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Proposed Rule

2000 Biennial Regulatory Review-Requirements Governing the NECA Board of Directors and Requirements for the Computation of Average Schedule Company Payments

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AGENCY:

Federal Communications Commission.

ACTION:

Proposed rule; comments requested.

SUMMARY:

In this document the Commission is seeking comment on certain of our rules pertaining to the National Exchange Carrier Association (NECA). In particular, we propose to eliminate the annual election requirements for NECA's board of directors. We also propose to streamline the average schedule formula process. Our goal in this proceeding is to eliminate rules that may no longer be necessary in the public interest, reduce unnecessary regulatory burdens on the industry, including small entities, and update our rules and processes with measures that are more appropriate in today's marketplace.

DATES:

Written comments by the public are due on or before October 22, 2001, reply comments are due on or before November 5, 2001.

ADDRESSES:

Federal Communications Commission 445-12th Street, SW, TW-A325, Washington, D.C. 20554.

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FOR FURTHER INFORMATION CONTACT:

Mark Stone, Accounting Safeguards Division, Common Carrier Bureau, at (202) 418-0816 or Andrew Mulitz, Accounting Safeguards Division, Common Carrier Bureau, at (202) 418-0827.

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SUPPLEMENTARY INFORMATION:

This is a synopsis of the Commission's Notice of Proposed Rulemaking (NPRM), CC Docket No. 01-174, FCC 01-218, adopted July 31, 2001 and released August 31, 2001. In this NPRM, we seek comment on certain of our rules pertaining to the NECA. In 1983, the Commission adopted rules providing for an exchange carrier association to administer access tariffs and to establish and operate a high cost fund. Beginning in 1984, all local exchange carriers participated in a mandatory common line tariff, and most participated in a traffic sensitive tariff. For each of these tariffs, the exchange carrier association, NECA, operates pooling mechanisms to collect and distribute revenues among its participating carriers. At that time, the Commission adopted rules relating to the governance and functioning of NECA. As part of our 2000 biennial regulatory review process, we now re-examine these rules in light of today's marketplace. In particular, we propose to eliminate the annual election requirements for NECA's board of directors under § 69.602 and seek comment on whether other measures, such as staggered terms and term limits are necessary. We also propose to streamline the average schedule formula process under § 69.606. Our goal in this proceeding is to eliminate rules that may no longer be necessary in the public interest, reduce unnecessary regulatory burdens on the industry, including small entities, and update our rules and processes with measures that are more appropriate in today's marketplace. We seek comment on the extent to which these proposals will achieve this goal.

I. Board of Directors

Today, all ILECs, regardless of size, are members of NECA. Membership in NECA is grouped into three divisions or subsets: Bell Operating Companies (Subset 1); other carriers with annual revenues of $40 million or more (Subset 2); and all remaining carriers (Subset 3). Each of the subsets is represented on NECA's 15-member board of directors, which governs the Association. The 15-member board is composed of 10 ILEC representatives—two from Subset 1, two from Subset 2, and six from Subset 3—and five directors from outside the telecommunications industry representing all three subsets (outside directors). Each subset nominates and elects its own representatives and outside directors are elected by the entire NECA membership. As required under our rules, all board members are selected through an annual election and serve a term of one year.

NECA proposes that the Commission revise §§ 69.602(e) and 69.602(f) to provide for periodic elections for the board of directors, instead of annual elections. In addition, NECA proposes eliminating § 69.602(i), which specifies that directors shall serve one-year terms. We seek comment on NECA's proposals and on the specific benefits that changes to the annual election requirement and one-year term limit for board members would provide to ILEC members. Commenters should discuss whether the elimination of the annual election requirements would have any impact on adequate representation of the member companies and should also address the appropriate length of the board members' term and whether term limits should be specified in our rules. We note that under our rules, we have adopted a three-year term for directors that serve on the board of USAC, NECA's independent subsidiary. Would a similar term appointment be appropriate for NECA board members? We also seek comment on alternative proposals that may be appropriate to consider at this time. For instance, would staggered terms, which would provide that the entire board would not run for election at the same time, be appropriate, and if so, does this alternative sufficiently address the cost burdens that NECA identified as being associated with annual elections?

II. Average Schedule Formulas

A. NECA's Historical Role and the Changing Regulatory Environment

NECA was established, and continues today, to develop and file interstate access tariffs and to administer interstate access revenue pools. In the initial years following the Commission's adoption of uniform access charge rules, all ILECs were subject to rate-of-return regulation, and all ILECs were required to participate in NECA's access tariff and common line pooling process. Under our access charge rules, ILECs were compensated either on the basis of their costs or under average schedules, which were permitted for some carriers as a way to avoid imposing the burdens and costs associated with performing cost separations studies needed to determine access charges. From a regulatory perspective, the access charge model sought to ensure that ILECs charged customers an amount that covered their interstate costs, assessed charges through cost-causative rate Start Printed Page 48407elements that reflected the structure of the access network, and provided a reasonable return on their interstate investment.

Over the years, fundamental changes have occurred in the regulatory regime that governs access charges and tariff obligations, including the mandatory requirement that all ILECs participate in NECA's access tariff and common line pooling process. While allowing rate-of-return regulation to continue for some ILECs, our regulatory model governing access charges changed significantly in 1991, particularly with the adoption of price caps for the largest ILECs. The 1996 Act called for further reforms. Today, our regulatory concern is focused on providing sufficient incentives for ILECs to become more efficient, eliminating implicit subsidies, and aligning access charge rate structure components with cost-causation principles. Today, none of the largest ILECs participates in NECA's access tariff and pooling process. These ILECs instead charge access rates pursuant to the CALLS Order, FR 65 57739 (September, 26, 2000). Many ILECs that remain subject to rate-of-return rules have also elected not to participate in NECA's tariff and pooling process, but file their own access tariffs. Moreover, the Commission has sought comment on measures to reform the current access charge policies and adopt optional incentive regulation for rate-of-return carriers, as detailed in a proposal submitted by the Multi-Association Group (MAG Plan).

Our tariff requirements have changed as well. For all ILECs that file tariffs, we have engaged in continuous efforts to review, revise, and update rules to make our processes more streamlined. Today, ILEC tariffs are no longer subject to the filing and approval requirements that were in place in 1983, but are subject to abbreviated review and effective date periods of either 7 or 15 days. In addition, as the Federal-State Joint Board on Separations continues its efforts to bring about comprehensive reform of the jurisdictional separations rules, the Commission has simplified the separations process by adopting a five-year interim freeze of the Part 36 category relationships and allocation factors for price cap carriers and a five-year interim freeze of allocation factors for rate-of-return carriers. The separations freeze will provide substantial regulatory relief to all ILECs that must separate costs between interstate and intrastate jurisdictions until separations reform is completed.

Our reforms and various other streamlining measures have generally applied to price cap LECs and have been aimed at providing the ILECs with greater flexibility to set interstate access rates and to enable ILECs to compete more efficiently as competition develops, gradually replacing regulation with competition as the primary means of setting prices. Further streamlining and elimination of regulations will occur as competitive market forces emerge.

NECA's joint tariff and settlement process, however, has not been subject to the reform and streamlining measures that have taken place for the access charge and tariff requirements of the largest ILECs and other ILECs that file outside the NECA process. Currently, approximately 1,240 ILECs, consisting of about 700 cost companies and about 540 average schedule companies, continue to participate in NECA's tariff and settlement process. We recognize that over the years NECA's pooling process has provided ILECs with an efficient and streamlined alternative to individual tariff filings, and continues today to provide benefits to participating ILECs, particularly the small and rural ILECs. We believe, however, that review of our rules and the long-standing practices surrounding NECA's tariff and settlement process for average schedule companies is appropriate and necessary at this time. Our goal is to eliminate unnecessary and complex requirements affecting carriers that may no longer be in the public interest. As discussed further, our review of NECA's tariff and settlement process in this proceeding examines whether certain rules and practices applicable to the average schedule process continue to be necessary, and whether there may be alternative measures that are more appropriate in today's environment.

B. NECA's Current Tariff Development and Settlement Process

Under NECA's current access tariff and settlement process, NECA collects data from participating ILECs to develop the interstate access tariff rates. These tariff rates reflect the actual interstate costs of cost companies and the estimated interstate costs of the average schedule companies. Data collected from cost companies include detailed cost studies that determine jurisdictional separations and cost allocations. Data collected from average schedule companies do not include such detailed cost studies. Rather, NECA uses interstate factors derived from the cost companies to estimate interstate costs for average schedule companies. ILECs participating in NECA's access tariffs charge interexchange carriers (IXCs) for access at the rates set out in NECA's tariff. NECA pools the interstate access revenues collected by participating ILECs, and, through the settlement process, distributes compensation among pool members. Cost companies receive compensation for the use of their facilities in originating and terminating interstate common carrier communications services on the basis of their actual interstate costs, including a return on investment. Average schedule companies receive compensation for the use of their facilities on the basis of average schedules formulas, which are developed by NECA and established, in part, by using estimated costs derived from cost companies.

Resources devoted both by NECA and by the Commission to average schedule formulas may be disproportionate, particularly given the fact that average schedule companies' billed access charges and settlement revenues represent a relatively small component of the NECA pools. Moreover, NECA's current process for developing average schedule formulas may be unnecessarily complex in light of our extensive reform and simplification efforts for the largest ILECs and for ILECs that file outside the NECA process. We find it is appropriate to examine the requirements and practices pertaining to NECA's tariff and settlement process for average schedule companies and seek comment on various reform and simplification measures. As discussed further, we seek comment on both the manner in which NECA develops its average schedule formulas, and consequently our review and approval process of NECA's proposed formula modifications.

(1) Computation of Average Schedule Company Payments Through Average Schedule Formulas

The rule governing the development of average schedule formulas is broadly stated in § 69.606(a). NECA must develop formulas designed “to produce disbursements to an average schedule company that simulate the disbursements that would be received * * * by a [cost] company that is representative of average schedule companies.” The rule provides NECA with flexibility on how to develop these formulas. NECA has chosen to implement the rule through a process that involves extensive data collection and detailed analysis of cost company data, statistical sampling of average schedule company data, and regression and related statistical estimations. Currently, NECA develops ten separate average schedule formulas for use in its access tariffs and two average schedule Start Printed Page 48408formulas for obtaining support from the Universal Service Fund (USF).

NECA's average schedule formula development process includes the following steps: (1) Collection of cost accounting data, including jurisdictional separations cost data and demand data (e.g., access line counts, number of exchanges, access minutes) from a sample of cost companies; (2) determination of jurisdictional cost relationships for the sample cost companies; (3) collection of certain accounting cost data and demand data from a sample of average schedule companies; (4) application of the cost relationships determined in Step 2 to the sample average schedule companies to estimate jurisdictional costs for the sample average schedule companies; (5) development of mathematical models using Steps 3 and 4 to determine estimated interstate costs for the sample average schedule companies; (6) use of statistical regression techniques to develop formulas that relate estimated interstate costs of the average schedule company to various commonly-used demand units (e.g., access lines per exchange); (7) development of settlement formulas using Step 5; and (8) adjustment for projected changes in costs and demand.

The Commission does not mandate the formula development process, but rather it is the process that NECA has chosen to use to meet the requirements of § 69.606(a) of our rules. Each year NECA engages in this process to determine whether to propose revisions to the current average schedule formulas. Consequently, each year but one NECA has filed proposed revisions with the Commission that consist of complicated, detailed, and extensive formula computations. This process is costly for NECA, interested parties that participate in the review of NECA's proposals, and the Commission. The current process clearly is not commensurate with our access charge reforms and streamlining measures for the largest ILECs, and we believe that a more streamlined approach is warranted.

Initially, we note that the premise of the entire rule governing the average schedule process is rate-of-return regulation. The Commission has long abandoned rate-of-return regulation for incentive regulation for the largest ILECs and now has under consideration the MAG Plan for non-price cap ILECs, which proposes to provide these carriers with the option to elect incentive regulation and thereby leave rate-of-return and average schedule regulatory models altogether. In light of such reform effort, we seek comment on whether and how § 69.606(a) should be modified. Our long-term goal is to get out of the business of rate regulation of ILECs where competitive market forces make regulatory oversight unnecessary. Recognizing, however, that transition will occur over a period of time, and that for the foreseeable future, certain carriers may remain average-schedule carriers, how can we modify the existing rule to better reflect today's marketplace? In particular, as long as some companies remain on average schedules, is there a simpler but fair way to determine payments for these companies? Should the Commission continue to require that disbursements simulate the disbursements that would be received by a cost company representative of the average schedule companies? Should the similar disbursement language in § 69.606(a) be eliminated or revised to reflect some measure other than cost, such as, inflation, line growth, or network utilization? What are the benefits of such modifications?

We seek comment on several options to streamline the manner in which the average schedule formulas are developed by NECA. The Commission recently froze for five years the separations allocation factors for all carriers and gave rate-of-return carriers the option of electing to freeze their separations category relationships as well. In light of this freeze, the first step of NECA's current formula development process already will be streamlined, because NECA no longer will need to determine on a yearly basis the separations allocation factors from a sample of cost companies. One measure that would further simplify the formula development process would be to utilize the cost relationships from a sample of cost companies for a baseline year in developing formulas for average schedule companies in future years. The net effect of the newly adopted separations freeze and this proposal would be to eliminate the need to examine on a yearly basis the jurisdictional cost relationships for the sample of cost companies; the relationships and ratios derived from the baseline year would be used to develop formulas for average schedule company payments in future years. This would eliminate much of the first and second step of NECA's current process to develop average schedule formulas, as previously described.

A second option would be for NECA to use the current approved average schedule formula structures in developing specific formulas for payments to average schedule companies in future years. This option would further streamline the formula development process by making it unnecessary for NECA to develop mathematical models to estimate the costs of average schedule companies, effectively eliminating the fifth step of the process currently used by NECA.

A third option would be for NECA to utilize the current formula structures and coefficients in developing formulas in future years for payments to average schedule companies. This option would significantly simplify NECA's current formula development process, essentially placing a freeze on the current formula methodologies. As a result, NECA would no longer need to conduct regression analysis to develop formulas that relate company costs to commonly-used demand units, thereby effectively eliminating the sixth step of the process currently used by NECA.

If formula structures or formula coefficients were frozen in some fashion, there may be a need periodically to make adjustments to the existing formulas to reflect more global changes in the marketplace. If formulas were frozen in some fashion, would it be appropriate to require, or permit, NECA periodically to re-evaluate the formulas to take into account general trends in inflation, cost, demand growth, or network underutilization? If so, what specific time frame would be appropriate for re-evaluation of aspects of the current formulas?

We seek comments on these proposed options and other alternatives. Will relevant trends in demand growth and inflation provide a sufficient basis for reasonable changes in payment amounts? We note that any carrier that believes the average schedule formulas do not produce disbursements appropriate to its circumstances is free, under our existing rules, to settle with NECA based on its actual costs. Should average schedule company productivity factors be considered? Could the proposed options be implemented in conjunction with access reform for rate-of-return carriers? What implications do the proposed options have on interstate access charges in rural and small exchanges? How best can the Commission be assured that average schedule formulas result in appropriate interstate rates in areas where marketplace competition has not developed? Is a different method required if competition exists in a given area? If so, what should that method be?

(2) Commission Review and Approval Cycle

Pursuant to § 69.606(a), payments to average schedule companies are made “in accordance with a formula approved Start Printed Page 48409or modified by the Commission.” As required under § 69.606(b), NECA either files its proposed revisions for average schedule formulas on or before December 31 of each year, or certifies that no revisions are necessary. Once received, the Commission places NECA's filing on public notice and seeks comment from interested parties. Generally, the Commission's review of NECA's annual average schedule formula filing is complete and an order is issued approving or modifying NECA's proposed formulas before the effective date of NECA's annual access tariffs on July 1. NECA's annual tariffs are based, in part, on the average schedule formulas approved by the Commission.

Over the years, the Commission has undertaken a careful review of NECA's proposed formula revisions, which to date have involved extensive and complex cost studies, regression models, and other statistical measures and estimation theory. We seek to adopt a more streamlined and flexible procedural process for average schedule companies. In particular, we believe that if the formula development process is streamlined, a concomitant streamlining of the review process should follow. In addition, we note that the review periods today are much shorter for most Commission tariff filings. For example, pursuant to our rules, NECA's annual joint access tariff is filed on June 15 with an effective date of July 1, a fifteen-day review cycle.

NECA has proposed that the Commission consolidate its review of NECA's proposed revisions to the average schedule formulas with its review of NECA's access tariff filing. We seek comment on the feasibility of consolidating these two review periods, which we believe would significantly reduce regulatory burdens on NECA. We note that the current tariff filings are subject to a 7 or 15 day review process. We ask parties to comment on whether a 7 or 15 day review period will adequately accommodate both reviews of the tariff filing and the revised average schedule formulas. What benefits would be obtained through a shortened review process of the average schedule formulas? Will the Commission or interested parties have a reasonable opportunity to address issues raised by proposed formula revisions? Do the benefits of a shortened review period outweigh any burdens on the Commission and interested parties to review, comment on, and, if necessary, modify the formulas in this shortened time period? Commenters should also address whether the length of the formula review process should depend on whether NECA simplifies its process for formula development. If the average schedule formula development process were streamlined as set forth in one of the options proposed previously, a more abbreviated review period could be appropriate. We ask parties to comment on whether this combined filing process would permit interested parties to review and comment on the proposed formulas. We also ask parties to comment on whether it is appropriate for us to limit our review to the tariff filing only. What impact would our lack of oversight of the average schedule formulas have on customers of interstate access (namely, long distance companies), and, ultimately, long distance rates, particularly in areas where an average schedule company is not subject to competition from alternative providers of interstate access?

Finally, we note our concern that as we seek to further simplify the current access charge process surrounding average schedule companies, we must also seek to encourage investment and deployment of new services in areas served by average schedule companies. In addition, particularly in areas where there are no competitive alternative providers of exchange access, we remain concerned that consumers are not burdened with higher long distance rates because access charges are overstated. We seek comment on rule changes that will best address these concerns, while minimizing regulatory burdens, providing incentives for investments and new services, and protecting consumers.

Procedural Issues

C. Ex Parte Presentations

This is a permit-but-disclose rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, if disclosed as provided in the Commission's rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206.

D. Initial Regulatory Flexibility Certification

The Regulatory Flexibility Act of 1980, as amended (RFA), requires that an RFA analysis be prepared for notice-and-comment rulemaking proceedings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” The RFA generally defines “small entity” as having the same meaning as the terms “small business,” small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). In this Notice of Proposed Rulemaking, we seek comment on certain of our rules pertaining to the National Exchange Carrier Association (NECA), which operates pooling mechanisms to collect and distribute revenues among its participating carriers. In particular, we propose to eliminate the annual election requirements for NECA's board of directors under § 69.602 and seek comment on whether other measures, such as staggered terms and term limits are necessary. We also propose to streamline the average schedule formula process under § 69.609.

We certify, pursuant to RFA, that the proposed rules will not have a significant economic impact on a substantial number of small entities. NECA is a non-profit, quasi-governmental association created to administer the Commission's interstate access tariff and revenue distributions processes. Because the proposed rule amendments affect only NECA directly, we find that no substantial number of small entities are potentially affected by our action. In addition, any economic effect that might result is positive (de-regulatory) and not significant. The Commission will send a copy of this Notice of Proposed Rulemaking, including this initial certification, to the Chief Counsel for Advocacy of the Small Business Administration, and it will be published in the Federal Register.

E. Comment Filing Procedures

Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, Written comments by the public are due on or before October 22, 2001, reply comments are due on or before November 5, 2001. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies.

Comments filed through the ECFS can be sent as an electronic file via the Internet to http://www.fcc.gov/​e-file/​ecfs.html. Generally, only one copy of an electronic submission must be filed. If multiple docket or rulemaking numbers appear in the caption of this proceeding, however, commenters must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the caption. In completing the transmittal screen, commenters should include their full Start Printed Page 48410name, Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions for e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and should include the following words in the body of the message, “get form <your e-mail address>.” A sample form and directions will be sent in reply.

Parties who choose to file by paper must file an original and four copies of each filing. If participants want each Commissioner to receive a personal copy of their comments, an original plus nine copies must be filed. If more than one docket or rulemaking number appear in the caption of this proceeding, commenters must submit two additional copies for each additional docket or rulemaking number. All filings by paper must be sent to the Commission's Secretary: Magalie Roman Salas, Office of the Secretary, Federal Communications Commission, 445 12th Street, SW, Washington, DC 20554.

Parties who choose to file by paper should also submit their comments on diskette. Diskettes should be submitted to: Ernestine Creech, Room 6 C-317, Accounting Safeguards Division, Federal Communications Commission, 445 12th Street, S.W., Washington, D.C. 20554. The required diskette copies of submissions should be on 3.5-inch diskettes formatted in an IBM compatible format using Word or compatible software. Each diskette should be accompanied by a cover letter and should be submitted in “read only” mode. The diskette should be clearly labeled with the commenter's name, proceeding (CC Docket No. 01-174), type of pleading (comment or reply comment), date of submission, and the name of the electronic file on the diskette. The label should also include the following phrase “Disk Copy—Not an Original.” Each diskette should contain only one party's pleadings, preferably in a single electronic file. In addition, parties who choose to file by paper must send diskette copies to the Commission's copy contractor, Qualex International, Portals II, 445 12th Street, SW, Room CY-B402, Washington, DC 20554. Comments and reply comments will be available for public inspection during normal business hours in the FCC Reference Information Center, Courtyard Level, Suite CY-A257, 445 12th Street, SW, Washington, DC.

Ordering Clauses

Pursuant to the authority contained in sections 1, 4(i), 11, 201-205, 218-220, 254, and 403 of the Communications Act of 1934, as amended, 47 U.S.C., 151, 154(i), 161, 201-205, 218-220, 254, and 403 this Notice of Proposed Rulemaking is hereby Adopted.

The Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this Notice of Proposed Rulemaking, including the Initial Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business Administration.

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Federal Communications Commission.

Magalie Roman Salas,

Secretary.

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[FR Doc. 01-23495 Filed 9-19-01; 8:45 am]

BILLING CODE 6712-01-P