[Federal Register Volume 64, Number 230 (Wednesday, December 1, 1999)]
[Rules and Regulations]
[Pages 67416-67433]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30876]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 36 and 54

[CC Docket No. 96-45; FCC 99-306]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document concerning the Federal-State Joint Board on 
Universal Service adopts a new specific and predictable forward-looking 
mechanism that will provide sufficient support to enable affordable, 
reasonably comparable intrastate rates for customers served by non-
rural carriers. This document also addresses specific

[[Page 67417]]

methodological issues relating to the calculation of forward-looking 
support, including the area over which costs should be averaged; the 
level of the national benchmark; the amount of support to be provided 
for costs above the national benchmark; the elimination of the state 
share requirement; and the targeting of the statewide support amount. 
It also modifies the rules governing our existing support mechanism to 
ensure that support for rural carriers is not substantially changed 
when non-rural carriers are removed from that mechanism and 
transitioned to the new forward-looking support mechanism.

DATES: Effective December 1, 1999 except for Secs. 36.611(h), 36.612, 
54.307(b), (c), 54.309(c), 54.311(c), and 54.313 which contain 
information collection requirements that have not been approved by the 
Office of Management Budget (OMB). The Commission will publish a 
document in the Federal Register announcing the effective date of those 
sections.

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 Ninth 
Report and Order and Eighteenth Order on Reconsideration in CC Docket 
No. 96-45 released on November 2, 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. In the Communications Act of 1934 (Act), as amended by the 
Telecommunications Act of 1996 (1996 Act), Congress codified the 
Commission's historical policy of promoting universal service to ensure 
that consumers in all regions of the nation have access to 
telecommunications services. Specifically, in section 254 of the Act, 
Congress instructed the Commission, after consultation with the 
Federal-State Joint Board on Universal Service (Joint Board), to 
establish specific, predictable, and sufficient mechanisms to preserve 
and advance universal service.
    2. Based on recommendations from the Joint Board in the Second 
Recommended Decision, 63 FR 67837 (December 9, 1998), and building on 
the framework the Commission set forth in the First Report and Order, 
62 FR 32862 (June 17, 1997) and the Seventh Report and Order, 64 FR 
30917 (June 9, 1999), we establish in this Order a new federal high-
cost support mechanism that will be sufficient to enable non-rural 
carriers' rates for services supported by universal service to remain 
affordable and reasonably comparable in all regions of the nation. The 
support determined by the mechanism described in this Order will 
replace the support that non-rural carriers currently receive from the 
existing high-cost fund, which provides support for intrastate rates 
and services. The new high-cost support mechanism described in this 
Order provides support based on the estimated forward-looking costs of 
providing supported services. The forward-looking costs and the cost 
model that we will use to estimate them are discussed at length in the 
companion Inputs Order adopted. With the adoption of this Order and the 
Inputs Order, the Commission's new forward-looking high-cost support 
mechanism for non-rural carriers will be ready to begin providing 
support effective January 1, 2000.
    3. Our methodology for determining non-rural carriers' high-cost 
universal service support conforms to the 1996 Act's goals and balances 
the competing interests involved in this proceeding. As the 1996 Act 
requires, the Commission has developed policies for reforming high-cost 
support in consultation with the Joint Board, and this Order reflects 
deference to states' interests and needs. We also have attempted to 
balance the various and often countervailing concerns of many industry 
segments that have an interest in the outcome of this proceeding, 
including incumbent local exchange carriers (LECs), interexchange 
carriers (IXCs), competitive LECs, and wireless carriers.
    4. Because of the disparate interests involved and the complexity 
of the issues, however, this has not been an easy process. For example, 
high-cost states, which are likely to be net recipients of high-cost 
support, have very different views on universal service than low-cost 
states, which are likely to be net payors of high-cost support. On the 
other hand, all states have expressed similar concerns about the 
Commission's jurisdiction. Similarly, incumbent LECs in high-cost 
states, which are likely to be major recipients of support, 
particularly in the near term, have very different views than other 
LECs, IXCs, and wireless carriers, which are major contributors to 
federal support mechanisms. In some cases, however, IXCs and wireless 
carriers are entering competitive local service markets, so that these 
carriers are both contributors and potential recipients.
    5. The 1996 Act charged the Commission with resolving the difficult 
issues surrounding universal service, within prescribed guidelines, and 
so we must balance the competing interests of these divergent parties. 
In this proceeding, the Commission has done so in a way that is 
faithful to the statute's commitment to ensuring that support 
mechanisms serve ``consumers in all regions in the nation,'' and that 
consumers in high-cost areas continue to have access to reasonably 
comparable services at reasonably comparable rates.

II. Order

A. Introduction

    6. In this Order, we adopt a new specific and predictable forward-
looking mechanism that will provide sufficient support to enable 
affordable, reasonably comparable intrastate rates for customers served 
by non-rural carriers. The methodology for this mechanism is based on 
the framework outlined in the Seventh Report and Order, with certain 
modifications. Specifically, the forward-looking mechanism compares the 
costs of providing supported services in a particular state, as 
determined by the cost model, to a national benchmark, and provides 
support for costs that exceed that benchmark. In constructing this 
mechanism, we begin by examining the appropriate federal and state 
roles in providing universal service support for intrastate rates. 
Next, we address specific methodological issues relating to the 
calculation of forward-looking support, including the area over which 
costs should be averaged; the level of the national benchmark; the 
amount of support to be provided for costs above the national 
benchmark; the elimination of the state share requirement; and the 
targeting of the statewide support amount.
    We then address the hold-harmless and portability provisions, and 
the methods to ensure that non-rural carriers use support in compliance 
with the 1996 Act. We next address the assessment and recovery bases 
for contributions to the high-cost support mechanism. We also describe 
our plan to address implicit support in access charges as part of our 
separate Access Charge Reform proceeding. In addition, we modify the 
rules governing our existing support mechanism to ensure that support 
for rural carriers is not substantially changed when non-rural carriers 
are removed from that mechanism and transitioned to the new forward-
looking support mechanism. Finally, we lift the stay on our section 251 
pricing rules, effective May 1, 2000. We emphasize that there may be 
several

[[Page 67418]]

ways in which we could design the various components of the federal 
support mechanism consistent with section 254, but we believe, in light 
of the facts before us and in consultation with the Joint Board, that 
the method we adopt here appropriately balances the varied and 
competing goals of section 254.
    7. The new forward-looking support mechanism that we adopt will 
provide forward-looking support effective January 1, 2000. As 
discussed, however, the actual disbursement of forward-looking support 
(retroactive to January 1, 2000) will not occur until the second 
quarter of 2000. Moreover, no commenter has claimed that implementation 
of the new forward-looking mechanism presents any ``Y2K'' problems. 
Thus, we do not foresee any ``Y2K'' issues associated with the 
transition to the new forward-looking mechanism because there will be 
no actual change in support levels on or around January 1, 2000.

B. Federal and State Roles in Providing Universal Service Support for 
Intrastate Rates

    8. To construct an appropriate methodology for providing federal 
high-cost support, we must first examine the respective roles of 
federal and state regulators in providing such support. Historically, 
federal programs have provided explicit intrastate high-cost support 
for local loop and switching costs that significantly exceeded the 
national average. Many state programs, on the other hand, have largely 
achieved the goals of intrastate universal service implicitly through 
rate structures and, to a lesser extent, through explicit state high-
cost support mechanisms. As discussed, many state rate structures have 
included significant implicit support for universal service. The 
states' historical authority over intrastate ratemaking, and thus their 
primary responsibility for intrastate universal service, has been 
recognized by the Commission. The Commission, however, has had a 
longstanding goal of promoting universal service nationwide, and thus 
has provided support for intrastate-allocated costs that significantly 
exceed the national average.
    9. In Texas Office of Public Utility Counsel v. FCC, the Fifth 
Circuit held that section 254 of the Act did not affect the 
proscription, set forth in section 2(b), against Commission regulation 
of intrastate rates. Thus, states alone have jurisdiction for setting 
rates for intrastate services. Consequently, states alone have the 
authority to set rates for intrastate services that are just, 
reasonable, affordable, and reasonably comparable. We conclude that 
Congress would not have imposed on the Commission obligations regarding 
intrastate rates that the Commission does not have the legal authority 
to effectuate. Indeed, the Fifth Circuit found that the Commission was 
permitted (but not required) to provide federal universal service 
support for intrastate services. The Fifth Circuit also found that the 
Commission may condition such support on assurances by states that such 
federal support will be used for its intended purposes.
    10. In the Second Recommended Decision, the Joint Board recognized 
that section 254 does not alter the states' historical responsibility 
for intrastate universal service. The Joint Board interpreted section 
254(b)(3)'s principle that rates be ``reasonably comparable'' to refer 
to ``a fair range of urban/rural rates both within a state's borders, 
and among states nationwide.'' The Joint Board found that the federal 
role in achieving reasonably comparable rates should be to provide 
``those amounts necessary to establish a standard of reasonable 
comparability of rates across states.'' According to the Joint Board, 
the state role is to ``supplement, as desired, any amount of federal 
funds it may receive,'' and to ``address issues regarding implicit 
intrastate support in a manner that is appropriate to local 
conditions.'' Stated another way, the primary federal role is to enable 
reasonable comparability among states (i.e., to provide states with 
sufficient support so that states can make local rates reasonably 
comparable among states), and the primary role of each state is to 
ensure reasonable comparability within its borders (i.e., to apply 
state and federal support to make local rates reasonably comparable 
within the state). This Order adopts that approach as a policy goal. In 
addition, the approach is consistent with the Fifth Circuit's decision 
regarding the Commission's responsibility for supporting intrastate 
services. It also is consistent with Congress's goal of making 
universal service support explicit.

C. New Forward-Looking High-Cost Support Methodology

    11. This Order sets out a methodology--in essence, a set of 
formulas--that will be used to determine non-rural carriers' support 
amounts for serving rural and high-cost areas. The methodology computes 
a specific support amount, and can be replicated by carriers or other 
members of the public. The methodology will change over time only in 
the ways we specifically describe herein or pursuant to modifications 
that we make in the future pursuant to public notice and comment in 
this proceeding. Thus, the methodology is specific and predictable. 
Moreover, for the reasons discussed, we find that this mechanism will 
result in sufficient support to enable affordable and reasonably 
comparable rates for customers in areas served by non-rural carriers.
    12. In the First Report and Order, the Commission concluded that 
high-cost support should be based on forward-looking costs. Since that 
time, the Commission has continued to work to adopt a cost model that 
is reasonably accurate and verifiable. As an initial matter, we note 
that in the Inputs Order we have affirmed the Commission's decision to 
base support calculations on forward-looking costs. Moreover, the 
Commission and its staff have undertaken a thorough review of the model 
and its input values over the past six months. In so doing, the staff 
has coordinated extensively with, and received substantial input from, 
the Joint Board staff and interested outside parties. As a result of 
this examination of the model, we have concluded in the Inputs Order 
that the model generates reasonably accurate estimates of forward-
looking costs and that the model is the best basis for determining non-
rural carriers' high-cost support in a competitive environment. We have 
found that none of the criticisms of the model undermine our decision 
to use it for calculating non-rural carriers' high-cost support. As 
discussed in the Inputs Order, we believe that using the model is the 
best way to determine non-rural carriers' support amounts for the 
funding year beginning January 1, 2000. We also recognize, however, 
that the model must evolve as technology and other conditions change. 
We therefore have committed in the Inputs Order to initiating a 
proceeding to study how the model should be used in the future and how 
the model itself should change to reflect changing circumstances.
    13. Finally, as discussed further in the Inputs Order, we reiterate 
that the federal cost model was developed for the purpose of 
determining federal universal service support, and that it may not be 
appropriate to use nationwide values for other purposes, such as 
determining prices for unbundled network elements. The Commission has 
not considered the appropriateness of this model for any other 
purposes, and we have cautioned parties from making any claims in other 
proceedings based upon the input values adopted in the Inputs Order.
    14. Consistent with the goals of federal universal service support

[[Page 67419]]

discussed, the new forward-looking support mechanism will compare the 
average costs of providing supported services in a given area to the 
national benchmark, provide support for costs exceeding the national 
benchmark, and then target that support based on wire-center costs, so 
that the amount of support available to a competitor depends on the 
cost level of the wire center. In this section, we examine the area 
over which costs should be averaged; the level of the national 
benchmark; the amount of support to be provided for costs above the 
national benchmark; the elimination of the state share requirement; and 
the method for targeting statewide support amounts.
1. Area Over Which Costs Should Be Averaged
    15. Federal and State Roles. After further consultation with the 
Joint Board, we believe that the federal mechanism should calculate 
support levels for non-rural carriers by comparing the forward-looking 
costs of providing supported services, averaged at the statewide level, 
to the national benchmark. Of all the potential approaches suggested, 
we believe that statewide averaging is the approach most consistent 
with the federal role of providing support for intrastate universal 
service to enable reasonable comparability of rates among states. 
Federal high-cost support is generated through contributions by all 
interstate telecommunications carriers for purposes of providing 
support to high-cost states. This has the effect of shifting money from 
relatively low-cost states to relatively high-cost states. By averaging 
costs at the statewide level, the federal mechanism compares the 
relative costs of providing supported services in different states. The 
federal mechanism will then provide support to carriers in those states 
with costs that exceed the national average by a certain amount, i.e., 
the national benchmark (135 percent of the national average). This 
approach ensures that no state with costs greater than the national 
benchmark will be forced to keep rates reasonably comparable without 
the benefit of federal support. By averaging costs at the statewide 
level, the federal mechanism is designed to achieve reasonable 
comparability of intrastate rates among states based solely on the 
interstate transfer of funds.
    16. The states, in contrast, have the primary responsibility for 
ensuring reasonable comparability of rates within their borders. The 
federal mechanism leaves this state role intact, but provides support 
to carriers in states with average costs substantially in excess of the 
national average. With the elimination of the state share requirement, 
no state resources are relied upon by the federal mechanism in 
providing support for costs above the benchmark. This permits the 
states to use their substantial resources to achieve the goal of 
reasonably comparable rates within states. In many cases, states have 
brought their resources to bear through rate averaging and other forms 
of implicit support. Recently, some states have created explicit 
support mechanisms. We recognized the states' jurisdiction over 
intrastate support in the Seventh Report and Order, when we observed 
that ``the erosion of intrastate implicit support does not mean that 
federal support must be provided to replace [it]. Indeed, it would be 
unfair to expect the federal support mechanism, which by its very 
nature operates by transferring funds among jurisdictions, to bear the 
support burden that has historically been borne within a state by 
intrastate, implicit support mechanisms.'' Thus, we believe that 
statewide averaging, together with the rest of the methodology we 
adopt, is consistent with the division of federal and state 
responsibility for achieving reasonable comparability for non-rural 
carriers.
    17. Joint Board. We also find that averaging costs at the statewide 
level is consistent with the Joint Board's vision for the scope and 
purpose of the federal high-cost support mechanism. The Joint Board 
noted that this Commission alone has the ability to implement a support 
mechanism that transfers support from one state to another, and stated 
that federal support should be provided to achieve reasonably 
comparable rates across states. The Joint Board envisioned that the 
states should have the primary responsibility for ensuring reasonable 
comparability within states. Although the Joint Board recommended 
averaging costs at the study area level instead of the statewide level, 
it did so based on its concern that there would be insufficient time 
before implementation of the new federal mechanism for some states to 
adopt the necessary mechanisms to transfer support among non-rural 
carriers in different study areas within a particular state. The 
carrier-by-carrier interim hold-harmless approach that we adopt, 
however, alleviates the Joint Board's concern. Under that approach, 
each non-rural carrier within a state will receive no less support 
under the new mechanism than it receives under the current mechanism. 
Because the carrier-by-carrier interim hold-harmless approach will be 
in effect for up to three years from implementation of the new forward-
looking mechanism, states have no immediate need to transfer support 
among study areas within their borders. In addition, states should have 
ample time to implement whatever state mechanisms are necessary to 
achieve such transfers before the Commission reviews the need for a 
hold-harmless provision. Therefore, the only impediment to statewide 
averaging identified by the Joint Board--lack of sufficient time for 
state action--has been removed by the carrier-by-carrier interim hold-
harmless provision.
    18. Alternative Approaches. We have carefully reviewed the 
alternatives to statewide averaging, and in the context of non-rural 
carriers, in light of the overall methodology we adopt here and the 
specific circumstances before us, we conclude that statewide averaging 
is the best approach to further the goals of section 254, while 
respecting the historical federal and state roles for universal 
service. There are several benefits to statewide averaging. Statewide 
averaging considers costs averaged with regard to state boundaries, 
thereby taking into consideration each state's authority and ability to 
achieve reasonable comparability of rates within its borders. We 
recognize that averaging at the study area, UNE cost zone, or wire 
center levels would have the advantage of providing a more granular 
measure of support, and that granularity of support is a desirable goal 
in a competitive marketplace. Given the specific circumstances and 
purposes we address here, however, we believe that statewide averaging, 
coupled with our decision to target the distribution of support to wire 
centers with the highest costs in a state, better balances the goal of 
targeting support to high-cost areas against the recognition that 
states can and should satisfy their own rate comparability needs to the 
extent possible before drawing support from other states.
    19. For example, assume that the Commission chose to average costs 
at the wire center level. Under this approach, the costs of providing 
supported services in individual wire centers would be averaged 
together to arrive at a national average cost per wire center. Wire 
centers with costs that exceed the national benchmark would receive 
support. Because the costs in high-cost wire centers in a given state 
would not be averaged first with lower-cost wire centers in the same 
state, wire center averaging would ignore the state's authority and 
ability to ensure reasonable comparability of rates within its borders. 
Stated another way, the federal mechanism would shift funds

[[Page 67420]]

from low-cost wire centers (and customers) in other states to fund 
high-cost wire centers in the state at issue, and would do so without 
giving the state the opportunity to support its high-cost wire centers 
with funds from its low-cost wire centers.
    20. The same issue arises if costs are averaged at the UNE cost 
zone level. Pursuant to our UNE cost zone rules, state commissions must 
set different rates for elements in at least three defined geographical 
areas within the state to reflect geographic cost differences, and may 
employ existing density-related zone pricing plans or other cost-
related zone plans established pursuant to state law. Under a UNE cost 
zone approach to averaging forward-looking costs, costs in individual 
UNE cost zones would be averaged together to arrive at a national 
average cost per UNE cost zone. UNE cost zones with costs greater than 
the benchmark would receive support. As in the wire center approach, 
the federal mechanism would provide support to high-cost UNE cost zones 
in a state, without regard to the state's authority or ability to 
ensure reasonable comparability of rates within its borders. In 
providing such support, the federal mechanism would shift funds from 
low-cost UNE zones in other states to high-cost UNE zones in the 
subject state, thus saddling ratepayers in other states with burdens 
more appropriately placed on ratepayers in the subject state. 
Additionally, although we expressed concern in the Seventh Report and 
Order that averaging costs over an area larger than the UNE cost zone 
could result in opportunities for arbitrage or other uneconomic 
activities, our concern was based on the assumption that all lines 
within that larger geographic area would be eligible for the same 
amount of support, even though UNE prices would differ among UNE zones. 
Because the new federal mechanism calculates the amount of support at 
the statewide level, but targets that support to high-cost wire centers 
within the state, all lines within a state are not eligible for the 
same amount of support. Thus, the potential for arbitrage or other 
uneconomic activity is reduced.
    21. Study area cost averaging suffers from the same infirmities as 
wire center or UNE cost zone averaging. In many states, only one non-
rural carrier provides service. In such states, the state boundary and 
the study area boundary are the same. Some states, however, possess 
more than one non-rural carrier, and thus more than one study area. 
Thus, under a study area averaging approach, costs in individual study 
areas would be averaged together to arrive at a national average cost 
per study area. Study areas with costs greater than the benchmark would 
receive support. The federal mechanism, therefore, would shift funds 
from low-cost study areas in one state to high-cost study areas in 
another state without regard to the recipient state's authority or 
ability to provide support for costs within its borders. In addition, 
such a federal mechanism could provide greater support to a state with 
more than one study area than it would to a state with a single study 
area, even though both states have the same average forward-looking 
costs on a statewide level, thus discriminating against a state that 
has only one non-rural study area. For example, assume that a state 
with a single study area has average costs below the benchmark and 
therefore does not receive forward-looking support. Assume that another 
state has the same average statewide costs below the benchmark, but has 
two study areas, one with costs above the benchmark and one with costs 
below the benchmark. Under a study area averaging approach, the federal 
mechanism would provide support for the high-cost study area even 
though the statewide average cost is below the benchmark. This result 
would burden the federal support mechanism (and thus all ratepayers) 
with providing support for a state that, through happenstance, has more 
than one non-rural carrier, and therefore more than one study area. 
Such support should instead be provided by the state in its role as the 
primary ratemaking authority and provider of support within its 
borders.
    22. Several commenters have suggested nonetheless that a decision 
by the Commission to average costs over a large geographic area is 
merely an arbitrary way to restrain the size of the fund created by the 
new forward-looking support mechanism. We reject this assertion. 
Congress stated that the Commission shall establish specific, 
predictable, and sufficient mechanisms to preserve and advance 
universal service. Moreover, the Fifth Circuit approved the 
Commission's use of a methodology based on forward-looking cost models 
for this task ``[a]s long as [the Commission] can reasonably argue that 
the methodology will provide sufficient support for universal service * 
* *.'' Thus, despite our general agreement with the Joint Board's 
conclusion that the federal fund should not increase substantially at 
this time, our primary goal in this proceeding must be to provide 
sufficient universal service support to enable reasonable comparability 
of rates among states. We meet this policy goal, however, in a manner 
consistent with the federal role for providing universal service 
support, which, as discussed, we find to be transferring funds among 
states. Accordingly, we conclude that statewide averaging of forward-
looking costs is the appropriate means for achieving the federal 
mechanism's primary goal of enabling reasonable comparability of rates 
among states.
2. National Benchmark
    23. In establishing a national cost benchmark to enable reasonably 
comparable rates among states, we observe that the 1996 Act does not 
define the term ``reasonably comparable.'' We find that Congress' use 
of the term ``reasonably'' indicates its recognition that the task of 
setting federal support amounts is not an exact science. Accordingly, 
consistent with our interpretations of ``reasonableness'' provisions 
elsewhere in the statute, we conclude that the term ``reasonably 
comparable'' leaves us substantial discretion to determine what is 
reasonable, including the manner in which we make that determination. 
The Joint Board interpreted the reasonable comparability standard to 
refer to a ``fair range'' of urban and rural rates both within a 
state's borders, and among states nationwide. In the Seventh Report and 
Order, the Commission adopted the Joint Board's interpretation. The 
Commission recognized, however, that reasonably comparable does not 
mean that rate levels in all states, or in every area of every state, 
must be the same. Therefore, we believe that reasonably comparable must 
mean some reasonable level above the national average forward-looking 
cost per line, i.e., greater than 100 percent of the national average. 
In interpreting ``reasonably comparable,'' we must consider the burden 
placed on below-benchmark states (and ratepayers) whose contributions 
fund the federal support mechanism. We also must ensure that the 
benchmark we select, when taken together with other aspects of the 
overall funding mechanism, allows for universal service support that is 
specific and predictable.
    24. We conclude that the level of the national benchmark should be 
set at 135 percent of the national average forward-looking cost per 
line for non-rural carriers. The federal mechanism will provide support 
for costs that exceed this national benchmark. A national benchmark of 
135 percent falls within the range recommended by the Joint Board, and 
ensures that no state will face costs greater than 35 percent above the 
national average cost per line.

[[Page 67421]]

Moreover, setting the benchmark at 135 percent of the national average 
forward-looking cost is consistent with the precedent of the existing 
support mechanism and the comments we have received. The current 
mechanism begins providing support for costs between 115 and 160 
percent of the national average cost per line, based on carriers' 
books, and the vast majority of non-rural carriers receive all their 
current support for costs in this range. The new national benchmark of 
135 percent is near the midpoint of this range. Commenters generally 
proposed benchmark levels between 80 and 200 percent of the nationwide 
average. Vermont and US West, for example, advocated benchmarks of 80 
percent and 115 percent, respectively. California stated that it uses 
an affordability benchmark of 150 percent. CBT, Sprint, and Western 
Wireless also advocate a 150 percent benchmark, and AT&T urges us to 
use a 200 percent benchmark. Thus, the 135 percent benchmark is a 
reasonable compromise of commenters' proposals. By adopting this 
benchmark, we do not mean to suggest that we could not, in consultation 
with the Joint Board, determine that a different level of benchmark is 
appropriate in future proceedings. In the context of non-rural 
carriers, and in light of the overall methodology we adopt here and the 
specific circumstances before us, however, we believe that the 
benchmark we adopt appropriately balances various goals under the 
statute. These goals include, among others, sufficiency, specificity, 
and predictability, as well as the need to achieve rate comparability. 
In addition, we have also attempted to ensure that the fund is no 
larger than necessary, and to minimize burdens on carriers and 
consumers that contribute to universal service mechanisms.
    25. We believe that this level of support will provide states with 
the ability to provide for a ``fair range'' of urban and rural rates 
within their borders, and will be sufficient to ``prevent pressure from 
high costs and the development of competition from causing unreasonable 
increases in rates above current, affordable levels.'' Because no state 
will face costs, net of federal support, that exceed 135 percent of the 
national average, the federal mechanism will prevent excessive upward 
pressure on rates caused by high costs. This will remain true even as 
competition develops and pushes prices toward economic cost. We 
therefore find that using a benchmark set at 135 percent of the 
national average forward-looking cost per line will, at this time, in 
light of the facts before us, provide sufficient support to enable 
reasonably comparable rates.
    26. We recognize that, irrespective of our policies, the 
development of competition may place pressure on implicit support 
mechanisms at the state level. For example, states that use above-cost 
pricing in urban areas to subsidize below-cost service in rural areas 
may face pressure to deaverage rates as competitors begin to offer 
cost-based rates to urban customers. Although this development may 
compromise states' ability to facilitate universal service using 
implicit support, it should not compromise states' ability to 
facilitate universal service through explicit support mechanisms. In 
addition, we do not believe it would be equitable to expect the federal 
mechanism--and thus ratepayers nationwide--to provide support to 
replace implicit state support that has been eroded by competition if 
the state possesses the resources to replace that support through other 
means at the state level. This approach is consistent with our 
discussion, of the appropriate, respective roles of the state and 
federal jurisdictions in providing universal service support.
    27. We also believe that a national benchmark of 135 percent 
strikes a fair balance between the federal mechanism's responsibility 
to enable reasonable comparability of rates among states and the burden 
placed on below-benchmark states (and ratepayers) whose contributions 
fund the federal support mechanism. We recognize that selecting the 
national benchmark is not an exact science. We conclude, however, that 
a national benchmark of 135 percent of the national average cost per 
line will allow the federal mechanism to provide sufficient support 
pursuant to the Act, while at the same time minimizing the burden on 
those who fund the federal support mechanism. Moreover, we believe 
that, given the specific circumstances here, the mechanism we adopt is 
consistent with the Joint Board's conclusion that the federal high-cost 
support fund should be only as large as necessary, consistent with 
other requirements of the law.
    28. Some commenters have suggested that our choice of a benchmark 
will necessarily be arbitrary, and some have suggested that we will 
intentionally set the benchmark with an eye to minimizing the size of 
the federal support mechanism. We reject these claims. We remain 
committed to the objective that the fund not be any larger than is 
necessary to achieve the various goals of section 254. As noted, we 
have attempted to set a benchmark level that provides sufficient 
support to enable reasonably comparable rates, as the statute requires. 
To do so, we have relied on the Joint Board's recommendations, the 
existing mechanism, and commenters' proposals to arrive at a benchmark 
level that reasonably balances the roles of the states and the federal 
mechanism to meet the statutory goals.
3. Support for Costs Above the National Benchmark
    29. All of the proposals to limit the size of the high-cost support 
mechanism assume that costs will be averaged at the wire center or UNE 
cost zone level. As discussed, however, we have concluded that 
averaging costs below the statewide level is not the most appropriate 
means for the federal support mechanism to achieve the goals of the 
Act. We recognize that our primary mission in this proceeding is to 
construct a federal mechanism that provides sufficient support, and we 
conclude that using one of the proposals described to limit the amount 
of support available to states from the federal mechanism would not 
provide sufficient support and would be contrary to Congress' goals and 
the Fifth Circuit's decision. Therefore, we reject all four of these 
proposals.
    30. We observe, however, that providing support for all loop costs 
that exceed the federal benchmark would not properly take account of 
our separations rules. Pursuant to the separations process, incumbent 
carriers currently recover, through interstate access rates, a portion 
of their book costs for all components necessary to provide supported 
services, e.g., loop costs, switching costs, etc. Our separations rules 
specify the percentage of costs that will be recovered through 
interstate rates. In producing cost estimates, the cost model estimates 
only the forward-looking intrastate (i.e., separated) costs for all of 
the components necessary to provide supported services, with three 
important exceptions: loop costs, port costs, and local number 
portability (LNP) costs. The model's estimates for loop and port costs 
consist of both the intrastate and interstate (i.e., unseparated) costs 
of the loop and port. The model's estimates of LNP costs consist solely 
of interstate costs. In this Order, we are addressing support to enable 
the reasonable comparability of intrastate rates. It would therefore be 
inappropriate for us to address costs in this Order that are recovered 
through interstate rates, as these costs, or their recovery, will not 
directly affect intrastate rates. Our methodology must therefore 
account for the percentage of

[[Page 67422]]

costs that are recovered in the interstate jurisdiction in determining 
how much support should be provided to enable the reasonable 
comparability of intrastate rates.
    31. Our current separations rules allow carriers to recover 25 
percent of their book loop costs through interstate rates. Carriers 
also recover 15 percent of their book port costs, on average, through 
interstate rates, and 100 percent of their LNP costs through the 
federal LNP cost recovery mechanism. We therefore conclude that the 
forward-looking mechanism will calculate support based on 75 percent of 
forward-looking loop costs, 85 percent of forward-looking port costs, 
and 0 percent of forward-looking LNP costs, as well as 100 percent of 
all other forward-looking costs determined by the cost model. Based on 
the percentage of forward-looking costs that the intrastate portion of 
each of these items represents, we have determined that together they 
represent 76 percent of total forward-looking costs. Therefore, we 
conclude that the federal mechanism should provide 76 percent of the 
portion of the forward-looking cost of providing the supported services 
that exceeds the national benchmark. We emphasize that this will not 
undermine the federal mechanism's ability to provide sufficient 
support. Rather, it is merely a safeguard to ensure that our mechanism 
adequately takes account of our separations rules and the division of 
cost recovery responsibility set forth in those rules. If necessary, we 
will adjust this support amount in light of further developments in our 
ongoing separations and access charge reform proceedings.
4. Elimination of the State Share Requirement from the Forward-Looking 
Support Methodology
    32. After further consultation with the Joint Board, we conclude 
that determining support amounts for non-rural carriers in each state 
based on statewide averaged costs will, under these specific 
circumstances, more accurately reflect each state's ability to support 
universal service with its own resources than would imputing a per-line 
amount to each state to support universal service internally. 
Therefore, we reconsider and eliminate the state share requirement from 
the methodology adopted in the Seventh Report and Order.
    33. We find that this result is consistent with both section 254 
and the Joint Board's overarching recommendation that federal support 
not be dependent on any particular state action and that ``no state can 
or should be required by the Commission to establish an intrastate 
universal service fund.'' We conclude that the Joint Board's general 
recommendation, namely that the Commission abstain from requiring any 
state action as a condition for receiving federal high-cost universal 
service support (other than state certifications), represents the best 
policy choice at this time. Furthermore, we conclude that, together 
with the statewide averaging approach discussed, the elimination of the 
state share requirement better fosters the Joint Board's goal of 
ensuring that the states' ability to provide for universal service 
needs within their borders is reflected in the federal mechanism. Thus, 
we reconsider and eliminate the state share requirement from the 
methodology for the forward-looking high-cost support mechanism for 
non-rural carriers.
5. Targeting Statewide Support Amounts
    34. We conclude that, after the total amount of forward-looking 
support provided to carriers in a particular state has been determined 
in accordance with the methodology set forth, which is based on 
statewide average costs, the total support amount will then be targeted 
so that support is only available to carriers serving those wire 
centers with forward-looking costs in excess of the benchmark, and so 
that the amount available per line in a particular wire center depends 
on the relative cost of providing service in that wire center. This 
targeting approach has two main effects. First, once the forward-
looking mechanism calculates the total amount of support available 
within a state, the targeting approach determines which carriers 
receive support, and how much support is provided to each carrier. 
Second, the targeting approach determines the amount of support that is 
available to a competitive carrier that captures lines from an 
incumbent carrier.
    35. As discussed, the primary role of the federal mechanism is to 
transfer funds among states, while states are primarily responsible for 
transferring funds within their borders. Our targeting approach is 
consistent with this determination. The total amount of support 
available within the state is based, as discussed, on statewide costs--
not wire center costs--relative to the federal benchmark. If we did not 
target support, then the same amount of federal support would be 
available for any line served by a competitor within the state. Thus, 
support would be available, for example, to competitors that serve only 
low-cost, urban lines, regardless of whether the cost of any of the 
lines served exceeds the benchmark. This result would create uneconomic 
incentives for competitive entry, and could result in support not being 
used for the purposes for which it was intended, in contravention of 
section 254(e).
    36. In the Seventh Report and Order, the Commission described this 
targeting process as follows: ``if we were to determine total support 
amounts in each study area by running the model to estimate costs at 
the study area level, [we propose] to distribute support by running the 
model again at the wire center level in order to target support to 
high-cost wire centers within the study area.'' We clarify that this 
process does not involve running the model more than once. The cost 
model, by design, calculates costs at the wire center level. The wire 
center costs generated by the model can then be averaged together, as 
desired, at higher levels of aggregation, such as the UNE cost zone 
level (assuming UNE cost zones are composed of wire centers), the study 
area level, or the statewide level. Thus, the model only needs to be 
run once to determine forward-looking costs for whatever methodology is 
selected.
    37. Under the methodology we adopt, the model's wire center costs 
are averaged at the statewide level and a total statewide support 
amount is determined. That total statewide support amount is then 
targeted, based on the individual high-cost wire center costs in the 
state, as previously determined by the cost model, that are above the 
benchmark. For example, assume that a state has three wire centers with 
ten lines in each wire center. Assume that the average forward-looking 
cost per line in each wire center is as follows: Wire Center 1--$20, 
Wire Center 2--$30, Wire Center 3--$40. Thus, the statewide average 
cost per line is $30 ((($20 x 10)+($30 x 10)+($40 x 10))/30 lines). 
Assume further that the national benchmark equates to $25 per line. 
Using the statewide methodology adopted, the total amount of support 
provided to the carriers in the state would be $114.00 (($30-$25) x 30 
lines x 76%), or $3.80 per line per month of untargeted support. Under 
the targeting approach, however, this support is distributed to 
carriers serving lines in the highest-cost wire centers, based on the 
difference between costs in that wire center and the benchmark, the 
number of lines served, and a pro rata factor. Any carrier serving 
customers in the low-cost wire center receives no support. Targeting 
support to high-cost wire centers requires three calculations. First, 
support is calculated separately

[[Page 67423]]

for each wire center (wc-scale support). Wire Center 1 is not entitled 
to any support because its cost is below the benchmark. Wire Center 2's 
wc-scale support would be $38.00 (($30-$25) x 10 lines x 76%). Wire 
Center 3's wc-scale support would be $114.00 (($40-$25) x 10 
lines x 76%). Second, a pro-rating factor is calculated for the state. 
Total wc-scale support for both wire centers is $152 ($38.00+$114.00). 
Because only $114.00 of support is available in the state, each wire 
center will receive 75 percent ($114/$152) of its wc-scale support. 
Third, the pro-rating factor is applied to each wire center eligible 
for support. In Wire Center 2, support will be $2.85 per line 
($38.00 x 75%/10). In Wire Center 3, support will be $8.55 per line 
($114.00 x 75%/10). Total support in the state, distributed in this 
way, is $114.00 (($2.85 x 10)+($8.55 x 10)). The targeting mechanism, 
therefore, provides support to carriers serving the highest cost 
customers, but within the overall limit on the state's support amount 
from the federal mechanism.
    38. By comparison, a uniform distribution in the hypothetical state 
described would result in all lines in the state receiving $3.80. Thus, 
even though a carrier serving lines in Wire Center 1 has costs ($20) 
below the benchmark ($25), it would receive a substantial amount of 
support ($3.80) for those lines, resulting in a windfall for the 
carrier and an artificial incentive for other carriers to compete in 
that wire center. At the same time, although the carrier serving lines 
in Wire Center 3 has costs ($40) above the benchmark ($25), it would 
receive a support amount ($3.80) substantially below its costs, thereby 
discouraging competitive entry in that wire center and placing 
increased pressure on the state to provide additional support.
    39. By targeting the total amount of support to high-cost wire 
centers, the federal mechanism avoids the inefficiencies and potential 
market distortions that could be caused by distributing federal support 
on a uniform statewide basis. We believe that this distribution 
methodology ensures that federal high-cost support provided by state-
to-state transfers will flow to carriers serving the high-cost areas 
within each state.
    40. After further consultation with the Joint Board, we recognize 
that some states may wish to have federal support targeted to an area 
different than the wire center, e.g., the UNE cost zone, in order to 
achieve the individual state ratemaking goals unique to a particular 
state. We believe that such an approach is consistent with the states' 
primary role in ensuring reasonable comparability within their borders 
and would give the states a degree of flexibility in reaching that 
goal. Therefore, we conclude that a state may file a petition for 
waiver of our targeting rules, asking the Commission to target federal 
support to an area different than the wire center. Such a petition 
should include a description of the particular geographic level to 
which the state wishes federal support to be targeted, and an 
explanation of how that approach furthers the preservation and 
advancement of universal service within the state.

D. Interim Hold-Harmless Provision

    41. We conclude that the new federal high-cost support mechanism 
will contain an interim hold-harmless provision that provides hold-
harmless support on a carrier-by-carrier basis. That is, no carrier 
will receive less support, on a per-line basis, than it would have 
received if we had continued to provide support under the existing 
high-cost support mechanism. To accomplish this result, we shall 
calculate interim hold-harmless support pursuant to the existing high-
cost support mechanism for non-rural carriers in part 36 of our rules 
for the duration of the interim hold-harmless provision. Interim hold-
harmless support also shall include LTS under Sec. 54.303 of our rules 
for those non-rural carriers that would otherwise be eligible for LTS 
if we had continued to provide support under our existing high-cost 
support mechanism. To the extent that a carrier qualifies for forward-
looking support, in an amount greater than it would receive pursuant to 
the existing mechanism, the carrier shall receive support based solely 
on the forward-looking methodology. To the extent that a carrier does 
not qualify for forward-looking support, or qualifies for forward-
looking support in an amount less than it would receive pursuant to the 
existing mechanism, the carrier shall receive interim hold-harmless 
support based solely on the existing support mechanism in part 36 of 
our rules, and, if applicable, LTS under Sec. 54.303 of our rules. 
Thus, we will ensure that no non-rural carrier will receive less 
support on a per line basis than it receives under the current 
mechanism.
    42. Existing federal high-cost support under part 36 and 
Sec. 54.303 is calculated on a carrier-by-carrier basis and is 
reflected in the recipient carrier's rates. Our continuation of the 
high-cost support mechanism under part 36 and Sec. 54.303, as an 
interim hold-harmless provision, therefore, effectively adopts a 
carrier-by-carrier hold-harmless approach. The majority of commenters 
supporting a hold-harmless provision are in favor of a carrier-by-
carrier approach. We believe that a carrier-by-carrier hold-harmless 
provision is necessary to ensure that no sudden or undue disruption in 
consumer rates occurs during the transition to the new federal high-
cost support mechanism based on forward-looking economic costs. 
Moreover, as discussed, an interim carrier-by-carrier hold-harmless 
provision ensures that states will not have to take immediate action to 
transfer funds among carriers within their borders as a result of our 
decision to average costs at the statewide level.
    43. We emphasize, however, that we do not intend for the 
continuation of high-cost support under part 36 and Sec. 54.303 as an 
interim hold-harmless provision, to insulate carriers from changes in 
their support amounts due to changed circumstances unrelated to the 
rules adopted in this Order. If a carrier becomes ineligible for high-
cost universal service support after January 1, 2000, then the carrier 
shall not continue to receive hold-harmless support under part 36 or 
Sec. 54.303 of our rules. In addition, our continuation of support 
under part 36 and Sec. 54.303 as an interim hold-harmless provision 
ensures that, if the carrier's high-cost universal service support 
would have changed under the existing mechanism after December 31, 
1999, then the carrier's hold-harmless support will be adjusted to 
reflect that change. We believe that computing hold-harmless support 
under part 36 and Sec. 54.303 of our rules on an ongoing basis is a 
better policy choice than simply ``freezing'' support levels as of a 
certain date. Freezing hold-harmless support could provide windfalls, 
or create hardships, for carriers that should have experienced changes 
in their support amounts through the normal operation of part 36 and 
Sec. 54.303. Therefore, we reject the frozen hold-harmless approach.
    44. We recognize that an interim carrier-by-carrier hold-harmless 
provision may increase the size of the federal high-cost fund slightly 
when compared to a state-by-state hold-harmless provision. Nonetheless, 
we agree with commenters that this concern is outweighed by the 
potential for rate shock in high-cost areas during the transition to a 
forward-looking mechanism if carriers are not fully held harmless. 
Under the interim carrier-by-carrier hold-harmless provision that we 
adopt, the amount of federal high-cost support provided to each non-
rural carrier will be the greater of the amount indicated by the new 
forward-looking

[[Page 67424]]

support mechanism, or the explicit amount of federal high-cost support 
that the carrier would receive, on a per-line basis, under the 
operation of the existing high-cost support mechanism at part 36 and 
Sec. 54.303 of the Commission's rules. Specifically, all carriers will 
continue to report cost and loop count data pursuant to part 36. In the 
event that carriers in a particular state do not qualify for forward-
looking support pursuant to part 54 of our rules because the statewide 
average forward-looking cost per line is below the national cost 
benchmark, or the amount determined pursuant to Sec. 54.309 of our 
rules is less than the amount that would be determined under part 36 
and Sec. 54.303, then those carriers shall receive interim hold-
harmless support pursuant to part 36 and, if applicable, Sec. 54.303. 
This provision will ensure that no non-rural carrier receives less 
federal high-cost universal service support per line under the new 
mechanism than it receives under the current mechanism.
    45. Rather than simply making available a uniform hold-harmless 
amount to each non-rural carrier, however, we conclude that hold-
harmless support must be targeted for competitive purposes to the high-
cost wire centers served by a non-rural carrier. We believe that 
targeting hold-harmless support to individual wire centers is necessary 
for many of the same reasons that we chose to target forward-looking 
support to individual wire centers. By targeting hold-harmless support 
to individual wire centers, we can encourage competitive entry in high-
cost wire centers. Targeting also avoids the economic inefficiencies 
that could be caused by making hold-harmless support available to 
competitors on a uniform basis among all of the wire centers served by 
a carrier, such as arbitrage between deaveraged UNE rates and averaged 
support in low-cost wire centers.
    46. Because the interim hold-harmless support provided pursuant to 
part 36 and Sec. 54.303 of our rules, unlike forward-looking support, 
will be based on carriers' book costs rather than the forward-looking 
methodology, the amount of hold-harmless support provided is not 
related to the level of the national benchmark. Thus, during the 
limited period for which hold-harmless support is available, certain 
carriers may receive support for costs that are below the national 
benchmark for forward-looking support. To ensure that hold-harmless 
support is available in the highest cost wire centers, we adopt a 
method for targeting hold-harmless support that is slightly different 
than the method we adopted for targeting forward-looking support. 
Specifically, as discussed in the following paragraph, we adopt a 
cascading approach to target hold-harmless support, so that a carrier's 
highest-cost wire centers receive support before its lower-cost wire 
centers receive support. Thus, while the total amount of interim hold-
harmless support available to a carrier is determined pursuant to part 
36 and Sec. 54.303, that amount is targeted to the carrier's individual 
wire centers based on the forward-looking costs of providing supported 
services in those wire centers as determined pursuant to Sec. 54.309 of 
our rules. As we explained, carriers will receive lump sum support 
payments, and the states can direct carriers to spend the federal 
support in a manner consistent with section 254(e), though not 
necessarily in the wire center to which the support was targeted. By 
targeting hold-harmless support, however, the federal mechanism ensures 
that, in a wire center where the incumbent is receiving hold-harmless 
support, a competitor will receive an amount of support that is related 
to the costs in that wire center.
    47. For example, assume a state has a single carrier with three 
wire centers in the state and ten lines in each wire center. Assume 
that the average forward-looking cost per line in each wire center is 
as follows: Wire Center 1--$15, Wire Center 2--$20, Wire Center 3--$25. 
Thus, the statewide average cost per line is $20 (($150+ $200+$250)/30 
lines = $20/line). Assume further that the national benchmark equates 
to $22 per line, and therefore the carrier receives no forward-looking 
support under the forward-looking methodology in part 54 of our rules, 
which averages costs at the statewide level. Also assume that the 
carrier receives a total of $90 of interim hold-harmless support as 
determined pursuant to part 36 of our rules. Under our targeting 
approach, the hold-harmless support is distributed first to the wire 
center with the highest costs until that wire center's costs, net of 
support, equal the costs in the next most expensive wire center. This 
process continues in a cascading fashion until all support has been 
distributed. In this example, the first $50 of hold-harmless support 
($5 per line) would be distributed to Wire Center 3, so that the 
average forward-looking cost in Wire Center 3, net of hold-harmless 
support, is reduced to $20 per line. This places Wire Center 3 on equal 
footing with Wire Center 2, which also has average costs of $20 per 
line. The remaining $40 of hold-harmless support would be divided 
equally on a per-line basis between Wire Center 2 and Wire Center 3. 
Thus, both wire centers would receive an additional $2 per line ($40/20 
lines), so that the average forward-looking costs, net of hold-harmless 
support, in Wire Center 2 and Wire Center 3 would be $18 per line.
    48. Moreover, because we have decided that a competitor that 
captures a customer from an incumbent is entitled to any per line hold-
harmless support that the incumbent is receiving, the distribution 
described is necessary to prevent uneconomic incentives for competitive 
entry, potential for arbitrage with UNE rates, and to ensure that 
support reaches the areas where it is needed most. If hold-harmless 
support were not targeted to high-cost wire centers, then a uniform 
hold-harmless amount would be available for a competitor serving any 
line in the state, including low-cost lines. For example, in the 
hypothetical situation described, a uniform distribution would result 
in all lines being eligible for $3 ($90/30 lines) of hold-harmless 
support. Thus, even though the cost of providing service is relatively 
low in Wire Center 1 ($15), competitors serving lines in that wire 
center would receive a significant amount of support for those lines, 
creating an artificial incentive for other carriers to compete in that 
wire center. At the same time, the cost of providing service is 
relatively high in Wire Center 3 ($25), but this would not be reflected 
in the amount of support available to competitors, thereby discouraging 
competitive entry in that wire center. Accordingly, we conclude that 
targeting forward-looking support to high-cost wire centers is an 
appropriate means for achieving Congress's goal of promoting 
competition in the marketplace.
    49. We decided to allow individual states to petition the 
Commission to have federal forward-looking support targeted for 
competitive purposes to an area different from the wire center. We 
concluded that such an approach is consistent with the states' primary 
role in achieving the goal of reasonable comparability within their 
borders and would allow states greater flexibility to reach that goal. 
We conclude that the same rationale applies with equal force in the 
context of targeting interim hold-harmless support. Accordingly, we 
conclude that a state may file a petition for waiver of our targeting 
rules, asking the Commission to target interim hold-harmless support to 
an area different than the wire center. Such a petition should include 
a description of the particular geographic level to which the state 
wishes interim hold-harmless support to be targeted, and an

[[Page 67425]]

explanation of how that approach furthers the preservation and 
advancement of universal service within the state.
    50. As discussed, we are adopting several amendments to the current 
data reporting requirements to ensure that cost and loop count data 
submitted by non-rural carriers under part 36 will conform with loop 
count data submitted under our part 54 rules for forward-looking 
support. All carriers serving customers in areas served by non-rural 
incumbent LECs will be required to file data on a quarterly schedule, 
instead of the present annual schedule with voluntary quarterly 
updates. The filing of quarterly data for rural carriers, however, 
shall remain voluntary. By synchronizing the reporting requirements for 
non-rural high-cost support, we can ensure that all non-rural carriers 
receive support based on data from the same time periods. We conclude 
that this synchronization will result in a high-cost support mechanism 
that is easier to administer and is more equitable, non-discriminatory, 
and competitively neutral.
    51. We stress that the interim carrier-by-carrier hold-harmless 
provision that we adopt is a transitional provision intended to protect 
consumers in high-cost areas during the shift to the new federal 
support mechanism that will provide support based on statewide-averaged 
forward-looking costs of providing the supported services. We agree 
with commenters that the hold-harmless provision should not be a 
perpetual entitlement, and should be phased out as carriers and states 
adapt to the new forward-looking mechanism. Accordingly, we request 
that, on or before July 1, 2000, the Joint Board provide the Commission 
with a recommendation on how the interim hold-harmless provision can be 
phased out or eliminated without causing undue disruption to consumer 
rates in high-cost areas. In addition, we reaffirm our original 
conclusion in the Seventh Report and Order that the Commission and the 
Joint Board shall, no later than January 1, 2003, comprehensively 
examine the operation of the revised high-cost universal service 
support mechanism.

E. Portability of Support

    52. We reiterate that federal universal service high-cost support 
should be available and portable to all eligible telecommunications 
carriers, and conclude that the same amount of support (i.e., either 
the forward-looking high-cost support amount or any interim hold-
harmless amount) received by an incumbent LEC should be fully portable 
to competitive providers. A competitive eligible telecommunications 
carrier, when support is available, shall receive per-line high-cost 
support for lines that it captures from an incumbent LEC, as well as 
for any ``new'' lines that the competitive eligible telecommunications 
carrier serves in high-cost areas. To ensure competitive neutrality, we 
believe that a competitor that wins a high-cost customer from an 
incumbent LEC should be entitled to the same amount of support that the 
incumbent would have received for the line, including any interim hold-
harmless amount. While hold-harmless amounts do not necessarily reflect 
the forward-looking cost of serving customers in a particular area, we 
believe this concern is outweighed by the competitive harm that could 
be caused by providing unequal support amounts to incumbents and 
competitors. Unequal federal funding could discourage competitive entry 
in high-cost areas and stifle a competitor's ability to provide service 
at rates competitive to those of the incumbent.
    53. We reiterate our finding in the First Report and Order that, 
where a competitive eligible telecommunications carrier is providing 
service to a high-cost line exclusively through unbundled network 
elements (UNEs), that carrier will receive the universal service 
support for that high-cost line, not to exceed the cost of the 
unbundled network elements used to provide the supported services. The 
remainder of the support associated with that element, if any, will go 
to the incumbent LEC.
    54. As discussed, we are modifying our reporting requirements to 
synchronize non-rural carrier submissions under part 36 and part 54 of 
our rules. Under our current part 36 rules, incumbent LECs are required 
to report cost and loop-count data on July 31st of each year. If they 
so choose, incumbent LECs may update the July 31st data on a quarterly 
basis. Part 54 of the Commission's rules, on the other hand, requires 
competitive eligible telecommunications carriers to report loop-count 
data on July 31st of each year. Unlike the rules applicable to 
incumbent LECs, however, part 54 of the Commission's rules does not 
currently allow competitive eligible telecommunications carriers to 
update their loop-count data on a quarterly basis. To ensure that 
forward-looking support provided under part 54 and interim hold-
harmless support provided under part 36 and Sec. 54.303 are based on 
data from the same reporting periods, and to ensure equitable, non-
discriminatory, and competitively neutral treatment of incumbent LECs 
and competitive eligible telecommunications carriers, we shall require 
mandatory quarterly reporting for non-rural carriers under both part 54 
and part 36 of our rules. By allowing incumbent LECs and competitive 
eligible telecommunications carriers to obtain support for high-cost 
lines on a regular quarterly basis, our rules will facilitate 
portability of support among carriers. In addition, the quarterly 
filing requirement is consistent with the Universal Service 
Administrative Company's (USAC) quarterly submission of program demand 
projections, and should allow more accurate projections based on 
regular quarterly loop counts.

F. Use of Federal High-Cost Support by Carriers

    55. We conclude that providing federal universal service high-cost 
support in the form of carrier revenue, to be accounted for by states 
in their ratemaking process, is an appropriate mechanism by which to 
ensure that non-rural carriers use high-cost support only for the 
``provision, maintenance and upgrading of facilities and services for 
which the support is intended,'' in accordance with section 254(e) of 
the Act. We note, however, that we are not attempting to direct the 
manner in which states incorporate federal high-cost support into their 
ratemaking processes, nor are we setting forth elaborate rules for 
compliance with section 254(e). Rather, we anticipate that states will 
take the appropriate steps to account for the receipt of federal high-
cost support and ensure that the federal support is being applied in a 
manner consistent with section 254, and then certify to the Commission 
that federal high-cost support received by non-rural carriers in their 
states is being used appropriately. Because the support that will be 
provided by the methodology described in this Order is intended to 
enable the reasonable comparability of intrastate rates, and states 
have primary jurisdiction over intrastate rates, we find that it is 
most appropriate for states to determine how the support is used to 
advance the goals set out in section 254(e).
    56. For example, a state could adjust intrastate rates, or 
otherwise direct carriers to use the federal support to replace 
implicit intrastate universal service support to high-cost rural areas, 
which was formerly generated by above-cost rates in low-cost urban 
areas, that has been eroded through competition. A state could also 
require carriers to use the federal support to upgrade facilities in 
rural areas to ensure that services

[[Page 67426]]

provided in those areas are reasonably comparable to services provided 
in urban areas of the state. These examples are intended to be 
illustrative, not exhaustive. As long as the uses prescribed by the 
state are consistent with section 254(e), we believe that the states 
should have the flexibility to decide how carriers use support provided 
by the federal mechanism.
    57. As a regulatory safeguard, however, we adopt rules in this 
Order requiring states that wish to receive federal universal service 
high-cost support for non-rural carriers within their territory to file 
a certification with the Commission stating that all federal high-cost 
funds flowing to non-rural carriers in that state will be used in a 
manner consistent with section 254(e). This certification requirement 
is applicable to non-rural incumbent LECs, and competitive eligible 
telecommunications carriers seeking high-cost support in the service 
area of a non-rural LEC. The certification shall be filed annually and 
shall be applicable to all non-rural carriers that the state certifies 
as eligible to receive federal universal service high-cost support 
during that annual period. A state may file a supplemental 
certification for carriers not subject to the state's annual 
certification. A certification may be filed in the form of a letter 
from the appropriate state regulatory authority, and shall be filed 
with (1) the Commission and (2) USAC. Each certification shall become 
part of the public record maintained by the Commission. We note that 
some state commissions, including Wisconsin, may lack direct regulatory 
oversight to ensure that federal support is reflected in intrastate 
rates. We believe, nonetheless, that states that lack direct authority 
over rates in their jurisdictions would still be able to certify to the 
Commission that a non-rural carrier in the state had accounted to the 
state commission for its receipt of federal support, and that such 
support had been used only for the provision, maintenance, and 
upgrading of facilities and services for which the support is intended. 
Indeed, in states with limited jurisdiction over carriers, the state 
need not initiate the certification process itself. Instead, in such 
states, non-rural LECs, and competitive eligible telecommunications 
carriers serving lines in the service area of a non-rural LEC, may 
formulate plans to ensure compliance with section 254(e), and present 
those plans to the state, so that the state may make the appropriate 
certification to the Commission. Under our rules, a state shall also 
have the authority to revoke a certification in the event that it 
determines that a carrier has not complied with section 254(e). Because 
states are responsible for making section 254(e) certifications to the 
Commission, challenges to the propriety of the certifications, or 
revocation of the certifications, should be brought at the state level.
    58. To ensure that non-rural carriers comply with section 254(e), 
we do not believe that a non-rural carrier in a particular state should 
receive federal forward-looking support until the Commission receives 
an appropriate certification from the state. Absent such a 
certification, the Commission has no reliable way of knowing whether 
the forward-looking support is being used properly, because of the 
Commission's limited authority over carriers' intrastate activities. 
Therefore, we conclude that, during the first year of operation of the 
new federal forward-looking support mechanism (January 1, 2000-December 
31, 2000), a non-rural carrier in a particular state will not receive 
forward-looking support until the state files an appropriate 
certification with the Commission. The carrier will, however, receive 
interim hold-harmless support during the first year in the event that 
the state does not make the required certification. Given the short 
time before implementation of the new mechanism, we believe that 
providing interim hold-harmless support in the absence of a state 
certification is necessary to prevent possible rate shocks that might 
occur absent such support.
    59. After further consultation with the Joint Board, we conclude 
that all federal high-cost support flowing to non-rural carriers in the 
second year of operation and thereafter, including both forward-looking 
support and interim hold-harmless support (to the extent that this 
measure is still in place), should be contingent upon the state's 
filing the section 254(e) certification described. Although we 
recognize that some states will need more time than others to produce a 
certification, we must have a reliable way of knowing that federal 
support is being used in a manner consistent with section 254(e). We 
believe that the certification requirement is not an overly burdensome 
means of effectuating Congress's goals, and we conclude that a year is 
a sufficient period of time for states to file the required 
certification with the Commission.
    60. Under our existing rules, USAC submits estimated universal 
service support requirements, including high-cost support, to the 
Commission two months before the beginning of each quarter. Thus, for 
the first quarter of 2000, USAC will submit estimated universal service 
support requirements on or before November 1, 1999. The Commission uses 
those support requirements to establish a contribution factor for the 
upcoming quarter. USAC then uses the contribution factor to bill 
carriers and collect the appropriate amount of support to fund the 
universal service programs. In order for USAC to submit an accurate 
estimate of high-cost demand, it will need to know which carriers have 
been certified by states pursuant to the section 254(e) certification 
process before it files its estimate. To allow USAC sufficient time to 
process section 254(e) certifications and estimate demand, we conclude 
that states should file such certifications one month before USAC's 
filing is due. For a given program year of the new forward-looking 
high-cost support mechanism, this would mean that section 254(e) 
certifications would be due on October 1.
    61. We recognize that the timing of the adoption of this Order will 
not give states sufficient time to file section 254(e) certifications 
for the first program year 2000 under this approach. Therefore, for the 
first and second quarters of 2000 only, non-rural carriers in a state 
shall be entitled to retroactive forward-looking high-cost support for 
those quarters. Specifically, if the state files its certification on 
or before January 1, 2000, then carriers subject to that certification 
shall receive forward-looking support for the first quarter of 2000 in 
the second quarter of 2000, and forward-looking support for the second 
quarter of 2000 in that quarter. If the state files its certification 
on or before April 1, 2000, and certifies carriers for the first and 
second quarters of 2000, then carriers subject to that certification 
shall receive forward-looking support for the first quarter of 2000 in 
the third quarter of 2000, together with forward-looking support for 
the third quarter of 2000. Such carriers shall receive forward-looking 
support for the second quarter of 2000 in the fourth quarter of 2000, 
together with forward-looking support for the fourth quarter of 2000.
    62. Under this approach, some carriers may receive two quarters 
worth of support in a single quarter. To prevent fluctuations in the 
contribution factor and ensure a uniform collection of contributions, 
we direct USAC to collect contributions in the first quarter of 2000 as 
if all carriers potentially eligible for forward-looking support were 
certified to receive such support beginning in the first quarter of 
2000, and as if support were actually provided beginning in the first 
quarter of 2000. In the event that not all potentially eligible

[[Page 67427]]

carriers are certified to receive support for the first and second 
quarters of 2000, USAC shall apply any surplus contributions to reduce 
future collection requirements.
    63. In order for non-rural carriers in a state to receive any high-
cost support, either forward-looking or hold-harmless support, for the 
second program year beginning on January 1, 2001, the state must file 
its section 254(e) certification no later than one month before USAC's 
filing is due (i.e., October 1, 2000). In order for non-rural carriers 
in a state to receive any high-cost support, either forward-looking or 
hold-harmless support, for subsequent program years beginning on 
January 1, of each year, the state must file its section 254(e) 
certification no later than one month before USAC's filing is due 
(i.e., October 1 of the preceding year).
    64. In the event that a state files an untimely certification, the 
carriers subject to that certification will not be eligible for support 
until the quarter for which USAC's subsequent filing is due. For 
example, if a state files a section 254(e) certification for the first 
program year, after April 1, 2000, but on or before July 1, 2000, then 
carriers subject to that certification will not receive forward-looking 
support until the fourth quarter of 2000. If a state files a section 
254(e) certification for the first program year after July 1, 2000, 
then carriers subject to that certification will not receive forward-
looking support in the first program year. If a state files a section 
254(e) certification for the second program year, after October 1, 
2000, but on or before January 1, 2001, then carriers subject to that 
certification will not receive any support, either forward-looking or 
hold-harmless support, until the second quarter of 2001.
    65. Because support from the federal methodology described in this 
Order will be used to maintain reasonably comparable intrastate rates, 
we must decide how to apply the federal support in the intrastate 
jurisdiction. The current federal support mechanism operates through 
the jurisdictional separations rules, shifting additional carrier book 
costs into the interstate jurisdiction so that they can be recovered 
through the federal mechanism.
    66. We conclude that support amounts provided to incumbent non-
rural carriers as a result of the hold-harmless provision should 
continue to operate through the jurisdictional separations process to 
reduce book costs to be recovered in the intrastate jurisdiction. The 
hold-harmless amounts are based on the existing system, which is based 
on carriers' book costs. Moreover, these amounts have generally been 
accounted for in intrastate ratemaking, so treating them differently 
could result in a need for states to take further action to ensure the 
proper application of the support.
    67. As noted, forward-looking support will be provided to non-rural 
carriers once states have certified that such support will be used in 
the intrastate jurisdiction in a manner consistent with section 254(e). 
In light of this provision, we conclude that we do not need to take 
further action to specify how such support will be applied in the 
intrastate jurisdiction. Before forward-looking support begins flowing 
to non-rural carriers, the state commission will have specified or 
reached agreement with that carrier on how the support will be used in 
the intrastate jurisdiction, in a manner consistent with section 
254(e). Thus, there is no reason for further federal requirements for 
the application of the support.
    68. We are not adopting any rules in this Order that, as a means to 
ensure compliance with section 254(e), would require that non-rural 
carriers receiving federal high-cost support offer an affordable basic 
local service package to their customers. GTE, for example, argues that 
each state should be required to determine the rate it considers 
``affordable'' and then certify to the federal fund administrator that 
each carrier seeking high-cost funding for areas within that state 
provide at least one service package that meets the Commission's 
definition of the supported services, and is offered at a rate no 
greater than the state-determined affordable rate. We decline to 
condition support on such extensive state actions. We believe that the 
less onerous certification requirements described allow states an 
appropriate amount of flexibility to determine how to ensure that 
carriers comply with section 254(e). Furthermore, as we found in the 
First Report and Order, even assuming that section 214(e) allowed the 
Commission to impose such a ``basic service package'' requirement, it 
is not necessary to adopt such a requirement because, in areas where 
there is no competition, states are charged with setting rates for 
local services, and where competing carriers offer the supported 
services, consumers will be able to choose the carrier that offers the 
service package best suited to the consumer's needs.
    69. We also decline to adopt rules in this Order that would require 
incumbent non-rural carriers to notify their customers that the 
incumbent has received federal support for their lines and that such 
support is portable to the carrier of the customer's choice. We agree 
with commenters that the issue of whether or not to require non-rural 
incumbent LECs to provide notification or display high-cost support 
credits on customer bills or inserts is best left to the individual 
state jurisdictions to decide.
    70. Finally, we re-emphasize our conclusion in the Seventh Report 
and Order that, if we find that a carrier has not applied its universal 
service high-cost support in a manner consistent with section 254(e), 
we have the authority to take appropriate enforcement actions against 
that carrier. We remind parties that they may petition the Commission, 
under section 208 of the Act, if they believe a carrier has misapplied 
its high-cost support, and may also fully avail themselves of the 
Commission's formal complaint procedures to bring any alleged 
misapplication of federal high-cost support before the Commission. 
Moreover, although we have given states the flexibility to determine 
how carriers may use federal support in a manner consistent with 
section 254(e), we may revisit this issue if we find that a more 
prescriptive approach is necessary to ensure compliance with section 
254(e).

G. Assessment and Recovery Bases for Contributions to the High-Cost 
Support Mechanism

    71. Pursuant to the First Report and Order, the Commission 
currently assesses contributions to the high-cost universal service 
support mechanism on the basis of carriers' interstate and 
international end-user telecommunications revenues, and carriers 
recover their contributions through their rates for interstate 
services. In the Second Recommended Decision, the Joint Board stated 
that the Commission may wish to consider adding intrastate revenues to 
the assessment and recovery bases for the high-cost support mechanism. 
In the Seventh Report and Order, the Commission took the Joint Board's 
recommendation under advisement, pending resolution of challenges to 
the Commission's assessment and recovery rules in the Fifth Circuit.
    72. As discussed, a three judge panel of the Fifth Circuit ruled 
that the Commission could not assess carriers' intrastate revenues to 
fund its universal service support mechanisms. The court also reversed 
and remanded for further consideration the Commission's decision to 
assess the international revenues of carriers with interstate revenues. 
In addition, the court reversed the Commission's ``decision to require

[[Page 67428]]

ILECs to recover universal service contributions from their interstate 
access charges.'' In response to the court's decision, the Commission 
removed intrastate revenues from the contribution base; exempted from 
the contribution base the international revenues of interstate carriers 
whose interstate revenues account for less than 8 percent of their 
combined interstate and international revenues; and revised its rules 
to allow incumbent LECs to recover their contributions through access 
charges or through end-user charges. In light of the court's decision, 
and the Commission's response to it, the assessment base for 
contributions to the high-cost support mechanism shall remain 
interstate and international end-user telecommunications revenues, and 
the recovery base shall remain rates for interstate services.

H. Adjusting Interstate Access Charges to Account for Explicit Support

    73. In the Seventh Report and Order, the Commission agreed with the 
Joint Board that the Commission has the jurisdiction and responsibility 
to identify any universal service support that is implicit in 
interstate access charges. If such implicit support does exist, the 
Commission concluded that, to the extent possible, it should make that 
support explicit. Thus, in order to supplement the record in the 
ongoing companion access charge reform proceeding, the Commission 
sought comment in the Seventh Report and Order on how interstate access 
charges should be adjusted to account for implicit high-cost universal 
service support that may, in the future, be identified in access rates. 
Specifically, the Commission sought further comment on a number of 
proposals and tentative conclusions regarding the adjustment of 
interstate access charges to account for explicit support, including: 
(1) whether price cap LECs should reduce their interstate access rates 
to reflect any increase in explicit federal high-cost support they 
receive; (2) whether the Commission should require price cap LECs to 
make a downward exogenous adjustment to their common line basket price 
cap indexes (PCIs); (3) whether price cap carriers should reduce their 
base factor portion (BFP); (4) whether the Commission should reduce the 
subscriber line charge (SLC) on primary residential or single-line 
business lines; and (5) whether non-rural rate-of-return LECs should 
apply additional interstate explicit high-cost support revenues to the 
CCL element. The Commission received numerous comments addressing these 
issues. As we stated in the Seventh Report and Order, we intend to move 
ahead with access reform in tandem with the implementation of the 
revised federal high-cost support methodology. Accordingly, we 
anticipate that the Commission's final determinations regarding 
adjustments to interstate access charges to account for explicit 
universal service support will be issued in the separate Access Charge 
Reform proceeding. We re-emphasize that the support provided through 
the methodology described in this Order will be used to enable the 
reasonable comparability of intrastate rates, and thus will not be used 
to replace implicit support in interstate access rates.

I. High-Cost Loop Support For Rural Carriers

    74. Initially, we emphasize that, under our current rules, removing 
the non-rural carriers from the existing system does not result in a 
decrease in support for rural carriers. Rather, rural carriers would 
receive a smaller annual increase in support when non-rural carriers 
are removed from the interim cap.
    75. There are three general options available to address this 
issue. First, we could take no action and, pursuant to our existing 
rules, calculate rural support under the interim cap using only the 
total growth in rural carrier loops. Second, as proposed by Western 
Alliance, we could remove the interim cap in its entirety. Finally, as 
proposed by NECA, we could calculate support for rural carriers as if 
all carriers, rural and non-rural, continued to participate in the 
existing fund.
    76. Consistent with our commitment not to consider significant 
changes in rural carriers' support until after the Rural Task Force and 
the Joint Board have made their recommendations, we conclude that we 
should amend our part 36 rules to calculate universal service funding 
for rural carriers as if all carriers continued to participate in the 
fund. This approach will avoid significant and immediate changes in 
support for rural carriers, and is similar to the interim hold-harmless 
provision that we adopted for non-rural carriers. We also believe that 
it would be inconsistent with the intent of section 254 if we allowed 
the growth rate of high-cost universal service support for rural 
carriers to be significantly and unintentionally reduced because of the 
overall slowdown in loop growth caused by the removal of non-rural 
carriers. Contrary to the suggestions of Western Alliance, however, we 
do not believe that removing the cap from the calculation is an 
appropriate remedy for this situation. The cap is designed to prevent 
excessive growth in the existing high-cost fund, and we believe it 
should remain in place pending any restructuring of the high-cost 
support mechanism for rural carriers. In addition, because we are 
requiring non-rural carriers to continue reporting cost and loop-count 
data under part 36 pursuant to the interim hold-harmless provision, 
continuing to calculate the expense adjustment for rural carriers using 
data from all carriers will be administratively easy to implement. We 
also wish to stress that, although we are modifying our rules to 
calculate the rural loop expense adjustment based on loop data for both 
rural and non-rural carriers, this remedy is an interim solution until 
we consider appropriate reforms for the rural high-cost support 
mechanism.

J. Lifting the Stay of the Commission's Section 251 Pricing Rules

    77. In August 1996, the Commission promulgated certain rules in the 
Local Competition Order, 61 FR 45476 (August 29, 1996), to implement 
section 251 of the Communications Act of 1934, as amended. One such 
rule, Sec. 51.507(f), requires each state commission to ``establish 
different rates for [interconnection and unbundled network elements 
(UNEs)] in at least three defined geographic areas within the state to 
reflect geographic cost differences.'' Numerous parties, including 
incumbent LECs and state commissions, appealed the Local Competition 
Order, and the U.S. Court of Appeals for the Eighth Circuit stayed the 
Commission's section 251 pricing rules in September 1996 pending its 
consideration of the appeal. In July 1997, the Eighth Circuit vacated 
the deaveraging rule, among others, on the grounds that the Commission 
lacked jurisdiction. On January 25, 1999, however, the U.S. Supreme 
Court reversed the Eighth Circuit's decision with regard to the 
Commission's section 251 pricing authority, and remanded the case to 
the Eighth Circuit for proceedings consistent with the Supreme Court's 
opinion.
    78. Because the section 251 pricing rules had not been in force for 
more than two years, and not all states established at least three 
deaveraged rate zones, the Commission stayed the effectiveness of 
Sec. 51.507(f) on May 7, 1999, to allow the states to bring their rules 
into compliance. The Commission stated that the stay would remain in 
effect until six months after the Commission released its order in CC 
Docket No. 96-45 finalizing and ordering implementation of high-cost

[[Page 67429]]

universal service support for non-rural LECs. The Commission did so to 
allow the states to coordinate their consideration of deaveraged rate 
zones with issues raised in that proceeding. Now that we have adopted 
an order in CC Docket No. 96-45 finalizing and ordering implementation 
of intrastate high-cost universal service support for non-rural LECs, 
state commissions can consider deaveraging in concert with the federal 
high-cost support that will be available in the intrastate 
jurisdiction. Consequently, the stay that has been in effect since May 
7, 1999, shall be lifted on May 1, 2000. By that date, states are 
required to establish different rates for interconnection and UNEs in 
at least three geographic areas pursuant to Sec. 51.507(f) of the 
Commission's rules.

III. Procedural Matters

A. Regulatory Flexibility Act Certification

    79. The Regulatory Flexibility Act (RFA) requires an Initial 
Regulatory Flexibility Analysis (IRFA) whenever an agency publishes a 
notice of proposed rulemaking, and a Final Regulatory Flexibility 
Analysis (FRFA) whenever an agency subsequently promulgates a final 
rule, unless the agency certifies that the proposed or final rule will 
not have ``a significant economic impact on a substantial number of 
small entities,'' and includes the factual basis for such 
certification. The RFA generally defines ``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 which: 
(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). The SBA defines 
a small telecommunications entity in SIC code 4813 (Telephone 
Communications, Except Radiotelephone) as an entity with 1,500 or fewer 
employees.
    80. We conclude that a FRFA is not required here because the 
foregoing Report and Order adopts a final rule affecting only the 
amount of high-cost support provided to non-rural LECs. Non-rural LECs 
generally do not fall within the SBA's definition of a small business 
concern because they are usually large corporations or affiliates of 
such corporations. In a companion Further Notice of Proposed 
Rulemaking, 64 FR 31780 (June 14, 1999), in this docket, the Commission 
prepared an Initial Regulatory Flexibility Analysis (IRFA) seeking 
comment on the economic impacts on small entities. No comments were 
received in response to that IRFA. Furthermore, we are taking action in 
this Report and Order that will have a beneficial impact on smaller 
rural carriers. Specifically, we are amending our part 36 rules to 
calculate universal service funding for rural carriers as if all 
carriers, both rural and non-rural, continued to participate in the 
fund, pending the selection of an appropriate forward-looking high-cost 
support mechanism for rural carriers. This action will avoid 
significant changes in support for rural carriers, and prevent the 
growth rate of high-cost universal service support for rural carriers 
from being significantly reduced because of a slowdown in loop growth 
rates that would be caused by the removal of non-rural carriers from 
the fund calculations. Therefore, we certify, pursuant to section 
605(b) of the RFA, that the final rule adopted in the Report and Order 
will not have a significant economic impact on a substantial number of 
small entities. The Office of Public Affairs, Reference Operation 
Division, will send a copy of this certification, along with this 
Report and Order, to the Chief Counsel for Advocacy of the SBA in 
accordance with the RFA. In addition, this certification, and Report 
and Order (or summaries thereof) will be published in the Federal 
Register. The Commission will send a copy of this Report and Order 
including a copy of this final certification, in a report to Congress 
pursuant to the Small Business Regulatory Enforcement Fairness Act of 
1996.

B. Effective Date of Final Rules

    81. We conclude that the amendments to our rules adopted herein 
shall be effective upon publication in the Federal Register, except for 
sections 36.611(h), 36.612, 54.307 (b), (c), 54.309(c), 54.311(c), and 
54.313 which contain information collection requirements that have not 
been approved by the Office of Management Budget (OMB). The Commission 
will publish a document in the Federal Register announcing the 
effective date of those sections. In this Order we conclude that the 
new forward-looking high-cost support mechanism should be implemented 
on January 1, 2000, and that states and territories that desire non-
rural carriers within their jurisdiction to receive forward-looking 
high-cost support for calendar year 2000 must certify to the Commission 
and the Administrator that non-rural carriers receiving support within 
their jurisdiction will only use the support for the provision, 
maintenance and upgrading of the supported services. The first filing 
deadline for this certification will be January 1, 2000. Thus, the 
amendments must become effective before January 1, 2000. Making the 
amendments effective 30 days after publication in the Federal Register 
would jeopardize the required January 1, 2000 implementation and filing 
date. Accordingly, pursuant to the Administrative Procedure Act, we 
find good cause to depart from the general requirement that final rules 
take effect not less than 30 days after their publication in the 
Federal Register.

C. Paperwork Reduction Act

    82. This Report and Order contains either new or modified 
information collections. The Commission has requested Office of 
Management and Budget (``OMB'') approval, under the emergency 
processing provisions of the Paperwork Reduction Act of 1995, Public 
Law 104-13, of the information collections contained in this 
rulemaking.

IV. Ordering Clauses

    83. The authority contained in sections 1-4, 201-205, 214, 218-220, 
254, 303(r), 403, and 410 of the Communications Act of 1934, as 
amended, the Ninth Report and Order and Eighteenth Order on 
Reconsideration is adopted. This Order is effective December 1, 1999 
except for sections 36.611(h), 36.612, 54.307 (b), (c), 54.309(c), 
54.311(c), and 54.313 which contain information collection requirements 
that have not been approved by the Office of Management Budget (OMB). 
The Commission will publish a document in the Federal Register 
announcing the effective date of those sections.
    84. Parts 36 and 54 of the Commission's Rules, 47 CFR parts 36 and 
54, are amended as set forth, effective immediately upon publication in 
the Federal Register.
    85. The Commission's Office of Public Affairs, Reference Operations 
Division, shall send a copy of the Report and Order, including the 
Regulatory Flexibility Act Certification, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects

47 CFR Part 36

    Reporting and recordkeeping requirements, Telephone.

47 CFR Part 54

    Universal service.


[[Page 67430]]


Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Final Rules

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

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

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

    Authority: 47 U.S.C. 151, 154 (I) and (j), 205, 221(c), 254, 
403, and 410 unless otherwise noted.

    2. Amend Sec. 36.601 by revising paragraph (c) to read as follows:


Sec. 36.601  General.

* * * * *
    (c) The annual amount of the total nationwide expense adjustment 
shall consist of the amounts calculated pursuant to Sec. 54.309 of this 
chapter and the amounts calculated pursuant to this subpart F. The 
annual amount of the total nationwide loop cost expense adjustment 
calculated pursuant to this subpart F shall not exceed the amount of 
the total loop cost expense adjustment for the immediately preceding 
calendar year, increased by a rate equal to the rate of increase in the 
total number of working loops during the calendar year preceding the 
July 31st filing. The total loop cost expense adjustment shall consist 
of the loop cost expense adjustments, including amounts calculated 
pursuant to Sec. 36.612(a) and Sec. 36.631. The rate of increase in 
total working loops shall be based upon the difference between the 
number of total working loops on December 31 of the calendar year 
preceding the July 31st filing and the number of total working loops on 
December 31 of the second calendar year preceding that filing, both 
determined by the company's submissions pursuant to Sec. 36.611. 
Beginning January 1, 2000, non-rural incumbent local exchange carriers 
and, eligible telecommunications carriers serving lines in the service 
area of non-rural incumbent local exchange carriers, shall only receive 
support pursuant to this subpart F to the extent that they qualify 
pursuant to Sec. 54.311 of this chapter for interim hold-harmless 
support.
    3. Amend Sec. 36.611 by revising the introductory text and 
paragraph (h) to read as follows:


Sec. 36.611  Submission of information to the National Exchange Carrier 
Association.

    In order to allow determination of the study areas and wire centers 
that are entitled to an expense adjustment, each incumbent local 
exchange carrier (LEC) must provide the National Exchange Carrier 
Association (NECA) (established pursuant to part 69 of this chapter) 
with the information listed for each of its study areas, with the 
exception of the information listed in paragraph (h), which must be 
provided for each study area and, if applicable, for each wire center, 
as that term is defined in part 54 of this chapter. This information is 
to be filed with NECA by July 31st of each year, and must be updated 
pursuant to Sec. 36.612.
    The information filed on July 31st of each year will be used in the 
jurisdictional allocations underlying the cost support data for the 
access charge tariffs to be filed the following October.
    An incumbent LEC is defined as a carrier that meets the definition 
of an ``incumbent local exchange carrier'' in Sec. 51.5 of this 
chapter.
* * * * *
    (h) For rural telephone companies, as that term is defined in 
Sec. 51.5 of this chapter, the number of working loops for each study 
area. For non-rural telephone companies, the number of working loops 
for each study area and for each wire center. For universal service 
support purposes, working loops are defined as the number of working 
Exchange Line C&WF loops used jointly for exchange and message 
telecommunications service, including C&WF subscriber lines associated 
with pay telephones in C&WF Category 1, but excluding WATS closed end 
access and TWX service. These figures shall be calculated as of 
December 31st of the calendar year preceding each July 31st filing.
    4. Amend Sec. 36.612 by revising paragraph (a) to read as follows:


Sec. 36.612  Updating information submitted to the National Exchange 
Carrier Association.

    (a) Any rural telephone company, as that term is defined in 
Sec. 51.5 of this chapter, may update the information submitted to the 
National Exchange Carrier Association (NECA) on July 31st pursuant to 
Sec. 36.611 (a) through (h) one or more times annually on a rolling 
year basis according to the schedule. Every non-rural telephone company 
must update the information submitted to NECA on July 31st pursuant to 
Sec. 36.611 (a) through (h) according to the schedule.
    (1) Submit data covering the last nine months of the previous 
calendar year and the first three months of the existing calendar year 
no later than September 30th of the existing year;
    (2) Submit data covering the last six months of the previous 
calendar year and the first six months of the existing calendar year no 
later than December 30th of the existing year;
    (3) Submit data covering the last three months of the second 
previous calendar year and the first nine months of the previous 
calendar year no later than March 30th of the existing year.
* * * * *
    5. Amend Sec. 36.622 by removing paragraph (d) and by revising 
paragraphs (a)(1) and (b)(1) to read as follows:


Sec. 36.622  National and study area average unseparated loop costs.

    (a) * * *
    (1) The National Average Unseparated Loop Cost per Working Loop 
shall be recalculated by the National Exchange Carrier Association to 
reflect the September, December, and March update filings.
* * * * *
    (b) * * *
    (1) If a company elects to, or is required to, update the data 
which it has filed with the National Exchange Carrier Association as 
provided in Sec. 36.612(a), the study area average unseparated loop 
cost per working loop and the amount of its additional interstate 
expense allocation shall be recalculated to reflect the updated data.
* * * * *
    6. Amend Sec. 36.631 by revising paragraph (d) introductory text to 
read as follows:


Sec. 36.631  Expense adjustment.

* * * * *
    (d) Beginning January 1, 1998, for study areas reporting more than 
200,000 working loops pursuant to Sec. 36.611(h), the expense 
adjustment (additional interstate expense allocation) is equal to the 
sum of paragraphs (d) (1)-(4). After January 1, 2000, the expense 
adjustment (additional interstate expense allocation) shall be 
calculated pursuant to Sec. 54.309 of this chapter or Sec. 54.311 of 
this chapter (which relies on this part), whichever is applicable.
* * * * *

PART 54--UNIVERSAL SERVICE

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


[[Page 67431]]


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

    8. Amend Sec. 54.5 by adding the following definition in 
alphabetical order to read as follows:


Sec. 54.5  Terms and definitions.

* * * * *
    Wire center. A wire center is the location of a local switching 
facility containing one or more central offices, as defined in the 
Appendix to part 36 of this chapter. The wire center boundaries define 
the area in which all customers served by a given wire center are 
located.
    9. Amend Sec. 54.307 by revising paragraph (a) introductory text, 
paragraphs (a)(1), (a)(2), and (a)(3), and (b), and by adding paragraph 
(c) to read as follows:


Sec. 54.307  Support to a competitive eligible telecommunications 
carrier.

    (a) Calculation of support. A competitive eligible 
telecommunications carrier shall receive universal service support to 
the extent that the competitive eligible telecommunications carrier 
captures the subscriber lines of an incumbent local exchange carrier 
(LEC) or serves new subscriber lines in the incumbent LEC's service 
area.
    (1) A competitive eligible telecommunications carrier shall receive 
support for each line it serves in a particular wire center based on 
the support the incumbent LEC would receive for each such line.
    (2) A competitive eligible telecommunications carrier that uses 
switching purchased as unbundled network elements pursuant to 
Sec. 51.307 of this chapter to provide the supported services shall 
receive the lesser of the unbundled network element price for switching 
or the per-line DEM support of the incumbent LEC, if any. A competitive 
eligible telecommunications carrier that uses loops purchased as 
unbundled network elements pursuant to Sec. 51.307 of this chapter to 
provide the supported services shall receive the lesser of the 
unbundled network element price for the loop or the incumbent LEC's 
per-line payment from the high-cost loop support and LTS, if any. The 
incumbent LEC providing nondiscriminatory access to unbundled network 
elements to such competitive eligible telecommunications carrier shall 
receive the difference between the level of universal service support 
provided to the competitive eligible telecommunications carrier and the 
per-customer level of support that the incumbent LEC would have 
received.
    (3) A competitive eligible telecommunications carrier that provides 
the supported services using neither unbundled network elements 
purchased pursuant to Sec. 51.307 of this chapter nor wholesale service 
purchased pursuant to section 251(c)(4) of the Act will receive the 
full amount of universal service support that the incumbent LEC would 
have received for that customer.
* * * * *
    (b) In order to receive support pursuant to this subpart, a 
competitive eligible telecommunications carrier must report to the 
Administrator on July 31st of each year the number of working loops it 
serves in a service area as of December 31st of the preceding year, 
subject to the updates specified in paragraph (c) of this section. For 
a competitive eligible telecommunications carrier serving loops in the 
service area of a rural telephone company, as that term is defined in 
Sec. 51.5 of this chapter, the carrier must report the number of 
working loops it serves in the service area. For a competitive eligible 
telecommunications carrier serving loops in the service area of a non-
rural telephone company, the carrier must report the number of working 
loops it serves in the service area and the number of working loops it 
serves in each wire center in the service area. For universal service 
support purposes, working loops are defined as the number of working 
Exchange Line C&WF loops used jointly for exchange and message 
telecommunications service, including C&WF subscriber lines associated 
with pay telephones in C&WF Category 1, but excluding WATS closed end 
access and TWX service. These figures shall be calculated as of 
December 31st of the calendar year preceding each July 31st filing.
    (c) For a competitive eligible telecommunications carrier serving 
loops in the service area of a rural telephone company, as that term is 
defined in Sec. 51.5 of this chapter, the carrier may update the 
information submitted to the Administrator on July 31st pursuant to 
paragraph (b) of this section one or more times annually on a rolling 
year basis according to the schedule. For a competitive eligible 
telecommunications carrier serving loops in the service area of a non-
rural telephone company, the carrier must update the information 
submitted to the Administrator on July 31st pursuant to paragraph (b) 
of this section according to the schedule.
    (1) Submit data covering the last nine months of the previous 
calendar year and the first three months of the existing calendar year 
no later than September 30th of the existing year;
    (2) Submit data covering the last six months of the previous 
calendar year and the first six months of the existing calendar year no 
later than December 30th of the existing year;
    (3) Submit data covering the last three months of the second 
previous calendar year and the first nine months of the previous 
calendar year no later than March 30th of the existing year.
    10. Add Sec. 54.309 to subpart D to read as follows:


Sec. 54.309  Calculation and distribution of forward-looking support 
for non-rural carriers.

    (a) Calculation of total support available per state. Beginning 
January 1, 2000, non-rural incumbent local exchange carriers, and 
eligible telecommunications carriers serving lines in the service areas 
of non-rural incumbent local exchange carriers, shall receive universal 
service support for the forward-looking economic costs of providing 
supported services in high-cost areas, provided that the State in which 
the lines served by the carrier are located has complied with the 
certification requirements in Sec. 54.313. The total amount of forward-
looking support available in each State shall be determined according 
to the following methodology:
    (1) For each State, the Commission's cost model shall determine the 
statewide average forward-looking economic cost (FLEC) per line of 
providing the supported services. The statewide average FLEC per line 
shall equal the total FLEC for non-rural carriers to provide the 
supported services in the State, divided by the number of lines served 
by non-rural carriers in the State.
    (2) The Commission's cost model shall determine the national 
average FLEC per line of providing the supported services. The national 
average FLEC per line shall equal the total FLEC for non-rural carriers 
to provide the supported services in all States divided by the total 
number of lines served by non-rural carriers in all States.
    (3) The national cost benchmark shall equal 135 percent of the 
national average FLEC per line.
    (4) Support calculated pursuant to this section shall be provided 
to non-rural carriers in each State where the statewide average FLEC 
per line exceeds the national cost benchmark. The total amount of 
support provided to non-rural carriers in each State where the 
statewide average FLEC per line exceeds

[[Page 67432]]

the national cost benchmark shall equal 76 percent of the amount of the 
statewide average FLEC per line that exceeds the national cost 
benchmark, multiplied by the number of lines served by non-rural 
carriers in the State.
    (5) In the event that a State's statewide average FLEC per line 
does not exceed the national cost benchmark, non-rural carriers in such 
State shall be eligible for support pursuant to Sec. 54.311. In the 
event that a State's statewide average FLEC per line exceeds the 
national cost benchmark, but the amount of support otherwise provided 
to a non-rural carrier in that State pursuant to this section is less 
than the amount that would be provided pursuant to Sec. 54.311, the 
carrier shall be eligible for support pursuant to Sec. 54.311.
    (b) Distribution of total support available per state. The total 
amount of support available per State calculated pursuant to paragraph 
(a) of this section shall be distributed to non-rural incumbent local 
exchange carriers, and eligible telecommunications carriers serving 
lines in the service areas of non-rural incumbent local exchange 
carriers, in the following manner:
    (1) The Commission's cost model shall determine the wire center 
average FLEC per line for each wire center in the service areas of non-
rural carriers in the State. Non-rural incumbent local exchange 
carriers, and eligible telecommunications carriers serving lines in the 
service areas of non-rural incumbent local exchange carriers, that 
serve wire centers with an average FLEC per line above the national 
cost benchmark, as defined in paragraph (a)(3) of this section, shall 
receive forward-looking support;
    (2) The wire center scale support amount for each wire center 
identified in paragraph (b)(1) of this section shall equal 76 percent 
of the amount of the wire center average FLEC per line that exceeds the 
national cost benchmark, multiplied by the number of lines in the wire 
center;
    (3) The total amount of forward-looking support available in the 
State calculated pursuant to paragraph (a)(4) of this section shall be 
divided by the sum of the total wire center scale support amounts 
calculated for each wire center pursuant to paragraph (b)(2) of this 
section;
    (4) The percentage calculated pursuant to paragraph (b)(3) of this 
section shall be multiplied by the total wire center scale support 
amount calculated for each wire center pursuant to paragraph (b)(2) of 
this section;
    (5) The total amount of support calculated for each wire center 
pursuant to paragraph (b)(4) of this section shall be divided by the 
number of lines in the wire center to determine the per-line amount of 
forward-looking support for that wire center;
    (6) The per-line amount of support for a wire center calculated 
pursuant to paragraph (b)(5) of the section shall be multiplied by the 
number of lines served by a non-rural incumbent local exchange carrier 
in that wire center, or by an eligible telecommunications carrier in 
that wire center, to determine the amount of forward-looking support to 
be provided to that carrier.
    (c) Petition for waiver. Pursuant to section 1.3 of this chapter, 
any State may file a petition for waiver of paragraph (b) of this 
section, asking the Commission to distribute support calculated 
pursuant to paragraph (a) of this section to a geographic area 
different than the wire center. Such petition must contain a 
description of the particular geographic level to which the State 
desires support to be distributed, and an explanation of how waiver of 
paragraph (b) of this section will further the preservation and 
advancement of universal service within the State.
    11. Add Sec. 54.311 to subpart D to read as follows:


Sec. 54.311  Interim hold-harmless support for non-rural carriers.

    (a) Interim hold-harmless support. The total amount of interim 
hold-harmless support provided to a non-rural incumbent local exchange 
carrier shall equal the amount of support calculated for that carrier 
pursuant to part 36 of this chapter. The total amount of interim hold-
harmless support provided to a non-rural incumbent local exchange 
carrier shall also include Long Term Support provided pursuant to 
Sec. 54.303, to the extent that the carrier would otherwise be eligible 
for such support. Beginning on January 1, 2000, in the event that a 
State's statewide average FLEC per line, calculated pursuant to 
Sec. 54.309(a), does not exceed the national cost benchmark, non-rural 
incumbent local exchange carriers in such State shall receive interim 
hold-harmless support calculated pursuant to part 36, and, if 
applicable, Sec. 54.303. In the event that a State's statewide average 
FLEC per line, calculated pursuant to Sec. 54.309(a), exceeds the 
national cost benchmark, but the amount of support that would be 
provided to a non-rural incumbent local exchange carrier in such State 
pursuant to Sec. 54.309(b) is less than the amount that would be 
provided pursuant to part 36 and, if applicable, Sec. 54.303, the 
carrier shall be eligible for support pursuant to part 36 and, if 
applicable, Sec. 54.303. To the extent that an eligible 
telecommunications carrier serves lines in the service area of a non-
rural incumbent local exchange carrier receiving interim hold-harmless 
support, the eligible telecommunications carrier shall also be entitled 
to interim hold-harmless support in an amount per line equal to the 
amount per line provided to the non-rural incumbent local exchange 
carrier pursuant to paragraph (b) of this section.
    (b) Distribution of interim hold-harmless support amounts. The 
total amount of interim hold-harmless support provided to each non-
rural incumbent local exchange carrier within a particular State 
pursuant to paragraph (a) of this section shall be distributed first to 
the carrier's wire center with the highest wire center average FLEC per 
line until that wire center's average FLEC per line, net of support, 
equals the average FLEC per line in the second most high-cost wire 
center. Support shall then be distributed to the carrier's wire center 
with the highest and second highest wire center average FLEC per line 
until those wire center's average FLECs per line, net of support, equal 
the average FLEC per line in the third most high-cost wire center. This 
process shall continue in a cascading fashion until all of the interim 
hold-harmless support provided to the carrier has been exhausted.
    (c) Petition for waiver. Pursuant to section 1.3 of this chapter, a 
State may file a petition for waiver of paragraph (b) of this section, 
asking the Commission to distribute interim hold-harmless support to a 
geographic area different than the wire center. Such petition must 
contain a description of the particular geographic level to which the 
State desires interim hold-harmless support to be distributed, and an 
explanation of how waiver of paragraph (b) of this section will further 
the preservation and advancement of universal service within the State.
    12. Add Sec. 54.313 to subpart D to read as follows:


Sec. 54.313  State certification.

    (a) Certification. States that desire non-rural incumbent local 
exchange carriers and/or eligible telecommunications carriers serving 
lines in the service area of a non-rural incumbent local exchange 
carrier within their jurisdiction to receive support pursuant to 
Secs. 54.309 and/or 54.311 must file an annual certification with the 
Administrator and the Commission stating that all federal high-cost 
support provided to such carriers within that State will be used only 
for the

[[Page 67433]]

provision, maintenance, and upgrading of facilities and services for 
which the support is intended. Support provided pursuant to 
Secs. 54.309 and/or 54.311 shall only be provided to the extent that 
the State has filed the requisite certification pursuant to this 
section.
    (b) Certification format. A certification pursuant to this section 
may be filed in the form of a letter from the appropriate regulatory 
authority for the State, and must be filed with both the Office of the 
Secretary of the Commission clearly referencing CC Docket No. 96-45, 
and with the Administrator of the high-cost universal service support 
mechanism, on or before the deadlines set forth in paragraph (c) of 
this section. The annual certification must identify which carriers in 
the State are eligible to receive federal support during the applicable 
12-month period, and must certify that those carriers will only use the 
support for the provision, maintenance, and upgrading of facilities and 
services for which the support is intended. A State may file a 
supplemental certification for carriers not subject to the State's 
annual certification. All certifications filed by a State pursuant to 
this section shall become part of the public record maintained by the 
Commission.
    (c) Filing deadlines. In order for a non-rural incumbent local 
exchange carrier in a particular State, and/or an eligible 
telecommunications carrier serving lines in the service area of a non-
rural incumbent local exchange carrier, to receive federal high-cost 
support, the State must file an annual certification, as described in 
paragraph (b) of this section, with both the Administrator and the 
Commission. Support shall be provided in accordance with the following 
schedule:
    (1) First program year (January 1, 2000-December 31, 2000). During 
the first program year (January 1, 2000-December 31, 2000), a carrier 
in a particular State shall receive support pursuant to Sec. 54.311. If 
a State files the certification described in this section during the 
first program year, carriers eligible for support pursuant to 
Sec. 54.309 shall receive such support pursuant to the following 
schedule:
    (i) Certifications filed on or before January 1, 2000. Carriers 
subject to certifications filed on or before January 1, 2000 shall 
receive support pursuant to Sec. 54.309 for the first and second 
quarters of 2000 in the second quarter of 2000, and on a quarterly 
basis thereafter. Support provided in the second quarter of 2000 shall 
be net of any support provided pursuant to Sec. 54.311 for the first 
quarter of 2000.
    (ii) Certifications filed on or before April 1, 2000. Carriers 
subject to certifications that apply to the first and second quarters 
of 2000, and are filed on or before April 1, 2000, shall receive 
support pursuant to Sec. 54.309 for the first and third quarters of 
2000 in the third quarter of 2000, and support for the second and 
fourth quarters of 2000 in the fourth quarter of 2000. Such support 
shall be net of any support provided pursuant to Sec. 54.311 for the 
first or second quarters of 2000.
    (iii) Certifications filed on or before July 1, 2000. Carriers 
subject to certifications filed on or before July 1, 2000, shall 
receive support pursuant to Sec. 54.309 for the fourth quarter of 2000 
in the fourth quarter of 2000.
    (iv) Certifications filed after July 1, 2000. Carriers subject to 
certifications filed after July 1, 2000, shall not receive support 
pursuant to Sec. 54.309 in 2000.
    (2) Second program year (January 1, 2001-December 31, 2001). During 
the second program year (January 1, 2001-December 31, 2001), a carrier 
in a particular State shall not receive support pursuant to 
Secs. 54.309 or 54.311 until such time as the State files the 
certification described in this section. Upon the filing of the 
certification described in this section, support shall be provided 
pursuant to the following schedule:
    (i) Certifications filed on or before October 1, 2000. Carriers 
subject to certifications filed on or before October 1, 2000 shall 
receive support pursuant to Secs. 54.309 or 54.311, whichever is 
applicable, in the first, second, third, and fourth quarters of 2001.
    (ii) Certifications filed on or before January 1, 2001. Carriers 
subject to certifications filed on or before January 1, 2001 shall 
receive support pursuant to Secs. 54.309 or 54.311, whichever is 
applicable, in the second, third, and fourth quarters of 2001. Such 
carriers shall not receive support pursuant to Secs. 54.309 or 54.311, 
whichever is applicable, in the first quarter of 2001.
    (iii) Certifications filed on or before April 1, 2001. Carriers 
subject to certifications filed on or before April 1, 2001 shall 
receive support pursuant to Secs. 54.309 or 54.311, whichever is 
applicable, in the third and fourth quarters of 2001. Such carriers 
shall not receive support pursuant to Secs. 54.309 or 54.311, whichever 
is applicable, in the first or second quarters of 2001.
    (iv) Certifications filed on or before July 1, 2001. Carriers 
subject to certifications filed on or before July 1, 2001 shall receive 
support pursuant to Secs. 54.309 or 54.311, whichever is applicable, in 
the fourth quarter of 2001. Such carriers shall not receive support 
pursuant to Secs. 54.309 or 54.311, whichever is applicable, in the 
first, second, or third quarters of 2001.
    (v) Certifications filed after July 1, 2001. Carriers subject to 
certifications filed after July 1, 2001 shall not receive support 
pursuant to Secs. 54.309 or 54.311, whichever is applicable, in 2001.
    (3) Subsequent program years (January 1-December 31). During the 
program years subsequent to the second program year (January 1, 2001-
December 31, 2001), a carrier in a particular State shall not receive 
support pursuant to Sec. 54.309 or Sec. 54.311 until such time as the 
State files the certification described in this section. Upon the 
filing of the certification described in this section, support shall be 
provided pursuant to the following schedule:
    (i) Certifications filed on or before October 1. Carriers subject 
to certifications filed on or before October 1 shall receive support 
pursuant to Sec. 54.309 or Sec. 54.311, whichever is applicable, in the 
first, second, third, and fourth quarters of the succeeding year.
    (ii) Certifications filed on or before January 1. Carriers subject 
to certifications filed on or before January 1 shall receive support 
pursuant to Sec. 54.309 or Sec. 54.311, whichever is applicable, in the 
second, third, and fourth quarters of that year. Such carriers shall 
not receive support pursuant to Sec. 54.309 or Sec. 54.311, whichever 
is applicable, in the first quarter of that year.
    (iii) Certifications filed on or before April 1. Carriers subject 
to certifications filed on or before April 1 shall receive support 
pursuant to Sec. 54.309 or Sec. 54.311, whichever is applicable, in the 
third and fourth quarters of that year. Such carriers shall not receive 
support pursuant to Sec. 54.309 or Sec. 54.311, whichever is 
applicable, in the first or second quarters of that year.
    (iv) Certifications filed on or before July 1. Carriers subject to 
certifications filed on or before July 1 shall receive support pursuant 
to Sec. 54.309 or Sec. 54.311, whichever is applicable, beginning in 
the fourth quarter of that year. Such carriers shall not receive 
support pursuant to Sec. 54.309 or Sec. 54.311, whichever is 
applicable, in the first, second, or third quarters of that year.
    (v) Certifications filed after July 1. Carriers subject to 
certifications filed after July 1 shall not receive support pursuant to 
Sec. 54.309 or Sec. 54.311, whichever is applicable, in that year.

[FR Doc. 99-30876 Filed 11-30-99; 8:45 am]
BILLING CODE 6712-01-P