[Federal Register Volume 63, Number 8 (Tuesday, January 13, 1998)]
[Rules and Regulations]
[Pages 2094-2133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-541]
[[Page 2093]]
_______________________________________________________________________
Part IV
Federal Communications Commission
_______________________________________________________________________
47 CFR Parts 36, 54, and 69
Universal Service; Final Rule
Federal Register / Vol. 63, No. 8 / Tuesday, January 13, 1998 / Rules
and Regulations
[[Page 2094]]
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 36, 54, and 69
[CC Docket Nos. 96-45, 96-262, 94-1, 91-213, 95-72; FCC 97-420]
Universal Service
AGENCY: Federal Communications Commission.
ACTION: Final rule; petition for reconsideration.
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SUMMARY: The Fourth Order on Reconsideration and Report and Order
addresses issues that were raised in petitions for reconsideration of
the Universal Service Report and Order. The Fourth Reconsideration
Order also makes several technical corrections to the Commission's
universal service rules. In addition, the order clarifies or makes
further findings regarding: the rules governing the eligibility of
carriers and other providers of supported services; methods for
determining levels of universal service support for carriers in rural,
insular and high cost areas; support for low-income consumers; the
rules governing the receipt of universal service support under the
schools and libraries and rural health care programs; the
determinations of who must contribute to the new universal service
support mechanisms; and administration of the support mechanisms. The
intended effect of these rules is to implement the universal service
provisions of the Telecommunications Act of 1996.
DATES: Effective February 12, 1998.
FOR FURTHER INFORMATION CONTACT: Sheryl Todd, Common Carrier Bureau,
(202) 418-7400.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Fourth
Order on Reconsideration in CC Docket No. 96-45 and Report and Order in
CC Docket Nos. 96-45, 96-262, 94-1, 91-213, 95-72 (Fourth Order on
Reconsideration), adopted and released December 30, 1997. In addition,
the amendments to the Commission's rules reflect the changes included
in errata released December 3, 1997. The full text of the Fourth Order
on Reconsideration and the errata are 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 Order Establishing Joint
Board, Federal-State Joint Board on Universal Service, CC Docket No.
96-45 on March 8, 1996 (61 FR 10499, Mar. 14, 1996), a Recommended
Decision on November 8, 1996 (61 FR 63778, Dec. 2, 1996), a Public
Notice on November 18, 1996 (61 FR 63778, Dec. 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 sections 254 and 214(e) of
the Act relating to universal service. The Commission released an Order
on Reconsideration on July 10, 1997 (62 FR 40742, July 30, 1997) and a
related Report and Order on July 18, 1997 (62 FR 41294, Aug. 1, 1997)
making certain modifications and additions to the Commission's
universal service rules. As required by the Regulatory Flexibility Act
(RFA) the Fourth Order on Reconsideration contains a Final Regulatory
Flexibility Analysis. Pursuant to section 604 of the RFA, the
Commission performed a comprehensive analysis of the Fourth Order on
Reconsideration with regard to small entities and small incumbent local
exchange carriers. The Fourth Order on Reconsideration also contains
new information collection requirements subject to the Paperwork
Reduction Act (PRA).
Summary of the Fourth Order on Reconsideration
I. Introduction
1. In the Telecommunications Act of 1996, Public Law No. 104-104,
110 Stat. 56 (the 1996 Act), Congress amended the Communications Act of
1934, 47 U.S.C. Secs. 151, et seq. (the Act), by, among other things,
adding a new section 254 to the Act. In section 254, Congress directed
the Commission and states to take the steps necessary to establish
support mechanisms to ensure the delivery of affordable
telecommunications service to all Americans, including low-income
consumers, eligible schools and libraries, and rural health care
providers. Specifically, Congress directed the Commission and the
states to devise methods to ensure that ``[c]onsumers in all regions of
the Nation, including low-income consumers and those in rural, insular,
and high cost areas * * * have access to telecommunications and
information services * * * at rates that are reasonably comparable to
rates charged for similar services in urban areas,'' 47 U.S.C.
Sec. 254(b)(3), and to ``establish competitively neutral rules * * * to
enhance, to the extent technically feasible and economically
reasonable, access to advanced telecommunications and information
services for all public and non-profit elementary and secondary school
classrooms, health care providers, and libraries,'' 47 U.S.C.
Sec. 254(h)(2)(A). On May 8, 1997, the Commission released the
Universal Service Report and Order, implementing section 254 of the Act
and establishing a universal service support system that becomes
effective on January 1, 1998 and that will be sustainable in an
increasingly competitive marketplace. See Federal-State Joint Board on
Universal Service, Report and Order, CC Docket No. 96-45, FCC 97-157,
12 FCC Rcd 8776 (rel. May 8, 1997) (62 FR 32862, June 17, 1997)
(Order).
2. In the Order, the Commission adopted rules that reflect
virtually all of the recommendations of the Federal-State Joint Board
on Universal Service and meet the four critical goals set forth for the
new universal service program: (1) that all of the universal service
objectives established by the Act, including those for low-income
individuals, for consumers in rural, insular, and high cost areas, and
for schools, libraries, and rural health care providers, be
implemented; (2) that rates for basic residential service be maintained
at affordable levels; (3) that universal service funding mechanisms be
explicit; and (4) that the benefits of competition be brought to as
many consumers as possible. Recognizing that, as circumstances change,
further Commission action may be needed to ensure that we create
sustainable and harmonious federal and state methods of continuously
fulfilling universal service goals, the Commission also committed
itself to work in close partnership with the states to create
complimentary federal and state universal service support mechanisms.
These efforts are ongoing.
3. Through the Order and the accompanying orders reforming the
Commission's access charge rules, the Commission established the
definition of services to be supported by federal universal service
support mechanisms and the specific timetable for implementation. The
Commission set in place rules that will identify and convert existing
federal universal service support in the interstate high cost fund, the
dial equipment minutes (DEM) weighting program, Long Term Support
(LTS), Lifeline, Link Up, and interstate access charges to explicit
competitively neutral federal universal service support mechanisms. The
Commission also modified the funding methods for the existing federal
universal service support mechanisms so that such support is not
generated, as at present, entirely through charges imposed on long
distance carriers. Instead, as the statute requires, equitable
[[Page 2095]]
and non-discriminatory contributions will be required from all
providers of interstate telecommunications service. The Commission took
other steps to make federal universal service support mechanisms
consistent with the development of local service competition, and
established a program to provide schools and libraries with discounts
on all commercially available telecommunications services, Internet
access, and internal connections. The Commission also established
mechanisms to provide support for telecommunications services for all
public and not-for-profit health care providers located in rural areas.
4. The Commission also named the National Exchange Carrier
Association (NECA) the temporary Administrator of the universal service
support mechanisms on the condition that NECA agree to make changes to
its governance that would render it more representative of non-
incumbent local exchange carrier (LEC) interests. As a condition of its
appointment as temporary Administrator, the Commission subsequently
directed NECA to establish the Universal Service Administrative Company
(USAC), an independently functioning subsidiary corporation that will
perform the billing, collection, and disbursement functions for all of
the universal service support mechanisms. See Changes to the Board of
Directors of the National Exchange Carrier Association, Inc. and
Federal-State Board on Universal Service, Report and Order and Second
Order on Reconsideration, CC Docket Nos. 97-21 and 96-45, FCC 97-253
(rel. July 18, 1997) (62 FR 41294, Aug. 1, 1997) (NECA Report and
Order). The Commission further directed NECA to create the Schools and
Libraries Corporation and Rural Health Care Corporation to perform all
functions associated with administering the schools and libraries and
rural health care programs, respectively, except those directly related
to billing and collecting universal service contributions and
disbursing support.
5. On July 10, 1997, the Commission released a reconsideration
order on its own motion in this proceeding. See Federal-State Joint
Board on Universal Service, Order on Reconsideration, CC Docket No. 96-
45, FCC 97-246 (rel. July 19, 1997) (62 FR 40742, July 30, 1997) (July
10 Order). Among other things, the July 10 Order (1) clarified certain
issues relating to contracts for services to schools and libraries; (2)
modified the formula for recovery of corporate operations expense from
high loop cost support mechanisms; and (3) clarified issues concerning
coordination between the Commission staff and the state staff of the
Joint Board in CC Docket No. 96-45 in implementing the new monitoring
program.
6. Sixty-one parties have filed petitions for reconsideration and/
or clarification of the Order and the July 10 Order. In this Fourth
Order on Reconsideration, we address issues raised by petitioners that
either must or should be addressed before the new universal service
program begins. We will address the remaining issues in one or more
subsequent reconsideration orders in this docket.
7. In this order, we clarify or make further findings regarding:
(1) the rules governing the eligibility of carriers and other providers
of supported services; (2) methods for determining levels of universal
service support for carriers in rural, insular and high cost areas; (3)
support for low-income consumers; (4) the rules governing the receipt
of universal service support under the schools and libraries and rural
health care programs; (5) the determinations of who must contribute to
the new universal service support mechanisms; and (6) administration of
the support mechanisms.
II. Definition of Universal Service: Services That Are Eligible for
Support
A. Local Calling Provided by Satellite Companies
8. We grant AMSC's request and conclude that calls to and from a
satellite company's fixed-site subscribers, for which such subscribers
pay a non-distance and non-usage sensitive rate, constitute local
calling for purposes of determining whether a carrier is eligible for
federal universal service support. We find that, consistent with the
principles of competitive and technological neutrality established in
the Order, non-landline telecommunications providers should be eligible
to receive universal service support even though their local calls are
completed via satellite. We conclude that any call for which a
satellite company's subscribers are not charged on a distance- or
usage-sensitive basis constitutes a local call.
B. Provision of E911 by MSS Providers
9. In response to AMSC's petition, we clarify that MSS providers,
like other wireless providers in localities that have implemented E911
service, may petition their state commission for permission to receive
universal service support for the designated period during which they
are completing the network upgrades required to offer access to E911.
To receive federal universal service support, however, MSS providers
must satisfy the eligibility requirements we previously established. We
rely on state commissions to ensure that providers that are not
currently able to provide access to E911 service are making the network
upgrades necessary to provide access to E911 service as quickly as
possible.
C. Voice Grade Access to the Public Switched Network
10. We reconsider, on our own motion, the Commission's
specification of a bandwidth for voice grade access to the PSTN and
conclude that bandwidth for voice grade access should be, at a minimum,
300 Hertz to 3,000 Hertz. In the Order, the Commission determined that
voice grade access bandwidth be approximately 500 Hertz to 4,000 Hertz.
We reconsider that determination based on our recognition that the 500
Hertz to 4,000 Hertz bandwidth established in the Order would require
eligible carriers to comply with a voice grade access standard that is
more exacting than current industry standards, a result that we did not
intend. We note that AT&T operating principles recommend that voice
grade access bandwidth be 200 Hertz to 3,500 Hertz, while Bellcore
recommends a range of 200 Hertz to 3,200 or 3,400 Hertz. American
National Standards Institute (ANSI) defines voice grade access
bandwidth as 300 Hertz to 3,000 Hertz. We did not intend to impose a
more onerous definition of voice grade access than those generally
established under existing industry standards, and conclude that our
decision here will ensure that consumers receive voice grade access at
levels that are consistent with Commission rules and that are not
incompatible with current industry guidelines. We do not adopt the
broader voice grade access bandwidth specified in the AT&T and Bellcore
operating principles. To the extent that the bandwidth recommended in
the AT&T and Bellcore operating principles exceeds the bandwidth
established in the ANSI definition of voice grade access, we are
concerned that a substantial number of otherwise eligible carriers may
be unable to qualify for universal service support if we were to
require all carriers to meet this standard as a condition of
eligibility. Moreover, networks utilizing loading coils may experience
difficulty operating properly at bandwidths exceeding 3,400 Hertz.
Carriers that meet current AT&T and Bellcore guidelines, however, will
be able to satisfy our definition of voice grade access.
[[Page 2096]]
III. Carriers Eligible for Universal Service Support
A. Designation of Eligible Carriers
11. We read Sandwich Isles' petition to contend that the DHHL,
rather than the Hawaii Public Utilities Commission (PUC), should have
authority to designate eligible telecommunications carriers on the
Hawaiian Home Lands. Section 153(41) defines ``[s]tate commission'' as
``the commission, board, or official (by whatever name designated)
which under the laws of any State has regulatory jurisdiction with
respect to intrastate operations of carriers.'' 47 U.S.C. Sec. 153(41).
Based on the record before us, it is unclear whether the DHHL meets the
Act's definition of ``state commission.'' Based on further information
provided by the parties, it now appears that the issue here is not
whether there is a state commission with jurisdiction to designate
eligible carriers, but which of the state agencies should be considered
to be the ``state commission'' for purposes of designating Sandwich
Isles. Before undertaking to develop the record further and to
interpret the term ``state commission,'' we encourage Sandwich Isles
and the relevant state agencies to resolve this dispute. If they are
unable to do so, we encourage Sandwich Isles and the relevant state
agencies to bring that fact to our attention so that we may complete
action on the pending petitions.
B. Eligibility Designation Date
12. In light of section 254's directive that only carriers
designated as eligible pursuant to section 214(e) shall be eligible to
receive universal service support, we affirm our previous conclusion
that, as of January 1, 1998, the temporary Administrator may not
disburse support to carriers that have not been designated as eligible
under section 214(e). Thus, if a carrier has not been designated as
eligible by January 1, 1998, it may not receive support until such time
as it is designated an eligible telecommunications carrier. This
applies to all carriers, including those that currently receive
universal service support under the existing support mechanisms. We
agree with USTA, however, that a state commission that is unable to
designate as an eligible telecommunications carrier, by January 1,
1998, a carrier that sought such designation before January 1, 1998,
should be permitted, once it has designated such carrier, to file with
the Commission a petition for waiver requesting that the carrier
receive universal service support retroactive to January 1, 1998. A
state commission filing such a petition must explain why it did not
designate such carrier as eligible by January 1, 1998 and provide a
justification for why providing support retroactive to January 1, 1998
serves the public interest. We encourage relevant carriers to file
information demonstrating that they took reasonable steps to be
designated as eligible telecommunications carriers by January 1, 1998.
We find that it is in the public interest to permit telecommunications
carriers that were eligible to receive universal service support on
January 1, 1998, but that were not designated as eligible by their
state commission by that date, to be permitted to seek retroactive
support. Allowing retroactive support will permit consumers served by
those carriers to benefit from the support to which those carriers
would have been entitled, but for circumstances that prevented the
state commission from designating the carriers as eligible for receipt
of universal service support prior to January 1, 1998. Regarding NECA's
concern that the Order does not specify a date by which state
commissions must make their eligible carrier determinations, we note
that the Bureau's August 14 and September 29 Public Notices notified
state commissions to submit their eligible carrier designations to the
temporary Administrator no later than December 31, 1997.
IV. High Cost Support
A. Indexed Cap on High Cost Loop Fund
13. We affirm the Commission's decision to retain the indexed cap
on high cost loop support until all carriers receive support based on a
forward-looking economic cost mechanism. Much of petitioners' concern
about the sufficiency of the modified existing system of universal
service support appears to be based on their misapprehension that the
indexed cap will operate after January 1, 1998 not merely to limit the
growth of the high cost loop fund, but also to limit the growth of the
modified DEM weighting and LTS programs. In light of this apparent
confusion, we clarify here that the indexed cap on the high cost loop
fund will not operate to cap support under the modified DEM weighting
or LTS programs. Rather, local switching support and LTS will be
calculated and permitted to increase based on the formulas provided in
sections 54.301 and 54.303, respectively.
14. Section 36.601(c) of our rules sets forth the method for
calculating the indexed cap and clearly provides that this limitation
applies only to loop-related costs, not local switching support or long
term support. In addition, section 36.601(a) states that:
[t]he term Universal Service Fund in subpart F refers only to the
support for loop-related costs included in Sec. 36.621. The term
Universal Service in part 54 refers to the comprehensive discussion
of the Commission's rules implementing section 254 of the
Communications Act of 1934, as amended * * * .''
This clarification should alleviate any concern that the cap may result
in insufficient support to the extent that these concerns are based on
the erroneous premise that the indexed cap's limitation on growth of
the high cost loop fund will limit the growth of the modified support
programs adopted pursuant to part 54 of our rules. Absent specific
evidence that the cap as modified in response to implementation of
section 254 will likely result in insufficient support, which
petitioners have not offered, we conclude that the cap is consistent
with our obligation to ensure that support is sufficient.
15. Contrary to RTC's assertion that the indexed cap does not take
account of cost increases due to the addition of new high cost loops or
new eligible carriers, we note that our rules provide for annual
adjustments that will reflect such growth. Specifically, section
36.601(c) provides:
Beginning January 1, 1999, the total loop cost expense
adjustment shall not exceed the total amount of the loop cost
expense adjustment provided to rural carriers for the immediately
preceding calendar year, adjusted to reflect the rate of change in
the total number of working loops of rural carriers during the
[preceding] calendar year * * *.
Thus, both new high cost loops that eligible rural carriers add during
the previous calendar year as well as high cost loops of newly eligible
carriers that did not qualify as rural carriers in the previous
calendar year will be factored into the calculation of the rate of
change in the total number of working loops of rural carriers, pursuant
to section 36.601(c). Accordingly, we find no basis for making
additional adjustments to the indexed cap, beyond those already
required by section 36.601(c).
16. We agree with Bell Atlantic that petitioners' claims of harm by
operation of the cap under the new system of support are speculative.
As noted by AT&T, a waiver process has been and remains available to
carriers that may experience a significant adverse impact by operation
of the cap. We note again that the fact that no carrier has applied for
relief under the Commission's waiver process or otherwise sought relief
from the cap since it was first
[[Page 2097]]
implemented in 1994 suggests that carriers have not experienced undue
hardship because of the cap.
17. We therefore affirm the Commission's previous finding that the
cap is a reasonable means of limiting the overall growth of the high
cost loop fund, and thus protecting contributors from excessive
universal service contribution requirements, while allowing the high
cost loop fund to grow to support the growth in lines served by
carriers in high cost areas.
B. DEM Weighting Assistance (Local Switching Support)
1. Calculation of Local Switching Support Based on Projections of Costs
18. Although the Commission removed the DEM weighting assistance
program from the access charge system and transferred it to the new
universal service system of support, the Commission did not alter
significantly the level of support received by carriers under this
program. Indeed, in adopting the modifications to the existing support
mechanisms, the Commission was persuaded that it should act more
cautiously with respect to small rural carriers. Therefore, the DEM
weighting assistance program will continue to be administered and
calculated separately from the existing high cost loop fund.
Specifically, support payments for these local switching costs will be
based on projections of annual costs, and, therefore, payments will not
be lagged in the manner prescribed by our rules governing the existing
high cost loop fund.
19. Under the modified DEM weighting assistance program, a carrier
will be eligible to receive local switching support based on the
carrier's projected annual unseparated local switching revenue
requirement for the upcoming calendar year, beginning January 1, 1998,
and each year thereafter that DEM weighting assistance continues. We
amend section 54.301 by adding the word ``projected'' to the first
sentence of that rule to clarify that support for local switching costs
will be based on projections of costs and not historical cost data. As
reflected in the rule changes, section 54.301 is amended to read in
relevant part:
Beginning January 1, 1998, an incumbent local exchange carrier
that has been designated an eligible telecommunications carrier and
that serves a study area with 50,000 or fewer access lines shall
receive support for local switching costs using the following
formula: the carrier's projected annual unseparated local switching
revenue requirement shall be multiplied by the local switching
support factor.
Thus, the Commission's determination to remove the DEM weighting
assistance program from the access charge system and transfer it to the
new universal service system of support will not create a two-year lag
in the recovery of local switching investment, as argued by
petitioners.
20. We also, on our own motion, amend section 54.301 to clarify
that, to receive local switching support, an incumbent LEC must satisfy
the requirements of an eligible telecommunications carrier.
2. Calculating the Annual Unseparated Local Switching Revenue
Requirement
21. We adopt the method of calculating the annual unseparated local
switching revenue requirement proposed in NECA's ex parte letters
because it provides the most accurate calculation of the local
switching revenue requirement. Under this method, a carrier's annual
unseparated local switching revenue requirement will be calculated
pursuant to a formula that relies upon specified account and cost data
that carriers maintain pursuant to the Commission's part 32 rules.
Thus, as reflected in our amendments to part 54 in the rule changes, we
direct the Administrator to use the part 32 account data as specified
in NECA's October 30th, 1997 and December 4, 1997 letters to determine
the unseparated local switching revenue requirement. Consistent with
our adoption of a methodology that relies upon part 32 account data, we
authorize the Administrator to issue a data request annually to the
carriers that serve study areas with 50,000 or fewer access lines but
that are not members of the NECA traffic sensitive pool in order to
obtain the relevant part 32 data from these carriers. Because the
Administrator requires data to calculate local switching support in
1998 from carriers that do not participate in the NECA common line
pool, we direct the Administrator to issue a data request to those
carriers as soon as practicable after the release of this Order. We
note that, as with all high cost support, a competitive local exchange
carrier will receive the same amount of local switching support
formerly received by an incumbent LEC if the competitive local exchange
carrier begins to serve a customer formerly served by an incumbent LEC
receiving local switching support for that customer.
22. We conclude that the approach suggested by NECA, because it
allocates local switching expenses and related investment in a manner
that is consistent with the allocation methods prescribed under parts
36 and 69 of our rules, provides a more accurate method for calculating
the unseparated local switching revenue requirement. Because all
carriers, including small carriers, already maintain the information
necessary to calculate the local switching revenue requirement and
because carriers must already submit similar information to the
Administrator for high cost loop support, we conclude that any
additional burden placed on carriers will be small, and that the
benefits of using a more accurate method will outweigh any additional
burden placed on carriers.
23. In its October 31, 1997 report containing projections of demand
for the modified DEM weighting assistance program, USAC reported that
NECA had devised a formula for calculating the unseparated local
switching revenue requirement for average schedule companies. For
average schedule companies, local switching support will be calculated
in accordance with a formula that the Administrator will submit
annually to the Commission for review and approval. The formula
submitted by the Administrator will be designed to produce
disbursements to an average schedule company to simulate the
disbursements that would be received pursuant to section 54.301 by a
company that is representative of average schedule companies. We
delegate to the Chief, Common Carrier Bureau the authority to review,
modify, and approve the formula submitted by the Administrator.
3. True-up Mechanism for Adjusting Local Switching Revenue Requirement
24. We agree with NECA that the Administrator should adjust DEM
weighting support levels to correct errors that may result from the use
of projected local switching costs. Accordingly, we direct the
Administrator to adjust annually the levels of local switching support
projected for each study period to reflect the historical support
requirements determined from the data filed by the carrier for that
study period. As a result, a carrier's local switching support will not
be delayed until historical data are available, but, after the
adjustment, such support will accurately reflect a carrier's historical
costs. As proposed by NECA, we conclude that all such adjustments must
be made within 15 months of the conclusion of the relevant study
period. We emphasize that, unlike the current high cost loop data
submissions, all carriers must submit accurate, historical data when
they become available and that the Administrator must increase or
decrease a carrier's subsequent
[[Page 2098]]
payments by the amount that the cost projection for that carrier
differs from the costs which are in fact incurred.
25. We note that local switching support also may be affected by
changes in the weighting factor resulting from the number of lines
served by a carrier. As provided in section 54.301 of the Commission's
rules, ``[i]f the number of a study area's access lines increases such
that, under Sec. 36.125(f) of this chapter, the weighted interstate DEM
factor . . . would be reduced, that lower weighted interstate DEM
factor shall be applied to the carrier's 1996 unweighted interstate DEM
factor to derive a new local switching support factor.''
C. Long Term Support (LTS)
1. Technical Amendments to Section 54.303 Governing Calculation of LTS
26. In response to GVNW's petition, we amend section 54.303 of our
rules, as set forth below, to specify how LTS will be calculated for
1998. First, we clarify that currently, and until January 1, 1998, LTS
support is based on the difference between the NECA common line pool
revenue requirement and the sum of the revenues obtained from charging
a nationwide CCL rate calculated pursuant to section 69.105(b)(2) and
the revenues obtained through SLCs. This clarification is necessary
because the Order and section 54.303 failed to account for the portion
of the common line revenue requirement that is recovered through end
user common line charges, or SLCs. We therefore amend section 54.303 to
include ``end user common line charges.'' We also clarify the procedure
by which LTS support will be calculated after January 1, 1998. Prior to
the modifications adopted in the Order, NECA calculated LTS using
revenue requirement projections calculated pursuant to section
69.105(b)(2) of our rules. After January 1, 1998 we will no longer use
these annual projections. Instead, we will index 1997 levels of support
to reflect annual changes in loop costs. Specifically, in 1998 and 1999
LTS support will be calculated by adjusting previous support levels by
the annual percentage change in the actual nationwide average cost per
loop, and beginning January 1, 2000, LTS will be adjusted to reflect
the annual percentage change in the Department of Commerce's GDP-CPI.
Thus, under the modified LTS program adopted in the Order, the
Administrator will make an initial, one-time calculation of projected
1997 LTS revenue requirements of eligible carriers in service areas
served by incumbent LECs that currently participate in the NECA common
line pool. These projected 1997 LTS revenue requirements will be
adjusted according to a rate of change that will reflect annual changes
in loop costs as prescribed by section 54.303.
27. Because LTS levels for 1998 and beyond will be based on 1997
projections, we conclude that the methodology for calculating the NECA
CCL charge contained in section 69.105(b)(2) should be used only for
the 1997 projections. Therefore, section 54.303 now directs the
Administrator to calculate only the base-level of LTS using the
projected revenue recovered by the CCL charge in 1997 as calculated
pursuant to section 69.105(b)(2) of our rules. Consistent with these
clarifications, we amend section 54.303 to specify that the
Administrator will calculate the unadjusted base-level of LTS for 1998
by calculating the difference between the projected Common Line revenue
requirement of NECA Common Line tariff participants projected to be
recovered in 1997 and the sum of end user common line charges and the
1997 projected revenue recovered by the CCL charge as calculated
pursuant to section 69.105(b)(2) of our rules. As reflected in the rule
changes, section 54.303 is amended to read in relevant part:
To calculate the unadjusted base-level of Long Term Support for
1998 the Administrator shall calculate the difference between the
projected Common Line revenue requirement of association Common Line
tariff participants projected to be recovered in 1997 and the sum of
end user common line charges and the 1997 projected revenue
recovered by the association Carrier Common Line charge as
calculated pursuant to Sec. 69.105(b)(2) of this chapter.
28. In the Order, the Commission stated that an eligible carrier's
LTS will be based on the LTS received for the preceding calendar year,
adjusted in 1998 and 1999 to reflect the percentage increase in the
nationwide ``average loop cost.'' We are persuaded by NECA's comments
that the phrase ``average loop cost'' in section 54.303 could be
misinterpreted and that it would be preferable to use the terminology
used elsewhere in our rules, i.e., ``average unseparated loop cost per
working loop.'' Accordingly, we also amend section 54.303 by striking
the phrase ``average loop cost'' and replacing it with ``average
unseparated loop cost per working loop.'' As reflected in the rule
changes, section 54.303 is amended to instruct the Administrator to
adjust the levels of LTS for 1998 and 1999 to ``reflect the annual
percentage change in the actual nationwide average unseparated loop
cost per working loop.''
29. On our own motion, we also amend section 54.303 to clarify that
an incumbent LEC that participates in the NECA common line pool also
must satisfy the requirements of an eligible telecommunications carrier
in order to receive LTS. Accordingly, section 54.303 is amended to read
in relevant part:
Beginning January 1, 1998, an eligible telecommunications
carrier that participates in the association Common Line pool shall
receive Long Term Support.
2. Calculation of LTS Levels Based on Projections of Costs
30. The Commission's determination to remove the LTS program from
the access charge system and transfer it to the new support system will
not create a two-year lag in the recovery of LTS supported costs, as
argued by petitioners. In 1998, support payments provided to eligible
carriers under the modified LTS program will be based not on historical
cost data, which is the method of calculating support under the
existing high cost loop fund, but, instead, will be based on 1997
projections. Section 54.303, as modified above, now explicitly states
that LTS support in the first year will be calculated based on the
difference between the 1997 projected common line revenue requirement
of NECA pool participants and the projected revenue recovered by the
1997 NECA CCL charge and SLCs. Beginning January 1, 1998, LTS payments
will be adjusted for all recipients based on average rates of change as
provided in section 54.303. Because support will be based on
projections using a rate of change, historical data will no longer be
used and there will be no basis for delaying LTS payments.
3. True-up Mechanism to Adjust Base-Level of LTS
31. Pursuant to section 54.303, the unadjusted base-level of LTS
initially will be calculated using 1997 projections. To ensure that the
modified LTS program is funded at appropriate levels, however, we
direct the Administrator to adjust the base-level of LTS to reflect
historical 1997 costs once those data become available to the
Administrator. As proposed by NECA, we conclude that this adjustment
should be made within fifteen months of the conclusion of the 1997
calendar year. We emphasize that, unlike the current high cost loop
data submissions, all carriers must submit historical cost data for
1997. We direct the Administrator to increase or decrease a carrier's
LTS payment to reflect 1997 costs that in fact incurred no later than
15 months after the end of the 1997 calendar year. We note that, unlike
the DEM weighting assistance program, which will require ongoing
adjustments, the adjustment that we direct the Administrator to make to
the LTS program will be needed only to adjust the base-level of LTS.
[[Page 2099]]
4. Membership in NECA Common Line Pool a Requirement for LTS
32. We reiterate that an incumbent LEC's continued membership in
the NECA common line pool is required for the incumbent LEC or any
competitive eligible telecommunications carrier serving that incumbent
LEC's former customers to receive payment of support comparable to LTS
in a given service area. As we stated in the Order, we ultimately
intend to determine universal service support for all carriers using a
forward-looking economic cost model because such a model will require
carriers to operate efficiently and will facilitate the move to
competition in all telecommunications markets. We decided, however,
that we would ``retain many features of the current support
mechanisms'' in order to provide rural LECs, generally the recipients
of LTS, sufficient time to adjust to any changes in universal service
support, particularly a move to a forward-looking economic cost model
for determining universal service support. Although we made some
adjustments to the calculation and distribution scheme of LTS in the
Order, we specifically continued this support mechanism, finding that
such payments would serve the public interest ``by reducing the amount
of loop cost that high cost LECs must recover from IXCs through CCL
charges and thereby facilitating interexchange service in high cost
areas consistent with the express goals of section 254.'' Thus, we wish
to maintain the current support structure, as modified, for recipients
of LTS until we are able to devise a forward-looking economic cost
model to determine universal service support appropriate for such
carriers. We find that broadening the scope of the LTS mechanism at
this time beyond the boundaries established in the Order would hinder
the achievement of our goal to move toward competition in all
telecommunications markets.
33. In addition, we note that a number of companies that have
chosen to leave the NECA common line pool in the past generally have
done so because their costs have decreased such that they can charge a
lower CCL interstate access rate than the NECA CCL rate and recover
their costs without LTS support. Thus, it is not clear how providing
those carriers with modified LTS would further the goal of universal
service. Although we recognize that other considerations may influence
a carrier's decision to exit the pool, we can only presume that any
carrier that has left did so after balancing all factors and
determining that it could forego the receipt of LTS. Accordingly, we
decline to reinstate LTS to such carriers and we deny ALLTEL's petition
to the extent that it asks that rural incumbent LECs that have left the
NECA pool be eligible to receive LTS under the new LTS program.
34. Moreover, as to the requests of current LTS recipients that
they be allowed to continue to receive LTS upon exiting the NECA pool,
we reiterate that we wish to maintain the current LTS program as
modified until we move to the use of a forward-looking economic cost
model for determining universal service support for such carriers.
Further, providing such support to carriers that leave the NECA pool
could undermine the pool's usefulness in permitting participants to
share the risk of substantial cost increases related to the CCL charge
by pooling their costs and, thereby, charging an averaged CCL rate
close to that charged by other carriers. This operation of the pool,
like LTS payments, serves section 254's goal of facilitating
interexchange service in high cost areas. Accordingly, we decline to
permit a carrier leaving the pool to continue to receive LTS in the
future.
35. Pursuant to section 54.307 of the Commission's rules, a
competitive eligible telecommunications carrier is eligible to receive
universal service support to the extent that it captures an incumbent
LEC's subscriber lines or serves new subscribers in the incumbent LEC's
service area. Having determined that an incumbent LEC exiting the NECA
common line pool will lose LTS, we also determine that a competitive
eligible telecommunications carrier that receives LTS for serving
subscribers in an incumbent LEC's service area similarly will lose LTS
when the incumbent LEC exits the NECA common line pool.
D. Support for Competitive Eligible Telecommunications Carriers
36. We clarify the Commission's finding that, beginning January 1,
1998, high cost loop support, DEM weighting assistance, and LTS will be
portable to any competitive local exchange carrier that has been
designated as an eligible telecommunications carrier. Section
54.307(a)(1) of our rules, which encompasses all three types of support
currently received by incumbent LECs, provides that ``[a] competitive
eligible telecommunications carrier shall receive support for each line
it serves based on the support the incumbent LEC receives for each
line.'' Section 54.307(a)(2) sets forth the method for calculating per-
line support that will be paid to a competitive eligible
telecommunications carrier for each line that it serves in an incumbent
LEC's service area. Section 54.307(a)(3) provides the method for
calculating the level of support that a competitive eligible
telecommunications carrier that uses switching functionalities or loops
that are purchased as unbundled network elements will receive. AirTouch
correctly notes that section 54.303, which establishes the method for
calculating LTS, explicitly states that a competitive eligible
telecommunications carrier will receive LTS. In order to eliminate the
apparent ambiguity in our rules governing portability, we amend the
first sentence of section 54.303 to eliminate any reference in that
section to competitive carriers' eligibility to receive LTS. We adopt
this amendment based on our conclusion that section 54.307, which sets
forth the method for calculating the amount of high cost loop support,
DEM weighting assistance, and LTS that a competitive carrier may
receive, specifies the support that competitive eligible
telecommunications carriers are entitled to receive and, therefore, the
reference to competitive carriers in section 54.303 is not needed.
E. Impact on Incumbent LEC of Losing Access Lines to Competitive
Eligible Telecommunications Carriers
37. We clarify here that, if an incumbent LEC loses a customer to a
competitive eligible telecommunications carrier, the incumbent LEC will
lose some or all of the per-line level of support that is associated
with serving that customer. If the competitive eligible
telecommunications carrier uses network elements purchased pursuant to
section 51.307 to provide the supported services, the reduction in the
amount of support received by the incumbent LEC is specified in section
54.307(a)(3) of the Commission's rules. That section provides that
``[t]he [incumbent] LEC * * * shall receive the difference between the
level of universal service support provided to the competitive eligible
telecommunications carrier and the per-customer level of support
previously provided to the [incumbent] LEC.'' Section 54.307(a)(4) of
our rules provides that a competitive eligible telecommunications
carrier that provides the supported services using neither unbundled
network elements nor wholesale service purchased pursuant to section
251(c)(4) will receive the full amount of universal service support
previously provided to the incumbent LEC for that customer. That
section, however, does not provide
[[Page 2100]]
a corresponding reduction in the amount of support received by the
incumbent LEC. Accordingly, we amend section 54.307(a)(4) to clarify
that, when a competitive eligible telecommunications carrier receives
support for a customer pursuant to section 54.307(a)(4), the incumbent
LEC will lose the support it previously received that was attributable
to that customer.
F. Corporate Operations Expenses
1. Imposition of a Limitation
38. In light of these challenges to the Commission's decision to
limit recovery of corporate operations expenses, we take this
opportunity to explain more fully the bases for this decision.
Expenditures for corporate operations in many instances may be
discretionary, in contrast, for example, to expenditures to maintain
existing plant and equipment. Corporate operations expenses include,
for example, travel, lodging and other expenses associated with
attending industry conventions and corporate meetings. Although
participation in such activities may be prudent, the levels of these
expenditures are subject to managerial discretion. Carriers currently
have little incentive to minimize these expenses because the current
mechanism for providing support in high cost areas allows carriers to
recover a large percentage of their corporate operations expenses. For
companies with fewer than 200,000 lines, for example, the expenses
attributed to the high cost expense adjustment are covered in full for
companies with costs in excess of 150 percent of the national average.
Smaller carriers possess even fewer incentives to minimize corporate
operations expenses because the Commission has a limited ability to
ensure, through audits, that smaller companies properly assign
corporate operations expenses to appropriate accounts and that these
expenses do not exceed reasonable levels. The Commission, and
frequently state commissions, cannot justify auditing smaller carriers
because the Commission's audit staff is small, there are many hundreds
of small telephone companies, and the costs of full-scale audits are in
many instances likely to exceed any expenses found to be improper. We,
therefore, conclude that imposing a cap that is relatively generous to
small carriers, but still imposes a limitation, is a reasonable method
of encouraging carriers to assign corporate operations expenses to the
proper accounts and discouraging carriers from incurring excessive
expenditures. Under this approach, we provide carriers with an
incentive to control their corporate operations expenses without
requiring carriers to incur the costs associated with a full Commission
audit. As the Commission stated in its Order and as explained further
below, carriers that contend that the limitation provides insufficient
support may request a waiver from the Commission. Therefore, only
carriers whose expenses exceed the cap and who contend that the capped
amount is insufficient will be required to provide additional
justification for their expenditures. We, therefore, conclude that a
cap on federal support for corporate operations expenses is a
reasonable method of preventing the recovery of improperly assigned or
excessive expenses from federal funds while minimizing the
administrative burden on the Commission and on all carriers, including
smaller carriers.
39. We disagree with petitioners who assert that, because some
corporate operations expenses are not discretionary, we should not
impose any limit on the recovery of corporate operations expenses. We
recognize that the expenses cited by petitioners and commenters may be
necessary for the operation of a company, and that such expenditures
are in some circumstances required by state or federal law or
regulation. Most companies, however, fulfill all such state and federal
requirements while incurring corporate operations expenses that are
well below the limitation imposed by the Commission. No party has
provided detailed data explaining the significant differences in
corporate operations expenses for companies of similar sizes. Further,
we are not excluding recovery of corporate operations expenses from
universal service support, but instead are imposing a reasonable limit.
We reject ITC's request to exclude all federal regulatory expenses from
the limitation because, although some expenditures may be necessary to
participate in the federal regulatory process, we see no reason to
permit the unlimited recovery of such expenses. Moreover, individual
companies that are required to incur unusually high corporate
operations expenses, such as Alaskan or insular telephone companies,
have the right to apply for a waiver with the Commission to demonstrate
the necessity of these expenses for the provision of the supported
services.
2. Adjustments to Limitation Formula
40. In the July 10 Order, the Commission specified a minimum
allowable corporate operations cost in order to ensure that carriers
with small numbers of working loops would receive sufficient support to
recover initial or fixed corporate operations expenses. This monthly
cost minimum was estimated from a regression of total corporate
operations expenses on the number of working loops. After performing
this analysis, the Commission adopted a minimum monthly recovery of
$9,505, which results in a minimum recovery of $114,071 per year. USTA
and GVNW urge the Commission to increase this minimum recovery from
$114,071 per year to $300,000 per year. USTA additionally advocates
adopting a limitation equal to the greater of either $300,000 per year
or $34.82 per line per month.
41. We reconsider, to a limited extent, the limitation on recovery
of corporate operations expenses and adopt a new minimum cap of
$300,000 per year as advocated by USTA and GVNW. Although we are fully
confident in the formula that calculates the cap, we adopt a minimum
cap of $300,000 out of an abundance of caution for the smallest
carriers. The increased minimum will reduce the need of the smallest
carriers to seek a waiver of the cap. We intend to continue to monitor
the effect of this limitation and the $300,000 minimum cap on smaller
carriers. We note that, because the Commission has adopted an indexed
cap for all high cost support, increases in the amount of support
provided to some companies will reduce the amount of support provided
to other companies. We find, however, that this change will result in a
minimal increase in the total amount of universal service support
provided to carriers. We will continue to monitor this issue closely
and will take steps to ensure that only necessary and prudent
expenditures are supported. We do not adopt USTA's alternative proposal
to increase recovery to $34.82 per line per month for all carriers
because we believe the minimum cap of $300,000 provides adequate
protection for the smallest carriers while imposing the smallest
corresponding decrease in high cost loop support for carriers overall.
42. Upon reconsideration, we make an additional change in the
limitation formula to address a small discontinuity in the formula that
causes the total allowable corporate operations expense to be slightly
lower in the range from 17,988 and 17,997 lines than the amount
computed at 17,987 lines. To eliminate the anomaly caused by this
discontinuity, we alter the second threshold for access lines from
17,988 lines to 18,006 lines. Finally, to make our rules easier to
apply, we
[[Page 2101]]
standardized general mathematical conventions in the formulas.
3. Methodology Used To Calculate the Limitation
43. Western Alliance questions the methodology the Commission used
to create the formula for the corporate operations expense limitation.
Western Alliance asserts that the Order contained no discussion or
reasoned explanation of: ``(a) why a regression analysis using a spline
function technique was accurate and appropriate; (b) how or why the 115
percent ceiling was selected; or (c) how or why the 1995 NECA data were
representative.'' We address these arguments in turn. As detailed
further in the July 10 Order, the Commission used a linear spline to
estimate average corporate operations cost per loop, based on the
number of loops served. To produce this formula, we used statistical
regression techniques that focused on the relationship between expenses
per loop, rather than total expense. We adopted this approach in order
to establish a model under which the cap on corporate operations
expense per line would decline as the number of loops increases for a
range of smaller companies so that economies of scale, pursuant to
which expenses per loop decline as carrier size increases, would be
taken into account by the formula. Of the models studied, the linear
spline was found to have the highest R\2\, a measure indicating that
this model provides the best fit with the data. The relationship
between corporate operations expense and lines served may reasonably be
expected to change as carriers' size increases. The linear spline
method used allows a different slope to be fitted for smaller carriers
than for larger carriers. The Commission adopted the ``knot,'' or the
point at which the two line segments of the linear spline model meet,
at 10,000 loops because that point allowed the best fitting overall
spline.
44. Regarding the remaining issues raised by Western Alliance, the
115 percent ceiling that limits recovery of corporate operations
expenses is consistent with other Commission rules regarding universal
service support under part 36 of our rules. The Commission has
consistently considered carriers whose loop costs exceed the national
average loop cost by more than 15 percent worthy of special treatment.
In the present context, out of an abundance of caution, we have
concluded that companies will be allowed to recover costs up to 15
percent above average costs, rather than limiting recovery of such
expenses to average costs. We also find that, before receiving
corporate operations expenses in excess of 115 percent of the average,
companies should undergo additional scrutiny by submitting a waiver
request to the Commission. Finally, the data used in the estimation are
the actual corporate operations expenses that companies filed with NECA
for the calculation of universal service support. We used the most
current NECA data available at the time we performed these
calculations.
45. Western Alliance claims that the Commission's corporate
operations expense formula affects smaller companies more significantly
than larger companies. It states that Figure 1 in the July 10 Order
demonstrates that the data for LECs with more than 15,000 loops cluster
more closely around the Commission's fitted line than the data for
those LECs with fewer than 15,000 lines. This observation, however,
does not undermine the Commission's conclusion. Because corporate
operations expense per line varies more for smaller companies than
larger ones, any line that we might adopt would fit the data for larger
companies more closely than it would fit the data for smaller ones.
Moreover, as explained above, we have raised the minimum cap out of an
abundance of caution to address concerns that, without modification,
our formula may not afford sufficient recovery of corporate operations
expenses for the smallest companies.
46. We reject GVNW's argument that it is not clear whether the
corporate operations expense rule addresses amounts from Accounts 6710
and 6720 or whether it addresses ``that portion assigned to loop cost
in NECA's USF Algorithm (AL19).'' According to the Order, however,
``[c]orporate operations expense are recorded in Account 6710
(Executive and planning) and Account 6720 (General and
administrative).'' Hence, the limitation applies to accounts 6710 and
6720 and does not apply to NECA's USF algorithm.
47. RTC asserts that the Commission's formula is a proxy model and
therefore should be subject to the criteria the Commission adopted for
forward-looking cost proxy models in the Order. Although the formula we
adopted to limit recovery of corporate operations expenses is a model,
it is not a model intended to estimate forward-looking economic costs.
Therefore, most of the criteria adopted by the Commission concerning
forward-looking cost proxy models are inapplicable to the corporate
operations expense formula. Further, RTC is incorrect to the extent
that it is arguing that the underlying data and assumptions for the
formula are unavailable to the public. The data used to create the line
were filed publicly with the Commission by NECA for calendar year 1995.
The assumptions and method we used to compute the formula can be found
in greatest detail in the July 10 Order. The Commission has not, as TCA
alleges, contradicted its decision to base universal service support
for rural telephone companies on embedded costs until January 1, 2001.
The formula we have adopted imposes a limit on the recovery of embedded
costs and is not a proxy model designed to calculate forward-looking
economic costs.
48. We find that our limitation on recovery of corporate operations
expenses will not jeopardize the affordability of local services.
Because, as discussed above, such expenditures and the level of such
expenditures are in many cases discretionary, we believe that imposing
some limits on corporate operations expenses serves the public
interest. Moreover, if carriers have prudent corporate operations
expenses that exceed the cap, they may seek a waiver of that cap.
49. Based on the changes described above, we modify the formula to
limit the amount of corporation operations expenses per working loop
that a carrier may recover as follows:
for study areas with 6,000 or fewer working loops the amount per
working loop shall be $31.188 - (.0023 x the number of working
loops), or, ($25,000 the number of working loops),
whichever is greater;
for study areas with more than 6,000 but fewer than 18,006 working
loops, the amount per working loop shall be $3.588 + (82,827.60
the number of working loops); and
for study areas with 18,006 or more working loops, the amount per
working loop shall be $8.188.
We conclude that this modified formula will better serve our goal of
ensuring that carriers use universal service support only to offer the
supported services to their customers through prudent facility
investment and maintenance consistent with their obligations under
section 254(k).
4. Procedural Matters
50. We conclude that the limitation on corporate operations
expenses was adopted in compliance with the Administrative Procedure
Act (APA). The Commission gave the public ample notice regarding the
possibility of limiting or excluding recovery of corporate operations
expenses. In a Notice of Inquiry released in 1994, the Commission
sought comment on whether we should exclude all recovery of corporate
operations expenses. In a Notice of Proposed Rulemaking released
[[Page 2102]]
in 1995, as the petitioners acknowledge, the Commission tentatively
concluded that it should exclude recovery of all such expenses. In the
Universal Service Notice, the Commission specifically sought comment on
whether any proposals in Docket No. 80-286 were worthy of consideration
in Docket No. 96-45 and specifically incorporated the record of that
proceeding into the 96-45 docket. Moreover, in its Public Notice
seeking further comment, the Common Carrier Bureau asked what
modifications should be made to the high cost support mechanism if it
were retained with respect to rural areas. In response to this Public
Notice, several parties recommended that the Commission limit or
exclude recovery of corporate operations expenses as it had previously
proposed.
51. Not only did the Commission provide notice of a potential limit
on or exclusion of the recovery of corporate operations expenses, the
approach adopted by the Commission takes into consideration the
comments filed in response to these notices. The Commission initially
proposed disallowing all recovery for corporate operations expenses.
After considering the comments, however, the Commission concluded in
the Order that it should limit such expenses to a reasonable level
rather than excluding them altogether. The approach taken is
conceptually similar to the one NECA proposed in response to the 1995
Notice and again in response to the Public Notice. NECA proposed that
high cost support recipients should recover only expenses that fall
below a line that is two standard deviations above a regression line.
Our limitation is based on a regression line that takes into account
the size of the company when calculating an acceptable range of
recoverable corporate operations expenses and, rather than allowing all
expenses within two standard deviations of the line as proposed by
NECA, allows recovery of expenses that are up to 115 percent of the
typical costs of companies of similar size. Thus, because the corporate
operations expense cap was within the scope of the proposal to
eliminate recovery of all corporate operations expenses and was
supported by record evidence, the requirements of the APA were met.
52. We conclude that we are not barred from adopting this
limitation because, although the Joint Board did not make a
recommendation about limiting the recovery of corporate operations
expenses, the Commission properly referred to the CC Docket No. 96-45
Joint Board the question of whether proposals originating with the CC
Docket No. 80-286 Joint Board should be adopted. We also conclude that
Western Alliance incorrectly implies that the legislative history to
the 1996 Act prohibits the Commission from adopting any proposal that
was submitted in the record of the CC Docket No. 80-286 proceeding.
Although the Joint Explanatory Statement explained that Congress did
not view the CC Docket No. 80-286 proceeding as an appropriate basis
for implementing section 254(a), nothing in the legislative history
suggests that Congress, in enacting section 254, intended to preclude
us from considering specific proposals from that docket in the separate
proceeding undertaken to implement section 254. Indeed, the Commission,
in the Universal Service Notice, sought comment on whether any
proposals from the 80-286 docket were consistent with the 1996 Act so
as to avoid duplication of previous Commission efforts. As described
above, several commenters proposed elimination or limitation of the
recovery of corporate operations expenses in the 96-45 docket, and the
Commission adopted this limitation as part of the 96-45 docket.
53. We also conclude that our adoption of a high standard for
granting a waiver for corporate operations expense recovery is fully
justified. Because corporate operations expenses are in many cases
completely within a company's discretion, they are more likely to be
susceptible to abuse than other types of expenditures such as plant
maintenance expenditures. Accordingly, parties contending that they
should recover unusually high amounts of such expenses should be
required to meet a substantial burden. Additionally, because the
limitation includes a buffer zone to accommodate companies that may
have corporate operations expenses that are higher than average, but
not extreme, we affirm our conclusion that the need for waivers should
be limited to exceptional circumstances.
54. We also reject petitioners' suggestions that the limitation on
recovery of corporate operations expenses should be phased in over a
lengthy transition period. Unlike other situations cited by the
commenters, a transition period is not warranted in this instance. We
conclude that we should not phase in a measure designed to prevent
misallocation, manipulation, and abuse. Companies believing that they
have reasonably incurred expenses in excess of the limitation may
petition for a waiver from the Commission. We find that the
availability of a waiver will sufficiently protect any company that
legitimately incurred expenses in excess of the limitation, whether
caused by activity mandated by the 1996 Act or for any other reason.
55. Contrary to the position of some commenters, the Commission is
fully authorized to adopt rules to implement section 254(k) in addition
to codifying the statutory provision as it has already done. In fact,
in the Section 254(k) Order, we concluded that we would ``from time to
time, re-evaluate our rules to determine whether additional rule
changes are necessary to meet the requirements of section 254(k).'' The
Commission concluded in the Order and the July 10 Order that some
recipients of federal universal service support may be receiving funds
beyond those necessary to provide the supported services. Recovery of
such expenditures may allow carriers to use these expenditures to
subsidize competitive services in violation of section 254(k). In
addition to limiting support for corporate operations expense in order
to control spending that may be in excess of that allowed by the Act,
the Commission correctly found that limiting corporate operations
expenses would reduce the ability of incumbent LECs to subsidize
competitive services with noncompetitive services by reducing the
incumbent LECs' receipt of funds beyond those that may be necessary to
provide the supported services. We therefore conclude that limiting
recovery of corporate operations expenses is within the ambit of
section 254(k).
V. Support for Low-Income Consumers
A. Obligation To Provide Toll-Limitation Services
56. We believe that low-income consumers eventually should have the
choice of selecting either toll blocking or toll control to restrict
their toll usage. We conclude, however, that giving consumers such an
option is not viable at this time. Based on the record before us, we
find that an overwhelming number of carriers are technically incapable
of providing both toll-limitation services, particularly toll-control
services, at this time. Under our current rules, carriers technically
incapable of providing both types of toll-limitation services must seek
from their state commissions a time-limited waiver of their obligation
to provide both toll blocking and toll control. Given that a large
number of carriers are technically incapable of providing both toll
blocking and toll control at this time, we believe that requiring
carriers
[[Page 2103]]
to provide both would result in an unnecessarily burdensome process for
state commissions required to act on a large number of waiver
proceedings.
57. In light of these concerns, we believe that requiring carriers
to provide at least one type of toll-limitation service is sufficient
to provide low-income consumers a means by which to control their toll
usage and thereby maintain their ability to stay connected to the
public switched telephone network. Weighing the burdens on the states
and the need to have carriers designated in a short time frame against
the goal of giving low-income consumers a full range of options for
controlling toll usage, we define toll-limitation services as either
toll blocking or toll control and require telecommunications carriers
to offer only one, and not necessarily both, of those services at this
time in order to be designated as eligible telecommunications carriers.
We note, however, that if, for technical reasons, a carrier cannot
provide any toll-limitation service at this time, the carrier must seek
a time-limited waiver of this requirement to be designated as eligible
for support during the period it takes to make the network changes
needed to provide one of those toll-limitation services. In addition,
if a carrier is capable of providing both toll blocking and toll
control, it must offer qualifying low-income consumers a choice between
toll blocking and toll control. Because we agree with Catholic
Conference that all qualifying low income consumers ideally should be
offered their choice of toll blocking or toll control, we plan to
monitor and revisit this issue if we determine that technological
impediments to carriers' ability to offer toll limitation have been
reduced or eliminated. We also encourage carriers to develop and
investigate cost-effective ways to provide toll-control services.
58. We further conclude that carriers offering Lifeline service
will not be required to provide toll-limitation services other than
those specifically identified in the Order. The Commission defined toll
blocking as a service that allows customers to block outgoing toll
calls, and defined toll control as a service that allows customers to
limit in advance their toll usage per month or billing cycle.
Therefore, carriers offering Lifeline service will not be required to
offer, for example, international toll-call-blocking or toll blocking
that allows callers with a Personal Identification Number (PIN) to make
toll calls, as suggested by the Florida Commission. While we encourage
carriers to offer Lifeline consumers, free of charge, toll-limitation
services that include functions and capabilities beyond those described
in the Order, we are persuaded by USTA that most carriers currently are
technically incapable of providing these additional services.
Furthermore, regarding the issue of whether toll control must limit
collect calls, we conclude that, like toll blocking, toll control only
must allow consumers to limit outgoing calls.
59. In response to the Texas Commission's request, we reiterate
that toll-limitation services for qualifying low-income subscribers are
included in the definition of the ``core'' or ``designated'' services
that will receive universal service support. A carrier must provide
these core services throughout its entire service area in order to be
designated an eligible telecommunications carrier. We further clarify
that, compliance with the no disconnect rule and the prohibition on
deposit rule are not specific preconditions to being designated an
eligible telecommunications carrier. Once designated as an eligible
telecommunications carrier, however, that carrier must offer all
Lifeline and LinkUp services to qualifying low-income subscribers.
B. Recovery of PICC
60. Consistent with our efforts to make toll-blocking service
easily affordable to low-income consumers, we adopt our tentative
conclusion in the Second Further Notice to waive the PICC for Lifeline
customers who elect toll blocking. For the reasons discussed here and
in succeeding paragraphs, we agree with SBC and AT&T and conclude that
support for PICCs for Lifeline customers who have toll blocking, but
nevertheless remain presubscribed to an IXC, will be provided by the
universal service support mechanisms in addition to the support for
Lifeline customers established in the Order. In the Order, the
Commission noted that studies demonstrate that a primary reason
subscribers terminate access to telecommunications services is failure
to pay long-distance telephone bills. The Commission concluded that,
because voluntary toll blocking allows customers to block toll calls,
and toll-control service allows customers to ensure that they will not
spend more than a predetermined amount on toll calls, these services
assist Lifeline customers in avoiding involuntary termination of their
access to telecommunications services. The Commission concluded that,
in order to increase the use of toll-blocking and toll-control services
by low income consumers, Lifeline customers should receive these
services at no charge. It would make little sense, and would undermine
the very basis for providing Lifeline customers free access to toll
blocking, to assess the PICC on Lifeline customers who select toll
blocking. In addition, in light of our decision herein to permit
eligible carriers to offer either toll control or toll blocking, it
would be particularly unfair to assess the PICC on Lifeline customers
who do not have the option of selecting toll control, but that are
limited to toll blocking. To do so would discriminate against Lifeline
customers who may only select toll blocking, and thus would have no
reason to presubscribe to an IXC. In contrast, a Lifeline subscriber
who is able to select toll control likely will presubscribe to an IXC,
because that subscriber's access to toll calling is limited, but not
blocked entirely.
61. We thus conclude that, because toll blocking for low-income
consumers is a supported service that carriers must provide to such
customers and the PICC payment issue arises as a direct result of the
toll blocking requirement, the PICC, in these instances, is
sufficiently related to the provision of toll blocking that it should
be supported for low-income consumers. Thus, such costs should be
recovered in a competitively neutral manner that is consistent with
section 254 of the Act. Therefore, all interstate telecommunications
carriers, not just IXCs, should bear the costs of the waived PICCs.
62. Moreover, we agree with petitioners that the low-income program
of the federal universal service support mechanisms should support
PICCs attributable to all qualifying low-income consumers who have toll
blocking. As stated above, we will support PICCs attributable to
qualifying low-income consumers who have toll blocking but do not have
a presubscribed IXC. We anticipate that most low-income consumers who
receive toll blocking will do so voluntarily and that most will not
have presubscribed IXCs. In the event, however, that a low-income
consumer is required to elect toll blocking (e.g., as a condition of
receiving local service) or in the event that a low-income consumer
remains presubscribed to an IXC even though the consumer receives toll
blocking, the federal low-income program also will support the PICCs
attributable to consumers in those circumstances. Low-income consumers
who elect toll blocking, but who remain presubscribed to an IXC, would
not receive toll blocking free-of-charge unless we waive the PICC for
the consumers. If an IXC were required to pay the PICC
[[Page 2104]]
attributable to a low-income consumer who elects toll blocking, that
IXC would not be able to recover the PICC through per-minute charges
associated with toll usage. Thus, absent changes to our rules, the IXC
may seek to recover the PICC from the consumer in the form of a flat-
rate charge. As we have noted above, toll blocking helps consumers to
control their toll usage and should be available free-of-charge to
qualifying low-income consumers. Therefore, to ensure the availability
of toll blocking to all qualifying low-income consumers free-of-charge,
we conclude that the low-income program of the federal universal
service support mechanisms should support PICC charges attributable to
all low-income consumers who have toll blocking.
63. All competitive eligible carriers that provide Lifeline service
to customers who elect toll blocking should be able to recover an
amount equal to the PICC that would be recovered by the incumbent LEC
in that area from the low-income program of the federal universal
service support mechanisms even though such carriers are not required
to charge PICCs. Competitive eligible carriers should be able to
receive support amounts equal to the PICCs because, like incumbent
LECs, they will be unable to recover any portion of their costs
associated with a toll-blocked customer from IXCs originating
interexchange traffic on that customer's line. To avoid creating
incentives for carriers to pass additional costs to low-income
consumers through increased rates, we conclude that competitors should
receive this additional support for Lifeline customers who elect to
receive toll blocking. In addition, in order to ensure competitive
neutrality, a competing local carrier serving a Lifeline customer
should be able to receive the same amount of universal service support
that an incumbent LEC would receive for serving the same customer.
Because an incumbent LEC serving a low-income customer who elected toll
blocking would receive support for the PICC associated with that
customer, in order to ensure that competing local carriers are not
operating at an unfair advantage, competing local carriers should be
eligible to receive the same amount of support that the incumbent LEC
would receive.
C. Florida Commission's Petition Pertaining to State Lifeline
Participation
64. Consistent with the Commission's earlier finding that we should
not prescribe the methods that states use to generate intrastate
Lifeline support in order to qualify for federal support, we conclude
that, although all carriers are not required to contribute to Florida's
Lifeline support mechanisms, Florida's Lifeline program nevertheless
qualifies as providing intrastate matching funds. We, however,
encourage states to develop Lifeline matching programs that are
competitively neutral and emphasize that, as noted in the Order, states
must meet the requirements of section 254(e) in providing equitable and
non-discriminatory support for state universal service support
mechanisms. Because we find that Florida's Lifeline program qualifies
as state participation, we need not address the Florida Commission's
request for a waiver of the federal default Lifeline qualification
standard. For the same reason, we also decline to address the Florida
Commission's request for a waiver allowing it to set eligibility
requirements or implement a grandfather provision for certain Lifeline
recipients.
VI. Schools, Libraries, and Rural Health Care Providers
A. Lowest Corresponding Price
65. Neither USTA nor any other party offers persuasive evidence
that the three-year ``look back'' provision for determining the lowest
corresponding price is either unnecessarily burdensome or will unfairly
delay a service provider's participation in the bidding process.
Commenters do not assert that the relevant records are not maintained
or are not accessible. We note that the universe of records that the
provider must review to determine the lowest corresponding price is
limited to charges involving similarly situated, non-residential
customers for similar services.
66. We do not agree with USTA that the three-year ``look back''
provision violates the principle of competitive neutrality by
disadvantaging larger providers. We note that this requirement applies
equally to all providers and that, although larger providers may have a
greater number of records to review for purposes of determining the
lowest corresponding price, these providers also likely have greater
resources and more sophisticated methods of recordkeeping.
67. We agree with USTA, however, that we should modify our earlier
holding to clarify the application of our lowest corresponding price
requirement. We conclude that, for purposes of calculating the lowest
corresponding price, a provider will not be required to match a price
it offered to a customer under a special regulatory subsidy or that
appeared in a contract negotiated under very different conditions. For
example, we previously concluded that service providers will be
permitted to charge schools and libraries prices higher than those
charged to other similarly situated customers if the services sought by
a school or library include significantly different traffic volumes or
the provision of such services is significantly different from that of
another customer with respect to any other factor that the state public
service commission has recognized as being a significant cost factor.
Under our modified rules, a service provider will not be required to
demonstrate further that matching such a price would force the provider
to offer service at a rate below the compensatory rate for that
service. The use of a rate below the compensatory rate would not be
practical, given the limited resources of schools and libraries to
participate in lengthy negotiations, arbitration, or litigation.
Regarding Bell Atlantic's concern that special regulatory rates
established by states for schools and libraries should not be treated
as the pre-discount prices, we reiterate that special regulatory
subsidies need not be considered in determining the lowest
corresponding price. Consistent with our findings above, we conclude
that each such situation should be examined on a case-by-case basis to
determine whether the rate is a special regulatory subsidy or is
generally available to the public. We also note that the universal
service discount mechanism is not funding the difference between
generally available rates and special school rates, as suggested by
Bell Atlantic, but is applied to the price at which the service
provider agrees to provide the service to eligible schools and
libraries.
68. We disagree with USTA that earlier versions of tariffs that
have been modified by regulators should be excluded from the comparable
rates upon which the lowest corresponding price is determined. Unless a
regulatory agency has found that the tariffed rate should be changed,
and affirmatively ordered such change, or absent a showing that the
rate is not compensatory, we find no reason to conclude that former
tariffed rates do not represent a fair and reasonable basis for
establishing the lowest comparable rate.
69. We decline to adopt GTE's proposal to exclude all promotional
offerings from the comparable rates upon which a provider must
determine the lowest corresponding price. Instead, we conclude that
only promotions offered for a period not exceeding 90 days may be
excluded from the
[[Page 2105]]
comparable rates upon which the lowest corresponding price must be
determined. This conclusion is consistent with the decision of the U.S.
Court of Appeals for the 8th Circuit upholding the portion of the
Commission's interconnection decision finding that discounted and
promotional offerings are telecommunications services that are subject
to the resale requirement of section 251(c)(4), and that promotional
prices lasting more than 90 days qualify as retail rates subject to
wholesale discount. Excluding shorter term promotional rates from
consideration here balances the need to provide compensatory rates to
providers while ensuring that eligible schools and libraries receive
competitive, cost-based rates that are comparable to rates paid by
similarly situated non-residential customers for similar services.
Consistent with the Commission's rationale in the Implementation of
Section 254(g) Order, we agree that a 90-day period in which customers
may receive discounted rates as part of a promotion is sufficient time
for a targeted promotional offering to attract interest in new or
revised services, but not so long as to undermine the requirement that
the price offered to schools and libraries be no greater than the
lowest corresponding price the carrier has charged in the last three
years or is currently charging in the market.
70. As previously noted, providers and eligible schools and
libraries will have the opportunity to seek recourse from the
Commission, regarding interstate rates, and from state commissions,
regarding intrastate rates if they believe that the lowest
corresponding price is unreasonably low or unreasonably high. We
decline to adopt the suggestion of USTA that we impose limits on a
customer's ability to challenge the pre-discount price it has been
offered. We have no basis in this record for assuming that the
possibility of such abuse by schools and libraries is greater than the
potential for service providers to assert frivolously that the rates
are too low. We will monitor parties' use of the dispute process and,
if we find a pattern of frivolous challenges by schools, libraries, or
service providers, we will take steps to remedy any such abuse at that
time.
B. Reporting Requirements for Schools and Libraries
71. We conclude that the reporting requirements established in the
Order for eligible schools and libraries are not unreasonably
burdensome, and that they represent a reasonable means of ensuring that
schools and libraries are capable of utilizing the requested services
effectively. Section 254(h)(1)(B) provides for discounts on services
that are used for educational purposes and that are provided in
response to a bona fide request. In the Order, the Commission agreed
with the Joint Board that Congress intended to require accountability
on the part of schools and libraries and therefore, consistent with
section 254(h)(1)(B), required eligible schools and libraries to
conduct an internal assessment of the components necessary to use
effectively the discounted services they order. We note that the
application requirements established in the Order were recommended by
the Joint Board and supported by a majority of commenters on this
issue. We affirm our decision, because we find that it is in the public
interest to ensure that funds are distributed only to support eligible
services that serve the needs to the school or library requesting
support. We find that the mere submission of a bona fide request is not
an adequate substitute to ensure that these public interest goals are
met.
72. The Commission determined in the Order that it would not be
unduly burdensome to require eligible schools and libraries to conduct
a technology assessment, prepare a plan for using these technologies,
and receive independent approval of such plans. Moreover, the
Commission took steps to eliminate unnecessary burdens, and prevent the
need for duplicative review of technology plans. The Commission noted
that many states have already undertaken state technology initiatives
and that plans that have been approved for other purposes, e.g., for
participation in federal or state programs, such as ``Goals 2000,''
will be accepted without need for further independent approval. We also
note that the reporting requirements have been reviewed and approved by
the Office of Management and Budget (OMB) pursuant to the Paperwork
Reduction Act of 1995. Because we conclude that the reporting
requirements are not unduly burdensome, help ensure that funds are
allocated in a manner that serves the policy goals set forth in section
254(b)(6) and section 254(h), and do not violate section 254(h)(1)(B),
we deny Global's petition for reconsideration of those requirements.
73. We also deny Florida Department of Management Services' request
to apply, during the first year of the federal support mechanisms, for
universal service discounts using a form created by the state of
Florida. We find that requiring all applicants to use the same forms
serves several important purposes. First, the forms were designed to
ensure accountability, and protect against fraud and abuse. For
example, the forms require applicants to provide information designed
to ensure that each school or library receives the discount to which it
is entitled under the Commission's rules. The forms also are designed
to ensure that support is provided only with respect to eligible
entities, and only for services eligible for support, and that
applicants are otherwise in compliance with all applicable Commission
requirements. Second, the forms were designed to facilitate the use of
competitive bidding. In addition, the forms were designed to be
competitively neutral, so that no potential provider is precluded from
offering service to a school or library. Third, the use of a single set
of forms will substantially ease burdens of administering the support
mechanism, and thereby minimize the costs of administration. Moreover,
if funds are allocated pursuant to a single set of forms, it may be
easier to audit the administrative processes of the Schools and
Libraries Corporation. Fourth, the use of a single set of forms will
facilitate tracking of the schools and libraries support mechanism over
time. For example, it will make it easier to determine what types of
services schools and libraries need, and how those needs change over
time. Such information is useful for deciding what if any adjustments
should be made with respect to the schools and libraries mechanism.
Congress expressly provided for such adjustments.
74. We note that the Commission invited, and received, substantial
input on the application forms as they were developed. The Commission,
in conjunction with the Schools and Libraries Corporation, held a
public workshop, and draft application forms were posted on the
Commission's website. The application forms reflect comments and
suggestions from schools and library representatives, service
providers, the Department of Education and the Schools and Libraries
Corporation. We anticipate that, as parties begin to use the
application forms, they will discover ways to improve them, and we
encourage suggestions for modifying and improving the application
forms. For the reasons set forth above, however, we conclude that
requiring all applicants to use the same application forms will serve
the public interest. We find that it is particularly important, in the
first year of implementation, to take all reasonable steps to make sure
the
[[Page 2106]]
Schools and Libraries Corporation is able to administer the support
mechanism as efficiently and effectively as possible. We therefore deny
Florida Department of Management Services' request to use its own
application form.
C. Non-Public Schools and Libraries
75. It is our expectation that states will approve technology plans
in a reasonably timely manner. As noted above, however, the Schools and
Libraries Corporation has authority to review and certify the
technology plans of schools and libraries if the applicant provides
evidence that a state agency is unwilling or unable to do so in a
reasonably timely fashion. We here conclude that a school or library
may apply directly to the Schools and Libraries Corporation for
technology plan approval if the school or library is not required by
state or local law to obtain approval for technology plans and
telecommunications expenditures. The Schools and Libraries Corporation
has stated its intent to create a process for reviewing technology
plans of private schools and other eligible entities whose states are
unable to review their plans. The Schools and Libraries Corporation may
structure the review process in any manner it deems necessary to
complete review in a timely fashion, consistent with the purposes of
the review. We emphasize, however, that schools and libraries that are
subject to a state review process by state or local law may not
circumvent the state process by submitting plans directly to the
Schools and Libraries Corporation for review. Eligible schools and
libraries that are required by state or local law to obtain approval
for technology plans and telecommunications expenditures will be
allowed to submit technology plans to the Schools and Libraries
Corporation for review only when the state is unwilling or unable to
review such plans in a reasonably timely fashion. In addition, if a
technology plan is rejected at the state level, a school or library may
not then submit the plan to the Schools and Libraries Corporation in an
attempt to circumvent the state review process.
76. In addition, FCC Forms 470 and 471 will allow applicants to
indicate that their technology plans either have been approved or will
be approved by a state, Schools and Libraries Corporation, or by
another authorized body. This provision will allow schools and
libraries that are required to obtain technology plan approval from an
entity other than a state agency to submit both FCC Forms 470 and 471
without any delay due to a lack of technology plan approval. Schools
and libraries will not be able to receive actual discounts, however,
until their technology plans are approved.
77. Given the Schools and Libraries Corporation plan to institute
an approval process that ``will occur in sufficient time to meet the
needs of those schools that choose to apply under the 75 day window,''
we see no need to adopt the suggestion of the National Association of
Independent Schools that we waive the technology plan approval
requirement for all schools and libraries for the first six to twelve
months of the schools and libraries program in order to provide
sufficient time to develop alternative approval mechanisms. We
understand that the Schools and Libraries Corporation is moving forward
with due diligence to ensure that their technology plan review process
is put into place as quickly as possible. We reiterate that approval of
an applicant's technology plan will assist in ensuring that technology
plans are based on the reasonable needs and resources of the applicant
and are consistent with the goals of the program.
D. Option to Post Requests for Proposals on Websites
78. In light of the concerns expressed by the Working Group and
NECA, including significant costs and potential delays associated with
requiring the administrative companies to post RFPs on the school and
library and rural health care provider websites, we reconsider the
Commission's requirement that the administrative companies post on the
websites RFPs submitted by applicants. An RFP is a detailed request for
the services and facilities that an entity is interested in procuring.
RFPs may vary greatly in length, numbering over a hundred pages in some
cases, including diagrams and specifications of the procurement of
facilities. FCC Form 470, submitted by school and library applicants,
and FCC Form 465, submitted by eligible health care applicants, will
instruct applicants to describe the services they seek and to include
information sufficient to enable service providers to identify
potential customers. We conclude that this information is adequate to
serve the purposes underlying the website posting requirement by
allowing schools and libraries to take advantage of the competitive
marketplace. We conclude that any additional information contained in
an RFP that is not submitted for posting on the website under FCC Forms
470 and 465 can be made available to interested service providers at
the election of the school, library, or rural health care provider
applicant. We encourage eligible school, library, and rural health care
provider applicants to make RFPs available upon request to interested
service providers. We do not, however, require the Schools and
Libraries Corporation or the Rural Health Care Corporation to post RFPs
on the websites, but instead require the administrative companies to
post FCC Forms 470 and 465, respectively.
E. State Telecommunications Networks and Wide Area Network
79. We conclude that state telecommunications networks that procure
supported telecommunications and make them available to schools and
libraries constitute consortia that will be permitted to secure
discounts on such telecommunications on behalf of eligible schools and
libraries. We further conclude that, with respect to Internet access
and internal connections, state telecommunications networks may either
secure discounts on such telecommunications on behalf of schools and
libraries, or receive direct reimbursement from the universal service
support mechanisms, pursuant to section 254(h)(2)(A), for providing
such services. Finally, we conclude, on our own motion, that to the
extent schools and libraries build and purchase wide area networks to
provide telecommunications, such networks will not be eligible for
universal service discounts.
a. State Telecommunications Networks
1. Procuring Telecommunications
80. We conclude that state telecommunications networks that procure
supported telecommunications and make them available to eligible
schools and libraries constitute consortia that will be permitted to
secure discounts on such services on behalf of their eligible members.
We recognize the significant benefits that state telecommunications
networks provide to schools and libraries in terms of, among other
things, purchasing services in bulk and passing on volume discounts to
schools and libraries. In order for eligible schools and libraries to
receive discounts pursuant to the universal service support mechanisms
for schools and libraries and to continue to receive the benefits
currently provided by state telecommunications networks, such networks,
consistent with the universal service rules, may obtain discounts on
telecommunications from the universal service support mechanisms on
behalf of eligible schools and libraries and pass on such discounts to
the eligible entities. We emphasize that, with respect to
telecommunications, state
[[Page 2107]]
telecommunications networks only will be permitted to pass on discounts
for such services to eligible schools and libraries, but will not, as
discussed below, be able to receive direct reimbursement from the
universal service support mechanisms for providing such services. We
conclude that a state telecommunications network itself will not
qualify for discounts on telecommunications. Because it does not meet
the definition of an eligible school or library as set forth in the
Order, a state telecommunications network only may secure such
discounts on behalf of the schools and libraries it serves and pass
through the discounts to those schools and libraries. Because schools
and libraries will benefit from both the universal service discounts
and the ability of state telecommunications networks to aggregate
demand and secure prices based on volume discounts, the approach we
adopt here will be advantageous to eligible schools and libraries.
Furthermore, this approach will help maintain the integrity of the
universal service support mechanisms, because eligible schools and
libraries will be able to secure pre-discount prices for
telecommunications that are lower than the prices for such
telecommunications if they had not been purchased in bulk.
81. In order to receive and pass through discounts on supported
telecommunications for eligible schools and libraries, state
telecommunications networks must make a good faith effort to ensure
that each eligible school or library receives a proportionate share of
shared services. State telecommunications networks must take reasonable
steps to ensure that service providers apply appropriate discount
amounts on the portion of the supported telecommunications used by each
eligible school or library. The service providers will submit to the
state telecommunications network a bill that includes the appropriate
discounts on eligible telecommunications rendered to eligible entities.
The state telecommunications network then will direct the eligible
consortium members to pay the discounted prices. Eligible consortium
members may pay the discounted prices to their state telecommunications
network, which will then remit the discounted amount to the service
providers. Service providers will receive direct reimbursement from the
support mechanisms in an amount equal to the difference between the
pre-discount price of the eligible telecommunications and the
discounted amount. We emphasize that state telecommunications networks
purchasing services on behalf of schools and libraries are required to
comply with the applicable competitive bid requirements established in
the Order.
82. We note that, even where state telecommunications networks have
procured telecommunications on behalf of schools and libraries through
competitive bidding or are exempt from the competitive bid requirement,
it may be advantageous for schools and libraries themselves to seek
competitive bids on their requested services. In so doing, schools and
libraries may be better able to ensure that they obtain the best price
on the services that are most closely tailored to meet their needs. We
have attempted to design the universal mechanisms so that schools,
libraries, and rural health care providers utilize, and obtain the
advantages of, competition, to the fullest extent possible. The
competitive bidding process is a key component of the Commission's
effort to ensure that universal service funds support services that
satisfy the precise needs of an institution, and that the services are
provided at the lowest possible rates. We recognize that schools,
libraries, and health care providers may need to transition to the new
universal service mechanisms, and we have made reasonable accommodation
for eligible entities that have preexisting contracts for
telecommunications, internal connections, or access to the Internet. We
intend to continue to monitor our decision to exempt certain
preexisting contracts from the competitive bidding requirement, to
ensure that the exemption does not reduce the benefits that competitive
bidding will provide. We thus encourage schools and libraries to seek
competitive bids on their requests for services in order to obtain the
best price for the desired services. We note that schools and libraries
have an incentive to obtain the best price for services, because such
schools and libraries will be responsible for paying a portion of the
cost. We also note that, after seeking competitive bids, schools and
libraries may nevertheless decide to obtain telecommunications that are
procured by a state telecommunications network.
83. Because it appears that state telecommunications networks
generally make telecommunications available to both eligible and
ineligible entities, we emphasize that, pursuant to section 254(h)(4),
such networks may obtain and pass through universal service discounts
only with respect to schools and libraries that are eligible to receive
such discounts. In order to protect the integrity of the schools and
libraries program, we direct state telecommunications networks to
develop and retain records listing eligible schools and libraries and
showing the basis on which the eligibility determinations were made.
Such networks also must keep careful records demonstrating the discount
amount to which each eligible entity is entitled and the basis on which
such a determination was made. Additionally, consistent with the Order,
service providers must develop and retain detailed records showing how
they have allocated the costs of facilities shared by eligible and
ineligible entities in order to charge such entities the correct
amounts.
84. We disagree with parties that argue that state
telecommunications networks should be able to receive direct
reimbursement from the support mechanisms for providing schools and
libraries with services other than access to the Internet and internal
connections. Because they do not meet the definition of
``telecommunications carrier,'' state telecommunications networks are
not eligible to receive direct reimbursement from the support
mechanisms pursuant to section 254(h)(1)(B). Section 254(h)(1)(B)
provides that only telecommunications carriers may receive support for
providing schools and libraries with the telecommunications supported
under section 254(h)(1)(B). Based on the record before us, we agree
with USTA that, because they do not offer telecommunications ``for a
fee directly to the public, or to such classes of users as to be
directly available to the public,'' state telecommunications networks
do not meet the definition of ``telecommunications carrier.'' As the
Commission determined in the Order, the definition of
``telecommunications service'' is intended to encompass only
telecommunications provided on a common carrier basis. The Commission
further noted that ``* * * precedent holds that a carrier may be a
common carrier if it holds itself out `to service indifferently all
potential users' '' and that ``a carrier will not be a common carrier
`where its practice is to make individualized decisions in particular
cases whether and on what terms to serve.' ''
85. We are not persuaded by the record before us that state
telecommunications networks offer service ``indifferently [to] all
potential users.'' Rather, the evidence indicates that state
telecommunications networks offer services to specified classes of
entities. Because the record does not contain any credible evidence
that a
[[Page 2108]]
state telecommunications network offers or plans to offer service
indifferently to any requesting party, we find that state
telecommunications networks do not offer service ``directly to the
public or to such classes of users as to be directly available to the
public'' and thus will not be eligible for reimbursement from the
support mechanisms pursuant to section 254(h)(1). We further find that
prohibiting state telecommunications networks from receiving direct
reimbursement from the support mechanisms pursuant to section 254(h)(1)
is consistent with the Commission's determination in the Order that
consortia of schools and libraries may receive discounts on eligible
services, but that such consortia will not be permitted to receive
direct reimbursement from the support mechanisms.
86. We recognize that it may be more administratively burdensome
for state telecommunications networks to obtain and pass through
discounts on behalf of schools and libraries, rather than to receive
direct reimbursement from the support mechanisms for procuring
telecommunications and making such telecommunications available to
schools and libraries. As discussed above, however, state
telecommunications networks do not meet the definition of
``telecommunications carrier'' and thus will not be permitted to
receive direct reimbursement for the provision of telecommunications.
Additionally, parties have not suggested any reason why state
telecommunications networks should be treated differently from other
consortia and thus be allowed to receive support directly from the
universal service support mechanisms for providing telecommunications
other than Internet access and internal connections. Furthermore, even
if they were able to receive direct reimbursement from the support
mechanisms for providing telecommunications, state telecommunications
networks would still need to determine which entities are eligible for
discounts and the discount rate to which each eligible entity is
entitled. Therefore, any additional administrative burden created by
requiring state telecommunications networks to pass through the
discount amounts, rather than allowing them to receive direct
reimbursement from the support mechanisms, may not be as significant as
some parties suggest.
2. Internet Access and Internal Connections
87. With respect to Internet access and internal connections, we
conclude that state telecommunications networks may either secure
discounts on the purchase of such telecommunications purchased from
other providers on behalf of schools and libraries in the manner
discussed above with regard to telecommunications, or receive direct
reimbursement from the support mechanisms for providing Internet access
and internal connections to schools and libraries, pursuant to section
254(h)(2)(A). As the Commission concluded in the Order, section
254(h)(2)(A), in conjunction with section 4(i), authorizes the
Commission to permit discounts and funding mechanisms to enhance access
to advanced services provided by non-telecommunications carriers. On
this basis, the Commission stated that it would permit discounts for
Internet access and internal connections provided by non-
telecommunications carriers. Thus, although we conclude that state
telecommunications networks do not constitute telecommunications
carriers that are eligible for reimbursement for making available
telecommunications pursuant to section 254(h)(1)(B), we do find that
networks that make Internet access and internal connections available
to schools and libraries are eligible, under the Order and section
54.517 of our rules, as non-telecommunications carriers for direct
reimbursement from the support mechanisms for providing these services.
88. NASTD suggests that the Commission's statement in the Order
that it was ``constrained only by the concepts of competitive
neutrality, technical feasibility, and economic reasonableness'' in
implementing section 254(h)(2)(A) means that state telecommunications
networks should be eligible for reimbursement from the support
mechanisms for providing ``bundled service packages'' that include
telecommunications and access to the Internet and internal connections.
As explained above, however, the Act defines ``telecommunications
carrier'' as any provider of ``telecommunications service'' and does
not equate ``telecommunications'' (the term used in section
254(h)(2)(A)) with ``telecommunications service.'' Therefore, because
state telecommunications networks do not provide ``telecommunications
service,'' they do not meet the definition of ``telecommunications
carrier'' and will not be permitted to receive direct reimbursement for
the provision of services other than Internet access and internal
connections. To the extent that they make available Internet access and
internal connections, state telecommunications networks are non-
telecommunications carriers. As non-telecommunications carriers, they
are eligible, as we determined in the Order, pursuant to section
254(h)(2)(A), for direct reimbursement from the support mechanisms when
they make available to eligible entities Internet access and internal
connections.
89. Finally, we emphasize that, consistent with the Order, eligible
schools and libraries will be required to seek competitive bids for all
services eligible for section 254(h) discounts, including those
services that state telecommunications networks provide using their own
facilities. Thus, schools and libraries in Iowa may not obtain support
from the universal service support mechanisms if they select ICN as
their provider of access to the Internet and internal connections
without first seeking competitive bids. Schools and libraries are not
required to select the lowest bids offered, although the Commission
stated that price should be the ``primary factor.'' If eligible schools
and libraries in Iowa choose ICN as their provider of access to the
Internet and internal connections, we conclude that ICN may receive
reimbursement from the support mechanisms for providing such services.
b. Wide Area Networks
On our own motion, we further conclude that, to the extent that
states, schools, or libraries build and purchase wide area networks to
provide telecommunications, the cost of purchasing such networks will
not be eligible for universal service discounts. We reach this
conclusion because, from a legal perspective, wide area networks
purchased by schools and libraries and designed to provide
telecommunications do not meet the definition of services eligible for
support under the universal service discount program. First, the
building and purchasing of a wide area network is not a
telecommunications service because the building and purchasing of
equipment and facilities do not meet the statutory definition of
``telecommunications.'' Moreover, as the Commission determined in the
Order, the definition of ``telecommunications service'' is intended to
encompass only telecommunications provided on a common carrier basis.
Second, wide area networks are not internal connections because they do
not provide connections within a school or library. We herein establish
a rebuttable presumption that a connection does not constitute an
internal connection if it crosses a public right-of-way. Third, wide
area networks built and purchased
[[Page 2109]]
by schools and libraries do not appear to fall within the narrow
provision that allows support for access to the Internet because wide
area networks provide broad-based telecommunications. For these
reasons, therefore, we conclude that the purchase of wide area networks
to provide telecommunications services will not be eligible for
universal service discounts.
F. State Support
91. We conclude that, for services provided to eligible schools and
libraries, federal universal service discounts should be based on the
price of the service to regular commercial customers or, if lower than
the price of the service to regular commercial customers, the
competitively bid price offered by the service provider to the school
or library that is purchasing eligible services, prior to the
application of any state-provided support for schools or libraries. To
find otherwise would penalize states that have implemented support
programs for schools and libraries by reducing the level of federal
support that those schools and libraries would receive. We anticipate
that our conclusion will encourage states to implement or expand their
own universal service support programs for schools and libraries.
92. Our determination to calculate discounts on the price of a
service to eligible schools and libraries prior to the reduction of any
state support will not require an adjustment in the $2.25 billion in
annual support that the Commission estimated was necessary to fulfill
the statutory obligation to create sufficient universal service support
mechanisms for schools and libraries. In estimating the level of
universal service support needed to serve schools and libraries, the
Commission purposefully did not take into consideration state universal
service support to schools and libraries. Thus, our determination to
calculate federal universal service support levels on the price of
service to schools and libraries prior to the application of any state-
provided support should not threaten the sufficiency of the federal
support mechanisms for schools and libraries.
93. Finally, we do not agree with USTA that allowing federal
support levels to be based upon the price of service to schools and
libraries prior to the application of any state-provided support for
schools or libraries will force all telecommunications carriers to
subsidize state-wide networks. Pursuant to section 254(h), universal
service support for schools, libraries, and rural health care providers
can be provided only to designated educational and health care
providers. Moreover, USTA has not explained why applying the federal
discount rate before applying any state discounts would reduce the
overall amount that a carrier will receive for providing a supported
service.
G. Aggregate Discount Rates
94. Our current rules require consortia to calculate the discount
level by using a weighted average that is based on the share of the
pre-discount price for which each school or library agrees to be
``financially liable.'' Our rules also provide that each ``eligible
school, school district, library, or library consortium will be
credited with the discount to which it is entitled.'' We hereby adopt a
modified version of the Working Group's proposal regarding the
application of discounts for schools and libraries that apply through
consortia, including school districts, rather than on an individual
basis. Because the discount is determined based on the weighted average
of the amount for which each individual school or library agrees to be
financially liable, we conclude that the amount of support likewise
should be determined, where possible, on the discount rate to which
each individual school or library is entitled. In other words, both the
discount rate and the provision of support should be determined for
each individual school or library if it is not unreasonably burdensome
to do so. We therefore agree with the Working Group that, for services
that will be used only by an individual institution, the applicable
discount rate for the services should be determined based on the
applicable discount rate for the individual school or library, not the
consortium. Thus, for example, if a school applies for support as part
of a consortium, but seeks support for internal connections that it
alone will use, the amount of support for that internal connection
should be calculated based on the specific discount rate applicable for
that school. We find that this decision is consistent with our earlier
decision that the level of support should be based on the economic
level and geographic location of the institution seeking support.
95. We recognize, however, that we must balance the desire for
equitable distribution of support against the need to keep the
application process as simple and efficient as possible. Thus, while we
require the state, school district, or library system to ``strive to
ensure'' that each school and library in a consortium receives the full
benefit of the discount on shared services to which it is entitled, we
will not require school districts or library systems to compute their
discount rate for shared services based on estimates of the actual
usage that each of their schools or library branches will make and the
respective discounts that these individual units are entitled to
receive. Shared services are those that cannot, without substantial
difficulty, be identified with particular users or be allocated
directly to particular entities. We conclude that the administrative
burden of such a requirement would not be justified by the benefit in
light of existing rules in this area. We recognize that states already
prohibit unreasonable discrimination against disadvantaged schools in
the state, and that the courts have upheld such rules of equity, even
against the state itself. Although we do not mandate consortia to adopt
a particular methodology for distributing shared services, we seek to
ensure that economically disadvantaged institutions receive the
discounts to which they are entitled. Accordingly, we require that
consortia certify that each individual institution listed as a member
of a consortium and included in determining the discount rate will
receive a proportionate share of the shared services within each year
in which the institution is used to calculate the aggregate discount
rate. Consortia may, for example, satisfy this obligation by keeping
track of the usage level of shared services with respect to each
institution that was included in calculating the discount rate, or they
may adopt other methods to ensure that each institution receives a
proportionate share of shared services. This requirement is appropriate
because the discount rate for calculating support for shared services
will be based on all entities listed in the request for services. By
the same token, this requirement is not unduly burdensome because it
does not require applicants to develop complex weighting methodologies
or to calculate different discount rates for different entities that
use shared services. Our determination that the state or district must
``strive to ensure'' that each school or library receives the full
benefit of the discount to which it is entitled will help ensure that
this goal is met. Moreover, the Schools and Libraries Corporation,
pursuant to its obligation to review and approve schools' and
libraries' applications and service providers' bills, is developing
cost allocation procedures to further ensure that schools and libraries
receive the discounts to which they are entitled.
96. Finally, we agree with the Working Group that an applicant that
is
[[Page 2110]]
comprised of multiple eligible schools and libraries must keep adequate
records showing how the distribution of funds was made, and the basis
for distribution. Our rules currently require such records.
H. Limiting Internal Connections to Instructional Buildings
97. We take this opportunity to make clear, on our own motion, that
the Order limits support for internal connections to those essential to
providing connections within instructional buildings. Thus, discounts
are not available for internal connections in non-instructional
buildings of a school district or administrative buildings of a library
unless those internal connections are essential for the effective
transport of information to an instructional building or library.
Hence, discounts would be available for routers and hubs in a school
district office if individual schools in the school district were
connected to the Internet through the district office. The Order stated
that ``a given service is eligible for support as a component of the
institution's internal connections only if it is necessary to transport
information all the way to individual classrooms.'' This focus on
access to classrooms followed from the Commission's conclusion that
``Congress intended that telecommunications and other services be
provided directly to classrooms.'' The Commission reached this
conclusion based on its analysis of the statute (where classrooms are
explicitly mentioned) and of the legislative history (where Congress
explicitly refers repeatedly to classrooms). Similarly, to the extent
that a library system has separate administrative buildings, support is
not available for internal connections in those buildings. Sections
254(h)(1)(B) and (h)(2) provide for universal service support for
``libraries.'' Imposing this restriction on support to non-
administrative library facilities is consistent with the approach to
support for internal connections to instructional school buildings
discussed above.
98. Consistent with this clarification, we modify our rules to
reflect that support is not available for internal connections in non-
instructional buildings used by a school district unless those internal
connections are essential for the effective transport of information
within instructional buildings or buildings used by a library for
strictly administrative functions.
Thus, discounts would be available for the internal connections
installed in a school district office if that office were used as the
hub of a local area network (LAN) and all schools in the district
connect to the Internet through the internal connections in that
office. We further hold that ``internal connections'' include
connections between or among multiple instructional buildings that
comprise a single school campus or multiple non-administrative
buildings that comprise a single library branch, but do not include
connections that extend beyond that single school campus or library
branch. Thus, for example, connections between two instructional
buildings on a single school campus would constitute internal
connections eligible for universal service support, whereas connections
between instructional buildings located on different campuses would not
constitute internal connections eligible for such support.
I. Existing Contracts
99. We reconsider our earlier finding that contracts signed on or
after November 8, 1996 are not eligible for universal service support
after December 31, 1998. We conclude that a contract of any duration
signed on or before July 10, 1997 will be considered an existing
contract under our rules and therefore exempt from the competitive bid
requirement for the life of the contract. Discounts will be provided
for eligible services that are the subject of such contracts on a
going-forward basis beginning on the first date that schools and
libraries are eligible for discounts. We further conclude that
contracts signed after July 10, 1997 and before the date on which the
Schools and Libraries Corporation website is fully operational will be
eligible for support and exempt from the competitive bid requirement
for services provided through December 31, 1998. Contracts that are
signed after July 10, 1997 are only eligible for support for services
received between January 1 and December 31, 1998, regardless of the
term or duration of the contract as a whole. In reconsidering our prior
determination, we seek to avoid penalizing schools and libraries that
were reasonably uncertain of their rights pursuant to the Order and to
allow greater flexibility for schools and libraries to obtain the
benefits of longer-term contracts, including potentially lower prices.
The Order permitted schools and libraries to apply the relevant
discounts to only those ``contracts that they negotiated prior to the
Joint Board's Recommended Decision [November 8, 1996] for services that
will be delivered and used after the effective date of our rules.'' We
agree with commenters, however, that section 54.511(c) did not make
clear that only contracts that were entered into prior to the date of
the Joint Board's Recommended Decision would be eligible for discounts.
The July 10 Order, by contrast, clearly established that discounts
would be provided only for those contracts that either complied with
the competitive bid requirement or qualified as ``existing'' contracts
under our rules.
100. We also clarify on our own motion that, if parties take
service under or pursuant to a master contract, the date of execution
of that master contract represents the applicable date for purposes of
determining whether and to what extent the contract is exempt from the
competitive bid requirement. For example, if a state signed a master
contract for service prior to July 10, 1997, such contract would
qualify as an existing contract. If an eligible school subsequently
elects to obtain services pursuant to that contract, that school will
be exempt from the competitive bid requirement because it is receiving
service pursuant to an existing contract. This clarification is
consistent with our rules regarding competitive bidding for master
contracts set forth in section VI.J, infra. Nevertheless, as discussed
in sections VI.E. and VI.J. herein, we believe that schools and
libraries may benefit from soliciting competitive bid even in cases
where they are exempt from such competitive bidding requirements.
101. We further conclude that we should extend our rules regarding
support for existing contracts to eligible rural health care providers.
Members of the health care community have expressed concern that they
will face the same difficulties as those faced by members of the school
and library communities, including negotiating lower prices through
longer term contracts and avoiding penalties in terminating existing
contracts. For generally the same reasons noted above regarding schools
and libraries, we also conclude that an eligible health care provider
that entered into a contract prior to the date on which the websites
are operational would be unfairly penalized by requiring that provider
to comply with the competitive bid requirement. We thus extend the same
treatment with regard to existing contracts to eligible rural health
care providers as we have extended to eligible schools and libraries.
An eligible rural health care provider will not be required to comply
with the competitive bid requirement for any contract for eligible
telecommunications services that it signed on or before July 10, 1997,
regardless of the duration of the agreement. In addition, such
providers will be eligible to receive reduced rates for services
provided
[[Page 2111]]
through December 31, 1998 for any contract for telecommunications
services signed after July 10, 1997 and before the website is
operational. Although the July 10 Order addressed the issue of existing
contracts for only schools and libraries, we believe that establishing
July 10, 1997 as the date relevant to our existing contracts rule for
rural health care providers is reasonable. We note that this
determination is consistent with the request of rural health care
providers to be treated in the same manner as schools and libraries. In
addition, we anticipate that adopting the same existing contract rules
for schools, libraries, and rural health care providers should be
administratively simpler and reduce potential confusion on the part of
program participants and providers regarding the existing contracts
eligible for universal service support. We note that no existing
contract exception from the competitive bid requirement previously had
been adopted for rural health care providers and that this modification
will serve to benefit rural health care providers.
102. We reject the suggestion of EdLiNC that we eliminate any
limitation on the duration of discounts for contracts executed before
the website for schools and libraries is fully operational. Although we
agree with EdLiNC that schools and libraries have a strong incentive to
negotiate contracts at the lowest possible pre-discount price in an
effort to reduce their costs, we affirm our initial finding that
competitive bidding is the most efficient means for ensuring that
eligible schools and libraries are informed about the choices available
to them and receive the lowest prices. Allowing eligible schools,
libraries, and rural health care providers to receive discounts
indefinitely on contracts entered into after July 10, 1997 without
requiring participation in the competitive bid process would hinder the
competitive provision of services for the reasons discussed above.
103. Schools, libraries, and rural health care providers that
qualify for the ``existing contract'' exemption from the competitive
bid process described herein will continue to be required to file
applications each year with the Schools and Libraries Corporation and
Rural Health Care Corporation, respectively, in order to receive
universal service discounts. We note that approval of discounts in one
year should not be construed as a guarantee of future coverage or
assurance that the same level of support will be available in
subsequent years. We will continue to monitor the existing contract
rule and will make further modifications if necessary.
J. Competitive Bid Requirements for Schools, Libraries, and Rural
Health Care Providers
1. Minor Modifications to Contracts
104. We agree with USTA that requiring a competitive bid for every
minor contract modification would place an undue burden upon eligible
schools, libraries, and rural health care providers. Such eligible
entities should not be required to undergo an additional competitive
bid process for minor modifications such as adding a few additional
lines to an existing contract. We, therefore, conclude that an eligible
school, library, or rural health care provider will be entitled to make
minor modifications to a contract that the Schools and Libraries
Corporation or the Rural Health Care Corporation previously approved
for funding without completing an additional competitive bid process.
We note that any service provided pursuant to a minor contract
modification also must be an eligible supported service as defined in
the Order to receive support or discounts.
105. In the Order, the Commission explained that the universal
service competitive bid process is not intended to be a substitute for
state, local, or other procurement processes. Consistent with this
observation, we conclude that eligible schools, libraries, and rural
health care providers should look to state or local procurement laws to
determine whether a proposed contract modification would be considered
minor and therefore exempt from state or local competitive bid
processes. If a proposed modification would be exempt from state or
local competitive bid requirements, the applicant likewise would not be
required to undertake an additional competitive bid process in
connection with the applicant's request for discounted services under
the federal universal service support mechanisms. Similarly, if a
proposed modification would have to be rebid under state or local
competitive bid requirements, then the applicant also would be required
to comply with the Commission's universal service competitive bid
requirements before entering into an agreement adopting the
modification.
106. Where state and local procurement laws are silent or are
otherwise inapplicable with respect to whether a proposed contract
modification must be rebid under state or local competitive bid
processes, we adopt the ``cardinal change'' doctrine as the standard
for determining whether the contract modification requires rebidding.
The cardinal change doctrine has been used by the Comptroller General
and the Federal Circuit in construing the Competition in Contracting
Act (CICA) as implemented by the Federal Acquisition Regulations. The
CICA requires executive agencies procuring property or services to
``obtain full and open competition through the use of competitive
procedures.''
107. Because CICA does not contain a standard for determining
whether a modification falls within the scope of the original contract,
the Federal Circuit has drawn an analogy to the cardinal change
doctrine. The cardinal change doctrine is used in connection with
contractors' claims that the Government has breached its contracts by
ordering changes that were outside the scope of the changes clause. The
cardinal change doctrine looks at whether the modified work is
essentially the same as that for which the parties contracted. In
determining whether the modified work is essentially the same as that
called for under the original contract, factors considered are the
extent of any changes in the type of work, performance period, and cost
terms as a result of the modification. Ordinarily a modification falls
within the scope of the original contract if potential offerors
reasonably could have anticipated it under the changes clause of the
contract.
108. The cardinal change doctrine recognizes that a modification
that exceeds the scope of the original contract harms disappointed
bidders because it prevents those bidders from competing for what is
essentially a new contract. Because we believe this standard reasonably
applies to contracts for supported services arrived at via competitive
bidding, we adopt the cardinal change doctrine as the test for
determining whether a proposed modification will require rebidding of
the contract, absent direction on this question from state or local
procurement rules. If a proposed modification is not a cardinal change,
there is no requirement to undertake the competitive bid process again.
109. An eligible school, library, or rural health care provider
seeking to modify a contract without undertaking a competitive bid
process should file FCC Form 471 or 466, ``Services Ordered and
Certification,'' with the School and Libraries Corporation or the Rural
Health Care Corporation, respectively, indicating the value of the
proposed contract modification so that the administrative companies can
track contract performance. The school,
[[Page 2112]]
library, or rural health care provider also must demonstrate on FCC
Form 471 or 466 that the modification is within the original contract's
change clause or is otherwise a minor modification that is exempt from
the competitive bid process. The school, library, or rural health care
provider's justification for exemption from the competitive bid process
will be subject to audit and will be used by the Schools and Libraries
Corporation and Rural Health Care Corporation to determine whether the
applicant's request is, in fact, a minor contract modification that is
exempt from the competitive bid process. We emphasize that, even though
minor modifications will be exempt from the competitive bidding
requirement, parties are not guaranteed support with respect to such
modified services. A commitment of funds pursuant to an initial FCC
Form 471 or Form 466 does not ensure that additional funds will be
available to support the modified services. We conclude that this
approach is reasonable and is consistent with our effort to adopt the
least burdensome application process possible while maintaining the
ability of the administrative companies and the Commission to perform
appropriate oversight.
2. Master Contracts
110. We find that eligible schools, libraries, and rural health
care providers seeking discounted services or reduced rates should be
allowed to purchase services from a master contract negotiated by a
third party. In the Order, the Commission found that the competitive
bid requirement would minimize the universal service support required
by ensuring that schools, libraries, and rural health care providers
are aware of cost-effective alternatives. The Commission concluded
that, like the language of section 254(h)(1) that targets support to
public and nonprofit rural health care providers, this approach
``ensures that the universal service fund is used wisely and
efficiently.'' Insofar as an independent third party negotiating a
master contract may be able to secure lower rates than an eligible
entity negotiating on its own behalf, we conclude that allowing
schools, libraries, and rural health care providers to order eligible
telecommunications services from a master contract negotiated by a
third party is consistent with our goal of minimizing universal service
costs and therefore is also consistent with section 254(h)(1).
111. We wish to emphasize, however, that for eligible schools and
libraries to receive discounted services, and for rural health care
providers to receive reduced rates, the third party initiating a master
contract either must have complied with the competitive bid requirement
or qualify for the existing contract exemption before entering into a
master contract. An eligible school, library, or rural health care
provider shall not be required to satisfy the competitive bid
requirement if the eligible entity takes service from a master contract
that has been competitively bid under the Commission's competitive bid
requirement. If a third party has negotiated a master contract without
complying with the competitive bid requirement, then an eligible entity
must comply with the competitive bid requirement before it may receive
discounts or reduced rates for services purchased from that master
contract.
112. As noted above, the date of execution of a master contract
represents the applicable date for purposes of determining whether and
to what extent the contract is exempt from the competitive bid
requirement under the existing contract exemption. For example, if a
state signed a master contract for service prior to July 10, 1997 that
qualifies as an existing contract under our rules, and a school elects
to take service pursuant to that contract at a date after the website
is operational, that school will be exempt from the competitive bid
requirement because it is receiving service pursuant to an existing
contract. As we stated above, we strongly encourage schools and
libraries to engage in competitive bidding even if they are exempt from
such requirement pursuant to Commission rules. Schools and libraries
may well be able to obtain more favorable terms if they issue new
requests for bids designed to accommodate their specific needs, rather
than obtain service under the terms of the master contract. For
instance, a master contract that was put out for bid several years ago
but has not yet expired might not reflect the cost reductions resulting
from recent entry into the local exchange market, for example, by
wireless carriers. Although we have provided for certain exemptions
from competitive bidding requirements, to enable schools and libraries
to transition to the Commission's procedures implementing the new
universal service mechanisms, we believe that even institutions subject
to the exemptions may obtain substantial benefit from soliciting
competitive bids. Moreover, those institutions may ultimately obtain
service pursuant to the master contract, if they determine that the
master contract is the most cost effective provider. We intend to
monitor the impact of the competitive bid exemptions on an ongoing
basis.
113. Furthermore, even if eligible schools, libraries, and health
care providers are obligated by the school district or a consortium,
for example, to purchase from a master contract, the third party
nevertheless must have complied with the competitive bid process in
order for an eligible entity to receive discounts or reduced rates on
services ordered from the master contract. If the third party has not
complied with the competitive bid requirement before entering into a
master contract, then an eligible school, library, or rural health care
provider itself must undertake the competitive bid process before it
may receive discounts or reduced rates on services purchased from the
master contract. These requirements will ensure that the eligible
entity is receiving the most cost-effective service.
K. Reimbursement for Telecommunications Carriers
114. We do not anticipate that the cost of funding eligible
services will exceed the cap on universal service funding for schools,
libraries, and rural health care providers. An applicant's ``place in
line,'' or seniority for the purposes of allocating funding will be
determined by the date on which an applicant submits FCC Form 471 or
466 to the applicable administrative corporation. Because eligible
entities will enter into contracts with service providers prior to the
submission of requests for commitment of funds (FCC Form 466 or 471,
``Services Ordered and Certification''), such a request could be denied
in the unlikely event that funds prove to be insufficient. In light of
this possibility, and because charges incurred for eligible
telecommunications services remain the responsibility of the eligible
entity, we agree with USTA and again urge schools, libraries, and rural
health care providers to include clauses in their contracts that make
implementation of the agreements contingent on the commitment of
universal service funding.
115. USTA asks for clarification regarding the types of charges
associated with the purchase or termination of an eligible
telecommunications service that will be covered by the federal support
mechanisms. We conclude that the universal service support mechanisms
will cover all reasonable charges, including federal and state taxes,
that are incurred by obtaining an eligible
[[Page 2113]]
telecommunications service. Charges for termination liability, penalty
surcharges, and other charges not included in the cost of obtaining the
eligible service will not be covered by the universal service support
mechanisms. We do not include among the costs supported by the support
mechanisms charges associated with terminating a service because we
conclude that such charges are avoidable. The imposition of such
charges typically results from a party's failure to discharge its duty
of performance under a contract and supporting such charges does not
advance program goals.
L. Universal Service Support for Intrastate Telecommunications Services
Provided to Rural Health Care Providers
116. The Commission clarifies that the federal universal service
support mechanisms will support reduced rates on intrastate services
provided to eligible rural health care providers. As set forth in
section 54.601(c)(1) of the Commission's rules, any telecommunications
service of a bandwidth up to and including 1.544 Mbps that is the
subject of a properly completed bona fide request by an eligible health
care provider is eligible for universal service support, subject to
distance limitations. These eligible telecommunications services may be
intrastate or interstate in nature. In addition, limited toll free
access to an Internet service provider is eligible for universal
service support under section 54.621 of the Commission's rules for
health care providers that are unable to obtain such access.
M. Support for Services Beyond the Maximum Supported Distance for Rural
Health Care Providers
117. Although the Commission limited universal service support to
an amount that would cover an eligible telecommunications service
provided over a maximum allowable distance, nothing in the Order
precludes a health care provider from purchasing an eligible
telecommunications service carried over a distance that exceeds this
limitation. We clarify that we do not intend to restrict a rural health
care provider from purchasing an eligible telecommunications service
that is provided over a distance that is longer than the maximum
supported distance, that is, from the health care provider to the
farthest point on the boundary of the nearest large city. Rural health
care providers, however, must pay the applicable price for the distance
that such service is carried beyond the maximum supported distance.
This approach is consistent with Congress's intent to make rural and
urban rates comparable while affording the eligible rural health care
provider that chooses to connect to a city that is farther than the
nearest large city in that state the flexibility to make such a
decision without jeopardizing the provider's entitlement to receive a
discount on services carried within the maximum supported distance.
N. Establishing the Standard Urban Distance and Maximum Supported
Distance for Rural Health Care Providers
118. We amend section 54.605(d) of our rules to provide that the
Rural Health Care Corporation will be responsible for calculating the
standard urban distance (and, by definition, the maximum supported
distance) applicable to eligible rural health care providers. Section
54.605(d) of the Commission's rules currently requires the
``Administrator'' to establish the standard urban distance.
Specifically, the NECA Report and Order assigned to USAC and to the
entity ultimately selected to serve as the permanent Administrator,
responsibility for performing the billing, collection and disbursement
functions associated with all of the universal service support
mechanisms, including the support mechanisms for rural health care
providers. The NECA Report and Order assigned to the Rural Health Care
Corporation the remaining administrative functions associated with
administering the rural health care program. Consistent with this
division of administrative responsibilities set forth in the NECA
Report and Order, we conclude that the Rural Health Care Corporation
rather than USAC or the permanent Administrator should perform the
calculations necessary to establish the standard urban distance
pursuant to section 54.605(d).
119. We also grant USTA's request that the calculation of the
standard urban distance for each state be posted on a website.
Accordingly, we direct the Rural Health Care Corporation to post such
information to the Rural Health Care Corporation's website.
VII. Administration of Support Mechanisms
120. Universal service contribution requirements pursuant to
section 254 of the Act will take effect on January 1, 1998. In the
Order, the Commission found that requiring a broad range of providers
to contribute to universal service was consistent with the statute.
Numerous parties have asked us to reconsider, prior to January 1, 1998,
our decisions requiring certain providers to contribute to universal
service pursuant to section 254. We herein reconsider those decisions.
We note, however, that we will conduct a thorough reevaluation of who
is required to contribute to universal service, pursuant to Congress'
direction to issue a report on this issue by April 10, 1998. That
report to Congress may serve as the basis for subsequent Commission
action on this issue.
A. Paging Carriers
121. We affirm our conclusion in the Order that all
telecommunications carriers, including paging carriers, are required by
section 254(d) to contribute to universal service. Petitioners offer no
compelling arguments to alter the Commission's earlier decision. We
find that universal service contributions do not constitute a tax. As
noted in the Order, the U.S. Court of Appeals for the D.C. Circuit has
held that ``a regulation is a tax only when its primary purpose judged
in legal context is raising revenue.'' The fact that section 254
permits discounts to be provided to schools and libraries for certain
services provided by non-telecommunications carriers also does not
convert universal service contributions into a revenue-raising ``tax''
because the primary purpose of the contributions is not to raise
general revenues. Rather, the primary purpose of the universal service
contribution requirements is the preservation and advancement of
universal service in furtherance of the principles set forth in section
254(b). Universal service contributions are not commingled with
government revenues raised through taxes. Furthermore, contrary to
ProNet's assertions, requiring contributions to universal service
confers a benefit on paging carriers because such contributions help
preserve the universal availability of service over the public switched
telephone network. Without the public switched telephone network,
subscribers of paging carriers would not be able to receive pages,
retrieve pages, or respond to messages. We find that the benefits of
universal service accrue to all paging carriers, regardless of whether
they serve high-income or low-income customers.
122. Section 254(d) requires ``[e]very telecommunications carrier''
to contribute to universal service. It does not limit contributions to
carriers eligible for universal service support. In fact, as RTC notes,
IXCs, payphone service providers, private service providers, and CMRS
providers are required to contribute to universal service, even though
they might not
[[Page 2114]]
receive support from the high cost mechanisms. The petitioning paging
companies have not advanced any credible evidence that would justify
exempting them from the Congressional requirement that we create a
broad base of support for universal service programs. The fact that the
Commission may treat paging carriers differently than other CMRS
providers in the context of regulatory fees is not relevant to the
treatment of paging carriers under section 254(d).
123. Although some two-way carriers that compete with paging
carriers may be eligible to receive universal service support, such
telecommunications carriers will receive support only for those
services included within the core definition of universal service
(e.g., voice-grade access, single-party service, and access to
emergency services). Eligible telecommunications carriers that provide
paging services will not receive support for their paging services.
Thus, eligible telecommunications carriers that provide paging services
will not have an unfair advantage over paging carriers.
124. As we found in the Order, basing contributions from all
telecommunications carriers on their gross end-user telecommunications
revenues best satisfies our goals of competitive neutrality and ease of
administration, as well as the statutory requirement that support be
explicit. Payments received from the universal service support
mechanisms are not counted as end-user telecommunications revenues in
the assessment base, because such funds are derived from the federal
support mechanisms, not end users of telecommunications. Furthermore,
high-cost support does not ``offset'' eligible telecommunications
carriers' contributions. Support is provided to offset in part the cost
of serving high cost areas. Moreover, it would be counter-productive to
universal service goals to require carriers eligible for support to
make a contribution based on support amounts. That approach would
increase the level of contributions needed to provide adequate support
to carriers that serve high cost areas.
125. It is well established that access to the interstate
interexchange network is an interstate service that brings paging
carriers within the coverage of section 254(c). An interstate
telecommunication is defined as a communication or transmission that
originates in one state and terminates in another. A page that
originates in one state and terminates in another meets the statutory
definition of ``interstate telecommunication.'' Therefore, even if a
paging carrier's service area does not cross state boundaries, if a
paging carrier enables paging customers to receive out-of-state pages,
i.e., be paged by someone located in another state, then that paging
carrier provides an interstate service and must contribute to universal
service.
B. Other Providers of Interstate Telecommunications
126. We affirm our decision that private service providers that
provide interstate telecommunications on a non-common carrier basis
must contribute to universal service, pursuant to our permissive
authority over ``providers of interstate telecommunications.'' In the
Order, we found that the public interest requires private service
providers that furnish interstate telecommunications to others for a
fee to contribute to universal service on the same basis as common
carriers. We concluded that this approach (1) was consistent with the
principle of competitive neutrality because it will reduce the
possibility that carriers with universal service obligations will be
placed at an unfair competitive disadvantage in relation to carriers
that do not have such obligations; (2) will avoid creating a
disincentive for carriers to offer services on a common carrier basis;
and (3) will broaden the funding base, thereby lessening contribution
requirements of any particular class of telecommunications providers.
We affirm each of these findings.
127. We conclude that the Commission was not required to find that
private networks constitute a significant means of bypassing the public
switched telephone network before exercising our permissive authority
to apply the universal service contribution requirements to non-common
carriers. Section 254(d) grants the Commission explicit and unambiguous
authority to require ``other providers of interstate
telecommunications'' to contribute to universal service if the public
interest so requires. On this issue, the Joint Explanatory Statement
merely states that this section ``preserves the Commission's authority
to require all providers of interstate telecommunications to
contribute, if the public interest requires it to preserve and advance
universal service.'' There is no mention of a network bypass
requirement in either the Act or the Joint Explanatory Statement. Thus,
we find that the plain language of section 254(d) allows the Commission
to require non-common carriers to contribute if the Commission
concludes that doing so serves the public interest and furthers the
goals of universal service. We conclude, however, for the reasons
discussed below that we should not exercise our permissive authority to
require systems integrators, broadcasters, and non-profit schools,
universities, libraries, and rural health care providers to contribute
to universal service.
128. Systems Integrators. We are persuaded by systems integrators'
arguments that the public interest would not be served if we were to
exercise our permissive authority to require entities that do not
provide services over their own facilities and are non-common carriers
that obtain a de minimis amount of their revenues from the resale of
telecommunications to contribute to universal service. Systems
integrators provide integrated packages of services and products that
may include, for example, the provision of computer capabilities, data
processing, and telecommunications. Systems integrators purchase
telecommunications from telecommunications carriers and resell those
services to their customers. They do not purchase unbundled network
elements from telecommunications carriers and do not own any physical
components of the telecommunications networks that are used to transmit
systems integration customers' information. In other words, systems
integrators provide telecommunications solely through reselling another
carrier's service. We conclude that systems integrators that satisfy
these criteria, as discussed below, should not be required to
contribute to the federal universal service support mechanisms.
129. In our view, systems integrators that obtain a de minimis
amount of their revenues from the resale of telecommunications do not
significantly compete with common carriers that are required to
contribute to universal service. Systems integrators are in the
business of integrating customers' computer and other informational
systems, not providing telecommunications. Occasionally, systems
integrators may provide interstate telecommunications along with their
traditional integration services, but the provision of
telecommunications is incidental to their core business. Systems
integration customers who receive telecommunications from systems
integrators choose systems integrators for their systems integration
expertise, not for their competitive provision of telecommunications.
130. In determining what constitutes a de minimis amount of
revenues, we could compare the amount of revenues
[[Page 2115]]
derived from telecommunications to overall business revenues, revenues
derived from systems integration, or revenues derived from systems
integration contracts that also contain telecommunications. We conclude
that the second approach, telecommunications revenues relative to
systems integration revenues, is the best method to determine whether
systems integrators derive a de minimis amount of revenues from
telecommunications. Overall business revenues are irrelevant to the
determination of whether telecommunications revenues constitute a small
part of the systems integration business. Similarly, evaluating only
systems integration contracts that contain telecommunications will not
provide an accurate account of the systems integration business as a
whole. IBM and EDS suggest that de minimis should be defined as
revenues that are less than five percent of systems integration
revenues. Based on this record, we conclude that systems integrators'
telecommunications revenues will be considered de minimis if they
constitute less than five percent of revenues derived from providing
systems integration services. A systems integrator would not be
required to file a Universal Service Worksheet if, over the requisite
reporting period, its total revenues derived from telecommunications
represent less than five percent of its total revenues derived from
systems integration. Systems integrators that derive more than a de
minimis amount of revenues from telecommunications will be required to
contribute to the federal universal service support mechanisms and
comply with universal service reporting requirements. We conclude that
the limited nature of this exclusion from the obligation to contribute
will ensure that systems integrators that are significantly engaged in
the provision of telecommunications do not receive an unfair
competitive advantage over common carriers or other carriers that are
required to contribute to universal service.
131. To maintain the sufficiency of the support mechanisms, we find
that systems integrators that are excluded from contribution
requirements constitute end users for universal service contribution
purposes. In addition, systems integrators that obtain a de minimis
amount of their revenues from the resale of telecommunications must
notify the underlying facilities-based carriers from which they
purchase telecommunications that they are excluded from the universal
service contribution requirements. We conclude that excluding systems
integrators that obtain a de minimis amount of their revenues from the
resale of telecommunications from the obligation to contribute will not
significantly reduce the universal service contribution base because
revenues received by common carriers for minimal amounts of
telecommunications provided to systems integrators will be included in
the contribution bases of underlying common carriers. We anticipate
that, by providing this exclusion from the obligation to contribute,
the total contribution base will be reduced only by systems
integrators' mark-up on telecommunications.
132. We disagree with ITAA's contention that, because systems
integrators provide both basic telecommunications services as well as
enhanced services for a single price, systems integrators are engaged
exclusively in the provision of enhanced or information services.
Traditionally, the Commission has not regulated value-added networks
(VANs) because VANs provide enhanced services. VAN offerings are
treated as enhanced services because the enhanced component of the
offering, i.e., the protocol conversions, ``contaminates'' the basic
component of the offering, thus rendering the entire offering enhanced.
Citing the Commission's position that all enhanced services are
information services, ITAA argues that, because systems integrators
offer information and telecommunications services for a single price,
the information services ``taint'' the telecommunications services,
thereby rendering the entire package an information service for
purposes of applying the universal service contribution requirements.
The Commission's treatment of VANs, however, does not imply that
combining an enhanced service with a basic service for a single price
constitutes a single enhanced offering. The issue is whether,
functionally, the consumer is receiving two separate and distinct
services. A contrary interpretation would create incentives for
carriers to offer telecommunications and non-telecommunications for a
single price solely for the purpose of avoiding universal service
contributions. Thus, a private service provider that provides
information services along with a basic interstate voice-grade
telecommunications service is not relieved of its statutory obligation
to contribute to universal service. To the extent that a provider is
offering basic voice-grade interstate telephone service and is not
otherwise exempt, it is required to contribute to universal service.
133. Broadcasters. The deadline for filing petitions for
reconsideration in a notice and comment rulemaking proceeding are
prescribed in section 405 of the Communications Act of 1934, as
amended. The Commission lacks discretion to waive this statutory
requirement. The filing deadline for petitions for reconsideration of
the Order was July 17, 1997. Therefore, to the extent that AAPTS'
petition, filed September 2, 1997, seeks reconsideration of the Order,
we will treat it as an informal comment. We agree with AAPTS and
reconsider, on our own motion, our determination that all providers of
interstate telecommunications must contribute to universal service. For
the reasons described below, we find that the public interest would not
be served if we were to exercise our permissive authority to require
broadcasters, including ITFS licensees, that engage in non-common
carrier interstate telecommunications to contribute to universal
service. In the Order, we found that, in order to ensure that our
contribution rules do not confer a competitive advantage to non-common
carriers, non-common carriers should contribute to universal service
pursuant to our permissive authority over ``other providers of
interstate telecommunications.'' On further reconsideration, however,
we agree with AAPTS that broadcasters do not compete to any meaningful
degree with common carriers that are required to contribute to
universal service because broadcasters primarily transmit video
programming, a service that is not generally provided by common
carriers. Moreover, we conclude that broadcasters' primary competitors
for programming distribution are cable, OVS, and DBS providers. Because
cable, OVS, and DBS providers are not required to contribute to
universal service, the exclusion from the obligation to contribute for
broadcasters will ensure that broadcasters are not competitively
disadvantaged in the video distribution industry by our contribution
requirements. As broadcasters begin to offer digital television,
however, they may choose to provide interstate telecommunications that
are not used to distribute video programming. We will, therefore,
monitor broadcasters' provision of interstate telecommunications on a
non-common carrier basis. If we determine that broadcasters compete
with common carriers that are required to contribute to universal
service, we will revisit our
[[Page 2116]]
exclusion of broadcasters from the contribution requirements.
134. Non-profit Schools, Colleges, Universities, Libraries, and
Health Care Providers. We also find, on our own motion, that non-profit
schools, colleges, universities, libraries, and health care providers
should not be made subject to universal service contribution
requirements. To the extent these non-profit entities provide
interstate telecommunications on a non-common carrier basis, our rules
require them to contribute to universal service, pursuant to our
permissive authority over ``other providers of interstate
telecommunications.'' We conclude, however, that the public interest
would not be served if we were to exercise our permissive authority to
require these entities to contribute to universal service. Many of
these entities will be eligible to receive support pursuant to sections
54.501(b), (c), and (d) and 54.601(a) and (b). We conclude that it
would be counter-productive to the goals of universal service to
require non-common carrier program recipients of support to contribute
to universal service support because such action effectively would
reduce the amount of universal service support they receive. In
addition, we find that it would be inconsistent with the educational
goals of the universal service support mechanisms to require
universities to contribute to universal service. To maintain the
sufficiency of the federal support mechanisms, we have determined to
treat non-profit schools, colleges, universities, libraries, and health
care providers as telecommunications end users for universal service
contribution purposes.
C. Providers of Bare Transponder Capacity
135. We affirm the Commission's finding that satellite providers
that provide interstate telecommunications services or interstate
telecommunications to others for a fee must contribute to universal
service. We conclude that GE Americom's assertion that the Commission
found that satellite and video service providers need only contribute
to universal service if they are operating as common carriers
misconstrues that passage of the Order. As discussed in the Order, the
sentence in section 254(d) that requires all telecommunications
carriers to contribute to universal service applies only to common
carriers. Thus, the Commission concluded that only common carriers fall
within the category of mandatory contributors. Accordingly, satellite
operators that provide transmission services on a common carrier basis
are mandatory contributors to the universal service support mechanisms.
Pursuant to section 254(d), the Commission also exercised its
permissive authority to impose contribution obligations on other
providers of interstate telecommunications. The Commission's statement
that satellite providers must contribute to universal service only to
the extent that they are providing interstate telecommunications
services described satellite providers' mandatory contribution
obligation as set forth in section 254(d). The Commission further
concluded that satellite providers that provide interstate
telecommunications on a non-common carrier basis must contribute to
universal service as ``other providers of interstate
telecommunications'' under section 254(d). The obligation of satellite
providers to contribute to universal service as mandatory contributors
does not relieve them of their obligation to contribute as other
providers of interstate telecommunications. Therefore, if a satellite
provider offers interstate telecommunications on a common carrier or
non-common carrier basis, it must contribute to universal service,
unless otherwise excluded.
136. We are not persuaded by petitioners' assertions that satellite
providers that are ineligible to receive universal service support
should not be required to contribute to universal service. As discussed
in the Order, section 254 does not limit contributions to eligible
telecommunications carriers. Section 254(b)(4) provides that the
Commission should be guided by the principle that ``all providers of
telecommunications services'' should contribute to universal service.
Because not all providers of telecommunications services may be
eligible to receive universal service support, we believe that the
plain text of the statute contemplates that the universe of
contributors will not necessarily be identical to the universe of
potential recipients.
137. Several parties ask us to clarify that satellite providers do
not transmit information to the extent that they merely lease bare
transponder capacity to others. According to PanAmSat,
[w]hen a satellite operator enters into a bare transponder agreement
with a customer, the satellite operator is merely providing its
customer with the exclusive right to transmit to a specified piece
of hardware on the satellite. That, essentially, is the extent of
the operator's obligation.
Based on the descriptions by PanAmSat and other commenters of the very
limited activity that satellite providers engage in when they lease
bare transponder capacity, it appears that, for purposes of the
contribution requirements under section 254 of the Act, satellite
providers do not transmit information when they lease bare transponder
capacity. Satellite providers, therefore, are not required to
contribute to universal service on the basis of revenues derived from
the lease of bare transponder capacity. We emphasize that this
conclusion is premised on the accuracy of the uncontested
representations by satellite providers of what is involved in the lease
of bare transponder capacity. We might reconsider our determination if
presented with different factual evidence. Satellite providers must,
however, contribute to universal service to the extent they provide
interstate telecommunications services and interstate
telecommunications.
138. We are not persuaded by AT&T's assertion that, because the
lease of bare transponder capacity may be provided pursuant to tariff,
it necessarily constitutes the provision of telecommunications. Because
the definition of ``telecommunications'' was added to the Act in 1996,
the fact that bare transponder capacity may be provided or was provided
pursuant to tariff is not dispositive.
D. Universal Service Report to Congress
139. Congress has instructed the Commission to review our decisions
regarding who is required to contribute to the federal universal
service support mechanisms and to submit our findings to Congress.
Consistent with the statutory deadline, the Commission will submit such
a report to Congress by April 10, 1998.
E. De Minimis Exemption
140. Based on petitioners' arguments, we reconsider our previous
determination and conclude that the de minimis exemption should be
based on the Administrator's costs of collecting contributions and
contributors' costs of complying with the reporting requirements. In
reaching its finding that the de minimis exemption should only exempt
contributors whose contributions would be less than the Administrator's
administrative costs of collection, the Commission looked to the Joint
Explanatory Statement for guidance. Specifically, the Joint Explanatory
Statement observes that ``this [de minimis] authority would only be
used in cases where the administrative cost of collecting contributions
from a carrier or carriers would exceed the contribution that carrier
would otherwise have to make under the formula for contributions
[[Page 2117]]
selected by the Commission.'' In the Order, the Commission found that
this statement indicated that the Commission should look only to the
Administrator's costs of collecting contributions and not the carrier's
cost of determining contribution obligations. We find, however, that
``the administrative cost of collecting contributions'' can include
both the Administrator's as well as contributors' administrative costs.
We agree with Ad Hoc that the public interest would not be served if
compliance costs associated with contributing to universal service were
to exceed actual contribution amounts. We decline to exclude from the
contribution requirement all entities that claim compliance costs in
excess of their contribution amounts, however, based on our concern
that such a rule may encourage contributors to report artificially high
administrative compliance costs in order to avoid their contribution
obligation. Rather, we adopt a substantially increased de minimis
threshold that takes into account contributors' compliance costs in
addition to the Administrators' administrative costs of collection
based on our view that this increased threshold will accommodate a
reasonable level of reporting compliance costs for all contributors.
141. We also agree with ITAA that the contribution collection costs
incurred by the Administrator in many cases will exceed $100 per
contributor. We find that in determining the Administrator's
administrative costs, we should include the costs associated with
identifying contributors, processing and collecting contributions, and
providing guidance on how to complete the Universal Service Worksheet.
142. Therefore, we conclude that the de minimis contribution
threshold should be raised to $10,000. If a contributor's annual
contribution would be less than $10,000, it will not be required to
contribute to universal service. We find that this exclusion will
reduce significantly the Administrator's collection costs. Based on
Universal Service Worksheets, we estimate that approximately 1,600
entities will qualify for the de minimis exemption. Therefore, the
Administrator will have to collect and process 1,600 fewer Worksheets
and will have to identify and collect contributions from 1,600 fewer
entities. Additionally, by exempting entities whose annual
contributions would be less than $10,000 from contribution and
Worksheet reporting requirements, we anticipate that we will reduce
reporting burdens on many small entities.
143. To maintain the sufficiency of the universal service support
mechanisms, we conclude that entities that qualify for the de minimis
exemption should be considered end users for Universal Service
Worksheet reporting purposes. Entities that resell telecommunications
and qualify for the de minimis exemption must notify the underlying
facilities-based carriers from which they purchase telecommunications
that they are exempt from contribution requirements and must be
considered end users for universal service contribution purposes. Thus,
underlying carriers should include revenues derived from providing
telecommunications to entities qualifying for the de minimis exemption
in lines 34-47, where appropriate, of their Universal Service
Worksheets.
F. Requirement that CMRS Providers Contribute to State Universal
Service Support Mechanisms
144. The Commission recently addressed, in Pittencrieff
Communications, Inc., Memorandum Opinion and Order, File No. WTB/POL
96-2, FCC 97-343 (rel. October 2, 1997) (recon. pending), the issue of
whether section 332(c)(3)(A) limits the ability of states to require
CMRS providers to contribute to state universal service support
mechanisms. The issues raised on reconsideration in this proceeding
were resolved in Pittencrieff. In Pittencrieff, the Commission
explicitly affirmed the finding made in the Order that section
332(c)(3)(A) does not preclude states from requiring CMRS providers to
contribute to state support mechanisms. The Commission concluded that a
state's requirement that CMRS providers contribute on an equitable and
nondiscriminatory basis to its universal service support mechanisms is
neither rate nor entry regulation but instead is a permissible
regulation on ``other terms and conditions'' under section
332(c)(3)(A). The Commission also stated:
We believe [the second sentence of section 332(c)(3)(A)] applies
only to a state's authority to impose requirements that would
otherwise constitute regulation of rates or entry. In that
situation, a state would have to comply with section 332(c)(3) by
showing that CMRS is ``a substitute for land line telephone exchange
service for a substantial portion of the communications within such
State.'' The state is not required to demonstrate that CMRS is a
substitute for land line service, however, when it requires a CMRS
provider to contribute to the state's universal service mechanisms
on an equitable and nondiscriminatory basis, in compliance with
section 254(f).
Finally, the Commission noted that, if section 332(c)(3) were
interpreted to conflict with section 254(f), section 254(f) would take
precedence over section 332(c)(3). Section 254(f), which requires all
telecommunications carriers that provide intrastate telecommunications
services, including CMRS providers, to contribute to state universal
service programs, was enacted later in time and speaks directly to the
contribution issue. Reconsideration petitions to this proceeding do not
raise issues that were not addressed in Pittencrieff. We find that our
order in Pittencrieff resolves the issues that have been raised by the
reconsideration petitions in this proceeding and we find no basis in
this record for reaching a different determination.
145. We do not anticipate that state contribution requirements will
violate section 253. Section 253(a) prohibits state and local
governments from enacting any statute, regulation or legal requirement
that prohibits or has the effect of prohibiting the ability of any
entity to provide any interstate or intrastate telecommunications
service. Section 253(b), among other things, protects state authority
to impose universal service requirements, as long as they are done ``on
a competitively neutral basis and consistent with section 254 * * *.''
Section 254(f) of the Act allows states to adopt universal service
regulations ``not inconsistent with the Commission's rules * * *.'' To
demonstrate that state universal service contribution requirements for
CMRS providers violate section 253, there must be a showing that the
state universal service programs act as a barrier to entry for CMRS
providers and are not competitively neutral.
146. We reject the argument that state universal service mechanisms
should not apply to CMRS providers because CMRS services should be
considered jurisdictionally ``interstate.'' Data submitted to the
Commission by CMRS carriers in connection with their TRS reporting for
the year 1995 reveal that interstate revenues amounted to only 5.6
percent of total revenues for cellular and personal communications
service carriers, and 24 percent of total revenues for paging and other
mobile service carriers. Thus, we find that it would be inappropriate
to classify all CMRS services as ``interstate.'' CMRS providers that
offer intrastate CMRS services cannot shield themselves from state
universal service contributions.
147. We also reject ProNet's argument that the Commission's
consideration of this issue in the Order violates the notice provisions
of the APA. The general requirement of notice contained
[[Page 2118]]
in section 553(b) of the APA does not apply ``to interpretive rules,
general statements of policy, or rules of agency organization,
procedure or practice * * *.'' Although the courts have recognized that
the distinction between those agency rules that are subject to the
notice requirement and those that are exempt is not always easy to
discern, the relevant law here is clear. As the U.S. Court of Appeals
for the D.C. Circuit stated:
Ultimately, an interpretive statement simply indicates an
agency's reading of a statute or a rule. It does not intend to
create new rights or duties, but only `` `reminds'' affected parties
of existing duties.'' A statement seeking to interpret a statutory
or regulatory term is, therefore, the quintessential example of an
interpretive rule.
At issue here is the correct interpretation of the second sentence of
section 332(c)(3)(A) of the Act. The Commission's statement on this
issue, as expressed in the Order, created neither new rights nor new
obligations that did not exist before. Therefore, the Commission did
not violate the notice provisions of the APA by addressing this issue.
148. ProNet argues that, because the Commission's interpretation of
the statute ``has immediate, direct impact on universal service
contributions at the state level,'' it cannot be exempt from the APA's
notice requirement, and that notice was required because ``the
Commission's interpretation of Sections 332(c)(3) and 254(f) of the Act
operates as an instruction to the states regarding their ability to
fund universal services, and creates immediate burdens on CMRS
carriers. * * *'' We disagree. No burdens on CMRS carriers are created
as a result of the Commission's statement on this issue in the Order.
Individual states must determine whether to exercise their authority
under section 254(f) to require universal service contributions from
CMRS carriers. Even if our interpretation had a substantial impact, the
mere fact that a rule may have a substantial impact, however, ``does
not transform it into a legislative rule.'' If not, the exemption for
interpretative rules from the APA's notice requirement would have
little practical application. We therefore reaffirm our conclusion that
the Commission's interpretation of sections 332(c)(3)(A) and 254(f) in
the Order is exempt from the notice requirement of the APA.
G. Recovery of Universal Service Contributions by CMRS Providers
149. The Commission permitted contributors to recover contributions
to the federal universal service support mechanisms through rates on
interstate services, in order to ensure the continued affordability of
residential dialtone service and to promote comity between the federal
and state governments. We agree with petitioners that these
considerations do not apply to CMRS providers. Because section
332(c)(3) of the Act alters the ``traditional'' federal-state
relationship with respect to CMRS by prohibiting states from regulating
rates for intrastate commercial mobile services, allowing recovery
through rates on intrastate as well as interstate CMRS services would
not encroach on state prerogatives. Further, allowing recovery of
universal service contributions through rates on all CMRS services will
avoid conferring a competitive advantage on CMRS providers that offer
more interstate than intrastate services. If CMRS carriers were
permitted to recover contributions through their interstate services
only, carriers that offer mostly intrastate services would be required
to recover a higher percentage of interstate revenues from their
customers than carriers that offer mostly interstate services. We
therefore will permit CMRS providers to recover their contributions
through rates charged for all their services.
H. Technical Corrections Regarding Calculation of Contribution Factors
150. Consistent with the Commission's findings in the NECA Report
and Order, we issue a technical clarification to section 54.709(a) of
our rules. We clarify that the Commission, not USAC, shall be
responsible for calculating the quarterly universal service
contribution factors. We also clarify that, based on Universal Service
Worksheets, USAC must submit the total contribution bases, interstate
and international and interstate, intrastate, and international end-
user telecommunications revenues, to the Commission at least sixty days
before the start of each quarter.
I. NECA/USAC Affiliate Transactions Rules
151. NECA is not a local exchange carrier subject to part 32 and
USAC is not a nonregulated affiliate engaged in a competitive business.
NECA and USAC, however, must file annual cost accounting manuals with
the Commission identifying their administrative costs. We find that it
is not practical to require NECA to follow the affiliate transactions
rules as they are applied to local exchange carriers subject to part
32. Because NECA does not provide services pursuant to tariff and does
not provide more than 50 percent of its services to third parties, if
NECA were subject to the affiliate transactions rules, it would be
required to determine the fair market value of the services provided to
USAC. We find that the burden of making such a determination outweighs
the benefit of imposing this requirement. On our own motion, we clarify
that NECA is subject to the affiliate transactions rules only to the
extent necessary to ensure that transactions between NECA and USAC are
recorded fairly. We conclude that NECA would satisfy this requirement
by valuing and recording transactions with USAC at fully distributed
cost in accordance with its Cost Accounting and Procedures Manual on
file with the Commission. Consistent with this finding, we conclude
that section 32.27 of the Commission's rules, to the extent that it
requires regulated carriers to record transactions with affiliates at
the tariffed rate, if a tariffed rate exists, at the prevailing market
rate, if a prevailing market rate exists, or at the higher of estimated
fair market value or cost, is not applicable to transactions between
NECA and USAC.
Final Regulatory Flexibility Analysis
152. As required by the Regulatory Flexibility Act (RFA), see 5
U.S.C. Sec. 603, an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated in the Notice of Proposed Rulemaking and Order
Establishing Joint Board. In addition, the Commission prepared an IRFA
in connection with the Recommended Decision, seeking written public
comment on the proposals in the NPRM and Recommended Decision. A Final
Regulatory Flexibility Analysis (FRFA) was included in the previous
Order. The Commission's Final Regulatory Flexibility Analysis (FRFA) in
this order conforms to the RFA, as amended.
153. To the extent that any statement contained in this FRFA is
perceived as creating ambiguity with respect to our rules or statements
made in preceding sections of this order, the rules and statements set
forth in those preceding sections shall be controlling.
A. Need for and Objectives of this Report and Order and the Rules
Adopted Herein
154. The Commission is required by section 254 of the Act, as
amended by the 1996 Act, to promulgate rules to implement promptly the
universal service provisions of section 254. On May 8, 1997, the
Commission adopted rules whose principle goal is to reform our system
of universal service support so that universal service is preserved and
advanced as markets move toward
[[Page 2119]]
competition. In this order, we clarify and reconsider those rules.
B. Summary and Analysis of the Significant Issues Raised by Public
Comments in Response to the IRFA
155. Summary of the Initial Regulatory Flexibility Analysis. The
Commission performed an IRFA in the NPRM and an IRFA in connection with
the Recommended Decision. In the IRFAs, the Commission sought comment
on possible exemptions from the proposed rules for small
telecommunications companies and measures to avoid significant economic
impact on small entities, as defined by the RFA. The Commission also
sought comment on the type and number of small entities, such as
schools, libraries, and health care providers, potentially affected by
the recommendations set forth in the Recommended Decision.
156. No comments in response to the IRFAs, other than those
described in the Order, were filed. In response to the FRFA, RTC argues
that the Commission did not satisfy the requirements of the RFA by
considering alternatives to the cap on recovery of corporate operations
expenses. We note that the majority of commenters in the Order
generally supported limiting the amount of corporate operations expense
that can be recovered through the universal service support mechanisms.
Some commenters suggested that universal service support should not be
allowed at all for corporate operating expenses; however, the
Commission found that the amount of corporate operating expense per
line that is supported through the universal service support mechanisms
should fall within a range of reasonableness. The Commission weighed
all alternatives relating to corporate operating expenses in the Order
and the previous FRFA in reaching its conclusion.
C. Description and Estimates of the Number of Small Entities to Which
the Rules Adopted in This Report and Order Will Apply
157. In the FRFA to the Order, we described and estimated the
number of small entities that would be affected by the new universal
service rules. The rules adopted here will apply to the same
telecommunications carriers and entities affected by the universal
service rules. We therefore incorporate by reference paragraphs 890-925
of the Order, which describe and estimate the number of affected
telecommunications carriers and other entities affected by the
universal service rules. We summarize that analysis as follows:
1. Telephone Companies (SIC 4813)
158. Total Number of Telephone Companies Affected. Many of the
decisions and rules adopted herein may have a significant effect on a
substantial number of the small telephone companies identified by the
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.
159. Wireless (Radiotelephone) Carriers. SBA has developed a
definition of small entities for radiotelephone (wireless)
communications 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 no more 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.
2. Cable System Operators (SIC 4841)
160. The 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 1,758 total cable and other
pay television services and 1,423 had less than $11 million in revenue.
We note that cable system operators are included in our analysis due to
their ability to provide telephony.
3. Municipalities
161. The term ``small government jurisdiction'' is defined as
``government of * * * districts with populations of less than 50,000.''
The most recent figures indicate that there are 85,006 governmental
entities in the United States. This number includes such entities as
states, counties, cities, utility districts, and school districts. Of
the 85,006 governmental entities, 38,978 are counties, cities, and
towns. The remainder are primarily utility districts, school districts,
and states. Of the 38,978 counties, cities, and towns, 37,566 or 96%,
have populations of fewer than 50,000. Consequently, we estimate that
there are 37,566 ``small government jurisdictions'' that will be
affected by our rules.
4. Rural Health Care Providers
162. Neither the Commission nor the SBA has developed a definition
of small, rural health care providers. Section 254(h)(5)(B) defines the
term ``health care provider'' and sets forth the seven categories of
health care providers eligible to receive universal service support. We
estimate that there are: (1) 625 ``post-secondary educational
institutions offering health care instruction, teaching hospitals, and
medical schools,'' including 403 rural community colleges, 124 medical
schools with rural programs, and 98 rural teaching hospitals; (2) 1,200
``community health centers or health centers providing health care to
migrant;'' (3) 3,093 ``local health departments or agencies'' including
1,271 local health departments and 1,822 local boards of health; (4)
2,000 ``community mental health centers;'' (5) 2,049 ``not-for-profit
hospitals;'' and (6) 3,329 ``rural health clinics.'' We do not have
sufficient information to make an estimate of the number of consortia
of health care providers at this time. The total of these categorical
numbers is 12,296. Consequently, we estimate that there are fewer than
12,296 health care providers potentially affected by the rules in this
order.
5. Schools (SIC 8211) and Libraries (SIC 8231)
163. The SBA has established a definition of small elementary and
secondary schools and small libraries 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 United States Department of Education and the National Center
for Educational Statistics. Based on that information, it appears that
there are approximately 86,221 public and 26,093 private K-12 schools
in the United States (SIC 8211). It further appears that there are
approximately 15,904 libraries, including branches, in the United
States (SIC 8231). Consequently, we estimate that there are fewer than
86,221 public and 26,093 private schools and fewer than 15,904
libraries that may be affected by the decisions and rules adopted in
this order.
[[Page 2120]]
D. Summary Analysis of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements and Significant Alternatives and Steps
Taken To Minimize the Significant Economic Impact on a Substantial
Number of Small Entities Consistent With Stated Objectives
164. Structure of the Analysis. In this section of the FRFA, we
analyze the projected reporting, recordkeeping, and other compliance
requirements that may apply to small entities and small incumbent LECs
as a result of this order. As a part of this discussion, we mention
some of the types of skills that will be needed to meet the new
requirements. We also describe the steps taken to minimize the economic
impact of our decisions on small entities and small incumbent LECs,
including the significant alternatives considered and rejected. Section
numbers correspond to the sections of the order.
Summary Analysis: Section II, Definition of Universal Service
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements
165. We conclude that Mobile Satellite Service (MSS) providers in
localities that have implemented E911 service, like other wireless
providers, may petition their state commission for permission to
receive universal service support for the designated period during
which they are completing the network upgrades required to offer access
to E911. We also affirm that MSS providers in localities that have
implemented E911 service must demonstrate that ``exceptional
circumstances'' prevent them from offering access to E911. We note that
we are not imposing any new reporting requirements beyond those
established in the May 8, 1997 Order.
Significant Alternatives and Steps Taken to Minimize Significant
Economic Impact on a Substantial Number of Small Entities Consistent
with Stated Objectives
166. We recognize that exceptional circumstances may prevent some
carriers, such as MSS providers, from offering access to E911. To
promote competitive and technological neutrality, however, we permit
MSS providers that are incapable of providing access to E911 service,
but that wish to receive universal service support, to demonstrate to
their state commissions that ``exceptional circumstances'' prevent them
from offering such access.
Summary Analysis: Section III, Carriers Eligible for Universal Service
Support
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements. 167. As of January 1, 1998, the temporary Administrator
may not disburse support to carriers that have not been designated as
eligible under section 214(e). Thus, if a carrier has not been
designated as eligible by its state commission by January 1, 1998, it
may not receive support until such time as it is designated an eligible
telecommunications carrier. Additionally, we encourage Sandwich Isles
and the relevant Hawaiian state agencies to resolve their dispute over
which entity should designate eligible telecommunications carriers to
serve the Hawaiian Home Lands. If they are unable to do so, we
encourage them to bring this fact to our attention so that we may
complete action on the pending petitions on this matter. Neither of
these determinations impose any new reporting, recordkeeping, or other
compliance requirements on small entities.
Significant Alternatives and Steps Taken to Minimize Significant
Economic Impact on a Substantial Number of Small Entities Consistent
with Stated Objectives. 168. In the Order and subsequent public
notices, we have emphasized to state commissions that they must
designate eligible telecommunications carriers by January 1, 1998, so
that carriers that are eligible for universal service support may
receive such support beginning January 1, 1998. State commissions that
are unable to designate any eligible telecommunications carrier in a
service area by January 1, 1998 may, upon completion of the
designation, file with the Commission a petition for a waiver
requesting that the designated carrier receive universal service
support retroactive to January 1, 1998.
Summary Analysis: Section IV, High Cost, Rural, and Insular Support
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements. 169. Section 54.303 of the Commission's rules provides
the method by which the Administrator will calculate and distribute DEM
weighting assistance (or local switching support). Although that
section sets forth the method for calculating the local switching
support factor, it does not specify the method for calculating the
annual unseparated local switching revenue requirement. Accordingly, we
amend the Commission's part 54 rules to provide the method by which the
Administrator will calculate the unseparated local switching revenue
requirement. Specifically, we direct the Administrator to use part 32
account data as suggested by NECA to determine the unseparated local
switching revenue requirement. Consistent with our adoption of a
methodology that relies upon part 32 account data, we authorize the
Administrator to issue a data request annually to the carriers that
serve study areas with 50,000 or fewer access lines. We anticipate that
of the approximately 1,288 carriers that will be required to file part
32 account data with the Administrator in order to receive DEM
weighting assistance, all but approximately 192 already provide this
information to NECA.
170. We adopt no additional reporting, recordkeeping, or other
compliance requirements with respect to the remaining high cost, DEM
weighting and LTS issues addressed in this order.
Significant Alternatives and Steps Taken to Minimize Significant
Economic Impact on a Substantial Number of Small Entities Consistent
with Stated Objectives. 171. We considered an alternative method of
calculating the unseparated local switching revenue requirement that
would not have imposed an additional reporting requirement on those
carriers that currently do not file part 32 account data with NECA. We
concluded, however, that GVNW's proposal to calculate the local
switching revenue requirement by dividing the interstate local
switching revenue requirement by the interstate DEM weighting factor
that is used to assign the local switching investment to the interstate
jurisdiction under part 36 of our rules would not provide an accurate
measure of the unseparated local switching revenue requirement. If all
local switching expenses and investment used to determine the revenue
requirement for the local switching rate element were allocated between
the interstate and intrastate jurisdictions on the basis of weighted
DEM, the formula suggested by GVNW would result in an accurate
calculation of the unseparated local switching revenue requirement.
Weighted DEM, however, is only one of several mechanisms used to
allocate local switching expenses and investment between the interstate
and intrastate jurisdictions for purposes of determining local
switching access charges. The Commission's rules prescribe different
allocators for other local switching expenses and related investment,
such as those associated with general support facilities. We conclude
that the approach adopted in this order, to the extent that it
allocates
[[Page 2121]]
local switching expenses and related investment in a manner that is
consistent with the allocation methods prescribed under parts 36 and 69
of our rules, provides a more accurate method for calculating the
unseparated local switching revenue requirement.
172. Although we adopt no additional reporting, recordkeeping, or
other compliance requirements with respect to the cap on recovery of
corporate operations expenses, we note that several petitioners
challenged the Commission's decision to limit recovery of corporate
operations expenses. These petitioners argue that the Commission's
decision in the Order to limit such expenses ignores Congress's intent
to limit or reduce burdens on small, rural, and insular carriers and,
in fact, disproportionately burdens smaller incumbent LECs. ITC argues
that federal regulatory expenses should not be included within the
limitation to ensure that small companies will be able to participate
in the federal regulatory process.
173. In general, the Commission's decision to limit recovery of
corporate operations expenses carefully considers the needs of smaller
carriers. The Commission concludes that all carriers currently have
little incentive to minimize these expenses because the current
mechanism allows carriers to recover a large percentage of their
corporate operations expenses. Smaller carriers possess even fewer
incentives to minimize corporate operations expenses because the
Commission has a limited ability to ensure, through audits, that
smaller companies properly assign corporate operations expenses to
appropriate accounts and that carriers do not spend at excessive
levels. The Commission, and frequently state commissions, cannot
justify auditing smaller carriers because the cost of a full-scale
audit is likely to exceed any expenses found to be improper by that
audit. We therefore conclude that imposing a cap that is relatively
generous to small carriers but still imposes a limitation is a prudent
way to encourage correct allocation of expenditures and to discourage
excessive expenditures. Under this approach, we are providing carriers
with an incentive to control their corporate operations expenses
without requiring all carriers, including small carriers, to incur the
costs associated with a full Commission audit. As the Commission
indicated in its Order and as explained above, carriers that contend
that the limitation provides insufficient support may request a waiver
from the Commission. Therefore, only carriers whose expenses are
significantly above the average and who contend that the capped amount
is insufficient will be required to provide additional justification
for their expenditures. We therefore conclude that this limitation
deters improper recovery of universal service funds while minimizing
the administrative burden on the Commission and on all carriers,
including smaller carriers. Moreover, individual companies that are
required to incur unusually high corporate operations expenses, such as
small companies, Alaskan companies, or insular companies, are able to
apply for a waiver with the Commission to demonstrate that these
expenses are necessary to the provision of the supported services.
174. In adopting the limitation on corporate operations expenses,
the Commission considered whether to exclude recovery of all corporate
operations expenses, as it had originally proposed in 1995. The
Commission concluded, however, that it should limit recovery of such
expenses, in part to protect smaller recipients of high cost universal
service support. When developing the formula that will calculate the
limit on recovery of corporate operations expense, the Commission took
into account the lesser economies of scale of smaller carriers and
adopted a limit that is more generous to smaller carriers.
Additionally, the Commission adopted an industry proposal to add a
minimum annual cap of $300,000 that is favored, among others, by
petitioners representing smaller, rural carriers. This minimum cap will
assist the smallest carriers--those with fewer than approximately 600
lines. Further, when developing the formula to limit recovery of
corporate operations expenses, the Commission chose not to limit
recovery to the average corporate operations expenses, but instead
added a 15 percent ``buffer'' to protect all carriers, including
smaller carriers, with expenses that are slightly higher than average.
We reject ITC's request to exclude all federal regulatory expenses from
the limitation because, while some expenditures may be necessary to
participate in the federal regulatory process, the need for such
expenditures are not without limit and many carriers, including smaller
carriers, fulfill legal and regulatory requirements and participate in
the federal regulatory process while incurring costs below the
Commission's limit.
Summary Analysis: Section V, Support for Low-income Consumers
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements. 175. There are no new reporting, recordkeeping, or
compliance requirements required by this section. Significant
Alternatives and Steps Taken to Minimize Significant Economic Impact on
a Substantial Number of Small Entities Consistent with Stated
Objectives.
176. We reconsider the Commission's decision that eligible
telecommunications carriers must provide both toll blocking and toll
control to qualifying low-income consumers. We find that eligible
telecommunications carriers that cannot provide both toll blocking and
toll control may provide either toll blocking or toll control to
qualifying low-income consumers. Small carriers that are not capable of
providing both toll blocking and toll control will benefit from this
decision by remaining eligible for universal service when providing one
but not both of these services to qualifying low-income consumers.
Summary Analysis: Section VI, Schools and Libraries and Rural Health
Care Providers
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements. 177. In the order, we affirm the Commission's previous
decision to require service providers to ``look back'' three years to
determine the lowest corresponding price charged for similarly situated
non-residential customers. We also affirm the Commission's previous
decision to require schools and libraries to conduct an internal
assessment of the components necessary to use effectively the
discounted services they order, submit a complete description of the
services they seek, and certify to certain criteria under penalty of
perjury. We also affirm the Commission's previous decision to require
schools and libraries to obtain independent approval of their
technology plans. We note that we are not imposing any new reporting
requirements beyond those established in the May 8, 1997 Order.
178. We do not require that the Schools and Libraries Corporation
and the Rural Health Care Corporation post RFPs submitted by schools,
libraries, and rural health care providers on the websites. Instead,
schools and libraries will submit FCC Form 470 and rural health care
providers will submit FCC Form 465, containing a description of
services requested, and the Schools and Libraries Corporation and Rural
Health Care Corporation will post only the information contained in
these forms on the websites. We affirm the Commission's prior decision
that the Schools and Libraries Corporation may
[[Page 2122]]
review technology plans when a state agency is unable or unwilling to
do so within a reasonable time. In an effort to ensure that eligible
schools and libraries are not penalized by this requirement, we will
allow such entities to indicate on FCC Form 470 that their technology
plan has either been approved, will be approved by a state or other
authorized body, or will be submitted to the Schools and Libraries
Corporation for approval. Applicants will be required to certify on FCC
Form 471 that they will strive to ensure that the most disadvantaged
schools and libraries will receive the full benefit of the discounts to
which they are entitled. These reporting requirements were set forth in
either the Order or the July 10 Order. These tasks may require some
administrative, accounting, clerical, and legal skills.
179. We conclude that state telecommunications networks that
procure telecommunications from service providers and make such
services available to consortia of schools and libraries will be
permitted to secure discounts on eligible telecommunications from
service providers on behalf of eligible schools and libraries. In
addition, we conclude that state telecommunications networks that
provide access to the Internet and internal connections may either
secure discounts on such telecommunications and pass on such discounts
to eligible schools and libraries, or receive direct reimbursement from
universal service support mechanisms for providing Internet access and
internal connections. In order to receive universal service discounts
that will be passed through to eligible schools and libraries, state
telecommunications networks will request that service providers apply
appropriate discount amounts on eligible telecommunications. The
service providers will submit to the state telecommunications network a
bill that includes the appropriate discounts on the portion of eligible
telecommunications rendered to eligible entities. The state
telecommunications network then will direct the eligible consortia
members to pay the discounted price. Eligible consortia members may pay
the discounted price to their state telecommunications network, which
will then pay the discounted amount to the service providers. State
telecommunications networks should retain records listing eligible
schools and libraries and showing the basis on which the eligibility
determinations were made. Such networks also must keep careful records
demonstrating the discount amount to which each eligible entity is
entitled and the basis for such a determination. We note that this is
not a new reporting requirement. In addition, we require consortia to
certify that each individual institution listed as a member of the
consortia and included in determining the discount rate will receive an
appropriate share of the shared services within five years of the
filing of the consortium application. We further conclude that, to the
extent schools and libraries build and purchase wide area networks to
provide telecommunications, the cost of purchasing such networks will
not be eligible for universal service discounts.
Significant Alternatives and Steps Taken To Minimize Significant
Economic Impact on a Substantial Number of Small Entities Consistent
With Stated Objectives.
180. We affirm the Commission's decision to require service
providers to ``look back'' three years to determine the lowest
corresponding price charged for similarly situated non-residential
customers. In doing so, we do not adopt the proposal of GTE to reduce
this requirement to one year. We note that we do not consider this
provision to be unduly burdensome on providers, some of whom may
qualify as small entities, as the records to be reviewed are limited to
those relating to similarly situated non-residential customers for
similar services. Moreover, we expect that providers would voluntarily
perform such a review in most cases to determine the rate to charge in
a competitive environment.
181. We affirm the Commission's decision to require schools and
libraries to comply with certain reporting requirements including
conducting an internal assessment of the components necessary to use
effectively the discounted services they order, submit a complete
description of the services they seek, and certify to certain criteria
under penalty of perjury. We do not find these requirements to be
unduly burdensome on schools and libraries and believe that they will
assist schools and libraries in obtaining and utilizing supported
services in an efficient and effective manner. We also affirm the
Commission's decision to require schools and libraries to submit and
receive approval of technology plans. We do not adopt the suggestion of
a few petitioners that we postpone or eliminate this requirement in an
effort to equalize the ability of non-public schools and libraries to
obtain independent approval. We do, however, adopt measures to assist
non-public entities, many of whom may qualify as small entities, from
being disadvantaged by this requirement. For example, we authorize the
Schools and Libraries Corporation to review technology plans when the
state is unwilling or unable to do so in a reasonable time. Eligible
entities that are not required by state or local law to obtain state
approval for technology plans and telecommunications expenditures may
apply directly to the Schools and Libraries Corporation for review of
their technology plan. In addition, FCC Form 470 will allow applicants
to indicate that their technology plans either have been approved, will
be approved by a state or other entity, or will be submitted to the
Schools and Libraries Corporation for approval. This will allow non-
public schools and libraries to proceed with the application process in
a timely manner while obtaining approval of their technology plans.
Support will not, however, be provided prior to approval of the
technology plan.
182. We reconsider the definition of existing contracts established
in the July 10 Order that are exempt from the competitive bid
requirement. We conclude that any contract signed on or before July 10,
1997 will be considered an existing contract. Contracts signed after
July 10, 1997 but before the websites are fully operational will be
considered existing contracts for those services provided through
December 31, 1998. We extend the existing contract exemption that we
establish in this Order to rural health care providers, many of whom
identify themselves as small entities. We believe that this
determination will assist many small entities by allowing them to
negotiate lower rates through long-term contracts and avoid penalties
associated with breaking contracts that they entered into prior to the
date that the website is fully operational. We do not adopt the
suggestion that we eliminate all restrictions on contracts signed prior
to the date that the schools and libraries websites become fully
operational. Although schools and libraries have a strong incentive to
negotiate contracts at the lowest possible pre-discount prices in an
effort to reduce their costs, we affirm our initial finding that
competitive bidding is the most efficient means of ensuring that
eligible schools and libraries are informed about the choices available
to them and receive the lowest prices.
183. Requiring state telecommunications networks to retain records
listing eligible schools and libraries should be minimally burdensome
because we require such networks to gather and retain basic
[[Page 2123]]
information, such as the names of consortia members, addresses, and
telephone numbers. Requiring state networks to keep records
demonstrating the discount amount to which each eligible entity is
entitled and the basis on which such a determination was made should be
minimally burdensome, because such information should be readily
available from the eligible entities. Additionally, consistent with the
Order, service providers must keep and retain careful records showing
how they have allocated the costs of facilities shared by eligible and
ineligible entities in Order to charge such entities the correct
amounts. As we determined in the Order, this should be minimally
burdensome, because state networks will be required 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). We find that these
recordkeeping and reporting requirements described above are necessary
to provide the level of accountability that is in the public interest.
Summary Analysis: Section VII, Administration
Summary of Projected Reporting, Recordkeeping, and Other Compliance
Requirements. 184. Section 254(d) states ``that all telecommunications
carriers that provide interstate telecommunications services shall make
equitable and nondiscriminatory contributions'' toward the preservation
and advancement of universal service. We shall continue to require all
telecommunications carriers that provide interstate telecommunications
services and some providers of interstate telecommunications to
contribute to the universal service support mechanisms. Contributions
for support for programs for high cost areas and low-income consumers
will be assessed on the basis of interstate and international end-user
telecommunications revenues. Contributions for support for programs for
schools, libraries, and rural health care providers will be assessed on
the basis of interstate, intrastate, and international end-user
telecommunications revenues. As provided in the Order, contributors
will be required to submit information regarding their end-user
telecommunications revenues. Approximately 4,500 telecommunications
carriers and providers will be required to submit contributions. We
note that we do not impose any new reporting requirements beyond those
established in the Order. These tasks may require some administrative,
accounting, and legal skills.
Significant Alternatives and Steps Taken to Minimize Significant
Economic Impact on a Substantial Number of Small Entities Consistent
with Stated Objectives. 185. In accordance with section 254(d), we
affirm the Commission's decision that all telecommunications carriers
that provide interstate telecommunications services shall make
equitable and nondiscriminatory contributions toward universal service.
We reject the contention of various telecommunications carriers that
they should not be required to contribute or should be allowed to
contribute at a reduced rate. For example, we reject the suggestion of
some petitioners that CMRS providers, many of whom may qualify as small
businesses, should not be required to contribute, or should be allowed
to contribute at a reduced rate, due to their contention that they may
not be eligible to receive universal service support. We note that
section 254(d) provides no such exemption for CMRS providers or other
carriers regardless of whether they receive universal service support.
We affirm the Commission's decision, however, that entities that
provide only international telecommunications services are not required
to contribute to universal service support because they are not
telecommunications carriers that provide interstate telecommunications
services. We also clarify that the lease of space segment capacity by
satellite providers does not constitute the provision of
telecommunications and therefore does not trigger universal service
contribution requirements.
186. We exempt from the contribution requirement systems
integrators that obtain a de minimis amount of their revenues from the
resale of telecommunications. We exempt from the contribution
requirement schools, libraries, and rural health care providers that
are eligible to receive universal service support. We also agree with
petitioners' suggestions that the de minimis exemption take into
account the Administrator's collection costs and contributor's
reporting compliance costs. We find that if a contributor's
contribution to universal service in any given year is less than
$10,000, that contributor will not be required to submit a contribution
for that year. We believe that small entities will benefit under the de
minimis exemption as interpreted in the Order. We also believe that
small payphone aggregators, such as grocery store owners, will be
exempt from contribution requirements pursuant to our de minimis
exemption.
E. Report to Congress
187. The Commission shall send a copy of this FRFA, along with this
Report and Order, in a report to Congress pursuant to the Small
Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.
Sec. 801(a)(1)(A). A copy or summary of the Report and Order and this
FRFA will also be published in the Federal Register, see 5 U.S.C.
Sec. 604(b), and will be sent to the Chief Counsel for Advocacy of the
Small Business Administration.
Ordering Clauses
Accordingly, It is ordered that, pursuant to the authority
contained in sections 1-4, 201-205, 218-220, 214, 254, 303(r), 403, and
410 of the Communications Act of 1934, as amended, 47 U.S.C. Secs. 151-
154, 201-205, 218-220, 214, 254, 303(r), 403, and 410, the FOURTH ORDER
ON RECONSIDERATION IS ADOPTED, effective 30 days after publication of
the text in the Federal Register. The collections of information
contained within are contingent upon approval by the Office of
Management and Budget.
It is further ordered that parts 36, 54, and 69 of the Commission's
rules, 47 CFR 36, 54, and 69, are amended as set forth in the rule
changes, effective 30 days after publication of the text thereof in the
Federal Register.
It is further ordered that, pursuant to section 5(c)(1) of the
Communications Act of 1934, as amended, 47 U.S.C. Sec. 155(c)(1),
authority is delegated to the Chief, Common Carrier Bureau, to review,
modify, and approve the formula submitted by the Administrator pursuant
to section 54.303(f) of the Commission's rules, 47 CFR 54.303(f).
It is further ordered that United States Telephone Association's
Petition for Clarification is DISMISSED AS MOOT.
It is further ordered that Florida Public Service Commission's
Petition for Declaratory Statement is GRANTED. It is further determined
that the Florida Commission's state Lifeline program qualifies as a
program that provides intrastate matching funds and, therefore, the
Florida Commission may set its own consumer qualification standards. It
is further ordered that Florida Public Service Commission's Petitions
for Waiver are DISMISSED AS MOOT, and that its Request for Expedited
Ruling and Petition for Clarification are GRANTED.
It is further ordered that if any portion of this Order or any
regulation implementing this Order is held invalid, either generally or
as applied to
[[Page 2124]]
particular persons or circumstances, the remainder of the Order or
regulations, or their application to other persons or circumstances,
shall not be affected.
It is further ordered that the Commission's Office of Public
Affairs, Reference Operations Division, SHALL SEND a copy of this
Report and Order, including the Final Regulatory Flexibility Analysis,
to the Chief Counsel for Advocacy of the Small Business Administration.
List of Subjects
47 CFR Part 36
Communications common carriers, Reporting and recordkeeping
requirements, Telephone, Uniform system of accounts.
47 CFR 54
Health facilities, Libraries, Reporting and recordkeeping
requirements, Schools, Telecommunications, Telephone.
47 CFR Part 69
Communications common carriers, Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
Rule Changes
Parts 36, 54 and 69 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 U.S.C. 151, 154(i) and (j), 205, 221(c), 254, 403
and 410.
2. Amend Sec. 36.125 by revising paragraph (a)(5) to read as
follows:
Sec. 36.125 Local switching equipment--Category 3.
(a) * * *
(5) The interstate DEM factor is the ratio of the interstate DEM to
the total DEM. A weighted interstate DEM factor is the product of
multiplying a weighting factor, as defined in paragraph (f) of this
section, to the interstate DEM factor. The state DEM factor is the
ratio of the state DEM to the total DEM.
* * * * *
3. Amend Sec. 36.601 by revising paragraph (c) to read as follows:
Sec. 36.601 General.
* * * * *
(c) The annual amount of the total nationwide loop cost expense
adjustment calculated pursuant to this subpart F shall not exceed the
amount of the total loop cost expense adjustment for the immediately
preceding calendar year, increased by a rate equal to the rate of
increase in the total number of working loops during the calendar year
preceding the July 31st filing. The total loop cost expense adjustment
shall consist of the loop cost expense adjustments, including amounts
calculated pursuant to Secs. 36.612(a) and 36.631. The rate of increase
in total working loops shall be based upon the difference between the
number of total working loops on December 31 of the calendar year
preceding the July 31st filing and the number of total working loops on
December 31 of the second calendar year preceding that filing, both
determined by the company's submission pursuant to Sec. 36.611.
Beginning January 1, 1999, non-rural carriers shall no longer receive
support pursuant to this subpart F. Beginning January 1, 1999, the
total loop cost expense adjustment shall not exceed the total amount of
the loop cost expense adjustment provided to rural carriers for the
immediately preceding calendar year, adjusted to reflect the rate of
change in the total number of working loops of rural carriers during
the calendar year preceding the July filing. In addition, effective on
January 1 of each year, beginning January 1, 1999, the maximum annual
amount of the total loop cost expense adjustment for rural carriers
must be further increased or decreased to reflect:
(1) The addition of lines served by carriers that were classified
as non-rural in the prior year but which, in the current year, meet the
definition of ``rural telephone company;'' and
(2) The deletion of lines served by carriers that were classified
as rural in the prior year but which, in the current year, no longer
meet the definition of ``rural telephone company.'' A rural carrier is
defined as a carrier that meets the definition of a ``rural telephone
company'' in Sec. 51.5 of this chapter. Limitations imposed by this
paragraph shall apply only to amounts calculated pursuant to this
subpart F.
4. Amend Sec. 36.612 by revising paragraph (a) introductory text to
read as follows:
Sec. 36.612 Updating information submitted to the National Exchange
Carrier Association.
(a) Any telecommunications company may update the information
submitted to the National Exchange Carrier Association pursuant to
Sec. 36.611 (a) through (h) one or more times annually on a rolling
year basis. Carriers wishing to update the preceding calendar year data
filed July 31st may:
* * * * *
5. Amend Sec. 36.613 by revising the first sentence of the
introductory text of paragraph (a) to read as follows:
Sec. 36.613 Submission of information by the National Exchange Carrier
Association.
(a) On October 1 of each year, the National Exchange Carrier
Association shall file with the Commission and Administrator the
information listed below. * * *
* * * * *
6. Amend Sec. 36.621 by revising the second sentence of paragraph
(a)(1), paragraph (a)(2) and (a)(3), the first and second sentences of
paragraph (a)(4) introductory text and paragraphs (a)(4)(ii)(A) through
(a)(4)(ii)(C) to read as follows:
Sec. 36.621 Study area total unseparated loop cost.
(a) * * *
(1) * * * This amount is calculated by deducting the accumulated
depreciation and noncurrent deferred Federal income taxes attributable
to C&WF subcategory 1.3 investment and Exchange Line Category 4.13
circuit investment reported pursuant to Sec. 36.611(b) from the gross
investment in Exchange Line C&WF subcategory 1.3 and CO Category 4.13
reported pursuant to Sec. 36.611(a) to obtain the net unseparated C&WF
subcategory 1.3 investment, and CO Category 4.13 investment. * * *
(2) Depreciation expense attributable to C&WF subcategory 1.3
investment, and CO Category 4.13 investment as reported in
Sec. 36.611(c).
(3) Maintenance expense attributable to C&WF subcategory 1.3
investment, and CO Category 4.13 investment as reported in
Sec. 36.611(d).
(4) Corporate Operations Expenses, Operating Taxes and the benefits
and rent portions of operating expenses, as reported in Sec. 36.611(e)
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), to the unseparated gross telecommunications
[[Page 2125]]
plant investment, as reported in Sec. 36.611(f). * * *
* * * * *
(ii) * * *
(A) For study areas with 6,000 or fewer working loops the amount
per working loop shall be $31.188-(.0023 x the number of working
loops), or, $25,000the number of working loops, whichever is
greater;
(B) for study areas with more than 6,000 but fewer than 18,006
working loops, the amount per working loop shall be $3.588 +
(82,827.60the number of working loops); and
(C) for study areas with 18,006 or more working loops, the amount
per working loop shall be $8.188.
7. Amend Sec. 36.622 by revising the introductory text of
paragraphs (a) and (b) to read as follows:
Sec. 36.622 National and study area average unseparated loop costs.
(a) National Average Unseparated Loop Cost per Working Loop. Except
as provided in paragraph (c) of this section, this is equal to the sum
of the Loop Costs for each study area in the country as calculated
pursuant to Sec. 36.621(a) divided by the sum of the working loops
reported in Sec. 36.611(h) for each study area in the country. The
national average unseparated loop cost per working loop shall be
calculated by the National Exchange Carrier Association.
* * * * *
(b) Study Area Average Unseparated Loop Cost per Working Loop. This
is equal to the unseparated loop costs for the study area as calculated
pursuant to Sec. 36.621(a) divided by the number of working loops
reported in Sec. 36.611(h) for the study area.
* * * * *
8. Amend Sec. 36.631 by revising paragraphs (a) through (d) to read
as follows:
Sec. 36.631 Expense adjustment.
(a) Until December 31, 1997, for study areas reporting 50,000 or
fewer working loops pursuant to Sec. 36.611(h), the expense adjustment
(additional interstate expense allocation) is equal to the sum of the
following:
(1) Fifty percent of the study area average unseparated loop cost
per working loop as calculated pursuant to Sec. 36.622(b) in excess of
115 percent of the national average for this cost but not greater than
150 percent of the national average for this cost as calculated
pursuant to Sec. 36.622(a) multiplied by the number of working loops
reported in Sec. 36.611(h) for the study area; and
(2) Seventy-five percent of the study area unseparated loop cost
per working loop as calculated pursuant to Sec. 36.622(b) in excess of
150 percent of the national average for this cost as calculated
pursuant to Sec. 36.622(a) multiplied by the number of working loops
reported in Sec. 36.611(h) for the study area.
(b) Until December 31, 1987, for study areas reporting more than
50,000 working loops pursuant to Sec. 36.611(h), the expense adjustment
(additional interstate expense allocation) is equal to the sum of the
following:
(1) Twenty-five percent of the study area average unseparated loop
cost per working loop as calculated pursuant to Sec. 36.622(b) in
excess of 115 percent of the national average for this cost but not
greater than 150 percent of the national average for this cost as
calculated pursuant to Sec. 36.622(a) multiplied by the number of
working loops reported in Sec. 36.611(h) for the study area; and
(2) The amount calculated pursuant to Sec. 36.631(a)(2).
(c) Beginning January 1, 1988, for study areas reporting 200,000 or
fewer working loops pursuant to Sec. 36.611(h), the expense adjustment
(additional interstate expense allocation) is equal to the sum of the
following:
(1) Sixty-five percent of the study area average unseparated loop
cost per working loop as calculated pursuant to Sec. 36.622(b) in
excess of 115 percent of the national average for this cost but not
greater than 150 percent of the national average for this cost as
calculated pursuant to Sec. 36.622(a) multiplied by the number of
working loops reported in Sec. 36.611(h) for the study area; and
(2) Seventy-five percent of the study area average unseparated loop
cost per working loop as calculated pursuant to Sec. 36.622(b) in
excess of 150 percent of the national average for this cost as
calculated pursuant to Sec. 36.622(a) multiplied by the number of
working loops reported in Sec. 36.611(h) for the study area.
(d) Beginning January 1, 1988, for study areas reporting more than
200,000 working loops pursuant to Sec. 36.611(h), the expense
adjustment (additional interstate expense allocation) is equal to the
sum of the following:
(1) Ten percent of the study area average unseparated loop cost per
working loop cost per working loop as calculated pursuant to
Sec. 36.622(b) in excess of 115 percent of the national average for
this cost but not greater than 160 percent of the national average for
this cost as calculated pursuant to Sec. 36.622(a) multiplied by the
number of working loops reported in Sec. 36.611(h) for the study area;
(2) Thirty percent of the study area average unseparated loop cost
per working loop as calculated pursuant to Sec. 36.622(b) in excess of
160 percent of the national average for this cost but not greater than
200 percent of the national average for this cost as calculated
pursuant to Sec. 36.622(a) multiplied by the number of working loops
reported in Sec. 36.611(h) for the study area;
(3) Sixty percent of the study area average unseparated loop cost
per working loop as calculated pursuant to Sec. 36.622(b) in excess of
200 percent of the national average for this cost but not greater than
250 percent of the national average for this cost as calculated
pursuant to Sec. 36.622(a) multiplied by the number of working loops
reported in Sec. 36.611(h) for the study area; and
(4) Seventy-five percent of the study area average unseparated loop
cost per working loop as calculated pursuant to Sec. 36.622(b) in
excess of 250 percent of the national average for this cost as
calculated pursuant to Sec. 36.622(a) multiplied by the number of
working loops reported in Sec. 36.611(h) for the study area.
* * * * *
PART 54--UNIVERSAL SERVICE
9. The authority citation for part 54 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 201, 205, 214 and 254.
10. Amend Sec. 54.101 by revising paragraph (a) introductory text,
the last sentence of paragraph (a)(1) and paragraph (b) to read as
follows:
Sec. 54.101 Supported services for rural, insular, and high cost
areas.
(a) Services designated for support. The following services or
functionalities shall be supported by federal universal service support
mechanisms:
(1) * * * For the purposes of this part, bandwidth for voice grade
access should be, at a minimum, 300 to 3,000 Hertz.
* * * * *
(b) Requirement to offer all designated services. An eligible
telecommunications carrier must offer each of the services set forth in
paragraph (a) of this section in order to receive federal universal
service support.
* * * * *
11. Amend Sec. 54.201 by revising the section heading,
redesignating paragraphs (a)(2) and (a)(3) as paragraphs (a)(3) and
(a)(4) and adding new paragraph (a)(2) to read as follows:
Sec. 54.201 Definition of eligible telecommunications carriers,
generally.
(a) * * *
(2) A state commission that is unable to designate as an eligible
[[Page 2126]]
telecommunications carrier, by January 1, 1998, a carrier that sought
such designation before January 1, 1998, may, once it has designated
such carrier, file with the Commission a petition for waiver of
paragraph (a)(1) of this section requesting that the carrier receive
universal service support retroactive to January 1, 1998. The state
commission must explain why it did not designate such carrier as
eligible by January 1, 1998, and provide a justification for why
providing support retroactive to January 1, 1998, serves the public
interest.
* * * * *
12. Revise Sec. 54.301 to read as follows:
Sec. 54.301 Local switching support.
(a) Calculation of local switching support.
(1) Beginning January 1, 1998, an incumbent local exchange carrier
that has been designated an eligible telecommunications carrier and
that serves a study area with 50,000 or fewer access lines shall
receive support for local switching costs using the following formula:
the carrier's projected annual unseparated local switching revenue
requirement, calculated pursuant to paragraph (d) of this section,
shall be multiplied by the local switching support factor. For purposes
of this section, local switching costs shall be defined as Category 3
local switching costs under part 36 of this chapter.
(2) Local switching support factor.
(i) The local switching support factor shall be defined as the
difference between the 1996 weighted interstate DEM factor, calculated
pursuant to Sec. 36.125(f) of this chapter, and the 1996 unweighted
interstate DEM factor.
(ii) If the number of a study area's access lines increases such
that, under Sec. 36.125(f) of this chapter, the weighted interstate DEM
factor for 1997 or any successive year would be reduced, that lower
weighted interstate DEM factor shall be applied to the carrier's 1996
unweighted interstate DEM factor to derive a new local switching
support factor.
(3) Beginning January 1, 1998, the sum of the unweighted interstate
DEM factor, as defined in Sec. 36.125(a)(5) of this chapter, and the
local switching support factor shall not exceed 0.85. If the sum of
those two factors would exceed 0.85, the local switching support factor
shall be reduced to a level that would reduce the sum of the factors to
0.85.
(b) Submission of data to the Administrator. Each incumbent local
exchange carrier that has been designated an eligible
telecommunications carrier and that serves a study area with 50,000 or
fewer access lines shall, for each study area, provide the
Administrator with the projected total unseparated dollar amount
assigned to each account listed below for the calendar year following
each filing. This information must be provided to the Administrator no
later than October 1 of each year. The Administrator shall use this
information to calculate the projected annual unseparated local
switching revenue requirement pursuant to paragraph (d) of this
section.
I
Telecommunications Plant in Account 2001
Service (TPIS).
Telecommunications Plant-- Accounts 2002, 2003, 2005
Other.
General Support Assets....... Account 2110
Central Office Assets........ Accounts 2210, 2220, 2230
Central Office--switching, Account 2210, Category 3
Category 3 (local switching).
Information Origination/ Account 2310
Termination Assets.
Cable and Wire Facilities Account 2410
Assets.
Amortizable Tangible Assets.. Account 2680
Intangibles.................. Account 2690
II
Rural Telephone Bank (RTB) Included in Account 1402
Stock.
Materials and Supplies....... Account 1220.1
Cash Working Capital......... Defined in 47 CFR 65.820(d)
III
Accumulated Depreciation..... Account 3100
Accumulated Amortization..... Accounts 3400, 3500, 3600
Net Deferred Operating Income Accounts 4100, 4340
Taxes.
Network Support Expenses..... Account 6110
General Support Expenses..... Account 6120
Central Office Switching, Accounts 6210, 6220, 6230
Operator Systems, and
Central Office Transmission
Expenses.
Information Origination/ Account 6310
Termination Expenses.
Cable and Wire Facilities Account 6410
Expenses.
Other Property, Plant and Account 6510
Equipment Expenses.
Network Operations Expenses.. Account 6530
Access Expense............... Account 6540
Depreciation and Amortization Account 6560
Expense.
Marketing Expense............ Account 6610
Services Expense............. Account 6620
Corporate Operations Expense. Accounts 6710, 6720
Operating Taxes.............. Accounts 7230, 7240
Federal Investment Tax Accounts 7210
Credits.
Provision for Deferred Account 7250
Operating Income Taxes--Net.
Allowance for Funds Used Account 7340
During Construction.
Charitable Contributions..... Included in Account 7370
Interest and Related Items... Account 7500
IV
Other Non-Current Assets..... Account 1410
Deferred Maintenance and Account 1438
Retirements.
Deferred Charges............. Account 1439
Other Jurisdictional Assets Accounts 1500, 4370
and Liabilities.
[[Page 2127]]
Customer Deposits............ Account 4040
Other Long-Term Liabilities.. Account 4310
(c) Allocation of accounts to switching. The Administrator shall
allocate to local switching, the accounts reported pursuant to
paragraph (b) of this section as prescribed in this paragraph.
(1) General Support Assets (Account 2110); Amortizable Tangible
Assets (Account 2680); Intangibles (Account 2690); and General Support
Expenses (Account 6120) shall be allocated according to the following
factor:
Account 2210 Category3 (Account 2210 + Account 2220 + Account
2230 + Account 2310 + Account 2410).
(2) Telecommunications Plant--Other (Accounts 2002, 2003, 2005);
Rural Telephone Bank (RTB) Stock (included in Account 1402); Materials
and Supplies (Account 1220.1); Cash Working Capital (Sec. 65.820(d) of
this chapter); Accumulated Amortization (Accounts 3400, 3500, 3600);
Net Deferred Operating Income Taxes (Accounts 4100, 4340); Network
Support Expenses (Account 6110); Other Property, Plant and Equipment
Expenses (Account 6510); Network Operations Expenses (Account 6530);
Marketing Expense (Account 6610); Services Expense (Account 6620);
Operating Taxes (Accounts 7230, 7240); Federal Investment Tax Credits
(Accounts 7210); Provision for Deferred Operating Income Taxes--Net
(Account 7250); Interest and Related Items (Account 7500); Allowance
for Funds Used During Construction (Account 7340); Charitable
Contributions (included in Account 7370); Other Non-current Assets
(Account 1410); Other Jurisdictional Assets and Liabilities (Accounts
1500, 4370); Customer Deposits (Account 4040); Other Long-term
Liabilities (Account 4310); and Deferred Maintenance and Retirements
(Account 1438) shall be allocated according to the following factor:
Account 2210 Category 3Account 2001.
(3) Accumulated Depreciation for Central Office--switching (Account
3100 associated with Account 2210) and Depreciation and Amortization
Expense for Central Office--switching (Account 6560 associated with
Account 2210) shall be allocated according to the following factor:
Account 2210 Category 3Account 2210.
(4) Accumulated Depreciation for General Support Assets (Account
3100 associated with Account 2110) and Depreciation and Amortization
Expense for General Support Assets (Account 6560 associated with
Account 2110) shall be allocated according to the following factor:
Account 2210 Category 3 Account 2001.
(5) Corporate Operations Expenses (Accounts 6710, 6720) shall be
allocated according to the following factor:
{[Account 2210 Category 3 (Account 2210 + Account 2220 +
Account 2230)] x (Account 6210 + Account 6220 + 6230)}
(Account 6210 + Account 6220 + Account 6230 + Account 6310 + Account
6410 + Account 6530 + Account 6610 + Account 6620).
(6) Central Office Switching, Operator Systems, and Central Office
Transmission Expenses (Accounts 6210, 6220, 6230) shall be allocated
according to the following factor:
Account 2210 Category 3 (2210 + 2220 + 2230).
(d) Calculation of the local switching revenue requirement. The
Administrator shall calculate the local switching revenue requirement
summing the components listed in this paragraph.
(1) The return component for COE Category 3 shall be obtained by
multiplying the projected unseparated local switching average net
investment by the authorized interstate rate of return. Unseparated
local switching net investment shall be calculated as of each December
31 by deducting the accumulated reserves, deferrals and customer
deposits attributable to the COE Category 3 investment from the gross
investment attributable to COE Category 3. The projected unseparated
local switching average net investment shall be calculated by summing
the projected unseparated local switching net investment as of December
31 of the calendar year following the filing and the projected
unseparated local switching net investment as of December 31 of the
filing year and dividing by 2.
(2) Depreciation expense attributable to COE Category 3 investment,
allocated pursuant to paragraph (c) of this section.
(3) All expenses collected in paragraph (b) of this section,
allocated pursuant to paragraph (c) of this section.
(4) Federal income tax shall be calculated using the following
formula:
[Return on Investment - Account 7340 - Account 7500--Account 7210)] x
[Federal Income Tax Rate (1 - Federal Income Tax Rate)].
(e) True-up adjustment.
(1) Submission of true-up data. Each incumbent local exchange
carrier that has been designated an eligible telecommunications carrier
and that serves a study area with 50,000 or fewer access lines shall,
for each study area, provide the Administrator with the historical
total unseparated dollar amount assigned to each account listed in
paragraph (b) of this section for each calendar year no later than 12
months after the end of such calendar year.
(2) Calculation of true-up adjustment.
(i) The Administrator shall calculate the historical annual
unseparated local switching revenue requirement for each carrier when
historical data for each calendar year are submitted.
(ii) The Administrator shall calculate each carrier's local
switching support payment, calculated pursuant to 54.301(a), using its
historical annual unseparated local switching revenue requirement.
(iii) For each carrier receiving local switching support, the
Administrator shall calculate the difference between the support
payment calculated pursuant to paragraph (e)(2)(ii) of this section and
its support payment calculated using its projected annual unseparated
local switching revenue requirement.
(iv) The Administrator shall adjust each carrier's local switching
support payment by the difference calculated in paragraph (e)(2)(iii)
of this section no later than 15 months after the end of the calendar
year for which historical data are submitted.
(f) Calculation of the local switching revenue requirement for
average schedule companies.
(1) The local switching revenue requirement for average schedule
companies, as defined in Sec. 69.605(c) of this chapter, shall be
calculated in accordance with a formula approved or modified by the
Commission. The Administrator shall submit to the Commission and the
Common Carrier Bureau for review and approval a formula that simulates
the disbursements that would be received pursuant to this section by a
company that is representative of average schedule companies. For each
annual period, the Administrator shall submit the formula, any proposed
revisions of such formula, or a certification that no revisions to the
formula are warranted on or before December 31 of each year.
(2) The Commission delegates its authority to review, modify, and
[[Page 2128]]
approve the formula submitted by the Administrator pursuant to this
paragraph to the Chief, Common Carrier Bureau.
13. Revise Sec. 54.303 to read as follows:
Sec. 54.303 Long term support.
(a) Beginning January 1, 1998, an eligible telecommunications
carrier that participates in the association Common Line pool shall
receive Long Term Support.
(b) Long Term Support shall be calculated as prescribed in this
paragraph.
(1) To calculate the unadjusted base-level of Long Term Support for
1998, the Administrator shall calculate the difference between the
projected Common Line revenue requirement of association Common Line
pool participants projected to be recovered in 1997 and the sum of end-
user common line charges and the 1997 projected revenue recovered by
the association Carrier Common Line charge as calculated pursuant to
Sec. 69.105(b)(2) of this chapter.
(2) To calculate Long Term Support for calendar year 1998, the
Administrator shall adjust the base-level of Long Term Support
calculated in paragraph (b)(1) of this section to reflect the annual
percentage change in the actual nationwide average unseparated loop
cost per working loop as filed by the Administrator in the previous
calendar year, pursuant to Sec. 36.622 of this chapter.
(3) To calculate Long Term Support for calendar year 1999, the
Administrator shall adjust the level of support calculated in paragraph
(b)(2) of this section to reflect the annual percentage change in the
actual nationwide average unseparated loop cost per working loop as
filed by the Administrator in the previous calendar year, pursuant to
Sec. 36.622 of this chapter.
(4) Beginning January 1, 2000, the Administrator shall calculate
Long Term Support annually by adjusting the previous year's level of
support to reflect the annual percentage change in the Department of
Commerce's Gross Domestic Product-Consumer Price Index (GDP-CPI).
14. Revise Sec. 54.307(a)(4) to read as follows:
Sec. 54.307 Support to a competitive eligible telecommunications
carrier.
(a) * * *
(4) A competitive eligible telecommunications carrier that provides
the supported services using neither unbundled network elements
purchased pursuant to Sec. 51.307 of this chapter nor wholesale service
purchased pursuant to section 251(c)(4) of the Act will receive the
full amount of universal service support previously provided to the
incumbent local exchange carrier for that customer. The amount of
universal service support provided to such incumbent local exchange
carrier shall be reduced by an amount equal to the amount provided to
such competitive eligible telecommunications carrier.
* * * * *
15. Amend Sec. 54.400 by revising paragraphs (a) and (d) to read as
follows:
Sec. 54.400 Terms and definitions.
(a) Qualifying low-income consumer. A ``qualifying low-income
consumer'' is a consumer who meets the low-income eligibility criteria
established by the state commission, or, in states that do not provide
state Lifeline support, a consumer who participates in one of the
following programs: Medicaid; food stamps; supplemental security
income; federal public housing assistance; or Low-Income Home Energy
Assistance Program.
* * * * *
(d) Toll limitation. ``Toll limitation'' denotes either toll
blocking or toll control for eligible telecommunications carriers that
are incapable of providing both services. For eligible
telecommunications carriers that are capable of providing both
services, ``toll limitation'' denotes both toll blocking and toll
control.
16. Amend Sec. 54.401 by revising the last sentence of paragraph
(d) to read as follows:
Sec. 54.401 Lifeline defined.
* * * * *
(d) * * * Lifeline assistance shall be made available to qualifying
low-income consumers as soon as the Administrator certifies that the
carrier's Lifeline plan satisfies the criteria set out in this subpart.
17. Amend Sec. 54.403 by adding a new paragraph (d) to read as
follows:
Sec. 54.403 Lifeline support amount.
* * * * *
(d) In addition to the $7.00 per qualifying low-income consumer
described in paragraph (a) of this section, eligible incumbent local
exchange carriers that serve qualifying low-income consumers who have
toll blocking shall receive federal Lifeline support in amounts equal
to the presubscribed interexchange carrier charge that incumbent local
exchange carriers would be permitted to recover from such low-income
consumers pursuant to Sec. 69.153(b) of this chapter. Eligible
incumbent local exchange carriers that serve qualifying low-income
consumers who have toll blocking shall apply this support to waive
qualifying low-income consumers' presubscribed interexchange carrier
charges. A competitive eligible telecommunications carrier that serves
qualifying low-income consumers who have toll blocking shall receive
federal Lifeline support in an amount equal to the presubscribed
interexchange carrier charge that the incumbent local exchange carrier
in that area would be permitted to recover, if it served those
consumers.
18. Revise Sec. 54.500 to read as follows:
Sec. 54.500 Terms and definitions.
(a) Billed entity. A ``billed entity'' is the entity that remits
payment to service providers for services rendered to eligible schools
and libraries.
(b) Elementary school. An ``elementary school'' is a non-profit
institutional day or residential school that provides elementary
education, as determined under state law.
(c) Library. A ``library'' includes:
(1) A public library;
(2) A public elementary school or secondary school library;
(3) An academic library;
(4) A research library, which for the purpose of this section means
a library that:
(i) Makes publicly available library services and materials
suitable for scholarly research and not otherwise available to the
public; and
(ii) Is not an integral part of an institution of higher education;
and
(5) A private library, but only if the state in which such private
library is located determines that the library should be considered a
library for the purposes of this definition.
(d) Library consortium. A ``library consortium'' is any local,
statewide, regional, or interstate cooperative association of libraries
that provides for the systematic and effective coordination of the
resources of schools, public, academic, and special libraries and
information centers, for improving services to the clientele of such
libraries. For the purposes of these rules, references to library will
also refer to library consortium.
(e) Lowest corresponding price. ``Lowest corresponding price'' is
the lowest price that a service provider charges to non-residential
customers who are similarly situated to a particular school, library,
or library consortium for similar services.
(f) Master contract. A ``master contract'' is a contract negotiated
with a service provider by a third party, the
[[Page 2129]]
terms and conditions of which are then made available to an eligible
school, library, rural health care provider, or consortium that
purchases directly from the service provider.
(g) Minor contract modification. A ``minor contract modification''
is a change to a universal service contract that is within the scope of
the original contract and has no effect or merely a negligible effect
on price, quantity, quality, or delivery under the original contract.
(h) National school lunch program. The ``national school lunch
program'' is a program administered by the U.S. Department of
Agriculture and state agencies that provides free or reduced price
lunches to economically disadvantaged children. A child whose family
income is between 130 percent and 185 percent of applicable family size
income levels contained in the nonfarm poverty guidelines prescribed by
the Office of Management and Budget is eligible for a reduced price
lunch. A child whose family income is 130 percent or less of applicable
family size income levels contained in the nonfarm income poverty
guidelines prescribed by the Office of Management and Budget is
eligible for a free lunch.
(i) Pre-discount price. The ``pre-discount price'' means, in this
subpart, the price the service provider agrees to accept as total
payment for its telecommunications or information services. This amount
is the sum of the amount the service provider expects to receive from
the eligible school or library and the amount it expects to receive as
reimbursement from the universal service support mechanisms for the
discounts provided under this subpart.
(j) Secondary school. A ``secondary school'' is a non-profit
institutional day or residential school that provides secondary
education, as determined under state law. A secondary school does not
offer education beyond grade 12.
(k) State telecommunications network. A ``state telecommunications
network'' is a state government entity that procures, among other
things, telecommunications offerings from multiple service providers
and bundles such offerings into packages available to schools,
libraries, or rural health care providers that are eligible for
universal service support, or a state government entity that provides,
using its own facilities, such telecommunications offerings to such
schools, libraries, and rural health care providers.
(l) Wide area network. For purposes of this subpart, a ``wide area
network'' is a voice or data network that provides connections from one
or more computers within an eligible school or library to one or more
computers or networks that are external to such eligible school or
library. Excluded from this definition is a voice or data network that
provides connections between or among instructional buildings of a
single school campus or between or among non-administrative buildings
of a single library branch.
19. Amend Sec. 54.501 by revising the section heading and
paragraphs (b)(1), (c)(1), and (d) to read as follows:
Sec. 54.501 Eligibility for services provided by telecommunications
carriers.
* * * * *
(b) * * *
(1) Only schools meeting the statutory definitions of ``elementary
school,'' as defined in 20 U.S.C. 8801(14), or ``secondary school,'' as
defined in 20 U.S.C. 8801(25), and not excluded under paragraphs (b)(2)
or (b)(3) of this section shall be eligible for discounts on
telecommunications and other supported services under this subpart.
* * * * *
(c) * * *
(1) Only libraries eligible for assistance from a State library
administrative agency under the Library Services and Technology Act
(Public Law 104-208) and not excluded under paragraphs (c)(2) or (c)(3)
of this section shall be eligible for discounts under this subpart.
* * * * *
(d) Consortia.
(1) For purposes of seeking competitive bids for telecommunications
services, schools and libraries eligible for support under this subpart
may form consortia with other eligible schools and libraries, with
health care providers eligible under subpart G, and with public sector
(governmental) entities, including, but not limited to, state colleges
and state universities, state educational broadcasters, counties, and
municipalities, when ordering telecommunications and other supported
services under this subpart. With one exception, eligible schools and
libraries participating in consortia with ineligible private sector
members shall not be eligible for discounts for interstate services
under this subpart. A consortium may include ineligible private sector
entities if the pre-discount prices of any services that such
consortium receives from ILECs are generally tariffed rates.
(2) For consortia, discounts under this subpart shall apply only to
the portion of eligible telecommunications and other supported services
used by eligible schools and libraries.
(3) Service providers shall keep and retain records of rates
charged to and discounts allowed for eligible schools and libraries--on
their own or as part of a consortium. Such records shall be available
for public inspection.
20. Revise Sec. 54.502 to read as follows:
Sec. 54.502 Supported telecommunications services.
For purposes of this subpart, supported telecommunications services
provided by telecommunications carriers include all commercially
available telecommunications services in addition to all reasonable
charges that are incurred by taking such services, such as state and
federal taxes. Charges for termination liability, penalty surcharges,
and other charges not included in the cost of taking such service shall
not be covered by the universal service support mechanisms.
21. Revise Sec. 54.503 to read as follows:
Sec. 54.503 Other supported special services.
For the purposes of this subpart, other supported special services
provided by telecommunications carriers include Internet access and
installation and maintenance of internal connections in addition to all
reasonable charges that are incurred by taking such services, such as
state and federal taxes. Charges for termination liability, penalty
surcharges, and other charges not included in the cost of taking such
services shall not be covered by the universal service support
mechanisms.
22. Amend Sec. 54.504 by revising the section heading, paragraph
(a), the heading of paragraph (b), paragraphs (b)(1), (b)(2)
introductory text and (b)(2)(v), redesignating paragraph (b)(3) as
paragraph (b)(4) and revising the first sentence, adding new paragraph
(b)(3), redesignating paragraph (c) as paragraph (d), and adding new
paragraph (c) to read as follows:
Sec. 54.504 Requests for services.
(a) Competitive bid requirements. Except as provided in
Sec. 54.511(c), an eligible school, library, or consortium that
includes an eligible school or library shall seek competitive bids,
pursuant to the requirements established in this subpart, for all
services eligible for support under Secs. 54.502 and 54.503. These
competitive bid requirements apply in addition to state and local
competitive bid requirements and are not intended to preempt such state
or local requirements.
(b) Posting of FCC Form 470.
(1) An eligible school, library, or consortium that includes an
eligible
[[Page 2130]]
school or library seeking to receive discounts for eligible services
under this subpart, shall submit a completed FCC Form 470 to the
Schools and Libraries Corporation. FCC Form 470 shall include, at a
minimum, the following information, to the extent applicable with
respect to the services requested:
* * * * *
(2) FCC Form 470 shall be signed by the person authorized to order
telecommunications and other supported services for the eligible
school, library, or consortium and shall include that person's
certification under oath that:
* * * * *
(v) All of the necessary funding in the current funding year has
been budgeted and approved to pay for the ``non-discount'' portion of
requested connections and services as well as any necessary hardware or
software, and to undertake the necessary staff training required to use
the services effectively;
* * * * *
(3) The Schools and Libraries Corporation shall post each FCC Form
470 that it receives from an eligible school, library, or consortium
that includes an eligible school or library on its website designated
for this purpose.
(4) After posting on the schools and libraries website an eligible
school's, library's, or consortium's FCC Form 470, the Schools and
Libraries Corporation shall send confirmation of the posting to the
entity requesting service. * * *
(c) Filing of FCC Form 471. An eligible school, library, or
consortium that includes an eligible school or library seeking to
receive discounts for eligible services under this subpart, shall, upon
signing a contract for eligible services, submit a completed FCC Form
471 to the Schools and Libraries Corporation. A commitment of support
is contingent upon the filing of FCC Form 471.
* * * * *
23. Amend Sec. 54.505 by adding paragraphs (b)(4) and (f) and
removing and reserving paragraph (d) to read as follows:
Sec. 54.505 Discounts.
* * * * *
(b) * * *
(4) School districts, library systems, or other billed entities
shall calculate discounts on supported services described in
Sec. 54.502 or other supported special services described in
Sec. 54.503 that are shared by two or more of their schools, libraries,
or consortia members by calculating an average based on the applicable
discounts of all member schools and libraries. School districts,
library systems, or other billed entities shall ensure that, for each
year in which an eligible school or library is included for purposes of
calculating the aggregate discount rate, that eligible school or
library shall receive a proportionate share of the shared services for
which support is sought. For schools, the average discount shall be a
weighted average of the applicable discount of all schools sharing a
portion of the shared services, with the weighting based on the number
of students in each school. For libraries, the average discount shall
be a simple average of the applicable discounts to which the libraries
sharing a portion of the shared services are entitled.
* * * * *
(d) [Reserved]
* * * * *
(f) State support. Federal universal service discounts shall be
based on the price of a service prior to the application of any state
provided support for schools or libraries.
24. Add Sec. 54.506 to subpart F to read as follows:
Sec. 54.506 Internal connections.
A service is eligible for support as a component of an
institution's internal connections if such service is necessary to
transport information within one or more instructional buildings of a
single school campus or within one or more non-administrative buildings
that comprise a single library branch. Discounts are not available for
internal connections in non-instructional buildings of a school or
school district, or in administrative buildings of a library, to the
extent that a library system has separate administrative buildings,
unless those internal connections are essential for the effective
transport of information to an instructional building of a school or to
a non-administrative building of a library. Internal connections do not
include connections that extend beyond a single school campus or single
library branch. There is a rebuttable presumption that a connection
does not constitute an internal connection if it crosses a public
right-of-way.
25. Amend Sec. 54.507 by revising paragraphs (e), (f) and the first
sentence of (g)(4) to read as follows:
Sec. 54.507 Cap.
* * * * *
(e) Long term contracts. If schools and libraries enter into long
term contracts for eligible services, the Schools and Libraries
Corporation shall only commit funds to cover the pro rata portion of
such a long term contract scheduled to be delivered during the funding
year for which universal service support is sought.
(f) Date services must be supplied. The Schools and Libraries
Corporation shall not approve funding for services received by a school
or library before January 1, 1998.
(g) * * *
(4) The Administrator shall notify the Schools and Libraries
Corporation of any funds still remaining after all requests submitted
by schools and libraries described in paragraphs (g)(2) and (g)(3) of
this section during the 30-day period have been met. * * *
26. Amend Sec. 54.511 by revising paragraphs (b) and (c) and adding
new paragraph (d) to read as follows:
Sec. 54.511 Ordering services.
* * * * *
(b) Lowest corresponding price. Providers of eligible services
shall not charge schools, school districts, libraries, library
consortia, or consortia including any of these entities a price above
the lowest corresponding price for supported services, unless the
Commission, with respect to interstate services or the state commission
with respect to intrastate services, finds that the lowest
corresponding price is not compensatory. Promotional rates offered by a
service provider for a period of more than 90 days must be included
among the comparable rates upon which the lowest corresponding price is
determined.
(c) Existing contracts.
(1) A signed contract for services eligible for discounts pursuant
to this subpart between an eligible school or library as defined under
Sec. 54.501 or consortium that includes an eligible school or library
and a service provider shall be exempt from the competitive bid
requirements set forth in Sec. 54.504(a) as follows:
(i) A contract signed on or before July 10, 1997 is exempt from the
competitive bid requirements for the life the contract; or
(ii) A contract signed after July 10, 1997, but before the date on
which the universal service competitive bid system described in
Sec. 54.504 is operational, is exempt from the competitive bid
requirements only with respect to services that were provided under
such contract between January 1, 1998 and December 31, 1998.
(2) For a school, library, or consortium that includes an eligible
school or library that takes service under or pursuant to a master
contract, the date of execution of that master contract represents the
applicable date for purposes of determining whether and to what extent
the school, library,
[[Page 2131]]
or consortium is exempt from the competitive bid requirements.
(3) The competitive bid system will be deemed to be operational
when the Schools and Libraries Corporation is ready to accept and post
FCC Form 470 from schools and libraries on a website and that website
is available for use by service providers.
(d) The exemption from the competitive bid requirements set forth
in paragraph (c) shall not apply to voluntary extensions of existing
contracts.
27. Amend Sec. 54.517 by revising paragraph (a) to read as follows:
Sec. 54.517 Services provided by non-telecommunications carriers.
(a) Non-telecommunications carriers shall be eligible for universal
service support under this subpart for providing the supported services
described in paragraph (b) of this section for eligible schools,
libraries, and consortia including those entities.
* * * * *
28. Add Sec. 54.518 to subpart F to read as follows:
Sec. 54.518 Wide area networks.
To the extent that states, schools, or libraries build or purchase
a wide area network to provide telecommunications services, the cost of
such wide area networks shall not be eligible for universal service
discounts provided under this subpart.
29. Add Sec. 54.519 to subpart F to read as follows:
Sec. 54.519 State telecommunications networks.
(a) Telecommunications services. State telecommunications networks
may secure discounts under the universal service support mechanisms on
supported telecommunications services (as described in Sec. 54.502) on
behalf of eligible schools and libraries (as described in Sec. 54.501)
or consortia that include an eligible school or library. Such state
telecommunications networks shall pass on such discounts to eligible
schools and libraries and shall:
(1) Maintain records listing each eligible school and library and
showing the basis for each eligibility determination;
(2) Maintain records demonstrating the discount amount to which
each eligible school and library is entitled and the basis for such
determination;
(3) Make a good faith effort to ensure that each eligible school or
library receives a proportionate share of the shared services;
(4) Request that service providers apply the appropriate discount
amounts on the portion of the supported services used by each school or
library;
(5) Direct eligible schools and libraries to pay the discounted
price; and
(6) Comply with the competitive bid requirements set forth in
Sec. 54.504(a).
(b) Internet access and installation and maintenance of internal
connections. State telecommunications networks either may secure
discounts on Internet access and installation and maintenance of
internal connections in the manner described in paragraph (a) of this
section with regard to telecommunications, or shall be eligible,
consistent with Sec. 54.517(b), to receive universal service support
for providing such services to eligible schools, libraries, and
consortia including those entities.
30. Amend Sec. 54.603 by revising the section heading and
paragraphs (b)(1) introductory text, (b)(2) and (b)(3) to read as
follows:
Sec. 54.603 Competitive bid requirements.
* * * * *
(b) Posting of FCC Form 465.
(1) An eligible health care provider seeking to receive
telecommunications services eligible for universal service support
under this subpart shall submit a completed FCC Form 465 to the Rural
Health Care Corporation. FCC Form 465 shall be signed by the person
authorized to order telecommunications services for the health care
provider and shall include, at a minimum, that person's certification
under oath that:
* * * * *
(2) The Rural Health Corporation shall post each FCC Form 465 that
it receives from an eligible health care provider on its website
designated for this purpose.
(3) After posting an eligible health care providers FCC Form 465 on
the Rural Health Care Corporation website, the Rural Health Care
Corporation shall send confirmation of the posting to the entity
requesting services. The health care provider shall wait at least 28
days from the date on which its FCC Form 465 is posted on the website
before making commitments with the selected telecommunications
carrier(s).
* * * * *
31. Add Sec. 54.604 to subpart G to read as follows:
Sec. 54.604 Existing contracts.
(a) Existing contract. A signed contract for services eligible for
support pursuant to this subpart between an eligible health care
provider as defined under Sec. 54.601 and a service provider shall be
exempt from the competitive bid requirements set forth in
Sec. 54.603(a) as follows:
(1) A contract signed on or before July 10, 1997 is exempt from the
competitive bid requirement for the life of the contract; or
(2) A contract signed after July 10, 1997 but before the date on
which the universal service competitive bid system described in
Sec. 54.603 is operational is exempt from the competitive bid
requirements only with respect to services that will be provided under
such contract between January 1, 1998 and December 31, 1998.
(b) For rural health care providers that take service under or
pursuant to a master contract, as defined in Sec. 54.500(f), the date
of execution of that master contract represents the applicable date for
purposes of determining whether and to what extent the rural health
care provider is exempt from the competitive bid requirements.
(c) The competitive bid system will be deemed to be operational
when the Rural Health Care Corporation is ready to accept and post FCC
Form 465 from rural health care providers on a website and that website
is available for use by service providers.
(d) The exemption from competitive bid requirements set forth in
paragraph (a) shall not apply to voluntary extensions of existing
contracts.
32. Amend Sec. 54.605 by revising paragraph (d) and adding
paragraph (e) to read as follows:
Sec. 54.605 Determining the urban rate.
* * * * *
(d) The ``standard urban distance'' for a state is the average of
the longest diameters of all cities with a population of 50,000 or more
within the state.
(e) The Rural Health Care Corporation shall calculate the
``standard urban distance'' and shall post the ``standard urban
distance'' and the maximum supported distance for each state on its
website.
33. Amend Sec. 54.609 by revising paragraph (a) and adding
paragraph (c) to read as follows:
Sec. 54.609 Calculating support.
(a) Except with regard to services provided under Sec. 54.621 and
subject to the limitations set forth in this subpart, the amount of
universal service support for an eligible service provided to a rural
health care provider shall be the difference, if any, between the urban
rate and the rural rate charged for the service, as defined herein. In
addition, all reasonable charges that are incurred by taking such
services, such as state and federal taxes shall be eligible for
universal service support. Charges for termination liability, penalty
surcharges, and other charges not
[[Page 2132]]
included in the cost of taking such service shall not be covered by the
universal service support mechanisms.
* * * * *
(c) The universal service support mechanisms shall cover reduced
rates on intrastate telecommunications services, as set forth in
Sec. 54.101(a), provided to rural health care providers as well as
interstate telecommunications services.
34. Amend Sec. 54.619 by revising paragraphs (b) and (d) to read as
follows:
Sec. 54.619 Audit program.
* * * * *
(b) Production of records. Health care providers shall produce such
records at the request of any auditor appointed by the Rural Health
Care Corporation or any other state or federal agency with
jurisdiction.
* * * * *
(d) Annual report. The Rural Health Care Corporation shall use the
information obtained under paragraph (a) of this section to evaluate
the effects of the regulations adopted in this subpart and shall report
its findings to the Commission on the first business day in May of each
year.
35. Amend Sec. 54.623 by revising paragraph (e) to read as follows:
Sec. 54.623 Cap.
* * * * *
(e) Long term contracts. If health care providers enter into long
term contracts for eligible services, the Rural Health Care Corporation
shall only commit funds to cover the portion of such a long term
contract scheduled to be delivered during the funding year for which
universal service support is sought.
36. Add Sec. 54.625 to subpart G to read as follows:
Sec. 54.625 Support for services beyond the maximum supported distance
for rural health care providers.
(a) The maximum support distance is the distance from the health
care provider to the farthest point on the boundary of the nearest
large city, as calculated by the Rural Health Care Corporation.
(b) An eligible rural health care provider may purchase an eligible
telecommunications service, as defined in Sec. 54.601(c)(1) through
(c)(2), that is provided over a distance that exceeds the maximum
supported distance.
(c) If an eligible rural health care provider purchases an eligible
telecommunications service, as defined in Sec. 54.601(c)(1) through
(c)(2), that exceeds the maximum supported distance, the health care
provider must pay the applicable rural rate for the distance that such
service is carried beyond the maximum supported distance.
37. Amend Sec. 54.703 by adding a new last sentence to paragraphs
(b) and (c) to read as follows:
Sec. 54.703 Contributions.
* * * * *
(b) * * * The following entities will not be required to contribute
on the basis of revenues derived from the provision of interstate
telecommunications: non-profit schools, non-profit colleges, non-profit
universities, non-profit libraries, and non-profit health care
providers; broadcasters of video programming; systems integrators that
derive less than five percent of their systems integration revenues
from the resale of telecommunications.
(c) * * * The following entities will not be required to contribute
on the basis of revenues derived from the provision of interstate
telecommunications: non-profit schools, non-profit colleges, non-profit
universities, non-profit libraries, and non-profit health care
providers; broadcasters of video programming, systems integrators that
derive less than five percent of their systems integration revenues
from the resale of telecommunications.
38. Revise Sec. 54.705 to read as follows:
Sec. 54.705 De minimis exemption.
If a contributor's contribution to universal service in any given
year is less than $10,000 that contributor will not be required to
submit a contribution or Universal Service Worksheet for that year. If
a contributor improperly claims exemption from the contribution
requirement, it will subject to the criminal provisions of sections
220(d) and (e) of the Act regarding willful false submissions and will
be required to pay the amounts withheld plus interest.
39. Amend Sec. 54.709 by revising paragraph (a) introductory text,
and paragraph (a)(3) to read as follows:
Sec. 54.709 Computations of required contributions to universal
service support mechanisms.
(a) Contributions to the universal service support mechanisms shall
be based on contributors' end-user telecommunications revenues and
contribution factors determined quarterly by the Commission.
* * * * *
(3) Total projected expenses for universal service support programs
for each quarter must be approved by the Commission before they are
used to calculate the quarterly contribution factors and individual
contributions. For each quarter, the High Cost and Low Income Committee
or the permanent Administrator once the permanent Administrator is
chosen and the Schools and Libraries and Rural Health Care Corporations
must submit their projections of demand for the high cost and low-
income programs, the schools and libraries program, and rural health
care program, respectively, and the basis for those projections, to the
Commission and the Common Carrier Bureau at least 60 calendar days
prior to the start of that quarter. For each quarter, the Administrator
and the Schools and Libraries and Rural Health Care Corporations must
submit their projections of administrative expenses for the high cost
and low-income programs, the schools and libraries program and the
rural health care program, respectively, and the basis for those
projections to the Commission and the Common Carrier Bureau at least 60
calendar days prior to the start of that quarter. Based on data
submitted to the Administrator on the Universal Service Worksheets, the
Administrator must submit the total contribution bases to the
Commission and the Common Carrier Bureau at least 60 days before the
start of each quarter. The projections of demand and administrative
expenses and the contribution factors shall be announced by the
Commission in a Public Notice published in the Federal Register and
shall be made available on the Commission's website. The Commission
reserves the right to set projections of demand and administrative
expenses at amounts that the Commission determines will serve the
public interest at any time within the 14-day period following
publication of the Commission's Public Notice. If the Commission takes
no action within 14 days of the Public Notice announcing projections of
demand and administrative expenses, the projections of demand and
administrative expenses, and contribution factors shall be deemed
approved by the Commission. Once the projections are approved, the
Administrator shall apply the quarterly contribution factors to
determine individual contributions.
* * * * *
PART 69--ACCESS CHARGES
40. The authority citation for part 69 continues to read as
follows:
Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 254, and 403.
41. Amend Sec. 69.153 by adding paragraph (h) to read as follows:
[[Page 2133]]
Sec. 69.153 Presubscribed interexchange carrier charge (PICC).
* * * * *
(h) If a local exchange carrier receives low income universal
service support on behalf of a customer under Sec. 54.403(d) of this
chapter, then the local exchange carrier shall not recover a
residential presubscribed interexchange carrier charge from that end-
user customer or its presubscribed interexchange carrier. Any amounts
recovered under Sec. 54.403(d) of this chapter by the local exchange
carrier shall be treated as if they were recovered through the
presubscribed interexchange carrier charge.
42. Amend Sec. 69.612 by revising the first sentence of paragraph
(a)(3) to read as follows:
Sec. 69.612 Long term and transitional support.
* * * * *
(a) * * *
(3) Beginning July 1, 1994, and thereafter, the Long Term Support
payment obligation shall be funded by each telephone company that files
its own Carrier Common Line tariff and does not receive transitional
sup port. * * *
* * * * *
45. Amend Sec. 69.616 by revising the third sentence of paragraph
(d) to read as follows:
Sec. 69.616 Independent subsidiary functions.
* * * * *
(d) * * * The independent subsidiary may borrow start-up funds from
the association. Such funds may not be drawn from the
Telecommunications Relay Services (TRS) fund or TRS administrative
expense accounts. * * *
46. Amend Sec. 69.619 by revising paragraph (b) to read as follows:
Sec. 69.619 Schools and Libraries Corporation functions.
* * * * *
(b) The Schools and Libraries Corporation shall implement the rules
of priority in accordance with Sec. 54.507(g) of this chapter.
* * * * *
[FR Doc. 98-541 Filed 1-12-98; 8:45 am]
BILLING CODE 6712-01-P