intrastate and interstate services had not been definitively resolved, it had been frequently alleged that MTS was providing a subsidy for local exchange service and that competition in the provision of interstate MTS and WATS could necessitate an increase in local exchange rates. The Commission, thus proposed to determine --what reimbursement interstate services should make on a --what additional charges, if any, should be levied on and --whether and how such charges could be equitably imposed FCC also noted that while it had approved jurisdictional separations, division of revenues and settlements had been traditionally devised by the telephone industry. FCC, therefore, proposed to examine the process to determine if it needed to establish cost assignments in the future. In an August 1979 supplemental notice, FCC, among other things, reiterated the need to investigate issues relating to access arrangements. In this regard, it stated that until nondiscriminatory access arrangements were defined, the operating conditions under which the OCCS competed for intercity business would remain ambiguous, and "the degree of risk associated with investing in competitive service offerings may remain unreasonably high and new entry may be inhibited." As will be discussed in the following sections, FCC actions have yet to create such nondiscriminatory access arrangements. The ENFIA proceeding After FCC issued the March 1978 notice in the MTS/WATS proceeding, AT&T filed with FCC a tariff which specified the compensation which the OCCS would have to pay to affiliated AT&T companies to use local exchange facilities for the provision of Execunet and similar services. Numerous comments from interested parties were received concerning the ENFIA tariff, alleging that it was unlawful and anticompetitive, and raising a variety of legal, economic, and policy issues--including issues which FCC proposed to address in the MTS/WATS inquiry. While a ruling on the tariff was still pending, FCC also received a letter from the Assistant Secretary of Commerce for Communications and Information urging it to seek an interim solution to the issues involved in ENFIA through the use of a negotiated settlement, similar to that used earlier in Docket 20099. He believed FCC could avoid duplicating its efforts in the MTS/WATS market inquiry. FCC accepted this suggestion and convened a series of public negotiations among interested parties to attempt to arrive at a "rough justice" interim agreement to the ENFIA problem. As a result of these negotiations, the parties were able to reach an agreement, which was accepted by FCC in April 1979. The agreement established compensation to be given to local telephone companies for providing network access for OCC services similar to MTS and WATS. It did not, however, cover certain other services such as foreign exchange and common controlled switching arrangements. The compensation arrangements established in the ENFIA agreement were based on procedures contained in the Separations Manual. The Commission recognized in its order that it did not "have available" all of the relevant costs for the use of local plant by MTS/WATS-like services. Thus, it decided to approve the agreement using a "proxy" based on the subscriber plant factor used in separations to allocate certain nonusage sensitive costs in excess of specifically identifiable costs. As noted on page 163, this factor increases the costs assigned to the services to a level above that which would exist if costs were assigned on a relative use basis. Under the agreement the percentage of the factor assigned to the other common carrier MTS and WATS-like services was to follow the following schedule: Although the cost assignments to the OCC services under this schedule were less than the assignments to MTS and WATS, FCC noted that the compensation provided by the OCCS for such access would nevertheless be greater than that previously paid. 1/ In explaining why the factor assignment to the OCC services was less than that applied to MTS and WATS, FCC noted at that time that certain capabilities and functions provided by local telephone companies for use in connection with AT&T's MTS and WATS services were not provided in connection with the MTS and WATS-like services offered by competitors. It added that in view of the imprecision of the factor used in the Separations Manual to assign local exchange costs to MTS and WATS, "The agreement's proxy for non-specific costs (a 1/The two OCCs previously offering MTS and WATS-like services had been connected to local exchanges under local exchange tariffs governing business customers. The Commission further explained that a phase-in of the cost assignment had been selected so as to assure that the impact of the OCC offerings on existing MTS and WATS ratemaking and revenue division procedures, if any, would remain de minimus during the term of the agreement. The ENFIA agreement was to remain in effect for up to 5 years. However, for the portion of the agreement involving the proxy to continue beyond 3 years, it specified that FCC must find that such a continuance would be in the public interest and must prescribe an appropriate level of costs above specifically identifiable costs to be assigned to the other common carrier MTS/WATS-like services for the remaining 2 years. agreement was also to be dissolved if the issues in the MTS/WATS proceeding were resolved or if legislation was enacted which specified the interconnection rights and obligations of the parties. The While the ENFIA agreement did achieve its goal of providing a short-term rough justice solution to the immediate access problems springing from the Execunet decisions, the agreement did not examine the cost assignments to be made to all services which access local exchanges. It applied only to services similar to MTS and WATS. AT&T and General Telephone and Electric were the only telephone companies which were directly party to the agreement and, thus, bound by its conditions. its conditions. In this regard FCC has received tariffs from other companies which have specified different access charges. Equally important was the fact that the agreement did not address the basic questions discussed on page 161 which must be answered to establish nondiscriminatory, cost based access arrangements. Rather, FCC chose to address these problems through further proceedings--these are still ongoing. PRESENT FCC PROPOSALS ARE UNLIKELY As part of its MTS/WATS market structure proceeding, in 1980 FCC issued two supplemental notices which are aimed at expanding existing access arrangements and establishing a new access compensation mechanism. While we believe that the proposals contained in these notices are well intended, they do not provide a comprehensive framework from which all access questions can be resolved. Rather, FCC's proposals represent limited, short-term approaches which it apparently intends to use until a long-term solution to the access questions is developed. Given however, the absense of a long-term FCC plan for dealing with access issues and the problems which FCC itself recognizes in its proposals, it appears questionable whether FCC's present proposals represent even the best interim approach for dealing with access problems. FCC proposes an access charge system In April 1980 FCC issued a Second Supplemental Notice of Inquiry and Proposed Rulemaking in the MTS/WATS market structure proceeding, in which FCC proposed the establishment of a system of access charges which would replace the existing compensation arrangements for origination and termination of interstate services. According to the notice, the goal of the proposal was to establish a mechanism which would, to the best of FCC's ability, obtain "a parity which eliminates possible discrimination between OCC and AT&T services, and amongst the different AT&T services, in obtaining interstate access. FCC stated in the notice that under existing compensation arrangements discrimination could exist among competing interexchange carriers, which could, in turn, result in discrimination among end user rates. This it said would be in violation of section 202 (a) of the Communications Act of 1934. 1/ In this regard, FCC noted that different mechanisms--such as separations and settlements and ENFIA--had evolved for compensating local telephone companies for originating or terminating interstate and foreign telecommunications. Because as noted on pages 163 and 169, the compensation which local exchange operators received through those mechanisms did not reflect cost differences of originating or terminating services, discrimination might result. The Commission also noted that discrimination between message and private line services could result from the use of Separations Manual procedures to allocate local exchange costs. Because of the likelihood that open entry would be allowed in all interstate services 2/ FCC determined that it must prescribe new arrangements which would lead to the elimination of such discrimination. FCC noted, in this regard, that: "There appears to be a broad consensus that a new 1/Section 202 (a) states that it is unlawful for any common carrier to make any unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities or services in connection with like communication services. 2/FCC's formal determination that competition in all interstate interexchange services was in the public interest was set forth in its August 1980 Report and Third Supplemental Notice of Inquiry and Proposed Rulemaking in the MTS/WATS proceeding. appears to be a broad consenus that this Commission Thus, FCC set forth in the Notice what it termed a "tentative" access charges plan. Under FCC's plan uniform nationwide access charges would be prescribed for four interstate service categories: MTS/WATS, foreign exchange/common controlled switching arrangements, private line and OCC MTS/WATS-like services. 1/ The charges established would determine the amounts which interstate carriers would pay for the use of local exchange plant to originate and terminate services. However, the amounts which each local telephone company received from interstate carriers for their use of local exchange plant would not be directly based on the revenues it collected from access charges. Instead FCC would require that access charges be pooled and redistributed to each local carrier based on its pro rata share of all investment and expense devoted to interstate service. The total amounts to be paid to local telephone companies for using their plant by interstate services would continue to be determined by existing settlements and division of revenues procedures. Thus, the end result would be essentially unchanged in terms of the amounts which local exchange carriers would receive for providing access. FCC noted that the access charges pooling process it proposed to create would be similar to that used by the telephone industry as part of the separations and settlements process with certain modifications: --Pooled access charges revenues would be kept distinct from other pooled revenues. 2/ --Pooled access charges would include some services such as --The pool would include certain local telephone companies in Alaska, Hawaii, and overseas territories which were not what FCC termed "full partners" in existing arrange ments. Under the plan, the pool would be administered by carriers since neither it nor any other government organization, to the best of FCC's knowledge, had the charter or resources to assume such a function. 1/Access for OCC MTS/WATS-like services is commonly referred to by FCC and other commenting parties as OCC-ENFIA. 2/Since access charge arrangements would apply only to the use of local exchange facilities, separate arrangements would still be needed when two or more carriers provided portions of interexchange facilities. |