Jurisdictional Separations and Referral to the Federal-State Joint Board

<RULE> FEDERAL COMMUNICATIONS COMMISSION <CFR>47 CFR Part 36</CFR> <DEPDOC>[WCB: CC Docket No. 80-286; FCC 24-118; FR ID 262275]</DEPDOC> <SUBJECT>Jurisdictional Separations and Referral to the Federal-State Joint Board</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Communications Commission. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> In this document, the Federal Communications Commission (Commission) extends, for up to an additional six years, the freeze of the jurisdictional separations category relationships and cost allocation factors (together, separations rules) for rate-of-return incumbent local exchange carriers (LECs). Further extending the freeze, which is set to expire on December 31, 2024, will enable the Commission to continue to work with the Federal-State Joint Board on Jurisdictional Separations (Joint Board) to determine the future of these rules. The Commission declines to provide carriers an opportunity to unfreeze their current category relationships and refers to the Joint Board to consider whether comprehensive reform is needed at this time or if the Commission should allow these rules to become obsolete over time and whether a permanent freeze is warranted, and if so, whether carriers still using separations should be given the chance to unfreeze their category relationships every few years. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective November 25, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Marv Sacks, Pricing Policy Division of the Wireline Communications Bureau, at (202) 418-2017 or via email at <E T="03">marvin.sacks@fcc.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> This is a summary of the Commission's Report and Order, in CC Docket No. 80-286, FCC 24-118, adopted and released on November 13, 2024. The full text of this document may be obtained from the following internet address: <E T="03">https://docs.fcc.gov/public/attachments/FCC-24-118A1.pdf.</E> To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an email to <E T="03">fcc504@fcc.gov,</E> or call the Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice) or (202) 418-0432 (TTY). This action arises from a Further Notice of Proposed Rulemaking and Order, FCC 24-71, released on July 1, 2024; 89 FR 58692 (July 19, 2024). <HD SOURCE="HD1">Synopsis</HD> <HD SOURCE="HD1">I. Introduction</HD> 1. In this Report and Order, the Commission extends, for up to an additional six years, the freeze of the separations rules for rate-of-return incumbent LECs. In light of sweeping technological and regulatory changes in the marketplace and the resulting ongoing transition from traditional telephone service to broadband-based voice services, the separations rules play a substantially diminished role in allocating costs between the interstate and intrastate jurisdictions. This extension of the separations rules freeze will enable the Commission to continue to work with the Joint Board to determine the future of these rules, which were last revised more than 35 years ago in a vastly different telecommunications marketplace. We decline, however, to provide carriers an opportunity to change their current category relationships. 2. Given the technological and regulatory changes that have occurred over the past three and a half decades and the compliance burdens that the separations rules impose on the limited and declining number of small rural carriers still subject to them, we also refer to the Joint Board for their consideration the question of whether comprehensive reform is needed at this time or if the Commission should allow these rules to become obsolete over time. Because repeated freeze extensions of the separations rules have yet to produce substantive changes to these rules and consume limited government and industry resources, we also refer to the Joint Board the issue of whether a permanent freeze is warranted and, if so, whether carriers still using separations should be given the chance to unfreeze their category relationships every few years. <HD SOURCE="HD1">II. Background</HD> 3. <E T="03">Jurisdictional Separations Process.</E> Rate-of-return incumbent LECs use their networks and other resources to provide both interstate and intrastate telecommunications and other services. To prevent the recovery of the same costs from both the interstate and intrastate jurisdictions, the separations rules require that rate-of-return incumbent LECs divide their costs and revenues between the respective jurisdictions. These jurisdictional separations rules were designed to ensure that rate-of-return incumbent LECs apportion the costs of their regulated services between the interstate or intrastate jurisdictions in a manner that reflects the relative use of their networks to provide interstate or intrastate telecommunications services. 4. Jurisdictional separations is the third step in a four-step cost-based regulatory rate-making process. First, a rate-of-return carrier records its costs and revenues in various accounts using the Uniform System of Accounts prescribed by the Commission's part 32 rules. Second, the carrier divides the costs in these accounts between regulated and nonregulated activities in accordance with the Commission's part 64 rules, a step that helps ensure that the costs of nonregulated activities will not be recovered through regulated interstate rates. Third, the carrier separates the regulated costs and revenues between the interstate and intrastate jurisdictions using the Commission's part 36 jurisdictional separations rules. Finally, the carrier apportions the interstate regulated costs among the interexchange services and the rate elements that form the basis for its cost-based interstate rates. Carriers subject to rate-of-return regulation perform this apportionment in accordance with the Commission's part 69 rules. 5. To comply with the Commission's cost-based ratemaking rules, rate-of-return incumbent LECs must perform annual cost studies that include jurisdictional separations. The cost studies directly assign or allocate the regulated costs and revenues to various part 36 categories. Amounts in categories that are used exclusively for either interstate or intrastate communications are directly assigned to the appropriate jurisdiction. Costs that fall in categories that support both interstate and intrastate services are divided between the jurisdictions using allocation factors developed in accordance with part 36 that reflect relative use or a fixed percentage. 6. In addition to being used for developing cost-based rates, separations is also used as part of the process to determine universal service support. The administrator of the federal universal service support program, the Universal Service Administrative Company, uses separations categorization results for calculating high-cost loop support for certain legacy support carriers. In addition, some states use separations results to determine the amount of intrastate universal service support and to calculate regulatory fees, and some states perform intrastate rate-of-return ratemaking using the assigned or allocated intrastate costs. 7. <E T="03">Attempts at Separations Reform and Separations Freezes.</E> In 1997, recognizing that “changes in the law, technology, and market structure of the telecommunications industry” necessitated a thorough reevaluation of the jurisdictional separations process, the Commission initiated a proceeding to comprehensively reform the separations rules. At the same time, pursuant to section 410(c) of the Communications Act of 1934, as amended (the Communications Act), the Commission referred the matter of jurisdictional separations reform to the Joint Board for a recommended decision. 8. In 2000, the Joint Board—comprised of both State and Federal members—issued a recommendation that the Commission freeze the part 36 category relationships and jurisdictional allocation factors pending resolution of comprehensive reform. In 2001, the Commission adopted an order concluding that a freeze would stabilize the separations process pending reform by minimizing any impact of cost shifts on separations results due to circumstances—such as the growth of internet usage, new technologies, and local competition—not contemplated by the rules. The Commission also determined that a freeze would simplify the separations process by eliminating the need for many separations cost studies until separations reform was implemented. Accordingly, the Commission froze all carriers' part 36 jurisdictional allocation factors at the percentages the carriers were using at that time, and allowed rate-of-return carriers to voluntarily freeze their category relationships, enabling each carrier to determine whether such a freeze would be beneficial “based on its own circumstances and investment plans.” Thus, at a minimum, rate-of-return carriers' jurisdictional allocation factors are frozen at the December 31, 2000 level, which allows these carriers to avoid the considerable burdens associated with conducting the traffic studies otherwise needed to comply with the rules for allocating investments and expenses between the intrastate and interstate jurisdictions. 9. The Commission specified that the 2001 freeze would last five years or until the Commission completed comprehensive separations reform, whichever came first. The Commission also concluded that, prior to the expiration of the five-year period, the Commission would, in consultation with the Joint Board, determine whether the freeze period should be extended, explaining that “the determination of whether the freeze should be extended at the end of the five-year period shall be based upon whether, and to what ext ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 40k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━