[Federal Register Volume 65, Number 20 (Monday, January 31, 2000)]
[Unknown Section]
[Pages 4577-4579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-2040]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 96-45; FCC 99-280]


Federal-State Joint Board on Universal Service

AGENCY:  Federal Communications Commission.

ACTION:  Final rule; petition for reconsideration.

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SUMMARY:  This document concerning the Federal-State Joint Board on 
Universal Service addresses several petitioners asking for 
reconsideration or waiver of the Commission's contribution rules. The 
Commission requires carriers to contribute on the basis of prior year 
revenues, and the petitioners wanted to use current year revenues 
instead. The Commission denies the petitions.

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 
Memorandum Opinion and Order and Seventh Order on Reconsideration, CC 
Docket No. 96-45; FCC 99-280, released on October 13, 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, SW, Washington, DC, 20554.

I. Introduction

    1. Affinity Corporation, Hotel Communications, Inc., LDC 
Telecommunications, Inc. (LDC), MobileTel, Inc., National Telephone & 
Communications, Inc. (MobileTel), Network Operator Services, Inc. 
(NOS), Operator Communications, Inc. (OCI), and U.S. Network, Inc. 
(collectively, Petitioners) have filed petitions for waiver or, 
alternatively, reconsideration of Sec. 54.706, Sec. 54.709, and/or 
Sec. 54.711 of the Commission's rules. Specifically, Petitioners seek 
waiver or reconsideration of the requirement that their contributions 
to the universal service support mechanisms be calculated on the basis 
of their prior year revenues. For the reasons that follow, we deny the 
petitions.

II. Discussion

A. Reconsideration of the Method for Calculating Contributions

1. Timeliness of Petitions
    2. NOS and LDC have petitioned the Commission to reconsider its 
decision to assess contributions on prior year revenues instead of 
current year revenues, and OCI has asked the Commission to consider 
assessing contributions on estimated future revenues with periodic 
reconciliations. As NOS recognizes, however, a petition for 
reconsideration in a rulemaking proceeding must be filed within 30 days 
after public notice of the Commission action. The Commission's rules 
provide that public notice in a rulemaking proceeding occurs upon 
publication of the document, or a summary thereof, in the Federal 
Register. Even if we assume that NOS, LDC, and OCI seek reconsideration 
of the Universal Service Second Order on Reconsideration, 62 FR 41294 
(August 1, 1997), our last decision concerning this issue, that 
decision was published in the Federal Register on August 1, 1997. Thus, 
petitions for reconsideration of the Universal Service Second Order on 
Reconsideration were due on or before September 1, 1997. OCI, NOS, and 
LDC filed their petitions for reconsideration on July 14, 1998, August 
28, 1998, and October 22, 1998, respectively, and they are therefore 
untimely. Recognizing this untimeliness, NOS urges the Commission to 
reconsider the issue of prior year revenues on our own motion. For the 
reasons discussed, however, we decline to reconsider on our own motion 
our decision to assess universal service contributions on prior year 
revenues.
    3. Although the petitions for reconsideration are untimely, we wish 
to take this opportunity to address NOS's claim that ``it is not clear 
* * * [whether] the Commission followed the [notice] requirements of 
the Administrative Procedure Act (APA)'' in establishing the universal 
service assessment methodology, and the Commission should therefore 
reconsider its decision. Section 553(b) of the APA requires an agency 
to provide published notice of its proposed rulemaking in the Federal 
Register. The notice must include ``either the terms or substance of 
the proposed rule or a description of the subjects and issues 
involved.''
    4. Here, the Commission sought comment in the Universal Service 
NPRM, 61 FR 10499 (March 14, 1996), on how universal service 
contributions should be assessed. The Commission described three 
potential contribution bases: gross interstate revenues; gross 
interstate revenues net of payments to other carriers; and per-line or 
per-minute units. The Commission also specifically asked for comment on 
the approach used for the TRS fund, i.e., gross interstate revenues for 
the prior calendar year, and provided a citation to the TRS Third 
Report and Order, 58 FR 39671 (July 26, 1993).
    5. Given that the Commission sought comment on two revenue-based 
contribution methods in the Universal Service NPRM, it necessarily 
follows that, if the Commission adopted a revenue-based method, it 
would also need to select some period for which revenues would be 
measured. Moreover, the Commission specifically directed commenters to 
consider the TRS approach, which was established in 1993 and assesses 
contributions based on prior calendar year revenues. Indeed, in 
response to the Universal Service NPRM, commenters stated that the 
industry was already familiar with the TRS approach. Considering the 
Commission's expressed interest in a revenue-based contribution method 
and its reference to the TRS approach, we believe that the question of 
what period's revenues to use was necessarily raised for comment. 
Accordingly, we find that the Commission's Universal Service NPRM 
satisfies the Administrative Procedure Act's notice requirement.
2. Substantive Proposals for Alternative Calculation Methodologies
    6. Although we deny the petitions for reconsideration as untimely, 
we also take this opportunity to explain why we believe that the 
calculation methodologies proposed by Petitioners do not present viable 
alternatives to the

[[Page 4578]]

methodology the Commission adopted in the Universal Service Second 
Order on Reconsideration. Consistent with the directives of section 
254, the Commission adopted a contribution methodology that is 
equitable, nondiscriminatory, and competitively neutral. Pursuant to 
the Act and our rules, all entities that provide interstate 
telecommunications are required to contribute to the universal service 
support mechanisms. The contribution methodology does not discriminate 
against one class of carrier or favor one market segment over another. 
Contributions are calculated using a contribution factor, which is 
based on the ratio of total projected quarterly expenses of the 
universal service support mechanisms to total end-user 
telecommunications revenues. Thus, contributors pay only an equitable, 
pro rata share of the total projected quarterly expenses. The fact that 
some carriers may have difficulty recovering their contributions from a 
declining customer base is the product of a competitive marketplace, 
not an inequitable, discriminatory, or competitively-biased Commission 
rule. We emphasize that using prior year revenues to calculate 
contributions to the universal service support mechanisms is consistent 
with Congress's directive that all providers of interstate 
telecommunications services shall contribute to the preservation and 
advancement of universal service on an equitable and nondiscriminatory 
basis.
    7. Contrary to the methodology the Commission adopted, however, NOS 
proposes allowing carriers to make a one-time election to base their 
universal service contributions on current year revenues, instead of 
prior year revenues. Under this plan, the Commission would estimate 
total industry revenues, which, according to NOS, will remain 
relatively constant from year to year. We find that NOS's proposal does 
not fulfill congressional objectives as well as the methodology the 
Commission adopted.
    8. For example, under NOS's proposal, the Commission would have to 
forecast total end-user telecommunications revenues when calculating 
contribution factors for the universal service support mechanisms. 
Contrary to NOS's claim, we do not believe that such revenues are 
likely to remain relatively constant. Our most recent assessment of the 
telecommunications industry shows that, from 1992 to 1998, gross 
telecommunications revenues increased by approximately $93 billion. 
Annual increases have ranged from approximately $10 billion to $22 
billion since 1992. Moreover, although the Commission has used 
forecasts of gross industry revenues in calculating contribution 
factors for the TRS fund, the universal service support mechanisms are 
significantly larger than the TRS fund. Thus, errors in forecasting 
total industry revenues will have a much greater effect on the 
universal service support mechanisms than on the TRS fund. 
Consequently, the use of forecasting increases the likelihood that 
universal service contributors will be overbilled in some periods and 
underbilled in other periods, resulting in funding surpluses or 
shortfalls in the universal service support mechanisms. Such a result 
is contrary to Congress's directive that the universal service support 
mechanisms be specific, predictable, and sufficient.
    9. In addition, NOS's proposal allowing carriers to make a one-time 
election to base their contributions on current year revenues or prior 
year revenues would impose significant administrative burdens on USAC. 
Instead of a single procedure for handling contributor reporting and 
assessment, USAC would need to have two sets of procedures running 
concurrently, one for prior year contributors and one for current year 
contributors. Thus, we conclude that the potential for forecasting 
errors and the increased administrative burdens make NOS's plan less 
likely than the Commission's current methodology to satisfy the 
congressional directive that universal service support mechanisms 
should be specific, predictable, and sufficient.
    10. We find similar problems with the proposal set forth by OCI. 
OCI claims that the current contribution method places a heavier burden 
on carriers with declining revenues, and therefore it is neither 
equitable, nondiscriminatory, nor competitively neutral. OCI proposes 
that carriers estimate their revenues for the upcoming six months and 
USAC calculate carriers' contributions based on those estimates. To 
prevent carriers from intentionally underestimating their revenues, 
carriers would also report their actual revenues from prior periods. 
USAC could then annually compare carriers' estimated revenues with 
their subsequently reported actual revenues and reconcile any 
differences between estimated revenues and actual revenues.
    11. Whereas NOS's plan requires one entity (the Commission) to 
estimate total industry end-user telecommunications revenues, OCI's 
plan requires each carrier to submit an estimate of its end-user 
telecommunications revenues for the upcoming six months. We believe 
that some carriers will overestimate revenues and others will 
underestimate revenues. As discussed, such forecasting errors are 
likely to result in universal service support mechanisms that are 
neither specific, predictable, nor sufficient. Such a result also is 
contrary to the congressional mandate that carriers make equitable and 
nondiscriminatory contributions.
    12. Moreover, OCI's plan would increase the administrative burden 
on both carriers and USAC. In addition to reporting actual prior year 
revenues, carriers would have to semi-annually prepare and submit 
revenue estimates for the upcoming six months. After entering, 
verifying, and potentially auditing the actual prior year revenue data, 
USAC also would have to process the carriers' six month revenue 
estimates. Furthermore, the reconciliation procedure suggested by OCI 
would complicate the billing process for USAC because bills would be 
based on data from multiple periods. Because of the potential negative 
effects of forecasting errors and the increased administrative burdens, 
we decline to adopt OCI's plan.

B. Requests for Waiver

    13. Section 1.3 of the Commission's rules governs petitions for 
waiver and provides that waiver may be granted upon ``good cause 
shown.'' Commission rules are presumed valid, however, and an applicant 
for waiver bears a heavy burden. The Commission may exercise its 
discretion to waive a rule ``only if special circumstances warrant a 
deviation from the general rule and such deviation will serve the 
public interest.'' The Commission may take into account considerations 
of hardship, equity, or more effective implementation of overall 
policy. Although the Commission must give meaningful consideration to 
waiver petitions, it should not tolerate evisceration of a rule by 
waivers.
    14. For various reasons, each Petitioner alleges that it has 
experienced a decline in revenues. Each Petitioner asks for a waiver of 
the contribution requirements and seeks either to exclude a portion of 
its prior year revenues from its revenue base or to apply the 
contribution factor to its decreased present year revenues. Most 
Petitioners claim that, absent such waivers, they will have difficulty 
recovering their contributions from their shrinking subscriber bases.
    15. We are not persuaded that Petitioners' alleged inability to 
recover contributions is a special circumstance warranting waiver of 
the prior year revenue contribution requirement. The Commission does 
not require carriers to recover their universal service

[[Page 4579]]

contributions from end users. Rather, the Commission has given carriers 
the flexibility to decide whether and how they should recover their 
contributions as markets become increasingly competitive. Although the 
Commission permits carriers to pass through all or part of their 
universal service contributions to their end users, the requirement to 
contribute is not dependent upon a carrier's ability to successfully 
pass though such contributions. We agree with AT&T and BellSouth that 
annual revenue variations are an inherent part of the competitive 
environment in the telecommunications industry. Even OCI recognizes 
that ``carriers with declining revenues are not unique and that there 
may be various circumstances which cause carriers to experience such 
revenue declines from year to year.'' Thus, we conclude that a decline 
in revenues, without more, is an insufficient basis for a waiver of the 
requirement that universal service contributions be based on prior year 
revenues. Moreover, now that carriers are familiar with the 
contribution process, they have the ability to ameliorate the effects 
of declining revenues and/or subscribers by reserving a portion of 
their current revenues to meet the contribution obligations that arise 
from those current revenues in the following year.
    16. NTC, OCI, and MobileTel have attempted to explain the 
circumstances underlying their revenue declines, which include, 
respectively, regulatory action to correct improper marketing 
practices, increased competition, and an adverse Commission licensing 
decision. We are not persuaded that any of these circumstances rise to 
the level of the special circumstances necessary to warrant a waiver. 
It is not unusual for a state to take corrective action against a 
company that improperly markets its services, or competitors to compete 
for subscribers and marketshare. Furthermore, although the Commission 
rescinded MobileTel's Louisiana 8 and 9 RSA cellular B block licenses 
in 1996, the Commission granted MobileTel interim authority to continue 
operating until qualified applicants were licensed and ready to begin 
service. The grant of interim authority, while limited, allowed 
MobileTel to generate significant, additional revenues that it 
otherwise would have foregone absent such interim authority. By 
accepting the interim authority, however, MobileTel subjected itself to 
the obligations and responsibilities associated with being a provider 
of interstate telecommunications services in the Louisiana 8 and 9 
Rural Service Areas. The fact that those obligations and 
responsibilities subsequently included a requirement to contribute to 
universal service using a methodology based on prior year revenues--a 
requirement applicable to all providers of interstate 
telecommunications services--does not constitute a special circumstance 
warranting waiver of our contribution rules. Accordingly, we deny 
Petitioners' requests for waiver.

III. Ordering Clauses

    17. The authority contained in sections 1-4, 201-205, 218-220, 254, 
303(r), 403, and 405 of the Communications Act of 1934, as amended, 
Sec. 1.429 of the Commission's rules, the Memorandum Opinion and Order 
and Seventh Order on Reconsideration is adopted.
    18. The authority contained in sections 4(i) and 405 of the 
Communications Act of 1934, as amended, and Sec. 1.429 of the 
Commission's rules, the petitions for reconsideration are denied.
    19. The authority contained in section 4(i) of the Communications 
Act of 1934, as amended, and Sec. 1.3 of the Commission's rules, the 
petitions for waiver are denied.

List of Subjects in 47 CFR Part 54

    Universal service.


Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 00-2040 Filed 1-28-00; 8:45 am]
BILLING CODE 6712-01-P