Firm Advisory, August 5, 2016
The Federal Communications Commission (“FCC”) has again updated to its rules to further reduce regulatory burdens on carriers transitioning services from copper-based, analog networks to fiber and IP-based networks and services. In a Declaratory Ruling, Second Report and Order, and Order on Reconsideration (FCC 16-90) released July 15, 2016, the FCC made the following significant determinations:
- ILECs are now classified as non-dominant in the provision of switched access services, which will reduce tariffing obligations and streamline the discontinuance and transfer of control process for ILECs;
- Carriers seeking to discontinue legacy voice services may obtain streamlined approval by demonstrating that there exists an “adequate replacement” for the discontinued service, and
- A CLEC application to discontinue services that is unavoidable as a result of an ILEC copper retirement will automatically be deemed granted on the effective date of the ILEC retirement, so long as the CLEC (a) submits its discontinuance application at least 40 days prior to the ILEC copper retirement effective date and (ii) certifies that the basis for the discontinuance application is the ILEC’s planned copper retirement.
The details and implications of these determinations are discussed below.
I.) ILECs Reclassified as Non-Dominant Providers of Interstate Switched Access Services
The Declaratory Ruling grants a United States Telecom Association (“USTelecom”) petition, which requested that the FCC classify ILECs as non-dominant in their provision of interstate switched access services. ILECs have historically been considered dominant providers of interstate switched access services, based on prior findings that ILECs possessed “market power” (i.e. the power to control prices) in the switched access market. The Declaratory Ruling, however, concludes that ILECs no longer possess market power with respect to such services, resulting in the reclassification.
A.) Basis for Reclassification. The FCC’s decision to reclassify ILEC switched access services as non-dominant flowed from the FCC 2011 USF/ICC Transformation Order, which imposed rate caps on interstate switched access elements as part of the transition to bill-and-keep. Based on the presumption that rate caps prevent ILECs from charging excessive rates or inappropriately shifting costs among rate elements, the FCC concluded that prior concerns about ILEC market power have been rendered moot. Accordingly, the FCC concluded that ILECs can no longer be considered dominant in their provision interstate switched access services.
While the FCC typically engages in a more rigorous analysis in determining whether market power exists—considering factors such as market share, demand and supply elasticity, and the size, resources, and cost structure of firms operating in the market—the FCC concluded that such an analysis was unnecessary in this instance given the rate cap protection and the realities of the switched access marketplace. The non-dominant classification is limited specifically to ILEC interstate mass market and enterprise switched access services. It does not affect the regulatory treatment of ILECs with respect to dedicated services, such as special access (i.e., Business Data Services), or wholesale obligations such as the provision of unbundled network elements (UNEs).
B.) Impact of Reclassification. The reclassification will have several consequences, including:
- Streamlined Tariff Obligations. FCC rules allow non-dominant carriers to file tariffs and tariff amendments on one day’s notice. Under a dominant classification, a carrier is subject to a seven-day notice period for tariff filings that propose only a rate decrease and a fifteen-day notice period for all other filings. The non-dominant classification thus allows ILECs to file switched access tariffs on one days’ notice, although the seven-day and fifteen-day notice periods will still apply to all tariff filings that seek “deemed lawful” status.
- Shortened Period for Discontinuance Approval. Under the FCC’s discontinuance rules, applications to discontinue services are granted automatically after 60 days for dominant carriers or 31 days for non-dominant carriers, unless the FCC removes the application from streamlined treatment. The non-dominant classification places ILEC applications to discontinue interstate switched access services on the 31-day timeline.
- Streamlined Transfers of Control. The FCC’s rules afford streamlined treatment to domestic transfer of control applications filed by non-dominant carriers, while dominant carriers are not eligible for such treatment. Due to the reclassification, ILECs seeking approval to transfer control of interstate switched access services could conceivably qualify for streamlined treatment, in which case the application can be automatically granted after 31 days. However, since the Declaratory Ruling does not designate ILECs as non-dominant with respect to all regulated services, the reclassification is unlikely to affect the great majority of ILEC transfer of control applications.
II.) Updates to Procedures Governing Domestic Discontinuance Applications
The Second Report and Order updates FCC procedures governing applications to discontinue, reduce or impair domestic, interstate services in several respects. Foremost, the FCC created a new “adequate replacement” test for evaluating applications to discontinue legacy voice services as part of a technology transition. Under this test, an applicant may obtain streamlined treatment to discontinue legacy voice services, if it elects to demonstrate that an adequate, alternative service is available.
A.) Adequate Replacement Test. While discontinuance applications have for many years been evaluated under a five factor test,[1] the Second Report and Order creates a new “adequate replacement” test applicable only to applications seeking to discontinue legacy, TDM-based voice services as part of a transition to a new technology, such as IP or wireless. Under the adequate replacement test, the FCC will approve an application if a proposed replacement service offers:
- Substantially similar levels of network performance, service availability and coverage area as the service being discontinued;
- Compliance with existing federal and/or industry standards required to ensure that critical applications (such as 911, network security, and applications for disabled customers) remain available, and
- Interoperability and compatibility with certain applications and functionalities the FCC has found to be key to consumers and competitors.
To meet the test, a single replacement service—provided by either the applicant or a third-party—must satisfy all three prongs.
- Substantially Similar Performance, Availability and Coverage. To meet the first prong, an applicant must demonstrate the adequacy of the replacement service either (1) through performance testing demonstrating satisfaction of certain benchmarks, including standards for latency and data loss or (2) by demonstrating that, based on the totality of the circumstances, the network would still provide substantially similar performance and availability.
- Access to Critical Applications and Functionalities. The second prong requires an applicant to certify or demonstrate that the replacement service offers access to critical applications and functionalities. The proposed replacement service must:
- Comply with (i) 911 accessibility and location accuracy requirements; (ii) 911 service backup power requirements, and (iii) all other applicable emergency service requirements relating to the accessibility, accuracy and reliability of 911 services;
- Offer comparably effective protection from network security risks, and
- Comply with applicable FCC accessibility, usability and compatibility requirements governing (i) telecommunications services and functionalities; (ii) voicemail and interactive menu functionalities, and (iii) advanced communications services (ACS).
- Interoperability with Key Applications and Functionalities. For the third prong, the FCC has identified a list of key applications and functionalities that must be interoperable with any replacement service. The initial list of such applications covers low-speed modem devices, such as fax machines, home security alarms, medical monitoring devices, analog-only caption telephone sets and point of sale terminals. The FCC plans to seek comment on applications and functions that should be added to this list within three months of the effective date of the Second Report and Order.
B.) Discontinuance Process. The FCC also refined customer notice requirements applicable to applications seeking to discontinue legacy voice services as part of a technology transition. For such applications, the customer notice rules are updated to require applicants to offer a customer outreach plan, which at a minimum must involve: (1) the development and dissemination of educational materials to affected customers, (2) the creation of a telephone hotline and the option to create additional interactive and accessible services to field customer questions, and (3) appropriate training to staff to field such questions. Additionally, the FCC will allow carriers to provide customers with discontinuance notices via email when such customers previously agreed to receive email notices from the carrier.
III.) Automatic Approval of CLEC Discontinuance Applications Resulting from ILEC Copper Retirement
In the Order on Reconsideration, the FCC also revised its rules to prevent CLECs from becoming non-compliant with discontinuance rules due to loss of access following an ILEC copper retirement. Under the revised FCC rules, any CLEC discontinuance application resulting from an ILEC copper retirement will automatically be deemed granted on the effective date of the ILEC copper retirement that made such discontinuance unavoidable. To obtain this automatic approval, a CLEC must: (i) submit its discontinuance application at least 40 days prior to the effective date of the ILEC copper retirement and (ii) certify that the basis for the application is the ILEC’s planned copper retirement.
While this revision closes a gap in the FCC’s rules that left CLECs exposed to risk of non-compliance following an ILEC copper retirement, CLECs must remain diligent in monitoring ILEC copper retirement notices to ensure appropriate actions are taken. If a CLEC will lose access to UNEs or wholesale service offerings following a copper retirement, the CLEC only has just over four (4) months (i.e., 140 days) from the date the FCC releases a Public Notice on the copper facilities the ILEC plans to retire to find a replacement service or file an application to discontinue services.
Effective Dates. The Declaratory Ruling became effective July 15, 2016. The Second Report and Order and the Order on Reconsideration will be effective 30 days after publication in the Federal Register, except for certain FCC Rules that contain new or modified information collection requirements. After the Office of Management and Budget approves these latter FCC Rules, the FCC will announce the effective date in the Federal Register.
We would be pleased to provide further information concerning these important developments, as well as telecom regulation more generally. Please contact us at:
| Andy Klein | 202-289-6955 | AKlein@KleinLawpllc.com |
| Philip Macres | 202-289-6956 | PMacres@KleinLawpllc.com |
| Allen Zoracki | 518-336-4300 | AZoracki@KleinLawpllc.com |
| Susan Goldhar Ornstein | 202-289-6985 | SGoldhar@kleinlawpllc.com |
[1] The five factors considered by the FCC included (1) the financial impact on the common carrier of continuing to provide the service; (2) the need for the service in general; (3) the need for the particular facilities in question; (4) increased charges for alternative services, and (5) the existence, availability and adequacy of alternatives.