Federal Communications Commission

“ In regulated markets characterized by dominant firms, there may be an incentive, however, to use bundling as an anti-competitive marketing strategy, e.g., to cross-subsidize competitive by monopoly services, that restricts both consumer freedom of choice as well as the evolution of a competitive marketplace. Restricting bundling practices in such markets reduces these impediments to improve consumer welfare. ”

“ The question of whether customer-premises equipment should be tariffed drew an equally mixed reaction. Divergent entities, such as AT&T and NATA, took the position that the Communications Act required that the provision of customer-premises equipment by underlying carriers be subject to tariff regulation. Without such regulation NATA saw no hope for the development of a genuinely competitive equipment market. Other parties contended that no CPE of any type should be subjected to tariff regulation, asserting that the CPE market was competitive and that regulation would be unduly burdensome. ”

“ The competitive potential of terminal equipment markets is reflected in the fact that there are hundreds of manufacturers and suppliers of modems, terminals, storage devices, front end processors, large and small central processing units, multiplexers, concentrators, and virtually innumerable related devices. While some segments of the CPE market may be more competitive than others, we have been given no evidence that, given certain modifications in the markets, any segment is inherently less competitive than another. ”

“ Many different types of CPE are offered in the marketplace and it is virtually impossible for a single supplier to satisfy all the various equipment needs of a user. The number of suppliers in the marketplace and the variety of products they offer is evidence of the severability of CPE from a carrier's transmission service. Moreover, to a large extent, the technological revolution in terminal equipment has occurred independent of common carrier transmission services. ”

“ Bundling of equipment and service charges obviously can inhibit competition because a subscriber to the carrier's service would not be likely to obtain equipment from a non-carrier vendor if the subscriber were required to pay for carrier equipment even if he elected not to use it. ”

“ Non-regulated equipment vendors have been instrumental in applying computer technology to CPE, and have been the primary leaders in innovation in this area. The degree to which innovation occurs independent of the telecommunications network also reflects the fact that CPE is clearly severable from the underlying utility service to
77 F.C.C.2d 384, 441 which it is attached. There is nothing inherent in any carrier-provided CPE, including the basic telephone, that necessitates its provision as an integrated part of a carrier's regulated transmission service. ”

“ However, the bundling of a portion of carrier terminal equipment costs into interstate service rates clearly creates an opportunity to engage in predatory pricing. Unfortunately, the problems of predatory pricing and interservice cross-subsidy have created major regulatory difficulties for us. The problems of predatory pricing and cross-subsidy are real, although both the definitions and policy prescriptions for treating these problems vary in the academic literature. ”

“ In essence, our efforts up until now have focused on increasing consumer choice and have resulted in non-discriminatory access to the tele-communications network for connection of non-carrier provided equipment. This has allowed consumers to exercise their rights in the selection and use of terminal equipment that best suits their needs. Moreover, it has opened up various segments of the equipment market to new entrants. ”

“ Unbundling in and of itself may not disassociate all costs of providing basic services from the provision of CPE. To the extent that such equipment is tariffed in a fashion that allows the carriers to earn a regulated return on their investment there is the potential for joint and common costs to distort either the price for the CPE or the basic service. ”

“ In the present environment in which CPE is marketed, we are hard pressed to proffer any statutory or public interest justification for rate regulation of carrier-provided CPE. Regulation is a substitute for deficiencies in the marketplace. As currently applied to carrier provided CPE, however, regulation may serve to maintain whatever market aberrations exist. ”

“ In the same manner, in today requiring equipment to be made available to interstate users on a cost-based non-usage sensitive basis--with equipment investment fully isolated from transmission investment and from the separations process--we hope to strengthen further the prospects for comparing competitive equipment offerings in the market. ”

“ The effect of this decision will be to restructure the manner in which carriers provide CPE. We have essentially set forth a mechanism whereby consumers are better able to ascertain the desirability of acquiring terminal equipment from a full range of equipment suppliers and regulators are better able to ascertain and regulate the charges for common carrier communications services. The overall economic impact on carriers should, on balance, be negligible since we are merely requiring separation of the costs of providing CPE, from the common carrier transmission offering. ”

“ The technological advancements affecting developments in computer applications for consumer services are also dramatically altering the types of terminal equipment used in conjunction with these services. ”

“ NATA has argued, however, that continued regulation is necessary if competition is to have a chance, its concern being the extension of market power by monopoly-based telephone companies. While there may be some validity to NATA's concerns, there are other non-regulatory methods of addressing carrier extension of monopoly power. (See discussion, infra. ) Continued regulation of CPE will not foster a competitive equipment environment. ”

“ Political expediency may encourage state commissions to defend their current option to bury subsidy costs in as many holes as possible, but this concern cannot be allowed to determine the allocation of jurisdictional competency between State and federal agencies. ”

“ Keeping service charges closely related to costs is made very difficult if not impossible when those costs include both costs that do not vary with usage but that change frequently due to technological change and costs that are usage sensitive. ”

“ The deregulating and detariffing of CPE raise a number of interrelated issues that we shall address in the near future. These include depreciation rates for terminal equipment, adequacy of investment recovery, and prices at which terminal equipment is removed from carriers' rate bases. We shall also consider the relationship of the residential subscriber option indicated in the preceding paragraph to these issues. ”

“ This choice of the most appropriate regulatory mechanism is, we believe, one entrusted to our discretion, especially with respect to terminal equipment where such offerings have historically been viewed as only within the Commission's ancillary jurisdiction, not its Title II jurisdiction, when offered separately from transmission services. Congress has recognized that communications services are highly dynamic and changing and that the Commission must have flexibility to respond to these changing conditions. ”

“ They asserted that due to the basic fungibility of equipment no distinction between types of equipment was feasible. In particular data processing equipment vendors and their representatives argued that the artificiality of the distinction could lead to an unnecessary expansion in the scope of regulation and would increase the risk of improper cross-subsidization. ”

“ Moreover, the status of mobile telephone equipment is currently being examined in our Cellular Mobile Radio proceeding CC Docket No. 79-318, FCC 79-774, released January 8, 1980. Our action here in deregulating CPE under Title II is not intended to alter in any way the requirements imposed for the licensing of radio equipment under Title III of the Act, even though it may be separated from the carrier's provision of basic services. This decision applies to CPE provided in the 48 contiguous states, Alaska, Hawaii, Puerto Rico, and the Virgin Islands. ”

“ Such bundling inturn enhances the danger that a misallocation of costs will produce service rates that will result in a misallocation of resources. Terminal equipment costs represent a large portion of the non-usage sensitive costs that are presently reflected in interstate service rates and are the non-usage sensitive portion that is subject to rapid technological change. ”

“ Along with such rights, corresponding carrier responsibilities were established by making unlawful any unjust or unreasonable interference with these consumer rights by the carrier. Consumers have the right to use the telecommunications network "... in ways which are privately beneficial without being publicly detrimental." ”

“ There are a number of means by which this consequence could be alleviated, for example by allocating a larger portion of other exchange plant accounts to interstate services in order to enable state commissions to reduce residential local exchange rates. ”