[Federal Register Volume 63, Number 81 (Tuesday, April 28, 1998)]
[Proposed Rules]
[Pages 23258-23261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11200]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[DA 98-715]


Common Carrier Bureau Seeks Comment on Proposals To Revise the 
Methodology for Determining Universal Service Support

AGENCY: Federal Communications Commission.

ACTION: Notice; seeking comment on proposals in rulemaking proceeding.

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SUMMARY: In this Public Notice, the Common Carrier Bureau (Bureau) 
describes certain proposals by outside parties to alter the methodology 
for determining high cost universal service support based on forward-
looking economic costs. Some parties have filed petitions for 
reconsideration or judicial appeals of the methodology announced in the 
May 8, 1997 Universal Service Order and the Commission has committed to 
complete the reconsideration of its methodology before it is 
implemented for non-rural carriers. This Public Notice seeks additional 
proposals to modify the methodology, as well as comment on the existing 
proposals.

DATES: Comment date for filing additional proposals is April 27, 1998, 
comments are due May 15, 1998, and reply comments are due May 29, 1998.

ADDRESSES: One original and five copies of all filings must be sent to 
Magalie Roman Salas, Secretary, Federal Communications Commission, 1919 
M Street, N.W., Room 222, Washington, D.C. 20554. Parties must also 
send copies to the individuals listed on the attached Service List and 
to the Commission's copy contractor, International Transcription 
Service, Inc., 1231 20th Street, N.W., Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Chuck Keller at (202) 418-7380 or 
<[email protected]>.

SUPPLEMENTARY INFORMATION: In the Universal Service Order, Federal 
State Joint Board on Universal Service, Report & Order, CC Docket No. 
96-45, 12 FCC Rcd 8776 (1997), 62 FR 32862 (June 17, 1997), as 
corrected by Federal State Joint Board on Universal Service, CC Docket 
96-45, Errata, FCC 97-157 (released June 4, 1997), appeal pending, 
Texas Office of Public Utility Counsel v. FCC, No. 97-60421 (5th Cir. 
filed June 25, 1997), the Commission adopted a four-step methodology 
for determining the appropriate level of federal universal service 
support that non-rural carriers will receive beginning January 1, 1999. 
As part of that methodology, the Commission determined that the federal 
fund will provide at least 25 percent of the total support necessary 
for non-rural carriers (25/75 decision). The Commission also concluded 
that rural carriers will receive support based on forward-looking costs 
no sooner than January 1, 2001. Several parties have set forth 
proposals to modify the Commission's approach to determining support 
for non-rural and rural carriers. Some of these proposals were 
presented in the Commission's proceeding to prepare a Report to 
Congress on Universal Service, required by statute, Departments of 
Congress, Justice, and State, the Judiciary, and Related Agencies 
Appropriations Act, 1988, Pub. L. 105-119, 111 Stat. 2440, 2521-2522, 
Sec. 623. Federal-State Joint Board on Universal Service, Report to 
Congress, CC Docket No. 96-45, FCC 98-67, (released April 10, 1998) 
(Report to Congress), and, in particular, in the en banc hearing on 
universal service issues held on March 6, 1998. In this Public Notice, 
we seek to augment the record by encouraging interested parties to 
submit additional proposals for modifying the Commission's methodology, 
or updates to those on the record, by April 27, 1998. Comments from 
interested parties on these proposals are due on May 15, 1998, and 
reply comments are due on May 29, 1998. In the Report to Congress, the 
Commission states that, prior to implementing the Commission's 
methodology for determining high cost support for non-rural carriers, 
the Commission will complete a reconsideration of its 25/75 decision 
and of the method of distributing high cost support. Report to Congress 
at para. 224. The Commission also states that it will continue to work 
closely on these issues with the state members of the Federal-State 
Joint Board on Universal Service (Joint Board), including holding an en 
banc hearing with participation by the Joint Board Commissioners. See 
Report to Congress at paras. 224, 228, 231.

Background

    In the Universal Service Order and the accompanying Access Charge 
Reform Order, Access Charge Reform, Price Cap Performance Review for 
Local Exchange Carriers, Transport Rate Structure and Pricing and End 
User Common Line Charges, CC Docket Nos. 96-262, 94-1, 91-213, and 95-
72, First Report and Order, 62 FR 31868 (June 11, 1997), 12 FCC Rcd 
15982 (1997) (Access Charge Reform Order); Order on Reconsideration, 62 
FR 40460 (July 29,

[[Page 23259]]

1997), 12 FCC Rcd 10119 (1997); Second Order on Reconsideration, 62 FR 
56121 (October 29, 1997), 12 FCC Rcd 16606 (1997); Third Order on 
Reconsideration, 62 FR 65619 (December 15, 1997), 12 FCC Rcd 22430 
(1997); See also Fourth Report and Order and Second Report and Order, 
CC Docket Nos. 94-1, 96-262, 62 FR 59340 (June 11, 1997), 12 FCC Rcd 
16642 (1997), the Commission set in place rules that will identify and 
convert existing mechanisms for providing federal universal service 
support to explicit, competitively-neutral federal universal service 
support mechanisms. In particular, the Commission adopted a methodology 
for universal service support for rural and non-rural carriers that 
will replace the following existing programs: the interstate high cost 
fund, Long Term Support, and Dial-Equipment-Minute (DEM) weighting 
programs. Universal Service Order, 12 FCC Rcd at 8889, para. 204. The 
Commission determined that non-rural carriers serving rural, insular, 
and high cost areas (collectively referred to as ``high cost areas'') 
would begin to receive support based on forward-looking economic cost 
beginning January 1, 1999, while rural carriers serving high cost areas 
would move to a forward-looking methodology no sooner than January 1, 
2001. In the meantime, rural carriers will continue to receive support 
based on their embedded cost. As encouraged by the Commission in the 
Universal Service Order, the Joint Board has sought nominations for a 
Rural Task Force that will study the establishment of a forward-looking 
economic cost mechanism for rural carriers. Federal-State Joint Board 
on Universal Service, Public Notice, FCC 97J-1 (released September 17, 
1997). The Commission also determined that it would assess and permit 
recovery of contributions to high cost support mechanisms based only on 
interstate revenues because such an approach would continue the 
historical method for recovering universal service support 
contributions and promote comity between the federal and state 
governments. Universal Service Order, 12 FCC Rcd at 9198-9203, paras. 
824-836. Thus, the Commission concluded that carriers may recover their 
contributions through interstate access and interexchange revenues. 
Universal Service Order, 12 FCC Rcd at 9199-9200, paras. 829-830. 
(Price cap LECs may treat their contributions as exogenous changes to 
their price cap indices. Access Charge Reform Order, FCC Rcd at 16147, 
para. 379.) Finally, the Commission directed that incumbent LECs use 
high cost support to reduce or satisfy the interstate revenue 
requirement otherwise collected through interstate access charges. 
Access Charge Reform Order, 12 FCC Rcd at 16148, para. 381. That 
decision was based on the decision in the Universal Service Order to 
fund only the federal share, or 25 percent, of high cost support from 
the federal mechanism, discussed below.
    In the first step of the Commission's four-step methodology for 
determining support for non-rural carriers, a forward-looking economic 
cost mechanism selected by the Commission, in consultation with the 
Joint Board, will be used to calculate the forward-looking economic 
cost to non-rural carriers for providing the supported services in high 
cost areas. (Alternatively, states may submit cost studies that, if 
consistent with the criteria established by the Commission in the 
Universal Service Order, will be used to compute the forward-looking 
cost. The Commission will select a forward-looking mechanism by August 
1998. Universal Service Order, 12 FCC Rcd at 8890, 8910, 8912-16, 
paras. 206, 245, 248-50.) Second, the Commission will establish 
nationwide revenue benchmarks calculated on the basis of average 
revenue per line. Without adopting a precise method for calculating the 
benchmarks, the Commission stated in the Universal Service Order that 
it appears that the benchmarks should be approximately $31 for 
residential services and approximately $51 for single-line businesses. 
Universal Service Order, 12 FCC Rcd at 8924, para. 267. The Commission 
intends to make a formal determination on the appropriate revenue 
benchmark before it implements a high cost support mechanism based on 
forward-looking costs. Third, the difference between the forward-
looking economic cost and the benchmark will be calculated. Fourth, 
federal support will be 25 percent of that difference, corresponding to 
the percentage of loop costs allocated to the interstate jurisdiction. 
In the Universal Service Order, the Commission stated that, once states 
have taken steps to identify the subsidies implicit in intrastate 
rates, the Commission may reassess the amount of federal support that 
is necessary to ensure affordable rates. A number of parties have 
sought reconsideration of the Commission's decision to initially fund 
only 25 percent of total high cost support. See, e.g., the petitions 
filed on July 17, 1997 in CC Docket No. 96-45 by the following parties: 
Alaska Public Utilities Commission at 5-6; Alaska Telephone Association 
at 1-2; Arkansas Public Service Commission at 1-3; GVNW Inc. at 2, 8; 
Rural Telephone Coalition at 3-4; Sprint Corporation at 1-3; United 
Utilities at 3-4; US WEST at 6; Vermont Public Service Board at 2-3; 
Western Alliance at 18-19; and Wyoming Public Service Commission at 2. 
Several parties have also appealed that decision. Texas Office of 
Public Utility Counsel et al. v. FCC, No. 97-60421 (5th Cir. filed June 
25, 1997). Since the period for filing comments on those 
reconsideration petitions closed, several parties have proposed 
specific alternatives to the Commission's 25/75 funding decision. All 
of the proposals described in this Public Notice will be available on 
the Commission's web page at http://www.fcc.gov under the heading 
``Universal Service.'' The proposals that calculate forward-looking 
cost use a forward-looking economic cost model. For demonstration 
purposes, fund estimates are based on two industry-proposed models 
under consideration by the Commission, the Benchmark Cost Proxy Model 
(BCPM) and the HAI model (HAI), however the versions of the models and 
the inputs used may vary across proposals. BCPM was submitted by 
BellSouth Corporation, BellSouth Telecommunications, Inc., U S WEST, 
Inc., and Sprint Local Telephone Company. Submission to CC Docket Nos. 
96-45 and 97-160 by BCPM proponents, dated December 11, 1997. HAI was 
submitted by AT&T and MCI. Letter from Richard N. Clarke, AT&T, to 
Magalie Roman Salas, FCC, dated December 11, 1997. Versions of HAI 
filed before February 3, 1998, were known as the Hatfield Model.
    Proposals to Modify the Commission's Methodology. Upon 
recommendation by the Joint Board, the Commission adopted a nationwide 
revenue benchmark based on average revenues per line. Federal-State 
Joint Board on Universal Service, CC Docket No. 96-45, Recommended 
Decision, 12 FCC Rcd 246 (1996); Universal Service Order, 12 FCC Rcd at 
8919, para. 259. Subsequent to the Joint Board's recommendation, a 
majority of state members of that Joint Board endorsed a nationwide 
benchmark based on the nationwide average cost of service, as 
determined by a forward-looking cost model. In light of the 
recommendation of the Joint Board's majority state members and the 
proposals described in this Public Notice, we seek additional comment 
regarding the use of a cost-based benchmark.
    U S WEST proposes to modify the second step of the Commission's 
forward-looking methodology for non-rural carriers by creating a second

[[Page 23260]]

revenue benchmark (Interstate High Cost Affordability Plan or IHCAP). 
Exhibit of James D. Smiley, U S WEST, for FCC En Banc Hearing, 
Universal Service (March 6, 1998) (IHCAP Proposal). U S WEST does not 
specify different benchmark levels for different types of lines, e.g., 
residential, single-line business, or multi-line business lines. Under 
the IHCAP, the federal mechanism would provide support for 25 percent 
of the costs between a ``Primary Benchmark'' and a ``Super Benchmark,'' 
and 100 percent of the costs above the Super Benchmark. For 
demonstration purposes, the IHCAP assumes a Primary Benchmark of $30 
and a Super Benchmark of $50.
    An Ad Hoc Working Group convened through the National Association 
of Regulatory Utility Commissioners proposes an alternative approach 
for determining and distributing high cost support for both rural and 
non-rural carriers (Ad Hoc Proposal). Letter from Peter Bluhm, Vermont 
Public Service Board, to Magalie Roman Salas, FCC, dated April 10, 
1998, at att. High Cost Support: An Alternative Distribution Proposal 
(Ad Hoc Proposal); see also Statement of Thomas Welch, Maine Public 
Utilities Commission, at March 6, 1998 en banc Commission meeting, 
transcript at 24-25. In lieu of the forward-looking cost methodology 
established by the Commission, a draft of the Ad Hoc Proposal filed 
with the Commission on April 10, 1998 calculates federal support for 
each state in five steps. First, the Ad Hoc Proposal uses a forward-
looking economic cost model selected by the Commission to calculate the 
average forward-looking cost per line for each state, as well as the 
average forward-looking cost per line for the nation. The difference 
between these amounts is calculated for each state and multiplied by a 
composite state separations factor which the proposal assumes to be 75 
percent. Second, the above process is repeated using embedded cost. 
Specifically, the difference between each state's average embedded cost 
and 105 percent of the national average embedded cost is calculated for 
each state and multiplied by a composite state separations factor. 
Third, the lesser amount resulting from the first two steps is 
determined. Fourth, a ``hold-harmless'' level is calculated for each 
state equal to federal support received by carriers in that state under 
existing mechanisms. For those states with above-average embedded costs 
that also currently make a net contribution to federal support 
mechanisms, the hold-harmless level is increased to ensure that a 
state's net contribution does not increase. Finally, the federal 
support for each state is set at either the hold-harmless amount or the 
amount determined in step 3, whichever is greater. Federal support 
below the hold-harmless level is distributed by state commissions to 
carriers that receive support under the current system. Federal support 
above the hold-harmless level is distributed to other eligible 
telecommunications carriers (ETCs) according to a state distribution 
plan reviewed by the Commission. The Ad Hoc Working Group and the 
Telecommunications Industry Analysis Project (TIAP) also examine 
possible modifications to the Ad Hoc Proposal.
    TIAP proposes four alternatives to the federal forward-looking 
methodology. One proposal increases federal support to 40 percent of 
the difference between forward-looking cost and the revenue benchmark 
(40/60 Proposal). In another proposal, the federal fund supports 100 
percent of the difference between the forward-looking economic cost and 
the benchmark only in one or two of the lowest density zones served by 
non-rural carriers (Density Zone Proposal). Assuming a $30 benchmark, 
TIAP estimates that federal support for the lowest density zone 
calculated by the models (0 to 5 lines per square mile) would result in 
a fund of $3,965 million, based on BCPM, or $2,410 million, based on 
HAI. TIAP states that federal support for the two lowest density zones 
(0 to 5 lines per square mile and 5 to 1000 lines per square mile) 
``would increase the federal fund by 312% for BCPM and 277% for HAI.'' 
TIAP Proposals at 24. A third proposal applies one nationwide surcharge 
to each telephone number per month (Telephone Number Proposal). Based 
on the assumption that the federal fund will provide 100 percent of the 
necessary support, the surcharge is calculated by dividing the fund by 
the number of phone numbers in service, and by twelve months. A fourth 
proposal applies one nationwide surcharge to each customer's bill based 
on a percentage of the total (interstate and intrastate) revenues on 
the bill (Percentage of Retail Revenues Proposal). Based on the 
assumption that the federal fund will provide 100 percent of the 
necessary support, the surcharge is calculated by dividing the fund by 
total annual retail revenues.
    We seek comment on the use of a cost-based benchmark and the 
proposals of U S WEST, the Ad Hoc Working Group, and TIAP. In addition, 
we seek comment on how to modify our rules in the event such a proposal 
were adopted. We also seek comment on the appropriate method and 
revenues to recover contributions for high cost support.
    Implementation of High Cost Support Methodology. In the Universal 
Service Order, the Commission established a forward-looking economic 
cost methodology for non-rural carriers that will calculate support 
based on forward-looking cost beginning January 1, 1999. AT&T seeks to 
delay implementation of the high cost support mechanism for ``the Major 
ILECs * * * at the very least until these companies have opened their 
markets to robust and widespread local competition.'' Letter from Brian 
Masterson, AT&T, to Magalie Roman Salas, FCC, dated March 12, 1998, at 
att. Presentation of Joel Lubin, AT&T, to March 6, 1998 en banc 
Commission meeting. In contrast, proponents of the Ad Hoc Proposal 
support the implementation of their proposal for both rural and non-
rural carriers on January 1, 1999. Ad Hoc Proposal at 13. U S WEST 
recommends that non-rural carriers begin receiving support based on the 
IHCAP on January 1, 1999, and that a forward-looking methodology that 
will best meet the needs of rural carriers should be determined after 
several years of experience of calculating support based on IHCAP for 
the non-rural carriers. IHCAP Proposal at 4. See also letter to William 
E. Kennard, FCC, from Solomon D. Trujillo, U S WEST, dated April 2, 
1998. We seek comment on these implementation proposals. With regard to 
AT&T's petition, we seek comment on the specific criteria that should 
trigger implementation of the forward-looking methodology for non-rural 
carriers.
    Finally, in its Report to Congress, the Commission commits to 
completing a reconsideration of the issues raised in this Public Notice 
prior to implementing the new high cost mechanism for non-rural 
carriers. Report to Congress at para. 224. The Commission specifies 
that, in the course of reconsidering these issues, it will work closely 
with the state members of the Joint Board. The Commission attests that, 
in the past two years in particular, the ideas generated by the formal 
and informal dialogue among state members of the Joint Board and the 
FCC Commissioners have facilitated the shared objectives of preserving 
and advancing universal service as competition develops in local 
markets.

Final Regulatory Flexibility Analysis

    In the Universal Service Order we conducted a Final Regulatory 
Flexibility Analysis (FRFA), Universal Service Order, 12 FCC Rcd at 
9219-9260 paras. 870-983, as required by the Regulatory

[[Page 23261]]

Flexibility Act (RFA). See 5 U.S.C. 604. The RFA (see 5 U.S.C. 601 et 
seq.) has been amended by the Contract With America Advancement Act of 
1996, Pub. L. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the 
CWAAA is the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA). We received no petitions for reconsideration of that FRFA. In 
this present Public Notice, the Commission promulgates no additional 
final rules, and our action does not affect the previous analysis. If 
commenters believe that the proposals discussed in this Public Notice 
require additional RFA analysis, they should include a discussion of 
these issues in their comments.
    Deadlines and Instructions for Filing Proposals and Comments. 
Interested parties may file additional proposals regarding the 
Commission's methodology for determining universal service support for 
rural and non-rural carriers on or before April 27, 1998. Interested 
parties may file comments in support of or opposition to the proposals 
on or before May 15, 1998. Reply comments are due on or before May 29, 
1998. All filings should refer to CC Docket Nos. 96-45 and 97-160, and 
DA 98-715. One original and five copies of all filings must be sent to 
Magalie Roman Salas, Office of the Secretary, Federal Communications 
Commission, 1919 M Street, N.W., Room 222, Washington, D.C. 20554. 
Parties must also send copies to the individuals listed on the attached 
Service List and to the Commission's copy contractor, International 
Transcription Service, Inc., 1231 20th Street, N.W., Washington, D.C. 
20554.

List of Subjects in 47 CFR Part 54

    Universal service.

Federal Communications Commission.
James D. Schlichting,
Deputy Bureau Chief, Common Carrier Bureau.

Attachment

The Honorable Susan Ness, Chair, Commissioner, Federal 
Communications Commission, 1919 M Street, N.W., Room 832, 
Washington, DC 20554
The Honorable Harold Furchtgott-Roth, Commissioner, Federal 
Communications Commission, 1919 M Street, N.W., Room 802, 
Washington, DC 20554
The Honorable Gloria Tristani, Commissioner, Federal Communications 
Commission, 1919 M Street, N.W., Room 826, Washington, DC 20554
The Honorable Julia Johnson, State Chair, Chairman, Florida Public 
Service Commission, 2540 Shumard Oak Blvd., Gerald Gunter Building 
Tallahassee, FL 32399-0850
The Honorable David Baker, Commissioner, Georgia Public Service 
Commission, 244 Washington Street, S.W., Atlanta, GA 30334-5701
The Honorable Laska Schoenfelder, Commissioner, South Dakota Public 
Utilities Commission, State Capitol, 500 East Capitol Street, 
Pierre, SD 57501-5070
The Honorable Patrick H. Wood, III, Chairman, Texas Public Utility 
Commission, 1701 North Congress Ave., Austin, TX 78701
Martha S. Hogerty, Missouri Office of Public Council, 301 West High 
Street, Suite 250, Truman Building, Jefferson City, MO 65102
Charles Bolle, South Dakota Public Utilities Commission, State 
Capitol, 500 East Capitol Street, Pierre, SD 57501-5070
Deonne Bruning, Nebraska Public Service Commission, 300 The Atrium, 
1200 N Street, P.O. Box 94927, Lincoln, NE 68509-4927
James Casserly, Federal Communications Commission, Commissioner 
Ness's Office, 1919 M Street, N.W., Room 832, Washington, DC 20554
Rowland Curry, Texas Public Utility Commission, 1701 North Congress 
Avenue, P.O. Box 13326, Austin, TX 78701
Ann Dean, Maryland Public Service Commission, 16th Floor, 6 Saint 
Paul Street, Baltimore, MD 21202-6806
Bridget Duff, State Staff Chair, Florida Public Service Commission, 
2540 Shumard Oak Blvd., Tallahassee, FL 32399-0866
Irene Flannery, Federal Staff Chair, Federal Communications 
Commission, Accounting and Audits Division, Universal Service 
Branch, 2100 M Street, N.W., Room 8922, Washington, DC 20554
Paul Gallant, Federal Communications Commission, Commissioner 
Tristani's Office 1919 M Street, N.W., Room 826, Washington, DC 
20554
Lori Kenyon, Alaska Public Utilities Commission, 1016 West Sixth 
Avenue, Suite 400, Anchorage, AK 99501
Mark Long, Florida Public Service Commission, 2540 Shumard Oak 
Blvd., Tallahassee, FL 32399-0866
Sandra Makeeff, Iowa Utilities Board, Lucas State Office Building, 
Des Moines, IA 50319
Kevin Martin, Federal Communications Commission, Commissioner, 
Furchtgott-Roth's Office, 1919 M Street, N.W., Room 802, Washington, 
DC 20554
Philip F. McClelland, Pennsylvania Office of Consumer Advocate, 1425 
Strawberry Square, Harrisburg, PA 17120
Barry Payne, Indiana Office of the Consumer Counsel, 100 North 
Senate Avenue, Room N501, Indianapolis, IN 46204-2208
James Bradford Ramsey, National Association of Regulatory Utility 
Commissioners, 1100 Pennsylvania Ave., N.W., P.O. Box 684, 
Washington, DC 20044-0684
Brian Roberts, California Public Utilities Commission, 505 Van Ness 
Avenue, San Francisco, CA 94102
Tiane Sommer, Georgia Public Service Commission, 244 Washington 
Street, S.W., Atlanta, GA 30334-5701
Sheryl Todd (plus 8 copies), Federal Communications Commission, 
Accounting and Audits Division, Universal Service Branch, 2100 M 
Street, N.W., Room 8611, Washington, DC 20554

[FR Doc. 98-11200 Filed 4-27-98; 8:45 am]
BILLING CODE 6712-01-P