[Federal Register Volume 62, Number 146 (Wednesday, July 30, 1997)]
[Rules and Regulations]
[Pages 40742-40748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20031]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 36 and 54

[CC Docket No. 96-45; FCC 97-246]


Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule; order on reconsideration; errata.

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SUMMARY: On May 8, 1997, we adopted the Universal Service Report and 
Order (Order) implementing section 254 of the Communications Act of 
1934, as amended (the Act). We reconsider on our own motion several 
issues with respect to school and library contracts, the school and 
library discount matrix, the method used to calculate the limit placed 
on the amount of corporate operations expense, the source of support 
and administration of support for high loop costs, and the new 
monitoring program and Monitoring Report. In addition, we reiterate our 
holdings in the Order with respect to the Commission's authority to 
assess universal service contributions from intrastate and interstate 
revenues, the Commission's authority to require any carrier to seek 
state authority to recover a share of its contribution through 
intrastate rates, section 254(k), and the Commission's review of 
decisions by state commissions not to waive the ``no-disconnect'' 
requirement for the Lifeline program. The intended effect of these 
rules is to implement fully the universal service provisions of the 
Act.

DATES: All policies and rules adopted herein shall be effective August 
29, 1997, except for the amendments to Sec. 54.500, which will take 
effect July 30, 1997.

FOR FURTHER INFORMATION CONTACT: Valerie Yates, Legal Counsel, Common 
Carrier Bureau, (202) 418-1500, or Sheryl Todd, Common Carrier Bureau, 
(202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
on Reconsideration adopted and released on July 10, 1997 and reflecting 
the changes included in errata released on July 14, 1997 and on July 
24, 1997. The full text of the Order on Reconsideration and the errata 
is available for inspection and copying during normal business hours in 
the FCC Reference Center (Room 239), 1919 M St., NW., Washington, DC.
    Pursuant to the Telecommunications Act of 1996, the Commission 
released a Notice of Proposed Rulemaking and

[[Page 40743]]

Order Establishing Joint Board, Federal-State Joint Board on Universal 
Service, CC Docket No. 96-45 on March 8, 1996 (61 FR 10499 (March 14, 
1996)), a Recommended Decision on November 8, 1996 (61 FR 63778 
(December 2, 1996)), a Public Notice on November 18, 1996 (61 FR 63778 
(December 2, 1996)), and a Report and Order that was adopted on May 7, 
1997 and released on May 8, 1997 (62 FR 32862 (June 17, 1997)) 
implementing rules for Secs. 254 and 214(e) of the Act relating to 
universal service.
    As required by the Regulatory Flexibility Act, (RFA), this Order on 
Reconsideration contains a Final Regulatory Flexibility Analysis. 
Pursuant to Sec. 604 of the RFA, the Commission performed a 
comprehensive analysis of the Report and Order with regard to small 
entities and small incumbent LECs which has remained unchanged in this 
Order on Reconsideration. This Order on Reconsideration does not 
contain any information collection requirements subject to the 
Paperwork Reduction Act (PRA).

Summary of the Order on Reconsideration

School and Library Contracts

    1. Existing Contracts. We now conclude that we will make a limited 
extension of the competitive bidding exemption in order to accommodate 
schools and libraries that negotiate and sign contracts prior to the 
date that the competitive bidding system becomes fully operational. We 
conclude that any contract signed after November 8, 1996 and before the 
first date that the competitive bidding system is operational will be 
considered an ``existing contract'' under Sec. 54.511 of our rules, but 
only if the contract terminates no later than December 31, 1998. We 
adopt a definition of ``existing contract'' that includes this 
additional exemption.
    2. We extend the competitive bidding exemption because services 
obtained pursuant to a contract signed after November 8, 1996 and prior 
to the date that the competitive bidding system becomes operational 
would otherwise not be eligible for federal universal service 
discounts. We extend this exemption for the same reasons we adopted the 
existing competitive bidding exemption. Specifically, we do not wish to 
penalize schools or libraries that seek to or must negotiate contracts 
prior to the date that the universal service competitive bidding system 
becomes fully operational. The competitive bidding requirement, 
however, is important because it implements the principle of 
competitive neutrality by allowing all providers access to information 
about particular schools' and libraries' needs and because it helps to 
ensure that schools and libraries will receive the lowest possible pre-
discount price. To ensure that schools, libraries, and service 
providers that qualify for this additional competitive bidding 
exemption do not negotiate long-term contracts during this interim 
period, and thus avoid the competitive bidding requirement altogether, 
we conclude that, in order to receive universal service discounts, 
contracts signed between November 8, 1996 and the date the competitive 
bidding system becomes operational must cover only services provided 
before December 31, 1998. We conclude that allowing the contract to 
govern service provided until December 1998 should give schools enough 
flexibility to procure service for the 1997-1998 school year and will 
allow schools and libraries to submit a single request for services for 
the entire 1998 funding year, but will also limit the set of contracts 
that are exempt from the competitive bidding requirement.
    3. We conclude, as we did in the Order, that schools and libraries 
that invoke this exemption have sufficient incentive to negotiate low 
rates. Although we acknowledge that, unlike schools and libraries that 
signed contracts prior to November 8, 1996, schools and libraries that 
sign contracts after that date were on notice that discounts might be 
available for the contracts they were negotiating. We find, however, 
that these entities continue to have an incentive to minimize their 
costs in obtaining service even if they receive section 254(h) 
discounts. Most important, they will pay a portion of the costs--
between ten percent and eighty percent--of any contact price that they 
negotiate. In addition, we note that many schools and libraries must 
comply with state or local government competitive procurement 
requirements. Finally, our decision that contracts that benefit from 
this additional exemption may not cover services provided after 
December 31, 1998 will prevent schools, libraries, and providers from 
avoiding the competitive bidding requirement by signing contracts for 
extended periods of time. We find that this solution will assist 
schools and libraries signing contracts prior to the date the 
competitive bidding mechanism becomes available to obtain service for 
1997-1998 school year without unduly diminishing the benefits of our 
competitive bidding requirement.
    4. We will consider the competitive bidding system to be fully 
operational when both: (1) The Universal Service Administrator is ready 
to accept and post requests for service from schools and libraries on a 
website and (2) that website may be used by potential service 
providers. We will issue a public notice, which we will publish in the 
Federal Register, identifying the exact date that the competitive 
bidding system will be fully operational. Finally, we note that this 
limitation on the duration of a contract applies only to contracts 
signed after November 8, 1996 and before the date on which the 
competitive bidding system becomes fully operational. As we held in the 
Order, schools and libraries may sign multi-year contracts after the 
competitive bidding mechanisms is in place. We do not impose here, nor 
did we impose in the Order, any durational limitations or competitive 
bidding requirements on contracts signed prior to November 8, 1996.
    5. Date Services Must Be Supplied. We now find it necessary to 
adopt a rule to clarify that only services provided to schools and 
libraries after January 1, 1998 will be eligible for universal service 
discounts. This rule applies regardless of the date when the contract 
for these services was signed. The Order stated that the funding year 
would be the calendar year, we adopted a funding cap based on the 
calendar year, we stated the support would begin to flow on January 1, 
1998, and we required the universal service administrator to approve 
funding on an annual basis. Nevertheless, we incorrectly stated in 
paragraph 545 that services supplied after the effective date of our 
rules would be supported. The amount of funding reflected in the 
funding cap anticipates only the expected demand by schools and 
libraries for the six-month period between January 1, 1998 and June 30, 
1998. If all services supplied after the date our rules become 
effective were eligible for support, we would be attempting to support 
services supplied during the eleven and a half month period between 
July 17, 1997 and June 30, 1998 using funds that were estimated to be 
sufficient to support services supplied during the six month period 
between January 1, 1998 and June 30, 1998.
    6. We conclude that this change will not impose a significant 
hardship on schools and libraries, particularly in light of our other 
holdings in the Order. As indicated above, other decisions in the Order 
are consistent with our intent and decision to provide funding to

[[Page 40744]]

schools after January 1, 1998. In addition, we determined that all 
schools and libraries must comply with the application process, which 
will likely be completed by the first schools or libraries during mid-
fall 1997, before being assured of receiving funding. In this context, 
we find it highly unlikely that any school or library relying upon our 
decisions in the Order would have made irrevocable decisions based on 
their anticipation that they would receive funding for services 
provided prior to January 1, 1998.
    7. Modifications to the Discount Matrix. We now clarify that the 
Commission shall consult the members of the 96-45 Federal-State Joint 
Board before adopting any changes to the discount matrix, including 
those changes that might occur prior to the date we reconvene the 96-45 
Joint Board. (We concluded that we would reconvene the 96-45 Federal-
State Joint Board no later than January 1, 2001.) We find that this 
approach will promote the joint federal-state cooperation we envisioned 
in the Order and will provide us with the benefits of states' 
experience and knowledge.

Corporate Operations Expense

    8. We now reconsider on our own motion the formula we established 
to cap the amount of corporate operations expense that carriers can 
recover from high loop cost support mechanisms. There are two features 
of the formula that we believe warrant modification. First, under the 
existing formula, carriers with very small numbers of working loops 
might be unable to recover portions of corporate operations expense 
that are fixed or do not vary with the number of loops. This attribute 
occurs because, under the current formula, allowable corporate 
operations expense is determined by a factor that is multiplied by the 
number of loops. The second problem pertains to the relationship 
between the recoverable amount of support for corporate operation 
expenses produced by the formula and the number of working loops. 
Although, based on our analysis of data submitted by NECA, we expected 
that applying the formula would provide carriers with a total 
recoverable amount of support for corporate operating expenses that 
increases with the number of access lines or working loops, Pursuant to 
47 CFR 36.611(a)(8), ``working loops'' are defined as ``the number of 
working Exchange Line C&WF loops used jointly for exchange and message 
telecommunications service, including C&WF subscriber lines associated 
with pay telephones in C&WF Category 1, but excluding WATS closed end 
access and TWX access,'' we have determined that, within the range of 
6,780 to 12,913 working loops, support for corporate operations expense 
does not increase with the number of working loops. For example, 
applying the formula to a carrier with 5,000 working loops would result 
in a cap of $98,440.00 of support for corporate operations expense 
[($27.12-.002 x 5,000) x 1.15 x 5,000=98,440]. Under our provision for 
carriers with more than 10,000 working loops, however, a carrier with 
11,000 working loops would receive no more than $90,060.00 
[$7.12 x 1.15 x 11,000=90,060]. Accordingly, we make modifications to 
the formula set forth in Sec. 36.621 of the Commission's rules for 
calculating the amount of support recoverable for carriers' corporate 
operating expenses. We set forth the methodology on which we base these 
modification below.
    9. Based on the conclusions set forth below, we modify the existing 
formula as follows:
    For study areas with 6,000 or fewer working loops the amount per 
working loop shall be $27.12-(0.002 x the number of working 
loops) x 1.15 or 1.15 x $8,266/the number of working loops, whichever 
is greater;
    For study areas with more than 6,000 but fewer than 17,988 working 
loops, the amount per working loop shall be $72,024/the number of 
working loops+$3.12;
    For study areas with 17,988 or more working loops, the amount per 
working loop shall be $7.12.
    The range from 6,000 to 17,988 is wider than the range identified 
as problematic in paragraph 14 (6,780 to 12,913). This extended range 
allows the formula to fit the available data more closely. We conclude 
that these modifications will result in total recoverable support 
amounts that increase proportionally with the number of working loops. 
By way of example, under these formulae, a carrier with 5,000 working 
loops could recover a total of $98,440.00 for corporate operations 
expenses [($27.12-(0.002 x 5,000)) x 1.15 x 5,000 = 98,440] and a 
carrier with 11,000 working loops could recover $122,295.60 [($72,024/
11,000+3.12) x 1.15 x 11,000 = $122,295.60].
    10. The original formula also determined allowable corporate 
operating expense by multiplying the number of loops by a factor. This 
may have caused small firms to have difficulty recovering portions of 
corporate operations expense that are fixed or do not vary with the 
number of loops. It is necessary to modify the formula in order to 
allow carriers with small numbers of working loops to receive 
sufficient support to recover these initial or fixed corporate 
operations expenses. According to our analysis of data submitted by 
NECA, we estimate the minimum corporate operations expense per month to 
be $8,266. Using a sample of stand-alone companies with fewer than 
2,000 working loops, total operating expense was regressed on working 
loops. The minimum total operating expense was estimated as the y 
intercept from the linear regression. Therefore, we are revising the 
formula appearing in the Order to ensure that no carrier recovers less 
than 1.15 x $8,266 ($9,505.90). The revised formula for maximum 
allowable support for monthly corporate operations expense per loop 
will be 1.15 x $8,266 divided by the number of working loops or the 
result of the formula for study areas with 6,000 or fewer working loops 
set forth in Sec. 36.621, whichever is greater.
    11. We find that these adjustments lead to results that are 
consistent with both the policies and intended outcomes enunciated in 
the Order. These modifications do not reduce the amount of corporate 
operations expenses carriers can recover through the support mechanisms 
for high loop costs. The new formulae continue to reflect our 
recognition that small study areas may experience greater amounts of 
corporate operations expense per working loop than large study areas. 
As stated above, we seek by this Order merely to eliminate outcomes 
that would result in carriers with fewer working loops receiving a 
total support amount that is greater than that of carriers with more 
working loops.

Funding for the High Cost Loop Support Mechanism

    12. We clarify that, although the rules that describe the high loop 
cost support mechanisms and govern separations between the interstate 
and intrastate jurisdictions remain in part 36, the expense adjustment 
for high cost loops, like the support for DEM weighting, LTS, Lifeline, 
Linkup, and Internet access for schools and libraries, will be 
administered and funded through part 54 of our rules. We make this 
clarification because we find that the Order did not articulate that 
the expense adjustment calculated pursuant to part 36 would be 
administered and funded through the new universal service mechanism set 
forth in part 54.

[[Page 40745]]

Universal Service Support Mechanisms

    13. Commission Jurisdiction Over Universal Service Support 
Mechanisms. We take this opportunity to reiterate that, although the 
Order concluded that the Commission has authority to assess universal 
service contributions from intrastate and interstate revenues and to 
require carriers to recover some share of the contribution from 
intrastate revenues, the Commission has not exercised this authority. 
Recently, the Commission's Office of General Counsel (OGC) responded to 
an inquiry by clarifying that the Commission has not yet ``crystallized 
its position regarding the proper treatment of the recovery of 
intrastate revenues and in any event has not required carriers to seek 
a portion of the contribution in intrastate rates.'' See Letter from 
William E. Kennard, General Counsel, FCC, to Lawrence G. Malone, 
General Counsel, New York State Dep't of Public Service, dated June 13, 
1997.
    Accordingly, the OGC concluded that any judicial challenge to 
paragraphs 813 through 823 of the Order would not be ``ripe'' at this 
time. Because of the importance of this issue and the possibility that 
other interested parties have similar concerns, we take this 
opportunity to reiterate that, although the Act empowers it to do so, 
the Commission has neither assessed universal service contributions 
from intrastate and interstate revenues nor required carriers to 
recover some share of the contribution from intrastate revenues. For 
these reasons, any challenges to the Commission's authority are not 
currently ripe. The Order anticipated that the Joint Board would 
continue to consult with the Commission regarding the sufficiency of 
universal service support mechanisms and we recognize that this issue 
is of primary concern to the Joint Board.
    14. Assessment of the Revenue Base for the High Cost and Low-Income 
Support Mechanisms. The Order anticipated that states would take steps 
similar to those taken by the Commission in the Order to convert 
implicit intrastate support mechanisms into explicit support 
mechanisms. As discussed in the Order, the 25 percent allocation factor 
for loop costs is historically applied to the interstate jurisdiction. 
By funding 25 percent of the cost of universal service through federal 
support mechanisms beginning January 1, 1999, we sought to coordinate 
this approach with the shift of universal service support for rural, 
insular, and high cost areas served by non-rural LECs from the access 
charge regime to the new section 254 universal service support 
mechanisms. We recognize that prior to that date, the costs of 
universal service will be carefully considered by the Commission, which 
will establish a forward-looking economic cost mechanism, and by the 
states, which may conduct their own forward-looking economic cost 
studies. States should elect by August 15, 1997 whether they will 
conduct their own forward-looking economic cost studies and those that 
elect to do so must file the cost studies with the Commission on or 
before February 6, 1998. Accordingly, it is premature for us to 
reexamine our decision to fund 25 percent of universal service at this 
time. Our action today, does not, however, foreclose the possibility 
that, as states replace their programs with explicit support 
mechanisms, the Commission will reassess whether there is a need for 
additional federal support. Instead, we stress the need for federal-
state partnership in order to allay any concerns that support amounts 
will be insufficient. Because it is critical to the preservation and 
advancement of universal service, we anticipate that this issue will be 
an important subject in future consultations between the Commission and 
the Joint Board.
    15. Preventing Subsidization of Competitive Services. We clarify 
that, because section 254(k) assigns the duty of preventing the 
subsidization of competitive services to the Commission, with respect 
to interstate services, and to the states, with respect to intrastate 
services, the Commission did not discuss section 254(k) in the Order. 
Instead, in a separate order, the Commission adopted the statutory 
language, which will serve as the basis for Commission action with 
respect to the establishment of ``cost allocation rules, accounting 
safeguards, and guidelines to ensure that services included in the 
definition of universal service bear no more than a reasonable share of 
the joint and common cost of facilities used to provide those 
services'' for interstate services. Implementation of 254(k) of the 
Communications Act of 1934, as amended, FCC 97-163 (released May 8, 
1997). We expect that each state will also take action to implement 
safeguards for intrastate services.

Review Process for Carrier Petitions for Waivers

    16. We reiterate that carriers disagreeing with state commission 
decisions regarding a request to waive the no-disconnect rule may 
pursue their concerns with the Commission. This approach will offer 
such carriers an additional forum for resolving their concerns. 
Nevertheless, in considering a carrier's arguments on the merits, the 
Commission will give great weight to a state commission's articulated 
rationales for denying a waiver request.

Monitoring Reports

    17. We now reconsider on our own motion a limited aspect of that 
decision and clarify that the Bureau shall consult with the state staff 
of the 96-45 Joint Board to implement the new monitoring program. 
Because the Monitoring Report will be based on information regarding 
the universal service support mechanisms, we find that participation by 
the 96-45 Joint Board will ensure that the Bureau will have full access 
to the expertise of state staff. Because of its experience in 
implementing section 254, we find that the 96-45 Joint Board is fully 
able to help implement a monitoring program for the new universal 
service support mechanisms without drawing on the resources of the 80-
286 Joint Board. We also clarify that, until the permanent 
administrator is chosen by a Federal Advisory Committee, the temporary 
administrator of the support mechanisms shall maintain and report to 
the Commission detailed records relating to the determination and 
amount of payments made and monies received through the support 
mechanisms which shall be used in the preparation of the Monitoring 
Report.

Explanation of Methodology for Modifications to Corporate Operations 
Expense Formulae Included in Appendix B of Order

    18. This analysis, included in Appendix B of the Order, describes 
the procedure used to derive the formulae, set forth in Sec. 36.621, 
for determining the allowable amount of corporate operations 
expenditures recoverable through universal service support mechanisms.
    19. Selecting the Basic Model. In order to determine the best 
formula, we applied a statistical analysis to a number of different 
models that compared the relationship between corporate operations 
expense per loop and the number of loops using data supplied by NECA. 
Outliers were removed from the sample before estimation. These outliers 
were those companies whose corporate operations expense exceeded the 
mean of the sample by 3 times the sample standard deviation. The 
companies excluded from the sample had corporate operations expense 
exceeding $74.00 per loop. Also, two companies which reported negative 
corporate operations expense were removed from the sample. We used 
statistical regression

[[Page 40746]]

techniques that focused on the relationship between expenses per loop, 
rather than total expense, in order to find a model under which the cap 
on corporate operations expense per line declines as the number of 
loops increases for a range of smaller companies so that economies of 
scale, which are evident in the data, can be reflected in the model. Of 
the models studied, the linear spline was found to have the highest 
R2, a measure indicating that this model provides the best 
fit with the data. The linear spline model in this case is two line 
segments joined together at a single point or knot. In general, the 
linear spline model allows the cap on corporate operations expense to 
decline as the number of loops increases for the smaller companies 
having fewer loops than the knot point. Estimates of the linear spline 
model suggest that the cap on corporate operations expense per loop for 
companies with a number of loops higher than the spline knot is 
constant.
    20. Choosing the spline model also required selecting a knot, the 
point at which the two line segments of differing slopes meet. We had 
two primary objectives in selecting the knot point. First, the model 
had to characterize accurately the relationship between corporate 
operations expense per loop and the number of working loops. Second, 
the model had to characterize accurately the relationship between total 
corporate operations expense and the number of working loops. To 
achieve these objectives, we examined the R2s for both total 
corporate operations expense and corporate operations expense per loop 
over a wide range of knot points. The highest R2 for per 
loop corporate operations expense was obtained for a knot point at 
3800. We found, however, that the highest R2 that reflects 
goodness of fit for the total corporate operations expense using the 
estimated model was obtained at 13,408 working loops. Visual inspection 
of the data representing corporate operations cost per loop indicates 
that cost per loop appears to flatten close to 10,000 loops. See Figure 
1. At 10,000 loops, both R2s remain near the maximum 
R2s obtained for both per loop and total corporate 
operations expense. Accordingly, we selected 10,000 loops as the knot 
point that best meets both objectives.
    21. The regression results, which incorporate a spline model that 
uses data provided by NECA, are as follows:
     For companies having fewer than 10,000 working loops, 
maximum allowable corporate operations expense per loop for each month 
equals $27.12--0.002  x  (number of working loops);
     For companies with working loops greater than or equal to 
10,000 loops, maximum allowable corporate operations expense per loop 
for each month equals $7.12. The R2 associated with this 
regression is 0.396.
    22. Correcting for Nonmonotonic Behavior in Model's Total Corporate 
Operations Expenses. The spline model has one undesirable feature. For 
a certain range, it yields a total allowable corporate operations cost 
that declines as the number of working loops increases. This occurs 
because multiplying the linear function that defines the first line 
segment of the estimated spline model (27.12--0.002  x  the number of 
loops) by the number of loops defines a quadratic function that 
determines total allowable corporate operations expense. This quadratic 
function assumes its maximum value at 6,780 loops, well below the 
selected knot point of 10,000. (The feature exists with all knot points 
considered. The practical effect of the function peaking at 6,780 loops 
is that a carrier with more than 6,780 loops, but less than 10,000 
loops, will receive less corporate operations expense support than one 
with just 6,780 loops.) To correct this problem, we refined the formula 
defining allowable per loop expense to ensure that the total allowable 
corporate operations expense always increases as the number of loops 
increases. We chose a point to the left of the point at which the total 
corporate operations expense estimate peaks. At that selected point, 
the slope of the function defining total corporate operations expense 
is positive. We then calculated the slope at that point and extended a 
line with the same slope upward to the right of that point until the 
line intersected the original estimated total operations expense, which 
is represented by 7.12  x  the number of loops. See Figure 2. Thus, we 
created a line segment with constant slope covering the region over 
which the original model of corporate operations expenses declines so 
that total corporate operations expense continues to increase with the 
number of loops. We chose the point that leads to a line segment that 
yields the highest R2.
    23. Using this procedure, we selected 6000 as the point. The slope 
of total operations expense at this point is 3.12 and the line extended 
intersects the original total operations expense model at 17,988. 
Accordingly, the line segment formed for total corporate operations 
expenses, to be applied from 6000 loops to 17,988 loops, is $72,024 + 
$3.12  x  the number of working loops. Dividing this number by the 
number of working loops defines the maximum allowable corporate 
operations expense per loop for the range from 6000 to 17,988 working 
loops, i.e., ($72,024 v (number of working loops)) + $3.12. 
See Figures 1, 2.

BILLING CODE 6712-01-P

[[Page 40747]]

[GRAPHIC] [TIFF OMITTED] TR30JY97.000



BILLING CODE 6712-01-C

[[Page 40748]]

Final Regulatory Flexibility Analysis

    24. In the Order, we conducted a Final Regulatory Flexibility 
Analysis, as required by section 603 of the Regulatory Flexibility Act, 
as amended by the Contract With America Advancement Act of 1996, Public 
Law 104-121, 110 Stat. 847 (1996). The changes we adopt in this Order 
do not affect that analysis.

List of Subjects

47 CFR Part 36

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.

47 CFR Part 54

    Libraries, Schools, Telecommunications, Telephone.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Parts 36 and 54 of title 47 of the Code of Federal Regulations are 
amended as follows:

PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES: STANDARD PROCEDURES 
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, 
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES

    1. The authority citation for part 36 continues to read as follows:

    Authority: 47 USC Secs. 151, 154 (i) and (j), and 205, 221(c), 
254, 403, and 410.

    2. Section 36.601 is amended by adding a last sentence to paragraph 
(a) to read as follows:


Sec. 36.601  General.

    (a) * * * Beginning January 1, 1998, the expense adjustment 
calculated pursuant to this subpart will be administered and funded 
through the new universal service system discussed in part 54 of this 
chapter.
* * * * *
    3. Section 36.621 is amended by revising paragraph (a)(4) 
introductory text, the first sentence of paragraph (a)(4)(ii), 
paragraph (a)(4)(ii)(A) and (a)(4)(ii)(B) and adding new paragraph 
(a)(4)(ii)(C) to read as follows:


Sec. 36.621  Study area total unseparated loop cost.

    (a) * * *
    (4) Corporate Operations Expenses, Operating Taxes and the benefits 
and rent portions of operating expenses, as reported in 
Sec. 36.611(a)(5) attributable to investment in C&WF Category 1.3 and 
COE Category 4.13. This amount is calculated by multiplying the total 
amount of these expenses and taxes by the ratio of the unseparated 
gross exchange plant investment in C&WF Category 1.3 and COE Category 
4.13, as reported in Sec. 36.611(a)(1), to the unseparated gross 
telecommunications plant investment, as reported in Sec. 36.611(a)(6). 
Total Corporate Operations Expense, for purposes of calculating 
universal service support payments beginning January 1, 1998, shall be 
limited to the lesser of:
    (i) * * *
    (ii) A per-line amount computed according to paragraphs 
(a)(4)(ii)(A), (a)(4)(ii)(B), and (a)(4)(ii)(C) of this section. * * *
    (A) For study areas with 6,000 or fewer working loops; [($27.12 
minus (0.002 times the number of working loops)) times 1.15] or [1.15 
x  $8,266 divided by the number of working loops], whichever is 
greater.
    (B) For study areas with more than 6,000 but fewer than 17,988 
working loops; [($72,024 divided by the number of working loops) + 
$3.12)] times 1.15.
    (C) For study areas with 17,988 or more working loops; $7.12 times 
1.15, which equals $8.19.
* * * * *

PART 54--UNIVERSAL SERVICE

    4. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. Secs. 1, 4(i), 201, 205, 214, and 254 
unless otherwise noted.

    5. Section 54.500 is amended by redesignating paragraphs (b) 
through (h) as paragraphs (c) through (i) and adding new paragraph (b) 
to read as follows:


Sec. 54.500  Terms and definitions.

* * * * *
    (b) Existing contract. For the purpose of Sec. 54.511(c), an 
``existing contract'' is any signed contract for services eligible for 
discounts pursuant to this subpart between an eligible school or 
library as defined under Sec. 54.501 and a service provider that 
either:
    (1) Was signed prior to November 8, 1996; or
    (2) Is limited to services provided before December 31, 1998 and 
was signed on or after November 8, 1996 but before the first date that 
the universal service competitive bidding system described in 
Sec. 54.504 is operational. The competitive bidding system will be 
deemed to be operational when both the universal service administrator 
is ready to accept and post requests for service from schools and 
libraries on a website and that website may be used by potential 
service providers.
* * * * *
    6. Section 54.507 is amended by redesignating paragraph (f) as 
paragraph (g), and adding new paragraph (f) to read as follows:


Sec. 54.507  Cap.

* * * * *
    (f) Date services must be supplied. The administrator shall not 
approve funding for service received by a school or library before 
January 1, 1998.
* * * * *
[FR Doc. 97-20031 Filed 7-29-97; 8:45 am]
BILLING CODE 6712-01-P