[Federal Register Volume 66, Number 57 (Friday, March 23, 2001)]
[Rules and Regulations]
[Pages 16145-16151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-7231]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 96-45; FCC 01-85]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission modifies the existing 
methodology used to assess contributions that carriers make to the 
federal universal service support mechanisms. Specifically, the 
Commission modifies the existing contribution methodology to reduce the 
interval between the accrual of revenues and the assessment of 
universal service contributions based on those revenues. Currently, 
contributions to the federal universal service support mechanisms are 
based on carriers' interstate and international end-user 
telecommunications revenues from the prior year. With this 
modification, the Commission shortens the interval between the accrual 
of revenues and assessment based on those revenues by six months.

DATES: Effective April 23, 2001.

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

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order in CC Docket No. 96-45 released on March 14, 2001. 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 Order, we modify the existing methodology used to assess 
contributions that carriers make to the federal universal service 
support mechanisms. Specifically, we modify the existing contribution 
methodology to reduce the interval between the accrual of revenues and 
the assessment of universal service contributions based on those 
revenues. Currently, contributions to the federal universal service 
support mechanisms are based on carriers' interstate and international 
end-user telecommunications revenues from the prior year. With this 
modification, we shorten the interval between the accrual of revenues 
and assessment based on those revenues by six months.
    2. By reducing the interval between the accrual and assessment of 
revenues for contributions to the universal service fund, the revised 
methodology will improve upon the existing methodology by basing 
assessments on revenue data that are more reflective of current market 
conditions. As a result, the revised contribution methodology will 
prevent the possibility that certain carriers will be at a competitive 
disadvantage as market conditions change. By our action today, we 
ensure that the assessment of contributions to the federal universal 
service support mechanisms remains competitively neutral, and that the 
mechanisms continue to meet the statutory requirement of section 254(d) 
to be specific, predictable, and sufficient.
    3. Although the action we take today improves the operation of the 
current universal service assessment methodology, we believe that more 
fundamental modifications may be warranted to simplify the way in which 
carriers contribute to the universal service mechanisms. Accordingly, 
very shortly we intend to initiate a proceeding to seek comment on 
whether and how to modify our rules related to carriers' recovery of 
their universal service contribution obligations to simplify the 
process for carriers and consumers and ensure that the universal 
service fund remains sufficient and predictable.

II. Discussion

    4. We modify the existing contribution methodology to significantly 
reduce the current interval between the accrual of revenues and the 
assessment of universal service contributions based on those revenues. 
Although we continue to believe that the current methodology is 
competitively neutral and satisfies the requirements of the Act, we 
conclude that reducing this interval will be superior to the current 
methodology by basing assessments on revenue data that are more 
reflective of current market conditions, without significantly 
increasing administrative costs for carriers and USAC. The shortened 
interval will allow contributions to better reflect market trends 
influencing carriers' revenues, such as the entry of new providers into 
the interstate marketplace. As a result, the revised

[[Page 16146]]

methodology will further the Commission's goal of maintaining 
competitive neutrality.

A. Modified Universal Service Contribution Methodology

    5. We adopt, with minor modifications, the contribution methodology 
proposal set forth in the Contribution Further Notice, 65 FR 67322 
(November 9, 2000), to reduce the interval between the accrual of 
revenues by carriers and assessment of universal service contributions 
based on those revenues. This revised methodology will reduce the 
interval from 12 months to an average interval of six months.
    6. The revised contribution methodology will operate in a manner 
similar to the current methodology with only minor differences. The 
Commission will continue to set contribution factors on a quarterly 
basis using the same timeframes as under the current methodology. 
Carriers will continue to file Form 499-A in April to report their 
annual revenues from the prior year. Under the revised methodology we 
adopt today, carriers will also file on a quarterly basis the new Form 
499-Q to report their revenues from the prior quarter. We direct USAC 
to provide revenue data to the Commission at least thirty days before 
the start of each quarter. The Commission and USAC will use the revenue 
information from a particular quarter to set the contribution factor 
for the second following quarter. For example, contributions in the 
third quarter will be assessed based on revenues accrued in the first 
quarter. Accordingly, the revised methodology reduces to six months the 
average interval between the accrual of revenues and the assessment of 
universal service contributions based on those revenues. The specific 
timelines for implementation and transition are detailed.
    7. USAC will use the revenue data provided by carriers in the FCC 
Form 499-A to perform annual true-ups to the quarterly revenue data 
submitted by carriers during the prior calendar year. As necessary, 
USAC will then refund or collect from carriers any over-payments or 
under-payments. If the combined quarterly revenues reported by a 
carrier are greater than those reported on its annual revenue report 
(Form 499-A), then a refund will be provided to the carrier based on an 
average of the two lowest contribution factors for the year. If the 
combined quarterly revenues reported by a carrier are less than those 
reported on its annual revenue report (Form 499-A), then USAC shall 
collect the difference from the carrier using an average of the two 
highest contribution factors from that year. We believe this will 
provide an incentive for carriers to accurately report their quarterly 
revenues.
    8. By reducing the interval between the accrual and assessment of 
revenues for contribution to the universal service fund, the revised 
methodology improves upon the existing methodology by basing 
assessments on revenue data more reflective of current market 
conditions. As a result, the revised contribution methodology ensures 
that contributions to the universal service support mechanisms continue 
to operate in a competitively neutral manner. The shortened interval 
between accrual of revenues and assessment of contributions will allow 
the revised methodology to reflect more accurately trends in 
telecommunications conditions, such as new carriers entering the 
interexchange market, or declining revenue bases for carriers that are 
losing market share. We conclude that the shortened interval will 
constitute a significant enhancement to the current methodology. 
Because it is similar to the existing contribution methodology, 
however, the methodology that we adopt herein will also be relatively 
easy to administer and implement. Similarly, we conclude that USAC will 
be able to continue to monitor carrier submissions to ensure that such 
submissions are accurate and timely without substantial changes in its 
auditing authority or the adoption of additional enforcement rules.
    9. We decline to adopt at this time the proposal to base 
contributions on current revenues as set forth in the Contribution 
Further Notice. Under this proposal, the contribution factor is set 
using prior-year revenues, but carriers contribute based on application 
of this contribution factor to their current revenues. This proposal 
would increase reporting burdens on carriers by requiring carriers to 
file revenue information 13 times per year within very short 
timeframes. We agree with the majority of commenters that this proposal 
would be unduly burdensome on carriers, particularly smaller carriers. 
We also have concerns that the adoption of this proposal might affect 
the sufficiency of the universal service fund and require the 
collection of a reserve fund to protect against a fund shortfall.
    10. We also decline to adopt the alternative contribution 
methodologies suggested by some commenters in this proceeding, such as 
having carriers base contributions on projected revenues, or permitting 
carriers to have the option of using more than one contribution 
methodology. We reject these proposals because we conclude that the 
costs they impose would outweigh any potential benefits. We have 
concerns that these proposals would create incentives for carriers to 
under-report revenues or otherwise encourage carrier gaming of the 
contribution system. We also conclude that some of these proposals 
would unduly increase the costs of administering the universal service 
mechanisms. Accordingly, we decline to adopt these proposals at this 
time. Moreover, we do not preclude the possibility of adopting at some 
later date a surcharge methodology to recover contributions to the 
universal service mechanisms. Such a methodology may satisfy the goals 
of section 254(d) to be specific, predictable, and sufficient, while 
protecting consumers from excessive or confusing universal service 
charges on their telephone bills. We do not, however, have an adequate 
record at this time to adopt such a proposal. Therefore, we intend to 
seek further comment on this issue in the very near future.

B. Transition to the Revised Contribution Methodology

    11. We direct USAC to begin implementation of the revised 
contribution methodology effective for the second quarter of 2001 
(i.e., April through June of 2001). To ensure a smooth transition for 
second quarter 2001, during the month of April 2001, certain aspects of 
the existing contribution methodology will remain unchanged. As 
currently required under the existing methodology, on April 2, 2001, 
carriers will file the Form 499-A, reporting revenues billed from 
January through December 2000. Also as required under the existing 
methodology, carriers' April 2001 contributions will be calculated 
based on their reported revenues from January through June 2000 (i.e., 
revenues reported on the 2000 Form 499-S).
    12. Beginning in May 2001, for the entire second quarter 2001, USAC 
shall calculate carriers' contributions based on revenues that 
approximate the revenues earned in fourth quarter 2000. Specifically, 
we direct USAC to derive the fourth quarter 2000 revenue by subtracting 
the revenues reported by carriers in the Form 499-S (January through 
June 2000) from the revenues reported in the April 2001 Form 499-A 
(January through December 2000). USAC must then divide this revenue 
amount by two, to approximate carrier revenues for the fourth quarter 
of 2000. We direct USAC to include this revenue information in its 
quarterly filing due on May 2, 2001. Based on this fourth quarter 2000 
revenue information, the

[[Page 16147]]

Commission will determine whether to modify the contribution factor 
accordingly.
    13. We direct USAC to calculate carriers' contributions for the 
second quarter 2001 using the fourth quarter 2000 revenue information, 
as discussed. For each carrier, USAC shall compare this amount with the 
amount the carrier would have paid under the existing methodology. USAC 
shall then make appropriate adjustments to individual carriers' bills 
in May and June 2001 to: (1) Reflect the revised contribution amounts 
for second quarter, and (2) true-up any amounts that a carrier may have 
over- or underpaid in the April 2001 bill. For example, if during the 
second quarter of 2001 Carrier A would have paid $12,000 using the 
existing methodology, but would only have paid $9,000 using the revised 
methodology, Carrier A would be billed for the second quarter of 2001 
in the following manner. For April, Carrier A would pay $4,000 (i.e., 
one-third of $12,000). For May and June, however, Carrier A would pay 
$2,500 each month. Under the revised methodology, Carrier A owes $3,000 
per month. But because Carrier A overpaid $1,000 in April, this amount 
shall be refunded in equal amounts to Carrier A during May and June (in 
the form of $500 credit each month).
    14. After this initial transition period, the contribution 
methodology will operate as follows. Carriers will file Form 499-Q on 
May 11, 2001, reporting revenue data from the first quarter of 2001. On 
June 1, 2001, USAC shall file revenue data from the first quarter 2001. 
Using this revenue data and the projected program demand data supplied 
by USAC in its quarterly filing in May, the Commission will calculate a 
new contribution factor for the third quarter of 2001. Carriers will be 
billed in accordance with the new contribution factor for the third 
quarter. Thereafter, carriers will file Form 499-Q, reporting their 
revenues for the prior quarter, by the beginning of the second month in 
each quarter (i.e., February 1, May 1, August 1, and November. 1). 
Carriers will continue to receive annual true-ups when they file their 
Forms 499-A in April of each year. USAC will file projected program 
demand data at least 60 days prior to the start of a quarter and total 
contribution base revenue data at least 30 days prior to the start of a 
quarter. The Commission delegates authority under Sec. 54.711(c) to the 
Common Carrier Bureau to take whatever additional steps are necessary 
to implement the contribution methodology adopted herein.
    15. In addition, the Commission directs USAC and the other fund 
administrators to devise an appropriate cost allocation plan for the 
additional costs for collecting, validating, and distributing the 
contributor data provided in the Form 499-Q.

III. Procedural Matters

A. Final Regulatory Flexibility Analysis

    16. As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated into the 
Contribution Further Notice. The Commission sought written public 
comment on the proposals in the Contribution Further Notice, including 
comment on the IRFA. This present Final Regulatory Flexibility Analysis 
(FRFA) conforms to the RFA.
1. Need for and Objectives of This Report and Order and the Rules 
Adopted Herein
    17. The Commission issues this Report and Order (Order) as a part 
of its implementation of the Act's mandate that ``[e]very 
telecommunications carrier that provides interstate telecommunications 
services shall contribute, on an equitable and nondiscriminatory basis, 
to the specific, predictable, and sufficient mechanisms established by 
the Commission to preserve and advance universal service.'' In light of 
significant recent developments in the interstate telecommunications 
marketplace, such as the entry of Regional Bell Operating Companies 
(RBOCs) into the interexchange services market under section 271, the 
Commission sought comment on whether the existing contribution 
methodology provides or will provide a competitive disadvantage to 
certain carriers in the marketplace. This Order modifies the existing 
assessment methodology to determine carriers' contributions to the 
federal universal service support mechanisms. Currently, contributions 
to the federal universal service mechanisms are based on carriers' 
interstate and international end-user telecommunications revenues from 
the prior year. In this Order, we shorten the interval between accrual 
of revenues and assessment based on those revenues by six months. In so 
doing, we ensure that assessment of contributions to the federal 
universal service support mechanisms remains competitively neutral, and 
that the mechanisms continue to meet the statutory requirement of 
section 254(d) to be specific, predictable, and sufficient.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    18. We received no comments directly in response to the IRFA in 
this proceeding. Some comments generally addressed the potential 
administrative burdens of the various proposals set forth in the 
Contribution Further Notice to modify the universal service 
contribution methodology. These commenters express concern that the 
administrative costs associated with increasing the number of revenue 
filings may outweigh the benefits associated with reducing the 
contribution interval between the accrual of revenues by carriers and 
the assessment of contributions to the universal service support 
mechanisms.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    19. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules. The RFA generally defines the term 
``small entity'' as having the same meaning as the terms ``small 
business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one that: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA). A small organization is generally ``any not-for-
profit enterprise which is independently owned and operated and is not 
dominant in its field.'' Nationwide, as of 1992, there were 
approximately 275,801 small organizations. ``Small governmental 
jurisdiction'' generally means ``governments of cities, counties, 
towns, townships, villages, school districts, or special districts, 
with a population of less than 50,000.'' As of 1992, there were 
approximately 85,006 such jurisdictions in the United States. This 
number includes 38,978 counties, cities, and towns; of these, 37,566, 
or 96 percent, have populations of fewer than 50,000. The Census Bureau 
estimates that this ratio is approximately accurate for all 
governmental entities. Thus, of the 85,006 governmental entities, we 
estimate that 81,600 (91 percent) are small entities. In this Order, we 
stated that the modifications adopted will affect all providers of 
interstate telecommunications and interstate

[[Page 16148]]

telecommunications services. We further describe and estimate the 
number of small business concerns that may be affected by the 
modifications to the universal service contribution methodology adopted 
in this Order.
    20. The SBA has defined a small business for Standard Industrial 
Classification (SIC) categories 4812 (Radiotelephone Communications) 
and 4813 (Telephone Communications, Except Radiotelephone) to be small 
entities when they have no more than 1,500 employees. We first discuss 
the number of small telephone companies falling within these SIC 
categories, then attempt to refine further those estimates to 
correspond with the categories of telecommunications companies that are 
commonly used under our rules.
    21. The most reliable source of information regarding the total 
numbers of common carrier and related providers nationwide, including 
the numbers of commercial wireless entities, appears to be data the 
Commission publishes annually in its Trends in Telephone Service 
report. According to data in the most recent report, there are 4,144 
interstate carriers. These carriers include, inter alia, incumbent 
local exchange carriers, competitive local exchange carriers, 
competitive access providers, interexchange carriers, other wireline 
carriers and service providers (including shared-tenant service 
providers and private carriers), operator service providers, pay 
telephone operators, providers of telephone toll service, wireless 
carriers and services providers, and resellers.
    22. We have included small incumbent LECs in this present RFA 
analysis. As noted, a ``small business'' under the RFA is one that, 
inter alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent LECs are not 
dominant in their field of operation because any such dominance is not 
``national'' in scope. We have therefore included small incumbent LECs 
in this RFA analysis, although we emphasize that this RFA action has no 
effect on Commission analyses and determinations in other, non-RFA 
contexts.
    23. Total Number of Telephone Companies Affected. The United States 
Bureau of the Census (``the Census Bureau'') reports that, at the end 
of 1992, there were 3,497 firms engaged in providing telephone 
services, as defined therein, for at least one year. This number 
contains a variety of different categories of carriers, including local 
exchange carriers, interexchange carriers, competitive access 
providers, cellular carriers, mobile service carriers, operator service 
providers, pay telephone operators, PCS providers, covered SMR 
providers, and resellers. It seems certain that some of those 3,497 
telephone service firms may not qualify as small entities or small 
incumbent LECs because they are not ``independently owned and 
operated.'' It seems reasonable to conclude, therefore, that fewer than 
3,497 telephone service firms are small entity telephone service firms 
or small incumbent LECs that may be affected by the decisions and rules 
adopted in this Order.
    24. Wireline Carriers and Service Providers. SBA has developed a 
definition of small entities for telephone communications companies 
other than radiotelephone companies. The Census Bureau reports that, 
there were 2,321 such telephone companies in operation for at least one 
year at the end of 1992. According to SBA's definition, a small 
business telephone company other than a radiotelephone company is one 
employing no more than 1,500 persons. All but 26 of the 2,321 non-
radiotelephone companies listed by the Census Bureau were reported to 
have fewer than 1,000 employees. Thus, even if all 26 of those 
companies had more than 1,500 employees, there would still be 2,295 
non-radiotelephone companies that might qualify as small entities or 
small incumbent LECs. Although it seems certain that some of these 
carriers are not independently owned and operated, we are unable at 
this time to estimate with greater precision the number of wireline 
carriers and service providers that would qualify as small business 
concerns under SBA's definition. Consequently, we estimate that there 
are fewer than 2,295 small entity telephone communications companies 
other than radiotelephone companies that may be affected by the 
decisions and rules adopted in this Order.
    25. Local Exchange Carriers, Interexchange Carriers, Competitive 
Access Providers, Operator Service Providers, Payphone Providers, and 
Resellers. Neither the Commission nor SBA has developed a definition 
particular to small local exchange carriers (LECs), interexchange 
carriers (IXCs), competitive access providers (CAPs), operator service 
providers (OSPs), payphone providers or resellers. The closest 
applicable definition for these carrier-types under SBA rules is for 
telephone communications companies other than radiotelephone (wireless) 
companies. The most reliable source of information regarding the number 
of these carriers nationwide of which we are aware appears to be the 
data that we collect annually in connection with the Telecommunications 
Relay Service (TRS). According to our most recent data, there are 1,395 
incumbent LECs, 349 CAPs, 204 IXCs, 21 OSPs, 758 payphone providers and 
541 resellers. Although it seems certain that some of these carriers 
are not independently owned and operated, or have more than 1,500 
employees, we are unable at this time to estimate with greater 
precision the number of these carriers that would qualify as small 
business concerns under SBA's definition. Consequently, we estimate 
that there are fewer than 1,395 incumbent LECs, 349 CAPs, 204 IXCs, 21 
OSPs, 758 payphone providers, and 541 resellers that may be affected by 
the decisions and rules adopted in this Order.
    26. Cellular Licensees. Neither the Commission nor the SBA has 
developed a definition of small entities applicable to cellular 
licensees. The applicable definition of small entity is the definition 
under the SBA rules applicable to radiotelephone (wireless) companies. 
This provides that a small entity is a radiotelephone company employing 
no more than 1,500 persons. According to the Bureau of the Census, only 
twelve radiotelephone firms from a total of 1,178 such firms which 
operated during 1992 had 1,000 or more employees. Even if all twelve of 
these firms were cellular telephone companies, nearly all cellular 
carriers were small businesses under the SBA's definition. In addition, 
we note that there are 1,758 cellular licenses; however, a cellular 
licensee may own several licenses. According to the most recent 
Telecommunications Industry Revenue data, 808 carriers reported that 
they were engaged in the provision of either cellular service or 
Personal Communications Service (PCS) services, which are placed 
together in the data. We do not have data specifying the number of 
these carriers that are not independently owned and operated or have 
more than 1,500 employees, and are unable at this time to estimate with 
greater precision the number of cellular service carriers that would 
qualify as small business concerns under the SBA's definition. We 
estimate that there are fewer than 808 small cellular service carriers 
that may be affected by the decisions and rules adopted in this Order.
    27. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. Phase

[[Page 16149]]

I licensing was conducted by lotteries in 1992 and 1993. There are 
approximately 1,515 such non-nationwide licensees and four nationwide 
licensees currently authorized to operate in the 220 MHz band. The 
Commission has not developed a definition of small entities 
specifically applicable to such incumbent 220 MHz Phase I licensees. To 
estimate the number of such licensees that are small businesses, we 
apply the definition under the SBA rules applicable to Radiotelephone 
Communications companies. This definition provides that a small entity 
is a radiotelephone company employing no more than 1,500 persons. 
According to the Bureau of the Census, only 12 radiotelephone firms out 
of a total of 1,178 such firms which operated during 1992 had 1,000 or 
more employees. If this general ratio continues in the context of Phase 
I 220 MHz licensees, we estimate that nearly all such licensees are 
small businesses under the SBA's definition.
    28. 220 MHz Radio Service--Phase II Licensees. The Phase II 220 MHz 
service is a new service, and is subject to spectrum auctions. In the 
220 MHz Third Report and Order, 62 FR 16004 (April 3, 1997), we adopted 
criteria for defining small and very small businesses for purposes of 
determining their eligibility for special provisions such as bidding 
credits and installment payments. We have defined a small business as 
an entity that, together with its affiliates and controlling 
principals, has average gross revenues not exceeding $15 million for 
the preceding three years. A very small business is defined as an 
entity that, together with its affiliates and controlling principals, 
has average gross revenues that are not more than $3 million for the 
preceding three years. The SBA has approved these definitions. An 
auction of Phase II licenses commenced on September 15, 1998, and 
closed on October 22, 1998. Two auctions of Phase II licenses have been 
conducted. In the first auction, nine hundred and eight (908) licenses 
were auctioned in 3 different-sized geographic areas: Three nationwide 
licenses, 30 Regional Economic Area Group Licenses, and 875 Economic 
Area (EA) Licenses. Of the 908 licenses auctioned, 693 were sold. 
Companies claiming small business status won: One of the Nationwide 
licenses, 67% of the Regional licenses, and 54% of the EA licenses. The 
second auction included 225 licenses: 216 EA licenses and 9 EAG 
licenses. Fourteen companies claiming small business status won 158 
licenses.
    29. Private and Common Carrier Paging. In the Paging Third Report 
and Order, we adopted criteria for defining small businesses and very 
small businesses for purposes of determining their eligibility for 
special provisions such as bidding credits and installment payments. We 
have defined a small business as an entity that, together with its 
affiliates and controlling principals, has average gross revenues not 
exceeding $15 million for the preceding three years. Additionally, a 
very small business is defined as an entity that, together with its 
affiliates and controlling principals, has average gross revenues that 
are not more than $3 million for the preceding three years. The SBA has 
approved these definitions. An auction of Metropolitan Economic Area 
(MEA) licenses commenced on February 24, 2000, and closed on March 2, 
2000. Of the 985 licenses auctioned, 440 were sold. Fifty-seven 
companies claiming small business status won. At present, there are 
approximately 24,000 Private-Paging site-specific licenses and 74,000 
Common Carrier Paging licenses. According to the most recent 
Telecommunications Industry Revenue data, 172 carriers reported that 
they were engaged in the provision of either paging or ``other mobile'' 
services, which are placed together in the data. We do not have data 
specifying the number of these carriers that are not independently 
owned and operated or have more than 1,500 employees, and therefore are 
unable at this time to estimate with greater precision the number of 
paging carriers that would qualify as small business concerns under the 
SBA's definition. Consequently, we estimate that there are fewer than 
172 small paging carriers that may be affected by the decisions and 
rules adopted in this Order. We estimate that the majority of private 
and common carrier paging providers would qualify as small entities 
under the SBA definition.
    30. Broadband Personal Communications Service (PCS). The broadband 
PCS spectrum is divided into six frequency designated A through F, and 
the Commission has held auctions for each block. The Commission defined 
``small entity'' for Blocks C and F as an entity that has average gross 
revenues of less than $40 million in the three previous calendar years. 
For Block F, an additional classification for ``very small business'' 
was added and is defined as an entity that, together with their 
affiliates, has average gross revenues of not more than $15 million for 
the preceding three calendar years. These regulations defining ``small 
entity'' in the context of broadband PCS auctions have been approved by 
the SBA. No small businesses within the SBA-approved definition bid 
successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40% 
of the 1,479 licenses for Blocks D, E, and F. On March 23, 1999, the 
Commission re-auctioned 347 C, D, E, and F Block licenses; there were 
48 small business winning bidders. Based on this information, we 
conclude that the number of small broadband PCS licensees will include 
the 90 winning C Block bidders and the 93 qualifying bidders in the D, 
E, and F blocks, plus the 48 winning bidders in the re-auction, for a 
total of 231 small entity PCS providers as defined by the SBA and the 
Commission's auction rules. On January 26, 2001, the Commission 
completed the auction of 422 C and F Broadband PCS licenses in Auction 
No. 35. Of the 35 winning bidders in this auction, 29 qualified as 
small or very small businesses.
    31. Narrowband PCS. To date, two auctions of narrowband PCS 
licenses have been conducted. Through these auctions, the Commission 
has awarded a total of 41 licenses, out of which 11 were obtained by 
small businesses. For purposes of the two auctions that have already 
been held, small businesses were defined as entities with average gross 
revenues for the prior three calendar years of $40 million or less. To 
ensure meaningful participation of small business entities in the 
auctions, the Commission adopted a two-tiered definition of small 
businesses in the Narrowband PCS Second Report and Order, 65 FR 35875 
(June 6, 2000). A small business is an entity that, together with 
affiliates and controlling interests, has average gross revenues for 
the three preceding years of not more than $40 million. A very small 
business is an entity that, together with affiliates and controlling 
interests, has average gross revenues for the three preceding years of 
not more than $15 million. These definitions have been approved by the 
SBA. In the future, the Commission will auction 459 licenses to serve 
MTAs and 408 response channel licenses. There is also one megahertz of 
narrowband PCS spectrum that has been held in reserve and that the 
Commission has not yet decided to release for licensing. The Commission 
cannot predict accurately the number of licenses that will be awarded 
to small entities in future auctions. However, four of the 16 winning 
bidders in the two previous narrowband PCS auctions were small 
businesses, as that term was defined

[[Page 16150]]

under the Commission's Rules. The Commission assumes, for purposes of 
this IRFA, that a large portion of the remaining narrowband PCS 
licenses will be awarded to small entities. The Commission also assumes 
that at least some small businesses will acquire narrowband PCS 
licenses by means of the Commission's partitioning and disaggregation 
rules.
    32. Rural Radiotelephone Service. The Commission has not adopted a 
definition of small entity specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio Systems (BETRS). We will use the 
SBA's definition applicable to radiotelephone companies, i.e., an 
entity employing no more than 1,500 persons. There are approximately 
1,000 licensees in the Rural Radiotelephone Service, and we estimate 
that almost all of them qualify as small entities under the SBA's 
definition.
    33. Air-Ground Radiotelephone Service. The Commission has not 
adopted a definition of small entity specific to the Air-Ground 
Radiotelephone Service. We will use the SBA's definition applicable to 
radiotelephone companies, i.e., an entity employing no more than 1,500 
persons. There are approximately 100 licensees in the Air-Ground 
Radiotelephone Service, and we estimate that almost all of them qualify 
as small under the SBA definition.
    34. Specialized Mobile Radio (SMR). Pursuant to 47 CFR 
90.814(b)(1), the Commission has defined ``small business'' for 
purposes of auctioning 900 MHz SMR licenses, 800 MHz SMR licenses for 
the upper 200 channels, and 800 MHz SMR licenses for the lower 230 
channels on the 800 MHz band, as a firm that has had average annual 
gross revenues of $15 million or less in the three preceding calendar 
years. The SBA has approved this small business size standard for the 
800 MHz and 900 MHz auctions. Sixty winning bidders for geographic area 
licenses in the 900 MHz SMR band qualified as small business under the 
$15 million size standard. The auction of the 525 800 MHz SMR 
geographic area licenses for the upper 200 channels began on October 
28, 1997, and was completed on December 8, 1997. Ten winning bidders 
for geographic area licenses for the upper 200 channels in the 800 MHz 
SMR band qualified as small businesses under the $15 million size 
standard. An auction of 800 MHz SMR geographic area licenses for the 
General Category channels began on August 16, 2000 and was completed on 
September 1, 2000. Of the 1,050 licenses offered in that auction, 1,030 
licenses were sold. Eleven winning bidders for licenses for the General 
Category channels in the 800 MHz SMR band qualified as small business 
under the $15 million size standard. In an auction completed on 
December 5, 2000, a total of 2,800 EA licenses in the lower 80 channels 
of the 800 MHz SMR service were sold. Of the 22 winning bidders, 19 
claimed small business status. In addition, there are numerous 
incumbent site-by-site SMR licenses on the 800 and 900 MHz band.
    35. We do not know how many firms provide 800 MHz or 900 MHz 
geographic area SMR service pursuant to extended implementation 
authorizations, nor how many of these providers have annual revenues of 
no more than $15 million. One firm has over $15 million in revenues. We 
assume, for purposes of this FRFA, that all of the remaining existing 
extended implementation authorizations are held by small entities, as 
that term is defined by the SBA.
    36. For geographic area licenses in the 900 MHz SMR band, there are 
60 who qualified as small entities. For the 800 MHz SMR's, 38 are small 
or very small entities.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    37. In this Order, we adopt modifications to the federal universal 
service contribution methodology that will require carriers to report 
their interstate end-user telecommunications revenues on a quarterly 
basis. In addition, carriers will continue to file annually FCC Form 
499-A reporting total interstate end-user telecommunications revenues 
from the prior calendar year, as they are currently required to do. 
Carriers will, however, no longer be required to file FCC Form 499-S. 
In order to comply with the quarterly filing requirements, it may be 
necessary for some carriers to adopt additional or accelerated 
recordkeeping procedures to report their quarterly revenues in a timely 
and accurate manner.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    38. The Commission has considered a number of proposals, both in 
the Contribution Further Notice, and in response to commenter 
suggestions for revising the existing universal service contribution 
methodology. In an effort to minimize the economic impact on all 
carriers, particularly small carriers, that are required to contribute 
to the universal service mechanisms, the Commission has taken into 
consideration the benefits of reducing the contribution interval 
against any corresponding increase in administrative burdens on 
carriers. For example, we rejected an alternative proposal that would 
have increased the number of filings that carriers are required to file 
annually to as many as 13 per year. We have concluded that the 
administrative cost of compliance on carriers, particularly smaller 
carriers, would outweigh the corresponding benefit of reducing the 
contribution interval under this proposal. We have also taken into 
consideration alternative proposals that would not have increased the 
existing reporting requirements. As discussed, these alternative 
proposals were rejected because they failed to significantly reduce the 
contribution interval or impose significant alterations to the existing 
contribution methodology that would create substantial uncertainty in 
ensuring the continued predictability and sufficiency of the universal 
service fund. Although the revised contribution methodology adopted 
herein will increase carrier filings from two to five filings per year, 
the Commission has taken into consideration the corresponding benefit 
of substantially reducing the contribution interval. As discussed, we 
believe that carriers will benefit from a specific, predictable, and 
sufficient contribution methodology that ensures that all carriers, 
including small carriers, continue to be assessed contributions in a 
competitively neutral manner.
6. Report to Congress
    39. The Commission will send a copy of this Order, including this 
FRFA, in a report to be sent to Congress pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996, see 5 U.S.C. 801(a)(1)(A). 
In addition, the Commission will send a copy of the Order, including 
FRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of the Order and FRFA (or summaries thereof) 
will also be published in the Federal Register. See 5 U.S.C. 604(b).

B. Effective Date of Final Rules

    40. Pursuant to 5 U.S.C. 553(d), the rule changes adopted herein 
shall take effect April 23, 2001.

IV. Ordering Clauses

    41. Pursuant to the authority contained in sections 4(i), 4(j), 
254, and 303(r) of the Communications Act of 1934, this Report and 
Order is adopted.

[[Page 16151]]

    42. Part 54 of the Commission's rules, is amended as set forth, 
effective April 23, 2001.
    43. The Commission's Consumer Information Bureau, Reference 
Information Center shall send a copy of this Report and Order to the 
Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects 47 CFR Part 54

    Reporting and recordkeeping requirements, Telecommunications, 
Telephone.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

Subpart H--Administration

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

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


    2. In Sec. 54.709, amend paragraph (a)(3) by revising the fourth 
sentence to read as follows:


Sec. 54.709  Computations of required contributions to universal 
service support mechanisms.

    (a) * * *
    (3) * * * Based on data submitted to the Administrator on the 
Telecommunications Reporting Worksheets, the Administrator must submit 
the total contribution base to the Common Carrier Bureau at least 
thirty (30) days before the start of each quarter. * * *
* * * * *

    3. In Sec. 54.711, amended paragraph (a) by revising the second 
sentence to read as follows:


Sec. 54.711  Contributor reporting requirements.

    (a) * * * The Telecommunications Reporting Worksheet sets forth 
information that the contributor must submit to the Administrator on a 
quarterly and annual basis. * * *
* * * * *
[FR Doc. 01-7231 Filed 3-22-01; 8:45 am]
BILLING CODE 6712-01-P