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communications services be allowed access to local exchange facilities on a nondiscriminatory basis. During the period since then, FCC has taken various actions aimed at correcting discrimination problems involving both access arrangements and charges. However, problems continue to exist.

As part of its MTS/WATS market structure proceeding, FCC has proposed further actions in which it intends to improve existing access arrangements and establish an interim access charges system. FCC's actions do not, however, provide a framework from which the following questions can be resolved:

--What types and levels of interconnection should telephone
companies be required to provide to competitive carriers?
--What rates should be charged to competitors for access
to local exchanges?

--What are the effects of competition on any subsidies which
may have been provided between interstate services and
intrastate services?

--Can nondiscriminatory access conditions be assured
without major changes in telephone industry structure
and procedures?

We believe that congressional action is needed to address these questions. In this regard, we believe that by amending the Communications Act of 1934 to establish the basic conditions and mechanisms to achieve nondiscriminatory access arrangements and charges, the Congress will take a necessary step toward establishing the existence of a fully competitive communications environment.

While the Congress is taking the necessary steps to enact such legislation, we also believe that FCC should work in concert with State commissions, toward formulating a long-term plan which can be used to effectively discharge the responsibilities which will be assigned to it by the Congress. For example, it should work toward establishing timetables for revising jurisdictional boundaries, formulating costing principles and conducting cost studies to determine access costs for interexchange services, and making necessary changes in tariffs and accounting procedures. This should not only enable FCC to "hit the ground running," once legislation is passed, but also place it in a much better position to evaluate the desirability of proceeding further with interim actions such as it has proposed. This would be in addition to our recommendation in chapter 6 that FCC initiate a proceeding to evaluate the need for requiring dominant interexchange carriers to establish separate subsidiaries for those operations, if they are also monopoly providers of local exchange services.

RECOMMENDATION TO THE CONGRESS

We recommend that the Congress amend the Communications Act of 1934 to establish the basic framework necessary to create the existence of nondiscriminatory access conditions. In doing so the Congress should consider the following provisions:

--FCC be given regulatory authority over all inter-
exchange telecommunications facilities and services.

--Access to local exchange facilities to be offered to
all carriers and other customers under nondiscriminatory
rates, terms, and conditions.

--Rates charged for local exchange access be assigned to
interexchange services on the basis of cost.

--Access services to all interexchange carriers, including affiliated companies, would be filed under tariff.

--FCC be empowered to prescribe access rates to provide carriers with the strongest possible incentive to provide nondiscriminatory access as well as to take other actions necessary to end access discrimination.

--Procedures to be established which could be used on an
interim basis to provide funds from interexchange serv-
ices which could be collected if needed to offset cost
increases which arise as the result of the implementation
of an access charges system. Such funds would be dis-
tributed only to local exchange carriers upon approval
of applications by FCC.

--A Federal-State Joint Board be established to assist
FCC with the development of an access charges mechanism.
--FCC, in consultation with the Joint Board file a long-term
plan setting forth the steps which it proposes to develop
an access system, including the need for and outline of
interim action before a permanent system is developed.

RECOMMENDATION TO THE CHAIRMAN, FCC

We recommend the Commission initiate a project within the Common Carrier Bureau to develop a long-term plan for carrying out the tasks necessary to establish an access charges system in light of the framework described in this report. It should use this plan as a basis for evaluating the need for and desirability of any interim action which it proposes.

APPENDIX I

APPENDIX I

Section

1

KEY SECTIONS OF THE COMMUNICATIONS ACT OF 1934

RELATING TO DOMESTIC COMMON CARRIERS

Subject

Purpose of act

[blocks in formation]

Key provisions
Created FCC for regulating
interstate and foreign com-
merce by wire and radio. Set
policy goals for regulation.

Under section 201 (a) carriers
must furnish service upon rea-
sonable request and must es-
tablish physical connections
and through routes with other
carriers if FCC determines
this is in the public interest.
Under section 201(b) all
charges, practices, classifi-
cations, and regulations
must be just and reasonable.

Section 202(a) bans unjust or
unreasonable discrimination
by carriers in charges,
practices, classifications,
regulations, and facilities.
Section 203 (a) requires every
carrier to file with FCC pub-
lic tariffs. Under section
203(b) no changes may be made
to these tariffs without 30
days notice.

FCC may conduct a hearing on
the lawfulness of a tariff
filed with it. Pending a hear-
ing, FCC may also suspend the
tariff for 5 months; however,
after 5 months the tariff will
go into effect. In the case
of an increased charge, FCC
may order a refund after the
hearing.

After a hearing at which FCC determines a charge violates the act, it may prescribe a just and reasonable charge.

APPENDIX I

APPENDIX I

Section

214(a, c

and d)

Subject

Facilities

authorizations

[blocks in formation]

Key provisions

Under section 214(a) the construction or extension of communications lines may not take place until the carrier receives from FCC a certificate that the public convenience and necessity require the carrier's action. Section 214(c) gives FCC the power to issue the certificate as applied for, to refuse to grant it, or to attach conditions which FCC feels the public convenience and necessity require. Under section 214(d), FCC may also require carriers to provide facilities which are reasonably required by the public convenience and necessity.

FCC may inquire into the management of the business of all carriers. It may also obtain from the carriers full and complete information necessary to enable it to perform its duties under the act.

Under section 220 (a), FCC

may prescribe all accounts
and records kept by carriers.
FCC may also prescribe the
depreciation practices used
by the carriers under section
220 (b).

After proper hearing and

notice FCC may classify the property of telephone carriers and determine what property is used in interstate telephone service.

APPENDIX II

APPENDIX II

FEDERAL, STATE, AND PRIVATE ORGANIZATIONS

INTERVIEWED

We obtained information from the following individuals and organizations or their legal representatives.

Federal Government

National Telecommunications and Information Administration
Department of Justice

Office of Technology Assessment

Congressional Budget Office

Federal Energy Regulatory Commission

Federal Trade Commission

State Government

Michigan Public Service Commission

State of New York Public Service Commission
Public Service Commission of Wisconsin

Common carriers

American Telephone and Telegraph Company
The Western Union Telegraph Co.

MCI Telecommunications Corporation
Southern Pacific Communications Co.

GTE-Telenet

Associations

Ad Hoc Committee for Competitive Telecommunications
Ad Hoc Telecommunications Users Group

North American Telephone Association

National Association of Regulatory Utility Commissioners
National Citizens Committee for Broadcasting

Organization for the Protection and Advancement of Small
Telephone Companies

Public Citizens Congress Watch

U.S. Independent Telephone Association

Former FCC officials and academics

Walter Bolter--Former Chief of FCC's Economics Division,
Common Carrier Bureau

Walter Hinchman--Former Chief of FCC's Common Carrier Bureau
David Irwin--Former Chief of FCC's Policy and Program
Planning Division, Common Carrier Bureau

Harry Trebing--Director, Institute of Public Utilities,
Graduate School of Business Administration,
Michigan State University

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