carrier 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 a firm controls 
bottleneck facilities to help us identify where competition is 
sufficient to make imposing the burdens of ex ante pricing regulation 
unnecessary and counterproductive.
    49. We seek comment on the number, type, size, concentration, and 
market share of nearby BDS competitors (i.e., within a half-mile) that 
operate in A-CAM study areas, in the form of facilities-based wired 
communications network providers, that temper prices to reasonably 
competitive levels in the short- to medium-term.
    50. Consistent with the BDS Order, should we consider as part of 
our market analysis the extent to which providers and potential 
providers face barriers to enter the BDS marketplace in A-CAM areas? We 
seek comment on the timeliness, likelihood, and sufficiency of a 
competitor's entry into the BDS market in A-CAM areas. We seek comment 
on the barriers facing carriers for both lower speed TDM end user 
channel terminations and transport. How are the markets different? For 
example, in the BDS Order, the Commission found lower entry barriers 
for deploying TDM transport services than for end user channel 
termination services. Is this accurate for A-CAM carrier study areas as 
well? Would buildout and entry by an entrant be rapid enough to render 
incumbent LECs' attempts to set prices above competitive levels 
unprofitable? Would such entry occur over a longer timeframe, such as 
three to five years, and, if so, would that justify taking the same 
light touch regulatory approach here as taken in the BDS Order? To what 
extent is market entry profitable (and thus likely) based on projected 
expenditures and revenues from customers and potential customers? Is 
the presence of a second provider in the relevant geographic market, 
whether a non-incumbent LEC or a cable operator, sufficient to 
constrain prices to competitive levels? To what extent does the half-
mile test that was derived from the market analysis of price cap areas 
relate to demand densities in those areas that may not be present in A-
CAM areas? Finally, we seek comment on the extent incumbents and non-
incumbent entrants, particularly cable companies, are upgrading or 
building out their networks to sources of BDS demand in A-CAM study 
areas.
2. Updating CMT Results for A-CAM Carriers
    51. The BDS Order directed the Bureau to review the existing price 
cap CMT every three years using the second prong of the test based on 
Form 477 data. If we adopt a CMT for electing A-CAM carriers, we seek 
comment on whether we should conduct similar periodic reviews of any 
CMT we adopt for such carriers. For administrative ease, should we 
target the timing of our

[[Page 22931]]

initial review of the results of a CMT for electing A-CAM carriers to 
coincide with our initial review of price cap served areas? Under the 
BDS Order, counties that were determined to be competitive were no 
longer subject to review of their status in subsequent updates of the 
CMT. Should we treat A-CAM areas similarly? If not, we seek comment on 
alternatives to grandfathering those A-CAM areas.
3. Regulation in Areas Deemed Competitive by the CMT
    52. If we adopt a CMT for areas served by electing A-CAM carriers, 
consistent with the BDS Order, we propose to refrain from ex ante 
pricing regulation for lower speed transport and TDM end-user channel 
terminations in areas deemed competitive. We also seek comment on 
whether forbearing from section 203 tariffing requirements for these 
services in these areas would meet the statutory criteria of section 10 
of the Act. As we did in the BDS Order, we recognize the continuing 
applicability and importance of sections 201, 202, and 208 of the Act 
to ensure that consumers will remain protected from unjust and 
unreasonable rates in areas deemed competitive. We seek comment on this 
proposal.

IV. Removing Ex Ante Pricing Regulation From Packet-Based BDS and TDM-
Based BDS Providing Bandwidth in Excess of a DS3

    53. We also seek comment on whether we should eliminate ex ante 
pricing regulation of packet-based and TDM-based business data services 
providing bandwidth in excess of a DS3 offered by those carriers that 
elect to move their lower speed BDS offerings from rate-of-return 
regulation to incentive regulation. If so, should we provide 36 months 
for such a transition? If we transition these high-speed services, 
consistent with the BDS Order, we would continue to recognize the 
applicability and importance of sections 201, 202, and 208 of the Act 
in protecting consumers from unjust and unreasonable practices.
    54. With respect to price cap areas, the Commission's market 
analysis did ``not show compelling evidence of market power'' in 
incumbent LECs' provision of packet-based services and higher capacity 
TDM-based business data services (in excess of the bandwidth of a DS3), 
particularly for higher bandwidth services. We seek comment on whether 
these observations offer any insights on the nature and extent of 
competition in A-CAM areas. Are markets for higher capacity TDM-based 
BDS offerings (above the bandwidth of a DS3) and packet-based services 
likely to be sufficiently competitive in A-CAM areas over the next 
three to five years such that the harms of price regulation in these 
markets, most notably in terms of discouraging the extension of 
competition, are likely to be greater than any harms that may occur 
were we not to regulate? Are these markets sufficiently competitive to 
outweigh any benefits of ex ante pricing regulation? Parties are 
encouraged to provide evidence to support their arguments. We seek 
comment on the extent to which Commission or other data could 
facilitate our evaluation of competition in these areas, including Form 
477 mass market broadband data, A-CAM study area boundary data, A-CAM 
modeling data, and geocoded location data submitted to USAC. We invite 
commenters to identify specific data sources that could be useful to 
our inquiry and to explain their utility.
    55. The Commission also found that sales of TDM-based BDS by price 
cap carriers were declining due to product substitution, including 
customer loss to cable operators and other competitive providers. To 
what extent are purchasers substituting packet-based services for TDM-
based services in A-CAM areas? Are TDM-based services declining in A-
CAM areas at a rate similar to the decline in price cap areas? The 
Commission found declining prices for packet-based BDS across all 
bandwidths in price cap areas to be evidence of competitive conditions. 
Have prices for packet-based BDS in A-CAM areas also declined across 
all bandwidths? Are lower bandwidth packet-based services (at or below 
the level of a DS3) experiencing price changes in A-CAM areas as in 
price cap areas?
    56. We recognize that price cap carriers' provision of these 
services was generally relieved of ex ante pricing regulation prior to 
the BDS Order in a series of forbearance decisions. In contrast, A-CAM 
carriers provide these services subject to rate-of-return regulation. 
Would removing ex ante pricing regulation for these services for 
electing A-CAM carriers encourage competitive entry and network 
investment and provide an incentive for the transition to packet-based 
technologies as we found to be the case for price cap carriers? In the 
foregoing, we seek comment on the parameters of this potential 
transition. Are there other issues we should consider as we evaluate 
whether to remove ex ante pricing regulation for all packet-based and 
TDM-based services providing bandwidth in excess of a DS3 offered by 
electing A-CAM carriers?
    57. We seek comment on granting forbearance from section 203 
tariffing requirements for A-CAM carriers' provision of certain BDS 
after they elect incentive regulation. In the BDS Order, the Commission 
granted forbearance from the application of section 203 to each price 
cap LEC in its provision of any packet-based BDS and of circuit-based 
BDS above the DS3 bandwidth level. The Commission also granted 
forbearance from the application of section 203 to price cap incumbent 
LECs in their provision of BDS that comprise transport pursuant to 
section 69.709(a)(4) of the Commission's rules, and to DS1 and DS3 end 
user channel termination services and any other special access services 
currently tariffed in competitive counties or in non-competitive 
counties previously subject to Phase II pricing flexibility. The 
Commission concluded that ``[w]here a price cap LEC provides these 
services in competitive markets, application of section 203, including 
its tariffing requirement, is not necessary to ensure that the LEC's 
charges, practices, classifications, or regulations are just, 
reasonable, and not unjustly or unreasonably discriminatory. Nor is 
application of section 203 necessary to protect consumers.''
    58. While the Petition does not expressly request forbearance from 
tariffing requirements, we seek comment on whether to de-tariff certain 
electing A-CAM BDS offerings by granting forbearance from section 203 
tariffing obligations. We seek comment on whether we should remove ex 
ante pricing regulation of packet-based BDS and higher capacity TDM-
based services providing bandwidth in excess of a DS3 for A-CAM 
carriers that elect incentive regulation. Would forbearing from the 
tariffing requirement for these services meet the statutory criteria 
set by section 10 of the Act? Would de-tariffing these services promote 
competitive market conditions? Would de-tariffing reduce compliance 
costs, increase regulatory flexibility, increase incentives to invest 
in innovative products and services and thereby facilitate the 
technology transitions, or otherwise be in the public interest as the 
Petition asserts? If the Commission decides to forbear from section 
203, should it mandate or simply allow de-tariffing? Would mandatory 
de-tariffing further promote competition and drive down prices by 
requiring electing carriers to negotiate agreements to provide the de-
tariffed services that they offer?

[[Page 22932]]

V. Transition Mechanisms

    59. We seek comment on how to transition electing A-CAM carriers 
and the areas they serve if the Commission adopts a new lighter touch 
regulatory framework for their provision of BDS. The BDS Order provided 
certain mechanisms to facilitate the transition to the new regulatory 
framework that it established for price cap carriers. These mechanisms 
included a thirty-six month transition period in which de-tariffing is 
permitted but not mandated, a six month freeze of tariffed rates for 
end-user channel terminations in newly deregulated counties, and a 
grandfathering of existing contractual or other long-term BDS 
arrangements. We seek comment on the appropriateness of these and other 
mechanisms to aid in the transition of electing A-CAM areas to any new 
regulatory framework we establish for them. Are there other transition 
issues and mechanisms that may be unique to A-CAM carriers and the 
areas they serve that would help ensure an orderly transition? For 
example, should the Commission consider any additional mechanisms that 
would facilitate transitions for electing A-CAM carriers that 
participate in NECA pooling arrangements?

VI. Other Carriers

    60. We propose to offer the opportunity to elect the same type of 
regulatory relief that we propose to provide to electing A-CAM carriers 
to other rate-of-return carriers that currently receive fixed universal 
service support, rather than receiving support based on their costs. 
Such carriers include traditional rate-of-return carriers that are 
affiliated with price cap carriers and are therefore receiving support 
based on the Connect America Cost Model (CACM); rate-of-return carriers 
participating in the Commission's ``Alaska Plan''; and carriers that 
accept further offers of A-CAM support.
    61. Like A-CAM carriers, the members of each of these three groups 
of rate-of-return carriers all receive non-cost-based universal service 
support and therefore are routinely required to prepare cost studies 
only for their BDS. What are the costs and benefits of relieving them 
of existing pricing regulations and allowing them to elect the type of 
incentive pricing regulation we propose? Should we modify our proposed 
incentive regulation in any way to reflect differences in any of these 
types of carriers' circumstances? Are there any other types of carriers 
that should be eligible for our incentive regulation proposal and, if 
so, based on what rationale?

VII. ITTA/USTelecom Petition

    62. Throughout this NPRM, we seek comment on various aspects of the 
Petition for rulemaking filed by ITTA and USTelecom. However, the 
Petition differs in some ways from what we propose in this NPRM. Most 
fundamentally, it proposes that subject to certain conditions we simply 
allow model-based carriers to elect the same regulatory framework that 
the BDS Order provided for price cap carriers. It also proposes 
providing electing A-CAM carriers an opportunity for a one-time 
unfreezing of category relationships for purposes of jurisdictional 
separations. To the extent we have not already done so, we invite 
comment on the Petition and each of the proposals made therein.

VIII. Proposed Rule Changes

    63. We seek comment on the proposed rule changes that can be found 
in Appendix A. Those rule changes largely track the proposals made in 
this NPRM. They also include some corrections to what appear to be 
inaccuracies in our current rules. These proposed changes include 
changing (1) the cross reference to Sec.  61.3(aa) in Sec.  51.903(g) 
to Sec.  61.3(bb), (2) the cross reference to Sec.  61.3(ee) in Sec.  
61.41(d) to Sec.  61.3(ff), (3) the cross reference to Sec.  61.3(x) in 
Sec.  69.114 to Sec.  61.3(ff), and (4) the cross reference to Sec.  
69.801(g) in Sec.  69.805(a) to Sec.  69.801(h). These cross references 
have been rendered inaccurate because of changes in the definitions 
contained in Sec.  61.3 that occurred in other rulemaking proceedings 
or because they were incorrectly stated when added to our rules.

IX. Procedural Matters

    64. This 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 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 rule 1.1206(b). In proceedings governed by 
Rule 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.

A. Initial Regulatory Flexibility Analysis

    65. Pursuant to the Regulatory Flexibility Act (RFA), the 
Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the possible significant economic impact on small entities of 
the policies and actions considered in this Notice of Proposed 
Rulemaking. The text of the IRFA is set forth in Appendix B. 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 comment 
on the Notice of Proposed Rulemaking. The Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, will send a 
copy of this Notice of Proposed Rulemaking, including the IRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration (SBA).

B. Paperwork Reduction Act

    66. This document may contain proposed new or modified information 
collection requirements. The Commission, as part of its continuing 
effort to reduce paperwork burdens, invites the general public and the 
Office of Management and Budget (OMB) to comment on the information 
collection requirements contained in this document, as required by the 
Paperwork Reduction Act of 1995, Public Law 104-13. In addition, 
pursuant to the Small Business Paperwork Relief Act of 2002,

[[Page 22933]]

Public Law 107-198, we seek specific comment on how we might further 
reduce the information collection burden for small business concerns 
with fewer than 25 employees.

X. Initial Regulatory Flexibility Analysis

    67. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible significant economic impact 
on small entities by the policies and rules proposed in this Notice of 
Proposed Rulemaking (NPRM). The Commission requests written public 
comments on this IRFA. Comments must be identified as responses to the 
IRFA and must be filed by the deadlines for comments provided on the 
first page of the NPRM. The Commission will send a copy of the NPRM, 
including this IRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration (SBA). In addition, the NPRM and IRFA (or 
summaries thereof) will be published in the Federal Register.

A. Need for, and Objectives of, the Proposed Rules

    68. In this NPRM, we propose changes to, and seek comment on, our 
rate-of-return and business data services rules as they are applied to 
rate-of-return carriers that receive universal service support based on 
the Alternative-Connect America Cost Model (A-CAM), or under the 
Commission's universal service support mechanism for Alaska-based 
carriers (Alaska Plan), or is an affiliate of a price cap local 
exchange carrier operating pursuant to a waiver of Sec.  61.41 of our 
rules. In the NPRM, the Commission proposes to adopt a form of 
incentive regulation for A-CAM carriers' provision of business data 
services (BDS), conduct a market analysis to evaluate the 
characteristics of BDS markets served by A-CAM carriers, and adopt a 
new lighter touch regulatory framework for A-CAM carriers' BDS that in 
most respects parallels the framework recently adopted for price cap 
carriers in the BDS Order.

B. Legal Basis

    69. The legal basis for any action that may be taken pursuant to 
this NPRM is contained in sections 1, 4(i), 10, and 201(b) of the 
Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), 160, and 
201(b).

C. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply

    70. 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 and by the rule revisions on which the 
NPRM seeks comment, 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.
1. Total Small Entities
    71. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. Our actions, over time, may affect small entities that 
are not easily categorized at present. We therefore describe here, at 
the outset, three broad groups of small entities that could be directly 
affected herein. First, while there are industry specific size 
standards for small businesses that are used in the regulatory 
flexibility analysis, according to data from the SBA's Office of 
Advocacy, in general a small business is an independent business having 
fewer than 500 employees. These types of small businesses represent 
99.9% of all businesses in the United States which translates to 28.8 
million businesses.
    72. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of August 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    73. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, towns, 
townships, villages, school districts, or special districts, with a 
population of less than fifty thousand.'' U.S. Census Bureau data from 
the 2012 Census of Governments indicates that there were 90,056 local 
governmental jurisdictions consisting of general purpose governments 
and special purpose governments in the United States. Of this number 
there were 37,132 general purpose governments (county, municipal and 
town or township) with populations of less than 50,000 and 12,184 
special purpose governments (independent school districts and special 
districts) with populations of less than 50,000. The 2012 U.S. Census 
Bureau data for most types of governments in the local government 
category shows that the majority of these governments have populations 
of less than 50,000. Based on these data we estimate that at least 
49,316 local government jurisdictions fall in the category of ``small 
governmental jurisdictions.''
2. Broadband Internet Access Service Providers
    74. Internet Service Providers (Broadband). Broadband internet 
service providers include wired (e.g., cable, DSL) and VoIP service 
providers using their own operated wired telecommunications 
infrastructure fall in the category of Wired Telecommunication 
Carriers. Wired Telecommunications Carriers are comprised of 
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 size 
standard for this category classifies a business as small if it has 
1,500 or fewer employees. U.S. Census data for 2012 show that there 
were 3,117 firms that operated that year. Of this total, 3,083 operated 
with fewer than 1,000 employees. Consequently, under this size standard 
the majority of firms in this industry can be considered small.
3. Wireline Providers
    75. Wired Telecommunications Carriers. The U.S. Census Bureau 
defines this industry as ``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 communications 
networks. Transmission facilities may be based on a single technology 
or a combination of technologies. Establishments in this industry use 
the wired telecommunications network facilities that they operate to 
provide a variety of services, such as wired telephony services, 
including VoIP services, wired (cable) audio and video programming 
distribution, and wired broadband internet services. By exception, 
establishments providing satellite

[[Page 22934]]

television distribution services using facilities and infrastructure 
that they operate are included in this industry.'' 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. Census data for 2012 show that there were 3,117 firms that 
operated that year. Of this total, 3,083 operated with fewer than 1,000 
employees. Thus, under this size standard, the majority of firms in 
this industry can be considered small.
    76. Incumbent Local Exchange Carriers (Incumbent LECs). Neither the 
Commission nor the SBA has developed a small business size standard 
specifically for incumbent LEC services. The closest applicable size 
standard under SBA rules is for the category Wired Telecommunications 
Carriers as defined above. Under that size standard, such a business is 
small if it has 1,500 or fewer employees. According to Commission data, 
3,117 firms operated in that year. Of this total, 3,083 operated with 
fewer than 1,000 employees. Consequently, the Commission estimates that 
most providers of incumbent local exchange service are small businesses 
that may be affected by the rules and policies adopted. A total of 
1,307 firms reported that they were incumbent local exchange service 
providers. Of this total, an estimated 1,006 have 1,500 or fewer 
employees.
    77. 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 NAICS Code category is Wired 
Telecommunications Carriers, as defined above. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
U.S. Census data for 2012 indicate that 3,117 firms operated during 
that year. Of that number, 3,083 operated with fewer than 1,000 
employees. Based on this data, the Commission concludes that the 
majority of Competitive LECS, CAPs, Shared-Tenant Service Providers, 
and Other Local Service Providers, are small entities. 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. 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. Also, 72 carriers have reported that 
they are Other Local Service Providers. Of this total, 70 have 1,500 or 
fewer employees. Consequently, based on internally researched FCC data, 
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.
    78. 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.
    79. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a definition for Interexchange Carriers. The closest 
NAICS Code category is Wired Telecommunications Carriers as defined 
above. The applicable size standard under SBA rules is that such a 
business is small if it has 1,500 or fewer employees. U.S. Census data 
for 2012 indicates that 3,117 firms operated during that year. Of that 
number, 3,083 operated with fewer than 1,000 employees. According to 
internally developed Commission data, 359 companies reported that their 
primary telecommunications service activity was the provision of 
interexchange services. Of this total, an estimated 317 have 1,500 or 
fewer employees. Consequently, the Commission estimates that the 
majority of IXCs are small entities that may be affected by our 
proposed rules.
    80. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. The 
Telecommunications Resellers industry comprises establishments engaged 
in purchasing access and network capacity from owners and operators of 
telecommunications networks and reselling wired and wireless 
telecommunications services (except satellite) to businesses and 
households. Establishments in this industry resell telecommunications; 
they do not operate transmission facilities and infrastructure. Mobile 
virtual network operators (MVNOs) are included in this industry. Under 
that size standard, such a business is small if it has 1,500 or fewer 
employees. Census data for 2012 show that 1,341 firms provided resale 
services during that year. Of that number, all operated with fewer than 
1,000 employees. Thus, under this category and the associated small 
business size standard, the majority of these prepaid calling card 
providers can be considered small entities.
    81. Toll Resellers. The Commission has not developed a definition 
for Toll Resellers. The closest NAICS Code Category is 
Telecommunications Resellers. The Telecommunications Resellers industry 
comprises establishments engaged in purchasing access and network 
capacity from owners and operators of telecommunications networks and 
reselling wired and wireless telecommunications services (except 
satellite) to businesses and households. Establishments in this 
industry resell telecommunications; they do not operate transmission 
facilities and infrastructure. Mobile virtual network operators (MVNOs) 
are included in this industry. 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. Census data for 2012 show that 1,341 firms provided resale 
services during that year. Of that number, 1,341 operated with fewer 
than 1,000 employees. Thus, under this category and the associated 
small business size standard, the majority of these resellers can be 
considered small entities. According to Commission data, 881 carriers 
have reported that they are engaged in the provision of toll resale 
services. Of this total, an estimated 857 have 1,500 or fewer 
employees. Consequently, the Commission estimates that the majority of 
toll resellers are small entities.
    82. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a definition 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 NAICS Code category is for 
Wired Telecommunications Carriers as defined above. Under the 
applicable SBA size standard, such a business is small if it has 1,500 
or fewer employees. Census data for 2012 show that there

[[Page 22935]]

were 3,117 firms that operated that year. Of this total, 3,083 operated 
with fewer than 1,000 employees. Thus, under this category and the 
associated small business size standard, the majority of Other Toll 
Carriers can be considered small. According to internally developed 
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. 
Consequently, the Commission estimates that most Other Toll Carriers 
are small entities that may be affected by rules adopted pursuant to 
the Second Further Notice of Proposed Rulemaking.
    83. Operator Service Providers (OSPs). Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
operator 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, 33 carriers have reported that 
they are engaged in the provision of operator services. Of these, an 
estimated 31 have 1,500 or fewer employees and two have more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
OSPs are small entities.
    84. Prepaid Calling Card Providers. The SBA has developed a 
definition for small businesses within the category of 
Telecommunications Resellers. Under that SBA definition, such a 
business is small if it has 1,500 or fewer employees. According to the 
Commission's Form 499 Filer Database, 500 companies reported that they 
were engaged in the provision of prepaid calling cards. The Commission 
does not have data regarding how many of these 500 companies have 1,500 
or fewer employees. Consequently, the Commission estimates that there 
are 500 or fewer prepaid calling card providers that may be affected by 
the rules.
4. Wireless Providers--Fixed and Mobile
    85. Wireless Telecommunications Carriers (except Satellite). This 
industry comprises establishments engaged in operating and maintaining 
switching and transmission facilities to provide communications via the 
airwaves. Establishments in this industry have spectrum licenses and 
provide services using that spectrum, such as cellular services, paging 
services, wireless internet access, and wireless video services. The 
appropriate size standard under SBA rules is that such a business is 
small if it has 1,500 or fewer employees. For this industry, U.S. 
Census data for 2012 show that there were 967 firms that operated for 
the entire year. Of this total, 955 firms had employment of 999 or 
fewer employees and 12 had employment of 1000 employees or more. Thus 
under this category and the associated size standard, the Commission 
estimates that the majority of wireless telecommunications carriers 
(except satellite) are small entities.
    86. The Commission's own data--available in its Universal Licensing 
System--indicate that, as of October 25, 2016, there are 280 Cellular 
licensees that will be affected by our actions today. The Commission 
does not know how many of these licensees are small, as the Commission 
does not collect that information for these types of entities. 
Similarly, according to internally developed Commission data, 413 
carriers reported that they were engaged in the provision of wireless 
telephony, including cellular service, Personal Communications Service, 
and Specialized Mobile Radio Telephony services. Of this total, an 
estimated 261 have 1,500 or fewer employees, and 152 have more than 
1,500 employees. Thus, using available data, we estimate that the 
majority of wireless firms can be considered small.
    87. 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.
    88. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services, and specialized mobile radio 
telephony carriers. As noted, the SBA has developed a small business 
size standard for Wireless Telecommunications Carriers (except 
Satellite). Under the SBA small business size standard, a business is 
small if it has 1,500 or fewer employees. According to Commission data, 
413 carriers reported that they were engaged in wireless telephony. Of 
these, an estimated 261 have 1,500 or fewer employees and 152 have more 
than 1,500 employees. Therefore, a little less than one third of these 
entities can be considered small.
5. Satellite Service Providers
    89. Satellite Telecommunications Providers. This category comprises 
firms ``primarily engaged in providing 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.'' 
Satellite telecommunications service providers include satellite and 
earth station operators. The category has a small business size 
standard of $32.5 million or less in average annual receipts, under SBA 
rules. For this category, U.S. Census Bureau data for 2012 show that 
there were a total of 333 firms that operated for the entire year. Of 
this total, 299 firms had annual receipts of less than $25 million. 
Consequently, we estimate that the majority of satellite 
telecommunications providers are small entities.
6. Cable Service Providers
    90. Because section 706 requires us to monitor the deployment of 
broadband using any technology, we anticipate that some broadband 
service providers may not provide telephone service. Accordingly, we 
describe below other types of firms that may provide broadband 
services, including cable companies, MDS providers, and utilities, 
among others.
    91. Cable and Other Subscription Programming. This industry 
comprises establishments primarily engaged in operating studios and 
facilities for the broadcasting of programs on a subscription or fee 
basis. The broadcast programming is typically narrowcast in nature 
(e.g. limited format, such as news, sports, education, or youth-
oriented). These establishments produce programming in their own 
facilities or acquire programming from external sources. The 
programming material is usually delivered to a third party, such as 
cable systems or direct-to-home satellite systems, for transmission to 
viewers. The SBA has established a size standard for this industry 
stating that a business in this industry is small if it has 1,500 or 
fewer employees. The 2012 Economic Census indicates that 367 firms were 
operational for that entire year. Of this total, 357 operated with less 
than 1,000 employees. Accordingly we conclude that a substantial 
majority of firms in this industry are small under the applicable SBA 
size standard.
    92. Cable Companies and Systems (Rate Regulation). The Commission 
has developed its own small business size standards for the purpose of 
cable rate

[[Page 22936]]

regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers nationwide. Industry data 
indicate that there are currently 4,600 active cable systems in the 
United States. Of this total, all but eleven cable operators nationwide 
are small under the 400,000-subscriber size standard. In addition, 
under the Commission's rate regulation rules, a ``small system'' is a 
cable system serving 15,000 or fewer subscribers. Current Commission 
records show 4,600 cable systems nationwide. Of this total, 3,900 cable 
systems have fewer than 15,000 subscribers, and 700 systems have 15,000 
or more subscribers, based on the same records. Thus, under this 
standard as well, we estimate that most cable systems are small 
entities.
    93. Cable System Operators (Telecom Act Standard). The 
Communications 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 fewer than 1 percent of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' There are approximately 52,403,705 cable video 
subscribers in the United States today. Accordingly, an operator 
serving fewer than 524,037 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. Based 
on available data, we find that all but nine incumbent cable operators 
are small entities under this size standard. The Commission neither 
requests nor collects information on whether cable system operators are 
affiliated with entities whose gross annual revenues exceed $250 
million. Although it seems certain that some of these cable system 
operators are affiliated with entities whose gross annual revenues 
exceed $250 million, we are unable at this time to estimate with 
greater precision the number of cable system operators that would 
qualify as small cable operators under the definition in the 
Communications Act.
    94. All Other Telecommunications. ``All Other Telecommunications'' 
is defined as follows: This U.S. industry is comprised of 
establishments that are 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. The SBA has developed a 
small business size standard for ``All Other Telecommunications,'' 
which consists of all such firms with gross annual receipts of $32.5 
million or less. For this category, census data for 2012 show that 
there were 1,442 firms that operated for the entire year. Of these 
firms, a total of 1,400 had gross annual receipts of less than $25 
million. Consequently, we estimate that the majority of All Other 
Telecommunications firms are small entities that might be affected by 
our action.
7. Electric Power Generators, Transmitters, and Distributors
    95. Electric Power Generators, Transmitters, and Distributors. This 
U.S. industry is comprised of establishments that are 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. The 
closest applicable SBA category is ``All Other Telecommunications''. 
The SBA's small business size standard for ``All Other 
Telecommunications,'' consists of all such firms with gross annual 
receipts of $32.5 million or less. For this category, U.S. Census data 
for 2012 show that there were 1,442 firms that operated for the entire 
year. Of these firms, a total of 1,400 had gross annual receipts of 
less than $25 million. Consequently, we estimate that under this 
category and the associated size standard the majority of these firms 
can be considered small entities.

D. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities

    96. This NPRM proposes changes to, and seeks comment on, the 
Commission's rate-of-return and business data services rules. The 
objective of the proposed modifications is to reduce the unnecessary 
regulatory burdens and inflexibility of rate-of-return regulation for 
BDS services for A-CAM carriers, which are for the most part small 
businesses. These rule modifications would provide additional 
incentives for competitive entry, network investment and the migration 
to IP-based network technologies and services. The NPRM seeks comment 
on proposed rules that would generally reduce compliance requirements 
for A-CAM carriers that choose to opt into the new incentive regulation 
and regulatory framework for the provision of BDS.
    97. Under the Commission's rate-of-return rules, rates for business 
data services are based on costs derived from carrier-specific cost 
studies which represent a significant compliance burden for A-CAM 
carriers relative to their overall revenues. The NPRM proposes to 
transition these carriers to a form of incentive regulation that will 
enable these LECs to significantly reduce these compliance costs. The 
NPRM also proposes a new regulatory framework for A-CAM carriers' BDS 
that would in many cases eliminate ex ante pricing regulation and 
tariffing requirements for carriers electing incentive regulation.

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

    98. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed 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 and reporting requirements under the rules for such 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 
such small entities.
    99. The rule changes proposed by the NPRM would reduce the economic 
impact of the Commission's rules on A-CAM carriers that elect incentive 
regulation in the following ways. Electing A-CAM carriers would no 
longer be required to prepare annual cost studies to justify their BDS 
rates. Such carriers would also be freed of ex ante pricing regulation 
for many of their BDS offerings, including packet-based BDS, circuit-
based BDS above a DS3

[[Page 22937]]

bandwidth (about 45 Mbps) such as OCn services, and circuit-based end 
user channel terminations (e.g. DS1 and DS3) in geographic areas deemed 
to be competitive by a competitive market test. These proposed rule 
changes represent alternatives to the Commission's current rules that 
would significantly minimize the economic impact of those rules on 
electing A-CAM LECs. Finally, we seek comment as to any additional 
economic burden incurred by small entities that may result from the 
rule changes proposed in the NPRM.

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

    100. None.

XI. Ordering Clauses

    101. Accordingly, it is ordered, pursuant to sections 1, 4(i), 10, 
and 201(b) of the Communication Act of 1934, as amended, 47 U.S.C. 151, 
154(i), 160, and 201(b) that the Petition for Rulemaking filed by ITTA 
and USTelecom in this proceeding is granted to the extent described 
herein.
    102. It is further ordered, pursuant to sections 1, 4(i), 10, and 
201(b) of the Communication Act of 1934, as amended, 47 U.S.C. 151, 
154(i), 160, and 201(b) that this Notice of Proposed Rulemaking is 
adopted.
    103. It is further ordered, Pursuant to Section 220(i) of the 
Communications Act, 47 U.S.C. 220(i), that notice be given to each 
state commission of the above rulemaking proceeding, and that the 
Secretary shall serve a copy of this NPRM on each state commission.
    104. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Notice of Proposed Rulemaking, including the Initial 
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of 
the Small Business Administration.

List of Subjects

47 CFR Part 1

    Communications common carriers, Equal employment opportunity, 
Reporting and recordkeeping requirements, Telecommunications, 
Television.

47 CFR Part 32

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone, Uniform System of Accounts.

47 CFR Part 51

    Communications common carriers, Telecommunications.

47 CFR Parts 61 and 69

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.

Federal Communications Commission.
Marlene Dortch,
Secretary.

Proposed Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission proposes to amend 47 CFR parts 1, 32, 51, 61 
and 69 as follows:

PART 1--PRACTICE AND PROCEDURE

0
1. The authority citation for part 1 is revised to read as follows:

    Authority:  47 U.S.C. 151, 154(i), 154(j), 155, 157, 225, 227, 
303(r), 309, 1403, 1404, 1451, and 1452.
0
2. Section 1.1409 is amended by revising paragraph (g) to read as 
follows:


Sec.  1.1409  Commission consideration of the complaint.

* * * * *
    (g) A price cap company, or a rate-of-return carrier electing to 
provide service pursuant to Sec.  61.50 of this chapter, opts-out of 
Part 32 may calculate attachment rates for its poles, ducts, conduits, 
and rights of way using either Part 32 accounting data or GAAP 
accounting data. A company using GAAP accounting data to compute rates 
to attach to its poles, ducts, conduits, and rights of way in any of 
the first twelve years after opting-out must adjust (increase or 
decrease) its annually computed GAAP-based rates by an Implementation 
Rate Difference for each of the remaining years in the period. The 
Implementation Rate Difference means the difference between attachment 
rates calculated by the carrier under Part 32 and under GAAP as of the 
last full year preceding the carrier's initial opting-out of Part 32 
USOA accounting requirements.

PART 32--UNIFORM SYSTEM OF ACCOUNTS FOR TELECOMMUNICATIONS 
COMPANIES

0
3. The authority citation for part 32 continues to read as follows:

    Authority:  47 U.S.C. 219, 220 as amended, unless otherwise 
noted.

0
4. Section 32.1 is revised to read as follows:


Sec.  32.1  Background

    The revised Uniform System of Accounts (USOA) is a historical 
financial accounting system which reports the results of operational 
and financial events in a manner which enables both management and 
regulators to assess these results within a specified accounting 
period. The USOA also provides the financial community and others with 
financial performance results. In order for an accounting system to 
fulfill these purposes, it must exhibit consistency and stability in 
financial reporting (including the results published for regulatory 
purposes). Accordingly, the USOA has been designed to reflect stable, 
recurring financial data based to the extent regulatory considerations 
permit upon the consistency of the well-established body of accounting 
theories and principles commonly referred to as generally accepted 
accounting principles (GAAP). The rules of this part, and any other 
rules or orders that are derivative of or dependent on these Part 32 
rules, do not apply to price cap companies, and rate-of-return 
telephone companies offering business data services pursuant to Sec.  
61.50 of this chapter, that have opted-out of USOA requirements 
pursuant to the conditions specified by the Commission in section 
32.11(g).
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5. Section 32.11 is amended by revising paragraph (g) to read as 
follows:


Sec.  32.11  Companies Subject to this part.

* * * * *
    (g) Notwithstanding subsection (a), a price cap company, or a rate-
of-return telephone company offering business data services pursuant to 
Sec.  61.50 of this chapter, that elects to calculate its pole 
attachment rates pursuant to section 1.1409(g) of this chapter will not 
be subject to this Uniform System of Accounts.

PART 51--INTERCONNECTION

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6. The authority citation for part 51 continues to read as follows:

    Authority:  47 U.S.C. 151-55, 201-05, 207-09, 218, 220, 225-27, 
251-54, 256, 271, 303(r), 332, 1302.

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7. Section 51.903 is amended by revising paragraph (g) to read:


Sec.  51.903  Definitions.

* * * * *
    (g) Rate-of-Return Carrier is any incumbent local exchange carrier 
not subject to price cap regulation as that term is defined in Sec.  
61.3(bb) of this chapter, but only with respect to the

[[Page 22938]]

territory in which it operates as an incumbent local exchange carrier.
* * * * *

PART 61--TARIFFS

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8. The authority citation for part 61 continues to read as follows:

    Authority:  Secs. 1, 4(i), 4(j), 201-05 and 403 of the 
Communications Act of 1934, as amended; 47 U.S.C. 151, 154(i), 
154(j), 201-05 and 403, unless otherwise noted.

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9. Section 61.41 is amended by revising paragraph (d) and adding 
paragraph (f) to read as follows:


Sec.  61.41  Price cap requirements generally.

* * * * *
    (d) Except as provided in paragraph (e) of this section, local 
exchange carriers that become subject to price cap regulation as that 
term is defined in Sec.  61.3(ff) shall not be eligible to withdraw 
from such regulation.
* * * * *
    (f) Notwithstanding the requirements of paragraphs (c) and (d) of 
this section, a telephone company subject to rate-of-return regulation 
that is affiliated with a price cap local exchange carrier may provide 
business data services pursuant to Sec.  61.50 without converting other 
services to price cap regulation.
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10. Section 61.50 is added to read as follows:


Sec.  61.50  Incentive regulation of rate-of-return carrier provision 
of business data services.

    (a) A rate-of-return carrier, as defined in Sec.  51.903(g), has 
the option to offer business data services to customers pursuant to 
this section if the carrier
    (1) Receives universal service payments pursuant to the 
Alternative-Connect America Cost Model pursuant to Sec.  54.311;
    (2) Is an affiliate of a price cap local exchange carrier operating 
pursuant to a waiver of Sec.  61.41; or
    (3) Receives universal service payments pursuant to Sec.  54.306.
    (b) A rate-of-return carrier may not elect to offer business data 
services to customers pursuant to this section unless it notifies the 
Chief of the Wireline Competition Bureau at least 120 days before the 
effective date of the election. Carriers may only elect this option to 
be effective on July 1, [year].
    (c) A rate-of-return carrier may elect to offer business data 
services pursuant to this section only if all affiliated rate-of-return 
carriers make the election.
    (d) A rate-of-return carrier electing to offer business data 
services under this section may continue to participate in the NECA 
Traffic Sensitive Pool for access services other than business data 
services.
    (e) A rate-of-return carrier electing to offer business data 
services pursuant to this section shall employ the procedures outlined 
in Sec. Sec.  61.41 through .49 to adjust its indexes to the extent 
those sections are applicable to business data services, except that:
    (1) For the special access basket specified in Sec.  61.42(d)(5), 
the value of X for local exchange carriers offering service under this 
section shall be 2.0% effective July 1, [year]; and
    (2) Exogenous costs shall be allocated to business data services 
based on relative revenues, including any universal service support 
amounts.
    (f) Tariffs offering business data services pursuant to this 
section may offer those business data services at different rates in 
different study areas.
    (g) A rate-of-return carrier offering business data services 
pursuant to this section may make a low-end adjustment pursuant to 
Sec.  61.45(d)(1)(vii) of this subpart unless it:
    (1) Exercises the regulatory relief pursuant to paragraph (j) of 
this section in any part of its service region; or
    (2) Exercises the option to use Generally Accepted Accounting 
Principles rather than the Part 32 Uniform System of Accounts pursuant 
to Sec.  32.11(g).
    (h) Rate-of-return carriers electing to offer business data 
services pursuant to this section may offer transport and end user 
channel terminations that include:
    (1) Volume and term discounts;
    (2) Contract-based tariffs, provided that:
    (i) Contract-based tariff services are made generally available to 
all similarly situated customers;
    (ii) The rate-of-return carrier excludes all contract-based tariff 
offerings from incentive regulation pursuant to Sec.  61.42(f) of this 
subpart;
    (3) Ability to file tariff revisions on at least one day's notice, 
notwithstanding the notice requirements for tariff filings specified in 
Sec.  61.58 of this chapter.
    (j) A rate-of-return carrier electing to offer business data 
services pursuant to this section shall comply with the requirements of 
section 69.805 of this Chapter.
    (k) The regulation of other services offered by a rate-of-return 
carrier that offers business data services pursuant to this section 
shall not be modified as a result of the requirements of this section.
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11. Section 61.55 is amended by revising paragraph (a) to read as 
follows:


Sec.  61.55  Contract-based tariffs.

    (a) This section shall apply to price cap local exchange carriers 
permitted to offer contract-based tariffs under Sec.  1.776 or Sec.  
69.805 of this chapter, as well as to the offering of business data 
services by rate-of-return carriers pursuant to Sec.  61.50 of this 
part.
* * * * *

PART 69--ACCESS CHARGES

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12. The authority citation for part 69 continues to read as follows:

    Authority:  47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 
403.

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13. Section 69.114 is amended by revising paragraph (a) to read as 
follows:


Sec.  69.114  Special Access.

    (a) Appropriate subelements shall be established for the use of 
equipment or facilities that are assigned to the Special Access element 
for purposes of apportioning net investment, or that are equivalent to 
such equipment or facilities for companies subject to price cap 
regulation as that term is defined in Sec.  61.3(ff) of this chapter.
* * * * *
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14. Section 69.805 is amended by revising paragraph (a) to read as 
follows:


Sec.  69.805  Prohibition on certain non-disclosure agreement 
conditions.

    (a) In markets deemed non-competitive, buyers and sellers of 
business data services shall not enter into a tariff, contract-based 
tariff, or commercial agreement, including but not limited to master 
service agreement, that contains a non-disclosure agreement as defined 
in Sec.  69.801(h), that restricts or prohibits disclosure of 
information to the Commission, or requires a prior request or legal 
compulsion by the Commission to effect such disclosure.
* * * * *
[FR Doc. 2018-10338 Filed 5-16-18; 8:45 am]
 BILLING CODE 6712-01-P