[Federal Register Volume 60, Number 174 (Friday, September 8, 1995)]
[Proposed Rules]
[Pages 46803-46804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22292]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 36

[CC Docket No. 80-286; FCC 95-282]


Establishment of a Joint Board

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Communications Commission has adopted a notice of 
proposed rulemaking (Notice) inviting comment on proposals to revise 
the assistance mechanisms contained in the jurisdictional separations 
rules applicable to Dial Equipment Minutes (``DEM'') weighting and the 
Universal Service Fund (``USF''). The Commission invited comment on 
whether DEM weighting should be phased out or, if it is retained, 
whether it should be merged with the USF or otherwise reformed. The 
Commission also proposed three basic approaches to revising the USF, by 
either reforming the current mechanism, which bases assistance on the 
carriers' reported costs, or introducing a system basing assistance on 
proxy factors, or allocating the fund among the States, which would 
design their own distribution programs, according to the Commission's 
guidelines. The Commission referred the proposals to the Federal-State 
Joint Board in this proceeding for a recommended decision. In addition, 
the Commission issued a Notice of Inquiry (``NOI'') seeking comment 
regarding: the need for further rulemaking to develop a program to 
reduce the USF in competitive markets through least-cost bidding, and 
the appropriate long-range treatment of universal service issues.

DATES: Comments are due October 10, 1995; Reply Comments are due 
November 9, 1995.

ADDRESSES: Federal Communications Commission, 1919 M Street NW., 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Jon Reel, (202) 418-0834, or Deborah 
A. Dupont, (202) 418-0873, Common Carrier Bureau, Accounting and Audits 
Division.

SUPPLEMENTARY INFORMATION: This is a summary of the Federal 
Communication Commission's Notice of Proposed Rulemaking in Amendment 
of Part 36 of the Commission's Rules and Establishment of a Joint 
Board, FCC 95-282, CC Docket No. 80-286, adopted and released July 13, 
1995. The Commission has made the full text of the Notice of Proposed 
Rulemaking available for inspection and copying during normal business 
hours in the Commission's Reference Center, Room 239, 1919 M Street 
NW., Washington, DC 205543, and will publish it in the FCC Record. The 
full text of the Notice of Proposed Rulemaking may also be purchased 
from the Commission's duplicating contractor, International 
Transcription Service, 2100 M Street NW., Suite 140, Washington, DC 
20037, telephone number (202) 857-3800.

Synopsis of Notice of Proposed Rulemaking

    In this Notice, the Commission seeks comment on proposed 
improvements to two subsidies intended to promote universal service at 
reasonable rates in high-cost, predominantly rural areas: dial 
equipment minute (``DEM'') weighting,\1\ and the Universal Service 
Fund.\2\ Changes in technology, market structure, and regulatory 
policies prompted the Commission to reevaluate these programs, with 
particular concern that the programs not act as de facto barriers to 
entry in the emerging competitive local exchange market. Commenters are 
asked to evaluate the proposals in the light of four basic principles. 
First, assistance should be targeted to support only those providers or 
users who need it; second, the programs should promote efficient 
investment and operation; third, the programs should not impose 
excessive costs on interstate carriers and ratepayers; and fourth, the 
rules should not impede competitive entry or disrupt normal market 
forces. The Commission refers the proposals to the Federal-State Joint 
Board in this proceeding for a recommended decision, as required by the 
Communications Act of 1934, as amended.\3\

    \1\ See 47 CFR 36.125 (1994).
    \2\ See 47 CFR subpart F (1994).
    \3\ 47 U.S.C. 410(c).
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Proposals for Revision of the DEM Weighting Rules

    The Commission's rules for allocating equipment costs between the 
federal and state jurisdictions divide the cost of local switching 
equipment based on relative dial equipment minutes, or DEM, of use. LEC 
study areas with 50,000 or fewer access lines ``weight'' (i.e. 
multiply) the DEM for their interstate switching costs--thus allocating 
a higher percentage of their overall switching costs to the interstate 
jurisdiction--on the theory that smaller LECs, because they cannot take 
advantage of economies of scale, have higher switching costs. 
Technological developments, however, may have diminished the importance 
of switch size to the point where the subsidy should be gradually 
eliminated, and the Notice requests comment on this option.
    If DEM weighting is not eliminated, the Notice requests comment on 
two possible approaches for its reform. First, the switching costs used 
for DEM weighting could be combined with the loop costs that determine 
USF assistance, thereby creating a single, need-based subsidy. Second, 
if DEM weighting is kept separate from the USF, it could be modified in 
one or more of the following ways: (1) establish a high-cost test for 
LECs to qualify for DEM weighting, (2) determine DEM weighting factors 
on the basis of average local switch size, or (3) keep the existing 
program, but determine the level of assistance through use of a sliding 
scale. The Notice requests comment on all these measures, with 
particular emphasis on whether small LECs actually have higher 
switching costs per unit of traffic than large LECs.
Proposals for Revision of the Universal Service Fund

    The Universal Service Fund was adopted in 1984 to support exchange 
carriers (``LECs'') in study areas with above-average loop costs.\4\ 
The Notice seeks comment on several approaches for reforming the USF, 
any of which would be compatible with the use of a high-cost credit 
system. Distributing USF assistance through high-cost credits--money 
credited on a 

[[Page 46804]]
subscriber's telephone bill that the subscriber could then assign 
either to the incumbent LEC or to a competing local carrier--is 
intended to make the program competitively neutral. The Notice requests 
comment on (1) whether the existence of local service competition 
should be prerequisite for distributing assistance through a high-cost 
credit system, (2) whether eligibility for high-cost assistance should 
depend upon a carrier's assuming minimum service requirements, (3) how 
best to distribute assistance to carriers that have not been subject to 
the Commission's separations rules, and (4) the significance of 
subscriber need in determining high-cost credits.

    \4\ Amendment of Part 67 of the Commission's Rules and 
Establishment of a Joint Board, 96 F.C.C. 2d 781 (1984).
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    Besides requesting comment on a high-cost credit system, the Notice 
sets forth for comment three primary approaches to reform of the USF. 
The first of these would modify the USF while continuing to base 
assistance on carrier's reported costs. If this ``reported costs'' 
approach is adopted, the Notice proposes, at a minimum, three reforms: 
(1) require carriers to calculate the costs and number of loops in a 
study area based on all loops served by affiliated companies in the 
same state, (2) exclude administrative costs from the loop costs that 
form the basis for high-cost assistance, and (3) base assistance on the 
average number of lines in a study area over a year, rather than the 
number of lines at the end of the year.
    In addition to these reforms, the Notice seeks comment on reforming 
the ``reported costs'' approach by adopting one or more of the 
following measures: (1) increase the threshold for receiving 
assistance, (2) reconsider the current rules' distinctions between 
small and large study areas, (3) eliminate assistance to LECs receiving 
minimal assistance per line per month, and (4) adopt a permanent 
indexed cap. The Notice also requests comment on whether to implement 
the use of high-cost credits in a ``reported costs'' system, and 
whether to base high-cost assistance on local switching and loop costs 
combined, thereby combining the DEM weighting and USF programs.
    The second primary approach would base assistance not on carriers' 
reported costs, but instead on objectively ascertainable factors that 
would serve as proxies for the cost of providing service. Using proxy 
factors rather than reported costs would encourage recipients to 
control their costs, and would further the policy of competitive 
neutrality. The Notice seeks comment on four proxy factors: (1) 
subscriber density per square mile, (2) average distance from the 
nearest wire center, (3) terrain, and (4) climate. The Notice also 
seeks comment on whether it is advisable to incorporate local switching 
costs into the proxy model, and whether the use of a proxy methodology 
should be limited to the larger LECs.
    The third primary approach would allow State utility commissions 
significant control over distribution of the USF. The Notice proposes a 
three-step process. First, proxy factors would be used to determine the 
amount of high-cost assistance allocated for distribution within each 
State. Second, within each State, the State utility commission would 
decide, in accordance with general guidelines adopted by the 
Commission, the process for allocating the assistance among the 
carriers serving high-cost areas. Third, the Commission would review 
the distribution plans filed by the State commissioners. The Commission 
would prescribe a default mechanism for States that decline to 
participate in the distribution process.

Notice of Inquiry: Comment Requested Regarding the Need for Further 
Rulemaking

Market-based Incentives to Reduce the USF Through Least-cost Bidding

    The NOI sets out for comment a possible methodology to harness 
market forces to reduce the size of the USF once competition for local 
phone service is established. Local service providers would reverse-bid 
to set the amount of USF assistance, with the lowest bidder setting the 
level of subsidy per subscriber in an area for all carriers serving 
that area. To encourage carriers to bid, the winner would receive an 
additional incentive or bonus, such as a percentage of the savings to 
the fund. To bid, carriers would have to serve as an essential carrier, 
or ``carrier of last resort,'' by providing ubiquitous service at a 
reasonable rate within the specified area.
    More generally, the NOI solicits suggestions, information, and 
analyses regarding the appropriate long-term treatment of universal 
service issues in the light of rapidly-changing technologies and 
advances in competitive markets.

Regulatory Flexibility Act

    In the Notice the Commission certifies that the Regulatory 
Flexibility Act of 1980 does not apply to this rulemaking proceeding 
because, if the proposals in this proceeding are adopted, there will 
not be a significant economic impact on a substantial number of small 
business entities, as defined by Section 601(3) of the Regulatory 
Flexibility Act.\5\ Because of the nature of local exchange and access 
service, the Commission has concluded that LECs, including small LECs, 
are dominant in their fields of operation and therefore are not ``small 
entities'' as defined by that act.\6\ The Secretary has sent a copy of 
this Notice of Proposed Rulemaking, including the certification, to the 
Chief Counsel for Advocacy of the Small Business Administration in 
accordance with Section 603(a) of that act.\7\

    \5\ 5 U.S.C. Sec. 601(3).
    \6\ See MTS and WATS Market Structure, 93 FCC 2d 241, 338-39 
(1983).
    \7\ 5 U.S.C. Sec. 603(a).
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Ordering Clauses

    Accordingly, it is ordered that, pursuant to Sections 1, 4(i), 
4(j), 403, and 410(c) of the Commissions Act of 1934, as amended, 47 
U.S.C. Secs. 151, 154(i), 154(j). 403 and 410(c), notice is hereby 
given of proposed amendments to Part 36 of the Commission's Rules, 47 
CFR Part 36, as described in this Notice of Proposed Rulemaking.
    It is further ordered that, pursuant to Section 410(c) of the 
Communications Act of 1934, 47 U.S.C. Sec. 410(c), the proposals set 
forth in the Notice of Proposed Rulemaking are hereby referred to the 
Federal-State Joint Board established in this proceeding for the 
preparation of a recommended decision.
    It is further ordered that, pursuant to Sections 1, 4(i), 4(j), and 
403 of the Communications Act of 1934, as amended, 47 U.S.C. Secs. 151, 
154(1), 154(j), and 403, notice is hereby given of the initiation of a 
Notice of Inquiry regarding the need for further rulemaking to address 
the use of a competitive bidding process to establish levels of high 
cost assistance, and regarding the appropriate long-range treatment of 
universal service issues.

List of Subjects in 47 CFR Part 36

    Communications common carriers, Jurisdictional separations 
procedures, Reporting and recordkeeping requirements, Telephone, 
Universal system of accounts.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-22292 Filed 9-7-95; 8:45 am]
BILLING CODE 6712-01-M