II. Background

III. Issues
The Payphone Marketplace
Compensation for Each and Every Completed Intrastate and Interstate Call Originated by Payphones
1. Payphone Calls Subject to this Rulemaking and Compensation Amount
2. Entities Required to Pay Compensation
3. Ability of Carriers to Track Calls from Payphones
4. Administration of Per-Call Compensation
5. Interim Compensation Mechanism

Reclassification of LEC-Owned Payphones
1. Classification of LEC Payphones as CPE
2. Transfer of Payphone Equipment to Unregulated Status
3. Termination of Access Charge Compensation and Other Subsidies
4. Deregulation of AT&T Payphones

Nonstructural Safeguards for BOC Provision of Payphone Service

Ability of BOCs to Negotiate with Location Providers on the Presubscribed InterLATA Carrier

Ability of Payphone Service Providers to Negotiate with Location Providers on the Presubscribed IntraLATA Carrier

Establishment of Public Interest Payphones

Other Issues
1. Dialing Parity
2. Letterless Keypads on Payphones
3. Oncor Petition

IV. Procedural Matters
1. Petitions for Reconsideration
2. Paperwork Reduction Act Analysis
3. Regulatory Flexibility Act Analysis

Conclusion

Ordering Clauses

Appendix A
Text of Section 276
Appendix B
List of Parties Filing Comments
Appendix C
List of Parties Filing Replies
Appendix D
Immediate Rules Adopted by This Order
Appendix E
Rules Adopted by This Order
Appendix F
Interim Compensation Obligations

Classification of LEC Payphones as CPE

a. The Notice

129. In the Notice, we tentatively concluded that incumbent LEC payphones should be treated as nonregulated, detariffed CPE. We also proposed that incumbent LECs, whether or not they provide payphone service, must offer individual central office coin transmission services to PSPs under a nondiscriminatory, public, tariffed offering. To this end, we sought comment on both the central office coin services that must be made available by incumbent LECs to the PSPs to achieve this goal, and the type of services and the technological requirements necessary to allow independent payphone providers to use payphones that are equivalent to those payphones currently used by LECs. In addition, we sought comment on any industry standards that may need to be developed with respect to potential claims regarding any demonstrable network reliability concerns that may result from PSPs connecting their payphones that make use of central office coin transmission services.

      

130. Because the incumbent LECs have used central office coin services in the past, but have not made these services available to independent payphone providers for use in their provision of payphone services, we sought comment on whether incumbent LEC provision of coin transmission services on an unbundled basis should be treated as a new service under our price cap rules. Because incumbent LECs may have an incentive to charge their competitors unreasonably high prices for these services, we tentatively concluded that the new services test is necessary to ensure that central office coin services are priced reasonably. Additionally, we sought comment on whether incumbent LECs not currently subject to price cap regulation should be required to submit cost support for their central office coin services, pursuant to Sections 61.38, 61.39, and 61.50(i) of our rules.

      

131. We also tentatively concluded that Section 68.2(a)(1) of our rules should be amended to facilitate registration of both instrument-implemented and central-office-implemented payphones and sought comment on this tentative conclusion. In addition, we tentatively concluded that the demarcation point for all new LEC payphones should be consistent with the minimum point of entry standards for other wireline services and, in addition, tentatively concluded that the demarcation point should be the same one as incumbent LECs use for independent payphone providers today. Finally, we sought comment on what services (such as fraud protection, installation and maintenance services, joint marketing opportunities, per-call tracking capabilities, and call validation services) other than those associated with central office coin transmission services provided to their own payphones by incumbent LECs, particularly the BOCs, should be unbundled under the rules to be adopted in this proceeding and made available to PSPs.

      

     b. Comments

     i. CPE Deregulation

132. Most of the parties support reclassifying payphone equipment as CPE and generally assert that deregulating payphone equipment is important in establishing a competitive payphone market. Ohio PUC, on the other hand, argues that payphones should be detariffed but not deregulated and a charge should be imputed for LEC payphones. Florida PSC supports deregulating payphones because needed functionalities are available either from the set or the network and because deregulation will ensure that payphone service is not subsidized. Florida PSC argues, however, that smaller LECs should be given a choice whether to deregulate CPE, because separating costs is burdensome. Ameritech contends that payphone deregulation should apply to all LECs, not just incumbent LECs, because Section 276 (b)(1)(B) is not limited in applicability.

      

133. The RBOCs argue that there should be a twelve-month transition period to nonregulated status for payphone CPE. Others argue there should be no transition period, or a shorter period than twelve months, for example, 90 days after release of an order. BellSouth argues that it should be able to conduct deregulated operations immediately on the release of this Report and Order.

      

134. GPCA argues that a separate subsidiary should be required for BOCs that merge. Ohio PUC argues that Tier 1 LECs should provide payphones through a separate subsidiary if payphone equipment is deregulated. Most of the parties, however, do not argue that a separate subsidiary is required and Florida PSC argues that it should be the option of the LEC. The RBOCs argue that the Commission's accounting safeguards and price cap rules are sufficient to deter cross-subsidization. They also argue that a separate subsidiary requirement is against the plain language of the 1996 Act and that such a requirement was dropped from the Senate version. PacTel argues that the nonstructural safeguards of Computer III were expressly mandated by Section 276.

      

     ii. Unbundling of Payphone Services

135. The RBOCs and PacTel argue that the Commission should not require more unbundling than is necessary to ensure that PSPs and LECs are able to use the same payphones -- standard central-office coin line and the alternate (smart set) access line. They also argue that the unbundling criteria used in Computer III should apply to any further unbundling. California PUC and GTE state that access line and central office transmission services should be tariffed. Ameritech states that it will offer tariffed coin line service, centralized office based coin rating, and signaling functionality, or payphone line (like business line). GPCA argues that coin line and alternate access line do not provide all the needed capabilities. MCI argues that the BOCs should provide all functionalities used in their delivery of payphone services on a nondiscriminatory basis, including coin transmission services and other associated services.

      

136. GVNW argues that the interconnection rules must be flexible for small LECs because small LECs do not implement payphone services in the same way as do the BOCs, and that small LECs should only have to provide payphone services to others that they are providing to themselves. AT&T states that competitive access providers (CAPs) should not have to offer central office coin service unless they provide payphone service themselves. NCTA and OPASTCO argue that LECs should not have to provide a specific set of payphone services, such as central coin services, that they are not already equipped to provide because of the significant investment required to upgrade switches. Florida PSC states that all LECs in Florida tariff payphone blocking, screening, and intercept services.

      

137. AT&T argues that LECs should be required to offer under tariff all functions used in their delivery of payphone services, including: all central office intelligence, answer supervision, collect refund, far end disconnect, call blocking and screening options, access to some monitoring and disaggregation routines, and 911 services. GPCA argues that all network functions must be unbundled and charges should be imputed for inputs from regulated services. GPCA also argues that the following functions should be unbundled: answer supervision, the intercept signal (indicating that the call cannot be completed as dialed), coin collect and return functionality, and rate schedule functionality. In addition, GPCA asserts that these functionalities are necessary to provide fraud protection and to ensure that cross subsidies are eliminated. CPA supports GPCA's recommended list of functionalities.

      

138. AT&T contends that LECs must offer public access line services for resale at rates that reflect the economic cost of providing the services through TSLRIC-based prices, while SW Bell argues that Section 252 pricing should not apply to Section 276 payphones services. California PUC asserts that LECs should unbundle and provide tariffed payphone services and that new services should be justified with cost studies. CPA argues that whatever rates are established for payphone services should be imputed to the LEC payphone operations. The RBOCs, USTA and GTE argue that unbundled payphone services should be tariffed at the state level and therefore not subject to the new services test under the Commission's rules.

      

     iii. Other Payphone Services

139. GPCA asserts that other services should be available on an equal access basis, including fraud protection, special number assignments, installation and maintenance, billing and collection, validation, per call tracking, and joint marketing. GPCA also argues that if operator services are available in the LEC network, and commissions are paid to the LEC, the commissions should be available to independent payphone providers. MCI contends that fraud protection, installation and maintenance, per-call tracking, and call validation services should be available to independent payphone providers. The RBOCs and Sprint argue that these additional services are not necessary for PSPs to provide service.

      

     iv. Registration and Demarcation Point for Payphones

140. The RBOCs, MCI, and Oklahoma CC assert that Section 68.2(a)(1) of our rules should be amended to include registration of both instrument-implemented and central-office-implemented payphones. The RBOCs argue that the embedded, installed base should be grandfathered but new sets and refurbished sets (with added functionality) should have to be registered. GPCA does not oppose grandfathering the installed base of payphones from Part 68 registration, but argues that refurbished payphones should not be grandfathered. The RBOCs contend that standards for interconnection should be established by revising Section 68.3 of our rules to include specifications for central-office-implemented payphones. Anchorage Telephone suggests that a technical committee should be established to develop interconnection standards.

      

141. AT&T, MCI, and Sprint contend that the demarcation point for LEC payphones should be the same as it is today for independent payphone providers. GPCA argues that the demarcation point should be applied in a nondiscriminatory manner to all payphones and that LECs should be required to set demarcation points for different types of sites if the points will vary. GPCA also asserts that embedded inside wire should be available to all providers on an equal basis and that the demarcation point for embedded and new inside wire should be the same. The RBOCs argue that the demarcation point should be treated flexibly. In contrast, CPA argues that the demarcation point should not be flexible and should be at the minimum point of entry.

      

     c. Discussion

     i. CPE Deregulation

     142.We conclude that to best effectuate the 1996 Act's mandate that access charge payphone service elements and payphone subsidies from basic exchange and exchange access revenues be discontinued, incumbent LEC payphones should be treated as deregulated and detariffed CPE. The Commission determined in Computer II that CPE should be deregulated and detariffed to ensure that the costs associated with regulated services are separated from the competitive provision of the equipment used in conjunction with those services. The Commission concluded that CPE should be unbundled from its underlying transmission service in order to prevent improper cross-subsidization. Consistent with this prior finding, we conclude that LEC payphones must be treated as unregulated, detariffed CPE in order to ensure that no subsidies are provided from basic exchange and exchange access revenues or access charge payphone service elements as required by the Act.

      

142. In Computer II, the Commission specifically excluded coin-operated payphones from the definition of CPE. The Commission found that, unlike other CPE, which could be unbundled from basic exchange service, coin-operated payphones were still integrated with the LECs' network facilities and concluded that payphones owned by LECs and AT&T should remain part of regulated basic communications service. The Commission later extended this determination to LEC coinless payphones. Thereafter, the Commission, in the Coin Registration Order, recognized the right of nonLEC payphone providers to interconnect smart payphones to the interstate public switched network. Following this order allowing the interconnection of smart payphones, independent payphone providers began to compete with the LECs. Currently, there are approximately 1.5 million LEC payphones and approximately 350,000 competitively provided payphones. We conclude that the market for payphone CPE is competitive and that it is no longer necessary to treat payphone CPE differently by integrating LEC payphones with the underlying service. Moreover, we conclude that the transient public that uses payphones will best be served by the wide availability of competitive payphones services. We also conclude that it is not in the public interest to continue to treat LEC payphones as regulated equipment, while treating independent payphones as CPE, and that deregulation of payphones is consistent with the procompetitive approach set forth in Section 276. We have recently deregulated inmate payphonesand most of the parties in this proceeding agree that incumbent LEC payphones should also be deregulated and detariffed. Accordingly, we conclude that incumbent LEC payphones must be deregulated, detariffed and classified as CPE for regulatory purposes.

      

143. We decline to limit the deregulation of payphones to those owned by larger LECs, as suggested by the Florida PSC, because Section 276 is not limited in application to larger LECs. Moreover, we conclude that the benefits we have observed in CPE deregulation apply to payphones and that these benefits apply regardless of the size of the LEC.

144. We decline to require the BOCs or other incumbent LECs to provide their payphone CPE through a structurally separated affiliate. We discuss below the nonstructural safeguards we require for BOCs to provide payphone CPE on an integrated basis and decline to require, as proposed by some commenters, that other incumbent LECs be required to provide CPE through structurally separate affiliates. Section 276 does not require LEC or BOC provision of payphone service through a separate subsidiary. Although the 1996 Act does not specifically prohibit the Commission from imposing a separation requirement, it requires the establishment of nonstructural safeguards for the BOCs, a clear statement that nonstructural safeguards, rather than structural separation, are mandated. Moreover, Section 276 does not require even nonstructural safeguards for other LECs. Other sections of the 1996 Act, including Section 272, BOC provision of interLATA services, and Section 274, BOC provision of electronic publishing, specifically require structural separation. In addition, in the BOC CPE Relief Order we removed the structural separation requirements established in Computer II for BOC provision of CPE because we concluded that nonstructural safeguards were sufficient to deter cross-subsidization and discrimination and the high costs of mandatory structural separation were not in the public interest. This conclusion is also applicable in the context of BOC provision of payphone CPE. We also note that the Computer II structural separation requirements were not applied to the provision of CPE by other LECs. Finally, we note that nonstructural accounting safeguards applicable to the BOCs' provision of payphone service are being established in a separate proceeding. Accordingly, we do not impose structural separation requirements for the provision of payphones by the BOCs or other LECs. As we did in the BOC CPE Relief Order, we preempt states' ability to impose structural separation requirements on the payphone operations of the BOCs or other LECs. We do not, however, preempt the states from imposing on nonBOC LECs nonstructural safeguards that are no more stringent than those we impose on the BOCs.

      

     ii. Unbundling of Payphone Services

145. We conclude, pursuant to Computer II, Section 201, 202, and 276 of the Act, and previous CPE decisions, that incumbent LECs must offer individual central office coin transmission services to PSPs under nondiscriminatory, public, tariffed offerings if the LECs provide those services for their own operations. Under Computer II, all carriers must unbundle basic transmission services from CPE. Moreover, Section 202 of the Act prohibits a carrier from discriminating unreasonably in its provision of basic service. We conclude that incumbent LECs must provide coin service so competitive payphone providers can offer payphone services using either instrument-implemented "smart payphones" or "dumb" payphones that utilize central office coin services, or some combination of the two in a manner similar to the LECs. Because the incumbent LECs have used central office coin services in the past, but have not made these services available to independent payphone providers for use in their provision of payphone services, we require that incumbent LEC provision of coin transmission services on an unbundled basis be treated as a new service under the Commission's price cap rules. Because incumbent LECs may have an incentive to charge their competitors unreasonably high prices for these services, we conclude that the new services test is necessary to ensure that central office coin services are priced reasonably. Incumbent LECs not currently subject to price cap regulation must submit cost support for their central office coin services, pursuant to Sections 61.38, 61.39, or 61.50(i) of the Commission's rules. Incumbent LECs must file tariffs with the Commission for these services no later than January 15, 1997. To the extent that this requirement precludes the BOCs from complying with the Computer II, Computer III, and ONA network information disclosure requirements, we waive the notice period in order to ensure that these services are provided on a timely basis consistent with the other deregulatory requirements of this order. Pursuant to this waiver, network information disclosure on the basic network payphone services must be made by the BOCs by January 15, 1997.

      

146. We conclude that tariffs for payphone services must be filed with the Commission as part of the LECs' access services to ensure that the services are reasonably priced and do not include subsidies. This requirement is consistent with the Section 276 prescription that all subsidies be removed from payphone operations. We decline to require, as proposed by AT&T, that the pricing regime under Sections 251 and 252 apply to all Section 276 payphone services offered by incumbent LECs. Section 276 does not refer to or require the application of Sections 251 and 252 to LEC payphone services. In addition, the elements and services to be offered under Sections 251 and 252 are not available to entities that are not telecommunications carriers, and many PSPs are not telecommunications carriers. In addition, Section 276 does not refer to or require the application of Sections 251 and 252 to LEC payphone services. Moreover, Section 276 specifically refers to the application of Computer III and ONA requirements, at a minimum for BOC provision of payphone services. Accordingly, we conclude that Computer III tariff procedures and pricing are more appropriate for basic payphone services provided by LECs to other payphone providers. Pursuant to Section 276(c), any inconsistent state requirements with regard to this matter are preempted.

      

147. Parties argue that several other network services and network elements should be unbundled and provided to payphone providers. We decline to impose this requirement on all LECs. We do not find that such unbundling is necessary to provide payphone services. In addition, some features require substantial costs to make switch changes. Moreover, pursuant to Computer III and ONA requirements discussed below, BOCs must unbundle additional network elements when requested by payphone providers based on specific criteria established in the Computer III and ONA proceedings. In Computer III, we decided that it was not necessary to apply this requirement to other LECs, and we similarly conclude that it is not necessary to direct other LECs to unbundle additional services or unbundled elements in this proceeding because additional services are not necessary to provide payphone services and because other LECs do not represent the same control of payphone facilities as the BOCs. We note, however, that any basic transmission services provided by a LEC to its own payphone operations must be available under tariff to other payphone providers pursuant to Computer II. States may impose further payphone service unbundling requirements that are not inconsistent with Section 276 requirements and requirements established herein.

      

     iii. Other LEC Payphone Services

148. We conclude that incumbent LECs should provide certain other services to other payphone providers if they provide those services to their own payphone operations. These services must be made available by the LEC or its affiliate to other payphone providers on a comparable basis in order to ensure that other payphone providers do not receive discriminatory service from the LECs once LEC payphones are deregulated, and to ensure that other payphone providers can compete with LEC payphone operations. Specifically, parties have indicated the need for the following services to enable them to compete effectively for the provision of payphones: fraud protection, special number assignments, installation and maintenance, billing and collection, validation, per-call tracking, and joint marketing. We have already addressed above the per-call tracking requirements. We conclude that fraud protection, special numbering assignments, and installation and maintenance of basic payphone services should be available to other providers of payphone services on a nondiscriminatory basis. Validation services are required by another proceeding. We do not require the incumbent LECs to joint market the payphone operations of other providers. We have concluded that the market for payphone CPE is competitive and LECs do not have any specific advantage in marketing payphone services in a deregulated payphone market. LEC personnel or affiliates will have to market to payphone location providers in the same manner as other payphone providers to obtain payphone locations. Regarding billing and collection services, we conclude that if a LEC provides basic, tariffed payphone services that will only function in conjunction with billing and collection services from the LEC, the LEC must provide the billing and collection services it provides to its own payphone operations for these services to independent payphone providers on a nondiscriminatory basis. We expect this requirement to apply, for example, in situations where coin services require the LEC to monitor coin deposits and such information is not otherwise available to third parties for billing and collection. We adopt this requirement to ensure that when a LEC has structured its payphone services in a way that they could not operate without the LECs billing and collection services, those services will be available to other payphone providers on the same basis they are available to the LEC.

      

     iv. Registration and Demarcation Point for Payphones

149. We amend our Part 68 rules to provide for the registration of central-office-implemented coin payphones to enable independent payphone providers as well as the LECs to utilize "dumb" payphones. Under the Coin Registration Order and current Part 68 rules, only instrument-implemented payphones can be registered for connection to the network. Amending our rules enables independent payphone providers to have the same choices as LECs in providing payphone services. Parties did not object to proposed Part 68 changes in the Notice. Accordingly, we adopt amendments to Section 68.2(a)(1) and Section 68.3 of the Commission's rules to facilitate registration of both instrument-implemented and central-office-implemented payphones. Consistent with the Commission's prior practice with regard to existing CPE, in order to avoid unnecessary costs, and because these existing phones do not present potential harm to the network, we grandfather existing LEC payphones from the our revised Part 68 requirements, unless the basic functionality in the payphones is changed. We require incumbent LECs to submit proposed interconnection requirements to effectuate such interconnection within 90 days of the effective date of this order. The California Payphone Association (CPA) filed before the Commission a Petition for Rule Making requesting that Section 68.2(a)(1) of the rules be amended to allow for the registration of all coin-operated telephones and that the Commission re-examine and clarify its interpretation of Section 68.2(a)(1). We note that our decision herein addresses the relief requested in the CPA petition. Our Report and Order also effectively grants a petition filed by the Public Telephone Council to treat payphones as CPE, and resolves the issues raised in RM 8723 regarding exclusion of public payphones from end user access charges.

      

150. Consistent with our objective of treating incumbent LEC and independent payphone providers' payphones in a similar manner, we conclude that the demarcation point must be the same as incumbent LECs use for independent payphone providers today. Accordingly, the demarcation for all new LEC payphones must be consistent with the minimum point of entry, demarcation point standards for other wireline services. The Commission has previously allowed equipment reclassified as CPE, resulting in a change in the demarcation point, to remain in the same location because of the costs involved in relocating the equipment. Accordingly, we grandfather the location of all existing LEC payphones in place on the effective date of this order because of the difficulty and cost of moving these payphones to meet our new demarcation point requirements. Similarly, we do not require that network interfaces be placed for existing LEC payphones unless these payphones are substantially refurbished, for example, upgraded from dumb to smart payphones or replaced.