[Federal Register Volume 65, Number 175 (Friday, September 8, 2000)]
[Notices]
[Pages 54524-54527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22852]


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FEDERAL COMMUNICATIONS COMMISSION

[CC Docket No. 96-45; FCC 00-248]


Federal-State Joint Board on Universal Service; Western Wireless 
Corporation Petition for Preemption of an Order of the South Dakota 
Public Utilities Commission

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: In this document, the Commission provides guidance to remove 
uncertainty and terminate controversy regarding whether section 
214(e)(1) of the Communications Act of 1934, as amended, requires a 
common carrier to provide supported services throughout a service area 
prior to being designated an eligible telecommunications carrier that 
may receive federal universal service support.

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

SUPPLEMENTARY INFORMATION: This is a summary of a Commission's 
Declaratory Ruling in CC Docket No. 96-45 released on August 10, 2000. 
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. In this Declaratory Ruling, we provide guidance to remove 
uncertainty and terminate controversy regarding whether section 
214(e)(1) of the Communications Act of 1934, as amended, (the Act) 
requires a common carrier to provide supported services throughout a 
service area prior to being designated an eligible telecommunications 
carrier (ETC) that may receive federal universal service support. We 
believe the guidance provided in this Declaratory Ruling is necessary 
to remove substantial uncertainty regarding the interpretation of 
section 214(e)(1) in pending state commission and judicial proceedings. 
We believe the guidance provided in this Declaratory Ruling will assist 
state commissions in acting expeditiously to fulfill their obligations 
under section 214(e) to designate competitive carriers as eligible for 
federal universal service support.
    2. We believe that interpreting section 214(e)(1) to require the 
provision of service throughout the service area prior to ETC 
designation prohibits or has the effect of prohibiting the ability of 
competitive carriers to provide telecommunications service, in 
violation of section 253(a) of the Act. We find that such an 
interpretation of section 214(e)(1) is not competitively neutral, 
consistent with section 254, and necessary to preserve and advance 
universal service, and thus does not fall within the authority reserved 
to the states in section 253(b). In addition, we find that such a 
requirement conflicts with section 214(e) and stands as an obstacle to 
the accomplishment and execution of the full purpose and objectives of 
Congress as set forth in section 254. Consequently, under both the 
authority of section 253(d) and traditional federal preemption 
authority, we find that to require the provision of service throughout 
the service area prior to designation effectively precludes designation 
of new entrants as ETCs in violation of the intent of Congress. We 
believe that the guidance provided in this Declaratory Ruling will 
further the goals of the Act by ensuring that new entrants have a fair 
opportunity to provide service to consumers living in high-cost areas.

[[Page 54525]]

    3. We note that Western Wireless has raised similar issues in its 
petition for preemption of a decision of the South Dakota Public 
Utilities Commission (South Dakota PUC). In its petition, Western 
Wireless asks the Commission to preempt, under section 253 and as 
inconsistent with the Act, the South Dakota PUC's requirement that, 
pursuant to section 214(e), a carrier may not receive designation as an 
ETC unless it is providing service throughout the service area. In 
light of the recent South Dakota Circuit Court decision overturning the 
South Dakota PUC's decision and granting Western Wireless ETC status in 
each exchange served by non-rural telephone companies in South Dakota, 
we believe that it is unnecessary to act on the Western Wireless 
petition at this time. In doing so, we note that section 253(d) 
requires the Commission to preempt state action only ``to the extent 
necessary to correct such violation or inconsistency.'' We acknowledge, 
however, that the South Dakota Circuit Court Order has been 
automatically stayed with the filing of the South Dakota PUC's notice 
of appeal to the Supreme Court of South Dakota. We therefore place 
Western Wireless' petition for preemption of the South Dakota PUC Order 
in abeyance pending final resolution of this appeal. The Commission 
will make a determination at that time as to whether it is necessary to 
proceed consistent with the guidance provided in this Declaratory 
Ruling.

I. Discussion

A. Section 253(a) Analysis

1. Discussion
    4. We find that requiring a new entrant to provide service 
throughout a service area prior to designation as an ETC has the effect 
of prohibiting the ability of the new entrant to provide intrastate or 
interstate telecommunications service, in violation of section 253(a).
    5. Legal Requirement. As an initial matter, we find that the 
requirement that a new entrant must provide service throughout its 
service area as a prerequisite to designation as an ETC under section 
214(e) constitutes a state ``legal requirement'' under section 253(a). 
We have previously concluded that Congress intended the phrase, 
``[s]tate or local statute or regulation, or other State or local 
requirement'' in section 253(a), to be interpreted broadly. The 
resolution of a carrier's request for designation as an ETC by a state 
commission is legally binding on the carrier and may prohibit the 
carrier from receiving federal universal service support. We find 
therefore that any such requirement constitutes a ``legal requirement'' 
under section 253(a).
    6. Prohibiting the Provision of Telecommunications Service. We find 
that an interpretation of section 214(e) requiring carriers to provide 
the supported services throughout the service area prior to designation 
as an ETC has the effect of prohibiting the ability of prospective 
entrants from providing telecommunications service. A new entrant faces 
a substantial barrier to entry if the incumbent local exchange carrier 
(LEC) is receiving universal service support that is not available to 
the new entrant for serving customers in high-cost areas. We believe 
that requiring a prospective new entrant to provide service throughout 
a service area before receiving ETC status has the effect of 
prohibiting competitive entry in those areas where universal service 
support is essential to the provision of affordable telecommunications 
service and is available to the incumbent LEC. Such a requirement would 
deprive consumers in high-cost areas of the benefits of competition by 
insulating the incumbent LEC from competition.
    7. No competitor would ever reasonably be expected to enter a high-
cost market and compete against an incumbent carrier that is receiving 
support without first knowing whether it is also eligible to receive 
such support. We believe that it is unreasonable to expect an 
unsupported carrier to enter a high-cost market and provide a service 
that its competitor already provides at a substantially supported 
price. Moreover, a new entrant cannot reasonably be expected to be able 
to make the substantial financial investment required to provide the 
supported services in high-cost areas without some assurance that it 
will be eligible for federal universal service support. In fact, the 
carrier may be unable to secure financing or finalize business plans 
due to uncertainty surrounding its designation as an ETC.
    8. In addition, we find such an interpretation of section 214(e)(1) 
to be contrary to the meaning of that provision. Section 214(e)(1) 
provides that a common carrier designated as an eligible 
telecommunications carrier shall ``offer'' and advertise its services. 
The language of the statute does not require the actual provision of 
service prior to designation. We believe that this interpretation is 
consistent with the underlying congressional goal of promoting 
competition and access to telecommunications services in high-cost 
areas. In addition, this interpretation is consistent with the 
Commission's conclusion that a carrier must meet the section 214(e) 
criteria as a condition of its being designated an eligible carrier 
``and then must provide the designated services to customers pursuant 
to the terms of section 214(e) in order to receive support.''
    9. In addition, we note that ETC designation only allows the 
carrier to become eligible for federal universal service support. 
Support will be provided to the carrier only upon the provision of the 
supported services to consumers. We note that ETC designation prior to 
the provision of service does not mean that a carrier will receive 
support without providing service. We also note that the state 
commission may revoke a carrier's ETC designation if the carrier fails 
to comply with the ETC eligibility criteria.
    10. In addition, we believe the fact that a carrier may already be 
providing service within the state prior to designation is not 
conclusive of whether the carrier can reasonably be expected to provide 
service throughout the service area, particularly in high-cost areas, 
prior to designation. While a requirement that a carrier be providing 
service throughout the service area may not affect the provision of 
service in lower-cost areas, it is likely to have the effect of 
prohibiting the ability of carriers without eligibility for support to 
provide service in high-cost areas.
    11. Gaps in Coverage. We find the requirement that a carrier 
provide service to every potential customer throughout the service area 
before receiving ETC designation has the effect of prohibiting the 
provision of service in high-cost areas. As an ETC, the incumbent LEC 
is required to make service available to all consumers upon request, 
but the incumbent LEC may not have facilities to every possible 
consumer. We believe the ETC requirements should be no different for 
carriers that are not incumbent LECs. A new entrant, once designated as 
an ETC, is required, as the incumbent is required, to extend its 
network to serve new customers upon reasonable request. We find, 
therefore, that new entrants must be allowed the same reasonable 
opportunity to provide service to requesting customers as the incumbent 
LEC, once designated as an ETC. Thus, we find that a telecommunications 
carrier's inability to demonstrate that it can provide ubiquitous 
service at the time of its request for designation as an ETC should not 
preclude its designation as an ETC.
    12. State Authority. Finally, although Congress granted to state 
commissions, under section 214(e)(2), the primary authority to make ETC 
designations, we do not agree that this authority is without any 
limitation. While state

[[Page 54526]]

commissions clearly have the authority to deny requests for ETC 
designation without running afoul of section 253, the denials must be 
based on the application of competitively neutral criteria that are not 
so onerous as to effectively preclude a prospective entrant from 
providing service. We believe that this is consistent with sections 
214(e), 253, and 254, as well as the decision of the United States 
Court of Appeals for the Fifth Circuit in Texas Office of Public 
Utility Counsel v. FCC. We reiterate, however, that the state 
commissions are primarily responsible for making ETC designations. 
Nothing in this Declaratory Ruling is intended to undermine that 
responsibility. In fact, it is our expectation that the guidance 
provided in this Declaratory Ruling will enable state commissions to 
move expeditiously, in a pro-competitive manner, on many pending ETC 
designation requests.

B. Section 253(b) Analysis

1. Discussion
    13. We find that a requirement to provide the supported services 
throughout the service area prior to designation as an ETC does not 
fall within the ``safe harbor'' provisions of section 253(b). To the 
contrary, we find that this requirement is not competitively neutral, 
consistent with section 254, or necessary to preserve and advance 
universal service. We therefore find that a requirement that obligates 
new entrants to provide supported services throughout the service area 
prior to designation as an ETC is subject to our preemption authority 
under section 253(d).
    14. Competitive Neutrality. We find that the requirement to provide 
service prior to designation as an ETC is not competitively neutral. We 
believe this finding is consistent with the Commission's determination 
in the Universal Service Order, 62 FR 32862 (June 17, 1997), that 
``[c]ompetitive neutrality means that universal service support 
mechanisms and rules neither unfairly advantage nor disadvantage one 
provider over another, and neither unfairly favor nor disfavor one 
technology over another.'' At the outset, we believe that, to meet the 
competitive neutrality requirement in non-rural telephone company 
service areas, the procedure for designating carriers as ETCs should be 
functionally equivalent for incumbents and new entrants. As discussed 
above, requiring the actual provision of supported services throughout 
the service area prior to ETC designation unfairly skews the universal 
service support mechanism in favor of the incumbent LEC. As a practical 
matter, the carrier most likely to be providing all the supported 
services throughout the requested designation area before ETC 
designation is the incumbent LEC. Without the assurance of eligibility 
for universal service funding, it is unlikely that any non-incumbent 
LEC will be able to make the necessary investments to provide service 
in high-cost areas.
    15. We are not persuaded that such a requirement is competitively 
neutral merely because the requirement to provide service prior to ETC 
designation applies equally to both new entrants and incumbent LECs. We 
recently concluded that the proper inquiry is whether the effect of the 
legal requirement, rather than the method imposed, is competitively 
neutral. As discussed above, we find that the result of such a 
requirement is to favor incumbent LECs over new entrants. Unlike a new 
entrant, the incumbent LEC is already providing service and therefore 
bears no additional burden from a requirement that it provide service 
prior to designation as an ETC. We therefore find that requiring the 
provision of supported services throughout the service area prior to 
ETC designation has the effect of uniquely disadvantaging new entrants 
in violation of section 253(b)'s requirement of competitive neutrality.
    16. Consistent with Section 254 and Necessary to Preserve and 
Advance Universal Service. We find that the requirement to provide 
service prior to designation as an ETC is not consistent with section 
254 or ``necessary to preserve and advance universal service.'' To the 
contrary, we find that such a requirement has the effect of prohibiting 
the provision of service in high-cost areas. As discussed above, this 
requirement clearly has a disparate impact on new entrants, in 
violation of the competitive neutrality and nondiscriminatory 
principles embodied in section 254. We believe that it is unreasonable 
to expect an unsupported carrier to enter a high-cost market and 
provide a service that its competitor already provides at a 
substantially supported price. If new entrants are not provided with 
the same opportunity to receive universal service support as the 
incumbent LEC, such carriers will be discouraged from providing service 
and competition in high-cost areas. Consequently, under an 
interpretation of section 214(e) that requires new entrants to provide 
service throughout the service area prior to designation as an ETC, the 
benefits that may otherwise occur as a result of access to affordable 
telecommunications services will not be available to consumers in high-
cost areas. We believe such a result is inconsistent with the 
underlying universal service principles set forth in section 254(b) 
that are designed to preserve and advance universal service by 
promoting access to telecommunications services in high-cost areas.
    17. A new entrant can make a reasonable demonstration to the state 
commission of its capability and commitment to provide universal 
service without the actual provision of the proposed service. There are 
several possible methods for doing so, including, but not limited to: a 
description of the proposed service technology, as supported by 
appropriate submissions; a demonstration of the extent to which the 
carrier may otherwise be providing telecommunications services within 
the state; a description of the extent to which the carrier has entered 
into interconnection and resale agreements; or, a sworn affidavit 
signed by a representative of the carrier to ensure compliance with the 
obligation to offer and advertise the supported services. We caution 
that a demonstration of the capability and commitment to provide 
service must encompass something more than a vague assertion of intent 
on the part of a carrier to provide service. The carrier must 
reasonably demonstrate to the state commission its ability and 
willingness to provide service upon designation.

C. Federal Preemption Authority

1. Discussion
    18. We find an interpretation of section 214(e)(1) that requires a 
new entrant to provide service throughout the service area prior to 
designation as an ETC to be fundamentally inconsistent with the 
universal service provisions in the 1996 Act. Specifically, we find 
such a requirement to be inconsistent with the meaning of section 
214(e)(1), Congress' universal service objectives as outlined in 
section 254, and the Commission's policies and rules in implementing 
section 254. As discussed above, this approach essentially requires a 
new entrant to provide service throughout high-cost areas prior to its 
designation as an ETC. We find that such a requirement stands as an 
obstacle to the Commission's execution and accomplishment of the full 
objectives of Congress in promoting competition and access to 
telecommunications services in high-cost areas. To the extent that a 
state's requirement under section 214(e)(1) that a new entrant provide 
service

[[Page 54527]]

throughout the service area prior to designation as an ETC also 
involves matters properly within the state's intrastate jurisdiction 
under section 2(b) of the Act, such matters that are inseparable from 
the federal interest in promoting universal service in section 254 
remain subject to federal preemption.
    19. Section 214. We find that the requirement that a carrier 
provide service throughout the service area prior to its designation as 
an ETC conflicts with the meaning and intent of section 214(e)(1). 
Section 214(e)(1) provides that a common carrier designated as an 
eligible telecommunications carrier shall ``offer'' and advertise its 
services. The statute does not require a carrier to provide service 
prior to designation. As discussed above, we have concluded that a 
carrier cannot reasonably be expected to enter a high-cost market prior 
to its designation as an ETC and provide service in competition with an 
incumbent carrier that is receiving support. We believe that such an 
interpretation of section 214(e) directly conflicts with the meaning of 
section 214(e)(1) and Congress' intent to promote competition and 
access to telecommunications service in high-cost areas.
    20. While Congress has given the state commissions the primary 
responsibility under section 214(e) to designate carriers as ETCs for 
universal service support, we do not believe that Congress intended for 
the state commissions to have unlimited discretion in formulating 
eligibility requirements. Although Congress recognized that state 
commissions are uniquely suited to make ETC determinations, we do not 
believe that Congress intended to grant to the states the authority to 
adopt eligibility requirements that have the effect of prohibiting the 
provision of service in high-cost areas by non-incumbent carriers. To 
do so effectively undermines congressional intent in adopting the 
universal service provisions of section 254.
    21. Section 254. Consistent with the guidance provided above, we 
find a requirement that a carrier provide service prior to designation 
as an ETC inconsistent with the underlying principles and intent of 
section 254. Specifically, section 254 requires the Commission to base 
policies for the advancement and preservation of universal service on 
principles that include promoting access to telecommunications services 
in high-cost and rural areas of the nation. Because section 254(e) 
provides that only a carrier designated as an ETC under section 214(e) 
may be eligible to receive federal universal service support, an 
interpretation of section 214(e) requiring carriers to provide service 
throughout the service area prior to designation as an ETC stands as an 
obstacle to the accomplishment of the congressional objectives outlined 
in section 254. If new entrants are effectively precluded from 
universal service support eligibility due to onerous eligibility 
criteria, the statutory goals of preserving and advancing universal 
service in high-cost areas are significantly undermined.
    22. In addition, such a requirement conflicts with the Commission's 
interpretation of section 254, specifically the principle of 
competitive neutrality adopted by the Commission in the Universal 
Service Order. In the Universal Service Order, the Commission stated 
that, ``competitive neutrality in the collection and distribution of 
funds and determination of eligibility in universal service support 
mechanisms is consistent with congressional intent and necessary to 
promote a pro-competitive, de-regulatory national policy framework.'' 
As discussed above, a requirement to provide service throughout the 
service area prior to designation as an ETC violates the competitive 
neutrality principle by unfairly skewing the provision of universal 
service support in favor of the incumbent LEC. As stated in the 
Universal Service Order, ``competitive neutrality will promote emerging 
technologies that, over time, may provide competitive alternatives in 
rural, insular, and high cost areas and thereby benefit rural 
consumers.'' Requiring new entrants to provide service throughout the 
service area prior to ETC designation discourages ``emerging 
technologies'' from entering high-cost areas. In addition, we note that 
section 254(f) provides that, ``[a] State may adopt regulations not 
inconsistent with the Commission's rules to preserve and advance 
universal service.'' For the reasons discussed extensively above, we 
find an interpretation of section 214(e) requiring the provision of 
service throughout the service area prior to designation as an ETC to 
be inconsistent with the Commission's universal service policies and 
rules.

III. Ordering Clauses

    23. Pursuant to sections 4(i), 253, and 254 of the Communications 
Act of 1934, as amended, and section 1.2 of the Commission's rules, and 
Article VI of the U.S. Constitution, that this Declaratory Ruling is 
adopted.
    24. It is further ordered that Western Wireless' Petition for 
Preemption of an Order of the South Dakota Public Utilities Commission 
shall be placed in abeyance pending resolution of the appeal.

Federal Communications Commission.
William F. Caton,
Deputy Secretary.
[FR Doc. 00-22852 Filed 9-7-00; 8:45 am]
BILLING CODE 6712-01-P