[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Rules and Regulations]
[Pages 64649-64651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31208]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 36

[CC Docket No. 96-45; FCC 98-160]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission refers to the Joint Board the 
issues on which referral was sought, and requests that the Joint Board 
issue a Recommended Decision on the issues by November 23, 1998. The 
Commission will then issue an order on the issues addressed in the 
Joint Board recommended decision in time to implement the revised 
mechanism for non-rural carriers by July 1, 1999.

EFFECTIVE DATE: December 23, 1998.

FOR FURTHER INFORMATION CONTACT: Charles Keller, Attorney, Common 
Carrier Bureau, Accounting Policy Division, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
document released on July 17, 1998. The full text of this document is 
available for public inspection during regular business hours in the 
FCC Reference Center, Room 239, 1919 M Street, NW, Washington, DC, 
20554. This document is also available from the Commission's copy 
contractor, International Transcription Service, 1231 20th Street, NW, 
Washington, DC 20036.

I. Introduction

    1. Section 254 of the Communications Act codified the Commission's 
long-standing commitment to ensuring the preservation and advancement 
of universal service in rural, high cost, and insular areas. As section 
254 required, the Commission convened a Federal-State Joint Board on 
Universal Service and, in light of the Joint Board's recommendations, 
the Commission on May 8, 1997, released the Universal Service Order, 62 
FR 32862 (June 17, 1997), which, among other things, identified the 
services included within the definition of universal service and

[[Page 64650]]

established a specific timetable for implementation of revised 
universal service support programs. The Commission determined that 
carriers should receive support for serving rural and high cost areas 
based on the forward-looking cost of providing the supported services. 
Non-rural carriers would begin to receive high cost support based on 
forward-looking costs on January 1, 1999, while rural carriers would 
continue to receive high cost support based on existing support levels 
pending further review by the Commission, the Joint Board, and a Joint 
Board-appointed Rural Task Force, but at least until January 1, 2001.
    2. The Commission determined that non-rural carriers' high cost 
support should be determined by computing the forward-looking cost of 
providing the supported services and subtracting from it a revenue 
benchmark amount, and that the share of support provided by federal 
mechanisms initially should be set at 25 percent. The Commission 
acknowledged that this share of support was based on the need to avoid 
double-recovery by carriers pending reform of state rates and support 
mechanisms, and stated that the federal share of support would be 
subject to review in light of state proceedings, the development of 
competition, and other relevant factors. The Commission's determination 
relating to the federal share of support generated several petitions 
for reconsideration and significant comment. Recently, the Commission 
committed to completing a proceeding reconsidering the federal share of 
support before revised support mechanisms are implemented for non-rural 
carriers.
    3. On March 11, 1998, the state members of the Joint Board filed a 
request that certain issues related to the determination of high cost 
support, including issues regarding the share of federal high cost 
support, be referred to the Joint Board. Shortly after an en banc 
hearing on these issues convened by the Commission with the 
participation of the state Joint Board commissioners, the state members 
filed a letter requesting referral of two additional issues.
    4. In this Order, the Commission refers to the Joint Board the 
issues on which referral was sought, and requests that the Joint Board 
issue a Recommended Decision on these issues by November 23, 1998. The 
Commission will then issue an order on the issues addressed in the 
Joint Board recommended decision in time to implement the revised 
mechanism for non-rural carriers by July 1, 1999.

II. Discussion

    5. The state Joint Board members' referral request, as supplemented 
by their June 18 letter, requested referral of six issues: (1) Whether 
the FCC should take responsibility only for 25% of the high cost 
subsidy calculated by the new soon-to-be-adopted federal funding model 
and leave the remaining 75% for States to support; (2) Whether to apply 
federal universal service funds to reduce the cost of interstate access 
charges; (3) An appropriate method for formulating and distributing 
high cost funds among the States; (4) Whether and to what extent the 
FCC should have a role in making intrastate support systems explicit, 
and, as part and parcel of any such examination, a referral of the 
section 254(k) issue concerning recovery of joint and common costs; (5) 
The revenue base upon which the FCC should assess and recover 
providers' contributions for universal service; and (6) Whether, to 
what extent, and in what manner providers should recover contributions 
to universal service through their rates.
    6. Although we recognize that the Joint Board has considered and 
given recommendations on many of these issues previously and has been 
consulted on an ongoing basis regarding matters in this docket, we find 
that further Joint Board input will be beneficial as we move forward on 
implementing universal service and high cost support. We find that 
further coordination between state and federal regulators on these 
issues will enhance the development of universal service and 
competition policy. We also find that a recommendation from the Joint 
Board on these issues will assist us in our review of the pending 
petitions for reconsideration on these issues. In consultation with the 
state members of the Joint Board, we have clarified, expanded, and 
reorganized the issues to be referred. Accordingly, we refer to the 
Joint Board the following issues:
    (1) An appropriate methodology for determining support amounts, 
including a method for distributing support among the states and, if 
applicable, the share of total support to be provided by federal 
mechanisms. If the Commission were to maintain the current 25/75 
division as a baseline, the Commission also requests the Joint Board's 
recommendation on the circumstances under which a state or carrier 
would qualify to receive more than 25 percent from federal support 
mechanisms.
    (2) The extent to which federal universal service support should be 
applied to the intrastate jurisdiction. In its recommendation on this 
issue, the Commission requests the Joint Board's recommendation on the 
following topics:
    (a) To the extent that federal universal service reform removes 
subsidies that are currently implicit in interstate access charges, 
whether interstate access charges should be reduced concomitantly to 
reflect this transition from implicit to explicit support, and whether 
other approaches would be consistent with the statutory goal of making 
federal universal service support explicit. The Commission also 
requests a recommendation on how it can avoid ``windfalls'' to carriers 
if federal funds are applied to the intrastate jurisdiction before 
states reform intrastate rate structures and support mechanisms.
    (b) Whether and to what extent federal universal service policy 
should support state efforts to make intrastate support mechanisms 
explicit. The Commission recognizes that section 254(k) envisions 
separate state and federal measures related to the recovery of joint 
and common costs, but nevertheless welcomes the Joint Board's input on 
how section 254(k) may relate to the Commission's role in making 
intrastate support systems explicit.
    (c) The relationship between the jurisdiction to which funds are 
applied and the appropriate revenue base upon which the Commission 
should assess and recover providers' universal service contributions 
and, if support for federal mechanisms continues to be collected solely 
in the interstate jurisdiction, whether the application of federal 
support to costs incurred in the intrastate jurisdiction would create 
or further implicit subsidies, barriers to entry, a lack of competitive 
neutrality, or other undesirable economic consequences.
    (3) To what extent, and in what manner, is it reasonable for 
providers to recover universal service contributions through rates, 
surcharges, or other means.
    7. We request that the Joint Board provide a recommended decision 
on these issues by November 23, 1998. We will then consider the Joint 
Board's recommendations and issue an order specifying the methodology 
for determining high cost support for non-rural carriers so that the 
new mechanism can be implemented by July 1, 1999.
    8. In order to allow sufficient time for the Joint Board's 
deliberations and for the Commission to receive public comment on the 
Joint Board's recommendations, we hereby extend the implementation date 
for the revised high cost support mechanism for non-

[[Page 64651]]

rural carriers specified in the Universal Service Order by six months 
from January 1, 1999, to July 1, 1999. We find that the potential 
benefits of a referral justify this limited extension of the 
implementation timeline specified in the Universal Service Order. 
During the extension period, non-rural carriers (as well as rural 
carriers) will continue to receive support flows based on historical 
support levels, which have been sufficient to produce rates that the 
Joint Board has previously characterized as generally affordable. No 
convincing evidence has been presented to the Commission to show that 
circumstances, such as the development of local exchange competition, 
will significantly affect support flows before the revised 
implementation date.
    9. In order to ensure that existing support flows continue until 
the revised implementation date, the Commission hereby amends 
Sec. 36.601(c) of the Commission's rules to specify that non-rural 
carriers (as well as rural carriers) may continue to receive the 
expense adjustment for high cost loops specified in Subpart F of Part 
36 of the Commission's Rules (the existing high cost loop fund) until 
July 1, 1999.
    10. In light of this change to the implementation timeline for high 
cost support for non-rural carriers, we believe that additional time 
may be necessary to complete our review of support mechanisms for rural 
carriers described in the Universal Service Order. In the Universal 
Service Order, the Commission stated that it intended to release a 
further notice of proposed rulemaking on forward-looking cost 
methodologies for rural carriers in October 1998. This projected date 
was premised on the assumption that the Commission's proceedings 
related to non-rural carriers would have been essentially completed by 
that time. Given the amended date for implementing revised support 
mechanisms for non-rural carriers, we hereby clarify that we do not 
expect to issue a further notice of proposed rulemaking related to high 
cost support for rural carriers until a later date, to be determined by 
the Commission once further proceedings have been conducted by the 
Joint Board and its Rural Task Force. Rural carriers will continue to 
receive support based on historical support flows until the Commission 
adopts a forward-looking cost mechanism for rural carriers, which would 
become effective no earlier than January 1, 2001.

III. Procedural Matters and Ordering Clauses

A. Supplemental Final Regulatory Flexibility Analysis

    11. This Supplemental Final Regulatory Flexibility Analysis (SFRFA) 
supplements the Final Regulatory Flexibility Analysis (FRFA) included 
in the Universal Service Order, only to the extent that changes to that 
Order adopted here on reconsideration require changes in the 
conclusions reached in the FRFA. As required by section 603 RFA, 5 USC 
section 603, the FRFA was preceded by an Initial Regulatory Flexibility 
Analysis (IRFA) incorporated in the Notice of Proposed Rulemaking and 
Order Establishing the Joint Board (NPRM), 61 FR 63778 (December 2, 
1996), and an IRFA, prepared in connection with the Recommended 
Decision, which sought written public comment on the proposals in the 
NPRM and the Recommended Decision. The actions taken in this Order and 
Order on Reconsideration do not change the analysis included in the 
FRFA in the Universal Service Order because neither the referral of 
issues to the Joint Board nor the extension of the timetable for 
implementing a revised high cost support mechanism for non-rural 
carriers will affect reporting, recordkeeping, or other compliance 
requirements. Further, the actions taken in this Order and Order on 
Reconsideration only affect telecommunications carriers that are so 
large as not to meet the definition of a rural telephone company by 
extending the date when they will begin to receive high cost support 
based on the forward-looking cost of providing the supported services.

B. Ordering Clauses

    12. Accordingly, it is ordered, pursuant to sections 1, 4(i) and 
(j), and 254 of the Communications Act of 1934, as amended, 47 USC 
sections 151, 154(i), 154(j), and 254, that this Order and Order on 
Reconsideration is adopted.
    13. It is further ordered, pursuant to sections 1, 4(i) and (j), 
and 254 of the Communications Act of 1934, as amended, 47 USC sections 
151, 154(i), 154(j), and 254, that the issues specified herein are 
referred to the Federal-State Joint Board on Universal Service for a 
recommendation to be received by the Commission no later than November 
23, 1998.
    14. It is further ordered, pursuant to sections 1, 4(i) and (j), 
and 254 of the Communications Act of 1934, as amended, 47 USC sections 
151, 154(i), 154(j), and 254, that section 36.601(c) of the 
Commission's rules, 47 CFR Sec. 36.601(c), is hereby amended as noted 
in Appendix A. This rule change shall be effective December 23, 1998.
    15. It is furthered ordered, pursuant to sections 1, 4(i) and (j), 
and 254 of the Communications Act of 1934, as amended, 47 USC sections 
151, 154(i), 154(j), and 254, that the timetable established in the 
Universal Service Order for implementation of revised high cost support 
mechanisms for non-rural carriers is extended such that revised 
mechanisms for non-rural carriers will take effect July 1, 1999.
    16. It is further ordered, that the Commission's Office of Public 
Affairs, Reference Operations Division, shall send a copy of this Order 
and Order on Reconsideration, including the Supplemental Final 
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of 
the Small Business Administration.

List of Subjects in 47 CFR Part 36

    Reporting and recordkeeping requirements and Telephone.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Part 36 of the Title 47 of the Code of Federal Regulations is 
amended as follows:

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

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

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


Sec. 36.601  General.

    2. In Sec. 36.601 remove ``January 1, 1999'' where ever it occurs 
and replace it with ``July 1, 1999''.
[FR Doc. 98-31208 Filed 11-20-98; 8:45 am]
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