[Federal Register Volume 61, Number 232 (Monday, December 2, 1996)]
[Proposed Rules]
[Pages 63778-63809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30381]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Chapter I
[CC Docket No. 96-45: FCC 96J-3]
Universal Service
AGENCY: Federal Communications Commission.
ACTION: Recommended decision.
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SUMMARY: On November 7, 1996, the Federal-State Joint Board adopted a
Recommended Decision, as required by section 254 of the
Telecommunications Act of 1996 (``1996 Act''), regarding universal
service. In the decision, the Joint Board made numerous recommendations
on universal service issues including, for example, issues relating to:
universal service principles; services eligible for support; support
mechanisms for rural, insular, and high cost areas; support for low
income consumers; affordability; support for schools, libraries, and
health care providers; administration of support mechanisms; and common
line cost recovery. The Commission seeks comment on the Recommended
Decision.
DATES: Comments should be filed on or before December 16, 1996 and
Reply Comments on or before January 10, 1997.
ADDRESSES: Interested parties must file an original and four copies of
their comments with the Office of the Secretary, Federal Communications
Commission, Room 222, 1919 M Street, N.W., Washington, D.C. 20554.
Comments should reference CC Docket No. 96-45. Parties should send one
copy of their comments to the Commission's copy contractor,
International Transcription Service, Room 140, 2100 M Street, N.W.,
Washington, D.C. 20037. Parties must also serve copies of their
comments on the individuals identified in the attached service list.
After filing, comments will be available for public inspection during
regular business hours in the FCC Reference Center, Room 239, 1919 M
Street, N.W., Washington, D.C. 20554.
Parties are also asked to submit comments on diskette. Diskette
submissions would be in addition to and not a substitute for the formal
filing requirements addressed above. Parties submitting diskettes
should submit them to Sheryl Todd, Common Carrier Bureau, 2100 M
Street, N.W., Room 8611, Washington, D.C. 20554. Such a submission
should be on a 3.5 inch diskette in an IBM compatible format using
WordPerfect 5.1 for Windows software in a ``read only'' mode. The
diskette should be clearly labelled with the party's name, proceeding,
and date
[[Page 63779]]
of submission. The diskette should be accompanied by a cover letter.
FOR FURTHER INFORMATION CONTACT: Sheryl Todd at 202-530-6040.
SUPPLEMENTARY INFORMATION: The Joint Board recommended that the
Commission specifically seek additional information and comment on a
number of topics, including, for example:
Principles. How should the additional principle of competitive
neutrality be defined and applied within the context of universal
service?
Low-Income. What baseline amount of support should be provided to
low-income consumers? Is the $5.25 baseline amount suggested in the
Recommended Decision likely to be adequate? How can the FCC avoid the
unintended consequence that the increased federal support amount has no
direct effect on Lifeline subscribers' rates in many populous states
with Lifeline programs, and instead results only in a larger percentage
of total support being generated from federal sources?
Schools/Libraries. What methods should the Commission use for
identifying high cost areas for purposes of providing a greater
discount to schools and libraries located in high cost areas? What
measures of economic advantage may be readily available to identify
economically disadvantaged non-public schools and economically
disadvantaged libraries or, if none is readily available, what
information could be required that would be minimally burdensome?
Health Care. What is the exact scope of services that should be
included in the list of additional services ``necessary for the
provision of health care'' in a state? In responding, commenters should
address the telecommunications needs of rural health care providers and
the most cost-effective ways to provide these services to rural areas.
What would be the relative costs and benefits of supporting
technologies and services that require bandwidth higher than 1.544
Mbps? How rapidly is local access to Internet Service Providers (ISPs)
expanding in rural areas of the country, and what are the costs likely
to be incurred in providing toll-free access to ISPs for health care
providers in rural areas? What are the probable costs that would be
incurred in eliminating distance-based charges and/or charges on
traffic between Local Access and Transport Areas (LATAs) (interLATA
traffic), where such charges are in excess of those paid by customers
in the nearest urban areas of the state? Do insular areas experience a
disparity in telecommunications rates between urbanized and non-
urbanized areas? Commenters should supply information on the size of
cities and other demographic information pertaining to insular areas
that might be used to establish the urban rate and rural rate in each
of those areas. What costs would be incurred in supporting upgrades to
the public switched network necessary to provide services to rural
health care providers? To what extent, and on what schedule, might
ongoing network modernization, as is currently going forward under
private initiative or according to state-sponsored modernization plans,
make universal service support for such upgrades unnecessary? What are
the probable costs, and the advantages and disadvantages, of supporting
upgrades to public switched or backbone networks where such upgrades
can be shown to be necessary to deliver eligible services to rural
health care providers?
Administration. Should contributions for high cost and low-income
support mechanisms be based on the intrastate and interstate revenues
of carriers that provide interstate telecommunications services, based
on the factors enumerated in the Recommended Decision? Should the
intrastate nature of the services supported by the high cost and low-
income programs have a bearing on the revenue base for assessing funds?
Should contributing carriers' abilities to identify separately
intrastate and interstate revenues in an evolving telecommunications
market and carriers' incentives to shift revenues between jurisdictions
to avoid contributions have a bearing on this question?
We ask parties to address the effects that the Joint Board's
recommendations to the Commission are likely to have on small entities
and what measures the Commission should undertake to avoid significant
economic impact on small business entities as defined by Section 601(3)
of the Regulatory Flexibility Act. These comments must be filed in
accordance with the same filing deadlines as comments on the rest of
the Recommended Decision, but they must have a separate and distinct
heading designating them as responses to the regulatory flexibility
analysis.
The Commission invites interested parties to file comments on the
Joint Board's recommendations and on the Commission's legal authority
to implement such recommendations. Copies of the Recommended Decision
can be obtained from (1) the International Transcription Service (ITS),
Room 140, 2100 M Street, N.W., Washington, D.C. 20037 or (2) the FCC
World Wide Web Home Page: http://www.fcc.gov.
Summary of Recommended Decision
1. Principles. We recommend that policy on universal service should
be a fair and reasonable balance of all of those principles identified
in section 254(b) and the additional principle we identify in this
section. We recognize, however, that our primary responsibility on this
matter is to ensure that consumers throughout the Nation are not harmed
and are benefited under our recommendation. To this end, we recommend
that promotion of any one goal or principle in this proceeding should
be tempered by a commitment to ensure quality services at just,
reasonable, and affordable rates in all areas of the Nation, for those
services that meet the section 254(c)(1) criteria.
2. We recommend that the Commission also establish ``competitive
neutrality'' as an additional principle upon which it shall base
policies for the preservation and advancement of universal service,
pursuant to section 254(b)(7). We ask that the Commission define the
principle in the context of determining universal service support, as:
``COMPETITIVE NEUTRALITY--Universal service support mechanisms and
rules should be applied in a competitively neutral manner.''
3. We believe that the principle of competitive neutrality
encompasses the concept of technological neutrality by allowing the
marketplace to direct the development and growth of technology and
avoiding endorsement of potentially obsolete services. In recognizing
the concept of technological neutrality, we are not guaranteeing the
success of any technology for all purposes supported through universal
service support mechanisms but merely stating that universal service
support should not be biased toward any particular technologies. We
further believe that the principle of competitive neutrality should be
applied to each and every recipient and contributor to the universal
service support mechanisms, regardless of size, status or geographic
location.
4. Given the provisions elsewhere in the law that require access to
telecommunications equipment and services by people with disabilities,
we recommend that the Commission not adopt specific principles related
to telecommunications users with disabilities in this universal service
proceeding. With respect to the requests for additional principles
designed to promote the welfare of other specific groups such as
subscribers in rural areas and customers with low incomes, we do
[[Page 63780]]
not recommend the establishment of any additional principles.
5. Finally, although this Joint Board supports the concept of
administrative simplicity, we do not recommend that the Commission
formally adopt this concept as a principle. Section 254(b)(5) provides
that support mechanisms should be ``[s]pecific and predictable.'' We
find that this principle encompasses administrative simplicity. In
addition, we decline to recommend that access to the particular
services commenters have proposed become guiding principles for the
Commission's universal service policies. Instead, we consider whether
these services, consistent with the principles of the 1996 Act, should
be included in the definition of universal service.
6. Definition of Universal Service: What Services to Support. The
1996 Act defines ``telecommunications services'' as ``the offering of
telecommunications for a fee directly to the public * * * regardless of
the facilities used.'' With the exception of single-party service and
touch-tone dialing, the core services proposed in the Notice of
Proposed Rulemaking and Order Establishing a Joint Board (NPRM)
represent functionalities or applications associated with the provision
of access to the public network, rather than tariffed services. The
Joint Board concludes that defining telecommunications services in a
functional sense, rather than on the basis of tariffed services alone,
is consistent with the intent of section 254(c)(1).
7. Based on the overwhelming support in the record, the Joint Board
recommends that the services proposed in the NPRM should be included in
the general definition of services supported under section 254(c)(1).
We reject the arguments of commenters that a service must meet all of
the statutory criteria of section 254(c)(1)(A)-(D) before it may be
included within the definition of universal service. Instead, we
conclude that while the Joint Board must consider all four criteria
before determining that a service or functionality should be included,
we need not find that a particular service meets each of the four
criteria. Accordingly, we recommend that the services proposed in the
NPRM, namely, single-party service, voice grade access to the public
switched telephone network (PTSN), DTMF or its functional digital
equivalent, access to emergency services and access to operator
services be designated for universal service support pursuant to
section 254(c)(1).
8. The Joint Board recommends that single-party service should
receive universal service support. We further find that single-party
service means that only one customer will be served by each subscriber
loop or access line, although carriers may offer consumers the choice
of multi-party service in addition to single-party service and remain
eligible for universal service support. In addition, to the extent that
wireless providers use spectrum shared among users to provide service,
we find that wireless carriers provide the equivalent of single-party
service since users are given a dedicated channel for each
transmission. (Wireless carriers are not, however, required to provide
a single channel dedicated to a particular user at all times; a
wireless carrier provides the equivalent of single-party service when
it provides a dedicated message path for the length of a user's
particular transmission.) Moreover, we recommend permitting a
transition period for carriers to make upgrades to provide single-party
service, but only to the extent carriers can meet a heavy burden that
such a transition period is necessary and in the public interest. Since
state commissions will be responsible for designating carriers as
eligible for purpose of receiving federal universal service support, we
recommend that states make the determination as to the need for a
transition period for a particular carrier.
9. We find that the record provides ample support for our
conclusion that voice grade access, an essential element to telephone
service, is subscribed to by a substantial majority of residential
customers and is being deployed in public telecommunications networks
by telecommunications carriers. In addition, we find that voice grade
access should occur in the frequency range between approximately 500
Hertz and 4,000 Hertz, for a bandwidth of approximately 3,500 Hertz.
Voice grade access should also include the ability to place calls,
including the ability to signal the network that the caller wishes to
place a call, and the ability to receive calls, including the ability
to signal the called party that there is an incoming call. (We
explicitly do not include call waiting within this definition.)
10. Based on strong support in the record, we also recommend
including a local usage component within the definition of voice grade
access. We conclude that the states are best positioned to determine
the local usage component that represents affordable service within
their jurisdictions. Nonetheless, for purposes of determining the
amount of federal universal service support, we recommend that the
Commission determine a level of local usage.
11. We agree with commenters who argue that ``touch-tone'' is more
appropriately termed DTMF signaling. DTMF facilitates the
transportation of signaling through the network. DTMF also accelerates
call set-up time. As noted in the NPRM, other methods of signaling,
such as digital signaling, can provide network benefits equivalent to
that of DTMF. Therefore, we recommend that DTMF or its functional
digital equivalent (hereinafter referred to as ``DTMF'') be supported
under section 254(c)(1).
12. Like the other core services, access to emergency service is a
functionality that is widely deployed and subscribed to by a majority
of residential subscribers. Further, access to emergency service is
widely recognized as ``essential to * * * public safety.'' In defining
access, the record supports the inclusion of access to 911 (but not for
Public Safety Answering Points, which local public safety officials
provide). Nearly 90 percent of lines today have access to 911
capability. In addition, we recommend access to E911 service, where the
locality has chosen to implement that service, be included in the
definition of universal service. We do not recommend providing
universal service support, however, for E911 service. We recommend not
including E911 service within the definition of services to be
supported at this time, but may recommend its consideration when the
definition is revisited, as anticipated by section 254(c)(2).
13. In supporting access to operator service, we recommend that the
Commission adopt the definition of operator services it implemented for
purposes of section 251(b)(3), namely, ``any automatic or live
assistance to a consumer to arrange for billing or completion, or both,
of a telephone call.''
14. In addition to the services proposed to be included within the
general definition of universal service by the NPRM, the Joint Board
recommends that access to interexchange service be included. The Joint
Board, however, recommends that access to interexchange service should
not be defined, at this time, to include equal access to interexchange
carriers.
15. The Joint Board also recommends including access to directory
assistance, specifically, the ability to place a call to directory
assistance, in the definition of universal service. Like access to
interexchange service, access to directory service is a functionality
of the loop. We recommend that support be provided for access to
directory assistance, not the service itself. Therefore, we will refer
to voice grade
[[Page 63781]]
access to the public switched network, DTMF or touch-tone, single-party
service, access to emergency service, access to operator service,
access to interexchange service, and access to directory assistance as
the ``designated'' or ``core'' services for section 254(c)(1) universal
service purposes .
16. We generally agree with those commenters that argue that
carriers designated as eligible telecommunications service providers
must provide each of the services designated for support subject to
certain exemptions as discussed below. We recommend that
telecommunications carriers that are unable to provide one or more of
these services should not receive universal service support unless
exceptional circumstances exist. We recommend that states have the
discretion to provide for a transition period, for good cause, to allow
carriers to make upgrades to provide single-party service.
17. In addition to our general conclusion that carriers must
provide each of the designated services in order to receive support, we
find that universal service support should be available in limited
instances where a carrier is unable to provide a few specific services.
For example, based on our analysis of E911, discussed above, we
conclude that access to E911 should be among those services supported
by universal service mechanisms because, for example, it is ``essential
to * * * public safety'' consistent with section 254(c)(1)(A). We
realize, however, that not all carriers are currently capable of
providing access to E911 and, in fact, not all communities have the
facilities in place to provide E911 service. Nevertheless, we conclude
that access to E911 should be supported to the extent that carriers are
providing such access. Similarly, as discussed below, we find that toll
blocking or control services should be supported when provided to
qualifying low-income consumers, to the extent that eligible carriers
are technically capable of providing these services. Thus, we recommend
that eligible carriers be required to provide all of those services we
characterize as ``designated'' services, but we also recommend that the
Commission support additional services such as E911 and toll
limitation, to the extent eligible carriers are providing these
important services.
18. Finally, we conclude that waivers should not be generally
available to carriers that do not provide one or more of the designated
services. Nevertheless, the record supports the contention that some
carriers may currently be unable to offer single-party service. Because
section 214(e) requires eligible carriers to ``offer the services that
are supported by Federal universal service support mechanisms under
section 254,'' we are unwilling to recommend that telecommunications
providers be permitted to receive broad waivers from the requirement to
provide the services we recommend designating for universal service
support. As discussed above, however, we recommend that state
commission be permitted to grant a request for a transition to carriers
that cannot currently provide single-party service if the circumstances
warrant such a transition period.
19. We find that support for designated services provided to
residential customers should be limited to those services carried on a
single connection to a subscriber's principal residence. (In light of
our recommended principle of competitive neutrality, we will
hereinafter refer to ``connections'' rather than ``lines.'') We
conclude that support for a single residential connection will permit a
household complete access to telecommunications and information
services. The Joint Board, however, declines at this time to provide
support for other residential connections beyond the primary
residential connection. Support for a second connection is not
necessary for a household to have the required ``access'' to
telecommunications and information services. We are unpersuaded that
universal service support should be extended to second residences in
high cost areas. We conclude that the consumer benefits that result
from support should not be extended to second homes. Such residences
may not be occupied at all times, and their occupants presumably can
afford to pay rates that accurately reflect the cost of service.
20. We find that designated services carried to single-connection
businesses in rural, insular and other high cost areas should be
supported by universal service mechanisms, although we find that a
reduced level of support may be appropriate. We find general
similarities between residential and single-line business customers.
Both single-line business and residential subscribers require access
for health, safety and employment reasons. We recommend making
universal service support available for designated services carried to
single-connection businesses in high cost areas.
21. We conclude, however, that designated services carried to
businesses subscribing to only one connection should not receive the
full amount of support designated for residential connections in high
cost areas. We recommend that, for business connections, a standard
different from that applied to residential connections for determining
support should be established. We recommend initially supporting the
designated services carried on business connections in a high cost area
at a lower level than that provided for residential connections in the
same area. As discussed, below, we recommend that the Commission use a
benchmark based on the revenue generated per line to determine the
amount of support carriers should receive. Under this recommended
approach, eligible carriers would receive less support for serving
single-connection businesses than they would for residential service
because business rates are higher than residential rates. As discussed
in greater detail below, we recommend that the amount of support be
derived from calculating the difference between the cost of providing
service and the benchmark amount.
22. The 1996 Act enunciates the principle that ``quality services''
should be available. We refrain from recommending that the Commission
require that eligible carriers meet specific, Commission-established
technical standards as a condition to receiving universal service
support. We recommend that the Commission, to the extent possible, rely
on existing data to monitor service quality. Because many states
already have adopted service quality requirements, we do not recommend
that the Commission undertake efforts to collect quality of service
data in addition to those already in place with respect to price cap
LECs. In many cases, additional requirements by the Commission would
duplicate the states' efforts. Instead, we recommend that state
commissions submit to the Commission the service quality data provided
to them by carriers. We further recommend that the Commission not
impose data collection requirements on carriers at this time.
Therefore, we conclude that the Commission should rely on service
quality data collected at the state level in making its determination
that ``quality services'' are available, consistent with section
254(b)(1).
23. We recommend that the Commission convene a Joint Board no later
than January 1, 2001, to revisit the definition of universal service.
In addition, the Commission may institute a review at any time upon its
own motion or in response to petitions by interested parties. We note
that, in complying with the statutory mandate of section 706(b) of the
1996 Act, the Commission may take additional steps to determine whether
advanced
[[Page 63782]]
telecommunications capability is being deployed to all Americans.
24. We find the record to be insufficient at this time to support
our recommending that the Commission adopt reporting requirements in
order to collect data that may assist the Commission in reevaluating
the definition of universal service. We recommend that the Commission
base future analyses of the definition of universal service on data
derived from the Commission's existing data collection mechanisms such
as those collected through ARMIS.
25. Affordability. In the 1996 Act, Congress not only reaffirmed
the continued applicability of the principle of ``just and reasonable''
rates, but also introduced the concept of ``affordability.'' Although
we believe an increasingly refined understanding of the term
affordability will evolve over time, we find that the Webster
Dictionary definition is instructive in determining how to interpret
the concept for purposes of crafting universal service policies
consistent with the congressional intent underlying section 254. The
definition of affordable contains both an absolute component (``to have
enough or the means for'') and a relative component (``to bear the cost
of without serious detriment''). Therefore, we conclude that both the
absolute and relative components must be considered in making the
affordability determination required under the statute. We find that an
evaluation that considers price alone does not effectively address
either component of affordability. In general, we find that factors
other than rates, such as local calling area size, income levels, cost
of living, population density, and other socio-economic indicators may
affect affordability. (The specific needs of low-income consumers are
addressed below.)
26. Although subscribership levels can be influenced by many
factors (such as the level of toll charges or service connection
charges), we agree with the many commenters that argue that a general
correlation exists between subscribership level and affordability. We
find monitoring subscribership to be a tool in evaluating the
affordability of rates. It should not, however, be the exclusive tool
in measuring affordability. Subscribership levels do not address the
second component of the definition of affordability, namely, whether
paying the rates charged for services imposes a hardship on those who
subscribe.
27. We also find that the scope of the local calling area directly
and significantly affects affordability. Therefore, the Joint Board
concludes that the scope of the local calling area should be considered
as another factor to be weighed when determining the affordability of
rates. In addition, we find that in considering this last factor,
examining the number of subscribers to which one has access for local
service in a local calling area alone is not sufficient. A
determination should be made that the calling area reflects the
pertinent ``community of interest,'' allowing subscribers to call
hospitals, schools, and other essential services without incurring a
toll charge.
28. Customer income level also is a factor that should be examined
when addressing affordability. While a specific rate may be affordable
to most customers in an affluent area, the same rate may not be
affordable to lower income customers. We agree with the conclusions of
many commenters regarding the nexus between income level and ability to
afford telephone service. We conclude that per capita income of a local
or regional area, and not a national median, should be considered in
determining affordability. In addition to income level, we conclude
that the cost of living in an area may affect the affordability of a
given rate.
29. We also recognize that many variations in a state's rates
reflect ``legitimate local variations in rate design.'' Such variations
include the proportion of fixed costs allocated between local services
and intrastate toll services; proportions of local service revenue
derived from per-minute charges and monthly recurring charges; and the
imposition of mileage charges to recover additional revenues from
customers located a significant distance from the wire center. We find
that these factors too should be considered in making the determination
of affordability of rates.
30. In light of our conclusions regarding the importance of the
particular factors other than rates identified in the preceding
paragraphs, we recommend that the states exercise primary
responsibility, consistent with the standard enumerated above, for
determining the affordability of rates. To the extent that consumers
wish to challenge whether a rate is truly ``affordable,'' we find the
state commissions, in light of their rate-setting roles, are the
appropriate forums for raising such issues. Additionally, we conclude
that the Commission should continue to oversee the development of the
concept of affordability, and may take action to ensure rates are
affordable, where necessary and appropriate.
31. Although we recommend that the states should make the primary
determination of rate affordability, we recognize that Congress,
through the 1996 Act, gave the Commission a role in ensuring universal
service affordability. Subscribership levels, while not dispositive on
the issue of affordability, provide an objective criterion to assess
the overall success of state and federal universal service policies in
maintaining affordable rates. Therefore, we recommend that, to the
extent that subscribership levels fall from the current levels on a
statewide basis, the Commission and affected state should work together
informally to determine the cause of the decrease and the implications
for rate affordability in that state. If necessary and appropriate, the
Commission may open a formal inquiry on such matters and, in concert
with the affected state, take such action as is necessary to fulfill
the requirements of section 254. We find that this proposed dual
approach in which both the states and the Commission play roles in
ensuring affordable rates is consistent with the statutory mandate
embodied in section 254(i).
32. Carriers Eligible for Universal Service Support. We recommend
that the Commission adopt, without further elaboration, the statutory
criteria contained in section 214(e)(1) as the rules for determining
whether a telecommunications carrier is eligible to receive universal
service support. Pursuant to these criteria, a telecommunications
carrier would be eligible to receive universal service support if the
carrier is a common carrier and if, throughout the service area for
which the carrier is designated by the state commission as an eligible
carrier, the carrier: (1) offers all of the services that are supported
by federal universal service support mechanisms under section 254(c)
(we recommend, however, that carriers that lack the technical
capability to offer toll-limitation services to qualifying low-income
consumers not be required to offer such services, as otherwise provided
below); (2) offers such services using its own facilities or a
combination of its own facilities and resale of another carrier's
services, including the services offered by another eligible
telecommunications carrier; and (3) advertises the availability of and
charges for such services using media of general distribution. We agree
with the majority of commenters who argue that any carrier that meets
these criteria is eligible to receive federal universal service
support, regardless of the technology used by that carrier.
[[Page 63783]]
33. In addition, we recommend that companies subject to price cap
regulation be eligible to receive universal service support. We agree
with those commenters that argue that price cap regulation is an
important tool to smooth the transition to competition and that its use
should not foreclose price cap companies from receiving universal
service support. Having recommended against the exclusion of price cap
companies, we conclude that we need not address how to define precisely
which carriers are subject to price cap regulation.
34. Section 214(e)(1) requires that, in order to be eligible for
universal service support, a common carrier must offer universal
service throughout the state-designated service area either using its
own facilities or a combination of its own facilities and the resale of
another carrier's services, including those of another eligible
carrier. We find that the plain meaning of this provision is that a
carrier would be eligible for universal service support if it offers
all of the specified services throughout the service area using its own
facilities or using its own facilities in combination with the resale
of the specified services purchased from another carrier, including the
incumbent LEC or any other carrier. We do not recommend that a carrier
that offers universal service solely through reselling another
carrier's universal service package should be eligible for universal
service support. Similarly, we do not recommend that only those
telecommunications carriers that offer universal service wholly over
their own facilities should be eligible for universal service.
35. The NPRM sought comment on various other issues related to
eligibility. Specifically, it sought comment on whether rules should be
developed to: (1) ensure that universal service support be used as
intended (i.e., for the ``provision, maintenance, and upgrading of
facilities and services for which the support is intended''); (2)
ensure that only eligible carriers receive support; and (3) set
guidelines for advertising. Because relatively few commenters addressed
these issues, there are few detailed proposals in the record on how to
resolve them. For the first of these issues, developing rules to ensure
that universal service support is used as intended, we believe that
concerns about misuse of funds would largely be alleviated once
competition arrives. We find that a competitive market would minimize
the incentives and opportunities to misuse funds. In the absence of
competition, we find that the optimal approach to minimizing misuse of
funds is to adopt a mechanism that will set universal support at levels
that reflect the costs of providing universal service efficiently.
Should additional measures be necessary, we recommend that the
Commission, to the extent that states monitor carriers to ensure the
provision of the supported services, rely on the states' monitoring.
Where necessary (for example, if the state has insufficient resources
to support such monitoring programs) we recommend that the Commission
conduct periodic reviews to ensure that universal service is being
provided. On the question of ensuring that only eligible carriers
receive support, we agree with commenters that additional rules are
unnecessary because only carriers found eligible by the states will
receive funding. We recommend no additional rules at this time.
36. We recommend that the Commission not adopt, at this time, any
national guidelines relating to the requirement that carriers advertise
throughout the service area the availability of and rates for universal
service using media of general distribution. We recommend that states
should, in the first instance, establish guidelines, if needed, to
govern such advertising.
37. We recommend that the Commission retain the current study areas
of rural telephone companies as the service areas for such companies.
Section 214(e)(5) provides that for an area served by a rural telephone
company, the term ``service area'' means such company's study area
``unless or until the Commission and the States, after taking into
account the recommendations of a Federal-State Joint Board instituted
under section 410(c), establish a different definition of service area
for such company.''
38. We find that sections 214(e)(2) and 214(e)(5) grant to the
state commissions the authority and responsibility to designate the
area throughout which a carrier must provide the defined core services
in order to be eligible for universal service support. We further
conclude that, while this authority is explicitly delegated to the
state commissions, states should exercise this authority in a manner
that promotes the pro-competitive goals of the 1996 Act as well as the
universal service principles of section 254. The Joint Board thus
recommends that the Commission urge the states to designate service
areas for non-rural telephone company areas that are of sufficiently
small geographic scope to permit efficient targeting of high cost
support and to facilitate entry by competing carriers. We recommend
that the Commission encourage states, where appropriate to foster
competition, to designate service areas that do not disadvantage new
entrants. Consequently, we recommend that the geographic size of the
state designated service areas should not be unreasonably large.
39. Even if the state commission were to designate a large service
area, however, we believe that it would be consistent with the 1996 Act
to base the actual level of support, if any, that non-rural telephone
company carriers would receive for the service area on the costs to
provide service in sub-units of that area. We recommend that the
Commission, where necessary to permit efficient targeting of universal
support, establish the level of universal service support based on
areas that may be smaller than the service area designated by the
state. The service area designated by the state is the geographic area
used for ``the purpose of determining universal support obligations and
support mechanisms.'' We find that this language refers to the
designation of the area throughout which a carrier is obligated to
offer and advertise universal service. It defines the overall area for
which the carrier will receive support from the ``specific,
predictable, and sufficient mechanism established by the Commission to
preserve and advance universal service.'' We conclude that this
language would not bar the Commission from disaggregating the state-
designated service area into smaller areas in order to: (1) Identify
high cost areas within the service area; and (2) determine the level of
support payments that a carrier would receive for the overall service
area based on the sum of the support levels as determined by the costs
of serving each of the disaggregated areas. Other than the requirements
contained in section 214(e)(3), we recommend that the Commission not
adopt any particular rules to govern how carriers for unserved areas
are designated.
40. High Cost Support. We believe that a properly crafted proxy
model can be used to calculate the forward-looking economic costs for
specific geographic areas, and be used as the cost input in determining
the level of support a carrier may need to serve a high cost area. We
cannot recommend, however, that any of the proxy models submitted in
this proceeding thus far--the BCM, the BCM2, the CPM, and the Hatfield
model--should be used to determine universal service support levels.
While the proxy models continue to evolve and improve, none of those
submitted in this proceeding are sufficiently
[[Page 63784]]
developed to allow us to recommend a specific model at this time. The
Joint Board therefore recommends that the Commission continue to work
with the state commissions to develop an adequate proxy model that can
be used to determine the cost of providing supported services in a
particular geographic area, and in calculating what support, if any, a
carrier should receive for providing services designated for universal
service support. We recommend that a proxy model be developed such that
it can be adopted by the Commission by May 8, 1997, the statutory
deadline for the Commission to implement our recommendations in this
proceeding.
41. We find that forward-looking economic costs should be used to
determine the cost of providing universal service. Those costs best
approximate the costs that would be incurred by an efficient competitor
entering that market. We believe that support should be based on the
cost of an efficient carrier and should not be used to offset the costs
of inefficient provision of service, or costs associated with services
that are not included in our definition of supported services, such as
private lines, interexchange services, and video services. The actual
level of support that a carrier receives from federal universal service
support mechanisms, if any, would be based on the difference between
the cost of service as determined by a proxy model and the benchmark
amount.
42. The Joint Board recommends that the forward-looking economic
cost of providing supported services should include all of the costs of
the telephone network elements that are used to provide supported
services. We acknowledge that the loop is essential for the provision
of all services, not just those supported by the federal universal
service mechanisms. We note, however, that supported services include
not only local service but also access to interexchange service. The
cost of loop can vary depending on the type of services provided. We
recognize that the provision of ISDN and video services could increase
the cost of the loop, but the additional loop costs incurred to provide
these services should be excluded from costs considered here. In the
proxy models, the fiber-copper cross-over point determines the relative
share of fiber in the loop plant. We believe that the reasonable cross-
over point should reflect the least cost provision of the supported
services rather than the provision of video or advanced services.
43. We recommend that the Commission consider the following
criteria in order to evaluate the reasonableness of any proxy model
that it would use to estimate the forward-looking economic cost of
providing the supported services:
(1) Technology assumed in the model should be the least-cost,
most efficient and reasonable technology for providing the supported
services that is currently available for purchase, with the
understanding that the models will use the incumbent LECs' wire
centers as the center of the loop network for the reasonably
foreseeable future.
(2) Any network function or element, such as loop, switching,
transport, or signaling, necessary to produce supported services
must have an associated cost.
(3) Only forward-looking costs should be included. The costs
should not be the embedded cost of the facilities, functions or
elements.
(4) The model should measure the long-run costs of providing
service by including a forward-looking cost of capital and the
recovery of capital through economic depreciation expenses. The long
run period used should be a period long enough that all costs are
treated as variable and avoidable.
(5) The model should estimate the cost of providing service for
all businesses and households within a geographic region. This
includes the provision of multi-line business services. Such
inclusion allows the models to reflect the economies of scale
associated with the provision of these services.
(6) A reasonable allocation of joint and common costs should be
assigned to the cost of supported services. This allocation will
ensure that the forward-looking costs of providing the supported
services do not include an unreasonable share of the joint and
common costs incurred in the provision of both supported and non-
supported services, e.g., multi-line business and toll services.
(7) The model and all underlying data, formulae, computations,
and software associated with the model should be available to all
interested parties for review and comment. All underlying data
should be verifiable, engineering assumptions reasonable, and
outputs plausible.
(8) The model should include the capability to examine and
modify the critical assumptions and engineering principles. These
assumptions and principles include, but are not limited to, the cost
of capital, depreciation rates, fill factors, input costs, overhead
adjustments, retail costs, structure sharing percentages, fiber-
copper cross-over points, and terrain factors. The models should
also allow for different costs of capital, depreciation, and
expenses for different facilities, functions or elements.
44. The parties have brought three models to our attention in this
proceeding. While the models hold much promise, at this time, we cannot
endorse a specific model as the tool the Commission should use for
calculating costs of supported services.
45. We therefore urge the Commission to conduct a series of
workshops at which federal and state staff can work with industry
participants to refine the models so that it could become possible to
select or create a proxy model that could then be used in calculating
universal service support. We recommend that these workshops begin no
later than January 1997.
46. The state members of the Joint Board will submit a report to
the Commission on the use of proxy models and the application of such
models in this proceeding for funding universal service. The report of
the state members will be filed prior to a Commission decision in this
proceeding on proxy models. The Commission and state members should
continue to work cooperatively and remain integrally involved in the
development of an acceptable proxy model.
47. While we recommend using forward-looking economic costs
calculated through the use of a proxy model to determine high cost
support for all carriers, we are concerned that moving small, rural
carriers to a proxy model too quickly may result in large changes in
the support that they receive. Since rural carriers generally serve
fewer subscribers compared to the large incumbent LECs, serve more
sparsely-populated areas, and do not generally benefit from economies
of scale and scope as much as non-rural carriers, they often cannot
respond to changing operating circumstances as quickly as large
carriers. We therefore recommend that those carriers not move
immediately to a proxy model, but transition to a proxy over six years.
For three years, starting on January 1, 1998, high cost assistance, DEM
weighting and LTS benefits for rural carriers will be frozen based on
historical per line amounts. Rural carriers would then transition over
a three year period to a mechanism for calculating support based on a
proxy model. Prior to that transition, however, we recommend that the
Commission, working with the state commissions, review the proxy model
to ensure that it takes into consideration the unique situations of
rural carriers. We emphasize our recommendation that, after the
transition, the calculation of support for rural telephone companies
should be based on a proxy model, although we recognize that
alternative support mechanisms, such as competitive bidding, may also
promote efficient service provision. Further, we recommend that, on
request, any rural carrier should be permitted to elect to use a proxy
model to determine its support level, and that any carriers electing to
use the proxy model not be allowed to use the embedded cost approach
thereafter.
[[Page 63785]]
48. The Joint Board recommends, however, that rural carriers be
able to move to a proxy-based system earlier if they choose to do so.
We recommend that the Commission define ``rural'' as those carriers
that meet the statutory definition of a ``rural telephone company.''
See 47 U.S.C. 153(37). In order for the administrator to know which
carriers are to receive support payments based on the proxy model or
their embedded costs, we recommend that carriers notify the Commission
and the state commissions that for purposes on universal service
support determinations they meet the definition of a ``rural telephone
company.'' Carriers should make such a notification each year prior to
the beginning of the payout period for that year. The carriers may also
use that notification as the means by which to let the Commission, the
state commissions, and the administrator know if they have chosen to
voluntarily move to a proxy model before the end of the transition
period.
49. We also find that LTS payments constitute a universal service
support mechanism. As the Commission noted in the NPRM, LTS payments
serve to equalize LECs' access charges by raising some carriers'
charges and lowering others'. While some commenters have noted the
beneficial purposes currently served by LTS, no commenter argued that
LTS was not a support flow.
50. We therefore recommend that beginning in 1998 and continuing to
the end of the year 2000, support payments for high cost assistance,
DEM weighting and Long Term Support, be frozen for each carrier at the
same amounts paid on a per line basis to qualifying carriers. High cost
support would be based on the assistance received in 1997, and DEM
weighting and LTS benefits received during calendar year 1996.
Beginning in the year 2001, and through the year 2003, we recommend
that support be gradually shifted to a proxy-based methodology. In the
year 2001, support would be based on 75 percent frozen levels and 25
percent proxy; in 2002 support will be based on 50 percent frozen
levels and 50 percent proxy; in 2003 support will be based on 25
percent frozen levels and 75 percent proxy. Beginning in 2004 support
will be 100 percent based on a proxy methodology. The total period for
transition for rural carriers to a proxy based system is six years.
51. Freezing support will encourage rural carriers to operate
efficiently because no additional support will be provided for
increased costs. We recognize that the number of subscribers served by
rural carriers could increase and associated with such increases is an
increase in costs. Therefore, we recommend that support not be frozen
at a total dollar amount, but instead, at a per line amount. Rural
carriers would receive additional support at the same amount per line
as the number of subscribers increase. A frozen level of high cost
support will prepare these LECs for both their move to a proxy model
and the advent of a more competitive marketplace.
52. High cost assistance to carriers with high loop costs that will
be paid during 1997 are based on those carriers' 1995 embedded costs.
Additionally, loop counts to determine the 1995 average costs per loop
for each carrier are based on year-end 1995 loop counts. To determine
the amount of frozen high cost support per line for carriers with high
loop costs, we recommend that the total amount paid to each carrier
during 1997, based on 1995 embedded costs, be divided by the number of
loops served at the end of 1995. The amount of high cost assistance to
be paid in 1998 will then be the same per line amount paid in 1997
multiplied by the year end loop count for 1996. Calculation of payments
would continue in this manner throughout the transition period.
53. Currently, DEM weighting assistance is an implicit support
mechanism that is recovered through the switched access rates charged
to interexchange carriers by those carriers serving less than 50,000
lines. In order to calculate the per-line DEM weighting benefit, we
recommend that the amount of additional revenues collected by each
carrier above what would be collected without DEM weighting, be
calculated for the calendar year 1996. That amount, divided by the
number of loops served at the year-end 1996 would be the basis for the
frozen per line support to be paid beginning in 1998. Until December
31, 1997, DEM weighting benefits would continue under the present
rules. Although we could have recommended the calendar year 1997 as the
basis for determining the frozen per-line amount for DEM weighting
benefits during the transition period, we find that sufficient time
will be needed for the fund administrator to gather the data and
calculate payments before frozen DEM weighting benefits begin in 1998.
We chose to use year-end 1996 loop counts because this calculation
would have already been made for loop high cost assistance purposes.
For 1999, the amount of frozen DEM weighting support would be based on
the frozen per line amount multiplied by the number of lines served for
the year-end 1997. Calculation of payments would continue in this
manner throughout the transition period.
54. LTS payments are currently determined by comparing the amount
pool members will receive in SLCs and CCL charges to the pool's
projected revenues requirement. In order to determine the frozen LTS
payment for the Common Line pool members, we recommend that each member
be allocated a percentage of the total LTS contribution from the non-
pooling LECs. We recommend that the allocation be made on the basis of
each member's common line revenue requirement relative to the total
common line pool revenue requirement. We recommend that the frozen LTS
payments to pool members during the year ending 1996 and the loop
counts at year-end 1996 be used as the historical basis for computing
the frozen per line LTS payment beginning in 1998. For 1999, the amount
of frozen LTS payments would be based on the frozen per line amount
multiplied by the number of lines served for the year-end 1997.
Calculation of payments would continue in this manner throughout the
transition period.
55. We recommend that the Commission make frozen support payments
portable. A CLEC should be allowed to receive support payments to the
extent that it is able to capture subscribers formerly served by
carriers eligible for frozen support payments or to add new customers
in the ILEC's study area. Because we have recommended that frozen
support payments be computed on the basis of working loops, ILECs will,
under our recommendation, automatically lose frozen support payments
for loops serving subscribers lost to a competitor. We find that
competition would best be served if the frozen support payment
attributable to that line were paid instead to the CLEC that won the
subscriber. Likewise, a CLEC should receive support for new customers
that it serves in the ILECs study area. Since rural ILECs have the
option at any time to convert their support basis to a proxy
methodology, we find that a CLEC should also have the opportunity to
choose proxy-based support when it enters a rural ILEC's study area.
56. We propose that rural carriers in Alaska and in insular areas
not be required to shift to a support system in which support levels
are calculated based on a proxy model at this time. While we believe
that proxy models may provide an appropriate determination of costs on
which to base high cost support, we are less certain that they may do
so for rural carriers in Alaska and insular areas. Consequently, we
recommend that rural carriers serving Alaska and insular areas should
[[Page 63786]]
be able to continue to use embedded costs to determine their costs of
offering universal service. We further recommend that this system for
rural carriers in Alaska and insular areas be revisited in the future
to determine whether changes in proxy models allow them to be utilized
effectively in Alaska and insular areas.
57. We recommend that the Commission establish a benchmark to
calculate the support that eligible telecommunications providers will
receive when a proxy model is used to calculate the costs of providing
services designated for support from universal service mechanisms. We
believe it is desirable that the benchmark be based on the amount the
carrier would expect to recover from other services to cover the cost
of providing supported services in rural, insular, and high cost areas,
but final determination of the methodology for selecting the benchmark
must also consider the revenue base for universal service
contributions. Those eligible telecommunications providers for which
the cost of providing supported services exceeds the benchmark would be
permitted to receive universal service support.
58. We believe that it is desirable for the Commission to set a
nationwide benchmark to use in calculating the amount of support
eligible telecommunications providers will receive. Final determination
of this issue, however, must also take into consideration the
contribution base for the federal universal service mechanisms. We
recommend that the benchmark the Commission adopts should be easy to
administer and should be set to minimize the probability that
residential rates would increase while the new support mechanisms are
being implemented. The carrier's draw from the federal universal
service support mechanism for serving a customer would be based on the
difference between the costs of serving a subscriber calculated using a
proxy model and the benchmark. A carrier could draw from the fund for
providing supported services to a subscriber only if the cost of
serving the subscriber, as calculated by a proxy model, exceeds the
benchmark.
59. There are essentially three approaches to setting such a
nationwide benchmark to be used with the proxy model for calculating
support. In setting a benchmark, the Commission could use average
revenues per line, average rates, or relative cost. We recommend that
the Commission adopt a benchmark based on the nationwide average
revenue-per-line. We recommend that the Commission review the benchmark
on a periodic basis, and consider the need to make appropriate
adjustments.
60. We find that it is advisable to construct two benchmarks, one
for residential service and a second for single-line business service,
since we are recommending that primary residential and single business
lines be supported. The residential benchmark, if ultimately adopted by
the Commission, should be set equal to the sum of the revenue generated
by local, discretionary, and access services provided to residential
subscribers divided by the number of residential lines. The single-line
business benchmark should be set equal to the sum of the revenue
generated by local, discretionary, and access services provided to
single- line business subscribers divided by the number of single-line
business lines.
61. Although we recognize that competitive bidding may provide a
market-based method for determining support levels, we recommend that
the Commission not adopt at this time any specific plan for using
competitive bidding to set support levels in rural, insular, and high
cost areas. While the record in this proceeding persuades us that a
properly structured competitive bidding system could have significant
advantages over other mechanisms used to determine the level of
universal service support for high cost areas, we find that the
information contained in the record does not support adoption of any
particular competitive bidding proposal at this time. We recommend that
the Commission, together with the state commissions, continue to
explore the possibility of using competitive bidding for determining
the level of federal universal support.
62. We find that sections 254 and 214(e) and the record developed
in this proceeding provide some guidance about how any potential
competitive bidding should be structured. We recommend that any
competitive bidding system be competitively neutral and not favor
either the incumbent or new entrants. Any carrier that meets the
eligibility criteria for universal service support should be permitted
to participate in the auction. Any competitive bidding proposal must be
consistent with the goals and requirements of the 1996 Act, including
that universal service support be ``specific, predictable and
sufficient.'' Any competitive bidding system adopted should minimize
the ability of bidders to collude. Various commenters, for example,
urge the Commission to establish and enforce stiff penalties against
collusion, while others suggest that the Commission rely on its
experience with spectrum auctions to devise protections against
collusion. We recommend that any final competitive system be designed
to minimize the incentives to collude and that any colluding carrier be
subject to stiff penalties.
63. The Joint Board recommends that the Commission set an effective
date of January 1, 1998, for the new universal service support
mechanism for rural, insular, and high cost areas that we have
recommended in this section of the Recommended Decision take effect
beginning January 1, 1998. The current universal service support
mechanisms operate on a calendar year, and January 1, 1998, will be the
beginning of the first calendar year after the Commission adopts rules
establishing the new support mechanisms. Starting at that date,
carriers other than rural telephone companies would begin to receive
support based upon the proxy model.
64. Support for Low-income Consumers. Congress included section
254(j), which provides that ``[n]othing in [section 254] shall affect
the collection, distribution, or administration of the Lifeline
Assistance Program provided for by the Commission.'' Yet the current
Lifeline program is not competitively neutral, nor is it available in
all regions of the nation. We find that the provisions of section
254(j) can be reconciled with other portions of section of 254
regarding competitive neutrality and support for low-income consumers
in all regions of the nation. As an initial matter, we believe that
Congress did not intend for section 254(j) to codify the existing
Lifeline program. Had Congress intended for section 254(j) to have that
effect, it would have chosen clearer, less equivocal language. Instead,
Congress simply provided that nothing in section 254 should affect the
collection, distribution, or administration of the program. We
therefore conclude that Congress intended, in section 254(j), to give
the Joint Board and the Commission permission to leave the Lifeline
program in place without modification, despite its inconsistencies with
other provisions of section 254 and the 1996 Act generally. We further
conclude that a necessary corollary to this interpretation of section
254(j) is that this Joint Board has the authority to recommend, and the
Commission has the authority to adopt, changes to the Lifeline program
to make it more consistent with Congress's mandates in section 254 if
such changes would serve the public interest.
65. We find no statutory basis to recommend continuing to fund the
federal Lifeline program in a manner
[[Page 63787]]
that places some IXCs at a competitive disadvantage, or that provides
no support for low-income consumers in several portions of the nation.
We conclude that our recommendations would make universal service
support mechanisms for low-income individuals more consistent with
Congress's express goals without fundamentally changing the basic
nature of the existing Lifeline program. Moreover, this approach is
consistent with Congress's expression of approval for the current
Lifeline program in section 254(j).
66. The Joint Board agrees with the vast majority of commenters and
recommends that, through universal service support mechanisms, low-
income consumers should have access to the same services designated for
support for rural, insular, and high cost areas. We further recommend
that the designated services should be made part of the modified
Lifeline Assistance program that we recommend adopting in section.
Thus, low-income consumers eligible for Lifeline Assistance would
receive, at a minimum, the designated services.
67. The Joint Board recommends that the Lifeline Assistance program
for eligible low-income consumers include support for voluntary toll
limitation (by which we mean both toll blocking service and toll
control service), in addition to the services mentioned above. We
recommend, however, that only carriers that currently possess the
capability of providing these services be required to provide them to
Lifeline-eligible consumers and receive universal service support for
such services. Eligible telecommunications carriers that are
technically incapable of providing any toll-limitation services should
not be required to provide either service, and such an incapability
should not affect their designation as eligible telecommunications
carriers. We recommend, however, that eligible telecommunications
carriers not currently capable of providing these services be required
to add the capability to provide at least toll blocking in any switch
upgrades (but we do not recommend that universal service support be
provided for such switch upgrades). We further recommend that carriers
offering voluntary toll-limitation services receive support based on
the incremental cost of providing those services.
68. Further, the Joint Board recommends that the Commission
prohibit carriers receiving universal service support for providing
Lifeline service from disconnecting such service for non-payment of
toll charges. This recommendation should not be construed to affect the
ability of the states to implement a policy prohibiting disconnection
of local service for non-payment of toll charges for non-Lifeline
customers.
69. We further recommend, however, that the Commission provide
state utilities regulators with the authority to grant carriers a
limited waiver of this requirement if the carrier can establish that:
(1) it would incur substantial costs in complying with such a
requirement; (2) it offers toll-limitation services to its Lifeline
subscribers at no charge; and (3) telephone subscribership among low-
income consumers in the carrier's service area is at least as high as
the national subscribership level for low-income consumers. We
recommend that this waiver be extremely limited and that a carrier
should be required to meet a very heavy burden to obtain a waiver.
Furthermore, we recommend that the waiver would terminate after two
years, at which time carriers could reapply for the waiver.
70. The Joint Board recommends modifying the federal Lifeline
program to reach low-income consumers in every state. (Hereinafter,
``states'' will refer to all states, territories, and commonwealths
within the jurisdiction of the United States.) We further recommend
that, in order to be eligible for support from the new national
universal service support mechanism pursuant to section 214(e)(1),
carriers must offer Lifeline assistance to eligible low-income
customers. We are reluctant, however, to recommend mandatory
participation by states or carriers in a program that requires states
to generate support from the intrastate jurisdiction.
71. In order to reconcile our finding that Lifeline support should
be extended to all states with our desire to maximize states'
incentives to generate matching intrastate support for the program, we
recommend that the Commission eliminate the state matching requirement
and provide for a baseline level of federal support that would be
available to low-income consumers in all states. In order to ensure
adequate Lifeline support in states that choose not to generate
intrastate matching funds, we believe this baseline federal support
level should exceed the current $3.50. To maximize matching incentives,
however, we believe the baseline support level should be less than
$7.00. We therefore propose a baseline federal level halfway between
the two figures at $5.25, and recommend that the Commission seek
additional information on this issue before establishing a precise
baseline level. To create further incentives for matching, we recommend
that the Commission provide for additional federal support equal to one
half of any support generated from the intrastate jurisdiction, up to a
maximum of $7.00 in federal support.
72. Although we believe this recommendation will best reconcile our
competing objectives of providing adequate nationwide support and
maximizing state matching incentives, we are concerned that the
implementation of this recommendation could have no direct effect on
Lifeline subscribers' rates in many populous states with existing
Lifeline programs, and could instead result only in a larger percentage
of the total support being generated from federal sources. Therefore we
recommend that the Commission seek additional information on ways to
avoid this unintended consequence before implementing this
recommendation.
73. We also find it essential that the state members of the Joint
Board maintain a continuing role in refining specific aspects of the
Lifeline program. The state members of the Joint Board will submit a
report to the Commission on Lifeline issues. The report of the state
members will be filed prior to the Commission's decision on the
Lifeline program in this proceeding. Thereafter, the Commission and the
state members should continue to work cooperatively and remain
integrally involved in refining the Lifeline program.
74. To make the Commission's Lifeline program competitively
neutral, the Joint Board recommends that support for eligible low-
income consumers no longer be achieved through charges levied on only
IXCs. We recommend that the programs be supported by a fund to which
all telecommunications carriers that provide interstate service
contribute on an equitable and nondiscriminatory basis as a function of
their revenues, consistent with sections 254(d) and (e). Thus, for
example, LECs, wireless carriers, and other interstate
telecommunications service providers would contribute. De-linking
Lifeline from the Commission's Part 69 rules would promote competitive
neutrality by allowing the participation of carriers who do not charge
SLCs, such as CLECs and wireless providers. We conclude that the new
funding mechanism that we recommend will be more competitively neutral
than the current system, which passes the entire federal burden of low-
income support to IXCs, without sacrificing the targeting that has
characterized the current program. We also conclude that low-income
[[Page 63788]]
consumers will continue to benefit directly under our recommendation.
75. In addition to changing the contribution method for the
Lifeline program, we recommend amending the program to enable all
eligible telecommunications carriers, not just LECs, to be eligible to
receive support for serving qualified low-income consumers. Currently,
only ILECs serving eligible low-income consumers can receive support.
We find, however, that eligible telecommunications carriers other than
ILECs should have the ability to compete to serve low-income consumers
and in turn receive Lifeline support in a manner similar to the current
program. We recommend that in order to participate, a carrier must
demonstrate to the public utility commission of the state in which it
operates that it offers a Lifeline rate to qualified individuals. We
recommend that the Lifeline rate be the carrier's lowest comparable
non-Lifeline rate reduced by at least the $5.25 amount of federal
support. We further recommend that support be provided directly to
carriers based on the number of eligible consumers they serve under
administrative procedures determined by the fund administrator.
76. Currently, state agencies or telephone companies administer
customer eligibility determinations pursuant to narrowly-targeted
programs approved by the Commission. We recommend that the Commission
maintain this basic framework for administering Lifeline eligibility in
states that provide matching support for the Lifeline program. We also
recommend that the Commission require states that provide matching
funds to base eligibility criteria solely on income or factors directly
related to income (such as participation in a low-income assistance
program). We further recommend that the Commission adopt specific
means-tested eligibility standards to apply in states that choose not
to provide matching support from the intrastate jurisdiction.
Specifically, we recommend that low-income consumers participating in a
state-administered, low-income welfare program (and who are not
considered dependents for federal income tax purposes, with the
exception of dependents over the age of 60) would be eligible for
Lifeline assistance.
77. The Joint Board recommends that the Commission adopt the
changes to the Link Up program's funding mechanism proposed in the
NPRM. We recommend that the Link Up funding mechanism be removed from
the jurisdictional separations rules, and that the program be funded
through equitable and non-discriminatory contributions from all
interstate telecommunications carriers. Funding the program through
contributions from all interstate carriers will allow for an explicit
and competitively neutral funding mechanism consistent with sections
254 (d) and (e).
78. We recommend that the Commission amend its Link Up rules to
make the present level of Link Up support available to qualifying low-
income consumers requesting service from any telecommunications carrier
providing local exchange service. Support would be available only for
the primary residential connection. As amended, the Link Up rules
should thus provide that any eligible telecommunications carrier may
draw support from the new Link Up funding mechanism described above if
that carrier offers to eligible customers a reduction of its service
connection charges equal to one half of the carrier's customary
connection charge or $30.00, whichever is less. Where the carrier
offers eligible customers a deferred payment plan for connection
charges, we recommend that the Commission provide support to reimburse
carriers for waiving interest on the deferred charges for eligible
subscribers as Link Up currently provides for incumbent LECs' charges.
To ensure that the opportunity for carrier participation is
competitively neutral, we recommend that the Commission's rules be
amended to eliminate the requirement that the commencement-of-service
charges eligible for support be filed in a state tariff. In the absence
of evidence that increasing the level of Link Up support for connecting
each eligible customer would significantly further universal service
goals, however, we recommend that the level of support for Link Up not
be increased.
79. With respect to subscribers' eligibility to participate in the
Link Up program, the Joint Board recommends that the same modifications
be made to the Link Up program that we have recommended for the
Lifeline program. That is, we encourage states to set means-tested
eligibility criteria, and we recommend that a federal eligibility
``floor'' be established that would serve as eligibility criteria in
states that choose not to define means-tested eligibility criteria of
their own. Consistent with some commenters' proposals, we also
recommend that the Commission prohibit states from restricting the
number of service connections per year for which low-income consumers
who relocate can receive Link Up support.
80. We recommend that the Commission implement a national rule
prohibiting telecommunications carriers from requiring Lifeline-
participating subscribers to pay service deposits in order to initiate
service if the subscriber voluntarily elects to receive toll blocking.
81. Issues Unique to Insular Areas. We recognize the special
circumstances faced by carriers and consumers in the insular areas of
the United States, particularly the Pacific Island territories. We note
at the outset that carriers in these areas, like all other carriers,
will be eligible for universal service support if they serve high cost
areas. We recommend that rural carriers serving high cost insular
areas, as well as rural carriers serving high cost areas in Alaska,
should continue to receive universal service support based on their
embedded costs.
82. We recommend that the Commission take no specific action
regarding cost support for toll service to the Northern Mariana Islands
at this time, but revisit this issue at a later date. Guam and the
Northern Mariana Islands will be included in the North American
Numbering Plan by July 1, 1997. To implement section 254(g), the
Commission will require interstate carriers serving the Pacific Island
territories to integrate their rates with the rates for services that
they provide to other states no later than August 1, 1997. (An
interexchange carrier must establish rates for services provided to the
Northern Mariana Islands and Guam consistent with the rate methodology
that it employs for services it provides to other states. Carriers can
choose among several ways to integrate the rates for services to these
islands, including expanding mileage bands, adding mileage bands or
offering postalized rates. A carrier must also offer optional calling
plans, contract tariffs, discounts, promotions, and private line
services using the same rate methodology and structure that it uses in
offering those services to subscribers on the mainland.
83. Once those carriers integrate their rates, the residents of
Guam and the Northern Mariana Islands will be able to make 1+ calls to
the mainland United States at domestic instead of international rates.
Residents of Guam and the Northern Mariana Islands will also have
direct access to toll-free (e.g., 800, 888) services. The decision
whether to provide toll-free services to a specific area, such as the
Pacific Island territories, is a business decision of the carrier's
business customer, weighing the cost of toll charges to the islands
against the economic benefit of
[[Page 63789]]
providing toll free access. Businesses currently make that same
determination in deciding in which areas to provide toll free access
within the fifty states, and, for business reasons, some of them choose
to limit access to certain areas. Similarly, information service
providers make the same type of business decision as to whether to
locate in a certain area or provide toll-free access to an area. Until
the islands join the NANP and are included in carriers' rate averaging,
it is difficult for businesses to make such judgments as to whether,
and how, to serve the islands.
84. We are concerned that residents of Guam and the Northern
Mariana Islands have access to toll free service and information
services. We therefore recommend that the Commission revisit the
question of comparable access and rates for toll-free and information
services at some time after the Pacific Island territories have been
included in the NANP and have integrated rates to determine whether
there is any need to support these services.
85. Support for Schools and Libraries. We recommend that the
Commission adopt a rule that provides schools and libraries with the
maximum flexibility to apply their universal service discount to
whatever package of telecommunications services they believe will meet
their telecommunications service needs most effectively and
efficiently.
86. We recommend that the Commission also provide eligible schools
and libraries with discounts for Internet access pursuant to section
254(h)(2). These discounts would apply to basic conduit, i.e., non-
content, access from the school or library to the backbone Internet
network. This access would include the communications link to the ISP,
whether through dial-up access or via a leased line, and the
subscription fee paid to the ISP, if applicable. The discount would
also apply to electronic mail, but any charges for such services would
not be subject to the discount discussed herein. Schools and libraries
would be permitted to apply the discount to the entire ``basic'' charge
by an ISP that bundled access to some minimal amount of content, but
only under those circumstances in which the ISP basic subscription
charge represented the most cost-effective method for the school or
library to secure non-content conduit access to the Internet.
87. We also do not recommend that a discount mechanism for other
information services be established at this time.
88. We recommend that the Commission expressly acknowledge that
schools and libraries may receive discounts on charges for internal
connections. We find that Congress recognized that such connections are
a critical element for achieving the congressional purpose of section
254(h), and thus contemplated that schools and libraries receive
universal service support for internal connections.
89. Consistent with our recommendation to establish a competitively
neutral program for discounting all telecommunications services and
Internet access under section 254(h)(2)(A), we recommend that internal
connections within schools and libraries, which may include such items
as routers, hubs, network file servers, and wireless LANs, but
specifically excluding personal computers, be included within the
section 254(h) discount program.
90. We recommend that schools and libraries be required to seek
competitive bids for all services eligible for section 254(h)
discounts. We recommend that schools and libraries be required to
submit their requests for services to the fund administrator, who would
post the descriptions of services sought on a web site for potential
providers to see. The posting of a school or library's description of
services would satisfy the competitive bid requirement. We recommend
that the lowest corresponding price, defined as the lowest price
charged to similarly situated non-residential customers for similar
services, constitute the ceiling for the competitively bid pre-discount
price. In areas in which there is no competition, we recommend that the
lowest corresponding price constitute the pre-discount price. In both
cases, the carrier would be required to self-certify that the price
offered to schools and libraries is equal to or lower than the lowest
corresponding price. We further recommend that schools, libraries, and
carriers be permitted to appeal to the Commission, regarding interstate
rates, and to state commissions, regarding intrastate rates, if they
believe that the lowest corresponding price is unfairly high or low.
91. We recommend that the Commission adopt a rule which provides
support to schools and libraries through a percentage discount
mechanism. The mechanism would be adjusted for schools and libraries
that are defined as economically disadvantaged and those schools and
libraries located in high cost areas. In particular, we recommend that
the Commission adopt a matrix that provides discounts from 20 percent
to 90 percent, to apply to all telecommunications services, Internet
access, and internal connections, with the range of discounts
correlated to the indicators of economic disadvantage and high cost for
schools and libraries. We decline, however, to recommend a 100 percent
discount for any category of schools or libraries.
92. We recommend that the following matrix of percentage discounts
be applied in the schools and libraries programs. The matrix represents
an example of an appropriate distribution of schools across the five
discount levels, according to the specified metric for determining the
wealth of a school. If a different metric for determining the wealth of
a school is ultimately chosen for the purposes of this program, we
would expect that a similar distribution of schools across the discount
range would be reflected. The principles in determining the final
matrix should ensure that the greatest discounts go to the most
disadvantaged schools and libraries, while an equitable progression of
discounts should be applied to the other categories, keeping within the
parameters of 20 percent to 90 percent discounts.
----------------------------------------------------------------------------------------------------------------
Cost of service (estimated percent in
category)
Discount matrix -----------------------------------------------
low cost mid-cost highest cost
(67%) (26%) (7%)
----------------------------------------------------------------------------------------------------------------
How disadvantaged? based on percent of < 1 (3%)................ 20 20 25
students in the national school lunch 1-19 (30.7%)............ 40 45 50
program (estimated percent in 20-34 (19%)............. 50 55 60
category). 35-49 (15%)............. 60 65 70
50-74 (16%)............. 80 80 80
75-100 (16.3%).......... 90 90 90
----------------------------------------------------------------------------------------------------------------
[[Page 63790]]
93. In addition, we recommend that the Commission set an annual cap
on spending of $2.25 billion per year. In addition, any funds that are
not disbursed in a given year may be carried forward and may be
disbursed in subsequent years without regard to the cap. We further
recommend that the Commission establish a trigger mechanism, so that if
expenditures in any year reach $2 billion, rules of priority would come
into effect. Under the rules of priority, only those schools and
libraries that are most economically disadvantaged and had not yet
received discounts from the universal service mechanism in the previous
year would be granted guaranteed funds, until the cap was reached.
Other economically disadvantaged schools and libraries would have
second priority for support if additional funds were available at the
end of the year. Finally, all other eligible schools and libraries
would be granted funding contingent on availability after economically
disadvantaged schools and libraries had requested funding. We also
recommend that the Joint Board, as part of its review in the year 2001,
revisit the effectiveness of the schools and libraries program.
94. We recommend that the statutory definition of ``affordable''
must take into account the cost of service in an area. Thus, we
recommend that the Commission take into account the cost of providing
services when setting discounts for schools and libraries. To achieve
this, we recommend that the Commission consider a ``step'' approach
that would calibrate the cost of service in some reasonable, practical,
and minimally burdensome manner. Other methods for determining high
cost may also be appropriate, and we encourage the Commission to seek
additional information and parties' comments on this issue prior to
adopting rules.
95. To minimize any additional recordkeeping or data gathering
obligations, we seek the least burdensome manner to determine the
degree to which a school or library is economically disadvantaged. We
recommend that the Commission seek additional information and parties'
comments on what measures of economic disadvantage may be readily
available for identification of economically disadvantaged non-public
schools or, if not readily available, what information could be
required that would be minimally burdensome.
96. The national school lunch program reflects the level of
economic disadvantage for children enrolled in school. While using a
model that measures the wealth of an entire school district may better
reflect per-pupil expenditures in that district, we conclude that a
model measuring the wealth of students enrolled in school will more
accurately reflect the level of economic disadvantage in all of the
schools and libraries eligible for universal service support under
section 254, including both public and non-public schools. We find,
therefore, that using the national school lunch program to determine
eligibility for a greater discount appears to fulfill more accurately
the statutory requirement to ensure affordable access to and use of
telecommunications and other covered services for schools and
libraries.
97. If it decides to use the national school lunch program as the
model for determining eligibility for a greater discount, we recommend
that the Commission require the entity responsible for ordering
telecommunications services or other covered services for schools to
certify to the administrator and to the service provider the percentage
of its students eligible for the national school lunch program when
ordering telecommunications and other covered services from its service
providers. For schools ordering telecommunications and other covered
services at the individual school level, which should include primarily
non-public schools, the person ordering such services should certify to
the administrator and to the service provider the percentage of
students eligible in that school for the national school lunch program.
Each school's level of discount will then be calculated by the
administrator based on the percentage of students eligible for the
national school lunch program.
98. For schools ordering telecommunications and other covered
services at the school district level, we seek to target the level of
discount based on each school's percentage of students eligible for the
national school lunch program, if the national school lunch program is
selected as the appropriate measure of economic disadvantage. At the
same time, we seek to minimize the administrative burden on school
districts. Therefore, we recommend that the district office certify to
the administrator and to the service provider the number of students in
each of its schools who are eligible for the national school lunch
program. We recommend that the district office may decide to compute
the discounts on an individual school basis or it may decide to compute
an average discount. We further recommend that the school district
assure that each school receive the full benefit of the discount to
which it is entitled.
99. We recommend that schools or districts do not have to
participate in the national school lunch program in order to
demonstrate their level of economic disadvantage. Schools or districts
that do not participate in the national school lunch program need only
certify the percentage of their students who would be eligible for the
program, if the school or district did participate. Since libraries do
not participate in the national school lunch program, we recommend that
they be eligible for greater discounts based on their location in a
school district serving economically disadvantaged students. That is,
the administrator would average the percentage of students eligible for
the national school lunch program in all eligible schools, both public
and non-public, within the school district in which a library was
located. The library would then receive the level of discount
representing the average discount offered to the school district in
which it was located. We find that this is a reasonable method of
calculation because libraries are likely to draw patrons from an entire
school district and this method does not impose an unnecessary
administrative burden on libraries. We recommend that the Commission
seek additional information and parties' comments on what measures of
economic disadvantage may be readily available for identification of
economically disadvantaged libraries or, if not readily available, what
information could be required that would be minimally burdensome.
100. We also recommend that the Commission adopt a step approach
for calculating the level of greater discount available to economically
disadvantaged schools and libraries. A step approach would provide
multiple levels of discount based on the percentage of students
eligible for the national school lunch program.
101. We also recommend that the Commission establish a separate
category for the least economically disadvantaged schools, those with
less than one percent of their students eligible for the national
school lunch program. Those schools should have comparatively
sufficient resources within their existing budgets so that they may
secure affordable access to services at lower discounted rates. In our
effort not to duplicate research already conducted and to tailor
greater discounts based on level of economic disadvantage more
accurately, we recommend using the Department of Education's five-step
breakdown to calculate the greater discounts on telecommunications and
other covered
[[Page 63791]]
services for economically disadvantaged schools.
102. To the extent that a state desires to supplement the discount
financed through the federal universal service fund by permitting its
schools and libraries to apply the discount to the special low rates,
its actions would be consistent with sections 254(h) and 254(f).
Furthermore, we believe that it would also be permissible for states to
choose not to supplement the federal program and thus prohibit its
schools and libraries from purchasing services at special state-
supported rates if they intend to secure federal-supported discounts.
103. We recommend that the Commission not require any schools or
libraries that had secured a low price on service to relinquish that
rate simply to secure a slightly lower price produced by including a
large amount of federal support. No discount would apply, however, to
charges for any usage of telecommunications or information services
prior to the effective date of rules promulgated pursuant to this
proceeding.
104. We recommend that the Commission recognize that it can provide
for federal universal service support to fund intrastate discounts. We
also recommend that the Commission adopt rules that provide federal
funding for discounts for schools and libraries on both interstate and
intrastate services to the levels discussed above, and that
establishment of intrastate discounts at least equal to the discounts
on interstate services be a condition of federal universal service
support for schools and libraries in that state. If a state wishes to
provide an intrastate discount less than the federal discount, then it
may seek a waiver of this requirement.
105. On careful review, we conclude that, despite the difficulties
of allocating costs and preventing abuses, the benefits from permitting
schools and libraries to join in consortia with other customers in
their community outweigh the danger that such aggregations will lead to
significant abuse of the prohibition against resale. We recommend that
state commissions undertake measures to enable consortia of eligible
and ineligible entities to aggregate their purchases of
telecommunications services and other services being supported through
the discount mechanism, in accordance with the requirements set forth
in section 254(h).
106. We recommend that the Commission interpret section 254(h)(3)
to restrict any resale whatsoever of services purchased pursuant to a
section 254 discount.
107. Section 254(h)(3)'s prohibition on resale, however, would not
prohibit either computer lab fees for students or fees for Internet
classes. Because these are not services that schools or libraries
purchased at a discount under the 1996 Act, they are not subject to the
resale ban. Therefore, we recommend that schools and libraries be
expected to comply with three bona fide request requirements.
108. First, we find that it would not be unduly burdensome to
expect schools and libraries to certify that they have ``done their
homework'' in terms of adopting a plan for securing access to all of
the necessary supporting technologies needed to use the services
purchased under section 254(h) effectively.
109. Second, we recommend that schools and libraries be required to
send a description of the services they desire to the fund
administrator or other entity designated by the Commission. They can
use the same description they use to meet the requirement that most
generally face to solicit competitive bids for all major purchases
above some dollar amount. The fund administrator or this other entity
could then post a description of the services sought on a web site for
all potential competing service providers to see and respond to as if
they were requests for proposals.
110. Third, we recommend that, to ensure compliance with section
254, every school or library that requests services eligible for
universal service support be required to submit to the service provider
a written request for services. We recommend that the request should be
signed by the person authorized to order telecommunications and other
covered services for the school or library, certifying the following
under oath: (1) the school or library is an eligible entity under
section 254(h)(4); (2) the services requested will be used solely for
educational purposes; (3) the services will not be sold, resold, or
transferred in consideration for money or any other thing of value; and
(4) if the services are being purchased as part of an aggregated
purchase with other entities, the identities of all co-purchasers and
the portion of the services being purchased by the school or library.
111. We recommend that schools and libraries, as well as carriers,
be required to maintain for their purchases of telecommunications and
other covered services at discounted rates the kinds of procurement
records that they already keep for other purchases. We expect schools
and libraries to be able to produce such records at the request of any
auditor appointed by a state education department, the fund
administrator, or any other state or federal agency with jurisdiction
that might, for example, suspect fraud or other illegal conduct. We
recommend that schools and libraries also be subject to random
compliance audits to evaluate what services they are purchasing and how
such services are being used. Such information would permit the
Commission to determine whether universal service support policies
require adjustment. The fund administrator should also develop
appropriate reporting information for the schools and libraries to
advise on their progress in obtaining access to telecommunications and
other information services.
112. Section 254(h)(1)(B) requires that telecommunications carriers
providing services to schools and libraries shall either apply the
amount of the discount afforded to schools and libraries as an offset
to its universal service contribution obligations or shall be
reimbursed for that amount from universal service support mechanisms.
We conclude that section 254(h)(1)(B) requires that telecommunications
carriers be permitted to choose either reimbursement or offset. Because
non-telecommunications carriers are not obligated to contribute to
universal service support mechanisms, they would not be entitled to an
offset. Non-telecommunications carriers providing eligible services to
schools and libraries, therefore, would be entitled only to
reimbursement from universal service support mechanisms.
113. We recommend that the Commission adopt rules that will permit
schools and libraries to begin using discounted services ordered
pursuant to section 254(h) at the start of the 1997 - 1998 school year.
We anticipate that they may begin complying with the self-certification
requirements as soon as the Commission's rules become effective.
114. Support for Health Care Providers. We find that the record is
insufficient to support a recommendation on the exact scope of
services, in addition to designated services, that should be supported
for rural health care providers. We therefore recommend that the
Commission solicit additional information and expert assessment of the
exact scope of services that should be included in the list of those
additional services ``necessary for the provision of health care in a
state.'' We recommend that the Commission seek information on the
telecommunications needs of rural health care providers and on the most
cost-effective ways to provide these services to rural America.
Finally, we recommend that the Commission take
[[Page 63792]]
this information and these assessments into account in deciding what
services to include as services eligible for universal service support.
115. In reaching its decision on the scope of services to support,
we recommend that the Commission include terminating as well as
originating services for universal service support in cases where the
eligible health care provider would pay for terminating as well as
originating services, such as in the case of cellular air time charges.
116. Further, we recommend that the Commission initially designate
only telecommunications services as eligible for support as expressly
provided under the terms of sections 254(c)(1) and 254(h)(1)(A). We do
not, at this time, recommend that the Commission find that customer
premises equipment should be eligible for support.
117. After the Commission designates those services eligible for
support for rural health care providers, we recommend that the
Commission's list of supported telecommunications services be revisited
in 2001, when the Commission is scheduled to reconvene a Joint Board on
universal service.
118. On the question of determining the urban rate, we recommend
that, for each telecommunications service delivered to a qualified
health care provider as provided in section 254(h)(1)(A), the
Commission should designate as the rate ``reasonably comparable to
rates charged for similar services in urban areas in that state'' (the
``urban rate''), the highest tariffed or publicly available rate
actually being charged to commercial customers within the
jurisdictional boundary of the nearest large city in the state
(measured by airline miles from the health care provider's location to
the closest city boundary point). We do not recommend an exact
definition of the size of population a city must have to qualify as
``large'' for purposes of calculating the urban rate. We leave that
determination to the Commission.
119. Because we are recommending that the highest tariffed or
publicly available urban rate be used to set the urban rate charged to
the health care provider, we think it is important to use for this
purpose an urban boundary smaller than a county boundary so as to
minimize the possibility of inadvertently including distance-based or
lower-density-based surcharges within the comparable urban rate. We
also believe that using larger cities for this purpose will increase
the likelihood that the rates in those cities will reflect to the
greatest extent possible, reductions in rates based on large-volume,
high-density factors that affect telecommunications rates. Because we
see nothing in the 1996 Act or its legislative history that would
prohibit using different definitions of urban for different purposes in
section 254, we recommend using, for purposes of determining the
``urban rate in the closest urban area,'' the jurisdictional boundaries
of larger cities. We further recommend that the Commission designate by
regulation the exact city population size to define the term ``large
city,'' that it finds will best balance the factors described in this
paragraph.
120. We recommend that the Commission seek additional information
on the rate of expansion of local access coverage of ISPs in rural
areas of the country and the costs likely to be incurred in providing
toll-free access to ISPs for health care providers in rural areas. We
also recommend that the Commission take this information into account
in deciding what services to include as services eligible for universal
service support.
121. We encourage the Commission to solicit additional information
on the probable costs that would be incurred in eliminating distance-
based and LATA crossing (InterLATA) charges for rural health care
providers where such charges are in excess of those paid by customers
in the nearest urban areas of the state. We recommend that the
Commission take this information into account in deciding whether to
include these charges in the list of charges eligible for universal
service support.
122. We further recommend that the Commission solicit further
information on these topics and make appropriate provision for
equalizing any disparities between urban and rural telecommunications
rates to health care providers in insular areas.
123. On the question of determining the rural rate, mindful of the
Commission's obligation to craft a mechanism that is ``specific,
predictable and sufficient,'' we recommend that the rural rate be
determined to be the average of the rates actually being charged to
customers, other than eligible health care providers, for identical or
technically similar services provided by the carrier providing the
service, to commercial customers in the rural county in which the
health care provider is located. For all purposes associated with
determining the rural rate, we recommend that the term ``rural county''
be defined as any ``non-metro'' county as defined by the Office of
Management and Budget Metropolitan Statistical Areas (OMB MSA) list,
along with the non-urban areas of those metro counties identified in
the Goldsmith Modification used by the Office of Rural Health Policy of
the Department of Health and Human Services (ORHP/HHS). We also
recommend that the rates averaged to calculate the rural rate not
include any rates reduced by universal service programs and paid by
schools, libraries or rural health care providers.
124. We further recommend that, where the carrier is providing no
identical or technically similar services in that rural county, the
rural rate should be determined by taking the average of the tariffed
and other publicly-available rates charged for the same or similar
services in that rural county by other carriers. If no such services
have been charged or are publicly available, or if the carrier deems
the method described here, as it would be applied to the carrier, to be
unfair for any reason, the carrier should be allowed, in the first
instance, to submit for the state commission's approval a cost-based
rate for the provision of the service in the most economically
efficient, reasonably available manner. Where state commission review
is not available, the carrier should be allowed to submit the proposed
rate to the Commission for its approval. The proposed rate should be
supported, justified, reviewed and approved, in the initial submission
and periodically thereafter, according to procedures and requirements
similar to those used for establishing tariffed rates for
telecommunications services in that state.
125. In cases where there are no similar services being provided in
the rural county, either by the carrier or by others, and thus no
comparable rates to average, or where the carrier concludes that rates
derived from this formula are unfair, we find the availability of a
cost-based rate application procedure becomes an important backstop. We
intend that this procedure will ensure greater fairness to the carrier
and further ensure that the support mechanism is more likely to be
``sufficient'' as required by section 254. We note, however, that the
record is inadequate on this issue and, accordingly, we recommend that
the Commission request additional information prior to adopting final
rules, on the costs that would be incurred in supporting necessary
upgrades to the public switched network. We also recommend that the
Commission seek additional information as to what extent ongoing
network modernization, as is currently going forward under private
initiatives or according to state-sponsored modernization plans, might
make universal service support of this element unnecessary. We further
[[Page 63793]]
recommend that the Commission take this information into account in
deciding whether to include network upgrades in the list of services
eligible for universal service support.
126. We recommend that there be no separate funding mechanism for
eligible health care providers and schools and libraries. We further
recommend that separate accounting and allocation systems be maintained
for the funds collected for the two groups.
127. We recommend that to define ``rural areas'' the Commission use
non-metro counties (or county equivalents), as identified by the OMB
MSA list of metro and non-metro counties, together with rural areas in
metro counties identified in the most currently available ``Goldsmith
Modification'' of the MSA list used by the ORHP/HHS. To the extent that
the Commission can improve upon these definitions prior to its
statutory deadline, by identifying other rural areas in metro counties
not identified in the current version of the Goldsmith Modification, we
encourage the Commission to do so.
128. We conclude that where all rural areas are entitled to a rate
no higher than the highest rate in the closest city, there is no need
to make additional provisions for frontier areas, or areas with extra-
low population density, as some parties suggest.
129. We recommend creating a mechanism that makes eligible the
largest reasonably practicable number of health care providers that
primarily serve rural residents and that, due to their location, are
prevented from obtaining telecommunications services at rates available
to urban customers. We agree, therefore, with the commenters that urge
that eligibility to obtain telecommunications services at rates
reasonably comparable to rates in the state's urban areas be limited to
providers that are physically located in rural areas.
130. We recommend that the Commission attempt no further
clarification of the definition of the term ``health care provider.''
We find that section 254(h)(5)(B) adequately describes those entities
intended by Congress to be eligible for universal service support.
Therefore, we decline to recommend expanding or broadening those
categories.
131. We recommend that the Commission allow telecommunications
carriers providing services to health care providers at reasonably
comparable rates under the provisions of section 254(h)(1)(A), to treat
the amount eligible for support, calculated as recommended herein, as
an offset toward the carrier's universal service support obligation. We
recommend that the Commission disallow the option of direct
reimbursement although we recognize that this alternative is within the
Commission's authority. We also recommend that carriers be allowed to
carry offset balances forward to future years so that the full amounts
eligible to be treated as a credit may be applied to reduce their
universal service obligation.
132. We recommend that every health care provider that makes a
request for universal service support for telecommunications services
be required to submit to the carrier a written request, signed by an
authorized officer of the health care provider, certifying under oath
the following information:
(1) Which definition of health care provider in section
254(h)(5)(B) the requester falls under;
(2) That the requester is physically located in a rural area OMB
defined non-metro county or Goldsmith-define rural section of an OMB
metro county);
(3) That the services requested will be used solely for purposes
reasonably related to the provision of health care services or
instruction that the health care provider is legally authorized to
provide under the law of the state in which they are provided;
(4) That the services will not be sold, resold or transferred in
consideration of money or any other thing of value;
(5) If the services are being purchased as part of an aggregated
purchase with other entities or individuals, the full details of any
such arrangement, including the identities of all co-purchasers and
the portion of the services being purchased by the health care
provider.
The certification should be renewed annually.
133. We recommend that the Commission require the universal service
fund administrator to establish and administer a monitoring and
evaluation program to oversee the use of universal-service-supported
services by health care providers, and the pricing of those services by
carriers.
134. We also recommend that the Commission encourage carriers
across the country to notify eligible health care providers in their
service areas of the availability of lower rates resulting from
universal service support so that the goals of universal service to
rural health care providers will be more rapidly fulfilled.
135. We recommend that health care providers be encouraged to enter
into aggregate purchasing and maintenance agreements for
telecommunications services with other public and private entities and
individuals, provided however, that the entities and individuals not
eligible for universal service support pay full rates for their portion
of the services. In addition, in these arrangements, we recommend that
the Commission's order make clear that the qualified health care
provider can be eligible for reduced rates, and the telecommunications
carrier can be eligible for support, only for that portion of the
services purchased and used by the health care provider.
136. The Commission's adoption of rules providing universal service
support under section 254(h)(1) will significantly increase the
availability and deployment of telecommunications services for rural
health care providers. Furthermore, we conclude that the additional
action the Commission will undertake, as discussed above, will be
sufficient to ensure the enhancement of access to advanced
telecommunications and information services for these and other health
care providers.
137. We propose that the Commission establish rules governing the
implementation of the support mechanisms recommended above. We
anticipate that the fund administrator will begin receiving and
processing telecommunications service requests on or about June 1,
1997. Therefore, we recommend that the Commission advise eligible
health care providers that they may begin submitting requests to
carriers for supported services as soon as practicable after the
Commission adopts final rules.
138. The rules should provide that the telecommunications carrier
may begin to deploy the requested service as soon as practicable after
it has received (1) a written request for an eligible
telecommunications service, (2) a properly completed signed and sworn
certification as provided in paragraph 92 of this section, (3)
approval, if necessary, from the appropriate agency of the rate to be
charged for the requested service, and (4) satisfactory payment or
payment arrangements for the portion of the rate charged that is the
responsibility of the health care provider.
139. Interstate Subscriber Line Charges and Carrier Common Line
Charges. We recommend that the Commission adopt the tentative
conclusion reached in the NPRM that LTS payments constitute a universal
service support mechanism. As the Commission noted in the NPRM, LTS
payments serve to equalize LECs' access charges by raising some
carriers' charges and lowering others.
140. We recommend that the LTS system no longer be supported via
the access charge regime. We recommend that rural LECs continue to
receive payments comparable to LTS from the
[[Page 63794]]
new universal service support mechanism. Such payments would be
computed on a per-line basis for each ILEC currently receiving LTS,
based on the LTS payments that carrier has received over a historical
period prior to the release of this Recommended Decision. In the
interest of competitive neutrality, such payment would also be
portable, on a per-line basis, to competitors that win the ILEC's
subscribers. To this extent, we recommend that the Commission adopt the
position of those commenters favoring the reformation of the LTS
mechanism to make it consistent with the 1996 Act. We make this
recommendation because we find that LTS payments currently serve the
important public interest function of reducing the amount of loop cost
that high cost LECs must seek to recover from IXCs through interstate
access charges, and thereby facilitating interexchange service in high
cost areas.
141. The Joint Board concludes that the current $3.50 SLC cap for
primary residential and single-line business lines should not be
increased. In the event that the Commission implements a rule assessing
carriers' universal service contributions based on all
telecommunications revenues regardless of jurisdictional
classification, we recommend that the benefits from these CCL
reductions be apportioned equally between primary residential and
single-line-business subscribers to local exchange service, on the one
hand, through a reduction in the SLC cap for those lines, and
interstate toll users, on the other hand, through lower CCL charges.
142. Currently, ILECs are required to recover through traffic-
sensitive CCL charges those interstate-allocated loop costs not
recovered through SLCs and LTS payments. In the NPRM, the Commission
referred to the Joint Board questions related to the recovery of these
loop costs, and suggested that the current mechanism may constitute a
universal service support flow. The Joint Board reaches no conclusion
on this question. We believe, however, that it would be desirable for
the Commission in the very near future to consider revising the current
CCL charge structure so that LECs are no longer required to recover the
NTS cost of the loop from IXCs on a traffic-sensitive basis.
143. Administration of Support Mechanisms. We recommend to the
Commission that the statutory requirement that ``all carriers that
provide interstate telecommunications services'' must contribute to
support mechanisms be construed broadly. A broad base of funding will
ensure that competing firms make ``equitable and nondiscriminatory
contributions'' and will reduce the burden on any particular class of
carrier. In order to interpret the term ``telecommunications carrier''
as broadly as possible, we recommend providing a non-exclusive,
illustrative list of ``interstate telecommunications.'' We recommend
requiring any entity that provides any interstate telecommunications
for a fee to the public, or to such classes of eligible users as to be
effectively available to a substantial portion of the public, to
contribute to the fund.
144. Thus, for the purposes of identifying which entities must
contribute to universal service support mechanisms, the Joint Board
recommends that the Commission adopt a definition of ``interstate
telecommunications'' that is similar to the one used for determining
TRS support. We recommend that ``interstate telecommunications''
include, but not be limited to, the interstate portion of the
following:
cellular telephone and paging, mobile radio, operator services,
PCS, access (including SLCs), alternative access and special access,
packet switched, WATS, toll-free, 900, MTS, private line, telex,
telegraph, video, satellite, international/foreign, intraLATA, and
resale services
Generally, telecommunications are ``interstate'' when the communication
or transmission originates in one state, territory, possession or the
District of Columbia and terminates in another state, territory,
possession or the District of Columbia. In addition, under the
Commission's rules, if over ten percent of the traffic over a private
or WATS line is interstate, then the revenues and costs generated by
the entire line are allocated to the interstate jurisdiction.
145. We recommend adoption of the TRS approach, because carriers
and the Commission are already familiar with this approach.
Contributions to the TRS fund are based on gross interstate
telecommunications revenues. We do not recommend that the Commission
base contributions to the support mechanism in this manner. We find no
reason to exempt from contribution CMRS, satellite operators,
resellers, paging companies, utility companies or carriers that serve
rural or high cost areas that provide interstate telecommunications
services, because the 1996 Act requires ``every telecommunications
carrier that provides interstate telecommunications services'' to
contribute to support mechanisms. Thus, to the extent that these
entities are considered ``telecommunications carriers'' providing
``interstate telecommunications services,'' they must contribute to
universal service support mechanisms.
146. We recommend that ``wholesale'' carriers, carriers that
provide services to other carriers, should be required to contribute,
because such carriers' activities are included in the phrase ``to such
classes of eligible users as to be effectively available to a
substantial portion of the public.'' The Commission has interpreted
this phrase to mean ``systems not dedicated exclusively to internal
use,'' or systems that provide service to users other than
significantly restricted classes. We recommend adopting the same
definition for universal service purposes. Thus, for example, to the
extent PMRS MSS providers lease capacity to other carriers, they would
be considered carriers that provide interstate telecommunications
services.
147. We do not find any reason to define ``for a fee'' as ``for
profit'' and recommend that the Commission interpret the phrase ``for a
fee'' as meaning services rendered in exchange for something of value
or a monetary payment. The Joint Board concludes that the requirement
that ``every telecommunications carrier'' contribute towards the
support of universal service, requires all interstate
telecommunications carriers, including wholesalers and non-profit
organizations, to contribute to support mechanisms. Thus, we recommend
that the Commission require any entity that provides any of the listed
interstate telecommunications services on a wholesale, resale or retail
basis to contribute to support mechanisms to the extent that it
provides interstate telecommunications services.
148. We recommend that information service providers and enhanced
service providers not be required to contribute to support mechanisms.
We note, however, that if information or enhanced service providers
provide any of the listed interstate telecommunications to the public
for a fee, they would be required to contribute to support mechanisms
based on the revenues derived from telecommunications services. We also
recommend that the Commission re-evaluate which services qualify as
information services in the near future to take into account changes in
technology and the regulatory environment.
149. With respect to the issue of whether CMRS providers should
contribute to state universal service support mechanisms, we find that
section 332(c)(3) does not preclude
[[Page 63795]]
states from requiring CMRS providers to contribute to state support
mechanisms. In addition, section 254(f) requires that all contributions
to state support mechanisms be equitable and nondiscriminatory.
150. We recommend that the Commission not require ``other providers
of telecommunications'' to contribute to support mechanisms at this
time.
151. The Joint Explanatory Statement states that the de minimis
exemption applies only to those carriers for which the cost of
collection exceeds the amount of contribution. Thus, we recommend that
the Commission interpret the de minimis exemption in this manner. We
find that the legislative history of section 254(d) indicates Congress'
intent that this exemption be narrowly construed.
152. We recommend that, once it determines the administrator's cost
of collection, the Commission exempt carriers for which the
contribution would be less than the cost of collection. We suggest that
such carriers be exempt from contribution and reporting requirements.
We also recommend that the Commission re-evaluate administrative costs
periodically once the contribution mechanisms are implemented. We
reject requiring flat minimum payments for carriers qualifying for the
de minimis exemption, because it would be impractical to require a
payment that would result in a net loss to the support mechanism.
153. We recommend that contributions be based on a carrier's gross
telecommunications revenues net of payments to other carriers.
154. The Joint Board acknowledges that some ILECs may not be free
to adjust rates to account for the amount of their contributions to
universal service support. We therefore recommend clarifying that,
under the Commission's section 251 rules, ILECs are prohibited from
incorporating universal service support into rates for unbundled
network elements. We note, however, that carriers are permitted under
section 254 to pass through to users of unbundled elements an equitable
and nondiscriminatory portion of their universal service obligation.
155. We recommend that the Commission clarify that contributions to
support mechanisms may be made in cash or through the provision of
``in-kind'' services at ``comparable'' or ``discounted'' rates.
156. The Joint Board recommends that universal service support
mechanisms for schools and libraries and rural health care providers be
funded by assessing both the intrastate and interstate revenues of
providers of interstate telecommunications services. The Joint Board
makes no recommendation concerning the appropriate funding base for the
modified high cost and low income assistance programs, but does request
that the Commission seek additional information and parties' comment,
particularly the states, regarding the assessment method for these
programs.
157. The 1996 Act reflects the continued partnership between the
states and the FCC in preserving and advancing universal service.
Together, sections 254(d) and 254(f) contemplate continued
complementary state and federal programs for advancing universal
service. The Joint Board finds that state universal service programs
should continue to play an important role in ensuring universal service
to all consumers.
158. While section 254(d) prescribes that every telecommunications
carrier that provides interstate communications services shall
contribute on an equitable and nondiscriminatory basis to the specific,
predictable and sufficient universal service support mechanisms
established by the Commission, the statute does not expressly identify
the assessment base for the calculation. We recognize that the
universal service mechanism established in this proceeding to address
the needs of rural, insular and high cost areas will be combined with
the existing high cost assistance, DEM weighting, Linkup, Lifeline and
Long Term Support funding mechanisms.
159. The appropriate revenue base for collecting support for the
high cost and low income programs must be considered in tandem with the
distribution of these funds. The current federal high cost and low
income programs are supplemented by existing state programs. As we have
discussed, the development and composition of a universal service
support mechanism based on a proxy model has been deferred for decision
at this time, pending the convening of staff workshop sessions. We have
also deferred decision on the appropriate revenue benchmark to compute
the level of federal universal service support. Similarly, the
modifications to the Lifeline program have been tentatively identified
and set forth in this Recommended Decision for further comment. We find
that it would be premature at this time to conclude how the high cost
assistance fund and low income assistance programs should be funded,
i.e., whether interstate telecommunications carriers' contributions
should be confined to interstate revenues or whether they should
include a combination of interstate and intrastate revenues.
160. The Joint Board recommends that the Commission seek further
information and parties' comments on the issue of whether both
intrastate and interstate revenues of carriers that provide interstate
telecommunications should be assessed to fund the Commission's high
cost and low income support mechanisms. The role of complementary state
and federal universal service mechanisms requires further reflection.
An additional consideration is whether the states have the ability to
assess the interstate revenues of providers of intrastate
telecommunications services to fund state universal service programs
and whether that assessment capability would affect the funding base
for federal universal service programs. In addition, we recommend that
the Commission seek additional information and parties' comment on
whether the intrastate nature of the services supported by the high
cost and low income assistance programs should have a bearing on the
revenue base for assessing funds. We also recommend that commenting
parties address the ability to separately identify intrastate and
interstate revenues in the evolving telecommunications market where
services typically associated with particular jurisdictions are likely
to be packaged together. Finally, we ask that parties comment on
whether carriers will have an incentive to shift revenues between
jurisdictions to avoid universal service contributions.
161. The state members of the Joint Board will include a discussion
of the appropriate funding mechanism for the new high cost fund and low
income programs as part of the report(s) on each of those programs
discussed above. These reports by the state members will be filed prior
to the Commission's decision in this proceeding on the high cost and
low income funds.
162. With respect to administration of the new federal universal
service fund, we recommend, based on the record in this proceeding,
that the Commission appoint a universal service advisory board to
designate a neutral, third-party administrator. Administration by a
central administrator, as opposed to individual state PUCs, would be
more efficient and would ensure uniform decisions and rules.
163. Although we do not recommend direct administration by state
PUCs, we recommend creating a universal service advisory board,
pursuant to the Federal Advisory Committees Act, including
[[Page 63796]]
state and Commission representatives, to select, oversee, and provide
guidance to the chosen administrator. To expedite the formation of the
advisory board and its selection of a permanent administrator, we
encourage the Commission to limit the number of advisory board members
as much as possible. To ensure that administrative costs are kept to a
minimum, we recommend that the universal service advisory board select
an administrator through a competitive bidding process. The chosen
administrator, including its Board of Directors, must: (1) Be neutral
and impartial; (2) not advocate specific positions to the Commission in
non-administration-related proceedings; (3) not be aligned or
associated with any particular industry segment; and (4) not have a
direct financial interest in the support mechanisms established by the
Commission. As several commenters note, any candidate must also have
the ability to process large amounts of data and to bill large numbers
of carriers. We recommend that the advisory board fund the
administrator's costs through the support mechanism.
164. The Joint Board strongly advises the Commission to create a
universal service advisory board as quickly as possible because it will
be responsible for selecting an administrator. The board, in turn,
should quickly select an administrator because implementation of the
new universal service support mechanisms is of utmost importance to the
nation. The Joint Board recommends that the universal service advisory
board appoint a neutral, third-party administrator through competitive
bidding no later than six months after the board is created. We also
recommend that the Commission and the advisory board require the
administrator to implement the new support mechanisms no later than six
months after its appointment.
165. We recommend that NECA be appointed the temporary
administrator of support mechanisms for schools, libraries and health
care providers. Prior to appointment as the temporary administrator, we
recommend, however, that the Commission permit NECA to add significant,
meaningful representation for non-incumbent LEC carrier interests to
the NECA Board of Directors. NECA could begin collecting carrier
contributions and processing requests for services soon after adoption
of the Commission's rules and would continue to do so until the
permanent administrator is ready to begin operations. We recommend
that, in addition to operating the new support mechanisms for schools,
libraries and health care providers, NECA would continue to administer
the existing high cost and low income support mechanisms until the
permanent administrator is prepared to implement the new high cost and
low income support mechanisms.
166. Conclusion. The 1996 Act instructs the Joint Board and the
Commission to adopt a new set of universal service support mechanisms
that are explicit and sufficient to preserve and advance universal
service. We believe that the recommendations, discussed above, will
achieve Congress's goals and will ensure quality telecommunications
services at affordable rates to all consumers, in all regions of the
Nation.
Initial Regulatory Flexibility Analysis
167. As required by section 603 of the Regulatory Flexibility Act
(RFA), the Commission has prepared an Initial Regulatory Flexibility
Analysis (IRFA) that expands on the IRFA prepared for the NPRM of the
expected significant economic impact on small entities by the
recommendations made by the Federal-State Joint Board in the
Recommended Decision (CC Docket No. 96-45). Written public comments are
requested on the IRFA. Comments must be identified as responses to the
IRFA and must be filed by the deadlines for comments that are set forth
above. The Secretary shall send a copy of this Recommended Decision
including the IRFA set out below to the Chief Counsel for Advocacy of
the Small Business Administration in accordance with section 603(a) of
the RFA.
168. Need for and Objectives of the Recommended Decision: The
Telecommunications Act of 1996 (1996 Act) directed the Commission to
initiate a rulemaking to reform our system of universal service so that
universal service is preserved and advanced as markets move toward
competition. Issues related to universal service were referred to a
Federal-State Joint Board for recommended decision, pursuant to section
254 of the Communications Act of 1934, as amended by the 1996 Act. On
November 8, 1996, the Joint Board released the Recommended Decision
that is summarized above and made recommendations on universal service
issues including, for example, universal service principles, services
eligible for support, support mechanisms for rural, insular, and high
cost areas, support for low-income consumers, affordability, support
for schools and libraries, health care providers, administration of
support mechanisms and common line recovery.
169. The Joint Board's recommendations were intended to assist and
counsel the Commission in the creation of an effective universal
service support mechanism that would ensure that the goals of
affordable, quality service and access to advanced services are met by
means that enhance competition. The Joint Board also sought to develop
recommendations that could be interpreted easily and readily applicable
and, whenever, possible, minimize the regulatory burden on affected
parties. The objective of the Public Notice, released by the
Commission's Common Carrier Bureau on November 18, 1996, was to provide
an opportunity for public comment and to provide a record for a
Commission decision on the issues addressed and the recommendations
made by the Joint Board in the Recommended Decision.
170. Legal Basis: The Joint Board, in compliance with section
254(a)(1) and section 410(c) of the Communications Act of 1934, as
amended by the 1996 Act, adopted the Recommended Decision (CC Docket
No. 96-45) to ensure the prompt implementation of section 254, which
contains the universal service provisions.
171. Description and Estimate of the Number of Small Entities
Affected: For the purposes of an IRFA, the RFA defines a ``small
business'' to be the same as a ``small business concern'' under the
Small Business Act, 15 U.S.C. 632, unless the Commission has developed
one or more definitions that are appropriate to its activities. Under
the Small Business Act, a ``small business concern'' is one that: (1)
Is independently owned and operated; (2) is not dominant in its field
of operation; and (3) meets any additional criteria established by the
Small Business Administration (SBA). SBA has defined a small business
for Standard Industrial Classification (SIC) categories 4812
(Radiotelephone Communications) and 4813 (Telephone Communications,
Except Radiotelephone) to be small entities when they have fewer than
1,500 employees. This IRFA first discusses generally the total number
of small telephone companies falling within both of those SIC
categories. Then, it discusses total numbers of other small entities
potentially affected and attempts to refine those estimates.
172. Consistent with the Commission's prior practice, small
incumbent LECs are excluded from the definition of a small entity for
purposes of this IRFA. We note that the Commission has consistently
certified under the RFA that incumbent LECs are not subject to
regulatory flexibility analyses because they are not small businesses.
Incumbent LECs do not
[[Page 63797]]
qualify as small businesses since they are dominant in their field of
operation and hence exempt from treatment as a small business under
prong (2) of the SBA test set out supra. Accordingly, the use of the
terms ``small entities'' and ``small businesses'' does not encompass
``small incumbent LECs.'' We will however, out of an abundance of
caution and prudence, include small incumbent LECs in this IRFA to
eliminate any possible issue of RFA compliance. We use the term ``small
incumbent LECs'' to refer to any incumbent LECs that arguably might be
defined by SBA as ``small business concerns.'' In addition, the
Commission will take appropriate steps to ensure that the special
circumstances of smaller incumbent LECs are carefully considered.
1. Telephone Companies (SIC 4813)
173. Total Number of Telephone Companies Affected. Many of the
recommendations of the Joint Board, if adopted by the Commission, may
have a significant effect on a substantial number of the small
telephone companies identified by SBA. The United States Bureau of the
Census (``the Census Bureau'') reports that, at the end of 1992, there
were 3,497 firms engaged in providing telephone services, as defined
therein, for at least one year. This number contains a variety of
different categories of carriers, including local exchange carriers,
interexchange carriers, competitive access providers, cellular
carriers, mobile service carriers, operator service providers, pay
telephone operators, PCS providers, covered SMR providers, and
resellers. It seems certain that some of those 3,497 telephone service
firms may not qualify as small entities or small incumbent LECs because
they are not ``independently owned and operated.'' For example, a PCS
provider that is affiliated with an interexchange carrier having more
than 1,500 employees would not meet the definition of a small business.
It seems reasonable to conclude, therefore, that fewer than 3,497
telephone service firms would qualify as small entity telephone service
firms or small incumbent LECs, as defined above, that may be affected
by the Recommended Decision.
174. Wireline Carriers and Service Providers. SBA has developed a
definition of small entities for telephone communications companies
other than radiotelephone (wireless) companies. The Census Bureau
reports that there were 2,321 such telephone companies in operation for
at least one year at the end of 1992. According to SBA's definition, a
small business telephone company other than a radiotelephone company is
one employing fewer than 1,500 persons. All but 26 of the 2,321 non-
radiotelephone companies listed by the Census Bureau were reported to
have fewer than 1,000 employees. Thus, even if all 26 of those
companies had more than 1,500 employees, there would still be 2,295
non-radiotelephone companies that might qualify as small entities or
small incumbent LECs. Although it seems certain that some of these
carriers are not independently owned and operated, we are unable at
this time to estimate with greater precision the number of wireline
carriers and service providers that would qualify as small business
concerns under SBA's definition. Consequently, we estimate that there
are fewer than 2,295 small entity telephone communications companies
other than radiotelephone companies that may be affected by the
Recommended Decision.
175. Local Exchange Carriers. Neither the Commission nor SBA has
developed a definition of small providers of local exchange services.
The closest applicable definition under SBA rules is for telephone
communications companies other than radiotelephone (wireless)
companies. The most reliable source of information regarding the number
of LECs nationwide of which we are aware appears to be the data that
the Commission collects annually in connection with the
Telecommunications Relay Service (TRS). According to the most recent
data, 1,347 companies reported that they were engaged in the provision
of local exchange services. Although it seems certain that some of
these carriers are not independently owned and operated, or have more
than 1,500 employees, we are unable at this time to estimate with
greater precision the number of LECs that would qualify as small
business concerns under SBA's definition. Consequently, we estimate
that there are fewer than 1,347 small incumbent LECs that may be
affected by the Recommended Decision.
176. Interexchange Carriers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of interexchange services (IXCs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies. The most reliable
source of information regarding the number of IXCs nationwide of which
we are aware appears to be the data that the Commission collects
annually in connection with TRS. According to the most recent data, 97
companies reported that they were engaged in the provision of
interexchange services. Although it seems certain that some of these
carriers are not independently owned and operated, or have more than
1,500 employees, we are unable at this time to estimate with greater
precision the number of IXCs that would qualify as small business
concerns under SBA's definition. Consequently, we estimate that there
are fewer than 97 small entity IXCs that may be affected by the
Recommended Decision.
177. Competitive Access Providers. Neither the Commission nor SBA
has developed a definition of small entities specifically applicable to
providers of competitive access services (CAPs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies. The most reliable
source of information regarding the number of CAPs nationwide of which
we are aware appears to be the data that the Commission collects
annually in connection with the TRS. According to the most recent data,
30 companies reported that they were engaged in the provision of
competitive access services. Although it seems certain that some of
these carriers are not independently owned and operated, or have more
than 1,500 employees, we are unable at this time to estimate with
greater precision the number of CAPs that would qualify as small
business concerns under SBA's definition. Consequently, we estimate
that there are fewer than 30 small entity CAPs that may be affected by
the Recommended Decision.
178. Operator Service Providers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of operator services. The closest applicable definition under
SBA rules is for telephone communications companies other than
radiotelephone (wireless) companies. The most reliable source of
information regarding the number of operator service providers
nationwide of which we are aware appears to be the data that the
Commission collects annually in connection with the TRS. According to
the most recent data, 29 companies reported that they were engaged in
the provision of operator services. Although it seems certain that some
of these companies are not independently owned and operated, or have
more than 1,500 employees, this IRFA is unable at this time to estimate
with greater precision the number of operator service providers that
would qualify as small business concerns under SBA's definition.
Consequently, we estimate that there are fewer than 29 small entity
operator service providers
[[Page 63798]]
that may be affected by the Recommended Decision.
179. Pay Telephone Operators. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to pay
telephone operators. The closest applicable definition under SBA rules
is for telephone communications companies other than radiotelephone
(wireless) companies. The most reliable source of information regarding
the number of pay telephone operators nationwide of which we are aware
appears to be the data that the Commission collects annually in
connection with the TRS. According to the most recent data, 197
companies reported that they were engaged in the provision of pay
telephone services. Although it seems certain that some of these
carriers are not independently owned and operated, or have more than
1,500 employees, we are unable at this time to estimate with greater
precision the number of pay telephone operators that would qualify as
small business concerns under SBA's definition. Consequently, we
estimate that there are fewer than 197 small entity pay telephone
operators that may be affected by the Recommended Decision.
180. Wireless (Radiotelephone) Carriers. SBA has developed a
definition of small entities for radiotelephone (wireless) companies.
The Census Bureau reports that there were 1,176 such companies in
operation for at least one year at the end of 1992. According to SBA's
definition, a small business radiotelephone company is one employing
fewer than 1,500 persons. The Census Bureau also reported that 1,164 of
those radiotelephone companies had fewer than 1,000 employees. Thus,
even if all of the remaining 12 companies had more than 1,500
employees, there would still be 1,164 radiotelephone companies that
might qualify as small entities if they are independently owned and
operated. Although it seems certain that some of these carriers are not
independently owned and operated, we are unable at this time to
estimate with greater precision the number of radiotelephone carriers
and service providers that would qualify as small business concerns
under SBA's definition. Consequently, we estimate that there are fewer
than 1,164 small entity radiotelephone companies that may be affected
by the Recommended Decision.
181. Cellular Service Carriers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of cellular services. The closest applicable definition under
SBA rules is for radiotelephone (wireless) companies. The most reliable
source of information regarding the number of cellular service carriers
nationwide of which we are aware appears to be the data that the
Commission collects annually in connection with the TRS. According to
the most recent data, 789 companies reported that they were engaged in
the provision of cellular services. Although it seems certain that some
of these carriers are not independently owned and operated, or have
more than 1,500 employees, we are unable at this time to estimate with
greater precision the number of cellular service carriers that would
qualify as small business concerns under SBA's definition.
Consequently, we estimate that there are fewer than 789 small entity
cellular service carriers that may be affected by the Recommended
Decision.
182. Mobile Service Carriers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
mobile service carriers, such as paging companies. The closest
applicable definition under SBA rules is for radiotelephone (wireless)
companies. The most reliable source of information regarding the number
of mobile service carriers nationwide of which we are aware appears to
be the data that the Commission collects annually in connection with
the TRS. According to the most recent data, 117 companies reported that
they were engaged in the provision of mobile services. Although it
seems certain that some of these carriers are not independently owned
and operated, or have more than 1,500 employees, we are unable at this
time to estimate with greater precision the number of mobile service
carriers that would qualify under SBA's definition. Consequently, we
estimate that there are fewer than 117 small entity mobile service
carriers that may be affected by the Recommended Decision.
183. Broadband PCS Licensees. The broadband PCS spectrum is divided
into six frequency blocks designated A through F. As set forth in 47
CFR 24.720(b), the Commission has defined ``small entity'' in the
auctions for Blocks C and F as a firm that had average gross revenues
of less than $40 million in the three previous calendar years. Our
definition of a ``small entity'' in the context of broadband PCS
auctions has been approved by SBA. The Commission has auctioned
broadband PCS licenses in Blocks A, B, and C. The Commission does not
have sufficient data to determine how many small businesses bid
successfully for licenses in Blocks A and B. There were 90 winning
bidders that qualified as small entities in the Block C auction. Based
on this information, we conclude that the number of broadband PCS
licensees affected by the Recommended Decision includes, at a minimum,
the 90 winning bidders that qualified as small entities in the Block C
broadband PCS auction.
184. At present, licenses are being awarded for Blocks D, E, and F
of broadband PCS spectrum. A total of 1,479 licenses will ultimately be
awarded in the D, E, and F Block broadband PCS auctions, which began on
August 26, 1996. Eligibility for the 493 F Block licenses is limited to
entrepreneurs with average gross revenues of less than $125 million. We
cannot estimate, however, the number of these licenses that will be won
by small entities, nor how many small entities will win D or E Block
licenses. Given that nearly all radiotelephone companies have fewer
than 1,000 employees and that no reliable estimate of the number of
prospective D, E, and F Block licensees can be made, for purposes of
this IRFA, we assume that all of the licenses in the D, E, and F Block
Broadband PCS auctions may be awarded to small entities that may be
affected by the Recommended Decision.
185. SMR Licensees. Pursuant to 47 CFR 90.814(b)(1), the Commission
has defined ``small entity'' in auctions for geographic area 800 MHz
and 900 MHz SMR licenses as a firm that had average annual gross
revenues of less than $15 million in the three previous calendar years.
This definition of a ``small entity'' in the context of 800 MHz and 900
MHz SMR has been approved by the SBA. The Recommended Decision may
apply to SMR providers in the 800 MHz and 900 MHz bands that either
hold geographic area licenses or have obtained extended implementation
authorizations. The Commission does not know how many firms provide 800
MHz or 900 MHz geographic area SMR service pursuant to extended
implementation authorizations, nor how many of these providers have
annual revenues of less than $15 million. For purposes of this IRFA, we
assume that all of the extended implementation authorizations may be
held by small entities that may be affected by the Recommended
Decision.
186. The Commission recently held auctions for geographic area
licenses in the 900 MHz SMR band. There were 60 winning bidders who
qualified as small entities in the 900 MHz auction. Based on this
information, we conclude that the number of geographic area SMR
licensees affected by the Recommended Decision includes these 60 small
entities. No auctions have been held for 800 MHz geographic area SMR
licenses.
[[Page 63799]]
Therefore, no small entities currently hold these licenses. A total of
525 licenses will be awarded for the upper 200 channels in the 800 MHz
geographic area SMR auction. The Commission has not yet determined how
many licenses will be awarded for the lower 230 channels in the 800 MHz
geographic area SMR auction. There is no basis, moreover, on which to
estimate how many small entities will win these licenses. Given that
nearly all radiotelephone companies have fewer than 1,000 employees and
that no reliable estimate of the number of prospective 800 MHz
licensees can be made, for purposes of this IRFA, we assume that all of
the licenses may be awarded to small entities that may be affected by
the Recommended Decision.
187. Resellers. Neither the Commission nor SBA has developed a
definition of small entities specifically applicable to resellers. The
closest applicable definition under SBA rules is for all telephone
communications companies. The most reliable source of information
regarding the number of resellers nationwide of which we are aware
appears to be the data that the Commission collects annually in
connection with the TRS. According to the most recent data, 206
companies reported that they were engaged in the resale of telephone
services. Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees, we
are unable at this time to estimate with greater precision the number
of resellers that would qualify as small business concerns under SBA's
definition. Consequently, we estimate that there are fewer than 206
small entity resellers that may be affected by the Recommended
Decision.
2. Cable System Operators (SIC 4841)
188. SBA has developed a definition of small entities for cable and
other pay television services that includes all such companies
generating less than $11 million in revenue annually. This definition
includes cable systems operators, closed circuit television services,
direct broadcast satellite services, multipoint distribution systems,
satellite master antenna systems and subscription television services.
According to the Census Bureau, there were 1,323 such cable and other
pay television services generating less than $11 million in revenue
that were in operation for at least one year at the end of 1992.
189. The Commission has developed its own definition of a small
cable system operator for the purposes of rate regulation. Under the
Commission's rules, a ``small cable company,'' is one serving fewer
than 400,000 subscribers nationwide. Based on the Commission's most
recent information, we estimate that there were 1,439 cable operators
that qualified as small cable system operators at the end of 1995.
Since then, some of those companies may have grown to serve over
400,000 subscribers, and others may have been involved in transactions
that caused them to be combined with other cable operators.
Consequently, we estimate that there are fewer than 1,468 small entity
cable system operators that may be affected by the Recommended
Decision.
190. The Communications Act defines a small cable system operator,
as ``a cable operator that, directly or through an affiliate, serves in
the aggregate fewer than 1 percent of all subscribers in the United
States and is not affiliated with any entity or entities whose gross
annual revenues in the aggregate exceed $250,000,000.'' There were
63,196,310 basic cable subscribers at the end of 1995, and 1,450 cable
system operators serving fewer than one percent (631,960) of
subscribers. Although it seems certain that some of these cable system
operators are affiliated with entities whose gross annual revenues
exceed $250,000,000, we are unable at this time to estimate with
greater precision the number of cable system operators that would
qualify as small cable operators under the definition in the
Communications Act.
3. Rural Health Care Providers
191. Neither the Commission nor SBA has developed a definition of
small, rural health care providers. According to the SBA's regulations,
hospitals must have annual gross receipts of $5 million or less in
order to qualify as a small business concern. There are approximately
3856 hospital firms in the nation, of which 294 have gross annual
receipts of $5 million or less (SIC 8060).
192. We recognize that the potential class of health care providers
that may be affected by the Recommended Decision is at the same time
broader and more refined than the class of providers identified in
these SBA figures. On the one hand, the potential class of health care
providers that may be affected by the Recommended Decision includes
additional categories of providers other than small hospital firms.
Additional categories of providers not encompassed within the SBA's
figures would include, for example, rural community colleges, medical
schools with rural programs, community health centers or health centers
providing health care to migrants, local health departments or
agencies, community mental health centers, and rural health clinics. On
the other hand, the potential class of health care providers that may
be affected by the Recommended Decision is more refined than the class
of providers identified in the SBA figures to the extent that the
former class is comprised only of rural health care providers. Given
that it is not yet practicable to identify all rural health care
providers that potentially may be impacted by the Recommended Decision,
5 U.S.C. 607, we ask commenters to submit detailed information to
assist the Commission in identifying and estimating the number of small
entities that may be impacted.
4. Schools and Libraries
193. SBA has defined small elementary and secondary schools (SIC
8211) and small libraries (SIC 8231) as those with under $5 million in
annual revenues. The most reliable source of information regarding the
total number of kindergarten through 12th grade (K-12) schools and
libraries nationwide of which we are aware appears to be data collected
by the National Center for Educational Statistics. Based on that
information, it appears that there are approximately 112,314 public and
private K-12 schools in the United States. It further appears that
there are approximately 15,904 libraries, including branches, in the
United States. Although it seems certain that not all of these schools
and libraries would qualify as small entities under SBA's definition,
we are unable at this time to estimate with greater precision the
number of small schools and libraries that would qualify as small
entities under the definition. Consequently, we estimate that there are
fewer than 112,314 public and private schools and fewer than 15,904
libraries that may be affected by the Recommended Decision.
194. Due to the number and complexity of the issues involved in the
Recommended Decision, it is not yet practicable or reliable for the
Commission to identify all entities potentially impacted by the
Recommended Decision. 5 U.S.C. 607. Accordingly, we seek comment on any
additional entities that potentially may be affected by the Recommended
Decision. Additionally, we seek comment on the general proposals set
forth in the IRFA and any other comments concerning the potential
impact of the Joint Board's recommendations on small entities.
195. Summary Analysis of the Projected Reporting, Recordkeeping,
and Other Compliance Requirements and Significant Alternatives to
[[Page 63800]]
Recommended Decisions That Minimize Significant Economic Impact on
Small Entities and Accomplish Stated Objectives:
196. Structure of the Analysis. In this section of the IRFA, we
analyze the projected reporting, recordkeeping, and other compliance
requirements that might apply to small entities and small incumbent
LECs if the recommendations made by the Joint Board pursuant to the
Recommended Decision are adopted by the Commission. This section also
includes a discussion of some of the types of skills that might be
needed to meet the recommended requirements. We also describe the steps
taken by the Joint Board to minimize the economic impact of its
recommendations on small entities and small incumbent LECs, including
the significant alternatives considered and rejected. The following
analysis is organized under individual section headings that correspond
to the sections of the Recommended Decision.
197. Any references to the Recommended Decision contained in this
IRFA are intended to provide context for the analysis performed in this
IRFA. To the extent that any statement contained in this IRFA is
perceived as creating ambiguity with respect to any statement or
recommendation made in the Recommended Decision, the statement or
recommendation made in the Recommended Decision shall be controlling.
Summary Analysis of Section III
Principles
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements.
198. The Joint Board recommended no reporting or other compliance
requirements relating directly to the six principles enumerated in
section 254(b) or relating directly to the additional principle of
competitive neutrality, as considered by the Joint Board pursuant to
section 254(b)(7).
Significant Alternatives to Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
199. The Joint Board concluded in section III of the Recommended
Decision that consumers and businesses would benefit from competitively
neutral application of the universal service rules. While a few
commenters contended that competition alone would not fulfill the goals
of section 254, the Joint Board concluded that competitive neutrality
would favorably impact business entities, including smaller entities,
by providing for access to quality and advanced services at just,
reasonable, and affordable rates. By recommending that the Commission
adopt the additional principle of competitive neutrality, the Joint
Board sought to ensure a level playing field for all carriers,
including smaller entities, insofar as contributions to the universal
service fund and disbursements from it would not be biased either in
favor of or against one category of carriers over another.
Summary Analysis of Section IV
Definition of Universal Service
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements.
200. The Joint Board recommended no reporting or recordkeeping
requirements in this section. All eligible carriers would be required,
however, to provide each of the services designated for universal
service support in order to receive such support, subject to certain
enumerated exceptions.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
201. The Joint Board recommended providing universal service
support for all eligible carriers that provide each of the designated
services. This recommendation would permit cellular and other wireless
carriers and non-incumbent providers, many of which may be small
businesses, to compete in high cost areas. The Joint Board specifically
did not recommend that the Commission withhold universal service
support for cellular providers based on its finding that this approach
would impede the competitive entry of certain types of carriers, many
of which may be small entities, and, therefore, was inconsistent with
the pro-competitive goals of the 1996 Act.
202. The Joint Board made a number of recommendations in this
section that were designed to minimize the burdens on smaller entities
wishing to become eligible to receive universal service support. For
example, state commissions would be permitted to approve transition
periods for eligible carriers that would permit carriers, many of which
might be smaller entities, that are not currently providing single-
party service to make the upgrades necessary to do so. The
recommendation would allow certain small, rural carriers to continue to
receive universal service support during the time they are making the
upgrades that are needed in order to provide single-party service. In
making this recommendation, the Joint Board sought to strike a
reasonable balance between the need for single-party service in a
modern telecommunications network and the recognition that exceptional
circumstances may prevent some carriers from initially offering single-
party service.
203. The Joint Board also would not require telecommunications
providers to provide access to E911 service in order to receive
universal service support, but recommended that such access would be
supported in high cost areas if a carrier does provide it.
Specifically, the Joint Board determined that immediately requiring all
eligible carriers to provide access to E911 service effectively would
exclude certain wireless carriers, whose networks would require
significant technical upgrades. To the extent that this class of
cellular and other wireless carriers includes smaller carriers, this
recommendation would permit those carriers to receive universal service
support notwithstanding their inability to provide access to E911
service.
204. Although other services were suggested by commenters for
inclusion in the definition of universal service, the Joint Board
declined to expand the definition to include those services at this
time. The Joint Board determined that an expansion of the definition to
include additional services would have precluded certain carriers that
were unable to provide those services from receiving universal service
support. The Joint Board concluded that an overly-broad definition of
universal service might have the unintended effect of creating a
barrier to entry for some carriers, many of which may be small
entities, because they would be technically unable to provide all of
the designated services.
205. The Joint Board recommended that designated services carried
to single-connection businesses in high cost areas also be supported at
a reduced rate. Recognizing that the majority of single-connection
businesses in high cost areas may be presumed to be small businesses,
this recommendation specifically was intended to benefit those small
businesses. The Joint Board rejected arguments opposing any support for
business connections. The Joint Board also rejected suggestions to
extend universal service benefits to multiple-line businesses,
recognizing that the cost of service would be more likely to be
prohibitive to small, single-connected businesses in high cost areas,
[[Page 63801]]
as opposed to larger businesses, without universal service support.
206. The Joint Board declined to recommend the implementation of
additional quality of service standards. Rather, the Joint Board
recommended that the Commission, to the extent possible, rely on
existing data, including the ARMIS data filed by price-cap LECs, to
monitor service quality. By avoiding the creation of additional
standards, this recommendation would have the effect of minimizing the
reporting burden of affected carriers, including that of smaller
carriers.
Summary Analysis of Section V
Affordability
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements.
207. The 1996 Act does not require and the Joint Board did not
recommend any new reporting, recordkeeping or other compliance
requirements in this section.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
208. This section includes recommendations that would directly
impact small entities only to the extent that the Joint Board
recommended that the states be given primary responsibility for
monitoring the affordability of telephone service rates and, in concert
with the Commission, ensuring the affordability of such rates. Ensuring
the affordability of telephone service rates clearly would have a
positive economic impact on small businesses and other small entities.
Summary Analysis of Section VI
Eligibility for Universal Service Support
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements.
209. The 1996 Act provides that, after the effective date of the
Commission's regulations implementing section 254, only carriers
designated as eligible carriers pursuant to section 214(e) shall be
eligible for specific federal universal service support. Thus, any
carrier, including incumbent carriers, that wish to receive universal
service support must request to be designated as an eligible carrier by
the applicable state commission. Section 214(e) establishes criteria
that carriers must meet to be designated as an eligible carrier. The
Joint Board recommended in section VI.B that the Commission adopt these
statutory criteria, without further elaboration, as the rules for
determining whether a telecommunications carrier is eligible to receive
universal service support. These statutory criteria require that a
telecommunications carrier be a common carrier and offer, throughout a
service area designated by the state commission, all of the services
supported by federal universal service support either using its own
facilities or a combination of its own facilities and resale of another
carrier's services. A carrier must also advertise the availability of
and charges for these services throughout its service area. Compliance
with these statutory requirements may require administrative and legal
skills.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
210. The Joint Board recommended minimal national rules for
eligibility, requiring only that carriers meet the eligibility criteria
established by Congress in the 1996 Act. As discussed in section VI.B,
the Joint Board rejected arguments calling for more stringent
eligibility rules, such as requiring new entrants to comply with any
state rules applicable to the incumbent carrier, which could have
imposed additional burdens on new entrants, many of which may be small
businesses. Additionally, the Joint Board recommended that eligibility
rules be technologically neutral, in order to ensure that all
telecommunications carriers, regardless of the technology used, could
potentially qualify for federal universal service support. The Joint
Board also recommended that, for rural telephone companies, the
designated service area throughout which they must offer and advertise
supported services be the areas in which they currently operate.
Finally, where states are responsible for designating a carrier's
service area, the Joint Board recommended that the Commission encourage
states to designate service areas that do not disadvantage new
entrants. The Joint Board concluded that these provisions would
minimize reporting requirements and other burdens on small entities.
Summary Analysis of Section VII
High Cost Support
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements.
211. Small, rural carriers comprise the specific class of small
entities that are subject to high cost reporting requirements. The
Joint Board recommended that the Commission define ``rural'' as those
carriers that meet the statutory definition of a ``rural telephone
company,'' pursuant to 47 U.S.C. 153(37). These reporting and
recordkeeping requirements would utilize accounting and legal skills.
212. Currently, a LEC is eligible for support if its embedded loop
costs, as reported annually, exceed 115 percent of the national average
loop cost. The Joint Board recommended that a proxy model for
calculating a carrier's costs be adopted by the Commission by May 8,
1997. Thus, beginning January 1, 1998, non-rural carriers would receive
support based on the difference between the cost of service as
determined by a proxy model and a benchmark amount. However, to
minimize the financial impact of this rule change on small entities,
the Joint Board recommended that, beginning January 1, 1998, small,
rural carriers receive high cost support on a frozen per-line amount
based on previous years' reported costs, for years, 1998, 1999, and
2000. Furthermore, small, rural carriers would gradually transition to
a proxy model during a three year period, for the years 2001, 2002, and
2003. (Small, rural carriers serving high cost areas in Alaska and
insular areas would not transition to proxy models at that time, but
rather would continue to receive support based on the frozen per-line
amount until further review.) This six-year transition period for
small, rural carriers would enable small carriers to adjust their
operations in preparation for the use of proxy models. In order for
small, rural carriers to receive high cost support based on their
frozen embedded costs, they would be required to report the number of
lines they serve at the end of each year.
213. Since the new support mechanism for small, rural carriers
would be based on previous years' frozen embedded costs, the carriers
would no longer have to report each year's embedded costs. Thus, the
Recommended Decision would require less reporting and recordkeeping for
small, rural carriers. Accordingly, the Joint Board anticipated that
those entities' cost of compliance with reporting and recordkeeping
requirements would be less than what they currently incur. Since large
entities also would have to report the number of lines they serve in
order to receive support under a proxy model, these requirements would
not affect small entities disproportionately.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
[[Page 63802]]
214. Commenters offered a number of alternative methodologies,
including continuing the current embedded cost methodology, providing
support based on combined loop and switching costs, limiting allowable
costs, eliminating de minimis support lowering payout percentages,
readjusting study areas, and capping support levels. Although these
small, rural carriers may receive more support under the current
embedded cost methodology, the Joint Board rejected that proposal as a
long-term solution based on its finding that the current system
promotes economic inefficiencies and is inconsistent with the
principles of the 1996 Act. The remaining alternatives, however, would
result in even lower support levels than the methodology recommended by
the Joint Board. By transitioning small, rural carriers to a proxy
model over a six year period, the Recommended Decision's proposed
methodology for calculating support for small, rural carriers would
minimize the adverse effects of an immediate, unplanned shift to a
proxy model.
Summary Analysis of Section VIII
Support for Low-Income Consumers
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements.
215. The Joint Board recommended that, in order to participate in
the Lifeline program, carriers would have to demonstrate or, in some
cases, continue to demonstrate, to the public utility commission of the
state in which they operate that they offer a Lifeline rate to
qualified individuals. In addition, carriers participating in Lifeline
would be required to submit certification applications to the new
federal fund administrator. State agencies and carriers participating
in Lifeline would administer customer eligibility determinations. These
recommended reporting and recordkeeping requirements may require
clerical and administrative skills.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
216. The Joint Board recommended that all eligible
telecommunications carriers now participate in Lifeline. To participate
in the Lifeline program, carriers would be required to keep track of
the number of their Lifeline customers and to file information with the
federal fund administrator. Based on the Commission's prior experience
administering Lifeline, the Joint Board believed that such a
requirement would not impose a significant burden on small carriers due
to the insubstantial amount and general accessibility of the
information. Accordingly, the Joint board did not anticipate that this
recommendation would impose a significant burden on small carriers.
Summary Analysis of Section IX
Insular Areas
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements.
217. The 1996 Act does not require and the Joint Board did not
recommend any new reporting, recordkeeping or other compliance
requirements in this section.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
218. The Joint Board did not make any recommendations at this time
which uniquely impact small entities in insular areas. The Joint Board
recommendations in other areas, such as high cost support and support
for schools and libraries, would apply to insular areas as well as to
the mainland, however. We therefore tentatively conclude that this
section of the Recommended Decision on issues unique to insular areas
will not have a significant economic impact on a substantial number of
small entities.
Summary Analysis of Section X
Schools and Libraries
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements.
219. The Joint Board recommended requiring service providers to
self-certify, to the fund administrator, that the price offered to
schools and libraries would be no more than the lowest price charged to
similarly situated non-residential customers for similar services. This
requirement was designed to ensure that schools and libraries would
receive the lowest pre-discounted price available in the marketplace
for someone with their needs. The Joint Board also recommended
requiring service providers to keep and retain careful records of how
they have allocated the costs of shared facilities used by consortia to
ensure that only eligible schools and libraries derive the benefits of
section 254(h) discounts and that no prohibited resale occurs.
220. The Joint Board recommended that, for schools ordering
telecommunications services, the person ordering such services for the
individual school or school district should self-certify to the fund
administrator and to the service provider the number of students in
each of its schools who are eligible for the national school lunch
program or other comparable indicator of economic disadvantage
ultimately selected by the Commission. This requirement arises in the
context of determining which schools are eligible for the greater
discounts to meet the statutory requirement that ``affordable'' access
be provided.
221. The Joint Board also recommended that schools and libraries
self-certify, to the fund administrator, that they will be able to
deploy any necessary hardware, software, and wiring, and to undertake
any necessary teacher training required to use the services ordered
pursuant to section 254(h). This requirement would help ensure that
schools and libraries avoid the waste that might arise if schools and
libraries ordered inexpensive services before they realized what other
resources they needed to be able to use those services effectively.
222. The Joint Board recommended requiring schools and libraries to
send a description of the services they desire to the fund
administrator or other entity designated by the Commission. The fund
administrator or other entity would then post a description of the
services sought on an Internet website or some similar location for all
potential competing service providers to review. The Joint Board
concluded that this requirement would help achieve Congress's desire
that schools and libraries take advantage of the potential for
competitive bids and, therefore, would satisfy the competitive bid
requirement the Joint Board recommended imposing on schools and
libraries.
223. The Joint Board recommended that, to ensure compliance with
section 254, every school and library that requests services eligible
for universal service support should be required to submit to the
service provider a written request for services. The Joint Board
recommended that the request should be signed by the person authorized
to order telecommunications and other covered services for the school
and library, self-certifying the following under oath: (1) the school
or library is an eligible entity under section 254(h)(4); (2) the
services requested will be used solely for educational purposes; (3)
the services will not be sold, resold, or transferred in consideration
for money or any other thing of value; and (4) if the services are
being purchased as part of an aggregated purchase with other entities,
the identities of all co-
[[Page 63803]]
purchasers and the portion of the services being purchased by the
school or library.
224. The Joint Board recommended requiring schools and libraries,
as well as carriers, to maintain records for their purchases of
telecommunications and other covered services at discounted rates,
similar to the kinds of procurement records that they already keep for
other purchases. The Joint Board expected that schools and libraries
should be able to produce such records at the request of any auditor
appointed by a state education department, the fund administrator, or
any other state or federal agency with jurisdiction to review such
records for possible misuse. The Joint Board believed that these
reporting and recordkeeping requirements would be necessary to ensure
that schools and libraries receive the discounted telecommunications
services for the purposes intended by Congress.
225. Similarly, the Joint Board recommended that schools and
libraries that desire additional support due to their location in a
high cost area be permitted to demonstrate this by providing the
necessary information to show that they meet the Commission's high cost
standards.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
226. Although service providers would be required to self-certify
to the fund administrator that the prices they charged to eligible
schools and libraries were no more than the lowest price charged to
similarly situated non-residential customers for similar services, this
requirement should be minimally burdensome, given that service
providers could be expected to review the prices they charged to
similarly situated customers when they set the price for schools and
libraries. The Joint Board expressly rejected suggestions that it
require all carriers to offer services at total service long-run
incremental cost levels, due to the burdens it would have created.
Similarly, given that schools and libraries that form consortia with
non-eligible entities would need to inform the service provider of what
portion of shared facilities purchased by the consortia should be
charged to eligible schools and libraries (and discounted by the
appropriate amounts), it should not be burdensome for carriers to
maintain records of those allocations for some appropriate amount of
time.
227. With respect to service providers, the Joint Board
specifically rejected a suggestion to interpret ``geographic area'' to
mean the entire state in which a service provider served. This could
have forced service providers to serve areas of a state that they were
not previously serving, thereby unreasonably burdening small carriers
that were only prepared to serve some small segment of a state. The
Joint Board also rejected requirements that carriers notify customers
of the availability of discounts, recommending that the Commission only
recommend that carriers provide such notification, rather than
requiring them to do so.
228. Schools and libraries should not be significantly burdened by
the requirement that they certify that (1) they are eligible for
support under section 254(h)(4); (2) the services requested are used
for educational services; and (3) that such services will not be
resold. Assuming that schools and libraries would need to inform
carriers about what discount they are eligible for to receive that
discount, there should be no significant burden imposed by requiring
them to self-certify that they would satisfy the statutory requirements
that Congress imposed. While the requirement that they disclose how
shared facilities are used by the members of a consortia, if they form
one, may be somewhat complicated, the Joint Board found that the
members of the consortia would need to allocate such costs to determine
which party was responsible for what portion of the bill, even without
any discount. Given that such allocations would be undertaken for that
reason, the Joint Board concluded that it would not be burdensome to
require schools and libraries to disclose those allocations when
submitting their certification of eligibility. In fact, schools that
found such reporting to be burdensome could avoid such consortia, but
the Joint Board found it desirable, however, to provide small schools
and libraries to join with other customers, including large commercial
customers, to enable them to enjoy discounts comparable to other larger
customers.
229. A requirement that schools and libraries submit a description
of the services and facilities they desire to purchase at a discount to
the administrator or other designated entity should also be minimally
burdensome. The Joint Board's understanding was that school and library
boards generally already require schools and libraries to seek
competitive bids for substantial purchases and this forces them to
create a description of their purchase needs. The Joint Board found
that it would be only minimally burdensome to require schools and
libraries to submit a copy of that description to the fund
administrator. It further found that this requirement would be much
less burdensome than requiring schools and libraries to submit a
description of their requests to all telecommunications carriers in
their state, as proposed by one commenter. It also would be less
burdensome than a requirement that they demonstrate that schools and
libraries have employed a competitive bidding process.
230. The Joint Board concluded that it would not be burdensome to
require schools and libraries to self-certify that they have a plan for
deploying any necessary resources to be able to use their discounted
services and facilities effectively. It anticipated that few schools or
libraries would propose to spend their own money for discounted
services until they believed that they could use the services
effectively. Therefore, simply requiring them to certify that they had
done such planning would be the least burdensome way to ensure that
schools and libraries were aware of the other resources they would need
to procure before ordering discounted telecommunications services and
facilities. The Joint Board anticipated that the burden here would be
particularly light, given the development of clearinghouses of
information for schools and libraries on the Internet. The Joint Board
found this alternative significantly less burdensome than the proposed
requirement that schools and libraries secure outside approval of their
technology plans from a government entity before they could receive any
support.
231. The Joint Board also tentatively concluded that the least
burdensome manner for schools and libraries to demonstrate that they
are disadvantaged would be to self-certify to the fund administrator
and to the service provider the portion of students in their school
eligible for the national student lunch program, although the Joint
Board remained open to other comparable indicators of economic
disadvantage that might be less burdensome or sufficiently more precise
as to justify any additional burden. The Joint Board found that the
national student lunch program appears to be the most widely known and
easily applied mechanism for achieving the goal of identifying
disadvantaged schools and libraries, despite its flaws, and anticipated
that the burden it would create for schools and libraries that did not
otherwise participate in the national student lunch program would be
minimal. Schools and libraries that preferred not to provide
information about how
[[Page 63804]]
disadvantaged they were would still qualify for a recommended 20%
discount on eligible purchases.
232. The Joint Board also found it reasonable to expect schools and
libraries that desire additional support due to their location in a
high cost area to demonstrate this by providing the necessary
information to show that they meet the Commission's high cost
standards. Finally, the Joint Board found that requiring schools and
libraries to retain records of their purchases of services and
facilities under this program for an appropriate amount of time would
not be unreasonable.
Summary Analysis of Section XI
Health Care Providers
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements.
233. The 1996 Act provides in section 254(h)(1)(A) that a
telecommunications carrier providing service shall be entitled to have
an amount equal to the difference, if any, between the rates for
services provided to health care providers for rural areas in a state
and the rates for similar services provided to other customers in
comparable rural areas in that state treated as a service obligation as
part of its obligation to participate in the mechanisms to preserve and
advance universal service. The Joint Board recommended that every
health care provider, including small entities, that makes a request
for universal service support for telecommunications services be
required to submit to the carrier a written request, signed by an
authorized officer of the health care provider, certifying certain
information. The Joint Board recommended that this certification be
renewed annually.
234. In formulating a recommendation as to the method for ensuring
that requests are bona fide, the Joint Board was mindful of choosing a
method that minimizes, to the extent consistent with section 254, the
administrative burden on health care providers. Therefore, the Joint
Board sought to recommend the least burdensome certification plan that
would provide safeguards that are adequate to ensure that the supported
services would be used lawfully and for their intended purpose.
235. The Joint Board recommended that the Commission require the
universal service fund administrator to establish and administer a
monitoring and evaluation program to oversee the use of universal
service support to health care providers and the pricing of those
services by carriers. This compliance program would be necessary to
ensure that services are being used for their intended purpose, that
requesters are complying with certification requirements, that
requesters are otherwise eligible to receive universal service support,
that rates charged comply with the statute and regulations and that
prohibitions against resale or transfer for profit are strictly
enforced.
236. The Joint Board recommended that the Commission encourage
carriers across the country to notify eligible health care providers in
their service areas of the availability of lower rates resulting from
universal service support so that the goals of universal service to
rural health care providers would be more rapidly fulfilled.
237. The Joint Board recommended using rates publicly filed or
obtained in the ordinary course of Commission proceedings to determine
the rural as well as the urban rate. The Joint Board specifically
rejected any suggestion that rates not publicly available should be
required to be disclosed in order to implement a universal service
mechanism because it found this method to be excessively burdensome.
238. The Joint Board recommended that a sufficient audit program be
established to monitor and evaluate the use of supported services in
aggregated purchase arrangements. The Joint Board emphasized that the
qualified health care provider could be eligible for reduced rates, and
the telecommunications carrier could be eligible for support, only on
that portion of the services purchased and used by the health care
provider. Accordingly, the carrier would have to keep appropriate
records.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
239. The Joint Board considered several certification plans
suggested by commenters. It sought to recommend the least burdensome
certification plan that would provide adequate safeguards to ensure
that the supported services are being used for their intended purpose.
The Joint Board rejected a five-component plan because it was too
expensive and burdensome. It also rejected a suggestion that
certification include verification of the existence of a technology
plan and a checklist of other information helpful in tracking universal
service. Although such plans might be useful in a discount plan where
disincentives to overpurchasing are needed, the Joint Board found that
such a requirement would be unnecessarily burdensome where health care
providers would be required to invest substantial resources in order to
pay urban rates for these services. The Joint Board also rejected
suggestions that health care providers be required to certify that
hardware, wiring, on-site networking and training would be deployed
simultaneously with the service. Finally, the Board rejected a proposal
that the financial officers of health care provider organizations be
required to attest under oath that funds have been used as intended by
the 1996 Act, because it found that the pre-expenditure affidavit
described above, which would be submitted to the carrier along with the
request for services, would be sufficient under these circumstances.
240. The 1996 Act provides that a telecommunications carrier shall
provide telecommunications services to any public or non-profit health
care provider at rates that are reasonably comparable to rates charged
for similar services in urban areas in that state. In the NPRM, the
Commission stated its intention to minimize, to the extent consistent
with section 254, the administrative burden on regulators and carriers.
Thus, the Joint Board recommended that the urban/rural rate
differential be based on the rates charged for similar services in the
urban area closest to the health care provider's location. The Joint
Board believed that this method would be easy to use and understand.
Thus, it complies with the Joint Board's guidelines that implementation
of universal service support mechanisms be fashioned to minimize
administrative burdens. Because it would involve a one-step process,
this method would be less administratively burdensome than a
competitive bidding system or a process based on the current Lifeline
assistance program. This method also was deemed preferable to plans
that would require obtaining information about private contract rates,
which are proprietary and not obtainable without elaborate
confidentiality safeguards.
241. The Joint Board recommended using the Office of Management and
Budget's Metropolitan Statistical Area method of designating rural
areas along with the Goldsmith Modification because it would meet the
``ease of administration'' criterion. Since lists of MSA counties and
Goldsmith-identified census blocks and tracts already exist, updated to
1995, any health care provider could easily determine if it were
located in a rural area and, therefore, whether it would meet the test
of eligibility for support.
[[Page 63805]]
Summary Analysis of Section XII
Subscriber Line Charges and Carrier Common Line Charges
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements.
242. The Joint Board's recommendations regarding the interstate
subscriber line charge and carrier common line charges would not impose
any additional reporting requirements on any entities, including small
entities. These charges currently exist. Although the Joint Board
recommended changes in the amounts of the charges, the recommended
changes would have no impact on the information collection requirement,
and would not extend the charges to additional carriers.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
243. Because the SLC and CCL charges would recover ILECs' costs for
portions of their network, reporting requirements were deemed necessary
to track the costs and allow for their recovery. No alternatives were
presented that would have eliminated or substantially reduced those
reporting requirements. The Joint Board's recommendation has no impact
on the information collection requirement, and would not extend the
charges to any additional carriers.
Summary Analysis of Section XIII
Administration
Summary of Projected Reporting, Recordkeeping and Other Compliance
Requirements.
244. Section 254(d) states ``[t]hat all telecommunications carriers
that provide interstate telecommunications services shall make
equitable and nondiscriminatory contributions'' toward the preservation
and advancement of universal service. The Recommended Decision would
require all telecommunications carriers that provide interstate
telecommunications services to contribute to the universal service
support mechanism. In order to compute carrier contributions, carriers
must submit an annual universal service worksheet. The worksheet would
require all carriers to submit information relating to revenues derived
from telecommunications services and their payments made to other
telecommunications carriers for telecommunications services to the
administrator of the support mechanism. After receiving the worksheet,
the administrator would calculate each carriers' contribution and bill
each carrier. Carriers that provide services to schools, libraries and
health care providers might be eligible to receive a credit against
their contribution. Carriers seeking a credit would have to submit
additional information on a monthly basis regarding the services
provided at less than cost to the administrator in order to receive the
credit. Approximately 3,500 telecommunications carriers would be
required to submit revenue and payment information. The estimated
burden on the respondent for filling out the worksheet would be 4 hours
and for those submitting monthly information regarding the schools,
libraries, and health care providers, 1 hour. These tasks may require
some legal and accounting skills.
245. The Joint Board recommended that certain carriers be exempted
from the contribution requirement when their contribution is determined
to be de minimis under section 254(d). The Board concluded that the de
minimis exemption should apply where the administrator's cost of
collecting the contribution exceeds the carrier's contribution. Exempt
carriers would not be required to submit an annual worksheet. The Joint
Board anticipated that this recommendation would provide relief to many
small entities qualifying under the de minimis exemption. The Joint
Board sought to limit the information requirements to the minimum
necessary for evaluating and processing the application and to deter
against possible abuse of the process.
Significant Alternatives To Recommended Decisions Which Minimize
Significant Economic Impact on Small Entities and Accomplish Stated
Objectives.
246. The Joint Board determined that small carriers should not be
given preferential treatment in the determination of contributions to
the universal service support mechanism solely on that status given
section 254(d)'s explicit directive that every telecommunications
carrier that provides interstate telecommunications services shall
contribute to the preservation and advancement of universal service.
The Joint Board considered the suggestions of commenters regarding
various graduated contribution schemes that would favor small entities.
It rejected these suggestions based on the language of the statute,
legislative history and the regulatory burdens that such graduated
schemes would entail. The Joint Board further considered commenter
suggestions that small carriers be exempted from contribution on the
basis of the de minimis provision of section 254(d). It rejected these
suggestions on the basis of the legislative history surrounding section
254(d) which provides that the de minimis exemption should be limited
to those carriers for whom the cost of collecting the contribution
exceeds the amount of the contribution. The Joint Board concluded that
expansion of the definition of de minimis to include ``small'' carriers
would violate the pro-competitive intent of the 1996 Act and require
complex administration and regulation to determine and monitor
eligibility for the exemption. The Joint Board believed that small
entities would benefit under the de minimis exemption as interpreted in
the Recommended Decision without an explicit exemption for all small
entities.
247. Federal rules that may duplicate, overlap, or conflict with
the Recommended Decision. None.
Recommending Clauses
248. For the reasons discussed in this Recommended Decision, this
Federal-State Joint Board, pursuant to section 254(a)(1) and section
410(c) of the Communications Act of 1934, as amended, 47 U.S.C.
Sec. 254(a)(1), 410(c), recommends that the Federal Communications
Commission adopt the proposals, as described above, implementing new
section 254 of the Telecommunications Act of 1934, as amended, 47
U.S.C. 254.
249. The Joint Board further recommends that parties submitting any
comments or additional information in this docket be required to serve
each member of the Federal-State Joint Board and the Joint Board staff.
These submissions should be served in accordance with the service list
attached.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Appendix I--Analysis of Proxy Models
1. We have briefly discussed the criteria that the Commission
should consider in evaluating the reasonableness of using a proxy
model to determine the level of universal service support a carrier
should receive for a particular geographic area. In this Appendix,
we highlight some of the issues raised by commenters, differences
between the models, and the results each model produces. At the
workshops that we have recommended that the Commission conduct, we
expect that model proponents would be prepared to discuss the
relative merits of each model, the criticisms raised by commenters,
and the major causes of the substantial differences between the size
of
[[Page 63806]]
the high cost assistance support derived by the models.
2. As we have discussed, the proxy model must rely on the
forward-looking economic cost of developing and operating the
network facility and functions used to provide services supported
under Section 254(c)(1). Costs for providing universal service
should be based on the most efficient technology that can be
deployed using the incumbent local exchange carrier's (LEC) current
wire-center locations. For the most part, we believe that the useful
aspects of ``forward-looking'' approach are captured by the least
cost concept. To the extent that reliable new technologies represent
the least cost method for providing the supported services, they
should be incorporated in the model. Firms in a competitive market
may well choose to place facilities with the capability of providing
a number of competitive services beyond the supported services. To
the extent that this is true, the network we are modelling may
depart from that which a firm may choose to install. However, to the
extent that new technologies are necessary to provide a platform for
a number of other competitive services, they should not be included
in the model. The model should be sufficiently flexible to
incorporate new technologies as the cost of these facilities falls
such that they become the most efficient way to provide the
supported services. In addition, the model must be sufficiently
flexible to include the functionalities necessary to provide an
evolving set of supported services.
3. Model Assumptions and Results--Demand. We agree that the
models should reflect the impact on costs of the number and
distribution of residential and business lines. The models start
with an assignment of one residential line to each household in
every census block group (CBG) reported in the 1990 Census. The
Hatfield model uses recent Census estimates to update the 1990
Census values. Because not all households have telephone service and
some households have more than one line, the models are calibrated
to match state and study area residential demand totals. Currently,
the models use data on employees per CBG to assign the relative
number of business lines per CBG. Because the ratio of business
telephones to employees is not constant across all industries, a
model used for calculating universal service support would need to
include a better indicator of business lines per CBG. Numerous
commenters have reported unexplained variations between model line
demand and expected line demand. The models should attempt to
simulate the actual location of households and the placement of
facilities to reach those households through a technically feasible
route.
4. Loop Investments. Loop investments, i.e., outside plant,
include the investments in cable and wire from an end user's home or
business to the telephone company central office. They also include
the investment in structures that support the cable and wire, such
as poles and conduits, and the cost of placing the cable and wire.
The models provide different estimates of loop investment because of
different assumptions regarding fill factors, terrain impacts,
structure sharing and the fiber/copper cross-over point. For the
reasons set forth below, we believe that these inconsistencies must
be resolved in order for the models to provide reasonable estimates
of loop investments. Furthermore, the models should more accurately
reflect the network topography necessary to serve an area. For
example, many rural areas are extremely high cost regions which the
models currently may not adequately represent. If the model does not
accurately account for extreme geographic or climatic conditions, it
may underestimate support necessary to serve these ares and may put
continued service at risk.
5. A fill factor represents the percentage of the loop facility
that is being used. Fill factors must be below 100 percent because
it is necessary to have reserve capacity to replace damaged
facilities and serve new demand. Because it is cheaper to build
plant in discrete increments rather than adding one loop at a time,
fill factors are generally lower if there is an anticipation of
growth. In residential markets, telephone companies traditionally
place additional or spare distribution plant so customers could
purchase more than one line. In business markets, many telephone
companies may increase loop investment as part of a strategy to
provide Centrex service. These practices lower the fill factors. The
original BCM uses fill factors lower than those in the Hatfield
model. BCM2, however, uses fill factors that are very similar to the
Hatfield estimates. In response to the Common Carrier Bureau's
information request, the models' proponents indicate that the fill
factors that are calculated as ratio of demand divided by the number
of loops constructed by the models are less than the input fill
factors. This occurs because cable can be purchased only in
increments, such as 100 pair cable, and therefore, will always
exceed the required demand.
6. Terrain impacts refer to the effect of soil composition, the
level of the water table and slope characteristics. BCM2 develops
unique factors for 54 different combinations of terrain impacts. It
appears that changes in terrain impacts are responsible, in part,
for the increase in BCM2 investment relative to the BCM investment.
The Hatfield model incorporates adverse terrain conditions by
increasing the loop length by 20 percent rather than estimating the
impacts of each terrain characteristic. Detailed documentation to
support the terrain-impact-input analysis is essential to an
evaluation of the reasonableness of these assumptions.
7. Structure sharing refers to the practice of sharing
investments with other utilities in poles, trenches and conduits.
The Hatfield model assumes that structures are shared equally by
telephone, electric and cable companies; this assumption reduces the
assumed investment in structures to one third of their estimated
cost. In contrast, BCM2 assumes that the telephone company is
responsible for 100 percent of the structure costs. The difference
in the sharing assumption accounts for approximately 13 to 15
percent of the difference in the model's forward-looking cost
estimate for high cost areas. We are unconvinced that sharing exists
to the extent the Hatfield model presumes, but we do not conclude,
as do the proponents of the BCM2, that the cost of structures is
never shared among the utilities. The model proponents should be
prepared to supplement their current filings with documentation that
supports their position regarding this issue as well as the related
issue of whether the percentage of sharing is a function of the type
of structure, e.g., is there more sharing of poles than conduit?
8. The fiber-copper cross-over point refers to choice of using
copper or fiber in the feeder plant. Each model specifies a default
loop length. It then assumes that, if the loop is greater than the
default length, the feeder plant will be fiber and if the loop is less
than the default length, the feeder plant will be copper. The cross-
over point should be based on engineering practice. Neither model
proponent submits studies to support the engineering practice it
assumed. Commenters show that assumptions about this practice can lead
to different costs. We note that an examination of both model results
shows that over 50 percent of the lines will be served by digital loop
carrier connected to central offices by fiber, while currently less
than five percent of lines use that type of facility. We believe that
our forward looking cost principles would require a determination of
whether either of the engineering practices posited in the models is
the least-cost method of placing loop facilities.
10. Switching Investment. Switching investments include the cost of
the switch, distribution frame, power expenses and the wire center
building. The models use only digital switches. The BCM2 proponents
allege that they have placed host, stand alone, and remote switches in
wire centers according to the current placement of such switches. The
Hatfield model uses only host switches. Commenters claim that these
assignments do not reflect the forward-looking cost of switching. We
share the commenters' concern regarding which type of switch, host,
stand-alone or remote is assigned to each wire center and suggest that
further work by interested parties would clarify this issue. We also
have concerns regarding whether switches are included in the models
that accurately reflect switching needs, particularly in sparsely
populated areas. These concerns should be addressed.
11. Obtaining non-proprietary estimates of the cost of switches is
difficult. The proponents of the Hatfield model and the BCM2 obtained
switch cost estimates from several sources. The BCM2 switch input costs
are lower than those in BCM and now approach the switch cost used by
the Hatfield model.
[[Page 63807]]
Moreover, the switching costs reported in the information requests for
each of the three study areas, PacTel of California, GTE of Arkansas,
and Southwestern Bell of Texas, are very similar.
12. The Hatfield model assigns over 80 percent of the switch cost
to supported universal services and BCM2 assigns over 90 percent of the
switch to services that are supported. These percentages are greater
than the ratio of local usage to total usage. These assignments are
higher than the usage ratio because certain switch components, such as
the processor, are allocated solely to the provision of supported
universal services. We suggest that assignment of switch costs be
reviewed to determine whether a more accurate assessment of costs be
allocated to universal support mechanisms.
13. Depreciation. Depreciation rates determine the level of
expenses associated with the use of investments. Commenters disagree on
whether depreciation rates used in the proxy models are too high or too
low. Their positions reflect opinions regarding the impact of
competition on depreciation rates and the extent to which the cost of
supported services should be affected by competitive pressures. We
believe that proxy models should use depreciation rates that reflect
economic costs and should be flexible enough to permit depreciation
rates set by regulators.
14. Annual Charge Factors. Annual charge factors or expense factors
determine the level of expenses. In the BCM2 and Hatfield proxy models,
plant-specific annual charge factors are determined as the ratio of
ARMIS expenses to investment. Several commenters express concern that
use of the ARMIS data conflicts with the desire to develop forward-
looking costs because the ARMIS data are embedded cost statistics. The
proxy models do not rely on the ARMIS expenses, but rather on the
ratios of expenses to investment. The ARMIS expense to investment ratio
is a ratio of current year expenses to investments purchased over many
years. We recommend that the level of expenses be based on an analysis
that calculates forward-looking expenses. If the Commission concludes
that the ARMIS expense ratios are a reasonable starting position for
determining forward-looking expenses, then we recommend that these
ratios be modified to reflect changes in the expenses required to
support and maintain forward-looking investments. For example, because
the models only use digital switches, switch maintenance expenses
should not include maintenance expenses associated with analog stored
program or electromechanical switches. Expenses used in the models
should be accurately reflected.
15. Joint and Common Costs. In its Local Competition Order, the
Commission defined common costs as ``costs that are incurred in
connection with the production of multiple products or services, and
remain unchanged as the relative proportion of those products or
services varies (e.g., the salaries of corporate managers).'' With
regard to the proxy models used for the purpose of establishing
universal service support the Commission must determine how to allocate
common costs among the services supported by the universal service
mechanism and all other services.
16. The Hatfield model estimates the common cost of corporate
operations by multiplying all other expenses by 10 percent. This
procedure generates corporate operations expenses that are between 25
and 50 percent of the corporate operations expenses reported in ARMIS.
The BCM2 divides ARMIS total corporate operations expenses for all
reporting companies by the total number of lines served by these
companies. It assigns 75 percent of this per-line value to the cost of
providing the supported services. These differences explain
approximately 11 percent of the difference between the average monthly
forward-looking costs estimated by the Hatfield and BCM2 models.
Further investigation is required before it would be possible to
conclude that either of the proposed approaches or some other approach
to the estimation is a reasonable level of corporate operations
expenses to be included in calculation of the cost of providing the
supported services.
17. Retail Costs. Retail costs are the costs associated with
billing and collection, product management, sales, and advertising and
other customer service expenses. The Hatfield model excludes product
management, sales, and advertising expenses. It includes billing and
collection costs and other customer services expenses. Because of these
assumptions, the Hatfield model includes only 21 to 25 percent of ARMIS
customer operations expenses in its cost estimates. The BCM2 model
incorporates 75 percent of the ARMIS customer operations expenses in
its cost estimates. The differences in the treatment of customer
operations accounts for 19 percent of the difference between the
average monthly forward-looking costs estimated by the Hatfield and
BCM2 models.
18. NCTA's ETI report asserts that regulators should rigorously
evaluate the ARMIS data before accepting them as a basis for forward-
looking costs. Its investigation of a Massachusetts cost study reveals
that a significant proportion of product management expenses are
related to market management and planning for business customers. NCTA
argues that close examination of sales and advertising expenses reveals
that these expenses are not related to the provision of basic
residential service. It concludes that only four percent of marketing
expenses should be assigned to the cost of providing the supported
services. We agree that rigorous evaluation of the ARMIS data, to the
extent ARMIS data are used, is necessary. We are not willing, however,
to conclude that ARMIS data are the only data that should be used to
determine retail costs. Therefore, we are not prepared to recommend
what would be the reasonable amount of retail costs.
19. Model results. The model results produce significantly
different estimates of the nationwide total amount of support required
to maintain the provision of the supported services in high costs
areas. For example, at a $20.00 benchmark, using the model's default
settings, the Hatfield model indicates that the universal service
support would be $5.3 billion, which is the sum of $3.4 billion for
large LECs and $1.9 billion for non-Tier1 LECs. The BCM2, at a $20.00
benchmark, indicates that support would be $14.6 billion. The remaining
difference, $9.5 billion, is a function of the model input costs and
engineering design principles.
20. Another means of evaluating the models is to compare their
results to the results generated by embedded-cost studies. Because
forward-looking and embedded costs rely on different input costs and
technologies, the results from these studies are likely to differ. We
are concerned, however, about large changes in the relative position of
the states when comparing our embedded cost results to the results
generated by the proxy models. The state characteristics, such as
population density and terrain factors, that cause telephone companies
in a state to exhibit high forward-looking costs in the models, do not
cause those telephone companies to exhibit relatively high embedded
costs. Alternatively, the change in position could be caused by
specific management or accounting practices that affect embedded costs
but that would not be reflected in forward-looking costs. A state's
relative position can be measured by its rank, where the
[[Page 63808]]
state with the lowest cost has a rank of one and the state with the
highest cost would have a rank of 51. A change in the rank order is the
difference between the rank order estimated by a model and the rank
order according to the current high cost assistance mechanism, which
ranks states by embedded loop costs. For example, the change in rank
order for California is three because it is the third lowest cost state
according the BCM2 and it is the sixth lowest cost state according to
the High Cost Fund. There are fifteen states for which the change in
rank order is greater than ten. (For those fifteen states, the change
in cost per line per month ranged from $3.06 to $24.41, with an average
change of $10.47.) We believe it is necessary to determine why these
large changes occur, and to ensure that the change in rank order does
not threaten the provision of the supported services in these states.
21. Measure of support. The two models on the record calculate
support required for the provision of the supported services as the
product of the number of lines in a geographic area and the difference
between a cost estimate and a uniform benchmark amount. BCM2 uses the
CBG as the geographic area to measure the line count and cost estimate.
BCM2 sums the support across all CBGs in a state to determine the
state-wide support level. Calculation of support at either the wire
center, study area, or density zone level is not a standard output of
the model. Further manipulation of the BCM2 input sheets is required to
obtain these results. The Hatfield model estimates the cost per CBG.
The model average CBG cost estimates across six density zones. It uses
the difference between the density zone average and the benchmark to
determine the per-line support per density zone. It multiplies the per-
line support by the number of lines per density zone to estimate the
density zone support and then sums across all density zones to
determine the support for the study area. Calculation of support at
either the CBG or wire center level is not a standard output of the
model. Further manipulation of the Hatfield model input sheets is
required to obtain these results.
22. Any proxy model used to calculate universal support levels
should be able to provide estimates of support at various geographic
levels with a state, such as on a study area, wire center, density
zone, or CBG basis. These estimates would enable the Commission and
state commissions to compare alternative decisions regarding support
areas, and it is necessary so that we will be able to establish a
specific, predictable and sufficient mechanism to preserve and advance
universal service.
Appendix II--Service List
The Honorable Reed E. Hundt, Chairman
Federal Communications Commission, 1919 M Street, NW, Room 814,
Washington, DC 20554
The Honorable Rachelle B. Chong, Commissioner
Federal Communications Commission, 1919 M Street, NW, Room 844,
Washington, DC 20554
The Honorable Susan Ness, Commissioner
Federal Communications Commission, 1919 M Street, NW, Room 832,
Washington, DC 20554
The Honorable Julia Johnson, Commissioner
Florida Public Service Commission, 2540 Shumard Oak Blvd.,
Gerald Gunter Building, Tallahassee, FL 32399-0850
The Honorable Kenneth McClure, Commissioner
Missouri Public Service Commission, 301 W. High Street, Suite
530, Jefferson City, MO 65101
The Honorable Sharon L. Nelson, Chairman
Washington Utilities and Transportation Commission, PO Box
47250, Olympia, WA 98504-7250
The Honorable Laska Schoenfelder, Commissioner
South Dakota Public Utilities Commission, State Capitol, 500 E.
Capitol Street, Pierre, SD 57501-5070
Martha S. Hogerty
Public Counsel for the State of Missouri, PO Box 7800, Jefferson
City, MO 65102
Anna Gomez, Federal Staff Chair
Federal Communications Commission, 2100 M Street, NW, Room 8617,
Washington, DC 20036
Paul E. Pederson, State Staff Chair
Missouri Public Service Commission, PO Box 360, Jefferson City,
MO 65102
Lisa Boehley
Federal Communications Commission, 2100 M Street, NW, Room 8605,
Washington, DC 20554
Charles Bolle
South Dakota Public Utilities Commission, State Capitol, 500 E.
Capitol Street, Pierre, SD 57501-5070
Deonne Bruning
Nebraska Public Service Commission, 300 The Atrium, 1200 N
Street, PO Box 94927, Lincoln, NE 68509-492
James Casserly, Senior Legal Advisor
Office of Commissioner Susan Ness, Federal Communications
Commission, 1919 M Street, Room 832, Washington, DC 20554
John Clark
Federal Communications Commission, 2100 M Street, NW, Room 8619,
Washington, DC 20554
Bryan Clopton
Federal Communications Commission, 2100 M Street, NW, Room 8615,
Washington, DC 20554
Irene Flannery
Federal Communications Commission, 2100 M Street, NW, Room 8922,
Washington, DC 20554
Daniel Gonzalez, Legal Advisor
Office of Commissioner Rachelle B. Chong, Federal Communications
Commission, 1919 M Street, NW, Room 844, Washington, DC 20554
Emily Hoffnar
Federal Communications Commission, 2100 M Street, NW, Room 8623,
Washington, DC 20554
L. Charles Keller
Federal Communications Commission, 2100 M Street, NW, Room 8918,
Washington, DC 20554
Lori Kenyon
Alaska Public Utilities Commission, 1016 West Sixth Avenue,
Suite 400, Anchorage, AK 99501
David Krech
Federal Communications Commission, 2025 M Street, NW, Room 7130,
Washington, DC 20554
Debra M. Kriete
Pennsylvania Public Utilities Commission, PO Box 3265,
Harrisburg, PA 17105-3265
Diane Law
Federal Communications Commission, 2100 M Street, NW, Room 8920,
Washington, DC 20554
Mark Long
Florida Public Service Commission, 2540 Shumard Oak Blvd.,
Gerald Gunter Building, Tallahassee, FL 32399
Robert Loube
Federal Communications Commission, 2100 M Street, NW, Room 8914,
Washington, DC 20554
Samuel Loudenslager
Arkansas Public Service Commission, PO Box 400, Little Rock, AR
72203-0400
Sandra Makeeff
Iowa Utilities Board, Lucas State Office Building, Des Moines,
IA 50319
Philip F. McClelland
Pennsylvania Office of Consumer Advocate, 1425 Strawberry
Square, Harrisburg, Pennsylvania 17120
Michael A. McRae
D.C. Office of the People's Counsel, 1133 15th Street, NW.--
Suite 500, Washington, DC 20005
Tejal Mehta
Federal Communications Commission, 2100 M Street, NW., Room
8625, Washington, DC 20554
Terry Monroe
New York Public Service Commission, 3 Empire Plaza, Albany, NY
12223
John Morabito, Deputy Chief, Accounting and Audits Division
Common Carrier Bureau, Federal Communications Commission, 2000 L
Street, NW., Suite 812, Washington, DC 20554
Mark Nadel
Federal Communications Commission, 2100 M Street, NW., Room
8916, Washington, DC 20554
John Nakahata, Senior Legal Advisor
Office of Chairman Reed E. Hundt, Federal Communications
Commission, 1919 M Street, NW., Room 814 Washington, DC 20554
Lee Palagyi
Washington Utilities and Transportation Commission, 1300 South
Evergreen Park Drive SW., Olympia, WA 98504
Kimberly Parker
[[Page 63809]]
Federal Communications Commission, 2100 M Street, NW., Room
8609, Washington, DC 20554
Barry Payne
Indiana Office of the Consumer Counsel, 100 North Senate Avenue,
Room N501, Indianapolis, IN 46204-2208
Jeanine Poltronieri
Federal Communications Commission, 2100 M Street, NW., Room
8924, Washington, DC 20554
Michael Pryor
Federal Communications Commission, 2100 M Street, NW., Room
8905, Washington, DC 20554
James Bradford Ramsay
National Association of Regulatory Utility Commissioners, PO Box
684, Washington, DC 20044-0684
Brian Roberts
California Public Utilities Commission, 505 Van Ness Avenue, San
Francisco, CA 94102
Gary Seigel
Federal Communications Commission, 2000 L Street, NW., Suite
812, Washington, DC 2055
2100 M Street, NW., Room 8605, Washington, DC 20554
Pamela Szymczak
Federal Communications Commission, 2100 M Street, NW., Room
8912, Washington, DC 20554
Lori Wright
Federal Communications Commission, 2100 M Street, NW., Room
8603, Washington, DC 20554
[FR Doc. 96-30381 Filed 11-29-96; 8:45 am]
BILLING CODE 6712-01-P