[Federal Register Volume 64, Number 214 (Friday, November 5, 1999)]
[Rules and Regulations]
[Pages 60349-60359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28964]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 69

[CC Docket Nos. 96-45 and 96-262; FCC 99-290]


Federal-State Joint Board on Universal Service Access Charge 
Reform

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document concerning the Federal-State Joint Board on 
Universal Service: Access Charge Reform adopts modifications to the 
Commission's rules consistent with the portions of the United States 
Court of Appeals for the Fifth Circuit decision concerning the 
assessment and recovery of universal service contributions, and the 
Lifeline program.

DATES: Effective November 1, 1999.

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

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Sixteenth Order on Reconsideration in CC Docket No. 96-45, Eighth 
Report and Order in CC Docket No. 96-45, and Sixth Report and Order in 
CC Docket No. 96-262 released on October 8, 1999. The full text of this 
document is available for public inspection during regular business 
hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street, 
S.W., Washington, D.C., 20554.

I. Introduction

    1. On July 30, 1999, a three-judge panel of the United States Court 
of Appeals for the Fifth Circuit issued a decision affirming in part, 
remanding in part, and reversing in part the Commission's May 8, 1997 
Universal Service Order, 62 FR 32862 (June 17, 1997). Several of the 
court's rulings in that decision affect the assessment and recovery of 
universal service contributions, as well as the Commission's Lifeline 
program for low-income consumers. The court's mandate from the decision 
is scheduled to take effect on November 1, 1999. Accordingly, in this 
Order, we adopt modifications to our rules consistent with those 
portions of the court's decision concerning the assessment and recovery 
of universal service contributions, and the Lifeline program. These 
rule changes shall become effective on November 1, 1999.
    2. This Order reflects our effort to respond promptly to the 
court's forthcoming mandate. The actions we take are transitional in 
view of the limited time and data available to us in implementing the 
court's mandate that we change our rules and past practices by a 
specific date. In view of these constraints, our actions represent our 
best effort to take short-term action, subject to later refinement if 
necessary, in order to assure compliance with the court's mandate.

II. Opinion by the Fifth Circuit Court of Appeals

    3. Numerous parties filed petitions for review of the Commission's 
Universal Service Order. Those petitions were consolidated before the 
Fifth Circuit, which issued an opinion on July 30, 1999. In response to 
the arguments of Petitioner COMSAT Corporation (COMSAT), the court 
reversed and remanded to the Commission for further consideration the 
Commission's decision to assess contributions based on contributors' 
combined interstate and international revenues. COMSAT did not 
challenge the Commission's jurisdiction to include international 
revenues in calculating carriers' contributions. COMSAT argued, 
however, that including the international revenues of interstate 
carriers in the revenue base was unreasonable for carriers such as 
COMSAT whose interstate revenues account for a small percentage of 
their total annual revenues and whose annual contribution to universal 
service would exceed their annual interstate revenues. COMSAT argued, 
and the court agreed, that this result is contrary to the statutory 
requirement in section 254(d) of the Act, that contributions be made on 
an ``equitable and nondiscriminatory basis.'' Specifically, the court 
found that the Commission failed to demonstrate how requiring COMSAT to 
pay more in universal service contributions than it derives in 
interstate revenues satisfies the ``equitable'' language of section 
254(d). Additionally, the court criticized the contribution requirement 
at issue as ``discriminatory'' under section 254(d), on the basis that 
the application of that requirement ``damages some international 
carriers like COMSAT more than it harms others.'' Accordingly, the 
court reversed and remanded for further consideration the Commission's 
decision to assess the international revenues of interstate carriers.
    4. With respect to the Commission's methodology for assessing 
contributions for the universal service support mechanisms for schools 
and libraries, and rural health care providers, the court found that 
the Commission had exceeded its jurisdictional authority by assessing 
contributions for those programs based, in part, on the intrastate 
revenues of universal service contributors. Accordingly, the court 
reversed the Commission's decision to include intrastate revenues in 
the contribution base for the schools and libraries, and rural health 
care support mechanisms.

[[Page 60350]]

    5. The court also reversed the Commission's ``decision to require 
[incumbent LECs] to recover universal service contributions from their 
interstate access charges.'' Finding that the Commission had 
``required'' incumbent LECs to recover their contributions from 
interstate access charges, the court held that this requirement 
maintained an implicit subsidy in violation of section 254(e) of the 
Act.
    6. Finally, the court reversed the Commission's decision to 
prohibit carriers eligible for universal service support from 
disconnecting Lifeline service to consumers who fail to pay toll 
charges. The court held that the Commission lacked jurisdiction under 
the Act to impose this ``no disconnect'' requirement on carriers.

III. Response to the Fifth Circuit's Opinion

A. Procedural Response

    7. On September 9, 1999, the Commission filed a motion to stay the 
court's mandate, which had been scheduled to take effect on September 
20, 1999. On September 13, 1999, the Commission, GTE, and AT&T each 
filed petitions for rehearing with the court. On September 28, 1999, 
the court denied all of the petitions for rehearing, and granted, in 
part, the Commission's motion for stay. In its order granting, in part, 
the Commission's motion for stay, the court ordered its July 30, 1999 
mandate to issue on November 1, 1999. In light of the court's September 
28, 1999 rulings, the rule changes shall become effective on November 
1, 1999.

B. Changes to the Commission's Rules

1. Single Contribution Base for Universal Service Support Mechanisms
    8. Overview. In light of the court's ruling, we amend Secs. 54.706 
and 54.709 of our rules to provide for a single contribution base for 
purposes of funding all of the universal service support mechanisms. 
Specifically, in response to the court's determination that the 
Commission lacks jurisdiction to assess providers' intrastate revenues, 
we have eliminated intrastate revenues from the contribution base. 
Consistent with the court's ruling, we also reconsider the basis for 
assessing the international revenues of interstate providers. No party 
has challenged the Commission's decision to include international 
revenues generally. The court, however, agreed with COMSAT's argument 
that our rules, as applied, are in some instances inequitable and 
discriminatory. We modify Secs. 54.706 and 54.709 of our rules to 
exclude from the contribution base the international end-user 
telecommunications revenues of each interstate telecommunications 
provider whose interstate end-user telecommunications revenues 
constitute less than 8 percent of its combined interstate and 
international end-user telecommunications revenues. Except for revenues 
excluded pursuant to revised Sec. 54.706(c), the new contribution base 
will consist of interstate providers' interstate and international end-
user telecommunications revenues.
    9. Our rules provide that the Commission will determine 
contribution factors on a quarterly basis. Because the court's mandate 
will issue on November 1, 1999, however, the Commission must establish 
contribution factors in the middle of the quarter, to comply with the 
court's decision. The Commission's rules permit us, on our own motion, 
to waive our rules for good cause shown. Because it is necessary to 
issue new contribution factors before the start of the next quarter in 
order to comply with the judicial mandate, we find that good cause 
exists to waive Sec. 54.709(a) on this occasion to the extent that it 
provides that contribution factors will be adopted on a quarterly 
basis. In addition, because of the need to revise our rules so that 
they will be in compliance with the mandate as of November 1, 1999, we 
find good cause to dispense with notice and comment requirements that 
might otherwise apply, pursuant to the Administrative Procedure Act, 
because those requirements are impracticable and contrary to the public 
interest.
    10. Revised Fourth Quarter Contribution Factor. On September 10, 
1999, the Commission released proposed fourth quarter 1999 contribution 
factors, which USAC is using to bill contributors for their October 
1999 contributions. Consistent with the Commission's rules in effect on 
that date, one of those contribution factors was calculated based on 
contributors' intrastate, interstate, and international end-user 
telecommunications revenues for the July 1998 through December 1998 
period, as reported by contributors on the March 1999 Universal Service 
Worksheet (FCC Form 457). In order to comply with the Fifth Circuit's 
decision, we must eliminate intrastate revenues from the contribution 
base. Eliminating intrastate revenues from the new contribution base 
will eliminate the need for two contribution factors. Specifically, our 
revised rules provide for a single contribution factor that will be 
calculated based on contributors' interstate and international end-user 
telecommunications revenues. That factor will be applied to individual 
contributors' combined interstate and international end-user 
telecommunications revenues to calculate contributions for all of the 
universal service support mechanisms. The elimination of intrastate 
revenues from the contribution base will reduce the contributions of 
incumbent LECs. To the extent an incumbent LEC is recovering its 
universal service contributions in interstate access charges, it must 
file tariffs reducing its access charges correspondingly.
    11. In order to implement this change by November 1, 1999, the 
effective date of the court's mandate, the Common Carrier Bureau 
(Bureau) is releasing today a revised proposed fourth quarter 
contribution factor that will be applicable to carrier contributions 
for November and December 1999. We direct USAC to calculate all 
contributor bills for November and December 1999 based on this revised 
fourth quarter 1999 contribution factor. For the month of October 1999, 
USAC shall continue to bill contributors, and contributors shall 
continue making contributions to universal service, in accordance with 
the Commission's current contribution rules. Providers that fail to 
contribute to the universal service support mechanisms in accordance 
with the Commission's rules will be subject to enforcement action by 
the Commission.
    12. Limited International Revenues Exception. Consistent with the 
court's ruling, we modify Secs. 54.706 and 54.709 of our rules. A 
provider of interstate and international telecommunications shall not 
be required to contribute based on its international end-user 
telecommunications revenues if its interstate end-user 
telecommunications revenues constitute less than 8 percent of its 
combined interstate and international end-user telecommunications 
revenues. This modification is consistent with the court's ruling 
because it will exclude from the contribution base the international 
end-user telecommunications revenues of any telecommunications provider 
whose annual contribution to the federal universal service support 
mechanisms, based on the provider's interstate and international end-
user telecommunications revenues, would exceed the amount of the 
provider's interstate end-user telecommunications revenues. We do not 
anticipate that the universal service contribution factor will exceed 8 
percent in the near future. Thus, this 8 percent rule ensures that a 
provider's universal service contribution will not exceed the amount

[[Page 60351]]

of its interstate end-user telecommunications revenues.
    13. The operation of this rule is demonstrated in the following 
example. Assume a hypothetical provider with $100 of interstate and 
international end-user telecommunications revenues, consisting of $5 of 
interstate revenues and $95 of international revenues. Also assume a 
contribution factor of 0.06, or 6 percent. In the absence of the 8 
percent rule, the provider's contribution ($6) would exceed its 
interstate revenues ($5)--a result contrary to the court's ruling. 
Under our 8 percent rule, however, the provider's interstate revenues 
($5) are less than 8 percent of its combined interstate and 
international revenues and, therefore, the provider is not required to 
contribute on the basis of its international revenues--a result 
consistent with the court's ruling. The provider must still contribute, 
however, on the basis of its $5 of interstate revenues. This 
hypothetical is only for purposes of illustration. Under existing 
rules, if such a provider's annual contribution to universal service 
would be less than $10,000 in a given year, the provider would not be 
required to submit a contribution for that year, see Sec. 54.708.
    14. Equitable Requirement of Section 254(d). We believe that the 
international revenues exception adopted here is responsive to the 
court's concerns regarding the fairness of our assessment methodology 
in that it will permit a contributor that derives the substantial 
majority of its revenues from the provision of international services 
to calculate its contribution to universal service based solely on its 
domestic interstate revenues. We conclude that this exception further 
addresses the court's concerns by ensuring that a provider is not 
assessed a contribution in an amount exceeding that provider's annual 
interstate end-user telecommunications revenues. Because providers will 
receive a financial benefit, overall, from providing interstate 
service, we conclude that our revised rule is equitable.
    15. We decline to adopt a more expansive exception than the rule 
adopted here or to exclude international revenues from the contribution 
requirement altogether in light of section 254(d)'s mandate requiring 
all interstate telecommunications providers to contribute without 
regard to whether those providers' revenues are interstate or 
international. Moreover, nothing in the court's decision suggests that 
the Commission's decision to assess international revenues is 
inconsistent with the Act, outside of the impact it had on Comsat and 
similarly situated carriers. In addition, we conclude that providers 
whose interstate revenues account for a greater amount of their 
combined interstate and international revenues than the threshold 
adopted here clearly receive a direct benefit from universal service 
insofar as their domestic interstate business benefits from the 
expanded network that is fostered by universal service. For these 
providers, their interstate telecommunications services are not merely 
ancillary to their provision of international telecommunications 
services. Accordingly, as direct beneficiaries of an expanded domestic 
network, such carriers reasonably should be required to contribute to 
universal service based on their combined interstate and international 
revenues.
    16. Nondiscriminatory Requirement of Section 254(d). The 
international revenues exception that we adopt here also addresses the 
court's concerns regarding the potentially discriminatory impact of our 
previous assessment methodology. As stated by the court, the FCC's 
interpretation is ``discriminatory,'' because the agency concedes that 
its rule damages some international carriers like COMSAT more than it 
harms others. Any competitive disparity claimed by COMSAT or by 
similarly situated carriers should be minimized as a result of the 
exception that we adopt today. Specifically, such a provider of 
interstate and international telecommunications shall not be required 
to contribute based on its international revenues if its interstate 
end-user telecommunications revenues constitute less than 8 percent of 
its combined interstate and international end-user telecommunications 
revenues. Therefore, providers whose interstate telecommunications 
services are merely ancillary to their international operations will 
not be in a worse position than providers that, by virtue of their 
status as exclusively international providers, are not subject to the 
universal service contribution requirements.
    17. Specific, Predictable, and Sufficient Requirement of Section 
254(d). The limited international revenues exception that we adopt 
today also meets the requirement in section 254(d) of the Act that 
universal service support mechanisms be specific, predictable, and 
sufficient. By setting the international exception at the predetermined 
level of 8 percent, we establish a bright-line rule for providers. As 
soon as providers prepare their worksheets, they will know with 
certainty whether their interstate end-user telecommunications revenues 
comprise 8 percent or more of their total interstate and international 
end-user telecommunications revenues and, thus, whether they must 
contribute on the basis of their international end-user 
telecommunications revenues during the upcoming quarters in which their 
reported revenues will be assessed. In sum, the 8 percent rule allows 
the provider to make decisions based on the specific and predictable 
operation of the support mechanism.
    18. As an alternative, we considered creating an exception based 
not on a fixed percentage of a provider's interstate revenues, but 
instead on the relationship between a provider's actual contribution 
and the amount of its interstate revenues. Under this alternative, a 
carrier would not contribute in a given quarter if its contribution for 
the quarter exceeded its interstate end-user telecommunications 
revenues applicable to that quarter. While this approach would address 
the equitable and nondiscriminatory requirements of section 254(d), we 
conclude that it does not meet the specific and predictable 
requirements as well as the 8 percent rule. If we were to base the 
international revenues exception on the amount of a provider's 
contribution in relation to its interstate end-user telecommunications 
revenues, then the provider's eligibility for the exception would 
depend on the level of the quarterly contribution factor, which varies 
from quarter to quarter. Providers with a percentage of interstate end-
user telecommunications revenues close to the contribution factor would 
not know with certainty whether they qualify for the exception until 
the contribution factor is announced shortly before the beginning of 
each quarter. Thus, this approach is not as specific and predictable as 
the 8 percent rule, and we decline to adopt it.
    19. We also conclude that the 8 percent rule meets section 254(d)'s 
requirement that universal service support mechanisms be sufficient. In 
order to address the court's concerns, any approach that we adopt must 
necessarily exclude a certain amount of international revenue from the 
contribution base. The 8 percent rule excludes only slightly more 
international revenue from the contribution base than would an approach 
that is tied directly to the level of the quarterly contribution 
factor. Moreover, the relatively small amount of international revenue 
excluded from the contribution base by the 8 percent rule should not 
dramatically affect the level of the quarterly contribution factor

[[Page 60352]]

or the ability of providers to meet their contribution obligations. 
Thus, we conclude that the 8 percent rule will allow us to maintain 
universal service support mechanisms that are sufficient.
    20. Implementation of Limited International Revenues Exception. 
Because providers currently report their interstate and international 
end-user telecommunications revenues as a combined amount on the 
Telecommunications Reporting Worksheet (FCC Form 499), the Commission 
does not have revenue data for contributors that distinguish their 
interstate and international revenues. Although the worksheet that 
carriers will submit in April 2000 will be revised to provide for 
separate reporting of contributors' interstate and international 
revenues, two potential implementation problems arise in the interim 
with respect to our adoption of the international revenues exception 
pending the issuance of a revised Worksheet. First, without revenue 
data reflecting the amount of international revenues that will be 
excluded from the contribution base pursuant to the international 
revenues exception, the Commission cannot accurately calculate the 
revised contribution factor for the fourth quarter of 1999. Second, 
without revenue data separately identifying each contributor's 
interstate and international revenues, USAC cannot determine which 
contributors qualify for the international revenues exception and, 
therefore, cannot accurately bill individual contributors. To remedy 
these problems, this Order: (1) estimates the amount of international 
revenues that we anticipate will be excluded from the contribution base 
by operation of the international revenues exception described; and (2) 
requires each contributor that qualifies for the international revenues 
exception adopted in this Order to file an amendment to its March 1999 
and September 1999 worksheets within 30 days of the effective date of 
this Order, identifying the amount and percentages of the contributor's 
interstate and international revenues.
    21. The Common Carrier Bureau's Industry Analysis Division has 
estimated that, as a result of our adoption of the limited 
international revenues exception, approximately $0.617 billion of 
international end-user telecommunications revenues will be excluded 
from the $38.204 billion of interstate and international end-user 
telecommunications revenues previously reported for the second half of 
1998. Thus, we direct that the amount of interstate and international 
end-user telecommunications revenues reported for July to December 1998 
($38.204 billion), as filed with the Commission by USAC, should be 
reduced to $37.587 billion when calculating a contribution base using 
revenue data from that period. In the event that our estimate of the 
amount of international revenues excluded by operation of the limited 
international revenues exception proves inaccurate once actual revenue 
data become available, we direct USAC to adjust future revenue 
estimates and future contributor bills to correct for any inaccuracy in 
our estimate.
    22. To enable USAC to bill individual carriers, each contributor 
that qualifies for the international revenues exception adopted in this 
Order must file with USAC an amendment to its March 1999 Form 457 and 
September 1999 Form 499-S worksheets within 30 days of the effective 
date of this Order, identifying the amount and percentages of the 
contributor's interstate and international revenues. Only a contributor 
whose interstate end-user telecommunications revenues constituted less 
than 8 percent of the contributor's combined interstate and 
international end-user telecommunications revenues in 1998 should 
submit these forms. Until the Telecommunications Reporting Worksheet 
(FCC Form 499-A, FCC Form 499-S) can be revised and approved by the 
Office of Management and Budget (OMB), we conclude that the interim 
procedure just described will provide a reasonable estimate of the 
contribution base and allow individual contributors to obtain the 
benefit of the limited international revenues exception with minimal 
disruption to USAC's billing, collection, and disbursement operations. 
A revised worksheet that separately lists contributors' interstate and 
international revenues will be made available in time for filing of the 
April 2000 Worksheet (FCC Form 499-A). A contributor that qualifies for 
the international revenues exception shall continue making its 
contributions to universal service in accordance with the Commission's 
current contribution rules regarding the assessment of international 
revenues until such time as: (1) the contributor files the Form 457 and 
Form 499-S amendments with USAC, and (2) the contributor has received a 
bill or reimbursement from USAC in which USAC has adjusted the 
contributor's payment obligation, effective November 1, 1999, to take 
into account changes resulting from our adoption of the 8 percent rule.
2. Recovery of Universal Service Contributions by Incumbent Local 
Exchange Carriers
    23. In Texas Office of Public Utility Counsel v. FCC, the court 
reversed the Commission's decision that incumbent LECs could only 
recover their universal service contributions through access charges, 
stating that:

forcing GTE to recover its universal service contributions from its 
access charges * * * maintains an implicit subsidy. * * *  
[R]equiring carriers to recover their contributions from access 
charges on interstate calls shifts the costs of intrastate universal 
service to the interstate jurisdiction.
* * * Because the agency continues to require implicit subsidies for 
ILECs in violation of a plain, direct statutory command, we reverse 
its decision to require ILECs to recover universal service 
contributions from their interstate access charges.

    24. The U.S. Court of Appeals for the Eighth Circuit held in 
Southwestern Bell Telephone Co. v. FCC that section 254(e) does not 
preclude the Commission from permitting incumbent LECs to recover 
universal service contributions through access charges. That court 
noted that contribution costs are ``real costs of doing business'' that 
carriers may pass through to customers that use their services. Rather 
than requiring explicit universal service support, section 254(e) 
states that such support ``should'' be explicit. Moreover, section 
254(e) does not address contributions to the universal service fund, 
but support flowing from the fund. As the Eighth Circuit observed, 
``[t]he flow-through of LEC universal service costs to its IXC 
customers is akin to the flow-through of IXC universal service costs to 
its long-distance customers--neither can be categorized as an implicit 
subsidy in violation of section 254(e).''
    25. The Fifth Circuit's analysis of section 254(e) can be 
harmonized with the Eighth Circuit's decision in Southwestern Bell. We 
believe that the Fifth Circuit intended to hold only that section 
254(e) barred the FCC from requiring incumbent LECs to recover 
universal service contributions through access charges. The Eighth 
Circuit, on the other hand, simply held that section 254(e) does not 
preclude the FCC from permitting incumbent LECs to recover universal 
service contributions through access charges. Thus, we read the Fifth 
Circuit decision, consistent with the Eighth Circuit's decision, as 
permitting incumbent LECs to adopt this method of cost recovery.
    26. To comply with the Fifth Circuit's order, we will expand 
incumbent LECs'

[[Page 60353]]

options for recovering their universal service contributions to include 
an end-user charge. Because incumbent LECs are dominant in the 
provision of local exchange and exchange access services, we conclude 
that some regulation of the way in which these carriers may recover 
their universal service contributions from end-users remains necessary. 
Competition is not sufficient to constrain their rates and ensure that 
they remain just and reasonable. We require any such recovery to be 
equitable and nondiscriminatory. Incumbent LECs will thus be able to 
recover their contributions through access charges or through end-user 
charges. To the extent they choose to implement an interstate end-user 
charge, however, incumbent LECs that are currently recovering their 
universal service contributions in interstate access charges must make 
corresponding reductions in their interstate access charges to avoid 
any double recovery.
3. Elimination of the ``No Disconnect'' Rule
    27. Section 54.401(b) of the Commission's rules prohibits carriers 
eligible for universal service support from disconnecting Lifeline 
service to consumers that fail to pay toll charges. In light of the 
court's ruling that the Commission does not have jurisdiction under the 
Act impose this ``no disconnect'' rule, we amend part 54 of our rules 
to eliminate that provision.

C. Authority Delegated to the Bureau

    28. Pursuant to Sec. 54.711(c) of the Commission's rules, the 
Bureau has authority to waive, reduce, eliminate, or add to the 
Commission's universal service reporting requirements. To the extent 
that the reporting requirements described in this Order require 
subsequent modification, the Bureau has authority to make such 
modifications without further Commission action.

IV. Procedural Matters

A. Supplemental Final Regulatory Flexibility Analysis

    29. The Regulatory Flexibility Act (RFA) requires that a Regulatory 
Flexibility Analysis be prepared for notice-and-comment rulemaking 
proceedings, unless the agency certifies that ``the rule will not, if 
promulgated, have a significant impact on a substantial number of small 
entities.'' The RFA generally defines ``small entity'' as having the 
same meaning as the terms ``small business,'' ``small organization,'' 
and ``small governmental jurisdiction.'' A small organization is 
generally ``any not-for-profit enterprise which is independently owned 
and operated and is not dominant in its field.'' This Supplemental 
Final Regulatory Flexibility Analysis supplements the Final Regulatory 
Flexibility Analysis (FRFA) included in the Universal Service Order, 
only to the extent that changes to that order adopted here require 
changes in the conclusions reached in the FRFA. As required by section 
603 of the Regulatory Flexibility Act, 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 
Commission has prepared this Supplemental Final Regulatory Flexibility 
Analysis of the possible significant economic impact this Order might 
have on small entities, in conformance with the RFA.
1. Need for and Objectives of Rules
    30. The decisions and rules adopted in this Order are designed to 
implement as quickly and effectively as possible the court's July 30, 
1999 decision. In formulating these rules, we have been mindful of the 
impact of our rules on small business entities, particularly regarding 
their impact on (1) small international providers whose interstate 
operations represent a modest amount of their combined interstate and 
international revenues, and (2) small incumbent local exchange carriers 
that wish to recover their universal service contributions from their 
end-user customers through an explicit interstate end-user charge.
2. Summary of Significant Issues Raised by the Public Comments to the 
IRFA
    31. The Commission performed an IRFA in connection with both the 
NPRM and Recommended Decision in this proceeding, which sought written 
public comment on the proposals in the NPRM and 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. No comments in response to the IRFAs, other than those 
summarized in the Universal Service Order, were filed. In response to 
the FRFA contained in the Universal Service Order, RTC argued that the 
Commission did not satisfy the requirements of the RFA by considering 
alternatives to the cap on recovery of corporate operations expenses. 
Those comments were fully addressed in the Fourth Order on 
Reconsideration.
    32. No comments or petitions for reconsideration in response to the 
IRFAs or FRFA, other than those described, were filed and none of the 
comments filed pertain to the issues raised in the present Order. We 
have nonetheless addressed small business concerns by giving incumbent 
LECs greater flexibility in structuring their recovery of universal 
service contributions and by creating an exception from the 
contribution requirements for certain providers of international 
telecommunications services, as described in ``Steps Taken to Minimize 
Significant Economic Impact on Small Entities, and Significant 
Alternatives Considered.''
3. Description and Estimate of Number of Small Entities to Which the 
Rules May Apply
    33. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the new rules. The RFA generally defines the term ``small 
entity'' as having the same meaning as the terms ``small business,'' 
``small organization,'' and ``small governmental jurisdiction.'' In 
addition, the term ``small business'' has the same meaning as the term 
``small business concern'' under the Small Business Act. A small 
business concern is one that: (1) is independently owned and operated; 
(2) is not dominant in its field of operation; and (3) satisfies any 
additional criteria established by the Small Business Administration 
(SBA). A small organization is generally ``any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.'' Nationwide, as of 1992, there were 
approximately 275,801 small organizations. And finally, ``Small 
governmental jurisdiction'' generally means ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than 50,000.'' As of 1992, there 
were approximately 85,006 such jurisdictions in the United States. This 
number includes 38,978 counties, cities, and towns; of these, 37,566, 
or 96 percent, have populations of fewer than 50,000. The Census Bureau 
estimates that this ratio is approximately accurate for all 
governmental entities. Thus, of the 85,006 governmental entities, we 
estimate that 81,600 (91 percent) are small entities. In this Order, 
the

[[Page 60354]]

Commission stated that the new rules will affect all providers of 
interstate telecommunications and interstate telecommunications 
services. We further describe and estimate the number of small business 
concerns that may be affected by the rules adopted in this Order.
    34. As noted, under the Small Business Act, a ``small business 
concern'' is one that: (1) is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) meets any additional 
criteria established by the Small Business Administration (SBA). The 
SBA has defined a small business for Standard Industrial Classification 
(SIC) categories 4812 (Radiotelephone Communications) and 4813 
(Telephone Communications, Except Radiotelephone) to be small entities 
when they have no more than 1,500 employees. We first discuss the 
number of small telephone companies falling within these SIC 
categories, then attempt to refine further those estimates to 
correspond with the categories of telecommunications companies that are 
commonly used under our rules.
    35. The most reliable source of information regarding the total 
numbers of common carrier and related providers nationwide, including 
the numbers of commercial wireless entities, appears to be data the 
Commission publishes annually in its Carrier Locator report, derived 
from filings made in connection with the Telecommunications Relay 
Service (TRS). According to data in the most recent report, there are 
3,604 interstate carriers. These carriers include, inter alia, local 
exchange carriers, wireline carriers and service providers, 
interexchange carriers, competitive access providers, operator service 
providers, pay telephone operators, providers of telephone toll 
service, providers of telephone exchange service, and resellers.
    36. We have included small incumbent LECs in this present RFA 
analysis. As noted, a ``small business'' under the RFA is one that, 
inter alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent LECs are not 
dominant in their field of operation because any such dominance is not 
``national'' in scope. We have therefore included small incumbent LECs 
in this RFA analysis, although we emphasize that this RFA action has no 
effect on Commission analyses and determinations in other non-RFA 
contexts.
    37. Total Number of Telephone Companies Affected. The United States 
Bureau of the Census (``the Census Bureau'') reports that, at the end 
of 1992, there were 3,497 firms engaged in providing telephone 
services, as defined therein, for at least one year. This number 
contains a variety of different categories of carriers, including local 
exchange carriers, interexchange carriers, competitive access 
providers, cellular carriers, mobile service carriers, operator service 
providers, pay telephone operators, PCS providers, covered SMR 
providers, and resellers. It seems certain that some of those 3,497 
telephone service firms may not qualify as small entities or small 
incumbent LECs because they are not ``independently owned and 
operated.'' For example, a PCS provider that is affiliated with an 
interexchange carrier having more than 1,500 employees would not meet 
the definition of a small business. It seems reasonable to conclude, 
therefore, that fewer than 3,497 telephone service firms are small 
entity telephone service firms or small incumbent LECs that may be 
affected by the decisions and rules in this Order.
    38. Wireline Carriers and Service Providers. SBA has developed a 
definition of small entities for telephone communications companies 
other than radiotelephone companies. The Census Bureau reports that, 
there were 2,321 such telephone companies in operation for at least one 
year at the end of 1992. According to SBA's definition, a small 
business telephone company other than a radiotelephone company is one 
employing no more than 1,500 persons. All but 26 of the 2,321 non-
radiotelephone companies listed by the Census Bureau were reported to 
have fewer than 1,000 employees. Thus, even if all 26 of those 
companies had more than 1,500 employees, there would still be 2,295 
non-radiotelephone companies that might qualify as small entities or 
small incumbent LECs. Although it seems certain that some of these 
carriers are not independently owned and operated, we are unable at 
this time to estimate with greater precision the number of wireline 
carriers and service providers that would qualify as small business 
concerns under SBA's definition. Consequently, we estimate that there 
are fewer than 2,295 small entity telephone communications companies 
other than radiotelephone companies that may be affected by the 
decisions and rules in this Order.
    39. Local Exchange Carriers, Interexchange Carriers, Competitive 
Access Providers, Operator Service Providers, and Resellers. Neither 
the Commission nor SBA has developed a definition of small local 
exchange carriers (LECs), interexchange carriers (IXCs), competitive 
access providers (CAPs), operator service providers (OSPs), or 
resellers. The closest applicable definition for these carrier-types 
under SBA rules is for telephone communications companies other than 
radiotelephone (wireless) companies. The most reliable source of 
information regarding the number of these carriers nationwide of which 
we are aware appears to be the data that we collect annually in 
connection with the Telecommunications Relay Service (TRS). According 
to our most recent data, there are 1,410 LECs, 151 IXCs, 129 CAPs, 32 
OSPs, and 351 resellers. Although it seems certain that some of these 
carriers are not independently owned and operated, or have more than 
1,500 employees, we are unable at this time to estimate with greater 
precision the number of these carriers that would qualify as small 
business concerns under SBA's definition. Consequently, we estimate 
that there are fewer than 1,410 small entity LECs or small incumbent 
LECs, 151 IXCs, 129 CAPs, 32 OSPs, and 351 resellers that may be 
affected by the decisions and rules in the order and order on 
reconsideration.
    40. Wireless (Radiotelephone) Carriers. SBA has developed a 
definition of small entities for radiotelephone (wireless) companies. 
The Census Bureau reports that there were 1,176 such companies in 
operation for at least one year at the end of 1992. According to SBA's 
definition, a small business radiotelephone company is one employing 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. Although it seems certain that some of these carriers are not 
independently owned and operated, we are unable at this time to 
estimate with greater precision the number of radiotelephone carriers 
and service providers that would qualify as small business concerns 
under SBA's definition. Consequently, we estimate that there are fewer 
than 1,164 small entity radiotelephone companies that may be affected 
by the decisions and rules in this Order.
    41. Cellular, PCS, SMR and Other Mobile Service Providers. In an 
effort to further refine our calculation of the number of 
radiotelephone companies that may be affected by the rules

[[Page 60355]]

adopted herein, we consider the data that we collect annually in 
connection with the TRS for the subcategories Wireless Telephony (which 
includes Cellular, PCS, and SMR) and Other Mobile Service Providers. 
Neither the Commission nor the SBA has developed a definition of small 
entities specifically applicable to these broad subcategories, so we 
will utilize the closest applicable definition under SBA rules--which, 
for both categories, is for telephone companies other than 
radiotelephone (wireless) companies. To the extent that the Commission 
has adopted definitions for small entities providing PCS and SMR 
services. According to our most recent TRS data, 732 companies reported 
that they are engaged in the provision of Wireless Telephony services 
and 23 companies reported that they are engaged in the provision of 
Other Mobile Services. Although it seems certain that some of these 
carriers are not independently owned and operated, or have more than 
1,500 employees, we are unable at this time to estimate with greater 
precision the number of Wireless Telephony Providers and Other Mobile 
Service Providers, except as described, that would qualify as small 
business concerns under SBA's definition. Consequently, we estimate 
that there are fewer than 732 small entity Wireless Telephony Providers 
and fewer than 23 small entity Other Mobile Service Providers that 
might be affected by the decisions and rules in this Order.
    42. Broadband PCS Licensees. The broadband PCS spectrum is divided 
into six frequency blocks designated A through F, and the Commission 
has held auctions for each block. The Commission defined ``small 
entity'' for Blocks C and F as an entity that has average gross 
revenues of less than $40 million in the three previous calendar years. 
For Block F, an additional classification for ``very small business'' 
was added, and is defined as an entity that, together with its 
affiliates, has average gross revenues of not more than $15 million for 
the preceding three calendar years. These regulations defining ``small 
entity'' in the context of broadband PCS auctions have been approved by 
SBA. No small businesses within the SBA-approved definition bid 
successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40% 
of the 1,479 licenses for Blocks D, E, and F. However, licenses for 
Blocks C through F have not been awarded fully, therefore there are 
few, if any, small businesses currently providing PCS services. Based 
on this information, we estimate that the number of small broadband PCS 
licenses will include the 90 winning C Block bidders and the 93 
qualifying bidders in the D, E, and F blocks, for a total of 183 small 
PCS providers as defined by SBA and the Commissioner's auction rules.
    43. SMR Licensees. Pursuant to 47 CFR 90.814(b)(1), the Commission 
has defined ``small entity'' in auctions for geographic area 800 MHz 
and 900 MHz SMR licenses as a firm that had average annual gross 
revenues of less than $15 million in the three previous calendar years. 
The definition of a ``small entity'' in the context of 800 MHz SMR has 
been approved by the SBA, and approval for the 900 MHz SMR definition 
has been sought. The rules may apply to SMR providers in the 800 MHz 
and 900 MHz bands that either hold geographic area licenses or have 
obtained extended implementation authorizations. We do not know how 
many firms provide 800 MHz or 900 MHz geographic area SMR service 
pursuant to extended implementation authorizations, nor how many of 
these providers have annual revenues of less than $15 million. 
Consequently, we estimate, for purposes of this IRFA, that all of the 
extended implementation authorizations may be held by small entities, 
some of which may be affected by the decisions and rules in this Order.
    44. The Commission recently held auctions for geographic area 
licenses in the 900 MHz SMR band. There were 60 winning bidders who 
qualified as small entities in the 900 MHz auction. Based on this 
information, we estimate that the number of geographic area SMR 
licensees that may be affected by the decisions and rules in the order 
and order on reconsideration includes these 60 small entities. No 
auctions have been held for 800 MHz geographic area SMR licenses. 
Therefore, no small entities currently hold these licenses. A total of 
525 licenses will be awarded for the upper 200 channels in the 800 MHz 
geographic area SMR auction. The Commission, however, has not yet 
determined how many licenses will be awarded for the lower 230 channels 
in the 800 MHz geographic area SMR auction. There is no basis, 
moreover, on which to estimate how many small entities will win these 
licenses. Given that nearly all radiotelephone companies have fewer 
than 1,000 employees and that no reliable estimate of the number of 
prospective 800 MHz licensees can be made, we estimate, for purposes of 
this IRFA, that all of the licenses may be awarded to small entities, 
some of which may be affected by the decisions and rules in this Order.
    45. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. There are approximately 1,515 
such non-nationwide licensees and four nationwide licensees currently 
authorized to operate in the 220 MHz band. The Commission has not 
developed a definition of small entities specifically applicable to 
such incumbent 220 MHz Phase I licensees. To estimate the number of 
such licensees that are small businesses, we apply the definition under 
the SBA rules applicable to Radiotelephone Communications companies. 
According to the Bureau of the Census, only 12 radiotelephone firms out 
of a total of 1,178 such firms which operated during 1992 had 1,000 or 
more employees. Therefore, if this general ratio continues to 1999 in 
the context of Phase I 220 MHz licensees, we estimate that nearly all 
such licensees are small businesses under the SBA's definition.
    46. 220 MHz Radio Service--Phase II Licensees. The Phase II 220 MHz 
service is a new service, and is subject to spectrum auctions. In the 
220 MHz Third Report and Order, 62 FR 16004 (April 3, 1997), we adopted 
criteria for defining small businesses and very small businesses for 
purposes of determining their eligibility for special provisions such 
as bidding credits and installment payments. We have defined a small 
business as an entity that, together with its affiliates and 
controlling principals, has average gross revenues not exceeding $15 
million for the preceding three years. Additionally, a very small 
business is defined as an entity that, together with its affiliates and 
controlling principals, has average gross revenues that are not more 
than $3 million for the preceding three years. An auction of Phase II 
licenses commenced on September 15, 1998, and closed on October 22, 
1998. 908 licenses were auctioned in 3 different-sized geographic 
areas: three nationwide licenses, 30 Regional Economic Area Group 
Licenses, and 875 Economic Area (EA) Licenses. Of the 908 licenses 
auctioned, 693 were sold. Companies claiming small business status won: 
one of the Nationwide licenses, 67% of the Regional licenses, and 54% 
of the EA licenses. As of January 22, 1999, the Commission announced 
that it was prepared to grant 654 of the Phase II licenses won at 
auction. A reauction of the remaining, unsold licenses was completed on 
June 30, 1999, with 16 bidders winning 222 of the Phase II licenses. As 
a result, we estimate that 16

[[Page 60356]]

or fewer of these final winning bidders are small or very small 
businesses.
    47. Paging. On June 7, 1999, the Wireless Telecommunications Bureau 
announced the first in a series of auctions of paging licenses, the 
first to commence on December 7, 1999. The Bureau has proposed that the 
first auction be composed of 2,499 licenses. The Commission utilizes a 
two-tiered definition of small businesses in the context of auctioning 
licenses in the Common Carrier Paging and exclusive Private Carrier 
Paging services. A small business is defined as either (1) an entity 
that, together with its affiliates and controlling principals, has 
average gross revenues for the three preceding years of not more than 
$3 million, or (2) an entity that, together with affiliates and 
controlling principals, has average gross revenues for the three 
preceding calendar years of not more than $15 million. The SBA has 
approved this definition. At present, there are approximately 24,000 
Private Paging licenses and 74,000 Common Carrier Paging licenses. In 
addition, according to the most recent Carrier Locator data, 137 
carriers reported that they were engaged in the provision of either 
paging or messaging services, which are placed together in the data. 
Because the auction has yet to occur, we do not have data specifying 
the number of winning bidders that will meet the above small business 
definition. Also, we will assume that there currently are 137 or fewer 
small business paging carriers.
    48. Narrowband PCS. The Commission has auctioned nationwide and 
regional licenses for narrowband PCS. There are 11 nationwide and 30 
regional licensees for narrowband PCS. The Commission does not have 
sufficient information to determine whether any of these licensees are 
small businesses within the SBA-approved definition for radiotelephone 
companies. At present, there have been no auctions held for the major 
trading area (MTA) and basic trading area (BTA) narrowband PCS 
licenses. The Commission anticipates a total of 561 MTA licenses and 
2,958 BTA licenses will be awarded by auction. Such auctions have not 
yet been scheduled, however. Given that nearly all radiotelephone 
companies have no more than 1,500 employees and that no reliable 
estimate of the number of prospective MTA and BTA narrowband licensees 
can be made, we assume, for purposes of this IRFA, that all of the 
licenses will be awarded to small entities, as that term is defined by 
the SBA.
    49. Rural Radiotelephone Service. The Commission has not adopted a 
definition of small entity specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio Systems (BETRS). We will use the 
SBA's definition applicable to radiotelephone companies, i.e., an 
entity employing no more than 1,500 persons. There are approximately 
1,000 licensees in the Rural Radiotelephone Service, and we estimate 
that almost all of them qualify as small entities under the SBA's 
definition.
    50. Air-Ground Radiotelephone Service. The Commission has not 
adopted a definition of small entity specific to the Air-Ground 
Radiotelephone Service. Accordingly, we will use the SBA's definition 
applicable to radiotelephone companies, i.e., an entity employing no 
more than 1,500 persons. There are approximately 100 licensees in the 
Air-Ground Radiotelephone Service, and we estimate that almost all of 
them qualify as small entities under the SBA definition.
    51. Private Land Mobile Radio (PLMR). PLMR systems, also known as 
Private Mobile Radio Service (PMRS) systems, serve an essential role in 
a range of industrial, business, land transportation, and public safety 
activities. These radios are used by companies of all sizes operating 
in all U.S. business categories. The Commission has not developed a 
definition of small entity specifically applicable to PLMR licensees 
due to the vast array of PLMR users. For the purpose of determining 
whether a licensee is a small business as defined by the SBA, each 
licensee would need to be evaluated within its own business area. The 
Commission is unable at this time to estimate the number of, if any, 
small businesses that could be impacted by the new rules. However, the 
Commission's 1994 Annual Report on PLMRs indicates that at the end of 
fiscal year 1994 there were 1,087,267 licensees operating 12,481,989 
transmitters in the PLMR bands below 512 MHz. Because any entity 
engaged in a commercial activity is eligible to hold a PLMR license, 
the rules in this context could potentially impact any small U.S. 
business that chooses to become licensed in this service. On July 21, 
1999, the Wireless Telecommunications Bureau requested public comment 
on whether the licensing of PMRS frequencies in the 800 MHz band for 
commercial SMR use would serve the public interest.
    52. Fixed Microwave Services. Microwave services include common 
carrier, private-operational fixed, and broadcast auxiliary radio 
services. At present, there are approximately 22,015 common carrier 
fixed licensees in the microwave services. The Commission has not yet 
defined a small business with respect to microwave services. For 
purposes of this IRFA, we will utilize the SBA's definition applicable 
to radiotelephone companies--i.e., an entity with no more than 1,500 
persons. We estimate, for this purpose, that all of the Fixed Microwave 
licensees (excluding broadcast auxiliary licensees) would qualify as 
small entities under the SBA definition for radiotelephone companies.
    53. Offshore Radiotelephone Service. This service operates on 
several UHF TV broadcast channels that are not used for TV broadcasting 
in the coastal area of the states bordering the Gulf of Mexico. At 
present, there are approximately 55 licensees in this service. We are 
unable at this time to estimate the number of licensees that would 
qualify as small entities under the SBA's definition for radiotelephone 
communications.
    54. Wireless Communications Services. This service can be used for 
fixed, mobile, radio location and digital audio broadcasting satellite 
uses. The Commission defined ``small business'' for the wireless 
communications services (WCS) auction as an entity with average gross 
revenues of $40 million for each of the three preceding years, and a 
``very small business'' as an entity with average gross revenues of $15 
million for each of the three preceding years. The Commission auctioned 
geographic area licenses in the WCS service. In the auction, there were 
seven winning bidders that qualified as very small business entities, 
and one that qualified as a small business entity. We conclude that the 
number of geographic area WCS licensees that may be affected by the 
decisions and rules in this Order includes these eight entities.
    55. Multipoint Distribution Systems (MDS): The Commission has 
defined ``small entity'' for the auction of MDS as an entity that, 
together with its affiliates, has average gross annual revenues that 
are not more than $40 million for the preceding three calendar years. 
This definition of a small entity in the context of MDS auctions has 
been approved by the SBA. The Commission completed its MDS auction in 
March 1996 for authorizations in 493 basic trading areas (BTAs). Of 67 
winning bidders, 61 qualified as small entities.
    56. MDS is also heavily encumbered with licensees of stations 
authorized prior to the auction. The SBA has developed a definition of 
small entities for pay television services, which

[[Page 60357]]

includes all such companies generating $11 million or less in annual 
receipts. This definition includes multipoint distribution systems, and 
thus applies to MDS licensees and wireless cable operators which did 
not participate in the MDS auction. Information available to us 
indicates that there are 832 of these licensees and operators that do 
not generate revenue in excess of $11 million annually. Therefore, for 
purposes of this IRFA, we find there are approximately 892 small MDS 
providers as defined by the SBA and the Commission's auction rules, 
some which may be affected by the decisions and rules in this Order.
    57. International Service Providers. The Commission has not 
developed a definition of small entities applicable to licensees in the 
international services. Therefore, the applicable definition of small 
entity is the definition under the SBA rules applicable to 
Communications Services, Not Elsewhere Classified (NEC). This 
definition provides that a small entity is expressed as one with $11 
million or less in annual receipts. According to the Census Bureau, 
there were a total of 848 communications services, NEC in operation in 
1992, and a total of 775 had annual receipts of less than $9.999 
million. We note that those entities providing only international 
service will not be affected by our revised rules. We do not, however, 
have sufficient data to estimate with greater detail those providing 
both international and interstate services. Consequently, we estimate 
that there are fewer than 775 small international service entities 
potentially impacted by our rules.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    58. In this Order, we adopt revisions to Part 54 that are 
responsive to the court's July 30, 1999 ruling. In response to the 
court's concern that our assessment rules were unduly burdensome as 
applied to small providers whose interstate operations represent a 
modest amount of their combined interstate and international revenues, 
we modify our rules to create an exception from the contribution 
requirements for certain providers of international telecommunications 
services. In doing so, we have asked providers claiming entitlement to 
this exception to prepare and submit to USAC two short forms amending 
their two most recently filed Worksheets. Those forms ask contributors 
claiming entitlement to the exception to separately list their 
interstate and international revenues. To the extent that this 
reporting obligation is not unduly burdensome and is adopted in order 
to establish certain providers' entitlement to an exception from the 
contribution requirements, we project that this Order will impose no 
significant new reporting requirements on small carriers.
    59. In light of the court's determination that the Commission may 
not require incumbent LECs to recover the cost of their universal 
service contributions through interstate access charges, we give 
incumbent LECs flexibility in the manner in which they recover their 
universal service contributions. For those that elect to continue 
recovering their contributions through interstate access charges, no 
additional requirements are imposed by this Order. For those that elect 
to recover their contributions through an explicit end-user charge, 
this Order requires such carriers to take steps to make corresponding 
reductions in their interstate access charges to avoid double recovery.
5. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    60. In this Order, we have taken several steps to minimize the 
economic impact of our Part 54 rule changes on all carriers, including 
small carriers. For example, in response to the court's concern that 
our contribution requirement, as applied to certain small providers, 
was unduly burdensome, we have sought to reduce the contribution 
obligation of providers, many of which are small entities, whose 
interstate operations represent a modest amount of their combined 
interstate and international revenues. We take this action in response 
to the court's concerns and to help primarily international providers 
with a small portion of interstate business to compete on a more equal 
footing with international providers that, by virtue of their status as 
exclusively international carriers, are not subject to the universal 
service contribution requirements.
    61. In light of the court's determination that the Commission may 
not require incumbent LECs to recover the cost of their universal 
service contributions through interstate access charges, we give 
incumbent LECs flexibility in the manner in which they recover their 
universal service contributions. For those that elect to continue 
recovering their contributions through interstate access charges, no 
additional requirements are imposed by this Order. For those that elect 
to recover their contributions through an explicit end-user charge, 
this Order requires such carries to take steps to make corresponding 
reductions in their interstate access charges to avoid double recovery. 
Given that the compliance obligations associated with transitioning to 
an end-user method of recovery for incumbent LECs are in large measure 
voluntary, and insofar as carriers, including small carriers, are given 
no deadlines for implementing such changes, we conclude the compliance 
requirements adopted in this Order will not be unduly burdensome on 
small carriers.
6. Report to Congress
    62. The Commission will send a copy of this Order, including the 
Supplemental Final Regulatory Flexibility Analysis, in a report to be 
sent to Congress pursuant to the Small Business Regulatory Enforcement 
Fairness Act of 1996. A summary of the rules adopted in this Order and 
this Supplemental Final Regulatory Flexibility Analysis will also be 
published in the Federal Register, and will be sent to the Chief 
Counsel for Advocacy of the Small Business Administration.

B. Effective Date of Final Rules

    63. In this Order, the Commission amends its rules to implement the 
court's July 30, 1999 mandate with respect to the assessment and 
recovery of universal service contributions. Consistent with the 
court's September 28, 1999 rulings, we make this Order and the rule 
changes adopted herein effective on November 1, 1999. The court's 
directive that its July 30, 1999 mandate will issue on November 1, 1999 
provides good cause to depart in the manner described from the general 
requirement of 5 U.S.C. 553(d) that final rules take effect not less 
than thirty (30) days after their publication in the Federal Register. 
The information collections contained in this Order was approved by OMB 
under control number 3060-0907.

V. Ordering Clauses

    64. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1-4, 201, 205, 218-220, 254, 303(r), 403, and 410 
of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-
205, 218-220, 254, 303(r), 403, 410, the Sixteenth Order on 
Reconsideration in CC Docket No. 96-45 is adopted.
    65. The Eighth Report and Order in CC Docket No. 96-45 is adopted.
    65. The Sixth Report and Order in CC Docket No. 96-262 is adopted.
    67. Parts 54 and 69 of the Commission's Rules, 47 CFR Parts 54

[[Page 60358]]

and 69, are amended, effective November 1, 1999.
    68. The authority is delegated to the Chief of the Common Carrier 
Bureau pursuant to 47 CFR 0.291 and 54.711(c) to modify, or require the 
filing of, any forms that are necessary to implement the decisions and 
rules adopted in this Order and that are required to ensure the sound 
and efficient functioning of the universal service support mechanisms.
    69. The Commission's Office of Public Affairs, Reference Operations 
Division, shall send a copy of this Order, including the Supplemental 
Final Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects

47 CFR Part 54

    Universal service.

47 CFR Part 69

    Communications common carrier.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Parts 54 and 69 of Title 47 of the Code of Federal Regulations is 
amended to read as follows:

PART 54--UNIVERSAL SERVICE

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

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


Sec. 54.401  [Amended].

    2. In Sec. 54.401, remove and reserve paragraph (b).
    3. Amend Sec. 54.706 by revising paragraphs (b) and (c) and adding 
paragraph (d) to read as follows:


Sec. 54.706  Contributions.

* * * * *
    (b) Except as provided in paragraph (c) of this section, every 
telecommunications carrier that provides interstate telecommunications 
services, every provider of interstate telecommunications that offers 
telecommunications for a fee on a non-common carrier basis, and every 
payphone provider that is an aggregator shall contribute to the federal 
universal service support mechanisms on the basis of its interstate and 
international end-user telecommunications revenues.
    (c) Any entity required to contribute to the federal universal 
service support mechanisms whose interstate end-user telecommunications 
revenues comprise less than 8 percent of its combined interstate and 
international end-user telecommunications revenues shall contribute to 
the federal universal service support mechanisms for high cost areas, 
low-income consumers, schools and libraries, and rural health care 
providers based only on such entity's interstate end-user 
telecommunications revenues. For purposes of this paragraph, an 
``entity'' shall refer to the entity that is subject to the universal 
service reporting requirements in 47 CFR 54.711 and shall include all 
of that entity's affiliated providers of telecommunications services.
    (d) Entities providing open video systems (OVS), cable leased 
access, or direct broadcast satellite (DBS) services are not required 
to contribute on the basis of revenues derived from those services. The 
following entities will not be required to contribute to universal 
service: non-profit health care providers; broadcasters; systems 
integrators that derive less than five percent of their systems 
integration revenues from the resale of telecommunications.
    4. Amend Sec. 54.709 by revising paragraph (a) 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 a 
contribution factor determined quarterly by the Commission.
    (1) For funding the federal universal service support mechanisms, 
the subject revenues will be contributors' interstate and international 
revenues derived from domestic end users for telecommunications or 
telecommunications services.
    (2) The quarterly universal service contribution factor shall be 
determined by the Commission based on the ratio of total projected 
quarterly expenses of the universal service support mechanisms to total 
end-user interstate and international telecommunications revenues. The 
Commission shall approve the Administrator's quarterly projected costs 
of the universal service support mechanisms, taking into account demand 
for support and administrative expenses. The total subject revenues 
shall be compiled by the Administrator based on information contained 
in the Telecommunications Reporting Worksheets described in 
Sec. 54.711(a).
    (3) Total projected expenses for the federal universal service 
support mechanisms for each quarter must be approved by the Commission 
before they are used to calculate the quarterly contribution factor and 
individual contributions. For each quarter, the Administrator must 
submit its projections of demand for the federal universal service 
support mechanisms for high-cost areas, low-income consumers, schools 
and libraries, and rural health care providers, respectively, and the 
basis for those projections, to the Commission and the Common Carrier 
Bureau at least sixty (60) calendar days prior to the start of that 
quarter. For each quarter, the Administrator must submit its 
projections of administrative expenses for the high-cost mechanism, the 
low-income mechanism, the schools and libraries mechanism and the rural 
health care mechanism and the basis for those projections to the 
Commission and the Common Carrier Bureau at least sixty (60) calendar 
days prior to the start of that quarter. Based on data submitted to the 
Administrator on the Telecommunications Reporting Worksheets, the 
Administrator must submit the total contribution base to the Common 
Carrier Bureau at least sixty (60) days before the start of each 
quarter. The projections of demand and administrative expenses and the 
contribution factor shall be announced by the Commission in a public 
notice 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 fourteen-day period 
following release of the Commission's public notice. If the Commission 
takes no action within fourteen (14) days of the date of release of the 
public notice announcing the projections of demand and administrative 
expenses, the projections of demand and administrative expenses, and 
the contribution factor shall be deemed approved by the Commission. 
Except as provided in Sec. 54.706(c), the Administrator shall apply the 
quarterly contribution factor, once approved by the Commission, to 
contributors' interstate and international end-user telecommunications 
revenues to calculate the amount of individual contributions.
* * * * *

PART 69--ACCESS CHARGES

    5. The authority citation for part 69 continues to read as follows:

    Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 403 
unless otherwise noted.


[[Page 60359]]


    6. Amend Sec. 69.4 by adding paragraph (d) to read as follows:


Sec. 69.4  Charges to be filed.

* * * * *
    (d) Recovery of Contributions to the Universal Service Support 
Mechanisms by Incumbent Local Exchange Carriers.
    (1) Incumbent local exchange carriers may recover their 
contributions to the universal service support mechanisms through 
carriers' carrier charges.
    (i) Price cap incumbent local exchange carriers may do so by 
exogenously adjusting the price cap indices of each basket on the basis 
of relative end-user revenues.
    (ii) Non-price cap incumbent local exchange carriers may do so by 
applying a factor to their carrier common line charge revenue 
requirements.
    (2)(i) In lieu of the carriers' carrier charges described in 
paragraph (d)(1), incumbent local exchange carriers may recover their 
contributions to the universal service support mechanisms through 
explicit, interstate, end-user charges that are equitable and 
nondiscriminatory.
    (ii) To the extent that incumbent local exchange carriers choose to 
implement explicit, interstate, end-user charges to recover their 
contributions to the universal service support mechanisms, they must 
make corresponding reductions in their access charges to avoid any 
double recovery.


Sec. 69.5  [Amended]

    7. In Sec. 69.5, remove and reserve paragraph (d).

[FR Doc. 99-28964 Filed 11-4-99; 8:45 am]
BILLING CODE 6712-01-U