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I. Introduction
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
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Termination of Access Charge Compensation and Other Subsidies
a. The Notice
- In the Notice, we tentatively concluded that incumbent LECs must reduce their interstate CCL charges by an amount equal to the interstate allocation of payphone costs currently recovered through those charges. LECs subject to the price cap rules would treat this as an exogenous cost change to the Common Line basket pursuant to Section 61.45(d) of the Commission's rules. We requested incumbent LECs to identify in their comments all accounts that contain costs attributable to their payphone operations and sought comment on whether specific cost pools and allocators should be used to capture the nonregulated investment and expenses associated with their payphone operations. We also sought comment on whether a transition period is necessary to move from subsidized compensation to per-call compensation for LEC payphones, and how that transition would proceed. We also proposed, in accordance with the mandate of Section 276(b)(1)(B), to require incumbent LECs to remove from their intrastate rates any charges that recover the costs of payphones. Additionally, we solicited comment on whether we should set a deadline and a specific mechanism for elimination of any intrastate subsidies, or whether it would be consistent with the statute, as well as preferable from a policy perspective, to permit the states to formulate their own mechanisms for achieving this result within a specific time frame.
- We also tentatively concluded that, to avoid discrimination among PSPs, the Subscriber Line Charge should apply to subscriber lines that terminate at both LEC and competitive payphones. We sought comment on whether, to the extent that LECs charge or impute to their own payphone operations only the multi-line business SLC, which is less than the full interstate cost of the subscriber lines connecting their payphones to the network, and recover the balance of the cost of these lines through the CCL charge, they may, in effect, be subsidizing their payphones with access charge revenues, in violation of Section 276. We sought comment on whether LECs in those circumstances should charge or impute to their own payphone operations, as well as to independent payphone providers, an additional monthly charge representing the difference between the SLC cap and the full interstate cost of these subscriber lines. We also sought comment on whether comparable changes should be made to incumbent LECs' intrastate rates.
b. Comments
i. Carrier Common Line Charge
- The Florida PSC agrees that LECs must reduce their interstate CCL charge by an amount equal to their interstate allocation of payphone set costs currently recovered through these charges. USTA asserts that there is no need for a federally-imposed cost support, create cost pools, or change current accounting procedures. USTA asserts that incumbent LECs subject to price caps should remove the costs of payphone operations through an exogenous cost adjustment to the common line price cap basket price cap index (PCI), and that rate-of-return LECs should adjust regulated rates for the charges in asset and operating costs based on the results of the accounting changes made to assets and expenses.
- Ameritech agrees that exogenous treatment is appropriate for transfer of payphone CPE from regulated to nonregulated status. One Call agrees that the CCL charge should be reduced to eliminate both interstate and intrastate subsidies. MCI argues that all direct and indirect costs for interstate and intrastate costs should be removed and that Account 2351 and associated expenses and additional interstate allocated costs should be removed. GPCA contends that the payphone providers' end-user common line charges should be in the carrier common line fund. AT&T argues that the removal of payphone costs from interstate access should not be transferred to the Base Factor Portion of the Common Line Basket, but should remain as part of the Part 69 category.
- CPA argues that attempts to extend the period should be rejected. In contrast, GVNW and Texas PUC assert that a short transition period is necessary to recover costs. The RBOCs argue for a transition period of up to 12 months during which per-call compensation would not be available to the RBOCs, while GPCA argues the there should be no more than a 90-day transition period after release of this Report and Order. NECA asserts that the CCL charge should continue until the Commission finalizes decisions on access reform and universal service have been made. NECA argues there will be no discrimination because LECs can bill the CCL charge for all interstate calls and the SLC to all payphones.
ii. Intrastate Rates
- Florida PSC asserts that intrastate adjustments vary and that a national scheme is impractical. Instead, the Commission could set a date for removal of state subsidies. California PUC is concerned that, if LECs cannot recover the interstate costs of subscriber lines because the CCL mechanisms are removed, the state's local phone charges and the state-mandated pay station service charge may not fully recover costs. USTA argues that the payphone line is a common line and should be tariffed at the state level. USTA also contends that states should be permitted to formulate mechanisms to remove intrastate costs.
iii. Subscriber Line Charge
- Florida PSC and the Ohio PUC argue that access lines terminating at LEC payphones should be subject to SLC imputation. Ameritech and SW Bell argue that a SLC should be imputed to all payphones. GPCA opposes application of the SLC to payphones but if the Commission imposes such a requirement, GPCA also opposes any additional charge in addition to what is required of other end users. USTA also opposes imposition of an additional charge for the difference between the SLC cap and the full cost of subscriber lines. USTA argues that if there are any loop subsidies they will be uniform for all loops, not just payphone loops. SW Bell argues that the SLC should apply to payphones because payphones use common lines and access the public switched network just like any other common line service. Sprint supports the additional charge to all PSPs including LECs to the extent that the multi-line business SLC is less than the full interstate cost of subscriber lines.
c. Discussion
- In the telephone network, payphones, as well as all other telephones, are connected to the local switch by means of a subscriber line. The costs of the subscriber line that are allocated to the interstate jurisdiction are recovered through two separate charges: a flat-rate SLC assessed upon the end-user customer who subscribes to local service; and a per-minute CCL charge assessed upon IXCs that recovers the balance of the interstate subscriber line costs not recovered through the SLC. LEC payphone costs are also included in the CCL charge. The CCL charge, however, applies to interstate switched access service that is unrelated to payphone service costs. While independent payphone providers are required to pay the SLC for the loop used by each of their payphones, LECs have not been required to pay this charge because the subscriber lines connected to LEC payphones have been recovered entirely through the CCL charge.
- We conclude that to implement Section 276 (b)(1)(B) of the 1996 Act, incumbent LECs must reduce their interstate CCL charges by an amount equal to the interstate allocation of payphone costs currently recovered through those charges. LECs subject to the price cap rules would treat this as an exogenous cost change to the Common Line basket pursuant to Section 61.45(d) of the Commission's rules. The incumbent LECs' residential SLC is limited to $3.50 per month and their multi-line business SLC is currently subject to a $6.00 per month cap. Those LECs with interstate subscriber line costs that exceed this amount recover a portion of the interstate costs of subscriber lines through the CCL charge. The issue of the appropriate interstate SLC has been referred to a Federal-State Joint Board.
- Incumbent LECs today generally recover payphone costs allocated to the interstate jurisdiction through the per-minute carrier CCL charge they assess on IXCs and other interstate access customers for originating and terminating interstate calls. The incumbent LEC assesses the independent payphone provider a SLC (at the multi-line business rate) to recover the payphone common line costs associated with that phone. In the case of competitive payphones, an independent payphone provider recovers its payphone costs out of the revenue it receives from end users, premises owners, and OSPs to whom its payphones are presubscribed. The 1996 Act mandates that the Commission "discontinue the intrastate and interstate carrier access charge payphone service elements and payments ... and all intrastate and interstate subsidies from basic exchange and exchange access revenues[.]"
- Accordingly, we adopt rules that provide for the removal from regulated intrastate and interstate rate structures of all charges that recover the costs of payphones (i.e., the costs of payphone sets, not including the costs of the lines connecting those sets to the public switched network, which, like the lines connecting competitive payphones to the network, will continue to be treated as regulated). Therefore, we conclude that incumbent LECs must file revised CCL tariffs with the Common Carrier Bureau no later than January 15, 1997 to reduce their interstate CCL charges by an amount equal to the interstate allocation of payphone costs currently recovered through those charges, scheduled to take effect April 15, 1997. LECs subject to the price cap rules must treat this as an exogenous cost change to the Common Line basket pursuant to Section 61.45(d)(1)(v) of our rules. Incumbent LECs must identify and report accounts that contain costs attributable to their payphone operations. Incumbent LECs must identify specific cost pools and allocators that are required to capture the nonregulated investment and expenses associated with their payphone operations. LECs must file this information with the Common Carrier Bureau by January 15, 1997.
- LECs that file tariffs pursuant to Section 61.38 or Section 61.39, rate-of-return regulation, or Section 61.50, optional incentive regulation, must file tariffs to revise interstate CCL rates to remove the payphone investment and any other assets used in the provision of payphone service along with the accumulated depreciation and deferred income tax liabilities from the common line costs recovered through those rates. As stated previously, these LECs must reclassify payphone assets from regulated to nonregulated activity pursuant to Part 64 rules. Expenses incurred after payphones are deregulated should be classified as nonregulated expenses. The CCL rate reduction must account for overhead costs assigned to common line costs as a result of payphone investment and expenses. We require these LECs to recalculate their CCL rates, using the same data and methods they used to develop their current CCL rates, except those calculations should exclude payphone costs.
- Price cap LECs are also required to revise their CCL rates, using the following method to remove payphone costs from their CCL rates. First, price cap LECs should develop a common line revenue requirement using ARMIS costs for calendar year 1995. Second, price cap LECs are required to develop a payphone cost allocator equal to the payphone costs in Section 69.501(d) divided by total common line costs, based on 1995 ARMIS data. Each LEC is required to reduce its PCI in the common line basket by this payphone cost allocator minus one.
- We require, pursuant to the mandate of Section 276(b)(1)(B), incumbent LECs to remove from their intrastate rates any charges that recover the costs of payphones. Revised intrastate rates must be effective no later than April 15, 1997. Parties did not submit state-specific information regarding the intrastate rate elements that recover payphone costs. States must determine the intrastate rates elements that must be removed to eliminate any intrastate subsidies within this time frame.
- Finally, we conclude that, to avoid discrimination among payphone providers, the multiline business SLC must apply to subscriber lines that terminate at both LEC and competitive payphones. We conclude that the removal of payphone costs from the CCL and the payment or imputation of a SLC to the subscriber line that terminates at a LEC nonregulated payphone will result in the recovery of LEC payphone costs on a more cost-causative basis consistent with the requirements of the 1996 Act. No action we take today affects the authority of states to address the state ratemaking implications of reclassification or transfer of payphone assets.
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